Tuesday, December 13, 2011

Recognizing The Sale Prices On Gold And Silver

As Warren Buffett has always said, you have to be brave when others are fearful...and fearful when others are brave.

It is now taking very active central bank intervention to keep the Gold "price" down. While this is going on, more and more people are discovering that there is no "safe" place to keep the precious metals other than in one's personal and private possession...If the governments of the world, and of the English-speaking world in particular - were trying to cause their citizens to shun them on purpose, they could not design a better set of policies than the ones they are following today. 
 - Bill Buckler, Gold This Week, December 10, 2011.

By Jeff Clark, via ZeroHedge
If you're bullish about the long term for gold and silver, it's mouthwatering to watch them undergo a major correction after taking earlier profits that added to your deployable cash. For a little historical perspective on pullbacks, consider the following charts.

The current 15.6% gold decline, while considered a "major" correction, is not out of the ordinary, particularly following the late summer spike. And after each big selloff, there was a price consolidation phase that in every instance led to higher prices. The message: hold on, and buy the big dips.

Not surprisingly, silver's biggest corrections are larger than gold's. This is also true for the rebounds; they've been quite dramatic. If we apply the biggest three-month recovery of 44.3% to the current correction, that would take silver to $40.63… meaning we probably shouldn't expect $60 silver by year-end.

ETF And Central Bank Gold Lent To Banks Being Relent Into Market?
From ZeroHedge

With concerns about liquidity and solvency in the European banking system, there is lending and possibly even selling of gold by banks to raise much needed cash. This may be creating short term weakness in gold bit is bullish for gold in the long term. The FT reported last week that “gold dealers” said that banks – “primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars.” The key question is who is lending and is their lending simply liquidity driven - to raise dollars or euros? John Dizard, who frequently comments on gold in the Financial Times wrote on Saturday that, “Gold market people say European commercial banks are being driven to lend gold for dollars at negative interest rates just to raise some extra cash for a few weeks. There’s not a lot of transparency about where the banks are getting the gold they are lending out, but it could be lent to them by either their national central banks, or by gold exchange traded funds.”

Record negative lease rates for gold
By Jeff Nielsen

Going back several weeks, I've made it clear that from the "price action" of the gold market it is obvious that "major manipulation" is taking place. I was unable to provide much in the way of specifics for a very good reason: much of this manipulation can only be discovered in hindsight - when what has previously transpired in the market is reported.

So today I can announce that ONE of the manipulation tactics during the recent gold suppression has been "record negative gold lease rates".

What does this mean?

Very simple. The banksters are PAYING traders to borrow their gold - and then dump it onto the market via shorting. So if we want to imagine how much gold has become available for dumping, we only have to imagine how full peoples' wallets would be if their bank PAID THEM TO BORROW MONEY.

Obviously such a tactic will ALWAYS be effective in suppressing the gold price. So why don't the banksters simply do thisn 365 days a year? Because it MAXIMIZES the amount of gold being dumped onto the market - i.e. it MAXIMIZES DEPLETION ON INVENTORIES.

It is always and must always be a SHORT-TERM tactic, and obviously a DESPERATE short-term tactic at that - since the last thing the banksters want to do is deplete their meager inventories any further.

I'll return to two previous theories on which I have speculated:

1) The new gold being dumped onto the market has been LOOTED from Euro governments - via being "seized" as "collateral".

2) The new gold being dumped onto the market is the FORMER gold of Libya, and part of the "price tag" when Libyan rebels sold their souls to the West in return for military aid.

Irrespective of precisely what is taking place, absolutely nothing changes over the longer term except that we will have HIGHER medium-term prices - which is always the consequence of any extended period of manipulation.

"Gold Lease Rate Slides to Lowest on Record as European Banks Seek Dollars"


The interest rate for lending gold in exchange for dollars plunged to the lowest on record this week as European banks sought ways to secure the U.S. currency amid the region’s debt crisis.

The one-month lease rate on gold fell to minus 0.57 percent on Dec. 6, the lowest according to Bloomberg data going back to January 1998. The rate, derived by subtracting the gold forward offered rate from the London Interbank Offered Rate, was at minus 0.56 percent today and compares with minus 0.23 percent at the start of this year. A negative reading means banks have to pay to have their gold deposits lent.

The rate at which London-based banks say they can borrow for three months in dollars rose to the highest level in almost 2 1/2 years yesterday, even after the Federal Reserve and five other central banks agreed on Nov. 30 to cut the cost of providing dollar funding. Gold has climbed 21 percent in London this year and reached a record $1,921.15 an ounce on Sept. 6 as investors and central banks boosted holdings to protect wealth.

“European banks especially are having liquidity funding problems, which does see a lot of lending of gold and that’s putting downward pressure on lease rates,” Walter de Wet, head of commodities research at Standard Bank Plc in London, said today by phone. “Funding problems will continue for a while.”


Notes From Underground: Exchange Controls Building a Stairway to Haven?

There’s talk abound about the possibility of exchange controls. The ability to slow the inflow and outflow of funds is being discussed from Greece to Germany and Switzerland. It is no secret that many citizens in the peripheries are moving Euros out of their domestic banks and into German, Swiss and British domiciled entities. The German paper Handelsblatt had an article during the weekend suggesting that the SNB and Swiss government are readying a plan to undertake exchange controls and a true negative interest rate regime. The overly strong Swiss franc has placed a great deal of stress on the Swiss economy and the Swiss authorities want to head off any demand for francs if the euro were to fail.

As money flees the peripheries, that puts more pressure on the domestic banks in the pariah money centers to raise funds from their own central banks. The pressure ultimately makes its way back to the ECB as the individual banks receive their funding from the ECB and EFSF. Soon the Greek government will have to place restrictions on the outflow of Euros from its banks to the stronger money centers, especially Frankfurt. The same process is ongoing in Italy and Spain as its citizens are moving to safety in the stronger core-based banking institutions.

When exchange controls are implemented it will be a positive for gold as it will replace euro deposits as the ultimate store of value. Currently, gold is failing to rally. I have discussed this a being the result of a large holder of gold liquidating a massive position to raise cash for possible short-term liquidity needs.

It seems that another reason for gold’s recent lacklustre performance may be due to many banks in Europe increasing their gold leasing programs, which have put gold lease prices into negative territory. The need to raise dollars has led to many gold holders swapping their gold for dollars. The result is not gold sales by the lessor but just a short term financing arrangement to raise liquidity for immediate needs.(it is the ultimate pawning of the family silver.) There is so much gold for lease that borrowers can attain it and get paid for doing so, which removes potential buyers from the market.

A potential need for gold is averted by pushing the price higher and the borrower gets paid. This is just another element in the balance sheet recession plaguing the banks of Europe. The gold leasing factor is something to watch for an indication of continued bank stress. Also the gold/silver should turn to silver’s favor if this continues to hold up for European financing needs.


Capital control
From Wikipedia, the free encyclopedia

Capital controls are measures such as transaction taxes and other limits or outright prohibitions, which a nation's government can use to regulate the flows into and out of the country's capital account.

Types of capital control include exchange controls that prevent or limit the buying and selling of a national currency at the market rate, caps on the allowed volume for the international sale or purchase of various financial assets, transaction taxes such as the proposed Tobin tax, minimum stay requirements, requirements for mandatory approval, or even limits on the amount of money a private citizen is allowed to remove from the country. There have been several shifts of opinion on whether capital controls are beneficial and in what circumstances they should be used.

Capital controls were an integral part of the Bretton Woods system which emerged after World War II and lasted until the early 1970s. This period was the first time capital controls had been endorsed by mainstream economics. In the 1970s free market economists became increasingly successful in persuading their colleagues that capital controls were in the main harmful. The US, other western governments, and the international financial institutions (the International Monetary Fund (IMF) and World Bank ) began to take an increasingly critical view of capital controls and persuaded many countries to abandon them.

After the Asian Financial Crisis of 1997–98, there was a shift back towards the view that capital controls can be appropriate and even essential in times of financial crisis, at least among economists and within the administrations of developing countries.[1] By the time of the 2008–09 crisis, even the IMF had endorsed the use capital controls as a response. In late 2009 several countries imposed capital controls even though their economies had recovered or were little affected by the global crisis; the reason given was to limit capital inflows which threatened to over-heat their economies. By February 2010 the IMF had almost entirely reversed the position it had adopted in the 80s and 90s, saying that capital controls can be useful as a regular policy tool even when there is no crisis to react to, though it still cautions against their overuse. The use of capital controls since the crises has increased markedly and proposals from the IMF and G20 have been made for international coordination that will increase their effectiveness. The UN, World Bank and Asian Development Bank all now consider that capital controls are an acceptable way for states to regulate potentially harmful capital flows, though concerns remain about their effectiveness among both senior government officials and analysts working in the financial markets.


Gold borrowed from governments or ETFs may be propping up European banks
By John Dizard
Financial Times, London

It appears that the faulty plumbing connections in the euro-area banking system are now creating something I have never seen before: a crisis of confidence in a monetary system that leads to a frantic selloff in gold.

The partnership between the Federal Reserve and European Central Bank to provide hundreds of billions of relatively low-cost dollars for euro-area banks should have relieved the pressure to come up with greenbacks. Yet gold market people say European commercial banks are being driven to lend gold for dollars at negative interest rates just to raise some extra cash for a few weeks. There's not a lot of transparency about where the banks are getting the gold they are lending out, but it could be lent to them by either their national central banks or by gold exchange-traded funds.

As James Steel, a gold market analyst for HSBC Securities (USA), says: "Until the funding difficulties at European banks are resolved, it is difficult for us to see any near-term halt in gold lending. This may help keep gold prices on the defensive."


Eurozone banking system on the edge of collapse
By , Banking correspondent

Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding.
The European Central Bank admitted it had held meetings about providing emergency funding to the region's struggling banks, however City figures said a "collateral crunch" was looming.
"If anyone thinks things are getting better then they simply don't understand how severe the problems are. I think a major bank could fail within weeks," said one London-based executive at a major global bank.
Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.
"The system is creaking. There is a large amount of stress," said Anthony Peters, a strategist at Swissinvest, pointing to soaring interbank lending rates.

CreditSights' weekly funding report said the ECB had effectively become the central clearer for the region's banks as lenders are increasingly distrustful about funding one another. 

Bank deposits with the ECB now stand at their highest level since June 2010 at €905bn (£772bn) as lenders withdraw deposits held with their peers and put them into the central bank. At the same time, banks in major eurozone countries such as France and Italy have become increasingly reliant on central bank funding. This follows the trend seen in smaller countries like Ireland where lenders have effectively becomes taxpayer-funded "zombie" banks.

Alastair Ryan, a banks analyst at UBS, said there would be "no Lehman moment" – or single catastrophic event – for the European banking sytem, but added that without a full backstop of bank liabilities by governments the system would "struggle to finance itself in the next year in a durable way".

"The system at the moment hasn't got funding of a duration that allows it to function, so it's failing," he said.

Others think the eurozone banks are heading for a catastrophe and the worry is growing that a major bank could collapse within weeks.

Global USD Shortage As BoJ Swap Demand Jumps 48x
From ZeroHedge

It's not just our European colleagues who are struggling under the weight of collateral value losses and de-hypothecation, the USD funding shortage is just as evident in Japan. As part of the globally coordinated central bank swap line extension, the Bank of Japan saw bids for their 84-day USD loans explode by 48 times to around $4.8bn. After jumping 25x the previous week, the short-dated loans (one-week term) demand drifted as demand for the 84-day loans (which would get them over the holiday/end-of-year funding debacles and a decent way into the first quarter refi-ganza of next year) was far preferred at the obviously preferential rate of 50bps over 3 month OIS (0.61%). It's also worth noting that the size and demand for Euro-based USD funding is still significantly higher and while cross-currency basis swaps for both JPY and EUR are leaking back towards extreme stress levels, the EUR-USD is getting worse faster than the JPY-USD level (as the differential has widened from 56bps to 78bps in the last week).

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