NAV Premium of Certain Precious Metal Trust and Funds - 91,680 Ounces of Gold Out of Sprott

The premiums on PHYS and PSLV are back more to 'normal' levels now, although still hardly exuberant.  PSLV is at a slight premium, and PHYS is almost flat.

The deeper discounts on CEF and GTU are still there, but a bit thinner that they have been.

Since the last time I put out this chart, another 91,680 ounces of gold bullion have been redeemed from the Sprott Physical Gold Trust.

I can imagine someone rationalizing this redemption as an arbitrage deal because PHYS is selling at a slight discount to its NAV. However, given the 'friction' of the transaction, and the necessity of storing this amount of gold, it seems like a fairly small amount to be tempting for a mere arbitrage against the NAV discount, given the volumes of gold that are being taken out.

Although it is possible that PHYS has priced its redemption process too cheaply.  And there is no allowing for the desperation of a hedge fund that is willing to scrape for thin returns. This assumes they are not taking delivery to ship the gold to Asia for the premiums for physical paid there. If so, then it is not really arbitrage as I am using the term with regard to the discount to NAV, but the discount of paper to bullion.  And that is a general trend that is hard to miss.  But some do.

But one would think that playing the spread with paper and leverage, and betting that there would be a reversion to norms if the premiums fall to historically low discounts, would be a smoother and more scalable wager for any fund truly interested in paper profits. Here is a link to the distribution of PHYS premiums historically.

But this seems to be viewing a phenomenon in isolation that I think it is more correctly seen as part of a general trend, that one is foolish to ignore.

As I have shown here repeatedly, there is a general scouring of enormous proportions of the physical gold bullion from most if not all of the Western trusts and funds at these prices as set by the Comex, which unfortunately is still a price maker for the physical trade despite its own shrinking physical basis.  That is the inconvenient reality that gold imposes on the financiers:  they cannot print it into existence, except as an apparition of paper, without genuine substance.

And there are none so blind as those whose paychecks depend on their willing ignorance.  It is unfortunate, but a fact of life.

So, let's see where this grand experiment goes. I have not been keeping an eye on the short interest in the PHYS, but I think the greater problem is the price of gold overall, which does not seem to be a market clearing price in terms of the actual commodity.   And as a result, the physical bullion is flowing towards markets paying fairer prices, and finding ownership in stronger hands.

But why argue about it, especially with those whose mindset is clearly fixed in one direction? Let the tide go out, and we will see what allocated and unallocated funds are naked.   And who, at the end of the day, is actually holding what gold, and with what encumbrances, cross claims, and counterparty risks.  

So in summary, some might say that gold is flowing out of Sprott because of its discount to NAV, which I point out is miniscule, and much more adeptly gamed through the usual paper games.

Rather, gold is flowing from financialised markets to cash basis markets, from highly leveraged schemes to the vaults of stronger hands flush with paper of less confident value, and put even more simply, from West to East.

This is what happens when once again we begin to see 'peak paper.'  Yes it certainly has not failed yet, and yes, the official measures may show little devaluation from inflation and mask the enormous leverage and undisclosed counterparty risk that is still in the system, après Crash.

 And to this I say, 'in time.' 

Not everyone is investing with a two month time horizon, as is de rigueur in the City and on the Wall Street these days, and passing around their hot potatoes of dodgy paper from hand to hand as quickly as possible, before the next bell rings.

NYSE Margin Debt - Take It to the Limit, One More Time

This gang of Merry Banksters made a 1929-like policy error, as they did in 2000 for the first crash, and then followed that up by blowing yet another asset bubble in mortgage debt, and crashed it all over again, almost taking down the world financial sysem.

And now they turn around and do it for a third time, with financial paper assets.  Will they keep going until the middle class and the real economy is beaten, like pulp into the ground, and a few jokers sitting on the top of the financial pyramid own nearly everything?

What are they thinking? Who are these guys, Mortimer and Randolph Duke?

Greenspan and Bernanke: Worst Federal Reserve Policy, ever.

Watch the margin debt story unfold here.

Let's see what happens next.

Related: NYSE Margin Debt Hits an All Time High

Gold Daily and Silver Weekly Charts - Baby It's Cold Outside

Gold caught a fairly obvious 'flight to safety' big this morning that was later pushed lower by the bullion bears, but still managing to close higher.

US equities were off about two percent across the board as the end of year paint bubble continued to get scraped off the tape.

There is also some element of a test of wills for Janet Yellen, who has now taken over the Fed's reins.  Wall Street has been known to throw a taper tantrum or two to see if the new 'Chair' will be as pliable as the former Chairman.  And few can live up to the servile hypocrisy of Greenspan, who never met a bubble he couldn't ignore.

Speaking of Chairman Bernanke, he has already announced a new post at the Brookings Institution.  He will no doubt be free to think weighty thoughts, write his book(s), and garner some large speaking fees.  At least he did not go to work directly for one of the Banks.

In the Comex inventories just shy of two tonnes came out of Scotia. Let's see if it turn up with Big Daddy Morgan, or just slips off into the sunset.

We are now in the February delivery month. Rik Green notes that the number of contracts standing for delivery there is substantially lower than February of last year, which was quite robust. The bullion available for deliveries at these prices is still quite thin compared to potential demand.

But without belaboring it, I think the trading emphasis in the bullion markets is joining its physical components and is heading east, leaving the Comex awash in less meaningful paper.

As a reminder, this is a Non-Farm Payrolls week once again, so we will have to see how the shenanigans are rolling, and keep another eye on any deliveries of bullion.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Busting Broncos

Stocks saw a merciless beatdown today, similar to the Superbowl game last night.

The impetus for stocks was a lower than expected PMI number from China, and a weak ISM Index number from the States this morning. With two of the largest economies in the world showing seeming signs of weakness, the untamed horses of this long bull market were quite subdued.

If you look at the charts below carefully, you will see that what has happened is that the long year end bubble from 2013 has now deflated. One can make a good case that the Fed saw this as desirable, a necessary outcome if only to avert the disaster of an uncontrolled deflating of the asset bubble.

But it is also possible that the wiseguys who pumped it up handed what they could over to mom and pop and their institutional representatives, and are now taking the money and running. The proverbial wash and rinse, which I have been suggested was overdue.  The pause that refreshes in a continuing asset inflation, if you will.

So what next? This is a non-farm payrolls week if you have not noticed, and earnings will keep coming in before and after the bell. It would be good to keep an eye on the emerging markets and their currencies because that is where an ongoing trend might originate.

 The central bankers stand ready to print, but the markets might have to overextend a bit to send that signal, and relief may come in some extraordinary manner.

Have a pleasant evening.

Dead Bankers, Missing Reporter, and Unfolding Wall Street Scandals

I can think of a number of reasons why a connection between these unnatural deaths, and especially the mysterious disappearance of the reporter, are not related. The most significant is that they involve diverse companies and markets.

And yet all are touched by serious investigations for corruption of the markets.  And the lumbering, wobbling derivatives market represents one possibly interesting intersection of the events.

But even if they are not related, and are mere coincidences, it is telling perhaps that the financial industry is so generally foul that even random deaths and disappearances are all in proximity of market-fixing, price rigging, and white collar investigations for corruption.

And this is our financial system, which touches every part of our lives, every product, every day, man, woman, and child.

A Rash of Deaths and a Missing Reporter – With Ties to Wall Street Investigations
By Pam Martens
February 3, 2014

In a span of four days last week, two current executives and one recently retired top ranking executive of major financial firms were found dead. Both media and police have been quick to label the deaths as likely suicides. Missing from the reports is the salient fact that all three of the financial firms the executives worked for are under investigation for potentially serious financial fraud.

The deaths began on Sunday, January 26. London police reported that William Broeksmit, a top executive at Deutsche Bank who had retired in 2013, had been found hanged in his home in the South Kensington section of London. The day after Broeksmit was pronounced dead, Eric Ben-Artzi, a former risk analyst turned whistleblower at Deutsche Bank, was scheduled to speak at Auburn University in Alabama on his allegations that Deutsche had hid $12 billion in losses during the financial crisis with the knowledge of senior executives. Two other whistleblowers have brought similar charges against Deutsche Bank.

Deutsche Bank is also under investigation by global regulators for potentially rigging the foreign exchange markets – an action similar to the charges it settled in 2013 over its traders’ involvement in the rigging of the interest rate benchmark, Libor.

Just two days after Broeksmit’s death, on Tuesday, January 28, a 39-year old American, Gabriel Magee, a Vice President at JPMorgan in London, plunged to his death from the roof of the 33-story European headquarters of JPMorgan in Canary Wharf. According to Magee’s LinkedIn profile, he was involved in “Technical architecture oversight for planning, development, and operation of systems for fixed income securities and interest rate derivatives...”

Read the entire story here.

Related: On Death and Derivatives
Family of Missing WSJ Reporter 'Waiting for a Miracle'
Financial whistleblower Eric Ben-Artzi speaks at Auburn University

Weekend Reading: God and Mammon, Fear and Love

To my way of thinking, the inordinate desire for wealth, in excess and for its own sake, is just a manifestation of the will to power, which underlies most evil.

Fear, in excess or obsession, is often the spur to power, a means to seek to control that which we fear and resent. Perhaps it is part of the character, or the result of uncaring or abusiveness from our past.

There is a substantial difference between fear and respect, the latter of which is a high and proper regard, but intermingled with love and mutuality. We respect our parents, for example, if our relationship with them is proper, but we do not fear them as we would an enemy.

The will to power was the first sin of pride of the fallen angels. As John Milton said, 'Better to reign in hell, than to serve in heaven.'

"Though I speak with the tongues of men and of angels, and have not love, I am become as sounding brass, or a tinkling cymbal." 1 Cor. xiii

"...Our Lord says, 'If you love Me, keep My commandments;' but they feel that though they are, to a certain point, keeping God's commandments, yet love is not proportionate, does not keep pace, with their obedience; that obedience springs from some source short of love. This they perceive; they feel themselves to be hollow; a fair outside, without a spirit within it.

It is possible to obey, not from love towards God and man, but from a sort of conscientiousness short of love; from some notion of acting up to a law; that is, more from the fear of God than from love of Him. Surely this is what, in one shape or other, we see daily on all sides of us; the case of men, living to the world, yet not without a certain sense of religion, which acts as a restraint on them.

They pursue ends of this world, but not to the full; they are checked, and go a certain way only, because they dare not go further.
This external restraint acts with various degrees of strength on various persons. They all live to this world, and act from the love of it; they all allow their love of the world a certain range; but, at some particular point, which is often quite arbitrary, this man stops, and that man stops.

Each stops at a different point in the course of the world, and thinks every one else profane who goes further, and superstitious who does not go so far,—laughs at the latter, is shocked at the former. And hence those few who are miserable enough to have rid themselves of all scruples, look with great contempt on such of their companions as have any, be those scruples more or less, as being inconsistent and absurd. They scoff at the principle of mere fear, as a capricious and fanciful principle; proceeding on no rule, and having no evidence of its authority, no claim on our respect; as a weakness in our nature, rather than an essential portion of that nature, viewed in its perfection and entireness.

And this being all the notion which their experience gives them of religion, as not knowing really religious men, they think of religion, only as a principle which interferes with our enjoyments unintelligibly and irrationally. Man is made to love. So far is plain. They see that clearly and truly; but religion, as far as they conceive of it, is a system destitute of objects of love; a system of fear. It repels and forbids, and thus seems to destroy the proper function of man, or, in other words, to be unnatural.

And it is true that this sort of fear of God, or rather slavish dread, as it may more truly be called, is unnatural; but then it is not religion, which really consists, not in the mere fear of God, but in His love; or if it be religion, it is but the religion of devils, who believe and tremble; or of idolaters, whom devils have seduced, and whose worship is superstition,—the attempt to appease beings whom they love not; and, in a word, the religion of the children of this world, who would, if possible, serve God and Mammon, and, whereas religion consists of love and fear, give to God their fear, and to Mammon their love."

John Henry Newman, Parochial and Plain Sermons, Vol. 5, No.23