13 October 2015 — Tuesday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
The gold price wandered quietly higher until shortly before 2 p.m. Hong Kong time on their Monday afternoon—and then it jumped up six bucks or so. It didn’t do much from there until sometime after 11:30 a.m. in London—and hit its high tick minutes after 1 p.m. BST—and then all those gains disappeared by 10:40 a.m. in New York trading—and the two smallish rallies after that weren’t allowed to get far.
The low and high tick in gold were reported by the CME Group as $1,154.30 and $1,168.60 in the December contract.
Gold finished the Monday session in New York at $1,163.90 spot, up $7.50 from Friday’s close. Net volume was reasonably light at just over 107,500 contracts.
The silver price rallied a bit in mid morning trading in Hong Kong, but that wasn’t allowed to stand. However, the rally that began around 12:30 p.m. like gold’s rally, had more legs. But, like on Friday, the $16 price mark was well defended through all of London trading—and the spike to its high tick of the day came just before the equity market opened in New York before it ran into a not-for-profit seller—and that was it for the day.
The low and highs were recorded as $15.765 and $16.075 in the December contract.
Silver was closed in New York yesterday at $15.815 spot, down half a cent from Friday and, like gold, there certainly wasn’t anything free-market about Monday’s silver price action. Silver’s net volume was on the lighter side at just over 29,000 contracts.
Platinum traded flat until shortly before 2 p.m. Hong Kong time—and then it began to chop quietly higher from there. Like silver, it ran into a willing seller at the open of the New York equity markets just as the price touched the $1,000 spot per ounce mark—and got sold down ten bucks from there until 11:30 a.m. before rallying back six into the close. Platinum finished the Tuesday session at $996 spot, up 14 bucks on the day.
The palladium price traded five dollars either side of unchanged for most of yesterday, but like what happened in platinum and silver, there was a willing not-for-profit seller waiting at the open of the equity markets in New York on Monday—and they weren’t taking any prisoners. By 11:00 a.m. they had the price down to the $690 mark—and it didn’t do much after that. Palladium was closed in New York yesterday at $692 spot, down 18 bucks from Friday’s close—and like in silver, there was absolutely nothing free market about Tuesday’s price action in palladium.
The dollar index closed late on Friday afternoon in New York at 94.88—and it chopped quietly lower until its 94.62 low tick at 10:30 a.m. in London, which coincided with the London a.m. gold fix. The subsequent rally was still ongoing at 94.88—unchanged on the day.
And here’s the 6-month U.S. dollar index for reference purposes.
The gold stocks opened on their highs of the day—up about 2 percent—and at that point a willing seller appeared—and despite the very decent gains in the gold price, the shares sank ever lower, although they did rally a tiny bit off their lows—and the HUI got clocked for 3.58 percent.
The silver equities followed a very similar pattern—and Nick Laird’s Intraday Silver Sentiment index closed down 3.35 percent.
I’m not at all amused by the counterintuitive price action of the precious metal shares yesterday, because as I’ve said many times in the past ten years—and that is there’s not only a price management in the precious metals themselves, but there’s price management in their equities as well. Yesterday was a case in point—and in the past, price action as we saw yesterday has been the harbinger of an engineered price decline in the metals themselves. We’ll have to wait and see if that’s why “da boyz” have in store for us this time.
The CME Daily Delivery Report showed that zero gold and zero silver contracts were posted for delivery within the COMEX-approved depositories on Wednesday.
We’re almost halfway through the October delivery month and there are still 1,300 or so contracts left open in gold—and one wonders why the short/issuers haven’t delivered as of yet. Because, as Ted Butler has said on numerous occasions, there’s no benefit to them in holding out. His numerous comments on the October delivery month being ‘sticky’ is so apropos here.
The CME Preliminary Report for the Monday trading session showed that October open interest in gold dropped by 33 contracts, leaving 1,268 still around. In silver, October o.i. fell by 29 contracts, leaving just 12 left.
There were no reported changes in GLD yesterday—and as of 7:05 p.m. EDT there were no reported changes in SLV. With the big gains in both metals last week, there should be gold and silver moving into these ETFs at a pretty reasonable rate by now, but so far, not an ounce, as it’s been all ‘out’ movement since October 1 in both of these ETFs.
There was no sales report from the U.S. Mint.
There was no in/out activity in gold over at the COMEX-approved depositories on Friday. But it was another big day for silver, as 599,802 troy ounces were shipped in—and 701,813 troy ounces were shipped out. JPMorgan wasn’t involved in any of the activity—and the link to Friday’s action is here.
Over at the COMEX-approved gold kilobar depositories in Hong Kong on their Friday, they received a very chunky 13,953 kilobars, but only shipped out 55 of them. All of the action was at Brink’s, Inc. The link to that activity, in troy ounces, is here.
Before getting into today’s stories, I mentioned in my Saturday column that “Along with a cut in [Glencore’s] zinc production comes a reduction in silver production, because virtually every zinc mine has a decent silver byproduct stream as well—and it will be interesting to see if some analyst or other does the math on this. It’s not an insignificant number.”
Well, that sentence was a call to arms for reader B.K., who sent along this e-mail, which I’m posting in its entirety.
“Hi Ed. In your Saturday newsletter, you published a Zero Hedge article regarding Glencore’s shutdown of 500,000 metric tons of zinc capacity. Accompanying this will be a reduction of silver production and you said “..it will be interesting to see if some analyst or other does the math on this.”
“In my business life, I managed an industrial line of products and was always concerned with capacity utilization, supply/demand balances, etc. So, while we wait for a real analyst to do the math, I went to Glencore’s website to take a shot at this. Here is what I found and determined:”
“Glencore published a report detailing 1st half actual production of their various commodities. From January to June of 2015, their zinc department produced at an annualized rate of 1.46 million metric tons of zinc and 22.76 million ounces of silver.”
“Their news release said that they are cutting 0.5 million metric tons of zinc capacity, about a third of their total. Taking out a third of their silver production would reduce it by 7.58 million ounces a year. However, we know that different amounts of silver are produced in each of the zinc mines. When I ran the actual capacity reductions at each of the 4 locations they named, I calculated an annual reduction of silver production at 5.83 million ounces. I would be happy to share the details of this calculation with you if you would like to see them.”
“There is one other wild card here. At their Kazakstan mine, they produce an additional 26 million ounces of silver annually from what they refer to as “third party feed”. They are only reducing their “Kazzinc” capacity by about a quarter, not shutting it down completely. The wild card is how much, if at all, they are reducing the third party production of silver.”
“I will be interested to see if a professional analyst runs the numbers on Glencore’s silver reduction and how I did with mine. All the best. B.K.”
Despite my best efforts, I have a lot of stories today—and the final edit is up to you.
CRITICAL READS
Fed officials seem ready to deploy negative rates in next crisis
Federal Reserve officials now seem open to deploying negative interest rates to combat the next serious recession even though they rejected that option during the darkest days of the financial crisis in 2009 and 2010.
“Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday.
The Fed under former chairman Ben Bernanke considered using negative rates during the financial crisis, but rejected the idea.
“We decided — even during the period where the economy was doing the poorest and we were pretty far from our objectives — not to move to negative interest rates because of some concern that the costs might outweigh the benefits,” said Dudley.
Today’s first story is from the marketwatch.com Internet site. It’s datelined 9:55 a.m. EDT on Monday morning—and it has obviously has been revised, because I received it from Richard Saler at 11:17 a.m. EDT on Sunday morning.
Junk Bond Issuance Collapses as “Distress Ratio” Spikes
Fitch Ratings is fretting about junk-bond defaults. “After five issuer defaults already this month accounting for nearly $2 billion in new volume,” Fitch now expects that the default rate will hit 3.5% by year-end, up from 2.5% to 3% a few days ago. Through September, the trailing 12-month default rate was already 2.9%.
Worse: a 4% default rate by year end is “more likely” than a 3% default rate. And it’s “set to rise further in 2016.”
In non-recessionary periods, the default rate averages 2%. During recessionary periods it averages 11%. That’s why recessions are terrifying for junk-bond holders. Junk bonds are called “junk” for a reason.
This commentary appeared on the wolfstreet.com Internet site on Monday sometime—and I thank Roy Stephens for sending it along.
Fed Quietly Revises Total U.S. Debt From 330% to 350% Of GDP, After “Discovering” Another $2.7 Trillion in Debt
Everyone has seen the chart of “Total Credit Market Instruments”, which as of its most recent update on March 31, 2015, was just over $59 trillion, or 330% of U.S. GDP.
For those who have not seen it, as well as for those who are familiar with this chart, take a long look, because this is the last update of this particular data series, pulled straight from the Fed’s Z.1 Flow of Funds (section L.1), you will ever see.
So did the Fed spontaneously terminate the reporting of what until the second quarter’s update of the Flow of Funds, was the most comprehensive official summary of Household, Financial, Corporate and Government debt in existence? And if so why?
Many Fed watchers assumed that this is precisely what happened, and indeed, searching high and low for the infamous L.1 Section revealed nothing.
The headline pretty much tells you all you need to know about the contents of this Zero Hedge piece from Saturday evening EDT—and my eyes started to glaze over once I started reading the details. The real gist of it is in the last paragraph and the last chart. I found this ZH piece in the Monday edition of the King Report.
U.S. Losing Its Positions of World Power – Former U.S. Military Official
Lawrence Wilkerson, former chief of staff to the U.S. Secretary of State, argued that the U.S. is losing its importance as a world power. According to him, the use of mercenaries instead of regular soldiers has always been typical for the decline of an empire, DWN reported.
Wilkerson believes that the future of the U.S. military power looks very pessimistic. In his speech to students at Lone Star College in Kingwood, Texas he said that shortly before their demise, empires concentrate on the use of military force as the alpha and omega of their power.
According to Wilkerson, empires also start to use mercenaries instead of regular soldiers when they are about to collapse. This was the case in Syria, when the U.S. financed rebels and contributed to the deterioration of the situation.
The newspaper wrote that Wilkerson’s statements are similar to those of former U.S. diplomat Cullen Murphy, the author of the book “Are we Rome?“.
This short, but very worthwhile read showed up on the sputniknews.com Internet site at 5:49 p.m. Moscow time on their Monday afternoon, which was 10:49 a.m. in New York—EDT plus 7 hours. It’s courtesy of U.K. reader Tariq Khan.
IMF and World Bank disagree about competitive devaluations
China’s decision to tweak its exchange rate peg with the dollar in August provoked reactionary howls of derision — from the United States to India—that Beijing was gearing up for a new wave of international currency warfare.
But do currency wars really work?
Ahead of its bi-annual World Economic Outlook in Peru this week, the International Monetary Fund has waded into the debate. It published a comprehensive set of findings confirming that weaker currencies are still an effective tool for economies to grow their way out of trouble.
An exchange rate depreciation of around 10 percent, said the IMF, results on average in a rise in exports that will add 1.5 percent to an economy’s output.
But both the research and the timing are not uncontroversial.
This news item put in an appearance on the telegraph.co.uk Internet site late on Saturday afternoon BST—and I found it embedded in a GATA release.
IMF says Iceland has repaid its remaining debt
The International Monetary Fund says Iceland has repaid all of its remaining obligations — ahead of schedule — as the island nation presses on with its recovery following its economic collapse seven years ago.
The IMF said Friday that Iceland repaid $332 million, ending the rescue program that began in the 2008 financial crisis when the overly-leveraged economy collapsed under the strain of a worldwide credit squeeze.
The small north Atlantic nation had borrowed a total of about $2.1 billion, and the repurchase consolidates 11 repurchases that would have fallen due by Aug. 31, 2016.
Iceland’s Central Bank said in a statement that the early retirement of the IMF loan is a sign of the success of the program and Iceland’s effective collaboration with IMF staff.
And I think all their bankers are still in jail. This brief AP story, filed from London on Friday, was picked up by the finance.yahoo.com Internet site—and I thank Len Bridger for sharing it with us.
French government aligns with Russia’s war against ISIS — Paul Craig Roberts
Last Monday, French foreign minister Laurent Fabius took a surprising stance in favor of Russian air strikes in Syria. During an interview with French radio station Europe1 Fabius stated that these aerial attacks must be flown not just against ISIS but against all other groups which can be classified as terroristic. Russia’s news agency TASS also cited this interview.
The interesting aspect of this interview is the correction of a former announcement of French president Hollande on last Friday arguing Russia is just allowed to hit ISIS – and nobody else.
This is bad news for NATO. Since the launch of Russia’s air strikes NATO and U.S.-Neocons are keen to escalate the situation accusing the Russians of attacking other terrorist groups beyond IS. But this is exactly the task of the Russians, Fabius declared during his interview.
Fabius explained further that president Hollande shares of course the same view but had been in a hurry during his last interview and probably was not precise enough. It is very embarrassing for the U.S. and Turkey that Fabius explicitly defined Jabhat al-Nusra Front as potential target. Al Nusra Front– a Syrian Al-Qaida branch is financed and equipped by the U.S. and Turkey.
This brief commentary by Paul appeared on his website on Sunday sometime—and it’s worth reading for any serious student of the New Great Game. I thank David Caron for passing it around yesterday.
Deutsche Bank’s $7 Billion Loss Is Just the Beginning of Wall Street Woes
Our e-mail inbox yesterday and this morning raised more alarm bells for the mega banks – you know the ones we mean; the ones that should have been broken up before we were on the cusp of the next downturn. Here’s a quick rundown before we get into the details:
Deutsche Bank announced it will take an approximate $7 billion write-down in the third quarter and potentially eliminate its dividend;
Charles Schwab is out with a report on the potential for deflation and what it could do to corporate earnings;
The Treasury’s Office of Financial Research released a report on big bank liquidity concerns;
Bank of America released a report on the $100 billion exposure that the troubled commodities firm, Glencore, poses to global financial institutions;
Bloomberg Business is reporting on the anticipated revenues downturn when big U.S. banks begin to report third-quarter earnings next week.
This commentary showed up on the wallstreetonparade.com Internet site last Thursday—and it’s worth reading. I thank reader U.D. for passing it around on Sunday.
Leaving the Eye of the Hurricane — Jeff Thomas
In the early 2000’s, there were those economists and investors who believed that the U.S. was headed for an economic fall – that the repeal of the Glass-Steagall Act in 1999 would allow the financial institutions to enter into widespread reckless loan practices that would lead to a housing crash. And that that crash would lead to a stock market crash that would herald in The Great Unravelling – The Greater Depression.
Most of us who made these predictions hypothesized that the initial collapse would be significant, but not severe – that the governments of the world would come to the rescue with bailout programmes that would stave off the symptoms of the problem, but would do nothing to cure the disease itself – that of massive debt.
We suggested that there would be a false recovery, resulting in the easing of symptoms. There would be repeated claims by both governments and the media that “recovery is nigh.” However, underneath all the folderol, the disease would worsen considerably, eventually reaching the point at which the patient (the economy) could not be saved. At some point, public confidence in the leaders’ abilities to resuscitate the body would fade. This would be triggered by some event or events, such as a crash in the stock or bond market, a dumping of debt back into the U.S. by creditor nations, debt default by Greece or some other nation, commodity price spikes, backlash from sanctioned nations, the imposition of protective tariffs – any one of a dozen possible triggers would do the trick. From that point on, each of the other triggers would eventually occur, as toppling dominoes, fulfilling the prediction of Depression.
Only in this latter period would the dreaded “D-word” be acknowledged by the governments and media.
This commentary/infomercial by Jeff was posted on the internationalman.com Internet site yesterday—and I thank their senior editor Nick Giambruno for pointing it out.
Erdogan under fire after Turkey suffers worst bombing ever
Political opponents and thousands of angry protesters expressed anger on Sunday at President Recep Tayyip Erdogan after Turkey’s worst-ever terrorist attacks and as the country hurtled toward a bitterly divisive election.
The streets of the capital Ankara filled with anti-government and pro-Kurdish protesters accusing the president of responsibility for the blasts that ripped through a peace rally there on Sunday, with several shouting “Erdogan murderer!” and “Government resign!”
Around 10,000 people marched in Istanbul, blaming the government for failing to protect citizens at the ill-fated event a day earlier, carrying placards reading “The state is a killer” and “We know the murderers”.
The opposition Peoples’ Democratic Party (HDP) says 128 people were killed when the bombs exploded on Saturday morning as leftist and pro-Kurdish activists assembled by Ankara’s main train station.
This news item showed up on the france24.com Internet site yesterday sometime—and it’s the second offering of the day from Roy Stephens. There was also a piece about this in The New Yorker on Sunday—and it’s headlined “The Explosions in Turkey“—and I thank Patricia Caulfield for this one.
A Decisive Shift In The Power Balance Has Occurred — Paul Craig Roberts
The world is beginning to realize that a sea-change in world affairs occurred on September 28 when President Putin of Russia stated in his UN speech that Russia can no longer tolerate Washington’s vicious, stupid, and failed policies that have unleashed chaos, which is engulfing the Middle East and now Europe. Two days later, Russia took over the military situation in Syria and began the destruction of the Islamic State forces.
Perhaps among Obama’s advisors there are a few who are not drowning in hubris and can
understand this sea-change. Sputnik news reports that some high-level security advisors to Obama have advised him to withdraw US military forces from Syria and give up his plan to overthrow Assad. They advised Obama to cooperate with Russia in order to stop the refugee flow that is overwhelming Washington’s vassals in Europe. The influx of unwanted peoples is making Europeans aware of the high cost of enabling US foreign policy. Advisors have told Obama that the idiocy of the neoconservatives’ policies threaten Washington’s empire in Europe.
Several commentators, such as Mike Whitney and Stephen Lendman, have concluded, correctly, that there is nothing that Washington can do about Russian actions against the Islamic State. The neoconservatives’ plan for a U.N. no-fly zone over Syria in order to push out the Russians is a pipe dream. No such resolution will come out of the U.N. Indeed, the Russians have already established a de facto no-fly zone.
Putin, without issuing any verbal threats or engaging in any name-calling, has decisively shifted
the power balance, and the world knows it.
Another must read commentary from Paul. It showed up on his website on Saturday sometime—and it’s another contribution from Patricia Caulfield.
Syrian army, Russian jets drive back rebels in fiercest clashes for days: monitor
Syrian army and allied forces supported by Russian warplanes made further advances as they pressed an offensive against insurgents on Monday, in the fiercest clashes for nearly a week, a monitor said.
Russian jets carried out at least 30 air strikes on the town of Kafr Nabuda in Hama province in western Syria, and hundreds of shells hit the area as the Syrian army and Hezbollah fighters seized part of it, the Syrian Observatory for Human Rights said.
Forces loyal to President Bashar al-Assad have in the past few days recaptured territory close to the government’s coastal heartland in the west thanks to Russia’s intervention, reversing rebel advances made earlier this year.
Moscow says its air campaign targets Islamic State, but most of the strikes have hit rival insurgent groups fighting against Assad, some of which are supported by the United States.
This Reuters story, filed from Beirut, was posted on their website at 11:37 a.m. on Monday morning EDT—and it’s the second contribution of the day from Patricia Caulfield.
Week One of the Russian Military Intervention in Syria
The speed at which the Russian military operation in Syria was conducted what a big surprise for the U.S. intelligence community (which I can hardly blame, as I was just as surprised myself). Make no mistake here, the Russian force in Syria is a small one, at least for the time being, and it does not even remotely resemble what the rumors had predicted, but it is especially the manner in which it is being used which is very original: as a type of “force multiplier” for the Syrian military and a likely cover for the Iranian one. This is a very elegant solution in which a small force achieves a disproportionately big result. This is also a rather dangerous strategy, because it leaves the force very vulnerable, but one which, at least so far, Putin very successfully explained to the Russian people.
According to the most recent poll, 66% of Russian support the airstrikes in Syria while 19% oppose them. Considering the risks involved, these are extremely good numbers. Putin’s personal popularity, by the way, is still at a phenomenal 85% (all these figures have an margin of error of 3.4%). Still, these figures indicate to me that the potential for concern and, possibly, disappointment is present. The big advantage that Putin has over any US President is that Russians understand that wars, all wars, have a cost, and they are therefore nowhere as casualty-averse as the people in the USA or Europe. Still, while combat footage taken from UAV is a good start, Putin will have to be able to show something more tangible soon. Hence, probably, the current Syrian army counter-offensive. Still, the current way of triumphalism in Russia makes me nervous.
The reaction in the West, however, has been very negative, especially after the Russian cruise missile attacks (which mark the first time ever that the Russians have used their non-nuclear but strategic forces in a show of force aimed less as Daesh than at the USA).
This very interesting commentary by ‘The Saker’ was posted on the unz.com Internet site on Saturday—and is definitely a must read for any serious student of the New Great Game. It’s on the longish side for a mid-week column, but I wasn’t prepared to let it sit in my in-box until Saturday. It’s courtesy of Larry Galearis, for which I thank him.
Taliban threaten second Afghan provincial capital as insurgency spreads
Fighting intensified around the Afghan city of Ghazni on Monday, as Taliban militants threatened to seize a second provincial capital after briefly occupying Kunduz in the north last month.
The clashes around Ghazni, some 130 km (80 miles) southwest of Kabul, underlined the worsening security situation across Afghanistan, where national soldiers and police are struggling to cope now the bulk of foreign forces have withdrawn.
Monday’s violence followed days of sporadic fighting near Ghazni, and prompted most shops, schools and universities there to close.
Many residents attempted to flee to the capital Kabul or nearby districts, adding to a growing number of internally displaced people within Afghanistan.
This Reuters article, filed from Kabul, appeared on their website at 8:00 a.m. EDT on Monday morning—and it’s another offering from Patricia Caulfield.
Glencore Production Cuts Backfire After World’s Second Largest Miner Vows to Fill the Glencore Void
First Glencore cut its coal production. Then a month ago as part of its “doomsday” de-leveraging plan, the troubled Swiss miner-cum-trader announced drastic production cuts and major layoffs in its copper mining business, which would be reduced by 400,000 tons as a result of mine closures in Zambia and DR Congo. Then late last week the company surprised many when it once again slashed its zinc production by a third (while laying off 1,600 workers in Australia), in the process reducing global zinc output by 500,000 metric tons.
The logic, in theory, behind the move was simple enough. As DB summarized it, “$1650 for zinc is fundamentally too low and some of the capacity makes no cash at these levels – Solution: Shut it down until the price normalizes. While most market observers see the zinc market already in deficit, the dwindling price says otherwise and Glencore’s move should bring forward the crunch point with a resulting positive impact on the metal price.”
Additionally, DB provided a beautiful model of how said zinc production cut for Glencore – expected to be completed over the next 6 months – would look like, as well as the ensuing production ramp-up in 2017, “as the zinc price recovers.”
There was just one problem….
This Zero Hedge article from Monday morning EDT is courtesy of Richard Saler—and it’s certainly worth reading.
Hedge Funds Are Playing ‘Dangerous Game’ With Copper
Hedge funds betting that copper will drop further are playing a “dangerous game” with prices, according to the head of copper at Rio Tinto Group, the world’s second-biggest mining company.
The metal is “not trading on fundamentals,” Rio Copper & Coal Chief Executive Officer Jean-Sébastien Jacques said in an interview in London. “There is lots of short-selling in copper and we’ve seen the pick up in terms of short-selling in copper on the back of what happened in China a few months ago.”
A glut of copper has exacerbated short-selling by hedge funds and China’s move in August to restrict such sales in equities has prompted funds to redirect bearish bets on the nation’s economy to copper, Jacques said. His view echoes Glencore Plc CEO Ivan Glasenberg’s comments last week that the market was being distorted but that supply and demand would eventually prevail. The metal has slumped about 16 percent this year amid a slowdown in China, the biggest user.
Along with the zinc producers, the copper producers are now face-to-face with JPMorgan et al—and another one of the Big 6 commodities “not trading on fundamentals.” Welcome to ‘Price Management 301’ courtesy of JPMorgan et al, Mr. Jacques! This Bloomberg article put in an appearance on their Internet site at 8:11 MDT on Sunday evening—and I thank Patricia Caulfield for her final contribution to today’s column.
Mitsui to shut down precious metals division
Mitsui will close its precious metals businesses in London and New York at the end of this year, sources said, due to sliding commodity prices and more stringent regulation.
“Mitsui is shutting down precious in London and New York in December,” one source said.
Mitsui, which started trading precious metals in 1970, is the latest to join a retreat by banks and brokers from some commodity markets as profits and prices tumble on concern about slowing Chinese economic growth.
The trading house also participates in the twice-daily auction setting the London silver benchmark run by the Chicago Mercantile Exchange and Thomson Reuters.
This news item showed up on the yorkshirepost.co.uk Internet site at 5:55 p.m. BST—and I found it on the Sharps Pixley website.
Why Gold is Surging: BofA Says to Expect a “Massive Policy Shift in 2016”
Sunday night, none other than BofA’s Michael Hartnett who is one of the very few strategists out there who “gets it”, issued a report warning investors to “anticipate a massive policy shift in 2016” which would be a DM/EM mirror image: in the US/EU/Japan from QE to fiscal stimulus and in China from fiscal stimulus to QE & FX depreciation. In other words, the last big reflation push is almost upon us.
getting to the point of this post, this is how Hartnett says investors should trade this “massive policy shift”:
…buy TIPs, gold, commodities, Main Street not Wall Street, China small cap
This new policy mix (which would be in response to recession & Quantitative Failure) would be most positive for TIPS/gold/commodities, for Main Street rather than Wall Street plays (e.g. mass retailers versus luxury), and for Chinese small cap. These are the assets bears should accumulate if markets head to new lows.
A trough in inflation expectations (Chart 7)…positive for Gold, TIPS & real estate
Income redistribution…buy Main Street, sell Wall Street, long KRX, short XBD
So short Wall Street, buy gold. If accurate this could be the biggest policy shift since the artificial price controls were imposed on gold by the BIS trading desk in September 2011 when the SNB unleashed its now failed currency peg, just hours after gold hit its all time nominal high just shy of $2,000.
Finally, if China is indeed set to reflate at all costs, watch as a few hundred million Chinese drop their infatuation with the housing and stock bubbles, and go back to the one asset class that throughout history has been the best defense for currency devaluation and runaway inflation.
This gold-related news item appeared on the Zero Hedge website at 8:09 a.m. yesterday morning EDT—and I thank James O’Kelly for sending it our way moments after it hit their Internet site.
Huge haul of gold bars still missing in bank-fraud case
A lawyer, a jeweller and a mortgage broker walk into a courtroom.
They’re convicted of defrauding a bank for almost $2 million to buy kangaroo-stamped gold bars — missing to this day, despite a handsome reward — with the supposed help of an insider who has never been identified.
They maintain their innocence, and blame each other for the scheme. The lawyer is adamant that he purchased the gold on behalf of a mysterious client named Omar Ali, who a judge finds is nothing more than a fictional character cooked up by two of the accused.
The all-too-real story includes a daytime police raid on a Rosedale home in 2011, observed by students at nearby Branksome Hall trying to write their exams, leading to the arrests of a number of individuals.
You couldn’t make this stuff up! This very interesting news story appeared on thestar.com Internet site on Sunday sometime—and I thank Chris Powell for sending it our way.
The Gold Chronicles: October 7, 2015 Interview with Jim Rickards
As the headline states, this 58:16 minute audio interview with Jim was conducted on October 7—and it appeared on the physicalgoldfund.com Internet site yesterday. It’s certainly worth listening to, although I must admit that I didn’t have time yesterday. Today perhaps. I thank Harold Jacobsen for bringing this to our attention.
Gold glitters for India’s leaders but jewellery guarded tight
Caressing delicate bangles she hasn’t taken off since her wedding 11 years ago, Geetanjali Agarwal says she won’t hand over her gold to the government, as it wages a campaign to make the nation’s hoard of the precious metal more productive.
“For a woman to part with her jewellery, that is very difficult,” said the 38-year-old New Delhi housewife, who also buys gold coins at the Indian festival of Diwali as an investment.
“My daughter is 10 years old and I’m already collecting pieces for her.”
Industry experts say India has around 20,000 tonnes of the precious metal lying idle in Hindu temple vaults, bank safes and jewellery boxes — a trove worth about $700 billion at current prices depending on purity levels.
This gold-related AFP article, filed from New Delhi, put in an appearance on the news.yahoo.com website at 12:51 p.m.—but no time zone was mentioned. It’s definitely worth reading—and I thank Jerome Cherry for sending it our way on Sunday.
How Much Gold Is China Importing—and Does It Still Correlates to SGE Withdrawals?
We have some catching up to do in terms of discussing Chinese gold import in H1 2015 and how this relates to withdrawals from Shanghai Gold Exchange (SGE) vaults. For this post it’s advised you’ve read The Mechanics Of The Chinese Domestic Gold Market to have a basic understanding of the physical gold supply and demand flows through the Shanghai Gold Exchange within the Chinese domestic gold market.
I started reporting on SGE withdrawals in 2013 because I noticed these numbers exactly equaled Chinese gold demand as disclosed in the China Gold Association (CGA) Yearbooks 2007 until 2011. In addition, the structure of the Chinese gold market appeared to be designed to direct all Chinese gold supply through the SGE. Therefor, what comes out of the SGE (withdrawals) must equal total supply, which must equal total (wholesale) demand.
SGE withdrawals proved to be a very effective tool to estimate import figures and measure Chinese wholesale gold demand. That is, until the Chinese gold market changed. In 2014 the Shanghai International Gold Exchange (SGEI) opened its doors, potentially inflating SGE withdrawals from the Shanghai Free Trade Zone without this gold ending up in the Chinese domestic gold market, and recycled gold supply increased significantly relative to 2013. From late 2014 I started writing SGE withdrawals were more difficult to analyze because of these changes in the Chinese gold market. After a period of abstinence from my side in reporting on SGE withdrawals, in this article we will resume to analyze the physical supply and demand flows in the Chinese domestic gold market.
I must admit that my eyes started glazing over shortly after I started reading this Koos Jansen commentary from yesterday—and it wouldn’t surprise me in the slightest if the same happened to you. It showed up on the bullionstar.com Internet site on Monday sometime. Good luck with it. I found this piece posted on the gata.org Internet site.
Have we hit gold’s, silver’s and pgms’ bottoms yet? — Lawrie Williams
The past couple of years have been littered with pro-gold analysts’ predictions that gold, silver et al have reached their bottoms, and now is the time to buy, only to see the precious metals complex then continue on its downwards path. The recent recovery in the gold price to close last week above the psychological $1150 mark, and break through some long term downtrend lines, has brought these predictions into play yet again and it is worth contemplating whether the latest price moves are indeed the precursor to a sustained price recovery, or just another trap for the unwary investor.
Gold is obviously the key here as, whether it is logical or not, silver and the pgms all tend to follow gold’s lead to a greater or lesser extent despite there being the primary industrial element in demand for these, not shared in gold’s fundamentals. That tends to mean that other factors play on the degree of movement in silver and pgms – the latter in particular – but overall still, if gold rises or falls we can expect the others to follow suit regardless. Silver’s correlation to gold is the closest, but here price movement tends to be at a more exaggerated pace, both on the upside and downside, whereas for the pgms external economic factors have a more significant impact as has been seen in the relative performances of platinum and palladium in the immediate aftermath of the exposure of the Volkswagen emissions-rigging software on some of its diesel engine automobiles – but still the general trend is to follow the overall path of the gold price. (As an aside, with regard to the VW scandal, as usual markets tend to over-react and we suspect that any demand differential between platinum and palladium which may result is probably less significant than initial market movements might suggest.)
This commentary by Lawrie appeared on the Sharps Pixley website on Sunday sometime.
The PHOTOS and the FUNNIES
The WRAP
Last week was a week that featured an intensification of what I consider to be the central price theme, namely, the continuing clash between the artificial price force on the COMEX and the flow of documented data from the physical world. In a nutshell, each force, leveraged paper trading and actual metal data seem to have reached extremes that, at one time, I would have considered impossible. While the artificial force of COMEX trading continues to dominate prices, more reportable evidence from the physical metals world, both in gold and silver, suggest that the artificial dominance may be in the process of being overthrown.
First, there is the continued unprecedented physical turnover or movement of metal into and out from the COMEX-approved silver warehouses. More than 7.2 million oz were physically shuffled (onto and off from trucks) this week, as total silver inventories fell by 1.1 million oz to another nearly two year low of 162.8 million oz. On Friday alone, nearly 2.5 million oz were moved which is more silver than the entire world mines in a day. Why would this much silver be moved in and out from a few warehouses in the New York area? Why isn’t this turnover occurring in any other commodity? I say because of supply tightness and I can’t construct an alternative explanation. I’m actually thinking of running a contest to come up with reasonably-sounding alternatives.
There hasn’t been a similar rapid physical movement in the COMEX gold warehouses (in N.Y.), but I still think the signs of physical tightness appear in gold as well. The current COMEX October delivery process still looks “sticky” in that few actual deliveries have been made after a week and a half and roughly 1,300 contracts remain open. Only 190 contracts have been issued so far and JPMorgan has emerged as the second largest stopper, with 84 contracts, after HSBC, with both banks taking delivery in their house or proprietary trading accounts. I mention JPMorgan first, because this bank seems to be the leader in everything connected to gold and silver and other commodities. — Silver analyst Ted Butler: 10 October 2015
If you knew what you were looking for, it was more than obvious that JPMorgan et al were lurking about in the precious metal market yesterday. It was particularly noticeable in silver, where it was kept below the $16 spot price mark for the second day in a row—and it’s equally as obvious that its 200-day moving averages is being well defended from a break out. Platinum ran into a willing seller at $1,000 spot—and palladium got taken out to the woodshed by a not-for-profit seller. Its 200-day moving average is being equally well defended. WTIC also got smacked pretty good too.
And as I said before, I was alarmed by the performance of the precious metal equities, as I’ve seen this movie before—and I really don’t wish to see it again.
Here are the 6-month charts for the Big 6 commodities—and it’s my opinion that they’re all in the process of being rolled over, although I’d love to be proven spectacularly wrong about that.
And as I write this paragraph, the London open is less than ten minutes away. All four precious metals got sold down in morning trading in the Far East on their Tuesday, with platinum getting hit the hardest. All four are rallying a bit at the moment—and the only one up from Monday’s close in New York is palladium—and it only by a buck.
Net gold volume is already very decent at 24,000 contracts—and silver’s net volume is just over 6,300 contracts. The dollar index, which peaked out in mid morning trading in the Far East is chopping lower now—and is currently down 9 basis points.
Today, at the close of COMEX trading, is the cut-off for this Friday’s Commitment of Traders Report—and unless we have a high volume day, everything that happens during the Tuesday trading session should be in it.
And as I post today’s column on the website at 4:25 a.m. EDT, I note that gold and silver continue to crawl higher, but both are still well down from Monday’s close in New York. Platinum and palladium got sold off shortly after Zurich opened at 10 a.m. Europe time. Platinum is currently down 16 bucks—and palladium is down 4 dollars.
Gold’s net volume is now sitting at 30,000 contracts—and silver’s net volume is just over 7,000 contracts. The dollar index is now in precipitous decline, down 29 basis points as of this writing.
I have no idea what to expect during the remainder of the Tuesday trading session, but it’s obvious from the price action that “da boyz” are still very much in control of the precious metals, despite what’s happening in the currency markets. And until that changes, nothing changes, I’m afraid.
On that cheery note, I’m off to bed—and I’ll see you here tomorrow.
Ed
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