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Saturday, October 12, 2013

An apt political cartoon

Two newsbits

Two bits of news for you.

New Deal Democrat - weekly indicators. He seems to think the US economy is going to get driven into recession by the Republican taliban.

Reuters - fierce cyclone rips into India. Just for a bit of background on what the country is really like.

Cyclone Phailin threatens to smash into India - unless she quits halfway through to take a job at Fox News, haha

By the way...

BBC - Cyclone Phailin causes mass evacuations in eastern India.

I know that Whitey still thinks he's important to the price of gold somehow, but wouldn't it be interesting if the real reason gold went down this week was because a cyclone is about to hit eastern India?

I mean, it'll damage harvests, which would result in a decrease in this year's Indian gold demand. And it'll wreck enough property that you could expect some Indian gold to be liquidated due to the stress, thus a small pop in scrap.

On Bank of Nova Scotia's new Indian gold deposit scheme, part two: gold strikes back

As I said in my previous post, an interesting news item hit the wire over the past few days. Here's a link for you to read first:

Reuters - India's top bullion bank to work with jewellers to tease out gold hoards.

So basically, BNS is offering a gold term deposit scheme that will pay out 2.5%-3% interest, in gold, and send that gold to the jewellers so they can melt it down to make and sell jewelry.

Because it's Indian gold to begin with, this eases the need for imports, so India's CAD drops.

Again, here's a quote from the Reuters article:
Scotiabank's plan aims to enlist jewellers to collect the gold, which could make it more accessible in a country where many people use family-run jewellers for generations and banks are few and far between in rural areas.

Other attractions of the scheme could include more flexibility in the duration of deposits plus tax-free interest.

Soni said he had proposed a lock-in period for the deposits with Scotiabank of two to seven years, compared with the three to five years in a similar scheme run by state-owned State Bank of India (SBI).

Indians often use gold as a ready source of liquidity in times of need, making longer-term deposits less attractive.

SBI offers interest rates of 0.75 percent to 1 percent on gold deposits, depending on the time period.
In my past post I tried to puzzle out exactly how much Indian gold this would bring into the scrap market. Because that's essentially what this is: BNS takes your gold via your local village jeweller, gives you an IOU and 2.5%-3% interest over a 2-7 year term, and then melts down the gold and sells it back to jewellers.

If it actually works, then the scheme helps the jewellers in increasing the amount of local-origin scrap gold available for resale. So they don't have to worry about the stupid import restrictions.

And it helps the Indian government, because local-origin gold will then replace imported gold, so their (dangerous and unsustainable) CAD goes down.

But maybe it doesn't, and here's maybe why.

The gold deposited is melted down and sold. Paper replaces it. The interest is paid in gold. The principal gold eventually has to be paid back at the end of the term - at least in theory.

So Rajesh is essentially lending BNS 100 grams of gold. He has to be paid 3 grams of gold per year over seven years as interest. BNS sells the 100 grams to a jeweller.

If Rajesh decides, after seven years, not to roll over his principal into a new deposit, then after seven years BNS has to buy it back from somewhere to close out Rajesh's account.

Obviously that means BNS is going to have to hedge against future gold price increases. If gold continues to go down (in rupee terms) from the date of deposit to the date of maturity, then BNS is making a profit on the deal; but if gold goes up, BNS has to hedge out that loss. It gets hedged, period.

I'm no economist so I don't know what that does to the price structure for gold futures. You explain it to me. I'm assuming that enough hedging against future gains drives gold higher over time, since it's been asserted that gold miners' past hedging against future losses was a downward price pressure on gold. But you tell me if I'm wrong.

Another thing that springs to mind with this is that after Rajesh's 7-year term is up, he's already been given 21 grams of gold in interest, plus he has the right to ask for his 100 grams principal back. But meanwhile, those 100 grams of principal have been melted down and sold to somebody else.

So after 7 years, BNS has to buy 100 grams of gold from someone to pay Rajesh back.

This is fine if BNS is successful in encouraging more gold to come in per year than is leaving via redemptions and interest. But per my last post, I don't see massive participation in a gold deposit scheme that pays 30-40% of the Indian 10-year bond and exposes the average Indian's prized asset to de-allocation, encumbrance, loss of liquidity of an asset, and probably a whole pile of political risk.  Plus jewelry can't participate (I assume) because its sizeable heirloom and craftsmanship premia are destroyed.

But if this scheme works at luring in enough Indian gold, then it isn't destroying Indian physical gold demand; it's increasing it. Gold interest is being paid out, more gold jewelry can be sold, the gold term structure is steepened, and now gold "the worthless asset that just sits there" is also becoming an asset that pays out interest.

Frankly I don't see how BNS can look at global supply/demand trends and think that this scheme will be profitable long-term in any way.

Another possible problem I see with this is that, when the next Indian financial crisis comes, instead of it causing a rush to sell scrap, it'll cause a rush in withdrawal of gold deposits. BNS will have to buy that gold on the market, and thus instead of a spike down in gold prices from a pop in scrap, the world market might see a spike up. Which I guess is what we all want to see gold do, but which it hasn't actually done in decades.

And, in case of domestic crisis, those poor Indian peasants who thought they were being all clever and modern by setting up gold deposit accounts are going to realize how stupid they were. Is the deposit locked-in for the term? Then it'll really suck for you when you have a really shitty harvest (or a cyclone washes away your village, ahem) and you've naively traded in your physical gold for a piece of paper in a box somewhere in Delhi. Sucks to be you, this year's 3% payment comes in December, have fun starving til then.

Another problem might be that India could change the rules. What if BNS runs to the Indian government, say during a time of crisis that causes a gold deposit run, and whines that they can't possibly find 2000 tons of gold to pay back to all the depositors who are clamouring for their gold back? Well, the government's already done douchebag things like retroactively levying 5 years of back taxes on Nokia; why do you think they won't ever change the gold term deposit rules retroactively so that these accounts only need to be paid out in rupees?

In a crisis, that's exactly the time when the Indian depositor's preference for rupees over gold is at its lowest.

That last problem goes to the heart of the "political/currency risk" problem; is any Indian seriously going to value the political risk premium alone at 3%? Seriously?

But if this sort of gold-run-causes-deposit-default scenario ever were to happen, you can bet it would be a tremendous setback for India's progress toward a modern banking system. There would be yet more justification for the average Indian peasant to hold all his savings in physical gold, and to avoid any participation in the Indian banking system.

Meanwhile, if you did get a massive wave of participation in this gold deposit scheme, remember that all this gold gets melted down and sold to jewellers. That means if 2000 tons of gold rushes into these deposits, the net world supply of gold increases. But does BNS get to mark their gold obligation to market? I'd like to know how that's going to work.

And if the price of gold drops after the initial deposit, your payout (in gold) has now dropped even lower than the 2.5%-3% initially offered. All of a sudden the average Indian sees this as even less of a deal than it originally was.

And if the net world supply of gold increases, does that simply make EMs buy more gold? It'll be cheaper, after all. But with dwindling world supply, actually with zero mined supply if the gold price crash gets strong enough, what does that do with futures?

Looking at the above, it seems that BNS's gold deposit scheme is little more than borrowing present gold against future gold. And India is a big enough country, with enough of the world's physical gold, that any real participation in this scheme will really tilt the fuck out of gold futures.

Sure, a big rush in by all Indians would crater the present-day price; imagine India putting 2000 tons of gold into these gold-deposit schemes. But that would still mean BNS would have to pay out 60 tons of gold a year in interest, plus those 2000 tons of principal would be an evident liability unless they could keep the rollover rate really high.

Meanwhile China, and EM central banks, keep buying gold. While mineable deposits are dwindling.

Which, I guess, is why BNS can't possibly offer a sufficient interest rate to make it worth anyone's while.

Given the above, you'd have to expect that BNS, if a rational actor in all this, is going to try and find the sweet spot in participation that stabilizes gold prices short-term (i.e. not too much of an inrush of physical) and long-term (i.e. no net effect on long futures). I would assume it doesn't want to cause chaos either way in gold prices, or else the volatility premium on its hedge goes sky-high.

Maybe I don't understand this enough, and I probably would have to be an investment banker to puzzle this out sufficiently. But after thinking over these two posts, I don't see why the BNS Indian gold deposit scheme should have any net effect on gold prices.

On Bank of Nova Scotia's new Indian gold deposit scheme

An interesting news item hit the wire over the past few days. Here's a link for you to read first:

Reuters - India's top bullion bank to work with jewellers to tease out gold hoards.

So basically, BNS is offering a gold deposit scheme that will pay out 2.5%-3% interest, in gold, and send that gold to the jewellers so they can melt it down to make and sell jewelry.

Because it's Indian gold to begin with, this eases the need for imports, so India's CAD drops.

Here's a quote from the Reuters article:
Scotiabank's plan aims to enlist jewellers to collect the gold, which could make it more accessible in a country where many people use family-run jewellers for generations and banks are few and far between in rural areas.

Other attractions of the scheme could include more flexibility in the duration of deposits plus tax-free interest.

Soni said he had proposed a lock-in period for the deposits with Scotiabank of two to seven years, compared with the three to five years in a similar scheme run by state-owned State Bank of India (SBI).

Indians often use gold as a ready source of liquidity in times of need, making longer-term deposits less attractive.

SBI offers interest rates of 0.75 percent to 1 percent on gold deposits, depending on the time period.
I've slept on this, and here's what I think:

First, let's get some background out of the way.

It's been noted elsewhere that the SBI's existing scheme has seen pretty much no participation. 2.5%-3% is a better yield than the 1% that the SBI offers, but remember that the Indian 10-year bond is at 8.48% as of this weekend.

(BTW, I consider any country's bond yield to be a function of the market-determined base risk for entering into any contract in that country. The market is saying "if you want me to give you money and take a piece of paper in return, this is the minimum interest I demand to make it worth my while to assume the risk of this contract.")

So anyway, offering 2.5%-3% for a gold loan when you're paying 8.48% for a rupee loan? Well, the only way that works is if most of the 8.48% is there because of perceived risk in the rupee. But given India's recent past, I'd have to think a big chunk of that risk premium actually comes from political and economic risk, not currency risk.

BTW, I don't see how a lot of jewelry would participate in this deposit scheme. Jewelry has a premium to melt, and also has heirloom or social value; the point of BNS taking in this gold is so that they can melt it down and sell it to the jewellers, so you won't get your granny's bangle back 5 years from now. So you probably won't deposit it, will you?

Now, next comes my opinion. Entirely honest, an attempt to be rational and empirical, not-goldbuggy.

I can understand the intent of this. As (I think) Raghuram Rajan has asserted, India has a tremendous amount of its total liquidatable (i.e. non-land) assets held in gold, and the gold is "just sitting there".

A modern financial system works by taking in liquid assets, paying "rent" in the form of interest, then leveraging against the assets to multiply money supply. Rajan thinks India is hamstrung in becoming financially modern because so much of its assets are hoarded gold, and thus not able to participate in this. So, let's take all India's gold, and treat it as money, leverage against it, and poof! We have a modern economic system where a large amount of new capital drives greater economic growth.

There's a sociological aspect to this, by the way. You need a society that's willing to participate in modern banking before you can have modern banking.

So sure, the sociologically-modern rich Indians in Bombay will possibly deposit some of their gold bullion in a gold account. After all, it is "just sitting there", and maybe 3% is better than nothing?

Although if you're a sociologically-modern rich Indian in Bombay, who no longer feels any imperative to own physical gold, then I'd have to wonder why you didn't sell all your gold ages ago for cash to buy shares in Wipro or Tata. Or even to buy Indian 10Y government debt at 8.48% yield.

But the point of this BNS scheme seems to be to draw gold out of the sociologically-archaic countryside. And that is problem number one.

If you're a peasant farmer with 10 grams of gold in his possession then you possess an unencumbered, fully-allocated asset that acts as a hedge against existential risk, and also acts as a hedge against currency weakness and inflation. What BNS wants to make you do is turn that asset into an encumbered, unallocated asset with counterparty risk.

If I have this right, you hand your gold to the local jeweller (who let's assume is considered completely trustworthy by your entire village, since his family has been selling you gold for generations); he forwards it to BNS, who put an IOU in a little box with your name on it, and BNS melts it down and passes it on to the jewellers to make new gold to sell to other people. Your gold is now gone and replaced with an IOU.

For all of this, BNS pays you interest with the promise of maybe getting your gold back after 2-7 years.

Firstly, I don't think the economic incentive is there. For a rural peasant who knows all about economic collapse and starvation, it must seem quite important to always physically possess an unencumbered, fully allocated asset that's instantly accessible and instantly liquidatable. Even the article above says this.

So imagine you're a rural Indian peasant: what premium would you want to be paid on a gold deposit? Even fully illiterate and uneducated, you can still understand that you're taking on an encumbrance risk, a de-allocation risk, and (if you're really smart) a currency risk (since once your gold is gone, the risk is there that the government changes the rules so you only have to be paid back in the rupee value of that gold when the deposit comes due).

The only reason Whiteys put up with idiotically low interest rates (like 2.6% on the UST10) is because our modern banking system is happy with these low interest rates. They leverage against the asset so that they see a larger return on their capital. But to a sociologically-archaic peasant, 3% is a joke.

The risks this peasant is taking on are very tangible. By "tangible", I mean he actually sees his gold go away, and is left holding piece of paper. Can't get more tangible than that.

Encumbrance, de-allocation and political/currency risk are probably worth more than 2.5%-3% for a 2-to-7-year deposit, as far as the average peasant is concerned. He'd probably want 10%.

After all, the Indian 10-year government bond is yielding 8.5%, and the yield on a government bond reflects internal political, economic and currency risk, no? Essentially India has to offer people 8.5% to lend the government money for 10 years. The peasant is essentially lending money to a bank; why should he only get 2.5%-3% for this loan? He doesn't know it, but he's expecting a premium to Indian government bonds, and with good reason - from his point of view, he's taking on more risk than someone buying bonds.

Really, when you look at it from the point of view of an Indian "goldbug", a fellow who owns physical gold for precisely the same reason that Ron Paul thinks you should own gold, then it doesn't seem likely there will be a lot of participation in this scheme.

From the point of Rajan, though, I guess any little bit helps.

But while it's awfully hard to figure out how much effect this new scheme by BNS can have on Indian gold imports - heck, they could drop by 20 tons a year if nobody participates, or by 1000 tons a year if everyone does - the above discussion should at least allow you to narrow the error bar.

I also wanted to talk about the effect this would have on the long-term gold demand side, but this post is already too long, so I'll leave that discussion for my next post.

Friday, October 11, 2013

The setup for this weekend, as of 9:00 AM

Here are some charts as of yesterday close, with today's premarket action comments:

Gold this second is at $1267. Lose any more pennies, and the chart becomes one of a gold H&S breakdown, "there's no such thing as an H&S continuation pattern" be damned. This is what people are seeing right now, and it's being done on purpose.

Here's silver:

Silver is about $21.15 this second, which I guess suggests an imminent pennant breakdown? Is that it? It's also being sold heavily with the intent on cratering the price.

V-bottoms will only really forestall the inevitable unless you can get even just one higher high printed somewhere, anywhere.

In memory of Chopper Read, the real one

Here's some videos in memory of Chopper Read, whose liver finally gave up this week.

Here he is just having fun at home:

Here he is talking about telling great bloody lies on Howard Stern and getting away with it:

And here's an old Chopper Read interview, talking about a very darn clever way to survive prison:

Friday videos - two by Loop

Loop were doing the stoner riff-rock thing when Queens of the Stone Age were still little boys piddling their beds and playing with toy trucks.

If you can't make a rock song without going over two chords, you're a fucking poser. Two chords is all you need.

Funny little piece of trivia is that when Lush were starting out, they did a whole whack of gigs opening up for these guys. I can't really see what the two have in common, but it must have made for interesting shows.

Here's another Loop video:

Again, two chords is all you need. I think this must be the Peel version of "Collision", cos the 12" version pulls the early-90s English trick of mixing in more and more guitars after each verse.

Thursday, October 10, 2013

Two charts from Mr. Frisby

Here's two charts I received today.

This first chart here shows that whitey stopped buying gold after the price started going up. That might suggest this chart simply portrays Western asset-allocation; in the traditional asset-allocation model, you sell gold when it goes up.

Asian aggregate demand, however, looks very price-inelastic. Though maybe that's because per-capita wealth creation has run a lot faster in the East?

Interestingly, according to this chart, 2003 world fab & investment demand was 4000T, and now it's only 3600T. Um... those numbers look funny. Please verify with WGC data before believing any of this.

Also, this chart stops in 2011, and it's the 2 years after this that we really need to be concerned about to see if trends have changed.

This other chart is more recent, and explains why gold went down in price. When total holdings goes up, ETFs show up on the demand side, while when total holdings goes down that means the ETFs have moved to the supply side.

Nothing new whatsoever in this second chart, except it provides a perfectly sensible explanation for the price of gold going down that has nothing whatsoever to do with US money supply, QE, or a secret cabal of bankers.

noon newsflash

Blah blah debt ceiling blah blah Janet Yellen.

Now with that out of the way....

Wait a sec. Hey, Goldman Sachs! You said gold was a slam-dunk sell when the debt ceiling problem went away. Well, apparently the market thinks the debt ceiling problem has gone away. So y u not selling gold?!?

Anyway, here's some news:

Reformed Borker (Bork Bork Bork!) - rallies end when good news is sold. So I guess this rally isn't over yet? I mean, they seem to be buying good news right now.

Bespoke - Dow hits 200-day for first time in 2013. So... buy industrials? I dunno, what's going to be the next big thing?

Michael Shaoul - India trade data for September. Quote on the official gold figures:
With a decline of this magnitude one must ask the question as to whether a portion of prior imports have now gone underground and are simply not being captured by official statistics. If in fact smuggling has been minimal this would represent a very significant decline for global gold demand. A drop in crude imports accounts for another $1 bln or so, meaning that other imports actually rose on a YoY basis.
Hey Mikey, where else are Indian savings going if not gold? Smuggling has indeed not been minimal, unless Indians have magically changed their available investment opportunities in the past month.

FT beyond brics - Asia learned lessons from the 1997 crisis. The suggestion is that things aren't as bad this time. Well, fine. Asia won't have a financial system collapse again, sure; but their era of easy money is still over (ex-China of course). - Standard Bank's bearish case for silver. By their reasoning, they should also have a bearish case for iron ore and aluminium, two other things the Chinese love to stockpile. So if stockpiled metals are over-riding supply-demand fundamentals, the argument has to be a lot more complex than this, and thus this article isn't really being helpful.

Open letter to Andy Bell from BNN Commodities

Hey, Andy!

I see you have Tom Kendall from Credit Suisse on your Commodities report, today at 11:30AM. The title of the segment is "Another Nail In Gold's Coffin", ha ha, ho ho.

I can understand if you simply want to lob this kid a bunch of soft pitches and let him spend most of the half-hour on his favourite talking points, I really do. That's what TV "journalism" has become, after all. It's why most of us people are getting our news from the internet now.

But Andy, if you feel a bit ambitious, might I suggest the following?

1) You could ask Kendall about the data for Chinese gold demand, and which direction is the trend in the data, and how that justifies a bearish gold call. Cos it doesn't, really.

2) You could ask Kendall about the data for primary gold supply, and investment gold supply, and how those trends justify a bearish gold call. Cos they don't either.

3) You could ask Kendall about Indian gold demand, remembering that most gold is now getting smuggled into India. Does Credit Suisse have a good handle on how much smuggled gold is entering India? Or are they simply relying on official government figures?

4) Indian rural farmers make up 60-70% of Indian gold demand, and they're going to see a bumper crop this year. What does Credit Suisse think they're going to do with their money, given they have no banks? Does Credit Suisse think 600 million rural Indians will suddenly decide this year to take a day-long train ride to the nearest city, open a brokerage account, and buy fractional shares of Apple?

5) Ask Kendall the mechanism by which physical gold demand is affected by the US dollar, or by Treasury yields, or by quantitative easing. Because he's probably a really smart guy and I must really be dumb, because I just don't get how any of those things should affect physical gold demand and I must need some 'splainin' to me.

6) Just as an aside, ask Kendall if he has the same outlook for silver and platinum, considering they're industrial metals correlated with world economic growth and he seems to feel gold is the opposite. Would continued Asian wealth creation imply a lower future gold price, given constrained supply? If so, what is the data supporting a theory of reduced Asian gold asset allocation in the future?

I feel this would make for a very informative interview, Andy. What do you say?

Wednesday, October 9, 2013

Denver Gold Forum presentations: the streamers

Maybe if you listen to the streamers talk about gold, it'll settle you down a bit and make you stop crying?

So here are three links for you:

David Harquail from Franco Nevada

Tony Jensen from Royal Gold

The Sandstorm Kid

Two evening reads

Just two things to read tonight, but both with real industry folk:

Mineweb - Pierre Lassonde interview. He invented the Lassonde Curve, so he's worth a listen, though I kinda think he doesn't really understand economics very much.

CIM - miners reap what they sow with writedowns. An op-ed by Philip Crowson from the UK Mining Association.

Noontime news, including yet more comment on India, and Pierre Lassonde

Sorry this is late. If you must know, some clown decided just today to bung a great bloody ditch through something that I'd already designed, gotten stamped, and handed off to the contractor 2 years ago. So I was busy working on fixing that mess, until I realized that since they had two years to screw it up, I should give myself more than one day to fix it.

So anyway, here's some news:

Bespoke - S&P 500 at most oversold since June. They suggest it can get more oversold, though - perhaps to around 1630.

Reuters - China's makeover plan in progress. The argument is that no matter what comes out of the November plenum, it's going to be disappointing for some; the point is, though, that this is a major strategy document and the implementation will occur over years.

FT beyond brics - EM headwinds to sweep through Q3 earnings season. Do the outflows begin anew when Americans, watching the earnings reports, see that EM earnings are dropping?

Reuters - Indian gold demand in Q4 could reach 300 tons. Quote:
Some market participants say the excess demand could be met by smuggled gold, which has risen substantially after import curbs were imposed.

More "auspicious" days, when people buy gold, is seen helping to boost demand.

"There are 20 percent more auspicious days and also there is pent-up demand from last quarter. Monsoon has also been good, so all indications are demand will be robust," said Somasundaram PR, World Gold Council's (WGC) India managing director.

However, the WGC does not expect a repeat of April and May, when imports soared.


Demand for gold is likely to be sustained as more people are expected to demand gold in absence of a bank account in rural areas, which contribute to about 60-70 percent of the demand.

"As we see population growth, as we see more people get out of the poverty line... demand will grow," Somasundaram said.

The federal government has been asking consumers to refrain from buying gold and estimates gold imports to be at 750-800 tonnes in the year to March 2014.

Gold has always been an integral part of Indian culture and is given as an endowment for marriages and for other auspicious and religious reasons.

According to government estimates, about 137 million households have been lifted out of poverty since 2004-05, leaving more disposable income in the hands of consumers.

"The first thing a person does when the come out of poverty is buy gold. ATM card and bank account comes much later," Somasundaram said.
Mineweb - are gold equity premiums a thing of the past? Among other things, this article has a link to a Pierre Lassonde interview, which is probably something I'm going to want to listen to later. Here's a very interesting snippet quoted in the article:
[...] in his view, the major reason why gold companies are not getting a premium these days is because there is no Contango and that’s because the price of money is mispriced because we have zero interest rate.

"Don’t forget that gold is the only commodity that trades at a higher price tomorrow than today on a normal day, because it has a Contango. So back in the days where you had 3% or 4% interest rates the Contango would be 3.5% or 4.5% and then if the gold price today is $1300, well in 10 years’ time that gold price was $2000. Okay, well when you start to do the PV on that, it’s worth a heck of a lot more than if you do a copper company which trades in backwardation. It’s worth less tomorrow than it’s worth today... so when you do your PV you get a different answer and that is why the gold companies in a normal interest rate environment will always be worth more than a normal company."
Um... Pierre? Do banks value gold miners this way, when setting price targets? I have never seen a PV calc for a mining property that assumed an escalating gold price. Even when gold was at $1700, the base case used was $1400 gold, declining down over time to the banks' analysts' assumed long-term average future price.

Yes, a positive future outlook for gold prices would raise miners' price targets. But that's just a vacuous truism - positive outlook generates a higher multiple.

Tuesday, October 8, 2013

$VIX weekly is interesting

Check this out:

The $VIX weekly candles don't tend to break above the 200-week SMA. Unless, of course, there's a major liquidity crisis.

Now check this out:

Matches up pretty well with bottoms, eh?

So the question is, is this just a normal market setback, or a coming dump?

Four charts for the US market

Why yes, I dumped my NBG this morning between $5.20 and $5.33, thanks for asking.

And here's 4 charts for the US:

NASDAQ has about dropped to its 50-day.

$RUT is sitting on its 50-day. Again, a big candle.

SPY has actually borkened its 50-day.

And $VIX is +3SD, possibly with higher to go if this Republican terror campaign continues. VIX term structure at this second has gone very backward for Oct-Dec. In fact, spot VIX at 20.45 is at May 2014 levels. I haven't watched $VIX during a crash before, so this will be a fun little learning experience for me.

Earnings season starts tonight. I wonder if anyone will be paying any attention?

Goldman Sachs calls gold a "slam-dunk sell"

Bloomberg - Goldman anal cyst calls gold a slam-dunk sell.

His idea is that after the government shutdown ends, downward pressure should resume on gold.

If so, then he should be shorting gold right now, not after he gets news of a shutdown end. After all, it's pretty fucking stupid to try to take a position after everyone else starts doing the same thing.

His argument is predicated on the Fed's bond-buying program being eased, which unfortunately can't happen now til December at the earliest, and might not start til 2014 if this government shutdown nonsense causes enough of a hit to the US economy.

And his argument says nothing about gold demand in China (see previous posts) or the bumper crop being harvested in India right now. Or anything happening anywhere in the rest of the world.

Cuz gold is America.

Cuz Jesus.

Thus, ignore Jeffrey Currie. He's short and he wants to telegraph it.

Hey Republicans! See if you can find your country in this picture:

Hey Republicans!

Take a look at this picture:

click to embiggen

It's a picture of a major economic & political conference that happened in Indonesia just now.

The US is represented by that guy way in the back row on the right, because your President was unable to attend. He was unable to attend because he's busy trying to deal with Republican terrorism. The guy on the right is pushed off to the edge of the stage because he's not a head of state, unlike everyone else in this picture.

Your country is quite literally being pushed off the world stage, because the paleolithic toddler behaviour of the Republican party has turned your country into a fucking joke.

The people centre-stage are seizing the future. From you.

Because Republicans are fucking morons.

Tuesday morning news

Hooray! This blog has made it to post #3000! Let's throw a party.

Gold is being sold down a bit in London, but this time silver and platinum are not following. So I guess the financial industry got my memo.

Here's some reading for you:

Bonddad - food inflation not an issue. The problem with foodstuffs is you can't have a bubble go on for more than a year, because supply is very elastic and responds quite aggressively to price signals.

Sean Brodrick - charts on gold. He seems to think gold is tracing out a H&S bottom. He also has some nice explanatory charts, like this one:


A barbarous relic that nobody would ever want, eh?

And this one here is interesting, since (if you remember recent history) it seems to suggest that the entire GLD puke and more just got stuck in a pipe and flushed directly into China:

Um... can you see a trend there? Hm? Any trend? Anything happen to jump out at you?

Sean also gets a little over-excited and goldbuggy though:
By the way, Sun Zhoaxue, president of China's biggest gold mine, says: "The average Chinese person only holds 4.5 gram of gold, that is far below an average of 24 grams per person globally."

Do you think the Chinese gold rush is over? I'd say it's barely started! Just to get equal with the rest of the world China would have to import or mine another TWENTY-FIVE THOUSAND metric tonnes of gold and allocate the biggest part of this among the population.
But I do really like how, unlike pretty much anyone else I've been reading, he notes that every S&P pullback is a screaming buy opportunity and not a "massive repudiation of debt as a dishonest system is coming apart at the seams".

Still, it's not much of an endorsement to say "Sean Brodrick shows more sense than a goldbug blogger."

International Business Times - India's unofficial gold market shows little signs of slowing. Remember this the next time you read some Goldman Sachs paid propaganda about collapsing gold demand in India.

Mineweb - Singapore small-cap rout. Apparently it was a stock bubble, and it's now been burst. See also:

WSJ - Blumont, Asiasons, Liongold plunge in Singapore. Too bad for Minera IRL, I guess.

Monday, October 7, 2013

Whatever happened to Daniela Cambone?

I've seen all the Daniela Cambone searches disappear.

I figured either she died in a freak gardening accident, or the whole goldbug world has given up following her.

So guess what?

She was in Rome last week, of all places, interviewing people at the LBMA 2013. It even seems like she's interviewed people who know what they're talking about and aren't uneducated goldbug loons, such as CME's global head of metals:

The World Gold Council's Far East managing director:

And TD's head of commodity strategy:

Good work, Daniela! And no wonder the goldbug wackaloons aren't following you anymore!

Regarding what I just posted about the exploreco world on Friday....

IKN posted tonight about this fellow Lawrence Page from Manex, who's trying to organize "Operation Survival" on behalf of all the 1500 or so utterly worthless explorecos out there.

As IKN notes, in 2012 alone he made $720k off of just four of his Manex companies.

That's about equivalent to the market cap of his Valterra Resources, by the way. I wonder how Valterra bagshareholders feel about that.

I'd add that both his Homestake and his Valterra have done little private share-exchange agreements with one Global Resource Investments Ltd., aka Rick Rule. So it's not like Page is having a hard time raising capital.

All I have to say, I said on Friday night. Go read it, Lawrence Page, Rick Rule, and anyone else out there who is pulling a snit about having to pay a few grand a year to fleece the sheep on the Venture.

Maybe I should forward a copy of that post to every MP in Parliament tomorrow. After all, healthy debate is the cornerstone of democracy, no?

And now, some evening news

Embarrassingly, NBG closed at $5.39, and some goof ticked SBL to $0.13. So I'm actually feeling pretty good, despite still being a major bagholder of Rio Alto.

Anyway, here's some evening news:

Michael Shaoul - global financial conditions and the Washington standoff. Geez, there's a lot of guys expecting that the Rethuglicunts won't pull the pin.

der Spargel - interview with George Soros on Greece. See also his Project Syndicate article. I like how he notes the three bailouts of Germany; what he doesn't note is the long period of low European rates that were meant to aid Reunification, but which instead blew property bubbles in the periphery.

Reuters - Chile expansion remains robust. I guess the commodity market must not be so dead after all, eh? I mean, if the commodity supercycle is dead, you should be able to write off Chile first, no?

Mineweb - tax officials raid diamond traders in India. Only here because I'm wondering how much these guys are connected to the gold smuggling industry. Then again, it's not like any government has ever managed to stop smuggling before, right?

Open letter to Dilma Rousseff

Dear Dilma Rousseff:

If you would like to make it obvious to all foreign governments that you won't tolerate industrial espionage of the type perpetrated by the CSE, then here's what you do: confiscate all Brazilian assets of all Canadian mining and oil & gas companies.

I dunno how much those assets are worth, but I'd expect it's enough to get the rest of the world's attention. And after all, they were obtained illegally through espionage, weren't they? Why should these companies profit from espionage? Take 'em all and hand 'em over to Vale or something. Who cares. The Canadians didn't play nice, so take away their toys.

Then, threaten all employees of these companies with arrest for espionage. That'll keep them out of your hair. Who cares if they whine in Canada?

Who knows? Maybe a good stiff $10-$50 billion kick in the balls of the Canadian economy will make other countries behave a little better in the future.

If you don't want foreign governments to fuck around with you, then act like it.


I'll Make The Fucking Trains Run On Time, If They Know What's Good For Them

National Bank of Greece pops nicely today, thank you very much

It's always nice when a stock you own pops 25%. Maybe cos of these two stories?

Reuters - NBG and Piraeus to set up bad bank.

GDP Insider - FT says John Paulson investing aggressively in NBG.

I originally didn't think this pop would last beyond the usual start-of-month 20-25% pop that I noted back on Friday. But now I think I'll just hold on to my shares for a while; the second highest daily volume in 6 months, with 2 hours still to go, makes this an interesting hold.

We'll see.

Lucky pick.

Oh and Santa Barbara Resources also looks very interesting right now thank you.

Unintentional hilarity

Upon reading the Wikipedia article on guinea pigs, howls of derisive laughter Bruce.


The common guinea pig was first domesticated as early as 5000 BC for food by tribes in the Andean region of South America (present-day the southern part of Colombia, Ecuador, Peru, and Bolivia), some thousands of years after the domestication of the South American camelids.

OK, that's interesting. I mean, that's a pretty ancient time for domestication of anything.

Statues dating from ca. 500 BC to 500 AD that depict guinea pigs have been unearthed in archaeological digs in Peru and Ecuador. The Moche people of ancient Peru worshipped animals and often depicted the guinea pig in their art.

Worshipping guinea pigs. Carving statues of guinea pigs. And they think lolcats are dumb?

From ca. 1200 AD to the Spanish conquest in 1532, selective breeding resulted in many varieties of domestic guinea pigs, which form the basis for some of the modern domestic breeds. They continue to be a food source in the region; many households in the Andean highlands raise the animal, which subsists off the family's vegetable scraps.

As we know by the heartless posts on IKN.

Folklore traditions involving guinea pigs are numerous; they are exchanged as gifts,

WTF? That's a hilarious image right there.

"Hey Juan! Guess what I've got you for your birthday!"

"Oh... great... how thoughtful... I'll just put it here with the others."

used in customary social and religious ceremonies, and frequently referenced in spoken metaphors.

"La montaƱa llega al cuy," "tan inteligente como un cuy en un taller de reparaciones" and "para pintar una acuarela con los cuyes", perhaps. I mean, those must at least be sentences.

They also play a role in traditional healing rituals by folk doctors, or curanderos, who use the animals to diagnose diseases such as jaundice, rheumatism, arthritis, and typhus. They are rubbed against the bodies of the sick,

Well! Don't ask don't tell, ducky!

and are seen as a supernatural medium.

Dude, supernatural? Okay, well at this point, I'm starting to think you probably shouldn't be pissing supernatural creatures off by eating them.

The news at noon

Bespoke - bullish sentiment increases. Y'know, the market was waiting for a big pullback so they could buy the dip. Now there's been a bit of a pullback; I'm wondering if everyone gets caught flat-footed by a Republican-caused calamity?

Calculated Risk - shutdown update and schedule. He thinks everything will work out fine.

Reformed Borker (Bork Bork Bork!) - scared straight. Yeah guess what Josh, the Republicans will just blame Obama.

Bonddad - US market analysis. A good earnings season after a successful debt limit increase would be something that could change this rounding trend.

Calculated Risk - framing lumber prices increasing. Indicative of housing construction strength.

NY Times - Canadian spies targeted Brazil's mining ministry. I guarantee you this was only to hand over inside information to the Canadian government's buddies in the mining industry. Canada has no other reason to give a damn about Brazilian mining.

Reuters - Indian gold importers start processing orders. Quote:
Exports have begun, so jewellery makers are expected to replenish stock ahead of the peak Christmas season, traders said.

"A government bank has told us to keep stocks ready, so it's a just a matter of time for imports to re-start," a official with a foreign bank, which supplies bullion to India.
What's that you said about the US debt?

Mineweb - Rick Rule interview. Useful, for what it's worth. Here was one part that was interesting to me:
TD: Rick, you’ve commented in the past that there are about 200 or so global corporate issuers that are qualified as far as being deserving of your firm’s capital. How is that market developing in terms of those people being realistic in terms of asking for money and what they’re willing to give in return?

RR: Tekoa, they are absolutely willing to take capital but they are amazingly stubborn in terms of the conditions that they’re asking for in the context of contributing the capital that they very much need.

Those issuers are certainly aware of the fact that they are the best of the best and I think given that they’re entrepreneurs, they are very, very optimistic in their outlook which is a good thing generally. It’s a bad thing if you happen to be a capital provider because I think one of the things that happen as a consequence of their naturally optimistic orientation is they regard the capital raising conditions that existed in the period 2003 to 2010 as normal conditions rather than optimal conditions and they believe that this market downturn is much more temporary than I happen to believe it is.

I am in most cases older than they are and I have been through more cycles than they have and I think I understand more about normalized funding conditions than they do. But the truth is that the market will teach us over the next 18 months who is right and who is wrong.

xkcd - open letter. Here, let me reprint it for you:

Question for the Wall Street crackheads who are buying gold and silver right now

So gold is up around 1% right now, and silver is up around 3%. So I have a question for all the clowns at SocGen, Goldman, M Partners, BMO, Carrelton, and the other instos who read this blog.

If you're buying gold as a hedge against US government technical default:

Have you figured out yet, based on our experience of various crises over the past few years, that correlation between assets approaches 1 during a liquidity event? Cos when everyone wants to get liquid, they dump whatever they can: and gold is one metal that will get dumped hard in case of a US-led international crisis.

So gold isn't going to "hedge" you against anything.

Also, have you realized yet that, if your theory about gold going up in a US crisis were correct, that conversely the House averting this crisis would cause gold to get dumped back down on the "all-clear"?

And as for silver:

You do realize that silver is an industrial metal, right? I mean, physical demand for silver will collapse if a technical default drives the world back into recession.


If you're buying gold and silver on the bumper Indian harvest and wedding season approaching, with the added bonus of possible Chinese economic reforms with the November plenum, then spot on, Bevan!

Too bad though that the price is going to get slapped around by traders thinking gold and silver have anything to do with the Fed or the US debt.

GDX and GDXJ not playing along

I wouldn't expect the miners to make a leveraged move to gold, if the perceived reason for gold's strength is fear over a possible US technical default.

(As opposed, of course, to gold's strength resulting from a bumper Indian harvest and imminent wedding season.)

Still, it's weird that at this moment, with GLD +1.08% and SLV +2.96%, we see GDX at +1.12% but GDXJ at -0.05%.

Especially with GDXJ being an ETF full of a bunch of silver miners dontcha know.

So is it just a case of some hedge fund cokehead puking his GDXJ position?

Or is it that GDXJ is still full of utter crap like Silvercorp, GUY, SUE, LSG, Sabina, CSI, Great Panther, Aurcana, Atac and so on? Cos an ETF made out of crap should probably be expected to perform in a crappy way, fundamentals be damned - especially once all the sucker retail has been driven out of the crap end of the market.

new Rio Alto news release

It has a catchy title.

Junior Mining Network - Rio Alto Produces a Record 59,157 Ounces of Gold in Q3 2013.

That's a bit better than 55k, anyway. An so the stock begins to recover from last week's pukefest.

Here's some body:
As part of its 2013 operating strategy, the Company completed the west-wall cutback of the Calaorco Pit which is reflected in the 2013 quarter by quarter decrease in stripping ratio from 2.50 tonnes of waste to one tonne of ore in Q1, to 2.25 in Q2 and 1.12 tonnes of waste to one tonne of ore in Q3. Management continues to optimize mining activities at La Arena and believes that the Company will continue to generate strong positive cash flows.

Permitting for the La Arena Phase II project is underway and a definitive feasibility study for the project is scheduled to be completed in Q2, 2014.

"Excellent progress has been made at La Arena during 2013. Not only have we achieved record quarterly gold production and on track to achieve our production guidance, but we also have been able to come up with a plan to continue high levels of gold production going forward whilst reducing our operating costs. 2013 was always going to be our worst year from a cost perspective because of the west-wall cutback but from the end of 2013 onwards, the project we will see a steady reduction of unit costs. The construction of the electrical substation and connection to the national energy grid is progressing well and on track for operation in Q3 2014. We are also analyzing the possibility of including an in-pit crushing and conveying option for ore and waste in our Phase II project to reduce our dependency on diesel fuel and hence lower operating costs. Other potential improvements to the Phase II project are currently being analyzed which has pushed the completion time for the definitive feasibility study to Q2, 2014." commented Alex Black, President & CEO.
I'm sure the usual suspect will toot RIO's horn on his own blog once he gets around to reading the important news instead of stuff about canned guinea pig.

Sunday, October 6, 2013

Overly Attached Girlfriend reading the works of Taylor Swift

It actually fits in with the Overly Attached Girlfriend persona.

Five Sunday morning newsbits

Billy Bishop is back at the helm, so the China news is flowing again. Here's some stuff:

NY Times - China's economy back on track. Henry Paulson seems to suggest the future is bright for China, specifically because the leadership spent the last decade avoiding reform altogether.

Reuters - property database delay frustrates China's anti-graft drive. Wonder how this resolves? Sinocism notes that this was in all the domestic news a couple months ago.

WSJ China Realtime - China debates benefits of inheritance tax. I guess it can't happen if you don't even know what the rich people own, right? Then again, rich Whiteys also don't make their assets visible to Western governments either, do they? China definitely needs tax revenues from somewhere.

Reuters - China aims to triple trade with Malaysia by 2017. Erp... so we know that the EMs are going to get crippled by a higher cost of money as the US interest rates normalize. But does continued multiplication of trade with China cushion the blow, maybe? I wish I knew more about the last EM bear market; this time might be different, I'll admit.

Investor Intel - if you want to understand gold, look at Asia. No clue who this guy is, or whether he's worth reading. It's just nice to know that people have picked up on what I've been saying for the past year already. Gold isn't American. Whitey better wise up.