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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. <span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >Real-World Problems: The Current State of The Gold Market In Plain Language</span>“></p>



<p>These availability problems are largely due to what I like to call real world problems. Logistics and production processes play an important role in the journey of the gold from the mine or warehouse to the end-user. </p>



<p><strong>Logistics</strong></p>



<p>After the gold has been mined, the rough gold material is often transported to gold refiners for further processing. Another option is that the gold moves from warehouses around the world in various shapes and sizes to the refineries. In this case, gold is often delivered in the form of roughly 12.4-kilo bars (400 Troy ounces) or as recycling material. </p>



<p><strong>Roughly, a typical gold production chain goes like this:<br></strong>Gold Mine or Other Warehouse – Logistics Company – Refinery – Logistics Company – Mint – Logistics Company – Bullion Dealer – Individual</p>



<p>As you can see from the chain, logistics companies play an important role in the flow of gold. Mostly gold moves with air cargo, and as recent news has shown, international air traffic has fallen significantly. This has caused problems in moving gold from one country to another. </p>



<p>At Voima, the supply chain is a bit shorter because our sourcing department obtains some of our gold directly from the refineries. </p>



<p><strong>The production chain of Voima: <br></strong>Gold Mine or Other Warehouse – Logistics Company – Refinery – Logistics Company – Voima’s Vault Service</p>



<p><strong>Production </strong></p>



<p>…click on the above link to read the rest of the article…</p>
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How Gold Is Manipulated

How Gold Is Manipulated

How Gold Is Manipulated

Is there gold price manipulation going on? Absolutely. There’s no question about it. That’s not just an opinion.

There is hard statistical evidence to make the case, in addition to anecdotal evidence and forensic evidence. The evidence is very clear, in fact.

I’ve spoken to members of Congress. I’ve spoken to people in the intelligence community, in the defense community, very senior people at the IMF. I don’t believe in making strong claims without strong evidence, and the evidence is all there.

I spoke to a PhD statistician who works for one of the biggest hedge funds in the world. I can’t mention the fund’s name but it’s a household name. You’ve probably heard of it. He looked at COMEX (the primary market for gold) opening prices and COMEX closing prices for a 10-year period.

He was dumbfounded.

He said it was is the most blatant case of manipulation he’d ever seen. He said if you went into the aftermarket, bought after the close and sold before the opening every day, you would make risk-free profits.

He said statistically that’s impossible unless there’s manipulation occurring.

I also spoke to Professor Rosa Abrantes-Metz at the New York University Stern School of Business. She is the leading expert on globe price manipulation. She has actually testified in gold manipulation cases.

She wrote a report reaching the same conclusions. It’s not just an opinion, it’s not just a deep, dark conspiracy theory. Here’s a PhD statistician and a prominent market expert lawyer, expert witness in litigation qualified by the courts, who independently reached the same conclusion.

How do these manipulations occur?

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

China’s Gold Hoarding: Will It Cause the Price of Gold to Rise?

China’s Gold Hoarding: Will It Cause the Price of Gold to Rise?

There are reasons to think that the gold price will rise faster than expected.

<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >China’s Gold Hoarding: Will It Cause the Price of Gold to Rise?</span>

Since 2009 China has withdrawn 12,000 tonnes of gold from the rest of the world, where the short and medium-term gold price is set. For reasons I will explain, a tighter market outside of China can make the price of gold price rise faster than many expect. I believe the gold price will rise, because of excessive debt levels around the world, and incessant money printing by central banks. Central banks will try and resolve the debt burden through currency depreciation (inflation). China has been preparing for this scenario by buying gold.

One of the key drivers in recent decades for the US dollar gold price is real interest rates. It is thought that when interest rates on long-term sovereign bonds, minus inflation, are falling, it becomes more attractive to own gold as it is a less risky asset than sovereign bonds (gold has no counterparty risk). However, gold doesn’t yield a return (unless you lend it). So, when real rates rise, it becomes more attractive to own bonds.

Real Interest Rates and US Dollar Gold Price

Although the correlation is clear, it might change in the future. Possibly, when real rates fall, the gold price will rise faster than before. Let me explain why.

In my previous post, we have seen that the gold price in the short and medium-term is mainly set in the West by institutional supply of and demand for above-ground stocks. For the gold price, what matters is how much above-ground stock is in strong hands, i.e., owners of gold that will not be easily persuaded to sell.

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

ANALYSTS TOTALLY WRONG ABOUT GOLD: Top Gold Miners Production Cost Still Provides Floor In The Market Price

ANALYSTS TOTALLY WRONG ABOUT GOLD: Top Gold Miners Production Cost Still Provides Floor In The Market Price

While the debate on the dynamics of the gold market continues, at least the top gold miners production cost provides us with a floor price.  Or rather, a basic minimum price level.  I get a good laugh when I read analysts suggesting that the gold price will fall back to $450-$700.  For the gold price to fall back to $450, then we would need to lose 95+% of global gold mine supply.

Due to two factors of rising energy prices and falling ore grades in the gold mining industry, COSTS WILL NEVER go back to where they were a decade ago.  Again, the only way for that to happen is if a large percentage of gold mine production was shut down.

Furthermore, analysts continue to wrongly forecast the gold price based mainly on gold supply and demand forces.  This is a NO-NO.  The overriding factor that has determined the gold market price has been the gold mining industry cost of production.  I proved this point by showing the increase in the gold production cost at Homestake Mining (the United States largest gold mine 1970’s) from 1971-1979:

Homestake Mining was producing gold at the cost of $42 an ounce in 1971 when the average price was $40.80.  Thus, Homestake Mining lost money producing gold in 1971.  However, as energy-driven inflation ravaged throughout the economy as the price of a barrel of oil increased from $2.24 in 1971 to $31 in 1979, this impacted the cost to produce gold significantly.  By 1979, Homestake Mining’s gold production cost jumped to $247 an ounce.

While it is true that the tremendous demand for gold by investors also drove the gold price to new highs in the 1970s, we can see that at least 80+% of the increase in the gold price from 1971-1979, in the case of Homestake Mining, was due to higher production costs.

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

Gold Re-Monetization Is Much Closer Than Many Realize

Gold Re-Monetization Is Much Closer Than Many Realize

Monetary policy is largely responsible for the market conditions we have today. Whether we like it or not, central planning in the capital markets will remain with us for the foreseeable future. Capital flows will be as much a function of market fundamentals as they are of policy.

This is very true for gold.

Gold was formally de-monetized in 1978 with the Jamaica Accord. It is now being re-monetized. This paper aims to answer the questions of how and why.

Serious players in the world of finance are acquiring enormous sums of physical gold. In the last quarter alone (Q3 2018), central banks added 148 metric tonnes of physical gold to their reserves.

February 2018 marked a major turning point for gold – monetary gold to be more specific – when the Swiss National Pension Fund switched out of synthetic gold derivatives into physical gold. Monetary gold is defined, in the new Basel III banking capital rules, as “physical gold held in their own vaults or in trust.”

The Swiss decision complied with the new banking standards regarding capital adequacy as it relates to solvency and viability. All Systemically Important Financial Institutions (SIFI) must comply with the new rules for Net Stable Funding Ratio (NSF) and Liquidity by January 2019.

Lessons learned from the last liquidity crisis, when Lehman Brothers nearly caused a global financial meltdown, forced a rethink in how assets held on an institution’s balance sheet are to be valued.

Counter-party risk became extremely important again. In short, when trust between SIFIs fails, liquidity dries up as lending ceases due to solvency fears. The need for liquidity was a key change in the creation of the new standards, and it shone a spotlight on an asset that had largely been ignored for this purpose – physical gold.

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

Central Bank Gold Purchases Now Control 10% Of The Total Market

Central Bank Gold Purchases Now Control 10% Of The Total Market

Central Banks have become big players in the gold market and now control 10% of the total market demand.  Now, this wasn’t always the case.  Just ten years ago, the Central Banks were main suppliers via their policy of dumping gold into the market.  However, the Central Bank strategy to sell gold into the market to depress the price, had quite the opposite effect.

For example, Central Banks dumped over 2,600 metric tons of gold into the market between 2003 and 2007, according to data from the World Gold Council.  So, what kind of impact on price did the sale of 84 million oz of Central Bank gold have on the market during that period?  The price of gold nearly doubled from $363 in 2003 to $695 in 2007.

The last year Central Banks sold gold into the market was in 2009.  However, it was only 34 metric tons.  Since 2010, Central Banks have been net purchases of gold.  Between 2010 and 2017, Central Banks purchased nearly 3,700 metric tons (mt) or a stunning 119 million oz of gold.

And Central Bank gold purchases don’t seem to be slowing.  The World Gold Council (WGC) just released yesterday in their Market Update: Central bank buying activity, that official gold purchases are now 10% of the total market.

Using data from the WGC Demand Trends, Central Banks purchased 193 mt of gold in the first half of 2018, representing 10% of the total global demand:

The majority of the official gold purchases during the 1H of 2018 came from Russia, Turkey, and Kazakhstan.  Now, what a difference than just a little more than a decade ago when Central Banks were selling rather than buying gold.

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

Has The PBOC Taken Control of The Gold “Market”?

Has The PBOC Taken Control of The Gold "Market"? - Craig Hemke (10/07/2018)

The evidence is mounting, and we invite you to consider the implications.

First, a few items of background information. Perhaps these are unrelated, perhaps they are not.

Fast forward to the summer of 2018. Two weeks ago, our fellow columnist here at Sprott Money, David Brady, wrote an insightful piece regarding a new correlation for the global gold price—the USDCNY—which is the exchange rate of US$ to Chinese yuan. Though the PBOC maintains a “peg” for this rate, the rate is allowed to fluctuate if the PBOC deems it necessary. Before we go on, I urge you to read David’s column: https://www.sprottmoney.com/Blog/gold-the-chinese-…

Now consider this. Since the PBOC began to actively devalue the yuan versus the dollar four weeks ago, the price of COMEX gold has tracked the yuan nearly tick-for tick. This is clearly shown on the chart below. We’ve taken the USDCNY and inverted it to CNYUSD. This is shown in candlesticks. The price of the Aug18 COMEX gold is represented as a blue line.

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

Top Gold Producers Mine Supply To Fall Right When Potential Investment Demand To Surge

Top Gold Producers Mine Supply To Fall Right When Potential Investment Demand To Surge

The gold market is setting up for a perfect storm as the top mining producers’ supply is forecasted to decline right when demand is likely to surge.  The surge in gold demand will occur as the broader stock markets roll over and begin their inevitable massive correction.  Due to the tremendous amount of leverage in the system, the coming market correction will be quite violent at times.  If investors believe the correction is over, and high times are here again, then they haven’t learned anything about the cyclical nature of markets.

For example, I have stated that Bitcoin and the Crypto Market are classic bubbles, and wasn’t at all surprised by the collapse of the Bitcoin price from $20,000 to $6,500 in a short period.  However, now that Bitcoin and the Crypto Market have reversed, I see analysis and comments that anyone suggesting that Bitcoin is in a bubble is flat out wrong.  I would kindly like to remind these individuals that markets don’t go down in a straight line.

We can see this quite clearly in the following two charts which came from the article, As Bitcoin Nears $11,000, Here’s A History Of Its Biggest Ups And Downs:

The price of Bitcoin in 2013 surged higher, crashed and then corrected higher before falling over the following year.  The same thing took place in 2013 and 2014:

At the end of 2013, the Bitcoin price surged more than ten times to a high of $1,150 before falling to nearly $500, reversed direction and shot back up to $900+.  However, over the next year, the Bitcoin price trend was lower.

Now, I put this chart together to compare the current Bitcoin price trend with the previous graphs:

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

U.S. Gold Market Switches From A Surplus In 2016 To Deficit In 2017

U.S. Gold Market Switches From A Surplus In 2016 To Deficit In 2017

The U.S. gold market suffered a net deficit this year compared to a small surplus in 2016.  This was quite interesting because U.S. physical gold demand will be down considerably this year.  In 2016, total U.S. gold demand was 212 metric tons versus an estimated 150 metric tons this year.  The majority of the decline in U.S. gold demand is from the physical bar and coin sector that is down 56% in the first three quarters of 2017 compared to the same period last year.

So, why will the U.S. gold market suffer a deficit if gold demand is down sharply this year?  Well, it seems as if the culprit is the huge increase in net gold exports.  Last year, the U.S. imported 374 metric tons (mt) of gold and exported 398 mt for a net 24 mt deficit.  However, this year, estimates for U.S. gold imports will fall to 250 mt while exports increase to 475 mt.  Thus, the U.S. net export deficit will be 225 mt in 2017:

However, if we look at all the data in the chart above, the U.S. gold market will experience a net 76 mt deficit in 2017 versus a 44 mt surplus last year (bars right-hand side of chart).  Again, we can see that U.S. gold imports are estimated to decline significantly this year to 250 mt compared to 374 mt in 2016.  Furthermore, total U.S. gold exports are forecasted to increase to 475 mt this year versus 398 mt in 2016.

When we factor in U.S. gold mine supply, domestic consumption, and gold scrap supply, the market will go from a small 44 mt surplus in 2016 to a 76 net deficit this year.

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

THE BLIND CONSPIRACY: The Gold Market Is Heading Towards A Big Fundamental Change

THE BLIND CONSPIRACY: The Gold Market Is Heading Towards A Big Fundamental Change

The gold market is heading towards a big fundamental change that few are prepared.  While many analysts in the alternative media community suggest that the gold price is manipulated due to Fed and Central bank intervention, there is another more obscure rationale that is the likely culprit.  I call it, “The Blind Conspiracy.”

But, before I get into the details of this Blind Conspiracy, there are a few very troubling developments in the alternative media community that I would like to discuss first.  The bulk of these concerns has to do with the increasing amount of faulty analysis and misinformation as well as the peddling of lousy conspiracy theories on the internet.

Why is this a big problem?  Because a lot of readers are being misguided as to the true nature of the serious predicament we are facing.  Half of the emails that I receive are from readers who are bringing up doubts based on other analysts’ faulty analysis and misinformation.  Thus, it takes a great deal of effort to provide the real facts and data to counteract the damage being done by certain individuals, even those with good intentions.

Furthermore, an increasing number of so-called precious metals analysts have switched over to Bitcoin and other cryptocurrencies, believing that gold and silver will no longer function as monetary metals.  However, some of these analysts suggest that silver will still be valuable because it will be used as critical raw material in advanced products in our new HIGH-TECH WORLD.  I find this idea of a future modern high-tech world quite amusing when we can’t even maintain the failing complex infrastructure we are currently using.

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

The ONLY Variable That Matters To The Price Of Gold

The ONLY Variable That Matters To The Price Of Gold

 

There are all sorts of positive fundamentals when it comes to the price of gold. There are the positive supply/demand fundamentals. The gold market is in a supply deficit. Mine reserves are at a 30-year low . The price of gold is below what is necessary to sustain the gold mining industry .

There are the positive geopolitical fundamentals. The world’s two most-unstable leaders – Kim Jong-un and Donald Trump – have been constantly trading threats and insults. And both of these people have nuclear weapons at their disposal. There is the endless “War on Terror”.

There are the positive economic fundamentals. Western real estate bubbles in major urban centers are at never-before-seen levels of insanity. Western markets are generally also at bubble levels, with U.S. markets representing bubbles on steroids . Western governments are bankrupt.

In relative terms, none of these fundamentals count .

There is one more important fundamental for the price of gold. Not only is it the most important fundamental, but it involves a variable which dwarfs all other fundamentals in magnitude — combined.

Regular readers have heard many times before that gold (and silver) is “a monetary metal” . The definition is simple. Gold is money. Therefore the price of gold must change proportionate to changes in the supplyof other forms of “money” (i.e. currency).

This is not a theory. It is a function of simple arithmetic. An elementary numerical example will illustrate this principle.

Suppose (in the entire world) there was a total of 10 oz’s of gold. Suppose also (in this hypothetical world) that there was a total of only $10,000 U.S. dollars. And in this hypothetical world, the price of gold is $1,000/oz.

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

Sprott Unleashed: “Everything is a Lie… They’ve Got To Pretend There Is An Economic Recovery Happening”

Sprott Unleashed: “Everything is a Lie… They’ve Got To Pretend There Is An Economic Recovery Happening”

If the government’s official statistics are to be believed the U.S. economy is moving full steam ahead. Consumers are spending, the job market is expanding, real estate has recovered, stocks are soaring and the U.S. dollar is stronger than it has been in a decade.

But if you have yet to realize it, it’s all a lie. So says billionaire investor Eric Sprott of Sprott Global, which manages hundreds of millions of dollars in contrarian investment funds for clients all over the world. Well known for his long-term bullishness on the resource sector, specifically precious metals, Sprott joined First Mining Financechairman Keith Neumeyer in a must-see interview where the pair discuss everything from the state of the global economy and trade to gold market manipulation and the inevitable breakdown of highly leveraged paper trading exchanges.

Neumeyer recently sent a very public letter to the Commodity Futures Trading Commission highlighting rampant price suppression, noting that neither real producers or real consumers are being represented by the manipulative practices of a small concentration of players. Echoing those concerns Sprott suggests that for every 5 tons of real gold there are some 1500 tons worth of claims. The inevitable outcome should claimants ever want to take delivery of physical inventory will be an unprecedented explosion in price:

To be brutally honest, I mean, that’s what I dream of… I think we’re almost at that point where we might very well have a shortage of gold and silver by a product of this last raid here, so much so that we’ll take those 5 tons from the COMEX because we have lots of people buying silver and gold.


(Watch at Youtube)

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

Central Bank Gold Market Operations

Central Bank Gold Market Operations

I ran across these two speeches the other day, referenced by a GATA article about gold price suppression.

The speeches were by the Director of Market Operations at the French Central Bank, and they were given to LBMA audiences.  In fact, you can see that both are sourced from the LBMA website.  They are from 2013 and 2014.

The first, “Managing Gold as a Central Bank”:

http://www.lbma.org.uk/assets/Gautier%2020130930.pdf

The second, “Managing Gold as a Reserve Asset”:

http://www.lbma.org.uk/assets/Speeches/S3_4_Gautier.pdf

One paragraph particularly caught my eye:

We are still active in the gold market for our own account. We have a desk dedicated to FX activity, which is small, but now we are diversifying into gold, meaning that we are in the market nearly on a daily basis. The question of loan restart is pending. Of course, we can see some yields that are attractive, but the point is that the environment is totally different. In the past, we used to lend some gold totally blank in the market, meaning without collateral and I am not sure it would be acceptable to the risk committee to lend gold for one or more years without collateral. This is the reason the issue is still pending.

What I hear him saying is (in context of this speech, as well as the other), they’d love to make money lending gold, but the current environment is seen as quite risky.  Still, they do engage in operations “almost daily” (although its not clear if those are FX operations or gold operations), and again in context of the other things in the other speech (several price charts with the caption “time to buy or time to sell?”), that clearly suggests  they do take positions and trade for their own account.  In a real sense, they operate as a hedge fund in the gold and FX markets, with the goal of making money.

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

 

Olduvai IV: Courage
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Olduvai II: Exodus
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