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Morning Gold Fix: July 7, 2010
Commentary courtesy of www.fmxconnect.com
On Tuesday, gold dropped to its lowest level in 6 weeks as investors explore riskier assets. China’s statement that it has no plans to start allocating more gold to its reserves (percentage wise), isn’t giving bulls much to work with this morning. Gold opened at $1212.2 per 100 troy ounces, and dropped to 1195.1 by closing time.
Gold- What is Going On?
Yesterdays’ activity was just ugly if you are a bull, but not unexpected. All seems to be well in the land of sovereign debt and trust. The dollar was weaker and so was Gold. This is an unwind of the European default trade. We would expect this “normalization” of things to continue as the world’s attention is grabbed by other more important headlines like LiLo’s jail sentence and other legit issues like the GOM disaster.
It has been said a million times that the can is being kicked down the road, and that the underlying issue has not changed. That the sovereign risk of default is still there. Yet things have gotten pretty bearish in Gold since the G-20, and this is interesting considering that the word “Gold” was mentioned a grand total of 1x in their public notes.
I personally hate to admit that the bullion conspiracy theorists have anything of value to add, but am coming around in my own way. How else can you explain the IMF telling Sprott he is “ineligible” to take delivery of the gold they are selling, while they execute monster swap trades with central banks. C’mon… I give you money, you give me gold. WTF, it is a cash and carry trade. Write check, get gold. These guys are holding it back to rescue some schmuck banks that dug a hole for themselves. I’m sure there are legit reasons why Sprott cannot get access to the IMF’s Gold Discount Window (GDW) but am starting to think that TBTF includes banks short gold against swap positions as well.
Thebulliondesk.com said, (emphasis ours):
“In its 2010 annual report, the BIS said that "gold, which the bank held in connection with gold swap operations, under which the bank exchanges currencies for physical gold," stands at 8,160.1 million in special drawing rights, equivalent to 346 tonnes this year, up from nil in 2009.
While the data is relevant to the end of BIS’ 2010 financial year in March, data posted to the International Monetary Fund and carried by Bloomberg show the swap still growing in April, analyst Andy Smith of Bache Commodities noted.
To now, this implies a swap of about 380 tonnes from the end of 2009, he said in a report.”
This is very similar to the Gold Carry trade the NY Fed did for years in the 90s. Lend Gold to Investment Banks at low lease rates. Banks sell it in the market and take proceeds to buy higher yielding currencies. Hence the (GDW)
1. Borrow gold at .5% annually
2. Short gold in market
3. Take dollars and buy Aussie bonds @ 9%
4. Profit
Market goes up? Use the loaned Gold as collateral and re-up the loan. It’s a great trade.
All this said, to the tin foil hat crowd I’ll say this. What makes you think that the Gold market will be liberated from these shenanigans ever, considering much bigger markets with more transparency and relevancy are having their books cooked constantly? To wit, equities and currencies. Smarter people than us, with more influence in global markets are hitting their heads against walls trying to unmask the stupidity of our financial system with no luck. Who the hell is going to take up the banner of the Gold bugs that has any weight or time to do it? Just corner the market. It would only take 1 trillion dollars, far less than trades in a single day in currencies.
H/T @LMGross
I’ll try to get to the Comex/OTC Arb tomorrow
August gold was down 8.5 to $1186.6 per 100 troy ounces as of 7:11 AM EST, this morning. The September U.S. dollar index was up .204 to 84.510. October platinum was down 9.9 to $1508.8 per 50 troy ounces. Silver was down 19.7 cents to 17.660.
-Elizabeth Thawne
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Richard Russell redeux
A light goes on in brain_-- Driving back from a restaurant last night we were listening to National Public Radio from China. They were interviewing many Chinese who had
lost their jobs in the big cities and were heading back to be
with their families in the country. We noted what terribly hard
lives these Chinese lead. The problem the Chinese leaders have
-- is to keep the populace employed or at least semi-content
and not in a revolutionary mood.
I have been wondering why the Chinese government has been almost pleading with the Chinese people to buy and hold gold and silver. And it suddenly occurred
to me that the Chinese government sincerely believes that gold
and silver are heading substantially higher. The Chinese leaders
want the Chinese people to benefit from any higher prices of
the precious metals.
The idea is that if the people are happy and richer by holding gold and silver, the leaders
will be that much safer. The one thing the leaders of the Communist
party want is a peaceful, contented (and richer) population.
So far, the leaders of China have been very smart, and it occurs to me to tell my subscribers Do likewise.
http://www.321gold.com/editorials/russell/russell091109.html
the scheme requires that currencies cooperate and the general market goes up - looks iffy to me; at some point shorts need to be covered. what happens when there is a sovereign blow-up/default.
The scheme is gutshot. They can only push gold down a little. Push it down too far and physical buying will expose the lie, because large delivery can't be made. Otherwise they would just smash gold down 2-300 a day, and yes they could do it in the paper market. They own the paper.
you dont have to dig it up and then guard the paper...just a few key strokes in the computer...very low cost one would suggest
I think gold is going to continue to fall until QE 2.0. Which is looking likely to happen before November. I'm starting to increase my rate of buying physical this week.
Great article. Of course the gold market is being manipulated, along with currency, commodity, stocks, bonds, real estate etc etc. I view physical gold as an insurance policy and liquidity if the SHTF. Gold could, and may drop to $950/oz and still be in a bull market. Until the fundamentals causing the sovereign debt crises reverse, Gold will be a good long term buy.
the issue is not if is being manipulated...the thing is that now people are getting the courage to say the emperor has no clothes....the last ship is leaving...probably already left although one could make it if jumps and swims...
That's hilarious, two weeks ago everybody said I was retarded for saying it could go to triple digits, and now, it's the concensus opinion.
Where are the 50000 an ounce by next Thursday people?
That does not disprove your retardation.
gold is the only thing to invest in long term. and by long term, i mean longer than a day .....
once you have it in your hands, the HFT boyz can't touch you....
jpm can't touch you
goldman can't touch you
and sad for them, its a little bit of wealth they won't be able to confiscate in their current vacuuming of assets planetwide.
They can touch the price of gold effectively, making you liquidate eventually.
They have longer time frames than you do.
"They have longer time frames than you do."
No they don't. That's the point.
Some people trade gold and/or paper, but many Au folks here accumulate physical gold. Huge difference. I don't trade. I accumulate gold exactly because I know that I have a longer time frame than TPTB.
There is nothing irrational about it. Sovereign wealth has always been measured in ounces & tonnes, not fiat units. In our lifetime(s), sovereign wealth and the ability to protect - whether individually or collectively - has never been more important. To deny the ascendency of sound/hard money here & now is to defend a hopeless, collasping paradigm that has run it's course and overstayed it's welcome... good luck with that.
If gold goes to $500 I break even -- assuming I wanted to trade it for the fiat du jour.
You've made no point. What drives you?
The whole trade implies there is someone out there with gold left to lease onto the market. The USA went from 20,000 tons to just 4,000 that it actually owns at Ft Knox. What is at the Fed is not ours. Canada and England dumped all of theirs.
Keep the faith in supply and demand. Gold would not have trended up with the money supply for the last ten years if they still had real control of it. Central banks added supply for 30 years. Now they have very little left.
yes, agree - if i may, you could add to the list of reserves the 1 trillion in Tora Bora
WSJ, (for those who have not read it.
http://online.wsj.com/article/SB10001424052748704178004575351421947803404.html
Also, check this Daily Bell out..............(a tad OT, but it will affect PM's).
China On the Brink.....Housing Bubble fixing to blow.
Get ready for Commodities to take in the rear.
Quin,
You actually believe(or can prove) there is 4k Tons in Knox?.
Link pls........
You can actually prove it's not? Link please.
So many hysterics. Gold doesn't care about the schemes of men. You cannot maniplate reality, only the perception of reality. How many fragile paper schemes have to blow up before you realize this?
Gold is fine. Only the paper is in danger.
Confucious say, man who stare at thing he most desire, end up wacking off alone. Man who flirt, and not care get sexy time often.
China talk down gold look other way. Not want. riiiiiiiiiiiiiiiiiiight.
+100
laughing my ass off.
China’s statement that it has no plans to start allocating more gold to its reserves (percentage wise), isn’t giving bulls much to work with this morning.
That statement by China is so blatantly self-serving that it's incredible it even bore mention. Watch what I do, not what I say.
SWR,
Yes sir,
But the MSM TARDS, will buy it, and use it.
Hook line,sinker.
China is like GS, do the opposite of what they say..........
You Amelicans so dumb!
I say " You hit nail - on head" Yessir!
6 July 2010: We were saddened to learn that "Zapata George" passed away over the weekend. A frequent guest on Financial Sense Newshour, George's signature "No Bull" style was extremely popular with our listeners and fans. His voice and his friendship will be greatly missed. —FSO Staff
Do what I do, not what I say. As if China doesn't want to keep prices cheaper knowing full well the positive impact of telling the world it's allocating a greater % to reserves. Take Goldman's Sachs MO and reverse it.
Elizabeth, what's going on with NGD today? I know you're long that.
very volatile to begin with, and its earnings are in Canadian dollars. it seems to correlate poorly on a day to day basis, but well on a month to month basis. I like management very much. i do not look at it daily, adn expect to hold it until gold goes to 1500 or it becomes a takeover candidate.
fm,
How do you think this will affect the Canuck System?.
http://howestreet.com/articles/index.php?article_id=13929
New Gold having trouble pleasing everybody all the time:
http://www.prnewswire.com/news-releases/new-gold-provides-update-on-cerro-san-pedro-hearings-97927734.html
Regards
OK. We know gold is being manipulated, that the big boys are holding the price down because they are massively short gold. And that the only way they can continue to hold the price down, is to keep on shorting. In other words, they keep digging themselves in deeper. But they can't push it down too far because they would have to sell short even more massive amounts.
Now they are exposed to the biggest short squeeze in history and all it would take is a speculator with deep pockets to blow the whole racket sky high. A billion dollars hitting the market just right, would do the trick.
That's what I get from Ms. Thawn's essay.
We also know that in today's markets a sharp speculator can make a million dollars act like a billion.
So, it's just a matter of time until a junior Soros hits the red button. In the meantime, buy gold and lock it away.
Did I get that right?
I'd say you pretty much got it. Buy and hold until there are wolves at the door.
The daily/weekly gyrations in "price" don't really matter much. I'll bet the Rothschilds still have most of the original gold they got a zillion years ago. It's just not bad enough yet to let go of it -- least of all for fiat currencies.
Thousands of years of history aren't wrong, and that also means that gold WILL be manipulated. No big deal.
So why would the "big boys" want to hold down the price of an asset that they own the most of in the world?
If I were a central bank, which in the case of the United States holds the biggest gold reserves, why would I want the price of gold to be low?
What purpose would it serve to hold the price of my assets artificially low through "manipulation?"
Answer: To obfuscate the fact that fiat currency has the intrinsic value of Charmin.
"Market goes up? Use the loaned Gold as collateral and re-up the loan. It’s a great trade."
This is the part I don't get. If they sold the gold they can't use it for collateral, it's gone and they are on the hook for it at the higher price.
Now if they borrowed the gold at .5% then used for margin it would work. But if they still had the gold, a short squeeze wouldn't work.
They borrow gold and pay interest on it. Then they short gold and take proceeds to do other trades pledging the gold they have borrowed as collateral. So they never get margin calls. They do have flat pricerisk tho. If the lender of Gold does not renew the loan, they will be forced to find another lender of gold or cover at a loss. It is a waiting game. if gold rallies, they just keep renewing the lease, hopign for the pull back. They borrow at .5% and put it in bonds yielding 6%. If gold is unavailable for lease, then they get squeezed. This is how Buffet crushed the Silver dealers and producers.
butwhen the lender adnborrower are in the same bed, like a governement and a TBTF bank, then the lease continues to get renewed at below market rates.
The silver action the past 2 days has been very interesting as well.
By the pricking of my thumbs..........
How does it end? Simple, it's right there in your own math. These guys short gold to go long Aussie bonds at 9%. All gold has to do is appreciate by more than 9%. Which it has for the last ten years.
Following that logic, I don't think that is what is going on here. If it were, the gold shorts would all be bankrupt by now.
see my response above.... it is a waiting game. they have losses, but none they have to close.
I'm in the Ferguson/Reinhart/Rogoff camp. History strongly supports the proposition that major financial crises are followed by major fiscal crises. Barring radical fiscal reform i.e., until Paul Ryan gains traction, it's baked in the cake and your heirs will thank you for diversifying out of paper and/or dollar-donominated assets. We could be facing an environment where inflation is stable or declining, yet nominal rates rise. Pick your scenario, virtually all end up with a higher percentage of revenues going to debt service. "Call it the fatal arithmetic of imperial decline."
brill,
The exact opposite in happening in the U.K., and they are clueless......
Inflation is going up...........
Got GOLD................??
http://online.wsj.com/article/SB10001424052748704545004575352553747891766.html
Sorry for those who have already seen it............as we know, they usually DO exactly the opposite.And,if they were smart, they would use this now in small increments( which, in all likelihood is happening anyway).
I know.
That first paragraph is priceless.
Could have just as easily come from The Onion.
"China's foreign-exchange agency sought to ease concerns about how it uses its huge currency reserves, saying it operates on market principles and would never wield its holdings of U.S. government debt as a threat."
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