Sunday, November 3, 2013

Two Sunday reads

A bit of news for the weekend:

New Deal Democrat - US weekly indicators. Here, let me sum it up for you: the US economy isn't slowing down.

FT - strange GOFO cry heralds trouble for gold. I'd ignore it if it was published on ZeroHedge, but instead here it is in the Financial Times. A quote:
As one of my gold refiner friends puts it: “The negative gofo is just a shortage of kilo bars. It is, technically, a backwardation, but I call it the convenience yield of having gold immediately available for physical delivery. Look at the huge premiums in the Shanghai exchange and in India. You think maybe the market will normalise and the premium will disappear soon. So you pay up for immediate delivery.”

The 400 oz bars, though, are the only acceptable form of backing for gold ETFs, not to mention the London market. There is a shrinking supply, which have been gradually flown from London to Switzerland, where they are further refined, cast into kilos, and sent on to China, India, the Middle East and elsewhere.

Say, what if there is a rise in the world gold price that leads to an increase in demand for gold ETFs and exchange traded futures? Could the gold flow back from those kilo bars to recasting as good delivery 400 oz bars?

Not easy, my refiner says: “Much of that has been converted to jewellery. It would be a lengthy process. Those are pretty sticky hands.”

He continues: “This could turn into a very violent wake-up for (screen-traded gold). People talk about ‘fiat currencies’, but we also have fiat gold. Volatility is too cheap right now.”
Of course the gold price needs a trigger before it decides to do something. I'm still not sure Modi is it, but something might be. Then, how high does gold have to go before Whitey sees what's happening and switches to long? It'll be interesting when it happens.

Then again, the ETFs might just decide to change the rules so that they don't need 400oz London Good Delivery. If... y'know... they wanted to suppress the gold price.

1 comment:

  1. Goldbugs: Keeping hope alive since September, 2011.

    God bless them and their nutty, conspiratorial view of the price of shiny rocks.