Tuesday, November 17, 2009

Are the CRIMEX Rat Bastids Cornered?

With the Dollar teetering on the 75 handle of the US Dollar index, Gold today thumbed it's nose at yet more gum flapping by US Fed and/or US Treasury officials attempting to talk the US Dollar off the ledge. With the Dollar poised to jump to depths unknown, several government stooges have futilely tried to convince anybody that will listen of the necessity of a "strong dollar". Actions speak louder than words, and all these financial saviours have to offer is hot air.

Last Wednesday, Little Timmy Geithner got the "strong dollar" chat started while speaking with a group of "reporters" in Tokyo, "I believe deeply that it's very important to the United States, to the economic health of the United States, that we maintain a strong dollar."

"We bear a special responsibility for trying to make sure that we are implementing policies in the United States that will sustain confidence ... in investors around the world that as growth recovers and growth strengthens that we're going to bring our fiscal position back to a sustainable balance," he said

Implementing policies that will "sustain confidence"...

The Dollar rallied on Geithner's vote of confidence, and then resumed it's descent.

On Monday, in remarks to the Economic Club of New York, Bumbling Ben Bernanke tried to bolster confidence in the dollar without taking any real action.

"We are attentive to the implications of changes in the value of the dollar," Bernanke said in rare remarks about the greenback. The Fed, he said, will continue to "monitor these developments closely."

"...tried to bolster confidence..."

"Bernanke is trying to use words — not interest rates — to prevent the dollar from going even lower," said Jay Bryson, global economist with Wells Fargo Securities.

The Dollar rallied on Bernanke's vote of confidence, and then quickly resumed it's descent.

Today, Tuesday, Jeffrey Lacker, the president of the Richmond Federal Reserve Bank and an outspoken anti-inflation hawk, said that the U.S. central bank must remain vigilant about keeping inflation in check and not let patchy economic weakness deter it from beginning to withdraw extraordinary levels of support.

Also today, San Francisco Fed chief Janet Yellen told a panel in Hong Kong that the Fed knows it cannot maintain its easy money policy for too long once the economy has healed.

"We all understand very well that we cannot have an accommodative policy for too long. That once these conditions no longer prevail, it is a core responsibility of the Federal Reserve to preserve price stability," she said.

With the implied "threat" that interest rates could rise sooner, rather than later, the Dollar rallied, and then quickly resumed it's descent.

The Dollar bears know that it is "politically" unacceptable to raise interest rates because of the negative effect it would have on the "recovery". The Fed instead promises to "take away the punch bowl" if and when economic growth is strong enough and well established to accept rising interest rates. Of course they have no idea when or if that will happen anytime soon. They just hope it will eventually. In the mean time, the Dollar will continue to drift lower, Gold will continue to drift higher, and the hot air will continue to spill forth from the mouths of hopeful government officials.

Gold bulls are gaining confidence now as they realize the Fed has painted themselves into a corner and have been reduced to trying to talk their way out of it. "Buying a recovery" can only result in inflation no matter what the Fed would have you believe. The Gold bulls read the writing on the wall and have stepped forward to apply maximum pressure to the CRIMEX goons who insist on throwing evermore naked short postions at the market. The Mother of All Short Squeezes is about to make global headlines.

Silver moved another step closer to confirming the breakout witnessed yesterday at 17.75. Two dips to 18.06 have been met with strong buying. Another close above 18.06 tomorrow confirms the breakout and projects a move to 19.80.

Volatility may increase for the balance of the week as we move towards expiration of the December Gold futures contract next Monday, the 23rd. The goons are getting desperate with Gold having cleared the $1100 strike price where 100,000 contracts sit representing 10 million ounces of Gold. As of yesterday the CRIMEX warehouses only held 9.5 million ounces of Gold. Things could get ugly real quick for the goons if Gold continues higher the balance of this week.

Casey Research's Ed Steer notes:
From the beginning of 1985... and until the end of 2003... the silver price was virtually ruler-flat. It didn't make any difference what supply/demand was... or inventory levels... or economic conditions... silver never strayed much more than 50 cents either side of this line for 18 straight years!. I defy anyone to find a commodity chart [any commodity chart] that bears even a passing resemblance to this graph... and between those years mentioned. Not even gold's long-term graph looks like this. This is a graph of a price in virtual lock-down.

And this is the exact reason why the silver market is about to blow sky high. The supply/demand fundamentals have grown so far out of whack in the last couple of generations, that virtually every last bar of good delivery silver left out there, is almost worth its weight in gold.

Even with JPMorgan short 40% of the Comex silver market, they still can't keep the price down. One can only imagine where the price would be if JPMorgan et al were forced to cover... or if [by government magic] these short position in silver [and gold] could be made to disappear overnight by closing the Comex markets in both metals. That latter possibility exists if the 'powers that be' decide that the corner they are painted into can only be resolved in this manner.

Strong Dollar Policy: What??
By: Axel G. Merk, Merk Investments
The Fed has been buying hundreds of billions worth of government bonds and mortgage-backed securities (MBS) by printing dollars – not currency in circulation, but virtual dollars by entering a few keystrokes on the Fed’s computers; in Fed talk, we talk about an expanded Fed balance sheet, as the size of the Fed’s balance sheet represent the dollars that have been “printed”. Generally speaking, when you increase the supply of something – be that gadgets or dollars – the value of any one gadget – or dollar – should fall assuming constant demand. Our interpretation – Fed actions do not support a strong dollar.

The Fed’s action to weaken the dollar goes beyond printing money. By printing money to buy MBS and government bonds, interest rates may be low, but these securities are now intentionally overvalued; rational investors – not just foreigners, but also domestic investors – may be inclined to take their money overseas in search of less manipulated returns. Our interpretation – Fed actions do not support strong dollar.

Talking about low interest rates: a policy to keep short-term rates near zero is, in our humble opinion, not action that supports a strong dollar. A strong dollar policy would, in our view, include higher interest rates.

U.S. Dollar Has A Long Way To Fall
Michael Berry
Raising interest rates in the U.S. would be extremely painful and would derail the recovery. The U.S. needs at least 5% growth in GDP to support its huge and increasing debt load. Raising U.S. rates to defend the dollar is political nonstarter.

There is a growing global fear that the U.S. greenback is beginning a longer and inexorable slide and that the reserve position of the U.S. currency will come under pressure. There is no replacement for that dollar reserve role today, and there may not be for a long time.

The U.S. needs inflation more than any country in the world. Bergsten recently said that given current relentless spending plans in Washington by 2030 the CBO projects the net debt will rise to $50 trillion and servicing that debt will require $2.5 trillion each year. At some point this service is unsustainable. The dollar will fall, long rates must rise to attract new capital, and inflation will reassert itself.

Why does the Fed want inflation? It is very simple: If you carry a lot of debt, inflation is your friend. The dollar will not be.

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