Tuesday, May 29, 2012

Harvey's blogspot - Tuesday edition - some items from Monday and earlier today but mainly non redundant posts.....

http://harveyorgan.blogspot.com/2012/05/spanish-bank-bankia-restates-profits-to.html

Good evening Ladies and Gentlemen:

Gold closed down today to the tune of $28.70 to $1548.60 with silver also faltering by 62 cents to  $27.77.  They attribute the fall in all commodities to the downgrade of Spain by Egan Jones.  Gold and silver fell at exactly 11:30 exactly the time of the  Egan Jones announcement.  My bet is that the banking cartel are also playing their same usual tricks as they bomb silver and gold prior to first day notice.  This has been going on for well over a year, every single month.  The big Spanish bank, Bankia had to restate their "earnings" into a loss of 3 billion euros which did not sit well with Spanish investors as the IBEX fell today by 2.7% with losses particularly hitting the banking sector.  The 10 yr Spanish bond yield today after initially falling in yield rose to where they left off on Monday. I will try and bring you up to date on the big stories which occurred on Monday and today and these stories will certainly have an effect on the price of gold and silver.

Let us now head over to the comex and assess the damage today.  The total gold open interest fell by 2800 contracts to 435,683 from Friday's reading of 438,483.  Gold rose a bit on Friday so we had a bit of short covering.  The non official delivery month of May saw its OI fall from 14 to 11 for a loss of 3 contracts.  We had 4 delivery notices filed on Friday so we thus gained one contract or 100 oz of additional gold standing. The big June contract has its first day notice this Thursday.  The OI for the June contract fell by 25,400 as most rolled into August, October and December.  The OI reading tonight for June is 93,277 contracts. The volume today was massive at 441,186 but no doubt that the volume doubled due to the Memorial day holiday.  The volume on Friday was 233,714 contracts.

The total OI for silver again rises in small steps keeping it in a very narrow channel.  The total Oi for the silver complex rose by 1301 contracts from 114,080 to 115,381.  The front delivery month of May saw its OI fall from 36 to 24 for a loss of 12 contracts.  We had 11 delivery notices filed on Friday so we lost 1 contract of physical silver.  The next big delivery month is July and here the OI rose by 1560 contracts from 58,886 to 59,036.  The estimated volume today at the silver comex was high at 55,793 compared to the confirmed volume on Friday at 34,599.


and.....



First, let us see some of the big physical stories from the weekend and Monday. Goldcore delivers a great commentary below on China's consumption of gold and silver.



Take a look at China's consumption on gold and silver in 2011. The figures are now finally updated and the total usage of gold by the Chinese is 711 tonnes of gold for the year.  If you add China's 340 tonnes of gold production,( all of their gold production stays in the country) to their  total consumption, this  equates to  1050 tonnes of gold or approximately 44.8% of total annual gold production ex China.  If you include China's production it represents 38.1%.  India is importing 800 tonnes and now Viet Nam is bringing in 1000 tonnes of gold.  I am not so sure how Viet Nam is getting that quantity into the country, but that is what was announced on Monday..

So lets recap who is importing what gold:

1.  China seems to be bringing in 711 tonnes of gold through consumption.
Probably their 340 tonnes of production will enter as  official holdings whenever China decides to announce an upgrade of their reserves.

2. The Indian nation is importing close to 800 tonnes of gold and very little of that is official gold.

3. Turkey is importing approximately 200 tonnes as these guys are the gateway for the Arab world.Then we had minor countries such as the Philippines, Mexico and others buying quantities.

Let us take the top 3:

It adds to 1711 tonnes out of annual production of 2360 tonnes (ex China)  =   72.5% of total annual production.

And then we have the European purchases and the Americans.
It looks to me like total demand is over 5000 tonnes of gold against production of 2360.

and....

In silver:  China consumed 6,088 tonnes. This represents almost 196 million oz of silver against total world production including China of around 790 million oz. This represents almost 25% of annual world production.   When the last ounce of silver leaves London shores, the paper silver obligations will be in some serious mess.

(courtesy goldcore)  from Monday

Gold Bar Demand in China Surged 51% to 213.9 Tons In 2011

Tyler Durden's picture
Submitted by Tyler Durden on 05/28/2012 07:47 -0400





From GoldCore
Gold Bar Demand in China Surged 51% to 213.9 Tons In 2011
Gold’s London AM fix this morning was USD 1,579.00, EUR 1,255.67, and GBP 1,006.63 per ounce. Friday's AM fix was USD 1,560.50, EUR 1,240.66, and GBP 996.04 per ounce.
Silver is trading at $28.65/oz, €22.86/oz and £18.33/oz. Platinum is trading at $1,442.50/oz, palladium at $592.60/oz and rhodium at $1,275/oz.
Gold rose $13.30 or 0.85% in New York on Friday and closed at $1,572.80/oz. The higher close Friday was not enough to prevent a lower week for gold which was down 1.2% for the week.Asian trading started out flat and then gold climbed to about $1,583/oz and pulled back a bit and is now trading in Europe near $1,580/oz.  US markets are closed for Memorial Day today which means that volumes may be low and illiquidity could result in sharp price movements.

Cross Currency Table – (Bloomberg)
Gold is higher in all currencies today as some buyers view the recent price falls as overdone and are buying the dip. There is some relief that Greek opinion polls showed pro bailout conservatives in the lead for elections. This has alleviated fears of a disastrous Greek exit from the euro, but uncertainty still remains and ‘Grexit’ remains likely.
The risk of contagion in the Eurozone appears to increase by the day as the news from Spain shows that it is following fast in the footsteps of Greece and this will support gold. Bank runs in Greece and the risk of bank runs in Spain and elsewhere are a scenario which could lead to contagion.As long as the short term panacea of using quantitative easing, the modern euphemism for the creation of trillion of units of currency (dollars, euros, pounds etc) is embraced by global policy makers – gold’s bull market is assured.
The day or reckoning has been postponed for now but economic recovery is not coming and indeed there is now the real risk of a global recession and even a  global Depression – especially if there are widespread global electronic bank runs.
While gold and silver fell marginally last week, the very large weekly returns in the gold mining sector may signal we are close to a bottom. The XAU and HUI gold mining indices rose 6.8% and 7.9% respectively. Strong gains in the XAU and HUI have often preceded market bottoms for gold and silver.
This week investors will look to China’s PMI and US non-farm payrolls to gauge the health of the world’s two largest economies.
XAU/USD Currency Chart – (Bloomberg)
A reminder of the sharp increase in demand for gold and silver, particularly store of wealth demand, in recent years was seen in the figures released by the China Nonferrous Metals Industry Association in Shanghai today.
China’s gold consumption rose 33% to 761 tons in 2011 and China’s silver consumption rose 6.8% to 6,088 tons last year.
China’s gold consumption rose 190 metric tons last year to 761 tons, Wang Shengbin, China Gold Association Vice Chairman, said in a speech in Shanghai as reported by Bloomberg.China’s jewelry consumption jumped 28 % to 456.7 tons last year, gold bar consumption surged 51% to 213.9 tons and gold coin consumption gained 25% to 20.8 tons, Wang said
China’s silver consumption, including industrial use, jewelry and coins, rose 6.8% to 6,088 metric tons last year, the vice chairman said. The amount shows a surplus given China’s output of 12,348 tons last year, which gained 6.3%, Wang said.

and.....

Mineweb is reporting that the gold loving people of Viet Nam has hoarded around 1000 tonnes of gold as the government aims to increase controls.  That is a lot of gold.  All mortgages in Viet Nam are supposedly to be backed by  gold in that country.

(courtesy Mineweb/Chris Powell/GATA)  from Monday

War against gold can be reported only


 from the East

Submitted by cpowell on Mon, 2012-05-28 14:42. Section:  10:30a ET Monday, May 28, 2012
Dear Friend of GATA and Gold:
Writing at MineWeb, Shivon Seth details and updates the Vietnamese government's war on a free gold market, which mirrors the war being waged against gold by the Indian government. All governments have the same interest in gaining control over currency, lest people and markets get control, and the interest is just as strong in the West as it is in the East. What's different is, ironically, only that governments have more control over established news organizations in the West than in the East, so what is most obvious about government policy toward gold can be reported only from an Eastern perspective. The MineWeb report is headlined "Vietnamese Hoarding Around 1,000+ Tonnes of Gold as Government Aims to Increase Controls" and it's posted here:
http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=152132&sn=Detail&pid=110649
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

and....

Strange!! China now wants to get into the leasing game?  After all what we taught them?

(courtesy GATA/Reuters)  from Monday


China's biggest bank wants to get into gold leasing

Submitted by cpowell on Mon, 2012-05-28 17:51. Section: 
Which means that China's government wants a hand in gold price rigging too.
* * *
China's ICBC Has Big Dreams for Bullion Business
By Fayen Wong
Reuters
Monday, May 28, 2012
SHANGHAI -- Industrial and Commercial Bank of China Ltd is seeking membership of overseas exchanges and aims to become a major global bullion market maker, a senior executive said on Monday.
The world's biggest bank by market value, ICBC is the top player by volume on China's gold and futures exchanges, but its participation in foreign markets is limited to over-the-counter trading, which reached a total $90 billion last year.
Emboldened by Beijing's ambitions to have a bigger say in global commodity prices, ICBC now has an eye on bourses such as COMEX and on joining the 11 market makers of the London Bullion Market Association (LBMA).
These quote continuous two-way bid and offer prices for gold, silver, platinum, and palladium throughout the London day, providing a liquid market in which to trade.
"We hope to play a bigger role in the global precious metals market and become a major market maker, like Barclays," Shen Shisheng, ICBC vice-general manager of financial markets, told Reuters on the sidelines of a conference in Shanghai.
Barclays Capital is among the gold fixing members on the LBMA.

The newest LBMA market maker, Merrill Lynch, was appointed in January last year. ICBC became an ordinary member of the LBMA late last year, the first commercial bank in China to join the association.
Given the bank's large trading volume, Shen said that ICBC has recently started price quotation for gold transactions on the Shanghai Gold Exchange and has begun acting as an agent for non-member clients.
It has also opened offices in London and New York and plans to start price quotation in both cities soon, he said.
ICBC also wants to grow its financial products to service the full supply chain of the bullion market, including loans to miners and smelters, physical gold leasing, hedging and brokering.
"We now have banking operations in 34 countries and we need to expand our gold services and products to other major markets," Shen said.
China's gold markets have boomed in recent years as high inflation and poor performance in equities markets have seen investors turn to bullion as a safe-haven asset.
According to the U.S. Futures Industry Association, China was fourth in terms of volume of gold futures contracts traded in 2011.
Total trade for China's gold futures hit 722.18 million lots in 2011, a 113 percent jump from a year ago, while turnover jumped nearly 180 percent to 2.55 trillion yuan ($401.9 billion), according to data from the Shanghai Futures Exchange.

and....

If gold is collateral for their bailouts, nations may want a higher gold price

Submitted by cpowell on Tue, 2012-05-29 18:49. Section: 
Europe's Debtors Must Pawn Their Gold for Eurobond Redemption
By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, May 29, 2012
Southern Europe's debtor states must pledge their gold reserves and national treasure as collateral under a E2.3 trillion stabilisation plan gaining momentum in Germany.
The German scheme -- known as the European Redemption Pact -- offers a form of "Eurobonds Lite" that can be squared with the German constitution and breaks the political logjam. It is a highly creative way out of the debt crisis, but is not a soft option for Italy, Spain, Portugal, and other states in trouble.
The plan is drafted by the German Council of Economic Experts and inspired by Alexander Hamilton's Sinking Fund in the United States -- created in 1790 to clean up the morass of debts left by the Revolutionary War. Flourishing Virginia was comparable to Germany today.

Chancellor Angela Merkel shot down the proposals last November as "completely impossible," but Europe's crisis has since festered, and her Christian Democratic Party has since suffered crushing defeats in regional elections.
The Social Democrat opposition supports the idea. The Greens say they will block ratification of the EU Fiscal Compact in the German Bundesrat -- or upper house -- unless Mrs Merkel relents.
"The Redemption Pact cleverly combines the advantages of lower interest rates through joint European borrowing with a reduction of debt," says Green leader Jürgen Trittin. "Joint liability would be limited in both time and scale."
The plan splits the public debts of EMU states. Anything up to the Maastricht limit of 60 percent of GDP would remain sovereign. Anything over 60 percent would be transfered gradually into the redemption fund. This would be covered by joint bonds.
Italy would switch E958 billion, Germany E578 billion, France E498 billion, and so forth. The total was E2.326 trillion as of November but is rising fast as Europe's slump corrupts debt dynamics. The sinking fund would slowly retire debt over 20 years, using designated tithes akin to Germany's "Solidarity Surcharge."
In effect, Germany would share its credit card to slash debt costs for Italy, Spain, and others. Yet it is the exact opposition of fiscal union. While eurobonds are a federalising catalyst, the fund would be temporary and self-extinguishing. "The fund is a return to the discipline of Maastricht with sovereign control over budgets," said Dr Benjamin Weigert, the Council of Experts' general-secretary.
The ingenious design gets around the German constitutional court, which ruled in September that the budgetary powers of the Bundestag cannot be alienated to any EU body under the Basic Law -- the founding text of Germany’s vibrant post-War democracy.

and....

The following is very interesting. The ECB in their consolidated financial statement of the Eurosystem on May 11.2012 showed a drop of 10.8 billion euros from the LTRO money handed out by them.  This is not allowed as the banks must keep the Euros and return them once the swap termination date has arrived.  Only if something sinister happens can a drop occur.  It generally means that euros were sent back to the ECB who reswapped back their garbage collateral to some bank. Late today the updated ECB consolidated statement showed another
21 billion euros was reswapped from the banks back to the ECB.
No doubt with these two reswaps,  the banking collateral was insufficient.

Some banking entity is in serious trouble!!  Now the question remains as to who got kicked out by the ECB.  Even worse is that the ECB is accepting lousy collateral and now that is insufficient.  Question: what on earth will this banking entity do if it cannot receive funds directly from the ECB and cannot engage in any other LTRO?

(courtesy zero hedge)  Tuesday


Did Another European Bank Just Lose LTRO Eligibility?

Tyler Durden's picture
Submitted by Tyler Durden on 05/29/2012 10:31 -0400




Back on the 11th of May, something very curious happened: the ECB's line item 5.2 from its "Consolidated financial statement of the Eurosystem", or in other words, the LTRO money handed out to various European banks, dropped by €10.8 billion. There is one problem with this: this number is not allowed to decline. Or technically, if it does, it means something is wrong.
This is how Reuters explained the first instance of a material decline from May 4: "An early repayment of 11 billion euros of low cost funding to the ECB last week may be due to a bank losing its eligibility as a counterparty or a shortage of collateral, underscoring concerns about the general health of the banking sector. The European Central Bank's weekly financial statement showed that 10.8 billion euros ($14 billion) of longer-term refinancing operations (LTROs) were repaid last week before maturity. This is unusual because banks are not permitted to repay such funds early. There are exceptions for the December and February three-year funding operations but even those officially cannot be repaid before one year has passed. "When pledged collateral becomes ineligible and the counterparty cannot come up with a replacement ... cash out of the open market operations has to be paid back," said Commerzbank rate strategist Benjamin Schroeder in a research note. "A case where an institution itself loses its status as ECB counterparty is also conceivable." According to the ECB's website, the central bank's counterparty eligibility criteria include being subject to the Eurosystem's minimum reserve system and being "financially sound".
Well, minutes ago the ECB just reported its latest May 25 weekly update, and the number was... a €21.4 billion drop.
Chart: BBG
Which begs the question: just which bank got kicked out by the ECB, which is well known to accept the worst of the worst when it comes to collateral, just how bad is the collateral situation in Europe if banks can't even be LTRO eligible, and just what will be the systemic implications if said bank is unable to fund itself in the open market which as everyone knows by now in Europe, is completely and thoroughly frozen?
And for those asking, here is the ECB's Emergency Liquidity Assistance (ELA) timeline:

and......

Egan Jones Jars Market Out Of Rumor Hypnosis

Tyler Durden's picture
Submitted by Tyler Durden on 05/29/2012 11:47 -0400



While European, US, and commodity markets (ex-Spain) were enjoying the hope/hype of ECB rumors and QE chatter, Egan Jones just burst the bubble, back to reality. Within minutes of their downgrade of Spain, EURUSD was plunging faster than Facebook and along with that cornerstone of correlated risk markets, gold, silver, oil, copper, and US equities had smashed lower.
EURUSD was not happy...as the headline hit BBG (10 minutes after we posted it here)...
and commodities reacted...

Before all of this reality-checking, our European EOD was thus:
ECB Rumor Pushes Europe Ex-Spain Higher
In the same way that Mrs. Lincoln was unable to enjoy the play, we fear Draghi, Barroso, and Rajoy did not enjoy today's broadly green close in the European markets because of the slow-motion train-wreck that is Spain. The Euro-Stoxx is up 0.6% with the majority of European equity markets up around 1% but IBEX dropped over 2.3% further, Spanish banks plunged dramatically (thanks to Bankia's restatement throwing doubts over pretty much anything not bnailed down in their assets), Spanish sovereign bond spreads leakeds wider and Spanish sovereign CDS pushed to new record wides.Credit and equity markets gave a little back into the close but generally warbled in a narrow range - gapping up at the open.
What's maybe most worrying is that Italian bond spreads started to underperform Spain today - adding 10bps from their tights while Spain only added 4bps
Chart:Bloomberg





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