Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1150.70 down $9.40 (comex closing time)
Silver: $15.41 down 27 (comex closing time)
In the access market 5:15 pm
Gold $1161.60
silver $15.62
The unhedged HUI index rose by 5.16 up to 162.72 despite gold’s fall. This may be the bottom for gold.
Gold/silver trading: see kitco charts on right side of the commentary.
Following is a brief outline on gold and silver comex figures for today:
The gold comex today had a poor delivery day, registering 0 notices served for nil oz. Silver comex registered 1 notice for 5,000 oz .
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 254.52 tonnes for a loss of 48.5 tonnes over that period. Lately the removals have been rising!
In silver, the open interest rose by an astonishing 1,494 contracts even though yesterday’s silver price was down 14 cents. The total silver OI continues to remain relatively high with today’s reading at 169,125 contracts. The front month of March contracted by 51 contracts.
We had 1 notice served upon for 5,000 oz.
In gold we had a fall in OI with gold down by $6.30 yesterday. The total comex gold OI rests tonight at 410,918 for a loss of 2,783 contracts. Today, surprisingly we again had only 0 notices served upon for nil oz.
Today, we had no changes in the GLD/Inventory rests at 753.04 tonnes
In silver, /SLV we had no change in inventory at the SLV/Inventory, remaining at 327.332 million oz
We have a few important stories to bring to your attention today…
1. The Greece affair.
It looks like the Troika are going to set foot on Greek soil. Greece starts to make noise that they want compensation for Nazi crimes during World War ii
(zero hedge)
2. Euro falters to 1.053 to the dollar. ECB finds it difficult to purchase bonds on their QE program.
3. Venezuela now starting negotiations to swap some of its gold for dollars. (zero hedge)
4. Thailand becomes the 23rd nation to lower interest rates as the global economy falters badly.
5. The IMF agree to a 15.4 billion loan agreement with the Ukraine.
we have these and other stories for you tonight.
Let us now head over to the comex and assess trading over there today.
Here are today’s comex results:
The total gold comex open interest fell by a wide margin of 2,783 contracts today from 413,701 down to 410,918 as gold was down by $6.30 yesterday (at the comex close). We are now in the contract month of March which saw it’s OI rise by 3 contracts up to 120. We had 0 notices filed on yesterday so we gained 3 gold contract or an additional 300 oz will stand for delivery in this delivery month of March. The next big active delivery month is April and here the OI fell by 13,037 contracts down to 226,123. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at69,156. The confirmed volume yesterday ( which includes the volume during regular business hours + access market sales the previous day) was fair at 219,160 contracts with mucho help from the HFT boys. Today we had 0 notices filed for nil oz.
And now for the wild silver comex results. Silver OI rose by an extremely high 1494 contracts from 167,631 up to 169,125 with silver down by 14 cents with respect to yesterday’s trading. We are now in the active contract month of March and here the OI fell by 51 contracts down to 884. We had 41 contracts served upon yesterday. Thus we lost 10 contracts or an additional 50,000 oz will not stand in this March delivery month. The estimated volume today was poor at 14,652 contracts (just comex sales during regular business hours. The confirmed volume on yesterday (regular plus access market) came in at 41,106 contracts which is fair in volume. We had 1 notice filed for 5,000 oz today.
March initial standings
March 11.2015
Gold
Ounces
Withdrawals from Dealers Inventory in oz
nil
Withdrawals from Customer Inventory in oz
4018.75 oz /125 kilobars (Scotia)
Deposits to the Dealer Inventory in oz
nil
Deposits to the Customer Inventory, in oz
nil
No of oz served (contracts) today
0 contracts (nil oz)
No of oz to be served (notices)
120 contracts (12,000 oz)
Total monthly oz gold served (contracts) so far this month
5 contracts(500 oz)
Total accumulative withdrawals of gold from the Dealers inventory this month
114,790.651 oz
Total accumulative withdrawal of gold from the Customer inventory this month
250,625.3 oz
Today, we had 0 dealer transactions
total Dealer withdrawals: nil oz
we had 0 dealer deposit
total dealer deposit: nil oz
we had 1 customer withdrawals (and the farce continues)
i) Out of Scotia: 4,018.75 oz (125 kilobars)
total customer withdrawal: 4018.75 oz
we had 0 customer deposits:
total customer deposits; nil oz
We had 0 adjustments
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the total number of gold ounces standing for the March contract month, we take the total number of notices filed so far for the month (5) x 100 oz or 500 oz , to which we add the difference between the open interest for the front month of March (120) and the number of notices served upon today (0) x 100 oz equals the number of ounces standing.
Thus the initial standings for gold for the March contract month:
No of notices served so far (5) x 100 oz or ounces + {OI for the front month (120) – the number of notices served upon today (0) x 100 oz} = 12,500 oz or .3888 tonnes
we gained 3oo additional gold ounces standing in this March contract month.
Total dealer inventory: 656,644.474 oz or 20.424 tonnes
Total gold inventory (dealer and customer) = 8.178 million oz. (254.39) tonnes)
Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 48.5 tonnes have been net transferred out. However I believe that the gold that enters the gold comex is not real. I cannot see continual additions of strictly kilobars.
end
And now for silver
March silver initial standings
March 11 2015:
Silver
Ounces
Withdrawals from Dealers Inventory
nil oz
Withdrawals from Customer Inventory
nil
Deposits to the Dealer Inventory
nil oz
Deposits to the Customer Inventory
997.800 (Delaware) oz
No of oz served (contracts)
1 contracts (5,000 oz)
No of oz to be served (notices)
883 contracts (4,415,000)
Total monthly oz silver served (contracts)
1732 contracts (8,670,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer inventory this month
2,233,478.9 oz
Today, we had 0 deposit into the dealer account:
total dealer deposit: nil oz
we had 0 dealer withdrawal:
total dealer withdrawal: nil oz
We had 0 customer deposits:
total customer deposit: nil oz
We had two customer withdrawals:
i) Out of Delaware: 533,211.929 oz
ii) Out of Scotia: 60,258.27 oz
total withdrawals; 593,470.199 oz
we had 1 adjustment
i) out of Delaware: 9,457.200 oz was adjusted out of the customer and this landed into the dealer account of Delaware;
Total dealer inventory: 68.834 million oz
Total of all silver inventory (dealer and customer) 177.443 million oz
.
The total number of notices filed today is represented by 1 contracts for 5,000 oz. To calculate the number of silver ounces that will stand for delivery in March, we take the total number of notices filed for the month so far at (1732) x 5,000 oz = 8,660,000 oz to which we add the difference between the open interest for the front month of March (884) and the number of notices served upon today (1) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the March contract month:
1732 (notices served so far) + { OI for front month of March( 884) -number of notices served upon today (1} x 5000 oz = 13,075,000 oz standing for the March contract month.
we lost 10 contracts or an additional 50,000 oz will not stand for delivery in March.
for those wishing to see the rest of data today see:
http://www.harveyorgan.wordpress.com orhttp://www.harveyorganblog.com
end
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.
***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:
i) demand from paper gold shareholders
ii) demand from the bankers who then redeem for gold to send this gold onto China
vs no sellers of GLD paper.
And now the Gold inventory at the GLD:
March 11.2015: no changes in gold inventory at the GLD/Inventory at 753.04 tonnes
March 10 no report on the GLD tonight/computer down/inventory remains 753.04 tonnes
March 9/ we had another huge withdrawal of 3.38 tonnes of gold from the GLD, no doubt heading for Shanghai/Inventory 753.04 tonnes
March 6/we had a huge withdrawal of 4.48 tonnes of gold from the GLD/inventory rests tonight at 756.32/Also HSBC is getting out of the gold business in London and is giving up all of its 7 vaults.
March 5 no change in gold inventory at the GLD/760.80 tonnnes
March 4/ no change/inventory 760.80 tonnes
March 3 we had another 2.69 tonnes of gold withdrawn from the GLD. Inventory is now 760.80 tonnes.
March 2 we had 7.76 tonnes of withdrawal from the GLD today and this physical gold landed in Shanghai/Inventory 763.49 tonnes
March 11/2015 / the GLD tonight has no changes:
inventory: 753.04 tonnes.
The registered vaults at the GLD will eventually become a crime scene as real physical gold departs for eastern shores leaving behind paper obligations to the remaining shareholders. There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat (same banks).
GLD : 753.04 tonnes.
end
And now for silver (SLV):
March 11/no changes in silver inventory/327.332 million oz
March 10/ no change in silver inventory/327.332 million oz
March 9/ no change in silver inventory at the SLV/327.332 million oz
March 6: huge addition of 1.34 million oz of silver into the SLV/Inventory 727.332 million oz
March 5 no change in inventory/725.992 million oz
March 4 a slight reduction of 126,000 oz of silver/SLV inventory at 725.992 (probably to pay for fees)
March 3 a small deposit of 328,000 oz of silver into the SLV/Inventory at 726.118 million oz.
March 2/ no change in silver inventory tonight; 725.734 million oz
Feb 27.2015 no change in silver inventory tonight: 725.734 million oz
Feb 26. no change in silver inventory at the SLV/Inventory at 725.734 million oz
Feb 25. no changes in silver inventory/SLV inventory at 725.734 million oz
March 11/2015 no change in silver inventory at the SLV/ SLV inventory rests tonight at 327.332 million oz
end
And now for our premiums to NAV for the funds I follow:
Note: Sprott silver fund now for the first time into the negative to NAV
Sprott and Central Fund of Canada.
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 8.6% percent to NAV in usa funds and Negative 8.7% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.5%
Percentage of fund in silver:38.0%
cash .5%
( March 11/2015)
Sprott gold fund finally rising in NAV
2. Sprott silver fund (PSLV): Premium to NAV rises to + 2.29%!!!!! NAV (March 11/2015)
3. Sprott gold fund (PHYS): premium to NAV rises to -.24% to NAV(March 11 /2015)
Note: Sprott silver trust back into positive territory at +2.29%.
Sprott physical gold trust is back into negative territory at -.24%
Central fund of Canada’s is still in jail.
end
And now for your more important physical gold/silver stories:
Gold and silver trading early this morning
(courtesy Mark O’Byrne)
Apple Gold Demand – Bloomberg View Misrepresents GoldCore
By Mark O’Byrne March 11, 2015 0 Comments
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– Bloomberg View’s Mark Gilbert misrepresents our widely read Apple gold demand
- CNBC quoted extensively and favourably from our market update
- Gilbert quoted selectively from our piece to misrepresent “gold bugs”
- Silly gold ‘bug’ name calling shows bias against gold and towards stocks
- “Gold bugs” and “stock roaches” can peacefully coexist
- In these uncertain times diversification is what remains vitally important
In his column on Monday, Bloomberg columnist Mark Gilbert made reference to our Market Update released last Friday –Apple Major New Gold Buyer – Propel Gold Higher?. Our piece was very widely read – Apple being the sexy tech and investment story of today. It was picked up very widely including being quoted from favorably and extensively by CNBC.
Gilberts article, ‘Apple Watch Won’t Rescue Gold Bugs’, describes our analysis as “breathless”. It suggests to us that he may have not read our entire piece and the many qualifications and caveats in the piece. If he had read the entire piece and the important context and substantive points made, it is unlikely that he would have described it with such negative bias.
We based our analysis on data provided by the Wall Street Journal which, like Bloomberg, has vast resources at its disposal with which to conduct research.
Gilbert does not disparage the Wall Street Journal over their possibly questionable information. Instead, he attacks us for having the temerity to use this information to promote the positive supply and demand equation in the gold market and the case for owning gold.
He doesn’t seem to realise that we ourselves disputed the figures put forward by the Wall Street Journal for Apple’s projected sales of their luxury range of watches. We also questioned the notion that a full two ounces of gold would be used in each watch.
The fact remains that a major new buyer, in the form of Apple,has come into the market for gold. On Sunday, Forbes reported that each watch will, in fact, contain around one half an ounce of gold – excluding the bracelet – due to a newly-patented low density alloy. The Edition will contain 75% gold by weight but not by volume.
As we said in our piece it would be a “tall order” for Apple to shift the number of Edition watches the Wall Street Journal suggested that Apple expects to, especially at the now confirmed price of $10,000. However, if Apple manage to clear even one million units in an entire year it would require roughly 15 tonnes of gold.
And, for reasons we explored in our piece, it is unlikely that these sales would come from buyers ordinarily in the market for luxury watches. They would be, primarily, customers in the market specifically for an exclusive Apple product. As such, it represents new gold demand.
Gold prices are down markedly from their 2011 highs, as Gilbert points out. This decline is more a function of the bullion bank market rigging and suppression of prices – now proven – rather than real world supply and demand fundamentals.
The deficit is being made up from existing above-ground stocks. In such an environment gold prices should be rising. However, enormous volumes of paper contracts and derivatives for gold are being sold – by entities who are not in actual possession of the asset they are selling – relative to the actual amount of physical gold being purchased which is causing the price to decline.
Gilbert’s piece is disparaging toward an illusory class of investor called “gold bugs” – among whom we apparently number. We feel no need to refer to those who tout stocks – despite their trading at record highs due to central bank intervention in the form of the continuing reckless monetary experiment that is ‘QE’ – as “stock-roaches”.
He sneers that these gold-bugs “only ever seem to see reasons to buy”.
We could say the same about most bank and other analysts in the City of London and Wall Street and their pollyanna attitude toward stocks and indeed property.
We would add, however, that there is always a reason to buy physical gold. Gold is financial insurance.
There is never a bad time to acquire fire insurance, motor insurance or health insurance. So it is true for gold.
That proponents of a particular asset class should have their very own pejorative epithet says more about the user of such terminology than it does about the person being described.
There is already a negative connotation with the expression of ‘gold bug’.
The pejorative language used regarding those who advocate owning gold is another very interesting point and one we have pointed out before. People who are bullish on stocks or the dollar are not called ‘stock roaches’ or ‘dollar bugs’ rather they are stock bulls and dollar bulls.
When one resorts to name-calling in the place of rational discussion we suspect a weakness in one’s position. Gold is reviled in certain sections of the banking, financial and indeed political world because it represents monetary discipline in a world drowning in ever-expanding unpayable debt.
Gilbert then goes on to make an odd distinction between “gold-bugs” and “those investors who use it as a store of value rather than to speculate on its price”. He describes us as the later when in fact we consistently advise our readers to own gold as a store of value and never as a speculative tool. We stated as much at the bottom of our piece – the same piece on which Gilbert based his article.
We have only ever advocated allocating a portion of one’s portfolio to gold – between 5% and 10% depending on one’s assessment of the global macroeconomic and geopolitical situation.
We seldom encounter investors who wish to invest more than this proportion of their wealth in gold. So neither we, nor our clients qualify as gold bugs by Gilbert’s own criteria.
We do have clients who have higher allocations to precious metals. Even so – should they be called ‘gold bugs’?
As for those who speculate on the price of gold, we don’t believe they have any ideological attachment to the stuff – they are simply momentum chasers on the latest bandwagon. Good luck to them as most will need luck in the volatile markets of today. But they, therefore, do not qualify as gold-bugs either.
Updates and Award Winning Research Here
MARKET UPDATE
Today’s AM fix was USD 1,158.75, EUR 1,096.06 and GBP 769.42 per ounce.
Yesterday’s AM fix was USD 1,161.00, EUR 1,079.40 and GBP 770.41 per ounce.
Gold fell 0.48% percent or $5.60 and closed at $1,161.30 an ounce yesterday, while silver slipped 0.7% or $0.11 to $15.68 an ounce.
Gold remained steady at its lowest levels in three months as the U.S. dollar moves closer to parity with the euro.
In Singapore, towards the end of the trading day, gold for immediate delivery was $1,164.05 an ounce.
Recent U.S. economic data like the positive employment figures have stoked hopes the U.S. Fed will raise interest rates in June and this is hurting the yellow metal.
Asian physical demand will support prices as Chinese buyers tend to buy the dip. The premiums gold is trading at in Asia recently has been between $4-$6 over London benchmarks.
The Troika are meeting with Greece today who again needs help with debt repayments. Grexit is still a question mark and it is effecting the euro. Gold in euros is rising while gold in U.S. dollars is falling.
The euro has fallen below 1.06 versus the dollar and is approaching its lowest since March 21, 2003, after Draghi cautioned that inflation in the eurozone, which dipped into negative territory in December, will remain at low or negative levels for several months.
However, with Draghi’s big QE guns (buying up bonds) he notes the the ECB’s asset purchase programme will ultimately succeed in stoking inflation near the bank’s two percent target and that the slowdown in growth has been reversed.
In London in late morning trading, spot gold is trading at $1,158.59 or off 0.46 percent. Silver is $15.63 or $1,125.20 or down 0.36 percent. Platinum has been trading at its lowest levels since 2009.
end
It seems that the HSBC vault closing is only for retail customers.
GLD will still be housed by HSBC vaults. The move to force out the retail customers will probably see some customers sell their gold for cash due to a failure to locate a suitable facility:
(courtesy GATA/ Kingworldnews/Eric King/Andrew Maguire)
HSBC vault closures forcing customers to sell gold, Maguire tells KWN
Submitted by cpowell on Tue, 2015-03-10 23:35. Section: Daily Dispatches
7:30a TNT Wednesday, March 11, 2015
Dear Friend of GATA and Gold:
London metals trader Andrew Maguire tells King World News today that HSBC’s announcement that it is closing its London gold vaults — what the bank now is calling its “retail safe-deposit facilities” — with only 60 days’ notice is forcing some customers to sell their metal. Maguire suspects that this is the bank’s intent. An excerpt from his interview is posted at the KWN blog here:
http://kingworldnews.com/andrew-maguire-stunning-update-hsbc-london-gold…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
end
Doorknobs!!
“Under the swap, the central bank would provide 1.4 million troy ounces in exchange for cash, said a central bank source. After four years, it would have right of first refusal to buy the gold back, added the source, who asked not to be identified.”
The 1.4 million oz or 43.5 tonnes would satisfy China’s demand for gold for one week.
(courtesy zero hedge)
Venezuela negotiating again to pawn its gold reserves, sources tell Reuters
Submitted by cpowell on Wed, 2015-03-11 10:57. Section: Daily Dispatches
Venezuela Discussing Gold Swap with Wall Street Banks, Sources Say
By Eyanir Chinea and Corina Pons
Reuters
Tuesday, March 10, 2015
CARACAS, Venezuela — Venezuela’s central bank is in talks with Wall Street banks to create a gold swap that would allow it to monetize some $1.5 billion of the metal held as international reserves, according to government sources familiar with the operation.
The move would help the government of President Nicolas Maduro boost its hard currency position as the OPEC nation struggles with soaring consumer prices, chronic product shortages and a shrinking economy caused by low oil prices.
Under the swap, the central bank would provide 1.4 million troy ounces in exchange for cash, said a central bank source. After four years, it would have right of first refusal to buy the gold back, added the source, who asked not to be identified.
… For the remainder of the report:
http://www.reuters.com/article/2015/03/10/us-venezuela-gold-idUSKBN0M62C…
end
Zero hedge comments on the above story:
(courtesy zero hedge)
Venezuela Begins Liquidating Its Gold
http://www.zerohedge.com/users/tyler-durdenSubmitted by Tyler Durden on 03/11/2015 10:07 -0400
Yesterday we reported that in retaliation to the latest Obama executive order which declared Venezuela a national security threat and ordered sanctions against seven officials, Maduro promptly took advantage of this “outside threat” to rally his toilet paper-starved population “around the flag”, and while pointing at the “evil imperialist” Obama, granted himself even greater authoritarian powers: “I have put together a special law that gives me special powers to preserve the peace, the integrity and the sovereignty of the country before any situation that presents itself due to this imperialist aggression.“
Bloomberg further quoted Maduro as saying that the “special decree powers will help defend Venezuela democracy, freedoms”, that “the U.S. using human rights issues to justify invasion of Venezuela, planning trade blockade”, and that Maduro will “lead a special defensive military exercise on March 14.” Because nothing screams democracy like going “peak dictator” and launching a military exercise.
Venezuela’s always entertaining leader aside, Venezuela’s political problems have their basis in, and will only get worse due to one simple thing: money, or the lack thereof.
As a reminder, the nation whose primary – and only according to some – export is oil, has been slammed in recent months due to tumbling oil prices, which means oil is now a loss-maker for Caracas, whose oil breakeven price is said to be far higher than where Brent is currently trading. Which is why Maduro’s political troubles seem to be multiplying in recent months: in fact it has gotten so bad that some press reports suggest Maduro’s grip on the military is starting to wane.
Which likely explains why in an attempt to secure some stability, i.e., funds, now that Venezuela is no longer able to tap Chinese bailout loans as last-recourse funding, Reuters reported that Venezuela’s central bank is in talks with Wall Street banks to create a gold swap that would allow it to monetize some $1.5 billion of the metal held as international reserves, according to government sources familiar with the operation.
Under the swap, the central bank would provide 1.4 million troy ounces in exchange for cash, said a central bank source. After four years, it would have right of first refusal to buy the gold back, added the source, who asked not to be identified.
Of course, by then Maduro will almost certainly no longer be the ruler, so the “gold buying back part” will be someone else’s problem, and what is actually happening is that Maduro is “pawning” some 1.4 million ounces of gold to a banker syndicate, one organized by Bank of America and Credit Suisse according to Reuters, in exchange for $1.5 billion.
It also explains why there is an implied 7% discount to market prices in the swap, since 1.4 million ounces equivalent to $1.5 billion translates to about $1,070 per ounce, or a 7% discount to market.
Or said otherwise, a liquidation.
The banks and Venezuela’s central bank did not immediately respond to requests for comment.
“Work is being done to complete this operation toward the end of April,” said another source, linked to Venezuela’s finance ministry.
Venezuela would have to pay interest on the funds but the central bank would most likely be able to maintain the gold as part of its foreign currency reserves.
As a further reminder, most of Venezuela’s reserves are held in gold after late socialist leader Hugo Chavez began moving central bank assets away from the dollar in the wake of the 2008 global financial crisis. “The central bank in late 2013 received proposals to carry out a similar operation, the bank’s chief said at the time, but denied any agreements had been completed.”
And now, Venezuela is selling its gold, which at least in the global central bank arena, appears to be a far more liquid asset that “tradition” and is instead perfectly legitimate legal tender.
Finally, now that Maduro has tipped his hand how he plans on funding the country’s near term debt and cash obligations, this is just the beginning: his administration faces a cash crunch following the maturity of a 1 billion euro bond this month and coupon payments of nearly $700 million in April. Expect Venezuela’s gold liquidation to accelerate. The only question is who will end up the rightful owner of Venezuela’s physical gold once the pawn shop confiscates the collateral.
http://www.zerohedge.com/news/2015-03-11/venezuela-begins-liquidating-its-gold
end
(courtesy Lawrence Williams/Mineweb)
World top 10 gold miners face negative free cash flows
The world’s biggest gold miners moved to combined negative cash flow in Q4 2014.
Lawrence Williams | 11 March 2015 14:57
We are indebted again to precious metals analysis consultancy, Metals Focus, for bringing to our attention that the world’s top gold miners had moved into a combined Negative Cash Flow (NCF) position during the final quarter of last year. This is after three consecutive quarters where they had recorded positive Free Cash Flow (FCF) – that is after taking into account all elements of costs including capital expenditures.
For several years, Mineweb ran a campaign to push the gold mining sector to report FCF figures (South Africa’s Gold Fields was probably the only Tier 1 gold miner at the time which did) but eventually most have come round to so doing – helped by the relatively new reporting metric of All In Sustaining Costs (AISC), to which most big gold miners now subscribe, which gets close to reporting the FCF figure.
Prior to this mining companies, and gold miners in particular, were prone to reporting profits and capital expenditures as completely separate balance sheet items, although the true situation frequently saw profits being reported while company treasuries were being drained overall by high capex and led to the situation where borrowing, equity raising or asset disposals had proved to be necessary for the company to maintain its dividends.
The latest Metals Focus Peer Group Analysis report looks at the ten top gold mining companies which between them account for around a third of global new mined gold output. In Q4, this subset of gold miners fell back into reporting a combined negative cash flow of $270 million.
While lower gold prices were part of the equation (on average 6% quarter on quarter) and operating costs continued to show some improvement on the prior quarter, although only flat on those of a year earlier, what was apparent was that some other costs – notably corporate costs, were up by as much as 4% QOQ – and this despite continuing job cuts at corporate level.
Perhaps most significant though was a rise in capital spending – up 9% QOQ – and even more significantly perhaps is that this was mostly incurred in terms of sustaining capex – or stay-in-business capex as Metals Focus puts it. New project capex continues to be down and the consultancy notes that while in 2010-2013 sustaining capex accounted for less than 50% of total capital expenditures, in Q4 last year that figure had risen to around 70%. This confirms that the big gold miners are currently putting far less money into greenfields projects and major mine expansions as they struggle to keep overall expenditures down due to shareholder pressures to do so.
But what this signifies too, perhaps, is that the easy cost cutting improvements have already been made – and the rise in corporate costs could also suggest that the gold miners are beginning to drop the ball as far as cost cutting is concerned. The fact that sustaining capex costs are rising again – and quite steeply it seems – also has to be a worry for the miners and their shareholders. The gold price remains weak, and is seen by many observers as likely to stay depressed for the next several months at least – and perhaps fall back further, which does not bode well for FCF figures in the current half year. Perhaps the earnings recoveries seen last year are going to be difficult to build on in many cases.
Another factor pointed out by Metals Focus in its peer group analysis is the high level of net debt within the grouping, although this does not apply to all the companies surveyed. Cumulatively it stood at $27.5 billion at the end of 2014 and will take several years to pay off based on earnings before interest and tax – and if the gold price remains weak or falls further this could take much longer still. There are thus still considerable hurdles ahead to be overcome for even the biggest gold miners and it looks as though top tier gold miner FCF will remain weak or negative unless and until the gold price sees a significant turnaround.
Charlie Brown and higher interest rates
Do you remember how Lucy always pulled the football each time Charlie Brown tried to kick it? To this day, he’s fallen on his rear end and every time while Lucy just snickers. This is exactly what the Federal Reserve has done since late 2009. If you recall, we heard about “green shoots” in the economy and “recovery” has been the watch word ever since. The one word you have not heard and certainly not seen is “expansion”.
You see, the real economy has never recovered and no matter how massaged or fudged the economic reports are, they cannot be altered enough to show genuine “expansion” when you scrape off the gold plating. The Lucy/Charlie brown game has been “the Fed will raise rates later this year” …each and every year for the last five. They are walking a tightrope where the ugly reality must be polished feverishly but not so much so that markets demand a rate hike.
The following chart (courtesy of friend M. Stevens) was generated directly from the St. Louis Fed website so what we will talk about today is directly from Federal Reserve data.
After glancing at this chart, does anything stand out to you? What immediately stood out because it is in picture form is the inverse direction of interest rates and total debt. I of course knew this and so probably did you, but as they say …a picture is worth a thousand words. The inverse relationship began back in the 1980’s and becomes obvious by 1990, but why? The answer to this is the very same answer as to why the Fed can NEVER ever raise rates again but we’ll get to that shortly.
Briefly explaining “how we got here”, the Fed has been forced several times to drastically lower interest rates since 1980. We had the crash of 1987, the S and L crisis in the early 90’s, the dotcom bust in 2000-2001 and of course the real estate crash/great financial crisis of 2007-2009. Each one of these booms which led to the bust were “conceived” by the lowered rates employed to alleviate the previous bust. In other words, the tonic (lower rates) used to fix the current problem has each time led to a future crisis …until here we are at effectively zero percent interest rates.
I know you are thinking “but I already knew this”. Do you believe the Fed knew this as they were doing it? I believe the answer is an absolute YES! “Yes” because they can do math as well as anyone else. They realized the deficits which really began to swell in the 1980’s would lead to an overall debt level so high that nearly any positive interest rate would be unpayable! Think about the math for a moment, here we are at close to $20 trillion public debt, what will happen if the Fed raises rates to even 4%? We will be paying interest of $800 billion per year? How about the unheard of level of 7%? Do you see the math here? After paying the interest, what will be left to run, much less improve the country? Rates have been lowered to zero not to save the real economy but to make the federal debt a manageable budget item! Don’t get me wrong, I understand the lower rates have also enabled the banking system to remain breathing and so far the derivatives blasting cap from going off. The prime reason for these lower interest rates no matter what anyone tells you …is so the interest on the federal debt is “affordable”.
The purpose in my mind for showing you this chart is because interest rates are now just beginning to creep up on Treasury securities. I am sure as we always have, soon hear, “higher interest rates will kill gold and silver”. Without going into a full writing on this, it simply is not true. Interest rates did nothing but go higher during the 1970’s when by 1980 gold traded up to $850 and silver $50. What killed gold and silver were 15-20% interest rates competing with and popping the frothy bubbles. You must understand this, America could “afford” these higher rates back then because we were not already leveraged up. Corporations weren’t leveraged, neither were individuals. The Treasury was not highly leveraged with well less than $2 trillion, and derivatives had barely been invented yet. The U.S. simply cannot “afford” higher interest rates today.
My point is this, we may actually get higher interest rates put upon us by the market place but not by the Fed. Will the Fed raise rates even one quarter of one percent? Doubtful but it is possible. I believe were we to see even a one quarter point rise in official rates, our financial markets will implode in less than a week’s time. Higher rates will throw the $1 quadrillion+ derivatives market so far offside, the credit freeze up in late 2008 will not even be an appetizer but mere crackers to the main dish we will be served.
On Monday we wrote about Allen Greenspan and Lord Rothschild speaking of “risk” and how higher interest rates will pummel PE ratios. Higher interest rates (or even the expectation of higher rates) will kill everything. Stocks, bonds (obviously), make current pricing on real estate unaffordable, derivatives will blow up and destroy banks (brokers etc.) balance sheets …and last but not least show the U.S. Treasury as insolvent and unable “afford” the debt service.
To close, you will notice I used the word “afford” several times and tried to emphasize it with quotation marks. I did this for a reason. While we were not as a nation (world) very highly leveraged in the 1970’s, we are now. We still had the ability to borrow back then, we no longer do. The world has reached what I originally termed “debt saturation” levels back in 2007. (As a side note, the flip side of debt saturation also normally means a lack of unencumbered collateral which is also the case today). Waiting for the Fed to raise rates or you being afraid of these higher rates knocking the prices of gold and silver down are like Charlie Brown thinking he will finally get to kick the football!
The above said, this does not mean a bond rout cannot or will not happen. U.S. Treasury bonds have been seen as “safety” during most all of our lifetimes and for good reason for many years. This is no longer mathematically true. The U.S. Treasury has more need for borrowings than the collective world wishes to purchase. Were it not for the Fed (and BOJ and ECB), sovereign treasury securities would be going “un bid” at these current yields. Instead, these central banks are bidding bond prices into negative yield territory, a truly senseless exercise and one that will blow up in our collective faces. Were the Fed to announce any tightening no matter how small, our financial markets will be unrecognizable within a week’s time in my opinion …IF, they even remain open! Regards, Bill Holter
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And now for the important paper stories for today:
Early Wednesday morning trading from Europe/Asia
1. Stocks generally lower on major Chinese bourses/ / the yen slightly falls to 121.48
1b Chinese yuan vs USA dollar/ yuan strengthens to 6.2615
2 Nikkei up 58.14 or 0.31%
3. Europe stocks all up // USA dollar index up to 99.56/Euro in free fall down to 1.0605
3b Japan 10 year yield .43%/ (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 121.35/everybody watching the huge support levels of 117.20 and that level acting as a catapult for the markets.
3c Nikkei still above 17,000/
3e The USA/Yen rate now above the 121 barrier this morning/
3fOil: WTI 48.48 Brent: 56.57 /all eyes are focusing on oil prices. This should cause major defaults as derivatives blow up.
3g/ Gold s down /yen slightly down;
3h/ Japan is to buy the equivalent of 108 billion usa dollars worth of bonds per MONTH or $1.3 trillion
Japan’s GDP equals 5 trillion usa/thus bond purchases of 26% of GDP
3i Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt (see Von Greyerz)
3j Oil up this morning for WTI and for Brent
3k European bond buying pushes yields lower on all fronts in the EMU
Except Greece which sees its 2 year rate rise to almost 19% /Greek stocks down .8%/expect huge bank runs on Greek banks
3l Greek 10 year bond yield :10.69% (up 60 basis points in yield)
3m Gold at $1158.50 dollars/ Silver: $15.60
3n USA vs Russian rouble: ( Russian rouble down 5/8 rouble / dollar in value) 61.86!!!!!!.
3 0 oil into the 48 dollar handle for WTI and 56 handle for Brent
3p higher foreign deposits into China sees risk of outflows and a currency depreciation can spell financial disaster for the rest of the world./China may be forced to do QE!!
3Q SNB (Swiss National Bank) still intervening again driving down the SF/window dressing/Swiss rumours of intervention to keep the soft peg at 1.05 Swiss Francs/euro and major support for the Euro.
Rumours SNB may cut rates to negative 1.5%
3r Britain’s Serious fraud squad investigating the Bank of England/
3s the 7 year German bund is now in negative territory/no doubt the ECB will have trouble meeting its quota of purchases and thus European QE will be a total failure (see passage below)
3t Talks with Greece to start today/does not look good
4. USA 10 yr treasury bond at 2.13% early this morning. Thirty year rate well below 3% (2.74%!!!!)/yield curve flattens/foreshadowing recession
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid
Euro In Freefall, Dollar Surge Accelerates; Futures Rebound On USDJPY Rise; Greece On The Ropes
While the dollar strength this morning, which has pushed it to a fresh 13 year high and has accelerated the EURUSD plunge to under 1.06 – a drop of over 300 pips since the start of the week - has been a recap of yesterday’s trading action, the main difference is that unlike yesterday, the USDJPY has managed to find a strong bid in the overnight session, pushing not only the Nikkei up by 0.4%, but also lifting US equity futures as the entire global marketplace is now merely a sandbox in which the central banks try to crush their currencies as fast as possible.
And it isn’t just Europe: overnight, China reported property sales in the first two months of 2015 which dropped by the most in three years amid a glut of housing supply, and real estate investment growth eased. Retail Sales (10.7%, Exp 11.66%) and Industrial Output also missed, rising 6.8% for the Jan/Feb period, below estimates of 7.7%. Even Goldman was shocked: “Activity data for the combined January-February period (the NBS releases these two months together given the difficulty of adjusting for Chinese New Year effects) was significantly weaker than expected across IP, FAI, and retail sales. For overall industrial production,this was the weakest year-over-year reading ever (China’s IP data starts from 1995) outside the global financial crisis.
This follows news that China plans to merge its big state-owned enterprises, telling thousands of SOEs “that they need to rely less on state life support and get themselves ready to list on public markets.” But the most surprising development was increasing chatter of QE out of China which is banging the dram that “no QE is coming” but it simply makes the market wonder just how much further can the economy tumble before the government has to do what we first said it will. More on this in a follow-up post.
And as usual the other big story out of Europe is how long until the entire European bond curve trades at -0.20%. Germany’s 10Y Bund briefly dropped to under 0.20% before staging a modest rebound, which may well have been the ECB selling some bonds even as it buys, just to show the market it isn’t merely one way action. Alas, with EGB volumes aside from the ECB negligible, it will have its work cut out for itself and very soon Draghi may be forced to admit defeat after he pushes the entire European bond complex into negative territory with over a year of QE left, giving him no further room for monetization.
The one place where European yields moved wider was Greece, where the market is increasingly convinced the troubled nation may be finally let loose from the Eurozone, especially following a Draghi statement thatECB action shields euro zone states from Greek contagion, which has been taken by some as a green light that Greece’s days in the Eurozone are numbered. Not helping is French FinMin Sapin, who said Greece is running out of time, money and friends, which meanns that even France which had made the most conciliatory noises toward Greek calls for less austerity, expressed frustration with Greece FinMin Varoufakis, while Spain’s finance minister also hardened the rhetoric. As a result the selling across the Greek curve has continued for yet another day as follows:
3y 18.20%; +177 bps
5y 14.76%; +79 bps
10y 10.75%; +36 bps
15y 10.77%; +38 bps
As a reminder, today the Greek technical negotiations, both in Brussels and, far more quietly in Athens, are set to begin. The outcome will not be pleasant.
Looking at equity markets, Asian stocks traded mixed following yesterday’s sell-off on Wall Street, which saw US equities record their worst run in 2-months, erasing their gains for the year. Nikkei 225 (+0.3%) recovered earlier losses amid a weak JPY and as gains by health care stocks outweighed declines in energy names.Shanghai Comp (+0.1%) and Hang Seng (-0.8%) both came off their best levels as Chinese data missed expectations. Industrial Production rose 6.8% vs. Exp. 7.7% while Retail Sales saw an increase of 10.7% vs. Exp. 11.6%. JGB’s trade up 52 ticks with outperformance in the belly of the curve underpinned by yesterday’s rally across USTs and German Bunds.
European equities trade higher despite the losses seen at yesterday’s Wall Street close and overnight, with no pertinent new macro newsflow behind the move. However to put today’s move into perspective, European equites trade only modestly above yesterday’s open, with prices relatively depressed elsewhere after US equities reversed their gains for the year during yesterday’s session with the S&P 500 also breaking below its 50DMA.Furthermore, analysts at Goldman Sachs note that European equities have been bolstered by the ECB’s QE programme and the weaker EUR which has also stemmed from the prospect of Fed rate lift-off. As a consequence of the weaker EUR< European car names lead the way higher with gains largely broad-based elsewhere after early outperformance in energy names failed to sustain as the USD continues to weigh on oil prices.
Despite pulling away from their best levels, Bunds rose sharply after the Eurex open in a similar fashion to the past few days since the commencement of the ECB’s bond-buying programme, subsequently sending the German 10yr yield below 0.2% for the first time. Interestingly, after-market yesterday ECB’s Coeure said he does not see any signals that it will be hard to find bonds to purchase. Nonetheless, the upside momentum for German paper failed to sustain alongside the strength in equities, while the GR/GE spread is wider as technical talks between Greece and EU start today with comments yesterday from the German finance minister suggesting a compromise is still some way off.
In FX markets, once again a bulk of the price action has been led by the USD-index which still shows no signs of slowing its recent move to the upside. This has subsequently weighed on its major counterparts, with EUR/USD further consolidating its move below 1.0600. Alongside the move in the USD, GBP/USD was unable to hold onto opening gains after the latest Ashcroft poll revealed a 4ppt lead for the Conservative party ahead of the May election; the largest lead in 3 years. This morning’s session also saw ECB President Draghi on the speaker slate, however, comments were largely a reiteration of those already made.
In the commodity complex, energy prices were initially supported by yesterday’s API crude inventories showed an unexpected fall in oil stockpiles (W/W -404K vs. Prev. 2900K). Nonetheless, the latest figures were not enough to sustain the upside, with Brent and WTI subsequently dragged lower by the USD to relatively unchanged territory. In metals markets, spot gold and silver trade relatively flat while Dalian iron ore futures were weaker overnight amid continued China steel sector concerns after steel inventories rose for a 6th consecutive session.
In summary: European shares rise with the autos and telco sectors outperforming and retail, oil & gas underperforming. French 10-year bond yield falls below 0.5% for first time, yields also fall to record lows in Spain, Italy, Finland, Austria. Euro drops to lowest since April 2003 against dollar. Draghi says ECB action can and will return inflation to goal. China Feb. industrial production, retail sales below estimates. The French and Italian markets are the best-performing larger bourses, U.K. the worst. The euro is weaker against the dollar. Japanese 10yr bond yields fall; German yields decline. Commodities gain, with natural gas, Brent crude underperforming and wheat outperforming. U.S. mortgage applications due later.
Market Wrap
S&P 500 futures up 0.4% to 2050.1
Stoxx 600 up 1% to 393.7
US 10Yr yield little changed at 2.13%
German 10Yr yield down 1bps to 0.22%
MSCI Asia Pacific down 0.3% to 142.3
Gold spot up 0% to $1162.4/oz
Eurostoxx 50 +1.3%, FTSE 100 +0.4%, CAC 40 +1.4%, DAX +1.2%, IBEX +0.9%, FTSEMIB +1.2%, SMI +0.7%
Asian stocks fall with the Nikkei outperforming and the Hang Seng underperforming.
MSCI Asia Pacific down 0.3% to 142.3; Nikkei 225 up 0.3%, Hang Seng down 0.7%, Kospi down 0.2%, Shanghai Composite up 0.1%, ASX down 0.5%, Sensex up 0%
Euro down to $1.0566
Dollar Index up 0.38% to 99
Italian 10Yr yield down 3bps to 1.19%
Spanish 10Yr yield down 1bps to 1.24%
French 10Yr yield down 1bps to 0.51%
S&P GSCI Index up 0.3% to 404.3
Brent Futures down 0.1% to $56.4/bbl, WTI Futures up 0.4% to $48.5/bbl
LME 3m Copper up 0.4% to $5788/MT
LME 3m Nickel up 0.8% to $14160/MT
Wheat futures up 1.4% to 500.3 USd/bu
Bulletin Headline Summary from RanSquawk and Bloomberg
As has been the case over the past few days, USD-index has continued to climb, much to the detriment of its major counterparts
European stocks trade higher amid no new fundamental macro news with European car makers leading the way