SProttWe believe that any rational investor considering the collection of facts below would consider, like us, that gold prices are long overdue for a re-rate.  As we all well know, almost all markets are manipulated; and the recent Barclays settlement is one example vindicating our views.
» The global macro environment is weak,
» Supply/demand numbers in our favour,
» Ponzi finance is in full bloom.

We encourage readers to protect themselves with any/all precious metals.


 

 

Markets At a Glance, By Eric Sprott, Sprott Global:

In this month’s Markets at a Glance, we present a collection of thoughts on why we think precious metals are a compelling investment now.

On physical demand and the shortage of precious metals:

  • The Gold Forward Offered Rate (GOFO) remains very low, with extended periods of time in negative territory (Chart 1).1
  • Why is Germany’s repatriation of their 674 tonnes of gold taking so long? As of March 2014, only 69 tonnes had made their way back, a pace of less than 5 tonnes a month.2
  • If there is no shortage of gold, why are the U.S. and U.K. exporting so much gold to Switzerland? (which itself exports most of it to China).3
  • According to some estimates, China consumed over 4,800 tonnes of gold in 2013, implying that about 3,600 tonnes were drawn from global stocks (i.e. western vaults) to satisfy demand.4
  • All this Chinese buying is reflected in the monstrous amounts of gold deliveries on the Shanghai Gold Exchange.
  • Dubai is building a new gold refinery capable of handling 1,400 tonnes, and current global gold refining capacity is about 6,000 tonnes (world mine production is less than 3,000 tonnes a year).5 Why would they need so much refining capacity if physical demand was not buoyant?
  • As the major gold miners cut back on exploration, future mine supply will remain constrained.6
  • Another “temporary source of supply” (900 tonnes) has been ETFs, which have been raided for most of 2013. However, as Chart 2 shows, they have now stabilized. Other things being equal in demand, where will that 900 tonnes of supply come from in 2014?
  • Interestingly, the Silver Institute, in its 2014 World Silver Survey, noted that there was a 96 million ounces shortfall in 2013 due to strong physical demand.

On the macroeconomic environment:

  • The real level of inflation is high and much higher than official figures (Chart 3). Precious metals have historically hedged against inflation.
  • Speaking of inflation, the large amount of money printing and the bloating of U.S. Central Bank’s balance sheet will most likely end badly.
  • According to Jürgen Stark, former European Central Bank board member, central banks have lost all ability to control the economic situation. In other words, we live in a fictional sense of security.7
  • Vladimir Putin thinks that “China and Russia need to ensure their gold and other currency reserves are secure”.8 At the same time, the Russian Central Bank continues to be a large buyer of gold and a seller of U.S. Treasuries.9,10

On manipulation: 

  • The CME Group might introduce daily limits on gold and silver price moves to limit the extreme volatility we have seen in recent years (i.e. to prevent, going forward, any large spikes up in price).11
  • Investigations into the gold fixing mechanism by the German financial regulator BaFin and the subsequent withdrawal of Deutsche Bank from the gold fixing suggest something is wrong.
  • More recently, Barclays got fined 26 million pounds because one of its traders manipulated the gold fix to avoid paying on a gold derivative.12
  • Some market participants are suing the banks responsible for the gold fix over alleged manipulation.13
  • The company that ran the Silver fix “suddenly” decided to stop running the process.14
  • As argued in the January 2014 Markets at a Glance, we find it strange that in 2013, gold ETFs were raided, whereas silver, which experienced the same price declines, stayed in the ETF’s vaults (Chart 2).15 This suggests that the ETF’s gold was needed to satisfy physical demand.

To conclude, we believe that any rational investor considering this collection of facts would consider, like us, that gold prices are long overdue for a re-rate. As we all well know, almost all markets are manipulated; and the recent Barclays settlement is one example vindicating our views (more to come?).

» The global macro environment is weak,

» Supply/demand numbers in our favour,

» Ponzi finance is in full bloom.

We encourage readers to protect themselves with any/all precious metals.

CHART 1: 1-MONTH GOLD FORWARD OFFERED RATE (GOFO)
maag-05-2014-1.gif
Source: Bloomberg

CHART 2: KNOWN HOLDINGS OF PRECIOUS METAL ETFS (INDEX DEC 2011 = 100)
maag-05-2014-2.gif
Source: Bloomberg, Sprott Calculations

CHART 3: CONSUMER INFLATION – OFFICIAL VS SHADOWSTATS (1980-BASED) ALTERNATE (YEAR TO YEAR CHANGE. THROUGH APRIL 2014 (BLS, SGS)
maag-05-2014-3.gif
Source: shadowstats.com, published May 15, 2014

 

 

1 See http://www.sprott.com/markets-at-a-glance/do-western-central-banks-have-any-gold-left-part-iii/ for a discussion of the GOFO rate.
2 http://www.ibtimes.com/german-gold-makes-it-way-back-home-fed-slowly-1563651
3 http://www.sprott.com/markets-at-a-glance/the-chinese-gold-vortex/
4 http://www.goldmoney.com/research/analysis/renewed-estimates-of-chinese-gold-demand 
5 http://www.arabnews.com/news/566806
6 http://www.bloomberg.com/news/2014-03-03/gold-miners-see-looming-output-drop-after-cut-in-spending.html
7 In Spanish: http://www.oroyfinanzas.com/2014/05/antiguo-economista-jefe-bce-advierte-colapso-sistema-monetario-mundial/
8 http://www.reuters.com/article/2014/05/24/russia-forum-putin-idUSL6N0OA0JE20140524
9 http://www.gold.org/reserve-asset-management/statistics 
10 http://www.treasury.gov/ticdata/Publish/mfh.txt 
11 http://www.reuters.com/article/2014/04/29/cme-group-precious-idUSL2N0NL1JH20140429
12 http://www.bloomberg.com/news/2014-05-23/barclays-fined-44-million-for-london-gold-fix-failings.html
13 http://dealbook.nytimes.com/2014/05/05/banks-sued-on-claims-of-fixing-price-of-gold/?_php=true&_type=blogs&_r=0
14 http://www.bloomberg.com/news/2014-05-14/silver-fixing-company-will-stop-running-benchmark-on-aug-14.html
15 http://www.sprott.com/markets-at-a-glance/one-more-sign-of-manipulation-in-the-gold-market/


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  1. While we could all add bullets to the lists above, I would say the Goldman Suks story should be in there because of the GLD data.
    Goldman told the world to sell their gold last year then a few months later it came to light that Gold SUKS became one of the largest holders of GLD.   Also since the sell, sell, sell BS – they cut deals with VZ and Ecuador to lease their gold.  WHY?  With all that selling the world should be awash in gold…  
    Also not to be forgot:  ABN AMRO – a LMBA Clearing Bank was forced to default on their gold customers!?! followed by Rabo Bank?  And this while Gold SACKS is saying sell, sell, sell… and COMEX gold evaporates and London gold evaporates and GLD gold evaporates – AND WE ARE TIN-FOIL CONSPIRACY NUTS???   While the Fed, the BoJ, BoE, PBOC and ECB all are printing TRILLIONS in one manner or another…while saying they want inflation!!!   Has the world gone insane?   
    And China has record demand…so of course the price has to go down.  Bear market – don’t cha know?   
    Bright side:  Cheaper to stack.  

    • BoE and ECB have been pretty tame comparatively. Euro-gold failing some critical levels:

      http://traderdannorcini.blogspot.com/2014/06/euro-gold-below-chart-support.html

       
      Consumer inflation means very little to big money. Relatively tame commodity prices and wide spread wage deflation are in the hands of policy makers. Where is the buissiness inflation? Carry trades, OTC derivatives and money supplies distort all fundamentals. In fact, money supply has little or no impact on spot price of PMs historically. Unless we have a flash reset PM hasn’t hedged anything on thin air fiat creation). 800 to 1250 in 34 years (yea!)

      Best to revisit this argument in 4-5 year increments as the powers at be are far too successful as of late. The creditopia continues and see nothing in 2014 changing that. That baby 400B over 30 years in Rus/Chi was more symbolic that anything else. A relatively small transaction rather than destroying the pertro dollar in a flash. Ukraine worries another bust. Bonds are flat. Every major currency is attached to the same crap on a string. 
       
      All the vaults are empty, eh? Then that is really depressing if that is the best PM can do. SD isn’t exactly a super secret site. Certainly keep the headlines doomsday for everyone’s basic emotional attachments (no wonder we get a bunch of religious nuts). I would venture to say the fed props up gold prices when it needs to as well. They certainly don’t want to wake up with a dollar index through the roof one morning based on gold losing 50%.  
       
       
       

    • “With all that selling the world should be awash in gold… “
       
      The world IS awash in gold and it is washing up on the shores of China!
       

  2. I have been thinking on the gold situation in China …..
    Private ownership of gold there has been encouraged by their government for the last several years (since at least 2007). One can’t  believe that all the reported gold is being soaked up by the People’s Bank as gold shops seem to have been doing a booming business. However, I also I can’t believe that any government is so genuinely interested in looking after their citizens finances other than to protect future tax receipts and help their ‘friends’ thru favored deals. That leaves room for another, more nefarious reason …. perhaps they are promoting gold in an attempt to soak up excess liquidity to help combat inflationary potential created by their shadow banking system?
     
    Thoughts?

    • Excess liquidity for long term wealth preservation. No one can argue PM on that. While the bugs here are counting hours for a spike and NWO, they foreseeing the next 100 years. No way they are going to force the dollar’s hand on yuan/gold reserve intentionally. They have too many mouths to feed in a global famine scenario. 
       
       
       

    • A more likely scenario would be that the PRC Gov is well aware that the paper Ponzi paradigm is ending and that if their citizens’ finances are protected by gold and silver, there will be MUCH less tendency for them to riot and revolt against the government.  It will be a strong argument for the PRC Gov to show news of the rest of the world melting down economically and then point out that this is having a minimal effect in China and on its citizens specifically because they recommended the buying of gold and perhaps silver as well.  In a post paper world, he who has the gold (and silver), rules.
       

  3. I know I am the king of obvious, but here goes:  The graft of silver  and paper silver show that the price is headed for -$200 an ounce!   You and I know that it will never be that cheep, we could only wish right?  Now let me ask you how cheep will silver go?  $5 NO…$10 NO…15  NO…..$17 NO…. $18 probably not!  Today you are watching the beginning of the end!  As I have been predicting (was i right or a little too pessimistic?), by July 1 we will be in a different world for silver and gold!  But if i had to guess today you are watching something happening RIGHT NOW!  If silver stays above $18 today watch out the end is in sight.  If it goes below WOW we are closer!   https://www.youtube.com/watch?v=hYfkurldc8M

    • $5 NO…$10 NO…15  NO…..$17 NO…. $18 probably not!
      What are you basing this on?
      Let me tell you about Eric Sprott, the Silver and Gold salesman. My buddy is a pilot and his substantial holdings with Sprott are now down 88%. I’m wondering at what point you finally throw in the towel with Mr. Sprott, also part owner of GoldMoney – and his Goldbug promotional propaganda. .
      At what point does HE realize his data does not produce accurate, expected, results?
      You should think about what type of world you would be living in with Silver at $200. Its relationship to the marketplace is quite extensive (as many of you quote to prove its strong demand.) So its relationship to commodities will simply reflect inflation.
      What can be dramatically inflated, BUT not effect the marketplace? What is, essentially, useless?  What is NOT a commodity? What do Central Banks hold? (cause it ain’t Silver) What would happen if Gold were revalued overnight to say $100K. Almost nothing. The masses would still buy cell phones, solar panels, medicinal AG, cars, pacemakers… wheat, copper, etc. There is a plan – and it doesn’t involve Silver.
      170,000 tonnes of Gold mined in 10,000 years… and the US supposedly holds only 8,000 tonnes? Europe 10,000 tonnes. Where do you think all this Gold is? It is privately held by those elite you have so much, misplaced contempt for; Rockefeller, Rothchilds etc. The same families that are shareholders in the Central Banks. They know everything you do… and a lot more. They have been running the world for a couple of centuries. They’ve seen fiat currencies come and go… and this is why they own Gold and not an ounce of Silver…
      But what about the GSR??? Who cares. It could go to 1,000:1 When Gold gets revalued, don’t expect Silver, Platinum, Copper to follow. Not.Gonna.Happen.Like.That.

  4. 90 million ounces deficit? Then where did those come from? It wasn’t ETF’s, although those were apparenty needed as suppliers of gold.

    Who had 90 million ounce of silver to cough up? And how large is their hoard?
    90Moz at a time may not get us into shortage any time soon.
    We’re buying too softly. And dumb money has not gotten in yet. A few really nerdy coin collectors. They’re my customers. Don’t care about the price of silver, just the pretty pictures. The old skool ones are dying off, new skool are the ones buying Silver Shield and the like. Not sure it mattters much for silver demand.

    • ETFs weren’t needed for anything other than to let the big banks make money in a new way, and give some people exposure to pms without holding them.  Where do you think the gold came from that backs these ETFs?  Didn’t just pop out of thin air,

    • X C Skaker said: “The old skool ones (coin collectors) are dying off, new skool are the ones buying Silver Shield and the like.”
       
      True … I know  lot of these people. Only rare, and I mean really rare coins (scarcity and condition), are going to escalate in value much in the  future as demand for the lesser will drop off along with the hobbyists.  There is a saying among old coin dealers “If you have three collectors and three coins, toss one coin in the river” (create demand).
      Bullion is another matter – the youth at least understand it and have enough cash to purchase a few rounds now and then, and let’s face it …. it is addictive.

    • Yes, it IS addictive… and in this case, that’s fine.  :-)
       
      A couple of years ago, the SLV etf was reputed to have over 11,000 tons of silver in their vaults.  I don’t know that they did but that was published.  If true, then they had over 353M ozs. of silver in hand.  That could easily handle a 90M oz. shortage and pummeling the price down with naked shorting and other skulduggerous tricks dropped the price and made it more readily available.
       
      As to gold… yes, everyone should own a little, IMO.  It is very pretty stuff.  Holding a 1-oz. gold coin in your hand is almost magical.  It is heavy.  It feels warm to the touch… almost as if it has an inner fire that warms the soul of s/he who holds it.  :-)
       

  5. GOOD NEWS EVERYONE!!!
    Jim CFR Rickards has a solution to the collapse of the ‘monetary’ system …
    SDR’s should replace the US Dollar as the WRC!!!
    This will solve all our problems. A fiat accounting digit created in the 70′s to simulate Gold Reserve imbalances should replace the USDollar, which ummmm, errrrr, is a fiat accounting digit created in 1913 and accumulated by countries to simulate a Gold Reserve imbalance (sorry, the ‘Gold’ is stored in New York of course)
     

     
    I can’t believe people still believe that this Rockefeller shill Rickards is a Gold Bug.
    He is pretending to be a Gold Bug whilst trying to promote the IMF as an honestly global institution with ‘solutions’ that aren’t dictated by Washington and London.
    I wonder if Rickard’s would support an SDR type unit that was controlled out of say, Astana, with NO COUNTRY HAVING VETO POWER on its board (US technically has veto at IMF still)… not bloody likely.
    The Rockefeller pulls this puppets strings.

    From: http://www.lowyinterpreter.org/post/2014/04/15/G20-US-ultimatum-IMF-reform.aspx
    15th April 2014
    “The IMF/G20 meetings in Washington last week were not good for the US. And things may get worse …. The G20′s frustration centres on US failure to ratify the IMF quota and governance reforms agreed by the G20 in 2010. While countries representing nearly 80% of IMF votes have approved the reforms, the required threshold is 85%. The US has a veto with its 16.75% shareholding and the US Congress continues to block the reforms.”

    …yeah, like the IMF is anything but a Washington and London Legacy System that will destroy itself and its usefulness by resisting change. The US can indefinitely block reform by having over 15% of the SDR allocation, and all new allocations have to be offered to the US based on their current allocation, and the Fed simply will create new USD’s and buy the allocations to maintain its stake. Thus Washington is simply killing the IMF (good riddance) because it knows it is done for if the reforms are passed … it would mean the death of the Dollar.
    So what is Rickards task in the scheme of things? Why has Rockefeller paid him with book deals through CFR contacts? …to continue the subterfuge about SDR’s so that London and New York banks can buy as much time as possible whilst holding the world economy hostage, whilst resisting all reform, and Rickards makes it look like reform is possible, which it isn’t. What a psy-op.

  6. Excerpt: “Interestingly, the Silver Institute, in its 2014 World Silver Survey, noted that there was a 96 million ounces shortfall in 2013 due to strong physical demand.”
     
    Yeah, baby! THAT’S what I’M talkin’ about! Scrap the gold yap. That’s for ‘daddy warbucks’ types to fret over. We want the scoop on SILVER, Mr. Sprott. … SERVE IT UP, WE’RE HUNGRY!

    • yeah, that gave me a twitch too … oh my God, a statistic with some REAL Economic Relevance … I have been waiting soooo long :P they can stick the unemployment and inflation figures up their ***
      I would definitely advise people to hold a little Gold as well though … just a little, it will take the plebs a while to understand the true value of Silver … Gold still has bling conditioning.

  7. There is relatively much more demand for gold right now. Silver in a 10-15% deficit depending on how you calculate?
    Gold is at 100-200%!

    We really need to push this deficit WAY OPEN. Else silver is going to lag behind while gold is revalued.

  8. To the person who made the following comment:
    “…They certainly don’t want to wake up with a dollar index through the roof one morning based on gold losing 50%.”
     
    The US Dollar Index is a weighted geometric mean of the dollar’s value compared only with a “basket” of 6 other major currencies which are:

        Euro (EUR), 57.6% weight
        Japanese yen (JPY) 13.6% weight
        Pound sterling (GBP), 11.9% weight
        Canadian dollar (CAD), 9.1% weight
        Swedish krona (SEK), 4.2% weight
        Swiss franc (CHF) 3.6% weight
     
    So, exactly where does Gold (or Silver) figure into the equation?… (Hint: every currency in the ‘basket’ is a fiat currency, just like the US Dollar.)  The US Dollar Index is a charade used to keep people ‘confident’ in fiat paper ‘money’.  To anyone who stacks Silver or Gold, the Index should be a meaningless indicator.

    • @Plebian
      IF you can’t notice a pattern for the last 20 years, you are blind:

      http://www.macrotrends.net/1334/dollar-gold-and-oil-historical-chart

       
      We all know all fiat is out of control and dirty (blah, blah, blah). While everything is held together with toothpicks, bubblegum and band aids with all the evil in world making up lies and numbers, the USDX is still indicative of deflationary pressures and gold still responds to this. Point being: too strong of a dollar is not desired in this environment the by the powers that be.  
       
      This chart is meaningless to people who have already calculated current spot at 10K and ready to use their stack as real currency. This is not a reality yet
       
       
       

  9. Bottom line here is that pm investors may or may not get vindicated in the future. We need to admit that we underestimated the power and genius of the Fed. All the big dogs in the industry(Sprott,Morgan,Roberts,Schiff,Rule,Sinclair and…F Me there must be a dozen more that I could name) have all been so terribly wrong on their past timing and price predictions,that anything they say now doesn’t mean shit from the investor perspective.The secondary self professing gurus who simply parrot what these big dogs say need to find a different vocation. Sorry boys, but your credibility lives and dies by the numbers and the advice you give at the time.All of you have egg on your face and need to fess up. This is a dire prediction for pm investors(of which I am one unfortunately) but is totally possible based on the last 3 years of experience. Deflation scenario-All asset classes crash and cash wins out. PM’s crash with the rest. Inflation scenario-PM’s because they will have been so out of favor for so long never keep up with the more mainstream asset classes.They rise but not in preportion to other assets. If this happens, we will be ok(we still own a rare asset) but never reap the rewards we all have been hopeing for. Don’t give me the China is buying like crazy bullshit-America is not buying and that’s where we live.

    • @Bradford Yes but the gurus are only wrong about the recent history. The official talking heads were wrong about there not being tech and housing bubbles, and also wrong about an economic improvement. Goldman Sachs is constantly wrong to the point that when they give specific advice, then doing the opposite will have better odds of making a profit. The Fed has just announced that Treasury Bond Modelling is also useless (ie, the PM gurus are to be compared to what??)
       
      The gurus have the right end-game scenario prediction of course, it is just their timing that is wrong. So anyone that is a physical PM holder is a Long Term Investor, not a paper pusher … I will agree that some of the gurus investment advice regarding PM ETF’s has hurt a lot of people (the stupid people who deal in ETF’s … Sprott is a dope or a shill), but the gurus who warned people to steer away from ETFs and prepared people to dig-in-with-phyzz and get ready for the BIG one will be proven correct for sure.

  10. 1 question for deflationists: 
    How in the heck is the U$D going to “deflate” with all of the issued U$D out there??? 
    In deflation debts must be written off, or paid, or forgiven, and all the laws are against 
    this scenario right now. Besides, if the U$D deflates, but the GSR “normalizes”, 
    SILVER STACKERS STILL WIN!!!

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