Mid-Day Gold & Silver Market Report  - 10/24/2013

• Gold, $1,352.40, Up $16.40.
• Silver, $22.87, Up $0.21.

JOBLESS CLAIMS DISAPPOINT RELIEF OVER CHINESE DATA

Gold and Silver prices added to gains after the release of the weekly jobless claims report.  The report showed that new claims  fell by 12,000 last week, though it was far from expectations of 25,000.  Economic data continues to be scrutinized closely due to the U.S. Federal Reserve's insistence that the data improves  before tapering of its quantitative easing program is announced.  Commerzbank analyst Eugen Weinberg said, ''Postponement of tapering means higher liquidity in the market, probably higher inflation risks in the longer term.  That's likely to lead to higher interest in Gold.''

U.S. stock futures held onto gains after the data release,  largely due to positive economic news out of China.  After HSBC released its September Purchasing Managers' Index (PMI) for China, many were concerned over the state of the economy with a reading of 50.2.  With readings at or below 50 signaling a contracting economy, the October report was due to be heavily scrutinized.  October's reading came in at 50.9, which was all the good news the stock market needed to push higher.

At 9 a.m. (ET), the APMEX Precious Metals spot prices were:

• Gold, $1,342.00, Up $6.00.
• Silver, $22.75, Up $0.09.

• Gold, $1,334.80, Down $9.80.
• Silver, $22.59, Down $0.24.

• Gold, $1,336.50, Down $8.10.
• Silver, $22.75, Down $0.09.

Eric Sprott's Open Letter To The World Gold Council

As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.

In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading. It is not the first time that GFMS (and World Gold Council) statistics come under pressure from the investment community. In his now celebrated ?The 1998 Gold Book Annual?, Frank Veneroso demonstrated the inconsistencies in GFMS gold demand data and proceeded to show how they grossly underestimated demand. The tremendous increase in the price of gold over the following years vindicated his conclusions.

For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People?s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers.¹ In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions.² Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.³

But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.

To illustrate my point, Table 1 below contrasts mine production with demand from some of the world?s largest gold consumers. According to WGC/GFMS data, the world will mine, on an annualized basis, about 2,800 tonnes of gold for 2013.

But, I adjusted these figures to reflect mine production from China and Russia, which never leaves the country and is used solely to satisfy domestic demand. After adjustments, we have a total world mine supply of about 2,140 tonnes. On the demand side, I make some in-house adjustments to better represent demand from emerging markets. To proxy for gold consumption in China, Hong Kong, India, Thailand and Turkey, I use net imports of gold, as reported by their various governmental agencies. While imports might in general be an imperfect proxy for demand, those countries see very little re-export of what they import and keep most of it for themselves, so it is not unreasonable to assume that what they import they ?consume?, on top of their domestic production. To this I add the demand, as estimated by the GFMS, from other countries and that of central banks. I annualized the year-to-date figures and found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, ?core? annualized demand is approximately 3,000 tonnes more than mine supply.

TABLE 1: WORLD GOLD SUPPLY AND DEMAND 2013, IN TONNES


Sources: GFMS data comes from the WGC?s ?Gold Demand Trends? publications for 2013 Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate.⁵ Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Aug. 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMF?s International Financial Statistics, as published on the World Gold Council?s website for 2013 Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1 & Q2. ETFs data comes from Bloomberg?s ETFGTOTL Index.

However, these figures also exclude what the GFMS dubs ?OTC investment and stock flows?, which is a name for a simple plug because no one really knows what is traded in the OTC market. Also, to remain conservative and avoid possible double counting, I exclude the category ?technology? from my demand estimate, which the WGC/GFMS estimates to be about 400 tonnes a year.⁶ Certainly, some of this demand is captured by the demand numbers for China, Turkey, India or Thailand, but it is near impossible to disentangle them. Nonetheless, it should be kept in mind that my demand estimate is conservative and probably understated by a few hundred tonnes.

Of course, another important source of supply is gold recycling, which the GFMS estimates at about 1,300 tonnes for the year. However, this number is questionable at best as gold recycling is hard to estimate. But, most importantly, a large share of it is probably done in India and China, which as mentioned before do not re-export their gold. In the context of my analysis, recycling from those countries should therefore be excluded from the total supply number.

The real incremental source of supply this year has been the flows out of ETFs. According to data compiled by Bloomberg, and as shown at the bottom of Table 1, ETFs have seen outflows of approximately 724 tonnes year-to-date. On an annualized basis, this represents an additional supply of 917 tonnes. But, this incremental supply is only temporary. As shown in Figure 1 below, ETF holdings of gold seem to have stabilized at around 1,900 tonnes after a rapid decline in the first few months of 2013.

The evidence presented here is clear, demand for physical gold is extremely strong and, in reality, without the massive outflows from ETFs (half of world mine supply), it is hard to imagine how this demand would have been met. Since ETFs have a finite size (about 1,900 tonnes left), these outflows cannot continue for much longer (see our article on the topic).⁷ All these observations point to a considerable imbalance between supply and demand (unless Western Central Banks decide to fill this void with what is left of their reserves). If recycling was reduced by one half (China, India and Russia) and the temporary sales from ETFs were excluded, demand could be as high as 5,185 tonnes versus supply of 2,140 tonnes. The supply-demand imbalance is obvious to all.

FIGURE 1:TONNES OF GOLD IN ETFS

Source: Bloomberg

As was the case when Frank Veneroso first published his book in 1998, the GFMS methodology understates demand and the World Gold Council, by using data from the GFMS, misleads the market place.

To conclude, I urge the leaders of the World Gold Council, for the benefit of their own members, to improve the quality of their data and find alternative sources than the GFMS, which paints a misleading picture of the real demand for gold. This lack of quality information has certainly been one of the driving factors behind the lack of investors? confidence towards gold as an investment. Gold has been one of the best performing asset classes since 2000, and the World Gold Council should be promoting it accordingly.

Regards,


Eric Sprott

• Gold, $1,342.20, Up $24.40.
• Silver, $22.74, Up $0.43.

DELAYED JOBS REPORT BOOSTS GOLD, SILVER PRICES

The U.S. Labor Department's jobs report, originally due October 4, was released this morning. Economists expected an increase of 185,000 jobs in September, and  the report showed a gain of 148,000, well less than expected. The unemployment rate fell slightly to 7.2 percent, which boosted stock futures in premarket trading, but the overall report was enough to send Gold and Silver prices up more than one percent higher.

Lately, the Gold price seems to be directly tied to the possibility of quantitative easing tapering. U.S. Federal Reserve officials have said recently that stronger economic data is needed before tapering will be announced, so the disappointing jobs report affecting the Gold price in this way was no surprise. While noting that the possible government shutdown  could have affected hiring in September, Macquarie analyst Matthew Turner said, ''On the other hand, employment is the key variable for the Fed tapering. In terms of Gold market reaction, as long as they haven't done it, there is always that suspicion that they can't do because the economy is not that strong, which could support prices.''

At 9 a.m. (ET), the APMEX Precious Metals spot prices were:

• Gold, $1,330.00, Up $12.10.
• Silver, $22.47, Up $0.15.

China and Gold

China is now overtly pushing for the US dollar to be replaced as the world?s reserve currency.

• Gold, $1,317.70, Up $1.10.
• Silver, $22.27, Up $0.32.

MARKETS STEADY AHEAD OF EMPLOYMENT NUMBERS, COPRORATE EARNINGS

U.S. stock futures are trading flat to start the week as  investors weigh corporate earnings data and await economic reports that were delayed by the recent government shutdown. In recent months, the most highly anticipated U.S. economic reports have been those revealing the state of domestic employment. ''The U.S. nonfarm-payroll data will kick start the economic engine tomorrow, and if there was no government shutdown, this economic data could have been the key factor in determining the tapering quiz for the Federal Reserve?s chairman, Ben Bernanke,'' Naeem Aslam, chief market analyst at Avatrade, said. Following the recent government closure, some analysts predict the non-farm payroll numbers to be slightly skewed. The sense that employment data could be unreliable makes corporate earnings figures the central focus of investors and traders looking to gain a sense of the market?s short term direction.

Gold is trading even on Monday morning as last week?s four percent price rally appears to have cooled slightly.  Short-term momentum was gained on expectations that the U.S. government shutdown damaged U.S. growth  and would give the Federal Reserve no choice but to continue its quantitative easing program. Precious Metals investors will await this week?s economic reports and corporate earnings numbers to gain perspective on the trajectory of Gold and Silver prices.

At 9:28 a.m. (ET), the APMEX Precious Metals spot prices were:

• Gold, $1,319.70, Up $3.10.
• Silver, $22.35, Up $0.40.

Thursday, September 19, 2013

Charting the Big Picture

Arguably, throughout the ages, money and the immense power it manifests, is the most potent driver of systemic corruption.

Further to such argument, it is self-evident that high-level branches of modern-day governments and their attendant institutions alongside private foundations and transnational corporate alliances have been wholly subject to such corruption for centuries. 

Gold Daily and Silver Weekly Charts - Big Moves In and Out of Comex Bullion Warehouses

• Gold, $1,318.50, Down $6.50.
• Silver, $21.99, Up $0.00.

• Gold, $1,315.80, Down $9.20.
• Silver, $21.93, Down $0.06.

• Gold, $1,321.00, Down $4.00.
• Silver, $22.04, Up $0.07.