31 July 2015

Shanghai Gold Exchange Has 73.3 Tonnes of Bullion Withdrawn Its Third Largest Week

For the week ending July 24th there were 73.289 tonnes of gold bullion withdrawn from the Shanghai Exchange into China.

That is about 2,356,296 troy ounces in one week.

I have included the most recent statistics from the Comex Gold Warehouses below.  There are currently 351,519 ounces of gold available for delivery at these prices there for the month of August.

Nine out of ten Americans will notice that in terms of technical analysis this is 'a lot less.'

But as the very serious people like to point out, the Comex is not really 'a physical exchange.'  Yep.

And as you may have seen in the posting from earlier today showing the sea change in leverage over even the past ten years there, it is seemingly getting a lot less physical all the time, even compared to just five or six years ago. Winning...

Even the US Mint seems to be getting in on the act.  The mint sold 202,000 ounces of gold in the form of coins for the month of July, one of its largest monthly sales totals in several years.

That's a lot of pet rocks.

Do the math. I wonder where the poor, deluded ignoramuses who obviously do not understand finance are getting all that money to spend on such worthless trifles.  Does the US Mint take food stamps?

While they last.

This chart is from the date wrangler Nick Laird at sharelynx.com.

Gold Daily and Silver Weekly Charts - Entering the Active Month of August - July Payrolls Next Week

Gold and silver popped today and the soaring dollar dipped as wage growth, as plotted by the ECI, was shown to be at a twenty year low.

What a surprise.

Keep in mind that the 'dollar index' DXY is hopelessly outdated, and is little more than the inverse of the Euro.  And brother does the euro have problems. 

So it might make the dollar look good when in fact it is fundamentally deteriorating as well, just not on the same timescale.

A strong dollar does what again?  Oh yeah, it stifles exports and domestic manufacturing.  Perfect policy choice, but only if you are a predatory financial vulture looking to buy up foreign assets on the cheap with overpriced dollars.

Former President Jimmy Carter says that the US is an oligarchy with unlimited political bribery.  I don't remember hearing about this on the evening news or the mainstream political talk shows.  Ho hum.  Who cares.

The rest of the world already knows it, and the American olilgarchs are too busy dividing the garments of His creation by casting lots to care.

There was intraday commentary on the gold market here.   The precious metals market is going to blow up at some point if it continues in this manner.
I am not looking for a default on the exchange since it is set up to be settled in more paper.  Rather, I am thinking of a serious break in confidence in the markets overall, at long last, as sort of 'a con too far.'   How many frauds in major markets have been exposed in the past ten years.   Are there any markets that are not manipulated by the financiers?

The problem is that the wiseguys get all full of themselves, and the easy victories fill them with puffery and bravado.  And so they keep pressing their bets until they hit the wall.  And the last two times we bailed them out.  Big mistake.

It is the outcome of almost every financial fraud that has ever been.  They never know when to quit, and certainly cannot stop themselves.  They are like addicts.  And it works for them.

It may not be the precipitant of the financial event, but it will be in the mix.  It looks like an accident waiting to happen, all of it, just like the 2007-08 mess that everyone denied until it rolled over on us.

Non-Farm Payrolls next week.

Have a nice weekend.

SP 500 and NDX Futures Daily Charts - US Wages Are Not Growing, What a Surprise

The big tickle today was that wages for the second quarter were showing their slowest growth in twenty years.

As if wage stagnation is news. 

We have seen this 'phenomenon' as a decades long trend as the power in the political system has shifted significantly to those corporate interests with the most power and money.

The bad news is that when people do not have disposable income, and they cannot keep adding debt and use things like their homes, with homeownership also falling to twenty year lows, as ATMs for ordinary consumption, then they cannot buy things, and aggregate demand falls.

What a revelation!

Next week we will have another baked-to-order Non-Farm Payrolls number, and all may be forgotten once again.   Or we will see a shot of Kim Kardashian's belly button, or Donald Trump will say something outrageous.

Its always something in the United States of ADHD.

Have a pleasant weekend.

The Gross Mispricing in the Gold Market Risks the Global Financial System - A Fraud Too Far

With a physical commodity like gold, as several others have pointed out, 'supply' is not how much there may be, since most of the gold that has ever been mined is closely held in treasuries and private vaults, and is not on offer, available for purchase.

It is a monetary metal, a store of wealth, with some industrical applications.

The amount that has ever been mined would likely fit in a modern four bedroom house. In other words, there is not a lot of it, and the supply is increasing at a fairly slow rate over time.

Physical Supply On Offer

So 'physical supply' is that which is thought to be for sale at the current prices.

At the Comex, this bullion is designated as 'registered' or deliverable to someone who chooses to exercise a contract for it at the current price.


And also at the Comex, 'demand' is synonymous with open interest, that is, a contract created when someone goes long, or buys a contract that had not previously been owned by another. 

Yes, there are significantly larger physical markets for gold bullion, almost all of which exist outside the US.  But let us put those aside for now.

Rising open interest with rising prices and a steady or rising supply is easy enough to understand. More people are seeking to go long or buy a claim on some gold bullion, and the price rises to entice more who have their gold in storage to meet that demand.

What is also easy to understand, if you have a mind to open your eyes, is when demand is steady and historically high, but the price and the physical supply for delivery is falling. The explanation is naked shorting, the creation and selling of contracts based on increasing leverage.  

That is, speculators, of whatever size and for whatever reasons, are nakedly meeting demand with an artificial inflated supply that ordinarily could not possibly be met in an efficient physical market.

This is why I have come to think that the Comex precious metals market is like The Bucket Shop, although technically it does not meet the statutory definition since 'a transaction on a exchange' has been made.

The bullion banks and the Exchange are playing 'The Bank' in a situation in which an actual physical transaction is unlikely to occur.  And, given a reasonable probability of execution, impossible to demand at anything like the prices being quoted.

Leveraged Speculation

So why does it happen, and why does it matter?

It happens because gold is in this case is now being treated purely as a paper instrument, a derivative, although it is representing and price setting for a vast global industry and physical market from which it has become increasingly decoupled.

This is not surprising because rampant speculation in derivatives and paper assets has become de rigueur in these financially captured markets, and radically so since 1999. 

And the same forces that blew up the collateralized debt obligations and their mispricing of risk derivatives in 2007 seem as though they are going to blow up the global commodities markets, starting with the precious metals. 

The exchanges in this case may try to force settle everything in cash and for pennies on the dollar.  And so they dismiss the risks, and since the 'right people' are making money, no one will say a word.


While the sources of new supply dry up with the decline of the mining industry, the urge to grab the available physical supply while it lasts continues to intensify.

But like the financial derivatives collapse in 2007 quickly metastasized to the global financial system, this relatively small precious metals market will also shaken the global financial system, and threaten to bring down the Too Big To Fail institutions once again.

I am not speaking of a 'default' on the exchange.  A paper exchange cannot default when cash settlement in paper can be enforced.  Rather, I am talking about a 'break in confidence' that finally persuades the rest of the world that the Anglo-American financial markets are a long con.   Let's call it 'a fraud too far.'  

We certainly have seen some mind-boggling systemic frauds and market rigging exposed in everything from derivatives pricing to LIBOR in recent memory.  We keep sloughing these events off in our walking amnesia.  But such things have long term and highly corrosive effects.

But just like the last time, while the money is flowing and the music is playing, the players will keep dancing, and the regulators and politicians will be keeping their eyes and ears closed.

'Nobody saw' the last crisis coming, except a few.   That is because they who should have known knew, but went along to get along.

Consider the consequences of repeatedly ignoring the risks of excessive speculation.  I do not think that we can afford it.

This chart is from Nick Laird at sharelynx.com.

President Carter: US Is Now 'Just an Oligarchy With Unlimited Political Bribery"

You might not have heard about this interview on the mainstream media.  It occurred several days ago.  Apparently Jimmy is not gleefully participating in the triumphant Clinton-Bush winners road tour and congenial yukfest
Some, nearing the latter part of their days, tend to feel the weight of their conscience.  But certainly not all, especially not those who believe in nothing greater than themselves.
Carter's startling admission is at the root, the very heart of the lack of reform and recovery. 
But the pundits, even the so-called liberal media and the disgruntled conservative media, will not discuss it frankly and openly.   They traffic in shallow anger and distraction, and faithfully serve the special interests.

And there is as little serious discussion in the pampered corporatist media, whose mission is to obfuscate and distract the public from the key issues with 'bread, circuses, and sensationalism.'

This is the kind of thing that everyone in power, and almost all those who bask in that power, know but never talk about openly, feigning ignorance with dismissive ridicule.  
They are caught in a credibility trap of their own making.  And so they while away the days with private looting, waiting to see which way and when the winds of reaction may blow, while doing everything they can to maintain the status quo which they have created for their own benefit.

It is the dark heart of corruption, the quiet coup d'état that has overthrown the American republic.
The people are beginning to ask, 'After six years, why is there tremendous profits for those who caused the problems in the first place, but no recovery for the rest of us?'

And the elite look with bewilderment, fear, and anger at the fruits of their treachery and deceit.  

They think to themselves, 'We know that we are superior people, tasked with the burdens of leadership, so they must simply be ungrateful,  jealous of our success.'
A small but highly visible minority may look to the worst of the oligarchs as their leader and savior.  One might call it a kind of Stockholm Syndrome, but really it is just a perverse reaction, the impulse of the camp follower that identifies with their abusers, thinking that this elevates them from the rest.
And the media wisely warns them, slurring any candidates out of the mainstream control, the narcissist and the socialist, urging the people to stick with the familiar oligarchic brand names, Bush and Clinton, and in extremis that slickly formed alloy and extruded creation of the money masters, brand Obama.

Hubris begets nemesis.  If they were not so self-absorbed and morally stunted by their pride and selective experience they would understand that people will not stand by and allow themselves to be abused forever.


HARTMANN: Our Supreme Court has now said, “unlimited money in politics.” It seems like a violation of principles of democracy. … Your thoughts on that?

CARTER: It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members.

So now we’ve just seen a complete subversion of our political system as a payoff to major contributors, who want and expect and sometimes get favors for themselves after the election’s over. … The incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves.

Hat tip for the above to Sam Sacks and especially to Jon Schwarz at The Intercept.

30 July 2015

Gold Daily and Silver Weekly Charts - Non-Farm Payrolls Next Week - 116:1 and No Fear

"Greed is the inventor of injustice as well as the current enforcer."

Julian Casablancas

I will be interested to see how traders square up tomorrow ahead of the weekend.

Here is 'the lay of the land' as we head into the month of August next week.

The first chart shows just how silly the trading at The Bucket Shop has become.

The next shows the results of the attempts to knock down the open interest at Comex.  It has succeeded a bit, but these lower prices taken to shake out the bulls are not enticing many to put their actual bullion up for delivery. 

Deliverable stocks are at a low and therefore the 'leverage' of paper potential claims to available bullion is still rather high at 116:1.

Sentiment has gotten silly low with the momentum boys piling on, and activating their opinion bots to enhance their trade.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Triumph of the Swill

"Pride goes before a destruction, and arrogance before a fall."

Prov 16:18

This was a fairly lackluster day in US equities.

Sentiment is now back to somewhat complacent as the VIX has fallen back to a 12 handle.

I picked up a little VIX today.  I may buy more if we see some additional fluff to the upside.

This is probably not going to last, and is marking a top of sorts.  Whether this is a major top or just a passing intermediate term thing I cannot tell.

The forces of crony capitalism are ready to stick a fork in the rest of the world, and start carving off chunks for themselves.

When a people begin to consider themselves exceptional, above all others, you know that the downfall is just around the corned.  It may be considered the 'German disease' by some, but we are all susceptible to it.

Have a pleasant evening.

29 July 2015

Gold Daily and Silver Weekly Charts - Gold Is the Statist's and the Con Man's Bête Noire

"I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market.

There's an interesting question here because if the gold price broke [lower] in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology.

Now, we don't have the legal right to sell gold but I'm just frankly curious about what people's views are on situations of this nature because something unusual is involved in policy here. We're not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing."

Alan Greenspan, Federal Reserve Minutes from May 18, 1993

If you take a look at the Fed minutes over the years you will see that Bernanke's response to the Congress that the FOMC does not think about gold is just prevaricating nonsense.

At this point I am getting curious why the Fed in particular would wish to see the price of gold kept down.  And I don't say this too lightly, but it would take a serious effort to ignore the blatant and heavy handed public relations campaign downplaying the value of gold, in the face of increasing physical demand around the world, and the undeniable fact that for the first time in several decades the central banks of the world have turned from being net sellers to net buyers.
As we see from the minutes above most clearly, the Fed was watching gold carefully for indications of monetary inflation.  And this was during the long bear market in gold in the 1990s when central banks were still routinely and openly selling gold to keep the price lower.

Why would the Fed, if indeed they are involved or more likely fully aware, like to see an indicator of inflation supine while they are laboring mightily to convince people that there is a recovery in the economy so that they can get off the zero bounds and raise rates?   Wouldn't a rising price of gold give them some credibility in such a move?

Or is this 'a wholly different things' as then chairman Greenspan said above?   Are we at that kind of moment that Eddie George, the governor of the Bank of England, talked about in late 1999, culminating in the infamous Brown's Bottom when England's financiers sold her gold on the cheap, presumably to bail out the Banking speculators.
"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.  Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K."
This current pool operation is indeed odd, unless one subscribes to the idea of a currency war pitting the US dollar status quo against the emerging economies who wish to find alternatives to what they feel is an abusive, almost neo-colonial form of monetary repression and at times a facility for plunder.

Although as I have mentioned before, I have a very open mind to the notion that some of the shenanigans from the last decade put some official sector and too big to fail jokers 'over their skis' in the precious metal markets, to the extent that Eddie George's abyss was starting to yawn like the Grand Canyon again. I never like to attribute to bad policy what can be just as easily attributed to purely stupid and short-sighted personal concerns and greed.

August looks to be a littler more interesting at The Bucket Shop. There were some more dribbles out of the warehouse, and the 'leverage' of claims is probably still well over 100:1. I'll have a look at it when mon ami Nick puts out his latest.

Fundamentally speaking, if we dare do such a thing in such dodgy markets, the demand for physical silver is increasing in 2015 while the supply is contracting, resulting in a projected deficit for the year.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Failure to Achieve Liftoff, GDP Tomorrow

There was intraday commentary about the FOMC statement here.
Even though The Recovery does not warrant it, I am still of the same mind I have been, that the Fed will raise 25 basis points in September unless the wheels are falling off the global financial system and/or the economy.  It is purely an inward-looking policy thing, and they are falling all over themselves to prepare the markets and to justify their actions. 
The Fed wants to get off the zero bound so they have room to maneuver when the next financial crisis comes, most likely from the bursting of their latest financial assets bubble.  The Fed is a servant to the Banking system.
The SP managed to gain some ground after an initial flip flop.  I was disappointed that a purchase of some powered up VIX did not get filled at the announcement when they smacked VIX lower to clear the stops and then ran it the other way.  You have to be pretty aggressive to get past the HFT spoofing and front running at times like these.  It never really did get back to a cheap buy. 
Let's see how the Advance GDP number for Q2 looks tomorrow.
This is an artificial market, so 'policy considerations' and private greed will most likely continue to trump any reasonable estimation of 'investment' and 'price discovery.'
Have a pleasant evening.

FOMC Statement for July 29, 2015 - Lords of the Small Council

The Fed did nothing, but continued to smooth the way for some rate hikes.

The hikes have little to do with the economy or The Recovery™.   Or what George Mason Prof Tony Sanders aptly calls The Bartender Recovery of part time service jobs and very low real median wage growth that is losing ground to housing prices and inflation.

The Fed would like to get off the zero bound so that they have room to cut the next time the financial markets crash because of regulatory capture and gross policy errors that have allowed the financial sector to mutate and distort its role in the real economy.

So barring a market meltdown I would expect a 25 basis point increase in September. I don't think that there is unanimity behind this decision on the FOMC. I suspect Yellen is more dovish than other members, probably led by monetary technician Stanley Fisher, having a more hawkish lean not so much from an economic standpoint as from the practical standpoint of banking system technocrats.

Release Date: July 29, 2015

For immediate release

Information received since the Federal Open Market Committee met in June indicates that economic activity has been expanding moderately in recent months. Growth in household spending has been moderate and the housing sector has shown additional improvement; however, business fixed investment and net exports stayed soft.

The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey‑based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate.

The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

28 July 2015

Gold Daily and Silver Weekly Charts - Option Expiry - Leverage 117:1 at The Bucket Shop

"Half of the harm that is done in this world is due to people who want to feel important. They don't mean to do harm. But the harm does not interest them.  Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves."

T.S. Eliot

As you may recall we had the August option expiration for the precious metals at The Bucket Shop today.
The call options at the 1100 level and above expired worthlessly according to the preliminary report from today.  I have circled those in red below.  As you can see from the prior day open interest, a goodly chunk fell by the wayside.
The second chart shows the distribution of volume for both calls and puts for August gold.
As you may have noticed in the warehouse report from yesterday, a rather large chunk of bullion in the JP Morgan warehouse was moved from registered (deliverable) to eligible (in storage not for delivery).   This took what I call the 'claims per ounce' up to the rather high level of 117:1.
This may be just a tease since there is quite a bit of gold laying about, but not deliverable at these prices, so I won't be getting too excited just yet.  I might have been more impressed if open interest had soared, or if some gold had actually exited the warehouse, rather than JPM just playing the old switcheroo with about 105,000 ounces of bullion that is still there.
But the gold crowd is hard up for good news, so let's make a big deal about it for a day or two.
I am keying off gold here, since silver seems to be along for the ride.  It may well lead the way at some point as I have noted, but not yet.
After the usual price charts I show the current levels of gold and silver bullion in the warehouses.
We may expect a little punch to the holders of new contracts compliment of the expiration, but most of that work in skinning the option players and knocking down the open interest seems to have been done.  As a side note, rather than playing at options on the paper prices at the Comex, you might find buying lottery tickets to be about the same odds and more satisfying.  At least it will get you out of the house or office.

Also I wanted to add a comment with regard to all these fellows who are saying that interest rates rising can be good for gold.  They tend to like to look back at the 1970's, which I remember all too well.   Let me remind you that correlation is not causation.  The reason rates were rising back then was that inflation had clearly reared its ugly head, and the Fed was grappling with monetary mischief and a gas price shock (with rationing) that had been delivered by the newly formed OPEC.

In this current case although there is inflation and it is being grossly understated, the rate increases have little to do with it, and everything to do with a Fed that is gazing deeply into the navel of their own policy errors, and trying to get a little maneuvering room off that zero bound before they crush the economy again with another financial crisis.

I do think gold will get some serious legs sometime in the not too distant future, but it will be driven by events outside of the US, which may or may not even involve the dollar.  This long gold pool manipulation of the price has done serious damage to supply without affecting non-US demand.  This is a formula for the mother of all short squeezes at some point when the pooling operation falls apart.  What triggers that may or may not involve a real inflation in the dollar.
All these markets are mere constructions now.   It is not just the government and the Fed by a long shot, although some romantics think that this is the case, and that if only we could eliminate the government, the god of the markets would make all of us good boys and girls, honest and self-effacing.  Because people, especially well-educated businesspeople, are naturally superior, rational angels who are needed to tell everyone else how to live, and to be compensated exceptionally well for their troubles.
As if.
There is no doubt that the corrupting influence of easy money has seeped into most if not all aspects of the developed Western countries, and that this is the end result of a long process with its roots in the 1970's at least.  
Reform is needed badly to cure the infection in the body politic.   But most of the prescriptions we have been seeing are coming out of the heart of darkness that is at the root of this, and would make the situation only worse.  And that is the unbridled greed of powerfully driven sociopaths and narcissists, and their troops of suppliers and camp followers. 
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.
Have a pleasant evening.