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Jim Sinclair’s Commentary

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Jim Sinclair’s Commentary

Not so secret if it is published by the Telegraph. One way or another the Petro-dollar is in trouble.

Saudis offer Russia secret oil deal if it drops Syria
Saudi Arabia has secretly offered Russia a sweeping deal to control the global oil market and safeguard Russia’s gas contracts, if the Kremlin backs away from the Assad regime in Syria.
By Ambrose Evans-Pritchard
12:00PM BST 27 Aug 2013

The revelations come amid high tension in the Middle East, with US, British, and French warship poised for missile strikes in Syria. Iran has threatened to retaliate.

The strategic jitters pushed Brent crude prices to a five-month high of $112 a barrel. “We are only one incident away from a serious oil spike. The market is a lot tighter than people think,” said Chris Skrebowski, editor of Petroleum Review.

Leaked transcripts of a closed-door meeting between Russia’s Vladimir Putin and Saudi Prince Bandar bin Sultan shed an extraordinary light on the hard-nosed Realpolitik of the two sides.

Prince Bandar, head of Saudi intelligence, allegedly confronted the Kremlin with a mix of inducements and threats in a bid to break the deadlock over Syria. “Let us examine how to put together a unified Russian-Saudi strategy on the subject of oil. The aim is to agree on the price of oil and production quantities that keep the price stable in global oil markets,” he said at the four-hour meeting with Mr Putin. They met at Mr Putin’s dacha outside Moscow three weeks ago.

“We understand Russia’s great interest in the oil and gas in the Mediterranean from Israel to Cyprus. And we understand the importance of the Russian gas pipeline to Europe. We are not interested in competing with that. We can cooperate in this area,” he said, purporting to speak with the full backing of the US.

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Jim Sinclair’s Commentary

Diwali is the feast day of Hindu Goddess Lakshmi, the Goddess of spiritual and material wealth.

Diwali and Indian gold tax to push up sales in Dubai by 50 per cent
Posted on 04 November 2013

Gold retailers in Dubai are expecting to see their sales surge by 50 per cent this week as the five-day Diwali festival of lights continues this week. Gulf News reports that retailers are posting 25 to 100 per cent increases in business so far. Thank a 25 per cent fall in gold prices this year and a 10-15 per cent tax on gold by the Indian Government.

Savvy Indian investors have always responded to falls in the gold price by buying more gold, not selling it. Diwali is one of the most important religious festivals in the Indian calender with the giving of gold at its heart.

City of Gold

Gold jewellery is always a popular buy in Dubai because only a small margin is paid over the cost of the precious metal. It’s not like the US or UK where profit margins and design can put retail prices at double or triple the price of gold.

Also this year nobody needs to remind Indian buyers of gold of how this precious metal works as a defense against devaluation and inflation. The Indian rupee has plummeted more than the price of gold which is still trading at record prices in rupees.

Indeed, that has prompted the Indian Government to raise taxes on gold to 10-15 per cent to help control demand and ease its huge balance of payments problem by lowering gold imports. That is good news in Dubai where gold is sold tax free.

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Jim Sinclair’s Commentary

Retirees everywhere are prime targets for government consumption.

Families face new tax-grab on inheritance trusts
The taxman plans to impose new charges on trusts used by wealthier families mitigate IHT
By Kyle Caldwell
6:26PM GMT 01 Nov 2013

The Treasury is expected to clamp down on trust schemes used by wealthy families to shield their estates from inheritance tax. Currently, this tax applies to the value of an estate of more than £325,000 – or £650,000 for couples.

The trusts are established to effectively remove assets from their owners’ estates while they are alive so that, on their death, tax does not apply. Many different assets can be held in a trust, including property, financial assets such as shares and insurance policies that will pay out on death.

Trusts that are valued at more than £325,000 – the "nil-rate band" – are hit with a 6pc tax charge every 10 years. In order to get around this, thousands of families have set up several trusts to avoid any single trust going over the tax threshold.

For instance, if a family were to set up three trusts, each with assets of £200,000, they would not pay the charge.

But The Daily Telegraph understands that HM Revenue & Customs (HMRC) is planning to stop families setting up multiple trusts. According to industry sources, the Government will announce plans to levy a 6pc charge on the total amount of assets held across all trusts in its Autumn Statement. This change is expected to come into force in the Finance Bill next year and would apply to trusts already in existence, not just new ones.

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Jim Sinclair’s Commentary

Never say never!

Will U.S. Public Debt Reach $22 Trillion By Feb. 2014?
October 22, 2013
Ron DeLegge, Editor

Just imagine an undisciplined out-of-control spender whose credit limit has just been extended. In other words, they can continue overspending without any accountability. That “they” is the U.S. government.

It’s been almost a week since Congress reached a temporary deal to suspend the U.S. government’s debt ceiling and the Treasury department has already wasted no time by adding another $375 billion in new debt.

Suspension of a cap on U.S. debt, which was previously fixed at $16.69 trillion, means the Treasury department, headed by Jack Lew, can effectively spend whatever amount of money it needs or wants.

How much debt can the U.S. government rack up by the next debt ceiling deadline on Feb. 7, 2014? At the current spending pace of $375 billion per week, U.S. public debt would reach $22.70 trillion.

Numerous times, we’ve written extensively about how the U.S. Treasury had been using accounting shenanigans to avoid going over the previous legal debt limit. We also made the point that any corporation or corporate executive that attempted to use the U.S. Treasury’s same accounting tactics would be charged with fraud. Others too have caught on to the U.S. Treasury’s financial games.

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Jim Sinclair’s Commentary

You and I will be paying for them.

Under Health Care Act, Millions Eligible for Free Policies
By REED ABELSON and KATIE THOMAS
Published: November 3, 2013

Millions of people could qualify for federal subsidies that will pay the entire monthly cost of some health care plans being offered in the online marketplaces set up under President Obama’s health care law, a surprising figure that has not garnered much attention, in part because the zero-premium plans come with serious trade-offs.

Three independent estimates by Wall Street analysts and a consulting firm say up to seven million people could qualify for the plans, but federal officials and insurers are reluctant to push them too hard because they are concerned about encouraging people to sign up for something that might ultimately not fit their needs.

The bulk of these plans are so-called bronze policies, the least expensive available. They require people to pay the most in out-of-pocket costs, for doctor visits and other benefits like hospital stays.

Supporters of the Affordable Care Act say that the availability of free-premium plans — as well as inexpensive policies that cover more — shows that it is achieving its goal of making health insurance widely available. A large number of those who qualify have incomes that fall just above the threshold for Medicaid, the government program for the poor, according to an analysis by the consulting firm McKinsey and Company.

The latest analysis was conducted by McKinsey’s Center for U.S. Health System Reform, whose independent research has been cited by the federal government and others.

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Jim Sinclair’s Commentary

Every step forward for the yuan/renminbi is a step backwards for the US Dollar.

Another Milestone For Chinese Offshore Bonds
by Louis Gave

On Friday the three-year-old Chinese offshore renminbi bond market marked a new milestone: the first AAA issue by a foreign government. The Canadian province of British Columbia issued a one-year, RMB2.5bn (a little over US$400mn) bond yielding 2.25%. This is big news, for many different reasons.

The first is that this BC bond issue illustrates the growing ties between China and Canada, ties we have discussed frequently in the past. Indeed, for two decades now, Canada has been selling Chinese people what they need (whether fertilizer, wood, oil, quality education, real estate in non-polluted cities, passports, etc.). As such, a tight relationship has emerged between the Hong Kong stock market and that of the Canadian dollar. Basically, when Chinese investors make money on Hong Kong equities they tend to recycle their profits into Canadian hard assets. With this bond issue, British Columbia is going straight to the source of Chinese capital and cutting out the middle-men!

The BC bond issue is also big news because it shows that opportunities still abound in the “dim sum” bond market. What makes more sense: owning 12-month paper backed by the British Columbia government yielding 2.25% in renminbi, or US dollar paper of the same duration issued by a somewhat dysfunctional US government, yielding 0.12%? The only way the latter option makes sense is if one assumes that the renminbi will fall by 2.15% or more in US dollar terms over the coming year. Of course, that may well happen…but with US economic data mostly on the softer side of expectations, and Chinese data on the marginally better side of expectations, it is not obvious that the multi-year appreciation of renminbi is set to reverse.

Which brings us to the more interesting question, namely why would the British Columbia government issue debt at a higher price than could be achieved in US dollars? One obvious answer is that the resource-rich province is diversifying its investor pool so that, should there ever be another freeze in the US dollar bond markets (as there was after the Lehman bankruptcy, and as was threatened just a few weeks ago), BC will have another pool of investors to call upon. Which brings us to the most notable feature of the renminbi bond market: its complete lack of volatility. Indeed, over the past 18 months, Chinese offshore bonds (as measured by the HSBC index) have delivered total returns of some 6%, with a volatility of around 2%. That is much better, and much less volatile than what long-dated US treasuries have delivered.

Now anyone looking at the almost Madoff-like returns of renminbi bonds might be tempted to conclude that something fishy is going on. However, the truth is more mundane. China’s policymakers know that they need to internationalize their currency for two reasons:

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Weekly COMEX Gold Inventories: The Pressure Builds As Registered Gold Inventories Hit A New All-Time Low
Nov 3 2013, 01:32

Last week was turning out to be the quietest week in months in terms of COMEX gold inventories, until we had a large registered gold transfer that was reported late on Friday. This transfer took COMEX gold registered stocks to a new all-time low at just above 650,000 total registered gold ounces.

Keeping track of COMEX inventories is something that is recommended for all serious investors who own physical gold and the gold ETFs (GLD,PHYS, and CEF) because any abnormal inventory declines may signify extraordinary events behind the scenes that would ultimately affect the gold price.

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We will take a closer look at these numbers but let us first explain the COMEX a little more for investors who are unfamiliar with it.

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Turkey’s gold imports jump to 15.98 tonnes
November 03, 2013

ISTANBUL: Turkey’s gold imports jumped to 15.98 tonnes in October from 4.84 tonnes in September, Borsa Istanbul said on Saturday.

Gold imports in the first 10 months of the year totalled 251.39 tonnes, said Borsa Istanbul, which includes the gold exchange.

Turkey, one of the world’s biggest importers of the precious metal, saw imports rise 51 per cent in 2012 to 120.78 tonnes.

Turkey raised its gold reserves by the most in five months in August and topped the list of countries that bought more bullion, according to the International Monetary Fund, showing that gold’s appeal remains intact despite falling prices.

Russia, which has the world’s seventh largest reserves of gold, increased its holdings last month by the biggest amount since December, according to the IMF data.

Reuters

Jim Sinclair’s Commentary

You should have the jitters as well!

‘Bail-in’ jitters for bank bond investors
By Christopher Thompson in London and Michael Steen in Frankfurt – Financial Times

“Burden-sharing”, “bail-in” or “haircuts” – call it what you like. The prospect of bank creditors sitting in the line of fire is causing jitters among bond investors ahead of stress tests by European Union regulators.

EU finance ministers have already raised concern among senior bondholders, agreeing in June rules to force losses on creditors in failed banks, a move Moody’s described as “clearly credit negative” for unsecured investors.

So far the impact on banks’ cost of funding has been muted. After hitting a year high in late March, the cost of insuring banks’ senior debt – a key measure of riskiness – has fallen 85 basis points, according to the iTraxx Europe Senior Financials index. The cost of subordinated debt insurance has fallen by 146 basis points.

But, as the prospects of bail-in grow nearer that is going to change, warn analysts. As it becomes clearer exactly how bondholders will be required to share the burden in future bank rescues – or even as a result of the forthcoming bank stress tests – the effect on funding costs could be significant.

“For core banks bail-in is not priced in . . . should it be a salient feature? Absolutely,” says Richard Ryan, director of fixed income investments at M&G. “We can’t have a world where senior bondholders believe they are immune from resolution because it’s never happened before . . . it’s called unsecured lending for a reason.”

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Jim Sinclair’s Commentary

This could have ended the petro-dollar, giving birth to the petro-yuan/euro.

Why a 15-minute phone call threatens Saudi Arabia’s decades-old alliance with US
By Lubna Hussain and Alexander Smith, NBC News

RIYADH, Saudi Arabia — The historic 15-minute phone call between President Barack Obama and Iranian counterpart Hassan Rouhani may have cost the U.S. one of its key friends in the Middle East.

The U.S. and Saudi Arabia have been allies for some 80 years, with the U.S. offering military protection to the world’s second-biggest oil producer.

But as relations warm between Tehran and Washington, Saudi Arabia last month signaled that it will "shift away from the U.S.," giving Secretary of State John Kerry plenty to discuss with King Abdullah when they meet on Monday.

Riyadh is deeply skeptical of Iran’s charm offensive and frustrated by an alleged lack of consultation over Washington’s changing stance toward a country once branded as a member of the so-called "axis of evil."

Only five years ago, the Saudis urged the U.S. to strike Iran — which is situated just across the Persian Gulf from the kingdom. The Saudi government fears that the development of an Iranian nuclear weapon would seriously threaten its national security.

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Rising inflation to stir up gold demand across Asia: HSBC

NEW DELHI (Scrap Monster):  The demand for gold across Asia will continue to keep expanding as inflation at relatively higher levels are likely to spur investment purchases, observed HSBC Holdings Plc. With inflation still at elevated levels and interest rates remaining subdued, the financial services firm expects the appetite for gold in Asian countries to remain buoyant.

Over the decade, the demand for jewelry, bars and coins in Asia-especially India, Greater China, Indonesia and Vietnam increased to 60% of the world demand as compared with 35% in 2004.According to World Gold Council data, the demand for gold has more than doubled in India in the past five years. Gold consumption in China has soared almost 350% during the period.

Gold prices have plunged by 31% from their record high in 2011.During this year alone, the gold prices have lost nearly 21%. The slump in prices has only spurred gold buying in the region. HSBC forecasts the consumer prices in China to rise by 2.7% in 2014 and by 3.1% in 2015. Inflation in India is expected to remain at almost the same levels. HSBC predicts the country’s inflation at 7.7% in 2014 and 7.9% in 2015.

Many Asian countries have few tools to protect their saving against rising prices. With inflation at high levels, gold naturally is bound to become the preferred investment choice among Asian customers.

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