Wednesday, August 21, 2013

Physical Demand For Gold Will Fuel A Spectacular Move Higher

The Grateful Dead is like licorice:  not everyone likes licorice but those who do like licorice, really like it.  - Jerry Garcia.   Gold is for the collapse of paper currencies:  most do not understand that this will happen; but those who do, really like their gold.  - Dave in Denver
I like licorice, the Grateful Dead and gold.

I 've been writing about the significance of the negative gold/dollar swap rates, otherwise known as the Gold Forward (GOFO) rates, published daily in London by the LBMA (London Bullion Marketing Association.   Unfortunately, the signficance of the negative GOFO rates are lost on most people.

However, the reason owners of physical gold being held in their possession are being paid a rate of interest to loan that gold out - with the loan being collateralized by dollars - is because of an extreme shortage of physical gold that can be delivered.

Where is this gold going?  Asia, of course - primarily China.  I wrote an article for Seeking Alpha which shows how we know this to be the case: -  Physical Gold/China (link) -  and why this "disintermediation" of physical gold will lead to a massive move higher in the price of gold.

I guess you could say we can fully expect that gold will keep on "Truckin.'"

32 comments:

  1. Significantly higher for me to break even at 1900s???

    ReplyDelete
    Replies
    1. Buy more here, make even more when gold hits $2500. Of course, by the time gold gets to $2500, well...see my by-line quote for the blog...

      Delete
  2. Hi,

    just to let you know, all SGE charts where originally compiled by me and posted on my blog (a few people made exact copies). I also post Honk Kong trade data charts etc. Have a look around!

    http://koosjansen.blogspot.nl/

    http://koosjansen.blogspot.nl/2013/08/july-chart-sge-vs-comex.html

    http://koosjansen.blogspot.nl/2013/08/week-31-chart-sge.html

    http://koosjansen.blogspot.nl/2013/08/june-chinees-gold-trade-charts.html

    http://koosjansen.blogspot.nl/2013/08/chinese-state-press-on-how-fed-has-been.html

    http://koosjansen.blogspot.nl/2013/08/physical-delivery-at-sge-compared-to.html

    http://koosjansen.blogspot.nl/2013/08/does-uk-supply-shanghai-gold-exchange.html

    Koos

    ReplyDelete
    Replies
    1. Sweet. Thanks Koos. I have your blog bookmarked now!

      Delete
  3. This Town: America's Gilded Capital

    Washington—This Town—might be loathed from every corner of the nation, yet these are fun and busy days at this nexus of big politics, big money, big media, and big vanity. There are no Democrats and Republicans anymore in the nation’s capital, just millionaires. That is the grubby secret of the place in the twenty-first century. You will always have lunch in This Town again. No matter how many elections you lose, apologies you make, or scandals you endure.

    In This Town, Mark Leibovich, chief national correspondent for The New York Times Magazine, presents a blistering, stunning—and often hysterically funny—examination of our ruling class’s incestuous “media industrial complex.”

    http://jessescrossroadscafe.blogspot.com/2013/08/this-town-americas-gilded-capital.html

    ReplyDelete
  4. Dave,

    What of India contemplating the leasing of 200 tons of gold into the market. Just a blip?

    ReplyDelete
    Replies
    1. At this point it's nothing but an LBMA proposal to India which further confirms that the LBMA is seriously short on deliverable gold.

      I don't know if India will do it, and they have indicated that there's no written proposal in front of them, but if they do end up agreeing to lease it out, I guarantee to you it disappear down China's rabbit hole in a flash.

      It is in an incredibly bullish indicator.

      Delete
    2. No, Dave. I think the real question is whether the 200 tonnes exists at all. The 200 tonnes of gold was bought by India back in 2009. I remember Eric Sprott tried to buy some of the gold but was refused because Eric might take delivery of the gold. It takes 7 years for Germany to get her gold. India's 200 tonnes of gold I believe is in the same vault. If the vault contained the 200 tonnes, Germany wouldn't wait for so long to get her gold back.
      Perhaps the news is just disinformation to dampen the bullish sentiment in the gold market.

      Delete
    3. Yup agree with that but I didn't want to get into an explanation of that situation. But now that you mentioned it, I remember at the time that the 200 tonnes was a bookkeeping entry only for gold that had already been leased out, or something like that.

      I remember when Sprott said he tried to buy a bunch of the gold but the IMF said they were only letting sovereigns bid on it.

      I also remember that India and China jointly sent a letter to the IMF that said they would interest in buying ALL of the IMF's gold if the IMF wanted to sell it.

      Delete
  5. Chomsky: The U.S. behaves nothing like a democracy

    In the United States, one of the main topics of academic political science is the study of attitudes and policy and their correlation. The study of attitudes is reasonably easy in the United States: heavily-polled society, pretty serious and accurate polls, and policy you can see, and you can compare them. And the results are interesting. In the work that’s essentially the gold standard in the field, it’s concluded that for roughly 70% of the population – the lower 70% on the wealth/income scale – they have no influence on policy whatsoever. They’re effectively disenfranchised. As you move up the wealth/income ladder, you get a little bit more influence on policy. When you get to the top, which is maybe a tenth of one percent, people essentially get what they want, i.e. they determine the policy. So the proper term for that is not democracy; it’s plutocracy.

    Inquiries of this kind turn out to be dangerous stuff because they can tell people too much about the nature of the society in which they live. So fortunately, Congress has banned funding for them, so we won’t have to worry about them in the future.
    Results such as these, which are pretty consistent, illustrate demoralization of the public of a kind that’s unusual, although there are examples – the late Weimar Republic comes to mind. The tasks of ensuring that the rabble keep to their function as bewildered spectators, takes many forms. The simplest form is simply to restrict entry into the political system. Iran just had an election, as you know. And it was rightly criticized on the grounds that even to participate, you had to be vetted by the guardian council of clerics. In the United States, you don’t have to be vetted by clerics, but rather you have to be vetted by concentrations of private capital. Unless you pass their filter, you don’t enter the political system – with very rare exceptions.
    http://www.salon.com/2013/08/17/chomsky_the_u_s_behaves_nothing_like_a_democracy/

    ReplyDelete
  6. http://www.youtube.com/watch?v=pafY6sZt0FE

    New York just won't let you be...

    ReplyDelete
  7. Dave,

    I don't know if you are familiar with the operation of Shanghai Gold Exchange. The most frequently traded gold products are Au9999, Au9995 and Au(T+D). The most frequently traded silver product is Ag(T+D)
    Au9999 and Au9995 are cash products. Au9999 is 1 kg of gold 99.99% pure and Au9995 is 1 kg of gold 99.95% pure. You just trade them like trading stocks.
    Au (T+D) (the contract size is 1kg of gold no less than 99.95% pure) is similar to futures contracts but it does NOT have a specific delivery month. Delivery can take place every trading day. Between 15:00-15:30 (Beijing time, GMT+8) of every trading day, all the longs/shorts can submit their intentions to take/make delivery. If there are more intentions to take delivery than those to make delivery. All the shorts of Au (T+D) must pay the longs Deferred Compensation Fee: short to long. If there are more intentions to make delivery than those to take delivery. All the longs of Au (T+D) must pay all the shorts Deferred Compensation Fee: long to short.
    For example:
    http://www.sge.sh/publish/sgeen/sge_price/sge_price_daily/10378.htm
    On Aug 21, 2013, 6,848 kg of gold was delivered for Au(T+D). There were more intentions to take delivery than make delivery. All the shorts of Au(T+D) had pay longs deferred compensation fee:short to long.
    The Paying Direction of Deferred Compensation Fee is, IMO, more important than the amount of delivery.
    The delivery of Au(T+D) is actually to change the names of the owner of the gold. The gold is still in the vault (usually a bank vault). The 6,848 kg of gold just changed owners. It is still in the vault(s).

    The Shanghai Gold Exchange also publishes weekly and monthly reports. But in those reports, the definition of delivery is DIFFERENT. There, the SGE defines delivery as the amount of gold moved out of the vault(s).
    For example, in the monthly report of July, the SGE reports that 235417.4 kg of gold was delivered. That means 235417.4kg of gold was moved out of the vault(s).
    http://www.sge.sh/publish/sge/docs/20130812162935744053.pdf
    (I can't find an English version for you)

    As for silver, Ag(T+D) is the equivalent of Au(T+D). The contract size is 1kg of silver 99.99% pure. But since silver is not VAT free in China. Silver market participants usually choose not to make/take delivery of silver at the Shanghai Gold Exchange because making/taking delivery of silver at the Shanghai Gold Exchange is difficult to evade the VAT.

    If you have further questions, you can leave them here.

    One of your loyal readers from mainland China

    ReplyDelete
    Replies
    1. That's great color! Thank you very much.

      Delete
    2. Also, I agree with you on the deferred compensation fee

      Delete
    3. Generally Correct. But I want to do some nit-picking. Au9999 is 100g of gold 99.99% pure not 1kg .

      Generally speaking, every participant in the Shanghai Gold Exchange has 2 accounts. 1 is the margin account which records the amount of money you have and the other is your precious metals account which records the gold/silver/platinum you have.

      If you buy some Au9999/Au9995/Au50g/Au100g, the Exchange will debit your margin account and credit your precious metals account. If you sell, then vice versa.

      Producers/banks which want to sell their pms need to deposit their PMs at a Shanghai Gold Exchange vault. The staff at the vault will check the PMs and then credit the relevant PM accounts.

      You can also withdraw your PMs from your PM account, that is, get the physical. For Au9999, the amount you can withdraw must be multiples of 1kg. For Au9995, it must be multiples of 3kg. For Ag(T+D), that's multiples of 15kg (99.99% pure). For Au(T+D), that's multiples of 3kg(Au9995 bars)/1kg (Au9999 bars).

      All the gold products on the SGE are quoted as RMB/gramme and silver products RMB/kg. For Au9999, every lot is 100g. For Au9995, every lot is 1000g(1kg). (This is different from the amount you can withdraw from your PM account). For Au(T+D)/Ag(T+D), every contract is 1kg of gold/silver.

      For Au9995 and Au9999, the margin is 100%(no leverage is allowed). Sellers also must have enough PMs on their accounts. For your PM account, the settlement is T+0 and your margin account T+1.

      For Au(T+D) and Ag(T+D), the current margin levels are 10% and 12% respectively of the notional but your broker may demand more and the SGE may also adjust the levels.

      As for the deferred compensation fee, the current rate is 3/10000 for Au(T+D) and 1.5/10000 for Ag(T+D).
      Deferred Compensate Fee= Your end of (trading) day position (in gramme/kg) * the settlement price * deferred compensation rate.

      The deferred compensation fee is paid on calendar days NOT trading days. On holidays, the direction is the same as the most recent trading day.

      Most of the charts Koos Jansen compiles on the delivery are based on the weekly and monthly reports. The data are actually the weekly/monthly amount of gold taken out of the SGE vaults (withdraw from your PM accounts) as commenter Anonymous said.

      Another one of Dave's loyal readers from mainland China

      Delete
    4. Generally Correct. But I want to do some nit-picking. Au9999 is 100g of gold 99.99% pure not 1kg .

      Generally speaking, every participant in the Shanghai Gold Exchange has 2 accounts. 1 is the margin account which records the amount of money you have and the other is your precious metals account which records the gold/silver/platinum you have.

      If you buy some Au9999/Au9995/Au50g/Au100g, the Exchange will debit your margin account and credit your precious metals account. If you sell, then vice versa.

      Producers/banks which want to sell their pms need to deposit their PMs at a Shanghai Gold Exchange vault. The staff at the vault will check the PMs and then credit the relevant PM accounts.

      You can also withdraw your PMs from your PM account, that is, get the physical. For Au9999, the amount you can withdraw must be multiples of 1kg. For Au9995, it must be multiples of 3kg. For Ag(T+D), that's multiples of 15kg (99.99% pure). For Au(T+D), that's multiples of 3kg(Au9995 bars)/1kg (Au9999 bars).

      All the gold products on the SGE are quoted as RMB/gramme and silver products RMB/kg. For Au9999, every lot is 100g. For Au9995, every lot is 1000g(1kg). (This is different from the amount you can withdraw from your PM account). For Au(T+D)/Ag(T+D), every contract is 1kg of gold/silver.

      For Au9995 and Au9999, the margin is 100%(no leverage is allowed). Sellers also must have enough PMs on their accounts. For your PM account, the settlement is T+0 and your margin account T+1.

      For Au(T+D) and Ag(T+D), the current margin levels are 10% and 12% respectively of the notional but your broker may demand more and the SGE may also adjust the levels.

      As for the deferred compensation fee, the current rate is 3/10000 for Au(T+D) and 1.5/10000 for Ag(T+D).
      Deferred Compensate Fee= Your end of (trading) day position (in gramme/kg) * the settlement price * deferred compensation rate.

      The deferred compensation fee is paid on calendar days NOT trading days. On holidays, the direction is the same as the most recent trading day.

      Most of the charts Koos Jansen compiles on the delivery are based on the weekly and monthly reports. The data are actually the weekly/monthly amount of gold taken out of the SGE vaults (withdraw from your PM accounts) as commenter Anonymous said.

      Another one of Dave's loyal readers from mainland China

      Delete
    5. The deferred compensation fee is a wonderful design! I have been long on Au(T+D) since June. Since the direction of the deferred compensation fee is more often short to long, That's equivalent to having a gold deposit which earns you an interest! :)

      Delete
    6. To clarify:

      For Au(T+D) and Ag(T+D), the 10% and 12% margin levels are for speculators. If you have real intentions to take/make delivery, you need to deposit 100% into your margin account/have enough gold/silver on your PM account(3kg Au9995 bars/1kg Au9999 bars/15kg Ag9999 bars) and then submit your intention to take/make delivery between 15:00-15:30.

      Delete
  8. The Confidential Memo at the Heart of the Global Financial Crisis

    When a little birdie dropped the End Game memo through my window, its content was so explosive, so sick and plain evil, I just couldn't believe it.

    The Memo confirmed every conspiracy freak’s fantasy: that in the late 1990s, the top US Treasury officials secretly conspired with a small cabal of banker big-shots to rip apart financial regulation across the planet. When you see 26.3 percent unemployment in Spain, desperation and hunger in Greece, riots in Indonesia and Detroit in bankruptcy, go back to this End Game memo, the genesis of the blood and tears.

    The Treasury official playing the bankers’ secret End Game was Larry Summers. Today, Summers is Barack Obama’s leading choice for Chairman of the US Federal Reserve, the world’s central bank. If the confidential memo is authentic, then Summers shouldn’t be serving on the Fed, he should be serving hard time in some dungeon reserved for the criminally insane of the finance world.

    The memo is authentic.

    The new FSA pulled the lid off the Pandora’s box of worldwide derivatives trade. Among the notorious transactions legalised: Goldman Sachs (where Treasury Secretary Rubin had been co-chairman) worked a secret euro-derivatives swap with Greece which, ultimately, destroyed that nation. Ecuador, its own banking sector de-regulated and demolished, exploded into riots. Argentina had to sell off its oil companies (to the Spanish) and water systems (to Enron) while its teachers hunted for food in garbage cans. Then, Bankers Gone Wild in the Eurozone dove head-first into derivatives pools without knowing how to swim – and the continent is now being sold off in tiny, cheap pieces to Germany.

    Of course, it was not just threats that sold the FSA, but temptation as well. After all, every evil starts with one bite of an apple offered by a snake. The apple: the gleaming piles of lucre hidden in the FSA for local elites. The snake was named Larry.

    Does all this evil and pain flow from a single memo? Of course not: the evil was The Game itself, as played by the banker clique. The memo only revealed their game-plan for checkmate.

    And the memo reveals a lot about Summers and Obama.

    http://www.vice.com/en_uk/read/larry-summers-and-the-secret-end-game-memo

    ReplyDelete
  9. Smash The Printing Presses (with Crowbars and Bats)

    Published on Aug 21, 2013

    Smash all printing presses and then replace fact with delusional to eliminate all dissent ".in a deserted basement of the Guardian's King's Cross offices, a senior editor and a Guardian computer expert used angle grinders and other tools to pulverize the hard drives and memory chips on which the encrypted files had been stored."

    As they worked they were watched by technicians from Government Communications Headquarters

    http://youtu.be/gKz4g8ckpJc

    ReplyDelete
  10. I thought I was the only person who knows a lot of Grateful Dead songs, and also sees gold in the portfolio as useful insurance against various forms of economic disruption.

    ReplyDelete
  11. How about destroying all computerized trading regarding derivatives.
    And for that matter wipe out the comex ,cme, and cftc, they are clearly useless and a major distraction having to do with the real value for gold and silver.

    ReplyDelete
  12. I like licorice also... Bless you Dave for all your lessons. The MSM and .GOV will never tell the truth. Until then, enjoy the closest thing I have to licorice in Detroit. Jerrys brother from another mother is fine with me.

    http://www.youtube.com/watch?v=qcyxnXD5gZM

    ReplyDelete
  13. Financial Reform: The Silent Guns of August
    Posted August 23, 2013 By Janet Tavakoli

    The financial reform farce continues. The DOJ and so-called regulators tickle bankers with feathers as CEOs shriek: You’re too tough!

    September 2008 marks the five-year anniversary of the 2008 global financial crisis. Earlier this month, Attorney General Eric Holder said the DOJ is pursuing cases as the statute of limitations runs out for many of them. He “declined to discuss specifics or say when such cases would be announced.”

    The revolving door between Washington (including friends and relatives) and Wall Street continues to spin. Grateful beneficiaries of campaign contributions protect cronies.

    Bi-Partisan Corruption

    http://www.tavakolistructuredfinance.com/2013/08/financial-reform-failure/

    ReplyDelete
  14. The most recent release of the weekly Gallup Employment Survey has shown a sharp spike percentage of individuals unemployed. The chart below shows the weekly Gallup survey versus the monthly BLS unemployment rate. As you can see the trends of unemployment trend in the same direction but the since Gallup is a weekly survey it is more volatile. However, what is important to note is that the weekly Gallup survey tends to lead movements of the monthly BLS report.

    This surge in unemployment, and drop in payrolls, is partially explained by companies which have recently announced they are cutting full-time employment and reducing staff to absorb the higher costs of the impending Affordable Care Act (ACA). However, it is also that economic growth remains weak. The continued weakness in corporate earnings reports suggest that demand is waning while input costs are rising putting businesses on the defensive.

    http://www.streettalklive.com/daily-x-change/1798-is-unemployment-about-to-spike-higher.html

    ReplyDelete
  15. Blame the High-Frequency Traders for Yesterday’s Nasdaq Mess

    While both could be part of the problem to some small extent, they are not the root cause. The real issue is something no exchange wants to discuss and, in fact, may be legally unable to discuss under non-disclosure agreements. Whatever the case, it has resulted in the Rube Goldberg system that keeps dollars flowing into exchange coffers via tape revenue while catering to high-frequency trading firms (HFTs) that enhance volumes.

    An unfair market

    Note that I said enhance volumes, not liquidity. Higher liquidity has been the argument that the exchanges use to justify systems that benefit HFTs. To wit, who among you would think that there should be three tapes (NYSE is Tape A, Amex is Tape B, and Nasdaq is Tape C) to deliver "live quotes" to market participants? Who, other than Rube Goldberg himself, would design a system that shares a portion of the revenue derived from the sales of this data with HFTs? Who would have thought that it's a good idea to let HFTs clog these data pipes with bids, offers, and canceled orders in millionths of a second in an attempt to get paid for providing liquidity rather than taking liquidity?

    There are so many questions as to why, but each comes back to this: The markets are not set up to be "fair and orderly" for investors; they are set up for the benefit of very fast, sophisticated pickpockets.

    Consider yesterday's outage and the idea that it was a "market participant" who took down the Nasdaq's ability to disseminate quotes. This participant is likely to be a very large firm that the Nasdaq didn't want to lose as a customer along with all the tape revenue that it generates. So the "market participant" remains nameless, because if named and thus shamed by the Nasdaq, this customer could simply shift over to the NYSE and take hundreds of millions of tape revenue with it.

    http://finance.yahoo.com/blogs/the-exchange/blame-high-frequency-traders-yesterday-nasdaq-mess-162509029.html?l=1

    ReplyDelete
  16. You’re Fired! American Homes 4 Rent Dismisses 15% of its Workforce

    Single-family landlords have struggled to turn a profit while acquiring homes faster than they can fill them with tenants. Hedge funds, private-equity firms and real estate investment trusts have raised more than $18 billion to purchase more than 100,000 rental houses in the past two years. American Homes 4 Rent, founded by B. Wayne Hughes, is the largest single- family landlord after Blackstone Group LP’s Invitation Homes, which has spent more than $5 billion on 32,000 homes.

    American Homes 4 Rent executives Peter Nelson, Jack Corrigan, Sara Vogt-Lowell and Janice Stack didn’t respond to e- mails and telephone messages seeking comment on the firings.

    Craig Smith, 55, a property-compliance inspector from Columbus, Ohio, said he received a termination notice after nine months with American Homes 4 Rent. Smith, who earned about $50,000 a year, said he saved the company money by finding more than $7,000 in invoice errors last month alone.

    “It’s a complete shock,” he said in a phone interview. “I was out working and they called me to the office and told me I was cut.”

    http://libertyblitzkrieg.com/2013/08/23/youre-fired-american-homes-4-rent-dismisses-15-of-its-workforce/

    ReplyDelete
  17. Price Manipulations In Gold Now Favor The Bullish Side



    8. The reason that major Bankster's physical precious metals storage facilities are for sale is one of the strongest reasons that the old high in the gold price will be beaten. They are not for sale because business is bad. The reason to have a depository was to manufacture a synthetic short in gold legally by taking funds for physical but trading the COMEX and OTC derivative gold market to fulfill the appearance of covering their obligations.



    This game was not high risk as long as paper gold had full control of the gold price determination. They could have $1000 losses on the short and turn it into a profit via spread trading using the warehouse as plausible denial from manipulation. The banksters, now the major longs, do not select to play this game anymore. The manipulation now favors the bullish side of the gold price.


    http://www.jsmineset.com/2013/08/23/price-manipulations-in-gold-now-favor-the-bullish-side/

    ReplyDelete
  18. Thanks for all the details on Au(T+D) "Anonymous"!

    I have a few other details I can't figure out completely. Mainly on import and export laws from the PBOC. Can I contact you (one of Dave's loyal readers from mainland China) via email for this? My email address is koos.jansen@upcmail.nl.

    Hope to hear from you,

    Koos

    ReplyDelete
  19. I thought I was the only person who knows a lot of Grateful Dead songs, and also sees gold in the portfolio as useful insurance against various forms of economic disruption.

    ReplyDelete
  20. The ethanol situation is a moving target that bears watching says Shawn Bartholomae, CEO of Prodigy Oil and Gas Company in Irving, Texas. The financial impact on US citizens has not all been good, with the price of corn dramatically driving up the cost of beef, cereals, etc. The battle goes on as engine manufacturers say damage will be done to cars at higher level of ethanol mixed in with gasoline. Now it is even beginning to be a State vs. Federal legal battle. Where will it all end?

    ReplyDelete