Precious Metals

Bloomberg reported recently that Russia is now the world's biggest gold buyer, its central bank having added 570 tonnes (18.3 million troy ounces) over the past decade. At $1,650/ounce, that's $30.1 billion worth of gold. Russia isn't alone, of course. Central banks as a group have been net buyers for at least two years now. But the 2012 data trickling out shows that the amount of tonnage being added is breaking records. Based on current data, the net increase in central bank gold buying for 2012 was 14.8 million troy ounces – and that's before the final 2012 figures are in for all countries. This is a dramatic increase, one bigger than most investors probably realize. To put it in perspective, on a net basis, central banks added more to their reserves last year than since 1964. The net increase – so far – is 17% greater than what was added in 2011, which was itself a year of record buying. The message from central banks is clear: they expect the dollar to move inexorably lower. It doesn't matter that it's been holding up against other currencies or that the economy might be getting better. They're buying gold in record amounts because they see a significant shift coming with the status of the dollar, and they need to protect themselves against that risk. Embrace the messages central bankers are telling us – the ones they tell with their actions, not their words.

The present confusion is legitimate: it is far too early to be projecting much from Cyprus except a continued erosion of faith in Eurozone banks and leadership, and by default, the euro as a placeholder of purchasing power.

Through the centuries – in historic cultures like that of Yap Island who used giant, immovable stone disks for commerce, to today's United States, whose Dollar fiat currency exists primarily in digital form – "money" is able to be exchanged for goods and services because society agrees to accept it (at a certain rate of exchange). But what happens when a society starts doubting the value of its money?  Perhaps the Fed has just the right talent and tools we need to finesse our way out of the challenges we face. Unlikely. The reality is, the Federal Reserve is like any other organization. Human. And fallible. For those who want to argue that the Fed, with its cadre of hyper-degreed academics and its insider access, has superior information and thus the ability to predict the future with unparalleled accuracy; we humbly ask you to watch the following...

Quite a few articles have been written about the importance of owning Gold and other precious metals as a means of maintaining one’s wealth in the face of rampant money printing by the world’s Central Banks.

Based on a letter to clients over the weekend, it appears ABN Amro is changing its precious metals custodian rules and "will no longer allow physical delivery." Have no fear, they reassuringly add, your account will be settled at the bid or offer price in the 'market' and "you need to do nothing" as "we have your investments in precious metals."

Texas Rep. Giovanni Capriglione has a bill in play that would move the state’s gold from New York (where its under the “safekeeping” of the ultra shady Federal Reserve) to a depository within the state of Texas itself.  The reason this would be such a big deal if it happens, is because a lot of the gold bought and sold globally is not very likely not actually owned by those that “buy” it.  From my perspective, pretty much the only countries that actually buy gold and bring it within their borders are China, Russia and Iran.  Most other nations that claim they “bought” gold, most likely hold a certificate that states they have gold in London or New York.  So in other words, they have no gold.  It looks like Texas is wising up.

Markets are remarkably schizophrenic about where risk is flowing... and where it isn’t.  For example, ConvergEx's Nick Colas notes, the CBOE VIX Index is up from 12.3 a month ago to a close of 14.0 yesterday. And other risk assets such as Emerging Markets, U.S. Small Caps, Energy names, and developed economy international stocks all show higher 'VIXs' over the same 30 day period.  But... and it’s a big 'But'... just as many sectors/asset classes in our tracking universe show declines in their 'VIXs'.  The most pronounced are domestic Consumer Discretionary, Utilities, and Tech names as well as precious metals and High Yield Corporate bonds, where Implied Vols are 6-17% lower this month and in most cases are at/near 52 week lows.  If you are looking for spots where volatility might make a comeback, these are good places to start. This market reminds us of an old joke: Question: What do you call a person who is both ignorant and apathetic? Answer: I don’t know and I don’t care.

Last November, in an act of sheer monetary desperation, the ECB issued an exhaustive, and quite ridiculous, pamphlet titled "Virtual Currency Schemes" in which it mocked and warned about the "ponziness" of such electronic currencies as BitCoin. Why a central bank would stoop so "low" to even acknowledge what no "self-respecting" (sic) PhD-clad economist would even discuss, drunk and slurring, at cocktail parties, remains a mystery to this day. However, that it did so over fears the official artificial currency of the insolvent continent, the EUR, may be becoming even more "ponzi" than the BitCoins the ECB was warning about, was clear to everyone involved who saw right through the cheap propaganda attempt. Feel free to ask any Cypriot if they would now rather have their money in locked up Euros, or in "ponzi" yet freely transferable, unregulated BitCoins.  And while precious metals have been subject to price manipulation by the legacy establishment, even if ultimately the actual physical currency equivalent asset, its "value" naively expressed in some paper currency, may be in the possession of the beholder, to date no price suppression or regulation schemes of virtual currencies existed. At least until now: it appears that the ever-benevolent, and always knowing what is "in your best interest" Big Brother has decided to finally take a long, hard look at what is going on in the world of BitCoin... and promptly crush it.

If you don’t collapse the system, the system will collapse you.

In the below video, I discuss why we’ve all already been “Cyprus’d” to a far greater degree than Cyprus citizens can be Cyprus’d, and how we can stop being Cyprus’d in the future.

• Cyprus works on Plan B to stave off bankruptcy (AP)
• Cyprus seeks Russian bailout aid, EU threatens cutoff (Reuters)
• Freddie Mac Sues Multiple Banks Over Libor Manipulation (BBG)
• Bernanke Seen Keeping Up Pace of QE Until Fourth Quarter (Bloomberg)
• Italian president seeks way out of political stalemate (Reuters)
• Chinese factories struggle to keep staff (FT)
• South Korean banks, media report network crash (CBC)
• BlackBerry Inventor Starts Fund to Make Star Trek Device Reality (Bloomberg)
• Osborne Should Be Fired, Voters Say in Pre-Budget Poll (Bloomberg)
• Obama Begins First Visit to Israel as President (WSJ)
• Anadarko finds ‘potentially giant’ oilfield (FT)
• Britain's Osborne boxed in by austerity on budget day (Reuters)
• MF Global reaches agreement with JPMorgan (FT)

The Cyprus finance minister Michael Sarris may or may not have submitted his resignation after the president formally declined to accept it, but now that he is back on the saddle he is back to spreading hope, cheer and goodwill. Those wondering why both the EURUSD, and its derivative, US stock futures have surged overnight and retraced all of yesterday's losses and then some, it is not due to any anachronistic events such as "good economic news" (especially since the Spanish PM said Spain will have to cut its economic outlook once again, or rather, as usual), but due to the following phrase uttered by Sarris a few hours ago: "We are hoping for a good outcome, but we cannot really predict" regarding his views on talks with Russia. That's right - the entire overnight ramp is based on the hope of one man, who thinks Russia can be blackmailed through deposit haircuts, into bailing out the tiny island which has now said nein to Europe and bet the ranch on a well-meaning Vladimir Putin. What can possibly go wrong: according to the GETCO algos all alone in levitating stocks, absolutely nothing. What is clear is that Cyprus is fully intent on seeing Europe "blink" whether due to Russia's involvement or just because it thinks (correctly) it has all the leverage as the alternative is a breakdown of the Eurozone.

We are currently in an environment where policy makers are intent on devaluing their currencies in an effort to create growth. Real rates continue to stay negative in most of the developed world. Every marginal dollar of debt that is created is producing lower and lower amounts of growth. In a world overwhelmed by mountains of debt and economic growth which is sub-par at best, precious metals and real assets can act as insurance against the stupidity of policy makers. The evidence pointing towards the suppression of the gold price is becoming increasingly apparent. Don’t be the last person to figure this out! The current sell-off in gold should be viewed not with extreme trepidation but as an unbelievable opportunity to buy the metal at an artificially low value.

Prior to yesterday, if you were trying to handicap how the unelected leaders of the Eurozone were going to react to a tough situation, you only had to refer to the quote "When it becomes serious, you have to lie" from Mr. Junker to understand their mindset. But so long as someone at the ECB was willing to flood the world with free EURs (with significant backup provided the US Federal Reserve) the market closed its eyes, held its breath and took the leap of faith that all was well. However, post the Cyprus decision, the curtain has been pulled back and wizard revealed with all his faults and warts. It would be hard to over-emphasize how significant the Cyprus situation is. The damage done here is not related to the size of the haircut - currently discussed between 3 and 13% - but rather that the legal language which each and every investor on the planet must rely on in order to maintain confidence in the system has been subordinated to the needs of the powerful elite.

Moments ago we got news that the same kind of "depositor repression" aka wealth tax just implemented in Cyprus over the weekend, may spread to other stability and deposit havens. Such as Switzerland. Just before 7 am Eastern, the SNB's Moder, who is an alternative board member, said on the wires that the SNB will not exclude negative interest rates, which followed earlier comments from the IMF that the SNB should have negative rates if there is a renewed surge in the Swissie, and a plunge in the EURCHF, as has happened as the Euro has tumbled. Sure enough, the EURCHF soared on news that even Europe's last remaining deposit bastion is about to be impaired, because all negative rates are is an ongoing deposit confiscation, instead of a one-time "levy" as per Cyprus.