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(Kitco News) – Extraordinary strength in the U.S. dollar and rising bond yields continued to force investors out of the gold market as gold-backed exchange-traded funds saw outflows of 51 tonnes last month, valued at $2.9 billion, according to the latest data from the World Gold Council.
In a report Wednesday, the WGC said that this was the fourth consecutive month of ETF outflows in the gold market and came as the price ended August with a 2% loss. Gold prices are down 5% since the start of the year as 102 tonnes of gold have flowed out of global ETFs, the report said.
“The promising bounce that began in mid-July ran out of steam in mid-August after failing to break the US$1,800/oz resistance level. This performance came against a backdrop of continued higher yields and a stronger U.S. dollar as the U.S. Fed reaffirmed its commitment to further tightening,” the analysts said in their monthly outlook.
North American-listed funds saw outflows of 40 tonnes and continued to lead the exodus; however, the analysts noted that the outflows were broad-based worldwide.
“Continued hawkish commentary from U.S. Fed officials drove 2-yr rates above the June highs, to levels last seen during the Global Financial Crisis (GFC). Nearly all funds in the region experienced outflows, including those in the low-cost space,” the analysts said.
European-based gold funds saw outflows of 4.7 tonnes, and Asian markets saw outflows of 7.5 tonnes.
The WGC warned investors that the gold market could continue to struggle as central banks, led by the Federal Reserve, aggressively raise interest rates.
“Several Fed policymakers have been clear that despite the cooler inflation reading for July, it is too early to “declare victory” in the fight against rising prices and that tighter policy might be in place for some time,” the analysts said. “In the short term, interest rates in key markets are set to continue higher until central banks – most importantly the Fed – bring inflation closer to target. The European Central Bank and Bank of England, both similarly battling multi-decade high inflation, also have policy meetings in September where further rate hikes are expected. This will likely keep the pressure on gold.”

The short-term outlook comes as gold prices continue to test support just above $1,700 an ounce. However, the prominent line in the sand for many analysts is between $1,680 and $1,675. A drop below this support area could signal an end to gold’s multi-year uptrend.
WGC said that despite the growing pessimism, there are still some bright spots in the gold market. Although expectations that the Federal Reserve will pivot on its current tightening cycle have been pushed to later in 2023, it has not gone away.
“Investors appear reluctant to accept that the U.S. rate-hike cycle will extend beyond year-end: markets are pricing in expectations for the Fed to reverse course in late Q2 2023. This could reflect a belief that either inflation will come down quickly or a deep recession will force a policy rethink,” the analysts said.
The analysts said the growing threat of a global recession would continue supporting gold prices.
“Exploratory analysis shows that gold has proven to be one of the best-performing assets during U.S. recessions, especially when they have coincided with high inflation,” the analysts said.    Continue reading →

How The Mint Ratio Has Changed Over Time | Seeking Alpha Continue reading →

(Bloomberg) — Russia may face a longer and deeper recession as the impact of US and European sanctions spreads, handicapping sectors that the country has relied on for years to power its economy, according to an internal report prepared for the government.The document, the result of months of work by officials and experts trying to assess the true impact of Russia’s economic isolation due to President Vladimir Putin’s invasion of Ukraine, paints a far more dire picture than officials usually do in their upbeat public pronouncements. Bloomberg viewed a copy of the report, drafted for a closed-door meeting of top officials on Aug. 30. People familiar with the deliberations confirmed its authenticity.Two of the three scenarios in the report show the contraction accelerating next year, with the economy returning to the prewar level only at the end of the decade or later. The “inertial” one sees the economy bottoming out next year 8.3% below the 2021 level, while the “stress” scenario puts the low in 2024 at 11.9% under last year’s level.All the scenarios see the pressure of sanctions intensifying, with more countries likely to join them. Europe’s sharp turn away from Russian oil and gas may also hit the Kremlin’s ability to supply its own market, the report said.Beyond the restrictions themselves, which cover about a quarter of imports and exports, the report details how Russia now faces a “blockade” that “has affected practically all forms of transport,” further cutting off the country’s economy. Technological and financial curbs add to the pressure. The report estimates as many as 200,000 IT specialists may leave the country by 2025, the first official forecast of the widening brain drain.Publicly, officials say the hit from sanctions has been less than feared, with the contraction possibly less than 3% this year and even less in 2023. Outside economists have also adjusted the outlooks for this year, backing off initial forecasts of a deep recession as the economy has held up better than expected.Export DropThe document calls for a raft of measures to support the economy and further ease the impact of the restrictions in order to get the economy recovering to pre-war levels in 2024 and growing steadily after that. But the steps include many of the same measures to stimulate investment that the government has touted over the last decade, when growth largely stagnated even without sanctions.Asked about the Bloomberg report early Tuesday in Vladivostok, Economy Minister Maxim Reshetnikov called the forecasts “analytical estimates that we used to calculate what would happen if we don’t resist, don’t do anything,” according to Tass.What Bloomberg Economics Says…“With diminished access to Western technologies, a wave of foreign corporate divestment and demographic headwinds ahead, the country’s potential growth is set to shrink to 0.5%-1.0% in the next decade. Thereafter, it will shrink further still, down to just above zero by 2050. Russia will also be increasingly vulnerable to a decline in global commodity prices, as international reserves no longer provide a buffer.” -Alexander Isakov, Russia economistOver the next year or two, the report warns of “reduced production volumes in a range of export-oriented sectors,” from oil and gas to metals, chemicals and wood products. While some rebound is possible later, “these sectors will cease to be the drivers of the economy.”No, Yale – Sanctions Have Not Triggered a Collapse in RussiaA full cutoff of gas to Europe, Russia’s main export market, could cost as much as 400 billion rubles ($6.6 billion) a year in lost tax revenues, according to the report. It won’t be possible to fully compensate the lost sales with new export markets even in the medium term.Oil Sector HitAs a result, output will have to be reduced, threatening Kremlin goals for expanding domestic gas supplies, the report said. The lack of technology needed for liquefied natural gas plants is “critical” and may hamper efforts to build new ones.Europe’s plans to stop importing Russian oil products — about 55% of exports went there last year — could trigger sharp cuts in production leaving the domestic market short of fuel, as well.Metals producers are losing $5.7 billion a year from the restrictions, the report said.If the world economy slips into recession, the report warns, Russia could see exports cut further as it becomes the “swing supplier” on global markets, with demand for its products disappearing first. That could trigger a plunge in the ruble and a spike in inflation.On the import side, “the main short-term risk is the suspension of production due to lack of imported raw materials and components.” Over the longer term, the inability to repair imported equipment could permanently limit growth, the report said.‘Critical Imports’“There are simply no alternative suppliers for some critical imports,” it said.Even in the farm sector, where the Kremlin has touted its efforts at replacing foreign supplies, dependence on key inputs could force Russians to reduce their food consumption as supplies dwindle, according to the report.Restrictions on access to western technology may push Russia a generation or two behind current standards as it’s forced to rely on less advanced alternatives from China and Southeast Asia.The report warns that sanctions will also force the government to revise a range of the development targets that Putin had set before the war, including those for boosting population growth and life expectancy.On a sectoral basis, the report details the breadth of the hit from sanctions:Agriculture: Fully 99% of poultry production and 30% of Holstein dairy cattle output depends on imports. Seeds for staples like sugar beets and potatoes are also mostly brought in from outside the country, as are fish feeds and aminoacids.Aviation: 95% of passenger volume is carried on foreign-made planes and the lack of access to imported spare parts could lead the fleet to shrink as they go out of serviceMachine-building: only 30% of machine tools are Russian-made and local industry doesn’t have the capacity to cover rising demandPharmaceuticals: About 80% of domestic production relies on imported raw materialsTransport: EU restrictions have tripled costs for road shipmentsCommunications and IT: Restrictions on SIM cards could leave Russia short of them by 2025, while its telecommunications sector may fall five years behind world leaders in 2022.(Updates with economy minister comment in eighth paragraph.)Most Read from Bloomberg Businessweek©2022 Bloomberg L.P. Continue reading →

August 31, 2022  by SchiffGold  0   0As we round out August in the COMEX, gold delivery was strong and silver was dominated by the odd mechanizations of Bank of America.Gold: Current  Delivery MonthDelivery volume in the August gold contract started strong and then continued to see net new contracts delivered throughout the month with house accounts setting a record in net delivery inflows.September gold has also shown promise with First Notice showing the third highest open interest in a minor month going back to November 2020. Actual deliveries have started out slow with only 404 contracts delivered on the first day, but this could be more signs of strain in the physical market (more on this below).Figure: 1 Recent like-month delivery volumeThe countdown chart below shows the activity in September gold leading up to First Notice. After a dip mid-month, open interest recovered and stayed elevated into First Notice with a slight uptick on the final day.Figure: 2 Open Interest CountdownThe slight uptick can be seen more clearly in the chart below as the difference between the green bar and blue bar. Also noticeable, is the large amount of open interest still outstanding.Figure: 3 24-month delivery and first noticeThe chart below shows the percentage of contracts delivered on the very first day of delivery. As shown, only 15% of contracts were delivered on the first day which is the smallest amount going back to at least November 2019. Short contract holders dictate the delivery timing which means the shorts have delayed delivery at the outset.Figure: 4 Delivery Volume After First NoticeAre the shorts delaying delivery due to a lack of physical available? Pressure has been mounting in the physical market with massive physical withdraws from the Comex vaults. This can be seen below as 7.3M ounces of gold have left the Comex system since May 1. Inventory stood near 36M ounces on May 1, so the gold exiting represents almost 21% of total inventory in 4 months.Figure: 5 Recent Monthly Stock ChangeGold: Next Delivery MonthOctober gold is an odd month. It is ten times larger than the typical open interest seen in minor months (38k vs 3k) but is also one-tenth the size of major months which tend to be near 400k. Current open interest is almost exactly at the same spot as October 2021.Figure: 6 Open Interest CountdownMajor months have been seeing strong delivery volume in recent months with a strong trend upwards starting in October last year.Figure: 7 Historical DeliveriesFinally, the October to December spread is showing the strongest contango since at least April 2021. Contango generally signals a market that anticipates higher prices in the future.Figure: 8 SpreadsSilver: Recent Delivery MonthSeptember silver has shown a rebound from the very disappointing July. Major months have been on a steady decline since the peak in July 2020. Aside from December 2021 and March 2022, delivery volume has been on a downward trend.Figure: 9 Recent like-month delivery volumeThat being said, the countdown into close showed a very modest decline versus what is typically seen. September went from the bottom of the pack to the middle of the pack on the final day.Figure: 10 Open Interest CountdownThe final day drop can be seen as the difference between the blue and green bars below. This was the smallest drop seen going into First Notice since at least July 2020.Figure: 11 24-month delivery and first noticeUnlike gold, nearly all the open interest was delivered on the first day with only 632 contracts remaining open. Almost 90% of contracts were delivered on the first day, which towers above the second highest month in March 2020 with 73% on the first day.Figure: 12 Delivery Volume After First NoticeLooking at the bank house accounts shows that BofA is the biggest net loser of metal by far. They have delivered out 5,199 of the 5,244 (99.1%) of the contracts delivered thus far! On the flip side, the remaining house accounts have been net receivers of 3,276 ounces which is their largest inflow ever! This was driven primarily by Citigroup (2607) and Morgan Stanley (579).What is going on here? BofA has been a horrendous trader of silver over the last 9 months, accumulating when the price is high and delivering out when the price is low. BofA delivery out exceeds the final amount from December, but they also spent most of December opening net new contracts to recover the metal they delivered out on the first day and continued that activity in January.Figure: 13 House Account ActivityThe chart below shows BofA’s accumulation of silver since November 2020. As shown, they have accumulated during higher prices and sold out during lower prices. Furthermore, the current contract has wiped out nearly 85% of the total BofA house accumulation over almost two years.Figure: 14 BofA Cumulative DeliveryAdding to the murky story is the continued outflow of Registered silver. Current Registered silver represents a total of 10,130 contracts. This means that 58% of total Registered has just stood for delivery! If that metal starts to get pulled out of Registered, the stock will fall dramatically.If BofA repeats December and starts buying back metal mid-month, it’s very possible total delivery volume for September could exceed total Registered.Figure: 15 Recent Monthly Stock ChangeSilver: Next Delivery MonthOctober silver is starting off sluggish with current open interest well below average.Figure: 16 Open Interest CountdownSimilar to major months, minor months have seen a pretty steady decline downwards.Figure: 17 Historical DeliveriesAll of this is happening while the silver spot market stays in strong backwardation, indicating that the current spot metal is being valued more highly than futures contracts.Figure: 18 Spot vs FuturesWrapping upGold and silver are both showing strength this month but in different ways. Gold has seen strong open interest into the close but with a very small fraction being delivered so far. Silver showed a very small decline of open interest into First Notice, but then saw a record percentage of contracts delivered on the first day, almost entirely from BofA. The activity in BofA is potentially the biggest outlier of all the data points. It looks like they are trying to contain the market during big delivery volumes and are willing to take a loss to do so.Inventory data is also different between the two metals with gold seeing steady depletion in both Registered and Eligible where the activity in silver is concentrated in Registered falling. In both metals, Registered is falling rapidly which leads to less metal available for delivery in future months.There is no doubt that futures contracts are not capturing this movement going on under the surface. The technical picture in the paper market has been looking weak, while the physical market is showing record strength. Eventually, these two markets will converge, or else the paper market could break down. Likely, the paper market will eventually catch up to the futures market as the shorts struggle to find metal to deliver. When this happens, the movement in price could be extremely fast.Figure: 19 Annual DeliveriesData Source: https://www.cmegroup.com/Data Updated: Nightly around 11PM EasternLast Updated: Aug 30, 2022Gold and Silver interactive charts and graphs can be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/goldsilver/Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today! Continue reading →

(Kitco News) China has significantly stepped up its gold purchases from Russia amid a Western ban on Russian gold following its invasion of Ukraine.
China imported $108.8 million worth of Russian gold in July. That is a 750% jump from the previous month’s total of $12.7 million and an increase of 4,800% from $2.2 million reported during the same month a year ago, Russian media RBC reported citing Chinese customs data. The data listed included raw and semi-finished forms of gold.
More buying from China comes after the U.S., Britain, Canada, Japan, the EU, and Switzerland banned Russian gold exports following Russia’s invasion of Ukraine.
Earlier in August, it was reported that Russia is looking into its own international standard for precious metals after getting banned by the London Bullion Market Association (LBMA). And it could have a fixed price in national currencies. 
The country’s Finance Ministry said it was “critical” to create the new Moscow World Standard (MWS) to “normalize the functioning of the precious metals industry” and have an alternative to the LBMA.
Following Russia’s invasion of Ukraine, the LBMA also suspended its accreditation of Russian precious metals refiners, barring them from selling new products in London. The suspension was made official on March 7.
According to the Finance Ministry, Russia was the second highest gold producer by volume in 2021, with gold output rising by 9% to 343 tons. The precious metals industry in Russia accounts for around $25 billion a year. Continue reading →

Physical silver bars continue to drain from COMEX and London warehouse stockpiles. Lower spot prices are contributing to this.

Larger investors who hold deliverable bars aren’t throwing in the towel and dumping them back into the market. Instead, they continue to stack, much like retail investors buying the smaller coins, rounds and bars.

An attempt by Reddit users to create a “silver squeeze” in early 2021 marked the beginning of the year-and-a-half long trend of steadily declining bar inventories. The grassroots movement was an attempt to break the crooked price discovery scheme in silver.

Buyers were encouraged to purchase silver and take possession. The hope was that the tiny inventory supporting a mountain of paper derivative metal would disappear. Shorts would have to bid more and more for available bars in order to exit their positions and end the pain.

The buzz around the “silver squeeze” faded from the headlines over a year ago, but the draining of inventory continues.

As available stocks decline, the prices paid for deliverable bars in the cash market keep getting higher versus paper silver futures.

The mismatch in prices between the two markets is way outside of normal and should serve as a warning.

Buyers are paying up to get physical metal, and they are bearing the cost of storing large bars.

So far, traders on the short side don’t seem bothered by these troubling underlying fundamentals.

The past few months have been profitable for those making leveraged bets on lower prices.

What makes this setup interesting is that it is the speculators, not the commercial banks, who are heavily short. (Perhaps traders went to the Hamptons this summer and the trading algorithms they left on autopilot aren’t programmed to watch inventory levels.)

Futures market speculators are also not too quick on the uptake — generally speaking. Bullion bankers have a long history of total domination against them in futures trading.

Normally it is bankers and commercial hedgers who are short and specs who are long. The current positioning may be backward, but you can expect the winners will be the same people – those classified as the large commercial traders.

Commercial traders tend to position themselves correctly ahead of the next trend – and right now they are positioned for the silver market to turn up. Continue reading →

The price of silver hit a peak over $26.50 on March 8. It spent about a month and a half breaking down, and then the bottom fell out. It’s currently down from that peak almost 8 bucks.

Breaking Down Fundamental Silver Prices

However, the opposite has been happening to silver’s scarcity. First, let’s look at a chart of the silver market price and the silver fundamental price.

The market price is down a lot since that peak, but the fundamental price has moved sideways (ignoring the two spurious drops) and is now the same as on March 8.

Now let’s look at what the silver basis and silver cobasis are showing.

There has been a big run up in the cobasis (i.e. the measure of scarcity), since August 8. It has hit almost zero, which is the line of demarcation of backwardation.

This chart, by the way, shows the continuous basis and cobasis. This is not the near contract (i.e. December, which hit a cobasis near 1% on Thursday). The continuous basis is a smooth 6-month average duration synthetic contract, not subject to the volatility caused by contract expiry, which often manifests as temporary backwardation.

Our remarks? We haven’t seen a cobasis like this, in at least 7 years.

LIBOR Rates and Silver

But it’s bigger than that. Much bigger. That’s because the interest rate is higher now, than it has been since November 2008. Now, LIBOR is on a tear. Then, it was collapsing.

            Source: securitybenefit.com (who uses data from the Federal Reserve System)

To carry metal, a bank’s first step is to borrows dollars. Then it buys the metal and sells it forward. So, the basis is closely tied to the interest rate (we are still using LIBOR as an indicative rate).

When the interest rate is moving, we may find it more useful or more revealing to look at a chart which takes interest rates into account. It turns out that we do have such a chart. It is the lease rate*, which is LIBOR – forward rate (forward rate is a different way of looking at the basis).

*Note: Not to be confused with Monetary Metals’ true gold and silver lease rates, which are the rates investors earn when they lease gold and silver with us.

Here is the silver lease rate graph.

The lease rate, which is another way of looking at scarcity, is higher than at any time since the thick of the global financial crisis, in October 2008.

At that point, silver was trading under $10. And 2 ½ years later, its price quintupled to about $50.

The lease rate, LIBOR – GOFO, is based on arbitrage in the commercial bullion markets, again it has nothing to do with the interest rate Monetary Metals pays silver owners on their silver.

Silver Scarcity and the Future

Will that happen again soon? We don’t know (and neither does anyone else). But we can say with certainty that its scarcity has become serious.

This could be resolved two different ways. One, there could be selling of physical metal combined with a let up in buying. Two, the price could shoot up.

We think this is a good time to place a bet on silver.

Bet or no bet though, you can always earn interest on silver, (and gold) by opening a Monetary Metals account.

We will continue to keep a close eye on silver as the current situation unfolds.

© Monetary Metals 2022 Continue reading →