Tuesday, March 9, 2010

The Burden Of Proof

Oh the desperation! With $40 BILLION of brand new 3-year Treasury notes looking for a home, and investors loathe to take in the homeless, it was time for some encouragement by the faithful financial media. After all, investors have caught on to the burden of oversupply in the US Treasury market, and have begun to question the relative safety of sovereign debt exposure. Is it wise to purchase the debt of the World's largest debtor nation of all-time as it increases it's debt by the BILLIONS each and every month, or should one seek the safety of Gold...the one global asset that owes nothing to anyone?

Buy Gold? Perish the thought! Why even the World's largest creditor to the World's largest debtor prefers more debt accumulation than the purchase of more pithy Gold.


Yes, strange as it seems, China...after dumping a record $34 BILLION of US Treasuries in December 2009...prefers to purchase more debt from the US, than purchase more Gold with it's currency reserves. Is it just a coincidence that this revelation should be made on the morning of a record setting auction of 3-year US treasury notes? Hardly...

China says committed to U.S. debt, wary on gold
(Reuters) - China, the world's biggest holder of foreign exchange reserves, renewed its commitment to the U.S. Treasury market on Tuesday but said it would be wary of substantially boosting its gold holdings.

The country's chief currency regulator said China would attract more capital inflows this year, partly reflecting expectations of a stronger yuan, but he left the market none the wiser as to when Beijing might let the currency resume its rise.

"The U.S. Treasury market is the world's largest government bond market. Our foreign exchange reserves are huge, so you can imagine that the U.S. Treasury market is an important one to us," Yi Gang, head of the State Administration of Foreign Exchange (SAFE), told a news conference.

Speaking during the annual session of parliament, Yi expressed the hope that China's presence in the U.S. Treasury market would not become a political football. China, he stressed, was not in the game of short-term currency speculation.

"It is market investment behavior, and I don't want it to be politicized," he said. "We are a responsible investor, and we can surely achieve a win-win result in the process of investing."

Yi dampened hopes of gold bulls that China might be itching to add to the 1,054 tonnes of the metal in its reserves.

On a 30-year horizon gold was not a great investment, he said, and China would simply drive up prices if it piled into the market.

"It is, in fact, impossible for gold to become a major investment channel for China's foreign exchange reserves. I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion," Yi said.

"The market discounts the China story. It's an old story. I don't think China will buy gold in the open market. They will buy gold from their own mines," said a dealer in Hong Kong.


And no sooner does this "story" hit the wires, and the CRIMEX goons are attacking Gold. Pathetic. Do people really believe that gold is hitting all-time highs globally just because the Chinese may, or may not be, buying Gold? Are Europeans buying Gold because their currencies may be about to implode, or just because the Chinese have an appetite for the Precious Metal?

This story, and the CRIMEX goons subsequent reaction to it, is NOTHING more than one more desperate bid by the US Government to coerce investors into buying their debt to insure their wealth instead of Gold. The US Government will stop at nothing to prevent the rise in the price of Gold.

Do what the Chinese do. Do not do what Reuters tells you they will do.
-Jim Sinclair

Volcker Says Too Soon to Cut U.S. Monetary, Fiscal Stimulus
March 8 (Bloomberg) -- White House adviser Paul Volcker said it’s too soon for U.S. policy makers to withdraw the stimulus measures and interest-rate cuts used to fight the worst slump since the Great Depression.

“This is not the time to take aggressive tightening action, either fiscally or monetary-wise,” said Volcker in an interview in Berlin March 6, pointing to “high” unemployment.
“So I think we have to, as best as we can, maintain the expectation that it will be taken care of in a timely way.”

The Federal Reserve and the Treasury are trying to withdraw the emergency measures introduced during the financial crisis without causing a relapse in the economy. Fed Chairman Ben S. Bernanke said Feb. 24 the U.S. is in a “nascent” recovery that still requires keeping interest rates near zero “for an extended period” to spur demand once stimulus wanes.

At the same time, the Treasury’s resources are under strain from the loss of 8.4 million jobs since December 2007, stimulus spending, wars in Afghanistan and Iraq and health care programs. The Obama administration predicts the budget deficit will swell to a record $1.6 trillion in the fiscal year ending Sept. 30.

Paul Volker specifically refers to managing "expectations" with regard to monetary policy.
The US Government is determined to keep the price of gold from rising too far and too fast by "managing expectations" of inflation. Paul Volker should know the importance of this government sponsored sham all too well...

Paul Volcker Said, "Letting Gold Go to $850 Was a Mistake."

In looking back at the rise of gold from $35 to $850 during the 1970s', Paul Volcker said, "It was probably a mistake to allow gold to rise so high." Not only does that statement presuppose that the U.S. could have controlled the gold price, but it also suggests the establishment's arrogance in assuming they have a right and obligation to do so. How anyone believes gold is not manipulated from time to time is a mystery to me, given all the evidence provided by the Gold Anti Trust Action Committee (GATA), Reginald Howe's lawsuit as well as the Blanchard lawsuit, and given the importance of keeping the public believing in paper as money rather than gold. I guess people simply believe what they want to believe.

And so, I take it as a given that the gold price is "manipulated," or "managed," if that word is more acceptable to you. To keep the public believing in the system, the gold price must be "managed."

-Jay Taylor On Gold, August 21, 2005

This is something that we Gold bugs must take note of.

This is WAR!

The Gold Anti-Trust Action Committee (GATA) has sent a letter of complaint regarding the US Government Gold price suppression scheme over the years to CFTC Chairman Gary Gensler. This letter is in advance of the March 25th CFTC hearings on position limits in the Gold and Silver futures markets.

March 8, 2010

Gary Gensler, Chairman
U.S. Commodity Futures Trading Commission
3 Lafayette Centre
1155 21st St. NW
Washington, DC 20581

Dear Chairman Gensler:

The Gold Anti-Trust Action Committee (GATA) was formed in January 1999 to expose and oppose the manipulation and suppression of the price of gold. What we have learned over the past 11 years is of great importance in regard to the CFTC.s forthcoming hearings regarding position limits in the precious metals futures markets. Our efforts to expose manipulation in the gold market parallel those of Harry Markopolos to expose the Madoff Ponzi scheme to the Securities and Exchange Commission.

Initially we thought that the manipulation of the gold market was undertaken as a coordinated profit scheme by certain bullion banks, like JPMorgan, Chase Bank, and Goldman Sachs, and that it violated federal and state anti-trust laws. But we soon discerned that the bullion banks were working closely with the U.S. Treasury Department and Federal Reserve in a gold cartel, part of a broad scheme of manipulation of the currency, precious metals, and bond markets.

As an executive at Goldman Sachs in London, Robert Rubin developed an idea to borrow gold from central banks at minimal interest rates (around 1 percent), sell the bullion for cash, and use the cash to fund Goldman Sachs' operations. Rubin was confident that central banks would control the gold price with ever-more leasing or outright sales of their gold reserves and that consequently the borrowed gold could be bought back without difficulty. This was the beginning of the gold carry trade.

When Rubin became U.S. treasury secretary, he made it government policy to surreptitiously operate an identical gold carry trade but on a much larger scale. This became the principal mechanism of what was called the "strong-dollar policy." Subsequent treasury secretaries have repeated a commitment to a "strong dollar," suggesting that they were continuing to feed official gold into the market more or less clandestinely to support the dollar and suppress interest rates and precious metals prices.

Lawrence Summers, who followed Rubin as treasury secretary, was an expert in gold's influence on financial markets. Previously, as a professor at Harvard University, Summers co-authored an academic study titled "Gibson's Paradox and the Gold Standard," (see Footnote 1 below) which concluded that in a free market gold prices move inversely to real interest rates, and, conversely, if gold prices are "fixed," then interest rates can be maintained at lower levels than would be the case in a free market. This was the economic theory behind the "strong dollar policy."

Federal Reserve Chairman Alan Greenspan understood Summers' research when he remarked at a 1993 meeting of the Federal Open Market Committee:

"I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There's an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology." (See Footnote 2 below.)

GATA has collected reams of evidence that Western central bank gold has long been mobilized and surreptitiously dishoarded to rig the gold market and influence related markets and that this rigging has drawn upon the U.S. gold reserves.

President Obama has called for greater transparency in both the federal government and the financial markets. In pursuit of such transparency GATA has made Freedom of Information Act requests to the Federal Reserve and Treasury Department for a candid accounting of their involvement in the gold market, particularly in regard to gold swaps. In a reply to GATA's lawyers dated September 17, 2009, Fed Governor Kevin M. Warsh acknowledged that the Federal Reserve has gold swap agreements with foreign banks but insisted that such documents remain secret. (See Footnote 3 below.)

As a result, last December GATA sued the Federal Reserve in U.S. District Court for the District of Columbia, seeking access to the Federal Reserve's withheld records of gold swaps.

Understanding that the manipulation of the price of gold is profoundly important to all markets and the American public, on January 31, 2008, GATA placed a full-page color advertisement in The Wall Street Journal at a cost of $264,000. (See Footnote 4 below.) GATA's ad warned, "This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world." What GATA warned against has come to pass.

GATA has long implicated the New York Commodities Exchange (Comex) as being a mechanism by which gold and silver price suppression is implemented. The smoking gun is the excessive concentration of bullion bank positions in the gold and silver futures markets. This concentration enables market manipulation -- just as market concentration was the justification offered by the CFTC in 1980 when it acted against the Hunt Brothers in the silver market.

The weekly commitment of traders report documents the total net short position of commercial traders in the commodity markets. The monthly bank participation reports disclose the holdings of U.S. banks in various markets. In a letter to GATA dated February 19, 2009, Laura Gardy, a CFTC legal assistant, wrote, "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 banks' positions. As a result, as of December 2009 the CFTC no longer names the number of banks when it is less than four."

The CFTC has been investigating possible manipulation of the silver market for more than a year, so this reporting change is disturbing to us, as it reduces transparency and the ability to uncover market manipulation.

The CFTC's own reports of November 2009 show that just two U.S. banks held 43 percent of the commercial net short position in gold and 68 percent of the commercial net short position in silver. In gold, these two banks were short 123,331 contracts but long only 523 contracts, and in silver they were short 41,318 contracts and long only 1,426 contracts. How improbable is it that these two banks attract most of the investors who want only to sell short? (See Footnote 5 below.)

It has been possible to extrapolate that the two banks that hold these large manipulative short positions on the Comex are JPMorgan Chase and HSBC because of their huge positions in the OTC derivatives market, whose regulator, the U.S. Office of the Comptroller of the Currency, does not provide anonymity when it publishes market data. 6 In the first quarter 2009 OCC derivatives report, JPMorgan Chase and HSBC held more than 95 percent of the gold and precious metals derivatives of all U.S. banks, with a combined notional value of $120 billion. This concentration dwarfs the concentration in the gold and silver futures markets and should raise great concern about the lack of position limits on the Comex.

It is also disturbing to us that HSBC is the custodian for the major gold exchange-traded fund, GLD, and that JPMorgan Chase is the custodian for the major silver exchange-traded fund, SLV. It is a significant material omission to fail to disclose to GLD and SLV investors that the custodian banks of the two exchange-traded funds have an interest in falling prices in the futures and derivatives markets.

Detailed daily monitoring of gold trading reveals these patterns:

1. In recent years gold price suppression has been apparent from the near-complete failure of the gold price to rise more than 2 percent per day on the Comex (what GATA calls the 2 Percent Rule) while there is no corresponding restriction on days when the gold price is falling.

2. At option expiry gold almost always falls to a point where a large number of call options have been written, nullifying the value of the options. Typically, the price rallies immediately after option expiration.

3. The gold price consistently falls at 3 a.m. New York time when the gold cartel’s traders report to work in London, and again following the PM gold price fix, when physical market pricing has concluded for the day, and in the access market following the Comex close.

No other market trades so repetitively.

GATA has evidence that there are enormous physical short positions in the gold and silver markets that cannot be covered. Because of the decades-long interference with the gold market, we estimate that the free-market price of gold is multiples of the current price. Growing stress caused by burgeoning physical bullion demand is threatening to lead to a price explosion, which will restore to the market the balance that regulation has failed to maintain. In our view, the Comex paper market will become dysfunctional, with "force majeure" having to be declared as the concentrated shorts are unable to deliver on their obligations.

We urge the CFTC to report fully and candidly on these markets and take appropriate action.


Gold Anti-Trust Action Committee Inc.

... Footnotes:

1. "Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices" by Reginald H. Howe.http://www.goldensextant.com/

2. http://www.federalreserve.gov/monetarypolicy/files/FOMC19930518meeting.p...

3. http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

4. http://www.gata.org/node/wallstreetjournal

5. http://www.cftc.gov/dea/bank/deanov09f.htm

6. http://www.gata.org/node/7307

Thank you Mr. Murphy. I'm glad you on our side as the battle rages on.

Today Gold and particularly Silver, fought back hard against the CRIMEX goons after being drilled on cue following the "story" out of China that Reuters graciously supplied to the enemy as fodder for their Gold price suppression cannons.

Gold bounced hard off of support along it's uptrend line near 1110, and printed a strong reversal candle on the daily chart. Silver bounced hard off support at 16.92, and actually closed up on the day. Resistance in Gold now lies overhead at 1126. Gold must close above 1131 to put momentum back in the Bulls favor. Silver looks very powerful here following a successful retest of the recent breakout at 16.92. A Silver close above 17.50 has the potential to scorch the Silver shorts with a major short squeeze.

Strong demand for US $40 bln, 3-yr debt sale
NEW YORK, March 9 (Reuters) - The U.S. government sold $40 billion worth of three-year debt on Tuesday in an auction that met robust demand and bode well for offerings later this week.

The three-year auction, part of this week's $74 billion in bond offerings, attracted bids worth 3.13 times the amount on offer, which was above the average of 2.98 at the last six sales.

Yields at the auction came in slightly below expectations, based on trade in the when-issued market at the deadline for bids. This indicates investors were willing to pay a small premium to get their hands on the bonds.

"Overall a very solid auction," said Aaron Kohli, interest rate strategist at RBS Securities in Stamford, Connecticut.

Foreign central bank and large institutional investor demand was near recent averages, based on the indirect bidder category which accounted for 51.6 percent of the sale.

This was marginally below the average of 53.58 percent in the auctions since June, which has become a benchmark for comparisons due to changes in calculations that have boosted this category.

The recently growing direct bid accounted for 10.3 percent of the sale, beating its 9.27 percent average since June.


Whistling past the graveyard. Bodes well for the 10 and 30 year auctions? That's what they said last time. Long-term US Treasury debt may as well be deemed riddled with leprosy. I suspect "hopes" for the rest of the bond auctions this week will be dashed. We shall see soon enough.

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