MP3: Discussion between Jay Taylor and David Jensen on
Monday December 3, 2014.
Discussion notes:
1. Gold Market: GOFO negative, surging gold lease rates, gold price
backwardation
·
1-month GOFO or Gold Forward rate (GOFO = LIBOR - gold lease
rate) has been negative for 30 days now and 6-month GOFO has been negative
for 14 days for the first time on record.
·
1 month gold lease rate surged from 0% on Sept 17 to 0.72% on
December 1 - indicator of physical gold shortage both in London and NY.
·
Price backwardation, where the gold spot price is higher than
the near-dated forward contract price, was theoretically argued not to be
possible because of high gold stock-to-flows ratio (i.e. 5+ billion gold
ounces already above ground).
- Gold should immediately be sold on spot market and bought with forward
contract to extinguish the backwardation to secure guaranteed dollar profit -
yet this isn't happening.
Gold price backwardation is a condition where gold is not bidding for
dollars - guaranteed profit should be taken in dollars - an indication we
are building toward currency crisis.
http://fofoa.blogspot.ca/2010/07/red-alert-go...kwardation.html
"... This is the key to EVERYTHING!!! It is not "gold
liquidity" that the bullion banks create... it is DOLLAR LIQUIDITY.
Dollars bidding on MSFT stock set the value of that stock. If dollars are
frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars
stop bidding for MSFT all at once (low velocity), the price falls to
zero. This is true for everything in the world except gold.
Gold bids for dollars. If gold stops bidding for dollars (low
gold velocity), the price (in gold) of a dollar falls to zero. This is
backwardation!
Fekete says backwardation is when "zero [gold] supply confronts
infinite [dollar] demand." I am saying it is when "infinite supply
of dollars confronts zero demand from real, physical gold... in the necessary
VOLUME." So what's the difference? Viewed this way, can anyone show me
how we are not there right now? And I'm not talking about your local gold
dealer bidding on your $1,200 with his gold coin. I'm talking about Giant hoards
of unencumbered physical gold the dollar NEEDS bids from.
Think about it. You can't make it cold in July by simply rigging the
thermometer....
2. Gold market trading volume
·
NYSE stock trading volume is averaging $50 billion per day
spiking to $120 billion per day.
·
LBMA (80% of daily global gold trading) trades 160 M oz. of
gold in gross daily trading volume in September 2014 using the LBMA's 10:1
ratio of daily gross trading volume to daily net settled trading volume target="_blank" http://www.lbma.org.uk/assets/Loco_London_...ty_Surveyrv.pdf
·
$192 billion per day of gold gross trading volume (vs.
NYSE $50 billion) on the LBMA is AVERAGE dollar value of trading in September
2014.
·
In June 2013, LBMA traded 290 million oz. per day on average or
$406 billion per day of gross daily trading volume.
3. Leverage in the LBMA will destroy the LBMA
·
Current implied open interest using 2x 160 M oz. daily
trading volume is 320 million oz.; using 3x trading volume open interest is
480 million oz.
·
The LBMA refuses to divulge gold and silver open interest to
the public.
·
Primarily 'unallocated' (virtual) gold contracts being traded
with only notional gold backing (compare this to the Shanghai Gold Exchange
where 1 kg of gold must be deposited for each 1 kg spot contract that is
created).
·
LBMA indicates that 90% of daily trading is spot trading - you
can create the price but cannot create the metal with virtual trading and
gearing of trading instruments.
·
Two examples of creating leverage in the LBMA gold and silver
market (i) Unallocated positions as well as (ii) rehypothecation of forward
contracts creates exceedingly high claims per gold oz. available for
delivery.
·
This paper leverage (multiple claims per physical gold oz.)
quickly puts the LBMA into distress as physical metal is called for delivery
and withdrawn collapsing gold backing by an estimated 100x for each gold oz
that is withdrawn.
·
Many countries now accumulating gold in size and hearing of houses
that have borrowed forwards and sold spot (shorting gold) are being called to
deliver gold.
·
Swiss vote was a transient factor (1,500 tonnes to be
accumulated over 5 years) but the global secular trend for physical delivery
and withdrawal from artificially manipulated markets continues. A crisis at
the LBMA will grow as physical gold and silver continues to be withdrawn at
an accelerating rate due to the impact of reverse application of the virtual
gearing of physical metal contracts that have been used to manipulate
precious metals at the LBMA. The LBMA will in the end be detonated by this
reverse application of the LBMA's own paper manipulation of precious metals
using leverage of trading instruments (which price manipulation has also
allowed manipulated of global interest rates).
·
The price action of gold despite the physical gold shortage as
visible through backwardation, high lease rates etc., is indicative of just
how disconnected the LBMA is as a gold market.
·
Ignore the 'wave action' of daily price action of gold and
other precious metals and be aware that a massive tide is rising for all
precious metals which will overwhelm paper manipulation of physical precious
metals.
4. Deflationary Collapse and John Exter's Warning
·
John Exter, who was on the Federal Reserve's Board of
Governors, has warned us that an untethered fiat (paper) money system as we
now have will collapse in a deflationary collapse ending in currency failure
and gold being the ultimate safe haven asset
·
The deflationary collapse is driven by excess debt that is
created when paper money allows the creation of debt without limit which is
what has now happened with global debt at 315% of global GDP compared to an
historically stable level of 150% of GDP
·
https://en.wikipedia.org/wiki/John_Exter
·
http://www.goldmoney.com/research/resea...-of-sound-money
·
target="_blank"http://www.goldmoney.com/research/re...SEASONS-PART-II
·
http://www.goldmoney.com/research...easons-part-iii
IN SUMMARY
·
Physical gold is being withdrawn from the financial system
especially at the London Bullion Market Association (LBMA) metals market
·
Reversal of the estimated 100:1 paper-to-physical metal gearing
at the LBMA will lead to an accelerated collapse of the LBMA
·
Withdrawal of physical gold from the market is a secular trend
that is accelerating due to the mispricing of gold and silver through the
leveraged paper trading on the LBMA and NY COMEX markets
·
Investors should ignore the daily 'wave action' from the paper
metals markets and focus on the unstoppable 'rising tide' that will lift
precious metals to enormous heights
