GLD trust gold inflow?

Looks like the media is telling us that the GLD trust physical gold holdings are rising and giving a boost to the precious metals prices.

I don't believe it until I see it.

When I make the chart, I see that we are bottoming out (red chart), but by no means we are really seeing a pick up in GLD trust physical gold holdings yet. We will have to wait for a longer time frame to confirm this uptrend.

I need to admit that the red chart is bottoming out though. Maybe the selling of the GLD trust units has exhausted itself.

Chart 1: GLD Trust

As for silver, we really start to see an uptrend here:

Chart 2: SLV Trust

Conclusion:
Silver is the most undervalued of the two precious metals.

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Peter Schiff: Stand-Up Comedian

As I always said, Peter would be a perfect Stand-Up Comedian. And here we have it...

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Gold Lease Rate Higher, Registered COMEX Gold Lower

Just another update.

Gold Lease Rates are at an all time high again:

Chart 1: Gold Lease Rate

COMEX registered gold has once declined to even lower levels. J.P. Morgan unloaded its registered gold. Total registered gold at COMEX now stands at: 875713 troy ounces. We are nearing the bottom.

Chart 2: COMEX gold

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The Declining Trade Deficit: Not As Rosy As You Would Think

The trade deficit numbers are out for June 2013 and have been very positive. Due to an oil boom, the trade deficit shrank 22% from around $44 billion in January 2013 to $34 billion in June 2013.

As you can see on Chart 1, the decrease in deficit was due to an increase in exports (red chart) and a decrease in imports (blue chart). This looks very promising, but I want to show that not all is well if you look into the details.

Chart 1: Import Vs. Export

Let's look deeper into these import and export numbers. Chart 2 gives the breakdown of the export numbers. The largest segments are "machinery and transport equipment", "chemicals and related products" "mineral fuels and lubricants" and "re-exports".

Chart 2: Exports January 2013

Chart 3 gives the breakdown of the import numbers. The largest segments are 'machinery and transport equipment", "mineral fuels and lubricants", "miscellaneous manufactured articles".

Chart 3: Imports January 2013

From these numbers we can deduct that the oil industry is indeed a very important segment that will influence the import and export numbers.

If we then further look at how these numbers evolve in time from January 2013 till June 2013 we have charts 4 and 5.

Chart 4: Exports (billion USD)

Chart 5: Imports (billion USD)

When analyzing the trends on charts 4 and 5, there is one segment that is worth noting. We see that exports of petroleum products (which are incorporated in the segment "mineral fuels and lubricants") have been going up, while imports of the same have been going down. The reason for this can be found in the divergence of West Texas Intermediate (WTI) crude oil and Brent crude oil.

To continue reading this analysis: go here.

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China Gold Imports from Hong Kong: Steady in June 2013

In June 2013, the gold imports from Hong Kong to China were essentially flat.
The summer isn't a good period for gold either, so this is pretty normal. But anyway, gross and net imports are still at an all time high, compared to history (see chart 2).

And what's also interesting is that the ratio between net imports and gross imports are at an all time high too: 89%. China wants to keep all its gold.

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Tax Receipts Vs. Savings Rate

Whenever the government raises taxes or when corporate profits rise, tax revenue will rise with it (blue chart).

But this has implications, if tax revenues rise, this will deplete the personal savings of the people. The red chart shows the personal savings rate (%). There is a negative correlation to be found here.

It shows us that higher tax revenues always lead to lower personal savings rates and vice versa. From this correlation we can deduct one thing. There is a limit to raising tax revenues. If the personal savings rate gets to 0%, there is no more margin to increase taxes.

At this moment the personal savings rate is 4.4% and is almost at a historic low. Contrast this to the savings rate of China, which is 50%. Also note that tax revenues have been declining as a percentage of GDP. This means that corporate earnings growth isn't keeping up with GDP growth at a constant rate of taxation.

To read more about this correlation go to this article.

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Gold Backwardation Explained By James Turk

If you want to know what gold backwardation means, read this article of James Turk. Very interesting.

Let's say we have two currencies A (euro) and B (USD). Then the following is true:

- A's interest rate < B's interest rate
- A is in contango against B
- A's value rises going into the future
- Higher interest rates means a higher risk of debasement of the currency.


Now let's look at two other currencies A (USD) and B (gold):

- USD's interest rate < gold's interest rate (lease rate)
- USD is in contango against gold (or gold is in backwardation)
- USD's value rises going into the future (or gold's value declines going into the future = negative GOFO)
- Higher interest rates means a higher risk of debasement of the currency.

Now gold's interest rate is higher than the USD's interest rate. Which means gold has a higher risk of debasement than the USD. This is virtually impossible because gold cannot be debased.

Which means something has to give. This is a rare event and will mark a bottom in the gold price.

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New GDP Calculation taking effect

If you recall my article on the newly invented way of calculating GDP, well we are at that point now.

Today, the new GDP numbers (including legal bills, art, music, theatre and imaginary pension funds) were in effect. Real GDP grew 1.7% on an annualized basis in the second quarter of 2013.

As you can see, the old nominal GDP numbers (red chart) and the new nominal GDP numbers (green chart) are about 3% different from each other. 

Nominal GDP

With these new numbers in place, my zero hour debt chart is being reformed to this.

You can see the large drop there, meaning that debt has actually dropped due to the debt limit.

Zero Hour Debt

Second, with these new GDP numbers, the debt to GDP ratio has declined by 3%. It isn't 105% anymore, but is now 105/(100+3) = 102%.

Good work in fudging the numbers, Ben.

(also note that stocks are now seemingly 3% less overvalued)

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COMEX stock touches new lows

And we have new lows this week. Total gold stock goes to 6989165 troy ounces.

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Single Family Housing Starts Vs. Unemployment Rate

One of the key metrics for the health in the housing market are the "privately owned housing starts". "Housing starts" are an economic indicator that reflect the number of privately owned new houses (technically housing units) on which construction has been started in a given period. Usually, a decline in the "housing starts" leads to the start of a recession. 

The "housing starts" are a leading indicator for the unemployment rate. Both metrics are inversely correlated. When the "housing starts" drop, the unemployment rate will rise with a lag of about 1 to 2 years.

Because of the fact that the "housing starts" are a leading indicator, this is a very important metric to predict the unemployment rate. As a consequence, the "housing starts" are also a predictor of real GDP, capacity utilization, the stock market index and the consumer price index (CPI).

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Correlation: Employment-Population Ratio Vs. Real GDP per Capita

I like statistics that can't be fudged by the government and this is one of them: The Civilian Employment-Population Ratio. This measure is one of the best to evaluate the labor market. Each time when this ratio declines, we enter a recession. So this is a very good gauge in predicting bad periods in the overall economy.

A high ratio (above 70%) means that a lot of people are employed and this will result in a high GDP per capita. A low ratio (under 50%) is considered bad for GDP.

If we take a look at the percentage change per annum, we see that the trend for the employment-population ratio is down (blue chart). So the employment picture isn't improving and this translates into a declining real GDP per capita growth rate (red chart).

As Karl Denninger explains, the amount of employed people as a percentage of the population hasn't improved since 2008. So the economy hasn't recovered a lot.

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Copper goes into backwardation

As gold went into backwardation, now also copper starts going into backwardation.

We should see some upside in copper following this move into backwardation. But as opposed to gold, backwardation in copper isn't a good sign for the copper price. Meaning, if we see too much backwardation in copper (red curve making a bottom), you should expect a top in the copper price.

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COMEX less than 1 million ounces physical gold left

We're getting closer to the zero line...

At this pace we will have the unthinkable "event" at the end of this month.

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Consumer Price Index: The effect of a rise in oil prices

With crude oil going back over $106/barrel (which is a 20% increase from $90/barrel), let's see how the CPI would do.

As you know, the consumer price index consists mostly of housing (42%), then second comes transportation (17%) and last comes food (15%).

The crude oil is part of the transportation segment. One third of the transportation segment is motor fuel or 5% of the CPI.

So if oil prices go up 20%, the CPI will only go up 20% x 5% = 1%. 

More importantly, housing determines a major part of the CPI.  Half of the housing segment consists of Owners’ equivalent rent of residences which is basically the amount of rent you would pay for staying in the house. This depends on the housing prices. 10% of the housing segment is fuel and utilities. So if oil goes up 20%, the housing segment will go up 10% x 20% = 2%. And the CPI would go up 2% x 40% = 1%.

CPI

So basically, if oil prices go up 20%, the CPI at least goes up 2% from the fuel in the housing and transportation segments (if all else stays equal). The other segments will of course be influenced too by rising oil prices, but to a lesser extent.

So that's the significance of the oil price on the CPI.

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Red Alert: Gold Forward Rates Turn Negative

As I told before, the only parameter that is going to dictate gold lease rates, is the GOFO rate, because the Federal Reserve will always keep the fed funds rate at zero, which means the LIBOR rate will stay at zero. 

The GOFO rate though, is dependant on the demand and supply mechanics of gold. And today we have the first time that the GOFO rate actually turned negative, which is officially a backwardation in gold. Since the 2008 crisis hit us, the GOFO rate has never been negative, so this is a premiere. As a matter of fact, we have never seen a negative GOFO rate in a decade or more. (except for those few days in 2008 which are ignorable)

Once such events happen, we will see a huge shortage coming in gold.

Chart 1: LBMA GOFO rate turns negative

And the subsequent rise in lease rates:

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The True Jobs Numbers

Just a reminder to those who thought the jobs numbers on Friday were positive.

See the blue line (and just recently also the grey line).

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Federal Reserve: To Taper or not to Taper

There is all this talk about "tapering". Will the Federal Reserve taper or not taper, that's the question. To find the answer, we need to take a look at the U.S. national debt.

This is really a weird sight, do we really have an actual debt ceiling? Aren't we going to raise the debt ceiling? U.S. public debt has been growing at almost $200 billion a month and has been staying flat just recently.

Chart 1: U.S. Public Debt

Since May 19, 2013, the debt ceiling has been stuck at $16.735 trillion and this ceiling has been in place for almost 2 months as chart 1 suggests. The treasury says that they would be able to pay all the bills until October by enacting extraordinary measures from May 20 till August 2.

In all, the Treasury has the following measures available to it:

• Suspend the investments of the Thrift Savings Plan G Fund (otherwise rolled over or reinvested daily, such investments totaled $130 billion in Treasury securities as of May 31, 2013);
• Suspend investments of the Exchange Stabilization Fund (otherwise rolled over daily, such investments totaled $23 billion as of May 31, 2013);
• Suspend the issuance of new securities to the Civil Service Retirement and Disability Fund and Postal Service Retiree Health Benefits Fund (totaling an estimated $79 billion on June 30, 2013, and about $2 billion each subsequent month);
• Redeem early securities held by the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund equal in value to expected benefit payments (valued at about $6 billion per month);
• Suspend the issuance of new State and Local Government Series (SLGS) securities and savings bonds (between $4 billion and $17 billion in SLGS securities and less than $1 billion in savings bonds are issued each month); and
• Replace Treasury securities subject to the debt limit with debt issued by the Federal Financing Bank, which is not subject to the limit (up to $8 billion).

And due to higher tax revenues at the start of 2013, we see that interest payments on government debt weren't a problem. In fact, the interest payments as a percentage of tax revenue has been declining since 2013 (Chart 2).

Chart 2: Interest payments as a % of tax revenue

Though, there is one parameter that was not anticipated and that is the effect of higher interest rates and higher mortgage rates.

Read the analysis here.

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Registered gold at COMEX at all time lows

A 30% drop in registered gold at the Brink's vault and a 15% drop in registered gold at Scotia Mocatta marks a huge total drop of more than 200000 ounces of gold at the COMEX.

We are on course for a total sell out in physical gold at the COMEX at the end of the summer. We also see this in the spiking gold lease rates and lower gold forward rates.

It is going to be interesting. What happens when the blue line intersects with zero? Any predictions?

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China Gold Imports Edging Upwards in May 2013

The gold imports in May 2013 were a bit disappointing again, gross imports didn't budge much.

But the net imports surged to 106 tonnes in May 2013, meaning that China kept all the imports from Hong Kong. The ratio of net imports to gross imports is 83%.

But it's still a positive development for the gold market, net imports continue to trend higher.

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Correlation: Mortgage Rates Vs. Mortgage Applications Vs. Pending Home Sales

Just discovered another correlation on Zero Hedge. If mortgage rates go up, lending becomes more difficult, so people stop applying for new mortgages. This means there is a negative correlation between mortgage rates and mortgage applications.

When mortgage applications go down, not a lot of homes will be sold. This means that home sales will go down. As suggested by the following chart, there is a correlation here between mortgage applications and pending home sales.

If it's true that interest rates and mortgage rates will go up, you can bet that we will have another housing crisis. Home sales go down. All those homes will be coming onto the market, while nobody wants them.

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Shanghai Gold Premium Hit Another Record High

Almost each day marks another record high in Shanghai gold premiums to London spot price. We have hit 3% premiums.

They are really gobbling up the gold, that I can say.

Chart 1: Shanghai Gold Premium

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Croatia To Join European Union

Today, Croatia joined the European Union, time to celebrate! But should we really celebrate?

What we took in the European Union is a bunch of problems.

First off, the unemployment rate of Croatia is a staggering 20%, rivalling with Spain and Greece.

Second, its balance of trade is negative and has always posted a trade deficit.

To make matters worse, since 2008, the country was in recession and is still in a recession. Added to this, there is an almost 5% inflation in the country (which has come down to 2% just recently), which makes real GDP decline even more rapidly. As we have seen recently in this correlation, it doesn't bode well for the unemployment rate, which will keep rising.

This decline in GDP quickly added to the government's debt. A positive point is that the government debt to GDP is still at 54%, which is good. But it is worsening. External debt though, is higher at around 90% of GDP.

As debt goes up, the country's bonds had been downgraded to junk status last year. This creates the possibility of a bail out of the country by the IMF once it joins the Eurozone.

What a gift.

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Unemployment Vs. Real GDP

The inverted Unemployment Rate is correlated to Real GDP and is also known as Okun's Law named after Arthur Melvin Okun.

Zero Hedge featured Okun's Law in this article.

Red curve: inverted yoy% change in unemployment rate

Blue curve: yoy% change in real GDP

Never in history has the unemployment rate been so artificially low (red graph artificially high) as today. The red curve has never been higher than the blue curve, which implies that the unemployment rate is much higher than officially reported.

We already know what the cause is: a lot of discouraged and part-time workers.

Moreover, the chart suggests that Real GDP (blue chart) is a leading indicator for the unemployment rate (inverted red chart).

As a final note, notice that we are talking about real GDP, which is inflation adjusted. This means that inflation negatively impacts real GDP and therefore inflation will in turn create higher unemployment rates at a constant GDP rate.

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About Delivery Ratio and Cover Ratio at the COMEX

Interesting article by Jan Skoyles.
http://therealasset.co.uk/comex-2-paper-gold/

The summary says to us that the amount of gold bullion backing COMEX obligations is at an all time low (Cover Ratio). Meaning, there is very little gold backing at the COMEX.

If the delivery ratio (amount of delivered gold against contracts) ever spikes upwards, the COMEX could get under stress. Today, we are still fine, because people aren't really taking delivery as much as they should be.

Also notable is that registered stock is declining at a much faster pace than open interest (which is actually still very high). Such things cannot last, as this huge amount of leverage will blow up one day. You just can't trade contracts at this level without any physical backing of gold.

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PIIGS Bank Deposits Outflow Accelerating

As I noted a month earlier, Spain's bank deposits posted an outflow and this outflow is accelerating for the month of May 2013. This time, Italy is posting outflows too.

Greece, Cyprus are of course still in a decline. I expect bail-ins to come if this trend continues. Europeans should be worried about their deposits.

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Case Study on the Housing Market of Belgium and The Netherlands

With the newly discovered correlation between building permits and housing prices, I wanted to put this correlation into practice more at home. Let's see how The Netherlands is doing. On Chart 1 we see that since 2006, the amount of building permits has dropped and is continuing to drop.

Chart 1: Building Permits in The Netherlands

A similar case is found in Belgium, where we see that the amount of building permits dropped since the top of 2006 (Chart 2). But the decline isn't as bad as in The Netherlands. 

Chart 2: Building Permits Belgium

If we then look at the housing prices in Belgium and The Netherlands we do see a lag. 2006 marked the top in building permits, while 2008 marked the top in the housing market index in The Netherlands. This suggests that the correlation is true. 

In Belgium though, the housing market is still rising, while building permits are declining. So something is not right here. Considering that building permits are dropping in Belgium, I expect that the Belgium housing market will go lower in the future.

Chart 3: Housing market in Belgium and The Netherlands

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Building Permits Vs. Housing Market

The authorization of building permits is a leading indicator for the housing market. As you can see on this chart, the new private housing units authorized by building permits move first, while the house price index moves several months later. 

This way, you can predict the direction of the real estate market. 

On June 2013, the direction of the housing market is clearly upwards.

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Correlation: Lumber Vs. Housing

Apparently the lumber price is a leading indicator and a proxy for the housing market. (Zero Hedge)

If the lumber price goes up, 2 months later, the housing market goes up. The same happens the other way round.

So it's very important to watch the lumber price, which can be found here.
http://www.nasdaq.com/markets/lumber.aspx?timeframe=10y

And even more important, if this correlation is real, then you can just predict the market and earn money by betting on the direction of the market.

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What is Open Interest?

BrotherJohnF explains open interest here:

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The Housing Bubble is Deflating

With the recent surge in the mortgage yields, let's see how the housing market is doing. The two key metrics to look at are mortgage rates and household income. Let's analyze the mortgage rates first.

Historically, there is a high correlation between 30 year U.S. treasuries and 30 year mortgage rates (Chart 1). The chart shows that the 30 year treasury yield has spiked upwards starting in 2013, so I expect that the 30 year mortgage rates will spike upwards too. 30 year mortgage rates have already gone up from 3% to 4.9%, which had negative consequences for the real estate market, which is not priced in yet in the housing index.

Chart 1: Correlation between 30 year treasury yield and 30 year mortgage yield

As Zero Hedge reports, the affordability of housing is declining rapidly with rising mortgage yields. Every percentage increase in yields on 30 year mortgages will result in a 10% decline in affordability as the chart shows. If yields continue to go up to 6%, affordability would have declined about 40% since 2013.

Chart 2: House Purchasing Power

The question is, will mortgage rates go up further? And what about the savings rate of the average citizen?

The answer is that real estate should be sold out of. Kyle Bass for example sold out of three of his real estate holdings: Newcastle Investment Corp (NCT), Hyatt Hotels Corporation (H) and Realogy Holdings Corp. (RLG ) - Real Estate Services.


=> Read it here.

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