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Suez Canal Shutdown Ramifications Are Just Starting

Summary

  • US Consumer Price Inflation data came in higher than expected this week.
  • British and US-led military strikes against Houthi rebels in Yemen escalated violence, impacting the Red Sea shipping lanes.
  • Middle East tensions suggest a prolonged shutdown of the Red Sea shipping canal, forcing shippers to take longer routes around Africa.
  • EU ports are experiencing lower import cargo levels compared to the peak of the COVID-19 pandemic in 2020.
  • Shipping freight prices are rising due to issues in both the Suez and Panama canals, indicating a persistent trend of increased shipping costs.
  • Concerns arise about major company supply chains, with a suggestion to front-load imported items before situations worsen.
  • Crude oil and gold prices respond to Middle East escalations, with gold reaching over $2,050 per ounce.
  • China continues to buy gold, adding 9 metric tonnes in December 2023, bringing the total to 225 metric tonnes in the past year.
  • Silver import data into Turkey shows record-breaking points, indicating a growing silver bullion market.
  • Signs of economic challenges include the Federal Reserve's record losses, Citi Bank's worst quarter in 15 years, and concerns about growing non-performing loans, bankruptcies, and underfunded pensions in the US.

This week, on the heels of underreported US Consumer Price Inflation data coming in higher than expectations. 

The recent and now ongoing near total shutdown of the Red Sea shipping lanes escalated in violence as British and US led military strikes against Houthis rebels in Yemen kicked off yesterday.

Here is a western AP report on what has been happening there recently.

Rather than deescalation, almost all signs in the middle east point towards further escalations and the potential for this near total shutdown of the key Red Sea shipping canal to continue for much more time than perhaps guessed by onlookers prior.

The alternative for shippers is going the long way around Africa adding costs and time on delivery dates.

All ports in the EU are now showing lower import cargo than the low levels during the peak low levels during Covid 2020.

Shipping freight prices are beginning to surge, and overall between the much typically higher volume Suez canal and the closer important to US economy Panama canal drought issues, it is hard to suggest this resurgent more expensive shipping cost trend will be changing anytime soon.

One might ask, having now come fresh off of supply and demand side shocks stemming from the pandemic years just behind us. What might major company supply chains be thinking at the moment? Yeah, perhaps try and front load imported items before these situations worsen.

Prices for crude oil and gold this week appeared to have taken notice of Middle East escalations. 

The spot silver and gold prices in fiat US dollar terms sold off to start the week only to rally back on expanding violence in the middle east to close the week.

The spot gold price again cleared $2,050 oz to close another week of trading while the spot silver price finished at over $23 oz again.

The spot gold silver ratio ended this week where it started, at 88.

The following are four factors fiat financialized media recently suggested could move the spot gold price in 2024 is another example of what the vast majority of US financial bubble asset owners get told about gold.

You will not hear an utterance about escalating wars, nor economic disruptions and recessionary fallouts that may be increasingly coming about. We'll go through some of those points on the other side.

The drum beat continues that the current US administration is considering stealing Russia's $300 billion in US Treasuries to allegedly hand over to Ukraine.

No surprise that China continues buying gold as the PBOC admitted adding 9 metric tonnes last month December 2023, for a total admitted 225 metric tonnes of gold bullion officially added to China's reserves over last year.

The physical premiums for gold bullion currently being paid in China are nominally some of the largest on record, and even in percentage terms we are seeing a strong bid by Chinese for gold bullion on the Shanghai Gold Exchange.

As for the silver side of the equation, quarterly candles continue consolidating on the chart building energy for the next major move which is unlikely to come before gold begins leading the charge in earnest.

Silver import data into Turkey continues to illustrate a few record breaking points about that growing silver bullion importation, growing refining capacity, and local bullion buying market.

A country whose fiat lira almost hit parity 1:1 with the fiat US dollar at the end of the 2008 commodity bullion market run, is showing the inevitable outcome of a gold market gone up and increasingly to the right. Silver follows, and will eventually outperform even gold's recent move.

Being a silver bull getting paid in relatively still strong fiat US dollars is still a blessing so long as you have patience and properly position for gold to lead, and later silver to follow into a typical outperformance era.

That all said, it's increasingly looking like we're going to have to get through a major recession and bankruptcy cycle before this building bullion bull really builds its coming future mania phase.

Some of the following charts, data, and headlines all suggest things are not going well spanning from central bank balance sheets to many citizens increasingly suffering under growing cumbersome debt levels.

The fiat Federal Reserve continues to wrack up record high losses over earnings, thanks to their still bloated balance sheet accruing losses to now over $130 billion and growing. Gone are annual remittances to the US Treasury, instead they have a chart here that looks similar to the unrealized losses sitting on many bank balance sheets the fiat Fed allegedly regulates.

Last November a St. Louis Fed research paper claimed it may take the Fed four years to recoup those losses. There was no attempt at estimating how many multiples larger the fiat Fed's balance sheet will be by late 2027.

Citi bank just announced its worst quarter in 15 years, claiming they are going to cut 20,000 jobs or 10% of their workforce by 2026. Fifteen years ago was around back when Citi got the largest bailout of all commercial banks to the tune of a cumulative $2.5 trillion with a 'T' of below market rate rolling loans. The fact that the bank lasted this long is a mockery to real capitalism.

Escalating amounts of zombie companies and commercial bankruptcies continue climbing. What is already being admitted at major banks is probably just the tip of the coming iceberg.

Non-performing loans at major banks are growing. 

Lending Tree reported this week that nearly 1/3rd of US residents in 100 largest metros are behind on their debt payments. Bank analysts are worried banks have not set aside enough loan-loss reserves to handle the coming waves of escalating defaults ahead.

Almost 1/5th of office space in major US cities was not leased last quarter 2023. Eventually losses are going to be realized.

In a sign of the coming underfunded pension crisis, California of course is at the tip of the spear. The California State Teachers Retirement System is considering borrowing $30 billion or just under 10% of the $318 billion portfolio supposedly so it doesn't have to liquidate assets at fire sale prices in the likely next downturn. 

The largest public pension in California, CalPERS, is said to plan on doubling its climate-focused investments to $100 billion by 2030 and is considering selling stocks of companies with poor plans for energy transition.

So we're on the cusp of a major secular commodity bull market and CalPERS is apparently going to further YOLO into unproven underperforming sectors further. Can anyone else here smell a coming pension crisis later this decade?

On a positive note to end the week for bullion bulls out there. Of all places, the great state of New Jersey is about to exempt bullion from sales taxes. Currently locals have had to pay an additional +7% on top of typical bullion product prices within the state and on online order being shipped by companies adhering to local laws.

So apparently soon, even the late great Tony Soprano will be able to add to his bullion stack without having to pay an unconstitutional bribe to local tax contorcionistas. 

Ah, they don't write them like they used to.

That will be all for our weekly SD Bullion Market Update. 

As always to you out there, take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...

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