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Japanese Bonds vs Gold: Is This Why Commodities Are Selling Off?
Japanese bond volatility appears to have crossed the Rubicon. As we noted here, the Japanese Ministry of Finance warned that a rise in JGB volatility could cause a significant sell-off in JGBs (since banks will be hampered by their VaR models-driven risk limits, which have literally gone off the charts in recent days, and be forced to reduce holdings to meet those risk limits). It seems however, that since the BoJ is set to buy more JGBs than will be issued in the next several years as noted yesterday, that financial institutions are chosing to live with the record vol noted previously, opting to raise cash buffers and liquidity reserves instead of selling bonds in order to meet surging margin demands on their JGB holdings. The synchronicity between the price of gold (and other commodities) and the volatility of Japanese bonds makes this risk-driven perspective very clear. This leaves the question, what happens when the Japanese (or in fact global - since front-running the BoJ has been a big winner until a week ago) banks run out of 'other' assets to sell and their VaR models continue to demand more capital in reserve?
Since QE2, gold (and other commodities) have moved in inverted-lockstep with Japanese interest rate implied (and realized) volatility as the JGB margin demands oscillate.
Charts: Bloomberg
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FUCK YOU KURODA
No, its not, and this is a dumb post.
Right on time, Bass!
Pieces of paper are selling at a discount, if you need some paper gold place your order :)
The smart money is running from the COMMEX. Thats why the price is crashing. This is not about gold, the exchange is about to go bust.
OK -- Europe is now closed for the week. Let the ramp-ogasm begin.
?
Quote of the Day: "Gold bugs are frequently jerks.This [drop] vindicates the economic ideas of the economic elites." Joe Weisenthal
Joe: If you are reading this, I just gotta say that you are a certifiable moron.
This Is EXCELLENT LOGIC ...
Sell Your Safest GOLD Assets, So To Support Your Garbage Holdings AD Infinitum ...
Today represents one small dot on the time-line of history. During this 6000+ years history gold has been money. There is no fiat regime, in the history of mankind that has been accepted as money for more than 10 generations. What is going on today is irrelevant. But, take note, the price on the display, for GLD, will go to ZERO. If you cant touch it, you dont have it.
... FF ...
FINANCIAL FUKASHIMA ...
Japan tried QE and still had deflation.
US tried hyper QE and have inflation now.
Japan copy US....me too hyper QE
First on Italy, now this:
German man caught 'smuggling' gold at Greek airport
http://www.bbc.co.uk/news/world-europe-22127616
Just do what the CB's do, go long phys, short paper. It's truly a "duh" trade.
They are making a point BTC and gold by association of down days are a bubble. Smoke screen. I just clicked for more coins.
Get your surfboards ready, kids.
Not sure we will see a ramp with the concern around JGB's and the carry trade. In fact we could see a decent sell off in stocks given the run the market has been on, but who knows in these crazy markets.
Compare charts,
Gold 1974 to present
S&P same to present.
Don't think I want to buy the fucking dip in anything at the moment. I don't know, whats a cave in greece go for?
Ha Ha Ha - you said "selloff in stocks"
Considering that gold just hit a record high in yen, it could be the reason for some to take some profit.
I suspect "they" will change the rules to avoid a CRIMEX bust. At this point it is all about maintaining the illusion. A busted CRIMEX busts a key part of the illusion, that Gold is not money.
<Sell the kids, sell the spouse, sell your soul. Do it all and buy physical.>
For some European/Cyprus perspective, this by Ambrose Evans-Pritchard is an eye-opener.
This whole PM take-down operation was in the cards for those who follow the daily activity. From Ed Steer:
"Ted (Butler) did mention that JPMorgan et al may be trying to lure the technical funds into carrying a record short-side position in gold, like they currently have in both copper and silver, so we'll see if that's the plan or not. But, if it is the plan, they'll have to set a new low price tick in gold...and some number well below $1,540 the ounce would be what it would take."
My question is "where is support right now?". I see mostly air below so who wants to posit a guess about the possible bottom points? The first major trend support I see comes in just north of $1000. That won't happen without a major turndown in stocks and are they ready to let that happen?
im hoping $10, make picking up silver eagles easier by the handfuls.
look, I know that AEP is a "libertarian" idol, here - and indeed he is a good journalist and knows a lot
but whenever it's about the EU and the EUR, he is disgustingly partisan
even here, he reveals only a fraction of what he knows:
"You could say that this is ... punishment for the failure of Cyprus to deliver on its side of the bargain on the 2004 Annan Plan to reunite the island, divided by the Attila Line since the Turkish invasion in 1974.
Greek Cypriots gained admission to the EU on the basis of a gentleman’s agreement, then resiled from the accord. President Tassos Papadopoulis later deployed the resources of the state to secure a "No" in the referendum on the Greek side of the island. No wonder the EU is disgusted.
But there again, Greece behaved just as badly. It threatened to block Polish accession to the EU unless a still-divided Cyprus was admitted, much to the fury of Berlin."
Again, this is a fraction of all the things that the Cyprus Team did to utterly piss off anybody else - including in many cases the Americans, the Greeks and the Russians
They somehow bank on short memories (which is sadly often true for the US diplomatic corps, particularly the team that tried to get Turkey in the EU and also left disgusted by Cyprus) and have an "eastern taste" for bazaar diplomacy
But this time they broke too many diplomatic taboos. If you break one gentlemen's agreement to many, you stop to be treated as a gentlemen
AEP is an economic ignoramus.
I guess there just wasn't time nor space to put the historic events in their totality into a small column.
For that he should be ignored and then drawn and quartered in the public square.
There is no satisfying some folk.
In any case, this is the best buying opportunity in quite some time. I think those people who are scared or worried about today's action should think about what Jim Rogers is likely doing today. What is China probably doing a lot of today?
ABN AMRO halted physical delivery, why not COMmiEX?
Jim Willie said a major financial event was coming.
Good riddance CRIMEX.
How about that Eric Sprott. "Charity committments" ... lmao. He was insulting TPTB with that.
Tell you what, if I was a trader, and I'm not, I follow THAT guy around the floor.
Jim Sinclair said that volatility in the metals is going to get crazy. Yeah, the PMs took a helluva dive today . . . but lets see what happens next week and later this month.
Personally, it doesnt impact me really all that much today, (though I sure as hell don't like it). Ive got my phys stack.
Now if it stayed at this level or went lower, - in a couple or three years or so, it'll make a damned big difference to me. But that day isnt today.
Massive push to begin the process for confiscating American citizens guns. Saber rattling over Korea and warnings about 'nuclear war'. Massive attack on PMs while the stock 'market' is flat. The pace of these engineered events is picking up. Smells like desperation is in the wind.
I basically agree... a desperate shell game.
Must be nice to be able to make outlandish claims without providing any supporting evidence
While I agree that Jim is at times outlandish go back a few years and read what he's said in the past, then compare it to what has actually gone down.
He's right much more than he's wrong. His curse is that he's almost always very early.
Any evidence of this sort is intentionally hidden from you. You have to get by with finding supportive enough arguments and/or indications and trying to logically combine them together. Without courage to pronounce outlandish claims before finding the respective evidence we would still live on flat Earth surrounded by rotating stars in the center of the Universe.
"Must be nice to be able to make outlandish claims without providing any supporting evidence"
Bernanke does it all the time
Assault On Gold Update
by Paul Craig Roberts
I was the first to point out that the Federal Reserve was rigging all markets, not merely bond prices and interest rates, and that the Fed is rigging the bullion market in order to protect the US dollar’s exchange value, which is threatened by the Fed’s quantitative easing. With the Fed adding to the supply of dollars faster than the demand for dollars is increasing, the price or exchange value of the dollar is set up to fall.
A fall in the dollar’s exchange rate would push up import prices and, thereby, domestic inflation, and the Fed would lose control over interest rates. The bond market would collapse and with it the values of debt-related derivatives on the “banks too big too fail” balance sheets. The financial system would be in turmoil, and panic would reign.
Rapidly rising bullion prices were an indication of loss of confidence in the dollar and were signaling a drop in the dollar’s exchange rate. The Fed used naked shorts in the paper gold market to offset the price effect of a rising demand for bullion possession. Short sales that drive down the price trigger stop-loss orders that automatically lead to individual sales of bullion holdings once their loss limits are reached.
According to Andrew Maguire, on Friday, April 12, the Fed’s agents hit the market with 500 tons of naked shorts.
more here: http://www.degaray.com/?p=3159
more. phyz. for. me.
So you're saying that they are selling gold (phys or futures) so they can hold onto JGB's? If that is true, they deserve all the destruction that comes their way.
Not even the results of Nagasaki and Hiroshima are going to be close to the devastation that will result of Japan's money experiment, and they will have called for it indeed. Full-blown hara-kiri. The sun is going to rise above a fucking wasteland.
I'm trying to piece this logic together as well FL. So commodities don't count as reserves? I guess not or else why sell them.
So the calculation is that Jap Banks think their gains on the sale of the JGB's will more than offset the losses (or smaller gains) on their gold sales?
I don't think Japanese banks have any signifiant quantities of PMs on thier balance sheets. It's just not what they do.
Rubicon. Well, you knew it was coming.
Santelli just flat out stole this theme and paraded it as original thought on the tube. Rat.
All the talking heads are ripping off the Tylers and ZH outright now, I'll read something on here and 30mins-60mins later it will appear in my feed almost verbatim repeated by the usual suspects passing it off as their own work.
That is nothing new.
Oh prove that!
Mili Vanili
Japanese banks' losses are my gain. Oh well, so sorry.
BTFGOLD
bring the gold
http://www.youtube.com/watch?v=_qO66Rmi1Mw
;-)
The Bank never runs out of money. Simply write denominations on slips of paper until the Bank has enough of it's own paper. -From Monopoly Rules.
Ever played Rothschild Monopoly? Rock, paper, scissors = winner is "The Rothschild". He/she can write his own money on slips of paper for whatever denomination he/she chooses. "Legal Tender" Law says you have to accept Rothschild's script. No other player has this right. Play the game. "The Rothschild" always wins. After playing, whip out some dollars, yen or euros, & ask your unawakened playmates where "real money" comes from.
I don't care what is causing the sell off in silver and gold....if you aren't taking advantadge of it you're crazy. If Japan is the reason then Arigato.
Straight to the real bottom line. Thanks for that. Having to know "why" has stymied many an investor and made them late to the party. Whereas, following the bread crumbs pays off handsomely.
Spoken like a true fuzzy creature of the woods on the scent of a midday snack. :)
<Don't forget to wash your paws and claws.>
I just think that using more of our intuitive senses would serve us better than subscribing to the talking-heads and the pundits' so-called gospel. We have lost the basic, animalistic proclivities if the media is to be believed. Look at it this way, the folks who actually make money aren't blogging nor posting inane comments (whether true or misleading) on obscure websites. They are out there doing the deal and being successful. Watching the tick-tock of the market moves is pointless.
In that case, WTF am I doing here?
Because you are not the money in your wallet. You are not your fucking khakis.
Cheers,
Beef
Like in:
POMO Arigato
As the sage from Duck Dynasty says: "Domo Arogato, Mr. Avocado Roll."
I have been hearing sh*t like this since it was $20 off it's all-time high
gold down majorly, and the DJIA shrugs off horrible consumer confidence numbers.
uhuh. yeah, equities and bonds sure aren't in la-la land.
COMRADES, WE HAVE ELIMINATED RISK!
Many of the popular gold websites are now down. Servers crashing.
stateside
such as?
Well that makes me feel better! Not really but it starts to explain the nonsense sell-ff in paper PM's.
HOW THE FUCK DOES JAPAN BEING FUCKED, LOWER THE PRICE OF GOLD!
Several notables predicted this scenerio just prior to a total collapse.They also predicted Japan as
the first big domino in that collapse.
Maybe this is the start of the panic, cool heads must prevail over paper games in the end.
I cant wait to buy a shit ton of silver this weekend!
investment models that limit risk, volitility equated with risk, vol up, risk up, position must be reduced/cash must be raised to keep risk in line with model's optimized (curve-fit) risk profile
correlation does not equal causation
True, but a very close statistical correlation can convince the gullible of just about anything.
Didn't you know that mother's milk is a gateway drug? The correlation is unavoidable.
Urge to kill rising-Homer Simpson!
Looks like the London Market must have closed.
Or... maybe... size, marginal buyers of Gold were the same size, marginal buyers of Bitcoin.
With all the hysterical flustering about bitcoin, ZH has shot itself in the foot.
Or, yea, gold owners are liquidating cuz they are scared of Japanese bond volatility... flawless logic Tylers.
Hmmmmm. Perhaps you didn't completely understand the article. I had to read it three times.
Banks have to by law have risk management. A rather common tool is the Value-At-Risk (VAR) model. VAR is controversial. Nassim Taleb is on record sayng that he wouldn't wipe has fanny with it.
The purpose of VAR is to give management a sense of how much capital a given position (the current book) could evaporate in a given time period...a day, a week, a month. It is heavily based on lots of bell curves. It gives a single number result - e.g. given the curren t market conditions we cold lose 50% by COB.
VAR requires that volitility be weighed for all of the holdings. If VAR suggests huge potential losses, then the portfolio has to get lighter. But what to eject. If Japanese bonds are getting squirmy - and raising your VAR number - but you think that they will recover because the Japanese CB is buying them - a good bet IMO - then you would look for something else to sell. Like gold - which itself is getting squirmy and not helping your VAR model.
It makes perfect sense to me that the volitility in Japanese bonds is causing banks to jetison ballast. It is not clear that they are of necissity dumping gold to compensate.
Tyler didn't mention that Ben Shalom might be demanding of the banks that they dump their gold so that he can buy it on the cheap. (Kudos to me for once in three years actually being ahead of the Tylers - if not in fact then in satirical value. It won't happen again for three years.)
I don't buy it..yet. If banks were shoring up, equities would be taking a much harder fall. 10 points is nothing with the run up we've had. If S&P goes down a 30 handle, then shit is getting real! But if not, this is just another smackdown.
Either way I'm a buyer of PMs but just saying.
Ben doesn't demand anything of the banks. They demand of him.
Your cover is blown. The REAL Jim Rogers would never have said such a ridiculous thing.
There's no reason presented to link Japanese bond volatility to Japanese selling of precious metals.
Even the BOJ has a really small gold holding, considering the size of its balance sheet. Japanese banks fully embrace the fiat dogma. I don't think they have any significant exposure to PMs.
Jim Sinclair giving an invitation-only talk in Toronto at 1 PM today. Just like the one in NY City a few weeks ago. Would be interested in seeing if he changes his tune that gold would hold the $1,540 level.
stateside
Sinclair's rules goingintot he last conference were that he wasn't going to do a video for replay. Just live Q&As from the audince.
Several bloggers attended and posted their notes. Am looking forward to reading them. I would appreciate anybody finding them posting a link. The bloggers last time weren't mainstream. Maybe Jim Willie but I don't hink so. Maybe GATA.
Earlier today Sinclair said: the bottom is in gold.
Later today he said: Russia and China decide when the bottom is in for Gold an Silver.
Never too old for humility!
I like Sinclair and have followed him for 10 years. I think he has underestimated the level of manipulation and erred in the direction of thinking the markets are markets. In the end, he's right, I'm pretty sure but I do hope he finally stops calling bottoms.
And the "end" ain't gonna be nothing nice.
Commodities are selling off because Volatility for Trading brokerages and investment banks is like water for humanity.
If no volatility, they'd better close down the whole business of investment and go to work for macdonald.
You have to shake things in order to get the coins to fall out. Did we not learn this lesson from when we were kids (piggy bank)?
Simple Answer~NO
Serious query:
Once upon a time (1.5 years ago?) a new regulatory regime, Basel III(?) was set to allow gold to be counted as (Tier 3 ?) capital.
Regardless of the date, framework and capital structure, gold was going to be allowed to be valued as the "real deal." (You know - be treated on par with a CDS or MBS - or a house where the mortgage hadn't been paid in three years and everything else on the block was REO.) It was commonly believed that this would support - or drive higher - the price of gold. It could stand in the face of the storm. It wouldn't be marked-to-market in a sell off. Or rather it could be counted as something of tangible value as opposed to something taking up space on the balance sheet. Gold at the time being something which could be liquidated for an item which had a clear positive effect on the balance sheet - i.e.cash.
Anybody know where that went? Was it ever set in stone? I don't think so.
Informed thoughts much appreciated.
It got cut out by FED.
Doesn't the ECB value their gold at market or was that done away with. If they do, does this bear market in gold affect their capital reserves?
If I recollect, gold was only going to be counted for gold related transactions (derivatives, etc.). But I may be wrong....
Thank you for allowing me to buy more real money for fake. Just what I was hoping for.
Technicals on Gold back to 2008 bring $1200 into play as a possible target. Longer term upside will be driven by Central Banks, so in theory, unlimited.
$1200 I'm backing up the truck and running you over in the process, spam man.
That is, if any retail outlet is available!!!!
please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please-please....
If you buy gold for short term gain, you don't understand why one should own gold in the first place.
Had to chuckle. Sometimes we just have to be reminded...
This is so fucking ridiculos its actually laughable.
Well shit howdy. I've been looking to buy me some gold and silver....been waiting to sell off some remaining shlocks....Looks like next week we'll be a good time to back up the truck.
I love it when PM's go on sale!
Heh, heh. I forsee a lot of eBay gold auction bids being cancelled. That's the breaks.
I love it when procrastination pays off!
Are there more banks and speculators holding contracts for commodities, or are there more banks and speculators holding physical stores of them?
Banks, speculators, etc are in dire need of real cash flow, so they are selling what they have, paper contracts, and paper prices are going down. Benny bux are not real and do not affect cash flow. Virtually every Benny Buck has been used to buy up equities, if those are sold the stock market would plummet. Directors, CEOs, and the rest of the 1% derive all their wealth from the paper equity market, so causing that to plummet would decimate their wealth. Those that have commodity contracts would rather sell those off, because they need to be rolled over constantly and are harder to hold longer term.
We know the price of most commodities are at bubble levels, they were bid up far higher than a functional market would allow. With deliveries to retail from refineries at thirty year lows, gasoline is still above $3.00 a gallon wholesale? $4.00 natural gas? Corn? Wheat? Copper? What wasn't in a bubble?
Paper gold contracts were in a bubble. Not the value of physical gold. People who need cash are selling their paper gold, paper oil, paper silver, etc contracts for cash. In this environment the paper price would have to go down. It could also plummet through the floor if nobody is willing to buy a paper contract. The value of the physical commodity would go through the roof, if the demand is there for it.
If everyone holding paper gold tried to get physical, the spot price of paper contracts would go to zero. The majority of the paper holders would be wiped out because there isn't enough physical gold to fill even 10% of the contracts. That is why most gold bugs don't care about the paper price, the paper price doesn't matter. If the dollar collapses, the price of gold in dollars could be $10 trillion per ounce, but not a single person holding a gold coin would trade it for that.
Hope that explains it to the few people that don't get it.
I'm not sure I agree with your analysis, adr. It is a bit more theoretical than what may be played out in that scenario. What you describe would first be telegraphed in the contango where the front months would trade at a premium to the deferreds. There would have to be at least one delivery failure against the expiring spot futures.
Also, I disagree with your comment that gasoline, nat gas, and grains are in a bubble when the currency is being devalued at such a rapid rate. I do not know why you would say those real, non-paper commodities are in a bubble while physical gold's price would not be.
IMHO, today's price action in everything smells of one or more institutions liquidating "stuff" to me collateral calls. And if so, this could feed on itself.
"With deliveries to retail from refineries at thirty year lows, gasoline is still above $3.00 a gallon wholesale?"
Stay alert, however, for drops in economies of scale ("economies of scale in reverse") which would tend to drive up pricing in the face of declining volume. Margins are being squeezed, BIG TIME. Ultimately we'll have to pay for the most essential things, and we will (which will kill much of the disposable income stuff).
Odds of the market selling off on a Friday - ZERO. Odds of someone ramping the futures higher to achieve this - 100%
We're a lot closer to the end then I thought if this keeps going.
We know, of course, that the gold being sold is paper gold, but this still sets the price on the open market, e.g. COMEX, who are seeing inventories get depleted at record rates. This will increase the rate of depletion. COMEX defaults, AU goes up. Maybe China would like this play, and it lets then get rid of USD for at least some gold.
It's what happenens with the JGBs blow that scares the hell out of me.
If this isn't PM blood running in the streets, I don't know what is....choose your own path, mine is yellow-bricked.
Yes. If Crimex goes bust the paper etf's like SLV and GLD might just take all your money. and claim they were the ones who were swindled, so picking up some miners is a smart thing to do.
Gold leads market direction, sp/dj a few months behind typically.
http://finance.yahoo.com/echarts?s=%5EDJI+Interactive#symbol=%5Edji;range=5y;compare=gld+%5Egspc;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
No, it's trading ~inverse to the djia.
Normally that'd be bonds but...
I can't wait to see what the gold and silver cobasis are this week.
Keith Weiner does a weekly report:
http://monetary-metals.com/basisletter/
Remember Bitchez - the cobasis doesn't lie. Go read Weiner and Feteke to learn more.
So is this article trying to say that JGB vol drives the world paper gold market? What else might be contributing to this?
Maybe they are realizing that relative to stocks, gold = junk. silver = junk, oil = junk. The only thing of value is stocks. The Fed has told them stocks are going up 50% this year and there is absolutely no downside risk beyond 1-2% Why hold any other asset class?
Personally that seems stupid to me but I am beyond trying to figure out what these jokers are using for analysis so the above is as good as any.
I could be wrong, but I am beginning to blame the Japanese for a wide variety of of global ills that have occurred over the last 25 years.
I think I'm turning Chinese. I think I'm turning Chinese. I really think so.
What happened around Oct/Nov 2012? Thats when gold and sp500 started its most recently wild divergence...
That's when the economy collapsed for the second time, ala 2008, it just didn't get reported as such.
Son of a BITCH!
http://www.bloomberg.com/news/2013-04-12/u-s-to-press-japan-to-refrain-f...
What, no accusations of "currency MANIPULATION?" It's "Competitive Devaluation?"
Can we just line up all these fuckers and shoot them? I'm just getting tired of all this BS. LOOK IN THE FUCKING MIRROR!
DHS leak Rosebud stated when the metals dip,things are about to happen.This was for springtime to happen.Gun confiscation,dollar\derivatives crises.
I'm sitting on a big position in HOD-Toronto.The trade will be taken off in steps.One when oil hits $75,next $60,then $40.Should take two years or less total.
How would the USD IR volatility look like?