Gold Firm – Greek Default or Safe-Haven or Range Bound Bounce?

Gold Firm – Greek Default or Safe-Haven or Range Bound Bounce?

Commentary for Monday, June 15, 2015 ( www.golddealer.com) – Gold closed up $6.50 today on the Comex at $1185.30 – a disappointment really. Gold sold off overnight in the Honk Kong market and recovered somewhat in London – that small rally moved into the domestic market but top to bottom the range was an unconvincing $17.00.

This market is still range-bound and unconnected to what is happening in the world of finance.

So is gold today reacting to the Greek crisis? Under any other circumstances the events in Greece would have been good for $50.00 to the upside in gold. The Dow had a bigger reaction to Greece than the metals – this shows me how tired this market has become.

You could make a case that the small upside move today was the result of some short-covering going into tomorrow’s Federal Open Market Committee – Janet Yellen will talk about progress in our economy probably on Wednesday after the market closes. So the short trade would not want to be short even though gold’s technical picture needs help.

From the BBC – “Greek Prime Minister Alexis Tsipras has said his government will wait patiently for international creditors to become "realistic", after talks on a debt deal in Brussels failed. Mr Tsipras rejected demands for pension cuts, citing his country's dignity.

Time is running out for Greece to unlock bailout funds from the EU and IMF and a European Commission spokesman said "significant gaps" remained. One European Commissioner said it was time to plan for an emergency. Guenther Oettinger, who is also a member of German Chancellor Angela Merkel's centre-right CDU, said if negotiations with Greece failed and its government rejected a deal on pension cuts, then on 1 July Greece would have to be considered an "emergency area".”

I know all of this sounds bad but I think they are still saber rattling – and besides if Greece fails to fulfill its obligations a great deal of the bad paper is still held by large institutions capable of handing the loss. There has always been talk of some sort of financial contagion – a domino effect if Greece fails. I don’t think this makes much sense – it might have early into the financial crisis but things in Europe have settled – Draghi has finally adopted a quantitative easing policy and according to his last read even inflation is picking up.

So why is gold firm today if not because of the Greek crisis? First, gold is still range-bound so any activity is subject to push prices – today’s move to higher ground might just be some short-covering and safe haven buying – but not much. I think this up $6.50 to close at $1185.30 is simply a paper market taking out a little insurance. The trade does not want to be short in case something bad really does develop – but they really don’t consider Greece much of a loose cannon which might impact their economic model.

The dollar had little to do with gold’s upward move today. My last close on the Dollar Index was 94.92 – today’s range was 94.92 through 95.39 – as of this writing we are trading around 95.00. This is pretty much the definition of a flat market and last week was pretty much the same – 95.00. There was some weakness early on but not much and the index recovered quickly so the dollar, for now remains neutral.

Time to consider the moving averages – Gold’s 50 Day Moving Average ($1195.00) – Gold’s 100 Day Moving Average ($1202.00) and Gold’s 200 Day Moving Average ($1207.00). The $1185.30 close today is under all three so let’s begin there: gold’s 30 day chart is moving lower from above $1220.00 so no joy here – and while we did see some support above $1170.00 (reinforced by the way from the ethnic trade across our counter) – this was just a short-covering rally in my opinion. The same thing we are seeing today.

Silver closed up $0.25 at $16.07 – action across the counter was mixed.

Platinum closed down $8.00 at $1089.00 and palladium was down $4.00 at $734.00. Platinum is now trading at $96.00 less than gold – the price is right for trading but we have still not seen a significant increase in recent business over the metric.

You have to love Texas – first open carry – no problem partner. Next, it’s a state established gold depository! I believe this is the first gold depository established by any state and it did get some press in the trade – but not much. The reason being that most Americans, even most Texans don’t have a problem with US paper money. But suppose that you feared the Federal Reserve was pushing the envelope too hard and something catastrophic might happen to your gold? This viewpoint is held by a small minority in the gold business but within this group the end of the financial world as we know it is just a matter of time.

Read the following Tyler Durden post – this is interesting from a US standpoint. Just because most people in the US consider the paper dollar real money does not mean Texans trust all of their wealth to banks – if this becomes a trend it could change the gold dynamic in this country.

This from Tyler Durden (Zero-Hedge) – Writing's On the Wall: Texas Pulls $1 Billion in Gold From NY Fed, Makes It "Non-Confiscatable" – The lack of faith in central bank trustworthiness is spreading. First Germany, then Holland, and Austria, and now – as we noted was possible previously – Texas has enacted a Bill to repatriate $1 billion of gold from The NY Fed's vaults to a newly established state gold bullion depository. "People have this image of Texas as big and powerful…so for a lot of people, this is exactly where they would want to go with their gold," and the Bill includes a section to prevent forced seizure from the Federal Government.

From 2011: "The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion and is storing the bars in a New York vault, according to the fund’s board."

The decision to turn the fund’s investment into gold bars was influenced by Kyle Bass, a Dallas hedge fund manager and member of the endowment’s board, Zimmerman said at its annual meeting on April 14. Bass made $500 million on the U.S. subprime-mortgage collapse.

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said yesterday in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”

And now, after we noted the possibility previously, as The Epoch Times reports, Texas Governor Greg Abbott signed a bill into law on Friday, June 12, that will allow Texas to build a gold and silver bullion depository. In addition, Texas will repatriate $1 billion worth of bullion from the Federal Reserve in New York to the new facility once completed.

On the surface the bill looks rather innocent, but its implications are far reaching. HB 483, “relating to the establishment and administration of a state bullion depository” to store gold and silver coins, was introduced by state Rep. Giovanni Capriglione.

Capriglione told the Star-Telegram: “We are not talking Fort Knox. But when I first announced this, I got so many emails and phone calls from people literally all over the world who said they want to store their gold … in a Texas depository. People have this image of Texas as big and powerful … so for a lot of people, this is exactly where they would want to go with their gold.”

But isn’t New York, where most of the world’s gold is stored, also big and powerful? Why does the state of Texas want to go through the trouble of building its own storage facility?

There are precisely two important reasons. One involves distrust in the current storage system. The second threatens the paper money system as a whole.

“In a lot of cases with gold you may not have clear title to the metal. You may have a counterparty relationship that makes you a creditor. If the counterparty has a problem unrelated to gold, they can default and then you become an unsecured creditor in bankruptcy,” said Keith Weiner, president of the Gold Standard Institute.

This means you get whatever is left after liquidation, often just a fraction of the initial value of your holdings.

“This exact scenario happened with futures broker MF Global. I knew people who had warehouse receipts to gold bars with a specific serial number. But that gold had an encumbered title and they became unsecured creditors in bankruptcy,” said Weiner.

In Texas, two big public pension funds from the University of Texas (UoT) and the Teacher Retirement System (TRS) own gold worth more than $1 billion.

Being uncomfortable with holding purely financial gold in the form of futures and Exchange-traded Funds, University of Texas actually took delivery of the gold bars in 2011 and warehoused it with HSBC Bank in New York.

At the time pension fund board member and hedge fund manager Kyle Bass explained: “As a fiduciary, which I am in that position to the extent you own gold and you are going for a long time, and it’s not a trade. We looked at the COMEX at the time and they had about $80 billion of open interest between futures and futures options. And in the warehouse they had $2.7 billion of deliverables. We are going to own it a long time. You are on the board, you are a fiduciary, so that’s an easy one, you go get it.” Bass is implying that there is much more financial gold out there than physical, and that it is prudent to actually hold the physical.

Taking the gold to Texas would then also solve the counterparty risk. “In this case it’s going to be a depository, the gold is going to be there, they are not going to be able to lend it out and it won’t serve as collateral for other transactions of the bank.” said Victor Sperandeo of trading firm EAM Partners. “Because if the bank closes, you are screwed.”

“I think that somebody was looking at that, we better have this under our complete control,” said constitutional lawyer and gold expert Edwin Vieira, of the Texas bill. “They don’t want to have the gold in some bank somewhere and in two to five years it turns out not to be there.”

So far most of the attention has focused on the part of the depository and the big institutions. However, the bill also includes a provision to prevent seizure, which is important for private parties who want to avoid another 1933 style confiscation of their bullion by Federal authorities.

Section A2116.023 of the bill states: “A purported confiscation, requisition, seizure, or other attempt to control the ownership … is void ab initio and of no force or effect.” Effectively, the state of Texas will protect any gold stored in the depository from the federal government.

And free from the threat of confiscation, private citizens can use gold and silver as money, completely bypassing the paper money system.

“People can legally do that with gold contracts. The difficulty is the implementation. Now Texas has set up a mechanism with the depository. We have accounts in that institution and can easily transfer back and forth certain amounts. So we can run our money system a gold or silver basis if we were so inclined,” said Vieira.

This would not be possible if the gold is stored in a bank because of the risks of bank holidays and bankruptcies. It would also not be possible if the federal government could confiscate gold.

According to Vieira, this anti-seizure provision rests on Article 1, section 10 of the Constitution of the United States, which obliges the States to not make anything tender in payment of debts apart from gold and silver coin.

“If someone from the Department of Justice comes along you are going to see legal and political fireworks. The state is going to say ‘we need to have a mechanism to make gold and silver money. This is pursuant to the constitutional provision we have. You can’t touch this. Our state power on the constitutional level is more powerful than any statute you may pass,'” said Vieira.

Because one of the litigant parties is a state, the case would go directly to the Supreme Court.

“We are talking about something completely new in terms of the legal playing field. This is no longer a fringe concept,” he adds, but cautions about a possible fight with the federal government: “We will have to see how committed the governor and the attorney general are.”

Official Statement from Governor Abbott: Governor Greg Abbott today signed House Bill 483 (Capriglione, R-Southlake; Kolkhorst, R-Brenham) to establish a state gold bullion depository administered by the Office of the Comptroller. The law will repatriate $1 billion of gold bullion from the Federal Reserve in New York to Texas. The bullion depository will serve as the custodian, guardian and administrator of bullion that may be transferred to or otherwise acquired by the State of Texas. Governor Abbott issued the following statement:

“Today I signed HB 483 to provide a secure facility for the State of Texas, state agencies and Texas citizens to store gold bullion and other precious metals. With the passage of this bill, the Texas Bullion Depository will become the first state-level facility of its kind in the nation, increasing the security and stability of our gold reserves and keeping taxpayer funds from leaving Texas to pay for fees to store gold in facilities outside our state."

Is this the first step down a road to secession? Notably, they'll need that gold to establish their own country once they win the potentially imminent war with the US military which starts on Monday (Jade Helm).

This implicit subordination of The Fed's gold sends a more ominous signal of rising fears of confiscation and leaves us wondering just how long before every state (and or country) decides to follow Texas' lead?

The walk in trade was average to busy today – the phones were just average. The general public remains on the sidelines – the business we are writing is small to moderate so it’s the usual summer doldrums.

Still there is a steady stream of “new customers” perhaps 30% of our entire ticket in the small to moderate buying range so there is interest. The rest of the book is made up of customers we have known and traded with for years.

The GoldDealer.com Unscientific Activity Scale is a “ 6” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 4) (last Wednesday – 6) (last Thursday – 7) (last Friday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.

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