Good morning Ladies and Gentlemen:
Yesterday, we witnessed a powerful outside day reversal which generally happens rarely. However in the gold and silver market it is getting quite common. Gold closed by by 4.10 to 884.70 and silver rose by an insigificant 1 cent to 16.80. Early in the European session gold was up by 6.00. However news hit the wires that the big insurance company AIG had a huge loss of 7.81 billion dollars and they will need to raise over 12.5 billion dollars to shore up its balance sheet. Many of you will remember me telling you that AIG was the big short of silver. However their chairman, Hank Greenberg got in trouble with the law and they had to pass the baton over to Scotia Macotta and HSBC. However the derivative losses stayed with them and yesterday it came back to haunt them.
Wall Street did not like the news especially when it saw Europe tank. The futures fell sharply, so wall street called in the cavalry and they decided to bomb gold and silver. It was not well orchestrated. Usually we see premiums on the puts rise the day before which is their signal to all that a raid is coming. On Thursday, premiums were normal. However events of yesterday startled the street and they were just not well prepared.
The cartel continued to supply the shorted gold paper and on the buy side we had willing buyers at lower and lower prices. Nobody left the gold and silver arena. At one point gold was down 13.00 and then it slowly rose and by noon time it had crossed over into positive territory. It finished up by 4.10. In plain English: the cartel got stuffed.
In other financial news, we saw that oil traded at a high of 126.40 and finished at 125.90 per barrel. This oil is referred to as West Texas Intermediate. Also Brent Sea oil rose above 125.00 and the spread btw the two are neglible. Usually we see a spread of 3-4 dollars but not yesterday. Usually West Texas Intermediate trades at a premium to Brent.
There is another strange development in the oil sector that I would like to highlight to you. Gasoline which is a distillate of oil and it usually trades at a price range of 27 to 42 to the price of oil. The average mean over the years is 37.00. Oil is priced in dollars per barrel and gasoline in dollars per gallon. The spread is known as the crack spread. Generally, gasoline price is higher in the summer and we generally see the crack spread closer to 27 where the refiners make big money. It is lower in the winter as fewer drive. The spread widens to 42 and the refiners make zero so they do not refine any gasoline.
Today the crack spread is 46.00 as the refiners are making zero and the driving season is now upon us. Gasoline is low with respect to oil and the relationship over the years is a close 98% correlation.
Adam Hamilton addresses this in Midas at the Doss Passos table and you can review it. It basically states that gasoline must rise to 4-5 dollars per gallon just to keep up with the spread. If the spread goes down to 27 then 6.00 per gallon is in the offering.
Gasoline is something that everyone sees. You drive buy a gas station and see 1.25 per litre in Canada and 3.40 per gallon in the usa and just shake your head. This is the commodity that everyone understands. When this commodity rises, then the whole world will now see we are in hyperinflation mode and they will never believe usa stats.
Yesterday, we saw soyabeans rise 13 cents to a record 13.58 a bushel. This is a major food component in the food chain.
Live cattle rose significantly on the heals of another rise in the price of corn. The Dept of Agriculture has stated yesterday that it expects total stock in corn to drop significantly at the end of this year by 685 million bushels. Corn prices will continue to rise.
India has suspended trading in soyabean oil, potatoes, rubber and chickpeas as inflation is running rampant over there.
The CRB index which is a measure of commodity prices rose a huge 5.31 points to a record 427.45. The usa dollar continued to sink closing at 73.05 with the Euro rising to 154.79 up by .74. So much for banking intervention.
And now for some interesting developments that we are following:
The usa released the trade figures yesterday and everyone got so excited that the usa trade deficit shrunk from minus 61 billion dollars to negative 58 billion dollars. There are two important figures in the report that I would like to highlight to you and from that you will be able to see the fraud that we are facing.
On the oil front, the government used a price of oil at 88.00 per barrel. What is interesting is that oil never traded at any time below 108 during this period so this figure is totally bogus. The usa consumes 20 million barrels per day or 600 million barrels per month. It imports 12 million barrels or 360 million barrels per month. If one where to use the correct price of oil then the deficit is a bigger 7.2 billion dollars.
The next commodity in the trade report is gold and Garic did not fully understand its significance. Reg Howe, Don Jack and I have been watching this development over the past one year.
In a nutsell, the usa reports every month gold exports. For March it was 2,454,000,000 dollars (call it 2.454 billion). In February it was 2.208 billion dollars and January it was 1.49 billion dollars. It has been rising steadily for the past year.
The entire usa produces 240 tonnes of gold basically at the Nevada mines of Barrick and Newmont and the South Dakota mines of Newmont. The 240 tonnes of yearly gold or 20 tonnes of monthly gold go to two places:
1. the comex
2. over to England where it is sold to physical buyers who await anxiously for their metals at the morning fix and afternoon fix.
The comex handles gold for those fortunate souls like me who take delivery. Generally 3% of all front month contracts take delivery. Deliveries are always two months apart.
For gold the 6 delivery months are :
For silver there are 5 delivery months:
Note: there is no delivery for any silver and gold in January and only in December do we have deliveries in both silver and gold.
The two biggest delivery months for gold is December and June.
We have been witnessing huge increases in the delivery of gold and silver on the comex.
For instance in the lastest delivery for silver we are close to 33 million oz of May silver.
In April we saw over 2.8 million oz of gold delivered. It has been rising now every delivery month. One year ago about 1.8 million oz was delivered.
In order to satisfy the comex approx 90 tonnes of gold is needed per delivery period or 45 tonnes of gold per month.
The usa produces from the ground 20 tonnes per month or in the two month period 40 tonnes. The 90 tonnes of gold needed by the comex cannot be satisfied with usa production.
The usa for some arcane reasoning includes foreign gold leaving usa soil in the export figures. For example, in March the export of gold in the trade figures came in at 2.454 billion dollars or if one were to use 930 usa dollars per oz approx 100 tonnes of gold left the usa. If one were to calculate each month , it looks like approx the same amount of gold is leaving.
If the usa is producing 20 tonnes per month and the usa is:
1. exporting 100 tonnes of gold
2. needs 45 tonnes of comex gold to satisfy customers on a monthly basis (90 tonnes bi-monthy)
It is obvious that the figures do not match.
First of all, the trade deficit is off by at least 80 tonnes or 80% of 2.454 billion dollars. You cannot count as an export someone elses gold.
maybe it is their gold.
There can only be 3 reasons for the above scenario and only three and I will highlight them to you:
1. The gold at the Republic Bank of NY( which is a foreign depository) is being repatriated to their mother country because of fears that the true owners will not get their gold back. They fear that the usa will not let them have their own gold back. So they are taking no chances and shipping the gold back across the Atlantic now.
2. The gold is leaving now to enter the leasing pool as I have described to you continually. The leasing game hides the true reserves of all countries gold. In other words if France wishes to lease gold, it might as well use the gold on usa soil first, rather than their gold on their own soil. They would then order this gold back and since it is coin melt, it would first go to the refiners and then off to the leasing department.
3. The USA has clandestinely removed gold from Fort Knox, sent this over to refiners in Europe and sold/leased that gold through the Bank of England.
The gold at Fort Knox is the only official gold in the world that is not pure. It is.91 gold or what we call coin-melt. USA received most of its gold in 1933 by melting all the gold coins. It never refined its gold and thus it is the only official non pure gold in the world.
There is now, no question that 100 tonnes of gold is leaving the usa on the monthly basis. Maybe 80 tonnes is Foreign gold. Maybe 80 tonnes is USA gold that is sold to keep the paper game going.
As I pointed out to you yesterday, the selling of usa gold is criminal. The gold is not owned by the government, it is owned by its citizens. You can only sell gold by an act of Congress and Congress would certainly say no to any proposal on that scale.
I will let you decide what is going on. Suffice it to say, the world is in serious trouble and it is amazing to hear pundits say that gold is nothing but a barbaric relic of the past. It is strange that they certainly are using gold for monetary purposes.
see you on Monday.
read todays commentary slowly and carefully.
Click here to view my daily commentary: