The second tapering reduction, a further $10bn per month, was announced this week. It was we are told by the news channels fully expected. This is probably the initial reason why US Treasury prices rose on the news, because bears would have bought back their positions. However, weakness in emerging market currencies indicates that there is a safe-haven element developing in US Treasury bond prices.
It's against this background that gold traded in a $20 range between $1250 and $1270 until Thursday, when gold was finally sold down to the $1240 level and silver to $19.10. At the same time the US dollar rallied strongly, being the West's preferred safe-haven from emerging market currency volatility. This is now the developing story, which may turn out to be the mainspring behind the gold price in the coming months.
The big question is how will currency instability in emerging market economies affect demand for gold? Downward pressure, which has been brought on by the Fed's tapering policy, is forcing some Asian governments to increase interest rates. However, this at best is a short-term fix whose cost is less economic growth in the future. Particularly vulnerable are currencies whose central banks have limited quantities of dollars to hand, and while this excludes China, other gold-hungry Asian states such as India and Turkey are particularly vulnerable.
Traders in Western capital markets would probably conclude this is a reason to sell gold because of deflation in Asia, while the Oriental would see additional gold as the best protection you can have from the currency debasement that governments always rely upon in times of stress.
Looking beyond the rate hikes and the negative economic effects on emerging markets, we should be aware of the possibility that further selling of these currencies could accelerate. If so, we may have a replay of the East Asia crisis of 1997-98 on our hands with the addition of India, Turkey and half of Latin America.
The Fed is pre-occupied with domestic monetary policy, and for the moment it seems international monetary co-operation is secondary. But undermining emerging markets, which make up nearly half global GDP, is not ultimately in the interests of America's own economy. Given the sharp reaction in foreign exchange markets, it seems reasonable for the Fed to pause its tapering programme to give these emerging economies a chance to stabilise.
Since last Thursday, JP Morgan has lost 44% (20 metric tons = 643,000 oz) of its gold inventories.
The Russian central bank vowed “unlimited” intervention to defend the rouble after it fell to a record low against a basket of currencies.
Moscow has already burned through $7bn of reserves since early January. Yields on Russia’s two-year “cross-currency swaps” – closely watched by traders for signs of a liquidity crunch – rocketed by 60 basis on Thursday to 7.6pc. They have risen by 140 points in the past three week.
The International Monetary Fund said it in its annual health check that Russia’s growth potential has collapsed, exhorting the country to reinvent itself to escape the middle income trap. “Russia needs to embrace a new growth model. The previous model of high growth on the back of rising oil prices cannot be replicated,” it said.
The emerging markets are now at a critical juncture. There have been record redemptions this month from mutual funds that invest in these countries but big insurance companies and sovereign wealth funds have held firm.
The debt ceiling drama is back on. What it also means is that like every other time, the only question is just how creatively will John Boehner fold once more to every demand by an administration whose approval rating is on part with that of Dubya, all the while pretending to be fiscally conserative.
This is what the X-Date projection looks like depending on the best and worst cash in/out scenarios:
A strategic explanation for tapering is that the growth of US debt and money creation is causing the world to turn a jaundiced eye toward the US dollar and toward its role as world reserve currency.
Currently the Russian Duma is discussing legislation that would eliminate the dollar’s use and presence in Russia. Other countries are moving away from the dollar. Recently the Nigerian central bank reduced its dollar reserves and increased its holdings of Chinese yuan. Zimbabwe, which was using the US dollar as its own currency, switched to Chinese yuan. The former chief economist of the World Bank recently called for terminating the use of the dollar as world reserve currency. He said that “the dominance of the greenback is the root cause of global financial and economic crises.” Moreover, the Federal Reserve is very much aware of the flight away from the dollar into gold, because it is this flight that causes the Fed to manipulate the gold price in order to hold it down and in order to be able to free up gold for delivery.
The Fed knows that the ability of the US to pay its bills in its own currency is the reason it can stand its large trade imbalance and is the basis for US power. If the dollar loses the reserve currency role, the US becomes just another country with balance of payments and currency problems and an inability to sell its bonds in order to finance its budget deficits.
In other words, perhaps the Fed understands that a dollar crisis is a bigger crisis than a bank crisis and that its bailout of the banks is undermining the dollar. The question is: will the Fed let the banks go in order to save the dollar?
We now know that back then the Dow was trading in a secular bear market -- a broadening wedge with slightly higher highs and lower lows -- which started in the mid-to-late 1960s, and only came to an end in the early 1980s.
Fast-forward to today, and the Dow and gold have done an uncanny repeat of the price action of the 1960s-’70s time frame. And more specifically, the price action of August /September of 1976. Gold put in a new closing low in December 2013 priced in US dollars, and new lows in euro gold, GBP gold and numerous other currencies. The Dow made a new trading high here in January 2014, which happened to be at the resistance of a broadening 14-year trading wedge....
The International Monetary Fund is warning that the risk of a deflationary ’sudden stop’ for the global economy is as high as 20 per cent as the Federal Reserve continues to wind down its QE money printing by $10 billion a month until it stops completely in October.
Interest rates in the emerging markets are the first casualty of Fed tapering as the central banks act to support their devaluing currencies. Turkey doubled its repurchase rate to 10 per cent this week. South Africa and India also hiked interest rates, and Brazil and Indonesia have already done so.
China’s epic bubble
China is the 600-pound gorilla at this party with its $24 trillion credit bubble larger than the banking systems of the US and Japan combined. Last year China staved off recession by spending $5 trillion on new plant and equipment, more than the US and Europe put together.
Now the latest PMI data shows that the Chinese economy is in contraction. We know such financial bubbles only end one way. No country in history has managed it without a massive crash. And China has been there many times before in its long history that included the invention of paper money. Last year China swapped paper for gold as fast as it could (click here).
Could this prove to be the ‘ultimate deflationary shock’ and outshadow the Asian Financial Crisis of 1998 as Albert Edwards of Societe Generale predicts? Certainly the Abenomics of Japan have added fuel to this fire with the devaluation of the yen, something that is already unravelling as the yen becomes a safe haven.
The US and Western financial markets will hardly be immune from this contagion. There will be a huge upset in global trade and severe deflationary pressure on industrial commodities. Look at the collapsing Baltic Dry Index this month. That’s already hitting the currencies of Australia and Canada but it has the potential to drag these economies into a slump too.
Multinational profits will feel the heat. It will not only be Apple that struggles to sell iPhones in China. German car manufacturers are heavily dependent on China as a key export market.
The Fundamentals for Gold and Silver Have NEVER Been Better
Regardless, I said look, the best way to do well in this market is, and this is from my personal take, to know ahead of time what’s going to take place and never miss a trade. That’s impossible. That’s not realistic. Is to look at when it’s overvalued and that type of thing to sell a portion of it and hedge your bets kind of thing.
So, that’s the approach that I’ve taken all the way through this market. The only regret I might say is when I did get out at the top in the end of April 2011 I didn’t keep rolling that over again and again and again as I probably could have. But, what’s done is done.Reality is fundamentally it’s actually never been better to get into the gold and silver market as it is right now.
Stocks Will Go Higher for the Wrong Reasons
The euro climbed 55 kopecks to 48.02 rubles on Wednesday evening in Moscow, the ruble’s weakest showing against the European currency since trading began. The dollar rose 47 kopecks to 35.20 rubles by the same time, the ruble’s lowest value against the greenback since 2008.
If the ruble continues to weaken it will result in more expensive imports and could boost inflation, Russian Economic Development Minister Alexei Ulyukayev warned during a Cabinet meeting Wednesday, Prime business news agency reported.
Other emerging market currencies are falling alongside the ruble as the United States winds up giant money printing programs that have buoyed emerging markets, but the ruble’s dive has been among the most pronounced.
* Monetary inflation is the result of a parabolically rising monetary base (M0) driven by the central bank monetary easing policy.
* Monetary deflation is the result of shrinking monetary aggregates M2 and M3 because of credit deleveraging. The following chart clearly shows that 2013 was a pivot year in which the monetary base M0 grew exponentially, while net M2 (expressed on the chart line as M2 minus M0) declined significantly.
Additionally, money supply growth in the US and the Eurozone is trending lower. We expect that the ECB and later on the Federal Reserve will have to take aggressive actions to counteract this deflationary pressure.
The current price for silver is extremely low and during the third quarter of 2013, silver mining costs averaged $21.39 per ounce. If these low prices persist, mines will eventually close reducing the amount of silver on the market. In turn, that lack of supply should push prices up.
Perhaps of more significance is the level of demand. China and India, are importing increasing amounts of silver. Demand for physical silver into India increased dramatically throughout 2013, leaving market participants wondering if the country would import more than the record 5,048 metric tons of silver it brought in back in 2008.
Recently, Bloomberg reported that Turkey imported 41.6 metric tons (MT) of silver in December, the largest amount since at least 1999. That brought the total amount silver imported by the country in 2013 up to 227.8 MT, a 60% increase from 2012 and much higher than the 42.1 MT Turkey imported in 2011.
Meanwhile, while there has been a drain of gold from the Western ETFs and Funds, this is in sharp contrast to silver, which has had about 992 net tons added. And, the demand for silver bullion coins especially the US Eagle has set new records.
While on a percentage basis silver has had a worse price performance last year compared to gold, there has not been any panic selling at all. On the contrary, there has been a substantial increase in demand.
It is clear that the silver and gold market is being manipulated by some big players. But, all manipulations end, eventually. Ultimately, the price of silver is headed much higher, and so, take advantage of the current low levels.
My Dear Extended Family,
A key element of Chairperson Yellen's intellectual position is that cutting down
on stimulation prematurely would be the most serious mistake that can be made economically.
She blames the long term desperation of the 1930s on the central bank's then retreat
from their form of QE prematurely in the early 1930s. That was before the incipient
1930 recovery had solid legs.
Assuming that Yellen did not follow her well known dictum and tapered seriously
now, the emerging markets will implode. Should the emerging markets implode, the
US major markets will also implode. The dollar would lead on the downside. She
The Plunge Protection Team cannot manipulate the entire world equity market so control
would be lost. The US markets would tank, and gold would explode on the upside because
of the implication on monetary aggregates. The Exchange Stabilization fund would
be so busy attempting to hold US market from implosion to pay equal attention to
A former Deutsche Bank executive has been found dead at a house in London, it emerged today.The body of William ‘Bill’ Broeksmit, 58, was discovered at his home in South Kensington on Sunday shortly after midday by police, who had been called to reports of a man found hanging at a house.Mr Broeksmit – who retired last February – was a former senior manager with close ties to co-chief executive Anshu Jain. Metropolitan Police officers said his death was declared as non-suspicious.
Forbes published the following "Important Notice," sent by Citigroup to its customers in China:
1. Due to the system maintenance of People’s Bank of China, Domestic RMB Fund Transfer through Citibank (China) Online and Citi will be delayed during January 30th 2014, 16:00pm to February 2nd 2014, 18:30pm. As to the fund availability at the receiving bank, it depends on the processing requirements and turnaround time of the receiving bank. We apologize for any inconvenience caused.
2. During Spring Festival, Foreign Currency Transfer Transaction through Citibank (China) Online and Citi Mobile will be temporally not available from January 30, 2014 18:00pm to February 7, 2014 09:00am. We apologize for any inconvenience caused.
- TURKEY'S CENTRAL BANK RAISES OVERNIGHT LENDING RATE TO 12.00% - this is the key rate, and it was at 7.75% until now, so an epic 4.25% increase, far greater than the 2.50% expected.
- TURKEY'S CENTRAL BANK RAISES BENCHMARK REPO RATE TO 10.00% - from 4.50%
- TURKEY'S CENTRAL BANK RAISES OVERNIGHT BORROWING RATE TO 8.00% from 3.50%
- TURKEY CENTRAL BANK SETS PRIMARY DEALER RATE AT 11.5% VS 6.75%
- TURKEY CENTRAL BANK RAISES LATE LIQUIDITY WINDOW RATE TO 15%
On Friday, when we remarked on the biggest recorded withdrawal from the JPM gold vault, we said: "Something tells us the next few days will see matching withdrawals from JPM's gold vault, which at last check was officially owned by the Chinese." As it turns out we were absolutely correct: according to the just releasedupdate from Comex, on Monday the infamous gold vault located below 1 C(hina)MP saw an identical withdrawal of 321,500 ounces, matching the record withdrawal, and amounting to 28% of all JPM gold in storage. Adding to Friday's drop, this means that a record 47% of JPM's gold has been withdrawan in a few short days: a trend we are certain will continue until the total holdings of the vault drop to new record lows.
This withdrawal means total JPM gold slides from 1.128 million ounces to 816,027 ounces, down from 1.459 million ounces a week ago.
I am negative about U.S. stocks, and the Russell 2000 in particular. Regarding Abby's energy recommendation, this is one of the few sectors with insider buying. In other sectors, statistics show that company insiders are selling their shares like crazy, and companies are buying like crazy.
I have no faith in paper money, period. Next, insider buying is also high in gold shares. Gold has massively underperformed relative to the S&P 500 and the Russell 2000. Maybe the price will go down some from here, but individual investors and my fellow panelists and Barron's editors ought to own some gold.About 20% of my net worth is in gold. I don't even value it in my portfolio. What goes down, I don't value.
Which stocks are you recommending?
Faber: I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I don't own it. I own physical gold because the old system will implode. Those who own paper assets are doomed.
Zulauf: Can you put the time frame on the implosion?
Faber: Let's enjoy dinner tonight. Maybe it will happen tomorrow.
Gold and Silver May Get me Through Serious Problems Ahead
Everybody should own some precious metals as an insurance policy. So if they don’t have any right now, I would urge them to go buy something, buy themselves a gold coin if nothing else, and see that it’s not going to hurt. It won’t hurt you to buy the first gold coin, the first silver coin, and from that you start accumulating as your own situation dictates.
First, do your homework, don’t buy gold because you heard me say it or even because you hear you say it. But if people don’t own they should start after they have done their homework. And then they will probably, if they do their homework, most people will then realize, “Oh my gosh, I better have insurance, and gold and silver may get me through serious problems ahead.”
Is Something Brewing In The Gold Market? – In his weekend note, my friend and fellow market veteran, Jim Brown, over at Option Investor posed the following puzzle:
Don't look now but the physical gold shortage is growing. Everyone knows that JP Morgan is one of the biggest gold holders on the planet. They store gold for themselves and others. On Thursday JPM reported the single largest withdrawal in history at -321,500 ounces. Actually that was a tie with December 13th, 2012 when exactly 321,500 ounces were also withdrawn. Registered gold in JPM vaults has fallen to the lowest level in history at 87,000 ounces. Registered gold at all Comex warehouses has hit a new low at 400,000 ounces. Comex claims there is a huge 92 owners per registered ounce today. Registered ounces are available for delivery to settle futures contracts. In other words the registered ounces are all that is backing up the existing futures contracts. Since the majority of futures contracts are never held until the delivery date there are tens of thousands more contracts then actual gold. If everyone suddenly began demanding delivery of the gold referenced by the futures contracts we would be in serious trouble.
On January 17th there were roughly 500,000 registered ounces. At that time there were 111.6 owners per ounce. There are currently 41.309 million ounces being traded through futures contracts. This is "paper gold" not real gold. Where else but America could we be trading 41 million ounces of futures against 500,000 registered ounces? Obviously if only a fraction of the holders of those futures contracts began demanding delivery the price of gold would be much higher.
We are currently seeing all time lows in registered gold and all time highs in claims against that gold. What is wrong with this picture?
Bloomberg reports Austria has put its mint on a 24 hour schedule, trying to meet heavy demand for gold coins. The U.K. mint announced that it already run out of 2014 sovereign gold coins. There are tales of high demand at several other nations around the globe.
Gold watchers are waiting for two announcements at the moment: the hour of reckoning when the Comex no longer has sufficient gold in its warehouses to cover deliveries; and a report from China that its official reserves are up from 1,054 as last reported five years ago to more than 5,000 tonnes.
How anybody can be fooled by Goldman Sachs and Morgan Stanley into thinking that the next big move for gold will be back to $1,000 we don’t know. Did somebody not once say that if you are going to tell a lie make it a big one and people will believe you?
What these US investment banks have done is to capitalize on investors’ myopia: they only see what is in front of them in US financial markets and don’t see the wood for the trees. Think US domestic short-term and you have a recovery on your hands and a runaway stock market.
Still cashing out of gold after its big tumble last year and investing in the stock market that has just stalled after a stellar run looks like a suicide ticket to us. Perhaps the rise in the price of gold and silver since the beginning of the year is a sign that we are not alone in seeing this.
Today is options expiry for February on the Comex---and tomorrow is the last day for the large traders to roll out of their February futures contracts on the Comex as well---and by the end of trading on Thursday, every other trader holding a February Comex contract in any physical commodity must have either sold it, rolled it, or are standing for delivery on First Day Notice---and the first of those statistics will be posted on the CFTC's website late Thursday evening New York time. And, as always, it's who the issuers and stoppers are that matter. How big a part will the HSBC USA, Canada's Scotia Bank and, most importantly, JPMorgan Chase have in all of this? I'd guess that it will be almost all of it. It will be interesting to see how the delivery month unfolds.
The above Comex timetable, along with the FOMC meeting that starts today---and ends tomorrow afternoon---will be what drives the market for the remainder of the week. It matters not that platinum production is shut down in South Africa, or that China is sucking the world dry of every gold bar it can lay its hands on. Supply and demand mean---and have always meant---nothing. It's only what JPMorganet al do, or are instructed to do, that matters---period.
Jewelry stores in Hong Kong have seen robust gold sales this month ahead of the Lunar New Year as prices fall. Miss Lu is a tourist from Guangzhou looking to buy a golden horse ornament worth about HK$20,000 in the shopping warrens of Causeway Bay in Hong Kong a few days before the Lunar New Year.
"It will be a gift to my mother on the mainland," she said as the crowd swirled around her. "Gold is cheaper now. I bought a gold ring last week for myself."
Jewelry stores saw robust gold sales in January, stoked by demand for gold horses before the Year of the Horse. Gold horses were getting a better welcome than the reception given to gold reptiles last year in the Year of the Snake, jewelers said.
"Horses are regarded as the symbol of energy and health to the Chinese," said Lau Hak-bun, chief operations director at Chow Sang Sang. "People like to wear accessories or have golden ornaments of horses rather than snakes, which are lazy and evil in their view."The jewelry store chain said it saw a 15 to 20 per cent increase in sales volume for January compared with last year.
I think China is intent on making its yuan the world's reserve currency. I think we will see a powerful gold-backed convertible yuan become the world's new reserve currency. I see China's Communist leaders literally begging its populace to accumulate gold. I see the Federal reserve intent on making its fiat currency the only accepted money, while gold, its competition, is scorned.
I see the Federal Reserve and its fiat money as the single greatest enemy of the US. Which would you rather own, a gold-backed yuan or a debt-backed Federal Reserve note? That's the question the world will be faced with.”
Supply and Demand Imbalances: The Indian Effect
The overall picture has not changed much since our last article, with the exception of Indian imports. As of the second quarter of 2013, India had cumulative net gold imports of 551 tonnes, which annualizes to 1,102 tonnes. However, Q3 data shows net imports of only 31 tonnes (for a total of 582 tonnes YTD), which annualizes to 776 tonnes.
This incredible loss of momentum for “official” gold imports was the result of concerted actions by the Reserve Bank of India and the Indian Government. While the “official” justification for those restrictions is the large Indian current account deficit, this argument makes little sense. According to government officials, Indian’s taste for gold and the corresponding imports worsens the country’s trade balance, worsens its current account deficit and puts downward pressure on their currency, the Rupee.
But, without going into too many details, the classification of gold as a “good” in the trade balance is at best misleading. Since gold is more of an investment vehicle and is not “consumable” per se, it should instead be accounted for in the capital account of the balance of payments instead of the current account. Indeed, Switzerland, which is a large net importer of gold, reports its trade balance “without precious metals, precious stones and gems as well as art and antiques” to reflectfact that those are “investments” rather than consumption goods. In this case, why should India be any different and report their trade data excluding gold? To us, all the fuss about gold imports by the Indian Government is a red herring.
So, without the intervention in the Indian gold market, the shortage of gold would have wreaked havoc in the market, a situation that Western Central Banks could not tolerate.
Japan is Printing Staggering Amounts of Money
A year ago the Bundesbank announced  that it intended to repatriate 700 tons of Germany’s gold  from Paris and New York. Although a couple of jumbo jets could have managed the transatlantic removal, it made security sense to ship the load in smaller consignments. Just how small, and over how long, has only just become apparent.
Last month Jens Weidmann, Bundesbank president, admitted that just 37 tons had arrived in Frankfurt. The original timescale, to complete the transfer by 2020, was leisurely enough, but at this rate it would take 20 years for a simple operation. Well, perhaps not so simple. While he awaits delivery, Herr Weidmann is welcome to come and look through the bars in the Federal Reserve’s vaults, but the question is: whose bars are they?
In the “armchair farmer” fraud you are told: “Look, this is your pig, in the sty.” It works until everyone wants physical delivery of their pig, which is why Buba’s move last year caused such a stir. After all nobody knows whether there are really 260m ounces of gold in Fort Knox, because the US government won’t let auditors inside.
The delivery problem for the Fed is a different breed of pig. The gold market is far more than exchanging paper money for precious metal. Indeed the metal seems something of a sideshow. In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.
The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.
Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. The drones will have full control of the paper trail, won’t they? There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults ?
John Hathaway suspects there is. He worries about all the paper (and pixels) linked to gold. He runs the Tocqueville gold fund (the clue is in the name) and doesn’t share the near-universal gloom of London’s gold analysts , who a year ago forecast an average $1700 for 2013. It is currently $1,260.
As has been remarked here before, forecasting the price is for mugs and bugs. But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery.
Andrew Maguire told King World News that the physical gold buying which took place in London on Thursday can only be described as “stunning.”
- By Alasdair Macleod
- Posted 24 January 2014
It transpired last week that of the 43-odd tonnes per annum the Bundesbank expects to be returned from the New York Fed only 5 tonnes arrived in 2013. Furthermore, of the 373.7 tonnes stored with the Banque de France only 32 tonnes was delivered. This is little more than a morning's delivery in the London market, so it is hard to swallow the Bundesbank's excuses about logistics.
The burning question is why is it so difficult to get its gold back? The most logical answer is that the Bundesbank's gold is long gone, but without hard evidence this can only be conjecture. One would have thought that the New York Fed would have at least come up with closer to 40 tonnes if only to stop the rumour mill running.
There may be a risk that without clarification over the status of Germany's gold at the New York Fed other central banks using the Fed or even the Bank of England's storage facilities might decide to buy gold in the market, just in case. If that happens, bearing in mind that it is too early to think this is a real possibility, bullion prices could go much higher, given the lack of physical bullion available.
Anyway, after a slow start to the week, with the gold price drifting back to find support at the 50-day moving average, gold began to go sharply better yesterday before the London morning fix. Soon there was a story circulating via Reuters that Sonia Ghandi has asked the Indian government to ease up on gold import restrictions. No doubt this has something to do with mid-year elections, and if so there is the prospect of the government relenting on gold import restrictions to appease the voters.
These stories no doubt contributed to a more positive tone for gold, which seems to be overcoming the confines of the 50-day moving average as shown in the chart below.
The 50-day moving average is losing downwards momentum, indicating the gold price may be on the turn. The relevance of this average is that short-term traders often use it for market timing. Therefore, if gold manages to move convincingly through apparent supply above the $1260 level, we can expect these traders to close their shorts and go long. The chart for silver is shown below.
As with gold, silver is showing similar signs of bottoming out, as it tries to escape the confines of the $20-21 area and the 50-day moving average.
Gold gets explosive above 1270. Watch out.
With the US $ coming under pressure, the potential further gold gains is high and rising. 1270 IS KEY. A break of the 1270 pivot should be the catalyst for short squeeze higher, exposing the confluence of resistance between 1362/1399
Inflation Will Take Precious Metals Much Higher
Gold bounced off just under $1200 recently in December, are the lows in here?
Eric Sprott: I think the lows are in here. The data on the supply side just couldn't be better in my mind.
Imagine gold even hanging in there when you take the largest consumer in the world out of the market.
We took India out of the market and the prices held in. Just wait till India comes back and starts buying
their normal fair, or these smuggling routes get more and more developed, which they are getting more
and more developed. So, I am pretty certain we've seen the lows here. We've already had some mine
closures, we've had some guys that say they are going to maybe high-grade a little and produce less but
they will have less people. So, I think supply in gold is probably more than likely to go down this year
while the demand continues to be quite strong in the markets that we can observe. And there are lots of
markets that we can't observe by the way; what gold goes into China not through Hong Kong, some
people suggest that last year China effectively bought all of the western world's mining supply of gold,
and I tend to believe that's correct. Which means where did the rest come from? And I would argue it
came from central banks who are already on fumes in their inventory.
Hence the sector going forward, what are the upcoming catalysts?
Eric Sprott: Well I think the catalysts are this, we've seen a big draw down in COMEX (NYMEX
Commodity Exchange) inventories here, like the dealers have next to no inventory left. I think you are
going to see a failure, someone is going to fail to deliver, and in essence I could say to you that the US
failed to deliver to Germany. They were suppose to deliver 80 tonnes and they delivered 37.5 and they
may have had to scrape the bottom of the barrel to get that 37.5 tonnes over there. So I think there will be
a sever tightness and is a sever tightness, and is a sever tightness in physical gold. There is only so
much you can get out of the ETFs, you know the ETFs are already down 40%. So there are not much
easy pickins left in those and you will find it very interesting that in this huge selloff of gold and silver, next
to nothing was taken out of the SLV inventory which is usually ironic. Why did gold loose so much
physical tonnage and silver lost none? Well I have a reason; because the central banks didn't care about
silver, they cared about gold.
Do you think the mining stocks will be a good investment if gold recovers?
I think, quite frankly, that this might be one of the great trades of all time. These stocks are so cheap now because at these gold and silver prices, nobody can make any money! If I'm right on the large magnitude move in the gold and silver price, it will lead to a tremendous flow of money into this sector because these companies will start making a lot more money.
The sector has shrunk to such a small market cap—because of the current bear market—that when the money does come I think it will be outsized. These stocks have fallen so far, and people are so negative on them, that a change in sentiment could drive these prices upwards very quickly.
Are you concerned that the price of gold could fall even further within, say, the next 12 months?
Well, that seems to be the "buzz" out there. That's what the media are saying. Honestly, I was surprised that the price had fallen this far, so I will not exclude that possibility.
But I would advise you to look at the shortage developing in the physical market. I would be very surprised if these negative predictions that we see everywhere will come true given what is happening with the physical demand. om guldet
Den monetära basen minskar vilket innebär att det blir svårt för FED att minska tryckningen av nya dollar.
The US monetary inflation rate continues its downward drift. As at the end of December the year-over-year (YOY) rate of growth in US True Money Supply (TMS) was 7.2%, its lowest level since November of 2008. Refer to the following chart for details.
Bernanke’s real legacy produced the following outcomes. The always-reliable ZeroHedge site states some undeniable facts under Bernanke’s watch.
- The US has never experienced 3% GDP growth.
- The labor participation rate has fallen to levels not seen since the ‘70s.
- Inflation-adjusted median incomes have fallen 7%.
- The US’s debt load has risen from $8.4 trillion to over $16 trillion.
- The Fed’s balance sheet has increased from $800 billion to over $4 trillion (larger than the economies of Brazil, France and even Germany).
- Food prices have hit record highs fomenting revolutions in the Middle East and untold suffering around the globe.
- The Fed has funneled trillions of Dollars into both US banks and European banks.
- The Fed has allowed fraud, insider trading, and corruption.
The SPDR [GLD] gold ETF and the Gold Trust gold ETF have their respective holdings at 797.054 tonnes and 161.37 tonnes respectively. The shock purchase of 7.498 tonnes on Friday has alerted the U.S. market to the possibility that the gold investment climate there could be changing from winter to summer. But springtime takes longer than a day.
For the benefit of our U.S. subscribers we repeat some of yesterday’s commentary: As you know we at Gold Forecaster have been focused on U.S. gold selling via the U.S. based gold ETFs. And as you know the SPDR gold ETF is the vehicle of choice for U.S. institutions. This fund has sold off around half its holdings in the last 1+ year against a 33% sell off of total U.S. gold ETFs holdings. We have been looking to see when the selling would stop, not when purchases would begin. This purchase surprised us particularly as it is a substantial amount of gold. Bear in mind that the gold market has been in rough balance for the last few months, so a change like this tips the see-saw. This aspect of the gold market is now center stage!
China continues to not only liberalize and internationalize the gold market there it is tying a new gold ‘spot’ contract to the Yuan. The new Yuan priced gold contract on the Shanghai gold exchange is a step towards a greater use of the Yuan internationally as foreigners who wish to buy this product must sell dollars to buy Yuan so they can buy this gold contract.
In this context we need to see how this contributes to the big picture of China’s arrival center stage in the world. China’s aim is eventually to stand alone without the dollar. How big is this story? In the past the developed world took 80% of global income. In the next six years this will drop to 35% with the emerging world taking 65%. The turbulence that accompanies this change favors gold.
For another week the bears were little changed at 15.1% after edging higher last time to 15.3%. The differences were only due to changing totals, not opinion shifts. Late December their number fell to a 26-year low ago at 14.1%. A lower bearish level was last shown on 20-March-1987 at 13.6%. The bears say the market advance without any notable correction means conditions are ripe for a major tumble. Once the decline gets underway they expect it to quickly accelerate to the downside. However they have little technical evidence to offer in support.
Again the changes were between the bulls and correction, with the latter contracting slightly to 27.3%, from 28.6% a week ago. Last fall the reading was well above 30% but the market weakness through mid-December was enough for them to shift back to bullish to avoid missing the year-end rally. Their latest decrease occurs with some new index highs and if they expand, we could again see their number grow.
The spread between the bulls and bears expanded to 42.5%, after narrowing to 40.8% last issue. 2013 ended with the difference at 46.4% for another record extreme. The data has been negative territory for more than three months, pointing to increased risk. The spread was 42.4% in October 2007. In contrast August 2013 ended with the spread at 13.4%, close to the 10% (or less) reading that allows for buying. The bears haven't outnumbered the bulls (negative spread) since October 2011, after the correction from highs that April. Viewed another way in this week's chart the bears are now more than 25% of the bulls.
That said, both inflationists and deflationists agree that a financial collapse is coming. The inflationist argues that fiat currencies by necessity will be “printed” (digitally created) with such speed that we hyper inflate and devalue the currencies to virtually zero. The deflationists say that the debt will default faster than the central banks can print new money and thus the money supplies will shrink and hyper deflation (like the 1930′s) will result. True inflationists believe that gold will explode in fiat price (and purchasing power) while the deflationists disagree and believe the “price” of gold will plummet versus the dollar. My opinion is that both of these camps are correct, and both of these camps are incorrect…however, only one can be correct regarding the purchasing power of gold.
Let me explain why I believe both camps to be correct at the same time. Yes debt (and derivatives) will blow up so quickly that the central banks will not be able to supply new money fast enough and yes the central banks will “try” by “printing.” …But, currencies today are debt based meaning they have value that is derived or “foundationed” by debt. If debt is collapsing it then follows anything that has value based on this debt will also collapse. Gold is a different animal, as JP Morgan once testified to Congress, “Gold is money and everything else is credit.” Gold has value because it “is,” it has inherent value while no other currency on the planet does.
We have 2 major and largely unknown (to the masses) future events coming. A. central banks (with the exception of China) have far less gold than they say they have and B. because of the nature of “fractional reserve gold” there is only 1% or at best 2% the quantity of real gold ACTUALLY in the system. Between these 2 events, the actual supply is far far smaller than the system “acts like,” when this fact becomes common knowledge we will experience the greatest deflation (versus gold) in all of history. If I am correct about a reset rather than the markets doing it over a period of time, we will experience the greatest transfer of wealth in all of history. We will see the greatest wipeout of “wealth” to the greatest majority ever and at the same time we will witness the greatest accrual of wealth to the smallest minority ever…including the “wealth created” over the last 5 years of QE specifically for the current elite “1%’ers.”
The only thing I say to bitcoin people is, watch out for a couple of things. Number one, if you buy a bitcoin at one level and you redeem it for goods or services at a higher level, you have a taxable gain you have to put on your tax return. I daresay, very few people are doing that so they’ve all sort of become tax evaders.
And, a lot of people think if you’re in the bitcoin cloud the government is not watching, they are watching. So, consider the fact that you may be a tax evader and the government is looking over your shoulder, this will play out in time. So there is a little bit of caution in the bitcoin world.
It’s been my opinion for the last several weeks that gold formed an intermediate degree bottom on December 31. That being said I’m still a bit nervous that the sector could suffer another manipulation event (like the flash crash two weeks ago) so I haven’t been willing to enter a firm long position just yet.
However there are definite signs that this bear market is probably over. The large momentum divergences on the weekly charts are one.
UK farmland fortsätter upp, guldet går ned. Guldet har mycket att ta igen när manipulationen upphör.
Within a Year FED Asset Purchases Will be Substantially Higher
"The economic recovery, or so-called recovery, by June of next year, will be in the fifth year of the recovery," Faber said. "So at some stage the economy will weaken again, and at that point, the Fed will argue, 'Well, we haven't done enough, we have to do more.'"
"The Federal Reserve—all of them—could be sitting on a barrel of dynamite, and then pouring gasoline on top of it, and then light a cigar with matches, throw the match into the gasoline, and then not notice that there is any danger," Faber said. "That is the state of mind of the professors at the Fed, who never worked a single [day] in business."
And while Faber actually believes that a reduction in QE could happen, he wouldn't view it as a true tapering, as he says it will be a largely meaningless, one-time move that will eventually be reversed as the economy worsens.
"They may do some cosmetic adjustments, but in my view, within a few years, the asset purchases will be substantially higher than they are today," Faber said.
Rising Interest Rates Are Going to Ripe Through the Economy
It seems pretty likely that rising interest rates are going to rip through the economy and global financial markets like a tsunami with damaging consequences. Rising interest rates could well be the most important factor impacting domestic as well global markets in 2014.
The other major disruptive force in 2014 is probably going to come from Japan. The so-called Abenomics program, named after its prime minister, is failing. Inflation is rising in Japan, but wages and economic activity are not benefiting from the Bank of Japan’s money printing. Earlier today Bloomberg reported that consumer prices in Japan are rising 5-times faster than wages. Japanese consumers are being squeezed, just like what is happening to US consumers and indeed, most countries today.
Silver sentiment är på rekord låga nivåer samtidigt som efterfrågan på silver coins är på rekord höga nivåer.
Något stämmer inte. Vi vet att JP Morgan är korta silver, och det är med mycket, mycket kontrakt. Frågan är hur länge dom kan hålla tillbaka och rigga silver marknaden. Dom är nu långa guld marknaden för att kompensera sitt korta innehav i silver. Än dag släpper dom allt och låter marknaden sätta pris.
But, if it did go lower that would be a very powerful price signal that deflation is winning the battle. There is a battle between deflation and inflation. I think ultimately inflation will win because the central banks will insist on it. But in the short run deflation could win, that could take it a bit lower.
I didn’t necessarily expect a pull back to these levels but it’s interesting we’ve tested kind of $1,250 level three times. And, there does seem to be a floor there. I call it the Chinese floor - they do need to buy at the end of the day.
Hur länge till kan marknaden plundra GLD fonden på guld och därmed pressa marknaden till dessa låga nivåer. Under 2013 var det ca 550 ton guld som lämnade fonden och förmodligen skickades till Asien och hamnade i mycket långa händer.
Det tog fonden åtta år för att bygga upp sitt innehav och på ett år försvann 40% av fondens innehav. När dom som har GLD innehav slutar att sälja så kommer det också att innebära att dom stora bankerna inte kan plundra dessa på guld och därmed får vi ett scenario med mycket stort underskott i utbudet av fysiskt guld.
USAs underskott i handelsbalansen har gjort det möjligt att finansiera landets eviga underskott i budgeten. 2010 var handelsbalansunderskottet $498 miljarder och utlandet ökade sina innehav av statsobligationer med $456 miljarder. 2012 var underskottet $540 miljarder och utlandet ökade sina innehav med $386 miljarder. För 2013 är uppskattningen att underskottet blir ca $485 miljarder och obligationsköpen mindre än $30 miljarder.
Trenden är helt klart att det blir mindre andel utländskt kapital som kommer att vara med och finansiera dom väldiga underkotten som USA har och kommer att ha under lång tid.
Det finns bara två vägar att lösa detta. Räntan måste gå upp för att attrahera inhemskt kapital eller att FED trycker mer pengar och håller räntan nere. Många tror att räntan har gått upp för att ekonomin har blivit bättre vilket nedanstående chart visar är helt fel. Det beror till största delen på att utlandet har nästan helt slutat att öka sina köp av USAs obligationer vilket medfört att räntan har gått upp och FED kommer att behöva trycka ton vis med nya dollar under lång tid.
Senaste siffran för inflationen inom EU är nu nere på nivåer som måste göra ECB oroliga för att Europa skall hamna i en liknande deflations ekonomi som Japan varit i de senaste 20 åren. Kärninflationen visade sig vara 0,7% vilket är långt under ECBs mål och kommer med all säkerhet medföra att ECB måste sänka räntan ytterligare och dessutom stimulera ekonomin med nya pengar.
Bankernas utlåningen inom EU minskar och för att kompensera så måste ECB trycka nya pengar. Frågan är hur Tyskland ställer sig till detta nu när Euron blivit dyrare mot världens valutor. Helt klart är att deflation är ECBs värsta fiende och de kommer att göra allt för att inte hamna i deflations fällan.
Inför 2013 hade analytikerna en bedömning om ett silverpris i intervallet $30-$40 och vi slutade året runt $20.
Inför 2014 har samma analytiker en bedömning om ett pris i intervallet $20-$26 vilket då borde indikera att priset kommer att vara i intervallet $30.$40.
China and Europe are just buying every ounce they can get their hands on and that actually makes sense.
If the price is being suppressed because weak hands are dumping it or there’s manipulation in the market, you would expect people to buy it.”
Gold price suppression is U.S. government policy to maintain the dominance of the U.S. dollar in the ongoing international currency war, the president of China's gold mining association, Sun Zhaoxue, told a financial conference in Shanghai last June.
Sun's remarks were disclosed today by gold researcher and GATA consultant Koos Jansen, who obtained them from a rough transcription provided by the SINA Financial news service.
Jansen prefaces Sun's remarks with some incisive observations of his own about whether there is manipulation of the gold market and, if so, who is responsible for it. Jansen describes himself as a believer in "conspiracy facts," since, he writes, when money and power are at stake, people conspire.
While gold price suppression can hardly be addressed by mainstream financial news organizations in the West, for years it has been a fairly common topic in the government-controlled news media in China, and Chinese news reports about gold price suppression by the United States have even been cabled back to the U.S. State Department in Washington by the U.S. embassy in Beijing:
IMF går ut med en skrivelse där man varnar för den extremt höga skulden som finns runt om i världen. Den högsta på 200 år och det kommer att krävas nedskrivningar av lån och andra åtgärder för att få ordning på skuldsidan.
Problemet är att skulderna har blivit så stora att det är svårt att se någon vändning utan att det kommer att bli mycket stora störningar i dagens ekonomiska system.
Att inflatera bort skulderna är det mest troliga, vilket man gjort förr. Problemet är att få inflation och sedan kunna kontrollera så den inte blir för hög. IMF medger att vi har stora problem i världen och att det inte kommer att bli lätt att få någon ordning på detta skuldberg som växt till sig sedan papperspengarna började flöda 1971.