Commodities

In a masterclass of what is 'really' going on in the world (as opposed to what we are told/spoon-fed on a daily basis), Grant Williams (of Things That Make You Go Hhhmm infamy) provides a must-watch presentation. Starting from the premise (unusual in this day and age) that the laws of mathematics are inviolable ("if it makes no sense, it is nonsense"),

Today Egon von Greyerz shocked King World News with more stunning news regarding clients having problems getting their physical gold out of Swiss banks as well as other major banks as the gold shortage intensifies. Greyerz also discussed the fact that suppliers cannot keep up with demand and the reason will surprise KWN readers around the world. Below is what Greyerz, who is founder of Matterhorn Asset Management out of Switzerland, had to say in this remarkable interview. Greyerz: “Eric, at our company we are hearing more and more stories about banks not delivering gold

Time to catch up on some articles that caught my eye this week. First up is Charles Hugh Smith who picked up a quote that really resonated with me:The obvious can be dangerous. The deluded man frequently finds his delusions so obvious that he can hardly credit the good faith of those who do not share them.because I've often been on the receiving end of this. The problem with much of the precious metal commentary is that it seeks to explain market action in terms of obviousness, black and white, single reasons. I understand why this is, because many people are confused and afraid and simple comic book explanations are easy to understand, emphatic, and give a sense of control as you know the "real" (sole) reason why things are as they are. People don't want a multi-factor explanation where which factor is driving behaviour changes over time and the factors influence each other. It is too complex.A good example of obviousness in action is this Alasdair piece (my bolding):My reason for writing to the FSA was to establish if allegations were true that bullion owned by these two trusts was being used in contravention of custody agreements. If they had any foundation there would be an important regulatory risk for the FSA which should be drawn to their attention, and in any event needed clarification to prevent a false market. Suspicions that this was the case were fuelled by obvious conflicts of interest in the firms concerned. The sensible course for the FSA would have been to investigate the matter with the custodians and give them a clean bill of health, or alternatively take appropriate action in the event of a breach. Instead, they ducked the issue, leaving the impression that there was indeed a problem.I couldn't have found a better example as Alasdair actually uses the word "obvious". When I see similar certain words like "will", "is", "clearly" I get cautious because it generally doesn't suggest an open mind. In this case the obvious conflict of interest is that the bullion banks are massively naked short while acting as custodian. You can read the letter Alasdair sent here where he states that "it is common knowledge they are running large short positions in those markets. The perceived conflicts of interest have led to widespread public allegations that the assets of these ETFs are being used to satisfy market deliveries in bullion markets ..."Now whether or not this is true is beside the point I will be making, but if you want the other side then consider Kid Dynamite's comments/debate on my last post. A little more confusing is the statement by Alasdair in this post that bullion banks are now net long, so does that mean there is no longer a conflict of interest?Anyway, my point is that Alasdair does not credit the FSA with any good faith or that that maybe the situation is not as obvious as he thinks. Here is an alternative viewpoint. Financial firms for a long time have had potential conflicts of interest between their custodial and trading arms. This is not news to regulators and they and the market have developed mechanisms to manage this. What they are interested in is evidence that these Chinese walls are not working. A conflict of interest can exist if a proprietary trading desk is short OR long. Simply quoting "allegations" based on an inference that a bank may be short would not represent anything obvious to the FSA. In addition, consider that the FSA can maybe entertain the possibility that the short position is hedged and is just market making, as Kid Dynamite asserts. Is it then ducking the issue when from their viewpoint what the FSA sees is just a non-evidence/fact based circumstantial allegation? They will expend their limited resources into investigating this when they have many other breaches to look at?It may be entirely possible that the bullion banks are using ETF metal illegally. Certainly in most jurisdictions precious metals often fall outside financial regulations as they are real property and ofte

The European Union is moving to make illegal the practice of banks and brokers using the assets they hold for clients as collateral for their own trades without the depositors; knowledge, a practice known as “shadow banking.” It is currently legal for banks in Europe and the U.S. to use deposits as “free collateral” to play the market without the knowledge or consent of the depositors. This includes not only cash deposits, but also physical gold deposits. These trades, unknowingly backed by the depositors, are made to increase the profits of the banks and brokerages. The depositors get nothing for the use of their assets. As Bloomberg reports: The handing over of collateral is an integral part of repurchase agreements, or repos — one of the activities under review by global regulators as part of their efforts to regulate shadow banking. The reuse of clients’ assets poses a potential threat to financial stability should one of a chain of firms that handled the securities go bankrupt, according to the document prepared by commission officials and dated May 15. Uncertainty about who holds an asset can fuel panic in times of market stress, according to the paper. “Complex” chains of collateral can make it difficult for investors to “identify who owns what, where risk is concentrated and who is exposed to whom,” according to the document. “This has consequences for transparency and financial stability.” Under the plans being weighed by the commission, banks and brokers holding securities for clients wouldn’t be allowed to reuse the assets for trading on their own account — speculation on the markets aimed solely at boosting their own revenues, according to the document. Some pundits have speculated that the U.S. gold reserves have been rehypothicated in this manner, which is why the German government’s request for the return of their gold reserves held in the U.S. was denied. Recent tales of banks refusing to return client’s physical gold deposits, and giving them a check instead, could be attributed to the fact that the client’s gold was used by the bank to speculate on the market, and is no longer in the possession of the bank. Trying to back-trace the “collateral chains” to see who actually owns physical gold deposits and who (and how many) have a claim against the gold could  be a long and lengthy process, and spark lawsuits and panic in the market. If banks and brokerages are forced to obtain (demand?) permission from depositors to allow the firms to use their deposits to make profits for the bank with no compensation, the old loans and trades will have to be retroactively included. Dragging these already-consumated “shadow deals” into the daylight may induce depositors to withdraw their assets, or at the very least, demand a piece of the action, throwing the global financial system into turmoil. by David Peterson Filed under: Market News Tagged: banking system, financial regulation, physical gold

As silver prices stay below $30 an ounce, mining companies are cancelling plans to prospect for new deposits. Instead, they are returning to where they know there is silver – the abandoned historic old mines of the American West. Black Mountain Resources is one of those companies. They have signed 45-year leases on old silver mines that have been idle for anywhere from 40 to 100 years, and are partnering with small local companies for access to local mills. Not only do these mines have access to known veins that were unprofitable to mine at $8 an ounce, but that are quite profitable at $22 an ounce, the mountains of old mining scraps, know as tailings, have an ore content higher than some presently-mined veins. These huge piles are just lying on the ground, ready to be loaded into dump trucks and hauled to the mill. The local communities benefit not just from the new jobs created, but re-opening these old mines means that the tailings piles and mine run-off ponds will be brought up to modern environmental standards, reducing the risk to the local water supply. Private enterprise is not only providing jobs and making a profit, it is saving local, state and federal governments the cost of clean-ups of these old mine sites. Filed under: Market News Tagged: environmental concerns, silver mines, silver production

Precious metals were slightly lower in Asian trading overnight, but are essentially flat in New York compared to yesterday. The dollar is a bit softer today, as is oil. Wall St. opened down for the third day on the good news that U.S. durable goods orders were better than expected. The market is in the perverse situation where good news is feared, because it raises the possibility the the Fed will stop pumping $85 billion a month into the bond market. Precious metals will likely assume a holding pattern today, minus any big developments, ahead of the three-day Memorial Day weekend in the U.S. In Asia, the Nikkei recovered from a selloff that triggered breaks in trading, but volatility is still considered high. Mainland Chinese stocks closed slightly up for the week, while Hong Kong stocks continue to slide on light volume. In Europe, data shows that Germany is barely on the positive side of economic expansion, which is more than can be said of many of their compatriots in the EU. The euro recovered slightly against the dollar, but euro stocks were down. Should the Fed end stimulus this year, we are likely to see a large correction in equities. The big question for precious metals will be “how far will inflation rise, fueled by the $4 trillion the Fed pumped into the money supply?” Long-term investors in gold believe that there is little to no chance that inflation will be contained once the banks stop holding on to the QE money they have stacked up. by David Peterson Filed under: Market News Tagged: German economy, global precious metals market, Japanese economy, quantitative easing, U.S. economy

Silver stackers like watching the charts. They are happy when silver goes up, because their stack is worth more, and they’re happy when it goes down, because then they can buy more! Now you can get free silver while showing off your market savvy, in Gainesville Coins’ “Spot On!” Silver Giveaway” by The Coin Explorer! Each month, The Coin Explorer will select a silver coin, bar or round from the Gainesville Coins vaults. The first person who guesses the spot silver closing price on the last Friday of the month as shown on the Gainesville Coins website will be the winner! This month’s prize is the 1 oz 1981 Silver Trade Unit minted by Continental Coin from U.S. Strategic Stockpile silver obtained from the U.S. Assay Office in San Francisco, California. The entry deadline this month is Wednesday, May 29, 2013, 5 PM Eastern Time. Contest Rules Entries must be submitted as a reply to the appropriate contest post on the Gainesville Coins blog (gainesvillecoins.wordpress.com) The person with the earliest correct guess of the closing spot price for silver for the last Friday of the month as reported on the Gainesville Coins website will be declared the winner. In the event that no one gets the exact closing price, the first person with the closest entry (over or under) will win. Only the last guess per entrant will be deemed valid. Deadline for entries is 48 hours before the New York exchange close on the last trading Friday of the month. A valid email address must be supplied when registering on the blog. Gainesville Coins will not rent or sell any email addresses, but will use the email supplied to verify the winner. No purchase necessary to enter. Open to U.S. residents aged 18 years or older only. Only the last entry for each participant will be deemed valid. Not open to Gainesville Coins employees or contractors, or their families. Filed under: Gold & Silver at Gainesville Coins Tagged: contest, Gainesville Coins, spot silver prices

Platinum and Palladium: A Fundamental Shift By Jeff Clark, Senior Precious Metals Analyst Platinum is a precious metal, as is palladium, though to a lesser degree. However, like silver, both are also industrial metals. Unlike silver, it's their industrial use that is the primary price driver for both platinum and palladium – and that use is undergoing a fundamental shift. The largest source of demand for platinum and palladium is the automotive industry, for use in autocatalysts. In turn, the fortunes of the auto industry are sensitive to the health of the world's major economies. We've been bearish on platinum-group metals for years, primarily because we weren't convinced a healthy – much less roaring – world economy could be sustained when so many governments continue spending beyond their means. We reconsidered the market last year, when strikes in South Africa – home to 75% of global platinum production and 95% of known reserves – threatened supplies. But as we wrote last December, the strikes ended without great impact on long-term supply. Since then, however, the fundamentals of this market have changed. Others may disagree with our economic outlook, which is still bearish, but it's due to supply issues – not demand – that our interest is now drawn to these metals, and particularly to palladium. Here's a look at global supply against auto-industry demand for both metals. Approximately 55% of platinum and the bulk of palladium supply was used

Louis Golino at CoinWeek has posed an interesting question, in light of the success of the Royal Canadian Mint’s “$20 for $20″ silver coin program: Should the U.S. Mint set the face value of gold and silver coins closer to the melt value? Right now, the 1 oz American Silver Eagle bullion coin has a face value of $1 and retail value of $27, and the 1 oz American Gold Eagle bullion coin has a face value of $50 and a retail value of $1,500. the proof versions cost more. Golino cites recent examples by the Royal Canadian Mint and the Paris Mint attesting to the success of raising the face value of gold a silver coins closer to the melt value, then selling them at the face value. He notes that the RCM reported that the “$20 for $20″ program, where 8 gram silver coins with a face value of $20 (CDN) were sold for $20, brought in 67,000 new customers. Half of these customers have purchased additional coins through the RCM site. One possibility Golino raises, is that having a higher face value on bullion coins may make non-collectors more comfortable with purchasing gold and silver coins for the first time, especially in light of recent drops in precious metal values. One commenter noted that this approach is better used on limited edition series like the RCM and PM are doing, instead of a continuing series such as the Silver Eagles and Gold Eagles. Filed under: Contemporary Coins Tagged: bullion coins, gold coins, La Monnaie de Paris, Royal Canadian Mint, silver coins, U.S. Mint

Here’s a little teaser for next Monday’s “The Coin Explorer,” when I review the “Famous City Squares” colorized silver coin set from the Perth Mint, as well as two silver coins from the Paris Mint’s proof silver “UNESCO World Heritage” series – Versailles and the Taj Mahal! by The Coin Explorer Filed under: Gold & Silver at Gainesville Coins Tagged: colorized coin, Gainesville Coins, silver coins, The Coin Explorer