Month: September 2016

Submitted by Michael Shedlock via MishTalk.com,

Hillary Clinton’s approval rating has plunged in the past few weeks to an all-time low.

56% have an unfavorable opinion of Hillary and only 41% have a favorable opinion.

Among registered voters, 59% hold an unfavorable opinion. That’s neck-and-neck with Trump at 60%.

The Washington Post reports A record number of Americans now dislike Hillary Clinton.

Hillary Clinton hit her stride after the Democratic National Convention, riding to a double-digit lead over Donald Trump in some national and swing-state polls — her highest of the year. As of today, though, Americans’ views of her just hit a record low.

 

A new Washington Post-ABC News poll shows 41 percent of Americans have a favorable impression of Clinton, while 56 percent have an unfavorable one. That’s the worst image Clinton has had in her quarter-century in national public life.

 

Interestingly, Clinton’s numbers appear to have dropped since that early August poll mostly in groups that have been very supportive of her:

 

• Her favorable rating among women dropped from 54 percent to just 45 percent.
• Among Hispanics, it went from 71 percent to 55 percent.
• Among liberals, it went from 76 percent to 63 percent.

 

It’s not clear quite what might have caused Clinton to fall further than ever before. It’s likely that she simply got an extended bounce after the Democratic convention that has finally faded. It’s also possible that adverse headlines last week about the Clinton Foundation and thousands of newly discovered emails from the private email server Clinton used as secretary of state reinforced the reasons views of her had been worsening prior to the July conventions.

 

Clinton is keeping this race competitive with her own personal problems. And right now, the voters who will determine the next president don’t like her much more than they like Trump.

Not Satisfied

 

Excluding Trump, Hillary is the most unpopular major-party presidential nominee in US history. Registered voter disapproval: 59% vs. 60%

— Mike Shedlock (@MishGEA) August 31, 2016

 

Shifting Odds

Nate Silver continues his silly projections. Supposedly Trump only had a 10.8% chance of winning on August 14.

Had the election been on August 30, I would have agreed. However, the election is on November 8.

Support for Hillary is dropping fast.

Winding Path

I like that chart. It’s a great representation. And it looks ominous.

But mentally shift Florida, North Carolina, and Ohio to trump’s column. It will not nearly look as bad.

Those states are not totally independent. If one shifts they likely all will shift. And they have been shifting.

In fact, those states shifted enough for Silver to move Trump’s odds from 10.8% to 24.8% in just two weeks!

Silver presumes he knew what was happening (with 89% confidence) on August 14. Was he wrong then, or now, or both.

If you said both you are correct.

Silver’s Model Fatally Flawed

Attempts to project rapidly changing attitudes months in advance is ridiculous.

Silver’s model is fatally flawed for at least two reasons.

• In the nomination process, Silver never incorporated the role of attitudes.
• Silver now neglects the factor of time.

The further away from an event, the less confident one “should” be.

@nntaleb The election is not a tennis match between players of known skills. Changing attitudes and a huge time factor are in play!

— Mike Shedlock (@MishGEA) August 31, 2016

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If there is a reason why traders walk into their office every day in a state of zombified daze, no longer able to trade various asset classes based on fundamental data or incremental news flow, there is a simple reason for that: global central bank liquidity injections have never been greater, and as of this moment, have surpassed all previous post-financial crisis central bank intervention.

As Deutsche Bank’s Jim Reid points out, “it’s difficult at the moment to fight the central bank in the credit market, especially in Europe and the UK where they are a non price sensitive buyer of the asset class. Even outside of these asset purchase programs it’s fair to say that global policy continues to be remarkably loose. Of the main central banks the Fed has been largely neutralised even if they manage to add a fresh hike in September or December, and the ECB and BoJ have increased and expanded the scope of their QE programs with the BoE recommencing theirs after a nearly four-year break.”

Collectively this means central bank liquidity is actually close to being as high as it’s been at any point post GFC even with the Fed’s QE program having been halted two years ago.

Reid concludes that after fears 12-18 months ago that we were starting to see an upcoming Fed tightening cycle and with concerns that we may actually see global central bank liquidity contract (there were even some fears of QT – quantitative tightening), the opposite has actually occurred.

As for Reid’s declaration to “not fight central banks”, he is of course right: while asset prices had disconnected with fundamentals many years ago, considering this unprecedented central bank step up in asset micromanagement, the only driver behind asset prices is the relentless wall of liquidity entering the global market at a record pace.

Incidentally the chart above also shows why there continues to be widespread, persistent skepticism about a so-called global recovery: after all, the record intervention by central banks meant to prop up asset prices (and, supposedly, economic growth) suggests that if anything, the global economy has never been weaker. 

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As expected Q2 US worker productivity slowed from its initial -0.5% to a final -0.6%. This is the 3rd quarterly decline – the first instance since 1979…

And the last 3 quarters are the biggest plunge in productvity since 1993 (thanks to a doubling of unit labor costs from expectations of +2.1% to +4.3%).

 

Any way you look at it – this is not good – no matter how many times the mainstream tries to explain why “we just don’t understand the new economy.”

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Submitetd by Koos Jansen. Originally published at BullionStar.com

There has been much conjecture since 2014 about the increasing numbers in the “precious metals” category on the balance sheets of listed Chinese commercial banks. By the end of 2015 China’s largest banks were holding RMB 598 billion in precious metals.

Some analysts think that the precious metals on Chinese commercial bank balance sheets are gold reserves purchased on behalf of the Chinese central bank, while others surmise that Chinese banks buy gold at the Shanghai Gold Exchange (SGE) and then lend it out so the precious metals on the balance sheets solely represent leased gold. In latter analysis it’s then assumed the leasing inflates the amount of gold withdrawn from SGE designated vaults. Most certainly there is leased gold on Chinese banks’ balance sheets, but this can hardly influence SGE withdrawals, as I have previously explained. Read this and this article for more information.

What do we know beyond the gossip about the precious metals holdings on Chinese commercial bank balance sheets?

From studying the annual reports of the respective banks and additional documentation we know the precious metals can be at least the following things (if I find more clues this post will be updated):

1. Gold savings that belong to the banks’ customers
2. Gold inventory for the banks’ retail gold business
3. Gold leasing business
4. Gold held for hedging purposes
5. Gold held outside China

Since the Chinese silver market was liberalized much earlier than gold I don’t think there is any edge for Chinese commercial banks to have a predominant role in the silver market. So, probably most of the precious metals on the balance sheets in question are gold related.

Below is an overview of the precious metals holdings of listed Chinese commercial banks as of 31 December 2015, measured in yuan (RMB). There are 16 listed Chinese commercial banks on China’s A-share market but Huaxia Bank didn’t disclose its precious metals holding in its annual report. If all aggregated precious metals holdings relate to gold, the upper bound is approximately 2,682 tonnes of gold.

Exhibit1. Source: Annual reports

Helpful for understanding this article is my post The Mechanics Of The Chinese Domestic Gold Market. 

1. Customers’ Gold Savings

A substantial amount of the precious metals reflect (fully backed) customers’ gold deposits in the form of Gold Accumulation Plans (GAP), recorded as an asset and a liability on the balance sheets of the banks. However, to me it’s unknown how much gold is exactly accumulated in China through GAPs. 

Let’s go through the annual reports of the Chinese banks having the largest precious metals holdings, seeking for information with respect to GAPs.

According to the 2015 annual report of Bank of China (BOC):

Precious metals comprise gold, silver and other precious metals. The Group retains all risks and rewards of ownership related to precious metals deposited with the Group as precious metals deposits, … and it records the precious metals received as an asset. A liability to return the amount of precious metals deposited is also recognized.

From the BOC website its GAP seems to be in its infancy, so I don’t expect it to comprise much gold. ICBC on the other hand, introduced a GAP in 2010 and is thought to be largest in China. From reading ICBC’s 2015 annual report [brackets added by me]:

Seizing the opportunities arising from customers’ wealth increase and capital market growth, the Bank made efforts to establish a mega asset management business system across the whole value chain and enhance its specialized operating capabilities on the strength of the Group’s asset management, custody, pension and precious metal businesses, …

The [ICBC] Group records the precious metals received as an asset. A liability to return the amount of precious metals deposited is also recognized. …

On ICBC’s website we read:

According to statistics, by the end of 2014, the business size of ICBC’s GAP was more than 250 tonnes, a 150% YOY increase. GAP clients are more than 1 million.

Screenshot from ICBC’s Ruyi Gold Accumulation Plan.

In the 2015 annual report by China Construction Bank (CCB):

While consolidating our traditionally advantageous businesses in housing finance and cost advisory service among other things, we actively expanded our presence in … precious metals.

The Bank supported product innovation, provided and optimized new products such as … gold purchase and saving.

The Bank proactively responded to changes in the precious metals market via pursuing marketing expansion, enlarging customer base and enforcing product innovation. The Bank launched innovative products and business models, including gold accumulation plan ….

To me it’s unknown how much gold CCB’s GAP comprises. All in all, part of the precious metals on the listed Chinese commercial banks’ balance sheets are gold savings held on behalf of clients instead of reflecting the banks own metals.

(Likely, gold saved in Chinese GAPs is not stored in SGE designated vaults.)

2. Bank Gold Inventory

Chinese banks offer a wide range of retail gold investment products for sale at local branches and through internet order. Naturally, any gold inventory for this business is recorded on the balance sheets. From ICBC’s 2015 annual report:

To echo the changes in market demands, the Bank developed a variety of new brands on assorted themes and introduced a slew of products, e.g. Chinese Zodiac Coins and Panda Gold and Silver Coins, under agent sales. The Bank expanded the online channels, through which the flagship store “ICBC Gold Manager” witnessed substantial growth of sales, and it also piloted the direct distribution of logistics suiting to the characteristics of e-commerce.

ICBC gold bars.

According to the World Gold Council roughly 60 % of Chinese retail gold investment demand is supplied through commercial banks. 

Courtesy World Gold Council. Note, “retail investment demand” excludes direct purchases at the SGE by individuals and institutions.

Additionally, I have no proof, but it can be that some of the inventory in the vaults of the SGE is appearing on the Chinese bank balance sheets. Most of the banks listed in exhibit 1 have a PBOC gold import license. Once the bullion is imported into the Chinese domestic gold market, often done through consignment, it must be sold first through the SGE. By the time it has arrived in an SGE designated vault and before it's withdrawn, possibly it's shown on the balance sheet of the importing bank. Though, this analysis is speculation.

3. Gold Leasing

Probably the largest share of the precious metals on the balance sheets have to do with gold leasing. At the moment, there are no official accounting rules or guidelines related to how to record bank’s gold leasing activities. (In this post, I don’t distinguish between gold leasing and gold lending because the essence is the same.) However, most banks seem to still put gold leasing activity in the precious metals category of their balance sheet. 

Helpful for the coming paragraphs is my post Chinese Commodity Financing Deals Explained (which is about the Chinese gold lease market). 

According to the A-share annual report of the Bank of Communications [brackets added by me]:

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Precious metals that are not related to the Group’s trading activities including coins and medallions sales are initially measured at acquisition cost and subsequently measured at the lower of cost and net realizable value. Precious metals that are related to the Group’s trading activities including precious metals lease and [precious metals] interbank lending are initially and subsequently recognized at fair value, with changes in fair value arising from re-measurement recognized directly in profit or loss in the period in which they arise.

Apparently, the Bank Of Communications has its gold leasing business disclosed on its balance sheet in the precious metals category. 

Below is from the 2015 annual report of Shanghai Pudong Development Bank (page 17):

Translated:

Exhibit 2. Source Shanghai Pudong Development Bank

Shanghai Pudong Development Bank saw its precious metals holdings grow from RMB 11,707,000,000 on December 31, 2014, to RMB 28,724,000,000 on December 31, 2015. As the main cause for the growth in precious metals is considered to be "increased physical gold leases", we must conclude in the case of Shanghai Pudong Development Bank nearly all precious metals on its balance sheet relate to gold leasing. But does this mean Chinese banks buy gold on the SGE and then lease it out? Not necessarily.

Chinese banks mainly do back-to-back gold leasing – simply connecting supply and demand. Banks don’t have much money of their own. They need to borrow money or gold either from savers or in the interbank market to make loans. Would it make sense for banks to borrow money in order to buy gold to subsequently lend out gold? Or would it be more logic for banks to borrow gold to subsequently lend out gold?

From a source who worked at the precious metals trading desk at ICBC in 2014 I was told first hand ICBC has little gold of itself for leasing, most of the gold lend out is borrowed from third parties. These third parties are mostly SGE members or overseas banks that lend gold through the Chinese OTC market. By the way, all commercial bank gold leasing is settled through the SGE system.

ICBC operates in the lease market as an intermediary by connecting supply (lessors) and demand (lessees), while striking a fee. ICBC can borrow gold from international banks or local gold owners with an SGE Bullion Account, and lend the gold to miners, jewelers or speculators. My assumption is that the international gold lease rate is lower than the Chinese gold lease rate, which attracts gold from the international market into the Chinese domestic gold market. (Whenever a gold loan is to be repaid from the Chinese domestic gold market to an international lender, not the physical metal is exported, but funds cross the Chinese border, as physical gold export is prohibited from the Chinese domestic gold market.)

Also note, if banks would buy the gold to lend out, they are exposed to the price risk of gold. In order to cover this risk, banks need to hedge but this will involve additional costs. As a result, the logical solution is for banks to do back-to-back gold leasing.

The Bank of Beijing is a good example to illustrate back-to-back gold lending. Unlike other Chinese banks, Bank of Beijing does not put gold leasing in the precious metals category. It has a separate line in its books for gold leasing.

According to the 2015 annual report of the Bank of Beijing (page 123 and 132):

Exhibit 3.1. “Leased out” is lending. The unit is RMB million.

Exhibit 3.2. “Leased in” is borrowing. The unit is RMB million.

As readers can see from the excerpts above, the Bank of Beijing indeed does back-to-back gold leasing as precious metals “leased in” (RMB 1,400,000,000) are equal to precious metals “leased out”(RMB 1,400,000,000). I suspect most gold leasing by Chinese banks is back-to back leasing. 

Because the Bank of Beijing has its leasing business noted in a separated line than its "precious metals", we can see a huge discrepancy between the Bank of Beijing’s precious metals holdings in exhibit 1 (RMB 55,000,000) and its back-to back leasing business in exhibit 3 (RMB 1,400,000,000). 

Exhibit 4. Total yearly leasing turnover must not be commingled with the amount of gold leased out at any point in time. The latter is unknown as far as I know.

Other banks don’t have a separate line for the gold leased out but as mentioned before, they put it in the precious metals category. A widely-accepted method to treat borrowed gold is to include a liability called “financial liability at fair value through profit and loss”. Readers who can understand Chinese are recommended to click this and this link. The ICBC annual report provides an example of how the liability is recorded.

Source: the 2015 annual report of ICBC.

In conclusion, back-to-back gold leasing will result in an asset and a liability, for most banks highly overstating the precious metals category. When looking at exhibit 4 we can see the enormous growth in yearly Chinese gold leasing turnover, which must have enlarged Chinese banks' balance sheets.  

According to my analysis a large portion of the precious metals on the balance sheets of Chinese banks is back-to-back leasing, which in turn is gold that stays inside the SGE vaults, and thus does not impact SGE withdrawals.   

4. Hedging

China’s commercial banks offer derivatives to retail and institutional customers. Bank of China’s Qi Jin Bao is an example. Qi Jin Bao is in fact gold option business. The retail customer pays a certain amount of money (option premium) and buys a gold call option or put option.

For example (simplified): suppose the current gold price is $1300/oz and a retail customer is bullish on gold and believes that the gold price will rise in 3 months time. Therefore, the retail customer buys a 3 months call option with a notional amount of 100 oz of gold at the strike price of $1300/oz from Bank of China and pays an option premium of $35/oz. If the gold price indeed goes up in 3 month’s time, the retail customer will make money. However, derivatives are a zero-sum game. If the retail customer makes money, then the Bank of China definitely loses money. If the gold price goes up to $2000/oz, Bank of China will lose big time. In order to mitigate this risk, Bank of China will (borrow money to) buy gold to hedge the short call position and the gold purchased will appear on the balance sheet.

5. Gold Held Outside China

Gold on the balance sheets of Chinese commercial banks doesn’t necessarily have to be gold held in China. Chinese banks like ICBC, BOC and Bank of Communications have direct access to the LBMA. As a result, gold on the balance sheets of Chinese commercial banks can be located outside China mainland.

On January 29, 2014, ICBC bought 60 % of the existing shares in Standard Bank Plc from Standard Bank London Holdings Limited. After completion of the acquisition, Standard Bank Plc was renamed as ICBC Standard Bank on 27 March 2015. In the 2015 annual report of ICBC (Group), which includes ICBC Standard Bank, we see that ICBC Standard Bank held RMB 18,426,000,000 in precious metals assets (equivalent to 83 tonnes of gold) on December 31, 2015.

Source: the 2015 annual report of ICBC.

As ICBC Standard Bank can be seen as an international gold arm of its group – ICBC Standard Bank is a London Bullion Market Association market maker for spot trading and a clearing member of London Precious Metal Clearing Limited (LPMCL) – we may assume any precious metals assets of ICBC Standard Bank are not located in China mainland. 

Conclusion

From the descriptions above, the precious metals holdings on the balance sheets of Chinese commercial banks are quite complicated to decipher. One thing is for sure, it's not all gold owned by banks and leased out, neither is it all purchased by banks on behalf of the Chinese central bank.

In order for us to learn more exactly what the precious metals on the balance sheets represent we need more information, more investigation is needed by gold analysts. Hopefully this blogpost can serve as a springboard to a better collective understanding.

Addendum

In addition to Gold Accumulation Plans many Chinese banks offer a variety of (paper) gold hedging and speculation broker services to their clients. For example, in the annual report 2014 from Agricultural Bank of China (ABC) we can read:

… Precious metals

… As a major precious metal market maker in the PRC, the Bank provided customers with precious metal trading, investment and hedging services through … trading of precious metal derivatives … and trading … the Shanghai Futures Exchange and the London precious metals market.

So, through ABC clients can trade paper gold, but these derivatives would be recorded off-balance sheet, or in a separate line next to "precious metals". More from the ABC annual report 2014:

Our off-balance sheet items primarily include derivative financial instruments, contingent liabilities and commitments. We enter into currency rate, interest rate and precious metals related derivative financial instruments for the purposes of trading, asset and liability management and business on behalf of customer.

Similarly, in BOC's annual report 2015 we read:

Off-balance Sheet Items

Off-balance sheet items include derivative financial instruments, …. The Group entered into various derivative financial instruments relating to … precious metals and other commodities for trading, hedging, asset and liability management and on behalf of customers. 

Implying, from my judgement, all the precious metals on-balance sheet are not (customers') paper gold. 

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Two weeks ago we were surprised to read that Italian prosecutors had launched a probe into potential accounting fraud and market manipulation by the executives of Italy’s third largest, and the world’s oldest bank, Monte Paschi just weeks after its most recent bailout was announced. It didn’t last long: moments ago Reuters reported that less than two weeks after news of the probe leaked, Milan prosecutors have filed a request to shelve a probe for alleged market manipulation and false accounting against the chief executive of Monte dei Paschi di Siena and the bank’s former chairman, three judicial sources said.

According to Reuters, news of the probe, which emerged last month, risked undermining investor sentiment in the bank’s management as it seeks to raise up to 5 billion euros in an emergency capital increase by the end of the year. A judge will now be called to rule on the request, which was submitted by prosecutors on Thursday.

As reported on August 18, a source had told Reuters last month that Monte dei Paschi CEO Fabrizio Viola and former chairman Alessandro Profumo were being investigated in relation to the way the bank booked two derivatives trades in its accounts between 2011 and 2014.

One of the sources said on Thursday the request to shelve the probe was warranted given that there was ample reference to the nature of those trades in a separate section of the bank’s financial accounts and regulators had been informed.

The probe started last year in Siena and it was transferred to Milan, which has jurisdiction over market manipulation crimes, in July.

In other words, Italy realized it couldn’t have the alleged truth about cook-booking by the bank’s top executives coming out just as the bank was scrambling to execute its €5 billion bailout and as a result, any potential wrongdoing by the bank’s executive will remain undisclosed. Justice wins again.

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• Global shares snap losing streak as oil ends its decline (Reuters)
• Trump returns to hardline position on illegal immigration (Reuters)
• U.S., others agreed to ‘secret’ exemptions for Iran after nuclear deal (Reuters)
• China’s Factory Gauge Unexpectedly Rises to Highest Since 2014 (BBG)
• Weak Pound Drives U.K. Factories Back From Brexit Shock (BBG)
• Elon Musk Faces Cash Squeeze at Tesla, SolarCity (WSJ)
• Cash Keeps Pouring Out of European Stocks (WSJ)
• Gross Calls for Two Fed Hikes at Double the Pace Seen by Market (BBG)
• Yellen Speech Contained Clue to Reading the August Jobs Report (BBG)
• Deutsche Bank Weighs Stronger Medicine (WSJ)
• Apple Squeezes Parts Suppliers to Protect Margins (WSJ)
• Hanjin Ships Get Stranded in High Seas, Roiling Supply Chain (BBG)
• Australia must choose between United States and China: U.S. Army official  (Reuters)
• Andreessen Horowitz’s Returns Trail Venture-Capital Elite (WSJ)
• Why Luck Plays a Big Role in Making You Rich (BBG)
• After Initial Drop, Fresh Surge in Migrant Arrivals Puts Extra Strain on Greece (WSJ)
• Puerto Rico Oversight Panel Named to Halt Island Debt Crisis (BBG)
• Musk Talked Merger With SolarCity CEO Before Sale of Stock (BBG)
• Hollywood’s Summertime Bombs Got a Lot More Disastrous This Year (BBG)
• Salesforce Revenue Forecast Falls Short on Cloud Competition (BBG)

Overnight Media Digest

WSJ

– Donald Trump, hours after seeming to ease on his immigration and trade policy while standing with Mexico’s president, told a crowd that all illegal immigrants are “subject to deportation” and that all those seeking legalization will have to go home and re-enter the country legally. on.wsj.com/2bDwTQ6

– Dilma Rousseff, a former leftist guerrilla who defied a dictatorship but struggled as Brazil’s president, was removed from office Wednesday following an impeachment trial she condemned as a coup. on.wsj.com/2bReJIw

– Price spikes for drugs like EpiPen and Daraprim reflect a lack of competition, which can be curbed by allowing generic drugs approved abroad to be sold in the United States. on.wsj.com/2c8Q0Qn

– A divided Supreme Court on Wednesday rejected an emergency appeal by North Carolina seeking to revive stricter state voting rules, which reduced the number of days for early voting and required photo identification at the polls. on.wsj.com/2c9kaD0

– Tesla Motors Inc, which makes electric cars, disclosed in a securities filing Wednesday that it has to pay $422 million to its bondholders in the third quarter, and that it will raise additional money by the end of the year. The purpose of the additional capital, among other things, is to support its proposed merger with home-solar company SolarCity Corp. Musk is the chairman of both companies. on.wsj.com/2bE2ZLH

– Amid the chaos of Syria’s war, the Kurds have carved out a semiautonomous region called Rojava that is home to about four million people, is as big as Belgium and stretches nearly the full length of the 565-mile border between Syria and Turkey. on.wsj.com/2bCHTwZ

– Money has flowed out of European equity funds every week for more than six months, a stretch that is now longer than the previous record set during the financial crisis. on.wsj.com/2cgq20q

 

FT

– British Medical Association’s governing council and dispute committee approved a full walkout of junior doctors from 8 a.m. to 5 p.m. for five days starting Sept. 12. The doctors will stage a new set of strikes with “full withdrawal of labour” unless the government backs down on plans to impose a contentious new contract and returns to the negotiating table.

– EDF’s five board members are petitioning to have the court declare invalid last month’s board decision to move forward with the Hinkley Point power project in the UK.

– British Airways’ business-only flights to New York’s JFK airport from London City will halve by Oct. 30 as demand for all-business flights drop.

– Nets Holding, Scandinavia’s biggest payment processor, is set to announce IPO plans as soon as Thursday that could value it as much as $5.2 billion.

 

NYT

– John Cryan, the chief executive of Deutsche Bank , urged for more consolidation in the banking industry in Germany and across Europe. He said the monetary policy was eating into profits of banks even though the ECB intervened after the financial crisis. http://nyti.ms/2bDwvTd

– Brazil’s first female president, Dilma Rousseff, was impeached by the Senate on Wednesday and was effectively removed from her office for the remaining of her term. http://nyti.ms/2bDuSoG

– U.S president Barack Obama left for a trans-Pacific voyage on Wednesday, marking his 10th trip to Asia as president. He hopes to announce further progress with China on climate change. http://nyti.ms/2bDuK8J

– Donald J. Trump made an audacious attempt on Wednesday to remake his image on the issue of immigration, announcing his plan to deport 11 million undocumented people and arguing that a Trump administration and Mexico would secure the border together. http://nyti.ms/2bDtLpa

– Canada said it had applied to join China’s version of the World Bank. The move came during a trip to China by the prime minister of Canada, Justin Trudeau. http://nyti.ms/2bDw4bO

– On Wednesday, UK Prime Minister Theresa May called cabinet ministers to a brainstorm about Brexit, promising to examine “the next steps” for Britain. http://nyti.ms/2bDx6V0

 

Britain

The Times

** Record low interest rates, falling consumer prices and high employment levels have caused the largest collapse on record in Britain’s saving habits, according to a GfK report. http://bit.ly/2bD1iLn

** BHP Billiton is set to strip its chief executive of his annual bonus after the publication of a hard-hitting report into failures at the mining group’s Brazilian joint venture that led to the fatal collapse of a dam. http://bit.ly/2bD1ieh

The Guardian

** Proposals by Chris Philp, a Tory member of Parliament, to rein in executive pay by allowing remuneration packages to be vetted by shareholder committees have won the backing of Britain’s most influential fund manager, Neil Woodford. http://bit.ly/2bD0juo

** The combined deficit of the UK’s 6,000 defined benefit pension funds has grown by 100 billion pounds ($131.35 billion) in the last month, bringing the total deficit to 710 billion pounds ($932.59 billion), according to a new report. http://bit.ly/2bD0XYN

The Telegraph

** Netflix Inc is to produce its first British children’s programmes, as entertaining kids becomes a key battlefield in the intensifying pay-TV war with Amazon and Sky. http://bit.ly/2bD082r

**Warren East, chief executive of Rolls Royce Holdings , warned that unless industry can make a decent return on military contracts, it will abandon them – with serious implications for the country’s military industry. http://bit.ly/2bD0K7T

Sky News

** Theresa May has ordered her senior ministers to make a success of Brexit. She has insisted there will be no second referendum or attempts to remain in the EU by the back door. http://bit.ly/2bD1vOt

** Jet2.com says it is to create almost 1,000 new jobs in the next phase of its expansion. The budget airline said it wants to recruit 180 pilots, 700 cabin crew and 80 engineers and will be staging a number of roadshows for people interested over the coming weeks. http://bit.ly/2bD1PwJ

The Independent

** Extra Energy has attracted the highest number of customer complaints among energy companies for a second consecutive quarter, performing 80 times worse than the best-performing supplier, figures show. http://ind.pn/2bD42rY

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“Delivery of gold” has been refused by a popular German gold exchange traded commodity (ETC), Xetra-Gold, which is offered by Deutsche Bank, in the latest example of the risk of owning gold exchange traded commodities (ETCs), exchange traded funds (ETFs) and indeed most institutional gold investment offerings.

Like many gold exchange traded funds and commodities, the German ETC offered the ability to take physical delivery of the gold. As reported by Zero Hedge:

“Since the introduction of Xetra-Gold in 2007, investors have exercised this right 900 times, with a total of 4.5 tons of gold delivered.”

However, something appears to have changed. As Oliver Baron reports, those who ask for gold delivery at this moment, “could encounter difficulties.” The reason is that according to Baron, a reader of GodmodeTrader “sought physical delivery of his holdings of Xetra-Gold. For this he approached, as instructed by the German Borse document, his principal bank, Deutsche Bank.”

At that point then he encountered a big surprise: the Deutsche Bank account executive informed the investor that “the service”, is no longer offered, namely exercising physical delivery at Xetra-Gold, for “reasons of business policy” and therefore the order form provided by Clearstream Banking AG for exercising Xetra-gold is no longer available.

Baron writes that since Deutsche Bank is no longer serving the physical exercising of delivery request of Xetra-Gold is remarkable, as Deutsche Bank is the “designated sponsor” as well as fiscal, principal and redemption agent of Xetra-Gold according to its prospectus, and as the explainer of how to exercise physical delivery also reveals. Even if one is a customer of another bank, Xetra-Gold should – at least on paper- guarantee delivery by way of Deutsche Bank, as the Deutsche Borse Commodities GmbH explains in its “process description for exercising units.”

The question that arises is whether this supply issue is impacting Umicore, Deutsche Bank and the wider institutional gold market in Germany. If so it could signal wider institutional supply issues as Germany remains the largest buyer of gold in the EU and one of the largest buyers of gold in the world.

High net worth clients of ours have encountered similar issues in seeking to take delivery of their gold from the Julius Baer Physical Gold Fund. Even clients who had allocated more than $1 million to the fund were prohibited from taking delivery despite the promised “option of redeeming shares for physical gold”. Indeed, some moved from Julius Baer to GoldCore Secure Storage after they “tested” the physical redemption clause and were disappointed by the inability to take delivery.

It is worth remembering that clients of ABN AMRO, the largest Dutch bank and one of the largest banks in Europe , were also refused physical delivery of their precious metals in 2013.

ABN AMRO announced in a letter to clients in April 2013 that that it would no longer allow them to take delivery of their bullion including gold, silver, platinum, and palladium bullion coins and bars. Instead, they paid the precious metal account holders in the euro equivalent to the current spot value of the precious metal.

As we wrote at the time:

Thus, instead of legally owning a risk free, physical asset (a bullion bar or a bullion coin), the bank’s clients were unsecured creditors and were exposed to the bank and the financial system – somewhat defeating the purpose of owning precious metals.

The move highlighted once again the importance of owning physical bullion either in your possession (be that be in a safe or vault in a house, in the attic, under the floorboards or elsewhere in your possession) or in a secure vault in a country that is stable and respects property rights.

Paper, digital and financial proxies for gold are not real gold. Hence the importance of owning coins and bars either in one’s possession or in allocated and segregated storage in the safest vaults in the world.

Gold and Silver Bullion – News and Commentary

Gold above 2-month lows as dollar slip (CNBC)

Gold Holds Monthly Drop as Payrolls in Focus for Data-Driven Fed (Bloomberg)

Chicago PMI falls more than expected in August, missing consensus (Investing)

American Eagle coin August sales fall yr/yr as prices ease (Reuters)

Gold hits two-month low, but portfolio manager sees a rebound ahead (CNBC)

Deutsche Bank Refuses Delivery Of Physical Gold Upon Demand (ZeroHedge)

$5 billion in notional gold dumped into futures market (ZeroHedge)

Bond king Gross says Fed has “mastered market manipulation” (CNBC)

Fed is destroying “capitalism’s business models” – Bill Gross (ZeroHedge)

Britain’s latest rise in property prices is just the calm before the storm (BusinessInsider)

Gold Prices (LBMA AM)

01Sep: USD 1,305.70, GBP 9,985.80 & EUR 1,172.13 per ounce
31Aug: USD 1,314.45, GBP 1,000.30 & EUR 1,179.19 per ounce
30Aug: USD 1,318.85, GBP 1,008.39 & EUR 1,180.90 per ounce
26Aug: USD 1,324.90, GBP 1,002.95 & EUR 1,173.33 per ounce
25Aug: USD 1,324.50, GBP 1,001.06 & EUR 1,172.98 per ounce
24Aug: USD 1,337.30, GBP 1,010.73 & EUR 1,185.38 per ounce
23Aug: USD 1,338.50, GBP 1,015.25 & EUR 1,181.09 per ounce

Silver Prices (LBMA)

01Sep: USD 18.65, GBP 14.08 & EUR 16.73 per ounce
31Aug: USD 18.74, GBP 14.27 & EUR 16.82 per ounce
30Aug: USD 18.78, GBP 14.35 & EUR 16.82 per ounce
26Aug: USD 18.67, GBP 14.15 & EUR 16.54 per ounce
25Aug: USD 18.50, GBP 14.02 & EUR 16.39 per ounce
24Aug: USD 18.84, GBP 14.23 & EUR 16.70 per ounce
23Aug: USD 18.98, GBP 14.40 & EUR 16.75 per ounce

Recent Market Updates

– Debt Bubble in Ireland and Globally Sees Wealthy Diversify Into Gold
– “Why Case Against Gold Is Wrong” – James Rickards
– Obama To Leave $20 Trillion Debt Crisis For Clinton Or Trump
– Gold Bullion Averages Biggest Seasonal Gains in September Over Past 20 Years
– Gold Futures See Massive $1.5 Billion “Non Profit” Liquidation In “One Minute”
– Jim Grant Is “Very Bullish On Gold”
– Germans Warned To ‘Stockpile’ Cash In Case Of ‘War’
– Ireland’s Biggest Bank Charging Depositors – Negative Interest Rate Madness
– Rothchilds Buying Gold On “Greatest Experiment” With Money In “History of the World”
– Gold – “Mother of All Bull Markets Has Only Just Begun” – Grandich
– 45th Anniversary Of Nixon Ending The Gold Standard
– Gold In UK Pounds Collapses 38% Versus Gold and 56% Versus Silver Year To Date
– Will Ireland Be First Country In World To See Bail-in Regime?

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