“Buy physical gold and avoid paper” CME Trader

Tres KnippaTres Knippa
Member, Chicago Mercantile Exchange.

After last week’s movement, the Registered Gold available for delivery has dropped to 370,137 ounces.

This is important is because the maximum number of gold contracts any one entity can own equals 3000 contracts. 3000 gold contracts equates to 300,000 ounces.
This means that one entity could put on the limit long position, demand the gold, and exhaust 81% of the deliverable supply of gold.  One entity!!!

This chart is a graphical representation of the amount of paper gold versus the Registered Gold available for delivery !?

comex gold leverage ratioWatch BNN Here:

 Business News Network Video Interview link;
“Buy physical gold and avoid paper” CME Trader

Gold recovered slightly on Friday, but suffered its first weekly drop in a month after a mixed bag of U.S. economic data. With spot gold trading near $1,240 US, veteran trader Tres Knippa says investors should consider accumulating physical gold to take advantage of a delivery squeeze.

Pointing to recent Comex futures data, Knippa says there may not be enough gold to go around if everyone with a futures contract insists on taking delivery of physical bullion. He believes gold shot through $1,900 in 2011 before plunging last year because of an explosion in the amount of gold futures contracts – setting up separate markets for “real” and “paper” gold.

“Maybe the reason gold prices went up is an expansion of that multiple of the amount of paper gold versus real gold,” Knippa tells BNN. “So maybe the market has come back down as the people who are holding the paper gold start to liquidate it.”

“But the underlying story here is that the people acquiring physical gold appear to be continuing to do that. And that’s what I think is important,” Knippa adds, noting large investors like hedge fund manager Kyle Bass are taking delivery of the gold they’re buying.

U.S. gold futures for February delivery rose slightly to $1,243.20 an ounce in early Friday trading. Knippa says he would buy physical gold in yen as opposed to U.S. dollars to take advantage of the Bank of Japan’s plan to increase the money supply.

“That is a trade that I think somebody could have on literally ten years, put it in a drawer and pull it out ten years later,” Knippa says. “I think the yen has nowhere to go but down.”

China Is Calling for a De-Amercanized World

see Bloomberg video from Money Moves;
China Is Calling for a De-Amercanized World

JR

Oct. 14 (Bloomberg) — Tangent Capital Partners Senior Managing Director Jim Rickards discusses China and world reaction to the U.S. debt ceiling debacle. He speaks with Deirdre Bolton on Bloomberg Television’s “Money Moves.”

(Source: Bloomberg)

Japanese national debt surged over ¥1 Quadrillion Yen, or 1000 Trillion Yen in early August

Japan Public Debt in Trillion, 1996 To July 2013 – (Bloomberg)

¥1 quadrillion Yen !

Think about that word quadrillion for a moment or two, because understanding it will help you understand the scale of the debt crisis in Japan and much of the western world.

Our parents thought a million was a very big number. Then a billion became the big number. Recently, a trillion entered the lexicon as a big number.

A paltry million is the numeral one followed by six zeros. A billion? Nine zeros. A trillion is a thousand times bigger again at 12 zeros. But the mighty quadrillion is a one with fifteen zeros after it or 1,000,000,000,000,000 (as the eye strains).

Compared with Japan, the United States national debt is a mere $17 trillion or so. But if you convert that number into yen, it comes to about 1.6 quadrillion.

We laugh at children when they talk about bazillions and gazillions but a quadrillion is no laughing matter.  Measuring any currency in quadrillions brings to mind the many hyperinflations seen in the 20th and 21st centuries. For example,  the powerful and very wealthy Germany in the early 1920s and wealthy Zimbabwe, the breadbasket of Africa in 2008.

Japan’s soaring national debt is already more than twice the size of its economy.

Even at current all time record low interest rates, Japan spends nearly 50% of its tax revenues on interest payments. The Japanese 10 year government bond is trading at just 0.70% today. At borrowing costs of 2% to 3% per annum, two to three times current rates, Japan’s interest payments will be an unsustainable proportion of tax receipts.

Higher interest rates will also trigger problems for Japanese banks, Japanese pension funds and insurance companies, which also have large holdings of Japanese government bonds (JGB’s)

This is leading to and will lead to a surge in demand for gold as a hedge and safe haven.

From tiny levels given the level of savings in Japan, investment in gold bars and coins more than doubled to 4.5 tons last quarter from 2.1 tons a year earlier, the World Gold Council data shows.


Gold in Japanese Yen – 2008 to Today (Bloomberg)

Gold demand increased in recent months as a slump in the international market made bullion more affordable to investors. The Japanese government’s economic policy boosts expectations for inflation and the Japanese yen fell on international markets.

The volume of gold trading on the bourse, known as Tocom, expanded 27%  to 9.5 million contracts in the eight months through August 31st from a year earlier. Abe’s economic policy weakened the yen and boosted yen-denominated gold prices.

Gold futures on Tocom climbed to a record 5,081 yen a gram ($1,592 an ounce) on February 7th and closed at 4,165 yen a gram or 128,802 per ounce today. Link: GoldCore