New From Sprott: "Do Western Central Banks Have Any Gold Left?, Part III"

Hot on the heels of the excellent research paper released Tuesday, the good folks at Sprott Asset Management have sent out their latest monthly newsletter.

First of all, if you haven't read the Sprott research report that we linked back on Tuesday, you should do so right now. It's an excellent analysis of where we are and how we got here: http://www.tfmetalsreport.com/blog/4842/sprott-update-central-banks-bullion-banks-and-physical-gold-market-conundrum

This current newsletter attempts to answer the question: Do the Western CBs have any gold left or has it all been leased and sold by the Bullion Banks, never to be returned. In exchange, the CBs are left simply holding paper claims on gold...like every other unallocated account holder. Before you begin, perhaps you should go back and watch Part 3 of the CBC documentary, "The Secret World of Gold", coincidentally featuring Eric Sprott, himself. Again, after years of leasing, is the central bank gold gone? The Bullion Banks have tried to manage this process by matching lease durations and repurchases but, with Eastern demand far outpacing current supply, will the Banks be able to physically reclaim the Central Banks gold in the future? Is it "Gone For Good"? http://www.tfmetalsreport.com/blog/3924/gonefor-good

 

Again, the Sprott folks will be happy to send these newsletters to you directly so that you don't have to wait for me to post them. To sign up, just click here: http://www.industrymailout.com/Industry/Subscribe.aspx?m=28462

TF

Do Western Central Banks Have Any Gold Left?, Part III

by, ERIC SPROTT

Recent dramatic declines in gold prices and strong redemptions from physical ETFs (such as the GLD) have been interpreted by the financial press as indicating the end of the gold bull market. Conversely, our analysis of the supply and demand dynamics underlying the gold market does not support this interpretation. Many major buyers of gold are adding to their stocks, while at the same time supply is flat or even decreasing, compounding an already vast imbalance.

For example, central banks from the rest of the world (i.e. Non-Western Central Banks) have been increasing their holdings of gold at a very rapid pace, going from 6,300 tonnes in Q1 2009 to more than 8,200 tonnes at the end of Q1 2013 (Figure 1a). At the same time, physical inventories have declined rapidly since the beginning of 2013 (Figure 1b) (or have been raided, as we argued in the May 2013 Markets at a Glance)1 and physical demand from large (Figure 1c) and small (Figure 1d) scale buyers remains solid.

As we have shown in previous articles, the past decade has seen a large discrepancy between the available gold supply and sales.2 The conclusion we have reached is that this gold has been supplied by Central Banks, who have replaced their holdings of physical gold with claims on gold (paper gold).

Many recent events suggest that the Central Banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight.

FIGURE 1A: (NON-WESTERN) CENTRAL BANKS ARE ACCUMULATING GOLD AT A RAPID PACE
CENTRAL BANKS REPORTED GOLD HOLDINGS (TONNES)
    FIGURE 1B: PHYSICAL GOLD INVENTORIES ARE DECLINING (TONNES)

FIGURE 1C: CHINESE GOLD DEMAND IS STRONG 12-MONTH CUMULATIVE NET GOLD EXPORTS TO CHINA (TONNES)
    FIGURE 1D: SMALL SCALE PHYSICAL DEMAND REMAINS STRONG AVERAGE GOLD COIN PREMIUM OVER SPOT

Source: World Gold Council, Bloomberg, Hong Kong Census and Statistics Department. Average premium calculated as the average premium for the following 1 oz. coins, as reported by the Certified Coin Exchange (CCEX): American Eagle, Maple Leaf, Krugerrand, Philharmonic, Panda, Isle of Man and Kangaroo.

Supply & Demand Factors

First, in January, the German Bundesbank (the second largest gold reserve in the world according to the International Monetary Fund (IMF) data), announced that they would repatriate their gold from the New York Fed’s vaults.3 In total, 300 tonnes out of the 6,200 tonnes the New York Fed claims to hold should be relatively easy to transfer.4 But the Bundesbank also announced that it would take about seven years to do so. If the gold is really there, it should not take much time to transfer a paltry 4.8% of the New York Fed’s vault.

Next, in March, there was the leaked letter from ABN Amro (a large Dutch bank) telling its bullion customers that redemption of physical gold from their allocated accounts would now be impossible.5 Then, in April, we heard reports that UBS and Scotiabank were experiencing a “bullion depositor run”, where customers were lining up to withdraw their gold.6 Finally, a few days later, we heard from Jim Sinclair that allocated gold deposits held in Swiss banks could not be withdrawn on the basis of directives from the central bank.7

Why would a bank do that if it indeed had their customer’s gold in the vaults?

Lastly, on July 1st we learned that delivery times at the London Metals Exchange were as high as 100 days.8 All these events strongly support the thesis that the strong physical demand we have seen over the past few years is putting ever increasing strains on the Central and bullion banks.

Reaction from central planners

Against all odds, the price of gold has experienced a large decline over the past few months, only slightly recovering over the past two weeks or so. Given the strong physical demand and the lack of available supply, we think that this decline was engineered by central and bullion banks to increase available supply and decrease demand. They flooded the COMEX (paper market), only to then free-up physical gold from the various available sources at depressed prices (see our discussion of this topic in the May 2013 Markets at a Glance).

This has been manifested in the GLD trust and the COMEX inventories (see Figure 1b). Since the beginning of the year, and well before the April crash, one of the largest repositories of physical gold, the GLD trust, has seen redemptions of more than 300 tonnes of gold (Figure 2), while world mine production (excluding Russia and China) is approximately 2,300 tonnes a year.9

FIGURE 2: THE GLD IS ONE OF THE LAST RESERVES OF BULLION

Source: SPDR Gold Trust.

FIGURE 3: COMMERCIAL TRADERS COVER THEIR SHORTS, WHILE SPECULATORS INCREASE THEIRS

Source: Bloomberg, CFTC.

If our thesis is correct, the Central Banks are running out of gold. What would happen if the world found out? This can’t be allowed, so the only option left for central planners is to try to tame the demand for gold.

These events have been met with some concerted reactions from the authorities.

First, in early April, the large commercial banks, who are also active participants in the various gold markets, started recommending that their clients sell gold, saying the metal was overpriced, while at the same time covering their own shorts in record amounts (Figure 3). Simultaneously, we have also seen a record amount of short interest from speculators (non-commercial participants) (Figure 3). More recently there was the talk of tapering by Fed officials that further precipitated the remaining long speculators to sell their positions. Finally, the Indian Central Bank decided, supposedly to reduce their trade deficit, to increase the gold import duty to 8% to try to tame demand (the third increase in 18 months).10,11 Then, they imposed further restrictions, such as a tightening of bank credit for bullion importers and limitations on credit card purchases of gold.12,13 Those restrictions were interpreted as negative for gold, even though Indians will certainly exploit non-official channels to get their hands on the precious metal (see our Sprott’s Thoughts article on the subject: “Silver is winning India’s “War on Gold””).

FIGURE 4: COMEX VOLUME ON LARGE DOWN DAYS

Suddenly, in a very short period of time, all the stars got aligned by the central planners to depress the price of gold. All that was needed was a few big moves in the paper market to finish the job. As Figure 4 shows, the enormous volume experienced on the largest down days have been highly suspect and unusual. For example, when gold declined more than 9% in April, the total amount of paper gold traded that day was 82% of average annual mine supply and more than 4.3 times the average volume of a normal day. A closer analysis of the tape for those days shows that what drove the price down was a few, very large sell orders on the COMEX. This further hints at price manipulation since a normal trader wanting to close a position would never send the whole order all at once, for fear of moving the market.

FIGURE 5: BULLION BANKS DEMAND MORE PHYSICAL GOLD AS PRICE DROPS
1-MONTH GOFO RATE AND DAYS OF LARGE (>3%) SPOT PRICE DECLINE

To further support our price manipulation hypothesis, we overlay the 1-month GOFO rate (Gold Forward Offered Rate, the interest rate on a loan collateralized by gold) with days where the gold price suffered significant declines (more than 3%) in Figure 5. Unless it is the actual price drop that sparks all this increased demand, it seems counterintuitive that the gold price would decline precipitously before large declines in the GOFO rate, which implies increased demand for physical gold from bullion dealers.

It now seems that bullion banks are in desperate need of bullion, as evidenced by the increasingly negative GOFO rates we are seeing (Figure 5) and the backwardation in the futures market (future gold is sold to a discount to current gold). Remember that a negative GOFO rate signifies that the bullion banks are ready to pay holders of physical to lease their gold, in this case for a month. Historically, negative GOFO rates have happened in very few occurrences. The last one was in November 2008, at the height of the financial crisis and after which gold rose 156% from through-to-peak. Before that, we saw negative GOFO rates in March of 2001 (about the start of the bull market) and September of 1999 (for a thorough discussion of these issues, see the Sprott’s Thoughts article: “Central Banks, Bullion Banks and the Physical Gold Market Conundrum”).

Summary
 To recap, we believe that the central planners have engineered the recent gold drawdown in the following way:

  • Brokers recommend their clients to sell gold,
  • The same brokers cover their short positions on the COMEX,
  • While the GLD and the COMEX inventories suffer large redemptions/deliveries,
  • Taper talk crashes the gold price,
  • And India cooperates with other central planners to decrease physical demand.

Result:

  • Record speculator (i.e. hedge funds) short positions,
  • The GOFO rate goes negative,
  • Futures markets go into backwardation,
  • Physical inventories stand at record lows,
  • And a recant on taper.

Conclusion:

This was all orchestrated to increase supply and tame demand. We believe that central planners are now running out of options to suppress the gold price. After taking a pause, the secular gold bull market is set to continue.

1    http://www.sprott.com/markets-at-a-glance/redemptions-in-the-gld-are,-oddlyenough,- bullish-for-gold/
2    http://www.sprott.com/markets-at-a-glance/do-western-central-banks-haveany- gold-left/
http://www.sprott.com/markets-at-a-glance/do-western-central-banks-haveany- gold-left-part-ii/
3    http://www.bloomberg.com/news/2013-01-16/bundesbank-to-repatriate-674- tons-of-gold-to-germany-by-2020.html
4    http://www.federalreserve.gov/econresdata/releases/intlsumm/ forassets20130630.htm
5    http://www.silverdoctors.com/dutch-bank-abn-amro-halts-physical-gold-delivery/
6    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/17_ Massive_Run_On_Physical_Gold_%26_Silver_At_UBS_%26_Scotiabank.html
7    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/23_ Sinclair_-_Swiss_Bank_Just_Refused_To_Give_My_Friend_His_Gold.html
8    http://www.bloomberg.com/news/2013-07-01/lme-seeks-to-reduce-lines-atwarehouses- where-wait-is-100-days.html
9    Mine supply estimate supplied by World Gold Council; YTD gold mine production data suggests that total 2012 gold mine supply will come in lower around 2,300 tonnes, ex Russia and China production. In addition, Frank Veneroso has recently published a new report that warns that the supply of recycled scrap gold could drop significantly going forward due to the depletion ofthe inventories of industrial scrap and long held jewelry over the past decade. See June 2013 Markets at a Glance: http://www.sprott.com/markets-at-a-glance/do-westerncentral- banks-have-any-gold-left/
10    http://www.forbes.com/sites/kitconews/2013/07/08/indian-gold-importsslump- in-june-analysts-expected-recovery/
11    http://online.wsj.com/article/SB100014241278873238448045785285026245427 88.html
12    http://stream.wsj.com/story/markets/SS-2-5/SS-2-275498/
13    http://www.mining.com/latest-indian-gold-buying-ban-credit-cardinstalments- 32399/

117 Comments

AlienEyes's picture

#1?

#1 ?

YES!  smiley

John Galt's picture

@ Alien

Yep, you are first. Congrats!

I was a little startled to see a Turd post with no comments, then realized my near miss.

wildstylechef's picture

rrr I'd be Turd!

ya baby

Quite surprised on the unrealized easy reasone for abeatdown today with the employment numbers that were realization of economy stagnation the average for 2013 >348.57 TODAY 334. While the  BS ers say it is a large drop .

Some reality is starting to work its way into the news with topics that we are all familiar with

1) the physical buying is far above and in contrary to the futures and paper market and is adding support to the price

2) multiple supports for the fact that China has a massive amount of  gold and that they are perhaps going to us it to support their currency and the concept that China's currency will soon be a option for settlement in international accounts with trading centers in TORONTO SWITZERLAND.

3) Bonds are the kindling that will ignite the massive inflation that is being artificially kept under control and are showing that no matter what the Feds try to do the yields are rising.

Chi-Town Deadhead's picture

4th!!

I'm still in the money for my owner

DeaconBenjamin's picture

China reportedly planning to back the yuan with gold


Source: AP

According to media reports of early July, the People's Bank of China is mulling the possibility of phasing out the dollar as the reference currency for the yuan exchange rate, and to start using gold as the reference point.

The reports have not been confirmed officially, but analysts are warning that the step, if taken, will weaken the yuan and destabilise China's already troubled economy, ultimately provoking a new bout of the economic crisis worldwide.

Beijing's possible move to back the yuan with gold would not be meant as a strategic measure to strengthen the national currency and increase its attractiveness as an investment medium. Rather, it would be a flaunt aimed at demonstrating to the world (and to the USA in particular) that China is capable of taking the risks associated with a departure from the dollar standard. Experts warn however that, apart from benefiting no-one, such a decision may actually have catastrophic consequences.

http://rbth.asia/business/2013/07/17/china_reportedly_planning_to_back_the_yuan_with_gold_47997.html

Willy's picture

Logic

Great work Sprott!  Battle this sham by good hard facts and logic.  Stuff rarely seen on Wall and Bay Street.  They can do voodoo in the short term but this thing will turn and it will be big.  The thing that is beyond smelly is the Dow/SP keep rising yet the fundamentals keep deteriorating.  PM's keep falling yet the fundamentals keep strengthening.  Intervention???

Igiveup2's picture

Double

Still learning

Igiveup2's picture

7th

Not sure frequently making the top ten is a good thing.  In my case it simply means I don't have a lot going on.

Turd Ferguson's picture

No, kidding? Really???

MODERATOR

Gee.....where have I heard that before?

Willy's picture

GLD:USO ratio

The GOLD/OIL ratio or GLD/USO just hit major support from August 2010 and April 2011 around the 3.24 area.  When it was last at this area in April 2011 it was setting up to spike to 5.65 by August 2011.  Deja Vu?  That reminds me of the movie Top Secret.  Chocolate Mouse...etc...

DeaconBenjamin's picture

GOP Senate candidate Christine O’Donnell tax records breached

"Ms. O'Donnell, this is Dennis Martel, special agent with the U.S. Department of Treasury in Baltimore, Md. ... We received information that your personal federal tax info may have been compromised and may have been misused by an individual," he said in the January message left on her cellphone.

On March 9, 2010, the day she revealed her plan to run for the Senate in a press release, a tax lien was placed on a house purported to be hers and publicized. The problem was she no longer owned the house. The IRS eventually blamed the lien on a computer glitch and withdrew it.

Now Mr. Martel, a criminal investigator for the Treasury Department's inspector general for tax administration, was telling her that an official in Delaware state government had improperly accessed her records on that very same day.

Beyond that, Ms. O'Donnell and Senate investigators who have tried to help her have run into a wall of silence, leaving more questions than answers about whether abuses of the IRS system extend to private individuals and not just the tax-exempt groups already identified as victims.

http://www.washingtontimes.com/news/2013/jul/17/former-gop-senate-candidate-christine-odonnell-tol/print/

Turd Ferguson's picture

On the same subject...

MODERATOR
Big Dutch's picture

Negative Gold GOFO Rates According to the CME

Been super busy this last week, so forgive me if someone else has posted this link to to what the CME itself has posted regarding the negative GOFO rates.  In short their take on negative Gold GOFO Rates is:

1)  Totally normal.  Nothing to see here.  Gold not going up.  Move along sheeple.

2)  Disclaimer:  The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts." 

Check it out:

http://www.cmegroup.com/education/market-commentary/metals/2013/07/pre-open-gold_9568.html

The fatigue factor of this ongoing never ending insane clown show is beyond all measurable levels with me.  Today may be the perfect day to finally cross sniffing glue off my bucket list.

Turd Ferguson's picture

GOFO past 7 days

MODERATOR

Date                     1-month                2-month                  3-month                 6-month              12-month

10-Jul-13              -0.11167              -0.08000                 -0.05833                -0.00167             0.14000

11-Jul-13              -0.05167               -0.02833                 -0.01500                 0.04667              0.15833

12-Jul-13             -0.04167             -0.02333                -0.01333                0.06167              0.17000

15-Jul-13             -0.05500            -0.04000                -0.02333               0.06167              0.18500
 
16-Jul-13             -0.05667            -0.04333                 -0.02500                0.06333               0.18833
 
17-Jul-13             -0.06500            -0.04667                -0.03000                0.05833                0.17667
 
18-Jul-13             -0.08167            -0.06833                -0.05500                 0.04167                0.16000

 

Big Dutch's picture

Just so people Know

I do NOT agree with what CME Group says.  Something IS up.

dropout's picture

Just Another Day at the Mine!

Another silver miner and refiner announces, "will shut down operations" at end of Summer because of low silver prices. This will do nothing but add pressure to the already 'tight' supply of physical silver for investment purposes. Just another "Ho-Hum" article. 

Remember back 4 years ago or so, when the Fed announced QE I ? What an uproar! It was the flavor story of the decade! Now we talk about monitizing debt through QE as one would discuss the weather! Just another "Ho-Hum" article. 

Remember back when gold first went into backwardization? Again. a great hullabaloo went up! Now? Just another "Ho-Hum" story.  

So now we have the 8th straight day of a negative GOFO rate. You guessed it! Fast becoming just another "Ho-Hum" story.

Urban Roman's picture

LCS report

The LCS has a couple tubes of ASEs. I think they said 2008s or 2010s (I didn't open the tubes, they were taped shut). Asking price: $25. 

Should I buy them?

Cleburne61's picture

Questions for Silver Doubters

Silver bulls have had their faith shaken in the last 27 months...and under such circumstances, what human being wouldn't feel the same way?

So, let's do a little recap here for the silver bulls, since what has transpired has shaken even the most hardened warrior. DPH said "let's ask ourselves the tough questions".  I totally concur.  So here are a few key questions that should be revisited, there are other questions that could be asked for those who answer these questions differently:

Question 1: 

Do we not have assurance from Turd himself that he has seen proof positive that JP Morgan Chase has bank accounts/shell corps in the Caribbean, with which to criminally rig silver and gold prices under the radar?  Not speculation, not hearsay, mind you, but has seen the actual proof?

Yes, we have.  Just remember for any who doubt such proof exists...shortly after Bill Murphy and TF spoke of a "hot and explosive summer"....who should appear on TV to dispel such accusations of silver rigging but Blythe Masters herself? Obviously, for the first and only time in the 5 year history of JPM's role in silver....they thought the allegations were so serious, they felt compelled to preemptively deny them.

Question 2:

Do you trust Turd about this?

I do, but I can't answer for others.  I do because it's corroborated by other un-related parties, and because of the track record of the man himself.  Not because he always gets the TA calls right(no one has for quite awhile), but because he's always up front with all of us.

Question 3: 

Did not the ISDA itself personally ask a high court judge to intervene and stop the CFTC's new silver/gold short position limits less than 18 months ago?

Yes, they did.  This still puzzles me....I mean, the proposed limits were very, very liberal.  In fact, they were 5 times more lenient than the limits on the longs.  The short parties out there would still have a definite, undeniable advantage.  So, why the urgent emergency to issue an injunction to stop it?

Questions 4 & 5:  

Why are so few questioning the phrase "silver is just a game" from a man(Sinclair) whose own lineage(House of Seligman) is derived from some of the biggest banking insiders on U.S. soil?  Why are so few willing to ask how the man that Paul Volcker personally tapped to "unwind the Hunts' silver long position" to save the Comex and Wall Street bankers....can be trusted at all regarding silver?  I don't care how many cute dogs Santa owns, or how many sessions he gives at hotels: How can there not be a ridiculous conflict of interest considering his unique history in silver?

Beats the heck outta me!  Why don't you ask him yourself?

Question 6: Knowing what we know...do you believe silver to be freely and fairly traded, or not?

Your answer to this question will determine your entire approach to silver from here on out.  As for me, I believe there is sufficient evidence to convince me, beyond any reasonable doubt, that the world silver market has been rigged for at least 140 years(how else could investable global stockpiles collapse 98% over the same time period? How on God's green earth is this possible any other way, unless the rules of supply and demand are just invalid?).  The average Freegolder, for instance, don't necessarily believe in the silver market rigging, they simply believe that silver just isn't money.  Therefore I fundamentally disagree with them on silver on two distinct points: both manipulation, and its role as money.  

If your personal answer to question 6 is "nay", you must come to terms differently to silver than a Freegolder, or Sinclair(but I repeat myself).  Sinclair however, is a curious case that says "yes silver is rigged to the hilt, but will never be allowed to break free of paper rigging"...while confirming his belief that gold "will be liberated from paper gold and trade at $50k".....why isn't what's good for the goose also good for the gander?

Question 7: If you answered "nay" to question 6....do you think this rigging can be continued indefinitely, and if not...when does it stop?

That's the only question left of any significance.  Even if you don't believe that silver is money, you still have to concede(if you believe it's rigged) that it is currently underpriced.  We know the game, we know the score, so we're just left wondering....when does the inflection point begin?  I firmly believe that markets are greater, long term, than banks or governments....or else there'd still be tens of billions of investable silver ounces above the ground.  There aren't.  I don't pretend to divine what the banks truly have left, but those on the inside(Maguire, NNL, Sprott) have all concluded there is less silver within the banking system every month.

Let's be honest here: 27 months is a long time to wait to something to turn....no one can blame silver owners for being so frustrated.  But, if we're going to ask about silver's performance....these basic questions(at least to those who believe Turd, et al) are the most important, and the most timely.

Stay strong out there...

achmachat's picture

Urban Roman - ASE for 25USD

my favorite online place in Germany sells the 2013 ASE for 24,25 USD per ounce if I buy a tube.

But 2010 ASE are quite expensive at the same place: 45 USD per ASE

offer and demand wink

agNau's picture

@willy

I've been watching the oil ......being drawn now to the 110.
another problem for the controllers....rising energy will pressure all things through the dominoes of modern economies....
artificial dollar strength (recent appearance) is apparently keeping this rise somewhat tamed.....as well aiding gold price suppression.
the road narrows, and any deviation swiftly creates problems........
I look for the FED to "fall back" just as a fortress surrounded by aggressors, to a secondary position....only to see that fail in a much more rapid fashion. Their bullets turn to rubber increasingly.

Gold/Oil
Oil is not called "black Gold" without good reason. It is one more pressure valve on the metals escape upwards....

the fed lives on borrowed time, and the back of that loan is moving rapidly towards the front.

*also been watching the 10yr yield (weekly) at the 200ma

russwinter's picture

China will move on gold

China Reportedly Planning to Back Yuan With Gold:

http://rbth.asia/business/2013/07/17/china_reportedly_planning_to_back_the_yuan_with_gold_47997.html

This will happen. But the "analysts" narratives in this story are  false.

The move if accompanied by a gold repricing (higher) and an announcement that they have much more gold than the US will benefit China, strengthen its currency, allow its banks, who use gold as a 100% reserve under Basel III, to recapitalize. The US and the west will be the main losers, knocked down to size.

Turd Ferguson's picture

Excellent

MODERATOR

Thank you, cleburne.

Turd Ferguson's picture

And if you're wondering about crude today...

MODERATOR

...please see this (and spare me the nonsense about the debka links which "ruin my credibility"):

http://www.tfmetalsreport.com/comment/332192#comment-332192

tyberious's picture

Today may be the perfect day

Today may be the perfect day to finally cross sniffing glue off my bucket list.

Where were u in middle school wink

Willy's picture

Crude update

Just spiked up again to $108.20.

zman's picture

@Cheburne61

Good post, "Do you believe silver to be freely and fairly traded?"

I think the answer is both yes and no.   Do people in the paper market play games to the downside?  Yes.  The next question is, how can they get away with this game?   There is plenty of physical silver to meet physical demand.

How could they get silver down to $18 oz if global investment demand bought up all the inventory?   They couldn't.

Once again, people that go LONG paper silver, are NOT silver investors, so why would I expect them to move the price higher?  Yes, if they actually bought the physical silver and took delivery, then that action would move the price higher, they don't do it, the JPM knows it.

No one can manipulate a physical market for very long,  but the silver market is a world full of paper investors, will that ever change in the future?   No one knows.

pbreed's picture

Wild Wild speculation....for the scientific types...

Many many people have talked about extracting Au from seawater....

People have talked about undersea mining near geothermal vents...

Places like Planetary resources have talked about mining  Asteroids for platinum group metals.

Recently in the press there has been talk about various interesting physical phenomenon  such as super dense deturium, various hot fusion schemes, various LENR (cold fusion) schemes. In the LENR literature there is some discussion of the  transmutation of elements in the presence of deuterium gas environments...   A reputable scientist in 50's reported that Tungsten vaporized in electric arcs  in oil with the hydrogen replaced with deuterium  made Au flakes... etc...
 
Suppose one of these ... or some unnamed process came on line that greatly reduced the cost of Au production... could such a process be kept secret?   
 
If it could be kept secret how would that look in the market?  
 
(IMHO its much more likely that JPM is just stealing everyone blind... )
John Galt's picture

LCS Report From Toronto

I logged in today to file a LCS report from Toronto, only to discover a near miss on being the first to post on today's thread. C'est la vie!

The timing of this post is interesting, in light of what Turd just posted from Sprott.

First, my favorite LCS was well stocked with an abundance of Gold and Silver, and premiums were pretty much consistent with what they've always been under normal market conditions. Traffic was moderate and I was told that physical buying continues to be brisk, as has been the case pretty much since Cyprus. 

On the surface one could conclude there are no shortages of PMs in the market

However, given what Sprott and others are reporting I think this "abundance of supply" at the retail level is merely part of a larger smokescreen to hide what is really going on in the broader market. That broader market, I believe, is seeing rapidly vaporizing physical supply and all the machinations going on now are doing little more than buy time to keep the fiat Ponzi going. When you think about it just about every major player has a vested interest in maintaining the illusion of normalcy for as long as possible, and therefore want to keep the game going for as long as possible.

Buyers from the East are happy to keep prices low to keep the supply of physical moving in their direction at bargain rates. Keeping prices low also keeps more competition from entering the market. The West, meanwhile, is desperate to keep their paper Ponzi alive and therefore has little choice to allow the phyz to be liquidated out of their hands if for no other reason than to buy time. Amongst other things low prices help keep some degree of demand out of the market (in theory anyway) and thereby keeps the Ponzi alive for a while longer by continuing to kick the can down the road.

Within this context why allow physical to continue to flow to any LCS if supply is, in fact, tight as Sprott and many others contend? I think there are two reasons for this, at least in North America. First, there remains in the market as a whole very little perception amongst most people that PMs are a wise investment. Although awareness amongst the folks here at TFM is VERY high, we collectively make up little more than a tiny fraction of a percent of the market as a whole. Although awareness is growing I think it is being kept in check by the constant smash downs in price and the seemingly endless supply of phyz that continues to be allowed to flow to the retail market. 

The last thing that big money in East and West want to see is shortages become visible and having news of shortages reported on MSM, because that will cause sheeple to wake up and line up to get in on the action themselves. 

The second reason I believe that physical is allowed to move to retail, despite tight supply, is that the stuff sold through the various LCS outlets can always be taken back when governments/banksters decide to do so. 

I am well aware that there are few who believe that confiscation is a real possibility. There are so few stackers, they say, that the ROI of going door to door won't make the effort worthwhile. My answer to that is that they don't have to go door to door and search every house. All that needs to be done is get the customer lists from places like Kitco and Apmex and visit those places with guns. It's quite likely that the NSA has those customer lists already.

Of course, stackers who have a paper trail linking them to physical purchases are probably smart enough to have their treasure hidden at some other location such as a favourite fishing spot where frequent boating accidents take place. Those fishermen should be mindful of what smartphones they might have with them during these trips, because their movements are being digitally tracked IMHO. Even though we are told that the GPS tracking features on these devices can be turned on and off as needed, the fact that they are on there at all tells me that they are being used whether we realize it or not.

Finally, one of the most compelling reasons why many do not believe big government will ever try confiscate is because of the argument that stackers of physical also tend to be stackers of lead and lead delivery systems. Therefore, logic says that the dangers would be too high. 

While I agree that the risks would be high I also think that certain elements within big government would want to see this type of carnage during confiscation. For one thing it won't be their kids being sent to knock on your door and risk being shot. In addition, nasty incidents such as this would help swing public support against the "crazy survivalist stacker" and accelerate the move to greater gun control. 

I do not believe that confiscation is imminent. First the paper Ponzi has to crash and the PMs have to  vault higher. At this point the majority of people will finally wake up and wonder WTF just happened. At this point the government (ever eager to find a scapegoat to blame, other than themselves) will declare that speculators and hoarders of PMs collapsed the system and hurt everyone as a result.

In that scenario mines will get nationalized, as will Sprott's massive stacks of PM. In addition to being seized these assets will also likely get slapped with massive windfall capital gains taxation. Smaller stackers who manage to dredge their coins up from lake bottoms with then also have a difficult time reaping the benefit of protecting themselves, because the tax collector will be waiting at every LCS eager to collect the windfall taxes at source.

My apologies for sounding like a pessimist and describing things that sound insane, but when you consider what kind of lunatics we have running the asylum today I think it is prudent to remain mindful of the possibilities.

Icarus's picture

How could we be so wrong?

Let's take a trip down memory lane. Assume it's August of 2011.  Gold has hit $1900 an ounce.  Now assume we had a time capsule that could catapult us two years into the future.  Let's jump in our time machine and jump from the present (August 2011) to July 2013 shall we?  Once we get there we will learn a few things:

1.  The bank depositors of Cyprus have been 'bailed in'.  This means that their depositors have had their deposits stolen taken, to pay off other banks in the banking system.  This template is then benchmarked by all the other major Reserve banks in the world.  Message?  Your money is no longer safe in the banking system.

2.  The United States, owner of the world's reserve currency, has been downgraded by Standard and Poors to AA from AAA.  For the first time in history the world's reserve currency is not one of the safest places to put your money.  It's debt to GDP ratio is soaring and in spite of a total flooding of 17 trillion dollars into the economy there is no substantial recovery.  No data point in existence shows a recovery yet.  They all just show us bumping along the bottom with economic stagnation.

3.  QE 2 is announced.  Followed by QE to infinity.  These two programs are euphemisms for outright money printing to pay our bills.  The amount of money 'printed' by the Federal Reserve increases the money supply by a factor of 4 over a few short years.  This is outright money debasement and will eventually result in massive amounts of inflation.  We are just throwing trillions of trees with ink on them at the economy.  This has stemmed the decline for a short time, but it has not turned the longest recovery in history around.  We should be booming with this flood of money, in reality we are just treading water at the bottom of the toilet bowl.

4.  The Swiss announce that they will print to oblivion to keep the Swiss Franc from rising too high against the Euro.  The world's safe haven in the 20th century (the place where the world went to protect the value of their savings thru a great depression and two world wars),  the bastion of stability, has now become for the first time in centuries, just another currency in the worldwide currency war.

5.  The Federal Reserve puts the United States on a zero interest rate policy (ZIRP).  In essence this steals 8 Trillion dollars of potential interest payments (assuming a normalized rate of 5.8%) from savers and gives it to the banks who save interest that they should have paid to savers.  Savers, and retirees, and the economy in general, lose 8 trillion dollars, over 2.5 trillion a year.  Things have value today because they can generate income in the future.  What the FED is saying with ZIRP, is that dollars have little value in the future.

6. Venezuela becomes the first country to repatriate its gold from the vaults under the Federal Reserve Bank in New York (most countries store part of their gold hoard in NY).  The Germans become the second country to ask for their gold back.  They are told that you can only have one third of their gold, and they must wait 7 years to get it.  Why? Could the German gold not be there?  Could the Federal Reserve have absconded with this sovereign gold and they need 7 years to replace it?  Is there now a gold shortage?

7.  The Euro is crumbling. Portugal, Spain, Greece, Cyprus and now Italy, are in full blown DEPRESSION. They are experiencing total economic collapse.

8.  China has increased its purchases of gold on the open market by 10X.  In May and June they purchased 100% of global mine supply.  They will be the largest purchaser of gold in the world in 2013, surpassing India.  This demand was negligible in 2011.

9.  Politically the Middle East is as unstable as it's ever been.  Iran continues to develop nuclear weaponry.  We had the Arab Spring which deposed dictators throughout the region.  The United States has been involved in conflicts in Libya, Yemen, Pakistan,  and Afghanistan, and we are now selling arms to terrorists in Syria,  where there is a full scale civil war that pits the Russians on one side and the U.S. on the other.  And we now have boots on the ground in Jordan.

10.  The Congress has done nothing to fix the problems that caused the meltdown of 2009.  They passed Dodd Frank which has more holes than Swiss cheese (of course, it was written by the banks, for the banks).  They continue to run up 1 trillion dollar deficits, and the sequester (which was very painful to both sides of the aisle) cuts less than 3% of the budget.  And this 'saving's is now totally wiped out by the interest rate increases of just the last 4 weeks.  The Volcker rule, keeping the banks from trading in their proprietary accounts against clients has been eviscerated. So in effect we have had no movement on increased fiscal responsibility.  We still have done nothing to solve the problems of the 2009 meltdown.

11. Fraud in the financial system goes into overdrive.  Sentinel brokerage steals customer accounts, no one goes to jail. Politically connected John Corzine steals 1.4 Billion from his clients at MF Global, and no one goes to jail.  HSBC bank, money lauders trillions of dollars from Mexican drug cartels, pays a fine worth three days profit, and no one goes to jail.  Barclays and now JP Morgan is fined over a billion dollars for manipulating energy markets, and no one goes to jail.  Every bank in the country committed hundreds of thousands of felony offenses by lying in court to judges and forging signatures on foreclosures, and no one goes to jail.  And the biggest of all; the major banks are caught with their hands in the cookie jar manipulating LIBOR (London Interbank Overnight loan rates) which sets the cost of money EVERYWHERE (in essence they stole money from everyone in the world), and no one goes to jail.

Now let's get back into our time capsule, and return to 2011. We have a decision to make.  Knowing the future events of the next two years, how do we position our portfolios in 2011 after learning about these 11 facts to come?

I submit that a prudent man would stay far, far away from the stock and bond markets.  The bubbles here are getting worse, and the fraud (which increases when no one is punished) is terribly destabilizing.  The degradation of the world economic output is staggering.  The money printing is irresponsible.  In this environment the only acceptable place to be is in something safe. The strategy should be to get a return OF your assets, not a return ON you assets. We must find a safe haven to protect us until this storm clears up.  Until now, in the history of the last 120 years, that would indicate that we invest in the US dollar, the Swiss Franc, and gold.  Well as mentioned, with massive money printing by both the Swiss National bank and the U.S. Federal Reserve, we are both debasing our currencies unmercifully, that leaves those two safe havens out.  The only historic safe haven left for protection in 2011 is gold and other hard assets.  As a matter of fact in some circles we could have been considered totally irresponsible for not putting 50 to 80% of our assets in this metal of kings.

That's what we did in 2011, without knowing these 11 items. Well, so far, we blew it.  Gold, even after these 11 absolutely tremendous gold positive developments, has cratered from $1900 to $1200.  The markets on the other hand proceeded to march on to all-time highs.  What happened?

I think what happened can be summed up in a statement by Paul Volcker, Chairman of the Federal Reserve, back during the last crisis in 1980.  When asked if he would have done anything different when he raised interest rates to 18% and destroyed the inflation of the day, he stated, referring to that time:

"Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."

Bernanke has not made the same mistake.  He has obviously intervened in the gold market to keep the price down (learning from Volcker), and thus keep the dollar as an attractive alternative to gold (generating demand for dollars, that keeps our interest rates low). The FED, by law, cannot sell our countries gold to flood the world with supply and keep the price from reaching its normal market clearing value.  But they can surreptitiously loan our gold out, and have the bullion banks (like JP Morgan) sell the gold into the market to hammer the price.  They can also do this with German gold they hold.  No one is the wiser until someone asks for their gold back.  This leasing shenanigans game is why Ron Paul wanted to audit the FED and got over 250 Congressmen and Senators to cosponsor his Audit the FED bill.  You think the gold not being there anymore might be the reason why the Germans have to wait 7 years to get their gold back??? 

As for the stock markets, Bernanke is ON THE RECORD with his famous 'wealth effect' policy.  If we can get the stock and housing markets up, people will spend more money and we will jump start a recovery.  Sounds like some kind of trickle down economics offshoot to me, and we know how that turned out...........Obviously they are depressing gold and pumping up the markets at the same time to further their current policy agenda.  THERE IS NO MARKET PRICE DISCOVERY LEFT when interventions like this occur.  The prices of both, like their balance sheets, are simply made up.

Well I think the game is afoot and is now about to collapse.  The gold used to manipulate is now all gone.  Sold. There is no more gold to flood the market with.  The boyz are now stealing gold from every nook and cranny they can find, to keep this ponzi scheme going.  Just look at the following graph from July 2013:

(Couldn't upload. Too large.  Any help would be appreciated)

The yellow is the amount of physical gold available on the Commodity Exchange (COMEX).  Note that these are two graphs, the data points are not cumulative, the yellow graph and the green graph stand on their own.) Notice the severe drawdown of available metal since January of this year from 11 million ounces to seven million ounces on the COMEX.  The green is the drawdown of gold from Gold Exchange Traded Funds (ETF's).  Notice the drawdown of gold from 9 million ounces to less than 6 million ounces since January 2013.  This depletion of gold is UNPRECEDENTED!  Looks like a panic to me.

Note that the main stream media reports that the drawdowns are simply investors selling their ETF gold shares because they don't want to hold gold.  Well think about this.  Gold and Silver are kissing cousins.  They are both considered monetary metals and they both have a very high correlation to each other.  What gold ALWAYS does, silver does, albeit more violently, because it is a smaller market.  They are opposite sides of the same coin.

Now explain to me, main stream media, why the silver ETF's have had substantial net gains in inventory since January.  Silver is not being drained, only gold.  If this were Joe average investor selling, he'd sell both at the same time!!!  That's not happening!  Someone is pulling gold out of these vehicles while silver is going in. And by the way, where is all this physical going?  That would be China, to satisfy their insatiable increased demand for the hard stuff.

Ladies and Gentleman we have a run on the bank going on.  Physical gold is going from West to East. The Reserve banks are out of physical gold available to sell into the market to suppress the price, and now they are raiding the ETF's and the COMEX to get physical gold to suppress the price of gold.  It's only a matter of time before our strategy of using gold as our insurance against collapse (a la Greece) will be vindicated.  They can play these games for a while, but they cannot fool Mother Nature forever.  The market and its price discovery mechanism will eventually win.  You cannot manipulate markets and ignore the law of supply and demand forever.

Regards, 

Icarus

Thanks to Eric Sprott, Turd Furguson and Grant Williams for the basic ideas presented.

Strongsidejedi's picture

@achmachat - why the price diff?

Why is there a price differential between 2013 ASE at $24,25 versus a 2010 ASE at $45,00 per coin?

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