China credit crisisOn the latest SD Weekly Metals & Markets Wrap we cover:

  • China’s credit crunch and contagion fears- is the Chinese version of the Lehman Brothers collapse imminent?
  • US 30 day T-bills auction at zero interest – Raw fear!
  • Gold demonstrating classic safety trade Friday
  • Doc’s retail market report
  • SD Lead Bullion™ flies off the shelf

The SD Weekly Metals & Markets With The Doc & Eric Dubin is below:

While world economic leaders jockey for geopolitical position at this year’s World Economic Forum in Davos, Switzerland global credit and equity markets are starting to send ominous signals.  Standard equities investors had a rough ride this week, with Friday’s 2.09% dive in the S&P 500 slicing through the 50 day moving average like a hot knife through butter.  That move pretty much erases the entire gains made since last December, when Uncle Ben announced the Fed’s tapering plans.  From China to Argentina and other emerging markets, the smell of credit contagion is in the air.


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Fund manager Dave Kranzler published an insightful piece this morning:  “Something Ominous May Be Coming At Us.”  He rightfully points out the warning sign flashed when earlier this week US 30 day Treasury Bills were auctioned off at a zero percent rate.  Negative rates were last seen during the 2008 credit crisis.  Meanwhile, emerging market credit default swaps are on the rise.  Serious fear is expressed when big money is only concerned with finding a safe port in the storm, and this week’s T-Bill auction clearly reveals extreme fear.  Dave speculates:

The source that is lighting the fuse is emerging market problems, reflected in the currency devaluations by Argentina and Venezuela.  But the currencies of other important emerging market economies have been plunging against the dollar as well.  The cost of derivatives “insurance” on the sovereign debt of these countries has suddenly increased at a rate that would make Obamacare insurance providers blush. What the currency plunge/derivatives blow-out implies is that sovereign bond defaults are on the horizon.  This is not just confined to “emerging” economic countries.  Spain, Portugal, Italy and France are on the ropes financially and economically as well, despite the official European story-line that Europe is in “recovery.”

Dave’s analysis is spot-on.  But I suspect his radar has pinged a black swan that’s only stretching its wings at the moment, and probably ready to fly within the next couple of months.

It’s been a pick-your-back-swan sort of week.  Some investors are also freaking out about the prospects for a default on “Credit Equals Gold #1,” a trust product marketed by Industrial and Commercial Bank of China (ICBC).  There are roughly 700 investors in the trust, and it’s scheduled to pay out on Jan. 31st.  The trust raised funds from wealthy investors and institutions in 2010 and subsequently made loans to a Chinese coal company.  The coal market has been weak and…  Well, you get the picture.

As of late Thursday evening ICBC changed their tune and said they would take some sort of “responsibility” for the problem and “…won’t ignore the issue of it’s reputation.”  That’s Chinese for screw moral hazard, this bomb is too big to go off.  Ultimately I believe they will come to some sort of backdoor bailout, most likely forcing investors to take a token hit, but not enough to create credit market contagion.




Despite the fact that silver took a beating Friday, both gold and silver should perform well in the weeks and months ahead.  Both eventually performed well as hard asset stores of value following the 2008 credit crisis, albeit with a lag and with official sector suppression too.  If all heck breaks loose in the near-term, precious metals might drop but their function as a store of value in turbulent times has not been repealed, much to the chagrin of Uncle Ben and his Yellen minions on Planet Janet.

Have a great weekend,

Eric Dubin

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  1. Doc, Eric, please. Step it up.
    If the US would have any intention to get Germany’s gold, all it would cost then (worst possible case) is spot +3% or so. And they’re get it in the form of Maple Leafs or Buffalo’s. Heck, they are free to print cash to spend this way. They are omnipotent.
    Like in the middle east, they raise premiums so that traders come to them with the metal. A couple per cent goes a long way in PM. 
    All this under-repatriation says, is that USA feels fine sending such a embarrassing message. They either don’t care, or : INTENDED to send this message. Flipping off Germany, or creating food for hype reports like yours. You are most likely placing yourselves in front of the FED’s chariot. Hee-ya! Self-embarrassing news is like Lance Armstrong’s butt cream (’99 TdF positive) : an excuse, charade to cover up something far worse. 

    Citizen who get on a list, and get to visit the NY Fed (ask vlogger silverfuturist), get to see real amounts of gold. More than one pallet. And rehypothecation is not a valid explanation either. It’s the FED’s problem, and they can quite easily free up cash to sort it.
    All around the world, USA could have gotten that gold for spot at PM exchanges or LBMA. It decided not to. It decided to insult our collective intelligence, or: prove that even the alternative media can’t see past 1 level of deceit when in fact there are 3 or more levels.

    China is buying like crazy, Swiss refiners are working 3x8hr shifts to produce 1kg bars. India has not stopped buying, just switched to smuggling, world-wide premiums for retail bullion are very agreeable and yet SD thinks there is a gold shortage and FED can’t caught up more than a pallet’s worth.
    I can to SD to learn about PM’s, but I feel like my sense of logic has me outgrowing this place real quickly. The comment section often teaches me more than the articles posted.

    • Germany was told to wait 7 years for their gold not because some gold analyst has an opinion about a tight market, but because the US Treasury and the Fed know the facts of the insufficient supply and were forced to come to that compromise.  They were forced because the market does not have the ability to fork-over 1,500 metric tons at a 3% premium over spot. 
      And as for China buying like crazy, China is buying at a rate, week to week, that conforms to a “milking strategy.”  It’s a strategy that gets them volume on an going rate that is enough to pile-up a massive stack, but at each instance of buying/stacking, the transaction volume is roughly just under the purchasing level that would counter-act the selling pressures coming out of the paper market.  Given the size of the selling in paper markets, this actually has permitted China to buy quite a bit.  This is exactly why the cartel has not been able to bust the Jun 28th low.  

    • 7 years for a measly 300 tonnes.
      Go ask in Dubai and other places. It’s possible for new big players to get such volume. 
      That the US did not, is not a sign of tightness, or bottlenecks, it’s a sign of “I don wanna”. 
      Incompetence is a popular card to draw, but come on, does anyone really think about it and believe that?
      That the 300mt has to come from the market is a very far-fetched preposition. The FED has vaults, and there’s lots of gold there. 300 tonnes is not a lot. Under 16 cubic meters. Like the cargo space of a small moving van that doesn’t require a truck licence. 4x2x2 meters. That’s enough for 300 tonnes of gold, even if the actual van has a 1.5 tonne loading limit.
      This gold surely is THERE. Visitors go in and see it stored there. Even if ownership is fuzzy, this does not keep the FED from delivering it to Germany. Fuzzy+fuzzy=fuzzy. No difference.
      It all comes down to WANTING to do good for their ally and customer. And they don’t.
      The FED could not make a clearer statement if they tried. And I feel they were trying to get the exact response the gold bugs are professing in blogs, vlogs and pod casts. 
      The true motive for not supply more is unclear. Like often with national security matters, the blade likely cuts on 3 sides. Boston re-affirmed that for us. You know, the day gold and silver fell so hard. And Bushbama were to make the papers due to being outed for war crimes by a very high profile commission. But, we got Boston, and an aftermath, and a Saudi loverboy leaving the country by (closed) air (space). Man hunt for unarmed boy. Take alive, with hundreds of rounds fired at will. And martial law. How many sides did this knife cut? I am only halfway, but you get the drift.
      So FED does a bad job finding gold, while the 2013 gold market was twice the mine production. Someone was supplying gold, ist just was not the FED to their most distinguished customer.
      Swiss refiners working serious overtime to cast 1kg high grade bars to ship east. And the FED only had 5mt to show Germany.
      Not a tight market, not incompetence, not empty vaults, just sending out a clear message of lies and confusion. Or, simply a ultra-subtle war declaration which no-one noticed?
      China *per week* is buying more gold than the US has repatriated to Germany in a year. Does the FED have no access to the market? Heck, they ARE the supply side of the market, if you need to believe Sprott, SD, and others.
      If Germany had cared, they’d have made the FED deliver. And delivery 1500mt, not 300mt. It’s there alright. Germany doesn’t care. Not TPTB over there.

    • No, France and the U.K and the US in total were only able to deliver less than 40 tons in 2013 against 1,500.  It’s not just the Fed and Treasury dragging their feet on 1,500 in total — it’s all the custodians.

      I’m not going to get into a big, long debate with you when we don’t even agree on the point that Germany was shafted — and why they were shafted.  Others reading along can draw their conclusions as they see fit.

    • While I respect your knowledge Eric, I am unimpressed with your quick assumption that we witnessed a “best effort” (my paraphrasing) type of performance here.
      What did I read, 2013’s flow was in excess of 4,000 tonnes?
      As the largest economy of the world, hosting so many key financial institutions and exchanges, to not even secure 1% of that flow for your most distinguished customer and ally, that’s not “only able to”, and it’s not dragging their feet. It’s not incompetence either.
      There has got to be much more to this, and I’ll be darned if the Bundesbank (2 or 3 top officials) aren’t well in on this.
      I repeat : 4,000 ton flow, and less than 1%  for Germany who already owns it. If Germany had gone on the market, and made a point of buying US-sourced gold, they’d have gotten more. Just a few % above spot make gold very liquid, it will flow neatly towards you. Ask Dubai, Iran and China.

    • Sign the fed does not have it. So what if they have 2 pallets of gold in the vault. Doesn’t mean it is theirs, doesn’t mean the entire pallet is gold considering the tungsten filled bars came from the USA…

    • @MaryB
      Imagine you owe a mate a bottle of good Scotch.
      He asks you a bottle. But you don’t have it.
      You’re filthy rich, but no scotch in you bar. What to do, what to do?
      This is a very dear friend actually, a long outstanding debt you need to fulfill here.
      In your town, only about 100 of worthy bottles are sold through a new of outlets. They don’t always have stock, or at least they like to be mysterious about their scotch. This is valuable stuff, and a bad hood to be talking about it.
      So what do you do? You make a few calls, and same day a courier brings you a worthy bottle right to your desk.
      Even if you don’t have the greatest scotch collection, there are ways to get a bottle for a friend.

      Am I really explaining this?

      And about the ownership. Why would the FED worry about ownership NOW? If I can believe SD and similar outlets, every gram held in custody for other countries has been hypothecated and rehypothecated. Yet the gold is sitting right there. Ownership is disputed between many outsiders. By lack of audits, I don’t see the issue to just throw Germany a bone.
      And how easy it is for professionals to get triple or quadruple digits gold, we have been reading about aaaalllll year.

      Is there a logic switch on this thing? Is this thing ON?

    • You are ignoring the fact that China is probably the owner and they are threatening the fed. If they dump bonds the US economy instantly makes the great depression look like a picnic in the park. The only thing keeping the fed afloat right now is the Chinese buying up our debt and getting whatever gold they want.

    • How do you see that Chinese ownership exactly? Don’t the European countries have first call?
      I am not sure China will dump bonds until they have to. And haven’t they already announced cease of buying?

      China is not the only gold bug in the world. Other nations, small insignificant nations, have been able to acquire larger amount, at market price. 
      Lack of a satisfactory stock transaction is NOT proof there was no stock. Ask Goldman Sach’s aluminium warehouse manager. He doesn’t know where to put all the metal, while customers are looking at huge backorders and premiums.

    • @Silver Dollar
      I think if I sound like that to you, you are in need of a new hearing aid 🙂

      I am merely addressing the short-sighted, overly gullible gold reporting. After being here for a while, taking in some info and opinions, I am forming my own insights. Have come to feel it’s important to look at contrary indicators to the view you hold. 
      Example: a few years ago a vlogger got me passionate about global warming. He advised to explore the other side’s arguments. I did, and guess what: I understood that man-caused GW is utter BS, and the whole deal is about taxes and carbon trading, not the environment. So in the case of GW, I did “sell my stack”.

      FYI, I hold zero grams of gold. I never felt it a good deal since I started with physical a few years ago, although I did miss out in 2011 when the GSR dropped so low. Could have gotten me free silver ounce. But no real regrets. Right now with GSR >60, gold is relatively overpriced. If I am to stack something similarly value-dense, I’d look at Palladium and Platinum. Especially the former, I sheer for the underdog. And look how stable it’s been in all the 2013 mayhem. It’s doing what’s supposed to be gold’s job. Plus it has actual uses, and official stockpiles are very, very low.

      Selling my stack? I had an unexpected fiat upside this week. I am dying to hit the ski trails in Italy. The money would be just about enough for a week by myself. I’ve not been to a ski trail in many winter. Stuck in a polluted metropole with running injuries. Guess what I did? I chose to stack. In case silver doesn’t perform the way I hope (my horizon is 10-15 years), and I’ll need more to survive or make the purchase I am planning.

  2. 1 metric ton of gold equates to 88 good delivery 400 ounce bars, so that is quit a bit.  You guys make it sound so small.  However, I totally agree, the fed obviously doesn’t have the gold.  It’s going to be an interesting year. MJNA. 🙂

    • Just over 80 bars actually. Troy ounces, remember?
      USA QE is 2,000 tonnes of gold per month. So 1mt is not much. 
      Ever mined is 170,000 tonnes official estimate, and annual production 2,000mt and change.

    • IM CALLING BULLSH*T. – I can’t keep my peace any longer.

      Ive been hearing this more and more lately the past year: “All the gold ever mined is 170,000 tons”
      Has anyone seen this gold?  How has this dream number been conjured up? Some jerk-off wearing a PHD ponzi economics white jacket ran some “Supposed” numbers through a calculator? 
      Did this number “Conjurer” stand present during the roman sacking of Egypt?  Was he present when the Assyrians and Persians sacked Babylonia?  Did he/she see the mass gathering off all the German “stolen” gold, pooled up with all the gold of the great civilizations of history and held their “annual mining total documents”?
      Do they know of the hidden locations of the lost kings and all the gold still hidden in the un-found tombs?  What of the hidden gold, buried from millions of small families prior to EVERY SACKING OF EVERY NATION IN HISTORY?  Yes, buried golden trinkets, sprinkled around Asia (in it’s entirety) lost to the world FOREVER.
      I suppose all you FIAT lovers are counting those oz’s of gold as well?  As if they can be summoned into the market for sale at a moments notice- thus rationalizing the near worthless-ness of each oz of gold held by men?
      Well, here’s a FACT that HAS been recorded:  When EUROPE, part of Asia, and northern Africa were sacked during WWII, and all of the allies stashed their gold with the U.S. for safe keeping, even AFTER the war, when the Nazi gold was looted, America only had some tune of 22,000 tons in 1955.
      So I suppose our Chinese friends were keeping quiet about their 100,000 ton reserve?  or perhaps the remaining 50,000 tons were quietly stored in South Africa, owned by a single wealthy man who somehow pooled it together and kept it on the down low?
      The supposed numbers of historical Gold mined are either grossly off, or that gold has been lost to the ages.  no one has ever seen 50,000 tons of gold, not even when the U.S. Pres outlawed its ownership, gathering the private gold of Americans to back it’s currency.
      The 170k figure is PURE FANTASY just like the value of the paper bills we exchange.

    • Nice rant Shamus
      Let’s take this angle then:
      Annual production is 2000+ tonnes. I’ve seen higher figures.
      I believe this is not disputed. And it’s likely more, with private individuals mining to make a living, such as in Zimbabwe.
      Gold has been around, and WANTED for about 5,000 years they say. If you can find it in Pyramids…
      Consider that the past 5,000 years, people have been actively searching for the sweetest ore. Where to find the most gold for the least effort. If you dig in the wrong place, it’s simply not worth your while.
      So what’s a fair progression in mining volume, supposing it started 5,000 years ago at zero, and it currently peaking above 2,000 tonnes? Let’s take 500 tonnes only. And that’s with much sweeter ore, closer to the surface. Mined when a human live was worth less than an ounce. 500×5000=250,000 tonnes. 
      Oh, it’s well possible that a lot was buried too deep to be found by metal detectors.
      I’ve been following metal detecting videos for a few years now, and only once did someone find a ~7 gram gold coin. Once in a while they get a bit of silver. 

    • Rational angle, but again, your a desk jockey using a calculator.  It still doesn’t change the fact that when the U.S. held 22k tons it was known at the time to be 2/3’s the world available gold. So where the ancient gold went? How much they mined, anyones guess is just that…. A Guess. (maybe the Vatican is hiding 100k tons?)
      I am aware it is currently 2,000 tons /yr.  Thats not to say it was always that, and thats certainly not to say it’s around for you or me to purchase.  Consider the hidden tomb of China’s (first?) Emporer.  When it was found, there were something like 10,000 custom statues of guardians?  Now I want you to take that insane calculation of mined gold, and REASONABLY consider the fact that it’s buried in a deep tomb(s) yet discovered.
      Because if we’ve mined 2,000 tons from 1955 until now thats still 30k + 120k for 150k.  And (I may stand corrected) I don’t believe it’s held at 2,000 tons a year for the last 60 years. 
      But even if it did.  That 150k tons STILL isn’t available for sale. Keep that in mind.

    • So let’s say USA DID have 22,000 tons in 1955. Regardless off where it went thereafter…seriously, 2/3rd of the world above ground? How is that ever going to be believable, for any country to amass? There’s currently 200+ countries. And the opposition is the likes of USSR, China, India. Not the least gold-friendly nations in the world. And yeah, the Vatican…
      How could those COMBINED not have half USA’s gold? Seems like the US claimed a high number, and the rest of the world picked a low number. I keep comparing gold to canned food. Do you want the neighbors to know your exact holdings? And when the shelfs at the supermarket start running thin?
      I have not studied US gold history, but those 14,000 tons they managed to get rid of, may simply still be there. 

      For me the total mined number is not the unrealistic one. It’s the US recently having 8,000 tons, 4x more than the next, and then stackers ‘R us claiming USA now have none. While the gold just keeps on coming.
      How can you know the beer coming from the tap is the last drop of a 100 liter barrel, or halfway a 4-litre one? As it keeps flowing, at some point the 4-litre drum is ruled out. It was something bigger. But how big? One way to find out. Get more pint glasses.
      Since gold mining is something you don’t brag about, and typically a product you like to slip into your pocket while working, surely more has come out of the ground than weé tallied up. How many people were panning the US creeks at one point? 
      Since grave diggers have done well for themselves, I am not sure half the world’s gold is lost. 170,000 tons spreads out to 1.35oz per human being alive. Is that a lot? More than I have. But if you consider the churches small communities had… And every town having some banks…
      I’ll agree it’s not all available for purchase, also not when you offer $2000/oz wheen current price is $1265/oz. But if it were available, price would be way way way lower. With such abundance, people would give up on gold.

      Buying up all the silver in the world will be easier than buying all the gold. Gold is so plentiful. Since has been destroyed since the first day. 80% is now used, 20% recycles. And we would not know where to put stock piles of the monetary ball park size of gold’s. Silver takes up 110x more physical space per monetary unit.
      Imagine USA has indeed 8,000mt gold. And, the same value in silver. 8,000*$40mil=$320 billion (4 months worth of QE).
      8,000*62 (gold silver ratio)= 476,000 mt of silver stored somewhere. Over 3lb of silver per American? Nah, not gonna happen. Silver is more rare  (at spot) than gold.
      Where to put all that? How many guards to bribe into silence? 476,000 mt of silver is gonna be noticed. Someone will trip over it.

      But we need to get some new buyers in to see shortage within this lifetime…

    • I think the 170,000 metric tons estimate is an under-estimate as well.  But the important thing to remember about gold is that there is the “stock”/inventory, and there is the “flow.”  This is a critical concept to understand.  A great deal of the flow, or “float” for all you equities traders out there, is limited to what is pulled out of the ground each year, along with what is liberated by physical sellers.  That total “flow” figure is what has the greatest impact on price discovery, not the size of the “stock” hidden in stacks and in artwork/jewelry that doesn’t enter into the annual “flow” until prices reach inflection points higher that trigger “stock” entering into “flow.”  Thus, even if the world has 300,000 metric tons, that number is still small relative to total fiat credit “notional” value, and no where near as much as whatever the total “stock”(300,000, 170,000, whatever…) is in the market as part of the “flow”/”float.”  Bottom-line:  these facts make debating about what the true global above ground supply of gold truly is somewhat of a moot point.  Most of that “stock” is not coming to market until we see much higher prices and purchasing power relative to various fiat piss-poor stores of value.
      Understanding the difference between stock and flow also will impart insight into why the massive paper markets actually have the ability to impact the physical market price discovery mechanism to the point of distorting the physical market price discovery mechanism.  It’s happening, in part, because physical gold in play, in “flow,” is actually much smaller than global stocks of gold.

    • And even at that, with prices set at the moon, I would still venture to say 1/2 of the held stock of Gold STILL would not reach the market.  Because no one liquidates all of their wealth.  A billionaire with 200,000 oz of gold I wouldn’t think would cash out more than 1/2 of his/her position to endeavor on any other venture.  You don’t get that wealthy by taking huge gambles… eventually you lose.

  3. Well the only thing that interested me was that Silver is heading up in the coming weeks. But Yea, I Know That and also the Derivatives Market is heading for a collapse, Yep Know That Also and that’s why I’m Stacking.
    Also on the link                                       
    This was said, “They will be looking for a company with stature and credibility and not necessarily just the best price – someone who will add status to the fix,” Well my first choice, The Fed, Lol but probably A Chinese Bank as they have all the Gold now. Lol
    Keep Stacking

  4. Maybe part of that reset is REGULATING Bitcoin, ya think?  Jack Lew Obozo’s vampire is now toying with the idea of regulating Bitcoin.  China and other countries have already started.  If you think that digital crap will slide through.  Think again.
    ……and if this comment gets WHACKED….so much for this website

  5. you on crack, buddy… she did not say nuttin’ about no subway.  plus… she read the whole damn thing as if she had no clue what she was talking bout.  oh, shit, I got it… it’s about the kids!  Silver to da Moon, byotcheezez!

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