20 October 2015 — Tuesday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
The gold price was under a bit of selling pressure starting around 8 a.m. Hong Kong time on their Monday morning. That lasted until just before lunch over there—and then chopped sideways until about ten minutes before the COMEX open. The subsequent rally got capped about fifteen minutes after trading began in New York—and then chopped sideways until “da boyz” and their algorithms showed up just before 10:30 a.m. EDT. From there the price chopped quietly higher into the 1:30 p.m. COMEX close—and at that point it drifted lower into the 5:15 p.m. close of electronic trading. The low tick of the day came just before 4 p.m. in New York.
The high and low ticks, which are barely worth looking up, were reported by the CME Group as $1,178.20 and $1,169.00 in the December contract.
Gold closed in New York yesterday afternoon at $1,170.60 spot, down $7.10 from Friday. Net volume was on the lighter side at 105,000 contracts.
And as you can tell from Brad Robertson’s 5-minute tick chart, all the volume that mattered was occurred during the COMEX trading session in New York, as the sell-off in morning trading in Hong Kong on their Monday morning didn’t have much volume associated with it—as is usually the case. Midnight EDT is the vertical gray line—add two hours for New York time—and don’t forget the ‘click to enlarge’ feature.
It was more or less the same chart pattern in silver as it was in gold, at least right up until the equity markets opened in New York on Monday morning. That was silver’s high tick of the day—and from that point it got sold down until the HFT boyz showed up shortly before 10:30 a.m. EDT. The low tick was in about twenty minutes later—and the subsequent rally, such as it was, met the same fate as gold’s rally at that juncture.
The high and low in this precious metal was recorded as $16.04 and $15.735 in the December contract.
Silver finished the Monday trading session at $15.825 spot, down 20.5 cents from Friday’s close. Net volume was 33,000 contracts.
It was fairly quiet in the platinum market yesterday, but it got sold down a few dollars in morning trading in the Far East as well—and the ‘rally’ that began at noon Zurich time got smacked at the COMEX open. It recovered a bit from there, but closed down a dollar on the day at $1,012 spot.
Palladium was down nine bucks by the COMEX open—and the five dollar rally from that point got turned lower, with the $676 spot low tick coming at the same time as gold and silver got hit, which was shortly before 10:30 a.m. in New York. The rally from there ran into ‘resistance’ just before the COMEX close—and palladium finished the Monday session at $682 spot, down 12 bucks from Friday’s close.
The dollar index closed late on Friday afternoon in New York at 94.72—and chopped lower in a fifteen basis points price range until it’s 94.58 low tick, which came just before the London open. It rallied up to about 94.93 by 11:20 a.m. in London trading, before drifting lower until minutes before equity trading began in New York. It hit its 95.00 high tick in late morning trading in New York, before settling back about ten basis points before chopping more or less sideways into the close. The index finished the Monday trading session at 94.92—up an even 20 basis points.
Here’s the 6-month U.S. dollar chart so you can keep up with the medium term trend at a glance. You should note that the 50-day moving average has crossed over the 200-day moving average. The dollar index has had a 3-day rally—and it will be interesting to see how long this lasts. However, in a managed market it only has significance to the T.A. people. As I’ve pointed out many times recently, there have always been ‘gentle hands’ available whenever necessary.
The gold stocks opened down, but rallied briefly into positive territory before heading lower with only a smallish rally between 1 and 2:15 p.m. EDT. After that they continued lower, finishing almost on their low ticks as the HUI got clocked by 4.11 percent which, once again, was out of all proportion to the fall in the gold price itself.
The silver equities opened down and never got a sniff of positive territory—and in every other respect, followed the path of their golden brethren. Nick Laird’s Intraday Silver Sentiment Index got hammered by 5.90 percent.
The CME Daily Delivery Report showed that 108 gold and zero silver contracts were posted for delivery within the COMEX-approved depositories on Wednesday. HSBC USA was the short/issuer on 107 of them out its in-house [proprietary] trading account—and JPMorgan stopped all of them for its own account. The link to yesterday’s Issuers and Stoppers Report is here.
The CME Preliminary Report for the Monday trading session showed that gold open interest in October fell again, but this time it was only by 3 contracts, leaving 770 still open—minus the 108 mentioned in the previous paragraph. Silver’s October o.i. was unchanged at 18 contracts.
After a big withdrawal last Thursday, there was another deposit in GLD on Monday. This time an authorized participant added 114,899 troy ounces. And as of 6:35 p.m. EDT yesterday evening, there were no reported changes in SLV.
The U.S. Mint had a sales report yesterday. They only sold 2,000 troy ounces of gold eagles—1,000 one-ounce 24K gold buffaloes—but they sold a chunky 702,500 silver eagles. And as I said in Saturday’s column, it’s apparent the ‘big buyer’ has backed away from purchasing gold coins, but it’s still ‘pedal-to-the-metal’ for silver eagles.
It was another day where nothing happened in gold over at the COMEX-approved depositories on Friday. But there was much more activity in silver, as 521,022 troy ounces were received—and 313,782 were shipped out. The ‘in’ activity was at Brink’s, Inc.—and the ‘out’ activity was at the CNT Depository. The link to that action is here.
There was decent action over at the COMEX-approved gold kilobar depositories in Hong Kong on their Friday, as they reported receiving 6,603 of them—and shipped out 3,223. Once again the show was at the Brink’s, Inc. depository—and the link to that activity, in troy ounces, is here.
Now that Nick is back from giving away his drop-dead gorgeous daughter in marriage over the weekend, here are the two charts that were M.I.A. in Saturday’s column. The first is the “Days of World Production to Cover COMEX Short Positions” of the Big 4 and Big 8 traders from the data in Friday’s Commitment of Traders Report.
In my Saturday missive, my back-of-the-envelope calculation for the Big 4 and Big 8 were 130 and 192 days respectively. The ‘official’ numbers from Nick were 129 and 191 days—over four months and six months of world silver production. These figures redefine the words “grotesque and obscene”. Silver analyst Ted Butler’s quote in The Wrap section is always a must read—and his comments today, even more so.
The other chart was the weekly withdrawal from the Shanghai Gold Exchange for the week ending Friday, October 9—and the magic number was 50.895 tonnes.
I have a very decent number of stories for you today, but that’s typical for a Tuesday column—and I’ll happily leave the final edit up to you.
CRITICAL READS
Morgan Stanley Q3 Earnings Crash, Revenues Miss By $1.2 Billion; Volatility and Burst Chinese Stock Bubble Blamed
While the big TBTF banks managed to hide much of their ugly balance sheet exposure, and prevent it from hitting the income statement in Q3 as reported previously, while covering up prop trading losses as well as they possibly could, the banks without trillions in deposits were less able to do so: first it was Jefferies, then Goldman posted its worst quarter in years, and now here comes the bank also known as Margin Stanley, which moments ago reported Q3 EPS of $0.34, which even if adjusted for various “one-time” items, at $0.48, not only missed consensus of $0.63 wildly, but it also missed the lowest range of the estimate range ($0.53-$0.70).
Q3 Net Income, on an apples to apples basis ex DVA, was a paltry $740 million, nearly $1 billion lower than Q2, and down 44% from the $1.4 billion a year ago.
The driver: a collapse in revenue, which at $7.3 billion non-GAAP and $7.8 billion as reported, was the lowest top-line print since 2012.
This news item appeared on the Zero Hedge website at 7:29 a.m. on Monday morning EDT—and I found it on their website early yesterday evening. There was also a Reuters story about this headlined “Morgan Stanley quarterly profit drops 42 percent, shares plunge“—and I thank Brad Robertson for that one. I note that the headline has been sanitized by the Reuters ‘thought police’ to read “Morgan Stanley’s trading rout sets grim tone for fourth quarter“.
IBM Reports Terrible Q3 Earnings: Worst Revenue Since 2002; Slashes Guidance
Moments ago IBM reported what can be defined simply as abysmal results.
Starting at the bottom, non-GAAP EPS of $3.34 beat expectations of $3.30 but once again thanks to the same trick the company used two quarters ago: it again reduced its effective tax rate from continuing operations down to 18.2%, 2.6% lower than a year ago. Without this reduction, and the $1.5 billion in stock buybacks, non-GAAP EPS would have missed. In fact, a simple math exercise shows that if instead of the pro-forma 18.0% tax rate, IBM had used the 20.6% from a year ago, its non-GAAP EPS would be $3.23, missing consensus.
As for the GAAP bottom line, IBM’s income from cont ops of $3 billion was 14.3% lower than a year ago.
Oddly while the company was quick to blame the soaring USD for its earnings debacle, a dollar whose direction even the most inexperienced CFO could and should have hedged months ago, there is little discussion of why IBM is engaging in such petty gimmickry.
This Zero Hedge article put in an appearance on their Internet site at 4:45 p.m. EDT on Monday afternoon.
Undersize Me? McDonald’s Franchise Owners Admit Fast Food Giant “Facing Its Final Days“
Having seen the writing on the $15 minimum wage wall…And given the new ‘lack of transparency’ following McDonalds’ managements’ decision to stop reporting sales numbers monthly, it appears McDonalds’ franchise owners are voicing their concerns… rather ominously
Embattled fast food giant McDonald’s is making headlines yet again. The company has just launched its much advertised all-day breakfast program, but as that campaign rolls out, franchise owners are voicing their concerns over what may be the company’s dying days.
“McDonald’s announced in April that it would be closing 700 ‘underperforming’ locations, but because of the company’s sheer size — it has 14,300 locations in the United States alone — this was not necessarily a reduction in the size of the company, especially because it continues to open locations around the world. It still has more than double the locations of Burger King, its closest competitor.”
However, for the franchisees, the picture looks much worse than simply 700 stores closing down.
“We are in the throes of a deep depression, and nothing is changing,” a franchise owner wrote in response to a financial survey by Nomura Group. “Probably 30% of operators are insolvent.” One owner went as far as to speculate that McDonald’s is literally “facing its final days.”
We’ll see about that, but the embedded photo in this ZH story is an eye-opener! I know that two of the local franchises in the area I live are closed for renovations—and I expect they’ll reopen in due course. This Zero Hedge news item appeared on their website at 9 p.m. EDT on Sunday evening.
In Latest Humiliation For Illinois, Fitch Downgrades State’s Credit Rating To BBB+
Last week, beleaguered Illinois Comptroller Leslie Geissler Munger admitted that, thanks to the bitter budget battle going on in Springfield, the state would miss a $560 million pension payment in November—and the news came as no surprise to those who have followed the story.
A state Supreme Court decision in May effectively ruled out pension reform (it’s the whole “implicit contract” argument) prompting Moody’s to cut Chicago to junk and thrusting the state’s financial crisis into the national spotlight.
As we noted when the news hit, despite hiring an “all star” budget guru (for $30,000 a month no less), governor Bruce Rauner has been unable to pass a budget in a timely fashion leading directly to all types of absurdities including everything from the possibility of shortened school years to lottery winners being paid in IOUs.
Now, Fitch has cut the state’s GO rating citing the budget impasse. The move affects some $27 billion in debt.
This is another Zero Hedge offering. It showed up on their Internet site at 5:00 p.m. on Monday afternoon EDT.
“The Fed’s Days Are Numbered” Ron Paul On The Crucial Issue “They” Don’t Want To Talk About
Just had a great weekend in Dallas, where I had the pleasure of spending some time with Dr. Ron Paul.
“All The Fed has is credibility” and, as Ron Paul expounds, by folding on a 25bps rate hike, it tells you how fragile this system is… built on a foundation of sand.”
Indeed, if stocks weren’t held up, that would be another ‘signal’ of the fragility… “and that is why they created The Plunge Protection Team.”
By “manipulating the most important price in markets,” Paul concludes, “we are at the climactic end of the ‘system’ that started in August 1971.”
Well, dear reader, that pretty much sums it up, but be warned in advance that this audio interview with the good doctor runs for 53 minutes. It appeared on the SovereignMan.com Internet site yesterday morning, before being picked up by Zero Hedge at 7:30 p.m. yesterday evening.
Why a new paradigm is needed in global capital markets — Jim Rickards
BUSINESS DAY TV: American author Dr Jim Rickards is in Johannesburg at the moment, presenting a paper to the CFA Society of South Africa. He took a little bit of time to chat to us and he joins me now on News Leader.
Jim, your paper is called Risk and Reward in Global Capital Markets — Time for a New Paradigm. What, in a nutshell, are you arguing?
JIM RICKARDS: I’m very critical of the models that central banks use. Central banks, the policy makers around the world, I think there are a lot of flaws in them and I can spend a lot of time discussing what the flaws are. But I don’t think it’s fair to be a critic of the models unless you’re prepared to offer something of your own, something that hopefully works better, something newer. So that’s really what I’m talking about, I have risk management models. Some of them are not new, but they’re new as applied to capital markets and these are things like complexing theory, which has been around since the 1960s, something called Bayes’ Theorem or inverse probability which has been around since the 18th century as a mathematical model.
This 11:30 minute video interview with Jim is worth watching—and if that doesn’t float your boat, there’s a transcript as well.
This video interview was recorded in Johannesburg—and posted on the Business Day Live website at noon SAST on Saturday. I thank Harold Jacobsen for bringing it to my attention—and now to yours.
The Next “Greece” — Jeff Thomas
Editor’s Note: We have in the past discussed how, for certain people, Puerto Rico represents an interesting option to reduce one’s tax burden. To provide a full range of views on the issue, we are bringing you this article from Jeff Thomas, who takes a different perspective.
In recent years, Puerto Rico has been heralded by some as an answer to Americans who are seeking to internationalise themselves, but are fearful of making the major leap of actually leaving U.S. soil. Puerto Rico at present offers tax advantages unlike those available in the continental U.S., with the extra attraction of being a sunny spot in the Caribbean in which to live.
A number of Americans are making the move for these reasons. And, on the surface, Puerto Rico can easily be perceived as a positive move. However, looking deeper, there may be significant downsides. The first of these is its ownership by the U.S. Seen by some to be a way to leave U.S. control behind whilst still remaining in the U.S., the “half in, half out” nature of the arrangement does not achieve the objective of internationalisation.
This commentary by Jeff was posted on the internationalman.com Internet site yesterday—and as reader ‘Mac P.’ pointed out in an out-of-the-blue e-mail about this article—“If you decide to use Jeff Thomas’ article warning of Puerto Rico’s dire economic condition—and its likelihood of breaking promises to people fleeing U.S. taxes, you might also want to remind your readers that Casey Research was peddling reports less than a year ago touting Puerto Rico as the next utopia. Louis James comes to mind. Just saying…”
Stephen Harper to step down as leader after Conservative defeat
Stephen Harper was upbeat in the face of a one-sided election defeat, but will step down as Conservative leader following the result.
Conservative Party president John Walsh released a short statement shortly before Harper took the stage in Calgary, indicating Harper had instructed him to reach out to the elected caucus to appoint an interim leader and begin the next leadership selection process. The party is expected to issue a further statement on that process Tuesday morning.
Harper, who was seeking a fourth consecutive term as prime minister since 2006, enthusiastically greeted supporters before taking the podium in “our home, our Calgary” for his concession speech.
I plucked this news item off the CBC website in the wee hours of this morning—and I must admit that I’m glad to see him go. Let’s hope that Justin Trudeau doesn’t become a toady of the U.S. establishment. His father certainly wasn’t, but ‘Trudeau the Younger’ isn’t anything like his dad.
I thought Harper the man was summed up best by Conrad Black in his commentary in The New York Sun on Sunday [that Chris Powell sent my way] when he said this about him—“I wrote here earlier this year that the Conservatives’ best chance of re-election was for Harper to follow the example of King, Pearson and Pierre Trudeau, and hand over the leadership of his government to his partisans’ choice as a successor; and I wrote that the Conservatives would make a serious mistake if they assumed that Justin Trudeau would make an air-headed ass of himself in an election campaign. Trudeau and Mulcair are right, given Harper’s now almost sociopathic personality, to say that they will support each other rather than a Harper minority.”
“Needlessly, Mr. Harper is now likely to follow the route of greater statesmen who didn’t know when to leave: Winston Churchill, Konrad Adenauer, Charles de Gaulle, Margaret Thatcher, Helmut Kohl. He was a good prime minister, but it is time to see him off. Trudeau, with a minority, will grow or go. I believe the former, but he has earned his chance. We really cannot have another four years of government by a sadistic Victorian schoolmaster.”
Amen to that, bro’….
U.K. Throws Lavish Welcome for Xi in Hopes of ‘Golden Era’ in China Trade
The U.K. is rolling out the red carpet for Chinese President Xi Jinping’s state visit starting Monday. Amid the pomp of 41-gun salutes, lunch with Queen Elizabeth II and lodging at Buckingham Palace, Prime Minister David Cameron will be looking to Xi to open up the purse strings and dole out billions of pounds of new investment.
China opening the investment spigot would help redress a lopsided trade relationship that’s left the U.K. lagging its continental peers in winning Chinese largess. Chinese officials have said the amount of deals Xi will announce during the trip will be “huge.”
The U.K. is back in China’s good graces after Cameron’s May 2012 meeting with the Dalai Lama plunged the two countries into a near two-year diplomatic freeze. Chancellor of the Exchequer George Osborne reflected the U.K.’s more accommodative tone on a September trip to China when he signaled Britain would refrain from criticism on human rights and not engage in “megaphone diplomacy.” The U.K., the first major Western country to get behind China’s Asian Infrastructure Investment Bank, was striving to be China’s “best partner in the West” and usher in a “golden era” between the countries, he said.
This Bloomberg story showed up on their website at 7:32 a.m. MDT on Monday morning—and I thank Patricia Caulfield for finding it for us.
London to host more renminbi trading after CME signs deal with China Construction Bank
The Chicago Mercantile Exchange has announced a trading tie-up with China Construction Bank, the first of a throng of corporate deals between London firms and their Chinese counterparts to coincide with President Xi Jinping’s state visit.
The CME will become the first London trading platform to offer offshore renminbi futures, enabling financiers to hedge and trade on the expected movements in China’s currency. The market has previously offered renminbi futures that were delivered through Hong Kong.
“The ability to transact during London hours is of paramount importance to those institutions who value flexibility in managing their positions in markets where prices can move sharply in short periods of time,” said William Knottenbelt, head of international at CME.
Despite Beijing’s unexpected move to devalue the renminbi by 2pc against the dollar over the summer, attempts to encourage the yuan’s use as a global currency have seen China open a string of clearing branches as far afield as the U.K., Chile and Thailand this year.
And if you read a bit further into this article, you’ll find this important sentence—“Meanwhile, China Construction Bank will take part in setting the global price of silver through the CME’s daily London Bullion Market Association benchmark, joining six other banks from around the world.” The story was posted on the telegraph.co.uk Internet site at 3:33 p.m. BST on their Monday afternoon, which was 10:33 a.m. in New York—EDT plus 5 hours. I thank ‘Roger in La La Land’ for sharing it with us.
Smoking gun e-mails reveal Blair’s ‘deal in blood’ with George Bush over Iraq war was forged a YEAR before the invasion
A bombshell White House memo has revealed for the first time details of the ‘deal in blood’ forged by Tony Blair and George Bush over the Iraq War.
The sensational leak shows that Blair had given an unqualified pledge to sign up to the conflict a year before the invasion started.
It flies in the face of the Prime Minister’s public claims at the time that he was seeking a diplomatic solution to the crisis.
He told voters: ‘We’re not proposing military action’ – in direct contrast to what the secret email now reveals.
The classified document also discloses that Blair agreed to act as a glorified spin doctor for the President by presenting ‘public affairs lines’ to convince a sceptical public that Saddam had Weapons of Mass Destruction – when none existed.
In return, the President would flatter Blair’s ego and give the impression that Britain was not America’s poodle but an equal partner in the ‘special relationship’.
Why am I not surprised. This very long article put in an appearance on the dailymail.co.uk Internet site very early Saturday morning BST—and it’s something I found in yesterday’s edition of the King Report. It’s certainly worth reading if you have the interest.
Battle for Aleppo threatens to create fresh refugee exodus, says Turkish PM
The battle for Aleppo, compounded by Russian airstrikes on the city, threatens to create a new refugee exodus from Syria, Turkey’s prime minister, Ahmet Davutoğlu, has warned.
Speaking after talks with the German chancellor, Angela Merkel, Davutoğlu called for action to prevent a new wave of refugees from moving north across the Turkish border. Aleppo is under assault both from Isis and from forces backing the Syrian government, including Iranian fighters and Russian aircraft.
As the influx of refugees into Europe continued, Hungary closed its border with Croatia at the weekend, forcing thousands of migrants to find a new route to through Slovenia and into Austria. On Sunday, Slovenia said it would restrict its intake to 2,500 arrivals a day to ease pressure on both its own and Austria’s borders. The decision caused delays further down the migrant trail, raising fears of human bottlenecks.
This news item appeared on theguardian.com Internet site at 1:02 a.m. BST on Monday morning, which was 8:02 a.m. EDT in Washington on their Sunday evening. I thank Patricia Caulfield for sending it our way.
Facing Dire Financial Straits, Saudi Arabia Delays Contractor Payments to Preserve Cash
One narrative we’ve recounted time and again over the past six or so months revolves around the extent to which Saudi Arabia has put itself in dire financial straits by stubbornly keeping crude prices artificially suppressed in an effort to i) bankrupt the US shale space, and ii) pressure the Russians.
In some respects, pushing prices lower was probably a good gamble as far as the odds are concerned. That is, if one were placing bets last November on whether uneconomic US producers would be able to hold out for a year with sub-$50 crude and on whether Moscow would eventually agree to be a bit more friendly geopolitically speaking once the combination of low oil prices and crippling Western economic sanctions had time to sink in, one would have been inclined to think that Riyadh would have gotten its way by now. But that’s not what happened.
The cost of capital is still basically zero which has served to keep US oil production online (even as it has fallen from April highs) and as for Russia, well, betting that Putin would give up Assad turned out to be a very, very bad gamble.
And so, the Saudis have found themselves in an awkward position. Competition in the US still isn’t bankrupt (although it’s by no means clear how much longer insolvent American producers can hold out) and the prospects for some kind of Saudi-Qatari-Turkish energy cooperation in partnership with a friendly Damascus are getting more remote by the day.
This Zero Hedge story put in an appearance on their website at 9:12 a.m. on Monday morning EDT.
Saudis desperate as they are not winning the war in Yemen
While Saudi Arabia seems to be serious about ‘co-operating’ with Russia in ‘eliminating’ Islamic State (IS) in Syria and Iraq, the real motive behind this co-operation and increased engagement with Moscow may be the continuing need to stabilize the oil market.
This does not, however, mean Saudi Arabia is not trying to influence Russia with regard to the latter’s military campaign in Syria. While it could not prevent the Russians from engaging militarily in Syria, Riyadh is certainly trying to influence the outcome by re-engaging with the Russians and by reaching, what the Russian Foreign Minister Sergey Lavrov called, mutual “understanding.”
But had Saudi Arabia been so serious about elimination of IS and other terrorist networks, it could not have supported IS and Al-Qaeda in Yemen against Houthis, nor designed the policy of supporting proxy groups in Yemen after the catastrophic failure of this very policy in Syria. As it stands, they do not seem to have learnt any lesson from their failure there.
This short essay/longish article was posted on the Asia Times website last Friday—and I thank U.K. reader Tariq Khan for sliding it into my in-box late Sunday morning Denver time. It’s certainly worth reading for any serious student of the New Great Game.
OPEC Brings Oil Price War Home in Pursuit of Asia’s Cash
When it comes to deciding how much to charge Asian oil buyers, OPEC members are showing little regard for tradition.
Suppliers from the Organization of Petroleum Exporting Countries have long moved in lockstep, raising or lowering prices in tandem. Now, Kuwait is undercutting Saudi Arabia by the most on record and Iraq is also selling its oil more cheaply than the group’s biggest member. Qatar is pricing cargoes at the biggest discount in 27 months to competing crude from the U.A.E.’s Abu Dhabi.
While the group that accounts for about 40 percent of global oil supplies maintains a collective strategy of flooding the market with crude, the semblance of unity has vanished when setting monthly selling prices. With Asia forecast to account for most of the growth in global oil demand this year, competition for the region’s buyers is trumping historical allegiances.
“It’s a full-on fight for market share within OPEC,” said Virendra Chauhan, a Singapore-based analyst at industry consultant Energy Aspects Ltd. “That’s even as the group tries to fend off a rise in non-OPEC production from countries such as Russia, Brazil and the U.S.”
This news item showed up on the Bloomberg Internet site at 3:00 p.m. MDT on Monday afternoon—and I thank Patricia Caulfield for sending it along.
China is selling tons of U.S. debt but Americans couldn’t care less
For all the dire warnings over China’s retreat from U.S. government debt, there is one simple fact that is being overlooked: American demand is as robust as ever.
Not only are domestic mutual funds buying record amounts of Treasuries at auctions this year, U.S. investors are also increasing their share of the $12.9 trillion market for the first time since 2012, data compiled by Bloomberg show.
The buying has been crucial in keeping a lid on America’s financing costs as China — the largest foreign creditor with about $1.4 trillion of U.S. government debt — pares its stake for the first time since at least 2001. Yields on benchmark Treasuries have surprised almost everyone by falling this year, dipping below 2 percent last week.
It’s not the scenario that doomsayers predicted would leave the U.S. vulnerable to China’s whims. But that Americans are pouring into Treasuries may point to a deeper concern: The world’s largest economy, plagued by lackluster wage growth and almost no inflation, just isn’t strong enough for the Federal Reserve to raise interest rates.
This Bloomberg story was posted on their Internet site at 9:00 a.m. MDT on Sunday morning—and I found it embedded in a GATA release.
China’s Glencore: State-Owner Miner and Steel Trader Avoids Default With Last Minute Bailout
While the macro watchers were keenly awaiting China’s macroeconomic data dump on Sunday night, which was far worse than reported (as we will show shortly), a just as notable development was taking place in China’s microeconomic world, where as the FT reported on Sunday, China’s state-owned SinoSteel, the country’s second largest importer of iron-ore, and a major miner and steel trader (yes, another commodity trader) was “poised to default on its bonds this week, the latest test of whether Beijing is willing to impose market discipline on national champion companies.”
As the FT adds, “Sinosteel, one of an elite club of 112 state groups directly owned by the central government, sent a letter to investors last week warning that its subsidiary lacked the funds to repay principal and interest on Rmb2bn ($315m) in bonds sold in 2010 due on Tuesday.” “The company’s business has stagnated and cash flow has dried up at headquarters and a portion of subsidiary enterprises,” said the letter, a copy of which circulated on social media on Friday.
Transparency is not Chinese insolvent corporations’ strong suit: “Sinosteel was not available for comment. A person who answered the phone at Sinosteel refused to transfer calls to the company’s media relations department.”
Overnight Bloomberg reported that Sinosteel postponed the date on which investors can demand bond repayment by one month, after authorities were said to have stepped in to help the company. So much for the Politburo’s stern insistence on liberalizing the market: yes, free markets are good… as long as they go up. If they go down, or a default is imminent, well that’s unacceptable
This is another Zero Hedge article. This one appeared on their website at 8:55 a.m. EDT on Monday morning.
London gold market under scrutiny as bullion world gathers
The gold industry won’t just be guessing where prices are heading at its annual gathering in Vienna this week. It will ponder how to change London’s spot market, the biggest in the world.
The London Bullion Market Association, which oversees trading and is holding its annual conference starting Monday, has invited proposals on how to improve the city’s over-the-counter market and has suggested more detailed reporting of transactions. At the same time, the producer-funded World Gold Council has also agreed with five banks to talk about starting standardized central clearing and listed derivatives.
London’s market, where custom deals are made on delivery times and size, has come under focus as regulators around the world scrutinized commodities trading and lawmakers have pressed for tighter bank controls. The city has for centuries relied on those trading to manage the risk of default or non-payment. In most other places transactions are backed by exchanges that offer set contracts.
Not that I want to prejudge the outcome of this, dear reader, but when you get this many members of the criminal banking cartel together, nothing free-market will come out of it, despite the fact that ‘representatives’ of the mining industry will be included. They will certainly be hand picked to ensure that the ones included don’t ask any embarrassing questions. This Bloomberg item appeared on their website at 7:18 a.m. Denver time on Monday morning—and it’s another story I found on the gata.org Internet site yesterday. Despite what I said about this, it’s worth your while.
Tough liquidity rules could push more banks out of gold – LBMA
New liquidity rules for banks in the European Union could raise costs for those trading gold by up to 300 percent, forcing them to withdraw from the market, the head of the London Bullion Association (LBMA) said.
Banks were found to be undercapitalised after the financial crisis began in 2007, forcing taxpayers to bail out many lenders and prompting the development of a global set of tougher rules known as Basel III.
The rules treat physically traded gold the same as other commodities, meaning banks trading the metal would have to carry more cash and cash equivalents as a proportion of their gold exposures to act as a buffer if there is an adverse move in the gold price.
In Basel III’s language, gold’s liquidity “haircut” is increasing to 85 percent from 50 percent. This percentage is used to help calculate a so-called liquidity buffer known as the net stable funding ratio (NSFR) that all banks must hold from 2018. The higher the figure, the more funding is needed to meet the overall NSFR requirement.
This is the first of two gold-related Reuters stories. This one, filed from Vienna like the one two stories down, was posted on their Internet site at 11:58 a.m. EDT on Monday morning—and it’s another story I found on the gata.org Internet site.
Will critical questions be raised about central banks at LBMA conference?
Reporting from the London Bullion Market Association conference in Vienna, Bullion Vault’s Adrian Ash writes that LBMA chief executive Ruth Crowell is talking about incorporating all four precious metals in an organization with much wider scope. Ash wonders if she means a “World Bullion Market Association.”
That might make worldwide market rigging easier for the central banks using the London bullion banks as their agents.
Ash adds that the delegates were welcomed to Vienna by Peter Mooslechner, a member of the board of directors of Austria’s central bank, and that the conference is to include a “central bank session.” The involvement of central banks in the gold market — public and surreptitious — sure would be an interesting subject for critical questioning. Will Ash or anyone else be allowed to pose critical questions to central bank representatives and to report the answers or refusals to answer?
Or do members of the LBMA and representatives of central banks get together like this because they are basically members of the same fraternity if not the same organization and thus not inclined to discomfort each other?
This story, along with the above excellent preamble courtesy of GATA secretary/treasurer Chris Powell, appeared on the bullionvault.com Internet site yesterday—and it’s another article I found in a GATA release.
China mounts gold liquidity grab as London market reforms
As the London gold market enters its next phase of reform, a sense of urgency is key because competitors, including commodity consuming giant China, are poised with new products to grab liquidity and global influence.
Global liquidity is shrinking due to persistently low gold prices as the market still struggles to shake off the impact of a seismic crash two years ago. Bruised investors have largely stayed away, while dealing desks have also become smaller.
At the same time, China, the metal’s largest consumer and producer, is aiming to become a price setter with its yuan-denominated gold benchmark by the end of 2015, a move that could beat any rivals’ effort to increase market share.
“There are too many vested interests and China is likely to win the main prize, because it wants to influence the prices of the commodities it is the biggest user of,” one senior London trader said at the opening of the gold industry’s annual conference, this year in Vienna.
This gold-related stories appeared on the Reuters Internet site at 7:27 a.m. BST on their Friday morning, which was 2:27 a.m. EDT in New York. It’s another item that I founded posted on the GATA website.
Shanghai gold withdrawals at record year to date — Koos Jansen
Gold researcher and GATA consultant Koos Jansen reports that year-to-date withdrawals from the Shanghai Gold Exchange as of September 25 had reached a record high of almost 2,000 tonnes—and that China continues to buy heavily on price declines.
Jansen’s longish, chart-filled analysis is headlined “SGE Withdrawals at Record High 1,958 Tonnes YTD” and it was posted on the Singapore Internet site bullionstar.com sometime on their Saturday. It’s worth reading.
Shanghai gold deliveries surpass 2,000 tonnes already this year — Lawrence Williams
The latest announcement from the Shanghai Gold Exchange covers gold withdrawals for the 2 week period ended 9 October and amounted to 50.89 tonnes bringing the total for the year to date to 2008.5 tonnes. The fact that this was a 2 week period might suggest a sharp fall of deliveries from the Exchange but it should be recognised that the SGE was closed for a full week of public holidays in China over the period. While this does indeed represent a slowing down of SGE withdrawals compared with previous weeks in July, August and September when they had been averaging just over 60 tonnes a week, they are still running extremely high – in fact hugely ahead of the record 2013 year at the same time and still on track to reach a massive 2,600 tonnes plus for the year.
While there are always continuing arguments about how representative SGE gold withdrawals are relative to actual Chinese consumer demand – the latest suggestion being that the carry trade in gold using it as security for obtaining cheap dollar loans in the West and using these to take advantage of high interest bearing Chinese yuan notes could be very substantial indeed. This potentially creates the anomaly in Chinese consumption estimates by the major precious metals analytical consultancies as they do not record such financial usage of gold in their consumption estimates.
The headline is similar to the previous story, but the analysis is totally different. Combine that with the fact that Laurie’s commentary is mercifully short and to the point, immediately vaults it into the must read category. I found it on the Sharps Pixley website late yesterday evening MDT.
Rare 1794 U.S. silver dollar sells for nearly $5 million
A 1794 silver dollar, the first dollar in the United States, sold for $4,993,750 in the second session of a five-sale sell-off of a renowned private collection. The coin was first owned by a British aristocrat who acquired the dollar after it was minted in Philadelphia.
Most recently the coin has been in the collection of the Pogue family of Texas. Said to be the world’s most valuable personal collection of early American coins and currency, the collection is to sell in five installments. The first sale, in May 2015, broke 16 price records. This Pogue II sale brought over $26 million.
This brief, but very interesting news item appeared on the tucson.com Internet site early Saturday morning—and today’s last story is another one I found on the gata.org Internet site.
The PHOTOS and the FUNNIES
The WRAP
For all intents and purposes, the concentrated commercial net short position of 80,834 contracts may be a record in the history of the silver market. Let me keep this as simple as I can – 8 traders, either U.S. or foreign banks and financial organizations (not a one them a miner or producer of actual metal), are net short more than 400 million oz of silver, or 50% of world annual production. That comes out to an average short holding of 50 million oz for each of these 8 traders. That’s more per trader than the largest silver mine in the world can produce in a year.
Sharp-eyed readers might point out that the concentrated short position of the 8 largest traders was more than 80,834 contracts for a few weeks into mid-July, but that was when one or more managed money traders entered into the ranks of the big 8 on the short side. What I’m referring to is the all-commercial concentrated short position which only grows to cap rising silver prices, the single most manipulative action in the silver market.
At $16 silver, 8 crooked commercials, led by JPMorgan, have sold short the equivalent of 50% of the world’s annual mine production of silver, the most these crooked commercials have ever sold short. Any discussion about the price of silver – where is it, where it’s been, or where it’s going that leaves out this critical and verifiable fact is a clown’s discussion. — Silver analyst Ted Butler: 17 October 2015
It was a down day across the board for all four precious metals, with tiny slices off each salami—and once more the shares got clubbed out of all proportion to the decline in the metals themselves. With each passing day I’m more convinced that we’ve see the tops in all of the Big 6 commodities—and if not, they aren’t going much higher from where they are now.
And here are the 6-month charts for each—and with the Commitment of Traders Report in its current configuration, it’s not a difficult call to make despite all the bullish talk from the so-called ‘analysts’ who should know better, but don’t.
I must admit that I’m not sure how long this engineered price decline will take this time. But as I’ve pointed out before, JPMorgan et al could make it quick and dirty, with the other alternative being death by a thousand cuts. All we can do is wait it out.
Of course there’s always the chance of a black swan out of left field, or some issues with supply and demand that may surface. However, if there is a smouldering issue buried out of public sight, there’s no hint of it in the price.
Having said that, there was a golden straw in the wind yesterday—and it certainly made me stand up and take notice. It’s right at the end of the Koos Jansen piece posted above. Starting with the 2016 bullion coin series, the mint in China will no longer make these coins in troy ounce sizes, as they are converting to the metric system—and in it, the 1 oz. gold or silver round becomes a 30 gram coin. That’s 1.1 grams less than a full troy ounce. It wouldn’t surprise me in the slightest if the major mints of the world followed suit in one form or another at some point.
As I type this paragraph, the London open is less than ten minutes away—and I note that after getting sold down to its Far East low at 10:00 a.m. Hong Kong time on their Tuesday morning, the price began to rally a bit starting just before 2 p.m. over there—and is currently up a dollar or so at the moment. The silver price followed the same price path as gold—and is currently up a whole 7 cents the ounce. Platinum’s Far East low came moments before 2 p.m.—and even though it’s in rally mode as well, it’s still down on the day from Monday’s close in New York. Ditto for palladium, except its back at unchanged, at least for the moment.
Net gold volume is sitting right at 15,000 contracts—and silver’s net volume is just over 4,700 contracts. The dollar index didn’t do much in Far East trading—and as London opens, it’s down 3 basis points.
Today, at the close of COMEX trading, is the cut-off from this Friday’s COT Report. There was some improvement in the Commercial net short position after yesterday’s trading action in both gold and silver, because both precious metals were closed below their respective 200-day moving averages.
But, as Ted Butler correctly pointed out in his weekend commentary, it’s the 50-day moving average that’s most critical one for the technical funds in the Managed Money category—and if you look at the charts posted above, you can see where each of the Big 6 stand in that regard.
Of course it’s a given that “da boyz” and their algorithms won’t stop right at the 50-day moving average—and it’s only a matter of how much price pain they’ll inflict once it’s broken to the downside. And as Ted has always said, the price is always secondary to the number long contracts that the Commercial traders can get these Managed Money traders to puke up—-and how much they can get them on the short side on top of that.
And as I post today’s column on the website at 4:10 a.m. EDT I see that, with the exception of platinum, the other precious metals are up a bit more since I wrote about them just over an hour ago. But it appears that their respective rallies, including the one in platinum, got capped about 8:45 a.m. BST. However, it’s way too soon to tell whether we’ve seen the highs of the day already.
Net gold volume is around 21,500 contracts at this point—and silver’s net volume is just over 6,500 contracts. The dollar index began to roll over shortly before the London open—and is now down 11 basis points.
I haven’t a clue as to how the remainder of the trading day will turn out, but if I had to bet the usual ten dollars, I’d bet we’ll see another down day by the time that JPMorgan et al are through with the precious metals in New York trading. But, as always, I’d love to spectacularly wrong about that.
That’s all I have for today, which is more than enough—and I’ll see you here tomorrow.
Ed
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