17 September 2015

Timely Caution Is Advisable With Your Gold Holdings

In the light of how the MF Global debacle was sorted out by the courts, and based on a growing body of circumstantial evidence and market indicators, if you are holding your gold bullion 'insurance' in the form of unallocated or opaque holdings, or a hypothecated paper claim in one of the major exchange trading warehouses, you may wish to take measures to safeguard your ownership claims without much delay.

I wrote something overnight, On the LBMA and Their Unallocated Holdings, in which I lay out the case, based on facts and some presumably informed speculation from Jim Rickards,  that there is a serious physical shortfall in gold bullion developing that may not resolve as readily as it did in 1999, when the Bank of  England presumably bailed out the trading houses.

Commodity backwardation is not all that unusual.  But it is somewhat unusual in the precious metals. And in combination with a few other items, it seems worthy of note and some preventative measures.

Koos Jansen notes that gold is now in backwardation in both London and New York.

"Not often in financial markets is the future price of gold is lower than the spot price (live), but lately we’ve witnessed such an event in both the New York and London gold market. This is called backwardation, the opposite of contango.

What causes backwardation and will it increase the price of gold? In my opinion there are two possible scenarios: the market expects the gold price to fall in the future, or there is scarcity now."

You may read the entire article here.

And we now hear from Ronan Manly that staff in the central banks have been restricted from discussing their gold holdings.

Please note that I am not suggesting that you should rush out and take large long positions in gold with the maximum leverage, pile into penny miners hoping for a 'home run'.

I suppose that quite a few will miss this caution since it is not heralded with blaring headlines of imminent doom, but perhaps those who need to hear it will do so.  And I am sure that the apologists and the paperati will find their usual ways to dismiss all this, and urge us to ignore all these odd doings in the warehouses.  Such are the times.

And I am not ruling out a much larger development behind the scenes with regard to the international monetary regime, that is 'leaking out' from official sources to banking cronies who may act on it ahead of time.  But I have no strong indications of that.   The IMF seems incapable of resolving the developing monetary crisis because of Anglo-American intransigence.

This is a purely circumstantial case.  As was the case that Harry Markopolos presented for years on Bernie Madoff.  And it may be wrong, or it may be right and vastly understated.  But I think that we have means, motive, and opportunity, and so one may advisably act with caution.   And so I have discharged my conscience in not remaining silent while potential trouble looms and the denizens of the markets take care of themselves.  It is not so easy a decision to make when you do not have sound evidence because of secrecy and misinformation.  And I am sure many will take this, use it as their own, and wrap this in florid headlines and dire predictions of doom.

I suspect at this point that a price correction is still possible as a remedy, but I am not so optimistic to rule out a greater effort to cover it all up that will make things exponentially worse, in the manner of the London Whale and MF Global and LTCM and so many examples of reckless hubris.

There is quite a bit of official interest in bailing out these wanton rich boys from their gambling debts and assorted scrapes, as Sir Eddie George of the Bank of England noted in 1999.  And the central banks may rise to the occasion and lease out the people's gold on the cheap to get them out of this one as well.  And all under the radar, hush hush.  Insiders never speak ill of insiders, or do anything to inhibit the kleptocracy.
"Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise."

Alan Greenspan, Congressional Testimony, July 24, 1998

The denouement of the New York-London Gold Pool is coming, but it may not be here yet. These things tend to drag on and on, wearing most everyone who suspects them out. Lots of people make claims about 'paper markets'. They paper the landscape with them. And if something happens, they will all claim to be the first. The point is to drill down and attempt to assemble the data against determined effort to distort and obfuscate and hide it.

There are people who make calls, and people who make money. I don't make 'calls.' I try to calculate odds, and then take some guidance from the probabilities. There are no sure things in this life, except that we will all meet the same end, and I believe will be called to account for our actions.

Timely caution is advisable, perhaps on a number of fronts.

"The August turbulence in global [equity] markets has produced significant shifts, including a 6.6% fall in equity prices. The currencies of emerging market countries have depreciated substantially against the G-4, while emerging market borrowing rates for sovereigns and corporates [bonds] have moved higher. Global oil prices have been whipsawed as have G-4 bond yields.

The speed and magnitude of these movements is reminiscent of past episodes in which financial crises emerged or the global economy slipped into recession. However, nothing appears to be breaking. Global activity indicators have, on balance, disappointed but remain consistent with a modest pickup in the pace of growth. Additionally, despite the turbulence in financial markets, there is no sign of unusual stress in short-term funding markets or of a credit crisis in any large Emerging Markets economies."

Bruce Kasman, Chief Economist, JP Morgan

So be of good cheer, nothing appears to be breaking, yet.