Jesse......
Yesterday we had 32,000 ounces of gold bullion come into customer storage at HSBC, and 64,000 come out of customer storage at Scotia Mocatta. There was no movement in the registered category.
If you look at the last chart, you can see the details of the individual warehouse holdings. In addition to outlining the movements of bullion in and out, in green and red, I have also rank ordered the holdings of registered bullion in blue.
As you can see, JPM by far holds the most registered bullion in their vault. As a reminder, the Comex has on that same statement the disclaimer that they take no responsibility for the bullion statements given to them by parties they assume to be reliable.
Mr. T Ferguson had an interesting commentary today wherein he rightly noted that JPM brought in a couple of tranches of gold into the Comex recently that were 'exceptionally round numbers.' And they were, down to the metric tonne.
I had assumed that this bullion came from a single source, and it has to be in 100 oz bars as you will recall. And it has to go through a process to be admitted to the Comex, although by the disclaimer we see that JPM is the party standing behind that statement, and no one else that I can determine.
So, if the bars were received, let's say, from storage by an agreement with some central bank on a lease arrangement, I wonder if one would bother with going through the laborious process of refining them again into bars, or merely recertifying them with a friendly refiner. And one has to wonder if they are 'unemcumbered' by any conflicting claims.
But what struck me as most odd on the JPM front is how much of the registered gold they are holding, around 283,102 ounces out of a total of about 707,000. That is about 40 percent of the total registered gold. I thought they were trying to get out of that business of storing and dealing gold.
However this turns out, I suspect we will not see the details of what has been going on up close. But my opinion is that it will be advisable for traders to start settling up now as best they can, and not try to get lucky and skin a few more dollars out of a market whose fundamental structure is starting to look dangerously unstable.
And if I were in the Exchange or the Regulator, I would not hope to stand quietly behind the fig leaf of my disclaimers and otherwise-too-busy-to-look-and-understaffed life, and start giving a look at what the heck is going on behind closed doors. Maybe I am wrong, but I see smoke starting to come out of the cracks and seams.
It looks to be about one significant event away from a serious debacle that could prove to be highly embarrassing to a number of Very Serious People. Not to mention otherworldly economists, bankers, and pundits who dwell in the realms of well spun models land.
But what do I know. I am just a humble proprietor of my little domain.
Have a pleasant evening.
Gold Daily and Silver Weekly Charts - Straining at the Leash
Yesterday we had 32,000 ounces of gold bullion come into customer storage at HSBC, and 64,000 come out of customer storage at Scotia Mocatta. There was no movement in the registered category.
If you look at the last chart, you can see the details of the individual warehouse holdings. In addition to outlining the movements of bullion in and out, in green and red, I have also rank ordered the holdings of registered bullion in blue.
As you can see, JPM by far holds the most registered bullion in their vault. As a reminder, the Comex has on that same statement the disclaimer that they take no responsibility for the bullion statements given to them by parties they assume to be reliable.
Mr. T Ferguson had an interesting commentary today wherein he rightly noted that JPM brought in a couple of tranches of gold into the Comex recently that were 'exceptionally round numbers.' And they were, down to the metric tonne.
I had assumed that this bullion came from a single source, and it has to be in 100 oz bars as you will recall. And it has to go through a process to be admitted to the Comex, although by the disclaimer we see that JPM is the party standing behind that statement, and no one else that I can determine.
So, if the bars were received, let's say, from storage by an agreement with some central bank on a lease arrangement, I wonder if one would bother with going through the laborious process of refining them again into bars, or merely recertifying them with a friendly refiner. And one has to wonder if they are 'unemcumbered' by any conflicting claims.
But what struck me as most odd on the JPM front is how much of the registered gold they are holding, around 283,102 ounces out of a total of about 707,000. That is about 40 percent of the total registered gold. I thought they were trying to get out of that business of storing and dealing gold.
However this turns out, I suspect we will not see the details of what has been going on up close. But my opinion is that it will be advisable for traders to start settling up now as best they can, and not try to get lucky and skin a few more dollars out of a market whose fundamental structure is starting to look dangerously unstable.
And if I were in the Exchange or the Regulator, I would not hope to stand quietly behind the fig leaf of my disclaimers and otherwise-too-busy-to-look-and-understaffed life, and start giving a look at what the heck is going on behind closed doors. Maybe I am wrong, but I see smoke starting to come out of the cracks and seams.
It looks to be about one significant event away from a serious debacle that could prove to be highly embarrassing to a number of Very Serious People. Not to mention otherworldly economists, bankers, and pundits who dwell in the realms of well spun models land.
But what do I know. I am just a humble proprietor of my little domain.
Have a pleasant evening.
Turd.....
More Deception at The Comex
This latest move is so brazen in its audacity, even I am stunned. But, since no one else is talking about it, maybe I'm just crazy. Let me lay it out for you and you can decide for yourself.
OK, before we get started, we'd better go back and cover the basics.
The Comex is a futures exchange that does, occasionally, make physical deliveries. To provide for these deliveries, five banks maintain depository vaults in New York. Updates on the daily changes to the amount of metal in these vaults is provided by The CME Group, which owns The Comex, and can be found here: http://www.cmegroup.com/trading/energy/nymex-delivery-notices.html
Within these vaults, metal is delegated to two categories, eligible and registered.
- Eligible metal is metal being vaulted at the bank warehouse but NOT eligible to be used in the delivery process.
- Registered metal is metal that is recognized by the CME as available for good delivery against futures contracts.
I went searching for a concise explanation of the eligible/registered process and, in the short time I had this morning, the best article I found comes from BullionVault. The article was meant to downplay the significance of declining Comex stocks. Many folks, myself included, would disagree with the author's conclusion. Regardless, that's a topic for another day. In this instance, what's helpful is the background info the author provides. The full link is here but please read through the C&P below: http://goldnews.bullionvault.com/comex-gold-stocks-072420136
First question: How does gold get into warehouse stocks of the futures exchange? Although it's a lengthy process, the answer is actually quite simple. Gold is recovered either from mine output or scrap jewelry and other products, such as bars and coins, at a refinery. The refiner then produces gold bars to the standard and specification of the exchange, in this case the CME Group.
These gold bars belong either to the refiners themselves, meaning they have bought and own the gold. Or they belong to the refiner's customers, who bought and owned the gold at the refinery, hiring it to make that metal into saleable bars.
Now, for this particular refinery to deliver metal onto the commodities exchange, it must be a registered acceptable brand, such as Heraeus, Johnson Matthey or Metalor Technologies to name a few.
Once these gold bars are produced, the metal must then be transported to the warehouse by exchange-approved carriers such as Brinks Inc., Via Mat International or IBI Armored Inc. There is no other way for the gold to get onto the exchange. Gold may move between Comex-approved warehouses, such as those operated by HSBC Bank, Brinks Inc., and Scotia Mocatta Depository. But any moves made between these warehouses must be made using the same approved carriers. No gold can enter the marketplace from outside of this refining loop.
Once gold is removed from an exchange-approved warehouse and held somewhere outside of this circle of integrity, there is no way for the CME exchange to guarantee the bar's quality. This means that once a person or investor removes bars from the warehouse, then to return them to the exchange they would need to start at the beginning again. By going through the hands of the gold processor and refiners, this provides guarantee of the standard and quality of the material being delivered on the exchange.
These gold bars belong either to the refiners themselves, meaning they have bought and own the gold. Or they belong to the refiner's customers, who bought and owned the gold at the refinery, hiring it to make that metal into saleable bars.
Now, for this particular refinery to deliver metal onto the commodities exchange, it must be a registered acceptable brand, such as Heraeus, Johnson Matthey or Metalor Technologies to name a few.
Once these gold bars are produced, the metal must then be transported to the warehouse by exchange-approved carriers such as Brinks Inc., Via Mat International or IBI Armored Inc. There is no other way for the gold to get onto the exchange. Gold may move between Comex-approved warehouses, such as those operated by HSBC Bank, Brinks Inc., and Scotia Mocatta Depository. But any moves made between these warehouses must be made using the same approved carriers. No gold can enter the marketplace from outside of this refining loop.
Once gold is removed from an exchange-approved warehouse and held somewhere outside of this circle of integrity, there is no way for the CME exchange to guarantee the bar's quality. This means that once a person or investor removes bars from the warehouse, then to return them to the exchange they would need to start at the beginning again. By going through the hands of the gold processor and refiners, this provides guarantee of the standard and quality of the material being delivered on the exchange.
So with the gold inside the warehouse, second question: When is the gold considered eligible or registered on the commodities exchange?
Answer: When acceptable bars are brought into an exchange-approved warehouse they become "eligible" for settlement of gold futures contracts traded on the exchange. So at this point, the owner of the bars may deliver them onto the exchange, and warehouse receipts are created. That is when the gold bars become "registered" stocks.
Eligible gold stocks may or may not ever become registered stocks. Why? Because the warehouse is still a warehouse and the owner may simply want to vault their metal securely, before using it to meet demand elsewhere – for manufacturing, or from investors in another marketplace, such as Asia. This eligible gold may belong to an investor, a refiner, a hedge fund, a bank or producer. Many times these people are holding the metal for their end customers. And it may move at any time, and is much more flexible than the warehouse receipts that are registered stocks.
The CME, the exchange, does not have any direct control over nor interest in the size of eligible stocks. Registered stocks however are officially recognized by the CME for good delivery on the exchange. That means that this inventory exists and is set aside to make delivery against gold futures contracts. Traders who stand for delivery, rather than cash payment, when their contract settles take delivery of the warehouse receipt. This does not change the quantity of registered stocks inside the warehouse. It remains registered, but the receipt changes ownership.
If a gold futures buyer wants to take physical delivery of the gold and "break" the receipt then this is possible. But it is a process and takes time. Once broken, if the gold remains in the exchange circle of integrity – meaning the exchange-approved warehouse – then those bars become eligible stocks. But if the gold bars are removed from the exchange-approved warehouse then they no longer are eligible and are no longer tracked in any way.
Third question then: How do the warehouse receipts work?
A warehouse receipt is a bearer instrument much like a check. It can be endorsed from one party to another. The holder of the receipt pays the storage costs. Most times when people take delivery of a warehouse receipt they leave it with their brokers. In some cases people may want to take possession of the warehouse receipt themselves. This is rare, just like with equity or bond certificates; no one actually takes delivery of the documents any longer. But it is still possible for a fee.
If a person owns a warehouse receipt, the gold that it represents is still in the registered stocks, even if they have taken physical delivery of the document. They can always redeliver these receipts onto the exchange by selling contracts.
Answer: When acceptable bars are brought into an exchange-approved warehouse they become "eligible" for settlement of gold futures contracts traded on the exchange. So at this point, the owner of the bars may deliver them onto the exchange, and warehouse receipts are created. That is when the gold bars become "registered" stocks.
Eligible gold stocks may or may not ever become registered stocks. Why? Because the warehouse is still a warehouse and the owner may simply want to vault their metal securely, before using it to meet demand elsewhere – for manufacturing, or from investors in another marketplace, such as Asia. This eligible gold may belong to an investor, a refiner, a hedge fund, a bank or producer. Many times these people are holding the metal for their end customers. And it may move at any time, and is much more flexible than the warehouse receipts that are registered stocks.
The CME, the exchange, does not have any direct control over nor interest in the size of eligible stocks. Registered stocks however are officially recognized by the CME for good delivery on the exchange. That means that this inventory exists and is set aside to make delivery against gold futures contracts. Traders who stand for delivery, rather than cash payment, when their contract settles take delivery of the warehouse receipt. This does not change the quantity of registered stocks inside the warehouse. It remains registered, but the receipt changes ownership.
If a gold futures buyer wants to take physical delivery of the gold and "break" the receipt then this is possible. But it is a process and takes time. Once broken, if the gold remains in the exchange circle of integrity – meaning the exchange-approved warehouse – then those bars become eligible stocks. But if the gold bars are removed from the exchange-approved warehouse then they no longer are eligible and are no longer tracked in any way.
Third question then: How do the warehouse receipts work?
A warehouse receipt is a bearer instrument much like a check. It can be endorsed from one party to another. The holder of the receipt pays the storage costs. Most times when people take delivery of a warehouse receipt they leave it with their brokers. In some cases people may want to take possession of the warehouse receipt themselves. This is rare, just like with equity or bond certificates; no one actually takes delivery of the documents any longer. But it is still possible for a fee.
If a person owns a warehouse receipt, the gold that it represents is still in the registered stocks, even if they have taken physical delivery of the document. They can always redeliver these receipts onto the exchange by selling contracts.
OK, hopefully this all makes sense because now I'm going to present to you the problem. In the article and on the CME website, the notion of paper gold is never addressed. Yes, there are warehouse receipts that some fools willingly accept at delivery, thinking they have a claim to actual gold. BUT...the metal that is "held for storage" in the depositories is assumed to be REAL METAL, held there on behalf of REAL CLIENTS. Registered gold backstops the delivery process of the exchange. Eligible gold may, one day, become registered and ready for delivery. More likely, it is simply being vaulted at the depository for safekeeping. Please take a moment to go back up and re-read the BullionVault piece, paying particular attention to the sentences I've underlined.
As mentioned above, each afternoon the CME Group issues a "Gold Stocks" and "Silver Stocks" report. Some typical reports are posted below. Note how some days there is minimal activity and some days have significant activity. However, note the attention to detail. All bars are assayed and weighed to within thousandths of an ounce.
First, let's study the report from October 8, 2013. Click on it to enlarge it and notice that vault movements are all measured in thousandths of a troy ounce. For example, on this day Brinks received into their registered vault 1,699.940 troy ounces and JPMorgan saw 708.704 ounces removed from their eligible vault.
Below are two other reports, dated 9/30/13 and 10/17/13. Again, note the precision of the measurements as great caution is apparently taken to ensure that the metal is properly logged and accounted for.
So, now, here's where the fun starts. Back on Friday, we noted an unusually large addition to the JPMorgan eligible vault. The sheer size of it caught my eye and you can see it on the report below. Note the other reported vault movements that day and then see if anything about the JPM data catches your eye.
Hmmmm....While HSBC and Scotia posted the usual moves in thousandths of an ounce, the JPM eligible addition is a flat, round number. Not only that, the round number in question is 192,900.000 troy ounces. What is so significant about that number? Well, the generally-accepted number of ounces in a metric ton is 32,150. If you multiply that number by six, you get 192,900. So, last Friday, JPMorgan booked into their eligible account exactly and precisely six metric tonnesof gold. Now, maybe by some magical occurrence they weighed and assayed each bar and the total amazingly came to 192,900.000 but to me that seems statistically improbable. But with no access to the vaults we're left with simply taking their word for it.
Imagine my disgust shock when I saw the next gold stocks report on Monday. Not only did JPMorgan magically book in another precise and round number, the actual increase in eligible gold was reported as 96,450.000 ounces. You're probably pretty good with math so I imagine you've already figured out that that is precisely three metric tonnes. Willing (forced) to give JPM the benefit of the doubt on Friday, we can no longer do so here. EXACTLY SIX METRIC TONNES ON FRIDAY. EXACTLY THREE METRIC TONNES ON MONDAY.
And then we get to yesterday. After a non-event, empty report on Tuesday, what do you think we saw yesterday? Could JPMorgan have the audacity to report another round number multiple of one metric ton? Nope. They simply reported one metric ton! Again, nothing to the right of the decimal point. Just 32,150.000 troy ounces, exact and on the nose.
So what do we make to of this? We're supposed to believe that, over the last four days, JPMorgan has brought in EXACTLY 10 metric tonnes of gold into their eligible account. In precise and detailed fashion, this massive deposit of gold from a customer(s) measured out to be exactly 321,500.000 troy ounces. RRRrrrrright.....Only the most ardent Cartel apologist and disinfo agent would be willing to swallow that one.
Here's what I think is going on:
- The deposits are bullshit. Either completely fabricated and falsified OR simple paper claims. It's one or the other due to the simple statistical improbability of three consecutive round numbers totaling exactly 10 metric tonnes.
- Recall that back in 2007, Morgan Stanley paid $4.4MM to customers to settle a lawsuit brought by customers who had been charged storage fees on paper metal.http://www.reuters.com/article/2007/06/12/idUSN1228014520070612
- Is JPMorgan pulling the same trick now? Given the laundry list of their other fines since 2011, I wouldn't put it past them. http://www.thedailybeast.com/articles/2013/05/08/jpmorgan-chase-s-crazy-fine-tally.html
- If this isn't another JPM client-screwjy awaiting a lawsuit, then The Comex and, by extension The CME Group, is allowing JPMorgan to fraudulently goose their warehouse stocks ahead of the all-important December delivery period to give a false impression of solvency. The World Gold Council-owned BullionVault may not think that the lowest stocks since 2005 is a big deal but plenty of other folks due, most notably Jesse. He's been diligently tracking the daily changes for months. Click this latest update and be sure to review the charts:http://jessescrossroadscafe.blogspot.com/2013/10/tremors-and-warnings-in-gold-market.html
- Lastly, the brazenness of the operation must be noted. No effort is made to conceal it. The CME Group simply reports the statistically-outrageous numbers and no one notices or cares. We're just supposed to believe that JPMorgan's eligible vault can nearly double in size in just over two weeks and that's all fine, dandy and business as usual.
Well, it's NOT business as usual. The extraordinary and counter-intuitive price raids, the massive depletion of the GLD, persistent backwardation in the GOFO rates and JPMorgan's cornering, 70,000-contract, NET LONG gold futures position all warn you that we are in uncharted territory and major changes are afoot. This eligible gold deception currently being employed by The Comex is just another indicator.
By the looks of it, the end of the fractional reserve bullion banking system is rapidly approaching. Keep stacking and prepare accordingly.
TF
Gata.......
World Gold Council responds to Sprott's criticism of demand data
Submitted by cpowell on Thu, 2013-10-24 19:42. Section: Daily Dispatches
2:40a ICT Friday, October 25, 2013
Dear Friend of GATA and Gold:
Brendan Conway of Barron's reports today on what seems like a rather restrained response by the World Gold Council to the open letter from Sprott Asset Management CEO Eric Sprott criticizing the council's gold demand data:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Gold Anti-Trust Action Committee Inc.
Kitco.......
Andrew Maquire becoming a lightning rod for sure.....
Pro....
(Kitco News) - The organization that brought forward the claims of manipulation in the silver market are standing behind their source.
Bill Murphy, chairman of the Gold-Anti Trust Action committee, sat down with Kitco News’ Daniela Cambone to respond to allegations made on Thursday about the background of whistleblower Andrew Maguire.
Murphy said that he didn’t go into Maguire’s background after he came to GATA with evidence that the silver market was being manipulated. However he added that Maguire is a "delightful man" and a "class act."
In 2009, Maguire alleged to the CFTC and GATA that the silver markets are manipulated and knew two JPMorgan Chase sources to prove it.
"As far as I know, what he told me is true. If he is faking it, he is awfully good at it," said Murphy.
GATA is largely responsible for putting Maguire in the spotlight of the precious metals market. In 2010, Murphy testified before the Commodity Futures Trading Commission and referred to Maguire’s background as a London metals trader and former Goldman Sachs employee. Maguire was also the keynote speaker at the committee’s Gold Rush Conference held in London in 2011.
However, during a presentation Thursday at the silver summit, CPM's Jeff Christian alleged Maguire has no background as a metals trader.
Christian made the allegations about the whistleblower's background after he was recently approached by Maguire's ex-wife. Maguire and his first wife were married for more than 30 years and have two children together. According to Christian and the information provided by Maguire’s ex-wife, Maguire’s background is in vehicle car leasing.
Con.......
(Kitco News) - (Spokane) -- The famed whistleblower who allegedly told U.S. regulators that gold and silver prices are manipulated by the likes of JPMorgan Chase has no background as a metals trader, according to precious metals research firm CPM Group.
Andrew Maguire, presented in the media and on his current employer’s website as a trader with more than 30 years of experience, actually has no real trading experience, alleged CPM’s managing director Jeff Christian during his presentation Thursday at the Silver Summit in Spokane. Rather, Christian said, Maguire’s background is in vehicle car leasing.
Speaking to a crowd of 60-strong, Christian exposed, at the end of his silver market presentation, what he considers Maguire’s true employment history.
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CPM Group’s Jeff Christian addresses the crowd during his presentation Thursday at the Silver Summit.
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Christian said he was approached with the information by a source very close to Maguire – his ex-wife. Maguire and his first wife were married for more than 30 years and have two children together.
Kitco News caught up with Christian on the sidelines of the conference to discuss his allegations. According to Christian, Maguire’s ex-wife walked him through a timeline that dates to their marriage in 1989 when he moved with his family to Canada and started a vehicle leasing company called Custom Lease Capital Inc.
“It was successful for about four years, until Maguire decided to franchise the company. The company did not succeed and closed within two years. After the failed auto leasing company Maguire took and passed the Canadian Securities Course and started day-trading his own money,” Christian said, recounting what Maguire’s first wife said. “This was toward the tail end of the internet bubble, and according to his former spouse, his performance was ‘dismal,’ ” he added.
Christian said that at first glance the story sounded like that of a scorned ex-wife. However, when he began fact-checking her claims he realized each one was accurate. Christian said she approached him after seeing the CBC documentary, The Secret World of Gold, which aired in April 2013 – it featured Maguire being presented as an experienced trader and is quoted as saying “precious metals are his children.”
Christian said Maguire’s ex-wife decided to come clean with what she considers Maguire’s real past. He explained she contacted him after an Internet search revealed Christian is a longstanding skeptic of the whistleblower’s claim that he had worked in the metals trading industry.
“When he came forward in 2010 – I said this guy doesn’t sound real,” Christian told Kitco News on the sidelines of the conference. “In 2010 GATA and fringe groups in the precious metals markets brought forth a person named Andrew Maguire. They claimed he had decades of experience at Goldman Sachs as a precious metals trader in London. He came out with outrageous claims, but offered no proof of any of them. He sounded like an attention-seeking fraud to us at the time, and we said so,” Christian said.
“No one in the precious metals trading community in London or New York had ever heard of him. Goldman Sachs and J. Aron had no record of ever employing him. The LBMA had no records of him. When major news organizations approached him to write about his allegations of market manipulation and asked him to credentialize himself, to prove he was really a bullion trader at a major bank, he refused every time to provide any evidence he really was a trader,” he added.
The tumultuous past between GATA and Christian dates back to when they debated each other over the topic of silver manipulation during the 2011 Silver Summit. The debate was broadcast by Kitco News. GATA, short for the Gold Anti-Trust Action Committee, believes the prices of gold and silver are rigged, whereas Christian firmly disputes this.
GATA brought Maguire to the forefront, stating he had been told first-hand by silver traders at JPMorgan who were bragging about making money by manipulating precious metals markets. GATA’s Bill Murphy later presented Maguire’s evidence to the CFTC in 2010.
Maguire is also featured in the book Why Gold's Inevitable Rise Is the Investor's Safe Haven. In the book he is referenced as a former “Goldman Sachs trader-turned whistleblower.” The book states: “Maguire gained recognition by being the first trader to successfully inform the Commodity Futures Trading Commission (CFTC) of an orchestrated attack on the silver market moments before it occurred.”
Maguire is also featured in the book Why Gold's Inevitable Rise Is the Investor's Safe Haven. In the book he is referenced as a former “Goldman Sachs trader-turned whistleblower.” The book states: “Maguire gained recognition by being the first trader to successfully inform the Commodity Futures Trading Commission (CFTC) of an orchestrated attack on the silver market moments before it occurred.”
Kitco News contacted Commissioner Bart Chilton of the CFTC to address some of Christian’s allegations. Chilton responded via email that at the time he had no further comments on the silver market or anything related to it.
Andrew Maguire was unavailable for comment as of press time. Maguire’s current employer’s website states: “Andrew is an accomplished veteran of the markets. He has 30 years trading experience, both as an institutional and independent trader, the last 19 years of which have been as a metals specialist.”
In September, the CFTC closed its five-year investigation into the alleged silver price manipulation. In its report the agency said it found no evidence to charge any firm or employees with wrongdoing.
Click to enlarge the image.
(Kitco News) - The bad news for the gold market -- India is not importing as much metal as usual during the run-up ahead of the Diwali gift-giving season, analysts said.
The good news – at least strong demand from China is making up for some of the slack. Also, Indians still want gold, as reflected by soaring premiums; they just can’t get it easily due to government restrictions, implying that the demand will still be there in future years when or if onerous rules are lifted or pared back.
Gold historically has risen from late summer into year-end as demand for physical metal picks up ahead of a number of gift-giving holidays around the world. In particular, this includes the autumn festival season in India, with Diwali starting on Nov. 3.
This year, however, gold is actually down from where it was as of the end of August.
This is occurring during a backdrop in which authorities in India, historically the world’s largest gold-consuming nation, are trying to curtail imports to combat large current-account and trade deficits. The country has hiked the import tariff on gold to 10% and initiated a so-called 80/20 rule that requires importers to export at least 20% of their imports as jewelry.
“It’s making it very difficult for anybody to buy gold,” said Bernard Sin, global head of precious metals trading with MKS (Switzerland) SA.
On top of this, the deficits have helped pressure the Indian rupee to record lows, making gold more expensive to Indians in their local currency.
“It’s clearly having a negative effect on the flow of imports into India, even accounting for some growth in smuggling activity since the imposition of the higher import duties and the 80/20 regulations,” said Jeffrey Nichols, managing director of the consultancy American Precious Metals Advisors and senior economic consultant for Rosland Capital.
Gold was the No. 1 imported item by India last year, outranking oil, said Jim Steel, analyst with HSBC. However, as of Monday, an official with the All India Gems & Jewelry Trade Federation was quoted as saying imports were probably only 5 metric tons so far in October.
To put that into perspective, World Gold Council data listed India’s demand at 864.2 metric tons for full-year 2012, which would work out to an average of 72 tons a month.
“This now makes China all the more important,” Steel said. “China is now by far way out in front as the world’s largest gold-consuming country, with India on sort of a hiatus.”
“This now makes China all the more important,” Steel said. “China is now by far way out in front as the world’s largest gold-consuming country, with India on sort of a hiatus.”
And, he continued, China’s demand has been strong overall in 2013. It has cooled some in recent months, but this was from “white hot” levels earlier in the year, Steel said.
The Gold Council listed China’s 2012 demand at 776.1 tons. The next quarterly World Gold Council report on supply/demand trends may well show China has already exceeded the 2012 tally in just three quarters of 2013, as the combined total for the first two quarters was already 588.9 tons.
“The Chinese have been consistently buying the market,” Sin said. “They have been one of the big boys supporting the market, for sure. The last wave of selling that we saw in the market last week was bought by the Chinese. There is still good demand out of Asia. If India was buying as much as the Chinese, the market would have been at $1,400 by now.”
“The Chinese have been consistently buying the market,” Sin said. “They have been one of the big boys supporting the market, for sure. The last wave of selling that we saw in the market last week was bought by the Chinese. There is still good demand out of Asia. If India was buying as much as the Chinese, the market would have been at $1,400 by now.”
Time will tell how long the Indian import restrictions continue.
“I don’t think anybody really knows how it’s going to unfold,” Nichols said. “What we do know is that the Indians love gold, and that’s not going away.”
Added Steel: “We’ll have to see the wider economic climate in India and whether that allows the government to tinker with this. Right now, India is sort of starved of imports.”
Indian Gold Premiums Soar On Lack Of Metal
Gold premiums in India have soared as consumers compete to get their hands on a more limited supply, analysts said.
“Premiums are very high,” Steel said. “But that doesn’t necessarily mean the gold is going in. I’m sure the domestic demand remains strong, but imports have fallen off to very, very low levels.”
Analysts reported that gold premiums have been around $100 an ounce ahead of Diwali, reportedly once even getting as high as $140.
“Even with such high premiums, nobody can import,” Sin said. “You can see Indians are buying. They’re really paying up. It shows they are desperate.”
Nichols commented that the gold market has probably already factored into prices the reduced buying from India this year. He also described this as a “temporary” problem.
Nichols commented that the gold market has probably already factored into prices the reduced buying from India this year. He also described this as a “temporary” problem.
“Clearly, the Indian people have a strong desire to continue accumulating gold. It has a long history of not only attachment to gold, but smuggling gold. In past decades, there were also periods of restrictions against imports, but they took place nevertheless. I think over time, the smuggling of gold will simply grow to match the demand.”
Nichols listed a number of reasons for the affinity to gold in India.
“To some degree, it’s a religious and cultural phenomenon that goes back many, many centuries,” Nichols explained. Indians consider it “fortuitous” own gold, he continued. Also, those living in rural areas may not have ready access to alternative forms of savings or banking institutions, he continued.
“A majority of the gold purchases is bought by the agrarian sector…not just farmers but the shopkeepers and others who live and work in farming regions,” he continued. “When income is up in the agrarian sector, historically we tend to see a rise in imports. And this has been a good year for harvest income for farmers and the agrarian sector in general.”
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