Financial Sense Online Market WrapUp with Rob Kirby 01/12/2009

Two weeks ago in this space in an article titled, “When”, Not “If”, I attempted to highlight the disparity between annual global gold production versus amounts of physical ounces of gold transferred on the London Bullion Market Association [LBMA]. At this time I would like to acknowledge the contribution of reader Allan C. who pointed out two oversights in my analysis which led to my dramatically understating my position:

It was pointed out that while this is technically true, these would be ovoirdupois ounces [28.35 grams each]. Gold is customarily measured and priced in Troy Ounces which contain 31.103 grams.

So, in fact, I overstated annual global gold production by roughly 8 million ounces.

Second, regarding ounces of gold transferred on the LBMA, I stated if one simply looks at the number of ounces of gold transferred at the LMBA in the most recent 12 month period [Dec. 07 – Nov. 08], we can see that 275.2 million ounces of gold [two and one half times annual global production + scrap] allegedly changed hands:

Month	Millions of Ounces Transferred
Dec 07	25.0
Jan 08	25.3
Feb 08	22.9
Mar 08	25.7
Apr 08	21.1
May 08	22.1
Jun 08	21.2
Jul 08	21.5
Aug 08	23.3
Sep 08	24.8
Oct 08	24.0
Nov 08	18.3
Total	275.2

However, it was pointed out to me that the data in the table above were daily averages – not monthly:

Gold and silver clearing statistics fell 20% or more in November and figures for both metals were well below the prior year levels.

Gold ounces transferred dropped from a daily average of 24.0 [Oct.] to 18.3 million [Nov.], a fall of 23.6%. This contributed to the fall in value to a daily average of $13.9 billion, which also reflected a 5.7% drop in the average fixing price to $760.86. The number of transfers fell 20.2% to a daily average of 1,797.

This means that I mistakenly understated the amount of physical ounces allegedly transferred by the LBMA by a factor of 30.

“…the total, above-ground-stock of gold now standing around 165,500 tonnes (guess-work courtesy of GFMS, the World Gold Council and ourselves), that puts the notional value of all gold ever mined in the world at some $4.6 trillion….”

So, there you have it folks, the LBMA would have us believe that, in the past year alone, they physically transferred roughly one and a half times the amount of gold mined in the history of mankind.

The English have always been known for their stage craft. If the revelations above have not already put your head-in-a-spin, then this cathartic act of Shakes-fraudian bamboozlement on the part of the Old Lady of Threadneedle Street [Bank of England] ought to blow you away,

Reform plan raises fears of Bank secrecy

The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

The Government is set to throw out the 165-year old law that obliges the Bank to publish a weekly account of its balance sheet – a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel's Government in 1844 which originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.

However, some have warned that it means: "there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses."...

With the Bank of England now planning to eliminate basic accounting and transparency with respect to the amount of money being created, has there ever been a more pertinent or relevant question asked than, “Got Gold?”

The Japanese stock market was closed in observance of Coming of Age Day. North American markets began the week in a funk with the DOW losing 125.20 to 8,474.0, the NASDAQ slipping 32.80 to 1,538.79 and the S & P giving up 20.10 to close at 870.25. NYMEX crude oil futures gave up 3.15 to finish the day at 37.68 per barrel.

In the interest rate complex, the benchmark 5 yr. government bond ended the day at 1.45% while the 10 yr. bond finished at 2.31%.

Precious metals were hammered with COMEX gold futures plummeting 33.30 per ounce to 821.10 while COMEX silver futures were beaten to the tune of .65 to end the day at 10.68 per ounce. The XAU Index was mauled by 7.59 to 106.94 while the HUI Index was pounded 18.68 to end the day at 258.79.

On tap for tomorrow, at 8:30 a.m. November Trade Balance data is due, expected -51.0B vs. prior -57.2B. Then at 2:00 p.m. December Treasury Budget data is due, expected -33.0B vs. prior -48.3B.