Is GDXJ Killing The Market?

Published here: http://www.zerohedge.com/news/2017-04-30/gdxj-killing-market

Source: stockcharts.com

The past few weeks, there has been a lot of fuss about the GDXJ ETF. An Exchange Traded fund issued by Van Eck which aims to track the index of junior gold mining companies. The ETF has always been extremely popular amongst investors as it provided an easy and low-cost access to gaining exposure to the junior gold space.

It didn’t take long before derivative-focused products took off as well, of which the Direxion-products offering a triple leverage on the GDXJ index ETF were very likely the most popular. When Direxion stopped issuing new units amidst a sky-high demand, several key people started to wondering whether or not the GDXJ became too popular.

With a net asset value of several billions, the ETF is definitely large, but it would be highly surprising if the current size (just $4B) would be such a disruptive factor in the mining industry, and the junior gold mining index. At least, that shouldn’t be the case, as the top-5 of GDXJ’s positions have a combined market capitalization of approximately $10B (this excludes the position in the GDX).

Whilst the GDXJ is absolutely popular for the right reasons, one might argue the GDXJ becomes too big compared to the size of the companies it’s investing in.

But perhaps this isn’t a problem at all. In fact, it’s a positive thing, as it means there very clearly is a huge interest from the investing community to gain exposure to junior gold mining companies. An ETF is obviously the easiest and fastest way to get exposure to several companies in ‘one basket’, rather than going through the process to buy the companies separately.

So, even if the GDXJ would close its doors for new investors (by for instance suspending the creation of new units), the money would still flow into the sector, and the issues wouldn’t be solved at all. Only the ‘convenience factor’ would go down. In fact, the best way to solve the current size of the GDXJ is simply to wait for a market correction.

After all, most of the ETF buyers are investors who want to get exposure, but lack the time or resources to really investigate every company and pick the best amongst them. So these will almost per definition also be the investors who’ll sell their GDXJ units during the next correction on the gold market. The majority of those who got into the GDXJ will get out again.

Will this result in a higher volatility on the markets? Sure. But there would be no difference compared to how the market would have reacted if those ETF buyers would have bought the underlying stock. So it essentially is a non-argument. Another non-argument would be to suggest other ETF’s to investors, such as the smaller Sprott Gold Miners Trust. Not only would this just be ‘transporting’ the problem (after all, whether the funds are invested in ETF A or ETF B, the market positions will continue to be bought or sold depending on de market circumstances).

Source: Van Eck

The very best way to deal with this issue is very likely rebalancing the index that’s being tracked by the ETF’s. When the new index will be implemented on June 17^th, the total amount of companies the GDXJ can invest in will increase from 48 to 69.

This increases the investment options for GDXJ, but will also have a very negative side effect, as the GDXJ will have to rebalance the portfolio pretty much overnight. It shouldn’t be an issue to liquidate the investment in GDX ($250M+) and use the existing cash resources, but some of the current holdings will have to try to accommodate Van Eck by arranging blocks to avoid their share prices being impacted too heavily.

Source: Toronto Dominion Bank

According to the two previous images from the Toronto Dominion Bank, some of the positions could take a few days to unwind, whilst some of the new positions will result in a tremendous buying pressure in the more illiquid names.

The solution is pretty simple; instead of ‘forcing’ GDXJ to start tracking the renewed index overnight, the Van Eck fund managers should allow themselves a week, or even several weeks to ensure an orderly update without risking to disrupt the market. And if that doesn’t happen: be prepared to take action right before and right after the rebalancing.

Our conclusion: The GDXJ isn’t ‘too big’. Its investment possibilities were ‘too limited’, and with rebalancing the portfolio in June, this issue will be solved.

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Bank of England Gold Vaults Bled 1500 Tonnes of Gold over 2013-2016 New Data Shows

Published here: http://www.zerohedge.com/news/2017-04-28/bank-england-gold-vaults-bled-1500-tonnes-gold-over-2013-2016-new-data-shows

Submitted by Ronan Manly, BullionStar.com

An article in February on BullionStar’s website titled “A Chink of Light into London’s Gold Vaults?” discussed an upcoming development in the London Gold Market, namely that both the Bank of England (BoE) and the commercial gold vault providers in London planned to begin publishing regular data on the quantity of physical gold actually stored in their gold vaults.

Critically, this physical gold stored at both the Bank of England vaults and the commercial London vaults underpins the gargantuan trading volumes of the London Gold Market and the same market’s ‘liquidity’. Therefore, a new vault holdings dataset would be a very useful reference point for relating to London’s ‘gold’ trading volumes as well as relating to data such as the level and direction of the gold price, the volume of gold held in gold-backed Exchange Traded Funds (ETFs), UK gold import and export statistics, and Swiss and Hong Kong gold imports and exports.

The impending publication of this new gold vault data was initially signalled by two sources. Firstly, in early February, the Financial Times (FT) wrote a story claiming that the London Bullion Market Association (LBMA) planned to begin publishing 3 month lagged physical gold storage data for the entire London gold vaulting network, that would, according to the FT:

“show gold bars held by the BoE, the gold clearing banks, and those [vaults] operated by the security companies such as Brink’s, which are also members of the LBMA.”

The “gold clearing banks” are the bullion bank members of London Precious Metals Clearing Limited (LPMCL), namely, HSBC, JP Morgan, ICBC Standard Bank, Bank of Nova Scotia – Scotia Mocatta, and UBS. HSBC and JP Morgan operate precious metals vaults in London. See profile of JP Morgan’s London vault and a discussion of the HSBC vault . ICBC Standard Bank also maintains a vault in London which is operated on its behalf by Brinks.

There are 4 security companies with their own vaults in London, namely, Malca Amit, Loomis, Brinks and G4S. Therefore, including the Bank of England, there are 8 custodians with gold vaults in London that comprise the LBMA gold vaulting network.

The second publication to address the new gold vault data was the World Gold Council. On 16 February, addressing just the Bank of England vaults, the World Gold Council wrote in its Gold Investor publication that:

“The Bank of England is, for the first time, publishing monthly data revealing the amount of gold it holds on behalf of other central banks.”

“The data reveals the total weight of gold held within the Bank of England’s vaults and includes five years of historical data.”

While I had been told by a media source that the London vault data would be released in the first quarter of 2017, at the time of writing, there is still no sign of any LBMA vault holdings data covering the commercial vault operators in London. However, the Bank of England has now gone ahead and independently released its own numbers covering gold held in the Bank of England gold vaults. These gold vaults, of which there are between 8 – 10 (the number fluctuates), are located on the 2 basement levels of the Bank of England headquarters in the City of London.

In an updated web page on the Bank of England’s website simply titled ‘Gold’, the Bank of England has now added a section titled ‘Bank of England Gold Holdings’ and has uploaded an Excel spreadsheet which contains end-of-month gold holdings data covering every month for a 6-year + period up to the end of January 2017, i.e. every month from January 2011 to December 2016 i.e. 72 months. Note that as of 28 April, this dataset has also been updated to include month-end January 2017 data, so is now a dataset of 73 months.

Bank of England ‘show vault’

According to the Bank of England, the data in the spreadsheet shows:

“the weight of gold held in custody on the last business day of each month. We publish the data with a minimum three-month lag.

Values are given in thousands of fine troy ounces. Fine troy ounces denote only the pure gold content of a bar.

We only accept bars which comply with London Bullion Market Association (LBMA) London Good Delivery (LGD) standards. LGD bars must meet a certain minimum fineness and weight. A typical gold bar weighs around 400 oz.

Historic data on our gold custody holdings can be found in our Annual Report.”

Prior to this spreadsheet becoming available, the Bank of England only ever divulged gold vault quantity data once a year within its Annual Report, for year-end reporting date end of February.

You will appreciate that the new spreadsheet, having data for every month of the year, and for 72 months of data retrospectively, conveys a lot more information than having just one snapshot number per year in an annual report. Therefore, the Bank of England has gone some way towards improving transparency in this area.

Before looking at the new data and what it reveals, it’s important to know what this data relates to. The Bank of England provides gold custody (storage) services to both central banks and a number of large commercial banks. Large commercial banks which trade gold are commonly known as bullion banks, and are mostly the high-profile and well-known investment banks.

On its gold web page, the Bank highlights this fact – that it provides gold custody service to both central banks and commercial banks:

“We provide safe custody for the United Kingdom’s gold reserves, and for other central banks. This supports financial stability by providing central banks with access to the liquidity of the London gold market.

We also provide gold accounts to certain commercial firms that facilitate access for central banks to the London gold market.”

In the London Gold Market, the word “liquidity” is a euphemism for gold loans, gold swaps, and gold trading including gold sales. This reference to central banks accessing the London Gold Market as being in some way supportive of ‘financial stability’ is also an eye-opener, since reading between the lines, the Bank of England is conceding that by accessing the London Gold Market’s “liquidity” via bullion banks, these central bank clients are either contributing to direct stabilisation of the gold price in some shape or form, or else are using their gold operations to raise foreign currencies for exchange rate intervention and/or system liquidity. But both routes are aiming at the same outcome. i.e. stability of the financial system.

At the end of the day, the gold price has always been a barometer that central banks strive to keep a lid on and which they aim to stabilise or smoothen the gyrations of, given that the alternative – a freely formed and unmanipulated gold price – would thwart their coordination of fiat currency exchange rates, interest rates and inflation targets.

Interestingly, in addition to the new spreadsheet of gold holdings data, the Bank of England gold web page now includes a link to a new 1 page ‘Gold Policy’ pdf document, which, looking at the pdf document’s properties, was only created on 30 January 2017. This document therefore also looks like it was written in conjunction with the new gold vault data rollout.

The notion of central banks accessing the liquidity of the London Gold Market via bullion banks is further developed in this Gold Policy document also. The document is quite short and merely states the following:

“GOLD ACCOUNTS AT THE BANK OF ENGLAND

1. The Bank primarily offers gold accounts to central bank customers. This is to support financial stability by providing central banks with secure custody for their gold reserves and access to the liquidity of the London gold market (particularly given the Bank’s location).

2. To facilitate, either directly or indirectly, access for central banks to the liquidity of the London gold market, the Bank will also consider providing gold accounts to certain commercial firms. In deciding whether to provide an account, the Bank will be guided by the following criteria.

a. The firm’s day to day activities must support the liquidity of the London gold market.
b. Specifically, the Bank may have regard to a number of factors including but not limited to: evidence of active or prospective trading with a central bank customer; or whether the firm has committed to honour buy and sell prices.

3. Access to a gold account remains at the sole discretion of the Bank.

4. The Bank will review this policy periodically.”

The Vault Data

Nick Laird has now produced a series of impressive charts of this new Bank of England data on his website GoldChartsRUS. Plotting the series of 72 months of gold holdings data over January 2011 to December 2016 yields the below chart.

Bank of England custodial gold holdings: January 2011 – December 2016. Source www.GoldChartsRUS.com

On average, the Bank’s vaults held 5457 tonnes of gold over this 6 year period. The minimum amount of gold held was 4693 tonnes at the end of March 2016, while the maximum quantity of gold held was 6250 tonnes at the end of February 2013.

The overall trend in the chart is downward with a huge outflow of gold bars from the bank’s vaults from the end of February 2013 to the end of March 2016.

As of January 2011, the BoE held just over 5500 tonnes of gold bars in its vaults. Gold holdings rose until the end of August 2011 and peaked at nearly 5900 tonnes before falling to 5600 tonnes at year-end 2011. Overall in 2011, the holdings fluctuated in a 400 tonne range, trending up during the first 8 months, and down during the latter 4 months.

This downtrend only lasted until January 2012, at which point BoE gold holdings totalled about 5450 tonnes. For the remainder of 2012, BoE gold under custody rose sharply, reaching 6200 tonnes by the end of 2012, a level near the ultimate peak in this 6 year chart. The year 2012 was therefore a year of accumulation of gold bars at the Bank during which 750 tonnes were added.

The overall maximum peak was actually 6250 tonnes at the end of February 2013, after which a sustained downtrend evolved through the remainder of 2013. By December 2013, gold under custody at the Bank of England had fallen to 5670 tonnes, creating an overall outflow of 580 tonnes of gold bars during 2013.

The outflow of gold continued during 2014 with another 470 tonnes flowing out of the Bank, leading to end of year 2014 gold holdings of just 5200 tonnes. The outflow also continued all through 2015 with only 4780 tonnes of gold in custody at the end of December 2015. The Bank therefore lost another 440 tonnes  of gold bars in 2015.

Overall, that makes an outflow of 1490 tonnes of gold from the Bank’s vaults over the 3 years from 2013 to 2015 inclusive. This downtrend lingered for 3 more months, with another 80 tonnes lost, which brought the end of March 2016 and end of April 2016 figures to a level of about 4700 tonnes, which is the overall trough on the chart. It also means that there was a net outflow of 1570 tonnes of gold bars from the Bank’s vaults from the end of February 2013 to the end of March / April 2016.

A new uptrend / inflow trend began at the end of April 2016 and continued to the end of November 2016, where gold custody holdings peaked again at about 5123 tonnes before levelling off at the end of December 2016 at 5102 tonnes. Therefore, from the end of April 2016 to the end of December 2016, the Bank of England vaults added 400 tonnes of gold bars.

The gold holdings of the vast majority of central banks have remained stagnant over the 2011 – 2016 period, the exceptions being the central banks of China and Russia. But Russia buys domestically mined gold and stores it in vaults in Moscow and St Petersburg, so this would not affect gold holdings at the Bank of England. China’s central bank, the People’s Bank of China (PBoC), is known to buy its gold on the international market, including the London Gold Market. It then monetizes this gold (classifies it as monetary gold), and airlifts it back to China. But these Chinese purchases don’t show up in UK gold exports because monetary gold is exempt from trade statistics reporting. However, if China was surreptitiously buying gold from other central banks with gold accounts at the Bank of England or buying gold from bullion banks with gold accounts at the BoE, then some of the gold outflows from the BoE could be PBoC gold purchases. But without central bank specific data, its difficult to know.

But what is probably true is that the fluctuations in the quantity of gold stored in the Bank of England vaults are more do to with the gold holdings of bullion banks and less to do with the gold holdings of central banks, for the simple reason that central bank gold holdings are relatively static, or the least the central banks claim that their gold holdings are static. This does not take into account the gold lending market which the central banks and bullion banks go to great lengths to keep secret.

Bank of England custodial gold holdings and US Dollar Gold Price: January 2011 – December 2016. Source www.GoldChartsRUS.com

There is also a noticeable positive correlation between the movement of the US Dollar gold price and the inflows/outflows of gold to and from the Bank of England vaults, as the above chart demonstrates.

Bullion Bank gold accounts at the BoE

One basic piece of information that the Bank of England’s new vault storage data lacks is an indication of how many central banks and how many commercial banks are represented in the data.

In its first quarterly report from Q1 2014, the Bank of England states that 72 central banks operate gold accounts at the bank of England, a figure which includes a few official sector organisations such as the International Monetary Fund (IMF), European Central Bank (ECB), and Bank for International Settlements (BIS). This number would not have changed much in the meantime, so we can assume that the gold holdings of about 72 central banks are represented in the new data. But the number of commercial banks holding gold accounts at the Bank of England is less clear-cut.

The 5 gold clearing banks of the LPMCL all hold gold accounts at the Bank of England. Why? Because it says so on the LPMCL website:

“Each member of LPMCL has vaulting facilities under its control for the storage of gold and/or silver, plus in the case of gold bullion, account facilities at the Bank of England, which have contributed to the development of bullion clearing in London.”

The LPMCL also states that its clearing statistics include:

“Transfers over LPMCL Clearing Members’ accounts at the Bank of England.”

Additionally, the LPMCL website states that their

“clearing and vaulting services help facilitate physical precious metal movement logistics, location swaps, quality swaps and liquidity management.”

See BullionStar article “Spotlight on LPMCL: London Precious Metals Clearing Limited” for a full profile of LPMCL.

The Bank of England’s reference in its new ‘Gold Policy’ document to commercial banks needing to be “committed to honour buy and sell prices” is a reference to market makers and would cover all 13 LBMA market makers in gold, which are the 5 LPMCL members and also BNP Paribas, Citibank, Goldman Sachs, Merrill Lynch, Morgan Stanley, Société Générale, Standard Chartered Bank, Toronto-Dominion Bank. But there are also gold trading banks that make a market in gold which are not officially LBMA market makers, such as Commerzbank in Luxembourg which claims to be one of the biggest bullion banks in the world.

So I would say that lots of other bullion banks (of which there about 40 in total) have gold accounts at the Bank of England in addition to the 13 official LBMA market makers.

More fundamentally, any bullion bank that is engaged in gold lending with central banks (the central banks being the lenders and the bullion banks being the borrowers) would need a gold account at the Bank of England. I counted 28 bullion banks that have been involved with borrowing the gold of just one central bank, the central bank of Bolivia (Banco Central de Bolivia – BCB) between 1998 and 2016. Some of these banks have since merged or exited precious metals trading, but still, it gives an estimate of the number of bullion banks that have been involved in the gold lending market. The Banco Central de Bolivia’s gold lending activities will be covered in some forthcoming blog posts.

Bullion banks that are Authorised Participants (APs) for gold-backed ETFs such as the SPDR Gold Trust (GLD) or iShares Gold Trust (IAU) may also have gold accounts at the Bank of England. I say may have, because in practice the APs leave it up to the custodians such as HSBC and JP Morgan to allocate or deallocate the actual physical gold flowing in and out of the ETFs, but HSBC on occasion uses the Bank of England as a sub-custodian for GLD gold (see “SPDR Gold Trust gold bars at the Bank of England vaults” for details), so if some of the APs want to keep their own stash of allocated physical gold in relation to ETF trading, it would make sense for them to have a gold account at the Bank of England.

As to how much gold the GLD stores at the Bank of England and how regularly this occurs is still opaque because the SEC does not require the GLD filings to be very granular, however there is a very close correlation between inflows and outflows from GLD and the inflows and outflows from the Bank of England vaults, as the following chart clearly illustrates.

Gold held in the SPDR Gold Trust (GLD) and custody gold held at the Bank of England: January 2011 – December 2016. Source:www.GoldChartsRUS.com

As gold was extracted from the GLD beginning in late 2012, a few months later the Bank of England gold holdings began to shrink also. This trend continues all the way through 2013, 2014 and 2015. Then as the amount of gold began to increase in the GLD at the end of 2015, the gold holdings at the Bank of England began to increase also. Could this be bullion banks extracting gold from the GLD, then holding this gold at the Bank of England and then subsequently exporting it out of the UK?

Some of it could, but UK gold net exports figures suggest that gold was withdrawn from both the Bank of England vaults and from the ETF gold stored at commercial gold vaults (run by HSBC and JP Morgan), after which it was exported.

Custody gold held at the Bank of England and UK gold imports and exports: January 2011 – December 2016. Source:www.GoldChartsRUS.com

Looking at the above chart which plots Bank of England gold holdings and UK gold imports and exports (and net exports) is revealing. As Nick Laird points out in this chart, over the 2013 to 2015 period during which the Bank of England gold holdings fell by 1500 tonnes, there were UK net gold export flows of 2500 tonnes, i.e. 2500 tonnes of gold flowed out of London gold vaults, so an additional 1000 tonnes had to come from somewhere apart from the Bank of England vaults.

Spot Checks

The new monthly vault holdings data from the Bank of England can now also be compared to the amount of gold reported by the Bank of England in its annual reports. The figures the Bank reports in the annual report are as of the end of February. These figures are only reported in Pounds Sterling, not quantities, so they need to be either converted to USD and divided by the USD LBMA Gold Price on the last day of February, or else just divided by the GBP LBMA Gold Price on that day.

In September 2015, I wrote the article “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults”. This was followed by an October 2016 update titled “Tracking the gold held in London: An update on ETF and BoE holdings”. Both of these articles aimed to calculate how much gold was actually stored in the entire London gold vaulting network by looking at how much gold was held in custody in the Bank of England vaults and how much gold was held by ETFs in London.

For end of February 2015, the calculated total for gold held at the Bank of England (based on the annual report) came out at 5,134 tonnes. Now the Bank of England data says 5126 tonnes which is very close to the calculation.  For February 2016, the calculation came out at 4725 tonnes.  The new Bank of England data now says  4730 tonnes, so that’s pretty close also.

Conclusion

This new Bank of England data is welcome and the Bank of England has taken a step towards greater transparency. However, it would be more useful if the Bank published a breakdown of how much of this gold is held by central banks and how much is held by bullion banks, along with the number of central banks and number of bullion banks that the data represents. Two distinct sets of data would be ideal, one for central bank custody holdings and the other for bullion bank custody holdings. The Bank most likely would never publish two sets of data as it would show bullion bank gold storage activity for the whole world to see.

While the Bank of England has now followed through with its promise to publish its gold vault holdings, the LBMA has still not published gold vault data for the commercial gold vault providers, i.e. its members HSBC, JP Morgan, ICBC Standard Bank, Brinks, Malca Amit, Loomis and G4S. Where is this data, why is there a delay, and why has it not yet been published?

As a reminder, the Financial Times article in early February said that the LBMA would publish gold vault holdings data that would:

“show gold bars held by the BoE, the gold clearing banks, and those [vaults] operated by the security companies such as Brink’s”

The Financial Times article also said that:

“HSBC and JPMorgan, London’s biggest bullion banks, are backing the initiatives by the LBMA to improve transparency.”

With the gold holdings data on the other London vaults still not published, it begs the question, has there been a change of mind by HSBC and JP Morgan, two of the LBMA’s largest and most powerful members?

The vaulting page of the LBMA’s website could also do with an update since currently it erroneously says:

“Reputedly [the Bank of England vaults are] the second largest vault in the world with approximately 500,000 gold bars held in safe custody on behalf of its customers, including LBMA members, central banks, international financial institutions and Her Majesty’s Treasury.”

A holding of 500,000 Good Delivery gold bars is equal to 6250 tonnes. However, according to the Bank of England’s own figure for month end January 2017, the Bank of England only holds 5085 tonnes of gold in custody (~ 406,800 Good Delivery gold bars). Therefore, the LBMA is overstating the Bank of England’s holdings by 1165 tonnes, unless, and it’s highly unlikely, that the BoE vaults have seen huge gold bar inflows in the last 3 months.

This article first appeared on the BullionStar.com website as "Bank of England releases new data on its gold vault holdings".

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Gold Miners; Largest outflows in history could be bullish, says Joe Friday

Published here: http://www.zerohedge.com/news/2017-04-28/gold-miners-largest-outflows-history-could-be-bullish-says-joe-friday

Could historical outflows present an opportunity? Yesterday Sentimentrader.com reported that outflows from Gold Miners ETF’s GDX and GDXJ topped $800 million on 4/26, the largest single day outflows in history. 

Below looks at Gold Miners ETF GDX, reflecting where these large outflows took place.

CLICK ON CHART TO ENLARGE

The long-term trend since the highs in 2011 is down (lower highs and lower lows). The 15-month trend appears to be higher, as GDX has created a series of higher lows, since early 2016.

Joe Friday Just The Facts; GDX is testing 1-year rising support at (1), which could be support of a bullish ascending triangle pattern. Two thirds of the time, this pattern suggest higher prices.

It is way too early to tell if investors panicked on Wednesday (huge outflows). From a Power of the Pattern perspective, what takes place at (1), is very important for the miners space, more important than outflows.

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Regulation fears may impede silver manipulation

Published here: http://www.zerohedge.com/news/2017-04-28/regulation-fears-may-impede-silver-manipulation

Fear of regulation may impede bank's from manipulating London's silver benchmark

• New regulations in 2018 have spooked bullion banks and silver fix operators
• Lack of liquidity in silver fix auction has lead to high volatility in the market
• Silver benchmark has strayed from spot price multiple times since 2016
• No new silver benchmark operator lined up to take over in the Autumn
• No smoke without fire as actions point to silver price manipulation
• Silver remains suppressed and at a low price for investors stocking up

Gold fixing in London at NM Rothschild and Sons began in September 1919

Simple economics tells us that markets and prices are driven by demand and supply. Unfortunately, this isn’t always the case in the silver market. However, the threat of new regulations may be putting a stop to some bullion banks from fiddling the London silver benchmark.

Silver price manipulation is always a thorny issue and one that has been taken on by academics, lawsuits, by veteran silver analyst Ted Butler and by the Gold Anti-Trust Action Committee (GATA). As we have reported previously, allegations of silver price manipulation are far past the point of rumours, in the last couple of years bullion banks have been called to account for their behaviour. Deutsche bank even agreed to settle out of court and pay $38m, in response to a class-action lawsuit.

But it seems the rising attention (and cost) of manipulation by silver bullion banks is not the only thing that is putting a stop to a behaviour that has been evident for over a decade. Reuters reported yesterday that fear of being accused by regulators of market manipulation has resulted in participating banks being reluctant to add liquidity during the daily auction.

Banks finally fear regulation

The low volume of orders and lack of liquidity has resulted in the benchmark price failing on multiple occasions to provide a fair and accurate snapshot of what is known as the ‘spot price’. The spot price is calculated based on a much wider and faster market. Huge divergences from this spot price have resulted in unexpected gains and losses, according to Thomson Reuters data, since at least January 2016.

Traditionally, the seven banks involved in the auction ensure the benchmark stays close to the spot price by adding liquidity and buying or selling silver during the auction. However, lawsuits regarding gold and silver manipulation as well as investigations into other markets such as Libor appear to have put the banks off from their usual antics for fear of drawing the attention of regulators.

Sources told Reuters that the ‘Banks are now unwilling to intervene beyond putting in orders beforehand, fearing this might be construed as price manipulation by regulators.’

As a result, unpredictable fluctuations in the silver benchmark price have plagued the market:

‘Between January 2016 and March this year volumes have risen as high as 12.9 million ounces and fallen as low as 200,000 ounces, while on seven occasions the benchmark has diverged from the underlying spot price by 10 cents or more. It has diverged by more than 5 cents on more than two dozen occasions, including five times in late March alone. This is highly unusual as the average divergence for the electronic auction is about 1 cent.’

The banks’ lack of action in the markets has reduced confidence in the market, reducing activity and increasing volatility. Evidence perhaps that the seven participating banks don’t know how to play nice and run an efficient market, when the regulators are in the shadows.

New tools please

It is not just the banks who are spooked by the regulators. The recent volatility has further complicated matters that were already threatening the future of the silver fix. Early last month the London Bullion Market Association (LBMA) announced that CME Group and Thomson-Reuters would no longer be the platform facilitators for the London Benchmark, despite both having two years left in their contracts.

The two companies stated that new regulations were the reason for their reviewing of their participation in the London Silver market, but no further explanation was given. There have been some suggestions that both CME Group and Thomson-Reuters left because they could see that the jig was up and the benchmark would no longer be able to operate in the way it has for so many years.

The fluctuations in the price and lack of liquidity has meant the LBMA is struggling to find a new operator, reports Reuters. The organisation is hoping that a new operator will shine a light on how the auction can continue. Whether they can do so with new regulation and banks finding it difficult to act honourably, is a question that remains to be answered.

New regulations on the horizon

Why are the banks and operators suddenly nervous about regulation? One would have thought that post-Libor and the financial crisis that they would have become wary. In truth they have been increasingly so over the last couple of years.

The push for more regulation has been going on since 2013 when a draft regulation was put forward “on indices used as benchmarks in financial instruments and financial contracts”. The final regulation was approved last April. The fact that the regulation specifically mentions benchmarks is pertinent.

On 1 January 2018 new regulations from the European Union will come into force. The regulations will make it harder for banks and platforms to manipulate financial markets such as Libor, Forex and obviously precious metals.

As we mentioned in the introduction, banks have purportedly manipulated the benchmark rather than allow precious metal markets to set the price through market forces. This has meant that price discovery has been hard to come by, leaving buyers and sellers as price takers. However price manipulation has been dismissed by the bureaucrats for many years. This has been going on under regulators’ noses, but increasing awareness by the legal system has meant it can no longer be ignored.

No smoke without fire

Whilst some academic research has concluded that evidence of gold and silver price manipulation is ‘at best suggestive’, events in recent years have led many to ask if there would be so much smoke without fire? After all, we have seen evidence that the majority of markets are rigged. See LIBOR and forex for recent examples, not to mention QE which amounts to the same thing.

Even in this very market, silver and gold, we have had plenty of smoke and arguably sparks. As we mentioned in the introduction, last year Deutsche Bank was named the lead defendant in a case that stated they had ‘illegally conspired with Bank of Nova Scotia and HSBC Holdings Plc to fix silver prices at the expense of investors’. The German Bank agreed to settle out of court and made a deal both financial and in terms of offering information.

In the letter detailing the deal, Deutsche Bank were happy to hang their contemporaries (including UBS AG Barclays Plc, BNP Paribas SA, Standard Chartered Plc, Bank of America Corp and HSBC) out to dry:

“Deutsche Bank has also agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement. In Plaintiff’s estimation, the cooperation to be provided by Deutsche Bank will substantially assist Plaintiffs in the prosecution of their claims against the non-settling defendants.”

This provision of ‘smoking gun’ evidence opens the door for further cases to be brought against the multiple banks involved in the bullion markets, this combined with new regulation is perhaps prompting banks to get their ducks in order.

The lack of liquidity and volatility in the London Silver Market shows that those banks involved are aware of what the future should hold both in terms of lawsuits and regulatory investigations. What this means for the future of the silver benchmark, time will tell.

Conclusion

Price manipulation, whether of precious metals, interest rates or forex is not a victimless crime. There are thousands of companies and individual investors who have seen losses on their investments, some as a direct result of this manipulation.

Ironically for those looking to manipulate the price, this behaviour is actually an opportunity for those who are keen to stock up on both gold and silver. With a suppressed price, investors can take the opportunity to accumulate more bullion.

The desire to hold more bullion will continue to grow as 2017 presses on. Since the beginning of the year it has perhaps felt as though every morning we have woken up to unsettling news from somewhere in the geopolitical sphere. Whether it’s North Korea, European elections, Syrian bombs or home-grown terrorists, it is as though unsettled uncertainty is all around. For this reason, we expect to see a growing in interest in holding precious metals and investors dedicating more of their portfolio to them.

What about the manipulated prices? Will they continue? We don’t know, but as we explained last year, artificially surpassing the pricing mechanism is akin to forcing a beach ball under water, it can only pop back up and often with great force.

“The further a beach ball is pushed under water in a pool – the higher it ultimately jumps out of the water. This creates a great opportunity for investors to accumulate precious metals at prices which will be viewed as very cheap indeed in the coming years.”

Related content

http://www.goldcore.com/us/gold-blog/secret-scheme-to-manipulate-the-price-of-silver-lawsuits-against-banks-proceed/

http://www.goldcore.com/us/gold-blog/new-lbma-silver-price-still-not-transparent/

http://www.goldcore.com/us/gold-blog/silver-fixing-banks-proven-traders-chats/

- Manipulation of the silver market was covered in an interview by us in 2014 ‘Get REAL’ Special on Silver which remains pertinent

Avoid Digital & ETF Gold – Key Gold Storage Must Haves

 

News and Commentary

Exclusive: Fear of regulation causes big swings in London's silver benchmark (Reuters.com)

Gold set for worst week in seven as investors opt for riskier assets (Reuters.com)

Stocks Drop Amid Earnings, Geopolitics; Oil Gains (Bloomberg.com)

Fed to signal rate-hike plan in place despite soft economic data (MarketWatch.com)

Goldman Sachs Sees Bullion Heading to $1,200 (Bloomberg.com)

Gold’s tempered climb makes gains more ‘sustainable’ - Milling-Stanley (MarketWatch.com)

Gold Speculators Boosted Their Bullish Net Positions For 5th Week (Investing.com)

Silver price management (Gata.org)

Atlanta Fed Throws In The Towel: Cuts Final Q1 GDP Forecast To Just 0.2% (ZeroHedge.com)

Trump Warns There Is A Chance Of "A Major, Major Conflict" With North Korea (ZeroHedge.com)

France is resigned - Marine Le Pen may win (Telegraph.co.uk)

Gold Prices (LBMA AM)

28 Apr: USD 1,265.55, GBP 978.40 & EUR 1,156.84 per ounce
27 Apr: USD 1,264.30, GBP 980.21 & EUR 1,160.63 per ounce
26 Apr: USD 1,264.95, GBP 986.79 & EUR 1,160.21 per ounce
25 Apr: USD 1,270.50, GBP 990.48 & EUR 1,165.81 per ounce
24 Apr: USD 1,271.80, GBP 991.11 & EUR 1,169.42 per ounce
21 Apr: USD 1,281.50, GBP 1,000.85 & EUR 1,197.31 per ounce
20 Apr: USD 1,279.90, GBP 996.91 & EUR 1,188.00 per ounce

Silver Prices (LBMA)

28 Apr: USD 17.41, GBP 13.45 & EUR 15.92 per ounce
27 Apr: USD 17.46, GBP 13.53 & EUR 16.02 per ounce
26 Apr: USD 17.59, GBP 13.72 & EUR 16.15 per ounce
25 Apr: USD 17.84, GBP 13.92 & EUR 16.40 per ounce
24 Apr: USD 17.81, GBP 13.90 & EUR 16.40 per ounce
21 Apr: USD 17.98, GBP 14.05 & EUR 16.80 per ounce
20 Apr: USD 18.19, GBP 14.21 & EUR 16.91 per ounce

Recent Market Updates

- Gold Bullion Imports Into China via Hong Kong More Than Doubles in March
- LePen Euro Frexit Panic Over – “For Now”
- Gold Sovereigns – ‘Treasure’ Trove Found In UK – Don’t Be The Piano Owner
- Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefits
- When Trump Turns On “Enemy Within” Fed It May Create 1970s Style Stagflation
- Silver Production Has “Huge Decline” In 2nd Largest Producer Peru
- Gold Erases Post- Election Fall as Trump Wrong on Dollar
- Perth Mint Silver Bullion Sales Rise 43% In March
- Gold Surges Above Key 200 Day Moving Average $1270 Level
- Bank of England Rigging LIBOR – Gold Market Too?
- Pension Crisis In U.S. and Globally Is Unavoidable
- Gold, Silver and Oil Spike After U.S. Bombs Syria
- Why Now Is The Time To Invest In Gold and Silver – Schroders

 

Access Award Winning Daily and Weekly Updates Here

Read More

What Does the Elemetal Scandal Say About Gold Prices - Update 1

Published here: http://www.zerohedge.com/news/2017-04-27/elemetal-gold-tries-cover-its-tracks-and-why-isnt-gold-higher-update-1

What Does Elemetal Imply for Precious Metals?

• Gold smuggling accounts for up to 75% of all LATAM Gold imported in the US
• Disruption of this augmented Gold supply is Bullish for Gold
• Elemetal is running for corporate cover
• No-one cares

UPDATE 1 - DGSE a publicly traded retailer, just signed an LOI to buy Elemetal, LLC. It gets better. DGSE is #2 on the S&P list of likely retailers to default. Wait, there's more.  Elemetal is actually majority shareholder in DGSE.  Essentially, Elemetal, which controls DGSE would rather default, then have the real depths of its activities revealed. Details and Elemetal structure at bottom.

Gold Supply Augmented with illegal Supply

via the Soren K.Group and Marketslant

In the past decade and a half, global gold consumption has risen by almost 1,000 tons a year, to about 4,300 tons, according to the World Gold Council, a London-based industry group. Legal mining operations haven’t kept up with demand, so illegal mines controlled by criminal gangs, from the Amazon to central Africa, help cover the deficit, according to Verité, a nonprofit group in Amherst, Mass., that’s researched the illegal gold trade. A 2016 Verité study found that five countries in Latin America shipped 40 tons of gold from illegal mines to the U.S. in one year, almost twice the legal exports from those countries. pdf here 

?

Simply put:

1. Elemetal's Sources of metal for refinement were illegal.
2. This implies higher prices via loss of black market source discounts and raw supply that was artificially augmented.
3. Florida is (still)  the source of all our woes.
4. Bloomberg will GLADLY cover the Gold Scandal, but not the Supply/ Demand implications. 

 

The Press Demonizes Gold More 

GOLD, SCANDAL, EVIL, DRUGS - buy stocks: We searched the web but were hard pressed for a single Bloomberg article that states the obvious: This implies Gold demand is outstripping legitimate supply and is bullish for prices. We find this annoying since Bloomberg is the primary source for the info above. 

Bloomberg:

The charges signal a U.S. crackdown on smugglers exploiting a spike in worldwide consumption of gold mined illegally in the Amazon basin, where laborers use fire hoses and mercury to extract the nearly pure precious metal.

Note in the above that gold buyers are exploited. Gold is tied to drugs and  illegal activity. It is true in this case, but the implications aren't bad for Gold. As  they demonize cash to eradicate it, Gold is now being tied to crime. This is typical, and it is a canard utilized to steer you away from an investment tool that cannot be branded or properly securitized yet.  Have you ever read an article saying "Drug Traffickers used US Bearer Bonds to hide their money. Be careful of US Bonds, they could be illegally obtained!" 

There is a phrase in the trader community that goes like this: Gold miners and Gold are not in the  FOB club. (Friend of Bloomberg)

?

Interactive chart HERE

The Illegal Venezuelan Oil for Bonds Trade

Meanwhile we are pretty sure that Venezuelan officials have made illegal sales of oil cargoes, purchased US Bonds with the cash  through accounts in the Caribbean and those bonds are now being held in custodial accounts at US Banks for their later benefit. 

It goes like this. A Venezuelan dictator who is in danger of losing control must solidify his military support. so he tells a general, "See that tanker over there? It's a gift to you. Keep the money that the oil sells for". General does just that, and exports that cash to the U.S. The dictator lives to rule another day. 

How do we know? One of our group was asked to retrieve some of those US held bonds for a South American military official probably getting ready to skate out of Venezuela. We had actually reported this to US officials, and have heard nothing since. It is rampant. And it is electronic. And those bonds are in US banks. 

But Gold? That inert yellow pet rock? It is a means to launder drug money.

 ?

So if illegal gold production is rampant in Latin America, and in several countries, unregulated illegal and informal mines account for over 75 percent of gold produced as the Verite report states; Why is this not being addressed? Where are Crocket and Tubbs when you need them?

Why hasn't this been stopped? Aren't we supposed to follow the money to catch smugglers? How hard can it be to catch money that conspicuous?  Maybe it is because we want Gold prices to be low. Maybe some banks benefit from this. That is not crazy when one realizes that HSBC got its start in the Opium trade.

Maybe They  Want The Cheap Gold to Keep Flowing

To put a finer point on things. There is a historical correlation between supply disruptions in commodities and price increases. Studies from as far back as Victorian era England consistently find that a 5% disruption in supply of a product with no change in demand creates roughly a temporary 20% increase in price.

To be fair, temporary supply disruption varies in its effect on immediate prices depending on the product disrupted. But by many measures, gold is a Giffen good. So what would happen if all of a sudden 75% of all the LATAM gold produced were unavailable for purchase? 

Recent examples would be the manipulation of Natural gas supply to California by Enron et al, and the subsequent price spikes. Another would be the short lived Oil shock of 2007- 08.

How crazy is it that upwards of 75% of LATAM gold is illegally mined, much of it used for drug money laundering, it weighs a ton, and the US has not cracked down on it? But we are all over Blood Diamonds, which are infinitely easier to smuggle than 100 lbs of gold right? 

So the Elemetal fiasco is telling of a bigger issue. That gold supplies are augmented with illegally procured metal. And no one cares. Elemetal doesn't seem to care

 

Elemetal Moves Forward... kind of

Here is the most recent Letter coming from Elemetal. It is actually a marketing piece. 

Dear valued Elemetal Capital customer,
Elemetal Capital will be performing an inventory audit over the next 14-21 days. We kindly ask for your cooperation by not making any new bullion sales to Elemetal Capital or sending any material to us during this time.
Your in-transit packages and sales booked to Elemetal Capital before this notice of inventory will be priced as agreed.
Material shipped to us after this notice and during the limited audit period, however, (including private-mint bars, rounds, sovereign mint coins, standard-recognized bullion) will be forwarded to our scrap channels for lock-in at the following scrap rates:
Metal Elemetal Buy
Gold 99% of fine content
Silver 95% of fine content
Platinum 95% of fine content
Palladium 95% of fine content

Please note that the usual scrap business of Elemetal Direct is unaffected by this Elemetal Capital inventory.
We'll announce very soon when we will resume accepting bullion at market rates.
All the best,
Elemetal Capital

CME Group and the London Bullion Market Association had suspended Elemetal Refining LLC last week from trading gold and silver futures on its exchanges. Why are these people even allowed to be in business? Silver Doctors have been all over this from day 1. in fact they have been all over this type of risk from day negative100

Via Silverdoctors.com

Federal Agents have arrested NTR Metals Manager Juan Granda, the self-proclaimed “Modern-Day Pablo Escobar” of Gold over charges the US Gold & Silver Firm smuggled $BILLIONS of illegally mined gold into the US:

As Bloomberg reports, NTR Metals Company Manager Juan Granda has now been arrested and charged: The operations manager at a metals-refining company was charged with helping run a gold smuggling network that reaped billions of dollars for illegal mines controlled by drug dealers and other criminals in South America.

Officials believe NTR smuggled nearly $4 Billion in illegally mined gold beginning in 2012..

full story HERE

In 2013, Peru seized $18 million worth of gold bound for refineries in Miami and elsewhere, including NTR. The rest "got away" we guess?

What is Going on Here?

South American smugglers and drug traffickers laundered money through sales of illegally mined gold from the Amazon rain forest. They sold it to NTR personnel in Latin America. The NTR people through various transactions laundered their purchases in other South American countries as the gold made its way to the U.S. Some of that gold then entered the U.S. via "legitimate  Florida businessmen" acting as a final intermediary for the laundering process.

Violetas: Florida Gold Laundromat?

Bloomberg

“Virtually all of the gold NTR purchased from Ecuador, including the gold from Spartan del Ecuador, was routed through an intermediary company, MVP Imports,” according to the U.S. complaints. U.S. customs records show MVP Imports as the importer, “masking” NTR’s role as the “ultimate purchaser” of the gold, the prosecutors said. More here

MVP Imports: a high end knickknack store for the rich in Coral Gables may actually be a  laundromat. The company is  run by a prominent businessman in Florida, that is accused of being listed in customs records as the buyer of much of the smuggled gold NTR bought, masking the fact that NTR bought it. 

What is NTR and what does that have to do with  Elemetal ?

Elemetal is the parent company of NTR. The list below is believed to be accurate:

This is a list of many/most of the Elemetal-related companies (including both corporations and names they do business as). Some are likely no longer operating; many of the "NTR" companies are likely now operating as Elemetal.

Deceive, Obfuscate, Inveigle Inc.

• Echo Environmental Waverly LLC (subsidiary of Elemetal LLC)
• Elemetal Capital, LLC (wholesale trading of physical, derivatives, Forex)
• Elemetal Diamond, LLC (diamonds)
• Elemetal Direct (described as recycling/refining, and direct-to-customer locations, and NTR Metals)
• Elemetal Direct Americas, LLC (was NTR Metals (Americas), LLC until June, 2015)
• Elemetal Direct USA, LLC
• Elemetal Fabrication, LLC (was Pete's Custom Metal, Inc., then NTR Custom Metals, LLC)
• Elemetal Insurance and Logistics, LLC (unknown)
• Elemetal Management (unknown)
• Elemetal Mint (private minting of bars/coins)
• Elemetal Minting, LLC (perhaps Elemetal Mint is a DBA of this LLC?)
• Elemetal Online (Provident Metals)
• Elemetal Recycling, LLC (processing electronic waste; was Echo Enivironmental)
• Elemetal Refining, LLC (was OPM Metals, a/k/a Ohio Precious Metals)
• Elemetal USA, LLC (unknown purpose)
• Elemetal Vault (vault service, trading)
• Provident Precious Metals, LLC
• NTR
  • NTR Bullion Group, LLC (owned by NTR Metals, LLC; handled physical metals transactions)
  • NTR Futures (owned by NTR Metals, LLC; handled futures contracts)
  • NTR Metals (d/b/a only?)
  • NTR Metals, LLC
  • NTR Metals (Americas), LLC (now Elemetal Direct Americas; Sam Lewis, President)
  • NTR Metals Belgium Holdings, LLC
  • NTR Metals Canada Ltd. (dissolved 18 Jul 2013)
  • CI NTR Metals Colombia S.A.S. (founded 24 Aug 2011)
  • NTR Metals Europe, LLC
  • NTR Metals Group, LLC
  • NTR Metals HK Ltd
  • NTR Metals (Hong Kong) Limited (started October 2009)
  • NTR Metals International, LLC
  • NTR Metals Investments, LLC
  • NTR Metals (UK) Ltd. (is/was wholly owned by NTR Metals International, LLC)
  • NTR Metals Latin America (parent company of NTR Metals Zona Franca S.A.S; President Mr. Barrage)
  • NTR Metals Miami, LLC
  • NTR Metals Pacific Rim, LLC
  • NTR Metals Real Estate, LLC (appears to own 10720 Composite Drive, Dallas)
  • NTR Metals South America, LLC
  • NTR Metals Texas, LLC
  • NTR Metals USA, LLC
  • NTR Metals West, LLC
  • NTR Metals Zona Franca S.A.S. (Columbia; subsidiary of Elemetal, LLC)
• DGSE Companies, Inc. (Elemetal is a majority shareholder; had 69 employees as of December 31, 2015)
  • Dallas Gold & Silver Exchange, Inc. (9 stores around Dallas; now just 4?)
  • Charleston Gold & Diamond Exchange, Inc. (1 store in Mount Pleasant, SC)
  • Fairchild International (wholesale watches; website not responding 14 Mar 2017)
  • Southern Bullion a/k/a Southern Bullion Coin & Jewelry (defunct; acquired in 2011 with 23 locations)
  • SBT, Inc. (Southern Bullion Trading, related to Southern Bullion Coin & Jewelry, Inc.; was owned by NTR)
  • U.S. Bullion Exchange (DGSE Company's online trading 'arm').  

Florida...Climate change can't swallow it fast enough

Good Luck

UPDATE 1:  DGSE is a retailer in serious trouble itself.  Posted today are the S&P Top Ten Retailers at Risk of Default per the WSJ.  DGSE takes second place. Somehow, we doubt the complicated structures and the DGSE buyout aren't to make things more transparent for investigators  

1. Sears Holdings (SHLD -3.5%) with a 23.84% probability of default.
2. DGSE Companies (DGSE -1.2%)
3. Appliance Recycling Centers of America (ARCI -1.1%),

DGSE Companies, Inc. (NYSE MKT:DGSE) (“DGSE” or the “Company”), a leading wholesaler and
retailer of jewelry, diamonds, fine watches, and precious metal bullion and
rare coin products, today announced that it has entered into a non-binding
Letter of Intent with Elemetal, LLC (“Elemetal”) to acquire the tangible
personal-property assets of Elemetal and Elemetal Recycling, LLC (“Recycling”)
at 2101 W. Belt Line Road, Carrollton, Texas, the equipment at 10707 Composite
Drive, Dallas, and certain accounts receivable of Recycling. The total
estimated cash proceeds to Elemetal and Recycling from the sale and from the
payment by DGSE of approximately $3.8 million of obligations owed by DGSE to
Elemetal is $19.8 million. In addition, DGSE would assume certain accounts
payable of Recycling.

Read More

Trump 100, Margin Debt Stock Bubble and Gold

Published here: http://www.zerohedge.com/news/2017-04-27/trump-100-margin-debt-stock-bubble-and-gold

Trump 100, Margin Debt Stock Bubble and Gold

- Stocks and the dollar look vulnerable due to Trump's policies, America's civil war politics and economic vulnerability
- Stock bubble on margin debt – 'Powerful time bomb'
- "There is no alternative" to stock bubble? Gold?
- Bank Of America sets a date for the market's "Great Fall"
- Even uber bull Cramer compares 2000 dotcom bubble bust to today
- Gold to stay elevated on safe haven demand - Economist
- Gold’s tempered climb makes gains more ‘sustainable’

Trump's first 100 days in office have been a whirlwind but so far the 'Trump Trade' of being long stocks has worked for investors and speculators. Will markets continue to be so forgiving of the many foreign and domestic policy failures including the failure to repeal 'Obamacare'?

It is possible but we think it likely as many stock and bond markets, particularly U.S. markets, are now priced for close to perfection - in a far from perfect, massively indebted, volatile financial world.

So far during his Presidency, markets have remained high on the cocaine of massive monetary stimulus and still near o%, ultra low interest rates and record margin debt.

There remain hopes of a further “Trump bump” from aggressive fiscal easing and deregulation and this and increasing "irrational exuberance" has seen the S&P 500 move back towards record territory, driven by increasingly bubble like technology stocks and a Nasdaq at all time record highs above 6,000.

The smart money continues to be be concerned about the bubbles that continue to inflate. Risk appetite is near record highs and even bearish news is greeted as a buying opportunity. The mantra is 'TINA' - 'there is no alternative' to stocks and bonds.

The obvious alternative in these uncertain and volatile times is a diversification into gold. A very similar mantra was heard in 1999 and 2007 and this is typical of bubbles. The obvious alternative in 1999 and 2007 was a diversification into gold.

Our advice is that, a la 1999 and 2007, it is time to become more risk averse and become more rigorous in your asset allocation. Our clients and more risk aware and averse investors are slowly and prudently placing themselves besides the fire exit and reducing allocations to stocks and bonds and increasing allocations to cash and gold.

Wolf Richter of the Wolf Street blog says the market "sits blithely on a powerful time bomb" and "no one knows the full magnitude, but it's huge." The time bomb he's referring to is the explosive growth of margin debt (see chart above), a trend that usually eventually leads to a market crash or at the very least a severe market correction.

The question is when and from what levels.

Stock market margin debt, as reported by the NYSE, has now surged to a record high of $528 billion. That's not including loads of unreported margin, or "shadow margin," that Richter says could put the total figure somewhere near $800 billion.

"Margin debt is in an uncanny relationship with the stock market ... It soars when stocks soar and crashes when stocks crash. They feed on each other."

Clearly, the stock market has become crazy leveraged. And, also clearly, that often leads to big losses when it starts to fall apart.

"Margin debt ... has the unnerving habit of peaking right around the time the bubble turns into a selloff ... While it's a terrible predictor of a crash -- no one knows if February was the peak or just another stage on the way to an even more dazzling peak -- it is associated with enormous risks."

Quite.

In this context we believe, like Bank of America, that the stock market may be set for a "Great Fall" and that gold will begin to outperform and build on the 10% gain in 2016 and 10% gain YTD 2017 when this happens and risk aversion returns as it inevtiably does.

Even uber stock market and America bull, Jim Cramer of CNBC compares the 2000 dotcom bubble bust to today. Cramer has advocated diversifying into gold.

Gold’s 10% gain year to date in 2017 is a "tempered climb" which makes the gains very ‘sustainable’ according to State Street's Milling-Stanley.

Gold is likely to stay elevated on safe haven demand according to most gold analysts including the economist Barnabas Gan of Singapore Bank OCBC, as reported by Frank Holmes.

It is hard to argue with Bank of America, Cramer, Milling-Stanley and Barnabas Gan on this one.

 

Avoid Digital & ETF Gold - Key Gold Storage Must Haves

News and Commentary

GOLD PRICES HOLD UP RELATIVELY WELL, WEAKER DOLLAR (BullionDesk.com)

Gold slips to 2-wk lows as rallying equities boost risk appetite (Reuters.com)

Nasdaq Composite Tops 6,000, Tariff Sinks Loonie (Bloomberg.com)

Indian physical gold buying may be behind Dubai tightness: sources (Platts.com)

London house prices post most dramatic annual fall since financial crisis (CNBC.com)

Global Silver Mining Industry Productivity Falls To Lowest In History (SRSRoccoReport.com)

Peak Gold, The Debt Pil and Exter's Pyramid (GoldSeek.com)

Hyperinflation around the Globe (24HGold.com)

Is Trump Any Closer to Fiscal Reform? - Holmes (GoldSeek.com)

Stock Bubble On Margin Debt - Powerful Time Bomb (BusinessInsider.com)

Gold Prices (LBMA AM)

26 Apr: USD 1,264.95, GBP 986.79 & EUR 1,160.21 per ounce
25 Apr: USD 1,270.50, GBP 990.48 & EUR 1,165.81 per ounce
24 Apr: USD 1,271.80, GBP 991.11 & EUR 1,169.42 per ounce
21 Apr: USD 1,281.50, GBP 1,000.85 & EUR 1,197.31 per ounce
20 Apr: USD 1,279.90, GBP 996.91 & EUR 1,188.00 per ounce
19 Apr: USD 1,282.05, GBP 999.74 & EUR 1,196.79 per ounce
18 Apr: USD 1,285.00, GBP 1,025.82 & EUR 1,205.46 per ounce

Silver Prices (LBMA)

26 Apr: USD 17.59, GBP 13.72 & EUR 16.15 per ounce
25 Apr: USD 17.84, GBP 13.92 & EUR 16.40 per ounce
24 Apr: USD 17.81, GBP 13.90 & EUR 16.40 per ounce
21 Apr: USD 17.98, GBP 14.05 & EUR 16.80 per ounce
20 Apr: USD 18.19, GBP 14.21 & EUR 16.91 per ounce
19 Apr: USD 18.22, GBP 14.19 & EUR 16.99 per ounce
18 Apr: USD 18.42, GBP 14.56 & EUR 17.27 per ounce

Recent Market Updates

- LePen Euro Frexit Panic Over – “For Now”
- Gold Sovereigns – ‘Treasure’ Trove Found In UK – Don’t Be The Piano Owner
- Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefits
- When Trump Turns On “Enemy Within” Fed It May Create 1970s Style Stagflation
- Silver Production Has “Huge Decline” In 2nd Largest Producer Peru
- Gold Erases Post- Election Fall as Trump Wrong on Dollar
- Perth Mint Silver Bullion Sales Rise 43% In March
- Gold Surges Above Key 200 Day Moving Average $1270 Level
- Bank of England Rigging LIBOR – Gold Market Too?
- Pension Crisis In U.S. and Globally Is Unavoidable
- Gold, Silver and Oil Spike After U.S. Bombs Syria
- Why Now Is The Time To Invest In Gold and Silver – Schroders
- Heraeus Gold Refinery Buys Swiss Refiner Argor-Heraeus

Access Award Winning Daily and Weekly Updates Here

Read More

Gold “Trumps” Dollar amid geopolitical concerns

Published here: http://goldsilverworlds.com/investing/gold-trumps-dollar-amid-geopolitical-concerns/

Gold is always considered as a safe haven by investors when compared to other investments like stocks, bonds, and currencies. Extending its recent upward trend, Gold prices have gained 6.5% year-to-date with Spot gold price reaching its five-month closing high of $1,288.50 an ounce. Due to the recent geopolitical concerns and uncertainty prevailing in the US economic policy under Trump administration, precious metals are seeing a revival in demand amidst investors. Spot Gold price was expected to reach up to $1300 as it surged intra-day to $1297.

Also, the dollar index consolidated losses and fell below its key 101 level to reach 99.499 as of 18^th April 2017. Fed Chair Janet Yellen’s comments about interest rate hikes in December weighed on US Treasury yields and investors started looking for safe havens like yen and gold. The dollar index has dropped 0.77% and the Japanese yen surged 0.36% against the dollar at 108.52 per dollar. The increase in Gold price was also due to the decrease in U.S dollar value because of the comments from President Donald Trump who mentioned the Wall Street Journal that U.S dollar” is getting too strong”.  The U.S. dollar was also pressured by lower Treasury yields, but analysts are hoping that dollar will strengthen over time based on the outlook for U.S. monetary policy

Gold prices are having a bullish trend and have surged 5% in January alone. The key factors for the rise in gold price were the lack of clarity on US economic policies and Fed interest rate hike in December. Also, concerns over the uncertainty of Trump’s foreign trade policy and outcome of upcoming French elections has kept the market prices of precious metals like gold and silver on the rise. Gold price also increased earlier in March due to Trump’s failure in successfully implementing his health care reform bill in American legislative. Gold is always preferred by investors when other macro indicators are looking gloomy and has taken a lead amid a weakening dollar which is having a dull period since November 11, 2016.

Even GBP had surged along with gold, while U.S dollar and the stocks fell due to investor concerns over geopolitical stability after the announcement of a snap election for June by Britain. Sterling rallied as high as 2.7% against the USD to reach its highest level since Oct 2016. The equity markets also took a hit and shares dipped in Asia with Nikkei Index of Tokyo Stock exchange coming down by 1.5%. The Dow Jones Industrial Average dipped by 113.64 points to 20,523.28 and the Nasdaq Composite fell down by 7.32 points, or 0.12%, to 5,849.47. The unexpected quarterly results from big Corporates like Johnson & Johnson and Goldman Sachs brought down the major stock indexes. Such kind of market fluctuations is always good news for binary options traders as they can gain huge profits by adopting various binary options strategies.

The rejection of President Trump’s health care reform bill in the House of Representatives was clearly showed the president’s inability to pass legislation and gain the needed support from his own party members as well. Even the republicans were against his bill and this meant that the Tax reforms and an increase in infrastructure spending will be hard to push through. Investors are deeply concerned about uncertainty in trade policies, interest rate hikes and tax reforms which could be introduced by the Trump Administration. They are also bothered about the possible U.S. military action against North Korea which has brought down the dollar value significantly. The policy freeze-out indicated that there won’t be any spending increases in near future which have punished the dollar severely and boosted gold prices.

Earlier in December, US Fed chairwoman Janet Yellen had increased the key interest rates by 25 basis points to between 0.50% and 0.75%. This was the first interest rate hike after 1 year and the previous rate hike was in Dec 2015. This rate hike caused a buying spree of gold among investors as it’s a safe haven asset. US Treasury yields dropped due to geopolitical tensions and upcoming presidential election in France. Benchmark 10-year notes increased in price to yield 2.1824% from its previous yield value of 2.252%.

Disappointing U.S economic data and rising doubts among investors about the possible tax cuts from Trump Administration have fuelled the growth of Gold prices. Bond yields, stocks, and the dollar are all falling and the yield curves are becoming flattened. The dollar added to earlier weakness against most of its major rivals after the announcement of the first rate hike in 2017 by the US Federal Reserve. They have also signaled two more rate hikes by end of this year which caused a huge disappointment among the traders who were expecting a more aggressive stand over the pace of the tightening cycle. Mike Pence, the U.S. Vice President announced that the US Government is working with its allies and China to put economic and diplomatic pressure on North Korea but added that the United States would defeat any attack with an “overwhelming response”. Tensions in Syria and the possibility of U.S. military attack against North Korea stirred huge fear among investors over the instability of dollar and pushed them to invest on safe havens like gold and yen.

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Another Potential Government Shutdown… Oh My!

Published here: http://goldsilverworlds.com/gold-silver-experts/another-potential-government-shutdown-oh/

The U.S. Congress runs up against their self-imposed borrowing limit once again this week. During the last tussle over the borrowing cap in October 2015, Congress agreed to schedule this week’s political theater to occur well after last Fall’s elections.

They didn’t even bother to guess how much additional headroom would be needed. They just suspended the debt limit altogether. Neither Democratic nor Republican leadership wanted voters focused on borrowing and spending when they went to the polls.

Government employees can count on eventually getting paid for any time they are furloughed.

When the show is over, most in Congress will agree to saddle taxpayers (and their kids) with a trillion or two more in borrowing. Americans have been through this drill no less than 74 times since 1962. But any significant drama will impact markets – potentially driving some safe-haven buying which could boost metals.

Is Trump’s Tax Plan Finally Coming?

Investors have been anxiously awaiting the details of President Trump’s plan for tax reform since the election. The idea of meaningful tax cuts has certainly been well hyped. Last Friday, Trump suggested the cuts he will propose are the largest ever. And he renewed his prior promises of an imminent unveiling.

Trump’s tax plan has been tangled up with the effort to reform Obamacare and infrastructure spending. In theory, the particulars of how much will be spent on healthcare, highways, and bridges would be an important factor when considering how much room there is for tax relief.

In reality, however, it matters very little. At least not yet. Congress can both increase spending and reduce tax rates at the same time.

It simply requires unlimited borrowing (see above) – and, in recent years, the Federal Reserve printing a lot of money to buy government debt at below market yields.

If Trump runs into trouble getting Congress to go along with big tax cuts, it won’t be because that august body suddenly cares about deficits. It will be more about politics.

There are plenty in leadership on both sides of the aisle who simply want Trump and his agenda to crash and burn. The few representatives who do care about deficits and would like to impose some restraint understand that tax cuts can help pressure Congress to restrain spending.

Any failure by Congress to address runaway spending will mean bigger deficits paid for in the usual way – more borrowing and printing. That should ultimately benefit precious metals markets.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

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