COMEX: gold paper leverage unwinding

What nobody is talking about is that at the COMEX, the paper gold leverage is unwinding and as I predicted, this goes together with a rise in gold price. Don’t say I didn’t warn you, you could have perfectly bought your gold at that spike in leverage.

 

We did have a record low in registered inventory at the COMEX, which was a problem (see blue chart below). If some people would take their gold for delivery, we would see a COMEX default due to the high leverage. But there was another option of course: a COMEX default can be resolved by a price hike. Higher prices can fix everything and that’s what we saw happening in the previous weeks. Registered gold stocks were going up while the gold price went up. But when you look at the chart here, this is just a tiny blip higher, we are still miles away from the top in 2013 and I believe gold will keep going up in price to that level eventually.

Managed Money Short update gold

There isn’t anything special going on since we moved to 2015. Short positioning has been flat along with a flat gold and silver price. I wouldn’t bet too heavily on precious metals until something fundamental changes in Fed policy or the macroeconomy. There is no short squeeze on the horizon.

 Premiums are flat:

 

 

 

 

There is one anomaly though and that is that China’s gold premium is edging upwards.

 

Which also indicates that gold is going from West to East again with GLD stock (red chart) declining.

Although I don’t see this stock declining much as there isn’t any registered gold (blue chart) left in COMEX.

There is plenty of silver though at COMEX.

World Gold Council: Gold Supply and Demand

I took all the quarterly numbers from the World Gold Council annual reports on supply and demand, and put it in one chart. Can be useful for the future.

First of all, the massive 2000 tonne/annum demand from China that started in 2008 and blew off in 2013 doesn’t seem to be incorporated in this chart.

Second, we see that supply has peaked in 2012 and I see this supply going down in 2015. Demand has started to pick up since September 2013.

Third, we see a massive spike in gold demand in 2008 when the crisis started, will we see this again in 2015?

SGE Withdrawals – Unilateral SGEI Trading Volume < Chinese Gold Demand < SGE Withdrawals

I wish Chinese gold demand could be given weekly through the SGE, but the Chinese are making it complicated with the opening of the SGEI. Ok, so let’s follow Koos Jansen’s new technique:

SGE Withdrawals – Total Unilateral SGEI Trading Volume < Chinese gold demand < SGE Withdrawals

This is because the weekly SGE withdrawal numbers include SGEI withdrawals, which can either be real Chinese gold demand or foreign gold demand. So the Chinese gold demand lies between the SGE number and the SGE – SGEI number.

The reasoning is given here:
Gold bought by domestic banks on the SGEI and withdrawn from the “International Board” Certified Vault in the Shanghai Free Trade Zone (FTZ) to be imported into the mainland is not required to go through the “Main Board”/SGE (click here  for an introduction on the SGE, SGEI, IB, MB, FTZ, etc). Meaning: the volume traded on the SGEI can distort Chinese wholesale gold demand measured by SGE withdrawals numbers. This is because we simply don’t know who the SGEI traders are; domestic banks from the mainland that buy and withdrawal gold to import – in this case withdrawals would count as Chinese demand – or for example buyers from Singapore – in this case withdrawals would be exported to Singapore?

That’s all nice and well, but if something were to happen to Koos someday, how can we calculate it ourselves?

First go to this site, which gives weekly SGE withdrawal numbers and SGEI trading volumes: http://www.sge.com.cn/xqzx/xqzb/

The SGEI trading volume can be found in 3 products. The International Board has launched three new physical products international customers can buy and sell. So you need to make the sum of the trading volume of all three products and make it unilateral:

1. iAu100g       physical product       100 gram gold bar    fineness 999.9
2. iAu99.99      physical product       1 kg gold ingot          fineness 999.9
3. iAu99.5        physical product       12.5 kg gold ingot     fineness 995.0

Example: Let’s calculate Chinese gold demand for week 50.

Week 50:

SGEI Unilateral Trading Volume = (0.1+1.3+12313.4+4.1)/2 kg = 6159 kg.

SGE Withdrawals = 50027.5 kg

50027.5-6159 kg < Chinese Gold Demand < 50027.5 kg

Or

43868.5 kg < Chinese Gold Demand < 50027.5 kg

Managed Money Gold/Silver Short Update

I wouldn’t expect any price rises in gold and silver in the coming weeks as the shorters have already left the building (See red charts). (Better to invest in palm oil)

APMEX silver premiums have stabilized at the higher plateau and aren’t increasing further.

But APMEX gold is rising.

At Shanghai we see silver ticking up again.

SGE gold premiums are at zero.

 If you still want to buy precious metals, go for silver.

India gold imports surge after easing of import restrictions

India just reported a record increase in imports of gold due to the easing in import rules (80:20 import restriction) the previous month. People weren’t expecting that it would have any effect, boy were they wrong.

The number for November came in at 151.58 tonnes, a record increase, the third highest in many years. (Much higher than the Swiss no vote…)

Misery Index Vs. Forward P/E Ratio Vs. Gold

The misery index is the sum of the unemployment rate and the inflation rate. It can be very useful to predict the forward P/E ratio (price/expected earnings). The misery index has been falling since 2010 till 2015.

The lower the misery index (blue chart), the higher the P/E ratio (red chart), which means stocks get valued higher. A low misery index might explain why in 2014, stock prices were valued that high.

Another correlation is that between the misery index and gold. The more misery, the higher the gold price.

//research.stlouisfed.org/fred2/graph/graph-landing.php?g=TXc

Belgium Gold Repatriation

Good job Belgium! Take that Switzerland…

Belgium has 227 tonnes of gold, how much of that is stored in other countries?

It only has a limited amount of gold stored at the Belgium National Bank (BNB); the bulk of Belgium’s reserves is held at the Bank of England, a portion is held at the Bank of Canada, and another portion at the Bank for International Settlements (in Basel) which has been in the manipulation business lately. And I’m sure some of it is in the U.S at the Federal Reserve. Belgium has never disclosed where it held its gold.

Maybe, just maybe they are concerned about this trend down in the GLD physical gold reserves. And there should be a connection between GLD and the Bank of England. GLD’s gold inventory is vaulted in London. They should also be concerned about the LBMA.

The Bank of England is a custodian for central banks and the LBMA. So a repatriation of gold from the Bank of England, could mean some added pressure on the LBMA (if the gold of Belgium is not there). And the GOFO rates at the LBMA going negative are a sign of that.

Here are some additional numbers from a year ago:

The traded amount of “paper linked to gold” exceeds by far the actual supply of physical gold: the volume on the London Bullion Market Association (LBMA of which the RBI is a member) OTC market and the other major Futures and Options Exchanges was over 92 times that of the underlying Physical Market.

Now Belgium takes a bunch of physical gold from the Bank of England and the Federal Reserve, who knows what could happen.

https://youtube.googleapis.com/v/jR_E9Vnnrb8&source=uds

Gold repatriation update

Here’s how the gold repatriation from the FRBNY is going. A large drop and it will only accelerate as physical gold is so tight at this moment, everyone will want it back at home.

Decoupling Japan Vs. gold/stocks

On 9 November I started to write about the Japan carry trade versus gold.

Exactly at that moment, gold and the Japanese yen carry trade decoupled. Also stocks decoupled from the Japanese yen carry trade. Maybe they know we know and need to find something else to manipulate the markets.

Or we could be starting the hyperinflationary phase where the yen plunges and stocks don’t go up anymore, while gold does go up.