Reuters/Tamara Abdul Hadi/Files

Reuters/Tamara Abdul Hadi/Files

On this week’s SD Weekly Metals & Markets, gold expert Alasdair Macleod joins The Doc & Eric Dubin to discuss:

  • QEternity:  Indications of a renewed bias of global monetary easing
  • Negative GOFO rates continue, physical gold supply tightening again
  • Bond market implications of the Federal Reserve as bond “buyer of last resort”- how much longer can the Fed maintain control of interest rates?
  • China’s golden global hoover:  China’s intentions vis-à-vis the US Dollar as reserve and trade settlement currency and how gold fits into China’s strategy
  • Alasdair provides an inside look at a Swiss refiner: “They are working 24 hours a day, 7 days a week turning every ounce of gold they see into 1 kilo bars headed to China“. 

We’re pleased to have Alasdair Macleod join us this week.  We consider Alasdair among the most insightful analysts covering the gold and silver markets.  Going forward, we’ll periodically welcome him as a guest.  He serves as the research director at GoldMoney.  Click here to follow his regular reports. 

This week brought further confirmation that global loose monetary policy remains the bias for most nations.  Canadian monetary authorities were the latest to indicate their preference for loose monetary policy beyond market expectations.  This translated into a rapid decline in the Canadian dollar.

Meanwhile, France signaled this week displeasure with the continued rise in the Euro, a headwind for European exports.  Among major central banks, the ECB has kept liquidity relatively tight.  That has been possible given that part of the $85 billion in liquidity created by the Federal Reserve each month flows to US-based foreign subsidiaries of European Financial institutions.  That helps to shore-up the European banking system, courtesy of the US tax payer while giving the ECB a free ride.  But as the Euro moves towards 1.40 against the dollar, expect to see more noise about the need for the ECB to be a bit more accommodative.  Whether or not the ECB acts remains to be seen, and Germany remains biased against ECB easing.  But German elections are now in the rear-view mirror, presenting less of a risk to German politicians in the event the Euro rises into the upper 1.40 range to the US dollar and calls to “do something” become deafening.  Gold and silver investors would be wise to keep an eye on these developments.  If the ECB joins the global easing party, that would be very bullish for precious metals.


Since early September, oil has been transversing a relatively steady decline, driven in part by a reduction in risk premium as the US backed off from a belligerent stance against Syria.  But this trend is also linked to the perception that US economic growth will slow in the months ahead as employers grapple with the impacts of Obamacare.  This will work in Janet Yellen’s favor as she takes over the reins of the Federal Reserve.  Conventional (managed!) inflation expectations will remain tame, and Yellen has consistently stressed that so long as the Fed’s inflation target of 2% is not at risk of being breached, she will favor continued Quantitative Easing.

 2oz Freedom Girl new proof

The US stock market has been the beneficiary of all this monetary largess.  Traditional notions of sovereign debt from nations like the United States serving as the “risk free” asset of choice now seem a quaint memory.  As the Fed continues to crank out liquidity, funds are flowing into the stock market as the “preferred” outlet for monetary inflation.


But all is not well.  US consumer confidence has been on a steady decline over the last three months, hitting a new low for 2013.  Typically, there’s a high correlation between the stock market and consumer confidence.  That is starting to break down over the short-term.  Most Americans are not benefiting from the rise in equities.  The average American’s exposure to equities has declined over the past two decades and there’s no reason to expect that trend to change anytime soon.  Nevertheless, given continued monetary easing the American stock market will likely surpass the expectations of many bulls.  The bond market has been in a bubble, to be sure.  Stocks might very well join bonds in bubblicious territory over the coming six months, which will only increase the potential for unintended consequences given that bond yields MUST eventually rise. 

Financial repression can continue on longer than anyone expects – even for years to come.  Nevertheless, the rising stock market is not driven by earnings growth.  As these dynamics continue, overall systemic risk will increase.  We could very easily be setting up for a nasty correction in equities in 2014, to which Yellen will no doubt respond with ever more liquidity. 






(Charts courtesy of ZeroHedge)

Switching gears, SilverDoctors reported on Eric Sprott’s open letter to the World Gold Council earlier this week.  We highly recommend reading the letter if you missed it.  The WGC responded to Sprott’s analysis – sort of.  Barron’s reported on WGC’s response, which included:

“Demand has been robust, particularly in Asia, both this year and over the previous decade – as we have consistently highlighted. The first half of the year has seen records set in terms of gold demand across a number of countries and sectors and the World Gold Council has been at the forefront in disseminating and explaining these outstanding figures.

The World Gold Council has been sharing gold demand data for decades and we place a great emphasis on the quality of our data. Providing greater transparency and accuracy to the supply and demand model is a process in which the World Gold Council is heavily engaged on an ongoing basis.

The use of import data as a proxy to measure gold demand is somewhat simplistic and does not take into account factors such as round-tripping and stocking/de-stocking. To effectively measure gold demand, a more detailed and holistic analysis is required.

Every ounce of gold purchased has to be supplied and, with constrained production, recycling has grown to meet the unprecedented demand we have described. Providing more transparency and accuracy to the supply and demand model is an ongoing process in which we are heavily engaged.”

Needless to say, that’s a pretty weak response to Mr. Sprott’s detailed analysis.  Read Mr. Sprott’s letter and judge for yourself.


Bottom-line:  gold and silver will remain volatile throughout the rest of  the year, but we expect higher prices going forward.  The equivalent of this year’s entire gold mine supply has already been absorbed by Asia.  Add to the mix a return of negative GOFO rates, rising premiums in Asia, and QE as far as the eye can see and we have the conditions for higher prices going forward.  Somebody send some aspirin to Janet Yellen.  She’s going to need it.


Enjoy the weekend!  — Eric Dubin


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  1. “Somebody send some aspirin to Janet Yellen. She’s going to need it.”
    By the looks of things right now, you would think Janet would be needing a bottle of Excedrin Migrane come February 1st.  But my thinking is TPTB are going to have one last trick up their sleeve in order to send the (Ben)gster out looking like a victor. 
    With the holiday season approaching, we will have one last push for consumer debt, along with the end of the year profit taking in the markets.  In January we will see positive employment numbers due to seasonal jobs that wont be described as such as well as the usual manipulation and mind games that will require the Bengster worthy of sainthood.  Maybe even a Nobel Peace Prize. 
    Man, what was in my coffee this morning? 

  2. What was in your coffee?  No bull, feedmethe.
    Mental Ben will be lauded like Saint Greenspan.  Alan just slithered out of his lair, wrote a self-serving POS waste of cellulose and is sliming his way around on a book tour, shilling this MOPE classic.    He reminds me of Alfred E Neuman’s (What me worry) ugly uncle. 
    What? me know something–about bubbles.
    He single handedly created the tech, real estate and bond bubbles and then has the nads to say he didn’t see anything coming as a result of his work.  He’s like a one-man  troika of monkeys–see, hear and speak no evil.  A tad more facial hair and he’d fit right into that scene.  As the fourth monkey, SEENOBUBBLES, the best thing to be done with this monkey-freak is sending him to the NIM bio-weapon  labs. 
    Mental Ben will be carried out of DC on a magic carpet woven out of the hair of his victims, a rug crafted to look like a trillion dollar bill. Turban, curly skippers and a few houris riding shotgun, he’ll waft off on a cloud of accolades to his private island in a warm climate.   I’d like to see tar and feathers, a rail and the dunking pool for this bearded son of a bitch.  As for the rug—maybe he’ll need one to cover his bald pate. 
    On a another note, I experienced my first New Scrip (NS), the $100 bill.
    I say ‘experienced’ because seeing it in not enough. 
    It feels cheap, plasticky, like some panties  made in China with the lowest quality fabric, women through with petro based polyester.  It smelled like plastic. 
    The hologram running down the middle looks like something out of a stoner’s  1968 blacklight poster of Jimmy Hendricks Experience (sorry Jimmy). 
    The yellow stain to the right of Ben’s dyspeptic mug looking like baby boo-boo spilled mustard. Daddy didn’t wipe it clean  It’s not even a golden color unless you are using Gulden’s Mustard
    One of the most telling things is the issue date.
      2009;  signed by Geithner. Funny how this SOB signed off on this bill and slunk off the stage before its issue. 
     So this is the newest issue date?   WTF!?!?!
       I was having lunch with my local banker, a person who’s become a bit of an insider to the general and specific banking industry, and neither of us knew why this bill was dated 2009.
    He did hint that the new 21 day liquidity requirement imposed by the Fed  on small banks (less than $50 billion in assets) ties to his note that if a bank closes for more than 3 days one might expect them to be closed for 3 weeks,.  Banks are being stuffed with cash.
      When I asked him the question about the issue date being 2009, he raised his eyebrows.  So did I.  I said ‘looks like we need to take a trip down the rabbit hole on this one’ He sgreed
    He said this new bill reminded him of the Euro.  His admission started me.  A banker who disses our currency and compares it to the Euro is a person who has his head screwed on correctly.  To compare the NS to the Euro or that crap plastic used in the Canadian Dollar is telling.
    We talked further about the potential of seeing thing happen to the older series of $100. He said the prior two series of $100 are the 2006 and 2002 series and hinted that anything prior to that could be subject to a Federal edict. You make a guess at that.  I have some ideas but I’ll keep those to myself.  The trillions of Old Scrip (OS) overseas could simply be devalued. Holders might be told they can redeem at 10 cents on the dollar.  In my opinion, if a person or business holds $100 bills of a series older than 2002, you might want to think about converting them to NS or something of value other than this inexecrable POS $100.  Franklin looks like he’s going to puke.  My series are all dated 1996.  Go figure. 
    On a final note, I asked him about the new and very stern liquidity requirements imposed all banks, why this is happening and the expected results.  He said his bank is expecting some rough seas in the economy; bank liquidity is seen as the best port in the coming storm. He is not sanguine about the economy next year.  I asked him a rhetorical question as to how banks would retain required liquidity and then said  “Making few loans accomplishes this goal?’  He agreed.
    We talked about the new reserve requirements on ALL portfolio mortgages.  The new permanent 5% cash set aside would reduce bank’s lending to residential borrowers by an unknown but substantial amount.  If the bank leverage is 10 to 1 and 5% must be set aside,  this could reduce lending by 25-50%.  Dodd Frank is a mother fletcher in this regard.
    Much higher debt service requirements will reduce any bank’s ability to make personal and corporate lending, reducing their income while increasing the credit stranglehold imposed by these draconian laws. Less loans, less growth and more layoffs will be the result.

    In my opinion and without going into exhaustive details, this does not bode well for the flow of credit. It does provide clear hints that 2014 will be a tough years for banks and the economy in general.  It’s one thing to deal with bad banksters but credit flows are vital to the economic well being of businesses and consumers.

    • This community may need to work on being less one-sided to the whole story.
      We do not trust China’s reserve figure, it must be higher based on recent flows.
      We don’t trust USA’s, it must be lower than what they CLAIM it was long ago, because they seem to have sold some.
      Central banks LIE about reserves. USA did some great war looting over the 20th century. Whenever they came up with the 8000m figure, how do we know it was not actually double? Karen Hudes’ claim of a 170mt stock in Hawaii comes across as disinfo. But it could be an over-exaggeration of a deeper lieing reality: USA was under-reporting gold reserves before, and may still be.

      How to trust the 8000mt figure if they never get audits? It’s no just about proving you’ve got it, but also about how much you’re willing to let the world know.
      I can report that I have 3 granates in my ammo room. Then go to a government building and throw 4 of them. Then the world would instantly KNOW it wasn’t me, as I only had 3 to begin with. Right?
      Same with gold. We expect USA to be gold-poor now, as they seem to have net sold quite a bit over the years. But when we think they will default, and gold prices go way higher, what if they somehow get to gain leverage from actual physical holdings no-one knew they had, and thus also didn’t try to “goldfinger” or heist? What is the penalty for a sovereign to understate their gold reserves? They award themselves the licence to genocide outside their own borders. What would a gold figure mean to them? It’s just national security. And they don’t tell the truth about that.
      Since so much has come out of the USA, we know that they did not overstate their holding by too much. 2000mt would have been long gone. But it keeps coming. So who knows, perhaps they had 20mt rather than 8mt. Could have been silently accumulating for decades.
      When even the mainstream media warms up tot he idea that gold is getting scarce, what is the logical way to presume?

    • Ag…dates on bills are different than the dates on coins.  Dates on bills are when the series is issued not when they were printed.  Now that we have a new Treasury Secretary the bills issued under his name will have a new date.

    • “I’d like to see tar and feathers, a rail and the dunking pool for this bearded son of a bitch.”
      You’re being all too charitable today, AG.  IMO, he needs the stake / Vlad the Impaler technique applied to him. 
      As to bald pates and beards, go easy there, Bro… lots of us have both and know that it is not what shows on the outside that matters but what’s on the inside.  Consider it a Founding Fathers look.  😉
      “I was having lunch with my local banker, a person who’s become a bit of an insider to the general and specific banking industry, and neither of us knew why this bill was dated 2009.”
      Was going to reply to this but UglyDog spared me the effort.  🙂
      “The new permanent 5% cash set aside would reduce bank’s lending to residential borrowers by an unknown but substantial amount.  If the bank leverage is 10 to 1 and 5% must be set aside,  this could reduce lending by 25-50%.
      In my opinion and without going into exhaustive details, this does not bode well for the flow of credit.
      It’s one thing to deal with bad banksters but credit flows are vital to the economic well being of businesses and consumers.”
      And yet, many in the PM community rant and rail against the use of fractional reserve banking.  Credit is not money, even though any number of people will claim otherwise.  Considering how deeply the average American and America itself is in debt, perhaps there SHOULD be a lot fewer loans made.  Yes, this could reduce economic activity but then perhaps not all of the economic activity that occurs these days should occur.  All too many people have lost sight of the difference between “I can pay for that” and “I can afford that”.  These two are not the same, yet they are very often treated as if they were.  This is why so many people, especially younger people, are only concerned with the monthly payment on a house, car, or credit card.  Much more thought needs to go towards considering the total cost of these things and not merely the monthly payment.
      In an ideal economic world, all banks would maintain 100% reserves, pay no interest on savings or deposits, consider themselves to be fiduciaries, and all of their loans would be of their own money.  If banks only loaned out the money of their owners / shareholders, we can all be sure that they would be a LOT more careful about how it was invested.  Due diligence would be the banking law of the land whether mandated by government or not.  Self interest would see to that!  🙂

    • Sniper rifle, stand off a ways, By Ben, By Yellen… coming soon to a city near you when the middle class gets squeezed to far and fights back.

  3. It’s rather frustrating to see the lack of critical thought involving supply shortages. I see many using internet dealers of the likes of APMEX, Gainesville, Provident, even Silverdoctors etc., as justification for why there are no physical supply shortages, and why there will not be any in the near future. People are just not grasping the amount of money being transacted in Switzerland for gold and silver purchases. We are talking TONS here folks. These sovereign purchases absolutely dwarf all of the individual investor purchases made at the aforementioned dealers. China alone is spending 120 BILLION/year, 10 BILLION/month on gold. Lets just say hypothetically that one month China again places an order, 7,000,000 ounces or ~ $10 bill worth to be filled in Switzerland. They do not have enough gold to fill the entire order. They were only able to fill $9 bill worth. So just 1 bill dollars in search of the other 700,000 ounces of gold makes its way to the small dealers we all transact with. That mere $1 bill dollars, I presume, is enough to wipe out a tremendous amount of supply, and cause very significant shortages at the individual, small investor level literally overnight. 

    So in sum, we all need to be focused on what’s going on in Switzerland. If very significant shortages show up there, the game is very close to an end, despite what we may be seeing at the small dealer level.

    • That last billion would only find its way to smaller dealers if the client is prepared to pay a premium on it. To get gold from the little guys, you spend to get the markup of 2 supply chain links extra.
      If China wanted to get absolutely as much as they could, all it would take is hire some workers with knowledge or some European languages, and a few warehouses spread over Europe. And North America of course.
      Then, start maxing out inventories of the retailers. There will be very little to be had though. Especially silver has become a special order business here. Few shops have any stock to speak of. When trying to buy a ton of gold, you’re going to be making a lot of phone calls. 
      If any country on bed with the banking cartel has understated gold reserves though, they’ll be selling enough at the very best timing to prevent the price to get any higher on the physical demand. Lead times will spike up premiums hardly will.

    • It’s called the New Great Game
      and China and Russia are playing chess and Obama is playing tiddlywinks.
      China is not hoarding gold and silver. Instead China is draining the West of her gold(and silver somewhat).  At some point in the future China will shock the world when she announces reserve amounts of gold and silver far exceeding conventional expectations.  Then it will be game over for the U.S. dollar as a world reserve currency as the Chinese back their renmimbi with gold.

    • XC, i don’t know if I am board with the exact comments, but i do like the thought.
      For those of you wanting to explore a little deeper, check out this blog from an employee of the perth mint.  No inside secrets, but good info about what they really see in bullion markets.

    • Yeah Ed, it sure feels like we are over matched in this New Great Game being played out in Central Eurasia.  It’s all about nat gas, oil, and pipelines.   Game pits the likes of Obama and the British monarchy vs Putin, the Iranians, and China.  Not so good for our side.  Explains why we are in Afghanistan to stay.

  4. @UglyDog said… “Then it will be game over for the U.S. dollar as a world reserve currency as the Chinese back their renmimbi with gold.”
    But only if the rest of the world actually believes china’s assertions of the amount of Gold they hold.
    Or maybe not?  But it seems the rest of the world will flee the $USD when they completely lose trust in the USA; how can anybody trust china?

    • Agreed Mammy…China will have to prove their gold reserve.  And imagine if China does allow independent international professionals to audit her gold reserve and the U.S. doesn’t do likewise.  Pretty much eliminates any remaining credibility underpinning the dollar.  

    • @Mammoth
      “…how can anybody trust china?”
      Because a good chunk of the world is learning to trust the Chinese.  No way to know how that will work out for them in the end, but while the US and others fool around, rearranging the deck chairs on their economies, China is very busy in Asia and Africa making deals, swapping technical and military aid and money for vital natural resources contracts, buying up businesses, farms, ranches, fishing fleets, mines, and anything else of real value that they can.  Yes, they hold a lot of UST bonds but they are reducing the amount they hold while putting the proceeds into real property of various kinds, especially gold and now silver.  
      Where the Chinese go, prosperity tends to follow.  This is getting them a lot of good will, especially in the 3rd world where much of the world’s resources lie.  They are also the de facto BRICS leader by sheer size, if nothing else.  They do have the #2 economy in the world and will be #1 in a few years unless everything either goes down the crapper, which is all too possible, or the US or EU get their stuff together, which seems much less likely to me.  If things do head into an economic collapse situation, things will get pretty bad for just about everyone.  Got preps?

  5. I changed my physical (bought at $5 the then production cost) for AGQ on the logic that last run up AGQ went from $20-178. It appears, with AG now at production cost and ongoing demand, that another run up is in the works. I can’t imagine that AG will remain at or below production cost for any extended time.
    What do others think of this strategy and a time frame?

  6. Ugly Dog   my reference to the 2009 series was something along the line of wondering why this bill was held back for 4 years. Usually the series issues start the year printed and go for 4-6 years (I dont know the exact cycle)  But the fact that the bills were held for 4 years and then shipped struck me and the banker as suspicious
    Bald Pate equals  Follicle exodus equals solar powered sex machine.  
    XC Skater  I think I know what you mean about one sided reflection here on this site. I don’t think we’ve cornered the world on nationalistic naval gazing but we do seem a little self focussed.  There is just as much MOPE and disinfo coming from other countries and sometimes the only way we get our intel is from sources like you, who can speak fleely as a man in the street. All in eh? That must be a colorful diverse stack given the number of countries that issued silver coins.
    Most of the developed countries have real substantive problems and China is one of them.  China’s growth is QE stimulated now with TARP-like flows from banks to keep the good times rolling.  Exports are down and imports are up, particularly petro.  Their banks are weak, loan volume down and property prices in a huge bubble. 
    But then, they have had a great role model.  The USA.  LOL
    I have no animus towards the Chinese.  Their leaders are another story
    We live in a paradigm of prevarication and mendacity. 

    • “We live in a paradigm of prevarication and mendacity”
      What’s the difference between prevarication and mendacity?
      We now live in a Simulation.  No more Paradigms.  That’s the word going around.
      People.  Don’t sweat the details.  If you got silver, you’ll win in the end.
      Everything else before the JATO kicks in, is just background noise.

  7. Our friend David Morgan is now calling for $14 silver and $1080 gold by December; this before a major rally in 2014. I don’t put much stock into the call being that Morgan also called for a seasonal rally in September and October that obviously has not happened. I just find it interesting that he is now projecting such a low spot price in the metals going forward. If he truly believes this he should be suggesting to his readers that they short the metals in the paper markets and then buy the bottom shouldn’t he? Perhaps he is doing just that. 

  8. Imagine USA would have stated a reserve of 15,000 tonnes rather than 8,000. 
    What response would that have gotten from the world? Questions on where it came from. USA had just written the history books on their heroic WWII endeavours. One or 2 parties were down a substantial amount of gold.
    Rather than just claiming to have saved the world fueled by good intentions, it would have come across a bit different. Also, such a high gold reserve figure might have woken up China decades earlier. They’ve been frantically buying gold only since recently. They could and should have started sooner. And other Western nations would have felt quite inadequate per capita, and decided to hoard a bit harder.
    It seems USA, should they be gold-richer than stated, have MANY motives to keep that under wraps. And that they’re selling gold is hardly a secret anymore, just not official fact as one vital party still denies (audits). 
    While us conspiracists think that their 8,000mt hoard must be about gone, their 15,000mt factual one (random number) could still be the largest in the world. Yeah, India may contain a lot of gold, but it’s stuck in relics until someone loots the tempels. USA’s over-stock could even be circulated to be LBMA sourced for most of it, and ready to hit the markets.

    It would be typical for recent conspiracies to end up being multi-layered. The conspiracists and later mainstream are lead to conclude there is no gold left, when real there is still plenty to go by. This offers nice leverage in times of need. For instance, when hyperinflation should hit (and it’s certainly not being prevented all too eagerly), troops could be kept merrily going on gold reserves for quite a while. Selected departments of government kept open to rule the nation, change laws, etc.
    If YOU would have 2x or 3x the gold hoard you are expected to have, would you declare it? No, everything that happens to you will be about others wanting to reduce it for you. With a multiple in gold reserves, would the debt thing have escalated the way it has now? Perhaps China would have demanded more gold sooner, think it silly to allow debt when someone is so gold rich. AAA+ ratings are nice, but why give one nation all the debt when they have all the gold and cannot be challenged in their holdings?
    In my country there’s a saying “you can’t pick from a bald chicken”. USA might have declared their gold holding high enough to be taken seriously as world reserve currency issuer, but low enough to not install too much anger/greed/hate too soon.

    While buddy buddy Germany is playing the charade to see their gold (in the main stream press no less), and can’t get convincingly angry over the NSA thing, we’re being force fed a notion that USA might be short on gold by now.

    Again : we don’t trust China to declare most of of their gold. We don’t trust USA to actually have as much as they claimed decades ago.
    China’s massive buying makes it a no-brainer, there will be more. USA’s selling only indicates it COULD be lower than the actual number decades ago. But this number may well have been understated for geopolitical reasons. And yes, the goldfinger scenario may not be as far-fetched if you yourself are looking at a panel with big red buttons before a neon map of the globe. Even the USA is not as arrogant to think their are the only one with a sting. Heck, they are making a huge fuzz out of one of the world’s leading intellectual countries, Iran, to be about to create a nuclear bomb. If Iran had cared about it, they’d have had it in the 50’s. Attacking other nations just hasn’t been their thang the past 2 centuries. And the country is too small to nuke itself.
    Now the implications of an understated USA gold hoard, I cannot start to foresee. But we as PM stackers should begin to do so. You cannot be prepared for only one scenario, one truth we’re betting on. USA was truthful about 8,000mt, and won’t tell it’s near zero now. That’s a bit narrow sighted especially for the conspiracy theorist lot of us.

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