Claiming to own X quantity of gold is one thing, and reporting how many times the gold has been pledged as collateral is another.
When correspondent Scott A. Batten offered to write an explanation of the rehypothecation of gold and why it matters, I quickly accepted. Like many others, I have breezed over the word rehypothecation with the basic understanding that it means assets pledged by counterparties (such as the infamous copper stored in Chinese warehouses) are reused as collateral/repledged--in effect, the same assets are pledged as collateral multiple times.
But beyond this, I have not had a clear understanding of how the rehypothecation of gold reserves threatens the whole shaky edifice of Infinite Greed, oops, I mean neoliberal capital markets.
If enough people truly believe that things will get better, will that actually cause them to get better? There is certainly something to be said for being positive and thinking that anything is possible. And as Americans, optimism seems to come naturally for us. However, no amount of positive thinking is ever going to turn the sun into a block of wood or turn the moon into a block of cheese. Any good counselor will tell you that one of the first steps toward recovery is to stop being delusional and to come to grips with how bad things really are. When we deny reality and engage in irrational wishful thinking, we are engaging in something called “hopium”. This is a difficult term to define, but the favorite definition of hopium that I have come across so far goes like this: “The irrational belief that, despite all evidence to the contrary, things will turn out for the best.” In hundreds of articles, I have documented how the U.S. economy is mired in a long-term decline which is about to get a lot worse. But most Americans see things very differently. In fact, according to a brand new CNN/ORC poll, 52 percent of Americans describe the U.S. economy as “very” or “somewhat good”, and more than two-thirds of all Americans believe that the U.S. economy will be in “good shape” a year from right now. But if you asked most of those people why they are so optimistic, they would probably mumble something about “Obama” or about how “we’re Americans and we always bounce back” or some other such gibberish. Well, it’s wonderful that so many people are feeling good and looking forward to the future, but are those beliefs rational?
Back in 2011, Zero Hedge first asked the key question that matters to the gold market: what are China's true holdings of physical gold.
As is well known, the last time China did provide an update of its official gold inventory was in early 2009 when it disclosed to the IMF some 1,054.1 tons of gold held at the PBOC headquarters (or elsewhere). The problem is that this number is now very outdated, and substantially undercuts China's true gold holdings.
To be sure, there has been extensive speculation on the topic, suggesting China's current gold may be anywhere between 3,000 and 8,000 tons (or more) but the reality is that until Beijing itself decides to officially reveal the number, speculation will remain just that. And, as we and many others, Bloomberg included, have noted such a revelation will not come in a vacuum, but will be largely a political statement about the preparedness of the Renminbi to replace the US Dollar as the world's reserve currency.
Back in 2011, a leaked cable (courtesy of Wikileaks) admitted as much:
The combination of U.S. economic growth concerns along with the rising risk that Greece will default on its debt obligations in the coming months, should see gold rally to highs near $1,300 an ounce sometime in Q2-2015 -- monetary policy trends, safe-haven buying should prompt specs to cover short exposure and build new longs, with technical positioning providing the path to the higher target.
The BRICS New Development Bank and the Asian Infrastructure Investment Bank (AIIB), both seen as alternatives to US – led institutions, will not compete, but rather complement each other, said the head of the Central Bank of Russia Elvira Nabiullina.
Nabiullina made the statement Thursday in Washington where she is attending the spring meetings of the International Monetary Fund and World Bank.
"I don't think there's less energy (around the BRICS bank). We didn't feel that. To the contrary, all the representatives of all the countries ... were very motivated to reach speedy practical results," she said.
You’re likely thinking that a discussion of “sound banking” will be a bit boring. Well, banking should be boring. And we’re sure officials at central banks all over the world today—many of whom have trouble sleeping—wish it were.
This brief article will explain why the world’s banking system is unsound, and what differentiates a sound from an unsound bank. I suspect not one person in 1,000 actually understands the difference. As a result, the world’s economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.
Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely. Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money.
Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business—nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers. ....
As people continue to digest breaking news out of Greece and around the world, the Godfather of newsletter writers, 90-year-old Richard Russell, warned that China and the super wealthy are preparing for something big but silver will surprise everyone.
Richard Russell: "Negative news is coming out about the US economy. The result will be the Fed will put off raising rates to as far as the eye can see. If the economy continues to deteriorate, we might even see QE4 as the Fed struggles to offset a declining US economy. My advice continues to be: buy and accumulate physical silver and gold.
As part of our expert advice series, we sat down with renowned Swiss investor Marc Faber and asked him what frustrating mistakes he sees investors make these days. The answer? They take stock tips from the tipsy far too seriously.
Marc Faber explained how casual conversation in social settings can contribute to investment suicide. Faber understands not only investments, but investors. The psychology of the individual investor is why most will be so vulnerable when the collapse actually comes:
“Most individual investors have the tendency to commit financial suicide. In other words, if they see the NASDAQ going up they may resist buying expensive stocks for a long time but in the end, they go to cocktail parties and all their neighbors say, “Today I made so much money buying this stock.” Of course at cocktail parties you have a group of people, they own different shares, all of them go down but one goes up. They’ll talk about the one that goes up. They never talk about the ones that go down. In the end, they also buy those NASDAQ stocks and the whole thing collapses.
Most of the increase in bullion exports in the fourth quarter were, in descending order, to Switzerland (29,400 kg increase), Hong Kong (23,800 kg), and India (10,200 kg), which were partially offset by a 6,100 kg decrease in exports to the United Kingdom.
For Norway’s $890 billion sovereign-wealth fund, the investment risks stemming from monetary policy have never been greater. Like most global investors, the Oslo-based fund is trying to navigate uncharted terrain as central banks across the world push out stimulus to protect economic growth and spur inflation. “Monetary policy does affect pricing in today’s market to such an extent that monetary policy itself has been a risk you have to watch,” Yngve Slyngstad, chief executive officer of the fund, said in an interview on Wednesday at Bloomberg’s New York headquarters. “Investors are focused more on monetary policy changes than has been generally the case, than at any time, as far as I can remember.” The world’s biggest wealth fund, which says it faces diminished returns amid record-low bond yields, last month revealed it was seeking to profit from quantitative easing by, among other things, buying Spanish bonds. The European Central Bank embarked on its historic asset-purchase program in March, buying euro-area sovereign debt to bring down long-term rates.
China To Reveal The Size Of Its Gold Hoard This Year
Turning to China, its GDP will soon eclipse the US’s GDP. Personally, I don’t think China wants to surpass the US and be the new leader of the world. I think China wants to be on par with the US. We don’t know how much gold China has, but we do know that China is continually accumulating gold. It’s been a few years since China has told the world the size of its gold hoard. Before this year is out, I believe China will reveal its gold position.
(CNSNews.com) - According to the Daily Treasury Statement for Wednesday, April 22, which was published by the U.S. Treasury on Thursday, April 23, that portion of the federal debt that is subject to a legal limit set by Congress closed the day at $18,112,975,000,000—for the 40th day in a row.
$18,112,975,000,000 is about $25 million below the current legal debt limit of $18,113,000,080,959.35.
Tuesday April 21, 2015, 10:47am PDT iNVEZZ.com reported that Bank of America Merrill Lynch Global Research believes the silver price has made it “through the worst.” However, the entity doesn’t expect it to break out of its current price range in the near future.
A catalyst for silver demand in the future will be China’s energy sector, which may lend some price support.
As quoted in the market news:
Silver is key to building photovoltaic generators, which produce usable solar energy, and China plans a major expansion of its use of solar power into the future, the advisory argued ...
Trader/analyst Rick Ackerman says forget about the demise of the U.S. dollar anytime soon, Ackerman contends, “I have been totally bullish on the dollar for years, and it looks like clear sailing to me. The dollar is certainly responding to what I would call economic fundamentals, even though bonds have been on this odd holding pattern for a while based on a wishy-washy Fed. I see nothing but a strong dollar because if you look at the global derivative market, it implies a dollar long and a dollar short position. . . . The side that has to pay back in dollars is effectively short it. So, we have this monstrous derivatives market, and some experts put it at a quadrillion and a half dollars, and it represents a huge short position on the dollar, and the squeeze is starting to happen now.”
April 21 (Hard Assets) — Despite recent relaxations on gold import norms by the Central government, gold smuggling continues unabated at Indian airports.
The data released by the Directorate of Revenue Intelligence (DRI) under the India Customs Department shows that gold smuggling acts at Sardar Vallabhbhai Patel International Airport in Ahmedabad have touched record level during the initial four-month period in 2015.
According to DRI statistics, 18 cases of gold smuggling were reported during the four-month period from January to ...
Click through for the rest. Pretty interesting to me that smuggling continues to be a priority for a lot of people when it comes to gold.
The People's Bank of China may have tripled its gold stockpile since April 2009, when it last gave an official number, which Bloomberg Intelligence estimates to be 3,510 metric tons, second to United States 8,133.5 tons of gold.
The figure, almost triple the 1,054 tons of gold reported in 2009, was calculated based on trade data, domestic output, and China Gold Association figures by Bloomberg Intelligence.
China, which only reports its gold stockpiles every few years, made a similar move between 2008 and 2009, when it just about doubled the bullion stock. Including gold, China is estimated to have $3.8 trillion in currency reserves, which are also kept secret.
Get ready for another major worldwide credit crunch. Today, the entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever. If you can believe it, the total amount of global debt has risen by $35 trillion since the last crisis. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again. For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“. And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone. On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States. All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.
"There is a mysterious cycle in human events. To some generations much is given. Of other generations much is expected. This generation of Americans has a rendezvous with destiny."
Franklin D. Roosevelt, 1936
In the tripolar world of Europe, US, and East Asia, Russia may play a pivotal role in a fourth sphere of influence.
Europe and the US are pressing heavily on its western borders, trying to limit Russia to Western Asia.
Thus I have said that if the push for one world corporatist government under the dollar banner falters, Russia may play a pivotal role in the composition of influences and the struggle for power that will follow. ...
ABN AMRO expects Chinese demand for gold and precious metals to rise further in the coming years, although the anti-corruption campaign may temporarily distort long-term trends. Chinese Gold, Silver demand to rise further in coming years: ABN AMRO
India's gold imports surged by 93.86% to $4.98 billion in March as compared to $2.57 billion in the same month last year mainly due to declining prices and easing of restrictions by the RBI. Nation's silver imports also advanced about 4.5 times, from $121.4 million to $561.4 million.
By Greg Hunter’s USAWatchdog.com (Early Sunday Release)
Best-selling author Harry Dent says the stock bubble we have today is the biggest in history. Dent contends, “Now we’re in a third bubble, and each of these bubbles peaks at higher highs, and then they each crash to lower lows. We’ve been looking for the Dow to peak right around here between 17,000 and 19,000. So, we are right in the middle. We are looking for an even bigger correction likely in late 2016 to 2017. This whole thing has been in an artificial bubble. . . . We’d be in a depression right now if it were not for $11 trillion or $12 trillion free money printed out of nowhere. So, this is an artificial environment, and this has never happened before. The charts look to me that we are at a top, or after a 20% correction, a top later this year.”
Dent goes on to say, “I think the crash is finally going to start this year, but it will be at its worst in late 2016 early 2017. . . . I expect new lows on the Dow, and I think it will go to 5,500 or 6,000 in this next crash.”
So, why exactly does it matter how much gold China has accumulated and what are the ramifications depending what the number is? First, if the number comes in “large” (it will), it means China “likes gold” and believes it to be a worthy monetary reserve asset. A large number would give gold China’s “stamp of approval” so to speak. Next, we have the “mathematics” to the equation. If the number comes in anywhere near 10,000 tons, the natural question then becomes “where oh where did it all come from”? This is a VERY important question because as I’ve said many times before, gold can only come from current supply and also from above ground supplies in vaults. We know the total annual global supply (ex China and Russia) is about 2,200 tons of which China has chewed up a very large percentage over the last six years. Total global production has been 11,000 tons over the last six years, we know India and Russia have been importers, not to mention all the other geographical demand and jewelry. A number even close to 10,000 tons will raise the question of “how?”, how could China have accumulated this much gold if the world is not producing enough to make the math work? In other words, if China bought virtually all of the global supply, what was used to satisfy the rest of the world’s demand?
Another day of “incoming data” and still more evidence that this isn’t your father’s business cycle. This time it comes from the Eccles Building itself, but don’t expect the Keynesian money printers domiciled there to recognize that the industrial production report they issued today constitutes yet another rebuke to their entire macro model.
The March index slipped badly (0.6%) and thereby predictably elicited a “do not be troubled” assurance from the talking heads. It was just aberrant weather again. Well, that’s actually right. March was so much warmer than February that the utility component of the index plunged by 5.9%.
Indeed, as another branch of the Fed revealed a few days ago, March was actually warmer than normal for the month. Presumably this means the punk economic data for March can’t be explained by winterish weather—-since it is the very opposite condition which explains last month’s steep drop in utility production.
So the better part of wisdom would be to keep the weather and its unpredictable impact on monthly power plant demand out of it. And, as it happens, the trends in the other two components of the index—–mining and manufacturing—-do offer some very pertinent clues about the dismal state of the US economy.
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