Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Saturday, December 21, 2013
Gold and silver news , data ( GLD ETF sees 5.4 tons of gold added by an authorized participant - first time in many months - whom and why now , some may be wondering ) and views - December 21 , 2013 - Ed Steer's Saturday Report - with the gold and precious metal data and news updates always provided by Ed - Articles linked include Doug Noland's Friday missive and many additional thought provoking items to ponder this weekend !
There was a bit of a rally in gold during early trading in the Far East on their Friday, but by early afternoon it had petered out. The gold price didn't do much after that until the London p.m. gold fix. That rally took the gold price back above the $1,200 spot price mark. At that point, either the rally got capped, or the buyer disappeared. Gold traded flat for the remainder of the Friday session in New York.
The CME recorded the low and high ticks at $1,188.00 and $1,206.90 in the February contract.
Gold closed on Friday at $1,203.50 spot, up $15.70 on the day. Net volume was pretty decent at 153,000 contracts.
Silver didn't do much yesterday, although it did participate in the rally at the London p.m. gold fix---and then, like gold, traded more or less flat into the close of electronic trading in New York. But as I mentioned in The Wrap in yesterday's column, the silver price did set a new low price for this move down shortly before the London open.
Silver's low and high price ticks were $19.13 and $19.52 in the March contract.
The silver price closed on Friday at $19.415 spot, up 16.5 cents from Thursday's close. Net volume, like in gold, was also pretty decent at 39,000 contracts.
Platinum rallied slowly and quietly right up until 11 a.m. in New York---and then traded flat for the rest of the day. The palladium price was comatose all day. Here are the charts.
The dollar index closed in New York at 80.65 on Thursday afternoon. When it opened in Far East trading on their Friday, it rallied in fits and starts until its 80.81 high, which came at 8:30 a.m. EST. Then down it went to its 80.44 low at around 10:40 a.m. in New York. From that low, it rallied a bit into the close. The index finished the Friday session at 80.56---which was down 9 basis points from its Thursday close.
The CME's Daily Delivery Report showed that 402 gold and 13 silver contracts were posted for delivery on Tuesday within the Comex-approved depositories. The two big short/issuers were Jefferies with 333 contracts and Canada's Bank of Nova Scotia with 57 contracts. Of course the only long/stopper of note was JPMorgan Chase with 385 contracts in its in-house [proprietary] trading account. The 13 silver contracts were stopped by JPM and Canada's Scotiabank. The link to yesterday's Issuers and Stoppers Report is here.
Much to my amazement, an authorized participant deposited 173,612 troy ounces in GLD yesterday. If you're looking for an explanation as to why that happened, I don't have one. And as of 6:41 p.m. EST yesterday evening, there were no reported changes in SLV.
While on the subject of SLV, Joshua Gibbons, the "Guru of the SLV Bar List", updated his website with the numbers they reported as of the close of business on Wednesday---and here's what he had to say: "Analysis of the 18 December 2013 bar list, and comparison to the previous week's list---3,369,375.1 troy ounces were removed (all from Brinks London), no bars were added or had a serial number change. The bars removed were from: Nordeutsche (0.9M oz), Korea Zinc (0.6M oz), Met-Mex (0.5M oz), and 13 others. As of the time that the bar list was produced, it was overallocated 734.0 oz. All daily changes are reflected on the bar list." The link to Joshua's website is here.
The U.S. Mint had another sales report. They sold 3,500 ounces of gold eagles and 1,500 one-ounce 24K gold buffaloes. They didn't report selling any silver eagles.
It was another busy day for gold over at the Comex-approved depositories on Thursday, but it was all intra-warehouse transfers, as 63,602 troy ounces were shipped out of HSBC USA and Scotia Mocatta---and into the vaults of JPMorgan Chase. The link to that activity is here.
It was equally busy in silver, but most of it came in the door, as 1,222,110 troy ounces were reported received---and a tiny 3,004 troy ounces were shipped out. The link to that action is here.
Well, yesterday's Commitment of Traders Report, at least in silver, wasn't what I was expecting.
In silver, the Commercial net short position actually increased by 1,713 contracts, or 8.6 million troy ounces. The Commercial net short position now stands at 96.2 million ounces. I asked Ted why the numbers weren't what we were expecting---and he said that it was probably the fact that some of the price/volume data from the prior reporting week's big rally in silver wasn't reported in a timely manner during that week. That data, which was obviously quite a bit, when added to the data from the current reporting week, resulted in the unhappy surprise when I first saw yesterday's COT Report. Ted also said that JPMorgan's short-side corner in the Comex futures market in silver didn't show much, if any, change---and still sits at around 13,000 contracts, or 65 million ounces.
In gold, there actually was an improvement in the Commercial net short, but it was a smallish 1,863 contracts, or 186,300 troy ounces. The Commercial net short position in gold is now down to 2.71 million ounces. Ted says that it appear that JPMorgan Chase expanded their long-side corner in the Comex gold market by about 3,000 contracts during the reporting week, and their long position right now is around 68,000 contracts, or 6.8 million troy ounces.
If the markets don't blast off on either Monday or Tuesday, the full effect of the engineered price declines in both silver and gold on Wednesday and Thursday will be apparent in the next COT Report which, because of Christmas Day, won't be posted on the CFTC's website until Monday, December 30. So, once more, we wait.
Since yesterday was the 20th of the month, The Central Bank of the Russian Federation updated their website with their November data---and for the fourth month in a row they showed no change in their gold holdings, which still stand at 32.6 million ounces. As I opined last month, it wouldn't surprise me in the slightest of they were pulling a "China"---buying their own production, but not reporting it. That's pure speculation on my part, but it would certainly fit everything else that's going on in the gold world at the moment. Here's Nick Laird's updated chart.
I have the usual number of stories for a Saturday column, plus a few extras because of the subject material or length, that I've been saving just for today.
December 20 – Financial Times (Simon Rabinovitch): “An emergency cash injection by the Chinese central bank failed to calm the country’s lenders as money market rates climbed to dangerously high levels. Analysts cited a variety of technical factors for the tightness in the Chinese financial system, but the sudden run-up in rates was an uncomfortable echo of a cash crunch that rattled global markets earlier this year. Investors were alarmed at the potential for a repeat of that squeeze. The Shanghai Composite, the country’s main equities index, fell 2%. The nine-day decline for Chinese stocks is their worst losing streak in nearly two decades. Concerns focused on the rates at which Chinese banks lend to each other. The seven-day bond repurchase rate, a key gauge of short-term liquidity, was emblematic of their reluctance to part with cash. It averaged 7.6% in morning trading on Friday, its highest since the crunch that hit China in late June. That was up 100 bps from Thursday and far above the 4.3% level at which it traded just a week ago. The sharp increase occurred despite the central bank’s highly unusual decision to conduct a ‘short-term liquidity operation’ on Thursday… The China Business News… reported that the short-term injection was worth Rmb200bn ($33bn), a large amount… Lu Ting, an economist with Bank of America Merrill Lynch, said China’s financial system was entering a new era and policy makers were struggling to adapt. ‘The PBoC is faced with some serious challenges . . . and is confused,’ he said. ‘The PBoC finds it much more likely than before to make [operational] mistakes.’”
Global markets convulsed back in May/June as the Fed moved to prepare the world for less QE and Chinese officials finally decided to more forcefully clampdown on China’s runaway Credit and asset Bubbles. Respective domestic fragilities coupled with global fragilities saw both the Fed and Chinese in quick “tightening” retreat. And in both cases Bubble excesses bounced right back stronger and more unwieldy than ever. Global markets must now again face the prospect of major uncertainties, as the Fed and Chinese make a second attempt at confronting Bubble issues. The bullish consensus view holds that the markets have moved beyond taper fears. In response, I’ll say “follow the ‘money’” and fear what is unfolding in China.
Despite the "don't worry, be happy" reactions out there, there are deep structural problems with a planet-wide credit bubble that has been blown out this large. And once it starts to crack/implode, it will take more than the Fed's money machine to save it...and the $10 billion/month worth of easing won't buy you a cup of coffee by the time the smoke clears. All Doug's weekly Credit Bubble Bulletin commentaries are worth reading...and this one is as well. It was posted on theprudentbear.com Internet site yesterday evening...and I thank reader U.D. for sending it our way.
This week the Federal Reserve System will celebrate the 100th anniversary of its founding. Resulting from secret negotiations between bankers and politicians at Jekyll Island, the Fed’s creation established a banking cartel and a board of government overseers that has grown ever stronger through the years. One would think this anniversary would elicit some sort of public recognition of the Fed’s growth from a quasi-agent of the Treasury Department intended to provide an elastic currency, to a de facto independent institution that has taken complete control of the economy through its central monetary planning. But just like the Fed’s creation, its 100th anniversary may come and go with only a few passing mentions.
Like many other horrible and unconstitutional pieces of legislation, the bill which created the Fed, the Federal Reserve Act, was passed under great pressure on December 23, 1913, in the waning moments before Congress recessed for Christmas with many Members already absent from those final votes. This underhanded method of pressuring Congress with such a deadline to pass the Federal Reserve Act would provide a foreshadowing of the Fed’s insidious effects on the US economy—with actions performed without transparency.
This short commentary by Ron was posted on the Zero Hedgewebsite early yesterday afternoon EST...and it's certainly worth reading if you have the time. I thank reader M.A. for sharing it with us.
Lawsuits claiming Saudi Arabia aided al-Qaeda and should be held liable for the Sept. 11, 2001, terrorist attack was revived by a U.S. appeals court in a decision that allows victims and their families another chance to seek compensation from the kingdom.
The U.S. Court of Appeals in New York yesterday said a lower-court judge “rested on an error of law” in rejecting a request to reopen the cases against the country’s government and an affiliated charity.
“We conclude that the circumstances of this case are extraordinary,” warranting its re-opening the three-judge panel said in the ruling. The case will be returned to the lower-court judge for consideration as to whether it should move forward.
This news item was posted on the Bloomberg website late Thursday evening MST...and I thank U.A.E. reader Laurent-Patrick Gally for finding it for us.
As a general rule, extreme economic decline is almost always followed by extreme international conflict.Sometimes, these disasters can be attributed to the human survival imperative and the desire to accumulate resources during crisis. But most often, war amid fiscal distress is usually a means for the political and financial elite to distract the masses away from their empty wallets and empty stomachs.
War galvanizes societies, usually under false pretenses. I’m not talking about superficial “police actions” or absurd crusades to “spread democracy” to Third World enclaves that don’t want it. No, I’m talking about REAL war: war that threatens the fabric of a culture, war that tumbles violently across people’s doorsteps. The reality of near-total annihilation is what oligarchs use to avoid blame for economic distress while molding nations and populations.
Because of the very predictable correlation between financial catastrophe and military conflagration, it makes quite a bit of sense for Americans today to be concerned. Never before in history has our country been so close to full-spectrum economic collapse, the kind that kills currencies and simultaneously plunges hundreds of millions of people into poverty. It is a collapse that has progressed thanks to the deliberate efforts of international financiers and central banks. It only follows that the mind-boggling scale of the situation would “require” a grand distraction to match.
This very well reasoned and very well written essay was posted on the Zero Hedge website on December 13th, but my column from the previous Saturday had already been posted on the Casey Research Internet site by the time that South African reader B.V. had slid this into my in-box on Saturday morning. This is a must read for sure...and an absolute must readfor all serious students of the New Great Game. This essay could have been taken right out of G. Edward Griffin's book "The Creature From Jekyll Island: A Second Look at the Federal Reserve".
The European Union lost its top credit rating from Standard & Poor’s, which cited the deteriorating creditworthiness of the bloc’s 28 member nations.
S&P cut its long-term rating on the EU to AA+, with a stable outlook, from AAA and maintained its short-term rating at A-1+. The downgrade came after S&P last month lowered its AAA rating on the Netherlands.
Investors often ignore ratings, as evidenced by the rally in Treasuries after the U.S. lost its top grade at S&P in 2011. Yields on sovereign securities last year moved in the opposite direction from what ratings suggested in more than half of 32 upgrades, downgrades and changes in credit outlook, according to data compiled by Bloomberg.
This is all b.s. of course, as the credit ratings of virtually all nations on earth are deeply buried in the "junk" category, regardless of what the rating agencies say. It's such a farce. ThisBloomberg story, filed from Beijing, was posted on their website early yesterday morning MDT...and it's courtesy of West Virginia reader Elliot Simon.
China’s central bank has rushed to pump money into the stalling banking system but markets across Asia still fell sharply amid fears that the world’s second-largest economy faces a credit crisis.
Cash rates on China’s money markets jumped after the move by the People’s Bank of China (PBOC) to ease a liquidity squeeze on banks. Both the Shanghai Composite Index and Hong Kong’s Hang Seng Index also fell amid concerns over structural problems in China’s financial system.
The Chinese seven-day bond repurchase rate, which essentially measures liquidity in the financial system, climbed to 7.6pc its highest since fears over a banking crisis in China first emerged over the summer.
State media in China had reported that the PBOC has unexpectedly pumped $33bn (£20bn) into the domestic money market through what it refers to as “short-term liquidity operation”.
This is a news item that Doug Noland referred to in today's first story. He was quoting the subscriber-protected Financial Times. Here it is in the clear over at the telegraph.co.uk Internet site. It was posted there late Friday morning GMT...and it's definitely worth reading.
Gold volumes for the benchmark cash contract on the Shanghai Gold Exchange, China's biggest spot bullion market, climbed to a 10-week high as a price slump spurred buying.
The volume for bullion of 99.99 percent purity climbed to 19,775 kilograms yesterday, the biggest since Oct. 8, from 13,673 kilograms the previous day, according to exchange data compiled by Bloomberg. That compared with a record 43,272 kilograms reached on April 22. Prices fell today for a third day, losing as much as 2.1 percent to 235.85 yuan a gram ($1,208 an ounce), the lowest since February 2010.
The surge underscores robust demand in the nation set to overtake India as the largest user. When gold entered a bear market in April, demand for jewelry and bars surged in Asia, even as other investors cut holdings in exchange-traded products at a record pace. Bullion in London rebounded after yesterday tumbling below $1,200 an ounce for the first time since June on Federal Reserve's plans to start trimming stimulus.
This Bloomberg article, co-filed from Singapore and Beijing, was posted on their Internet site late on Thursday evening Denver time. I found it embedded in a GATA release yesterday.
Gold Forecaster editor Julian Phillips provides an excellent analysis of the various interests behind gold market manipulation, the venues where it can take place, and its likely consequences.
Phillips concludes: "Gold price manipulation is a matter of history. It happened, it happens and, so long as both governments and bankers resent and oppose the discipline gold forces on paper money issuance, it will happen. But there are deeply troubling consequences on the way."
Phillips' commentary is headlined "Gold Price Manipulation -- Is It Real?" and it was posted at the goldseek.com Internet site yesterday...and it's another item I found over at the gata.orgInternet site.
In the biggest ever catch at the Hyderabad airport, customs officials have seized 18 kilograms of gold and arrested three people. Gold bars worth over $804,826 (Rs 50 million) were seized on Friday at the international airport from passengers trying to smuggle in the precious metal.
The trio had arrived from Singapore and were hiding the gold bars in their trousers and shoes. The 18 gold bars weighed one kilogram each. The gold was destined for Chennai in South India.
In another incident, officials of the customs department recovered gold hidden in dates from a man who landed at the Pune International Airport from Sharjah. The suspect has been identified as a resident of Kasargod in Kerala, who worked in Abu Dhabi.
This news item, filed from Mumbai, was posted on themineweb.com Internet site yesterday...and I thank Manitoba reader Ulrike Marx for sending it along.
Anything the U.S. can do China can do better, faster and far cheaper! And gold seems as though it may already be a key player in the Asian Dragon’s desire to lead the world economically. The Chinese mantra may well be that the country with the biggest gold reserves controls the global economy. As far as gold is concerned, perhaps size does matter.
Chinese gold imports remain a matter for some debate in the West as, just like the U.S. the Chinese are good at massaging statistics too – and in a controlled economy things may even be better hidden. Nobody knows for sure that China is building up its own gold holdings, possibly at a rapid rate, and they won’t know unless and until the country makes an official announcement up-sizing its reserves as it did back in 2009 when it last announced a reserve increase.
The country’s gold consumption this year is variously estimated at somewhere between 1,600 tonnes to perhaps as high as 2,500 tonnes or more. The 1,600 tonnes low figure comes from adding imports through Hong Kong (a reported figure and heading to around 1,150 tonnes, perhaps more) to China’s own gold output, again put at 400-430 tonnes.
This longish commentary by Lawrie falls into the must readcategory. It was posted on the mineweb.com Internet site yesterday...and I thank Ulrike Marx for today's last story.
¤ THE WRAP
For 30 years, the price of silver has either stagnated over long periods of time (years) or actually declined; only to experience powerful bursts in price more extreme than in any other commodity. On five separate occasions, in 1987, 1997-98, 2006, 2007-08, and in 2011, the price of silver doubled in a matter of weeks or months. I suppose many would contend that this price pattern is normal in silver without giving it much further thought. I would agree it is normal price behavior for silver, but for a very good reason – that this proves silver has been manipulated in price.
Let’s face it – silver, like any metal, is produced and consumed 24/7 on every single day of the year and decade. Further, silver is one of the oldest metals in human history and is truly universal in recognition and awareness. With that background, why should it be normal for the price to stagnate for years, only to erupt and then collapse again in remarkably short periods of time? What legitimate free market forces could possibly explain the highly unique price pattern in silver? Save your time and energy and the use of your grey cells – there is no legitimate explanation. There is an explanation, all right, but it sure isn’t legitimate. - Silver analyst Ted Butler: 18 December 2013
I don't have too much to add to what I've already said about the precious metals at the top of today's column. Now that we are in the countdown for the holiday season---and year end, I expect things to get pretty quiet from now until the New Year. However, there's nothing that could possibly come out of left field during this period that would surprise me, either.
Here are a couple of charts that show the Comex warehouse stocks of both gold and silver going back 20 years. The charts are courtesy of Nick Laird, of course---and I hope you find them of some value.
Ted Butler feels---and I totally agree---that the precious metal market feels all washed out to the downside at this point. If we're not at record lows in the Commercial net short positions in both gold and silver, then we're within spitting distance once again. And as I said in yesterday's column, how high and how fast the precious metals rally from here when the next one begins, is 100% dependent on what JPMorgan does with their long-side corner in Comex gold---and their corresponding short-side corner in Comex silver.
That's all I have for the day---and the week. I'll have one more column before Christmas---and that will be on Tuesday, December 24---and I'll see you then.
CME Group Inc. (CME), concerned that a new U.S. rule undermines the use of Treasuries as collateral at clearinghouses, is proposing a workaround that would make greater use of client cash.
The owner of the world’s largest derivatives market is seeking permission to alter how funds pledged to guarantee trades are accessed when a member defaults, according to a Dec. 18 filing with the U.S. Commodity Futures Trading Commission. Under the plan, cash from other clearinghouse members would be more readily available to offset losses, particularly in cases where it might take too long to liquidate collateral such as Treasuries.
The Chicago-based company is responding to a CFTC rule, passed last month with the backing of the Federal Reserve, that requires Treasuries pledged as collateral for swaps and futures trades to be backed by a “prearranged and highly reliable funding arrangement” to ensure prompt payment during times of stress. That could raise trading costs because clearinghouses would need to arrange credit lines or require more cash collateral from banks.
“We believe that the proposed rule should satisfy the liquidity concerns voiced by the Fed,” Kim Taylor, president of CME Group’s clearinghouse, said in an e-mailed response to questions. “Our rule addresses the ‘prearranged and highly reliable’ requirement conceptually with the least adverse impact on clearing members and their customers.”
The CFTC was seeking to toughen safeguards in a market blamed for worsening the 2008 global financial crisis. While U.S. debt is considered among the safest investments, policy makers are concerned liquidating them will require too much time -- up to a day -- during a crisis, a government official familiar with the Fed’s stance said last month. The 2008 crisis developed so rapidly that the Fed had to give out more than $2 trillion in emergency aid.
The derivatives industry opposed the backstop to Treasury collateral, saying it was unnecessary because U.S. government securities can be turned into cash fast enough. Fed officials have told banks and exchanges that the CFTC’s new collateral rule means U.S. debt must be covered by credit lines, three industry executives briefed on the matter said last month.
The plan outlined by the CME would alter how it repays counterparties in the event of a default by a member bank, which act as intermediaries between derivatives users, such as hedge funds and asset managers, and the clearinghouse. Clearing members contribute billions of dollars to an emergency pool of capital used to cover losses if the defaulting bank’s contributions aren’t enough to cover its financial obligations.
The rule modification wouldn’t affect how CME Group initially responds to a shortfall. It would only kick in the event of a “liquidity event,” meaning the troubled bank’s Treasuries and other deposits failed to cover losses. CME Group would then tap other banks’ cash collateral, using it to address the shortfall, while agreeing to replace the cash within 29 days.
If the cash shortfall persists, CME Group wants the ability to repay banks that are Fed primary dealers with Treasuries, according to the rule filing. Those primary dealers, who trade directly with the central bank, could then convert the securities into cash at the Fed, Taylor said.
“We talked to a number of clearing members and regulators to determine what solution might satisfy the concerns and also create the least adverse impact for clearing members and their customers,” she said. “Our conversations with regulators indicated that they were looking for an outcome in which the clearinghouse didn’t access the discount window directly, but still used it effectively through primary dealers.”
Sorting out how to keep clearinghouses solvent is critical, said Will Rhode, director of fixed income research inNew York at Tabb Group LLC, a financial-markets research and advisory firm.
“This is a massive deal because it’s coming down to the fact that somebody’s going to have to step in” to prevent a major clearinghouse from failing in times of stress, he said during an interview. “The potential of a clearinghouse default is equivalent to several Lehmans,” he said, referring to the 2008 collapse of Lehman Brothers Holdings Inc., one of the largest swap dealers at the time.
Comex Claims Per Deliverable Ounce of Gold at 92 to 1 - Let Them Eat Treasuries
Luckily for the Comex most of the gold deliveries this month have been taken by JPM for their 'house account.'
January is not an active month so only to muddle through the next couple of weeks, and then its clear sailing until February.
This is not a default scenario because there is plenty of gold available, but it might require higher prices to be given over to delivery. Unless of course you are a big bullion bank playing multiple side of the same market.