Ainslie Bullion - Daily news, Weekly Radio and Discussions

Even BIS is worried
The Bank for International Settlements (BIS) is effectively the Central Banks of the world's central body. They released their latest annual report over the weekend. The following are excerpts from the summary (http://www.bis.org/publ/arpdf/ar2014e_ov.htm ).
"The global economy has shown encouraging signs over the past year. But its malaise persists, as the legacy of the Great Financial Crisis and the forces that led up to it remain unresolved. To overcome that legacy, policy needs to go beyond its traditional focus on the business cycle. It also needs to address the longer-term build-up and run-off of macroeconomic risks that characterise the financial cycle and to shift away from debt as the main engine of growth."
"By mid-2014, investors again exhibited strong risk-taking in their search for yield: most emerging market economies stabilised, global equity markets reached new highs and credit spreads continued to narrow. Overall, it is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally."
"In this second phase of global liquidity, corporations in emerging market economies are raising much of their funding from international markets and thus are facing the risk that their funding may evaporate at the first sign of trouble. More generally, countries could at some point find themselves in a debt trap: seeking to stimulate the economy through low interest rates encourages even more debt, ultimately adding to the problem it is meant to solve."
So even the body representing the perpetrators of this unprecedented global economic debt fuelled stimulus experiment is sounding the warning bells. Debt can be cleared by default or high inflation. Gold and silver should thrive on either scenario.
ABC News ran a good article on it that puts Australia's position in all of this into perspective too. http://www.abc.net.au/news/2014-06-...es-may-generate-next-financial-crisis/5558292

 

Where's the silver?
There are some very interesting developments in silver going on right now. First lets go back to 2011 when silver rallied up to $48. This was largely off the back of a squeeze in supply against a mountain of paper contracts. They can play with COMEX only so far as when it becomes apparent to the market the metal is not there to back it up you get a short covering rally as people clamber to get their metal. We are again now in a position where the big players (J P Morgan etc) are enormously short on COMEX again with very little registered metal to cover it.

And now Ted Butler reported over 200 tonne of silver left the largest ETF (SLV) last week when the price action dictated that much should instead have been deposited. Like we also reported recently it appears ETF's are increasingly 'lending out' their silver ironically as the market desperately tries to cover all the paper contracts that have suppressed the natural supply/demand price.

Have a look around the world at the cocktail of political and economic issues brewing and consider it takes just one 'black swan' event to trigger a rally that would see this unsustainable paper silver situation unravel overnight and the only winners being those who hold physical silver (and gold) themselves. This much repeated quote on PM's is worth considering "It is better to buy a year too early than a day too late"

 

News from the Week, All things bullion, with Ainslie
This week's radio discusses the Aussie dollar rollercoaster this week, the good and bad out of the US and the just plain bad out of Europe.

https://www.ainsliebullion.com.au/g...lion-with-ainslie/tabid/88/a/658/default.aspx

 

Gold the best performer of 1H 2014
USAGOLD produced the chart below showing gold has outperformed every other investment class in the first half of this year. They then talked to 3 fundamental reasons in their eyes as to what could project it further. 1. A possible stockmarket meltdown they quote famed Jon Hussman who predicted the last 2 crashes when most didn't and who thinks we are on the brink of a 38-50% US stocks bust; 2. Gold / oil price ratio correction Gold has tracked oil relatively closely until the April 2013 take down of gold. At a time of conflicts around major oil fields it is unlikely will to come down to meet gold thus the opposite is over due.; and 3. Gold has underperformed its historic correlation to inflation and this too is over due a correction. Markets always revert to their mean trend and these are 3 classic examples of markets looking over due to do so. The chart also nicely debunks the gold bears dire predictions


Source:

 

Concealing the coming crash
Major Australian papers ran an article yesterday on veteran fund manager Han K. Lee (who predicted the GFC and had his fund ready) who is again predicting another crash soon. We've posted The Age's version on our website but AFR's is better if you have access either is a must read. Lee is reinforcing much of what we talk about daily, but one thing he mentions that few dare to is the obvious data manipulation by Governments. Eg last week shares rallied strongly and gold came down on the 'awesome' US employment data showing about 280,000 new jobs and the unemployment rate down to 6.1%. Zero Hedge published the graph below illustrating simply that the 280,000 was made up entirely of part time jobs and in fact full time jobs FELL by 523,000. The published (U3) 6.1% unemployment rate was helped by 92,000 people giving up looking and if including them the US Government's own official U6 number is 12.1%. The US has a 35 year low participation rate of only 62.8%.


Source:

 

Precious Metals Price Pinch

Yesterday we posted just one of a growing number of investment experts talking about reallocating assets away from equities ahead of a financial crash. Legendary Warren Buffet too is divesting shares heavily into defensive assets. Precious metals are one such asset. But consider this absolutely crucial fact. The very essence of gold/silver's appeal is its scarcity and the inability to simply reverse that. How scarce? The graph below illustrates it's just 0.5% of all financial assets! So if there was any sort of material shift into gold you can well imagine what the price must do when there is so little to go around. Consider too this quote from silver analyst Ted Butler just last week:

"While the same 100 million ounces of metal is, effectively, available for investment in both gold and silver annually, because of the great price difference, that translates into a markedly different comparison on a dollar basis. 100 million oz of gold equals $130 billion, while 100 million oz of silver equals $2 billion. These are the dollar amounts required to be expended by the world's investors in order to absorb the new gold and silver produced annually. Not only is it, obviously, easier for the world to come up with $2 billion than $130 billion, it is also easier for the world to come up with more than the $2 billion required in silver to strongly propel silver prices higher. That's the key to precious metals prices investment demand. That silver requires such a small amount of investment dollars to ignite prices to the upside compared to gold is the key difference between the two metals."


Source:

 

The great gold price tug of war

We are in extraordinary times. It's a battle of shorts v longs. Over the last few weeks the big bullion banks have piled on their short positions in both silver and gold to historically high levels. On the other side we have a world dishing up reason after reason to own gold and silver with the 'real' market buying (going long) and maintaining prices in the face of all the shorting. This week was providing 2 key events that could see a break out on gold. Last night's US Fed minutes and today's Indian budget where Modi may or may not remove the restrictions on gold. Last night the Fed said they would finish QE in October and were still working out their exit strategy re interest rates. That was a perfect opportunity for the bullion banks to hit the gold price but yet again it defied and rallied higher. If Modi removes or reduces restrictions it should be tremendously bullish for gold.

Right now we have, just to name a few: debt/easy money fuelled and central bank supported equities markets in bubble territory; bond markets scaring many economists; geopolitical conflicts all over the middle east, Ukraine, and China/Japan; attacks on the USD from Russia, China, France, Iran, South Korea etc; Eurozone faltering with serious bank issues in Austria, Spain, Greece, Germany etc and the ECB yesterday reconfirming they are ready to start their own money printing exercise as things get worse not better; the US recovery driven by misrepresentation of data and blind 'belief' on the eve of QE ending and the consequences of that yet to be seen yet seemingly unavoidable; Japan hurtling on with money printing and the world's highest debt to GDP ratio, and finally China (who got us through the GFC) showing very real signs of slowing and struggling with its own massive debt bubble. It is by no means an exhaustive list but merely an insight into just some of what is pulling the 'natural' long forces against the 'orchestrated' short forces of the banks. Even if the banks win this one with all their 'paper' trades most gold commentators are now calling that the last price plunge before the gold and silver rocket takes off. Take the strain.. pull!

 

Indian Elephant remains in the room

As we mentioned last week all eyes were on the Indian budget Thursday night to see if the new Government would abolish the restrictive 10% tax on gold and accompanying 80/20 import export rule. There were no changes which may see two things happen. Firstly the already rampant smuggling will escalate and secondly there was a lull in buying in the lead up as people expected the tax to be reduced or abolished. Neither happened so there are some expecting a short term rush in buying to satisfy those needs, coinciding with the strong global demand and price growth of late. The Indian Government said recently that gold imports fell by 34% to 670.4 t year on year to the end of March 2014.

If you consider that does not account for the reported smuggling supplementing demand, it is still an extraordinary amount of gold from the country who until last year held the crown for biggest gold consumer in the world.

 

What happened last night?

Gold had its biggest drop since December 2013 last night coming off $31 from this time yesterday, or 2.3%. Likewise Silver dropped too by about 2.5%. So what has happened? We wrote last week about the 'tug of war' between the Wall Street traders who have piled on record amounts of short futures contracts and the 'natural' supply / demand, safe haven buyers. Since writing that piece, last Friday's Commitment of Traders report showed the combined short position increased markedly last week. Remember this is big traders, with literally $billions at their disposal and the ability to electronically flash trade that amount 'betting' on a price drop.

Keeping that in mind, ask yourself if the chart below (courtesy of Zero Hedge) looks natural? Zero Hedge reported that US open hit was no less than a $1.37b notional flush. But as we've said before, and as we saw in 2011, when there is a squeeze in supply they quickly lose control and the price takes off. There is a lot of data indicating that is not far away and many gold commentators have been calling the next 'bottom' the last before it takes off. Timing your buy? There is a much repeated gold commentator quote of "I'd rather be a year early [buying] than a day late".


Source:

 

Impressions of suppression

Last night again saw someone dumping about $2.3 billion in futures contracts in one hit, taking gold down $10 in it's wake and great news if you, say, had a heap of short positions. When we get the sort of blatant price hit we saw Monday night and then again last night, it reignites the speculation of whether this is just Wall Street using their might and high frequency trading abilities to drive markets and make money, or is it indeed 'sponsored' by the US Fed / Governments to suppress gold and make all appear good in the world. The latter is a 'bridge too far' for most people to believe and very few probably really know. Irrespective it can't last as it defies mother nature's supply and demand forces (who always win in the end), but we are always reminded of this infamous quote from then Bank of England governor Eddie George:

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

When a commodity in strong demand has it's price pushed to at or below the cost of production by unnatural trading techniques, at a time when paper assets are looking very bubble like, at any time something could snap and the price let loose.

 

BRICS get serious

Brazil, Russia, India, China and South Africa the so called BRICS alliance have talked for some time about setting up a de-Americanised alternative to the global monetary system for themselves and other emerging nations. At their annual meeting this week they took their first definitive step by announcing the establishment of their own version of the IMF and World Bank, with an initial size of $100b. They, with others, are clearly tired of the US centric IMF. Indeed tellingly Putin was quoted as saying it is "a system of measures that wouldhelp prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies."

Further in a clear warning on the USD's continued dominance as the reserve currency they also stated "The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures". To put BRICS into perspective for you, their combined GDP of $16t is about the same as the US's and population of 3b nearly 10 times the US's 318m. Context for gold? Well for a start it is another step closer to the fall of the USD, but it is also a precautionary step to try and shield themselves from the fallout out of the looming US debt crisis, which is a telling indictment on the global economic situation. Oh, and China, Russia and India bought nearly all the gold produced last year.

 

BIS warns again of a crash
In a recent interview with Ambrose Evans-Pritchard of London's Telegraph, and further to our recent article, the head of BIS, Jaime Caruana, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield and the developing economies that got us out of the GFC are no longer removed.
"Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,"

'Mr Caruana said the international system isin many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then.'

Bank of England chief, Mark Carney has since come out and lambasted Mr Caruana for suggesting they should raise interest rates. Ironically this blast came just hours after a shock rise in UK inflation (from 1.5% in May to 1.9% in June the biggest monthly jump in nearly 2 years) led to more calls for an interest rate rise. Carney argued that BIS acted "in a vacuum" . "outside political and economic reality". Maybe that 'political reality' is having to give easy money addicted voters what they want rather than 'taking the medicine' so to speak
This is just one of a growing number of warnings of a massive crash in the making. Remember BIS were sceaming of an imminent crash in the lead up to the GFC where again they were ignored by politicians. If they are right again you'd want to be considering gold and silver sooner rather than later.
You can read the original Telegraph article here.
http://www.telegraph.co.uk/finance/...-Lehman-crisis-from-worldwide-debt-surge.html


You can also listen to our Weekly radio session (Every Friday) by listening here>
https://www.ainsliebullion.com.au/g...ws/ainslie-radio-/tabid/88/a/673/default.aspx

 

Silver demand strong

The Silver price lagged gold for a while this year but now as the spot price is up nearly 7.5% for the year a report by the silver institute shows demand is strong and multifaceted. ETF's added 7m oz in June, silver coins sales are up 4.5% globally for the first quarter and US silver Eagles at 24.1m oz for the first half, just shy of the 25m oz sold in the record breaking 2013. We mentioned in a recent Ainslie Radio that India just reported importing 711 tonne in May taking their YTD to 2254 tonne, similar to their huge 2013 number.

Industrial demand is increasing too with use in ethylene oxide production up significantly (exp 23% for year to 8m oz), solar up 10% (and India announcing last week it will double renewable energy over 10 years), and semi conductors in electronics up 8.8% and the highest quarter in history.

Investment and industrial demand account for 77% of all demand last year so the above is encouraging.

Interestingly China has been subdued in its imports and analysts Seeking Alpha think that is the one to watch as a trigger for a real jump in demand. Others have noted they have depleted inventories incredibly this year to critically low levels so it may be imminent. When you consider the extent of electronics and solar panel demand in China that could well be significant.

 

China, gold, the big picture

Today we posted an excellent article from Jeff Clark of Casey Research. If you don't have the time to read it we want to list the key takeaways as we think they are critical:
You should likely ignore the main stream press reports on falling Chinese imports.

- China is importing through Beijing as well now and we only get to 'see' the Hong Kong figures.
- China's central bank hasn't updated their holdings since 2009 and is unlikely to do so until they have their 'fill' as it will likely be high and will drive up prices. They last reported holding 1054t, or only 1.3% of foreign reserves.
- People talk about the US having 73% foreign reserves as gold but forget the USD is the reserve and hence the US holds little in the way of foreign reserves. As a % of GDP it is only 2% (IFF they have the gold they say, and that is the subject of much speculation and doubt).
- If analysts of China now holding 4,500 t are correct their % of GDP would be 2% also.
- Clark debunks theories of China's sliding GDP being bad for gold as there is a reverse correlation.
- The WGC estimates a 25% increase in gold demand by 2017 simply through 300m more Chinese becoming more affluent within 6 years.
- Whilst the gold spot price is largely determined by paper trades on COMEX, a tangible shift away from this is underway, spearheaded by the physical trading (and long term holding) China via its Shanghai Gold Exchange.
- Clark present a good little summary of the pressures mounting on the USD. Whether its collapse is slow or sudden it is looking more likely and imminent.
- 20% of your wealth in gold should protect you from the ramifications.

 

I like the chart feature on your website.

Nice

 

The Next Lehman
Fresh after Portugal's Espirito Santofiled for creditor protection on Friday night the US Fed has raised serious concerns about Germany's largest bank, Deutsche Bank's US operations, stating they represent a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports,". Zero Hedge has for some time now been reporting the global danger represented by Deutsche Banks eye watering EUR55 trillion derivatives position as depicted in the graph below. For further context that is about the same as global GDP. Whilst Credit Default Swaps (CDS's) played a big role in the GFC, many believe we just scraped through because somehow the full extent of these and other toxic derivatives in the global system didn't play out to the extent they threatened. Since the GFC the world has taken on much more debt, entwined the GFC saviour emerging economies and looks more prone to the next "Lehman" event bringing it all down harder than last time. Whilst the relatively small Espirito Santocase seems to have been absorbed, something like Deutsche Bank could make Lehman look relatively insignificant.

:: Discover special and rare bullion items in our new product section 'Special Bullion Items' - https://www.ainsliebullion.com.au/products/special-bullion/tabid/85/type/4/default.aspx ::


Source:

 

Past Peak Gold
One of the most respected analysts of gold production, SNL Metals & Mining have just released a report that confirms what we've reported previously from other credible sources in that gold discoveries are diminishing, but critically they also report on how time to production too is increasing. That means fewer new gold discoveries are also taking longer to get to production. Combining this with our previous articles on diminishing yields and increasing costs (or tonnes of ore & costs to produce a gram of gold) and it is a dire forecast for gold supply in an already constrained market.

The 2 graphs below need little explanation and paint a very clear picture of us having passed peak gold supply. SNL point out too that one needs to keep in mind conversion and recovery not captured in these graphs. They estimate a 75% rate for converting resources to economic reserves (noting this is likely underestimated with worsening political, environmental and economic hurdles) and a 90% recovery rate during ore processing. So for the last 15 years that translates to new discoveries replacing only half of the gold produced during the same period. Got yours yet?




Source:
Source:

 

Where to for gold and silver?
The main stream press are presenting 2 very different stories yesterday and today. One is that gold will fall further as demand in China has come off 19% and the US is on the road to recovery, and 'supported' by Goldman Sachs calling for US$1050 by the end of the year (you know, the same Goldman Sachs that talked it down last year whilst buying up long on the other side). Anyone who reads our articles and listens to our weekly wraps must surely be questioning the US recovery and Chinese demand figures.

But to be honest we don't have the track record of calling markets that the infamous Levy's do. Other articles are running the Levy's call for an imminent US recession. The Levy's of the Levy Forecast have an enviable track record having accurately predicted the 1929 great depression timing, decades of turns in the business cycle since (often against 'conventional' thinking), and more recently the 2000 dot com crash and GFC crash, with the latter even spelling out the Fed's response to it which has played out accurately. Interestingly Levy predicts the crash will come from outside economic forces not necessarily from within the US. Which is right? We don't know and you don't know and that is why balancing your wealth is so critical as the world navigates unchartered economic territory. Gold and silver are perfect hedges against the last story and are 'on sale' because of the first story. It's a win win.

Also, jump across and enjoy today's Ainslie Radio - highlighting the news of the week in a short radio session.
https://www.ainsliebullion.com.au/g...io-25th-july-2014/tabid/88/a/679/default.aspx

 

Central Banks and Gold
As the world grapples with multiple wars and the issuer of its global reserve currency, the US, printing nearly $4t since the GFC and holding interest rates to near zero, central banks are clearly preparing for the worst they are buying gold. By the end of 2013 the world's central banks held 30,500 tonnes of gold or nearly a fifth of all the gold ever mined. From the time we left the gold standard in 1971 central banks began to sell their gold. When the penny dropped with the GFC that this new global economic experiment wasn't working, and the US Fed's response to fixing it was actually making it worse, they all started buying up gold again and have done so continuously since the GFC. We are in a world now seemingly perilously close to either an easy money bubble or war triggered financial collapse. And 'war' may not be the usual guns and bombs, it could be economic as Russia's ambassador to the U.K. said last week - "sanctions would not serve the interests of the countries concerned, including the U.S., and wouldtrigger a long-anticipated endgame of the present global crisis."
If you think investing in physical gold and silver is speculative, Central Bankers are by repute some of the most conservative investors around as they are charged with protecting their respective country's wealth.


Source:

 

By the end of 2013 the world's central banks held 30,500 tonnes of gold or nearly a fifth of all the gold ever mined.

Reference please?