June 5, 2013
- The record that wasn’t broken: Why China’s gold imports fell despite lower prices
- “It is a surprise,” says one expert… but not a shock: Why gold’s “Zero Hour” is even closer now
- Neil George scouts out a developed country whose stock market has doubled the S&P’s performance
- Where our man has gone before: Why the engine room of the Enterprise in the new Star Trek movie looks mighty familiar to Byron King
- The untold story behind one state’s boozy status… readers play what-if with Middle East petro-states abandoning the dollar… “central banking’s racket in the gold market”… and more!
“I would have expected a stronger number,” says Commerzbank analyst Carsten Fritsch, “but that is difficult when not enough gold is available.”
China’s monthly gold import numbers are just in… and they’ve confounded expectations.
First, the essential background on these obscure but highly revealing figures. If it’s old hat to you, please indulge newer readers for a moment…
- These are not complete numbers; the Chinese keep their actual gold trade figures close to their vest. The best we have to go on is China’s imports via Hong Kong
- The March total destroyed all previous records. In theory, the April number should have been even higher — bargain-hunters scooping up metal after the price got smashed to $1,321 an ounce on April 15.
In the event, the number fell 44% from March to April, because, as the man from Commerzbank said, “not enough gold is available.”
“Gold dealers in Asia have had to take orders to be delivered at a later date,” Reuters explains, “creating a backlog.”
“It is a surprise,” says Ronald Leung from Lee Cheong Gold Dealers in Hong Kong. “Prices had fallen in April, but there was not much supply at that time, maybe that’s why imports have fallen. Premiums were sky-high at that time.”
And they still are. Before gold took its mid-April tumble, high-volume Chinese buyers were accustomed to paying a premium of $7 an ounce over the spot price. Now they’re paying more than four times that figure.
“Premium is a function of demand and supply,” explained the Bank of China’s Qu Mingyu last month, “and right now you could interpret the high premium in Shanghai as a sweetener to entice the overseas gold supply to flow into China.”
Except now we see the flow is being bottled up.
One factor at work: “Some qualified banks used up their gold import quota in the first three months and weren’t able to get the paperwork done fast enough to bring in bullion in April,” Tian Rui of INTL FCStone Trading Co. tells Bloomberg. “We might see higher imports in May because demand surged after the rout.”
Meanwhile, India’s gold imports keep growing — despite the best efforts of India’s government to curb them.
India imported 162 metric tons of gold in May — up from 142.5 in April. Indian buyers scoffed at rising import duties imposed by the government to try to keep the country’s trade balance from getting further out of whack.
But the bureaucrats are in a pickle: “The government is cautious about raising import duty further,” says a report from Reuters, “because it is concerned that this could encourage smuggling.”
[Ed. note: Supply squeezes in China… soaring imports in India… still more evidence of an approaching phenomenon we call “Zero Hour.” That’s the moment when the price of physical metal in your hands breaks away from the “paper” price quoted on CNBC’s ticker.
If high-volume Chinese buyers are already paying quadruple the premiums they were paying two months ago, what does that bode for us here in the West? And what are the right metals moves to make right now?
We’re putting those questions to someone whose feet are planted firmly in both East and West: Commodity investing legend Jim Rogers will join us from Singapore, his home base since 2007. We’ll also be joined by veteran gold market expert Ed D’Agostino. This FREE Zero Hour briefing is next Tuesday, June 11. Don’t miss out — you can sign up for exclusive access at this link.
The paper price of gold is oscillating around $1,400 this morning — $1,405 at last check. The bid on silver is $22.64.
Stocks are taking another tumble. As we write, the Dow is only 60 points from breaking below 15,000. Small caps are taking an even bigger blow, with the Russell 2000 down nearly 1%.
Among the numbers in traders’ sights…
- Private-sector jobs: Up 135,000 last month, according to the payroll firm ADP. Anemic, and less than the “expert consensus” among dozens of economists polled by Bloomberg
- Service sector: Still growing, according to the ISM nonmanufacturing survey. But the employment component of the report is ruler-flat.
Together, that hints at a subpar jobs report from the Labor Department, due Friday. That should be “good” news, right? It would mean the Federal Reserve is more likely to keep mainlining QE at a pace of $85 billion a month, right? Stocks should be rallying, right?
Wrong. Go figure.
Later today, the Fed delivers its monthly “Beige Book,” which traders will duly examine as witch doctors examine entrails, hoping to divine further clues to central bank policy. We can hardly contain our excitement…
“Greetings from Spain!” writes our income specialist Neil George. He’s spending time in Madrid scouting out the next big income generator for his subscribers.
“This is a nation that I’ve had long experience working in.” he says. “I was keeping a close eye on developments here back in the early 1990s, when Spain started working hard to clean up its finances and gain entry into the beginnings of the euro, as well as gain economic and market respectability.
“I had faith in Spain, so I stepped in and bought the bonds of the nation in the local currency, the peseta. It was a good bet. Yields came down as the nation’s credibility went up, driving bond prices up sharply… Of course, as you no doubt know, those good times did not last.”
Despite that, Neil told us that “The local market index has been on a tear over the past 12 months, more than doubling the return of the U.S. S&P 500.”
It sounds great, but Neil isn’t quite sold. He has, however, spotted one play sporting an 8% yield. He’s still performing his due diligence, but Lifetime Income Report readers will be first to see his conclusions. If you’re looking for yield in a world of near-zero interest rates, you might wish to consider joining their ranks.
“The Star Trek view of the future,” our resource whiz Byron King writes, “has always envisioned a better time for humanity (post-apocalypse, by the way) enabled by access to vast energy. In Star Trek, ‘warp’ levels of energy allow people to explore the universe and meet all manner of fun new alien beings, like Klingons and Romulans.”
Before you begin to think Byron has ventured a tad too far off his own beaten path, let’s back up a few strides.
“The other night,” he writes by way of context, “my son and I went to a local Cineplex and saw the new film Star Trek Into Darkness.
“I won’t spoil anything,” he assures. “I’ll just say that the new Star Trek tells a strong tale of good versus evil, using dramatic, sometimes sweet (but cheesy) human interaction, soap opera theatrics, dazzling special effects and plenty of eye candy.”
“Speaking of eye candy,” Byron goes on, “director J.J. Abrams staged numerous scenes in the futuristic engine room of the starship USS Enterprise.”
But “after a few scenes, things started to seem almost too familiar. There was a sense of… deja vu! Hey, I’ve been there! Indeed, it was one of those head-slapping ‘Aha!’ moments.
“The ‘engine room’ of the movie version of starship Enterprise is actually the inside of the National Ignition Facility (NIF) at the Lawrence Livermore National Laboratory (LLNL), southeast of San Francisco. NIF is the world’s most powerful laser system.”
Starship warp coil or U.S. national energy asset?
The DOE has been constructing the laser powerhouse at NIF over the past 20 years… with preparation and design going back to the 1970s.
“The mission of NIF,” says Byron, “is to explore the extreme edges of physical realms using amplified laser power.”
Without getting too technical, inside the target bay — another room that appears to be straight out of a sci-fi film — the NIF has constructed 192 lasers and an array of large mirrors, divided equally with outstanding precision.
Through these lasers and mirrors, they direct 2 million joules of ultraviolet laser energy in billionth-of-a-second pulses to the center of the chamber, slamming every bit of it into millimeter-sized targets, all within trillionths of a second.
Phew… and we have trouble programming the clock on the microwave.
This enables U.S. Big Science, Byron explains, “to address truly grand challenges in national security, fusion energy and fundamental science.”
Fortunately for us, Byron understands this stuff… and can explain it in a way that even we can pick up on. And of course, the best ways to profit from these mind-blowing discoveries. To check out what else he’s sticking his nose in these days, click here.
“North Dakota often tops the lists when it comes to binge drinking,” says the Daily Mail, “so it may not be too much of a surprise when told the state also has the most bars per capita in the United States.”
Hmmm… There’s one bar for every 1,621 people in North Dakota. Good for tops on this map…
“It’s not surprising at all,” says one bar manager. “There’s not much else to do here.”
The Mail seems to have overlooked an additional factor — the huge influx of outsiders working the Bakken oil shale.
“Whenever I converse with them,” writes historian and North Dakota resident Clay Jenkinson, “or hear them talking amongst themselves, the following theme emerges. Not much to do here. Lots of country all spread out, very few amenities. The locals are really nice and all that, but it seems like a pretty boring place.”
He also says they drink too much. Heh…
As for the other top three states, note that the Bakken spills over into Montana. And for Wisconsin — home to the brandy old fashioned — its high showing was best explained by the comedian Lewis Black during a performance in Milwaukee: “You are not alcoholics. You — and my hat is off — are professionals!”
“Yes, it fascinates me too, but the implications are scary,” writes a reader carrying on our discussion about China’s huge and growing presence in Iraq’s oil industry. Yesterday, we mused on the possibility of the two countries trading in yuan and dinars, instead of dollars.
“What if,” the reader imagines, “they find they can trade oil for gold, gold for oil and indirectly between both of those plus other commodities, resources and services with simple discounts (or favors), Bitcoins, or similar cryptocurrency in virtually complete privacy? My question will be who can stop them from doing that? How? I cannot see anyone enforcing a worldwide ‘patent’ on trading without a worldwide tax system combined with a lack of privacy.”
“Saudi Arabia, under current conditions, would never be the ones to end the petrodollar agreement,” writes one of our regulars, peeling another layer of the onion.
“The royals aren’t going to be the dog that bites the hand of the one who feeds them. Where else will they get all the fighter jets and military equipment they need to suppress the masses. The royal family is hanging on by the knot at the end of the rope, and it is shrinking.
“The change will come who knows when, but it will be a big battle and lots of old-time CIA-type funding to keep the Sunnis in control of the Shiite masses when the time comes.”
The 5: No doubt. Look at the silence of the White House during the Arab Spring when the Sunni rulers of Bahrain cracked down on the Shiite majority in brutal fashion. Can’t have that going on in the country where the Fifth Fleet is based.
It goes to reaffirm our ongoing guidance — avoid energy investments exposed to the turmoil of the Middle East. No sense in it when there are so many better opportunities closer to home.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “The Daily Reckoning’s Addison Wiggin shows again tonight that he understands Western central banking’s racket in the gold market,” writes Chris Powell of the Gold Anti-Trust Action Committee.
Mr. Powell appears impressed with the analysis of the “Zero Hour” scenario in yesterday’s DR. “Zero Hour” is the moment when you’ll be grateful you hold real precious metals in your hand… instead of shares in a metals ETF.
To help you sort out the investment implications well before Zero Hour arrives, we’ve recruited the legendary Jim Rogers for an exclusive briefing next Tuesday, June 11. Access is absolutely free. You can make sure you’re on the inside by signing up at this link.