Thursday, February 25, 2010

Has The Fuse Been Lit?

You have to be really impressed by gold’s performance today. It had three, no, make that four, strikes against it. First, the equity markets dropped sharply. Second, bonds ran strongly higher in a flight to safety. Thirdly, the Dollar was marginally higher. Fourthly, crude oil dropped nearly $3.00 barrel while copper was hit hard. In other words, all of the usual deflation trades were back on today with investors/traders moving towards the risk aversion plays. Yet, gold refused to break down and around mid morning began climbing back into positive territory. At the same time, the mining shares also moved well of their lows helping to further confirm the strength at the Comex. As the session wore on, gold gained more upside momentum closing the pit session trade just off its best level of the day.
-By: Dan Norcini,

Very impressive. Gold burst though the downtrend line off the recent 1130 high in Gold. It was really quite surprising considering the headwinds Gold faced as the CRIMEX opened this morning. Dan did not even mention that the Greek debt crisis mushroomed further as

Moody’s Investors Service said today it may lower Greece’s A2 grade within months, making government bonds ineligible as collateral for loans under ECB rule changes planned later this year. The nation’s ability to repay investors more than 16 billion euros ($22 billion) due in April and May is also in doubt after Standard & Poor’s said yesterday it may lower its BBB+ rating by the end of March.

Gold had it's back squarely against the wall this morning. And let's not forget the Gold Cartel's marching orders to keep Gold in check with Bumbling Ben up on Capitol Hill this morning, and yet another bond auction on tap.

At 9:30 AM est the equity markets opened down and fell furiously on the yet again "unexpected" rise in first time jobless claims. Instead of withering with the equities markets as has been the case recently, Gold caught a firm bid at 1089 and the rise was on. Then, right around midday Gold broke the critical $1100 area, helped by dollar weakness and an unconfirmed rumor that China would buy the remaining 191.3 tons of gold from the IMF. Despite multiple reports that have said China was uninterested in buying more gold after increasing its reserves to 1.5% or 1,054 tons, FinMarket news agency of Russia reported that China will buy the remaining tons.

China To Purchase Half of IMF's Gold
China has confirmed the intention to purchase 191.3 tons of gold from the International Monetary Fund at an open auction, Finmarket news agency said.

“Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market. China is interested in the development of the domestic consumer market,” the agency reports.

By Andy Hoffman
Today’s announcement by the Chinese government that they plan to buy the remaining 191 tonnes of IMF gold (if it even exists) is possibly the most important event in the ten-year gold bull market, and perhaps could turn out to be the inflection point from when the public believes the propaganda about gold and starts to disbelieve, yielding the commencement of the latter stages of the PM bull and the early stages of American economic, political, and social chaos.

China is the only entity on earth with the financial backing to take on the U.S.-government led gold Cartel, with the ability at literally any moment to take them out and cause the price to soar to unimaginable levels. Until now, they have been very coy about their statements about gold, as given their huge hoard of roughly $2.5 trillion dollars (largely held in U.S. Treasuries), they are very concerned about a dollar (and frankly all fiat currency) crash. In fact, they were complicit in creating the dollar bubble by pegging the yuan to the dollar and thus creating massive, artificial U.S. consumer demand for Chinese products via the creation of massive U.S.-based debts to purchase Chinese manufactured goods. Thus, no one is more aware of the precarious state of their dollar holdings, and what is likely to occur to them in the coming years.

It remains to be seen if the short fuse in Gold was lit today by this "news", but Gold certainly displayed a hint of it's historical role as a safe-haven this morning as it reacted to yet more "unexpected" poor economic news and the equity markets negative reaction to it.

The developing top in the US Dollar became even more obvious today as the Dollar drifted lower from it's overnight highs again. Internals in the Dollar Index suggest the Dollar is rolling over here, despite it's recent strength based solely on the Euro's recent weakness, and NOT on any strengthening in the Dollars fundamentals. The Dollar may be the least ugly duckling, but it looks as though it's wings have been clipped.

It is also worth considering that Euro shorts began to cover their positions because of today's ratings agency announcements regarding Greek debt. The rumour that Greek debt would be downgraded has driven the Euro lower over the past few weeks. Sell the rumour, buy the news? Note that the short position in the Euro is at all-time highs. Is the pendulum about to swing now towards the US Dollar, and it's own underlying debt issues?

The Trust Fund Con
By David Walker
02/22/10 New York, New York – Social Security is in trouble. According to the Social Security Trustees Report, the Social Security program was in a $7.7 trillion hole as of January 1, 2009. That means Washington would have needed $7.7 trillion on that date, invested at prevailing rates, to deliver for the next seventy-five-years on the promises that the federal government has made. But we actually need much more than that to keep Social Security healthy, because it will experience larger and larger deficits both in the near future and beyond the seventy-five-year accounting horizon. As of January 1, 2009, that number – the amount we would need to invest to ensure the sustainability of the program for seventy-five years and beyond – was $15.1 trillion. How much of this huge sum do we have invested in real liquid and transferable assets today – that is, how much in actual money? Zero, zip, cero, nada, nothing!

The truth is that the government’s Social Security guarantee is one huge unfunded promise. How can this be? I have mentioned the Social Security “trust funds,” where our payroll taxes go. All this money is transmitted to the federal government and credited to the Social Security trust funds. You would logically assume that these funds would have hard assets that have been saved and invested to cover the program’s future costs. However, rather than saving the money and investing it in a diversified pool of real and readily marketable assets, the government spends it and provides “special-issue” government securities in return.

Just consider what actually goes into those funds. First there are the numbers reported in government financial statements. According to those numbers, Washington had issued approximately $2.4 trillion in special-issue US government securities that had been credited to the Social Security trust fund as of January 1, 2009. The computer records documenting these securities are held in a locked file cabinet in West Virginia. But there is a reason they are called special-issue securities, and it’s not good. Unlike regular government bonds, which people like us and the Chinese government can buy, these special-issue bonds cannot be sold; in other words, they are government IOUs that the government has issued to itself, to be paid back later – with interest. Imagine if you or I could sit around writing IOUs to ourselves that were worth something. Great way to make a living.

"If the U.S. government has a budget of $3.8 trillion and supposedly governs a $10 trillion economy, yet five commercial banks control $198 trillion of derivatives, who do you think really runs the country?"
-Adrian Douglas

Silver Versus Gold [informative reading]
By Adam
Silver is more volatile than Gold and riskier. It also provides a more substantial upside potential. Classic case of increasing risk to potentially increase reward. Silver can sometimes lag Gold substantially for decent periods of time and then rapidly play catch up.

Those who claim that silver lagging Gold means the move in Gold is fake-out I think are wrong. I would like to show them exactly how wrong they may be.

Beginner's Trading Terminology Webinar

Wednesday, February 24, 2010

The Joke's On Us

The US Dollar is a joke.

Ben Bernake is a joke.

Barney Frank is a joke.

The US Bond Market is a joke.

Tim Geithner is a joke.

The President of the United States is a joke.

Maxine Waters is an embarrassment to the ENTIRE US House of Representatives...Her questioning of Bumbling Ben today was an ABSOLUTE JOKE.

CNBC is a joke.

Goldman Sachs is a joke.

JP Morgan is a bigger joke.

Fannie Mae and Freddie Mac are a joke.

The CFTC is a joke.


...and the joke's on us.

What should we do? Hang on to our Gold and Silver, and laugh all the way past the bank.

CFTC to examine trading in metals markets
WASHINGTON -- The U.S. Commodity Futures Trading Commission said on Tuesday it will hold a public meeting on March 25 to examine whether position limits are needed for gold, silver, and copper futures markets.

The CFTC, the top regulator for futures markets, has long enforced position limits for grains trading, and is now mulling similar restrictions on the number of contracts speculators can hold for other markets.

The March 25 meeting will look at "the application of speculative position limits to address the burdens of excessive speculation in the precious and base metals markets; how such limits should be structured; how such limits should be set; the aggregation of positions across different markets; and the types of exemptions, if any, that should be permitted," the CFTC said in its official notice.

The meeting will hear from experts from all segments of the markets, the CFTC said. The names will be announced later. The CFTC will also accept public comments until April 30.

CFTC Admits to Suppressing Information that Would Expose Market Manipulators
By Adrian Douglas
Recently while reviewing the Bank Participation Reports (BPR) released each month by the CFTC I noticed that, since November 2009, in silver and in some other commodities the CFTC has stopped listing the number of banks that hold positions.

GATA sent an inquiry to the CFTC as to why this data was now omitted. The following response was received dated February 19, 2010.

"Beginning with the December 2009 BPR, the CFTC began suppressing the trader count in some markets. The change became effective with the Dec 2009 BPR because it was the next available report to be published following the Commission’s November 2009 decision to implement the change. The decision to suppress the trader counts was made as part of an ongoing review of the methodology of the BPR. As part of that review, the Commission determined that where the number of banks in each reporting category is particularly small, fewer than four banks, there exists the potential to extrapolate both the identity of individual banks and the bank’s positions. Under section 8(a) of the Commodity Exchange Act, the Commission, among other things, is generally prohibited from publishing data and information that would separately disclose the business transactions or market positions of any person/entity. Accordingly, in order to protect the confidentiality of market participants’ positions, the Commission determined to suppress the individual category breakdown when that number is less than four."

In March 2009 I wrote an article entitled “Pirates of the COMEX”. In this article I showed how the two largest short positions on the COMEX, which reached an outrageously manipulative extreme of 100% of the Commercial net short position must be held by JPMorgan Chase and HSBC by comparing data from the CFTC with the Bank Derivatives report of the Office of the Comptroller of the Currency (OCC). This article was sent to the CFTC.

The CFTC has been posting the monthly BPR for over 10 years. Under a strict interpretation of the law that prohibits the CFTC from “publishing data and information that would separately disclose the business transactions or market positions of any person/entity” giving the number of contracts held long and short and the number of banks holding the positions does not “separately disclose the business transactions or market positions of any person/entity”. The CFTC claims that the identity of traders and their holding could be “extrapolated”. If “extrapolation” is required then the CFTC has not “disclosed” the information. Extrapolation is, at best, an inference not a disclosure.

The new reporting protocol of the CFTC concerning the BPR is stated on their website as “The BPR includes data for every market where five or more banks hold reportable positions”.

If one looks at the latest
COT report there are plenty of examples of categories where there are only 4 traders holding positions. For example in Random Length Lumber 4 traders hold all the long positions in the swap trader category, and in Platinum 4 traders hold all the spread positions in the managed money category.

So not only has the CFTC gone out of its way to interpret “extrapolation” of data to infer traders’ positions and identities as equivalent to actual “disclosure” but they have not afforded this same level of anonymity to any other trader by eliminating the trader count if it is less than five.

What has made it possible to “extrapolate” and infer that the two biggest shorts of gold and silver on the COMEX are JPMorgan Chase and HSBC is their outrageously manipulative positions in the largely unregulated OTC derivatives market where they are not afforded anonymity because they must report their positions to the OCC who publishes their holdings and names. In the latest report HSBC and JPMorgan hold over 95% of the gold and precious metals derivatives of all US banks with a combined notional value of 109B$.

The latest report of the
OCC's Quarterly Report on Bank Derivatives Activities shows that the total notional value of all types of derivatives held by all US banks is 204 Trillion dollars. They show that just five US banks own 97% of them. They are JPMorgan Chase, Goldman Sachs, Bank of America, Citi, and Wells Fargo with HSBC in 6th place.

If the US government has a budget of 3.8T$ and supposedly governs a 10T$ economy yet five commercial banks control 198 T$ of derivatives who do you think really runs the country?

Good question...

On Monday February 21, 2010:

Demand soft at US 30-yr inflation-linked bond sale
NEW YORK, Feb 22 (Reuters) - The U.S. government's $8 billion auction of 30-year inflation-protected bonds produced mixed results on Monday, which may cast a cloud over the rest of this week's record $126 billion worth of debt offerings.

On Tuesday February 22, 2010:

Strong demand snaps up $44 bln in 2-yr US Treasuries
NEW YORK, Feb 23 (Reuters) - The U.S. government sold $44 billion worth of two-year debt on Tuesday in a well-bid auction that might signal strong demand for the rest of this week's record slate of bond offerings.

On Wednesday February 23, 2010

Soft demand greets $42 bln in 5-yr US Treasuries
NEW YORK, Feb 24 (Reuters) - The U.S. government sold $42 billion worth of five-year debt on Wednesday in a poorly bid auction that showed market fatigue with this week's record slate of bond sales.

Obviously, the further you go out on the US Treasury limb, the faster investors begin to run the other way. The US financial media may try to "spin" the fact, but demand for US Treasury debt IS waning.

Not enough can be said about the TRUE threat the growing US Government debt mountain is to the future of the country.

Falling Debt Dynamite Dominoes, The Coming Financial Catastrophe
By: Andrew_G_Marshall
Understanding the Nature of the Global Economic Crisis - The people have been lulled into a false sense of safety under the rouse of a perceived “economic recovery.” Unfortunately, what the majority of people think does not make it so, especially when the people making the key decisions think and act to the contrary. The sovereign debt crises that have been unfolding in the past couple years and more recently in Greece, are canaries in the coal mine for the rest of Western “civilization.” The crisis threatens to spread to Spain, Portugal and Ireland; like dominoes, one country after another will collapse into a debt and currency crisis, all the way to America.

In October 2008, the mainstream media and politicians of the Western world were warning of an impending depression if actions were not taken to quickly prevent this. The problem was that this crisis had been a long-time coming, and what’s worse, is that the actions governments took did not address any of the core, systemic issues and problems with the global economy; they merely set out to save the banking industry from collapse. To do this, governments around the world implemented massive “stimulus” and “bailout” packages, plunging their countries deeper into debt to save the banks from themselves, while charging it to people of the world.

Then an uproar of stock market speculation followed, as money was pumped into the stocks, but not the real economy. This recovery has been nothing but a complete and utter illusion, and within the next two years, the illusion will likely come to a complete collapse.

You can deal with debt three ways. Either you pay it back, you default or, if you're a government, you can inflate it away.

Over-Arching Sovereign Debt Crisis
By: Jim Willie CB,
Neither the US financial press nor the US bank leaders take the sovereign debt crisis seriously. Even the USCongress seems totally unaware of the growing global intolerance for government debt out of control. The issue is rollover of short-term debt, size of the overall debt burden, borrowing costs to sustain the debt, annual deficits that accumulate further debt, and size of debt versus economic size. The United States projects a certain degree of arrogance that foreigner must continue to finance the USGovt debt at a time when the evidence gathers on loud suspicious activity in the USTreasury auctions. The US travels down a road to debt default also, as the mask of corrupt USTBond management is removed. The plight of Europe will strike the United States and United Kingdom, as contagion is ripe. The claim of containment incites laughter. The Euro currency has finally begun to stabilize, which will make all the more apparent a global bull market in the Gold price. The Gold price in almost every major currency is rising. In the US$ it will be last.

Analysts have noticed the drop-off in Indirect Bids, which means central banks participate less. Analysts have noticed the lack of identification of Direct Bids, which means the USGovt is lying through their teeth as they monetize the debt. Analysts have noticed the new ledger item called Household as bidder, which reeks of accounting fraud in creation of a catch-all category. The USFed and USDept Treasury can no longer hide their enormous monetization of USGovt debt. Some reports mention that bond professionals are extremely anxious about the results of recent USTreasury auction. A huge jump in the Direct bidders took 24% of the auction supply. The apparent lack of transparency behind this group has increased speculation that the USFed could be directly buying its own auctions, so as to prevent both an auction failure and a sudden rise in yields. Safe haven, my foot!

Indirect bidders is widely viewed as the most important category. It defines the success or failure of the auction, since foreign central banks are entered from this category. A 30-year bond auction came in with a pathetic 28% bid as Indirect, far below the 36 to 40% levels seen across year 2009. This is worth watching for establishment of trend before billboard alarms (AMBER ALERT) are made. The Direct bid ratio (in yellow) looks fishy. The USFed & USDept Treasury would use this category to attempt to hide the elephant in the living room, calling it an extra oversized sofa. Failure to identify these mythical bidders will fuel speculation of devious concealment of monetization, far greater than the official Quantitative Easing programs that are heralded as coming to an end in mid-March. The ugliest deception is the usage of the Household category to pretend that Fannie Mae and its fat gang of sewage treatment managers are actually buying USTreasurys. Press networks are oblivious to the con game. See past Hat Trick Letter member reports for details, fully cited and analyzed.

A napkin argument is relevant here. The foreign accumulation of new USTreasury debt is tiny compared to what USTBond debt is issued and auctioned. Nobody seems to be capable of primary school mathematics, once graduation to Wall Street and USGovt service is achieved. If new debt is five times what foreigners are buying, then after factoring the domestic bond fund absence like PIMCO (they hate bonds nowadays), one can quickly conclude that the USFed/Treasury tarnished tagteam are monetizing 60% to 80% of all new debt issuance. Isolation is here, but must be more fully recognized.

Panic at the Fed or Back to Normalcy?
by F. William Engdahl
The decision of the US Federal Reserve to raise its key interest rate was definitely not a sign of confidence in the US economic recovery or a signal that Fed policy is slowly returning to normal as claimed. It was rather a signal of panic over the weakness in US Government bond markets, the heart of the dollar financial system.

Financial markets have reacted with jubilation, by buying dollars and selling Euros, at the decision by the Fed to raise rates for the first time since 2006 for its so-called Discount Rate, going from 0.5% to 0.75%. The Discount Rate is the interest rate charged for banks to borrow from the central bank. At the same time the Fed left its more important short-term Fed Funds rate unchanged and historically low -- between 0.0% and 0.25%. In its official statement the Board of Governors said the rate move was intended to push private banks back into the private inter-bank borrowing market and away from reliance on Federal Reserve subsidized money which had been provided since the financial crisis began in August 2007.

The decision, in plain words, was framed so as to give the impression of a ‘return to business as usual.’ At the same time, financial players like George Soros continue to speak openly about the fundamental weakness of the Euro. This has the effect of taking speculative pressure away from fundamentally worse economic and financial fundamentals within the dollar zone at the expense of the Euro. The reality is that the dollar world is anything but returning to ‘normal.’

The Sovereign Debt Disaster
By Egon von Greyerz
It took almost 200 years for US Federal debt to reach $1 trillion, which it did in 1981. In 2009 the debt increased by $1.9 trillion in just that year to $12.4 trillion. In the next ten years the US debt is forecast to reach $25 trillion. And this doubling of the debt does not include any funds to continue propping up a bankrupt financial system. The forecast also assumes optimistic growth in GDP, which is extremely unlikely. Currently, US Federal debt is six times what it collects in tax revenue every year. With debt exploding and tax revenues collapsing, there is no chance that the debt can ever be repaid with normal money. Also, with debt out of control, interest rates will rise substantially to 10-20% per annum. Applying a 15% interest rate to a $25 trillion debt would give an annual interest bill of $3.75 trillion, which is the same size as this year’s ENTIRE budget.

New home sales hit record low in January
WASHINGTON (AP) -- Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.

The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who had expected sales would rise about 5 percent over December's pace.

What continues to amuse me to no that every day the economic news is reported as bad, the media reports it as an "unexpected drop" or a "surprise drop". "Economists expected..." LOOOOOL, economists are as lame as weathermen... Did any of these "economists" see this catastrophe coming in the first place? A small few did, and they were all laughed at. As long as "hope remains"...there will be no bottom. The bottom comes when ALL hope is lost.

What also continues to amuse me is Bumbling Ben's continued insistance that "the Fed will keep interest rates low for an extended period". Why do I get the feeling that the bond "market" is going to soon make a liar out of the hopeful Fed Chairman, and raise interest rates for him...

A final note this evening:

The CRIMEX Silver goons may soon be facing a serious conundrum. The dealer inventory at the CRIMEX is now at at record low 46.38 million oz. This is the amount of Silver at the CRIMEX available to meet the delivery demands of futures contract holders. Approximately 9000 contracts of Silver standing for delivery on first notice day tomorrow would eliminate this entire inventory. Can you say default?

Going into the first notice day of the March contract tomorrow there are 22,545 contracts outstanding in MAR silver. If that level persists and asks for delivery the cartel is in serious trouble. VERY serious trouble...

Tuesday, February 23, 2010

Nothing Shocking...

"So it shall be written, so it shall be done," said Pharaoh.

And so it was on the CRIMEX this morning, as right on cue, the criminals of the futures market underworld went to work today smothering the Gold and Silver price as options expiration loomed. The US Dollar catches another misguided bid on the eve of a $44 BILLION 2-year Treasury note auction. And the equities markets retreated in fear after the less than stellar Consumer Confidence report was released this morning.

The Asians must be ignorant. They were buying Gold and Silver all night. Of course a stop was put to that as soon as the London Markets opened. Isn't it odd that the two "biggest losers" in the sovereign debt arena, Europe and the USA, are the two largest facilitators of Gold price suppression?

If you ever needed proof that the US financial markets are rigged, it's staring you in the face today. The Fed/Treasury will stop at nothing short of throwing their mommas under the bus to heard unsuspecting investors into the bond market. All so they can aid the US Government in kicking the can a little further down the road, delaying the Day Of Reckoning, whilst blowing more smoke up our collective asses.

Today's gargantuan 2-year Treasury auction closes at 1PM. Will another "soft" auction trigger a route of the CRIMEX criminals just as they prepare to pop the cork on another successful mission of deceit?

Consumer Confidence in U.S. Falls More Than Forecast
Feb. 23 (Bloomberg) -- Confidence among U.S. consumers fell more than anticipated in February to the lowest level since April 2009 as the outlook for jobs diminished, a sign spending may be slow to gain traction as the economy recovers.

Stocks extended losses and Treasuries gained after the report indicated a lack of job growth and impaired household finances threaten to restrain consumer spending. Without sustained growth in the biggest part of the economy, the expansion may be slow to gain momentum.

The economy “may not be out of the woods,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. Most of the deterioration “is labor market related. Consumer spending is going to disappoint throughout most of the year,” he said.

Nothing shocking about this revelation, unless you've lived with your head in the sand the past six months. Bumbling Ben Bernanke continues to run around Capitol Hill and tell anybody who listens that "when the recovery strengthens"... Ben, what recovery? This nation's economy is 70% consumer based, and the bulk of that the result of revolving credit. Tough to consider a recovery without the consumer Ben.

Be careful what you wish for Benny, a recovery, any real recovery, will be shot down by rising interest rates. You're damned if you do, and damned if you don't. For even more on the "threat" of rising interest rates, please see the posts linked below:

The one chart that screams higher interest rates

If you thought the yield curve was steep now, you haven't seen anything yet

The much-anticipated Treasury selloff is no long a matter of "if"

CHART: Wall Street's gravy train is about to smash into a brick wall

European investors pour money into gold
By Dan Norcini
Fears concerning the longer term viability of the European monetary union, which I might add were destined to come to the forefront due to the “one size fits all” model which cannot possibly work with a series of nations with such different cultures and differing economic models, have sent European investment money pouring into gold ( Did you not read years ago before any of this occurred when Jim wrote that the Euro was a basket of junk). FEAR is driving this phenomenon and fear of such nature is not going to be easily assuaged by rhetoric. Investors on the continent are doing what they always do when faced with a currency whose foundation is shaking – they are moving into gold in a very large way.

It is not just the continent, but also across the Channel, that investment money is pouring into gold – witness the rise in gold priced in terms of the British Pound, another currency which is rapidly losing investor confidence. It too is threatening to also make another all time high, something which it just did a mere two months ago.

Ditto for gold when priced in terms of the Swiss Franc. While it has not yet put in an all time high, it is currently at its highest level since 1980.

As you can see, anything related to Europe is struggling in terms of gold. The Fed may posture and preen and try to establish its “hawkish” bona fides, but the facts are that what is occurring as a crisis of confidence in Europe, is overriding obvious attempts by the official sector to derail the rise in gold.

Simply put – gold “just ain’t buying it” and is telling us that it WANTS to go higher. This is the kind of sentiment that is reflected when a market rejects a bearish dose of news. It is going to take a very huge concerted effort on the part of these enemies of gold to stuff the yellow metal into a box. The WAR is heating up and looks to become even more fierce. Fasten your seat belts.

Pension funds begin active investment in gold
MOSCOW (Reuters) - Pension funds have started investing actively in gold last year viewing the metal as a safe long-term investment, the head of the World Gold Council told Reuters on Wednesday.

"Last year we saw a very notable switch of pension funds to holding gold for the first time," Aram Shishmanian, the CEO of the council, told Reuters Financial Television on the sidelines of a forum organized by the Adam Smith Institute in Moscow.

He said China and South Africa were the top producers last year and added Russia's weak mining legislation was the main constraint for the sector development in the country.

The WGC does not forecast gold prices for 2010.

Shishmanian said he believed the market will be "robust."

Two Short Videos For Your Viewing Pleasure
The Golden Truth
Mike Maloney is considered an expert on economic and monetary history. In the two short videos below, he makes a case for $15,000 gold and, based on his outlook for gold, makes the case that silver is an even better investment than gold. His thesis is based on the historically tried and true idea that "silver is poor man's gold." As Mike explains: "when the common man turns toward silver because gold is too expensive, that's when the price of silver explodes. Enjoy:

It's 12PM est. Gold and Silver continue to put up the good fight for the Truth. The Darkside maintains their wicked ways. Gold has held ground at 1101. Silver has held ground at 15.81. What a slugfest. The bond market teeters on the sidelines. In the end, Truth will prevail...

Monday, February 22, 2010

Hello Inflation, Good-bye Dollar

An explosion in the supply of U.S. Treasury bonds:
It would be bad enough if Washington only had to borrow enough to equal each year's budget deficits. That would mean $1.6 trillion-worth of treasuries hitting the auction block this year alone, many times more than in prior record years.

But Washington also has to borrow enough to replace Treasuries that are maturing — and that means an even greater avalanche of Treasuries need to find buyers each year.

Already, total issuance of government debt already hit a stunning $922 billion in 2008. It then surged even higher to $2.1 trillion in 2009, and it's on track to top $2.5 trillion this year. The size of just ONE WEEK's debt auction has ballooned to almost $120 billion — more than the total supply hitting the market in a FULL year not long ago.

The laws of supply and demand dictate that when you get a massive increase in the supply of anything, its value plunges — and Treasury bonds are no exception.

-Martin D. Weiss, Ph.D., Money and Markets

Demand soft at US 30-yr inflation-linked bond sale
NEW YORK, Feb 22 (Reuters) - The U.S. government's $8 billion auction of 30-year inflation-protected bonds produced mixed results on Monday, which may cast a cloud over the rest of this week's record $126 billion worth of debt offerings.

Long-term Treasurys fall after 30-year TIPS auction
NEW YORK (MarketWatch) -- Prices for longer-dated Treasurys declined Monday as the government's first sale in nine years of inflation-indexed bonds with 30-year maturities drew what was deemed lackluster demand from investors.

The $8 billion auction was the first portion of $126 billion in U.S. debt sales scheduled for this week.

Nothing shocking here. Today's TIPS auction sets the tone for the balance of this weeks bond auctions. The Treasury has some heavy lifting to do this week. Tuesday they will attempt to unload $44 BILLION of 2 year notes, $42 billion in five-year securities on Wednesday and $32 billion of seven-year notes on Thursday. Can you say "Debt Bomb"?

Interest on U.S. government debt, a brewing time bomb [MUST READ]
By Michael Pollaro, True/Slant
It’s not talked about much, at least by mainstream analysts, but make no mistake, it’s a time bomb, locked and loaded, and it’s set to blow the U.S. government’s budget sky high.

That time bomb? The interest cost on the government’s debt.

And what you ask will light the fuse? The end of the 30 year bull market in U.S. government debt, the end of record low interest rates.

In my opinion, unless politicians decide to renege on the government’s obligations, it’s not a matter of if, it’s a matter of when. And in the end neither the U.S. government nor the Federal Reserve can do anything about it.

First, some preliminaries. At its most basic, the interest cost on the government’s debt is determined by three factors:

- The outstanding debt of the government

- The interest rate paid on that debt

- The maturity distribution of that debt

At the risk of stating the obvious, higher levels of debt mean a higher interest cost. Lower levels of debt mean a lower interest cost.

Similarly, higher rates of interest on that debt mean a higher interest cost. Lower rates of interest mean a lower interest cost.

And finally, shorter dated maturity distributions, leading to generally larger and more immediate refinancing needs, means more exposure to interest rates, and therefore, a higher interest cost when rates are rising and a lower interest cost near when rates are falling. Longer dated maturity distributions, leading to generally smaller and less immediate refinancing needs, means less exposure to interest rates, and therefore, a lower interest cost when rates are rising and a higher interest cost when rates are falling.

With those preliminaries out of the way, let’s go straight to the numbers.

State and Federal Borrowing Is Crowding Out Everyone Else
As if the credit markets aren't already under enough pressure, the mass intrusion of state and federal debt will only make matters worse.

At a time when credit availability is at a premium, the federal government has launched its biggest series of Treasury auctions yet while more states are issuing debt in order to support their spending needs.

Consumers and businesses looking to borrow and investors trying to find a way to navigate a marketplace heading toward higher interest rates will find the conditions daunting, experts say.

"Clearly the government is not the 800-pound gorilla-it's the 8,000-pound gorilla in the credit markets nowadays," says Mike Larson, analyst at Weiss Research in Jupiter, Fla. "These numbers are just so mind-boggling. Really what's going on is you have intractable debt and deficit problems in the country that neither side wants to tackle in a meaningful way, so the market is doing it for them."

The phenomenon in which public entities push private borrowers out of the market is often referred to as "crowding out." The result usually is higher borrowing rates and more difficult choices for investors who have to make sure they're not putting their money in assets that are sensitive to interest rate moves.

While that problem specifically has not hit the market full bore yet, the signs for intense credit pressure are there.

"You are crowding out a lot of other borrowing from the private sector and are at the very least pushing up interest rates," says Michael Pento, chief economist at Delta Global Advisors. "We have this huge system of artificially low interest rates and that is in the process of reversing."

Early signs of crowding-out pressure in the credit markets have come from the latest Treasury auctions.

While 2009 saw demand for Treasurys fairly strong, the early signs in 2010 aren't as good.

After a powerful opening in Asia last nite, Gold and Silver began to drift lower as markets opened in London, and then got their usual disrespect by the paper hangers as trading opened on the CRIMEX. With the Dollar waffling about all night and into the morning, it was once again obvious that US Government regulators are not in anyway interested in enforcing commodity law on the CRIMEX futures exchange. Gold was brought down thru the day with one purpose in mind: prevent Gold from closing above $1100 on Tuesday's options expiration.

But we expected as much, didn't we?

Gold support at 1113 held, but Silver support at 16.23 gave way. The US Silver Futures market has got to be the "Crime Of The Century".

The bear market rally in the US Dollar appears now to have about run it's course. There are few weak handed shorts left to squeeze, and the market lacks any fundamental reason to seriously "buy" the Dollar. The path of least resistance here appears to be down. Adam Hamilton makes a strong case for just such a rollover in the Dollar in a recent essay:

US Dollar Bear Market Rallies [MUST READ]
By: Zeal_LLC
With consensus for the US dollar very bullish today, I’m going to offer a contrarian perspective. Rather than being the start of a new cyclical bull, technically this dollar surge merely looks like a garden-variety bear-market rally within its secular bear. And provocatively, given bear-to-date precedent this particular rally looks mature. Odds are today’s dollar rally is either already over or soon will be.

The key question today is whether or not the dollar’s current bear rally will stretch beyond the normal into the exceptional. I really doubt it technically and fundamentally (which I’ll touch on later). Exceptional bear rallies have only happened once every few years, and our latest one ended less than a year ago. You also need extraordinary demand circumstances to drive such rallies. And despite the media frenzy these days, the sovereign-debt problems (such as Greece now) are nothing new. They aren’t panic-grade.

Within the context of the dollar’s broader secular bear, the USDX’s recent surge merely looks like a garden-variety bear-market rally. Both its magnitude and duration are right in line with the normal bear rallies we’ve seen in past years. It is truly nothing special. is important to understand just how normal and unremarkable the dollar’s recent advance has been in technical terms. It was a textbook-perfect bear-market rally, right in line with the majority of bear rallies we’ve seen in this long secular bear to date. With this rally looking mind-numbingly typical, today’s bulls have a heavy burden of proof in trying to argue it is anything beyond a normal bear-market rally. And if it is indeed a normal bear rally, it is probably mature and ready to roll over.

As always after a sharp USDX rally, bullish analysts love to make fundamental arguments to rationalize their popular stance. In the last couple weeks for example, I’ve seen a surprising number of analysts on CNBC claiming that the euro currency is in jeopardy due to sovereign-debt issues. This death-of-the-euro talk is woefully exaggerated though. One of many countries growing its government too large and getting into trouble is no more of a threat to the European Union than California defaulting on its “sovereign debt” would be to the United States. Though the euro is a strange composite currency, it isn’t going to implode.

The real issue with the US dollar today is not the euro, but its own fundamentals. The US dollar’s own unique supply-and-demand profile is what is going to drive its international price in the coming years. And there is no doubt at all that the dollar’s fundamentals remain terribly bearish. The goofy US government is creating vast new fiat-dollar supplies at the same time global demand is waning.

The bottom line is despite all the dollar enthusiasm and bullishness these days, so far all we’ve seen is a typical garden-variety bear-market rally. Throughout the dollar’s long secular bear, similar rallies have periodically erupted to erase oversold conditions and rebalance away excessively pessimistic sentiment. These are merely technical events, they don’t herald new bulls. Until global dollar demand growth starts to exceed supply growth, the US dollar’s strong secular bear will continue grinding lower on balance.

The Fed finds itself in one Hell of a pickle this week. On the one hand they have pledged to prevent deflation from overtaking the US Economy. On the other hand their mandate is price stability and low inflation. You can't prevent deflation with a rising Dollar, a falling Dollar signals inflation. The Treasury is caught in the middle, they need to sell some debt. A falling Dollar and inflation forces Treasury prices lower and yields higher. A rising Dollar spurs deflation, and a sagging economy, and in theory keeps a bid under Treasuries...keeping yields low. What a freaking mess! You can't have it both ways... that is unless the central bank buys all the debt.

And the the banks, feeling lucky to be on the inside, are terrified by what will result should interest rates begin to rise uncontrollably. The Interest Rate Swap catastrophe sits just over the horizon. And with $66 TRILLION [that's right TRILLION] in Interest Rate Swaps sitting on just it's books, JP Morgan faces certain destruction. Which of course means that the Man Of Change will be eating those words he spoke just last week declaring that " a second Great Depression is no longer a possibility ".

For more on just how catastrophic a rise in interest rates could be, I urge you to read the following two essays that were written early last summer. The Interest Rate Swaps bomb threatened to detonate last summer, but the fuse was wet. This Spring could well find that bomb with a very short fuse. Jim Willie and Rob Kirby explain this threat to the bond markets, and the economy, most eloquently.

Bond Volatility & Interest Rate Swaps
by Jim Willie, CB. Editor, Hat Trick Letter June 11, 2009

Theater of the Absurd:
A View From the Inside
BY ROB KIRBY may 18, 2009

And take note, Gold rose from $35 an ounce to $850 an ounce while interest rates rose from 3% to 14 1/2% in the last half of the 1970s. Imagine a 2400% increase in the price of Gold today if interest rates again rose from 3% to 14 1/2%! Gold would be over $28,000 an ounce! I'd hate to be short 30 MILLION ounces of Gold in that environment, even worse, holding $66 TRILLION of Interest Rate Swaps. I hope those crooks at JP Morgan invested those bonus billions wisely.

Fed's Yellen: U.S. economy still needs ultra-low rates
SAN DIEGO (Reuters) - The U.S. economy still needs extraordinarily low interest rates, as inflation is "undesirably low" and growth will likely be sluggish for several years, a top Federal Reserve official said Monday.

The Fed has kept its target interest rate for bank-to-bank overnight lending at near zero since December 2008 to combat the worst financial crisis and economic downturn since the Great Depression. It has also injected more than $1 trillion into the economy.

"Accommodative policy is appropriate, in my view, because the economy is operating well below its potential and inflation is undesirably low," Yellen said. "I believe this is not the time to be removing monetary stimulus."

Hello inflation, good-bye US Dollar. It only makes sense...the Fed will defend the bond markets at ALL costs.

Sunday, February 21, 2010

"Shouldn't great nations and great empires have great leaders? And yet, we look around. What do we see? Hacks. Glad-handers. Shills. Suits. Wonks. And of course...imbeciles."
- Bill Bonner, The Daily Reckoning

What a fascinating week just passed.

Gold in the Euro hit an all-time high four days running.

The Gold Cartel failed to knock Gold down with a rehash of forgotten IMF Gold sales news.

The Fed raised the meaningless "discount rate" to an even more meaningless 0.75% in the hopes they would convince creditors that they are serious about ending their easy money policy.

The Bank lending rate is falling at the fastest rate in history.

What does it all mean? The Europeans no longer trust paper money. The Gold Cartel is desperate to halt the rise in Gold price. The Fed is even more desperate as the world has begun to shy away from US Treasury debt, and it hopes to encourage continued purchases of the US' toxic soveriegn debt by forcing banks to seek money in the private sector instead of from the Fed. Failure is NOT an option, but likely nonetheless.

Record Short Euro Positions Push Gold to New High
On Friday, short positions against the euro on US exchanges rose to US$7.6-billion, according to the U.S. Commodity Futures Trading Commission. This is the largest ever recorded net short position against the euro.

Gold Price Hits Record High Against the Euro
GOLD PRICE NEWS - The gold price in terms of the euro reached a new all-time high of 828 per ounce as the price of gold recovered its entire $20 overnight decline and the euro weakened against the U.S. dollar. While gold prices remains over $100 lower than the record high of $1,226.50 per ounce in dollar terms, the significant weakness of the euro since early December 2009 has boosted the price of gold in euros to its fourth consecutive daily new high. For the week the gold price finished higher by $25, up $26 year-to-date.

In addition to the euro, the gold price came within 1.7% of its all-time high of 732.45 against the British Pound and has outperformed other precious metals, base metals, and commodities - including silver, platinum, oil, and copper - over the past several months. The recent rally in the price of gold against numerous fiat currencies speaks to the underlying strength of the gold bull market, as nations across the globe continue to debase their currencies in an effort to fuel an economic recovery.

IMF Gold Sales vs. Alchemy of Gold Futures: What’s the Impact on Future Gold Prices? [MUST READ]
The recently announced IMF sale of 191.3 tonnes of its gold reserves, though it caused an immediate sharp knee-jerk reaction in gold futures markets, will have a negligible effect on the long-term price of gold. Here’s why.

In December, 2009 the commercial bullion banks that serve as agents for the leading Western Central Banks were net short 303,791 contracts of gold. Each COMEX gold futures contract represents 100 troy ounces, so the Commercials were net short 30,379,100 troy ounces of gold. With the average price of gold $1,134.72 per troy ounce in December 2009, this net short commercial position represented $34.47 billion worth of gold. There are 32,150.74533 troy ounces in one metric tonne. So 30,379,100 troy ounces/ 32,150.74533 troy ounces = 944.90 metric tonnes of gold. Since gold contracts are supposed to be good for physical delivery, the commercial bullion banks that were short nearly 38% of annual world production of gold this past December should have had 944.90 physical metric tonnes of gold in their vaults to back up their short position at that time. In reality, this situation never exists.

The amount of physical gold that bullion banks deliver through COMEX on a daily basis is negligible compared to the often massive historical short positions that they have maintained for decades. For example, during a two-week span across January and February, COMEX arranged for the physical delivery of 543,500 troy ounces of gold with their contracted warehouse depositories, a figure that represents an average of just 38,786 troy ounces of gold per day or 0.18% of the current net short position. At this rate of delivery, it would take the COMEX more than 1.5 years to deliver all the gold represented by the current net commercial short position should the holders of long contracts ask to settle in physical delivery.

Through the use of futures markets, the Commodities Futures Trading Commission [CFTC] has granted bankers a mechanism to perform alchemy and turn paper into gold on the COMEX by allowing them to establish obscene short positions that represent 25% to nearly 40% of annual gold production at times, while simultaneously allowing them to renege on their fiduciary responsibility to actually physically possess the gold represented by their short positions. In other words, the CFTC has allowed gold to operate under the principles of the fractional reserve banking system on the COMEX futures markets.

Bernanke Hikes the Discount Rate: zzzzzzzzzzz...
By Dave Kranzler, The Golden Truth
I described in my post on Feb 10 Link, why Bernanke will do nothing more than bluff about draining liquidity from the system and raising short term rates. I mentioned that raising the discount rate was his loudest toothless tiger in this regard. Well, Banana Ben raised the discount rate, the rate which banks borrow directly from the Fed. Here's my description of why this act is meaningless, useless and ineffective - which means he really does not want to do anything other than give the impression to our massive foreign creditors that he's not really a fiat currency main-lining drug addict:

Bernanke's first proposal would be to raise the discount rate. The discount rate is the rate charged by the Fed when banks borrow directly from the Fed. Raising the discount rate is meaningless right now as a tool to regulate systemic liquidity because the banks have plenty of money to lend out in the form of excess reserves. Excess reserves are bank deposits kept at the Fed in excess of reserve requirements. As of 12/31/09, banks had around $1.1 trillion in excess reserves. The banks thus have no need to borrow money from the Fed - and thus will not be affected at all by a rising discount rate. As of Feb 3, Discount Window loans were an insignificant $14.7 billion. As you can see, the discount window is not even a source of bank liquidity in comparison to the liquidity the banks already have on deposit at the Fed. Raising the discount rate would be about as useful as taking away ice machines in Antartica. In Banana Ben's own words today (Feb 10): raising the discount rate is “not expected to lead to tighter financial conditions for households and businesses and should not be interpreted as signaling any change in the outlook for monetary policy." So why even bother mentioning this unless Banana Ben's intent is to remain consistent with his unstated policy of blowing smoke?

The fact of the matter is that Bernanke has two choices: he can raise real rates and try to drain liquidity from the system, which will lead to a rapid collapse our economy, OR he can play "poker" with the market and send out false signals. Judging from his inability to hide lies from his facial expressions when he's in front of Congress, he's a crappy poker player. He knows full well the consequences of both alternatives, but why not try to kick the can down the road and let his successor deal with it or hope for Moses to come down from Mt. Sinai and deliver another miracle? In the meantime expect Banana Ben to keep delivering a series of empty threats

Foreign Holders of Treasuries: The Love Is Gone
By Andrew Horowitz
The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

The Treasury Department reported that foreign holdings of U.S. Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009.

Jitters over China’s waning taste for T-bills
By Robert Cookson and Michael Mackenzie, Financial Times
If there is one thing that gets investors twitchy, it is the fear that China is losing its appetite for US government bonds.

As the biggest and most liquid pool of assets in the world, the US Treasury market lies at the heart of the global financial system and allows the American government to finance its trillion-dollar budget deficits. Until recently, China has been the largest foreign official holder of US debt.

That is why the latest release of Treasury International Capital (Tic) data, showing that China’s holdings of Treasuries fell by a record amount in December, has caused something of a stir.

China’s holdings fell by $34.2bn to $755.4bn from the previous month, prompting renewed jitters that the country was diversifying from Treasuries over fears about their future value.

US bank lending falls at fastest rate in history
By Ambrose Evans-Pritchard
David Rosenberg from Gluskin Sheff said lending has fallen by over $100bn (£63.8bn) since January, plummeting at an annual rate of 16pc. "Since the credit crisis began, $740bn of bank credit has evaporated. This is a record 10pc decline," he said.

Mr Rosenberg said it is tempting fate for the Fed to turn off the monetary spigot in such circumstances. "The shrinking in banking sector balance sheets renders any talk of an exit strategy premature," he said.

The M3 broad money supply – watched by monetarists as a leading indicator of trouble a year ahead – has been contracting at a rate of 5.6pc over the last three months. This signals future deflation. The Fed's "Monetary Multplier" has dropped to a record low of 0.81, evidence that the banking system is still broken.

Tim Congdon from International Monetary Research said demands for higher capital ratios and continued losses from the credit crisis are both causing banks to cut lending. The risk of a double-dip recession – or worse – is growing by the day.

"It is absurdly premature to think of withdrawing stimulus while bank credit is still sliding. To have allowed this monetary collapse to occur a full 18 months after the financial cataclysm is extreme incompetence. They seem to have forgotten that the lesson of the 1930s was the falling quantity of money," he said.

Treasury Yield Near 6-Week High Before Durable Goods, Auctions
By Wes Goodman
Feb. 22 (Bloomberg) -- Treasury yields were near the highest level in six weeks ahead of $126 billion in government debt sales this week and U.S. reports forecast to show sales of homes and durable goods improved last month.

The government is scheduled to sell $8 billion in 30-year Treasury Inflation Protected Securities today. It will also auction $44 billion of two-year debt tomorrow, $42 billion in five-year securities on Feb. 24 and $32 billion of seven-year notes on Feb. 25.

“The deficits are going through the roof and the Treasury auctions are not getting any smaller,” said Hans Goetti, who oversees $10 billion in Asia as chief investment officer at LGT Bank in Liechtenstein (Singapore) Ltd., part of the bank for the wealthy owned by Liechtenstein’s royal . “We’re bearish” on Treasuries, he said.

Taleb Says ‘Every Human’ Should Short U.S. Treasuries
By Michael Patterson and Cordell Eddings
Feb. 4 (Bloomberg) -- Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific.

Gold bid up to 1130 in early Asia trading this evening, resistance overhead at 1135. Silver bid up to 16.55, resistance overhead at 16.73. Short squeeze in Euro may be looming at 1.3747. Gold Cartel desperate to hold Gold below 1100 for options expiration Tuesday with over 5000 contracts in the money above that handle, Gold support at 1113 and 1098. Silver to shadow Gold, support at 16.23 and 15.81.

Thursday, February 18, 2010

The Fools On The Hill

Suddenly, at precisely 4:30PM est Wednesday, the bottom appeared to be falling out of the Gold market.

"WTF is going on?" could be heard in chours behind trading desks the world over.

"Ding-ding", Breaking News: IMF to sell another 191 tons of gold .

Anger quickly turned to laughter.

"Not another 'IMF is going to sell Gold story'..."

"The Gold Cartel just pushed the panic button!"

"Buy, buy, buy!"

How do I feel about the IMF gold sale news? Answer!

Well, it's not actually news. As a matter of fact, it's NOT NEWS AT ALL. Just consider the timing of it. At precisely 4:30PM est, AFTER the US equities markets have closed for the day, and "announcement" of IMF Gold sales hits the wires. Right in the midst of the thinnest trading on the CRIMEX. Oh, the desperation of these CRIMEX thugs. The price of Gold is beginning to get away from them, and they call in the aged war horse "IMF Gold Sales". How pathetic.

Why would the IMF "announce" the sale? Do they want to sell their Gold at a lower price? No likely. And unless I am mistaken, the IMF Gold must be sold at auction, and NOT on the open market. I can barely contain my laughter...

Has everybody forgotten what occurred immediately following the announced IMF sale of 200 tonnes of Gold to India at the price of $1049 an ounce? The price of Gold immediately went to $1226. Let them sell all the damn Gold they want, ...if it really exists. There are plenty of takers, and more where they came from. My guess JP Morgan will be first in line to buy the IMF Gold so that they can use it to cover their ridiculous naked short position in Gold on the CRIMEX.

This is NOT news, this is a joke...a total non-factor. If anything, this "announcement" will accelerate the Gold's climb in price towards $1500.

Trader Dan Comments On The IMF’s Supposed Gold Sales
Dan Norcini, []
After the pit session trade had already closed for the day in New York, news came out that the IMF was planning on selling the remainder of 403.3 tons of gold, 191.3 to be exact, on the open market. Gold was immediately taken down hard in the thin trading conditions, dropping more than $14 on the day.

There are several things about this that should be noted. First is the timing – it comes on the heels of a resumption of the uptrend in gold with many technical indicators having moved into the buy mode. It also coincides with another brand new all time high in the price of Gold priced in Euro terms at the London PM Fix.

Those of us who have been around the gold market long enough know full well that the timing of this announcement is therefore no coincidence but was timed to attempt to derail the returning bullish sentiment in the yellow metal. Why announce the sale publicly which is guaranteed to receive a lower price for the metal than if the IMF had just quietly sold the metal into the market. This is reminiscent of then Prime Minister Gordon Brown’s announcement that England intended to sell its hoard of gold. That guaranteed that Britain would receive the lowest price possible.

Secondly, China was one-upped by India’s purchase of some 200 tons of gold late last year and got caught flat footed. The spin on this gold sale is that the IMF announcing that they would sell the gold into the open market means that Central Bank demand for gold is not as vibrant as the market was led to believe. That is an interesting tall tale. The simple truth is that Central Banks do not generally buy gold and announce their intentions to do so beforehand. Neither do they tend to buy when prices are moving higher as the momentum based hedge funds do. Time and time again we have seen that the CBs buy gold during episodes of price weakness. Once news hit the wire last year that India had bought 200 tons of gold, the price never looked back and shot straight to $1220+. Any Asian Central Bank that missed buying the gold as a result is certainly not going to panic and rush into the market to obtain it. They are waiting for lower prices where they will acquire the metal. To state therefore that Central Bank demand for gold must not be as robust as originally thought is quite shallow analysis.

My view is that this announcement means nothing in the longer term scheme but was rather a cheap trick to take the market lower. We have already seen this week how some noted elites were pooh-poohing gold and trash talking the metal all the while they were acquiring a position in it. Nothing ever changes in this gold market. It is still one of the least transparent markets on the planet and perhaps the most prone to official sector interference.

Do not be disturbed by the news. It is probably going to be a one or two day wonder and then that will be it. Gold will then go back to trading the currencies taking its cues from the action in the Dollar.

Incidentally, this sale is supposedly going to be phased in over an extended period of time. Rest assured, the IMF would love nothing better than to sell the whole 191 tons in one lump sum to another Asian Central Bank.

In an email I received from GATA's Chris Powell:

Why the IMF's supposed gold sales don't mean much
Submitted by cpowell on 05:24PM ET Wednesday, February 17, 2010
Dear Friend of GATA and Gold:

Below is the press release issued this evening by the International Monetary Fund announcing that it "shortly" will sell 191 tonnes of gold on general markets, unlike the 212 tonnes it claimed to sell last year directly to India, Sri Lanka, and Mauritius. While the gold price quickly fell $7 or so on the news, there are a few things to remember.

1) The IMF really doesn't have any gold, just a tenuous claim on the national gold reserves of its members. Where the IMF's supposed gold is kept is a state secret. So is the location of the gold the IMF supposedly recently sold to India, Sri Lanka, and Mauritius. So are the gold bar numbers. There is no public evidence that the IMF's gold even exists, no public evidence that last year's supposed IMF gold sales were anything more than bookkeeping entries. Indeed, those sales may have been nothing more than a few press releases. See what is, as far as GATA knows, the only attempt to address these issues journalistically with the IMF:

2) In its announcement the IMF says again that its supposed gold sales will fit comfortably within the annual quotas set by the Central Bank Gold Agreement. That's because the signatories to that agreement -- the Western European central banks -- stopped selling gold last year. Since the Western European central banks are not selling, the IMF gold sales are a hint that any gold now being dishoarded is coming straight from U.S. gold reserves. The IMF is headquartered in Washington, the United States has a de-facto veto on its operations, and there can be little doubt anymore that the United States is operating surreptitiously in the gold market, the Federal Reserve having acknowledged last September that it has at least contemplated such intervention in the gold market via gold swap agreements with foreign banks:

3) The rationale for the IMF's supposed gold sales -- to raise cash for its operations helping (that is, expropriating) poor countries -- is ridiculous on its face. The IMF is the issuer and custodian of the world's supreme money, Special Drawing Rights (SDRs), and in just one afternoon last year the IMF conjured $250 billion of them into existence:

By comparison, the first 212 tonnes of gold supposedly sold by the IMF last year raised only $7 billion, or less than 3 percent of the money created by mere conjuring:

In such circumstances gold is not sold to "raise money"; it is sold to suppress the price of a currency that competes with fiat currencies and, when traded freely, is a measure of their debasement.

4) That is why, as Jim Sinclair and others have noted many times, official gold sales correspond with rising gold prices, not falling gold prices. Official sales are manifestations of central banking's controlled retreat when money and credit creation have gotten out of hand relative to the gold supply and gold's price is threatening to explode and make a scene very embarrassing to governments and central banks. The last decade has been a time of massive Western central bank gold dishoarding, probably a time of cash settlement of central bank gold leases that could not be settled by recovery of the borrowed metal without exploding the gold price, and during this time gold has risen from $250 to more than $1,000 per ounce:

If central banks were not on the desperate defensive with gold, how, amid all that official gold selling, could the gold price have quadrupled?

No doubt some gold holders and traders will be duly frightened out of their gold by the IMF's latest announcement, and that will be discouraging for those who remain gold investors. But if this gold "sale" turns out like the others over the last 10 years, before long the gold price will be higher still.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

IMF to Begin On-Market Sales of Gold
International Monetary Fund Press Release
Wednesday, February 17, 2010
WASHINGTON -- The International Monetary Fund (IMF) today announced that it will shortly initiate the on-market phase of its gold sales program. This is the second phase of the total sale of 403.3 metric tons approved by the Executive Board in September 2009 (see Press Release No. 09/310). The first phase was set aside exclusively for off-market sales to official holders. A total of 212 metric tons was sold during this phase, comprising sales to the Reserve Bank of India (see Press Release No. 09/381), the Bank of Mauritius (see Press Release No. 09/413), and the Central Bank of Sri Lanka (see Press Release No. 09/431).

The total amount remaining to be sold is 191.3 metric tons. In accordance with the priority of avoiding disruption of the gold market, the on-market sales will be conducted in a phased manner over time. This follows the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement. Participants in the agreement have noted that the fund's sales can be accommodated under the agreed ceilings of 400 tons annually and 2,000 tons in total during the five years starting on September 27, 2009. The initiation of on-market sales does not preclude further off-market gold sales directly to interested central banks or other official holders. Such sales would reduce the amount of gold to be sold on the market.

The IMF will continue to provide regular updates on progress with the gold sales through its normal reporting channels.

But "news" of pending IMF Gold sales lost out to the President Of The United States for FUNNIEST story of the day. The chours of laughter that rose up across the country as the Exalted One touted his bloated $787 BILLION Stimulus Package drowned all noise in the financial markets.

"One year later, it is largely thanks to the recovery act that a second depression is no longer a possibility," Obama said.

What makes him so sure about that? I hope he has a refreshing beverage handy to wash those words down as he eats them before the end of his term as President. How naive to think there is "no longer a possibility" of a second depression. I guess he'd be shocked to learn that we are already in a depression now, yet nobody wants to admit it.

Obama says stimulus bill saved troubled economy

Federal deficit at $430.69 billion through January
WASHINGTON (AP) -- The federal deficit through the first four months of the budget year is running at a record-breaking pace even though the deficit in January was slightly smaller than expected.

The massive tide of red ink reflects the continued fallout from a deep recession and a severe financial crisis. It highlights the formidable challenges President Barack Obama will face in trying to get the deficit down to more manageable levels.

The Treasury Department said Wednesday that the deficit for January totaled $42.63 billion. That left the total of red ink so far this budget year at $430.69 billion, 8.8 percent higher than last year when the deficit soared to an unprecedented level of $1.42 trillion.

Just a quick thought about "the recovery" the Fools On The Hill are waiting for. There will be NO recovery with a continued rise in the US Dollar. The US government has an out of control deficit spending problem, an almost non-existent manufacturing base, and real unemployment around 20%.

Fed thinking of selling debt to withdraw stimulus
WASHINGTON (Reuters) - Several Federal Reserve policy makers want to begin selling securities relatively soon to cut back the U.S. central bank's massive help to the financial system as the economy finds a footing, the Fed said on Wednesday.

The minutes offered a window into the Fed's thinking on how best to withdraw the extraordinary stimulus it has provided, but also revealed substantial disagreement among officials on the timing and sequencing of exit steps.

"Several thought it important to begin a program of asset sales in the near future to ensure that the Federal Reserve's balance sheet shrink more quickly," the minutes of the January 26-27 meeting said.

Other policy makers, however, appeared worried that dumping mortgage debt into a fragile market might drive up mortgage rates, compromising the housing sector's tentative stabilization. U.S. housing starts rose 2.8 percent in January but at an annual rate of 591,000 units still stood at barely a quarter of their boomtime peak.

If the Fed, as "buyer-of-last-resort" has purchased Trillions of dollars of worthless mortgage backed securities from banks to save those banks balance sheets, what make the Fed think anybody is sitting out there anxious to buy them from the Fed? Talk about blowing smoke up the nations creditors asses... This "revelation" is surely a billowing cloud of obfuscation. Yeah, I bet the Fed would like to unload this toxic waste. They have probably come to the realization that they severely overpaid for this mortgage backed garbage, and need to move it off their own balance sheet asap. This begs the question, "Who bails out the Fed?"

Fed carrying losses from Bear portfolio
The US Federal Reserve is sitting on significant paper losses on the real estate assets it acquired in the Bear Stearns rescue, with much of the red ink coming from debt used to back some of the most highprofile buy-out deals of the bubble years.

The Fed holds these and other real estate assets in a vehicle known as Maiden Lane I, which was set up to pave the way for JPMorgan Chase's purchase of Bear. At the time the deal was struck, in March 2008, JPMorgan feared that if it bought all of Bear's assets it would be left with too much exposure to the real estate market. Bear, for example, originally had $5.4bn of Hilton debt, a huge concentration.

The assets in Maiden Lane I - all of which came from Bear's mortgage desk - were originally valued at $30bn when a final agreement on the portfolio was reached in June 2008 by the New York Fed, its advisers at asset managers BlackRock and JPMorgan. At the end of 2009 the Fed said the assets were worth $27.1bn (€20bn, £17.4bn).

People familiar with the portfolio said Maiden Lane I's losses were concentrated in commercial real estate assets, which had a face value of $8.4bn and an estimated worth of $7.7bn when they were acquired by the Fed.

As of September they had been marked down to $4bn, filings show.

You gotta laugh...

And lastly we turn to this mornings 8:30AM economic data headlines:

Jobless claims rise unexpectedly- AP
The number of newly laid-off workers filing applications for unemployment benefits unexpectedly surged last week after having fallen sharply in the previous week. The gain dampened hopes about how quickly the labor market may improve this year.

January wholesale prices jump 1.4 percent- AP
Wholesale prices shot up at double the expected pace in January, propelled higher by big increases in energy costs. The surprisingly large jump was viewed as a temporary blip and not the start of inflation problems, however.

LOL! I can't stop laughing. Somebody roll the tape of the Exalted One's speech about the success of his stimulus package.

Jobless claims ONCE AGAIN rise "unexpectedly". What more can we say? I know, you think those folks that filed for unemployment last week, and all those still receiving unemployment benefits, will agree with President about the "success" of his Economic Recovery and Reinvestment Act?

Why are "surprising large" jumps in inflation always viewed as temporary blips? Does nobody understand that there can be NO recovery without inflation, a falling Dollar? The Fed has sworn to fight deflation, a rising Dollar. Inflation is the ONLY way out of this debt hole. Accept inflation with open arms. The Fed and your governemnt are doing everything they can to create inflation, despite all the smoke they blow to try and cover it up.

Oh look, at 9:45 AM est Gold and Silver have recovered ALL of their IMF Gold sales induced losses late yesterday afternoon. The TRUTH shall always prevail...

Tuesday, February 16, 2010

The ECB and the BIS have a secret weapon

So much for transparency and open, honest government. ABC News reports that "Behind closed doors and with no cameras present, President Obama signed into law Friday afternoon the bill raising the public debt limit from $12.394 trillion to $14.294 trillion." Nothing like keeping the 'ol skeleton in the

Will history look back on this moment as the "beginning of the end" for the US Dollar as the global reserve currency?

Our unsustainable U.S. national debt
By Neal Boortz
Do we really understand what we’re doing to our children, our grand children and future generations of Americans here? Without much fanfare, Barack Obama signed another $1.9 trillion increase in our debt ceiling. So, with this increase our allowable debt ceiling is $14.3 trillion. How much wiggle room does that give us? Our current debt level is still an astounding $12.3 trillion. Will it be weeks or months before The Community Organizer signs yet another increase in our ceiling?

Taking that $12.3 trillion into consideration … add up the interest paid on that debt, plus the cost of entitlement benefits like Social Security and Medicare … and by the year 2020, that spending alone will consume 80% of all federal revenues. That does not include any spending for military or homeland security.

Within the next few years, the national debt is expected to rise to 100% of our GDP. To put into perspective, Greece – which is going through a major financial crisis – currently has a debt equivalent to 124.9% of the GDP.

US debt will keep growing even with recovery
WASHINGTON – It's bad enough that Greece's debt problems have rattled global financial markets. In the world's largest economic and military power, there's a far more serious debt dilemma.

For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to prerecession employment levels.

The government already has made so many promises to so many expanding "mandatory" programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.

Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economists project.

That doesn't leave room for much else. What's left is the entire rest of the government, including military and homeland security spending, which has been protected and nurtured by the White House and Congress, regardless of the party in power.

The U.S. debt crisis also raises the question of how long the world's leading power can remain its largest borrower.

The headline above should read "even 'IF' there is a recovery". There is far too much certainty about an economic recovery. We'll be lucky if we have economic survival. One has to wonder if the rest of the World has tired of funding our deficit.

Foreign demand for Teasury securities falls
WASHINGTON (AP) -- The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

The Treasury Department reported that foreign holdings of U.S. Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009.

This should come as no surprise. It certainly knocked the wind out of the Dollar's sails today. Coupled with last week's very poorly received 10 and 30 year debt offerings by the Treasury, this news may be just the catalyst to cripple the irredeemable US Dollar once and for all, and expose it's "safe-haven" status as the utter folly that it is.

Gold caught a firm bid overnight, and Silver followed in it's footsteps. Little reported was news that Gold hit a new high price basis the Euro today.

Gold broke thru overhead resistance at 1108 just after midnight est, then rising quickly towards 1118 after the CRIMEX open only to be capped by the 2% rule the Gold Cartel firmly adheres to during their New York criminal operations. 1135 looms overhead as the next level of resistance.

Silver made it's way back above the fulcrum price of 16, but must clear 16.30 with some authority before we can safely declare an interim bottom is in at 14.63 and begin to really pressure the shorts in that market. A close above 16.30 could prove to be the launch point of Silver's next rally towards new highs.

Ed Steer's Gold & Silver Daily [] today offered the MUST READ essay "Greece Is the Word" that explains the necessity of the Western financial system to revalue its gold upward by a huge amount to cover its otherwise unpayable debt." The essay is lengthy, but well worth the time to read if you need more proof that the US Dollar is NO safe-haven.

The ECB and the BIS have a secret weapon. They don't want to have to use it because they don't want to be seen as the instigators of the dollar's collapse. They would prefer the market to take care of it for them. But don't doubt for a second that they won't use it before sitting back and watching permanent damage come to the euro system.

Just imagine how Greece could deal with its problems if its gold were valued at $55,000 usd per ounce. In terms of current exchange rates that would raise Greece's liquid assets to 50% of its public debt. In other words, instead of being a "sub-prime" borrower, Greece would instantly become a PRIME borrower.

Rumors have been circulating for a few months now about some large physical buyers on the public LBMA being cashed out with a 25% premium and being sent to the private cash market to get their gold where such a purchase at a premium would not move the official price. This rumor suggests a relative shortage to demand for physical on the official price-setting markets. And this tightness is confirmed by the low GOFO or Gold Forward Offered rate reported by the LBMA which is currently languishing at lows only seen twice before. Both times in close proximity to backwardation events that both times signaled that the system was teetering on the edge of collapse, only to be rescued by some entity supplying physical gold to market at an intentional loss.

COMEX being in the US and the LBMA being in London leaves the ECB and the BIS with "the nuclear option" if things ever get desperate enough to use it. This nuclear option is A) for the BIS to begin operation of a public "physical only" market for gold to be used by the really giant participants, primarily sovereign entities and billionaires, and B) for the ECB to use the price discovered by the BIS in its quarterly reserve asset "marked to market" adjustments.

Such a move would put Greece, and all the PIIGS for that matter, in a much better position almost overnight. Of course it would have devastating effects on the value of the dollar and the rest of the paper gold market. You see, in order for the BIS to supply actual physical gold to each and every giant that was ready to buy, the price would have to rise high enough that someone else with an equally huge amount of gold was willing to become a seller. And right now, at today's prices, we know that the central banks of the world have become net buyers! So the question is, just how high would the price have to rise in order to balance out the demand of the world with the supply, in a physical-only official price discovery market?

Chances are that what would be revealed by such a market would have an eye-opening and breathtaking effect on the rest of the world and demand would skyrocket. What passes today for enough demand to almost break the paper markets would quickly shift all players from paper to physical and add new savers that hadn't even considered gold before. Literally, the entire world would shift its view to gold.

And because this would be a physical-only market in the presence of a credit money contraction it would have no way to bubble in price beyond actual demand. Instead it will finally plateau once the Thoughts of all the giants and savers of the world reach their Nash equilibrium. And the price will be high enough that it becomes a coin toss as to whether you'd rather be in cash or gold. What it will come down to is your own time preference and your appetite for investing back into an economy that must be rebuilt.

The euro architects knew the difference between the monetary functions. They knew that the infinite growth, store of value function was the dollar's Achilles' heel. So they designed the euro to be a stable transactional and accounting currency even if the world chose non-euro physical assets as a store of value. The dollar does not have this design.