Just a week ago, Ben Bernanke stumbled when he almost admitted that "forward guidance worked in theory, but not in practice," and while the Fed is sticking to its guns with lower for longer "forward guidance" to replace "as much money as you can eat" quantitative easing; and the ECB promising moar for longer; the Bank of England's Mark Carney just threw them all under the bus by u-turning on his employment-based forward guidance strategy. Having previously established thresholds for his monetray policy guidance, as the FT reports, he has now ditched those plans (as we warned he might "lose his credibility" here) as the British economy is "in a different place" now. And still, we are supposed to trust these bankers to run the world? Perhaps most interesting is the FT changed its title on the story very quickly!


Via The FT,


Mr Carney signalled the policy U-turn in a series of TV interviews while attending the World Economic Forum in Davos. However, he added that he had no plans to raise interest rates “immediately”.



Speaking to the BBC’s Newsnight in response to the news this week that UK unemployment had fallen to 7.1 per cent, almost to the point the BoE said it would consider a rate rise, the bank has decided not to revise its 7 per cent unemployment threshold but drop the idea completely.



The BoE followed the Federal Reserve in announcing forward guidance last August in a bid to make monetary policy “more effective”. It said it would not consider a rate rise in the UK at least until unemployment fell to 7 per cent from the rate last summer of 7.9 per cent.


The BoE forecast that it was most likely that unemployment would fall to the 7 per cent threshold only in 2016. Recognising a serious forecasting error has caused red faces at the BoE and created confusion over the policy, Mr Carney will address the subject again on Friday and Saturday.



Commenting on the huge errors in the bank’s forecasts, Mr Carney said: “If our forecast is going to be wrong, it’s better to be wrong in that direction”.


What is perhaps more interesting is the fact that the FT changed the title of the story very quickly…






It seems someone at the BoE did not like it…


Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2014-01-23/bank-england-folds-forward-guidance

, , , , , , , , ,

Submitted by Simon Black of Sovereign Man blog,

In the 3rd century AD, Emperor Caracalla famously remarked of Rome’s tax policy:

“For as long as we have this,” pointing to his sword, “we shall not run out of money.” (Of course, Rome did run out of money. )

At the time, Roman taxation was so extractive that it drove people into poverty and desperation. Yet the government continued to forcibly plunder wealth at the point of a sword.

Not much has changed.

The Taxpayer Advocate Service, which is an independent office within the IRS, has just released a two-volume report describing the mafia tactics that are being employed by the tax collectors in the Land of the Free.

The Executive Summary alone is 76 pages. And believe it or not, it’s a real page turner.

On page 37, for example, the report states that the IRS largely assesses tax penalties improperly.

Specifically, the Office of the Chief Counsel admonished the IRS that it was not legally authorized to impose accuracy related penalties on certain taxpayers, and that the service should abate those penalties already imposed.

Yet the IRS declined to follow its own Chief Counsel’s legal advice, and it has refused to abate penalties for nearly 90,000 taxpayers.

In the words of the agency’s own Taxpayer Advocate Service, “The IRS’s failure to abate inapplicable penalties signals disrespect for the law and a disregard for taxpayer rights.”

Page 34 discusses how the IRS has abandoned its own checks and balances.

When a taxpayer is deemed to owe the US government money, the IRS is supposed to have a “collection due process (CDP) hearing” to verify that the IRS agent followed the law and consider whether the intrusion on the taxpayer was warranted.

Yet the report states that this has become nothing more than a rubber stamp formality, and that current practices “do not provide the taxpayer a fair and impartial hearing.”

In fact, among the most litigated issues at the IRS, the report states that “taxpayers fully prevailed only about two percent of the time.”

Two percent. If you go up against the IRS, you have a 2% chance of winning. Give me a break. You have more than a 2% chance fighting against the mafia.

Moreover, the byzantine US income tax code, which runs to an incredible 72,000+ pages, “disproportionately burdens those who [make] honest mistakes”, especially as it relates to offshore disclosures.

In fact, the report acknowledges that “tax requirements have become so confusing and the compliance burden so great that taxpayers are giving up their U.S. citizenship in record numbers.”

It’s not exactly Emperor Caracalla pointing to his sword… but IRS’s policies and tactics are not so far off from a police agency.

They disregard the law and the advice of their own counsel. They disproportionately burden honest individuals. They flout due process. And they push people to abandon their citizenship.

These are mafia tactics, plain and simple. And like the Romans, Ottoman Empire, and French monarchy before, the tax system in the Land of the Free has become a desperate farce marked by fear and intimidation.

This is one of history’s obvious marks of a nation that has reached its terminal decline. We cannot seriously expect this time to be any different.


Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2014-01-13/irs-stunningly-admits-its-own-mafia-tactics

By EconMatters


With another new year upon us mortals, we thought it is time again to check out the top 10 global risks ranked by Oxford Analytica.  Not surprisingly, from a geographical perspective, a majority of the top global risks come from the Middle East region (at 40%) and the Asia-Pacific region, specifically China, and North Korea (at 30%).  U.S., Europe, and Russia round out the rest.



Source: Oxford Analytica


The ranking is mostly based on the potential size of global impact.  However, putting them under the lens of probability, a difference picture emerges (see graph below)


Chart Source: Oxford Analytica

While the economic related risks such as a sharp slowdown in China, EU disintegration, and deflation in the U.S may rein supreme in terms of global impact, the probability of them materializing is actually less likely than the geopolitical risk in the Middle East (Syria, Iran, Pakistan and Afghanistan), and Asia (China, North Korea).


In terms of the type of risk, seven out of the top 10 risks are geopolitical, while only three are financial or economic.  So if we look at probability from this perspective, we are more likely to see a war or regime topple before another financial crisis rippling through the world again.


Regarding the ‘U.S. Deflationary Trap’, the Fed said last month it would reduce its monthly asset purchases by $10 billion to $75 billion, while also expressed worries about inflation.  Meanwhile, Fed’s balance sheet has ballooned to $4 trillion, we seriously doubt the U.S. deflationary scenario after Fed’s helicoptered five years worth of QEs.



At this point, we at EconMatters believe that the Federal Reserve removing the Liquidity Punchbowl not because everything is fixed with the US economy, and we have fully recovered from the financial crisis of 2007, but because they have no other choice in the matter given the obvious asset bubbles they have created in the credit, bond and equity markets.


For now, the inflationary effect from QEs is mostly trapped in the stock and commodity markets (i.e. enriching the 1%), but inevitably it will manifest and spill over to the consumer side of things hitting hard on the 99%.  The removal of this liquidity, the resultant implications for financial markets, and potential future inflationary consequence of Fed’s QEs remain an under appreciated risk to the global economy in our humble opinion.


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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/contributed/2014-01-04/top-10-global-risks-2014

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

When risk vanishes, so does creativity.

Which characteristics lead to success? Which lead to greatness? Let's start by pondering companies that were once dominant in their respective fields: Microsoft and Nokia. Microsoft recently bought Nokia's mobile phone business, once valued at $240 billion, for $7.2 billion. Nokia's share of the global smart-phone business is around 4%. Microsoft's share of the global smart-phone software market is less than 1%, despite spending billions of dollars developing and promoting its mobile software.

Bill Gates created a powerhouse based on two principles–monopoly (getting a lock on the PC market as the default operating system) and copying and/or buying successful competitors. MSFT would then slowly increase their market share with two strategies: integrate the new software into their Windows/Office monopoly and keep adding features. In the case of web browsers, this was a successful strategy, as Microsoft's IE (Internet Explorer) overcame Netscape Navigator and its offspring, Mozilla, to dominate the browser market.

In the gaming space, Microsoft took on the established leaders with XBox, using its cash flow to develop the platform during the initial money-losing years–losses that would have doomed less well-funded companies.
Under CEO Steve Ballmer, these strategies have failed spectacularly. Microsoft has continued buying companies left and right, and spent a reported $10 billion trying to compete with Google in search. Its search engine, Bing, remains an also-ran. MSFT also spent billions attempting to dominate the mobile software space, but the results have been catastrophic: MSFT's share of mobile software has declined from around 10% to 1%.

Microsoft's tablet is also an also-ran. Its plan to leverage the XBox platform into the convergence-TV space has also come up short of expectations.

Microsoft's core monopoly continues to generate billions in profits because it is the tech equivalent of a utility: anyone who buys a PC has to pay MSFT $100 for the operating system, and if they are in any sort of business or job that requires computers, then they also have to pony up $300-$500 for Office.

But MSFT's core monopoly is under threat as Google's free operating system Chrome expands from mobile phones to tablets. As PCs lose their dominance, so too does MSFT. If Chrome is good enough to power tablets, why not PCs? Google already offers Google Docs as an alternative to Office. If someone comes up with Word-Lite and Excel-Lite which can open Office docs, MSFT's last bastion of monopoly will face real competition.

Here is an interesting quote on the tone-deaf corporate culture that leads to systemic failure: (Nokia Deal Marks a New Chapter for Microsoft)

"It is hard to stress the importance of culture for a technology company; after all it is a transit system for creativity. In an industry that was moving fast, Microsoft became fat and slow. Its products suffered. This brings us to Windows 8. I installed a preview version of Windows 8 on my computer a few months before it was officially released and was shocked at how horrible the product was. I am a computer geek, but I could not figure out how to use that product. Windows 8 was not just buggy, it was thoroughly terrible. 

To be effective and well compensated (within Microsoft), employees don’t need to be good at their jobs, they need to be good politicians. This turned Microsoft from a technology company into the U.S. Congress and therefore its software products started to resemble legislature by Washington’s finest — bulky and full of pork."

Tech darlings Samsung, Google and Apple are also huge companies with plenty of political jockeying and wasted resources–it goes with bureaucratic bloat. Even back in 1983, a few years after Apple went public, Steve Jobs had to physically and managerially sequester the Macintosh development team from the bureaucracy of Apple.

Nokia and Blackberry both squandered dominance and have shrunk to irrelevance. Microsoft is heading down the same path. On the surface, the management of all three firms was competent; but competence doesn't spawn Creativity, Mastery and Genius; competence in a no-risk environment leads to failure.

I think we can draw several conclusions from the MSFT/Nokia story.

1. Doing what worked spectacularly in the past is not guaranteed to keep working.
2. When risk vanishes, so does creativity.

When management and employees alike feel the security of dominance and near-monopoly, they are free to indulge in bureaucratic infighting and loss of focus.When risk has been vanquished, there is no compelling need to keep in touch with the market and customers: dominance/monopoly means they have to take whatever we provide and like it.

Without an awareness of risk, even competence disappears. Creativity, mastery and genius either fall on parched, dead soil or are ruthlessly suppressed as political threats.

I think the same is true of individuals and nations: competence can be reached with practice, but Creativity, Mastery and Genius all require space for spontaneity and risk.

I came across the 1982 obituary of Arthur Rubinstein, one of the 20th century's most famous pianists. I think his story illustrates the limits of practice and competence.

Rubinstein was a bon vivant, and this persona masked the type of practice he undertook in his 20s to acheive mastery. The cliche is that 10,000 hours of practice yields mastery, but this turns out to be false: only practice with the express purpose of getting better has any effect. For Rubinstein, getting better meant being technically good enough to become expressive and spontaneous. 

What Mr. Rubinstein offered, above all others, was the ability to transmit the joy of music.
In a recording session for RCA Victor Records, in Webster Hall here, he would play and replay a piece until he was satisfied that it was his best; and before a concert he would practice, particularly passages that he thought he might have difficulty with. Nothing less than perfection was tolerated.

Practice for its own sake, however, was not Rubinstein's notion of how to extract music from the printed notes. "I was born very, very lazy and I don't always practice very long," he said once. "But I must say, in my defense, that it is not so good, in a musical way, to overpractice. When you do, the music seems to come out of your pocket. If you play with a feeling of 'Oh, I know this,' you play without that little drop of fresh blood that is necessary -and the audience feels it." 

On another occasion he explained in his tumbling English his philosophy this way: "At every concert I leave a lot to the moment. I must have the unexpected, the unforeseen. I want to risk, to dare. I want to be surprised by what comes out. I want to enjoy it more than the audience. That way the music can bloom anew." 

Another ingredient of Rubinstein was an unusually fine ear that, among other things, permitted him to spin music through his mind. "At breakfast, I might pass a Brahms symphony in my head," he said. "Then I am called to the phone, and half an hour later I find it's been going on all the time and I'm in the third movement." 

In his late 20s, he began to take stock of himself as an artist. The result was the end of his days as a playboy and intensive study and practice – six, eight, nine hours a day. In the process he brought discipline to his abundant temperament and intelligence to his grand manner."

Perhaps Competence, Creativity, Mastery and Genius form a sort of matrix. Creativity is limited without basic competence, but competence alone is not fertile ground for creativity. Technical mastery does not lead to genius unless the creativity born of risk and spontaneity is allowed to bloom.


Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2014-01-04/competence-creativity-mastery-genius-essential-role-risk

Forget the last two day's decline.  The consensus opinion for 2014 is pretty uniform: stocks will go up modestly, bond will decline in similar fashion.  Job growth will grind higher, as will inflation.  The Fed will taper its bond-buying program, slowly.  And so it may all come to pass…  But ConvergEx's Nick Colas ponders what could go wrong, or at least different.  Top of his list: fixed income volatility, in conjunction with stock market valuations that are, at best, average. Colas reflects ominously on 1914, where if you read the papers of the day you would have seen much of the same "Yeah, we got this" tone that prevails today

Seven months later, and the New York Stock Exchange had to shut for +4 months due to the start of World War I.  No, we aren’t calling for Armageddon.  After all, the Dow started 1914 at 57.7 and ended at 54.6, even with the European war.  But one thing we know for sure – the time to worry is when no one else seems concerned.

Via ConvergeEx's Nick Colas,

Consider the following quote from the New York Times: “Whatever may be said of the stock market there can be no doubt that the investment situation afforded grounds for a most hopeful view of the outlook.”  Aside from the archaic-sounding wordiness, it is a good summary of the current outlook for U.S. stocks.  Economic conditions are improving, as is investor confidence.  Last year’s 30% return for the S&P 500 means even retail investors are returning to stocks, much as swallows portend the arrival of Spring after a chilly Winter.  Things look good for 2014, both in the domestic economy and stock markets.

The date of the quote, however, is not January 2014, but rather a hundred years ago: January 31st 1914.  The Dow Jones Industrial Average stood at 60.6, up 5.0% from the start of the year.  The first few days of 1914 had been choppy, to be sure, but the good returns of January were enough to give investors some hope that things were solidly on the mend.  The Times did feature some stories about the political situation in Europe, but there was more ink spilled about the fabulous parties given by New York’s 1% of the day.  Fifty person sit down dinners seemed common, with a separate guest list for those who merely attended the coffee and entertainment afterwards.  Not quite as spicy as Bethenny Frankel’s lastest boyfriend – today’s hot news – but close enough.

Just six months after that quote, the New York Stock Exchange closed for over four months.  The start of World War I meant that foreigners – mostly British subjects – wanted their money out of U.S. stocks and repatriated back to their local currency.  The Treasury Secretary at the time felt that suspending the gold standard – the method of exchange between different currencies at the time – was too costly to America’s reputation.  The only alternative was to freeze the U.S. capital markets, and the NYSE did not reopen until December 12th.

Despite the opening salvos of the Great War, U.S. stocks fared pretty well in 1914.  The Dow ended the year 54.5, down only 5.5% for the year.  America’s entry into the conflict would come in 1917, and at the end of the war in 1918 the Dow closed at 87.2  – 38% higher than the beginning of 1914.

Fast-forward a century, and the lessons of 1914 ring true: be careful when the market thinks it has everything under control.  And such is the case as I write this note.  Despite today’s 16 point drop in the S&P 500, the narrative of the U.S. equity market is resoundingly bullish.  A few of the more optimistic sound bites:

Stocks have just finished a very strong year – up 30% for the S&P 500 – and that will draw further money flows.  If you exclude the last 5 years of data from mutual fund money flows, that is generally what happens.  Up markets do tend to pull in more capital from retail investors. Strength begets strength, as the old market aphorism reminds us.


The Federal Reserve has set up market psychology to welcome a tapering of its bond-buying program.  Chairman Bernanke first raised the issue at the June FOMC press conference.  Then economic data started to improve modestly, and at the December Fed meeting it followed through with a $10 billion reduction in the program.  If the Federal Reserve follows through with further reductions in 2014, markets will see it as further sign of economic strength.


Interest rates are still low enough that they offer little competition to equities. With the 10 year U.S. Treasury yielding 2.99%, bonds are still bringing a knife to a gunfight with stocks.  The common wisdom has it that bonds will gradually decline in value of the course of 2014 as interest rates rise with a stronger domestic economy.


Europe and Japan will turn their corners in 2014, albeit in slow motion.  The Yen will weaken, and the euro will hold steady.  The “Smart money” trade to own Japanese stocks (hedged against the currency) and European equities should work in 2014, as it did in 2013.


U.S. equity valuations have room to grow as revenue growth accelerates due to better economic fundamentals.  Right now, the S&P 500 trades for 15.3x this year’s expected $120/share expected earnings.  The bulls would say 17-18x earnings is fair for a recovery year, so stocks can rally another 18% in 2014.

All this sounds so neat and compact, and the rally last year seems to confirm the basic outlines of the case.  Yet that quote from the Times shows that the easy case may ignore a lot of important factors.  It wasn’t a surprise that Europe was a tinderbox in 1914.  It was the how, the when, the who, and the why that no one knew.

Happily, there is no World War in the offing in 2014, but let’s take a moment to consider some less-than-perfect outcomes that might make the consensus wrong.

The U.S. economy speeds up more than expected.  Right now, economists peg GDP growth here at 3% for 2014.  What if they are too conservative, anchored in the recent past rather than more typical economic recoveries?


The problem with this scenario is that it takes a predictable Federal Reserve and makes it harder to understand their future policies.  No one thinks 3% is the “Right” yield on the 10 year Treasury, given the Fed’s aggressive buying over the last three years.  And with a gradual reduction in this program, we will find out – slowly – what the market rate actually is.  A quicker pace of economic expansion will drive inflation and force the Fed to cut the program more quickly than expected.  Fast rising rates will also make car purchases and mortgages more expensive, taking two legs off the stool of a typical economic recovery.  It is bond market volatility which challenges the bull case for stocks most profoundly.


Stock valuations begin to feel too full.  Stocks multiples tend to grow like teenaged children – growth spurts followed by periods of consolidation.  Last year’s rally was essentially all valuation expansion – earnings expectations actually came down as the year progressed.  Yes, the bullish call for further multiple expansion has some limited history on its side.  We did get to 18x earnings in the 1990s and we could again now.


In the historical spirit of this note, however, lets look at the Shiller P/E – a 10 year look back at earnings as compared to current prices.  The average for this measure is 16.5x, going back to 1880.  We are now at 26.2 times.  Now, U.S. stocks can still grow into these numbers if earnings continue to climb.  But the Shiller P/E illustrates an important point: we HAVE to grow into this number, for there is little margin of safety otherwise.


The butterfly of chaos theory flaps its wings.  We start 2014 with U.S. stocks at all time highs, expectations of improvement to come, and a high degree of confidence that the future will be predictable.  That initial condition leaves very little gas in the tank if something goes awry.  It doesn’t have to be a policy mistake from the Fed or a twitchy bond market.  The disruptive event may be nothing more than a January swoon for stocks that pulls back the indices 7-10% and gives investors pause about the year ahead.

As the great market sage Yogi Berra once opined, “It’s tough to make predictions, especially about the future.”  Our historical case study about 1914 comes neatly on the 100-year anniversary of the start of World War I, but you needn’t expect a cataclysm to take its cautionary tale to heart.  The U.S. economy and capital markets have much to commend them, but the current optimism seems to run ahead of fundamentals for the moment.  Perhaps today’s pullback is the start of a correction, and that would be both healthy and positive for 2014.  Either way, a cautious outlook is the better part of valor so early in the year.


Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2014-01-04/party-its-1914

Download GoldCore Outlook For 2014

– Introduction
– Review of 2013
– Gold and Silver Have Torrid Year – Fall 27% and 35% Respectively
– Year Of Paper Selling But Robust Physical Demand – Especially From China
– Highlights Of Year – German Gold Repatriation, Record Highs In Yen, Huge Chinese Demand
– Lowlights Of Year – Massive Paper Sell Offs in April/June and Cypriot Deposit Confiscation
– Syria and the Middle East
– U.S. Government Shutdown and $12 Trillion Default Risk
– Continuing Central Bank Demand
– Regulatory Authorities Investigate Gold Rigging

Outlook 2014
– Geopolitical Tensions – The Middle East, Russia, China, Japan and the U.S.
– Ultra Loose Monetary Policies Set To Continue with Yellen as New Federal Reserve Chair
– Eurozone Debt Crisis Again – UK, U.S. Japan and China Also Vulnerable
– Enter The Dragon – Chinese Gold Demand Paradigm Shift To Continue
– Death Of Indian Gold Market Greatly Exaggerated
– Long Term (2014-2020) MSGM Fundamentals


Happy New Year. We would like to take this opportunity to wish our clients and subscribers a prosperous, healthy and happy 2014.

With 2013 having come to a close, it is important to take stock and review how various assets have performed in 2013, assess the outlook in 2014, and even more importantly, the outlook for the coming years.

2013 was the year of the speculator and the year of the risk asset, such as equities, with global stocks doing well in the sea of liquidity and cheap money created by central banks.
Surprisingly to many gold bulls, these favourable monetary conditions did not lead to higher precious metal prices. Gold and particularly silver had a torrid year and significantly underperformed the vast majority of equity and bond markets.

The MSCI World Index was up 23% and the S&P 500, the Nasdaq and the FTSE were up 32%, 35% and 14% respectively.

MSCI World Index – 1970 to January 3, 2014 – Bloomberg

Bond investors did not fare as well as interest rates began to rise from all-time record lows. As bond prices fell, interest rates rose. The bellwether 10-year Treasury note closed the year at 3.028%, which was up from 1.76% at the start of 2013 and the highest since July 2011.

US 10 Year Note – 1964 to January 3, 2014 – Bloomberg

The Barclays US Aggregate bond index, which is dominated by Treasury, mortgage and corporate bonds and is the leading benchmark followed by institutional money, is set to record its first negative year of total returns since 1999. The bond market’s major benchmark registered a total return of minus 2.1% for 2013. It is only the benchmark’s third annual negative total return since 1976, according to Barclays.


Gold and Silver Have a Torrid Year – Fall 28% and 36% Respectively
Gold fell in all major currencies in 2013 and fell 28% in dollar terms for its first annual price fall since 2000. Gold fell 40% in pound terms, 45% in euro terms. Gold fell much less in Japanese yen terms and was 16% lower in yen as the yen continued to be devalued and debased.

Silver was down by 36% in dollar terms and by more in the other currencies; silver had its poorest annual performance since 1984.

Gold came under pressure in the first half of 2013 and saw falls from near $1,700/oz at the start of the year to $1,180/oz by mid-year. Indeed, gold’s low for the year took place on June 28th, which was the last day of trading in Q2, and an important time frame for those evaluating gold’s longer term performance.

The price falls in the first half took place despite a positive fundamental backdrop and despite the risk of contagion in the Eurozone – especially from Spain, Italy and Greece. This risk was so great in the early part of the year that it led George Soros to warn in February that the Eurozone could collapse as the U.S.S.R. had.

In March, Cyprus was the first country to experience a bank bail-in of depositors, where both individual and corporate account holders, experienced capital controls and a confiscation of nearly 50% of their deposits. In June and then again two weeks ago, the EU confirmed that depositors will be bailed in when banks are insolvent.

International monetary and financial authorities globally, including the ECB, the Bank of England and the Federal Deposit Insurance Corporation (FDIC), have put in place the regulatory and legal framework for bail-in regimes in the event of banks failing again.

Are Your Savings Safe From Bail-Ins

Gold saw a bit of a recovery in the third quarter with gains in July and August as gold interest rates went negative, bullion premiums in Asia surged and COMEX inventories continued to fall. Silver surged 12% in 5 trading days in mid August due to record silver eagle coin demand and ETF demand.

UK gold ‘exports’ to Switzerland increased greatly during the year due to demand for allocated gold in Switzerland due to Switzerland’s tradition of respecting private property throughout the centuries and its strong economy. However, more importantly, UK gold exports to Switzerland were due to the significant increase in store-of-wealth demand from China and many countries in Asia.

Institutional gold in the form of London gold delivery bars (400 oz) was exported to Swiss refineries in order to be recast into one kilogramme, 0.9999 gold bars used on the Shanghai Gold Exchange and in the Chinese market.

However, this was not enough to prevent further falls in the final quarter and in recent days when gold has again tested support at $1,200/oz.

Year Of Technical, Paper Selling But Robust Physical Demand

German Gold Repatriation
The year began with a bang, when news broke on January 17 that the German central bank was attempting to repatriate Germany’s gold reserves. The Bundesbank announced that they will repatriate 674 metric tons of their total 3,391 metric ton gold reserves from vaults in Paris and New York to restore public confidence in the safety of Germany’s gold reserves.

Bundesbank – Goldbarren

The repatriation of only some 20% of Germany’s gold reserves from the Federal Reserve Bank of New York and the Banque of Paris back to Frankfurt was meant to allay increasing German concerns about their gold reserves. But the fact that the transfer from the Federal Reserve is set to take place slowly over a seven year period and will only be completed in 2020 actually led to increased concerns. It also fueled concerns that the unaudited U.S. gold reserves may be less than what is officially recorded.

What was quite bullish news for the gold market, saw gold quickly rise by some $30 to challenge $1,700/oz. The news was expected to help contribute to higher prices but determined selling saw gold capped at $1,700/oz prior to falls in price in February.

Paper Selling On COMEX
Gold’s falls in 2013 can be attributed in large part to paper selling by more speculative players on the COMEX. This was graphically seen in April when there was a selling raid on the COMEX which led to a huge price fall of nearly 15% in two days prior to the emergence of “extraordinary” demand for gold internationally.

The sell off came as demand in Europe began to pick up due to concerns that the Cypriot deposit confiscation may be a precedent that could be seen in other EU countries.

The speed and scale of the sell off was incredible and even some of the bears were surprised by it. Many questioned the catalysts for the $150 two day sell off. The sell off was initially attributed to an unfounded rumour regarding Cyprus gold reserve sales – this was soon seen to be a non-story. The Cyprus rumour did not justify the scale of the unprecedented sell off.
Reports suggested that a single futures sell order worth $6 billion, equal to 4 million ounces or 124.4 tonnes of gold, by a large investment bank sent prices plummeting. The futures market then saw a further wave of selling of contracts worth some $15 billion, equivalent to 10 million ounces of selling or 300 tonnes, in just 35 minutes.
Gold futures with a value of over 400 tonnes were sold in a handful of trades in minutes. This was equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions.

Investment banks and hedge fund speculators can manipulate the paper or futures gold price in whichever direction they want in the short term due to the massive leverage they can utilise. The events in April further bolstered the allegations of manipulation by the Gold Anti-Trust Action Committee (GATA).

Significant Demand For Physical Gold Globally
Gold prices fell very sharply despite very high demand. However, the gold price decline was arrested by the scale of physical demand globally. This demand was particularly strong in the Middle East and in Asia, particularly China but was also seen in western markets with government mints reporting a surge in demand in 2013.

This demand for physical gold was seen in western markets throughout the year. In April, the US Mint had to suspend sales of small gold coins; premiums for coins and bars surged in western markets due to high demand.

Mints, refineries and bullion brokerages were quickly cleared out of stock in April and COMEX gold inventories plummeted. There were gold and silver coin and bar shortages globally.

This continued into May as investors and savers globally digested the ramifications of the Cypriot deposit confiscation. The crash of the Nikkei in May also added to physical demand in Japan and by nervous investors internationally.

This led to all time record gold transactions being reported by the LBMA at the end of May.

Chinese demand remained very robust and Shanghai Gold Exchange volumes surged 55% in one day at the end of May – from 10,094 kilograms to 15,641 kilograms. There were “supply constraints” for gold bars in Singapore and bullion brokers in Singapore and India became sold out of bullion product at the end of May.

This, and concerns about a very poor current account deficit and a possible run on the Indian rupee, prompted the Indian government to bring in quasi capital controls and punitive taxes on gold in June. Ironically, this led to even higher demand for gold in the short term and much higher premiums in India. Longer term, it has led to a massive surge in black market gold buying with thousands of Indians smuggling in gold from Bangkok, Dubai and elsewhere in Asia.

June saw another peculiar sudden 6% price fall in less than 24 hours. This again contributed to increased and very robust physical demand. U.S. Mint sales of silver coins reached a record in the first half of 2013 at 4,651,429 ounces and the UK’s Royal Mint saw a demand surge continuing in June after demand had trebled in April.
Asian markets continued to see elevated levels of gold buying. Gold demand in Vietnam was so high that buyers were paying a $217 premium over spot gold at $1,390/oz. Premiums surged again in China as the wise Chinese ‘aunties’ and wealthy Chinese continued to buy gold as a store of wealth.

Despite very high levels of demand for gold, in Asia especially, gold languished and sentiment in western markets continued to be very poor with gold falling to the lows of the year on June 28th.

July saw continuing strong demand for gold internationally as volumes surged to records on the Shanghai Gold Exchange (SGE). Premiums rose and feverish buying left many of Hong Kong’s banks, jewellers and even its gold exchange without enough gold bullion to meet demand.

In August, demand remained elevated and gold forward offered rates (GOFO) remained negative and became more negative. This showed that physical demand was leading to supply issues in the highly leveraged LBMA gold market or the institutional gold bar market.

Today, as we enter the New Year gold, forward offered rates (GOFO) remain negative, meaning banks, which had lent their customers gold to obtain a positive return, and therefore increase the “paper” gold supply, will take the gold back. This should limit the amount of gold on the market and increase the gold price.

Chinese buyers are of increasing importance but it is important to note that physical demand rose significantly throughout the world in 2013 despite falling prices. This is seen in the levels of demand experienced by leading bullion dealers, refiners and government mints. This is clearly seen in the data released by the Perth Mint and the U.S. Mint which both saw increased demand for physical gold coins and bars in 2013. Other mints have yet to report their numbers.

The Perth Mint of Western Australia reported yesterday that they saw a very significant increase in sales in 2013 despite the falling prices. Gold sales from the Perth Mint, which refines most of the bullion from the world’s second-biggest producer Australia, climbed 41% last year.

Sales of gold coins and minted bars totalled 754,635 ounces in 2013 from 533,333 ounces a year earlier, according to data from the mint.

Silver coin sales surged 33% to about 8.6 million ounces from 6.5 million ounces in 2012, according to the Perth Mint.

Gold bullion sales expanded 12% to 58,944 ounces in December from 52,700 in November and about 51,778 ounces in December 2012, according to data from the mint. Gold sales fell to as low as 30,430 ounces in August and peaked at about 112,575 in April, when gold was hammered 14% lower on the COMEX in just two days.

Silver coin sales were 845,941 ounces last month from 807,246 in November and 452,389 a year earlier, it said.

The U.S. Mint also saw an increase in physical gold sales and sold 14% more American Eagle gold coins last year and sales climbed 17% to 56,000 ounces in December from November, according to data on the mint’s website as reported by Bloomberg.

Syria and the Middle East
Even bullish developments such as the prospect of war in Syria at the end of August, only led to small, short term price gains. War in Syria and in the Middle East, pitching the U.S. and western allies against China and Russia was expected by many to lead to “market panic” and to propel gold “much, much higher,” in the words of astute investor Jim Rogers.

Only the fact that President Obama and the U.S. were confronted with opposition by people internationally against another war and were outmaneuvered diplomatically, prevented the war with Syria.

The war had the potential to destabilise the region with ramifications for oil prices and the global economy.

U.S. Government Shutdown and $12 Trillion Default Risk
Another very bullish development for gold came in late September and early October with the U.S. budget negotiations and government shutdown.

They highlighted the dire U.S. fiscal position and the complete failure of the American political and economic class to deal with their extremely precarious financial position in any meaningful way. The U.S. government is essentially bankrupt with a national debt of over $17 trillion and unfunded liabilities of between $100 trillion and $200 trillion.

In the coming months and years, it will lead to a lower dollar and much higher gold and silver prices.

However, in the year of paper gold selling that was 2013, even this did not lead to higher gold prices.

Continuing Central Bank Gold Demand 
All year, central banks continued to accumulate gold with Russia, Kazakhstan, Azerbaijan, Kyrgyz Republic, Turkey and other central banks continuing to diversify their foreign exchange reserves.

U.S. Federal Reserve employees in underground vault holding monetary gold

Central banks continued to be strong buyers of gold in 2013, albeit the full year data may show demand was at a slightly slower rate than the record levels seen in recent years. Q4 2013 will be the 12th consecutive quarter of net purchases of gold by central banks.

Total official central bank demand continued at roughly 100 tonnes every single quarter. However, this does not include the ongoing clandestine and undeclared purchases of gold by the People’s Bank of China. Conservative estimates put PBOC demand at 100 tonnes a quarter or at over 400 tonnes for the year. More radical projections are of demand of over 1,000 tonnes from the PBOC in 2013.

Regulatory Authorities Investigate Gold Rigging
Peculiar, single trade or handful of trades leading to sudden gold price falls were common in 2013 and contributed to the 28% price fall.

Therefore, those who have diversified into physical gold will welcome the move by the German financial regulator BaFin to widen their investigation into manipulation by banks of benchmark gold and silver prices. In December, the German banking regulator BaFin demanded documents from Germany’s largest bank, Deutsche Bank, as part of a probe into suspected manipulation of the gold and silver markets.

The German regulator has been interrogating the bank’s staff over the past several months. Since November, when the probe was first mentioned, similar audits in the U.S. and UK are also commencing.

Precious metal investors live in hope but their experience of such investigations is that they are often very lengthy affairs with little in the way of outcome, disclosure or sanction. The forces of global supply and demand, one anemic, the other very high, are likely to be more important and a valuable aid to gold and silver owners in 2014 and in the coming years. As ultimately, the price of all commodities, currencies and assets is determined by supply and demand.

Janet Yellen Becomes Fed Chair

At year end came confirmation that cheap money uber dove Janet Yellen was set to take over from Ben Bernanke as Chair of the Federal Reserve. Gold bulls cheered loudly at her appointment thinking that Yellen’s appointment would lead to a recovery in oversold gold prices. However, even this bullish development did not help embattled gold prices.



2013 was a year of calm in the world of finance. 2014 may not be so calm and there is a risk of renewed turbulence on global financial markets. There are many unresolved risks which were present in 2013 but did not come to the fore and impact markets as they could have.

The Eurozone debt crisis is far from resolved and there remains an underappreciated risk of sovereign crises in other major industrial nations.

There are far more positives for gold than negatives and the positives include ultra-loose monetary policies, risk of sovereign and banking debt crises and systemic or contagion risk, the increasingly uncertain political and military situation globally and of course increased demand for gold from the Middle East, much of Asia and particularly China.

Download GoldCore Outlook For 2014


Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/contributed/2014-01-04/good-bad-and-ugly-gold-2013-and-outlook-2014

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