Friday, June 27, 2014

I VERSUS BRODRICK: here's what you need to know

Chronicles of Brodrick - Ermagerd gold is doomed!

He fires withering sarcasm at the idea that the China debt collateral problem is bad for gold. Look, for example, at this chart of sarcasm!:

Bah god King! He chokeslammed the gold apocalypse idea straight to hell! The gold apocalypse idea is broken in half!

Of course, the mere discovery of a $15B hole in China's $42B gold collateral shouldn't tank the price overnight because physical flows haven't changed on the news. Especially when Wall Street Whitey still thinks gold has nothing to do with China and India, but everything to do with Treasurys and the US dollar.

Gold flows might, however, change in the near future when all the banks decide to call in all the gold-backed loans, causing a wave of gold to be sold back into the market which no longer sees strong demand from China, and which is weakened by an Indian monsoon failure. Like, sometime over the next month or two.

Here's some more snark from Brodrick:
Surely, the professional hand-wringers said, this is the rough hour of gold's doom come round at last!
Whew! I had thought earlier that he was mocking me. But I'm not a professional, so he must be mocking someone else.

Then Brodrick decides to have an idea.
Here's an idea: if $15 billion worth of Chinese loans are based on gold that doesn't exist, maybe gold that does exist has more value?
Or maybe when the Western banks that extended these loans see how suspect the collateral is, there's a rush to call all the loans in? After all, the last bank to call in their loans will find there is no collateral backing left. And what happens when the loans are called in? The physical goes back into the market, except this time there's no Chinese gold-backed collateral loans mopping up hundreds of tons of physical demand.

A news item shouldn't cause a one-day hammerblow in the price. That is not a rational market. In a rational gold market, the price moves based on physical demand, and this will take a while to play out.

But wait! Then he has another idea.
Here's another idea: If Germany asks for its gold back from US vaults over a multi-year period -- and then basically just gives up trying to get it back -- maybe there's another problem.
Yeah well good luck with that. Whitey's been happy with the possible nonexistence of Federal Reserve vaulted gold for decades now - they only care about paper. Who cares if the paper is stored in Germany or New York?

And then Brodrick does the unthinkable:
To quote Sprott on the German situation
God no, Sean! Don't go there!
-- and yeah, I'm goin' there,
Aw fuck you're goin' there.
because he has at least as much if not MORE credibility on gold today as Wall Street's paper pushers of record:
Ah ha ha ha ha ha!!! Yes Sean, Eric Sprott has credibility. That's why Sprottcorp doesn't let him touch their money anymore, right? Ah ha ha ha ha ha!!!

I'm not saying gold is doomed. I'm saying that my feel of the fundamental situation has changed, and now I see fewer positive drivers for the gold price, and more negative drivers. At least til we get further into Indian monsoon season.

Or at least til we're through fund rebalancing this weekend. Because maybe these past few days of weakness have just been because of a few funds taking profits on their junior positions.


  1. At least you got the link right this time. And I always enjoy reading your commentary; it's entertaining even when it's slamming me. Plus, you have good taste in music. Happy Canada Day in advance -- SB

    1. You call THAT slamming? THAT was just friendly ribbing.