Costco Gold Rush Triggers New Wave of Mainstream Demand
From Peter Reagan at Birch Gold Group
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: The Costco gold rush, the indebted legacy of the modern statesman and unpacking IMF data surrounding the U.S. dollar’s global forex share.
What we learned from Costco’s foray into gold bullion
Last week, we covered State Street’s survey which showed that the Western investor remains very unaware of gold. Can that really be true, we wondered, after the last few years? Considering gold’s historical track record and the unique benefits of physical gold ownership?
The latest interest in Costco gold suggests that it can. When reports came out that Costco began offering one-ounce gold bars, many didn’t believe it. Costco’s CFO Richard Galanti explains:
I’ve gotten a couple of calls that people have seen online that we’ve been selling one-ounce gold bars. Yes, but when we load them on the site, they’re typically gone within a few hours and we limit two per member.
Part of the disbelief was simply the speed at which Costco ran out of stock. They weren’t able to meet customer demand for more than a couple of hours before selling out and removing gold bars from their online store.
The offering itself was nothing particularly exotic: 1 oz gold bars from South Africa’s Rand Refinery, or the fancier Lady Fortuna design from PAMP Suisse. But not only have they sold out almost immediately, there are now online reviews of these bars by novice investors absolutely thrilled with their purchases (average 4.9-star reviews on both products). Many have even complained about the difficulty in actually purchasing these gold bars on Costco’s website – they just sell out so quickly.
This sort of raises some interesting questions. After all, a large part of State Street’s respondents said they didn’t really know how to buy gold safely. And those were experienced investors!
Are a lot of would-be gold investors truly unaware that they can diversify with real, physical gold at any time, day or night? That Birch Gold offers a huge variety of bullion from around the world and (almost) never runs out of stock?
Granted, there’s a difference in customer mindset. Birch Gold is not where you go to buy groceries and end up with an 85” smart TV, a throw rug and a couple of gold bars in your shopping cart. We don’t believe diversifying your savings should be an impulse decision.
It looks like State Street was right, though, and Americans are eager to diversify their savings with physical gold bullion. Good for them. What’s next? American buffalo gold coins stocked beside candy bars at the grocery store?
Listen: I’m in favor of anything that makes physical gold bullion more accessible to the people who want it. We’ll continue to stand by our insistence on education first.
No matter how many gold bars Costco sells, don’t expect to see a Birch Gold kiosk at your local mall.
Long after we’ve forgotten today’s politicians, the debt they racked up will haunt us
As usual, Egon von Greyerz pulls no punches in his latest analysis. The renowned money manager has all but written off on the collapse of the U.S. empire. For future historians, he says, it will only be a matter of pinpointing how long this empire lasted.
He finds 1913, the year when the Federal Reserve opened shop, as good as any starting point for a collapse. But von Greyerz is neither overly attached to that date nor assuming the collapse will be limited to the U.S. As he puts it:
…we are coming to an end of a major economic and cultural cycle.
Only future historians will know if this is a 100, 300 or 2000 year cycle. If I ventured a guess, I would have thought that it could be a very long cycle like 2000 years.
He likens the current state of society to the twilight of Ancient Rome, and there are many parallels indeed. The main difference appears to be that the Romans had to put effort into debasing their money. Smelting can be tedious, after all, and cutting down on the gold and silver in official coins is time-consuming. The central banker of the paper money age has no such burden. At the mere press of a button, billions or trillions in new money can flood the economy.
As he points out that the U.S. has had less than 10 years of surplus in the last 110 years, he arrives to what can be considered the core of the issue with a question. What will modern statesmen, like Biden, Sunak, Macron, Scholz, or Meloni, be remembered by compared to their historical counterparts?
It’s telling that you probably only recognize Biden and Macron on that list in present day. Theirs will be a legacy of debt, says von Greyerz, of the most unsustainable kind. von Greyerz’ own data collection brings him to believe that derivatives and liabilities of governments, including shadow markets, amount to $2 to $3 quadrillion. These are supported by $2 trillion of gold, or a sound money allocation of 0.06%.
von Greyerz’ previous debt forecasts have been accurate, so we have to worry that they are now as well. He says U.S. debt will reach $40 trillion by 2025 and $100 trillion by 2036. In the latter case, interest payments and budget deficit will climb to $10 trillion. Of course, we are going to be picking up the tab one way or another.
Even if von Greyerz’s expectations of gold reassuming its historic role as money don’t materialize, physical precious metals remain the best protections against monetary debasement and the subsequent spiral of inflation. In the middle of turbulence and after the dust has settled, those who own it will retain wealth.
Those who don’t will have to endure the tough times as best they can.
A look at trends in global dollar demand
The IMF released some data covering the share of forex currencies in the portfolios of various central banks. The U.S. dollar story is the most important here, but the yen part can be seen as almost as interesting.
Michael Langham, emerging markets analyst at abrdn, said that there is a lot of risk tolerance when it comes to the U.S. dollar in foreign portfolios. But we have to wonder if that is true. The data showed that the U.S. dollar’s share was unchanged in Q2 from Q1.
Yet the U.S. dollar has had two of the strongest quarters it could hope for, pressuring gold over and over as the metal hits ATHs in other currencies. The U.S. dollar index just hit another high last week. If we had to guess, Q3 data will either be flat or reveal a lower dollar allocation.
In other words, nobody in the official sector seems to be buying the U.S. dollar’s strength. To paraphrase Ron Paul, a “strong” dollar simply makes it the slowest loser.
What central banks worldwide are buying is gold. Gold bullion by the ton (and not from Costco).
It’s strange that there are no buyers for the dollar, considering it’s had multiple peak quarters recently. On the other hand, that’s not exactly unexpected considering the global popularity of de-dollarization.
The yen story is interesting, for another reason. Another analysis on King World News says that the yen is being destroyed, which its gold chart demonstrates. What’s to blame? Maybe decades of quantitative easing (“money-printing” to my non-economist readers)?
Despite this, the yen’s global forex share only lost 0.1% between the first and second quarters. We often talk how all factors in any given market have to give way to sentiment, and that seems to be playing out here. Just as central banks and investors refuse to view the U.S. dollar’s strength as anything but temporary and unsustainable, so too do they seem reluctant to admit that the Japanese yen can no longer be called a safe-haven currency.
Objectively, the U.S. dollar’s weakness isn’t to be mentioned in the same sentence as that of the yen. But Langham does acknowledge that there has been a 10% drop in the U.S. dollar allocation over the last 20 years. Central banks generally move slowly, but unstoppably – like glaciers. Momentum takes decades to build but once they’re headed in a direction, almost nothing can stop them.2023, Featured, gold as investment, gold demand, us dollar