Gold in Mexican Pesos

In 2011 Gold in U.S, Dollars hit a high of $1,900. The high gold price in Mexican Pesos was MXN24,000. Here in 2019 gold finally, broke through a ceiling of $1,360 that had been in place for six years. It currently trades at $1,529. 

The gold price in Mexican Pesos has moved to MXN30,499. The MXN peso was 13.50 to the dollar in 2011, and now is 20.06 to the dollar.

Tom Dyson at Bonner & Partners said in a recent email. "but there are 56 countries left on the planet where the gold price is NOT yet at an all-time high. Many of them have pegged currencies to the dollar.

The U.S. is one of those countries. We would need another 23% rise in the price of gold to reach a new high.

What does that mean to me, Mike?

If you are moving to Mexico, it seems logical to convert some of your pesos to gold. We moved here in the first quarter of 2015. Gold was MXN18,000; today at MXN30,499. Converting dollars to Pesos would have given us a big loss.

More about the implications to come.

MX Remains No. 1 in Silver Production

Fresnillo's Saucito mine in Zacatecas. MINERÍA EN LÍNEA

Mexico led the world in silver production in 2015 for the sixth year in a row.

Mexican mines produced 189.5 million ounces, up 2% over 2014, far ahead of the second-biggest producer, Peru, with 135.9 million ounces, according to the World Silver Institute.

Overall, however, world silver production was down 2% to 886.7 million ounces due to declines in Canada, Australia and China.

Mexico’s production increase came as a result of higher output at the Saucito and Saucito II mines operated by Fresnillo and the El Cubo mine belonging to the Canadian mining firm, Endeavour Silver.

The institute pointed out that Mexico’s silver production has risen steadily since 2010, when production totaled 141.8 million ounces.

GFMS analyst Erica Rannestad said one reason for higher output in Mexico was a reduction in costs brought on by the peso’s decline in value against the U.S. dollar, providing an impetus for greater production.

She said expansion of the San José mine, owned by another Canadian company, Fortuna Silver Mines, could propel Mexican production to yet another increase in 2016.

Worldwide demand for silver rose from 1.13 billion ounces in 2014 to 1.17 billion last year but the price dropped from US $19.08 per ounce to $15.68.

Peso Hits New Low of 18.8 Against Dollar

Mexico News Daily | Thursday, January 21, 2016

The Mexican peso dropped to a new record low against the dollar yesterday and did the same again today.

The peso slid to 18.8 to the dollar today after dropping to 18.71 yesterday.

Some banks were selling the U.S. currency for more than 19 pesos today.

The peso has lost nearly 8% in the past three weeks. Last year it dropped by nearly 17% against the dollar.

Finance Secretary Luis Videgaray told El Financiero during an interview today that the peso is “clearly undervalued” and that its decline in value is the result of overreaction by the market.

But when markets calm down, he said, the peso will regain strength.

Ongoing dollar auctions to support the currency will continue, said the Finance Secretary, who is attending the World Economic Forum in Davos, Switzerland, but there will be no further budget cuts.

He said there was “definitely” no risk of a financial crisis.

Source: El Financiero (sp)

Impossible Trinity

What is the Impossible Trinity?

It’s a theory that says a country cannot have all three of the following at once: an open capital account, a pegged exchange rate, and an independent monetary policy. That’s all there is to it.

You can have one or two of those three conditions, but not all three at once. If you try, you’ll fail. It’s those impending failures that make the Impossible Trinity so useful for predictive analytics.

Jim Rickards, Editor, Currency Wars Alert, says Mexico is experiencing the Impossible Trinity now and predicts a coming devaluation of the Peso.

What can Mexico do to escape the Impossible Trinity?

It has three choices: close the capital account, give up its monetary independence, or devalue the peso. There are no other ways out for Mexico.

It is almost inconceivable that Mexico will close its capital account. Mexico is dependent on U.S. trade and an IMF backstop lending facility. Both the U.S. and the IMF would strongly oppose closing the capital account. Mexico is highly unlikely to move in opposition to its two largest sources of financial support.

As a short-run expedient, Mexico has abandoned its independent monetary policy. The chart below shows how Mexico raised interest rates 0.25% two weeks ago, exactly one day after the Fed raised rates by 0.25%.

If Mexico had not raised its interest rate, capital would have flowed from Mexico to the U.S. in search of higher yields. These capital outflows would have drained Mexican reserves. This rate hike illustrates the constraints imposed by the Impossible Trinity.

Outsourcing its monetary policy to the Fed bought a little time for Mexico, but it’s not a long-term solution. The Fed will likely raise rates next March, and again in June. The Mexican economy is already slowing down because of declining growth in its major trading partners, China and the U.S. Raising interest rates only make the Mexican slowdown worse.

If Mexico will not close its capital account, and cannot raise interest rates to follow the Fed, there’s only one thing left for Mexico to do — devalue the peso. Not only can we see this coming with our IMPACT system, but we have a good sense of the timing.

The Mexican Currency Commission (the official body that sets the Mexican exchange rate to the dollar) will meet later this month to decide on whether to extend the peso support program. The Fed is unlikely to back off its rate hike rhetoric before then, so that’s an opportune time to devalue the peso.

All of this analysis is probabilistic, but none of it is certain. Still, our analytic tools, including the Impossible Trinity and my IMPACT trading system, give us fairly good visibility on a coming peso devaluation. U.S. dollar investors in Mexican stocks will suffer when the peso value of those stocks declines.

The ideal way for investors to play this is to short a major Mexican company with dollar-based securities and weak fundamentals. That way, an investor can be positioned to win on a declining stock and a declining currency.

The Peso

The Mexican Peso began 2015 at 14.74 on January 1st, and is currently at 17.25. If it ends the year there, the dollar will buy over 17% more pesos.

See Interactive chart here.

Lower Propane Prices are Coming Soon

A propane tank may not be far off.

Lower propane prices are coming soon, according to a prediction by a gas distributors’ trade organization, due to new import rules that take effect January 1.

In Mexico, two significant changes are coming for LPG: the liberation of import restrictions in 2016 and the elimination of price controls the year after.

The first will see private companies being allowed to import gas themselves, rather than go through Pemex, the state oil company. At present, a firm such as Grupo Tomza, one of the larger transportation and distribution firms, buys its gas in the U.S. and transports it to Mexico, where it is purchased by Pemex, the only company allowed to import the product.

Tomza then buys it back from Pemex and sells to consumers. As of January, Tomza will be able to bypass Pemex, but gas prices will still be subject to regulation by authorities.

Then in 2017, supply and demand will dictate pricing.

Landeros said this week that although the international price for LPG was 4 pesos per kilo, Pemex was selling it to distributors for 9.2 pesos.

By the time it gets to the consumer, a 20-kilogram tank costs 280 pesos. However, Landeros predicts that price will drop to 200 pesos, a significant change in a country whose propane gas consumption for domestic use is said to be the highest in the world, used by 80% of the population.

Annual sales are worth an estimated US $8.5 billion.

Gas distributors expect consumption to rise further following the decline in price, perhaps reversing an upward trend in the use of wood and charcoal, which has risen in rural areas from 36 to 39%, said Landeros, with negative implications for health and the environment.

Although new pipelines are delivering natural gas to more of the country, there isn’t enough infrastructure in place for its household distribution in large urban areas, so propane enjoys widespread use. Residential customers represent 60% of consumption, followed by commercial consumers at 14%, automotive fuel at 10% and industrial at 9%.

The new import and pricing regime, a product of energy reforms, is not only expected to bring price reductions but it’s already changing the face of the highly fragmented gas distribution business.

The big players — four companies control about 40% of the market — are buying up the smaller ones, of which there are some 500. Money is also being invested in ships and private terminal facilities to bring more LPG into Mexico.

Source: El Economista (sp), Milenio (sp), The Oil & Gas Year (en)

Peso at Record Low, Growth Forecast Cut

Mexico News Daily reported "The peso plunged today to a record low of 17.28 to the dollar to crown a week of dismal news, including another reduction in the growth forecast for this year, lower industrial output, sliding oil prices and worries about U.S. interest rates, China and Greece.

The Finance Secretariat yesterday reduced its forecast for growth this year to 2% to 2.8%, down from May’s figures of 2.2% to 3.2%. The Bank of Mexico lowered its forecast last week to 1.7% to 2.5%.

The Mexican economy expanded by 0.5% in the second quarter, which was just above expectations. But industrial output was flat, another cause for concern, as exports to the U.S. were uneven and oil production continued to drop.

Those two factors are weighing on the economy, said Undersecretary of Finance Fernando Aportela. And Deutsche Bank economist Alexis Milo said industrial output “remains the main concern for growth.”

If there was any good news it was in the 0.9% expansion in the second quarter of the service sector, the strongest in a year.

Source: Reuters (en), Bloomberg (en)

Mexican Peso Plunges To 16/USD - Record Lows

The Mexican Peso has devalued 23.5% in the last 12 months, breaking 16.00/USD for the first time in history today.

Charts: Bloomberg

This is the fastest collapse in the currency since Lehman.

This is terrific for tourists and for expats, but it is a hardship for the Mexican people. Prices will be surging and it will make it harder for everyone in the end.