Saturday, January 22, 2011

Silver in Backwardation in London, silver OI refuses to fall/margin levels rise in silver/gold

Good morning Ladies and Gentlemen:

 

Before we start our regular commentary, I would like to inform you that  4 banks entered the banking morgue last night:

 

1. Community South Bank of Easley South Carolina

2.United Western Bank of Denver Colorado

3. Bank of Asherville, Asherville, North Carolina

4.Enterprise Banking Company, McDonough Georgia,

 

 I wrote to the CFTC voicing my concerns over many matters.  I am open to your comments   You will notice that I sent it to only 4 commissioners. I left out Bart Chilton. From: harveyorgan@rogers.com

To: GGensler@cftc.gov, somalia@cftc.gov, MDunn@cftc.gov, JSommers@cftc.gov

Subject: Position limits and elimination of exemptions. Date: 1/20/2011 9:40:56 P.M.

I am rather disappointed that you have allowed the major banking short interests to continue with their fraudulent and manipulative practices in the precious metals. You have allowed another 60 days of massive shorting by the bankers to allow for yet another public input. The public for the past 2 1/2 years have bombarded you with millions of emails with the hope that you will see the light and put position limits on silver and eliminate the phony exemptions. Mr O'Malia was the lone dissenter on your latest vote voicing his concern that the swap books on JPMorgan once opened would be a shock and that the CFTC would not know how to handle the situation. It has been my contention all along that the major short, is in reality the Chinese government who lent their hoard of silver in support of the suppression of gold. It would be difficult to suppress gold while allowing silver to advance in price. The gold was supplied by central authorities. The USA ran out of silver in 2003 and in order to receive most favoured nation status, the Chinese have done a swap with the USA with a date certain to re-swap. It is quite conceivable that the Chinese have asked for their silver back but were refused as global supplies for silver are vanishing.

Yesterday, the USA Mint announced a record 4.6 million oz of silver eagles sold in the first 3 week period of January which is a record. The USA produces 40 million oz from their mines so for the first time, the USA must import silver from the rest of the world to satisfy the mint's requirements.

The comex is witnessing massive movements of silver into and out of registered vaults signifying turmoil as this silver is putting out fires in other jurisdictions. In gold we are witnessing the opposite. How on earth is gold being settled?

What is even more troubling to me is this:

How could you even discuss position limits and the elimination of exemptions without first telling us what happened in July 2008 which caused you to bring in the enforcement division of the CFTC? Mr Chilton has decided to act unilaterally in proclaiming one trader, JPMorgan, with fraud, and from his statement to the press, major class action law suits have been initiated and filed.

It is frustrating to many of us who witness time and time again massive un-backed paper driving the commodity price of silver and gold down like today. I guess the CFTC's motto that the futures market is a price discovery mechanism is out the window. Mr Dunn has stated that he needs more manpower to try and catch manipulation. Yet when a whistle blower is presented to you and this person describes in detail the accounting of how the crime has been committed in the past and how it will happen in the future and yet you refuse to listen to this gentleman.

Mr Sprott of Sprott Asset Management is having a tough time trying to find any physical silver for his silver fund and yet the bankers massive sell huge amounts of paper silver. The SLV also has liquidated massive amounts of "paper silver". The real stuff is difficult to find in quantity.

Sooner or later, this fraud will end and I guess there is going to be a lot of explaining to do.

I urge you to do the right thing and order JPMorgan and friends to stop this massive fraud and manipulation immediately.

Harvey Organ.

 

Late Thursday night the CME ordered margin requirements to rise in gold and silver with a sprinkling of other commodities thrown in.  The target in this matter was to a lesser extent gold but most assuredly silver.

First the announcement and commentary courtesy of Zero Hedge:

Inflationary Guerilla Tactics Resume As Comex, Nymex Hike Margins On Gold, Silver, Cracks, Spreads And Other Products

Submitted by Tyler Durden on 01/20/2011 20:11 -0500

Wonder why the smart money was rushing headlong out of gold and silver over the past few days, and especially today in the AM session? Here is your answer: in tried and true fashion the Comex just hiked margins in gold, and silver by about 6%, and threw in a few other commodities to mask things up. And unlike the last time it did it, when it could at least pretend to justify its actions with the surge in gold price, this time with the PM complex dropping, we wonder what excuse the CME will use this time. Initial and Maintenance margins were just increased in everything from 10 Tr Oz Gold Futs, Comex 100 Gold Futures, Comex Miny Gold and Silver, E-mini Gold and Silver, Comex 5000 silver futures to Silver trade at settle. Also added were Copper, Iron Ore, propane, butane, and other nat gas. Most notably, and confirming that the administration and the money printing authorities are terrified by the surge in crude, the CME also hiked margins in various refined products and coal. The official scramble to "contain" the aftermath of Bernanke's lunacy is accelerating. We wonder when REDI, Prime Brokers and E-trade will comparable collapse purchasing margin for stock trading accounts. Of course, as with all other such superficial market interventions, the impact is shallow and is overrun in a matter of days.

And no...there was absolutely no leak this time. We promise.

-END-

Please note that the raising of margin requirements came after huge raids and the price of these precious metals had been hit pretty hard.  You generally raise margins when prices are reaching their pinnacle not when they have fallen off. The higher margins would have hurt our bankers in the pocket book as the total short position was getting quite high.  The object of the exercise was to get a huge downdraft in the price as the bankers were getting quite desperate especially in silver.  Wait until you see the open interest and you can judge for yourself..the exercise failed miserably.

 

Gold closed on Friday, down $5.50 to $1341.00  Silver closed down only 4 cents to $2745 much to the chagrin of our bankers.  The attempted downdraft failed due to the heavy purchase of physical metals around the world. Many are starting to see the total disconnect between the paper silver and gold world from the real physical world

 

Let us see how things fared over at the comex yesterday.

The total gold comex open interest fell marginally by 3229 contracts to 578,484.  The open interest has fallen from the very low 600 thousands to 578,000 with a drop of over$ 80.00 in gold price.  The bankers needed a much larger cleansing of open interest in the gold complex.

The front options delivery month of January saw its open interest fall from 27 to 14 for a drop of 13 contracts.  The deliveries on Thursday was 5 so we somehow lost 8 longs for no apparent reason.   The all important front delivery month of February saw its open interest fall marginally from 244,371 to 225,141.  First day notice is a week away and I will be watching this closely for you.  The estimated volume for Friday was a rather robust 191,067.  The confirmed volume on Thursday, the day of the monstrous raid was a huge 301,125.  The banking heroes certainly had their fun supplying this massive un-backed paper.

 

In silver, the total open interest fell ever so slightly from 136,552 to 135,841 for a drop of only 711 contracts. The bankers knew this already by 4 pm Thursday. They called on the CME to raise margin requirements in the hope that they could be bailed out.  They failed miserably as the fall in price of silver was tiny.  The front options delivery month of January saw its open interest rise from 25 to 65 for a gain of 40 contracts.  On Thursday, we saw only 17 deliveries so mysteriously we gained some options that were exercised for physical metal.  The front delivery month of March saw its open interest remain resolute at 71,722 dropping only 241 contracts.  The estimated volume yesterday was quite small at 68,916.  The confirmed volume on Thursday was extremely high at 102,818.

Here is a chart for Jan 10.2011 on deliveries and inventory changes at the comex:

 

Silver

Withdrawals from Dealers Inventory 

Zero oz

Withdrawals from customer Inventory 

221,484 oz

Deposits to the dealer Inventory

 zero

Deposits to the customer Inventory

17,105 oz

No of oz served  (contracts27

135,000oz

No of notices to be served 38

190,000 oz

Gold

Withdrawals from Dealers Inventory 

26900 oz

Withdrawals from customer Inventory 

 61,234 oz

Deposits to the dealer Inventory

  zero

Deposits to the customer Inventory

zero

No of oz served (contracts 10

1000oz

No of oz to be served 4

 400oz

 

Let us start with gold:

Again, no gold is entering the dealer that which he uses to settle.  For our newcomers, the dealer is the banker and the customer is the investor like you and me who store our gold and silver at a registered vault.

The dealer withdrew 26,900 oz of gold and this gold did not enter any customer cubby hole. However, one customer decided to remove 61,234 oz from the vaults to destinations unknown.  For comical relief, there was an adjustment of 67,209 oz of gold removed from the dealer.  I guess someone made a 2 tonnes of gold mathematical count error.  Shows you the nonsense that is going on down there.

The comex folk notified us that 10 notices were served upon our longs for a total of 1000 oz.  The total number of notices sent down so far this month total 684 or 68,400 oz of gold.  To obtain what is left to be served, I take the open interest of January at 14 and subtract Friday's deliveries of 10 to give me 4 contracts left to be served upon with 1 week to go.  This represents 400 0z of gold.

Thus the total number of gold oz standing in this non delivery month of January is as follows:

68,400 oz (already served)  +  400 oz (to be served) =  68,800 oz  (yesterday's totals were: 67,900 oz so we gained another 900 oz)

 

And now for our volatile silver:

Again we are experiencing massive movements of silver into and out of the vaults as this silver must put on fires everywhere.  The comex vaults received silver for customers totalling 17,105 oz  (from 2 customers,  966 oz, 16,139 oz ). We also witnessed massive withdrawals from all 4 registered vaults:

1.2022 oz

2.32,322 oz

3.6086 oz

4.181,054.

total withdrawal of silver from the customer: 221,484 oz.

There was another of those famous adjustments.  This time 399,443 oz of silver was repaid to a customer from a prior liability on the part of the dealer.  They must have been paid handsomely.

The comex folk notified us that 27 notices were sent down for a total of 135,000 oz of silver.  The total number of notices sent down so far this month total 544 notices for 2,720,000 oz of silver. To obtain what is left to be served, I take the Jan open interest of  65 and subtract out Friday's deliveries of 27 to give me a total of 38 notices left to be served upon our longs for a total of 190,000 oz.

Thus the total number of silver oz standing in this non delivery month of January is as follows:

2,720,000 oz (already served)   + 190,000 (to be served)  =  2,910,000 oz.  (yesterday's total:  2,610,000 oz.  I promised you that the totals will rise as we come to the end of January and I fulfilled my promise to you.  January is generally the weakest of all options delivery months and look what we got: almost 3 million oz and we are still counting.  Silver is becoming scarcer by the minute.

end.

 

Let us have a look at our EFT's:

Surprisingly, the gold inventory advanced yesterday to the tune of 20.34    tonnes as the

bankers needed to replace some of their lost gold used to put our fires in previous sessions.

Here is today's inventory total:

Total Gold in Trust  Jan 22.2010

Tonnes: 1,271.77

Ounces:40,888,661.11

Value US$:
54,921,017,675.16

 

Here is Thursday's inventory level:

Total Gold in Trust  Jan 20.2010:

Tonnes: 1,251.43

Ounces:40,234,830.36

Value US$:
54,123,657,969.31

 

 

 

 

 

end.

 let us now head over to the SLV inventory.  Here is today's totals:

 

Ounces of Silver in Trust

334,191,830.500

Tonnes of Silver in Trust Tonnes of Silver in Trust

10,394.53

 

 

 

The SLV inventory dropped from  338.4 million to 334.191 million oz

for a drop of 4.2 million oz.

 

Here is Thursday's inventory level:

 

 

Ounces of Silver in Trust

338,441,267.200

Tonnes of Silver in Trust Tonnes of Silver in Trust

10,526.70

 

A few weeks ago we had a level of 352 million oz of silver.  Thus the total number of oz of silver that left to put out fires equates to 14 million oz.

These two ETF's are going to be a huge criminal problem for our bankers as both SLV and GLD do not have the beneficial physical ownership of the metals in their inventory.  In GLD, the custodians of the funds arranged for a swap with the Bank of England whereby the Bank received dollars and the GLD folk got their gold. The problem here is that the Bank can ask for their gold back at any time.  There is another problem:  the gold at the B. of E is not their gold but investors gold like the Arabs etc.  You see, when you put gold at the B of E it is only on deposit and the  Bank of England can do whatever they liked with the gold but it is their liability.  When the game of musical chairs ends, you can see many frantic investors screaming what on earth happened to their investments.

In silver:  we are not sure of the original deal except that the original Buffet 137 million oz came over to start the SLV.  Most of this silver is gone, leased, and consumed.  The loss of gold and silver inventory is not for lack of demand but for the massive shortages around the world that necessitated this supply of paper silver/gold.

 

 

 

 

The Sprott physical gold fund saw its positive to NAV increased to 1.05% from .65%

 

The central fund of canada saw its positive to nav rose to 5.8% from 4.1%

The Sprott physical silver fund saw its positive to nav rose slightly to 14.51% from 14.25%  The strength in this vehicle shows that real physical metal is lacking

 

From now on you will see a total disconnect between the physical metal and paper silver and gold  as the bankers desperately try and shake you from your long positions.

 

Let us now head over to the COT report and see what we can glean from this their reporting:

 

Posted Friday, 21 January 2011 | Share this article | Source: GoldSeek.com  

Gold COT Report - Futures

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

237,404

72,411

81,307

201,589

408,060

520,300

561,778

Change from Prior Reporting Period

3,071

15,450

-1,210

253

-18,340

2,114

-4,100

Traders

186

85

80

53

52

277

188

 

 

Small Speculators

 

 

 

 

Long

Short

Open Interest

 

 

 

67,532

26,054

587,832

 

 

 

-2,461

3,753

-347

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Gold Report - Positions as of

Tuesday, January 18, 2011

 

 

 

Here we see that those large speculators that have been long continued to pile into gold to the tune of 3071 contracts.

Those large speculators that have been short, massively added to their short position by a monstrous 15,450 contracts.  Did they know something?

And now for our commercials:

Those commercials that have been long gold added a very tiny 253 contracts to their longs.  Nothing unusual here.

Those commercials that have been perennially short by JPMorgan etc covered a massive 18,340 contracts.  And yet they still orchestrated a raid?

The small speculators that were long covered 2461 contracts on their long positions and those that were short added 3753 short positions.  Strangely the small speculators got it right in gold.

 

And now for silver:

COT Gold Report - Positions as of

Tuesday, January 18, 2011

 

Silver COT Report - Futures

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

40,010

10,357

36,169

30,663

76,031

106,842

122,557

1,440

1,056

-645

-124

-1,506

671

-1,095

Traders

78

44

41

34

37

138

100

 

Small Speculators

 

 

 

 

Long

Short

Open Interest

 

 

 

28,833

13,118

135,675

 

 

 

-1,327

439

-656

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Silver Report - Positions as of

Tuesday, January 18, 2011

 

 

A different kettle of fish:

Those large speculators that have been long added 1440 contracts to their long positions.  (like their gold cousins)

Those large speculators that have been short added 1056 positions to their shorts. (a much lesser extent than with gold)

Those commercials that have been long silver basically stayed put losing only 124 long positions.

And now for our famous bankers who are the perennial shorts;  they covered a tiny 1506 contracts in total contrast to the gold covering.

The small specs as usual are not in the silver game.

 

end

 

I would like to point out that the premiums in the gold loving region of Viet Nam climbed to 42 dollar per oz. on Thursday trading at $1389.00  per oz.  In Shanghai, the premiums over spot climbed  $17.00 to $1364.00 per oz on Friday

(as per John Brimelow).  In Viet Nam gold is used as collateral for house mortgages.  The authorities tried to nullify gold's effect and support their currency, the dong, but that failed.  It looks to me like physical gold and silver is on fire in the far east.

Zero Hedge has come out with this great commentary on demand for silver within China:

 

Chinese Silver Demand Surges Four Fold in Just One Year

Tyler Durden's picture

  

·         Backwardation

 

·         Futures market

 

·         Global Economy

 

·         Hyperinflation

 

·         India

 

·         Precious Metals

·         Reserve Currency

 

·         Yuan

 

 

Courtesy of GoldCore

Chinese Silver Demand Surges Incredible Four Fold in Just One Year

Gold is flat and silver marginally lower despite dollar weakness this morning. Some market participants are blaming the precious metal sell off on speculation that China may take more monetary action to curb surging inflation. This is unlikely to be the reason for the sharp selloff, rather it looks like another paper driven sell off in the futures market by leveraged players on Wall Street with various motives.

click for full size

The fact that silver is again in backwardation at the front end of the curve suggests that tightness in the physical bullion market continues and may even be deepening. Indeed, the massive increase in silver bullion demand from China (confirmed overnight - see below) suggests that silver's bull market remains very much intact despite becoming overvalued in the short term towards the end of 2010.

http://www.goldcore.com/images/mu/goldcore_bloomberg_chart2_21-01-11.PNG

Table Courtesy of Mitsui

Surging inflation in China, India, wider Asia and much of the world is of course positive for gold and silver as it will likely lead to an even greater appetite for the precious metals in order to protect against the ravages of inflation and the further depreciation of paper currencies.

China, Gold, Silver and the Western Financial and Monetary System

A theme we have written about for many years is China's growing importance to global financial markets and the global economy. As the most populous and largest creditor nation in the world, China's influence and power continues to grow. Chinese power is being seen in currency, bond, commodity and other financial markets.

It is particularly seen in China's huge appetite for precious metals and this is only being appreciated gradually. Many in western markets and finance continue to not realise the profound changes and long term ramifications of China's emergence as a global superpower.

The world has changed and we are not reverting to the financial, economic and geopolitical conditions of the late 20th Century.

 

click for full size

Silver in US Dollars – 40 Years (Quarterly)

China's influence and massive appetite for precious metals is important both from a monetary and a geopolitical perspective. We warned of this some years ago – specifically writing about how the Chinese would gradually attempt to position the yuan as the global versus reserve currency, thereby replacing the petrodollar. We also wrote how the Chinese could use precious metals, and gold in particular, as a geopolitical weapon against the US and the west. Recently analysts, including the respected Jim Rikards, have eloquently outlined this real and growing risk.

China's impact on the gold and silver markets will likely have ramifications for the western monetary and financial system and that is why China's impact on the silver market is increasingly important. This is something we have wrote about for some time and one of the important factors driving silver's bull market (see Money Week, August, 2007 article 'Why the Silver Price is Set to Soar'.

Silver's Supply and Demand in China

Importantly and unknown to most analysts and people in the world is the fact that China was a net exporter of silver for many years – indeed China was a major component of global silver supply. This changed in 2007 when China became a net importer of silver.

The demand figures released by the General Administration of Customs in China overnight show the massive turnaround in China from large silver exporter to large silver importer.

China has gross exports of 1,575 tons of silver last year, down 58 percent from a year earlier, said customs. China's gross imports of silver increased 15 percent to 5,159 tons in 2010, the customs agency said.

A longer term perspective is as ever important as are the net figures.

In 2005, China was a net exporter of nearly 3,000 tonnes (3 million kilogrammes) of silver. Last year, in 2010, China imported more than 3,500 tonnes of silver.

Incredibly, Chinese net imports of silver surged four fold in just one year from 2009 to 2010 (see table above).

Demand for silver in China has risen sharply in recent months and years. Growing middle classes and savers in China, India and other Asian countries have been turning to "poor man's gold" and using silver as a store of value. Gold has risen above its historical nominal high in local currency terms internationally and silver is seen by many as a cheaper alternative.

Today buyers in China, Asia and internationally can buy some 50 ounces of silver for every one ounce of gold. The gold silver ratio today is 49.3 (gold at $1,342 per ounce divide by silver at $27.20 per ounce) meaning that 49.3 ounces of silver can be bought with every one ounce of gold.

Gold is increasingly unaffordable to the "man in the street" in China and wider Asia and this is leading to increased purchases of silver as a store of value, rather than gold. With the price of gold set to remain high in the coming years, this will continue.

Chinese and most Asians have experienced the decimation of their life savings through currency debasement and hyperinflation and unlike westerners understand the importance of owning gold and silver.

Besides huge demand for silver as a savings vehicle and a store of value in China, there is also very significant industrial demand in China and internationally.

There remain a huge range of industrial applications for silver. While demand from the photography sector has declined, demand from the medical, solar energy, water purification and many other sectors continue to rise significantly.

Today industrial uses account for 44% of worldwide silver consumption and in conjunction with investment and store of value demand, industrial demand continues to grow.

Conclusion

Investors and savers in the western world should familiarise themselves with monetary history and why paper currencies always depreciate over the long term and why gold (and also silver) are vital in order to protect and preserve savings and wealth over the long term.

end.

 

I will try and explain the figures;

China's exports of 1575 tonnes represents which represents most of the silver that they refined. In past years, China refines 75-80% of world production. This total in oz represents 48.8 million oz of silver.

It is believed that China produces around 80-100 million oz silver from their mining.  We are not 100% sure of their accuracy.  Almost all of their production is due to it being a by-product of gold mining.  Thus in tonnage China produces somewhere around 3000 tonnes of silver.

The total importation of silver by the Chinese during 2010 game to 5159 tonnes of silver.  Thus the net import of silver is 5159-1575 or 3584 tonnes of silver which is close in number to the chart provided by Mitsui.  (111.4 million oz)

Thus the Chinese produce 80-100 million oz of silver and imports on a net basis 111 million oz to satisfy their peoples demand for the wonderful uses of silver like flat screen TV's, pharmaceuticals, hydro-electric wires, silver in washing machines and clothes and photography.

China on a net basis is importing  almost 19% of worldly production if you exclude China's production ( 111 million oz divided by 600 million oz). This constant importing of physical silver into China will be the tourniquet around the necks of our hero bankers.

end

 

We also had this Bloomberg story on the backwardation in silver over in London:

Bloomberg) – Silver in Backwardation on Bets Futures Will Decline

Silver for February delivery rose above the March contract on speculation that a run up in prices has caused investors to liquidate contracts that are further from expiration.

The February contract was $27.29 an ounce earlier today on the Comex in New York, higher than March futures at $27.21 an ounce, a so-called backwardation market, which may signal rising demand for immediate-delivery metal or weaker interest in futures contracts.

"We're seeing a selling of forward contracts," said Dan Smith, an analyst with Standard Chartered Bank in London. "This suggests people think silver has been a bit overdone. You get people selling forward when they think it's looking like a good price, and they take profits and protect themselves from downside risks."

The February contract fell 28.9 cents, or 1.1 percent, to $27.17 an ounce at 6:36 a.m. on the Comex in New York. March futures dropped 1 percent to $27.20 an ounce.

 

end.

 

And this from James  Turk: our resident expert on this from London:  (courtesy Lemetropolecafe.com,  King Word News and James Turk:

Silver in backwardation a year out, Turk tells King World News

Submitted by cpowell on 10:42AM ET Friday, January 21, 2011. Section: Daily Dispatches

10:45a PT Friday, January 21, 2011
Dear Friend of GATA and Gold (and Silver):

GoldMoney's James Turk today tells King World News that silver is in backwardation a year out and the last time this happened silver exploded 40 percent in a few weeks. May the excerpts of this interview find their way to the Great Market Manipulator's ears, and we don't mean Bernanke:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/1/21_Ja...

Or try this abbreviated link:

http://tinyurl.com/4zh2xzl

end.

 

It is interesting that silver is in backwardation one year out in London and not at the comex.  Reason:  the comex figures are marked up on the future months trying to hide backwardation.  The London market does not monkey around with the figues.

Thus the forwards one year out in silver is less in price than the spot silver.  This truly shows at London, which is the dominant physical market in the world is experiencing backwardation.

end.

Over in Russia, the official government is proud to announce another 200,000 oz of gold which has been added to their official reserves.

Russia to Raise Gold Share in Reserves, Eyes Adding Yuan, Ulyukayev Says

By Maria Levitov - Jan 20, 2011 12:45 PM ET

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·         inShare2

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·         Print

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Russia's central bank will raise the share of gold in its international reserves, the world's third largest, from about 8 percent, First Deputy Central Bank Chairman Alexei Ulyukayev said.

"We've increased our investment in gold during the last several years and we will continue to move in the same direction in the future," he said in an interview in London. "Gold is a natural part of reserves."

Russia, which aims to diversify its reserves, started adding the Canadian dollar and plans to invest in the Australian dollar. The central bank has almost doubled the share of gold in the past three or four years, according to Ulyukayev. The stockpile comprises 47 percent U.S. dollars, 41 percent euros, 9 percent British pounds, 2 percent Japanese yen and 1 percent Canadian dollars, according to the central bank.

The bank won't begin to add the Australian dollar until the middle of the year, Ulyukayev said on Dec. 1. Policy makers may also add new currencies to the reserves, with the Chinese yuan a potential target once it becomes fully convertible.

"We are trying our best to diversify the reserves" and investing in managed currencies is difficult, Ulyukayev said today. "If the capital control regime will be changed, in the People's Republic ofChina in this case, we can invest in that currency also."

To contact the reporter on this story: Maria Levitov in Moscow at mlevitov@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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·         inShare2

end

 

Not to be undone by its northern neighbour, China is also buying gold and added it to its reserves:

China buys gold and the world follows

Submitted by cpowell on 09:34AM ET Friday, January 21, 2011. Section: Daily Dispatches

By Myra P. Saefong
MarketWatch.com
Friday, January 21, 2011

http://www.marketwatch.com/st
ory/china-buys-gold-and-the-world-follows-2...

Gold prices have lost around $75 an ounce this year but analysts are unfazed by the drop, with many betting the slump in prices will soon be cut short as the Chinese New Year feeds an increase in global demand that's destined to last.

"We are entering a period of strong seasonal growth in gold demand and Chinese New Year is a big part of that," said Brien Lundin, editor of Gold Newsletter. "Physical demand has been supporting the gold prices on the downside even during the typical slack periods, and I expect that upcoming increase in demand will also support the price, but at higher levels."

The Chinese New Year, also known as Lunar New Year, begins on Feb. 3 this year and ends with the Lantern Festival 15 days later.

"Chinese gold and silver demand has been phenomenal ahead of the New Year holiday," said Adrian Ash, head of research at BullionVault.com, a leading online service for gold bullion trading and ownership, citing comments from dealers among others.

Shipments have been "heavy" and they began very early, in mid-December, he said.


"Chinese New Year is the time of year when the Chinese share gifts, usually money in little red envelopes," said Mark Leibovit, chief market strategist for VRTrader.com. "Perhaps the little red envelopes will be a bit heavier this year."

But the recent spike in China's demand for gold goes well beyond providing gifts to celebrate the new year.

"It's really simple," said Cary Pinkowski, chief executive officer of Astur. "China banned gold ownership for most of the 20th century and that's over. China has a savings rate of more than 30%" and "an official inflation rate of 10%."

On Thursday, data out of China showed that consumer inflation hit 4.6% year-on-year in December and GDP expanded by a faster-than-expected 9.8% year-on-year for the fourth quarter. The news sparked a global selloff in commodities and stocks on worries that the fast expansion would prompt policy makers to hike interest rates again. Read more on Chinese growth and inflation.

"The Chinese will buy more and more gold just as every other civilization has in inflationary times and with their high savings rates, they have the money to do it," Pinkowski said.

And buy they have.

Since 2005, the January through March period has seen China's private household gold demand average a rise of 22% from the previous nine months, according to a BullionVault analysis, based on GFMS data courtesy of the World Gold Council.

"Long term, that's meant Chinese households have put an ever-greater proportion of their fast-growing annual savings into gold," said Ash, with that portion growing from 0.8% of retained income in 2001 to a forecast of more than 1.7% in 2010.

The number of gold savings accounts, meanwhile, launched by the Industrial and Commercial Bank of China Ltd. only a year ago, has grown beyond 1 million without much public relations or marketing, "which is an extraordinary pace of demand growth," said Martin Hennecke, associate director at Tyche Group in Hong Kong.

China is not alone.

India continues to be the world's biggest gold buyer.

India's import figures for 2010 were sharply higher -- almost one-half above 2009's depressed level, according to Ash.

Gold-buying demand is "traditionally strong" from September through November in India, a combination of the five-day Diwali festival of lights that began on Nov. 5 and the post-harvest and wedding seasons. Gold prices during Diwali jumped 10%, on average, from the previous three months, Ash said.

"China is in the process of overtaking India as the biggest national buyer of gold," said Julian Phillips, an editor at GoldForecaster.com. "At a minimum, the two countries take half the newly-mined gold and the figure is rising."

Despite all those supports, gold prices have dropped over 5% from the end of last year. Gold futures sank almost $24 on Thursday alone to finish at a two-month low of $1,346.50 an ounce. Read about gold̢۪s drop on Thursday.

Gold seems to be taking its cues from the dollar, said Peter Grant, senior metals analyst at USAGOLD-Centennial Precious Metals Inc. But he added: "The inverse correlation has been muted somewhat by the perception that sovereign debt risks in Europe have been relieved to some degree."

The "correction could certainly extend purely on technicals," he said, but "I don't see a compelling fundamental reason to be short gold."

Chintan Karnani, chief analyst at Insignia Consultants in New Delhi, said he's "skeptical" about gold prices and expects them to fall to $1,344 or below before the Chinese New Year.

"My experience is that gold falls whenever physical demand is high and it rises whenever investment demand rises," he said, pointing out that gold investment demand is not that high at this time.

Among the factors that could still cause a crash in gold prices is "potential liquidation tied to solvency concerns of some American and European financial institutions," Paul Mladjenovic, market analyst at ProsperityNetwork.net, said. "This would be fallout from issues tied to Europe's debt crisis as well as the municipal debt crisis in America," he said.

Karnani believes that inflation in food and energy prices is actually another potential worry for the gold market. "If food price inflation continues to rise at the current pace, then gold prices will initially rise but towards the end of 2011 [they] will crash."

"Global growth will be derailed," gold and equities will "come down crashing," and India and China will also be affected, he said. After all, "common man does not eat gold. He eats food."

But so far this year, gold's recent weakness pales in comparison to its more than $1,000-per-ounce jump over the course of the last 10 years.

"Gold has been in a multi-year bull market," said Chris Mayer, a managing editor for Agora Financial and contributor to the Daily Reckoning. "When people are worried, they are going to look at that performance and it is going to make them feel even more comfortable about owning some."

Americans would be amazed at the crowds of ordinary people in China buying gold coins, figurines and bars, "hand over fist," he said about a visit to a gold market last year in Beijing.

But don't expect spectacular gains in gold all at once this year.

Although "the pace of rise of gold will be slow in 2011 as compared to 2010, 15% to 20% annualized return in 2011 can be achieved," so if you are invested in gold, then hold on to it, Karnani said.

If you have not yet invested in gold and want to invest, "watch gold for a fortnight and invest around $1,335 in small amounts and aggressively below $1,275 and below," he said.

GoldForecaster.com's Phillips advises investors to "stay calm and keep their seatbelts on." He said $2,000 gold is possible this year.

And Ed Bugos, director of mining finance at Strategic Metals Research & Capital, said, "Don't take your eye off the ball. It's a bull market."

That bull market doesn't need new fears, or events, or news to feed off, he said.

"The fundamental premise is the falling value of the paper world around it," he said. "Crises and other problems brought about by the inflationary policies that debase money in the name of growth" are why investors flock to gold.

* * *

 

end.

 

And now here are other news which will influence gold and silver in the future:

California declares a fiscal emergency:

courtesy of the Golden Truth..Dave Kranzler author:

 

Thursday, January 20, 2011

California Governor Declares Fiscal Emergency...

Thanks to "Bill" for giving me the heads up on this. Not sure what that will accomplish other than maybe get the legislature to reduce any spending increases they are working on. Here's the news report: LINK

Fiscally California is doomed and eventually will require some kind of Federal Government/printed money bailout, as will several other States. They can raise taxes but that will accomplish little as it will further hasten the exodus of businesses and wealthy people who are legally domiciled in the State. For proof of that dynamic check out this news story from Illinois, which just raised taxes: LINK. Credit to my friend and colleague Hal for that story.

I continue to be amazed the way this country focuses on the financial issues over in Europe, when several large States in this country are technically insolvent. Someone asked me to comment on the notion that gold/silver are in a "bubble" now. That idea is little more than laughably absurd. There's a couple of good comments regarding that in the comment section of yesterday's post. Needless to say, until this country - and the world - figures out a way to engineer a financial "do over" AND create the framework by which every State/country can not spend more than it earns (i.e. that mechanism would be a strict gold/silver standard), the Central Banks will continue their inexorable fiat money flood and that will ultimately - and eventually - fuel a precious metals bubble that will stagger everyone's concept of what a bubble is. Until then, all that remains is for the final chess pieces to be played out before the world experiences a financial nuclear holocaust...

I'll be out Friday on s back-country snow-cat skip adventure in order to take full advantage of the 2 1/2 feet of fresh, untracked powder that awaits on Berthoud Pass!

Have a great weekend all - Avere una fantastica fine settimane a tutti

***

end

 

Alan Greenspan yesterday suggested that the USA should go back to the gold standard:

you can view the video at www.jsmineset.com

 

scroll down and see the picture of Alan Greenspan:

 

and then Dan Norcini comments on this video:

 

Friends,

I want to go on record with comments about Alan Greenspan's remarks about a gold standard that hit the news today. That this man, who has rightly been criticized for speaking in riddles so that his hearers could take from his comments that which they wanted to hear him say, has now apparently changed his tune once again and yet can do so without the least bit of remorse is infuriating to me. He basked in the accolades of his peers in the financial community being acclaimed, "The Maestro", because of his supposed ability to deal with financial crises and keep the US economy humming along in spite of it all come hell or high water. Yet we all know that his manner of so doing was to ramp up the printing presses and have them running at warp speed, flooding the system with liquidity at the first sign of any potential danger signs. Whether it was Mexico, or Russia, or Y2K, or the breaking of the tech stock bubble , his solution was always the same, lower interest rates and increase liquidity.

It was under his watch that the stock market bubble burst at the beginning of the last decade which up until it did, he praised as the outcome of increases in productivity. It was he that praised the gigantic derivatives market as another arrow in the quiver of productivity until we all watched it disintegrate into a heap of goo as Lehman Brothers went under, setting off a cascade of defaults and credit deleveraging, the effects of which are still being felt today.

It was his policy of keeping interest rates artificially low that blew one bubble after another which moved from one sector to another, first in stocks, then in housing and then finally in commodities until they all burst in succession.

Yet, now that he is out of his office and no longer has to be the politician and the Central Banker, he can call for a return to some mechanism to hinder his successor from the creation of unlimited amounts of fiat currency in order to prevent the "deleterious" effects of inflation, as he terms it. Why did he not use his pulpit during his tenure to advocate such a thing as a return to some sort of gold standard or currency board? He shares as much blame as any for the condition of the US Dollar and the horrific mess that has been created by Federal Reserve policies over the last decade. While Chairman Bernanke is engaging in Quantitative Easing, he is only following the policies of his predecessor to their logical conclusion.

Here are the former Chairman's own words in Congressional Testimony taken in July, 2005 in response to a question and some comments posed by Congressman Ron Paul. Note his remarks about returning to a gold standard a mere 6 years ago and contrast those with his recent comments of today. Note also the absurd comment in the last sentence that Central Bankers had been acting responsibly:

"But as I've testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor the inflation was.

And, indeed, since the late '70s, central bankers generally have behaved as though we were on the gold standard.

And, indeed, the extent of liquidity contraction that has occurred as a consequence of the various different efforts on the part of monetary authorities is a clear indication that we recognize that excessive creation of liquidity creates inflation which, in turn, undermines economic growth."

So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard?

And the answer is: I don't think so, because we're acting as though we were there.

"Would it have been a question at least open in 1981, as you put it? And the answer is yes.

Remember, the gold price was $800 an ounce. We were dealing with extraordinary imbalances, interest rates were up sharply, the system looked to be highly unstable ­ and we needed to do something.

Now, we did something. The United States ­ Paul Volcker, as you may recall, in 1979 came into office and put a very severe clamp on the expansion of credit, and that led to a long sequence of events here, which we are benefiting from up to this date.

So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we've behaved as though there are, indeed, real reserves underneath the system."

Alan Greenspan today:

"We have at this particular stage a fiat money which is essentially money printed by a government and it's usually a central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or a currency board, because unless you do that all of history suggest that inflation will take hold with very deleterious effects on economic activity… There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard."

Alan Greenspan 40 years ago:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property 
rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

ShareThis

 

 end.

 

They are trying to find ways to allow the individual states to go bust:

here is a great commentary by Mary Walsh of the New York Times, courtesy New York Times and Jim Sinclair commentary:

 

A Path Is Sought for States to Escape Their Debt Burdens 
By MARY WILLIAMS WALSH 
Published: January 20, 2011

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government's aid.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state's bonds could suffer, possibly ending up at the back of the line as unsecured creditors.

More…

 

end.

And finally, I will leave you today with this great Graham Summers commentary on China's warning shot to the usa on its massive debt:

China's Fires the Warning Shot on US Debt

Phoenix Capital Research's picture

  

 

 

-->

China is the world's largest creditor nation. While the US Federal Reserve has overtaken it as the largest owner of US debt, it is China, not the Fed, that determines the world's attitude towards the US's financial situation.

 

After all, the Fed has become the toxic waste depository for all of Wall Street and so consequently must continue its US Treasury buying in order to maintain the illusion that the US financial system is solvent.

 

China, on the other hand, is a voluntary purchaser of US Treasuries. And what China does, the rest of the world will follow.

 

With that in mind I want to alert you to the below news story:

 

China's Sure Bet

 

As the dollar wobbles, China is pulling back from U.S. Treasury securities and buying up hard assets around the world. THIS YEAR, FOR THE FIRST TIME EVER, China has been investing more overseas in assets like iron, oil and copper than it puts into U.S. government bonds. China in this year's first half spent $31 billion on hard assets, compared with $23 billion on Treasuries and other U.S. government bonds…China's preference for hard assets over Treasuries, taken by itself, will put upward pressure on U.S. interest rates and make U.S. economic growth somewhat more difficult

 

I've commented on this news story previously in other articles. However its importance cannot be overstated. Understand that China CANNOT simply dump US debt on the open market in large quantities without risking a full-scale systemic meltdown (if it did, other US-debt holders would follow suit resulting in a full-scale implosion).

 

Instead, China must handle this issue delicately until it can risk a direct confrontation with the US without putting its economy at too much risk. With that in mind, consider that China has cut its US Treasury holdings by 7% year over year. 

 

This is a serious warning shot of what's to come. We're talking about China dumping some $68 billion in US debt in just one year. Indeed, it is clear China is making moves to continue its ascent to super power status, removing any potential weakness it might face in future conflict with the US (such as overreliance on the US as a trade partner or reserve currency).

 

To be clear, China has proven itself EXTREMELY adept at matters of international finance/ trade.  With that in mind, it won't openly challenge the US regarding monetary policy or diplomatic matters until it holds ALL the trump cards and can openly challenge the US without exposing its economy to a massive downturn (much as it did with Japan during the fishing boat scuffle).

 

In that regard, going forward I believe China's monetary/ economic moves will focus on two areas:

 

1)   Shifting its reserves away from the US Dollar

2)   Shifting its trade focus away from the US economy

 

Regarding #1, over the last five years, China has been on a mega-buying spree of natural resources. Because of its close proximity and natural resource riches, Australia has been the primary focal point of these efforts. Indeed, the below list compiled by The Australian represents just a handful of China's moves in this regard:

 

March 2007: Shougang Corp steel group spent $56 million buying 13% or iron ore developer Australian Resources and agreed to fund $US2.1 billion development of the Balmoral South project;

 

July 2007: CITIC spent $113 million lifting its stake in Macarthur Coal from 11.6% to 19.9%;

 

September 2007: Queensland government awards Chalco rights to develop $3 billion bauxite project near Aurukun;

 

September 2007: Anshan Iron & Steel paid $39 million for 13% of Gindalbie Metals and signed $1.8 billion joint venture deal to fund Karara iron ore project in WA;

 

January 2008: consortium of five Chinese companies given FIRB approval to fund $3 billion Oakajee port and rail project in WA;

 

January 31, 2008: Shougang Corp spent $400 million buying another 20% of WA iron ore company Mt Gibson Iron, but has since been forced to sell for breaching takeover rules;

 

January 25, 2008: Sinosteel spent $100 million for more than 10% of WA iron ore hopeful Midwest Corp;

 

February 3, 2008: Chinalco spent $15.5 billion for 9% of Rio Tinto shares in London;

 

February 26, 2008: China Metallurgical Group announces proposed $400 million acquisition of Cape Lambert Iron's namesake WA project. CMG already owns 20% of nearby $5 billion Sino Iron Project;

 

April 28, 2008: FIRB approves China Petrochemical Corporation paying $600 million for 60% control of the Puffin oil field in the Timor Sea, the first time a foreign government has operated an Australian oil field;

 

April 29, 2008: Midwest board recommends agreed $1.36 billion bid from Sinosteel priced at $6.38 a share.

 

Again, I want to stress that list represents just a handful of China's moves in the natural resource space (my own research shows China grabbing as much as $20 billion worth of Australian resource companies from February-April 2009 ALONE).

 

As a stand-alone subject, these purchases can be taken as China merely trying to satisfy its economic demands. However, taken in the context of China's dumping of US Treasuries, these moves are clearly part of a monetary shift away from US Dollar denominated assets. 

 

Indeed, aside from its acquisitions of natural resource deposits, China's shift away from US Dollar denominated assets has also involved it heavily investing directly in commodities themselves:

 

China's Gold Imports Surge Five-Fold

 

Gold imports into China have soared this year, turning the country, already the largest bullion miner, into a major overseas buyer for the first time in recent memory.

 

The surge, which comes as Chinese investors look for insurance against rising inflation and currency appreciation, puts Beijing on track to overtake India as the world's largest consumer of gold and a significant force in global gold prices.

 

The size of the imports – more than 209 tonnes of gold during the first 10 months of the year, a fivefold increase from an estimate of 45 tonnes last year – was revealed on Thursday. In the past, China has kept the volume secret.

 

http://www.ft.com/cms/s/0/9742847e-fe3e-11df-abac-00144feab49a.html

 

 

Thus, we see China addressing its first weakness concerning the US (an over-investment in US Dollar assets) by moving out of US Treasuries and buying up natural resources and commodities (US Dollar hedges).

 

Regarding its second weakness related to the US (an overreliance on the US for trade), over the last five years China has been aggressively expanding its trade with non-US countries. Consider the table below:

 

http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/exports.gif

 

As you can see, in just four years, the US has gone from accounting for nearly a third of China's exports to less than a quarter. That is a MASSIVE shift in less than a decade (at this pace the US will be down to just 15% of China's exports by 2015).

 

All of the moves I've outlined thus far, while hugely significant, have not involved China explicitly stating it was moving against the US and its currency. Indeed, to most commentators, China's moves to acquire natural resources and commodities have been seen in the context of feeding its economic demands.

 

However, once you step back and begin to look at these moves in the context of China trying to rid itself of an over-reliance on the US currency and economy, this latest decision to dump the Dollar for all trade with Russia represents the first monetary move China has made that explicitly involves dumping the US Dollar.

 

This in turn should serve as a major red flag that going forward China will be challenging the US more explicitly which will most likely lead to trade wars and potentially even a physical war.

 

Indeed, we've already seen hints of this a few months ago when the US moved to put tariffs on Chinese tires. China responded by increasing duty taxes on US automotive parts and poultry.

 

Expect to see more of this. As in MUCH more of this. China has made it clear that it is NOT pleased with the US's current monetary policy (China has blamed the Fed for its inflation woes with some officials going so far as to label the Dollar's status as a reserve currency, "absurd"). The US has in turn responded by labelling China a currency manipulator and blaming it for the US's economic woes.

 

This issue will continue to fester between the two countries and is likely to break out into more direct confrontations going forward. Considering the wide array of sectors that China exports to the US, virtually every good you can imagine will be at risk of potential price hikes due to potential supply shortages from tariffs or trade wars in the coming years.

 

http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/sectors.gif

 

Good Investing!

 

Graham Summers

 

end.

 

I wish you all a grand weekend, and I will catch up with you on Monday.

all the best

Harvey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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