The futures markets for precious metals are now at a crossroad. The short positions of the hedge funds, which have driven gold and silver prices higher have now been significantly reduced and are no longer extreme. In gold the bullion banks appear to have taken these positions onto their books and also as swaps. In silver, the shorts have been crossed out against matching longs with open interest falling by 18,000 contracts since mid-February. So instead of precious metals being driven by a bear squeeze, the market will need to either continue to lose physical metal to Asia or find growing support from new bulls attracted by the reversal in trend. [Read more...]
The rise in the gold price ran into profit-taking on Wednesday. Having risen $160 to $1345 some short-term profit taking is only to be expected, and silver followed suit.
The correction in silver will not last long before lower prices attract more genuine buying.
The same is broadly true in gold, though this is a more liquid market. Demand for physical metal from China and Hong Kong continues at record levels, and there is talk of the Indian Government relaxing import restrictions in this election year. I personally think it unlikely, but given that Indians are currently paying well over $1400 equivalent the effect on markets of such a move would be immensely bullish.
When we look at US broad money supply, we should be aware there is a further mountain of money thirteen times as big ultimately based on the dollar.
The last crisis was just the banks. This time we are looking at a potential popping of a full-blown global currency bubble, which was generated as the solution to the last crisis. And this new bubble is all supported on an inflated US monetary base of $3.8 trillion. That’s a bubbly gearing of nearly 40 times, or 163 times the monetary base on the eve of the Lehman crisis. [Read more...]
This past week has seen precious metals prices rise strongly, with the bears caught on the hop.
Chinese demand is still accelerating, which tells us physical gold is too cheap. It seems amazing that this demand goes unrecognised. However, even the yearbooks issued by the Shanghai Gold Exchange clearly state DELIVERY IS DEMAND.
Sorry about the capitals, but most analysts have missed the point, commonly stating that Chinese demand last year was only 1,100 tonnes, when SGE delivery alone was twice that. Furthermore, add in Hong Kong and we know from government statistics that total public demand in China, including 50 tonnes of coins, tops a massive 2,800 tonnes.
Why Western analysts persist in beliefs that demand in China was less than half this is their affair. Presumably this is the information that the bears have not bothered to verify, but at least our readers are better informed. [Read more...]
There are very few figures coming out of China that you can rely upon, and this is particularly true of gold imports. Instead, you have to take what is available and apply a judicious mix of logic and deduction.
Mainland China does not publish imports and exports. The only figures for gold supplied to the Chinese public are of gold delivered through the Shanghai Gold Exchange and out of their registered vaults, which for 2013 totalled 2,197 tonnes. Most of this I have reason to believe is imported, only some of which is through Hong Kong. And to think that gold is only imported through Hong Kong is a major mistake. [Read more...]
When Lehman collapsed in 2008, the world stopped while the Fed implemented its plan to rescue America’s banks and the world’s financial system. This was achieved by making unlimited money available to the banks, and the stimulus has continued subsequently through quantitative easing.
The post-Lehman era has therefore been one of unprecedented and coincidental expansion of narrowly defined money supply in all five major currencies, the fifth being the Chinese renminbi which has seen additional expansion of bank credit as well.
Confidence in all fiat currencies may be undermined if bullion prices rise as sharply as potential demand from Asian demand suggests is likely, validating yet further demand for bullion.
This is the downside to central banks’ attempts to manage the growth of money and credit.
When it comes to changing tack on monetary policy, they are da*ned if they do and they are da*ned if they don’t.
In the same way that under a gold standard a central bank had to have sufficient gold stocks to maintain confidence in its currency, an emerging market central bank has to have sufficient dollar reserves on hand. And this is why from a monetary perspective a desperate central bank is compelled to increase interest rates when Keynesian text books tell us such a move is certain to drive these economies into a deflationary slump.
The screw is now tightening. Having added unprecedented amounts of liquidity into its own economy through quantitative easing, the Fed is now reducing the pace of its expansion of narrow money. Unfortunately this is bad news for emerging market countries, who will surely conclude that international monetary co-operation has broken down. [Read more...]
The second tapering reduction, a further $10bn per month, was announced this week. It was we are told by the news channels fully expected. This is probably the initial reason why US Treasury prices rose on the news, because bears would have bought back their positions. However, weakness in emerging market currencies indicates that there is a safe-haven element developing in US Treasury bond prices. [Read more...]
It transpired last week that of the 43-odd tonnes per annum the Bundesbank expects to be returned from the New York Fed, only 5 tonnes arrived in 2013.
Furthermore, of the 373.7 tonnes stored with the Banque de France, only 32 tonnes was delivered. This is little more than a morning’s delivery in the London market, so it is hard to swallow the Bundesbank’s excuses about logistics.
The burning question is why is it so difficult to get its gold back? [Read more...]
By December, the most recent month for which statistics are available, the US dollar Fiat Money Quantity (FMQ) had grown to $12.48 trillion.
This is $5.05 trillion more than if it had grown in line with the established average monthly growth rate from 1960 to the month before the Lehman Crisis.
By this measure of currency inflation, since August 2009 inflation is now 68% above trend. [Read more...]
A number of minds in the PM community have recently suggested there must be collusion between America and China over the transfer of physical gold from Western capital markets. They assume that governments know what they are doing, so there is a bigger game afoot of which we are unaware.
The truth is that China and Western capital markets view gold very differently. You will hardly find anyone in the London Bullion Market who regards gold as money; and for them if gold is no longer money Chinese demand for it is not a monetary issue.
Instead it threatens the bullion banks’ business that a useful financial asset, capable of earning many times its physical value in fees, commissions, turns and interest, is being leeched out of the market by Chinese aunties.
We can only speculate, but the following conclusions about why the Chinese are accumulating gold seem to make most sense: [Read more...]