About 38% of All the Comex Gold in Hong Kong Left the Warehouses Yesterday

Perhaps it went out for some dim sum.  TTFN, but be right back!

Roughly 21 tonnes, or 685,652 troy ounces of gold in .999 fine kilo bars, was withdrawn, net of a small deposit of 27,328 ounces, from the Brinks warehouse in Hong Kong yesterday.

To put that into some perspective, that is the same amount of all gold in the entire JPM warehouse in the US.

Now compared to the Comex US, in which very little gold bullion actually changes hands or goes anywhere, that is a huge number.  But Hong Kong is typically seeing large inflows and outflows of gold.  Because that is how the precious metals market has been manifesting in Asia since about 2007: not with endless chains of paper just changing hands in a grand game of liar's poker, but with the physical exchange of bullion.

And most of that bullion leaves the warehouse and does not come right back, as Koos Jansen has explained repeatedly about the operations on the Shanghai Gold Exchange.  It is being accumulated on the mainland, and this probably does not include the PBOC official purchases.

The point of this is that the price discovery in New York is becoming increasingly distinct from the actual physical supply and demand flows of bullion which are taking place in Asia.  As I have said, gold is 'trading like a modern currency' without respect to its nature as a commodity bound by physical supply.  The Fed et al. can print money, but they cannot print bullion.  That is the point of it.

And that is a potentially dangerous development, especially with respect to a commodity that is being traded at a leverage in excess of 200:1.  And in the face of shrinking inventories of gold available for delivery at current prices in both New York and London.

I have put the most recent report for all the US warehouses registered with Comex below that of Hong Kong.

As the Comex told Kyle Bass, 'price' will take care of any imbalances.  Yes, just as smoothly and seamlessly as it did when the price of highly levered and risky paper corrected back to reality in 2008.  Ba-boom!

Are you kidding me? That is what Kyle Bass said, not me.  'Just give me the gold.'

And if people should choose to stand for physical delivery given the relative scarcity, how much of a price adjustment might be required if they could even find any to be had without an onerous delay and in sufficient numbers?

At the A&P?

How many people, once again, are going to be allowed to walk blindly into another financial buzz saw caused by reckless gambling on Wall Street?   Are we willing to repeat the folly of MF Global on a grand scale?  Will the rest of the world be so cowed by the Banks as its investors?

An Open Letter To Paul Krugman On the 'Republican Lust for Gold'

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

John Kenneth Galbraith, Age of Uncertainty

This is a response to Mr. Krugman's recent column as it was featured at Economist's View titled, Republican Lust for Gold

I am not in favor of a return to a gold standard.

I am a reasonably well-educated, politically progressive professional, a likely supporter of Bernie Sanders as an economic reformer and an opponent of endless war, and certainly not the 'Wall Street Democrats.'   I believe that the current 'debate' over the place of gold in the economy is breaking along ideological lines to the point of a religious fervor and intellectual blindness, on both sides.

I think of gold as an alternative store of wealth, which without any sanctions from the state pro or con can serve a very useful purpose. It gives people a 'choice.' It can act as a barometer of sentiment. And it serves a purpose, especially in times of pervasive fraud in the financial asset markets, as an asset without mispriced or even hidden counterparty risk if held directly.

And if you think that the problem of pervasive fraud has been fixed you are sorely mistaken.

If a system cannot stand the criticism offered by something which it cannot and probably ought not to control, then perhaps the fault is in the system, and not in the critics.

And while we are on the topic, what by any stretch of the imagination do you subscribe the issue of 'gold' to the Republican establishment? Who shut the gold window in 1971? One of the few things that Chairman Greenspan said is that statists from both sides of the aisle despise and fear gold because it constrains them in their quest for discretionary power. And he was right.

The current 'stimulus' is a massive failure because it has been trying to save a broken and largely unreformed financial system, rather than provide stimulus and support to the vast majority of the participants. It is the consequence of placing the highest priority in means and methods, because they are 'ours.' Our method, our model. First and foremost. Because we fear for our credibility.

And so the participants who are complicit in the fraud and those who are invested politically in the models and methods both become ensnared in a 'credibility trap,' and what Mike Lofgren has called 'the anti-knowledge of the elite.'

Unfortunately, Gresham's law is still works. Gold, and to a lesser extent silver, are flowing 'en masse' to Asia in almost astonishing numbers of tonnes each month. The numbers are there, little publicized and noted in the prestige media, but almost shocking. It has not yet made its way fully into official reporting mechanisms, even so called 'industry organs.'

Mr. Krugman, nine out of ten Americans will notice that the vast peoples of Asia and the Mideast are not 'Republicans.'   The central banks of the world are hardly 'Republicans,' but they became net buyers of gold around 2007.

No, they are not the easily mocked Republicans.

But they are looking for a safe alternative to a monetary and financial system that is going off the rails, again.  The modern hypothesis that all money is purely arbitrary is only feasible if one has the ability to make their purely arbitrary valuations stick.   That is the Faustian bargain with the will to power, the endless war of the monetary relativists.

Would we make enemies of the whole world for the sake of a corrupt and unsustainable financial system? Alas, some would, and are doing so even now.

As I am sure you know, once a force like Gresham's Law goes into effect, which it already has, it can quickly turn into a torrent of consequences.  Will we continue to argue until that event is upon us, as we did with the prevalent fraud in the housing bubble that was created by the same perpetrators who have continued to rig markets even until today?

The dogmatic modelist and political hack sees China and India and other nations buying gold and says, 'We must stop this! Control it!' The thinker sees a sea change in the monetary markets and says, 'we must understand why this is happening, and what we may be doing to provoke it. And if we are doing something wrong, then correct it.'

No I do not support the gold standard, not at all. It would be entirely inappropriate for a patient still in the ICU to be prescribed a regime of hard exercise and strict diet. And the corruption in this system is capable of corrupting anything, even an external standard.

Given the proper regulation, transparency, and judgement, a paper currency can emulate the steadiness of a gold standard while allowing for more latitude in times of distress. Do you really believe that we have held to that prescription with our serial bubbles, frauds and crises?

But I do feel quite strongly that the current policy of constant market intervention in the West, which is obviously happening to anyone who is capable and experienced in watching trade patterns, is going to tear a hole in the facade that this sick series of policy errors is becoming.

If one takes even a cursory look at the trade flows of gold, one can see that the flows into Asia and the Mideast are relentless, and growing. And the decline of 'free float' in the UK and US in particular is striking. The numbers are difficult to discover, but some have taken on that task.

The leverage and shuffling of free bullion around to dull the interest in leverage is approaching 300 to 1 in NYC and 200 to 1 in the 'physical' LBMA market in London is the kind of obvious error that one looks back at from the wreckage and says, 'What were they thinking?'

We made a mistake. A big one.  We have tolerated a farcically ineffective program of 'reform' and a massive top down stimulus focused on the 'system' with an austerity for the public that is going to rip a tear in the social fabric which will take years, and a significant amount of pain, to mend.

It is going to happen, no matter what models or arguments you may wish to stick your head in. I am not trying to argue a point. I am trying to encourage people to at least look at what is happening, and to stop comforting themselves with obviously faulty numbers and metrics from a system that has stopped serving most participants in favor of a powerful few.

This is going to end badly. I was more demure when we had similar discussions here like this prior to the housing bubble collapse. 'And no one could have seen it coming.'  Because their eyes were closed and they comforted themselves with what they wanted to hear.

There is, at some point, going to be a dislocation in the international currency and bond markets.   And it will be noticeable, unless we change our ways and embrace honesty, transparency, broader equity, and reform.

It will not come from the political process, because that has also been broken by the power of big money.  That has become so painfully obvious that the only way to continue to justify it is to declare corporations to be 'people' and bribery to be 'free speech.'

People may think of themselves as 'Keynesians,'  and what the 'other side' thinks about Keynes is admittedly mostly an ideologically tainted caricature.  But first and foremost what made Keynes effective was his practical focus on the desired results and not to a preconceived model which crushes out the better part of reality in its understandable and unfortunate inadequacy that is common to all 'models.'  Keynes was an independent thinker who was confident enough to occasionally change his mind without worrying overmuch about his credibility, and not an acolyte of some constraining school of thought made dogma. 

No, rather than a 'gold standard' now I think gold should stand alone, and be allowed to speak whatever truths it may. As for any use of it by nations, let them make what use of it as they wish. It is a tool. But once they make it 'official' they cannot seem to keep from trying to cage it, and control it. But by then it is merely collateral damage of a growing corruption and fraud of finance, rarely without an accomplice in monetary economics.

At some point the thought leaders will have to rise above their own political enthusiasms and personal aspirations and begin to honestly and openly address what is going wrong. And then perhaps we may begin to push for the return of some of the basic principles hammered out in the 'New Deal' which we so foolishly allowed to be weakened and then overthrown in the 1990s, and even until now.

And, Mr. Krugman, that was a decidedly bipartisan effort. And the players and their enablers who brought us that misery are still active, unabashedly, in the highest circles of power.

Gold Daily and Silver Weekly Charts - How Long? Go Ask Alice

"To know and to serve God, of course, is why we're here, a clear truth, that, like the nose on your face, is near at hand and easily discernible but can make you dizzy if you try to focus on it hard. But a little faith will see you through.

What else will do except faith in such a cynical, corrupt time? When the country goes temporarily to the dogs, cats must learn to be circumspect, walk on fences, sleep in trees, and have faith that all this woofing is not the last word.

What is the last word, then? Gentleness is everywhere in daily life, a sign that faith rules through ordinary things: through cooking and small talk, through storytelling, making love, fishing, tending animals and sweet corn and flowers, through sports, music and books, raising kids — all the places where the gravy soaks in and grace shines through.

Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people. Lacking any other purpose in life, it would be good enough to live for their sake."

Garrison Keillor

Gold and silver were hit by some of the usual sharp and short selling, but most of the gains were taken back by gold during the afternoon.  For silver, not so much.

As noted intraday in the NAV chart, the gold/silver ratio is  historically high at 75.

It was heartening that gold held the 1080 level despite the attempt to push the metals lower.

There were no bullion deliveries yesterday, and nothing of note occurred in the warehouses of The Bucket Shop.

Note that the USD DX index has fallen for two straight days.

There is some correlation between gold in dollars, and the Swiss franc and Euro in dollars as well.  I show that in the first chart below.

This does not always happen, but sometimes it does.  And I describe this as 'gold trading as a currency.'

This in itself is not a problem per se.  But it does ignore the hard reality that while the central banks may own a printing press, and are most assuredly not afraid to use it, they do not own a gold bullion machine over which they have the kind of discretion which they enjoy with fiat money.

And so we end up with a marketplace choked with leverage and backed by multiply hypothecated, papier-mâché  bullion.

Despite a good show and talk of 'tightening' and pricier risk, it looks like the Banks will be just engaged in the usual antics of the privileged, offshoring in a tag team  currency cage match of the major western currencies and their descent to the bottom of real values.

The reckless short selling, speculation, and derivatives pyramid created by the big trading desks that they encourage may come back to bite them, abyss-wise.

Let's see how that works out for their financial combine. Especially in light of increasing leverage in the face of the massive movement of bullion from West to East.  Record Gold Exports From the UK To China

Accountability.  It's not just for the little people, all the time.

At some point of extreme hubris and irrational excess, a banquet of consequence will be served.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - The Quantum of the Soulless - Trickle Down Bubble

The economic data continued in weakly this morning, with an oversized number of newly unemployed, and a continuing unemployment number that was higher than expected.  Tra la.

There may be little doubt that the 'trickle down' stimulus that has been bloating the paper assets of the wealthiest few while no progress is being made by all the rest is going to lead to a break point in the current socio-economic equilibrium.  At least, this is what history has proven.

On the right is a chart that shows how the huge increase in corporate debt that has been facilitated by the Fed's easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest and the wealthiest corporations, has been largely deployed not to build for the future, or pay living wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and the wealthiest few.

But such abuses of policy and regulation can go quite far.  And the further it goes, the more messy the reversion to the mean may be.

So what next for the stock bubble?

It was encouraging that the SP 500 futures stopped precisely on major support.  The NDX futures not so much.  They have not yet reached down to fill the 'gap' that is down around the 4650 mark.  The gap is narrow on the futures, but almost yawning on the cash market.

As for the SP 500, it *could* be forming up a W bottom or a cup and handle, depending on where it stops, and if it rebounds.  I will address that more explicitly if it happens.

But if it does, that is a tip off that the wiseguys have decided that there is room to ramp the stock indices much higher into the close of the year, for a proper yuletide pig fest, for themselves of course.

So let's be patient and see what happens.   I have taken the volatility long and index short off, as it met my short term criteria.  I may have to come back in reluctantly perhaps, but the market will let us know what is unfolding.

And the professional class wonders why the natives are restless.

Have a pleasant evening.

NAV Premiums of Certain Precious Metal Trusts and Funds

The gold/silver ratio is at an historically high 75.

There were no changes made to address the growing negative cash position at Sprott Silver.  That is something I do not recall seeing before.

CEF is carrying a fairly deep discount, the rest not so much.  Central Gold Trust is benefiting from the Sprott takeover bid.

Central Bank 'Tightening' and Dire Choices - History Looking 'Rhyme-y'

History says, don't hope
On this side of the grave.
But then, once in a lifetime
The longed-for tidal wave
Of justice can rise up,
And hope and history rhyme.

Seamus Heaney

'Raising rates' and 'tightening' looks more like offshoring and a shift change at the central banks' print shop.

Game of Swaps.

And in the second chart, the history of empire is starting to look choiceless and  'rhyme-y.'

Hope and change.  Change was led down a blind alley and strangled, and hope is on a bus out of town.

Gold Daily and Silver Weekly Charts - The Road Ahead

It was more back and forth with gold and silver today.

I thought I had already given a fairly complete overview of what I think is happening in the precious metals markets.   Perhaps I need to repeat it with just a little embellishment.

And just for grins, although it does contain some satirical exaggeration just for effect, the cartoon to the right is pretty much how I conceive our current situation and the real economy.  Our financial problems cut right to the bone of who we are and how we are conducting ourselves as a society.

We have just seen an historically significant decline in the precious metals in terms of days lower without relief. And we have seen a remarkable rise in the US dollar index against the Euro and the Swiss franc that cannot possibly be good for the real economy of the US, when every other developed nation is trying to devalue their currencies to stimulate their exports and inhibit imports.

I believe that a portion of the gold selling in particular is an effort to knock down the open interest in gold for December. Why? Because of the incredibly high ratio of open interest to deliverable gold, which I publish frequently and was among the first to do so, although Nick Laird is the data wrangler pre-eminent on this. If there was any serious attempt for holders of those contracts to stand for delivery, even JPM, which has been obviously building up its stores of gold to act as the 'fixer' in that market, would not be able to cover the demand.

JPM was consistently taking delivery for their house account in gold, and just transferred 70,000+ ounces over from Nova Scotia's warehouse, from whom they had been taking delivery.

As we know, in the last big delivery month, JPM stepped up with an enormous amount of their gold, 400,000+ ounces, to provide enough real bullion to satisfy the contracts standing for delivery. Even now their inventories remain somewhat depleted.

The dollar has also been soaring, because the Fed is trying to pretend that the US is recovering so that they can raise rates. A strong dollar and higher rates are very harmful to what is almost undoubtedly a fragile economic recovery in the US.

And it is fantasy to think that the US can somehow go it alone, and continue to improve while the rest of the world is cutting rates because their economies are slowing.

The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy.

There will be another financial crisis as the IMF warned today. There will be a serious dislocation in several financial markets, including the precious metals and the bonds at some point, that will rock the current system to its foundations.

It is the credibility trap which ensnares the ruling class that inhibits any meaningful remedy and reform.  Consequently I do not think we are in for an easy or peaceful time.  As you may recall, I think the next imperial president may be our 'Nero.'  This is by way of saying that unless we change our ways, it will get worse before it gets better.

You may think I have it wrong. And that is certainly a possibly that I not only admit but weave into my own investment strategies in the short term particularly. But I do not think I am being coy or evasive on what I think.

And this it a part of a greater framework and forecast that I put together in 1999, and if one does not expect exact timing, which is not possible in these things, has proven itself over time to be sound.

Have a pleasant evening.