Gold Is Flowing From West to East - Often Via Switzerland's Refineries

You have often heard me say that 'gold is flowing from West to East.'

Much of that gold flow is through the refineries of Switzerland, where London good and NY gold bars are converted to the kilo specifications demanded by the Asian markets.

Most of the gold into Switzerland, by far, is coming from the London bullion market. With lesser amounts coming from the US and from Turkey. I noted here the other week that Turkish banks were selling gold reserves to support the lira.

You have seen the estimates of the physical gold floats in London shown here from time to time. That float has dwindled considerably. And this is why it is important.

And where does the gold go after it leaves Switzerland? As you can see below, it is by far flowing into China, India, and then Thailand, Singapore, and the UAE.

Physical gold is flowing from West to East.  And the West is scraping the bottom of the barrel, at least at these prices.

Gold and Silver Fund and ETF Flows and the Commitments of Traders Market Positioning

Physical gold continues to come out of the funds and trusts.  Silver shows no such withdrawals.

When gold starts to rally again, that physical gold is going to have to be bought back, and probably at increasing prices on the market.  Much of this physical gold has already made its way to the markets and vaults in Asia, and not likely to return anytime soon.

With regard to the commitments of traders, the readings for both metals are at some historical extremes, suggesting a rally ahead when the positions revert to the mean.

We have a slam dunk FOMC meeting and an option expiration on the Comex this week ahead, and another Non-Farm Payrolls report the following week.

Comparing a Few Popular Gold Plays This Year, the Past Two Years, and in the 2016 Gold Rally

Comparing GLD and PHYS, we see that their performance is fairly close to the performance of gold itself.

In the decline of this year there is more 'slippage' in PHYS as compared to GLD, by about 100 bp.

But in the gold rally of 2016, PHYS outperformed GLD by almost 60 bp.

If  we run a comparison over a two year period to date, which includes a decline - rally - decline the price of gold, we see the spread between PHYS and GLD widen to a more substantial 228 bp.

And that is an even more substantial slippage of 334 bp compared to the price of gold itself.

There is a 'premium' in PHYS as compared to Gold and GLD that expands and contracts depending on the bullish temperament of the market.

I have included two more charts back from 2010 that shows this.

And then there are the miners.  I have included two charts with the large cap gold miners GDX below.

Just a quick glance at those charts clearly shows the leverage, or beta with regard to the underlying asset which is gold, in the miners.

The gains are significantly greater, but the declines are also much larger.

I am merely providing the data here for you to consider.  If you don't know what to do with it, then it probably is something you ought not to worry about.

There are other things to consider of course, including security, fees, storage, the purpose of the asset in your portfolio, and the time horizon for which you are holding it.

Change Is Coming, and With It a Reckoning - A Fire Smoldering in the Minds of Men

"The world needs a new generation of policymakers who don’t hobnob with billionaire speculators and who understand workers’ concerns. Unfortunately, the change will not come smoothly."

Andy Xie


"At the root of America's economic crisis lies a moral crisis: the decline of civic virtue among America's political and economic elite. A society of markets, laws, and elections is not enough if the rich and powerful fail to behave with respect, honesty, and compassion toward the rest of society and toward the world."

Jeffrey Sachs


"Wealth, in even the most improbable cases, manages to convey the aspect of intelligence.  Wealth is the relentless enemy of understanding. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent.   The foolish thus have the field to themselves. None rebukes them.

People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right."

John Kenneth Galbraith


“Although I say that wisdom is better than strength, nevertheless the common wisdom is despised, and its words are not heard.  A wise man speaking quietly is worth more than the shouts of a tyrant commanding fools.  Wisdom is better than weapons of war, but one sinful man can destroy much that is good."

Ecclesiastes 9:16-18


"Do you not think an angel rides in the whirlwind and directs this storm?"

John Page, To Thomas Jefferson

The world's leadership is heavy with hubris, to the point of gargantuan madness.  And in all such cases, in its own time and its own way, change is coming— and hell may be coming with it.

In a way, it is already here. Evil walks among us. But so does love. And therein lies our hope.

Below is an excerpt from a recent essay from Andy Xie in the South China Morning Post. You may read it in its entirety here.

"The lack of external checks has led to rising internal imbalances in both countries. Since the end of the cold war, the US has been marred by surging inequality, while bubbles and ignorant hubris have come to occupy the central ground in China’s economic management and political thinking.

Financial speculation and corruption have become normalised around the world. The titanic rivalry between the world’s No 1 and No 2 economies will put all on their toes. Some of the most egregious trends could be reversed...

Bubbles bursting is a necessary condition to bring sense to all players. Policymakers have been paying too much attention to asset prices. One major factor is that they hang out with speculators at places like Davos. This is why, despite incredible economic growth since 1989, most people are discontent.

The world needs a new generation of policymakers who don’t hobnob with billionaire speculators and who understand workers’ concerns. Unfortunately, the change will not come smoothly. Political turmoil in the West is very much about this. A heavy price has to be paid to bring about the change.

The Sino-US rivalry is the main driving force to bring about the needed global change. The Beijing-Wall Street axis has been driving the global economy towards speculation and inequality.

In 2008, Beijing and Washington pumped in massive amounts of money to bail out speculators in the name of saving the economy and helping workers. The reality is that they used workers’ money to enrich parasites."

Andy Xie, Can US-China trade war rivalry reverse the worst economic trends in both countries?