An Inside Look at the World's Biggest Paper Gold Market

Every day, there are a whopping 5,500 tonnes ($212 billion) of gold traded in London, making it the largest wholesale and over-the-counter (OTC) market for gold in the world.

To put that in perspective, Visual Capitalist’s Jeff Desjardins notes that  more gold is traded in London each day than what is stored at Fort Knox (4,176 tonnes). On a higher volume day, amounts closer to total U.S. gold reserves (8,133.5 tonnes) can change hands.

How is this possible?

The infographic below tells the story about gold’s foremost trading hub, as well as the paper gold market in London, England:

Courtesy of: Visual Capitalist

 

London is dominant in global price discovery for gold.

In 2015, it accounted for roughly 88% of gold trade – most of which occurs between banks on behalf of their clients. Further, 90% of London trade is spot trading, which further emphasizes London’s importance in price discovery for gold markets.

While the high-level details of the market are visible, the individual mechanisms behind the London gold trade are less clear. There is very little detailed information provided on physical shipments, outstanding gold deposits or loans, allocated or unallocated gold, or clientele types. Trade reporting also breaks down at a more granular level, and datasets on the GOFO (Gold Forward Offered Rate) were also discontinued in January, 2015.

Almost all gold (95%) traded in London is unallocated and without legal title. This makes it easier to trade, but it also raises concerns about a market that is opaque to begin with. There are 5,500 tonnes of paper gold exchanging hands on paper each day, but there are only 300 tonnes of gold vaulted in London outside of the reserves for ETFs or the Bank of England.

What would happen if there was ever even a small rush to get the physical asset behind the paper? Is there a system in place for such an event, and how does it work?

Original graphic by: BullionStar

Quantitative Easing And The Corruption Of Corporate America

Submitted by Danielle DiMartino Booth via DiMartinoBooth.com,

The art of brevity was not lost on Abraham Lincoln. It is that brevity in all its glory that shines through in what endures as one of the most beautiful testaments to the art of oration: The Gettysburg Address rounds out at 272 resounding words. The nation’s 16th President humbly predicted that the world would quickly forget his words of that November day in 1863. Rather, he said, history would solely evoke the valiant acts of men such as those whose blood still soaked the consecrated battleground on which they stood. Of course, Lincoln was both right and wrong. Neither the men who sacrificed their lives nor his words would be forgotten. We remember and know that a terrible and ever mounting price would ultimately be paid, some 623,026 American lives, the steepest in man’s bloody history.

In what can only be described as the pinnacle of prescience, a 28-year old Lincoln foretold of the coming Civil War, which he presaged would come to pass if the scourge of slavery remained unchecked. In an address to the Young Men’s Lyceum of Springfield, Illinois in January 1838, Lincoln spoke these haunting words: “If destruction be our lot, we must ourselves be its author and finisher.” The enemy within.

Since that devastating brother against brother Civil War, so prophetically foreseen by Lincoln, more than 626,000 American soldiers have lost their lives defending the ideals and freedom of our Union. Today that Union stands, but it must now face the threat of an enemy rising within its borders to wage a different kind of war against our hard fought freedom.

To be precise, today’s dangers emanate from our nation’s boardrooms, where officers and executives have authorized an era of reckless abandon in the form of share buybacks. In the event the word ‘hyperbolic’ just came to mind, the ramifications of a lost generation of investment in Corporate America should not be lightly dismissed. This trend, above all others, has weakened the foundation of U.S. long term economic growth.

The real question is whether those who have facilitated the malfeasance will be held accountable. Before the launch of the second iteration of quantitative easing (QE2) that the Fed voted to implement on November 3, 2010, Richard Fisher, to whom yours truly once answered, raised serious concerns. An October 7, 2010 speech before the Economic Club of Minneapolis was the venue.

The contextual backdrop is key: Just weeks before at Jackson Hole, Ben Bernanke had unleashed the mother of all stock market rallies by hinting that QE2 was indeed coming down the FOMC pipeline. The hawks were understandably hopping mad as the debate on the inside was anything but settled. Fisher indicated as much, albeit with notoriously diplomatic panache:

“In my darkest moments I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places. Far too many of the large corporations I survey that are committing to fixed investment report that the most effective way to deploy cheap money raised in the current bond markets or in the form of loans from banks, beyond buying in stock or expanding dividends, is to invest it abroad where taxes are lower and governments are more eager to please.”

Six years on, corporate leverage is hovering near a 12-year high and domestic capital expenditures have plunged. In the interim, reams of commentary have been devoted to share buybacks and with good reason. Companies reducing their share count have, at least in recent years, been where the hottest action is, courtyard-seat level action.

But now, it looks as if the trend is finally cresting. A fresh report by TrimTabs Investment Research found that companies have announced 35 percent less in buybacks through May 19th compared with the same period last year. And while $261.5 billion is still respectable (for the purpose of placating shareholders), it is nevertheless a steep decline from 2015’s $399.4 billion. Even this tempered number is deceiving – only half the number of firms have announced buybacks vs last year.

Have U.S. executives and their Boards of Directors finally found religion?

We can only hope. The devastation wrought by the multi-trillion-dollar buyback frenzy is what many of us learned in Econ 101 as the ‘opportunity cost,’ or the value of what’s been foregone. As yet, the value of lost investment opportunities remains a huge unknown.

In the event doing right by future generations does not suffice, executives might be motivated to renounce their errant ways because shareholders appear to have stopped rewarding buybacks. According to Marketwatch, an exchange traded fund that affords investors access to the most aggressive companies in the buyback arena is off 0.8 percent for the year and down 9.8 percent over the last 12 months.

The hope is that Corporate America is at the precipice of an investment binge that sparks economic activity that richly rewards those with patience over those with the burning need for instant gratification. The risk? That central bankers whisper sweet nothings the likes of which no Board or CFO can resist. Mario Draghi may already have done so.

In announcing its latest iteration of QE, the European Central Bank (ECB) added investment grade corporate bonds to the list of eligible securities that can satisfy its purchase commitment. Critically, U.S. multinationals with European operations are included among qualifying issuers. As Evergreen Gavekal’s David Hay recently pointed out, McDonald’s has jumped right into the pool, issuing five-year Euro-denominated paper at an interest rate of a barely discernible 0.45 percent.

Hay ventures further that the ECB’s program will have the welcome effect of mitigating the widening of the yield differential, or spread, between Treasurys and similar maturity U.S. corporate bonds the next time markets seize up. The firm’s chief investment officer takes one last step over the intellectual Rubicon with the following hypothesis, “The Fed might want to imitate the ECB but may be restricted from doing so by its charter,” Hay posits, adding that, “We wouldn’t discount the possibility it will try to amend, or get around, any prohibitions, however.”

Talk about sweet nothings on steroids. But could it really happen in a theoretical launch of (God forbid) QE4?

For the record, Hay is right. There is no explicit permission in the Federal Reserve Act that authorizes open market corporate bond purchases. Hay is also correct, however, that there could be legal wiggle room. This possibility was corroborated by Cumberland Advisors’ in-house central banking guru Bob Eisenbeis, who noted that the Fed’s emergency powers provision, when invoked, allows for purchases of almost any security, especially those that are not expressly disallowed in the Act’s language.

As for the prospect that politicians would put their foot down and insist that the Fed stand pat and not cross the line? What are the odds of that happening if the economic backdrop is dire enough for the subject of QE4 and open market corporate bond purchases to be matters of public debate?

Given markets’ maniacal machinations of late, the degree to which the economic data remain mixed, and the growing vocal consensus among Fed officials that June is a ‘go’ for a rate hike, it’s a safe bet that the details of QE4 will not be a focal point of the upcoming FOMC meeting.

When the time does come, and it’s sure to come before rates are normalized, Corporate America will hopefully be capable of resisting the temptation to play along. To bolster their resolve: Required reading on all CEO, CFO and Board officer bedside tables should be last November’s missive by Bank of America Merrill Lynch’s Michael Hartnett.

In it, the firm’s Chief Investment Strategist paraphrases Winston Churchill and how the great statesman would have described the risk of what Hartnett cleverly warns could be, ‘Quantitative Failure,’:

“Never in the field of monetary policy was so much gained by so few at the expense of so many.”

May those words be ones Janet Yellen lives by.

Hartnett then goes on to encapsulate the one statistic that should haunt the current generation of central bankers more than any other: For every one job created in the United States in the last decade, $296,000 has been spent on share buybacks.

Recall that the fair Chair is a labor market economist above any other field. Surely she will be able to see the damage past QE has wrought and forgo the facilitation of further bad behavior. Should she ignore the potential for further QE-financed share buybacks to exact more untold economic damage, it would be akin to intentionally corrupting Corporate America.

In the words that have mistakenly been attributed to Abraham Lincoln, arguably with sound reasoning: “Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”

Since the turn of this century, debt-financed share buybacks have severely tested the character of those charged with growing publically-traded U.S. firms. The time, though, has come for these wayward companies’ banker and enabler, the Fed, to hold the line, no matter how difficult the next inevitable test of their character may prove to be. It’s time for the Fed to defend the entire Union and end a civil war that pits a chosen few against the economic freedom of the many.

Hillary Accuses State Department Report Of Having An "Anti-Clinton Bias"

Today’s long awaited blockbuster report released by the State Department Inspector General, which found that Hillary Clinton broke government rules by using a private email server without approval, and that among many other things Clinton would not have been allowed to use the server in her home had she asked the department officials in charge of information security, made the day of all of Hillary’s critics as it confirmed most of their accusations, while at the same time justified Hillary’s worst fears: apparently epic sloppiness “did make a difference after all” especially since it confirmed she had lied, again.

The report explicitly contradicted Clinton’s repeated assertion that her server was allowed and that no permission was needed.

OIG found no evidence that the Secretary requested or obtained guidance or approval to conduct official business via a personal email account on her private server,” the report said, adding that Clinton should have discussed the arrangement with the department’s security and technology officials. Officials told investigators that they “did not – and would not – approve her exclusive reliance on a personal email account to conduct Department business.” The reason, those officials said, is because it breached department rules and presented “security risks.”

The palpable lack of coherent response to this sudden revelation confirmed just how jarred by today’s events the presumptive Democratic presidential candidate was.

As we first reported earlier today, the Clinton camp’s initial reaction was to use a kindergarten excuse: former secretaries of state were also doing it, or in the words of Hillary’s press secretary Brian Fallon, “the Inspector General documents just how consistent her email practices were with those of other Secretaries and senior officials at the State Department who also used personal email.”

In other words, Hillary was abusing Federal regulations and failed to maintain proper record-keeping practices, but others were doing it, so please look the other say. Which incidentally, was also a lie: Fallon did not address the report’s criticism of Clinton’s use of a private server, something no other secretary of state has done.

This “explanation” only made the hole Hillary now finds herself in even deeper.

So what did Hillary do next?

Just a few hours later, Brian Fallon appeared on CNN’s “The Situation Room” and called into question the timing of the State Department investigation into Clinton’s use of a private email server.  Fallon referred to the “appropriateness” of the investigation, parallel to the Justice Department’s investigation into the same issue, as “an open question” even if both Fallon and Hillary were aware of the two investigations for over a year.

In other words, another conspiracy theory… the same kind of conspiracy theory that CNN want postal on Donald Trump for just 24 hours earlier when he dared to hint that something was “fishy” about the Vince Foster death. Oddly, there were no comparable accusations this time.

Where thing got really unhinged, however, is when Fallon tried to defend Clinton’s decision not to meet with the inspector
general
for the investigation by arguing that Clinton and her staff
decided to “prioritize the Justice Department review.”

When repeatedly asked by CNN’s Wolf Blitzer why Clinton didn’t have time to do both, Fallon noted both the handful of inquiries Clinton has responded to. But the punchline was that this too was another vast conspiracy – he stated “reports” from inside the office claiming that the investigation had an “anti-Clinton bias.”

All Bush’s fault?

Blitzer responded by asking Fallon, a former Justice Department spokesman, if he was leveling those accusations at State, but he said that he was not… even though quite clearly he did, in effect redoing what Trump did yesterday by mentioning the “Vince Foster story” and saying he would not talk about, when he too clearly did. This too was something that CNN’s Jonathan Tapper took umbrage with just 24 hours earlier.

None such treatment for Mr. Fallon or Ms. Clinton.

But what would lend at least some credibility to Hillary’s own de novo conspiracy theory is if the Inspector General was some hardened republican clearly out to get here. Here’s the problem: current Secretary of State Kerry asked Steve Linick, the State Department inspector general, to investigate after Clinton’s email arrangement came to light last year. President Barack Obama appointed Linick to the role in 2013.

In other words, it was all… Obama’s fault.

Then again maybe Hillary is right, and it is yet another vast conspiracy, a vast left-wing conspiracy that is. Because if Hillary is indeed right, that would mean that none other than… Obama wants to take her down?

Former McDonalds CEO Crushes The Minimum Wage Lie: "It's Cheaper To Buy A Robot Than Hire At $15/Hour"

While this should come as no surprise to any rational non-establishment-teet-suckling economist (and certainly not to our readers), former McDonalds’ CEO Ed Rensi continued his crusade against the naive “solution” to poor living standards that has been peddled by a clueless administration in the form of a higher federal minimum wage, and after he patiently explained one month ago that “the $15 minimum wage demand, which translates to $30,000 a year for a full-time employee, is built upon a fundamental misunderstanding of a restaurant business just do the math” Rensi found that nobody has still done the math.

Which is perhaps why the ex-CEO reappeared on Fox Business yesterday to explain to Maria Bartiromo that as fast-food workers across the country vie for $15 per hour wages, many business owners have already begun to take humans out of the picture, McDonalds most certainly included.

As Rensi admitted, “I was at the National Restaurant Show yesterday and if you look at the robotic devices that are coming into the restaurant industry – it’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging French fries – it’s nonsense and it’s very destructive and it’s inflationary and it’s going to cause a job loss across this country like you’re not going to believe.”

“It’s not just going to be in the fast food business. Franchising is the best business model in the United States. It’s dependent on people that have low job skills that have to grow. Well if you can’t get people a reasonable wage, you’re going to get machines to do the work. It’s just common sense. It’s going to happen whether you like it or not. And the more you push this it’s going to happen faster,” the former McDonalds Chief Executive added.

Rensi also said that we should do away with the federal minimum wage and leave it up to the states, which is quite logical. It’s also why it will never happen.

“I think we ought to have a multi-faceted wage program in this country. If you’re a high school kid, you ought to have a student wage. If you’re an entry level worker you ought to have a separate wage. The states ought to manage this because they know more [about] what’s going on the ground than anybody in Washington D.C.” Spot on.

As a reminder, this is how Rensi concluded his tirade against the minimum wage last month: “I suspect that the labor organizers behind this campaign for a $15 minimum wage are less interested in helping employees, and more interested in helping themselves to dues money from their paycheck. They’re unlikely to succeed in their goal of organizing the employees of McDonald’s franchisees, but they may well succeed in passing $15 into law in other sympathetic locales.

And that’s the whole truth. You’ll see their legacy every time you visit the Golden Arches, where “would you like fries with that” will soon be an ubiquitous button on a computer screen telling a robotic arm in the kitchen what to prepare, all at a wage of $0.00/hour.

Watch the latest video at video.foxbusiness.com

"Someday We'll Be Microchipping All Of Our Children"

Submitted by Michael Snyder via The Economic Collapse blog,

Would you allow microchips to be surgically implanted in your children if that would keep them safer?  This is already being done to pets on a widespread basis, and a shocking local NBC News report is promoting the idea that if it is good for our pets, then we should be doing it to our children as well.  As you will see below, the report even puts a guilt trip on parents by asking them this question: “How far would you go to keep your children secure?” 

Of course most parents very much want to keep their children safe, and a microchip would enable authorities to track them down if they were lost or stolen.  But is this really a good idea?  And where is all of this technology eventually leading?  If you have not seen this very disturbing local NBC News report yet, you can view it right here

 

In the video, the reporter says that our children could be implanted with microchips “the size of a grain of rice” and that there would be “little to no health risks” involved.

And near the end of the report, she insists that “we could see those microchips in everyone” eventually.

Wow.

I am speechless.

The report also quoted an electronics expert who claimed that testing of these microchips “is being done right now”

The piece flips back to pushing the idea when it quotes electronics expert Stuart Lipoff, who asserts that microchipping children is safe and inevitable.

 

“People should be aware that testing is being done right now. The military is not only testing this out, but already utilizes its properties. It’s not a matter of if it will happen, but when,” states Lipoff.

Of course if widespread microchipping of the population does start happening, at first it will likely be purely voluntary.  But once enough of the population starts adopting the idea, it will be really easy for the government to make it mandatory.

Just imagine a world where physical cash was a thing of the past and you could not buy, sell, get a job or open a bank account without your government-issued microchip identification.

Will you allow yourself and your family to be chipped when that day arrives?

If not, how will you eat?

How will you survive?

What will you do when your children come crying to you for food?

I am certainly not saying that you should allow yourself to be chipped.  I know that nobody is ever chipping me.  But what I am saying is that people are going to be faced with some absolutely heart-breaking choices.