31 May 2013

Gold and silver market status update

An update to my previous posts here and here on the state of the gold and silver markets as the Perth Mint sees them. Coin demand (retail and wholesale) has also eased but still good. Our retail outlet in Perth is quiet.

On the gold kilobar market, premiums have come off a bit but are still way above normal levels. This market action is confirmed by Warren "the ETF bar list guru" James at Screwtape Files who has observed a clear preference by bullion banks to choose 99.99% 400oz bars rather than 99.5% bars when redeeming physical from the ETFs as investors sell up, as the 99.99% bars can just be melted down and recast into kilobars (no refining required) and sold at a premium. Warren will have a post on his blog showing this graphically when he gets time.

On the Depository front, over the past few weeks we are now seeing net selling. It seems a bit of that is clients selling up part of their holdings and switching into equities. This may reflect what Financial Sense Newshour said in this podcast where they have clients who originally had a modest allocation percentage into precious metals but after the bull market (and no rebalancing) they are now sitting on excessive allocations of say 75%. Clients may have been induced into rebalancing with gold not showing any signs (yet) that a rapid rise is coming combined with the stock market showing gains.
We have also seen some physical collections of metal in Depository, mostly silver but minor quantities overall. The net loss in Depository is modest an similar to the percentage losses Bullion Vault, GoldMoney and BMG Bullion are also showing, according to Sharelynx's Transparent Holdings page (you'll need to subscribe if you want to see the data). The ETFs have been showing a lot more percentage losses than PM, BV, GM and BMG have, which reflects I think our more retail (strong hand) client base.

I don't know how to read this market behaviour. Weak investor sentiment like this could portend a bottom, but it could also make the market suseptible to a sell off if the April price smash entity decides to test the market's strength again as it need not worry about position limits and the CFTC catching them out.

Gene Arensberg at Got Gold Report also sees the market as “very imbalanced” and “dangerous for both sides of the battlefield.” with the largest hedgers of gold are positioned as though they see very little downside left, while on the other the Funds, while still net long gold, have put on their largest gross short position since the disaggregated data begins in 2006

Further confusing messages comes from the contrast between James Turk and the Royal Canadian Mint. James Turk reports some stress in the wholesale markets (although I think when he says that "some of the larger orders to buy bars have been moving out to as long as T+5, which is extraordinary" he is referring to kilobar, not 400oz bars, as GoldMoney isn't showing premiums or delays for their 400oz bar backed product) and that "the buyer or buyers who pushed the gold price up during the London PM fix yesterday were obviously desperate to get their hands on physical metal and were prepared to pay whatever price it took to obtain it".
Then we have this Globe and Mail article which notes that the Royal Canadian Mint's gold and silver exchange-traded receipts were trading at a 1.7% and 1% discount on Wednesday. The fact that "major investors holding at least 10,000 of the gold ETRs or 5,000 of the silver ones could also redeem them for metal and acquire holdings at a below-market price" certainly isn't reflective of a shortage in the wholesale markets.

At this time I think I agree with Gene: "We have to admire the courage of those willing to sell gold short in this, very imbalanced environment, knowing that a reversal could occur any moment and that it could be epic in its violence. Rest assured we have neither the courage nor the inclination to do so ourselves."


  1. Interesting points.

    One question about the G&M article - you mentioned that the gold and silver for the ETRs were trading at less than spot.

    My understanding is that this is a relatively small issuance and represent only about $550 million total (gold and silver combined). To negate costs associated to the pickup, security, and transfer (you have to hire armored truck companies) - costs would come up quite a bit. That's also assuming that you buy the whole market of these ETR's, which i'm not sure is very feasible.

    I could be wrong but I'm not sure this is quite the arbitrage opportunity that it may seem like...

  2. For a bullion bank or professional large trader, they could easily buy the ETRs and redeem, but just keep the physical at the RCM as the RCM does do storage (Sprott has their metal with the RCM).

    That is why I consider it unusual that someone isn't taking the arbitrage. 1% is a huge margin in the wholesale markets and well above any shipment cost.

  3. Bron, 

    Got a question that doesn't pertain to your current topic. Was hoping you could enlighten me. Can large buyers come to the Perth mint and purchase directly? Say a guy like kyle bass has a client that wants physical delivered to his choice of storage would he be able to purchase directly through the Perth mint on behalf of the client? If he can what kind of volume could the Perth mint handle? In other words lets say this client wants 2 tons of physical delivered, could the pith mint handle this? If so how long would it take to deliver? 

  4. If we allow individuals to buy a 1oz coin, why would we stop a large buyer?

    As with any client we would need to know who we are dealing with, even more so if you are talking $100 million, so a large buyer can't just expect us sell them 2 tonnes on the first phone call.

    Once we have identified them and they have deposited their cash in full upfront, then we would sell to them.

    We refine around 5-6 tonnes a week, but could source additional.

  5. Bron-

    Anything new? Haven't heard from you for a while.

  6. Busy at work and personally, not much going on, demand has eased off, seems the market and price are in a holding pattern between $1320 and $1450.

  7. What's your perspective on this second freefall?

  8. You left a comment on my blog around the middle of May regarding the Comex warehouse silver bars. I had not checked the comments in over a year, so pardon the delay. You said FYI, those aren't silver bars.

    I would think someone that worked at the Perth Mint would understand that good delivery bars do not all look exactly the same or exactly resemble the linked pic from Casey Research.

    Just food for thought.

    1. Think Tank ENT - the standard wholesale specifications for the size of silver bars is defined by the LBMA and it is no where near what the bars in those pictures are. Just because the pic comes from Casey does not mean it is right. Those bars are just too big for silver, the max weight of which is 1000oz.

  9. I do not believe the picture was sourced from CR. Needless to say the COMEX good delivery bars are not limited to a maximum of 1000oz. They are all around this amount +/-, this may differ from the LBMA's guidelines. Maybe you are confusing the two.

  10. Comex and LBMA standard does have a +/- around 1000oz, but that picture you have on your blog is not of +/-1000oz bars, they are just way too big. In the image the lengthways bars are way too long for a standard silver bar and not stacked in the way silver bars are done in the industry. I suspect that image is of aluminimum.

    Like I asked in my comment, where did you source the image from?

    Also, why have you switched your blog away from being public, thankfully google has a cached version of your post so I could check the image again.

  11. It's now the 27 June
    Who is going to bother to read your site if the last posting is 31 May?

    Give it up Bron. Your hearts not in it.

  12. @duggo: I would.

    Bron: Has demand picked up with the recent drop?


  13. It is now the 28 June.

    A blogger also, I appreciate you put work and family first. Still, I patiently check here each day on my reading rounds.

    As a PM customer I am more than grateful to have found your blog, a peek behind PM's glossy brochures.

    Regular readers accept when you're not posting, you're often busy battling in some big-note blogger's comments section. And, btw, thank you for curating those discussions and bringing them back here. Invaluable. And saves trawling for information amongst an often crazy and disturbing crowd.

    Nevertheless. A small posting on gold price ($1200.350 as I write) and its effect on sales/demand/production of physical would be very welcome.

    Facts. Speculation. At your convenience :0)

  14. Sitting in Melbourne airport after a week of presentations to stockbrokers and others here and in Sydney, so haven't had the time to get through 2200+ unread RSS feeds, let along write.

    I've never written for visitor numbers, best of which is 20,000 pageviews a month so this blog isn't influential, and people can use RSS to pick up when I do.

    Price has been smashed because some buyers are stepping back and the spec can sense the market's weakness and are thus pressing their advantage. Retail demand is good but in Depository we have seen new inflows drop off (but no surge in liquidations) but in kilobars into Asia/India the premium is back to normal showing that demand has eased off.

    At these levels mine cost is a factor and supply crunch will come which should be supportive but markets can always overcorrect beyond "fundamentals".

  15. Bron
    You are quick to comment on other people's views on wholesale markets, and their take on opaque OTC data, yet not comment at all on the delays at Perth Mint flagged up by Guardian Gold?
    You also say below that kilobar premiums to asia have eased off, yet I know that at least some swiss refiners say different and last night's (kilo bar) Shanghai closing premium was at $50 to the global front month. Isn't that somewhat anomalous in view of your statement?

    I think you do owe it to everyone to attend to this Guardian Gold story on your blog, even if it is what one might describe as a 'non-story'.

    To our Most Valued Clients,

    This email is in relation to the delays we have seen in the delivery of purchased physical gold and silver bullion and those clients whom are still waiting to receive notification that their bullion is available for collection.

    Again, we would like to formally apologize and assure you that we are doing all that is possible to have your metal delivered to our facility as soon as possible.

    I’m sure that many of you are aware of the enormity of transactions in the physical industry that have taken place over the last few months with the price drop. This has caused much of the delays in the delivery process as the manufacturing process of physical bullion takes time, man power and many resources.

    We are waiting for Perth Mint to fulfill many of our orders, some from as far back as April. This is a situation that has been out of our control as the distributor of these products, as we too are waiting for our orders to be fulfilled.

    We appreciate your patience during this time and can assure you that we have been guaranteed that all orders will be fulfilled, it is just a matter of time.

    If you have any queries, please don’t hesitate to contact our office.

    Best Regards,
    Guardian Gold Pty Ltd

  16. and any comment on this?
    Week 24 chart SGE
    Weekly chart physical gold delivered on the Shanghai Gold Exchange vs world mining production. By @KoosJansen

    - 56 metric tonnes delivered (left the SGE vaults)
    - w/w 136 %
    - 1044 metric tonnes delivered year to date

  17. Thanks for taking the time to share your take on things Bron. I really enjoy reading your comments, both here and other places.

    You have more fans than you know!


  18. Thanks for taking grabbing that brief moment and updating us, Bron.

    A handy 'counterbalance' to KWN's relative hysteria. Still, KWN is a must-read as those guys are quite a mix and they do know stuff.

    Wrt Guardian, I'm no PM shill saying this, but would strongly suspect Bron wouldn't poke a in comment here "with a 40ft pole" - him being a PM staffer.

    I'm down 25% on my au (more on sv) but this is no time to panic. Or beat up Bron :0)

  19. The Guardian email is in respect of a few cast bars sizes only, no other products are affected.

    I am not always quick to comment, you will find periods of time where there are few posts, and I have often let a lot of potential topics go by due to other pressing work commitments.

    Our kilobars premiums are back to normal. Others may be experiencing differently, which can be due to many other factors. You should also consider that it is in the commercial interests of refiners to talk up kilobar premiums. Not too much different to coin dealers talking up shortages.

    Assuming the SGE is physical out the door, this is just another pointer to the consistent Chinese demand for metal. Keep in mind that gold has 60-70 years annual demand above ground, so easily possible for more than mine production to be supplied.

    I would however suggest you consider that maybe that metal is just round tripping and coming back in, see http://goldchat.blogspot.com.au/2012/09/chinese-imports-not-all-they-seem.html and also http://dizzynomics.wordpress.com/2013/06/22/chinas-liquidity-squeeze/ or http://ftalphaville.ft.com/2013/06/05/1525542/the-rise-of-the-real-collateral-mining-business/ or http://ftalphaville.ft.com/2013/05/01/1482892/gold-as-collateral-not-stock/

    I think there is merit in the idea that maybe some of gold's weakness is due to unwinding of this trade.

  20. BTW, writing up on Izzy's gold collateral idea is another one of those topics I'm just too busy at the moment to cover.

    Posts are going to be few over the next month unfortunately.

  21. did you see izzys attempt to argue against Gold at a debate in London - available online - involved second grade arguments and a stunning lack of insight? She seemed to think that trusting human endeavour instead of Gold invalidated 4000 years of history. She also recently said that the use of concentration in futures markets by big institutions to move the price around was and I quote (including her misspelling) 'skillful execution'.
    That is so egregious and or willfully ignorant that any further comment is a waste of breath.
    Anyone who leans on her for insight into Gold when she knows absolutely nothing at all of worth about the subject is heading up the wrong track. Ugh.

  22. also as for round tripping - surely wholly irrelevant - are you suggesting that the fact that China is importing vast amounts isnt happening? How then can they be delivering such big volumes over and above their own (big mine supply) - and why would it matter? Perhaps they are selling the Party's holdings? Hahahaha
    What is self evident is that the closing preimums in Shanghai keep widening and the deliveries of kilo bars (yes they are real!) keep growing. Over and out, as i say, leaning on Kaminska who barley knows the differnece between an eagle and a kilo bar, let alone a 400oz bar, is just silly...especially in light of her shillism towards the bullion banks and their ENTIRELY ILLEGAL use of concentration beyong concentration limits. The market is $260bn a day and around 2-5% (absolute max being v generous) is covered by actual metal, the system is blowing up, simple as, obvious when looking at solid and contuinuing backwardation when theoretically it cannot be there.

  23. I don't agree with Izzy's politics or hate of gold, but that doesn't mean I'll ignore everything she writes.

    I said there is merit in the idea, not that i agree with all of it. My point was to get people to consider that China is not just a physical only market and one is naive if they think that there are no financialisation of gold going on or leveraged gambling on gold in China.