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 - Silver Stronger as Gold Capped

Gold was hit early and then held lower most of the day in NY trade after some strength overnight.

You might make a rubber stamp out of that sentence and it would serve as the daily commentary for most occasions.

Silver showed a little more life, but still remains quite undervalued relative to gold.

The action in the warehouses yesterday was a bit telling, especially if you look at JP Morgan. They withdrew quite a chunk of the gold which had been up for delivery during the active month.  The current amount of 'deliverable' gold at these prices is back down to 324,677 troy ounces, or about 11 tonnes.

I think the hypothesis that suggests that JPM is a key member of the existing Gold Pool, and perhaps with a hand in silver as well, is not a bad one to keep in mind.   They are certainly the major source of silver bullion at The Bucket Shop, and the seeming captain of the gold supply to facilitate delivery at lower than market clearing prices as needed.

But time alone will tell.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Rebound On Weak Economic News

US equities caught a rebound today largely on selling exhaustion and weaker than expected ADP employment and economic news in general.

The preoccupation with the Fed interest raise of 25 basis points is almost getting silly. It is largely symbolic, and will have little to no effect on the economy.

It does distract from the real problems of an outsized financial sector, a rapacious one percent that is exerting undue influence on political and fiscal policy, and of course, stagnant wages and underemployment fostering a continuing weakness in aggregate demand.

I do not expect these problems to be address now until there are a major series of events that cause the political leadership to confront reality and take a break from their quest for personal riches beyond their reckoning.

Have a pleasant evening.

The Order of the Star Spangled Banner or The Know Nothings

"The Know-Nothing party was a U.S. political party that flourished in the 1850s. The Know-Nothing party was an outgrowth of the strong anti-immigrant and especially anti-Roman Catholic sentiment that started to manifest itself during the 1840s. A rising tide of immigrants, primarily Germans in the Midwest and Irish in the East, seemed to pose a threat to the economic and political security of native-born Protestant Americans.

In 1849 the secret Order of the Star-Spangled Banner formed in New York City, and soon after lodges formed in nearly every other major American city.

Members, when asked about their nativist organizations, were supposed to reply that they knew nothing, hence the name. As its membership and importance grew in the 1850s, the group slowly shed its clandestine character and took the official name American Party. As a national political entity, it called for restrictions on immigration, the exclusion of the foreign-born from voting or holding public office in the United States, and for a 21-year residency requirement for citizenship.

By 1852 the Know-Nothing party was achieving phenomenal growth. It did very well that year in state and local elections, and with passage of the Kansas-Nebraska Act in 1854 it won additional adherents from the ranks of conservatives who could support neither the proslavery Democrats nor antislavery Republicans. When Congress assembled on Dec. 3, 1855, 43 representatives were avowed members of the Know-Nothing party.

That, however, was the peak of Know-Nothing power. At the American Party convention in Philadelphia the following year, the party split along sectional lines over the pro-slavery platform pushed through by Southern delegates."

Britannica, Know Nothing Party


"I am not a Know-Nothing. That is certain. How could I be? How can any one who abhors the oppression of negroes, be in favor of degrading classes of white people? Our progress in degeneracy appears to me to be pretty rapid. As a nation, we begin by declaring that 'all men are created equal.' We now practically read it 'all men are created equal, except negroes.'

When the Know-Nothings get control, it will read 'all men are created equal, except negroes, and foreigners, and catholics.' When it comes to this I should prefer emigrating to some country where they make no pretence of loving liberty- to Russia, for instance, where despotism can be taken pure, and without the base alloy of hypocrisy."

Abraham Lincoln, Letter to Joshua Speed, August 24, 1855

The Know Nothing Party enjoyed a localized resurgence in the post Civil War period as the Ku Klux Klan, which held a deep prejudice against Black, Catholic, and Jewish Americans and 'foreigners'.  It favored the use of violence and terror.  The first Klan was a purely Southern phenomenon that died out around 1870.

The resurgence of the Klan was prompted by D. W. Griffith's glamorized portrayal of the Klan in 1915's Birth of a Nation.  The 1920's was its period of greatest and most widespread power.  It gradually declined in the Second World War.

"The second Klan grew primarily in response to issues of declining morality as typified by divorce, adultery, defiance of prohibition, and criminal gangs In the news every day. Secondly, it was a response to the growing power of Catholics and American Jews with non-Protestant cultural values.  [prejudice against Black Americans and foreigners is always assumed in these movements.]

By the mid 1920s the second Klan had a nationwide reach, with its densest per capita membership in Indiana. The Klan became most prominent in cities with high growth rates between 1910 and 1930, as rural Protestants flocked to jobs in Detroit, and Dayton in the Midwest; and Atlanta, Dallas, Memphis, and Houston in the South. In Michigan, close to half of the state's 80,000 Klansmen lived in Detroit."

The nativist movements are just another nearly forgotten chapter of American history that seem to recur whenever change and turmoil arises.

The Investment of the Millennium: 'Pet Rocks'

"Gold has worked down from Alexander's time.

When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."

Bernard M. Baruch

Who would have thought it?

So why haven't the precious metals been 'working' since they spiked higher in 2011?

"We hypothesize that, having learned from the misadventures of the 1960s, the policy elites, well-versed in the practice of financial engineering and market manipulation, would have seen no need to dump stocks of government gold reserves onto the market, 1960s style, to keep the price in check. 

Instead, synthetic gold, sourced in pyramids of credit extended to bullion bankers by central banks with little or no claim on physical substance, have provided a more efficient, better-camouflaged form of intervention. COMEX synthetic gold and related over-the-counter derivatives are traded in macro strategies implemented by hedge funds, high-frequency trades, and commodity funds in pair trades with interest-rate, currencies, equity futures, or even more exotic offsets. The volumes traded are huge, and bear little resemblance to actual flows of physical metal. 

We suspect that shorting gold has come to seem like a riskless proposition as long as there is confidence in the Fed. Synthetic gold is the perfect substance for a carry trade: an easy borrow with very low carrying cost and little upside basis risk. Such a hypothesis, in our opinion, does much to explain the incongruity of a declining gold price while fundamentals for paper currency, and the U.S. dollar in particular, obviously deteriorate; while demand for physical gold has exceeded new mine supply for several years running; and while above-ground 400-ounce .995-gold bars located in London, New York, and other financial capitals (in cohabitation with speculative trading activity in paper markets) have steadily dwindled and disappeared into Asian financial centers reformulated as .9999 kilo bars."

Tocqueville Gold Newsletter 2Q 2015

The physical market at some point is going to come bearing consequence for the schemes of the financiers.

I suspect that when the 'riskless proposition' of shorting gold starts to more visibly unwind, most likely under some significant duress, we are going to see what kind of rot has been concealed, and the bottom feeders that have thrived on it, as when the tide goes out.

This unwinding started in the spike in the metals after the financial crisis of 2008, but was held off by massive 'currency interventions' to 'save' the Western financial system in 2011.

Gold rose in 2009 from about +150% to +775% at the end of 2010, as measured from the beginning of the millenium in 2000.

The real longer term consequences of reckless monetary policy and irresponsible financial deregulation and a tolerance for massive frauds are still ahead of us.

Perhaps I am incorrect in this.  But nothing I have seen in the data makes me believe so.

Gold is still flowing in large numbers from West to East, and the central banks are still net buyers.

And once the bull market in metals resumes, which I believe that it will, the upside will be similar to the increase which was seen in the years from 2009 to 2011.

Change is coming.  That is the only certainty.  At some point I may be sharing some more thoughts about how this change might manifest it, and what forms the new 'closing of the gold window' may take.

Gold Daily and Silver Weekly Charts - Non-Farm Payrolls On Friday

"The existence of cash — a bearer instrument with a zero interest rate — limits central banks’ ability to 'stimulate a depressed economy.'  The worry is that people will change their deposits for cash if a central bank moves rates into negative territory."

Financial Times, The Case For Retiring Another 'Barbarous Relic'

Since the Nikkei bought the Financial Times earlier this year one wonders if they are able to interpret the real meaning of their own editorial policy.  Could anything be more blatantly repugnant than the above?

'Negative rates' is a euphemism for the slow but steady confiscation of all savings, a broader 'bail in.'  It is designed to drive people into financial paper assets and consumption. It is all about the elimination of safe havens, of places to hide from gross incompetence and wealth transfers.

Negative interest rates are the signature moment in the decline of a republic and the rise of corporate feudalism.   They take our wealth at no cost or effort for themselves, and lend it back to us at interest and without risk, being assured of a continuing supply of subsidy from their central Bank.

There will be quite a bit of economic news at the end of the week, including a Non-Farm Payrolls report for the month of August.

Gold is in an interesting position here, as can be seen on the chart.

The Bucket Shop was quiet, except for a small but steady stream of bullion out of their warehouses for both metals.

Have a pleasant evening.