Massive Chinese debt and why they are on a gold buying binge!

China’s debt is a staggering $24 trillion with 247% of annual GDP as of last year, which is, in fact, an increase of an astounding 465%, within a decade. The total borrowing, by both the financial and non-financial sectors, was only 78% of the GDP in 2007 and has since increased to 309% of GDP, according to economists at Nomura Holdings Inc., led by Yang Zhao and Wendy Chen.

Although some naysayers believe that the leverage in China is still far below that of what the U.S. was in 2007 previous to the financial crisis. However, they neglected to note that the property sector has increased by 4.5 times, between 2000 and 2015, within the top-tier cities. Experience suggests that such a rise is both ‘unsustainable’ and ‘bubbly’. A sharp drop in the property prices will increase the leverage to astounding levels thereby threatening their economy.

 

Huge fiscal deficit challenge:

The IMF has forecasted that China will have a moderate budget deficit of 3%, which sounds very comfortable. The IMF has merely considered the governments’ debt so as to arrive at said figure, which accounts for less than 20% of public spending. The local governments and municipalities in China account for over 80% of public spending.

When the total figures are considered, the balloons to 10%, according to the IMF, whereas, Goldman Sachs believes that number is much higher being that of 15%. These numbers are far worse than the U.S.’s were directly before the financial crisis of 2008. Learn more here: fiscal deficit

Most state-owned companies are taking on more debt in order to pay off their earlier debt. Bad loans soar as shown in the chart below. The government has not allowed any major firms to become bankrupt in order to keep their job numbers propped up. If the start to let companies fail unemployment numbers could skyrocket!

 

 

Growth is struggling:

With growth struggling, and in order to merely reach those of the beaten down estimates of the Chinese government, it appears highly unlikely that China will be able to manage their debt ‘overhang’.

In light of the forthcoming five-year congress of the communist party, the government will not want to push through unpopular reforms, although, they are indeed necessary. The Chinese debt binge has reached such a vast amount that the experts now believe that in order to raise the GDP by $1.00, China must take a credit of $4.00 which is most certainly a sign of an impending crash that will have both global repercussions and further consequences!

 

Major investors who have raised concerns about China:

Legendary investor, George Soros finds an “eerie resemblance” between the U.S., prior to the financial crisis, and the current Chinese situation. “It’s similarly fueled by credit growth and an eventually unsustainable extension of credit,” Soros told  the Asia Society in New York in April, reports Bloomberg.

Similarly, BlackRock Chief Executive Officer Laurence Fink has also raised concerns about the Chinese debt.

The famous short seller Jim Chanos is short on China while stating that it “is the gift that keeps on giving on the short side,” reported CNBC, in May of 2016.

 

China shifting from dollars to gold!

China is gradually reducing its’ holding in the U.S. treasuries. In July, it held $1.22 trillion of US bonds, notes and bills,  which represents a drop of $22 billion since June of 2016. This is the largest drop, in three years, according to U.S. Treasury Department data which was released on Friday, September 16^th, 2016.

There are many who believe that China’s mammoth holdings of US treasuries will restrict it from ‘dumping’ them. However, Bocom strategist Hao Hong  said, “The gold reserve on the China balance sheet has almost doubled since 2009. By holding gold, and moving away from a US-dollar centric system, we actually require less U.S. dollars,” reports Zero Hedge.

China’s gold holdings, which was a paltry 395.01 tons, in the second quarter of 2000, has now risen sharply to 1,828 tons, according to the World Gold Council.

With the Chinese Yuan set to enter as the fifth currency in the International Monetary Fund’s SDR (Special Drawing Right) on October 1st, 2016, the Chinese are propping up the gold backed Yuan as a fierce competitor to the U.S. dollar!

“The recently-opened Shanghai Gold Exchange differs greatly from the London Gold Exchange in one fundamental area: In Shanghai, buyers take physical delivery of gold whereas London deals in paper-based gold futures contracts. In Shanghai, ‘what you buy is what you get’ whereas in the West, gold is a virtualized commodity,” Tom McGregor, Commentator and Editor at CNTV (China Network Television), told Sputnik.

Conclusion:

Similar to that of other developed nations, the Chinese debt has also reached ‘bubbly’ proportions. However, the Chinese are leaning towards gold, in a big way, as witnessed in their latest holdings. They know that, during the next crisis, those nations with a large gold backing will not only survive, but will become prosperous, as well!

China is most certainly going to increase their gold reserves even further, in the future. Imagine if only a portion of their U.S. treasury holdings are shifted to gold, the yellow metal will go parabolic.  Therefore, keep an eye on gold and be well prepared to buy it when we reach that last dip, before the ‘bull run’.

Want to know where gold, silver and mining stocks are within their bull/bear market cycles? Or do you want to know when and how to take full advantage of these next major moves?

Follow me at www.TheGoldAndOilGuy.com

Chris Vermeulen

TheGoldandOilGuy.com

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US Dollar Is Forming A Long-Term Top

We have significant concern that the US dollar is now forming a long-term top.  Moreover, we may see a devaluation of up to 50% in value of the dollar over the coming decade. The fundamental backdrop is already in place with the unprecedented money creation by the Federal Reserve since 2008. Confirming technical indicators of a fall in the value of the dollar will be shown through an examination of past dollar-devaluation cycles.

While the Fed last week once again did not raise interest rates, the significant market reaction seen on Wednesday was based on the change in the wording used in the accompanying policy statement. Whereas over the past few meetings, the Fed has given little indication that it was considering a second interest rate hike, this time the central bank used the following distinct language: “The case for an increase in the Federal Funds Rate has strengthened.”

As investors, we must remember we are still living in an unprecedented age for low interest rates. At the 0.25% – 0.50% target rate, this is still the lowest that interest rates have been in Federal Reserve history, including the following two critical time periods:

• The Great Depression: rates hit a low of 1.5%
• World War II: rates hit a low of 1.0%

Can we imagine that what is happening in the world economy currently must be deemed by the Federal Reserve to be more severe than both the Great Depression and the largest international conflict in the history of the world?

Not only are rates lower than in each of these periods, but they have been held lower for a greater number of years than at each of these previous troughs, now eight years and counting below the 1.0% mark. Of course, holding interest rates so low requires a continuous electronic “printing” of new money, which is used to buy the entire short-end of the interbank bond curve. The longer that rates are held below what the market would naturally set them at — usually between 2.0% – 5.0% — the more inflation the Fed is building underneath the system.

The data to support this coming wave of inflation can be seen from the graph of the total reserve balances held at the Fed. Recall that what appears on this chart is money the Fed has created in order to buy sufficient bonds needed to force interest rates lower:

We can see that there is no precedent for the amount of money created since 2008. The Fed — and other major world central banks — have embarked on a money-printing spree that will go down in history as an experiment like none other. Note that there *is* a line on this graph dating back to 1950… it is just so low on the Y-axis that it barely registers when compared to the nearly $2.4 trillion created by the bank since 2008.

The strange thing about inflation is that once central banks create it — they cannot control precisely where it flows after it enters the broad economy. Similar to turning on a fire hose in an attempt to water the garden flowers, some may flow to the intended destination, but far more will eventually flow to unintended areas.

Thus far, the recipients for most of the inflation are clear, which we have discussed in past issues. They are world bond and stock markets, which are both at all-time highs simultaneously (in itself an unprecedented situation).

But nothing happens in a vacuum.

Newton’s Third Law of Physics says: “For every action there is an opposite and equal reaction.” And it appears that the unintended consequence of the Fed’s actions are about to be felt elsewhere: in the US dollar.

US Dollar

The chart below shows the US dollar as measured by the Dollar Index, a trade-weighted basket that measures the value of the US currency versus the sum of the following:

• Euro (EUR), 57.6% weight
• Japanese yen (JPY) 13.6% weight
• Pound sterling (GBP), 11.9% weight
• Canadian dollar (CAD), 9.1% weight
• Swedish krona (SEK), 4.2% weight
• Swiss franc (CHF) 3.6% weight

We have been following this chart now for several months, as the dollar has been consolidating for nearly two years between the 92 level and the 100 level on the index. Over the long run, we expect gold and silver to be moving higher in all currencies, no matter what happens with one fiat currency versus another. However, over the short run, gold tends to see its most significant advances when the US dollar is weak, as gold is priced primarily in US dollars for purposes of international trade.

Thus, let us remember that the advance seen in gold from the December 2015 low of $1,045 per ounce to the recent high of $1,378 has taken place within a backdrop of a relatively stable US dollar, which has only fallen from 100 to 95 on the Index.

It appears that gold is now waiting for further signals from the currency market in order to begin its next move. Consequently, as the dollar has continued to consolidate, so has gold.

Yet these consolidations will not continue forever.

Recent Technical Analysis On The Dollar

On the chart above, we can see converging sets of trendlines, shown in royal blue for primary downward trend and teal for short-term uptrend. These trends have been converging since December 2015 and May 2016, respectively. One of these trends is due to break within the next 4-8 weeks.

The nearly two-year consolidation in the dollar is increasingly taking the form of a broad long-term top. Indeed, it would be rare to see such a lengthy pattern resolve to be a continuation move higher.

From the short-term perspective, our “hints” that the break will be lower come from the two cracks in the support zone below 93 on the index. These cracks have been warning signs that buyers of the dollar are not as resolute in supporting the currency as many would believe. This is in contrast to the resistance zone at 100, which has shown very distinct and unhesitant selling pressure each time that level is reached.

Should the lower converging (teal color) trendline break in the dollar in the coming weeks, the currency should be making new lows below the 92 region in short order. This move is expected to coincide with the converse breaking of the long-term downtrend that has held the price of gold lower from 2011 – present (see our previous article.

Euro / US Dollar Long-Term Perspective

As stated above, the Euro represents 57.6% of the makeup of the Dollar Index. As it is the overwhelming component of the Index, the way the Euro goes, conversely so moves the Dollar Index. We thus now turn to the long-term perspective of the EUR/USD cross-pair:

Above we are looking at the number of US dollars needed to purchase one Euro. Currently at 1.12, the Euro is slightly stronger than the dollar.

Note that this chart extends back to 1953. Because the Euro began to be phased in between 1999 and 2002, the data prior to 2002 is derived from what was and still is Europe’s largest economy: Germany (Deutsche mark).

Prior to 1971, as the world was still on the Bretton Woods agreement, most currencies were still tied to the value of the dollar. Thus we see a lack of relative volatility in the (mark/Euro)/dollar cross pair prior to 1971, with a huge increase in volatility after the dollar was severed from the gold standard during the breakup of Bretton Woods that year.

The big picture technical perspective as shown above is an ascending triangle pattern in favor of a long-term advance in the Euro relative to the dollar. The pattern derives its name from the clear triangle shape that can be seen forming in the price action. With a multi-decade resistance zone between 1.40 – 1.50 dollars per Euro, and a rising linear support line dating back from 1985, the pattern represents a market that is in the process of revaluing higher (in favor of the Euro), as sellers of the dollar emerge at increasingly lower levels at each major dollar top.

In this case, when the pattern successfully breaks the resistance zone, the long-term target based on the triangle pattern would be near 2.25 dollars per Euro, or just over a 50% loss of value in the dollar from the current value of 1.12.

Note the red highlight circles. These show the increasing relative lows in the Euro (highs in the dollar) that have formed since 1985. The entirety of the suspected top in the dollar (see page 3), plotted inversely, would fit precisely into the farthest right highlight circle. We believe that the current formation seen in the dollar is a top of similar magnitude to the one that previously formed in 2001 and then in 1985 before it.

Note that these tops in the dollar and converse bottoms in the Euro have been forming at a nearly perfect 16-year interval periods: 1985 —> 2001 —> 2017.

It was the previous bottom in the Euro / top in the dollar in 2001 that led to the beginning of the 2001-2011 bull market in precious metals, which saw gold rise from $250 to over $1,900, over 650%. The current top in the dollar is of greater significance to the one seen in 2001 because it will likely be the last major top before the 50% devaluation of the dollar occurs toward 2.25 on the Euro. We thus expect that the bull market set to unfold in precious metals over the coming decade will be of similar duration and perhaps greater scale than that of 2001 – 2011.

Fundamentally, a 50% loss in value of the dollar could only occur from all of the dollars created by the Federal Reserve since 2008 finally looking for an exit via the foreign exchange market. Such a move would see large multinational institutions move reserves into other currencies for safety: some will move into the Euro, some will move into the Japanese yen, some into the Swiss franc. Yet as each of these countries will also be simultaneously debasing their own currencies in an attempt to not disrupt world trade, gold should emerge as the reserve asset of last resort.

Unfortunately, those hurt most in a dollar devaluation will typically be those least able to prepare for it: i.e. those on fixed incomes of dollars, typically retirees on pensions; and the poor on social welfare.

Those able to prepare ahead of time can profit from the situation, as the price advances in the precious metals should more than offset the losses in the dollar or other fiat currencies. As the quantity of gold available for purchase is insufficient to absorb the quantity of dollars that will be looking for refuge, a revaluation higher in the metals will be forced to occur.

We should continue to monitor the Euro/dollar cross-pair over the coming months for confirming indicators of this multi-year dollar top, which is a key backdrop for the long-term precious metals thesis. From a technical standpoint, a break of the 1.17 EUR / USD level — the upper region of the ongoing 2-year consolidation — will set in motion the initial stage of the gold advance vis-a-vis dollar devaluation that we are referencing.

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IMF Plans to Launch a New Global Currency

Some say the U.S. dollar may die 5 days hence. The Chinese renminbi will kill it. Much is being made of plans by the International Monetary Fund (IMF) to add the renminbi to its basket of strategic reserve currencies called Special Drawing Rights (SDR). The IMF will make the change on October 1. While the implications for the Federal Reserve Note, currently the U.S. dollar, as the world’s primary reserve currency may be profound over time and the importance of this even should not be overlooked, the impact is unlikely to happen overnight.

The composition of the SDR may change on October 1, but few people understand what the SDR is. Even fewer actually have any experience trading it. For the many who wonder what an SDR is, here is a brief description from the IMF;

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. As of March 2016, 204.1 billion SDRs (equivalent to about $285 billion) had been created and allocated to members. SDRs can be exchanged for freely usable currencies. The value of the SDR is currently based on a basket of four major currencies: the U.S. dollar, euro, the Japanese yen, and pound sterling. The basket will be expanded to include the Chinese renminbi (RMB) as the fifth currency, effective October 1, 2016.

The IMF actually decided to make October 1st’s changes to the SDR one year ago. Some expected that decision would represent the death knell for the dollar. But when the announcement came, the currency markets hardly noticed.

Mass psychology – or relative confidence – is what ultimately determines whether or not a dollar holds value. Not much will happen October 1st if not many people care.

There have been many other threats to the confidence that underpins the dollar. Among them were straight-forward and widely publicized assaults; trillion dollar federal deficits, metastasizing debt and an explosion in the supply of U.S. dollars. If years of Quantitative Easing – the Fed’s program to gin up trillions in new dollars with which to buy Treasury Bonds and garbage mortgage securities – didn’t torpedo confidence, a far more obscure institution like the IMF may not do it either when it changes the composition of their arcane supranational currency.

That said, October 1st could mark an important waypoint on the long road to oblivion for the U.S. dollar. The Chinese have been openly advocating for SDRs to replace the dollar as world reserves, and this event is an important step down that road.

In 2009 Zhou Xiaochuan, governor of China’s central bank, called for the creation of “an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.” There are many nations who consider the reign of “king dollar” tyrannical.

The IMF has big plans for the SDR. There will soon be an offering of SDR denominated bonds. IMF officials hope to see large and liquid foreign exchange and bond markets modeled after those where dollars and Treasuries are traded. If they succeed, it is easy to imagine developments such as oil exporters demanding payment in SDRs and central banks swapping their vast reserves of Federal Reserve Note. In other words, the IMF intends for the SDR to replace the Federal Reserve Note as the world’s reserve currency.

However, that outcome is by no means certain. The SDR is nothing more than a basket full of flawed fiat currencies. Like the Federal Reserve Note, the others are backed by the full faith and credit of irresponsible governments who would be insolvent but for their printing presses. This includes China’s renminbi.

We fully expect the U.S. dollar will be dethroned one day, and the SDR may be part of that transition. But nothing will solve these growing problems until gold and silver are restored to broad use as money. The world needs honest money, not a basket of paper.

About the Author:

 Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

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Post contributed by Money Metals Exchange.

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source http://goldsilverintel.com/imf-plans-launch-new-global-currency/

Blood Brothers: The Bank of England and the London Bullion Market Association (LBMA)

The London Bullion Management Association (LBMA) is a London-based, globally active, trade association for “the promotion and regulation of commerce relating to the London Bullion Market”. The “London Bullion Market” here collectively refers to the London Gold Market and the London Silver Market. The remit of the LBMA has very recently also been extended to cover the London Platinum and Palladium Market (LPPM).

While it is generally known to many, vaguely or otherwise, that the Bank of England has a vested ‘interest’ in the London gold market, the consistently close relationship between the Bank of England and the LBMA tends not to be fully appreciated. This close and familial relationship even extends to the very recent appointment of a very recently departed Bank of England senior staff member, and former head of the Bank of England Foreign exchange Division, Paul Fisher, as the new ‘independent‘ chairman of the LBMA Management Committee (a committee which has recently been rechristened as a ‘Board’). Note that at the Bank of England, the Bank’s gold trading activities fall under the remit of the ‘Foreign Exchange’ area, so should be more correctly called Bank of England Foreign Exchange and Gold Division. For example, a former holder of this position in the 1980s, Terry Smeeton, had a title of Head of Foreign Exchange and Gold at the Bank of England.

What is also unappreciated is that the same Paul Fisher has in the past, been the Bank of England’s representative, with observer status, on this very same LBMA Management Committee that he is now becoming independent chairman of. This is an ‘elephant in the room’ if ever there was one, which the mainstream financial media in London conveniently chooses to ignore.

As you will see below, the UK’s Financial Conduct Authority (FCA) also has a close, and again, very low-key but embedded relationship with this LBMA Management Committee.

At the ‘Behest’ of the Bank of England

The LBMA states in one of its Alchemist magazine articles, that its Association “was established at the behest of the Bank of England” in 1987, with Robert Guy of N.M. Rothschild, the then chairman of the London Gold Fixing, spearheading the coordination of the Association’s formation. Elsewhere, in a recent summary brochure of its activities, the LBMA states that it was “set up in 1987 by the Bank of England, which was at the time the bullion market’s regulator”, while a recently added historical timeline on the LBMA website, under the year 1987, states “LBMA established by the Bank of England as an umbrella association for the London Bullion Market.”

‘Established at the behest of“, “set up by” or “established by“, take your pick, but they all clearly mean the same thing; that the Bank of England was the guiding hand behind the LBMA’s formation.

Prior to the formation of the LBMA, and before a change of regulatory focus in 1986, the London Gold Market and London Silver Market had primarily followed a model of self-regulation, but the Bank of England had always been heavily involved in the market’s supervision and operations, especially in the Gold Market. Even reading a random sample of the Bank of England’s archive catalogue material will make it patently clear how close the Bank of England has always been to the commercial London Gold Market. For scores of years, the London Gold Market to a large extent merely constituted the Bank of England and the five member firms of the London gold fixing,  namely NM Rothschild, Mocatta & Goldsmid, Sharps Pixley, Samuel Montagu, and Johnson Matthey.

According to the 1993 book, “The International Gold Trade” by Tony Warwick-Ching, a combination of the advent of the Financial Services Act of 1986 which introduced supervisory changes to the UK’s markets, and the growing power of other bullion banks and brokers in the London precious metals market in the 1980s, acted as a combined impetus for the LBMA’s formation in 1987.

As Warwick-Ching stated:

“The LBMA was partly a response to a growing demand of concern who were not members of the [gold] fixing for a greater involvement at the heart of the bullion market.” 

Morgan and J.Aron join the Party

Specifically, according to its Memorandum of Association, the LBMA was formed into a Company on 24 November 1987 by N.M. Rothschild & Sons Limited, J.Aron & Company (UK) Limited, Mocatta & Goldsmid Limited, Morgan Guaranty Trust Company of New York, Sharps Pixley Limited, and Rudolf Wolff & Company Limited. This company is “a company limited by guarantee and not having a share capital”. Given their participation from the outset, presumably J Aron (now part of Goldman Sachs) and Morgan Guaranty (now part of JP Morgan Chase) were members of the ‘growing demand of concern‘ contingent alluded to by Warwick-Ching, who wanted a bigger say in the gold market’s inner sanctum.

Signatories to the original LBMA Memorandum of Association

The authorising subscribers of the original Memorandum, on behalf of their respective companies were, Robert Guy (Rothschild), Neil Newitt (J. Aron), Keith Smith (Mocatta & Goldsmid), Guy Field (Morgan Guaranty Trust), Les Edgar (Sharps Pixley), and John Wolff (Rudolf Wolff & Company), and they requested that “We, the subscribers to the Memorandum of Association, wish to be formed into a company pursuant to this Memorandum.” The original steering committee of the LBMA comprised five of the above, Robert Guy (Chairman), Guy Field (Vice Chairman), Keith Smith, John Wolff, Neil Newitt, as well as Jack Spall of Sharps Pixley, the father of Jonathan Spall (current consultant to the LBMA). Note that the incorporation filing at UK Companies House for the LBMA is dated 14 December 1987, about 3 weeks after the date listed on the original Memorandum of Association.

As early as April 1988, there were 13 “Market Maker” members and 48 ‘Ordinary’ members in the LBMA. The market maker members had to be ‘listed money market institutions’, which meant that they were institutions listed under section 43 of the Financial Services Act 1986 (on a list actually maintained by the Bank of England) who conducted  various transactions, including bullion market transactions, which were exempt from authorisation.

The Shadowy Observers: Bank of England

According to the LBMA website:

“The Bank of England has been intrinsically linked with the London bullion market since its foundation in 1694.” 

“Although the Bank isn’t a member of the LBMA, members of the LBMA hold gold custody accounts with the Bank”

“The Bank’s vaults hold approximately two-thirds of all the gold held in London vaults and as such plays a significant role in the liquidity within the London gold market. Customers are able to buy or sell gold to other customers, by making or receiving book entry transfers, with ownership transferred in the Bank’s back office system… The service provides a very important element of the gold market infrastructure in London, helping LBMA members and central banks to trade in a secure and efficient way.”

A Bank of England presentation to the 2013 LBMA conference in Rome, titled the-bank-of-englands-gold-vault-operations, gives a good overview of the Bank’s provision of book entry transfers to its central bank and bullion bank clients for the smooth running of the London Gold Lending Market, a market which is totally opaque and completely undocumented. In fact the Bank of England sits at the heart of this gold lending market.

Furthermore, on the clearing side,

“The London bullion clearing members role involves a considerable degree of direct client contact, electronic interfaces between the clearing members and close liaison with the Bank of England…”

From its very foundation in late 1987, the Bank of England was involved in the first steering committee of the LBMA and the activities of the Association. And to this day, Bank of England ‘observers’ attend LBMA Management Committee monthly meetings.

As a historical account of the LBMA’s 1987 formation states:

“From the Steering Committee’s inception, The Bank of England, which held responsibility for the supervision of the wholesale bullion market, was involved in the Association’s affairs and assisted in the drafting of the relevant Code of Conduct. Observers continue to attend Management Committee Meetings to the present day.”

This steering committee ultimately became the LBMA Management Committee, and, in the last few months, has become the LBMA ‘Board’. So the Bank of England is, for all intents and purposes, a highly active partner within the LBMA’s governance structure. As a confirmation of this point, at the LBMA annual general meeting in July 2014, the then chairman of the LBMA Management Committee chairman, David Gornall, of Natixis stated in his speech that:

“The LBMA is also privileged in having an observer from the Bank of England on the Management Committee. The Bank’s presence is of inestimable benefit to us.”

As to what inestimable benefit David Gornall was referring to, or in what way a Bank of England observer participates on the LBMA Management Committee, was not elaborated on. Nor can it be gleaned from any meeting minutes from LBMA Management Committee meetings, because such minutes are not made publicly available (See below).

For anyone not familiar with the concept of an observer on a corporate committee or board, it does not refer to someone who just sits there and observes, as the name may suggest. An observer refers to an attendee at the committee / board meetings who actively participates in discussions but who has no voting rights on committee / board resolutions. Observers can and do fully participate in meeting apart from voting. When voting occurs, they may (or may not) be asked to leave the room.

At the LBMA annual general meeting in June 2013, David Gornall, also chairman of the LBMA Management Committee at that time, revealed that not only was there a Bank of England observer on the Management committee, but there was also an observer from the UK financial regulator, the Financial Conduct Authority (FCA), on the same committee:

“The LBMA is also privileged in having observers from both the Bank of England and the FCA on the Management Committee. Their presence is of inestimable benefit to us.”

In fact, there are many such references within various LBMA related speeches. At the LBMA Precious Metals Conference in September 2013, Matthew Hunt of the Bank of England stated:

“More specifically on gold, even though we are not active traders in the market but we are a large custodian, some of the people in our team responsible for gold observation sit on the LBMA Management Committee and the LBMA Physical Committee as observers. Thus we retain a significant engagement with the gold market via that route.” 

Notably the Bank of England has a team of people responsible for gold observation, but not for the observation of other commodities such as zinc, lean hogs, live cattle, heating oil, soybeans, sugar, beaver pelts etc etc.

In March 2013, Luke Thorn of the Bank of England, while addressing a LBMA Assaying and Refining Seminar, stated:

“We are not a member of the LBMA, but we continue to play a key role in the London market. We have observer status on the Management, Physical and Vault Committees.” 

There are therefore Bank of England observers on 3 LBMA Committees. So, who are these Bank of England and FCA observer representatives? That is not an easy question to answer. There is no mention on the LBMA website’s committee page, and has never been any mention, of any Bank of England observers or FCA observers on the LBMA Management Committee (now Board). Nor are there any published minutes on the LBMA website of any LBMA Management Committee meetings, or the meetings of any of the other five LBMA sub-committees, such meeting minutes as would generally list the attendees of such meetings. More about the lack of minutes below.

Turning briefly to the physical and vault committees, the LBMA website has a listing for its physical committee and does mention that a Bank of England observer called Jennifer Ashton currently is on this committee.

According to the LBMA’s good delivery summary:

“The Physical Committee is made up of industry experts from the physical bullion market. It is responsible for monitoring, developing and protecting the Good Delivery List and works closely with sub-Groups such as the LBMA Referees and the LBMA’s Vault Managers Working Party”

There is however, no formal listing of the Vault Manager ‘s group as a LBMA committee within the LBMA’s committee listings section. The only informative reference to such a committee on the LBMA web site is in the good delivery rules explained section, which states:

“The Vault Managers Working Group, comprising the Bank of England and representatives from those LBMA members with their own vaulting facilities in London, meet regularly to consider issues relating to bar quality and vault procedures. Vault Managers are required to document every case of bar rejection and provide the associated information to the LBMA Executive”

Who is on this committee from the Bank of England, let alone from any of the other committee member companies is not disclosed.

Turning again to the identities of LBMA Management Committee observers, and going back slightly further to the LBMA Annual General Meeting on 20 June 2012, the Chairman, the omnipresent David Gornall of Natixis London Branch, stated:

“Talking of the Management Committee, let me remind you that we are very fortunate to have observers from both the Bank of England and the FSA on the committee. I would like to thank Trevor Stone and Don Groves for their participation in our affairs”.

From a speech at the 2009 LBMA annual conference by Michael Cross, the then Head of Foreign Exchange at the Bank of England, we learn that the Bank of England’s Banking Services area:

“is where Trevor Stone and his colleagues, who will also be known to many of you, work. The Banking Services area provides wholesale banking and custody services to a wide range of bank customers”

These ‘Banking Services’ functions at the Bank of England are similar to Central Bank and International Account Services (CBIAS) services offered to central bank customers by the New York Fed, and include gold custody services.

The Embedded Observers – FCA, Don Groves

On 30 September 2013, the ever-present David Gornall in another speech, this time to the LBMA annual conference in Rome, had this to say:

“We are grateful for the communication and feedback on our work from regulators, particularly that of own regulator the FCA. We are delighted to be joined by Don Groves of the FCA during tomorrow’s financial market regulation session. Don is a long-time observer on the LBMA Management Committee and we thank him for his participation and continued dialogue on our regulatory questions facing the London Market.”

The next day, on 1 October 2013, at the same conference, Ruth Crowell, the then Deputy CEO of the LBMA (and current LBMA CEO) introduced Don Groves as follows:

“With that, I am going to turn it over to Don Groves from the Financial Conduct Authority. Don is a technical specialist in the market contact area of the FCA’s Market Monitoring Department, where he is responsible for reviewing allegations of market misconduct, including market abuse and insider dealing.

Don specialises in the UK commodity markets and has been in market conduct for a number of years. We are also very privileged to have Don as an observer on the LBMA’s Management Committee.“

Groves joined the FCA in 1999, and left the FCA in March 2015. While his LinkedIn profile has very detailed listings of his duties while at the FCA, there is no reference to the fact that he ever sat on the LBMA Management Committee, which strikes me as odd, unless that is a deliberate omission.  A previous version of Groves’ LinkedIn profile states:

“I am considered to be an expert in Market Conduct matters and market abuse in the UK. I conduct project work pertaining to market conduct issues, contribute to the drafting of European legislation pertaining to market abuse and am an experienced public speaker. My main area of interest is the UK’s commodities markets.

Is it not odd that a FCA regulator was a long-time observer sitting on the LBMA Management Committee, but that the FCA has never had anything to say about the London Gold Market. Perhaps it’s because of the following, which gives the impression of a compliant and embedded regulator. As the FT wrote in October 2013 in an article titled “Gold and oil benchmarks face tighter regulation“:

“I don‘t want to give the impression that the UK is picking on the bullion market or anything else,” Mr Groves told the London Bullion Market Association precious metals conference in Rome. “But a consumer focus is what politicians are looking at…so there’s going to be more focus from us as regulators, on consumer issues.”

“However, [Groves] admitted the regulator did not know enough about physical markets and had launched a project to increase its knowledge. “We are going out as the FCA and learning about those markets,” he said.

What exactly the FCA was doing sitting on the LBMA Management Committee remains unclear, because, to reiterate, there are no publicly available minutes of the Committee’s meetings. At a guess, perhaps Groves was “learning about physical markets“, specifically the physical gold market.

Its also relevant to note that the Bank of England and FCA both crop up as observers when the LBMA holds various seminars, such as the seminar it held in the City of London on 24 October 2014 to showcase various solution providers that were competing to provide the infrastructure for the LBMA Gold Price fixing auction competition that was running at that time:

According to the LBMA press release, “Both the Bank of England and the Financial Conduct Authority attended the seminar as observers.”

Where are the LBMA Mgt Committee Meeting Minutes?

Through the Non-Investment Products Code (NIPs), the Bank of England interfaces closely with the UK’s foreign exchange, money and bullion markets. The Bank of England explains NIPs as follows:

“The Non-Investment Products Code

This Code has been drawn up by market practitioners in the United Kingdom representing principals and brokers in the foreign exchange, money and bullion markets to underpin the professionalism and high standards of these markets.[1]

It applies to trading in the wholesale markets in Non-Investment Products (NIPs), specifically the sterling, foreign exchange and bullion wholesale deposit markets, and the spot and forward foreign exchange and bullion markets.”

“Footnote [1]: Co-ordinated by the Foreign Exchange Joint Standing Committee, the Sterling Money Markets Liaison Group and the Management Committee of the London Bullion Market Association”

Of the three, the  Foreign Exchange Joint Standing Committee is chaired and administered by the Bank of England. The Sterling Money Markets Liaison Group (now known as the Sterling Money Markets Liaison Committee) is also chaired and administered by the Bank of England.

On the Bank of England’s web site, there are very extensive informational resources about the Foreign exchange Joint Standing Committee and the Sterling Money Markets Liaison Committee, but surprise, surprise, there is nothing about the LBMA Management Committee. The Bank of England website offers publicly accessible documents of all meeting minutes of the FX Joint Standing Committee, including the representatives names of attendees and the banks and institutions represented at each meeting. These meeting minutes are highly detailed. See May 2016 FX Joint Standing Committee minutes as an example. Likewise, for the Sterling Money Markets Liaison Committee, the minutes of every meeting have been uploaded to the Bank of England website and are publicly accessible. These minutes are highly detailed. See for example the February 2016 Sterling Money Markets Liaison Committee meeting minutes.

However, the only tiny piece of information offered about the LBMA on the Bank of England website is as follows:

“The Bullion element of the NIPs Code is being replaced by a new code which will be established by the London Bullion Markets Association (LBMA). Further information on the bullion code can be found on the LMBA website.” 

Conveniently, the Bank of England passes the buck back to a web site (LBMA’s website) which is notoriously bereft of any information about the meetings of the LBMA Management Committee, the agendas of such meetings, the minutes of such meetings, and the attendees at these meetings. Why is this opacity allowed by the FCA and Bank of England when the foreign exchange and money market brethren have to submit to published minutes of their meetings, which in many cases involve the same banks and institutions? Could it be that discussion of the London Gold Market is highly secretive and a no-go area, and that the institutions involved have a free pass from the Bank of England and FCA to continue their discussions in private, away from the public eye?

Mark Carney and Paul FIsher

 Pièce de Résistance

Arguably, the pièce de résistance of these Bank of England / FCA relationships with the LBMA Management Committee, is the fact that Paul Fisher, the newly appointed ‘independent‘ Chairman of the LBMA Board, formerly known as the LBMA Management Committee, has already previously been the Bank of England’s “observer” on the LBMA Management Committee.

In his speech to the 2004 LBMA Annual Conference in Shanghai, Fisher, the then Head of Foreign Exchange at the Bank of England, while discussing the “Non-Investment Products Code”, a code which regulates the bullion market, the foreign exchange market, and the wholesale money market, stated that:

“In the bullion section, the work is led by the LBMA and the whole is coordinated by the Bank of England. Partly on that basis, I am glad to be invited to the LBMA’s Management Committee meetings as an observer. I’d just like to pay tribute to the professionalism and integrity with which I see the Management Committee operating for the best interests of the global marketplace for bullion.”

One of the more bizarre parts of Fisher’s appointment, in my view,  is that when the LBMA announced in a press release last July (2016) that Fisher was being appointed as the new LBMA chairman, there was no mention of the fact that he had previously attended the LBMA Management Committee meetings. One would think that this would be a very relevant when considering the ‘independence’ of the appointment?

On hearing the news on 13 July about the appointment of the Bank of England’s Paul Fisher as ‘independent’ non-executive chairman of the LBMA Board, James G Rickards, the well-known gold author and commentator, tweeted the below, which succinctly sums up the elephant in the room, which the mainstream media chooses to ignore.

Banks pick central banker to head #gold market. Like putting an oil exec in charge of Tesla: https://t.co/mwHzNQCBZU pic.twitter.com/k2oJJPdYnh

— Jim Rickards (@JamesGRickards) July 13, 2016

This appointment reinforces the link, or bridge, between the two entities, which is now even more set in stone than previously. It’s as if the Bank of England, at this time, has felt the need to put it’s man directly at the head of the LBMA. The timing may be relevant, but in what way is not yet clear.

A forthcoming article looks at this appointment of a former Bank of England Head of Foreign Exchange as the new ‘independent’ Non-Executive Chairman of the LBMA Board, considers what, if anything, is independent about the appointment given the extremely close relationship between the Bank of England and the LBMA, and examines the appointment in the context of the UK Corporate Governance Code, which now governs the Constitution and operation of the LBMA Board.

Ronan Manly
E-mail Ronan Manly on:
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Follow @ronanmanly

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source http://goldsilverintel.com/blood-brothers-bank-england-london-bullion-market-association-lbma/

Be Bullish on Silver & Profit Even More with Mining Stocks – Nick Hodge Interview

First time guest is the founder of The Outsider Club which has an incredible track record in recommendations. Nick Hodge touches on the most important aspects of resource sector investing today in this brief interview. His letter is highly recommended by Future Money Trends’ President Daniel Ameduri.

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source http://goldsilverintel.com/bullish-silver-profit-even-mining-stocks-nick-hodge-interview/

Who Would Be Best For Markets? Trump-Clinton Debate Countdown

Gold is continuing to hold onto last week’s gains, with prices up on the day. But, Frank Holmes, CEO of U.S. Global Investors, said he will be focusing on Monday night’s presidential debate between Hillary Clinton and Donald Trump. “I think it will be fascinating to watch because you have 1.7 billion on Facebook now — so more than 20% of the world’s population can watch it and have access to it,” he told Kitco News on the sidelines of the Mines & Money event in Toronto. According to Holmes, although both candidates would be great for infrastructure, Trump would likely be the better candidate for markets.

This video is brought to you by Kitco News.

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source http://goldsilverintel.com/best-markets-trump-clinton-debate-countdown/

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