LBMA Silver “Price”: A Perfect Storm of Stupidity

Since I’m partial to a bit of alliteration in my post titles, it is just as well that the Fix had a name change because there is a word beginning with F that describes what happened midday London yesterday (and that word is Farce – go wash your mind out with soap). Anyway, “storm of stupidity” is probably a better fit because it looks like a combination of price insensitive sellers using what now appears to be a closed-end fund.

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German gold repatriation update

Three years ago tomorrow (16 January 2013), Deutsche Bundesbank announced that they would be repatriating 300 tonnes of gold from New York and 374 tonnes from Paris by 2020, which was a revision of their October 2012 promise they would transfer 150 tonnes from New York by 2015. So how have they progressed and are they meeting their schedule?


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The two ways gold could repeat the 1970s

Even though investors are constantly told in disclaimer boilerplate that “past performance is no guarantee of future performance” the siren call of historical price charts is hard to resist. In the case of gold and silver, it is impossible to avoid projecting the 1970s bull market on today’s price action due to its epic nature and perfect representation of Dr. Jean-Paul Rodrigue’s bubble behaviour.

Gold bulls would argue that economies and financial systems have not been healed and accordingly the gold price top in 2011 was only a mid-cycle peak similar to the peak of $197.50 in December 1974. In chart form this claim manifests as per below.


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Is gold stretched?

 

Last week I wrote about the gold silver ratio as a way of determining which represents better value. Since then the ratio has moved higher, with gold outperforming silver on its move above $1,100. This has brought with it a number of bullish articles and while the move is encouraging and supports the idea that gold may have bottomed, in relative terms gold looks stretched to me at this time if we take a step back and look at the bigger picture.

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Issuers can make deliveries using eligible

Focusing on registered stocks versus open interest is a favourite of many bloggers because it produces dramatic “Comex is about to fail” figures. I have written many times that one also needs to consider eligible stocks as eligible inventory can be converted to registered relatively quickly. Blogger Kid Dynamite noted in passing in an email that December was a textbook example of eligible being used by issuers to make deliveries to stoppers. Not one to take the words of a cartel apologist at face value, I contacted data wrangler Nick Laird for detailed Comex warehouse movements and issuer/stopper figures, to check the facts for myself (and you).

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In August I did an analysis of the ideal percentage allocation between gold & silver. This assumed one picks a percentage allocation and sticks with it. Another investing approach is to switch between gold and silver based on one's view of which metal will outperform the other in the future. One way to determine the point at which to switch is to use the gold/silver ratio.

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A way around FBAR/8938 reporting using LockSmart?

 

I am often asked by US residents whether precious metals are reportable under IRS and FinCEN foreign asset/account reporting obligations:

• Form 8938, Statement of Specified Foreign Financial Assets
• FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)

According to the IRS comparison of these requirements, “precious metals held directly” is not reportable.  So what does “held directly” mean? The IRS’ own Q&A confirms that safe deposit boxes are not reportable but otherwise provides no explanation of the term.

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Warehouse Wars: The JPM Awakens

Last week I wrote about the gold warehouses associated with the CME’s kilo futures contract. Today I’ll have look at the Comex New York warehouses but rather than focusing on the eligible/registered debate, which has been done to death, I want to look at the fight between the warehouses for storage customers and the entrance of JP Morgan into this $30 million per annum business in early 2011 (hence my tacky topical title). Read more here.

Hong Kong Gold Warehouse Movements

Back in July I pondered what happened to 110 tonnes of gold in one of the Hong Kong gold warehouses registered by CME for its kilo futures contract. The chart below updates the figures and shows that wherever the gold went, its is gone for good.


Those that get worked up about Comex “leverage” ratios should be interested in the fact that the Hong Kong warehouse report only shows eligible stocks and has never shown any registered, which probably has something to do with the fact that the delivery notice report shows no issues/stops for the kilo contract so far this year. Forget your 300:1 Comex “leverage” – that would put the OI/Registered Stocks ratio as divide by zero error, or in other words, the CME’s Hong Kong contract has infinite leverage!


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China accelerates gold reserves accumulation

In July I did a post on How much gold does China really have? which looked at the rate China was accumulating gold reserves based on their occasional announcements of how much gold they had. Extrapolating out their average monthly rate of 8 tonnes gave the chart below, which projected to 2,186 tonnes by the end of 2020. Since then China has begun to report its gold reserves every month and has accumulated 86 tonnes in five months – an average of 17.2 tonnes. That is a lot more than their previous rate and you can get a better idea of the acceleration if I update the chart above with the new reserves figures and then project that rate into the future. Read more here.