Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Friday, May 16, 2014
Gold and Silver news - May 16 , 2014 -----Are The London Gold Vaults Running Empty - Kenneth Hoffman certainly believed that was the case as of December 2013 , what is the case now ? And how about the Swiss - is there gold gold too ( see Turd's Wednesday update to his excellent report on Switzerland's gold from Monday --- Note the email comments from James Turk , Dominik , Chris Powell .) ...
Are The London Gold Vaults Running Empty?
As I have extensively covered in the past months the majority of the unprecedented demand for gold from China, which started in January 2013, was being supplied by the UK, home of the London bullion market and many bullion bank (and private) gold vaults. Via Switzerland, where the gold was remelted into kilobars, it was shipped towards Hong Kong where most of it was re-exported to China mainland. Whilst in 2013 it was clear that the world’s largest gold-backed ETF, GLD, was the predominant supplier from the UK, since January 2014 GLD inventory has more or less stabilized.
But UK gold export at the time remained elevated. In January 2014 the UK net exported 143 metric tonnes of gold (118 tonnes net to Switzerland), in February net export accounted for 107 tonnes (119 net to Switzerland). This gold must have been fully supplied from other vaults than GLD’s, which raises the question; how much floating supply is there left in London. I believe there is still a lot of physical gold in London (I will do a future post on some estimates), but I don’t know how much of this is floating supply.
Let’s head over to the east and see how much physical gold China has imported year to date, based on official trading statistics. If we look at the trade stats from Hong Kong we can see net export to the mainland in January was 89.7 tonnes, in February it was 112.3 tonnes and in March 85.1 tonnes. The amount that crossed the border in March was down 24 % from February, but still strong – 85.1 tonnes annualized is 1021.2 tonnes. The total in Q1 accounted for 287 tonnes, annualized 1148 tonnes (just to give you an idea).
As we all know by now Hong Kong is not the only port through which China is importing gold. Though the Chinese are reluctant to disclose their gold trade numbers – guess why that is – from the trade statistics of other countries we can see a portion of how much gold officially vanishes in the black hole (China’s strong hands) not to return in the foreseeable future. Switzerland, where 70 % of the world’s gold refining capacity is located among four refineries, has been so kind to publish monthly reports on whom they trade gold with, and how much, since January 2014. The Swiss net exported 12 tonnes to China in January, 36.9 tonnes in February and 26 tonnes in March. If we add up Hong Kong and Switzerland net export to China in Q1 the outcome is 362 tonnes, annualized 1448 tonnes (just to give you an idea). Remember, this is only from two countries, it doesn’t include the kilobar shippings from the Perth Mint to China for example. Chinese gold import in Q1 has definitely been more than 362 tonnes – also because the official trade numbers I’ve used for this post do not include monetary gold, PBOC purchases will not show up in these stats.
It’s remarkable that Chinese net import in March, at least 111.1 tonnes (85.1 + 26), hasn’t been sourced from London, as it has been in the past year. UK total net gold export in March collapsed 85 % m/m from 107 tonnes in February to 16 tonnes in March, net export to Switzerland fell by 72 % from 119 in February to 34 tonnes inMarch.
The main gold vein, as I’ve called it, that ran from the UK, through Switzerland, through Hong Kong finally reaching the mainland, is drying up. Switzerland net gold export to Hong Kong fell 76 % from 97.9 tonnes in February to 23.9 tonnes in March, according to Swiss customs.
In the coming months I’ll be watching very closely if any more gold will be squeezed out of London and how Swiss exports to Hong Kong and the mainland will evolve. I believe the largest floating supply is/was in London, it will be decisive for the gold market if these stocks are gone. Additionally I will search more customs databases to get hard numbers on gold export to China mainland.
Because net export from Hong Kong to the mainland in March didn’t collapse, but Swiss export to Hong Kong did, two things could have happened. Or Hong Kong, which has net imported 924.6 tonnes of gold since 2010, shared a little of its yellow metal to supply the mainland, or other countries than Switzerland increased their export to Hong Kong. To find out I made a chart combining Hong Kong net import with Hong Kong’s main trading partners.
From looking at the chart I think this is what happened; during Q1 Hong Kong net import dropped (Switzerland and UK imports down, Australia and the US quite stable in March), which means a bigger share of what they imported was sent forward to the mainland supplemented by inventory build up in Hong Kong over the past years.
Eric Sprott: I am very excited about developments in the gold and silver markets today. I have been speculating since late 2012 that Western central banks could be running out of gold. I put the sell-off in gold and silver in 2013 to the fact that the Western banks needed a way to generate physical gold supplies. As the metals prices went down, there was a lot of liquidation of gold which increased the supply by an estimated 900 tonnes last year.
Let’s look at the figures. The annual supply of gold is around 4,300 tonnes. 3,000 tonnes come from mining and the other 1,300 tonnes or so from recycled material. In 2013, an additional 900 tonnes came onto the market from ETFs that were being liquidated – a supply increase of around 21%.
Quite frankly, I believe this was all orchestrated in order to create this supply. During the time when the price was knocked down, a tsunami of buying started. India bought 336 tonnes from April to June of 2013. I’m sure that the central bankers went to the Reserve Bank of India and said: “You’ve got to stop people from buying gold.”
Of course, the Reserve Bank of India went on to create rule after rule to try to stop people from buying gold. They managed to get monthly imports of gold down to around 20 tonnes from its normal imports of around 80 tonnes per month. Obviously, those official numbers leave out smuggling, which probably makes up a very large amount of gold imported into India.
This commentary form Eric showed up in Sprott's Thoughts---and it was posted on the sprottglobal.com Internet site yesterday. It's definitely worth reading.
By Turd Ferguson | Wednesday, May 14, 2014 at 1:16 pm
By now, you've likely had a chance to read the open letter to Switzerland. Since it was posted late Monday, there have been several, interesting new developments. I thought I would pass them along.
First of all, a reminder...
I am a blogger, not a journalist. My job is to analyze this situation and, based upon my accumulated experience, pass along my opinions. Your job is to read my opinion and then decide whether or not is is valuable.
That said, in writing the open letter, I was speculating and drawing conclusions. For me, it all makes perfect sense. In September of 2011, the SNB went "all in" with the fiat currency scheme. In doing so, they converted the last of their physical gold reserves into paper claims and these claims were used to suppress paper price away from the all-time highs seen at that time. What remains now for the Swiss people are nothing more than promissory notes to unallocated accounts. Their gold...their independence and sovereignty...is likely gone for good.
It may not be too late just yet, however. Later this year, the national referendum will be scheduled and the vote could potentially demand that the SNB return the Franc to a gold backing. This unique, democratic process is what makes this issue so compelling. For if the Swiss people can become fully aware of the situation and the potential impact of this vote on them and their posterity, might they be roused to demand this change? Maybe.
So, at this point, it becomes even more vital that my conclusions regarding the Swiss gold reserves are plausible. It's one thing to speculate. It's something entirely different to be right. To that end, several folks have emailed me within the last 24 hours, offering to help. To save time, some of the emails are copy-and-pasted below. The most compelling come from James Turk and a Swiss reader named Dominik. Please read and consider, then formulate your own conclusions:
I learned about your article from the GATA dispatch, which I read this morning. As soon as I read it, I took a look at the Swiss National Bank 2013 audited accounts in its Annual Report.
I hadn’t looked at the SNB's audited accounts for several years, but my recollection was that they reported how much gold was on loan as well as how much physical metal they held. So I was surprised to see that they no longer do that. The SNB’s balance sheet does not report that info anymore, with the result that as you wrote in your article, the SNB’s gold could very well be put into the market - meaning it is being used in the gold price suppression scheme.
I therefore immediately wrote to one of my contacts in Switzerland who is involved with the various gold initiatives there. Our correspondence is appended below, but because I do not have his permission to use his name, I have deleted it.
Von: James Turk (to James' Swiss contact) An: Datum: 13.05.2014 10:52 Betreff: Fwd: [GATA] TF Metals Report: Swiss gold was used to bomb the price and now it's gone
The article could be right. It is possible that much - or all - of the Swiss gold reserves of physical metal are gone.
The SNB’s precious metal asset is listed on p146 as “Gold holdings”. Then in the footnotes on p153, it defines what “Gold holdings” means as follows: “Gold holdings consists of gold ingots, gold coins and claims on metal accounts.”
The report does not show what portion of the “Gold holdings” are in these three categories, so it is possible that much - and maybe all - is a claim on a metal account, perhaps a metal account at the BIS. If so, it is possible that as the article below says, the Swiss gold reserve is gone. Physical metal has been turned into a paper claim.
On 13 May 2014, at 10:56: (reply from James' Swiss contact)
Thanks for the info.
Though I can't find / open the article, if it were true that the gold is gone it could cause a political earthquake, in Switzerland and worldwide, for the following reason:
There is a popular initiative pending which, among other things, requires the SNB to hold 20% of their reserves in gold. Due to the partly unfortunate wording of the initiative it got torn apart in parliament. Nevertheless it will be put to popular vote later this year.
So far it has little chance of succeeding. If it could be proven that there is no gold that would change it all and create the first constitutionally protected gold backed currency.
If you can get proof, I know whom to give it to for maximum effect. I keep my fingers crossed.
Von: James Turk(reply back to the Swiss contact) An:
Datum: 13.05.2014 12:22
Betreff: Re: Antwort: Fwd: [GATA] TF Metals Report: Swiss gold was used to bomb the price and now it's gone
The only thing I can suggest is to put pressure on the Swiss National Bank to disclose the details of footnote no. 1 to their audited financial statements by showing how much gold is in each of these three categories: 1) ingots/bars 2) coins 3) claims to gold
Nos. 1 & 2 above are tangible assets representing real, physical metal. No. 3 is just a financial asset; it is not real, physical gold. It is just a debt obligation owned to the SNB by the BIS or other banks that received physical gold shipped to it by the SNB.
Hmmmm.....Well that's all pretty interesting, now isn't it? Mr. Turk definitely thinks that I'm onto something and that the Swiss gold may, in fact, have been converted entirely into paper claims.
However, last evening I received this email from a guy in Switzerland named Dominik. It would seem to be very important that you read what he had to say, too:
Dear Mr. Ferguson I read your article “An open letter to the good people of Switzerland”. SNB has been disclosing its gold lending activities for over ten years. It is required to do so because it is an exchange-traded corporation that reports under Swiss GAAP. Its financial statements are audited on an annual basis. Below you find some data that I extracted from old SNB annual reports. It shows that gold lending was once rampant, but has ceased gradually over the last ten years. As much as I am myself critical of SNB, paper money and inflationism, we have to stick to the facts. I think it would serve you well to add this information to your article. Sincerely, Dominik
SNB tonnes of gold lent out or claims on metal accounts SNB interest income from gold lending transactions 2002 254.6 54.8 2003 232.9 32.9 2004 131.8 22.8 2005 134.6 34.9 2006 119.6 15.6 2007 138.4 13.5 2008 111.6 12.6 2009 92.7 8.8 2010 15.0 9.5 2011 15.0 1.0 2012 0.1 0.2 2013 0.1 -
So, I sent Dominik's information off to Mr. Turk and asked for his opinion. He graciously sent back this detailed and thoughtful response:
Craig, I have seen so much trickery in the way banks have reported their accounts, it is useful to be skeptical. And I am skeptical of what Dominik says below, which at first blush looks clearcut. However, there is a loophole here that needs to be considered.
I am not a lawyer, nor an accountant, but it seems obvious to me that a “claim to a metal account” is different from a “metal account”.
http://thelawdictionary.org/claim-n-1/ Law Dictionary: What is CLAIM, N 1? definition of CLAIM, N 1 (Black's Law Dictionary) A claim is a right or title, actual or supposed, to a debt, privilege, or other thing in the possession of another.
So a “claim to a metal account” means the “metal account” is in someone else’s possession, e.g., the BIS maintained and was operating the “metal account” for the SNB, and the SNB only had a claim to that metal account. But the SNB annual reports says “claims to metal accounts” so we know that there was more than one claim and more than one metal account. So presumably other banks were involved, and logically that would mean the big bullion banks.
Why does the SNB annual report say “claims to metal accounts”? Why doesn’t it say just “metal account”? Is there a willful attempt to deceive and mislead? Does the SNB actually keep gold in “metal account(s)” at other banks but does not report them in its accounts? Unfortunately, we just don’t know.
Regarding Dominik’s comment about GAAP, the Bundesbank according to the Bundesbank Act is required to report its accounts according to GAAP, but doesn’t. The Bundesbank reports gold on loan and gold in the vault as one line item, which obviously is contrary to GAAP because you are mixing two very different assets - a tangible asset in a vault and a financial asset with counterparty risk. The reason the Bundesbank defies German law is because it is a member of the IMF, which for Bundesbank accounting is a higher legal authority than German law. I assume the same thing applies to the Swiss National Bank.
One last point. Depositing gold into a metal account is essentially the same thing as lending gold. The difference is that only banks can accept “deposits”, regardless whether those deposits are made in a national currency or gold. The deposit is a liability of the bank, which is for all practical purposes the same as if the bank borrowed that same gold - it is a liability of the bank in both cases.
Thus, it is possible that the Swiss gold has been removed from vaults and put into the market by depositing the gold into “metal accounts” the SNB maintains at the BIS and the big bullion banks, which are metal accounts not reported by the SNB in its audited accounts. Note I say “possible”. Whether they are in fact doing that or not is the key, and it would be interesting if someone (like the Swiss parliament or some Swiss government auditing body) were to put that question to the Swiss National Bank. I would at the same time also ask the SNB why they at one time had outstanding “claims to metal accounts” but no longer do so.
You can use the above in an article if you want or share it with Dominik. You can send it to him along with my email address in case Dominik wants to contact me to explore this further.
And so the intrigue deepens and all of this seems to demand a further investigation. To that end, Chris Powell of GATA is now on the case. Earlier today, he sent me this email:
James and Craig:
I've just sent this off to the communications department at the Swiss National Bank, seeking comment about Craig's fine work this week. I may ask Lars Schall, the German freelance financial writer, to do the same thing. I've already sent Craig's commentary to my list of mainstream financial journalists and financial letter writers, not because any of them will ever put any questions to the SNB but just so I can say that they were given the information and ignored it.
I also may do a GATA Dispatch asking our followers in Switzerland to put the questions to the SNB on their own. Maybe we can achieve a little transparency here.
---------- Forwarded message ---------- From: Chris Powell <firstname.lastname@example.org> Date: Wed, May 14, 2014 at 11:15 AM Subject: Swiss gold reserves To: email@example.com
Wednesday, May 14, 2014
I write to call your attention to this week's commentary published by the TF Metals Report asserting the probability that Swiss gold reserves have been mobilized lately to suppress the price of gold --
1) Does the Swiss National Bank have any response to that commentary? Is it true or false?
2) Has the bank been trading in gold or gold-related financial instruments in the last five years?
3) If so, what was the bank's objective with that trading?
4) Has the bank loaned or leased gold in the last five years and is it lending or leasing gold now?
5) If so, what is the bank's objective with that lending or leasing?
6) Will the bank disclose the amount of its gold reserves that is held in metal in the bank's own vaults, the amount of its gold reserves that is held in metal in the bank's accounts with other depositories, and the amount of its gold reserves that have been loaned or leased and that is not held in the bank's own vaults or in the bank's own accounts with other depositories?
Thanks for whatever information you can provide.
I will, of course, keep everyone here at TFMR updated on these events as we move forward. In the meantime, I ask you again to please consider sending this information to anyone you know in Switzerland. The Swiss people have the opportunity to regain their sovereignty and, at the same time, drive a stake through the heart of Central Bank gold price suppression and manipulation. We need to offer them as much encouragement as possible.