One of the more interesting stories this week has been reported by Bloomberg. The People's Bank of China is said to stop increasing its foreign currency reserves. What implications will this have? I believe that we'll see the start of a U.S. dollar collapse.
All these years, the Chinese bank had increased their balance sheet up to $3.66 trillion of which $1.3 trillion are U.S. treasuries (Chart 1). This is almost half of the PBOC's balance sheet. Other assets include U.S. agencies, U.S. corporate debt, U.S. equities and other non-U.S. assets (Chart 2).
If the PBOC is going to stop the purchases of foreign currency reserves, this means that they will stop buying the assets above and mainly stop buying U.S. treasuries. That's what it all comes down to. This also means that their excess of U.S. dollars will need to be converted to other assets like the yuan, or even gold. In fact, one of the ideas of China is to prepare the yuan as a reserve currency and I believe this is a first step in that direction. We know that China has amassed a lot of gold, when considering the amount of gold imports from Hong Kong. I believe the PBOC should have added significantly to its gold positions since 2009. The PBOC hasn't reported their gold holdings since 2009 but it is said that they own around 4000 tonnes of gold right now. Needless to say this will be very bullish for the yuan going forward. If we take a look at the chart of the USD/CNY exchange rate we see that the yuan has already increased a lot. I believe the yuan will continue its ascent. To bank on this trend, investors can buy the WisdomTree Dreyfus Chinese Yuan Fd ETF (CYB).
Platinum, palladium and rhodium have all been moving higher and I expect them to go higher as China is loading more palladium and rhodium in their vehicles. China vehicle sales have rebounded as well. Both palladium and rhodium are in deficit. Platinum is going to be used in 3-way catalysts , which will boost platinum prices. Sibanye-Stillwater expects platinum to reach $2000 per ounce in 2025. Sibanye-Stillwater has exposure to all of these metals. SBSW's production numbers were very good. SBSW's EBITDA was $922 million in Q3 2020. This translates to $3.7 billion EBITDA per year. With a 5 multiple, SBSW should be valued at $18 billion market cap. So there is 50% upside. The company has no net debt. Net earnings were $1 billion per year in 2020, but is expected to rise 66% on higher rhodium/platinum prices and higher production numbers. Earnings per share are expected to be at $3.52 per share, which gives Sibanye-Stillwater a P/E of 4.8 which is very cheap. On top of thi...
On June 24th, 2016, Britain voted to leave the EU. The immediate reaction was an 8% plunge in the Nikkei, financials dropped between 10-30%, negative bond yields went even more negative and gold surged 8%. George Soros predicted that we would have a 20% drop in pound and he was right. These are large moves and this is my take on what investors should be doing next. Read further here .
When we chart the Silver/Gold price minus Oil price, we can have a good idea on the margins of the precious metal miners although oil costs are just a small part of the overall costs (only 10% of AISC). As you can see here, the trend has been higher since 2014. => Producer Price Index by Industry: Gold Ore and Silver Ore Mining - Crude Oil Prices: West Texas Intermediate (WTI) - Cushing, Oklahoma The HUI index though (miners), has not been following the correlation since 2014. This is because the gold and silver price has been breaking down lately and sentiment is not positive. Other costs like development costs due to lower grade ore could also have a negative impact. Nevertheless, the chart above is a good indicator for the health of mining companies (comparing the gold/silver price against the oil price). Energy costs are just 10% of the total AISC costs of a miner. So it doesn't have a significant effect on the overall costs in mining. Miners with a high strip ratio and op...
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