Precious Metals

We have discussed the use of correlation (cross-asset-class and intra-asset-class) a number of times in the last few years, most recently here, as a better way to track 'fear' or greed than the traditional (and much misunderstood) VIX. As Nic Colas writes this evening, a review of asset price correlations shows that the convergence typical of 'risk-off' periods in the market is solidly underway. While we prefer to monitor the 'finer' average pairwise realized correlations for the S&P 100 - which have been rising significantly recently, Nic points out that the more coarse S&P 500 industry correlations relative to the index as a whole are up to 88% from a low of 75% back in February. In terms of assessing market health, a decline in correlation is a positive for markets since it shows investors are focused on individual sector and stock fundamentals instead of a macro “Do or die” concerns.  By that measure, we’re moving in the wrong direction, and not just because of recent decline in risk assets.  Moreover, other asset classes such as U.S. High Yield corporate bonds, foreign stocks (both emerging market and develop economies), and even some currencies are increasingly moving in lock step.  Lastly, we would highlight that average sector correlations have done a better job in 2012 of warning investors about upcoming turbulence than the closely-watched CBOE VIX Index.  Those investors looking for reliable “Buy at a bottom” indicators should add these metrics to their investment toolbox as a better 'mousetrap' than the now ubiquitous VIX.

With Facebook down over 3.5%, it appears the only real safe haven from Europe's catastrophe headline-fest is the precious metals complex. Gold and Silver are surgiung as Europe closes.

No one believes in their positions (other than people that hold hard assets like precious metals outside of the banking system and will not sell until the system is reset), rather investors and traders are forced to be involved in positions as a function of their mandates.  Their decisions are no longer driven by economic or business prospects but rather by some view on what the Central Planners of the world will do next.  The markets seem calm but there is a storm brewing beneath them and the pressure will be released one way or the other.  We are now in the crucial six week period between Fed meetings.  The reason I think this is such an important time is because not only will investors come to grips with the reality on the ground (recession) but it is also earnings season.  As I pointed out during the last earnings period, stocks that had even a whiff of weakness in their numbers or outlook were decimated.  Even names that had good results did not break out.  This sent a clear signal that too much goodness is priced into many shares out there.

Gold may have its worst week in 2012 as it is currently down 3.5% for the week in dollar terms and nearly 3% in euro and pound terms. However, gold is still higher so far in June and the fundamentals suggest we have bottomed or are very close to a market bottom prior to a summer rally.

However, further short term weakness is possible as speculators go to cash and support is at $1,540/oz (see chart above).

"Unlike other financial instruments, gold doesn't produce interest. But given its symbolic presence and usefulness as a safe haven in times of crisis, the BOK needs to buy more. We may do so this year," he said.

You should do the following.

1. Maintain significant bank and brokerage accounts outside your home country. Consider setting up an offshore asset protection trust. These things aren't as easy to do as they used to be. But they'll likely be much less easy in the future.
2. Make sure you have a significant portion of your wealth in precious metals and a significant part of that offshore.
3. Buy some nice foreign real estate, ideally in a place where you wouldn't mind spending some time.
4. Work on getting official residency in another country, as well as a second citizenship/passport. There's every advantage to doing so, and no disadvantages. That's true of all these things.

One more thing: Don't worry too much. All countries seem to go through nasty phases. Within the lifetime of most people today, we've seen it in big countries such as Russia, Germany and China. And in scores of smaller ones – the list is too long to recount here. The good news is that things almost always get better, eventually.

Did a BIS gold trader just spill coffee on his keyboard not once but twice, or did we just have another ye olde algo trick of stopping the hunts (get it?) out of all marginal players? We will never know. What we will know is that paper prices of physical objects are becoming increasingly more meaningless.

It would appear the BIS gold trading team is back from their cappuccino break.

What are capital controls? Simply, capital controls are policies which restrict the free flow of capital into, out of, through, and within a nation’s borders. They can take a variety of forms, including:

• Setting a fixed amount for bank withdrawals, or suspending them altogether
• Forcing citizens or banks to hold government debt
• Curtailing or suspending international bank transfers
• Curtailing or suspending foreign exchange transactions
• Criminalizing the purchase and ownership of precious metals
• Fixing an official exchange rate and criminalizing market-based transactions

Establishing capital controls is one of the worst forms of theft that a government can impose. It traps people’s hard earned savings and their future income within a nation’s borders. This trapped pool of capital allows the government to transfer wealth from the people to their own coffers through excessive taxation or rampant inflation… both of which soon follow.

Turkey remained the world's number one minter of gold coins in 2011. There is an increasing tendency for gold bars to be retail investors' vehicle of choice – although gold coins still retain a majority market share. Turkish people can pay in gold in certain foreign exchange houses and most jewellers will accept gold as payment. Turkish banks are is now offering digital gold saving accounts. Turkey expanded its gold reserves by 29.7 metric tons in April. Turkey’s bullion reserves climbed to 239.3 tons last month meaning that Turkey increased their gold reserves by 14% in April. The central bank on March 27 doubled the share of lira reserves banks can hold in gold to 20%, saying it would provide 6.1 billion liras ($3.3 billion) of extra liquidity. "This addition," the WGC says, "was the result of a policy change under which the central bank will now accept gold in reserve requirements from commercial banks to help the banks utilize their gold in managing their liquidity." Some analysts have suggested that the increase in Turkish gold reserves, as reported by the IMF, may actually be a form of “double accounting”. Whereby the gold held in Turkish banks client’s gold account is transferred from the local bank as a reserve to the central bank, from where it then figures as gold reserves.

When you hear two politicians in the US going toe to toe arguing about public finances (i.e. money that isn’t theirs), they’ll often cite numbers published by the Congressional Budget Office (CBO). In political circles, the CBO is considered an honest broker - an objective referee that simply presents the facts without taking a position on the numbers. Today they’ve released an infographic showing America’s debt to GDP ratio over the last 100-years, through World War I, the Great Depression, World War II, the Nixon Gold shock, and the Global Financial Crisis. For what it’s worth, both of the CBO’s scenarios for future debt growth seem absurd  underpinned by an even larger assumption– that the status quo is maintained, i.e. the United States remains the world’s most powerful economic force, can print currency at will without consequence, and can inspire foreigners to buy Treasuries. Rather than relying on some bureaucrat, though, history is really the best indicator for what will happen in the future. It may not repeat, but it’ll certainly rhyme. And history shows that the long-term likelihood is financial repression, severe inflation, and/or default.

All you need to read.

A week ago, Zero Hedge first presented the now viral presentation by Raoul Pal titled "The End Game." We dubbed the presentation scary because it was: in very frank terms it laid out the reality of the current absolutely unsustainable situation while pulling no punches. Yet some may have misread the underlying narrative: Pal did not predict armageddon. Far from it: he forecast the end of the current broken economic, monetary, and fiat system... which following its collapse will be replaced with something different, something stable. Which, incidentally, is why the presentation was called a big "reset", not the big "end." But what does that mean, and how does one protect from such an event? Luckily, we have another presentation to share with readers, this time from Eidesis Capital, given at the Grant's April 11 conference, which picks up where Pal left off. Because if the Big Reset told us what is coming, Eidesis tells us how to get from there to the other side...

Central bank gold demand remains robust as central banks continue to diversify out of the euro and the dollar. Further central bank demand is confirmed in the news this morning that Kazakhstan plans to raise the share of gold in its international reserves from 12% to 15%. So announced central bank Deputy Chairman Bisengaly Tadzhiyakov to reporters today in the capital, Astana. “We’ve already signed contracts for 22 tons,” Tadzhiyakov said. Bloomberg report that immediate-delivery gold was little changed at $1.620.41 an ounce at 10:50 a.m. in Moscow, valuing 22 metric tons of gold at about $1.2 billion. “The bank is ready to buy when suppliers are ready to sell,” Tadzhiyakov said. Kazakhstan said yesterday it will cut its holdings in the euro by a sixth. It was reported in the Reuters Global Gold Forum that the central bank buys all the gold produced in Kazakhstan and owned 98.19T at the end of April, according to the IMF's most recent international finance statistics report. Meanwhile, supply issues remain and South African gold production continues to plummet. South African gold production fell 12.8% in April from a year earlier, Juan -Pierre Terblanche, a spokesman for Statistics South Africa, told Bloomberg.

The end game of this global monetary crisis is the imposition of a 100% digital monetary system that would permanently end what little economic freedoms we still retain today. Educate. Resist. Fight Back. Win.