The ‘War’ Turns ‘Hot’ in the Middle East

08 January 2020

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price was sold down to its low of the day by around 10:15 a.m. China Standard Time on their Tuesday morning.  It then edged a bit higher in early afternoon trading over there, but was capped and turned a bit lower at the London open.  Then around 9:30 a.m. GMT it began crawl quietly and unevenly higher — and that state of affairs lasted right into the 5:00 p.m. close in New York.

The low and high ticks were reported by the CME Group as $1,557.00 and $1,579.20 in the February contract.

Gold finished the Tuesday session in New York at $1,574.20 spot, up $9.00 from Monday’s close.  Net volume was over-the-moon heavy at a bit over 370,000 contracts  — and there was 67,000 contracts worth of roll-over/switch volume in this precious metal.

The price action in silver was almost the same as it was for gold, except the price action in New York was a bit more lively.

The low and high ticks in silver were recorded as $17.975 and $18.47 in the March contract.

Silver finished the Tuesday trading session in New York at $18.375 spot, up 25.5 cents from its Monday close — and about 15 cents below its Kitco-recorded high of the day.  Net volume was very heavy for the second day in a row at around 107,700 contracts — and there was around 5,200 contracts worth of roll-over/switch volume on top of that.

The platinum price was about eleven dollars or so higher by around 2:45 p.m. CST on their Tuesday afternoon — and it drifted unevenly lower until a few minutes before the 11 a.m. EST Zurich close.  It was back above unchanged by a few minutes after 12 o’clock noon in New York — and then crawled very quietly higher until the market closed at 5:00 p.m. EST.  Platinum finished the Tuesday session at $969 spot, up 7 bucks on the day.

The palladium price crept quietly lower until shortly after 1 p.m. CST on their Tuesday — and its tiny rally going into the Zurich opened got capped and turned lower.  But starting shortly before 11 a.m. CET in Zurich, the price began to head higher.  It was sold down a bit starting at the COMEX open, but that sell-off only lasted until 9 a.m. EST.  It then crawled quietly and mostly evenly higher until the trading day ended at 5:00 p.m. in New York.  Palladium closed at $2,033 spot — and at another new record-high price…but 26 dollars off its Kitco-recorded high tick of the day.

The dollar index closed very late on Monday afternoon in New York at 96.67 — and opened down about 1 basis point once trading commenced around 7:45 p.m. EST on Monday evening, which was 8:45 a.m. China Standard Time on their Tuesday morning.  It dipped to its 96.62 low tick shortly after that — and began to crawl quietly higher from that juncture.  It fell off a bit of a cliff starting around 8:20 a.m. in  London, but began to ‘rally’ anew a few minutes later.  The ‘rally’ became somewhat more intense at that juncture — and the 97.09 high tick was set around 10:45 a.m. in New York.  It crept quietly and unevenly lower from there until the trading day ended at 5:30 p.m. in New York.  The dollar index finished the Tuesday session at 97.0050…up 33 basis points from its close on Monday.

There was certainly no correlation between the currencies and precious metal prices on Tuesday, as both rose together throughout most of the day.

Here’s the Tuesday DXY chart, courtesy of Bloomberg as always.  Click to enlarge.

And here’s the 6-month U.S. dollar index chart, courtesy of the good folks over at the stockcharts.com Internet site.  The delta between its close…96.70…and the close on the DXY chart above, was about 31 basis points on Tuesday.  Click to enlarge as well.

The gold stocks dipped a bit at the 9:30 a.m. open in New York on Tuesday morning — and then really didn’t do much until around 11:15 a.m. EST.  A bit of a rally commenced at that juncture — and their respective highs were printed shortly after 2 p.m.  They dipped from there over the next fifteen minutes, before creeping higher into the 4:00 p.m. close.  The HUI closed up 1.03 percent.

In all respects that counted for anything, the silver equities followed a mostly similar price path as their golden brethren, with their highs coming a few minutes after 2 p.m. in New York as well.  They sold off a bit into the close from there, as Nick Laird’s Intraday Silver Sentiment/Silver 7 Index finished higher up 1.35 percent.  Click to enlarge if necessary.

And here’s Nick’s 1-year Silver Sentiment/Silver 7 Index chart, updated with Tuesday’s doji.  Click to enlarge as well.

I was happy to see the precious metal equities close up on the day, but was somewhat underwhelmed by their performances…especially the silver shares.  The two biggest gainers were Hecla and First Majestic Silver…up 3.02 percent and 2.58 percent respectively.  The biggest loser was Coeur Mining…down 0.58 percent.


The CME Daily Delivery Report showed that 28 gold and 8 silver contracts were posted for delivery within the COMEX-approved depositories on Thursday.

In gold, the three short/issuers were Advantage, JPMorgan and ADM…with 14, 8 and 6 contracts out of their respective client accounts.  Of the five long/stoppers in total, the only two that really mattered were Advantage with 12 for its client account — and Scotia Capital/Scotiabank with 11 for its own account.

In silver, the two short/issuers were JPMorgan and Advantage, with 4 contracts each out of their respective client accounts.  The two long/stoppers were Advantage with 4 contracts for its client account — and Scotia Capital/Scotiabank picked up the other 4 for its own account.

The link to yesterday’s Issuers and Stoppers Report is here.

The CME Preliminary Report for the Tuesday trading session showed that gold open interest in January fell by 181 contracts, leaving just 57 left, minus the 28 contracts mentioned a few short paragraphs ago.  Monday’s Daily Delivery Report showed that 192 gold contracts were actually posted for delivery today, so that means that 192-181=11 more gold contract were just added to January deliveries.  Silver o.i. in in January rose by 11 contracts leaving 16 still open, minus the 8 mentioned a few paragraphs ago.  Monday’s Daily Delivery Report showed that 1 lonely silver contract was actually posted for delivery today, so that means that 11+1=12 more silver contracts were added to January.


There were no reported changes in GLD on Tuesday, but an authorized participant removed 1,214,044 troy ounces of silver from SLV which, I’m sure, JPMorgan owns now.

In other gold and silver ETFs on Planet Earth on Tuesday…minus the goings-on in COMEX, GLD & SLV inventories…there was a net 160,181 troy ounces of gold added — and that’s a lot!  There was a net 92,085 troy ounces of silver added as well.

And nothing from the U.S. Mint.

There was no in/out movement in gold over at the COMEX-approved depositories on the U.S. east coast on Monday.

There was a bit of movement in silver.  One truckload…600,403 troy ounces…was dropped off at Brink’s, Inc. — and that’s all the ‘in’ activity there was.  There was 26,061 troy ounces shipped out…25,061 from CNT — and the remaining good delivery bar…1,000 troy ounces…departed Brink’s, Inc.  The link to that is here.

There was some activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Monday.  They reported receiving 30 of them — and shipped out 1,506.  Of that ‘out’ amount, there were 565 kilobars shipped out of Loomis International — and the remaining 941 departed Brink’s, Inc.  The link to all this is here.


Here are three charts that Nick Laird passed around on Monday that I didn’t have room for in yesterday’s column, so here they are now.  The first one shows the amount of gold that was imported and exported by the U.K. during the month of OctoberDuring that month they imported 175 tonnes — and shipped out 39.2 tonnesClick to enlarge.

These next two charts show the countries and tonnage that they received gold from — and the second shows the countries that received gold and how much each got Click to enlarge for both.

Once again, I have a very decent number of stories for you.


CRITICAL READS

Repo Panic Returns as Fed Injects $99BN in Liquidity, Including First Oversubscribed Term Repo in Three Weeks

And just like that, the repo market is on the fritz once again.

More than two weeks after the last oversubscribed term repo operation on December 16, moments ago the Fed announced that Dealers are once again scrambling for liquidity, submitting $41.12BN in securities ($30.7BN in TSYs, $10.42BN in MBS) into today’s 2-week repo operation, which was oversubscribed hitting the maximum operation limit of $35BN.

Today’s oversubscription was ominous because while the liquidity shortage into year-end was expected, and justified the barrage of term repos ahead of the “turn”, the liquidity shortage was supposed to normalize after the new year. Alas, that appears to not have happened, and today’s submission was the highest since Dec 16.  Click to enlarge.

One reason for today’s repo spike is that as we noted last Friday, this is the first week that sees substantial term repo maturities and liquidity drainage, as follows:

  • $25 billion leaves the market on Monday,
  • $28.8 billion on Tuesday,
  • $18 billion next Friday

But wait there’s more: today’s oversubscribed term repo, coupled with yesterday’s overnight repo surge and this morning’s $63.919BN overnight repo … Click to enlarge.

… means the Fed just injected a total of $99BN to keep the levitation party going, and confirms that the repo market remains paralyzed.

Worse, any attempts to drain liquidity from the repo market, or generally slow down the shrinkage of the balance sheet, will be met with failure. It is also another indication that the repo market now holds the Fed hostage, with Powell now trapped in not only injecting liquidity via QE4, i.e., the monetization of T-Bills, but continued reliance on repos in the $250BN range.

Of course, should the Fed threaten to pull even a bit more liquidity than the market is comfortable sacrificing, and stocks get it. The flip side too: as long as the Fed keeps growing the balance sheet at a rate of about $100 billion per month, the market melt-up will continue.

This important and worthwhile article comes as no surprise to me…or should it you, dear reader.  It put in an appearance on the Zero Hedge website at 9:12 a.m. on Tuesday morning EST — and and I thank Brad Robertson for pointing it out.  Another link to it is hereGregory Mannarino‘s post market close rant for Tuesday is linked here — and it runs for just about 19 minutes.  Gregory’s second post market close commentary is very brief — and worth your while.  It’s linked here — and both of these videos come courtesy of Roy Stephens.


And Again: The Fed Monetizes $4.1 Billion In Debt Sold Just Days Earlier

Over the past week, when looking at the details of the Fed’s ongoing QE4, we showed out (here and here) that the New York Fed was now actively purchasing T-Bills that had been issued just days earlier by the U.S. Treasury. As a reminder, the Fed is prohibited from directly purchasing Treasuries at auction, as that is considered “monetization” and directly funding the U.S. deficit, not to mention is tantamount to “Helicopter Money” and is frowned upon by Congress and established economists. However, insert a brief, 3-days interval between issuance and purchase… and suddenly nobody minds. As we summarized:

for those saying the U.S. may soon unleash helicopter money, and/or MMT, we have some ‘news’: helicopter money is already here, and the Fed is now actively monetizing debt the Treasury sold just days earlier using Dealers as a conduit… a “conduit” which is generously rewarded by the Fed’s market desk with its marked up purchase price. In other words, the Fed is already conducting Helicopter Money (and MMT) in all but name. As shown above, the Fed monetized T-Bills that were issued just three days earlier – and just because it is circumventing the one hurdle that prevents it from directly purchasing securities sold outright by the Treasury, the Fed is providing the Dealers that made this legal debt circle-jerk possible with millions in profits, even as the outcome is identical if merely offset by a few days

So, predictably, fast forward to today when the Fed conducted its latest T-Bill POMO in which, as has been the case since early October, the NY Fed’s market desk purchased the maximum allowed in Bills, some $7.5 billion, out of $25.3 billion in submissions. What was more notable were the actual CUSIPs that were accepted by the Fed for purchase. And here, once again, we find just one particular issue that stuck out…

Why is the highlighted CUSIP notable? Because as we just showed on Friday, the Fed – together with the Primary Dealers – appears to have developed a knack for monetizing, pardon, purchasing in the open market, bonds that were just issued. And sure enough, TY5 was sold just one week ago, on Monday, Dec 30, with the issue settling on Jan 2, just days before today’s POMO, and Dealers taking down $17.8 billion of the total issue — and just a few days later turning around and flipping the Bill back to the Fed in exchange for an unknown markup. Incidentally, today the Fed also purchased $615MM of CUSIP UB3 (which we profiled last Friday), which was also sold on Dec 30, and which the Fed purchased $5.245BN of last Friday, bringing the total purchases of this just issued T-Bill to nearly $6 billion in just three business days.

…confirming once again that the Fed is now in the business of purchasing any and all Bills that have been sold most recently by the Treasury, which is – for all intents and purposes – debt monetization.

Oh, and incidentally the fact that Dealers immediately flip their purchases back to the Fed is also another reason why NOT QE is precisely QE4, because the whole point of either exercise is not to reduce duration as the Fed claims, but to inject liquidity into the system, and whether the Fed does that by flipping coupons or Bills, the result is one and the same.

This news item appeared on the Zero Hedge website at 3:55 p.m. on Tuesday afternoon EST — and another link to it is here.


Stock Exposure Has Exploded at JPMorgan’s Federally-Insured Bank to $2.4 Trillion

Federally-insured banks are not supposed to be making large speculations in the stock market. They are supposed to be using bank deposits to make loans to worthy businesses and consumers to help grow the U.S. economy and keep the United States competitive on the global stage.

But according to the official reports from the federal regulator of national banks, the Office of the Comptroller of the Currency (OCC), since December 31, 2010 the federally-insured bank owned by the monster trading house of JPMorgan Chase (JPMorgan Chase Bank NA) has increased its equity (stock) derivative bets from $337 billion to $2.4 trillion as of its latest report for the quarter ending September 30, 2019. (The data is found in a graph titled “Table 10” in the appendix of each of the quarterly reports published by the OCC.)

During the period that JPMorgan Chase’s positions in stock derivatives have exploded, both its own stock price and the Dow Jones Industrial Average have been on a sharp upward trajectory. (See chart above.)

The $2.4 trillion notional (face amount) of stock derivative exposure that JPMorgan Chase has at its federally-insured bank is a very big revenue producer for the bank. According to the OCC’s report for the quarter ending September 30, 2019, all federally-insured banks in the U.S. which traded equity derivatives made $1.8 billion in revenues, of which JPMorgan accounted for $1.15 billion or 64 percent of all revenues of all banks trading stock derivatives.

Just how many federally-insured banks in the U.S. have the guts to trade stocks or stock derivatives at their taxpayer-backstopped bank? Not that many.

This commentary was posted on the wallstreetonparade.com Internet site on Tuesday sometime — and I found it in a GATA dispatch yesterday evening.  Another link to it is here.


How Money Printing Contributes to America’s Downward Spiral — Bill Bonner

“One does not see malinvestment at the time of money printing. Price increases are delayed and uneven, due to the Cantillon Effect whereby the early receivers of new money are able to purchase goods and services at existing prices. Later receivers or those who do not receive the new money at all suffer higher prices and a reduction in their standards of living. Even then most people do not link higher retail prices with a previous expansion of the money supply.

It would be hard to invent a more effective method for the destruction of modern society.”

– “The Hidden Link Between Fiat Money and the Increasing Appeal of Socialism” by Patrick Barron

The U.S. empire had probably reached its sell-by date by January 2000. Bad money, bad policies, and the Deep State had already sent the empire into a decline.

Then, two disastrous decisions sealed the deal…

The first was George W. Bush’s misbegotten War on Terror. Now in its nineteenth year, the bill has reached $6 trillion so far, with still no plausible victory in sight. As many as 1 million people have died… and Iraq is in shambles…

Now, the ingrates want to kick us out.

But another casualty is never mentioned. Endless, pointless wars damage aggressors as well as their victims.

The latter show the mutilations and scars of war. But the former corrode from the inside out…

This very worthwhile commentary from Bill put in an appearance on the bonnerandpartners.com Internet site on Tuesday morning sometime — and another link to it is here.


Not leaving Iraq!’ Pentagon clarifies ‘poorly worded’ U.S. withdrawal plan sent by ‘mistake

Confusion reigned at the Pentagon after the publication of a letter about withdrawal from Iraq, with the top general describing it as a “mistake” and the defense secretary saying there were no plans for a U.S. pullout.

There’s been no decision to leave Iraq. Period,” Secretary of Defense Mark Esper told reporters at the Pentagon on Monday. He was referring to reports that the head of Combined Joint Task Force Iraq, General William H. Seely III, informed the Iraqi government of preparations to reposition the coalition forces “in due deference to the sovereignty” of Iraq.

Meanwhile, Chairman of the Joint Chiefs of Staff General Mark Milley said that the letter Seely had sent was only a draft and that releasing it was a “mistake.” The Iraqi military confirmed receiving it, however.

Esper would neither confirm nor deny the letter’s authenticity, though U.S. Army public relations officials said earlier it was real. Instead, he reiterated the position staked out earlier by Secretary of State Mike Pompeo, that the Iraqi people “want the U.S. to stay,” and cited the rise in attacks by Iranian “proxy groups.”

U.S. President Donald Trump likewise rejected the withdrawal on Sunday, threatening Iraq with sanctions and saying the U.S. will not leave until the Iraqis “pay us back” for an airbase that he said cost billions of dollars to build.

The resolution is non-binding, but reflects the growing frustration in Baghdad with continued U.S. operations in Iraq long after the official defeat of I.S. was proclaimed.

This rt.com story appeared on their Internet site late on Sunday evening EST — and I thank Larry Galearis for sharing it with us.  Another link to it is here.


Russia Proposes to Secure Iraqi Airspace With S-400 Air Defense

The Ministry of Defense of the Russian Federation has offered Iraq Tuesday the option to purchase the world’s most advanced missile defense system to protect its airspace, reported RIA Novosti.

According to the report, the Iraqi Armed Forces could purchase the Russian S-400 Triumf air defense system, which RIA points out, can “ensure the country’s sovereignty and reliable airspace protection.”

Iraq is a partner of Russia in the field of military-technical cooperation, and the Russian Federation can supply the necessary funds to ensure the sovereignty of the country and reliable protection of airspace, including the supply of S-400 missiles and other components of the air defense system, such as Buk-M3, Tor -M2 — and so on,” said Igor Korotchenko, Russian Defense Ministry’s Public Council member.

For the last several months, Iraq has considered purchasing Russian air defense and missile systems, including the S-400, however, it has been met with fierce pressure from the U.S.

But with a political crisis between the U.S. and Iraq underway, thanks partly to the U.S. assassination of Iran’s Maj. Gen. Qassem Soleimani, Russia could profit as Iraq attempts to decouple from the U.S.

A recent U.S. intelligence assessment indicated that at least 13 countries had expressed interest in purchasing the S-400s.  Saudi Arabia, Qatar, Algeria, Morocco, Egypt, Vietnam, and Iraq have all be in discussions with Russia to purchase the missile defense system in the last several quarters.  Meanwhile, China, India, and Turkey have already signed agreements with Russia.

The S-400s can strike stealth bombers, aircraft, cruise missiles, precision-guided projectiles, and ballistic missiles, some military experts have even said the Russian missile defense system is far superior than the U.S. MIM-104 Patriot.

This story showed up on the Zero Hedge website at 2:35 p.m. EST on Tuesday afternoon — and it comes to us courtesy of Brad Robertson.  Another link to it is here.


Blow-back From The Soleimani Assassination Increases as Iraq Reveals How Trump Tried to Steal Its Oil

Trump said he would ask Iraq to pay for the bases the U.S. has built should the U.S. troops be kicked out of Iraq. The U.S. already has binding legal agreements with Iraq which stipulate that the bases, and all fixed installations the U.S. has built there, are the property of Iraq.

Trump had already asked Iraqi Prime Ministers -twice- if the U.S. could get Iraq’s oil as reward for invading and destroying their country. The requests were rejected. Now we learn that Trump also uses gangster methods to get the oil of Iraq. The talk by the Iraqi Prime Minister Abdul Mahdi happened during the recent parliament session in Iraq (machine translation):

Al-Halbousi, Speaker of the Iraqi Council of Representatives, blocked the speech of Mr. Abdul Mahdi in the scheduled session to discuss the decision to remove American forces from Iraq.

At the beginning of the session, Al-Halbousi left the presidential seat and sat next to Mr. Abdul-Mahdi, after his request to cut off the live broadcast of the session, a public conversation took place between the two parties. The voice of Adel Abdul Mahdi was raised.

Mr. Abdul Mahdi spoke with an angry tone, saying:

The Americans are the ones who destroyed the country and wreaked havoc on it. They are those who refuse to complete building the electrical system and infrastructure projects. They have bargained for the reconstruction of Iraq in exchange for giving up 50% of Iraqi oil imports, so I refused and decided to go to China and concluded an important and strategic agreement with it, and today Trump is trying to cancel this important agreement.”

This commentary from the moonofalabama.org Internet site showed up at 17:40 p.m. UTC, which was 12:40 p.m. EST in Washington.  It comes to us courtesy of Larry Galearis — and another link to it is here.


America is guilty of everything we accuse Iran of doing

Donald Trump drastically escalated the United States’ ongoing conflict with Iran on Thursday night by ordering the assassination of Iran’s General Qassem Soleimani with an airstrike on the Baghdad International Airport. It takes what was arguably already a war (with an economic blockade and regular skirmishes with Iranian proxy forces) to a straight-up shooting war.

Events like this bring out the absolute worst in the American foreign policy community. Many conservative writers and thinkers, including former National Security Adviser John Bolton, the Hudson Institute’s Michael Doran, and Commentary’s Noah Rothman, openly cheered this Putin-style cold-blooded murder of a foreign statesman. Other more supposedly nonpartisan commentators uncritically parroted Trump administration assertions that Iran was planning something bad. Every top Democratic presidential candidate except Bernie Sanders was careful to foreground that Soleimani was a bad guy before condemning the assassination in their initial comments.

The truth is that Soleimani was not all that different from any of about five dozen current and former American politicians and bureaucrats — if anything, he was considerably more restrained about the use of force. Yes, he was involved in a lot of bloody wars — but so was every American president since 2000, and besides half the wars he fought in were started or fueled by the United States. It’s just another instance of America’s gigantic hypocrisy when it comes to war.

Yet even the worst of Soleimani’s record pales in comparison with the most blood-drenched American warmongers. If Soleimani deserves condemnation for arming Iraqi insurgents, then George W. Bush and Dick Cheney deserve 10 times as much for starting the war in the first place. It was a pointless, illegal war of aggression sold on lies that obliterated Iraqi society and killed perhaps half a million people, almost all of them innocent civilians. (Our own Soleimani, General David Petraeus, was connected to the operation of Iraqi torture dungeons and paramilitary death squads during the fight against the insurgency.)

If Soleimani deserves blame for helping Bashar al-Assad brutally defeat Syrian rebels, Henry Kissinger deserves 10 times as much for orchestrating the bombing slaughter of perhaps a quarter million Cambodians and paving the way for the Khmer Rouge genocide that killed 1.7 million people.

This very worthwhile commentary was posted on theweek.com Internet site back on January 3 — and I thank Michael Riedel for bringing it to my attention — and now to yours.  Another link to is here.


Iran Fires “More Than a Dozen” Ballistic Missiles at Two U.S. Airbases in Iraq

Summary:

  • Iran has launched more than a dozen ballistic missiles against multiple bases housing U.S. troops in Iraq, an have threatened “more crushing responses” if Washington carried out further strikes.
  • Initially, nine rockets hit the sprawling Ain al-Asad airbase in the country’s west, the largest of the Iraqi military compounds where foreign troops are based.  The attack came in three waves just after midnight, AFP reported.
  • Iran swiftly claimed responsibility for the attack, with state TV saying it had launched “tens of missiles” on the base.
  • Iranian sources are claiming that the operation has a name: ‘Operation Martyr Suileimani’. Iran’s airforce has reportedly been deployed.
  • Iraqi PMF announced the start of military operation “Overwhelming Response.”
  • No confirmed details on injured/casualties – “working on initial battle damage assessments.” According to social media sources, the Pentagon has said that the Iranian missile attack resulted in casualties among Iraqis only
  • President Trump “has been briefed” is “monitoring the situation closely and consulting with his national security team,” and is preparing to address the nation.
  • The FAA has imposed restrictions for civilian flights over the Persian Gulf.
  • Markets are turmoiling: Safe-haven assets are soaring (bonds, bitcoin, and gold), Oil prices are jumping, and Stocks are getting slammed

Update 13: The FAA has banned all civilian flights over Iran, Iraq, the Persian Gulf, and the Gulf of Oman “due to heightened military activities” and the “potential for miscalculation or misidentification” according to AP.

Update 12: Iran has warned that if there is retaliation for the two waves of attacks they launched their 3rd wave will destroy Dubai and Haifa.

War it is.  This Zero Hedge article was posted on their Internet site at 6:12 p.m. EST on Tuesday evening — and another link to it is here.  Then this ZH story headlined “Trump Tweets “All is Well” After Iran Fires Missiles at Two U.S. Airbases in Iraq”  A somewhat related ZH story is headlined “Chevron Pulls U.S. Oil Workers Out of Iraq” — and that comes courtesy of Brad Robertson.


Record bond defaults as China lifts credit allocation

The trend of rising defaults in China’s domestic bond market will extend its run in the foreseeable future as the allocation of debt becomes more disciplined amid Beijing’s growing tolerance for such episodes.

Bond defaults in China rose to a record 130 billion yuan in 2019 from less than one billion five years ago, according to S&P Global, which said issuers from inland provinces had higher default rates due to weaker operating performances and tight funding conditions.

It said some provinces like Qinghai and Ningxia had registered cumulative default rates of above 10%.

The market’s tolerance for defaults appears to be increasing and defaults will likely continue to rise. But the relaxation of liquidity will mitigate some of the hardship. The economy is slowing but we do see PBOC is trying to relax liquidity conditions, which means they are aware of the refinancing difficulties especially for POEs,” said Joyce Huang, senior director at Lianhe Global.

Indeed, China set the tone for the year ahead by announcing, on January 1, a reduction in the money that banks have to hold in reserve, which releases an estimated 800 billion yuan (US$114.6 billion) into the banking system.

Still, that would not change the direction of this trend with S&P expecting defaults to continue to rise, due to persistently tight liquidity for private companies and increasing divergence in the financial performances between strong and weak state-owned companies and local government finance vehicles.

This news item put in an appearance on the Asia Times website on Tuesday sometime — and I thank Tolling Jennings for pointing it out.  Another link to it is here.


A New Gold Standard: Orderly or Chaotic? — Jim Rickards

Over the past century, monetary systems change about every 30 to 40 years on average. Before 1914, the global monetary system was based on the classical gold standard.

Then in 1945, a new monetary system emerged at Bretton Woods. I was at Bretton Woods this past summer to commemorate its 75th anniversary.

Under that system, the dollar became the global reserve currency, linked to gold at $35 per ounce.

In 1971 Nixon ended the direct convertibility of the dollar to gold. For the first time, the monetary system had no gold backing.

Today, the existing monetary system is nearly 50 years old, so the world is long overdue for a change. Gold should once again play a leading role.

I’ve written and spoken publicly for years about the prospects for a new gold standard. My analysis is straightforward.

International monetary figures have a choice. They can reintroduce gold into the monetary system either on a strict or loose basis (such as a “reference price” in monetary policy decision making).
This can be done as the result of a new monetary conference, a la Bretton Woods. It could be organized by some convening power, probably the U.S. working with China.

Or they can ignore the problem, let a debt crisis materialize (that will play out in interest rates and foreign-exchange markets) and watch gold soar to $14,000 per ounce or higher, not because they wanted it to but because the system is out of control.

This gold-related commentary by Jim, which I have not had time to ready yet, showed up on the daily reckoning.com Internet site on Tuesday sometime — and another link to it is here.


The PHOTOS and the FUNNIES

From Salmon Arm we were off to Revelstoke on August 4, with brief stops in Sicamous and Three Valley Gap.  The first stop was in Sicamous, which is billed as the houseboat capital of Canada — and is also located on one of the arms of Shuswap Lake.  It isn’t a big town, with tourism being its claim to fame in the summer.  The Trans-Canada Highway and main-line CP Rail runs through the place — and has a ‘swinging bridge’ to allow large tall-masted sail boats to pass between Mara and Shuswap Lakes.  The first shot was taken along the channel that leads from one lake to the other — and the last two photos were taken from the bridge over that channel on the Trans-Canada Highway.  I’ll have more shots of this place tomorrow.  Click to enlarge.


The WRAP

It was nice to see the gold price trade a bit higher on Tuesday — and silver’s performance was even better.  Their respective equities closed up on the day, but were rather unenthusiastic about it.

Here are the 6-month charts for all four precious metals, plus copper and WTIC.  Gold is even more overbought — and silver is now in the same boat, but not as extreme.  Palladium has also poked its nose into overbought territory as well.  Copper closed a hair higher, but WTIC closed down a bit on the day.  Click to enlarge.

And as I type this paragraph, the London/Zurich opens are less than a minute away — and it has been quite a night for reasons that you are already more than familiar with by now.  Gold and silver blasted higher, but both were capped and turned sharply lower around 8:35 a.m. China Standard Time on their Wednesday morning.  Those sell-offs lasted until 11 a.m. CST — and then they turned a bit higher until 3 p.m. CST — and they’re headed lower once more.  Gold is up $14.80 at the moment — and silver is up by only 12 cents as London opens.  Platinum ticked a bit higher, but it has been sold quietly and unevenly lower since — and is down a dollar.  Palladium was sold down hard shortly after trading began at 6:00 p.m. in New York on Tuesday evening, with the low tick of the day coming around 9:15 a.m. CST in Shanghai.  But it rallied quickly from there until noon CST — and then traded flat until 2 p.m. over there.  It took off higher at that juncture — and is up 25 bucks as Zurich opens…but off its current $2,083 spot high tick by 25 bucks as well.

Net HFT gold volume is a staggering 312,000 contracts already — and there’s 12,000 contracts worth of roll-over/switch volume in this precious metal.  Net HFT silver volume is ginormous as well at a bit under 69,000 contracts — and there’s 2,032 contracts worth of roll-over/switch volume on top of that.

The dollar index closed very late on Tuesday afternoon in New York at 97.0050 — and opened down about 17 basis points once trading commenced around 7:45 a.m. China Standard Time on their Wednesday morning.  It has been creeping higher since, but took a bit of a header about twenty-five minutes before the London open — and as of 7:45 a.m. GMT in London/8:45 a.m. CET in Zurich, it’s down 11 basis points.


You can rest assured that JPMorgan et al. and the rest of the Big 8 were there to take the short side against all comers in Far East trading.  There’s no sign whatsoever of any serious short covering, but if this ‘war’ heats up even more from here, which it will most certainly do at some point…all bets will be off.  But at the moment, they’re standing their ground.

Yesterday, at the close of COMEX trading, was the cut-off for this Friday’s Commitment of Traders Report — and companion Bank Participation Report. And in most respects its already ‘yesterday’s news’ after the huge price and volumes spikes in both silver and gold futures in Far East trading on their Wednesday.


And as I post today’s column on the website at 4:02 a.m. EST, I see that ‘da boyz’ continue to work gold, silver and platinum lower in price. Gold is now up only $6.80 the ounce — and they have silver back at unchanged as the first hour of London trading ends. Platinum is now down 7 bucks — and palladium, after a brief down/up dip, is still up 24 dollars the ounce as the first hour of Zurich trading draws to a close.

At the rate ‘da boyz’ are going now, they’ll have gold and silver well down on the day long before the COMEX open.

Gross gold volume is somewhere around 368,000 contracts — and minus the current roll-over/switch volume, net HFT gold volume is about 342,500 contracts. Net HFT silver volume is a bit under 74,500 contracts — and there’s about 2,200 contracts worth of roll-over/switch volume in this precious metal.

The dollar index has ‘rallied’ off its 7:52 a.m. GMT London low — and as of 8:45 a.m. in London/9:45 a.m. in Zurich, it’s now back at unchanged on the day.


The game is on — and we are just bystanders.  How this turns out is anyone’s guess — and since we’re only spectators in all of this, the best you can do for your own sanity is blow the froth off a cold one and watch the show.

See you here tomorrow.

Ed