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Natural Gas & Precious Metal Prices to Spike Higher in 2014……by SRSrocco

Natural Gas & Precious Metal Prices To Spike Higher In 2014

Filed in EnergyPrecious Metals by  on February 13, 2014

Something quite interesting is taking place in the U.S. natural gas market this year.  As frigid temperatures blanketed the entire East Coast this winter, record natural gas demand has resulted in multi-year lows in gas storage levels.

The EIA came out with their Natural Gas Storage Report today showing a stunning 34% lower gas storage level compared to the same time last year.

U.S. Natural Gas Storage 21314

If you look at the light blue line (2014 storage trend), you will notice that current gas storage level is already below the lowest level reached at the end of March, 2013.  The dark blue dashed-line is my estimation of where the storage level will be by the end of March this year.

Furthermore, the lowest 5- year range of gas storage has never fallen below 1,600 billion cubic feet.  The data from the EIA Natural Gas Storage table shows that we have already reached this extreme low point.

U.S. Natural Gas Storage Table 21314

Last year’s Feb. 7th storage level was 2,549 Bcf (billion cubic feet), whereas this year the amount is 863 Bcf lower at 1,686 Bcf.  This is very disconcerting because the market will continue to draw gas supplies from underground storage until the end of March (based on 5-year trends).

Energy analyst Bill Powers (who I interviewed in January) believes we could see a gas storage level at 1,200 Bcf by the end of this month.  If the cold weather pattern plaguing the North East continues for the rest of the winter, we could see the U.S. gas storage level reach 800 Bcf by the end of March.

If the natural gas storage level falls this low, it will put severe strain on the U.S. natural gas market going into the spring and summer (the time when the industry begins to rebuild the underground storage supplies).  Already traders are pushing the price of natural gas well above the $5 level:

Bloomberg Natural Gas Price Feb 13 2014

UPDATE:  The price of Natural Gas closed up $0.40 (8.3%) at $5.22 today and is currently up $0.07 (1.3%) at $5.29 in the foreign markets.

Bill Powers (last year) forecasted that prices of natural gas would reach $5-$7 with much higher spikes in the next few years.  We have already reached $5 level and will more than likely see much higher natural gas prices as the record draw-down of underground gas storage continues.

Another factor that could result in much higher natural gas price spikes is the inability for the industry to maintain current shale gas production.  As I mentioned in my earlier article, 2014: The Year The Shale Gas Bubble Bursts & The Boom For Precious Metals?, the annual U.S. natural gas decline rate is a staggering 24%.

Thus, the industry has to replace nearly 100% of its production in 4 years to keep production flat — much less growing.  This is a whole lot of gas folks.

I will provide more details of the U.S. and world energy situation in my upcoming U.S. & GLOBAL COLLAPSE REPORT out later this month.

I recommend Bill Powers book, Exploding The Natural Gas Myth: COLD, HUNGRY AND IN THE DARK.  You can also follow him at his twitter address below:

Big Spikes In the Precious Metals Coming In 2014?

Kitco Gold & Silver 21314

As the price of natural gas topped above $5 today, Gold finally surpassed the psychological $1,300 level.  This is quite interesting as the largest gold producer on the planet, Barrick just released its Q4 2013 results showing  “All-in costs” for mining gold at $1,317 an ounce.

As record demand for the yellow metal continues in 2014, the current price of gold is still below the total cost of production from one of the largest gold miners in the world.

The problem now plaguing the mining and energy industry is the huge increase in capital expenditures as prices remain flat (oil) or decline (gold).

For example, Goldcorp produced 2.6 million oz of gold in 2013, but stated an estimated negative $1.3 billion in Free Cash Flow.  Free cash flow is different from cash flow.  To get Free Cash flow, you deduct capital expenditures and dividends from the operation cash flow.

What this means is that Goldcorp is spending more on Capex and dividends than it is making by its operations.  Goldcorp isn’t the only gold producer suffering from negative free cash flow, many of the top gold miners are as well.

For example (according to, Barrick stated a negative $913 million in free cash flow for the first nine months of 2013.  I would imagine this figure will increase as the results from the fourth quarter are included.

So the here’s the question… how can the top gold miners report $1,100-$1,300 All-in costs, when their free cash flow is negative?  Of course some of the capital expenditures are for new projects, but many of these new mining projects will add production just to offset declines or planned shut-downs from older mines.

2014 may indeed be the pivotal year for the financial markets.  There are so many negative factors going forward, I believe the broader stock & bond markets will finally succumb to the weight of the Hundred Trillion Dollar Derivative Monster.

David Stockman, Former Director of the U.S. Office Management & Budget spoke about the huge derivative bubble in a recent interview with King World News.  He believes Fed Chairman Janet Yellen and the Keynesians at the Fed are playing with “Fire” with their insane monetary policy.

Eric King asked David Stockman’s opinion about the Fed’s massive trading room:

That (Fed) trading room is a weapon of financial mass destruction.  That is the point that people need to understand.  The people running the Fed today have no clue of the danger that they are creating with this massive market manipulation and intervention.

The market isn’t trading on fundamentals whatsoever.

…… you know, the Gold Market could explode at any moment.

Stockman really sums up the entire financial situation in those few sentences.  If you haven’t listened to the interview, I highly recommend it.

As the U.S. and world move closer towards financial collapse, the volatility in the markets will continue to increase.  With the price of gold and silver still near their cost of production, I believe the volatility will impact the precious metals in a positive way, whereas the broader stock markets will suffer the opposite reaction.

2014 may well be the year that the price of natural gas, gold and silver all spike together.

I will be providing updates on Silver & Gold Eagle sales at the U.S. Mint, break-even analysis of the top 12 primary silver miners and energy data in the upcoming weeks.  Please check back at the SRSrocco Report for new posts and articles.

Let’s Get Physical Gold …. by John Hathaway

Original article here at


Let’s Get Physical


Money printing by world central banks, it would seem, has propelled the prices of all things rare. The list includes fine art, vintage wines and antique sports cars. It is front page news that the flood of paper money has enhanced the quotation of almost any tangible asset perceived to be in scarce supply. In a 11/23/13 article, The Economist reports: “Evermore wealth is being parked in fancy storage facilities….The goods they stash in freeports range from paintings, fine wine and precious metals to tapestries and even classic cars.” The article observes that a key factor fuelling “this buying binge…is growing distrust of financial assets.” It doesn’t hurt that the prices of most of these items have trended steadily higher in price over the past decade.

Most intriguing in this array of ascendant alternative assets, however, is the crypto currency known as Bitcoin, whose advocates offer a rationale that is striking in its parallel to that for holding gold bullion. Bitcoin, as almost everyone knows, is a liquid transactional medium of strictly limited supply. The parallel breaks down, of course, when it comes to price behavior of these two otherwise similar alternative currencies. The price of a Bitcoin has increased to $975/coin (Mt. Gox 12/10/13) from less than $25 in May 2011. At the end of May 2011, bullion traded near $1500/oz, and is quoted today at a price that is 17% lower.

The supply of gold has increased over the past two years by 180 million ounces. As an increment to the existing stock of above ground gold, the percentage works out to about 1.5%/year. In the meantime, the US monetary base increased 14%, or an annual rate of 6.7%.

The supply of Bitcoins is fixed at 21 million. There are 11.5 million in circulation. Mining new Bitcoins requires incrementally more massive upgrades in computing power. According to Raoul Pal’s Global Macro Newsletter of 1/11/13 as seen on Zero Hedge, Bitcoin’s success is due to the fact that “the man in the street understands that central banks and governments are going to take their money via confiscation or default or devaluation and it (Bitcoin) is their way of voting against it and them.”

The man in the street has apparently overlooked the similarities between gold and Bitcoin. The future supply of newly mined gold would seem to be in jeopardy if current pricing holds. The same cannot be said for US dollars. While mine output may continue for a year or two at the current pace, production post 2015 seems set to decline and perhaps sharply. Discovery of new gold bearing ore bodies is down sharply. Miners are challenged by declining grades, poor investment returns, worsening access to capital, and increasing risks due to political instability in gold producing countries, rising tax burdens and growing permitting challenges. At current prices, most gold mining companies are barely breaking even on an “all-in” cost accounting basis.

The Bitcoin-gold incongruity is explained by the fact that financial engineers have not yet discovered a way to collateralize bitcoins for leveraged trades. There is (as yet) no Bitcoin futures exchange, no Bitcoin derivatives, no Bitcoin hypothecation or rehypothecation. In 2000, gold expert Jeff Christian of the CPM Group wrote:

Imagine, if you will, that the (bullion) bank can line up three or more producers and others who want to borrow this gold. All of a sudden, that one ounce of gold is now involved in half a dozen transactions. The physical volume has not changed, but the turnover has multiplied. This is the basic building block of bullion banking.” (Bullion Banking Explained – February 2000). He went on to say that “many banks use factor loadings of 5 to 10 for their bullion, meaning that they will loan or sell 5 to 10 times as much metal as they have either purchased or committed to buy. One dealer we know uses a leverage factor of 40.

The buying and selling of paper gold is the traditional business of bullion banking. It is the core of how business is conducted in the world of gold. Gold miners mine and concentrate gold ore. They send concentrates from the mine site to refiners who purify the ore into bars that are 99.99% gold. Refiners remit cash to the mining companies crediting them for gold content in the ore minus impurities. Refiners sell their gold bars, typically to bullion banks in London, where the physical gold is received for deposit in allocated or unallocated pools and held for distribution to users such as the jewelry trade, industry or mints. The physical gold that remains in London as unallocated bars is the foundation for leveraged paper gold trades. This chain of events is perfectly ordinary and in keeping with time honored custom.

What is interesting, and perhaps not surprising, is the way in which a solid business model has been perverted by extraordinary leverage into an important, unregulated trading profit center for large banks and hedge funds wholly unrelated to the needs of miners, jewelry manufacturers, and other industrial users. In its 2013 study related to gold, the Reserve Bank of India (RBI) commented: “In the Financial Markets, the traded amount of “paper linked to gold” exceeds by far the actual supply of physical gold: the volume on the London Bullion Market Association (LBMA of which the RBI is a member) OTC market and the other major Futures and Options Exchanges was over 92 times that of the underlying Physical Market.”


The LBMA reported that average daily volume of gold cleared in June 2013 was 29 million ounces, a new record. The LBMA estimated in 2011 that trading was 10x clearing volume. Assuming this ratio has held over the past two years, trading volume is the equivalent of 9000 metric tons of gold on a daily basis, compared to annual mine production of 2800 metric tons.

Compliant and unwitting central banks leave much of their gold on deposit in London, to be “managed” by the Bank of England, presumably to produce earnings on an otherwise dormant asset. For example, the central banks of Finland and Sweden announced last month that approximately half of their gold was somewhere in London earning something. Reassuring language from the Bank of Finland suggested that “the risks associated with gold investments are controlled using limits, investment diversification and limitations regarding run times.”

It would not be surprising if “run times” on leasing arrangements of central bank gold span decades. 1970’s documents recently declassified or otherwise unearthed contain extensive discussions among high level policy makers including Volcker, Kissinger, Arthur Burns and others expressing various concerns over the implications of a rising gold price. The policy objective in those days was to establish the SDR and the US dollar as the foundation of a “durable, stable (international financial) system”, an objective which was deemed “incompatible with a continued important role for gold as a reserve asset.” It was therefore resolved to “encourage and facilitate the eventual demonetization of gold …and (to) encourage the gradual disposition of monetary gold through sales in the private market.” (from a 1974 memo written by Sidney Weintraub, Deputy Assistant Secretary of State for International Finance and Development to Paul Volcker, Under Secretary of the Treasury for Monetary Affairs).
At the November, 2013 Metals and Mining Conference in San Francisco, keynote speaker Ron Paul and former lawyer to Governor Ronald Reagan, Art Costamagna, reminisced about their service together for the 1981-1982 Reagan Gold Commission. They noted that the Commission was not allowed to initiate an audit of the Fort Knox gold depository. Paul stated from the podium that no member of Congress has any real information on the status of that gold. He believed that the gold was still physically located at Fort Knox but most likely encumbered by complex derivative transactions.

Several observers have noted the difficulty Germany has encountered in requesting the repatriation of its gold held on deposit at the New York Fed. A return of physical gold that could be easily accomplished in two trans-Atlantic cargo flights must be stretched out over seven years, Germany was informed by the custodian of their gold, the New York Fed. However, the Germans were cordially invited to view their gold bars in the meantime. The reasons for the stretched out delivery schedule are not given by government officials, but we surmise that the difficulty relates to the unwinding of a web of leasing arrangements in which specific bars have been re-hypothecated, perhaps hundreds of times, over many decades. Who knows what counter parties were involved, not to mention their obligations or responsibilities?

One wonders whether the German request was the beginning of a run on the institutional arrangements that govern global depositories of unallocated physical gold. For those of us who have cheered the withdrawl of physical collateral from the system because of its potential tightening effect on derivative transactions, the short term effect may have been to depress the price of paper gold because there is less physical to support the frenetic trading of paper reported in the financial media. The shrinkage of collateral availability may be analogous to a contraction of credit which in a general sense drives down asset prices. At the end of credit liquidation cycles, however, collateral seems to wind up in the strongest hands. While most of the trading in paper gold nominally takes place on Comex, there is a parallel and much larger over the counter and derivatives market based in London where physical trades are also settled. The LBMA vets refiners, dealers, bar purity and other technical matters. It is a trade organization consisting of 143 members ranging from bullion banks, central banks, fabricators, refiners, and brokers who have some participation in the settlement of physical and paper trades. LBMA reports the results of the two daily London Gold Fixes but otherwise has no substantive input, supervisory or regulatory. According to a 11/26/13 Bloomberg dispatch, the fix is controlled by London Gold Market Fixing Ltd, an entity owned by five bullion banks. While the process is unregulated, one of the member banks went on the record for Bloomberg stating that the company has a “deeply rooted compliance culture and a drive to continually look toward ways to improve our existing processes and practices.”
From a regulatory point of view, the City of London is an entity unto itself, with a peculiar and special status, incorporated separately from greater London. It is the birthplace of the offshore banking industry and, as described by Nicholas Shaxson, author of Treasure Islands, the city “provides endless loopholes for U.S. financial corporations and many U.S. banking catastrophes can be traced substantially to those companies’ London Offices.” A July, 2010 Working Paper titled “The (sizable) Role of Rehypothecation in the Shadow Banking System” asserts that in the UK, an “unlimited amount of the customer’s assets can be rehypothecated and there are no customer protection rules.” (Rehypothecation occurs when the collateral posted by a prime brokerage client (e.g., hedge fund) to its prime broker is used as collateral also by the prime broker for its own purposes.) The London offices of AIG, JP Morgan, MF Global and others took advantage of the local “regulation lite” to fund off balance sheet ventures that would ultimately impair corporate and customer credit. It would be hard to imagine that the culture of the City did not extend to gold. In fact, the intersection of the shadow banking system and the pool of unallocated bullion does much to explain the proliferation of paper gold supply.

For the moment, the primary function of the paper gold market appears to be to enable macro hedge fund traders to express bets on the likelihood and timing of tapering the pace of quantitative easing. Made possible by lax oversight, weak accounting systems and otherwise dubious connections to underlying physical, the paper gold market offers substantial capacity for money flows wishing to take a stance on the expected shift in Fed policy. Unlike the physical gold market, which is not amenable to absorbing large capital flows, the paper market through nearly infinite rehypothecation is ideal for hyperactive trading activity, especially in conjunction with related bets on FX, equity indices, and interest rates.
Are high frequency and algorithmic traders that account for over 90% of the futures volume currently having a field day with this worn out trade paying any attention to the steady drain of physical gold on which their speculations are based? As is usually the case in a temporarily successful momentum trade where almost the entire universe is aboard, the answer is probably not. The precipitous 2013 drop in Comex warehouse stocks and ETP holdings has been widely reported. It is also well known that physical gold is showing up in record amounts in China. The manager of one of the largest Swiss refiners stated (12/10/13-In Gold We Trust website) that after almost doubling capacity this year, “they put on three shifts, they’re working 24 hours a day,….and every time (we) think it’s going to slow down, (we) get more orders…..70% of their kilo bar fabrication is going to China.” In his 37 years in the business, he has never experienced this degree of difficulty in sourcing physical metal. In some cases, they are recasting good delivery bars from the 1960’s. He added that there is no evidence of any return of these massive import flows back into Western hands.

China appears to be bent on becoming a dominant force in the physical gold market. There are eight refineries in mainland China converting 400 oz. London good delivery bars into Kilo bars, the preferred format in Asia. An increasing flow of physical is bypassing London and going straight to China. China has not shown its hand in the official sector. At last report (five years ago), China holds only 1000 tonnes of gold in official reserves. Current market weakness certainly benefits large buyers of physical as well as their fiscal agents in Western financial markets. China may be attempting to help their cause by understating import levels and by overstating domestic production. The CEO of a major Canadian mining company, whose research group has done due diligence on every existing producing mine of significance in the world, including China (over 2000 properties globally) believes that domestic Chinese production is less than half of what is reported officially. We have also heard credible stories from other mining executives to the effect that short reserve lives will mean a significant decline in future domestic production. Also uncaptured in Hong Kong import numbers are direct shipments from Russian production, which are said to be conveyed by the Chinese military. The Chinese government continues to encourage its citizens to buy physical gold, but why? Our guess is that Chinese policy makerss take a different view of the future price than Western hedge funds, and we suspect they have a superior grasp of where the gold price is headed.

Rising demand for physical is not simply an Asian phenomenon. The December 3, 2013 U.S. Commodity Futures Trading Commission report shows that commercials, the category which includes bullion banks, have substantially reduced their massive short exposure over the past year while the short exposure of large traders, mainly hedge funds have approached record highs for 2013. The CFTC bank participation report which includes 20 banks shows a swing from a net short position in December 2012 of 106,400 contracts to a net long position of 57,400 contracts for December 2013. Long contracts held by bullion banks are being used to claim physical gold stored at Comex warehouses. JP Morgan accounted for more than 90% of December deliveries. The category of registered bars which must be delivered upon notice stands at a two year low and is not far from a ten year low.


It seems to us that the physical flows we have outlined cannot be supported by new mine supply or scrap only. In our view, these flows could only be accommodated by a significant amount of destocking, the prime source of which would appear to be vaults of unallocated gold in London. While it appears that Western traders don’t seem to mind if their paper claims have a credible backing by physical, we can think of three reasons why this may change and lead to an epic short squeeze: regulatory scrutiny, suspect bookkeeping, and the realization that cash (in the bank) may no longer be king.

1.   The limits to leverage are unknown as are the potential flashpoints to collapse the pyramid. The disappearance of collateral may have depressed gold prices in the short term, assuming there is any integrity to the requirements for collateral backing. It is only our speculation, but we believe that increased regulatory scrutiny could provide a major splash of cold water. Such scrutiny could lead, among others things, tighter standards for collateral, rules on rehypothecation, etc. This could well lead to a scramble for physical.

On 11/19/13, the UK Financial Conduct Authority announced that it is reviewing gold benchmarks as part of their wider probe on how global rates are set. Why should the gold market be excluded from review when many of the bullion banks have already been found guilty and paid fines for the manipulation of Libor, energy, biofuels, and aluminum prices or benchmarks? On November 27th, the German financial watchdog, BaFin, announced it was looking into allegations of possible manipulation by banks in gold and silver price-fixing. A WSJ 11/29/13 article began with the innocuous headline: “UBS to Restructure Foreign-Exchange Unit.” The bank is rolling its foreign-exchange and precious metals business into another unit, with the co-head of the unit stepping down to explore “other opportunities in the bank.” In addition to other actions, the bank has also “clamped down on the use of electronic chat rooms by its staff. Chat rooms face scrutiny from regulators as venues for potential collusion and market manipulation.”

On December 5th, Deutsche Bank announced that it would cease trading energy, agriculture, base metals, coal, and iron ore, while retaining precious metals and a limited number of financial derivatives traders. It cited mounting regulatory pressure.” It is more than curious that a similar announcement from JP Morgan in July of 2013 noted that the bank’s exit from commodities trading did not include an exit from precious metals. The exclusion of gold from the newly enacted Volcker rule is the reason these banks are able to retain their precious metals proprietary trading activities.  It appears that in the eyes of Washington policy makers, all commodities are not created equal.

In the US, regulators including the US Federal Energy Regulatory Commission are “aggressively targeting uneconomic trading in a crackdown on potential market manipulation” according to Shaun Ledgerwood, senior consultant at the Brattle Group. From his June 2013 white paper, Uneconomic trading, market manipulation and baseball: “A key common feature …is that trades used to trigger the alleged schemes were designed to lose money on a stand-alone basis, while benefiting related physical or financial positions.”

The CFTC is examining position limits on spot trades for gold and other precious metals. CFTC Commissioner Gensler’s deadline for a resolution of the issue is Q1 2014. Among the issues to be settled is how to account for entry of orders by affiliated entities, an area of suspected potential abuse. In question also is whether new Comex position limits, should they be imposed, apply to trades settled in London. The CFTC board is in transition due to the departure of Gensler and two other vacancies on the five member body. Therefore, it remains to be seen when the Commission will act on this issue. Nevertheless, we think that the discussion surrounding the surfacing of this issue is constructive and that the potential enactment of more restrictive rules on limits could be positive development in the direction of more orderly trading. It should come as no surprise that bullion banks are lobbying hard against position limits.

The cumulative discrepancy since 1970 between paper markets in the West and physical markets in the East is displayed in the chart below. It is difficult to fathom how such a discrepancy can exist in the same asset. It is a mystery that we expect might be of interest to the appropriate regulators.

Where scrutiny and possible new regulation leads and what it means for the gold market is only a speculation at this stage. However, we speculate that it will result in a big win for those of us who remain bullish on the future price. In the words of former Supreme Court Justice Louis Brandeis, “sunlight is the best disinfectant.”

2.   The intermediation arrangements between the physical and paper gold markets may come under scrutiny for reasons other than regulatory oversight. The LBMA, Comex, and even gold backed ETFs depend on market trust in the ability of owners of paper claims to exchange those claims for physical gold. For unallocated bars vaulted in London, the complexity of cross ownership claims and entitlements to the underlying physical must be bewildering in light of the amount of re-hypothecation necessary to support the kind of frantic trading activity reported by the LBMA. It would not seem out of order to ask whether there are parties asleep at the switch on both sides of the trade – the central banks who lease gold into the pool, and the bullion bank back offices in charge of record keeping. Cutting corners in procedures to protect the chain of ownership of physical to speed transactions to support a pyramid of leverage is not an unreasonable nightmare to awaken central bank custodians whose principal charge is asset protection. Does anyone in bullion banking recall robo mortgage signing?

The pool of unallocated gold bullion in London is the center of the bullion banking system. The gold is vaulted at multiple locations in the hands of separate institutions. Disclosure is minimal and to our knowledge there has never been a comprehensive audit of the bullion and, more important, the systems on which the clearing process is dependent. We have heard instances of where private requests for delivery of allocated gold have been refused. While it is a simple matter for an owner of allocated gold bars to view the metal and check bar numbers against a statement of ownership, it is an entirely different matter to prove solitary unencumbered ownership. It is a matter of trust.

We believe that the very real possibility of an indecipherable web of multiple claims on the same bar of gold should concern both central bank owners, grass roots constituents of politicians in Europe and elsewhere pushing for repatriation, and private investors who hold paper claims against the metal. The potential for slipshod book keeping is a legitimate issue that could lead to a significant decrease in the amount of central bank gold available for lease.

3.   The risk of holding a significant portion of personal wealth within the framework of conventional banking and securities arrangements is on the increase. Simon Mikhailovich of Eidesis Capital LLC states in the November 15 issue of Grant’s: “In the old framework, cash was a risk-free asset. In the new paradigm of systemic risks, no asset (even cash) is risk-free so long as it is in custody of a financial institution. Investors and depositors no longer have clear title to their own assets if they are held in financial accounts. There is now a body of law (including Dodd-Frank) that allows custodial assets to be swept into the bankruptcy estate and be subordinated to senior claims.” Hand in hand with the evolution of the banking laws is the subtle but pernicious evolution of the practice of banking: “Various rules and practices have made it almost impossible to use cash and securities. Go try to make large cash withdrawal or cash deposit and see what paperwork you would be forced to complete.”

Should we worry about cash in the bank? Never mind that policy makers and respected private economists are openly campaigning to debase paper currency. “In Fed and Out, Many Now Think Inflation Helps” was the headline for a New York Times article on 10/26/13. “(Fed) critics, including Professor Rogoff, say the Fed is being much too meek. He says that inflation should be pushed as high as 6% a year for a few years.” In addition, there are calls for outright taxes on wealth and movement towards a cashless society in which all money would be electronic. In his recent speech before the IMF, Lawrence Summers stated that electronic money would “make it impossible to hoard money outside the bank, allowing the Fed to cut interest rates to below zero, spurring people to spend more.” Cash and securities within banking and securities institutions are visible forms of wealth. Liquid private wealth captured in electronic form offers endless possibilities for wealth redistribution and other social engineering schemes. Tangible assets that are not securitized or digitized are less visible and therefore less vulnerable to broad edicts targeting private wealth.
The same Mr. Mikhailovich notes that during the financial crisis of 2008, public policy was mostly an ad hoc reaction to a cascade of emergencies. Since then, policy makers have had plenty of time to plan orchestrated responses to circumstances similar or worse. In a series of steps, many small and some large, almost always cloaked in complexity and obscurity, and always in the name of public interest or national security, policy makers have constructed mechanisms that are substantially and substantively unfriendly to private wealth:

Source: TBR


Western investors seem to view gold only as a directional bet based on considerations ranging from micro economic (supply and demand) to macroeconomic (money debasement, fiscal disorder etc.) In our opinion, this view only partially explains what drives long term gold demand. We have always thought that the larger and more encompassing driver was wealth preservation. Gold is insurance against unforeseen events. It is the one tangible asset that is both truly liquid and that can most reliably provide buying power during times of crisis. In this context, the idea of selling it for a “profit” seems absurd. Physical gold is a reserve of liquidity, and it seems inappropriate to think of it as a way to buy a container of milk or a gallon of gas under emergency conditions. For notional apocalyptic purposes, a carton of Marlboros or case of Glenfiddich is better suited than ingots or coins to pacify the hordes of barbarians at one’s doorstep. However, for preservation of large scale wealth over generations there is no substitute. Gold does what expensive homes, crates of Picassos, safe deposit boxes packed with Rolexes, or a garage full of Aston Martin DB 7’s cannot…..morph quickly and easily into liquid buying power, with no haircut, when it matters the most.

Paper claims on gold will always serve well for trading/ gambling purposes. For those who wish to make directional bets on the future gold price, bullish or otherwise, futures contracts, ETP’s, or other paper derivatives, there is no need to hold physical gold. In fact, one could categorically state that physical gold is not for traders. However, time and again throughout history, usually over a weekend, paper claims have been rendered non-functional, useless or worthless. Banks may shut down, securities exchanges may stop trading, wire transfers may be blocked, arrangements may be suspended, or laws may change. The rhyming of history is not limited to far away places such as Cyprus, Poland, or Ireland. Recall the words of President Nixon (Sunday, August 15, 1971):

In recent weeks, the speculators have been waging an all-out war on the American dollar….I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold….Let me lay to rest the bugaboo of what is called devaluation.

An article in The Wall Street Journal Op Ed piece on 11/29/13, Romain Hatchuel wrote: “From New York to London, Paris and beyond, powerful economic players are deciding that with an ever-deteriorating global fiscal outlook, conventional levels and methods of taxation will no longer suffice. That makes weapons of mass wealth destruction—such as the IMF’s one-off capital levy, Cyprus’s bank deposit confiscation, or outright sovereign defaults—likelier by the day.” The two year long decline in the gold price has been largely explained in terms of the likelihood of Fed tapering and by inference the return to normal economic conditions for the global economy. Nothing could be further off the mark, in our opinion. It seems to us that the decline, initially a reaction to an overbought spike hyped by headlines of a government shutdown in August of 2011, gained momentum as macro traders saw selling and shorting gold as a vehicle to express views on tapering, Fed policy, jobs reports, and the health of the US economy. It makes perfect sense that confidence in the restoration of normalcy in monetary policy would be bad for gold. It appears to us that the pressure on gold is part of a vast macro trade involving the dollar, interest rates and stocks, with a script that seems to rely in part on encouragement from the official sector and in part on pure fantasy. As the short game gathered momentum, vested interests in lower gold prices have become powerful and entrenched.

The money printing thesis has been supportive of almost every tangible asset deemed to be of limited supply except for gold, a glaring exception. The explanation for the incongruity, in our opinion, is warp speed rehypothecation via the shadow banking system of the murky pool of London’s unallocated gold to create artificial supply of this scarce asset. The murky pool which is the foundation for this trade is draining, perhaps quickly, while the party goes on for the gold bears. The set up for a short squeeze of this overcrowded trade and market reversal seems compelling. Catalysts are awaited and as yet unknown, but in our opinion, it will not take much of a spark to inflict serious damage. A reversal will lift not only the gold price but that of the beleaguered gold mining sector where substantive and positive change has been occurring unnoticed by most investors.

In the financial markets, a person that is one step ahead of the crowd is considered a genius, but two steps ahead, a crackpot. Call us the latter, or just resolute, but we hereby go on record as downgrading the sovereign debt of all democracies to junk status. It seems to us that restoration of sustainable fiscal order remains a long shot and that money printing, thought by most to be only an emergency measure, will become the norm. Our negative view on the prospects for fiat currency has not been invalidated by the steep two year decline in gold price. When the market reverses, the diminished physical anchor to paper claims, concerns over title and encumbrances on central bank bullion, and worries over the drift of public policy will drive liquid capital into gold. However, this time around, it seems to us that the major recipient of flows will be the physical metal itself. Holders of paper claims to gold will receive polite and apologetic letters from intermediaries offering to settle in cash at prices well below the physical market. To those who wish to hold their wealth exclusively in paper assets, implicitly trusting the policy elites to resurrect normally functioning capital markets and economic conditions, we say good luck. For those who harbor doubts on such an outcome, we say get physical.

Best regards,

John Hathaway

Portfolio Manager and Senior Managing Director
December 12, 2013
© Tocqueville Asset Management L.P.

January Chinese Gold Demand Hits All-Time Record, 247 Tons…… by Koos Jansen

Original post at Koos Jansen site In Gold We Trust

January Chinese Gold Demand All-Time Record, 247 Tons

Sorry for the delay in my weekly reporting on SGE withdrawals. Due to the Chinese Lunar new year the SGE was closed from 31-01-2014 til 06-02-2014 (dd-mm-yyyy) so I had to wait a bit longer for the publication of the numbers. What they eventually released were the trade numbers from 5 trading days, January 27 – 30, and February 7.

Lets skim through the news first. Bloomberg just reported that Chinese gold usage, according to the China Gold Association, in 2013 was 1176 tons. First of all I don’t understand this new term usage, nor have I ever understood the term consumption regarding gold. If you have some knowledge of gold you know it’s never consumed, gold is immortal and will be recycled till the end of times. Its immortal property is one of the reasons why it’s the most marketable commodity, hence we started using it as money thousands of years ago. The other reasons are it has the right scarcity, its divisible and subsequently small units can be merged/melted into a large unit (a proces which can be repeated to infinity without any loss of material).

Having said that; How can gold demand (I assume that’s what they mean by usage) be 1176 tons, when China mainland net imported 1123 tons just from Hong Kong, domestically mined 428 tons, and additionally net imported gold through other ports? Regular readers of this blog know the number 1176 tons of demand is false, it was in fact 2197 tons as my research has exposed.

Other mainstream news outlets (like the Financial Times and the Telegraph) are slowly starting to scratch their heads about the Chinese gold market. It won’t take years before the Chinese will fail to hide their true insatiable demand for physical gold. Since 2008, after Lehman fell, the China Gold Association (CGA) has changed the way they measure gold demand. In 2007 they reported in the CGA Gold Yearbook

In 2007 the amount of gold withdrawn from the warehouses of the Shanghai Gold Exchange, total gold demand of that year, was 363.194 tons of gold, an increase of 48 % compared to 2006…

In other words, SGE withdrawals equal total Chinese demand (in 2013 SGE withdrawals accounted for 2197 tons), as I have been writing about for months! Starting in 2008 the CGA switched measuring gold demand fromwholesale level (SGE withdrawals) to retail level in order to suppress demand figures. This way they were able to hide investment demand. (for my full analysis read this)

It’s remarkable the CGA publishes these suppressed demand numbers, which are being copied by western media without any second thoughts, while at the same time the CGA has written reports, which are being ignored by western media, that state Chinese demand surpassed 1000 tons (it was 1043 tons to be precise) in 2011. FromThe China Gold Market Report 2011, page 28:

Deregulation of the gold control to open the gold market to the public in 2002 led to the constant rise in China’s gold demand, which unprecedentedly exceeded 1,000 tons in 2011…

The China Gold Market Reports 2007 – 2011 all state Chinese demand equals SGE withdrawals (due to the structure of the Chinese gold market designed in 2002). Since 2011 the CGA ceased publishing the China Gold Market. Chinese demand was such that it became uncomfortable for the Chinese authorities to lay their cards on the table.

To continue to report on suppressed demand numbers the CGA has recently signed a partnership with CPM group. Together they hope to gain more credibility in spreading incomplete data - for as long as it holds.

CGA CPM group partneship

For the CGA this is all strategics. I wonder if CPM Group knows what CGA president, Sun Zhaoxue, writes about the gold market in the Chinese media. Allow me to quote a few snippets from exclusive translations I publishedhere and here:

…the United States intends to suppress gold to ensure the Dollar’s dominance, the fall in the price of gold was premeditated, and a part of the currency war.

…The hottest topic at the moment is oil and goldThe ground war we are seeing around the world is I think war for oil whereas gold is the currency war.

…The US owes Germany so much gold but instead of repaying immediately, it sets a 2020 deadline to return the gold. From this example and process as well as some typical factors, this is a downright currency war to maintain the US Dollar hegemony by defeating all other currencies.

…Gold now suffers from a ‘smokescreen’ designed by the US, which stores 74% of global official gold reserves, to put down other currencies and maintain the US Dollar hegemony. Going to the source, the rise of the US dollar and British pound, and later the euro currency, from a single country currency to a global or regional currency was supported by their huge gold reserves. 

…In the global financial crisis, countries in the world political and economic game, we once again clearly see that gold reserves have an important function for financial stability and are an ‘anchor’ for national economic security.

…We need to establish a more clear national gold strategy, continue to grow gold reserves and progressively become a ‘gold-reserve’ nation that is commensurate with the country’s economic strength.

 …To fundamentally solve these problems, the state will need to elevate gold to an equal strategic resource as oil and energy.

In addition, because individual investment demand is an important component of China’s gold reserve system, we should encourage individual investment demand for gold. Practice shows that gold possession by citizens is an effective supplement to national reserves and is very important to national financial security.

In short, Sun knows the world is in a currency war and in war time China will keep it cards close to its chest. I hope the SGE doesn’t stop publishing withdrawal numbers, it’s the best benchmark we have at this moment.


Shanghai Gold Exchange Withdrawal Numbers January 2014

Withdrawals from the Shanghai Gold Exchange vaults in January 2014 accounted for 247 tons, which is an increase of 43 % compared to January 2013. It’s also more than monthly global mining production and an all-time record! China mainland mines about 35 tons per month which is required to be sold first through the SGE. The other 212 tons (247 – 35) had to supplied by import or recycled gold. My estimate is that scrap couldn’t have been more than 25 tons, so import in January was a staggering 187 tons. China is still draining the vaults in the west BIG TIME!

SGE vs COMEX ™ Jan 2014

Because the last SGE weekly report covers four days in January and one in February, I multiplied the weekly amount by o.2 and subtracted the outcome from the year to date number to get to the January total. This number may be revised when the SGE publishes the January monthly report, but I don’t expect a significant change.


Overview Shanghai Gold Exchange data 2014 week 5 and 6

- 40 metric tons withdrawn in 5 trading days of week 5 and 6   (27-01-2014/07-02-2014)

- w/w  - 29.9 %

- 256 metric tons withdrawn year to date

My research indicates that SGE withdrawals equal total Chinese gold demand. For more information read thisthisthis and this.


SGE withdrawals 2014 week 5,6

This is a screen dump from the Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults, the second number from the right (green – 累计交割量) is the total YTD.

SGE withdrawals January 2014

This chart shows SGE gold premiums based on data from the Chinese SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan).

SGE premiums


Below is a screen dump of the premium section of the SGE weekly report; the first column is the date, the third is the international gold price in yuan, the fourth is the SGE price in yuan, and the last is the difference.

SGE premiums


In Gold We Trust



The Need For China To Buy Gold ….. by Koos Jansen

Original post at Koos Jansen site In Gold We Trust

The Need For China To Buy Gold

The other day Zero Hedge posted an image from a quarterly financial report from the Chinese central bank, the PBOC. When I first looked at it I thought for a minute the PBOC had announced a raise in their official gold holdings. Then I woke up and realized their gold holdings are disclosed in the second row from below, still stuck at 33.89 million ounces. I asked my friend in the mainland to translate the headers to get a better view on this summary. He was so kind to do so.

China Gold


China Gold translated

We can see Chinese FX reserves expressed in US dollars (which is still the most commonly used reserve currency and unit of account worldwide) having a total value of $3,821,315,000,000 (or $3.8 trillion) at the end of December. At least 34 % of these assets are denominated in US dollars in the form of US treasuries ($1.3 trillion). Only 1 % is held in physical gold according to the PBOC; 33.89 million ounces (1054 tons) was worth  $41,5 billion in December. Let’s compare these numbers with the a few other countries. From The World Gold Council:

World official gold holdings, January 2014


The Need For China To Buy Gold

China is in the top ten in terms of gold holdings, but only holds a fraction of gold relative to its total FX reserves.

The bulk of China’s FX reserves are extremely vulnerable for a devaluation of the US dollar. At the same time a devaluation of the US dollar is imminent, as Yu Yongding, a prominent Chinese economist and former member of the monetary policy committee of the People’s Bank of China, has expressed in numerous presentations. This is why China has a strong incentive to hedge against the USD by increasing their official gold holdings. From Yu Yongding at the LBMA conference 2012:

..Before taking over the Presidency of the Fed, Bernanke was very open in talking about the possibility of using inflation to solve the debt problem. He gained the very apt nickname ‘Helicopter Ben’, and I think he will rule out this option, but of course he will not say so openly.

..To push down the value of the dollar is another very important objective of QE, even though Bernanke refused to admit that this is the policy, I think Greenspan is more honest, because he is no longer the governor.

Essentially, the policy of QE is to shift the debt burden away from borrowers at the expense of creditors and I think this is basically the situation that China is facing.


A big problem for China has been buying large quantities of physical gold without increasing the price. For this reason China’s strategy has always been to be as secretive as possible about its gold purchases. They don’t disclose their gold import numbers, nor any interim changes in official gold holdings. They hide their dire hunger for the yellow metal to simply bargain a better price. But sometimes their craving to buy gold (without affecting the market) slips through the media:


Yu Yonding:


Yu Yongding on gold QE RMB


Li Yining:

China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall.


Want China Times:

China should now rapidly increase its gold reserves, without pushing up prices of the precious metal excessively.


Sun Zhaoxue:

It’s especially true that as global gold prices make new highs, increasing gold reserves also become more difficult.


So China’s main objective is to buy as much gold for as little dollars. The main objective of the US is to devalue the dollar.


A Summary Of Potentially Coherent Facts

  • The US debt problem has created the necessity to devalue the dollar in order to shrink their debt (and boost export).
  • China holds at least $1.3 trillion in FX exchange which will be wiped out by a US dollar devaluation.
  • The US and China have a strong trade relationship; Both benefit from China exporting cheap goods to the US.
  • The US and China share a mutual interest in holding the value of the dollar in check for trading.

Can it be these two mighty countries agreed in early 2013 to support the value of the dollar for the time being, while heavily suppressing the price of gold in the paper markets to allow China to accumulate as much of the yellow metal as needed? This would surely provide the best outcome for both after what inevitably will happen: a devaluation of the US dollar and a revaluation of gold.

In Gold We Trust

Please have a look at the section at the right of my website titled: “Reads on China and gold”.  I’ve placed links to many articles that quote Chinese economists  expressing the need for China to increase their official gold holdings.

Europe is a Basket Case – Deflationary Spiral Draws Closer…. Courtesy of Armstrong & Ambrose Evans-Pritchard

frogs boiling

Europe is a Basket Case – Just Turnout the Lights Now & Save Energy


The German high court has issued a stunning attack upon the European Central Bank, arguing that its rescue plan for the euro violates EU treaty law and exceeds the bank’s policy mandate. Anyone who studied just one semester of law understands that this decision is right on point. One of the primary reasons I disagree with conspiracies to rule the world as if someone was really in control, has been the fact that I have been Behind the Curtain since the 1980s. There is no all-powerful group who knows what the heck they are doing. Everything is purely ad hoc and it is far worse than anyone can even guess. Sure, there are conspiracies to manipulate a given market and make money short-term and then they troll for the next scheme. But to think someone is actually behind this mess mapping out the future for society as if this was part of a giant plan, well you are attributing the power of God to man. Sorry – you are so off base it isn’t even funny. This is total chaos and politicians simply respond to whatever event is immediately before their eyes withoutANY concept of the long-term. This is one step at a time without any sense of where they are even headed.


When the European Commission was designing the Euro, they came to our London Seminar and took the entire back row of seating. I had conversations with the peopleBehind the Curtain and the German Central Bank use to provide us with details on the upcoming Euro because they could see it would fail. I KNOW what went on – this is not speculation or theory – I was there. I explained that the ONE-SIZE-FITS-ALL would failand that there had to be a consolidation of national debts consisting of ALL member states for the currency to become a RESERVE currency. The hype that the Euro would replace the dollar was total nonsense and all those who promoted such ideas were clueless prejudiced dollar haters – not analysts who let the facts speak for themselves.

The German high court has delivered very tough language leaving it questionable whether the ECB’s scheme for Spanish and Italian bonds can even be implemented when Europe’s debt crisis blows up again. The design of Europe is completely a disaster for it is a patch work just to grab power and then hold it without any long-term design other than retain control by the federalization of Europe. From the outset, the planners did not consolidate the debts because they did not think the people would vote for the union if there was any implication of a bailout for some countries. Therefore, they focused ONLYupon creating a single currency PRESUMING that this was why the US economy was what it was. Today, they just will not allow the people to vote and have eliminated democracy for what they see as the “greater good” that is always their self-interest.

I desperately tried to explain that you could not create a single currency to rival the dollar if major capital could not “park” in bonds of one major unified state. The planners assumed that leaving the debts spread-out among all states would work since they would be denominated in the new currency. They ignored individual credit risk that was the very fear that the people would not vote for their scheme if there was a debt consolidation. The planners tried to over-power the free markets by assuming one central bank interest rate would suffice ignoring credit risk. This was a COMPLETE and ABSOLUTE failure to understand how markets even function and Europe is now a total basket case using band aids to try to patch wounds that need surgery.

The German high court has read the treaty and is absolutely correct. The politicians are just trying to deal with the errors they originally made and refuse to reform the entire process leading to illegal acts just to try to hold this mess together. The German high court has to be commended for its honesty, for surely the US Supreme Court would never take such a step against its appointing politicians. This ruling by the German high court greatly complicates any future recourse to quantitative easing if needed to head off Japanese-style deflation.

The German high court did refrain from issuing a final ruling on the legality of the plan, that is now known as Outright Monetary Transactions (OMT). Instead, it referred the case to the European Court after providing a pre-judgment of the issue making it more difficult for the European Court to bless the politicians as would the US Supreme Court. However, in the middle of the next crisis, the ECB will still act and the European Court will bless the ECB seeing this as a no choice decision to save Europe. Nevertheless, the German high court has made it clear that it considers “the OMT decision incompatible with primary law”.


It is time to just turn out the lights and save energy. This design will not work and the very idea that a federalized Europe would eliminate war is in fact feeding the very  seeds of war by the economic disaster they have created that leads to finger-pointing and old wounds.

Read full article below here… Ambrose Evans-Pritchard @ The Telegraph

Split ECB paralysed as deflation draws closer, tightening job vice in southern Europe

Mario Draghi said the ECB’s council had discussed a wide range of measures but needed more information

The European Central Bank has brushed aside calls for radical action to head off deflation and relieve pressure on emerging markets, denying that the eurozone is at risk of a Japanese-style trap.

“Monetary policy in the eurozone is incredibly tight and is doing real damage to the economy, yet they do absolutely nothing. It boggles the mind,” said one former ECB governor.

“The idea that everything is alright because they are not in actual deflation is a false premise. They are already so far below their 2pc target that it is causing much higher unemployment and making it that much harder for the eurozone periphery to adjust. I am afraid to say that Mario Draghi has been captured by the German political class. He doesn’t want to compromise the support of Angela Merkel’s government,” he said.

Bourses in Europe and the US rallied strongly despite the disappointment but tell-tale fractures in financial markets call for caution. Simon Derrick, from BNY Mellon, said the sharp rise in the Japanese yen – typically the early warning signal for trouble – has echoes of events in the build-up to the Lehman crisis. “Given the huge bubble we’ve seen in emerging markets, the combination of Fed tightening and a hawkish ECB that refuses to act makes this all too like 2007, even if the risks are in a different place. One misstep now could be the trigger,” he said.

Mr Draghi said the ECB’s council had discussed a wide range of measures but needed more information, adding that the “complexity of the situation prevented action at this time”.

Any decision has been kicked into touch until March and possibly longer. Yet delay is risky. Core inflation has already fallen to 0.6pc once tax rises are stripped out. The M3 money supply has been contracting at a 1pc rate over the past three months, against a target of 4.5pc growth.



Podcast: Jim Bruce: The Siren Song of “Money for Nothing”…..Courtesy of PeakProsperity

PeakProsperityfed image

Jim Bruce: The Siren Song of ‘Money For Nothing’

Shining a bright light on the Fed’s culpability
by Adam Taggart
Saturday, February 1, 2014, 4:29 PM


Like many concerned about the growing credit bubble driving the housing boom, Jim Bruce did his best to warn family and friends about the looming risks leading up to the 2008 financial crisis. Not many heeded him.

Jim, though, had not only positioned his portfolio defensively for such an event, he also managed to make profits by betting against the stocks of overly leveraged financial institutions. But it’s what he did with the money he made that’s the interesting story here.

Jim’s worry about the unsustainability of our nation’s economic trajectory only increased once the Federal Reserve began undertaking its extreme measures to get liquidity flowing (QE I, II, III, etc). In his eyes, easy credit and misguided market intervention were huge causes of the crisis in the first place, and here we were, trying to solve the problem by simply doing a LOT more of what created it.

So Jim set out again to educate people about the dangers of continuing down the reckless path we’re currently on, and he chose to focus his beam on the Federal Reserve  arguably the most influential institution in the world right now, and at the center of the policies and programs that, in his estimation, are currently dooming our economic and monetary futures. So last year, he released the film documentary Money For Nothing: Inside the Federal Reserve, which he wrote, directed, and produced.

Since its release, Jim has been touring the country with the film, speaking to Main Street and college audiences about the Fed: the implications of its policies, its fallibility, and our responsibility as citizens to remain educated on and vigilant of this private institution that has been granted tremendous power over our lives. Jim’s goals are to build awareness that the money wizards are not all-knowing and to create a dialog to actively question policy decisions that he sees as detrimental to our nation’s interests in the long term:

The Fed’s role has just grown and grown over time. To me, it is symbolic of how we are not addressing the real issues that our country faces. One of the big crutches we are using is the Fed.

Globalization has made the world a more competitive place for the last 30 years, and the Fed’s response has been to lower interest rates and encourage consumption even as American households (many of them) are not making what they used to make. The idea is, Let’s use credit to keep buying the same amounts of things that we used to buy. The whole thing is unsustainable.

It is something that, step-by-step, as crises came up, we traced the 1987 crash, Long-Term Capital in 1998, the tech bubble collapse in 2000, and now this most recent collapse. With each crisis, the Fed has expanded its actions, you could argue, with diminishing returns. They really are playing a bigger and bigger role in all of our markets and in our economy. If you look at right now, you can say the Fed today is trying to be Atlas. The have the government bond market (the largest in the world) on their shoulders and they’re trying to fix prices there. They have the U.S. Stock Market  the Fed is the biggest player there; the biggest influence, at least. Then, if you look at the housing market, buying $400-500 million dollars of mortgages each year, they are by far and away the biggest influence there.

The Fed really is directly involved and explicitly involved now in all of our major markets. The goal of the film is to lay that out for people to look at that and say: Maybe this is not such a good idea.

The film includes interviews with a number of former (and some current) Fed officials, as well as economists, historians, and investors. It’s pretty remarkable to hear such a level of criticism about its current interventionism voiced by so many involved in that institution. None appears to have a clue how the Fed will get out of the box that its recent massive liquidity programs have put it in.

Given the number of insiders that appear in the movie, some readers here on have questioned if this might be a publicity piece for the Fed, trying to soft-pedal its culpability in the recent state of the economy. We ask Jim that directly in the interview – listen to his full response and judge for yourself  but here’s some of what he had to say:


If you look at the film, it is so critical of the Fed, ultimately, that there is no way Ben Bernanke wants that message out. We say a lot of bad things about the Fed…ultimately we come down on the side of, The policies we are doing today are wrong…I just cannot see how you can watch the film and think it is really implying that the Fed is on top of things.

Podcast : Here’s What It Looks Like When Your Country’s Economy Collapses …Courtesy of PeakProsperity


Argentina is showing us the playbook in real-time

by Adam Taggart
Saturday, February 8, 2014, 2:36 PM


Argentina is a country re-entering crisis territory it knows too well. The country has defaulted on its sovereign debt three times in the past 32 years and looks poised to do so again soon.

Its currency, the peso, devalued by more than 20% in January alone. Inflation is currently running at 25%. Argentina’s budget deficit is exploding, and, based on credit default swap rates, the market is placing an 85% chance of a sovereign default within the next five years.

Want to know what it’s like living through a currency collapse? Argentina is providing us with a real-time window.

So, we’ve invited Fernando “FerFAL” Aguirre back onto the program to provide commentary on the events on the ground there. What is life like right now for the average Argentinian?

Aguirre began blogging during the hyperinflationary destruction of Argentina’s economy in 2001 and has since dedicated his professional career to educating the public about his experiences and observations of its lingering aftermath. He is the author of Surviving the Economic Collapse and sees many parallels between the path that led to Argentina’s decline and the similar one most countries in the West, including the U.S., are currently on. Our 2011 interview with him “A Case Study in How An Economy Collapses” remains one of Peak Prosperity’s most well-regarded.

Chris Martenson:  Okay. Bring us up to date. What is happening in Argentina right now with respect to its currency, the peso?

Fernando Aguirre:  Well, actually pretty recently, January 22, the peso lost 15% of its value. It has devalued quite a bit. It ended up losing 20% of its value that week, and it has been pretty crazy since then. Inflation has been rampant in some sectors, going up to 100% in food, grocery stores 20%, 30% in some cases. So it has been pretty complicated. Lots of stores don’t want to be selling stuff until they get updated prices. Suppliers holding on, waiting to see how things go, which is something that we are familiar with because that happened back in 2001 when everything went down as we know it did.

Chris Martenson:  So 100%, 20% inflation; are those yearly numbers?

Fernando Aguirre:  Those are our numbers in a matter of days. In just one day, for example, cement in Balcarce, one of the towns in Southern Argentina, went up 100% overnight, doubling in price. Grocery stores in Córdoba, even in Buenos Aires, people are talking about increase of prices of 20, 30% just these days. I actually have family in Argentina that are telling me that they go to a hardware store and they aren’t even able to buy stuff from there because stores want to hold on and see how prices unfold in the following days.

Chris Martenson:  Right. So this is one of those great mysteries of inflation. It is obviously ‘flying money’, so everyone is trying to get rid of their money. You would think that would actually increase commerce. But if you are on the other end of that transaction, if you happen to be the business owner, you have every incentive to withhold items for as long as possible. So one of the great ironies, I guess, is that even though money is flying around like crazy, goods start to disappear from the shelves. Is that what you are seeing?

Fernando Aguirre:  Absolutely. Shelves halfway empty. The government is always trying to muscle its way through these kind of problems, just trying to force companies to stock back products and such, but they just keep holding on. For example, gas has gone up 12% these last few days. And there is really nothing they can do about it. If they don’t increase prices, companies just are not willing to sell. It is a pretty tricky situation to be in.

Chris Martenson:  Are there any sort of price controls going on right now? Has anything been mandated?

Fernando Aguirre:  As you know, price controls don’t really work. I mean, they tried this before in Argentina. Actually, last year one of the big news stories was that the government was freezing prices on food and certain appliances. It didn’t work. Just a few days later those supposedly “frozen” prices were going up. As soon as they officially released them, they would just double in price.

Chris Martenson:  Let me ask you this, then: How many people in Argentina actually still have money in Argentine banks in dollars? One of the features in 2001 was that people had money in dollars, in the banks. There was a banking holiday; a couple of weeks later, banks open up;Surprise, you have the same number in your account, only it’s pesos, not dollars. It was an effective theft, if I could use that term. Is anybody keeping money in the banks at this point, or how is that working?

Fernando Aguirre:  Well, first of all, I would like to clarify for people listening: Those banks that did that are the same banks that are found all over the world. They are not like strange South American, Argentinean banks – they are the same banks. If they are willing to steal from people in one place, don’t be surprised if they are willing to do it in other places as well.


War Cycles – Ukraine is Now Becoming the Real Focal Point……by Martin Armstrong

Ukraine – Becoming the Real Focal Point


Ambassador Michael McFaul to Russia has Resigned, not merely from his post, but from the Obama Administration. McFaul was never popular in Russia and was often accused of trying to stir a revolution there. But the word around is that he is getting out and does not like the turn of events.

Besides the US sending tanks back to Europe, the USA is now opening the pipes andstarting to supply Europe with oil. There is deep concern about rising tensions with Russia and you have to look between the lines to see the patterns forming with strategic movements one step at a time. The USA is also accusing Russia of not reducing missilesaccording to the treaty – another sign of rising tensions.

The rise in anti-government protests in Ukraine have been going on for weeks. What people do not appreciate is that there were attempts to do the same thing in Russia, but the people were arrested and that put an end to that. Some still talk about it on Facebook. In Russia they are portraying the rise of Neo-Nazi politics in Ukraine. This is once again part of the stage performance that both sides play up to justify whatever actions they need to take. At the very best, Ukraine would split in half East v West. That is truly the best possible outcome – but somehow it seems that the worst course is always preferred by mankind in general.

Meanwhile, the US and EU officials are now pushing for a Ukrainian aid package in hopes of putting pressure to prevent Russia taking the country. But there seems to be a building trend over Ukraine and Russia can easily justify the fact that the East was once part of Russia and that the people there even speak Russian – not Ukrainian. This seems to be the focal point that is building. With the Cycle of War turning up here in 2014, this can easily become a very serious issue. Everything is starting to move it seems in preparation.

The Chinese Government’s Gold Policy, From The Horse’s Mouth…… Courtesy of Koos Jansen

Original post at Koos Jansen site In Gold We Trust

The Chinese Government’s Gold Policy, From The Horse’s Mouth

Notes from the translator, LK:

“This is a detailed policy memo from the country’s highest government to let the various ministries and department know of the direction, intentions, progress and steps of development of the many facets and components of the gold market that serves both the gold industry and other areas of finance.

So they sure are in it for the long haul and mean it well for everybody. I’d say this is pretty convincing of our possible future landscape!

I consider this one big piece of the jigsaw, as so far as there has been little of what China thinks or is doing, other than buy buy buy.”

Here we go..


State Council logo


A Communication On How We Should Help Develop The Gold Market.

The Opinions From:

People’s Bank of China (PBOC)

National Development and Reform Commission (NDRC)

Ministry of Industry and Info Technology of the PRC (MITT)

Ministry of Finance (MOF)

State Administration of Taxation of the PRC (SAT)

China Securities Regulatory Commission (CSRC)

To various bodies including and not limited to:

To: PBOC Shanghai HQ, branches, provincial capital city center branches, sub-provincial city center branches, provincial development and reform committees, CSRC, national inland revenue, SGE, SHFE, State owned banks, share-ownership commercial banks etc.


1. The importance of understanding a healthy development of the gold market

The gold market is an important component in the make up of financial markets. Gold has both financial and commodity attachments. Good efforts to develop the gold market will enable it to play a unique function not found in other financial assets, complementing and helping the other markets in finance, completing our financial system helping in both breadth and depth, raising our market’s competitiveness and readiness to respond to crises, contributing to stability and security of our finances.

Developing our gold-related industries will not only help raise the competitiveness of these industries, but also help other mining and resource industries. Since the reform started, our gold industries have developed steadily along the supply chain which includes exploration, mining, refining, trading, investment, value-added and retail sectors. A well-functioning gold market can help these sectors in financing needs, risk management, cost-lowering, supplying market information to these enterprises, helping them make production and operation plans, thus help restructure and raise the standard of these industries.

The tradition of gold investment and consumption is with our people/citizens. As the private sector grows at speed and living standard upgrades, private demands for gold jewellery, coins and investment gold are also growing quickly. A gold market with a rich diversity of products will help develop new investment channels, satisfy the varied demand, help investors make appropriate asset allocations, raise investment returns and protect our wealth assets.


2. Next-step clarification of the positioning of the gold market development

After replacing the previous collective-buying practice policy, our gold market has developed speedily; the coordinated development of the gold industry supply chain have started to form, with the contribution in the business developments of the Shanghai Gold Exchange and the commercial banks and the Shanghai Futures Exchange. The gold markets should be developed to serve wide-scope gold-related industries, with the goal of raising the competitiveness of our financial markets, letting the gold market play the important part of making our financial markets whole. We need to facilitate and encourage communications and coordination, and establish such mechanism especially between the SGE and SHFE.We also need to be more innovative developing RMB-denominated gold derivative products, increasing the diversity of product types, enabling the market function to perform better with depth, improve regulation and openness at the same time, building a multi-faceted, multi-level market system.

As soon as possible, the SGE needs to clarify and establish plans for the future market development and positioning of itself, improve and strengthen its service offering structure, bring its different policies and practices of different areas up to standard and make sure market regulation practices are well and smoothly in-force. Pay attention and seriously consider the opinion and suggestions of your members, do a good job to really service your members. We need to strengthen and improve areas of trading, gold-cash settlement, assaying and certifying of gold quality, the vaulting and shipment of gold. We need to study in depth the nature of the evolution of the gold-related industry and the gold market, so that the SGE can play its important role in promoting the healthy development of the gold market and related infrastructure building.

The SHFE should make full use of the future market price discovery and its function to manage risks to steadily and advance the healthy development of our gold risk-management market, adding to fundamental policies framework supporting the gold market. With the central aim of letting the market do its proper job, we need to make good and keep good the policies and regulations towards gold futures contracts and related businesses, making the gold futures market deep and with attention to details, thereby raising the level of service towards the broader private sector economic development. We need to keep raising our ability to control risk in the market, including managing and appropriately encouraging our members to look at themselves and do business with fit and proper conduct, effectively pre-empt and dissolve market risks. We also need to look at and make good the structure/composition of gold investors. Support gold enterprises so they can actively participate, using the futures market to protect values across time. Actively guide other financial institutions to use the gold futures market to manage risk.

Commercial banks should look towards the entire supply chain from gold mining to fabricating and value-added processing to final sales, practically innovate new financial products that are effective in helping each area in the chain with financial service. We need to cater to the needs of enterprises and market development at the same time, be innovative in developing business areas of physical gold sales, gold leasing, futures and options on futures too, enrich the product range, so as to satisfy the financing needs and risk-avoiding needs of enterprises. Encourage and guide commercial banks in developing RMB-denominated gold derivatives trading. Guide more financial institutions to make use of the gold market, broaden and deepen our gold market.


3. Strengthening gold market services system infrastructure

Build and strengthen  gold market system infrastructures. The SGE needs to further strengthen its trading infrastructure, be innovative, complete the gold market system. Introduce and enrich different models/modes of trading, introduce market maker system, raise the liquidity of the gold market. Speed up work on disaster-recovery systems, bring back-up systems up-to-speed. Further improve cash capital management systems, secure and protect customer funds.

Bring our gold assaying system up to standard. With respect to our gold industry capabilities and practical development needs of the market, learning from the experience of international gold markets, refine and improve our systems on gold ingot eligibility applications, assaying, appraising and inspection / checking, raise the standard-setting standing and reputation of our system, help move the establishment of our gold market standard assaying system. Consider the resources of our country as a whole, noting special features of the gold industry, do our reasonable best to make sure that the gold bars and ingots vaulted by our industry are up-to-standard.

Make a good vaulting-transportation system. Consider all the factors relating to the gold production and actual consumption of our country, set up a good system of settlement vaults. Collect and consider the business costs of our commercial banks and members, set reasonable (standard) fees for moving gold in and out of vaults, and storage fees. Set up good transport system network, prepare low-cost, high-speed efficient service of transportation to the market.

Perfect our settlement service systems. According to the needs of the market, practically improve the system infrastructure of gold account services, offer more convenient and fast physical gold settlement and gold accounts to the market. Learn from the experience of the international market, investigate and propose multi- and different types of gold account services. Improve the gold market’s capital settlement services.

4. Bring about satisfactory gold market laws, regulations and related policy supporting system

Speed up gold market laws and legal framework building. Help move forward the Ordinance of gold market management/regulation. Formulate plans to manage gold and gold-made products imports and exports. Step up management of financial institutions on gold products, guide and motivate framework for steady development of financial institutions’ gold-related businesses.

Make up gold market related taxation policy ready for implementation. Continue to execute existing set of taxation plans from SGE and SHFE. Research into good taxation policy on investment gold and commercial banks gold business.

Look into broadening supply channels for physical gold for the gold market. With respect to actual market needs and how our gold markets are, increase the number of commercial banks qualified to do import-export business, help the market to become innovative, raise the level of liquidity in the market. Develop the gold leasing market based on free market principles.

Work on and improve the gold market financing services. According to applicable credit policies and principles, commercial banks needs to increase the access to amount of credit for qualified large enterprises that fit the gold supply chain plans for development of our country. Give special support to large-scale gold enterprise groups’ development to aid them to achieve the strategy to “go outside” into the international arena, and help them with related gold financing service business that they have. Support these groups when they issue bonds, short- and intermediate-term notes for lowering financing costs. When suitably qualified enterprises engage in mergers or acquisitions, help them with loans to aid industry restructuring, to simplify the business and achieve better scale effects. Regarding value-added processes and retailing, take note of each of their business characteristics including cyclical features, help form a financial services system that takes care of their needs from liquidity all the way to final sales. Think about new financial products that will help them in their businesses, making use of collateral values in receivables and inventories as necessary. Encourage financial institutions in developing financial services with gold as collateral. Banks should study and understand problems in credit issues of value-added processing and retail businesses, and propose practical solutions.

Forex management policies: help make a good current gold market foreign currencies management policies/strategy. In order to help guide commercial banks to develop RMB-quoted gold derivatives trading, working with SGE’s price quoting system infrastructure, work to allow commercial banks that are developing RMB-denominated gold derivatives to be able to hedge on-shore gold trading margin with off-shore position without actual gold import-export business operations. Research into the possibility of allowing banks that are planning to develop such business to allow them to use other FX open positions margin to compensate in the overall margin required in total on-shore positions.

Move the gold market towards external openness. Steadily increase the number of foreign members of the SGE. Look into allowing off-shore qualified ingot suppliers to supply to the SGE. Look into allowing off-shore institutions to participate in SGE transactions.

5. Pre-empting gold market risks.

Step up regulation of the gold market. Each department should fulfil regulatory responsibilities seriously. With good communication and collaboration, work together for the integrity and benefit of the market as a whole.

Commercial banks should step up risk management and control. Plan well for related services, make sure businesses opening satisfy requirements. Make sure system infrastructure investments are sufficient to protect security and integrity of transactions. Policies should be suitable towards particular characteristics and risks of each business to pre-empty risks

Intermediaries need to step up on self-discipline. The SGE and SHFE need to make sure transactions, delivery, settlement and gold account and other services are well supported by system infrastructure including for on-line products, and make sure that all the services offered are safe. Make sure members behave, markets are orderly. When market conditions change, take timely action to pre-empty risks.


6. Protect the investors.

Use a multi-form approach, work to have better educated and mature investor groups for the gold market. Step up training for gold market industry staff, raise the degree of professionalism. Step up education on gold market risks, let the players be well cognizant of risks. Market players should well understand the importance of protecting investors interest and the healthy development of the gold market, so that when they encounter issues, they raise them with authorities appropriately. Let market participants know what behaviour is expected, that underground speculative activities are strictly forbidden. Any violating departments will face strict punishment and posted to records.



UK Inexorably Heads Towards It’s Final Day of Reckoning

Bust Britain

As I have written about recently on a few occasions (see here), UK Coalition Government has purposefully re-inflated the giant credit bubble to give the impression that the country has turned a corner. After suffering the worst economic collapse since the 2nd World War our glorious leaders have put us back on the path to growth and prosperity  - balderdash, nonsense, gibberish  !!  

The UK Telegraph takes up this subject today with (click link for full article)….. Then below this article we have the famous UK Property Bubble.

“Britain’s Shaky Growth Is Papering Over The Cracks”

The UK, though, uniquely among the world’s big economies and despite our latest growth spurt, has yet to make up lost ground. Over five years on from the credit crunch, our economic output remains 1.3pc below 2008 levels, with manufacturing 8.2pc lower and construction output, incredibly, still 11.2pc adrift. So our recovery is far from balanced – and with financial services and real estate roaring, while manufacturing and construction languish, the imbalance is getting worse.

In “After Osbrown”, an important new pamphlet from Politeia, the free-thinking Tory backbencher Douglas Carswell makes the point that each of the four periods of sustained economic contraction experienced by the UK since the early 1970s has been preceded by an unsustainable credit-induced boom which then went wrong

We’re now making the same mistake all over again, argues Carswell, with the Tory-led coalition, for all its “austerity” rhetoric, following the same road of high government borrowing and excessive credit stimulation that Labour took under Gordon Brown. “We test to destruction the idea that cheap credit can make us rich,” writes Carswell. “Sooner or later, Osbrown economics will not only fail, but will be recognised as having failed.”

Carswell is no lightweight, back-bench malcontent but an increasingly influential voice both inside and outside Parliament. There is, to my mind, a great deal in what he says. The recent slew of data, despite the rosy headlines, does suggest this is an unbalanced, unsustainable debt-fuelled upswing. Along with our deteriorating current account, consider that UK household debt just reached a record £1,430bn, higher than it was prior to the credit crunch. Yes, car sales have grown over the last few years, but three quarters of them were financed with borrowed money.


Now the EY Item Club have put out a report that the Greater London area has an enormous ‘property bubble’. Well blow my socks off or No Shit Sherlock !! 

As far as I am concerned all you have to do is look at the data, according to Nationwide’s (most conservative numbers out there)  , Greater London area is now dealing on a price multiple average of 9.8  (historical average being 4.8).   All I personally need to know is that number to know if property is cheap or extremely overvalued  !

Day of Reckoning is not with us yet and will not likely capitulate until after the UK general election in mid 2015. Good Luck  - Mitch


London shows signs of house price bubble experts warn   (full article click the link)

The Bank of England must be “prepared to take action” on housing market controls amid fears that London is beginning to show “bubble-like conditions”, according to new research.

The average house price in the capital will rise to £600,000 by 2018, experts predict in a report released on Monday by economic forecasters the EY Item Club.

The cost is 3.5 times more than the average house price in Northern Ireland and over 3.3 times the average in the North East.

The research also revealed that income multiples are now back to pre-crisis levels in London as homeowners take on increasingly expensive mortgages.

During the past year, house prices in London have increased at more than double the rate of the rest of the UK to an average of £403,792, according to recent Land Registry figures.

The Item Club said that it favours intervention over the introduction of higher interest rates, so the Bank of England’s Financial Policy Committee (FPC) would need to be involved in any preventative action.