Ainslie Bullion - Daily news, Weekly Radio and Discussions

China to dominate gold
The record breaking domestic gold consumption of China of late is well understood but they have not been a large host player in international trade as London and COMEX have and therefore not really a 'price setter'. Well that is about to change, and change at a time when there is more and more distrust in the way London and COMEX set those prices. Well on Thursday the first step in that changing occurred with the Shanghai Gold Exchange opening the International Board in Shanghai's Free Trade Zone. This will see a couple of important things occur. First we will see China's physical bullion dominated trade start to properly inform the price discovery and secondly yet another avenue for Yuan exchange not USD. As Aram Shishmanian, CEO of the World Gold Council, said last week:
"Thegrowthof the Shanghai Gold Exchange to become the world'slargestphysical gold exchange provides compelling evidence that the future for gold is physical. As the market shifts from west to east, theexpansion of strong gold trading hubs in Asia will improve price discovery, liquidity, transparency and efficiency; all of which will transform the landscape of the global gold market. As a major global market, this will enable China to take its rightful place in the world gold market.
The development of the International Board, opening up the Chinese market to global investors is a significant first step towards the internationalisation of China's gold market which already accounts for 30 per cent of global demand."

 

Cash in the bank

So you've cashed up ready for the crash so you can then buy up assets at cheap prices? One thing many (most) people don't realise is that you as a bank depositor are an unsecured creditor of the bank. In Australia you have a 'safety net' in that the Government guarantees your deposit up to $250,000. In New Zealand you don't have this and now have bail-in legislation (ala Cyprus). Aussies can't relax as bailin adoption is on the G20 agenda for countries around the world (as a few already have).

The fine print of our bank deposit guarantee scheme also limits the Government's commitment to $20b per bank, so the bigger the bank (where deposits easily exceed this), the more at risk you are of getting that $250K back (and of course anything above that is gone). There is then fractional reserve banking which sees more loans issued than deposits held. Indeed in the first half of this year that gap grew by $34b to $497b of loans exceeding deposits, largely driven by the latest property boom.

Whilst we dodged the bullet with our banks in the GFC, they have borrowed more of late from overseas which sees us far more exposed to an international banking collapse. $250,000 buys you about 5.5kg of gold or 355kg of silver right now. No matter what happens to financial markets you will still hold 5.5kg of gold or 355kg of silver, and over the medium to long term that will return far better than the measly interest the bank is paying you for the privilege of owning 'your money'

 

The ultimate play in silver?
There is a fascinating situation unfolding in the 'paper' silver space at the moment. The graph below illustrates the total "open interest" on the COMEX futures trading last Friday when silver had its big drop. Open interest simplistically is the total number of futures contracts outstanding (long (buying to sell later) or short (selling to buy later), as they must by definition equal out) and Friday's number was the highest since early 2008. For critical context, they represent about 800m oz of silver at a time when there was about 65m oz available for delivery in COMEX. Recall too that the Shanghai Futures Exchange inventory is down to only around 3m oz (93t). There is growing speculation that it is China who is the party buying and holding all these long positions as the price falls, to then take delivery to restock the critically short and physical trade dominated SFE. This makes sense also given most futures traders buy on margin and when you are long and the price drops to the extent is has over the last few weeks, you would expect a margin call, yet these (this?) long buyers are holding strong (losing over $1.3b in the last couple of weeks). The other interesting thing happening is incredible amounts of silver going INTO the SLV ETF at a time that the price is dropping. Again speculation is rife that this is China's doing. There is certainly no great probability that the long buyer(s) on COMEX will demand all 800m oz to be physically delivered but just think for a minute 'what if' this time it is someone who actually wants the metal, someone, say, who needs it for their world's largest physical metal exchange.


Source:

 

Euro closer to printing money
Overnight German business confidence dropped for a 5th straight month and more than analysts predicted as the Euro's supposed engine room and largest economy struggles with the effects of sanctions and consistently high unemployment.

Germany's economy contracted in the 2nd quarter of this year and the Eurozone has stalled prompting the ECB to ramp up its stimulus. But the first round of near zero interest loans to banks was not taken up to the extent they hoped ($81b compared to $150b) meaning outright QE style sovereign bond buying now looks definite especially given the largest protestor of this was Germany who may now see that it is their only option to prevent deflation.

Predictably the ECB last night alluding to exactly that contributed to the S&P500 rallying as the ECB steps in on the money printing the Fed is tapering out of. The free money party continues and the can gets kicked further down the round

 

3 'must see' silver charts
Its been a tough week for silver investors but take heart from these charts. Firstly, and incredibly, silver inventories on the SFE have dropped again and now sit at a measly 81t.




Next, US Silver Eagles sales have taken off again with 2.765m sold month to date taking the YTD figure to 30.876m. The chart below shows what has happened to silver sales since the GFC when the 'penny dropped' for many about the reason for the GFC, the reaction to 'fix' it and how worse its becoming.




Finally the chart below highlights our view you are better off holding the real thing than risking a 'paper promise' from an ETF.

 

Ainslie, while I appreciate your occasional story - your credibility for 'market timing' is beyond poor.

Please don't tell silver investors to 'take heart from these charts'. It is another of your non-stop perma-bull stories to sell your metal...

You published a contributed permabull story at the start of 2012 suggesting that silver could double in the near term? How did that go for you?

https://www.ainsliebullion.com.au/g...uble-by-year-s-end/tabid/88/a/16/default.aspx

 

Come on dude, we all know it's just silvertainment and is taken with a grain of salt by all but the most delusional permabulls.

 

What happens when QE stops? (pop?)
A few months ago we reported on the study that showed central banks had bought nearly half of the shares in global markets with their printed money. It appears to be still happening with Bank of Japan just last week admitting they bought another $1.2b of shares in August. The chart below tells the story of an artificially inflated market with the Dow Jones reaching all time highs last week despite trading volumes at long term lows. i.e. it's not retail buyers propping up the sharemarket it is money direct from the Fed printing presses. The second graph puts that very very clearly (Fed balance sheet is the running total of the debt created to print the money). Can we just remind you that the US Fed is due to stop printing money (QE) next month.

 

My understanding is that the banks are still holding onto much of the QE and as such, once QE stops, there will be an additional few months tapering as the banks spend down the money. The full effects may not be felt until Early next year.

 

Why would you believe they are tapering ? Because they announce it ? Did they announce the $16T dollar bailout of the banks including the European banking system ?

http://www.forbes.com/sites/traceyg...the-feds-16-trillion-bailouts-under-reported/

There is no taper otherwise we would see major moves in interest rates. They announce taper then channel funds (newly non-printed digital currency) through some proxy like Belgium

You must understand the Fed is there to support the banks nothing more, nothing less. The public, the economy are all irrelevant. If you understand that then it all makes sense.

 

Janet Yellen is a dove and will be surrounded by doves next year, so I expect QE to continue. I don't think there will be any new names like "QE4" or anything like that, they'll just increase and modify the current "QE to infinity".

 

Yes they have to. There is no other option for them if they want to preserve the status quo.

 

Shorts covering rally close?
The charts below show the extent of the growth in short positions by Managed Money on both gold and silver since the middle of this year. As these bets on lower prices escalate and the price is driven down we are also seeing growing physical demand of late through the 'demand barometers' of the Shanghai Futures Exchange seeing record low silver inventories (now down to only 80.5t), huge inflows into the SLV ETF, the highest 2014 gold imports into China (this week hitting 50.3t), a strong rebound of gold imports to India and continued silver demand, US Eagle coins sharply rebounding, and Perth Mint sales of both gold and silver rebounding strongly in August. It is starting to get the feeling of a short covering rally being close

 

In a recent article Vern Gowdie outlined the dangers of being heavy in shares at a time when markets are looking 'toppy' from a valuation (P/E) perspective as they are now, especially for those in or approaching retirement and relying on their investments for their remaining years.
"In my opinion, the Fed has constructed a paper bridge across the ravine that separates the 2007 peak from the 2014 peak. As more people are persuaded to embark on the journey to the land of promised riches, the paper bridge is likely to collapse under the weight.
The fall into the abyss below will destroy a lot of retirement dreams.
On this point, I agree with [analyst] John that 'valuation ratios tell us so clearly the market is overvalued as they do now'.
There are times in the investment cycle to be cavalier and times to be cautious. For those approaching retirement, now is the time for the latter."
Gold and silver traditionally outperform when shares correct. Most super funds are heavily weighted to shares. Gold and silver bullion are allowable investments in a Self Managed Super Fund, a super fund that YOU take control of. You can read more on investing in gold and silver SMSF's here - https://www.ainsliebullion.com.au/SMSF.aspx

 

Demand takes off again
There is evidence from around the world that investor demand is on the rise. This could be bargain hunting or it could be the structural shift that people believe the bottom is either in now or close enough that they don't want to get caught out with limited supply when the rush inevitably happens. It could of course also be the realisation that shares are starting to show signs of a big crash being close (and the historic 'crash month' of October* upon us) plus the growing geopolitical situation getting quite 'real'. The old saying "better a year too early than a day too late" has never been more true. We've posted recently about the resurgent Indian and Chinese buying (see the chart below for China with last week's 51 tonne purchases) and now the US Mint saw September purchases of Silver, Gold and Platinum Eagles all jump over 100% on August and Gold Buffaloes up over 80%, and our US suppliers are reporting a sudden jump in orders too.
* As ZeroHedge cleverly tweeted this morning "Since 1928 how many Octobers have seen the Fed hold $4.5trillion in assets [bonds] and stop buying [printing money]?"

 

Why gold plunged
Australians awoke Saturday morning to a gold price that had dropped within a whisker of its resistance line of US$1180 because of the "strong" US jobs numbers released late Friday our time. So let's (again) scratch the surface of the headline 248,000 new jobs and unemployment rate of 5.9% that all rejoiced as proof of the new strong US economy. For a start, whilst 248K jobs were added, the 315,000 who dropped out of the labour market didn't get much attention. That took the US employment participation rate down to a 36 year low of 62.7% or in real people terms, 92.5m working aged people who do not have a job. Stepping back a little further Friday's numbers showed 155.9m were employed (including the alarming rise in part time positions over full time positions, the fact that most growth is in low paying services roles, and that real median family income has declined to a level of 20 years ago). Back at the time of the GFC this number was 154.9m, or about 1m less. However, the number of working aged people has increased by 14 times that! So whilst the number is good news, the way the market reacted is indicative of one looking for a good headline rather than a structural improvement in the US economy. You will note the price has retraced all of that drop already and the USD1180 line in the sand still holds firm

 

The real job numbers added were 701,000. The headline number of 248,000 was the difference between the estimated number 453,000 and the real number of 701,000. However, over 1,000,000 government jobs were created and the private sector jobs fell over 300,000. That is a shocking result for the real economy as government jobs are supported by tax dollars. The productive economy shrunk yet again !

 

Not sure how folk can believe that the US job numbers provide a true perspective.

A part time job.

A services job.

How can a services job help the US GDP?

How can a part time job add to the GDP?

Real jobs (Example manufacturing) that provide income for a country helps a country grow and provides confidence in that country.

The reality is that to me, I see a government that is expanding the services job sector which has to be paid for by the tax payer.

The bounce from close to the support at 1180 just shows that the market knows these figures are pointless.

If the US had figures of 6 year un-employment that said 248,000 new Full time jobs in industries such as vehicle construction, ship building, technology (Silicone valley), farming, timber, mining etc we could see gold plummet but that's not the case.

imo, ifand when Yellen raises interest rates we will hear more fabricated BS blubber from Obama and the Fed.

 

Just like the agricultural and industrial revolutions added to GDP - Productivity. Driverless trucks (or other automation) at a mine or on a farm, say, means extra people available to other things (ie in services).

 

When physical silver dictates price

Analyst Bill Holter has just summarised something we've thought (and spoken about at our seminars) for some time. To give the quote below context consider that it is not unusual on the COMEX futures exchange for the equivalent of half of global silver production to be dumped on to the market in a day and often a large portion of that in minutes (you know, how you always do when you don't want to realise a big loss by spooking the market). Naked shorting is when you sell something you don't own (in a futures contract) with a view to buying it later at the lower price you just spooked the market into before delivery. Only on the COMEX real silver is rarely delivered, rather 'paper' trades just recycled. Which is just as well as no one or few have that much real silver to sell in one hit. The downside is that the COMEX largely dictates the Spot price. But as we saw as recently as last April when the price was hit for six, demand for physical metal skyrocketed and up went premiums as refiners and then dealers were scrambling to buy to meet demand. Holter talks of an arbitrage situation where in theory you could buy and actually take delivery at the low COMEX price and then sell your metal at the higher real market price, hence quickly draining what is left in COMEX or an ETF for instance. This is why we stress the saying "better a year too early than a day too late" has never been more relevant as supply just may not keep up to the current surge in demand and that could happen very quickly. Anyway, that quote.

"I will leave you with a comment sentto meby a reader with a little of my own tweaking. He said ..."I buy silver with fake money for 20% less fake money than they can mine it for. Will I win? Ask any child able to grasp the concept and they can answer that!" Think about what he is saying here? He is describing COMEX to a tee, they trade nonexistent silver back and forth maybe 100 times or more than is actually produced globally ...and THEY set the price. What will happen when one day the premium to purchase real silver rises $2 or $3 while the COMEX contract drops $1 or more? What will a 2 tier market do? It certainly will not create confidence in paper pricing versus cash and carry. The danger as I see itis COMEX may now be pushing their hand too hard and too far ...as the Shanghai exchange now exists as a potential check and balance to paper pricing. If COMEX moves the price too far from where the cash price trades, they will effectively arbitrage themselves out of inventory, out business and out of confidence. Time will tell."