Gold investors increased their holdings of bullion at a major dealer by more than 40% in the first six months of the year. BullionVault, which says it looks after more gold than many of the world’s central banks, reported 43% growth in its clients’ physical holdings of the metal in the first half to more than 18 tonnes or $553m worth. The addition of almost 5.5 tonnes, or $166m worth, was almost twice the growth in BullionVault’s clients’ holdings in the same period last year and was equivalent to 70% of the growth seen over the whole of 2008. Adrian Ash of BullionVault said: “While politicians argue over ‘green shoots’ in the economy, the number of private individuals buying physical gold continues to grow. – UK Telegraph

A Free-Market Analysis by the Daily Bell: This is why gold bugs are so suspicious of the larger marts. Gold has been moving up and down in a mostly constrained trading range for 2009, and even before. At the same time, there have been plenty of scattered reports of significant scarcity of gold and silver — even at government mints. And there have been plenty of reports of concentrated gold and silver buying, not just in the West but in India and in the East as well.

And now comes this report by a major bullion dealer saying that physical holdings of gold have grown by half in the past six months. Now it could be that BullionVault is experiencing unprecedented growth, but why should BullionVault’s customers be so much more aggressive than the rest of the gold-buying public? In fact, BullionVault’s experience sees to jibe with other apocryphal statements about gold and silver buying. We checked in with a familiar bullion expert to Daily Bell readers, Pat Gorman, based in Arizona, and he confirmed the same sort of statistics. The public is buying lots of precious metals – and has no intention, seemingly, of dumping them.

Contrast this to the mainstream media statements about gold and silver. Central banks are constantly threatening to sell gold for a variety of reasons – sometimes almost any reason will seemingly do. The International Monetary Fund recently expressed its determination to sell 400 tons of gold so that it would be better able to hand out more paper money. (We bet the countries in question would happily take the hard stuff.)

It does seem from time to time that the prices of money metals are being suppressed by a financial establishment that is determined to maintain a money-printing franchise. No different in many ways, at least in our humble opinion, from the determination of others in the business who wish to keep their games alive. Madoff comes to mind. There is in fact a good deal of direct evidence that this is so, thanks to such organizations as GATA — which has painstakingly put together a fairly expansive documentation of the flim-flammery and how it occurs.

Our position, however, has more to do with practicality (though we know where the fingers point.) Our idea is that markets cannot be contravened. Over time, the gold market will get to where it is going because, contrary to efforts that assume the opposite, the human race is not THAT malleable. The invisible hand is not something with which you want to arm wrestle. It always wins, though the timeline is unpredictable.

Conclusion: We have read in the past few months literally thousands of articles about the global stock market renaissance, one we think is vastly overstated. At the same time, we have read relatively few articles about the continued demand for money metals as the “correction” and the “recovery” grind their way forward. It is almost enough to put one off reading the mainstream media. One might, in fact, wish to found a publication that will help act as a corrective. Call it The Daily Bell – live from Galt’s Gulch.

The world’s top hedge fund manager John Paulson has built a gold position of at least $5.5bn, the biggest such move since George Soros and Sir James Goldsmith bet on Newmont Mining in 1993.

Britain has become the first of the Anglo-Saxon “AAA” club to face a downgrade. As feared, the cancer of bank leverage is spreading to sovereign cores.

Gold prices tend to slide in late May and languish through the summer, because of the seasonal ups and downs of jewellery demand. The trader reflex would be to short gold at this stage after its $90 vault to $959 an ounce over the past month. They may think again this year.

Paulson & Co has bought $2.9bn in SPDR Gold Trust, the biggest of the gold exchange traded funds (ETFs), which now holds 1106 tonnes ? three times the Brown-gutted reserves of the United Kingdom.

Mr Paulson has also built up a $2.3bn holding of Anglo Ashanti, Goldfields, Kinross Gold, and Market Vectors Gold Miners. The fact that he is launching a “Paulson Real Estate Recovery Fund”, reversing the bet against sub-prime securities that made him rich, tells us all we need to know about his thinking. This is a liquidity-reflation play.

He may be wrong, of course. In his early fifties, he belongs to the baby-boom cohort most psychologically vulnerable to the 1970s “paradigm-error”. And perhaps he has never lived in Japan.

It is striking how many of those most alert to the deflation danger are either veterans of Japan’s Lost Decade or close students of it: Albert Edwards at Société Générale, Russell Jones at RBC Capital, Nobel laureate Paul Krugman, the Fed’s Ben Bernanke, and Athanasios Orphanides, who helped draft the Fed’s study on the Japan trap. “People always thought Japan’s bond yields had to rise, but they kept falling and Japan is still not really out of deflation,” said Mr Edwards. Indeed, 20 years after the Nikkei peaked at over 39,000 it stands today at 9,280. Interest rates are 0.01pc. The yield on two-year state bonds is 0.34pc. Still there is not a whiff of inflation.

A number of readers have written to me in tones of polite reproach asking why I fret about deflation when governments everywhere are spending and printing as if there was no tomorrow. I admit to being tortured by self-doubt, like others grappling with this extraordinary situation.

What we know is that inflation is already negative in Ireland (-3.5pc), China (-1.5pc), Thailand (-0.9pc), Korea (-0.5pc), US (-0.7), Japan (-0.3), Switzerland (-0.3, Spain (-0.2pc). The eurozone may be negative by July. Alistair Darling said Britain’s retail RPI inflation used to set wage deals will be minus 3pc by September.

Does this constitute deflation in a meaningful sense? Not yet, perhaps. But it is moving too close for comfort in a world stretched by extreme leverage. The economies of the US, Japan, the eurozone, and Britain have been contracting in “nominal” as well as “real” terms – which smacks of the 1930s.

The “yen GDP” of Japan has shrunk by 10pc in one year; the “euro GDP” of Germany has shrunk 6.2pc, and Italy’s by 4.7pc ; the “dollar GDP” of the US has shrunk 3.3pc. Debts are not shrinking, however.

GMO’s Jeremy Grantham says in his latest note, Last Hurrah And Seven Lean Years, that the market value of equities, houses and commercial property in the US reached $50 trillion in the boom. This “perceived wealth” sustained $25 trillion of debt.

The crash has cut this wealth to $30 trillion, but the debts are still there. America’s debt-gearing has exploded, as it has in the UK and Europe. This looks awfully like Irving Fisher’s “debt deflation” trap of 1933. It will be a long slog for households to bring their debt-to-wealth ratios down to manageable levels.

You can argue – as do UBS, Merrill Lynch, ING, and Capital Economics, to name a few – that massive global stimulus is merely struggling to off-set a massive deflationary shock.

So how will gold fare in a “Japanese” stalemate world where neither inflation nor deflation gets the upper hand? The eight-year rally that has lifted gold from $254 to $959 may lose momentum for a while.

“The air is getting thin up here,” said John Reade, precious metals guru at UBS. “Rich investors are no longer rushing out to buying gold bars as they did after the Lehman collapse. Still, we think it is highly significant that both China and Russia – two of the biggest holders of foreign reserves – are both buying gold,” he said.

Personally, I remain a gold bug out of fear that the most corrosive phase of this crisis lies ahead. There are two more boils to lance: Europe and China. As the IMF keeps telling us, Europe’s banks are still covering up their vast toxic debts. Nor has the G20 begun to address the root cause of the global crisis, which lies in excess exports from East (aided by currency manipulation) to an over-spending West. China is putting off the day of reckoning with its crisis response, which is to build yet more plant to flood the world with yet more over-capacity.

For “political bears” the risk is that the EU polity fragments under strain, and that governments restrict basic markets to defend themselves – whether by imposing exchange controls to stop bond flight, or shutting derivatives markets used as hedges, or putting up trade barriers. We will find out if and when unemployment hits 10pc in America, 12pc in Germany, and 20pc in Spain, or if migrant workers rampage in Shenzhen.

Some call this the “Armageddon case” for gold. That is going too far. However, gold has outperformed Wall Street’s S&P 500 index by 500pc so far this century, as if able sniff out trouble in advance. Such runs tend to finish with a “parabolic” blow-off before they die. Mr Paulson may yet make another fortune, whatever his reason.

By Ambrose Evans-Pritchard
Telegraph.co.uk
Published: 9:36PM BST 23 May 2009

In a commentary posted today, silver market analyst Ted Butler reviews a new Senate investigative report on manipulation of the wheat market and notes that it reaches conclusions similar to those he long has drawn about the silver market. Particularly, Butler notes, the Senate report cites the failure of the U.S. Commodity Futures Trading Commission to enforce position limits in the wheat market, even as this failure is infinitely worse in the silver market, where as a practical matter there are no position limits at all, resulting in the grotesque concentration of the short position in silver.

Butler writes: “The problem is that there is a double standard when it comes to manipulation or excessive speculation. Most have grown to view the long side as the only side that can be manipulated. That’s not true, nor is it how the law is structured. However, it is how most people think, especially politicians and regulators. That’s the problem in silver (and gold).”

Butler’s commentary here could not be more factual, specific, cogent, and persuasive. U.S. citizens should copy it and send it to the CFTC and their congressmen and ask for a response. It is headlined “The Senate Report” and you can find it at GoldSeek’s companion site, SilverSeek, here:

http://news.silverseek.com/TedButler/1246302473.php

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

OTTAWA — The distinct possibility that precious metals may have been stolen from the Royal Canadian Mint is “inexcusable,” the federal minister responsible for the Crown corporation said Monday.

The findings of a long-awaited external audit, released earlier in the day, concluded that $15.3 million in missing gold is not the result of accounting or bookkeeping errors, raising even more questions about the whereabouts of the metals from what has been touted as one of the most secure facilities in Canada.

“The mint’s still unexplained loss of precious metals is inexcusable,” Transport Minister John Baird and Minister of State for Transport Rob Merrifield, whose department is responsible for the mint, said in a joint release. “The mint will be held accountable.”

The Royal Canadian Mint says the precious metals seem to have vanished from its inventory in the 2008 fiscal year, according to the third-party review conducted by Deloitte & Touche LLP.

External auditors have been working since early March to determine whether theft or an accounting error is behind an “unreconciled difference” between the mint’s 2008 financial records and its physical stockpile of gold and other precious metals at its downtown Ottawa headquarters.

The report released Monday concluded that “the unaccounted-for difference in gold does not appear to relate to an accounting error in the reconciliation process, an accounting error in the physical stock count schedules, or an accounting error in the record-keeping of transactions during the year.”

It is not clear at this stage whether any gold is physically missing from the inventory, the corporation said in a release. “All possible explanations for the inventory difference need to be investigated.”

The Deloitte report identified three “areas for consideration” to explain the unaccounted differences:

- Gold may have been lost through the refining process. The auditor suggested a review of the technical processes used in the various aspects of refining.

- Errors in reconciling the financial records and the physical stockpile of precious metal in previous years, although it concedes “it would be difficult to complete such a review due to the passage of time, the availability of supporting documentation and the turnover of mint staff.”

- The theft of the material and “potential inappropriate activities by both internal and/or external parties.”

About 17,500 troy ounces of gold, which represents 0.32 per cent of the mint’s stock, were unaccounted for, the report said. “A higher amount of gold should be on hand than the physical amount of gold counted,” it said. (Gold is measured in troy ounces, which is heavier than the much more common avoirdupois ounce used for measuring weights in food.)

The $15.3-million figure is based on gold prices on Dec. 31, 2008, the mint’s fiscal year-end date. At Monday’s prices, the precious metals would be worth about $16.3 million.

An unaccounted for difference in silver also was identified, the report noted.

Despite the $15.3-million inventory difference, the mint still says a “record profit is projected” for 2008.

The government said late Monday that it has “instructed the board to withhold all bonuses payable to executives until this matter is resolved to our satisfaction.”

The annual report and financial statements have been submitted to the auditor general’s office and are expected to be approved by the mint’s board of directors in early July.

The ministers have also ordered the mint to report on its precious metals inventory on a quarter basis, rather than twice-annually. “Our government is committed to effective governance and accountability to Canadians,” they explained.

The corporation said the unreconciled precious metals only relate to metals owned by the Royal Canadian Mint, and not to the stockpile owned by the mint’s customers stored in Ottawa.

“All individual customer holdings and metal deposits entrusted with the Royal Canadian Mint are secure and have been fully accounted for,” the corporation said.

On March 23, the Crown corporation sent a letter to Minister of State for Transport Rob Merrifield, whose department is responsible for the mint, saying the mint had lost track of the metals.

Ian E. Bennett, president and CEO of the Royal Canadian Mint, said Monday the mint continues to work with third parties to assist the corporation in its review of specific aspects of its operations.

“We have also requested the RCMP’s assistance to investigate the matter and the mint has committed to fully co-operate with them.”

RCMP spokeswoman Cpl. Caroline Poulin said Monday that the police force’s review is “ongoing.”

The opposition parties told Canwest News Service that the situation reflects the government’s “gross incompetence.”

“Either they’ve got to admit that they’ve got somebody stealing the gold, or they’re incompetent and they lost $15 million worth of gold because they’re not very good at refining and re-refining,” NDP finance critic Thomas Mulcair said.

He chastised the Crown corporation for releasing the report after the House of Commons adjourned.

“Again, it’s again a scandalous inability to handle the public interest and the public purse. It’s shocking.”

Liberal transport critic Joe Volpe said he’s holding the ministers responsible for the issue and called for their resignation.

“It does beg the question: when is the minister leaving? When is the chairman of the mint leaving? When are they going to change the CEO?” he asks.
© Copyright (c) Canwest News Service

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