Ainslie Bullion - Daily news, Weekly Radio and Discussions

[AinslieBullion]

Central Bank Gold movements
There are some interesting things going on at present with central banks and their gold. As the World Gold Council reported a fortnight ago in its Q3 update, central banks were substantial buyers at 93 t for the quarter and 335t year to date, and as we reported Friday, Russia was a big chunk of that. Conversely Ukraine reportedly sold nearly 90% of its gold to the US quite quickly this year taking its 48t representing 8% of its reserves down to just 1% (speculation is rife about what 'deal' was done re US support). And now last week we learn that the Dutch central bank secretly repatriated 120 t from New York back to Amsterdam "to ensure a better spread" and in hopes to boost consumer confidence by showing there is enough gold in the Netherlands to take the country through a new economic crisis. The Netherlands has 612 tonnes of gold worth 19bn at current gold prices and representing 51% of reserves. The Germans will no doubt be curious about how the Dutch could achieve in one hit what the US Government said would take 7 years when Germany asked for its gold back last year What is clear is that central banks have been strong net buyers since the GFC (when the penny dropped?) and the positioning keeps happening. The elephants in the room are the Swiss gold referendum next week and just how much the People's Bank of China has accumulated since they last told the world of their relatively measly 1054t in 2009. With their import numbers over the last few years bets are it is very big and a market mover when revealed. In the meantime they keep secretly accumulating at nice low prices

 

[AinslieBullion]

Precious Metals Hijinks
For those who don't look at price charts, just the number reported each morning, you may have missed an interesting event last Wednesday. While we (in Australia) were sleeping the following happened.

That nearly $20 drop and then reversal is explained by Bill Holter "80 tons of gold was sold over a 15 minute timespan which knocked gold down $20 in the blink of an eye. Please see the chart below courtesy of Dave Kranzler of IRD.

80 tons! Let me put this in perspective. 80 tons is equal to two weeks' worth of global gold production ...sold in just 15 minutes! This is nearly 2.8 million ounces. The interesting thing is COMEX only claims to have 865,000 ounces of gold available for delivery so more than 3 times the amount of ounces were sold in 15 minutes than is even claimed as available for delivery!What followed however was the real stunner, very shortly afterward gold dug in its heels and started to recover ...recover to unchange in price! Do you see the importance here? Though this was not another outside reversal day, it may have been even more important. The "paper" market absorbed two weeks' worth ofproduction in just 15 minutes without breaking!"
And as we come to the December contract date with silver contracts 5 times that physically available and gold 20 times over, these paper 'games' highlight the comfort one can draw from owning the real thing, physical bars and coins. December will probably resolve itself with rollovers like it has in the past but one day it will break, and that will be landmark event for holders of the real thing.

 

[AinslieBullion]

As the headline US National Debt figure is about to surpass $18 trillion their National Inflation Association has called 2015 as the year the debt crisis hits the US and by default the world. They have just released an eye opening report that outlines some scary facts.

The $18t headline equates to 102% of US GDP, the first time over 100% since end of WW2 1947.
Debt growth has incredibly exceeded official budget deficits with a 7 year average $960b deficit yet $1.26t average debt growth (depicted below)

US debt growth has exceeded GDP growth for the last 13 consecutive years.
The headline $18t conveniently omits REAL committed present value unfunded liabilities (future commits in excess of future revenues). The graph below shows these accounted for with an eye watering total of $103 trillion or 590% of GDP.

Part of the problem is 'entitlement' spending (social welfare, medicare, etc) which since 2000 has risen from $724b to $1.67t (131% increase) or from 36% of Government income to 56%! (Try unwinding that and get re-elected.)
This is all real, it all can't magically disappear, and can only end badly. NIA is calling that next year. 2014 might be the time you balance your wealth with the world's oldest and most proven hedge against such insanity, Gold and Silver. You can read the full report here - http://inflation.us/nia-2015-u-s-debt-crisis-report/

 

[AinslieBullion]

Listeners to today's Weekly Wrap will hear of the contrasting week the US has just had. One thing for sure though is the S&P500 is officially in 'nosebleed' territory as it has now achieved a scary new record. It is now at the 2nd most overbought level since 1871 being 90% above its long term trend. Only in the period of November 1998 to July 2001 was it more so and we all know how that ended. A not so subtle difference to that period is that high was not off the back of an unprecedented central bank stimulus program; a program that has now ended. (for now?). Like the Aussie sharemarket needs more pressure at the moment! Remember US sneeze..Aussie flu. Got your hedge in place?

Listen to Ainslie Radio > https://www.ainsliebullion.com.au/g...radio-28-november/tabid/88/a/795/default.aspx

 

[AinslieBullion]

India Opens doors amid tight supply
Firstly, if you haven't heard already, the Swiss voted down the gold referendum by 78% after a torrent of propaganda against it at the end. But countering that, news broke over the weekend that in a surprise move the Indian government removed the 80:20 import export restriction on gold just as speculation circled on an increase in restrictions given recent demand. Whilst the 10% duty remains, the removal of this restriction could well see demand jump in India (though countered in part by an expected reduction in smuggling). For this to come as expectations for November of a 3rd straight month of 100t plus imports into India and at a time when China is still rampantly buying (see the graph below which now includes another 52.5t in the week to 21 Nov), and the GOFO rate hitting new records with 1 month rate the most negative since 2001, 2 month negative, 6 month negative for the longest stretch in history, and 1 year, which has never in history been negative, sitting at just 0.027%, simplistically meaning investors will pay for something that normally pays them as there is a concern about it actually being available.

 

[AinslieBullion]

Real v Paper - Demand v Supply

As the price action of the last 2 days has you scratching your head, our quote of the week comes from market analyst Bill Holter and it captures the current situation beautifully:
"As of this past week, Silver Eagle and Maple sales are on track to at least meet last year's record sales and are now runningFIVE times higher than in 2007 (before the financial crisis began)! We also know GOFO rates are the most negative with the exception of one time in history.The silver inventory in Shanghai plunged again this past week and is now again under 100 tons.For perspective, this inventory was over 1,100 tons just over a year ago and has been bled by over 90%.In just 2 days last week, 21% of the inventory was withdrawn ...and what's left is now "worth" under $50 million (with a lower case "m"). Silver contracts in Shanghai are also in backwardation, another perfect example of short supply.Refiners in Switzerland are running flat out 24/7 due to Asian and Middle Eastern demand and to top things off, India just eased restrictions on gold imports.When added together, China, Russia and India are taking nearly 150% of global gold production via physical purchases.To put it in further perspective, China has the financial ability to purchase ALL central bank gold reserves at current "prices" THREE TIMES OVER!

So, what is my point?Something very drastic has to and will happen. One market or the other is very wrong.Either the paper price is wrong ...or, the physical market is wrongly displaying all the signs of a supply shortage.Can you figure out which one is wrong? Is it the market where "gold" can be created at will or the one where it is actually dug up out the ground? I will say this in my opinion, I cannot understand who in their right mind would trade a COMEX gold or silver contract? Would you gamble in a casino where you knew the games were rigged ...and not in your favor? What is the purpose of trading pieces of paper that the exchange itself admits they don't have enough metal for everyone?.
Low price has already, and will create excess demand and also cause a shrinking supply since mines cannot make money producing at these levels.While COMEX can and has created the price, they cannot create the supply necessary to satisfy the greater demand.COMEX, by forcing the price too low have set in place the fundamentals for a "re pricing" in explosive fashion."

 

[AinslieBullion]

Happy "18th" USA!

Friday was a special day for the world's biggest (some argue China) economy. It is now the proud owner of $18,000,000,000,000 (trillion) of debt (it's actually much much more but let's use their official figures). If we look back at history it took the US over 2 centuries to reach its first $1t in 1981, then $2t in 1986 and now this new record of $18t just 18 years later! In fact they have not reduced it in any successive year since 1957 through 'vote winning' spending in excess of receipts and stimulus to prop up an ailing economy. The other mates at the party are no better. Japan, China, Euro and others are arguably worse given their smaller economies, in fact parts of Euro had to be bailed out in 2012. The problem is there is no good way for this to end; and it must end. To quote Simon Black:
"And the people in charge of the system have backed themselves into a corner where there is no way out other than to default either on their creditors [ala China, Japan etc] (creating a global financial crisis), the central bank [US Fed] (creating a currency crisis), or on the citizens themselves (creating an epic social crisis)."
When this happens, and it will, you will want to have hard assets of intrinsic value (gold, silver, fine art, good quality agricultural land, etc) as paper assets (shares, futures, ETF's etc) will do as paper does when a torch is applied. One last scary fact
Against that debt of $18t on Friday, the US Treasury Dept had a total of $71.9b in cash. Context? That is 0.39% of the debt and less than Apple has.

 

[AinslieBullion]

US Debt Ponzi Scheme
Further to yesterday's story on US debt hitting $18t, and our earlier explanation of how money is created it is timely to be reminded of the definition of a Ponzi Scheme is (via the SEC):
"is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out."
Last week the US Treasury released data that showed they had to issue $1.04t since the start of Fiscal year 2015 (8 weeks ago) to raise money to pay off previously issued Treasuries that were maturing together with more deficit spending by the government. This, by the way, after they recorded record high revenues ($0.34t) for that period which was STILL not enough to cover government spending let alone pay off the old debt. Seeing a similarity with the above definition here??? And for those that couldn't believe the cash balance reported at the end of yesterday's news, that came about in that same period when they drew down on cash by $45b from $126b.
So getting back to the Ponzi of that $18t total debt, $12.3t is in the form of marketable debt (ala Treasuries etc). What happens when the market says "no I don't want to be rolled over, I want my money"? On that note let us quote US Treasury Secretary Jacob Lew as he addressed the senate on why the US had to raise its debt limit:
"Every week we roll over approximately $100 billion in U.S. bills. If U.S. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance. There is no plan other than raising the debt limit that permits us to meet all of our obligations,"
Tick tock tick tock.

 

[AinslieBullion]

Take a moment and listen to this week's Ainslie Radio - https://www.ainsliebullion.com.au/g...k-s-ainslie-radio/tabid/88/a/801/default.aspx

And today's news ~

Who needs gold??
Gold is still getting derided by equities pundits because everything is awesome, so who needs it? The Telegraph's Jeremy Warner of the UK put it well this week:
"Many stock markets are close to their all-time highs, the oil price is plummeting, delivering a significant boost to Western and Asian economies, the European Central Bank is getting ready for full-scale sovereign QE or so everyone seems to believe - the American recovery is gaining momentum, Britain is experiencing the highest rate of growth in the G7, God is in his heaven and all's right with the world. All good, then? No, not good at all." He then outlines 5 reasons (different to the norm) on why not:
He points out the anomaly of buoyant equities and low sovereign bond yields. Both can't be right and he highlights the reasons the stock market is looking particularly fragile at these heights.
Europe, the problem economy that refuses to go away. Whilst lower oil prices should help it may be the excuse the Germans use to block the ECB doing more to try and revive it. He also condemns the whole Euro experiment as destined to fail.
The rise of populist political parties are making the necessary economic reform policies impossible to implement. Sound familiar Australia?
The increasingly turbulent international geopolitical situation, made worse in some of the world's major flashpoints by declining oil prices, greatly enhances the chances of unanticipated shocks not given due regard by markets.
The underlying causes of the GFC have actually gotten worse, not fixed. He highlights that since 2007, the ratio of non-financial sector debt to GDP among G20 countries has risen by more than 20%. This has helped prop up demand, but it has led to new financial booms which mask fundamental weaknesses and loss of productive potential in many advanced economies. "There is an evident disconnect between buoyant financial markets on the one hand and underlying economic realities on the other. Policymakers have repeatedly gone for the easy option, rather than the tough decisions necessary to create a durable recovery... To still be running massive budget and current account deficits at what may well be the top of the cycle is a truly dangerous place to be."
He then finishes with this warning "Hang onto your hats. Conditions will be getting decidedly ugly again in the new year."
Got your gold and silver insurance in place yet??

 

[AinslieBullion]

2nd Graphs you must see
You will note in our daily emails recently we have added the Gold:Silver Ratio to the daily price movements. Many customers watch this religiously and trade accordingly. For new comers this ratio over 1000's of years has averaged about 18:1, over the last couple of centuries about 35:1 and currently sits at around 73:1! The graph below illustrates what's happened over the last 14 years and is self explanatory. Another index people watch is the Dow Jones Index : Gold ratio. Whilst the 2nd graph below is also self explanatory, consider that the DJIA is arguably at record highs purely because of the money printing stimulus of QE, which in itself is precisely the reason why many own gold as all this free money and debt can only end badly for paper assets making hard assets such as gold and silver the perfect insurance.

 

[finicky]

Regarding the DJIA:Gold ratio chart at the bottom of your post - that's fine when plotted just from year 2000, but some chartists such as Louise Yamada now figure that the ratio bottomed about Aug 2011 and is since embarked on a secular bull trend towards and possibly above all the time high. Not of this view myself yet, but some are. High was about 42 and we're at 15.

The trendline with green 95% prediction band in your chart becomes irrelevant pre 2000 and might be now irrelevant again. What we're seeing might not be outlier behaviour destined to return to the band, but the ratio commenced on a bull trend favouring DJIA to Gold

Goldbugs are hoping that the secular trend favouring gold has just been enduring a cyclical bear deviation la 1970's and that the destination of DJIA:Gold ratio is at one (1) or below.

http://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-historical-chart

Louise Yamada Oct 2014
"we know historically that structural bull markets in Equities and Gold move in an inverse relationship (see Figure 27, right): That structural bull markets in equities correspond to structural bear markets in Gold and vice versa. This profile of the Dow to Gold is a longer-term profile of that relationship which we have shown also with the S&P 500 over past months. The rising ratio now suggests the bull market for Gold is now over."
http://kingworldnews.com/kingworldn..._On_The_War_In_The_Gold_&_Silver_Markets.html

 

[AinslieBullion]

Taking charge of your future

The financial press has been focussed these last 2 days on the outcomes of the much anticipated Financial System Inquiry headed by David Murray. Murray delivered 44 recommendations but there are a few key messages you may want to consider in terms of gold and silver. Firstly he delivered a clear warning that our banks are exposed and need to raise an additional $20b in capital to withstand the next "inevitable crisis". We've said before how much more our banks are tied to the global financial system now (we comparatively cruised through the GFC) and Mr Murray agrees. Secondly he was scathing on the expensive, uncompetitive and inefficient options in Australia's $1.8t super industry.

These same lazy super funds usually stick to a heavily weighted equities, as well as bonds and cash recipe and don't allow investment into the one asset that will withstand the next global financial crises, physical gold and silver. In establishing your own SMSF you can do exactly that. Murray also warns on going 'all in' on property in your SMSF stating SMSF's have contributed to an inflated housing market that "is a potential source of systemic risk for the financial system and the economy". He makes strong overtures about the inappropriateness of tax concessions and SMSF borrowing on housing (negative gearing and CGT concessions) and shares (dividend imputation). Should the Government act on these it will be a big leveller, likely see a correction in housing prices, and potentially see investors looking at alternatives like precious metals. Finally he supports the G20 outcome of worldwide moves to "bail in" legislation that sees banks shareholders and creditors (depositors) on the hook to save a failing bank, not the taxpayers. This is another stark reminder about holding large cash deposits and even storing your metals in a bank. Somewhere independent like Reserve Vault looks more and more appealing.

 

[Ronnie 666]

Great commentary. We have had these discussions before. Keeping bullion in a bank (safety deposit box) SDB is quite different to a bank account. Are you suggesting that a private vault service is better than a bank SDB. The bank has no claim on the contents, nor does in know the contents, nor is it subject to fractional reserve banking, nor does not form part of the bail-in legislation ? or am I wrong ?
There are risks in all storage options but a bank SDB does not seem that risky when compared to a non existent paper account ? Bail in seems to make a SDB option even safer as depositors will support the bank wiping out all their non-existent assets and securities.

Would value your comments

 

[The Crow]

Agree - SDB contents are not lent to a bank in the same way as deposits - surely they couldn't seize contents (the banks, that is) to help settle their debts?

 

[AinslieBullion]

I'm # 1, you're # 2
Any parent who watched the last Muppet movie will now have that tune stuck in their head for the rest of the day (our apologies), but something else should stick in your head too China just overtook the US as the biggest economy in the world. The International Monetary Fund (IMF) just released the latest numbers for the world economy and taking national economic output in "real" terms (using the purchasing power parity measure) of goods and services, China will this year produce $17.6 trillion compared with $17.4 trillion for the U.S, that is an incredible 16.5% and 16.3% respectively. So meteoric is China's rise that it was a third the size of the US as recently as 2000. The significance? Well history shows very clearly that economic power dictates political and military power. China has been overt in its desire to limit its accumulation of more US debt, expand the global use of its Renminbi (Yuan) in lieu of the USD, and likewise its strategic BRICS alliance with Brazil, Russia, India and South Africa, but most noticeably Russia. China has also been on history's biggest gold buying binge (swapping USD paper for real money) over the last few years (check out yesterday's special post on this). Makes you wonder what they have planned for it huh.? Sometimes a picture (below) paints a thousand words..

 

[AinslieBullion]

Great commentary. We have had these discussions before. Keeping bullion in a bank (safety deposit box) SDB is quite different to a bank account. Are you suggesting that a private vault service is better than a bank SDB. The bank has no claim on the contents, nor does in know the contents, nor is it subject to fractional reserve banking, nor does not form part of the bail-in legislation ? or am I wrong ?
There are risks in all storage options but a bank SDB does not seem that risky when compared to a non existent paper account ? Bail in seems to make a SDB option even safer as depositors will support the bank wiping out all their non-existent assets and securities.

Would value your comments

You both make a good point and that is our understanding too. The issue is the 'closing the doors' scenario and the anxious uncertainty of possible rules changes during that time and not being able to access you goods at the precise time you may really want to. But to be clear, our understanding, like yours, is that only cash deposits are at immediate risk at the moment. Thanks for the discussion!

 

[AinslieBullion]

The REAL Chinese gold numbers
The main stream press seem to still look to Hong Kong imports as the gauge for Chinese imports despite the government changes to allow direct imports to Shanghai and Beijing. So sensationalist stories of declining gold demand in China are just plain wrong. The most accurate gauge is via the Shanghai Gold Exchange through which all gold to China passes (including their own supply). Those numbers tell a very different story. Total demand (excluding foreign trades) to end of November is about 1840t after another 46t in the last week. China is also the world's largest producer of gold, and if looking at how much is imported that number plus domestic scrap recycling needs to be subtracted leaving about 1,212t imported up to the end of November. Analyst Koos Jansen is predicting of 1350t imports for 2014, another all time recording, surpassing even 2013. Add India's surging imports and you've basically accounted for all non Chinese gold production before central bank, investment, and jewellery demand. You will also note (looking carefully) the Chinese's knack for buying on the dips. Are you?

 

[AinslieBullion]

Hi Ho Silver !

The 2 charts below are certainly interesting individually but amazing in combination. This week saw the 2013 record for the world's biggest selling silver coin, the US Silver Eagle, surpassed with still 3 weeks to go. Over 43m of them have been sold this year (ignore the out of date 42.86m in the graph), and even that after a halt in sales in November as production couldn't keep up. Also just have a look at how sales have exploded since 'the penny dropped' for many after the GFC that maybe it was a forewarning of what was to come. And as you look at not just the volume but it's ratio to gold coins (in the context of the gold:silver ratio being c72), it is apparent that more are seeing silver as the pick of the two. So in a free market, with such incredible demand one always gets rising prices yeah? Well clearly not and not only that, as we sit at c$17/oz, prices remain well below the cost of production of the 12 top primary miners (2nd 'chart' below)! The COMEX dictated price on silver is certainly not "real". What it may well be though, is the greatest opportunity to stock up on one of the most undervalued assets around. Not a fleeting spec IPO, but a metal that has stored wealth for 5000 years

 

[AinslieBullion]

Silver more demand, less supply
The Silver Institute and CRU Consulting have released a report predicting a 27% jump in silver use to 680m oz annually by 2018. Around half of this growth will be in electrical and electronics and the rest in silver oxide-zinc batteries (especially military), EO (Ethylene oxide) a chemical reactive material with a wide range of uses, anti-bacterial / biomedical uses (it is both the best anti bacterial and lowest human toxicity metal), silver coated bearings (especially in aviation), photovoltaic (modest growth despite booming industry as less being needed per PE cell), automotive (approx. 40 silver tipped switches/car), brazing/soldering, and printed inks (using silver nanotechnology in radio frequency identification devices (RFID's) which is a new and booming industry). Coincidentally, HSBC just released a report predicting the demand and supply balance for silver will dramatically shift from a 3m oz surplus this year to an 11m oz deficit in 2015.

 

[phrenzy]

Silver more demand, less supply
The Silver Institute and CRU Consulting have released a report predicting a 27% jump in silver use to 680m oz annually by 2018. Around half of this growth will be in electrical and electronics and the rest in silver oxide-zinc batteries (especially military), EO (Ethylene oxide) a chemical reactive material with a wide range of uses, anti-bacterial / biomedical uses (it is both the best anti bacterial and lowest human toxicity metal), silver coated bearings (especially in aviation), photovoltaic (modest growth despite booming industry as less being needed per PE cell), automotive (approx. 40 silver tipped switches/car), brazing/soldering, and printed inks (using silver nanotechnology in radio frequency identification devices (RFID's) which is a new and booming industry). Coincidentally, HSBC just released a report predicting the demand and supply balance for silver will dramatically shift from a 3m oz surplus this year to an 11m oz deficit in 2015.

I read about another report (commerzbank?) saying we were headed from over supply to short fall. I would love to know if there are solid figures that detail how the low prices have affected silver waste reclamation and jewelery/bullion recycling.