India Paying an Equivalent $1,565 Per Ounce For Physical Gold Bullion

“Let us not, in the pride of our superior knowledge, turn with contempt from the follies of our predecessors. The study of the errors into which great minds have fallen in the pursuit of truth can never be uninstructive...

Hitherto no difficulty had been experienced by any class in procuring specie for their wants. But this system could not long be carried on without causing a scarcity. The voice of complaint was heard on every side, and inquiries being instituted, the cause was soon discovered. The council debated long on the remedies to be taken, and [John] Law, being called on for his advice, was of the opinion, that an edict should be published, depreciating the value of coin five per cent below that of paper.

The edict was published accordingly; but, failing of its intended effect, was followed by another, in which the depreciation was increased to ten per cent. The payments of the bank were at the same time restricted to one hundred livres in gold, and ten in silver. All these measures were nugatory [pointless] to restore confidence in the paper, though the restriction of cash payments within limits so extremely narrow kept up the credit of the Bank.

In February 1720 an edict was published, which, instead of restoring the credit of the paper, as was intended, destroyed it irrecoverably, and drove the country to the very brink of revolution...”

Charles MacKay, Extraordinary Popular Delusions and The Madness of Crowds

When the Reserve Bank of India and the government tried to staunch gold imports by increasing duties and limiting supply in order to help their western central bank counterparts, who were deeply embarrassed by their inability to return Germany's gold, the experiment in currency controls had the effect of making the premiums paid for actual gold jump to 21.6% over western paper 'spot' prices.

What good is a 'spot price' for gold if it is just a construct derived from the paper gold price on the increasingly gold deficient Comex, and not from a physically transacting market?  And what good is a price set on a so-called physically transacting market like the LBMA if it is done in secret, with leverages said to be approaching 100 to 1?

Recent revelations about the manipulation of price benchmarks, from LIBOR to derivatives to basic commodities, seem to have knocked the efficient market hypothesis into a cocked hat, which is where it always belonged, if the dustbin was full.   Markets are naturally efficient to the extent that men act naturally like angels. 

Here is an interview that Tekoa da Silva recently conducted with an Indian gold dealer about the future of demand for physical gold in India, which he believes will be strong, and more importantly, why.

Let's see, if one region of the world is willing to pay, for substantial amounts, a 21% premium for a physical commodity that is easily transportable, what might an astute economist predict would happen?

The 'average person' might expect them to predict a substantial flow of that commodity from west to east.   And that does seem to be the case if one looks at the data which is available.  Gold Seen Flowing East As Refiners Recast Bars For Asia.

These days, however, far too many economists, analysts and pundits see what they have been told to see, by whomever is paying them.  Academia, politics, and the media are not naturally efficient, for the same reasons as markets.

Is it any surprise that in a culture that glorifies personal greed and the arrogance of power, virtue is in scarcity and deceit becomes routine?   Bad behaviour can drive out the good, until a system or culture can become a festival of shamelessness, and a feast for predators.

India is not an isolated example.  The situation is simply worse there for the moment because some Indian officials are historically compliant to Anglo-American interests.  But China, Russia, Latin America, and the Mideast are increasingly less complacent to be so ill-used these days.

Change is happening.  And there may be some significant volatility associated with this historic difference of objectives and opinions about what value is, and how and by whom it is set.

Registered Gold By Individual Comex Warehouse

"Bright star, would I were steadfast as thou art..."

John Keats

Despite the price takedown yesterday, the open interest drifted higher, taking the claims per ounce of deliverable gold to 62.9 to 1.

Gold Daily and Silver Weekly Charts - Cap, Cap, Cap

There was no movement in or out of the Comex gold bullion warehouses.

There will be more economic news later this week.  For now it is primarily earnings and the occasional speech by a central banker that are moving markets.

Intraday commentary here shows how the 'claims per ounce' for deliverable gold at the Comex have risen to a new all time record high of 62 to 1.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Another Day, Another New High For Equities

 

The unstoppable Wall Street money machine keeps rolling on the QE express.

What could possibly go wrong?

Have a pleasant evening.

Comex Claims Per Deliverable Ounce Up Again To 62

The setup for this year end looks interesting.  Open interest for December itself has declined somewhat from last year, but the availability of gold for delivery at these prices has fallen quite precipitously.  Rik Green has some things to say about this here.

The standard manipulation play has been to hit the prices hard, and hope to shake out weak hands as well as pry more bullion from the ETFs which the bullion banks manage.   This was done in early December 2011, and prices recovered their level by the end of January.  In December 2012 the great price decline of 2013 was already underway, in a reaction to the denial of Germany's request for the return of their nation's gold.

A conventional pricing action this December would set up a potential short squeeze into the new year that could prove to be impressive once it got going.  And it might become uncontrollable should a run develop since it would also presumably increase the physical offtake in the broader markets.   Wiser therefore to take some of the dirtier money off the table now, and let the market regain some of its equilibrium before the end of year.

This is of interest only for those who look at markets in greater than two week increments, which is not one of Wall Street's stronger suits.  One should not underestimate the brazen audacity of the TBTF gang.  They have been said to sell their customers very bad advice and deadly poisoned deals with near impunity, or haven't you heard?

So it is hard to say exactly how these things will be resolved since the greater physical market, the dog that is being wagged by the Comex tail, is still too opaque for reliable forecasting.  But I do not see how this can end any way but messily, unless cooler heads prevail fairly soon.

Let's see what happens.

Glenn Greenwald: Civil Liberties In the US and the Forces of Endless War Assailing Them

Gold Daily and Silver Weekly Chart - Bear Raid on 'Taper Talk'

The 'Claims Per Ounce' of deliverable gold climbed to a new all time high of 61 yesterday.

This was covered in intraday commentary here.

There was very little movement in the Comex warehouse with just a few bars leaving storage.

There was a bear raid today, supposedly based on 'taper talk.' Well, tapering might not be all that bad, for all the good which it is doing.

QE and fiscal policy is primarily targeted to line the pockets of the wealthiest few by inflating certain classes of asset prices, and sustain an unsustainable and unreformed financial system dominated by crony capitalism.

This may not end well, but it will end. 

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts

There was a slight downward pressure today as it was a bit of risk off, with some commodities, bonds, and stocks trading weakly because of 'taper talk.'

As if.

There should be no doubt in anyone's mind that the Fed and the government of the US (and UK for that matter) are pursuing policy designed to enhance the well-being of the wealthiest few, and doing very little for the public at large, except perhaps just enough to keep them confusedly apathetic.

Have a pleasant evening.

 

Claims Per Ounce of Deliverable Gold Rises to Record High 61

"So you are lean and mean and resourceful, and you continue to walk on the edge of the precipice, because over the years you have become fascinated by how close you can walk without losing your balance."

Richard Nixon

The point of this 'claims per ounce' measure is not 'how high is too high.' 

The real significance is how out of bounds is the market, so that when the market turns, how high must prices go to clear supply against demand, to revert to the mean.

There is 'plenty' of gold at the Comex and in the world. Unfortunately not much of it is for sale at these prices. And what is sold tends to be rehypothecated. The only question seems to be 'how many times?'

If prices were falling in an environment of ample supply and slack demand, then it would be a different story.  But they are not.  Demand worldwide for physical bullion is high historically, and supply is thin.  And yet prices have decreased.  And there is plenty of evidence of market manipulation.  How hard is this to understand?

As I have said any number of times, the Comex is not where the market is going to break. The physical market is not centered on the Comex, which is the locus of paper price fixing.

If and when the Comex breaks it will be because there is a general default in the physical market, most likely in Asia and the LBMA that triggers a run on the bullion banks, and then on the Comex.

Like the dollar, the Comex will not default in the technical sense because like US bonds they can force a settlement in their paper at a price they dictate.   The problem with that, of course,  is that while it is technically not a default, it is a very real blow to confidence that is not easily undone.    It is a de facto default.

I am concerned that these jokers will go too far.   And the further they go, the less force is required for a 'trigger event' to create a break in confidence.  Those who place their hopes in the players to avoid that regrettable outcome are probably engaging in wishful thinking.   Tell it to the London Whale. 

I do have some hope that the Exchange and/or the regulators will act, but typically they are lulled into the complacency of continuity and political pressure until things begin to get very unstable.  For now the bigger players will just reassure them that there is plenty of gold at the warehouse that can be moved quickly to meet deliveries if required. 

So to summarize, as leverage becomes outsized, any reversion to the mean, also known as unwinding, becomes more difficult.

Every time the registered gold inventory has reached these extreme lows there was an intermediate price trend change within six months.  This time it could be six months, or nine, or twelve.  The longer a divergence from natural market dynamics continues, the harder it will be for players to unwind their short positions and obtain real bullion to cover.  And in a market break, inventory will evaporate almost overnight.  Those who are slow to act will be bailed-in.

It is all about the pricing and managing of risk.  And I think deep down that it is about financially breaking the miners and taking advantageous positions in them ahead of the next leg up for gold in this currency war. 

It's an old story.  I hope that the compliance guys are considering the counterparty risk in metals derivatives when they do their worst case scenarios.

I hope that the regulators and policy makers understand what a 'break in confidence' in the gold market could trigger beyond itself. My own outlook remains for stagflation, with hyperinflation being unlikely except in the event of a major policy error and unfortunate series of follow-on decisions. But this current crop of crony capitalists are just the gang of blindly arrogant knuckleheads to do the improbable.

This is what I think based on what I can see, and I could be wrong.  But the facts seem fairly clear and sound, as it seems to happen in every Ponzi scheme or market instability before things break and start moving on their own momentum.  People suspend their disbelief because things seem to keep moving against reason, until they don't.  And then the experts say, 'who could have seen this coming?'

Gold Daily and Silver Weekly Charts - Are We There Yet Daddy?

"We run carelessly to the precipice, after we have put up a façade to prevent ourselves from seeing it."

Blaise Pascal

Gold and silver largely chopped sideways today with a slight downward bias, but nothing of real consequence.

There was a small amount of movement of gold out of the Scotia Mocatta warehouse on Friday. The report is shown below.

The way to play the precious metals market is to not take leveraged or timed (option) positions. Why is this?

Because the markets are being price manipulated, like the currency markets, LIBOR, base metals, and quite a few others it seems.

So what do we not do? We do not try to time the market, since the guys who are pushing prices around have the advantage of 'seeing our hands' given their market positioning and access to non-public information.

This means we are trading for the intermediate to long term. Daily price antics cannot affect us because we are not leveraged, and we are not holding things like options which have expirations.

I wanted to clarify this, because lately I have been getting some questions that make me think that some are trying to time this market, and pile into leveraged positions to maximize their outsized gains. That is not likely to work. The worst thing that can happen to a new trader is to hit a jackpot like that, because they will break themselves trying to regain the feeling of being fortune's child by playing long shots.

Convergence is a more likely way to play markets. That means that even though some things can get out of bounds and stay there for longer than we might think, eventually the fundamentals will come to bear and the markets will converge back to probability again.

In the case of gold, claims per ounce at these prices are at historic highs. The last two times this happened, we saw a major intermediate trend change within six months. Can it be nine months? Sure, why not? With regulators turning a blind eye and the Fed essentially handing the banks and trading desks $80 billion per month by buying their assets at non-market prices, things can go on for quite some time.

But eventually the fundamentals of supply, demand, and value will apply, and sometimes with a vengeance. We saw this in the financial crisis of 2008, wherein the mispricing of risk in Collateralized Debt Obligations blew up, and the housing bubble collapsed.

Sometimes that is what happens when trend becomes overextended. You can break yourself trying for the maximum profit and bragging rights, and miss the big move when it comes from sheer exhaustion.

So I think that is where we are with the precious metals, and with gold in particular. There are no sure things, but this one seems to be unfolding in a fairly classic manner. Try not to pig out and get sidelined before the time comes. As Bernard Baruch once said, better to lose the first ten percent of a major bull move than to try and get in early.

Now, you may not think we are going to see another leg up in precious metals. And you could be right. So what do you do? You sit out and wait for a clear breakout and confirmation. For those more aggressively inclined you take light positions with cool money and no leverage. And then sit and wait to be right.

I do not know how this will unfold exactly. But I do know one thing. All the pundits and master traders don't know any more than that either. But they will be glad to sell you their opinions, and hope that you do the natural human thing and remember the three times they were right, and forget about the six times that they were wrong. Most people certainly tend to keep score that way.

There are ways to get nearly perfect records in trading. But most of them are not available to the average, honest person.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Après les Jobs Report

Techs were off a bit and the financials were weak, but the DJIA and SP 500 both closed near their all time highs today on weak volume and what was really a lackluster trade.

VIX has fallen back into complacency.

The economic calendar this week is a bit light with some more consequential data showing up towards the end of the weak.

Uber-equity Twitter (TWTR) closed around 43 today.

Have a pleasant evening.

Veteran's Day 2013

"Four score and seven years ago our fathers brought forth on this continent a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

But, in a larger sense, we can not dedicate, we can not consecrate, we can not hallow, this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract.

The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced.

It is rather for us to be here dedicated to the great task remaining before us: that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion, that we here highly resolve that these dead shall not have died in vain, that this nation, under God, shall have a new birth of freedom, and that government of the people, by the people, for the people, shall not perish from the earth."

Plato on Oligarchy

Moyers: How Big Money and Big Media Undermine Democracy

Gold Daily and Silver Weekly Charts - 'Claims Per Deliverable Ounce' Rises to Record High 60.38

As you probably know the US posted a blowout headline number for the October Non-Farm Payrolls report of 204,000 jobs gains, and upwardly revised the prior month. What made this significant was the thinking that the government shutdown would have negatively impacted the jobs number.

That was not to be, not that it didn't impact jobs, but it did not impact the way in which the government counted jobs in what is the headline, 'establishment' report. The 'Household Report,' which is based on a direct survey of people, and the Labor Participation Rate which compares people who are working versus those who are available for work, were in the tank. Some other aspects like wages and hours worked were not looking very good either.

There was intraday commentary on the Non-Farm Payrolls Report here.

But hey, Wall Street was happy, with both stocks and the dollar rallying, and the SP and DJIA reaching new all time highs. Naturally in keeping with Non-Farm Payroll tradition gold and silver were hit hard, and not all that subtly. The reason for this was that the great jobs number would bring out the Fed taper talk again, but not for stocks, which were just frothing. Except of course for Twitter which had its frothy moment yesterday.

The 'claims per deliverable ounce' for gold on the Comex rose to an all time high of 60.38 contracts per ounce said to be in their warehouses and available for delivery.    There was very little action in or out of the Comex gold warehouses yesterday.  They are the pretty magician's assistance on the stage.  The real action is taking place behind the screens.

Most of the commentary from the US financial media was funny, but in a very sad sort of way. 

Let's see how the delivery process for gold plays out into year end.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - New High For the SP On Payrolls Number

I just don't have the words.

Non-Farm Payrolls Report - Small Business Creation Boomed In October

Did new small business jobs creation boom in October during the government shutdown/default crisis?

Well, you might think so by looking at the Bureau of Labor Statistics 'Birth-Death' model report contained in today's October Non-Farm Payrolls Report.

According to the Birth Death Adjustment there were 126,000 jobs added in October. And what an October it was apparently. These are the most new jobs added for any October going back to 2003, which is as far back as my own spreadsheet goes.

A more usual number might be around 103,000 or less. So, someone thinks it was a strong October jobs market.

You can look at the historical Birth-Death Model numbers from 2000-2012 here. And there is a list of Frequently Asked Questions here.

As I have cautioned in the past, the Birth Death number is added to the Non-Seasonally adjusted number, and then seasonally adjusted. So it is not a 'pure addition.'

The Non-Farm Payrolls report contains very large numbers, on the order of 137+ million jobs which are estimated and deseasonalized, and then further revised for the next two months. So reacting strongly to a particular monthly jobs report is a bit of a Wall Street and political game.

What is more important is the trend in the number of jobs, and the quality of the jobs, both in hours worked and hourly compensation.

Another statistics worth noting is the Labor Force Participation Rate.  There is a fairly good commentary on that data from this Payrolls report here.  There was a similar issue with the Households Report since it dealt with the layoffs from the government shutdown differently than the headline NFP report. 

As an aside, when I hear some financier talking about 'the new normal,' as they were on financial television today, it makes me want to gag.  They are attempting to justify the results of their fraud and financial repression as a necessity, just business as usual. There is nothing 'normal' about this current economic environment.  We are in a financialized society where big money dominates public policy for its own ends.

Getting back to the Non-Farm Payrolls number, the big hoohah question is always, 'Is the government lying?' I think it is fair to say that they are certainly putting their best foot forward, in this and quite a number of things.

I am a little more concerned about the lies that take the US into wars of aggression to be frank. But economic deception can have very bad long term effects when coupled with bad economic policy decisions such as those we are seeing today, that are propagating and even increasing an inherently unstable economy.

All things considered, and not just the numbers in this report,  the recovery is weak, and real median wages do not support any sustainable recovery.  Inequity is increasing, and policy supports and subsidizes this growing inequality in both political and economic power.

Keep an eye on the real median wage, and you will have some indication on how the American public is faring. Although the calculation of inflation is fraught with the fog of politics. John Williams of Shadowstats has done some excellent work in this area.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

And that is the bottom line.

In this case the smaller the seasonality factor the bigger the jobs increase because the raw number is being divided by and reduced in September and October to arrive at the seasonal adjustment.  But there are so many estimates involved that the answer really lies in the trends and even more importantly the quality of the jobs.

Gold Daily and Silver Weekly Charts - ECB Surprise Cut, Non-Farm Payrolls Tomorrow

The metals caught the patented Comex open price hit and pretty much drifted around there all day.

Molto Mario Draghi cut the ECB rate.   There was fleeting joy in Mudville.

Did we mention that tomorrow is a Non-Farm Payrolls number? 100K is the consensus.

There was a withdrawal of 1,700 gold bullion ounces out of the Brink's Registered category.  That is a remarkably round number., and a deposit of 19,688 ounces of gold in to storage at JPMorgan Chase.

Let's see how the metals finish the week.  The next big Comex event will be the December options expiration on Monday, 25 November.

Have a pleasant evening.