Friday, July 9, 2010

Mystery Dance

Gold appears to be attempting a break of the recent downtrend at 8:50AM est. this morning at 1203. Having been caught in the tug-of-war between the unwinding of Euro shorts and Dollar longs, Gold has been left spinning it's wheels. To be certain, to see Gold falling with the Dollar is most unusual.

Immediate resistance in Gold lies at the downtrend line off the recent 1265 high. A break of 1200 here should give the Gold shorts pause. Should Gold clear and close above 1213, a short squeeze in Gold will be the result. Support rests at recent lows near 1185.

In the Big Picture, recent Gold dyslexia relative to the Euro or Dollar is irrelevant. Proving even less relevant is this weeks whirlwind news story regarding Gold swaps with the Bank Of International Settlements [BIS].

Further review of this story is beginning to show it to be a lot of blah-blah. Consider that the Gold swapped is valued at ONLY $14 BILLION, and one wonders what all the fuss has been about. The US debt rose $166 BILLION recently in just a single day!

One must also question the condition of European banks if they had to resort to pawning Gold to raise cash. These Gold swaps are no threat to the rising price of Gold regardless of the speculation. These swaps only enhance and strengthen the fundamental reasons why the price of Gold should be rising. If anything is being suppressed, it's the global banking crisis. The banks are in far, far worse shape than we are being lead to believe. Keeping a lid on the "price" of Gold only allows the TRUTH about the banking crisis to be kept hidden.

Gold is up $6 in the last 15 minutes as I type this, to 1209. Oddly enough, the Dollar is up off it's lows of the day as well.

Gold swap mystery deepens as BIS gets correction from Wall Street Journal
Submitted by Chris Powell, Secretary/TreasurerGold Anti-Trust Action Committee Inc.
The Wall Street Journal this evening updated and corrected its report about the gold swaps undertaken by the Bank for International Settlements, disclosing an e-mailed statement from the BIS stating that the swaps were with commercial banks, not central banks as the newspaper first reported.

The updated story suggests that some puzzlement continues about the swaps:

"The enormous amount of gold involved, nearly tripling what the BIS itself owns, left many market participants wondering about the nature of the deals. The BIS declined to identify the commercial banks involved. ... It isn't clear what prompted the banks to borrow from the BIS instead of their central banks."

Further, without citing authority the paper says "the gold hasn't entered the open market," but "if the banks that loaned the gold are for some reason unable to make good on the loan, the BIS could opt to sell the gold in order to get its money back, which could amount to flooding the market with an unexpected boost to the global supply."

But gold being money that for years has been appreciating against nearly all currencies, as noted for you a few minutes ago here --

-- why would any institution want to sell gold "to get its money back?" -- unless, of course, "flooding the market" and suppressing the gold price wasn't the real objective?

Another unanswered question is where the European commercial banks got all that gold, "349 metric tons ... nearly tripling what the BIS itself owns." The European commercial banks aren't known for holding that much metal on their own account. (If you rent a safe-deposit box at a European commercial bank, you might want to check its contents in the morning.)

While the story has changed in an important way, the first principle of journalism hasn't, and journalists here haven't yet demanded information from the primary sources, the BIS and the commercial banks themselves. Nor has there been any change in the conclusion that must be drawn from the story so far. That is, the secrecy and the involvement of the BIS, an admitted gold market rigger, impugn the transaction as part of another gold market rigging scheme.

The Wall Street Journal's updated and corrected story is here:

Commercial bank ‘gold swap’ intrigue continues
by Izabella Kaminska
As the WSJ noted:

The Bank for International Settlements said it loaned billions of dollars backed by gold to commercial banks in recent months. Most of the loans—known as gold swaps—were conducted with European banks in exchange for foreign currencies, mainly U.S. dollars, according to data released last week in the BIS’s annual report.

“The operations concerned were purely market operations with commercial banks,” the BIS said in an email statement. The statement came in response to a Wall Street Journal article on Wednesday that said the BIS swaps were with central banks.

The sheer size of the recent swaps—involving 349 metric tons of gold, valued at about $14 billion currently—indicates the stress that the international banking system is under, particularly in European countries facing investor concerns about sovereign-debt woes.

As the report explains, while the BIS — known as the “central bankers’ central bank” — is only allowed to take deposits from said central institutions, it can lend to a broader spectrum of financial institutions, including commercial banks and corporations.

(Although we can’t actually find the relevant bit in the BIS mandates that says as much — and would welcome a link if anyone has it.)

The continuing mystery, though, is how European commercial banks managed to get hold of as much as 342 tonnes worth of gold.

Lex speculated on Thursday:

Traders theorised that one or more of the bloc’s central banks pawned gold to prop up their groaning banking systems. Spain’s regional savings banks, or cajas, and Greek lenders, for example, have sucked in copious liquidity in recent months and are likely to need more. These transactions bore all the hallmarks of a furtive operation to assist a peripheral eurozone central bank unwilling to be seen pawning its reserves.

But the swaps raised only $14bn – surely not enough for any such sweeping operations. Another tale was that the central banks used swaps for bridging finance pending drawdown of the eurozone rescue package; but again, the numbers fail to stack up. An even more far-fetched explanation has the International Monetary Fund selling reserves to boost its own finances ahead of a bail-out.

Which seems to suggest the mystery remains unsolved.

Nevertheless, there is one thing of which we can be sure: the bulk of gold-swapping did take place in January, and that coincides with
the expiry of the Federal Reserve’s dollar swap-line facility on February 1.

And as we know, the ECB and the Fed
were very quick to reinstate those swap lines as soon as Eurozone strife did break out.

The one question that begs to be asked: Why would any bank need to pawn it's Gold to raise cash? Central banks AND commercial banks create money out of thin air everyday. Regardless of whether these swaps were with central banks or commercial banks seems insignificant when one asks the simple question, why? And therein lies our mystery.

Was central bank Gold funneled through a European commercial bank, or group of European commercial banks to disguise central bank efforts to block Gold's impending blast off at $1250?
Is revelation of these Gold swaps, no matter the parties involved, a sign of a further loss of control of the price of Gold by the Gold Cartel?

GATA's Chris Powell speculates:

"...while news reports describe the BIS gold swaps as a means for central banks to "raise cash," central banks are able to create money out of nothing; they don't have to sell or lend anything to create money, or at least not to create their own money. They might have to sell or lend something to obtain the currency of some other nation. For example, other nations might have to sell or lend gold to obtain U.S. dollars.

But, third, the U.S. Federal Reserve lately has made all sorts of currency swap arrangements with other central banks so that they all can have plenty of dollars to use for market intervention. Other central banks have been able to obtain plenty of dollars just by creating more of their own currency and exchanging it with the Fed. In effect all the major Western central banks now are able to create dollars at will.

So why did any central bank have to lend or pawn its gold to get dollars?

Was there some agreement among central banks, or some insistence by the United States, that more gold had to be put into the market to defend currencies, government bonds, and low interest rates, to augment the quiet gold sales recently undertaken in London every month by the International Monetary Fund? The IMF too is supposedly selling gold to "raise cash," even as it is part of the central banking system that can "raise cash" just by creating it. Have the Western central banks more or less re-established the price-suppressing London Gold Pool of the 1960s, only this time surreptitiously?

Given the BIS' traditional interest in "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful," the BIS-arranged gold swaps must be suspected as part of a scheme to manipulate the gold market."

Harvey Organ, a GATA member, on his blog last night had this commentary regarding these BIS Gold swaps. He may be very close to solving the "mystery":

I am having great difficulty in believing the email from the Wall Street Journal.

The BIS does not do transactions with commercial banks, only central banks.
No commercial bank has gold of that size.

What is even stranger is that the operation of supplying gold to this unknown entity is still ongoing.

I may be wrong but it looks to me that a central bank got collared i.e. sold a gold call on gold it does not have.

The gold was leased years earlier and the entity that owned the call wanted physical and not cash.

The central bank in question was probably a captive bank of the ECB.
The ECB did not have the authority to lend gold to the captive bank to bail it out.

It was a metal crisis.

In the email it stated that the gold is held and not liquidated. Why then was the deal with a commercial bank and not a central bank, and then let that central bank deal with its problem child?

They are lying!

I must check, but this would be the first time that the BIS entered into an agreement by-passing a central bank authority.

Strange indeed.

and now the real story:

I have just finished talking with Reg Howe on the matter and he feels that I am close as to what actually happened.

It is his opinion that the bank in trouble is in reality a big commercial bank within a captive central bank's jurisdiction that got caught with a collar or a call on gold that gold contracted could not be delivered. The captive central bank did not wish to part with any of its gold so the commercial bank called on the BIS for help and they arranged this crazy bail out swaps.

The bailout may have been cash settled or maybe gold and cash together as there may have been some arm twisting to get this affair settled.

The BIS does not accept deposits of cash or gold from a commercial bank but lately, it can do gold loans to commercial entities. What probably happened here was a commercial bank got in trouble and its central bank refused to help. The ECB also did not want to bail out this bank so the problem bank went to the BIS for help.

This is hugely positive because it was hidden from public view and the last thing that the world wants to hear is that a central authority did not want to help one of its commercial banks.

Reg thus believes that it was not a liquidity problem, it was a shortage of metal problem. and the problem was solved with swaps and the shifting of collateral to take sure that the BIS which is loaning money is repaid. The collateral is the gold swapped. The amount of tonnage in this problem transaction was the entire 380 tonnes of gold.

I was close. I thought it was the captive central bank in trouble. In reality it was the commercial bank inside the captive bank's country that became the troubled zone and had to be bailed out.

Reg Howe is certainly the authority on the BIS.

In essence we got a run on a bank but the bank was a commercial entity and not a central bank. The central bank urged the BIS to make a statement less the world thinks that it is void of gold.

The central bank originally urged that the BIS keep this quiet so it was put as a footnote hoping nobody would see it. Somebody did and thus we have the story.

One fact remains clear. No matter the who, what, why, or where of these BIS Gold swaps, this story is all noise in the long bull run of the price of Gold. ALL efforts to stop the rise of Gold over the past ten years have failed. The Gold Cartel's success in "slowing" the rise in the price of gold is acknowledged, but the effort has and will continue to be proved fleeting.

U.S. marks 3rd-largest, single-day debt increase
By Stephen Dinan
The nation's debt leapt $166 billion in a single day last week, the third-largest increase in U.S. history, and it comes at a time when Congress is balking over higher spending and debt has become a key policy battleground.

The one-day increase for June 30 totaled $165,931,038,264.30 - bigger than the entire annual deficit for fiscal year 2007 and larger than the $140 billion in savings the new health care bill will produce over its first 10 years. The figure works out to nearly $1,500 for every U.S. household, or more than 10 times the median daily household income.

Daily debt calculations jump and fall, and big shifts are common. But all three of the biggest one-day debt increases have occurred under the tenure of President Obama, and all of the top six have been in the past two years - an indication of just how quickly the pace of deficit spending has risen under Mr. Obama and President George W. Bush.

IMF calls for deficit cuts in US
Martin Crutsinger, AP Economics Writer
WASHINGTON (AP) -- The International Monetary Fund is calling for the United States to make a stronger effort to curb its budget deficits.

The IMF said Thursday that in addition to cutting government spending, the Obama administration will have to consider raising taxes to get the U.S. deficit down to a manageable level.

The IMF proposed a range of possible tax increases that would be certain to generate huge political opposition, from reducing the popular tax deduction for home mortgages to instituting a national sales tax.

The IMF report said that the U.S. economic recovery was becoming "increasingly well established" but it warned that the risks remained on the downside.

Among the threats, the IMF said, were the possibility of a double-dip recession in housing, continued deterioration in commercial real estate and the threats posed to the U.S. economy from the European debt crisis.

But the IMF said so far the U.S. rebound "has proved stronger than we had earlier expected" thanks in large part to what it called a "powerful and effective policy response" on the part of the government, including the efforts of the Federal Reserve.

But the 185-nation international lending agency was less positive about the outlook for the U.S. government deficits going forward.

It noted that because of the recession and the government's spending to battle the downturn, the amount of U.S. government debt held by the public has almost doubled since 2007 and now stands at 64 percent of the economy as measured by the gross domestic product, the highest level since 1950.

Three reasons oil is up this week...ALL OF THEM WRONG. Oil is up because the US Dollar is DOWN...end of story.

Oil Poised for Biggest Weekly Gain Since May as Equities Rise
BusinessWeek - Rachel Graham - ‎1 hour ago‎
July 9 (Bloomberg) -- Crude oil advanced in New York, heading for its biggest weekly gain since May, as equities rose in Asia and Europe, bolstering optimism that fuel demand may increase.
Oil Poised for Biggest Weekly Gain in Six as Supplies Decline San Francisco Chronicle
OIL FUTURES: Crude Up As Australia Jobs Data Revives Risk Appetite Wall Street Journal

Consumer borrowing down sharply in May
Martin Crutsinger, AP Economics Writer
WASHINGTON (AP) -- Consumer borrowing fell again in May, more evidence that Americans remain jittery over their finances and the durability of the economic recovery.

The Federal Reserve said Thursday that borrowing dropped by $9.1 billion in May. It also said borrowing declined by $14.9 billion in April, revising an initial estimate that showed a gain of $995 million for the month.

Consumer borrowing has fallen in 15 of the past 16 months as households have struggled with uncertain job prospects and battered finances following a deep recession.

In May, consumers borrowed less on their credit cards and took out fewer auto loans. Credit card borrowing has fallen for 20 straight months.

Many consumers, confronted by a deep recession and a weak job market, have tried to get their household finances in better shape by reducing their debt levels. In addition, banks during the recession have imposed tighter lending standards in an effort to cope with their rising levels of bad loans.

Analysts said the significant downward revision to April borrowing and May's decline show that consumers remain leery about taking on new debt.

"There is simply no way to spin this data, nor the past few months, as anything other than a confirmation that the consumer has not come roaring back," said Dan Greenhaus, chief economic strategist at Miller Tabak in New York. "The consumer remains quite stressed ... with income growth relatively muted and labor improvements few and far between."

For years, economists worried about a low personal savings rate. But now they fear that sustained declines in borrowing could hamper overall economic growth because it will mean less consumer demand. Consumer spending accounts for 70 percent of total economic activity.

Financial news of this nature is further proof that THERE IS NO RECOVERY. What little signs of a recovery that the government and financial news talking heads can point to are purely the result of government spending.

Further, understanding that ALL money is debt, it is no coincidence that the M3 money supply is falling like a rock in the ocean. With no new debt, the money supply has to fall. This is why a falling money supply always signals a recession is imminent. The government may dismiss the possibility of a double-dip recession out of hand, but the evidence is clear: no priate spending, no recovery. Any boast that the current administration has taken action to avert a depression and put the country on the road to recovery is 100% illusion.

All currencies have depreciated against gold and silver this year
Submitted by cpowell has posted wonderful charts of the gains scored by gold and silver against world currencies so far this year. It appears that not one currency has even kept even with the precious metals. calls this "the race to debase." You can find the charts here:

Our Treasury Secretary [and tax cheat] Timmy Geithner has carefully avoided calling China a currency manipultor in his delayed report, the Semi-Annual Report on International Economic and Exchange Rate Policies, given to Congress yesterday.

Full Text of Treasury Report on China’s Economic Policies

At 9:25AM est Gold sits at $1212.90, threatening a squeeze of those foolish enough to be short Gold here.

Stay cool this weekend.

...I just feel an urge to comment on the media's obsession with LaBron James and Lindsay Lohan this week:

"Who really gives a sh*t?"

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