- Eric Sprott
Sunday, June 30, 2013
I Think Gold is Going Higher
“Let’s face it. Gold’s gone from $250 to let’s say, $1350. I mean, we have had a 4-500% rise here while the stocks have really not accomplished that much in the last 13 years so it’s been a great ride already. Now, in terms of where are we going from here? Some people obviously think it’s lower. I happen to think it’s going higher. I think we will see gold at substantially higher prices.”
Friday, June 28, 2013
Nothing But Financial Chaos
"There’s just nothing but financial chaos happening 24/7. The central planners are always trying to deal with the next issue that they already know about, but they haven’t told us about.
I would suspect that we have bank runs going on in the periphery in Europe. How anybody could leave money in a weak country’s banks is beyond me. We saw what happened in Cyprus. It was a disaster for the depositors. I would imagine most people say, ‘It didn’t happen to me.’ Well, you know what, IBM, Microsoft, GE and multi-national companies, they operate in every country. They saw what happened in Cyprus and you can imagine the CFO’s of those companies saying, ‘Oh my goodness. Who’s next here?’
We all know who’s on the list of potentially who’s next. You know they’ve got to be taking their money out of the banks. That’s why we have that emergency G-7 meeting three weeks ago. That’s why we are talking about a ‘banking resolution.’
Every time you hear the word ‘banking resolution’ just read the words ‘bail-in.’ That’s what they are talking about here because they have that template. And I suspect it’s going to happen again. I think when we get one more ‘bail-in,’ people are going to realize that having money in a bank is risky."
I would suspect that we have bank runs going on in the periphery in Europe. How anybody could leave money in a weak country’s banks is beyond me. We saw what happened in Cyprus. It was a disaster for the depositors. I would imagine most people say, ‘It didn’t happen to me.’ Well, you know what, IBM, Microsoft, GE and multi-national companies, they operate in every country. They saw what happened in Cyprus and you can imagine the CFO’s of those companies saying, ‘Oh my goodness. Who’s next here?’
We all know who’s on the list of potentially who’s next. You know they’ve got to be taking their money out of the banks. That’s why we have that emergency G-7 meeting three weeks ago. That’s why we are talking about a ‘banking resolution.’
Every time you hear the word ‘banking resolution’ just read the words ‘bail-in.’ That’s what they are talking about here because they have that template. And I suspect it’s going to happen again. I think when we get one more ‘bail-in,’ people are going to realize that having money in a bank is risky."
- Eric Sprott via a King World News interview, read the full interview here:
Wednesday, June 26, 2013
Gold to Go Significantly Higher
“I always look at two fundamentals: ‘Do we believe in zero interest rates?’ and ‘do we believe in printing money?’ and I haven’t found anyone who believes in it, and we all know we’re in a ponzi-type situation here where if we ever reverted to normal, the destruction of the financial system would be unbelievable. People will naturally go to gold; the demand exceeds the supply by a factor of two already, so I think the price of gold will go significantly higher.”
- Source, Commodities Wrap:
Friday, June 21, 2013
Physical Demand for Gold and Silver is Draining Supplies
Physical Demand for Gold and Silver is Draining Supplies, New Highs and More.
Eric Sprott, President and CEO of Sprott Asset Management, says extreme physical demand for gold and silver is draining supplies. Sprott predicts, "Somebody's going to fail here. All the data I look at says the Western central banks . . . that have been selling gold are running on fumes now . . . so, it's very close at hand." Join Greg Hunter as he goes One-on-One with money manager Eric Sprott.
- Source, USA Watchdog:
http://usawatchdog.com/
Tuesday, June 18, 2013
I'm Not Optimistic About the Economic Outlook Here
"My outlook for the world’s economy is not strong. We see a deep recession in Europe. We see depression in many countries in Europe. We see China slowing down, no growth in the (United) States. I'm not optimistic about the economic outlook here."
- Eric Sprott via a King World News interview, read the full interview here:
Friday, June 14, 2013
Tightness in Gold
"Whether it’s guys trying to get gold out of their Swiss banks, LBMA deliveries being extended, or people who can’t convert their COMEX contracts into physical gold, there were all sorts of things that suggested there was a tightness in gold. Including, of course, the COMEX inventories, the deliverable dealer inventories falling from 11 million ounces to 8 million ounces...."
- Eric Sprott via a King World News interview, read the full interview here:
Monday, June 10, 2013
Physical is Going to Dominate the COMEX
"I think the plan was, let’s knock the hell out of gold and let’s get people to cave on owning gold. The interesting thing was the exact opposite happened. There is not a data point on gold where we don’t see changes in demand by 100%, or even many hundreds of percent.
Whether it’s US Mint sales of gold in April, I think they went up by 1,000%, the Canadian Mint sales are up 128%, we see Chinese data where I think the number was up 300%. I think the World Gold Council said that India would import at least 100% more than they did last year (during the same period) in the second quarter.
So we see all of these numbers are in hundreds of percent change, whereas the supply of gold from the mining side will probably be down. The supply of recycled gold will be down significantly with the price having come off here. So I think that this raid totally backfired, and unleashed a torrent of buying.
And ultimately the physical is going to dominate the COMEX price as determined by a bunch of guys trading paper ... I would encourage everyone to, one, hold tight, two, if they can, increase their position.”
Whether it’s US Mint sales of gold in April, I think they went up by 1,000%, the Canadian Mint sales are up 128%, we see Chinese data where I think the number was up 300%. I think the World Gold Council said that India would import at least 100% more than they did last year (during the same period) in the second quarter.
So we see all of these numbers are in hundreds of percent change, whereas the supply of gold from the mining side will probably be down. The supply of recycled gold will be down significantly with the price having come off here. So I think that this raid totally backfired, and unleashed a torrent of buying.
And ultimately the physical is going to dominate the COMEX price as determined by a bunch of guys trading paper ... I would encourage everyone to, one, hold tight, two, if they can, increase their position.”
- Eric Sprott via a recent King World News interview, read the full interview here:
Saturday, June 8, 2013
Huge Decline in GLD
"We've seen this huge decline in GLD because it’s actually the last bastion of supply to satisfy this demand. So I don’t regard the GLD losing gold as a sign of weakness whatsoever. It’s not institutional investors getting out of GLD. It’s the (gold from) GLD being shipped over to the East and someone spinning it as a weakness, and I totally disagree with their conclusion. In fact I think it’s quite a sign of strength. I would like all of the gold out of the GLD to disappear and let’s see what happens after that.”
- Eric Sprott via a recent King World News interview, read the full interview here:
Thursday, June 6, 2013
GLD Redemptions Are Bullish for the Gold Market
By Eric Sprott & Etienne Bordeleau
Recent outflows from physical gold exchange traded products (we use the SPDR Gold Shares, GLD) have been interpreted by the financial press as a sign of weakness in the demand for gold as an investment vehicle.1
However, a closer look at the evidence suggests otherwise: the largest outflows in the history of the GLD (see Figure 1) started well before the large drop in the price of gold we observed on April 15th, 2013 (-9%, which represents a 1 in 11 years event)2. In fact, the net redemption of shares of GLD started as early as the second week of January 2013 (on a 3-month cumulative rolling basis). In this note, we will explore the theory that it was the shortage of physical gold and the ensuing arbitrage opportunity that drove market participants to redeem shares of GLD.
So why are the bullion banks3 that act as Authorized Participants for GLD, a group that includes JP Morgan and HSBC and others (who by-the-way were mostly bearish on gold leading to the April Crash), redeeming so many shares of GLD?
One explanation could be that they are trying to match supply and demand so that the net asset value (NAV) of the ETF is in line with its price. Historically, we have observed that large movements in and out of the GLD are associated with large discounts/premiums to NAV (Figure 2). This is due to the constant creation/redemption of the shares to minimize the discrepancies between the ETF share price and the NAV. However, the recent wave of redemptions has occurred even while the premium to NAV has been very stable, hovering around 0% for most of the year.
Putting the pieces together
It is clear that demand for physical gold in Asia is strong and that the price of gold in these markets is well above the “Western” price. This creates arbitrage opportunities for market participants that have access to large and cheap quantities of physical gold in the West. The bullion banks happen to be the only ones able to redeem GLD shares for gold, and the GLD, with its 1,000 tonnes of inventory, acts like a large physical gold bank.
Moreover, because of the intense demand for physical gold we have seen so far this year, it is very probable that the bullion banks themselves are in a shortage of physical gold, hence the need to use the GLD reserves.
Indeed, since 2005, there has been a strong negative correlation between GLD flows and the Shanghai Premium (-53%) (Figure 4 above). This means that large outflows (redemptions) from the GLD are typically associated with high premiums in the Shanghai gold market. This association has been particularly marked since the beginning of the year, with historically large outflows corresponding to an all-time high in the Shanghai premium.
To conclude, the evidence presented here suggests that, contrary to what has been stated in the financial press, the flows out of the SPDR Gold Trust may have been generated by the bullion banks to take advantage of an arbitrage opportunity in the physical market. This arbitrage opportunity occurred because of the intense demand for gold stemming from Asia and the inability of traditional suppliers to provide this gold (hence the large Shanghai premium). We believe that this activity further supports our hypothesis that there is a lack of availability of physical gold and an obvious dislocation between the physical and paper gold markets.
In these conditions, it is not hard to imagine that prior to April 15, the bullion dealers, with their large resources, were tempted to sell large amounts of gold futures in order to lower the spot price and make the arbitrage even more profitable by increasing the spread and sparking a tsunami of buying in Asia.
To us, this is clearly a bullish signal for gold.
Recent outflows from physical gold exchange traded products (we use the SPDR Gold Shares, GLD) have been interpreted by the financial press as a sign of weakness in the demand for gold as an investment vehicle.1
However, a closer look at the evidence suggests otherwise: the largest outflows in the history of the GLD (see Figure 1) started well before the large drop in the price of gold we observed on April 15th, 2013 (-9%, which represents a 1 in 11 years event)2. In fact, the net redemption of shares of GLD started as early as the second week of January 2013 (on a 3-month cumulative rolling basis). In this note, we will explore the theory that it was the shortage of physical gold and the ensuing arbitrage opportunity that drove market participants to redeem shares of GLD.
So why are the bullion banks3 that act as Authorized Participants for GLD, a group that includes JP Morgan and HSBC and others (who by-the-way were mostly bearish on gold leading to the April Crash), redeeming so many shares of GLD?
One explanation could be that they are trying to match supply and demand so that the net asset value (NAV) of the ETF is in line with its price. Historically, we have observed that large movements in and out of the GLD are associated with large discounts/premiums to NAV (Figure 2). This is due to the constant creation/redemption of the shares to minimize the discrepancies between the ETF share price and the NAV. However, the recent wave of redemptions has occurred even while the premium to NAV has been very stable, hovering around 0% for most of the year.
FIGURE 1: FLOWS IN THE GLD (TONNES) - 3 MONTH ROLLING BASIS
Source: SPDRgoldshares.com and Sprott Calculations.
Last Observation: May 28, 2013 (Week 22).
Source: SPDRgoldshares.com and Sprott Calculations.
Last Observation: May 28, 2013 (Week 22).
FIGURE 2: GLD PREMIUM TO NAV AND GOLD FLOWS
Source: SPDR Gold Trust, Sprott Calculations.
Note: Large flows are defined as weeks where the average % change in tonnes lies in the top or bottom 10% of its distribution (i.e. tail events).
We believe that the answer lies in the discrepancy between the paper and physical markets for gold. Over the past few months, there have been rumours of bullion bank customers unable to redeem their gold.4,5While, at the same time, physical demand in Asia has been extremely strong this year.6,7 According to the World Gold Council (WGC), Indian imports should reach 230-400 tonnes in Q2 2013 (an increase of more than 200% year-over-year) and imports from China keep breaking records (the WGC now forecasts total Chinese imports of 880 tonnes for 2013).8 This is reflected in the large premium customers in these markets pay over the “London Fix”, the price one should be able to get for physical gold. One way to measure the extent of the demand imbalance for physical gold in Asia is to look at what has been termed the “Shanghai Premium”, which is the difference between the quoted physical gold price on the Shanghai Gold Exchange and the London Fix gold price. Figure 3 above shows a weekly time series of the Shanghai premium in USD/oz. of gold. Since the beginning of the year, the Shanghai premium has been consistently above zero and historically large, reaching more than $50 per oz.Source: SPDR Gold Trust, Sprott Calculations.
Note: Large flows are defined as weeks where the average % change in tonnes lies in the top or bottom 10% of its distribution (i.e. tail events).
FIGURE 3: SHANGHAI PREMIUM (GOLD, $/OZ)
Source: Bloomberg. Last Observation: May 28, 2013 (Week 22).
Definition: Shanghai Gold Exchange Au9999 Gold (USD) minus London Gold Market Fixing Ltd - LBMA AM Fixing Price/USD.
“The Shanghai Premium is calculated on a weekly basis. Formula: (SHGF9999 Index * CNYUSD Curncy * 31.1g/oz) - GOLDLNAM Index”.
Source: Bloomberg. Last Observation: May 28, 2013 (Week 22).
Definition: Shanghai Gold Exchange Au9999 Gold (USD) minus London Gold Market Fixing Ltd - LBMA AM Fixing Price/USD.
“The Shanghai Premium is calculated on a weekly basis. Formula: (SHGF9999 Index * CNYUSD Curncy * 31.1g/oz) - GOLDLNAM Index”.
Putting the pieces together
It is clear that demand for physical gold in Asia is strong and that the price of gold in these markets is well above the “Western” price. This creates arbitrage opportunities for market participants that have access to large and cheap quantities of physical gold in the West. The bullion banks happen to be the only ones able to redeem GLD shares for gold, and the GLD, with its 1,000 tonnes of inventory, acts like a large physical gold bank.
FIGURE 4: SHANGHAI PREMIUM ($/OZ) AND GLD FLOWS
Source: Bloomberg, SPDR Gold Trust, Sprott Calculations.
Note: Shanghai Premium shown as a 3-month Moving Average GLD flows are rolling cummulative flows over 3 months
According to the GLD prospectus, the bullion banks can create or redeem units for as little as 10bps (0.10%). Even with transport and insurance costs (which are arguably lower for large transactions and large international banks), there is a clear arbitrage opportunity for the bullion banks when the Shanghai premium (or any other physical gold price premium in emerging markets) is as large as it has been recently.Source: Bloomberg, SPDR Gold Trust, Sprott Calculations.
Note: Shanghai Premium shown as a 3-month Moving Average GLD flows are rolling cummulative flows over 3 months
Moreover, because of the intense demand for physical gold we have seen so far this year, it is very probable that the bullion banks themselves are in a shortage of physical gold, hence the need to use the GLD reserves.
Indeed, since 2005, there has been a strong negative correlation between GLD flows and the Shanghai Premium (-53%) (Figure 4 above). This means that large outflows (redemptions) from the GLD are typically associated with high premiums in the Shanghai gold market. This association has been particularly marked since the beginning of the year, with historically large outflows corresponding to an all-time high in the Shanghai premium.
To conclude, the evidence presented here suggests that, contrary to what has been stated in the financial press, the flows out of the SPDR Gold Trust may have been generated by the bullion banks to take advantage of an arbitrage opportunity in the physical market. This arbitrage opportunity occurred because of the intense demand for gold stemming from Asia and the inability of traditional suppliers to provide this gold (hence the large Shanghai premium). We believe that this activity further supports our hypothesis that there is a lack of availability of physical gold and an obvious dislocation between the physical and paper gold markets.
In these conditions, it is not hard to imagine that prior to April 15, the bullion dealers, with their large resources, were tempted to sell large amounts of gold futures in order to lower the spot price and make the arbitrage even more profitable by increasing the spread and sparking a tsunami of buying in Asia.
To us, this is clearly a bullish signal for gold.
- Source, Sprott Asset Management:
Sunday, June 2, 2013
There is Going to Be a Disaster
“What has me worried is we are in a financial system where the banking system is massively over-levered, where governments are massively over-levered, where entitlements cannot be paid, and so from an economic approach we all know that somewhere in the next 5 to 10 years it’s going to be a disaster.
Pensioners will be told, ‘You know that social security check we promised you, we can’t pay you that. We’re going to have to cut it 20%, or we are going to have to change the retirement age.’ There seems to me nothing but problems because the central planners have organized everything to try to stem what should have happened starting in 2000 when the Nasdaq broke.
We had a damn mania and they’ve been fighting it ever since. And they end up creating one problem after another...."
Pensioners will be told, ‘You know that social security check we promised you, we can’t pay you that. We’re going to have to cut it 20%, or we are going to have to change the retirement age.’ There seems to me nothing but problems because the central planners have organized everything to try to stem what should have happened starting in 2000 when the Nasdaq broke.
We had a damn mania and they’ve been fighting it ever since. And they end up creating one problem after another...."
- Eric Sprott via a recent King World News interview, read the full interview here: