11 November 2014

If gold in a forest is withdrawn by a wholesaler and no one is around to buy it, does it make the price move?

One project I’m currently working on at the Perth Mint is the replacement of our website. This involves topics like SEO, “authority”, page rank etc and how to achieve such. It’s hard not to get cynical about it, particularly when you come across tips for “Ultimate Headlines” like:
  • Maximum character count is 65 before being cut off in search results
  • Numbers + Adjective + Target Keyword + Rationale + Promise; Ex. 10 Simple Steps You Can Take Today That Will Make You Happier
  • [Adjective] & [Adjective] [SEO Keyword Phrase] That Will [Highly Desirable Promise of Results]; Ex. New and Useful Content Marketing Trends That Will Drive You More Traffic
I probably should have chosen “The Shocking Truth About Gold Demand That Will Explain Gold’s Price Action” for the title of this blog post, but I decided to go with something cryptic (based off If A Tree Falls) that ignores the rules as part of my ongoing policy on this blog of writing stuff that most people don’t want to read.
 
As has happened every time gold has experienced a large fall in the past, most of the gold blogosphere was out with their reassuring talk because that is what sells – confirmation you made the right decision. Central to a lot of that was the idea that “real” demand was shockingly high. Before I address that, some off-topic ramblings to get out of the way:
 
Ramble #1: To answer my own question, no, Comex kilobar withdrawals don’t “works as an indicator of a bottom” in the medium term :P Whilst I did note a lack of “any positive narrative developing around gold that would drive big fund money” and that “the strong dollar story is the biggest risk to gold breaking $1180” the fact is I didn’t call the drop, primarily because Perth Mint was still seeing good kilobar demand and premiums and I thought that the Chinese would be enough to support the market (kilobar premiums have increased on this drop BTW, so recent Chinese demand stories are not just permabull BS). It seems my advice on the 18th of September that “you might want to trade against” my call, was the right trade. Anyway, I’ll continue on with my “predictions” not because I’m trying to be a guru, but to provide an alternative view using data points (eg kilobar premiums, market narratives) that others don’t which you can factor into your own decision making process.
 
Ramble #2: If you’re not seeking reassurance, which probably means you bought gold for insurance and it is only has a modest weighting in your portfolio, these posts are worth reading for an alternative to the current permabull memes:
Ramble #3: Steven Saville of The Speculative Investor has started a blog which includes debunking like this and this. Added to my RSS feed list and recommend including in you reading list.
 
Ramble Ends
 
One of the most enduring permabull memes is the physical-paper disconnect. I’d suggest what the permabulls are now experiencing with their declining sales/subscriptions and need to turn off comments on their blogs/forums is a permabull-price disconnect. The gold price has disconnected from their constant stories that “demand” for gold is strong. The readers are asking questions and thinking heretical thoughts.
 
The problem stems from a simplistic idea of what demand is, as well as selective focus on positive demand reports and ignoring negative reports. The game of internet marketing requires dumbing issues down into 65 character headline stories easily understood by lay readers. Taking a nuanced approach by delving into the detail is counterproductive because it introduces ambiguity and requires the reader to think, hard, when what they want is comforting reassurance. It just leads down a path with lots of unanswerable questions and denies the writer the ability to craft dramatic self-assured headlines.
 
As an example, consider the difference between wholesale market withdrawals versus end consumer demand. The point of the headline to this post is that withdrawals by a wholesale participant (eg jeweller) may or may not be reflective of demand that will actually affect the price. If the purchase by the wholesale user is offsetting sales to consumers, then the wholesale movements are reflective of price-affecting demand. However, if the wholesale user is stocking (or destocking), then they would hedge that acquisition and the impact on the price would be zero. How much of the Comex or SGE movements are price responsive or price neutral? We don’t know for sure.
 
For an example of this issue, consider the World Gold Council’s quarterly Gold Demand Trends report. This has two jewellery demand figures – fabrication and consumption (which “is equal to fabrication plus/minus jewellery imports/exports plus/minus stocking/de-stocking”). It is worth also looking at page 16 of the 2014 Q2 report where they discuss the difficulties of estimating supply and demand figures, highlighting the difference in Chinese jewellery fabrication demand between CPM Group, Metals Focus and GFMS.
 
Then you have the issue of manipulation, where someone could move stock between visible exchanges/warehouses and OTC opaque vaults to give the impression of strong demand or excess supply. Then add in the use of gold in speculative cross-border arbitrage or commodity financing deals and we have some uncertainty as to what "real" demand is.
 
The above is the reason I don’t look at total Comex movements and instead focus on kilobar movements only, as it is a highly specific product in demand in a specific region. Even so, it is not an entirely reliable metric, although I suppose I should follow the fashion of the day and instead of blaming myself, blame the bullion banks who found out I had shone a light on their otherwise secretive activities and when their dis-info agents failed to convince people that my kilobar theory was wrong and the suspiciously rounded figures were just fraudulent, they purposefully moved kilobars out of Comex into their unseen OTC vaults to discredit me and stop people from paying attention to the numbers.
 
Finally, even if we could get accurate figures, as Robert Blumen explains in this excellent article, quantities demanded (and therefore supplied) have “no causal connection with the gold price”. The problem with Robert’s analysis for our permabull writers is that his true drivers of the gold price - supply and demand schedules – “are not scalar quantities and cannot be measured; they can only be observed indirectly through the gold price itself”. Ouch, that won’t do, the price fell and they need analysis that proves the falling gold price was “wrong”.
 
I would take issue with Robert’s statement that investor schedules can’t be measured – on exchange traded products the depth of bids and offers, and how they change over time, give some limited insight into these preferences. Unfortunately such data in the gold market is limited, but highly important. Consider if you heard that a quantity of one home was bought in your street for $100,000 during the last month. That is useful, but it would be more useful to know that only one home was up for auction during that period and there were five people bidding for it. However, your view of that one $100,000 sale would change if you were told instead that three homes were auctioned and there were only one or two bidders per home.
 
Robert’s article also addresses the flow/stock issue, which I covered in this post noting that “what drives the gold price I would therefore argue, is not so much demand, but to what extent existing holders of the 170,000t will withhold it from the market”. Even so, the price as set by the marginal buyer and marginal seller affect, in sort of feedback loop, the behaviour of the existing holders. For example, everyone in the street sees that one $100,000 sale and thinks their home is worth around $100,000, but should a fair proportion of them attempt to sell their homes, the chance of them all getting $100,000 will be slim and the price would fall. That might not happen if they had information that the number of homes auctioned was three and the number of bidders was poor.
 
I also think that while Robert is logically correct that quantities have no causal connection, he is underplaying the fact that people believe they do, or probably more accurately, people believe everyone else believes they do. Robert also notes that “trading continues because people are always changing their minds about what they want to own” but his article doesn’t consider what influences people to change their minds.
 
The conclusion is that the relationship between price and demand is complex and ambiguous, subject to feedback loops and human interpretation. That is why I’ve taken to Ben Hunt’s game/narrative theory approach.
 
So where are we now? While we have seen reports of retail demand surges, mostly silver, and the Perth Mint’s kilobars premiums have moved up from previous strong levels, the fact is that Western professional market selling has overwhelmed China and other sources of demand. Perth Mint has seen a little selling from Depository clients, but nothing of note but not any surge in buying. We are not getting the same retail reaction we did on the April 2013 drop. From a technical point of view I get much confidence in drawing lines from chart levels over 5 years old – investor circumstances/perceptions have changed. Until we see Western money move back into gold we won’t get any sustained and meaningful price move. On that front the pro market narrative is all negative:
 
Bloomberg: “There’s just not one typical investment idea that’s supportive to gold right now,” George Zivic, a New York-based portfolio manager at Oppenheimer Funds Inc., which oversees $245 billion, said by phone Nov. 5. “With the potential of rates increasing, dollar appreciation, it becomes synthetically expensive to hold gold as some sort of a portfolio hedge. And then you have the reality of no real concerns of inflation.”
 
Mineweb: Half of the 27 respondents surveyed on Wednesday and Thursday predicted gold prices will breach a critical support at $1,100 per ounce by the end of this year. ... "U.S. dollar strength should impact gold on a short-term basis," said John Meyer, analyst at brokerage SP Angel. ... "The drivers of a sustained rally in gold are ephemeral at best," said Tai Wong, director, metals trading at BMO Capital Markets in New York. ... "The mood of investors could not be more bearish for precious metals," said Thorsten Proettel, commodity analyst at LBBW.
 
I quote these guys not because I think they know what they are talking about, but because this is what similar pro investors are reading and what they think everyone else thinks about gold. On that basis the outlook is poor and in uncharted territory. Sorry. We’ll just have to sit and watch how this plays out over the next few months.

37 comments:

  1. The article doesn't answer these Parables of The Gold Bugs

    The Gold bugs believe China has purchased over 1500 tons during the last year. True or False ?
    If so from whom ? Such volume and still in a price descending market ?

    What sort of financial institution would try its hardest to flash dump gold to achieve the lowest possible price - Any ideas ? Then if at first you don't succeed than do it 50 more times ? Same institution ? Has any institution openly and publicly reported such a policy ?

    ReplyDelete
  2. This is an outstanding post Bron! If getting to this level of clarity and insight comes at the cost of lesser quantity of posts, then I say carry on with the sporadic style!

    Outside this oasis of calm, the infighting and factionalism is reaching new heights of rancor - the Trader Dans on one side and the myriad bug sites on the other.

    You have revealed the key element I do not see anyone else talking about - that this drop did not replicate your situation of 2013! At which time you said-

    "The most interesting thing about this price drop is the reaction of retail clients, who have gone crazy like its 2008."

    I have read somewhere that Perth is not seeing the kind of bump in coin sales that US mint and Germany have experienced post slump - and that some are attempting use as evidence of 'massive demand." Any thoughts on why the difference in regional demand patterns?

    By the way - "Taking a nuanced approach by delving into the detail is counterproductive because it introduces ambiguity and requires the reader to think, hard, when what they want is comforting reassurance" - that was perfect! PURRRFECT!

    ReplyDelete
  3. Bron--- Here are nine points I thought you’d like---

    1. I’m assuming this post was written in order to admit your gold price predictions were BS and worthless?

    2. You also admit you know nothing about gold price movements?

    3. Your obsession with “correlating” different events to gold price, ie, Comex withdrawals/gold price, is just pissing into a fan?

    4. Your statement: (“…that ignores the rules as part of my ongoing policy on this blog of writing stuff that most people don’t want to read.”) ….completely sums up this entire blog? That it’s babbling nonsense?

    5. This statement you made was funny: (“Anyway, I’ll continue on with my “predictions” not because I’m trying to be a guru, but to provide an alternative view using data points…”) ---Why not use some idiotic correlations for entertainment value? ---I know!---To fit in with your “forest theme”, you could correlate the growth rate of moss on the left side of Brazil Nut Trees in Peru to the price of gold!---I think that has as much chance as an example of a reliable indicator as your BS ,“nuanced”, kilobar withdrawal theory.

    6. After babbling on and on in this ridiculous post, you write “…outlook is poor and in uncharted territory. Sorry. We’ll just have to sit and watch how this plays out over the next few months.”---I know you’re trying to save face, but ---This is what passes for your outlook? What kind of crap is this?

    7. So, now---you’re bearish again? What’s the “narrative”?---LOL!

    8. Where’s your “nuanced” prediction?---LOL!

    9. Maybe we need another one of those videos on gold bar movements---LOL!

    What a Moron!

    ReplyDelete
  4. @ Les Wilk:

    Have a look at this table from the China Gold Yearbook 2013 (only released in hard copies written in Mandarin).

    https://www.bullionstar.com/blog/koos-jansen/wp-content/uploads/2014/11/Supply-Chinese-gold-market-2013-China-Gold-Yearbook-2014.png

    2013 total Chinese supply (= demand) was 2199 tonnes.
    2013 Chinese net import was 1507 tonnes.
    2013 Chinese scrap was 247 tonnes.
    2013 Chinese mined gold was 445 tonnes (428 tonnes in China, 17 tonnes abroad)

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  5. Les Wilk,

    Perth Mint probably accounted for 15% of that 1500t China import. Given the sort of turnover levels the gold market has and the size of above ground stocks I don't see why you consider it a number that is unrealistic or why it is not compatible with a falling price if western pro market investors have been selling.

    As to the "dumps" Dan Norcini has dealt with this. It can be manipulative stop triggering but also consider pro market shifting big dollars out of commodities into equities or whatever then they can often not have the time to stagger their large (for the gold market) order in as they are losing out on profits on whatever momentum trade they want to get into. The loss on gold may be offset by gains on other investments. Then you have automated HFT with similar considerations.

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  6. Anon,

    We have seen some demand out of US and Europe but again, nothing like 2013 drop frenzy. We don't run out of blanks like US Mint because we make them ourselves rather than having to source them. I wouldn't read too much into these stockouts as it just reflects the mints running low stock which is not surprising given how poor demand has been generally over the past year.

    There has been a lot of chatter about negative GOFO but I can't say we've seen desperation for physical. Hopefully it is a good sign of a bottom, has been in the past (saw and article noting 3 out of past 4 times neg GOFO was followed by price rise).

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  7. Jake, are you the one who used to post inane little ditties here?

    I suppose we should consider this an upgrade. A word of friendly advice though - if you're really intent on becoming the Village Idiot here, do give more careful thought to your sign off - MORON - otherwise we are likely to take you at your word!

    ReplyDelete
  8. @ Bron

    As an example, consider the difference between wholesale market withdrawals versus end consumer demand. The point of the headline to this post is that withdrawals by a wholesale participant (eg jeweller) may or may not be reflective of demand that will actually affect the price. If the purchase by the wholesale user is offsetting sales to consumers, then the wholesale movements are reflective of price-affecting demand. However, if the wholesale user is stocking (or destocking), then they would hedge that acquisition and the impact on the price would be zero.

    Do you, like GFMS, think all the differences between WGC demand and SGE withdrawals are jewelers/wholesalers stocking? This amounts to 2,000 tonnes from 2008-2013.

    ReplyDelete
  9. Babbling Bloggers Like Bron Know They Have No Clue What They Are Saying:

    Example--He says, "The point of the headline to this post is that withdrawals by a wholesale participant (eg jeweller) may or may not be reflective of demand that will actually affect the price....How much of the Comex or SGE movements are price responsive or price neutral? We don’t know for sure."---He thus, has it "both ways"---He never adheres to any strong opinion of facts and gets away with it in this worthless blog because the purpose of this blog is to babble un-endingly about BS and nonsense.

    He should, instead use astrology---that would prove to be a better indicator than his ridiculous ramblings.

    Here's another example of his babbling nonsense that attempts to be on both sides of the issue: he says, "The above is the reason I don’t look at total Comex movements and instead focus on kilobar movements only, as it is a highly specific product in demand in a specific region. Even so, it is not an entirely reliable metric..."---He says he "focuses" on kilobar withdrawals but admits it's a worthless indicator. He continues to post stupid notions about how gold prices have bottomed based on kilobar-krap and yet, gold has continued to remain below his bottom call for almost two months.

    Thus, this garbage blog ranks lower than the most hypey nonsense crap posted at Silverdoctors/TFMetals,KWN/SGT/Jim Willie/Mike Baloney/David Morgan,Etc, Etc.Etc.

    So Bron?---What's your worthless prediction for gold now?---Where will it be in month/year/5 years?

    ReplyDelete
  10. Bron, as usual, wallows in the inconsequential world of the unimportant when he says, "For example, everyone in the street sees that one $100,000 sale and thinks their home is worth around $100,000, but should a fair proportion of them attempt to sell their homes, the chance of them all getting $100,000 will be slim and the price would fall. That might not happen if they had information that the number of homes auctioned was three and the number of bidders was poor."

    Bron, there is nothing important until price discovery is achieved you idiot. Price tells all. Several bidders/one bidder/100 bidders---Who Cares?

    Information in the markets of today---ESPECIALLY GOLD---is meaningless when manipulation/ghost bids/ flash crashing/raids during times of thin markets/etc,etc,etc happen each and every day.

    In the end, price is the result anyway, no matter what happened to get there. Your idea that the $100,000 home price discovery is somehow different when bid/ask activity is quantified or not is meaningless. The end result tells all. Tomorrow, things and conditions are different anyway.

    This analogy can not apply to gold markets. There is no way anyone can know what effect will result because there is a lack of free price discovery.Without intervention from criminal banksters, your premise might be correct, but only if there was honesty and oversight by an independent agency.

    Additionally, your home analogy comparison is, of course, worthless because homes don't trade like stocks/bonds/gold. Also, value is almost always not driven by speculation. In fact, your worthless analogy works better when the fed intervenes and drives interest rates down in order to goose housing markets beyond rational values.

    At this point, because homes are not viewed by speculative buyers in the same way as buyers who actually want to live in them, they would tend to trade in a manner closer to your comparison.

    However, I think I've adequately described how you have no clue about anything, much less gold markets.

    This, again, proves how worthless this blog is.

    ReplyDelete
  11. Bron goes on to show how much of a mental midget he is by saying this, "The conclusion is that the relationship between price and demand is complex and ambiguous, subject to feedback loops and human interpretation."

    Price in gold markets is not determined by supply and demand because of bankster manipulation you idiot!

    Of course it looks ambiguous and complex because trading in gold markets is by definition irrational, you moron!

    Are you really this dumb?---ANSWER: YES

    When will you bankster defenders admit that gold markets are manipulated and are not trade-able or predictable? Of course, nothing in markets is predictable, but fundamentals mean nothing due to constant bankster interference.

    Of course, for me, this is an academic exercise because paper pricing is meaningless.

    But Bron insists on treating gold/silver markets as if honest people trade and oversee it. So Bron, how dumb are you? ANSWER: Probably Really Dumb!

    More on this subject later--

    ReplyDelete
  12. More nonsense from Bron here:

    He says, "Until we see Western money move back into gold we won’t get any sustained and meaningful price move...."

    What's "Western Money"?--Fed interventions?---Regular people buying?---Come on!---Less than 1% real people have any interest in gold. That percentage has never changed.

    If the banksters/Fed let the gold price reset as a direct result of paper printing without manipulation, gold paper pricing would reset significantly higher. Who knows what level would result. Who cares?

    Gold/silver will never be allowed to "reset" until the banksters can no longer hold it's paper price down--it's as simple as that. Basically, the fed has been given the green light to lie about its true paper price due to a total lack of oversight and regulation. Why is this so hard for the bankster defenders to realize?

    When the price can no longer be manipulated down, it'll go up---but so what? Will you want the paper equivalent?---ANSWER: NO

    IS Bron an idiot?
    ANSWER: YES.
    He then says, "On that front the pro market narrative is all negative"

    What "narrative"? Bloomberg? CNBS? Mineweb?---LOL!

    So---Bron is saying that narratives move gold prices?---Really? Who?---Maria Bartoromo? Marc Faber? Mike Baloney?--Jim Willie?

    Okay---So---You're an idiot...Okay, I can accept that...But I think you might be dumber than you think.

    More on this subject at a later time---

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  13. Again---Here's Bron taking both sides of the issue:

    He says, "I quote these guys not because I think they know what they are talking about..."

    Bron---Then why quote them?---according to you, they're "part of the narrative"---WHAT EVER THAT MEANS. ---Wait---I'll tell you what it means---It means you're an idiot. You say they're meaningful but they're not quotable?--- They're important, but they're meaningless?---LOL!

    Okay, so you say that the narrative needs to be followed, but only if it fits with BS right?---Is there a "narrative" regarding manipulation?---On no oversight---On no regulation?---On bankster corruption?

    I guess you overlooked that right?

    Bron then says,
    "...but because this is what similar pro investors are reading and what they think everyone else thinks about gold."---HUH?

    What true pro investors---if they still exist, are listening to and forming their opinions based on idiotic babbling from morons on Bloomberg/CNBS?

    UNREAL!---So---How much more garbage can be crammed into an idiotic blog post that Bron writes?---I dunno!---Maybe Bron can spew infinite BS and nonsense?
    ANSWER YES!

    ReplyDelete
  14. Manipulation undeniably exists but it is not something done only by a handful of rogue traders working for bullion banks. Instead, it is institutional in nature and is supported by GOVERNMENT as evidenced by the inactivity of regulators.

    There's only one form of manipulation that matters: the ability to issue paper contracts, both short and long on the way up AND down, without the necessity of having unencumbered physical bullion in storage for each contract, for the life of that contract.

    When the price-setting role of the futures exchanges that enable this is removed, THEN true price discovery may be possible.

    But governments certainly won't allow THAT.

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  15. Paper price predictions are meaningless because paper prices will continue lower until the trading volume is so low that it makes no sense to trade. When trading volume is so low that no trader (bankster) will take the other side of the trade, no more activity will occur.

    Once volume drops to near zero, paper trading will come to a complete halt. Meanwhile, physical prices may be relatively high. As a result,banksters will finally realize they can't make any more paper money trading metals, causing the big metals reset. Only then will we see real metals pricing.

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  16. Koos,

    "Do you, like GFMS, think all the differences between WGC demand and SGE withdrawals are jewelers/wholesalers stocking? This amounts to 2,000 tonnes from 2008-2013."

    I think when you are talking about a country where the gold market grew massively then yes there has to have been an inventory build happening - more jewellery stores, more manufacturers means more gold tied up in shop and factory floors.

    Eyeballing Chinese imports from HK 2008 to mid-2011 it was averaging about 5t a month, then it shot up to minimum of 30t to months of 100t during 2013. That is a pretty big jump in the size of the market (using an imperfect indicator). 2000t over 6 years = 28t a month, which seems excessive for just inventory build but that is a guess as I don't have a handle on current industry inventory levels.

    However, if we consider that the SGE-WGC Consumer gap would also be affected by commodity financing and other gold finalisations uses, then not all of the 2000t when into the industry value chain.

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  17. Bron, im not an expert by any means, but i wanted to ask one thing. The manipulation story is cosidered to be "crazy conspiracy theory" but at the same time we have a system (correct me if im wrong) where price is determined not on the physical market but on the derivatives market. It should be that the price of a commodity is determined on the actual physical market (where if you sell you HAVE to deliver and if you buy you HAVE to take delivery) and then on top of that you can run derivatives for hedging or speculating or whatever, but the derivatives should derive its price from physical. This is the only way to get real, honest pricing. But we have it totally backwards, the actual commodity is paper contracts (selling or buying them is what moves the market) and physical metal is "derivative product" that derives its price from paper. If so, then isnt this system manipulation by definition?

    And yes, i know that there is some link between paper market and physical, you can demand delivery in some sircumstances if you meet all requirements etc but its common knowledge that its less than 2% real metal actually moves, someone demands delivery or something. How can we expect to get "honest" pricing in that type of system?

    As i said, im not an expert by any means so feel free to set me straight.

    ReplyDelete
  18. Anon,

    I don't think manipulation is considered "crazy conspiracy theory" and I certainly have not said so. I have an issue with price suppression (by definition, long term and ongoing) but not manipulation (short term) as in traders acting illegally or unethically (eg trading against their client if they are a broker).

    However what you are talking about is, I suppose, a "structural" manipulation market set up. I get your point about paper speculative trading dominating real physical transactions, but I'm not so sure this is manipulation.

    Physical is bound to paper by arbitrage, but the effect can work both ways although the size of paper market means it dominates most of the time (both up and down).

    Derivatives, in whatever form, are basically just leveraged trading. You could ban all futures, forwards, options etc yet speculators could still effect the same result by just borrowing money and buying gold (or borrowing gold and selling).

    In effect what you are saying is that it should be illegal to do any leveraged trading in gold. I am uncomfortable with that as it is very dictatorial/nanny state, completely against free market libertarian values that many goldbugs hold.

    Also, even in functioning commodity markets with dominant physical trading, physical warehouse movements are still quite low because real producers and real consumers use futures to hedge their risk - they don't actually use futures as places where physical is exchanged. This is a common misunderstanding of how "honest" futures work.

    This probably deserves its own post and more time than I have now, but if you want to understand more this is a useful paper:

    THE ECONOMICS OF COMMODITY TRADING
    Craig Pirrong, Professor of Finance, Bauer College of Business, University of Houston
    March 2014
    http://www.trafigura.com/site-information/corporate-brochure/trafigura-whitepaper/

    ReplyDelete
  19. Bron, thanks for your reply and i will check out that paper to try to get a better idea of why and how things work.

    I just wanted to add that basically what i was saying is not that you couldnt borrow money to buy gold or borrow gold to sell it (as far as its the real thing) but that the pricing should be bound to actual commodity and derivatives should be for hedging or speculating only and not affect the price in any way. Basically if i go to a race and bet a huge sum of money on some horse then that bet should have no effect on that horse performance. If that bet actually makes that horse win, then something is really wront with that.

    Maybe i dont undestand correctly how things work and in that case i apologize for my stupid comment.

    ReplyDelete
  20. It is not possible in a free market for futures speculation to not affect real commodity prices.

    Say a lot of people want to bet on higher gold prices, more than the number of people who want to bet on gold falling. Supply/demand will result in the higher price bettors bidding up the futures price. The gap between the futures price a real physical gold will get really big.

    This will result in people who don't want to bet on gold prices saying "hey I can make money from this big gap" and they will do two things:

    1. Go short futures
    2. Borrow cash and buy gold

    At the end of the futures contract the long will give them money which they use to repay the cash loan and they deliver the gold they bought earlier. They don't lose or gain if the price moves as they locked in their profit when they bought the gold.

    Step 1 will result in the futures price decreasing a bit and step 2 will result in the real gold price increasing. They will keep doing this until the gap comes down to the amount of interest (and storage of the gold) on the loan.

    This is the way futures pricing and activity affects the physical market. There is no way around this.

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  21. Bron Says, "...I have an issue with price suppression..."

    That's why Bron is a Bankster Defender and of course, an idiot. Fines have been imposed for this on Banksters, but Bron has no issue with it. ---UNREAL!

    This renders this blog worthless.

    Then he says, "...yet speculators could still effect the same result by just borrowing money and buying gold (or borrowing gold and selling)..."

    Yes---in fact, because this would be more transparent to market participants and couldn't manifest itself into what passes for speculation today at 100:1 leverages, resulting in flash crashing during times of thin markets, insufficient delivery supplies of physical gold would not only be easier to detect, but would threaten to halt the system with smaller gold price moves.

    Thus, this would facilitate more honesty in trading, but not alleviate it entirely.

    In an honest market not dominated by banksters, futures, including gold futures, should be available to users and suppliers of gold to smooth out price moves created by demand
    spikes up and down throughout the year.

    Physical should be available and bankster contract concentrations should be regulated. Margin increases should not be used to suppress price rises or to goose price falls. Banksters should not be able to trade against their own client positions, front-running and ghost bidding/faking etc...

    However, governments are scared that gold prices will expose paper ponzi schemes---Therefore, they must employ banksters to carry out price suppression schemes, you idiot!

    It's as simple as that Bron!---

    What if gold prices were allowed to reset to a proper paper pricing based on demand created by people's awareness of debt created by paper printing?---Prices might go back to $2000--- (The level doesn't matter--- it just matters that we all know it would reset higher),

    Don't you acknowledge that this would show itself as an indicator to the common zombie voter that, maybe too much debt exists and the ability to pay it back is impossible? ---Of course not!---because you're a bankster defender.

    And you don't see or admit this because you're stupid---And it's as simple as that.

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  22. "However, if we consider that the SGE-WGC Consumer gap would also be affected by commodity financing and other gold finalisations uses, then not all of the 2000t when into the industry value chain."

    Hello Bron, surely the difference is also attributable to wealthy Chinese investors taking delivery and storing gold in private vaults. The WGC would have no way to measure this demand.

    Much like how WGC measures UK demand as just a few tonnes each year, yet hundreds of tonnes were imported annually in the years up to 2013. This gold was being imported and stored in London by Western investors (I'm assuming the central banks who've been net buyers of gold since 2010 aren't the ones to be storing it in England... Russia etc).

    Thanks for the new sources of information.

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  23. That could be a factor, it all depends on the WGC's process for working out consumer demand. The private storage buying would still have to be done via a bank so it depends if the WGC surveys banks for a breakdown on how much of the bank's gold sales were to individuals vs company purposes.

    The problem with all this demand and supply data is that it is based on official stats plus surveys and estimates.

    This is clear if you look at WGC's demand reports over time, as they revise past figures continually. That is a post I have in my to-do list - some of the adjustment can be big, yet the WGC never says their most recent quarter figures have a +/- variability, the figures are implied as if they are accurate and locked in.

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  24. Bron, have you been able to reconcile WGC data with the hundreds of tonnes that used to flow into UK each year and what is now flowing out?

    One recent post by Koos quoted a Chinese official (CGA?) explaining the discrepancy between their data and WGC was due to methodology, and that theirs was more encompassing. WGC data was based on data from "gold shops" I think he said and therefore retail consumer demand, not the big money buying kilo bars.

    I suspect that what really drives the gold price, cycles of investment and divestment are not really captured by WGC at all and can only be elucidated from national import and export data and maybe Keith Weiner's analysis, which has been very impressive.

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  25. I haven't had the time to do that sort of analysis.

    Re WGC unfortunately there is absolutely no indication of how they go about getting to their numbers, which makes it hard to assess where the gaps may be but the big gap on Chinese consumer demand between them and the other two firms shows there is a wide margin of error.

    Keith's work is very good as it relies of observable prices but there is still some guessing involved at what is driving the change.

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  26. Jake (you resident blog idiot and goldbugger), how much have you lost? I'm short GLD, and perhaps enjoying some of your losses as my profits.

    More seriously, get a life, you dumbass. Bron is a sane voice in the land of goldbuggery.

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  27. How is Bron a "sane voice"?

    I've pointed out his bankster defending ambiguous wrong nonsense and BS predictions in a number of posts here. No response to that except that he's a "sane voice"?

    Try answering or responding to what I pointed out in my responses.

    He's on both sides of almost every issue. This shows he knows nothing about the subjects he talks about. Additionally, the subjects he brings up are meaning BS---just like all the rest of these mindless, hypey blogs.

    He finally references someone who spent a lot of time interpreting the GOFO/backwardation and paper-printing insanity our govt is perpetuating, but you say Bron's bankster defending crap is an example of a "sane voice"?
    LOL!

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  28. Would be nice if obvious trolls such as Jake would be pre-moderated / censored. Yup, I said it. There's one Bron for a 1000 agitated bugs like Jake. He adds nothing here.

    With that out of the way, Bron! Would love you to dissect and discuss this article in a future post with your inside-the-industry perspective/lens: http://www.caseyresearch.com/articles/paper-gold-and-its-effect-on-the-gold-price-1

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  29. Great, comprehensive and valuable post Bron. Thanks.

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  30. Apart from the personal abuse directed at Bron, 'Jake' clearly understands some valid points about the 'price discovery' process.

    Gold and silver have been,and still are Political metals,conveniently now traded as currency pairs since they were given ISO numbers
    [XAU & XAG].

    There is lots of fiat profit to be made on the comex,but in terms of quantity it's a sideshow.

    The OTC markets are opaque and the FX trading is huge somewhere around 5 trillion a day.

    I watch the 'troyounce' blog where
    you can see the USD ramped and gold and silver dumped in lockstep.

    Some call that a market,I call it a fake/fraud market,where HFT traders front run and essentially skim...large banks pay fines for rigging LIBOR...rigging gold options against clients interest and... forex rigging, whats next?.

    Before the 'London Gold Pool', long before 'Bretton Woods'...way back to WWI,first gold,then silver have been 'managed' by two organisations set up by the UK and US treasuries.

    In Britain it is known as The 'Exchange Equalisation Account'
    In the US it is called 'The Exchange Stabilization Fund',
    setup to LEGALLY intervene in the markets when the UK/US treasuries need to support their currencies.

    Lastly Mr Sucheki is a state employee and must be circumspect.

    Cheers.





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  31. The above post had typos--here's a clen version:

    Thankyou Joat.

    Yes---Bron is employed by govt and is possibly contrained aganst speakng the truth and is compelled to spew BS propanda, but it creates a blog that is as worthless, shillwise, as blogs such as TFMetals, etc, are hypey to the point of annoying.

    On the point of price discovery, I've found the anti-goldbug crowd to be unable to characterize the real driving force behind those who simply accumulate metal in order to save purchasing power against things that are needed into the future. Instead, they unecessarily concern themselves with paper activities.

    Since the only vehicle that can be saved is gold/silver that can hold its value over the long term, it's not important to accumulate metals with an concerned eye toward price and/or short-term paper profts/losses. That losing exercise is for liars who think they are traders.

    Therefore, those with a gold/silver mindset do not need to think about gold and silver as an investment, but as money to be saved. Paper is just currency and as a consequence of it's vunerability to devaluation, should be spent as soon as possible.

    Thus, the anti-goldbug crowd mischaracterize gold savers as people who are "perennially bullish" or who are "married to our commodity". Gold is not a commodity TraderDan!---And it's paper price is unimportant. I also don't believe TraderDan actually trades. No one who writes so much and who has that much time to answer that blog of his has any time to trade. If he did, his account would be zeroed out by now because all traders lose all of their paper currency.

    All traders are also liars and all traders lie about their fake trading profits. They also lie to themselves and anyone who will listen.

    Nothing is further from the mind of a gold/silver accumulator than trading gold for paper for the purpose of short-term paper profits. Gold is just somethng to be saved because it maintains its value against things. That's it---It's that simple.

    Meanwile, banksters and bankster defenders continue to lie to themselves about the value of gold in terms of a vehicle, (paper), that is itself, over the long term, constantly devaluing---IT'S INSANITY!---Oh---I forgot!---Bron is supposedly a "sane voice"---LOL!

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  32. Thank you for another great post, Bron.

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  33. Another Great Quote From Mike Pento Today:

    http://www.gold-eagle.com/article/why-gold-headed-much-higher

    I don't quote Mike Pento often as he is frequently published by KWN, additionaly, the premise of this piece is paper gold prices which are unimportant, but regarding price discovery, I thought it quotable:

    "...the free market price discovery mechanism has become completely abrogated and has been replaced by government manipulation of all asset prices."

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  34. https://d1fd072623b5he.cloudfront.net/blog/koos-jansen/wp-content/uploads/2014/12/Scotiabank-CNC-China-Express-November-27-2014.pdf

    More on SGE withdrawals / WGC differences (courtesy of Koos). It would appear to me Bron that most of the difference can be attributed to investment demand, particularly institutional demand revealed in bank financial statements:

    "And last but not least, although we do not have any direct evidence, we cannot rule out institutional purchases of gold. Even though the Chinese central bank does not seem to purchase gold from the Shanghai Gold Exchange, other Chinese institutional investors and commercial banks in China might choose to increase their gold exposure. And not all institutional purchases are captured in WGC’s consumer demand estimate. (In our China Express dated April 15, 2014, based on financial reports of China’s listed banks, we calculated that their aggregate gold holdings increased by some 600 tonnes in 2013....

    Fifth, conceptually some amount of gold could be withdrawn from the SGE vaults directly by individual investors. These investors, as long as they do not care about the physical appearance of the bars, might prefer direct purchase from the SGE rather than from gold shops. Currently all the gold contracts on the SGE can be traded by individual investors. Physical withdrawal is for a minimum of either 100g, 1,000g or 3,000g, depending on the contract. That said, the WGC does not believe physical withdrawal by individual investors really occurs, because in WGC’s view, “the majority of trading by private investors is not related to taking physical delivery but rather to leveraged speculation on the price”
    "

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  35. I have been telling Koos for a while that SGE withdrawals are just wholesale turnover and there are other factors like leasing etc that mean that SGE withdrawals are not necessarily "demand" that is price impacting.

    Interesting I think that SGE does not report warehouse stocks or deposits, maybe because that would give an insight into real demand and SGE wants people to think their market is a big as possible.

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