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Real-World Problems: The Current State of The Gold Market In Plain Language
Real-World Problems: The Current State of The Gold Market In Plain Language
There have been recent rumors in the gold market about the availability of physical gold. Some social media personalities and news agencies have claimed that there is a shortage of physical gold on the market. However, it is not so much about a shortage of gold, but rather a sudden demand for gold in places where it cannot be quickly supplied in the desired form. 
Gold Is Now “Unobtanium”
Gold Is Now “Unobtanium”
By now it becoming clear to many that demand for precious metals, as the world ‘turns’, is far outpacing supply as major gold suppliers and sellers exclaim “there is no gold.”
One glance at APMEX pages and two things are immediately clear:
1) There is no gold or silver….
2) And if there is, the premium for physical gold and silver over paper is massive…
Put in context, this 100% premium for silver is shocking (h/t @JanGold_)
And the mainstream media is starting to notice as DollarCollapse.com’s John Rubino points out, The Wall Street Journal just published the kind of article gold bugs dream of… Here’s an excerpt:
Coronavirus Sparks a Global Gold Rush
Epic shortage spooks doomsday preppers and bankers alike; ‘Unaffordium and unobtanium.’
It’s an honest-to-God doomsday scenario and the ultimate doomsday-prepper market is a mess.
As the coronavirus pandemic takes hold, investors and bankers are encountering severe shortages of gold bars and coins. Dealers are sold out or closed for the duration. Credit Suisse Group AG, which has minted its own bars since 1856, told clients this week not to bother asking. In London, bankers are chartering private jets and trying to finagle military cargo planes to get their bullion to New York exchanges.
It’s getting so bad that Wall Street bankers are asking Canada for help. The Royal Canadian Mint has been swamped with requests to ramp up production of gold bars that could be taken down to New York.
The price of gold futures rose about 9% to roughly $1,620 a troy ounce this week and neared a seven-year high. Only on a handful of occasions since 2000 have gold prices risen more in a single week, including immediately after Lehman Brothers filed for bankruptcy in September 2008.
…click on the above link to read the rest of the article…
“There’s No Gold” – COMEX Report Exposes Conditions Driving Physical Crunch
“There’s No Gold” – COMEX Report Exposes Conditions Driving Physical Crunch
Early this week, we were among the first to report on the “break down” in precious metals markets.
While the demand for gold has been soaring as a safe haven asset amid the multiple global crises we are currently facing, forced paper gold liquidation (as leveraged funds scramble to cover margin calls) and unprecedented logistical disruptions created a frantic hunt for actual bars of gold.
Specifically, as Bloomberg details, at the center of it all are a small band of traders who for years had cashed in on what had always been a sure-fire bet: shorting gold futures in New York against being long physical gold in London. Usually, they’d ride the trade out till the end of the contract when they’d have a couple of options to get out without marking much, if any, loss.
But the virus, and the global economic collapse that it’s sparking, have created such extreme price distortions that those easy-exit options disappeared on them. Which means that they suddenly faced the threat of having to deliver actual gold bars to the buyers of the contract upon maturity.
It’s at this point that things get really bad for the short-sellers.
To make good on maturing contracts, they’d have to move actual gold from various locations. But with the virus shutting down air travel across the globe, procuring a flight to transport the metal became nearly impossible.
If they somehow managed to get a flight, there was another major problem. Futures contracts in New York are based on 100-ounce bullion bars. The gold that’s rushed in from abroad is almost always a different size.
…click on the above link to read the rest of the article…
CME Urged To Change Physical Gold Delivery Rules Amid Market “Breakdown”
CME Urged To Change Physical Gold Delivery Rules Amid Market “Breakdown”
Over the past decade, one of the most fascinating observations in the world of precious metals has been the bizarre decoupling in the supply/demand dynamics and thus pricing, between paper and physical gold.
And, as we detailed yesterday, that decoupling has become extreme.
A surge in demand for physical gold – that results in precious metal vendors and exchanges becoming sold out in very short notices – has created shortages in some geographical locations that is stressing gold markets drastically.
Don’t take our word for it. Even the venerable Financial Times reports that traders have reported and lamented a growing global shortage of gold bars, as the coronavirus outbreak both disrupts supply and stokes demand, “with one business comparing the frenzied buying of the yellow metal with the consumer rush for toilet roll.“
Yesterday, Saxo Bank’s head of commodity strategy, Ole Hansen, observed that a lockdown is occurring in two biggest gold hubs in the world, New York and London, so many traders are working from home. “This has caused a breakdown in the marketplace”, he said.
“There is no price discovery in the market right now,” he said Tuesday morning.
“If you need to borrow gold in the OTC [over-the-counter] markets right now, you are going to pay a king’s ransom.”
And that ‘broken’ market is no more evident than in the decoupling between spot and futures markets.
The gap between gold futures on the CME’s Comex exchange in New York widened above London spot prices by as much as $80 per ounce – or over 4% – on Tuesday. The two usually remain within a few dollars of one another, and the gap skewed trading in the London market, causing activity to fall as traders feared shutdowns of air travel and precious metal refineries due to the coronavirus outbreak will make it harder to ship bullion from London to the United States to meet contractual requirements.
…click on the above link to read the rest of the article…
“The Gold Market Is Breaking Down”: Gold Spreads Explode As LBMA Warns Of Liquidity Problems
“The Gold Market Is Breaking Down”: Gold Spreads Explode As LBMA Warns Of Liquidity Problems
Last night, when observing the unprecedented “gold run” on precious metals dealers which has left all gold vendors with little to no physical gold, we said that “the price of physical gold has decoupled from paper gold” as a result of paper gold liquidations as leveraged funds scramble to cover margin calls using safe assets…
… resulting in an arbitrage that physical gold buyers, i.e., those who don’t have faith in gold ETFs such as the GDX or simply prefer to have possession of the metal, find especially delightful as it allows them to buy physical gold at lower prices than they would ordinarily have access to.
However, we also noted that whereas in the past such conditions were self-correcting, this time it is not only a record surge in demand for physical gold but also a near shut down in supply as the most productive gold refiners, those located in the southern Swiss town of Ticina, namely Valcambi, Pamp and Argor-Heraeus, now appear to be offline indefinitely.
The result is that the spot/futures price divergence discussed last night and further described here, has exploded…
… and on Tuesday morning the divergence that was barely noticeable late Monday has blown out to unprecedented level, with gold futures decoupling and trading far above spot prices.
The near record spread is the widest seen in four years.
As Kitko notes, just before noon EDT, one price vendor was showing spot metal was trading at $1,612.10 an ounce while at the same time showing the Comex April futures were at $1,654.10 an ounce – a spread of $42 an ounce. It was much wider earlier in the day, when as Kitco adds, “nearby futures were more expensive than deferred, a sign of strong demand in any commodity market.”
…click on the above link to read the rest of the article…
Peter Schiff: Fed’s Response To Coronavirus Is Just “Delaying The Day Of Reckoning”
Peter Schiff: Fed’s Response To Coronavirus Is Just “Delaying The Day Of Reckoning”
Peter Schiff appeared on the Quoth the Raven podcast (iTunes, Spotify, YouTube) on Friday, where he and host Chris Irons discussed the impact of the coronavirus on the economy, gold, bitcoin and why he thinks the Fed is not going to be able to stop the upcoming collapse of the financial system. Here are a couple of Schiff’s thoughts from the interview and a link to the full podcast.
Schiff on Gold
“I’ve never seen a less loved bull market in gold than the one we have now,” Schiff says. “The gold traders are so afraid of this rally, they don’t believe in it, they think gold is going to fall any minute now. Meanwhile, we just keep on rising.”
Schiff says in the past, when you don’t see gold miners confirm the rally in gold that it could be a harbinger of bad news. But “gold just keeps rising” Schiff notes, despite that. “I was buying more gold stocks on Friday. I thought it was just an incredible opportunity to increase an allocation that I already had.”
“I don’t think there’s any real money yet” in gold, he says. “There’s day traders in there. But I don’t think you’ve seen pension funds or endowments make any strategic shift into mining stocks,” Schiff says.
“The physical buyers of gold are basically safe haven buyers. When you’re in an environment where central banks are printing money, if you really just want to play it safe, if you want to be out of stocks and out of bonds, what do you buy? You buy gold. You buy real value. Real money.”
…click on the above link to read the rest of the article…
“We Have Never Seen This Before”: The Last Time The Market Did This, FDR Confiscated All The Gold
“We Have Never Seen This Before”: The Last Time The Market Did This, FDR Confiscated All The Gold
To say that moves in the US stock market have been erratic in the past two weeks would be a prodigious understatement: with the Dow Jones swinging by over 1,000 points on nearly 5 occasions in the past two weeks (today’s 970 point move would have been the fifth)…
… traders – holding on for dear life in a market rollercoaster the likes of which have not been seen in years – have given up trying to make sense, and are just praying they don’t lose all their money. “When you have a 4.5% up day in the market and a 2% down day – what does that mean?” Kathryn Kaminski of AlphaSimplex Group told Bloomberg. “It just means we don’t know what’s going on.”
And while futures continue to slide amid a surge in US coronavirus cases late on Thursday with over 2,000 New Yorkers now having self-quarantined, and emboldening what little is left of the bears – recall that heading into this week, single stock/ETF short interest was at all time lows…
… the bulls, who are rapidly losing faith that even the Fed can prop up this market, are pointing to the recent dramatic rebounds in the stocks most recently on Wednesday when the S&P500 surged back above 3,124 (it is now trading well below 2,990), yet which nobody can fully explain because even though there are several catalysts for the rebound that one could point to, historically speaking none of them are entirely satisfying as explanations, and as Nomura’s Masanari Takada writes in his daily Nomura quant note, “we suspect that more than a few investors (whether bearish or bullish) are feeling paralyzed in the face of such unusual swings in the market.”
…click on the above link to read the rest of the article…
Bill Fleckenstein: Coronavirus Will Cause A “Confidence Crisis” In The Fed
Bill Fleckenstein: Coronavirus Will Cause A “Confidence Crisis” In The Fed
Money manager and metals specialist Bill Fleckenstein appeared on the Quoth the Raven Podcast on Sunday to give his thoughts about gold, the market’s reaction to coronavirus and the Fed’s coming “confidence crisis”.
Gold
First, talking about last week’s move in gold, Fleckenstein says he doesn’t attribute the move to margin calls, as many had speculated. He instead says that gold likely just fell victim to “hot money”, which he noted often happens when gold spot rallies hard and the miners don’t follow – exactly what happened last week.
Bill said:
“Gold has gone up, but the mining stocks really didn’t participate. That concerned me because when the mining stock sputter and gold keeps going, then gold gets hit,” he says.
He continued:
“When gold was spiking on the coronavirus news, it didn’t quite act right in conjunction with other things, and I was a little nervous. Then, of course, it got destroyed on Friday. I suspect there was a lot of trend following money in gold. A lot of hot money. Hot money because it’s going up.“
The Market’s Volatility
The rally late last week was because people thought the “Fed was going to save them”. Fleckenstein says he doesn’t believe it to be the case that the Fed is going to give the market a rate cut anytime soon. He thinks the market will have to crash further before central banks intervene.
He also doesn’t think we’ve seen real panic in the equity markets yet.
“When I look at the personalities of some of the absolute crap, like Tesla, they’re still valued like a total joke. I don’t think we saw a hell of a lot of panic,” he says.
“This was not about illiquidity”.
The Fed’s Coming Crisis
…click on the above link to read the rest of the article…
Peter Schiff: The Real Safe-Haven Money Is Going Into Gold
Peter Schiff: The Real Safe-Haven Money Is Going Into Gold
Stock markets tanked on Monday. The Dow Jones was down over 1031 points. It was the biggest drop in two years for the Dow. The Nasdaq shed 355 points. The S&P500 was down 111.
As stocks dropped, the bond market was red-hot. Prices soared and yields dipped to record lows. Bonds are considered a safe-haven, but in his latest podcast, Peter said US Treasuries aren’t a safe-space. When it’s all said and done, the only safe-haven left standing will be gold.
Coronavirus fear was the immediate catalyst for the sell-off as the virus spread outside China, but Peter noted that US stock markets were already vulnerable before the virus outbreak.
Remember, we’re talking about the US stock market that’s at bubble territory, nosebleed valuations, long in the tooth, the longest bull market in US history that has been fueled by the most monetary and reckless fiscal policy in US history. But this is a bubble in search of a pin. So, maybe the coronavirus is going to be the pin. But if we had a healthy market, if we had a healthy economy, it wouldn’t matter about the coronavirus. It’s because the economy is sick. That’s the problem, not the people who are infected with this virus.”
Peter said it looks like the coronavirus is going to have a bigger effect on the global economy than he originally thought. But there is a lot to worry about even if we didn’t have the coronavirus.
So now, when you have this too – you have another straw on a camel’s back that is ready to just implode at any moment because he’s already barely able to support all the straws that are already up there. I mean, hey, why not sell? Why not lighten up in the stock market?”
…click on the above link to read the rest of the article…
Red Gold: China’s Stealth Plan to Use Gold for World Domination
Red Gold: China’s Stealth Plan to Use Gold for World Domination
Gold used to be important.
During and after World War II, every major developed country amassed as much physical gold as they could. It stabilized currencies and signaled independence.
But with the end of the gold standard in 1971, most countries began to sell off their reserves.
So much so that in 1999, an agreement was formed to limit the amount of gold that central banks could sell. Fast forward to today, and Canada’s central bank owns ZERO gold.
Despite the agreement, most countries continued to shed their gold reserves as fast as possible.
That is until a few years ago, when a handful of countries reversed course. Central Banks started buying gold with fury, and they haven’t let up since.
In the final quarter of 2018, central banks purchased more gold than in any other quarter on record.
By the end of the year, central banks collectively held around 1.064 billion ounces of gold (equivalent to 33,200 tons).
That’s about one-fifth of all the gold ever mined.
In the first half of 2019, central banks purchased 11.97 million ounces of gold (374 tons). Once again, that was far more than ever before. And it’s equivalent to one-sixth of total gold demand in that period.
And total central bank gold purchases for 2019 were the second highest they’ve been in the last 50 years (2018 being the first).
The Unusual Suspects in Central Bank Gold Purchases
And the Keyser Söze of gold is Vladimir Putin.
I’ve been very quiet about Russia and Putin the last few years as I’ve been swamped with media requests following the success of my NY Times Bestseller The Colder War.
Don’t underestimate what the Russians are doing, as others are starting to follow…
While the world focuses on China, Russia has positioned itself at the center of the global political chessboard.
…click on the above link to read the rest of the article…
Black Monday: Dow Futures Down 800, Europe Crashes Most In Four Years; Gold, VIX Soars
Black Monday: Dow Futures Down 800, Europe Crashes Most In Four Years; Gold, VIX Soars
And just like that the complacency is gone with a bang.
With traders having learned to ignore coronavirus news thanks to manipulated and fabricated new case “data” out of China showing the pandemic was easing, on Monday markets got a very rude wake up call and plunged after South Korea and Italy reported a sudden surge in news cases as two new offshore viral clusters emerged. As Saxo Bank’s Eleanor Creagh writes, with South Korea – a key supply chain center and logistics hub – now on high alert level, the latest spike in overnight cases is intensifying the already ongoing regional supply chain disruptions.
The coronavirus has now killed 2,592 people in China (and like orders of magnitude more) which has reported 77,150 cases, and spread to some 28 other countries and territories, with a death toll outside of China around two dozen. And while equities to date had been resilient in ignoring the data, with contagion picking up outside of China, complacent markets have woken up to the realities of what has clearly been a huge mispricing of risk, and the result is nothing short of a global bloodbath in what is shaping up to be “Red Monday”:
As a result, US index futures tumbled alongside stocks in Europe and Asia on Monday, as authorities struggled to keep the coronavirus from spreading more widely outside China, and to keep investors happy after China failed to impress markets with the raft of stimulus measures announced over the weekend. Safe-havens such as gold surged and U.S. Treasury yields reached their lowest since mid- 2016, as volatility indicators exploded.
…click on the above link to read the rest of the article…
Demand For Physical Precious Metals Surge Due To Fears About Disruptions In The Global Supply Chain
Demand For Physical Precious Metals Surge Due To Fears About Disruptions In The Global Supply Chain
According to a precious metals dealer I spoke with, the world out on the street is that demand for gold and silver has recently surged due to investor concerns about a disruption to the Global Supply Chain. We are already seeing a massive slowdown in China’s oil demand as official reports show a 20% reduction in oil consumption.
However, I believe China’s oil demand is much lower than the 20% figure reported by Bloomberg and reposted by Gulfnews.com on Feb. 3rd:
According to the article, China’s total oil demand is approximately 14 million barrels per day (mbd). The IEA, International Energy Agency, in their January 2020 OMR Report reported that China’s total oil demand would reach 14,046,000 mbd in 2020. Using the IEA’s data, here is China’s total oil consumption from 2017-2019, including the forecast for 2020, and the significant drop in demand in February:
The Bloomberg article stated that China’s total oil demand was down approximately 3 mbd by early February. Again, the article was published on Feb. 2nd. For China to cut 20% of its oil consumption… THAT’S A BIG DEAL. But, I think it’s much worse than that. According to the next two charts, one is taken from a new article on Gail Tverberg’s Ourfiniteworld.com website, and the other is from Capital Economics.
The first chart from CapitalEconomics.com shows a huge reduction in China’s Daily Passenger Traffic, including road, railway, freight, and ship:
The RED ARROW indicates when Bloomberg reported the 3 mbd decline in China’s total oil demand. Who knows at what date Bloomberg used to base their figure on 3 mbd drop in oil consumption, but this chart shows that total China daily traffic is down about 80% since January if we go by the right-hand scale. Thus, this chart reveals that China’s daily traffic flow has been down approximately 80% for more than two weeks.
…click on the above link to read the rest of the article…
Peter Schiff: Gold Is Your Only Alternative
Peter Schiff: Gold Is Your Only Alternative
Which will outperform in 2020? Gold? Or Equities?
Peter Schiff joined a moderated debate on the subject at the Orlando Money Show. Peter teamed up with Rick Rule to argue for gold, against Louis Navellier and Jeffrey Saut, who contend the stock market is still the place to be. Mark Skousen moderated the debate.
Interestingly, even Navellier admitted that the stock market is getting “a little bubbly.” He said it looks like ’99 all over again – the year before the dot-com bubble popped. But he still thinks there’s money to be made.
Skousen set up the gold argument by bringing up the fact Mark Mobius says buy gold at any price because interest rates are so low and gold is relatively cheap.
Rule said the gold vs. stocks debate is a little bit silly. It’s not necessarily one or the other. The stock market is a market place to buy and sell stocks. Why would you be against the market? Why would you be against every individual company? On the other hand, Rule said he thinks gold is very under-owned. He pointed out that even a reversion to the mean in gold investment would quadruple demand for the yellow metal.
Peter pointed out that gold is beating the S&P 500 this century. The key is to look at what is going on in the broader economy.
We’ve got quantitative easing. We’ve got negative real interest rates. We’ve got massive deficits as far as the eye can see. This is not the same dynamic that we had. You can’t earn. Twenty years ago, 30 years ago, you could put your money in the bank and you could earn 5 or 6%. There was a reason not to own gold becuase there was an opportunity cost. You could actually get interest on your savings. ”
…click on the above link to read the rest of the article…
Gold: A Modern Investment Framework For An Ancient Asset
Gold: A Modern Investment Framework For An Ancient Asset
Gold no longer serves as an official money in the modern financial system, yet it is still considered an important asset due to its established diversification and store of value properties. But what framework(s) should we use to understand the role that gold should play in investment processes and policies? In Part I of this series, I present one useful framework which implies that gold is significantly ‘under-owned’ and, consequently, undervalued at present.
A Brief History of Gold’s Monetary Role
Most investors are familiar with the ancient use of gold and silver as money, and that gold still provided the monetary base for economies well into the 20th century. Indeed, less than a century ago, in the aftermath of WWI and associated large currency devaluations and hyperinflations in Europe, there were several international conferences held to try and strengthen gold’s role as a source of monetary and economic stability. 75 years ago the famous Bretton-Woods conference was held, formally re-establishing gold’s role at the centre of the international monetary system.
For investors of that time, gold held a central role in investment processes. It was the bedrock collateral of the financial system – the ‘risk-free’ asset – and the benchmark for measuring investment performance. Gold was also an instrument that the central banks of the day could use to help contain financial crises. In the event of a run on deposits or an interbank collateral squeeze, central banks could lend out their reserves (normally at penalty rates of interest) in order to buy time for the system to restructure and reorganise. For example, gold lending was one of the actions taken by JP Morgan to help contain the US Banking Panic of 1907. This provided a model for how the Federal Reserve was subsequently designed to act as a lender of last resort.[1]
…click on the above link to read the rest of the article…
