'NEGATIVE SALARY'
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Aug 1, 2012, 6:25:36 PM8/1/12
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http://spectrevision.net/2012/02/23/negative-salary-negative-gold/
GREEKS to PAY to WORK?
http://www.theatlanticwire.com/global/2012/02/some-greeks-might-have-pay-their-jobs/49023/
by Alexander Abad-Santos / Feb 22, 2012
It's being called the "negative salary": Due to austerity measures in
Greece, it's being reported that up to 64,000 Greeks will go without
pay this month, and some will have to pay for having a job. Numbers in
austerity reports have usually reflected figures in the millions,
since they reflect industry-wide cuts (i.e. a 537-million euro cut to
health and pension funds). And plans of cutting minimum wage by up to
32% is all but a given in the country. Today's "negative salary" deal—
which could have government employees returning funds— reveals the
real human impact of the austerity measures.
As Zero Hedge and the Press Project report:
Salary cutbacks (called "unified payroll") for contract workers at the
public sector set to be finalized today. Cuts to be valid
retroactively since november 2011. Expected result: Up to 64.000
people will work without salary this month, or even be asked to return
money. Amongst them 21.000 teachers, 13.000 municipal employees and
30.000 civil servants.
'NEGATIVE BAILOUT'
http://www.zerohedge.com/news/negative-salaries-negative-bailout-and-now-negative-gold-greece-just-became-banksters-paradise
While Iceland is now known as the country that is the closest earthly
approximation to Banker Hell, it is safe to say that Greece is the
terrestrial equivalent of banker heaven. Because as explained earlier
today, the country's population is about to get a worse deal than your
average run of the mill slave - they may get whipped, but at least
never have to pay for the privilege, unlike the Greeks. Hence Negative
Salaries. As also explained, the European bailout of Greece, is now
formally a Greek bailout of Europe, funded by the country's already
negative primary surplus, or better said - deficit (don't try to make
mathematical sense of that - a Scene Out Of Scanners is guaranteed).
Hence,Negative Bailout. But the piece de resistance, and the reason
why Greece is the in situ version of bankster heaven is the news from
the NYT That Greece is also about to have negative gold.
Ms. Katseli, an economist who was labor minister in the government of
George Papandreou until she left in a cabinet reshuffle last June, was
also upset that Greece’s lenders will have the right to seize the gold
reserves in the Bank of Greece under the terms of the new deal.
Well, they may be broke, and they may be bailing out Europe, but at
least they'll have no gold: sounds like a sweet deal - it makes
perfect sense that Greeks are taking every incremental humiliation
from a syndicate of few fat, bald types who have access to a digital
money printer, with the supine determination of an Oliver Twist.
'NEGATIVE GOLD'
http://www.zerohedge.com/news/projected-piigs-pillage-32335-tons-gold-be-confiscated-insolvent-european-banks
by Tyler Durden / 02/23/2012
While hardly discussed broadly in the mainstream media, the top news
of the past 24 hours without doubt is that in addition to losing its
fiscal sovereignty, and numerous other things, the Greek population is
About To Lose Its Gold in a perfectly legitimate fashion, following
amendments to the country's constitution by unelected banker
technocrats, who will make it legal for Greek creditors - read
insolvent European banks - to plunder the Greek gold which at last
check amounts to 111.6 tonnes according to the WGC. And so we come
full circle to what the ultimate goal of banker intervention in the
European periphery is - nothing short of full gold confiscation. So
just how much gold will be pillaged by the banker oligarchy (it is
amusing how many websites believe said gold is sacrosanct by regional
national banks, and thus the EUR is such a stronger currency as it has
all this 'gold backing' - hint: it doesn't, as all the gold is about
to be transferred to non-extradition countries)? As the World Gold
Council shows in its latest update, between all the PIIGS, who will
with 100% certainty suffer the same fate as Greece (which has shown
that unlike during World War 2, it is perfectly willing to turn over
and do nothing) there is 3234 tonnes of gold to be plundered. And
likely more as further constitutional amendments will likely make the
confiscation of private gold the next big step. how much does this
amount to? At today's prices this is just shy of $185 billion. Of
course by the time the market grasps what is going on the spot price
of the yellow metal will be far, far higher. Or, potentially far, far
lower and totally fixed as the open gold market is eventually done
away with entirely in a reversion to FDR gold confiscation and price
fixing days.
The chart shows total gold holdings for the top 40 countries. Little
Ireland is off the chart with just 6 tonnes of gold.
LIBOR-GOFO
http://www.zerohedge.com/news/negative-gold-lease-rates-collapse-gold-sell-likely-coming-end
One of the more curious dynamics for those who follow the gold market
closely, has been the relentless grind lower (or higher if looked at
on an absolute value basis), of gold lease rates (defined as Libor -
GOFO), which recently hit all time record lows (i.e., negative), for
the 1 month version, although the more traditional 3 Month (as it is
based on the benchmark 3M USD Libor) was also quite close to breaching
historic low levels. And while we have discussed the nuances of Libor-
GOFO, or the gold lease rate extensively before, a good summary was
presented by Jesse's Cafe Americain yesterday, who correctly suggested
that record lease rates are a primary driver for the near historic
sell off we experienced yesterday. In a nutshell, negative lease rates
mean one has to pay for the "privilege" of lending out one's gold as
collateral - a prima facie collateral crunch. The lower the lease
rate, the greater the use of gold as a source of liquidity - and since
the indicator is public - it is all too easy for entities that do have
liquidity to game the spread and force sell offs by those who are
telegraphing they are in dire straits and will sell their gold at any
price if forced, to prevent a liquidity collapse. Said otherwise: to
force a firesale. Well, we are happy to announce that the selloff
spring clip potential that is embedded in a near record negative lease
rate has now been discharged courtesy of the $100 dump in the past two
days, which may have happened for a plethora of reasons and nobody can
tell why precisely, but one thing is now sure: the underlying tension
in the supply and demand for gold as a source of liquidity has
collapsed. That said, the next time we approach the previous
thresholds we will advise readers as it will likely indicate another
gold-derived liquidity rubberband "breach" is imminent.
'FORWARD LEASE RATES'
http://www.zerohedge.com/news/morgan-stanley-deconstructs-funding-crisis-heart-recent-gold-sell-and-why-surge-can-resume
The Reasons To Own Both Silver And Gold Continue To Accelerate
A week ago, we touched upon the likelihood that the recent gold sell-
off was driven primarily due to a quirk in liquidity provisioning in
which gold plays a key role via its "forward lease rates", or the
Libor-GOFO differential. Specifically, in "As Negative Gold Lease
Rates Collapse, The Gold Sell Off Is Likely Coming To An End" we said,
"In a nutshell, negative lease rates mean one has to pay for the
"privilege" of lending out one's gold as collateral - a prima facie
collateral crunch. The lower the lease rate, the greater the use of
gold as a source of liquidity - and since the indicator is public - it
is all too easy for entities that do have liquidity to game the spread
and force sell offs by those who are telegraphing they are in dire
straits and will sell their gold at any price if forced, to prevent a
liquidity collapse." Said otherwise, the lower lease rates drop, and
they recently hit a record low for the 3M varietal, the likelier it is
that gold may see substantial moves lower. Today, Morgan Stanley's
Peter Richardson recaps precisely what was said here, in a note titled
"Recent fall in gold prices points to bank funding costs." Granted, MS
only looks at the first part of the equation - the dropping lease
rates, and ignores the re-normalization in gold, aka the tightening in
lease rates. Well, with the 3M forward lease rate now almost back to
unchanged, it appears our speculation that the gold sell off, with
spot at $1575 on the 15th, is over were correct, and gold is now $40
higher, and just below the critical 200 DMA that everyone saw as the
catalyst of gold going to $0. So what does MS have to add to our
analysis? Well, much more optimism for one, because not only does the
bank think we are right that the collapse in negative lease rates
(i,e., the flattening to practically unchanged) mean the sell off is
over, but such a normalization of the gold lease market has "the
makings of a renewed upward assault on the recent all-time high....
Our current gold price forecast for 2012 of US$2,200/oz remains in
place under these circumstances." Qed.
The key highlight of Morgan Stanley's hypothesis of what negative gold
lease rates imply for gold:
Firstly, we think negative lease rates are highlighting a sharp
increase in the demand for gold as collateral for US dollar loans at a
time of reduced liquidity in the traditional US dollar interbank
funding market. The more negative the lease rates the higher the cost
of funding using gold as security.
Secondly, access to this collateral on a scale indicated by the rise
in GOFO can only emerge if the providers of liquidity to the leasing
market are prepared to increase the stock of lent gold in circulation.
This development points to the central banks, the largest custodians
of above-ground stocks and the traditional providers of liquidity to
the gold-leasing market. Aware of acute funding pressures in the
traditional interbank market, it seems increasingly likely to us that
central banks have increased the quantum of gold available for use in
a non-traditional funding market, at least until the measures to
alleviate bank-funding stress in the US dollar swaps market have been
successful. The recent easing in the scale of negative gold lease
rates, suggests that demand for this source of short-term funding
might be easing, but has not disappeared, even after the raft of
measures announced by the ECB and the earlier coordinated intervention
by the six central banks.
Said otherwise: we likely have smooth sailing for now, as banks will
not proceed to cannibalize each other for a bit. But keep a very close
eye on on that LIBOR-GOFO spread: the second it collapses, it may be
time to step away from the market…
http://www.youtube.com/watch?v=2YcgACl1Sr8
'NEGATIVE LEASE RATES'
http://www.metalaugmentor.com/analysis/charlatan-exposed-negative-gold-lease-rates.html
http://www.financialsense.com/contributors/metal-augmentor/2011/12/15/negative-lease-rates-and-the-ticking-gold-time-bomb
Much has been made recently about the “negative gold lease rates”
derived from the London Bullion Market Association (LBMA) statistical
gold and silver data, but reporting on the issue so far has generally
lacked the background, substance and/or context required for many
readers to even understand what information is being provided much
less draw proper conclusions.
Here are some of the key points raised in our extensive analysis of
the subject at Metal Augmentor:
(1) The combination of a falling gold price and rising forward rate is
quite a bullish feature of the gold market that is lost in the
reporting on negative gold lease rates. An increase in the gold
forward rate indicates that owners selling gold will want it back once
their immediate funding needs have abated. Therefore it is really the
reluctance to sell gold outright that the market appears to be
telegraphing via negative gold lease rates. This is a welcome change
from a gold market recently dominated by weak-handed participants
(Wall Street types like Paulson, Cramer, etc.) who primarily look to
gold for its ability to generate speculative profits during periods of
economic instability.
(2) The gold (or silver) lease rate does not necessarily represent the
actual rate at which lease transactions are being done in the market.
The published lease rate is simply an indicated value derived from two
related variables, the gold forward rate and LIBOR. These rates can
and do move in opposite directions for reasons unrelated to gold
leasing activity.
(3) We believe the focus on negative lease rates misses the point of
the current gold market structure and instead we should be looking at
changes in the gold forward rate. The gold forward rate has increased
during both the late September and current sell-offs in gold, which
probably means that gold is being leased by central banks in order to
provide liquidity for the banking system. Importantly, central bank
gold is probably not being sold outright despite rumors to the
contrary. The implication is that the current gold correction is
similar to past events where gold has been used as a liquidity
management tool. Its use for such purposes is hardly inappropriate --
after all, gold is the ultimate money and what good is money if it
doesn't get used? In any case, the eventual reversal of gold funding
activity should correspond with improved commercial bank liquidity and
a return to gold's dominant price uptrend.
(4) Important structural changes in the financial sector could soon
mean that gold’s widespread use as collateral and eventually as money
might actually not be that far off. If so, it would only be a natural
progression for an asset with no counterparty risk in a post-credit-
bubble world. Excessive leverage has transformed even the gold swap
and leasing business, which by definition is supposed to involve
physical metal, into a paper form a number of years ago. While the
recent reports from Bloomberg, Financial Times and elsewhere offer
shreds of truth about this condition amid all their misdirection, they
fail to examine underlying developments in the gold market that may
change the sorry state of affairs. Among the most intriguing is the
possible development of clearing and collateral facilities for 100%
physical backed gold, perhaps in the format of the LBMA unallocated
bullion account.
We suspect that all this talk about “negative gold lease rates” may
represent the initial glimmer of recognition that a major development
is afoot in the gold market. Pieces of the puzzle are being put
together without most people really knowing or understanding what the
completed picture looks like. The general trend of the financial
markets thanks to the information age has been to move away from
intermediation and toward self-directed transaction. The tri-party
arrangement redefines the role of the intermediary so that it is no
longer the matchmaker between customers but rather acts as a clearing
agent, administrator of collateral and a funding backstop.
Importantly, in a tri-party arrangement one party posts the collateral
that the other party desires. And that desire for specific collateral
is where things could get interesting for the gold market with gold
being the ultimate collateral. In essence the selective collateral
nature of the tri-party format may force bullion banks to eventually
declare their unallocated LBMA gold accounts as backed by 100%
physical bullion. While there certainly will be gold appearing on the
market from time to time in the form of gold leasing or similar
funding arrangements, the 300 year history of archaic bullion banking
may be coming to an end. If so, it could ironically be JP Morgan that
modernizes the gold standard by establishing gold as the premier
monetary asset with no counterparty risk and infinite mobility.
Implications
The gold time bomb takes the form of a possible panic out of paper
gold into physical metal when counterparty risk reaches an extreme
level whereas a new gold standard would complement modern financial
markets by serving as the ultimate asset: gold with mobility and no
counterparty risk. We believe such a radical development could take
shape if the most popular paper gold product available today, the LBMA
unallocated bullion account, is used increasingly as a source of
secured funding between counterparties rather than as credit between a
bullion bank and its customers. Indeed, if the gold market is left to
its own devices, the shunning of credit risk will eventually lead
counterparties to demand that gold be provided in the form of risk-
free collateral. The LBMA and bullion banks would then have no choice
but to establish and market 100% physical backed unallocated gold
accounts similar to BullionVault and GoldMoney, except on a grand
scale.
'ASS BACKWARDATION'
http://ftalphaville.ft.com/blog/2010/07/21/287566/the-story-of-the-gold-curve-so-far/
http://ftalphaville.ft.com/blog/2011/09/14/677021/why-gold-forward-rate-inversion-is-important/
Why gold forward rate inversion is important
by Izabella Kaminska / Sep 14 14:20
Here’s a crazy situation to consider. The gold lease rate (which can
also be understood as gold Libor, the gold interest rate or the cost
of shorting gold) is becoming increasingly negative at the short end.
This is the natural consequence of Gofo rates rising ever more greatly
beyond Libor costs at the front end. Since the gold lease is derived
from the calculation of Libor minus Gofo, any instance where Gofo is
greater than Libor leads to a negative gold lease rate. This, for
example, is the historic path of the three-month gold lease rate:
And here’s a closer look at the near-term action:
See, there’s been a collapse. Yet the irony is that there is still a
cost to borrow the GLD exchange traded fund.Why should it cost you to
borrow GLD at all, but earn you a return to borrow gold (Ed- surely
administrative costs)? Weren’t the two supposed to be a like-for-like?
What’s more there have been very interesting bursts of short-interest
in GLD recently, according to Data Explorers.
But first back to gold lease rates. Gold lease rates first went
negative (in this recent spell) in March 2009, and have remained
almost consistently negative since about July of that year (with brief
interim spells of positivity). But it’s only in the last week that the
rate has become severely and almost illogically depressed.
Interestingly — despite talk of funding pressure all round — this
doesn’t tie with the scenario experienced during Lehman at all. At
that time gold lease rates spiked, reaching historic highs. In fact,
it was only with the onset of extraordinary liquidity in November that
lease rates began to fall quickly. Before that happened, something
extraordinary transpired. Gold forward rates flipped, ever so briefly,
into backwardation. A situation which has hitherto only really been
seen in the Japanese gold market (where gold is denominated in yen).
Of course if you consider gold the soundest money carrying the lowest
interest rate structure — the ultimate risk-free rate — it makes sense
that gold lease rates should closely echo market interest rates, but
always remain fractionally lower. So when Libor shot up during the
crisis, gold lease rates understandably followed behind them — leading
to a situation where if you had gold, you could lend it out for a very
high return, since the risk lay with holding cash on reserve rather
than gold and you had to be compensated. Gold was the ultimate
collateral. Or in other words, the demand for gold rose alongside the
expense of borrowing in the interbank market. Eventually the demand
for gold became so great that the lease rate overshot Libor, leading
to the backwardation discussed above. At that point gold became a bit
of aGiffen good. It was — if you believe the goldbugs — a situation
which possibly signified the death of paper-money. But even then,
while gold itself became backwardated, the Gofo curve remained normal,
as did the Libor curve.
What we have now, however, is quite the opposite. Gofo remains in
contango — i.e. continues to avoid backwardation — while gold lease
rates have fallen sharply into negative territory instead. Almost as a
counterbalance. On the surface, the negative rate implies extremely
low demand for gold compared to cash. Or you could say, there are
currently more people prepared to lend gold at a terrible rate
(because there’s so much of it around) than prepared to lend their
cash for gold. (Contrary to anecdotal reports from the physical market
which suggest a lack of gold sovereigns and such the like.) In this
scenario, nevertheless, gold is seen as the risk. Gold has become a
lousy monetary substitute, and is anything but optimum collateral. In
fact, it is US Treasuries that are being over-bid, not gold. The lower
the rate goes, the more it suggests an extreme rush to pawn gold in
exchange for cash in the marketplace. Anything but gold, you might
say. Meanwhile, the more gold that ends up at the pawn shop, the less
favourable the rate received for pawning in the market. (The pawn shop
doesn’t want to carry all that risk and has to cover that risk by
offering less cash for gold.) Thus it’s not money that is dying, quite
the opposite, it’s gold. But there is one important other factor to
consider: Central bank intervention. Why on earth would anyone be
prepared to lend gold at a negative rate for almost two years, when
demand in the physical market was supposedly so huge? If you consider
that these actions were what prevented gold from flipping into
backwardation, perhaps it becomes a little clearer. As Reginald Howe
at the Golden Sextant points out:
At the LBMA, therefore, gold continues to avoid backwardation, but
only because central banks continue to lend at historically very low
lease rates. It is a strange situation. Gold for spot delivery and
bullion funds with high credibility for physical possession of metal
in the amounts claimed are selling at premiums over paper of lesser
reliability. But where gold is arbitraged against currencies on the
basis of relative interest rates, it remains in contango.
Now, if this is the result of some sort of central bank intervention,
it’s clear that the central banks still have to find end demand for
that lent gold (via the bullion bank intermediaries). The gold mining
companies that used to be counterparties, have closed their hedging
books. They’re no longer willing takers of borrowed gold.
Who’s the only viable candidate left? Answer: Gold ETFs and gold
exchanges. While the likes of GLD insist every share outstanding is
matched by a gold bar — and this is almost definitely true — what they
can’t claim is that there’s a way to differentiate gold with previous
claims on it from gold without previous claims on it within its
reserves (i.e. borrowed gold). It is consequently entirely possible
that gold ETFs are sitting on mountains of borrowed central bank gold.
GLD’s defence, of course, is that prior claims on its reserves are not
their concern. They are the liablity of the party that delivered the
gold to GLD (almost certainly a bullion bank). Thus it is the bullion
bank that risks being squeezed on delivery in the physical market, not
GLD. Of course, with a negative interest rate for borrowing gold, the
bullion banks are being more than compensated for the risk of a
squeeze. On top of everything they can always create new GLD shares ad
infinitum, if needs be. (At least until all central bank gold stock
has been lent into gold ETFs, arguably forcing central banks to
replenish the gold lending pool via market purchases.)
In the above scenario — in which bullion banks are possibly recycling
borrowed gold into GLD shares to sell into the market — these short
sales will put pressure on GLD units themselves. As Howe noted earlier
this year:
In recent months, while GLD has generally sold at a slight discount to
net asset value, other bullion funds with more transparent and
credible custodial and auditing procedures have commanded significant
premiums. E.g., Central Fund of Canada (CEF), Central Gold Trust
(GTU), Sprott Physical Gold Trust (PHYS). Anecdotal evidence also
continues to surface of premiums for spot delivery of physical metal
or cash settlement in lieu of physical.
Thus, if central banks are really using bullion banks as feeders of
borrowed gold into gold ETFs (so as to suppress prices and keep gold
lease rates negative, avoiding gold backwardation), you’d assume the
strategy could easily unravel if and when people started liquidating
large portions of GLD, i.e. forcing delivery of that gold.
Gold and the create-to-lend mechanism
Ordinarily when new shares are created in an ETF for shorting
purposes, there is no respective spike in assets under management.
That’s because shares are often created using the “create-to-lend”
facility, which sees shares issued against borrowed stocks which are
almost immediately sold into the market. Since there is no incremental
demand for those shares, an oversupply of units hits the market place
causing the ETF arbitrage mechanism to kick in. The very same shares
are thus almost immediately redeemed, leaving assets under management
unchanged but the short-interest ratio higher. This, by the way, is
how we get to such large short-interest ratios in some popularly
shorted ETFs. Of course in the bullion scenario, one could argue that
the shorts are continuously lapped up by strong demand from GLD
buyers. The shorts are thus disguised by continuing assets under
management growth — a fact which leaves the short-interest ratio
relatively stable, and has a slowing impact on AuM growth if anything.
But if a large GLD share owner coincidentally liquidates a sizeable
portion of GLD shares one day (in order to take delivery of real gold
instead), this could theoretically destabilise the short-interest
balance. A fact which may or may not have happened recently. As the
short-interest data firm Data explorers noted at the end of August:
The amount of money invested in SSGA’s Gold Trust (GLD) is very close
to the total assets in the instrument, which tracks the S&P 500 (SPY)
at USD 71bn. GLD issues shares in exchange for deposits of gold. On
August 10th, there was an unusually large rise in short selling by
250% to 18m shares. This position was then immediately covered as gold
began its recent ascent to $1,917.9 on Monday of this week.
There has been little activity in this ETF’s other listings in Hong
Kong, Singapore and Tokyo. Another large and physically backed (i.e.
owns gold) ETF is the iShares Comex Gold Trust (IAU). This has
sporadic spikes in short interest, and these spikes have increased in
their frequency over this past quarter, showing some evidence that the
need to hedge or short gold is more frequent than it was. If we look
at the number of securities lending transactions, we see a 20%
increase in the number of loans in GLD in the last week alone. The
absolute rise in shares short might not be that cataclysmic, but more
trades might well mean more positioning, which translates to
nervousness that the gold price cannot sustain such lofty levels. The
equivalent rise in trades in IAU is 84% since last Thursday – a huge
change.
The fact that the short position was immediately covered suggests that
whoever liquidated GLD sold the bullion back into the market. By doing
so it allowed the short parties to cover their position, bringing the
overall short-interest ratio back to equilibrium quickly. Whatever the
case, one thing’s for sure. Volatility in the gold/GLD spread (blue
line below) has increased since August 10, which was about the time of
the Paulson GLD liquidation rumours:
So has the GLD liquidation possibly disturbed the short-ratio balance?
Is this why gold lease rates have had to adjust radically downwards?
Are bullion banks demanding increased compensated for supplying
borrowed gold into gold ETFs because there’s suddenly been a genuinely
large amount of gold thrown back into the gold system? Is this also
why AuM has stagnated and GLD has become ineffective as a central bank
policy tool? Who can say, but all these factors are definitely worth
thinking about we would argue.
SEE ALSO
What do silver lease rates have to do with fund redemptions? - FT
Alphaville
Gold Derivatives: GLD and Ass Backwardation – FT Alphaville
Cash for gold, financial market edition - FT Alphaville
The secured lending boom (through gold-tinted glasses) - FT Alphaville
GREEKS to PAY to WORK?
http://www.theatlanticwire.com/global/2012/02/some-greeks-might-have-pay-their-jobs/49023/
by Alexander Abad-Santos / Feb 22, 2012
It's being called the "negative salary": Due to austerity measures in
Greece, it's being reported that up to 64,000 Greeks will go without
pay this month, and some will have to pay for having a job. Numbers in
austerity reports have usually reflected figures in the millions,
since they reflect industry-wide cuts (i.e. a 537-million euro cut to
health and pension funds). And plans of cutting minimum wage by up to
32% is all but a given in the country. Today's "negative salary" deal—
which could have government employees returning funds— reveals the
real human impact of the austerity measures.
As Zero Hedge and the Press Project report:
Salary cutbacks (called "unified payroll") for contract workers at the
public sector set to be finalized today. Cuts to be valid
retroactively since november 2011. Expected result: Up to 64.000
people will work without salary this month, or even be asked to return
money. Amongst them 21.000 teachers, 13.000 municipal employees and
30.000 civil servants.
'NEGATIVE BAILOUT'
http://www.zerohedge.com/news/negative-salaries-negative-bailout-and-now-negative-gold-greece-just-became-banksters-paradise
While Iceland is now known as the country that is the closest earthly
approximation to Banker Hell, it is safe to say that Greece is the
terrestrial equivalent of banker heaven. Because as explained earlier
today, the country's population is about to get a worse deal than your
average run of the mill slave - they may get whipped, but at least
never have to pay for the privilege, unlike the Greeks. Hence Negative
Salaries. As also explained, the European bailout of Greece, is now
formally a Greek bailout of Europe, funded by the country's already
negative primary surplus, or better said - deficit (don't try to make
mathematical sense of that - a Scene Out Of Scanners is guaranteed).
Hence,Negative Bailout. But the piece de resistance, and the reason
why Greece is the in situ version of bankster heaven is the news from
the NYT That Greece is also about to have negative gold.
Ms. Katseli, an economist who was labor minister in the government of
George Papandreou until she left in a cabinet reshuffle last June, was
also upset that Greece’s lenders will have the right to seize the gold
reserves in the Bank of Greece under the terms of the new deal.
Well, they may be broke, and they may be bailing out Europe, but at
least they'll have no gold: sounds like a sweet deal - it makes
perfect sense that Greeks are taking every incremental humiliation
from a syndicate of few fat, bald types who have access to a digital
money printer, with the supine determination of an Oliver Twist.
'NEGATIVE GOLD'
http://www.zerohedge.com/news/projected-piigs-pillage-32335-tons-gold-be-confiscated-insolvent-european-banks
by Tyler Durden / 02/23/2012
While hardly discussed broadly in the mainstream media, the top news
of the past 24 hours without doubt is that in addition to losing its
fiscal sovereignty, and numerous other things, the Greek population is
About To Lose Its Gold in a perfectly legitimate fashion, following
amendments to the country's constitution by unelected banker
technocrats, who will make it legal for Greek creditors - read
insolvent European banks - to plunder the Greek gold which at last
check amounts to 111.6 tonnes according to the WGC. And so we come
full circle to what the ultimate goal of banker intervention in the
European periphery is - nothing short of full gold confiscation. So
just how much gold will be pillaged by the banker oligarchy (it is
amusing how many websites believe said gold is sacrosanct by regional
national banks, and thus the EUR is such a stronger currency as it has
all this 'gold backing' - hint: it doesn't, as all the gold is about
to be transferred to non-extradition countries)? As the World Gold
Council shows in its latest update, between all the PIIGS, who will
with 100% certainty suffer the same fate as Greece (which has shown
that unlike during World War 2, it is perfectly willing to turn over
and do nothing) there is 3234 tonnes of gold to be plundered. And
likely more as further constitutional amendments will likely make the
confiscation of private gold the next big step. how much does this
amount to? At today's prices this is just shy of $185 billion. Of
course by the time the market grasps what is going on the spot price
of the yellow metal will be far, far higher. Or, potentially far, far
lower and totally fixed as the open gold market is eventually done
away with entirely in a reversion to FDR gold confiscation and price
fixing days.
The chart shows total gold holdings for the top 40 countries. Little
Ireland is off the chart with just 6 tonnes of gold.
LIBOR-GOFO
http://www.zerohedge.com/news/negative-gold-lease-rates-collapse-gold-sell-likely-coming-end
One of the more curious dynamics for those who follow the gold market
closely, has been the relentless grind lower (or higher if looked at
on an absolute value basis), of gold lease rates (defined as Libor -
GOFO), which recently hit all time record lows (i.e., negative), for
the 1 month version, although the more traditional 3 Month (as it is
based on the benchmark 3M USD Libor) was also quite close to breaching
historic low levels. And while we have discussed the nuances of Libor-
GOFO, or the gold lease rate extensively before, a good summary was
presented by Jesse's Cafe Americain yesterday, who correctly suggested
that record lease rates are a primary driver for the near historic
sell off we experienced yesterday. In a nutshell, negative lease rates
mean one has to pay for the "privilege" of lending out one's gold as
collateral - a prima facie collateral crunch. The lower the lease
rate, the greater the use of gold as a source of liquidity - and since
the indicator is public - it is all too easy for entities that do have
liquidity to game the spread and force sell offs by those who are
telegraphing they are in dire straits and will sell their gold at any
price if forced, to prevent a liquidity collapse. Said otherwise: to
force a firesale. Well, we are happy to announce that the selloff
spring clip potential that is embedded in a near record negative lease
rate has now been discharged courtesy of the $100 dump in the past two
days, which may have happened for a plethora of reasons and nobody can
tell why precisely, but one thing is now sure: the underlying tension
in the supply and demand for gold as a source of liquidity has
collapsed. That said, the next time we approach the previous
thresholds we will advise readers as it will likely indicate another
gold-derived liquidity rubberband "breach" is imminent.
'FORWARD LEASE RATES'
http://www.zerohedge.com/news/morgan-stanley-deconstructs-funding-crisis-heart-recent-gold-sell-and-why-surge-can-resume
The Reasons To Own Both Silver And Gold Continue To Accelerate
A week ago, we touched upon the likelihood that the recent gold sell-
off was driven primarily due to a quirk in liquidity provisioning in
which gold plays a key role via its "forward lease rates", or the
Libor-GOFO differential. Specifically, in "As Negative Gold Lease
Rates Collapse, The Gold Sell Off Is Likely Coming To An End" we said,
"In a nutshell, negative lease rates mean one has to pay for the
"privilege" of lending out one's gold as collateral - a prima facie
collateral crunch. The lower the lease rate, the greater the use of
gold as a source of liquidity - and since the indicator is public - it
is all too easy for entities that do have liquidity to game the spread
and force sell offs by those who are telegraphing they are in dire
straits and will sell their gold at any price if forced, to prevent a
liquidity collapse." Said otherwise, the lower lease rates drop, and
they recently hit a record low for the 3M varietal, the likelier it is
that gold may see substantial moves lower. Today, Morgan Stanley's
Peter Richardson recaps precisely what was said here, in a note titled
"Recent fall in gold prices points to bank funding costs." Granted, MS
only looks at the first part of the equation - the dropping lease
rates, and ignores the re-normalization in gold, aka the tightening in
lease rates. Well, with the 3M forward lease rate now almost back to
unchanged, it appears our speculation that the gold sell off, with
spot at $1575 on the 15th, is over were correct, and gold is now $40
higher, and just below the critical 200 DMA that everyone saw as the
catalyst of gold going to $0. So what does MS have to add to our
analysis? Well, much more optimism for one, because not only does the
bank think we are right that the collapse in negative lease rates
(i,e., the flattening to practically unchanged) mean the sell off is
over, but such a normalization of the gold lease market has "the
makings of a renewed upward assault on the recent all-time high....
Our current gold price forecast for 2012 of US$2,200/oz remains in
place under these circumstances." Qed.
The key highlight of Morgan Stanley's hypothesis of what negative gold
lease rates imply for gold:
Firstly, we think negative lease rates are highlighting a sharp
increase in the demand for gold as collateral for US dollar loans at a
time of reduced liquidity in the traditional US dollar interbank
funding market. The more negative the lease rates the higher the cost
of funding using gold as security.
Secondly, access to this collateral on a scale indicated by the rise
in GOFO can only emerge if the providers of liquidity to the leasing
market are prepared to increase the stock of lent gold in circulation.
This development points to the central banks, the largest custodians
of above-ground stocks and the traditional providers of liquidity to
the gold-leasing market. Aware of acute funding pressures in the
traditional interbank market, it seems increasingly likely to us that
central banks have increased the quantum of gold available for use in
a non-traditional funding market, at least until the measures to
alleviate bank-funding stress in the US dollar swaps market have been
successful. The recent easing in the scale of negative gold lease
rates, suggests that demand for this source of short-term funding
might be easing, but has not disappeared, even after the raft of
measures announced by the ECB and the earlier coordinated intervention
by the six central banks.
Said otherwise: we likely have smooth sailing for now, as banks will
not proceed to cannibalize each other for a bit. But keep a very close
eye on on that LIBOR-GOFO spread: the second it collapses, it may be
time to step away from the market…
http://www.youtube.com/watch?v=2YcgACl1Sr8
'NEGATIVE LEASE RATES'
http://www.metalaugmentor.com/analysis/charlatan-exposed-negative-gold-lease-rates.html
http://www.financialsense.com/contributors/metal-augmentor/2011/12/15/negative-lease-rates-and-the-ticking-gold-time-bomb
Much has been made recently about the “negative gold lease rates”
derived from the London Bullion Market Association (LBMA) statistical
gold and silver data, but reporting on the issue so far has generally
lacked the background, substance and/or context required for many
readers to even understand what information is being provided much
less draw proper conclusions.
Here are some of the key points raised in our extensive analysis of
the subject at Metal Augmentor:
(1) The combination of a falling gold price and rising forward rate is
quite a bullish feature of the gold market that is lost in the
reporting on negative gold lease rates. An increase in the gold
forward rate indicates that owners selling gold will want it back once
their immediate funding needs have abated. Therefore it is really the
reluctance to sell gold outright that the market appears to be
telegraphing via negative gold lease rates. This is a welcome change
from a gold market recently dominated by weak-handed participants
(Wall Street types like Paulson, Cramer, etc.) who primarily look to
gold for its ability to generate speculative profits during periods of
economic instability.
(2) The gold (or silver) lease rate does not necessarily represent the
actual rate at which lease transactions are being done in the market.
The published lease rate is simply an indicated value derived from two
related variables, the gold forward rate and LIBOR. These rates can
and do move in opposite directions for reasons unrelated to gold
leasing activity.
(3) We believe the focus on negative lease rates misses the point of
the current gold market structure and instead we should be looking at
changes in the gold forward rate. The gold forward rate has increased
during both the late September and current sell-offs in gold, which
probably means that gold is being leased by central banks in order to
provide liquidity for the banking system. Importantly, central bank
gold is probably not being sold outright despite rumors to the
contrary. The implication is that the current gold correction is
similar to past events where gold has been used as a liquidity
management tool. Its use for such purposes is hardly inappropriate --
after all, gold is the ultimate money and what good is money if it
doesn't get used? In any case, the eventual reversal of gold funding
activity should correspond with improved commercial bank liquidity and
a return to gold's dominant price uptrend.
(4) Important structural changes in the financial sector could soon
mean that gold’s widespread use as collateral and eventually as money
might actually not be that far off. If so, it would only be a natural
progression for an asset with no counterparty risk in a post-credit-
bubble world. Excessive leverage has transformed even the gold swap
and leasing business, which by definition is supposed to involve
physical metal, into a paper form a number of years ago. While the
recent reports from Bloomberg, Financial Times and elsewhere offer
shreds of truth about this condition amid all their misdirection, they
fail to examine underlying developments in the gold market that may
change the sorry state of affairs. Among the most intriguing is the
possible development of clearing and collateral facilities for 100%
physical backed gold, perhaps in the format of the LBMA unallocated
bullion account.
We suspect that all this talk about “negative gold lease rates” may
represent the initial glimmer of recognition that a major development
is afoot in the gold market. Pieces of the puzzle are being put
together without most people really knowing or understanding what the
completed picture looks like. The general trend of the financial
markets thanks to the information age has been to move away from
intermediation and toward self-directed transaction. The tri-party
arrangement redefines the role of the intermediary so that it is no
longer the matchmaker between customers but rather acts as a clearing
agent, administrator of collateral and a funding backstop.
Importantly, in a tri-party arrangement one party posts the collateral
that the other party desires. And that desire for specific collateral
is where things could get interesting for the gold market with gold
being the ultimate collateral. In essence the selective collateral
nature of the tri-party format may force bullion banks to eventually
declare their unallocated LBMA gold accounts as backed by 100%
physical bullion. While there certainly will be gold appearing on the
market from time to time in the form of gold leasing or similar
funding arrangements, the 300 year history of archaic bullion banking
may be coming to an end. If so, it could ironically be JP Morgan that
modernizes the gold standard by establishing gold as the premier
monetary asset with no counterparty risk and infinite mobility.
Implications
The gold time bomb takes the form of a possible panic out of paper
gold into physical metal when counterparty risk reaches an extreme
level whereas a new gold standard would complement modern financial
markets by serving as the ultimate asset: gold with mobility and no
counterparty risk. We believe such a radical development could take
shape if the most popular paper gold product available today, the LBMA
unallocated bullion account, is used increasingly as a source of
secured funding between counterparties rather than as credit between a
bullion bank and its customers. Indeed, if the gold market is left to
its own devices, the shunning of credit risk will eventually lead
counterparties to demand that gold be provided in the form of risk-
free collateral. The LBMA and bullion banks would then have no choice
but to establish and market 100% physical backed unallocated gold
accounts similar to BullionVault and GoldMoney, except on a grand
scale.
'ASS BACKWARDATION'
http://ftalphaville.ft.com/blog/2010/07/21/287566/the-story-of-the-gold-curve-so-far/
http://ftalphaville.ft.com/blog/2011/09/14/677021/why-gold-forward-rate-inversion-is-important/
Why gold forward rate inversion is important
by Izabella Kaminska / Sep 14 14:20
Here’s a crazy situation to consider. The gold lease rate (which can
also be understood as gold Libor, the gold interest rate or the cost
of shorting gold) is becoming increasingly negative at the short end.
This is the natural consequence of Gofo rates rising ever more greatly
beyond Libor costs at the front end. Since the gold lease is derived
from the calculation of Libor minus Gofo, any instance where Gofo is
greater than Libor leads to a negative gold lease rate. This, for
example, is the historic path of the three-month gold lease rate:
And here’s a closer look at the near-term action:
See, there’s been a collapse. Yet the irony is that there is still a
cost to borrow the GLD exchange traded fund.Why should it cost you to
borrow GLD at all, but earn you a return to borrow gold (Ed- surely
administrative costs)? Weren’t the two supposed to be a like-for-like?
What’s more there have been very interesting bursts of short-interest
in GLD recently, according to Data Explorers.
But first back to gold lease rates. Gold lease rates first went
negative (in this recent spell) in March 2009, and have remained
almost consistently negative since about July of that year (with brief
interim spells of positivity). But it’s only in the last week that the
rate has become severely and almost illogically depressed.
Interestingly — despite talk of funding pressure all round — this
doesn’t tie with the scenario experienced during Lehman at all. At
that time gold lease rates spiked, reaching historic highs. In fact,
it was only with the onset of extraordinary liquidity in November that
lease rates began to fall quickly. Before that happened, something
extraordinary transpired. Gold forward rates flipped, ever so briefly,
into backwardation. A situation which has hitherto only really been
seen in the Japanese gold market (where gold is denominated in yen).
Of course if you consider gold the soundest money carrying the lowest
interest rate structure — the ultimate risk-free rate — it makes sense
that gold lease rates should closely echo market interest rates, but
always remain fractionally lower. So when Libor shot up during the
crisis, gold lease rates understandably followed behind them — leading
to a situation where if you had gold, you could lend it out for a very
high return, since the risk lay with holding cash on reserve rather
than gold and you had to be compensated. Gold was the ultimate
collateral. Or in other words, the demand for gold rose alongside the
expense of borrowing in the interbank market. Eventually the demand
for gold became so great that the lease rate overshot Libor, leading
to the backwardation discussed above. At that point gold became a bit
of aGiffen good. It was — if you believe the goldbugs — a situation
which possibly signified the death of paper-money. But even then,
while gold itself became backwardated, the Gofo curve remained normal,
as did the Libor curve.
What we have now, however, is quite the opposite. Gofo remains in
contango — i.e. continues to avoid backwardation — while gold lease
rates have fallen sharply into negative territory instead. Almost as a
counterbalance. On the surface, the negative rate implies extremely
low demand for gold compared to cash. Or you could say, there are
currently more people prepared to lend gold at a terrible rate
(because there’s so much of it around) than prepared to lend their
cash for gold. (Contrary to anecdotal reports from the physical market
which suggest a lack of gold sovereigns and such the like.) In this
scenario, nevertheless, gold is seen as the risk. Gold has become a
lousy monetary substitute, and is anything but optimum collateral. In
fact, it is US Treasuries that are being over-bid, not gold. The lower
the rate goes, the more it suggests an extreme rush to pawn gold in
exchange for cash in the marketplace. Anything but gold, you might
say. Meanwhile, the more gold that ends up at the pawn shop, the less
favourable the rate received for pawning in the market. (The pawn shop
doesn’t want to carry all that risk and has to cover that risk by
offering less cash for gold.) Thus it’s not money that is dying, quite
the opposite, it’s gold. But there is one important other factor to
consider: Central bank intervention. Why on earth would anyone be
prepared to lend gold at a negative rate for almost two years, when
demand in the physical market was supposedly so huge? If you consider
that these actions were what prevented gold from flipping into
backwardation, perhaps it becomes a little clearer. As Reginald Howe
at the Golden Sextant points out:
At the LBMA, therefore, gold continues to avoid backwardation, but
only because central banks continue to lend at historically very low
lease rates. It is a strange situation. Gold for spot delivery and
bullion funds with high credibility for physical possession of metal
in the amounts claimed are selling at premiums over paper of lesser
reliability. But where gold is arbitraged against currencies on the
basis of relative interest rates, it remains in contango.
Now, if this is the result of some sort of central bank intervention,
it’s clear that the central banks still have to find end demand for
that lent gold (via the bullion bank intermediaries). The gold mining
companies that used to be counterparties, have closed their hedging
books. They’re no longer willing takers of borrowed gold.
Who’s the only viable candidate left? Answer: Gold ETFs and gold
exchanges. While the likes of GLD insist every share outstanding is
matched by a gold bar — and this is almost definitely true — what they
can’t claim is that there’s a way to differentiate gold with previous
claims on it from gold without previous claims on it within its
reserves (i.e. borrowed gold). It is consequently entirely possible
that gold ETFs are sitting on mountains of borrowed central bank gold.
GLD’s defence, of course, is that prior claims on its reserves are not
their concern. They are the liablity of the party that delivered the
gold to GLD (almost certainly a bullion bank). Thus it is the bullion
bank that risks being squeezed on delivery in the physical market, not
GLD. Of course, with a negative interest rate for borrowing gold, the
bullion banks are being more than compensated for the risk of a
squeeze. On top of everything they can always create new GLD shares ad
infinitum, if needs be. (At least until all central bank gold stock
has been lent into gold ETFs, arguably forcing central banks to
replenish the gold lending pool via market purchases.)
In the above scenario — in which bullion banks are possibly recycling
borrowed gold into GLD shares to sell into the market — these short
sales will put pressure on GLD units themselves. As Howe noted earlier
this year:
In recent months, while GLD has generally sold at a slight discount to
net asset value, other bullion funds with more transparent and
credible custodial and auditing procedures have commanded significant
premiums. E.g., Central Fund of Canada (CEF), Central Gold Trust
(GTU), Sprott Physical Gold Trust (PHYS). Anecdotal evidence also
continues to surface of premiums for spot delivery of physical metal
or cash settlement in lieu of physical.
Thus, if central banks are really using bullion banks as feeders of
borrowed gold into gold ETFs (so as to suppress prices and keep gold
lease rates negative, avoiding gold backwardation), you’d assume the
strategy could easily unravel if and when people started liquidating
large portions of GLD, i.e. forcing delivery of that gold.
Gold and the create-to-lend mechanism
Ordinarily when new shares are created in an ETF for shorting
purposes, there is no respective spike in assets under management.
That’s because shares are often created using the “create-to-lend”
facility, which sees shares issued against borrowed stocks which are
almost immediately sold into the market. Since there is no incremental
demand for those shares, an oversupply of units hits the market place
causing the ETF arbitrage mechanism to kick in. The very same shares
are thus almost immediately redeemed, leaving assets under management
unchanged but the short-interest ratio higher. This, by the way, is
how we get to such large short-interest ratios in some popularly
shorted ETFs. Of course in the bullion scenario, one could argue that
the shorts are continuously lapped up by strong demand from GLD
buyers. The shorts are thus disguised by continuing assets under
management growth — a fact which leaves the short-interest ratio
relatively stable, and has a slowing impact on AuM growth if anything.
But if a large GLD share owner coincidentally liquidates a sizeable
portion of GLD shares one day (in order to take delivery of real gold
instead), this could theoretically destabilise the short-interest
balance. A fact which may or may not have happened recently. As the
short-interest data firm Data explorers noted at the end of August:
The amount of money invested in SSGA’s Gold Trust (GLD) is very close
to the total assets in the instrument, which tracks the S&P 500 (SPY)
at USD 71bn. GLD issues shares in exchange for deposits of gold. On
August 10th, there was an unusually large rise in short selling by
250% to 18m shares. This position was then immediately covered as gold
began its recent ascent to $1,917.9 on Monday of this week.
There has been little activity in this ETF’s other listings in Hong
Kong, Singapore and Tokyo. Another large and physically backed (i.e.
owns gold) ETF is the iShares Comex Gold Trust (IAU). This has
sporadic spikes in short interest, and these spikes have increased in
their frequency over this past quarter, showing some evidence that the
need to hedge or short gold is more frequent than it was. If we look
at the number of securities lending transactions, we see a 20%
increase in the number of loans in GLD in the last week alone. The
absolute rise in shares short might not be that cataclysmic, but more
trades might well mean more positioning, which translates to
nervousness that the gold price cannot sustain such lofty levels. The
equivalent rise in trades in IAU is 84% since last Thursday – a huge
change.
The fact that the short position was immediately covered suggests that
whoever liquidated GLD sold the bullion back into the market. By doing
so it allowed the short parties to cover their position, bringing the
overall short-interest ratio back to equilibrium quickly. Whatever the
case, one thing’s for sure. Volatility in the gold/GLD spread (blue
line below) has increased since August 10, which was about the time of
the Paulson GLD liquidation rumours:
So has the GLD liquidation possibly disturbed the short-ratio balance?
Is this why gold lease rates have had to adjust radically downwards?
Are bullion banks demanding increased compensated for supplying
borrowed gold into gold ETFs because there’s suddenly been a genuinely
large amount of gold thrown back into the gold system? Is this also
why AuM has stagnated and GLD has become ineffective as a central bank
policy tool? Who can say, but all these factors are definitely worth
thinking about we would argue.
SEE ALSO
What do silver lease rates have to do with fund redemptions? - FT
Alphaville
Gold Derivatives: GLD and Ass Backwardation – FT Alphaville
Cash for gold, financial market edition - FT Alphaville
The secured lending boom (through gold-tinted glasses) - FT Alphaville
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