China Buys the Dip (and India, and Japan…)

April 17, 2013

  • Lining up outside the door in China, first purchases in 20 years in Japan: While paper traders push gold down, buyers of the real stuff can’t get enough
  • A sure sign demand for silver is rising as fast as the price is falling…
  • Going the way of the buggy whip? Why our income specialist is unimpressed with a tech giant’s 4.2% yield
  • Victory over the IRS (sort of)… “slimeballs,” a reader cries… the real cost of living… and more!

  “Monday’s plunge has excited the Chinese market,” said the perky anchor on China’s English-language CCTV News.

As we write, gold sits about where it did 24 hours ago, at $1,386. And CCTV devoted the first 10 minutes of its Biz Asia program this morning to gold.

There was a report from one of the country’s major gold bazaars. “On Saturday,” said the manager, “there were so many customers it was difficult to get into the store.”

“Chinese buyers’ faith in the yellow metal remains strong,” said a sound bite with the chief economist at one of the country’s “Big Four” banks. That’s the “love trade” in action — the term coined by Vancouver stalwart Frank Holmes to describe Asians’ cultural affinity for gold.

An expert interviewed in the studio said if Cyprus is forced to sell gold to meet the terms of its bailouts, other sickly eurozone countries might have to do the same. “If Italy is asked to sell gold,” he said, “that would be a large amount.”

We sensed the gentleman was trying not to salivate, given China’s drive to build up its own Fort Knox these days.

  Meanwhile, “Gold buyers in India, the world’s biggest consumer, are flocking to stores to buy jewelry and coins,” according to Bloomberg.

“My daughter is just six months old, but I think it is never too early to buy gold,” said a housewife named Sharmila Shirodkar. She’d just bought a pair of earrings in Mumbai’s Zaveri Bazaar. “I had been asking my husband every day if prices will go down more. I couldn’t wait anymore.”

“Surging physical demand in India,” said the report, “may help stem the 17% slide in prices this year.”

100  In Japan, meanwhile, the “fear trade” is on.

“Contrarian, individual Japanese investors understand that gold is a volatile investment,” reads a Reuters dispatch from Tokyo, “but say that buying the precious metal is better than the alternatives.”

“Bank deposits generate virtually zero interest,” Yujiro Yamashita told the news agency. At age 63, he bought $5,000 worth of gold shortly after the bottom started falling out on Friday. It was his first purchase in 20 years.

Yamashita is among a multitude worried “that the new high-octane economic policies of Prime Minister Shinzo Abe, designed to shock the economy out of nearly two decades of deflation, might prompt a collapse in the yen,” says the report.

  Back in North America, the “strong buying interest” in physical metal noted by Sprott’s David Franklin in yesterday’s episode is confirmed today by Michigan dealer Patrick Heller.

On Monday, “the further price drop brought out even more eager buyers of precious metals,” Heller writes at Numismaster. “Even though we recently moved to much larger quarters (the size of the showroom quadrupled and we added several phone lines), customers were waiting as long as 30-60 minutes to be served. Many people simply could not get through on the telephone lines because they were jammed with calls.

“Dealers and wholesalers have almost nothing in stock for immediate delivery and premiums are rising across the board.”

  Especially on junk silver. “The premium over silver value on $1,000 bags of U.S. 90% silver coin topped 20%,” Heller reports.

If the term is new to you, junk silver consists of circulated pre-1965 silver dimes, quarters and halves. They’re sold in bags of $1,000 face value, or about 715 ounces of pure silver.

“For much of the past decade,” writes Gene Arsenberg at the Got Gold Report, “‘90%’ has traded at ‘par’ or at a small discount to spot silver.” That has changed dramatically since the calendar turned to 2013.

And this chart goes through only the first week of April… when silver was still in the $27 range. This morning, it’s $23.65. The 20% premium reported by Heller implies a premium of $4.73 an ounce — even higher than during the 2008 financial crisis, when buyers of physical silver had to wait weeks, if not months, for delivery.

This departure between the physical price of bullion and the spot price quoted on the Comex is the key to our “zero hour” scenario described in Apogee Advisory. If you’re not acquainted with it, it’s available for your review in the Apogee archive the moment you subscribe.

  U.S Silver Eagle sales, meanwhile, are on a pace to set an April record.

January and February of 2013 both set records for their respective months… and March fell just shy of the 2010 record. That’s because the Mint appears to have logged many of its March sales in the first week of April — no doubt with the explicit purpose of confounding editors who were ready to write about “the third-straight monthly record.” Heh…

In any event, Mint figures show 2,387,000 Silver Eagles exited the doors so far this month. The current April record of 2,819,000 in 2011 is almost sure to fall. Unless a huge chunk of April sales aren’t logged until May…

[For collectors only: Our friends at First Federal still have a modest inventory of Proof Silver Eagles complete with an autograph by its designer, John Mercanti. Click here to learn more about this unique — even unprecedented — opportunity.]

  Whatever the major stock indexes gained yesterday they’ve lost today. At last check, the Dow is the only one that’s down less than 1%.

Among the factors that have traders bummed is a first-quarter earnings miss by Bank of America. Nothing to worry about, really: The second-quarter numbers will surely improve with the 4 million ounces of gold contracts its subsidiary Merrill Lynch is reputed to have dumped last Friday…

The tech sector is getting hammered. The Nasdaq is down 1.75%, dragged down by a nearly 5% plunge in Apple shares. Intel is down 1%, having delivered its own earnings disappointment after the bell yesterday.

  “With any market — especially for the mercurial market for technology — things change,” writes our income specialist Neil George.

Neil pruned Intel from the Lifetime Income Report portfolio in January. Even a yield north of 4% doesn’t cut it for him. “Intel’s hoarding a lot of cash that it might need to stay alive unless changes are made.

“Look at its peers in the PC market — from chipmaker AMD, which lost 71% so far this decade, to PC software maker Microsoft, down over 9%, to the PC maker/vendor Dell, down another 8%. Being tied to PCs, from desktops to laptops, has been a bad market to be trying to make a positive return in.

“While no one is going to say that PCs are going completely the way of the buggy whip — there is a good comparison. More and more folks are using PCs less and mobile computers more.

“Forget what worked before,” Neil advises, “and always ask what is more likely to work in the future, and invest accordingly.” For Neil’s favorite income plays of the moment, look here.

  Cross your fingers, but it appears the IRS will abandon its policy claiming the right to read your email without a warrant.

As we mentioned last Friday, IRS policy — laid down in its Search Warrant Handbook — declares that “Emails and other transmissions generally lose their reasonable expectation of privacy and thus their Fourth Amendment protection once they have been sent from an individual’s computer.”

Yesterday at a Senate hearing, Sen. Ron Wyden (D-Ore.) pressed acting IRS commissioner Steven Miller on the issue. Miller promised the policy will be abandoned within the next 30 days.

But don’t organize a victory party: Miller made no such promise for private messages exchanged through Facebook and Twitter. The spying architecture that the IRS’ lead technology guy says would make the private sector “envious” remains in place.

  Another policy Washington is abandoning: “Purple Hearts for carpal tunnel syndrome.”

That’s what a retired Green Beret called the military’s plans to award a new Distinguished Warfare Medal to the operators of armed drones.

Now comes word that Defense Secretary Chuck Hagel has put the kibosh on those plans. “Instead,” according to Politico, “the Pentagon will create a special designation it will apply to existing medals.”

Uh… How many of these did they make before changing their minds?

  “The slimeballs who naked shorted over one year of gold production on Friday should be locked up for their crimes,” a reader writes, “since we would have been if we had done anything like that.

[Our mailbag has been strangely quiet about gold’s plunge. ‘Bout time someone made things a little more lively around here…]

“I say that,” the reader goes on, “even though they gave me a welcome chance to buy 25 1-ounce wafers at $1,430. When the price dropped further to $1,330, I converted almost every last scrap of paper to my name and ordered 75 more 1-ounce wafers at that price. Somehow, I have zero fear the price will drop below $1,330, where I couldn’t buy any more without selling something physical, which I won’t.

“So while I’m underwater on those 25 ounces at $1,430, the average price for my 250 ounces is still under $900 per ounce.

“I have no fear. I sleep fine at night, and will continue to do so. In fact, with virtually zero fiat or other paper at this point, I’ll sleep like a baby again!

“Oh, and if I ever happen to get any George Soros on my shoe,” he adds with James Howard Kunstler’s remarks yesterday in mind, “I’ll take your advice and scrape him off at my first opportunity. What a sleaze! You know that pervert is buying gold like crazy right now, and probably physical.”

The 5: You’ll never know. As we’ve pointed out before, fund managers like Soros don’t have to disclose bullion purchases on their quarterly 13-F forms to the SEC…

  “Your reader that says his deposit or account holdings are not an investment, but rather a consumer of bank services is just plain incorrect,” writes a reader with another could-Cyprus-happen-here follow-up.

“In actual fact, you are lending the bank certain funds and allowing them to invest those funds in loans and mortgages, etc., and for that you are paid interest. The other services that an account holder uses are paid for services generally available only to depositors. Thus, he/she is no different from a bank share investor, who is paid a dividend plus share movement, or a bondholder, who is paid interest.

“If the bank goes belly up, then depositors lose, as do bondholders and shareholders… no difference… therefore, you are an investor. The upside for the depositor is that there is the FDIC to protect the small depositor (maybe… see Cyprus).”

  “Several,” reads the subject line of an email hitting on several topics from yesterday…

“1) Fear: I’ve served and worked construction in war zones. As gruesome as the Boston Marathon massacre and Sandy Hook were, they impacted a negligible percentage of the population. We are living in one of the historically most safe places and times in all of history. Too damn much media hoopla.

“2) ‘Consumer prices fell 0.2% last month.’ Says who? You really owe it to readers to cite the source. And if you REALLY wanted to provide readers with accurate information, you might try comparing the highly manipulated federal numbers with some more credible, like those from ShadowStats. The government numbers are a product of fiction — how to lie with statistics.

“3) One unintended consequence of the Fed’s policies is that the big banks and big financials have HUGE amounts of cash squirreled away that they can use to place HUGE bets — long or short — on whatever they please. Expect more of these highly volatile days in all sorts of markets.

“4) Keep up the good work. God knows the MSM isn’t.”

The 5: Thank you. We attributed the silly CPI numbers to the Bureau of (be)Labor(ed) Statistics. ShadowStats pegs the year-over-year increase at 9.1%. We’ll aim to report that figure more regularly, as we do with ShadowStats’ unemployment rate.

If you’re a glutton for punishment, the internals of the official report are always amusing. Health insurance? Up 6.5% in the last year, the BLS says. But health insurance supposedly makes up less than 0.7% of a typical consumer’s expenses.

Really? Wherever that planet is, sign us up…


Dave Gonigam

The 5 Min. Forecast

P.S. “No experience needed,” we said last fall when we launched a one-of-a-kind trading experiment. In fact, the less you knew about trading, the better chance you had to succeed. And more than 13,000 people came through with flying colors.

If you missed out then, we’re about to launch Phase 2 of the experiment. Beginners welcome. Come back tomorrow for details…


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More