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.

Gold Lease Rates Starting 2008 Ramp Up

This is not going to end well for gold shorts.

1 month lease rates are higher than 12 month lease rates.

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.

U.S. Debt Hits $18 Trillion

And here we are, the U.S. debt has almost reached the 18 trillion number.

Say goodbye to $17 trillion.

And debt and gold always go together.

Goldbroker.com Interview with Marc Faber

A new video with Marc Faber to add to the archive.

- Marc holds gold, likes silver, platinum, palladium as currencies.
- Marc expects that the U.S. dollar won't be strong due to further monetary easing from the Fed.
- Doesn't expect Swiss gold initiative to move the market.
- Isn't comfortable in bonds, cash and stocks.

Swiss gold referendum poll results in weird trading

A weird lag.

First the euro spikes with lower gold prices due to the new results of the Swiss referendum.

=> 38% yes, 47% no, 15% undecided.

Then the euro comes back down (blue chart). Then 20 minutes later, gold spikes back up (red chart).

Can you call this normal trading?

Look how silver is actually higher now.

APMEX junk silver sold out

I'm sorry, but you can't get silver anymore... too late.

Junk silver all sold out. Now I can't even make my silver premium charts anymore.

Managed Money Shorts Gold/Silver Update

I was forecasting a short squeeze last week when managed shorts were topping out. Looks like silver started to initiate one this week as shorts started to come down.

 

Gold is still lagging, but I suspect a short squeeze in gold is imminent. $1250/ounce is our target next week. Silver is leading gold here.

Note how beautifully correlated the large commercials are with the managed money short positions.

GOFO rates hit record lows

Just to remind you that GOFO rates are sinking fast. I expect a V-bottom reversal in the price of gold. That's a 14 year low in GOFO. Another catalyst is the Swiss gold initiative which will boost gold to $1350/ounce if it passes end this month (as Bank of America Merrill Lynch says).

1 month GOFO:

6 month GOFO rolling over:

A lot of stress building up in physical gold when you look at lease rates. Look how the different maturities now converge together. This typically is a sign of a bottom.

World Gold Council Publishes Q3 2014 Demand and Supply Gold

The WGC posted the Q3 report on gold supply and demand today.

The highlights were that gold demand fell 2% yoy to 929.3 metric tons. This was obvious because Chinese demand declined earlier, (but is now rising again). See how in July till September 2014, the demand was low, but creeping upwards. The Q4 gold demand numbers will be much better.

But the most interesting is that total supply fell 7%, more than the 2% decline in demand. Total supply was 1,047.5 tons. Mining output still went up 1% at 797 tons, but that's obviously going to go down in Q4. The decline in supply was mostly attributed to the decline in recycled gold. That's because the common investors don't sell gold at these low prices.

So the demand and supply numbers are slowly creeping towards each other until we go into deficit soon. In silver we already have a deficit.

First Majestic Silver has no reason to exist

First Majestic Silver just announced 3Q earnings. The following part in particular is interesting.

• All-in sustaining cost ("AISC") was $19.89 per payable silver ounce, up 9% from the prior quarter. 

Why you say?

Because of this:

So technically the company has no reason to exist anymore as they sell silver at AISC mining costs, unless they're into charity.

Which one will collapse: USD or U.S. bond yields?

An arbitrage opportunity has come up on the forex and bond market. The USD has strengthened so much that something has to give. Either the USD (red chart) will collapse or U.S. bond yields (blue chart) will collapse.

I have the feeling the U.S. bond yields will collapse. That also means stocks will collapse as people will sell stocks to get into bonds..

Dividend Yield Vs. Bond Yield

It pays off to compare the dividend yield and the bond yield in the U.S.

A very long time ago, before 1970, dividend yields on stocks were on average priced at 120% of the triple AAA bond yields. So if a bond gets you 10% return, the dividend yield would get you 12%. That's because stocks can default and are riskier than bonds which are less likely to default.

But since 1970, this has changed.with the rise of mutual funds. The ratio of dividend yields versus bond yields dropped to around 20% (see chart below). Today we are at 100% so we are back in line with history (with stocks just a little bit overpriced). Just keep in mind that we have the 120% rule and try to follow this rule (to keep your sanity in these volatile markets).

U.S. bond yields can be found here:

Dow Jones dividend yields can be found here. Buybacks can be found here.

Monitoring the Foreign Gold Deposits Held at Federal Reserve Bank of New York (FRBNY)

With repatriation of gold in the picture, especially when the Swiss gold referendum vote comes in a few weeks to repatriate their Swiss gold (30 November), we need to keep an eye on the gold deposits at the Federal Reserve Bank of New York.

Each month they issue this report of gold deposits at the FRBNY.
http://www.federalreserve.gov/econresdata/releases/intlsumm/forassets20141031.htm

The value of the gold deposit is calculated at value $42.22/troy ounce.

Take an example September 2014: 8305 million USD of earmarked gold.

So you first divide 8305 million USD by $42.22/troy ounce and then you convert it to tonnes. You get 6118 tonnes.

Now we chart it out over two years and we see that people are not deposition gold in the U.S. Instead they are pulling out their gold from the U.S. FRBNY at a very fast pace. I expect this to accelerate till there is no gold left in the U.S. or something breaks in the rehypothecation scheme.

This is what it looked like in the past. If you take a good look, you will notice that gold repatriation typically occurs when there is a recession.

Insatiable demand for gold and silver from both East and West

In the last few weeks we have seen a huge drop in gold and silver (see charts below from Kitco).

As a result of these price drops we have seen huge demand coming in from both East and West.

To read the analysis, go here.
 

APMEX Silver Premiums Soar

What could happen in 3 weeks of holiday? Apmex premiums can spike from 20% to 30%. Junk silver spike from 5% to 20%. I went to Apmex site and they only have 2 bags of junk silver left. That's because the U.S. Mint sold out of silver.





But this is only temporary, as Shanghai silver premiums are showing a decline from 14% to 7%.



Shanghai gold premiums even went negative.


Gold premiums on Apmex are pretty normal and even declined a bit.