I hope you enjoyed your weekend as much as I; and honestly, I can’t remember the last time I didn’t write for four straight days. Just taking a few days off, the list of topics to cover grew tremendously; and thus, it might take me some time to sort out my thoughts.
While Americans were busy trampling each other for Black Friday bargains – amidst what promises to be the weakest holiday spending season since 2009 – Central bank money printing has made the “1%” richer than ever; as the massive amounts of fiat currency channeled into financial entities have created bubbles in nearly every imaginable paper market; not only widening the wealth gap between the “rich” and “poor” to record levels, but causing some of the most absurd market dislocations of our lifetimes. Watching Spanish stocks and bonds surge amid collapsing economic activity and surging unemployment is truly one of the financial “seven wonders of the world,” surpassed only by Bitcoin temporarily exceeding the price of gold.
I have written much of Bitcoin lately – as in last week’s “Cashless Society”; and will be hosting a very intriguing Bitcoin-focused Audio Blog this Thursday. Moreover, I plan on penning a follow-up piece on the definition of money; and in the meantime, advise you to read this fine Gary North article on Bitcoin. If there’s one thing I’m determined to demonstrate, it’s that no matter how promising the concept of non-government controlled currency may sound, Bitcoins themselves will never be more than speculative investments. In fact, I’d venture to conclude the only reason they are surging in price is because the aforementioned money printing is being channeled into the financial sector; which in turn, sees Bitcoin as yet another opportunity to promote rampant speculation. Quite ironic, given Bitcoin’s supposed “hook” is that it is the antithesis of fiat money.
As for real money, the incessant suppression that has caused dollar-priced gold and silver prices to fall by 35% and 60%, respectively, over a two-year period featuring the most rampant currency creation in history is causing equally wide gulfs between the reality of physical demand and fraud of the paper futures markets. Just last week, it was reported China’s October gold imports nearly exceeded March’s all-time high monthly level; and frankly, given the host of anecdotal and empirical data available, it’s entirely possible this level is vastly higher than reported.
Simultaneously, Venezuela’s Central bank debunked the latest Wall Street propaganda – i.e., Venezuela was leasing its gold to Goldman Sachs, presumably to be used to further suppress prices; although given China’s announcement that it no longer intends to acquire foreign currency reserves, such a trifling amount as Venezuela’s 170 or so tonnes is immaterial in relation to China’s insatiable demand. As I wrote last week, China has $3.6 trillion of currency reserves, growing at nearly $200 billion/quarter. At current gold prices, annual worldwide gold production is worth just $100 billion; and thus, China may well buy every ounce of worldwide gold available. Meanwhile, for those that believe accusations of gold suppression constitute nothing but “conspiracy theory,” read this damning 1974 article – in which a senior staffer of Secretary of State Henry Kissinger stated, “We should look very hard at very substantial sales of U.S. gold, to raid the gold market once and for all.”
Despite the myriad “horrible headlines” to speak of, today’s topic was a no-brainer. And that, of course is just how close the COMEX looms to a physical gold default. Now don’t get me wrong, I am not being a fear-monger on this topic; as for years, I have advised readers to take all data emanating from the COMEX with a grain of salt. However, no matter how hard TPTB tries to obfuscate reality their “footprints” are becoming larger and more defined with each passing day; no more so than in the Physical PM markets, where supply and demand factors have never been more starkly divergent with paper prices.
Since April’s “Alternative Currencies Destruction” – “coincidentally,” occurring the day after a closed-door meeting between Obama and the heads of Wall Street’s largest banks – an amazing thing has occurred. The amount of “registered” COMEX gold inventory has plunged 80%; to the point that a measly $750 million worth separates this criminal operation from outright default.
In recent weeks, I have also spoken of the potentially calamitous circumstances surrounding the December COMEX gold contract; given how high its open interest has been compared to the small amount of underlying inventory. This is by no means the first time we have seen high open interest as we approach first delivery date; however, it is the first time inventory has been so low – not to mention, amidst a period of record global physical demand, with prices so far below the cost of production.
Typically, most futures contracts are closed out or “rolled over” to the next month before the first delivery date. However, this time around, this has not occurred. And given that December – by far – is the largest physical delivery month, what is occurring is more than a bit intriguing. As you can see below, the amount of paper claims on existing physical metal has never been higher; and in fact, has gone nearly parabolic since April’s Cartel smack down. Remember, it’s not just us “tin-foilers” watching this development closely; but the entire world. Clearly, something is not right; and given these trends, it’s difficult to not forecast an inevitable, if not imminent, physical default.
As for what is likely to occur in the coming weeks, I decided to turn to one of the industry’s few COMEX experts. I may know a lot about Precious Metals, but the archaic, opaque world of the COMEX delivery process is not something I am very knowledgeable of. Thus, I spoke to Harvey Organ this weekend, who reports on COMEX activity and GLD/SLV fund flows on his free daily blog. In fact, Harvey is most well-known for being a panelist in the infamous March 2010 CFTC hearings, in which he and Bill Murphy made the case for blatant gold price manipulation.
According to Organ, the COMEX delivery process is dominated by three firms – JP Morgan, Scotia Macotta, and HSBC; with JP Morgan, by far, being the dominant player. Quite “convenient” that JP Morgan is custodian for the opaque SLV silver ETF, and HSBC for GLD, huh? Anyhow, with 10,157 contracts still outstanding after Friday’s “first delivery day” for the December gold contract, clearly even these TBTF behemoths have a major problem on their hands. After all, 10,157 contracts equates to 1,015,700 million ounces of physical gold standing for delivery, compared to just 590,820 ounces of registered inventory. Never in the COMEX’s nearly 40 year history has more gold been standing for delivery after first delivery day than registered inventory; and in this case, the disparity is by a multiple of two.
Moreover, two other major anomalies caught Organ’s attention this week – in both cases, suggesting immense pressure on the aforementioned “big three” to meet such demand before the December delivery period ends on the 31st. For one, not a single ounce of gold has been received in the JP Morgan vaults in recent weeks – or for that matter, the entire year. This is extremely unusual, as JPM and the others typical import metal in advance of the heavy December delivery demand. And equally strange, in the first two delivery days of the December contract period, we have thus far seen just 80 contracts tendered, totaling a measly 8,000 ounces. Given there is essentially zero reason why someone holding a long contract would not quickly take delivery, it stands to reason that something very fishy is going on at the COMEX. Heck, even the most die-hard Cartel apologist would have to ask why only 80 contract tenders have been reported out of 10,157 outstanding; but I guess we’ll just have to wait and see what happens.
In the meantime, we’re still being besieged by desperate Cartel efforts to prevent prices from rising. In my view, such attempts to not only cap prices, but drive them significantly lower, in and of itself depicts something extremely ominous for the global financial system. It’s not like the entire world doesn’t see blatantly obvious attacks like today’s typical “Sunday Night Sentiment” and 2:15 AM paper raids – as proven in last week’s article, “Irrefutable Manipulation Statistics.”
Heck, in that very article, I highlighted last Sunday night’s paper gold price trading; which eerily looks exactly like today’s – as well as countless other Sunday’s throughout 2013.
To conclude, I have no idea what will occur by the December delivery period close on the 31st; particularly in light of the fact that if a “long-term spending plan” (i.e., a budget) is not approved by the December 13th deadline (after which, Congress goes on a three-week vacation), America could be looking at a second government shutdown on January 15th. However, what I do know is there is an indisputable dearth of physical inventory; which each month, becomes more and more acute. Moreover, I don’t know what is possessing the Cartel to push paper prices this far below the cost of production – as ultimately, it will only facilitate the wholesale “hoovering” of any remaining physical supply by the Chinese and their counterparts.
It is at times like these that I’m thankful to be 100% out of “Paper PM Investments” like mining shares, ETFs, and closed-end funds; and 100% in physical metal. The former eats away at one’s “net worth” like a plague, while the latter sits inertly, waiting for the inevitable reality of the laws of “Economic Mother Nature” to set in. Will said reality set in by year-end? Or 2014? I don’t know, but when it does, I do know I’ll be on the long-side of the greatest wealth transfer in history.