Tag Archives: Shanghai Gold Exchange

The Money Printing Road To Perdition – Got Gold?

Where’s the “V?” – Obviously the Fed has injected monetary cocaine into the stock market to make it appear as if stocks are “discounting a “V” economic recovery.  But a “V” on Main Street is nowhere to be found (graphic is from Crescat Capital -the comment bubble is my edit):

The chart above plots the NY Fed’s weekly index of economic activity (red line) vs. the Bloomberg U.S. financial conditions index, which attempts to measure the relative strength of the bond, equity and money markets (white line). With the amount of money the Fed has injected into the financial system, it’s no surprise that the financial conditions index is soaring. However, as I’ve suggested in recent issues, this money is having little, if any, effect on real economic activity.

Compounding the insanity of the current market valuations is the fact that no one has any idea just how bad the economic damage has been from the shutdown of the economy and the virus crisis. We won’t know for several months the degree to which unemployment and overall economic activity will recover. Certainly this idea that there will be a full recovery by the end of the summer (per several White House officials) is completely foolish.

The economic numbers that appear positive are merely a “statistical” bounce attributable to the “re-opening” during May from the highly depressed state of the economy during the lock-down period. But household debt delinquencies – credit card, auto and mortgage – continue to rise, while there’s little evidence that the majority of those who lost their jobs will be re-employed any time soon, if ever.  What will be the effect on the economy when unemployment benefits expire for a large portion of those receiving them now and who can not find a job?

The Fed asserts that its money printing is necessary to restore economic health.  But this is poorly disguised Orwellian propaganda.  Most of the Fed’s money printing has been used to keep the Too Big To Fail banks from choking to death on subprime and non-performing “assets,” such as leveraged loans to the retail and oil sectors, CLO liabilities and counter-party exposure from OTC derivatives (credit default swaps, primarily).  The resumption of money printing in September 2019 is evidence of that assertion. The rest of the printed money is funding the enormous load of new Treasury issuance.

Gold hit a new eight-year high today. This comes interestingly on the heels of escalating tensions with China. Trump likely does not understand this, but China holds several aces up its sleeve which can be used to undermine the U.S. dollar and detonate the ticking time bombs embedded in the U.S. financial system.  The most notable wild card held by China is its increasing control over the global physical gold market.

In the context of these comments from a Vice Chairman at the China Securities Regulatory Commission (i.e. a CCP member), it’s quite possible that China is starting to flex its muscle slowly to reset the price of gold to more closely align the vast spread between the paper derivative gold price determined in London and NYC and a true “price discovered” price of gold that reflects the underlying supply/demand reality:

Fang Xinghai, a vice-chairman at the China Securities Regulatory Commission, said that as China mainly relies on the US dollar payment system in international deals, it makes it vulnerable to possible US sanctions.

“Such things have already happened to many Russian businesses and financial institutions. We have to make preparations early – real preparations, not just psychological preparations,” Fang said at a forum organised by Chinese media outlet Caixin.

Fang’s comment came at a time when Washington is pondering how far it should go to use the US dollar’s key role in international payment to punish Chinese individuals, companies and financial institutions for alleged involvement in issues such as Xinjiang and Hong Kong.  (Caixin Gloal, via Zerohedge)

I’m just speculating here,  but China may be starting to flex its muscle in the gold market. It’s a widely accepted proposition that China’s Central Bank holds many multiples of the amount of gold officially reported.

China is the world’s largest producer of gold and now its setting its sights on acquiring robust western hemisphere gold mines.  Two State-controlled Chinese mining companies have made three notable western gold mining company acquisitions this year: one with a mine in Canada (TMAC); one with a soon-producing gold mine in Columbia (Continental Gold); and one in Guyana (Toronto-based Guyana Goldfields).  All three mine properties host very high-grade gold resources.  China would not spend hundreds of millions to acquire high margin gold mines to sell the gold produced at a manipulated,  artificially low price of gold.

Beyond China’s “invisible hand,”  I don’t know how else to explain the strength in the gold price during a period of time – late 2019 through present – when China and India have largely been absent from the gold market based on import data, while at the same time the Comex paper gold open interest has declined over 40% since January.

Gold has been surprisingly strong this morning, hitting an eight-year high at $1785 (August gold basis). If August gold can jump over the $1788-1790 area, which has been defended vigorously by the paper gold slinging western bullion banks, the $1800 level may fall like Gaul…

Is The Comex On The Cusp Of Defaulting?

“How did you go bankrupt?” Bill asked
“Two Ways,” Mike said. “Gradually then suddenly”
– Ernest Hemingway, “The Sun Also Rises”

And this could usher in the “suddenly” moment:  “The president of the Shanghai Gold Exchange (SGE) called for a new super-sovereign currency to offset the global dominance of the U.S. dollar, which he predicted would decline long term, while gold prices rally.” – Reuters, April 28, 2020

Chris Marcus of Arcadia Economics and I discuss the potential of a Comex default:

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The Remarkable Resiliency Of Gold And Silver

The price of gold continues to hold up under the enormous selling in the paper derivatives markets on the Comex and LBMA.  This morning’s price attack is a good example:

The chart above shows December paper gold in 5 minute intervals. Typically the price of gold is taken lower leading up to the a.m. London “fix,” in which the “price fix” process is characterized with heavy offerings.  Lately the price bounces after that. And of course there’s the obligatory price-smack when the Comex floor trading commences (8:20 a.m. EST).  Check that box.  Then the “hey can I tell you the good news” item hit the tape about 4 minutes after the NYSE opened.  The hedge fund algos spiked the S&P 500 futures and dumped paper gold.

For the better part of the last 18 years, when this type of “market” action occurs, gold is down for the count. Not only does the initial “fishing line” sell-off hold, but the gold price moves lower throughout the day.  This snap-back action in the gold price after a price attack since early June is unique to the way gold (and silver) has traded over the last 18+ years.

Gold is at or near an all-time high in most fiat paper currencies except the dollar. This summer, however, it would appear that the dollar-based valuation of gold is starting to break the “shackles” of official intervention and is beginning to reflect the underlying fundamentals.  On the assumption that gold can continue to withstand serious efforts to push the price back below $1500 (the net short position in gold futures held by Comex banks is near a record high, for instance), we could see $1600 or higher before Labor Day weekend.

This price-action in gold is being driven by enormous flows of capital into both physical gold and gold “surrogates” or “derivatives.”  Yes, GLD is a derivative of gold – a device used to index the price movement in gold.  The action over the last two months is more remarkable given that the increased excise tax on bullion imports into India has largely stifled import demand beyond what gets smuggled into the country (in excess of 300 tonnes annually).

I have been told my someone who claims to be in a position to know that there’s a buyer of massive amounts of physical gold and silver on every dip in price and that’s what is driving the resiliency of the precious metals.

Make no mistake, even if by chance of a miracle a “trade agreement” is reached between China and the U.S., the underlying economic fundamentals globally have already deteriorated into a recession. And it’s getting worse. It has nothing to do with tariffs.  For the primary cause, research the amount of debt outstanding now vs.  2008…

Moreover, the randomness of unforeseen news events causing sudden market sell-offs and precious metals rallies is starting to occur with greater frequency. This is driving the flight-to-safety move into the precious metals. The mining stocks have lagged relative to the risk-adjusted percentage move since early June in gold and silver. I do not expect that to last for long…

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Will Gold Continue Higher Despite Efforts To Keep It Capped?

“At the exact time that the one asset is supposed to defend against reckless Fed monetary policies should be going higher, it’s going the opposite way…and you’re telling me this isnt’ a  manipulated market?”

The current period reminds of 2008.  The price of gold was overtly manipulated lower ahead of the de facto collapse of the financial system. It’s highly probable the Central Banks are once again setting up the markets for another financial collapse, which is why it’s important for them to remove the dead canary from the coal mine before the worker bees see it.

Craig “Turd Ferguson” Hemke invited me to join him in a discussion about the large drop in the price of gold last week and why it points to official intervention in the gold market for the purpose of removing the warning signal a rising gold price transmits about the growing risk of financial and economic collapse.

You can click on the sound bar below or follow this link:  TF Metals Report to listen to our conversation.

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The Paper Raid On The Gold Price

Gold was smacked $22 from top to bottom overnight and this morning.  It was a classic paper derivative raid on the gold price, which was implemented after the large physical gold buyers in the eastern hemisphere had closed shop for the day.  This is what it looks like visually:

As you can see, as each key physical gold trading/delivery market closes, the price of gold is taken lower. The coup de grace occurs when the Comex gold pit opens. The Comex is a pure paper market, as very little physical gold is ever removed from the vaults and the paper derivative open interest far exceeds the amount gold that is reported to be held in the Comex vaults (note: the warehouse reports compiled by the banks that control the Comex are never independently audited).

Today technically is first notice day for April gold contracts despite March 29th as the official designation. Any account with a long position that does not intend to take delivery naturally sells its long position in April contracts. Any account not funded to accommodate a delivery is liquidated by 5 p.m. the day before first notice. This dynamic contributes to the ease with which a paper raid on the gold price can be successfully implemented.

In all probability the price of gold (June gold basis) will likely not stay below $1300 for long. China’s demand has been picking up and India’s importation of gold is running quite heavy for this time of the year. Soon India will be entering a seasonal festival period and gold imports will increase even more. Today’s price hit will likely stimulate more buying from India on Friday.

Oil For Gold – Real Or Imagined?

By having control of the physical market for gold, China can threaten to use it to destabilize the dollar, without destabilizing the yuan. As such, it is potentially devastating, and used carelessly could trigger an economic collapse in Western capital markets, wreaking financial and economic havoc in America and other advanced nations. China will never be wholly independent from trade with these nations, and severe financial and economic damage to the advanced economies will rebound upon her to some extent. For this reason, she has so far held off using gold as an economic and financial weapon, while she continues to insulate herself from periodic crises in Western economies.   – Alasdair Macleod (Oil For Gold)

In response to questions about when China would finally cast aside the dollar and run the price of gold up, I’ve always replied that China would be shooting itself in the foot if it tried to replace the dollar too quickly.  Don’t forget, China holds about $1.2 trillion in the form of Treasuries. Note: this ratio does not include the market value of its gold holdings, the actual amount of which is unknown outside of a small circle of Chinese officials.

When the idea of a gold-backed yuan-denominated oil futures contract surfaced, it became en vogue for those unable to analyze their way  out of a paper bag to issue commentary refuting the idea.  For some, if an event has not already occurred, they are unable to “see” it.

This article from Alasdair Macleod is a must-read for anyone who wants to understand the path leading up to the ability to convert oil sold in yuan or gold by China’s largest oil suppliers.  Judging by the various recent oil trading and gold trading agreements between Russia and China, the conversion of oil sales into gold  may well be already occurring in a two-stage process between Russia and China.

The purpose of this article is to put the proposed oil for yuan contract, which has been planned for some time, into its proper context. It requires knowledge of the history of how China’s policy of internationalising the yuan has been developed, and will be brought up to date with an analysis of how the partnership of China and Russia is taking over as the dominant power over the Eurasian land-mass, a story that is now extending to the Middle East. To read the rest click here: Oil For Gold – Macleod

While Alasdair does not overtly acknowledge the idea of a gold-backed oil contract coming from China, I would argue that the article about a gold-yuan oil futures contract  in the Nikkei Asian Review – a highly regarded publication – was likely floated intentionally by the Chinese Government. If you read through Alasdair’s article, it’s difficult not to come away with the impression that China has been methodically and patiently putting together the pieces to support the ability to convert oil sold China – benchmarked by the yuan – ultimately into gold.

Yes, the fact that China does not currently permit gold to be removed from China in large quantities needs to be addressed.  Analysts using this to refute the oil/yuan/gold notion seem to conveniently overlook the fact that regulations can be revised.  I would suggest that “footprints in the snow” are leading to this eventuality. It’s now possible to sell oil to China in dollars or rubles or rials then  convert the proceeds into offshore yuan and buy gold in China’s Free Trade Zone.  As Alasdair himself points out:  “Gold futures contracts in yuan are now available to international dealers in Hong Kong and Dubai using the SGE gold price as benchmark.”

Furthermore, the Commercial Bank of China (State-owned) is the sponsor of a gold futures contract offered by the London Metals Exchange.  Seems pretty obvious that an oil seller can ultimately convert the proceeds of oil sold to China into gold using three transactions.  Why not consolidate that process into one contract?  I would suggest that a gold-backed yuan-denominated oil futures contract is inevitable.  Just maybe not one the timeline preferred by the western gold investing community.

Is The Precious Metals Sector Set-Up For A Big Run?

I had not noticed until I looked mid-day today (Thursday, Aug 24th) and saw that the HUI index was above 200. It ended up closing just above 200. I want to see it hold above 200 dma and move higher from there before I get excited.  But the chart has become mildly bullish.  GDX, which is a larger representation of the large-cap mining stocks, looks even more bullish that the HUI:

I’m not big advocate of using chart “technicals” to forecast the next move in any market, but many traders, hedge funds and investors use them and they can become “self-fulfilling prophecies.” You can see that GDX (same with HUI and GDXJ) has been trending sideways since early February in a pattern of rrowing volatility. Chartists look at this as a pattern that predicts a big move in either direction. I’ve drawn in a white downtrend line through which the GDX appears to have climbed over. It’s also now above its 50/200 dma’s (yellow and red lines, respectively). I’m not ready to declare a “break-out” yet, but I’m feeling optimistic going into the eastern hemisphere’s biggest seasonal period for accumulating physical gold:

The gold chart above is a 2-yr daily for the price of gold as represented by the Comex continuous gold futures contract. Since April the price has been hitting its head on $1300. I remember when gold attempted to break above $400 in late 2003/early 2004. It took several attempts to get up and over $400. Around that time Robert Prechter had predicted that gold would drop to $50. How well did Prechter’s charts work then?

There’s one of many catalysts away from sheer eastern physical demand or an errant tweet
from Trump that can push gold a lot higher in conjunction with the U.S. dollar index quickly falling a lot lower. The most pressing issues currently are the rising geopolitical tensions between Russia/China and the U.S., the upcoming Treasury debt-ceiling battle and, what is becoming more apparent by the day, a deteriorating U.S. economic and financial system.

Speaking of physical demand, extremely negative ex-duty import premiums have been
observed in India. Many of you may have read standard gold-bashing propaganda pointing to that as evidence that India’s new sales tax is affecting gold demand. But quite the contrary is true. As it turns out, there was a loop-hole in the Goods and Services Tax legislation that scrapped a 10% excise duty on imports from countries with which India had signed a Free Trade Agreement. Currently Indian gold importers appear to be sourcing gold from South Korea, which enables buyers to avoid the 10% import duty entirely. Until the Indian authorities move to close this loophole, we won’t have good feel for how much gold is flowing into India until the official monthly statistics are released. Based on the import trend in June and July, there continues to be an usually large amount of gold imported into India this summer. It will likely pick up even more as we head into the India festival season this fall.

The above commentary is from the latest issue of the Mining Stock Journal.  For those of you with huge profit in Novo Resources, I provide some information about Novo that is not in the analyst reports.  It includes some technical information about the nature of the assay results produced up to this point.  The issue contains analysis in support of buying two primary silver producers whose stocks have been sold off well below their intrinsic values.   New subscribers get all of the back-issues.  You can find out more about the MSJ here:   Mining Stock Journal information.

Is China Intentionally Making It Harder To Manipulate Gold?

A new gold futures contract is being introduced by the Hong Kong Futures Exchange (two contracts actually).  The two contracts will be physically settled $US and CNH (offshore renminbi) gold futures contracts.   The key to this contract is that it requires physical settlement of the underlying gold, which is a 1 kilo gold bar.

The difference between this contract and the Comex gold futures contract is that the Comex contract allows cash (dollar aka fiat currency) settlement. The Comex does not require physical settlement.  In fact, there are provisions in the Comex contract that enables the short-side of the trade to settle in cash or GLD shares even if the long-side demands physical gold as settlement.

With the new HKEX contract, any entity that is long or short a contract on the day before the last trading day has to unwind their position if they have not demonstrated physical settlement capability.

The new contract also carries position limits.  For the spot month, any one entity can not hold more than a 10,000 contract long/short position.   In all other months, the limit is 20,000 contracts.   A limit like this on the Comex would pre-empt the ability of the bullion banks to manipulate the price of gold using the fraudulent paper gold contracts printed by the Comex.  It would also force a closer alignment between the open interest in Comex gold/silver contracts and the amount of gold/silver reported as available for delivery on the Comex.

To be sure, the contract specifications of the new HKEX contracts leave the door open to a limited degree of manipulation.  But at the end of the day, the physical settlement requirement and position limits greatly reduce the ability to conduct price control via naked contract shorting such as that permitted on the Comex and tacitly endorsed by the Commodity Futures Trading Commission.

You can read about the new HKEX contract here – HKEX Physically Settled Contract – and there’s a link at the bottom of that article with the preliminary term sheet.

Will this new contract help moderate the blatant price manipulation in the gold market by the western banking cartel?  Maybe not on a stand-alone basis.  But several developments occurring in the eastern hemisphere and among the emerging bloc of eastern super-powers – as discussed in today’s episode of the Shadow of Truth – will begin to close the window on the ability of the west’s efforts to prevent the price of gold from transmitting the truth about the decline of the U.S. dollar’s reserve status and the rising geopolitical instability:

Gold & Silver: Buy The Paper Price Attacks

These premiums [the ex-duty import prices being paid for legal kilo bar imports in India] are actually quite remarkable as the need to import kilo bars only arises if Indian demand is not satisfied by Dore imports (which had a duty advantage of $15.52/oz this afternoon) and smuggled gold. Reports of apprehensions at Indian airports are continuing to appear, indicating that smuggling has in fact revived. – excerpt from John Brimelow’s Gold Jottings Report (contact John at brimelowgoldjottings@gmail.com to learn more about his service)

The price of gold & silver have had a big move since mid-December, despite the flood of “fake news” connected to the temporary disruption of gold imports into India precipitated by Modi’s now-failed attempt to limit the ability of Indians to buy physical gold and despite the plethora of fake news about the quantity of gold flowing into China both before and after after the week-long Chinese New Year observance.

Brimelow goes on to assert in one of his Monday updates that, “Viewed from a US-centric and technical perspective, gold’s friends have something to worry about. However the Asian buying is about as strong as it ever usually gets and for that reason the Bears’ prospects are probably limited.”  Note, the “technical perspective” indirectly references that use of paper gold by the western bullion banks in their attempt to control the global price of gold.

As an example of the price-control mechanism implemented in the western paper market, you’ll note that after a surprise bounce in gold on Friday, likely stimulated by paper short-covering on the Comex, was met with an attack after the Monday a.m. LBMA gold price “fix” and again right after the Comex floor paper gold trading commences:

These are typical times during the day, when the physical gold buying markets in the east are closed for the day and the western paper market manipulators take control of global gold trading via LMBA forwards and Comex futures and OTC derivatives.

Just as notable about Friday’s move higher in gold during NY trading hours is that fact that the price was moving in correlation with a move higher in both the dollar index and the U.S. stock market.  Often, there is an inverse correlation between gold and the USDX/Dow/SPX.

There’s is an “invisible hand” in the market pushing the prices of gold and silver higher in defiance of the attempted price control schemes being exerted in London and New York. This silent operator is without the pressure being exerted in the physical market.

This week I’m sure will prove to be a bit of a price roller-coaster, as the semi-annual “Humphrey-Hawkins” (as it used to be called) Fed Chairman testimony on monetary policy and the economy is a time used by the western CB’s and bullion banks to control the price of gold using paper. After all, they can’t have the price of gold moving higher when the Fed’s El Hefe is extolling the virtues of the fiat currency and fractional banking system in front of Congress and the world, which begins today.

The point here is that it’s my view that the next longer term trend move in gold is higher, which means that price attacks should be used as buying opportunities, both for the metal and the mining shares.  In fact, the mining shares were quite stubborn about going lower when gold was being hit hard in New York after being hit hard in London.  Typically this is a signal to the market that prices in the precious metals sector are going higher.

 

11.1 Tonnes Of Paper Gold Dumped In Sixty Seconds

Central banks stand ready to lease gold in increasing quantities should the price rise.  – Alan Greenspan, 1998 in Congressional testimony on OTC derivatives

Gold has been in a steady uptrend since December 18th, bottoming at $1131 after a four and half month price correction.  Firmly back over the 50 dma, the price momentum appears to be a threat to the “bullion”  banks who suppress the price of gold in the paper derivatives market on behalf of the western Central Banks and, ultimately, the BIS.

The banks must feel threatened by the recent activity in both physical and paper gold trading.  This morning the price of gold was attacked in the Comex paper market after St. Louis Fed-head, James Bullard, delivered remarks about interest rate policy that should have propelled the price of gold higher:  “We think the low-safe-real-rate regime is unlikely to change in the near term. This means the policy rate can also remain relatively low over the forecast horizon” (link).

Instead, the Comex was bombed with paper:

At 9:54 a.m. EST, 3,927 April gold futures contract (paper gold) was dropped on the Comex. Prior to this, the the average number of contracts per minute since the Comex had opened was under 500 contracts. This is 11.1 tonnes of paper gold which hit the Comex trading floor and electronic trading system in a 60 second window.  It represents approximately 30% of the total amount of gold the Comex vault operators are reporting to be available for delivery under Comex contracts – dumped in paper form in 1 minute.

This reeks of fear.  The western Central Banks have grossly underestimated the eastern hemisphere’s appetite for physically deliverable gold.  Despite an attempt by the BIS to mute India’s demand by restricting the availability of cash in India’s banking system, India’s current demand is robust and will likely increase as Indian’s now have cause to fear the Indian Government’s war on cash.

In addition, China’s demand for gold seems to be accelerating.  Based on Swiss export numbers, 158 tonnes of gold was shipped to China in December.  Far higher than the numbers presented by “official” organizations tracking gold flows.   Current premiums to the global market price of gold on the Shanghai Gold Exchange are running in the low teens.  So far this week well over 100 tonnes of gold have been delivered onto the SGE.  Except for the PBoC, all gold distributed inside China must first pass through the SGE.

The western Central Banks will have a problem if the price of gold begins to take-off, as they will lose control of their ability to control the price using derivatives.   Perhaps in addition to the standard price containment operation on the Comex this morning, the attack on the price of gold in the paper market was in response to Eric Sprott’s comments on King World News yesterday:

“There’s no doubt about it if they (investors) keep coming in and buying that kind of tonnage. At some point they will look inside at what little gold is left in the Western vaults and say, ‘No mas. We can’t keep doing this at the rate that they are buying tonnage because we will run out of gold.’ And if they see that they are going to run out of gold in a year or so, when do they raise the white flag? I have told you many times that the Western central banks have been making up for the imbalance in term of supply and demand by dishoarding their gold hoard surreptitiously”

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