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

No comments:

Post a Comment