Wednesday, November 21, 2012

Got Gold? Central Banks Are Getting Large Quantities

With investing, if you are not early you are late - Hal, long time friend and colleague
Brazil's Central Bank announced the purchase of over 17 tonnes of gold in October.  Here's the commentary on this from UBS precious metals strategist Ed Tully:
There may be a flutter of excitement in the market today with news that Brazil's official reserves of gold rose 17.2 tonnes in October, according to IMF statistics. This follows on from the 1.7 tonnes of buying in September and brings total Brazilian gold reserves to 52.52 tonnes. This is a chunky purchase by a central bank, and the gold market will likely sit up and pay attention to today's news, not just because of its size but because this is a central bank that has not been active in the market for some time. Gold struggled in October, and without this official sector buying the move below $1700 would likely have been much more severe than the short lived dips transpired to be. Today's news confirms much of the market chatter at the time that official sector buying was taking place and was one of the key factors that gave prices a reasonable floor last month.
In fact, several non-Fed/BOE Central Banks increased their gold holdings by over 40 tonnes in October.  We know that China, in addition to retaining 100% of the 25 tonnes per month it produces, has been importing bullion hand over fist.

Gold and silver have been unusually resilient in the face of one of the more overt attempts by the U.S. bullion banks to trigger a COT open interest liquidation sell-off.  For those of us who have been trading and researching the metals market for the past 11 years of the bull market, the attempted manipulation has never been more transparent, nor has the ability of the market to withstand this big bank flagrancy.

Here's the Bloomberg report of the October Central Bank buying spree:  LINK  Without bloviating on the significance of this aggressive and rampant CB accumulation of bullion, please note that several countries besides Germany are now making noise about repatriating their gold being "safekept" by the Fed, BOE and Bank of France.  Switzerland has proposed legislation being introduced in order to force the issue, The Ecuadorian Government has called on its banks to repatriate 1/3 of their foreign-held gold and the Netherlands is starting to make noise about doing the same.

The name of the game is "accumulate physical - not paper (GLD, CEF, GTU, etc) and make sure you have trustworthy custodian."  That would be either a private domestic depository or under lock and key in your own house, with Smith and Wesson are your guard dogs.


  1. Interesting that RGR (another guard dog) has out-performed the master (gold) since Obama was inaugurated. RGR was $6.00 Jan 09 and is $52ish here as I write. ... just a factoid that your post inspired. Gold doubled and Ruger did an 8 bagger plus.

    Mr. market finds no peace or solace still, no sense of safety, after four years with the benevolent leader.

    Financial safety begins with gold, family safety begins with a warm gun.

    1. I just picked up a warm SR22 Pistol, yesterday, and promptly put 200 rounds through it. A fun little plinker.

  2. So I ask again:

    why are other central banks buying gold while our Fed is buying Treasuries.

    1. Hal,
      The other central banks are buying gold BECAUSE the FED (has been) buying treasuries. The Fed will defend the debt to the very end; the CBs are in essence trading dollar debt for gold.

  3. Glock and Mossberg make for good security

  4. Correct me if I'm wrong but there were approximately 2700 tons of gold mined worldwide last year. That makes 17 tons about 2.5 days of production. 40 tons is just under 6 days. It doesn't even seem newsworthy.

    1. Enlighten yourself...

      Central Banks’ Gold Likely Gone-Eric Sprott

      Money manager Eric Sprott says, “The central banks’ gold is likely gone with no realistic chance of getting it back.” Don’t expect this revelation to get any coverage by the mainstream media. In an interview last week, Sprott’s analysis was met with words such as “gold bug” and “conspiracy theory.” Sprott answers that sort of disrespect by saying, “We’ve had so many conspiracies, I don’t know why anyone would think this was unusual.” To back up his point, he named “LIBOR, electricity markets in California and the Madoff” scandals. Sprott’s analysis shows a “flat supply” and at least a “2,500 ton net increase in gold demand” since 2000. “Where’s all the gold coming from?” asks Sprott. He says Western central banks “. . . keep supplying this market with product in order to keep the price down so nobody knows how vulnerable the situation is.”

    2. The Central Bank of the Russian Federation updated their website yesterday with their October data. It showed that their gold bullion holdings for the month increased by 100,000 troy ounces to 30.1 million ounces. Here's what it looks like in Nick Laird's most excellent chart.

    3. True, 17 tonnes doesn't amount to much when 150 times that much is typically mined in a year, but considering that consumption and production are closely matched (ie. a tight market), 17 tonnes is important. Here's a cool link with plenty of pictures that tells you all you ever wanted to know about gold. It's a bit dated, but very informative.


  5. From the towers of Wall Street to the dairy farms of New Jersey, a guided tour of the financialization of food.

    “I brought you here for a reason,” Kaufman tells me. “This is 33 Liberty Street, where both money and debt are manufactured.” In 2009, the Federal Reserve printed an unprecedented one-and-a-quarter-trillion dollars of new money in a single day, he says. “Out of the bowels of the Fed, more bills magically appeared and they used it to purchase debt–home mortgages, business loans, school loans.” The Fed purchased about one-fifth of our county’s mortgage-backed securities. “That’s what Occupy Wall Street doesn’t quite understand,” Kaufman adds. “You can’t just get rid of debt, of student loans and the like, because money enters the market as debt. That’s what it is, at the core.”

  6. Indian government may offer bonds payable in gold

    Top government sources told Hindustan Times that a gold instrument proposal was discussed at a recent high-level meeting on efforts to boost savings and investment rates in which the chairman of the Prime Minister's Economic Advisory Council (PMEAC), C. Rangarajan, and finance minister P. Chidambaram were present.
    "As the recent RBI data showed a declining trend of savings by Indian households including bank deposits, it was suggested in the meeting that in order to attract household savings, paper products that are linked to gold be developed," a finance ministry official said.

    Asked what would be the nature of these instruments, the official said, "We are still working out options. Gold bonds could be one of them."

    India has never issued gold bonds but banks have gold deposit schemes that have not been very successful.

    With gold prices soaring in the last couple of years, officials said there is a good chance that the new schemes would find takers unlike the past gold-linked schemes that were on offer that did not do well because investors preferred stocks that then offered higher returns. Now, with stock markets hit by high interest rates that lowered corporate earnings amid a global economic crisis, gold is treated as a safe haven.

  7. Eric Sprott makes a pretty good argument that there is no gold in them thar allocated accounts. What happens when the sovereigns find out that there are no gold bars to be dusted off.? Hell, they won't even let them see their long gone gold much less authenticate and audit! It is opined here that Au stood resilient to that transparent effort to weight the COT and that is creditable, but this sideways movement could just as well be understood as a testimony of the powerz ability to cap the price until their greedy oily fingers have grasped the last leavings shaken from the weakening hands, especially the big boys emptying out what remains of their pathetic reserves to meet margin. Very interesting times. I ask though in the face of the gold writers continually calling $1800 and clamoring for $1900/$2000, how long this fuse to this powder keg is? Au is still far down from the top more than a year ago and stagnant YOY. Glass half full or half empty? As to those "guard dogs" Obama and his brigade of flying monkeys are coming for, they've got a shopping list a mile long, including all semi automatics. We can only hope they will maintain the grandfather clause or there's going to be war. Meanwhile most long barrel ammo I've noticed is backordered 2 months. Gettin' ready?

  8. Ben Bernanke Confronted on Secret Federal Reserve Bailouts

  9. Cantor Fitzgerald fined $700K

    (AP) -- The U.S. Commodity Futures Trading Commission said Wednesday that Cantor Fitzgerald & Co. Inc. has agreed to pay $700,000 to settle charges related to the financial services firm's handling of its customer accounts.

    Cantor and other registered futures commission merchants are required to keep their customers' money from the firm's own funds in a so-called customer segregation account.

    As a result, firms are required to calculate on a daily basis the amount of customer funds that need to be separated from the firm's own funds.

    The CFTC claims that Cantor failed to maintain sufficient funds in its customer segregation account during a three-day period in January.

    The policy violation occurred because Cantor inadvertently transferred $3 million from its customer funds account, instead of from the firm's own funds account, the CFTC said.

    Read more:

  10. Max Keiser talks to Jan Skoyles of the Real Asset Company about clients wanting to park their gold in Singapore and about what is happening in the gold market in China.

  11. why are other central banks buying gold while our Fed is buying Treasuries.
    begin trading

    1. Central Bank Gold Rehypothecation Scandal to Take Gold to $5,000/oz

      The QE & ZIRP assure the breakout to new highs. However, the Allocated Gold Account scandal will assure the Gold price reaches $5000 and the Silver price reaches $200. The scandal has begun. The stage is set. The official Gold Accounts from foreign nations have been taken. Choose your word: improperly used, illicitly seized, illegally stolen, desperately hypothecated. The point is that national gold treasures held in London and New York have vanished over the last 20 years, a process begun with the Clinton-Rubin Admin, continued with the Bush-Paulson Admin, defended by the Obama-Geithner Admin. The names of the administrations must include the Goldman Sachs representative in charge of the USDept Treasury, the guy with the stealing rights, as my friend in Reno colorfully calls it.

    2. Jim’s Mailbox

      So Bernanke has been lying to our face, telling us that he is working hard to create employment, when in reality he was helping JP, Goldman, BOA, and so on save their balance sheets from derivative failure. If he continues this way then we will have a stagflationary-recession in the real economy.

      If China and many other creditors of America know the above fact, then why would they ever buy US Treasuries again? Leave alone buying, If I were china, I would be dumping their bonds and buying hard assets. Maybe secretly China is doing it because if they officially do it (it would be similar to act of war), then maybe America would release a few nuclear missiles on them to scare them. Maybe recent Japan-China tension was engineered for this purpose, as we know Japan is a salve of America.

      So now the USA is openly monetising its own problems, as they have the military and diplomatic might to dictate whatever they like. How long do you think the USA can keep monetizing its own debt? Forever? They will easily raise the debt ceiling and turn the fiscal cliff into a fiscal slope (smooth slope)…

      When does confidence completely fail ? Can Confidence EVER fail in a GLOBAL DICTATORSHIP ? They have a DICTATORSHIP over GOLD too by way of paper shorting!

  12. Lies, damned lies, and written Parliamentary answers! How the Civil Service bamboozles the public with bullshit!

    It is bullshit such as this that means that the ordinary people of Britain are being misled about the true state of serious criminality being committed by our banks.

    HSBC's actions in Mexico were deliberate criminal money laundering. HSBC freely and dishonestly entered into a criminal consipracy to move vast sums of drug money for Mexican king-pins. They did this because they knew that on a balance of probabilities, they would probably get away with it, and they took the chance that they wouldn't get caught.

    They were caught and fined by the Mexican authorities. That does not and should not mean that they are not subject to UK supervisory oversight, and that they should not be forced to come to judgement in this country and take the consequences of their actions.

    To seek to explain away the unwillingness and the inability of a regulator which has no moral courage for this fight, despite all the evidence to support their ability to take action, by saying that because the front organisation was not a UK registered institution, despite the fact that it was wholly-owned by a UK institution, is to plumb the depths of perfidy.

    It is lies like these which must make the state of British Banking organised criminality an electoral issue, so that the British tax payers may know exactly how much banking crime is being covered up in their name!

  13. Ian Williams of Charteris Treasury Portfolio Managers about his forecast for silver prices to rise five fold in the next 3 three years

    In the second half, Max Keiser talks to Ian Williams of Charteris Treasury Portfolio Managers about his forecast for silver prices to rise five fold in the next 3 three years while US Treasury bonds and UK gilts will face collapse. Ian Williams also suggests that it is commercial banks rather than central banks that will return us to a new style of gold standard.

  14. Lehman Brothers Rears Its Ugly Head In Germany

    Another Lehman Brothers kerfuffle has erupted, this time in Germany, in broad daylight. With a stunning amount: up to €800 million ($1.04 billion) in fees for the insolvency administrator. It blows away the prior German record of €70 million paid to the insolvency administrator of Arcandor AG, the parent of department store and mail-order retailer KarstadtQuelle.

    Hedge funds, which have massively bought up claims of the original Lehman creditors, are raising a ruckus. Apparently, they want to shame insolvency administrator Michael Frege, a partner at CMS Hasche Sigle, Germany’s largest law firm, into backing off his demands. As insolvency administrator, he is at the center of the case and is personally liable for willful or grossly negligent errors. He “must not receive a success premium, especially since he made some bad decisions by having sold assets below market value,” hedge funds postulated. More than €250 million would be out of the question.

    It worked. Almost.

    But now CMS counterattacked with its own publicity campaign. And allegations. When Lehman went bankrupt in September 2008, only €100 million in liquid assets were available in the accounts of Lehman’s German operations, according to CMS Managing Partner Hubertus Kolster. To chase down and sell every possible asset, CMS put 100 lawyers and insolvency experts on the case. Now €5.6 billion could be paid back to the Bundesbank, and between €9 and €10 billion could be distributed to the remaining creditors, including the German deposit insurance fund and hedge funds. Creditors would receive about 80% of their claims—a lot more than originally expected.

    (He didn’t mention that massive money printing and asset purchases by central banks around the world have created an epic credit bubble that inflated asset values and bailed out just about everyone, not just Lehman creditors.)

    The alternatives to that messy cleansing process of failure are endless bailouts, the nonsensical horror show of TBTF, markets that no longer function freely but are controlled or manipulated by central banks, and untouchable bankers who get to propagate a profoundly corrupt system.

  15. Dean LeBaron ~ Adventure Capitalist

  16. Jim Rogers Interview: The Bubble Film

  17. listen to rosen

  18. Chinese banks rush to issue bonds for more funds

    CHINESE banks are rushing to issue bonds for more funds in a bid to meet stricter capital adequacy requirements set to be implemented next year.

    The Bank of Ningbo, a Zhejiang Province-based lender, on Thursday launched bids for subordinated debts worth 3 billion yuan (US$482 million), following a 40 billion yuan issuance by the China Construction Bank on Tuesday.

    About 150 billion yuan of subordinated debts may enter the bond market toward the end of this year under borrowing plans revealed by banks.

    Financial institutions disclosing similar plans include the Bank of China, 23 billion yuan, the Agricultural Bank of China, 50 billion yuan, Shanghai Pudong Development Bank, 10 billion yuan, China Merchant Bank, 23 billion yuan, and Huaxia Bank, 10 billion yuan.

    The borrowing spree comes as a new banking capital regulation is due to take effect on January 1. The regulation accords with the Basel III rules agreed by G20 countries in 2010.

    Released in June, the regulation stipulates the core capital adequacy ratio for "systematically important banks" should reach a minimum of 9.5 percent before the end of next year.

    Other banks should raise their core capital to no lower than 8.5 percent of their total assets by the end of 2016.

    The regulation also stipulates that subordinated debts will not be seen as regulatory capital next year unless banks have written down their assets accordingly or convert them into shares.

  19. Basing Halle Building rent payment on gold prices: Whatever happened to ...?

    New York-based Venner bought the land underneath the Halle Building on Euclid Avenue at Public Square in 2006 and decided to invoke a clause in a 1912 ground-lease agreement that allowed the landlord to charge rent based on the price of gold.

    A Forest City subsidiary, S&R Playhouse Realty Co., had, for the previous two decades, been paying $35,000 a year in rent.

    Gold clauses were written into contracts in the early 1900s as a hedge against inflation in long-term deals. The lease, in this case, was 99 years.

    Venner and his attorneys knew of the gold clause and argued that it still applied. The U.S. 6th Circuit Court of Appeals in August 2008 ruled in favor of Venner and his company, 216 Jamaica Avenue LLC.

    That ruling could have raised the annual rent to $1.4 million. David Thompson, Venner's Washington-based attorney, trumpeted at the time how his client stood to profit even further should the price of gold continue to rise.

  20. Diapason Commodities' Sean Corrigan provides an insightful introduction to the critical importance of a market-set rate of interest and central banks' manipulated effect on the factors of production.

    "Fixated with using their illusory ‘wealth effect’ to avoid a full realization of the losses we have all suffered in a boom very much of those same central bankers’ creation ? or else cynically trying to achieve the same denial of reality by driving the income?poor into accepting utterly inappropriate levels of financial risk – they are destroying both the integrity and the signalling ability of those same capital markets which are the sine qua non of a free society."

    If we are to salvage any residue of our liberty, restore any semblance of our prosperity, and again secure to ourselves the right to enjoy our property, this [manipulation] must be ended before it consumes our capital...

    If all this means that we have fewer projects underway at any one time, so be it: we will waste far less of what we hold scarce and end up holding fewer things as scarce as we do now.

    The Garden of Eden may well be denied us, but that does not mean the only remaining choices are the debtor’s gaol or the soft totalitarianism of de Tocqueville’s worst imaginings... is saving that makes us rich, not spending, and it is only by saving – not through authoritarian fiat ? that a naturally lowered interest rate confers a lasting aid to capital formation.

    If policymakers hope that listed companies can help drive down current high levels of unemployment then it could be a long wait. Corporate expansion plans are likely to remain constrained by uncertainties about the global economy and a shareholder base that is more interested in share buybacks and dividends than capex and job creation.

  21. A Real PAGE Turner For Silver

    Dave wrote for months about how the proposed Pan-Asian Gold Exchange would have changed everything. It was going to create a loophole for the Chinese that would genuinely break the currency cartel unlike the false attempt through the introduction of Pete Peterson’s off-shore version (CNH) of the on-shore version of the Chinese Yuan (CNY).

    At the time I was surprised that PAGE (the Pan-Asian Gold Exchange) was happening and although the press on the topic was a bit vague the implications, at least to Dave, were that this opening would finally create the missing link in the Occidental-Oriental see-saw that would be necessary to achieve East-West equilibrium with the Chinese. With very little warning and even less explanation the Pan-Asian Gold Exchange disappeared from the horizon and the effort was cancelled.

  22. Offshore secrets revealed: the shadowy side of a booming industry

    A worldwide research effort in collaboration with BBC Panorama and the ICIJ reveals the people behind these anonymous companies

    The existence of an extraordinary global network of sham company directors, most of them British, can be revealed.

    The UK government claims such abuses were stamped out long ago, but a worldwide joint investigation by the Guardian, the BBC's Panorama and the Washington-based International Consortium of Investigative Journalists (ICIJ) has uncovered a booming offshore industry that leaves the way open for both tax avoidance and the concealment of assets.

    More than 21,500 companies have been identified using this group of 28 so-called nominee directors. The nominees play a key role in keeping secret hundreds of thousands of commercial transactions. They do so by selling their names for use on official company documents, using addresses in obscure locations all over the world.

    In 1999, the government claimed Britain's sham director industry had been "effectively outlawed" after a judge, Mr Justice Blackburne, said the court would not tolerate "the situation where someone takes on the directorship of so many companies and then totally abrogates responsibility". But our findings show this has failed to be policed.

  23. The Faustian Bargain between States and Banks

    States and banks have made a deal with the devil. Banks buy the sovereign bonds needed to prop states up in the tacit understanding that the states will bail them out in a pinch. But experts warn that this symbiotic arrangement might be putting the entire financial system at risk.

    As European countries have dug themselves deeper and deeper into debt in recent years, there has been a dramatic increase in this dependence. Governments are addicted to borrowed money -- and banks meet this need by purchasing sovereign bonds. As an unspoken reward, the banks expect nothing less than a guarantee of their own survival. Should a bank run the risk of collapse, the state is expected to use taxpayer money to prop it up.

    Privileges and Denial

    Such returns make great sense for the banks in the short term but present a massive problem in the medium term as they enter more and more risky assets into their ledgers. "It's important for the institutes to diversify their assets," says Hans-Peter Burghof, professor of banking at the University of Hohenheim, in southwestern Germany. Burghof also believes that their massive holdings in sovereign bonds are putting the entire financial sector at risk. "If one wants a stable banking system," he concludes, "one cannot abuse it as a vehicle for state financing."

    But that's exactly what governments and oversight agencies in Europe are doing.

  24. Shadow banking: the next landmine

    But this probably masks a more recent pick-up in the growth rate in line with on-balance sheet bank lending, and we must also take into account the far greater growth in shadow banking in non-US financial centres, particularly in the UK, Hong Kong, Singapore and Switzerland, where restrictions on re-hypothecation are often less onerous.

    The problem with this elephant-in-the-room is that shadow banking requires no bank capital to back it, because it works on collateral pledged by non-bank institutions and the general public. It is comprised principally of securitised consumer property loans and mortgages, as well as sovereign debt. And because the global financial system is fully integrated, the $22 trillion equivalent that is the eurozone’s exposure to shadow banking must also be seen as a significant risk: no wonder the European Central Bank has signalled it will save the eurozone in its entirety, at all costs. This is also interest rate sensitive stuff, and with no capital buffers to absorb losses it will not take much of a rise in rates to trigger a crisis, even without an external shock.

    The Fed, along with the other central banks is effectively trapped: it can no longer manage the money supply in accordance with its mandated objectives. It is now the Fed’s primary function to worry about shadow banking, over which it has no direct control, other than to make sure sufficient collateral of good quality continues to be available.

    There is a worrying complacency in financial circles about this problem, which suggests that financial assets are not discounting the serious risk of systemic failure. This problem demands serious attention.

  25. Clearly this is exactly what I call a delightful article! Do you use this blog for private joy exclusively or you use it to get profit from it?