Friday, April 12, 2013

Gold and Silver Prices Are Set In Libor-Like Daily Conference Calls

Posted on by WashingtonsBlog

There is increasing evidence that the gold market is manipulated.  The amount of physical bullion may be greatly over-stated, and gold may be manipulated in the same way that Libor rates are:
The Telegraph noted Monday:
[Bank of England executive] Paul Tucker told MPs that Barclays’ abuse of the Libor system may be only one part of the banks’ dishonesty over crucial financial information, suggesting that other markets should now be investigated.
An official inquiry into Libor – which helps determine interest rates for householders and businesses – should be broadened to include several over markets where banks are trusted to report their own data, he said.
The Libor scandal could be repeated in a number of other “self-certifying” markets where prices are determined, he said.
“Self-certification is clearly open to abuse, so this could occur elsewhere,” he said.
A Financial Services Authority inquiry into Libor should be extended to other self-certifying markets, he said. The Treasury said last night that the review, led by Martin Wheatley, was free to examine markets other than Libor.
Some markets in gold and oil are also based on self-certification.
Mainstream commentators are starting to publicly discuss manipulation in the precious metals markets.  See this, this and this.
Avery Goldman noted last year:
On March 15, 2011, the Commodity Exchange (COMEX) and the New York Mercantile Exchange (NYMEX) advised the CFTC that they had approved J.P. Morgan’s application to become a licensed vault facility, using a “self-certification” process. The newly licensed vault, located at 1 Chase Manhattan Plaza, NY, NY, is ready to roll as both “weighmaster” and depository, for delivery of gold, silver, platinum and palladium contracts, as of March 17, 2011, two days later.”
ETFs, bullion banks, storage facilities and other holders of gold that are “self-certifying”  – without any checks by third party auditors – have been caught misreporting and raiding even allocated precious metals accounts, and using the loot to speculate or pay off other debts.
As such, manipulation in the self-certifying portions of the oil and gold markets could have a huge impact on assessing the true health of financial institutions, the economy as a whole, and the assets of individual investors.
Yesterday, the Guardian reported on the stunning similarities between the daily “fixing” of the gold price and of the Libor rate:
London’s financial sectorwas last night bracing itself for another official investigation into alleged price-fixing following reports that a US regulator is considering launching an inquiry into the City’s gold and silver markets.
The Commodity Futures Trading Commission is discussing whether the daily setting of gold and silver prices in London is open to manipulation, according to the Wall Street Journal, which stated that the CFTC is examining whether prices are derived sufficiently transparently.
The system of setting gold prices in London is unusual and involves a twice-daily teleconference involving five banks – Barclays, Deutsche Bank, HSBC, Bank of Nova Scotia and Société Générale – while silver is set by the latter three. The price fixings are then used to determine prices worldwide.
The fixing of the gold price in London dates back to September 1919, when the process involved NM Rothschild & Sons, Mocatta & Goldsmid, Samuel Montagu & Co, Pixley & Abell and Sharps & Wilkins.
At the start of each gold price-fixing, the chairman announces an opening price to the other four members who relay this price to their customers. Based on orders received from them, the banks declare themselves as buyers or sellers at that price.
Provided there are both buyers and sellers at that price, members are then asked to state the number of bars they wish to trade.
If at the opening price there are only buyers or only sellers, or if the numbers of bars to be bought or sold does not balance, the price is moved and the same procedure is followed until a balance is achieved. The silver fix dates back to 1897.

A Brief All that Glitters Update

Just wanted to dash off a quick comment on gold and the precious metal stocks, which are both getting clobbered. The money supply far exceeded my estimates and anything that could be suggested by seasonal trends (I will have to look into this one). This combined with lower prices has led to a triple crown buy flashing on all three timing indicators. On an intraday basis, the 1-year model was nearly a -3, the 3-month model was -2.3 and the 6-month model was -2.4.

I will provide a more encompassing update soon.

The Falling Knife of Mining Stocks Has Hit the Floor- John Doody

High Volume High 4/11 Edition

Still more names making highs on volume than those coming off on volume.

BCA Highlights Downsides Risks on Gold

A somewhat simplistic technical take on the price of gold. However, this article relates to my search dissenting opinions on gold and gold/precious metal stocks.

The path of least resistance for gold prices remains down.
Gold Downside Risks
O ur global gold advance/decline line has broken below key support and is at a 2-year low. This indicator has a good track record of timing major shifts in gold, and the decline is particularly worrisome since it reflects universal negative sentiment towards the yellow metal. ETF outflows last month were also the largest on record, and the option-based momentum suggests further outflows.
Any upside surprises in economic data could also stifle demand for gold. Tame inflation expectations, rising real rates and a flattening yield curve diminish gold’s safe haven appeal. Consistent with this, our gold cyclical indicator is low and falling.
We cannot completely rule out another U.S. (or worldwide) deflation scare, which would return gold to investor radar screens and lead to new highs. But we assign this outcome a low probability.
Bottom Line: Tail risks are receding and the corollary from new highs in the Dow index is a declining equity risk premium, which is negative for gold.

Volume Off the High 4/11 Edition

Just a few names to look at.

Thursday, April 11, 2013

Stockman Interview With PeakProsperity

Six Secrets to Success

Don't Trust Your Gut

Silver Capitulation

I am on a sort of quest to look for and read any bearish thesis on gold and precious metals. In that vein, I found the below article from BCA Research on silver.

The silver “bubble” began to burst in 2011 and we advise against bottom-fishing.
Silver Capitulation
S ilver’s high beta to gold has persisted for over 30 years. The long-term correlation is 2:1, even though silver has often temporarily “outperformed” this relationship. More recently, silver prices are down 22% from their 2012 highs versus 11% for gold. The key test for silver will be support at $26/oz, corresponding to about $1,550/oz for gold. We cannot completely rule out disorderly liquidation by stale longs should this level give way.
The constant inflow into silver ETFs, despite weak prices, is worrisome. Investors tend to buy silver because they like gold. However, gold’s failure to bounce despite the latest BoJ shift suggests this time may be different.
According to our Commodity & Energy Strategy service, industrial demand for silver will be insufficient to shield prices from ETF liquidation over the near term (ETF holdings represent about 60% of annual supply). Lower silver intensity and substitution, particularly in the solar industry, also provide headwinds. In addition, mine supply has been steadily increasing and Chinese imports have slowed markedly.

Now You See Me

Was watching this earlier. This looks like it will be an interesting summer movie and not just the same old/same old guns and explosion fare.

Change How People Perceive You

Some great advice here...

Kyle Bass Perplexed on Gold Price Moves

In one sense, I can understand Bass' confusion. On the other hand however, market microstructures and the growth of assets in the ETF complex can force a self-reinforcing  price moves in the underlying assets to the upside and the downside. Maybe this may be one explanation as to why gold prices continue to be weak.

This Feels Like the 2006 Housing Bubble- Zell

High Volume High 4/10 Edition

Still chugging with a broad list of new stocks or funds making highs with volume....

Volume Off the High 4/10 Edition

After a couple of days without any heavy volume sell offs from near highs...... here are a few for consideration.

More on Goldies Call to Sell Gold- Schiff

Wednesday, April 10, 2013

Say it With Me, There is Little Relationship Between Gold and GDP

Before I dive in here, let me say, yes, I am biased in this argument. However, I embarked on the following analysis with an open mind, testing the thesis of a correlative causation between GDP and gold. Additionally, I think you should know that I could buy into the thesis being thrown around by various the research groups and by the financial media that the weakness (and future expected weakness) in gold is due to a strengthening economy. For many, gold has been a safe haven investment, turned to when the markets were failing. A strengthening economy could cause some investors to sell out of the precious metal space in a move into other asset classes. Other contradictory anecdotes aside and considering that gold prices have increased since the beginning of the last decade, well before the 2008 market implosion, the historical data shows little to no relationship between gold price and GDP.

The following charts show the year-over-year and quarter-over-quarter change in the price of gold and real GDP.



See the relationship? Neither do I. Aside from from the period in the 1970's (and the great recession) where gold and GDP exhibited somewhat of a POSITIVE relationship, there appears to be little to no relationship in the data. Not one to rely on my eyes however, I ran a correlative study using the above data on a coincident basis and by lagging GDP by up to six months. The coincident correlation statistics showed their was little to no relationship between gold prices and GDP over the entire time period since the late 1960's Additionally and as I increased the lag time in GDP, the correlative statistics increased, topping out at about 27% at the six month mark. This does not bode well for the thesis that an increase in GDP will lead to lower gold prices.

Now, You may be saying, but the 1970's is skewing the data, as the highly inflationary environment had an out-sized affect on the results. Well, I also looked at the period since 1980, excluding the 1970's from the data set. The results show here show a more negative relationship between gold price and GDP, supporting the thesis. However, the relationship appears to be weak, at best, and is likely not economically significant. In fact, the greatest absolute negative correlation tops out at a -35% using a three month lag in GDP. Hardly a statistic to build a thesis around. More so, the relationship between gold and GDP since 2000 can be more described as one showing little to no correlation, positively or negatively. The relationship between changes in the price of gold and GDP seems flimsy, leading me to conclude that the thesis built around it is also weak.