NAV Premiums of Certain Precious Metal Trusts and Funds - Oh, Snap!

The ratio of gold/silver remains rather high at 60.

Gold and silver are up today pretty much in lockstep. Silver may make up some ground if the afterburners kick in.

The premiums are holding well, but hardly exuberant to say the least.

COMEX Gold Warehouses Continue to Bleed Out As 'Owners Per Ounce' Climbs Back Over 53

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.   Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, reported in private conversation, September 1999

We saw more significant action in the Comex warehouse complex yesterday. 

A total of almost 4,000 ounces left the greatly diminished deliverable category, bringing it down to 717,666 ounces.    The ownership per ounce for each of those deliverable ounces is back up to 53.

Over 50,000 ounces left the Comex complex overall, taking the total amount of gold bullion there to 6,859,476 ounces.

As you know the gold bullion has been coming out of the ETFs in particular, and it is not showing up in the Comex warehouses.  There is widespread speculation and anecdotal evidence that this gold is being used to fulfill deliveries in Asia, after being refined into 400 ounce bars.  I do not think that it is likely to come back anytime soon.

There was a great deal made today of a letter that was sent out by JPM, limiting cash withdrawals by customers significantly and eliminating overseas wire transfers completely.  I have heard from some well-heeled individuals who are pulling their cash out in response to this.

I do not think this is a sign of government capital controls.  It is more likely involved with the trouble that JPM had gotten into with the OCC over their lack of compliance with regard to anti-money laundering measures.  As you may recall they received a 'cease and desist' order in January over this and have been under stricter surveillance since then.

Sometimes Banks engage in campaigns to migrate customers out of old platforms and less desirable accounts into more profitable account programs.  I did not see a message in their indicating that, but it is a possibility.  

It could also be a short term cash problem at the bank.   Perhaps there is some perceived risk there that the general public is not yet aware.  I find that a little hard to believe, but it seems more likely than a move to more general capital controls by the government.  If another big bank or two institute similar rules then maybe there is a little heat there worth our notice.

When it comes to metals, this market is just a mess.  I am appalled at the manner in which the CFTC and the CME have been conducting their roles as overseers.  These big market sells in quiet periods are almost unbelievable in their frequency and brazen effect on price.  

Are some bullion banks in trouble with their positions again?   It seems like something very odd is going on, and we know that when the banks get too badly offsides the market, the central banks are often willing to extend themselves to help them 'for the sake of the system.'

Gold forwards have gone negative again.  This represents tightness in the short term supply of physical bullion.   There have been massive drawdowns in Comex deliverable gold and the ETFs this year, without anything at all like it in silver, platinum, or palladium which have held steady or gained over the same time period. And no one seems to notice.  Le monde autour est sourd, bien entendu!

I suspect that those who see nothing unusual at all in this, and are seasoned watchers and traders in precious metals, are probably whistling past the graveyard.  It will take higher prices to free up more gold to be available for delivery, and that will make it harder to keep tapping the ETFs to obtain physical supply with which to satisfy Asia.  It is quite the predicament.

And there remains the fact that the Fed told the Bundesbank that they may have the return of the German people's gold, but not for seven years.  This obviously suggests that the gold might otherwise be occupied, spoken for, and encumbered.

There may be a reckoning when the smoke clears, and the quantities actually available to buyers readily on the shelves are revealed at last.

Weighed, and found wanting.

Stand and deliver.

Gold Daily and Silver Weekly Charts - Bart Takes a Bow - Capital Controls

Cap, cap, cap again today as the antics in Washington had the metals left with a subdued trade while stocks jumped in response to ... a delay in financial Armageddon to the beginning of next year, or not. We'll have to wait for the firm details.

It does not do much for the floundering real economy, but the Street won't think about that until après ski.

We finally saw some meaningful activity in the Comex warehouses. I will write about that later this evening.

Several people have asked me about a letter from JP Morgan Chase about international wire transfers and dollar limitations and if it is related to capital controls.  Capital controls are actions by government to limit the movement of capital across its borders.

Since we do not yet know what prompted this move by JPM, a number of things are *possible.*  However it would be odd to embark on a policy of capital controls by starting at just one bank.

More likely this is related to the 'cease and desist' order presented by the OCC on JPM from earlier this year with regard to holes in their money laundering detection system. 

There could also be some particular problem at JPM that might provoke a number of withdrawals from overseas, a sort of 'run on the bank because of something that happens there.  But that is not likely, but it certainly would not be considered that a more general policy of 'capital controls.' 

But hey, speculation is more fun. Wow, capital controls are here. At only one bank. I wonder how you would get around that? 

Getting back to the metals, I don't know how long they can keep this up, but today I got the sense again that the tape is winding under this very heavy-handed price suppression. When it moves, it could be eventful. But until then we sit patiently, counting blessing and reminding ourselves of what is really important. It is certain that we will not be taking any physical gold and silver into the next world, but perhaps the unpaid debts of fraud may adhere to those who have accumulated them.

Bart Chilton made a surprise visit to Bloomberg television today, taking a bow for obtaining JPM's acceptance of their $100 million fine for the London Whale. It appears that Bart and a skeleton crew are still on active during the shutdown. One might wonder, if they are not watching the markets during this difficult period, what exactly are they doing? Besides the occasional television appearance, because the one riot one Ranger rule applies to that.

Here's a modest suggestion. Pick up the phone and ask the Comex to identify the party who dumped umpty ump tons of paper gold in a quiet market and triggered the stop logic last Friday. That's a start.

The action in the metals markets is almost eerie. The big sells in quiet periods, the growing open interest in the face of paper selling and decline of deliverable inventories seems blatant, brazen, and strange.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Fabulous Fab and the Mavens of Despair

This is funny on so many levels, and so rich a field for pithy remarks, that I don't quite have the energy left today to fully do it justice.

"Mr. Tourre no longer works at Goldman, and is enrolled in the economics doctoral program at the University of Chicago."

Dealbook, Fabrice Tourre Seeks a New Trial

It does offer some prospective ad slogans for University of Chicago's Economics program.

'When your white collar criminality lacks that competitive edge.'

If he was a politician he would just wait a few months and join a Beltway lobbying firm where results are all that matter.  As a financier you have to go upscale when things don't go your way. Why trade when you can make public policy statements and economic forecasts?

Mark Cuban was found not guilty by a jury this afternoon, and can skip grad school and go back to Shark Tank.

Stocks had the expected rally ahead of expectations of a last minute deal ahead of the debt ceiling. We will have to wait for the final details which *should* be released tonight or early tomorrow, but from what has been said so far it looks like a can kick down the road, but mostly past the holidays.

Have a pleasant evening.

The Silly Season: Why Economists Go Wrong...

While economics started its life as a branch of moral, and some would say managerial, philosophy, it has evolved these days into a somewhat technical, and too often rather narrow, area of specialization that focuses inwardly on itself and its semi-private, academic squabbles.

Not that this is all bad, because it does keep economists employed and out of other mischief, as John Galbraith had observed.

But it sometimes causes them to get things wrong, because they tend to lack the overall vision of how real things fit together. Incorrect assumptions that compress the life out of reality are the Achilles' heel of all models, especially when they become self-referential and self-perpetuating. One has only to look at Eugene Fama's efficient market hypothesis to see how far this can go, and how damaging it can become.  Well, at least he has recently obtained a consolation prize for establishing a 'benchmark.'

Granted, this is a monumental challenge because economics spans so many areas of life and commerce. But when economists weigh in on policy and moral issues, one would think that they might give an extra special effort to rise out of their own deep wells of subjectivity and models, and at least have a go at understanding the impacts that their thoughts may have on the broader discussion, especially if they hold a public platform.

As the regular reader may recall, I picked on Paul Krugman when he dismissed the ability of the futures markets to influence commodity prices, because as he postulated, those prices are really set on a 'spot market' which ignores the futures prices, which are solely about derivatives on the future.

Now anyone who has spent any time at all trading in commodity markets knows this to be utter nonsense. Price discovery is a much broader activity. The price of a commodity today does incorporate some intelligence about what the price might be next week, for example.

And in the specific case of the metals, the prices in the futures front month have an enormous impact on the going price of a metal. Although that does seem to be diminishing a bit these days, with premiums over 'spot' as set by the futures front month hitting all time high premiums of one hundred dollars. But that is a symptom of a long term abusive price rigging and an unfortunate market divergence, and certainly not the norm.  Although it is amazing how many economists cannot see it even as it is unfolding. 

Today James Kwak weighed in with a few thoughts from the liberal economist point of view.

"Why does anyone think that anyone cares about what a rating agency has to say about Treasury debt? Credit ratings matter for obscure companies because they represent new information that is not otherwise available to investors. In the case of the U.S. Treasury, all the information you need to know is plastered across the front page of the world’s newspapers, all the time. Your not going to change your opinion because of something that Fitch says."

The reason for this should be well known to anyone who might have traded in the bond markets. Certain institutions are required to buy only instruments rated at a certain level, by a consensus of a handful of ratings agencies:  Moody's, SP, and Fitch. 

If Moody's or Fitch were to join SP in downgrading US debt, I guarantee you that there were be a significant reaction in bond market prices, without regard to what any economist might think from their reading in the newspapers. Those institutions who are required to hold only AAA rated debt would be prohibited from buying, and might even become forced sellers.

Is the Ratings Agency system sound and efficient? Hardly. But that is not the point. We have to deal with what is, and then change it if it makes no sense. The sad truth is that the Ratings Agencies are not objective and serenely detached computers processing facts without bias, but instruments of people, with biases, that sometimes become instruments of policy and conflicts of interest.

But this is a little example, fairly straightforward, and one can hardly blame someone for getting it wrong. I can get things like this wrong more than I might like, and often depend on the good grace of expert readers to set me right.

In the next bullet point James says that a holder of Treasuries ought not to care if the interest payment is delayed, because the principal is secure. He may not care, but certain institutions have to care quite a bit about this sort of thing.  A missed interest payment is a consequential event.  But again, it is a detail.

The example that stirred me to write is the next one, which goes far beyond knowing some market rules.

"I am probably one of the few liberals who don’t think the Tea Party caucus is engaged in irresponsible hostage-taking. Sure, I disagree with their policy objectives, and they are risking economic catastrophe by trying to force the government into default. But they are also fighting for a principle, misguided as it may be: Obamacare is evil, and should be stopped. The debt ceiling is an absurdity that should not exist. But since it does exist, it is leverage that conservatives can use to try to achieve their policy goals."

This surely sounds like a fine piece of liberal thought. Something exists, and someone is using it 'on principle.'  And while I may not agree, whom am I to judge in my fog of liberal relativism?  I admire their adherence to principle, in the same way that the diffident often admire the forceful.

Here is where I think James Kwak goes wrong in his moral reasoning.

Just because something exists does not mean that any use of it is a moral use, and one cannot blame or object to anyone's use of it as long as it is 'for principle.' I presume James would balk at the use of the debt ceiling to obtain large personal bonuses for the Congressmen for merely doing their jobs. After all, they are not completely like Wall Street, yet.

What if, in his angst over wanting to save the American people the painful experience of the Affordable Healthcare Act, Senator Ted Cruz were to stand on the roof of the Dirksen Senate Office Building, and vow not to get down from it until the ACA was repealed, eschewing all food and drink. We might question his frame of mind and judgement, but that might well be viewed as an act of principle, a symbolic action of great personal consequence and example.  Gandhi used the  principled hunger strike to influence political actions on several occasions and to great effect. 

But what if Senator Cruz used his office and influence to gather a group of hapless tourists, and hold them on the top of the building without food or nourishment, unless the ACA was repealed? And further, what if he set a date of October 17, and threatened to push them over the edge of the roof unless he was given his way?

Would that be an act of admirable adherence to principle?

No, of course it would not be.  

This relates to the long established moral principle that civil disobedience and demonstrations of principle are admirable if they are peaceful, and if those who take that action place themselves in the path of consequence, and accept that consequence for themselves.  More simply, an act that accepts negative consequences for oneself can be a commitment to principle.  An act that visits the negative consequences on an innocent third party is an act of extortion.

This is the difference between a hunger striker, a pepper-sprayed peaceful demonstrator, and a kidnapper or terrorist bomber.   Personal actions might have a broader consequence as well, as in the case of a transit strike, but I think the difference here is apparent.  The union strike is directly related to the activity, and is usually germane and proportionate.  And the strikers endure a shared hardship with the customers.  Although this too can be abused, obviously.

Now I would not want to engage in dark humour, but I will.   I suspect that if certain elements of the Congress or Wall Street were to gather on the tops of their office buildings and threaten to jump if they did not receive outsized personal bonuses and more power for merely doing their jobs, one might suspect that a less than insignificant element of the public would voice their encouragement, and urge them to go ahead. And the media would sell tickets.

This is the silly season. And people are saying lots of silly things. But there is some need to maintain our common sense, and view things as they are, and not where our and political enthusiasms might wish to take them.

I know, this is a bit of schadenfreude, and I do not wish to pick on James Kwak because I like this writings for the most part and often link to them.  And by comparison the 'liberal economists' are like Solons compared the more venal of the so called 'conservative economists' who will say anything for their employers.

But I mean, come on. Being a liberal does not require one to engage in I'm OK You're OK relativism so that we lose sight of the practical foundations of civic duty and moral behaviour.    This might be a difference between a liberal and a progressive but I have never cared enough to think about it much. 

The practice of Wall Street and the Congress in holding the nation hostage to dire economic consequences, just to get their way when they lack a democratic consensus, has gone too far for too long.  

If they wish to protest, they should place themselves at risk, peacefully, in demonstrating their commitment to their beliefs, and not hold the innocent public hostage by furloughing the government and impeding important civic functions while they continue to enjoy their gymnasium, draw their paychecks,  and enjoy their customary perks in comfort.

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

There was very little movement in the Comex warehouses yesterday. The spreadsheet is included below.

This interview with Jim Rickards at Goldbroker is worth reading.

"The signs that the manipulation is coming to an end will include depletion of warehouses, price spikes and notifications from banks that they will no longer allow the conversion of gold forward contacts into physical gold."

The gold chart and silver charts are set up for a 'pop higher' if they can ever get some traction. That may not occur until the gold starts flowing out of the warehouses again. The registered (deliverable) inventories in the Comex warehouses are very thin. It will take higher prices to move more inventory out of storage and into the market.

Gold premiums in India have hit a record $100 per ounce this week. Nothing to see here, move along.

As a reminder this is a stock option expiration week.  The 28th is a Comex precious metals option expiration.

Until then, things are what they are.  Try not to allow the histrionics and hysteria to fill your sails.

After the bell Fitch put the US credit rating on negative watch.  tra la.

I spent the day straightening out some medical bills.  For those of you who are unfamiliar with its gorier details, the healthcare industry in the US is like a protection racket.  You have to pick some group to belong to, in order to obtain protection from financial ruin.

Forget paying the bill, the first benefit of health insurance here is that the specialist office visit that bills out at $550 gets reduced to $120, and then the insurance company pays some portion, and you pay the rest.  And when it comes to larger bills like hospital stays, the numbers get exponentially ridiculous.  And with certain pharmaceuticals, we enter the Land of Oz.

I think the only people who really like the US healthcare system are those who have rarely or only lightly used it, and who comfortably keep some ideologically based model of it in their heads.  Until they are old enough to have to use it and are covered by Medicare, and then they seem to love that.  But only for themselves, for they alone are the deserving and without sin.

The doctors and hospital people are fine and decent.  The financials of the system are barking mad. 

Have a pleasant evening.