Gold Surges to Top of U.S. Import List

The list of imports into the U.S. was shaken up in May, with gold surging 1,700% from 2019 to now stand at the top import. Here's what's behind the change.

Released last week, the Census Bureau's much-anticipated report lived up to expectations, if only in terms of impact. Perhaps the most shocking number in the report pertained to U.S. trade data, revealing that April's 20.91% year-to-date plunge in trade was followed by a 29.83% plunge in May. There were upsides, too, such as the government's announcement that it posted 4.8 million jobs in June and signs that the domestic trade deficit is shrinking.

Yet whatever the upsides seem to be, Forbes contributor Ken Roberts believes that a closer look into the trade data reveals some major red flags that are likely being overlooked. As Roberts notes, U.S. exports made up for only 36% of overall U.S. trade in May, which might be the lowest export-to-import ratio on record. As Roberts explains, the trade deficit doesn't paint an accurate-enough picture of the economy, and it appears to be masking one of the biggest monthly falls in exports relative to imports ever.

The curiosities related to the trade data don't stop there, though, as an overview of the goods that are being brought in has made international trade look closer to a portfolio reassessment. Normally, computers are the top U.S. import, with passenger vehicles not trailing too far off. In May, however, imports of foreign vehicles fell by a massive 76.88% compared to the same month last year. 

Meanwhile, gold replaced computers as the top U.S. import for the month, with the value of gold imports increasing some 1,700% compared to the previous months of May.

These numbers somewhat tie into both the intense demand for physical gold in recent months and supply shortages in key places. As Switzerland, a top gold processor and exporter, all but closed up shop due to safety precautions, worries over supply escalated. What started as a supply concern among bullion buyers soon translated to questions over whether there would be enough physical gold to cover the metal's derivatives.

But even the well-documented scramble to obtain bullion by virtually every party over the past few months might not have prepared analysts for the import figures. $3.07 tons of gold were brought into the U.S. in March, followed by $7.54 billion in April and $8.77 billion in May. In the past decade, monthly gold imports into the U.S. exceeded $2 billion on just three occasions. Furthermore, the combined bullion imports between March and May eclipsed 2016's annual figure, which was the highest on record.

The Drivers Helping Gold Stay Above its Six-Year High

There's more than meets the eye when it comes to gold's recent performance.

Last Wednesday, the Federal Reserve met market expectations by cutting interest rates for the first time since 2008. The 25-basis-point cut was priced in for much of July after the Fed shifted its monetary policy and, while definitely supportive of gold prices, did little to change the metal's upwards trajectory. Gold is still hovering near six-year highs, having ended the last trading session at $1,443 an ounce.

Although Fed Chair Jerome Powell left open the possibility of more rate cuts later this year to support the economy, an article on Newsmax reports that there are many other drivers pushing gold towards its third straight month of gains.

The metal's haven appeal has taken center stage amid widespread concerns over global growth and fears over a possible recession. According to a gauge by the Fed Bank of New York, the risk of a U.S. recession happening in the next 12 months is at its highest since 2008. The International Monetary Fund (IMF) once again reduced its growth outlook, already the lowest since the financial crisis, and added that things are unlikely to change in 2020.

Various global economies are playing their part in the IMF's grim outlook as each suffers its own industrial slowdown. Singapore, which boasted a prosperous economy not too long ago, now faces the risk of a recession as its exports fade. Shrinking factory output in countries like Germany and France also points to weaker growth in Europe in the near future, backed by the European Central Bank's own slashing of the growth forecast. China's economy has also found itself on shaky grounds due to increased pressure on its exporters.

Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, recently told Bloomberg that countries worldwide are in the midst of a cyclical downturn in industrial growth. Achuthan expects this downturn to continue, adding that Powell had previously alluded to deeper problems holding the global economy back.

Besides recessionary concerns, gold has received plenty of support from wary buyers as a new crisis appears to flare up on a weekly basis states Newsmax. The long-standing trade dispute between the U.S. and China is now looking to envelop several other nations as well. Brexit remains an issue to be resolved three years after its vote was passed, and tensions in Hong Kong and over the Strait of Hormuz have also given investors pause.

James Steel, chief precious metals analyst at HSBC Securities, said that investors are turning to gold due to its liquidity and independence from any government, particularly during a time of mounting global debt and less appealing bond choices. Large speculators are once again bullish on gold's long-term outlook, having recently boosted their positions to their highest since September 2017. In a post published last month, billionaire investor and founder of Bridgewater Associates Ray Dalio spoke about a global economic paradigm shift that will include depreciating currencies and international conflict. Dalio added that gold and other precious metals will continue being outperformers in this new environment.

Amid Global Economic Concerns, World Returns to Gold

Dr. Makhdoomi states when people loose faith in a government, the solution is precious metals.

Despite the outwards appearance of stability, the global economy runs on an inflationary system that confines it to an endless cycle of crashes and reboots. And, according to Greater Kashmir's Dr. Makhdoomi, the world's economic woes can be traced to the abandonment of the gold standard, albeit much earlier than the Nixon Shock in 1971.

Two and a half millennia ago, the government of Athens used a sound economic system with a set currency value based on physical gold writes Greater Kashmir. Yet wartime expenses drove the government to inflate its bullion reserves by minting coins of a lesser purity. With the addition of copper, 1,000 gold coins became 2,000 and the government had enough leeway to fund its ventures, even at the cost of currency stability.

As simple as it might seem, the very same method of funds creation is used today by governments around the world at a much larger scale. As Makhdoomi explains, any spending done by a modern government is done in the red, as no sovereign country operates without a budget deficit. When a central bank needs more money, the solution is to simply print new currency and worry about the inflationary consequences later. According to the article, the problem is exacerbated by the issuing of government bonds, which create more money out of thin air.

Makhdoomi points out that, when given enough false assurances, the people can and will lose faith in a government. When they do, he says the solution is always to rush back to precious metals as a way of preventing wealth erosion amid increasingly questionable central banking practices.

Consumers have come to equate money with currency, even though the latter has no intrinsic value and is merely a government's promise. According to the article, the price movement of gold in dollar terms is a perfect example of this, as an ounce of metal went from $40 in 1971, when President Nixon moved away from the gold standard, to over $1,200 today. The jump in value illustrates how much money has been printed since then in a baseless free-floating currency system.

Makhdoomi, however, believes today's gold prices might still be far lower than they should. Some pundits, such as monetary historian Mike Maloney, believe that an economic crash is closer than most think. When things go awry, Maloney expects gold and other precious metals to come under revaluation with a rapid price jump to $5,000 an ounce.

Both Makhdoomi and Maloney agree that the next major crash will be accompanied by a wealth transfer. Depending on whether one invested in gold or kept their faith in currencies, this could either translate to massive profits or a risk of losing everything.

Gold to Emerge as an Important Asset for Current Times

Despite a tame month, gold is set to remain a key part of any portfolio.

Although multiple factors converged to push gold prices lower in April, an article on Financial Express says the metal could still emerge as the year's marquee asset due to the state of the global economy.

Besides temporary relief from geopolitical tensions and a rise in bond yields, a stronger U.S. dollar was also a major contributor to a tame month for gold. After a prolonged decline that raised eyebrows with both domestic and foreign investors, the dollar index finally caught some respite and reversed its trajectory. According to the article, the greenback now sits at multi-week highs, a position largely influenced by the Federal reserve's hawkish stance.

Having left interest rates unchanged during their latest meeting, the Fed nonetheless affirmed their previous forecast for a total of three rate hikes in 2018. Officials also expressed their desire to continue with the monetary tightening for the foreseeable future should current economic conditions persist. And while successive rate hikes are generally seen as negative for gold, there are ways that the metal could reap the benefits from this aggressive policy says the article.

To some, the Fed's current course is analogue to taking away the proverbial punch bowl. Given the loose monetary policy of the last decade, a sudden shift to a more austere approach could shock the laid-back markets. Among the worst to suffer this effect could be the long-soaring stock market states the article, which recently begun to show cracks after seeming invulnerable. The Fed's goal of reducing their balance sheet by $420 billion this year and $600 billion the next could slowly introduce discord into equities. Despite tax cuts and other encouraging developments, 2018 could see investors' optimism dwindle as they wake up to the reality of a lesser money supply.

Inflation expectations could act as another source of gold's strength. The Fed is confident that it can maintain the targeted inflation rate of 2%, and much of their current agenda rests upon it. But many are quick to forget that inflation was moving in the opposite direction for some time, raising concerns that the reversal was achieved too quick. Given that the ideal 2% have already been surpassed, the Fed could find itself struggling to deal with soaring inflation. In this environment, the article says gold would quickly become a most-desired commodity.

The economic tug of war between the U.S. and China will also continue to remind investors that gold is a key part of any portfolio. Despite the seeming calmness in recent weeks, the situation is only beginning to develop, and the leaders of both countries are unlikely to back down. Global growth, industrial metals and energy will all come under attack should the threat of a trade war return.

The article states that this would harm bond yields as investors shun U.S. debt, and the rapid expansion of the latter has already placed the dollar's long-term purchasing power into question.

Regardless of short-term happenings, the ongoing lack of equilibrium in the global economy along with constant geopolitical flare-ups are sure to preserve gold's favor among risk-averse investors.