Bullion Bank Run

China’s Gold Intent – ICBC Bank Reclassified as an LBMA Market Maker

2016-04-07T04:48:00.001-07:00

ICBC Standard Bank, China and the world's largest bank, has been reclassified as a spot Market Making Member of the London Bullion Market Association (LBMA) with effect from today according to a note posted on the LBMA website last night at 2100 GMT.

According to the post:

“In order to qualify as a LBMA Market Maker, a company must offer two-way quotations in both gold and silver to the other Market Makers throughout the London business day. Reclassification is the responsibility of the LBMA Management Committee. In deciding on the issue of reclassification, the Committee takes account of the views of the other Market Makers on the performance of the candidate company during an approximately three month probationary period.
Total LBMA membership stands at 146, consisting of 13 Market Making Members, 67 Ordinary Members and 66 Associates Members. The membership list can be found on the LBMA’s website.”

ICBC becoming a new LBMA market maker in the gold market, while expected, is an important development and again shows China’s intent with regard to becoming a key player in the global gold market. we are surprised by the lack of coverage of this important event but this could be due to the fact that the note was published at 9pm London time.

Gold Prices (LBMA)5 April: USD 1,231.50, EUR 1,083.59 and GBP 866.32 per ounce
4 April: USD 1,215.00, EUR 1,068.80 and GBP 854.58 per ounce
1 April: USD 1,232.10, EUR 1,080.69 and GBP 860.20 per ounce
31 Mar: USD 1,233.60, EUR 1,085.50 and GBP 857.62 per ounce
30 Mar: USD 1,238.20, EUR 1,094.12 and GBP 860.23 per ounce

Silver Prices (LBMA)5 April: USD 15.19, EUR 13.37 and GBP 10.69 per ounce
4 April: USD 14.96, EUR 13.17 and GBP 10.52 per ounce
1 April: USD 15.58, EUR 13.92 and GBP 10.99 per ounce
31 Mar: USD 15.38, EUR 13.52 and GBP 10.68 per ounce
30 Mar: USD 15.38, EUR 13.58 and GBP 10.68 per ounce

gold, gold china, chinese gold, bullion china, chinese bullion, lbma

The Shanghai Stock Market Crash and China Gold Demand

2015-07-11T20:47:00.001-07:00

What Does it mean for the future of the gold market?

At present, up to 12 trillion yuan stays in domestic residents' saving accounts. The launch of individual gold investment, therefore, will allow residents to change currency assets into gold assets. At the macro level, it will expand channels for changing savings into investment, thus adjusting the money supply; in the micro aspect, allowing citizens to trade and keep gold can improve social welfare, benefiting both the country and the population.

Moreover, with the dual attributes of common commodity and currency commodity, gold is a desirable instrument for hedging. Therefore, developing gold trade for individuals is practical." – Zhou Xiaochuan, Governor, the People's Bank of China.

Shanghai stocks have fallen over 30% since mid-June. The equivalent in U.S. terms would be for the DJIA to fall 6000 points to the 11,000 level – a crash by any definition. Most of the commentary on this important subject has centered around the potential contagion effect for stock markets in the rest of Asia and beyond. There is another aspect to the crash worth considering though, and that has to do with the effect it will have on Chinese gold demand.

The Chinese people, it is well known, already have a cultural affinity to gold. That attachment just received a shot of adrenaline. Prior to June, trading volumes on the Shanghai Gold Exchange (SGE) were already running 20% higher than the previous year. Now, with crash psychology affecting thinking up and down the spectrum of investors, SGE is reporting volumes off the charts. In early July, Want China Times reported that "SGE posted a record trading volume of 48.33 million grams in a single day in late June." (48.3 metric tonnes, a big number.)

Typically stock market crashes inspire gold demand. In the case of China, where the government and central bank encourage citizen gold ownership as a matter of public policy, that lesson could become enshrined in the national psyche. The important consideration for investors elsewhere around the globe is what effect even stronger gold demand from China will have on the gold price both now and in the future.

Flow of physical metal between buyers and sellers will govern prices in China not paper trades

Ever since 2011 when China's demand began to ratchet up, clients have asked how the price of gold could be stagnant to down under the circumstances. The short answer to that question is that price discovery for gold does not occur in the physical market, but in the multi-trillion dollar leveraged paper trade in London and New York – a volume that dwarfs the physical delivery market. Now China is about to challenge that price discovery mechanism through significant infrastructure changes slated to take effect by the end of the year.

This new construct has as its base China's fundamental understanding and goals with respect to gold as summarized by Peoples Bank of China governor Zhou Xiaochuan in our masthead quote above; its affinity for delivered physical ownership, as opposed to paper-based metal; and, the official measures it has undertaken to make inroads into the international gold market's price discovery mechanism.

To gain a better understanding of how China is likely to affect price discovery in the gold market, let's start with something of interest that surfaced as a result of the recent Shanghai crash. Financial Times reported rumors floating the markets that Goldman Sachs was responsible for manipulating stocks downward. Officials denied those rumors and a spokesman for the exchange stated that "foreign investors with access to the futures market via theQualified Foreign Institutional Investor (QFII) program were only permitted to use futures for hedging operations and are not allowed to make directional bets.

All recent trades by QFIIs complied with regulations." Of course if any manipulation of stocks were to occur, it would be executed in the leveraged futures market where bets can be placed at pennies on the dollar.

Up until I read that quote I was unaware of the strict procedures governing foreign trading on the Shanghai Futures Exchange (SHFE), China's only futures trading venue. A further investigation, helped along with some links from Koos Jansen, the Netherlands based expert on China's burgeoning gold market, revealed stringent rules governing trade on the SHFE for domestic participants as well, though not quite as stringent as the rules for foreigners.

At the heart of those rules, SHFE imposes strict position limitations and margin requirements on traders in order to keep price speculation (or directional bets to use its term) to a minimum. Futures trading in China, clearly is meant to serve as an adjunct to the physical market instead of the other way around as it is in western gold trading centers.

Hedging is maximized. Speculation is minimized. Leverage is controlled within reasonable parameters.

Link SHFE "Operational Manual for Gold Futures Contract Trading"

As Silver Prices Fall, U.S. Mint’s Silver Bullion Coins Sell Out

2015-07-11T18:13:00.001-07:00

Investors still like silver—so much so that the U.S. Mint sold out of its American Eagle Silver Bullion Coins.

The Mint announced the temporary sellout on Tuesday. It said that the U.S. Mint facility at West Point, N.Y., continues to produce the coins and resumption of sales is expected in about two weeks.

The shortages comes at a time when silver futures prices SIU5, +1.49% are falling.On Tuesday, they sank 5% to $14.969 an ounce, the lowest settlement for a most-active contract since 2009. They recovered a bit on Wednesday, though year to date prices have lost more than 3%.

“Silver demand has really come back in the last two weeks, on the break below $16 per ounce,” Adrian Ash, head of research at BullionVault, told MarketWatch.

BullionVault’s Silver Investor Index released Tuesday rose to 56.7 in June from below 50 in May, as the number of private investors buying silver climbed to its highest level in 9 months, while the number of sellers fell to its lowest level in 3 years. The index shows the balance of net buyers over net sellers.

In a note Wednesday, Capital Economics’s Julian Jessop, pointed out that silver has been a “notable casualty of the selloff in commodity markets in the last few days.”

That usually happens when prices of other metals, especially gold but also industrials, are falling, he said. But “assuming metals in general recovery over the remainder of the year, as we expect, silver could now be set to shine.”

Silver Prices About to Hit $50.00 Per Ounce?

2015-06-29T02:05:00.003-07:00

Silver is one of the most under appreciated commodities around. Back in 2011, an ounce of gold was worth 32 ounces of silver. Today, that same ounce of gold translates to 74 ounces of the grey metal. Does that mean gold has gotten more valuable or that silver has gotten cheaper?

Since its peak a few years ago, silver prices have dropped nearly 70%. Gold prices have also fallen by an astonishing 35% during the same period, which convinces me that investors got overly pessimistic about silver during the pullback.

So, what should the true price of silver be?

In order to properly value silver, we need the silver-to-gold ratio. Historically, silver shadows the movement of gold prices. When gold drops, silver prices are close behind.

Over the last 40 years, the conversion averages out to 42.8 ounces of silver for one ounce of gold. But the relationship fluctuates and sometimes one of the metals will become significantly undervalued.

When the ratio drifts too far from the historical average, it usually foreshadows a big run. This has happened three times in the last 20 years; in 1995, 2003, and 2011. The respective gains for silver prices were 70%, 200%, and 420%.

If we assume the same gold price and use the 2011 conversion rate, silver should be around $36.60. Right now, the price of silver is hovering around $15.90, with a conversion rate of 74.0.

That being said, how can silver possibly go to $50.00?

Well, despite its apparent cheapness, silver is simply not as abundant a metal as investors seem to think. When you compare the actual deposits of silver and gold in the earth, the natural multiple is 17.0. Ideally, the physical relationship between silver and gold deposits should dictate the price relationship.

In order for silver to hit $50.00, the ratio would have to drop to 23.0, assuming that gold stays at its current price of $1,170.

However, if the stock market bubble finally bursts, investors may flee to gold and silver as a safe haven. Under those circumstances, silver could rise to $50.00 much quicker.
Follow the Smart Money

I’m not the first person to notice this amazing buying opportunity.

In the first quarter of 2015, billionaire investor Ray Dalio loaded up on more shares of Silver Wheaton Corp. (NYSE/SLW). The hedge fund manager now owns 510,000 shares valued at roughly $9.0 million.

If you want to cash in on a huge silver run, but are hesitant to own silver directly, Silver Wheaton may be a wise choice. The company finances smaller mining firms and pays for any silver they find, thus limiting the downside risks associated with managing a mine.

The stock is down almost 34% over the last year because of depressed commodity prices, but Ray Dalio and I both think that will change.

Low interest rates from the Federal Reserve have been propping up the stock market, but a rate hike later this year is virtually guaranteed. And when the market loses support from the Fed, a flight to safety will mean huge gains for silver.

Silver Prices About to Hit $50.00 Per Ounce?

2015-06-29T02:05:00.001-07:00

Silver Buying Only Starting

2015-05-15T16:34:00.001-07:00

Silver Buying Only Starting - Silver Investment News

Silver has enjoyed a fantastic week, awakening from its bottoming slumber to surge with gold. And this strong silver investment demand is likely only starting. American stock traders and futures speculators control two of the world’s largest pools of capital active in the silver market. And the former group still remains woefully under-invested in silver, while the latter still has massive short positions left to cover.

The global leader in fundamental silver analysis is the venerable Silver Institute, a think tank primarily funded by the world’s biggest and best silver miners. Every year, it publishes excellent comprehensive data on global silver supply and demand. Last year, total worldwide silver demand ran 1067m ounces. But investing in silver coins, bars, and ETFs only accounted for 197m, less than 1/5th of total demand.

Silver investment’s relatively small slice of that demand pie implies it isn’t important, but nothing could be farther from the truth. Silver’s two largest demand categories are industrial fabrication and jewelry, weighing in at about 4/7ths and just over 1/5th respectively. But these are very inelastic, they just don’t change much regardless of silver’s price. This is readily evident in the Institute’s past decade of data.

The average silver price in the last 10 years has been a roller coaster, skyrocketing from just over $7 in 2005 to over $35 in 2011 before collapsing back down near $19 in 2014. Yet global industrial demand was 639m ounces in 2005, 628m in 2011, and 595m last year. There is often no substitute for silver in manufactured products, and they use so little per unit that companies really don’t care what silver’s price is.

But silver investment demand varies dramatically with the shifting whims of traders’ sentiment towards this volatile metal. Over the past decade it has ranged from 52m ounces on the low side in 2005 to 289m on the high side in 2008, an incredibly volatile range! And since any market’s prices are effectively set by marginal new buying and selling, nothing is more important for silver prices than investment demand.

The past decade’s average annual silver investment demand was 196m ounces, which 2014’s 197m is dead on. For our purposes today, let’s round that to 200m ounces per year. That works out to under 17m per month. This basic background knowledge of global silver investment demand is essential in order to understand just how bullish silver looks today since this latest round of buying is likely only starting.

Traditional silver investing in physical coins and bars is the largest category of investment demand, averaging 136m ounces per year over the last decade. But it’s challenging to track, since the myriads of silver dealers and investors around the world don’t have to report their transactions. Silver ETFs, on the other hand, report their holdings daily and are easily collated. Their demand averages 67m ounces per year.

The world’s flagship silver ETF is the mighty iShares Silver Trust, which trades as SLV in the States. Its holdings this week were nearly 324m ounces, the equivalent of about a year and 2/3rds of worldwide investment demand. Launched in April 2006, it is the easiest, fastest, and cheapest way for American stock investors to gain silver exposure in their portfolios. This opened silver up to vast new pools of capital.

Silver has always had a zealous hardcore base of investors who decry any type of “paper silver”, which includes ETFs. If it’s not physical silver in their own possession, they want nothing to do with it. While I’ve always personally used and recommended that classic method of silver investing, it’s not for everyone. A lot of investors ranging from hedge funds to institutions legally can’t buy or don’t want the hassles of physical.

And silver ETFs are a perfect alternative for them. These investors buy ETF shares for a trivial fraction of what the premiums run on physical silver, and SLV in particular tracks the silver price perfectly. This can only happen because SLV is a conduit for stock-market capital to flow into and out of physical silver bullion. SLV’s managers have to constantly adjust SLV’s holdings to keep their ETF’s price mirroring silver’s.

When stock traders buy SLV shares faster than silver itself is being bought, they threaten to decouple to the upside. So SLV’s managers issue enough new ETF shares to offset this excess demand. Then they plow the proceeds directly into physical silver bullion held in trust for their shareholders. Thus any differential buying pressure on SLV shares directly bids up the underlying global physical silver market.

And just as silver is on the verge of a major breakout following this week’s sharp rally, American stock investors owning silver via SLV are still woefully underinvested by recent standards. This first chart looks at SLV’s silver-bullion holdings, with SLV’s price superimposed on top. And it reveals big room for new SLV buying, which will shunt stock-market capital directly into silver and accelerate its price gains.

Despite the very weak silver prices in recent years and resulting extreme bearishness on this precious metal, SLV’s holdings have actually risen on balance. They have enjoyed an exceptionally well-defined uptrend channel in the last several years, which seems pretty amazing. But realize that as silver’s price dropped, the amount of stock-market capital invested in SLV shares still contracted though its holdings grew.

Over this chart’s span, silver peaked just under $37 per ounce in late February 2012. That day SLV’s holdings of 313m ounces were worth $11.6b. Silver’s brutal bear market finally looks to have bottomed in early November 2014 at just over $15 per ounce. By that day SLV’s holdings had grown to 343m ounces, but this hoard was only worth $5.3b. So the SLV holdings’ uptrend is not as counter-intuitive as it seems.

Though SLV’s holdings climbed 9.7% between silver’s two extremes of recent years, the value of that silver plummeted 54% which was right in line with silver’s 58% loss over this span. So American stock investors certainly haven’t been hot on silver. In the middle of this week, as silver surged 3.8% to retake $17, SLV’s holdings were worth just $5.5b. That is vanishingly small, a trivial drop in the stock-capital bucket.

For comparison, of the 500 companies included in the benchmark S&P 500 stock index, only 26 had market capitalizations of $5.5b or less as of the end of last month. So American stock investors still have virtually nothing invested in silver. As silver continues rallying, they will start getting interested and then excited and buy in. And that differential buying will catapult silver higher, accelerating its rally and allure.

Only time will tell how much SLV buying we’re going to see, but it has the potential to be really big. This ETF’s peak silver holdings of just over 366m ounces came back in late April 2011 as silver was rocketing up over $48 in a speculative mania. That day SLV’s holdings were worth $17.2b, or 3.1x higherthan this week’s levels! But it could take massive silver gains over years to fuel such a big jump in stock capital invested.

More interesting for the near-term is the SLV-holdings uptrend. Silver has remained epically out of favor since its dismal bottom late last year. Since then its price has largely languished in a super-low trading range, mostly grinding listlessly sideways. So American stock investors have had no incentives at all to up their silver exposure. But this week’s young rally is already starting to change that bearish psychology.

SLV’s holdings around 324m ounces in the middle of this week certainly reflect the universal apathy and antipathy towards silver. As sentiment shifts from extreme bearishness back towards neutral, SLV is likely to see serious differential buying pressure on its shares. Remember that if stock traders bid up SLV shares faster than silver itself is rallying, SLV’s managers have to issue shares to buy more silver bullion.

Today the upper resistance of SLV holdings’ uptrend of recent years is around 352m ounces. Regaining that level would require over 28m ounces of differential buying. And even in silver’s dark recent years, SLV has witnessed multiple holdings surges from support to resistance that didn’t take much time at all. They happened in early 2013, mid-2013, and mid-2014, and each only took a couple months or so.

So the near-term silver buying potential from American stock traders is great. They remain woefully underinvested in silver right as it’s starting to surge, and they are likely to buy SLV shares aggressively enough to force a holdings build on the order of 28m ounces in a couple months. Remember that global monthly investment demand averages under 17m, so that’s a colossal boost from SLV buying alone.

Running these numbers, enough SLV differential buying merely to return its holdings back up to recent resistance would boost global silver investment demand by 85% for a couple months! That’s one major reason why I suspect the recent silver buying is only starting. And the really bullish and exciting thing is nothing begets buying like buying. The more silver rallies, the more investors will notice it and start to chase it.

But despite that large pool of capital by silver’s standards deployed in SLV, there’s another pool that just dwarfs it. There’s no one on the planet that moves more capital into and out of silver than the American futures speculators. They aggressively trade silver’s flows and ebbs with extreme leverage, exerting the greatest influence on silver’s daily price action. And theirshort positions are the key to silver’s near-term fortunes.

This next chart looks at the total levels of long and short silver futures contracts held by these dominant American futures speculators. This data is published weekly by the US Commodity Futures Trading Commission in its famous Commitments of Traders reports. And the latest read current to last Tuesday reveals high short positions remaining in silver futures. These large bets will soon have to be covered.

While silver’s long-term price levels are ultimately a function of global supply and demand, in the short term American futures trading is the whole game. Note the super-strong inverse correlation between the SLV price in blue and speculators’ total silver-futures short contracts in red. Silver plunges when they aggressively short it, and then rallies when they subsequently scramble to exit those leveraged bearish bets.

This outsized influence of futures shorting on silver’s price is primarily a function of two things. First, as silver has fallen deeply out of favor in recent years investing interest has dramatically waned. So the influence of futures speculation on silver prices rose proportionally. Second, futures trading is a hyper-risky zero-sum game played with extreme leverage. That gives futures speculators outsized silver-price impact.

Each silver futures contract controls 5000 ounces of silver, which is worth $85,000 even at this week’s still-terribly-depressed silver prices. Yet speculators only need to keep $7700 in their accounts for each silver contract they own, the current minimum maintenance margin. That means they can run leverage of up to 11x, which is extreme. In the US stock markets, leverage has been legally limited to 2x since 1974.

At 11x leverage, a mere 9% move by silver against speculators’ positions will wipe out 100% of the capital they risked. And they could lose even more than originally bet if they face margin calls! Silver has always had a well-deserved reputation as an exceedingly-volatile metal, so 9% moves are nothing. This past Tuesday and Wednesday, silver surged 5.4% and that was modest by silver’s wild standards.

Speculators shorting silver, betting on its price falling, effectively have toborrow that silver before they sell it. This saddles them with the legal contractual obligation to buy that silver back to repay their silver debt. So high silver-futures short positions by this group of traders are very bullish for this white metal since they represent guaranteed near-future buying. As this chart shows, silver soon rallies after major shorting.

While speculators’ silver-futures short positions today aren’t extreme by recent years’ epic levels, they are still very high. As of last Tuesday’s CoT data, the latest available when this essay was published, American speculators held 49.6k short-side contracts. That is a huge bearish bet on silver prices. Between 2009 to 2012, the last normal years for the precious-metals markets, their short-side bets averaged just 21.5k.

The reason silver collapsed in early 2013 was because gold suffered its worst quarterly loss in 93 years thanks to the Federal Reserve’s radically-unprecedented QE3 manipulations in the financial markets. As the Fed levitated the general stock markets, demand for alternative investments led by gold withered. And silver is ultimately a leveraged play on gold, amplifying the yellow metal’s price action in both directions.

But even since then in the Fed’s epically-distorted markets, speculators’ total silver short contracts have rapidly contracted to or near 27k four separate times. This is support for speculator shorting in recent years. So it’s highly likely this group of traders’ downside silver bets will once again sharply fall back to these levels in the coming months. And that represents incredible levels of buying to catapult silver higher.

As of that latest CoT report, American speculators would have to buy to cover 22.6k contracts merely to return to that 27k short-side support level. And in the futures markets, the price impact of buying a long contract to offset and cover an existing short and buying a new long contract is identical. With each short contract representing 5000 ounces, this support approach would require an amazing 113m ounces of buying!

Now remember annual global silver investment demand averages around 200m ounces, so this short covering alone is equivalent to about 7 months of normal demand. And as the chart above shows, once these short-covering episodes get underway they unfold fast. The more speculators who buy to cover, the faster the silver price rallies. And the sharper silver’s climb, the more pressure on remaining traders to cover.

It’s only taken two or three months in recent years for speculators to buy back enough of their shorts to drive them back down to that 27k-contract support line. And that was from even higher total-short levels. So let’s assume a couple months for this next support approach. Run the numbers on that, and this coming short covering equates to staggering buying of over 56m ounces per month. That’s incredible!

During that short-covering frenzy, silver demand from this mandatory futures buying would run 3.4x the normal monthly average just under 17m ounces! If investors are migrating back into silver at the same time, both in physical and ETF terms, silver is going to power dramatically higher during that brief span. And investors returning becomes more and more likely with each passing day of silver rallying on balance.

So looking at SLV holdings and American speculators’ silver-futures shorts alone, silver buying is only starting. Both groups of traders are likely to shift large amounts of capital into silver in a short period of time, on the order of a couple months. And they will soon be joined by investors from around the world, in a surge of new buying that will almost certainly ignite silver’s next major upleg. Its upside potential is great.

Investors can certainly play this in traditional physical silver coins and bars or through the ETFs led by SLV. Since silver is so universally loathed these days, investors have forgotten that its price averaged over $31 in 2012 before the Fed’s extreme stock-market distortions. And as those are gradually unwound, starting with the coming rate hikes, precious metals should mean revert back up to pre-QE3 normal levels.

But however great silver’s coming gains will be, the beaten-down silver stocks will achieve multiples of that. This entire sector has been left for dead, but has extreme profits leverage to these dismal silver-price levels. At Zeal we recently finished a 3-month research project to uncover the silver stocks with the best fundamentals to thrive. Our dozen favorites are profiled in depth in a popular new report. Buy yours today and get deployed before silver’s upleg accelerates and silver stocks soar!

And you won’t hear much about silver in the mainstream financial media until after most of the gains have been won, so it’s essential to cultivate great contrarian sources of information. We have long published acclaimed weeklyand monthly subscription newsletters providing just that. They draw on our exceptional market experience, knowledge, and wisdom forged over decades. They explain what’s going on in the markets, why, and how to trade them with specific stocks. Subscribe today, as we are currently running a 33%-off Contrarian Extinction Sale!

The bottom line is the recent silver buying is likely only just starting. American stock investors remain woefully underinvested in silver, while American futures speculators remain heavily short it. Even in the anomalous recent years, it’s only taken a couple of months or so for both extremes to normalize. And that buying alone would run multiples of normal global silver investment demand over that span.

The resulting silver rally will probably be quite big and strong emerging from such bearish sentiment extremes. And it will motivate legions of investors around the world to redeploy in silver again. The more they buy, the faster silver will rally. And that will attract in even more investors, once again forming that very powerful bullish virtuous circle that silver is so famous for. Silver has real potential to surprise on the upside.

China Cuts Interest Rates for Third Time in Six Months as Economy Sputters

2015-05-10T17:46:00.001-07:00

China Cuts Interest Rates for Third Time in Six Months as Economy Sputters

China cut interest rates for the third time in six months on Sunday in a bid to lower companies' borrowing costs and stoke a sputtering economy that is headed for its worst year in a quarter of a century.

Analysts welcomed the widely-expected move, but predicted policymakers would relax reserve requirements and cut rates again in the coming months to counter the headwinds facing the world's second-largest economy.

The People's Bank of China (PBOC) said on its website it was lowering its benchmark, one-year lending rate by 25 basis points to 5.1 per cent from May 11. It cut the benchmark deposit rate by the same amount to 2.25 per cent.

"China's economy is still facing relatively big downward pressure," the PBOC said.

"At the same time, the overall level of domestic prices remains low, and real interest rates are still higher than the historical average," it said.

Sunday's rate cut came just days after weaker-than-expected April trade and inflation data, highlighting that China's economy is under persistent pressure from soft demand at home and abroad.

While the PBOC acknowledged the difficulties facing China's economy, it said in its statement accompanying the announcement that it wants to strike a balance between supporting growth and deepening structural reforms.

As part of these reforms, it lifted the ceiling for deposit rates on Sunday to 1.5 times the benchmark level, the biggest increase in the ceiling since it began to liberalise the interest rate system in 2012.

More Easing Ahead

Economists had said it was a matter of when, not if, China eased policy again after economic growth in the first quarter cooled to 7 per cent, a level not seen since the depths of the 2008/09 global financial crisis.

Indeed, some analysts have even said recently that the PBOC had fallen behind the curve by not responding aggressively enough to deteriorating conditions.

With China set to publish more key economic data on Wednesday, including industrial output and investment, the timing of the rate cut could add to worries that figures may disappoint across the board again, as they did in March.

For now, however, some were confident that policymakers can arrest the slide.

"Intensified policy loosening will help effectively halt the economic slowdown," said Xu Hongcai, a senior economist at China Centre for International Economic Exchanges, a well-connected think-tank in Beijing.

A cooling property market and slackening growth in manufacturing and investment have weighed on the Chinese economy. Annual growth is widely forecast to sag to 7 per cent this year, down from 7.4 per cent in 2014.

In an attempt to energise activity, the PBOC has now lowered interest rates and relaxed the reserve requirement ratio (RRR) five times in six months, and many economists believe more policy loosening is in store.

This is partly because despite the steady drum roll of policy easing, there are indications it has not benefited the real economy. Some data suggests banks are not passing on lower interest rates to borrowers, and credit is still not flowing to the sectors in most need of the funds.

"The effectiveness of the rate cut won't be very big," said Li Qilin, an economist at Minsheng Securities. "The PBOC has already cut benchmark interest rate by a total of 65 basis points, but borrowing costs have only fallen marginally."

Struggling Banks

Banks are also struggling as the economy founders. Lending has slowed, bad loans are piling up, and profits margins are getting squeezed as China liberalises its interest rate market. Banks' earnings reports last month showed profit growth hit a six-year low in the first quarter.

Given these challenges, the PBOC said it does not expect banks to pay savers the maximum deposit rate allowed by authorities.

And with the prospect that borrowing costs may stay stubbornly elevated, government economists told Reuters earlier this month authorities may ramp up state spending to shore up growth, in the hope that fiscal policy would work where monetary policy hasn't.

But Li Huiyong, an economist at Shenwan Hongyuan Securities, cautioned against thinking that lower borrowing costs would not trickle down to businesses and consumers at some point.

"Don't underestimate the cumulative effect of the cuts in interest rates and RRR," Li said. "This won't be the last cut.

"The rate could be lowered to 2 per cent at least, and we expect the economy to gradually stabilise in the coming two quarters."

Chinese Demand for Silver Bullion Bars Halved in 2014

2015-05-08T19:40:00.001-07:00

Silver bars weren’t very popular last year — especially in China, where demand fell by half.

Chinese demand for silver bullion bars dropped 52% in 2014 from a year earlier, to 6.2 million ounces, according to the The Silver Institute’s annual World Silver Survey, which was produced by the GFMS team at Thomson Reuters. That was the lowest level since 2010.

“The sharp decline was attributed to the continual implementation of the anticorruption policy, which served a severe blow to the gifting sector, including bars,” according to the survey, which was released Wednesday.

A steep drop in silver prices certainly didn’t help. Silver futures SIN5, +0.79% on Comex fell nearly 20% last year, following a 36% plunge in 2013.

Total global demand for silver bullion bars fell 31% last year to 88.4 million ounces — in value, that’s about a $1.7 billion drop, the survey said.

Andrew Leyland, manager for precious metals demand at Thomson Reuters GFMS, told MarketWatch in an interview that he was surprised to see how weak demand from China actually was.

The government crackdown in gifting and its anticorruption campaign, along with a “softening of economic sentiment through the course of 2014,” impacted bar buying in China, he said. “A lot of luxury goods sectors didn’t have a particularly good year.”

Globally, investment in silver coins and bars fell by 20% last year to 196 million ounces, the survey said.

There was a slowdown in European buying of silver bars and coins, primarily due to an increase in sales tax in Germany that was applied to silver from the beginning of 2014, Leyland said.

He pointed out, however, that the market was coming from a record base year in 2013. Last year’s bar and coin investment figure was still the second highest on record.

And though the world’s silver mine production was up a 12th straight year in 2014 and supplies of the metal were at their highest in about 4 years, the market still saw a supply deficit of 4.9 million ounces last year.

Looking ahead, Leyland expects silver-mine supply to decline and is looking for growth in a number of demand sectors. He forecast an average silver price of $16.50 an ounce for this year.

Prices will see some short-term weakness, but are likely to end the year at more than $17 an ounce, with a couple of years of modest price increases to follow, he said.

Economics Theory: Gold Will Appreciate 30% in Line with Swiss Franc, As Inflation Plays out in Fiat currencies

2015-01-25T18:39:00.001-08:00

Gold Will Appreciate 30% in Line with Swiss Franc, As Inflation Plays out in Fiat currencies

Gold Will Appreciate 30% in Line with Swiss Franc, As Inflation Plays out in Fiat currencies - the Swiss Franc represents gold and a monetary standard that is more prudent than the rest of the western central banks which have been engaging in quantitative easing incrementally in an increasing fashion.

We will see the result of easy money, which has recently been bought to light by the Swiss (who quit the game mid hand exposing the rest of the players playing with extra cards in the deck!) flow into gold as more easy money chases finite money like gold and silver, the price will rise accordingly.

The Swiss Franc is 30% more scarce than the euro (Symbolically - or as interpreted by the free market), so in turn will gold be - albeit in a delayed fashion.

See more at: http://economicstheory.blogspot.com.au/2015/01/gold-will-appreciate-30-in-line-with.html#sthash.wxspY8tV.dpuf

Speculators Looking for Havens from Slowing Growth are Piling Into Silver

2015-01-22T05:01:00.001-08:00

Speculators Looking for Havens from Slowing Growth are Piling Into Silver

Silver headed for a bull market in its best start to a year in more than three decades, supported by speculation that slowing global economic growth will spur demand for havens.

Holdings in exchange-traded products backed by the metal have posted three straight weekly gains, while U.S government data show money managers raised their net-bullish wagers to the highest since August. An ounce of gold bought 71.4 ounces of silver on Thursday, compared with an average of about 58 over the past decade, signaling the white metal is inexpensive relative to gold.

Investors are returning to precious metals amid concern that U.S. growth won’t be enough to offset weakness in other countries. A collapse in oil prices has boosted the appeal of gold amid the threat of economy-damaging deflation, and prices this week topped $1,300 an ounce for the first time since August. Policy makers at a European Central Bank meeting Jan. 22 are expected to announce new stimulus measures.

“The drumbeat of stimulus across the globe is bringing people to silver and gold,” Dan Denbow, a portfolio manager at the $1.1 billion USAA Precious Metals & Minerals Fund in San Antonio, said in a telephone interview. “Also, the ratio between gold and silver got very, very inexpensive, indicating that silver had some catching up to do.”

January Rally

Silver for immediate delivery climbed 0.7 percent to close at $18.127 on Jan. 21, according to Bloomberg generic pricing. A settlement at $18.4064 would leave the metal up 20 percent from the recent closing low of $15.3387 in November, meeting the common definition of a bull market. Prices are up 15 percent this month, the best start to a year since 1983. It traded at $18.0197 at 2:24 p.m. in Singapore on Thursday.

Gold for immediate delivery fell 0.4 percent to $1,287.43 an ounce on Thursday, after advancing a day earlier to $1,305.25, the highest price since Aug. 15.

“Silver will benefit from all the stimulus measures and rate cuts being announced aggressively by the central banks,” Caroline Bain, a commodities economist at Capital Economics Ltd. in London, said in a telephone interview. “Also, the stimulus measures will at some point boost usage of the metal.” Bain said she expects silver to rise to $20 by the end of the year.

Consumption is forecast to grow to almost 680 million ounces by 2018, up 142 million ounces from 2013, as demand in industries ranging from appliances to solar energy will rise, CRU Consulting said in a report on December 10, 2014

Physical Market

A tighter physical market will provide some support to prices this year, Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd., said at a conference in London on Jan. 21.

The consulting firm expects global silver supply from mine production and scrapping to fall 2 percent in 2015, and physical demand for uses including industry, photography and jewelry to grow 2 percent. The physical silver-market surplus will shrink by 40 million ounces to 211 million ounces in 2015, according to Precious Metals Insights.

“Silver is rising along with gold as a hedge against uncertainties,” George Gero, a New York-based precious-metal strategist at RBC Capital Markets LLC, said in a telephone interview. “Also, some funds are betting on future growth with so much money being pumped into the system.”

Economics Theory: Will China Pull a "Switzerland" on the U.S. Dollar?

2015-01-17T22:58:00.001-08:00

Peter Schiff Poses and attempts to answer the question, Will China Pull a "Switzerland" on the U.S. Dollar?

#PeterSchiff #China #Switzerland #centralbanks #gold #economics #monetary #policy

Swiss Central Bank Defends Franc Move Despite Turbulence

2015-01-17T20:15:00.001-08:00

Switzerland’s central bank on Saturday stood by its shock decision to let the franc soar, insisting the subsequent turbulence rocking global markets and the Swiss economy since the move would eventually subside.

“This was not an easy decision... (but) we are convinced it is the right one,” Swiss central bank chief Thomas Jordan said in an interview published in Swiss dailies Le Temps and NZZ on Saturday.

The Swiss National Bank (SNB), he said, had determined that by continuing to artificially hold down the franc, “it risked losing control of its monetary policy in the long term.” Jordan’s comments came after the bank stunned markets Thursday with its decision to abandon the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.

This Swiss currency has since gained around 20 per cent against other currencies and is currently trading at around parity with the euro.

The soaring franc caused panic on global markets, bankrupted foreign exchange traders as far away as New Zealand and was seen as a significant threat to Switzerland’s export-dependent economy.

The Swiss stock exchange’s main SMI index has plunged more than 14pc since Thursday’s announcement.

Swiss banking giant UBS said the SNB’s decision would deliver a severe blow to economic growth, slashing its forecast to just 0.5pc expansion this year from its previous estimate of 1.8pc.

The yield on Swiss 10-year bonds on Friday meanwhile entered negative territory for the first time, slipping to -0.031pc, meaning lenders will now have to pay to lend money to the country.

THREATENING ENTIRE SWISS SYSTEM: “The strong franc is threatening the entire Swiss system,” the Tribune de Geneve (TdG) daily lamented on Saturday, adding: “The future looks dark.”

Jordan said Switzerland’s central bankers, who unanimously agreed to scrap their long-drawn efforts to hold down the value of the franc, “were aware that this decision could have a major impact on markets.”

“The markets should gradually stabilise,” he said, admitting though that “it could take time.”

The SNB had been defending the exchange rate floor since September 2011 in an effort to protect the country’s vital export and tourism industries, even buying massive quantities of foreign currencies to do so.

The rate was introduced as the eurozone crisis sent investors scurrying to the safe haven currency. More recently, the Russian rouble crisis put renewed pressure on the franc.

Jordan insisted the efforts to rein in the franc were no longer justified, insisting the Swiss economy was in a much better place than it had been when the cap was introduced.

“We gave the Swiss economy time to adapt to the new situation. A period of three years is not negligible,” he said, stressing that “the currency cap from the beginning was supposed to be an exceptional and temporary measure.”

“It was always meant to be abandoned.”

SNB NOT ALL-POWERFUL: Now that the cap was gone, Jordan acknowledged that “following this decision, the economic situation in Switzerland is more difficult.”

But, he pointed out, “SNB cannot fulfil all wishes with its monetary policy. It is not all-powerful.”

His comments were unlikely to win over Swiss businesses bracing to see exports plunge and shoppers at home flood across to neighbouring eurozone countries for cheaper goods.

“Making products in Switzerland and selling them abroad is currently the worst possible scenario,” Syz analyst Jerome Schupp told TDG.

Silver Investment News: Short Term Silver bottom?

2015-01-15T03:00:00.001-08:00

Has Silver hit a Short Term bottom?

Gold and silver mining stocks will likely bottom before the price of the underlying metal. Are mining shares telling us that a bottom is near?

#silver #silverbullion #silvermining #bullion #miningstocks #commodities

Are We About To See A Historic Melt-Up In Gold & Silver?

2014-12-11T00:07:00.001-08:00

Are We About To See A Historic Melt-Up In Gold & Silver?

Today one of the wealthiest people in the financial world stunned King World News when he said we may be nearing a point where we see a historic melt-up in gold, silver, and the mining shares.

Rick Rule, who is business partners with billionaire Eric Sprott, also discussed exactly how this historic advance will unfold and why the up-moves will be so incredibly violent

Eric King: “Rick, are we finally seeing the more than 3-year bear market in gold and silver coming to an end?”

Rule: “You and I both believe in higher precious metals prices, Eric, so it’s tempting to say yes. Bear markets end with capitulation selloffs. I think we were on the verge of a capitulation selloff six weeks ago but we didn’t get one. The questions is, do we have to see a capitulation selloff this time? The answer is, of course not

“I said to my Chinese friends that ‘The U.S. dollar is in one way shape or form a lie.’ And they said, ‘Yes, but it’s the most liquid lie on the planet, and from that point of view we are attracted to it.’

When the confidence in the U.S. dollar begins to wane, and I say when, not if, then precious metals will shine. We may be seeing a preview of that today. But if you had bought precious metals in rubles, Eric, or yen, or the Brazilian real, you would be very happy today.

For many people who bought them in dollars this has created frustration because of the strength of the dollar vs other fiat currencies. Gold doesn’t have to win the war against the dollar, it just needs to lose it less badly for KWN readers not to be just happy, but ecstatic.”

Eric King: “In this secular bull market, if we are seeing an end to the cyclical bear market in gold, silver, and the shares, how do you see the advance unfolding off the lows? Will it give people time to get in?”

Rule: “I definitely believe it will. I believe that without a capitulation selloff, the bottom that we see will resemble the market that we saw from July 2013 - February 2014. That is a gradual saucer-shaped recovery, with higher highs and higher lows but plenty of volatility to scare people and also delay investment in the sector. And it may be that we are back into that phase after having been scared to death recently.

Certainly without the capitulation selloff what you will see is a long consolidation period that’s extremely choppy and volatile. And that has been, in my experience in the last three cycles, eventually greeted with a melt-up.

That’s the only way I can describe it if you remember 2002, Eric. This is where, finally, all of the sellers get used up and the metal gaps higher and the shares gap higher. I’m not saying that past has to be prologue but that’s what has happened the last few times we have been in a similar position.”

Eric King: “You are talking about some pretty violent upward moves.”

Rule: “Yes. It’s funny that we have been, in effect, punished in this market since 2012 and subjected to several violent down-moves, so we forget that the thing which attracted us to this sector originally was the fact that in recovery this market exhibits very violent up-moves.

Remember, people’s expectations of the future are set by their experience in the immediate past. And everybody’s experience in the immediate past going back to the tail end of 2011 has been negative. What that means is that our expectations are all negative.

What moves a market is a market that exceeds expectations, and expectations for the mining industry are pathetically low, which means we will exceed those expectations.

And when we exceed those expectations the market will move significantly higher and perhaps very violently to the upside. If you remember back to the 1993 melt-up, or the 2002 melt-up, or going back even further to the melt-up of the late 1970s, which was the most violent melt-up I’ve ever experienced in my life, these are truly spectacular events. If past is prologue, and it normally is, this will happen again.”

See this article at King World News

US Mint Silver Coin Sales Climb to Annual Record as Silver Price Rebounds

2014-12-10T18:22:00.001-08:00

The U.S. Mint has sold a record number of silver coins this year as demand for the physical metal helped futures in New York recover more than 20 percent since falling to a five-year low early this month.

Purchases of American Eagle silver coins reached 43.051 million ounces in 2014, data on the mint’s website shows. That tops last year’s 42.7 million ounces, the previous all-time high, according to an e-mailed statement yesterday. There are still enough supplies to keep selling 2014-dated coins through the week starting Dec. 15, the mint estimates.

A surge in demand prompted the mint to suspend sales in November for more than a week because of a lack of inventory. When the coins were again made available for purchase, it was on allocated basis. Buying has increased with prices heading for a second straight annual loss, the longest slump since 1992.

“This has been a very strong year for us,” said Michael Kramer, the president of New York-based MTB Inc., a dealer authorized to purchase coins directly from the mint and sell to consumers. “It was especially busy on days prices took a big tumble.”

Silver futures for March delivery jumped 5.3 percent to $17.134 an ounce on the Comex yesterday, the biggest gain since Dec. 1.

Prices declined 12 percent this year through yesterday, after dropping 36 percent in 2013. On Dec. 1, the metal reached $14.155, the lowest since 2009.

Swiss Franc No Longer a Safe Haven and a Possible Bottom for Gold

2014-12-10T00:30:00.001-08:00

Peter Schiff responds to the results of the "Save Our Swiss Gold" initiative this past weekend. He explains why he thinks it is bullish for gold and might have even marked gold's bottom.

0:17 – “Save Our Swiss Franc” would have been a more accurate description of the Swiss gold initiative.

0:59 – Switzerland used to have more than 40% of its reserves in gold and was very prosperous.

1:47 – The Swiss gold initiative was a threat to the powers-that-be, because it limited the ability of the Swiss National Bank (SNB) to create inflation

2:35 – If the initiative had passed, Switzerland would have been an example of a strong economy in a sea of European inflation.

3:34 – How is it crazy to have only 20% of your assets in gold, but sensible to have 100% of your assets in fiat currencies?

4:30 – The Swiss originally didn’t want to adopt the euro, but now they’ve embraced a de facto euro standard.

5:30 – Gold and silver dropped dramatically after the vote, which was surprising since no one had really expected the initiative to pass.

6:23 – Gold and silver recovered their losses quickly once the United States started trading.

7:10 – Peter believes the “no” vote is more bullish for the long-term price of gold.

7:43 – If the Swiss had adopted the referendum, it would have slowed down Swiss money printing and Swiss inflation.

8:28 – When the world realizes the United States is going to return to quantitative easing, the Swiss franc will no longer be a safe-haven option. This would mean greater demand for gold.

9:36 – If the SNB won’t be buying gold on behalf of its people, the Swiss will buy gold individually to protect their purchasing power.

10:49 – Looking at historical actions of central banks, there’s a chance that gold’s low price on Sunday could end up being gold’s bottom.

Investor Sues the Silver Bullion Banks for Benchmark Manipulation

2014-08-06T06:08:00.000-07:00

An investor has filed suit against the three firms that set the price of silver, accusing them of manipulation. The lawsuit, filed in the US District Court in the Southern District of New York, is noteworthy because similar accusations have been levied in the gold market and the process by which commodities prices are set has increasingly come under scrutiny.

The lawsuit was filed by J. Scott Nicholson, a Washington State resident, who is seeking class-action status for the suit. Bank of Nova Scotia "vigorously" denied the charges, according to an article from Bloomberg Businessweek, and the other two rate setters, Deutsche Bank and HSBC, declined comment. The three banks conduct the fix, or price-setting, once a day by conference call, according to an article from Reuters.

It is unclear if Nicholson has evidence to back his charges, but the complaint states that the defendants "have a strong financial incentive to establish positions in both physical silver and silver derivatives prior to the release of silver fixing results, allowing them to reap large, illegitimate profits."

Deutsche Bank said in January that it would withdraw from participating in setting the gold and silver benchmarks in London as it plans to cut 200 jobs in commodities trading. London Silver Market Fixing Ltd. said in May that it would stop administering the benchmark after Deutsche withdraws its participation in August.

The suit comes on the heels of similar suits in the gold market and a lengthy silver market investigation. The five banks accused in the gold fixing case deny the accusations. The five-year silver market investigation, conducted by the Commodities Futures Trading Commission, ended last September when it found no evidence of wrongdoing.

For more:
- read the Bloomberg Businessweek article
- read the Reuters article
- read the BBC article

JP Morgan Holds Highest Amount Of Physical Silver In History

2014-02-08T15:52:00.001-08:00

While everyone is focused on the massive outflows in COMEX registered gold inventories and the gold ETF, GLD, it seems that an important evolution in silver is passing unnoticed. In what follows, Ted Butler, precious metals analyst specialized in COT analysis, reveals a remarkable insight in the physical silver market.

Butler’s calculations show that JPMorgan (NYSE:JPM) has piled up the largest holding of physical silver in modern world. Since the silver price peak in May 2011, the bank has accumulated between 100 and 200 million ounces of physical silver (if not more). The equivalent in metric tonnes is between 3,110 and 6,220 tonnes.

To put that number in perspective, it surpasses the amounts held by the Hunt Brothers or Warren Buffett (in his investment company Berkshire Hathaway).

On a yearly basis, some 100 million ounces of silver reach the investment market, which translates into 250 million ounces between May 2011 and December 2013. That has a value of approximately $5 billion. Given the size of the too-big-to-fail bank, that amount of silver, how large it may seem, is easily affordable:

JP Morgan’s quarterly profit is $5 billion (approximately 200 million ounces of silver).
In 2013, the closing of the gold short position, as well as the 20,000 contract reduction in the silver short position, netted JPM more than $3 billion.
In COMEX silver, JPM was the largest buyer in 2013.
These facts make it reasonable for JPM to be a big buyer in physical silver.

Methodology

JP Morgan knows the financial markets better than anyone else. It is no coincidence that the bank is (ab)using that knowledge to their own benefit. Evidence of that lies in the record number of penalties for which they have been accused because of market manipulation.

Butler explains that JPM was able to accumulate so much silver without being noticed through the big silver ETF, SLV. In his weekly commentaries to his premium subscribers, he has explained on numerous occasions that the physical silver holdings in SLV have been largely intact on a net basis, but there was a large “churn” in the holdings, which allows for a large buyer to go unnoticed. For instance, 60 million oz were liquidated in the two months after the price smash in May 2011; they were right away absorbed by a big buyer. The data are available on this site http://about.ag/SLV/.

Furthermore, the conclusion that JPM has been the big buyer in physical silver is confirmed by the following facts:

The growth of metal in the JPM COMEX silver warehouse over the past three years was 45 million oz.
The recent delivery stopped by the bank in December/January COMEX deliveries was 15 million oz.
JPM, being a master in manipulating financial markets, has also (ab)used their ability to set the silver price in the leveraged paper COMEX market, while simultaneously benefiting from lower prices to accumulate the physical metal.

“Causing the price of silver to be depressed via a concentrated short position on the COMEX along with the ability to crush prices in an HFT second, to then scooping up physical metal (and covering paper shorts) at the self-created depressed prices.

What this also highlights is the madness and illegality of having the paper price on the COMEX setting the price in the physical market. If JPM hadn’t been capable of rigging silver prices lower in 2013, it would never have been able to buy back 100 million ounces of short paper contracts and buy many tens of millions of physical silver as well.”

Motive

The underlying motive for JPM to accumulate such a large amount of silver is most likely related to the fact that the bank was on the wrong side of the market when the silver price exploded.
When silver went through its historic rally in March and April 2011, the weekly COT data indicated that speculators did not rush into COMEX futures, which means that the peak in the silver price was not driven by speculation in silver futures. On the other hand, there was buying in the big silver ETFs, including record short selling in SLV.

“So, if it was not highly leveraged speculative paper buying on the COMEX that drove silver prices to the peak, it had to be buying in the physical market (including the ETFs). Therein resides my conviction that we were on the cusp of the first wholesale physical silver shortage in history in April 2011. And clearly it was the investment side of silver’s unique dual physical demand (investment/industrial) that pushed prices higher, as there was no great rush by industrial users into physical silver.

JPM was on the wrong side of the silver market: neither the total commercial net short position nor the concentrated short position of the four largest shorts (including JPM) increased in any way and, in fact, both began to decline in April. This implies that speculators, particularly the technical funds, not only didn’t add to long positions, but reduced long positions on the $15 price jump from March 1, 2011.”

What does this indicate? The explanation that makes most sense is that JPM realized that it was on the wrong side of the trade, after having discovered how tight the physical silver market was. Consequently, the bank had to crush the silver price with their HFT tricks in order to reverse the trend. By doing so, JPM could regain control over the silver market.

Meantime, JPM has built the longest position in physical silver in recorded history. It holds its grip on the silver price through its short corner in COMEX silver.

Ted Butler has written time and time again that the extent to which JPM adds new short contracts on the next silver rally will determine the strength of the rally. Simply put – if JPM doesn’t add new short positions, the manipulation is over. Someday, JPM won’t add to silver short positions and they, more than anyone else, will be best positioned to realize massive gains.

Are Gold and Silver Prices ‘Manipulated’, or Not?

2014-01-14T16:23:00.001-08:00

It is unlikely that gold and silver prices are not ‘manipulated’, given that every other market is – but the question really is whether governments and central banks are part of the process, or not.

There remains a debate over whether gold and silver prices are ‘manipulated’, although perhaps the debate should actually be are the prices manipulated by central banks, governments and the major investment banks in an attempt to control (suppress) prices.

In truth, of course gold and silver markets are manipulated – as is virtually every other market on the planet. It’s really a question of how one defines manipulation. Short selling, or concerted buying, by big money, particularly through the use of High Frequency Trading, of any stock or commodity could be considered attempted manipulation and no-one doubts this goes on the whole time in virtually any market or stock one cares to name.

It’s part of the modern financial system and however one looks at it, it probably should be considered at the very least unethical, if not, in some cases, illegal, although market regulators turn a blind eye. It gives market advantage to big money which the average investor cannot hope to counter and thus creates a far from level playing field hugely in favour of the major institutions – or at least those with big money at their disposal. That’s how the rich get richer.

However that’s not really the debate with gold, and to a lesser extent its less costly sibling, silver which just tends to move in exaggerated concert with gold. Here we enter the realms of global power plays because of the historical significance of gold as the ultimate measure of wealth, for an individual – and even more so for a nation. Gold is perceived everywhere, much as Western economists may deny it, or disapprove of it, as being the yardstick against which key currencies are measured. Rising gold prices in any currency are not real increases. It is the declining value of currencies against the golden constant which is the reality.

Now governments and the central banks do not like the weaknesses of their currencies being emphasised for all to see by their depreciations in terms of gold and, so the argument goes, they may do their utmost to prevent the gold price rising outside certain controlled parameters.

Indeed if they can actually cause the gold price to dip that is a job particularly well done. Now arguably, back in the northern summer of 2012, gold looked to be in danger of breaking out hugely upwards, only to see a subsequent series of price reversals bringing it back, at one time, around 40% from its high point.

This is not seen by the gold bulls and entities like GATA, as just a bubble bursting and extreme profit taking by the investment community, but they attribute more sinister motives to the recent price pattern and see governments, central banks and their major investment banking allies as acting in concert behind the falls. And given that governments and central banks openly ‘manipulate’ currency exchange rates to meet their perceived requirements in the global marketplace, if one looks at gold as a currency then it is perhaps inconceivable that these entities are not involved in attempts to move the gold price in a direction which suits them and their global financial policies.

Some of the arguments on governmental and central bank involvement in the control of the gold price have been superbly laid out in a recent article called Gold Manipulation 101 by Bill Holter of Miles Franklin Precious Metals Specialists. Holter notes in particular that he has explained over his career many times “why” gold would surely be manipulated and that the Fed (and other foreign central banks) would be foolish not to try to suppress the price. Gold is THE main competitor to fiat currency, an exploding price is like a neon sign advertising policy failure and currency flaws, as Paul Volcker once said, “It was a mistake to let gold get away from us.” And then goes on to explain exactly how this price suppression was achieved in the past and how it is today.

Back in the 1960s and 1970s the process of keeping the gold price under control – once the gold window had been opened – before which gold had effectively been at a fixed price – was handled by the London Gold Pool where physical gold was sold on the London Market so as to meet any excess demand until gold stockpiles were depleted to the extent that this control could no longer be achieved and the price then spiked up to $850 in 1980.

The problem then became how to supply gold to meet any excess demand and thus get, and keep, prices under control again. This appears to have been done by persuading the major gold producers to forward hedge their gold sales to protect their profits going forwards which effectively brought, as Holter puts it, 1,000′s of tons of gold “forward” for sale and on to the market. It had not been mined yet but the true intent and result was to place excess supply (which had not even been mined) onto the market to depress the gold price. Some see this as collusion by the gold miners in gold price suppression although, in our view, it was slick salesmanship by the bullion banks which handled the forward sales contracts.

Indeed the hedging, and eventual gold price recovery, after the ‘Brown Bottom’ of 1999-2002 which saw the low point in the gold price as the U.K. sold half its gold reserves under the Chancellorship of Gordon Brown (later to become the UK’s Prime Minister), accompanied by rising costs, that led to the demise of some gold miners – notably Ashanti Gold Mines which had to be rescued, by being swallowed up, by AngloGold.

But the gold price started recovering. The gold ETFs were launched which diverted much needed investment away from the gold producers into the Funds – latterly a major source of physical gold helping suppress the markets as continued adverse gold publicity fed to the media pushed the ETF investors into equities,

But, in the interim COMEX trading and paper gold took precedence as the prime manipulation tool with vast volumes of paper gold being pushed onto the futures market as gold looked to be starting to take off again which, in conjunction with High Frequency Trading (HFT), contributed to a number of flash crashes in the market, usually taking place out of U.S. trading hours when markets were thin. Some of these flash crashes were major with huge numbers of contracts being sold with the very obvious intent of triggering other HFT stop loss sales and thus creating huge downward spikes in the markets. These also had the effect of driving further sales out of the ETFs and thus adding physical gold supply into the equation.

Finally Holter points to the last and longest lasting method to manipulate gold’s price has been the “leasing” of central bank metal. This, Holter reckons, arose from the 1996 U.S. ‘strong dollar’ policy which meant somehow keeping the gold price down and at this point Central Bank gold leasing was introduced whereby Central Banks could lease out their gold at a ridiculously low rate to a bullion bank, while the latter could sell the gold on and invest the proceeds at a far higher rate in ‘safe’ government bonds.

A no-brainer for the banks – and because the gold was leased, not sold, has enabled the central banks to retain the gold in their books as it is a loan. Much of the gold sold though has been converted into jewellery – or found its way into other strong hands - and as the gold price has risen, while physical metal remains in short supply, it seems unlikely that the gold can actually be returned to the central banks in physical form. (Hence the speculation as to why it is taking seven years for Germany to get its 700 tonnes of gold back from the central bank depositories in the U.S. and France).

As Holter concudes, Any and all of this could be proven beyond any doubt and the perpetrators brought to justice and jailed within just a few days. There is a paper trail for all of this and the Justice department would have slam dunks all over the place…but there is a small problem. They can’t (and won’t) prosecute “themselves” because ALL of these schemes had one goal in mind, suppress the price of gold. This is exactly the “unofficial”…official policy.

This is the theory of the actual practice behind gold price manipulation (suppression) by governments and central banks and their allies in the financial hierarchy. There are still many deniers out there who put the strange gold price flash crashes of the past two years down to market forces, but the access to the kinds of funds necessary to perpetrate them does, in our minds, suggest that there are indeed other factors at play here than purely banking and fund financial ones.

Of course there are other factors in the equation now, which will ultimately see any suppression scheme fail long term, but may just lead to other forms of manipulation elsewhere for political advantage.

As we have pointed out in these pages a number of times recently, Chinese demand is almost capable on its own of absorbing the total of global new mine production and thus, along with other gold purchasing nations demand for physical metal by strong holders seems to be exceeding global supply.

This means less and less physical gold availability in the West which ultimately has to diminish the capability of those trying to control the gold price to do so – particularly as outflows from the ETFs slow down. But then we may just be seeing a transfer of gold price manipulation capabilities from West to East and who knows what that might bring in terms of pricing. Gold is significant enough in its global financial position for someone to want to control it – it just depends who will have the future financial muscle to do so – and what their agenda might be.

Bullion Banks “Selling Gold They Don’t Possess”

2013-10-20T18:37:00.000-07:00

Huge paper gold sales are driving the gold price down every time it looks like stabilising, but as new physical gold supply moves East, this will surely lead to a massive short squeeze.

The statement in the title relates to a frustrated comment in a recent King World News interview with John Hathaway, a renowned gold stocks analyst who manages the well-respected Tocqueville Gold Fund in the USA. Now, this factoid will not be news to regular readers of Mineweb, or to any avid follower of the gold market, and is perhaps indicative of the way virtually all markets are manipulated by the world’s financial elite.

In context, Hathaway’s statement in commenting on yet another gold price take-down was as follows: “These guys don’t even have to borrow the gold to sell it. It’s probably a couple of bullion banks, and they use their balance sheets to justify the leverage of selling gold they don’t possess. In some ways this is just a travesty. We have entities moving this major market and making leveraged bets, but they do it without having to take physical possession and short the way you would do it on a normal exchange.

So they just wreak havoc in the gold market and damage investor psychology, but it will come to an end. This is a continuing story that has to be watched. Aside from the macro issues that surround gold, I think the chain of custody, the paper trail between derivative paper instruments and the real metal, is of great interest to me” The full interview may be accessed by clicking here.

Now what is perhaps unspecified is why? GATA will tell you it’s all part of a global effort, orchestrated by Central Banks, to control (suppress) the gold price. They probably have a point. The same argument could be put as that it is more a universal effort to shore up the U.S. dollar as the collapse of the greenback would throw global trade into disarray. Gold is seen as the bellwether of dollar strength or otherwise. But this is effectively the same argument as that of gold price suppression from a slightly different perspective.

But, in terms of gold, the dollar has been deteriorating dramatically over the years anyway. The dollar’s only saving grace is that virtually every other currency against which it is measured has been deteriorating in purchasing power at an equal, or even greater, rate, giving a hugely misleading impression of the dollar’s own intrinsic strength.

Or it could just be that some the biggest investment banks and financial institutions have come to realise that gold is nowadays such a small part of the global investment scene that it can be manipulated for their own benefit with total impunity, regardless of the effect it can have on the individual gold investor or fund which looks on gold as a portfolio diversifier.

Or it could well be (probably is) a combination of both. The financial elite can thus make obscene amounts of money, while the governments and central banks tacitly collude in turning a blind eye to what might be considered criminal activity in other markets, as it suits their own overall agendas for gold to be kept under control. Consequently the regulators set up to control this kind of activity take little or no interest in investigating the very strange paper precious metals sales, which have been bearing no relation at all to the physical metal supply and demand situation.

We see and hear major investment banks’ analytical departments talking down gold in the most vehement terms, which because of their status in financial circles leads to massive sales of physical metal from weak holders, aggravated by computer stop loss selling, thus driving the price down dramatically, and then of the same banks climbing back into the market to buy up bullion at far lower prices ahead of a short term recovery. Then rest for a few days, weeks or months and repeat the whole procedure all over again just as the metals seem to be starting to stabilise. This seems to be happening with increasing frequency. What a perfect way to make ridiculous amounts of money for those who have the financial strength to take advantage.

Meanwhile, there are the gold believers on the sidelines who may also have virtually unlimited pockets – the Chinese in particular – who must be feeling every day is Christmas as they rake in physical gold at depressed prices, convinced that at some day in the future, by when they will have completely cornered the physical new gold market, the yellow metal’s price will soar, while Western paper gold will become worthless with no physical metal to back it. As far as gold, and almost any other trade goes, the East looks to the long term, the West tends to look to tomorrow!

And as for the East cornering the market in physical gold, they are getting awfully close to doing this already. Growing Chinese gold consumption is likely to account for close on 60% of new global gold production this year – and that is on the basis of already pretty well known figures – net Chinese gold imports through Hong Kong plus the country’s own domestic production, are together likely to reach well over 1,500 tonnes in calendar 2013. If, as many surmise, China imports gold also through other ports of entry, which it does not disclose, then this percentage could be higher still.

Add into this India’s gold imports which, despite government attempts to control them, some estimate to also be close on reaching 1,000 tonnes this year (particularly if smuggled gold is included), then these two countries alone will together account for nearly all the world’s 2013 newly mined gold supply. And Chinese buying has been growing year on year. Meanwhile a number of other nations, mostly in Asia and the former Soviet union have also been consuming more gold so far in 2013, although none on quite the scale of China and India.

This suggests a run on physical gold may well be upon us soon. So far this has been prevented by sales out of the big gold ETFs, and the rundown in COMEX inventories, diminishing scrap sales, plus the supply of any newly mined gold which is not already going directly into Eastern, Middle Eastern and FSU hands.

Some think Central Bank gold may also be entering the market. This is most likely to be leased gold and thus due to be returned, so it stays in their books. But as physical gold goes into shorter and shorter supply, this may become increasingly difficult for those who have leased it to repay in kind. Yet another indicator of a likely short squeeze ahead.

Bullion Trader Maguire Describes Run on the London Gold Banks (on Max Keiser TV)

2013-08-26T18:45:00.001-07:00

Interviewed yesterday by Max Keiser on the "Keiser Report" on the Russia TV television network, London bullion trader and silver market rigging whistleblower Andrew Maguire said there is a run on the London bullion banks.

The Federal Reserve's big dumping of paper gold in April bought a little time for the banks but only increased the offtake of real metal from the grossly overleveraged fractional-reserve gold banking system, that the Bank of England is advancing metal into the London market every day to avert defaults.

The United Kingdom's gold sales begun in 1999 were undertaken to rescue gold short Goldman Sachs, and that the Western gold banking system is now in the same short squeeze that threatened it 14 years ago. Yesterday's "Keiser Report" is posted at YouTube and the interview with Maguire is about 13 minutes long and begins at the 13-minute mark here:

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org/

Peter Schiff on Bullion Banks, The Hidden Trove of QE Money

2013-06-07T20:12:00.000-07:00

Would you trust the New York Fed with 7,000 tons of the yellow metal? Perianne talks to Peter Schiff about what central banks are doing with gold.

Then, Prime Interest Producer Justine Underhill explains what exactly the Fed has been doing vis-a-vis QE.

China To Buy $344 Billion Worth of Gold?

2013-06-06T21:44:00.001-07:00

As economic conditions in the U.S. and the global economy deteriorate, and as central banks around the world print more money in their misguided attempts to spur growth, more and more analysts are saying that gold bullion’s best days are behind it.

Their reasoning: the economy is improving, the Fed will cut back on its monetary stimulus, the worst is behind us, and there’s no more crisis, so there’s no more reason for gold to rise—this is the exact opposite of what I’m saying!

The gold bears fail to realize there are fundamental forces at play behind the gold bullion bull market.
Central banks around the world are looking at gold bullion as an alternative to the currencies they hold in their reserves. It is well documented in these pages how major central banks like the ones from Russia and Turkey continue to buy gold bullion.

Then there is the central bank of China. Its official reserve reached a value of $3.44 trillion in the first quarter of 2013—similar to the size of Germany’s economy. China increased its reserve by $128 billion in the first quarter, making it the biggest increase in reserve since the second quarter of 2011. (Source:Financial Times, April 11, 2013.) My bet is that most of that reserve is in U.S. dollars, which China would desperately like to get rid of.

With that said, China doesn’t have as much gold bullion to back its reserves as countries like the U.S., Germany, and France have. As a matter of fact, the Chinese central bank only holds 1.6% of its reserves in gold bullion, compared to 75.6% for the U.S. and 72.0% for Germany. (Source: World Gold Council, May 2013.)

To bring its total gold bullion holdings to 10% of its reserves, the central bank of China would need to allocate about $344 billion of its reserves to buy gold bullion.

Add strong demand from countries like India to the fact that China needs to increase its gold reserves, and the fundamental demand behind gold bullion is clear. According to the World Gold Council’s estimates, demand for gold bullion in India is expected to jump 150% by the end of June as compared to last year. (Source: Wall Street Journal, June 3, 2013.)

The amount of gold bullion and silver imported in India reached $7.5 billion in April—more than double the amount from a year earlier. The Indian government has increased its import tax from two percent to six percent in a matter of just 1.5 years to curb demand. (Source: Wall Street Journal, May 20, 2013.)

The demand for gold bullion is as strong as ever.

What He Said:

“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips. I predict a major homebuilder will go bankrupt in 2008.” Michael Lombardi in Profit Confidential, January 10, 2008. WCI Communities, the largest U.S. luxury home builder, filed for Chapter 11 protection on August 4, 2008.

Cyprus Crisis Boosting Unique Currency, the Bitcoin

2013-03-24T23:45:00.001-07:00

Currency markets are keeping close track of Cyprus' banking crisis and are braced for possible repercussions, but one currency has thrived in the chaos and zoomed in value -- Bitcoins. A Bitcoin is a digital currency that is traded electronically and does not need government backing. Despite its name, there is no coin to put in your pocket.

Two weeks ago, one Bitcoin was worth $40, then a record high. Today, it's worth $72, largely because of "incremental interest" from euro and Russian ruble holders who are terrified by the situation in Cyprus, said Nicholas Colas, chief market strategist at ConvergEx Group, a financial technology company in Manhattan.

"The best-performing currency year-to-date has no home country, no central banker and no physical scrip," Colas said. The Bitcoin is "clearly having a breakthrough moment here, and a deeply surprising one given its novelty and nascent infrastructure," he said. The Bitcoin reportedly was invented by a man who called himself Satoshi Nakamoto, and who may -- or may not -- have been a 23-year-old graduate student in cryptography at Trinity College in Dublin. He wanted people to be able to exchange money electronically and securely without a third party's involvement.

Although there are no physical coins, Walmart sells Bitcoin gift cards, and as Salon noted, WordPress and Reddit take payments in Bitcoin. Charlie Shrem, the CEO of BitInstant, a payment processor for Bitcoin exchanges and other merchants, thinks the Bitcoin is the wave of the future. "Let's say you have someone in Cyprus who badly needs money," Shrem said. "How are you going to get that person money? There's not enough cash going around. Bitcoin can and will be used as a barter, or maybe a collateral tool." He believes that people will first use Bitcoin "for its better uses" like remittance, wire transfers, donations and micropayments, before it reaches a mainstream audience.

"Imagine being able to pay five cents to read an article online instead of these ridiculous pay walls that require expensive monthly subscriptions," he said. "People will start reading the news again. Right now, you can't do that. Try sending five cents over the Internet." But Diana Furchtgott-Roth, the former chief economist for the U.S. Department of Labor and a senior fellow at the Manhattan Institute, a conservative think tank, was unimpressed. "It's a gimmick," she said.

"The Bitcoin would never work in Cyprus because Cyprus is full of insolvent loans. Putting in different currency is not going to help. They would ideally have their own currency. Whether it's digital or dollars, they need to separate from the euro and put in economic currency that will attract more investment." Colas was also hesitant about the Bitcoin's future. "Whether it succeeds or fails is hard to predict," Colas said. "We're clearly in uncharted waters. But one thing is clear: Bitcoin is one more lens with which to assess the ongoing European financial crisis."

Europe Does It Again: Cyprus Depositor Haircut "Bailout" Turns Into Saver "Panic", Frozen Assets, Bank Runs, Broken ATMs

2013-03-17T18:02:00.000-07:00

Late last night, after markets closed for the weekend, following an extended discussion the European finance ministers announced their "bailout" solution for Russian oligarch depositor-haven Cyprus: a €13 billion bailout (Europe's fifth) with a huge twist: the implementation of what has been the biggest taboo in European bailouts to date - the impairment of depositors, and a fresh, full blown escalation in the status quo's war against savers everywhere.

Specifically, Cyprus will impose a levy of 6.75% on deposits of less than €100,000 - the ceiling for European Union account insurance, which is now effectively gone following this case study - and 9.9% above that. The measures will raise €5.8 billion, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, said.

But it doesn't stop there: a partial "bail-in" of junior bondholders is also possible, as for the first time ever the entire liability structure of a European bank - even if it is a Cypriot bank - is open season for impairments. The logical question: why here, and why now? And what happens when the Cypriot bank run that has taken the country by storm this morning spreads everywhere else, now that the scab over Europe's biggest festering wound is torn throughout the periphery as all the other PIIGS realize they too are expendable on the altar of mollifying voters and investors in the other countries that make up Europe's disunion.

Bloomberg's take on the sacrifice of Cyprus' savers:

Officials have struggled to find an agreement that would rescue Cyprus, which accounts for just half of a percent of the euro region’s economy, without unsettling investors in larger countries and sparking a new round of market contagion. Policy makers began meeting at 5 p.m. yesterday in a hastily convened gathering, seeking to overcome differences on bondholder losses while financial markets were closed.

“Further measures concern the increase of the withholding tax on capital income, a restructuring and recapitalisation of banks, an increase of the statutory corporate income tax rate and a bail-in of junior bondholders,” according to a communique released by ministers after the talks. It didn’t specify whether bank or sovereign bond holders could be affected.

The European Central Bank will use its existing facilities to make funds available to Cypriot banks as needed to counter potential bank runs. Depositors will receive bank equity as compensation.

Finance Minister Michael Sarris said the plan was the “least onerous” of the options Cyprus faced to stay afloat.

“It’s not a pleasant outcome, especially of course for the people involved,” said Sarris. The Cypriot parliament will convene tomorrow to vote on legislation needed for the bailout.

Needless to say, the locals are delighted:

In the coastal town of Larnaca, where irate depositors queued early to withdraw money from cash machines, co-op credit societies that are normally open on Saturdays stayed closed.

"I'm extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans," said British-Cypriot Andy Georgiou, 54, who returned to Cyprus in mid-2012 with his savings.

"They call Sicily the island of the mafia. It's not Sicily, it's Cyprus. This is theft, pure and simple," said a pensioner.

For the real response, look to Russia:

The island's bailout had repeatedly been delayed amid concerns from other EU states that its close business relations with Russia, and a banking system flush with Russian cash, made it a conduit for money-laundering.

"My understanding is that the Russian government is ready to make a contribution with an extension of the loan and a reduction of the interest rate," said the EU's top economic official, Olli Rehn.

Almost half of [Cyprus'] depositors are believed to be non-resident Russians, but most of those queuing on Saturday at automatic teller machines to pull out cash appeared to be Cypriots.

While "saving", pardon the pun, yet another insolvent country merely has the intent of keeping it in the Eurozone, and thus preserving Europe's doomed monetary block and bank equity for a little longer, this idiotic plan will achieve two things: i) infuriate not just Russians but very wealthy, and very trigger-happy Russians.

The revenge of Gazpromia will be short and swift, and we certainly would not want to be Europeans next winter when the average heating level of Western European will depend on the whims of Russian natural gas pipeline traffic; ii) start a wave of bank runs first in Cyprus and soon everywhere else that has the potential of being the next Cyrpus.

Sure enough, here come the bank runs:

While the tax on deposits will hurt wealthy Russians with money in Cypriot banks, it will also sting ordinary citizens. Some ATMs in the country have run out of cash, Erotokritos Chlorakiotis, general manager of the Cooperative Central Bank, told state-run CYBC.

Forzen assets and "national bank holidays" are baaaaack:

Funds to pay the levy were frozen in accounts immediately, ECB Executive Board Member Joerg Asmussen said. The levy will be assessed before Cypriot banks reopen on March 19 after a March 18 national holiday. Sarris said electronic transfers will also be limited until then.

Europe's response: this is a unique situation. Just like the Greek bailout was unique; just like the Irish and Portuguese bailouts were unique; just like the bailout of Spanish banks was unique.

“As it is a contribution to the financial stability of Cyprus, it seems just to ask a contribution of all deposit holders,” Dijsselbloem said, noting the country’s financial industry was five times the size of its economy. The plan includes “unique measures” that address the “exceptional nature” of Cyprus and show “inflexible commitment to financial stability and the integrity of the euro area.”

Curiously, even everyone's favorite liar, former Eurogroup president, Jean-Claude Juncker, has a warning that this "bailout" is the worst thing Europe could have done:

Skeptics including Luxembourg’s Jean-Claude Juncker had said that imposing investor losses in Cyprus risked reigniting the financial crisis that has so far pushed five of the euro zone’s 17 members to seek aid. Last year, the euro area took what officials called a unique step to ask Greek bondholders to absorb losses.

But fear not: Europe has promised this absolute resolution taboo won't repeat itself...

When asked if a deposit assessment could be ruled out for future rescues, Rehn said in an interview: “It can and there is no concrete case where it should be considered.”

... Until it does repeat itself of course - after all the fundamental problem for Europe has never been resolved: the continent is still broke, and it still is running out of good, unencumbered assets (which as being repledged by the banking oligarchy) with every passing day.

Now the only thing unknown is Russia's response:

Corporate tax rates in Cyprus will rise to 12.5 percent to 10 percent as part of the deal, Dijsselbloem said. Rehn told reporters that Russia, whose banks have loaned as much as $40 billion to Cypriot companies of Russian origin, would ease terms on its existing loans to Cyprus as the rescue unfolds. Cyprus’s finance minister is scheduled to fly to Moscow on March 20.

What is known, however is that Cypriots have taken the news in stride.... and to their local ATM machine, which sadly is showing the following message: "Your transaction has been cancelled due to a technical issue. This ATM cannot complete withdrawals at this time" (courtesy of Yannis Mouzakis).