New From Sprott: "Connecting The Dots"

Mon, Jun 2, 2014 - 5:55pm

This report was published about three weeks ago but I thought it might be timely to post it here today, given the abundance of bearish sentiment and "analysis" out there.

In this month’s Markets at a Glance, we present a collection of thoughts on why we think precious metals are a compelling investment now.

On physical demand and the shortage of precious metals:

▪ The Gold Forward Offered Rate (GOFO) remains very low, with extended periods of time in negative territory (Chart 1).1
▪ Why is Germany’s repatriation of their 674 tonnes of gold taking so long? As of March 2014, only 69 tonnes had made their way back, a pace of less than 5 tonnes a month.2
▪ If there is no shortage of gold, why are the U.S. and U.K. exporting so much gold to Switzerland? (which itself exports most of it to China).3
▪ According to some estimates, China consumed over 4,800 tonnes of gold in 2013, implying that about 3,600 tonnes were drawn from global stocks (i.e. western vaults) to satisfy demand.4
▪ All this Chinese buying is reflected in the monstrous amounts of gold deliveries on the Shanghai Gold Exchange.
▪ Dubai is building a new gold refinery capable of handling 1,400 tonnes, and current global gold refining capacity is about 6,000 tonnes (world mine production is less than 3,000 tonnes a year).5 Why would they need so much refining capacity if physical demand was not buoyant?
▪ As the major gold miners cut back on exploration, future mine supply will remain constrained.6
▪ Another “temporary source of supply” (900 tonnes) has been ETFs, which have been raided for most of 2013. However, as Chart 2 shows, they have now stabilized. Other things being equal in demand, where will that 900 tonnes of supply come from in 2014?
▪ Interestingly, the Silver Institute, in its 2014 World Silver Survey, noted that there was a 96 million ounces shortfall in 2013 due to strong physical demand.

On the macroeconomic environment:

▪ The real level of inflation is high and much higher than official figures (Chart 3). Precious metals have historically hedged against inflation.
▪ Speaking of inflation, the large amount of money printing and the bloating of U.S. Central Bank’s balance sheet will most likely end badly.
▪ According to Jürgen Stark, former European Central Bank board member, central banks have lost all ability to control the economic situation. In other words, we live in a fictional sense of security.7
▪ Vladimir Putin thinks that “China and Russia need to ensure their gold and other currency reserves are secure”.8 At the same time, the Russian Central Bank continues to be a large buyer of gold and a seller of U.S. Treasuries.9,10

On manipulation:

▪ The CME Group might introduce daily limits on gold and silver price moves to limit the extreme volatility we have seen in recent years (i.e. to prevent, going forward, any large spikes up in price).11
▪ Investigations into the gold fixing mechanism by the German financial regulator BaFin and the subsequent withdrawal of Deutsche Bank from the gold fixing suggest something is wrong.
▪ More recently, Barclays got fined 26 million pounds because one of its traders manipulated the gold fix to avoid paying on a gold derivative.12
▪ Some market participants are suing the banks responsible for the gold fix over alleged manipulation.13
▪ The company that ran the Silver fix “suddenly” decided to stop running the process.14
▪ As argued in the January 2014 Markets at a Glance, we find it strange that in 2013, gold ETFs were raided, whereas silver, which experienced the same price declines, stayed in the ETF’s vaults (Chart 2).15 This suggests that the ETF’s gold was needed to satisfy physical demand.

To conclude, we believe that any rational investor considering this collection of facts would consider, like us, that gold prices are long overdue for a re-rate. As we all well know, almost all markets are manipulated; and the recent Barclays settlement is one example vindicating our views (more to come?).

1See for a discussion of the GOFO rate.
7 In Spanish:

About the Author

turd [at] tfmetalsreport [dot] com ()


Jun 2, 2014 - 6:22pm

The one!

The Duppster strikes again.

edit: On a more useful note, I stopped by my monthly LCS (Local Coin Show) yesterday. My hopes of scoring some gold didn't go well. There was "precious" little there and that which was in attendance was spendy. Best 90% price was just under 15X. Dealers holding prices on silver one ouncers of various types about where they were 2 months ago. They seem to be of a mind that "if you want it, here's my price, otherwise, check back next month." Canadian "critters" were $28 to over $30, for example. One guy was searching for $20 Saints. Dealer told him, "Good luck. The only time I see gold coins, other than bullion, is when someone is desperate for cash. Otherwise, it is staying tightly held."

I managed to pick up a British Sovereign for $308 (bullion value $294). Not a great trip.

wax off

another edit: The lesson for me was that the paper price doesn't mean "jack" if the retail prices don't even come close or if there is no supply to buy. If you can find shiney near the paper price ... STACK till it hurts.

wax off again

Jun 2, 2014 - 6:25pm

Like clockwork...

I'm not a trader, and given the fraudulent nature of the market probably will not endeavor to be one, but how is it that EVERY single day when the NY globex market re-opens at 6pm EST the market price of silver takes an immediate plunge of 10 or 15 cents? I've watched this fairly closely for months, and the consistency is, well,...consistent. It will sometimes recover (although most often it won't) within the first hour or two, but only after the initial plunge. My obvious question is: even if you just relied on a ten cent move (down), isn't there a way a trader could play this, each and every day? In and out? ....anyone?

Jun 2, 2014 - 6:28pm

Extend and pretend . . .

The elite bankers who own the world's governments (other than maybe 4 or 5) are simply doing what they must to retain their wealth and power for as long as possible.

They are trying to keep things going as status quo until they are prepared for the next financial system.

It seems that is why they have done the preps we are familiar with (arming every Federal agency with machine guns, buying 2 billion rounds of ammo, constructing FEMA camps across the country, making new laws that make anything they do "legal" though unconstitutional, arming podunk police forces with battlefield-type armored vehicles, etc.).

They played a big ace when they tried to get Ukraine into the bankster-NATO fold. They guessed Putin would appease and lay down, but he didn't.

Now, he is allied with China and other bricks, Germany, etc. Soon Europe will have to decide, energy and heat next winter, or back the western oligarchs.

Something big this way comes, and it will have to happen before the snow flies again, I think.

Dagney Taggart
Jun 2, 2014 - 6:38pm

There WILL be a Force Majeure event

Bilderburg puppet Rahm Emanuel's Chicago is the most obvious target. Just like the WTC's, all of the "evidence" of the crime will be vaporized.

Ironically their annual meeting just concluded and I promise it was discussed. It will be the excuse for martial law in America and WW3. I still say good luck with that on the former. That won't last a day or two. Too many anticipate what I just said.

Back to the present: My trader's charts show a big move in the uranium sector coming up tomorrow and Wednesday. We'll see if he's right.

Good evening, all.

Jun 2, 2014 - 6:44pm
ancientmoneyDagney Taggart
Jun 2, 2014 - 7:38pm

Dagney re: Chicago target . . .

"Bilderburg puppet Rahm Emanuel's Chicago is the most obvious target."


Yes, especially since Silverstein now owns the old Sears Tower property. Lots of prep time for another false flag. Maybe that's what the hijacked Asian flight was for?

Mr. Fix
Jun 2, 2014 - 9:02pm

Sprott connects a lot of dots, but misses the big picture.

While we're in the process of running QE to infinity, the price of gold will be held down until the system implodes.

I still cannot draw any other conclusion.

With gold in the pipeline “evaporating” at its current rate, it's only a matter of time.

I agree with Dagney, there's one great big “false flag” in the pipeline, followed by a whole bunch more.

And then, maybe, (just maybe), the price of gold might change against the dollar, but at least in its initial phase, it will only reflect a massive dollar devaluation, it will still be a while before the price of gold rises.

The elites are stealing everything they can before that happens.

Jun 2, 2014 - 9:04pm

Fraudulent "money" from fraudulent Fed . . .

"The Federal Reserve does not issue money. To be clear, the Federal Reserve does
not issue money!
It issues debt. Each and every Federal Reserve Note, [FRN] is a debt
instrument. The United States does not issue it own currency. When the US needs
money, it is borrowed from the Federal Reserve, and interest is paid on each and every
dollar and cent issued by that private banking cartel. When a nation no longer issues its
own currency, it is no longer sovereign."

department of truthDagney Taggart
Jun 2, 2014 - 9:29pm

Agree with Dagny Taggert

We all should be worried by the relentless US/NATO push towards Russian borders, and Washington's decision to "isolate" Putin/Russia in our return to Cold War. This can only result in an eventual direct military contact between the US and Russia. Who is going to back down in this circumstance? Whoever is losing will resort to nuclear weapons.

I wrote an article posted by Paul Craig Roberts, entitled "The Lethality of Nuclear Weapons", which explains the existential threat nuclear war poses to humans.

Steven Starr


Jun 2, 2014 - 11:04pm

Harvey's Up! (TFMR)

Harvey's Up!

  • Harvey: Today again for the 10th straight day, our bankers decided it was necessary to whack gold/silver. As long as our regulators are hibernating, the crooks will continue to sell naked gold/silver contracts keeping these precious metal subdued in price. GLD saw no change again in their inventory, after Tuesday's huge gain and stands at 785.28 tonnes. SLV saw no change in silver inventory and stands at 10,284.60 tonnes. All GOFO rates are positive but moved closer to negative.
  • Harvey: Today, Ecuador announced that they lent 14 tonnes of gold "for liquidity" purposes to Goldman Sachs. The contract is for 3 years upon which Goldman must return the gold. We wish Ecuador all the luck in the world on retrieving their gold. Fighting intensifies in the eastern Ukrainian city of Lugansk. Also we had news that Israel has sent nuclear submarines into the Persian gulf as a obvious threat to Iran.
  • Szu Ping Chan: The European Central Bank is preparing to take monetary policy into uncharted territory this week as it fights to prevent the 18-nation bloc from being sucked into a Japanese-style deflationary trap. Mario Draghi, the president of Europe's central bank, is expected to unveil a package of measures designed to boost eurozone lending and stimulate growth, including reducing one of its key interest rates below zero. Analysts expect the ECB to introduce a negative deposit rate, meaning the central bank would charge lenders to hold money with it overnight. Such a measure has never been introduced by a major central bank, although Sweden and Denmark have set negative rates on reserves.
  • Ambrose Evans-Pritchard: China's central bank is exploring direct purchases of bonds and other assets to support key sectors of the economy in case the slowdown deepens, according to a leading Chinese business publication. A front-page article in the China Securities Journal -- regulated by the central bank -- reported growing concerns about the weakness of the money supply and bad debts accumulating in the financial system. The authorities may have to widen the range of possible options for "targeted monetary loosening." These include surgical stimulus for the West and Central regions, as well as "direct asset purchases by the central bank," mostly government bonds and financial and railroad debt as well as state-backed housing bonds. It is the first hint of quantitative easing in China, and has left analysts scratching their heads. The central bank has many other tools available that would normally be used first to combat incipient deflation. The Reserve Requirement Ratio is still 20 percent. This could be slashed to low single-digits if need be, generating up to $2 trillion of stimulus through higher lending.
  • Mike Krieger: As the primary creator of the liquidity that every government on earth needs to survive, the Federal Reserve is thus the most powerful player globally in not only economic, but also geopolitical affairs. The example of the so-called sovereign nation of Ecuador relinquishing its gold reserves to Goldman Sachs for “liquidity” which can be conjured up by the Fed on a whim and at zero cost tells you all you need to know about how the world works. This gold is headed straight to China or Russia. Good luck every getting that back amigos. Just ask Germany.
  • Huang Shu-rong: The People's Bank of China, China's central bank, is the world's biggest gold hoarder and the bane of Wall Street traders, reports the Chinese-language financial news website BwChinese, citing a Hong Kong financial analyst. Leung Hai-ming told the portal that China's central bank took advantage of the US Federal Reserve's quantitative easing program in 2013, when the price of gold fell by 27%. The bank bought in over 1,000 tonnes of gold, representing almost one third of the world's 3,756 tonnes last year. There is reportedly less than 180,000 tonnes of gold reserves left, and only 20% of that remaining gold is tradable. This means that the People's Bank of China will likely keep hold of the gold, limiting the gold trading volume — a concern for both the US government and Wall Street traders. Leung said that the US Federal Reserve loans gold to investment banks such as Goldman Sachs, Citibank, JPMorgan Chase, Morgan Stanley and others every year to trade in the market. The amount of gold ranges between 400-500 tonnes and the move acts to artificially suppress gold prices. When the prices are in their favor, these investment banks buy back the gold and return it to the Fed. But this measure is absolutely useless because China's is hoarding the gold and does not follow the rules, Leung said.
  • Tyler Durden: Israel is to deploy three submarines equipped with nuclear cruise missiles in the Persian Gulf, the Sunday Times reported on Sunday. According to the Times report, one submarine had been sent over Israeli fears that ballistic missiles developed by Iran, and in the possession of Syria and Hezbollah, could be used to hit strategic sites within Israel, such as air bases and missile launchers. Dolphin, Tekuma, and Leviathan, all German-made Dolphin class submarines of the 7th navy Flotilla, have been reported as frequenting the Gulf in the past, however, according to the Sunday Times report, this new deployment is meant to ensure a permanent naval presence near the Iranian coastline.

All this and more on...

The Harvey Report!


Key Economic Events Week of 10/21

10/22 10:00 ET Existing home sales
10/24 8:30 ET Durable Goods
10/24 9:45 ET Markit flash PMIs
10/24 10:00 ET New home sales
10/25 10:00 ET Consumer Sentiment

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Key Economic Events Week of 10/21

10/22 10:00 ET Existing home sales
10/24 8:30 ET Durable Goods
10/24 9:45 ET Markit flash PMIs
10/24 10:00 ET New home sales
10/25 10:00 ET Consumer Sentiment

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

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