When the annals are written, 2013 will go down as the most anomalous in financial market history. Or, more accurately, when the manipulation of everything – from stocks to bonds, currencies and commodities – permanently dislocated price discovery from reality. My fingers are sore from describing this year’s bazaar “trading” – in which stocks and sovereign bonds (aside from U.S. Treasuries) have risen amidst global recession, and Precious Metals have fallen amidst record worldwide demand and Central bank money printing.
Fortunately, fundamentals always win out – particularly in physical markets, with finite supply. And thus, when all is said and done, the mirage created by the most maniacal financial masquerade of all time will be replaced with the reality of a hopeless, broken system. Of course, I say “fortunately” with a grain of salt; as everyone will be negatively impacted when the global fiat Ponzi scheme collapses. Eventually, a new system based on real money will re-emerge from the ashes; and when it does, those that purchased gold and silver at today’s fire sale prices will be at the receiving end of the greatest wealth transfer in global history. It’s not like the Miles Franklin Blog and Newsletter doesn’t write of this topic incessantly. However, several articles this weekend really drove the point home – starting with this interview with Alex Stanczyk of the Anglo-Far East Companies, upon returning from a trip to Switzerland.
Earlier this year, it was reported that the four major Swiss gold refiners – Metalor, Pamp, Argor-Heraeus, and Valcambi – were working 24 hours a day converting gold from European vaults to Asian specifications, presumably for export to China. Actually, it’s clearly going to China – as in the first ten months of 2013 alone, more gold has been exported to China than in 2011 and 2012 combined. And considering 2012 doubled 2011’s then-record amount, it becomes crystal clear the Chinese are in the market for every last available ounce. Remember, just two weeks ago, the PBOC stated its intention to stop acquiring global currency reserves; and based on the math I put forth in “China couldn’t scream its intentions louder,” such purchases wouldn’t even dent their $3.7 trillion holdings of dollars, yen, and Euros.
Based on what Stanczyk witnessed, such inexorable order flow continues to this day. To wit, when he asked the Managing Director of the largest Swiss refiner – who has been in the business since 1976 – of how demand compares to past periods, his answer was thus; ‘It has never been this strong.’ In fact, Swiss refiners are now receiving gold bars dating back to the 1960s; inferring, of course, that the “back corners” of vaults are being emptied. Heck, I just read this morning that Turkish gold imports were 270 tonnes through the year’s first eleven months; i.e., more than double the full-year 2012 level. Think 270 tonnes is something to sneeze at? Well think again, as it represents 10% of worldwide gold production!
Next, I saw a shocking chart below describing how since 2009, the Shanghai Gold Exchange has delivered more gold – 8,655 tonnes, to be exact – than the 8,133 tonnes the U.S. Treasury supposedly owns. And I think all readers can see the smirk on my face when I say “supposedly”; as in my view, no more than a quarter of that gold still exists, if that.
Next, an extremely enlightening interview with Stephen Leeb, who connected the dots of one of the most blindingly gold-bullish events of our time – dovetailing perfectly with the PBOC’s “no more currency reserves” comments. In it, he described China’s miraculous gold production growth of the past decade – from just 170 tonnes per annum at the turn of the century to a world-leading 403 tonnes in 2012. However, as he correctly notes, China only has about five years of gold reserves – on average, requiring significantly higher gold prices to be profitably mined. That is, at current, depressed prices. And thus, he is suggesting what anyone utilizing simple math would deduce; that is, China’s manic production spree will only be viable if prices surge past $2,000/oz. – which, of course, is exactly what they anticipate.
Moreover, I also read this weekend of the literal explosion of Indian gold smuggling; yielding acute product shortages creating physical gold premiums of an astounding 22% – and rising. Jeff Nielsen wrote an excellent article on the “secret decoupling” of the paper and physical markets in India, Vietnam, and other regions where government intervention is creating such dislocations; which inevitably, will encircle the globe and permanently end the reign of “paper” prices.
And for those that think it’s just gold experiencing such hyperbolic demand, think again. Through the year’s first ten months, the U.S. Mint has sold more Silver Eagles than the entirety of the record year of 2011 – you know, when silver surged to $50/oz. in May and $45/oz. in September, simultaneous with dollar-priced gold’s record run to $1,920/oz. Meanwhile, in India – where import tariffs have been increased just as much on silver as gold – the Indian population has been buying silver at a record pace. Based on data through October, it is estimated Indian silver imports will end the year at roughly 5,300 tonnes – or 22% of worldwide production; easily surpassing 2008’s record level of 5,048 tonnes.
And thus, for those “worried” that this year’s paper price attacks signify a change in the 13-year trend of increased Precious Metals demand, think again. The only reason “prices” are down is the most demonic Cartel suppression operations of our lifetimes; which, sadly, have likely achieved nothing but a 12-month “can kick” – which ultimately, will only cause the end game of Physical PM shortage to be that much more explosive. Remember, it is mathematically impossible to hold a beach ball too far below the water’s surface; just as it is impossible to deliver physical gold in the form of a paper certificate!
