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There is an unwarranted assumption that market prices are always right, and represent “fair value”. In the case of commodities, particularly metals, this is not necessarily true, because regulated financial markets make it too easy for government agencies and large banks to game the system.

Take the case of a country like China, which is the largest consumer of copper. Does it passively buy its copper through the market? No. Instead it strikes a price with a supplier, such as a Zambian copper mine, based on the London market price, bypassing the market entirely. If China plays no part in setting the reference price in London, the Zambians can be satisfied the price is fair; but if China or her agents suppressed the price of copper in the market before the price is set, the Zambians would be right to be upset.

Now, we do not know if China or her agents drive the copper price down, by placing a relatively small paper order so that the large off-market physical deal is priced favourably, but it is obviously in her interest to do so. Another metal where this could apply is silver.

We need to bear in mind three things about China and silver. She is the world’s largest industrial user, she is almost certainly the world’s largest refiner, and the government owns all the refineries. China imports large quantities of doré ¹ and also base metal ores containing silver. So how she goes about this business is highly relevant to the silver price, and the following is an example of how it works.

…click on the above link to read the rest of the article…

Why deflation is unlikely

May 3, 2015

Why deflation is unlikely

Financial markets are becoming aware that the US economy is stalling, so investors increasingly take the view that with demand likely to stagnate or even fall, prices for goods and services will soften. This is already threatening to be the situation in a number of other advanced nations, with negative interest rates to combat it becoming commonplace. For this reason, gold and silver priced in dollars are expected by many traders to drift lower.

Putting the prices of precious metals to one side for a moment, there are some serious issues with this analysis. Let us assume for a moment that the US economy does stall; the text-books tell us supply and demand for goods and services will rebalance at lower prices. This was what effectively happened in the wake of the Lehman Crisis, when energy, metals and precious metal prices all fell sharply and large discounts for manufactured capital goods became available. This does not mean that second time round (and a sliding US economy could create the sort of financial strains that make Lehman look like a walk in the park), the same thing will happen again. Indeed, for next time the central banks already have a plan to contain the situation based on their experience in the Lehman Crisis. It involves the rapid expansion of money, which to the Federal Reserve System (“Fed”) at least has been proven on recent experience to have little or no inflationary consequences whatever.

We therefore know something we did not know in the wake of August 2008, when the imminent collapse of the global banking system drove everyone to increase their cash balances. This time we know that last time’s guarantees of $13 trillion, or whatever sum you care to think of, will yet again be provided by the Fed, backed by hard cash on demand. Forget bail-ins; they are for dealing with one-off bank insolvencies, not a wider systemic crisis.

…click on the above link to read the rest of the article…

SoT Ep 17 – Bix Weir: Gold, Silver And The End Game

April 26, 2015

SoT Ep 17 – Bix Weir: Gold, Silver And The End Game

When the bond market collapses it will make the stock market crash look like a day at the beach. – Bix Weir, Shadow of Truth

How much gold does China’s Central Bank/Government currently own? How much will they admit to owning when they update their holdings in June? Estimates of China’s gold holdings range anywhere from 4,000 tonnes to 40,000 tonnes. No one knows how much gold they will report, but it is highly probable that the number they do report is a number that they want the mainstream world to believe and there’s probably a lot of thought that has gone into masterminding this disclosure.

Bix connects the genesis of the rigging of the stock market to computer programs written originally by Alan Greenspan using BASIC programs. Greenspan was high school classmates with the co-inventor of BASIC – John Kemeny. This was some fascinating history with which I was not aware, but I have been able to corroborate the information.

So what will the end-game look like as it unfolds? Bix offers an optimistic vision in which the “good guys” are able to push out and eliminate the “bad guys” and the system “reset” we all know is coming will provide the foundation for new beginning and better world.

We think you’ll find this an engaging and interesting conversation we have with Bix. He’s clearly done a lot of research and offers some extremely interesting insights and viewpoints:

…click on the above link to view the video…

Why Is JP Morgan Accumulating The Biggest Stockpile Of Physical Silver In History?

April 25, 2015

Why Is JP Morgan Accumulating The Biggest Stockpile Of Physical Silver In History?

Why in the world has JP Morgan accumulated more than 55 millionounces of physical silver? Since early 2012, JP Morgan’s stockpile has grown from less than 5 million ounces of physical silver to more than 55 million ounces of physical silver. Clearly, someone over at JP Morgan is convinced that physical silver is a great investment. But in recent times, the price of silver has actually fallen quite a bit. As I write this, it is sitting at the ridiculously low price of $15.66 an ounce. So up to this point, JP Morgan’s investment in silver has definitely not paid off. But it will pay off in a big way if we will soon be entering a time of great financial turmoil.

During a time of crisis, investors tend to flood into physical gold and silver. And as I mentioned just recently, JPMorgan Chase chairman and CEO Jamie Dimon recently stated that “there will be another crisis” in a letter to shareholders…

Some things never change — there will be another crisis, and its impact will be felt by the financial market.

The trigger to the next crisis will not be the same as the trigger to the last one – but there will be another crisis. Triggering events could be geopolitical (the 1973 Middle East crisis), a recession where the Fed rapidly increases interest rates (the 1980-1982 recession), a commodities price collapse (oil in the late 1980s), the commercial real estate crisis (in the early 1990s), the Asian crisis (in 1997), so-called “bubbles” (the 2000 Internet bubble and the 2008 mortgage/housing bubble), etc. While the past crises had different roots (you could spend a lot of time arguing the degree to which geopolitical, economic or purely financial factors caused each crisis), they generally had a strong effect across the financial markets

…click on the above link to read the rest of the article…

The Rehypothecation of Gold, and Why It Matters

April 24, 2015

The Rehypothecation of Gold, and Why It Matters

Claiming to own X quantity of gold is one thing, and reporting how many times the gold has been pledged as collateral is another.

When correspondent Scott A. Batten offered to write an explanation of the rehypothecation of gold and why it matters, I quickly accepted. Like many others, I have breezed over the word rehypothecation with the basic understanding that it means assets pledged by counterparties (such as the infamous copper stored in Chinese warehouses) are reused as collateral/repledged–in effect, the same assets are pledged as collateral multiple times.

But beyond this, I have not had a clear understanding of how the rehypothecation of gold reserves threatens the whole shaky edifice of Infinite Greed, oops, I mean neoliberal capital markets.

Here is Scott’s commentary:

When introducing a new concept, it is best to start with the definition of the words to be used. In this case, the discussion of rehypothecation and how it places the world at risk with the fun and games played in the stock market.

Rehypothecation:

Rehypothecation occurs when your broker, to whom you have hypothecated — or pledged — securities as collateral for a margin loan, pledges those same securities to a bank or other lender to secure a loan to cover the firm’s exposure to potential margin account losses.

When you open a margin account, you typically sign a general account agreement with your broker, in which you authorize your broker to rehypothecate.

…click on the above link to read the rest of the article…

This Is What Gold Does In a Currency Crisis

December 18, 2014

This Is What Gold Does In a Currency Crisis.

To say that gold is in a bear market is to misunderstand both gold and markets. Gold isn’t an investment that goes up and down. It is money in the most basic store-of-value sense. Most of the time it just sits there, and when its price changes in local currency terms that says more about the local currency than about gold.

But when currencies collapse, gold shines.

Consider the above from the point of view of a typical Russian. The ruble is tanking (no need to understand why — all fiat currencies go this way eventually and the proximate cause is almost irrelevant). Russians who trusted their government and kept their savings in, say, a bank account, are losing their shirts. But those who own boring, doesn’t-pay-interest, in-a-bear-market gold have seen their capital appreciate in local currency terms by about 60 percent in just the past month. They’re not “making money,” but they are preserving wealth.

…click on the above link to read the rest of the article…

7 Questions Gold Bears Must Answer | Casey Research

December 10, 2014

7 Questions Gold Bears Must Answer | Casey Research.

A glance at any gold price chart reveals the severity of the bear mauling it has endured over the last three years.

More alarming, even for die-hard gold investors, is that some of the fundamental drivers that would normally push gold higher, like a weak US dollar, have reversed.

Throw in a correction-defying Wall Street stock market and the never-ending rain of disdain for gold from the mainstream, and it may seem that there’s no reason to buy gold; the bear is here to stay.

If so, then I have a question. Actually, a whole bunch of questions.

If we’re in a bear market, then…

Why Is China Accumulating Record Amounts of Gold?

Mainstream reports will tell you Chinese imports through Hong Kong are down. They are.

But total gold imports are up. Most journalists continue to overlook the fact that China imports gold directly into Beijing and Shanghai now. There are at least 12 importing banks—that we know of.

Counting these “unreported” sources, imports have risen sharply. How do we know? From other countries’ export data. Take Switzerland, for example:

…click on the above link to read the rest of the article…

It Wasn’t The Swiss: Continuing Plunge In GOFO Means No Easing Of Worst Gold Shortage In Over A Decade | Zero Hedge

December 1, 2014

It Wasn’t The Swiss: Continuing Plunge In GOFO Means No Easing Of Worst Gold Shortage In Over A Decade | Zero Hedge.

Yesterday, when we commented on what was largely a pre-determined outcome of the Swiss gold referendum, we said that there still “is the question of what happens to the tension in the gold swap market: as noted last week, the 1 Month GOFO rate had tumbled to the most negative in over a decade. It was not clear if this collateral gold squeeze was the result of Swiss referendum overhang or due to other reasons. The market’s reaction on Monday should answer those questions.”

Well, a few hours ago we got the GOFO update for the “day after” and the answer is clear: it wasn’t fear of the Swiss referendum after all because the 1 Month GOFO just crashed even deeper into negative territory with the entire curve through 6M now red, and with 12 month GOFO just 0.6 bps away from negative for the first time. At this rate, tomorrow’s update will suggest that big institutions expect the gold swap shortage to persist through the end of 2015!

Also, judging by the gold reaction, which is about $50 from the overnight lows, someone else appears to have noticed that the rather shocking shortage of synthetic gold among institutions, which is finally seeping through into that whole “price discovery” process, where supply and demand actually matter.

…click on the above link to read the rest of the article…

This Sunday may mark the end of Western monetary dominance

November 29, 2014

This Sunday may mark the end of Western monetary dominance.

Walking down the streets of Constantinople in the early Middle Ages, you would have immediately felt the energy and prosperity.

Constantinople was one of the wealthiest, most advanced cities in the world, and some historians estimate its population could have been as high as 500,000 people.

Byzantine architecture in Constantinople was world famous, and local artists were producing mosaics that are still regarded as some of the finest ever made.

At this point in history, wealth and power in the world was clearly concentrated in the East.

Europe was nothing more than a plague-infested backwater. Constantinople flourished. And even further to the east, China was sporting some of the most advanced technology in the world.

But times changed.

…click on the above link to read the rest of the article…

A Tidal Wave of Gold Repatriations Could be Unleashed – Nathan McDonald – Sprott Money News

November 27, 2014

A Tidal Wave of Gold Repatriations Could be Unleashed – Nathan McDonald – Sprott Money News.

A tidal wave of gold repatriations may have begun. As speculated in my last post, I raised a concern that should be shared with all western Central bankers…a widespread flood of countries demanding their gold back to their home soils.

This notion sounds logical to any sane individual, but to a central banker who is gold negative, this is their worst nightmare. To understand why, you need to step back and see the big picture, which shows the stark reality of how rare gold truly is and how little of it remains in western vaults, despite what the mainstream media would have you believe.

First it was Germany, then it was the Dutch. Soon it could be Switzerland depending on the results of their gold repatriation referendum, which central bankers are nervously awaiting the results. Now, there is France.

There is a strong possibility that France, which is currently part of the problem, could become an ally of the gold community going forward.

…click on the above link to read the rest of the article…

Here Comes France: Right-Wing Leader Marine Le Pen Demands Central Bank Repatriate French Gold | Zero Hedge

November 25, 2014

Here Comes France: Right-Wing Leader Marine Le Pen Demands Central Bank Repatriate French Gold | Zero Hedge.

First Germany, then the Netherlands, perhaps Switzerland this weekend, and now the French right-wing Front National, which shockingly came first in May’s European parliament elections, and whose leader Marine Le Pen is currently polling in first place in a hypothetical presidential election (in both a first and run off round), ahead of president Hollande, has sent a letter to the governor of the French Central Bank, the Banque de France, demanding that France join the list of nations which have repatriated, or at least tried to, their gold.

From her letter, here is the full list of French demands (google translated):

Urgent repatriation on French soil of all of our gold reserves located abroad.
An immediate discontinuation of any gold sales program.
Conversely, a gradual reallocation of a significant portion of foreign exchange reserves in the balance sheet of the Bank of France by buying gold at each significant decrease in the price of an ounce (recommendation 20%) .
A suspension of any financial commitment or loan contract would wager that our gold reserves.
At the patrimonial and financial balance of the 2004 gold sales transactions ordered by N. Sarkozy.

Her full letter below (link)

…click on the above link to read the rest of the article…

The Reverse Of Central Bank Gold Flows Spells The Death Of The Dollar : SRSrocco Report

November 15, 2014

The Reverse Of Central Bank Gold Flows Spells The Death Of The Dollar : SRSrocco Report.

Something BIG changed after the collapse of the U.S. Investment and Housing Markets as a huge crack in the Fiat Monetary System took place. After the world nearly disintegrated under the debt-based U.S Dollar system in 2008, some of the Central Banks of the world finally found MONETARY RELIGION.

At this time, and according to some of the more enlightened Central Banks, gold was no longer a worthless piece of metal whose sole purpose in government was to be pawned off to support a worthless paper monetary system. In just a few years time, the huge flood of Central Bank gold into the market dried up and switched to become a large source of demand.

This can be clearly seen in the chart below:

From 2003 to 2009, the Central Banks flooded the world with 2,880 metric tons (mt) of gold. Not only was this a large liquidation of Central Bank gold at very low prices, but it also acted as means of suppressing the paper price by providing extra gold supply to the market.

…click on the above link to read the rest of the article…

“Paper Gold” and Its Effect on the Gold Price | Casey Research

November 14, 2014

“Paper Gold” and Its Effect on the Gold Price | Casey Research.

Gold dropped to new lows of $1,130 per ounce last week. This is surprising because it doesn’t square with the fundamentals. China and India continue to exert strong demand on gold, and interest in bullion coins remains high.

I explained in my October article in The Casey Report that the Comex futures market structure allows a few big banks to supply gold to keep its price contained. I call the gold futures market the “paper gold” market because very little gold actually changes hands. $360 billion of paper gold is traded per month, but only $279 million of physical gold is delivered. That’s a 1,000-to-1 ratio:

Market Statistics for the 100-oz Gold Futures Contract on Comex
	Value ($M)
Monthly volume (Paper Trade)	$360,000
Open Interest All Contracts	$45,600
Warehouse-Registered Gold (oz)	$1,140
Physical Delivery per Month	$279
House Account Net Delivery, monthly	$41

We know that huge orders for paper gold can move the price by $20 in a second. These orders often exceed the CME stated limit of 6,000 contracts. Here’s a close view from October 31, when the sale of 2,365 contracts caused the gold price to plummet and forced the exchange to close for 20 seconds:

…click on the above link to read the rest of the article…

Putin “Prepares For Economic War”, Buys Whopping 55 Tonnes Of Gold In Q3 | Zero Hedge

November 13, 2014

Putin “Prepares For Economic War”, Buys Whopping 55 Tonnes Of Gold In Q3 | Zero Hedge.

Just as China is buying ‘cheap’ oil with both hands and feet, so Russia, according to the latest data from The World Gold Council (WGC) has been buying gold in huge size. Dwarfing the rest of the world’s buying in Q3, Russia added a stunning 55 tonnes to its reserves, as The Telegraph reports, Putin is taking advantage of lower gold prices to pack the vaults of Russia’s central bank with bullion as it prepares for the possibility of a long, drawn-out economic war with the West.

Russia bought more gold in Q3 then all other countries combined…

* * *

…click on the above link to read the rest of the article…

ISIS Unveils Its New Gold-Backed Currency To Remove Itself From “The Oppressors’ Money System” | Zero Hedge

November 13, 2014

ISIS Unveils Its New Gold-Backed Currency To Remove Itself From “The Oppressors’ Money System” | Zero Hedge.

It appears the rumors are true. Islamic State is set to become the only ‘state’ to back its currency with gold (silver and copper) as it unveils the new coins that will be used in an attempt to solidify its makeshift caliphate. ISIS says the new currency will take the group out of “the oppressors’ money system.”

As Zaid Benjamin notes, ISIS releases details of its new currancy with golden 1 & 5 dinar, silver 1, 5, 10 dirham and copper 10 & 20 fils

…click on the above link to read the rest of the article…

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