The holiday shortened Thanksgiving week looks like it could be an important one. The Dec COMEX month is upon us and there are only 3 days left before first notice with 126,000 contracts still outstanding. This translates to 12.6 million ounces which will surely shrink over the next 3 days but the question is “by how much?” This is an important question because there are only 589,000 ounces held by dealers in the registered category.
We had a similar situation last December and the COMEX brought in a million ounces to make delivery. From that point forward the inventories have bled a gusher, COMEX total gold has gone from 11.5 million ounces to about 7 million while the dealer side has dropped from 3.5 million to under 600,000 ounces, the latter is a roughly 80% bleed. GLD which is another “source” for metal has dropped from 1,300 tons to about 850 over the last 12 months. We are also aware of a 1,300 ton “shortfall” in the inventory held by the BOE. These large decreases in inventories are now well documented and this metal has moved “East” to China, India, Russia and others. This is just one piece to the puzzle.
It will be quite interesting to see just how many contracts actually stand for delivery. The obvious “potential” is that “too many” stand and ask for gold that is simply not available to deliver. This would be an obvious catastrophe. The “timing” is also quite interesting because we learned this week that 23 nations have now set up “non-dollar” swaps to be used to settle trade. The big question now is whether or not the Saudis will accept anything other than dollars. The current negotiations with Iran could very well be the blasting cap that sets this whole thing in motion, Saudi Arabia (and Israel) will be hopping mad if a deal gets done that turns out to be a “bad deal.”
I mentioned above that the “timing” was interesting, it is, VERY! I say this because late yesterday Jim Sinclair wrote publicly that he has been in meetings regarding the origins of “cash” metals markets. He had spoken previously of 6 different metals exchanges that would afford no leverage whatsoever and declared yesterday that he has made the decision to back the Singapore Physical Precious Metals Exchange with his knowledge, reputation and financially. Jim’s message to us can be found here. He has accepted the position of Executive Chairman of the exchange so without a doubt his heart and soul is in this for the end game.
For those of you have studied or wondered about “Free Gold,” this is how it begins. True “cash and carry” exchanges will destroy the West’s ability to price gold using leverage and unbacked contracts. Currently there is virtually “no cost” for JP Morgan, Goldman, Barclays, Morgan Stanley or any other investment house to “sell” gold. All they need to do is “push a button” and literally millions of so called ounces hit the markets and thus push the price down. “Cash exchanges” will offer the opportunity to arbitrage metal from the paper exchanges.
I have spoken for some 10+ years now that we would arrive at a “two tier” market in gold and silver. In some respects we have already. India is currently paying 20% above paper gold market prices to obtain metals. There are also premiums (though not nearly as high) for the Chinese to buy gold. Here in the U.S., Silver Eagle and Maple pricing is some 15-20% above COMEX pricing. (Interesting to note that though prices dropped this week on the COMEX, premiums expanded by the same amount leaving cash prices nearly unchanged). So yes, we already have a glimpse at a “two tier market” but if I had to guess, these cash exchanges will “arbitrage” the remaining metals held in the West. They will buy and ask for delivery knowing full well that they can sell to cash buyers in the East at far higher prices…thus making an arbitrage profit AND draining the remaining scraps at the bottom of our barrel.
THIS is truly big news! It inevitably had to happen sooner or later because Mother Nature has been demanding it for years. This “cash and carry” concept will ultimately re price gold and silver to much higher levels and probably multiples of their current prices. The West has been fighting the tide since 1971 and now looks to have lost the war with this current battle arrangement. The East on the other hand has acted in harmony with nature. They were patient and methodical for years upon end and now look to end the “financial war” without ever firing a single bullet. Let me remind you that history has shown that the winners of war end up with the loser’s gold; it has always been this way. However, this “war” was different. The East used our own “bullets” (dollars) against us by producing product, selling that product to the West and earning more “bullets”…which have been used to “buy” our gold.
We have no one to blame other than ourselves because we sat back and allowed this to happen. Don’t get me wrong, this was “planned,” it was planned by the Chinese years and years ago. In the words of Sun Tzu in his book of military strategy titled ‘The Art of War’ …. “The supreme art of war is to subdue the enemy without fighting.” This is essentially what has been, is and will happen. Our gold is gone; it will soon be “priced” by those who “have it.”
I will not be posting for the rest of the week, I wish everyone a Happy Thanksgiving.
I have a question. It seems as though the Chinese have a vested interest in keeping the price of gold low so that they can increase their holdings cheaply. And it seems as though the Fed and JPM are in league with them to prop up banks in what might be considered treason, sacrificing our interests in the long term. Here’s my question: why will the Chinese ever want the price of gold, measured in dollars to rise since it will devalue trillions in treasuries that they hold? Unless of course the dollar crash is inevitable and they are just adopting a temporary posture and they will gladly spend a trillion or so of reserves to buy all available gold at higher and higher prices once the crash comes. Thereby ensuring their prominent place at the table for Bretton Woods II. Seems like the end game is fuzzy any way you look at it.
If there were no more Gold available for delivery would they then want the price to rise?
may I give you my opinion to your question?
I agree with you completely on “sacrificing our interests…” however treason would be a tough sell since saving the banks is sold as saving main st. Besides the enormous buying of USTs cannot be viewed as anyting other than “aiding America” – patriotic?.
I think we all are well aware that the national debts are never going to be payed (in a valued currency, anyway). The Chinese are smart as they have purchased the largest, most vibrant manufacturing base on earth for $1.3 trillion – a very cheap price indeed.
I don’t think the Chinese worry about the debt as much as they worry about the accumalation of more USDs (reserves from trade) going forward. That is what is being used to buy gold and resources at an accelerated pace. I believe the Chinese have one last goal: a new reserve currency but not necessarily a completely Chinese one. They know the dollar is going down and when it does the sudden rise in the price of gold will offset the losses on any held USD reserves.
My guess is when that event happens China will be seated at the head of Bretton Woods II table. The only thing fuzzy is the time frame but my gut tells me within 36 months. The breaking of the COMEX will start ball rolling.
(side note: the purchase of the JPM building with it’s wonderful vault will be put to work as China sucks out as much PMs from the US retail sector using it’s USD reserves while it has value. The bounty will be packaged, palletized and shipped to the western seaports under “diplomatic pouch” status and loaded onto ships bearing chinese flags never to return again.)
Ironically, assuming prices allow it, it will be much easier to arbitrage physical away from the new exchanges rather than to them. The lack of the ability to forward contract means there is a high risk in taking gold out of a known market to deliver to a market where the future price is unknown. I am anxious to see how that all plays out.