10 October 2015 — Saturday

YESTERDAY in GOLD, SILVER,PLATINUM and PALLADIUM

The gold price rallied unsteadily right from the 6 p.m. EDT open in New York on Thursday evening—and it topped out around 12:30 p.m. in New York.  From there it sold down a few dollars into the close.

The low and high ticks were reported by the CME Group as $1,138.00 and $1,159.30 in the December contract.

Gold closed in New York yesterday at $17.40 spot, up $17.40 from Thursday’s close.  Net volume was decent at a hair over 131,000 contracts.

Here’s the 5-minute gold tick chart courtesy of Brad Robertson once again.  There was even some decent volume on the Globex trading system while London was open—and that certainly intensified once COMEX trading began at 6:20 a.m. Denver time on this chart.  Volume vanished once the COMEX closed at 11:30 a.m. MDT.  Midnight New York time is the vertical gray line, add two hours for EDT—and don’t forget the ‘click to enlarge‘ feature.

After hitting its Friday low tick minutes after 8 a.m. Hong Kong time, the silver price rallied quietly until it hit the $16 spot mark at 11 a.m. in London trading—and you can tell from the chart pattern that that was as high as it was allowed to get.  From there it got sold down into the 10 a.m. EDT London p.m. gold fix—and wasn’t allowed to do much after that.

The low and high ticks were recorded as $15.585 and $16.01 in the December contract.

Silver finished the Friday session at $15.82 spot, up only 15.5 cents on the day.  Net volume was a bit higher than I would like to have seen at just under 35,000 contracts.

After getting sold down a few dollar at the open on Thursday evening in New York, platinum began to rally as well.  It then traded flat for a bit more than two hours between noon and 2 p.m. Hong Kong time—and then began to rally anew with a new sense of vigor.   Most of the gains were by 11 a.m. Zurich time.  The rally at the COMEX open got dealt with in the usual manner by the usual not-for-profit sellers.  The price then traded lower until the 10 a.m. fix—and then rallied very quietly into the close.  Platinum closed at $981 spot, up a chunky 33 bucks—and I would guess that a lot of the gains could be chocked up to short covering by the Managed Money traders.

Palladium also rallied yesterday, but it was in fits and starts and, like platinum, “da boyz” showed up shortly after the COMEX open when the palladium market came close to going “no ask”.  By 12:30 p.m. EDT, they’d beaten the price down to almost unchanged, but it rallied from there and finished the Friday session at $710 spot, up 10 dollars on the day.  One can only fantasize what the price would have finished the day at if the sellers of last resort hadn’t shown up when they did.  The same can be said about platinum as well.

The dollar index closed late on Thursday afternoon in New York at 95.30—and began to drift lower as soon as trading being on Friday in the Far East.  There was a quick 10 basis point spike up just before the London open—and it was all down hill until the 94.69 low tick, which came about 12:50 p.m. in New York—although the lion’s share of the index’s losses were in by shortly after 12 o’clock noon in London trading.  The index finished the Friday session at 94.88—down 42 basis points.

Posted below, once again, is the 6-month U.S. dollar index chart so you can keep up with the medium-term changes.

As I mentioned yesterday, it’s my opinion that we’re seeing an engineered decline in the dollar index to bail the emerging market countries out of their U.S. dollar debt burdens.  Ambrose Evans-Pritchard, amongst others, has pointed out that these country’s U.S. denominated debt burdens were going to cause a world-wide default—and the powers-that-be have taken due note of the obvious.  We’ll see how long this lasts.

The gold stocks gapped up about five percent at the open—and added a bit more as the trading day progressed—and the HUI closed right on its high tick, up 6.22 percent on the day.

The silver equities opened up 4 percent—and then chopped around in a wide range until, like their golden brethren, they caught a serious bid in the last hour of trading and Nick Laird’s Intraday Silver Sentiment Index closed up 3.83 percent.

For the week, the HUI closed up by 18.6 percent—and the ISSI finished higher by 16.5 percent.  But as wonderful as those gains are, we’ve got miles to go to get back to where we were several years ago—and here’s Nick’s long-term Silver 7 chart that puts the current situation in perspective.  The HUI chart looks similar.

The CME Daily Delivery Report showed that 1 gold and 33 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.  ABN Amro was the short/issuer on 27 of them, but they were also the long/stopper on 30 contracts as well.  The link to yesterday’s Issuers and Stoppers Report is here.

The CME Preliminary Report for the Friday trading session showed that gold open interest in October declined by 73 contracts, leaving 1,301 still to settle—and for the fourth day in a row, silver o.i. in October remained unchanged at 41 contracts.  That will obviously change in Monday’s report now that there are the above 33 contracts being delivered.

I’m still intrigued by the number of gold contracts still open for delivery—and I’ll be more than interested in who the long/stoppers are that are standing for delivery when they finally emerge from the bushes.

There were no reported changes in GLD yesterday—and as of 6:42 p.m. EDT, there were no reported changes in SLV, either.

Well, the folks over at the shortsqueeze.com Internet site updated their website with the goings-on in the short positions in both SLV and GLD as of the close of trading on September 30—and they didn’t make for happy reading.  The short position in SLV blew out from 11.82 million shares/troy ounces, to 19.70 million shares/troy ounces—which was an increase of 67 percent.  As I’ve said on several occasions lately, the authorized participants, principally JPMorgan, are shorting the shares of SLV in lieu of depositing real metal, as there is no metal available to deposit.

The short position in GLD increased by a goodly amount as well—from 1.23 million troy ounces, all the way out to 1.73 million troy ounces, an increase of 41 percent.  I just know that Ted Butler will have something to say about this in his weekly commentary this afternoon.

There was no sales report from the U.S. Mint on Friday.

Month-to-date the mint has sold 17,500 troy ounces of gold eagles—7,000 one-ounce 24K gold buffaloes—and 1,075,000 silver eagles.

After a busy day in gold on Wednesday over at the COMEX-approved depositories, it was back to sleep again on Thursday.  Nothing was reported received—and only 2,603 troy ounces were shipped out.

However, it was another monster day in silver on Thursday, as 1,044,305 troy ounces were reported received—and 1,416,744 troy ounces were shipped out the door for parts unknown.  Of this in/out movement, there was a transfer of 599,422.6 troy ounces from the CNT Depository to the depository over at Brink’s, Inc.  The link to that action is here.

Over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday, they reported receiving 2,282 kilobars—and shipped out 329 of them.  With the exception of 4 kilobars shipped out of Loomis International, all the rest came out of Brink’s, Inc. as per usual.  The link to that activity is here.

The Commitment of Traders Report for positions held at the close of COMEX trading on Tuesday was as Ted suggest in silver—and as I figured it might be in gold.

In silver, the Commercial net short position blew out by 19,396 contracts, or 97.0 million troy ounces.   They did this by selling 7,988 long contracts and increasing their short position by 11,408 contracts. The Commercial net short position now stands at 247.5 million troy ounces.  Ted said that the Big 4 short holders increased their short position by 4,900 contracts during the reporting week—and JPMorgan accounted for 3-4,000 contracts of that amount all by itself.  Most of the increase came from the raptors [the Commercial traders other than the Big 8] as they sold 13,100 long contracts.  The ‘5 through 8’ big traders increased their short position by around 1,500 contracts.

Under the hood in the Disaggregated COT Report, it was almost all a Managed Money affair, as they bought 6,369 long contracts—and covered 12,141 short contracts.  Those two numbers total 18,510 contracts, so the less than 1,000 contract difference between the 19,396 change in the Commercial traders, came from the “Other Reportable”—and the “Nonreportable” categories.  As I said, it was strictly a Managed Money affair, with the Commercial traders providing the “liquidity” necessary to prevent prices from blowing sky high—especially the short positions of the Big 4 and Big 8 traders.

In gold, the Commercial net short position only increased by 15,326 contracts, or 1.53 million troy ounces.  They did this by selling 1,111 long contracts—and adding 14,215 short contracts.  The total Commercial net short position is now up to 8.85 million troy ounces.  Historically, this is not a big number, as I remember 40+ million troy ounce short positions way back when.  But it is miles above the only 1 or 2 million troy ounces they were short back in early August.

The big surprise was under the hood in the Disaggregated COT Report where there was very little activity from Managed Money traders.  The decreased their short position by only 2,493 contracts—and added 2,781 contracts to their already massive long position, or 5,274 contracts in total out of the 15,326 contract increased in the Commercial net short position.  The balance came from the “Other Reportables” and the “Nonreportable” categories, as the first category added massively to their long positions—and the small traders covered a pile of short positions.  Ted was happy to see this, as there’s still a decent amount of price rocket fuel left in the tanks of the Manged Money traders—and it’s the back-and-forth interchange between them and the Commercial traders that sets the price.

Ted mentioned that the only thing that saved this COT Report from being a bigger disaster than it was, from a Commercial/Managed Money perspective, was the fact that new low ticks for the previous move down were set in both gold and silver on Wednesday, Thursday and Friday morning of last week [before the jobs numbers were released].  On each of those lows, the Managed Money traders were selling longs and probably laying on some short positions as well.  Those new positions vanished in a heartbeat last Friday, plus more—but they did cushion the blow and prevented the report from being worse that it was.

Here’s Nick Lairds’ now-famous “Days of World Production to Cover COMEX Short Positions” of the Big 4 and Big 8 traders as indicated from Tuesday’s COT Report.  The grotesque and obscene short positions of the Big 8 continues to dominate this chart ever since it was first conceived fifteen years ago.  And with the exception of cocoa once in a while, the four precious metals have been pinned to the right-hand side of this chart for a generation now.

And just as a point of interest, there are 41 traders holding short positions in the Commercial category—and the above Big 8 traders are short well over 100 percent of the entire Commercial net short position.  The Big 4 are short 123 days of world silver production—and the ‘5 through 8’ traders are short an additional 57 days worth—six months in total.

To give you another sense of how grotesque things are in silver, the total Commercial gross short position is 98,446 contracts.  And if my calculations are correct, the Big 4 are short 51,867 contracts of that amount—and the Big 8 are short 76,082 contracts of that amount—77 percent.  The other 33 [41-8=33] Commercial traders are short the difference, which is around 22,400 contracts.  Split up evenly that’s less than 700 contracts per trader, which is immaterial.

The CME Group and the CFTC won’t touch this obscenity with a 10-foot cattle prod.  And as you already know, they are aiding and abetting JPMorgan et al in this crime in progress—and have been since JPMorgan took over the short position of Bear Stearns.  That obscenity includes the other three precious metals as well.

Along with yesterday’s Commitment of Traders Report came the companion Bank Participation Report [BPR] for October, for positions held in September.  And as I’ve said in the past—“This is data extracted directly from the above COT Report, which shows the COMEX futures contracts, both long and short, that are held by the U.S. and non-U.S. banks as of Tuesday’s cut-off.”  For this one day a month we get to see what the world’s banks are up to in the COMEX futures market, especially in the precious metals—and they’re usually up to quite a bit.

In gold, 4 U.S. banks are net short 50,023 COMEX gold contracts.  That’s not much change from the 49,523 COMEX contracts they were short in the September Bank Participation Report [BPR].  Three of those four banks would include JPMorgan, Citigroup—and HSBC USA.  As to which U.S. bank is #4—I haven’t a clue.

Also in gold, 24 non-U.S. banks are net short 23,068 COMEX contracts, virtually unchanged from the 22,824 COMEX contracts they were short in September’s BPR.  As I’ve stated for years, it’s reasonable to assume that a goodly chunk of this amount is most likely owned by Canada’s Scotiabank, so the remainder split up between ’23 or more’ non-U.S. banks are pretty much immaterial—unless they’re all trading as a group, and I don’t think they are.  There’s also a good chance that some of these non-U.S. banks are net long the COMEX futures market in gold.

Here’s Nick’s chart of the Bank Participation Report for gold going back to 2000.  Charts #4 and #5 are the key ones here.  Note the blow-out in the short positions of the non-U.S. banks [the blue bars in chart #4] when Scotiabank’s COMEX gold positions [both long and short] were outed in October of 2012.  The ‘click to enlarge’ feature is a must with these charts.

In silver, ‘3 or less’ U.S. banks are net short 23,068 COMEX contracts—and it’s Ted’s back-of-the-envelope calculation that JPMorgan holds about 90 percent of that short position all by itself.  The short position of these ‘3 or less’ U.S. banks was 18,412 contracts in the September BPR, so there’s been a decent increase month over month.  If there are 3 U.S. banks on the short side of the COMEX silver market, and their could just as easily be two, they would be Citigroup, HSBC USA—and JPMorgan.

Also in silver, ’14 or more’ non-U.S. banks are net short 22,409 COMEX contracts—and that’s an increase from the 16,951 contracts that these same banks held in the September BPR.

I would estimate that between 75 and 80 percent of those 22,409 COMEX contracts are owned by Canada’s Scotiabank, which makes the short positions of the remaining ’13 or more’ non-U.S. banks pretty much immaterial.

Here’s the BPR chart for silver.  Note in Chart #4 the blow-out in the non-U.S. bank short position [blue bars] in October of 2012 when Scotiabank was brought in from the cold.  Also note August 2008 when JPMorgan took over the silver short position of Bear Stearns—the red bars.  It’s very noticeable in Chart #4—and really stands out like the proverbial sore thumb it is in chart #5.

In platinum, ‘3 or less’ U.S. banks are short 7,510 COMEX contracts—and for the third month month a row, none of these U.S. banks held a single solitary long contract.  They are not net short the platinum market—their positions are held entirely on the short side.  In the September BPR, these same banks were short 9,142 COMEX platinum contracts, so they’ve reduced their short position in this metal by a bit.  It’s now the lowest its been since May.

I’d guess that JPMorgan holds the lion’s share of these 7,510 contracts—and maybe only HSBC USA is short the rest.  Citi would be a small player, if they are at all.

Also in platinum, ’16 or more’ non-U.S. banks are net short 4,898 COMEX contracts, a big drop from the 7,100 contracts they were short in the September BPR.

If there is a large player in platinum amongst the non-U.S. banks, I wouldn’t know which one it is, however I’m sure there’s at least one big one in this group.  The reason I say that is because before mid-2009 when the U.S. banks showed up, the non-U.S. banks were always net long the platinum market by a bit—and now they’re net short.  The remaining 15 non-U.S. banks divided into whatever is left, isn’t a lot, unless they’re all operating in collusion—which I doubt.  But from the numbers it’s easy to see that the platinum price management scheme is an American show as well, with one big non-U.S. bank most likely involved.  Scotiabank perhaps?

Here’s the BPR chart for platinum—and please note that the U.S. banks were never a factor in platinum until mid 2009.  Now look at them!  If you want to know why the platinum price isn’t going anywhere, despite the supply/demand fundamentals, look at the total long positions the U.S. banks have vs. their collective short positions.  Palladium too!  That tells you all you need to know.  The banks are net short about 15 percent of the entire COMEX futures market in platinum, but it’s the positions of the ‘3 or less’ U.S. banks [plus one other] that really matters.

In palladium, ‘3 or less’ U.S. banks were net short 5,269 COMEX contracts in October’s BPR, which is a decent increase from the 4,299 contracts they held short in the September BPR.

Also in palladium, ’14 or more’ non-U.S. banks are net short only 252 COMEX contracts—and probably close to their smallest short position ever, so they’re market neutral.

Here’s the BPR chart for palladium updated with the October BPR data.  Like platinum above, just look at the long positions vs. the short positions held by the U.S. banks in Chart #5.  You couldn’t make this stuff up!  You should note that the U.S. banks were almost nowhere to be seen in the COMEX futures market in this metal until the middle of 2007—and they became the predominant and controlling factor by the end of Q1 of 2013, where they remain today.  I would bet, that like platinum, JPMorgan holds the vast majority of the U.S. banks’ short position in palladium—and maybe all of it.

As I say every month at this time, the three U.S. banks—JPMorgan, Citigroup, HSBC USA—along with Canada’s Scotiabank— are the tallest hogs at the price management trough.  Until they decide, or are instructed to stand back, the prices of all four precious metals are going nowhere—supply and demand fundamentals be damned!

As Jim Rickards so correctly put it, the price management scheme is now so obvious they should be embarrassed about it.

Since China was closed for a week, there was no report from the Shanghai Gold Exchange yesterday.

I have a reasonable number of stories for you today—and I hope you have enough time in what’s left of your weekend to read the ones that interest you.

CRITICAL READS 

Wholesale Inventories Rise and Sales Tumble Sending Ratio to “Recession Imminent” Cycle Highs

Wholesale Inventories rose 0.1% MoM (more than expected and the most in 7 months) and Sales dropped 1.0% MoM (notably less than expected and weakest in 7 months) sending the inventory-to-sales ratio to 1.31x – new cycle highs – and flashing the brightest recession warning yet. With inventories up 4.2% YoY and Sales down 4.5% YoY, the stunning reality is the absolute dollar spread between inventories and sales has never been bigger.

Inventories keep rising more than expected and sales keep missing…

This 5-chart Zero Hedge piece from yesterday was posted on their Internet site at 10:07 a.m. EDT—and I thank Richard Saler for today’s first story.

“It’s Not a Risk-On Rally, This Is the Biggest Short Squeeze in Years” Says Bank of America

Several days ago, we pointed out a startling fact: short interest in the NYSE had risen to match the record level seen just before the collapse of Lehman!

We said that just as likely presaging another major leg down in equities, this move may simply mean the following: “a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs.”

While a central bank did not directly intervene, it did so indirectly when the September payrolls was a complete disaster, slamming any possibility of a rate hike in 2015, largely confirmed by yesterday’s FOMC minutes which showed that the “no hike” decision wasn’t close at all, and that as we first presented, a rate hike is now mid-2016’s business, if ever.

Today, we got confirmation that what the rally of the past week has been all about is precisely that: a massive short-covering squeeze.

This is the second Zero Hedge article in a row from Richard Saler—and it’s definitely worth reading, at least the first part is.  It put in an appearance on their website at 8:02 a.m. on Friday morning EDT.

Dollar Demolition Extends to 6th Day as EM/Asian FX Soars Most in Over 6 Years

As the odds of a Fed rate-hike this century drift asymptotically back towards zero, the stability-desirous central bankers of the emerging world are suddenly facing soaring currencies as hot money floods back into Emerging Asian markets. The Rupiah and Ringgit are up almost 3% overnight as everything from the Baht to the Won are surging against the USD. Asian FX is up 6 straight days against the USD (and 8 of the last 9) for the biggest 9-day gain since May 2009.

The China devaluation spike in The USD against Asian FX is rapidly being unwound…

So now what will the talking-heads say about a weaker USD? Especially in light of the fact that they crowed about a strong USD being indicative of a strong US economy… is The US now the dirtiest dirty shirt?

As I mentioned in my commentary on the U.S dollar the last couple of days, it’s my opinion that this decline is being engineered to save the Emerging Markets from going bust on their massive U.S. dollar debts.  This Zero Hedge piece appeared on their website at 10:44 p.m. EDT on Thursday evening—and it’s the third offering in a row from Richard Saler—and it’s also his last contribution to today’s column.

Doug Noland: Courage to Print

Dr. Bernanke has referred to understanding the forces behind the Great Depression as the “Holy Grail of Economics.” I believe understanding the ongoing Bubble period offers the best opportunity to discover the “Grail.” When the Washington establishment believed THE Bubble had burst back in 2000/2001, the leading academic espousing inflationism was beckoned to Washington to provide cover for the Fed’s experimental post-tech reflationary measures. He first served as a member of the Board of Governors of the Federal Reserve System (2002), before being appointed chairman of the President’s Council of Economic Advisors (2005). From the day Ben Bernanke burst onto the scene in 2002, I’ve taken strong exception with his economic doctrine and analysis.

I have yet to read his new memoir. However, I listened attentively this week as he blanketed the airwaves. As I’ve done on occasion for going on 13 years now, I’ll highlight some of Bernanke’s thinking (and provide brief comments).

This longish commentary by Doug appeared on his website in the wee hours of Saturday morning EDT—and I must admit that I haven’t read it yet, but it will be on my “to do” list this weekend sometime.

Global Recession Coming – Even “Powerhouse” Germany and U.K. Slow “Dramatically”

The IMF have been growing more vocal in recent weeks about the possibility of another financial crisis and severe recession. The head of financial stability at the IMF, José Viñals has said that this outlook “does not rely on extreme assumptions at all”.

IMF head, Christine Lagarde has said that the slow down now being seen in China and other large emerging markets will cut economic growth globally back to levels last seen during the crisis of 2009.

Viñals added “If we don’t get it right we could set the clock back in terms of growth.”

In its financial stability report the IMF said:

“Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes.”

Just this week, we covered the similar stark warning from the BIS, the central bank of central banks,  who warned of “major fault lines” in the global financial system and a “global debt bubble“.

This commentary by Mark O’Byrne showed up on the goldcore.com Internet site on Friday—and I found it all by myself.  It’s definitely worth reading.

The Deep State — Doug Casey

I’d like to address some aspects of the Greater Depression in this essay.

I’m here to tell you that the inevitable became reality in 2008. We’ve had an interlude over the last few years financed by trillions of new currency units.

However, the economic clock on the wall is reading the same time as it was in 2007, and the Black Horsemen of your worst financial nightmares are about to again crash through the doors and end the party. And this time, they won’t be riding children’s ponies, but armored Percherons.

The Deep State is an extremely powerful network that controls nearly everything around you. You won’t read about it in the news because it controls the news. Politicians won’t talk about it publicly. That would be like a mobster discussing murder and robbery on the 6 o’clock news. You could say the Deep State is hidden, but it’s only hidden in plain sight.

The Deep State is the source of every negative thing that’s happening right now. To survive the coming rough times, it’s essential for you to know what it’s all about.

This is Doug’s take on G. Edward Griffin’s classical novel “The Creature from Jekyll Island: A Second Look at the Federal Reserve“—and Doug’ commentary is an absolute must read.

Solar and Wind Just Passed Another Big Turning Point

Wind power is now the cheapest electricity to produce in both Germany and the U.K., even without government subsidies, according to a new analysis by Bloomberg New Energy Finance (BNEF). It’s the first time that threshold has been crossed by a G7 economy.

But that’s less interesting than what just happened in the U.S.

To appreciate what’s going on there, you need to understand the capacity factor. That’s the percentage of a power plant’s maximum potential that’s actually achieved over time.

This very interesting article showed up on the Bloomberg website at 4:00 a.m. Denver time on Tuesday, but for content reasons, had to wait for a spot in my Saturday missive.  I thank Tolling Jennings for sharing it with us.

The Ukraine Imbroglio: John Batchelor Interviews Stephen F. Cohen

This was an important week geopolitcally as Russia finally commits to taking an active new major leadership role in the world. This showed up in two places, Ukraine and Syria; the latter defuses to some extent and Syria turns into the new flash point for confrontation with Washington. Germany’s Merkel and France’s Holland move to finally defuse the Ukraine Crisis, and Putin intervenes in the Donbass and convinces the rebels to hold off on elections, a worry for the Normandy Four for conforming to the Minsk2 Agreement.  Poroshenko gains a diplomatic opening where he can deescalate the crisis.  Kiev now knows that Washington is not going to send arms and Right Sector forces are gradually withdrawing from the Donbass borders. However, these forces are still a great threat to Kiev.

Meanwhile Putin is finding huge support in Europe for his bombings against ISIS in Syria. The Europeans are finally waking up to how American foreign policy has caused an existential problem in the form of the refugee crisis. As Cohen explains, the refugee crisis is seen as more of a threat than the Ukraine Crisis, and the migration of M.E. and north African refugees is seen as a huge setback for Washington’s influence over European governments.

Obama, however, is left with a major political headache in Washington. Many major members from Senate leaders to presidential candidates are now pushing Obama to attack Russian planes in Syria, something Cohen refers to as the “fork in the road event” for Obama who has to publicly deplore Russia actions and privately cooperate with them. Russia’s activities against ISIS are, after all, UN approved. But the war party is still in control and extremely vocal out of NATO and Washington. Even Zbigniew Brzezinski, U.S. foreign policy expert, came out with a statement in favour of attacking Russian planes – which would be an act of war against Russia. Meanwhile Israel is helping Russia’s bombing campaign with valuable intel, an additional complication….

Cohen now considers the Cold War 2 is now on three fronts, and although Putin strives to be non-confrontational with Washington, he once more shows the world that he is both decisive, when it comes to Russian interests, and a supporter of International Law. The differences between the two great powers are beginning to be glaring in the West as well.

This 40-minute audio interview appeared on the johnbatchelorshow.com Internet site on Tuesday—and I thank Ken Hurt for the link—and Larry Galearis for the most valuable executive summary above, which is an absolute must read in and of itself.  The interview is worth your time if you’re a serious student of the New Great Game.

To Progress and Back: The Rise and Fall of Erdogan’s Turkey

No other state has catapulted itself into the future quite as rapidly, nor relapsed back into its dark past as suddenly, as Turkey. First there was modernization, and now the beginnings of a civil war. The country is divided by mistrust and hate.

If the rest of the country were like Güneysu, Erdogan — who has ruled almost single-handedly for 13 years — would have had no trouble securing another triumphant victory in the June 7 election. But the people of this region aren’t the only Turks, and his Justice and Development Party (AKP) only got 40.9 percent of the vote and lost its absolute majority. The defeat destroyed Erdogan’s dream of turning the country into a presidential republic with himself at the all-powerful helm until 2019. Adding insult to injury, the People’s Democracy Party (HDP) also made it into parliament, the first time that a pro-Kurdish party cleared the 10-percent hurdle.

Yet Erdogan still clings to power and to his dream. He let coalition talks break down and scheduled new elections for Nov. 1. For Erdogan, the only acceptable result is an absolute majority for the AKP. Erdogan is risking everything to secure it.

Recep Tayyip Erdogan — a devout Muslim, gifted populist, modernizer and father of the country’s economic miracle — is in danger of becoming an autocrat, one who is dragging his own nation into civil war and stoking external conflicts. First, he wanted to overthrow the Syrian dictator Bashar Assad, then he ignored the Islamic State (IS) for far too long. And now he’s fighting the Kurds, the West’s only partner in its battle against the Islamic extremists. Erdogan is reinstating old battle fronts and stirring mistrust and nationalism. He is imprisoning journalists and his critics. And his soldiers are cordoning off and firing on entire Kurdish cities.

Erdogan used to have ambitious goals. He wanted to solve the Kurdish conflict and boost the economy. He wanted to modernize his country and align it more toward Europe. And he wasn’t entirely unsuccessful.

This story was posted on the German website spiegel.de back on September 15, but it’s still as relevant now as it was back then.  I thank Patricia Caulfield for her first offering in today’s column.  It’s had a headline change in the last twelve hours—and it used to read “Turkey Under Erdogan Is Becoming Politically Riven“.

Wary of Escalation in Syria, U.S. Is Waiting Out Putin’s Moves

President Obama this year defined his approach to crises like the civil war in Syria as “strategic patience and persistence.” But with Russian jets and missiles now rocketing through the skies over Syria, what he calls patience looks to many critics like paralysis.

Whatever it is called, Mr. Obama’s advisers say there is little they can do to change the situation in the near term. Proposals are being drafted for meetings in coming days, but Mr. Obama has made clear he is not willing to confront the Russians and risk an escalation, nor does he have a broad new strategy to resolve the conflict or defeat the Islamic State.

“There isn’t a solution at this point that they’re going to get done on their watch,” said Michael McFaul, a former White House adviser to Mr. Obama who later served as ambassador to Russia before returning to Stanford University. “They’re just going to contain it.”

Mr. Obama views suggestions for more robust action as a prescription for disaster. His advisers are exploring whether anything can be done to protect Syrian opposition allies targeted by Russian forces, but they are unwilling to provide defensive arms to use against Russian warplanes. Obama advisers concede they may be able to help their allies cope with the Russian bombing only after the fact.

This news item appeared on The New York Times website on Wednesday—and I thank Patricia Caulfield for her second offering in a row in today’s column.

Obama Administration Ends Effort to Train Syrians to Combat ISIS

The Obama administration on Friday abandoned its efforts to build up a new rebel force inside Syria to combat the Islamic State, acknowledging the failure of its $500 million campaign to train thousands of fighters and announcing that it will instead use the money to provide ammunition and some weapons for groups already engaged in the battle.

Defense Department training sites across the Middle East, including ones in Turkey and Jordan, will soon suspend almost all operations, officials said, in favor of a revamped program that briefly screens Arab rebel commanders of existing Syrian units before equipping them with much-needed ammunition and, potentially, small arms. Initial airdrops of equipment could begin as early as this weekend, officials said.

The decision to scuttle a central piece of President Obama’s strategy for confronting extremists in Syria was made after mounting evidence that the training mission had resulted in no more than a handful of American-coached fighters. And it comes amid Russia’s forceful entry into the Syrian conflict, a move by President Vladimir V. Putin that has highlighted the lack of progress by the United States and its coalition.

This article was posted on The New York Times website on Friday sometime—and it’s courtesy of Patricia Caulfield as well.  She also provided this Al Jazeera story on the same issue—and it’s headlined “U.S. abandons failed $500M program to train and equip Syrian rebels“.

Israeli Soldiers Kill 6 Palestinians in Gaza as West Bank Unrest Grows

Israeli soldiers killed six young Palestinians on Friday in the Gaza Strip, including a 15-year-old boy, as they opened fire to quell crowds that hurled rocks and rolled burning tires close to the fence separating Gaza from Israel, Israeli military and Gaza health officials said.

The deadly clash came as the roiling violence and unrest of the past week continued across Israel and the occupied West Bank; there were four more stabbing attacks, including the first by a Jewish Israeli against Arabs, and unruly demonstrations that raged into the night.

The deteriorating landscape presented intense political challenges for both Prime Minister Benjamin Netanyahu of Israel and President Mahmoud Abbas of the Palestinian Authority. Neither is ready to make a dramatic diplomatic move that could ease the conflict, yet the spiraling situation tests their ability to maintain control of restive constituencies.

For Mr. Abbas, who has preached nonviolence for his entire tenure, the escalating unrest undermines his credibility with international supporters and benefits his more militant rivals, like the Hamas Islamists, who have egged on the attackers.

This story appeared on The New York Times website on Friday—and my thanks goes out to Patricia Caulfield once again.

The Other Refugee Crisis

For the past five years I have been visiting the world’s largest refugee camp, a city made of mud and sticks the size of New Orleans called Dadaab, in northeastern Kenya. The camp was established in 1991 as a temporary refuge for around 90,000 people fleeing Somalia’s civil war. Today it is home to half a million.

At first, I was blown away by the fact of its existence: How could this place still be here? And how could the world allow all these people to stay in this baking hot limbo, unable to work and unable to leave, to spend their whole lives in an open prison? But five years later, after following residents through their daily lives and listening to their hopes and fears, I have came to a very different realization: Dadaab is not an anachronism, or a hangover from a former world order. It is the future.

It wasn’t supposed to be this way. Dadaab was created as a short-term haven where the international community could house and feed displaced people until a “durable solution” could be found. Under the principles set out by the United Nations High Commissioner for Refugees, this meant refugees would stay in the camp until one of three things happened: They returned to their country of origin; were integrated into their new host country, in this case, Kenya; or were offered resettlement to a third country, usually in Europe or the United States.

This very interesting, but disturbing opinion piece appeared on The New York Times website yesterday sometime—and I thank Patricia for this article as well.

China launches global yuan payment system

China’s Central Bank has started a global payment system which provides cross-border transactions in yuan. The China International Payment System (CIPS) intends to internationalize the yuan and challenge the US dollar’s dominance.

Prior to launching CIPS international, transfers in Chinese currency could be carried out mostly through offshore clearing banks in Hong Kong, Singapore or London. While the procedure was slow and costly, the new system is expected to significantly reduce the cost and time for money transfers.

China is also trying to reduce its reliance on the global transaction services organization SWIFT.

This story was posted on the Russia Today website at 10:37 a.m. Moscow time on their Friday morning—which was 3:37 a.m. in New York—EDT plus 7 hours.  I thank U.K. reader Tariq Khan for this news item.

If You Thought China’s Equity Bubble Was Scary, Check Out Bonds

As a rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another.

So says Commerzbank AG, which puts the chance of a crash by year-end at 20 percent, up from almost zero in June. Industrial Securities Co. and Huachuang Securities Co. are warning of an unsustainable rally after bond prices climbed to six-year highs and issuance jumped to a record. The boom contrasts with caution elsewhere. A selloff in global corporate notes has pushed yields to a 21-month high, and credit-derivatives traders are demanding near the most in two years to insure against losses on Chinese government securities.

While an imminent collapse isn’t yet the base-case scenario for most forecasters, China’s 42.2 trillion yuan ($6.7 trillion) bond market is flashing the same danger signs that triggered a tumble in stocks four months ago: stretched valuations, a surge in investor leverage and shrinking corporate profits. A reversal would add to challenges facing China’s ruling Communist Party, which has struggled to contain volatility in financial markets amid the deepest economic slowdown since 1990.

“The Chinese government is caught between a rock and hard place,” said Zhou Hao, a senior economist in Singapore at Commerzbank, Germany’s second-largest lender. “If it doesn’t intervene, the bond market will actually become a bubble. And if it does, the market could crash the way the equity market did due to fast de-leveraging.”

This Bloomberg article was posted on their Internet site at 3 p.m. MDT on Thursday afternoon—and I thank Patricia C. for sharing it with us.

Bank of England Tells British Banks to Reveal Their Full Exposure to Glencore and Other Commodity Traders

Moments ago Glencore stock was halted after it tripped a circuit breaker to the upside, soaring 12% and more than doubling from its recent record lows on overnight news the commodity trading giant would cut its zinc production by a third as well as lay off some 1,600 workers in Australia, in the process also sparking the biggest ever rally in the price of zinc.

Annual zinc output will fall by about 500,000 metric tons as Glencore suspends production at its Lady Loretta mine in Australia and at Iscaycruz in Peru it said Friday in a statement. It will also reduce output at McArthur River and the George Fisher mines, both also in Australia and some operations in Kazakhstan. The cuts are expected to result in about 1,600 job losses. Global zinc production was 13.3 million tons in 2014, according to the U.S. Geological Survey, making the reduction equivalent to almost 4 percent of world output.

Along with a cut in zinc production comes a reduction in silver production, because virtually every zinc mine has decent silver byproduct stream as well—and it will be interesting to see if some analyst or other does the math on this.  It’s not an insignificant number.  This news item, which is certainly a must read, was posted on the Zero Hedge website at 9:49 a.m. on Friday morning EDT—and I thank Brad Robertson for pointing it out.

Koos Jansen: The Chinese gold market — lost in translation

Suspicions that the People’s Bank of China has been hiding national gold reserves on the books of domestic banks probably have arisen mainly from sloppy translations of remarks by Chinese officials, gold researcher and GATA consultant Koos Jansen reports today.

His interesting analysis is headlined “The Chinese Gold Market: Lost in Translation” and it was posted on the bullionstar.com Internet site on Friday sometime.  But despite what Koos says here, it’s my opinion, along with many others, is that the PBOC is hiding their bullion imports in just such a fashion.  Time will tell, of course.  I thank Chris Powell for providing the above paragraph of introduction from the GATA release on this, but the first person through the door with this article yesterday was Patricia Caulfield—and I thank her for her last contribution to today’s column.

LBMA invites proposals on how to improve London’s gold market

The London Bullion Market Association is inviting companies to submit proposals on how to improve the city’s over-the-counter gold market.

The LBMA wants to study ways of boosting transparency, including more detailed reporting of trades, it said in an e-mailed statement. It also invited considerations for a new electronic platform that may lower costs and improve efficiency. The deadline for proposals is Nov. 16.

The request follows a study by Ernst & Young LLP that the LBMA commissioned earlier this year. The World Gold Council and five banks, including Morgan Stanley and Goldman Sachs Group Inc., are also assessing whether it makes sense to introduce standardized central clearing and listed derivatives.

Chris Powell’s comment on this story is succinct:  “Why not start by getting rid of the LBMA?“—and I agree totally.  I found this story on the gata.org Internet site yesterday.

Gold Imports by India Said to Slump 52% in September From August

Gold imports by India, the world’s second-biggest consumer, dropped 52 percent last month after shipments surged in August.

Overseas purchases tumbled to 67 metric tons from 141 tons in August, according to two finance ministry officials, who asked not to be identified. Imports were valued at 123.8 billion rupees ($1.9 billion) last month, they said.

Shipments jumped in August as jewelers stocked up to meet a surge in demand during the festival and wedding season that started this month. A decline in gold prices to a four-year low in July also spurred purchases. Prices have since recovered 7 percent, tempering imports.

This story is true enough on its face, but if you average August and September imports, you come up with over a 100 tonnes per months, which is huge by any measure.  This Bloomberg story put in an appearance on their Internet site at 3:33 a.m. Denver time on Friday morning—and it’s something I found on the Sharps Pixley website.

The PHOTOS and the FUNNIES 

This first photo is of Pluto, backlit by the sun.   Note its blue ‘atmosphere’. The photo was taken on July 14 when the New Horizon spacecraft did its fly-by—and the folks at NASA just downloaded it last week.  I got the photo from the spaceweather.com Internet site—and you can read all about it here.

The WRAP

I also know firsthand the repercussions that can arise from coming down on the wrong side (regulator wise) of demanding delivery on a large amount of contracts where actual physical supply is limited. Therefore, it’s not wise to dwell too deeply on the likelihood of a delivery default, particularly in gold. After all, the gold wouldn’t be needed by industry, but by investors or speculators. The easiest solution for any mismatch is also one of the oldest – mark prices up to the level that it cools off further demand and increases the amount offered for sale. But as you might suppose, it’s different in silver.
 
I believe the likelihood of a big investor or speculator being allowed to threaten a delivery default in COMEX silver to be as remote as in gold (or any commodity); it just isn’t going to happen. And even though I recently suggested publicly that a large investor could turn $1 billion into $5 billion by buying silver and taking delivery on the COMEX,  I was very careful to suggest it would take some time in taking delivery on futures contracts to avoid the stigma of attempted manipulation. As I said, no big speculator would get to first base in threatening a COMEX gold or silver delivery default.
 
But what about silver industrial users? Should a wholesale physical silver shortage develop and not one large, but many different silver users rushed to take physical delivery on COMEX futures contracts – what would or could the regulators do? In my opinion, not much that would truly alleviate the situation. The regulators couldn’t tell a diverse group of legitimate market participants to liquidate an excessively concentrated position, because no such concentration would exist. Some might suggest the COMEX futures contracts might be converted to cash settlement (others continue to suggest cash settlement exists currently, but that is so wrong it is painful to even discuss). Regardless, if a COMEX silver contract owner stood for physical delivery and was denied in any way that would be a contract default in the clearest declaration possible. — Silver analyst Ted Butler: 07 October 2015

Today’s pop ‘blast from the past’ is from 1970—that’s 45 years ago if I’m doing the math right.  Scarey, isn’t it?  The band and the tune need no introduction—and the link is here.

Today’s classical ‘blast from the past’ was a sensational success when it was premiered at the Paris Opéra on 22 November 1928. It became Ravel’s most famous composition, much to the surprise of the composer, who had predicted that most orchestras would refuse to play it.  I’ve heard this live on at least three occasions—and I can tell you from experience that a] the audience always goes crazy when it comes to an end, and b] no recording can ever do it justice—but this one is about as good as it gets.  Here’s the London Symphony Orchestra doing the honours—and Valery Gergiev conducts.  Bring this superb video clip up to full-screen—and turn up the volume as loud as you can stand.  The link is here.

I was happy to see the rallies in all four precious metals yesterday, but I’m under no illusion that they were driven by supply/demand fundamentals, as it was strictly paper positioning between the Commercial Traders and the technical funds in the Managed Money category.

But, having said that, the news out of Glencore about mine closures certainly added something to the mix yesterday, and that news certainly changed the dynamics in the commodity markets to a certain extent.  It will be interesting to see how this all unfolds in the days and weeks ahead.

I have no idea how much further these rallies will be allowed to run to the upside, but the monster increase in silver’s Commercial short position gives one pause.  As I said earlier this week, it’s a mug’s game trying to handicap the precious metal markets at this juncture—however it does feel like it has a different dynamic than a month or two ago.

The other thing that I’ve been talking about—and which Jim Rickards amongst others has mentioned, is that if the banking system and governments want inflation, all the have to do is let commodity prices run—and they’ll get all the inflation they want.  However, the danger there is that any rush from paper assets to physical assets—especially the precious metals—could be lethal to the banking system.  But as I’ve also mentioned many times over the years, the gold/commodities card is the only one that the central banks have left to play, as QE-type money printing is a spent force—and they know it.

Here are the 6-month charts for the Big 6 commodities—and all experienced short covering rallies of varying amounts.

Both the IMF and the BIS, amongst others, have made it abundantly clear that all is not well in whatever direction one cares to look in the economic, financial and monetary landscape.  It’s my opinion, which I expressed further up, that the powers-that-be are making some sort of attempt to cut the risk to emerging market U.S. dollar debt by letting the dollar slide.  However at this point in the business cycle it’s way too little—and way too late.  But it’s certainly being felt in the commodities/precious metal markets since the job numbers came out a week ago.

All we can do at this juncture is sit back, blow the froth off a cool one—and watch the show unfold.

I’m done for the day—and the week—and I’ll see you here on Tuesday.

Ed

http://www.edsteergoldandsilver.com/