Precious Metals

The legal claims on physical gold far exceed the amount of physical gold that the banks actually have by a very, very wide margin.  And right now the bankers are scared out of their wits because their warehouses are being drained of physical gold at a frightening rate.  So what happens when their physical gold is gone but they still have lots and lots of people with legal claims to gold?  When that moment arrives, it will represent the end of the paper gold scam. Many believe that the recent takedown of the price of paper gold was a desperate attempt by the bankers to put off that day of reckoning, but it appears to have greatly backfired on them.  Instead of cooling off demand for precious metals, it has unleashed a massive "gold rush" all over the globe. This is creating havoc in the financial community, and at least one major international bank has already declared that it will only be settling those accounts in cash from now on.  The paper gold scam is starting to unravel, and by the time this is all over it is going to be a complete and total nightmare for global financial markets. For years it has been widely known that the promises that banks have made regarding their gold far exceed their actual ability to deliver, but we have never reached a moment of such crisis before.

After another five-day run of higher prices and lower volumes (and following yesterday's 2013 high average trade size), all it took was a twitter-based rumor of the possibility of a pause in the Fed's punchbowl for the S&P 500 futures to see their biggest intraday drop in May. It seems, for once, that 330 Ramp Capital was trumped by the HashCrash as stocks closed an odd shade of green - called red. Today was extremely volatile where-ever you looked - FX, rates, credit, vol, and commodities; but perhaps the JPY move triggered some unintended consequences in rates/swaps.

Gold has been hovering in the middle of a trading range for the past few trading sessions, while the most recent FOMC statement has been price supportive of precious metals and gold in particular.  While this is true, many economists have lowered their core 2013 inflation forecasts from 2% - 2.1% to 1.5% - 1.75% due mainly to the less aggressive indicators for the inflation of consumer basics. 

Given the global central banker's determination to stop prices falling, worries that the outlook is deflationary are unlikely to be realised. In the main this is the view of neoclassical economists, Keynesians and monetarists, who generally foresee a 1930s-style slump unless the economy is stimulated out of it. So successful was the Fed leading other central banks to save the world in 2009 that the precedent is established: if things take a turn for the worse or a systemically important financial institution looks like failing, Superman Ben and his cohort of central bankers will save us all again. Call it kryptonite, or failing animal spirits if you like. It is closer to the truth to understand we are witnessing the early stages of erosion of confidence in government and ultimately its paper money. Ordinary people are finally beginning to suspect this, signalled by the world-wide rush into precious metals last month.

While the memories of the gold and silver price collapse of April 12/15 are still strong in the cognitively biased members of the business media, few have managed to notice that the last 3 weeks have seen the best run in 21 months for Gold and a complete retracement of the Monday drop (and Fib 61.8% retracement of the entire Fri/Mon drop). It appears the paper-to-physical 'great rotation' continues to gain momentum...

Herd-mentality, group-think, safety-in-numbers, or lemmings. When a trade becomes one-sided, we are often taught that contrarianism is the smarter position. When a trade becomes extremely one-sided, the market is at its most fragile. There are currently three trades that have become not just consensus, but are near record levels of extreme positioning - and with the help of leverage (and record margin levels) this all adds up to a risk-on market (since all the three trades are on the same side of the long central bank largesse, short safety view) that is over-prone to more significant corrections. Join the crowd or join the 'smarter' money?

For 727 editions, and nearly 30 years, Bill Buckler, the "captain" of the free market-praising Privateer newsletter provided a welcome escape from a world overrun with "free-lunch" economists, "for-hire" politicians, "crony-capitalist" oligarchs, "heroin-addict" bankers, "the-solution-to-record-debt-is-more-record-debt" Keynesians, and all those other subclasses of that species which Einstein, or whoever, described so aptly in saying that they all expect a different, and happy, outcome when applying the same flawed methods over and over. And for 30 years, Buckler's steadfast determination and adherence to his arguments, beliefs, reasoning and ironclad logic brought him countless followers, all of whom are now able to see past the bread and circus facade of a world every day on the edge of political and social collapse. Sadly, all good things come to an end, and so does The Privateer. We are delighted to celebrate its illustrious memory by presenting to our readers the final, must read, issue of the newsletter which encapsulates the philosophy and ideology of its author - a man much respected and admired in the free market circles - and thirty years of objective, unbiased market and economic commentary, best of all.

• Bank of America 125K
• UBS 130K
• Deutsche Bank 140K
• Citigroup 140K
  
• JP Morgan 145K
• Goldman Sachs 150K
  
• Barclays 150K
• HSBC 170K

The day many have predicted would come, has finally arrived: 100% initial margin on gold. For now it is just one Futures Commission Merchant, in this case ex-CBOT traders Crossland LLC (motto: "Where Speed And Service Matter"), but tomorrow it will be another, and another.

Lamborghini sales hit the highest level in 14 years, Ferrari sales jumped 40% for the first quarter, luxury retailers forecast fat profits....

Those who have been following the barren wasteland that is the precious metals retail market know that not only is it virtually impossible to get any silver for less than a $3-4 premium per ounce over spot, but it has become next to impossible to find any physical, period. So the fact that Apmex is now selling silver at just a $1.79 over spot - a bargain even in the days when JPM wasn't about to run out of commercial gold (incidentally no change in the gold held at the firm's 1 CMP vault as of yesterday's close), and certainly a blue light special at a time when the entire world is scrambling for anything shiny. There is however one minor catch. Maybe not so minor. Because while most PM afficionados are used to buying silver by the ounce, or at most bar, the Apmex offer involves a very generous dollop of Silver Koala. 1 Kilogram's worth of generous.

In a remarkably candid interview, the President and Executive Chairman of CME Group Inc, Terrence Duffy,  told Bloomberg TV that today gold buyers "don’t want certificates ... They want the real product".  

"What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real  gold.  That’s going to show you, people don’t want certificates, they don’t want anything else.  They want the real product."

Just under a month ago we raised the prospect of a number of states following Utah (which authorized bullion for currency in 2011) down the path of gold and silver as legal tender. "The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing," was how this shift was previously described and as Yahoo reports, the Arizona Senate on Tuesday approved a measure to make gold and silver legal currency in the state, in a response to what backers said was a lack of confidence in the international monetary system. The bill will make gold and silver coins legal tender as of mid-2014 and more than a dozen other states continue to mull the transition. Those against the bill argue somewhat ironically, "anybody who thinks gold or silver is a really safe place to put your money had better think again," anchored on the last two weeks, but as one supporter of the bill added, a "sound and honest money system such as gold and silver" is needed to bring stability.

In light of the recent violent down-and-up action in the precious metals, the Hard Assets Alliance (HAA) see three effects in the fallout. For starters, demand is off the charts: "We had four to five times as many buy orders and sell orders, both in number of trades and in volume. Far more significant buying than selling, and it’s continued throughout the week." Second, the demand we're seeing is from existing customers who are returning to buy in bigger volume as they see the precious metals as being "on sale" right now. Third, the surge in physical buying combined with tightening supply is resulting in the premium paid over spot price for physical bullion to march upwards quickly. For all of recent memory, the price of precious metals has been determined in the paper marketplace (e.g., COMEX; LBMA). That may now be changing. Should the availability of physical bullion start setting the price action, the spot price quoted in the paper market for gold or silver will become an anachronistic irrelevance.

We recently asked:"are there really unpredictable market shocks or are investors paid not to care? To us, all signs point towards the next currency reset. We think monetary authorities are compulsively destroying the current global monetary system; they simply have no choice if they are to keep it afloat in the short term." With Bernanke not attending Jackson Hole, we think the choice for next Fed Chair may have profound economic implications, and that it would not require expertise in econometric modeling, credit policy management, and maintaining the public perception of economic stability. We think the next Fed Chairman will oversee a conversion of the global monetary regime. Neither growth nor austerity nor gloom of night will stay these currencies from their appointed devaluations. Bank balance sheets must be preserved; ergo sufficient inflation must be manufactured. We think the dull but persistent economic malaise amid increasingly aggressive monetary intervention policies will soon engender fear among the not-so-great washed – net savers. We think all should question whether we are 100% wrong. If not, then prudence dictates some allocation to properly held precious metals. (Presently, it is less than 1% of all global pensions.)