My website is now ready but we still have to add a little stuff to it. You can find my site at the following url:
harveyorganblog.com or harveyorgan.wordpress.com
I will continue to send the comex data down to my good friends at the Doctorsilvers website on a continual basis.
They provide the comex data. I also provide other pertinent data that may interest you. So if you wish you can view that part on my website.
I would like to thank you for your patience and I would like to thank my son, Stephen for his invaluable assistance in setting my website up. We are confident that it will not be shut down.
Gold: $1185.60 up $24.10
Silver: $16.31 up 70 cents
In the access market 5:15 pm
Gold and silver had a great day price wise.
However it did not start out that way. The criminal bankers started early last night with gold being pushed back below the $1160 level reaching its nadir at around $1145 early in the comex session. Silver saw its lows at around 2:00 am (London fix time) at $15.30. Then at a little after 9 am both metals started their huge ascent as the physical markets totally overwhelmed the paper markets. One could see that the market was going to test the huge $1180 gold resistance level. The dam burst as it could not stop gold’s huge demand as gold ended the day at $1185.60 and silver at $16.31.
The bankers will regroup and will try and forcefully send gold and silver back down on Monday. Of course the problem that the bankers have is this:
every time they orchestrate a huge raid, some strong entities (a sovereign??) are in there gobbling up much of the naked offering of our bankers. The bankers risk that many of the longs purchased will end up on the delivery table.
This is the second week in a row (on successive Fridays) that we have witnessed outside day positive reversals and they are very rare.
The gold comex today had a humongous delivery day, registering 920 notices served for 92,000 oz. Somebody was in great need of gold in a hurry. This may portend a huge number of gold ounces that will stand in December.
Silver comex registered 0 notices for nil oz.
A few months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 255.02 tonnes for a loss of 48 tonnes over that period. .
In silver, the open interest rose considerably despite Thursday’s fall in price ( 1 cent). It looks like we have a few nervous shorts in silver racing against the clock to cover some of their shortfall!! The total silver OI remains extremely high with today’s reading at 175,263 contracts. The big December silver OI contract marginally lowered to 84,082 contracts.
In gold we had a huge gain in OI with yesterday’s rise in price of gold to the tune of $2.30 . The total comex gold OI rests tonight quite elevated at 450,363 for a gain of a whopping 9,767 contracts. The December gold OI rests tonight at 219,003 contracts which had a normal contraction of 8,672 contracts. We lost some of the paper longs into February . The silver December longs decided to stay put.
Today, we had no change in gold Inventory at the GLD / inventory rests tonight at 720.62 tonnes.
In silver, the SLV inventory had a huge addition of 2.012 million oz into their vaults..
SLV’s inventory rests tonight at 346.900 million oz.
We have a few important stories to bring to your attention today…
Let’s head immediately to see the major data points for today.
First: GOFO rates: move again deeper in backwardation!!
All months basically moved deeper into backwardation
Now, the first 4 months of GOFO rates( one, two, three and six month GOFO) moved deeply into the negative with the 6th month GOFO now negative again and in backwardation. On the 22nd of September the LBMA stated that they will not publish GOFO rates. However today we still received today’s GOFO rates.
It looks to me like these rates even though negative are still fully manipulated.
London good delivery bars are still quite scarce.
The backwardation in gold is incompatible with the raid on gold . It does not make any economic sense.
Nov 14 2014
1 Month Rate: 2 Month Rate 3 Month Rate 6 month rate 1 yr rate
-.2175% -0.1575% -0.0975% – .0075% + .1150%
Nov 13 .2014:
1 Month Rate 2 Month Rate 3 Month Rate 6 month Rate 1 yr rate
–.2125% + -.1575% -.10500% -.0000 % + .1150%
Let us now head over to the comex and assess trading over there today,
Here are today’s comex results:
The total gold comex open interest rose by a wide margin of 9767 contracts from 440,596 up to 450,363 with gold up $2.30 yesterday. The front delivery month is November and here the OI shockingly rose by 909 contracts. We had 0 delivery notices filed on yesterday so we gained 909 contracts or a whopping 90,900 additional gold ounces will stand for the November contact delivery month. The big December contract month saw it’s Oi fall by a smallish 8672 contracts down to 219,003. Most of the selling December longs rolled into February. You will see below that this is not, so for, happening to our December silver longs who are standing pat. The estimated volume today was fair at 113,417 which is surprisingly considering the huge gain in the gold price. The confirmed volume yesterday was very good at 234,067. (with mucho help from our HFT traders.) Strangely on this 11th day of notices, we had a monster notice of 920 notices filed for 92,000 oz. We had only 33 notices outstanding as of last night, so somebody was in urgent need of gold. It certainly had some resultant effect on the gold price and its subsequent trading today.
And now for the silver comex results. The total OI rose sharply again by 3565 contracts from 171,698 up to 175,263 even though silver was down 1 cent yesterday. It seems that judging from silver’s OI, our banker friends are still very nervous as they try to cover their massive shortfall in silver. In ounces, this represents a total of 876 million oz or 125.1% of annual global supply. We are now in the non active silver contract month of November and here the OI fell by 21 contracts down to 89. We had 31 notices filed on yesterday so we gained 10 lo silver contracts or an additional 50,000 oz that will stand for the November contract month. The big December active contract month saw it’s OI fall by only 2,075 contracts down to 84,082. A normal contraction is around 5,000 contracts per day on a roll. The December contract month remains highly elevated for this time in the delivery cycle. In ounces the December contract is represented by 420 million oz or 60.0% of annual global production (production = 700 million oz – China). The estimated volume today was poor at 26,264 as the bankers were loath to supply any of the paper necessary to suppress the silver price. The confirmed volume yesterday was huge at 51,069. We also had 0 notices filed today for nil oz.
If I am reading the comex first day notice properly, first day notice is Nov 26.2014 the day before Thanksgiving. We thus have 9 more comex sessions.
Data for the November delivery month.
November initial standings
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz||4,496.45 (Scotia,Manfra)includes 3 kilobars|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||10,049.181 oz|
|No of oz served (contracts) today||920 contracts(9200 oz)|
|No of oz to be served (notices)||22 contracts (2200 oz)|
|Total monthly oz gold served (contracts) so far this month||930 contracts (93,000 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||80,623.1 oz|
Total accumulative withdrawal of gold from the Customer inventory this month
Today, we had 0 dealer transactions
total dealer withdrawal: nil oz
total dealer deposit: nil oz
we had 2 customer withdrawals: and this is another of those perfectly round withdrawals and not divisible by 32.15 oz/thus they are not kilobars
i) Out of Scotia 4,400.000 oz (how could this be possible when weights must be to 3 decimals)
ii) Out of Manfra; 96.45 3 kilobars.
total customer withdrawals : 4496.45 oz
we had 0 customer deposits:
total customer deposits : nil oz
We had 0 adjustments:
Total Dealer inventory: 868,910.561 oz or 27.02 tonnes
Total gold inventory (dealer and customer) = 8.195 million oz. (254.89) tonnes)
Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 48 tonnes have been net transferred out. We will be watching this closely!
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 920 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped by JPMorgan customer account.
To calculate the total number of gold ounces standing for the November contract month, we take the total number of notices filed for the month (9300) x 100 oz to which we add the difference between the OI for the front month of November (942) – the number of gold notices filed today (920) x 100 oz = the amount of gold oz standing for the November contract month.
Thus the initial standings:
9300 (notices filed today x 100 oz + ( 942) OI for November – 920 (no of notices filed today) 95,200 oz or 2.9611 tonnes. We gained 90,900 oz of gold standing for the November contract month.
November silver: initial standings
|Withdrawals from Dealers Inventory||nil oz|
|Withdrawals from Customer Inventory||169,588.110 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||201,101.371 oz (Delaware)|
|No of oz served (contracts)||0 contracts (nil oz)|
|No of oz to be served (notices)||110 contracts (550,000 oz)|
|Total monthly oz silver served (contracts)||155 contracts 775,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month||781,023.9 oz|
|Total accumulative withdrawal of silver from the Customer inventory this month||5,196,526.6 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit: nil oz
we had 0 dealer withdrawal:
total dealer withdrawal: nil oz
We had 2 customer withdrawals:
i) Out of CNT: 167,663.110 oz
ii) Out of Delaware: 1925.000 oz (how could this be possible? xx.000)
total customer withdrawal 169,588.110 oz
We had 1 customer deposits:
total customer deposits: 201101.371 oz
we had 0 adjustment
Total dealer inventory: 65.602 million oz
Total of all silver inventory (dealer and customer) 178.088 million oz.
The total number of notices filed today is represented by 0 contracts or nil oz. To calculate the number of silver ounces that will stand for delivery in November, we take the total number of notices filed for the month (155 ) x 5,000 oz to which we add the difference between the total OI for the front month of November(89) minus (the number of notices filed today (0) x 5,000 oz = the total number of silver oz standing so far in November.
Thus: 155 contracts x 5000 oz + (89) OI for the November contract month – 0 (the number of notices filed today) = amount standing or 1,220,000 oz of silver standing.
we gained 50,000 oz of silver standing.
It looks like China is still in a holding pattern ready to pounce when needed.
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.
***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:
i) demand from paper gold shareholders
ii) demand from the bankers who then redeem for gold to send this gold onto China
vs no sellers of GLD paper.
And now the Gold inventory at the GLD:
Nov 14. we had no change in gold inventory at the GLD/inventory 720.62 tonnes
nov 13. we lost another 2.05 tonnes of gold at the GLD/Inventory at 720.62 tonnes
Nov 12.2014; we lost another 1.79 tonnes of gold at the GLD/Inventory at 722.67 tonnes
This gold left the shores of England and landed in Shanghai.
Nov 11.2014: we lost another 0.900 tonnes of gold at the GLD/Inventory 724.46 tonnes
Nov 10. we lost another 1.79 tonnes of gold at the GLD/Inventory 725.36 tonnes
Nov 7 wow!! we lost another huge 5.68 tonnes of gold at the GLD/inventory 727.15 tonnes
Nov 6.2014: we had another huge withdrawal of 2.99 tonnes of gold. Inventory 732.83 tonnes
This gold is also heading to Shanghai. If I was a shareholder of GLD I would be quite concerned as there will be no real gold inventory left per outstanding shares.
Nov 5 we had another huge withdrawal of 3.000 tonnes of gold. This gold will be heading to Shanghai/GLD inventory 735.82 tonnes
Nov 4.2014: a huge withdrawal of 2.39 tonnes of gold/GLD inventory/738.82 tonnes
Nov 3.2014: no change in gold inventory at the GLD/741.21 tonnes
Oct 31.2014: no change in gold inventory at the GLD despite the raid/inventory at 741.21 tonnes
October 30.2014: we had another 1.2 tonnes of gold leave the GLD and heading to Shanghai/Inventory 741.21 tonnes
October 29.2014: we had another .99 tonnes of gold removed from the GLD/inventory 742.40 tonnes
Today, Nov 14. no change in gold inventory.
inventory: 720.62 tonnes.
The registered vaults at the GLD will eventually become a crime scene as real physical gold departs for eastern shores leaving behind paper obligations to the remaining shareholders. There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat (same banks).
GLD gold: 720.62 tonnes.
And now for silver:
Nov 14.2014; wow!! we had an addition of 2.012 million oz into the SLV/inventory at 346.900
Nov 13. no change in silver inventory at the SLV/344.888 million oz.
Nov 12.2014: no change in silver inventory at the SLV/inventory rests tonight at 344.888 million oz. And please note that gold leaves GLD/silver does not. Why? there is no physical silver at the SLV..just paper obligations.
Nov 11.2014: no change in silver inventory at the SLV/inventory rests tonight at 344.888 million oz.
Nov 10/ we had an addition of 1.438 million oz of silver into inventory at the SLV/Inventory 344.888 million oz (again note the difference between gold and silver)
Nov 7/ 2014/no change in silver inventory/inventory rests at 343.45 million oz. (please note the difference between silver (SLV) and gold (GLD)
Nov 6.2014: no change in silver inventory/(as of 6 pm est) inventory rests at 343.45 million oz.
Nov 5 today, the total silver inventory drops of 2.074 million oz/SLV inventory: 343.45 million oz
Nov 4.2014: wow!! we had another addition of 1.151 million oz of silver inventory/SLV inventory rises to 345.524
Please note the difference between GLD and SLV. The GLD has physical gold to send on its way to Shanghai/SLV has no silver to offer to the participants to give to various players..
Nov 3.2014: this is good news: the “actual silver inventory” rose by 958,000 oz to 344.373 oz
(I guess there is no physical silver to raid from the SLV vaults:)
October 31.2014: despite the huge raids yesterday and today: no change in silver inventory at the SLV/inventory at 343.415 million oz
October 30.2014; no change in silver inventory at the SLV/inventory at 343.415 million oz
October 29.2014 no change in silver inventory at the SLV inventory/343.415 million oz
October 28.2014: no change in silver inventory at the SLV/Inventory at 343.415 million oz
Oct 27.2014: no change in silver inventory at the SLV
And now for our premiums to NAV for the funds I follow:
Note: Sprott silver fund now deeply into the positive to NAV
Sprott and Central Fund of Canada.
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 6.5% percent to NAV in usa funds and Negative 6.6% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.3%
Percentage of fund in silver:37.10%
( Nov 14/2014)
2. Sprott silver fund (PSLV): Premium to NAV falls to positive 3.29% NAV (Nov 14/2014)
3. Sprott gold fund (PHYS): premium to NAV rises to negative -0.21% to NAV(Nov 14/2014)
Note: Sprott silver trust back hugely into positive territory at 3.29%.
Sprott physical gold trust is back in negative territory at -0.21%
Central fund of Canada’s is still in jail.
Today at 3:30 pm we receive the COT report. The data is from Tuesday to Tuesday so we do not see the last 3 days of trading.
Let us have a look at the gold COT:
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, November 11, 2014|
Our large speculators:
Those large specs that have been long in gold added a tiny 369 contracts to their long side and tonight they are truly rewarded.
Those large specs that have been short in gold following the whims of our HFT traders added a large 7551 contracts to their already bloated short position.
Tonight they are wishing for divine intervention to save them.
Those commercials that have been long in gold and are close to the physical scene added a hefty 22,659 contracts to their long side
Those commercials that have been short in gold added a huge 17,376 contracts to their short side.
(last week they covered and then this week they added to their short position???)
Our small specs;
Those small specs that have been long in gold added a tiny 1021 contracts to their long side
Those small specs that have been short in gold covered 878 contracts from their short side.
Conclusion: bullish as the commercials go net long by almost 5,000 contracts.
And now for our silver COT report:
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||147||153|
|Tuesday, November 11, 2014||© SilverSeek.com|
Quite a difference between gold and silver:
Our large specs:
Those large specs that have been long in silver pitched 623 contracts despite the low price in silver. They are not happy campers tonight.
Those large specs that have been short in silver covered 4113 contracts from their short side and they are glad that they did.
Those commercials that have been long in silver pitched a large 4265 contracts from their long side
Those commercials that have been short in silver added another 939 contracts to their short side and tonight they are not happy campers.
Our small specs:
Those small specs that have been long in silver pitched a tiny 81 contracts from their long side
Those small specs that have been short in silver covered a rather large for them: 1795 contracts from their short side.
Conclusion: bearish as the commercials go net short by almost 5,000 contracts.
This is why I do not read anything into the COT reports.
And now for your most important physical stories on gold and silver today:
Early gold trading form Europe early Friday morning:
(courtesy Goldcore/Mark O’Byrne)
Gold Wars’ – Swiss Gold Shenanigans Intensify Prior To November 30 Vote
‘Gold wars’ are intensifying with just 16 days left to polling day in the Swiss Gold Initiative.
The Swiss National Bank (SNB) and establishment parties went “all in” during the week and intensified their campaign. They suggested that passing the Gold Initiative would be a ‘fatal’ for Switzerland and would be positive only for speculators.
The ‘yes’ side countered by saying the SNB’s assertions were alarmist and over the top. They say that it is not an invitation to speculators as there would be a five year transition to gold being 20% of Swiss reserves. They warned that there is a real risk of another debt crisis and a global currency crisis and that gold reserves would protect the Swiss franc and the Swiss economy.
If the Swiss vote to revert to having 20% of currency reserves in gold, the Swiss National Bank will be forced to make huge purchases of gold bullion. Switzerland and its ‘Gold Initiative’ would contribute to driving the price of gold higher – likely in the short term and contributing to higher prices in the long term.
Understanding the important recent past and what has led to the forthcoming Swiss Gold Initiative is important and why we look at it today. This context is all important and is essential reading for all who wish to understand the key issues in the debate, for all who invest in and own gold internationally and for all Swiss people.
‘Gold Wars’ – The All Important Context and Gold Wars Today
By Ronan Manly,
Golden Constant: Unchanging Swiss Reserves from 1971 to 2000
IMF Threat To Swiss Constitutional Gold
SNB Working Group – Begins Gold Lending
Solidarity Fund Confusion
SNB ‘Expert Group’ Pre Planned Sale Of “Excess” Gold Reserves?
Low Turnout Gold Referendum and New Constitution
Swiss Gold Expert Ferdinand Lips Speaks Up
Jean-Pierre Roth’s Important 20% Diversification ‘Rule of Thumb’
Much of the background to the sale of Swiss gold reserves in the early 2000s relates back to a number of distinct episodes in Swiss monetary history in the 1990s.
A lot of this period was characterised by what in hindsight looks like coordinated planning on the part of the Swiss National Bank (SNB) to push through a specific figure of 1,300+ tonnes of Swiss gold sales, but which back then looked like an unconnected but bungled series of unrelated changes to Switzerland’s gold and monetary landscape.
Furthermore, it is only by reviewing this series of events that it’s possible to appreciate the genesis of the current Swiss Gold Initiative and the motivation of the proponents to call a halt to and try to reverse some of what they see as the unwise sale of Swiss gold due to decisions made in the 1990s.
Golden Constant: Unchanging Swiss Reserves from 1971 to 2000
Historically the Swiss Federal Constitution specified a gold backing for the country’s circulating currency. It did not specify a price at which to value the Swiss Franc in relation to gold.
This price was specified in related legislation. When the Bretton Woods system of fixed exchange rates collapsed in 1971 following the suspension by the US of dollar convertibility into gold, the Swiss parliament enacted legislation that linked the Swiss Franc to gold at an official price of SwF 4,590 per kilo (or SwF 142.90 per ounce). This price, at that time, was chosen as a realistic valuation price to enable the preservation of the gold backing for the Franc above a 40% limit (i.e. the value of the Swiss gold holdings at the official price exceeded, by a comfortable margin, 40% of the value of the circulating Swiss Franc currency).
Currency rules also stated that the Swiss National Bank (SNB) was only permitted to buy or sell gold within 1.5% of this official price. Therefore, from 1971 onwards, as the price of gold rose far above this official price, the Swiss National Bank (SNB) was unable to buy or sell gold. This is why Swiss gold reserves remained virtually unchanged at 2,590 tonnes between 1971 to 2000.
IMF Threat To Swiss Constitutional Gold
In 1992, after a concerted political campaign spearheaded by some of the country’s political parties, Switzerland joined the International Monetary Fund following a national referendum.
Under IMF rules, adopted in the latter part of the 1970s, IMF member countries cannot link their currencies to gold. After joining the IMF, Switzerland was therefore constrained in how it could subsequently revalue its gold reserves since IMF Articles of Association prohibited IMF member countries from linking their currencies to gold.
In June 1995, at a gold conference in Lugano, Switzerland, Jean Zwahlen, one of the three members of the Governing Board of the SNB at that time, told the conference that “to state it bluntly, the Swiss National Bank has no intention whatsoever to sell or mobilise its gold reserves.(1)” At the end of April 1996, Zwahlen left the SNB to take up various private sector board positions (2).
However, in April 1996, Governing Board Chairman, Markus Lusser, set the Swiss gold reserve changes in motion, when he referred to the 40% gold cover as a ‘relic of the past’. (3) Lusser, who been SNB chairman since 1988, then also left the bank at the end of April 1996. (4)
SNB Working Group – Begins Gold Lending
In June 1996, an eight member ‘Working Group’ was appointed by the SNB and Ministry of Finance to purportedly examine the SNB’s investment policy, and to come up with ways of increasing the profitability of the Bank’s reserves. The group appointed consisted exclusively of SNB and Swiss Ministry of Finance officials, and was co-chaired by Peter Klauser, chief legal counsel at the SNB, and Ulrich Gygi from the Swiss Finance Ministry.
Gold sales were supposedly outside the terms of reference of this group.
This group targeted the gold cover rules so as to free up part of the gold reserves in order to start gold lending / leasing operations. By 1996, the gold cover of the Swiss Franc note issue had fallen to just a few percentage points above the minimum 40% level (i.e. the value of the Swiss gold reserves using the old official valuation price only just exceeded 40% of the value of outstanding Swiss Franc currency in circulation).
A change to this cover level only needed legislative and not constitutional approval, so in November 1996, the working group indicated that the gold cover should be reduced from 40% to 25%, and they published these recommendations in a report in December 1996. The portion of the gold reserves not earmarked to cover the note issue could therefore be targeted for gold lending. The group recommended a maximum of 10% of gold reserves to be used in this way, which worked out at a maximum of 259 tonnes of the total 2,590 tonnes.
These changes were ultimately reflected in legislation in November 1997, and as soon as the legislation went through the SNB began its gold lending operations, presumably out of London where most gold lending takes place in conjunction with the LBMA bullion banks.
Solidarity Fund Confusion
On 5th March 1997, the Swiss government announced that they intended to create a humanitarian Fund or Solidarity Fund, to be funded by Swiss gold. This proposal was said to have been conceived by SNB President Hans Meyer for what looks like no compelling reason, and communicated to Swiss President Arnold Koller and Federal Councillor Kaspar Villiger, who then echoed it back as if it had been their idea (5)(6).
On the same day, 5th of March 1997, the SNB announced that they supported this move by the Swiss government. The proposal was to transfer between 400 and 600 tonnes from the Swiss gold reserves to this Swiss Solidarity Fund, and then sell the gold over a 10 year period.
Note that this Solidarity Fund was not specifically related to US led pressure at that time for Swiss compensation for WWII related incidents, but in the confusing political climate at that time in the 1900s and the pressure on the Swiss banks, it was sometimes confused with WWII related compensation.
At the April 1997 SNB annual general meeting, Hans Meyer, the new chairman of the SNB governing board (7) talked in terms of a 400 tonne transfer of gold to the Solidarity Fund, and even suggested that this gold could stay in the care of the SNB but be administered on an executor basis. This was the first time that Swiss gold sales were quantitated and only 400 tonnes was mentioned.
However, behind the scenes and just over the horizon, the SNB had more substantial plans for the gold reserves.
This Solidarity Fund idea never really gained momentum in Switzerland; in fact it was received by the Swiss public with a lot less than enthusiasm and eventually fizzled out. But what it did do was confuse the citizenry about Swiss gold sales and about referenda during a period in which there were multiple different proposals being discussed by the Swiss political and monetary establishment in and around the topics of gold and currency.
SNB ‘Expert Group’ Pre Planned Sale Of “Excess” Gold Reserves?
A second joint group called the ‘Expert Group’ was appointed in April 1997, again the appointment was by the SNB and the Ministry of Finance and again the group was co-headed by the SNB’s Peter Klauser, and the MinFin’s Ulrich Gygi.
This was a ten member group but five of the members had also been on the first ‘Working Group’. This time around three university academics with constitutional experience were thrown in for good measure but the rest of the panel were from the SNB and the Finance Ministry. The brief of this group was to recommend ways to reform the Swiss monetary system. After supposedly analysing and deliberating, this group’s recommendations included the following:
– Remove the reference to gold backing from the constitution thereby severing the constitutional link between the Swiss franc and gold. Revalue the gold reserves to a higher level but below market value.
– Officially grant the Swiss National Bank total independence by writing this stipulation into the constitution. This independence proposal from the SNB was despite the fact that the Bank had been, de facto, independent since its formation in 1906.
– Make price stability the main priority of the SNB, above and beyond other objectives.
It’s hard to believe that this Expert Group did any independent analysis, since it ended up arriving at conclusions in 1997 uncannily like the SNB’s Peter Klauser had listed in a speech he gave in 1996. As the World Gold Council put it in a 1998 publication:
“Indeed, Dr. Klauser laid out a similar plan to the one proposed by the Expert Group in a speech he gave the day after the Working Group issued its report (18 November 1996) – that is, six months before the appointment of the Expert Group (April 1997).”
Swiss Gold Initiative Logo
The fact that this Expert Group came up with recommendations in 1997 that were in line with what the SNB was trying to push in 1996, to a large extent shows that this entire exercise was pre-planned by the SNB from at least as early as 1996.
The Expert Group also specifically recommended on what they called ‘excess’ gold reserves, and this is crucial to understanding how the subsequent massive gold sales plan of 1300 – 1400 tonnes was put on the table. In what looks very like a classic case of reverse engineering, the Expert Group recommended an upward revaluation in the price of gold from the old official price of SwF 4,590/kg ($96.40 per ounce) to SwF 9,000 / kg, ($189 per ounce).
This SwF 9,000 price was 60% of the market price at that time but there was no specific ‘scientific’ reason why this price was chosen above any other price. Basically, the ‘Experts’ stated that Switzerland needed SwF 10.7 billion in gold as part of its total reserves, which, at a price of SwF 9000, would be equal to 1,200 tonnes. So that left 1,400 tonnes in excess that could be labelled as saleable.
Shockingly, the Expert Group’s recommendations for the wording of the new constitution did not even mention gold, so there was some push back from the Swiss Parliament who made the Expert Group insert a reference to gold in the wording of the new Constitution in relation to reserves. But in the new wording there was no quantification of the amount of gold that should be held in future, it just referred to “a part of it in gold”.
Low Turnout Gold Referendum and New Constitution
The above changes required a new constitution and a national referendum and also changes to Swiss legislation. At the end of May 1998, the Swiss Federal Ministry of Finance published a press release announcing constitutional changes to reflect the above, stating that “the link between the Swiss franc and gold, written in the constitution, limits the possibility of gold sales for the SNB and should therefore be dropped”.
In a revealing sentence, the Finance Ministry also stated that “According to the SNB, other than current foreign exchange reserves, management of monetary policy only requires about half the current level of gold reserves”. This statement is revealing since it indicates that the Finance Ministry perceived the Expert Group essentially to be the SNB (8) grouping, and not a more diverse representative grouping.
To coincide with the above press release, the World Gold Council (WGC) also released analysis at the end of May 1998 stating that over the previous two weeks they had engaged in “extensive interviews with principal Swiss monetary and financial officials”. The WGCs actions were partially to allay fears in the market over what at the time was a lot of uncertainty surrounding the size and timing of any Swiss gold sales.
The WGC stated at the time that, based on their discussions, the definition of total excess gold was roughly 1400 tonnes, that if any gold was sold then it would be over a 10-20 year period, and that this would work out at between 50 and 100 tonnes per year.
The national referendum on the new Swiss constitution went ahead in April 1999, and was passed by just under 60% of voters in what was a very low turnout of 36% of the electorate.
From 1400 Tonnes to 1300 Tonnes and CBGA
Sometime between mid-1998 and early 1999, the SNB’s target of an excess 1,400 tonnes of gold reserves somehow became a discussion focusing on an excess of 1,300 tonnes of gold.
Why this figure changed is not clear, however, a World Gold Council study at the time in April 1999 stated that “1,400 tonnes was the figure first mentioned. However, in Switzerland, the discussion has since been firmly fixed on 1,300 tonnes. For consistency we have followed Swiss practice.”
Surprising as it may sound now, as of April 1999, there was no clarity amongst gold market observers as to whether there would be any Swiss gold sales and if so, when this would happen. The Swiss Federal Government was still confusing Swiss citizens with the apparent red herring about a Swiss Solidarity Fund funded by Swiss gold sales.
Then suddenly on 26 September 1999, an agreement on coordinated gold sales between 15 European central banks, known as the Central Bank Gold Agreement (CBGA), or Washington Agreement, was announced out of the blue in a move that surprised the gold market. The signatories to the agreement were the 11 Eurozone economics at that time, as well as Switzerland, the UK, Sweden and the European Central Bank.
It was known as the Washington agreement since it had been signed at the annual IMF/World Bank meeting which was held in Washington DC that year.
The Agreement, which would likely have taken months to plan, allowed for the sale of up to 2000 tonnes of gold over a five year period from 2000 until 2004, amongst the signatory central banks. Within the agreement, Switzerland was conveniently given a full allocation of the 1,300 tonnes of gold that it had unscientifically deemed to be in ‘excess’. At the time, it was said that the Washington Agreement was to be monitored by the Bank for International Settlements (BIS) in Basel, Switzerland.
What the CBGA was purportedly drawn up for was to create gold price stability in a market where talk of gold sales by various central banks, including Switzerland, was said to have created a destabilising influence.
What the agreement did do however, especially in the case of Switzerland, was to allow the Swiss National Bank to plough full-steam ahead into an accelerated five year sales program of 1,300 tonnes of gold sales (some 260 tonnes per year) that a few months previously was still being debated and which the Swiss Finance Ministry had said would take place over 10-20 years at 50-100 tonnes per year if it actually went ahead at all.
Swiss Gold Expert Ferdinand Lips Speaks Up
Critics of the SNB’s rush to sign the Washington Agreement in September 1999 point to the fact that the Swiss Parliament hadn’t even passed legislation to authorise Swiss gold sales until December1999, and also that, under Swiss law, there was a possibility that a referendum could have been scheduled for April 2000 to question these sales.
This referendum did not take place and so the SNB was then unfettered to commence gold sales in May 2000, which it promptly did. The SNB officially then went on to sell 1,300 tonnes of Swiss gold between 2000 and 2004.
This was a very substantial amount of gold – some 325 tonnes per year and likely contributed to gold’s weakness in the early part of the decade.
Well known Swiss banker, financial adviser and author of ‘Gold Wars’ Ferdinand Lips believed that Switzerland had been put under enormous foreign pressure and duress to sell half of its gold reserves, and he wrote in 2002 questioning “Is the SNB on New York’s leash?”, saying that “In my opinion, the once strong, proud and independent SNB has been degraded to an ‘Off-shore Branch’ of the U.S. central bank (the Federal Reserve) and reports directly to Alan Greenspan and his cohorts in New York.”
Ferdinand Lips – Author of ‘Gold Wars’
Lips added that “It is a given that the Swiss gold sales will help New York money center banks to survive a bit longer. It will help them manipulate the gold market. But, gold’s time is still to come. If the SNB does not stop its sales, Switzerland will have to buy back its gold one day but at a higher price. The question is: With what?”(10)
Lips’ question still seems as relevant today as it did in 2002, and may need an answer sooner than anyone thought possible depending on the outcome of the 30 November referendum.
Jean-Pierre Roth’s Important 20% Diversification ‘Rule of Thumb’
One final point to note is that with the upcoming Swiss Gold Initiative referendum stipulating that the SNB should be required to hold at least 20% of its reserves in gold, it’s worth noting that in June 2000, Jean-Pierre Roth (11), the then deputy governor of the SNB, told the World Gold Council that this exact percentage, 20% of reserves in gold, made a lot of sense from a reserve diversification perspective.
“The down-sizing of our gold reserves is limited to 1,300 tonnes. We have no intention to go further than that. At the end of our sales programme, the remaining 1,290 tonnes of gold in our possession will be appropriate in several respects: our gold reserves will represent about 20 per cent of our total assets, which makes a great deal of sense from a diversification point of view. It also meets our constitutional obligation to maintain our gold reserves.
Also, they will back about half of the currency in circulation in Switzerland. A strong gold backing still plays an important role in fostering the public’s confidence in money. They will form a sizeable ‘second line of defence’ without credit, transfer or political risks, to be used in case of emergencies.(12)
Roth went on to become chairman of the governing board of the Swiss National Bank for nine yearsbetween January 2001 and December 2009.
With the SNB now in full media mode arguing against a 20% gold holding in the reserves, perhaps some of the Swiss media might care to interview Dr. Roth who can now be found sitting on the boards of Nestlé, Swiss Re and Swatch.
Given that the 1,300 tonnes of gold sales appear to have been pre-planned by the SNB from approximately the mid-1990s, and given that the gold initiative referendum is about to be put to a public vote in just 16 days, it would be valuable at this juncture to now pose some questions to former Swiss National Bank executives in an effort to understand exactly what went on with the gold sales plans and negotiations during the late 1990s.
Swiss Gold Initiative donations can be made here
Ted Butler urges the silver miners to fight:
he is a little late:
(courtesy ted Butler/GATA)
Ted Butler urges silver miners to stand up and fight market rigging
11:08p ET Thursday, November 13, 2014
Dear Friend of GATA and Gold:
Silver market analyst Ted Butler, the original exposer of metals market rigging, is urging silver mining companies to complain to market regulators in the United States, not in any expectation of regulatory action but rather to send a signal to the rest of the world. Butler’s appeal, made in his proprietary newsletter —
— is excerpted in the clear in today’s edition of GATA board member Ed Steer’s Gold and Silver Daily letter at Casey Research:
“There does seem to be a budding reaction building among the leaders of the primary silver miners to the COMEX action of depressing silver prices, namely a recognition that the continued existence of their enterprises is threatened. This has long been recognized by the shareholders of mining stocks and is reflected in the prices of the shares. An intelligent reaction by the primary silver miners to the artificial price-setting on the COMEX could have a profound influence in hastening the coming resolution and in ending the continuing silver price suppression. But what’s the most intelligent reaction by the primary silver miners at this time?
“While understandable, withholding production alone is not the best way of fighting back, simply because the extremely low price of silver is not caused by overproduction, but by COMEX dealings. And forget about any illegal cartel of silver miners. As I’ve suggested previously, the best thing for the primary silver miners to do, either individually or collectively, is to openly petition the regulators to address the price manipulation on the COMEX. But wait a minute – didn’t I just say that there would never be a regulatory resolution? Yes, I most certainly did and I still believe that to be true. Please hear me out.
“The primary silver miners (the byproduct producers aren’t necessarily excluded either) have to go the regulators, even if the regulators will do nothing, because it’s the right thing to do. In fact it’s the only practical approach the miners can take. Petitioning the regulators is the only legitimate action the miners can take (although I am always open to other suggestions). Forget low-cost, my approach is no cost to the miners. Further, shareholders would applaud any mining leader who took this approach.
“Most importantly, the miners have a responsibility to adopt such an approach for the simple reason that they have the most legitimate reason for complaining about the COMEX price setting. It is this legitimacy that makes the silver miners the perfect candidates to petition the regulators. Miners are not speculators or market analysts desirous of higher prices; they have a legal right to expect the level playing field of a non-manipulated price. Producers of every product hold important protections against dumping and artificial price restraints.
“But why should the miners petition the regulators if the regulators will do nothing? Because of the message that will send to the rest of the world. Try to imagine the potential reaction in the investment world to news that a silver miner or group of miners asked the regulators to investigate evidence of manipulation? It is one thing for an Internet analyst (me) to make such allegations, but quite another for a legitimate producer to do the same. It’s all about legitimacy. It is well-known that in establishment media circles the allegations of a silver (and gold) manipulation is populated by conspiracy types and that’s a big reason the scam has lasted so long. But if a silver miner or miners the allegation, it just might prompt some of the establishment types to actually look at the evidence, something none have done to this point.
“The only thing a silver miner must be careful about in adopting an approach of openly petitioning the regulators to address the goings on in COMEX dealings is to stick to the facts and don’t say anything wrong. Unfortunately, there are an incredible amount of misstatements of fact regarding the COMEX’s role in setting silver prices that a miner repeating them will reduce any petition to a fool’s errand. Ego aside, I don’t think I’ve ever made an error when petitioning the regulators and it is this careful approach that has made me immune from a counter reaction in calling JPMorgan and the CME market criminals. Of course, I would assist any miner desiring to petition the regulators. – Silver analyst Ted Butler: 12 November 2014
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
The bankers have a month to come clean!!
U.S. Said to Give Banks December Deadline in FX Probe
Currency market suspects that Swiss Gold Initiative could win, von Greyerz says
9:21p ET Thursday, November 13, 2014
Dear Friend of GATA and Gold:
Fines against the major investment banks for their currency market rigging are trivial compared to the profits the banks made from their misconduct, just a small cost of doing crooked business, Swiss gold fund manager Egon von Greyerz tells King World News tonight. He adds that the currency market seems to be pricing the Swiss franc as if the Swiss Gold Initiative could be approved at referendum on November 30. An excerpt from von Greyerz’s interview is posted at the KWN blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
(courtesy Adrian Ash/Bullion vault/GATA)
Adrian Ash: Good news for gold bulls from the near-bears of the LBMA
9:10p ET Thursday, November 13, 2014
Dear Friend of GATA and Gold:
Bullion Vault research director Adrian Ash remarks tonight on the pervasive bearishness reported from the London Bullion Market Association conference in Lima, Peru. “When everyone’s out, or at least miserable,” Ash writes, “there’s only one way for prices to head. So says the ‘contrarian’ school of long-term investing. Find an asset that’s hated and deeply oversold. Then fill your boots.”
He adds pretty sagely, “People tend to predict what they’ve just seen.”
Ash’s commentary is headlined “Good News for Gold Bulls from the LBMA’s Near-Bears” and it’s posted at Bullion Vault here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Turd Ferguson talks about the gold/yen correlation.
It ended abruptly today!!
(courtesy Turd Ferguson/TF Metals)
TF Metals Report: More on the gold-yen link
11:40a ET Friday, November 14, 2014
Dear Friend of GATA and Gold:
The TF Metals Report’s Turd Ferguson today speculates on a seeming correlation between the price of gold and the Japanese yen, a correlation that became almost exact starting in June this year, with both the yen and gold declining sharply. But Ferguson thinks a limit to the correlation may be approaching because the physical gold market will break from the paper gold market if the paper price keeps falling. Ferguson’s commentary is headlined “Even More on the Gold-Yen Link” and it’s posted at the TF Metals Report here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Glencore responds to a huge depression level collpase in demand;
(courtesy zero hedge)
Depression-Level Collapse In Demand: In Historic First, Glencore Shuts Coal Mines For 3 Weeks
In a historic move showing just how profound the collapse in global commodity demand and trade is, earlier todaythe Sydney Morning Herald reported that Australia’s biggest coal exporter Glencore, which last year concluded its merger with miner Xstrata creating the world’s fourth largest mining company and world’s biggest commodity trader, will suspend its Australian coal business for three weeks “in a move never before seen in the Australian market, to avoid pumping tonnes into a heavily oversupplied market at depressed prices.” Putting this shocking move in context, it is something that was avoided even during the depths of the global depression in the aftermath of Lehman’s collapse, and takes place at a time when the punditry will have you believe that the US will decouple from the rest of the world and grow at 3% in the current quarter and in 2015.
“This is a considered management decision given the current oversupply situation and reduces the need to push incremental sales into an already weak pricing environment,” the company said.
For those who don’t recall some of the more paradoxical moves in the Australian commodity space in recent months, Glencore is not only the dominant coal exporter in the global coal market, but one which has continued to raise its thermal coal output in Australia and push its coal business towards a new production record this year, even as prices for the commodity crashed to five-year lows. Thermal coal is selling for about $65 a, about half of the $120 price from three years ago.
Said oterhwise, Glencore took the first and only page out of Amazon’s playbook and has been pumping excess production in hopes of crushing marginal prices to the point where its competition goes out of business.
Unfortunately, things are not working out as expected and earlier today Glencore surprised the market by saying it would shut its Australian coal business for three weeks, starting mid-December, shaving about 5 million tonnes of output.
As SMH notes, “while it is understood Glencore’s overall Australian coal business is the black, the size and length of the shutdown is unprecedented and suggests a level of financial distress at some of its mines.”
So in a completely unshocking turn of events, rushing to create the biggest loss possible finally backfired on the company itself.
Staff will be forced to take three weeks paid annual leave as a result of the suspension. Glencore has 13 Australian mine complexes, including about 20 mines and employs about 8000 staff.
Still, in a world in which non-GAAP appearances are all that matter, Glencore was quick to put some lipstick on this historic pig:
On a tour of its Australian operations in September, Glencore told analysts that its coal output this calendar year would be 14 per cent greater than in 2012. Glencore also has a series of brownfield expansions in the pipeline. Glencore stressed its positive outlook for coal in the medium term, when it tips the “supply and demand balance will be restored”.
Odd how it is always about the “medium run” where companies are optimistic, never the short run, especially when they suddenly find themselves in what can only be classified as a global depression in commodity demand.
And now that Glencore is finally facing the music, the question is whether the other two majors who also took the beggar-thy-competitor route to prosperity, BHP Billiton and Rio Tinto, who Glencore chief Ivan Glasenberg “has attacked for dramatically expanding production in the face of falling iron ore prices” will follow suit or merely double down making Glencore’s pain that much more acute.
Mr Glasenberg’s criticism of Rio Tinto and BHP for their massive iron ore-expansion programs raised the eyebrows of some in the market, given Glencore had been running its very own coal expansion in the face of falling prices.
Mr Glasenberg has repeatedly attacked the price impact of the expansion strategies being used by the iron ore majors, as part of his attempt to pitch a $190 billion “merger of equals” with Rio.
The rest of the story is familiar: crush the competition by flooding the market with ever cheaper commodities:
Glencore is forecasting total managed coal production of 168 million tonnes in the 2014 calendar year, beating a previous record of 157 million tonnes set last year. However, that will be lower, given the December suspension of its Australian coal operations.
Glencore’s total managed production in Australia is forecast at 94 million tonnes this year, up on 81 million tonnes last year, as its new Clermont thermal coalmine, in central Queensland, comes online.
And therein lies the paradox: by adopting what is ultimately a self-destructive practice, the iron-ore majors, facing crumbling global demand, are merely accelerating the deflationary pressures facing not only iron but all other commodities, as they seek to flood the world with excess production and put producers who cost of production is below the margin price out of business.
Something which Saudi Arabia is also allegedly doing to its US shale-based competition.
The only thing that is certain is that absent some massive global reflationary spark, many companies are about to go out of business. And should it be someone as massive and prominent as Glencore, the global deflationary wave will only acclerate further, leading to an even faster slow down in global growth, until finally decades of excess capacity and production find their new equilibrium with an epic slam, one which may involve yet another round of global taxpayer-funded bailouts.
For now, however, keep a close eye on Glencore, which may just be the canary in the coalmine. No pun intended.
(courtesy Deutsche bank/zero hedge)
Deutsche Bank Says “Yes” Vote Has “Narrow But Clear Lead” In Swiss Gold Referendum As 1M GOFO Hits Most Negative Since 2001
As we explained over the weekend, should the Swiss gold referendum pass successfully, the price of gold will surge. It was none other than JPM who warned that the “markets under appreciate this event”, explaing that “If the referendum is passed, the Swiss National Bank (SNB) will be forced to increase reserves by around 1,500 tonnes over five years, i.e. 300 tonnes per year. This 300 tonnes per year accounts for 7.5% of annual gold demand of 4,000 tonnes per year.”
Well, even as the SNB has been scrambling to make the referendum seem like a non-event, with very little chance of passing, moments ago Deutsche Bank released a piece that roundly refuted everything the Swiss Central Bank has been peddling. To wit, here is a note just out from DB’s Robin Winkler:
- On 30 November, the Swiss will vote in a referendum to decide whether the SNB’s constitutional mandate should be changed to require the central bank to 1) never sell any gold reserves once acquired, 2) store all its gold on Swiss territory, 3) hold at least 20% of its official reserve assets in gold.
- The likelihood of a yes vote is considerable. The proposal requires a simple country-wide majority to pass, as well as a majority in at least 50% of Swiss cantons. Current polling shows the ‘yes’ campaign with a narrow but clear lead and there are reasons to believe that factors on the day could be favourable for the amendment. If an affirmative vote was recorded,there is little political leeway to delay or dilute implementation.
- We find that some of the concerns over the technical implementation of the 20% rule may be overblown.The SNB should be able to meet its gold demands with relative ease. Nor do we subscribe to the view that this would have a long term impact on gold price trends. In the event of further intervention, SNB rebalancing into gold could have a more marked impact on short term price trends, however. The SNB should easily be able to repatriate its gold holdings from abroad.
- The possibility that the SNB could circumvent the requirement through the creation of a sovereign wealth fund is remote. While technically attractive, this option is not politically feasible. However, the SNB could use gold swaps to mitigate some of the adverse implications of the gold vote, in particular with respect to asset return risk and market footprint.
- The amendment would carry significant balance sheet risks for the SNB. As well as concentrating market risk, the SNB would be effectively short an option on gold but without having received a premium. Balance sheet risks could be mitigated by the SNB returning to marking gold at purchase rather than market prices.
The proposal requires a simple 50% majority to pass (Volksmehr), with the further proviso that there be a majority in at least 50% of Switzerland’s 26 cantons (Ständemehr). There is no minimum turnout. The Ständemehr is the lower hurdle, since the vote is biased towards smaller, conservative cantons more likely to vote yes. In the absence of official polls, the proposal’s likelihood of success can only be gauged from polls conducted by newspapers and other media outlets. The most respected polls are published by the radio and TV platform SRG. According to their latest poll (another poll is due next week), 44% of respondents intended to vote in favour of the amendment, with 39% rejecting it.
Swiss pre-referendum polls commonly see the share of ‘no’ votes rise during the lead up to the actual vote, as the political and business establishment ramp up campaigns against radical proposals. However, it is important to note that the Swiss vote on three separate referenda on 30 November. Most of the political debate has concerned the ‘EcoPop’ initiative which seeks to curtail immigration to Switzerland based on a quota system. Some observers fear that the political focus on the immigration debate might lead voters to pay less attention to the gold proposal. There is also a concern that moderately conservative voters uncomfortable with the anti-immigration initiative might vote in favour of the gold proposal in compensation.
* * *
The SNB should face little technical difficulty in repatriating its gold within two years. Switzerland stores about 300 tonnes of gold abroad, almost exclusively in the UK and Canada. History suggests that this gold could be shipped to Switzerland within a short period of time (for more detail, see appendix). It would be easier to repo Swiss gold held abroad and insist on physical delivery upon expiry, or to sell the gold abroad to fund contracts deliverable over the next five years. Counterparties could source the gold to be delivered most cheaply in Switzerland itself, given the country’s large private holdings
Well, after Germany’s miserable failure to reclaim its gold when the Bundesbank received a tap on its shoulder “strongly hinting” the NY Fed and BNP may have serious procurement problems of gold that is ‘already there’, it appears at least one European nation is about to have access to its gold, and judging by the increasing warnings about the global fiat bubble popping by none other than the BIS (yet again, more shortly), probably not a moment too soon.
As for the SNB being easily “able to repatriate its gold holdings from abroad” we appreciate the optimism, just don’t point out to the DB analyst that 6 Month GOFO just want negative once again even as 1M GOFO rate hit the most negative it has been since… 2001!
And now for our more important paper stories
1. Stocks up with Asian bourses with a lower yen value to 116.43
2 Nikkei up 98 points or 0.56%
3. Europe stocks all down /Euro falls/ USA dollar index up at 87.96.
3b Japan 10 year yield at .48%/Japanese yen vs usa cross now at 116.43
3c Nikkei now above 17,000
3d Abe goes all in with another QE/it is now all up to Japan to stimulate the world/will be known as the great Yen massacre!!!
3e The USA/Yen rate crosses back over the 116 barrier
3fOil: WTI 74.42 Brent: 78.45 /all eyes are focusing on oil prices. A drop to the mid 60’s would cause major defaults.
3g/ Gold down/yen down; yen well above 116 to the dollar/
3h/ Japan is to buy the equivalent of 108 billion usa dollars worth of bonds per MONTH or $1.3 trillion
Japan’s GDP equals 5 trillion usa/thus bond purchases of 26% of GDP
3i Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt (see Von Greyerz)
3j ECB to start expanding its balance sheet. Should be positive for gold.
Japan and China relations improve at the APEC meeting. USA left in the dark.
3k Huge FX rigging settlement at 3.3 billion dollars. Barclay’s left out and may lose its uSA banking license.
USA to give other banks one month to come clean!!
3l Gold at $1150.00 dollars/ Silver: $15.30
4. USA 10 yr treasury bond at 2.34% early this morning.
5. European GDP points to recession in Italy and barely above ground for France and Germany
5. Details Ransquawk/Bloomberg/Deutche bank/Jim Reid
(courtesy zero hedge/your early morning trading
from Asia and Europe)
Italy Remains In Recession As Germany Avoids Triple-Dip By Smallest Possible Margin
Submitted by Tyler Durden on 11/14/2014 06:54 -0500
The key event overnight was the release of European Q3 GDP data, which saw Germany averting a recession by the narrowest of margins when following a -0.2% drop in Q2 economic growth, Germany grew by the smallest amount possible in Q3, or 0.1%, in line with expectations, thus averting two consecutive quarters of decline, the technical definition of a recession.
As Goldman notes, Germany’s statistical office did not release at this point any detailed figures but hinted in its press statement that private consumption was a main contributor to growth as private households increased their spending “strongly”. Net trade was also a positive factor as exports rose stronger than imports. However, machinery investment was down “significantly” and inventories also contributed negatively. Although we don’t have the detailed figures yet, the breakdown of GDP demand components seems to be consistent with a “confidence shock” that hit the German economy during Q2 – reflecting the tensions in the Ukrainian/Russian conflict – and that led to a decline in investment spending (the most volatile and most sensitive part of the economy). But this also suggests that the economy should resume its growth momentum as the negative confidence shock fades out. Of course, if the recent re-flaring of the Ukraine situation persists, look for German Q4 GDP to once again contract, with a handy “scapegoat” once again readily available.
In fact this increasingly appears probable, especially when moments ago this hit:
- GERMANY WEIGHS BACKING FURTHER RUSSIA SANCTIONS: WIRTZ
The French economy likewise posted a modest increase in Q3, although one wonders how aggressively the data had to be fudged for a country whose PMIs all indicate a -1% or greater contraction.
Italy however was less creative with its use of “hookers and blow”, and continued its recession with a 3rd negative print, contracting at -0.1% as expected, while Portugal also missed third quarter growth estimates.
In any event, European markets have played little attention to the slew of Eurozone GDP releases which revealed a beat on expectations for the core (France & German) while showing that weakness still remains in the periphery as Italy slipped back into recession and Portugal fell short of expectations, as equities trade in relatively mixed territory with volumes particularly thin thus far. Furthermore, On a sector specific basis for equities, energy names continue to underperform as WTI prices head for their longest weekly decline since 1986. Elsewhere, the utilities sector continues to feel the squeeze, with RWE under further selling pressure (-2.8%) with participants speculating over whether the Co. will cut their dividend. Fixed income products reside in positive territory with no fundamental news being attributed to the move, it is also worth noting that volumes in the Bund are particularly thin with just over 100k contracts having gone through at the time of writing.
All eyes continue to be on WTI and Brent, which were trading just above $74 and $78 respectively. Another bout of liquidations may take the West Texas contract to a $60 handle soon enough and with it raise the specter of widespread HY defaults, which would break the relative 6 year calm the space has experienced thanks to ZIRP.
In more relevant for HFT algos overnight developments, price action centred mostly on USD strength which sent USD/JPY to its best levels since 18th Oct’07. The move higher was attributed to Japanese corporate seller positions taken out by Asia-based hedge funds and European names buying to trigger stop-losses above 116.10. However, during the European session USD has traded in a relatively rangebound manner with USD briefly coming off its best levels and thus providing some reprieve for its major counterparts, notably GBP/USD which earlier struck its lowest level since September 2013. Elsewhere, price action for EUR/USD may see some magnetism towards 1.2450 where there is 1.1bln in option expiries due to roll-off at 1500GMT NY cut.
In the energy complex WTI Crude futures have seen a bid in recent trades on bargain hunting following selling seen throughout the week, and after WTI finished lower by USD 3 at the NYMEX pit close yesterday. Do note that yesterday crude futures finished at session lows after a technical break below USD 75.00 in WTI and ahead of the Dec Brent December futures expiry. News that Libya’s Hariga oil port had reopened also weighed on prices, as well as lacklustre Chinese data on Wednesday night which indicated a slowdown in consumption. In terms of energy newsflow the IEA released their monthly report and said pressure on OPEC to reduce production is building but it appears no clear consensus on a supply cut yet. Elsewhere, precious metals markets have traded in a relatively rangebound manner throughout the European session, with participants looking ahead to the US retail sales and Univ. of Michigan confidence releases.
On the US calendar today we have US retail sales, which this time will probably disappoint on a drop in nominal values of car and gas transactions even if the control group is expected to remain steady (although based on disappointing commentary by retail chains in this earnings season, the US consumer is seriously hunkering down ahead of the winter), as well as the Univ. of Michigan confidence and any comments from Fed’s Bullard and Fischer.
Bulletin Headline Summary from RanSquawk and Bloomberg
- European equities trade in relatively mixed territory with participants not reading too much into the latest GDP releases.
- Eurozone GDP releases revealed a beat for the core (France & German) while showing that weakness still remains in the periphery as Italy slipped back into recession and Portugal fell short of expectations.
- Looking ahead, attention turns towards the release of US retail sales & Univ. of Michigan confidence and any comments from Fed’s Bullard and Fischer.
- Treasuries head for weekly decline after U.S. sold $66b of 3Y/10Y/30Y debt in quarterly refunding auctions; PPI, CPI reports due next week.
- Euro-area economy grew 0.2% in 3Q vs 0.1% median estimate in Bloomberg survey; Germany +0.1%, in line with forecasts, from revised -0.1% in 2Q; France +0.3% vs 0.1% est., revised -0.1% in 2Q
- ECB Governing Council member Christian Noyer told French daily Les Echos in an interview that the ECB could buy state or company debt if it decided that its policies weren’t having any effect
- PBOC’s targeted liquidity injections haven’t been enough to spur a pickup in lending as aggregate financing in October was 662.7b yuan ($108 billion), down from 1.05t yuan in September
- U.K. house-price growth accelerated in October as the number of properties changing hands rose to match a seven-year high, according to Acadata and LSL Property Services
- Japan’s Abe moving toward delay of sales tax increase, perhaps for 18 months from original plan of next October, according to Nikkei newspaper
- Japan’s Government Pension Investment Fund posted notice on its website soliciting transition managers for Japanese and foreign stocks as well as foreign bonds
- Russia is preparing for a “catastrophic” slump in oil prices, which it can weather thanks to a cushion of more than $400 billion in reserves, President Vladimir Putin said
- The U,.S. House of Representatives is poised to vote again to allow the Keystone XL pipeline — this time with the promise of a Senate vote next week as Republicans and Democrats seek advantage in a runoff for the last undecided U.S. Senate seat
- Obama’s top military adviser said more U.S. troops may be needed in Iraq for a “long and difficult” fight against Islamic State, as military planners assess the shortcomings of Iraqi forces
- Sovereign yields decline. Nikkei +0.6%, Shanghai -0.3%. European stocks mixed, U.S. equity-index futures higher. Brent crude +0.7% after falling below $78/bbl yday; gold and copper lower
DB’s Jim Reid completes the overnight recap
A theme that has built up in US markets over the last few sessions has been the battle between supportive macro data and declining energy stocks. This battle for the moment seems to be doing a good job at keeping markets in check. Yesterday the S&P closed +0.05% as the energy sector continued to drag on the rest of the index, declining 1.34%. In terms of data, the JOLTS headline figure of 4.7m job openings in September was slightly softer compared to the August reading (4.8m) however the encouraging signs came from a rise in the ‘hiring rate’ to 3.6% (from 3.4%) as well as a rising ‘quit’ rate to 2.0% from 1.8% which represents the highest level since April 2008. As we mentioned yesterday this data is on the Fed Chair Yellen’s dashboard of economic indicators and the numbers will certainly lend further support to the strengthening labour market thesis.
Offsetting this however was a further fall in the oil price. Brent declined 3.1% to $77.92 in trading last night whilst WTI was 3.9% lower to $74.21, both at the lowest levels since September 2010. The negative sentiment continues to be focused over the global supply glut and worries that OPEC won’t cut production at the meeting on the 27th of this month. Interestingly a report in the FT mentioned that Mexico has spent nearly $800m to insure against a further fall in oil prices next year, with the finance minister mentioning the need to protect public finances given the commodity funds around one-third of federal revenue. Whilst on the subject of oil, we’ve re-attached our link from yesterday to Oleg’s piece on the tipping point of the oil price in relation to the HY market, apologies for those we were unable to access it yesterday.
Whilst we’re on the topic of HY, the latest weekly HY fund flow data shows another week of differing fortunes for US and European funds. US funds saw a 4th consecutive week of inflows ($930mn) which means they have now added just over $8.5bn in this time (3% of NAV). In Europe however we saw another week of moderate outflows ($32mn). We have now seen just 1 week of inflows in the past 7 weeks (since late September). That said we have still seen net inflows YTD of $3.5bn (9.9% of NAV) in Europe. Despite the recent inflows in the US we have still seen net outflows YTD of $6.4bn (2.1% of NAV). In my discussions with numerous HY fund managers in recent weeks, most think HY is now cheap but until there is consistency of inflows there is little incentive or ability to be too aggressive expressing that view.
Just going back to wrap up the US data yesterday, jobless claims rose 12k to 290k which was a touch higher than expectations of 280k. This has pushed the 4 week average up to 285k although we note that this still remains at historically low levels. Treasuries meanwhile were stronger, with the 10yr 4bps tighter over the day whilst credit markets largely reflected equity moves and closed flat.
Closer to home the Stoxx 600 closed +0.2% at the end of play, although traded as high as +0.6% and as low as -0.4% over the session as market sentiment fluctuated over tumbling oil prices and selected solid corporate earnings prints.
The various CPI readings in the region did little to excite the market and continue to paint a subdued inflationary environment. Germany printed in line with expectations (-0.3% mom, +0.8% yoy) along with Spain (+0.5% mom, -0.1% yoy) whilst France was the marginal positive with the country reporting flat mom reading (vs. -0.1% expected) and a better than expected +0.5% yoy (vs. +0.4% expected). More importantly perhaps was the ECB’s Coeure who touched on the topic of inflation and was quoted as saying that ‘what we see is a subdued outlook for inflation and a weakening of the growth momentum and a continuously sluggish momentum in credit dynamics, which all confirm the need for a very accommodative monetary stance for an extended period of time’. If that wasn’t enough Reuters also published a report noting that 61 professional forecasters surveyed by the ECB expect eurozone inflation of 1% next year and 1.4% in 2016 (down from 1.2% and 1.5%). Today we have the second part of the European data double header with the regional Q3 GDP prints including Germany, France and Italy as well as the wider Eurozone estimate.
Just wrapping up the news in and around Europe yesterday, Russia posted a +0.7% yoy GDP figure, above expectations of +0.3% although down on the previous reading (+0.8%). This comes after the Bank of Russia has forecasted growth of +0.3% this year before stagnating in 2015 with concerns over both geo-political tension with Ukraine and lower oil prices. The MICEX closed down 1.42% yesterday whilst the ruble extended declines, losing 2.1% versus the Dollar.
Before we take a look at the rest of the day ahead, late last night we had some headlines out of Asia with the Asian Review reporting that Japan Prime Minister Abe is moving a step closer to postponing the consumption tax. The article quotes a senior government official who was reported as saying that Abe is ‘basically moving toward putting off’ raising the tax from 8% to 10%, with a decision to be made as early as next week. It will certainly be interesting to keep an eye on proceedings next week in Japan, with preliminary Q3 GDP due late on Sunday (London time) as well as Abe hosting further meetings with mayors and business leaders early in the week. With the potential for a decision around dissolving the lower house to be made next week too, it could certainly be an eventful week for the region and one we will be keeping a keen eye on. As we type the Nikkei is -0.2% on the day whilst JPY is 0.2% weaker versus the Dollar to 115.98 on the back of the comments. Elsewhere other Asian markets are generally mixed with bourses in Hong Kong, China and Korea +0.1%, -0.2% and -0.9% respectively.
In terms of the rest of the day ahead and away from the GDP prints in Europe, we’ve also got the HICP print for the region which we don’t expect to be too far away from the market consensus of 0.4% yoy for the headline figure after yesterday’s regional prints. As well as this we’ve got ECB members Lautenschlaeger and Coeure scheduled to speak at stages during the day and closer to home we’re expecting UK construction output. Later in the day and across the pond, we’ve got a relatively packed data docket which kicks off with retail sales. DB’s Joe LaVorgna mentions that the print will be especially important to gauge the current state of consumption in the region. Joe highlights that although retail sales only account for around one-quarter of total consumer spending, the data are highly correlated with overall consumption and in point of fact, the quarterly annualized change in retail control has a nearly 0.80 correlation coefficient to overall inflation-adjusted spending. Our colleagues have a +0.4% forecast for the ex. auto and gas print which is notably firmer than the headline and ex. autos figure which they’re expecting to be flat. Post this reading we will also be awaiting the import price index print followed by Michigan confidence and business inventories shortly after. If that wasn’t enough we will also have the usual Fedspeak with Bullard (speaking on the US economic and monetary policy outlook), Fischer and Powell due today.
Would be believe that the fastest growing economy in the Euro area is Greece with an unemployment rate of almost 26%?
(courtesy zero hedge)
Do You Believe In IMF Miracles? Greek Unemployment Edition
Because nothing signals confidence like an IMF economic projection (as we have shown here, here, and here most recently), we thought it worth pointing out thedramatically optimistic collapse of Greek unemployment that Lagarde’s top men (and women) are projecting for Greece…
IMF forcecasts greek joblessness to half in 5 years…
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Is this forecast based on ECB QE or no ECB QE?
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Of course this is possible – especially if their plans for ‘slavery’ come to fruition…
As KeepTalkingGreece reports, the Greek Education Ministry seek fill 1,100 job vacancies with teachers who will gladly and proudly work on “voluntary basis.” As far as we remember, working for nothing is, err, slavery; but that’s not it at all… as Education Minister Andreas Loverdos, the slave teachers will be rewarded with “bonus points” that will help them improve their hiring options in the future.
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200 employees at PM Samaras’ party Nea Dimokatia staged a warning protest and symbolically “occupied” the entrance of ND headquarters in Athens demanding to receive their wages. The ND staff has not been paid for 3.5 months.
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Why do we ‘scoff’ at this hockey-stick forecast of dramatic improvements in joblessness in the still-devastated economic shell that is Greece? Well here is the IMF in 2011…
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So, do you believe in v-shaped miracles?
Italy’s Grillo Rages “We Are Not At War With ISIS Or Russia, We Are At War With The ECB”
Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying,we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that“we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.
60 seconds of brutal honesty of the tyranny in Europe…
Beppe Grillo also said today…
It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.
We’ll send you packing at the same time as Italy leaves the Euro. It can be done!You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase. Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.
The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.
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Since the introduction of the euro, all economic parameters have deteriorated, the founder of the five-star movement in Italy is absolutely correct. The design or the Euro was a disaster. There is no fixing this any more. We have crossed the line of no return. Beppe is now calling for referendum on leaving euro.Will he be assassinated by Brussels? It is unlikely that the EU Commission will allow such a vote.
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Congress Passes Keystone XL Pipeline Bill, Senate Can’t Block, Obama Veto To Come?
Submitted by Tyler Durden on 11/14/2014 12:57 -0500
As somewhat expected the House passed the Keystone XL Pipeline approval bill:
- *HOUSE PASSES KEYSTONE APPROVAL BILL 252-161; SENATE VOTE NOV 18
It is relatively clear that the Senate does not have the votes to be able to overturn and thus it will be forced on to President Obama’s desk – “to veto” or “not to veto.”
“We are going to make it as easy as possible for the Senate to finally get a bill to the president’s desk that approves this long-overdue Keystone XL pipeline,”said Republican Representative Bill Cassidy from Louisiana, who is sponsoring the House bill.
Approval for the pipeline, which would help transport oil from Canada’s oil sands to refineries along the U.S. Gulf coast, has rested with the administration as it crosses an international border.
The decision has been pending for more than six years amid jousting between proponents of the pipeline who say it would create thousands of construction jobs and environmentalists who say it would increase carbon emissions linked to climate change.
Obama, speaking at a news conference in Myanmar on Friday, said his position on the 800,000 barrels per day pipeline had not changed.
The White House has not made clear whether Obama would use his veto to block the bill currently before Congress, but he has threatened to use that power in the past.
The Senate was still one vote shy of the 60 needed to overcome a filibuster, or blocking procedure, and pass a companion bill, an aide to a Keystone supporter in that chamber said on Friday. The Senate vote is expected next Tuesday.
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USA/JAPAN YEN 116.43 up .630
GBP/USA 1.5659 down .0041
USA/CAN 1.1365 down .0016
This morning in Europe, the euro is down, trading now well above 1.24 level at 1.2446 as Europe reacts to deflation and crumbling bourses. Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31.. The yen reversed its comeback as it collapsed again this morning closing in Japan falling by 63 basis points and rising above the 116 barrier to 116.43 yen to the dollar. The pound is well down this morning as it now trades well below the 1.57 level at 1.5659.(very worried about the health of Barclays Bank and the FX/precious metals criminal investigation)
Early Friday morning USA 10 year bond yield: 2.34% !!! down 1 in basis points from Thursday night/
The NIKKEI: Friday morning up 98 points or 0.56%
Trading from Europe and Asia:
1. Europe all in the red
2/ Asian bourses all in the green except Shanghai / Chinese bourses: Hang Sang in the green, Shanghai in the red, Australia in the green: /Nikkei (Japan) green/India’s Sensex in the green/
Gold early morning trading: $1153.00
Your closing Spanish 10 year government bond Friday/ down 1 in basis points in yield from Thursday night.
Spanish 10 year bond yield: 2.13% !!!!!!
Your Friday closing Italian 10 year bond yield: 2.35% / down 3 in basis points:
trading 22 basis points higher than Spain:
IMPORTANT CLOSES FOR TODAY
Closing currency crosses for Friday night/USA dollar index/USA 10 yr bond:
Euro/USA: 1.2527 up .0054!!!!!!
USA/Japan: 116.16 up .360
Great Britain/USA: 1.5682 down .0018 (Barclay’s in big trouble)
USA/Canada: 1.1275 down .0106
The euro rose dramatically in value during this afternoon’s session, and it was up by closing time , closing well above the 1.25 level to 1.2527. The yen was up during the afternoon session, but it lost 36 basis points on the day closing well above the 116 cross at 116.16. The British pound gained some ground back during the afternoon session but it was down on the day closing at 1.5682. The Canadian dollar was up dramatically in the afternoon and was up on the day at 1.1275 to the dollar.
Currency wars at their finest today.
Your closing USA dollar index: 87.47 down 20 cents from last night.
your 10 year USA bond yield , down 1 in basis points on the day: 2.32%
European and Dow Jones stock index closes:
England FTSE up 18.92 or 0.29%
Paris CAC up 14.51 or 0.35%
German Dax up 4.43 or 0.05%
Spain’s Ibex up 7.60 or 0.07%
Italian FTSE-MIB up 182.86 or 0.97%
Nasdaq; up 8.40 or 0.18%
OIL: WTI 75.20 !!!!!!!
And now for your big USA stories
Today’s NY trading:
Dollar Dump Sparks Safety Scramble For Bonds & Bullion
Stocks were somewhat of a sideshow to the moves in Bonds, commodities, and FX today. Trannies (Airlines) and Nasdaq (AAPL) led on the week with Small Caps the laggard and Dow/S&P not much better. A 6-7bps plunge in yields from around 10am ET today left Treasury yields only 0-2bps higher on the week. The USD dumped at around the same time, cracking back to unchanged on the week as USDJPY failed at 117. While oil prices lifted modestly today, WTI Crude fell 3.2% this week – 7th week in a row – longest losing streak since 1986(the last time US oil production was above 9 mm bbl/d).Silver screamed over 7% off its intraday lows today (+4.1% on the day – the best day in 5 months) and gold surged 2.4% on the day (4.1% off the lows) for its 2nd best day in 5 months. VIX (higher on the week), HY credit, and TSYs all diverged notably on the week from equity ‘strength’ but today’s moves were seemingly driven by Swiss Gold Initiative rumors. It’s a Friday so 330ET saw the standard ramp to grab the S&P green and record close (+0.02%)
The S&P 500 closed the day green… so get out there and spend all that extra cash you have from lower gas prices…
A low volume narrow range day in the S&P…closing perfectly at VWAP
On the day Nasdaq led (AAPL) and Trannies lagged (as oil picked up) along with Small Caps as the late day ramp to green for S&P could not hold…
But on the week Trannies and Nasdaq led and Small Caps lagged unable to be rescued green on the week…
On the week, Discretionary and Tech led as Utes and Energy lagged with Financials red
As Financials for the 3rd time roll over and catch down to credit…
VIX closed the week higher – despite stocks strength…notably divergent
HY credit closed the week wider… notably divergent
And TSY yields decoupled from stocks once they came back from vacation Tuesday…
Treaury yields surged and purged today with a dramatic rally starting around 10am
At around the same time the USD also dumped against all the majors (after USDJPY tried and failed to gain 117.000)
The USD weakness sparked the momentum in commodities but oil closed the week in the red still and copper limped back to unchanged…
But the big moves were in Gold and Silver… on heavy volume
The low price of oil will cause a massive default on high yielding bonds which backed much of the shale experience:
(courtesy Wolf Richter/ zero hedge)
There Will Be Blood – How The Fed Has Flooded The Shale Patch With Junk Debt
Submitted by Tyler Durden on 11/13/2014 18:48 -0500
It is possible that a miracle intervenes and that the price of oil bounces off and zooms skyward. But miracles have become rare. US light sweet crude last traded at $76.90 a barrel, down 26% from June, a price last seen in the summer of 2010.
But this price isn’t what drillers get paid at the wellhead. Grades of oil vary. In the Bakken, the shale-oil paradise in North Dakota, wellhead prices are significantly lower not only because the Bakken blend isn’t as valuable to refiners as the benchmark West Texas Intermediate, but also because take-away capacity by pipeline is limited. Crude-by-rail has become the dominant – but more costly – way to get the oil from the Northern Rockies to refineries on the Gulf Coast or the East Coast.
These additional transportation costs come out of the wellhead price. So for a particular well, a driller might get less than $60/bbl – and not the $76.90/bbl that WTI traded for at the New York Mercantile Exchange.
Fracking is expensive, capital intensive, and characterized by steep decline rates. Much of the production occurs over the first two years – and much of the cash flow. If prices are low during those two years, the well might never be profitable.
Meanwhile, North Sea Brent has dropped to $79.85 a barrel, last seen in September 2010.
So the US Energy Information Administration, in its monthly short-term energy outlook a week ago, chopped down its forecast of the average price in 2015: WTI from $94.58/bbl to $77.55/bbl and Brent from $101.67/bbl to $83.24/bbl.
Independent exploration and production companies have gotten mauled. For example, Goodrich Petroleum plunged 71% and Comstock Resources 58% from their 52-week highs in June while Rex Energy plunged 65% and Stone Energy 54% from their highs in April.
Integrated oil majors have fared better, so far. Exxon Mobil is down “only” 9% from its July high. On a broader scale, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is down 28% from June – even as the S&P 500 set a new record.
So how low can oil drop, and how long can this go on?
The theory is being propagated that the price won’t drop much below the breakeven point in higher-cost areas, such as the tar sands in Canada or the Bakken in the US. At that price, rather than lose money, drillers would stop fracking and tar-sands operators would shut down their tar pits. And soon, supplies would tighten up, inventories would be drawn down, and prices would jump.
But that’s not what happened in natural gas. US drillers didn’t stop fracking when the price of natural gas plunged below the cost of production and kept plunging for years until in April 2012 it reached not a four-year low but a decade-low of about $1.90 per million Btu at the Henry hub. At the time, shorts were vociferously proclaiming that gas storage would be full by fall, that the remaining gas would have to be flared, and that the price would then drop to zero.
But drillers were still drilling, and production continues to rise to this day, though the low price also caused an uptick in consumption that coincided with a harsh winter, leaving storage levels below the five-year minimum for this time of the year.
The gas glut has disappeared. The price at the Henry hub has since more than doubled, but it remains below breakeven for many wells. And when natural gas was selling for $4/MMBtu at the Henry hub, it was selling for $2/MMBtu at the Appalachian hubs, where the wondrous production from the Marcellus shale comes to market. No one can make money at that price.
And they’re still drilling in the Marcellus.
Natural gas drillers had a cover: a well that also produced a lot of oil and natural gas liquids was profitable because they fetched a much higher price. But this too has been obviated by events: on top of the rout in oil, the inevitable glut in natural gas liquids has caused their prices to swoon too(chart).
Yet, they’re still drilling, and production is still rising. And they will continue to drill as long as they can get the moolah to do so. They might pick and choose where they drill, and they might back off a smidgen, but as long as they get the money, they’ll drill.
Money has been flowing into the oil and gas business in form of a tsunami unleashed by yield-desperate investors who, driven to near insanity by the Fed’s scorched-earth policies, do what the Fed has been telling them to do: close their eyes and hold their noses and disregard risk and hand over their money, and borrow money for nearly free and hand over that money too.
Oil and gas companies have issued record amounts of junk bonds. They’ve raised record amounts of money via a record number of IPOs. They’ve raised money by spinning off assets into publically traded MLPs. They’ve borrowed from banks that then packaged these loans into securities that were then sold. The industry has been awash in cheap money and has drilled it into the ground.
This is one of the consequences of the Fed’s decision to flood the land with free liquidity. When the cost of capital is near zero, and when returns on low-risk investments are near zero as well, or even below zero, investors go into a sort of coma. But when they come out of it and realize that “sunk capital” has taken on a literal meaning, they’ll shut off the spigot. Only then will drilling and production decline. As with natural gas, it can take years, and the price might plunge through a four-year low and hit a decade low – which would be near $40/bbl, a price last seen in 2009. The bloodletting would be epic.
Worldwide, the balance of power in the oil business is shifting. Read… Oil Price Collapse Ricochets Around the World, Hits US Drillers, the Ruble … and Russia’s Probability of Default
Let’s close out today with this week’s wrap up courtesy of Greg Hunter of USAWatchdog
WNW 166-Obama Care Fraud, Middle East Mess, Russia Patrols US Gulf
By Greg Hunter’s USAWatchdog.com
It’s official. Obama Care is a series of enormous lies that were crafted by Democratic leaders. They all knew Obama Care was a lie, and they voted for the lies. Now, there are new revelations from one of its chief architects, MIT economics professor Jonathan Gruber, who was caught on video tape repeatedly explaining how the lies were formulated and why. Gruber basically said it would not have passed if Democrats told the truth about the bill, and he also calls the American voter “stupid.” This is the biggest policy fraud ever perpetrated on America. It is fraud because it involves trillions of dollars in taxes, co-pays, premiums and subsidies. It was fraud crafted by Democratic leaders, and it goes all the way up to the President because Gruber had a meeting with Obama in the White House. The Supreme Court is going to be hearing a challenge on subsidies for Obama Care, and I can’t see how the clearly documented and confessed Obama Care lies are not going to help kill this law. Oh, and don’t expect much coverage from the mainstream media because it is mostly ignoring this revelation. It is only the biggest policy lie ever, but I guess that is not a story if you are used to lying by omission. CBS did cover the story, but only after the New York Times finally reported the Obama Care lie.
The Middle East is a mess and it is getting messier. Remember the White House telling us there would be “no boots on the ground” in Iraq a few months back? Well, the President just sent 1,500 troops to back up the folks he already sent. I cannot see any clear strategy or plan for Iraq. Meanwhile, the Islamic State is making peace with some of its al Qaeda brothers and are teaming up against the Assad regime in Syria. Now, the question is: Will the U.S. continue to bomb them? The Islamic State also wants to start using gold and silver as currency. In other news in the Middle East, Iran has come out with a plan to “eliminate” Israel. That plan was tweeted out by Iran’s Supreme Leader. I guess this was an answer to Prime Minister Netanyahu, who said a few weeks ago that Iran was the biggest threat to the world. This is not the kind of talk you hear just before peace breaks out.
The ongoing war in eastern Ukraine is heating up again with charges of military escalation flying on both sides. The U.N is openly worried about total war in Ukraine. This conflict is far from over, and it appears the ripple effect is spreading globally. Russia is stepping up its flights of strategic bombers to include patrols of the Arctic Circle and the Gulf of Mexico. Russia is also reportedly stockpiling gold in preparation for what it calls “economic war.” In case you haven’t noticed, there is an ongoing economic war between the West and Russia, and there is a big G-20 meeting next week in Australia. I don’t think the U.S. dollar is going to fare well at this meeting.
Finally, some big banks were caught again rigging another market. This time, it is the currency market, or Forex. JP Morgan and Citi are the American banks involved, and once again, just fines for the fraud. This is more than a $5 trillion a day market. The fines against all the banks total little more than $4 billion, which is a rounding error in a market this huge. But wait, after years of rigging every market under the sun, LIBOR, stock, bond, housing, gold, silver and now the currency market, there may be some criminal prosecutions!!! Please, I’ll believe it when I see it.
Join Greg Hunter as he analyzes these stories and more in the Weekly News Wrap-Up.
That is all for today
I will see you Monday night
bye for now