Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Monday, December 16, 2013
The drain of physical gold from the West continues December 16 , 2013 - YTD 856 tons of gold bullion leave Comex / 10 major Western ETFs and Funds including GLD ! Additional news and views touching on gold and key gold and not gold related items of interest !
dec 16/GLD loses a whopping 8.7 tonnes of gold/SLV loses 770,000 oz/gold and silver withstand a raid/ Sprott silver hits in negative NAV for the first time/Shanghai received a massive 21 tonnes of gold last night
Good evening Ladies and Gentlemen:
Gold closed up $9.80 to $1245.50 (comex closing time ). Silver was up 51 cents at $20.05.
In the access market today at 5:15 pm tonight here are the final prices:
Here are today's comex results:
The total gold comex open interest fell today by 983 contracts from 382,516 down down 381,533 as gold was up $9.80 on Friday. The biggest of all delivery months is the December contract month. The December OI contract month fell by 45 contracts to 2,140. We had 56 notices filed on Friday so we gained 11 gold contracts or 1100 additional oz will stand for the December contract month. The next non active delivery month is January and here the OI fell by 20 contracts down to 477. The next big active month for gold is February and here the OI fell by 1269 contracts to 233,953 . The estimated volume today was poor at 126,761 contracts. The confirmed volume on Friday was worse coming in at 118,832. The CME group are still not too happy to see volumes continue to contract like today, as it seems everyone is aware that the comex casino is crooked.
The total silver Comex OI fall by 3598 contracts as silver rose in price on Friday to the tune of 16 cents. The total OI now rests tonight at 133,118 contracts. The big December contract saw its OI fall by 107 contracts down to 201. We had 83 contracts served upon our longs on Friday so we lost 24 contracts or 120,000 additional oz of silver that will not stand for the December silver contract month. The next non active month for silver is January and here the OI rose by 10 contracts down to 1,510. The next big active delivery month for silver is March and here the OI fell by 3521 contracts to 91,118. The estimated volume today was fair coming in at 35,330 contracts. The confirmed volume on Friday was also fair at 36,509 contracts.
Total monthly oz gold served (contracts) so far this month
4614 (461,400 oz)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month
December contract month
Withdrawals from Dealers Inventory
Withdrawals from Customer Inventory
205,649.28 (Brinks, CNT,Scotia )
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)
71 (355,000 oz)
No of oz to be served (notices)
130 (650,000 oz)
Total monthly oz silver served (contracts)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer inventory this month
And now the Gold inventory at the GLD: Dec 16.2013: we lost an astonishingly high 8.7 tonnes of gold from the gold vaults in London England belonging to the GLD. The folks in Shanghai are facing against the clock to secure as much gold as they can.
Selected items..... Gold related
Koos Jansen: China will have imported 2,000 tonnes of gold this year
Gold market researcher and GATA consultant Koos Jansen today presents a comprehensive review of China's gold market, discerns how certain data has misled the GFMS consultancy and its client the World Gold Council into severely underestimating Chinese demand, and concludes that total Chinese gold demand for 2013 will reach well more than 2,500 tonnes and net imports probably 2,000 tonnes. The latter figure would be most of annual world gold mine production, leaving little for India and the rest of Asia even as they also are recognized as big importers. This raises the question of where all the extra metal is coming from if not, as Sprott Asset Management's Eric Sprott has inferred, from Western central bank vaults through surreptitious swaps and leases and from the spooking of investors in Western exchange-traded funds.
Jansen's commentary is headlined "Shanghai Gold Exchange Physical Delivery Equals Chinese Demand, Part 2" and it's posted at his Internet site, In Gold We Trust, here:
Meanwhile, interviewed by J.T. Long for The Gold Report, CPM Group Managing Partner Jeffrey Christian contends that gold's decline in price results not from market manipulation but from a massive decline in investment demand. The interview with Christian is headlined "Lack of Demand, Not Manipulation, Behind Gold Price Drop, Says CPM's Jeffrey Christian" and it's posted here:
CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.
Gold measures could soon be eased in India - Analysts
Recent reports of in India have analysts questioning whether or not India's government could soon review gold import restrictions.
Author: Shivom Seth Posted: Monday , 16 Dec 2013
MUMBAI (MINEWEB) -
Good news is in the offing in India with the government deliberating a review of the duty structure and the restrictive measures to import gold. With the country's current account deficit shrinking to $5.2 billion, India's tough measures on gold are set to ease, according to reports.
``India's CAD is just 1.2% of gross domestic product for the quarter ended September 2013, as compared to the deficit of $21.8 billion for the quarter ended June 2013 - nearly 76% down. The reduction in CAD is attributed to curbs on gold imports coupled with a smart recovery in exports following the depreciation of the rupee,'' said Manish Kedia, bullion retailer.
He added that gold prices in the domestic spot and futures market are also likely to come under pressure as agitated investors look at the US Federal Reserve move to wind down its $85 billion a month stimulus programme.
India has been consistently increasing duty on gold to stem the CAD for the past couple of years. From 1% two years ago, duty has jumped to 10%. ``The easing of measures, especially those concerning gold imports, could be announced as early as this month end,'' an official in the finance ministry told a television channel.
Finance Minister P Chidambaram, speaking in Mumbai on December 14, reiterated that Indians should curb their thirst for gold.
However, over the weekend, the government slashed the import tariff value on gold to $398 per ten grams, while raising it marginally on silver to $643 per kilogram in line with global trends.
The import tariff value is the base price at which customs duty is determined to prevent under invoicing. The tariff value on imported gold earlier stood at $405 per 10 grams, while on silver it was $642 per kilogram.
The country imported 393.68 tonnes of the precious metal during the April-September period, ringing alarm bells at the centre. As Kedia added: ``After allowing free trade in gold which led to increased consumption and usage through savings of the precious metal, not only in the physical form but also the electronic form and trading in exchanges, the government hit the brakes when the CAD started to slip out of control. It introduced curbs which crippled the industry.''
What has helped sentiment is that from a run rate of nearly $4 billion every month in 2012, November 2013 saw imports of only $1.2 billion. Physical imports of gold crashed from a peak of 162 tonnes in May 2013 to less than 7 tonnes in November.
``The restrictions have resulted in an all round loss in revenue for the government. Apart from the direct loss in import duty and income tax, the government stands to lose on account of falling exports,'' said Puneet Mehra, bullion retailer and owner of an export house.
He added that restricting gold imports has had an impact on the exports of gold jewellery. According to the Gems and Jewellery Export Promotion Council, exports of gold jewellery slid 52.7 per cent in the first eight months of the fiscal year.
``In the six months from April 2013, gold jewellery exports fell to $3.34 billion from $8 billion in the corresponding year ago period,'' said Pankaj Parikh, Vice Chairman of the Export Promotion Council. The government was forced to either restrict gold imports or increase exports to take on the high CAD, he added.
Restricting imports, as was witnessed between April to July, resulted in gold imports practically doubling over the previous year, rendering the ban on consignment imports ``toothless. Exporters and jewellers want a continuous, assured supply of gold and no exporter should be deprived of the precious metal,'' he said.
According to economist, Subir Gokarn, the demand for gold is set to increase as households earn higher disposable incomes and have greater saving capacity. Though this does not necessarily translate into gold accumulation, because other asset classes can also be chosen, Gokarn added that gold would inevitably figure in the representative portfolio choice of investors, for financial reasons as well as for its cultural and traditional associations.
Selected news - non gold related
Bill Holter provides a powerful commentary on why we are closing watching the USA 10 year bond.
This is a must read for all:
(courtesy Bill Holter/Miles Franklin)
Quietly the 10 year bond yield has risen to and above 2.8%. This is significant and something that very few are talking about. Those in the mainstream that do mention it are pointing to the "strength" in the economy as the reason. This is pure hogwash. Interest rates are rising for one reason and one reason alone, foreigners are selling Treasury bonds.
As you know, the Fed is and has been the "buyer of last resort". They now own 1/3rd of the Treasury market and have purchased over 70% of all issuance for over a year now. In effect, the Fed "IS the Treasury market". A 2.8% 10 yr. rate is almost a perfect double from where they were just 17 months ago. Another more startling way of saying this is that interest rates have moved up 100% during a flat economy and yet the sheeple sleep.
I mention the above because we have a Fed meeting that concludes on Wednesday. The debate again is whether the Fed will taper or not. As I've said all along, the Fed can never really taper because they are THE ONLY buyer left. A genuine taper would blow rates to and through the 3% level. A complete halt to QE done cold turkey would be a disaster which could see interest rates hit "round numbers" like 4, 5, 10% on a weekly if not daily basis. How would the real estate market look then? How would anything financial look ?
Everything financial now relies on interest rates that stay down. Car sales, retail sales, housing, stock prices etc.. Not to mention the ability of the Treasury to actually pay the interest on their (our) debt. Rising interest rates in "normal" times is not a good thing for anything financial...these are far from normal times. The Fed originally created a zero interest rate environment to save the banking system...but they also created the environment for the end game. They essentially allowed (encouraged) another reflation above and beyond the ability to repay. Debt was not "washed" away, paid down or liquidated from 2008 on, it actually increased greatly !
By "greatly" I mean nearly doubled on the federal level. What worked and "felt good" will soon not work. Think about this, debt on the federal level has close to doubled in 5 years and at the same time interest rates which were going down for a good portion of that time have now nearly doubled from their lows. I know this is stupid but everyone knows that 2+2 =4 right? If debt has doubled (2) and interest rates have also doubled +(2) doesn't that equal 4? "4" as in how much more difficult it is to pay the debt service than it was just a couple of years ago? Most people will admit that if their mortgage, car payments and credit card bills doubled they would have a hard time making the payment...what if they quadrupled ?
Yes I know, the higher interest rates do not immediately translate into higher payments until the debt "rolls over" but the conditions now are already in place for the "quadrupling". ...And this has occurred WHILE the Fed was "supporting" the bond markets. Where exactly would rates be if the Fed had not been monetizing? We may never know the answer to this because the Fed will more than likely ALWAYS be buying until the very end.
I thought I understood what Jim Sinclair meant by "it will be game over when the last pillar falls" but I do now for sure. The "last pillar" being the bond market. The bond market is the only "source of funds" left to keep the doors open. Higher interest rates on their own will not close or shut this source off but they are a "symptom" just as a headache normally accompanies a fever.
I would like to mention before finishing that the volatility in the bond market has gone almost comatose in a slowly rising (rates) fashion. This in itself is a warning sign, almost like the calm before the storm. "Volatility" is/will be a killer to the derivatives markets. I bring this up because interest rates directly affect $100's of trillions and indirectly affect $100's of trillions more in derivatives. The stock markets can do anything that they'd like leading up to whatever rate level turns out to be the "trigger point". There is a trigger point for interest rates out there where volatility will launch to unprecedented levels and control of everything is completely lost. "Control" is what has allowed this game to continue, losing control of anything will lead to the loss of control of everything. There is of course the chance that the Fed will announce a "taper" which I would take as a public statement "sorry but we are pulling the plug,
Happy New Year!".
Words between Japan and China escalate: "malicious slander" cites China/warns Japan is "doomed to failure":
(courtesy zero hedge)
China Slams Abe's "Malicious Slander"; Warns Japan Is "Doomed To Failure"
Overnight rhetoric in Asia became increasingly heated whenChina's Ministry of Foreign Affairs expressed "strong dissastisfaction" at the slanderous actions of Abe's Japanese government over the Air Defense Identification Zone (ADIZ) and the "theft and embezzlement" of the Diaoyu Islands. "Japan's attempt is doomed to failure," China warned ominously and as we highlight below, a reflection on the possible rational reasons for China and Japan to go to war over the Senkaku/Diaoyu islands highlights the seriousness of theongoing brinksmanship in the East China Sea. If a war is fought over these long-contested islands, it will have an eminently rational explanation underlying all the historical mistrust and nationalism on the surface. War in the East China Sea is possible, despite the economic costs.
Q: Japanese Prime Minister Shinzo Abe held in Japan recently - especially during the ASEAN summit, accusing China to unilaterally change the status of the East China Sea, East China Sea, said China's air defense identification zone designation is improper for the high seas against the freedom of overflight, asked China to revoke the measure. What is your comment?
A: We have made some Japanese leaders use international slanderous remarks China expresses strong dissatisfaction.
Diaoyu Islands are China's inherent territory. Japan over the Diaoyu Islands theft and embezzlement have always been illegal and invalid. Since last year, the Japanese deliberately provoked the Diaoyu Islands dispute, unilaterally change the status quo of the Diaoyu Islands issue is none other than the Japanese themselves. In this regard, the Chinese law to take the necessary measures to safeguard national sovereignty and territorial fully justified, blameless.
East China's air defense identification zone designation is intended to protect national defense aviation security measures, consistent with international law and international practice, do not affect the countries of aircraft overflight freedoms enjoyed under international law.Deliberate on this issue in Japan to China to launch an attack, an attempt to tamper with the concept, the implementation of double standards, mislead international public opinion, Japan's attempt is doomed to failure.
"Rationalist Explanations For War" In The East China Sea
Events in the East China Sea since 2009 have thrust to the forefront the following frightening question: will China and Japan imminently go to war? Conventional answers in the affirmative point to the deep level of historical mistrust and a certain level of “unfinished business” in East Asian international politics, stemming from the heyday of Showa Japan’s imperialism across Asia. Those on the negative often point to the astronomical economic costs that would follow from a war that pinned the world’s first and third largest economies against its second in a fight over a few measly islands, undersea hydrocarbon reserves be damned.
I can’t pretend to arbitrate between these two camps but I find that far too many observers sympathize with the second camp based on rational impulse. Of course China and Japan wouldn’t fight a war! That’d ruin their economies! I sympathize with the Clausewtizean notion of war being a continuation of politics “by other means,” and the problems caused by information asymmetries (effectively handicapping rational decision-making), but the situation over the Senkaku/Diaoyu islands can result in war even if the top leaders in Tokyo and Beijing are eminently rational.
Political scientist James D. Fearon’s path-breaking article “Rationalist Explanations for War” provides a still-relevant schema that’s wonderfully applicable to the contemporary situation between China and Japan in the East China Sea. Fearon’s paper was initially relevant because it challenged the overly simplistic rationalist’s dogma: if war is so costly, then there has to be some sort of diplomatic solution that is preferable to all parties involved — barring information asymmetries and communication deficits, such an agreement should and will be signed.
Of course, this doesn’t correspond to reality where we know that many incredibly costly wars have been fought (from the first World War to the Iran-Iraq War). So, if wars are costly — as one over the Senkaku/Diaoyu islands is likely to be — why do they still occur? Well, the answer isn’t Japanese imperialism or because states just sometimes irrationally dislike each other (as the affirmative camp would argue). It’s more subtle.
Fearon’s “bargaining model” assumes a few dictums about state knowledge, behavior and expectations ex ante. I’ll cast the remainder of the model in terms of Japan and China since they’re our subjects of interest (and to avoid floating off into academic abstractions).
First, China and Japan both know that there is an actual probability distribution of the likely outcomes of the war.They don’t know what the actual distribution is, but they can estimate what is likely in terms of the costs and outcomes of going to war. For example, Japan can predict that it would suffer relatively low naval losses and would strengthen its administrative control of the islands; China could predict the same outcome, or it could interpret things in its favor. In essence, they acknowledge that war is predictable in its unpredictability.
Second, China and Japan want to limit risk or are neutral to risk, but definitely do not crave risk. War is fundamentally risky so this is tantamount to an acknowledgement that war is costlier than maintaining peace or negotiating an ex antediplomatic solution.
The third assumption is a little dressed up in academic jargon: there can be no “issue indivisibility.” In plain English, this essentially means that whatever the states are fighting over (usually territory, but it could be a pot of gold) can be divided between them in an infinite number of ways on a line going from zero to one. Imagine that zero is Japan’s ideal preference (total Japanese control of the Senkakus and acknowledgement as such by China) and one is China’s ideal preference (total Chinese control of Diaoyu and acknowledgement by Japan). Fearon’s assumption requires that there exist points like 0.23 and 0.83 (and so forth) which set up some sort sharing between the warring parties. Even solutions, such as one proposed by Zheng Wang here at The Diplomat to establish a “peace zone,” could sit on this line.
If the third assumption sounds the shakiest to you that’s probably because it is. “Issue indivisibility” is a nasty problem and a subject of quite some research. It usually is at the heart of wars that seek to decide which state should control a territory such as a Holy City (the intractability of the Arab-Israeli conflict is said to be plagued by indivisible issues).
So, is the dispute over the Senkaku/Diaoyu fundamentally indivisible? Probably in the sense of splitting sovereignty over the islands, but probably not in the sense of some ex antebargain similar to what Zheng proposed. Even if the set of solutions isn’t infinitely divisible, whatever finite solutions exist might not fall within whatever range of solutions either Japan or China is willing to tolerate — leading to war.
Fearon actually doesn’t buy the indivisibility-leading-to-war theory himself. He reasons that generally almost every issue is complex enough to be divisible to a degree acceptable by each party (undermining the infinite divisibility requirement), and that states can link issues and offer payments to offset any asymmetrical outcome. In the Senkaku/Diaoyu case, this would mean a solution could hinge upon Japan making a broader apology for its aggression against China in the 20th century or China taking a harsher stance on North Korea (both unlikely).
Relevant to the Air Defense Identification Zone is Fearon’s description of war arising between rational states due to incentives to misrepresent capabilities. China and Japan’s leaders know more about their country’s actual willingness to go to war than anyone else, and it benefits to signal strong resolve on the issue to extract more concessions in any potential deal. Japan announcing its willingness to shoot down Chinese drones earlier this year and its most recent defense plans are example of this, and China’s ADIZ is probably the archetype of such a signal. Instead of extracting a good deal, what such declarations can do is force rational hands to war over the Senkaku/Diaoyu islands.
Fearon’s final explanation — regarding commitment problems leading to war — is slightly ancillary to the core discussion about the Senkaku/Diaoyu islands given Japan’s constitutional restraints on the use of force (rendering preemptive, preventative, and offensive wars largely irrelevant in the Japanese case). Regardless, the point remains that even if the Senkaku/Diaoyu islands might seem like a terribly silly thing for the world’s second and third largest economies to go to war over, war can still be likely.
As I observe events in the East China Sea, I mostly recall Fearon’s warnings on certain types of signals leading to brinksmanship (the divisibility issue is far murkier). Both Japan and China don’t seem to be relenting on these sorts of deleterious signals. Additionally, given that Chinese and Japanese diplomats haven’t had high-level contact in fourteen months, even the more primitive rationalist’s explanation, that war occurs because a lack of communication leads to rational miscalculations, becomes plausible.
A reflection on the possible rational reasons for China and Japan to go to war over the Senkaku/Diaoyu islands highlights the seriousness of the ongoing brinksmanship in the East China Sea. If a war is fought over these long-contested islands, it will have an eminently rational explanation underlying all the historical mistrust and nationalism on the surface. War in the East China Sea is possible, despite the economic costs.
This is a must read: Russia sets up nuclear cpable missiles along the Polish border inside its Baltic state in the former East Prussia (capital Kaliningrad) (courtesy zero hedge)
Russia Stations Tactical, Nuclear-Capable Missiles Along Polish Border
2013 was a year when Europe tried to reallign its primary source of natgas energy, from Gazpromia to Qatar, and failed. More importantly, it was a year in which Russia's Vladimir Putin undisputedly won every foreign relations conflict that involved Russian national interests, to the sheer humiliation of both John Kerry and Francois Hollande. However, it seems the former KGB spy had a Plan B in case things escalated out of control, one that fits with what we wrote a few days ago when we reported that "Russia casually announces it will use nukes if attacked." Namely, as Bloomberg reports citing Bild, Russia quietly stationed a double-digit number of SS-26 Stone, aka Iskander, tactical, nuclear-capable short-range missiles near the Polish border in a dramatic escalation to merely verbal threats issued as recently as a year ago.
The range of the Iskander rockets:
Russia has stationed missiles with a range of about 500 kilometers in its Kaliningrad enclave and along its border with the Baltic states of Estonia, Latvia and Lithuania, Germany’s Bild-Zeitung reports, citing defense officials it didn’t identify.
Satellite images show a “double-digit” amount of mobile units identified as SS-26 Stone in NATO code
Missiles were stationed within the past 12 months
SS-26 can carry conventional as well as nuclear warheads
In other words, Russia quietly has come through on its threat issued in April 2012, when it warned it would deploy Iskander missiles that could target US missile defense systems in Poland.From RIA at the time:
Moscow reiterated on Tuesday it may deploy Iskander theater ballistic missiles in the Baltic exclave of Kaliningrad that will be capable of effectively engaging elements of the U.S. missile defense system in Poland.
NATO members agreed to create a missile shield over Europe to protect it against ballistic missiles launched by so-called rogue states, for example Iran and North Korea, at a summit in Lisbon, Portugal, in 2010.
The missile defense system in Poland does not jeopardize Russia’s nuclear forces, Army General Nikolai Makarov, chief of the General Staff of the Russian Armed Forces, said.
“However, if it is modernized…it could affect our nuclear capability and in that case a political decision may be made to deploy Iskander systems in the Kaliningrad region,” he said in an interview with RT television.
“But that will be a political decision,” he stressed. “So far there is no such need.”
Looks like a little over a year later, the "political decision" was taken as the need is there. But why does Russia need to send a very clear message of escalation at a time when the Cold War is long over, when globalization and free trade, promote game theoretic world peace (or "piece" as the Obama administration wouldsay), oh, and when Russia quietly has decided to reestablish the former USSR starting with the Ukraine.
We'll leave the rhetorical question logically unanswered.