Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Thursday, January 30, 2014
Ed Steer's Gold and Silver Report - January 30 , 2014 - Data , News and Views for the precious metals ........Three things to ponder - Ed opines JP Morgan , CitiBank and HSBC USA heading for gold derivative exits..... Ted Butler wonders whether JP Morgan is working for the benefit of China in moving gold from the West to the East .... Renewed Calls From China For a Global Super-Currency To Replace "Bretton Woods II"
Except for the quick sell-off at the New York open at 6 p.m. on Tuesday evening, the gold price didn't do much of anything until before the low tick was in shortly before 9 a.m. in London on their Wednesday morning. The subsequent rally got capped just before 9 a.m. in New York, just as it about to get out of hand to the upside---and after that the price didn't do much until the FOMC news came out at 2 p.m. EST. At that point the price jumped around a little before rallying a bit into the close.
The low and high ticks were recorded by the CME Group as $1,248.50 and $1,270.60 in the February contract.
Gold closed in New York yesterday at $1,267.70 spot, which was up an even twelve bucks from Tuesday's close. Gross volume was over the moon at 286,000 contracts, but once the roll-over were subtracted out, the net volume was only 12,000 contracts.
It was more or less the same chart pattern for silver, but the rally off the London low was far more impressive, especially once trading began on the Comex in New York. JPMorgan et al dealt with that at the same time they dealt with gold---and had the price beaten back into submission before it could breach the $20 spot price mark and before the FOMC news came out. Once the price gyrations around 2 p.m. were out of the way, the subsequent rally was obviously capped going into the 5:15 p.m. electronic close.
The low and high ticks for silver were reported at $19.45 and $19.965 in the March contract.
Silver finished the Wednesday trading session at $19.71 spot, which was up 15 whole cents from Tuesday's close.
Platinum and palladium followed similar, but much more subdued price patterns, than either gold or silver. Platinum finished up a few dollars---and palladium down a few dollars. Although their respective rallies were not as impressive, it's equally obvious that these rallies were halted at the same time and in the same fashion as the gold and silver rallies. Here are the charts.
It should be as obvious as can be that JPMorgan et al were at the ready to crush the rallies in all four precious metals shortly after trading began on the Comex in New York yesterday. And it's equally as obvious that all four metals would have finished not only higher in price, but materially higher in price if the sellers of last resort hadn't put in an appearance when they did. But that's what "da boyz" are there for---aren't they?
The dollar index closed at 80.67 late Tuesday afternoon in New York---and then proceeded to slide quietly down to 80.53 at 11 a.m. London time. The subsequent rally peaked out at 80.80 shortly after 8 a.m. EST---and the fell down to its 80.45 low at the 9:30 a.m. open of the equity market in New York. From there it chopped a bit higher into the close, finishing the day at 80.57 which was down 10 basis points from Tuesday's close. The FOMC news hardly caused a stir in the dollar index chart.
The CME Daily Delivery Report showed that zero gold and 1 lonely silver contract were posted for delivery on Friday---and that should be a wrap on the January delivery month in both silver and gold.
But as a point of interest, I noted on the report that a very chunky 509 copper contracts were posted for delivery on Friday as well. That represented over three quarters of all the copper contracts delivered on the Comex in the entire month of January. One has to wonder why the short/issuers would wait until the very last second to post delivery to the longs.
For only the second time this year, there was addition to GLD. It was only 67,488 troy ounces, but one can only hope that it's the start of a trend. And as of 9:38 p.m. yesterday evening, there were no reported changes in SLV. One has to wonder if JPMorgan is keeping the silver price under wraps so that nothing will be added to SLV---so they can get all the physical silver themselves and don't have to short SLV shares in lieu of depositing that metal. Just so you know, that last sentence is wild speculation on my part.
For the first time since January 13, there was no sales report from the U.S. Mint.
Over at the Comex-approved depositories on Tuesday, there were no reported in/out movements in gold.
There wasn't much activity in silver for a change. Nothing was reported received---and only 92,533 troy ounces were shipped out. The link to that activity is here.
While on the subject of gold in the Comex-approved depositories, Bron Suchecki over at The Perth Mint had an interesting take on these in/out movements by JPMorgan over the last few days---and few months. It's headlined "The story behind JPM's 10 tonne gold withdrawals"---and the link to that is here. [Any question regarding what Bron has to say on this topic should be directed his way---and not to me. - Ed]
Ted Butler has something to say about this as well---and that's posted as today's quote in The Wrap section.
According to data I found on Wikipedia, at the end of 2012, there were 6,096 commercial banks in the United States. Of those, only a tiny handful hold all the precious metal derivatives in the entire U.S. banking system. I have named the three biggest ones on many occasions over the years. They are HSBC USA, Citigroup---and JPMorgan Chase.
The three charts below are for gold only---and go back to the last quarter of 1995. The first chart shown is the raw data right from Table #9 of the OCC's quarterly report---and includes the derivatives positions [in U.S. dollars] of all the U.S. banks that have had in gold over the last 18 years. Some of these positions are so tiny that they don't even show up on this chart, but this data is the basis of the two charts that follow this one, so I though it important that you see what the raw data looks like before proceeding to charts two and three.
Not including the "Others" category, there are 18 U.S. banks that have held gold derivatives of varying maturities [one to five years] over the time span of this chart---and as I said in the previous paragraph, most are so tiny they are invisible---literally.
The data on all three charts is as of the end of Q3 2013. It will be a month or two before the data for Q4 2013 becomes available. The big spike/top came in Q4 of 1999 when the Washington Agreement on Gold was signed on September 26 of that year. Naturally, all the paper gold written to put out the fire at that time showed up in the final quarter of that year.
I've been studying these charts closely ever since Reg Howe dug them up over a decade ago---and although I didn't understand them much at the time, I have more of a grasp of them now. The above chart shows two things worth noting. The first is that as the gold price has risen, the dollar value of all derivatives written against them has also risen. This makes perfect sense. The other thing that this chart shows is the obvious one---and that is the "Big 3" U.S. banks, especially during the last decade, hold 99% of all the gold derivatives held by the U.S. banking system.
In Chart #2, Nick takes the derivatives positions of all the banks, other than the "Big 2", and sticks them in the "Others" category. But just looking at Chart 1 you can tell that the vast majority [my guess is 90+ percent] of the "Other" category has always consisted of HSBC USA. At one time, the OCC Derivatives Report showed the top derivatives position of the "Big 7" U.S. banks---but after the financial crisis of 2007/8---they only show the "Big 4". When HSBC's position falls below that, it automatically drops into the "Others" category---but it's still there.
Here's Chart #2 which, as I said above, is the "Reader's Digest" version of Chart #1.
And lastly, Nick whipped up this chart that shows the derivatives positions in tonnes rather than U.S. dollars---and it's an eye-opener. Both Nick and I were amazed.
My interpretation of this chart is that, slowly but surely, the U.S. banks are heading for exits and, without doubt, the Q4 data will confirm this, as a major low was set at the end of December of last year.
E.U. financial services commissioner Michel Barnier told reporters that so-called proprietary trading, where banks bet exclusively with their own money rather than customers, would be outlawed.
The practice is often highly profitable for institutions but lawmakers say it serves neither clients or the health of the European economy.
Although proprietary trading now only accounts for a small amount of banking activity, it was used to create the market in sub-prime mortgage loans which led to the financial crisis in 2008-9 and, consequently, publicly funded bank bailouts totalling around 13 percent of the EU's GDP.
The rule, which is similar to the so-called 'Volcker rule' which now applies in the US, would apply to around 30 of the bloc's 8,000 banks which together cover around 65 percent of the total banking assets in the EU.
This news item was posted on the euobserver.com Internet site yesterday evening---and it's another contribution from Roy Stephens.
On January 27, the Bank of Russia entered the currency market with interventions, and its sales amounted to one billion dollars.
According to experts, the Central Bank began to actively intervene in currency trading from the beginning of yesterday's trading session. According to currency dealers, the national regulator launched unlimited accumulation interventions. In connection with the intervention of the Bank of Russia, the trading volume of U.S. currency with "tomorrow" made up $7.5 billion, twice the average volume in December.
This week, the dollar and the euro rose sharply in Russia. Russian authorities deny accusations of deliberate devaluation of the ruble. Economic Development Minister Alexei Ulyukaev said that the weakening of the ruble was a "working point" that fitted well into the global trend, characteristic of developing countries.
Elvira Nabiullina, the head of the Central Bank, said January 27 that it was not the ruble that was losing value, but the euro and the dollar were growing against the currencies of developing countries.
These four paragraphs are all there is to the text from this news item that posted on the pravda.ru Internet site on Tuesday. However, there's a rather interesting 2:18 minute video clip about the U.S. dollar that you may want to watch. It's entitled "U.S. dollars to be swept out of Russia". I found this news item in yesterday's edition of the King Report.
In the past we have discussed at length the inevitable demise of the USD as the world's reserve currency noting that nothing lasts forever. However, when former World Bank chief economist Justin Yifu Lin warns that "the dominance of the greenback is the root cause of global financial and economic crises," we suspect the world will begin to listen (especially the Chinese. Lin, now - notably - an adviser to the Chinese government, concludes that internationalizing the Chinese currency is not the answer (preferring a basket approach) but ominously concludes, "the solution to this is to replace the national currency with a global currency," as it will create more stable global financial system.
This commentary was posted on the Zero Hedge website late yesterday afternoon EST---and Harry Grant slid it into my in-box in the wee hours of this morning.
Platinum producers Anglo American Platinum, Lonmin and Impala Platinum on Wednesday tabled a new offer, delivered to the Association of Mineworkers and Construction Union (AMCU) by the Commission for Conciliation, Mediation and Arbitration (CCMA) commissioners, in an attempt to resolve the ongoing strike for an entry-level salary of R12 500, which started on January 23.
The platinum producers stated that the revised offer was based on a set of principles aimed at taking the sector “on a journey towards the goal of a R12 500 monthly pay package,” as was demanded by AMCU, but in a manner that was affordable and sustainable to the industry.
“Given our situation, this can be achieved only by means of a multi-year agreement based on total guaranteed pay. A R12 500 basic wage is simply not feasible in the foreseeable future,” the producers said.
This article, filed from Johannesburg, was posted on theminingweekly.com Internet site yesterday---and my thanks go out to reader M.A. for sending it our way.
High customs duty on gold has skewed the jewellery market in such a way that not only is the yellow metal being smuggled in huge quantities, a fact admitted by finance minister P Chidambaram, but there has been an unprecedented rise in legal import of gold through air passengers.
December saw 2,500kg of gold brought in this way. Sources said gold brought in legally by passengers flying into India never crossed 30-40kg a month. Financial agencies said this reflected that there was huge premium in the market on gold due to high demand and short supply.
Air passengers, living abroad, are allowed to carry 1kg gold into India after paying duty. Many jewellers, instead of risking smuggling, are tapping such frequent flyers, paying for their ticket and making them carry gold legally.
This gold-related news item, filed from New Delhi, was posted on the Times of India website very early yesterday morning IST---and it's another contribution from Ulrike Marx.
Maybe we are building too much reliance on this, but it does seem that the rundown in stocks of physical gold in the West and the build-up, for the most part, into stronger hands in the East, has to lead to a severe supply imbalance in the availability of gold bullion. If this flow continues at anything like the current rate – and there’s no evidence yet that it is slowing significantly – then the ensuing short squeeze on physical gold could be devastating for that part of the gold trade which is heavily short gold.
Chinese demand alone seems to be running at somewhere close to the global total of newly mined gold. Gold which can be sourced from the big gold ETFs, assuming there are still any willing sellers, has diminished drastically and there is little doubt that much of what remains after the big sell-offs of the past two years is firmly held. And it can only be a matter of time before the really big players – Soros, Paulson et al – start accumulating big holdings again, if indeed they are not already doing so, as the trend towards diminishing Western stockpiles becomes more and more apparent.
Mints producing gold coins and other forms of investment gold are working overtime to satisfy demand, as are the Swiss refiners involved in remelting good delivery bars (specifications according to the LBMA of between 10.9 and 13.4 kilograms) down to the smaller sized units that are the preferred products for the Middle Eastern and Eastern gold trade.
This must read commentary by Lawrie was posted on themineweb.com Internet site yesterday---and it's the final offering of the day from Ulrike Marx, for which I thank her.
¤ THE WRAP
I’d like to raise an issue about JPMorgan that I’m not sure I discussed before. That issue is whether JPMorgan has been working against the interests of U.S. investors for the benefit of China. There have been numerous stories and commentary about the flow of gold from the West to the East. Just yesterday, another 321,500 oz was removed from the JPMorgan’s Comex warehouse, the second such reduction in four days. Basically, all the gold that JPMorgan took delivery of against the Comex December futures contract and that was deposited into JPM’s Comex warehouse has now been removed.
The added fact that the metal was in kilo form (rather than in 100 oz bars) prompted many to conclude this gold was destined for China, since that is the form most preferred there. It’s hard to argue with the reasoning and anecdotal evidence that a massive gold flow from West to East has occurred. The problem is that the circumstances over the past year paint an even uglier picture of JPMorgan than I have alleged so far. While I am convinced that the bank has manipulated gold and silver prices, I had not previously alleged that JPMorgan was working against the interests of U.S. investors specifically. But the facts point in that direction. - Silver analyst Ted Butler: 29 January 2014
Whatever the cause, it was obvious that all four precious metals wanted to rally yesterday---and it was equally obvious JPMorgan et al were at the ready when required.
I was expecting a rather quiet trading day, with yesterday being the last day for the large traders to extricate themselves from the February contract, so it was obvious that there were other forces at play in the precious metal markets yesterday. How long "da boyz" can hold them off is a question for which I have no answer.
At the 1:30 p.m. close of Comex trading this afternoon, the February contract goes off the boards---and at that point we await the First Day Notice action in the CME's Daily Delivery Report. As I mentioned in this space yesterday, it will be posted on their website relatively late in the evening in New York---and I'll have all the details for you in Friday's column.
In Thursday trading in the Far East, all four precious metals were under selling pressure once again---and in the last hour of trading before the London open, silver really got hammered by the HFT boyz----and more than ten bucks got peeled of the platinum price as well. Prices have recovered sightly now that London has been open about 90 minutes as of this writing. Gold volume, on a net basis, is pretty light, as most of the volume is now in the new front month, which is April. Silver volume is pretty decent---and that's not surprising, as JPMorgan et alobviously went after the tech funds in a big way in the hour before the London open.
The big down ticks in all four precious metals was accompanied in lock-step with a 25 basis point rally in the dollar index that began precisely one hour before London opened. Here's the chart showing that---and you just know that this wasn't a coincidence.
And as I hit the send button on today's column at 5:25 a.m. EST, not much has changed in London. All the metals are still well below where they closed in New York yesterday---and it will be interesting to see how they 'perform' when trading begins in New York at 8:20 a.m. EST.
That's more than enough once again---and I'll see you here tomorrow.
They are talking about a 'super-currency' for international trade, and not to replace any currencies for domestic use.
I have been reporting on this for quite a few years. It is a movement whose time has come as the US dollar reserve currency falters, and the Fed expands the monetary base for domestic concerns.
You can click on either of the subject headings at the bottom of this blog entry, and all of the past postings with those subjects will be selected for your reading.
The major countries will no longer tolerate the monetary manipulation with the global currency in the same unilateral manner with which Nixon changed the Bretton Woods agreement back in 1971 by ending dollar convertibility to gold, rather than devaluing against it.
For lack of a better alternative or term, I settled on the SDR, made up of a new basket of currencies and commodities, almost certainly including gold, and quite possible silver, if China, Russia, et al. have their way.
Right now the nations are in the 'negotiation stage,' with the Anglo-American banking cartel putting up a strong resistance for any changes to their 'exorbitant privilege.' I would not be surprised to see more forex and precious metal games played as the Lords of Finance flex their monetary muscles.
And then there is the question of the tangled web of rehypothecation of bullion without public disclosure. It could prove to be very embarrassing to some.
But change is coming, one way or another.
China Daily Replace dollar with super currency By Michael Barris in New York, Fu Jing in Brussels and Chen Jia in Beijing 2014-01-29 09:04
The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.
"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. "The solution to this is to replace the national currency with a global currency."
Lin, now a professor at Peking University and a leading adviser to the Chinese government, said expanding the basket of major reserve currencies — the dollar, the euro, the Japanese yen and pound sterling — will not address the consequences of a financial crisis.
Internationalizing the Chinese currency is not the answer, either, he said.
Lin urged the international community, especially the US and European Union, to play a leading role in currency and infrastructure initiatives. To boost the global economy, he proposed the launch of a "global infrastructure initiative" to remove development bottlenecks in poor and developing countries, a measure he said would also offer opportunities for advanced economies.
"China can only play a supporting role in realizing the plans," Lin said. "The urgent thing is for the US and Europe to endorse these plans. And I think the G20 is an ideal platform to discuss the ideas," he said, referring to the group of finance ministers and central bank governors from 20 major economies.
The concept of a global "super currency" tied to a basket of currencies has been periodically discussed by world leaders as well as endorsed by 2001 Nobel Memorial Prize-winner Joseph Stiglitz. A super currency could also be tied to a single currency, but the interconnectedness of world financial markets and concerns about the volatility that can occur as a result of the system being tied to one currency have made this idea less popular...
Arguments in favor of a global currency resurfaced during October's US budget impasse, which forced the government to shut down.
"It is perhaps a good time for the befuddled world to start considering building a de-Americanized world," a Xinhua News Agency commentary said on Oct 14. The piece argued that creating a new international reserve currency to replace reliance on the greenback, would prevent government gridlock in Washington from affecting the rest of the world.
In March 2009, China's central bank governor, Zhou Xiaochuan, called for the creation of a new "super-sovereign reserve currency" to replace the dollar. In a paper published on the People's Bank of China's website, Zhou said an international reserve currency "disconnected from individual nations" and "able to remain stable in the long run" would benefit the global financial system more than current reliance on the dollar.
On that note, David Bloom, global head of FX research at HSBC, said US monetary policy change "will bring fluctuations for emerging countries' currencies and lead to financial instability".
Chen Wenling, chief economist at the China Center for International Economic Exchanges, a government think-tank, said, "A supranational currency may be a new direction for development of the global financial system. It also requires different countries to cooperate in coordinating macroeconomic policies..."