Posted: 27 January, 2014
Learn from Buba and demand delivery for true price of gold
From the Financial Times, reporter Neil Collins: “Learn from Buba and demand delivery for true price of gold: One day the ties that bind the actual and the traded commodity will snap:
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.
Another “typical” London market (LBMA) day (27th January 2014) in the precious metals, where all bullish technical data is ignored and roaring fundamental macro data is equally brushed aside in the pursuit of driving metal prices lower in the West (they really do not get it !), to give you an idea of the market structure and fundamentals at the moment…
Technically we had an extremely ‘bullish weekly close’. Simply put, last weeks range in the price of Gold exceeded the previous week and also closed higher than the previous weeks high. (Week Jan 13th - 1,260 - 1,234.40 close 1,256.30) – (Week Jan 20th 1,279.30 – 1,231.70, close 1,275.60). Gold also closed above an important trend line that was confirmed on the weekly close.
Comex has now positioned itself with a record breaking 112 ratio of open long positions to actual available (Registered) gold inventory. Since registered gold stocks were relatively unchanged during the week, it is no surprise that our owners-per-registered ounce ratio remained at its all-time high of 111.6 claims per registered gold ounce. What that effectively means is if less than 1% of COMEX outstanding contracts stand for delivery there will not be enough gold to meet the delivery requirements.
JPM has the largest recorded one day depletion in its gold inventory of 10 tons of physical Gold, previous accumulation by JPM is depleted in one single delivery. The West effectively being gutted like a fish off all physical Gold by the East ?
Emerging Market crisis is still ongoing and then London walk in and smash gold lower ??
Now something else to think about , who is long gold here and who is short on the exchanges ?
Lower metal prices run counter-intuitively to Western Central Bank interests in the here and now ….. massive accumulation by the East of physical Gold and Silver has to be slowed down somehow, China alone for instance has physically imported 100% of available global Gold production in 2013 and so far this January has actually imported substantially more than global production levels – see here..
Bullion banks are actually long on the future exchanges (historical turnaround from record shorts), investment funds are presently short in substantial size (who are the mugs here ?) ,
Central banks need to instigate inflation as fear of a deflationary environment is keeping them up at night (falling metal prices is hardly inflationary) and finally Gold is trading well below production costs which has murdered gold Capex (Capital Expenditure and Investment) and exploration investment / discoveries, hence gold production is actually forecast to shrink globally over the next few years !
Silver accumulation by the East in 2013 was nothing short of spectacular, India alone imported a new world record amount of the metal for investment purposes. The previous largest import of silver was in 2008 which was 5,048 tons, India reputedly imported 5,400 tons (approximately) in 2013. The wold presently produces approx 22,000 to 24,000 tons , so india imported approx 23% of all World silver production.
Everything is pointing higher here in metals, maybe we see US$18 in Silver on the future paper exchanges in a paper manipulated sell off so the banks can clean up and get themselves massively long in Silver (along with their Gold Longs) , but the upside potential in the slightly bigger picture is spectacular here…..
A good read today, King World News The Entire World Is Being Turned Upside Down In 2014
On the heels of unprecedented actions being taken across the globe, today a 40-year market veteran sent King World News which warns that the whole world is being turned upside down in 2014. He also discusses how savvy investors are positioning themselves ahead of the coming turmoil. Robert Fitzwilson, who is founder of The Portola Group, put together the following tremendous piece below exclusively for King World News.
January 27 (King World News) – The Entire World Is Being Turned Upside Down In 2014
January is continuing to produce a mirror image of the start to last year. From January 1st to January 24th in 2013, the popular equity indexes rose between 4% and 6%. The Amex Gold Bugs Index, the HUI, fell 8% and gold slid 1%. The divergence between asset classes was quite striking.
Best of luck
Mitch, Silver Sufferer