Financial Media Wakes Up to 'Physical Tightness' In London Gold Bullion Market

How interesting that the Financial Times has finally noticed 'tentative signs of increased demand for bullion from consumers in emerging markets.'  You know, those obscure places with difficult names such as I-N-D-I-A and C-H-I-N-A.

It's not all that new of a phenomenon, mates.   Our friend Nick has been tracking it, and we have been talking about that here at Le Cafe, for a couple years now.  Well, maybe almost a decade.  See the charts below.

And we have also been hearing about 'physical tightness in the market for gold for immediate delivery.'  While the 'cost of borrowing gold has risen sharply in recent weeks.'

Even while the price of gold was shoved lower on the non-delivery paper markets of The Bucket Shop, helping to crater the deveopment and production of mining companies.

Sounds like borrowing gold for physical delivery is starting to be a dodgy business, a little hard to manage at such high leverage of claims to items.

Wait until people start realizing that there is a diminishing mix of deliverable and of 'borrowed gold' backing up a pyramid of derivatives and paper claims.   Is that the sound of a spoon scraping the bottom of the pot yet?

What happened to the theory of higher prices to relieve demand in excess of supply?

And where is that 'borrowed gold' coming from, by the by?  It must belong to someone, and they may even think it is safely tucked away while it is on its way to Asia via Switzerland.

If the LBMA has been doing what some think they have been doing with demand and available supply, then we haven't seen anything yet.

Never be the last one out of the pool.

But let's see how all this plays out.

Gold Demand from China and India Picks Up

By Henry Sanderson
Financial Times, London
Wednesday, September 2, 2015

London's gold market is showing tentative signs of increased demand for bullion from consumers in emerging markets, after the price of the precious metal fell to its lowest level in five years in July.

The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.

The rise "does indicate there is physical tightness in the market for gold for immediate delivery," said Jon Butler, analyst at Mitsubishi. ...

... For the remainder of the report:

http://www.ft.com/cms/s/0/eae18206-5154-11e5-b029-b9d50a74fd14.html

Gold Daily and Silver Weekly Charts - Option Expiration Tomorrow

There was some cursory movement of bullion out of the Comex warehouses yesterday, but in general they are reasonably well equipped ahead of the April active contract period which begins next Monday with first notice.

As you know there is a precious metals option expiry for the April contract tomorrow.  We may consider the gut check already delivered for it ahead of time perhaps, but there is still the off chance of another hit in the quiet periods tonight and the day after tomorrow.

I have included a chart of the gold price in dollars with a few technical because we finally saw the 50 DMA climb over the 200 DMA.  That is known as the 'golden cross.'   It would be more meaningful if it was occurring on substantial volumes.

I am not such a big believer in technical measures except at their extremes in an inefficient market that is being managed to certain ends.   But it is worth noting at least. 

The delivery calendar is more important, and not so much even that for New York and London.  The real markets for precious metals are now in the Mideast and Asia.

Time settles all accounts.

Have a pleasant evening.

Inside London: 'Demand Delivery For the True Price of Gold'

Buba is the nickname for Deutsche Bundesbank, the central bank of Germany.

I nearly fell out of my chair when I read a description of the divergence between the paper and physical gold markets from the Inside London column of the Financial Times.

"But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery."

And this in the prince of mainstream financial publications.   Quick, alert the spinmeisters for Davos man that the natives are growing restless.  

As the fellow says, one day the ties that bind the actual and the traded commodity will snap. So if you fancy gold at today's depressed price,  take delivery.

"In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.

The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.

Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. The drones will have full control of the paper trail, won’t they?

There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults?

 

...But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery."

Read the entire article in the Financial Times here.

Caveat Emptor: Another Level of Non-Quantifiable Risk Added to Trading Metals On the Comex

The disclaimer below has recently been added to the Comex warehouse report.  Sharp-eyed Dave from Denver and His Band of Merry Pranksters spotted this little addition at the bottom of the page.

This is from the report that shows the amount of gold and silver said to be available at the Comex.

"The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only."

So much for even any pretext of audits and inventory controls.   Just numbers on a piece of paper when push comes to shove.

One can only wonder why the Exchange felt the need to add this statement now, after all these years.  Especially when Comex eligible gold inventory levels are approaching record lows, and there is widespread mistrust of certain parties and their opaque market positions on this list.

And there are rumours of forced cash settlements in lieu of bullion delivery floating around. The Hong Kong Metals Exchange just folded, and forced cash settlements. And banks are cancelling physical delivery arrangements.

How can someone who is trading metals and storing them at the warehouse not be concerned about a declaration of force majeure without liability recourse? What is the purpose of a commodities exchange when there are no representations made that they even possess what one is trading?

Who does the PR for these jokers? Or do they just not care anymore?

We'll have to call the Waffle House and see if Bart Chilton has any comments to make about this.

I wonder if we will see more disclaimers like this. The supermarket can put a disclaimer in the meat department that says that while they buy their product from believable sources, they make no representations or accept no liability with regard to the actual species of the meat which you are buying.

Weighed, and found wanting.

CNBC Europe: Is Gold a Bubble, Or an Outstanding Value, or Both?

My friend Horst from Germany sent this to me.

I think you will find it to be of interest.

The subject discussion revolves around the currencies, paper gold, and bullion.

Ben Davies, CEO of Hinde Capital



I cannot help but note that the level of discussion in CNBC Europe and Bloomberg Asia is much more serious than that of Bloomberg and CNBC USA. I wonder why this is, given the global character of the financial markets.

And then there is Fox Business where T/A does not necessarily have anything to do with technical analysis or charting.