➡ Some experts suggest that central banks should sell their gold, arguing it’s overvalued and doesn’t yield profits. However, this view is challenged by others who believe that central banks hold gold not as an investment, but as a safety measure and a hedge against economic instability. They argue that gold is being re-monetized and is considered a high-quality liquid asset, making it a crucial part of central banks’ reserves. Therefore, the idea of central banks selling gold is seen as nonsensical and potentially harmful to their role as stewards of their economies.
➡ Vince discussed the volatility of the precious metals market and the potential impact of the London situation and India’s reopening on metal demand. He also mentioned Fortuna Mining’s successful preliminary economic assessment of their Diamisud gold project, which predicts a high return rate and a net value of $563 million. The company plans to produce 147,000 ounces of gold per year at a cost of $904 per ounce, and they are in a strong financial position with over half a billion dollars in liquidity. They expect to extend the life of the Diamisud mine for over a decade with continued exploration success.

Why central banks should sell gold is nonsense. Some analysts are now arguing that central banks should dump gold. They say the metal is overvalued, that it doesn’t yield, and that it’s time to take profits. The Financial Times even went so far as to say no central bank should quote invest in a single commodity. Welcome to the Morning Markets and Metals with Vince Lancey, where each morning Vince brings you the financial and precious metals news to get you ready for your day. And now, here’s Vince. Good morning, everyone. I’m Vince Lancey, and this is the Gold Fix Market Rundown.

It is Friday, thank goodness. Everyone needs a break, even from a good week. 807, there’s the front page of particular interest is the Eric Young conversation. I wouldn’t call it an interview. It’s basically to market nut jobs obsessing about gold and silver, what we’ll say at the LBMA. And we’re going to talk today about the lower right hand corner there, why central banks should sell gold. That’s a paraphrase of multiple places. One of them being the FT is complete nonsense. They need to buy more, and even if they don’t, it’s complete nonsense.

All right, let’s read the markets first. Ten year yields are up two at 399, under 4%. The dollar is 9837, up three, the S&P 500 or 6625, up six. The NASDAQ is 24, 611, up 32. The VIX is down one and a quarter. At 2403, gold is down 22 bucks. Was down 40 and some odd bucks hours ago. Actually, probably less than an hour ago. It’s trading 4304 right now. Silver, 5342, down 75. Copper, 491, down a penny. WTI, 5763, up 21. Natural gas, unchanged bid. Bitcoin, again, getting hit, down 2 grand, 105 and change.

You can tell my tone of voice that I’m long it. Ethereum, 3787 down 106, long that too. Platinum and Palladium are both down 62 and 44. Palladium, 62. Platinum, 40, 43, 44. Gold, silver, up in the 80 area. Soybeans, grains all pretty much uniformly bid. That’s a sign that funds are buying them. Okay, so if you’re looking at that whole thing there, there are a lot of moving parts coming on right now. Lack of data, ways on the market, makes people more impulsive with their behavior. Slow down in rare earth bullishness as more conciliatory tone comes out of the White House or at least out of the Treasury Department’s office towards China.

Maybe we’re going to cop and that’ll make the rare earth stocks sell off. That will be hopefully bullish for stocks. I mean, we’re unchanged to higher depending on how you look at it. And it certainly shouldn’t be bullish for gold. On top of that, gold had its margins raised by the US and China almost simultaneously, which would suggest if you’re looking at this from a Chinese, they should run us in. They’re not going to do that. Over the years, China has been relentlessly and probably correctly accused of being a currency manipulator by the US in conversation with the World Trade Order, World Bank, and they’ve had to refute that.

They’ve been buying for 15 years. They’re not running a short con here, okay? They’re not spoofing the market to get out five dollars higher. They want to show the world they’re responsible on the stage. And they’re going to raise margins too right now. You’ll notice that over the last three or four sessions, if you’re looking at this over time zones, there’s been some buying, but China has been a seller. Silver is leaving the Chinese vaults even though gold is going into it. That’s another conversation. That’s silver leaving the Chinese vaults presumably is being leased or sent to London to make them haul.

Again, good player on the world stage, just as metal is leaving the US and going to London, but there’s not enough metal. It’s more than it’s not a squeeze. It’s a venue squeeze. All right, so anyway, where were we? Okay, we sent a post out this morning to subscribers titled Why Central Banks Should Sell Gold is Nonsense. Allow us to explain why. Some analysts are now arguing that central banks should dump gold. They say the metal is overvalued, that it doesn’t yield, and that it’s time to take profits. The Financial Times even went so far as to say no central bank should quote invest in a single commodity.

I think they mean as opposed to multiple commodities. That’s my presumption. But that completely misreads what central banks are actually doing. As Bank of America and Goldman Sachs have both noted, many central banks are still well below their own target gold allocations. Most only resumed buying two years ago after spending a decade watching their dollar exposure rise. With reserves still far below where they want them, the incentive is to keep accumulating gold, not selling. Let me get a little bit. Let me, this is just, it’s ridiculous. Okay, let’s be clear. Central banks don’t invest.

They don’t chase returns. They don’t dump or get out or liquidate. They hold, they own, they manage a sovereign entity’s risk. Investors seek yield. Central banks seek safety and stability. The idea that they should behave like portfolio managers is simply wrong. Then there’s that phrase, a single commodity. That’s another misunderstanding. If gold were truly just a commodity, something consumed, burned up, or irretrievably lost, it would make no sense for a central bank to hold it at all. Gold isn’t like that. Gold is money. It’s unless it’s useless for anything else. And precisely because it’s useless, it’s permanent.

That’s what makes it a reserve asset. The question is to the FT, what other commodity would they have central banks diversify into if it is too much in only one commodity oil, wheat. It’s irresponsible. Maybe silver. I would say to you as a silver bug, it’s irresponsible for central bank to own silver because it’s industrial in use. Central banks are not holding gold as a commodity. They’re holding gold as a store of value that’s priced in dollars. That’s not consumed. That’s the hedge against all fear. So let’s move out of the abstraction here for a second.

When countries talk about de-dollarizing, when they want to hold something other than US dollars or US treasuries, which give birth to US dollars, what are they buying? Gold. Gold is the collateral that the world is returning to just as it did before the fiat experiment began. To suggest central banks should sell gold is absurd on several fronts. First, as I said, they don’t invest in anything. Second, gold isn’t treated as a commodity. It’s being re-monetized. That’s why it’s been reclassified from tier three to tier one. That’s why foreign central banks are building vaults and buying more.

And that’s why it’s now be considered as a high quality liquid asset under bank regulations. Now it’s not HQLA yet, but it’s being discussed that way in Europe. So where’s this coming from? After 15 years of being net sellers, and that wasn’t wrong. It took years of deliberate policy to turn that aircraft carrier around, to make them steady long-term buyers again. The key is long-term. To reverse course now would be reckless. It would turn them from stewards of their economies into traders. And no one wants a trading central bank. Finally, remember what’s driving this entire movement.

The need for a hedge against debasement risk. That’s what this is all about. Gold isn’t a trade. It’s insurance because your next door neighbor, their fire, their house went on fire. When your next door neighbor’s house goes on fire, you don’t sell your own fire insurance. Gold is insurance. This all continues in the premium post. Why central banks should sell gold is nonsense. And by the way, we have the math on that. The math is bank of America. Two months ago, bank of America said central banks, we believe central banks optimally should have about 30% of their assets in gold.

Why? Because they’re going to be trading globally using gold as collateral. Watch. It’s going to happen. Someone’s going to say, I want you to have some gold in your portfolio if we’re going to be using that as reserve asset. Maybe I’m wrong, but it’s irresponsible to suggest otherwise. It smells like a London gold pool scheme. Related post, Michael Oliver’s eye-popping silver observation, Eric Young. You could see all those ones there. Wow, perfect storm, perfect day. A little bit of hype there by me, but there’s a dry, there’s a very dry explanatory recap.

The world myth is running out of coins, blanks, a little bit of a fear, FOMO. It’s not FOMO, it’s fear. It’s fearmo, if you can call it that. Founders AM and China trade war, highly unlikely Xi blinks first. I want to clarify on this. Both sides want to blink, but it’s highly unlikely Xi blinks first. That’s from TSL, Worry Green, who’s a China analyst, and we are very enamored with his work. In case you missed it, are you ready for $144 silver and $9 copper? Those are our cases. And peak China silver, that’s last year’s 2023’s initial thesis into why silver is going to go up.

Friday, housing starts September. I don’t know if that’s going to come out. It’s not obvious to me now. Anyway, I’m not going to go into the charts today. I’m my exposure, respectively. I put something on a little bit yesterday in silver, but of course, that’s losing money today. The market should be volatile, right? So margin raises will do their work. You want to get the hot money out. Nothing wrong here. Hopefully, we’ll see you coming when it comes. I’m Vince. Have a great day. Well, thank you, Vincent, as always, for leading the team through another exciting, inspiring, sometimes terrifying week in the precious metals markets.

But another bit of history we’ve been seeing this week, and hopefully, you’ve all been having fun, watching, and following along at home. Going to be interesting to see what happens with this London situation, especially with the spread narrowing over the past couple of days. Will that be sufficient to incentivize metal back over to London? Going to be exciting. Will India have enough metal when they open up? Will that pent up demand in India? I mean, they were already buying in a bit of a frenzy over the last month or so at a time when the price was already into record territory, getting towards record territory.

And India traditionally a price sensitive buyer and kind of a mania going on and you tell them, oh, well, now you can’t have it. Curious to see what demand is like there as they open back up and a whole bunch of other things that we will cover as we continue on this year here on the Arcadia economics channel. And real quick, before we wrap up, didn’t want to pass along some positive news from our proud sponsor for tuna mining because they just announced this week that they have completed their preliminary economic assessment at their Diamisud gold project, which came back with an after-tax internal rate of return of 72% and a net present value of $563 million using a $2750 gold price.

And that’s something that Jorge has mentioned, how they were regressing towards getting the PEA completed in the fourth quarter, which they’ve now done. And in here in this press release mentions how they are on track for the construction decision in the first half of next year. And some of the details that they put on here is that during the first three years of production, they’d be expected to deliver 147,000 ounces of gold per year and an all in sustaining cost of $904 per ounce. Capital construction estimated at $283.2 billion, although fortunately, as we’ve talked about on the show for tuna, with a strong liquidity position right now, over half a billion dollars at $537.3 million and a net cash position of $214 million might also mention that they do have five drill rigs still going.

They’ve been drilling out there all year and Jorge mentions here that with continued exploration success, they expect to be able to enhance the life of mine at Diamisud for over a decade, which would certainly be incredible if we have traces anywhere near the current level, let alone if they go higher. And anyway, that is the news from Kortuna. Obviously, they’ve been doing quite well in the midst of the gold rally and also some of the steps they’ve taken to keep their own costs down while the gold is rallying. So they keep that margin wide.

So anyway, that is the news from Kortuna. And in case you missed our last call with Jorge, well, that one’s coming your way right now. [tr:trw].

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