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What author of Antifragile has not told about Precious Metals

27 Jul

Taleb does not say this in his book, but precious metals are both antifragile and robust or unchangeable in nature. Normally, the price of precious metals would have risen alongside the increase in the money supply.

The concept of antifragility comes from NaseemTaleb’s book Antifragile. In it, he describes things and processes that thrive on mistakes and volatility.

Basically, an antifragilesystem is one where error and/or risk is allowed, encouraged and leads to improvement overall.

Fragile versus robust

A fragile system is one that is artificially controlled, like a modern forest fire, for example. Such control ultimately leaves the system much more vulnerable to disaster.

Another example is the financial system in the age of constant bailouts and too big to fail companies. Add to this the absence of moral hazards, and the resulting extreme misallocation of capital and risk has resulted in apersistent disconnect between price and fundamentals.

On the other hand, a robust system is one that is essentially stable over long periods of time. An example would be the long term purchasing power of precious metals across all paper currencies.

Paper legal tender is fragile

Perhaps the ultimate fragility is an intrinsically worthless paper legal tender maintained by force and the control over the commodity futures markets by allowing sellers to pay for their trading losses in paper instead of real goods.

Paper currencies have value that is only based on debt and a country’s ability and willingness to repay it. Unfortunately, the debt can only be serviced by printing new paper currency, which then results in more debt.

Crises of confidence are the ultimate emotionally driven events, and a severe U.S. Dollar crisis could wipe out an entire investment class practically overnight.

Antifragile applied to precious metals

Taleb does not say this in his book, but precious metals are both antifragile and robust or unchangeable in nature. Normally, the price of precious metals would have risen alongside the increase in the money supply.

Nevertheless, the more intervention occurred, the worse the volatility observed as price swings increased. More volatility increased emotion and investor interest, thereby leading to greater liquidity and ultimately demand.

This is a sign of failure — as quiet desperation protects the fragile U.S. Dollar based fiat currency system.

Furthermore, precious metals are antifragile because market control and mispricing alongside rampant money creation results in bad money chasing out the good, a la Gresham’s law.

The more their prices areartificially suppressed— overtly through propaganda and covertly through price controls — the stronger the case for holding precious metals becomes.

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Gold slips as India raises import duty

6 Jun

Gold edged to below USD 1,400 an ounce on Thursday as India, the world’s biggest bullion consumer, raised import duty on the metal by a third to reduce its current account deficit.

Fundamentals

Spot gold had dropped 0.25 percent to USD 1,399.36 an ounce by 0016 GMT, after gaining slightly on Wednesday as investors looked for safer assets after a private US jobs reading fell short of expectations.

US gold rose slightly to USD 1,399.10.

US private employers added 135,000 jobs in May, falling short of economists’ expectations, a report by a payrolls processor showed on Wednesday, curbing fears the Federal Reserve would soon cut its monetary stimulus.

India increased import duty on gold by a third to eight percent as the government seeks to halt a surge in demand after gold imports hit 162 tonnes in May – twice the monthly average of 2011 when they reached a record.

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The increase in import duty comes a day after the Indian central bank acted to force domestic jewellers to buy only on a cash basis.

China’s gold imports unexpectedly tumbled in April from record levels on supply constraints as demand surged after global prices hit two-year lows, although a recovery is likely in May.

The appetite for US American Eagle gold and silver bullion coins is still at unprecedentedly high levels almost two months after a historic sell-off in gold unleashed years of pent-up demand from retail investors, the head of the US Mint said on Wednesday.

Silver and Gold – the imploding bubble

3 Jun

The gap between fundamentals and pricing continues to widen as value investors awaken to the speculative potential of silver. Instead of irrational euphoria and widespread participation, there was irrational despair in the form of generally poor sentiment from the outside looking in.

Recent trading in silver and gold has shown the inverse of patterns consistent with a speculative frenzy.

Instead of retail investors buying into a rising market, steady and massive accumulation has been noted on dips.

This was happening long before the April crash in precious metal prices. This is the strongest form of accumulation, because it is mostly free from emotion.

No Fear or Greed, Just Buying

The emotional nature of the market is unusually strong. No panic selling out of fear arose. Instead, the price takedown in the paper futures market was blatant and commonplace.

No greed factor was noted, as buyers continue to come into the physical market at the lower prices, despite relatively high premiums for buying physical metals.

The gap between fundamentals and pricing continues to widen as value investors awaken to the speculative potential of silver. Instead of irrational euphoria and widespread participation, there was irrational despair in the form of generally poor sentiment from the outside looking in.

Again, those who accumulate at this stage are the strongest hands, made up of users and value or contrarian investors who see through the enormous facade of the paper silver market with mostly dispassionate eyes.

These investors are a testament to silver’s tendency to remain a monetary asset, a fact that continues to worry central bankers.

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Is the CME Fueling its Own Demise?

The CME and its big commercial traders have been cheating the rest of the market in the name of liquidity.

In a real blowout, most of the selling happens in a frenzy at the bottom. The lower the price goes, the more metal will become available as the weak hands panic. The problem with this is that the weak hands just do not have any physicalto sell, as the strong hands stand ready to buy it up.

Some physical buyers will unload some or all of their holdings, but most long term precious metal investors will see the latest sell off charade for what it is: just another opportunity to add to their positions.

All of the reasons they bought these metals to begin with continue to be confirmed. The only real danger to the fundamentals (and the situation is probably past the point of repair in that regard) are fiscal changes that negate the necessity of money printing. This is highly unlikely to happen in the present situation.

For the first few years of Quantitative Easing, one could perhaps have argued that the money stayed locked up in the banking system. Now the huge amount of money being created is being spent on food stamps and the like, feeding right into the economy.

The result is a decoupling at the very least, in the absence of an outright currency collapse.

Maintain Two Markets

Two markets now seem to be operating, and the pricing difference between them may ultimately widen considerably. One is the paper futures market for the traders, while the other is the physical market for the users and retail investors.

Could this paper-physical price divergence happen without the imposition of capital controls, the banning of silver and gold ownership or other forms of confiscation?

Well, it is already happening. The big futures market players have been orchestrating the most egregious, uneconomic, selling cascades at will almost daily in front of everyone without any obligation to deliver physical metal, but no one seems to care.

This has brought the paper futures market just a flap of the proverbial butterfly’s wings away from default and panic. Controls imposed in the midst of such a crisis would only serve to further inflame the panic. A black market would develop immediately.

Just think of all the investors who bought their metal with cash, or who otherwise went undetected. It would be a nightmare going after these people to take away their metal. The relatively small silver market would be only be $500 billion in sizeeven at a price of $500 per ounce if silver inflated by more than a factor of ten.

To put this in perspective, that vastly inflated silver market would still be far less in size than the annual Federal budget deficit and is not even as large as the big bailout from 2008.

The Key is Dealers and Producers

Producers must be willing to hold back their stocks to see the prices really start to rally.
Miners are the last holdout, and they have largely remained silent about the manipulation of their product, at the expense of their shareholders.

Perhaps they are bought and paid for by the very banks that provide their cash flow accounts and financing, since it is these same banks that also profit from the ongoing price suppression.

Ultimately, these big dealers and their purported non-for-profit customers will have to pay higher prices to cover their massive shorts.

What would move Gold, Silver today

30 May

Two key data releases are awaited for the day and yes, it is from US. Both releases—US GDP QoQ and initial jobless claims—are scheduled for around 07.00 PM IST.

The US GDP is forecast to have grown by 2.5% in the first quarter of this year (January-March). If the reading turns out to be a positive surprise i.e. to the upside, it would strengthen US Dollar and thereby weaken bullion prices.

The other data release scheduled for the evening for 7.00 PM IST is US Initial Jobless Claims. The data measures the number of people who have applied for unemployment insurance for the first time during the past week.

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If the data released exceeds the forecast of 3,40,000 in numbers, then it would give a fillip to dollar and weaken the precious metals gold and silver.

Besides, the data would also be tracked by US Federal Reserve’s FOMC (Federal Open Market Committee) as the debate on whether or not to continue with QE measures rages on.

The FOMC, responsible for initiating Quantitative Easing measures that involves bond-buying to the tune of $85 billion a month, has tethered the termination of the program to job market recovery and healthy inflation.

Both gold and silver have been plagued by correction and are entrapped in a stalemate condition ever since news arrived that George Soros has liquidated his holdings in SPDR Gold Trust, world’s biggest ETF of gold. While physical demand of gold has picked up recently, it has failed to buoy prices beyond a point.

“Physical buyers have helped to limit declines but they have also become more price-sensitive and tend to stay on the sidelines near $1,400,” said Yang Shandan, a senior trader at Cinda Futures Co., in China to Bloomberg.

Total holdings in ETPs have dipped to the lowest level since June 2011, shrinking by 5.4 percent this month, according to data compiled by Bloomberg.

Barclays notes:

“Market sentiment remains negative towards gold with non-commercial Comex gold positions at their lowest since December 2008 and ETP outflows showing little sign of slowing down. Net redemptions have hit 94 tons in May thus far (as of Saturday), and once again negative interest is skewed towards the US listed products, with GLD down 58 tons and at its lowest since February 2009.

On a regional basis, US listed products have suffered the largest outflows of 341 tons for the year to date, followed by UK primary listed products at 48 tons and the Swiss listed products at 47 tons. Metal held in trust across the 55 physically backed products we track are now at their lowest since July 2011 with year-to-date outflows of 443 tons, almost the equivalent of the net inflows over the past two years (476 tons).”

Gold on the Comex for delivery on August 13 was seen trading at $1,394.25/oz, a gain of $2.45 or 0.18% as of 10.39 AM IST. Silver on the Comex for delivery on July 13 was seen trading at $22.433/oz, a loss of $0.020 or 0.09%.

Commodity Sources

Silver prices today: Updates on Silver rates in India

29 May

Spot silver prices of 999 purity were trading weak in major metros of India. However, silver prices on MCX were trading slightly higher.

At 14:50 hrs MCX Silver July contract was trading at Rs 43352 up Rs 90, or 0.21 percent. The Silver rate touched an intraday high of Rs 43468 and an intraday low of Rs 43126. So far 12100 contracts have been traded. Silver prices have moved down Rs 21658, or 33.31 percent in the July series so far.

Mumbai

Spot silver 999 prices shed by Rs 145 at Rs 45000 per one kilogram.

Ahmedabad

Spot silver 999 prices fell by Rs 85 at Rs 43750 per one kilogram.

Chennai

Spot silver 999 prices advanced by Rs 200 at Rs 43900 per one kilogram.

Delhi

Spot silver 999 prices were down by Rs 60 at Rs 43940 per one kilogram.

Jaipur

Spot silver 999 prices slipped by Rs 100 at Rs 43800 per one kilogram.

 

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Moving out of the Dollar into Gold and Silver

27 May

Remember, only fifteen or so primary silver mines remain after decades of artificially low prices created by what, in effect, was a massive lobby to off load cheap silver into the market and the use of paper futures contracts that can be easily manipulated by money printers to maintain low commodity prices.

By Dr. Jeffrey Lewis
In terms of silver’s investment demand, the bullish metric at Sentimenttrader.com is currently at 39 percent. This is a low point that has not been seen since the mid-1990’s.

Furthermore, The Hulbert Gold Stock Newsletter Index or HGNSI recently fell to a new low of 43.8 percent, which is a record by a long shot. What that low reading indicates is that, of the stock newsletters that include coverage of mining stocks, 43.8 percent of them are now recommending short positions in gold stocks.

If these indicators are not yet signaling a bottom in precious metal prices, it really has to be close.

These lows are further exacerbated by undervalued market prices that are pushing suppliers of precious metals to sell their stocks below the current cost of production, there by resulting in further destruction of an already devastated mining sector.

Remember, only fifteen or so primary silver mines remain after decades of artificially low prices created by what, in effect, was a massive lobby to off load cheap silver into the market and the use of paper futures contracts that can be easily manipulated by money printers to maintain low commodity prices.

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The macro confidence picture

Confidence dipped considerably in the wake of the MF Global disaster, Peregrine Financial bankruptcy, and the LIBOR scandal. Confidence in the Obama administration is now also challenged by recent controversies, such as the IRS’s added tax scrutiny for conservative groups and the Justice Department obtaining several months of phone records for Associated Press journalists.

Failing institutional confidence often leads to political turmoil, which in turn can spark up the hyper inflationary tinder box. Exceptionally loose monetary policy is the set up for this scenario, but a political crisis will probably trigger the loss in confidence that will set inflation alight.

Despite a notable preference among the mainstream investing public for looking the other way, rather than facing such coming financial disasters head on, confidence in financial institutions is slowly being chipped away at by the inconvenient reality of what a fractional reserve banking really means for the security of one’s wealth.

This worrying backdrop is further exacerbated by the present state of currency warfare, as countries print money to debase their paper currencies, as well as by regular scandals and what appears to be a false equity rally based on little more than thin air.

Moving out of the Dollar into Gold and Silver

A trend has been established toward major countries like China off-loading huge dollar-denominated foreign exchange reserves. Few people know much about this because no official announcement has come out since 2009, although China has very likely accumulated a large quantity of gold.

Also,China has been a net importer of silver for a few years now, which was a major turn of events. It now seems safe to say that the BRICS are attempting to buy whatever hard assets they can with the substantial amount of intrinsically worthless U.S. Dollars they have accumulated without upsetting the commodities market and/or fomenting a political crisis. Nevertheless, recent tensions between Japan and China seem like a classic example of how this could be unavoidable.

Also, the united States have been, and will likely continue to be, very protective of their own industries. This coddling of U.S. businesses partly involves incubating and protecting them with tariffs, but this artificial life support is also being done to prevent the virtually inevitable flood of paper Dollars from returning home.

In other words, it would not be welcome for China to start purchasing large portions of major U.S. producers or even buying them outright. Of course, you can be quite sure that the Chinese are doing that just about everywhere else, including buying companies located in Australia, Africa, South America and the Middle East.

What’s fascinating about this process is that the Chinese have been setting up swap or currency trade agreements whenever they go shopping for assets among the places mentioned above. This seems like the real fly in the ointment, largely because it is the U.S. Dollar’s predominant and historical reserve currency status that provides the last remaining leg of support underpinning its value.

Mining production and supply factors

The great challenge facing miners involves verifying and proving enough ore through drilling that they are finally able to risk the construction, mining and stockpiling of overburden that is required before they finally turning the rocks they mined into tangible, real income and long lasting storable value.

Another persistent worry for miners operating in foreign jurisdictions, as many of them need to, is that their findings and operation may be nationalized once production starts in earnest. Also, if the foreign country fails to provide adequate police protection for safe operations, the end result may be nothing at all or just a big deficit where a profit was anticipated and money was spent.

Furthermore, inflation can be a two edged sword since mining and processing costs tend to go up faster than the end price of finished gold and silver does. Delivery delays for key construction and production supplies and equipment also start to arise when prices are moving sharply upward.

Most miners and investors would probably rather see a gradual long term price rise in the precious metals than all of these sudden up and down price swings, but those significant price swings have now become a fact of life in this business that miners simply have to deal with.

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Silver shrinks to the lowest since 2010; follows Gold

20 May

Silver futures on Globex platform of Comex was seen trading down by 4.67% at $21.320 per troy ounce as of 10.10 AM IST on Monday.Speculation that US Federal Reserve may end its USD85 billion per month bond-buying program, might have influenced investors sentiments.

MUMBAI : Bullion futures in the international market are trading negative and silver prices fell to the lowest since 2010. Bullion prices shrunk to their lowest in four years as investment demand recorded a slump amid firm equities.

Silver futures on Globex platform of Comex was seen trading down by 4.67% at $21.320 per troy ounce as of 10.10 AM IST on Monday.

Comex gold futures are also down by 1.59% at $1343.05 per troy ounce as of 10.11 AM IST on Monday.

“Silver is trekking a similar path to gold,” Yang Xuejie, an analyst at Galaxy Futures Co., a unit of the brokerage controlled by China’s sovereign wealth fund said to Bloomberg.

“Investment demand is slowly falling and there are doubts about industrial demand, which is the primary driver.” he added.

Gold traders held 74,432 short contracts as of May 14, according to the US Commodities Futures Trading Commission.

Speculation that US Federal Reserve may end its USD85 billion per month bond-buying program, might have influenced investors sentiments.

Meanwhile, based on a simple regression analysis using data from 2003, Gold ETF outflows may cause downside risks of up to $75/oz in prices, Deutsche Bank has said in a report. If this turns out to be true, gold prices can touch $1282/oz from Friday levels of $1357/oz.

Deutsche Bank believes that the bulk of the drawdown in gold ETFs comes from institutional investors with, on Bank’s estimates, around two-thirds of the selling that is likely probably has already passed.

India bullion futures

Gold futures on India’s Multi Commodity Exchange (MCX) for June delivery was seen trading down by 1.39% at Rs.25477 per 10 grams as of 10.05 AM IST on Monday.

MCX silver futures for July delivery was also down by 4.09% at Rs.40885 per kilogram as of 10.05 AM IST on Monday.

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