The Week of June 10 2013 in Review -Ongoing Market Manipulation-

Market ManipulationI don't Know anything

Dear PGM Capital Blog readers,

In this weekend blog edition, we want to discuss with you some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of June 10th 2013.:

  • Japan Nikkei 225 Index fell 843.94 points or 6.35 percent
    on Thursday, 
    June 13 2013.
  • Declining COMEX Gold Inventory.
  • Yield of 10-year USA treasury bond rose to a 14-month high of 2.25%
    on Tuesday, June 11, 2013.
  • Physical Gold & Silver demand rose Globally during the last 3 months.

Japan Nikkei 225 Index fell 843.94 points or 6.35 percent on Thursday, June 13 2013.

On Thursday June 13th, Japan’s benchmark, the Nikkei plunged 843.94 points
or 6.35 percent, continuing a period of massive volatility and extending its losses to 20.36% since its May 22 closing high closure of 15,627.26 points to close on a 10-week low of 12,445.38 as can be seen from below chart.

Nikkei-225 1-year chart June 13 2013

After three weeks of roller-coaster trading in stock and currency markets, which brought the Nikkei into bear market territory and have wiped out big chunks of the gains attributed to stimulus and packages of growth-enhancing policies, some questions are arising about Mr. Abe’s bold attempt to nurse Japan’s moribund economy back to health.

-A drop of 20% or more from a previous high is the common definition of a bear market-.

Declining COMEX Gold Inventory

On Monday June 10, a report of KITCO, a Canadian Company that buys and sells precious metals, shows that inventories of gold bars, (eligible as well as registered) held in comodity exchange “COMEX” approved warehouses has been falling this year, and is now at a four-year low, as can be seen from below chart.

Source: Sharelynx

 

The difference between the two classifications “Eligible” and “Registered” Stocks in the COMEX warehouse is important to understand.

  • Registered:
    This is gold (or silver) that is sitting in the COMEX warehouse and that can be used to settle a futures contract.
  • Eligible:
    This is gold (or silver) that has been purchased (and paid for) by a buyer at some point in the past (and for which they are currently paying storage fees) and which is eligible for delivery to the client at any point that the client specifies. It has been assigned to the client, who has the serial numbers of its bars, and cannot be used for delivery.

Essentially, if it’s ‘eligible’ then hands off, and if it’s ‘registered’ it can be sold and delivered.

As can be seen from below chart, gold has been pouring out of the COMEX warehouses since January 2013, and the slide accelerated just before and immediately after the Cyprus bail-in was announced. This can be interpreted that people got nervous by the Cyprus event and wanted to store their gold privately, where they have direct access to it.

Comex Gold Inventory

Souce: Bloomberg

 

Yield of 10-year USA treasury bond rose to a 14-month high on Tuesday, June 11, 2013.

The yield on the 10-year Treasury note has risen to 2.25 percent on Tuesday June 11, an almost 14-month high, from 1.63 percent on May 2 as can be seen from below chart. As investors bet the Fed will begin trimming bond buying. The surge is undermining Bernanke’s unprecedented effort to hold down borrowing costs and combat 7.6 percent unemployment.

1-year chart yield of the 10 year note

Source: Yahoo

In several of our previous blog article we have warned our readers, that the USA bond market currently is in a huge bubble stage that can implode any time.

Due to this many analyst and investment and financial advisors are raising the red flag and warning investors of asset classes that are over valued., which sooner or later will return to normal value.

A return to normal implies a yield of 4 percent or more for U.S. government bonds with a maturity of 10 years. For the yield of the US Treasury bonds to rise to 4 percent, for this to happens the market value of the 10-year note must fall tens of percent’s, this is the main reason why bond investors currently are currently so nervous

Physical Gold & Silver demand rose Globally during the last 3 months.

According to USA Mints, the physical demand for gold & silver coins is currently very strong.  For the 3 months thru June, gold coin sales are 120k oz’s (46%) higher than for the 3 months leading up to the $1900 gold peak in 2011.

The US-Dollar amount of gold coin sales (3-month sum), is $100 million higher than the 2011 gold peak and, looking back, is at the highest level since June 2010.  Below chart shows that January-March sales are $80 million higher than the 3 months leading to the 2011 peak.

Gold coin sales vs 3 month avg

April data for China retail buying of gold, silver & jewelry show record sales.  Even if jewelry accounts for 40% of sales, that leaves US$3 billion of gold & silver sales for the month, which is more than US Mint gold & silver coin sales for the past 12 months.

Below chart shows how gold and silver sales in China has soared since the beginning of this year.

China Retail Gold Sales

According to the World Gold Council, Chinese demand of gold bars and coins grew to 109.5 tons in Q1 2013, which is 2.5x the 5-year quarterly average of 43.8 tons.

In an interview on June 1st 2013, Stephen Leeb PhD, Chairman & Chief Investment Officer of Leeb Capital Management gave his vision on the gold market and his outlook for the price of Gold:

I think the biggest news longer-term for gold and silver investors is China’s recent approval of two ETF products.  This is yet another sign that China is very intent on accumulating as much gold as they possibly can.  You have to view this in conjunction with the fact that gold is down, but you also have to understand that when the market turns, the turn will be dramatic. 

At the same time, I don’t think there is any downside in gold.  But what is very interesting to me, and typical of the Chinese, is that they waited until they knew there was very little downside in gold and silver to start their two ETF’s

Click here to listen to this interview.

We totally agree with the point mentioned by Dr. Stephen Leeb in this interview and want to stress once more that Gold and Silver are real money, with their respective currency code XAU and XAG. The question most people should ask themselves is the following:

When the push comes to shove, which currency would you prefer to have in your pocket; a fiat currency with no intrinsic value and backed by nothing or pure Gold and -Silver with an intrinsic value determined by the market?

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Gold, Silver and other precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek

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