Stocks and Precious Metals Charts - Take It To the Limit, One More Time - The Downward Spiral of Dumbness

 

“Benign remedies are for the innocent.  Misdeeds, once exposed, have no refuge but in audacity.  And they had accomplices in all those who feared the same fate.” 

Tacitus, Annals

 

"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 [price of gold] 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, May 18, 1993

 

"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." 

Sir Edward 'Steady Eddie' George, Governor Bank of England in conversation with Nicholas J. Morrell, of Lonmin Plc, 1999

 

Stocks attempted to rally, but fell into the red in the afternoon, and went out near the lows.

The Dollar dropped to the mid-range of the 92 handle.

Gold and silver rallied back a bit from the recent 'mini-me' smackdown.

The gold bullion readily available in Hong Kong for Comex delivery is getting a bit sparse again.

Time to milk the ETFs for gold bullion again?

Robbing Peter to pay Ping.

Just keep the music playing as long as the punch and profits are flowing.

They'll never learn.   Because their paychecks depend on maintaining a downward spiral of dumbness.

And so gold keeps flowing, from West to East.

Have a pleasant evening

 

 

The Bullish Case For Gold: Indicators Suggest Gold Has Laid the Groundwork for a Substantial Rally

For those who care about gold such as myself, in the just released CFTC data for the week ended Tuesday, speculators went net short for the first time since December 2001 when gold was priced at $275 an ounce. It’s tough to find a more contrarian indicator.

Peter Boockvar


"They run all away, and cry, 'the devil take the hindmost'."

Beaumont and Fletcher, Philaster, or Love Lies a-Bleeding

The one thing that gives me pause is the current interest rate actions by the Fed. They *could* delay the rally until it becomes almost overwhelmingly inevitable.  They do tend to do that sort of thing.

Timing is primarily an issue for those who are trading with leverage and for short term profits.

The Dow/Gold ratio is now back to pre-crisis levels (chart not shown).

As compared to 2002, the 'free float' of gold is tighter now, and central banks are net buyers rather than sellers.  Physical gold may be more of an issue than normal, as opposed to the unwinding of paper positions after a multi-year price manipulation.

At this point one might 'get right and sit tight' in the usual measured way, and wait for the banquet of consequences to be served.

And finally, the gold/silver ratio is now at a recent high.   It may go a little higher, especially in the event of a currency crisis.

This suggest that IF gold rallies, then eventually silver will kick in with a vengeance and provide some outsized gains.   But if the gold rally is a result of a crisis, silver may lag, and perhaps substantially.  If it is in reaction to inflation, they get ready for a ride on the silver rocket.

I like to read Ted Butler's commentaries on silver, and he is saying much the same thing with regard to the composition of the Comex positions. 

Dave Kranzler at Investment Research Dynamics sees the gold and silver in a similarly bullish setup with some slightly different reasoning.  I like to obtain multiple perspectives from different indicators.

I am waiting for my charts to signal their move, with confirmation, and hopefully to provide a new and workable formation to gauge the extent of any reversal and breakout from this long trading range we have been in since the 'cup and handle' formed and then failed.

Silk Road Gold Demand Taking All New Mine Production and More - A Game of Consequences

'Books were the proper remedy: books of vivid human import, forcing upon their minds the issues, pleasures, busyness, importance and immediacy of that life in which they stand; books of smiling or heroic temper, to excite or to console; books of a large design, shadowing the complexity of that game of consequences to which we all sit down, the hanger-back not least.'

Robert Louis Stevenson, Old Mortality


"When an official market or cartel overvalues one type of money or asset and undervalues another with respect to its fair market value and risks, the undervalued money or asset will leave the country as best it can, or will disappear from circulation into hoards, while the overvalued money or assets will flood into circulation."

Murray Rothbard, Gresham's Law


"There is not a crime, there is not a dodge, there is not a trick, there is not a swindle, there is not a vice, that does not live by secrecy."

Joseph Pulitzer

Nick Laird of goldchartsrus.com has provided the latest statistics on the consumption of gold by the 'Silk Road' countries.

The monthly demand from these nations as shown below has grown five-fold compared what it was prior to 2008.

In the latest month their total consumption, that is private purchasing in addition to publicly disclosed official reserves, was 365 tonnes.

Nick has estimated global production as averaging about 260 tonnes per month.

This represents a shortfall of about 105 tonnes per month to be drawn from existing supplies.  This shortfall appears to be growing proportionately with increasing demand, visible on the first chart below.

So this is one reason why we have been seeing the existing stocks of gold around the world drawn down to cover the steadily growing demand from these countries.  And as you may recall, the central banks of the world became net buyers of gold around 2008.

Comex has little available stocks in its domestic warehouses compared to this demand, All of the gold in all the warehouses, whether it is for sale or not, if taken and liquidated is just over 200 tonnes as is shown on the report below.

London is a more substantial source of bullion, but is running down it's supply as we have seen in the 'gold float' analysis also included below.

Interestingly enough, the year over year drawdown in the London free float is about 100 tonnes per month.

There is also supply in ETFs and Trusts.  This too has been drawn down steadily, particularly since 2013.

These are not precise figures, but estimates gleaning from public sources.  I suspect the supply numbers are 'generous' with regard to the free float and the unencumbered nature of gold through multiple claims and leasing, but that is conjecture.

But no wonder the Indian government is so anxious to persuade their people to turn their gold into synthetic paper gold, and allow it to be hypothecated into the markets.  And no wonder that the Fed told the German government that their gold was temporarily inconvenienced until 2019.  And no wonder Venezuela is being leaned on heavily to give back the gold that it so recently repatriated so it may be sold.

I wonder what it would take to increase mine production and bring more gold in as scrap and private sales to meet this growing demand.  Higher prices perhaps?

And if so, then perhaps knocking the price down so aggressively, crippling the precious metals mining industry, is not a fruitful idea for the longer term.  Gold supply is not so easily manageable as a fiat currency's may be.

Given the current rate of growth in demand and the current state of supply, next year could be interesting.  Still, I never like to underestimate the 'resourcefulness' of the central banks, especially when they are operating in relative secrecy. And it never fails to surprise me at how reluctant the various groups of the status quo are to discuss these things except on their own terms, and within their own narrative.

And so such great events can happen slowly, and largely hidden and unremarked, until they seemingly burst upon the scene, speaking unpleasant truths.

Shanghai Gold Deliveries and Deliveries on the Comex - The 'Rest of the World' According To Bloomberg

Gresham's law is an economic principle that states 'when a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.'

Notice the 'sea change' that occurred with Shanghai gold flows starting in 2013.

And notice how the Western financial media views this phenomenon.

China Savers Buying Gold As 'Rest of the World' Exits

The 'Rest of the World' apparently does not include India, Russia, Turkey, much of the Mideast, and the European central banks who have been busy trying to repatriate their gold from New York and London.

I have included a chart showing 'Silk Road' gold consumption below.

In addition to all the wealthy individuals in the US and UK who are buying it for their own private vaults.

Who are the idiots who own most of the gold in the central bank crowd anyway?  The numbers are a bit hard to come by because for some reason the bankers are notoriously secretive in response to questions.

The 'official gold reserves' of all central banks in the world is also included below.  And the biggest goldbugs are the US, Germany, Italy, France, the IMF, Russia, China, Switzerland, Japan and the Netherlands.

True, a few central banks have disgorged some of their gold. The UK sold quite a bit of their sovereign reserves at the bottom, the lowest price for gold in dollars. Brown's Bottom it was called, presumably to rescue some 'trading houses' who were caught short.

"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."

Sir Eddie George, Bank of England, September 1999

One might wonder what has some of the NY and London banking crowd so worked up?  What have they gotten themselves into now?  Their spokesmodels have been quite active in the media lately.

I am sure the truth of this will come out some day.  Most likely over some long weekend.

This is how Nixon unilaterally took the US off the international gold standard, and declared a new fiat regime for 'the rest of the world' under the rule of the US dollar reserve, thereby rewriting the Bretton Woods agreement by executive decree.

Is it true that only a few 'goldbugs' really care about this and no one else?

Most of the central banks know the truth of things.  They are just keeping quiet about it for now, for whatever reason.  I suspect that they are receiving pressure related to the antics of one or more of the Banks.

"Gold is unique among assets, in that it is not issued by any government or central bank, which means that its value is not influenced by political decisions or the solvency of one institution or another."

Salvatore Rossi, Central Bank of Italy, 30 Sept 2013

Do these fellows take us for complete fools?  Really?

Latest Shanghai Gold Withdrawals Cross the 10,000 Tonne Mark - 2013 a Pivotal Year

In the first chart we see that there were about 57 tonnes of gold bullion withdrawn from the SGE into China in the latest week.  This is not 'official reserves' but all gold without regard to the receiving party.

This pushes the cumulative withdrawals of Shanghai gold over the 10,000 tonne mark.  Not bad for less than seven years in the business.

This does not include gold that flows through Hong Kong, or through any other non-exchange means purported to be used by the People's Bank of China.

On the second chart you can see that Year-To-Date Shanghai has released 2,119 tonnes into China.  Compared to prior years 2015 is clearly going to be a new record if the withdrawals maintain this pace.

One thing that struck me on that second chart tonight is that Shanghai withdrawals took a definite leg up in 2013.

This is also the same year that the price of gold in Dollars was smacked lower, and the ratio of potential claims to registered gold on the Comex began to climb, and eventually start to go parabolic this year.

Perhaps the bullion bank apologists and shills are right, and this is all just meaningless, an optical illusion, or some fantasy.  Gold is just like pet rocks,  and the majority of the people in the world, and throughout recorded history for that matter,  are just confused and demented.

As I mentioned earlier this evening, the tails risks look rather fat.  One might wonder that even a dingy gray swan with a weak wing could trigger a fairly impressive set of 'unforeseeable incidents.'

They'll never learn.  Why should they?  Winning....

But perhaps we are much closer to the end of this than most people might imagine.  Given the explosive ingredients in place it may be hard to miss.


Related: LBMA Apparently Altered Its Gold Flow By 2,200 Tonnes


These charts are from Nick Laird at Goldchartsrus.com.

Do Not Look at These Charts Showing Registered 'Deliverable' Gold Bullion In New York

“The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil."

John Kenneth Galbraith, The Great Crash of 1929

Here are a few charts that show the rather striking decline in 'registered' gold, that is gold available for those standing for delivery, in the Comex warehouses.

'Standing' by the way means standing around and waiting for someone to choose to fulfill your request for your contract to be fulfilled with actual bullion before the cut off date.

You can see from the first chart that the likelihood of someone actually standing for delivery and receiving bullion has never been less at The Bucket Shop.  Real metal is unfashionable amongst our financial sophisticates.

As for delivery and withdrawal of bullion, it is getting stronger and stronger in the East.  Second chart.  What can one say at such embarrassing behaviour?  What a bunch of rubes!

The shills and shrills for the bullion banks will tell you, in hair-splitting and often misleading detail that none of this means anything.    And you better listen to them because they are the ascended masters of the universe.

All of these categories and procedures at The Bucket Shop are meaningless.   And the holders of these millions of dollars in bullion often change the designations of their metal in new but meaningless ways in their quest to baffle the world.  And provide makework for their brokers and clerical staff.

The Bucket Shop is not likely to fall into a hard default.  You cannot lose when you own the game and set the rules, and can always force settlement.

Try not to underestimate the skillfulness and determination of market manipulators.  And especially their shamelessness. They hate it when you refer to the obviousness of their schemes. Like rigging almost every global market, and selling tailor made toxic instruments which they later bet against.  And getting caught, paying a wristslap fine to their cronies, and then claiming that they are the real victims of zealous prosecutors and your envy at their well-deserved success.

So nothing to see here.  Better not to look at it or ask any questions. About anything. Just leave your money and move along.

How Much of 1,740 Tons of London 'Good Delivery' Gold Monetized and Sent to China Central Bank

Koos Jansen has an interesting piece out this morning, that asks some very insightful questions in the ongoing attempt to connect the dots between the shocking decline in the 'float' of unencumbered gold out of the London Vaults with the tremendous, and not always fully visible, flows of gold into strong hands and Asian Vaults.

As you may recall it was Koos' groundbreaking work in analyzing the Shanghai Gold Exchange that blew the lid off the enormous flows of physical gold into China, despite the stubborn opposition of some well paid establishment analysts.

And all of this is relevant to what some have called 'the currency war,' which is the attempt to forge a new international monetary regime out of the ruins of the Bretton Woods Agreement and the fiat petrodollar.

This analysis ties together with a number of highly significant events, including the backwardation of gold price, the flight of gold from the registered category at Comex, and the tightness of physical supply in London as shown by lease rates and informed observations, despite the usual scoffing from apologists.

I have seen various estimates that the London float is now adequate for about 4 to 12 months at most, given this draining of supply, before the market gets into serious trouble.  That is unless a central bank or gold pool friendly semi-official fund undertakes to divest itself of more their nation's gold, as England apparently did by selling their sovereign gold wealth on the cheap near the turn of the century to bail out their banking chums, in the odd case of Brown's Bottom.

The gold in this current instance seems more likely to have been taken out as leases and sales from custodial gold holdings at the Bank of England, and the stores of gold that is backing ETFs and Funds in private vaults, having been disgorged by the actions of their participants and custodians, often the self-dealing bullion banks.

Perhaps this is mistaken.  Perhaps there is a reasonable explanation for all this oddness in the gold market.  Good then let us hear it, and not these silly scoldings and transparent fabrications of nonsense that seem to be the stock in trade of the bullion bullies and paperati which only serve to fuel more doubt and questions.

And why is it again that the US and UK were unable to return Germany's national gold stores in a reasonable timeframe?  And India desperately looks for ways to limit their peoples' appetite for physical bullion of their own?  So many questions, so much leverage, secrecy, and stonewalling.

As Koos Jansen observes:

Consider the following:

• Good Delivery gold bars can be monetized – in countries like the UK, Hong Kong, Switzerland and Singapore – from where they can be shipped into China while circumventing global trade statistics. This is because monetary Good Delivery gold bars are exempt from global trade statistics (UN, IMTS 2010). Needless to say monetary imports into China are conducted by the PBOC.
• Non-monetary Good Delivery gold bars (declared at international customs departments) imported into the Chinese domestic gold market are required to be sold through the SGE. However, trading volume at the SGE in GD bars has been a mere 3 tonnes in all of history.

We can thus conclude that if any Good Delivery gold bars have entered China these did not go through the SGE system where Chinese citizens, banks and institutions buy gold. Instead, it’s likely that the Good Delivery gold bars that crossed the Chinese border went directly to the PBOC vaults...

Nick Laird and I noticed that although the total amount of physical gold in London fell roughly 2,744 tonnes (9,000 – 6,256) over four years (graph 1), only 997 tonnes were net exported as non-monetary gold (graph 4). This makes me wonder where the residual 1,747 tonnes (2,744 – 997) went. Possibly, this gold has been monetized in the UK and covertly shipped to a central bank in Asia, for example China. I don’t have rock hard evidence, but it fits right into the wider analyses.

You may read the entire piece and its complete evidence and reasoning The London Float And PBOC Gold Purchases.

One thing that is strikingly odd about this is that it is one of the more revelatory accumulations of data on the shadowy corners of the global gold market since Frank Veneroso's seminal study of the flows in the gold market involving central bank gold at the beginning of the great bull market that began at the start of the new century.

And yet so many sites still have not picked up on this sea change and unfolding currency war, despite it tying together so many other observations and data and market tremors.  Perhaps it is insufficiently pedigreed.   The contrarian perspective says that this may be the hallmark of the real thing.

Shrinking Supply of Available Gold In London For World Demand - Timely Caution

It is reasonable to estimate that London, in all the vaults, has only about 900 to 250 tonnes of gold available for physical delivery, which is a shockingly low figure given the current demand from 'The Silk Road' nations alone that is running about 1,700 tonnes per year.  And even that 250 number is questionably high, depending on the status of the gold in the Bank of England.

The objective is to attempt to determine how much available physical gold for delivery can be wrung out of London and New York, in excess of what can be had from scrap, minining and leasing. We are calling that 'the gold float,' and it is feeding the demand for bullion in Asia.  At that point we might estimate when the pressure on price becomes irresistible.

We are thinking months, not years, at least with things as they are.

I wish to acknowledge up front the debt that is owed to Ronan Manly and Nick Laird especially for the data contained herein, as well as Koos Jansen for his ground breaking work in estimating Asian gold demand, and Bron Sucheki for his participation..  I have listed some of the pertinent published articles below.

It is regretful that one can only provide estimates.  But that is the nature of this beast that operates with secrecy of supply and distortion of actual demand.

What manner of business is this to enable price discovery in a public market, by covering so many fundamentals with secrecy?  Where is the mining community in all this?

The LBMA is said by those who are in a position to know these things to be running 90:1 or more leverage to each of its unallocated ounces of gold, which according to Jim Rickards is all of them.

The potential claims per deliverable ounce at the Comex right now is at an historic nosebleed high by of about 255:1, supposedly because the owners which to avoid a 'short squeeze' in bullion, although the party who said this did not say 'where.'  London probably, maybe Switzerland.

Peter Hambro says that "there is not enough physical about. There are endless promises."

In a nutshell, we now know that physical gold for global delivery, of which the London vaults are a major supplier, are rather tight, especially given the increasing demand for physical bullion in the East.

There is plenty of room for questioning the numbers and casting doubt on them, while hiding behind a curtain of exchange secrecy.  One might suppose that the gold bullion bank apologists will be hard at it soon enough again.

They too often do not help to advance the understanding of the public,  preferring to selectively twist the data to say 'all is well.'   They deride the supply problems that people in the industry are encountering, always saying they are not real.  And they like to include all the gold that exists in the warehouses for their calculations, whether someone else already owns it and is clearly not interested in selling at these prices.

More details would be useful, because if we could obtain a better idea on the extent of central bank leasing, we would be better able to estimate the risks and the relative fragility in the highly leveraged and hypothecated supply of gold in New York and London.

One would think from the known data that the unallocated gold in London is counter-claimed many times, and even the allocated and custodial gold is likely to have multiple claims upon it.   So the actual 'gold float' is probably quite a bit less than 1,361 tonnes.  Each of us has our own favorite ballpark number ranging from 900 to 250 tonnes and less, not fully accounting for leases and leverage on the remaining stock.

Nick Laird had a secondary outlier estimate which he expressed in colloquial Australian, which I dare not repeat here.  But it was quite low.  lol. Maybe four months worth of float left.

And it would certainly be nice to have more information about silver, especially since to my knowledge the central banks have dealt their own supply away some years ago and there are quite a few indications of tightness of supply, although not in the Comex yet.

I do consider this analysis to be a work in progress,    Nick Laird and Ronan Manly are the key data organizers I believe, with help from Koos Jansen and Bron Suchecki, and the odd bit from Jesse the consulting detective.    So I would look to their sites for explication of their methods and sources. Ronan Manly in particular is a public source and he goes into quite a bit of detail.

Given the struggle it has been to obtain the data, and the refusal of central bank personnel to discuss their own supplies on orders from above, there may surely be gaps and errors in this, but not for lack of effort.

If I have any major concern it is that the management, the exchanges and the regulators, will allow the traders to sleep walk themselves into a rather serious situation.  And don't we know how little self-restraint these traders have been showing.

The remedy for this situation is not even more leverage, or more hypothecation of the unallocated stock, or even more leasing by the central banks, or more programs in India to dampen demand.

The longer they allow this price rigging and leveraging up, the slower productive mines will come on line, and the worse the tightness on the remaining physical supply will become.  But as they say in New York and London, 'nothing is broken yet.'

The market solution for this tightness of supply is HIGHER PRICES and not increasingly ludicrous jawboning, spin, and bear raids.

And if higher prices might inconvenience the policy and perception management aspirations of the Wall Street financiers, their enablers and associated hirelings, well then too bad. Try to behave more responsibly, and stop attempting to make the rest of the world pay for your excessive gambling losses and poor judgement.


Related:
On the LBMA and Their Unallocated Holdings
Lions and Tigers and Deriding the Tightness of Gold Supply
How Many Good Delivery Bars Are In the London Vaults - Ronan Manly
Central Bank Gold at the Bank of England - Ronan Manly* (detailed sourcing of this data)
The London Bullion Market and International Gold Trade - Koos Jansen
Detailed London Charts and much data gathering - Nick Laird (available to the public)

Here are a few additional charts from Nick Laird's site at goldchartsrus.com to break out a bit more detail and to provide some context for the estimated physical supply compared to physical demand.