Gold $1314.30 down $7.40
Silver 19.14 up 3 cents
In the access market 5:15 pm
Gold: 1316.00
Silver: 19.17
THE DAILY GOLD FIX REPORT FROM SHANGHAI AND LONDON
.
The Shanghai fix is at 10:15 pm est and 2:15 am est
The fix for London is at 5:30 am est (first fix) and 10 am est (second fix)
Thus Shanghai’s second fix corresponds to 195 minutes before London’s first fix.
And now the fix recordings:
Shanghai morning fix Sept 30 (10:15 pm est last night): $ 1327.19
NY ACCESS PRICE: $1324.20 (AT THE EXACT SAME TIME)
Shanghai afternoon fix: 2: 15 am est (second fix/early morning):$ 1327.50
NY ACCESS PRICE: 1324.20 (AT THE EXACT SAME TIME)
HUGE SPREAD TODAY!!
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
London Fix: Sept 30: 5:30 am est: $1327.90 (NY: same time: $1326.90: 5:30AM)
London Second fix Sept 16: 10 am est: $1322.50 (NY same time: $1323.00 , 10 AM)
It seems that Shanghai pricing is higher than the other two , (NY and London). The spread has been occurring on a regular basis and thus I expect to see arbitrage happening as investors buy the lower priced NY gold and sell to China at the higher price. This should drain the comex.
Also why would mining companies hand in their gold to the comex and receive constantly lower prices. They would be open to lawsuits if they knowingly continue to supply the comex despite the fact that they could be receiving higher prices in Shanghai.
end
For comex gold:The front September contract month we had 30 notices filed for 3000 oz
the total number of notices filed for the month: 2706 for 270600 oz (8.4167 tonnes)
and that should complete September
For silver: the front month of September we have a total of 0 notices filed for nil oz
September is now complete.
for the Oct contract month: 5 notices for 25,000 oz.
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Let us have a look at the data for today
.
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In silver, the total open interest ROSE by 378 contracts UP to 200,854. The open interest ROSE as the silver price was UP 8 cents in yesterday’s trading .In ounces, the OI is still represented by just MORE THAN 1 BILLION oz i.e. 1.0004 BILLION TO BE EXACT or 144% of annual global silver production (ex Russia &ex China).
In silver for October we had 5 notices served upon for 25,000 oz
In gold, the total comex gold FELL by 8,647 contracts despite the fact that the price of gold rose by $2.30 YESTERDAY . The total gold OI stands at 565,759 contracts. The bankers have done a great job fleecing longs and as usual the entire gold comex OI obliterates as we enter first day notice.
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With respect to our two criminal funds, the GLD and the SLV:
GLD
LAST NIGHT WE HAD NO CHANGES OUT OF THE GLD//
Total gold inventory rests tonight at: 949.14 tonnes of gold
SLV
we had no changes at the SLV
THE SLV Inventory rests at: 362.909 million oz
.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver ROSE by 378 contracts UP to 200,854 as the price of silver rose by 8 cents with yesterday’s trading.The gold open interest FELL by 8,647 contracts DOWN to 565,759 as the price of gold rose $2.30 IN YESTERDAY’S TRADING.
(report Harvey).
2.a) The Shanghai and London gold fix report
(Harvey)
2 b) Gold/silver trading overnight Europe, Goldcore
(Mark O’Byrne/zerohedge
and in NY: Bloomberg
end
3. ASIAN AFFAIRS
i)Late THURSDAY night/FRIDAY morning: Shanghai closed UP 10.63 POINTS OR .30%/ /Hang Sang closed UP 119.82 POINTS OR 0.51%. The Nikkei closed UP 228.31 POINTS OR 1.39% Australia’s all ordinaires CLOSED UP 1.09% /Chinese yuan (ONSHORE) closed UP at 6.6672/Oil FELL to 46.91 dollars per barrel for WTI and 48.27 for Brent. Stocks in Europe: ALL IN THE GREEN Offshore yuan trades 6.6771 yuan to the dollar vs 6.6672 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS A BIT AS MORE USA DOLLARS ATTEMPT TO LEAVE CHINA’S SHORES
REPORT ON JAPAN SOUTH KOREA NORTH KOREA AND CHINA
3a)Korea:
none
b) REPORT ON JAPAN
none today
c) REPORT ON CHINA
In reality China has more than double the amount of oil in its SPR: 700 million barrels and thus they can really dictate the price by basically stop buying or if the price rises, they can sell excesses
( zero hedge)
4 EUROPEAN AFFAIRS
i)Germany: Deutsche bank
We can boil down how much liquidity DB has into two sections:
a) it’s retail brokerage accounts at 71 billion euros
b) its depositors at 550 billion euros.
Total liquidity available today is around 215 billion euros. If the depositors flee the game is over!
( zero hedge)
ii)Deutsche bank total liquidity is now down to 215 billion euros from June’s 225 billion euros. However the depositor base is the key worry at 550 billion. If they run, the game is over:
( zero hedge)
iii)This morning DB’s yield curve inverts as many counterparties to DB seek protection through credit default swaps etc. We are also witnessing many counterparties removing excess liquidity from bank accounts.
Ladies and Gentlemen: this is important@! DB may not have a solvency issue but it certainly has a liquidity problem.
( zero hedge)
iv a.)The rumour this morning was that there is going to be a settlement with respect to the criminal activity of Deutsche bank in the mortgage scandal. The fine is a lot less than the 14 billion USA desired.
I would like to point out to you that the fine is a minor problem for DB. The major issue is not a solvency one but that of liquidity
( zero hedge)
iv b)In an obvious move to slow down depositors/counterparties leaving DB, the French Press confirms a supposed 5.4 billion USA settlement. The market is acting as if this is the major problem for DB, measly 5 billion dollars. The real problem is a total lack of liquidity
( zero hedge)
v)The Netherlands: ING BANK
Just after Germany’s second largest bank confirmed the restructuring and that it would layoff nearly 10,000 employees or 20% of its workforce, ING announced that thousands of job cuts was in store for Monday:
(courtesy Het Financieele Daglad/Holland/zero hedge)
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
6.GLOBAL ISSUES
none today
7.OIL ISSUES
Rig count rises which must increase uSA oil production;
( zero hedge)
8.EMERGING MARKETS
none today
9.PHYSICAL STORIES
i)Russia is on tap to buy another 200 tonnes of gold this year.
( Sputnik/GATA)
ii)Yellen for the first time states that the Fed could buy stocks only if Congress authorizes it:
( ETF daily news/GATA)
iii)Alasdair Macleod’s important paper today where he discusses how the fall of the American empire will cause a great rush into gold:
( Alasdair Macleod)
iv)The following is discussed today on various commentaries in my report tonight and is extremely important: DB clients are reducing collateral with the bank due to counterparty risks:
( Bloomberg/GATA)
v) trading in gold and silver early this morning spiking on news of problems with DB
(zero hedge)
vi)Private holders of military bunkers in Switzerland are using these facilities to store gold. And because they are private and not banks, these guys do not have to declare to USA authorities the gold they store.
I expect a stampede over there shortly!
(courtesy zero hedge)
vii) We have highlighted the story to you already this month but it is worth repeating. It is obvious that the importing of Swiss gold into the USA is to cover holes in those guys which want delivery of their gold.(courtesy Nathan Macdonald/Sprott Money)
10.USA STORIES WHICH MAY INFLUENCE THE PRICE OF GOLD/SILVER
i)Trading early morning 9:30 am est: dollar shortage intensifies coupled with huge funding pressure!
( zero hedge)
ii)USA spending is a big part of GDP. August spending is a big disappointment as the savings rate rises for the 2nd month in a row. The consumer is:
a) tapped out
b) worried especially on witnessing problems over at Deutsche bank
(courtesy zero hedge)
iii)The national Chicago Fed report shows the USA appears to have picked up a little at the end of the 3rd quarter with reading of 54.2 on expectations of 52.0. However the all important employment sector falters;
(National Chicago Fed report/zero hedge)
iv)The Atlanta Fed lowers its Q3 estimate of GDP from 2.9% down to 2.4%. The culprit; dismal consumer spending
( Atlanta Fed/zerohedge)
v)Today, it is Illinois’ turn to suspend billions of dollars of investment activity with Well Fargo.These guys are being bled to death by 1,000 cuts
( zero hedge)
Let us head over to the comex:
The total gold comex open interest FELL BY AN HUGE 8,647 CONTRACTS to an OI level of 565,759 despite the fact that the price of gold rose by $2.30 with YESTERDAY’S trading.
The contract month of Sept is now off the board. The next delivery month is October and here the OI lost 2311 contracts DOWN to 7393. This is huge for October as 22.99 tonnes is standing for physical metal. This compares to last years 9.66 tonnes.
The next delivery month is November and here the OI fell by 40 contracts down to 2252 contracts. The next contract month and the biggest of the year is December and here this month showed an decrease of 6,399 contracts down to 440,956. The estimated volume today at the comex: 97,138 which is EXTREMELY WEAK. Confirmed volume yesterday: 169,315 which is good.
Today we had 2470 notices filed for 247,000 oz of gold.(7.68 tonnes)
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And now for the wild silver comex results. Total silver OI ROSE BY 378 contracts from 200,476 UP TO 200,854 as the price of silver ROSE to the tune of 8 cents yesterday. We are moving CLOSER TO the all time record high for silver open interest set on Wednesday August 3: (224,540). The September contract month is now off the board. The next non active delivery month is October and here the OI fell by 37 contracts down to 437. The November contract month saw its OI rise by 6 contracts up to 395. The next major delivery month is December and here it FELL BY 287 contracts DOWN to 171,065. The ESTIMATED volume on the comex today (just comex) came in at 38,835 which is FAIR. The confirmed volume yesterday (comex and globex) was huge at 58,219 . Silver is not in backwardation. London is in backwardation for several months.
today we had 5 notices filed for silver: 25,000 oz
INITIAL standings for OCTOBER
SEPT 30.
Gold
Ounces
Withdrawals from Dealers Inventory in oz
NIL
Withdrawals from Customer Inventory in oz nil
96.45 oz
3 kilobars
Manfra
Deposits to the Dealer Inventory in oz
nil oz
Deposits to the Customer Inventory, in oz
34,034.596 oz
Manfra
Scotia
incl 20 kilobars
No of oz served (contracts) today
2470 notices
247000 oz
No of oz to be served (notices)
4923 contracts
492,300
oz
Total monthly oz gold served (contracts) so far this month
2470 contracts
247,000 oz
7.6827 tonnes
Total accumulative withdrawals of gold from the Dealers inventory this month
oz
Total accumulative withdrawal of gold from the Customer inventory this month
96.45 oz
Today; very good activity at the gold comex and 2 kilobar entries
We had 0 dealer deposit:
Total dealer deposits; nil oz
We had 0 dealer withdrawals:
total dealer withdrawals; NIL oz
we had 2 customer deposit:
i) Into Manfra: 643.000 oz 5 kilobars
ii) Into Scotia: 33,391.596 oz
Total customer deposits: 34,034.596 oz.
We had 1 customer withdrawals:
i) Out of Manfra: 96.45 oz
total customer withdrawals: 96.45 oz
Today we had 1 adjustments:
i) Out of Scotia: a massive 204,951.63 oz of gold was transferred out of the customer and this landed into the dealer account of Scotia:
Note:
If anybody is holding any gold at the comex, you must be out of your mind!!!
since comex gold storage is unallocated , rest assured any gold stored at the comex will be compromised!
I also urge all of you do not place any option trades at the comex as these gangsters will gun you down.
If you are taking delivery of gold/silver please remove it from comex banks and place it in private vaults
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For September we had 30 notices filed for 3000 oz. The total number of notices filed for the entire month: 2706 for 270600 oz. Thus the final standing for gold in September is 270600 oz or 8.4167 tonnes
For October:
Today, 0 notices were issued from JPMorgan dealer account and 0 notices were issued form their client or customer account. The total of all issuance by all participants equates to 2470 contract of which 0 notices were stopped (received) by jPMorgan dealer and 0 notice(s) was (were) stopped (received) by jPMorgan customer account.
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To calculate the initial total number of gold ounces standing for the Oct contract month, we take the total number of notices filed so far for the month (2470) x 100 oz or 247,000 oz, to which we add the difference between the open interest for the front month of OCT (7393 contracts) minus the number of notices served upon today (2470) x 100 oz per contract equals 739,300 oz, the number of ounces standing in this NON active month of September.
Thus the INITIAL standings for gold for the SEPT contract month:
No of notices served so far (2470) x 100 oz or ounces + {OI for the front month (7393) minus the number of notices served upon today (2470) x 100 oz which equals 739300 oz standing in this non active delivery month of Oct (22.99 tonnes).
Total dealer inventor 2,311,300.256 or 71.89 tonnes
Total gold inventory (dealer and customer) =10,572,568.400 or 328.85 tonnes
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 328.85 tonnes for a gain of 26 tonnes over that period. However since August 8 we have lost 25 tonnes leaving the comex.(corrected total from yesterday and today)
Ladies and Gentlemen: the comex is beginning to lose some of its gold as no doubt the Shanghai fix is having its effect.
The gold comex is an absolute fraud. The use of kilobars and exact weights makes the data totally absurd and fraudulent! To me, the only thing that makes sense is the fact that “kilobars: are entries of hypothecated gold sent to other jurisdictions so that they will not be short with their underwritten derivatives in that jurisdiction. This would be similar to the rehypothecated gold used by Jon Corzine. ALSO TODAY THE LIQUIDATION OF 96 CONTRACTS HAVING STOOD FOR THE ENTIRE MONTH AND THEN ROLLING MAKES ABSOLUTELY NO SENSE
IN THE LAST MONTH and one half , 25 NET TONNES HAS LEFT THE COMEX.
end
And now for silver
OCT INITIAL standings
SEPT30. 2016
Silver
Ounces
Withdrawals from Dealers Inventory
NIL
Withdrawals from Customer Inventory
420,010.27 oz
CNT,Scotia
CNT, Scotia
Deposits to the Dealer Inventory
nil OZ
Deposits to the Customer Inventory
594,448.400 oz
Brinks
No of oz served today (contracts)
5 CONTRACTS
(25,000 OZ)
No of oz to be served (notices)
432 contracts
(2,160,000 oz)
Total monthly oz silver served (contracts)
5 contracts (25,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
NIL oz
Total accumulative withdrawal of silver from the Customer inventory this month
420,010.27 oz
today, we had 0 deposit into the dealer account:
total dealer deposit: nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: NIL oz
we had 2 customer withdrawals:
i) Out of CNT: 420,010.27 oz
ii) Out of Scotia; 60,033.500 oz
Total customer withdrawals: 420,010.27 oz
We had 1 customer deposit:
i) Into Brinks; 594,448.400 oz
total customer deposits: 594,448.400 oz
we had 2 adjustments and all probable settlements;
i) Out of Brinks: 429,862.800 oz was adjusted out of the dealer and this entered the customer account of Brinks
ii) Out of CNT: 369,321.11 oz was adjusted out of the customer account and this landed into the dealer account of CNT
The total number of notices filed today for the Oct contract month is represented by 5 contracts for 25,000 oz. To calculate the number of silver ounces that will stand for delivery in OCT., we take the total number of notices filed for the month so far at (5) x 5,000 oz = 25,000 oz to which we add the difference between the open interest for the front month of OCT (437) and the number of notices served upon today (5) x 5000 oz equals the number of ounces standing
Thus the initial standings for silver for the OCT contract month: 5(notices served so far)x 5000 oz +(437 OI for front month of SEPT ) -number of notices served upon today (5)x 5000 oz equals 2,185,000 oz of silver standing for the OCT contract month. THIS IS ALSO A HUGE SHOWING FOR SILVER AS OCTOBER IS A VERY WEAK DELIVERY MONTH.
Total dealer silver: 30.362 million (close to record low inventory
Total number of dealer and customer silver: 173.321 million oz
The total open interest on silver is NOW close to its all time high with the record of 224,540 being set AUGUST 3.2016. The registered silver (dealer silver) is NOW NEAR multi year lows as silver is being drawn out at both dealer and customer levels and heading to China and other destinations. The shear movement of silver into and out of the vaults signify that something is going on in silver.
end
At 3:30 pm we receive the COT report which gives us position levels of our major players;
Let us now head over to the gold COT
Gold COT Report – Futures
Large Speculators
Commercial
Total
Long
Short
Spreading
Long
Short
Long
Short
358,972
67,068
47,925
123,156
437,750
530,053
552,743
Change from Prior Reporting Period
32,646
-3,079
-3,070
2,842
26,821
32,418
20,672
Traders
193
86
82
50
63
286
196
Small Speculators
Long
Short
Open Interest
53,108
30,418
583,161
-8,048
3,698
24,370
non reportable positions
Change from the previous reporting period
COT Gold Report – Positions as of
Tuesday, September 27, 2016
Quite a crime scene
Our large speculators;
those large speculators that are long in gold liked what they saw and they bought a huge increase of 32,646 contracts of gold.
those large speculators that are short in gold covered 3079 contracts from their short side
Our commercials
those commercials that have been long in gold added 2842 contracts to their long side
those commercials that have been short in gold added a whopping 26,821 contracts to their short side.
Our small specs;
Those small specs that have been long in gold pitched 8048 contracts from their long side??
Those small specs that have been short in gold added 3698 contracts to their short side??
what?? the small specs are mimicking the commercials?
conclusions: the boat is getting really lopsided with the specs all loaded to the left of the boat and the commercial loaded on the short side to the right of the boat. the commercials go net short by a huge 23,979 contracts..very bearish for more raids.
And now for our silver COT:
Silver COT Report: Futures
Large Speculators
Commercial
Long
Short
Spreading
Long
Short
116,948
32,086
8,572
48,161
148,979
3,381
1,154
233
2,252
6,125
Traders
117
50
36
32
41
Small Speculators
Open Interest
Total
Long
Short
201,486
Long
Short
27,805
11,849
173,681
189,637
2,119
473
7,985
5,866
7,512
non reportable positions
Positions as of:
169
111
Tuesday, September 27, 2016
© SilverSeek.co
Our large specs:
Those large specs that have been long in silver added 3381 contracts from their long side
those large specs that have been short in silver added 1154 contracts to their short side.
Our commercials;
Those commercials that have been long in silver added 2252 contracts to their long side
those commercials that have been short in silver added another 6125 contracts to their short side.
Our small specs:
those small specs that have been long in silver added 2119 contract to their long side
those small specs that have been short in silver added 473 contracts to their short side.
Conclusion:
commercials go net short by another 3875 contracts and the boat as in gold becomes completely lopsided
And now the Gold inventory at the GLD
SEPT 30/no changes at the GLD/Inventory rests at 949.14 tonnes
SEPT 29/no changes at the GLD/Inventory rests at 949.14 tonnes
SEPT 28/ NO CHANGES AT THE GLD/INVENTORY RESTS AT 949.14 TONNES
SEPT 27/A huge withdrawal of 2.08 tonnes from the GLD/Inventory rests at 949.14 tonnes/
SEPT 26./no changes in gold inventory at the GLD/Inventory rests at 951.22 tonnes
SEPT 23/A SMALL CHANGE IN GOLD INVENTORY AT THE GLD: A DEPOSIT OF .3 TONNES/INVENTORY RESTS AT 951.22 TONNES
Sept 22/a huge deposit of 6.53 tonnes of gold into the GLD/Inventory rests at 950.92 tonnes/this would be a paper deposit entry/
SEPT 21/ A HUGE DEPOSIT OF 5.69 TONNES INTO THE GLD/INVENTORY RESTS AT 944.39 TONNES
SEPT 20/A HUGE CHANGES IN INVENTORY AT THE GLD/: A WITHDRAWAL OF 3.86 TONNES/INVENTORY RESTS AT 938.75 TONNES
SEPT 19/2016: 10.39 TONNES WERE ADDED INTO THE GLD/THIS WOULD BE A “PAPER DEPOSIT”/INVENTORY RESTS AT 942.61 TONNES
Sept 16./no change in gold inventory at the GLD/Inventory rests at 932.22 tonnes
SEPT 15/another paper withdrawal of 3.27 tonnes of “gold” inentory leaves the GLD/Inventory rests at 932.22 tonnes
SEPT 14./A withdrawal of 4.45 tonnes of gold inventory from the GLD/Inventory rests at 935.49 tonnes
SEPT 13/no changes in gold inventory at the GLD/Inventory rests at 939.94 tonnes
Sept 12/no changes in gold inventory at the GLD/inventory rests at 939.94 tonnes
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SEPT 30/ Inventory rests tonight at 949.14 tonnes
end
Now the SLV Inventory
SEPT 30/no change at the SLV/inventory rests at 362.909 million oz/
SEPT 29/we had no changes at the SLV/Inventory rests at 362.909 million oz/
SEPT 28/ WE HAD A HUGE WITHDRAWAL OF 1.614 MILLION OZ FROM THE SLV/INVENTORY RESTS AT 362.909 MILLION OZ/
SEPT 27./no change in silver inventory at the SLV/Inventory rests at 364.523 million oz/
SEPT 26./no changes in silver inventory at the SLV./Inventory rests at 364.523 million oz/
SEPT 23./A HUGE CHANGE IN INVENTORY AT THE SLV: AN ADDITION OF 1.044 MILLION OZ INTO INVENTORY/INVENTORY RESTS AT 364.523 MILLION OZ/
Sept 22/no change in inventory at the SLV/Inventory rests at 363.479 million oz/
SEPT 21/NO CHANGES IN INVENTORY AT THE SLV/INVENTORY RESTS AT 363.479 MILLION OZ/
SEPT 20/NO CHANGES IN INVENTORY AT THE SLV/INVENTORY RESTS AT 363.479 MILLION OZ
SEPT 19/A HUGE ADDITION OF 1.045 MILLION OZ WAS ADDED INTO THE SLV/INVENTORY RESTS AT 363.479 MILLION OZ/
Sept 16/no changes in silver inventory/inventory rests at 362.434 million oz/
SEPT 15/no change in silver inventory/inventory rests at 362.434 million oz.
SEPT 14/no change in silver inventory at the SLV/Inventory rests at 362.434 million oz
sept 13/2016: a huge deposit of 1.329 million oz into the SLV/Inventory rests at 362.434 million oz/
Sept 12/a huge withdrawal of 1.614 million oz from the SLV/Inventory rests at 361.105 million oz
.
SEPT 30.2016: Inventory 362.909 million oz
end
NPV for Sprott and Central Fund of Canada
1. Central Fund of Canada: traded at Negative 5.4 percent to NAV usa funds and Negative 5.3% to NAV for Cdn funds!!!!
Percentage of fund in gold 59.5%
Percentage of fund in silver:39.4%
cash .+1.1%( SEPT 30/2016).
2. Sprott silver fund (PSLV): Premium RISES to +1.19%!!!! NAV (SEPT 30/2016)
3. Sprott gold fund (PHYS): premium to NAV falls TO 1.05% to NAV ( SEPT 30/2016)
Note: Sprott silver trust back into POSITIVE territory at 1.19% /Sprott physical gold trust is back into positive territory at 1.05%/Central fund of Canada’s is still in jail.
end
And now your overnight trading in gold,FRIDAY MORNING and also physical stories that may interest you:
Trading in gold and silver overnight in Asia and Europe
Why Krugman, Roubini, Rogoff And Buffett Hate Gold
By Mark O’ByrneSeptember 30, 20160 Comments
Why Krugman, Roubini, Rogoff And Buffett Dislike Gold
By Jan Skoyles Edited by Mark O’Byrne
A couple of weeks ago an article appeared on Bitcoin Magazine entitled ‘Some economists really hate bitcoin’.
I read it with a sigh of nostalgia. As someone who has been writing about gold for a few years, I am used to reading similar criticisms as those bitcoin receives from mainstream economists, about gold.
As with bitcoin, gold is just a step too far for many economists. Criticism is often, as with bitcoin, targeted at the people who invest in it, rather than the asset’s own track record, fundamentals and safe haven attributes – classic attacking the ball and not the man.
This frequently involves name calling and the pejorative ‘goldbug’ label. This is used to try and discredit anyone who says anything positive about gold including being bullish on the price or seeing it as an important diversification. Often some of the gold naysayers refuse to distinguish between gold as a diversification in an investment or pension portfolio and gold’s role as a hedge against currency devaluations on one side and on the other calls for a gold standard.
Two completely separate matters – one pertaining to monetary policy and the other to investing, saving and personal finances.
In my experience to invest in gold is seen by the critics as the ultimate rejection of central banks, financial systems and government. These critics believe that faith in something that just gets mined out of the ground is baseless compared to something that ‘involves human endeavors (like stocks)’ as Joe Weisenthal of Bloomberg argued.
This ignores the fact that the production of gold, refining of gold, minting and fabricating of coins and bars and indeed the brokering, delivery and storage of bullion, and the running of the myriad of different precious metal companies involved in this quite large industry involves human energy, innovation and endeavours.
Below I touch upon some of those critics who continue to dismiss either gold as an investment or as a form of money which may play some role in the monetary system.
Nobel Prize Winning Krugman
If anyone could be accused of having a caricature of gold, it would be Paul Krugman. For him, gold investment is a push for the gold standard and anyone who advocates diversifying into gold is a lunatic, right wing “gold bug”.
Krugman most recently riled fans of gold when he went after Republicans during candidate nominations and mocked their apparent desire to return to a gold standard. (Despite it being a Republican who ended the gold standard).
What Krugman failed to acknowledge was that the push for gold in the financial system is not just coming from a the “Tea Party” movement and a bunch of Republican voters, but rather it is coming from the East – from China and the People’s Bank of China and indeed the Russian central bank who are buying up all the gold they can.
It’s coming from Western investors who are looking for a hedge against economic risk and for portfolio diversification. It is coming from countries who still see gold as a form of money and a safe haven, such as the people of India and people in Germany and Switzerland in Europe.
When asked why he celebrated the fall of the gold price in 2013 he told Business Insider:
“Well, the inflationistas/goldbugs are really, really annoying — all this air of having the secret wisdom when they actually haven’t a clue. And they have been a real destructive factor in policy debate, standing in the way of effective policy by raising fears of Weimar and Zimbabwe. So seeing the one thing they got right — betting on higher gold prices — turn sour is cause for a bit of celebration.”
To be fair, the gold price had fallen sharply in 2013 but Krugman ignored the performance over the medium and long term – a cardinal sin in investing which should always be about the long term.
Even at the end of 2015 when a few of us were doing some soul-searching and asking ‘did we miss something? It wasn’t as though we had returned to the days of a few hundred dollars per ounce. Gold and silver were some of the best assets to hold before, during and after the global financial crisis. Gold rose every single year from 2001 through to 2012, prior to the sharp correction in 2013. Gold rose in all fiat currencies – none of which acted as a safe haven during the financial crisis.
Gold acted as a hedge during the crisis when most property, stock and bond markets had seen sharp falls. When these markets stabilised and began to recover, gold prices fell. Exactly what a hedge should do.
This year gold and silver prices were up 26% and 38% respectively, in the first half of the year and have consolidated on those gains in Q3, 2016.
Stocks in many markets have come under pressure in 2016 – especially in Japan and Germany and some currencies have been devalued including the British pound after Brexit. Gold is acting as a hedge again in 2016 – exactly when investors around the world need a hedge.
To my knowledge Krugman is yet to address this year’s gold performance. The last time he did try to explain the bull-market in gold (early September 2011) he dismissed the idea that it was because of inflationary concerns. But for some reason used numbers that exclude inflation to support his argument.
He did, however make the valid point (which I entirely agree with) that “because expected returns on other investments have fallen” is why more people were buying gold. Yet given near negative and negative interest rates today, and the fact the “expected returns” on deposits, bonds and indeed the entire pensions complex “have fallen”, you would think that Krugman might now understand and concede the value of diversification an allocation to gold in a diversified portfolio.
Ideologues of the right and the left never allow the facts to get in the way of their arguments.
Oracle of Omaha, Warren Buffet
Warren Buffett is not an economist but you can guarantee that more investors pay attention to the Oracle of Omaha’s views than the majority of those economists – particularly statist ideologues.
Buffet has even debated with Marc Andreeson over bitcoin. Many believe that he dislikes bitcoin, but this may not be the case, he may just see it as a development in the world of payments – an upgrade from writing a cheque or sending a wire transfer. It is not ground-breaking stuff.
Where Buffet’s problem with bitcoin lies is exactly where it lies with gold – he fails to see the intrinsic value of it. Bitcoin is ‘not a currency’ it is a ‘mirage’ according to Buffett.
When interviewed by CNBC in 2009 he said of gold “… it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that,” he said. “The idea of digging something up out of the ground, you know, in South Africa or someplace and then transporting it to the United States and putting into the ground, you know, in the Federal Reserve of New York, does not strike me as a terrific asset.”
At the beginning of the year Berkshire Hathaway increased its shareholding in oil refining company Philips 66 to 13.7%. This was seen as a bet on oil prices. The company had chosen to ignore the current top performing commodities that were gold and silver, and the shares of Berkshire Hathaway were underperforming in comparison.
In 2009, prior to gold going parabolic from 2010 to 2012, GoldCore also pointed out how gold has performed Berkshire Hathaway over a 4 year and a 10 year period. We pointed out and were quoted by Bloomberg how gold’s utility was simply “in balancing a portfolio.” We said that the point is that gold had “preserved a chunk of wealth that would have been otherwise taken down with other financial instruments,” see here.
The Daily Reckoning also pointed out “an investor who purchased gold at any time after January of 1998 would have received a higher investment return over the following 10 years than an investor who purchased Berkshire Hathaway.”
This is not to suggest that Berkshire Hathaway has not been a great investment for its owners – it has. Rather it shows that there are periods of time when gold outperforms most, and frequently all, other investments and hence its importance as a hedging instrument and a safe haven asset.
Dr. ‘Doom’ Roubini
We have some respect for Dr Roubini as a macroeconomist and have indeed shared many of his concerns in many years and shared them with our clients and the wider public as long ago as 2005 and 2006 when he and we warned that the US would soon follow in Iceland’s footsteps and have its own financial crisis. However, giving financial advice is not his expertise and he may be better suited focusing on his strengths.
As Roubini is regarded as a guru by many experts and opinion makers internationally, there is a real risk that his opinions regarding gold could lead to poor and imprudent investment decisions.
In December 2009, when gold was at $1,100/oz, he said that “all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense.”
In the following years gold rose to over $1,500/oz and nearly reached $2,000/oz when it surged to $1,915/oz in 2011.
One of our clients actually sold their gold allocation on the basis of this statement. Despite gold being the one asset class that had protected them in the early stages of the crisis in 2007, 2008 and 2009. Gold nearly doubled after Roubini’s pronouncement.
Gold in USD – 10 Years
In August, 2013, when gold has already fallen in price and was trading at $1,300/oz, Roubini predicted that gold would fall another 23%, back to $1,000. Not only that but he said that this would happen “at the end of next year”.
Reasons given were that: “Now with the economy recovering, nobody wants to be in rocks that don’t pay any dividends. Real interest rates are rising. That kills gold…Governments with debt issues are selling gold…Gold was juiced by right-wing fanatics in the US. That boom is over… gold remains John Maynard Keynes’s “barbarous relic,” with no intrinsic value and used mainly as a hedge against mostly irrational fear and panic.”
Where to start with this logic and poor analysis? There has not been an economic recovery of real substance, real interest rates do not appear to have risen and the gold price has performed quite well over the medium and long term. Gold has gone sideways after a period of multiple annual yearly gains.
To be fair, it is difficult to call Roubini an all out gold-hater as he does suggest that “all investors should have a very modest share of gold in their portfolios as a hedge against extreme tail risks.” However, he doesn’t think it’s crucial and that “other real assets can provide a similar hedge, and those tail risks – while not eliminated – are certainly lower today than at the peak of the global financial crisis.” Given the deteriorating financial position of systemic Deutsche Bank, Roubini may need to revise that assumption soon.
Roubini has been very vocal in his anti-gold stance. Indeed, he has even engaged in Twitter wars with GoldCore’s Mark O’Byrne and James Rickards, over the gold standard.
There is little doubt that Roubini is a very smart economist, however he just cannot get to grips with the role of gold. Describing those who like gold as ‘gold bugs – a combination of paranoid investors and others with a fear-based political agenda.’He likes to throw gold and bitcoin fans into the same category. He tried to engage Jim Rickards and goldbugs in Twitter war back in April 2013. When Rickards pointed out a few truths about the gold price he turned his attentions “Gold-bug suckers found another irrational useless bubble fad, the Bitcoin, the bubble flavor of the day. So they are dissin gold 4 Bitcoin.”
Roubini has also resorted to the silly old argument that “you can’t eat gold” and said that: “If you want to hedge against inflation, stock up on Spam or other canned food”
Ignoring the somewhat obvious fact that you cannot eat any investment or currency – whether that be stocks, bonds or dollars, euros or pounds. Unlike, spam and canned food, gold is one of the most traded assets and liquid investments in the world – especially in a crisis. There is always a market for gold and it can always be exchanged for cash or indeed used to buy food, farms, property and businesses. A cursory analysis of gold’s performance in economies suffering financial and economic crisis would show Roubini the value of gold as a currency hedge and indeed a hedge against systemic contagion in an economy.
Thus, Roubini has a questionable track record when it comes to gold and his arguments against it are poor.
Rogoff
In many ways I have saved the best until last, but at the same time wish to not say too much here as I have a further article planned around the Grand Chess master, American economist, Kenneth Rogoff.
Many of you will recognise the name as his latest book ‘The Curse of Cash’ was released over the summer. As someone who straddles both the fintech world as well as the gold world I am used to the push for a cashless society.
Going cashless is seen as the new sexy side to financial services as it is purported to prevent bad things happening with money and will allegedly empower the poor of the Developing World and the unbanked. Save your scoffing, I’ll deal with those claims in my later article.
For Rogoff the clamp down on cash would be beneficial because of its impact on money laundering and tax evasion. Why would this mean that he is against gold? It might not. In fact he has quite prominently appeared to support gold (or at least not dismiss it) earlier this year.
In May, writing on Project Syndicate he outlined how emerging economies should shift their US dollar reserves entirely into gold, praising it as ‘an extremely low-risk asset with average real returns comparable to very short-term debt.’. He argued that emerging economies should ignore the West’s push to demonetise gold, ‘There has never been a compelling reason for emerging markets to buy into the rich-country case for completely demonetizing gold. And there isn’t one now.’
But, in a recent interview to promote his book he told CNBC that there was a need to clamp down on assets that could be used instead of good, sturdy fiat money, ‘“You have to play whack-a-mole with all these things,” he stated during a recent appearance on CNBC. “There are always going to be these other things: gold coins, uncut diamonds, [and] now bitcoin.”
‘These other things’ are real, tangible assets (forget bitcoin for now). They allow freedom of movement, of purchases and there can be significantly less counterparty risk than when using fiat money. The push for a cashless society, for all the talk of fighting crime, is really to support the banking system.
As we outline in our upcoming/recent report on bail-ins. The push for a cashless society will help to support the new bail-in regime. With assets such as gold, bail-ins become trickier and not as straightforward as using customer deposits to prop up a failing bank system.
Rogoff dislikes gold because it removes power from the banking system within reach of tax strapped governments, and puts it back in the hands of the saver who opts to save in gold bullion rather than fiat, electronic currency.
In this vein, libertarian academic economist, Saifedean Ammous, wrote on Twitter
“Statist economists hate Bitcoin for same reason taxi drivers hate Uber: it frees the rest of us from their bull$h*t …”
How true. Substitute the words Bitcoin for gold and it reads just as well if not better:
“Statist economists hate gold for same reason taxi drivers hate Uber: it frees the rest of us from their bull$h*t …”
Conclusion
Keynes once argued “gold has become part of the apparatus of conservatism and is one of the matters which we cannot expect to see handled without prejudice.” This is certainly true with regards to gold today and the many prejudices and lack of evidence based research regarding gold and its role as a hedging instrument and safe haven diversification.
“The modern mind dislikes gold because it blurts out unpleasant truths” said economist and political scientist Joseph Schumpeter. The unpleasant truth today is that today’s financial and monetary system is fragile in the extreme and likely to suffer another financial crisis very soon.
For all of those mentioned above the main dislike for gold appears to be due to a combination of a lack of understanding and the desire to keep the unsustainable status quo going. A surging gold price frequently makes their analysis and prognosis look bad. In the case of Buffett, were a the ‘chunk of metal’ gold to outperform his Berkshire Hathaway shares his God-like ‘Oracle’ status would be questioned.
In the words of my karaoke go-to Taylor Swift “Haters gonna hate, hate, hate …”
Gold and Silver Bullion – News and Commentary
“Given strong fundamentals of increasing geopolitical and economic risk … gold should move higher in Q4” (MarketWatch)
Gold Advances as Deutsche Bank Concerns Stoke Demand for Haven (Bloomberg)
Gold rises as stocks slip, on track for weekly loss (Reuters)
Is another German bank in trouble? Commerzbank to cut 9,600 jobs and suspend dividend (Telegraph)
Russian Central Bank To Continue Diversifying Into Gold (Reuters)
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