IF Comex fails to deliver on physical gold... CarryOnMyWaywardSon
NEW 10/10/2008 8:41:42 AM
... then Fleckenstein says the miners will react positively.
"What I haven't talked about lately is that gold lease rates have gone through the roof. That appears to be because central banks are becoming credit-averse and not lending out their gold as they once did. I've also heard rumblings about some large holders of gold futures deciding to take delivery, since they're having trouble buying physical gold in sufficient size.
"If that's the case, it could cause a mad scramble at the ComEx, the commodities exchange, because there's not enough gold to meet the open interest. It looks like physical gold, as opposed to paper gold, is rapidly becoming the flavor of the day -- meaning that a huge price move may lie just in front of us.
"And, if that thesis is correct, when more folks start understanding it, there might not be enough gold around to satisfy demand at anywhere near current prices -- and their attention will turn to the place where they can find gold, namely the gold miners, whose job it is to "make" more. (With the price of energy dropping as world GDP slows, the profit potential for the gold miners is liable to be the best it has been in many years.) So, I think the stage may be set for a dramatic move in gold stocks."
German gold dealers have stopped taking new orders for the precious metal as demand has skyrocketed. Gold is seen as a safe investment during the market turmoil.
In uncertain economic times, Germans are dumping stocks and shares to take refuge in precious metal, accoring to a Wednesday article in a Berlin newspaper.
German gold dealers report running low on stocks of gold bars and coins.
Heiko Ganss, head of the Berlin branch of gold merchant Pro Aurum, told the Berliner Zeitung newspaper that most gold traders were refusing new orders, as they couldn't meet the current demand.
"Demand is running well above our capacity to supply," he was quoted saying, saying retail banks in Germany were also unable to meet demand.
"Exploding demand"
Gold traded in London at $913 (656 euros) per troy ounce on Wednesday morning, up from $876.75 late Tuesday.
"Demand has exploded in the past few days," said Stephan Henkel, a gold broker at Umicore, which presses gold bars and coins and puts them on sale. Delivery times were running at two to four weeks.
"Currently, demand is about 10 times what it is at normal times," he said. =+=+=+=
And I am come down to deliver them out of the hand of the Egyptians, and to bring them up out of that land unto a good land and a large, unto a land flowing with milk and honey: unto the place of the Canaanites, and the Hittites, and the Amorites, and the Perizzites, and the Hivites, and the Jebusites.
-- Exodus 3: 8 (KJV)
Addressing Moses from the burning bush, Yahweh announces his plan to bring Israel out of Egypt to a "land flowing with milk and honey." God means Palestine, the land he promised to Abraham (Genesis 12) and again to Jacob (Genesis 28).
He doesn't mean, though, that milk and honey wash over the land -- as "flowing" might suggest -- but rather that his people can look forward to a booming economy. (They could also look forward to unfriendly natives, but that's another story.) Milk and honey were dietary staples for the semi-nomadic Israelites of biblical times, so Palestine would indeed be a promising home, abounding in goats and swarming with bees. The soil would be fertile, too, nourishing grapevines and date trees, whose syrup was also called "honey" in Hebrew.
Though the medieval British diet must have differed considerably from the ancient Israelites', the phrase "land of milk and honey" is one of the earliest biblical expressions to have made its way into English (ca. A.D. 1000), via Aelfric's rendering of Numbers 16: 13. "Flowing with milk and honey," however, had to wait for Wyclif's 1382 translation of Ezekiel (20: 6). The phrase had apparently embedded itself in English speech by the time William Tyndale used it in translating the present passage, for he claimed never to have glanced at Wyclif or any other English version of the Bible.
As you might imagine, writers have seized upon Aelfric's phrase and wrested it out of context to describe whatever locale happened to catch their enthusiasm, whether or not goats and date trees abounded. Once upon a time Englishmen viewed America in particular as a "land of milk and honey," but all that has changed, even for Americans. John Steinbeck captured the native disillusionment in The Grapes of Wrath (1939), where a once-hopeful immigrant to California wryly observes that "this ain't no lan' of milk an' honey like the preachers say" (chapter 20).
Me114 aka ladynada User ID: 323570 10/13/2008 9:01 PM
Why is gold dropping right now when anyone in their sane mind would expect it to rise? The simple answer to this question is, “because Comex-gold isn't gold” – and because it deceptively pretends to be 'the' price-setter for real gold.
Gold is gold, paper is paper, and “Comex gold” is nothing but paper masquerading as gold while simultaneously pretending to be the price-setting medium for actual gold in the world. Now, finally, Comex-gold is in the process of being unmasked.
The real supply and demand determinants for Comex gold are not actual gold investors but fund managers . Fund managers are inextricably intertwined with the world of contract-based credit instruments. They use bet on Comex gold contracts to hedge their other (currently horrendously losing) bets with something they all, in their in-bred belief in paper markets, believe will 'go up' in value while everything else is going down.
However, these very same fund managers and their paper-bound investment psychology are the exclusive reason why Comex gold is dropping in these times when everyone (including fund managers) expects gold to rise. As already stated, though, and as they now finally realize to their own dismay, Comex-gold just isn't gold – and that causes even further selling.
Posted On: Wednesday, October 15, 2008, 3:38:00 PM EST
Market Commentary From Trader Dan Norcini
Author: Dan Norcini
Dear CIGAs,
It was more of the same type of price action that we have been seeing in gold for some time now. The market is torn between continued deleveraging from speculative
players on account of redemption requests from clients moving to cash versus safe haven buying.
It has been interesting reading the comments about this market in the financial press of late. The majority of gold pundits for the most part seems to be reading the same talking points which as usual are utterly and completely wrong. To hear them say it, gold as a safe haven is finished, over, kaput, pushing up daisies, swimming with the fishes, surfing its last wave, worm food, ad infinitum, ad nauseaum.
What these mindless robots seem unable to grasp is that the Comex is NOT the gold market. It is a paper market which has been the recipient of large speculative buys by commodity index funds. These funds take large positions in an entire gamut of commodities based on the weightings of those particular commodities in the various commodity indices that they use as a benchmark. It some cases it might be the Goldman Sachs commodity index. In others it is the Reuters/Jefferies CRB index; it still others it is the Dow Jones Commodity Index. That means they buy gold, silver, crude oil, corn, wheat, nat gas, sugar... etc... in the same percentage terms as they are weighted in those indices. For example, if the weighting in one of these indices for gold happens to be 5%, then for every million dollars of client money invested, they are required to buy $50,000 worth of gold futures contracts at the Comex. When these funds get redemption requests from clients, who now want out of the commodity sector, they are forced to sell FUTURES across the board to generate the cash needed to send back to their clients. That is why, for the most part, the entire commodity complex is sinking whether it is corn or soybeans or wheat or platinum, etc. If $20 million of cash is required to meet client redemption requests, then $20 million of commodity futures must be sold REGARDLESS OF THE FUNDAMENTALS IN THAT PARTICULAR MARKET. In other words, it is FORCED liquidation on account of redemption requests. That has NOTHING TO DO with the real physical gold market where demand remains at unprecedented levels, levels so high that it is producing serious shortages of bullion for would-be buyers. This is what is producing the increasing dichotomy between the Comex and the real gold market. I would go as far as saying that we are for all practical purposes seeing a BLACK MARKET in gold beginning to develop.
Having said all that, it should still be noted however that while every single commodity futures market is in the red today on account of this forced selling, GOLD IS STILL RELATIVELY STABLE! Hey, you dimwitted pundits who keep pooh-poohing the yellow metal?s safe haven status because it is not trading at $1000, take note. Even in spite of the forced liquidation, gold is hanging in there precisely because there are enough buyers to offset a great deal of this continued forced liquidation. And this is in the arena of the futures market. In the real world, gold is fetching $1000 an ounce out there in some instances. Premiums for one ounce gold bullion coins are running anywhere from $65 - $100 above the quoted spot price and certainly above the phony price quoted on the Comex. Last year at this time you could buy all the one ounce gold bullion coins you wanted for $20 - $30 over the spot price.
Meanwhile back in Fairy Tale land at the Comex, open interest registered a bit of an increase in yesterday?s session moving up nearly 2,500 contracts. I suspect that come this Friday, when we review the Commitments of Traders report, we are going to see increases in the fund SHORT category with a sharp drop in the fund long category alongside of short covering by the bullion banks who have been using the forced selling to cover their shorts in order to capture their paper profits allowing them to hit the metal on the next rally and do the same thing all over again.
To put things in perspective about this open interest decline ? we are down to levels last seen in November 2006. Let?s state this in terms that perhaps convey what I have been trying to say for some time now. NEARLY ALL OF THE SPECULATIVE INTEREST THAT HAS BEEN DRIVING PAPER GOLD HIGHER FOR THE LAST TWO YEARS HAS NOW DISAPPEARED due to this forced liquidation. This is incredible when you think about it a bit. So much deleveraging in gold has already occurred, that nearly all the buyers from the last two years are gone from this market. And yet, in spite of this, gold is still sitting above the $800 level. Back in November 2006, front month gold closed at the price of $646.90. Today, we are nearly $200 higher than that and yet nearly all of the speculative long side interest going back to that date is gone. Someone is buying gold because they see value in it and that buying has been sufficient to hold the price relatively firm compared to nearly every other commodity out there. What can be said about gold cannot be said about any other single commodity out there. If you doubt this, pull up the continuous price charts of corn or soybeans or platinum or copper, etc., and just look at them. Look at the chart of crude oil. Look also at the gold/crude oil ratio which has shot up strongly in favor of gold. (By the way, this alone is the reason why many of the gold mining outfits with quality mines, good management and good balance sheets are going to show some strong profits and continue to be sold down to levels that are extremely undervalued). Gold is even outperforming even longer dated Treasuries right now.
To sum up, as the equity markets fall off the cliff thumbing their noses at the monetary authorities, expect further risk aversion to occur which means further forced liquidation in commodities. Watch the Euro/Yen cross and the Yen itself to get a sense of when the bulk of this will abate. The Yen as well as the Swiss Franc are benefiting from the unwinding of carry trades and will tend to be the stronger currencies out there ( along with the US Dollar) as long as the risk aversion play is in vogue.
TPTB can gang-bang gold and silver, and the PM equities, until the cows come home.
When the shares have been naked shorted down to penny stocks, Barrick (the slimy Goldman Sachs of the mining world) will swoop in and buy out all the once decent mining companies for peanuts.
It's game over, man. GAME OVER!!!
Me114 aka ladynada User ID: 323570 10/21/2008 8:49 AM
TPTB can gang-bang gold and silver, and the PM equities, until the cows come home.
When the shares have been naked shorted down to penny stocks, Barrick (the slimy Goldman Sachs of the mining world) will swoop in and buy out all the once decent mining companies for peanuts.
Since panic drove this sharp dollar surge, what happens when this panic abates? I bet the dollar collapses almost as fast as it rose. Of course gold would probably soar in such a scenario. This case can be made in both sentiment and fundamental terms, and both are very compelling. Market anomalies driven by extreme emotions typically unwind once the driving emotions finally peter out.
All over the world, money managers are hunkered down in short-term Treasuries. Yet T-bill yields are now running around 1%. This is pathetic. How many money managers are going to be comfortable reporting to their clients that they are only earning 1% before fees? So the moment the markets turn in the inevitable V-bounce , money managers are going to want out of Treasuries and back into assets that are either rallying or actually yielding something.
These money managers will sell Treasuries, sell dollars (if they are foreign), buy their local currencies, and start aggressively redeploying capital. 2008 has been a bad year in the markets for everyone, yet professionals still fear nothing more than underperforming their peers. So if they perceive rallies anywhere in stocks or bonds, they are going to dump Treasuries fast and rush to participate to mitigate some of their 2008 losses before year-end results are reported to their clients.
There are also fundamental reasons to unwind this anomalous dollar-long surge. Over the long term, relative yields drive currencies. While target rates are running 1.5% in the States, over in Europe the ECB's benchmark rate is still 3.75%. Why would European bond investors want to hang out one day longer than necessary in terribly-yielding US Treasuries when they could buy high-quality bonds in their own countries yielding 2x to 3x as much? European yields are very favorable for euro currency buying.
In addition, real rates of return (inflation-adjusted bond returns) are now massively negative in the US. The low-balled CPI has surged by an absolute 4.9% in the past year yet 1-year Treasuries are now only yielding 1.7%. Thus investors in short-term Treasuries are effectively guaranteed a 3.2% loss in real purchasing power annually by owning them thanks to the Fed. So while short-term Treasuries are attractive in a panic, the moment fear fades they return to being terrible investments.
For these reasons among many, I maintain the contrarian stance that this sharp dollar surge will rapidly unwind as soon as the intense systemic fear passes and money managers get comfortable enough to return to their usual stock and bond markets. The USDX spike is not the beginning of a new bull, as new bulls are driven by positive fundamentals that definitely don't exist for the dollar. Instead this was just an emotional anomaly that drove a spectacular bear rally that simply isn't sustainable.
And when this dollar panic buying reverses itself, so will the gold panic selling. The metal is just way too cheap today relative to its bullish fundamentals and the incessant fiat-currency growth all over the world. This anomaly is a heck of an opportunity for new long-side capital to deploy into gold and gold stocks. Virtually everything gold-related is available at such a discount today that it may be the best buying-op of this bull.
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