Wednesday, July 29, 2009

Fears of hyperinflation has apparently led to a run on precious metals

Swiss banks have no space left for gold!

By all accounts Swiss banks have no more secure storage for precious metals, especially gold bullion. The reason, apparently, is the fear of hyperinflation, combined with the success of gold index funds. The amount of gold links on the site would indicate just a touch of ramping. Bubble anyone?

Posted by denzil @ 09:47 AM (1094 views)
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21 thoughts on “Fears of hyperinflation has apparently led to a run on precious metals

  • mountain goat says:

    “While the big US based ETF, the SPDR Gold Trust, has recently seen a relatively small decline in its gold holdings”

    Hopefully the message is getting out that Gold ETFS are run by the same banks that are involved with shorting the gold market and so are not trustworthy.

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  • Good point ‘mountain goat’.

    I recently read, and have heard, from reputable sources that gold ETF’s currently outnumber physical gold (in value) by a ratio of 100-1. Same story with silver. I also heard a few hedge funds were exchanging their paper ETF’s for physical (aka real metal). I guess the same may hold true for most precious metals/commodities. Poor punters. What to do?

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  • Also heard that JPMorgan are forcing their silver clients to either take delivery. Many may sell to avoid the aggro, just before the bubble begins. Nice one JPM. Such harmony.

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  • Latety there has been very little blog activity here from the ‘model based’ theorists prediciting one extreme or another on gold prices

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  • Ah but shorting is used to hedge against losses in the market – its not always so sinister

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  • general congreve says:

    If this is true, then I imagine it’s a first, or the Swiss banks would have probably expanded their secure storage in line with previous maximum demand levels.

    So, here we have a situation where probably for the first time ever Swiss Banks are at bursting point with gold, indicating massive physical gold hoarding. I have also seen an advert for gold dealer in London who is currently paying full margin for all gold coins whatever the condition, obviously because they can be melted down for bars if they aren’t up to scratch as bullion coins. So demand for bullion in London is still very strong.

    What does information like this say? Well it tells me that in the real world of gold physical demand is at all time highs and staying that way, with no let up in sight. Yet, thanks to the heavily shorted paper market, that obviously bares little bearing to the realities we see in this story, gold prices have at best stalled and in some currencies are going down.

    Bubble Denzil? I would say the opposite. Going back a short while Goldman Sachs hyped the oil market on fears of peak oil. While the threat of peak oil is imminent at some point in the coming decades, Goldman’s call was premature and they knew it. In fact at the time the supply of oil was going up, but demand down. However, unwitting investors piled in, buying so many long oil futures that the paper they were written on outweighed the supply of actual oil above ground. Eventually people realised this and the price of oil dived, to come into line with the over supply of paper contracts on oil. Not before Golman had made off with plenty of money from conning investors with their market manipulation.

    Gold is in exactly the same position, the paper contracts outweigh the actual amount of physical gold in the world. This is obvious because while Swiss bank vaults are overflowing the gold spot price governed by the gold paper market is trending slowly downwards across most currencies. The difference between this and oil is that the excess paper contracts are all short. Who owns the 100% of the net short position? Goldman Sachs and JP Morgan. Why?

    1) To support the Fed which is run by ex-Goldman employees and therefore has a licence to print dollars and make Goldman even richer. They don’t want the Fed free money printing presses to become worthless, so they suppress gold prices, as rising gold prices typically mean a fall in the value of the dollar.

    2) They have such leverage in the market they know they can manipulate gold price up and down as they see fit, thereby making huge amounts by trading fluctuations on the gold price. This fluctuations can be largely governed by GS’s market actions and therefore are mostly predictable, so are a licence to make money for GS.

    The answer? Audit COMEX, whose leased gold is being ‘sold’ on the paper gold market by Goldman et al., but whose actual gold hasn’t been audited since the 1950’s. Of course this, probably won’t happen because it will expose the fact the real gold isn’t there (why else would an audit not be allowed?). So we must sit and wait for this crisis to worsen, as it does more and more gold paper contract holders will demand delivery of actual gold for safekeeping in these volatile times. Sooner or later the gold to service these paper obligations will run out and that’s when the truth will out, the paper market will collapse and the manipulation will end. As a result the price of gold will rocket upwards. For the meantime we wait.

    One other interesting point. Last year (December I believe) the Rothschilds left the London Gold Pool. A position the family had held for something like 300 years. The London Gold Pool sits daily to fix the sterling spot price of gold (although this is largely symbolic in these electronic times). Why would the Rothschilds leave? I propose it’s because they don’t want to risk being associated with price manipulation when this whole thing blows.

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  • @2 Agree with your observation.

    I find the lack of blog activity strange because those who have consistently ramped gold are VI’s and are no different to EA’s, RICS etc inso far as they attempt to talk up the market for their own purposes.

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  • mr G – i dont find it strange at all. If someone keeps saying something will happen and it doesnt then they have at least an emotional investment in it (if not a real one). So now they keep their heads down. Thats natural and i dont think they should be blamed for that – human nature, done it myself!

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  • techieman @ 5 & mr g @ 4 – don’t discount the possibility that those you refer to as ‘rampers’ may, quite easily, be silenced by invigilators.

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  • mountain goat says:

    TM speaking of model based analysis, did you see this Elliott wave look at EUR/USD? I think he seems to think USD going lower still before completion of moves down. Which means gold higher (just to keep it relevant to the thread 😉

    PS didn’t understand your shorthand on Friday much!

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  • MG – yes not much lower though before a new move up. I am interested in cable myself and said a while back that 1.64/65 was a target with a possible blip up to 1.70 before breaking down. Alternatively it might just break down now. Re my shorthand – do you have the link handy. i will take a look and explain.

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  • General Congreve,
    thanks for the detailed comment. I hold no gold (other than the ring on my finger) as it’s a commodity I can’t trully get my head around. This leads to my “gut feeling” being the only barometer with which to make a judgement call where my money is concerned, hence I steer clear. However, my “gut feeling” would probably be better than Gordon Brown’s experience with gold.

    One or two of your comments got me thinking though:

    >>Bubble Denzil? I would say the opposite. Going back a short while Goldman Sachs hyped the oil market on fears of peak oil. While the threat of peak oil is imminent at some point in the coming decades, Goldman’s call was premature and they knew it. In fact at the time the supply of oil was going up, but demand down. However, unwitting investors piled in, buying so many long oil futures that the paper they were written on outweighed the supply of actual oil above ground. << Agree. GS's ramping was so painfully obvious but those that realised what GS were up to piled in and created a self-fullfilling prophecy. The clever bit was getting out before everybody realised. Gold, possibly to my naive thinking, has those same characteristics at present. You then went on to say: >>Gold is in exactly the same position, the paper contracts outweigh the actual amount of physical gold in the world.<< Surely then the liklihood is that gold is bubble like? Regarding auditing COMEX, could this not lead to collapse with those realising their gold probably doesn't exist rushing to the exits based on the risk that their gold is discovered to not actually exist post audit? Maybe it has not been audited since the 50's for that reason.

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  • MG:

    13. techieman said…
    MG TA ATB TM

    Mountain Goat, Technical Analysis [was answering your question re a “hunch”] All The Best, TechieMan.

    “im a 47 year old OINK” – One Income No Kids.

    I dont think there were any others… were there?

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  • mountain goat says:

    TM thanks, apologies for being so thick!

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  • 3. general congreve: Thank you very much for educating my ignorance, for taking time out to write the above. Well done, now I can see the dark side of the Moon.

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  • mountain goat says:

    Denzil since GC seems to be taking a break I will try answer your question. Disclosure, being long gold I can also be classed as a VI and worthy of ridicule 😉

    If COMEX were to default and there are more paper promises than gold backing them, then surely this means the actual amount of gold is worth more? Say there is 10kg of actual gold but 100kg of paper promises of gold. Gold priced in paper is say $1000/kg but because there is only really 10kg of real gold the price of real gold is $10,000/kg when it is discovered there isn’t 100kg of gold after all.

    So this comes down to the reason for most people to own gold in the first place. Before 1920 coins were made of gold and sterling silver, that’s where pound sterling gets its name from. The beauty of this old system is that if the governing body who produced the coins gets taken over, you can simply melt the coins into another form. So the coins had intrinsic worth not based on the promise of current authorities. So it offers a freedom from the current financial authority. Today that authority for gold is COMEX. So if the paper markets get exposed as a fraud only those people holding the physical stuff own any gold at all.

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  • They say that when Wall St. comes to Main St. it’s time to get out.

    In other words, when excited vested interests start touting an investment to the general public, the opportunity to profit has usually passed.

    And when those same vested interests start scraping the barrel to produce ludicrous stories like this, then even the numbest skull should hear the warning bells..

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  • The following was taken from a Money Week article – sorry the charts haven’t come out when I copied and pasted & I’m not sure how to do it.
    Anyway yhey seem to see Gold going a bit lower over the next few weeks. This (as you will read below) is based on the amount of long and short positions being held.

    Perhaps someone could explain how you get hold of this data and follow it ?

    From Moneyweek :-
    On the gold futures exchange, the Comex, you will find three sets of traders. There’s the commercials, who are professional traders often hedging gold for large mining companies who want to lock in a particular price for metal they are about to mine. Then there are the large traders – often funds – and finally, the small speculators. One of most useful short-term indicators of the direction of the gold price is to look at the position these traders have taken, particularly the commercial traders. For some reason, this is a better indicator of lows than it is of highs.

    If the large traders do not have a sizeable long position and the commercial traders have a small (less than 150,000 contracts) short position, this tends to suggest that we are at some kind of low. As this next chart shows, this was the case at all the major lows – ie good entry points – of the last few years. The blue line shows the short position of the commercials and the green line shows the long positions of the large traders.

    What’s worth noting about the current positions of the traders is that both the large traders and the commercials have fairly sizeable positions at around 200,000 contracts. That is not indicative of a low. If anything it suggests that a correction in gold is imminent – in fact it looks like it may have began yesterday.

    From an academic point of view what I would like to see – and bear in mind that markets never do what you want them to, particularly when you express your ideals in public – is for gold to correct to around $860 and for the commercial traders’ short position to sink to around 120,000 contracts. I would suggest we need some kind of panic to spark this off, as, for now, there are more people happy to sell gold above $950 an ounce than there are people to buy it.

    How does gold measure up against the dollar and the pound?

    If the US dollar is finding support here at between 78 and 79 on the dollar index, as appears to be the case, we should get a correction in gold, in dollar terms at least.

    UK-based purchasers might like to take a look at this next chart, which shows gold priced in sterling since 1999, when our glorious leader sold ours.

    The chart quite clearly shows gold’s stepping pattern and suggests, in sterling terms, that we have a way more consolidation to go. But remember that gold, (which is in effect another currency), measured in sterling and gold measured in US dollars do not always move together. It depends on the relative strength of the currencies.

    When should you buy in to gold?

    The red line on the chart above shows the 52-week moving average – the average price of gold for the past year. As you can see, when the gold price pulls back to this line it has consistently marked a decent entry point for those buying in. So for those who do not currently own any gold, I would suggest that somewhere between £520 and £550 an ounce, just below the red line, is a good price to buy in. I suspect we will see that price some time in the coming weeks. And I hope it will coincide with the beginning of another big move in gold.

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  • mountain goat says:

    The Duke @5 – the trouble with the custodian of an ETF being allowed to short is that they can tap into the ETF reserves if they get it wrong and lose in their short bets. But the ETF reserves belong to the customers of the ETF. Unless there is a daily auditing of the ETF reserves I can’t see how this can be controlled.

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