The John Brimelow Report
India buys; Barclays forgets 1976
Wednesday, October 27, 2004
Indian ex-duty premiums: AM $7.86, PM $7.57, with world gold at $425.50 and $426.95. Ample for legal imports. The rupee firmed again today, closing at an import-facilitating 4 month high.
Japan was quiet, trading only the equivalent of 20,852 NY contracts (-12%) The largest contract saw an 8 yen decline and world gold went out 50c lower than the NY close. Open interest did rise the equivalent of 1,532 Comex contracts to equal 100,856 Comex, so maybe the public continues to accumulate. (In NY yesterday, 46,552 contracts traded, with open interest rising a further 1,343 lots to 321,849, a new record.)
Gold in NY yesterday saw initial strength, serious subsequent weakness, and a closing rally, while other influential prices also moved erratically. (Today is much the same.) The Bullion Bank commentators appear bemused, but are clearly apprehensive because of the high open interest. Mitsui-Sydney reports
" renewed interest in downside puts in NY with funds buying about 3 lacs (e.g. 300,000 ozs -JB) of the Comex Dec $400 puts.".
This implies that open interest increase in the face of a $2.30 decline might also have been short selling.
The invaluable news gathering site thebulliondesk.com provides an interesting insight, saying this morning:
"Sorry for the poor service this week but our SERVERS are running at close to capacity…we had not expected that our audience would leap by 20% this last fortnight’
Part of the significance of this is, given the wealth of data available on this and other sites, that those following gold are infinitely better informed than was the case even quite recently, and possibly less susceptible to being stampeded.
Perennial Bears Barclays Capital has produced a more typical study, pointing out that gold has sold off after all of the last six Presidential elections on a 100-day view, sometimes quite steeply. Indeed only in the last election was there subsequently a short time during which gold was higher .
For some reason, Barclays omitted 1976, the first election with a free gold market. Three months after that, gold was up some 30%. Those with long enough memories might feel the current economic/geopolitical environment more like 1964: gold was fixed, but the Bretton Woods system subsequently broke down.
JB
CARTEL CAPITULATION WATCH
The DOW (10,002, up 114) and DOG (1970, up 41) took off for the second day in a row. What a surprise to see the DOW above 10,000 again!
There is nothing to really account for the stellar US stock market rally the past two sessions. The economic news has been anything but robust and certainly $52 oil is nothing to rave about. Just four months ago $43 oil was thought to be horrendous. Crude oil closed at $52.46, down $2.72 per barrel. It surely was not a resurgent dollar. It finished at 85.55, up only .26. The euro lost .48 to 127.02.
Jim Sinclair puts this all in perspective when he warned recently:
"As we approach the weekend before the US election, we have to anticipate that the embattled incumbent's financial men will work every market possible in order to maintain some semblance of order and prosperity."
Long live American democracy with our free financial markets and free press.
From Sarge:
There is data out there re market performance in October and its relationship with election results.
He who occupies the White House during a DOWN month of October fails to get re-elected.
He who occupies the White House during an UP month of October gets re-elected.
The INDU closed on 30 SEP at 10080.
On Monday the INDU was at 9708.
We had a 138 point rally yesterday, and are up 120+ right now.
Currently (3:14) the INDU hit a high of 10018.
Only 63 points away from officially being UP for the month of October.
Any bets we close above 10080 on Friday?? Hmmmmmmm???
Dollar to a donut??
Stock market bulls still have a lot of company:
08:27 Bullish sentiment declines to 56.4% from 58.9% in latest Investor's Intelligence poll
Bearish sentiment rises to 25.5% from 22.1%. Those expecting a market correction declined to 18.1% from 19%.
* * * * *
US economic news:
08:30 Sept. Durable Goods orders reported 0.2% vs. consensus 0.5%; ex-Transportation 1.7% vs. consensus 0.3%
Prior Durables revised to (0.6%) from (0.3%); ex-Transportation unrevised at 2.8%
* * * * *
09:30 White House says US SPR will not be used to manipulate market prices -- Reuters
OPEC called on the U.S. to release oil from the SPR (see 4:49 comment). Dec. WTI crude closed overnight session at $55.22. Weekly supply data due at 10:30 ET.
* * * * *
10:00 New Home Sales +3.5% to 1.206M in September vs 1.15M consensus
August revised to 1.165M from 1.184M.
* * * * *
10:31 API reports crude oil inventories +4.4M barrels
Gasoline inventories +2.3M barrels, while distillate inventories (2.3M) barrels. Dec. WTI crude is traded lower in initial reaction, but is relatively unch. at $55.15/barrel, awaiting DOE data.
* * * * *
10:33 DOE reports crude oil inventories +4.0M barrels vs. expectations +1.0M barrels
Gasoline inventories reported +1.3M barrels vs. consensus (500K) barrels. Distillate inventories reported (2.4M) barrels vs. consensus (1.0M) barrels
* * * *
13:04 Treasury 2-year note auction draws 2.590% median ; 1.93 bid/cover
The bid/cover was weaker than the 2.20 average bid/cover of the last 10 auctions. Treasuries have been moving lower for the past few hours and have extended their losses on this somewhat weak auction: 10-year note (14/32) to yield 4.06%.
* * * * *
14:06 Fed's Beige Book reports that wages, retail prices are "generally subdued"
Fed says that firms in most areas were concerned about the costs of energy, as a number of contacts noted concern about constraints on discretionary income. Retailers reported that sales were below plan in September, though a few chains reported some improvement in early October. Manufacturing-sector activity exhibited a modest decleration, with further increases in input costs, though noted little change in selling prices. The Fed did say that the labor market had modestly improved, with steady hiring of office workers and fewer applicants for open positions. Housing remains robust. The Fed says growth was noted in Richmond, Dallas, while moderated in the New York Cleveland and San Francisco districts. The data was compiled by the Chicago Fed, was tabulated as of 10/18, and was prepared in advance of the FOMC meeting on 11/10.
* * * * *
From Dave Lewis:
Bill,
I got a kick out of today's oil inventory data after reading the following Dow Jones article about the reliability of national oil statistics.
LONDON -- The International Energy Agency warned of "a looming crisis" in compiling its energy data, which often sway world prices for oil and natural gas and affect the planning of the biggest energy producers.
In its long-term World Energy Outlook, the agency, which represents the interests of the Organization for Economic Cooperation and Development's 26 member countries, said it took the "unusual step of raising this issue because we believe there is an urgent need to preserve the reliability of our statistical base."
The agency's monthly supply, demand and inventories data are closely watched, but there have been murmurs of dismay from some in the industry over the number and degree of revisions it makes, particularly when it comes to gauging global oil demand.
In February, the Organization of Petroleum Exporting Countries cited the agency's estimate of weakening seasonal demand as one of the reasons to cut back output. The degree of surging demand from China and others wasn't apparent, eventually catching the oil markets off guard and contributing to record high crude-oil prices.
In its October monthly oil-market report, the agency said world oil demand in the third quarter was 600,000 barrels a day more than it had forecast a month previously. "A more reliable and transparent system is needed urgently, especially for investor confidence," said Fatih Birol, the agency's chief economist.
The agency pinned some of the blame on governments. National data, it said, often are subject to lapses and frequently prove inconsistent. "These lapses compromise the completeness of our statistics. They could seriously affect any type of analysis, including modeling and forecasting," the agency said.
Who would have thunk it; national governments obfuscating reality and thereby inviting malinvestment. At least we gold bugs can sleep easy knowing that our favorite commodity isn't subject to such statistical shenanigans......NOT.
have a good one
***
Gold news from Down Under:
Hi Bill,
I am very very bullish on gold this morning. I don't think the cartel is going to be able to trash bullion this time - the fundamentals are just too strong. It's also very positive that major broking firms such as ABN AMRO (Australia) are so bullish (see below).
Hold tight, we're almost ready for take - off!!
Malcolm
Gold smiles, base metals frown
Fresh US dollar weakness and climbing oil prices on the threat of a
strike by Norwegian oil and gas workers reinforced the slowing
growth story. Gold is again a beacon and a step closer to a 16-year
high.
Gold pushes to within a whisker of its 16-year high of US$430.5/oz
Right on cue as the US dollar headed lower, up went the gold price. We thought that we would remind ourselves of the strong inverse correlation between the US dollar gold price and the trade-weighted US dollar. Last week we highlighted the negative impact of the strong rand on beleaguered South African producers. We also examined how well the gold price tracked movements in the euro. The price target in the sights is US$430.50/oz, which was achieved earlier this year and if taken out would take gold to a fresh 16-year high.
We are not too interested in gold taking out old highs but rather what is gold telling us. Above all, gold is telling us that there is now great uncertainty in the marketplace. For example, it is telling us that the US dollar is again in trouble, that the world economy may also be in trouble, that the inflation corpse may be about to start twitching, that geopolitical risks are escalating and that there is a desire to hold a real asset. During times of declining global equity markets gold has often been a safe haven. Indeed, its negative correlation with equity markets is what makes gold provide a little insurance in your portfolio.
-END-
For those still searching for the motive behind The Gold Cartel’s rigging of the gold market all these years, mainly through various bullion banks on Wall Street, one only needs the above commentary. A rising gold price, much less a sharply rising one, sets off all kinds of negative bells and whistles in the investment world.
This is all very amusing as far as I am concerned. Sure all of what is said in the ABN AMRO is true, yet it is besides the fact. The gold price is already $300 under where it should be. All a soaring gold price says is the bums have lost control of their rig and the factors above have attracted so much gold DEMAND versus the crooks available physical supply, they could no longer continue their scam.
Here we go again. Every time gold rallies nicely, or approaches $430, The Gold Cartel finds ways to get IMF gold selling notions out into the public domain. Another coincidence? I think not again.
Southern Africa: Development Agencies Ask IMF to Sell Gold
October 26, 2004
Johannesburg
Three major development agencies have asked the International Monetary Fund (IMF) to sell or revalue some of its gold reserves to raise funds for a total debt write-off for the world's poorest countries.
In a paper entitled, 'Fool's Gold: The Case for 100 Percent Multilateral Debt Cancellation for the Poorest Countries', the Catholic Agency for Overseas Development (CAFOD), ActionAid and Oxfam International said a total debt write-off for all low-income countries was necessary to help them meet their poverty reduction targets and Millennium Development Goals (MDGs).
IMF Managing Director Rodrigo de Rato responded earlier this month to a similar call made by the British Chancellor of the Exchequer, Gordon Brown, and pointed out that "it depends on the willingness of the members of the Fund, of the Executive Board. For the time being, the Executive Board has not discussed this issue. Of course, management and staff, we stand ready to analyse the possible outcome if we get the mandate by the Board to do it."
According to the agencies, the IMF was currently sitting on reserves of 100 million ounces of gold, which the financial institution values at US $8.1 billion - well below the current market price.
Under a 1971 agreement, most of the IMF's gold is valued at $40 an ounce, but the reserves are now actually worth around $45 billion, the development agencies claimed. Revaluation of the gold reserves could potentially raise more than $30 billion to fund debt relief, the paper said.
IMF spokeswoman Frances Ann Hardin told IRIN the IMF had revalued some of its gold to raise funds for debt relief in the past. The IMF sold up to 14 million troy ounces of gold to Brazil and Mexico in 1999/2000, "in a sale authorised by the Executive Board to generate about US $3 billion to help finance the Fund's contribution to debt relief and financial support for the world's poorest nations".
The HIPC Initiative is a comprehensive approach to debt reduction for poor countries pursuing adjustment and reform programmes supported by the IMF and World Bank. To date, debt reduction packages have been approved for 27 countries, 23 of them in Africa.
According to the paper, at the end of 2002, poor countries owed the developed world a total of US $523 billion, or "roughly half their combined Gross National Income. Of this total, $154 billion, or a little under a third, was owed to multilateral creditors, including the World Bank and IMF."
The HIPC had failed to help countries reduce debt to sustainable levels, argued the paper.
In 2000 the international community committed itself to halving world poverty by 2015 and meeting 15 MDGs. "However, debt service payments from heavily indebted countries continue to undermine their ability to meet those internationally agreed targets. In 10 out of the 14 African HIPC countries where data is available, debt service payments still take up a larger share of the budget than do health services," said the paper.
The Zambian government, for example, spent more on servicing its debt than it did on education.
The agencies said NGOs in the UK had maintained that any calculation of debt sustainability should be linked to the poverty needs of a country, which necessitated a 100 percent debt cancellation.
The agencies argued that, despite having fallen short of needs, debt relief had been well used by the African HIPC countries. Malawi was using the resources saved under HIPC to train 3,600 teachers a year.
While making a case for 100 percent debt write-off, the agencies suggested that donor countries should continue to provide aid.
The UK recently promised up to £100 million per year to cover 50 percent of the debts owed to the World Bank and the African Development Bank by around 30 poor countries. The paper asked other industrialised countries to follow suit.
-END-
Several emails came in from some sharp Café members about Barrick Gold. Here they are:
Bill:
Something is amiss here. Barrick has for the last few quarters taken 2/3 of production and sold it at market. The last third was used to reduce their hedge book. They can deliver into their hedge book at any time.
They produced 1.23 million oz during this last quarter, so 33% or 400,000 oz of gold should have been delivered. Instead only 200,000 oz.
It just does not make sense especially as it goes against its public policy of reducing its hedges by handing in gold at the preset prices. Obviously the lower prices received for the hedged gold (around 365 usa dollars) would dramatically hurt their stock and that is probably why they only reduced by 200,000 instead of 400,000.
Harvey.
Bill,
To follow up a little on my earlier eMail, and I may be way out in left field here but, here's the concept. First off, Barrick is sure to go belly-up eventually because they're pretending that paper contracts are a substitute for honest metal. Their derivative assets (which yielded $9 mil profit last quarter) will someday become the instruments of financial destruction that Buffet predicts. Still, I think it is useful to consider what the company may have done to stave off a collapse this year.
My starting point is that a Barrick bankruptcy would be a catastrophe for Greenspan, the Fed and the entire Cabal. Since Barrick was involved in the gold suppression scheme from early on, there must be reams of incriminating papers in their files. The Blanchard suit threatens, but it's a slow threat, given the pace of the legal system. A bankruptcy proceeding would blow the plot sky high. It would be totally out of the Cabal's control, be certain to expose the price rigging conspiracy and open up Barrick executives and Cabal members to criminal subpoenas from Spitzer +++. About the only scarier news for the Cabal that I can think of would be an audit of Fort Knox.
The most pressing issue for Barrick is how to avoid breaching the net worth requirements built into their hedge contracts. I think you once pointed out that those hedges could become immediately due if Barrick's net worth drops too low. As you noted today, the Cabal won't let Barrick cover its hedges outright — that would put too much upward pressure on gold's price at a time the Cabal is struggling to contain it. So Barrick has, under cover of the ferocious assault on gold's price this year, bought derivatives that give them a paper long position large enough to, theoretically, equal their hedged short position. From an accounting standpoint, they are immunized from losses on the hedges.
What do you think? If I'm right we will see another derivatives gain for Barrick next quarter and the quarter after that, etc. The fatal flaw in this plan is that it is built out of paper and depends on counter parties to fulfill their debts for the next 15 years. Fat chance! It does keep the accountants off their backs for the time being. I guess the Barrick company motto should be, it's better to hang later than to hang now.
Feel free to shoot holes in this idea. I welcome any and all suggestions and thanks for your time and patience.
Best wishes and go GATA!
Peter R.
