Ukraine Crisis Will Hurt the U.S. Dollar: Peter Schiff

Russia’s invasion of Ukraine can ultimately hurt the dollar, says Peter Schiff, CEO of Euro Pacific Capital.

Until now, the markets have been immune to the crisis in Ukraine and other current, major conflicts around the world. But these conflicts can influence the Federal Reserve, according to Schiff.

“The real deal is the Federal Reserve,” he told Yahoo Finance, “we do have a difficult international situation that may give the Fed the excuse that it needs to postpone the taper and rate increases. That’s what the market wants. That’s what’s driving this market. That’s the only thing driving this market.”

The situation in Ukraine is volatile and highly unpredictable, but historically markets didn’t care much about geopolitics. Markets do get spooked by geopolitics on occasion, but they typically recovered quickly.

Schiff is more concerned about America’s reaction to Ukrainian crisis than the crisis itself. He says that he had expected the dollar to fall for some time. “We’re flexing a lot of muscle we don’t have,” he added, “and we’re irritating people we need to be sucking up to. America depends on its ability to export dollars to import all the things we don’t produce.”

"We're creating extra incentive for people to move away from the dollar," Schiff said.  "That could ultimately be the biggest problem for the market. A big drop in the dollar and acceleration of inflation would put pressure on the Fed to raise rates."

Peter Schiff famously made predictions about the crash of 2008, 2009.

“The people that were ridiculing me back then are still ridiculing me,” he told Birch Gold Group, “because I’m still warning that the real crisis hasn’t even happened yet. Because everything that the Federal Reserve has done, everything that the government has done since the financial crisis of ’08 has just made the problems that they were trying to solve worse. Problems that they caused.”

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Sources:

Russia’s invasion of Ukraine threatens the dollar: Peter Schiff

Peter Schiff Exclusive Interview: On The Dollar Crisis, Federal Reserve And Future For Gold Prices

Image by the Prime Minister of the Russian Federation

Russia keeps buying gold and Chinese yuan, which may hurt the dollar

Russia is taking measures to protect itself against future sanctions from the European Union and the United States, says RT news.

The Russian Central Bank’s response to the rising pressure from Western economic sanctions has been to increase gold reserves and diversify away from the dollar and euro. Currently Moscow controls the world’s 5th largest foreign exchange reserves and the 6th largest gold reserves.

To protect itself from risks involving U.S. dollars and euros, in light of the ongoing crisis in Ukraine, Russia has cut its foreign currency reserves by 2.5 percent in the first half of 2014.

Rather than buying euros and dollars, the Russian central bank is now increasing bilateral currency swaps with China and other strategic trade partners. China’s central bank has agreed last week to increase currency swaps with Russia’s central bank.

Ebbing dominance of the U.S. dollar has worsened since the global financial crisis, and Russia’s measures to deal with the Western sanctions may accelerate its demise as the world’s reserve currency.

Global reserves of U.S. dollars has shrunk to under 61 percent from the 72 percent in 2001, according to Bloomberg, and since the global financial crisis Russia and other big emerging economies have promised to use their own currencies to conduct business.

Sources:

Russia seeks safe haven in gold, away from dollar and euro

Russia Sanctions Accelerate Risk to Dollar Dominance

Image by Prime Minister of Russian Federation

10 Countries with Largest Gold Reserves

See the ten countries with the biggest gold holdings according to a latest report by the World Gold Council. 

The World Gold Council, an association whose 21 members comprise the world’s leading gold mining companies has published its latest report on world gold reserves – gold held by national central banks around the world as a guarantee to redeem promises or secure a currency.

The International Monetary Fund maintains statistics of national central bank assets, and the same data is used by the World Gold Council to report official gold holdings of various countries and organizations. Gold reported by a country is not necessarily stored there.

Latest numbers on the World Gold Council’s table are from August 2014.

Below are the ten countries with the largest gold reserves in tonnes:

10. India

Official gold holdings:
557.7

Percent of foreign reserves in gold:
7.3%

9. Netherlands

Official gold holdings:
612.5

Percent of foreign reserves in gold:
54.3%

8. Japan

Official gold holdings:
765.2

Percent of foreign reserves in gold:
2.5%

7. Switzerland

Official gold holdings
1,040.0

Percent of foreign reserves in gold
8.0%

6. China

Official gold holdings:
1,054.1

Percent of foreign reserves in gold:
1.1%

5. Russia

Official gold holdings:
1,094.7

Percent of foreign reserves in gold:
9.7%

4. France

Official gold holdings:
2,435.4

Percent of foreign reserves in gold:
65.1%

3. Italy

Official gold holdings:
2,451.8

Percent of foreign reserves in gold:
67.0%

2. Germany

Official gold holdings:
3,384.2

Percent of foreign reserves in gold:
68.4%

1. United States<

Official gold holdings:
8,133.5

Percent of foreign reserves in gold:
71.9%

If the International Monetary Fund (IMF) was a country, it would be right behind Germany as the third largest holder of gold reserves – IMF holds 2,814.0 tonnes of gold.

Sources:

The World Gold Council

Wikipedia

Image by Rob Lavinsky

Argentina and 10 More Countries Near Bankruptcy

Argentina defaults on its debt. Ten more countries are near bankruptcy.

The third-largest Latin American economy Argentina failed to make scheduled payments on its government bonds at the end of July. Credit agency Moody's Investors Service reported a spike in Argentina’s one-year Sovereign EDF (Expected Default Frequency) to 48% in one week. “Amid increasing concerns that Argentina’s default will exacerbate its ongoing recession, the country has the highest one-year probability of default of any of the 84 sovereign entities in our data set,” says the report. 

Argentina failed to come to an agreement with its creditors and reached the end of a 30-day grace period to make good on its payments. As a result, Moody affirmed Argentina’s Caa1 issuer rating and changed the country’s outlook to Negative from Stable, as its rival agency S&P downgraded the country to SD from CCC rating. A Caa1 rating is well below the first level of bad rating Ba1, which already indicates a significant credit risk. An SD, in the S&P scale, is next to worst.

Ten other countries listed by Moody have a rating of Caa1 or worse - that is, they too are at risk of default. Each of these nations has its own unique problems. Ukraine, for example, was downgraded because of political instability, while Belize had its credit rating upgraded in recent years because of improved economic conditions.

Before the default, the gold market seemed to ignore Argentina, but the future is very uncertain given the crisis in Ukraine, the Russian sanctions, and the Middle East crisis. Perhaps a safe-haven bid for the gold market is on its way.

Here’s the list of countries with a bad credit rating in the Moody scale:

Argentina
Moody's credit rating: Caa1; Moody's outlook: Negative

Belize
Moody's credit rating: Caa2

Cuba
Moody's credit rating: Caa2

Cyprus
Moody's credit rating: Caa3

Ecuador
Moody's credit rating: Caa1

Egypt
Moody's credit rating: Caa1

Greece
Moody's credit rating: Caa3

Jamaica
Moody's credit rating: Caa3

Pakistan
Moody's credit rating: Caa1

Ukraine
Moody's credit rating: Caa3

Venezuela
Moody's credit rating: Caa1


Article sources:

USA Today article

Moody report

Image by KenWalker

Gold-Mining Stock Performance Signal Gains for Gold Prices

Gold mining stocks have been outperforming the metal which is a good sign of future gains for gold. 

This year gold mining stocks have regained their value of 2013 and for the first time in years are outperforming gold, bringing nearly double the gains seen in gold prices. 

It’s good news for both bullion and equities since price increases in bullion tend to follow those of stocks. 

The Philadelphia Gold and Silver Index has gained 21% this year after a loss of 49% last year. The NYSE Arca Gold BUGS Index, which lost 56% last year, went up 22% percent year-to-date.

Bullion, on the other hand, had climbed 11% year-to-date, after last year’s loss of 28%.

Photo: NYSE (HUI) Gold Bugs – 1 Year

“The gold stocks typically begin rising or falling in advance of the metal, thereby foreshadowing the trend,” said Brien Lundin, editor of Gold Newsletter. “They move further on a percentage basis than the underlying metal, thereby offering leverage.” He also said that “the fact that the gold stocks are outperforming gold so far this year is a very bullish indicator for gold itself.”

Sources:

Gold stock rally ‘foreshadows a trend’ for the metal

Gold mining stocks are beating bullion - Holmes