To no one's surprise, the precious metals didn't do much in front of the FOMC meeting. There was a quick sell off around 12:15 p.m...followed by a recovery...and then the blast off at 12:30 p.m.
By the time the rally was done...just a minute before the 1:30 p.m. Eastern time Comex close...the gold price was north of $1,770 spot. From there it more or less traded sideways into the close of electronic trading. Gold's low tick was $1,717.00 spot...and the high tick near the Comex close was $1,773.80 spot.
Gold finished the Thursday trading session at $1,767.20 spot...up $35.80 from Wednesday. Volume was an incredible 271,000 contracts. Based on the speed of the rally, I'd guess that there was some serious short covering going on...but I reserve the right to be wrong about that.
Silver was the star of the day...up 4.11%...and had a price path virtually identical to gold's. The low and high ticks were $32.60 and $34.94 spot respectively.
Silver closed at $34.60 spot...up $1.37 on the day...but had an intraday price move of $2.34...about 7.18%. Volume was an astonishing 94,000 contracts. Like gold, I'd like to believe that the Comex price action from 12:30 p.m. until the 1:30 p.m. Comex close was short covering, but also reserve the right to be wrong about that as well.
The reason I'm reserving the right to be wrong, is that if these weren't short-covering rallies, then it means that JPMorgan et al increased their respective short positions by near-biblical amounts in both metals. Of course that won't be known for sure until next Friday's Commitment of Traders Report...which is a lifetime away in this environment.
The dollar index opened at around 79.70 on Thursday morning in the Far East...and more or less held that position until just before 1:00 p.m. in New York. Then the index did a 50 plus base point face plant...and hit its low of the day ninety minutes later. From its nadir, the dollar index gained back about 5 basis points and finished the Thursday trading session at 79.27...down about 43 basis points from where it closed on Wednesday.
To tell you the truth, I'm surprised the dollar didn't get smacked for more than that, as I note in a news story yesterday that Bill Gross has been selling U.S. Treasuries with both hands since July.
The other thing worth noting is that the index continued to fall rapidly even though the gold price had already reached its 1:30 p.m. zenith. The rally in gold and silver was done like dinner an hour before the dollar index hit it's low of the day. Once again, it's more than a stretch to say that there was any true co-relation between the index and the precious metals price action.
It should come as no great surprise to anyone that the gold stocks did well yesterday...but if you note the saw-tooth pattern as the rally developed, there was obviously someone selling into this rally. If this not-for-profit seller hadn't been there, the stocks would have finished materially higher. As it was, the HUI finished virtually on its high of the day...up 4.88%.
As well as the gold stocks did, the silver stocks were on fire...with a lot of the really big percentage gains coming in the smaller producers. But, having said that, Nick Laird's Silver Sentiment Index close up a very respectable 4.71%.
(Click on image to enlarge)
The CME Daily Delivery Report showed that 10 gold and 13 silver contracts were posted for delivery within the Comex-approved depository system on Monday.
After a withdrawal of Wednesday, the GLD ETF reported that 96,956 troy ounces of gold were deposited by an authorized participant yesterday. But, for the second day in a row, an authorized participant withdrew metal from SLV. This time it was 726,695 troy ounces. My eyes glaze over at the thought of just how much silver is owed this ETF...especially after Thursday's price action is factored in.
Even more horrifying is the thought of where the authorized participants are going to get all the silver that SLV is owed. Not including the current short position in SLV, which stands at 13.13 million ounces as of the end of August, my back-of-the-envelope calculation shows that the authorized participants owe something north of 10 million ounces to SLV as of the close of trading yesterday. That's more than five days of world silver production...and more that 25% of annual silver production in the United States.
Nick Laird informed me that Sprott added another 305,000 ounces of silver to PSLV yesterday. The fund been holding onto all the over-allotment money, plus a bit more from the initial offering for fear of another price smack from JPMorgan et al, but since it never materialized, they went back into the market just recently...topping up the fund with the balance of the cash. So we should see more silver deposited in due course.
There was no sales report from the U.S. Mint.
Over at the Comex-approved depositories on Wednesday, they reported receiving 1,901 ounces of silver...and shipped 105,261 troy ounces out the door. The link to that activity is here.
Here's a chart...Velocity of MZM Money Stock...that you'll see more of in a commentary by David Chapman in the 'Critical Read' section just below. I thought I'd post it here, in case you decide not to read that story. This is one of the trends that the Fed is hoping to reverse with their open-ended QE3.
(Click on image to enlarge)
I have the usual number of stories for you again today...and I'll leave the final edit up to you once again.
The Federal Reserve fulfilled expectations of more stimulus for the faltering economy, taking aim now at driving down mortgage rates until an improvement in unemployment that the central bank says will be a problem for several years.
The Fed said it will buy $40 billion of mortgage-backed securities per month in an attempt to foster a nascent recovery in the real estate market.
The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.
"There's strong hints that they'll do Treasuries next," Joe LaVorgna, chief economist at Deutsche Bank Advisors, said in a phone interview from London. "They're pulling out all the stops to try to get this economy to gain some traction and, most important, to get unemployment down."
This is the first of three stories on Bernanke & Co. This one was posted over at CNBC yesterday...and it's courtesy of West Virginia reader Elliot Simon. The link is here.
The Federal Reserve’s Open Market Committee today said it will keep trying to print money until the economy recovers. In short, the Fed said it will increase its purchases of mortgage-backed securities by $40 billion a month until employment improves. So, indefinitely. Combined with other maneuvers, the Fed said its asset holdings will increase by about $85 billion a month through the end of this year. And the money-printing may not end there; from the Fed’s statement...
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. (emphasis added)
This is not what people mean when they talk about “wealth creation.” In fact, it’s very nearly the opposite of that: The inevitable devaluing of the dollar — the prices of gold, silver and several other commodities spiked in the minutes following the Fed’s 12:30 announcement — means our savings will lose value. This is the destruction of future wealth in the hopes of creating some current economic growth. In that respect, it is no different from increasing the budget deficit even further to fund even more Keynesian spending.
This story showed up on the Atlanta Journal-Constitution early yesterday afternoon...and is the second of thee stories about Bernanke & Co. I thank Elliot Simon for his second offering in a row...and the link is here.
The Fed will buy a further $40bn (£25bn) of mortgage bonds each month until the jobs market improves “substantially”, and more if need be. It is open-ended. Zero interest rates will continue until mid-2015.
It is pocket-sized compared with the pace of $75bn a month in the QE heyday, or the 500 basis point rate cuts at the onset of the Great Recession. This is calibrated, not full-throttle.
Fed chairman Ben Bernanke no longer faces a banking collapse, or an imminent spiral into debt deflation. He has launched QE3 at a time when credit is expanding, M3 money is growing at 5pc, and core inflation is above 2pc. This is QE by choice. The extra juice is insurance against a clutch of nasty risks ahead: a Chinese hard-landing, deepening slump in Europe, and the looming “fiscal cliff” in the US – net tightening of 4pc of GDP if Congress lets it happen.
This is well-advised. The manufacturing ISM index in August flashed contraction. New orders were awful. The economy is close to a tipping point, and that matters for the whole world.
This AE-S offering was posted on the telegraph.co.uk Internet site yesterday evening...and I thank Ulrike Marx for digging it up on our behalf. It's well worth reading...and the link is here.
What happens next?
Imminently, the Fed's Open Markets Operations desk will commence buying $40 billion in MBS per month, or about $10 billion each week. Concurrently, the Fed which is continuing Operation Twist, will still purchase $45 billion in "longer-term" Treasuries, sterilized by the $45 billion or so in 1-3 years Bonds it will sell until the end of the year at which point it runs out of short-term paper to sell.
End result: every month through the end of 2012, the Fed's balance sheet expands by $40 billion in MBS.
Beginning January 1, 2013 the Fed will continue monetizing $40 billion in MBS each month, and will continue Operation Twist, however it will adjust the program so that it continues to increase its long-term holdings at $85 billion per month, without sterilization as it will no longer have short-term bonds to sell. It will also need to extend its ZIRP language "through the end of 2016" so all bonds 1-3 years are essentially risk free, as they are now, in effect eliminating the need to sell them.
End result: every month in 2013 the Fed will increase its balance sheet by $85 billion, consisting of $40 billion in MBS, and $45 billion in 10-30 year Treasuries, or the natural monthly supply of longer-dated issuance. The Fed will therefore monetize roughly half of the US budget deficit in 2013.
This commentary, along with an excellent chart, showed up on the zerohedge.com Internet site yesterday...and I thank Nick Laird for pointing it out. The link is here.
A few months ago, the Bank for International Settlements, which acts as a bank for the world’s central banks, warned in its annual report that “the financial sector needs to recognize losses” and “adjust balance sheets to accurately reflect the value of assets.” We are starting to get a taste of what that means, and it’s not all bad.
This week, Citigroup Inc. said it would record a $4.7 billion pretax charge to earnings after agreeing to sell its stake in its brokerage joint venture with Morgan Stanley. In hindsight, Citigroup had been overvaluing the business on its balance sheet for months, and maybe years. Yet investors took the news well. Citigroup’s stock price rose. Shareholders seemed glad to get the matter over with, even though the loss wipes out about a quarter’s worth of earnings.
Let that be a lesson to other financial institutions. Now is as good a time as ever to fess up to long-overdue red ink. The stock market is surging, and the Federal Reserve and European Central Bank are doing all they can to prop up the industry. Booking pent-up losses gets bad news into the past and helps banks build credibility, which they will need in abundance the next time they go to raise fresh capital. As Citigroup’s chief executive, Vikram Pandit, put it this week, “the more we put the past behind us, the more we can focus on our future.”
This rather longish op-ed piece by Jonathan Weil showed up on the Bloomberg website late yesterday afternoon...and it's a very interesting and worthwhile read if you have time. I thank Ulrike Marx for her second article in today's column...and the link is here.
In the aftermath of one of the worst recessions in history, more Americans have limited or no interaction with banks, instead relying on check cashers and payday lenders to manage their finances, according to a new federal report.
Released Wednesday, the study found that 821,000 households opted out of the banking system from 2009 to 2011 and that the so-called unbanked population grew to 8.2 percent of U.S. households.
That means that roughly 17 million adults are without a checking or savings account. Another 51 million adults have a bank account, but use pawnshops, payday lenders or rent-to-own services, the FDIC said. This under-banked population has grown from 18.2 percent to 20.1 percent of households nationwide.
The study also found that one in four households, or 28.3 percent, either had one or no bank account. A third of these households said they do not have enough money to open and fund an account. Minorities, the unemployed, young people and lower-income households are least likely to have accounts.
This story showed up on the washingtonpost.com Internet site on Wednesday...and I thank Donald Sinclair for our first story of the day. The link is here.
With all of this money sloshing around the financial system one would think it would actually do some good and help the economy grow again. Now they seem poised to start another round of QE that could once again send the monetary base up over the next year. If the 50% growth of the past few years holds true the monetary base could be almost $4 trillion by this time next year.
But if one looks at the money velocity chart above it is not doing much good. The money is simply not getting into the economy or in this case circulated. First what is MZM. MZM is a measure of the total amount of monetary assets available in the economy at any specific time. Generally this contains at least the money in circulation, demand deposits plus money market funds. One can think of it as supercharged M2. Money stock today sits at roughly $11.1 trillion vs. $8.8 trillion just before the financial crisis of 2008 broke. The velocity of money is a ratio of nominal GDP to a measure of the money supply (M1 or M2 or MZM).
It can be thought of as the rate of turnover in the money supply--that is, the number of times one dollar is used to purchase final goods and services included in GDP. The velocity of money has been falling for years. In fact, it peaked at about 3.5 all the way back in 1981. Today it is at 1.4 and still falling.
This article showed up on the safehaven.com Internet site yesterday...and I thank reader U.D. for sending it our way. This article contains the MZM chart that I posted further up in this column. The link is here.
The winners and losers in Wednesday's ruling on the permanent euro bailout fund by Germany's highest court may appear clear cut, but the decision is more complicated than it seems. Before the European Stability Mechanism can be ratified, the German government must answer complicated legal questions.
In its press release on Wednesday, Germany's Federal Constitutional Court said that the petitions for the issue of temporary injunctions that would block the ratification of the European Stability Mechanism (ESM) had been "unsuccessful for the most part." But "for the most part" does not mean "entirely". Indeed, in the aftermath of the ruling, the roles of winners and losers are not as clear as they may have seemed at first glance.
It would, of course, be going too far to say that the verbal lapse of court President Andreas Vosskuhle was a Freudian slip. Right in the first sentence of the text of the ruling, Vosskuhle involuntarily caused a wave of laughter when he said that the petitions were "for the most part well-founded" -- which would have meant that the plaintiffs had won. Vosskuhle corrected himself with a laugh, saying that the petitions were actually "unfounded."
But the slip of the tongue reflects a deeper truth. Nobody seriously believed that the plaintiffs, led by the stubborn conservative Bavarian politician Peter Gauweiler, would win an outright victory. But the court's ruling contains a number of details that could cast a shadow over the winning side's victory, and possibly grant a not insignificant triumph to the other side -- which is why Gauweiler himself spoke of a "huge success."
This story showed up on the German website spiegel.de yesterday...and I thank Roy Stephens for sending it along. The link is here.
So, what happened? Just what everyone expected: The European Union will not be stopped in its tracks. Germany can now ratify the European Stability Mechanism (ESM), the permanent euro bailout fund, and the fiscal pact aimed at bringing economic governance to countries in the euro zone -- albeit with a few conditions. What's more, court President Andreas Vosskuhle repeated his usual warning that euro bailout packages cannot come at the cost of a loss of power for the Bundestag, Germany's federal parliament. Everyone has now relaxed, and even the German DAX index of blue chip companies is climbing.
But that's not all that happened. Never before has it been so clear that the best days of the Karlsruhe court are already behind it. All the pomp and circumstance of the eight judges in their red robes has grown hollow. The panel regularly and solemnly convenes in its massive courtroom to rule on what the relationship between the European Union and the democracy guaranteed in Germany's constitution should be. However, everyone sitting in the courtroom knows that there is precious little democracy when it comes to the current crisis in Europe.
In reality, these kinds of policies have long been determined elsewhere. For days, it has already been clear that the European Central Bank's (ECB) decision to launch an unlimited bond-buying program will bestow upon Germany's constitutional democracy debt burdens and stability risks that are of unimaginable dimensions -- and ones that this court cannot pass judgment on. What's more, German parliamentarians and the citizens of EU member states have had just as little say in all this as the German government. That's not a violation of the constitution, that is merely European Union politics, as it has been agreed to by the parliaments of every EU member state. From the very beginning, the central bank had been part of the major plans for a currency union. The fact that it is independent of any influence from parliaments is also permissible under Germany's constitution.
This op-ed piece showed up on the spiegel.de website on Wednesday...and I borrowed it from yesterday's edition of the King Report. The link is here.
Japan is planning a move to shutter all nuclear plants by the 2030s, Japanese media reported Thursday, a major policy shift for a resource-poor nation that once depended on atomic power for a third of its energy.
The nuclear phase-out, reported by both the Kyodo News agency and broadcaster NHK based on a draft of the policy, comes amid fierce political debate about this country’s 50 operable reactors, which are both prone to disaster and vital to the economy.
The gradual turn away from nuclear power over the next two decades represents a major concession from Japan’s traditionally pro-nuclear leaders to a largely anti-nuclear public, whose fears were stoked by the March 2011 triple meltdown at the Fukushima Daiichi plant.
But it also prompts new worries about how Japan will make up for a gaping energy deficit, and whether it can eventually grow renewable energy into a cheap alternative. In the short term, Japan will have to rely on increased imports of fossil fuels, raising the nation’s energy prices as well as its greenhouse-gas emissions.
This item showed up in The Washington Post on Wednesday...and is courtesy of reader Donald Sinclair. The link is here.
China’s foreign ministry said that the ships entered the disputed waters to carry out maritime surveillance and that for the first time China was carrying out a mission of “law enforcement over its maritime rights.”
“It reflects our government’s jurisdiction over the Diaoyu islands,” it said in a statement. The ministry has used similar language in the past.
The islands, known as Senkaku in Japanese and Diaoyu in Chinese, are near potentially huge maritime gas and oil fields.
The uninhabited islets were at the centre of a chill in 2010 after Japan arrested a Chinese trawler captain whose boat collided with Japanese Coast Guard vessels near the area.
Two sociopathic governments fighting over some rocks. This story appeared in Canada's Globe and Mail newspaper yesterday...and I thank Roy Stephens for sending it. The link is here.
The first is with Felix Zulauf...and it's headlined "Gold, Systemic Collapse & The End Of Fiat Money". The next blog is with Paul Brodsky. It's entitled "We Are Now Beginning The Last Wave Of Gold's Major Uptrend". And lastly is this blog with Dan Norcini...and it bears the headline "A Violent Wave Of Short Covering In Gold & Silver".
As if Bernanke promising to print, print, print until such time as the Fed's flawed policy brings unemployment lower, which by definition will not happen when the US is now suffering not from a structural unemployment "part-time new normal" problem, was not sufficient to send gold and other hard assets higher, today we get the double whammy announcement that the situation in South Africa, already very bad, is about to get much worse.
Earlier today, South Africa's striking miners, already set on belligerent courtesy with their employers and authorities, prepare to go on general strike on Sunday, in effect shutting down all precious metal production in a world that is about to demand hard asset more than ever.
This Zero Hedge story was posted on their website early yesterday morning...and I thank Elliot Simon for his last contribution in today's column. The link is here.
On Monday this week Jeff Christian appeared on Business News Network in Canada and pronounced that the U.S. Federal Reserve would announce no substantial bond monetization this week, that the Fed's inaction would smash commodity prices, and that CPM Group had advised its clients to go short gold and silver.
What a call Jeffrey! It looks good on you! Chris Powell has more to say in this GATA dispatch from yesterday evening...and it's definitely worth your time. The link is here.
The Federal Reserve is giving the U.S. economy another injection of financial stimulus, and, on cue, gold buyers cheered. The world now remembers financier J.P. Morgan’s words to Congress in 1912: “Gold is money. Everything else is credit.”
Investors have poured money into exchange traded funds that buy gold. Some central banks are now rebuilding their gold reserves. In Germany, gold is available in airports and train stations from “Gold to Go” vending machines. Shoppers can buy a 1-gram wafer of gold or a larger 10g bar. Gold bugs speculate about a new age of gold.
The monetary policies of governments and central banks, emphasizing low interest rates and printing money to restart the global economy, also underpinned the gold price. A weak U.S. dollar and the questionable prospects of other major currencies, such as the euro and yen, also drove demand for gold, as de facto currency.
Although the first part of this marketwatch.com article, filed from Sydney, Australia yesterday, is generally positive, it turns negative the further along you go...and by the end, it's just another piece of main-stream media gold-bashing trash. I found it in a GATA release yesterday...and the link is here.
We're of the opinion that even if the system is hobbling along, it will continue until global economies collapse. This was the case in Zimbabwe in the last decade. The Zimbabwe dollar continued in use because the government enforced its use inside its borders. But to all intents and purposes, it had collapsed long before then. In the case of Zimbabwe, the U.S. dollar became the currency of trade in the country and in what's left of its economy. This is still the case today.
Before any such collapse occurs, we are certain that each individual developed world economy would cooperate with each other to take whatever measures are available to them to shore up the monetary system. These measures will prevent the system from a total collapse, keeping it staggering on all the way. We believe that they will fully harness gold then.
The questions remaining are how and when.
That pretty much sums up where my head is at on this issue. Julian's commentary was posted on the mineweb.com Internet site yesterday...and I thank Ulrike Marx for her last offering in today's column. The link is here.
Great Panther Silver Limited, (TSX: GPR NYSE.A: GPL)headquartered in Vancouver, Canada, is a profitable primary silver producer operating two 100% owned mines in Mexico. Over 94% of revenues are derived from unhedged precious metals production with approximately 74% generated from silver sales and 20% from gold. Since entering production in the first quarter of 2006, the Company has seen five consecutive annual increases in revenues and provides strong leverage to future rises in precious metals prices.
The Company has also been growing its resource and reserve base at both 100% owned operations. A new resource/reserve estimate is expected for the Guanajuato Mine Complex and the San Ignacio Project in the second quarter of 2012 and a new resource/reserve estimate for the Topia Mines during the third quarter of 2012. Great Panther continues to replace mined ounces, grow resources and reserves at both operations, and is targeting a 10 year mine live at each.
Well, we have officially passed the event horizon...and there's no turning back. We knew that fiat currencies were doomed, but now it's official. It has now become a death watch, not only for the U.S. dollar...but all the world's currencies...and yesterday was just the opening shot across the bow.
I was glad to see yesterday's price action...and certainly hope that it continues as time passes...although there are no signs of it in Far East or early London trading as I write this paragraph at 3:47 a.m. Eastern time. One would think that traders in the Far East would have reacted to this news from Bernanke & Co...but they did not. However, I'm sure that they will in due course, as their dollar holdings are in serious jeopardy.
Today we get the Commitment of Traders Report for positions held at the close of Comex trading on the Tuesday just past. Unfortunately, Wednesday's and Thursday's price action won't be included...and Friday's price action might determine what happens next in the very short term. If it was all short covering...that's wonderful. But if it wasn't, one can only imagine the short positions of JPMorgan et al. They haven't been over run yet, so I still consider them to be a danger...and I'm always on the lookout for "in your ear", especially considering how overbought we are.
But we could stay in overbought territory for a long time now, as it's my opinion, along with many other pundits, that we are at the beginning of the next leg up in this bull market in precious metals...and we could be in for one heck of a ride...with the odd pothole along the way, of course. I will be buying gold and silver [physical...in hand] on any pullbacks.
As I just mentioned, nothing much happened in Far East trading during their Friday session...but volumes are stunningly high nonetheless. I've never seen anything like this at this time of day. As of 4:04 a.m. Eastern time, as I write these words, gold volume is north of 41,000 contracts...and silver's volume is 13,000+ contracts. Most of this has to be of the high-frequency trading variety. The dollar index is down about 23 basis points.
(Click on image to enlarge)
And as I put the finishing touches on today's column, I note from the above chart that the HUI is up a hair over 30% since the low on July 24th. That's not a bad return...so I'd like you to keep that carefully in mind as you read the next paragraph.
With gold and silver shares roaring higher, there's still an opportunity to either readjust your portfolio, or get fully invested in the continuing major up-leg of this bull market in both silver and gold...and I respectfully suggest that you take out a trial subscription to either Casey Research's International Speculator [junior gold and silver exploration companies], or BIG GOLD [large producers], with all our best [and current] recommendations...as well as the archives. Don't forget that our 90-day guarantee of satisfaction is in effect for both publications.
I note, as I hit the 'send' button at 5:20 a.m. Eastern time, that gold is now up about five bucks...and silver is basically flat now that London has been open for a bit more than two hours. Volumes in both metals continue to climb, but at a much slower rate than before...and the dollar index has rallied a hair, but is still down about 20 basis points.
Since this is the last trading day of the week in New York, it may turn out to be a rather interesting one when the Comex opens for business at 8:20 a.m. Eastern time. I'll be ready for any eventuality when I switch my computer on later this morning.
Enjoy your weekend, or what's left of it...and I'll see you here tomorrow.