Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1151.10 down $1.40 (comex closing time)
Silver: $15.49 up 8 cents (comex closing time)
In the access market 5:15 pm
Gold $1153.30
silver $15.57
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 3 notices for 15,000 oz .
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 253.33 tonnes for a loss of 49.5 tonnes over that period. Lately the removals have been rising!
In silver, the open interest rose by an astonishing 2,832 contracts even though yesterday’s silver price was down 27 cents. The total silver OI continues to remain relatively high with today’s reading at 171,957 contracts. The front month of March contracted by 44 contracts.
We had 1 notice served upon for 5,000 oz.
In gold we had an absolutely astonishing rise in OI with gold down by $9.40 yesterday.If you include access markets, gold has been down for 9 straight days. The total comex gold OI rests tonight at 417,636 for a gain of 6718 contracts. Today, surprisingly we again had only 0 notices served upon for nil oz.
Today, we had a large withdrawal of 2.09 tones of gold at the GLD/Inventory rests at 750.95 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.
The war of words between Germany and Greece magnify today.
This afternoon, Yannis Varoufakis states that Greece will never repay its debts. Greece also is making overtures to Russia and both of these events angered Germany to no end.
Also today, Greece passed in its parliament the right to withdraw funds from Greek pensions.
(zero hedge)
2.The Euro overnight faltered to 1.049 to the dollar before recovering.. ECB finds it difficult to purchase bonds on their QE program due to huge number of bonds trading in negative yield and many investors do not want to part with their bonds.. (zero hedge)
3. China alarms the world when 4 cities have deflation in wages. China will no doubt have to engage in QE (zerohedge)
4. South Korea becomes the 24th nation to lower interest rates as the global economy falters badly. (zero hedge)
5. Macro data from the USA all bad today suggesting that Q1 GDP will come very close to the Atlanta report at 1.2%
6. The 9 trillion USA short position by various players is getting a lot of ink. Bill Holter takes one side of the battle. Raul Meijer, Ambrose Evans Pritchard and Econmatters take the other.
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 rose by a wide margin of 6,718 contracts today from 410,918 up to 417,636 even though gold was down by $9.40 yesterday (at the comex close). We are now in the contract month of March which saw it’s OI rise by 10 contracts up to 130. We had 0 notices filed on yesterday so we gained 10 gold contract or an additional 1000 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 8,828 contracts down to 217,295. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 91,156. The confirmed volume yesterday ( which includes the volume during regular business hours + access market sales the previous day) was fair at 197,879 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 2,832 contracts from 169,125 up to 171,957 despite the fact that silver was down by 27 cents with respect to yesterday’s trading. We are now in the active contract month of March and here the OI fell by 44 contracts down to 840. We had 1 contract served upon yesterday. Thus we lost 43 contracts or an additional 215,000 oz will not stand in this March delivery month. The estimated volume today was poor at 17,737 contracts (just comex sales during regular business hours. The confirmed volume on yesterday (regular plus access market) came in at 45,149 contracts which is very good in volume. We had 3 notices filed for 5,000 oz today.
March initial standings
March 12.2015
Gold
Ounces
Withdrawals from Dealers Inventory in oz
nil
Withdrawals from Customer Inventory in oz
32,246.45 /1003 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)
130 contracts (13,000 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
8,398.287.0 oz
Today, we had 0 dealer transactions
total Dealer withdrawals: nil oz
we had 0 dealer deposit
total dealer deposit: nil oz
we had 2 customer withdrawals (and the farce continues)
i) Out of Scotia: 32,150.000 (1000 kilobars)
ii) Out of Manfra; 96.45 (3 kilobars)
total customer withdrawal: 32,246.45 oz (1003 kilobars)
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 (130) 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 (130) – the number of notices served upon today (0) x 100 oz} = 13,500 oz or .4199 tonnes
we gained 10oo 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) = 8.146 million oz. (253.33) tonnes)
Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 49.5 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 12 2015:
Silver
Ounces
Withdrawals from Dealers Inventory
nil oz
Withdrawals from Customer Inventory
260,495.79 oz (Brinks,Scotia)
Deposits to the Dealer Inventory
nil oz
Deposits to the Customer Inventory
nil oz
No of oz served (contracts)
3 contracts (15,000 oz)
No of oz to be served (notices)
837 contracts (4,185,000)
Total monthly oz silver served (contracts)
1735 contracts (8,685,000 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 Brinks: 200,400.79 oz
ii) Out of Scotia: 60,095.000 oz ??? can someone explain this perfectly round withdrawal???
total withdrawals; 260,495.79 oz
we had 1 adjustment
i) out of Delaware: 5,210.766 oz was adjusted out of the customer and this landed into the dealer account of Delaware;
Total dealer inventory: 68.828 million oz
Total of all silver inventory (dealer and customer) 177.182 million oz
.
The total number of notices filed today is represented by 3 contracts for 15,000 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 (1735) x 5,000 oz = 8,675,000 oz to which we add the difference between the open interest for the front month of March (840) and the number of notices served upon today (3) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the March contract month:
1735 (notices served so far) + { OI for front month of March( 840) -number of notices served upon today (3} x 5000 oz = 12,860,000 oz standing for the March contract month.
we lost 43 contracts or an additional 215,000 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 12.we had a withdrawal of 2.09 tonnes of gold at the GLD/Inventory at 750.95 tonnes
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 12/2015 / the GLD tonight lost 2.09 tonnes of gold :
inventory: 750.95 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 : 750.95 tonnes.
end
And now for silver (SLV):
March 12: no changes in silver inventory/327.332 million oz
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 12/2015 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)
Not available tonight
1. Central Fund of Canada: traded at Negative 8.2% percent to NAV in usa funds and Negative 8.1% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.5%
Percentage of fund in silver:38.0%
cash .5%
( March 12/2015)
Sprott gold fund finally rising in NAV
2. Sprott silver fund (PSLV): Premium to NAV falls to + 1.98%!!!!! NAV (March 12/2015)
3. Sprott gold fund (PHYS): premium to NAV rises to -.15% to NAV(March 12 /2015)
Note: Sprott silver trust back into positive territory at +1.98%.
Sprott physical gold trust is back into negative territory at -.15%
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)
Deutsche & Santander Fail ‘Stress Tests’ – Risk of Bail-Ins
By Mark O’Byrne March 12, 2015 0 Comments
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- Largest banks in Germany and Spain fail Federal Reserve’s ‘stress tests’
- Stress tests designed to assess whether lenders can withstand another financial crisis
- U.S. subsidiaries fail Fed stress tests on ‘‘widespread and critical deficiencies’’ in identifying risks
- Deutsche and Santander bank fail on “qualitative” grounds
- 28 out of 31 banks passed the stress test, with BoA required to resubmit plans
- Both Deutsche and Santander passed questionable ECB stress tests in October
- Developing bail-in regime poses risks to depositors
The Federal Reserve has issued a stinging rebuke to two of Europe’s largest banks – Deutsche Bank and Santander.
U.S. operations of Deutsche, Germany’s largest bank, and Santander, the biggest bank in Spain and a large player in the UK market, were found to have serious deficiencies in capital planning and risk management, according to a senior Federal Reserve official.
The systems by which European banks assess risk have been called into question following the failure of the U.S. subsidiaries of the two major European banks to meet criteria set out in the Federal Reserve’s stress tests.
The subsidiaries of both Deutsche Bank and Banco Santander failed the stress tests for “qualitative” reasons among which were their inability to accurately identify risk and to respond realistically to losses.
The annual Fed ‘stress tests’ aim to ensure banks are capable of functioning during periods of “financial stress”.
Of the 31 banks tested, 28 passed although the Wall Street Journal reports that some big banks “struggled”. Bank of America did not pass the test and has been asked to resubmit its plans.
It is unsettling that the two banks that failed the stress test are subsidiaries of European banks that comfortably passed the ECB’s stress test in October. As we pointed out at the time, the ECB test was of questionable value as it didn’t even model in a potential deflation scenario – despite early signs of and risks of deflation.
Within a few short months Europe was experiencing deflation, demonstrating a lack of competence and or foresight at the ECB. The health and viability of Europe’s banking sector would not appear to be as sound as the ECB has suggested to investors, depositors and the public.
Equally troubling, is the fact that Deutsche Bank, who have derivatives exposure of over a whopping €54 trillion – almost nine times the GDP of the entire Eurozone – has serious issues with risk management.
Warren Buffett’s “financial weapons of mass destruction” – how are you?
Should Deutsche Bank or any other similarly exposed European bank suffer substantial losses it could trigger a major derivatives and or solvency crisis – and contagion in the financial system. With sovereigns and central banks having already badly damaged their balance sheets – another Lehman style crisis may be one which no nation or multi-national institution could resolve.
The best case scenario would involve bail-outs and bail-ins. The worst case scenario would involve currency devaluations internationally and a consequent destruction of wealth.
An allocation to physical gold outside of the banking system will protect savers and investors in such a scenario.
Download Protecting Your Savings In The Coming Bail-In Era (11 pages)
Download From Bail-Outs To Bail-Ins: Risks and Ramifications – Includes 60 Safest Banks In World (51 pages)
MARKET UPDATE
Today’s AM fix was USD 1,161.25, EUR 1,094.90 and GBP 774.48 per ounce.
Yesterday’s AM fix was USD 1,158.75, EUR 1,096.06 and GBP 769.42 per ounce.
Gold fell 0.63%percent or $7.30 and closed at $1,154.00 an ounce yesterday, while silver slipped 0.45% or $0.18 to $15.50 an ounce.
In Singapore, bullion for immediate delivery rose initially prior to falling and was marginally lower at $1,160.05 an ounce.
In London, spot gold in late morning trading is $1,160.38 up 0.41 percent. Silver is $15.67, gaining 1 percent while platinum is $1,127.23, climbing 0.48 percent.
Gold rose above the key psychological level of $1,150 this morning after the U.S. dollar gave up some of the recent outsize gains against the euro. Gold’s gain could be attributed to speculators scrambling to cover shorts on the yellow metal and some seeing gold as good value at these levels.
Gold has racked up an 8 day losing streak in dollars and is now showing a loss in dollars of nearly 3 percent for 2015 but gains of 11% in euro terms – see table.
Yesterday’s stock market free fall erased 2015 gains for the S&P 500 and Dow industrials, meaning that stocks too are negative for the year.
The S&P 500 closed 1.7%, lower at 2,044.2, it is biggest one-day percentage decline in nine weeks. Selling on Wall Street was broad based, with all 10 main sectors finishing with losses.
The Dow Jones Industrial Average dropped 1.9%, to 17,662.9, it is worst point drop since Oct 9, 2014.
The Nasdaq Composite ended the day down 1.7%, at 4,859.8, on the 15th anniversary of its all-time high.
Sentiment towards gold is very negative after the recent gains and gold is due a bounce.
Interestingly, according to Amanda Cooper of Thomson Reuters posting in the Global Gold Forum:
“Until yesterday, gold had fallen for 8 days in a row, which is pretty steep going even for the gold market when it gets gloomy. The last time gold fell that many days in a row was March 2009.
A closer look at the chart reveals that gold has only ever fallen by that many days in a row three times since the gold standard was abolished in the 1970s. Since Reuters gold data began in 1968, gold has only fallen for 9 days once, back in August 1973.”
It takes a brave or foolish investor to buy after such falls and will always caution never to “catch a falling knife”. However, an attractive buying opportunity looks set to soon present itself and dollar cost averaging into position remains prudent.
end
The algo trading is asserting its influence on gold/silver trading
with respect to the shorting of yen/shorting gold and the purchasing o the Nikkei:
(courtesy Turd Ferguson/TF Metals)
TF Metals Report: Yen and gold selling trade seems to be on again
Submitted by cpowell on Thu, 2015-03-12 16:16. Section: Daily Dispatches
11:14p ICT Thursday, March 12, 2015
Dear Friend of GATA and Gold:
The high-frequency, algorithmic trade of selling yen and gold together seems to be back in place, the TF Metals Report’s Turd Ferguson writes this week, warning that more smashes are likely ahead for “paper gold.” His commentary is headlined “gird your loins” and it’s posted at the TF Metals Report here:
http://www.tfmetalsreport.com/blog/6680/gird-your-loins
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
end
(courtesy John Hathaway, Doug Groh/the Gold Report)
The Simple Test Tocqueville’s John Hathaway & Doug Groh Use To Determine If Gold Is At A Bottom
The Gold Report
March 12.2015:
In this interview with The Gold Report, Tocqueville Asset Management fund managers Doug Groh and John Hathaway say that though gold investors have been through a nuclear winter, the future looks bright as mining companies bask in the glow of lower costs, better exchange rates and a flurry of mergers and acquisitions.
The Gold Report: Since we last talked in August, have precious metals bullion and mining shares bottomed?
John Hathaway: It looks as if they are trying to make a stand. In early November, we got down to $1,140/ounce ($1,140/oz). Only time will tell for sure.
What we do know is that the industry can’t produce any more gold at these prices or lower prices, so that impacts the supply side of the picture. It certainly meets the test of being a contrarian investment. In our opinion, sentiment is pretty much rock bottom. It has gotten better with this rally, but in the bigger scheme of things, people still scoff at the idea of gold. That is one sign of a bottom.
TGR: What is the range you expect for gold in 2015?
JH: The 200-day moving average right now is $1,244/oz. If gold can break above that, I think it would gather strength and surprise people on the upside. Seeing as how so many people are betting the other direction, I think you’d have a lot of short covering. So $1,400/oz or $1,500/oz wouldn’t surprise me.
TGR: Are you as bullish on silver?
JH: The magic number on silver is $18/oz. The 200-day average on the iShares Silver Trust (SLV), an exchange-traded fund, is roughly $17.29/oz. If silver closes above $18/oz, that will be a strong signal that it has changed its colors. For both gold and silver, the moving average keeps coming down, so it gets easier to surpass it.
TGR: Gold has intermittently run up with the dollar in recent weeks rather than in opposition to it. Is that a new trend?
JH: No. The correlation between the U.S. Dollar Index (DXY), which is the comparative strength of the dollar compared to the euro and the yen, and the gold price is very low. It’s a meaningless relationship over time. From time to time, commentary will refer to one causing a movement in the other, but if we look at the relationship over a long period of time, it really hasn’t mattered.
And if we go back 20 years, the dollar has been weak relative to gold. Gold is up in dollar terms quite substantially.
TGR: You have commented that the Shanghai Gold Exchange may likely provide a challenge to the U.S. dollar as the world’s reserve currency over the next several years. What impact would that have on gold?
JH: The Shanghai Gold Exchange could replace the London Bullion Market Association, the London gold fix. Western market conventions such as the gold fix and the Comex will eventually play second fiddle to price discovery in a place like Shanghai, Singapore or Dubai. That’s where physical gold is being traded. That’s what I meant by that statement.
At the same time, it’s important to pay attention to how many more deals the Chinese are doing in renminbi, their currency. It could be some time before China’s currency replaces the dollar as the leading reserve currency, but it is already starting to crowd out the dollar’s unquestioned status, particularly for trade deals. Many people, particularly in the emerging markets, really don’t like the dollar, and that is encouraging competition for the top spot. It’s not going to happen overnight, but it’s something to watch.
God forbid the dollar ever loses its monopoly on reserve currency status. It would change the world. People would have less of an interest in owning U.S Treasury bonds, for one thing. It may mean that inflation numbers, which have benefitted from the strong dollar, could turn less favorable, which is what all the central banks are trying to do anyway.
TGR: What impact would that transition process have on gold?
JH: The impact on gold is due to a loss of trust in the dollar-reliant system. Jim Grant, publisher of the Interest Rate Observer, said it best: “The price of gold is the inverse of confidence in central banking.” If dollar strength continues relative to other currencies, for a while that’s not a bad thing because competition keeps prices low in U.S. dollars. But ultimately, it’s a destabilizing factor because it’s bad for emerging markets that have borrowed in U.S. dollars.
To the extent that the strong dollar actually becomes a headwind for economic growth in places like Brazil and India, it’s a negative for global growth and it becomes a problem. And it becomes a destabilizing factor for the global economy because it means that the U.S. economy will be challenged by imports and loss of market share because of cheaper European and Asian currencies. Let’s not forget that gold has already risen in every currency except the dollar in the last year and a half.
TGR: What impact will Greece renegotiating its debt or pulling out of the euro have on gold?
JH: What is going on in Europe is very unsettling to those with savings and capital in that part of the world. If Greece pulls out of the euro or if the Eurozone makes huge concessions to Greece, then it would become increasingly difficult to view the euro as a serious currency.
We all saw what happened in Switzerland. The Swiss bank balance sheet just ballooned beyond any sort of reasonable measure. Debt was five times Swiss gross domestic product (GDP), whereas the U.S.’ debt is only 25% of GDP. The Swiss couldn’t just keep printing francs like crazy. So despite promises to the contrary, the Swiss pulled the rug out from the feet of a lot of people who bet on that. It was an important lesson. You can’t take central bankers at their word. No matter what they say, currency manipulation is ultimately something that can’t be sustained. One by one, those tricks will fail, and then we’ll see the real economic consequences of our actions. When that happens, one thing you can own to protect you against massive currency devaluation is gold. It has been proven time and again.
TGR: Is this a good time to buy gold or should people wait and see if it goes even lower?
JH: It seems to be a good time. Gold is already strong in every currency other than the dollar. Negative interest rates in much of the world and the overly strong dollar should eventually result in political pressure to cheapen the dollar, but against what? The only monetary asset left standing will be gold.
TGR: What is the relationship between mining share valuations and commodity prices?
JH: In Australia, Canada and South Africa, countries with currencies that have been weak compared to the dollar, earnings are going through the roof. The industry is actually doing very well because it has lower costs based on currency and oil.
TGR: In the Tocqueville Gold Fund, what is the role of physical metals versus mining shares? It looks as if you’re at about 12% physical gold right now.
JH: We did buy more gold a couple of months ago. It was time to do so. We own maybe 20% more physical ounces than we did a year ago. We don’t expect it to perform as well as the mining shares on the upside, but it’s certainly an element of value in the portfolio. It differentiates us from most of our peers and it makes sense.
On the mining share equity side, Tocqueville invests in companies that add value even when the gold price is going sideways or down. These companies are either discovering more ounces in the ground or in the process of building a cash-producing mine, which is potentially very accretive to shareholders as long as it’s done in a way that doesn’t destroy the balance sheet. That may not translate into a higher share price when the gold price is going sideways or down. But they will be the leaders on the upside when people want to own gold stocks again. Everyone thinks about the industry as a monolith, which is incorrect. There are so many differences between companies and countries, and every situation is different. We own a very select group of companies.
One strategy that has really worked for us is that we’ve been heavily into the royalty stocks. That’s a great business model when the industry has a difficult time raising money. These companies provide capital and do a lot of deals with very favorable terms. Their pipelines are particularly robust now because most mining companies have a hard time advancing projects through the regular sources that the capital markets provide.
The royalty model is very efficient. Instead of holding 10 mines scattered all over the world, royalty companies participate in 70 or 80 mines with none of the management challenges. If a mine or a country has a problem, it’s less significant and moves the needle less than it does for a producer. That’s the notional difference between royalties and typical mining companies. Having said that, there are plenty of companies that are pure miners that we think are very good.
TGR: When we talked last, Doug, you pointed to the upside you enjoyed during a number of mergers. Are you anticipating more mergers and acquisitions (M&A)?
Doug Groh: The gold sector is really ripe for a plethora of M&A activity. In fact, we’ve already seen that this year. Certainly, it’s a market environment where miners are finding it very difficult to operate with limited capital. They can’t access the capital markets as effectively as they did some years ago so mergers become more attractive.
For the same reason, joint ventures will probably also be more common. The industry is recognizing that, in some cases, going it alone is not possible. I’m sure we’re going to see very dynamic transactions across the space as the year progresses.
TGR: How are investors being treated? Are they getting a premium for their patience?
DG: On the announcement date of the transaction, there’s typically a premium from the last traded equity price, anywhere from 20% to 35% or from the 20-day average weighted value approach. That has to come through if the shareholders are going to accept any type of transaction.
What is interesting is that management teams are more willing to have a discussion now than they were some years ago. Now, the market is coming closer together on valuations and there are likely to be more transactions.
TGR: What final insights can you give us on surviving the current market?
DG: I think in this environment, it’s important to recognize that companies have a challenge getting capital to build out their projects. So in assessing a company or its project, it’s very important to consider the capital requirements carefully. Does the company have access to capital or a means to build its projects? What does the balance sheet look like? Does it have cash? Does it have debt? Does it have the ability to raise funds?
Second, the grade and the quality of the asset are always important. But it’s not always just about grade. It can be about recoveries. It can be about the geology. It can be about the difficulty of actually mining. But the asset quality is certainly important.
Finally, I think investors should think about M&A activity and consider that some of these projects may not really have merit in this type of environment, but the company may have merit in its potential to become part of something larger.
TGR: John, what wisdom can you share with our reader/investors?
JH: We have done our research and we believe that over time, investing in gold and gold mining is an investment strategy that makes sense in a world of currency debasement. We’ve been through sort of a nuclear winter the last couple of years, but we outperformed our benchmarks by a wide margin. When the sector comes back in the U.S., contrarian investors will be sitting in a pretty good position competitively.
TGR: You’ve given us lots to think about. Thank you for your time.
********
John Hathaway, senior portfolio manager of Tocqueville Asset Management, manages all gold equity products and strategies at Tocqueville Asset Management. He holds a bachelor’s degree from Harvard University, a Master of Business Administration from the University of Virginia and is a Chartered Financial Analyst. He began his career in 1970 as an equity analyst with Spencer Trask & Co. In 1976, he joined investment advisory firm David J. Greene & Co., where he became a partner. In 1986, Hathaway founded Hudson Capital Advisors and in 1988, he became chief investment officer of Oak Hall Advisors.
Douglas B. Groh is a portfolio manager and senior research analyst at Tocqueville Asset Management and has 30 years of investment experience. Before joining Tocqueville in 2003, he was director of investment research at Grove Capital. While an analyst for JP Morgan and Merrill Lynch, he was recognized by Institutional Investor and The Wall Street Journal. He holds a Master of Art in energy and mineral resources from the University of Texas at Austin and a Bachelor of Science in geology/geophysics from the University of Wisconsin—Madison.
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(courtesy Lawrence Williams/Mineweb)
Very positive on gold but silver the big favourite – Middelkoop
Speaking in London, Willem Middelkoop set out what he feels are the positive attributes for gold and silver going forward.
Lawrence Williams | 12 March 2015 14:29
Speaking at the Global Mining Finance conference in London yesterday, Dutch precious metals fund manager, writer, analyst and former TV business pundit, Willem Middelkoop, painted a more positive picture for precious metals, following a perhaps downbeat presentation on the prospects for most metals – base, precious and ferrous, by Investec’s Jeremy Wrathall. Middelkoop, has always in any case tended to be strong on the bullish elements with regard to precious metals – and focuses his Commodity Discovery Fund accordingly. It is largely invested in gold stocks which are at the discovery and development stages. These are the times in a prospective miner’s life which tend to see value growth and consequently the fund has seen a number of stocks it is invested in having been acquisition targets for bigger miners, which has helped it do better than many other precious metals funds and indices in what has been a dismal market for precious metals stocks. While the fund is broad based in terms of the companies in which it invests, around 60% is in discovery stage gold development companies and 24% in silver stocks, with the balance in other metals and minerals and despite the poor performance of precious metals over the past three years the fund has continued to see investor growth.
While Middelkoop is very positive on gold for many of the same reasons as are gold bulls everywhere – 90% of world seeing zero interest rates, the largest bond bubble in history, massive global debt etc. – he does draw strongly on Chinese policy, and statements from various Chinese bankers and officials over the past few years to help make his case given China’s huge relevance to gold supply and demand. From these statements he gleans that China has a policy to build its reserves of gold, both directly through so-far under the radar purchases by the Central Bank (or perhaps by other government bodies under whose auspices it can store the gold without feeling it has to report it to the IMF) and also by persuading its citizens to buy the precious metals and thereby build up total Chinese gold volumes.
Talking to Mineweb after his presentation, Middelkoop predicted that China will likely make an announcement on an increase in its gold reserves some time this year at substantially more than the 1,054 tonnes it currently claims to hold – but even then no-one will really know if that is a true statement of its central bank holdings or not. He sees China, Russia and some other like-thinking nations targeting a de-Americanised world and we are already seeing considerable evidence of this in the beginnings of the internationalisation of the yuan as a trading currency and also in the setting up of alternatives to the SWIFT global financial interbank trading network.
Middelkoop also says he likes drawing on statements from former central bankers like Alan Greenspan who, he says can now tell the truth! Greenspan has made some remarkably positive statements on gold in recent months including that ‘gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments’, noted Middelkoop.
But although he feels that gold has to be an excellent investment at current price levels and has to move sharply higher in the medium to long term, Middelkoop sees silver as probably being an even better investment in terms of growth potential in US dollar terms. New mined silver production, he avers, is substantially below demand, while over the years above ground stocks have been run down, and unlike gold there are no huge central bank holdings which can be drawn on to hold the price down.
The only real surface silver stocks nowadays are held in the silver ETFs and although these can be a little volatile, much of these remains in strong hands and he feels these overlying volumes will not counter what he sees, perhaps controversially, as the overall supply deficit now prevailing. With its comparatively strong industrial demand – a demand which is seen as growing along with the electronics and solar power sectors – supply/demand fundamentals are probably more relevant to silver than to gold where so much more depends on investment sentiment and perception. Middelkoop feels that these silver fundamentals will lead to a supply crunch sooner rather than later as, like gold, silver too is flowing East in massive quantities – and he said as an aside that he has taken bets that silver will be over $100 an ounce by 2020. Silver investors will be hoping he is correct.
Every day I feel so grateful for my life. In South Africa it’s hard not to be. We often lose sight though, of what’s really important. Reading this reminds me that there isn’t a need to feel pressured into creating a surrounding that is filled by material things, my life is a sheer privilege and I am so thankful for it. Thank you to those who share what they have been blessed with, for sharing their ‘wealth’ with others who have not been so lucky.
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Bill Holter discusses the huge dollar short position. The huge rise in the dollar index has caused massive problems for our shorts. He explains that the rapid rise has no doubt caused some dead bodies to surface.
I would like you to contrast Bill’s commentary with that of Raul Meijer (near the bottom of my commentary)
a must read..
(courtesy Bill Holter)
Too many dollars and yet not enough …at the same time?
We have watched, even marveled at how the U.S. dollar has strengthened since last September. All sorts of theories have been put forth as to “why”. Some have proffered the dollar is the cleanest dirty shirt of the bunch. Others believe the interest rate differential is kicking in where dollars at least have a positive interest rate versus negative rates elsewhere. Another theory and one which I have written about in the past and believe to be the main reason for dollar strength is the “margin call” aspect. In other words, the “carry trade” which was used to leverage all sorts of trades is unwinding and dollars are needed to pay back the loans. A synthetic dollar short being covered in other words.
Looking back to my writing yesterday regarding the impossibility in my mind of the Fed actually raising rates, the strong dollar also supports this argument. If the Fed were to raise rates, wouldn’t this exacerbate an already immense currency cross problem with (for) the rest of the world? Wouldn’t higher U.S. rates explode the dollar higher (short term) versus foreign currencies? The answer of course is yes, but with a stronger dollar comes other obvious problems.
The two biggest problems are A. we still have a trade deficit of close to $500 billion per year, a stronger dollar will only exacerbate this AND destroy what little manufacturing we have left. And B. the very problems we just saw with a soaring Swiss franc will be seen in many multiples throughout the dollar lending market. I might add, as the dollar moves higher and foreign currencies drop, more and much stronger inflation gets exported to foreign soil. High and rising inflation and its effects on living standards and the human psyche will create massive unrest across Europe and elsewhere.
This last point is an important one, foreigners who have borrowed in dollars have already seen their “loan balance” expand because the dollars cost more to pay back. Higher U.S. interest rates will only make matters worse. The strong dollar has had the effect of slowing the global economy as companies (and individuals) are cutting back (employment and consumption) to make ends meet.
The above is only half of the equation, the other half is described by Alan Greenspan himself. I personally watched Mr. Greenspan speak in New Orleans last October. He used the word “tinder” http://www.zerohedge.com/news/2015-03-09/alan-greenspan-warns-explosive-inflation-tinderbox-looking-spark for a coming inflation several times and spoke of the money supply and reserves of dollars that have been created and parked away on bank balance sheets. I could only think back to the Texas wildfire as he spoke of “tinder”. The amount of dollars created is like some nutcase piling dry leaves, branches and dead trees in a huge pile, then pouring gasoline on it …and thinking to himself, “this will keep me warm in winter”. In other words, the “fuel” is there and has already been created for a bonfire of inflation and the financial system blowing up on itself. But don’t worry, it will never catch fire?
Tying these two phenomena together, not enough dollars, yet too many, here is the likely scenario I can see unfolding. The stronger dollar is putting pressure on the financial system all over the world, something (someone), somewhere is going to “fail”. Our financial system is so interconnected and over levered, it will only take one strategic institution’s failure to break the derivatives daisy chain. Let’s call this the “spark”. This spark causes further failures which I am convinced will circle the globe in less than two days. The forest (economy and financial system) is very dry (weak, fragile), any spark (failure) will create an out of control forest fire which will not be put out until all the fuel is burned and blackened.
Please remember this, the dollar (and Treasuries) are now “backed” by the full faith and credit of the United States. This was not the case back in the 1930’s, dollars were backed by gold. The Treasury did not have enough gold to back all of the dollars but for a very large percentage of those outstanding. This is not even close to the case today. It remains to be seen if there is any gold at all left but, assuming the gold is left untouched, gold would need to be priced at $100,000+ per ounce to cover our debt and money supply. I bring this up because “gold will still be gold” no matter what happens financially. Hold this thought, it ties in with the final logic.
The stronger dollar is beginning to cause stress both financially and economically. It is not “official” yet but even with bogus reporting, the West is already in recession while the East is markedly slowing down. This brings up a few questions. With a slowing or declining economy, will the Treasury have the tax revenues to pay total interest and support all of the other largesse? Of course not, we will just borrow whatever is necessary to keep going on down the road. What about higher interest rates, will this exacerbate the problem? Of course. Tax revenues will drop, “benefits” or spending will rise as will the deficit…and now the federal debt is almost double what it was last time around in 2008. Do you see where this leads? Is the “issuer” of dollars stronger, or weaker than it was in 2008? It’s OK, you can admit it. Weaker. In this scenario where a higher dollar (the spark) puts so much pressure on financial counterparties who are short the dollar, what will be the Feds reaction to derivatives or other sovereign currency crises? Does the Fed have to quintuple their balance sheet again? Or the federal debt double again? Or will another secret $16 trillion or a multiple thereof be lent out all over the world by necessity?
Looking at this in the real world, there have already been many markets thrown into upheaval. The two most important being the FOREX crosses and the oil market. Oil without a doubt is the largest and most all encompassing market on the planet with the exception of dollars themselves. Oil has crashed well over 50% in less than 6 months, dollars have risen 25% over this time frame. Do you think that these percentages when applied to $10’s of trillions might add up to a tad more than a tidy sum? Remember, derivatives is a zero sum game so anything “won” is also “lost”. I believe the spark has already created a fire behind the scenes and some have already been consumed and are dead, but hidden. Can I know this for sure? No, but common sense and the amounts involved tell me this is 100% dead on! And there you have it folks, there are too may dollars outstanding …which were created by too much borrowing of dollars … This pushed asset values higher until the world reached debt saturation and led to assets being sold to pay back the debt, asset prices dropped which is causing a global margin call…this synthetic short has created dollar demand to pay these dollars back. In essence creating a dollar shortage. Are you still with me after that long and horrible string of sentences? If you are, then here we are …facing the global margin call which can ONLY be met by central banks printing more dollars, euros, yen etc. because liquidity is again drying up. The alternative of course is to let the margin call run its course and take all banks, brokers and insurance companies down. Oh yes, don’t forget the sovereign treasuries and central banks themselves. It is the solvency of these institution that will ultimately be challenged.
And no, I didn’t forget I told you to “hold that thought” for the end. What I have described to you is the world running around and fetching as much wood and pouring as much gasoline on the pile as possible. The thought is this, without a spark this is harmless right? Without going into static electricity, spontaneous combustion, a “gun” or even a BIC lighter for that matter, is it even sane? Gold and silver do not and will not burn. Whether it be a wildfire, a derivatives core meltdown, or even a central bank (like the Fed) or a sovereign treasury going upside down, gold will remain money and remain the benchmark against which currencies are measured. Fiat currencies by definition are “terminal” at their inception. The “deflation/inflation” debate is a moot point unless argued in terms of real money. Regards, Bill Holter
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And now for the important paper stories for today:
Early Thursday morning trading from Europe/Asia
1. Stocks generally higher on major Chinese bourses/yen falls to 121.06
1b Chinese yuan vs USA dollar/yuan strengthens to 6.2612
2 Nikkei up 267.59 or 1.43%
3. Europe stocks mostly down/USA dollar index down to 98.99?Euro rises to 1.0623
3b Japane 10 year bond yield .40% (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 121.06/
3c Nikkei still above 17,000
3d USA/Yen rate now above 121 barrier this morning
3e WTI 48.60 Brent 58.33
3f Gold up/Yen slightly up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
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.
3h Oil up for both WTI and Brent this morning.
3i European bond buying continues to push yields lower on all fronts in the EMU
Except Greece which sees its 2 year rate rise to almost 18%/Greek stocks down .67% today/expect continual bank runs on Greek banks.
3j Greek 10 year bond yield: 10.88% (up 18 basis points in yield)
3k Gold at 1160.00 dollars/silver $15.66
3l USA vs Russian rouble; (Russian rouble up 5/8 rouble/dollar in value) 60.60
3m oil into the 48 dollar handle for WTI and 58 handle for Brent
3n Higher foreign deposits out of China sees hugh risk of outflows and a currency depreciation. This scan spell financial disaster for the rest of the world/China may be forced to do QE!!
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF
3p Britain’s serious fraud squad investigating the Bank of England
3r 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.
3s We now have our 24th nation lowering interest rates as we now have a global margin call on all USA borrowings. (see below)
4. USA 10 year treasury bond at 2.07% early this morning. Thirty year rate well below 3% at 2.66/yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
FX Volatility Spikes As More Countries Enter Currency Wars; Euro Surges On Furious Squeeze After Touching 1.04
The global currency wars are getting ever more violent, following yesterday’s unexpected entry of Thailand andSouth Korea, whose central banks were #23 and #24 to ease monetary conditions in 2015, confirming the threat of a global USD margin call is clear and present (see “The Global Dollar Funding Shortage Is Back With A Vengeance And “This Time It’s Different“). But the one currency everyone continues to watch is the Euro, which the closer it gets to parity with the USD, the more volatile it becomes, and moments after touching a 1.04-handle coupled with the DXY rising above 100 for the first time in 12 years, the EURUSD saw a huge short squeeze which sent it nearly 150 pips higher to 1.0643, before the selling resumed.
Indeed, FX markets have been the main source of focus so far with once again the USD-index being the main source of price action. Overnight, the USD posted a fresh 12yr high after briefly breaking above the key 100.00 level, sending EUR/USD below 1.0500 for the first time since Jan’03. However, heading into the European open and a failed sustain