Wednesday, March 26, 2014

Ed Steer's Gold and Silver Report March 26 , 2014 - News , Data and Views touching on the precious metals ....

Afternoon news and views......

IRS Slams Bitcoin With Retroactive Tax Rules... Is Gold Next?

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man blog,
Bitcoin tax rules finally came to the Land of the Free yesterday. And I have to imagine there are some not-too-happy campers this morning, if they even know about it.
Bitcoin taxes were inevitable. I’ve written about this numerous times, and have even gone so far as to predict that the government will probably mandate special Bitcoin reporting on foreign disclosure forms.
A number of other countries, from Germany to Singapore, have already issued their own tax rules on Bitcoin and related virtual currency transactions. And yesterday the IRS finally issued their own.
Here’s the quick summary:
1) While a number of governments (including the United States to a degree) have officially pronounced Bitcoin to be a ‘currency alternative,’ the IRS disagrees.

2) According to the IRS, Bitcoin is -property- and should be taxed as such… similar to, for example, a piece of rental property or collection of fine wine.

3) This means that the sale of Bitcoins is taxable based on capital gains. If you bought Bitcoins at $1 and sold them at $501 several years later, you would have to pay long-term capital gains tax on the $500 difference, currently 23.8%.

4) If you hold Bitcoins for shorter periods of less than 1-year, you can be taxed at ordinary income tax rates on your gains.

5) To the extent that you mine Bitcoins as a trade or business, the Bitcoin income from mining activity is not only subject to income tax, but also self-employment tax.

6) If you trade your Bitcoins for some other property that exceeds your cost basis, you are subject to tax. This is a huge ruling that effects all the ‘Bitcoin millionaires’ out there– early adopters who purchased Bitcoins at a dollar or less.
So let’s say you were one of the first Bitcoin adopters and bought 5,000 bitcoins at $0.05. Last year when Bitcoin was valued at roughly $1,000 in paper currency, you traded 250 of them for a brand new Lamborghini.
The IRS would say that you had a cost basis of $12.50 for those 250 coins. But you traded them for other property with a fair market value of $250,000. This means you have a taxable gain of $249,987.50.
Naturally, the US government is happy to go back in time and thrust all sorts of interest and penalties upon you if you didn’t comply with the law.
According to their ruling, “failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722.”
What’s most interesting about this new set of rules is what they might mean for gold.
If you’ve ever read Currency Wars (a fantastic book by my colleague Jim Rickards), you may recall early in the book when Jim suggests a potential outcome for gold.
Imagine– paper currencies go into freefall. Gold soars. Anyone who bought gold early sees sizeable profits (in paper currency)… at which point the government steps in after the fact and sets up new tax rules to confiscate a substantial portion of those gains.
Think it can’t happen? These Bitcoin rules certainly establish a precedent.

Gold Drops To 6-Week Lows, Back Under $1,300

Tyler Durden's picture

Gold prices are down 6.6% from the post-Crimea referendum highs mid-March (but remain up 9% in 2014). For the 3rd day in a row, precious metals have come under sudden selling pressure and this morning's has pushed Silver comfortably back below $20 and gold now back under $1,300. Notably copper pricesare also fading on the heels of Chinese weakness overnight.

3rd day in a row of monkey-hammering...

Clearly there is a "war" premium supposedly coming out of PMs but we suspect this pressure is also coming fromChinese financing deals as we noted previously

Copper is also falling today...

Charts: Bloomberg

Morning news and views.....


There wasn't much in the way of price action in either Far or East or early London trading on their Tuesday.  Gold was up a bit more than five bucks by 11:30 a.m. GMT in London.  Then it got sold down a bit over ten bucks in the next hour, with the low of the day coming at 8:30 a.m. EDT in New York.  The high tick in New York during the subsequent rally came at the London p.m. gold fix, which was 11 a.m. EDT, as London is still not on British Summer Time as of yet.  By noon, the gold price gave up five dollars of its prior gain, before trading flat into the 5:15 p.m. EDT close.
The high and low ticks, such as they were, were recorded as $1,318.00 and $1,306.00 in the April contract.
Gold closed in New York on Tuesday at $1,311.70 spot, up $2.10 from Monday's close.  Gross volume was over 200,000 contracts once again, but once the heavy roll-over volume was subtracted out, the real volume was only around 102,000 contracts, which wasn't particularly heavy.
Silver got sold off a bit in early Far East trading, but finally made it back to the $20 spot price mark by noon Hong Kong time.  A bit of a rally commenced around 3 p.m.---and ran into a not-for-profit seller two hours later at 9 a.m. in London.  From there it traded in a 25 cent range for the rest of the day, but once noon arrived in New York, the price didn't do much after that.
The CME Group recorded the low and high ticks as $19.905 and $20.215 in the May contract.
The silver price closed in New York yesterday at $20 right on the button.  Volume, net of March and April, was 42,500 contracts.
The platinum price didn't do much in Far East or early London trading---and once the high tick was in shortly after 11 a.m. GMT, it was all downhill to the absolute low, which came minutes after 4 p.m in New York.  After that, it recovered a few bucks, but still finished down a few bucks on the day.
Palladium traded pretty flat until shortly before 2 p.m. Hong Kong time---and then it rolled over, hitting its low of the day at 9 a.m. EDT in New York.  Then, like platinum, the palladium price rallied a few dollars into the close, but still finished down on the day.
The dollar index closed in New York late on Monday afternoon at 79.94.  From there it didn't do much until a rally began shortly after 9 a.m. in London on their Tuesday morning.  The index topped out at 80.18 shortly after 12 o'clock noon in New York before getting hit for a 30 basis point decline, with the 79.87 low coming shortly before 2 p.m. EDT.  The index then rallied ten points before trading sideways from 2:30 p.m. onwards.  The index closed back at 79.94---right where it started the day.

The CME's Daily Delivery Report showed that 3 gold and 23 silver contracts were posted for delivery within the Comex-approved depositories on Monday.  JPMorgan was involved as the main short/issuer in both metals.  The link to yesterday's Issuers and Stoppers Report is here.
After a decent deposit in GLD on Monday, there was withdrawal yesterday.  An authorized participant took out 86,720 troy ounces.  And as of 9:24 p.m. EDT yesterday evening, there were no reported changes in SLV.
The good folks over at the Internet site updated the short positions up to mid-March for both SLV and GLD yesterday.  There was a tiny decrease in SLV's short position of 2.52%.  The short position now stands at 13.29 million shares/troy ounces, which works out to more than six days of world silver production, or stated in other terms---410 metric tonnes of the stuff.
The short position in GLD blew out by 12.24% during the first two weeks of March---and it's entirely possible that some of the gold added after that cut-off date was used to cover part of that increase in the short position, but we won't know that for sure until the next report from that won't be posted for another two weeks or so.  The short position in GLD increased from 1.23 million ounces, to 1.38 million ounces up until mid-March.
The U.S. Mint had another sales report yesterday.  They sold 2,000 troy ounces of gold eagles---500 one-ounce 24K gold buffaloes---and another 392,000 silver eagles.  They also sold 200 one-ounce platinum eagles as well.
Over at the Comex-approved depositories on Monday, they reported shipping out 53,216 troy ounces of gold.  Most of it came out of the HSBC USA depository---and the link to that activity is here.
And, like Friday, there was monstrous in/out movement in silver once again on Monday.  They reported receiving 1,003,021 troy ounces---and shipped out 1,837,730 troy ounces of the stuff. In the last two business days [Friday and Monday combined] five million ounces has been shipped in and shipped out.  The link to that action is here---and it's definitely worth a look.
Here's what Ted Butler had to say about this in the quote I used in yesterday's column.  Keep in mind that the 5 million ounces I spoke of in the previous paragraph are over and above the amounts Ted speaks of here.
Turnover or physical movement of metal into and out from the Comex-approved silver warehouses moderated to under 2.5 million oz. this week, as total inventories fell 250,000 oz to 182.5 million oz. Over the last three weeks, 10 million oz. have come in or departed the Comex warehouses as total levels have barely fluctuated on a weekly basis. There must be a reason for this activity---and at the core of that reason must include the fact that most of the existing inventory is not available for sale at current prices, which necessitates the bringing in of new supply to meet demand. This certainly would not seem to be in keeping with silver’s rotten price performance, both absolutely and relative to gold. - Silver analyst Ted Butler: 22 March 2014


Non redundant news and views......

Monks recant: Bundesbank opens the door to Q.E. blitz

The last bastion is tumbling. Even the venerable Bundesbank is edging crablike towards quantitative easing.
It seems that tumbling inflation in Germany itself has at last shaken the monetary priesthood out of its ideological certainties.
Or put another way, the Pfennig has dropped that euroland is just one Chinese shock away from a deflation trap, an outcome that would play havoc with the debt dynamics of southern Europe, render the euro unworkable, and ultimately inflict massive damage on Germany.
Bundesbank chief Jens Weidmann was not exactly panting for QE in comments to Market News published this morning, it has to be said, but the tone marks a clear shift in policy.

European Central Bank now considering even negative interest rates

European Central Bank officials sent strong signals Tuesday that they are willing to consider dramatic steps to guard against dangerously low inflation, suggesting that the bank is prepared to shed some of its traditionally cautious approach.
The possible tools, cited by some top policy makers from different parts of the euro zone, include effective negative interest rates -- meaning rates so low that commercial banks would essentially pay the ECB to park their extra cash overnight. They also include purchases of government or private-sector debt to hold down long-term rates and spur lending.
"We haven't exhausted our maneuvering room" on interest rates, Bank of Finland Governor Erkki Liikanen, told The Wall Street Journal in an interview in Helsinki. Mr. Liikanen is on the ECB's 24-member governing council. Asked what tools the ECB has remaining, Mr. Liikanen cited a negative deposit rate as well as additional loans to banks and asset purchases.
Only the part of this Wall Street Journal story [from yesterday] that is posted in the clear, is shown above---and the rest is available from their website---and the link to that is in this GATA release that Chris Powell filed from Hong Kong late in the afternoon local time earlier today.

Capital controls feared in Russia after $70 billion flight

Capital flight from Russia has spiked dramatically since President Vladimir Putin first sent troops into Crimea and may reach $70bn (£42bn) over the first quarter of the year, prompting fears that the country may soon have to impose capital controls to stem the loss.
Andrei Klepach, the deputy economy minister, admitted in Moscow that the outflows are likely to reach $65-70bn, far higher than originally expected and a clear sign that investors are extremely nervous of escalating sanctions.
“It is shocking,” said Bartosz Pawlowski from BNP Paribas. “Markets have been extremely complacent, fooling themselves that Russia is invulnerable because it has almost half a trillion in foreign reserves. But reserves can become almost irrelevant in this sort of crisis.”

Brazil, China, India rally round Russia after G7 snub

U.S. ally Australia had indicated Russia might also be excluded from a G20 summit in Brisbane in November.
But Brazil, China, India, and South Africa rejected the idea.
They said, together with Russia, also at The Hague, where almost 60 countries had sent VIPs to a Nuclear Security Summit, that “the escalation of hostile language, sanctions and counter-sanctions … does not contribute to a sustainable and peaceful solution” to the Ukraine crisis.
“The custodianship of the G20 belongs to all member states equally and no one member state can unilaterally determine its nature."

Four King World News Blogs

Iraq Buys Massive 36 Tonnes of Gold in March

The Central Bank of Iraq said it bought 36 tons of gold this month to help stabilise the Iraqi dinar against foreign currencies, according to a statement from the bank that was emailed this morning.
It is very large in tonnage terms and Iraq’s purchases this month alone surpasses the entire demand of many large industrial nations in all of 2013. It surpasses the entire demand of large countries such as France, Taiwan, South Korea, Malaysia, Singapore, Italy, Japan, the UK, Brazil and Mexico. Indeed, it is just below the entire gold demand of voracious Hong Kong for all of 2013 according to GFMS data.
The first question I have is---where the heck did they get the money to buy it?  The other questions that comes to mind are---is it in allocated or unallocated form---and did they take delivery, or is it stored for 'safekeeping' in London?  This very interesting news item showed up on the Internet site yesterday morning---and found a home over at Zero Hedge.  It's definitely worth reading---and I thank U.A.E. reader Laurent-Patrick Gally for being the first one through the door with it yesterday.

China’s monthly gold imports jump 30% to 109.2 tonnes in February

According to new data from Hong Kong Census and Statistics Department mainland China's net imports of gold totaled 109.2 tonnes in February.
That's up more than 30% over the 83.6 tonnes in January and up a whopping 79.3% compared to the same month last year when Chinese imported 60.9 tonnes from the financial and trading hub.
China overtook India to become the world's top importer of gold bars, coins and jewelry last year with 2013 imports soaring to 1,065 tonnes, up from 807 tonnes the year before.
Here's another must read story.  This one was posted on Internet site yesterday sometime---and it's the final offering of the day from reader M.A.

Lawrence Williams: China/Hong Kong gold imports accelerating - 109 tonnes in February

Gold bulls should be heartened by the latest official figures for Chinese gold imports through Hong Kong for February. Not only were net imports some 30% higher than in the previous month, but fully 79% higher than in February 2013 according to calculations from Bloomberg based on the latest Hong Kong official data. The latest figures out of Hong Kong suggest that far from Chinese gold demand slowing down this year it could even be accelerating.
Indeed for the first two months of the year net imports through Hong Kong totalled 192.8 tonnes as compared with 80.6 tonnes in the first two months of 2013 suggesting that imports over the 2 month period have actually risen by just under 140%. Some demand slowdown!! The very fact that China imported more than 100 tonnes in February – normally a weak month for gold imports because of the Chinese New Year holiday – has to be highly significant as a guide to likely ongoing Chinese demand. Indeed the 109 tonnes imported was a comfortable new record for the month.
This commentary by Lawrie was posted on the mineweb.comInternet site yesterday sometime---and it's worth reading as well.


Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power. Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they create a desolate wasteland, they call it peace. - TacitusAgricola
It was another day where not too much happened---and although I'm happy about it, I'm still apprehensive about future price action because of the massive long positions still held by the technical funds in both gold and silver, which JPMorgan et al can still run the stops on for fun, profit---and price management purposes.  Why they didn't do anything yesterday, especially when volume was very light, was a big surprise.  Ted Butler says that this result is inevitable at some point in the future---but the 'when' part of all this is still an unknown.
China continues to gobble up gold at a prodigious rate---and unless they change their long-term plans, I can't see these imports slowing down any time soon.  These imports, of course, don't include domestic production, which never sees the light of day outside China---nor does it include gold imported through other channels, as other commentators have written about.
Through all this, the price remains subdued, as JPMorgan et al continue to ride shotgun over the prices of all four precious metals, despite the supply/demand fundamentals that are visible everywhere in all of them---and that scream out that prices should be materially higher across the board.
I note that we finally have our precious "golden cross"---and it remains to be seen whether it has any effect on prices going forward, as "da boyz" as short sellers of last resort, have been steadfast in their stand in the face of even the smallest rally that erupts anywhere on Planet Earth, at any time of day---and in any metal.
You'd think that with all this talk about suing the major bullion banks for manipulating the gold price at the London p.m. fix, that it would draw the interest of the miners, but there's nary a peep from them---individually, or as a group.  And it's a given the the World Gold Council and its members will be "no shows" for this event---just as The Silver Institute was when the class-action lawsuit was underway against JPMorgan Chase.  As I stated before, all current and past members of these organizations are owned by the bullion banks, or act like they are.
There is a body of opinion gathering out there which holds that all precious metal mining executives should carry little bells, like lepers in the Middle Ages, to warn respectable stockholders of their foul approach.  An idea that has considerable merit in my opinion---and make 'em cowbells.
And as I type this paragraph, the London open is a bit under an hour away.  Gold, which had a tiny rally in early trading in the Far East, got sold down again---and is only up a few dollars at the moment, as is platinum.  Silver is up a handful of cents---and palladium is down a buck.  Net volume in both gold and silver is down sharply from this time yesterday---and the dollar index is up 8 basis points and barely back above the 80.00 mark.
Yesterday was the cut-off for Friday's Commitment of Traders Report---and because it really wasn't a wild and crazy day as far as price and volume were concerned, I expect virtually all of yesterday's trading data to show up in this upcoming COT Report.
And not a thing has changed in the two hours since I wrote my previous comments on trading in the Far East.  Now that London has been open an hour or so, the price action is about the same, volumes are still very light in both metals---and the dollar index is still barely above the 80.00 mark.
I haven't a clue as to how trading will unfold in New York today, so nothing will surprise me when I check the charts later this morning.
That's more than enough once again---and I'll see you here tomorrow.

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