Monday, October 19, 2009

Where's The Gold?

Gold and Silver took the bit back with today's morning CRIMEX lows and bounced hard. With the Dollar continuing to flounder below 76, commodities bulls ran roughshod over the bears today. Oil reached up and briefly touched 80 today and emboldened the Precious Metals bulls, particularly those in the Silver arena.

The EURO hit new 52 week highs this afternoon following the close of the equities markets in New York. The Euro looks very over bought up here, and the Dollar equally oversold. Bearish Divergence in the Euro and Bullish Divergence in the Dollar look set for a battle royale this week. We maintain our cautious stance towards the Precious Metals here primarily out of respect for the seasonal averages that suggest market consolidation and/or weakness into the first week of November. Investors sit tight and enjoy the ride. Traders, if you've got brass balls and are short the metals, keep your stops tight. This is a buy the dips market, and VERY dangerous to trade as the volatility can be overwhelming.

Where's our money?

Chairman of the Federal Reserve, Ben Bernanke, is up for confirmation to his second term, but he has still refused to disclose where he sent $2 trillion in taxpayers' money. Send a message to your Senators and ask them to make Bernanke come clean before his confirmation moves forward!

How much imaginary gold has been sold?
By Adrian Douglas
The London OTC market is where most physical gold is traded. This market is a wholesale market where trades are conducted only between the bullion trading houses on behalf of their clients. About 95 percent of the trading is by way of gold that is held in unallocated bullion accounts.

The unique characteristic of gold is that about 50 percent (80,000 tonnes) of the above-ground stocks are held as a store of wealth (investment). The other 50 percent exists as jewelry. When gold is bought as a store of wealth it can perform that function for you wherever it is in the world. Given this unique characteristic many large investors in bullion prefer to leave their gold with the bullion dealer from whom they bought it so that it can be stored in their vault and easily resold. This is identical to the situation with stocks, where most stock certificates are held by brokerage houses, not by individuals.

That people are buying and selling gold without ever taking delivery means that there is the opportunity for bullion houses to sell gold that doesn't exist.

Now the bullion houses probably don't view this as illegal or dishonest because they will operate a fractional reserve type of system, just as the banks do with fiat currency, and will make sure they have enough gold on hand for what would be the maximum estimated volume of gold that could be called for delivery. After all, trading is done with unallocated gold, so how much more unallocated can it get if it doesn't exist at all?

This basic scam is at the center of modern gold market manipulation. Instead of real gold, paper substitutes for gold are sold through derivatives, futures, pooled accounts, exchange-traded funds, gold certificates, etc. I estimate that each actual physical ounce of gold has multiple ownership claims to it.

For the scam to be sustained there must always be plentiful physical gold for those who want it. The market is, in effect, a giant inverted pyramid with a huge paper gold market being supported by a small amount of physical gold at the tip of the inverted pyramid. The scam can continue until there are indications of a shortage of physical gold. If all the claimants of each ounce of real gold demand their gold, then there is the potential for a squeeze such as has never been seen before.

Is your gold really there?
By Lawrence Williams
There are plenty of theories that the gold markets also operate on a similar principle - or perhaps worse. Not only may the banks not hold the amounts of physical gold they say they do, say the doubters, having loaned much of this to third parties, but there are now analysts and observers expressing doubts over the actual title to the gold that is still seen to be in the vaults, feeling that perhaps some of it has been sold several times over. Central Banks, for example, seem to hate being questioned over gold loans preferring to duck the question and keep any such arrangements under wraps, although most will admit to gold swaps and loans being made - but little or no detail.

It may be no coincidence that the recent surge in the gold price which burst it through the $1,000 barrier followed shortly after Hong Kong demanded repatriation of its gold held in London banks and reports suggest that Germany is also looking for its foreign-held physical gold to be returned from overseas repositories. Has this created shortages of physical gold which holders are now trying to cover?

The Gold Basis Is Dead – Long Live The Gold Basis!
By Antal E. Fekete
There seems to be circumstantial evidence that this month the gold exchanges are unable to honor their expiring contracts for which delivery notices have been issued in September. It has occurred in spite of a robust, even increasing, contango. Furthermore, circumstantial evidence exists that counterparties to these expiring contracts for future delivery — bullion banks, to be precise, the name of J.P.Morgan and Deutsche Bank being prominently mentioned — have offered bribe money up to 125 percent of the quoted spot price to holders of long contracts if they would take settlement in paper, on condition that the embarrassing affair will be kept secret. If true, these maneuvers are motivated by the desire to conceal the real gold basis, and to deny that gold is in or approaching backwardation. If the truth were widely known, then there would be a run on the bullion banks. The “let’s get physical” movement would trigger a chain-reaction culminating in all offers to sell physical gold being permanently withdrawn around the globe. “Gold would not be for sale at any price”, whether quoted in US or in Zimbabwe dollars — or, for that matter, in any irredeemable currency — the only kind of money people are allowed to have nowadays. The curtain would fall on the “Last Contango in Washington”. The day of permanent gold backwardation would dawn. The chapter on a reactionary episode of history, irredeemable currency, allowing the Treasury and its central bank to create unlimited liabilities out of nothing which they have neither the means nor the intention to honor, but could use them for check-kiting purposes to mesmerize gullible people around the world, would be closed and become but a bad memory.

We must guard ourselves against falling victim to the rumor-mills, while keeping our eyes peeled for the very real possibility that the growing shortage of physical gold can no longer be papered over with paper gold (pun intended). Another story is about GLD, a leading gold ETF, which publishes its bar-list every Friday at the close of business, reporting the serial number of every bar in inventory. The list is customarily well over a thousand pages long. But, lo and behold, on Friday, October 2, and on Friday, October 9, the bar-list shrank to a mere couple hundred pages, with no explanation offered. Could it be that the management of GLD has taken a bribe, and replaced physical gold in inventory by paper gold, in order to save the face and skin of the bullion banks that have gone naked short and subsequently got cornered?

Reports are circulating that similar audits of certain Asian depositories have already produced “good” delivery bars (400 oz or 12.5 kg gold bricks) that have been gutted and stuffed with tungsten — a metal whose specific weight approximates that of gold, so that the famous test of Archimedes (fl. 287-212 B.C.) based on the Law of Buoyancy, designed to expose fraudulent goldsmiths, would be inapplicable.

In 1933 F.D. Roosevelt did not stop at the mere confiscation of the constitutionally mandated gold coins of the realm. He sent them to the refinery in order to melt them down. He wanted to expunge the evidence from history that this great republic once had the largest pool of circulating gold coins anywhere, ever. Roosevelt betrayed his oath that he would uphold the U.S. Constitution and went ahead to rob the citizenry by calling in the gold replacing it with Federal Reserve notes, the value of which he promptly cried down by 56 percent, under the disguise of monetary reform. The melted gold was given the shape of gold bars and was stored in Fort Knox, West Point, and other depositories.

Careful as though Roosevelt was to cover his trail in getting away with the loot, he has made one major blunder. He failed to make the looted gold fungible. The coins were not made of pure gold: they were an alloy 22 carat in fineness. The reason was to make them stand up to wear and tear better in circulation. All countries striking coins for general circulation employed an alloy. Roosevelt thought that he could save the cost of refining the melted gold to the international standard of 995 fine (24 carat) so the gold bars in Fort Knox are only 22 carat fine. In consequence these gold bars are not fungible. They are easily identifiable as contraband, the proceeds of the Great Gold Heist of 1933. The shear quantity of this looted gold makes it impossible to refine it at this late hour. The U.S. gold stinks, and will keep on stinking.

The memory of the Crime of 1933 comes back to haunt the government that committed it. For 75 years nobody suspected that one day these gold bars may be needed to pacify the market. Everybody thought that they could rest in peace in the depositories till doomsday. But then, as the proverb says, ill-gotten goods seldom prosper. The Great Financial Crisis of 2007 struck and the dollar got into hot water. The U.S. Treasury ran out of fungible gold and had to dip into its hoard of looted gold. It is too late now; the bad odor cannot be expurgated from the U.S. gold hoard. Should this gold ever show up at an audit, or as bribe money, it will immediately be recognized. Everybody will see that it originated from the Great Gold Heist of Roosevelt and that the shame of the U.S. government is attached to it. Worst of all, it will also reveal that the U.S. has fallen upon hard times. The looted gold was released in desperation, in trying to stem the tide of burgeoning gold backwardation.

The result is that every time 22 carat gold pops up anywhere in the world, for example, as an offer to pacify angry possessors of expired gold futures contracts, it will be new evidence of the fact that Uncle Sam is cornered and tries to bribe his way out of the corner with looted gold. If Uncle Sam is trying to pay the blackmail on behalf of his cohorts the bullion banks, in offering 22 carat gold in settlement of contracts calling for 24 carat fineness, then the world will immediately know what’s up, even if the substandard gold is offered through intermediaries. Everybody will know that Uncle Sam is trying to cover up, or fend off, backwardation to prevent the gold basis from going permanently negative. The telltale sign will haunt him and make the gold crisis worse, not better. Most of the possessors of expired gold futures contracts will refuse to take substandard gold for settlement, but neither will they keep Uncle Sam’s secret. Apparently there are already two known instances where the looted gold turned up. Central banks, in coming to the rescue of their agent bullion banks that were caught red-handed in being naked short in gold, offered 22-carat gold to bail out their agents. This fact in itself makes the quantity of gold available for resolving the gold crisis smaller. Permanent backwardation in gold, the Nemesis of irredeemable currency, cannot be postponed much longer.

Gold bears gathering, but gold bulls defiant
By Peter Brimelow
Last week saw the highest U.S.-dollar gold price ever, just over $1,070, and the highest London P.M. fix ($1,059.50). Yet by the end of the week gold was $13.50 off its peak, less than $3 up on the week. Many voices were to be heard predicting an important -- possibly short-term -- decline.

The bears cite a variety of technical indicators. The bulls deploy sweeping fundamental arguments, often very impressively. ( See Oct. 8 column.)

The trouble with these, of course, is that you can famously drown in a 6-inch deep river -- in other words, it there a pothole straight ahead? But to this crucial challenge, the Bulls do have responses.

A powerful edition of the Australian gold letter The Privateer asserts: "We have what economists love to call a 'paradigm shift' in the US$ gold price. ... There is a HUGE difference between a three-figure U.S. gold price and a four-figure one. Now that gold looks to have consolidated ABOVE the US$1,000 level, the future of the U.S. dollar has become the number one item of global financial and economic analysis."

"When the price of something changes from $xxx to $xxxx -- from US$999 to US$1,000 in the case of gold -- holders of that investment AND people who are contemplating buying start looking ahead to HIGHER prices rather than LOWER ones."

This is not what the gold bears want to hear.

Is This the Final Blast-Off?
By David Morgan
One of the questions we are getting quite frequently is . . .

If the recession is over officially, doesn’t that, along with the thousand-dollar gold mark, trigger inflation and suggest getting in now potentially (if you’ve been sitting on the fence about gold)?

Investors are always looking for certain signs or indicators to help with their decision-making process. This is especially true in the technical community, and more people are in the technical community today than probably ever before. That is because you have trade stations and all these software programs that anyone can buy and basically run the numbers and come up with a conclusion that gold is break­ing out. However, there are no guarantees on this; it’s only a probability.

Deflation concerns still enter into my thinking. Looking at it as I do from a perspective of the real world, things are not really picking up. Not that there isn’t some of that going on, but it certainly isn’t widespread, and this breakout that we had is not very strong.

The easiest thing to say with conviction is, if you’re not in this market you absolutely need to buy physical gold and silver here. Whether it stays above a thousand or drops below is a moot point. When gold goes to 2,000 or 3,000 or more, if you bought it as it broke through 1,000 and then went back under 1,000 for a while, it might make you sad for a day, a week, maybe a month . . . but it’s going much higher in the longer term. So that’s one thing to keep in mind.

Technically, both gold and silver are overbought. The markets can stay overbought for a very long time and continue to move up and up and up in price, being over­bought the whole time. So that doesn’t concern me, as far as will it go higher or not, at this point (October 7, 2009). I do want to advise our readers that, if they’re mak­ing a decision on what to do now, be cautious. I’m very, very skeptical of what could happen in the October/November timeframe, so look out ahead.

You want to sell in the strength. Very few people seem to learn that, because there’s a philosophical adherence to gold as money and silver as money, and I hold those views myself. However, I also hold the view that if you can take a profit on part of your position—which is what we do—you might as well take it, because it’s available to you.

The idea is to stay fully invested with roughly 75 percent of your funds, and to trade with about 25 percent. That is a good approach, because if the market just takes off and blasts upward from here, you still have the lion’s share of your investment and have left only 25 percent behind. Shorter-term trading with the 25 percent can make you feel good.

Markets do move quite a bit and they are quite volatile, so when you do catch a nice move in one direction or the other, both can help you weather these long consolida­tion periods. That’s exactly what we did the last time we got a huge move up in the gold and silver price—when gold got up to the $1,000 level or actually beyond it and silver at that time was at $21.00.

I would be much more comfortable saying this is the final blast-off if silver were hitting $21.00 right now as gold is trading over $1,000—that would be confirmation in my book, and I’d be very, very bullish. Unfortunately, silver isn’t leading the charge at this time and that is acceptable. It’s certainly shown some good strength this whole year, but not quite the amount of strength I would expect if we were to see all this inflation pouring into the financial markets. Again, I still suspect that there’s probably some more recessionary, deflationary, depression type of news coming.


  1. According to my knowledge fluctuations are happened in any fields. so the same thing is happen to the GOLD also.

    Thanks for the great reading, we buy gold bullion in a recession. I will

    pass this on to our ira clients to read

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