Thursday, October 30, 2008

Nothing Shocking

Gold hit a wall right at 776 overnight shortly after the London markets opened. Imagine that. Price slid all the way back to support at 730 this afternoon. Silver of course followed in Gold's shadow. Oil puked up all of yesterday's gains as the debate over "demand destruction" rages on. The Dollar got a bounce on general market weakness today. Bear in mind going forward: A strong stock market is BAD for the Dollar, and a weak stock market is GOOD for the Dollar.

Despite today's set back in Gold, it will be constructive if support holds here at 730. Higher lows are the first sign of a market reversal. A break above 776 in Gold and 10.50 in Silver are necessary to establish interim lows in these markets and bring "real" buyers back into them. Post election targets remain at 835 Gold and 11.73 Silver. Volatility does not appear ready to subside anytime soon.

Upcoming Gold Default
By: Jim Willie CB
The COMEX gold & silver markets are each hurtling down a dangerous path toward default. The artificial paper price has created enormous physical demand, and hampered supply production, if not delivery. The gap between the JPMorgan-led corrupted phony paper price and the legitimate physical price in actual trading markets has grown sharply, enough to force a breakdown like in any distorted market. When December contracts in gold & silver are demanded to be satisfied via delivery of the metal, it will be clear that the COMEX is running a scam. A default is highly likely. Of course, they can continue to deny contract holders the right to benefit from delivery, as they have been doing for months to ‘Non-Economic Customers’ but soon the ‘Commercial Customers’ will be defrauded. Arrests are warranted. We will see how this corruption unfolds.

The USFed cut the official interest rate again by 50 basis points, now to 1.0% on the Fed Funds target, in utter desperation. Other central banks did not join in rate cut exercises. The Euro Central Bank is expected to cut next week, reluctantly. So is the beleaguered Bank of England. The pressure is building on gold demand. Now with the official US price inflation at CPI = 5% or so, the real rate of money cost is minus 4%. The actual price inflation runs more like 10% to 12%, making the real cost of money more like minus 9% to minus 11%. GOLD RESPONDS TO NEGATIVE REAL RATES VERY FAVORABLY.

If you think the bank crisis is bad now, wait until the USEconomic recession achieves galloping speed downhill. The stagflation will eclipse that seen in the late 1970 decade. Today the economic growth in the GDP was posted for 3Q2008 at minus 0.25%, even with a hefty 5.4% PCE (personal consumption expenditures). This is another fairy tale told. The US consumer activity cut the GDP back by 2.25%, while the government activity added to the GDP by 1.15% in retrograde style. So the USDollar has rallied amidst economic decay, doing its death dance. Bear in mind that the stated admitted price inflation for Q2 was only 1.5% in that GDP corrupt calculation, which avoided a negative GDP for 2Q2008. They called inflation growth, the usual corrupted modus operandi. The second quarter was when prices skyrocketed for everything under the sun, if memory serves properly. Clearly, the wizards in the USGovt stat-rat offices, employing advanced techniques, moved some price inflation from Q2 into Q3, so that a recession would not be admitted all summer long. With the USFed rate cut to 1.0% again, they are admitting the recession.

The Shadow Govt Statistics folks pitch in a comment to provide light upon corrupted data. “Narrower Than Expected GDP Contraction Is Nonsense. The difference between the reported 0.3% annualized Gross Domestic Product (GDP) and the consensus expectation of a 0.5% contraction is no more than statistical noise, yet the reported result most certainly was manufactured so as to allow the hypesters on Wall Street and in Washington to spin their fairy tales of a ‘less-severe recession’ in order to help draw the gullible back into stocks, at least for a day or two before next week’s election. This follows earlier economic scare tactics aimed at the public to help sell the ‘Bailout’ package… With a 95% confidence interval of +/- 3% around this morning’s estimate of an annualized 0.25% contraction in real (inflation adjusted), annualized quarterly third-quarter GDP growth, the number was not even statistically indistinguishable from growth or contraction in the 3% range. A quarterly contraction in excess of 2% would have been more realistic… U.S. Economy is in a severe recession. With real retail sales, housing, non-farm payrolls, new orders for durable goods, and industrial production all showing quarterly and annual growth patterns never seen outside of a recession still in deterioration, GDP reporting eventually should show a string of quarterly contractions, with the recession dating back to fourth-quarter 2006, long before the exacerbation of the current systemic solvency crisis.”

A simple statement is required to close the preface. The financial market crises, in numerous arenas, have come in large part because the banking authorities have intentionally provided rescues only for New York investment banks and other big financial firms. Up to a month ago, the USFed had sterilized most injections into the Wall Street centers of the banking system by denying the mainstream bank system via liquidity drains. Drain the national system where households work and live, and provide subsidies for the financial crime syndicate. This is a betrayal of government to the people. Elite gain came at mainstream expense. Attention has gained on the misuse, false promises, and other misdirection of USGovt funds even in the bailout packages. The big banks are ordered not to lend, but to acquire smaller banks.

Until the global interest rate cut was announced, the USFed had not created much new money, despite the numerous rate cuts on the US side. The policy was unconventional and deliberate, with a two-fold purpose to aid Wall Street and to keep a lid on the gold price. Their bad policy, emphasis upon rescue and redemption for criminal fraud, neglect of the private sector, have left the USEconomy vulnerable to an extreme breakdown. A GRAND REFLATION WILL SOON BE ATTEMPTED, TIMED OBVIOUSLY AFTER THE ELECTION. The effect will be much like blowing up a dam holding back a lake, where downstream the price inflation will be broad, deep, and powerful. That day comes soon, and if not, then the entire US financial system will go dark. That cannot be permitted, since the aristocrats need the serfs in the public fields to work, so as to be exploited for gain.

International Forecaster
By: Bob Chapman
The current dichotomy between paper and physical precious metals markets is being caused by an intentional bottleneck at the wholesale level. Wholesale gold and silver is being hoarded to fund precious metal suppression schemes, such as sales and leasing, and to maintain dominance of the commercials in the paper markets by preventing a failure to deliver. In essence, this bottleneck between the wholesale and retail levels of the market in precious metals amounts to a de facto confiscation of gold and silver from the masses.

Remember, back during the Great Depression, most people owned gold and silver which was then the main medium of exchange. So FDR had to take it from them, which he did in 1933, to make sure they had no store of value against the upcoming inflationary spiral of money creation and increased national debt that would result from make-work projects, from social entitlements and from World War II, all of which were already in the planning during the Great Depression, and most likely before the Great Depression even got started. This was done so that they could continue their fleecing of the middle class, who they would eventually allow to have some crumbs of prosperity in order to provide US taxpayers with the incentive to create the new industrial powerhouse that America was becoming, a powerhouse that would fuel and finance their future ambition to make the US into a corporatist, fascist police state. Of course, needless to say, all that new prosperity would get taxed, thus increasing their power through the federal government, which they would totally control. As an aside, FDR then increased the value of gold from $20 an ounce to $35 an ounce, giving Illuminists insiders, who had hidden their gold in Europe after being tipped off about the coming US confiscations, a whopping profit.

In any case, most people in the US no longer own gold and silver. They are slaves to the orgy of money and credit that the Fed has provided, and they now worship paper over metal. This means that no confiscation is necessary to prevent the American sheople from having a place to store the value of their savings. All you have to do today is to keep US citizens from acquiring precious metals, first, by making it look too volatile to be a good investment, and second, by making it hard to acquire, especially in larger amounts. That way, you can enslave and impoverish them by diluting the value of the dollar by doling out trillions in bailout money that will be used solely to enrich the elitists and the financial institutions which they have intentionally and malevolently trashed. Without gold and silver, the poor, ignorant sheople are totally defenseless and utterly helpless against the hyperinflationary juggernaut that will be created in the aftermath of these bailouts.

We are now hearing rumors about a potential failure to deliver on the COMEX due to what may be a large demand for physical delivery of gold and silver on the December contract. Where were all you dopey specs sleeping when we cried out for this to be done over a year ago. As usual, no one listened, and now all the hedgies who are not part of the Illuminist cadre who are cleaning up on insider trading transactions are now bankrupt or are being redeemed into oblivion. Such a tragedy, which is made all the worse by the fact that it was totally unnecessary and completely avoidable. Look at the silver market. Ten billion dollars can now buy the entire above-ground world supply of silver. That is just a 10% diversification for some of the larger hedge funds. What the freak were you people thinking?!

War of the (Gold) Worlds
At almost any time of day during the normal business week, gold bullion is being actively traded somewhere on the globe. Many observers of the international bullion trade have commented that when heavy selling pressure appears, more often than not it seems to happen during the hours when the New York markets are open for business.

This article addresses the validity of this perception from a quantitative perspective. The results will be presented in a format that is simple to interpret and does not require any specialized knowledge of Mathematical concepts. The conclusion is that the perceived pattern of a tendency towards heavier selling during the hours of the day when the New York markets are open for business is not only correct, but the forces behind this selling are more "determined" than even many "believers" might have imagined.

Wednesday, October 29, 2008

The Volcano Stirs To Life

Today's Fed rate cut appears to have been a DUD. In the final 12 minutes of trading — from today's post-rate-cut high to the closing bell — the almighty Dow Index nosedived by an alarming 372 points! It was quite a sight to behold. Gold lost $1 a minute in that decent, falling from 761 to 749 in those ghastly 12 minutes.

Gold, along with Silver quickly recovered after the markets closed, and at 9PM est, both are trading higher with Gold at 766 and Silver at 10.06. Are the metals out of the woods yet? I wouldn't get too excited just yet, but smoke has been sighted at the top of this volcano. Gold must break above 776.55 to have a chance at establishing the recent low as an interim bottom. Silver must break above 10.50 to establish the recent low [hell hole] as an interim bottom.

The markets in general REMAIN highly volatile and unpredictable. Gold and Silver have been VERY oversold down here and are due for a rally. On the flip side, the Dollar is VERY overbought and due for a correction. A dollar correction to at least the 81.50 area appears to have been set in motion. This correction in the Dollar "could" propel Gold and Silver towards our targets of 835 Gold and 11.73 Silver. Should all reach these levels by mid-November, reversals would be likely prior to a rally into the end of the month. Should this afternoons late crash in the Dow carry over into further downside near term, expect the Dollar to quickly regain traction, and Gold and Silver to remain in a funk down here.

Why Gold Might Soar Over the Next Four Weeks
Whether or not you acknowledge past efforts by the U.S. government with other governments, central banks and private trading partners to suppress the gold spot price, events coming to pass in the next four weeks could create overwhelming pressure causing much higher gold prices.

Last Friday, the Taiwan government announced that it had completely liquidated its holdings of Fannie Mae, Freddie Mac and Ginnie Mae bonds. If a long-time ally of the United States is willing to admit that it is bailing out of dollar-denominated debt, will other nations continue to show restraint?

Last Friday and Saturday, leaders from 43 Asian and European nations met in Beijing to discuss the global financial crisis. The United States was specifically excluded from this meeting.

- The TOCOM, the Tokyo Commodities Exchange, provides daily reports of trading positions for major traders. Goldman Sachs and six other firms had huge short gold positions in early 2006. Goldman Sachs and these others have been continuously reducing their short positions. Late last week, Goldman Sachs TOCOM gold position turned into a net long of 370 contracts. The other large short sellers as a group are in their lowest short position in the past 30 months. These companies now have less incentive to want to hold down gold prices.

- There is a significant effort underway by would-be gold and silver buyers, dismayed by the current high premiums for physical gold and silver to purchase December COMEX contracts and ask for physical delivery of the 100-ounce gold and 1,000-ounce silver ingots. Since the COMEX only has a tiny coverage of physical metal for its outstanding contracts, there is a growing risk that the COMEX gold and silver contracts may default. If this occurs, the COMEX allows contracts to be settled for cash rather than gold or silver. If defaults occur, the spot prices for physical gold and silver will soar instantly.

- AIG, America's largest insurance company and beneficiary of over $100 billion in government liquidity over the past six weeks, is still at great risk of financial collapse. From a high of $63.68 per share within the past year, the stock settled at $1.35 on Oct. 27. AIG is widely regarded as holding the largest number of gold and silver derivatives (especially silver) of any company in the world. If it fails, the counterparties on these derivatives contracts could be forced to quickly acquire large quantities of gold and silver to minimize their financial losses.

It would only take one or a few of these events to get out of control for the prices of gold and silver to explode.

The U.S. government and its partners are pulling as many strings as it can to try to hold down prices. A large number of 400-ounce gold bars have been appearing on the market with markings that indicate that they may either be coming from the U.S. Treasury or International Monetary Fund reserves. The IMF is not yet authorized to sell any gold, but apparently can lease gold without restriction. If it becomes public knowledge that the U.S. or the IMF is sneaking gold onto the market to help hold down prices, the news will actually have the opposite effect because it would represent an admission that the U.S. dollar deserves to be worth much less than it is today.

Economic Deflation in Gold Terms and the U.S. Dollar Collapse
Right now, everyone is buying dollars and US treasuries based on the idea of price deflation in terms of dollars. Here are a couple of headlines evidencing this thinking:

Deflation Monster Coming as Credit Losses Far Exceed Capital Injections

U.S. Dollar Has Entered a Multi-year Bull Market

(The US dollar in a "Multi-year Bull Market"? That must the most over-optimistic, out-of-this-world thing I have heard this year.)

I would like to point out that the stock and credit market would already have crashed several times this year to a much greater degree if not for the constant stream of interventions by the fed and treasury. In other words, the results of this housing and credit collapse have already diverged from what happened during the Great Depression due to the creations of trillions of dollars through money printing and government guarantees. While trying to prevent a 1929-style crash, the fed has vastly increased the supply of dollars in relations to the world's limited supply of gold. The dollar's rally due to deflation fears these last three months is therefore based on a false premise.

The US dollar has already lost its status as the world's reserve currency due to the government's fiscal irresponsibility, especially over the last year. Political and financial leaders around the globe are furious with the US and its financial sector, and they are determined to move away from the dollar. Meanwhile, clever investors who see the writing on the wall are already accumulating physical gold and other precious metal, creating shortages. However, none of these signs are needed to know the dollar time has come. The simple truth is that the value of paper or fiat currencies is determined not only by the quantity in circulation, but also by the financial strength of the government which backs them . The US government is broke and has been living on borrowed time for years (from China mostly). Everyone knows the US is totally insolvent, but they continue to hold dollars because the dollar's collapse is too unimaginable .

With the dollar's collapse being so unthinkable (like the bankruptcy of Lehman), there is no political will to try to prevent it. Worse still, even if the government develops the resolve to save the dollar, it is too late: if the government stops printing/borrowing money and guaranteeing bad debt the US economy will disintegrate (the financial sector is gone in either case).

The dollar will collapse when demand in the physical gold market overwhelms demand in the COMEX. Either there will be defaults on the delivery of gold for futures contracts, or there will be a government intervention limiting the withdrawal of gold. Either of these events will be a "perception changing event" of enormous proportions. After all, who wants to stay in low interest bearing US treasuries (which are financing all the bailouts) when faced with the collapse the currency? The move out of the dollar could be so violent that it brings down the financial system despite all the bailouts to date.

(if you own COMEX gold, either sell it or request delivery and hope you are one of the lucky ones who gets their gold)

The Trial of Gold
They filed into the docket, faces bright and smiley despite the shackles around their arms. The leader of the gang, Mr. Gold, was pushed forward into the defendant’s chair. The rest, including Ms. Silver as well as the members of the resource share clan, Biggie Goldshares, Junior Goldshares and Ms. Silvershares, were manhandled onto the hard bench just behind. Rather than looking discomforted at the treatment or the ugly smells and sounds of the crowded courtroom, they just looked around pleasantly, as if on a church-sponsored outing to the local zoo.

Calling the court to order, the bailiff announced that all should rise for the judge. Shortly thereafter, Judge Market entered from stage left, a stern look in his eye. Approaching the dais, he arranged his robes around him and took his seat before gaveling the court to session.

The trial of Gold had begun.

Plumbing the Depths of Depravity [an absolute MUST READ]
If we look at the fundamental-defying, recent meteoric rise in the U.S. Dollar Index, we can trace its roots to systemic institutional failure brought on by the mortgage-backed-security led implosion of the OTC derivatives complex first signified by the demise of mortgage lender Indy Mac:

What folks need to understand is that the global OTC derivatives market – measured in tens or hundreds of Trillions - is virtually all U.S. Dollar denominated. Its SYSTEMIC failure – which is now occurring – requires U.S. Dollar balances to clear [settle] the trades [bets]. This has created the paradoxical global demand for U.S. Dollars – the currency of a country that is fundamentally bankrupt.

By rationing credit to hedge funds that were naturally levered and “long commodities” [institutions like J.P. Morgan routinely took the other sides of their customers commodities bets, ruining institutions like Nat. Gas player Amaranth] - and propping up the balance sheets of those who were “short commodities” – the Banks - the Federal Reserve led cabal of Central Bankers have ENGINEERED the collapse in commodities prices while creating the illusion that market commentator, Dr. Jim Willie, so aptly described as,
The US Dollar Death Dance.

The engineered collapse of the commodities complex became necessary in the eyes of monetary elites because the rush for tangibles and corresponding repudiation of fiat money was becoming manic – as so CLEARLY evidenced by the emerging shortages of precious metals, gold and silver bullion.

War of Attrition
The spot price of gold as quoted by NYMEX is no longer an accurate representation of the real price at which physical gold bullion is being traded. It is, in fact, a lie.

This is apparent by the great disparity between the availability of gold and the virtual shutting down of all sales operations related to delivery of anything denominated in one ounce units. Buffalos, Krugerrands, Eagles….you name it, you can’t buy ‘em.

The idea of “Futures” was originally established as a mechanism for price discovery, not price determination. Yet this very mechanism, first deployed as way for bankers to capitalize farmers in the spring with a relative degree of certainty as to what the farmer would reap in the fall, has become a tool for the manipulation of the gold market. In creating such huge short positions in the futures market, and driving the price down, the spot price suffers as a result of the physical short created to hedge against a paper long.

It is an elementary simplification to state that a thing is worth what somebody is willing to pay for it.

The fact that bullion dealers are paying and charging premiums to the spot price for gold is clear evidence that the spot price published each day is no longer an accurate representation of the price of gold, and its continuing publication as such must soon be identified as fraudulent, and corrected.

Tuesday, October 28, 2008

P.U. - What Stinks?

What's that smell?

In the Fall, in farm country, the farmers spread manure on their fields. You can smell it for miles around as you drive through the country. They use the manure to make the soil more fertile for next years crops.

This Fall, on Wall Street, The Fed is spreading manure [Dollars] on all their banks. You can smell it around the entire globe. The use the manure [Dollars] to make the the economy more fertile for next years Inflation.

And judging by the cart above from the St. Louis Fed, The Fed is shoveling serious mountain of Shit!

Economic Basics and Today’s Gold Market
Can’t we have something like an inflationary depression? That is a good question because it leads to some very definite conclusions about whether to buy or to sell here in late October 2008.

All that exist are money/credit expansions or contractions. In the first case, the quantity of money will rise; in the second case it will fall. Prices will then rise (fall) a few years later.

So we can cut through an awful lot of nonsense in economics if we just understand that there are only two things which can happen: expansion or contraction. And if we want to know which, all we need to do is look at the money supply figures published by the Fed.

Let’s see. The monetary base has increased by 35% in the past 6 weeks. This does not look to me like a contraction. It looks like the biggest expansion in U.S. history. And if you just cut through all the nonsense, the answer is obvious. The “depression” of the 1930s was caused by a 30% decline in the U.S. money supply (over 3 years). It was this factor which was responsible for the high unemployment. Anybody who can look at this chart and conclude that we are going to have a depression has his head screwed on backward.

But what about an “inflationary recession?” Haven’t we had such phenomena? Well, in today’s intellectual climate where most people run around shouting slogans and trying to create the greatest panic, almost anything can be alleged. There will be a period when money/credit is expanding. This will cause prices to rise. Then the rate of increase in the money supply is reduced. We would expect prices to continue to rise but at a slower rate. And the slowdown in growth of the bankers and their associated vested interests (the paper aristocracy) might be called a recession by the banker economists.

However, this case simply does not fit the facts of today’s situation. The money supply was flat for a few years up to September ’08. It has not reduced its rate of expansion. It has sharply increased it. So the “inflation” (currency depreciation) part of the prediction is correct, but the “recession” part is all wet.

By the way, outside of economics an inflation implies a going up, as in inflating a balloon. Why use this word to indicate a going down (depreciation) of the currency? I guess these banker-economists just don’t know up from down. But in predicting the markets it is very important to know up from down.

So the idea of a mysterious force from outer space which comes out of nowhere and causes a general fall in wealth in a free economy is nonsense. (This idea, by the way, came from Karl Marx.) Read Adam Smith. He taught that economics is the science of stability. High prices cause increased supply and cure themselves. Low prices cure themselves. Whenever an economic system is destabilized by an outside event (like a hurricane, a war or a Federal Reserve chief), it moderates the destabilization. It bounces back like one of those round-bottom dolls. Whenever you knock it down, it springs back.

So I say again to Paul Volcker in regard to his 10-10-08 (WSJ) prediction that “a full-scale recession appears unavoidable,” IN YOUR FACE PAUL VOLCKER, IN YOUR FACE.

Over the past two months virtually every good that is traded has gone down: stocks, crude oil, precious metals, the grains. And all this selling is due to stupid speculators who believed the media reports of recession/depression. Gold is a good example. Every measure of fundamental supply/demand shows that demand is far outstripping supply. The coin shops are no longer selling gold coins because they simply cannot keep up with demand. The U.S. Government has failed to keep up with demand for the American Eagle coin (although it is mandated to do so by law). The only reason that gold has been down is a large number of stupid speculators who have been selling it based on idiotic comments like that of Volcker. This surely is one of the great buying opportunities for gold and gold stocks that gold bugs will ever see.

In essence, the Fed is using a "deflation" in asset prices and a recession scare as cover for fertilizing the monetary system. When you fertilize a plant, it doesn't "grow over night". It takes weeks, months, for the fertilizer to work its way from the soil, into the plants roots, and then into the plant itself to make it grow. September's build in the monetary base at the Fed will find it's way into "the system" soon enough. Rising asset prices [the result of today's silent inflation in the money supply] will begin to sprout next Spring. As prices begin to rise rapidly into the summer, the media will have changed their clarion call from recession/deflation to Inflation, Inflation, Inflation. But we'll know better. The inflation is occuring today, right now, while everybodys focus is on "falling prices". Rising interest rates will then swoop in in an attempt to eradicate the inflation, and that is when you get a deflation in the money supply, and a recession.

Yes, in a way it is double speak. After all, it is 1984 right? Up is down and down is up. NEVER forget: Rising prices are a result of a rise in the supply of money [inflation] relative to the amount of goods for sale. Gold and Silver are confirmed to be in short supply, and the supply of money is rising. Prices will soon be going up...a lot.

COMEX Commercials Least Net Short Silver In Years
ATLANTA ( -- A few very large short selling players have had their foot on the necks of all those who would dare to either hold on or try to buy into these distressed markets for all things gold and silver. They have had unchecked power now for months. They have had a great deal of “fun.” But the smartest of them are probably getting “smaller,” as legendary trader and Virginia son Dennis Gartman is wont to say. That is, according to commitments of traders data, the smartest and largest of the short sellers are getting smaller, not larger in their short positioning right now.

A few of them are probably turning net long by now or will be by the end of the month as the end of fund tax loss selling arrives on Halloween, five days hence.
Indeed, as discussed below for example, the largest of the largest traders of gold and silver futures, the traders classed by the Commodities Futures Trading Commission (CFTC) as commercial on the COMEX, division of NYMEX in New York, are actually now the least net short contracts for silver they have been in years.
By November 15, the deadline for most year-end hedge fund redemption notices, another layer of forced selling pressure will have come and gone.

For the year 2008 so far, GLD has added a net 119.18 tonnes of gold bars to its holdings. For context, 119.18 tonnes is about 3.8 million ounces. The gold metal on hand in the COMEX warehouses as of October 23, was reportedly a little over 8.5 million ounces. Thus, so far this year one ETF, GLD, has added the equivalent of 44.7% of all the gold actually held on the COMEX. (No, that’s not a misprint.)
Put another way, during 2008, buying pressure for GLD so overwhelmed selling pressure that the authorized market participants had to add just under half the amount of metal that the COMEX (which still more or less sets the price) has to work with in its member’s vaults.
What is kind of interesting about that is that if you add up all the contracts that are traded on just the COMEX, all 319,472 of them as of last Tuesday, that amounts to contracts either side, long and short, of 31,947,200 ounces. That means that the COMEX is trading almost 32 million ounces of gold but only has about 8.5 million ounces backing those contracts up.

Interestingly, during 2008 buying pressure for SLV so overwhelmed selling pressure the trust has added a total of 68,921,884 ounces (2,143.71 tonnes) of silver to its holdings. And for much of that time the COMEX paper-contract dominated spot market was falling?
For comparison, as of Thursday (10/23), the COMEX, division of NYMEX, reportedly held 131,530,256 ounces of silver in its warehouses.
That means that during 2008 one ETF, SLV, added the equivalent of 52.4% of all the silver metal that the COMEX has in its vaults. One ETF and in less than one year.
Perhaps just as interesting, if we consider all of the 95,873 open contracts for silver on the COMEX as of last Tuesday, then we find that the COMEX traders are trading contracts either side, long and short, of 479.4 million ounces of silver but only have 131.5 million ounces behind it.
Let’s see; because of overwhelming buying pressure, during 2008 SLV had to add over half of the amount of silver that all the members of the COMEX have in total inventory, but the COMEX-paper-contract-dominated price of silver metal fell over 50% from its March peak?
How can that be?

Exactly two U.S. banks continued to keep their thumb on the COMEX silver market as of October 7 when the silver price had already declined from $19.00 to $11.00 and change in the face of severe physical silver shortages of metal on the street. As of October 7 the two largest commercial banks still held a scandalous 23,308 net short silver contracts when the entire commercial net short position was 29,829 contracts. That’s right, two banks still dominated the small silver futures market with over 78% of all the commercial net short positioning.
It is not even fair to call the immoral bank’s position a “net short” position. The two U.S. banks were so certain of their dominance, they were so certain they could drive the futures price of silver lower still, that they did not hold a single long contract for silver on October 7. That, my friends, is the smoking gun and all the DNA we need to see.
Who is ever so sure of such a large position? Only those who can control the ball game.
No wonder that metal is now flowing out of the COMEX and into the physical market. Over 2 million ounces of silver have fled the vaults of the COMEX in just the last five trading days alone.


A Shock To The System?
By: Theodore Butler
Since the recent top in July, the price of silver has undergone a dramatic collapse. As proven by data released in government reports, a large U.S. bank or two sold a massive number of COMEX silver futures contracts into the top and subsequently has covered a good number of those short contracts on the resultant price decline. Quite simply, this is the single most important factor behind the price collapse. The latest data appear to indicate that the price decline is now largely behind us.
The latest data in the Commitment or Traders Report (COT) indicate a near-record shift in market structure over the past three months. The total net commercial silver short position has been reduced by approximately 50,000 contracts (250 million ounces). This is an absolutely massive amount of commercial buying, and has pushed many COT measurements to their most extreme bullish readings in years. Similar commercial buying has occurred in COMEX gold futures.
Make no mistake, this massive commercial buying was no accident. This was precisely why silver and gold dropped sharply, namely, to enable the commercials to buy at the expense of speculative long liquidation. The commercials don’t do anything on this scale by accident. To think otherwise is na├»ve. Ask yourself this - if silver’s price smash did indicate we faced a long term future of lower silver prices, then why would the commercials, the dominators of the market, buy every contract they could get their hands on?
By no small coincidence, other unusual factors suggest silver prices should soon embark on a significant price rally. A notable increase in demand for 1000 oz bars can be seen in tightening price differentials between nearby futures contract months and by reports in the physical market, a marked increase in deliveries in the nearby October silver delivery contract, as well as recent withdrawals in COMEX silver inventories from those taking delivery on October futures. All are supportive of a pending shortage in 1000 oz silver bars, the industry unit of trade. When the shortage of 1000 oz bars becomes apparent, all talk that silver has only experienced a "retail" shortage, will be dashed. Coupled with the bullish COT structure, it adds up to strong upside price potential ahead.

The Next Bubble?
The danger, according to deflationists is that no matter how much ‘money’ global
authorities throw at the problem, a black hole created by decades of credit/debt (as the primary macro-economic fundamental) is going to suck it all up with a near infinite appetite to correct the mess made by a system in its death throes.
The title of the piece is ‘The Next Bubble?’ and as I see it, there are two primary
candidates; a bubble in financial Armageddon as policy makers’ efforts are rendered null and void by the ‘black hole’ and all hope is lost as even the word ‘depression’ will be an understatement. Or a new bubble, in some asset class, as global money supplies shot out of fiscal Howizters reach their intended target, the investment community.
I will go with number two, because inflation is the increasing supply of money and with the deflationary backdrop and inflation fears nowhere on radar, policy makers have a free pass, a directive, to print as much ‘money’ as they can as fast as they can. This makes Greenspan look like child’s play.
The markets, gripped in fear and panic will take whatever time they need to come around to the new inflation cycle. In fact, they will likely not respond in force until rising prices are evident. But what I am interested in is the first movers in a new inflation cycle –
aside from physical gold, a sound holding about which value, not price is key – and those first movers are likely to be the companies that dig gold out of the ground. Given their outrageous undervaluation vs. the metal itself, when they do emerge from the global stock panic, leverage to the price of gold, the asset outperforming nearly everything except the USD of late (just as it should be) is likely to come into play in a forceful manner. Picture an elastic band being stretched to near the breaking point. If it breaks, it is all done. Nice to know ya and thank you for having been a subscriber to NFTRH for a little while but I’ve gotta go now and hunt me some squirrels to serve the family for dinner tonight. But if the policy takes… if the money supplies continue upward, this ‘money’ will have to go somewhere and it will not go back to where it was so unscrupulously abused in the last cycle, like the credit markets or an unregulated Wall Street.
No, I have to believe that the current crisis may actually inspire a bubble in sound
thinking, at least in the early part of the cycle. The fact is the gold miners are at historic undervaluation vs. the metal and the metal, their product which is first and foremost a monetary and investment safe haven, is outperforming nearly all global assets during the deflationary impulse, including miner cost inputs like energy and industrial commodities along with human hopes for prosperity. Not to sound callous, but a worker who is thankful to have his or her job is more productive and cost effective than one looking over his or her shoulder at the next guy in a ‘I wanna git mine’ inflationary boom.

Sunday, October 26, 2008


Against all odds...Flaunting overwhelmingly supportive negative economic fundamentals...With demand far outstripping supply...And 5000 years of human history as a store of value, Gold has been hurled back to the beginning. The beginning of this "financial Armageddon", August 2007.

On Friday, October 24, 2008, Gold touched levels last seen in August of 2007. Coincidentally, the dawn of the "sub-prime crisis". Birthed as two Bear Stearns hedge funds blew up, the "sub-prime crisis" drew the attention of Gold Bugs across the globe. On September 5, 2007, Gold crossed the Rubicon, and headed straight for 1000. On that day Gold closed at 694.50, breaking a 15 month consolidation of the previous multi-year high from April, 2006 at 730. Gold rocketed to 1000 in six quick months as the "sub-prime crisis" morphed into the "global credit crisis".

The first mushroom cloud appeared on March 17, 2008 when Bear Stearns was vaporized and "financial Armageddon" was unleashed on the world. Gold Bugs rejoiced, "Gold is going to the moon!" Six quick months later, sadly, Gold Bugs find their "precious" right back where it started. Bewildering to say the least.

The global financial system has been nuked into paralysis over the past six months, and Gold has been pushed back into it's box like Jack after one too many cranks. Say it isn't so. Why it's back in it's box is irrelevant now because this IS where we are...back at the beginning. Think of it as a second chance. And think about this: If the price performance of Gold has defied ALL logic in the face of Financial Armageddon, what does that say about how COMPLETELY F*#!ed UP the world financial system is at this moment in time? There is really no adjective to describe this financial state of affairs. Folks, we're talking F.U.B.A.R!

Every effort was made by the "Cartel" to restrain the price of Gold once it broke higher in September of 2007. Central banks around the globe, Western based central banks, sold and leased Gold into the market in quantity in an effort to stop the rise in the price of Gold. They failed miserably, as Gold hit 1000 just as the first of many financial WMD exploded on Wall Street. These same central banks began to realize the error of their ways, and wanted their Gold back. But Gold had gotten pretty damn expensive. If they could only get it back to the prices where they so foolishly "gave it away"... And viola, we are there. How did they do it? Who cares, they did. Now what do we do about it?

Well, for starters, let's not get too excited here. Things are F.U.B.A.R., remember? Gold is showing some strong buying at these prices the past couple of days, but is this buying...or just short covering of shorts established way back in September of 2007? Certainly, there is overwhelming demand for Gold in the "physical" market...the retail world. But what of this bogus "paper Gold market"? Can we ever expect to see "demand for paper Gold" again. Recall, the paper Gold market is a derivatives market. There really is no Gold in this market. It is a market full of "promises". Not unlike the Mortgage Backed Securities market, the Credit Default Swap market, or the US Dollar market for that matter. Substitute the word "debt" for promises, and you get the picture.

Do we wait for the inevitable demise of the paper Gold market to buy Gold again? The default of the CRIMEX? You could, but were that to come to pass, that would be like trying to hop a bullet train as it speed across the countryside. Clearly, physical bullion is moving higher in price as this financial calamity engulfs the world. Curiously, the central banks have made it very difficult for the people to get their hands on Gold as this financial crisis escalates. National mints have all but suspended production and sales of bullion coins. How can the mint of a sovereign nation come up empty when the countries they represent "supposedly" have millions of ounces of bullion in their reserves? The US claims to have the worlds largest Gold hoard, and the US Mint, mandated by law to produce Gold and Silver bullion coins for public consumption, cannot get the bullion to do so? They claim "unprecedented demand" for their inability to produce these coins. BULLSHIT! Demand for coins in 1999 prior to the Y2K scare far outstripped demand today, and not one ounce of production was suspended or even slowed. Congress passed the law mandating the Mint produce these coins. Why are they not investigating this "disruption" of a congressional mandate?

No, that is not going to happen. Western governments do not want the public to have their Gold. The world is far to big for them to "take" the Gold that the public presently possess. A replay of FDRs Gold Swipe following the depression isn't very practical today. So, instead, the government is determined to see to it that the Gold is withheld from us.

Gold is the enemy of the state. A Gold backed currency would force government to be accountable. A Gold backed currency would force government to curtail deficit spending. A Gold backed currency would bring government to it's knees, and give the country back to it's people. It is doubtful the government would sit idly by while the people reassert control of the country the way the Constitution intended. Not without a fight. And that fight will come one day...they call it a revolution. And it is a lot closer than anyone can imagine.

But what do we do about Gold right here, today? Buy it fool! Buy as much of it as you can get your hands on. And don't forget Silver. Buy, Buy, Buy! The US Constitution states clearly that all coin will be of Gold and Silver. The day will come, in the not too distant future, where you will be glad you bought and paid for the real thing. Those dumping their worthless CRIMEX futures contracts today are already lining up to buy the real thing. Don't get caught holding the door for them.

The lessons we have learned from the paper Gold and Silver markets, and buying Precious Metals on "margin" have been painful. Very painful. Learn from your mistakes. You only get one second chance.

Dis-Information Specialists Ply Their Trade
Demand for physical precious metal is welling up, with significant and growing premiums being paid for physical metal, due to smart money migrating into the tangible space before it is widely understood by the general investing public the true extent of mismanagement and malfeasance at the highest levels of our existing monetary order. This is the REAL story that BNN has not reported.

In recent days, anecdotal accounts are beginning to surface that “major off-market transactions” are occurring at much, much higher prices. One such account rumored earlier this week was that a major trade in the physical market occurred between two non-U.S. players at a price equivalent of $ 1,075 per ounce. Perhaps more interestingly, the deal apparently was settled in EUR not DOLLARS.

It is a fact that a great deal of what ails our global economic sense of being is our current “un-backed” fiat monetary system which has been ABUSED by Central Bankers through unbridled credit creation and money printing. In light of what has occurred – precious metals in general and GOLD in particular is now reasserting its historic role as a “go to” wealth preservative.

To counter act and remedy their own largess; it is Central Banks and their proxies that have ruthlessly ENGINEERED the harsh credit crunch we are currently experiencing and merciless, coordinated price-take-downs in strategic commodities, including gold, utilizing futures markets - in vain hopes of re-instilling confidence in their now failing paper money system. For anyone who suggests that these claims are false on the basis that gold is not money; just ask them why it is that EVERY Central Bank on the planet lists gold bullion on their balance sheet as an “OFFICIAL RESERVE ASSET”?

U.S. has plundered world wealth with dollar
BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.

The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.

A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.
The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.

Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.

"The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

Asia, Europe reach consensus on financial crisis
BEIJING (AP) -- Asian and European leaders said Saturday they have reached a broad consensus on ways to deal with the global financial meltdown and will present their views at a crisis summit next month in Washington.

Speaking at the close of a two-day Asia-Europe Meeting in China's capital, the leaders called for new rules for guiding the global economy and a leading role for the International Monetary Fund in aiding crisis-stricken countries.

The biennial forum, known as ASEM, generally does not make decisions, and a statement issued by the leaders indicated how much the crisis in global markets has driven world opinion and institutions.

"I'm pleased to confirm a shared determination and commitment of Europe and Asia to work together," EU Commission President Jose Barroso said at a closing news conference.
He said participants would use the statement as the basis of their approach at the Nov. 15 Washington summit of the 20 largest economies.

Although short on details, the statement, adopted Friday, calls on the IMF and similar institutions to help stabilize struggling banks and shore up flagging share prices.

"Leaders agreed that the IMF should play a critical role in assisting countries seriously affected by the crisis, upon their request," it said.

Participants also agreed to "undertake effective and comprehensive reform of the international monetary and financial systems," the statement said.

The US Dollar's days as the World's "reserve currency" may be seriously numbered here. Asia and Europe certainly no longer need the US Dollar to conduct business between themselves. The US Dollar is fast becoming WORTHLESS as a currency. As the dust eventually begins to settle on this financial firestorm, the US Dollar will be quickly sold for tangible assets, and currencies of value...Gold and Silver. This is the Sale Of The Century. Why do you think the sale items are so hard to find? If it's available, the real thing, bullion, BUY IT!

Thursday, October 23, 2008

Highway To Hell

Premiums Soaring for Physical Bullion as Delayed Deliveries and Shortages Intensify Internationally
COMEX gold continues to surprise to the downside despite the incredibly strong fundamentals of gold bullion itself with increasing shortages, delayed deliveries and premiums soaring for physical bullion in Asia, Europe, the US and internationally. Premiums have soared on smaller bullion products (from 1 ozt to 5 kilo gold bars) and look set to soon rise on the larger 100 and 400 ozt London Good Delivery gold bars.

Large investors and bullion dealers are now looking to take delivery of the December gold contract and there is likely to be a significant number of longs who stand for delivery leading to COMEX warehouses being depleted and the increasingly ridiculous COMEX price then surging in value.

The possible default of COMEX is even being considered by some astute observers. It is estimated that COMEX only have enough gold to deliver on some 10% of the outstanding contracts. October is not a delivery month so the December contract is being targeted. Some large money interests also realise the potential for sizeable profits from taking delivery of large gold and silver bars and melting them down into smaller bullion products for sale at far higher premiums. The COMEX December Gold option expiry is November 20 and there may be fireworks in the gold market soon after the election on November 4th in anticipation of far higher prices due to the incredibly strong supply and demand fundamentals.

Bernanke's proposed stimulus package shows that his helicopters are well and truly dumping dollars on America like confetti at a ticker tape parade. While this may be bullish for stock markets in the short and medium term it is likely to have serious ramifications for the dollar and the global monetary system in the coming months.

The public finances of the US are in a mess and deteriorating fast and now the country is formally committed to "unlimited" creation of dollars and the national debt is rising at an annual rate of 75 percent. This will result in far higher gold prices in all fiat currencies in the coming months.

USDollar Death Dance
Jim Willie CB
How many times have we seen the US stock market go down, non-government bond yields rise, the USDollar rise, and the USTBond yields fall? That has been the norm in the last few weeks. These are death signals, not investment signals. The USEconomy cannot afford liquidation and constricted credit, a well-known fact, seemingly forgotten today. These signals come amidst falling confidence, more bank distress measures, more job loss, more home foreclosures, and lately, trouble with letters of credit at port facilities.

Financial markets, including the USDollar, have yet to factor in the deep USEconomic recession. The USDollar rally flies in the face of deteriorating fundamentals. See job cut announcements at Caterpillar, Merrill Lynch, General Motors, Chrysler, several Wall Street firms including Goldman Sachs today. Weekly jobless claims at close to half a million per week, equal to peak during the unrecognized 2001 recession. See the UMichigan consumer sentiment, Philly Fed index, Empire Fed index, leading economic indicators, durable goods orders, on and on. Retail sales, the backbone of the backwards USEconomy, are plummeting. That is, the plummet is before inflation price adjustments. Car sales are plummeting also.

Exports are to be worse from the higher US$ exchange rate on the table, combined with slower foreign economies. The improved export trade has been a big boast from the lunatics running the asylum. The USEconomy is accelerating in its decline, certain to produce a recession and huge USGovt deficits. That deficit is likely to at least double and possible quadruple next year. USTreasury Bond issuance cannot conceivably finance all, or at least half, of the commitments. The printing press will do the rest, which will cut down the US$ valuation. The USDollar decline lies ahead, when the distortions slow or come to an end. Gold will soar on the other side of this liquidation.

An extreme backlash attack is coming against the USDollar. Rising import prices in foreign economies have already caused alarm. Foreigners will soon attack the US$ in a matter of time, using heavy US$-based reserves. Their banking sectors are in disarray, primarily because they are intimately tied to the US$ and USTBonds. The process has begun with Brazil and Mexico in Latin America, to use their strong reserves and sell into this queer US$ strength. That is what reserves are for. The process will spread to other nations.

The gap between the physical gold market and paper gold market is widening. An example bears this out. In Toronto this week, a major off-market gold transaction took place. The price paid was $1075 per ounce on the physical transaction. Its volume was in the multi-million$. There was no US involvement in the transaction, and the settlement was in euros. Enormous repositioning is ongoing by the groups that will participate in the new, partially gold-backed currency. My take is this movement is from a large financial entity with global activity, and ties to central banks. It might be tied to the upcoming split in the euro, into a Nordic Euro and trashed Latin Euro. The Nordic version might contain a gold component. This and other transactions are taking place with European settlement. They are being satisfied in the alternative market, far from the distortions of COMEX. This was a physical transaction with the real metal being moved. Big shifts occur behind the scenes. A couple of months ago, 400 metric tonnes were moved into storage with the Royal Canadian Mint by a sovereign entity.

The more massive the paper manipulation, the more violent the coming correction. The asylum managers are losing control of their paper-physical arbitrage. Watch the gold lease rates, and silver lease rates, which have each more than tripled in the last two months. Lease rates precede price movement. Bullion bankers, including central banks, are reluctant to lease their physical supply. This time is no different, an event to come after the COMEX criminality is swept aside, or simply overwhelmed in return. One well-informed source, with over two decades of gold market experience, actually expects arrests to take place among COMEX officials before long.

John Embry of Sprott Asset Mgmt has raised the possibility of a December gold futures contract default. He is not predicting it, or claiming it as certain, but rather mentions how talk centers on the December gold contract as having extreme stress for actual delivery. Pressure is building. The December contract not only is end of quarter, but end of year. He suggests a possible default. He said, “there is probably going to be such an event to change perceptions.” He cited a possible force majeure that could act as a “seminal event that defines the whole situation.” He explained that the physical gold price would then dictate the paper gold price, a return to normalcy, and with a gigantic move up in the gold price. Right now the paper gold market is overwhelming the physical side, but the physical side is constricted on supply. He explained that hedge funds are being unwound on a massive scale, slaughtered by margin calls. The long side must call for delivery on many contracts. He also expects there will be many questions on the Exchange Traded Funds soon as well, although those are surely not as important as the COMEX contract defaults. Watch and listen to his interview on the Canadian Business News Network (CLICK HERE), and be sure to move to the 10 to 11 minute mark.

Aftershock and Gold Rocket
Welcome to the opening ceremony of a modern depression.

The bottom line is this: the massive repatriation of US Dollars as a result of de-leveraging globally and the unwinding of so many credit contingent deals is making the US Dollar look strong, while the gold manipulation cartel is exerting its utmost effort to keep the spot price of gold low through concentrated short positions on COMEX. The price of gold will emerge from this negative influence on the next leg down and the economy goes into a broader paralysis instead of being limited as it is now to real estate and financials. Most credible analysts are recommending a minimum 30% exposure to gold for institutional portfolios.

Though its hard to imagine in the current price environment, both gold and silver are on the verge of a tremendous breakout to the upside, and if you can’t get your hands on the physical bullion over the next 24 months, the producing companies will be next followed closely by well cashed up junior explorers with million ounce+ deposits in National Instrument 43-101 compliant categories.

Ignore the negative press on gold, and recognize the current price weakness for what it is: the last time you’ll see gold this cheap in a long time, and therefore a huge opportunity.

Gold's recent slump bewilders investors
NEW YORK (MarketWatch) -- Gold is often seen as an investment safe haven whose price tends to rise when the economy falls into troubles, but its recent slumps have defied conventional wisdom.

The reason, according to analysts at the World Gold Council, is that the latest bout of the credit crisis has been deeper and more far reaching. Funds were forced to sell desired assets such as gold to meet margin calls, while weakness in European economies lifted the U.S. dollar, which then pushed dollar-denominated gold prices lower.

"The fact that gold did not head higher during the current leg of the crisis seems to reflect a combination of the rise in the dollar, deleveraging of commodity positions, sales to meet margin calls, and the unwinding of the long gold, short dollar trade," wrote Natalie Dempster, an analyst at the WGC, in a research report released Thursday.

"The current crisis has seen much more pressure on gold as an 'asset of last resort,' where it has been sold to meet margin calls when there have simply been so few other viable options available," Dempster said.

Trading in the over-the-counter gold market, where big institutions trade with each other directly in large orders, weakened in the third quarter due to the rise in counterparty risk and the lack of investment capitals, according to GFMS, a London-based precious metal consultancy.

A wave of liquidations occurred in September as funds were forced to raise cash in the face of margin calls and massive investor redemptions, according to GFMS.

"Trading credit lines are shrinking for key players in the commodities business," said S&P's Vazza.

Gold trading in futures markets also went through a similar declining trend. In the two major global gold futures markets in New York and Tokyo, speculators' buy positions have been falling, while their sell positions have been rising.

Some investment funds were forced to sell even their "most desired assets such as precious metals," said Peter Spina, president of There could be "more victims of the fund collapse and more forced liquidations."

"Investors worldwide are selling everything, including the kitchen sink, and gold is no exception," said Peter Grandich, chief commentator at Agoracom, an online marketplace for the small-cap investment community.

A stronger dollar reduced gold's appeal as an investment alternative. "Investors unwound leveraged short dollar, long gold positions, mindful of the long standing negative correlation between gold and the dollar," said the WGC's Dempster.

Some analysts, however, said that in the long term, the U.S. rescue plans to inject liquidity into banks will stir inflation and a devaluation of the dollar -- something that would be bullish for gold prices.

"An extraordinary amount of liquidity has been pumped into the system this year," said Peter Grant, senior analyst at USAGOLD. "I anticipate further debasement of all currencies, including the dollar, which will ultimately drive gold prices higher."

Pay Attention to Indian Silver Buying Spree
The massive correction in silver brings back Indian buyers. According to a Reuters story, Indians also shift to silver as the high silver/gold ratio of 80:1 makes the white metal appear cheaper to its competitor gold. Imports have jumped to 250 tons every month since August after a dull first half 2008 when record prices repelled buyers.

MUMBAI, Oct 20 (Reuters) - Indian traders may not be buying much gold with prices close to all-time highs, but are scrambling to stock up on silver that fell to its lowest in a little more than a year, dealers said."There is already a shift from gold to silver... people are very comfortable with silver prices," said Ajay Singh of Kiran Jewellers, a wholesaler in Jaipur.

Singh said his silver sales had risen five-fold from the same period last year, ahead of key festivals, Dhanteras and Diwali, next week. On the continuation charts of the Multi Commodity Exchange of India Ltd [MCX], silver futures MSVc1 were at 17,541 rupees per kg, close to a 13-month low struck late on Friday at 16,857 rupees.The current price is down 36 percent from its record high at 27,500 rupees on March 17.

Suresh Hundia, president of Bombay Bullion Association, said silver imports had accelerated since August, and demand was heavy early this month, when prices were in the range of 19,000 rupees and 20,000 rupees."Earlier in the year, there was hardly any demand but now since August, about 250 tonnes is being imported every month," Hundia said.Yet, imports stood around 800 tonnes so far this year as against around 2,280 tonnes in all of last year, he added.

Many traders said silver imports hit bottlenecks even at high premiums, with a global demand resurgence, difficult credit market and logistical woes. "Many banks are unable to get silver even if we tell them we will give them the full sum of money for the consignment," said Daman Prakash, director of MNC Bullion Pvt Ltd, a wholesaler in Chennai."There is shortage of space in flights and that is curbing the supplies," said Prithviraj Kothari, director at Riddisiddhi Bullions Ltd.A prominent Geneva-based supplier, Afshin Nabavi, senior vice president at MKS Finance S.A., said supplies were "starting to get tough."

"There is a huge demand for silver... it has not been this cheap for a while now," Nabavi said.

I would say this is another sign that the dichotomy between COMEX silver prices and prices paid is more then questionable. This may be a once in a lifetime opportunity at current price levels that are destined to change dramatically, only to catch up with inflation. The inflation adjusted all time high of silver is in excess of $135 per ounce and there are so many signs of a physical shortage when silver sold short on the COMEX now exceeeds one year of global production.

It must have been quite a meeting.

It began at 3:00 pm this past Monday at the U.S. Treasury's plush offices in Washington, D.C. On one side of the table sat U.S. Treasury Secretary Henry Paulson. He was flanked by Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.

On the other side were the chief executives of the nation's biggest banks. They were arranged in alphabetical order, with Bank of America's chairman on one end and Wells Fargo's CEO at the other. Between them sat representatives from the Bank of New York Mellon, Citicorp, Goldman Sachs, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, and State Street.

Although no reporters were present, journalists later pieced together what was said. All accounts agree on the following: For over an hour, Paulson and Bernanke told the assembled bankers just how grave was the situation threatening not just this country, but all the known world. (All together now, can you say, "the gravest financial crisis since the Great Depression"?)

At the end of Paulson's and Bernanke's remarks, aides handed each banker a document. The pages contained the government's terms for becoming their partner. It detailed how much money the Treasury would "invest" in each bank (a total of $125 billion for those present), how much ownership it expected, what their new dividend policies would be, even the limits that would be imposed on executive pay. (The top five officers at each institution could not receive more than $500,000 a year.)

While discussion was permitted, negotiations were not. Paulson explained the deal was for their own good and the good of the country. Then it was time to "shut up and sign." And every banker did.

Any questions, any doubts, any disagreements were blithely ignored. Thus was born a new age in what was once the land of the free and the home of brave. Government would "save" capitalism by becoming its partner … nay, its boss.

It may not be a Brave New World. But I can guarantee you, folks, it's going to be an expensive one. Time will tell how expensive - to our wallets and to the free-enterprise system.

Tuesday, October 21, 2008

Paper Gold And Promises That May Not Be Kept

What is a futures contract?

Futures contract
From Wikipedia, the free encyclopedia

In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity of standardized quality (which, in many cases, may be such non-traditional "commodities" as foreign currencies, commercial or government paper [e.g., bonds], or "baskets" of corporate equity ["stock indices"] or other financial instruments) at a certain date in the future, at a price (the futures price) determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract.

A futures contract gives the holder the obligation to make or take delivery under the terms of the contract, whereas an option grants the buyer the right, but not the obligation, to establish a position previously held by the seller of the option. In other words, the owner of an options contract may exercise the contract, but both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit.

Futures contracts, or simply futures, (but not future or future contract) are exchange traded derivatives. The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, and crucially also provides a mechanism for settlement.[1]

What are exchange traded derivatives?

Derivative (finance)
From Wikipedia, the free encyclopedia

Derivatives are financial instruments whose values depend on the value of other underlying financial instruments. The main types of derivatives are futures, forwards, options and swaps.
The main use of derivatives is to reduce risk for one party. The diverse range of potential underlying assets and pay-off alternatives leads to a wide range of derivatives contracts available to be traded in the market. Derivatives can be based on different types of assets such as commodities, equities (stocks), residential mortgages, commercial real estate loans, bonds, interest rates, exchange rates, or indices (such as a stock market index, consumer price index (CPI) — see inflation derivatives — or even an index of weather conditions, or other derivatives). Their performance can determine both the amount and the timing of the pay-offs. Credit derivatives have become an increasingly large part of the derivative market.

Broadly speaking there are two distinct groups of derivative contracts, which are distinguished by the way they are traded in market:

Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is unregulated. According to the Bank for International Settlements, the total outstanding notional amount is $596 trillion (as of December 2007)[1]. Of this total notional amount, 66% are interest rate contracts, 10% are credit default swaps (CDS), 9% are foreign exchange contracts, 2% are commodity contracts, 1% are equity contracts, and 12% are other. OTC derivatives are largely subject to counterparty risk, as the validity of a contract depends on the counterparty's solvency and ability to honor its obligations.

Exchange-traded derivatives (ETD) are those derivatives products that are traded via specialized derivatives exchanges or other exchanges. A derivatives exchange acts as an intermediary to all related transactions, and takes Initial margin from both sides of the trade to act as a guarantee. The world's largest[2] derivatives exchanges (by number of transactions) are the Korea Exchange (which lists KOSPI Index Futures & Options), Eurex (which lists a wide range of European products such as interest rate & index products), and CME Group (made up of the 2007 merger of the Chicago Mercantile Exchange and the Chicago Board of Trade and the 2008 acquisition of the New York Mercantile Exchange). According to BIS, the combined turnover in the world's derivatives exchanges totalled USD 344 trillion during Q4 2005. Some types of derivative instruments also may trade on traditional exchanges. For instance, hybrid instruments such as convertible bonds and/or convertible preferred may be listed on stock or bond exchanges. Also, warrants (or "rights") may be listed on equity exchanges. Performance Rights, Cash xPRTs and various other instruments that essentially consist of a complex set of options bundled into a simple package are routinely listed on equity exchanges. Like other derivatives, these publicly traded derivatives provide investors access to risk/reward and volatility characteristics that, while related to an underlying commodity, nonetheless are distinctive.

Great questions! What have we learned? In a nutshell, futures contracts are exchange traded derivatives. The key word being "derivatives". Traders on Wall Street are running as fast as they can from "derivatives". One is then lead to wonder if the crash in "paper" Gold and Silver prices on the CRIMEX has been caused by one of two overlapping scenarios: Da Rat Bastids are fleeing a sinking ship coupled with a "buyers boycott" of paper Gold and Silver. Selling into a market with no buyers will always result in a crash. Derivatives are blowing up all over Wall Street. Why risk buying a Gold "derivative" that could be at the risk of default, if you can buy the real thing? Seems too simple, but it's a thought anyways...

Perhaps it is "just" deleveraging by the hedge funds and the like, but it just seems odd to me that prior to the Bear Stearns Bailout in March, going long Gold in the futures market was a no brainer. And then the shit hits the fan...and suddenly being long Gold futures is a bad idea? But again, derivatives are blowing up all over Wall Street. What sane investor, or speculator for that matter, wants to buy something that could blow up in his face through default? The sane investor has left the futures pit for the real deal, physical bullion. The speculator has been left to unwind his derivatives daisy chain in the hopes that he not only has some cash left to buy physical bullion, but that there is some left to buy once he gets out from under the paper pile at the CRIMEX.

Let's not forget that it takes a huge pile of "credit" to work the futures markets. Margin requirements are small, but somebody has to cover the balance. Last time I checked, the credit markets were a bit tight. Perhaps there is just no money available to buy CRIMEX fuutures contracts.

I'll go out a limb here today and suggest that the CRIMEX will implode somewhere between the beginning of the December contract roll over in mid-November, and First Notice of Delivery intent at the end of the month. The election will be over by then, and with next to no Gold available in the retail market, a raid on the CRIMEX warehouse should occur with those still holding December futures contracts standing for delivery and refusing settlement in cash. Damn, wouldn't that be exciting?!

Let the countdown begin!

Physical Gold vs. Paper Gold
Pete Grant and Jonathan Kosares discuss the falling gold price in the face of a major banking crisis and unprecedented gold demand by investors. Commodity-oriented bank and hedge fund positions have been forced to deleverage and to liquidate profitable positions to raise capital for margin calls and in response to shareholder/fundholder redemptions in a flight to cash. Cash-holders and bond holders, however, will soon realize that the negative yield against higher inflation rates and inevitable currency depreciation will make gold ownership a better alternative as a safe-haven.

Although brief, this is an exceptional discussion of the Gold Bugs topic of the day.

Metal keeps drying up as Comex pretends otherwise
...from Hugo Salinas Price, president of the Mexican Civic Association for Silver, quoted in GATA Chairman Bill Murphy's "Midas" commentary at

"Mexico's central bank has informed us that as of this morning they will be able to supply us with only 60,000 Libertad silver ounces from here to December.

"Banco Azteca has in stock only 15,000 ounces.

"Banco Azteca has been selling 60,000 ounces a month in August and September.

"How is it possible that a country that is either No. 1 or No. 2 in silver production (Peru sometimes exceeding Mexico) cannot supply silver coin?

"Is there some sort of agreement at a high level to restrict the amount of silver coin that the population can obtain?

"Does this measure go beyond the scarcity of silver at the present 'paper price' of silver, to a deliberate restriction of silver coins to be placed in the hands of the public?

"This restriction on supply on the part of the Banco de Mexico, which mints the Libertad ounce, is disturbing, to say the least."

The Silver Rush Is On
There is no clearer proof of the developing investment rush in silver than by comparing it to gold. Gold is viewed by the world as the king of the precious metals. Gold investment flows are the prime driver for its price. For every silver article written, there are a hundred gold articles written. For every silver investor, there are a hundred gold investors. Gold and gold investment are very big businesses. Silver is tiny in comparison.

In the current time of financial crisis, gold has experienced a surge in investment buying of all types. The amount of gold held in publicly-owned ETFs, closed-end funds and other deposit programs is at records. In addition, for the first time in memory, retail physical gold coins and bars are very hard to get and command premiums. This is unusual, and confirms strong investment demand for gold.

Yet, compared to silver, the surge in investment demand for gold seems tame. based upon the facts. The price of gold is currently more than 80 times the price of silver, one of the biggest differences in history. Secondly, since there is 4 to 5 times more gold in the world than silver (4 to 5 billion gold ounces vs. 1 billion silver ounces), that means that the total dollar value of all the gold in the world is worth 300 to 400 times more than all the silver in the world (80 times 4 or 5). The value of all the gold in the world is $4 trillion (4000 billion). The value of all the silver is $10 billion.

Give the fact that the dollar value of all the gold in the world is up to 400 times greater than the value of all the silver in the world, let me ask you a question. How much more investment money is flowing into gold, compared to silver? Your answer should be 80 times more, or 300 to 400 times more. That would be logical and intuitive. Yet, that answer would not even be close. Over the past ten months, the dollar value of documented investment flows into gold (all ETFs and public funds, plus new retail coin and bar demand) was $8.5 billion (10 million ounces x $850 average price). In silver, the equivalent dollar amount was $2.5 billion (150 million ounces x $16.5 average price). So, instead of gold investment flows being 80, or 300 or 400 times greater than investment flows into silver, they were less than 4 times greater. And on specific apples-to-apples comparisons, the match ups are even more dramatic. For example, in the issuance of Eagle bullion coins by the U.S. Mint, less than 2 times as much money went into gold Eagle coins as into silver Eagle coins.

This proves, beyond a doubt, that an unprecedented investment rush is underway in silver. The amount of investment money flowing into silver, compared to gold, is staggering. Let me make this clear - it’s not bearish for gold in any way. It’s just bullish beyond belief for silver.

Damning Paulson and Bernanke: 'Grotesquely Conflicted' and 'Most Lenient'
The Treasury secretary is "grotesquely conflicted" in his efforts to bail out his former employer, as detailed here, and has found "common cause" with an overly lenient Fed chairman.

"They have a bias to preserve the derivatives market" -- the riskiest part of Wall Street, Whalen says, noting the government let Lehman and Bear fail but bailed out AIG and (according to Whalen) rescued Goldman Sachs and Morgan -- at least for the time being.

Listen closely to what this man has to say in this interview video. Paulson and Bernanke are determined to bailout the banks that created this toxic mess, and let the banks that create capital perish. Paulson and Bernake should both be shot for treason.

Dollar lifted by rush to safety
"Ongoing and again today, it was obvious ... you had a strong force towards market participants wanting to be in a liquid, safe asset, and that's the dollar," said Benedikt Germanier, senior foreign exchange strategist for UBS AG in Stamford, Conn.

The Federal Reserve introduced a new program, worth up to $540 billion, Tuesday to finance the buying of assets from money market mutual funds in another effort to get credit flowing freely.

Only one word will suffice as comment on this story: BULLSHIT!

Monday, October 20, 2008

Are You Kidding Me?

At 8PM est on Sunday, October 19, the Asian Gold Market opened for the week. Prices shot higher as if from a cannon aimed at the moon. Price gapped up from Friday's last late trade in NY of 782.55 to 788.18 at the open of Asian trading. Within one hour Gold was trading at 799.63. Gold continued to trade higher through the evening and into the early morning hitting a high of 809.80 at 1:54AM est. Coincidently, this high preceded the opening of the London Metals Exchange at 2AM est. This was the high of the day, as price began to collapse with the opening of the European markets. Price collapsed into the CRIMEX open at 8:20 AM est where prices opened at 795.50, and then collapsed further to the low of the day at 784.55. This low of the day occurred at 11:10AM, which by coincidence, is 10 minutes after the European markets closed in London.

Why the play-by-play? Isn't it odd that the Asians have an almost ravenous desire to buy Gold, and Westerners an almost leper-like disgust for it? Isn't it odd that there is not a banking crisis in Asia, but the is a banking holocaust in the Western World? Isn't it odd that it is the Asians who stand the most to lose from a default of the "world's reserve currency" as they hold Trillions of it in I.O.U.s and are buying Gold as if it is going out of style while the West gives it away?

Very odd indeed.

And if you look at the charts, this same scenario occurred last Sunday into Monday as well. Asians seeking refuge from the coming deluge of defaulting dollars seek financial salvation in Gold. Those in the West seeking financial immortality via the printing press, dispense their Gold as freely as their politicians do promises. Never forget that Dollars represent "promises to pay". How will the West be able to pay, when their promises are no longer accepted, and their Gold is all gone?

JS Kim Uncovers Four Parallel Markets for Gold: Asia Futures, NY Futures, Physical Bullion, Physical Coins
Today there have been four distinctly and differently priced markets established for gold: (1) Futures markets in Asia that consistently establish prices $20 an ounce to $60 an ounce higher than the prices established in (2) Futures markets in New York; (3) Physical bullion bars which dealers are starting to price at healthy premiums above both daily spot prices established in Asia and London/New York; and (4) Physical coins which dealers have always priced at premiums above bars and spot prices, but that are now selling at soaring premiums above spot prices.

Since the July 14th correction in gold and silver markets began, waterfall declines have occurred in gold prices in New York futures markets that trade paper gold where physical delivery of real gold occurs with less than 1% of all paper traded futures contracts. The differences in spot prices in Asian futures markets and in New York futures markets for gold have been staggering for the past 10-12 weeks, so much so that two distinct and separate future markets for gold have been established, one in which the gold price is significantly higher in Asia and another, where the gold price is significantly lower in New York. As they say, a picture can paint a thousand words...


closing GOLD price 0830 EST Ebay 10/17/08 - $1121.18
closing SILVER price 0830 EST Ebay 10/17/08 - $16.19

An explanation of price calculation:

Prices of the REAL METALS PRICES REPORT are derived each morning upon the latest sale of any denomination of gold between 1/10 and 10 ounces and silver between 10 and 100 ounces minus shipping charges. All efforts will be made to base prices off plain, non-coin bullion instruments (bars/rounds/etc). In the event these prices cannot be ascertained due to lack of a sale of a product in the previous 24 hours, the previous day's price will be used. In the event bullion coins must be used to calculate price, please read the following explanations for determined bullion price calculation:

In the event these sales are represented by American Silver Eagles, a $2.00 premium has been retracted to represent real bullion market prices for strictly the metal itself.

In the event these sales are represented by American Gold Eagles, a 5% premium has been retracted to represent real bullion market prices for strictly the metal itself.

The Link Betweeen Paper (futures) Silver and Gold Prices and the Physical Prices is Stretching Thinner and Thinner
As I've said so long, they have only two weapons, Inflation and Blarney. They've fired off the inflation cannon until the barrel has almost melted, so now they're working the blarney cannon overtime.

Let us therefore try to slice through this deception to the truth. The deflation scare stores are beginning to fly, which must tickle Ben Bernanke to death. Not to put too subtle a point on it, there's as much chance of a US Dollar deflation as there is of me marrying the Pope. It's not possible that the US Government and the Fed could pump US$2 trillion into the credit and financial system without producing inflation.

The dollar's days are numbered. Therefore, after the Nice Government Men get tired of kicking silver and gold in the teeth, they will begin their inexorable, ineluctable, inevitable, yea, fated drive for the moon, and the US Dollar will again begin sinking toward the center of the earth, which already holds all the missing rubber bands and paper clips and bobby pins.

US DOLLAR today, in the midst of history's worst financial panic, was flat. Odd, ain't that? Wouldn't you think that fear would send folks running for safety to US Dollars? Well, it isn't. So if the dollar rally is turning ratty already at 82.4, what will it look like in a couple of weeks when the other central banks stop supporting the dollar? Yes! You there in the front row! Right. The dollar will look like an anvil floating serenely upon the ocean waves.

Deflation Scare... the Perfect Camouflage
It is said the market can sniff out prospective problems and price itself accordingly. If so, then someone needs to get this dog some nasal spray, lickedy-split!

The deflation scare currently hovering over the entire market, particularly in the metals and commodities sectors, has been brutal. But the key question today is whether this "scare" will evolve into a genuine deflation threat to the US and the world?

Inflation and deflation are monetary phenomena. Monetary inflation occurs when the supply of money increases faster than the supply of goods and services. This is different from the concept of price inflation, which, depending on several variables that may impact inputs along a given production chain, can cause an increase in the price level for certain goods and services at any given time. Otherwise said, monetary inflation causes price inflation, but a price rise isn't always a result of monetary inflation.

With monetary deflation you have the opposite effect, in that it relates to a contraction in the money supply. If the supply of money contracts, while the supply of goods and services either remains constant, increases, or contracts at a slower rate, then that can lead to price deflation. Otherwise said, a contraction in the supply of money will in most cases cause asset prices to fall, but falling asset prices are not always the result of a monetary deflation (the oil price can rise if the supply of oil is falling at a faster rate than a money supply contraction, for instance).

What we have today is falling asset prices in, specifically, real estate and stocks, and a rise in the value of the US dollar. This has led many to wrongfully conclude that we are not only experiencing a deflation scare, but that a depression brought on by a deflationary collapse is imminent.

Gold Straddles $800
I heard Mitt Romney, former Governor of Massachusetts and Republican presidential candidate, and co-founder of Bain Capital on the radio last week discussing the financial crisis. He said the following:

"There is blame to go all around. The excesses on Wall Street, packaging together garbage and selling it as good product was an enormous mistake on the part of Wall Street. And the rating agencies that approved the stuff and gave it great ratings. It was also a mistake of the regulators in Washington to look at banks that were filling up with this kind of garbage and considering it gold."

Since all of us taxpayers here in the United States are now the proud owners of what Mr. Romney so eloquently described as "garbage," don't you think it's high time to diversify against those new holdings that have been forced upon us with what he implied was the antithesis? Gold.

Golden Opportunity
Barron's Roundtable member Mark Faber puts it more succinctly: "Gold will go up because everything else is in deep s--t."

When the Going Gets Tough…
And over at the Fed, Ben Bernanke is hoping to kick a field goal. He’s still got 150 basis points to go in this game. Then, the key Fed rate will be zero. He’ll use every one of those points, we guess. And he’ll continue lending money to whomever will take it. Want to see an ugly bank balance sheet? Just look at the Fed. The bank – a private bank, by the way – is selling off its safe U.S. government securities in order to take on board the kind of ‘assets’ that smell like a teenager’s gym locker.

Freddie Mac secretly paid a Republican consulting firm $2 million
WASHINGTON (AP) -- Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb.

Freddie Mac's payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel's bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.

...Hagel's chief of staff, Mike Buttry, said Hagel's legislation "was the last best chance to bring greater oversight and tighter regulation to Freddie and Fannie, and they used every means they could to defeat Sen. Hagel's legislation every step of the way."

"It is outrageous that a congressionally chartered government-sponsored enterprise would lobby against a member of Congress's bill that would strengthen the regulation and oversight of that institution," Buttry said in a statement. "America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie."