The Center of the Gold Trading World Is Now In Shanghai

"If once you forfeit the confidence of your fellow citizens, you can never regain their respect and esteem."

Abraham Lincoln


"It is lack of confidence, more than anything else, that kills a civilisation. We can destroy ourselves by cynicism and disillusion, just as effectively as by bombs."

Kenneth Clark


"At the root of America's economic crisis lies a moral crisis: the decline of civic virtue among America's political and economic elite. A society of markets, laws, and elections is not enough if the rich and powerful fail to behave with respect, honesty, and compassion toward the rest of society and toward the world."

Jeffrey Sachs

Shanghai is emerging as the new center of the gold trading world, as the price shenanigans of London and New York discredit their exchanges, and accelerate the flow of gold from west to east.

The volumes on the LBMA and the COMEX are larger but misleading, because for the most part they represent the passing around of paper claims, at a leverage of 50 to 1 or more, against a diminishing pile of actual gold bullion.   They are now running on custom and momentum, but losing substance and confidence with every passing day.

This is the direct result of not allowing the market to set the price, and the moral hazard of not restraining overly cynical, if not overtly fraudulent, representations of value and risk. 

The market operation that took down the price of gold which we saw earlier this year on the COMEX was so blatant, so heavy handed, so patently obvious that it jarred the world markets, and had the opposite effect to which one might presume it was intended.  It was a bureaucratic over-reaction, panic more precisely, to the Bundesbank's request for the return of their national gold.

If the Anglo-Americans did not use this opportunity to secure the return of the gold bullion which had been leased out, it was a strategic blunder of epic proportion. It may be viewed in retrospect as the watershed moment in which London and New York squandered away the confidence of the world.  In their cynical and amoral self-delusion, and a contempt for other people, they assumed that maintaining public confidence is a function of being bolder and more skillful liars. Nicely played, gentlemen.

Integrity is the prerequisite for confidence, and bad behavior drives out the good.  A loss of confidence after repeated abuse is a genuine risk whether one properly accounts for it or not.

Weighed, and found wanting.

The original article from which this chart has been taken can be found here.

Who Is Interested in the Price of Gold Today?

Someone who has seen the writing on the wall, and wonders...

A lunchtime vignette at Le Café.

COMEX Eligible Gold Is Holding At Record Low Levels Even At These Higher Prices

"It is not in human nature to deceive others for any long time, without in a measure deceiving ourselves also."

John Henry Newman

The bullion banks are struggling through this August delivery period, and the end next week is in sight.

But who will provide the gold to get the Banks through the important October delivery period?  And then December? Winter is coming.   

Weighed, and found wanting.

Stand and deliver.

"The Most High God gave your father Nebuchadnezzar sovereignty and greatness, and glory and splendour.   Because of the high position he gave him, all the nations and peoples of every language dreaded and feared him. Those the king wanted to put to death, he put to death; those he wanted to spare, he spared; those he wanted to promote, he promoted; and those he wanted to humble, he humbled.

But when his heart became arrogant and hardened with pride, he was deposed from his royal throne and stripped of his glory. He was driven away from people and given the mind of an animal; he lived with the wild donkeys and ate grass like the ox; and his body was drenched with the dew of heaven, until he acknowledged that the Most High God is sovereign over all kingdoms on earth and sets over them anyone he wishes.

But you, Belshazzar, his heir, have not humbled yourself, though you knew all this. Instead, you have set yourself up against the Lord of heaven. You had the riches of His temple brought to you, and you and your nobles, your wives and your concubines, despoiled them.

You worshipped the gods of money and power, which cannot see or hear or understand. But you did not honour the God who holds in his hand your life and all your ways. Therefore He sends the hand that wrote this inscription on your wall."

Daniel 5:18-24

Gold Daily and Silver Weekly Charts - When Exchanges Crash Do They Dream of Electronic Sheep

When the Exchanges crash and burn, do they dream of electronic sheep?

Well, I cannot say if they dream or not, but you may as well be dreaming of electronic money,  if that is where you keep your wealth, and it is lost somewhere in an electronic storm. You are reliant on the integrity of the exchanges and their owners for restitution. Often it works out well, and things go on as normal.  But as the dominoes of counterparty risk start falling, it is 'might makes right' as we saw in the mysterious case of MF Global.

I hear that Obama was 'informed' of the problems on the NASDAQ today. I assume that is a symbolic gesture designed to inspire confidence.   And it is as practically futile as giving the Princes of Wall Street a big pile of the public's money to keep their doors open in a collapse of their own causing, and expecting them to 'do the right thing' for the sake of the country.

Gold and silver held their ground today, and are very obviously coiling. You can see it more clearly on the gold daily chart. The odds are it will break to the upside, but there seems to be a determined effort not to allow the metals to break and run, but to keep them well leashed.

I have included two charts of gold in grams priced in Indian Rupees to show the remarkable recovery gold has made from the lows despite the extraordinary efforts being made by the Reserve Bank of India and that government to stop the flow of gold into the hands of ordinary Indian people who are seeking their traditional safe haven for their wealth.

At some point the leash that is holding gold back is likely to break, and then the price will find its own level, though the heavens may fall.  Or at least a few of those demigods that think they are doing God's work.

As a reminder, next Tuesday 27 August is option expiration for gold and silver on the COMEX.  And Friday 30 August is the last delivery day for August. 

There could  be some interesting cross currents next week.

SP 500 and NDX Futures Daily Charts - Gaming the Gaming

Stocks were slumping overnight in the aftermath of the Hewlett-Packard miss after the bell yesterday.

The SP 500 futures made a dead hit on the 50 percent retracement level today, and then took off like a scalded cat in light volumes. I posted on this intraday here.

About 12:23 the Nasdaq exchange went down for the count, and quite a few stocks were no longer able to be traded, although the futures remained opened for business. Trading resumed at 3:25 PM although quotes were available before that.

I hear that trading could have occurred on the NYSE although no quotes would have been available. There is no real backup arrangement, and I suspect there will be more talk of this.

No one is talking about what was going on in the 'dark pools' during this hiatus.

I imagine that some day soon the mavens from the Nasdaq will reveal what went wrong, and the SEC will make the appropriate harrumphing noises, and point to Regulation SCI which they have open for comments on this matter, which was recently extended for even more comments. The regulation deals with system compliance and integrity.

I hate to say it but the level of discussion on Bloomberg TV this afternoon was taking the part of Wall Street and Jamie Dimon so vigorously that they made Andrew Ross Sorkin look like the Savonarola of big finance.

Have a pleasant evening.

NASDAQ Trading Halted, Now Scheduled to Resume at 3:25 PM

As I am sure you have heard NASDAQ trading for stocks and options was halted earlier today around 12:23 PM because of a computer trading glitch. It is now scheduled to reopen for trading at 3:25 PM although quite a few stocks are now showing quotes.

The NDX (Nasdaq 100) futures never stopped trading.

Two NASDAQ listed stocks, Autodesk and Scansource, will report their financial results after the bell as scheduled.

NEW YORK (AP) — Another computer glitch is sowing confusion on Wall Street.

Trading in the Nasdaq, a major stock exchange dominated by the biggest names in technology, was halted shortly after midday Thursday due to an unknown technical glitch. Nearly two hours later, trading was still frozen. Other exchanges were trading normally.

The disruption sent brokers scurrying to figure out what went wrong and raised new questions about the pitfalls of computer-driven stock trading.

Thursday's Nasdaq freeze echoed earlier stock market snafus, such the sudden plunge in stocks in May 2010 that came to be known as the "flash crash" and the glitch-plagued initial public offering of Facebook last year.

The exchange sent out an alert to traders saying that trading was being halted until further notice because of problems with a quote dissemination system. Nasdaq said it wouldn't be canceling any open orders, but that customers could cancel orders if they wanted to...

SEC Whistleblower Gary Aguirre on the SEC's New Wall Street Crackdown

I remember this particular gentleman very well, and when he was fired for daring to attempt to investigate a powerful Wall Street figure for insider trading.

Here is some background on his case, and his reflections on the current state of the SEC.

Some of his comments strongly echo the thoughts presented in Bill Moyer's new interview with Mark Leibovich, author of This Town.

Some Details on the Shanghai Gold Exchange

I found this to be very interesting detail on the operation of the Shanghai Gold Exchange. It was provided by comment at Dave's GoldenTruth site here.

The market is a hybrid of a physical and futures market.

I don't know if you are familiar with the operation of Shanghai Gold Exchange. The most frequently traded gold products are Au9999, Au9995 and Au(T+D). The most frequently traded silver product is Ag(T+D).

Au9999 and Au9995 are cash products. Au9999 is 1 kg of gold 99.99% pure and Au9995 is 1 kg of gold 99.95% pure. You just trade them like trading stocks.

Au (T+D) (the contract size is 1kg of gold no less than 99.95% pure) is similar to futures contracts but it does NOT have a specific delivery month. Delivery can take place every trading day. Between 15:00-15:30 (Beijing time, GMT+8) of every trading day, all the longs/shorts can submit their intentions to take/make delivery.

If there are more intentions to take delivery than those to make delivery, all the shorts of Au (T+D) must pay the longs Deferred Compensation Fee: short to long. If there are more intentions to make delivery than those to take delivery, all the longs of Au (T+D) must pay all the shorts Deferred Compensation Fee: long to short.

For example: http://www.sge.sh/publish/sgeen/sge_price/sge_price_daily/10378.htm

On Aug 21, 2013, 6,848 kg of gold was delivered for Au(T+D). There were more intentions to take delivery than make delivery. All the shorts of Au(T+D) had pay longs deferred compensation fee, short to long.

The Paying Direction of Deferred Compensation Fee is, IMO, more important than the amount of delivery.

The delivery of Au(T+D) is actually to change the names of the owner of the gold. The gold is still in the vault (usually a bank vault). The 6,848 kg of gold just changed owners. It is still in the vault(s).

The Shanghai Gold Exchange also publishes weekly and monthly reports. But in those reports, the definition of delivery is DIFFERENT. There, the SGE defines delivery as the amount of gold moved out of the vault(s).

For example, in the monthly report of July, the SGE reports that 235417.4 kg of gold was delivered. That means 235417.4kg of gold was moved out of the vault(s).

http://www.sge.sh/publish/sge/docs/20130812162935744053.pdf
(I can't find an English version for you)

As for silver, Ag(T+D) is the equivalent of Au(T+D). The contract size is 1kg of silver 99.99% pure. But since silver is not VAT free in China. Silver market participants usually choose not to make/take delivery of silver at the Shanghai Gold Exchange because making/taking delivery of silver at the Shanghai Gold Exchange is difficult to evade the VAT.

SP 500 September Futures Intraday

The futures made an intraday low of 1631.50 which is a tag on the 50% retracement and the bottom of the uptrending channel.

And they bounced hard off this.

Now we see if there is a follow through, with perhaps a retest, or a failed support and breakdown.

This Town: America's Gilded Capital

"Tim Russert is dead.
But the room was alive.

Big Ticket Washington Funerals can make such great networking opportunities. Power mourners keep stampeding down the red carpets of the Kennedy Center, handing out business cards, touching base. And there is no time to waste in a gold rush, even (or especially) at a solemn tribal event like this.

Washington—This Town—might be loathed from every corner of the nation, yet these are fun and busy days at this nexus of big politics, big money, big media, and big vanity. There are no Democrats and Republicans anymore in the nation’s capital, just millionaires. That is the grubby secret of the place in the twenty-first century. You will always have lunch in This Town again. No matter how many elections you lose, apologies you make, or scandals you endure.

In This Town, Mark Leibovich, chief national correspondent for The New York Times Magazine, presents a blistering, stunning—and often hysterically funny—examination of our ruling class’s incestuous “media industrial complex.”

Through his eyes, we discover how the funeral for a beloved newsman becomes the social event of the year. How political reporters are fetishized for their ability to get their names into the predawn e-mail sent out by the city’s most powerful and puzzled-over journalist.

How a disgraced Hill aide can overcome ignominy and maybe emerge with a more potent “brand” than many elected members of Congress. And how an administration bent on “changing Washington” can be sucked into the ways of This Town with the same ease with which Tea Party insurgents can, once elected, settle into it like a warm bath..."

Gold Daily and Silver Weekly Charts - B-O-R-I-N-G

The metals held their levels even while stocks took a fresh leg down on the usual kicks, bangs and thrills of the Federal Reserve and its endless taper talk.

August delivery is entering its last seven days, and so the action may pick up into its culmination next week. So far we have been very quiet, as most seasoned traders have taken off for their summer vacations in the European manner.

I will let you know if there are any big changes in COMEX inventory. But as I said, if a problem occurs it will not show up here first, since the COMEX has become largely a paper market.

 

SP 500 and NDX Futures Daily Charts

The FOMC brought a little more action today to the downside although they did not say all that much which is new.

I figure we will follow the downside momentum on the SP futures to the bottom of the uptrending channel with an overshoot, maybe for one day or intraday. So we have a little more downside to go, and then we might see a bounce on Friday into the weekend, or next week.

If stocks keep going and take out that uptrending channel and exceed the 50% retracement by quite a bit then we might be in for a real trend change, although August seems early.

Gold Daily and Silver Weekly Charts - Light Volume Drift

FOMC minutes are coming out tomorrow afternoon, otherwise most traders seem to be on vacation.

 

SP 500 and NDX Futures Daily Charts - Lazing on a Summer Afternoon

FOMC minutes tomorrow may put a spark into this snoratorium.

 

Gold Daily and Silver Weekly Charts - Goldman Was Buying Gold While They Were Saying 'Sell?'

Gold and silver had quiet pullbacks today as the markets digested some of their recent gains.

Overall trading is very quiet as many traders are on their summer vacations.

Registered inventory bounced back up a little bit last week, but remains rather thin and indicative of an intermediate trend change.

A reader informs us that:

"For those with a bloomberg terminal, type up the command: {GLD Equity PHDC1 } ... GS bought $5b USD of GLD last quarter, while they were pitching their "sell gold" call to the world."

Note: I think that is $500 Million and not $5 Billion.

SP 500 and NDX Futures Daily Charts - Lowest Volume August In Ten Years

The trading has been almost entirely technical today with the momentum traders following algos around the track.

I suspect most of the adults are on their summer vacation this week.

FOMC minutes is the highlight of the economic news on Wednesday.

Gold Daily and Silver Weekly Charts - Excelsior

"He who sells what isn't his'n
Must buy it back, or go to prison."

Daniel Drew

Another up day for the metals, with silver once again leading the charge.

There was an early morning 'dipsy-doodle' just to keep the day traders from banging their F12 buttons too steadily.

Now it gets really interesting with the first level of resistance cleared, and the tougher resistance that marks a serious breakout level overhead.

That 'slanted W' bottom formation is working overtime now, and is targeting higher price levels.  The action over the next week or so will shape the greater formation and tell us how high is high at least on this leg of the move. 

I am loosely forecasting gold to hit $2500 over the next 12 months, but that depends on such large exogenous variables that the forecast is highly tentative for now.   

If and when gold cracks that old support from its range traded days will show us how far it can go on this leg of the bull.  I would not like to see it happen too quickly, and probably won't be disappointed unless 'something happens.'

Silver is getting a little short term overbought, which for silver often means nothing.  Silver is a rocket when it gets going.

Only ten more business days until the end of the August delivery period.   

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Let Freedom Wane

"Pride, envy, and avarice are the three sparks that have set these hearts on fire."

Dante Alighieri

A weak day with the Michigan Consumer Sentiment setting the tone.

Next week is a light economic data week, with the release of the latest FOMC minutes on Wednesday as the highlight.

I am looking at the bottom of the trading channel on the SP 500 for support. It may take a little while to get there. Unless that breaks decisively I am not overly concerned. Until then this is just the wash and rinse, monkey business as usual.

If you have not had the opportunity try listening to the Thomas Drake video at the National Press Club. The actual speech is only about 22 minutes long, and the rest of the time is spent answering audience questions, which is also very interesting as well especially considering the audience is largely made up of reporters.

NAV Premiums of Certain Precious Metal Trusts and Funds

Premiums and the gold/silver ratio are reverting to a more usual situation, but still have some ways to go.

Thomas Drake On Government Overreach, Obsessive Secrecy, and Constitutional Abuses

I was not familiar with this person or his case, but I found his speech to the National Press Club to be interesting, informative, and well articulated.

I recommend that you listen to it. I am a little surprised that he has not received more exposure in the media given the subjects that are being discussed these days. But I am often underinformed about current political affairs that do not involve finance so it could just be my own deficiency and over-concentration in certain areas.

What he reveals starting around minute 49 until almost the end is very eloquent, and quite disturbing.

Thomas Andrews Drake is a former senior executive of the U.S. National Security Agency (NSA), a decorated United States Air Force and United States Navy veteran, and a whistleblower.

In 2010 the government alleged that Drake 'mishandled' documents, one of the few such Espionage Act cases in U.S. history. Drake's defenders claim that he was instead being persecuted for challenging the Trailblazer Project. He is the 2011 recipient of the Ridenhour Prize for Truth-Telling and co-recipient of the Sam Adams Associates for Integrity in Intelligence award.

On June 9, 2011, all 10 original charges against him were dropped. Drake rejected several deals because he refused to "plea bargain with the truth". He eventually pled to one misdemeanor count for exceeding authorized use of a computer.