-- Published: Sunday, 7 January 2018 | Print | Disqus
By Ed Steer
06 January 2018 -- Saturday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
The gold price spent all of Far East trading and most of London trading drifting quietly lower. There was a jump up at on the jobs report at 8:30 a.m. in New York, but that was dealt with in the usual manner. It got sold lower from there -- and the low tick of the day, such was it was, came minutes after 9:15 a.m. EST. It rallied until shortly before noon -- and at that point the price was capped and it chopped a bit lower as the Friday trading session moved along.
The low and high ticks aren't worth looking up.
Gold finished the Friday session at $1,318.80 spot, down $3.20 from Thursday. Net volume was over the moon once again at something under 304,000 contracts -- and their was a noticeable amount of roll-over/switch volume out of February as well.
Silver's price action on Friday was almost identical to what happened in gold, except for the fact that the price spike at the release of the job numbers was far more spectacular -- and JPMorgan et al had to throw a lot of COMEX paper at it to not only cap it, but drive it down to its low tick of the day, which came about thirty minutes after its high tick.
The high and low ticks in this precious metal were reported by the CME Group as $17.13 and $17.325 in the March contract.
Gold was closed in new York yesterday at $17.16 spot, down 4 cents from Thursday. Net volume was pretty chunky at just under 77,000 contracts.
The platinum price was down 6 bucks or so by around 10 a.m. China Standard Time on their Friday morning...but by the COMEX open, it was back at unchanged on the day. After a false start at that juncture, it rallied a bit starting at the afternoon gold fix in London -- and all the gains that mattered were in by noon EST. It traded flat into the 5:00 p.m. close from there. Platinum finished the Friday session at $968 spot, up another 6 dollars.
The palladium price drifted rather aimlessly sideways during the Far East trading session -- and most of the Zurich session as well. It was down a couple of dollars by the COMEX open -- and began to head lower shortly after that. The low tick was set around 12:30 p.m. EST -- and it rallied until shortly after 2 p.m. in the thinly-traded after-hours market. Palladium closed at $1,086 spot, down 6 bucks from Thursday.
The dollar index closed very late on Thursday afternoon in New York at 91.87 -- and after ticking lower to the 91.81 mark around 8:30 a.m. CST on their Friday morning, began to head higher. It topped out around the 92.10 mark about 9:45 a.m. GMT in London -- and then began to chop very quietly lower into the 8:30 a.m. EST jobs report. The bottom fell out at that point -- and the usual 'gentle hands' stepped in a the 91.78 mark -- and hauled it back to where it had been thirty-five minutes earlier. It chopped and flopped around a bit after that, before resuming its downward trend at the 11 a.m. EST close of trading in London. Then at 2 p.m. -- a 'thoughtful soul' appeared to rally it equally quietly back above the 92.00 mark before the trading day ended on Friday. The dollar index was closed at 92.02 -- and up 15 basis points from Thursday.
Heaven only knows what the dollar index would have looked like if those 'gentle hands' hadn't appeared at 8:30 a.m. in New York yesterday morning.
And here's the 6-month U.S. dollar index which, as always, is presented for its entertainment value only.
The gold shares gapped down a bit at the open -- and then headed higher about fifteen minutes later, making it back into positive territory for a minute or so shortly before 10:30 a.m. in New York trading. They fell back into the red almost immediately -- and then chopped sideways for the remainder of the Friday session. The HUI closed down 0.31 percent.
The price path for the silver equities was virtually identical, except their rallies off their 9:45 a.m. EST lows never got a sniff of positive territory -- and were back to their morning lows by 11 a.m. They rallied weakly from there, but then chopped sideways until the silver price began to sag at 3 p.m. EST -- and the shares were only too happy to sag with it. Nick Laird's Intraday Silver Sentiment/Silver 7 Index closed down 1.29 percent. Click to enlarge if necessary.
And here's the 1-year Silver Sentiment/Silver 7 Index. Click to enlarge.
Here the usual chart from Nick that show what's been happening for the week, month-to-date -- and year-to-date. The first one shows the changes in gold, silver, platinum and palladium for the past trading week, in both percent and dollar and cents terms, as of their Friday closes in New York — along with the changes in the HUI and the Silver 7 Index.
Since this is the first week of the first month of the New Year...only the year-to-date chart is necessary. 'Click to enlarge'.
The precious metal shares continue to underperform the underlying precious metals -- and that's particularly true of the silver equities. That will certainly change at some point -- and the sooner the better as far as I'm concerned.
The CME Daily Delivery Report showed that zero gold and zero silver contracts were posted for delivery within the COMEX-approved depositories on the U.S. east coast on Tuesday. January deliveries have slowed to a trickle in the last three days.
The CME Preliminary Report for the Friday trading session showed that gold open interest in January fell by 4 contracts, leaving 179 left. Thursday's Daily Delivery Report showed that 4 gold contracts were actually posted for delivery on Monday, so the change in open interest and deliveries match in gold for the second time this week. Silver o.i. in January declined by 2 contracts, leaving 39 still around. Thursday's Daily Delivery Report showed that 2 silver contracts were actually posted for delivery today, so there was a match in silver as well.
There was a withdrawal from GLD yesterday, as an authorized participant removed 37,964 troy ounces, which is a highly counterintuitive event considering that the gold price has been rising steadily for the past two weeks or so. I would suspect that this is another of Ted's "conversions of GLD shares for physical metal" in order to avoid SEC reporting requirements. There were no reported changes in SLV.
There was no sales report from the U.S. Mint.
There was also no in/out movement in either gold or silver at the COMEX-approved depositories on the U.S. east coast on Thursday. In the last five or six years, that has only occurred a couple of times that I can remember. Ted thought that more than strange as well. However, it certainly could have been weather related after that storm.
But there was a fair amount of activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday. They reported receiving exactly 5,000 of them -- and shipped out exactly 100. Very strange round numbers. All of this action was at Brink's, Inc. as per usual -- and the link to that, in troy ounces, is here.
As expected, the Commitment of Traders Report for positions held at the close of COMEX trading on Tuesday, did not make for happy reading. Although not as bad as Ted Butler thought they might be, the numbers were still pretty ugly.
In silver, the Commercial net short position increased by a very chunky 16,453 contracts, or 82.3 million troy ounces of paper silver.
They arrived at this number by reducing their long position by 6,566 contracts, plus they added 9,887 short contracts -- and the sum of those two numbers is the change for the reporting week.
Ted said that the Big 4 traders, read JPMorgan, added about 4,900 contracts to their short position -- and his raptors, the 39 small Commercial traders other than the Big 8, reduced their long position by around 12,000 contracts. The '5 through 8' large traders actually decreased their short position by approximately 400 contracts during the reporting week -- and that's solely for the reason that the one or two large Managed Money traders that had been inhabiting their space for the last several weeks, existed stage left during the price rally in silver that began on December 14.
Under the hood in the Disaggregated COT Report, it was all Managed Money traders -- and then some, as they not only added 5,821 long contracts, they also covered 17,169 short contracts, for a totally weekly change of the sum of those two numbers, which is 22,990 contracts. The difference between that number -- and what the Commercial traders did...22,990 minus 16,453 equals 6,537 contracts...was made up by the traders in the 'Other Reportables' and 'Nonreportable'/small trader categories, with the traders in the 'Other Reportables' category making up the lion's share of it.
The Commercial net short position in silver is back up to 186.0 million troy ounces. With the latest Bank Participation Report in hand, Ted pegs JPMorgan's short position at 31,000 contracts, up 6,000 contracts from last week's report.
Here's the 3-year COT Report for silver -- and it's not as happy looking as it was last week -- and without doubt, it has deteriorated even more since the Tuesday cut-off. It's a safe bet that it has deteriorated far more in the last three days than it did during the entire reporting week just past. Click to enlarge.
In gold, the commercial net short position increased by 28,131 contracts, or 2.81 million troy ounces of paper gold.
They arrived at that number by reducing their long position by 365 contracts, a very small number, but they added 27,766 short contracts -- and the sum of those two numbers is the change for the reporting week.
Ted said that the Big 4 added a whopping 21,300 short contracts, plus the '5 through 8' large traders added about 6,300 short contracts as well. Ted's raptors, the 45-odd small commercial traders other than the Big 8, only reduced their long position by approximately 500 contracts, a really tiny amount.
Under the hood, it was all Managed Money traders and much more, as they added 40,708 long contracts, plus they increased their short position by 292 contracts as well -- and it's the difference between those two numbers...40,416 contracts...that represents the change for the reporting week. Like in silver, it was the traders in the 'Other Reportables' category that made up most of the difference between what the Managed Money traders bought -- and the commercial traders sold.
The commercial net short position in gold is now up to 17.76 million troy ounces.
Like in gold, the deterioration in the three trading days since the Tuesday cut-off has been absolutely enormous, far in excess of what was reported in this latest COT Report. So unless there's a dramatic reversal in fortune during the remaining two reporting days for next week's COT Report, next Friday's COT Report will be butt-ass ugly.
Here's the 3-year COT chart for gold. Click to enlarge.
Ted was not at all amused by these massive weekly changes that have been going on for the last month or so, as the CFTC should not be allowing this sort of wild-ass speculation, as it's a danger to the overall market. But if JPMorgan truly has a 'get-out-of-jail-free' card, then the CFTC won't lift a finger.
The other stand-out in this week's COT Report, particularly in gold...but also in silver, but to a somewhat lesser extent...was the lack of selling by Ted's raptors, the 45-odd small commercial traders other than the Big 8, during the last two weeks. Normally they begin to sell their massive long position as soon as prices begin to turn higher -- and are the first ones out of the 'fat profits' gate, followed by the '5 through 8' traders, then the Big 3, ending with the Big 1...JPMorgan. That did not happen at all on this price rally -- and appears to represent a fundamental shift. I have my suspicions about what it might mean, but they're out in the conspiracy weeds -- and I'll wait to see what Ted has to say in his weekly commentary later today, before I voice mine...if I ever do, that is.
Here’s Nick Laird’s “Days to Cover” chart...which I consider to be the most important chart of all in today's column...updated with yesterday’s COT data for positions held at the close of COMEX trading on Tuesday. It shows the days of world production that it would take to cover the short positions of the Big 4 — and Big ‘5 through 8’ traders in each physically traded commodity on the COMEX. These are the same Big 4 and ‘5 through 8’ traders discussed in the COT Report above. Click to enlarge.
For the current reporting week, the Big 4 are short 126 days of world silver production—and the ‘5 through 8’ large traders are short an additional 61 days of world silver production—for a total of 187 days, which is a bit over six months of world silver production, or about 454.4 million troy ounces of paper silver held short by the Big 8. [In the COT Report last week, the Big 8 were short 178 days of world silver production.]
In the COT Report above, the Commercial net short position in silver was reported as 186.0 million troy ounces. The short position of the Big 8 traders is 454.4 million troy ounces. The short position of the Big 8 traders is larger than the total Commercial net short position by a chunky 454.4 minus 186.0 = 268.4 million troy ounces. The reason for the difference in those numbers is that Ted's raptors, the 39 small commercial traders other than the Big 8, are long that amount. And why they haven't been selling these positions more aggressively during this 2-week long silver rally remains a mystery.
As I also stated in the above COT Report analysis, Ted pegs JPMorgan's short position at about 31,000 contracts, or around 155 million troy ounces, which is up about 30 million troy ounces from what they were short in last week's COT Report. 155 million ounces works out to around 63 days of world silver production that JPMorgan is short. That's compared to the 187 days that the Big 8 are short in total. JPM holds about 33 percent of the entire short position held by the Big 8 traders.
I estimate the short position in silver held by Scotiabank/ScotiaMocatta at approximately 32 days of world silver production minimum, a number that hasn't changed much in the last while -- and that's most likely because they're not doing much in the COMEX futures market anymore as they continue to try and unload ScotiaMocatta.
JPMorgan has been forced by circumstance to pick up Scotiabank's trading/price management duties in silver and gold. So JPMorgan is by far the No. 1 silver short on Planet Earth -- and likely to remain that way indefinitely, unless they can engineer the mother of all price declines, which they've just finished doing, so they're stuck with what they've got. Of course they have 675+ million troy ounces of physical silver [and counting!] stashed away to cover that, so they are in no danger. That can't be said of the remaining Big 7, unless JPMorgan plans to bail them all out.
However, it should be noted that in the companion Bank Participation Report, the short position of the non-U.S. banks in silver [and gold] has been falling for the last several months -- and both Ted and I were speculating that it may be signs that Scotiabank is making moves to cover its short position in the COMEX futures market. I have more to say about this in comments at the end of the Bank Participation Report below.
The two largest silver shorts on Planet Earth—JP Morgan and Canada’s Scotiabank—are short about 95 days of world silver production between the two of them—and that 95 days represents about 75 percent of the length of the red bar in silver in the above chart...three quarters of it. The other two traders in the Big 4 category are short, on average, about 15.5 days of world silver production apiece, which is down 1 day from last week's COT Report. The four traders in the '5 through 8' category are short, on average...15.25 days of world silver production each, which is down a tad from what they were short in last week's COT Report.
This is just more proof of the fact, if any was needed, that it's only what JPMorgan does in the COMEX silver market that matters, as it's only their position that ever changes by any material amount.
The silver short positions of Scotiabank and JPMorgan combined, represents about 51 percent of the short position held by all the Big 8 traders. How's that for a concentrated short position within a concentrated short position?
The Big 8 commercial traders are short 47.2 percent of the entire open interest in silver in the COMEX futures market, which is up quite a bit from last week's COT Report -- and that number would be a bit over 50 percent once the market-neutral spread trades are subtracted out. In gold, it's now 47.9 percent of the total COMEX open interest that the Big 8 are short, up a bit from last week's report -- and something over 50 percent once the market-neutral spread trades are subtracted out.
In gold, the Big 4 are short 60 days of world gold production, which is up 8 days from what they were short last week -- and the '5 through 8' are short another 26 days of world production, which is up 2 days from what they were short the prior week, for a total of 86 days of world gold production held short by the Big 8 -- which is up 10 days from the 76 days they were short in last week's report. Based on these numbers, the Big 4 in gold hold about 70 percent of the total short position held by the Big 8...which is up 2 percentage points from last week's COT Report.
The "concentrated short positions within a concentrated short position" in silver, platinum and palladium held by the Big 4 commercial traders are 67, 68 and 78 percent respectively of the short positions held by the Big 8. Silver is up 2 percentage points from the previous week's COT Report -- and platinum is up 3 percentage point from last week's report -- and palladium is unchanged from what it was in last week's COT Report.
These concentration numbers show that the Big 8 traders have an iron grip on precious metal prices that does little except grow more concentrated and more powerful as time goes along. Another peek at the 'Days to Cover' chart would be in order, before moving on.
The January Bank Participation Report [BPR] data is extracted directly from the above Commitment of Traders Report. It shows the COMEX futures contracts, both long and short, that are held by all 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, 5 U.S. banks were net short 106,147 COMEX contracts in the January BPR, which is well over 50 percent of this week's commercial net short position shown in the above COT Report. In December’s Bank Participation Report [BPR], that number was 100,297 contracts, so they’ve increased their collective short positions by a rather immaterial 5,850 contracts. Four of the five U.S. banks would certainly include JPMorgan, HSBC USA and Citigroup -- and Goldman. As for who the fifth might be—I haven’t a clue, but I doubt very much if their positions, long or short, would be material.
Also in gold, 29 non-U.S. banks are net short 53,078 COMEX gold contracts, which isn't much per bank. In the December BPR, 29 non-U.S. banks were net short 57,449 COMEX contracts, so the month-over-month change shows a decrease of about 4,370 contracts. I suspect that there's at least one large non-U.S. bank in this group that might hold a third of this short position all by itself -- and the remaining contracts, divided up between the remaining 28 non-U.S. banks, would be immaterial. 'Pig-in-a-poke' Scotiabank/ScotiaMocatta comes to mind as that "one large non-U.S. bank".
The other thing worth mentioning is that the short position in the U.S. banks rose in January, but it fell for the non-U.S. banks. Normally they rise and fall together -- and Ted and I were both thinking that maybe Scotiabank was covering part of its short position during December. I'll have more to say about this later.
As of this Bank Participation Report, 34 banks [both U.S. and foreign] are net short 31.8 percent of the entire open interest in gold in the COMEX futures market, which is a small decrease from the 33.4 percent they were short in the December BPR.
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 short position was outed by the CFTC in October of 2012. Click to enlarge.
In silver, 5 U.S. banks are net short 29,934 COMEX silver contracts in January's BPR — and Ted figures that JPMorgan is the proud owner of all of that amount, plus a bit more...31,000 contracts worth. This means that the remaining 4 U.S. banks obviously have to be net long the silver market in order for the numbers to work out -- and they are long to the tune of 3,171 COMEX silver contracts. In December's BPR, the net short position of these U.S. banks was 26,512 contracts, an increase of about 3,420 contract since the last reporting month, with every contract credited to JPMorgan.
Also in silver, 22 non-U.S. banks are net short 21,517 COMEX contracts. I would suspect that Canada's Scotiabank holds a goodly chunk of this amount all by itself...around 70 percent of it. That most likely means that a number of the remaining 20 non-U.S. banks might actually be net long the COMEX silver market by a bit. But even if they aren’t, the remaining short positions divided up between these remaining 21 non-U.S. banks are immaterial — and have always been so.
But, as in the gold BPR, the short position of the U.S. banks in silver rose in the January BPR, while the short position of the non-U.S. banks fell. That may or may not be a sign the Scotiabank is quietly covering their massive silver short position -- and I'll have more about that later as well.
As of January's Bank Participation Report, 27 banks are net short 26.7 percent of the entire open interest in the COMEX futures market in silver—which is down a bit from the 29.4 percent that they were net short in the December BPR — with much, much more than the lion’s share of that held by only two banks…JPMorgan and Canada’s Scotiabank.
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. Click to enlarge.
In platinum, 3 or less U.S. banks are net short 13,341 COMEX contracts in the January Bank Participation Report. In the December BPR, 4 U.S. banks were net short 12,123 COMEX platinum contracts, so there’s been a ten percent increase in the short position of the U.S. banks in question during the last reporting month.
I suspect that, like in silver and palladium, JPMorgan holds virtually all of the platinum short position by itself.
Also in platinum, 17 or more non-U.S. banks are net short 6,869 COMEX contracts, which is down from the 8,485 contracts they were net short in the December BPR.
If there is a large player in platinum among the non-U.S. banks, I wouldn’t know which one it is. However I’m sure there’s at least one large 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—see the chart below—and now they’re net short. The remaining 17 non-U.S. banks divided into whatever contracts are 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 possibly involved. Scotiabank perhaps.
Like in gold and silver, the short position in platinum increased for the U.S. banks, but decreased for the non-U.S. banks in January's BPR -- and I'm also wondering whether that involved Scotiabank as well. But there's no way of knowing for sure.
And as of January's Bank Participation Report, 20 banks were net short 24.7 percent of the entire open interest in platinum in the COMEX futures market, which is down a bit from the 26.1 percent they were collectively net short in the December BPR. Click to enlarge.
In palladium, 4 U.S. banks were net short 13,379 COMEX contracts in the January BPR, which is up 8.4 percent from the 12,342 contracts they held net short in the December BPR. And to show you how lopsided the short position is in palladium, these four U.S. banks hold a total long position of only 31 contracts.
Also in palladium, 13 non-U.S. banks are net short 5,304 COMEX contracts—which is up from the 3,912 COMEX contracts that 11 non-U.S. banks were short in the December BPR. When you divide up the short positions of these non-U.S. banks more or less equally, they’re mostly immaterial.
But, having said all that, as of this Bank Participation Report, 17 banks are net short 48.9 percent of the entire COMEX open interest in palladium...which is a monstrous amount...and more than the short positions held by the Big 8 traders in gold and silver. In December's BPR, the world's banks were net short 48.2 percent of total open interest. The banks now hold the largest short position in palladium in history, as they try to turn this market. I will be tough to do, because supply/demand fundamentals have kicked in for this precious metal -- and physical always trumps paper in these situations.
Here’s the palladium BPR chart. 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. I would still be prepared to bet big money that, like platinum and silver, JPMorgan holds the vast majority of the U.S. banks’ short position in this precious metal as well. Click to enlarge.
As I say every month at this time, there's a maximum of four U.S. banks—JPMorgan, HSBC USA, Goldman and maybe Citigroup—along with Canada’s Scotiabank—that are the tallest hogs at the precious metal price management trough.
JPMorgan and Scotiabank still remain the two largest silver short holders on Planet Earth in the COMEX futures market, with JPMorgan in the #1 spot by a country mile. And with Scotiabank's precious metals division ScotiaMocatta up for sale, it certainly appears that they are no longer a player in the precious metals market.
But is Scotiabank actually covering any of its short positions in the COMEX future market? That's certainly a question worth asking at this juncture. The numbers in this Bank Participation Report certainly hint at that in gold, silver and platinum...but are not proof positive. The other thing about this that doesn't add up is that if Scotiabank is heading for the exits in the COMEX futures market, who is stepping in to take their place to keep prices suppressed in the 'Big 4' category, because they just can't cover and run without blowing up gold and silver prices in the process. Could it be JPMorgan? I suppose, to a certain extent -- and if not them, then it has to the traders/banks in the #3 and #4 spots of the Big 4 category, or maybe split up between the big '5 through 8' traders.
If it is indeed any of these other traders, why would they willingly step further into the lion's mouth than they already are?
I can't imagine 'all of the above' having anything to do with the strange and entirely unprecedented behaviour of the small commercial traders failing to take any meaningful profits during this current rally, but something just does not compute here.
I'll be very interested in what Ted has to say about all this in his weekly review this afternoon.
Here are a couple of charts that Nick Laird passed around yesterday evening -- and even though my column is chart-filled already, I didn't want to leave them until Tuesday, as they dovetail nicely with a story that Lawrie Williams has in the Critical Reads section below.
The first chart shows the withdrawals from the Shanghai Gold Exchange, updated with December's data, which is 185.21 tonnes...and 15,059 tonnes withdrawn on a cumulative basis since the start of 2008. Click to enlarge.
The next chart shows the number of tonnes of gold withdrawn from the Shanghai Gold Exchange updated with 'Month 12'...full year data going back to, and including, 2008. It shows that 2,030 tonnes was withdrawn during 2017. That's a lot of gold, dear reader. Click to enlarge.
I have very few stories for you today -- and they include a couple that I've been saving for today's column for length and/or content reasons, including the Cohen/Batchelor interview.
Well, so much for that 200K+ whisper number for December payrolls, and it appears that Goldman's warning that winter storms in the last month of the year would depress jobs was spot on, as moments ago the BLS reported that December payrolls tumbled from an upward revised 252K in November (from 228K) to only 148K, a 3-sigma miss to expectations of 190K, and the lowest print since July.
The December payrolls number was below all but one sell-side estimate.
There was also a big slowdown in private payrolls, which rose 146k vs prior 239k; and below the estimate of 193k, from 29 economists surveyed.
Of course it wasn't just sell-siders who were wrong: NFP has now printed below ADP for 11 months.
Not helping the huge December miss were the prior two-month revisions which were also negative: October was revised down from +244,000 to +211,000, while November was pushed up from +228,000 to +252,000. Net, October and November were 9,000 less than previously reported. After revisions, job gains have averaged 204,000 over the last 3 months.
This news item showed up on the Zero Hedge website at 8:33 a.m. on Friday morning EST -- and it comes to us courtesy of Brad Robertson. Another link to it is here.
The 10-year anniversary of the 2008 crisis arrives this year. Amazingly, a decade has passed yet global central banks continue with quantitative easing and ultra-low rates. At the onset, central bankers believed they could employ QE to goose inflation and risk-taking. Then, with inflation dynamics having regained normal traction, central banks would simply wind down “money printing” operations. Everything would settle nicely back to normal.
But it was all flawed. Inflationist doctrine failed. And as archaic as it sounds, the world is today trapped in the Scourge of Unsound “Money.” Central banks inflated a global securities market Bubble and have been incapable of extricating themselves from market domination. Each year sees the Bubble inflate to only more precarious extremes.
2018 will likely see (in the neighborhood of) an additional $1.0 Trillion of QE. This amount, however, will be down significantly from 2017. The ECB slashes its monthly purchases in half starting this month (to about $36bn). The Fed has plans to reduce balance sheet holdings, while the BOJ has of late scaled back purchases. Markets have been conditioned to believe QE reduction doesn’t matter. This complacency will be tested in 2018. Last year’s concern for waning central bank liquidity operations has been supplanted by this year’s heady confidence that it’s not an issue.
From my analytical perspective, the global market boom has been financed by two extraordinary (interrelated) sources. First, Trillions of QE have directly financed inflated and over-liquefied global markets. Second, I believe leveraged speculation has played a major role in exacerbating liquidity excess. Importantly, QE-related liquidity coupled with the perception that open-ended QE is available to backstop markets has fostered an environment conducive to speculative leveraging. In short, the leveraging of central bank balance sheets has incentivized the aggressive expansion of speculative securities and derivatives leverage globally. And the bigger the Bubble inflates the less willing central banks will be to tighten financial conditions. This only further incentivizes risk-taking and leveraging throughout global markets that have over years become progressively too comfortable pushing the risk envelope.
Central bankers confront a historic dilemma. They perpetuated a prolonged major Bubble inflation. Despite a strengthening global economy and conspicuously speculative markets, central banks in 2017 failed to move forward with “normalization.” Financial conditions further loosened when they needed to have tightened. At this point, when it comes to monetary tightening central bankers lack credibility. The view that central bankers will avoid any actual tightening of financial conditions has become deeply embedded in a extremely distorted marketplace.
Doug's weekly Credit Bubble Bulletin is always a must read for me -- and another link to this weekend's edition is here.
Opponents of the euro are rearing their heads again, this time in Italy. Matteo Salvini, leader of the country’s anti-immigration Northern League party, has reiterated his opposition to the single currency. Growing Italian discontent with the European Union could help to make the issue a vote-winner in elections planned for March 4. Despite a widespread economic revival, monetary union remains a political target.
Investors thought they had put the threat of a euro breakup to bed after opponents of the currency bloc were trounced in French, Dutch and German elections last year. But they are springing up elsewhere. Salvini, who has an outside chance of becoming Italy’s next prime minister, this week told newspaper La Repubblica he remained convinced that the euro was a mistake and vowed to rectify the error. In his manifesto, Salvini pledges to renegotiate E.U. treaties in order to regain political and monetary sovereignty. He has also spoken of introducing a parallel currency.
The tactic is probably designed to steal votes from the 5-Star Movement, currently projected to become Italy’s largest single party with 28 percent of votes. The anti-establishment group had previously promised a referendum on leaving the single currency. But in a bid to appease moderate voters, leader Luigi Di Maio last year declared the plan would be a last resort. Relative political calm and resurgent growth in the euro zone’s third-largest economy helped propel Milan’s FTSE MIB Index to a two-year high in November, making it among Europe’s best-performing indexes.
Yet bashing Brussels could yield political gains in the boot-shaped country. Once staunchly pro-E.U. Italians have become more sceptical about the union. According to a Eurobarometer poll published in November only 34 percent of Italian respondents said they tended to trust the EU, the lowest level in the bloc outside Greece, Britain and France.
This Reuters article, filed from Milan, showed up on their Internet site at 3:37 a.m. EST on Friday morning -- and I thank Richard Saler for pointing it out. Another link to it is here.
Part 1: This broadcast sees John Batchelor’s introduction return to the first major flash point of the new cold war, Ukraine. He describes the Maidan of four years ago and the political forces behind it, and how opposing forces implemented a blood bath resulting in many killed and injured – and these many years later the U.S. is beginning to sell lethal weapons to the regime. Cohen describes Ukraine, one of several different fronts between Russia and the U.S., as part of his early predictions that there would be a new cold war. He predicted this some years in advance of the Maidan. But the Ukraine Maidan heralded the militarization phase of the new cold war; formerly the preliminary hostilities were limited to anti-Russian propaganda – with only the recent exception of the Georgian War with Russia. This new cold war, Cohen continued, is now involving what used to be the Russian heartland and is far more dangerous. He also acknowledges (finally –more on this in my commentary) that with the war in the Donbass and the danger to the Russian naval base in Crimea. An important point made here was that “nobody in the Kremlin would not have behaved as Putin has” in supporting the rebels and amalgamating Crimea back to Russia. Ukraine was the second red line after Georgia. The latter was resolved quickly, but when the same Washington meddling subverted the government of Ukraine four years ago and initiated a civil war, a Putin red line was drawn. NATO was always blamed for both Georgia and Ukraine events by the Kremlin and Cohen explains that for a decade before the Maidan in Kiev, NATO (mainly Washington) was publicly vocal in expressing that Ukraine would be the real prize in weakening Russia.
Part 2: Begins with a recap of the background to the Maidan – specifically the E.U. overture in a trade treaty – and the Russian reaction to it. With an election ahead for the then Ukrainian President Victor Yanukovych, he was already facing a divided country with pro and anti Russian ethnic divisions that was ripe for Washington meddling. Ironically, Paul Manafort’s name comes up too as the latter president’s campaign advisor – who recommended going with the offered E.U. trade agreement. But the cost to Ukraine for the loss of Russian trade would have been significant. He hesitated in the signing, and the Maidan protest, was the result. Cohen then explains, how Joe Biden, as President Obama’s choice, became pro-consul to Ukraine, and a most self-serving, anti-Russian influence for Washington. The history lesson also includes Victoria Nuland’s role and numerous U.S. politicians. To the Kremlin, this was clearly a Washington backed regime change. However, Trump was different; he wanted a peaceful solution to the Ukraine civil war. But he has now reversed this position and has approved the sale of offensive weapons to the Kiev government.
Having listened to this series over the years, I have detected a measure of change of position with Cohen. As little as last year he maintained some small blame assigned to Putin for mishandling the Ukraine crisis. This includes the decision for the amalgamation of Crimea back to Russia. In this podcast he now assigns all blame to Washington. I think his new found objectivity is motivated as much by what Washington has done since to demonize Putin and Russia, including Russiagate, as the original facts behind the history. Historical judgments are also about perspective and can change due to events played out in the present, and the rabid, stupid positions taken over Russiagate may have gravely damaged Cohen’s personal view of the righteousness of Washington. My impression (only) is that the danger presented to ethnic Russians in Odessa Province and Crimea from Kiev was also a factor. The plebiscite held over the amalgamation of Crimea with Russia question was over 90% favourable where Russian ethnicity ran but 58.3% in the peninsula. The city of Sevastopol (location of the Russian naval base) ran 71.6% ethnic Russian and Kiev itself 13% ethnic Russian. The Donbass region that was concurrently protesting against the central government was 39% ethnic Russian. In my opinion all the population of Crimea had a great expectation of being part of a hate campaign from Kiev and would sooner or later come under some measure of abuse or even attack, and the general population found almost no opposition to joining Russia. Note that had Kiev attacked Crimea as it had the Donbass, the Kremlin would have had to assume that NATO was targeting the Sevastopol Naval Base along with the whole peninsula and would have reacted militarily early on against Kiev and NATO. Cohen was finally correct, Putin accepted the solution offered by amalgamation in preference to a real war risk. But the humanitarian motive was likely very much part of the decision.
This 2-part audio interview...with each part being about twenty minutes long...appeared on the audioboom.com Internet site on Tuesday -- and I thank Ken Hurt for providing the links. But the biggest thank you is always reserved for the excellent executive summary provided by Larry Galearis -- and if you haven't got the time/interest in the audio interview, do yourself a favour and read what Larry has to say. The link to Part 1 is in the headline -- and here. The link to Part 2 is here.
This booklet explains why oil was the real cause of the First World War, and explains the economic and geopolitical interests behind all the major players of this war.
Moreover it compares the first Great War for oil in 1914 with the oil wars of 2014 in Syria and Iraq one hundred years later.
This very, very long essay dates from October 10, 2014 -- but is just as relative today as it was back then -- and I obviously had to save it for Saturday for length and content reasons.
When you click on the link, you can download it in several ways, or you can read it on line. I've read it from one end to the other -- and it's certainly worth your while if you have time and/or the interest. I thank Roy Stephens for bringing it to our attention -- and another link to it is here.
Nuclear-armed North Korea on Friday accepted the South's offer of talks next week, hours after Seoul and Washington agreed to defer joint military exercises which always infuriate Pyongyang until after the Winter Olympics.
The meeting, the first since December 2015, will take place in Panmunjom, the truce village in the heavily fortified Demilitarized Zone that divides the peninsula.
Tensions have been high after the North carried out multiple missile launches in 2017, including a number of ICBMs, and its sixth atomic test, by far its most powerful to date.
The tentative rapprochement comes after the North's leader Kim Jong-Un warned in his New Year speech that he had a nuclear button on his desk, but at the same time offered Seoul an olive branch, saying Pyongyang could send a team to next month's Winter Olympics in the South.
Seoul responded with an offer of talks between the two, and earlier this week the hotline between them was restored after being suspended for almost two years.
This story showed up on the france24.com Internet site yesterday sometime -- and it's another contribution from Roy Stephens. Another link to it is here.
Gold imports by India, the world's second-biggest market after China, surged 37 percent in December after falling for three straight months, according to a person familiar with the data.
Inward shipments increased to 77.7 metric tons from 56.9 tons a year ago, the person said, asking not to be named as the information isn't public. In value terms, purchases rose 39.8 percent to 176.7 billion rupees ($2.8 billion). Finance Ministry spokesman D.S. Malik declined to comment.
The data is the latest sign that Asia's No. 3 economy is recovering from a new consumption tax implemented in July, which had weakened demand and disrupted businesses. Jewelry is among India's top exports, accounting for about 15 percent of total sales from April through October.
This Bloomberg news item was posted on their Internet site at 2:33 a.m. Denver time on Friday morning -- and the rest of this article is hidden behind their free subscription wall, which you have to sign up for. I found this item in a GATA dispatch yesterday -- and another link to it is here.
Writing here a month ago we speculated that China’s gold demand for the whole of 2017 as measured by Shanghai Gold Exchange (SGE) gold withdrawals would exceed 2,000 tonnes again. In the event we have been proved correct with SGE full year gold withdrawals totalling a little over 2,030 tonnes thus demonstrating that any talk of falling gold demand in Asia’s economic giant was premature at the least. True it did not equal that of the record 2015 year, but exceeded that of 2016 by around 3%, despite the Chinese New Year falling later this year which would tend to slightly depress the December demand figure by deferring some of the inventory building ahead of the holiday by around 2 weeks.
As we have pointed out here beforehand there is disagreement among analysts as to whether SGE withdrawal figures are a true measure of Chinese demand. However we continue to point out that totalling up known gold imports from nations which publish country by country gold export figures, plus China’s own known gold production and making a small allowance for scrap conversion gives us a far closer total to the published SGE withdrawal figures than any other Chinese demand estimates which tend to ignore the substantial amounts being absorbed by Chinese banks and financial institutions. So we continue to stand by our estimates equating SGE withdrawals to Chinese demand – a position that China’s Central Bank seems to agree with too.
Even though China’s economy may be flat-lining at the moment it continues to be in an overall growth phase as it transforms its economy from an export driven system to a domestic-demand driven one. The middle classes continue to grow in numbers thus enhancing demand for goods, but there is also an inbuilt propensity towards savings and gold and silver play an important part in this. So we would anticipate gold demand in the nation to grow alongside the increase in domestic wealth.
This short commentary by Lawrie dovetails nicely with the two charts from the Shanghai Gold Exchange that are posted just above the Critical Reads section. I found it on the Sharps Pixley website last evening -- and another link to it is here.
The PHOTOS and the FUNNIES
My Portuguese man o' war photo -- and comments on sea snakes in Friday's column, drew a response from subscriber Curtis Bok who, along with his wife Sharon, are intimately familiar with both. So today's critter is the banded sea krait, which is sea snake that all three of us know well. Generally, the species is found in Fiji, southern Japan and Singapore. Their venom is ten times stronger than that of a cobra, making them extremely dangerous. Fortunately, this snake does not bite humans unless it feels threatened. In reality, they're very gentle creatures -- and I lost my fear of them almost right away, but always kept what I figured was a 'respectful' distance. 'Click to enlarge'.
Today's pop 'blast from the past' is one I've featured before, but not the artist that's performing it. It was composed by Burt Bacharach and Hal David for Dionne Warwick, which she turned into a hit back in the 1960s -- and I remember it well. Here's Aretha Franklin performing it -- and it's just as wonderful. The link is here.
Since there's a major conjunction of Mars and Jupiter in progress in the early morning sky these days, I thought it might be an opportune time to drag out Gustav Holst's classic composition..."The Planets, Op. 32". Here's an excellent recording by the Warsaw Philharmonic Orchestra & Female Choir that was done back in November of 2015. The link is here.
Well, here we are looking at an overbought situation in all four precious metals -- and although we certainly can get more overbought, these conditions have always ended up the same old way, with the commercial traders rigging prices lower -- and ringing the cash register for fun, profit and price management purposes in the process. It remains to be seen if that is what will occur this time around.
But as I said in either Thursday or Friday's column, I doubt that any downside price pressure will last overly long before these rallies continue.
Here are the 6-month charts for all four precious metals, plus copper, once again -- and you can read into them whatever you wish. The 'click to enlarge' feature helps a bit with the first four.
I don't have much to add to what I said in The Wrap sections of both Thursday and Friday's columns -- and the only things worth talking about was yesterday's Commitment of Traders Report and companion Bank Participation Report.
I must admit that I'm at a loss to explain the fact that Ted's raptors, the small commercial traders other than the Big 8 are M.I.A. as long sellers in both silver and gold, but particularly gold. This is unprecedented, as is the ferocity that the Big 8 are going short against the Managed Money traders so early in this rally. Then there was the increase in the short positions of the U.S. banks, combined with a decline in the short positions of the non-U.S. banks in yesterday's Bank Participation Report. Plus the beat goes on over at SLV where 9.33 million troy ounces has been removed starting on December 14, which flies in the face of the $1.60 rally in the silver price that has been ongoing during the same time period.
The pieces are in motion everywhere on the precious metal chessboard -- and it's a given that JPMorgan -- and most likely Canada's Scotiabank, are at Ground Zero at the moment. I just can't see how it all fits together. Something has to give at some point...either by design, or by circumstance, as this situation can't last forever.
So we wait some more.
I'm done for the day -- and the week -- and I'll see you here on Tuesday.
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-- Published: Sunday, 7 January 2018 | E-Mail | Print | Source: GoldSeek.com