Rik Green's Investors Forum Growth Portfolio down 1% in October, 12% YTD

Rik Green's growth portfolio <Port-faux-lio> lost 1.2% in October while the S&P500 gained 4.5%.  CVX which is 38% of the portfolio's value was down 1% and GG which is 22% of the value dropped 2% during the month.  Gold was flat and silver gained 1% and 8%.  PSLV, PHYS, CEF, CDE, and AUY all moved about the same as their underlying precious metal.  SLW was down 8% which is odd because silver was up 1%.  

Year to date the port-faux-lio is down 12.3% and the S&P 500 is up 23.2%.  Gold and silver ended October at $1,323 and $21.91, respectively which is down 21% and 28% year to date.

In mid-May and August the port-faux-lio traded some CVX shares for more gold and silver related investments.  The trade does not looks so good right now as CVX is currently about flat with its sale price, but SLW, CDE, AUY, and PHYS are down.  This is a good time to triple down, because CVX is still over $120 per share and the precious metals are beaten down.

US Mint Sales of Gold Coins Recovered in October. Silver Sales Steady.

Sales of gold Eagle and Buffalo coins by the US Mint were 66,500 ounces in October, compared to 23,000 in September and 21,500 in August.  October gold sales were 5% less than in October last year.  As of October, year to date gold sales are 970,500 ounces which is 50% more than in 2012 and 7% less than in 2011.  The US Mint reported October sales of 18,000 gold Buffalo coins and 48,500 ounces of gold Eagle coins.

Sales of silver Eagles by the US Mint were 3,087,000 in October, compared to 3,013,000 ounces in September.  October sales were slightly higher than September which was the lowest month of this year.  Sales in October were 2% less than in October 2012.  Year to date silver Eagle sales are a record 39,175,000 ounces which is 39% more than 2012 and 7% more than in 2011.  Silver is on track for a record year.

source: http://www.usmint.gov/about_the_mint/index.cfm?action=PreciousMetals&type=bullion

The US Mint maintained the retail price for an uncirculated Gold Eagle at $1,625 during October.  An uncirculated silver Eagle retails for $43.95 which is unchanged from July, August, and September.

A quick survey of 3 internet coin dealers currently shows premiums of about $3.00 to $4.50 for silver Eagles.  This is a wide spread.  Dealer prices are usually closer.   The premium for gold Eagles is about $65.  The premium for gold and silver Eagles is about the same as last month.  These price premiums are based on purchasing one coin.  All dealers offer volume discounts for larger purchases.  Spot gold and silver market prices are currently $1,320 and $21.84, respectively.

Coin dealers are currently offering to pay about $25 and $1.75 over spot to purchase gold and silver Eagles, respectively.  This seems reasonable because the US Mint charges dealers 3% for gold and $2.00 per coin for silver.  Dealer purchase premiums are not hinting at supply constraints as they were in April and May.

Gold Price Manipulation Receiving More Press

Last Friday gold prices were smacked-down on the COMEX by a huge sell order.  More details are posted here: http://rikgreeninvestorforum.blogspot.com/2013/10/2-million-ounces-of-paper-gold-were.html

The blog-o-sphere from Peter Schiff to Zerohedge was ablaze with commentary about the smack-down.

Gold price manipulation reporting has now gone mainstream as non other than CNBC reported on Friday's market action.  CNBC articles quoted traders.  

"There is only one conclusion that seems logical regarding Friday's gold trade and the one from a month ago, and that's that they were designed to manipulate prices," http://www.cnbc.com/id/101110403
"So huge, in fact, that the trade's impact was felt across the commodity market. Silver and platinum were hit at about the same time, and even crude oil appears to have been affected."http://www.cnbc.com/id/101106134

CNBC reporting does not quite put it all together.  Despite reporting on price manipulation they ignore it when discussing gold price action and forecasts.  For example, here is a CNBC video segment where they rationalize short term gold prices with fundamentals ignoring even the possibility of manipulation.    

If gold can't rally now, when can it?Why can't gold rally? D.C. concerns do not help gold, as it shrugs off the Yellen nomination. Gold's next move, with CNBC's Jackie DeAngelis and the Futures Now Traders.  http://www.cnbc.com/id/101106134

Gold will rally when futures contract holders demand delivery of physical gold in excess of what the COMEX can deliver.  The COMEX will be forced to cash settle revealing the dearth of physical supply.  When the COMEX cupboards are shown to be bare gold investors in GLD will doubt that GLD has physical because GLD's authorized participants are the same banks that run the COMEX.  This doubt will create a run on GLD.  

The run on GLD many have already started.  According to hedge fund manager William Kaye in a King World News interview ". . . when it comes to the ETF GLD, you need about $13 million worth, or 100,000 shares, if you want to redeem the shares for physical gold.  We have a number of our sources who have told us directly that JP Morgan and some of the other bullion banks are in fact turning down investors with 100,000 shares who have asked to redeem those shares for physical gold." http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/15_The_West_Is_Now_In_The_Process_Of_Destroying_Itself.html

2 million ounces of paper gold were dumped on the COMEX in 4 minutes last Friday morning driving the price down $30.
http://www.zerohedge.com/news/2013-10-11/massive-sell-order-takes-out-gold-bidstack-sends-metal-three-month-lows

2 million ounces is about 62 tons.  The COMEX currently has only 22 tons of registered gold in its warehouses that is available to settle futures contracts, which are often referred to as paper gold.  Total gold in COMEX inventory is 215 tons which includes eligible gold, which is owned by the banks' customers.  Eligible bullion is in the proper form to be registered if the owner decides to reclassify it as registered.  The owners could also decide to move their bullion out of COMEX warehouses.

This sudden, large sale of paper gold triggered 'stop loss logic' that halted trading for 20 seconds.  The COMEX has circuit breakers that temporarily halt trading if it becomes too volatile.  20 seconds is a long time is today computer algorithm driven markets.
http://www.zerohedge.com/news/2013-10-11/stop-logic-gold-slam-was-so-furious-it-shut-down-cme-trading-again

As discussed in previous posts, large sudden sales are a sure sign of market manipulation because no rational seller would depress prices while unloading their investment.  A rational seller would sell their position over time, which in this high volume market could be just several hours.

Price suppression like this presents buying opportunities.  But, it will take a while for gold bulls to lose their fear of future price smack-downs in their quest to time a market bottom.  Once gold starts to appreciate, it will really take off.  The fear being left behind will overcome the fear of another, more favorable buying opportunity.  Gold prices have a long history of sudden, dramatic appreciation.  And, gold ownership has never been more leveraged than today.

COMEX Gold has 48 Owners per Ounce, Jesse

Analysis of open interest and warehouse inventory on the COMEX for gold and silver: http://jessescrossroadscafe.blogspot.com/2013/10/owners-per-ounce-of-silver-and-gold-at.html

Conclusion:
Each ounce of registered silver in COMEX inventory has 13 owners.
Each ounce of registered gold in COMEX inventory has 48 owners.

Background:
The COMEX has entered contracts with various buyer and sellers of gold and silver.  In summary these contracts exchange metal at a future date for cash now.  The total of all ounces that are under contract is called 'open interest.'  If all contract holders were to demand physical deliver or settlement when their contract expires, the COMEX would currently need 48 times as much physical gold to avoid a delivery default.  This would be similar to a run on a bank.  Banks do not have all their depositors cash on hand.  And, if all depositors insisted on withdrawing their cash at the same time the bank would be caught short.

As you can see from the charts in Jesse's post, historically the COMEX has kept only a fraction of physical metal in inventory to support multiples of contracts.  Currently gold's ratio of 48 is extremely high.

Contract holders typically settle for cash because they do not want to store the physical metal and they probably need cash to pay margin debt that they took on to invest in COMEX contracts in the first place.  With 48 owners per ounce, if more than 2.1% of contract holders stand for physical delivery the COMEX will delivery default.

In a delivery default the COMEX can force the contract holder to accept cash for settlement.   It is not clear what price per ounce would be used to cash settle.  http://rikgreeninvestorforum.blogspot.com/2013/10/comex-contracts-allow-for-forced-cash.html   A delivery default would likely send the price of physical gold sky-rocketing.  I suspect that the COMEX would cash settle at a pre-lift-off price.

Central Banks Buying Gold now while Prices are Low

OK, maybe Ben himself does not understand gold prices day to day.  He is not hands-on with the bullion banks' manipulation of the gold and silver markets.  The banks are implementing his strategy.  He does not know how.  Clearly, he and other central bankers are acquiring gold because they find it under valued long term.

Ben S. Bernanke, the world’s most-powerful central banker, says he doesn’t understand gold prices. If his peers had paid attention, they might have stopped expanding reserves that lost $545 billion in value since bullion peaked in 2011.

Central banks, which own 18 percent of all the gold ever mined, will add as much as 350 tons valued at about $15 billion this year, the London-based World Gold Council estimates. They purchased 535 tons in 2012, the most since 1964.http://www.bloomberg.com/news/2013-10-06/gold-befuddles-bernanke-as-central-banks-losses-at-545-billion.html

Fraud at Commodity Exchanges - International Edition

Fraud seems to be standard operating procedure at commodity exchanges around the world.  First let's go to England where the London Metal Exchange (LME) is "under fire"

"Without doubt, the main focus of most market participants will be the London Metal Exchange’s review of its under-fire warehousing system. . . . . Together with several warehouse owners, the exchange is at the sharp end of regulatory scrutiny and legal action for long wait times to deliver physical metal."http://www.ft.com/intl/cms/s/0/33684eb0-2ec5-11e3-be22-00144feab7de.html#axzz2h390mI7r

Moving on to India.  The National Spot Exchange Limited (NSEL) is under investigation by the Economic Offences Wing (EOW) of the Mumbai Police

". . . it emerged that clients of the brokers had been allowed to take out unregulated longer-term forward contracts, rather than spot contracts in commodities such as sugar and wheat, the type of physical trade that the bourse was established to handle. As a result, questions arose over whether there was actual delivery of the commodities that were being traded."  http://www.ft.com/intl/cms/s/0/e2b9ef74-08c1-11e3-ad07-00144feabdc0.html#axzz2h390mI7r

 "Sinha, who is leading the EOW probe, admitted that in scale this was the largest he had handled so far. He added his prime objective was monetisation of the assets and tracing the money trail. But, he declined to dwell on the progress the probe had made on these fronts. The investigations so far by the Mumbai EoW have led them to offices and warehouses in 52 cities across 16 states and were conducted by 210 officers and 260 men."  http://economictimes.indiatimes.com/markets/stocks/market-news/some-nsel-brokers-may-face-criminal-charges-says-economic-offence-wing/articleshow/23617510.cms

"During the raids, it has emerged that 30 of the about 60 warehouses our teams raided were found to be empty. This indicates that certain traders allegedly connived with the NSEL officials and did not deposit physical stocks in the warehouses for money they received from the investors," the official told PTI.

"Another shocking thing is that four warehouses did not even exist, though they appear on documents seized from the NSEL and others," the official added.http://economictimes.indiatimes.com/markets/stocks/market-news/Economic-Offences-Wing-finds-half-of-NSEL-warehouses-empty/articleshow/23533792.cms

Gold and silver bullion e-series contracts caught up in NSEL investigation:

"MUMBAI: Bombay High Court today said it would pass order on October 7 on whether the settlement of e-series bullion contracts at the troubled National Spot Exchange Ltd (NSEL) should be aggregated with that of the paired contracts being overseen by the Forward Markets Commission."

"NSEL counsel said e-series bullion contracts involved 800 kgs of gold and 43 million tonnes of silver, estimated to be worth Rs 525 crores."
http://economictimes.indiatimes.com/markets/stocks/market-news/high-court-to-give-ruling-on-nsel-bullion-settlement-on-october-7/articleshow/23532733.cms?intenttarget=no

43 million tonnes of silver must be a miss print.  For comparison, silver open interest on the COMEX is about 18,000 tonnes.  Gold trading is probably minimal give recent severe government restrictions on gold importation.  

In the US, fraud is more sophisticated, as this example exposed by the NT Times shows:

"The Commodity Futures Trading Commission has issued subpoenas to Goldman and owners of other major warehouses as part of its inquiry into irregularities in the aluminum market that are believed to have cost consumers billions of dollars since 2010.""The subpoenas seek all internal documents, e-mails, correspondence, voice recordings and other records concerning the warehouse operations dating back to January 2010, according to two people familiar with the documents. The subpoenas also demand documents and correspondence regarding the London Metals Exchange, a private trade association that regulates warehousing. The subpoenas indicate that the federal inquiry has 30 “areas of interest.”"http://www.nytimes.com/2013/08/13/business/us-subpoenas-goldman-in-inquiry-of-aluminum-warehouses.html

Interestingly, a couple months ago JP Morgan announced that its commodity business is for sale.  The risk of fines must outweigh the profits.  http://online.wsj.com/article/SB10001424127887323608504579022852576701892.html