ETF And Central Bank Gold Lent To Banks Being Relent Into Market?

Tyler Durden's picture

From GoldCore

ETF And Central Bank Gold Lent To Banks Being Relent Into Market?

Gold is trading at USD 1,680.90, EUR 1,267.70, GBP 1,075.30, CHF 1,564.40, JPY 130,750 and AUD 1,659.0 per ounce.

Gold’s London AM fix this morning was USD 1,680.00, GBP 1,077.06, and EUR 1,266.49 per ounce.

Friday's AM fix was USD 1,712.00, GBP 1,094.49, and EUR 1,281.34 per ounce.


Gold in USD – 2 Yrs (100, 144, 200 DMA)

Gold was steady in trade in Asia until 0322 GMT when sharp selling saw gold fall 1.3% from $1,708/oz to $1,684.75/oz in minutes. The fall may have been technical in nature after last week’s 2% fall in US dollar terms. The selling had the hallmarks of a large sell order or liquidation and Reuters reports that “the approaching year-end and funding difficulties caused by financial market turmoil have reduced liquidity in the gold market.”

Market reaction to the failed EU Summit was that gold, the euro, European equities and ‘PIGS’ debt all came under selling pressure this morning.

Gold is again testing support at the 144 day moving average at $1,674/oz. Below that is the major support of $1,617.25/oz (see chart above).


Gold Spot $/oz (30 days)

With concerns about liquidity and solvency in the European banking system, there is lending and possibly even selling of gold by banks to raise much needed cash. This may be creating short term weakness in gold bit is bullish for gold in the long term.

The FT reported last week that “gold dealers” said that banks – “primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars.”

The key question is who is lending and is their lending simply liquidity driven - to raise dollars or euros?

John Dizard, who frequently comments on gold in the Financial Times wrote on Saturday that,

“Gold market people say European commercial banks are being driven to lend gold for dollars at negative interest rates just to raise some extra cash for a few weeks. 

There’s not a lot of transparency about where the banks are getting the gold they are lending out, but it could be lent to them by either their national central banks, or by gold exchange traded funds.”


Cross Currency Table 

If this is the case it will raise further concerns about the possibility of double accounting of gold and concerns that much of the gold investments in the market are in fact ‘paper gold’ and not backed by physical as is believed by investors.

It will add to deepening concerns about the emerging scandal of rehypothecation where some banks, brokerages and dealers have been reusing the collateral pledged by its clients as collateral for their own borrowing.

Owners of gold exchange traded funds (ETFs) would be surprised and worried to discover that certain banks might be lending out gold that they have bought and believe that they own.

The leading gold ETF, GLD has been criticized by many analysts for its extremely complex structure and prospectus. Critics have also pointed out the possible conflict of interest in its relationships with HSBC and JPMorgan Chase which are believed to have large short positions in gold and overall lack of transparency. 

If as has been suggested, European banks are lending gold into the market that has come from exchange traded funds then this would validate the many concerns raised about the gold ETF market. Questions would again be asked as to whether many of the ETFs are fully backed by the gold that they claim to own in trust on behalf of clients. 

Already some hedge funds managers and investors have liquidated their ETF positions in favour of allocated physical bullion and we would expect that trend to accelerate as prudent investors rightly seek to avoid counter party and systemic risk.

OTHER NEWS

? The flow of gold from Hong Kong to mainland China rose 51 pct in October to a record 85.7T, bringing the total amount of gold shipped for the year to October to 286.6T. (Reuters)  

? Economist Dennis Gartman said he’s “being taken out of the remainder” of his gold position and investors should not own the metal priced in euros. Gartman had previously owned bullion priced in euros “Those not already out of the gold side of this trade should be out immediately,” he said today in his daily Gartman Letter. (Bloomberg)

? Gold could hit $2,500 if Euro fails in what would be a ‘horror story’ said Citigroup in a note. The Euro failing is a “low probability” event. Citigroup emphasizes it’s not forecasting $2,500/oz, though it says this could occur were the Euro to collapse. (Bloomberg) 

? Gold’s premium to platinum may widen in months ahead, UBS Says. Gold’s premium to platinum “has room for further widening over the next few months,” Edel Tully, an analyst at UBS AG, wrote today in a report. The premium was at 12.4 percent today, Bloomberg data show. (Bloomberg)

For breaking news and commentary on financial markets and gold, follow us on Twitter.

SILVER 
Silver is trading at $31.13/oz, €23.51/oz and £19.93/oz 

PLATINUM GROUP METALS 
Platinum is trading at $1,483.75/oz, palladium at $662.75/oz and rhodium at $1,450/oz.

NEWS
(Reuters)
Gold falls 1% on technicals, Europe worry lingers

(MarketWatch)
Gold prices ease amid firmer U.S. dollar

(Bloomberg)
HSBC Sues MF Global Over $850,000 of Gold

(Bloomberg)
HSBC-MF Global, AT&T, Sabre, Apple, AMR Corp. in Court News

(Google News)
'Cash for Gold' buyers tempt Greeks to sell family gold facing hard times

COMMENTARY
(ZeroHedge)
Gold "Rehypothecation" Unwind Begins: HSBC Sues MF Global Over Disputed Ownership Of Physical Gold

(Money Morning)
Why You Shouldn’t Trust Your Gold to a Banker

(The Independent)
Robert Fisk: Bankers are the Dictators of the West

(The Telegraph)
Eurozone leaders deluded if they think this 'sticking plaster' treaty can solve the debt crisis

(ZeroHedge)
Is A Physical Silver Shortage Spike Imminent?

(Thomson Reuters)
MF Global and the Great Wall St Re Hypothecation Scandal

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cossack55's picture

I am ready to receive any amount they wish to lend.  I will even polish it before I don't give it back.

LawsofPhysics's picture

I will be a much better candidate for them to lend the gold to as I will take out an insurance policy on that gold with AIG in the event that the gold should be "damaged, lost, or stolen".  Isn't this the new American business model?  Fleece your customers while you make money betting that you will fleece your customers so that the taxpayer (your customers) can bail you out.

trav7777's picture

I guess that "silver-gold parity" is going to have to wait until next week?

tmosley's picture

Guess the old lies were getting stale.

Badabing's picture

“If this is the case it will raise further concerns about the possibility of double accounting of gold and concerns that much of the gold investments in the market are in fact ‘paper gold’ and not backed by physical as is believed by investors.

It will add to deepening concerns about the emerging scandal of rehypothecation where some banks, brokerages and dealers have been reusing the collateral pledged by its clients as collateral for their own borrowing.”

Silver – gold parity ? Watch out what you wish for!

It looks like the beginning of a mass exodus out of the paper P/M market, it is possible for the paper P/M market to crash to zero ergo silver – gold parity

tmosley's picture

Yes, I predicted that on numerous occasions starting in February.

Physical gold and silver, however, will not be zero.  They will be much, much higher.

Physical gold and silver parity will come on an industrial panic stemming from the failure of the COMEX to deliver physical silver to industrial users who use the exchange to lock in prices.

Badabing's picture

I agree 100% But first a flash crash and all trading stopped to regroup. 

trav7777's picture

how many fucking times do you have to be told this...industrial users buy from PRODUCERS, not from the FUCKING COMEX.  Comex is an exchange...NOT A PRODUCER OR BUYER.

They simply make a market around the margins and provide cash-settlement.

Attitude_Check's picture

You realize you just made Mosely's point that the paper/physical price will diverge, and the underlying supply/demand factors that will enable it.

tmosley's picture

You can "tell" me an infinite number of times, Trav.  You only have to prove it once.

But you can't, because that's not the way the markets work.

Christ, the COMEX is an exchange, and an exchange is where BUYERS MEET SELLERS.  Just because most of the activity is from speculators doesn't mean that there are no acutal producers or users there.  Without them, the whole thing would fall apart.  Gold rush towns become ghost towns by the same methods.

Haddock's picture

How about the BHP Billiton (World's largest silver miner) annual report (page 56):

BHP Billiton’s Marketing network manages the Group’s revenue line and is responsible for...

selling the Group's products....

acheiving Market clearing prices for the Group's products....

Our marketing activities are centralised in Singapore, The Hague and Antwerp.

These three marketing offices incorporate all the functions required to manage product marketing and distribution – from the point of production to final customer delivery.

In addition, we have marketers located in 15 regional offices around the world

?http://www.bhpbilliton.com/home/investors/reports/Documents/bhpBillitonAnnualReport2010.pdf

?

 

 

 

tmosley's picture

So one company makes direct sales, therefore no-one else uses futures markets for their intended purpose?  

No, to prove that miners and industrial users don't use the COMEX to guarantee prices, you are going to have to get data from the COMEX, namely data showing that the COMEX makes no deliveries of actual physical silver whatsoever.  Thing is, it does.  Every month.  The deliveries are posted every work day, with a couple of days lag.

But Trav doesn't like evidence that doesn't support whatever stupid idea pops into his head, so he ignores such things.

Haddock's picture

Top 20 silver producers extracted around 300 million ounces in 2010.  Globally 735 million ounces mined.

http://www.silverinstitute.org/production.php

How does that compare to COMEX deliveries?  I have looked on the site, but struggle to find the correct data...

EDIT: not sure if I looking in the right place, but if the totals per page 25 of this = physical delivery of 5000 oz silver contracts, total = 48 million oz

http://www.cmegroup.com/delivery_reports/MetalsIssuesAndStopsYTDReport.pdf

I am genuinely interested in understanding this as I think it is a key factor in any silver speculation we may get involved in....

Temporalist's picture

They don't lie, they re-hypothesize after re-hypothecating.

Sabibaby's picture

I care not for who gets the gold but I will store all of it for all of you.

 

Just making sure I do my part, that’s all….

Then I’ll use it as collateral multiple times…

unununium's picture

> Fleece your customers while you make money betting that you will fleece your customers so that the taxpayer (your customers) can bail you out.

Step 3. Laugh soullessly at anyone stupid enough not to be a criminal.

Pladizow's picture

No physical involved - paper lent for paper.

2fer - Bank gets liquidity and drives down gold price!

MarcusLCrassus's picture

That's always been the whole point.  Take money out of actual PMs while at the same time getting their hands on that money and being able to gamble with it. 

slewie the pi-rat's picture

goldCore missed one of the best articles of the weekend:

Market News International retracts report about central bank gold sales

the last few times i've come across worldGoldcouncil "data" it has just seemed like bankster press released too, plus mining "news"

theCore admits it doesn't know what's going down, tho, w/ the banksters, commercial, bullion and central~~all 3 types of the pathology, but quotes the FT guy diZard: "...European commercial banks are being driven to lend gold for dollars at negative interest rates just to raise some extra cash for a few weeks."

so gold is being hocked, but will it be redeemed?  is the "repo" guaranteed by The Men's WearHouse or something? 

does it seem like too much of a stretch to picture multiple trips to the 'pawnbrokers' (ultimately, banksters who can print~~CBs), who keep offering you less and less for the gold you're bringing in? 

it does seem like a stretch to imagine anything more re-hypothecatednnn than gold

fractional X fractional X fractional = the soup of the soup of the soup

Clam McCain's picture

gold longs getting torched

GMadScientist's picture

Oh noes...now I'm only seeing a 400% appreciation since I bought it. Whatever will I do?

economics1996's picture

Does anyone know about silver production?

According to the price run up based on the printing of the Fed gold will drop 12.4%.  A drop of 12.4% would realign gold with paper, over the last 40 years.

I wish I new more about silver production, is it elastic ort inelastic.  Silver is undervalued verses paper but that means nothing because I do not have a clue about the elasticity of supply for silver. 

Libertarian777's picture

Afaik silver supply is inelastic since there are few primary silver producers, it is largely a byproduct of lead or other metal mining. If silver spikes but lead doesn't miners don't produce more lead, their profitability will naturally go up though since the silver will cover more of the lead mining costs.

Spigot's picture

Its all paper. And its all burning. Rehypothecation is just another word for fraud. The whole world is going down in flames.

FEDbuster's picture

Run, don't walk towards the exit. 

Buy food and lots of it.  The FEMA food lines will be long (think Black Friday everyday).

bernorange's picture

Last one out of the rehypothecated paper claim Ponzi collapse is a rotten egg.

www.pmbug.com

trav7777's picture

rehypothecation is just another word for bankers gambling with YOUR CHIPS.

They gamble with the stock you own outright and they even pledge the shit you bought on margin.

They will gamble with ANY chip you put in their possession, and are authorized to by law.  In the UK, there are virtually no limits whatsoever on this practice.

chinaboy's picture

Once they find that feasible, they will do it again and again.

RobotTrader's picture

Gold and silver about to go negative on the year

 

Retail stocks still pinned at 52-week highs

One asset group is Fed-sponsored and TPTB supported.

The other is not.

Can't fight City Hall.

Always gotta trade where the wind is at your back.

kito's picture

no way pladizow, robo is pure hindsight genius.........

Badabing's picture

"Gold and silver about to go negative on the year"

 

Robo you tool TPTB bitch,

YTD gold was at $1400

you dick.

thunderchief's picture

This is a buying opportunity, and a physcial buying opportunity at that. 

It's good sport buying silver at these prices. 

SHEEPFUKKER's picture

To be fair, silver is about to go negative, but gold obviously is not. It's a strange world isn't it.

Bendromeda Strain's picture

RoboTarder selling his birthright for a bowl of pottage...

LawsofPhysics's picture

"One asset group is Fed-sponsored and TPTB hoarded"

Fixed it for you robo.  Whether you like it or not, everything is about to get physical.

SheepDog-One's picture

AH yes your much adored equities may indeed be at 52 weeks highs, unfortunately also at 25 year avg. So sad.

Oh and BTW Robo, tick-tock on that much ballyhooed Santa rally too, whats wrong? Shaping up to repeat your disastrous 'debt ceiling rally' looks like to me.

kito's picture

sheepie i cant wait tll those headlines read, "consumer tapped out after black friday, credit card default payments rise"............. as per robo, and i quote him "THE CONSUMER IS STRONGER THAN EVER"  THE LEAST INTELLIGENT REMARK MADE BY ANY POSTER ON ZH THIS YEAR>

beaker's picture

It may be safer to buy gold at $1800 than to try and catch a falling knife.

Al Huxley's picture

No, in the case of gold, that's not true,and it's what kills the speculators who leverage themselves on the paper contracts and then get their asses handed to them by the bullion banks. It's a small specialty market with its own rules, and the best bet is to buy physical gold whenever it goes on sale (which it does regularly). Anything else and you might as well just hand your cash over to the commercials on the other side of the trade.

Badabing's picture

Last month I went to my guy, the price was 1680, all he had was pesos.

Sabibaby's picture

Always gotta trade where the wind is at your back.

Yeah, so the piss goes farther.... The problem is everyone else is above you so it really doesn't matter which way the wind is blowing because you're still getting dribbled on.... Best not to play at all!

GMadScientist's picture

Funny. You see, the thing is, City Hall can't afford to fight me.

I'm betting that the fat fuckers with the pepperspray will have a change of heart when it's made clear that their pensions are vapor.

realitybiter's picture

That's funny.

 

Those fat "dono" cops, bullying folks with their pepper spray are going to die paupers after their pensions get "paper-sprayed".  Payback's a bitch.

 

Wake up, public workers.  Your boss is a fraud and you are a sucker.  Do the math and ask the tough questions.

 

Read history.  In 1921 WW1, decorated German Generals were reduced to panhandling because their pensions got "paper-sprayed."

Paper-sprayed.  good one.

trav7777's picture

HAHAHAHAHAHAHA...you've never seen a 2nd or 3rd world country, have you?

the police work for bribes and they jack people. The regulatory framework ALREADY exists for the police to legally steal from you.  They can drop a joint in your lap and take your fucking car and everything in it.

If their pensions vaporize, they will use their badges and guns and go take their pensions from the public.

In places like brazil, people with automatic weapons lighting up police cars serve as a rough check and balance on this type of police aggression.  In East Germany, the police power was mostly uninhibited.

We have the nice terrorism/patriotism nexus to steer us more toward the latter than the former.  Mow the cops, they find a rat/informer/friend of the State to rat you out

New World Chaos's picture

Word.  When TSHTF, the cops will be the worst gangs around.  They have the best infrastructure, the best organization, people are already conditioned to fear/worship them, and they have been carefully pre-selected for sociopathy.  Only the vets will stop them.

fonzanoon's picture

Gold is about to drop 20%?

LawsofPhysics's picture

On paper, how is that spot price again?  Go see a coin dealer and let me know how much they want after paper drops 20%

economics1996's picture

According to the price run up based on the printing of the Fed gold will drop 12.4%.  A drop of 12.4% would realign gold with paper, over the last 40 years.

I wish I new more about silver production, is it elastic ort inelastic.  Silver is undervalued verses paper but that means nothing because I do not have a clue about the elasticity of supply for silver.