Gold & Precious Metals

The wholesale price of gold leapt in thin Asian trade Monday morning, jumping 1.7% inside half-a-minute and then extending its run in London to new 1-month highs at $1322 per ounce.

London-listed gold equities followed, with shares in Randgold Resources – tipped today by analysts at both J.P.Morgan and Morgan Stanley as better able to cut costs and avoid write-downs than competitors – rose 2.5%.

So too however did shares in African Barrick Gold – named by Morgan Stanley as a gold miner facing “heightened risks [with] limited scope to raise returns.”

Russian gold miner Petropavlovsk, which by end-May had sold forward 70% of its 2013 output to hedge the falling gold price, meantime rose over 4.3% on the London stock market, taking its rally of the last two weeks above 40%.

Shares in the former million-ounce miner remained 75% below the start of 2013, however.

Randgold Resources was trading today 25% down for the year so far.

“Gold broke through a key technical level at $1300,” said one Singapore trader to Reuters this morning.

The first breach of this “psychologically important” level since end-June, however, gold “is still a good $230 off the technically important 200-day moving average,” says the daily note from Germany’s Commerzbank.

“For a month,” adds technical analysis from Societe Generale analysts, “the price has been evolving within a steep corrective channel.”

“Gold is now facing short-term resistance at April’s low of $1322.”

Cutting its forecast gold price average for 2013 by 6% last week, Barclays Capital says nearly 1-in-6 miner operations in South Africa will lose money if its $1200 prediction for July to October proves true.

South African gold mine workers are demanding “up to 61% pay increases,” saysThe Daily Telegraph, citing Commerzbank analysis.

Last week the world’s third-largest gold miner, AngloGold Ashanti, said it’s likely to writedown between $2.2 and $2.6 billion on its assets following the spring’s 25% drop in the gold price.

“The mining companies,” says Commerzbank, “which have their backs against the wall in any case on account of the fallen gold prices, are unable to meet such unrealistic demands.”

Back in Asia overnight, “We heard some gold refiners in Switzerland will close in August for the summer holidays,” a Hong Kong dealer told Reuters.

“They have stopped taking orders.”

Switzerland is the major producer of the 1-kilo gold bullion bars preferred by Asian investors with 0.9999 fineness as opposed to the wholesale standard of 0.995.

Gold premiums in Shanghai however, over and above the international benchmark of London settlement, edged another dollar lower again today, falling to $21 per ounce.

Interest rates for borrowing gold were meantime unchanged Monday from Friday in London, heart of the world’s wholesale bullion market.

Rising demand from gold miners wanting to hedge their exposure to further price falls ahead was last week cited for driving up gold borrowing costs so far in July.

“Demand has slowed down” in India – the world’s No.1 gold consumer market – according to Bombay Bullion Association director Suresh Jain, pointing to the traditional summer shutdown in gold-buying festivals and weddings.

US gold futures and options meantime saw a marked rise in speculative bullishness last week, new data showed after Friday’s close.

The so-called speculative “net long” position – meaning the balance of all bullish minus bets held by non-industry players – jumped 37% to a four-week high equal to 135 tonnes of gold bullion.

The sharpest percentage jump since November 2008, however, the move – which was driven by bearish speculators closing their positions as prices rose – was only a four-month record by weight.

Compared to the end of 2012, the spec’ net long position stood 78% lower.

“Despite the pullback in gold equities,” says Morgan Stanley’s note, “we see risk of further de-rating triggered by reserve downgrades and weak cash flows.”

“We believe,” says J.P.Morgan’s analysis, “that premium ratings are appropriate for [producers] with…high-quality assets and operational capability to cut their cloth according to prevailing market conditions.”

Source: Bullion Vault

About Adrian Ash

Head of Research at BullionVault.com
Primary Tel: +44 208 6000 130
London UK
twocents @ bullionvault.com
http://www.bullionvault.com/

Gold shorts have surged to a stupendous record!

“This epic gold short is wildly unprecedented.”

 “The sheer size of this bearish bet is breathtaking.  Each COMEX gold contract controls 100 troy ounces of the yellow metal.  So American futures speculators have borrowed and sold 17.9m ounces, or 556.4 metric tons!  That even dwarfs the also-outlying record selloff in the holdings of the flagship GLD gold ETF over the past 7 months, which now weighs in at 417.3t.”

“This first chart looks at the total long and short contracts held by large and small gold-futures speculators as defined by the Commodity Futures Trading Commission in its famous weekly Commitments of Traders reports.  Total spec longs and shorts are rendered in green and red respectively, with the gold price superimposed on top in blue.  Speculator gold shorts have just surged to a stupendous outlying record!”

Zeal071913A

 

Ed Note:  Adam explains how short selling works for those who don’t know at the top of the article.

Read the entire article HERE. 

 

 

 

 

 

 

 

 

 

 

 

Central banks, bullion banks and the physical gold market conundrum

The recent decline in gold prices and the drain from physical ETFs have been interpreted by the media as signaling the end of the gold bull market. However, our analysis of the supply and demand dynamics underlying the gold market does not support this thesis.

For example, Non-Western Central Banks have been increasing their holdings of gold at a very rapid pace, going from 6,300 tonnes in Q1 2009 to more than 8,200 tonnes at the end of Q1 2013 (Figure 1a) while physical inventories are declining (Figure 1b) (or being raided, as we argued in the May 2013 Markets at a Glance)1 and physical demand from large (Figure 1c) and small (Figure 1d) scale buyers remains solid.

figure1a-1b

figure1c-1d

In previous articles we have argued that Western Central Banks have been filling the supply gap to satisfy the demand for physical gold.2 As shown in Figure 1a above, the official amount of gold held in the Western Central Banks and international institutions like the IMF has been steadily declining since 2000, only to stabilize at around 23,500 tonnes since 2008.

…….read more HERE

 

 

The Powerful Case for Silver

Sunshine Silver Bars Silver Rounds‘Undervalued Relative to Gold’

The Powerful Case for Silver

I am a well-known “gold bug” because of my strongly voiced opinion that gold has been one of the best assets for protecting yourself from the US dollar’s prolonged decline.

Lately, the precious metals have taken a beating, and I’ve been called to defend gold’s future prospects in the media countless times. While I am confident that gold will rebound with a vengeance before long, I think investors are potentially missing an even greater opportunity in that other monetary metal: silver.

To address this oversight, I have compiled a special report called The Powerful Case for Silver, which is available at www.schiffsilver.com. This 14-page report report contains in-depth analysis of what I believe to be the strongest arguments for owning the white metal. What follows is a general overview of the key arguments I make in the report.

The People’s Money

After a couple generations of purely fiat currency in the United States, a lot of people have forgotten that money used to be backed by something of value – gold and silver. It wasn’t until 1965 that the US stopped making its dimes and quarters out of 90% silver, and the dollar was backed by gold internationally until 1971.

In spite of fiat money’s ubiquity, more and more people around the world are waking up to the dangers of paper currency and turning to gold and silver to protect their savings. Silver is particularly useful to everyday citizens around the world because of its smaller value-to-weight. A half-ounce of silver can buy you dinner. A half-ounce of gold can buy dinner for you and 60 of your closest friends. That’s why for centuries, gold has been considered the money of kings, while silver is known as the people’s money.

It’s not hard to see the growing importance of a stable medium of exchange worldwide – look to the Cypriot banking crisis or the barter markets evolving spontaneously in economically devastated countries like Argentina or Greece. Here are places where having an stash of silver versus a roll of banknotes can mean the difference between keeping your family well-fed and having to beg for assistance.

Developed nations are also waking up to this reality, translating into record silver sales at the US Mint and other major bullion producers despite the recent correction in global spot prices. This investment demand is providing a baseline of support to silver’s price and helping to re-establish silver as a universally recognized form of money.

Growing Industrial Demand

Silver conducts heat and electricity better than any other metal on Earth. It is also anti-bacterial. These amazing properties make silver indispensable in a vast array of modern industrial and technological applications.

This industrial demand has been shifting dramatically since the turn of the century, as defunct applications for silver like photographic film have been replaced by new technologies like photovoltaic power. The evolution of silver’s industrial applications continues unabated, with new uses being developed every year.

In spite of a recent dip in demand for industrial silver due to global economic volatility, the fundamentals of the industries consuming silver look promising. The Powerful Case for Silver delves deeper into the latest silver technologies like nanosilver and demonstrates why I believe industry will provide growing demand for silver over time.

Undervalued Relative to Gold

For the majority of human history, the prices of silver and gold have been closely tied to each other. There is estimated to be about 19 times as much silver as gold in the earth, and only 11.2 times more silver than gold has ever been mined. Today, the silver:gold price ratio on the markets is about 65:1. That is out of sync with the relative scarcity of the metals and with the long-standing historic bounds from 12:1 to 16:1.

To understand why silver is being undervalued by the market, it is important to trace the histories of the two precious metals. Over the last two centuries, as world markets were forcibly detached from their monetary backing, clumsy attempts at setting fixed exchange ratios at first cleared and then flooded Western markets with silver. Then, with both metals taken out of circulation, precious metals investment was confined to saving – a role more suited to gold.

As the fiat currency system collapses around us, I expect the precious metals to return to circulation, and silver to once again be valued for its advantages in this role. Though I expect both metals to appreciate significantly, silver may rise much faster in order to realign with its historical price ratio to gold.

Take The Time to Understand Your Investment

I’ve just brushed the surface of The Powerful Case for Silver. Inside the report, you’ll find more detail on all of these points, accompanied by helpful charts and graphs illustrating silver’s future prospects.

The Powerful Case for Silver also provides advice on which silver products are investment-grade and how to go about purchasing them safely.

For those who have been on the fence during this bull market, the recent correction is an excellent opportunity to learn about silver and build a position.

Click here to download The Powerful Case for Silver, a free in-depth report on the state of the silver market right now and investment prospects for the precious metal in the future.

Peter Schiff is Chairman of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices.

Once again, a lazy day on Wall Street. Dow down a little. Gold up a little.

And bonds?

It looks to us that the bond market has topped out. Some sovereign yields are up as much as 45% in the last three months. But we’ll have to wait – perhaps years – to see if the bond market has truly rolled over.

Meanwhile, gold looks more and more as though it has put in a bottom. Gold has been rising for six days in a row. At writing, we’re almost back to $1,300 an ounce.

End of the correction in gold? Again, we’ll have to wait to see.

But we may not have to wait long to find out what’s happening in the gold market. If the economic news turns bad, gold’s outlook could turn good – fast.

And what’s this? The good second quarter, just ended, may turn out to be less salutary than thought.

Certainly, the news was good when it was on the TV. But now the revisions are confined to the back pages of the financial press. Like returned junk after Christmas, they’re showing up and causing dismay. From Real Time Economics:

The first look at second-quarter gross domestic product won’t be released until July 31 – the second day of the Federal Reserve‘s next Federal Open Market Committee meeting. But monthly data available make it clear the spring slump was, indeed, very, very slumpy.

Monday brought disappointing news on retail sales and business inventories. Retail purchases increased just 0.4% in June, not the 0.8% expected, and May’s sales were revised down. The control sales group, which goes into GDP and which excludes vehicles, building materials and gasoline, rose 0.15% in June, half the gain forecasted.

In addition, businesses increased their inventories level by just 0.1% in May, and April’s increase was revised from 0.2% to 0.3%.

The list of economic shops now estimating real GDP grew by less than a 1% annual rate last quarter include Goldman Sachs (0.8% as of Monday), Macroeconomic Advisors (0.6%), Royal Bank of Scotland (0.5%) and Barclays (0.5%). (One caveat to the upcoming GDP data is that the Bureau of Economic Analysis will be releasing benchmark revisions and new methodology at the same time the second-quarter GDP data are released.)

Fed Chairman Ben Bernanke is slated to deliver his semiannual policy testimony on Capitol Hill Wednesday and Thursday. Investors will be listening for the chairman’s economic outlook and how it pertains to future policy decisions.

The Fed’s central-tendency forecast depends on much faster GDP growth in the second half. As the J.P. Morgan economists note, it could be difficult for policymakers to discuss tapering their bond buying program at their September meeting – as many Fed-watchers expect – unless the third-quarter numbers look a heck of a lot stronger than the spring quarter does right now.

But wait… There’s still a housing recovery, isn’t there? From MarketWatch:

The housing recovery is bogus. Here’s why: While it’s true that housing appears to be a great investment, it’s only a good investment for a select few – namely, those with access to ample credit and those who aren’t tied down to expensive housing purchases made in the years before the financial crisis.

Consider a report issued Monday by Lender Processing Services. LPS found that, although delinquent mortgages declined 15% this year, they are still running at 6.08% of all outstanding mortgages – about 1.5 times the rate from 1995-2005…

Moreover, LPS found that existing borrowers are still struggling. Though the number has declined by half since last year, more than 7.3 million mortgage holders have loans that exceed the value of their homes – that’s more than 14% of all existing home loans.

No recovery = no tapering = higher gold price. At least, that’s our guess.

But let’s move on…

We were talking about money, continuing our annoying exploration…

Money expresses a relationship between people. A man with money has a claim on the time and possessions of other men. He can buy a house from his neighbor. He can buy an hour of his neighbor’s time. In some societies, he could even buy his neighbor’s wife or daughter (then, as now, it paid to live in a good neighborhood)!

A man without money has no claim; he has only a need. He must give up his time… his house… or his daughter… to the satisfaction of other men.

Okay with us. Just as long as we’ve got the money!

But as we explained yesterday, there are two kinds of money. There is credit money – the kind that depends on other people to honor their obligations. And there is real money – the kind that is valuable in itself.

The first, according to David Graeber’s book Debt: The First 5,000 Years, is the kind of money that existed in primitive societies.

People had little of what today we call “information,” but the information they had was of a different sort. It was real. They knew who owed what to whom.

Sometimes these ledgers, kept by community memory, stretched over many generations. Often, they involved transactions of a subtle or ambiguous nature… far too nuanced to be recorded in a dry, modern “due to, due from” tally.

A man borrowed one neighbor’s bow and another’s arrow. He shot a deer. He owed one cut of meat to the one whose arrow he used and a better cut to the one who had lent him the bow. If he was unable to deliver, the debt may be carried forward, perhaps to the next generation, with interest, to be paid in choice intestinal parts.

When trade, agriculture and war brought people together in greater numbers, the credit-based money system broke down.

Who could keep track of so many details? Besides, soldiers had to be paid in something other than contingent credit commitments. They wanted something they could carry.

Women and loot worked for a while. But as armies grew larger… and became more stationary… the Sabine women and the ready supplies of portables were quickly exhausted. The authorities needed another way to keep their soldiers in the field.

So did merchants need other ways of settling accounts. In a small tribe, extended webs of exchange would work. But not in a city. And not when buyers and sellers neither recognized each other, spoke the same languages, nor worshipped the same gods. They, too, needed a different kind of money.

THE SHIFT TO CIVILIZATION

The shift from tribal society to civilization (life in cities) required a fundamental change.

Justice, for example…

In a small setting, justice was never “blind.” Everyone in the village knew the malefactor and his victim. Judgment was based on custom, but also on a detailed, specific, direct and immediate knowledge of the circumstances. All eyes were on the accused.

In the new civilized community, on the other hand, often the accused, the accuser, the judge and the jury were all strangers. So were they likely to be strangers to the particular codes and customs of the groups of which each other were part.

A new system was needed. And from this emerged, or evolved, the principles of modern jurisprudence – notably that the judgers must be indifferent to the particulars of the accused. Instead, they must put on a blindfold and assume that the man before them is subject to the same law as everybody else.

That was the really big innovation. Suddenly, there were laws that had to be obeyed.

The “law” was supposed to determine the disposition of miscreants. The law, too, was supposed to tell people how to act toward one another – as in “Thou Shalt Not Kill” – and toward their rulers.

But the government (though this took a long time to fully develop and was more often honored in the breach than otherwise) was supposed to be based on laws not of men.

The benefit of this innovation was it allowed people who didn’t know each other to nevertheless live side by side and do business together.

Was this better? We don’t know. But civilized communities were, on the whole, more successful than uncivilized ones. The civilized ones survived… and evolved further. The uncivilized ones were conquered, transformed, exterminated or pushed farther into the bush.

A DIFFERENT KIND OF MONEY

The parallel innovation in the financial world was the introduction of gold and silver coins.

These made it a lot easier to truck with strangers. You no longer had to worry about whether your counterparty was solvent. Or whether he was honorable. Or whether you could remember his cousin’s name. Or whether his daughter was pretty. You could simply take the coin and be done with it.

This was a different kind of money. It was wealth. Spendable wealth. Universal wealth. Storable wealth.

Of course, no one knows what the value of a gold coin actually is. In terms of what you can buy with it, it changes all the time.

Were humans to suddenly decide they no longer wanted or needed this kind of “money,” its value would surely fall. (Although gold and silver have some ornamental and industrial uses, it is as money – at least for gold – that they are most valuable.)

This new money – like the new system of laws – was a success. It spread throughout the civilized world so that a person in Rome could buy a carpet made by a person in Persia with the same coin as a person in Carthage could use to buy a Gallic slave.

But despite this long history, on 15 August 1971, President Nixon, speaking for the United States of America, announced that henceforth this new money would not be used by the world’s largest economy.

Instead, the US would revert to credit-based money. People were to take the new dollars and count on the full faith and credit of the US government to make sure they were valuable.

What are your dollars worth today? What are your US bonds worth? The Fed will give you “guidance.” Speculators will make their bets. And economists, in the employ of the US government, will tell you that they aim to make your 2013-era dollar worth precisely 98% of your 2014-era dollar. No more, no less.

They tell you the unemployment rate is precisely 7.7%. The CPI? Well, we let them speak for themselves:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5% in June on a seasonally adjusted basis, the US Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 1.8% before seasonal adjustment.

And GDP?

Is it the aforementioned “less than 1% annual rate” as reported above? Is it more? Less? Does it matter?

Is there any reason to doubt? Any reason for worries? Any reason to stash a gold coin in your safe, just in case this reprise of credit-based money doesn’t pan out?

It took the Soviets 70 years to realize their experiment with primitive communism wouldn’t work. They tried to run a huge, modern nation as though it were a Paleolithic tribe.

It took Zimbabwe nearly 30 years to discover it couldn’t cover its expenses by printing its own credit-based money (though it didn’t begin running the presses at full speed until nearly the end).

And how long did it take the “Thousand-Year Reich” to discover that ignoring the laws of civilized nations would be fatal? Only 12 years!

Tune in tomorrow!

Regards,

Bill