Argentina Considers Dollarization

  • RICHARD GIEDROYC | AUG 7, 2023

Commentary: You know when your country has implemented terrible monetary policy when your fellow citizens consider the U.S. Dollar a safe haven… Could this be a pre-cursor to the United States currency?


The value of Argentina’s currency is being decimated by spiraling inflation.
The value of Argentina’s currency is being decimated by spiraling inflation.

The publication Central Banking reported on April 27 that Argentina was importing its bank notes from several countries. On May 22 The Guardian newspaper reported Argentina’s newest and highest denomination bank note, the 2,000 peso, was worth $4 U.S. in international exchange markets. On June 20 a New York Times newspaper headline read: “In Argentina, Inflation Passes 100 percent (and the Restaurants Are Packed).”

Javier Milei is an Argentine congressman and economist who is the front runner running for president. Milei has been vocal, saying if he wins he will make the U.S. dollar the official currency and “blow up” the Banco Central de la República Argentina or Central Bank of Argentina.

What’s going on here? The peso has suffered the humiliation of being named the worst-performing currency in emerging markets. Since 1970 Argentina has gone through one inflationary crisis to the next one.

The so-called dollar blue is the informal name given to U.S. currency circulating at a rate of exchange significantly higher than that of the official Argentine peso. Argentina removed exchange restrictions on the U.S. dollar in December 2015, resulting in the official exchange rate and the unofficial “blue” rate converging at that time. On April 1, 2016 the exchange rate was 14.4 pesos to the dollar. By July 29, 2022 the official exchange rate was 131.22 pesos to the dollar while the “blue” rate had morphed to 298 pesos to the dollar—an increase of 127 percent.

According to a May 22 Reuters news report, “Argentina’s new 2,000-peso bill, the largest denomination note, went into circulation on Monday, though due to fast depreciation of the currency it is worth only $8.50 at the official exchange rate and just over $4 in commonly used parallel markets. The peso has shed around a quarter of its value against the dollar this year despite strict capital controls that slow its fall. Most Argentines buy dollars in unofficial markets where they trade at over 480 pesos versus the official rate of 235.”

The June 20 New York Times article explains, “Argentina’s financial crisis has a surprising side effect: a flourishing dining scene in Buenos Aires, as residents rush to spend pesos before they lose more value.” This sounds more like a headline you would read in post-World War One Germany than in 21st century Argentina.

In a recent campaign speech presidential candidate Milei said, “The peso melts like ice in the Sahara Desert.” He has proposed closing the Argentine central bank, replacing the nation’s domestic currency exclusively with the U.S. dollar.

According to the publication El País, Argentina has contracts to import bank notes with Brazil, China, France, Malta, and Spain. El Pais reported shipments of 360 pallets of notes from France, and more than 800 pallets of note from Malta, where security bank note producer De La Rue has a plant. El Pais estimates these shipments will amount to 260 million pieces of currency.

For practical purposes coins don’t circulate, so importing more isn’t even on the table. Coins in denominations of 1, 5, 10, 25, and 50 centavos were introduced in 1992. The 1 peso was added in 1994, followed by the 2 peso in 2010. The 1-centavos denomination ceased production in 2001. The last gasp for coins came in 2017 when a new series of 1- and 5-peso coins were issued. Due to inflation a 2- and 10-peso coin were introduced the following year.

In 1970 peso moneda nacional bank notes were replaced with the peso ley at a rate of 100 peso moneda nacional to one peso ley. In 1983 the currency system exchanged at a rate of 10,000 pesos ley to one peso argentine. The austral replaced the peso argentine at a rate of 1,000 PA to one austral in 1985. This was followed by the peso convertible in 1992 at a rate of 10,000 austral to the peso convertible. Until 2001 bank notes carried the legend “Convertibles de curso legal,” indicating the value of the Argentine bank notes was fixed to the same amount in U.S. dollars. These notes no longer circulate.

The 1992 peso convertible was initially comprised of coins as explained earlier and bank notes in denominations of 1, 2, 5, 10, 20, 50 and 100 pesos. A coin replaced the 1-peso bank note in 1994. The peso convertible is still in use, but the latest series of notes introduced in May 2022 is comprised of denominations of 100, 200, 500, and 1,000 pesos. In March 2023 the 2,000-peso denomination was added, using the printing plates meant to be used for a proposed 5,000-peso note.

For now Argentine citizens are coping with inflation through the strategies of buying now while paying later, bartering, bulk buying, hoarding U.S. dollars, or spending as fast as you get it.

More than 65 countries currently peg their currency to the U.S. dollar. Five U.S. territories use the dollar as their official currency. Bonaire, the British Virgin Islands, Ecuador, El Salvador, Marshall Islands, Micronesia, Palau, Panama, Timor-Leste, Turks and Caicos, and Zimbabwe are each independent countries that also use U.S. currency exclusively.

Surge in China’s Demand for Gold Is Slowing as Economy Stumbles

The jitters affecting the world’s second-biggest economy are starting to feed through into China’s gold market.

Source: Bloomberg: Published Jun 19, 2023  •  2 minute read

(Bloomberg) — The jitters affecting the world’s second-biggest economy are starting to feed through into China’s gold market.

Article content

A surge in purchases by Chinese residents, driven by pent-up demand after three years of pandemic restrictions and optimism that the economy would quickly rebound, is starting to slow — yet another sign that the recovery is losing momentum.

China vies with India as the world’s biggest consumer of gold bars, coins and jewelry. Its central bank has also been a recent buyer, adding to its reserves for seven straight months after a three-year pause. Although most gold trades as a financial asset — notably as a haven for investors during risky times or as a hedge against inflation — China’s physical demand for the precious metal has helped underpin its ascent this year to over $2,000 an ounce.

The rapid expansion in retail sales of gold and silver jewelry looks to have topped out, rising 24% year-on-year in May to 26.6 billion yuan ($3.7 billion). That’s slower than the 44% and 37% growth recorded in the previous two months. The same period last year included the extended lockdown of Shanghai, when demand for goods and services cratered across the economy.

Gold appealing to younger family office investors amid market volatility

Source: CRAIN CURRENCY | Marcus Baram

Jun 15, 2023

KRISTINA RUOTOLO

For centuries, gold has retained an allure as a safe-haven asset, especially during times of turbulence and market volatility. 

Family offices and ultra-high-net-worth investors — using gold as part of their asset diversification strategy — have recently helped boost its price, which has increased 35% in the past five years. Traditionally favored by older investors, this time it’s attracting next-gen family office members, gold market analysts say.

“Since late 2022, investors appear to have gravitated toward the precious metal as a way to preserve their wealth and hedge against the risk of a recession later this year,” said Han Tan, chief market analyst at Exinity Group in Abu Dhabi.

Gold is often favored during times of crisis for several reasons. Despite its high price volatility, it is a relatively secure investment and extremely stable in value. Because it often goes against market and interest-rate changes, gold can serve as insurance against economic downturns. That’s partly due to its rarity and limited supply. 

As a tangible asset, the precious metal — in the form of gold coins, gold bars or jewelry  —  protects investors against inflation, said Joseph Cavatoni, North American market strategist for the World Gold Council.

That protection appeals to family offices, which use gold to diversity their assets and as a “shock absorber in their portfolio” during these times of inflation and high interest rates, Cavatoni said. He’s seeing more interest from European family offices versus the U.S. market, though retail sales to consumers have slowed in India and China due to pandemic-related lockdowns. 

“We’re seeing ultra-high-net-worth individuals come on the scene and make big purchases,” said Bill Voss, founder of Bullion Box, a subscription service that sends a curated box of precious metals every month. One favored strategy for investors, he said, involves building a portfolio that is one-third bullion, one-third semirare numismatic coins and one-third rare coins. 

“Secondarily,” Voss said, “we’re being approached by family offices and other groups about acquisition opportunities in the sector.” 

A major reason for gold’s recent price increase is that it’s being snapped up by more central banks around the world as part of their reserves portfolio, and it’s being used to manufacture electronics and many consumer products like cellphones, Cavatoni said.

Younger wealthy investors who may have been burned by the collapse of the crypto market also are increasingly turning to precious metals — including gold, silver and platinum. 

“We’re getting so many requests from younger generations for precious metals,” Voss said. “It used to always be 50-something-and-older customers, but now it’s skewing much lower.”

Part of gold’s appeal is its tangible quality as a beautiful physical asset, Cavatoni said. For many people, it’s about “I can get a little bling and have it earn at the same time,” he said.

People who don’t necessarily trust the banks right now “want to hold something in their hands,” Voss said. “If more banks crash, they know they have something to go to and put their hands on.”

So far, the outlook for gold looks positive. Spot gold has advanced by more than 7% so far this year, said Exinity Group’s Tan, “on hopes that the Fed is approaching the end of the current rate-hike cycle.” 

All that glitters for now just may be gold. 

AUTHOR Marcus Baram

Marcus Baram is a contributing editor at Crain Currency, where he covers the intersection of finance and politics. Prior to joining Crain Currency, Baram was a staff writer at Fast Company and an editor at Huff Post. He has also written for outlets such as The New York Times, The Atlantic, and Vice. Baram is an expert on economic policy and has a deep understanding of the ways in which politics shapes the global financial system. In his role at Crain Currency, he brings a unique perspective to the complex and ever-evolving world of finance. With his keen analysis and clear writing, Baram helps readers make sense of the important issues impacting the economy today.

Gold can overcome near-term headwinds

Source: UBS CIO Daily Updates

by Chief Investment Office08 Jun 20233 min read

Thought of the day

The price of gold has remained under pressure following the stronger US employment report supporting expectations that the Federal Reserve will “skip” rather than ending hikes at its policy meeting next week. The potential for higher rates over coming months, after evidence of stubbornly high inflation, raises the opportunity cost of holding the precious metal, which generally doesn’t provide a yield. In addition, sentiment on gold was also undermined by International Monetary Fund data showing official gold reserves declined by 71 metric tons in April, which was the first net decrease in over a year.

As a result, gold has now fallen more than 5% from its recent peak in early May, when investors were more confident that the Fed had already finished its rate-hiking cycle. In our view, a further slide in gold to around USD 1,870 an ounce is possible (from USD 1,945 at present), as markets push back expectations for the start of rate cuts from the Fed.

But we still see potential gains for gold over the coming year, and we view the precious metal as a valuable hedge in portfolios.

Fed policy and the prospect of dollar weakness still supports gold. While the Fed is on a more hawkish trajectory than had been thought in early May, an imminent end to rate hikes still looks likely. In addition, the Fed is closer to starting a cutting cycle than its peers, including the European Central Bank (ECB). We also expect the Bank of Japan (BoJ) to back away from its ultra-easy monetary policy stance, relaxing its targets for government bond yields. This combination can be expected to weaken the US dollar, making gold less expensive for investors holding other currencies. Gold has historically performed well when the US dollar softens due to their strong negative correlation, and we see another round of dollar weakness over the next 6–12 months.

Central bank demand for gold should remain healthy, despite the recent decline. The decline in official holdings reported by the IMF does not reflect a reduction in enthusiasm for gold among central bankers, in our view. The Turkish central bank was reported as the major seller, but the World Gold Council believes these sales were due to local dynamics rather than a change in the central bank’s long-term strategy.

The longer-term trend suggests no reduction in appetite for gold among central bankers. Last year marked the 13th consecutive year of net gold purchases by global central banks and the highest level of annual demand on record dating back to 1950. At 1,078 metric tons in 2022, central banks’ buying of gold more than doubled from 450 metric tons in 2021. Based on the 1Q23 data from the World Gold Council, central banks are on track to buy around 700 metric tons of gold this year, much higher than the average since 2010 of below 500 metric tons.

Geopolitical and economic uncertainty could boost demand for gold among both investors and central banks. Gold has long benefited from safe-haven inflows during periods of geopolitical strife. The intensifying rivalry between the US and China, along with tensions arising from Russia’s invasion of Ukraine, make further flare-ups more likely. In addition, gold’s relative performance versus the S&P 500 improves significantly during US recessions, based on data since the 1980s. While recent US economic data have been resilient, stubbornly high inflation raises the risk that the Fed will overshoot in tightening rates—especially if regional banks continue to cut back lending to ensure liquidity following recent deposit outflows.

So, we continue to see upside in gold over the coming year. We keep our forecast of USD 2,100/oz by year-end and USD 2,250/oz by mid-2024 unchanged.

India raises silver import duty to align with gold

Source: Yahoo Finance Wed, 1 February 2023 at 2:22 am GMT-6·1-min read

MUMBAI (Reuters) – India raised total taxes on silver imports 15% and on silver dore to 14.35%, the government said in a statement on Wednesday, in an effort to align the duty structure of the metal with gold.

The south Asian country is the world’s biggest importer of silver.

“I also propose to increase the import duty on silver dore, bars and articles to align them with that on gold and platinum,” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 budget in parliament.

India raised its import duty on gold in July 2022.

The basic customs duty on silver was raised to 10% from 7.5% and Agriculture Infrastructure and Development Cess (AIDC) on the imports to 5% from 2.5%.

Silver dore will carry a 10% basic import duty and 4.35% AIDC.

Local silver prices jumped by up to 2% after the duty changes.

The import duty on articles made of precious metals was increased to 25% from 22%.

Read More…

Gold Price Forecast: XAU/USD jumps above $1,920 after US data

Source: FXSTREET NEWS | 1/31/2023 3:05:16 PM GMT | By Matías Salord

  • US Dollar weakens following Q4 US Employment Cost Index.
  • Data points to more evidence of a slow down in inflation.
  • XAU/USD erases daily losses with a rebound of more than $10.

Gold prices bounced sharply higher following the release of US labor costs data for the fourth quarter. More evidence of a slowdown in inflation pushed US yields to the downside and Wall Street to the upside, weakening the greenback.

The Employment Cost Index (ECI) rose 1% in the fourth quarter, below the 1.1% of market consensus and marked the third consecutive slowdown. Still the index is up by 4% compared to a year ago. The evidence of an improvement in the inflation outlook boosted US yields ahead of Wednesday’s FOMC decision.

Still the numbers are high, suggesting that inflation is still not consistent with Fed’s target. “Even as supply chain pressures ease, commodity prices cool and housing costs temper, we think the FOMC still wants to see a bit more slowing in wage growth before the Committee feels confident inflation is firmly headed to 2% over the medium term”, said analysts at Wells Fargo.

The greenback tumbled after the report and also did Treasuries, boosting gold. Also equity and crude oil price rose. XAU/USD erased all losses and it is hovering around daily highs at $1,927.

Read More:

Gold and Silver unlikely to outperform in the coming months – HSBC

Source: 12/30/2022 2:04:35 PM GMT | By FXStreet Insights Team

Strategists at HSBC remain neutral on Gold and Silver as they see muted momentum.

Higher rates and real bond yields create a competitive disadvantage for Gold

“Despite the recent bounce in commodity prices, we do not expect Gold and Silver to outperform in the coming months.”

“USD’s recent strength has weighed on metals, while higher rates and real bond yields create a competitive disadvantage for Gold compared to cash and bonds.” 

See – Gold Price Forecast: XAU/USD to rebound slightly next year as Fed easing starts – ING

PRECIOUS-Gold eases in narrow range as traders eye economic data

Source: Written by Arundhati Sarkar for Reuters 

Dec 21 (Reuters) – Gold prices eased in a tight range on Wednesday as the U.S. dollar firmed, although bullion was not far from a one-week high scaled in the previous session as traders looked ahead to impending economic data later this week.

Spot gold XAU= fell 0.2% to $1,813.23 per ounce by 0957 GMT, after rising more than 1% on Tuesday on the back of a dip in the dollar. U.S. gold futures GCv1 eased 0.2% to $1,822.70.

“After yesterday’s sharp rally, traders are waiting for fresh cues, especially from tomorrow’s GDP data and the performance of U.S. dollar,” said Hareesh V., head of commodity research at Geojit Financial Services.

Reports of a surge in COVID-19 cases in China may be another trend setter for the market, he said, adding prices are most likely to be choppy, possibly between $1,760 and $1,840.

The dollar index .DXY was firm on the day after a yen driven fall in the last session following a Bank Of Japan surprise policy tweak.

On the data front, the U.S. gross domestic product (third estimate) due on Thursday and the core personal consumption expenditure (PCE) price index scheduled on Friday are also on the investors’ radars.

Gold prices have risen nearly $200 since falling to a more than two-year low in late September as expectations around slower rate hikes from the Fed dented dollar’s allure.

“As we head into 2023, the Federal Reserve is expected to pivot in its rate hiking drive and the dollar is likely to soften, benefiting gold due to the inverted price correlation between the two assets,” Ricardo Evangelista, senior analyst at ActivTrades said.

While gold is traditionally considered a hedge against inflation it tends to loose its shine in a higher interest rate environment.

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PRECIOUS-Gold under pressure as U.S. yields, dollar firm

* European Central Bank policy meeting due on Thursday * More platinum deficits loom after record 2020 undersupply – WPIC * Platinum prices likely to reach $1,300/oz over 12 months – UBS (Updates prices) By Shreyansi Singh March 10 (Reuters) – Gold eased on Wednesday after registering its biggest jump in two months in the last session, as higher U.S. Treasury yields and a stronger dollar remained a stumbling block for bullion. Spot gold was down 0.2% at $1,711.21 per ounce by 1207 GMT after rising more than 2% on Tuesday. U.S. gold futures fell 0.5% to $1,709.20. U.S. yields regained momentum on Wednesday, raising the opportunity cost of holding bullion, while the dollar also gained. “Gold prices are likely to remain under pressure, while concerns about inflation are front of mind for the market,” said CMC Markets UK’s chief market analyst, Michael Hewson, adding a stronger dollar could be a further drag on bullion prices over the next few days.

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Gold Price Analysis: XAU/USD attempts to stabilize ahead of the $1670 June low – Commerzbank

Gold is attempting to stabilize at the 2019-2021 uptrend at $1667 but the yellow metal needs to do more work to negate the downside pressure, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, reports. 

See – Gold Price Analysis: XAU/USD to near the confluence support zone at $1,660-$1,670 – DBS Bank

Key quotes

“The market has sold off towards the $1670 June low and the $1667 2019-2021 uptrend. This is currently holding the downside.” 

“Initial resistance is offered by the $1760/$1772 band, which is the May high and previous 50% retracement and the short-term downtrend in order to alleviate downside pressure and signal recovery to the 200-day ma at $1861.” 

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