Archive - Aug 19, 2013

Gold traded near a two-month high after holdings in the largest ETP posted the first weekly expansion this year and markets digested the very robust global physical demand data reported last week . Demand from China and India is projected to to soar to 1,000 tonnes each in 2013 and mixed U.S. data has boosted gold’s safe haven appeal.  Gold forward offered rates (GOFO),  remain negative and are becoming more negative. This shows that physical demand is leading to supply issues in the highly leveraged LBMA gold market. GOFO  rates are those which  contributors may use to lend  gold on a swap for  dollars, according to the  London Bullion Market  Association and the negative gold interest rates show a preference to own gold over dollars by bullion banks.  Negative 1, 2 and 3 month GOFO rates mean that bullion banks lent their customers, including other bullion banks,  gold to obtain a positive return, thereby increasing the "paper" gold supply. Some may now may be struggling to get their gold  back which may explain the significant decline in COMEX gold holdings of certain bullion banks (see commentary).  This is creating significant supply demand issues in the physical gold market which should lead to higher gold prices.

• Egypt, U.S. on Collision Course (WSJ), Gunmen kill 24 Egyptian police in Sinai ambush (Reuters)
• India’s efforts fail to prevent new rupee low (FT)
• More bad news for AAPL: Steve Jobs Biopic Crashes on Opening Weekend (WSJ)
• "Sustainable" - U.S. Stocks Beat BRICs by Most Ever Amid Market Flight (BBG)
• Merkel cancels election rally after hostage taking (Reuters)
• Some day, Abenomics might work... Not today though: Japan Exports Rise Most Since ’10 as Deficit Swells (BBG)
• China July Home Prices Rise as Nation Seeks Long-Term Policy (BBG)
• Spanish Bank’s Bad Loan Ratio Rises to Record in June (Reuters)
• Recovery... for some - Ferrari NART Spyder Sets $27.5 Million Auction Record (BBG)
• Bund yields hit 17-month high, rupee slumps (Reuters)
• Regulatory Headaches Worsen for J.P. Morgan (WSJ)

It's all about rates this largely newsless morning, which have continued their march wider all night, and moments ago rose to 2.873% - a fresh 2 year wide and meaning that neither Gross, nor the bond market, is nowhere near tweeted out. As DB confirms, US treasuries are front and center of mind at the moment.... the 10yr UST yield is up another 4bp at a fresh two year high of 2.87% in Tokyo trading, adding to last week’s 20bp selloff. As it currently stands, 10yr yields are up by more than 120bp from the YTD lows in early May and more than 80bp higher since Bernanke’s now infamous JEC testimony. We should also note that the recent US rates selloff has been accompanied by a rapid steepening in the rate curve. Indeed, the 2s/10s curve is at a 2 year high of 250bp and the 2s/30s and 2s/5s are also at close to their highest level in two years.

How do we protect the mining operation so that it can operate in both good times and bad while at the same time generating profits that grow with the gold price?