Parallel universe in Gold: Physical versus Paper gold

Two interesting outlooks from the two day 14% massacre on gold prices

1. Falling gold prices equals bigger demand for physical gold in India

From Outlook India

With gold prices tumbling to a 15-month low today, retailers are witnessing a surge in demand and expect up to 50 per cent spike in sales volume in this marriage season.

They are also expecting prices to fall further to around Rs 25,000 per 10 grams in the immediate short-term.

"Over the weekend, demand has picked up and there is surge in footfalls. As such, demand for jewellery has been up since Holi due to the upcoming wedding season. However, the recent plunge in prices have added to the momentum.

"We are expecting a whopping 50 per cent growth in sales volume during this season over the same period last year," Vice-Chairman of the Mumbai Jewellers Association Kumar Jain told PTI.

Jain, who also owns Umedmal Tilokchand Zaveri retail chain, said jewellers are expecting a good season on the back of expectations that the prices are likely to tumble further to around Rs 25,000 due to global cues.

2. Has the selling of paper gold been far more than the actual inventories?

From Mark Byrne of Goldcore (via Zero Hedge) [bold original]

Gold futures with a value of over 400 tonnes were sold in hours and this is equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions.

It may again be the case that bullion banks with large concentrated short positions are manipulating the price lower as has long been alleged by the Gold Anti Trust Action Committee (GATA). The motive would be both to profit and also to allow them to close out their significant short positions at more advantageous prices and possibly even go long in anticipation of higher prices in the coming weeks.

Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories.

The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.

Comex gold bullion inventories have slumped 17% already in 2013, falling to just 286.6 metric tons of actual metal on April 11, the lowest since September 2009.

This means that futures speculators on Friday sold a significant amount of more paper gold, in an hour or two, then the entire COMEX physical gold bullion inventories.

Sell on banksters and governments! This should give the physical gold market (or the public) more space or opportunities to accumulate.

Amazing Volatility: Gold, Bitcoins and JGBs Hammered

The volatility of today’s financial markets has simply been breathtaking. 

As US stocks reached new record territory, gold prices had been slammed hard yesterday. Such irony comes in the face of the broadening confiscation of people’s savings by governments

Reports say that proposed liquidations by Cyprus and other crisis stricken euro nations in an attempt to raise funds.

From Reuters:

Gold posted its biggest one-day drop in nearly 2 months on Wednesday after Cyprus was forced to sell most of its gold reserves, but analysts said strong bullion buying by other central banks should underpin the price of the metal.

Investor fears over more gold sales by other debt-stricken euro zone members such as Portugal and Greece sent spot bullion prices down 1.7 percent on Wednesday, within striking distance of a 10-month low…

Cyprus, one of euro zone's smallest economies, has to sell excess gold reserves to raise around 400 million euros (341.2 million pounds) to help finance its part of its bailout, an assessment of Cypriot financing needs prepared by the European Commission showed.

As I have been saying all these liquidations narrative are just really part of the gold suppression scheme.

Analyst Alasdair Macleod points to studies which show that “substantial amounts of gold have been supplied into the markets by Western governments and their central banks” and on the Bank of England’s real holdings of gold as “only 60% of the gold in the Bank’s custody is actually monetary gold”

The genuine intent has been to justify more inflationism, such as the recent advice by the IMF to central bankers, in order  to preserve the untenable political status quo.

The capital flight and yield chasing phenomenon has also battered bitcoins, which has recently gone parabolic

Such selloffs from the recent frothy upswing as shown in the above chart should account for as normal profit taking—consequence from extreme yield chasing activities.

But since bitcoin is a virtual or digital currency and has been a product of decentralized spontaneous market order via technological innovations, they are likely subject to volatility from technology diffusion cycle or the S-Curve.

Unless structural deficiencies of the system will be exposed or if government successfully hacks into the system to adulterate, sabotage or control it, then diffusion cycle means that the bitcoin’s adaption will take time. The chart above demonstrates of the technology diffusion process or cycle.

So current bitcoin's volatility could be a symptom of the resistance to change from the marketplace or even attacks from mainstream, aside from of course, the outcome from intensive yield chasing brought about by distortions from financial repression.

And I would further add that so-called boom from Kuroda’s doubling of monetary base by 2014 has not been smooth sailing as seen by apologists. 

Japanese Government Bonds or JGBs have also been plagued by sharp gyrations.

JGBs have seen a sharp spike in yields over the last few days following an earlier boom. (charts from Bloomberg)

While I expect the bond boom to continue over the interim, eventually the BoJ's massive inflationism will force up interest rates that will make Japan's unwieldy debt loads susceptible to a crisis.

 

Such steep fluctuations reveal how global financial markets have been operating in a very treacherous environment.

Parallel Universe in Gold: More US States Push for Gold as Money

Even amidst aggressive inflationism from central bankers and from predatory confiscation of people’s savings, prices of gold has staggered.

Priced in major currencies (USD, EUR, GBP) except Japan’s yen, gold has substantially softened since mid 2011 (Gold.org)

Technically speaking, languid gold prices has been mostly due to a selloff in paper gold and through short sales. (chart from Danske Research)

In an interview with the South China Post, George Soros attributes falling gold prices to deleveraging in the Eurozone:

But when the euro was close to collapsing in the last year, actually gold went down, because if people needed to sell something, they could sell gold. Therefore they sold gold. So gold went down together with everything else

This implies that gold has not been deflationary hedge.

Nonetheless Mr. Soros partly acknowledges of the parallel universe that exists in the pricing of gold:

Gold was destroyed as a safe haven, proved to be unsafe. Because of the disappointment, most people are reducing their holdings of gold. But the central banks will continue to buy them, so I don’t expect gold to go down. If you have the prospect of a crisis, you will have occasional flurries or jumps. So gold is very volatile on a day-to-day basis, no trend on a longer-term basis.

Gold really has not lost its safe haven status, the role of currency safe haven may have partly been assumed by bitcoin.

But the bear raid on paper gold could have been orchestrated to influence “inflation expectations”. Gold plays a vital role in the commodity sphere, signifying a key benchmark on commodity ETFs, from the Mineweb last March:

The exodus from gold pulled down the entire commodities ETP complex, global data from BlackRock showed, as the gold segment accounts for some 70 percent of total commodity ETP investments.

Some $5.1 billion left commodities ETPs as inflows to industrial metals and broad basket commodity ETPs failed to offset the gold meltdown.

In other words, by suppressing gold prices, the general commodity sphere will likewise follow.

 

Also my personal view that gold’s has been undergoing a normal reprieve (profit taking-shake out phase) considering TWELVE consecutive years of advances.Markets hardly ever move in a straight line.

Yet aside from record central bank buying buying of physical gold as noted by Mr. Soros, gold coin sales has just been slightly off the record highs, while silver coins remains on record breaking path,

The more significant part of the growing parallel universe in gold dynamics is that about a dozen US states appear to be in the process of legislating gold as money.

From Bloomberg

Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender.

Arizona is poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states.

The measures backed by the limited-government Tea Party movement are mostly symbolic -- you still can’t pay for groceries with gold in Utah. They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma.

If gold’s role as money will continue to get political recognition, then eventually this will reflect on prices, in spite of Central bank-Wall Street’s stealth suppression schemes.

Quote of the Day: To Forestall Armageddon, Central Banks cap the Price of Gold

It is important to the Federal Reserve’s low interest rate policy to suppress the bullion price. If the prices of gold and silver continue to rise relative to the US dollar, the Fed cannot keep the prices of bonds high and interest rates low. If the dollar is widely perceived to be declining in value in relation to gold, the price of dollar-denominated assets will also decline, including bonds. If the dollar loses value, the Fed loses control over interest rates, and the US financial bubble pops, with hell to pay.

To forestall armageddon, the Fed and its dependent banks cap the price of gold.

This is from Paul Craig Roberts, former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal at the lewrockwell.com

Hot: Wikileaks Exposes Gold Price Suppression

Writes Chris Powell, Secretary/Treasurer of Gold Anti-Trust Action Committee Inc. (GATA), published at the goldseek.com (bold emphasis mine)

China knows that the U.S. government and its allies in Western Europe strive to suppress the price of gold, and the U.S. government knows that China knows, according to a 2009 cable from the U.S. Embassy in Beijing to the State Department in Washington.

The cable, published in the latest batch of U.S. State Department cables obtained by Wikileaks, summarizes several commentaries in Chinese news media on April 28, 2009. One of those commentaries is attributed to the Chinese newspaper Shijie Xinwenbao (World News Journal), published by the Chinese government's foreign radio service, China Radio International. The cable's summary reads:

"According to China's National Foreign Exchanges Administration, China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the United States and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi."

It's hard to believe that, two years later, China is still leaving so much of its gold with the Federal Reserve Bank of New York and the Bank of England when even little Venezuela has publicly figured out the gold price suppression component of the Western fractional reserve banking system and is attempting to repatriate its gold from the Bank of England and various Western bullion banks:

http://www.gata.org/node/10281

http://www.gata.org/node/10286

It is already a matter of record that China dissembled about its gold reserves for the six years prior to the public recalculation of its gold reserves in April 2009 that prompted the commentary in Shijie Xinwenbao. At that time China announced that its gold reserves were not the 600 tonnes it had been reporting each year for the previous six years but rather 76 percent more, 1,054 tonnes:

http://www.gata.org/node/9545

ZeroHedge, which seems to have broken the story of the Beijing embassy cable this evening, comments:

"Wondering why gold at $1,850 is cheap, or why gold at double that price will also be cheap, or, frankly, at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best and illogical at worst. We have a suspicion that the following cable from the U.S. embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24-karat pool."

The ZeroHedge commentary can be found here:

http://www.zerohedge.com/news/wikileaks-discloses-reasons-behind-chinas-...

In addition to fund managers throughout the world, this cable may be of special interest to the gold bears CPM Group Managing Director Jeff Christian, who says he consults with most central banks and that they hardly ever think about gold, and Kitco senior analyst Jon Nadler, who insists that central banks have no interest whatsover in manipulating the gold price.

In fact, of course, gold remains the secret knowledge of the financial universe, and its price is actually the determinant of every other price and value in the world.

The Beijing embassy cable can be found here:

http://cables.mrkva.eu/cable.php?id=204405

And, just in case, at GATA's Internet site here:

http://www.gata.org/files/USEmbassyBeijingCable-04-28-2011.txt

This only exhibits how the welfare-warfare state-central banking-banking cartel have been deeply averse to reinstate a sound money regime which extrapolates to a dilution of their political power, and thus the continuing saga of the war on gold (sound money) and on free markets.