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Gold – Follow the Yellow Brick Road?
Gold – Follow the Yellow Brick Road?
The following is a veritable tour de force by Nicole Foss on the value of gold in a crashing economy, for different people in different circumstances.
Nicole Foss: In light of the rapidly-propagating loss of confidence, and consequent shift to deflation, with falling prices across the board as a result, it is appropriate to review our stance on gold. The yellow metal is often perceived as a panacea – a safe haven guarding against all manner of potential financial disruption. It has long been our stance at the Automatic Earth that this is far too simplistic a position to take. We live in a complex world for which there are no simple one-dimensional solutions. It is important to distinguish between the markets for paper gold and for physical gold, and to understand the risks inherent in gold ownership in order to manage them. As we wrote back in 2009:
Firstly, the goldbugs are right that physical gold is real money (unlike paper gold, which is just another Ponzi scheme). It has held its value for thousands of years and will continue to do so over the long term. However, that does not mean that gold prices cannot fall or that purchasing gold now is the right way for everyone to preserve capital….People’s circumstances are different. Those circumstances determine their freedom of action, both now and in the future.
Bubble Dynamics
It is our view that (paper) gold has been in a bubble which peaked in 2011, along with the rest of the commodity complex. It has been subjected to the same dynamic as other commodities, which have collectively lost touch with their own fundamentals as they have become increasingly over-financialized. Financialization moves the dynamics into the virtual world, while simultaneously subjecting them to perverse incentives. Substantial price movements having at best a tenuous connection with actual supply and demand are the result.
…click on the above link to read the rest of the article…
Anyone Who Believes The COMEX Numbers Is Very Naive (They Are Much Worse!)
Anyone Who Believes The COMEX Numbers Is Very Naive (They Are Much Worse!)
“The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only.”
– disclaimer now posted on the Comex gold and silver daily warehouse stock report as of Monday, June 3, 2013 – Investment Research Dynamics – June 4, 2013
Yesterday we published an article detailing the Comex gold futures to deliverable physical gold ratio that is now north of 200:1. But an erudite colleague of mine, John Titus of “Best Evidence,” correctly pointed out that: “They are probably bluffing. In other words, the real number is significantly higher than 200:1.”
For the record, John does more thorough research on the economic numbers and reports that he studies than anyone I’ve ever come across. And he does it with the trained analytic eye of a seasoned patent litigation attorney.
Let’s put everything in perspective. The numerical reports from which fancy graphs and and dry detailed data presentations are created originate from the Too Big To Fail Banks. I’ve said for quite some time that IF the bullion banks who control the Comex and the LBMA are submitting honest data reports for the Comex and LBMA, it would be the only business line in which they do not hide the truth and report fraudulent numbers. What is the probability of that?
JP Morgan was recently caught stuffing proprietary Comex futures short-sell trades into the “Managed Money” account category of the COT report. The CFTC scolded JPM and slapped them with a whopping $650,000 – LINK. Does anyone really believe that the CFTC wrist-slapping corrected any fraudulent data reporting by the likes of JP Morgan? Really?
…click on the above link to read the rest of the article…
The Exquisite Market Setup – Monetary Metals Supply-Demand
The Exquisite Market Setup – Monetary Metals Supply-Demand
Interesting Developments in Gold
There is an exquisite setup building once again. Tight fundamentals in the gold market apply upwards pressure on the price. For quite a while, we have been saying gold’s fundamental price was around a hundred bucks above the market price. Well, the market price moved up $46 this week. What happened to the fundamental price? You’ll have to read on to see (no cheating and reading ahead!) but suffice to say it’s quite a bit higher than the market.
Byzantine Empire. Constantine VII Porphyrogenitus, with Romanus I and Christopher. 913-959 AD. Gold Solidus, Constantinople mint. Struck 924-931 AD.
At the same time, the fundamental price of silver is below the market price. We included a graph last week, showing that gold is being sold at a discount and silver at a premium to their fundamental prices. The price of silver moved up this week, though it didn’t move like gold. It was up, then down, then up, then back down, ending a mere nine cents higher than last week. In fact, on Friday, the price of gold went up about 0.8% but the price of silver dropped 1.7%.
And this is the crux. According to popular belief, the prices of the metals are supposed to move together. Silver is supposed to go up when gold goes up, only more. This is due to money printing, inflation, economic fear, anticipation of further policy madness from the Fed, or whatever. It’s much clearer when you price everything in gold.
The fundamentals for silver just aren’t there right now. What happens when a trading thesis is believed by just about everyone?
These are the market upsets about which stories are told years later.
Could we see gold with a 13 handle and silver with a 14 handle? Read on…
…click on the above link to read the rest of the article…
Perth Mint and U.S. Mint Cannot Meet Demand as Gold Bullion Demand Surges
Perth Mint and U.S. Mint Cannot Meet Demand as Gold Bullion Demand Surges
– Perth Mint sees surge in demand and cannot keep up with demand
– “Our biggest restriction is the amount of unrefined gold we’re getting in from producers”
– Very high demand for Perth Mint coins, bars coming from Asia, U.S. and Europe
– U.S. Mint sees highest sales of gold coins in over 2 years
– U.S. Mint restrictions on silver coins due to very high demand
– Gold sentiment has moved from despondency to depression (see chart)
– Current negative sentiment despite strong demand is good contrarian indicator
Perth Mint Gold Bar (1 kilo)
Depressed prices have led to the usual market response, a surge in physical demand for coins and bars globally.
This is confirmed in conversations we have had with our refiner and mint partners in recent days. There are growing shortages of supply of small coins and bars. This is resulting in delays in receiving bullion and indeed to rising premiums.
Asian gold demand picked up this week keeping premiums robust and slightly higher in the world’s top gold buying regions.
Treasurer for the Perth Mint, Nigel Moffatt has said that the mint has seen a surge in demand for physical gold since the price dropped below $1,100 per ounce.
In an interview on Bloomberg’s “First Up” show he said “Our biggest restriction is the amount of unrefined gold we’re getting in from producers”, adding, “everything we get in is going straight out the door as soon as we refine it.”
Moffatt says that the Perth Mint is seeing strong demand for kilo bars which go to Asia – particularly India, China and now Thailand – adding that traditional buyers in Asia tend to “stock up” on gold when the price falls.
There is also a huge demand for coins from individual buyers in the U.S. and Europe:
Gold “is going straight out the door as soon as we can find it.”
…click on the above link to read the rest of the article…
Supply and Demand in the Gold and Silver Futures Markets
Supply and Demand in the Gold and Silver Futures Markets
This article establishes that the price of gold and silver in the futures markets in which cash is the predominant means of settlement is inconsistent with the conditions of supply and demand in the actual physical or current market where physical bullion is bought and sold as opposed to transactions in uncovered paper claims to bullion in the futures markets. The supply of bullion in the futures markets is increased by printing uncovered contracts representing claims to gold. This artificial, indeed fraudulent, increase in the supply of paper bullion contracts drives down the price in the futures market despite high demand for bullion in the physical market and constrained supply. We will demonstrate with economic analysis and empirical evidence that the bear market in bullion is an artificial creation.
The law of supply and demand is the basis of economics. Yet the price of gold and silver in the Comex futures market, where paper contracts representing 100 troy ounces of gold or 5,000 ounces of silver are traded, is inconsistent with the actual supply and demand conditions in the physical market for bullion. For four years the price of bullion has been falling in the futures market despite rising demand for possession of the physical metal and supply constraints.
We begin with a review of basics. The vertical axis measures price. The horizontal axis measures quantity. Demand curves slope down to the right, the quantity demanded increasing as price falls. Supply curves slope upward to the right, the quantity supplied rising with price. The intersection of supply with demand determines price. (Graph 1)
…click on the above link to read the rest of the article…
Gold’s Two Stories: Paper Markets Collapse… While The Retail Public Buys At A Record Pace
Gold’s Two Stories: Paper Markets Collapse… While The Retail Public Buys At A Record Pace
We’ve seen some significant swings in precious metals over the last several years and if we are to believe the paper spot prices and recent value of mining shares, one would think that gold and silver are on their last leg. Last weekend precious metals took a massive hit to the downside, sending shock waves throughout the industry. But was the move really representative of what’s happening in precious metals markets around the world? Or, is there an effort by large financial institutions to keep prices suppressed? In an open letter to the Commodity Futures Trading Commission First Mining FinanceCEO Keith Neumeyer argues that real producers and consumers don’t appear to be represented by the purported billion dollar moves on paper trading exchanges.
With China recently revealing that they have added some 600 tons of gold to their stockpiles and the U.S. mint having suspended sales of Silver Eagles due to extremely high demand in early July, how is it possible that prices are crashing?
As noted in Mike Gleason’s Weekly Market Wrap at Money Metals Exchange, while it appears that gold is currently one of the world’s most hated assets, the retail public continues to buy at a record pace:
The paper market is telling one story. But the actual physical bullion market is telling quite another.
The U.S. Mint has sold over 100,000 ounces of American Eagle gold coins so far in July. That’s the highest monthly demand volume registered since April 2013. And that’s just as of this week. There’s still another week left to go before the final sales tally for Gold Eagles comes in for the month of July. It could be one for the record books with 109,000 1-ounce Gold Eagles sold — with bargain hunters purchasing 6% of the U.S. Mint’s production from Money Metals Exchange.
…click on the above link to read the rest of the article…
Will Puerto Rico Cause An Inadvertent “Black Swan” Derivatives Melt-Down?
Will Puerto Rico Cause An Inadvertent “Black Swan” Derivatives Melt-Down?
I really had not been paying much attention to the Puerto Rico debt situation. After all, $72 billion in debt that might go bad – big deal. The Fed can print up $72 billion in credit lines with the push of a button.
But a friend of mine happened to mention to me today (Monday) that MBIA’s stock was down over 23% and Assured Guaranty’s stock was down over 13%. That woke me up.
MBI guarantees $4.5 billion in par amount of Puerto Rico muni paper. As of it’s latest 10-Q (March 31, 2015), MBI showed a book value of $3.9 billion. Puerto Rico alone could more than wipe out MBI’s net worth. But that’s only a portion of the story. The bigger part of the story is buried off-balance sheet in the footnotes in opaque financial structures called Variable Interest Entities (VIE’s). Remember those from 2008? I remember them vividly.
The VIEs are the off-balance sheet vehicles that triggered the massive chain of counterparty defaults which de facto collapsed the U.S. financial system in 2008. The VIEs are where the credit default swaps and other nebulous forms of OTC derivatives bet slither around.
Companies like MBI and AMBAC underwrite credit “enhancement” guarantees on these massive cesspools of debt – and the associated derivatives that are “wrapped around” the debt structures – and stick them in VIEs. MBI’s 10-K has several pages of footnotes which vaguely describe the contents of its VIEs. The problem is that MBI and its ilk are thinly capitalized relative to the potential size of the liabilities they face if the credit markets become volatile to the downside.
Toxicity plus toxicity does not equal purification. But VIEs that contain off-balance sheet debt and derivative guaranteed equals toxicity cubed, at least. In other words, whatever MBI lists as its “net” credit exposure in its financials, take that number and, at the very least, triple it.
…click on the above link to read the rest of the article…
‘Titanic’ Global Economy May “Collapse” Warn HSBC – Gold Is Lifeboat
‘Titanic’ Global Economy May “Collapse” Warn HSBC – Gold Is Lifeboat
-“The world economy is like an ocean liner without lifeboats …” – HSBC
– Four areas of high risk identified by HSBC
– Risk of stock market crash
– Pension funds and insurers may not meet obligations
– Chinese recession may drag U.S. into recession or depression
– Premature rate rise would expose very fragile global economy
– “There aren’t enough lifeboats to go round”
– Gold vital lifeboat when global ship strikes iceberg
The chief economist of the world’s third largest bank, HSBC’s Stephen King, has compared the global economy to the Titanic.
In a note to clients on Wednesday he wrote “We may not know what will cause the next downswing but, at this stage, we can categorically state that, in the event we hit an iceberg, there aren’t enough lifeboats to go round.”
“The world economy is like an ocean liner without lifeboats.” As we have been warning in recent months, when another recession arrives, governments do not have the ability or the reserves to prop up the economy like they did in 2008.
Global debt has soared by 40 percent since the Great Recession. We now have a staggering $200 trillion of debt globally, or almost three times the size of the global economy. It would be a “truly titanic struggle” for policymakers to right the economy, King said.
He believes that we are now nearer to the next global recession than we are to the last one which ended six years ago. In that time, however, the world has amassed mountains of new unpayable debt – expanding 25% in the last six years – and the U.S. economy has been sluggish despite an unprecedented wave of money printing which was intended to boost the economy. Indeed, post recession growth has never been so anaemic in recent history.
…click on the above link to read the rest of the article…
