donderdag 31 januari 2013

J.P. Morgan Converts Almost Half of Eligible Gold to Registered Gold

I couldn't believe my eyes when I saw this. Suddenly we saw the J.P. Morgan vault get almost half of the eligible gold converted into registered gold.

I have seen this before... I think someone wants delivery. Let me do some research on this...

Edit: Yes indeed, we saw J.P. Morgan do the same with silver a year ago here in November 2011 (right before a huge rise in silver price). The consensus was that they are preparing for a large delivery to someone. They increased registered stock to prevent a COMEX default. This is also a sign of loss of confidence in paper gold and silver.

Let's see what happens next, probably a decline in total stock.

Public Sector Credit Expansion Vs. Private Sector Credit Contraction

In 2009, Marc Faber said these words at one of his famous seminars: 

"But for the fiscal stimulus to even have a small chance of succeeding at reviving economic activity it has to be larger than the private sector credit contraction."

In today's world we have 2 opposing forces, one is Ben Bernanke's public sector credit expansion (Chart 1) and the other is private sector credit contraction (Chart 2). If credit grows, all is well, but when they cancel each other out and credit contracts, a recession will start. To make it easy I took the credit growth chart for the money creation of banks (Chart 1). For the private sector I took the household debt chart (Chart 2).

Bank credit is going up due to money printing:

Chart 1: Bank Credit

Private sector debt is declining due to repayment of debt. I indicated that the savings rate has gone up to 6% now, so I expect more repayments in the future.
Chart 2: Private Sector Credit
If we then add these two charts together we get Chart 3 and the picture isn't pretty. The percentage change in credit has gone negative and is at a historic low. As you can see, each recession (grey bar) is accompanied by a dropping credit and 2008 is by far the worst one. If we don't see a rising trend here, you can expect ugly times ahead.

Chart 3: Credit Expansion/Contraction

Chinese Silver Imports

I finally found some data on Chinese silver imports through the Silver Investment Conference here. You will have to register for free there. Some interesting keynote speakers I like are Eric Sprott, David Morgan, James Turk. You can watch them today live.

Apparently the Chinese have been net buyers of silver, just as they have been becoming net buyers of gold (Chart 1).

China Silver Imports
Chart 1: Chinese Silver Imports through Hong Kong

Savings Rate Points to a Deja Vu Recession

Remember where I said this:
"Unlike in 2008, the savings rate isn't going up though (Chart 5). If this trend actually reverses upwards, the real collapse will start because when people save money, debt will be paid off and the currency supply will drop."

It has finally happened, the savings rate is going up to 6% (Chart 1). Credit is being repaid, the currency supply is going to shrink and the economy is on the verge of collapse, again.

The GDP has gone negative, if we get another negative growth in GDP, then we have a recession.
Chart 1: Personal Savings Rate

Registered Silver Not Increasing With Open Interest

For people who are worried about the recent rise in the total silver stock at the COMEX I want to point out that the registered inventory hasn't gone up (Chart 1). Only the eligible inventory has gone up. The ratio of registered to eligible is now 33%. In 2009 it was 133% (more registered than eligible silver) (Chart 2).

Chart 1: Silver Stock COMEX
The lowest ratio historically was 40% mid 2011 if we look on Chart 2. But today the ratio is even lower as I stated before (namely 33%). Eligible silver is now at the highest ever while registered silver is at the lowest ever. The reason for this is that people are taking delivery on their physical silver. That's the fact. Only registered silver counts, eligible silver is just a warrant that can be converted into registered silver. But you need to find this registered silver somewhere of course...

Chart 2: COMEX silver stock
The funny thing is that open interest is increasing now. As of the previous week open interest had increased to 148,351, which is pretty high. The short positions have increased too.

As I pointed out before, if open interest and short positions increase, but the registered inventory doesn't increase, it says to me that there is a shortage of silver. The reason is, if you are crowded with silver traders, you need to have the physical stock available, so registered silver needs to be going up, which it is not.

And you know what happens when there is a shortage of silver...

woensdag 30 januari 2013

Doug Casey Interviews Peter Schiff

Peter Schiff talks about gold.

ADP Report Vs. Unemployment Rate

Today we also found the ADP jobs numbers for the month of January 2013 and it came out to 192000 jobs. This is pretty good, but if you look at the trendline on Chart 1 we are still going down.

Job growth isn't keeping up with the rise in population, we need to have at least a payroll number above 200000 to reduce the unemployment rate.

The declining unemployment rate (blue dots) is not to be trusted because if it were real, the red bars would be going up, not down.

PMI Suggesting Further Euro Strength

GDP growth in the U.S. was 0% the last quarter and that is consistent with the PMI going below 50 in the U.S. While the U.S. economy is deteriorating, the PMI in the eurozone is in a rising trend again and soon will catch up to the PMI of the U.S. Maybe we can even get a positive GDP growth in the eurozone at some point.

This trend is positive for the euro going forward. But we need to be aware that the ECB has some bullets left to devalue the euro soon...
Chart 1: PMI Eurozone Vs. PMI U.S.

Zero Hour Debt Has Arrived

As I have warned investors a few months ago on the "Zero Hour Debt" problem here on July 2012, today we find out that GDP has actually reached the 0% growth rate while the debt growth is increasing at an enormous pace. Real GDP in the U.S. has decreased 0.1% in the fourth quarter of 2012 to a mere $15.8 trillion while debt has grown 2.4% to $16.4 trillion.

As you can see on Chart 1, the ratio between nominal GDP Growth and Total National Debt Growth has touched the zero line, which means that additional debt growth is not stimulating the economy anymore. We really are reaching the end game here and will see a parabolic increase in debt.

Chart 1: Nominal GDP Growth to Total National Debt Growth Ratio

To read the analysis, go here.

dinsdag 29 januari 2013

James Turk: 100% Chance of Hyperinflation in the U.S.

James Turk is 100% sure of Hyperinflation in the U.S. A very bold prediction.

Copper Contango Update: Setting up for Take-Off

Dears, I'm getting increasingly excited with the prospects in the copper market. The contango has yet steepened again, while the copper price is still in an uptrend (Chart 1 and Chart 2). Once the copper contango goes back into backwardation (red dots go down), the copper price will surge.

The copper price trend is in an ascending phase (Chart 2) and that tells me that stocks will rise (along with gold). Bonds will suffer greatly as the USD will plunge.

You can bookmark this post and remind me in a month from now.

maandag 28 januari 2013

Correlation: Bitcoin Vs. Gold

I just recently heard about this alternative currency: Bitcoin. Apparently this is a digital currency that is standing on its own and has a total market value of $150 million. It came into existence in 2009 with the creator Satoshi Nakamoto.

I don't advocate using this digital currency as it is nothing you can really hold in your hands. But it's interesting to analyze it. 

If bitcoin is really a currency that is existing out of the "system", then it should follow the price of gold closely.
And looking at charts 1 and 2, you can clearly see that the tops in July 2011, January 2012 and September 2012 are found in both charts. 

Chart 1: Value of Bitcoin
Chart 2: Gold Price

The weird part though is what is happening from October 2012 onwards. As the value of bitcoin soared to $20, the gold price didn't keep up with the trend.

So we now have a disparity between the two charts and it points to an either lower bitcoin price or a higher gold price. If we extrapolate the trends, we see a gold price of $1800/ounce compared to the price of a bitcoin.

It also points to the overall trend, namely higher gold prices. The rising bitcoin trend is holding itself up very well, so I believe gold should follow closely in the next few months.

And the most important thing to see is the following. If you have very good eyes, you will see that the bitcoin price is a leading indicator. The peak of bitcoin prices is always first and then we see a peak in the gold price a few weeks later.

So actually, we have here another tool to predict the gold price. Just follow the bitcoin price and buy gold when it goes up.

I'm sure as hell saving this bitcoin chart to my favorites.

zondag 27 januari 2013

Swiss Gold Repatriation Almost Reality

A year ago, 4 Swiss parliament members launched the "Swiss Gold Initiative" to repatriate their gold to Switzerland. Today, almost one year later we have 90000 supporters for this initiative. Once the 100000 supporters is reached, we are certain that the Swiss National Bank will repatriate their gold holdings. I'm sure those 10000 votes will be reached by March 2013.

So not only the Germans want their 3400 tonnes of gold back, now the Swiss want their gold back.

As of September 2012, the SNB had 55591 million CHF gold (Table 1). That's 59139 million USD gold or 33.4 million ounces of gold or 1040 tonnes of gold. That's one third of Germany's gold and is pretty significant.

The SNB hasn't said where its gold is and also hasn't said if it will repatriate their gold all at once, but if they were to repatriate it all at once, it would be almost double the amount that Germany is now repatriating over 7 years: namely 674 tonnes of gold.

Table 1: Swiss National Bank Balance Sheet
Other countries who want their gold back are: Ecuador (26 tonnes), The Netherlands (613 tonnes)

zaterdag 26 januari 2013

Peter Schiff at Cambridge House International's Vancouver Resource and Investment Conference in January 2013

Peter Schiff at the Cambridge House Conference:

Correlation: Food Stamp Participation Rate: The Real Way to Measure Unemployment

I want to make sure that people comprehend the manipulation in the unemployment numbers.

If we look at the unemployment rate in the U.S., it seems that everything is improving. U3 unemployment has dropped from 10% to 8% in the last two years. U6 unemployment came from 17% to 14% in 2 years.

But all is not well if we look at another metric which is the percentage of people on food stamps. I think this metric is giving a much better view on the state of the U.S. jobs market (Chart 1). Chart 1 tells us that the declining U6 unemployment rate is BS as a record number of people are still making use of food stamps.
Chart 1: Percent of Population on Food Stamps
If we compare the unemployment rate (Chart 2) against the percentage of the population on food stamps (Chart 3), we can see that there is a correlation here. In 1970 for example, the U3 unemployment rate was 5% with a food stamp percentage of 2%. Then we peaked in 1982 with a U3 unemployment rate of 10% and a food stamp percentage of 10%. The unemployment then dropped to 4% in 2000 with the food stamp percentage dropping to 6%. And since then the food stamp percentage has hit a record of 15% today.

If the correlation is correct, we should now have a much higher unemployment rate than 8%. More like 14%. And more importantly, the real unemployment rate is not declining. The reason for this is that the percentage of people on food stamps is still at record highs of 15% for the population (and 19.3% for the non-institutional population) (Chart 3).
Chart 2: U3 and U6 Unemployment

Chart 3: Percentage of Population on Food Stamps

So there you go, another correlation, one that accounts for underemployment by discouraged and part-time workers. We are in times of wage stagnation and will have difficult times up ahead.

Data on the Food Stamp Participation Rate can be found on the SNAP website.

vrijdag 25 januari 2013

Pentagon Slashes 6% of Workforce

As a follow-up on this post, where I pointed out that the debt ceiling is taking its toll on the workers at the Pentagon, today we were notified that of the 800000 employees at the Pentagon, 46000 will be terminated as of today. Although this is but a small percentage (6%), it still points out that the budget of the U.S. is in trouble.

If the March deadline on $50 billion budget cut isn't resolved, Pentagon employees will have to work 1 day less each week from that day onwards.

The moral of the story is that money is critical for the defense sector of a country. No money means no security.

Royal Canadian Mint Short in Silver Supply

Short update: As I told everyone silver is in supply shortage here, we found out today that the Royal Canadian Mint is in short supply of silver too. So it is a widespread phenomenon.

Here is the article from written by Jason Hamlin on the 23th of January 2013:

Last week the U.S. Mint announced that it had run out of its initial production of 2013 Silver Eagles and that new shipments would not be available until late January. At that point, sales are expected to be resumed under an allocation process. The Mint has used an allocation process to ration available supplies amongst their primary distributors in the past, as opposed to allowing the distributors to buy as many as they want or need.

On the first day of availability for 2013-dated Silver Eagles, authorized purchasers had placed orders for 3,937,000 of the one ounce coins. This seemed to mark the highest one-day sales in the entire history of the program. The strong demand has continued with sales now having reached 6,007,000 according to the latest information posted on the Mint’s website. The frenzied pace of orders for 2013 Silver Eagles has been driven by the typical rush to acquire the most recently dated coins, as well as pent up demand following three weeks of unavailability. The US Mint had unexpectedly sold out of the 2012-dated coins on December 17, 2012 with no coins available to order until the launch of the 2013-dated coins.

Confirming this strain on physical silver supplies, just this morning the RCM (Royal Canadian Mint) went on allocation, limiting the quantity of sales of the popular silver maple leaf coin.

So now the silver shortage has spread across the continent. Both dealers and wholesalers are reporting that the supply on maple leaf silver coins is now weeks backlogged. La Casa de Moneda de México (the oldest mint in the Americas) is the only mint in North America left with full supply of 2013 silver coins as of this point. Please note that many dealers still have supply, but this recent shift to allocation may signal an imminent shortage similar to the one seen on US Mint Silver Eagles.

There are only a handful of primary distributors and they are seeing less silver inventory available from the Mints, as physical demand has skyrocketed lately. This has been driven by concerns over the fiscal cliff, debt ceiling, worldwide currency debasement, unprecedented levels of stimulus and money printing and political leaders that are unwilling to slow their appetite for deficit spending.

The paper manipulation game can only carry on for so long before the fundamental law of supply and demand re-asserts itself. We have seen signs of physical shortages on several occasions in the past, usually preceding a large upside breakout in the silver price. With all of the fiat paper money and paper silver contracts sloshing around, it only takes a small percentage of buyers to demand physical delivery or redeploy their paper assets into physical bullion before supply shortages manifest, prices rise and the suppression scheme falls apart.

Federal Reserve Surpasses 3 Trillion Dollar Balance Sheet

As of this week, the Federal Reserve has officially gone over $3 trillion in its balance sheet. It is buying MBS and bonds as promised. Of course this has consequences as I pointed out here. The euro made a 1 year high against the U.S. dollar. U.S. bond yields are breaking resistance at 1.92% yield on the 10 year treasuries.

What's very odd is that the gold price keeps languishing. A weak dollar environment should be very bullish for gold.

Silver premium monitoring

I have been monitoring the Engelhard bullion price to spot silver, but I don't see any significant movement here.

So I'm going to stop monitoring this.
Chart 1: Silver Premium Engelhard bullion to spot silver
On the other hand, I'll now monitor a real dealer of silver, namely: First Majestic Silver Corp.

Figure 1: First Majestic Silver Bullion Price
Their selling price is displayed every day here. Today it stands at: $33.25/ounce. The spot price of silver is $31.22/ounce. That's a 6.5% premium.

I think this tells me more about the silver premium than the Engelhard bullion price.

donderdag 24 januari 2013

Interconnectivity of Banks

I just love this figure that gives the interconnectivity of banks.

If J.P. Morgan (JPM) and Bank of America (BAC) fail, the entire system fails. That means that they will never fail, as the Federal Reserve will always protect them.

dinsdag 22 januari 2013

Copper Contango Update

The contango on copper has been topping out as the LME stock level has also topped out. As copper goes back to backwardation, I see the copper price go up from here. It already spiked back to $3.68/lb which is the highest since October last year. And stocks are following nicely with this uptrend.

Chart 1: Copper Contango Vs. Price

zaterdag 19 januari 2013

Correlation: Real Interest Rates Vs. Gold Price

I came across a Zerohedge chart and tried to duplicate the chart.

The chart is about how gold goes up when real interest rates (adjusted for inflation CPIAUCSL) on 10 Year Treasuries approach zero.

And as you can see, the red line (10 year treasuries adjusted for inflation) is now exactly at zero. So that is bullish for gold.

The red chart right = Yields on 10 year treasuries adjusted for CPI.
The green chart left = Percentage change in Gold.

Chart 1: Gold (% change) Vs. Real 10 Year Interest Rates (% change)
Very interesting correlation and tool to monitor.

Signs of Silver Shortages

There are several signs of silver shortages brewing. Investors who have interest in paper silver like SLV or AGQ need to be aware of this as their holdings could blow up in a very short time frame if they don't notice the current shortages in the physical silver market.

First, the most important indicator for the physical market is the silver sales at the U.S. Mint. Second, on that first day of silver sales at the U.S. Mint, the trading volume on the Shanghai Gold Exchange’s 99.99 gold physical contract shot through the roof, hitting a record of 19,504.8 kilograms, after double-counting transactions in both directions. Third, we see that the premiums on Silver American Eagles for APMEX (American Precious Metals Exchange) are soaring to $4 for a single ounce of silver. Fourth, we can see these premiums for Silver American Eagles even go up on eBay, with prices going from  $38/ounce to even $60/ounce, while the spot price is only $32/ounce (18 January 2013). Fifth, we saw yesterday that Apple Inc. (AAPL) has seen delays in their new 21.5″ iMacs, which were announced on the 23th of October 2012. There are production problems occurring at this moment due to a shortage in silver in China. This silver is used extensively in these iMacs. The delay of these iMacs is already spanning a period of 3 months to date. Sixth, on Wednesday 16 January 2013, the iShares Silver ETF (SLV) has bought a huge amount of silver in the amount of 571.63 tonnes of new silver (183,378,092 ounces) in just one day. Seventh, just a week ago, Swiss gold refiners (who are the world's gold hub) announced that silver's counterpart, namely gold, had major delivery issues due to large gold bullion demand. As 70% of the world's gold transits through Switzerland's refiners, this event shouldn't be ignored.

There are now countless indicators that the silver demand is exploding while the silver supply should be dropping due to the low price of silver at this moment.

To read more, go here.

vrijdag 18 januari 2013

No U.S. Deficit in December 2012

The U.S. has done a good job in the month of December 2012. Its outlays of $270 billion were fully absorbed by receipts of $270 billion which makes the December 2012 deficit zero (Chart 1).

I think most of this is due to the fact that the debt ceiling was reached in December, so the U.S. couldn't spend as much money as it could.

Chart 1: Deficit to Outlay Ratio U.S.

Nice Site to get Current COT Reports

I always thought by myself, how come the COT site doesn't give current charts and current tables here. I mean, those numbers are 2 months old... Because of that, I didn't have current information. But we have a breakthrough here.

Thanks to Dieuwer from Seekingalpha, who pointed out I make a lot of mistakes, I now have a very interesting site to share. Namely:

On that site, the two most important ones for me are the one for silver/gold and the other for 10 year bonds.

10 year bonds:

Let's talk about the silver one first. Chart 1 gives us immediately the commercial interest. And we see that today the commercials are pretty short silver. That means that silver will be weak at this time.

Once the commercials start to become long again (purple chart goes up), like in July of 2012, then you need to start buying silver. And indeed, when you look at the silver price in July 2012, it bottomed out. So this COT site, is a must, to monitor each week.

Chart 1: Silver Open Interest
Chart 2: Silver price
As for the 10 year bonds, Chart 3 gives us an idea what the commercials are doing now. They have gone long just recently. You can see the purple chart has gone positive the previous week. How to read this chart? When the purple chart is very positive, with many commercials buying bonds, like in April 2012, then you should buy bonds. When commercials are short, like in October-December 2012, you should sell bonds.
And it works like candy...

Chart 3: 10 Year Treasuries Open Interest
Chart 4: 10 Year Treasury Yields
It's like Dieuwer has just put money in my pocket with these charts!

donderdag 17 januari 2013

U.S. Bond Market About to Implode

I just wanted to give an update on the status of the U.S. treasury market. I warned about a bond bubble here, stating that short interest in the commercials was going up dramatically. The last months we have seen weakness in the bond market as a result, but if you think it's already over, I have to disappoint you.

The bond bubble collapse hasn't even started yet. On Chart 1 we can see that since that article, the net short positions for the commercials has even gone up (pointing to a weak bond market and a bottoming out of yields), and the non-commercials have kept buying more and more bonds, thinking it would be a good investment. If these non-commercials unwind their long positions, we will start to see the real bond bubble collapse.
Chart 1: Commercial Open Interest in Treasury Notes
Even though non-commercials are buying like crazy, the yields haven't gone down. On Chart 2 we see that yields have risen even when long positions in non-commercials went up. This is not a normal event.

Chart 2: 10 year U.S. bond yields
To find out more, go here.

woensdag 16 januari 2013

China keeps buying U.S. Treasuries

I had expected that China wouldn't buy as much U.S. treasuries in November 2012 because they bought a lot of gold (62 tonnes or $3.2 billion). But they did increase their U.S. treasuries by $200 million to $1.17 trillion.

Though, I think that China hasn't bought a lot of treasuries in December 2012 as yields were rising that month. But no worries, Japan is going to buy all the leftovers from China. Japan is almost overtaking China with its $1.133 trillion in U.S. treasuries, supposedly to devalue the yen to increase exports.
Chart 1: China U.S. treasury holdings

Capacity Utilization up in December 2012

The good news keeps coming. Capacity utilization was up in December 2012 for the total industry and hit a 6 month high of 78.8%.

Mining was very interesting as it kept climbing to an all time high of 91.9%, above its historical average of 85%.

The data is what it is and it indicates higher metal prices in the coming months.

Chart 1: Capacity utilization
As an extra we found out that China's GDP grew to 8%. This is all in line with the positive PMI numbers we got last month. And we all know that China's GDP consists mainly of production (60%) and consumption of commodities as I pointed out here. So, I expect a higher commodities market and with that a higher stock market, mainly in Asia.

dinsdag 15 januari 2013

Copper Contango Keeps Steepening

There doesn't seem to come an end to it. The copper contango keeps steepening to 2.5% for 1 year futures, while the copper price remains steady.

If all goes as planned, we will see a huge copper and stock market rally in the future. Probably helped by good Chinese numbers. China's trade surplus surged 48% in 2012, its exports jumped 14% and its non-manufacturing PMI rises to a new high of 56.1. China has even so much money left over to double its gold purchases in November 2012.

If China does well, commodities will do well. The only asset that will underperform is U.S. bonds. Just recently, China's sovereign wealth fund had even opted to back off in buying U.S. treasuries and putting more into stocks and real assets.

Chart 1: Copper Contango Vs. Price

I would recommend people to continue buying gold, or rather: platinum. I predicted that platinum would surge against gold and it has come to fruition. Platinum has now reached parity with gold and I forecast that we will continue to go higher in platinum against gold until the historic platinum to gold ratio of 1.2 has been reached. The main catalyst is a 7% global platinum production cut recently announced by Anglo American Platinum.

Chart 2: Platinum to Gold Ratio

zaterdag 12 januari 2013

Peter Schiff: Occupy Wall street

This is an old event from a year ago, but it's a classic. This video is the full length video, so I need to post it here so we can watch it and have a laugh when we have too much time. Maybe some people haven't watched this yet. Peter is talking as the 1% business man in a crowd of 99% middle class people. I have to give it to him, this is a very bold endeavour.  

Petition to audit the Fed

Zerohedge pointed out that there is a petition to audit the Fed's and treasuries gold reserves at Fort Knox.

I went to have a look and the funny thing is that even I (not being a citizen of the U.S.) can sign the petition.

vrijdag 11 januari 2013

Faber Vs. Schiff

Faber Vs. Schiff: "a magical combination".

Marc Faber points out:
Stocks are going to decline (consistent with the overly bullish sentiment in the market), in particular technology stocks.
Bonds can rally a little bit, but are not to be held for the long term by investors as sovereign bonds will not be safe.
U.S. dollar is very weak, even against the euro.
Marc buys gold every month.

Peter Schiff points out:
There are many shorts in the euro who need to sell out, so he's betting on a decline in the U.S. dollar.


Update: List of all Correlations

I have found many correlations since I started blogging in January 2012.

So I wanted to summarize once again all correlations in this update. Positive correlations mean that if one goes up, the other goes up too. Negative correlations mean that if one goes up, the other goes down.

Positive correlations:
1) Silver premium Vs. Silver Price 
2) Baltic Dry Vs. Industrial Commodities
3) Baltic Dry Vs. Copper
4) Copper Vs. S&P
5) Oil Vs. Dow Jones
6) Agriculture Price Vs. Health of Economy
7) Agriculture Vs. Fertilizer Price 
8) CRB Index Vs. Commodity prices (oil, agriculture, metals)
9) MZM velocity Vs. Inflation
10) MZM velocity Vs. 10 year U.S. treasury yield
11) Case-Shiller Index Vs. Housing Market Index
12) Capacity Utilization Vs. Inflation
13) Rhodium Price Vs. Automotive Industry
14) Housing Price Vs. Rise of Wages
15) O-metrix Score Vs. Stock Value
16) Outlay Spending Vs. Hyperinflation
17) Gold Money Index Vs. Gold Price
18) Stock Dividend to Bond Yield ratio Vs. Stock Price
19) War Vs. Silver Price
20) Exchange Rate Vs. Treasury Bond Valuation
21) PMI Vs. GDP Growth Rate
22) Gold Lease Rate Vs. Gold Price
23) Economy of Australia/Canada Vs. Industrial Commodities
24) Jim Sinclair's Fed Custodials Vs. Gold Price
25) LCNS silver net short positions Vs. Silver Price
26) ECB Deposit Rate Vs. Euribor and Deposit Facility
27) China Gold Imports from Hong Kong Vs. Gold Price
28) AUD/USD Vs. Iron Ore
29) Chinese yoy GDP growth Vs. Chinese yoy Power Consumption
30) Chinese yoy Power Consumption Vs. Chinese yoy Power Production
31) M1 and Gold
32) Obesity Vs. Debt
33) Global Equity Prices Vs. Global EPS revisions
34) Total Public Debt Vs. Interest Payment on Debt
35) U.S. Bond Yields Vs. Interest Payment on Debt
36) Federal Reserve Balance Sheet Vs. S&P
37) Federal Reserve Balance Sheet Vs. Gold Price
38) Balance Sheet Ratio Fed/ECB Vs. EUR/USD 
39) China Manufacturing PMI Vs. Base Metal Prices
40) COMEX stock level Vs. CFTC Open Interest
41) Manufacturing component of Industrial Production Vs. CRB Metals Index
42) Net Short Interest Gold Vs. Gold Price
43) Central Bank Net Gold Buying Vs. Gold Price
44) LCNS silver Vs. Silver Open Interest
45) Bond Yields Vs. Gold Price
46) Gold Miners Bullish Percent Index Vs. GDX
47) Daily Sentiment Index Gold Vs. Gold Price
48) Commercial Net Short Interest Vs. Silver Price
49) Food Stamp Participation Rate Vs. Unemployment Rate
50) Bitcoin Price Vs. Gold Price
51) Credit Expansion Vs. Economic Health
52) Gold Volatility Vs. Gold Price
53) Total Stock Market Index Vs. GDP

Negative correlations:
1) Copper Price Vs. Copper Futures Contango
2) Interest Rates Vs. P/E ratio of gold mines
3) Non-Farm Payrolls Vs. Unemployment Rate
4) Federal Debt Held by Foreigners Vs. U.S. Bond Yields
5) Size of Governments Vs. Their Economies
6) Stocks Vs. U.S. Dollar
7) Silver Stock at CME Vs. Silver Price
8) China Reserve Requirements Vs. Shanghai Real Estate Prices
9) Capacity Utilization Vs. Unemployment Rate
10) Net Commercial Short Positions Vs. Bond Yields (Alternative Site)
11) Net Non-Commercial Long Positions Vs. Bond Yields
12) % Change in Gold Vs. Real Interest Rates on 10 Year Treasuries 

These are a lot of correlations that you need to monitor on a day to day basis!

Correlation: The Ultimate Tool to Predict Gold and Gold Miners Price Swings

It's amazing, every day I learn something new. Today I present another very reliable tool to predict tops and bottoms in the gold price and the gold miners.

The Bernstein Daily Sentiment Index for gold. Apparently, when the index goes below 30, we have a bull alert on gold. Similarly, when the index goes above 70, we have a bear alert on gold.

The problem is, it isn't free, you have to pay to follow this index here:
Chart 1: Bernstein Daily Sentiment Index
Luckily, Bloomberg has something similar which is free and can be accessed here. On Chart 2 we can see that sentiment is at rock bottom for the gold price, that means we will see a surge in gold in the next few months.

Chart 2: Bloomberg Commodity Sentiment Gold Bullish Readings
To confirm that the gold price is nearing a bottom, we can look at the daily sentiment index for gold miners on the site The ticker is $BPGDM (Chart 3). As you can see, the gold mining sentiment is approaching a bottom under 30 and this should be a positive indicator for the gold mining industry.

Chart 3: BPGDM (
To prove that the correlation works I will compare Chart 3 with the gold miners ETF (GDX) Chart 4. We notice that each time the index goes below 30 on BPGDM, we have a short term bottom in the GDX. Every time the BPGDM index goes above 70, we have a top in the GDX.

Chart 4: Gold Miners ETF (GDX)
The conclusion is that we have a very powerful tool here to mark tops and bottoms in both the gold price and the gold mining industry valuation. I would use these tools to execute short term trading. For example, every time the index goes below 30, you buy the respective security (gold or gold miners) and every time the index goes above 70, you sell the respective security. It's as simple as that!

dinsdag 8 januari 2013

U.S. Mint Silver Sales explode

On average the U.S. mint sells 2.8 million ounces of silver per month to the public. But January 2013 started with a boom. In just 1 day, the U.S. mint sold 3.9 million ounces of silver. The increased demand for silver is definitely a consequence of the recent undervaluation in the price of silver. This will be a record month for silver sales.

Table 1: U.S. Mint Silver Sale on 8 January 2013

China is buying gold on discount for Christmas Solden

We have very good numbers on gold buying from China out today. Gross gold imports doubled in a month time to 91 tonnes and the reason is of course lower gold prices in November 2012. The Western manipulators are shooting themselves in the foot by manipulating gold, because this way China can increase its holdings at a much faster pace.

Chart 1: China Gold Imports from Hong Kong
But let's look at the net imports too, because gross imports don't tell anything.

Net imports were 62 tonnes in November 2012, up from 24 tonnes in October 2012. That's 62/91 = 68% of gold that China bought, excluding gold going from China back to Hong Kong. That's an increase from the previous month October 2012 where the percentage was only 50%.

So that means, China is buying with both hands now. I wonder what will happen in December, as the price of gold got crushed in December 2012. Probably even more buying!

Copper Contango Steepening

This week, the copper price kept rising with a higher contango, which is very unusual.

Something needs to happen soon, either the copper price is going to drop precipitously, or the copper price is going to shoot upwards with a declining contango.

I am still bullish on copper.

maandag 7 januari 2013

A little background on the effect of gold mining supply on the gold price

In a previous article I pointed out that the marginal cost of gold production including exploration, feasibility studies, construction, maintenance, production and taxes has doubled since 2009 up until now. That has placed a large burden on gold mining companies over this period. The result was a decline in the gold mining index (GDX) of around 10% since 2010. Even when the gold price steadily went up from $800 to $1600/ounce, there wasn't a lot of profit to be made by the gold mining companies themselves. This means that gold mining companies are very dependent on the gold price for their margins and profits. At the same time, I want to make a case that the gold price is also very dependent on the mining companies.

If anyone ever says that gold mining production isn't going to affect the gold price, you can use these charts to prove them wrong.

In 2012 we had 4000 tonnes of total gold supply per annum, while gold mine production was around 2812 tonnes per annum in 2012. That's a 70% interest of gold mine production as compared to the total gold supply.

If the gold miners continue to have lower prospects for production due to the marginal cost of production rising above the gold price (total marginal cost is currently $1500/ounce), then the supply of gold will drop. As a result we will see a rising effect on the gold price when this supply breaks down.

Mine supply had been going up since 1974 (Chart 1), but has peaked since year 2000. I believe mine supply is going to stay flat or even drop going forward due to decreasing ore grades and higher marginal costs of production.

(click to enlarge)
Chart 1: Annual Gold Production

To read more, go here.

zaterdag 5 januari 2013

If you own gold, put it all in platinum!

A recent interview with David Morgan told us that platinum is far superior now than gold. He says that all of platinum is being produced in Africa, which we already know. But they are producing at costs higher than the price of platinum, which we already know too. He says that the platinum to gold ratio is below historic levels and is much more scarce than gold, which we already know as well.

So if you do own gold, sell it and put it in platinum. If you don't believe me, believe David Morgan:

As an add-on from me though, I want to point out that platinum is being used by the automobile industry for car catalysts (around 60% of platinum is used for autocalayst in 2006). So it is important to look at car sales. And what do you know, 2012 was the best year for car sales since 2006. Ford is profiting!

vrijdag 4 januari 2013

Hong Kong Finally Starts Trading Silver

As you may recall, one of my first blog posts in 2012 was about me going to Hong Kong and trying to buy silver at Hang Seng Bank. They told me I couldn't buy silver, only gold.

Now, finally, an ETF started to trade silver in Hong Kong. As you can see in the article below, silver is becoming more and more important in the mainstream media. Investors are getting aware that precious metals have a key role in our society.

I bet you that there are a lot of Hong Kong people waiting to buy a load of silver in Hong Kong. And what's even more important is that these ETF's hold the real physical metal!

"ETF Securities on November 28 began offering three new precious metals exchange-traded funds (ETFs) on the Hong Kong stock exchange. The ETFs are: Physical Silver ETF, Physical Gold ETF, and Physical Platinum ETF. They track London benchmarks.
According to Fred Jheon, Managing Director and Head of Asia Pacific at ETF Securities, the firm is the first ETF provider to offer a suite of precious metal products to the Hong Kong exchange that are backed by the physical metals. The HK exchange currently has three other instruments that track gold, including GLD, the world’s largest gold tracker.
“We are pleased to welcome ETF Securities and their three commodity ETFs to the Hong Kong ETF market,” said Calvin Tai, Head of Trading at HKEx in a public statement. “The introduction of the first ETFs on silver and platinum will further enrich our product offerings in precious metals. These three new ETFs are also in line with our corporate strategy to diversify by adding asset classes to our equities and equities-related products.”
The stock codes for these new ETFs are: ETFS Physical Silver ETF (3117), ETFS Physical Gold ETF (2830), and ETFS Physical Platinum ETF (3119). HSBC will hold the bullion in their vaults and meet ‘good delivery standards’ set by either the London Bullion Market Association (LBMA) or the London Platinum and Palladium Market (LPPM), according to ETF Securities officials.
The annual expense ratios for these new ETFs are 0.39 percent for the gold ETF, 0.5 percent for silver and 0.6 percent for platinum."

donderdag 3 januari 2013

U.S. bonds hit 8 month low

U.S. bonds have finally broken down and from here on it's only going downwards as resistance is broken.

The funny thing is that Ben Bernanke has shot himself in the foot by telling everyone he's going to stop buying bonds at the end of 2013. The result, everyone flees U.S. bonds today. I guess Jim Rogers' call for a collapse in bonds was a hit right on the head of the nail.
The even odder thing we saw today is that the U.S. dollar went up 1% against the euro which is very contradictory. Normally the U.S. dollar goes down when the bond market goes down as seen in this correlation. So I think this is a temporary phenomenon. U.S. dollar strength won't last long with a weak bond market. Max Keiser is even predicting the end of the U.S. dollar in 2013. I think he's onto something.

If the Federal Reserve really were to stop buying U.S. bonds, bond yields would spike, mortgage rates would spike. The debt burden would increase tremendously with higher yields, which will bring interest payments much higher. If interest payments go higher, the budget deficit will increase when social security, defense, health care, education and pension spending isn't cut. Higher budget deficits asks for higher taxes to reign in the budget deficits and that will make stocks decline. That would lead to a start of a depression era.

You would think that the U.S. dollar would strengthen, but how can a currency strengthen with an exponentially higher debt burden and higher interest payments? It can't. First, the bond holders need to lose big before a recovery can even start. The only true safe haven will be precious metals.

woensdag 2 januari 2013

Update: Copper Contango Experiment

Copper just made an all time 3 month high at $3.72/lb since late September 2012. It went up 6% in just one day on positive PMI from the UKKorea, China, Taiwan and India. All of the PMI's are above 50 which indicates expansion in GDP growth. Meanwhile, U.S. bonds fell off a cliff to 1.84% yield on the 10 year treasuries. It's not long now before we will see an increase in the velocity of money and come into an inflationary period.

The rise in copper price also proves that the contango theory is valid.

But rest assured, there is much more to come in the following months as today's contango report for copper indicates that contango is still very high and hasn't dropped yet to backwardation, so I expect a further increase in the copper price.

dinsdag 1 januari 2013

2013: The Rise of Asia

We just had news yesterday that China's PMI went positive to 50.6, even by the standards of HSBC. This means that the GDP growth per year of China is going to increase. It is estimated that China will have a GDP growth above 8% in 2013.

I think that's going to be a certainty. We can already see that base metal prices are rising as I pointed out the correlation between China PMI and base metal prices in this article.

I believe the copper price is in break out mode (Chart 1).

Chart 1: Copper Price
The iron ore price is increasing again after one year of downtrending(Chart 2).

Chart 2: Iron Ore Price
Shanghai real estate prices are soaring to new one year highs (Chart 3).
Chart 3: Shanghai Real Estate
Even the Shanghai Composite has made a big shift upwards after a multi year decline (Chart 4).
Chart 4: Shanghai Composite
And all of this is because the U.S. is in big trouble due to the unsterilized buying of bonds through plain money creation out of thin air and expansion of the federal reserve balance sheet. This unsterilized buying is the most inflationary action the federal reserve can take. It is even more inflationary than the ECB's sterilized Outright Monetary Transactions (O.M.T.) buying of European bonds. That is because the money supply doesn't increase when you perform sterilized buying, while unsterilized buying increases the money supply. Then we have the fiscal cliff which will be an enormous burden on the middle class citizens in the U.S. It is estimated that the 3% GDP growth will at least slow down to 1% due to the fiscal cliff situation. And don't forget the debt ceiling, which is already taking its toll on government workers in the Pentagon.

This is why the money is flowing to other assets in this world (Asia) and even into the euro right now.

We need to acknowledge that the U.S. doesn't have any bullets left at this moment...