January 27, 2015
"Is the gold really there"? This is truly the question of all questions and at the core of everything that's about to come! Before getting into the topic itself, it is worth breaking the simple question itself down and into parts. What gold? Who's gold? And Where? The answers are, your gold, your country's gold, the gold claimed to be stored and backing various "receipts" like COMEX and GLD. Is the claimed gold really sitting in New York, London, Zurich, Dubai, Shanghai and all the rest? This is a hugely broad topic and I apologize if I miss something but the question itself is now more important than ever before, I'll explain this in Part two.
As you know, the gold market is probably the most "secret" market of all and purposely shrouded. The most obvious question regarding gold (because we are supposedly the largest holder) is "why has there been no audit of Ft Knox and the other U.S. depositories since 1955?". We have been told because an audit would be too expensive. Really? We can afford to spend millions (billions) on bridges to uninhabited islands and studies on the effects of broccoli consumption on the sex lives of giraffes but verifying our nation's gold holdings is "too expensive"? The obvious answer to this question is because the gold is not there and if it were proven or made public, the value of the dollar would evaporate ...along with the power of those pushing and pulling the financial levers!
Over the last 2 months we have seen "movements" of gold more rapid and widespread than at any time since 1971. The Netherlands reportedly received 122.5 tons from New York and the Germans just received 85 tons from New York and Paris. Last year at this time, the Germans announced receiving only 5 tons which raised many eyebrows. We were told then, there were "logistic" problems moving large quantities of gold. I reported back then that a cargo Boeing 747 could carry 123 ton payloads (would you like to bet the Dutch received their 122.5 tons of gold in one single flight?).
Last year's 5 tons were "recast" which also raised some questions, this time around 50 tons were recast in the U.S. prior to shipment, why? Why not just send back the original bars "we were holding" all these years? It's OK, you can say it out loud if you'd like ...BECAUSE IT'S NOT THE ORIGINAL GOLD! As an additional note, isn't it strange that Ukraine saw their 36.1 tons of gold (2 tons turned out to be painted lead) go missing just as Germany received 35 tons? Coincidence I am sure!
This past week we received the commitment of traders report showing the commercials increased their short position in COMEX gold by some 31,000 contracts ...in a week! This represents 3.1 million ounces, for perspective, this is more than 2 weeks worth of global mine supply. We also have another benchmark to compare this 3.1 million ounces to, "inventory". The COMEX registered gold category now holds 770,000 gold ounces. So, the commercials increased the amount of potential gold they are liable to deliver by more than four times what is even claimed as the total available to deliver!
Last August and again in November I wrote two articles questioning the very high open interest in COMEX gold and silver with only a few days left going into first notice day. Well, here we are again! There are only five trading days left going into first notice day for Feb. gold, currently there are 172,500 February contracts open representing over 17 million ounces of gold. With only five days left, there are roughly 25 ounces of gold contracted for potential delivery versus every one single ounce claimed to be available. Yes I know, each time this has "happened" in the past, "nothing happened". As I believed in August last year, I still believe this position held by the longs is some sort of a "kill switch" where the longs can demand delivery and force the COMEX into default. I also believe the reason to "flip" such a switch is now more likely and could be the result of our own actions. The U.S. has pushed Russia very hard with sanctions upon sanctions, for less than $1 billion, Russia (and China) could end the Western financial system as we know it!
Will it be this time around? There is no telling but I do believe this will be done as soon as gold is no longer made available for delivery. Remember, China (and to a lesser extent Russia who just purchased another 20.73 tons last month) is importing close to 200 tons of gold per month. Koos Jansen reported that China imported 70 tons last week alone. To put this in perspective, China imported in just one week, more than three times the total amount of gold the COMEX claims they have to deliver! A run rate of 50 tons per week is what the world produces, China is buying ALL of it by themselves! (A side note regarding Koos work, he asked the Central Bank of Netherlands about their recent repatriation of 122.5 tons, whether or not the bars were the originals or recast? ...to no response). One more note about COMEX before moving on, the daily volume has been very low for the last two months. Since we bottomed in November, daily volume has been less than half of what it once was. Very strange to see commercial short open interest expand and the price to rise over 10% with such low volume. Please understand the importance of this paragraph, we live in a world where a market having less than 1/3rd the inventory that China imports in a week ...is "making" the price on the global markets? Maybe Rob Kirby is correct and there is a huge premium being paid for large scale purchases?
Another area we have seen large "inventory" movement has been in GLD. They once had (purportedly) 1,300 tons of gold. This number dropped all the way down to 700 tons last month and has risen to a little over 740. GLD inventory used to remain constant for several days in a row and then a change in inventory announced. Recently, their inventory has been changing nearly every single day. A week ago, they announced close to 35 tons being brought in in just 3 days. Where does tonnage of real gold like this come from? And just last year the Germans told us of the "logistical nightmare" of moving five tons of gold?
Other recent events to add that have or will change are the new "collars" and the GOFO rate reporting. As I understand it, this coming week will be the last reports we will see on the gold forward rates. Why are these being discontinued? Would they be discontinued if they were largely positive and showed physical gold supplies as very plentiful? Are they being discontinued because they are incompatible with low prices with supply being portrayed currently as very scarce? And what of the new CME "collars" on gold, silver and other metals? Why now? Why are collars even necessary unless volatility is expected to expand greatly? These are two very real questions ...their simultaneous timing is even more questionable.
That does it for part one, in part two we will look more to the demand side, at the question itself and the ramifications if "the gold isn't really there".