Tag: graph

Flight to cash in the Eurozone

Each year we use less cash in daily transactions, but at the same time the amount of banknotes in circulation inside the Eurozone is increasing at a rapid rate. Last year, the total value of all banknotes in circulation reached €1,08 trillion, an increase of 6,5% compared to the year before. The total value of all banknotes in circulation in fact doubled in ten years, in increase that could only partially be explained by inflation and the entrance of new member states to the Eurozone.

More than €1 billion of banknotes inside the Eurozone

More cash in circulation

What explains the increasing demand for banknotes? It could be the result of a growing black market economy, in which goods and services are paid for in cash and cannot be traced afterwards. But in recent years, distrust towards banks and the extremely low interest rate could also explain the flight to cash. Persistent rumors of a possible tax on savings, the new ‘bail-in’ scheme for European banks and the fact that you earn almost no interest on bank deposits make it more attractive to keep savings in the form of cash. We can also imagine people wanting to get out of the financial system by holding cash and buying gold.

Savings

The ECB publishes the number of banknotes in circulation inside the Eurozone, so we collected the data since the introduction of the euro in 2002. The graphs show that there has been a substantial increase in the €500 denomination, which confirms our view that there has been in increasing number of savers taking money out of banks and holding physical banknotes instead. Banknotes of €500 are not suitable for daily transactions, because most stores simply do not accept them. The increase of the largest denomination suggests that savings are already moving out of the banking system in increasing amounts.

The €500 banknotes appear to be in strong demand

Almost 30% of all cash in circulation (in value) is a €500 note

27 januari 2016
Graph: Dutch stock market in dollars, oil and gold
The Dutch stock exchange jumped to more than 450 points after the QE announcement by the European Central Bank, the highest level since 2008. It is a remarkable rise, considering the fact that the stock market dropped below 400 points just a month ago! A ten percent rally over such a short period of time sounds impressive, but at the same time the euro dropped in value against the dollar. Was it just an exchange rate effect? Or did stocks also rally versus gold and oil? Marketupdate collected some data and made the following graph. The ratios are expressed as an index: 100 equals the valuations and ratios in September 1999. Click on the graph for a full screen version!

Dutch stock market in dollars, oil and gold
- Dutch stock exchange went down in dollars: The positive vibe in the Dutch stock exchange is overdone if you consider the exchange rate effect. While the stock market went up in euro (green line), it went down measured in dollars (blue line)!
- Dutch stock market neutral in gold: When measured in gold, the Dutch stock market literally went nowhere over the past couple of months. A more positive explanation is that both went up at about the same rate. But if we look back all the way to 1999, we have to conclude that stocks lost quite some value against gold.
- Oil is getting cheaper: The price of oil has been cut in half in less than six months, a trend which is clearly visible in this graph. While the ratio between stocks and gold remained stable, the value of stocks doubled when measured in oil. Since 1999, gold and oil traded within a narrow rage for most of the time, but something definitely changed in the last couple of months. During the last OPEC meeting, the oil producing countries decided to maintain full oil production. Earlier, during a G-20 meeting, both Saudi Arabia and Russia argued against using oil and gas as a political instrument. Since then, oil prices fell to the current cost of production.
26 januari 2015
Gold heading to Asia through Switzerland

Gold export figures from the Swiss Customs Administration show that most of the physical metal is being exported to Asian countries. In the first three months of 2014, most of the yellow metal went to Hong Kong (206,44 tonnes). India came in second with a net import volume of 87,52 tonnes. Direct imports of gold into mainland China take the third place with a volume of 74,9 tonnes in the first quarter of this year.

These figures should come as no surprise, because China and India are by far the largest gold markets nowadays. However, a substantial amount went to Singapore and Saudi-Arabia as well. The total net export from Switzerland to these countries was 40,69 and 15,36 tonnes respectively. The first graph shows the ten countries to which Switzerland net exported the largest volumes of gold.

Most of the gold is exported to Asian countries

Gold heading from West to East
Switzerland is an important hub in the global physical gold market. Many transactions in this market are therefore taking place in this small and mountainous country. If we look to the other side of the balance, we find the usual suspects sending gold to Switzerland. In the first quarter of this year, the United Kingdom was the largest net exporter of the precious metal to Switzerland, bringing in 270,3 tonnes of gold. The second largest supplier of gold to the Suisse vaults was the United States, exporting a net amount of 56,77 tonnes to the European country. Third and fourth place were taken by Turkey and Russia, exporting 39,93 and 25,89 tonnes of the yellow metal to Switzerland.

The US and the UK are supplying most of the gold to Switzerland

(h/t: BMS, Goudstudieforum)

29 april 2014
Graph: Peak Exorbitant Privilege

In a search for the latest current account numbers of some European countries we stumbled upon an interesting page on Wikipedia. The page contained the cumulative current account balance of practically all countries in the world between 1980 and 2008, using data from the IMF website. We thought this information was worth sharing, especially if we could add the most recent data to it. After collecting the data of the last five years from the IMF website we made a graph of the cumulative current account balance from 1980 till 2013…. We present to you the ‘Exorbitant Privilege’ of the United States in one significant graph!

Peak Exorbitant Privilege: The cumulative current account balance since 1980 (click for full-size graph)

What you see is the cumulative trade balance of 76 different countries since 1980. We have the data of 182 different countries, but to keep this chart comprehensible we have excluded all countries with a total surplus or deficit smaller than $20 trillion. These are the countries that would fill the middle part of the graph shown above.

Peak Exorbitant Privilege

The French Finance Minister Valéry Giscard d’Estaing coined the term 'exorbitant privilege' in the sixties to describe the position of the United States and their dollar as world reserve currency. The US is the only country in the world to simply print dollars, while the rest of the world could only obtain those dollars by producing a trade surplus against the United States. Everybody needed dollars for international trade as a result of the Bretton Woods agreement in 1944. What followed was a stockpiling of trade deficits in the US and a stockpiling of dollarreserves in the rest of the world. In 2010 Barry Eichengreen published a book titled 'Exorbitant Privilege' and in 2012 FOFOA wrote an excellent piece on the 'Peak Exorbitant Privilege'.

From dollars back to gold

In the sixties Europe started demanding gold for their surplus dollars, causing a substantial outflow of gold bars from the US Treasury. From the peak to the bottom in 1971 the United States lost almost two-thirds of their official gold reserve. The exorbitant privilege of the dollar seemed untenable, but when president Nixon closed the gold windows in 1971 there was no viable alternative for the mighty US dollar (yet). The rest of the world had no other option than to accept being paid in a currency which could no longer be redeemed for gold.

The United States kept their exorbitant privilege and started producing a trade deficit the world has never seen before. Between 1980 and 2013 the US collected a cumulative trade deficit of $9.600 trillion, almost ten times as much as the number two (Spain) and more than ten times as much as the number three (United Kingdom). The graph above clearly shows which countries have lived above their means since 1980 and which countries have lived below their means. The Chinese and the Japanese were the most productive with cumulative trade surpluses of about $4.500 and $3.100 trillion respectively. It should be no surprise that these two countries have the largest holdings of US Treasuries.

It should be no surprise as well that China - with their large surplus of dollars - is importing gold hand over fist, just like some European countries did in the sixties... You see the similarities?

12 december 2013
Graph: Saving debt at all costs

Saving debt at all costs. Expanding central bank balance sheet and falling interest rates (h/t: @cigolo)

Saving debt at all costs

“My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationist get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today’s dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile) – Another (Source: FOFOA)

3 december 2013
Graph: How much gold and dollars did central banks buy?

Earlier this month we published a graph about the US Treasury purchases by foreign countries. From these numbers we concluded China and Japan were the main buyers of this dollar denominated debt, together with the United Kingdom and the Caribbean banking sector. The oil-exporting countries, Russia, Hong Kong, Thailand and some other countries decided to reduce their US Treasury holdings in 2013. It should be clear by now that most countries are not so keen on adding more dollars to their total reserves (with the expection from some countries like Venezuela and Iran). Instead, more countries want to diversify their foreign currency holdings with a tangible asset like gold. Mortymer sent me a tweet earlier this week with the suggestion to put dollar and gold purchases together in one graph…

@frankknopers Could you please make a paper where you put both in the same pic? Buy/sell treasuries/gold. Would be nice! Thanks.

— Mortymer (@mortymer001) November 25, 2013

TIC-data

We already had the data to put such a graph together. We started with the TIC-data, published monthly with some delay by the Federal Reserve. We took the time period between January 2002 and September 2013. From these two months we collected data about the gold reserves, mostly from the World Gold Council website. They publish a monthly statement with the official gold holdings. Some missing numbers could be retrieved from the IMF website.

Unfortunately the data is not 100% complete, because we couldn’t find reliable information on the Iranian gold reserve and the gold held by the Caribbean banking sector. There are some numbers about the Iranian gold reserve, varying from 320 to 500 tonnes, but these are not official numbers. This is the same problem we have with the Chinese gold holdings. We expect them to be much larger than the 1054 tonnes published in 2009. The figure could be multiple thousands right now, but we simply don’t have data to prove it.

Gold reserves versus dollar reserves

Despite the shortcomings mentioned above we still get an interesting result if we put all the information together in one graph. The blue bars show the change in US Treasury holdings between January 2002 and September 2013 (in billion dollars), while the yellow bars represent the purchase or sale of official gold holdings (in metric tonnes). Click on the graph to see the full size version.

Change in dollar and gold holdings since 2002

Central banks act in their own way

We can’t draw a clear conclusion based on the graph above, given there is no correlation between the amount of dollars and gold added by central banks during this period. Countries like Russia, Turkey, Mexico, India, Korea, and Thailand bought way more gold than dollars.

The oil-exporting countries (Venezuela, Ecuador, Bahrain, Iran, Iran, Kuwait, Oman, Qatar, Saudi-Arabia, the U.A.E., Algeria, Gabon, Libya en Nigeria) have added both gold and dollars in a balanced matter. China is probably working hard to put more gold against the pile of dollar reserves, but we have no official data to rely on.

A special case is Japan, which has been supporting the dollar by buying billions of US Treasuries and not adding a single ounce of gold to their reserves. The central banks from Switzerland, France, the Netherlands and Spain did’nt buy a whole lot of US debt, but they were liquidating a substantial amount of goud reserves between January 2002 and September 2013!

30 november 2013
Graph: Quarterly gold demand in the past five years

In the latest quarterly report (PDF) from the World Gold Council we found an interesting table containing the quarterly gold demand figures from the last five years. We have made a graphical representation of these data, so we can clearly see some significant developments in the physical gold market during this interesting period for the gold market.

From this graph we can see the increasing demand for gold coins and bars (red) since Q3 2007. We can also see a huge liquidation of gold holdings from ETF’s (green) from the beginning of this year, which marks the end of a long trend of expanding ETF gold holdings. Last but not least, we see a shift in central bank trading on the gold market. Back in 2007, central banks were still selling a substantial amount of gold, but since 2012 they are net buyers. In fact, last year they bought the largest amount of gold since 1964!

Demand for physical gold in the last five years, click for a full size graph

14 november 2013
Central banks bought a small amount of gold in September

Central banks have bought a very small amount of gold during September, according to data from the IMF. From the list of central banks that have been buying gold in 2013, Turkey added most to their reserves in September (+3 tonnes). A very small amount compared to the almost 24 tonnes bought by the Turkish central bank one month earlier. Countries like Kazakhstan and Azerbaijan also bought some gold in September, 2,6 and 1,03 tonnes respectively. The Kyrgyz Republik bought about 64 kilograms, while Serbia and Belarus added about 32 kilograms to their reserves.

Which central banks have bought gold in 2013?

These numbers are actually too small to mention, but we really want to draw your attention on the following graph we made. This graph adds up all the gold buying by central banks in 2013, up to the latest September data. Of all central banks worldwide (excluding China), Turkey bought the largest amount of gold. In second place there is Russia, followed by Kazachstan and South-Korea.

Which central banks bought gold in 2013?

5 november 2013
China imported 116,3 tonnes of gold in September

According to the latest data from the Hong Kong Census and Statistics Department, China has imported 116,3 tonnes of gold from Hong Kong during the month of September. Gross imports went down a little compared to the month before, but compared to September last year it was almost 67% higher. Net imports, the figure which is adjusted for the exports of gold from China back to Hong Kong, came in at 109,6 tonnes during September. A small drop compared to the net imports of 110,2 tonnes of gold in August.

Chinese gold imports in 2013 and 2013

China continues buying gold

The Chinese don’t seem to bother with the decline in gold prices during this year. Quite the opposite is true, because the gross gold imports of China are 1.114,9 tonnes so far this year. Compared to last year, we are talking about an increase of 91,6% in gross gold imports. Earlier this year, the World Gold Council predicted net gold imports in China to surpass the 1.000 tonnes. With total net imports at 826,3 tonnes in the first nine months of this year, this target will probably be reached quite soon.

During September, the price of gold declined for the first time in three months. Gold premiums during this month went down as well, according to Bloomberg. The average premium on gold was $8,97 per troy ounce in September, compared to $13,57 per troy ounce in August.

This year gold prices are down almost 20% in dollars and more than 23% in euro’s. However, large gold markets like China, Russia and India keep buying a lot of gold. Especially China, which doubled gold imports compared to last year…

1 november 2013