Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Monday, June 2, 2014
Gold Report June 2 , 2014 --- Goldman enters into the collection of ancient relics ? Like 14 tons worth of golf from cash needy Ecuador ! Ecuador Transfers Half Its Gold Reserves To Goldman Sachs In Exchange For "Liquidity" .... Note that even as the price of gold is manipulated , the demand ( whether China , India or Wall Street Banks ) remains strong ! Silver Doctor items of note from Marshall Swing ( turbulence ahead for the PMs ) . Discussion of the Global Derivative Bubble , Alasdair Mcleod discusses last week's Options Expiration Manipulation , Koos Jansen note China demand rebounds week of May 19-23 .....
Ecuador Transfers Half Its Gold Reserves To Goldman Sachs In Exchange For "Liquidity"
This is a great example of how the game works. In a world in which every government on earth needs “liquidity” to survive, and the primary goal of every government is and always has been survival (the retention of arbitrary power at all costs), the provider of liquidity is king. So what is liquidity and who provides it?
In the current financial system (post Bretton Woods), the primary engine of global liquidity is the U.S. dollar and dollar based assets generally as a result of its reserve currency status. Ever since Nixon defaulted on the U.S. dollar’s gold backing in 1971, the creation of this “liquidity” has zero restrictions whatsoever and is merely based on the whims and desires of the central planners in chief, i.e., the Federal Reserve. As the primary creator of the liquidity that every government on earth needs to survive, the Federal Reserve is thus the most powerful player globally in not only economic, but also geopolitical affairs.
The example of the so-called sovereign nation of Ecuador relinquishing its gold reserves to Goldman Sachs for “liquidity” which can be conjured up by the Fed on a whim and at zero cost tells you all you need to know about how the world works (read my post: Why Fiat Money is Immoral).
Now from Bloomberg:
Ecuador agreed to transfer more than half its gold reserves to Goldman Sachs Group Inc. for three years as the government seeks to bolster liquidity.
The central bank said it will send 466,000 ounces of gold to Goldman Sachs, worth about $580 million at current prices, and get the same amount back three years from now. In return, Ecuador will get “instruments of high security and liquidity” and expects to earn a profit of $16 million to $20 million over the term of the accord.
“Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits,” the central bank said in the statement. “These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales and financial operations, that will contribute to the creation of new financial investment opportunities.”
Oh this is fun!!: Wall Street is concerned over China's hoarding of gold;
(courtesy China Times)
Wall Street concerned over China's gold hoarding
Huang Shu-rong and Staff Reporter
The People's Bank of China, China's central bank, is the world's biggest gold hoarder and the bane of Wall Street traders, reports the Chinese-language financial news website BwChinese, citing a Hong Kong financial analyst. Leung Hai-ming told the portal that China's central bank took advantage of the US Federal Reserve's quantitative easing program in 2013, when the price of gold fell by 27%. The bank bought in over 1,000 tonnes of gold, representing almost one third of the world's 3,756 tonnes last year. There is reportedly less than 180,000 tonnes of gold reserves left, and only 20% of that remaining gold is tradable. This means that the People's Bank of China will likely keep hold of the gold, limiting the gold trading volume — a concern for both the US government and Wall Street traders. Leung said that the US Federal Reserve loans gold to investment banks such as Goldman Sachs, Citibank, JPMorgan Chase, Morgan Stanley and others every year to trade in the market. The amount of gold ranges between 400-500 tonnes and the move acts to artificially suppress gold prices. When the prices are in their favor, these investment banks buy back the gold and return it to the Fed. But this measure is absolutely useless because China's is hoarding the gold and does not follow the rules, Leung said. When it sees that gold prices are going down, the first thing it does is buy them, and does not sell when prices continue to fall. It seems that Wall Street cannot do anything to counter China on this, according to Leung. The analyst said that the People's Bank of China is putting pressure on Washington and Wall Street as the US dollar has been linked with gold prices since its rise as the leading global currency. The Fed hopes to manipulate gold prices in its favor, Leung said, but the Chinese central bank is standing in its way.
Gold Daily and Silver Weekly Charts - Cap and Fear
There are some very significant events happening behind the scenes, even though the markets would seem to hide this with their sleepily accommodative nature to the status quo.
I thought Volcker's call for a new Bretton Woods agreement was significant, in a Chamberlain-like manner. Volcker is certainly out of power, riding the tide of events more than shaping them now. But he certainly still has insights into what is going on.
I am a little surprised at the push by the neo-cons at this point to advance the New American Century. It makes me wonder.
There is plenty of room for speculation here. I will take a pass on it for now, and wait to see some indication of what is happening, before ranging out into the seas of possibilities.
To all of you who are on the fence about buying physical, NOW IS THE TIME TO BUY while there is physical on the shelves. In the coming months, I truly expect metal prices to continue to depress, but at some point there will be a HUGE gap to the downside where major players (the bullion banks) cash in on their shorts very very quickly, reaping the cash, then repositioning in LONG positions as silver and gold GO TO THE MOON.During that VERY BRIEF WINDOW, it may not be possible to purchase silver and gold at rock bottom prices and the only options left are fiat futures, index fiat futures, or fiat metal mining stocks. You do not want to be in any of those, IN MY HUMBLE OPINION.
I firmly believe what is coming is going to confiscate all metal in mines from personal stock holdings and it is my expectation just as we see the veiled robbing of 401Ks, retirement investments, and all such fiat vehicles to “cover” the coming collapse, thatall investments in paper shares will be lost. If we have a MAJOR crash next year, a financial crisis like the world has never seen, do you really think they are going to allow the small speculator holders of paper physical metal in futures or mines to hold those vehicles when silver is $500 an ounce and gold is $10,000 an ounce? Stay thirsty for physical, my friends…
The global derivatives bubble is now 20 percent bigger than it was just before the last great financial crisis struck in 2008. Let that sink in for a moment.JPMorgan’s derivative exposure alone has ballooned to over $70 TRILLION (mainly interest rate swaps). We are witnessing a financial bubble far larger than anything the world has ever seen, and when it finally bursts it is going to be a complete and utter nightmare for the financial system of the planet. A financial crisis far greater than what we experienced in 2008 is coming, and it is going to shock the world.[Read more...]
Last week gold and silver fell sharply. The principal reason was the expiry of the June gold future contract on Comex, whose open interest has unwound 120,000 contracts in the last six trading sessions. Some of this has been rolled forward, but Open Interest still took a bad knock as shown in the chart below. [Read more...]
Chinese Weekly Gold Demand Highest Since Late February, 787 MT YTD
In week 21 (May 19 – 23) Chinese wholesale gold demand, measured by SGE withdrawals, was 36.4 metric tonnes, up 22.98 % from the week before. This is the highest weekly demand since week 9 (February 24 -28). 36.4 tonnes is just shy of the year to date weekly average of 37.5 tonnes. Chinese gold demand has been down in recent weeks from extremely strong in the first 9 weeks of 2014 to less strong in the last 12 weeks.
The insight SGE withdrawals give us has again been confirmed by the latest trade data from Hong Kong and Switzerland. Net export of both counties to China mainland in April was down from the previous month. Hong Kong net exported 65.4 tonnes to the mainland in April, down from 85.1 tonnes in March, Switzerland net exported 12 tonnes to the mainland in April, down from 26 tonnes in March. These numbers were expected as they match SGE monthly withdrawal numbers. SGE withdrawals in April were 130 tonnes, down from 147 tonnes in March.
In April the mainland was supplied by 77.4 tonnes from Hong Kong and Switzerland, 33 tonnes came from domestic mining and an additional 19.6 tonnes of supply came from scrap and/or import from other countries. Note, there can be gold en route from being imported till its sold on the SGE and not all gold supplied to the SGE will be withdrawn from the vaults, some members/individuals hold it in their SGE account.
Silver withdrawals are unfortunately not published by the SGE, though it wouldn’t be that interesting as gold withdrawals. The Chinese silver market is not constructed as the gold market, hence silver withdrawals wouldn’t inform us about Chinese total silver demand. However, in week 21, we can see that the premium of spot silver on the SGE was still trading at more than 5 % above the international price, measured by the Ag(T+D) contract.
On the Shanghai Futures Exchange most silver contracts were trading in backwardation on May 30. This is the curve:
Overview Shanghai Gold Exchange data 2014 week 21
- 36.4 metric tonnes withdrawn in week 21 (19-5-2014/23-5-2014) - w/w + 22.98 % - 787 metric tonnes withdrawn year to date.
My research indicates that SGE withdrawals equal Chinese wholesale gold demand. For more information readthis.
This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 累计交割量) is the total YTD.
This chart shows SGE gold premiums based on data from the SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan).
Below is a screen shot of the premium section of the SGE weekly report; the first column is the date, the third is the international gold price in yuan, the fourth is the SGE price in yuan, and the last is the difference.