Wednesday, June 12, 2013

JP Morgan's Gold at COMEX Vault Continues to Decline

JP Morgan's gold stored in their COMEX vault is down to 550k ounces.  This is a record low and apparently less than the 620,800 ounces needed to satisfy all customer delivery notices currently outstanding against JP Morgan.

Gold bugs are alight.  Is JP Morgan going to default on their contracts to deliver physical?  Where is JP Morgan going to get the the bullion?

Not to be lost in the paper/physical implications of this report, JP Morgan is 80% of the COMEX market in gold derivatives!  Wow!  How can anyone have confidence that paper gold on the COMEX is an efficient market?  Why would anyone play JPM's game.

India's Actions to Stop Gold Imports: more duties and limiting financing

This article describes how India has increased the import duty on gold from 6% to 8%.  It is the second time in six months that India has increase the import duty.  The article also states that according to the World Gold Council, India could import as much as 400 tonnes of gold in the first three months of the current financial, a 200% annual increase.  

World gold production is about 2,700 tonnes annually and 2,100 tonnes excluding Russia and China.  China and Russia reportedly do not export any of their domestic gold production.  India does not produce a material amount of gold.  400 tonnes in three months is about 75% of annual world production, excluding China and Russia.  One might reasonably expect India's increased demand to elevate gold prices.

India seems desperate to prevent an alternative to fiat currency.  In addition to increasing the duty on gold imports, the Reserve Bank of India (RBI) has "reiterated its strong resolve to contain the import of gold, by banning advances for the purchase of gold of any kind and reducing the limit up to which loans can be disbursed."

Tuesday, June 11, 2013

US Mint Sales of Gold and Silver Coins Slow From April

Sales of gold Eagle and Buffalo coins by the US Mint were 82,500 ounces in May, compared to 246,500 ounces in April and 62,500 ounces in May 2012.  As of May, year to date gold sales are a record 716,500 ounces and up 106% from 2012.

Sales of silver Eagles by the US Mint were 3,458,500 in May, compared to 4,087,000 ounces in April and 2,875,000 in May 2012.  Year to date silver sales are a record 21,768,500 ounces and up 50% from 2012.

Gold and silver sales in May were significantly below April.  Toward the end of April the US Mint announced that they were stocked out of 1/10 ounce gold eagles which is their most popular gold coin.  Also during April and May many internet coin dealers announced shipment delays as they could not quickly replenish their inventory from the US Mint.  This suggests that supply by the US Mint constrained sales in May, while demand remained high.  

The US Mint also seems to have raised prices for direct or retail business.  Currently an uncirculated one ounce gold eagle is $1,725 from the US Mint website.  This is a $345 or 25% premium to the current spot price of about $1,380.  A quick review of 3 internet coin dealer shows that they are currently selling gold eagles for $1,435 or a premium of $55 over spot.  Dealer pricing from the US Mint for one ounce gold eagles is 3% over spot, which is currently $41.  So the dealers are currently asking a $14 per coin margin over their cost.  A couple of months ago I did an analysis that showed dealers were charging a margin of about $30 per 1 ounce gold eagle.

When the US Mint started shipping 1/10 ounce gold eagles again in mid-May I saw several articles about how the pricing showed that physical gold was really valued at $1950 per ounce.  The US Mint price for 1/10 eagles was (and still is) $195 per coin and the spot price of paper gold at the time was below $1,400.  This assertion missed the fact that the 1/10 eagles for sale by the US Mint for $195 are proofs.  I am learning about coin collecting.  Proofs certainly carry a much larger premium over melt value than circulated, and even uncirculated coins.  The internet coin dealers currently have uncirculated 1/10 eagles for sale in the $160 per coin range, while higher quality pressing go for up to $200 per coin.  Already in June the US Mint reports sales of 45,000 1/10 gold eagles, so their pricing is not out of line.

The internet coin dealers are now quoting US eagles for immediate delivery, so they seem to have re-stocked their inventory.  I have not heard of any shipment delays or stock outs from the US mint, so they seem to have caught up with wholesale demand, as well.  The real action is in India, Dubai, and China, where demand seems to still be outstripping supply and historically high premiums to melt continue to be reported.

Monday, June 10, 2013

Rik Green's Investors Forum Growth Portfolio down 4.3% in May

Let's quantify the damage.  I have not been looking forward to this.  I have not been putting it off, honest.  We just returned from a week long vacation to the Grand Canyon, Bryce, and Zion National Parks.  It was a great trip.  No time spent thinking about commodity market manipulation and governmental internet surveillance. 

RG's growth portfolio <Port-faux-lio> lost 4.3% in May and the S&P500 gained 2.0%.  CVX was up 0.6% while GG, PSLV, PHYS, and CEF continue to suffer from the precious metals smack down.  PSLV was down 8.7% and PHYS and CEF were down about 6.5%.  GG lost only 1.6% during May.  Gold and Silver finished May down 6.0% at $1,388 and at $22.27 down 8.5%, respectively.  It seems that the precious metal mining stocks gained some valuation multiple expansion in May because GG was down only 1.6% while gold was down 6.0%.

Year to date the port-faux-lio is down 9.2% and the S&P 500 is up 14.3%.  CVX daily closing price hit an all time high of $126.43 during May.   On May 14th the port-faux-lio traded some CVX shares for CDE and SLW.  At the end of May this trade saved 1% or $275.  CDE and SLW are almost flat to the May 14th acquisition price and CVX is down about 1% since then.