Gold & Silver Daily
"How long this 'watching paint dry and grass grow' episode in the precious metals continues, remains to be seen."

¤ Yesterday In Gold & Silver

Nothing of importance happened during the Far East trading session on their Wednesday...and the high of the day [around $1,666 spot] came at 9:00 a.m. in London.  The gold price stayed in positive territory until about 9:00 a.m. in New York...five hours later.  Then down went the price, with the low price tick [$1,650.60 spot] coming about forty-five minutes before the Comex close.

The price recovered a bit from there, but from around 2:15 p.m. Eastern time, it began to trade sideways into the close of electronic trading.

The gold price finished the day at $1,658.00 spot...down $2.80 from Tuesday's close.  Net volume was light...around 106,000 contract.

It was pretty much the same story in silver.  The high tick [around $30.60 spot] at 9:00 a.m. in London...followed by the 9:00 a.m. selloff in New York.  The low price tick of $29.98 spot came at 10:45 a.m. Eastern...about fifteen minutes before the London close.

The silver price chopped sideways from there...but rallied slightly once the Comex closed, before trading sideways from 2:15 p.m. Eastern onwards.

Silver finished on Wednesday at $30.36 spot...down a nickel from Tuesday.  Volume was around 39,500 contracts.

The dollar index opened the Wednesday trading session in the Far East at 80.31...and then rallied slowly and steadily to its high of the day which came minutes after 9:30 a.m. Eastern time.  From there it chopped sideways before fading a bit into the close.  The index finished the Wednesday session at 80.61...up 30 basis points when all was said and done.

Once again the price activity in the precious metals on Wednesday had no co-relation to what was going on in the currency markets.

The gold stocks started off in positive territory, but got sold into the red very shortly after the equity markets opened in New York.  The low tick came minutes after 10:30 a.m. Eastern...even though the low price for gold came several hours after that.  From there, the stock prices moved very slowly higher...and the HUI finished down 0.55% on the day.

The silver stocks finished mixed, but managed to close in positive territory...and Nick Laird's Intraday Silver Sentiment Index finished up 0.40% on the day.

(Click on image to enlarge)

The CME's Daily Delivery Report showed that only one lonely silver contract was posted for delivery on Friday within the Comex-approved depositories.

There were no reported changes in either GLD or SLV...and there was no sales report from the U.S. Mint, either.

There was more big activity over at the Comex-approved depositories on Tuesday.  They received 905,715 troy ounces of silver...and shipped 180,686 ounces of the stuff out the door.  The link to that action is here.

Here's a chart and some commentary about gold that Washington state reader S.A. stole from somewhere yesterday.

The commentary included with the graph was as follows...  "As you can see, over the entire 12-year precious metal bull market, gold has bottomed in January seven times...but only once after April amidst the 2008 global meltdown...when the cartel viciously attacked to mask gold's "once and future" roll as a safe haven...only to see it recoup all such losses by February 2009."

The chart below arrived in my in-box courtesy of Nick Laird.  Nick's calculations showed that China imported 63 tonnes of gold through Hong Kong in November on a net basis.  The cumulative imports, the thick black line, shows that China has imported 1,242 tonnes of gold via HK...with the vast majority of that occurring since May of 2011.

(Click on image to enlarge)

I have the usual compliment of reading material for you today...and the final edit is up to you.


¤ Critical Reads

Secret Goldman Team Sidesteps Volcker After Blankfein Vow

Sitting onstage in Washington’s Ronald Reagan Building in July, Lloyd C. Blankfein said Goldman Sachs Group Inc. (GS) had stopped using its own money to make bets on the bank’s behalf.

“We shut off that activity,” the chief executive officer told more than 400 people at a lunch organized by the Economic Club of Washington, D.C., slicing the air with his hand. The bank no longer had proprietary traders who “just put on risks that they wanted” and didn’t interact with clients, he said. 

That may come as a surprise to people working in a secretive Goldman Sachs group called Multi-Strategy Investing, or MSI. It wagers about $1 billion of the New York-based firm’s own funds on the stocks and bonds of companies, including a mortgage servicer and a cement producer, according to interviews with more than 20 people who worked for and with the group, some as recently as last year. The unit, headed by two 1999 Princeton University classmates, has no clients, the people said.

The team’s survival shows how Goldman Sachs has worked around regulations curbing proprietary bets at banks. Former Federal Reserve Chairman Paul A. Volcker singled out the company in 2009, saying it shouldn’t get taxpayer support if it focuses on trading.

This Bloomberg story was posted on their Internet site late on Monday evening...and I thank reader Jon Thone for our first story of the day.  The link is here.


Proprietary Trading, the Bogeyman That Didn’t Take Down Wall Street

[This story refers to the one posted directly above. - Ed]

Bloomberg’s Max Abelson today reports on Goldman Sachs’s Multi-Strategy Investing unit — in effect a hedge fund within the bank that bypasses the Volcker rule’s limits on proprietary trading. It’s a great story. It also raises a question: Is prop trading really the problem with Wall Street?

Before you answer, remember what caused the collapse of Bear Stearns Cos. and Lehman Brothers Holdings during the financial crisis, as well as the massive losses at Merrill Lynch and other banks. Obviously all of them took stupid risks with their own capital. It’s just that the risks didn’t come from the sort of trading the Volcker rule addresses.

An excellent succinct discussion of the pattern comes in Jake Bernstein and Jesse Eisinger’s 2010 Pro Publica article about the huge mortgage losses at Merrill, now part of Bank of America Corp. Merrill’s loss came from CDOs that the bank itself had packaged from mortgage-backed bonds. As Bernstein and Eisinger make clear, Merrill’s mortgage traders were the buyers of last resort for derivatives that Merrill bankers had created and no one else wanted.

That’s not the proprietary trading that regulators fear. If anything, it’s the opposite. Instead of letting traders freely choose their own investments, Merrill, like Bear and Lehman, had them stuff their portfolios with the mortgage bonds and CDOs that came out of the bank’s own underwriting and derivatives business.

As I said in parentheses at the top of this article, it's a follow-on piece from the Bloomberg story above it.  It's courtesy of Washington state reader S.A...and the link is here.


MF Global judge nixes customer group's bid to depose Corzine

A bankruptcy judge on Tuesday rejected a bid by former MF Global customers to depose the collapsed brokerage's former chief, Jon Corzine.

In a written ruling in U.S. Bankruptcy Court in Manhattan, Judge Martin Glenn said the Commodity Customer Coalition, which had sought permission to question Corzine and other former MF Global insiders, lacked standing because it is not a direct creditor in the case.

The coalition, a grassroots group led by Chicago-based commodities trader James Koutoulas, bills itself as representing the interests of thousands of traders whose accounts at MF Global were frozen when the company went under.

This Reuters piece was posted on the Internet site on Tuesday...and it's courtesy of Scott Pluschau.  The link is here.


Charlie Gasparino Says There's Going to be a Blood Bath at Morgan Stanley on Monday

Charlie Gasparino reports that Morgan Stanley is in for some deep cuts on Monday.

Bloomberg is reporting 1,600 job cuts at the bank next week as well.

None of this should come as a surprise. Morgan Stanley's CEO James Gorman has always made it clear that Wall Street had to downsize and that he wasn't afraid to have his own employees feel the pain.

That goes for compensation (down 9% since last year) and layoffs. The truly ugly year was 2011, when the firm was running layoff scenarios in the several thousands. At the beginning of last year, Gasparino (again) reported that by June 5,000 more people would be gone.

This Bloomberg article was posted on their Internet site mid-morning yesterday...and I thank Roy Stephens for his first of many contributions in this column.  The link is here.


Jonathan Weil: Finally, the SEC Goes After a Failed Bank’s Auditors

The Securities and Exchange Commission is finally doing something that desperately needed to be done: Suing the auditors of a failed bank that got caught cooking its books.

Today the SEC’s enforcement division accused two accountants at KPMG LLP of engaging in unprofessional conduct during their 2008 audit of TierOne Corp., a Lincoln, Nebraska- based lender that had about $3 billion in assets when it collapsed in 2010. The agency hasn’t reached settlements with either of the men, John Aesoph, 40, and Darren Bennett, 35, and their lawyers didn’t immediately return phone calls.

The SEC’s administrative order accuses the pair of “failing to subject TierOne’s loan loss estimates -- one of the highest risk areas of the audit -- to appropriate scrutiny.” It also said they “violated numerous PCAOB audit standards, failed to obtain sufficient competent evidential matter to support their audit conclusions, and failed to exercise due professional care and appropriate professional skepticism.”

This excellent commentary by Jonathan Weil, a Bloomberg columnist, was posted on their website just before lunch Eastern Time yesterday...and I thank Washington state reader S.A. for bringing it to my attention...and now to yours.  The link is here.


Sterling crisis looms as U.K. current account deficit balloons

Is the UK heading for a currency crisis? 

It’s the sort of problem you might have thought disappeared with the 1970s, but as the Coalition renews its wedding vows, that’s the unsettling possibility raised by economists at both HSBC and Royal Bank of Scotland. With fears of a eurozone break-up, a calamitous fiscal contraction in the US, and a hard landing in China now fast receding, it is possible financial markets will refocus their attentions on more conventional concerns. The failings of the UK economy might be prime among them.

Some of the reasons for this need little explanation. Low growth has undermined attempts to reduce the fiscal deficit, which remains one of the highest in the OECD. This in turn is likely to lead to the loss of Britain’s prized triple A credit rating this year, making the UK comparatively less attractive to overseas investors. What’s more, capital flows from the eurozone to perceived “safe havens” such as the UK are slowing as the crisis eases. There is also evidence of elevated concern among investors about Bank of England money printing.

This story was posted on The Telegraph's website late Monday evening...and is definitely worth reading if you have the time...and I thank Roy Stephens for sending it along.  The link is here.


Irish house prices to fall another 20pc, warns Fitch

Irish house prices could fall a further 20pc and inflict stiff losses on holders of mortgage bonds, with a growing risk of property defaults across the eurozone periphery, according to Fitch Ratings.

The agency said the foreclosure process was now at the mercy of politics in Ireland, as well as Greece and Spain, as each takes steps to prevent repossession of homes by lenders.

This has already led to a surge in 90-day arrears to 11.3pc in Ireland, where distressed borrowers no longer feel constrained to pay their mortgages, knowing that they are safe and can expect big debt write-offs under new insolvency laws. “There is a moral hazard concern,” said Fitch.

A decree suspending home evictions has also raised the same risk for lenders in Spain, while Greece has suspended foreclosure sales on main homes.

This Ambrose Evans-Pritchard commentary was posted on the Internet site early Tuesday evening GMT...and it's also courtesy of Roy Stephens.  The link is here.


Opposition in Berlin: Cyprus Bailout Could Fail in German Parliament

The urgently needed bailout of the Cypriot banking industry is in danger of being vetoed by the German parliament. The opposition Social Democrats say they are leaning towards voting no, according to a media report. With Chancellor Merkel unable to rely on her own majority, that could be bad news for Cyprus and for the euro.

Optimism has been in no short supply in the euro zone in recent weeks. Before the new year, both European Commissioner Olli Rehn and notoriously circumspect German Finance Minister Wolfgang Schäuble said they believed that the worst of the euro crisis had passed. European Commission President Jose Manuel Barroso joined the chorus late last week.

But for crisis late-comer Cyprus, the worst is almost surely still to come. Even more concerning for the Mediterranean island nation, Germany's opposition Social Democrats (SPD) now say they are considering voting against a badly needed aid package for the country. And the Green Party is skeptical too. With Chancellor Angela Merkel no longer able to rely on her own parliamentary majority to push through euro-zone bailout packages, help for Cyprus may not be forthcoming.

Anyone who believes that the European banking crisis is ever going to go away, is dreaming in Technicolor as far as I'm concerned.  This article was posted on the German website yesterday...and I thank Roy Stephens for sharing it with us.  The link is here.


Euro-Crisis Hope: Confidence in European Banks Is Returning

There is cause for hope in Southern Europe. New numbers indicate that trust is returning to banks located in countries that have been hit hardest by the euro crisis. But even as discrepancies in the Continent's Target2 payment system shrink, danger still lurks.

The turning point came almost exactly four months ago. On Sept. 6, 2012, 22 men gathered on the 36th floor of the European Central Bank building in Frankfurt to reach a momentous decision on the Continent's common currency. The euro, said ECB President Mario Draghi at the press conference following the meeting, is "irreversible." To save it, he added, his bank would undertake unlimited purchases of sovereign bonds should it become necessary.

Since then, an amazing thing has happened. Although the ECB has yet to embark on any such bond shopping sprees, countries such as Italy and Spain, at risk of being engulfed by the crisis, no longer have to pay the horrendous interest rates they did in the middle of 2012. Furthermore, the massive imbalances that have recently plagued the European banking system have shrunk, if only slightly.

I wonder how the banking crisis in Cyprus fits into this Pollyanna-ish story that was also posted on the Internet site yesterday?  Just asking.  It's courtesy of Roy Stephens as well...and the link is here.


How The Swiss National Bank Went "All In", Three Times And Counting

Think the Fed (with its balance sheet amounting to over 20% of US GDP), or the ECB (at 30% of GDP) is bad? Then take a look at the balance sheet of the Swiss National Bank, whose assets now amount to some 75% of Swiss GDP and which has now "literally bet the bank" in the words of the WSJ not once, not twice, but three times in a bid to keep the Swiss Franc - that default flight to safety haven - low, and engaging in what is semi-stealth currency warfare by buying other sovereigns' currencies for over two years now, although he hardly expect the US Treasury to even consider it for inclusion on its list of currency manipulators - after all, "everyone is doing it".

This must read Zero Hedge piece, with a must see embedded chart, was posted on their website yesterday...and I thank Washington state reader S.A. for his final offering in today's column.  The link is here.


Palestinian PM warns of cash crisis

The Palestinian self-rule government is in "extreme jeopardy" because of an unprecedented financial crisis, largely because Arab countries have failed to send hundreds of millions of dollars in promised aid, the Palestinian prime minister said Sunday.

The cash crunch has gradually worsened in recent years, and the Palestinian Authority now has reached the point of not being able to pay the salaries of about 150,000 government employees, Salam Fayyad told The Associated Press. The number of Palestinian poor is bound to quickly double to 50 percent of the population of roughly 4 million if the crisis continues, he said.

"The status quo is not sustainable," Fayyad said in an interview at his West Bank office.

This AP story/interview was posted on their website on Sunday...and I thank Scott Pluschau for sending it our way.  The link is here.


Japan Is Weighing Raising Military Spending

Japan’s new conservative government announced a review of national military strategy on Monday that analysts said was aimed at offsetting China’s growing military power and that may increase defense spending for the first time in a decade.

Prime Minister Shinzo Abe ordered his government to replace the nation’s five-year military spending plan and to review defense guidelines adopted in 2010 by the left-leaning Democratic Party, which his party defeated in elections last month. Those guidelines called for gradual reductions in defense spending, and in the size of Japan’s military, particularly in the number of tanks and infantry members.

Mr. Abe had promised during the election campaign to strengthen the military to defend Japan’s control of islands in the East China Sea that are also claimed by China.

This news item showed up on The New York Times website on Monday...and I thank Nitin Agrawal for sending it.  The link is here.


Charts: The Highest Effective Personal Tax Rates in the World

A country's personal income tax rate is only one indicator of how much tax an individual actually ends up paying on their income, according to a report by KPMG.

This very short commentary showed up on The New York Times website on Monday...and it's courtesy of Nitin Agrawal.  The link is here.

"Our broader analysis further emphasizes the point that other taxes and the impact of deductions clearly need to be considered...Interestingly, the difference between top tax rates and effective combined tax and employee social security rates shows that neither of the two countries with the largest top marginal tax rates (Aruba and Sweden) feature among the top five countries when we use either US$100,000 or US$300,000 as a basis for comparison," write the authors.

"Whether social security is a true tax is a topic of continued debate, but in terms of cost, it can be material and should not be ignored."

For someone with a gross income of $100,000 a year, these are the forty countries in which they would have to shell out the most for, tax and social security combined. The United States is much further down the list, being the 55th most expensive country on the list.

This short, but very interesting article with a couple of excellent charts, was posted on the Internet site late yesterday afternoon...and it's definitely worth a peek.  It's Roy's final offering in today's column...and the link is here.


Two King World News Blogs

The first blog is with Sprott Inc. president Kevin Bambrough...and it's headlined "This is About to Rock the Financial World".  The second blog contains key portions from the latest Investors Intelligence report...and the link to that is here.


White House isn't ruling out the $1 Trillion coin idea

There's no question: Today was a major game-changer for the movement to circumvent the debt ceiling by minting a platinum coin, a strategy that would take advantage of an arcane area of the law relating to coinage.

Today White House press secretary Jay Carney was asked about whether The White House saw the coin as a viable option, and rather than shooting it down he just evaded the question.

The response from the media has been unanimous: Carney left the door open.

If this madness does come to fruition, dear reader, it will because the banks have discovered that they can fool all of the people all of the time.  I found this story on the Internet site...and it was posted there early yesterday evening Eastern time.  The link is here.


$1 trillion platinum coin hogwash – if it should happen buy gold and silver

Far be it for me to argue with a Nobel prizewinning economist, members of Congress and however many thousands have signed the White House petition to mint it, but this whole idea of a trillion dollar platinum coin is ludicrous.

It would have to constitute the most gigantic fraud ever perpetuated by a government and probably make the U.S. dollar and the U.S. economy the laughing stock of the world.  If anything, it would trigger a huge investment surge into gold and silver as all faith in government-created money would evaporate!

Firstly – why platinum?  It is based on a legal technicality allowing the U.S. to mint platinum coins of any face value.  However, given that $1 trillion dollars worth of platinum at current prices represents around 8 or 9 times the amount of platinum ever mined throughout history, a trillion dollar face value coin would have to bring any kind of money creation into even more disrepute than it already is.

Amen to that...and everything else that Lawrie Williams has to say in this excellent article posted on the Internet site yesterday.  It's a must read...and the link is here.


Silver gains popularity among investors amid economy fears

Worries about the challenge of reviving the sluggish US economy and dealing with the Eurozone debt crisis have prompted nervous investors to find safe havens to put their money.

Gold has been long considered a safe-haven asset, but investors are now being attracted to silver.

The BBC's Leisha Chi has been finding out why some bullion experts believe silver will outperform over the next few years.

The 1:54 minute embedded video starts off on the wrong foot when it mentions the fact that the JM 100 oz. silver bar shown is worth US$40,000.  In actual fact, it's probably worth US$3,200 maximum at today's current price.

This story showed up on the Internet site on Tuesday...and I thank Matthew Nel for bringing it to our attention.  The link is here.


Tocqueville Gold Strategy Investor Letter: Fourth Quarter 2012

The bull market in gold remains intact.  The metal rose approximately 7.14% in 2012 in US dollar terms and has increased in each of the last 12 years.

Negative real interest rates incentivize capital to move into gold.  It is difficult to imagine a world of positive real interest rates, absent a significant shift in monetary and fiscal policy in the Western democracies.

Gold and gold shares historically have been positively correlated.  However, during the past few years, gold mining stocks have underperformed the metal due a host of issues that we have discussed at length, including our website article A Golden Mulligan. Although the article was published a few years ago, the issues afflicting gold mining stocks mentioned then still hold true.

Gold needs to rise only 15% to trade at a new high.  We believe that this is in the cards for 2013, and that such a move will be driven by the continuation of negative real interest rates and heightened concerns over the direction of monetary and fiscal affairs in all western democracies.

This short essay by John Hathaway of Tocqueville Asset Management is a must read...and it was posted on their website yesterday...despite what the date is on the essay.  The link is here.


India’s Gold Mania

Less than 1% of the world’s gold is mined in India. The rest comes from somewhere else. Still, India can’t get enough. It is the largest consumer of gold in the world, buying nearly a third of production in recent years. Some estimates say that 10% of all gold is held in India.

Indians save roughly 30% of their income, as opposed Americans, who save 5%. Plus, Indians are getting richer all the time. Once a very poor country, the rich and middle classes now outnumber the poor in this nation of 1.2 billion. The country has the sixth-largest economy in the world.

If people are left alone, high gold demand going forward is a lock.

This Doug French essay was posted on he Laissez Faire Today website on Tuesday...and it's worth reading.  I thank West Virginia reader Elliot Simon...and the link is here.



¤ The Funnies

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Drilling Intersects 102 Meters of 1.97 gpt Gold at Columbus Gold’s Paul Isnard Gold Project; Drilling Confirms Depth Extension of Gold Mineralization

Columbus Gold Corporation (CGT: TSX-V) (“Columbus Gold”) is pleased to announce results of the initial five (5) core drill holes at its Paul Isnard gold project in French Guiana. The holes confirm depth extension of gold mineralization below shallow holes drilled on the 43-101 compliant 1.9 million ounce Montagne d’Or inferred gold deposit at Paul Isnard in the 1990’s and support the current program of resource expansion through offsetting open-ended gold mineralization indicated by the earlier holes.

Robert Giustra, CEO of Columbus Gold, commented: “These drill results validate Columbus Gold’s approach to adding ounces with a lower-risk drilling program designed to infill and to extend the mineralized zones to 200 m vertical depth from surface; a depth amenable to open pit mining.” 

Fourteen (14) holes have been completed (assays pending) by Columbus Gold in the current program and drilling is progressing at the rate of about 3,000 meters per month with one drill-rig on a 24 hour basis. Columbus Gold plans to accelerate the current program by engaging a second drill-rig as soon as one can be obtained. 

Please visit our website for more information about the project.


¤ The Wrap

Not only is it true that all price manipulations must end; it is also axiomatic that the end of a price manipulation must be sudden and dramatic and that the price must move opposite to the direction in which prices were manipulated. When the silver manipulation ends, the price must quickly explode upward. Almost literally, the end of the silver manipulation and price explosion must come in a day...or a night. I can’t tell you which day or night, just that the decades-old manipulation will end in a flash. In a nutshell, that’s what keeps me invested even when JPMorgan looks likely to manipulate prices lower yet again; I can’t take the risk of missing what I believe is a sure thing – the sure thing being that silver is manipulated and that the manipulation must end violently. I can’t step aside and risk missing the one day that I’ve known must come for the last quarter of a century. - Silver analyst Ted Butler...09 January 2013

It was sort of a 'nothing' day in the precious metals where, once again, the prices of both gold and silver were carefully kept under their respective 200-day moving averages.  How long this 'watching paint dry and grass grow' episode in the precious metals continues, remains to be seen.

So we just have to sit here and wait for events to unfold as far as the prices of the precious metals are concerned...down or up...and I hope you made careful note of what Ted had to say in the quote below the cartoons posted above.

In the meantime, we have this $1 trillion platinum coin story to keep us amused until it gets the official burial that it so richly deserves.

While on the subject of watching paint dry, that's pretty much what happened in Far East trading on their Thursday...and prices are quiet going into the London open.  Volumes at the moment [2:49 a.m. Eastern time] are extremely light, with almost no roll-overs out of the February delivery month in gold, so it's my guess that the trading volume is almost all of the high-frequency trading variety...and the dollar index is down a hair.

And as I hit the 'send' button at 4:42 a.m. Eastern time, nothing much is happening in London trading, either.  Volumes are up a bit...and there are still no roll-overs in gold worth mentioning...and the dollar index is still down a hair.

See you here tomorrow.