Still time to buy gold imo.
05-24-2010
, 01:49 PM
Central Bank Gold Holdings Expand at Fastest Pace Since 1964
====================
Russia still buying more
Quote:
March 18 (Bloomberg) -- Central banks added the most gold to their reserves since 1964 last year amid the longest rally in bullion prices in at least nine decades, data compiled by the World Gold Council show.
Combined holdings rose 425.4 metric tons to 30,116.9 tons, an increase worth $13.3 billion at last year’s average price, according to the data. India, Russia and China said last year they added to reserves. The expansion was the first since 1988, the data from the London-based council show.
Central banks, holding about 18 percent of all gold ever mined, are expanding their holdings for the first time in a generation as investors in exchange-traded funds amass bullion as an alternative to currencies. Holdings in the SPDR Gold Trust, the biggest ETF backed by the metal, are at 1,115.5 tons, more than the holdings of Switzerland.
...
Combined holdings rose 425.4 metric tons to 30,116.9 tons, an increase worth $13.3 billion at last year’s average price, according to the data. India, Russia and China said last year they added to reserves. The expansion was the first since 1988, the data from the London-based council show.
Central banks, holding about 18 percent of all gold ever mined, are expanding their holdings for the first time in a generation as investors in exchange-traded funds amass bullion as an alternative to currencies. Holdings in the SPDR Gold Trust, the biggest ETF backed by the metal, are at 1,115.5 tons, more than the holdings of Switzerland.
...
Russia still buying more
05-24-2010
, 01:51 PM
Quote:
For the past two weeks I have been observing a divergence from what has been a fairly reliable pattern involving the Swap Dealers and the big Commercials (Producer/User/Merchant/Processor) category. I remarked about this last week in my comments and mentioned that we would be watching to see if this divergence looks like it might be more than perhaps a one or two hit wonder.
This week’s report now shows the 3rd consecutive week in which the Swap Dealers have gone the opposite direction of the other big commercials. What makes this so noteworthy is that by simply looking over the chart, you can see that for the most part these two giants have been pretty much marching in lock step with each other. As the net short commercial position increases, the swap dealer net short position generally increases as well. When it decreases, so too does the Swap Dealer’s.
What appears to be happening is that the Swap dealers are slowly moving out of their net short position using the selling of the Commercial class to provide them with someone to buy from. AS a matter of fact, the swap dealers have been marching in lock step with the Managed money category for the last three weeks.
I do not want to make any sort of dogmatic prediction from just a few week’s worth of data, but this divergence bears watching to see if it really does become something more forcible and predictable. If so, it would indicate that the Swap Dealers are attempting to extricate themselves from their rather sizeable short position. They obviously have a long way to go to become net longs but wouldn’t it be interesting if after all these years of working the short side of the metal, they have had a conversion experience and want to at the very least get out of the short side.
Next week’s report is going to be very revealing because of the sizeable correction in price we have had. If what I suspect is happening, look for the Swap Dealers to have dramatically reduced their short position into the liquidation selling of the general public and the managed money crowd. This time they will be back to going the same direction as the other big Commercial category who no doubt are using the selling of the general public and the Managed Money due to liquidation to cover some profitable shorts.
This week’s report now shows the 3rd consecutive week in which the Swap Dealers have gone the opposite direction of the other big commercials. What makes this so noteworthy is that by simply looking over the chart, you can see that for the most part these two giants have been pretty much marching in lock step with each other. As the net short commercial position increases, the swap dealer net short position generally increases as well. When it decreases, so too does the Swap Dealer’s.
What appears to be happening is that the Swap dealers are slowly moving out of their net short position using the selling of the Commercial class to provide them with someone to buy from. AS a matter of fact, the swap dealers have been marching in lock step with the Managed money category for the last three weeks.
I do not want to make any sort of dogmatic prediction from just a few week’s worth of data, but this divergence bears watching to see if it really does become something more forcible and predictable. If so, it would indicate that the Swap Dealers are attempting to extricate themselves from their rather sizeable short position. They obviously have a long way to go to become net longs but wouldn’t it be interesting if after all these years of working the short side of the metal, they have had a conversion experience and want to at the very least get out of the short side.
Next week’s report is going to be very revealing because of the sizeable correction in price we have had. If what I suspect is happening, look for the Swap Dealers to have dramatically reduced their short position into the liquidation selling of the general public and the managed money crowd. This time they will be back to going the same direction as the other big Commercial category who no doubt are using the selling of the general public and the Managed Money due to liquidation to cover some profitable shorts.
05-24-2010
, 02:50 PM
05-24-2010
, 07:11 PM
05-25-2010
, 08:06 AM
05-25-2010
, 09:25 AM
05-25-2010
, 10:09 AM
05-25-2010
, 11:20 AM
Quote:
Analyzing the semi-annual report on gold derivatives published by the Bank for International Settlements, Golden Sextant Internet site proprietor Reg Howe finds evidence that the gold exchange-traded fund, GLD, has replaced direct central bank gold sales and leases as a major mechanism for gold price suppression.
Quote:
You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.
G. Bernard Shaw
G. Bernard Shaw
Quote:
On May 11, 2010, the Bank for International Settlements released its regular semi-annual report on the over-the-counter derivatives of major banks and dealers in the G-10 countries and Switzerland for the year ending December 31, 2009. The total notional value of all gold derivatives remained virtually flat at $423 billion, a mere $2 billion less than at mid-year. With stronger gold prices ($1104 (London close) versus $935), gross market values rose from $43 to $48 billion.
Quote:
However, taking both halves of 2009 into consideration, parallel movements in OTC gold forwards and swaps and tonnes held in trust by SPDR Gold Shares (GLD) suggest another at least partial explanation: GLD has acquired much of its gold not by market purchases but through forwards and swaps intermediated by the bullion banks from official reserves.
Coincidence or Design? The following chart shows tonnes held in trust as reported by GLD. During the first half of 2009, its holdings jumped by 340 tonnes, by far the largest half year's increase in its history. Another 33 tonnes were added in the second half. Coincidence, or is there a reason why GLD's holdings in 2009 mirrored the big first half jump and last half hold steady pattern of OTC gold forwards and swaps?
Almost from its inception, questions have been raised regarding whether GLD has the all gold it claims to have. In part the natural consequence of its less than convincing custodial and auditing procedures, these doubts take added weight given well-documented tightness in the physical market. Still, here at The Golden Sextant, we have inclined to the view that the larger risk with GLD is not whether it has the gold it claims, but whether its gold -- mostly situated in the United Kingdom -- is insufficiently protected against the threat of government seizure. See RKL, Musings on the Realms of GLD (10/15/2007).
Coincidence or Design? The following chart shows tonnes held in trust as reported by GLD. During the first half of 2009, its holdings jumped by 340 tonnes, by far the largest half year's increase in its history. Another 33 tonnes were added in the second half. Coincidence, or is there a reason why GLD's holdings in 2009 mirrored the big first half jump and last half hold steady pattern of OTC gold forwards and swaps?
Almost from its inception, questions have been raised regarding whether GLD has the all gold it claims to have. In part the natural consequence of its less than convincing custodial and auditing procedures, these doubts take added weight given well-documented tightness in the physical market. Still, here at The Golden Sextant, we have inclined to the view that the larger risk with GLD is not whether it has the gold it claims, but whether its gold -- mostly situated in the United Kingdom -- is insufficiently protected against the threat of government seizure. See RKL, Musings on the Realms of GLD (10/15/2007).
Quote:
A recent and quite comprehensive study of GLD's governing documents suggests that although GLD may not lend or swap the gold it holds in trust, nothing prevents it from acquiring gold that has been leased, loaned, deposited or swapped to bullion banks by central banks. C.A. Fitts et al., GLD and SLV: Disclosure in the Precious Metals Puzzle Palace (May 3, 2010) ("Leased Bullion: ETF underlying documents may permit "Authorized Participants" [footnote omitted] to contribute (or at least do not expressly prohibit them from contributing) to the ETFs gold and silver leased from central banks instead of precious metals to which the Authorized Participants hold absolute legal title.")
In reporting their gold reserves, central banks commonly include gold out on loan, deposit or swap notwithstanding that much of this gold has in fact been sold into the market. See, e.g., N.R. Ryan, Gold Market Lending (Blanchard & Co., Dec. 1, 2006), and materials cited. See also H. Takeda, Treatment of Allocated/Unallocated Gold Held as Reserve Assets and Gold Swaps and Gold Deposits, Follow-Up Paper (RESTEG) # 11.1, International Monetary Fund (August 2006).
Indeed, as Frank Veneroso used to put it, the borrowing and sale of official gold by bullion bank intermediaries to support the gold carry trade not only put downward pressure on gold prices, but also created a corner on the market for the principal buyers, most notably the women of India. To repay the carry trade gold to the central banks, the bullion banks first had to repurchase in the market, presumably at prices sufficiently attractive to draw high carat jewelry from the subcontinent. The scenario may be a bit overdrawn, but the point is clear.
The Achilles' heel of gold lending to the carry trade, as opposed to gold loans to support forward sales by gold mining companies, was the requirement to repurchase in the market, possibly at much higher prices, to make repayment. As noted in many prior commentaries, forward sales by gold mining companies, which have dropped sharply in recent years, never accounted for more than small portion of OTC gold forwards and swaps. The carry trade was always the bulk of this business, and thus the central banks' primary tool for putting downward pressure on gold prices.
From this perspective, the design of GLD is a distinct improvement upon the carry trade as a vehicle for blunting upward pressure on gold prices from rising investment demand. Gold moves in and out of GLD in "baskets" of 10,000 ounces created by "authorized participants." The list of authorized participants includes all the major bullion banks, who as noted appear free to create baskets with gold loaned or swapped to them by central banks and then to transfer those baskets to GLD in return for shares to be sold to investors.
In that event, unlike the gold carry trade, official gold is not fully surrendered to the international market by the intermediary bullion banks and subsequently transported to God only knows where. Rather, with GLD as the (presumably bona fide) purchaser from the intermediary bank, the gold moves to an identified vault subject to the jurisdiction and laws of the United Kingdom. The central banks, as before, can continue to count it in their gold reserves, but now with more practical justification since it also remains within the banking system and their effective control.
In reporting their gold reserves, central banks commonly include gold out on loan, deposit or swap notwithstanding that much of this gold has in fact been sold into the market. See, e.g., N.R. Ryan, Gold Market Lending (Blanchard & Co., Dec. 1, 2006), and materials cited. See also H. Takeda, Treatment of Allocated/Unallocated Gold Held as Reserve Assets and Gold Swaps and Gold Deposits, Follow-Up Paper (RESTEG) # 11.1, International Monetary Fund (August 2006).
Indeed, as Frank Veneroso used to put it, the borrowing and sale of official gold by bullion bank intermediaries to support the gold carry trade not only put downward pressure on gold prices, but also created a corner on the market for the principal buyers, most notably the women of India. To repay the carry trade gold to the central banks, the bullion banks first had to repurchase in the market, presumably at prices sufficiently attractive to draw high carat jewelry from the subcontinent. The scenario may be a bit overdrawn, but the point is clear.
The Achilles' heel of gold lending to the carry trade, as opposed to gold loans to support forward sales by gold mining companies, was the requirement to repurchase in the market, possibly at much higher prices, to make repayment. As noted in many prior commentaries, forward sales by gold mining companies, which have dropped sharply in recent years, never accounted for more than small portion of OTC gold forwards and swaps. The carry trade was always the bulk of this business, and thus the central banks' primary tool for putting downward pressure on gold prices.
From this perspective, the design of GLD is a distinct improvement upon the carry trade as a vehicle for blunting upward pressure on gold prices from rising investment demand. Gold moves in and out of GLD in "baskets" of 10,000 ounces created by "authorized participants." The list of authorized participants includes all the major bullion banks, who as noted appear free to create baskets with gold loaned or swapped to them by central banks and then to transfer those baskets to GLD in return for shares to be sold to investors.
In that event, unlike the gold carry trade, official gold is not fully surrendered to the international market by the intermediary bullion banks and subsequently transported to God only knows where. Rather, with GLD as the (presumably bona fide) purchaser from the intermediary bank, the gold moves to an identified vault subject to the jurisdiction and laws of the United Kingdom. The central banks, as before, can continue to count it in their gold reserves, but now with more practical justification since it also remains within the banking system and their effective control.
Quote:
Ass Backwardation. In recent months, while GLD has generally sold at a slight discount to net asset value, other bullion funds with more transparent and credible custodial and auditing procedures have commanded significant premiums. E.g., Central Fund of Canada (CEF), Central Gold Trust (GTU), Sprott Physical Gold Trust (PHYS). Anecdotal evidence also continues to surface of premiums for spot delivery of physical metal or cash settlement in lieu of physical.
Gold forward rates as reported by the London Bullion Market Association (www.lbma.org.uk) have remained positive territory, but accompanied by sporadic negative lease rates at the shorter maturities. See Gold Derivatives: The Tide Turns (5/25/2009), and materials cited. At the LBMA, therefore, gold continues to avoid backwardation, but only because central banks continue to lend at historically very low lease rates.
It is a strange situation. Gold for spot delivery and bullion funds with high credibility for physical possession of metal in the amounts claimed are selling at premiums over paper of lesser reliability. But where gold is arbitraged against currencies on the basis of relative interest rates, it remains in contango. Freer private markets are increasingly disconnecting from more regulated and controlled official markets. Backwardation is arriving in gold, but ass backwards. Of course, nobody should be surprised. That is the way central banks typically operate.
Gold forward rates as reported by the London Bullion Market Association (www.lbma.org.uk) have remained positive territory, but accompanied by sporadic negative lease rates at the shorter maturities. See Gold Derivatives: The Tide Turns (5/25/2009), and materials cited. At the LBMA, therefore, gold continues to avoid backwardation, but only because central banks continue to lend at historically very low lease rates.
It is a strange situation. Gold for spot delivery and bullion funds with high credibility for physical possession of metal in the amounts claimed are selling at premiums over paper of lesser reliability. But where gold is arbitraged against currencies on the basis of relative interest rates, it remains in contango. Freer private markets are increasingly disconnecting from more regulated and controlled official markets. Backwardation is arriving in gold, but ass backwards. Of course, nobody should be surprised. That is the way central banks typically operate.
Quote:
Reginald H. Howe, is an author and private investor. A graduate of Harvard College, Harvard Law School and the Bologna (Italy) Center of the Johns Hopkins School for Advanced International Studies, he began his business career in 1964 as a financial analyst with the international division of The Kendall Company. From 1976 to 1984, Mr. Howe was a partner in the Boston law firm of Palmer & Dodge, where he specialized in civil litigation and was a member of the firm's investment committee. He was an associate at the same firm from 1970 to 1976. In 1983, Mr. Howe organized Golden Sextant Associates, a general partnership for investing in developing North American gold mining companies, and he served as its managing general partner until its profitable dissolution in 1987. For a few years thereafter, he continued as a sole legal practitioner and served as a registered investment adviser to private clients.
05-26-2010
, 11:06 AM
Quote:
Oh noes gold's a bubble!
Or maybe not (from 12/09)
Or maybe not (from 12/09)
WSJ Is Gold the Next Bubble?
Obviously I think the whole bubble idea misses the point about what is happening with gold, but either way there may be some value in looking at gold in light of what has happened in the past with other assets classes to which capital has recently tried to run to to retain value.
05-27-2010
, 09:58 PM
05-27-2010
, 10:48 PM
05-28-2010
, 05:36 AM
05-28-2010
, 02:47 PM
Dividends were not included on purpose, as the point is a look at the relationship between a proxy for future expected earnings (S&P 500) and something real (gold). Maybe times when the inflationary money system inevitably busts and collapses aren't so good for paper assets in real terms (especially equity claims on leveraged corporate entities).
05-28-2010
, 03:03 PM