Tuesday, November 3, 2009

Nov 3.09 commentary..very important.

Good evening to you all:
Today gold and silver put on stellar performances.  Gold closed up by $30.90 to 1084.30.  Silver rose by 76 cents to close at 17.18.
The CFTC has changed their disclosures and have a new website.  I am still not impressed and I am still not sure of their data.
However, I will disclose what they disclosed to Reuters on open interest:
The gold open interest rose 10,051 contracts to 492,016, as the smart money continued their winning play against The Gold Cartel. The silver buyers are hanging in there. Its open interest went up 1862 contracts to 132,289. The weak hands in silver have been shaken out, while the big bucks crowd is preparing to enjoy a rocket ship ride.
As you can see, the open interest rose by a large margin.  This is as of yesterday when gold
and silver were held in check.
I can just imagine the OI for tomorrow.  The price of gold exceeded the 2% rule, climbing by 3% today.
Before giving you the big news stories of the day, first let me report on some numbers:

The yield on the 10 yr T note is 3.49%.

The dollar finished up .15 to 76.37. The pound and yen were little changed and the euro fell .0064 to 1.4708.

The CRB only went up 2.91 to 276.41.

The Dow closed down by 17 points.

Thus gold in all currencies rose.  Today the usa dollar was not the story!


I am now going straight to the big news story and it is the sale of 200 tonnes of IMF gold to the Bank of India.

Many have phoned me as to my opinion on the sale. 
To tell you the truth, I am skeptical that there was a trade of real gold.


I emailed by good friend, Reg Howe last night upon hearing of the IMF sale.  My email and his response

is forwarded to you:


No idea, but I suppose that's a possibility.  However, at this point central banks beginning to buy for their own accounts doesn't surprise me.   Incidentally, I'm in Toulouse this week. Yesterday I went to the Toulouse branch of the Banque de France to exchange some old francs for euros, and from the security there, you would think that they had some gold.

-----Original Message-----
From: Harvey Organ
Sent: Nov 2, 2009 9:30 PM
To: 'Reg Howe'

Subject: bank of India

Sir Reginald:
The Bank of India bought 203 tonnes of gold today.
I thought that this is strange indeed for the Bank of India  to be buying gold as generally its citizens do a much better
job that this large central authority.
Then I remember that you told me that the bank of India is one of the sites that houses the IMF gold.
Do you think that they are replacing that which has been double sold?
I find it strange that China did not come forward immediately to purchase the 400 tonnes, having a total of 2.1 trillion in usa dollar reserves.
We know that the Bank of India was named as a depository for the IMF.  However there is no record of any gold leaving anybody's shores to India.
I feel that China did not get any gold because there was none to give.
Regardless of the situation, the news was extremely bullish for gold as it removed almost half of the overhang that could have disrupted the gold market
Now there will be a bidding war for the remaining 203 tonnes of gold if the gold is real.  If the gold is not real, then there will be a paper transactions for cash
and that will do it.
However for completeness, I will give to you what others are writing about the sale.  I feel that Nicholas, our resident expert on the IMF and on physical gold, is probably
the most accurate and his views are akin to mine.
OK lets start with the various commentaries on this extraordinary story.  First the official story from Reuters which I got late last night:

IMF sells India 200 tonnes of Gold for $6,7bn

Published: 2009/11/03 01:08:49 PM

The International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India for $6,7 billion, quietly executing half of a long-planned bullion sale that has threatened to slow gold's ascent.

The deal, which surprised traders who expected China to be the most likely buyer, will relieve the gold market of some uncertainty over how and when the IMF would sell 403,3 tonnes of gold, about one-eighth of its total stock. The deal will increase India's gold holdings to the tenth largest among central banks.

It also fuelled speculation that other governments — including Beijing — may be ready to diversify their reserves even at near-record gold prices, helping soak up IMF supply that the fund may otherwise be forced to sell on the open market.

"Central banks in India and China will be happy to accumulate gold at these levels. I will not be surprised to see even some Southeast Asian banks buying gold," Aaron Smith, Asia head of the $1,65 billion technical trading fund Superfund, told Reuters…




Next comes Mexico Mike who is also pretty good when it comes to physical gold:

Mexico Mike last night…

Drawing closer to checkmate?

Hi Bill!
So India gets 200 tons of gold? I dont even know where to start with this one. We all expected China would be the buyer, and in fact China may yet step up to buy the remaining half of the gold scheduled for sale. But China was looking for a better deal and suggested they would buy the gold if it was presented at a bargain price. India
stepped in and scooped the lot at market value.

So we know China is still looking to buy a large amount of gold, and they will have to become more aggressive to get it. The Russians are also buyers. Could we be seeing the early stages of a bidding war?

Lets also keep in mind that a lot of the spin by the Cartel is suggesting that India suffers from sticker shock and demand is lower for gold now that its above $1000. The action by the Indian central bank clearly demonstrates that they believe gold is cheap and this message will not be lost on the entire nation that is historically the largest gold buyer on earth. And wasn't India considered a financial basket-case as recently as the 80s? How things have changed that this nation can now sling $6.7 Billion on a gold purchase. This is just another hint that economic leadership has been passed from the west to the east.

With some of the IMF gold overhang now gone, the light may go on that gold can in fact not only hold these levels, but march right on higher. This news could be a catalyst to create a buying frenzy. And it also removes one of the greatest weapons for the Cartel to threaten gold sales whenever the bullish sentiment gets too high. Who is going to worry much over that now when a huge chunk of that inventory for sale gets taken out on the day when gold set a new all-time closing high?

Lets keep in mind this is central bank buying. We know that China is encouraging its people to buy gold, and there are new outlets for gold sales in the MidEast, and even department stores in the UK are now offering gold. Investment demand is climbing as some of the smartest people in the fund universe are redirecting their capital into physical bullion. And the hedging strategies that have blown up for gold producers are leading to new buying to cover those hedges, further adding competition to bid the market higher. All of this at a time when the net outstanding short position on the COMEX is at high levels and all of those positions are currently underwater.

Can the set-up be any better for gold? It seems to me that this long chess match with the Cartel is drawing closer to checkmate. Once we get a delivery default the market can no longer pretend that there is a huge supply of gold. The pinheads on the panel for the major financial networks will not be able to snipe about thousands of tons of central bank gold ready to dump in the market. And how will the CFTC continue to suggest all is well with the paper futures if the physical market breaks down. We may have a defacto fractional gold ownership system in place but I suspect every person that buys into these gold schemes believes they own real gold and that somewhere in those vaults there is a bar of gold held just for them. If the word gets out that the gold is not really there, or that each ounce has been sold ten or twenty times over, then we have a problem. Like any fractional reserve system, once confidence breaks down you have a collapse.

I think things are going to get very interesting from here. In fact I think we just got a big step closer to seeing buyers stepping up to buy out gold deposits and producing mines as the next option to get gold in quantity because the availability of gold bullion in quantity may be drying up fast. We have seen sovereign wealth funds from India and China buying up international oil projects. Can gold projects be far off?

Trading on Tuesday should be fun.




Next is another article from Reuters examining why India purchased the gold:


REUTERS Q+A - Why is India buying IMF gold?

MUMBAI, Nov 3 (Reuters) - The International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India (RBI) for $6.7 billion, quietly executing half of a long-planned bullion sale that has threatened to slow gold's ascent.

The deal will increase India's gold holdings to the tenth largest among central banks.


Analysts say one of the reasons why the RBI was buying gold from the IMF was to shore up its gold holdings.

The latest purchase will lift its share of gold holdings from near 4 percent to about 6 percent, much less than most of the developed world but four times China's share. India's foreign exchange reserves held at the central bank totalled $285.5 billion on Oct. 23, of which gold comprised just over $10 billion. India held 357.8 tonnes of gold reserves as of March 31, 2009, according to the latest data.

India built up its gold reserves to over 20 percent of its foreign reserves in 1994 after a balance of payments crisis in 1991. But the proportion of gold has since fallen significantly as total reserves swelled.

Another reason behind the buying may be India's push for a larger voting share in the IMF.

India, with other emerging economies, has pressed for greater influence in world economic affairs as it has grown rapidly into a $1.2 trillion economy.

India, along with China, has been pressing for a larger representation in the IMF and had promised to augment its resources for lending to developing countries. By buying gold from the IMF, New Delhi may be trying to assert its authority in the global economic stage.


Some economists say the move could be aimed at diversifying its reserves holdings which focuses on the U.S. dollar. The RBI does not officially talk about its diversification strategy. On Tuesday, the RBI said the purchase of IMF's gold was done as part of its foreign exchange reserve management.


The RBI's gold purchase has not had any immediate impact on gold demand as prices are already high and buyers are staying away.

But analysts say the RBI move at the current high price is expected to raise the psychological price level at which Indians buy gold. This would also help raise the demand for gold in the medium term.





Next comes Nicholas from Lagos in Nigeria our resident expert on the IMF gold : (as you can see it closely mirrors my thoughts)


IMF Gold Sales to India

Good Morning Bill (from LAGOS)

I see that gold is facing fierce resistance at $1,060 this morning-what a surprise, given that the Fed will conclude its FOMC meeting tomorrow with the usual pathetic utterances and then the NFP release is due on Friday morning. Remember the excerpt that I submitted to MIDAS not long ago, being the American Bureau of Econonmic Research Bulletin of Sept 1947 that stated that the IMFs alleged gold reserves of 2,800 tons were in fact only represented by (double counted) quota allocations from member nations, and that no physical vault transfers had ever taken place. The probability that the IMF's other gold reserves of 403 tons (emanating from trading transactions with Mexico and Brazil) were still in unencumbered vault custody had to be regarded as remote in the extreme. A few weeks ago I predicted that, over time, it would merely be announced, on an ex post facto basis, that a buyer had emerged for (a portion of) this IMF gold . I did not think that half the IMF gold sales would take place in this manner, in virtually the first month after all the protocols of authorization had been completed. But informed GATA members are hardly ever wrong! Wasn't this amount of 403 tons of IMF gold going to be the mainstay of WAG3 sales over the duration of the entire period of the new WAG 3 agreement? AND HALF OF THIS GOLD IS GONE IN THE FIRST MONTH!

But why India when China was forecast to be the principal purchaser? Remember Conny Lotze of the IMF and her interview with CP back in 2008? (She is now Deputy Division Chief, IMF Media Relations but back in 2008 she was styled a press officer). This lady confirmed that India was one of the custodians of the IMFs gold. No one was transferring vast gold hoardings to Indian custody back in the forties at the time of the implementation of the IMF's initial Charter. If India was a designated authorised depository of IMF gold, the obvious assumption would be that India was a custodian of (part of) the 403 tons of gold that accrued to the IMF after the signing of the founding charter. Clearly this IMF Indian custodial gold has long ago been mobilized as part of the gold suppression scheme. The IMF 403 tons of gold is long gone (to adorn the necks of Indian women), and now it is announced that the official sale of half of the IMF's gold has quickly been executed (without any disruption to the market of course) to the nation that was presumably the official IMF custodian. IT HAD TO BE LIKE THAT IN ORDER TO EXPLAIN THE LACK OF PHYSICAL SHIPMENTS OF PHYSICAL GOLD. Bad luck China! If I was an Indian citizen, I would be very keen to have the physical custodianship of my nation's new acquisition of 200 tons of vault gold physically audited (by tungsten detectable methodologies)



And finally, Rob Kirby added his two cents worth:


RobKirby last night:

smells like a rose

When you think about it, the Bloomberg coverage of India's IMF gold purchase was conducted over a number of days:

Nov. 2 (Bloomberg) -- The International Monetary Fund said it is selling 200 metric tons of gold to the Reserve Bank of

India for about $6.7 billion. The amount accounts for almost half the 403.3 tons that the Washington-based lender in September agreed to sell as part of a plan to shore up its finances and to lend at reduced rates to low-income countries. "This transaction is an important step toward achieving the objectives of the IMF's limited gold sales program, which are to help put the fund's finances on a sound long-term footing and enable us to step up much-needed concession lending to the poorest countries," IMF Managing Director Dominique Strauss-Kahn said in an e-mailed statement today.

The transaction, which involved daily sales from Oct. 19-30 at market prices, is in the process of being settled, the IMF said in the statement.

One of my subscribers e-mailed me earlier today to ask me what "my take" was on the this transaction. I responded,

"My take on this is that it almost certainly was NOT a vanilla sale as advertised. If you really believe the IMF cares about "low income countries" you probably also believe that Santa Claus really keeps a list and checks it twice. I can imagine that there might have been a quid-pro-quo involved here – quite possibly involving some "physical silver bullion" – all at market rates too, of course – not publicized – coming back the other way [India is known to have LARGE sovereign silver reserves] to try and help alleviate EVEN MORE CHRONIC silver bullion shortages in the WEST."

Interestingly, I checked the closing prices of gold and silver on Oct. 19 at Kitco: 17.82 per ounce.

And the price of gold on Oct. 19 at Kitco: 1,063.50

Look what has happened in the ensuing 10 days: gold today: 1,066 silver: 16.67

I know I'm not off base here. How do you spell TRANSPARENCY?
Rob Kirby




I have now given you 5 versions of the sale of IMF and what it means.  Regardless, the event is extremely bullish and this is why Barrick gold and

Anglo Gold are rushing to cover their forward gold hedges:  Here is the story on that:


AngloGold says accelerating hedgebook closure possible

November 2EDINBURGH - AngloGold Ashanti may accelerate closing its hedgebook if conditions are right,Mark Lynam, a vice president at the gold producer said on Monday.The company said in July it planned to wind up its hedge book by 2014.

"Is there a possibility of it being accelerated? Absolutely. It is always in play to opportunistically add value, (or) take it down further," said Lynam, speaking on the sidelines of the London Bullion Market Association's annual conference.http://www.miningweekly.com/article/anglogold-say

The fun begins.....

As I have been writing about for some time the physical market has smoke pouring out of it.

Yesterday Barrick announced an accelerated buy back of its hedges and actually bought back one million ounces in October when the gold price rose 3.2%. This is essentially panic short covering

Then India announced yesterday they are buying 200t and may be more of the IMF gold sale. But the IMF has a gold repository in India. Could it be that India has been part of the cartel's scheme to suppress prices? Could India actually be covering a short position through this 200t purchase?

Then there is Anglogold who also announced yesterday that they covered approximately 800,000 ozs of its hedges bringing its book down to 4.3 million ozs.http://www.marketwire.com/press-release/Anglogold-Ashanti-NYSE-AU-1068817.htmlI believe there is a run on the bank of the gold cartel and it is NOT at the COMEX…it is in the physical OTC market in London that trades 90% of the world's physical gold trades. This can not be fixed by selling paper promises. This can only be fixed by supplying physical gold…and I don't believe they have it. In fact I estimate they be missing 50,000t…a mere 25 years of global production!





Yesterday, Barrick announced closing 1 million oz and today 800,000 oz was closed by Anglo.  When you see both of these guys rush to cover you know something is afoot.


Today, we heard from the ECB about sales of gold for the week.  Not only did we not get one oz of sales, but we got 1 million euros worth of gold purchases:


The ECB weekly statement of condition indicated that one captive CB bought E1Mm of gold coin this past week (1,462 ozs). Last week there was no change in "gold and gold receivables" and the previous week saw another E1Mm coin purchase. At present the ECB squadron of CBs appears effectively out of the gold market.





Then we got this announcement from the unfriendly World Gold Council:

Central Banks Will Become Net Buyers of Gold, WGC CEO Says

Nov. 2 (Bloomberg) -- Central banks will become global net buyers of gold, the World Gold Council's chief executive officer said today at a conference in Edinburgh.

"I believe that central banks will be net buyers over time," Aram Shishmanian told the conference.



OK lets go to some economic news of the day.


First if all, we got this announcement early in the day:


The CBO Mr Orszag  announced that deficits are just not sustainable. (Peter Orszag sees it as it is and reports on it):


Projected US deficits unsustainable -W.House

WASHINGTON, Nov 3 (Reuters) - Projected U.S. budget deficits are too high and could force up interest rates and crowd out investment unless the country takes action, the head of the White House budget office said on Tuesday.

"The deficit for last fiscal year was $1.4 trillion, or 10 percent of our economy," Office of Management and Budget Director Peter Orszag said in remarks prepared for delivery at New York University.

"Next year's deficit is expected to be about the same size, and current projections show $9 trillion in deficits over the next 10 years, averaging about 5 percent of GDP. Deficits of this size are serious - and ultimately unsustainable," he said.




This caught the eye of the bond traders and that sent the bonds into a spiral downward:


U.S. junk bond default rate rises to 11.3 pct -S&P

NEW YORK, Nov 3 (Reuters) - The U.S. junk bond default rate rose to 11.3 percent in October from 10.8 percent in September as corporate America's credit quality worsened despite positive economic news, Standard & Poor's said on Tuesday.

Eleven bond issuers defaulted in October, bringing the year-to-date total to 175, S&P said in a statement…





However this was the second most important story of the day, the huge bailout money the UK government forked over to save the Royal Bank of Scotland

and Barclays Bank.

At one point a few years ago the Royal Bank of Scotland was the largest bank of size on the planet and now it is close to being nationalized.

This bank received its charter in 1717 and was once a central bank as Scotland did not merge her operations with England until years laterr.  The Bank of England received

its royal charter in 1694.


When Scotland finally merged with England, the central bank of Scotland became a commercial bank and grew steadily for 300 years until last year

where it nearly succumbed to the mortgage fiasco in the British Isles.  Now it seems that the mortgage mess is getting worse  not better in England.


Here is the story on the bailout by the UK's central bank, the  Bank of England:


RBS, Lloyds Get $51 Billion in Second Bank Bailout

Nov. 3 (Bloomberg) -- Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive 31.3 billion pounds ($51 billion) in a second bailout from the U.K. taxpayer as the two banks agreed to cap bonuses.

The Treasury will inject 25.5 billion pounds of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds's 21 billion-pound fundraising. Both banks said they won't pay cash bonuses to workers earning more than 39,000 pounds this year.





The day also produced some good results on factory orders and on Warren Buffet buying Burlington Railway:


U.S. September factory orders beat expectations

WASHINGTON (Reuters) - New orders received by U.S. factories beat Wall Street expectations and rose 0.9 percent in September, while inventories continued to shrink, the Commerce Department said on Tuesday.

It was the fifth month out of six that orders rose, the department said. They dropped an unrevised 0.8 percent in August. Analysts polled by Reuters had expected orders to increase 0.8 percent.

Machinery, which makes up roughly 7 percent of factory orders, had the largest surge of 7.9 percent in its biggest increase since March 2008. Inventories have now fallen for 13 months in a row, with factories paring their stocks by 1 percent in September. This is the longest streak of shrinking inventories since they fell 15 months in a row beginning in February 2001.


and the Bershire Hathaway purchase:


Berkshire Buys Burlington in Buffett's Biggest Deal

Nov. 3 (Bloomberg) -- Warren Buffett's Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in the company's biggest takeover.Buffett's firm will pay $26 billion, or $100 a share in cash and stock, for the 77.4 percent of the railroad it doesn't already own. Including his previous investment and the assumption of debt, the value of the deal is about $44 billion, Omaha, Nebraska-based Berkshire said in a statement today. That compares with the railroad's closing price yesterday of $76.07




Here is Jim Sinclairs version of the rescue of the British banks:


Jim Sinclair's Commentary

The shakeup should be the British people as RBS gets another huge hunk of cash.

Lloyds is next. Maybe the Queen as well. Certainly Prince Charles.

You know this is total madness, too big to fail. The new normal is a form of social fascism.

Gold is your only refuge. Go there!

RBS and Lloyds in major shake-up

Royal Bank of Scotland (RBS) and Lloyds Banking Group are to sell off branches in another major shake-up of the UK banking industry.

The sales have been demanded by the European Commission to safeguard competition concerns after the two were bailed out by the UK government.

RBS will sell 318 branches, while Lloyds will dispose of more than 600 branches over the next four years.

Lloyds also confirmed it would stay out of a government-run insurance scheme.

Lloyds, which is 43.5%-owned by the government, will instead raise £21bn, including a £13.5bn rights issue and a £7.5bn debt swap.




We now have bankruptcies approach the level of divorces in the usa:

Bankruptcy Filings to Match Divorce Filings in 2009: 1.5 Million. 35.8 Million Americans on Food Stamps – 11 Percent of the Population. The 5 Indicators of the Misery Index.

It is a sobering fact that in 2009, there will be as many people filing for bankruptcy as those filing for a divorce.  We are on track to seeing an average of nearly 5,900 bankruptcy filings a day for 2009.  While some people use the stock market as their barometer of economic recovery, there are a few other "misery" indicators that show things are still bad for millions of Americans and counter the recovery talks.  If you want to track a broader recovery, I would recommend people examine the five indicators of the misery index.  Food stamps, bankruptcies, long-term unemployed, foreclosures, and credit card defaults are probably your best gauges to the real economic recovery.

The problem we currently face is even after the global economy was brought to its knees by the current Wall Street banking structure, things still haven't changed at the core of their mission.  The same banks are back taking inordinate amounts of risk with the now explicit backing of the U.S. Taxpayer.  It is no surprise then that our U.S. dollar has been pummeled by the policies of the Federal Reserve and U.S. Treasury.

Let us examine each component of the misery index.




I want to leave you with this commentary on Agnico Eagle of which many of you own.  I received many phone calls on the issue

and I basically said that Agnico Eagle is one of the best mining companies around.  They are very good and conservative miners.


The market reacted to lower production from Goldex.  What really happened was the upper managment decided to mine the lower grade gold at the eastern and central blocks of Goldex

first.  They did this as gold was rising in price which is exactly what you do to maximize earnings. They will get to the higher grade western stopes in the 4th quarter where mining costs will be lower than the 3rd quarter.

Here is a report on this subject.  Please do not be afraid of owning Agnico Eagle:


This is from Ed Wener:


Hi Bill:
We've all noticed the significant under performance of the Gold shares these last few weeks. There are a number of reasons for this but I would like focus on one factor that is often missed. Here is a quote from an analysis and downgrade (target reduced to $70 from $80/share) of Agnico Eagle by Canaccord. They wrote this about one mine in particular (my underline):

Goldex – Shortfall explained by lower than expected head-grades During the quarter, Goldex produced 31,169 oz at total cash costs of $440/oz (compared with our estimate of 39,026 oz at cash costs of $356/oz). The shortfall is largely explained by a lower head grade of 1.59 g/t Au (vs. our estimate of 2.1 g/t Au) resulting from a decision to focus mining activity on the eastern and central mining blocks, which are lower grade than the overall reserve grade. On the positive side, grades are expected to improve in Q4/09 as mining advances mucking from higher-grade western stopes and site costs per tonne were lower than we expected in Q3/09 (C$22/tonne vs. C$24/tonne)."

Here is a clear example of the proper way to manage mine reserves. Notice the 20% fall in head grade and 25% increase in cash cost. But notice also this was done profitably. As the price of Gold increases previously uneconomical grades can now be profitably mined leaving the higher grades in the ground for a rainy day. The company thereby increases mine life and shareholder wealth. 

We saw the same thing happen last year. I do not know how widespread this practice is but we should see more of it as the price of Gold rises. 
Cheers from Auckland,
Ed Wener 




We have now seen gold plow thorugh resistance at 1060 and rise to 1085.  Tomorrow is the last day of the FOMC meeting and again we will probably see the same

announcements that they see the economy improving but they might need a little more stimulation or purchase of mortgage bonds.

On Friday, we see the ficticious job numbers  where we generally  see a lot of volatility surrounding this announcement.

However gold will continue on its journey to the North Pole.


I will speak to you tomorrow





Anonymous said...

Excellent work, Harvey.
I didn't bought this 'India buys IMF gold' story in the first place. This is the show which attracts the world audience, but the real play is taking place in another theater.
As Jim Sinclair says, Gold is going to US$1650 and then way up.



Steve Organ said...

{Harvey}Our resident expert is Nicholas from Lagos and Reg Howe. Both do not believe that India bought any physical gold.
Regardless, it is bullish for gold

Lets watch for China

see my commentary tonight.

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