ommentary for Thursday, Jan 22, 2015 ( www.golddealer.com) – Gold closed up $7.00 at $1300.70 as the European Union finally pulled the trigger on their plan to lower the price of the euro by printing more fiat paper money.
European Central Bank President Mario Draghi has been talking about this strategic monetary change for 2 ½ years but the actual path taken to help a struggling European Union was hidden behind everything from strict austerity to the printing press using a US type bond buying program.
The ECB will purchase 60 billion euros in bonds every month until September 2016. This will add liquidity to stimulate the varied economies and the quantitative easing will supposedly stimulate growth – classic Keynesianism theory that the government has your back. And of course opposite to the conservative Monetarist approach which considers the growth of the money supply.
However you want to describe this move – it was considered aggressive by most. Everyone knew the ECB was going to do something today and most speculated as to the size of the monetary jolt. The high end of the range was considered $1 trillion – this amounts to 840 billion euros.
This is much closer to the US reordering of the financial system when during the 2008 financial crisis it added $3 trillion to its balance sheet. The market response today was of course a falling euro (1.137) the lowest in 11 years.
We will have to wait and see but I don’t see how the US is going to raise interest rates considering the falling euro and still unstable oil.
I was surprised however that gold did not move much higher. Eventually all fiat currency creation will push the price of gold higher but as we have seen with our own currency this cause and effect response is not reliable on the shorter term.
Still gold’s rather lethargic response might be indicative of a market looking for a profit taking pull back considering recent gains.
The lowest premium government produced 1 ounce gold coin today is the popular Australian Kangaroo.
Silver closed up $0.17 at $18.34 still cheap relative to old highs but considerably off its recent lows. The lowest premium silver bullion product today would be the Johnson Mattney 100 oz silver bar at $0.75 over spot delivered.
Platinum closed up $7.00 at $1284.00 and palladium was up $5.00 at $773.00. Like I mentioned yesterday platinum is now trading under the price of gold and the only bullion 1 ounce coin produced by a world government is the Canadian Platinum Maple Leaf – other popular world mint coins have stopped production for the time being.
So with higher prices for gold across the board and activity moving higher in the Exchange Traded Funds why aren’t the phones ringing off the hook on physical activity? The reason is simple – the higher activity just happened and now the precious metals are facing the dreaded Wall of Worry.
Actually this happens all the time in stocks but because the metals have generally traded lower over the longer term it has been awhile since anyone has considered this cautionary tale.
The proverbial Wall of Worry is created when prices rise dramatically on the short term and investors wonder if the price rise is the beginning of a bigger picture which will lead to more profits or some sort of short-term price trap which will cost them money. In other words they “worry” over the possibility of adding to their holdings.
If the market can climb over that Wall of Worry it is a true turnaround and worthy of additional money from the investor. If it can’t – well, you know the answer.
But my point today is that gold has its usual advocates – real bullion dealers who believe the precious metals are cheap. And those who hang around – fake bullion dealers who use any excuse to sell overpriced junk described as the newest and latest thing.
Those that believe the Swiss Franc uncoupling from the euro opened the door and was a watershed event for gold. Those that believe that European Union and quantitative easing are the latest savior for those really interested in gold bullion.
Today you have a real mixed bag in the gold market – you will encounter everybody from legitimate dealers to quick money hustlers who sound and look good but are dangerous.
So for the short term ignore all the real or imagined stories and consider that Wall of Worry. If gold climbs over we are off to the races – if it does not especially now that we have crossed over the important $1300.00 mark – well you know that story too.
If you are interested in gold commentary there is a wealth of in-depth information on the net. Most casual readers are not that interested but the source for what the Chinese are doing is Koos Jansen (BullionStar.com – Singapore).
His latest Chinese Lunar Year Gold Buying at Full Steam: 61t Withdrawn from SGE Vaults in 1 Week – “As I mentioned last week , January is the time of the year for the Chinese to buy golden gifts for their love ones. And that is exactly what they are currently doing en masse, according to the latest data from the Shanghai Gold Exchange (SGE).”
But here is where the internet shines – in the process of reading Jansen I ran into something totally different – too bad I don’t read Dutch.
Guilty Gold by Roel Janssen – Nearly half of the gold looted by the Nazis from the Dutch central bank during the Second World War remains to this day in Switzerland, a reminder of the Alpine nation’s controversial role as a financial conduit for Hitler’s regime. About 61,000kg of Dutch war gold, currently value at about €2bn, is believed to be still in Swiss possession.
During the Nazi occupation of the Netherlands, 145,650kg of monetary gold and gold coins that Dutch citizens were forced to hand over to the central bank were transported to the Reichsbank in Berlin. After the war, the Tripartite Gold Commission (TGC), set up in 1946 by the US, France and the UK to return gold stolen by Germany, handed back about 71,820kg of gold to the Netherlands – less than half of the total. In 1998, the TGC made its final share-out and was dissolved.
Looting of Dutch gold – The story of the looting of Dutch gold and how it ended up in Switzerland is told in my ‘faction’ thriller Fout Goud (Guilty Gold). The book, which is currently only published in Dutch, combines historical facts with a fictional plot.
The Reichsbank sold about 80% of the gold it stole from occupied countries to Switzerland to obtain convertible Swiss francs to pay for imports needed by Germany’s war machine. Smaller amounts were sold to Sweden, Spain, Portugal and Turkey.
In December 1946, Switzerland and the US, acting on behalf of the TGC, signed the Washington Agreement. The Swiss, who denied any wrongdoing by buying gold from Germany during the war, agreed to hand over 52,000kg of gold to the commission for the ‘economic recovery of Europe’. The Agreement gave Switzerland a waiver for any future claims on gold it had bought from Nazi Germany.
A few years later it became clear that Switzerland had bought at least 336,300kg of gold from Germany during the war. Of the Dutch gold that was transported to Berlin, about 122,000kg ended up in Switzerland.
When the Dutch demanded their gold back, the Swiss refused to discuss the claim, citing the Washington Agreement. Despite arduous diplomatic and legal efforts in the 1950s and 60s the Swiss were adamant: returning any more gold was out of the question.
When the TGC was dissolved at a conference in London, the Netherlands stated that it maintained its claim against Switzerland. Two years later, the Dutch government endorsed the conclusions of a national war-gold commission that further efforts to recover the gold were futile.
Neither Parliament nor Dutch society was told about the decision silently to shelve claims on the stolen war gold that remained in Swiss vaults.
In 1996, publications in the UK stirred up the question of Jewish gold and dormant Jewish bank accounts in Switzerland. In the end, Swiss banks were forced to repay $1.25bn to Jewish victims. The Swiss government added $500m to the settlement, though it denied any wrongdoing. The value of the Jewish gold was much smaller than the stolen monetary gold.
In my fictional retelling of the looted Dutch gold, the main protagonist inherits 15 gold coins from his grandmother. He decides to find out what happened to the gold during the war.
His search takes him to underground shelters and bunkers in Berlin and to the salt mine in Merkers, where the American Third Army discovered the remains of the Reichsbank’s gold reserves in the final weeks of the war. The story ends with a spectacular attempt to recover a gold bar in Switzerland.
Fout Goud (Guilty Gold) was published in Dutch on February 20, 2014, and launched at the Dutch central bank, De Nederlandsche Bank.
This from Ambrose Evans-Pritchard (The Telegraph) – Central bank prophet fears QE warfare Pushing World Financial System out of Control
The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world’s financial system going into 2015. Beggar-thy-neighbor devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West.
“We are in a world that is dangerously unanchored,” said William White, the Swiss-based chairman of the OECD’s Review Committee. “We’re seeing true currency wars and everybody is doing it, and I have no idea where this is going to end.”
Mr White is a former chief economist to the Bank for International Settlements – the bank of central banks – and currently an advisor to German Chancellor Angela Merkel.
He said the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession. The excesses have reached almost every corner of the globe, and combined public/private debt is 20pc of GDP higher today. “We are holding a tiger by the tail,” he said.He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. “Sovereign bond yields haven’t been so low since the ‘Black Plague’: how much more bang can you get for your buck?” he told The Telegraph before the World Economic Forum in Davos.
“QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market,” he said.
“Even after the stress tests the banks are still in ‘hunkering down mode’. They are not lending to small firms for a variety of reasons. The interest rate differential is still going up,” he said.
The warnings come just as the European Central Bank prepares a blitz of bond purchases at a crucial meeting on Thursday. Most ECB-watchers expect QE of around €500bn now that the eurozone is already in deflation. Even the Bundesbank is struggling to come with fresh reasons to oppose it.
The psychological potency of this largesse will depend on whether the ECB opts for shock-and-awe concentration or trickles out the stimulus slowly. It also depends on the exact mechanism used to conduct QE, a loose term at best.
ECB president Mario Draghi hopes that bond purchases will push money out into the broader economy through a “wealth effect”, but critics fear this will be worse than useless if it leads to an asset bubble without gaining traction on the real economy. Classic moneratists say the ECB may end up spinning its wheels should it merely try to expand the money base.
Mr White said QE is a disguised form of competitive devaluation. “The Japanese are now doing it as well but nobody can complain because the US started it,” he said.
“There is a significant risk that this is going to end badly because the Bank of Japan is funding 40pc of all government spending. This could end in high inflation, perhaps even hyperinflation.
“The emerging markets got on the bandwagon by resisting upward pressure on their currencies and building up enormous foreign exchange reserves. The wrinkle this time is that corporations in these countries – especially in Asia and Latin America – have borrowed $6 trillion in US dollars, often through offshore centers. That is going to create a huge currency mismatch problem as US rates rise and the dollar goes back up.”
Mr White’s warnings are ominous. He acquired great authority in his long years at the BIS arguing that global central banks were falling into a trap by holding real rates too low in the 1990s, effectively stealing growth from the future through “intertemporal” effects.
He argues that this created a treacherous dynamic. The authorities kept having to push rates lower with the trough of each cycle, building up ever greater imbalances, in an ineluctable descent to the “zero bound”, where monetary levers stop working properly.
Under his guidance, the BIS annual reports over the three years before the Lehman crisis were a rising crescendo of alarm calls at a time when other global watchdogs were asleep. His legendary report in June 2008 openly discussed whether the world was on the cusp of events that might prove as dangerous and intractable as the Great Depression, as indeed it was.
Mr White said central banks have been put in an invidious position, compelled to respond to a deep economic disorder that is beyond their power. The latest victim is the Swiss National Bank, which was effectively crushed last week by greater global forces as it tried to repel safe-haven flows into the franc. The SNB was damned whatever it tried to do. “The only choice they had was to take a blow to the left cheek, or to the right cheek,” he said.
He deplores the rush to QE as an “unthinking fashion”. Those who argue that the US and the UK are growing faster than Europe because they carried out QE early are confusing “correlation with causality”. The Anglo-Saxon pioneers have yet to pay the price. “It ain’t over until the fat lady sings. There are serious side-effects building up and we don’t know what will happen when they try to reverse what they have done.”
The painful irony is that central banks may have brought about exactly what they most feared by trying to keep growth buoyant at all costs, he argues, and not allowing productivity gains to drive down prices gently as occurred in episodes of the 19th century. “They have created so much debt that they may have turned a good deflation into a bad deflation after all.”
The walk-in cash trade was busy most of the day with a good mix of buying and selling. The phones were mostly buyers and steady until the afternoon when everything stopped.
The GoldDealer.com Unscientific Activity Scale is a ” 4” for Thursday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Friday – 2) (Monday – closed) (Tuesday – 5) (Wednesday – 3). 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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