Gold flows from Britain to Switzerland surge in H1-Macquarie

Britain's gold exports to Switzerland surged in the first half of this year, Australian bank Macquarie said on Monday, suggesting bullion being sold out of exchange-traded funds may be heading for Swiss refineries before being sold on in Asia.

The UK exported 240 tonnes of gold to Switzerland in May alone, while its exports over the first half of this year totalled 797 tonnes, Macquarie said in a note.

In contrast, Britain exported just 92 tonnes of bullion to Switzerland in the whole of last year, it said.

"The UK does not have gold mines, so where has it all come from? The obvious source is the gold exchange-traded funds (ETFs), most of which hold their gold holdings in London vaults, and which saw huge outflows in 1H 2013," Macquarie said.

"And why is it going to Switzerland? Two explanations make sense. One would be that investors have decided to switch their gold investments from ETFs to allocated deposit accounts, which are often held in Switzerland." Read more >>

Gold Shorts Cover At Fastest Pace In 13 Years

Gold shorts covered an enormous 23,518 futures contracts last week - the equivalent of 2,351,800 ounces of gold. With JPMorgan appearing to be calling everyone (here and here) to get their hands on gold to deliver, it seems our concerns over a short-squeeze are starting to solidify.

The last time shorts collapsed at this fast a rate was in the 1999/2000 period which saw a considerable 33% squeeze ramp in gold prices over the space of 3 weeks in the fall of 1999. Notably, the gold short position still remains huge compared to historical values - having fallen back only to the previous all-time record high levels (i.e. plenty of room for moar squeeze). In addition to this surge in covering, Gold ETFs saw their first inflows in 2 months. Read more >>

Gold's worst yearly start in over 30 years

Hedge funds increased bets on lower gold prices after investors pulled a record $20.8 billion from bullion funds this year while BlackRock Inc. (BLK), the world’s biggest money manager, said it’s still bullish.

Speculators held 67,374 so-called short contracts on May 7, 6.4 percent more than a week earlier, U.S. Commodity Futures Trading Commission data show. The net-long position dropped 10 percent to 49,260 futures and options. Net-bullish wagers across 18 U.S.-traded raw materials climbed 5.8 percent to 582,265, with gains for cocoa, cotton and hogs.

Gold is having its worst start to a year since 1982 after dropping 15 percent and sliding into a bear market in April. Holdings in exchange-traded funds backed by bullion tumbled to the lowest since July 2011 even as central banks print money on an unprecedented scale to boost growth. BlackRock’s President Robert Kapito said May 9 he would still buy the metal, echoing billionaire John Paulson, who’s sticking with a bullish view even after losing 27 percent in his Gold Fund last month. Read more >>

Gold is Sending a Dire Economic Warning

There are many people willing to deny basic economic reality or the news that the manipulated government data points from around the world are sending, however gold and the gold ETF (GLD) continues to flash a warning clarion that can not be missed by any observer.

Unfortunately for the naysayers, gold is still the final resting place for value and is indeed viewed as the alternative world currency by major economic powers such as China and Russia. The U.S. Dollar has had a nice run and with the impending collapse of the European Union as constructed appears imminent, another surge in the U.S. currency should be expected.

Thus a review of the warning from gold is warranted considering the horrible technical action this year and what the desperation to raise cash will create with a once in a lifetime opportunity for the wise to buy gold at a discount. More...

Super-rich investors buy gold by ton

The world's wealthiest people have responded to economic worries by buying gold by the bar -- and sometimes by the ton -- and by moving assets out of the financial system, bankers catering to the very rich said on Monday.

Fears of a double-dip downturn have boosted the appetite for physical bullion as well as for mining company shares and exchange-traded funds, UBS executive Josef Stadler told the Reuters Global Private Banking Summit.

"They don't only buy ETFs or futures; they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest. More...

Secret gold swap has spooked the market

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The news that a mystery bank has just pawned the family jewels gave traders a jolt – nervous about the sudden transfer of almost 20pc of the world's annual gold production and the possibility of a sell-off.

In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month.

Concerns hinged on whether the BIS could potentially sell on this vast cache of bullion in the event of a default, flooding the market with liquidity. It appears to have raised $14bn for whoever's been doing the swapping – small fry on the currency markets, but serious liquidity in the gold market.

Denominated in euros, gold has fallen 8pc since the beginning of the month and is now trading at a seven-week low of €937 per troy ounce.

The big gold exchange traded funds (ETFs) – having peaked at record inflows in May – have also been showing net outflows over the past few days.

Meanwhile, economists and gold market-watchers were determined to hunt down which bank is short of cash – curious about who is using their stash of precious metal for what looks suspiciously like a secret bailout. More...

Russia Buys 22 Tons Of Gold In May

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ZeroHedge

Ten days ago we reported the most recent data on gold reserve holdings as presented by the World Gold Council, where we pointed out that Russia had purchased 27.6 tons of gold in the most recent reporting period, bringing its total to 668.6 tons.

It appears Russia is only getting started. According to the latest IMF data, in the period between April and May, Russia added another 22.5 tons, bringing its May total to a fresh record of 703.1 tons. As BusinessWeek reports, Russia "has added gold every month since at least February." At the same time, The International Monetary Fund’s gold holdings fell by 15.25 metric tons (490,286 ounces).

"Reserves of gold at the IMF were 2,951.58 tons at the end of May compared with 2,966.83 tons at the end of April, data on the IMF’s website show." Good thing the world's bailout cop is doing all it can to keep gold prices low by transacting in the open market instead of in prenegotiated transaction. Again, per BusinessWeek, this “is an indication that they will continue to sell the remaining 137.5 tons on-market as opposed to via off-market transactions with other central banks,” said Daniel Major, an analyst at Royal Bank of Scotland Group Plc in London.

“Indeed the decline in gold sales from European central banks and purchases from India, Russia and China in recent years demonstrates gold’s growing popularity with central banks.” Well, all Central Banks except those that are printer happy of course, and are now loaded to the gills with toxic debt that will continue to impair their currencies until the bitter Keynesian end.

Central banks have been adding to reserves and gold-backed exchange-traded fund assets have advanced to a record as investors sought an alternative to currencies and a protection of wealth from Europe’s debt crisis. Gold traded at $1,243.45 an ounce at 4:16 p.m. in London and reached a record $1,265.30 on June 21.

While the paradoxical IMF's agenda is all too clear (sell gold, get cash, but help the CB's by keeping price low), that of Russia is even clearer- never mind all time record gold prices. Buy. In that, Putin's country is a spitting image of the GLD, which has added almost a hundred tons of gold in recent weeks, price considerations be damned.

Parabolic Gold Price Rise Imminent

John Embry
As the gold price is set to appreciate for the ninth consecutive year, investors that have accumulated investments tied to the gold price such as gold-backed ETFs and gold stocks have been amply rewarded. The gold sector has been one of the best performing asset classes over the past decade as investors have pushed gold to record highs above $1,200 per ounce in an effort to diversify out of the U.S. dollar and other global fiat currencies - which have been debased by both politicians and central banks through persistent deficits and rising debt levels. One of the oldest and foremost bulls on the gold price and gold mining stock sector has been Sprott Asset Management, the Canadian-based hedge fund controlled by Eric Sprott. In the latest edition of Investor’s Digest of Canada, John Embry, Sprott’s Chief Investment Strategist, wrote a piece titled, “Gold bull has many years, thousands of dollars to go.”

Mr. Embry begins by providing a history lesson on the volatile relationship between the gold price and central banking. He argues that for the past 15 years, central banks such as the U.S. Federal Reserve have been flooding the market with very large quantities of the yellow metal in order to suppress the price of gold - thereby allowing the U.S. dollar to maintain its preeminence as the world’s reserve currency while easy monetary policies are pursued. While this strategy worked exceptionally well in the 1990s as the gold price held below $400 per ounce, it has been particularly ineffective over the past decade, as a huge amount of fund flows has pushed the price of gold from below $300 per ounce to an all-time nominal high of $1,226.50 per ounce in early December.

Embry goes on to reiterate his disdain for the actions of the central banks, stating that history has demonstrated that in the long run government intervention in the free market does not work. As evidence of this, he cites the successful efforts of central banks to depress the gold price during the 1960’s - which was followed by a subsequent 2,300% rise during the 1970s. Accordingly, “markets that have been artificially capped tend to catapult upwards when the suppression ultimately fails. In my opinion, the last experience in the 60s and 70s was a mere bagatelle in comparison to what is happening today,” argues Embry. To support this claim, he suggests that as much as 15,000 tonnes of gold have hit the market in the past 15 years, relative to just 3,000 tonnes in the 60s and 70s.

For those who claim that gold is in a bubble phase, Embry strongly disagrees and argues that gold has received very little attention from the general investing public and not anywhere near the level of coverage from the financial media that would exist if gold was a bubble. Furthermore, according to Mr. Embry, in a true gold bubble gold mining companies and gold producers would be generating extraordinary earnings - a situation that is not occurring, despite the strong rise in the gold price over the past decade.

Going forward, Embry believes another chief factor for the ongoing gold bull market will be the lack of gold mine supply. He cites an absence of quality projects ready for gold mining, further environmental and geopolitical issues, continuing capital constraints, and a “chronic shortage of skilled miners and competent mine builders.” The decline in gold mine supply will continue “for some time, irrespective of what the gold price does.”

Embry highlights recent commentary from Aaron Regent, the CEO of Barrick Gold (ABX), the world’s largest gold mining company, who stated that global gold production was in terminal decline and went so far as to use the term “peak gold.” In addition, Embry provides comments from the research and technical director of a Cape Town, South Africa-based consultancy, who stated that the famous Witwatersrand goldfields - the largest goldfield ever discovered and one that constitutes roughly 10% of the world’s gold supply - are approximately 95% exhausted. Add to this backdrop the declining supply of central bank gold and heightened investment demand for gold, and the Sprott team opines that the necessary ingredients for a significant rise in the price of gold are in place.

Embry concludes his piece by boldly stating that “I now firmly believe that the chances of gold ever trading below $1,000 per ounce are becoming increasingly remote.” He does add one caveat however - if the global economy suffered a “catastrophic deflationary collapse, gold could briefly be swept under but would then emerge with even greater relative strength as the only true safe haven.” Nevertheless, Embry believes the chances of such a deflationary collapse are very small given the pure fiat currency environment that exists.

He believes that gold is “going to stage a parabolic rise from current levels shortly” and that gold “remains one of the best supply-demand imbalance stories I have ever encountered in my career.” Such a bold claim by an experienced, successful money manager indicates just how much upside potential could remain in gold’s bull market.

Gold Is Its Own Currency

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"While no major currency is likely to replace the dollar any time soon, the need for an alternative is clear, and growing...That gold has a currency aspect without being tied to any country is key to enhancing its value as an asset"

Chikako Mogi
Reuters
TOKYO -- As the dollar's dominance fades with the emergence of a multipolar world, gold may stand to gain the most of all assets, thanks to an unlikely quality -- neutrality.

While no major currency is likely to replace the dollar any time soon, the need for an alternative is clear, and growing. China among others is considering how to diversify its more than $2 trillion in foreign exchange reserves, and talk of using other currencies to trade oil or commodities continues to circulate.

Supply constraints mean there is no chance of a full revival of the gold standard era, when currencies were pegged directly to gold, but investors say gold's duel role as both currency and asset make it an almost irresistible buy for years to come as financial geopolitics add risk into global markets.

"That gold has a currency aspect without being tied to any country is key to enhancing its value as an asset," said Koichiro Kamei, managing director at financial research firm Market Strategy Institute. "The realization that gold can be turned into anything spread quickly and widely as people used it to raise dollars last year when they were short of dollars."

Gold plunged almost 20 percent in October 2008, taking a hit when investors dumped assets across the curve for cash as liquidity dried during the height of the credit crunch.

But in comparison to other asset classes gold did well, with broader commodities and equities hitting multi-year lows in the unwinding of complex positions built over the past several years.

"Globally, gold has been bought as it is re-evaluated as a stable currency," said Osamu Ikeda, general manager at Tanaka Kikinzoku Kogyo, Japan's biggest bullion retailer.

It is also seen as a simpler investment after huge losses on sophisticated financial products endangered the global financial system and plunged the world deep into recession.

After the October 2008 plunge, gold returned to the upward momentum that had carried it to a record high in March 2008, defying the downtrend in most other assets.

The Reuters-Jefferies CRB Index, a global commodities benchmark, fell to a seven-year low earlier this year just as gold was again trying the $1,000 mark.

A big part of gold's gains have been attributed to the declining dollar. The dollar index, a measure against six major currencies, fell about 14 percent since March this year while gold rose about 13 percent during the same period.

"What has been a textbook reference of gold as a currency has been given life, especially after the Lehman shock. And that has concurrently highlighted its character as an asset that performs differently from other assets," said Shuji Sugata, a manager at Mitsubishi Corp. Futures & Securities.

"Given its price movements against other assets and the declining confidence in the dollar, more funds have begun to include gold in their asset portfolios," he said.

The launch of gold-backed exchange-traded funds has also altered the way gold is viewed.

Such ETFs grew explosively over the past year after the financial crisis as retail investors entered the market, giving significant support to gold prices.

"Prior to ETFs, it was supply/demand balances and currency, gold's inverse relationship with the dollar. The launch of ETFs was an additional supportive factor for gold just as scepticism was growing about the dollar's dominance," Sugata said.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, saw its holdings rise to a record 1,134.03 tonnes on June 1, a 44 percent rise on the year that contributed to gold's 16 percent rise in the same period.

The growing number of investors means price action could also add to gold's volatility.

"I think the moves to the upside will be far quicker in their velocity, hitting $1,100 very shortly and then far higher over the next few years," said Peter McGuire, managing director Commodity Warrants Australia.

Will gold ETFs shut you out?

Wade Hansen
Gold prices have been rocketing higher the past two days. Since the start of the trading day on Wednesday, September 2, gold prices have climbed from just above $950 per ounce to just below $1,000 per ounce.

To put things in perspective, gold prices have only been above $1,000 per ounce on two other occasions---March 2008 and February 2009. Gold prices reached their highest levels on March 17, 2008 (it's quite fitting that the market found the pot of gold at the end of the rainbow on St. Patrick's day, if you ask me) at $1,033.18 per ounce.

Needless to say, this is an extremely important time for gold prices. If they can break up and through resistance at $1,000, we could see an exponential rise in the value of gold. The question is, will you be able to take advantage of rising gold prices?

You see, for the past few years, individual investors have been taking advantage of rising commodity prices---like gold---by buying commodity-based exchange-traded funds (ETFs) and exchange-traded notes (ETNs) [ETFs vs. ETNs]. Commodity ETFs and ETNs track the performance of various commodity prices. So when you buy a commodity ETF or ETN, you make money when commodity prices go up, and you lose money when commodity prices go down.

The SPDR Gold Trust (NYSE: GLD)---an ETF that actually buys gold and holds it on reserve---has been a favorite of gold investors. It has been so popular, in fact, that the trust now holds more than $32 billion of gold on reserve.

But herein lies the problem. Commodity ETFs are getting so big that they are directly affecting the commodity markets---both the futures markets and the markets for hard commodities. For instance, when investors buy shares of United States Oil Fund LP (NYSE: USO), the fund managers have to go out into the futures market and buy more crude oil contracts, which pushes the price of those contracts higher.

The impact these commodity ETFs have on the futures market has caught the attention of the Commodity Futures Trading Commission (CFTC), and the CFTC is now investigating whether or not it will curb the amount of futures contracts any ETF can hold. Regulators are also looking at potential limits on the amount of gold and other commodities ETFs can hold.

So what does this mean for you?

ETFs may be forced to limit the number of shares they have available. They may even be forced to redeem shares and cut availability even further. Hopefully everyone involved will be able to figure our a solution that will allow us individual investors to maintain access to the commodities market via ETFs, but we'll have to wait and see.

Wade Hansen in an analyst for Learning Markets

Gold rally met with ferocious resistance from bullion banks

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Ed Steer notes:
I said yesterday that Wednesday's gold o.i. numbers would be "u-g-l-y". In actual fact, they were beyond u-g-l-y. Gold o.i. rose by one of the largest amounts that I've ever seen in the ten years that I've been involved in the precious metals market...26,051 contracts. Total open interest is now 410,754 contracts, and yesterday's volume was a very large 165,302 contracts. Silver was better, with o.i. rising 'only' 1,629 contracts to 108,300 contracts of total open interest... on volume of 33,296... which is a lot.

It should be obvious to anyone that this price rally in gold is being met with ferocious resistance from the bullion banks, who are going short against every long placed. Without a doubt, they piled on the short positions again on Thursday... and I won't be going too far out on a limb to say that we are very near to having the largest net short position in gold in the history of the Comex. That's about 265,000 Comex contracts, or 26.5 million ounces of gold... more than one third of 2009 gold production held short by a handful of bullion banks. And two U.S. bullion banks are short about 18 million ounces of that total. Where the hell is the CFTC???

And, as I mentioned yesterday, because all this price action began on Wednesday, none of what's been happening since the Tuesday cut-off, will be in today's Commitment of Traders report. And, to add insult to injury, today is also the release date for the Bank Participation Report for positions held also as of the Tuesday cut-off... so none of this action will be in there either. Coincidence??? Not bloody likely.

As you can imagine, Ted Butler and I spent a fair amount of time yesterday talking about this whopping increase in open interest. Neither one of us were happy campers. But we both agreed on how it was going to end. Either the bullion banks get totally overrun and we have the much vaunted "Commercial Signal Failure" or, at some point down the road, the bullion banks [who will then be short even more obscene amounts of gold and silver] will engineer a sell-off and we all get our heads handed to us... again. There's just no other way out. It's only a matter of timing as to which way this all ends.

The Comex Delivery Report showed that three gold and 145 silver contracts were delivered yesterday. And, for the first time in a while, there was activity at both the GLD and SLV ETFs. The GLD took in 470,959 ounces... 14.65 tonnes. Over at SLV, they finally added some silver... 1,967,020 ounces... after taking out over 5 million ounces during the prior five business days. There was no report from the U.S. Mint yesterday, and a smallish 36,482 ounces of silver were removed from the Comex-approved warehouses.

The usual New York gold commentator did not put in an appearance at all yesterday, so I [regrettably] have no story from him. However, as a consolation prize of sorts, here's an interview I did with Al Korelin of Korelin Economics yesterday. In it, I elaborate on the current major escalation in the gold price, and the link is here.

Moments after I filed my commentary in the wee hours of Thursday morning, I ran into the following gold story filed at marketwatch.com, which is now widely disseminated on the Internet, but here it is again... "Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city's airport, in a move that won praise from local traders Thursday." The link is here.

The next story is another one I found shortly after I filed my Thursday commentary. It's a story posted over at mineweb.com and is introduced as follows... "Reports suggest that China's main sovereign wealth fund and other state entities are under pressure to invest in strategic Western assets as the country tries to offload its dollars for firmer-based wealth including gold and oil." The headline reads "Chinese sovereign wealth fund dumping dollars for strategic investments like gold"... and the link is here.

Here's a gold story that appeared over at cnbs.com yesterday. I remember three years ago when the first stories about gold began appearing in the main-stream press... and how ecstatic I was at the time. Now they're commonplace. This one is special in two ways: first of all, it's talking about a four-digit gold price; and secondly, the lead-off paragraph mentions that investors are now taking physical possession of the metal, as they are becoming wary of other investment choices... and rightly so. I thank Donna from Florida for sending this along, and the headline reads "Gold Rush by Many Investors Could Push Price Up to $1,200"... and the link is here.

The next piece contains only one paragraph and one chart, which should take about a minute of your time. It appears that the U.S. Treasury has just announced another Treasury auction for next week... where $70 billion will be created out of thin air. Click on the chart to get the 'big picture'. I thank Craig McCarty for sending it along, and the link to the zerohedge.com 'story' headlined "$128 Billion in Total Treasuries On Deck, $70 Billion in Bonds"... is here.

And lastly is this story from The Times in London. Apparently the $1.1 trillion global rescue package agreed by G20 leaders in London in April, is in serious danger of coming apart at the seams... and Prime Minister Gordon Brown is trying to save whatever's left of his crumbling legacy... as this was his baby. The headline reads "Gordon Brown's $1 trillion global rescue package unravels". Once again I thank Craig McCarty for the story, and the link is here.

So... where do we go from here? Silver is now entering oversold territory, with gold close behind. Can we go higher from here? Absolutely! Can 'da boyz' engineer a sell-off from this point? Absolutely! It's my opinion that this bull run in gold could still have a lot of legs left to the upside, but I must admit that the record net short position in gold just screams of 'Danger Ahead.'

If we do go higher from here, it will follow one of two scenarios... either the bullion banks stand back and let this market run... or they continue to go short against the spec longs that have been entering the market in droves in the last several days. Which will it be? So far, it's been the latter option.

As I put this Friday commentary to bed, I note that not much happened in gold in Far East trading... and a small spike in silver during early morning trading in Sydney got hammered flat. But with London now open, I see that both metals have come under a bit of selling pressure from the U.S. bullion banks. But, as we've seen over the last few days, all the action [and volume] is in New York trading on the Comex... as it will be again today.

With the long weekend upon us, it will be interesting to see what sort of day the bullion banks have planned for us. I'm sure they don't want a gold price over $1,000 for everyone to talk about over the Labour Day long weekend. But as I told Al Korelin in my interview yesterday, every gold analyst out there [including yours truly] is making this up as we go along... so we'll just have to wait and see.