Monday, February 3, 2014

Gold news and views - February 3 , 2014 - Key articles from GATA , Koos Jansen and Jesse's Crossroads Cafe touching on the precious metal - with a view toward China , COMEX and Central Bank manipulation attempts .....


Don't pretend that the gold market is anything but central banking's 

most desperate project

8:09p SRT Monday, February 3, 2014
Dear Friend of GATA and Gold:
The Perth Mint's Bron Suchecki today evaluates the prospects for gold bank runs in a fractional-reserve gold banking system. His commentary is headlined "Fractional Reserve Bullion Banking and Gold Bank Runs -- the Setup" and it's posted at his Internet site, Gold Chat, here:
Suchecki writes:
So a bullion bank's risk toward a run on its unallocated accounts depends on its:
-- Physical fractional reserves.
-- Extent of maturity transformation.
-- Credit-worthiness of unsecured counterparties.
-- Collateral and gold price exposure for secured counterparties.
He adds that bullion banks know that "you can't print gold" and suggests that, as a result of this knowledge, they proceed more responsibly than banks operating on a fractional-reserve basis in other respects.
But presumably bullion banks also know whether central banks or international organizations like the International Monetary Fund or Bank for International Settlements, to quote former Federal Reserve Chairman Alan Greenspan's testimony to Congress in July 1998, "stand ready to lend gold in increasing quantities should the price rise" --
-- and whether central banks are prepared, to use the sanitizing phrase of CPM Group's Jeff Christian, to provide "liquidity" to the gold market, a service that for some reason central banks don't yet seem ready to provide to the markets in soybeans, cotton, and pork bellies.
Suchecki's distinctions within bullion banking are all valid but they also are all completely subsidiary to the one great fact about the gold market: that central banks are its biggest participants and that, while they are nominally public institutions, they operate in the gold market largely in secret every day, directly or through their broker, the Bank for International Settlements, for policy purposes that are never explicitly explained. (Of course a little research can discern what those purposes are -- gold price suppression and support of government currencies and bonds.)
Bullion banks and gold-mining companies that hedge their production are merely the agents and playthings of central banks, as the great hedger Barrick Gold confessed in U.S. District Court in New Orleans as it tried to escape from Blanchard & Co.'s market-rigging lawsuit in 2003:
Suckechi is more or less off the hook here because a few days ago he called for transparency in the gold operations of central banks --
-- something that will never happen because, as the staff of the International Monetary Fund explained in a secret memorandum in March 1999, transparency would explode the gold price suppression scheme:
Even so, one shouldn't get or give the impression that the gold "market" is, for the time being, anything except central banking's most desperate project.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Central bankers clueless, Embry says; Jansen finds China's master plan for gold

3:50p SRT Monday, February 3, 2014
Dear Friend of GATA and Gold:
Sprott Asset Management's John Embry today tells King World News that central bankers are now just experimenting with the world financial system and have little idea of what they're doing:
And gold researcher and GATA consultant Koos Jansen unearths and translates China's master plan for its gold market. The plan is posted at Jansen's Internet site, In Gold We Trust, here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

The Need For China To Buy Gold

The other day Zero Hedge posted an image from a quarterly financial report from the Chinese central bank, the PBOC. When I first looked at it I thought for a minute the PBOC had announced a raise in their official gold holdings. Then I woke up and realized their gold holdings are disclosed in the second row from below, still stuck at 33.89 million ounces. I asked my friend in the mainland to translate the headers to get a better view on this summary. He was so kind to do so.

China Gold

China Gold translated

We can see Chinese FX reserves expressed in US dollars (which is still the most commonly used reserve currency and unit of account worldwide) having a total value of $3,821,315,000,000 (or $3.8 trillion) at the end of December. At least 34 % of these assets are denominated in US dollars in the form of US treasuries ($1.3 trillion). Only 1 % is held in physical gold according to the PBOC; 33.89 million ounces (1054 tons) was worth  $41,5 billion in December. Let’s compare these numbers with the a few other countries. From The World Gold Council:

World official gold holdings, January 2014

The Need For China To Buy Gold

China is in the top ten in terms of gold holdings, but only holds a fraction of gold relative to its total FX reserves.

The bulk of China’s FX reserves are extremely vulnerable for a devaluation of the US dollar. At the same time a devaluation of the US dollar is imminent, as Yu Yongding, a prominent Chinese economist and former member of the monetary policy committee of the People’s Bank of China, has expressed in numerous presentations. This is why China has a strong incentive to hedge against the USD by increasing their official gold holdings. From Yu Yongding at the LBMA conference 2012:

..Before taking over the Presidency of the Fed, Bernanke was very open in talking about the possibility of using inflation to solve the debt problem. He gained the very apt nickname ‘Helicopter Ben’, and I think he will rule out this option, but of course he will not say so openly.
..To push down the value of the dollar is another very important objective of QE, even though Bernanke refused to admit that this is the policy, I think Greenspan is more honest, because he is no longer the governor.
Essentially, the policy of QE is to shift the debt burden away from borrowers at the expense of creditors and I think this is basically the situation that China is facing.

Yu Yongding on QE

A big problem for China has been buying large quantities of physical gold without increasing the price. For this reason China’s strategy has always been to be as secretive as possible about its gold purchases. They don’t disclose their gold import numbers, nor any interim changes in official gold holdings. They hide their dire hunger for the yellow metal to simply bargain a better price. But sometimes their craving to buy gold (without affecting the market) slips through the media: 

Yu Yongding on gold QE RMB

China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall.

China should now rapidly increase its gold reserves, without pushing up prices of the precious metal excessively.

It’s especially true that as global gold prices make new highs, increasing gold reserves also become more difficult.

So China’s main objective is to buy as much gold for as little dollars. The main objective of the US is to devalue the dollar.

A Summary Of Potentially Coherent Facts

  • The US debt problem has created the necessity to devalue the dollar in order to shrink their debt (and boost export).
  • China holds at least $1.3 trillion in FX exchange which will be wiped out by a US dollar devaluation.
  • The US and China have a strong trade relationship; Both benefit from China exporting cheap goods to the US.
  • The US and China share a mutual interest in holding the value of the dollar in check for trading.

Can it be these two mighty countries agreed in early 2013 to support the value of the dollar for the time being, while heavily suppressing the price of gold in the paper markets to allow China to accumulate as much of the yellow metal as needed? This would surely provide the best outcome for both after what inevitably will happen: a devaluation of the US dollar and a revaluation of gold.

03 FEBRUARY 2014

Gold Daily and Silver Weekly Charts - Baby It's Cold Outside

Gold caught a fairly obvious 'flight to safety' big this morning that was later pushed lower by the bullion bears, but still managing to close higher.

US equities were off about two percent across the board as the end of year paint bubble continued to get scraped off the tape.

There is also some element of a test of wills for Janet Yellen, who has now taken over the Fed's reins.  Wall Street has been known to throw a taper tantrum or two to see if the new 'Chair' will be as pliable as the former Chairman.  And few can live up to the servile hypocrisy of Greenspan, who never met a bubble he couldn't ignore.

Speaking of Chairman Bernanke, he has already announced a new post at the Brookings Institution.  He will no doubt be free to think weighty thoughts, write his book(s), and garner some large speaking fees.  At least he did not go to work directly for one of the Banks.

In the Comex inventories just shy of two tonnes came out of Scotia. Let's see if it turn up with Big Daddy Morgan, or just slips off into the sunset.

We are now in the February delivery month. Rik Green notes that the number of contracts standing for delivery there is substantially lower than February of last year, which was quite robust. The bullion available for deliveries at these prices is still quite thin compared to potential demand.

But without belaboring it, I think the trading emphasis in the bullion markets is joining its physical components and is heading east, leaving the Comex awash in less meaningful paper.

As a reminder, this is a Non-Farm Payrolls week once again, so we will have to see how the shenanigans are rolling, and keep another eye on any deliveries of bullion.

Have a pleasant evening.