Gold and What Moves it.

... In short, some of the participants think that inflation should be higher. In fact, they wouldn't mind further monetary expansion to make it so. And if inflation rises while yields remain low, savers basically get creamed. But who cares about savers, right? Certainly not the Fed – but it does care about debtors. The minutes note that low inflation poses a threat by "raising debt burdens." Since higher inflation helps consumers and businesses inflate away their debts, the Fed essentially wants to help debtors at the expense of savors, which seems the opposite of common sense: one should be rewarded for saving and thrift, rather than spending and debt.

 

In summary, these weren't the most earth-shattering FOMC minutes in the world. We basically received more affirmation of what was already known – the Fed will play it by ear and at this point, it's willing to either push for more stimulus or withdraw it. The ultimate outcome depends on an uncertain future.

Jim Grant tells Eric King:

 

Eric King:  “Throughout history we’ve seen gold flow where the real economies are doing well, and that’s certainly not the West right now.  So there is this worry that the gold is flowing from West to East.  When we talk about gold being in a bear market, and the mainstream media will parade people out with anti-gold propaganda, but in the face of that we’ve seen extraordinary demand, Jim, from China, Vietnam, Thailand, from India, almost record setting levels.  It certainly doesn’t look like a bear market when you look at the amount of purchases coming out of the US Mint, the Perth Mint, and the booming sales throughout Europe and Asia.”

 

Grant:  “The price of gold has been going up for what, a dozen years now with pullbacks?  Which is to say the value of the currencies against which gold is measured has been depreciating for that long.  And I know that the Wall Street Journal, defining as it does a bear market in a certain way, now proclaims that gold is in a bear market.  It seems to me that that remains to be seen.  

To me, the financial belief in ...

About the claim that central banks will never let asset bubbles pop ever again--their track record of permanently inflating asset bubbles leaves much to be desired.

The problem with trying to solve all our structural problems by injecting "free money" liquidity into financial Elites is that all the money sloshing around seeks a high-yield home, and in doing so it inflates bubbles that inevitably pop with devastating consequences.
As noted yesterday, the Grand Narrative of the U.S. economy is a global empire that has substituted financialization for sustainable economic expansion. In shorthand, those people with access to near-zero-cost central bank-issued credit can take advantage of the many asset bubbles financialization inflates. Those people who do not have capital or access to credit become poorer. That is the harsh reality of neofeudal, neocolonial financialization. Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012). Injecting liquidity by creating credit and central bank cash out of thin air is not a helicopter drop of money into the economy--it is a flood of money delivered to the banks and financial elites. The elites at the top of the neofeudal financialization machine already have immense wealth, and so ...

James Turk told King World News:

 

... Different markets reflect the tightness in physical metal in different ways.  For example, India and Shanghai reflect the tightness with huge premiums.  Futures contracts reflect the tightness by moving into backwardation, but the true extent of the current backwardation between May and June is being distorted by manipulating interest rates.  

 

But in London, the tightness cannot be distorted or hidden.  We can see the tightness by the shorts delaying delivery, which is happening right now.  So it is clear that the buyer or buyers who pushed the gold price up during the London PM fix yesterday were obviously desperate to get their hands on physical metal and were prepared to pay whatever price it took to obtain it.

 

The huge premiums over spot in Asia and the long delivery times in London clearly show that this takedown in gold over the past few weeks was all about what was taking place in the paper market.  The same is true for silver, which looks like it had a selling climax on Monday, given the huge upside reversal in its price that day along with gold.  Gold's reversal wasn't as spectacular as silver, but nevertheless it was a solid performance. ...

(Hint: It isn't fundamentals)

The run-up in the stock market (the SPX for purposes of this article) has been nothing short of stunning. Since hitting a sell-off bottom on October 4, 2011, the SPX has run-up a nearly non-stop 47.8%. In just the last month, the SPX has run up 7.5%. This is in the face of deteriorating economic indicators and declining corporate revenues. The stock market has for sure taken most observers and professionals by surprise, except for maybe the most passionate "perma-bulls."

Given this incredible move higher in stocks, I wanted to investigate a couple of possibilities for what is fueling this near-parabolic stock rally. Based on what I've been able to come up with, it's pretty clear that stocks are rocketing higher on Fed fuel and not fundamentals. But don't take it from me, it seems that some high profile billionaire investors are unloading their big positions, especially anything related to consumption:  Billionaires Are Dumping Stocks.  Let's take a look "under the hood" of the economic and financial system and see if we can figure out why.

While Bernanke was giving his report on the economy and monetary policy to the Joint Economic Committee of Congress today, in which he pretty much laid to rest any fears that the Fed would "taper" its monetary policy and bond purchase program anytime soon, I decided to look into some of the Fed's monetary data as reported on the  St. Louis Fed website.  Specifically I wanted to look at the Adjusted Monetary Base, which is the sum of the currency in circulation plus the commercial bank reserves held at the Fed, because this monetary account is the one directly affected by the QE program. ...

Unprecedented price and currency volatility will continue to test mining and metals companies for the next few years as the sector approaches supply/demand equilibrium in many commodities, says a new Ernest & Young white paper.

Mike Elliot, Ernst & Young’s global mining and metals leader, advised that mining and metals companies will be preoccupied with reading to the downside risk and price and currency volatility in 2013 and 2014.

Price volatility is underscored by the December 2012 reported results of the large diversified mining companies, in which mineral price movements account for 79% if the US$25.6 billion plunge in the period-on-period earnings. ...

James Grant, of Grant’s Interest Rate Observer fame, stopped in to visit with CNBC’s Maria Bartiromo on a day when the equity and bond markets were a volatile roller coaster as the markets parsed and dissected every word and nuance uttered by the top Fed central planners. 

“You know what else is scary, is that we seem to be so Fed-centric.  Since when is a central bank the principle fundamental in financial markets or an economy?  Does everything really ride on the syntax or the judgment, or let’s be frank, the guesswork of these well-intended scholarly people?” Grant asked rhetorically.   

A bit later Grant strikes a familiar chord: “The Fed has a definite impact. It might not be the one they intend,” he said.  Watch the video to see the rest of that important thought. 

Is the coming financial collapse going to be inflationary or deflationary?  Are we headed for rampant inflation or crippling deflation?  This is a subject that is hotly debated by economists all over the country.  Some insist that the wild money printing that the Federal Reserve is doing combined with out of control government spending will eventually result in hyperinflation.  Others point to all of the deflationary factors in our economy and argue that we will experience tremendous deflation when the bubble economy that we are currently living in bursts.  So what is the truth?  Well, for the reasons listed below, I believe that we will see both.  The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis.  This will happen so quickly that many will get "financial whiplash" as they try to figure out what to do with their money.  We are moving toward a time of extreme financial instability, and different strategies will be called for at different times.

 

So why will we see deflation first?  The following are some of the major deflationary forces that are affecting our economy right now... 

In the aftermath of continued propaganda from the Federal Reserve, today King World News spoke with one of the top economists in the world about what the Fed is really planning.  Michael Pento spoke candidly about the frightening situation the US faces and how the Fed is trapped, despite mainstream media and Fed misinformation. 

... “The stupidity of the Federal Reserve is so blatant here.  In 2007 the Federal Reserve took interest rates to 5 1/4%, and the economy cratered because we had $48 trillion in debt, and a Debt/GDP ratio of 353%.  Interest rates rose and the economy cratered. 

We were entering a Great Depression.  Bernanke lowered interest rates to 0%, and debt increased all the way up to $54 trillion.  So why would anybody believe, Mr. Tepper or anybody else, that if the Federal Reserve stopped buying all of our issued debt, if they started to raise interest rates and unwound their balance sheet, and rates went anywhere near 5%, why wouldn’t the same thing happen again?  ...

After gold trade was liberalised and nominated agencies were allowed to import gold, smuggling of the commodity had declined for about 14 years.

 

NEW DELHI(BullionStreet): After more than 100 tons of smuggled gold reached India last year, that figure is likely to increase by at least 40 percent this year, according to Thomson Reuters GFMS.

 

The agency, which compiles data for the World Gold Council said it is estimated that the figure could rise to 140 tonnes, an increase of 40 per cent.

The high import duty on gold, local taxes and restrictions on imports are leading to a rise in smuggling of the commodity into the country, world's largest gold consumer.

 

India had raised the import duty on gold to four per cent, in two phases. Also, the method of calculating this was changed to ad-valorem. ...

Most of the ancient temples that exist today have gone through lot of changes and improvisations at different points of time. The Golden Temple in Amritsar in Punjab was built by the fifth Sikh Guru, Guru Arjan in the sixteenth century.

 

By Sreekumar Raghavan
Indian households are estimated to hold about 18000 tons of gold mostly in ornaments and coin form but perhaps �the fact that �the temples in the country hold billions of dollars worth gold received mostly as offerings or due to the benevolence of ancient rulers began to be taken seriously only after the huge treasure lying in Padmanabha Swamy temple �in Thiruvananthapuram was brought to light two years ago. ...

***The U.S. markets were greeted with the news that the NIKKEIhad dropped 7% overnight and the European stock markets were also down between 2 and 3 percent. Some analysts blamed the Bernanke testimony while others noted that the markets dropped precipitously after the release of the Chinese PMI. Expectations were for a PMI of 50.5% while the actual number dropped under the MENDOZA LINE of 50% (inside baseball joke). This was an unusually large  miss for the Chinese statistics authority, an agency that I have maintained can massage data and economic growth almost as well as Jack Welch when he was CEO of GE.

 

The slowing in the Chinese economy so copper immediately fall and everything else correlated to the Chinese economy also come under pressure. Yesterday, I linked to an article by Professor David Li in the FT’s opinion page. The Chinese are purportedly very unhappy with ABENOMICS, therefore we may continue to see weak economic releases as a reason for China to press for the removal of pressure from the G-7 and G-20. China will make itself the aggrieved party. While economic theorists posing as central bankers easily separate domestic economic impact from global outcomes, the” laboratory” of the real global economy is not a vacuum. ...

Gold is hardly immune to manipulation, either. When the U.S. was on the gold standard, the government set the price of gold. It also manipulated the price of gold by selling gold from its own holdings, or by buying gold on the open market.

 

By John Waggoner

Barbecue season begins this weekend, and, as all right-thinking people know, North Carolina barbecue is the best on the planet. Which brings us to gold.

North Carolina barbecue and gold are examples of happy outcomes based on faulty assumptions. Carolina barbecue is pure vinegar and pepper goodness. It has no tomato because early settlers thought that tomatoes were poisonous.

Gold's rally stemmed from the belief that an enormous wave of inflation would soon overcome the nation, thanks to burgeoning federal debt and the Federal Reserve's efforts to revive the economy. Fortunately, we're not burying people from tomato poisoning, and we're not paying for barbecue with wheelbarrows full of worthless greenbacks, either.

All of which begs the question: Why own gold at all? And unless you're a fairly short-term trader, there's not a good answer to that.

Let's start with the notion that gold is the only true currency ...

Physical gold is going to replace the paper gold of the futures market to set the price of the yellow metal.

 

LONDON(BullionStreet): Paper Gold must cease to function, said Veteran gold trader Jim Sinclair.

 

He predicts that physical gold is going to replace the paper gold of the futures market to set the price of the yellow metal.

 

If it is not today, the reality that paper gold is not gold is going to strike you soon. It is time you did something about it as in physical gold you have almost all above ground supply now.

 

The answer to where has all the gold gone is well known by you, the new super wealthy. You have been accumulating gold for a decade knowing full well what the future of money and the future of gold is. When you have had enough you can shake these fraudulent gold manipulators off your back in one great shake… Take delivery and end the slavery of real gold to false paper by bringing it to a screeching halt.’

 

Manipulation without even a concern to conceal is no longer acceptable. Gold bullion must be emancipated from no gold paper gold. The key to the emancipation of physical gold from paper gold is the warehouse supply held primarily by the Comex. ...

The resources is said to hold about 53 tonnes of gold and 31 tonnes of copper.

In 2006, Wiedemer and a team of economists accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States. They published their research in the book America’s Bubble Economy.

 

Thin premiums remain the order of the day for the gold and silver holding trusts and funds.

Citi analyst Tom Fitzpatrick sees gold appreciating $2,000+ from here.  I think quite a bit of that sort of move could happen more quickly than most might imagine.

I think quite a bit of this recent gold action is taking place on the public stage, but is being driven by private talks amongst the monetary powers that be.

There should be little doubt that a replacement for the US dollar reserve currency is being seriously considered.  Especially after the manner in which a few doubtful words cast by Bernanke about QE was able to send world markets into a swoon overnight.

There are those who would discredit gold and silver as being too volatile for inclusion in a basket of currencies that would become the international trading unit of exchange. ...

Looking at the current economic, financial and monetary situation...you just have to wonder how much time we have left before the whole thing collapses in a heap.  Maybe the Fed and JPMorgan et al are awaiting that day when everything melts down before they finally allow the precious metals market to melt up.  We'll find out, as they say, in the fullness of time. - Ed Steer

Bernanke has of course been the most productive man in history. In his 7 years as Chairman of the Fed he has printed more money than during the whole history of the USA.

 

By Egon von Greyerz
As precious metals investors worldwide are concerned about the correction in gold and silver let me tell you that you must not be. 

The incredible concoction of debt, derivatives (that will never be repaid with normal money) and accelerating fiscal deficits in most countries will guarantee money printing in unlimited quantities. 

And Bernanke and fellow central bank heads will not disappoint. The only important criterion in the job description of a central bank chief is that he/she is willing and able to print whatever is necessary and in the next few years that will most likely involve printing 100s of trillions of Dollars, Euros and Yen. ...

Analysts said even if the Turkish government heeds this calling, Turkish businessmen will still find a way to continue trading with Iran.

 

ANKARA(BullionStreet): Turkish gold businessmen are considering various options to circumvent US sanctions on their gold trade with Iran.

 

Turkish Union for Jewellery and Precious Metals exporters said Turkey is a country that buys a bar of gold and deals with its processing on its own, thus making the price more attractive. That is why Iran chooses us. At the same time, there are three gold processing plants in Turkey, all members of the London Bullion Market Association(LBMA).

 

There are only five such countries in the world, and Turkey is one of them. It offers gold at a price $50-100 lower than the average price on international market, that is why Iran chooses Turkey.” ...

Falling prices helped to drive up consumer demand for gold and silver jewelry. This demand climbed higher across the globe including in the U.S. (+22%), India (+27%) and China (+20%).

 

By Jason Hamlin
Global gold demand for the first quarter of 2013 declined both in terms of tonnage (-13%) and dollars (-16%).

The volume decline was driven primarily by 177 tonnes of outflows from ETFs, versus inflows of 53 tonnes last year. If we remove this component from the mix, total global demand actually increased by 8% during the first quarter.

It is somewhat odd to see that investment demand in the form of bars and coins climbed by a healthy 10.3%, while ETF investment demand turned negative and total holdings dropped by over 7%. Some of this divergence can be explained by investors exiting paper positions in precious metals in favor of taking possession of the physical metal. This decision stems from a growing distrust of the banks and financial institutions that act as custodians for the popular gold and silver ETFs. Many precious metals investors do not believe that the funds actually hold all of the physical to back up the paper claims. ...

Gold extraction grew by 6.34 per cent to 29.33 tons, while gold output from scrap and waste processing rose 5.87 per cent to 2.036 tons.

 

MOSCOW(BullionStreet): World's fourth largest gold producer, Russia refined 35.235 metric tons of gold in January-March 2013, up 4.37 per cent from a year earlier.

 

According to Russian Gold Industrialists Union the output also included gold extracted by gold miners and gold from the associated output of non-ferrous metals. ...