Ned Naylor-Leyland: Gold Update/we know that the monetary system is br

CLZ · Jul 15, 2013

Thoughts?

Ned Naylor-Leyland: Gold Update

What is happening now is that the absolutely inevitable 'run' on the 100:1leveraged Bullion banking system is truly underway.The bullion banks want to get Gold back into contango and stop the movement of the remaining inventories by shaking the market lower, usingpaper leverage to do so. It hasn't worked, indeed more and more investors are now seeking allocation, delivery and physical metal at theexpense of synthetic products offered by the banks. The squeeze we have been waiting for is closing in, it is always darkest just before dawn
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http://www.scribd.com/doc/152683206/Gold-Update-July-2013

Ned Naylor-Leyland: we know that the monetary system is broken
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http://www.youtube.com/watch?&v=xhuvIEBemk8

CLZ · Jul 16, 2013

From the paper:

Considering that the Bank of Englandis worried about Barclays' leverage ratio (having risento the giddy heights of 40:1 again with the need for aminimum of 8bn in fresh capital asap) I find itextraordinary that investors do not notice that the Goldprice is presently defined by a market which operatesusing around a 90:1 leverage ratio. This cannot, andwill not, end well for holders of synthetic Gold, or thebanking system overall. Indeed, the recent raids onthe spot price have just brought forward the day ofreckoning for the present price discovery mechanismby stimulating yet further drawdowns on physicalinventories.
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No comments at all? Comment something.

1) Please, dont send manipulation BS anymore
2) Interesting
3) Wow

CLZ · Jul 17, 2013

I think this Ned Naylor-Leyland paper Gold Update is interesting. I have not found any errors or lies from it. Can anybody find?

Gold Update

In light of the deep sell-off in the Gold price, I present 3 charts to clarify what has (and hasn't) happened. Chart 1 is a chart of Spot Gold, thesecond an illustration of what makes up the daily 'Gold' market, the third shows the enormous flow of physical metal from West to East in thecontext of Global mine supply. There is an ongoing clash between the forces of paper supply and physical demand paper supply has wonthe latest round, but its objective of satisfying and slaking demand for the real metal has failed entirely.The spot price graph is annotated with events that have happened since Q3 2012. All of these points (1-6) seem pertinent when evaluatingthe sell-off in paper Gold, but none more so than the entry of the Gold market into a state of permanent backwardation around a year ago (1).With vast above ground inventories (supposedly) available to borrow, the Gold and Silver markets should not offer a risk-free arbitrage for anyamount of time. The fact that it has remained and widened over a year indicates that the physical market has tightened up substantially, apostulation that is corroborated by the growing premiums being paid in Shanghai and Delhi (in Delhi dealers are paying over a 25% premiumfor NNS 8g fine Gold vs 2% in Q4 2012) and the ongoing wholesale delays in the delivery of substantial bullion tonnage (2 tons or above).

Why did Germany do a massive and highly embarrassing U-turn about its sovereign Gold reserves being held in New York? Why did the NYFed then say it would take 7 years to return that Gold? Wouldn't the reality of bank deposits being lined up for bank 'bail-ins' be exceptionally bullish for a liability-free form of wealth preservation? What does the scale of interest in buying physical in Asia (growing rapidly) mean for the dynamics of price discovery going forwards? Isit sustainable for nigh on all this year's physical Gold mine supply to have been delivered through one small futures market in Shanghai?
None of these questions have been satisfactorily answered by sellers, or bears, of Precious Metals who focus solely on the 'spot price' withoutreference to the 'spot mechanism'. Few understand what money flows come together to create the 'spot price' of Gold. My Chart of DailyVolumes shows the Gold investment 'market' up for what it really is a vast, sprawling, OTC and almost totally unregulated dark pool.It seems evident to me that as backwardation first started to properly grip the bullion market mid last year (where the shaded area of the graphstarts), the playbook to manage the Gold price went into overdrive. In light of the backwardation between spot and the front month, the spotprice duly broke out from its consolidation pattern (see purple annotation). This was a 'code red' signal for the bullion banking system, I wroteabout it last year although I felt the inevitable disconnect would happen in a rising rather than falling price environment. Everything that followedfrom Point 1 should be observed in light of this crucial ongoing silence from the Golden canary in the fiat coalmine

To understand what is meant by that, let us look at the'Gold' market in context of average daily volumes incurrency markets. Gold is a huge and misunderstoodmarket. Most investors see it as a 'simple' asset classand assume broadly that, outside of futures andoptions, the market is 1:1 backed by physical metal.Nothing could be further from the truth. The ETFmarket is nominally backed 1:1, but in terms of dailyvolumes represents a meagre 1-2% overall. The restis split between the COMEX futures market and theOTC 'loco London' currency pair market, where banksand investors cross vast amounts of money againstGold, generally without allocated metal backing. If theLBMA want to come out from behind the curtain andtalk about true bullion inventories versus tradedvolumes then I would happily assess that data, but forthe time being they prefer to remain convenientlyopaque. The best information we have is from TheReserve Bank of India, an LBMA member, who statethat the OTC market and futures and options are 92xgreater than the underlying physical market. The ratioexpressed in my adapted 'Daily Volumes in Context'chart pretty much confirms the best-guess RBIleverage ratio. Considering that the Bank of Englandis worried about Barclays' leverage ratio (having risento the giddy heights of 40:1 again with the need for aminimum of 8bn in fresh capital asap) I find itextraordinary that investors do not notice that the Goldprice is presently defined by a market which operatesusing around a 90:1 leverage ratio. This cannot, andwill not, end well for holders of synthetic Gold, or thebanking system overall. Indeed, the recent raids onthe spot price have just brought forward the day ofreckoning for the present price discovery mechanismby stimulating yet further drawdowns on physicalinventories.Most of the purchasers of 'Gold' in f/x markets (tickerXAU) have no physical backing to their trades(estimated to be around 90% unallocated). This is thenature of the OTC 'Gold' currency market.Considering that most people invest in Gold exactlybecause they fear the fractional reserve nature of thebanking system, this is a bizarre state of affairs and Ibelieve has led us to the widening backwardation wenow see as the new 'normal'. What is happening nowis that the absolutely inevitable 'run' on the 100:1leveraged Bullion banking system is truly underway.The bullion banks want to get Gold back into contango and stop the movement of the remaining inventories by shaking the market lower, usingpaper leverage to do so. It hasn't worked, indeed more and more investors are now seeking allocation, delivery and physical metal at theexpense of synthetic products offered by the banks. The squeeze we have been waiting for is closing in, it is always darkest just before dawn
Click to expand...

http://www.scribd.com/doc/152683206/Gold-Update-July-2013

CLZ · Jul 17, 2013

This is also interesting and links to Gold Update paper:

In our view, the bullion banks' fractional gold deposit system is testing its limits. Too much paper gold exists for the amount of physical gold available. Demand from emerging markets, who do not settle for paper gold, has perturbed the status quo.
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http://sprottgroup.com/thoughts/art...banks-and-the-physical-gold-market-conundrum/

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