Gold Daily and Silver Weekly Charts - GLD May Be In the Eye of the Gathering Storm

I spent some time rereading the prospectus and some recent filings of the SPDR Gold ETF today. 

A reader had asked me a question this morning about a statement I made yesterday about the squeeze on physical bullion and how it may intensify if gold rallies. I said that GLD has to start adding back some of the bullion it has disgorged at some point, and many of those 400 oz. bars may likely have headed east, not to return.

The reader said, 'why can't GLD just refuse to add the gold back?'

It is not the management of GLD's decision to make. I had to go back and read the prospectus and some recent filings to remind myself why.

GLD essentially acts as a trustee, with very light obligations and therefore a small management fee. It is primarily an organizer for the bullion banks and other brokers, who as 'Authorized Participants' make the decision to increase or decrease the amount of gold held in the GLD ETF and the number of unit shares outstanding.

The current Authorized Participants according to GLD's most recent filing are Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA LLC, RBC Capital Markets Corporation, Scotia Capital (USA) Inc., UBS Securities LLC, Virtu Financial Capital Markets, LLC and Virtu Financial BD LLC.

GLD is a creature based largely on arbitrage and self-regulation of a variety of market participants and custodians. HSBC acts as primary custodian for the gold in their allocated and unallocated accounts. An Authorized Participants can add or redeem gold from the holdings of GLD in 100,000 unit tranches.

Although it can be confusing, I sometimes refer to 'GLD' as the collective action of the Authorized Participants in arbitraging the price and inventory. And I am not the only one.  I know its sloppy, but that's what it is. Earlier this year a spokesperson  for GLD itself made the same type of statement about their intention with regard to share/bullion ratios, and I quoted it indirectly.

But it is correct to say that this is a 'group thing' based on market equilibrium, arbitrage, and counterparty trust.  I am sure they do not have to meet about or discuss it, because in theory the information is all conveyed by the market and their access to real time inventory data.  I do not think all this information is shared equally among market participants.  There is an 'intraday indicative value' with the symbol PHYS.IV.

The Authorized Participants have the ability to sell the units short, although they could achieve a similar equilibrium by shorting or buying in an associated market like the COMEX or the derivatives market for example.

It is this function that provides the lever for the arbitrage. If retail demand pushes the price of GLD above its Net Asset Value based on its bullion and units, the Participants who know this figure intraday can sell shares short to match it to the price of gold and buy bullion if they wish as a hedge. Or tweak the spot price in the futures market by performing essentially the same buy and sell functions.

If they wish to cover these shorts, they may deposit a 100,000 unit tranche of gold back into the ETF and use those shares received in return to cover the short. Or they may buy back in the open market if the price has dropped below the NAV. If they wish to reduce the amount of gold in the GLD account they can redeem units in 100,000 unit tranches.

Off hand I could not say if the ETF unit shorts are borrows or naked.  I suppose it is like anything else these days.

I know this is a simplification, and there is an interesting dynamic going on since these same Authorized Participants are sometimes 'major players' in the COMEX where the price of spot is essentially set intraday, in addition to the LBMA twice daily price fixes.

If you wish to read this further here is a link to the GLD filings. Some web sites such as VictortheCleaner also provides further commentary, although I might not call GLD the central bank of the bullion banks because of GLD's structural passivity.

In reviewing things, I have come to a tentative conclusion that if this system of balancing risks should fail, a counterparty failure is more likely to occur first with GLD rather than in the COMEX or LBMA, although this might be a matter of a same day occurrence.

So if the price of gold starts going higher, and the shorts cover in the open market, they have little other choice in their arbitrage than to buy gold eventually and add units to the ETF to bring the NAV back into equilibrium with price.

Where they may find the suitable 400 oz. bars to do that is another question altogether. And the fiduciary responsibility for GLD is spread across a range of participating custodians, subcontractors and brokers.

Weighed, and found wanting.

Stand and deliver.

SP 500 and NDX Futures Daily Charts - JPM the New 'Bad Boy' of Wall St

Stocks played the complacency trade today and bounced a bit within the narrow ascending range that has marked their price action since mid-July.

The storied "America's Bank," JP Morgan Chase, with its fortress balance sheet, was a weak player today as more news emerged about investigations and lawsuits for their dealing in various markets. And this despite reporting a 'perfect' trading record for the first half of this year. Is this what happens when good boys go bad?

"JPMorgan reported it is under investigation by the Justice Department in six separate areas; being pursued by multiple state attorneys general; Congress; at least five federal agencies; regulators around the world including the European Commission, the UK’s Financial Conduct Authority, the Canadian Competition Bureau, and the Swiss Competition Commission.

In addition, in a trial in Italy, two of its employees were “found guilty of aggravated fraud with sanctions of prison sentences, fines and a ban from dealing with Italian public bodies for one year.” In the same matter, JPMorgan was fined €1 million and ordered to forfeit profit from the transaction of €24.7 million."

Read the entire article by Pam Martens here.

One can only wonder.

COMEX Deliverable (Registered) Gold Declines By Almost 60,000 Ounces

Since last Friday the registered gold in the COMEX warehouse has declined by almost 60,000 ounces to a new recent low of 875,710 ounces.

Total gold including eligible gold stored by customers in COMEX warehouses but not offered for sale holds steady at around 7 million ounces.

There was a transfer of about 6,445 ounces of customer gold from HSBC to JPM. But this was not deliverable gold as indicated on a popular website, but merely a transfer of eligible ounces from one warehouse to another.

I noted today that about 8,300 ounces of gold bullion in 400 oz. bars was redeemed from the Sprott Physical Gold Trust. Gold in this form is ready for delivery to Asia. I cannot imagine why else someone would go through the redemption process unless there was an immediate need for physical gold.

Given the amount of bullion actually being offered for sale at the COMEX, higher prices seem to be indicated in this delivery cycle with a little over 200,000 ounces worth of contracts standing for delivery, at least for now.

GLD lost about 4.5 tonnes of bullion due to paper induced selling. At some point when the price of gold turns and GLD must start adding bullion back the pressure on physical supply could be interesting.

But why debate or belabor this any further?  Hit the paper price again if you dare, with the government of India doing all that it can already to stop the flow of gold into that country, and the gold forward rates negative over twenty days as the search for deliverable gold at these prices is becoming increasingly desperate.  

People wish to protect at least some portion of their wealth from opaque counterparty risks.

Weighed, and found wanting.

Stand and deliver.

Gold Daily and Silver Weekly Charts - It's Been A Long Time Coming

"Gottes Mühlen mahlen langsam,
mahlen aber trefflich klein
Ob aus Langmut er sich säumet,
bringt mit Schärf' er alles ein."

Friedrich von Logau

As I noted earlier today there was a drawdown, most likely a redemption, of gold bullion in the past week or so of about 10 million dollars worth of gold bullion from the Sprott Physical Gold Trust.

I am informed that Sprott utilizes the highly prized 400 oz. bars that are the standard in Asia, versus the 100 oz. bars common used on the COMEX. Apparently someone wanted the actual bullion badly enough to go through the delivery process.

Let's see how the bullion inventories go during this August delivery month.

As you may recall I have had a stawman theory in the back of my mind that some major player with a good insight into the global supply could manage to create a corner in the gold bullion market without necessarily executing it on the COMEX, which is hard to do because they would be quick to declare force majeure.

But with the tightness of supply and the protracted negative lease rates for gold there appears to be some sort of squeeze going on with drawdown in inventory at COMEX and allegedly at the LBMA.

I would hate to be holding that bag, for the return of leased gold or other contractual obligations for example.

The wind of change is blowing a hurricane.

Weighed, and found wanting.

Stand and deliver

SP 500 and NDX Futures Daily Charts - What, Us Worry?

Another afternoon stick save for equities.

 

NAV Premiums of Certain Precious Metal Trusts and Funds - Drawdown in Sprott Gold Trust

I do not know when it happened as I just noticed it today, but the Sprott Physical Gold Trust reduced its bullion level and the shares outstanding in what was apparently a redemption of units for gold.

The bullion level was reduced by 8,292 ounces, and the units outstanding by exactly 1,000,000. The cash on hand dropped by $434,969 which may be unrelated since it is used to pay storage and management fees.

The two spreadsheets are dated today and August 2. I sometimes neglect to update inventory so it could have happened earlier than that.

As you know the Sprott Trusts do have a facility for the redemption of units for bullion, so I do not view this with any concern, merely curiosity. Obviously someone wanted physical gold bullion for some purpose.

I include both the current and my last spreadsheet pages below.

Gold Daily and Silver Weekly Charts - Hedge Funds Stage Limp Bear Raid in Light Volume

...and the horse they rode in on.

Weighed, and found wanting.

Stand and deliver.

SP 500 and NDX Futures Daily Charts - Weak Economy, Den of Vipers

There was little price discovery in the market today, just some algos tiredly batting the prices around in light volume.

Gold Daily and Silver Weekly Charts - Treading Water

Let's see how the physical inventories fare this week. The hedge funds seem to be determined to press the paper price of the metals lower.

I am watching this 'W' formation on the gold chart with increasing fascination. If the funds cannot negate this, then W will stand for whiplash.

SP 500 and NDX Futures Daily Charts - Complacency Reigns, But Jitters Behind the Scenes

There was a light volume choppy market in stocks today despite the 'better than expected' number for ISM Services.

Richard Fisher came out and make hawkish comments about the Fed's policy, which dampened the markets.

VIX dropped again, but you have to wonder about this given the 'heightened threat' environment that is alledged to be the worst since 9/11.

This is a light data week, and the equities markets will lack direction except from earnings and secular events.

Gold Daily and Silver Weekly Charts - Ship of Fools

The metals were pounded in the quiet overnight session on the COMEX ahead of the Friday Jobs Report, with gold smacked down to $1282 and silver down to $19.20.

The jobs number came in light, and the metals rocketed back to where they started.

Gold is now in the August delivery cycle with registered inventories of actual bullion on the COMEX down to shocking lows. 

The US is closing some of its overseas embassies this weekend and has issued a travel alert because of terrorist threats.   Let's see if anyone throws a flag on the field over the weekend.

A new scandal has emerged as the CFTC investigates fifteen of the biggest banks which apparently have been rigging a key interest rate number in order to swindle their customers in the swaps markets.

"US regulators have reportedly been handed evidence that traders at some of the world's biggest banks manipulated a key rate for derivatives, pocketing millions at the expense of pension funds in the process."

Apparently New York and London are where the elite meet to cheat. 

As Jeff Sachs said to a meeting of economists at the Philly Fed, our modern financiers seem to be almost pathologically criminal, and some of the world's politicians are rightfully aghast at the scope and audacity of their abuses.   Blowback for this gross failure of integrity in financial governance is coming, and it could be terrific.

They have no shame, they are unworthy of all trust, and their word means nothing. So what is there to discuss?

Weighed, and found wanting.

Stand and deliver.

SP 500 and NDX Futures Daily Charts - Complacency Reigns

Another day, another weak jobs report, another scandal in which Banks are discovered to be fixing a key rate to cheat the people, this time through interest rate swaps.

When will it end?

NAV Premiums of Certain Precious Metals Trusts and Funds - Banks Rigging Derivatives

It appears that the overnight hit on the metals for Payrolls Friday got stuffed pretty handily when the jobs number came in light.

Silver is still up although gold has been pressed back a bit.

The CFTC is investigating fifteen of the biggest banks on evidence handed to them that they were rigging a key derivative for interest rates.

"ISDAfix is published each morning after banks submit bids for swaps via Icap, the inter-dealer broker, in a number of currencies. The CFTC has been investigating suggestions that the banks deliberately moved the rate in order to profit on these deals.

Given the hundreds of trillions of dollars worth of interest rate derivatives trades that occur annually, even the slightest manipulation can have a substantial effect.

The CFTC, which started to investigate ISDAfix after last summer’s Libor scandal has now been handed emails and phone call recordings that show the rate was deliberately moved..."

When crime pays, why wonder that it flourishes? And they have little fear, and no shame.

Gold Daily and Silver Weekly Charts - The Day Before the Non-Farm Payrolls Report

The metals were capped lower today as stocks went running higher. Gold was hit a bit harder than silver.

The August delivery period now begins.

Stand and deliver.

SP 500 and NDX Futures Daily Charts - A Record Close on the SP 500

A better than expected on manufacturing in the ISM Index and a lighter than expected number of new unemployment claims had the bulls stampeding higher to a new record close on the SP 500.

Tomorrow is the Non-Farm Payrolls report.

Traders believe now that the Fed will keep printing money while inflation remains subdued.  Or at least that is the word for today.

A Forensic Investigation of Gold

This is interesting, but apparently somewhat tentative, which is understandable given the nature of the subject.

I am not in a position to assess it quite yet, but I thought it was worth sharing to see what you all might think. I intend to follow this closely and spend more time looking into it. Today I am preoccupied with the wonders of the healthcare system.

I find the opacity in these exchanges and funds to be somewhat frustrating as I am sure many do, as well as the lack of detailed independent audits and full and timely disclosure, especially with regard to what might be considered to be public information.

But still the effort can be made to untangle things as best we can.

Here is a summary of key points by Mr. Ferguson of the analysis.

"GLD was "funded" with gold leased out (sold) by the BoE and SNB.

With everything going on, not only are those entities no longer willing to provide supply, they're actually taking their gold back before it's too late.

Holders like Paulson and Soros are the "fly in the ointment" as they have a GLD claim on the same gold that the BoE and SNB claim as their own "leased" assets.

We are witnessing a managed, slow-burn "run" on the London vaults, where supposed "allocated" gold rests for entities worldwide but this gold has instead been leased out, not only to the GLD, but sold into the market and currently dangling around the necks and wrists of Asians as well as being recast into 1Kg Chinese bars."

Read the entire article here.

I would imagine it would be fairly easy for GLD to address any mistakes in this with a clear statement with regard to any claims or counterclaims on its bullion.

COMEX Registered Gold inventory Continues To Decline - A Litany in Time of Frauds

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

John Kenneth Galbraith, The Age of Uncertainty

As a reminder of something we have discussed previously, the COMEX does not take legal responsibility for or audit the bullion inventories reported, as stated in the following disclaimer which they added to their records in June of this year.  They rely on the accuracy and integrity of the parties which report this and other information to them.

"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."

I think this statement by the COMEX is quite clear and to the point.

It is possible to doubt anything. But sometimes we just have to accept that the data is what it is, without imputing to it anything more, or less, than what it may be. And that applies to most data that comes from the markets, which all deserve a measure of skeptical examination, things being what they are.

A broad and continuing review of all the data tends to provide the best and most reasonable approximation of what is real. Where several data sets from various sources resonate their agreement, we may proceed with more confidence than we might from a single source that is subject to error and other human vagaries.  And where there is disagreement of measurements in the form of conflicting data, then further examination is required to resolve and understand it.

Having said all this, the inventory which has been reported as registered and deliverable has continued to drop into the August delivery period which starts tomorrow.  

And since this and other data seem to indicate a shortness of supply against a continuing strong demand, which generally indicates a higher market clearing price ahead, this is something that we will all watch with keen interest I am sure.

But this is no 'sure thing,' unfortunately, given the propensity for the modern bankers to dictate protractedly their own reality by fiat, that is, by the power of the will, and their persuasive commands.  Such are the ways of empire, as they wax and wane in the character of their leaders.

"Boast not of what thou wouldst have done, but do
What then thou wouldst."

John Milton, Samson Agonistes

Stand and deliver.