Latest news in the metals market: China keeps importing gold, former Fed chairman proposes a gold standard system to reduce US debt and much more.
Look who gets it/Business Insider-Akin Oyedele:
Former Federal Reserve Chairman Alan Greenspan has again defended the gold standard monetary system that the US dropped in the 1930s. The gold standard pegged the value of the dollar to the precious metal at $35 an ounce, and the US central bank promised other central banks to exchange dollars for gold. Last July, after the UK voted to leave the European Union, Greenspan warned of a forthcoming debt crisis that would be averted if the US was on the gold standard. Proponents of the gold standard argue that it would help limit the amount of debt that governments can issue, as there’s a finite amount of gold that exists in the world.
President Donald Trump’s infrastructure spending plans, coupled with lower revenues from taxes, could drive up the already-ballooning US government debt. In an interview with the World Gold Council, Greenspan said the gold standard would avoid this. “I view gold as the primary global currency,” Greenspan said in the February edition of Gold Investor.
Friday’s Trivia:
The beautiful patina on our lovely lady Liberty is brought about by the use of copper in her covering. So, the trivia question for Friday is: Just how many pounds of copper were used in the Statue of Liberty?
GLD Trade/Luzi-Ann Javier:
Billionaire hedge-fund manager John Paulson trimmed his holding in the world’s biggest exchange-traded product backed by gold in the fourth quarter when prices posted their worst quarterly loss since 2013.
At the end of December, Paulson & Co. owned 4.36 million shares of SPDR Gold Shares, a U.S. government filing showed. That compares with 4.8 million shares in the three months through September, when the firm kept its holdings unchanged from the prior quarter.
Paulson pared his holding as investors pulled $4.7 billion from SPDR Gold in the fourth quarter, the biggest redemption since June 2013. Billionaire investor Stanley Druckenmiller was among those hitting the exit, selling all his gold in November in a bet on stronger economic growth and rising rates, only to return to the metal in late December and January.
China gold demand much greater than major analysts tell us/Lawrie Williams:
Once again, we are indebted to Koos Jansen for crunching the numbers on China’s gold imports in 2016. He has added together direct imports to mainland China from the following nations/areas which publish detailed export statistics – namely Hong Kong (771 tonnes), Switzerland (442 tonnes), Australia (53 tonnes up until September – October to December figures not yet available) and the UK (only 15 tonnes, although most UK gold exports to China now seem to be being routed via Switzerland where the refiners take good delivery gold bars from the UK and re-refine them to the sizes and purities demanded in the East).
Jansen sees little more going directly into mainland China from other sources and allowing for around 20 tons going in from Australia for the final quarter of the year comes up with a grand total of Chinese gold imports at approximately 1,300 tons. Add to that China’s own gold output, estimated at 453 tons and there will also have been a scrap gold element to be taken into account. This suggests that China ‘consumed’ around 2,000 tons of gold in 2016, which equates quite closely to the Shanghai Gold Exchange (SGE) gold withdrawals figure for the year of 1,970 tons – (See: 2016 SGE gold withdrawals lowest for four years). This would seem to confirm Jansen’s oft-made assertion that SGE gold withdrawals are equivalent to total Chinese gold demand – a premise largely dismissed (perhaps without adequate reason) by the major gold consultancies which virtually all put Chinese demand at less than 1,000 tons.
Canada’s Barrick Gold/Mining.com:
(TSX, NYSE: ABX), the world’s largest miner of the precious metal, has chosen to remain focused on cash flow generation rather than growth.
The miner is focusing on projects with the potential to add as much as 1.1 million ounces of gold to its total output beyond 2021. While the Toronto-based company revealed Wednesday, it plans to boost annual output this year, it said such increase would be minimal — 5.6 million to 5.9 million ounces of gold, compared to the 5.52 million ounces it mined in 2016. I also said it’d maintain levels of at least 4.5 million through 2021, though that threshold is subject to potential divestments. For now, Barrick is focused on those projects that have the potential to add as much as 1.1 million ounces of gold to its total output beyond 2021, even if production at some of its operations begins to dwindle.
Physical silver shortage & short squeeze will trigger a huge rush for delivery on Comex/James Cook:
In silver, the Comex core long position of 400 million ounces is more than 25% of all the silver bullion in the world and nearly 50% of the visible portion of that total. And with no more than 100 million ounces of new silver available from mine production each year (after total fabrication demand is accounted for), how the heck could you draw 400 million ounces from that? I know how futures markets are supposed to work and the numbers in silver say it can’t possibly work. Not enough actual silver exists to satisfy and back up the core long position in COMEX silver futures. It’s not even close.
“So, if there doesn’t exist the amounts of silver in the world to back the contracts held by the core long holders in COMEX futures, then what exactly is backing those contracts? The answer is 8 large short traders on the COMEX. That’s because CFTC data show in the last COT report that 8 large traders held 93,283 net contracts short, the equivalent of just over 465 million ounces. None of the 8 short traders are a mining company, although one of the short traders, JPMorgan, is protected against the loss of rising prices by virtue of its 550 million ounces’ actual silver holding. Without JPM, only 7 large traders, holding around 70,000 contracts short are backing up the core long position.
“It’s easy to see why there would be a large core long position in COMEX silver, given the low price and the lure of leverage and giant potential profits. But flip the equation around and try to come up with a legitimate reason for why anyone would want to hold a short position in silver at the same low price and with all the obvious risk factors attached? The only answer is that they think they can manipulate the price lower. However, they may well have trapped themselves. Bear in mind that when all participants in the futures markets are added up, the total short position is 750 million to 800 million ounces. No other commodity has the stark configuration of silver.
Copper:
Remember in the last newsletter the amount of copper used in a home? This is why these numbers are so important to those of us that work with copper. The Commerce Department’s latest report showed that U.S. housing starts rose 1.6% into a seasonally adjusted annual rate of 1.25 million units in January. Consensus forecasts compiled by most news organizations called for starts to be around 1.23 million. The December tally was revised up 4% to 1.28 million from the previously reported 1.23 million. Meanwhile, the Commerce Department said the tally of building permits – important as an indicator of future construction activity – rose by 6.6% into an annualized rate of 1.29 million. This is the fastest pace since November 2015.
Luzi-Ann Javier:
The year-old commodities boom is drawing the attention of some pension and mutual funds that got burned when the last rally fizzled more than five years ago, they want back in. Big investors are motivated by signs the world has finally escaped from the decade of limp economic growth and inflation that followed the global financial crisis more than eight years ago. Raw materials have surged, with oil prices doubling from their lows and zinc up about 90 percent, providing evidence for some that the rally will last longer than gains reversed in 2011. “People are starting to get confident that this rally is real,” said Ben Ross, a New York-based co-portfolio manager of commodity strategy at Cohen & Steers Capital Management, which oversees $56.5 billion. “Most commodities that we cover have bottomed from a price and from an oversupply situation.”
Pete’s Corner:
The Tornado Bullion Hedging System just launched its latest upgrade at the Long Beach show. The Tornado Bullion Hedging System was created in 2004 by Co-Founders Tom Garland and Peter Thomas to offer online precious metals trading and hedging for the wholesale bullion bar and bullion coin market. Over the past decade, volatility has increased in the precious metals market. We saw the need in our own business to hedge the natural price risk associated with it. No longer can a business survive with metal already purchased just sitting in the vault on a 24-hour basis. Businesses must be able to predict the profit margins of products on a daily, and even hourly, basis. We are all in the business to sell precious metals – not to speculate.
I listened to a former floor broker from the old days. He shared a rumor that a huge fund has been short the S&P’s for some time now. Later on “Chicago Bill” confirmed this rumor as he too was hearing the same thing from a different source. He said a Fund was short a monstrous position in the S&P’s and they are doing the Mississippi two-step on their house position. Sell one high buy back two on a dip and dollar cost average your net position higher by trading out of a loss. The numbers are huge and I think everyone whomever it is that’s caught in the Bear Trap will soon be found out. The loss is in the billions and if this rally continues it will ding their personal finances heavily. If we see them buy calls to net the in-house position it will signal the death knell and this trader’s influence will be gone from the market for a long time. Later in the same day, CNBC claimed to also have un-named sources about a fund buying 10 billion in notional value of S&P call options.
A new fund could be lighting up in investor portfolios soon/MarketWatch:
In what would be a first for the exchange-traded fund industry, a marijuana-based ETF could soon begin trading. The ETF Managers Trust on Thursday filed paperwork with regulators, referring to the fund as Emerging AgroSphere ETF.
The fund wouldn’t track marijuana as a commodity, but instead, invest in medical marijuana companies involved in the production or sale of products derived from hemp. It would also buy companies which are in the supply chain of either of those categories.
There are some caveats:
“The Fund will not invest in any companies that are focused on serving the non-medical marijuana market in the United States, Canada or any other country unless and until such time as the production and sale of non-medical marijuana becomes legal in the United States, Canada or such other country, respectively,” the firm wrote in its filing with the Securities and Exchange Commission.
While the fund has yet to be approved, the push toward legalizing marijuana has been growing. In 2016, roughly 60% of Americans said they favored the legalization of recreational marijuana, as the industry gained support in invalidating the war on drugs and seven states voted to legalize pot for recreational or medical use.
Friday Trivia Answer:
The Statue of Liberty is made from 179,000 pounds of copper.
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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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