"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, February 7, 2011

Concerning China and the Gold ETF

Eric King's sources are generally reliable and it would make sense for a buyer of large size to attempt to source their gold from one place. It all comes down to availability. 

One thing about the report however is that it serves to reinforce the idea that Chinese demand for the metal is very strong. Keep in mind that China is a huge producer of gold and yet at that, apparently that supply is insufficient to keep up with their own internal demand. That speaks volumes.

I have long advocated that the way to end the gold price suppression scheme would be for the longs to stand and take delivery at the Comex and force these sellers of paper gold to come up with the actual metal. One of the problems going this route is that there are delivery month position limits at the Comex which work to prevent a large buyer from coming there and using a large number of futures contracts to secure the metal. By large I mean someone who might be buying in the size that China has been buying in the recent past.

It could be done but the potential buyer would have to repeat the process every month, month after month, using the maximum number of contracts going into the delivery period and just moving from month to month. Obviously for some entity to secure a large amount of gold at one shot it would make things very difficult if not impossible. (See how the exchanges work to protect the shorts).

If the story is true, there are no such restrictions that I am aware of on getting gold out of the ETF although I admit I have not read through its prospetus in some time.

This is also the reason that buyers of gold in large size love to see officially sanctioned sales of gold by Central Banks or by the IMF. It provides them the opportunity to acquire large amounts of the metal at one price and at one time and very quietly I might add so as not to alert the broader market as to what they are up to until after the fact.

The Chinese undoubtedly are well aware of the games begin played in the gold market by the western monetary authorities and quite frankly it is in their interests to let them keep right on sitting on the price until they (the Chinese) can acquire all the gold they wish at a discounted price.

They can read the tea leaves and see the importance of having sufficient gold reserves as the global economy begins to look at serious alternatives to the current system based on the US Dollar as the sole reserve currency. The old adage: "He who owns the gold makes the rules" is certainly appropos.

Back to business as usual in the Bond market

Once again the bond market "miraculously" was resuscitated after breaking down technically in Friday's session. It is evident that the monetary authorities are extremely concerned about its picture on the technical price charts and are fearful of the move lower attracting momentum based selling from the speculative community. That is at complete odds with their plans to bring down rates on the longer end of the yield curve. So out come the usual culprits to bid them back up even as the equity markets continue their rocket ride higher.

In spite of the move higher today, which as you can see on the accompanying price chart has been on mediocre volume indicating the lack of conviction and skepticism among partcipants, traders are going to be looking to sell rallies in this market unless price moves back to well within the previous 7 week long trading pattern. Even at that, they will then look to sell up towards the previous ceiling near the 122 level.

The bond market appears to be living on borrowed time with the only buyer of any size being the Fed through its primary dealers. There is a tremendous amount of supply coming to the market this week and it will be interesting to watch the Fed's balance sheet continue to grow as they are forced to step up to fill any lackluster demand.

That being said, the key to watch this week will be Wednesday's auction of 10 years where the Treasury will be peddling $24 billion. The next day, Thursday, $16 billion in 30 years go up for sale.

Daily Gold Price Action Chart

Trader Dan on CBS Marketwatch

DJ MARKETWATCH VIEW: Gold Watchers See Positive Signs On Outlook

Mon Feb 07 08:28:52 2011 EST
   By Peter Brimelow

  Has gold turned the corner? Gold watchers see several positive signs.

  Gold had its first up week of the year, but Friday was a disappointing day. A
spectacular rise on Thursday, $20.90 in the CME April contract, broke the
downtrend that set in at the end of last year. But a further rally attempt
fizzled and April gold closed down $4, on low volume. Both gold and gold shares
(as represented by the Arca Gold Bugs Index) seem to have broken their New Year
downtrends--but strong confirmation was tantalizingly lacking.

  However, another part of Friday's market activity greatly excited two very
experienced gold followers: the Treasury sell-off.

  At JSMineSet, Dan Norcini stressed on Friday evening:

  "The big development in today's market session was the breakdown in the long
bond ... bonds have been carving out a five-week old sideways trading pattern
... the longer a market runs in a sideways pattern, the more significant the
breakout tends to be when once it occurs ... In the case of the bonds, the
breakdown was to the downside. I should also note that volume on the sharp move
lower was very heavy, always a good sign that the move is legitimate."

  Australia's The Privateer was even more direct on Saturday in a commentary
cheerfully entitled, "Look At Those Treasuries Go!"

  "Regardless of anything else going on around them, the yield on Treasury
paper is inexorably rising and the pace of that rise is accelerating ... As The
Privateer has pointed out MANY times, the REALLY BIG bull markets in precious
metals come when the yield on their 'substitute' as money--government
bonds--show rising yields and falling prices. The rising yields show an
increasing unwillingness to hold them."

  Despite Friday's misfire, the week saw other concrete positive news for gold.
It started with the influential Gartman Letter increasing its model portfolio
gold holdings on Monday. It continued with several reports of buying of
physical gold from India, both on Le Metropole Cafe, which always stresses the
premiums over world gold in the country it likes to call the world's largest
gold importer, and from Edel Tully, the gold analyst at UBS, a major bullion

  On Wednesday, UBS published a valuable chart of an index of the bank's gold
shipments to India, clearly showing a recent surge, and offered the remarkable

  "We struggle to recall a month when our total physical sales have been

  In fact, the reason for this is not so much India as China, as UBS makes
clear. In early December, the chairman of the Shanghai Gold Exchange revealed
that gold imports into China had quintupled in 2010, being already 209 metric
tons by the end of October, a very serious number in the context of gold.

  On Wednesday, the Financial Times published a story quoting bullion dealers
saying China imported another 200 tons in the following three months. Many
observers are amazed.

  China is currently celebrating the Lunar New Year, which lasts until
Wednesday. It is possible that this buying, while unprecedented, is highly
geared to this important holiday. But UBS reports that Chinese importers have
been seeking shipments for after the holiday.

  So it appears from a macro and a very gritty physical trade level, the
outlook for gold looks great. But will the price notice?

  (Peter Brimelow is author of "The Wall Street Gurus: How You Can Profit From
Investment Newsletters." He writes for MarketWatch. He can be reached at
415-439-6400 or by email at AskNewswires@dowjones.com.)

  (END) Dow Jones Newswires

  02-07-11 0828ET

  Copyright (c) 2011 Dow Jones & Company, Inc.

JP Morgan confirms the obvious - Gold is real money

DJ JP Morgan: First Tri-Party Agent To Accept Gold As Collateral

Mon Feb 07 10:00:47 2011 EST

  LONDON (Dow Jones)--JP Morgan Monday said it has become the only tri-party
agent to accept physical gold as collateral against securities lending and repo
obligations with counterparties.

  The company said in a statement that it expects to accept additional precious
metals and commodities as collateral later in the year.

  "The ability to finance and leverage the broadest range of asset classes is
important to our clients. Many clients are holding gold on their balance sheets
as an inflation hedge and are looking to make these assets work for them as
collateral," said John Rivett, collateral management executive at J.P. Morgan
Worldwide Securities Services.

  -By Rhiannon Hoyle, Dow Jones Newswires; +44 (0)20 7842 9405;

  (END) Dow Jones Newswires

  02-07-11 1000ET

  Copyright (c) 2011 Dow Jones & Company, Inc.