Wall Street will focus almost unanimously this week on the Federal Reserve, which will announce its latest interest rate decision at 2 a.m. Beijing time on November 4. Fed Chairman Jerome Powell will hold a press conference. Markets and analysts generally expect the Fed to announce its decision to scale back its purchases at the meeting. Furthermore, the Fed's $120 billion-a-month bond purchases that began last March (including about $80 billion in U.S. Treasury bonds and $40 billion in mortgage-backed securities) will be halted, which means that the Fed's 20-month dollar monetary move may transition from flooding to future drought.
Another new development is that Reuters reported on November 1 that Goldman Sachs has advanced its forecast for the first U.S. interest rate hike after the pandemic to July 2022, as the investment bank expects inflation to remain high. Jan Hatzius, chief economist at Goldman Sachs, said: "The main reason we changed our lift-off forecast is that we now expect core PCE inflation to remain above 3% and core CPI inflation to remain above 4%. Goldman Sachs also expects a second rate hike in November 2022 and two hikes a year thereafter. This further supports the Fed's expectations of monetary tightening, which appear to be based on the declining position of the dollar's reserves.
According to the latest data from the International Monetary Fund, the share of the US dollar in countries' foreign reserves has fallen continuously to the current 59.2%, falling to the lowest value in 25 years. The accompanying phenomenon is that the World Gold Council released the "Global Gold Demand Trend Report" for the third quarter of 2021, showing that the global central bank bought 69 tons of gold in the third quarter of this year. Global central bank net purchases so far in 2021 are approaching 400 tonnes (393 tonnes). Many central banks, including Russia, Turkey, India, Hungary, Poland, are constantly replacing the dollar with gold reserves, and even Russia, Turkey has long been close to selling the core asset of the US dollar, us treasuries.
At the same time, many central banks have paid more attention to gold deposited in the Fed's vault since the mid-1940s. The Fed's latest report, released three weeks ago, shows that the amount of gold the Fed holds for the world's central banks has fallen to a new low of 5738.15 tons, which is 1262 tons less than the about 7000 tons of gold previously managed. This means that 1262 tons of gold have been shipped out of the United States by many central banks.
So far, at least 15 countries in Germany, the Netherlands, Italy, France, Turkey, Hungary, Russia, Slovakia, Austria, Romania, Poland, Australia, Belgium, Switzerland, and Venezuela have announced that some or plan to ship back gold reserves stored in overseas vaults such as the United States. However, this process has not been smooth, and the Fed's cooperation is far-fetched.
A freighter was filled with boxes of gold
For example, when the central banks of Germany and Venezuela, after shipping back some of the gold, proposed to ship back the remaining gold a few weeks ago, they were suddenly officially blocked by the Federal Reserve on the grounds that the intention was unclear, which not only surprised the Venezuelan central bank, but also the German central bank was inexplicably frustrated by the gold shipment. Because the Fed has been responsible for the management of gold reserves in at least 60 central banks around the world for many years, the ownership of this gold is also very clear. The analysis believes that or is aware of the risk of the decline in the status of the dollar's reserves, so the Fed seems to want to hold on to these gold.
As a result, some skeptics believe that the Fed may have concerns about embezzlement and misappropriation of gold. This also made the Bundesbank think for the first time that as early as 2012, the volume of each gold bar had changed in the part of the gold bars it shipped back from the Federal Reserve. Although the Bundesbank has been tight-lipped about this, it insists on shipping back all the gold.
A plane carrying gold
It is worth mentioning that for the gold reserves deposited by many central banks, the Russian finance minister warned the Federal Reserve a few weeks ago, "If our gold reserves are confiscated, even if there is such an idea, it will be regarded as financial terrorism and financial declaration of war." This means that Russia has publicly warned the Fed that if it embezzles gold, it needs to return it in full, otherwise it may face serious consequences.
The analysis believes that in the case of a serious decline in the share of dollar reserves and a high level of US economic debt, the Fed does not have the courage to play with the US debt and the credit of the US dollar. In particular, when multiple countries want to ship back gold at the same time, the Fed will be caught off guard, so it has no right or dare to prevent many countries from shipping back their own gold reserves. For European countries such as Germany, the reason for the rush to ship back gold is also related to the layout of its foreign exchange reserves, in Germany's foreign exchange reserves, about 70% are gold reserves, and the proportion of gold reserves of many eurozone countries in the share of foreign exchange reserves is very high.
Meanwhile, as of Nov. 1, total U.S. federal debt was approaching a record level of $29 trillion. Especially in the context of the Fed's monetary tightening expectations, and soon or will shrink the purchase of debt, the US Treasury department has repeatedly hinted that the US economy is inseparable from debt, and once it leaves the debt, it will soon run out of funds. And since last year, it has been constantly hinted that it may be considering the issuance of 100-year TREASURY bonds. Clearly, the U.S. economy will continue to issue U.S. treasuries around the world to hedge against the risk of large deficits.
In response, Wall Street commodity king, billionaire Jim. Rogers has warned more than once that the United States is saddled with the world's most debt, with every penny and every banknote in debt, and that initiative is in the hands of major buyers in many of the world's central banks. Based on this analysis, the Fed also has no right, and it does not dare to prevent many countries, especially the main holders of US bonds, from shipping back gold. Otherwise, the U.S. debt economic model may be unsustainable.
The US financial website Zerohedge quoted expert analysis as saying that with the decline in the attractiveness of US debt, it is not excluded that some major buyers will sell more sharply, and even there is or will be the possibility of clearing us debt. In response, Fox Commercial Television host Stuart Varney pointed out that the United States has never broken the contract on debt. If we do, who will lend us the money again? This further explains why the Fed, while the US economy cannot rely on US debt, the Fed maintains the security of multinational gold reserves and does not dare and has no right to prevent many countries, including China, from shipping gold back.
A new change is that, according to the latest international capital flows report released by the U.S. Treasury Department on October 19 (official U.S. Treasury data will have a two-month delay practice), China began to significantly reduce its holdings of 21.3 billion U.S. Bonds in August, bringing its holdings to $1.05 trillion, the lowest since 2010. Data shows that China netly reduced its holdings of a total of $53.6 billion in US Treasuries in five of the six months from March to August this year.
It is worth mentioning that the Fed manages a large number of gold reserves around the world, but it is still powerless to prevent another recent change in the global gold market. Zerohedge also recently reported that thousands of tonnes of gold may have arrived in the Chinese market since some acquisition figures have not been reported to the International Monetary Fund or the World Gold Council. (End)