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The FT Goes There: “Demand Physical Gold” As One Day Paper Price Manipulation Will End “Catastrophically” | Zero Hedge
What have we done: after a series of reports in late 2012 in which we showed, with no ambiguity, that not only might the Bundesbank’s offshore held gold be severely “diluted” (follow our 2012 exposes on German gold here, here, here, and here), but that on at least one occassion, the Fed and the Bank of England conspired against the Buba in returning subpar quality gold, the Bundesbank shocked everyone in early January 2013 when it announced it would repatriate 300 tons of gold helt in New York and all of its 374 tons of gold held in Paris. But convincing the Bundebsbank to demand delivery was peanuts compared to changing the tune of the Financial Times – that bastion of fiat “money”, and where the word gold is mocked and ridiculed, and those who see the daily improprieties in the gold market as nothing but “conspiracy theorists” – to say the magic words: “Learn from Buba and demand delivery for true price of gold”, adding that “one day the ties that bind this pixelated gold may break, with potentially catastrophic results.”
In other words, precisely what we have been saying since the beginning.
Welcome to the ‘conspiracy theorist’ club, boys.
A year ago the Bundesbank announced that it intended to repatriate 700 tons of Germany’s gold from Paris and New York. Although a couple of jumbo jets could have managed the transatlantic removal, it made security sense to ship the load in smaller consignments. Just how small, and over how long, has only just become apparent.
Last month Jens Weidmann, Bundesbank president, admitted that just 37 tons had arrived in Frankfurt. The original timescale, to complete the transfer by 2020, was leisurely enough, but at this rate it would take 20 years for a simple operation. Well, perhaps not so simple. While he awaits delivery, Herr Weidmann is welcome to come and look through the bars in the Federal Reserve’s vaults, but the question is: whose bars are they?
In the “armchair farmer” fraud you are told: “Look, this is your pig, in the sty.” It works until everyone wants physical delivery of their pig, which is why Buba’s move last year caused such a stir. After all nobody knows whether there are really 260m ounces of gold in Fort Knox, because the US government won’t let auditors inside.
The delivery problem for the Fed is a different breed of pig. The gold market is far more than exchanging paper money for precious metal. Indeed the metal seems something of a sideshow. In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.
The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.
Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. Thedrones will have full control of the paper trail, won’t they? There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults?
John Hathaway suspects there is. He worries about all the paper (and pixels) linked to gold. He runs the Tocqueville gold fund (the clue is in the name) and doesn’t share the near-universal gloom of London’s gold analysts, who a year ago forecast an average $1700 for 2013. It is currently $1,260.
As has been remarked here before, forecasting the price is for mugs and bugs. But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery.
(Reuters) – A full-scale flight from emerging market assets accelerated on Friday, setting global shares on course for their worst week this year and driving investors to safe-haven assets including U.S. Treasuries, the yen and gold.
U.S. stocks slumped, putting the benchmark S&P 500 on track for its worst drop since November 7 and pushing the index down 1.8 percent for the week. Concerns about slower growth in China, reduced support from U.S. monetary policy and political problems in Turkey, Argentina and Ukraine drove the selling.
The Turkish lira hit a record low. Argentina’s peso fell again after the country’s central bank abandoned its support of the currency.
The declines mirror moves from last June when developing country stocks fell almost 18 percent over about two months and hit global shares.
The broad nature of the selloff combines country-specific problems with the reality that reduced U.S. Federal Reserve bond buying reduces the liquidity that has in the past boosted higher-yielding emerging markets assets.
The Fed last month pared its monthly purchases of bonds by $10 billion to $75 billion. The U.S. central bank will hold a policy meeting on Tuesday and Wednesday and is widely expected to again pare its stimulus program.
“We expect the emerging market selloff to get worse before it starts getting better,” said Lorne Baring, managing director of B Capital Wealth Management in Geneva. “There’s definitely contagion spreading and it’s crossing over from emerging to developed in terms of sentiment.”
Activity was heavy in exchange-traded funds focused on emerging markets. The iShares Morgan Stanley EM ETF was the second-most active issue in New York trading, trailing only the S&P 500’s tracking ETF.
An MSCI index of emerging market shares fell as much as 1.6 percent. Since mid-October, the index has lost more than 9 percent. The MSCI all-country world equity index was down 1.6 percent.
Funds have continued to flee emerging market equities. In the week ended January 22, data from Thomson Reuters Lipper service showed outflows from U.S.-domiciled emerging market equity funds of $422.41 million, the sixth week of outflows out of the last seven.
Emerging market debt funds saw a 32nd week of outflows out of the last 35, with $200 million in net redemptions from the 250 funds tracked by Lipper.
“It’s just the final realization that they can’t continue to grow as an economy the same way they did before,” said Andres Garcia-Amaya, global market strategist at J.P. Morgan Funds in New York. “It’s a combination of less liquidity for these countries that depended on foreign money and China kind of throwing some curve balls as well.”
The Turkish lira hit a record low of 2.33 to the dollar, even after the central bank spent at least $2 billion trying to prop it up on Thursday.
Turkey’s new dollar bond, first sold on Wednesday, fell below its launch price. The cost of insuring against a Turkish default rose to an 18-month high and Ukraine’s debt insurance costs hit their highest level since Kiev agreed a rescue deal with Russia in December.
Argentina decided to loosen strict foreign exchange controls a day after the peso suffered its steepest daily decline since the country’s 2002 financial crisis [ID:nL2N0KY0FC]. On Friday, it was down 2.8 percent.
On Wall Street shares sank.
The Dow Jones industrial average was down 205.12 points, or 1.27 percent, at 15,992.23. The Standard & Poor’s 500 Index was down 24.93 points, or 1.36 percent, at 1,803.53. The Nasdaq Composite Index was down 66.82 points, or 1.58 percent, at 4,152.05.
But in a signal that the selling may be overextended, investors were willing to pay more for protection against a drop in the S&P 500 on Friday than for three months down the road. The last time the spread between the CBOE volatility index and three-month VIX futuresturned negative was in mid- October, shortly after a 4.8 percent pullback in the S&P 500 opened the door to the last leg of the 2013 market rally.
European shares suffered their biggest fall in seven months. The FTSEurofirst 300 index of top European shares closed down 2.4 percent at 1,301.34 points. The index has now erased all its gains for 2014, and is down 1.1 percent on the year.
Spain’s IBEX index, highly exposed to Latin America, was the worst-hit in Europe, falling 3.69 percent.
The dollar index was flat, a day after falling 0.9 percent against a basket of majorcurrencies, including the euro, yen, Swiss franc and sterling. That was its worst one-day performance in three months.
A flight to safety lifted currencies backed by a current account surplus, such as the Japanese yen and Swiss franc, and highly rated government bonds. German Bund futures rose and 10-year U.S. Treasury yields hit an eight-week low below 2.75 percent.
Gold traded close to its highest level in nine weeks and was poised for a fifth straight weekly climb as weaker equities burnished its safe-haven appeal. Spot gold rose to $1265.10, up from $1263.95.
(Reporting by Barani Krishnan; Additional reporting by Dan Bases and Toni Vorobyova; Editing by Nigel Stephenson, Nick Zieminski and Leslie Adler)