August 2013 - foorex2day

<div style="text-align: justify;">Those who are not bored to death with the backwardation/gold bank run narrative may find my comments on this <a href="http://www.pmbug.com/forum/f2/there-gold-backwardation-not-2620/">PM Bug forum thread</a> of interest, which was in response to <a href="http://goldchat.blogspot.com.au/2013/07/shortodile-golddee-thats-not.html">this post</a> of mine. I've cut and past some of them below for the lazy readers, but to get the correct context of Mr/Ms Unbeatable's probing questions you need to read the thread. I'm working on some posts on GOFO/backwardation to further expand on my comments in <a href="http://goldchat.blogspot.com.au/2013/07/norcini-gold-is-not-in-backwardation.html">this post</a>.</div><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Hmm.... When he sees 400oz bars attracting a 'special premium' he  will let us know?The two biggest gold consumers India & China are paying a  $30+ premium an ounce over spot, a 600%+ increase over what they paid in  previous years!? </td></tr></tbody></table></div>The premium in India and China  is not for 400oz bars, but for smaller forms and particularly in India there are  import duties and other taxes that go into the premium. The demand in India and  China is high, but it is not translating into premiums for the raw wholesale  form (400oz bars).<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Hmm... When he sees bullion banks desperately bidding on Perth Mint's  refining output he'll let us know? </td></tr></tbody></table></div>My statement  was about bullion banks and 400oz bars. Your quote is referring to demand for  coins, two different markets. You are missing the whole point of my comment,  which is that retail level demand, premiums do not reflect a shortage of gold at  the wholesale level and a run on the fractional reserve bullion banking  system.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Hmm.. When he sees restrictions on how much gold can be bough he will  let us know? 'the Reserve Bank of India banned import of gold by domestic  consumers through bank credit' ' Gold coin and bar sales stopped in India'  'Pakistan temporarily bans gold imports' </td></tr></tbody></table></div>You are  misquoting again. The restrictions I was talking about was restrictions by  GoldMoney and Bullion Vault, not any restriction in any market. I picked GM and  BV because they buy 400oz bars for their pooled storage products. If there was a  shortage/run on the wholesale gold banking system then GM and BV would have  problems sourcing 400oz bars. They are not.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">But to be blunt (And as I think you know full well yourself), the  idea that you'll see the overt stress indicators that you suggest coming from  the bullion banks actions themselves is quite frankly absurd because the day  they show provable supply side issues is the day they default.  </td></tr></tbody></table></div>Nope, it is not a sudden event, it will build up  over time and signals will be given, see <a href="http://www.goldchat.blogspot.com/2010/07/degrees-of-distrust.html‎" target="_blank">http://www.goldchat.blogspot.com/201...strust.html‎</a> (that does  need some refinement but the basic idea is there). Bullion banks, just like any  bank, will do everything they can to drag out and avoid a run, they aren't just  going to throw their hands up at the first sign of trouble. Those "do  everything" will be gradual at first and will be visible to us in the wholesale  market who know what to look for.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Which is why I showed how each of the indicators are already clearly  manifesting themselves in the gold market. (& though you repeatedly try to  pretend that there is this massive separation between stresses in demand in the  retail and wholesale market, they are in fact completely interlinked.)  </td></tr></tbody></table></div>There is separation between retail and  wholesale. Most of the retail problems/premiums are driven by production  capacity shortages rather than shortages of raw gold or silver. For example,  during the 2008 financial crisis the blogosphere was going crazy about shortages  of silvers, particularly, yet the Perth Mint was shipping in 20 tonnes of silver  each week from London for about 20 weeks on end. Go and have a look at my blog  around that time.<br /><br />The indicators you mention are just indicators of  strong end user demand, not a run on the bullion banks nor any stress at that  end. India premiums reflect the restrictions the Govt has put on, something they  have been ratching up for a long time well before this talk of a run/stress and  driven by a CAD problem. It hasn't affect demand much at all - instead of the  shipments of gold we sell going to India they have suddenly started going  (demand coming from) dubai and thailand, funny that.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">1. In times of demand stress the bullion banks are the ones supplying  many mints with additional refining input never mind bidding on the output? </td></tr></tbody></table></div>Nope, got that wrong. US Mint, yes needs to get  metal from the market but the two other big ones - Canadian Mint and Perth Mint  - are refineries so they source their own metal and in fact have excess left  over after coining needs. Perth Mint refines around 6 tonnes a week and we use  10%, maybe up to 20% if lucky, for coin production. The rest we turn mostly into  kilo bars and then sell it to the highest bullion bank bidder - it is that  premium on kilo bars that tells us how desperate they are, in addition to where  it is going and what form, gives a lot of info.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">2. I'd imagine the bullion banks have preferential contracts in place  and ones that prohibit you, a Perth Mint employee from disclosing market  sensitive information, so I take your 'I will let you know' with a pinch of  salt. </td></tr></td></tr></tbody></table></div>We work with a range of bullion banks and  have no exclusive supply arrangements. While we have customer privacy  requirements, that does not stop us from making general statements about what we  are seeing. And there is no such thing as market sensitive information in  bullion - it isn't an equity.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">3. If the bullion banks were having issues, instead of people like  Perth Mint employees letting the public know about it, I'd expect them to go out  and try to convince people of the opposite - 'Don't worry there are not  wholesale supply issues' & shi*, look, here you are...  </td></tr></tbody></table></div>Actually, it would be more logical for us to  hype up shortages so that we could increase coin and kilo bar premiums and make  more profit. I've rarely seen any market comment coming out of the major  refiners talking about how crap demand is. Shortage hype is used by coin dealers  to 1. get people to buy now 2. pay excessive premiums. Perth Mint has a bit more  integrity and we stick to the facts. Why do you think Perth Mint and I get so  much crap on the gold blogosphere - because we are wrecking their sales  patter.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">So rather if I was looking for supply problems in the 400oz wholesale  market, I'd look for signs of additional central bank leasing, particularly the  Bank of England who are a key source of supply in times of stress. & shi*  look a story just in the last two weeks that the BOE may have leased up to 1300  tons in the 400oz wholesale market in the first half of the year  </td></tr></tbody></table></div>You are on the right track here, a run is about  liquidity, so the first action of a bullion bank experiencing a run will be to  lease/borrow gold (not buy), which should show up in increasing lease rates  (which has the effect of decreasing GOFO) - although lease rates are still quite  low compared to stress periods in the past but trending up.<br /><br />The 1300t  story is another beat up, see here <a href="http://www.screwtapefiles.blogspot.com.au/2013/07/bank-of-england-vault-floor-layout.html" target="_blank">http://www.screwtapefiles.blogspot.c...or-layout.html</a> the BoE  said that the figure that Alasdair relies on for his whole thesis cannot be  relied upon.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Or I'd look for signs that Bullion Banks are running short of supply  and/or are being forced to help one another out. & shi* look at how much of  JPM's inventory has been removed this year and also this story from just  yesterday </td></tr></tbody></table></div>Those sort of inter-bank transfers are  standard part of market clearing <a href="http://lpmcl.com/" target="_blank">http://lpmcl.com/</a><br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">But as these don't constitute hard evidence, & people like  Potemkin would say 'Rumours, words, stories...' I chose to bring up provable  supply side shortages &/or unprecedented demand in the gold market which is  of course what creates the wholesale market problems you are witnessing above.  </td></tr></tbody></table></div>Signs of increased demand and just signs of  demand, not a bank run and does not cause a bank run as the bullion banks just  act as a broker between buyer and seller and let price manage it. It is only  unallocated holders taking delivery that creates a run and possibility of  default. That shows up in lease rates and the futures/forward market  first.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Really!? How many hours do you think it will take from the time they  announce purchasing restrictions to Gold Money to the time they default? I think  you know that this is the very last thing they will do, if they don't actually  just default first. </td></tr></tbody></table></div>First sign will be premium  increases, that is the key signal. And it won't be explicit purchase  restrictions, more like delays due to "transport issues" etc.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">If there are demand stresses for gold, I think it's (painfully)  obvious that they would rather do their best to try cut demand from the biggest  gold consumer, India. (EDIT: Which is obviously why I brought up the  restrictions in India and outright temporary import ban in Pakistan as being  very indicative of shortages in the wholesale market.) As this would ideally  (For the bullion banks) have the effect of decreasing demand for their good  delivery bars in that market and also freeing up mint output sourced from the  mines & scrap, so that it could then be used to refine new 400oz delivery  bars for the bullion banks as opposed to coins and smaller bars for retail.  </td></tr></tbody></table></div>See my earlier comment on India. The Indian  restrictions aren't doing anything to stop demand, it is just being smuggled.  The Indian Govt actions are just about making their CAD figure look better to  financial markets.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>PMBug</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Bronsucheki, are you able to confirm or deny this claim (at least as  it pertains to the Perth Mint) from Bill Haynes?  </td></tr></tbody></table></div>No can't confirm it directly as we aren't being  given any 100oz (ex Comex) or 400oz (ex London ETFs) bars by bullion banks to  melt and recast into kilo bars. However, we are seeing good demand for our  refining output into kilo bars for shipment into China, Dubai and Thailand, so  the Bill and Tekoa reports fit in with that.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Hi Bronsucheki, thanks for taking the time to give such a detailed response and  for doing it in a pretty reasonable tone despite how confrontational mine was.  Also especially considering that you work & have considerable knowledge in  that area vs. me who doesn't.  </td></tr></tbody></table></div>No problem, don't mind being challenged. This time is different to 2008 and  certainly more stress, I'm just not sure there is a run on yet, but it is finely  balanced I think. We are seeing very high premiums on kilo bars, premiums we  haven't seen for a very long time.<br /><br />In addition, we did hear that 99.99%  purity 400oz bars were attracting a premium in London (but the normal 99.5%  purity wasn't). Mostly likely explanation for that was that 99.99% purity 400oz  bars could just be melted and recast into kilo bars (which are generally  preferred to be 99.99% purity in Asia/India) without needing refining.  Screwtapefiles blog did some good analysis on the number of 99.99% vs 99.50%  purity and what was being withdrawn from GLD, but nothing conclusive  yet.<br /><br />So certainly this is all very unusual and you're right to be  cautious.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">So I'm surprised during the period of unprecedented demand this year  that you didn't have to source any additional supply from the <acronym title="London Bullion Market Association">LBMA</acronym> in London again?  </td></tr></tbody></table></div>Perth Mint is primarily a gold refiner and we  get silver as a by-product of that gold refining. Normally the silver was enough  for our coining needs but in 2008 the demand was so high we had to source silver  externally. Since then we have picked up some more silver refining so have  enough silver now, even with higher demand.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">You also say the majority of your non coin production is being made  into Kilo bars for the highest bullion bank bidder. But I was under the  impression that the bullion banks dealt in the larger 100 & 400oz bars &  that the 1 kilo bars would be more for the retail investment market?  </td></tr></tbody></table></div>1kg = $40,000, not exactly "retail" by most  definitions! Bullion banks deal in any size - they cover all markets. 100oz gold  bars are primarily a US market size. 400oz bars are usually used for investment,  bulk long term storage, they are not really convenient for use in  industry/jewellery/mint as you need a big caster to melt 400oz, plus 400oz is  99.5%. So, particularly in Asia, the smaller 1kg in 99.99% purity is preferred  by jewellers. Plus when I talk about kilo bars wholesale, that is selling in  half or one tonne lots, eg $20m to $40m deal size.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">But the import taxes/duties in India are 8% that would be $104 an  ounce, far higher than the $30 premium the media is using. Doesn't this mean  that the $30 premium is the premium they're paying prior to import duties/taxes  being applied? </td></tr></tbody></table></div>Yes correct, the $30 would not  include that import tax, but I believe there are some other duties/fees and  often bullion banks selling into distributors in India include shipment and  finance deals in the price, so I'm not sure the $30 is the full premium. However  there is still a large premium in that market reflecting the restrictions and  driving the smuggling, so I probably pushed my point too hard there. The premium  is also highly volatile as the Indians are very price sensitive.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">this is perhaps the first time we have seen this happen laterally  between two vaults </td></tr></tbody></table></div>Has ZH been following these  comex reports for the past ten years? I doubt it. I am sure if I had the time  and went through all the reports I would be able to find this happening many  times. One also needs to consider that if a BB is doing other  movements/transfers as well as to another BB's vault, that is not going to be  visible as the aggregate number would combine both. So one cannot say this is  unusual.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Today I see another negligible 4k ounces went from Scotia to JPM and  JPM converted a massive 70k ounces from there 360k registered total and moved it  onto their 100k eligible total. </td></tr></tbody></table></div>The transfer  from registered to eligible is why one needs to add both stocks together and  compare that to open interest, which is what I did in <a href="http://www.goldchat.blogspot.com.au/2013/04/comex-stock-drawdown-single-most.html" target="_blank">this post</a>. The current coverage ratio for gold is 17.7% and  silver 24.5%. Looks like plenty of metal for redemptions.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">Personally I think at the very least a Bullion Bank run is in  progress at JPM and I think even though the writing is on the wall, the others  are just trying to help JPM make it to some pre-determined end date.  </td></tr></tbody></table></div>How long do you think banks runs last for? I  note no commentator is really putting a date out there, except <a href="http://www.jsmineset.com/2013/07/22/comex-must-change-its-delivery-mechanism-soon/" target="_blank">Jim Sinclair</a> "because of the continued fall in gold inventory  that within in 90 days or sooner the Comex must change its delivery mechanism".  Personally I think by mid-Oct Comex will still be going on as per normal and the  BBs will still be around.<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">My question to you is, having seen how these unusual transfers have  continued since my original post do you still think  </td></tr></tbody></table></div>As noted above about ZH, I question whether  there is any proof these are "unusual transfers".<br /><br /><div style="margin: 5px 20px 20px;"><div class="smallfont" style="margin-bottom: 2px;">Originally Posted by  <strong>Unbeatable</strong>:</div><table border="0" cellpadding="6" cellspacing="0" style="width: 100%px;"><tbody><tr> <td class="alt2" style="background-color: white; border: 1px solid rgb(0, 0, 0);">My question to you is would you agree that the banning of buying gold  on consignment did have the effect of considerably decreasing India's overall  physical gold demand for 1-2 months (incl. smuggling)?  </td></tr></tbody></table></div>Yes, as India had a relatively open gold import  system the sudden rule changes crimped legitimate imports but the smuggling  network was not in place to take up the slack so that would have had the net  impact of restricting demand. We have recently seen a pick up in demand from  other countries which tells us smuggling has started back up.<br /><br />I disagree  with Eric Sprott that western central bankers "called up" India and asked/told  them to do these import restrictions to help them out. I agree more with <a href="http://www.livemint.com/Companies/pqNgQUDoOPsQCli4EgZLMM/Jim-Rogers-Why-Im-shorting-India.html" target="_blank">Jim Rogers</a> on this "Indian politicians who suddenly blamed  their problems on gold. The three largest imports to India are crude oil, gold  and cooking oil. Since they can’t do anything about crude and vegetable oil, the  politicians said India’s problems were because of gold, which, in my view, is  totally outrageous. But like all politicians across the world, the Indians too  needed a scapegoat."

Those who are not bored to death with the backwardation/gold bank run narrative may find my comments on this PM Bug forum thread of interest, which was in response to this post of mine. I've cut and past some of them below for the lazy readers, but to get the correct context of Mr/Ms Unbeatable's pr…

foorex2day

My Candid View – Part 9

My Candid View – Part 8

My Candid View – Part 7

My Candid View – Part 6

My Candid View – Part 5

My Candid View – Part 4

My Candid View – Part 3

My Candid View – Part 2

My Candid View – Part 1

PM Bug forum comments on backwardation