Liquid Gold

     While on vacation in the middle of the eastern Oregon checking in now and then to see spot prices.  I was not too shocked to return to the same thing that took place last week.  Gold is moving quickly, oil is the main initiator here, as I wrote last week, that TPTB would not let it get lower than $75.  Thursday it was $74.42 if the prices remained low it could cause a major problem for the Keystone pipeline and make it financially undo-able, the break even price for the new Canadian oil production is around $85, already up and running producers can do it for much less but this affects all the new projects.
     Is it really a surprise when it came down to the release of this passing, that we see oil rising.  The Democrats are now standing behind the approval for the Keystone XL pipeline.  All we have to do is sit back and wait for the president to sign it, since he is in Asia he will get to it sometime in the next week.  Even though Congress might try to take the responsibility away from Obama, he is the only one who can approve it because it crosses international borders.  The question every broker and oil executive is wondering, will he pass it?  Legislation's like this in the past have been vetoed and frowned upon by the White house administration.  The pipeline is a major concern for the environmentalists that the Canadian extraction could worsen global climate changes and threaten the U.S. waterways.  On the other side, this is huge for the U.S. to become energy independent, creating mass amounts of job growth that can lead to a strong U.S. economy and we are in extremely different circumstances than when this bill was pushed in 2008.
      We know that gold tends to follow oil in the market and the indicators to make calls happen fast.  With the rise of the Euro and the dollar longer than it should have been we have to add in all the factors that sway PMs for instance we have the Swiss Gold Initiative coming and traders on high alert waiting the vote, but many already assume it will be a no.  The physical gold moves the market way less than the digital kind.  Let us add GOFO Gold Forward Offered Rate, kind of a way to swap gold in return for USD a lease to own dollar rate.  However, there is not an interest like on a lease with a borrower and lender where the lender gains it is more of a swap because the lender is the one paying a rate of interest.  It is not the spot price of gold; it is a subtraction of LIBOR corresponding values.  These swaps are made from one up to 12-month periods.  Shorting mass amounts of gold drives up the lease demand and that GOFO then is lower.  There are no supply problems for contract and the idea of leasing metals appeals to many especially when they see the contracts lower than spot price like we have.  A negative GOFO shows that demand for the swap is high; this could be for lack of inventory by COMEX or the futures offered by the SGE.  These indicators with the GOFO could be that big changes in the PMs could be on the horizon, even if the demand is just so traders can short gold the GOFO has shown the bottom price before could it again?

Bought Nov. 14
SLV April 17, 2015 calls strike $15.50
paid $1.23

GDP weather you believe it or not

Can we really blame the gross domestic product reports on the weather?

The U.S. did just that when it blamed the 100 billion lost on snow early this year. China is now following suit of the bazaar claim that cool weather is the reason for the outcome and higher levels of activity growth in the recent outcome of the GDP data. Seems odd to me considering that the pollution in China is so intense you cannot even see the sun at times.  Since when does economic data rely on weather? To better understand this let us look at how we see and get the GDP overall. We have to understand the factors of the data research.

The System of National Accounting (SNA) and the Material Product System (MPA) that was used in the early soviet union, still used by some countries as an alternative to the United Nations System of National Accounts (UNSNA) or (SNA) that focuses on "free market" prices. This is supposed to provide data of economic activity on an international level. Countries cannot provide the same data, it is impossible, the country that invests billions into research, is not going to be the same as a country that cannot be assessed because of geographical factors, or socio-political instability. Some governments will not allow surveys of all kinds to take place. Many factors prevent the “same” data from being entered. The input-output levels can be highly manipulated due to the standard. The UN cannot enforce the same standard. Since it differs from country to country so there are often discrepancies, quarterly and yearly revisions, but as long as they provide sufficient data on national accounts the UN will fit it into its standard, all the other accounts can be reworked up to UN standard. If you look UN Yearbook, under detailed tables the data over decades instead of yearly you will see a trend change significantly. Studies in economics have shown that even the “free market prices” are truly regulated and administered prices in Western countries.

Many people do not even know that the MPA exists. The MPA that uses administered prices, measures the output of “material goods” tangible products, in comparison to “services”, usually in national accounts, the data collected is only to measure the “value” of outputs produced. Comparing the MPS and SNA is how China determines the GDP.

The Swiss may have the Cheese

Little discussion has been on the important news prior to the referendum on November 30^th regarding the Swiss campaign to “save our gold”

            One of the largest groups of political representatives in the Swiss parliament are considered to be the national conservative members of the SVP Swiss People’s Party.  The SVP filed a initiative on August 26, 2011 with the Swiss government, Titled “Gold Initiative: A Swiss Initiative to Secure the Swiss National Bank’s Gold Reserves”, later changed to “save our Swiss gold initiative” This campaign is to retrieve the Swiss family’s gold and considered to be the peoples gold. The gold was sold off by The Swiss National Bank and the Bank for International Settlements. The initiative states that the physical gold must be stored in Switzerland, and total assets of the SNB must have 20% of assets backed by physical gold and can not sell the reserves. Gold of the Swiss National Bank must be stored physically in Switzerland. The Swiss frank now backed by 25% instead of the 40% that was required back in 1997. SVP blame the devaluation of the CHF on the lack of gold backing. The SVP argue that the FED and CB increasing their money supply has devalued not only the CHF but also the USD and EUR. The SVP say that if they hold gold to back the CHF it would stop the devaluation. This vote will not only would make other countries view gold as a huge monetary and safe asset, we would also see a huge increase on the EUR itself. A few other Countries seem like they are swaying the same way, we see China, Russia and others stocking up on the precious bullion. This could be the biggest global move for gold, as it would drive the gold prices sky high.

"It Shall Be" Are we keeping the faith?

If money was just based on faith instead of a physical commodity like gold or silver, we would need a name for it. That is just the idea when Fiat money came into play in the 20^th century.  Fiat translates from Latin to “it shall be”. With Fiat money the risk is huge when it comes to hyperinflation, since fiat currency is just a type of paper printed out, it has nothing backing it in true form. Since the change Nixon ordered in 1971 after the collapse of the Breton wood system, the conversion from the USD to gold no longer exists. Fiat money was then printed out, in fact supply and demand has nothing to do with fiat money, it truly is just paper. If the people lose “faith” in the USD, it will then be a worthless currency.

            Many gold holdings go unreported. Central Banks, countries and larger corporations are known to stockpile gold and metals without detection. We are seeing many other countries right now buying up gold and other metals in mass quantities. It is crazy to think that other countries are returning to a stable monetary system as we had pre 1971, a reliable gold backed currency. They are possibly quite ahead of the game. In the U.S. we see that our society is breaking down, with a population that cannot pay for basic needs or sustain itself with rising prices. The only reason we are not seeing people lined up for rations is that they now get food stamps and welfare via card.

           PMs seem to be the one thing overtime that has been guaranteed to hold value. Paper money is a game and unless you do not mind losing a lot, you can play, but remember there is a counter party who knows and plays better than you and backs every paper dollar printed.

Now that the Shanghai futures market is open with what seems as a better offer than COMEX, stating that it is backed by actual gold not just highly leveraged paper, we see a slight decline with the PM markets, it’s just the time difference and volume that are swaying it.

 China shows photos of a fashion catwalk with 13 million in gold bars seen though a glass floor just for decoration, so you can imagine what the investors are holding. Even with the luxury bans happening, smugglers are finding ways to get gold in to China and India. Look at the charts of China and Russia, they are accumulating mass amounts of physical gold and the demand is growing.

Positions:Long GLD June 19th, 2015 114.00 calls. Paid $6.80, currently $8.05, with a gain of +18.38%
Buy Gold $1191.50, Currently at $1223.20 for a gain of 2.66%