Jim Sinclair’s Commentary

A man I respect, an old African hand, wrote this great review. It is packed with the most important concepts that need now to be understood concerning why gold has only begun its bull market.

I might add that it is simply illogical to assume the Gold ETFs have all or even most of the gold they claim to have in bullion form. There simply isn’t that much gold in the gold cash market.

Size like that only trades between central banks that report their holdings. Their holding have not dropped without tracking sales enough to offset even a part of those positions.

World production versus industry off takes denies these positions.

The prospectus of the major ETF should be read as they clearly state without any question that the fund is NOT required to hold bullion gold.

Jim,

The CIGAs may find interesting some alternate non-US perspectives on where we are at, just random thoughts for the mailbox in no particular order:

1)  The investment liquidity overhang. Notwithstanding the commercial credit squeeze worldwide there are huge amounts of investable money sitting on the sidelines watching, waiting, fearful, frustrated. Whilst we see equity and other markets somewhat higher and well off their lows, volumes reflect hesitance. Much of the significant funds withdrawn from the equity markets – both private and institutional – has not yet come back into play. It sits in short term liquid instruments distrustful of what is considered a Bear rally rather than a recovery. This is substantial money, badly frightened in the downturn. The private investor also holds his liquidity out of concern at the threat posed by the deteriorating economy. However the money grows restless: interest rates are unattractive, currencies are volatile, general equities are distrusted, bonds are likely to deliver a religious experience. Gold has barely begun to reflect on the wider "public" investment horizon. When it does and even some portion of this frustrated investment capital comes to the sector… on to Alf’s numbers…

2)  Martin Armstrong. Some CIGAs may consider Armstrong’s writings as emotionally tainted by his conflict with the US Judiciary and the US State. However it comes as a shock to encounter his brilliance in the very events and influences he writes of unfolding in the markets! From theory into practice. Who would conceive of a day where respected international financial institutions advise their clients that they will no longer be offering services into the US exchanges or capital markets and that their clients should consider extracting themselves from any US investments? Quietly, but emerging publicly, it is happening! Refer Armstrong’s (and others’) writings on the Obama "green book" fiscal proposals with for eg US Estate Tax liability by non-resident non-citizen foreign investors and you see why. In the light of the UBS experience (who apparently were kind of reckless and deserved the attention of the IRS… imagine the mountain of anti-UBS litigation yet to come… ouch!) even fully-compliant institutions cannot be blamed for reconsidering doing business under ever more onerous US requirements.

3)  The timing of the above withdrawal of foreign investments could not be worse (for the US). Whilst the IRS may gain some tax dollars the US as a whole will be chasing away international investment capital in the trillions… at a time when the world doesn’t exactly appear to be queuing up to continue financing the US deficits. The US could become very unattractive to foreign capital.

4)  Flash-trading and dark pool facilities for the favoured… the arrogance of the US exchanges. That went down really well in Europe…

5)  Coming shock in Precious Metals ETFs? Gold coins and bars… the barbaric relic held in the hand represents wealth free of any encumbrance or anyone else’s liability. This is the key characteristic of physical gold: it does not represent someone else’s liability. It does not draw its worth from the strength of a transactional counterparty. Suddenly we are asked the same question by two separate Swiss brokers: How much actual physical Gold do we think the various ETFs really have? These are clever people who within their separate institutions have already reached an opinion and are testing that opinion… and here they are thinking along the lines oft expressed on JSMineset that amongst the ETFs lies the possibility of a counterparty or custodian default. All the gold is there (maybe)… or not there (maybe)… The ETFs provide a convenient trading facility but for CIGA core holdings why own something Gold that isn’t, so to speak? The small inconvenience to take delivery of your Comex or other Metal Account holdings is inconsequential should a future squeeze on physical or custodial problems occur. The risk is there otherwise these folks would not be asking the question…

6)  Finally one of my favourite perspective pieces is that from CIGA Pedro at: http://jsmineset.com/2009/05/25/in-the-news-today-204/ well worth a re-read!

As always thank you for your untiring efforts to our benefit.

CIGA Zacken

Jim,

China decided to raise prices for gasoline and diesel fuel by up to 7.2%. Inflation is coming…

Regards,
CIGA Christopher

Chinese oil-refining shares rise after fuel-price hike
By V. Phani Kumar, MarketWatch

HONG KONG (MarketWatch) — China’s decision to raise prices for gasoline and diesel fuel by up to 7.2%, in line with rising global crude-oil prices, boosted shares of state-owned refiners such as Sinopec and PetroChina in Shanghai and Hong Kong trading Tuesday.

The price increase of 480 yuan ($70.3) per ton was announced by the National Development and Reform Commission and translates into a 6.5% increase in gasoline prices and a 7.2% rise for diesel prices, according to Dow Jones Newswires.

Goldman Sachs’s Fred Hu on China’s Recovery

WSJ’s Jason Dean speaks to Dr. Fred Hu, managing director of Goldman Sachs Group, about the biggest challenge in China’s recovery, at the China Financial Markets conference. He also discusses what China needs to do to sustain its growth.

More…

China fuel price rise to add 0.12 points to Nov CPI
Tue Nov 10, 2009 7:36am IST

BEIJING, Nov 10 (Reuters) – China’s latest price hike on refined oil products will push the consumer price index up 0.12 percentage points in November, the National Development and Reform Commission (NDRC), the top economic planner, said.

China raised retail gasoline and diesel prices by 480 yuan ($70.32) per tonne from 1600 GMT on Monday. It also increased jet fuel prices by around 300 yuan per tonne. [ID:nPEK221762]

In a statement in its website, www.ndrc.gov.cn, announcing the price increase, the agency said China was not facing inflation risks for now as inventories of grains and edible oils were ample.

More…

Dear Christopher,

As a product of the government support for education concerning gold and silver, new China wealth will hedge their own bets in the metal.

China is embarrassed about India front running them on buying the IMF gold so they have gone into freeze frame.

Russia is now a competitor for that gold.

Something is going to happen soon. This inflation in China will be a major positive for the gold and silver price.

Regards,
Jim