Sunday, October 31, 2010

The Fed Can't Afford To Say "BOO!"

Could Friday's news that the Sprott Asset Management Physical Silver Trust announced it's Initial Public Offering have the CRIMEX shorts in a panic? Consider that the total number of shares listed is 50 million shares at 10 dollars or 500 million dollars. Eric Sprott and company will now be on the prowl for 20.4 million oz of silver...perhaps they have been already. Sprott will likely go to the source, the Silver mining companies, to obtain this hoard. This will further crimp the Silver supply to the goons at the CRIMEX desperately in need of this physical bullion to cover their outrageous and criminal short positions.

Sprott Physical Silver Trust Announces Initial Public Offering of 50,000,000 Trust Units
TORONTO, Oct. 29 /PRNewswire-FirstCall/ - Sprott Inc. (TSX: SII) ("Sprott") today announced that Sprott Physical Silver Trust (the "Trust"), a trust created to invest and hold substantially all its assets in physical silver bullion and managed by Sprott Asset Management LP, a wholly-owned subsidiary of Sprott, has agreed to issue in its initial public offering (the "Offering") 50,000,000 transferable, redeemable units of the Trust ("Units") at US$10.00 per Unit, for gross proceeds of US$500,000,000. As part of the Offering, the Trust has granted the underwriters an over-allotment option which is exercisable in whole or in part to purchase up to an additional 7,500,000 Units at US$10.00 per Unit.

The Units will be listed on the NYSE Arca and the Toronto Stock Exchange under the symbols 'PSLV' and 'PHS.U', respectively. The Offering was made simultaneously in the United States and Canada through a syndicate of underwriters led by Morgan Stanley and RBC Capital Markets in the United States and RBC Capital Markets and Morgan Stanley in Canada. The Canadian syndicate includes TD Securities Inc., Canaccord Genuity Corp., National Bank Financial Inc., BMO Capital Markets, HSBC Securities (Canada) Inc., GMP Securities L.P., Wellington West Capital Markets Inc., and Mackie Research Capital Corporation.

Lust for Silver Returning
By Gene Arensberg, GotGoldReport
The world has a lot less silver sitting in vaults than it did 30 years ago. The best estimates are there is less than half as much as there was then.

The world population is about 50% higher than it was in 1980. The sheer number of people on the planet that could possibly want to own some silver is more than two billion higher than then, and in 1980 people in China were prohibited from owning silver bullion. Today China’s 1.3 billion souls are actually being encouraged to own gold and silver in commercials on Chinese TV. …

The number of people able to afford a small amount of silver metal is logarithmically higher than then. There are literally hundreds of millions more people the world considers “middle class” than there was in the last great rush into silver – some of whom will seek to protect a portion of their wealth in hard assets like silver. … The number of millionaires today compared to 1980 is exponentially higher – many of whom will seek to protect a portion of their wealth in metal.

Since 1980 the various governments have increased world money supply by close to 1,000%. There are literally three orders of magnitude more dollars, yen, euro, francs, pounds sterling, etc. than there was in 1980. Governments know few limits when it comes to printing money when they are no longer kept in check by the monetary policemen of gold and silver. …

For several generations people have been led to believe (artificially) that silver was no longer precious, or at least as precious as it used to be. For several generations government interference and manipulation of the money supply and the supply of actual metal gave people a reason to believe that silver was more abundant than it actually is. …

For several generations the historic ratio of silver to gold was convoluted and overly high because of that interference. By the 1940s and again in the 1990s the silver to gold ratio reached as high as an absurd 100:1 or 100 ounces of silver to “buy” an ounce of gold.

We think that there is a good reason that silver saw wide use as money in the world historically. We think there was also good reason for the old, historic ratios of between 15 and 20 ounces of silver to one ounce of gold too. We also think that silver became known as a “precious metal” for good and valid reasons.

We think that silver has begun its journey back from being despised and looked down upon, back to its proper position as the second most popular precious and monetary metal. We do indeed think that silver is money.

Think of it for a moment. Today, versus the last great rush into silver in 1980, we have 50% more people globally using 1,000% more dollars, yen, euros, pounds, etc. to chase less than half as much physical silver metal in a world where one can buy silver instantly, with a mouse click, in one’s study … maybe even in one’s underwear while browsing the internet for the latest market moving developments.

This time when the world discovers what we have been saying since August of 1999 – that silver is cheap relative to gold – that silver is scarce relative to gold – that silver will not remain the bastard child of the precious metals forever, and so on … this time when the world discovers silver it will likely do so in the most extreme fashion ever. We think this global rush into silver will make the first surge into silver in 1980 look like a little league warm up. We also think that this Silver Express has finally begun to board. It may actually be inching forward just a little. We’ll see. …

We cannot expect the average person to understand or to investigate the actual reasons for why silver was so beaten up and so hated for so long. Nor can we expect the average person to grasp the coming clash of the tectonic forces of overwhelming demand versus actual relative scarcity. All they will know is that the “lust for silver” has somehow returned, long after the train - long after this Silver Express has left the station… AND THEY STILL WON’T BELIEVE IT!

Silver to $30 in 18 days, Turk tells King World News
Dear Friend of GATA and Gold (and Silver):
In an interview today with Eric King of King World News, GoldMoney founder and GATA consultant James Turk does some chart work and predicts that silver will be at $30 in 18 days. The last time Turk made such a specific prediction about a precious metals price explosion he was off by 48 hours. His friends forgave him that much and maybe he'll do better this time. In any case, from Turk's lips to the Great Market Manipulator's ear -- and we don't mean Bernanke's. You can find excerpts from the interview with Turk at the King World News Internet site here:

Mr. Turk identifies the Flag Pattern that has been broken to the upside in Silver. My calculations projected a move to $29.15 with $25 as resistance on the way. This coming week should be one of the more interesting to date in the now ten year old bull market in Silver.

I pointed out Friday morning how anemic the 2% third quarter GDP reported is in reality relative to today's stubbornly high unemployment numbers. John Mauldin in his latest essay makes it quite clear how poor the most recent US GDP reading is. The Fed has papered themselves into a corner with their talk of further Quantitative Easing. In fact, they may have pulled the rug out from under the economy. $500 BILLION, $1 TRILLION or $2 TRILLION, it doesn't matter how much, for how long or when. The money isn't going to find it's way into the "mainstreet" economy, it's going to go straight into US Treasury bonds, the equity markets, and commodities. Americans are going to pay a heavy price to watch their economy be destroyed by the banksters.

It's Softer Than It Looks
by John Mauldin
The GDP number came in at a rather soft 2% growth, up slightly from last quarter's 1.7%. From the standpoint of creating new jobs, 2% just doesn't cut it. We need about 100,000-125,000 new jobs a month just to keep up with population growth, and a 2% GDP will not give us half that, as we saw last quarter. Most economists say you need about 3.5% GDP growth to get solid job reports.

And the prospect for getting that robust a number any time soon is not looking good, as the soft number mentioned above looks even softer when you delve into the details. 70% of the total growth in GDP came from growth in inventories, up by over 40% from the second quarter. Now normally a build in inventories is a positive, as it shows confidence on the part of businesses. But business confidence surveys have not been all that good, which suggests that businesses may be cautious, as this cycle does not seem to resemble past cycles.

(Well, except for Apple. Everyone's going to get an iPad for Christmas. You haven't got one? It is so way cool. My new favorite toy and fast becoming an indispensable business tool.)

How likely are we to see that same type of growth in inventories in the last quarter? Not very, I think.

Sidebar: For the non-geek reader, when inventories are increasing, that is a "plus" for GDP. When those inventories are sold, that reduces GDP. That may seem backwards, but that is just the way the math works. So if inventories are sold in the 4th quarter (think Christmas sales), that will be a drag on the GDP numbers.

In every previous post-recession cycle, GDP growth would typically be around 5% at this time. But this is not a business-cycle recession; it's a deleveraging, credit-crisis recession. Thankfully, those do not show up all that often, but sadly one has come home to roost in much of the developed world this decade. The aftermath of credit-crisis recession is a slow growth period of 6-8 years, punctuated by more volatility and more frequent recessions.

What economists call the "final sales" portion of GDP has just been growing at less than 1% over the last 18 months. That is a lukewarm number, to say the least. That is not the stuff of a strong GDP.

And export growth is slowing, which rather surprises me, as the dollar has been weaker. If imports rise and exports do not rise as much, as has been the case, that is a drag on GDP. State and local governments reduced GDP by 0.2%, and this12 % of the economy is likely to be under continued pressure, not adding to GDP for quite some time.

It would not surprise me to see GDP growth be closer to 1% in the 4th quarter, unless we start to see evidence of more inventory building. That is not good for jobs, personal income, tax collections needed to cover deficits at all levels, or consumer confidence. My worry is, what if we get some kind of shock to our economic body when growth is so anemic?

A Paralyzed Fed Defers Decision On Monetary Policy To Primary Dealers In An Act That Can Only Be Classified As Treason [MUST READ]
by Tyler Durden
As if there was any doubt before which way the arrow of control, and particularly causality, points in America's financial system, the following stunner just released from Bloomberg confirms it once and for all. According to Rebecca Christie and Craig Torres, the New York Fed has issued a survey to Primary Dealers, which asks for suggestions on the size of QE2 as well as the time over which it would be completed. It also asks firms how often they anticipate the Fed will re-evaluate the program, and to estimate its ultimate size. This is nothing short of a stunning indication of three things: i) that the Fed is most likely completely paralyzed due to the escalating confrontation between the Hawks and the Doves, and that not even Bernanke believes has has sufficient clout to prevent what Time magazine has dubbed a potential opening salvo into a chain of events that could lead to civil war: in effect Bernanke will use the PD's decision as a trump card to the Hawks and say the market will plunge unless at least this much money is printed, ii) that the Fed is effectively asking the Primary Dealers to act as underwriters on whatever announcement the Fed will come up with, and thus prop the market, and, most importantly, iii) that the PDs will most likely demand the highest possible amount, using Goldman's $2-4 trillion as a benchmark, and not only frontrun the ultimate issuance knowing full well what the syndicate of 18 will decide in advance of what the final amount will be, but will also ramp stocks on November 3 to make the actual QE announcement seem like a surprise. This also means that the Primary Dealers of America, which include among them such hedge funds as Goldman Sachs, such mortgage frauds as Bank of America, such insolvent foreign banks as Deutsche, RBS, UBS and RBS, and such middle-market excuses for banks as Jefferies, are now in control of US monetary, and as we explain below fiscal, policy.

It also means that the Fed has absolutely no confidence in its actions, and, more importantly, no confidence in how its actions will be perceived by the market which is why it is not only telegraphing its decision to the bankers, but is having its decision be dictated by them, an act so unconstitutional it would be seen as treason in any non-Banana republic! This is the last straw confirming that the only ones left trading the market are the Fed and the PDs, passing hot potatoes to each other, and the HFTs, churning the shit out of everything else to pretend someone is still trading.

And the saddest conclusion is that this is the definitive end of US capital markets: not only is the Fed's political subordination a moot point, but the Fed, and the middle class' purchasing power via the imminent dollar destruction that is sure to follow as the PDs seek to obliterate their underwater assets by raging inflation, is now effectively confirmed to be a bitch of Lloyd Blankfein and his posse.

The official explanation for this unprecedented incursion by the banking crime syndicate in US monetary policy is as follows:

Hyperinflation is certain, John Embry tells King World News
Eric King,
King World News interviewed John Embry, Chief Investment Strategist for Sprott Asset Management. John is absolutely convinced that hyperinflation is a certainty. When asked about Art Cashin’s comments on hyperinflation Embry replied, “I’m another person that worries hugely about hyperinflation, I mean the monetary path that they appear to be following, I guarantee you will lead to hyperinflation.”
October 27, 2010

John Embry continues:

“I think it could very well happen this time because the physical market is robust, and I’m told there’s not a lot of physical gold available right now...We could very easily overrun the shorts at Comex and force them to cover, even though they have extraordinarily deep pockets. If that happens, we are going to see some really spectacular price moves as a result.

...I think that’s why when these things move, all the gold stocks, I think you’re going to feel like your hair’s on fire they’re going to move so fast.”

Regarding the US dollar:

“What it’s really going to collapse against is hard assets...I really don’t think people have any idea the extent to which the standard of living can fall in North America, particularly in the United States. I mean when a currency collapses against everything else, basically that is saying that the standard of living is going to fall.

In fact, it could fall by 30, 40 or 50% just to pick some wild numbers, is not out of the question. Things have been pretty good for the last 60, 70 years in North America, and they think they’ll be good forever. It isn’t going to happen that way.”

The scary actual U.S. government debt
By Neil Reynolds
Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The U.S. is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”

This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible – if not politically impossible.

One way or another, the fiscal gap must be closed. If not, the country’s spending will forever exceed its revenue growth, and no one’s real debt can increase faster than his real income forever.

A Hidden Fiscal Crisis
Laurence J. Kotlikoff
A large fiscal gap
How large is the U.S. fiscal gap? According to the recent IMF report, “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates,” which are rates applied to future receipts or payments to determine their present value. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

Data from the U.S. Congressional Budget Office (CBO) long-term alternative fiscal scenario confirm the IMF’s findings. Based on the CBO data, closing the fiscal gap requires an annual fiscal adjustment of roughly 12 percent of GDP. This is based on a 3 percent real discount rate. Using a 6 percent real discount rate lowers this figure to about 8 percent of GDP. The comparable figures for Greece are slightly lower than those for the United States, according to unpublished calculations by Stephan Moog, Christian Hagist, and Bernd Raffelheuschen of the University of Freiburg.

What would it take to raise 8 percent, let alone 12 or 14 percent, of GDP? In 2009, federal personal income taxes totaled 7.4 percent of GDP in the United States. To achieve present value fiscal balance would require a change in the present value of the government’s net cash flow equivalent to at least an immediate and permanent doubling of income taxes.

The CBO forecast actually is more pessimistic than the IMF’s. That’s because the CBO already builds in a 50 percent increase in personal income tax payments as a share of GDP. In addition, the CBO assumes that growth in the benefit levels of Medicare and Medicaid—government programs that provide health care to the elderly and poor, respectively—will fall by about one-third in the short term and two-thirds in the long term. Moreover, both CBO scenarios are implausible.

Take the CBO’s projected rise in income taxes relative to GDP. This projection reflects primarily the automatic increase in taxes that occurs because the income tax is indexed to prices, not real wages, and the CBO assumes no adjustment for real wage growth in the graduated tax brackets. Under this projection, as real wages rise, workers move into higher income-tax brackets. It seems politically unlikely that the U.S. Congress would allow this to continue for even a decade, which is what the CBO assumes.

Spending projections appear optimistic too. There is no concrete policy in place to keep a lid on growth in Medicare and Medicaid benefit levels. Since 1970, real federal spending per person on Medicare and Medicaid has grown at an average annual rate of 6.4 percent, whereas real per capita GDP has grown at an annual rate of only 1.8 percent. The CBO assumes a significant slowdown in the nondemographic component of this differential. Given the 40-year failure to control growth in Medicare and Medicaid benefits per beneficiary, the CBO’s assumption seems optimistic.

Moreover, there is a significant possibility that employer-based health insurance will unravel, which is not envisaged in the CBO projections. The new health care reform law passed this year includes large subsidies for low-income workers who seek to buy insurance coverage under a health insurance exchange, and imposes relatively minor penalties on employers who stop offering coverage. The availability of Medicare has effectively eliminated private provision of basic health insurance coverage for the elderly. Given the mix of incentives for employers and low-income employees, we should expect the same ultimate result for low-income workers.

Were the CBO to forecast without its strong assumptions, the U.S. fiscal gap in relationship to GDP would be substantially larger than that of Greece—and of most, if not all, the advanced economies that are members of the Organization for Economic Cooperation and Development. And unlike in Greece, where the government has just publicly debated and legislated major, if still insufficient, fiscal reforms, the CBO’s assumptions about how things will evolve have yet to be publicly discussed or, indeed, even contemplated in U.S. political discourse.

Insurmountable government debt and massive mortgage fraud assure us of a Fed rescue via QE2. The US government can not be allowed to default on it's debt. Given the choice of saving the US Dollar, or saving the equity and bond markets, the Fed has little choice but to cut the dollar loose, and let if fall where it may. Tuesday's mid-term elections are taking a back seat to Wednesday's Fed announcemnt regarding their QE2 intentions. The markets hate surprises, and at this stage, the Fed can't afford to say "BOO!"

Keep an eye to the Yen and the Yuan as the week begins, and "expect the unexpected". It would be foolish to make predictions ahead of the Fed this evening, but it would be safe to say that "volatility" will rule the days ahead.

Friday, October 29, 2010

2% GDP Guarantees QE2

US third quarter GDP prints this morning at +2%, a full 3/10 of one percent higher than second quarter GDP! Weeeeeeeeeee! [It should be noted that second quarter GDP was revised lower after it's original estimate.] 2% growth is less than anemic.

The US financial media will make every effort to paint this number as a "sign of recovery". It isn't. It isn't even close. This is a sign that the US economy is on life support, and going nowhere fast. This number is irrelevant to the QE2 question. The Fed believes that further QE2 will aid in their meeting their dual mandate of ensuring full employment and price stability. 2% growth in the economy will not cut it in the eyes of the QE2 supporters at the Fed.

Economists say a growth pace of at least 3.5 percent, driven by solid domestic demand and exports, over several quarters is needed to bring down high unemployment. The Fed is determined to create "growth". They will succeed, but only by delivering the illusion of growth resulting from the rising prices that QE2 will produce.

The path forward is clear: Rising Gold and Silver prices on the back of a collapsing US Dollar.

Gold vs. the Fed -- the record is clear
By Charles W. Kadlec
When it meets next week, the Federal Open Market Committee (FOMC) is widely expected to signal its desire to increase the rate of inflation by providing additional monetary stimulus. This policy is based on a false -- and dangerous -- premise: that manipulating the dollar's buying power will lead to higher employment and economic growth. But the experience of the past 40 years points to the opposite conclusion: that guaranteeing a stable value for the dollar by restoring dollar-gold convertibility would be the surest way for the Federal Reserve to achieve its dual mandate of maximum employment and price stability.

From 1947 through 1967, the year before the U.S. began to weasel out of its commitment to dollar-gold convertibility, unemployment averaged only 4.7% and never rose above 7%. Real growth averaged 4% a year. Low unemployment and high growth coincided with low inflation. During the 21 years ending in 1967, consumer-price inflation averaged just 1.9% a year. Interest rates, too, were low and stable -- the yield on triple-A corporate bonds averaged less than 4% and never rose above 6%.

What has happened since 1971, when President Nixon formally broke the link between the dollar and gold?

Higher average unemployment, slower growth, greater instability, and a decline in the economy's resilience. For the period 1971 through 2009, unemployment averaged 6.2%, a full 1.5 percentage points above the 1947-67 average, and real growth rates averaged less than 3%. We have since experienced the three worst recessions since the end of World War II, with the unemployment rate averaging 8.5% in 1975, 9.7% in 1982, and above 9.5% for the past 14 months. During these 39 years in which the Fed was free to manipulate the value of the dollar, the consumer-price index rose, on average, 4.4% a year. That means that a dollar today buys only about one-sixth of the consumer goods it purchased in 1971.

And today, with the Fed at a crossroads, QE2 looms on the horizon. Statistics prove that printing money does little to improve growth or lower unemployment. Yet the Fed appears to be determined to follow this path in the face of almost certain failure. Why?

Wouldn't it make infinitely more sense to simply devalue the Dollar versus Gold and Silver than print money into infinity? Yes it would, but what if the Fed had no Gold to devalue the Dollar against? They'd have to print money as fast as they can, and use the Gold and Silver futures markets to suppress the price of these Precious Metals in an effort to "hide" the money printing.

Could the Fed's decision to follow a path of Quantitative Easing in a effort to grow the economy via inflation be proof that the Fed has sold and, or swapped away the US Treasury's Gold? Are they faced with no other choice but to inflate away the country's debt because they have no more Gold? It is certainly beginning to look that way.

The government claims to have 261.5 million ounces of gold but this doesn't belong to the government; it belongs to the citizens. This is believed to be the largest hoard of Gold in the world. IF the US Federal Reserve has "spent" the better part of the past 40 years "suppressing" the price of Gold to foster an illusion of a "strong Dollar" have they literally stolen the wealth of the nation? Are US Dollars literally absolutely worthless? Is this why the US Gold Reserve has not been independently audited since 1958?

It is becoming increasingly obvious that the Fed has America on a road to nowhere. If in fact the Fed has lost their only compass, Gold, then the road to nowhere is likely now to lead over a cliff.
And the price of Gold is going to the Moon.

Piercing the mystery of the gold market[DEFINITE MUST READ]
By: Chris Powell, Secretary/Treasurer, GATA
The precious metals markets have tremendous potential for investors. But they are also wrapped up in great mystery -- deliberately so

Gold is the worst understood financial market. Most official data about gold is actually disinformation.

Years ago GATA disclosed that the International Monetary Fund, the leading compiler of
official gold reserve data, allowed its member nations to count gold they had leased, gold that had left their vaults, as if it was still in their vaults. The effect of this accounting fraud was to deceive the gold market into thinking that central banks had much more gold left to bomb the market with than they really did.

But that's only the start of the false data.

In September 2009, in the course of seeking access to gold records from the Federal Reserve and then suing the Fed in U.S. District Court for the District of Columbia, GATA obtained a sensational written admission from the Fed, signed by Fed Board of Governors member Kevin M. Warsh, a former member of the President's Working Group on Financial Markets -- the so-called "Plunge Protection Team." Warsh wrote that the Fed has secret gold swap arrangements with foreign banks and that these arrangements must be kept secret.

So has gold from the U.S. reserve been swapped? Does the United States really have 8,200 tonnes of gold in its reserve, as it long has claimed to have?

Fed Governor Warsh didn't quite say that U.S. gold had been swapped, only that the Fed has gold swap arrangements. But the U.S. gold reserve hasn't been audited in more than half a century, and the last audit wasn't really complete. So in the next session of Congress U.S. Rep. Ron Paul hopes to introduce legislation requiring an audit of the gold reserve, including specifically any encumbrances like swaps and leases.

Then there are the major gold and silver exchange-traded funds, which were established in the last few years supposedly to help ordinary investors invest conveniently in gold and silver. How much metal do the ETFs have?

While the major gold and silver ETFs frequently report their metal holdings, studies by GoldMoney founder James Turk and GATA board member Catherine Austin Fitts and her lawyer, Carolyn Betts, suggest that this data is unreliable too. For the major ETFs won't disclose exactly where their metal is, and indeed their prospectuses say it's OK for the ETFs not even to know where their metal is kept among custodians and sub-custodians. And the custodians for the major gold and silver ETFs are, perhaps not so coincidentally, also the two major international banks that report having the biggest short positions in gold and silver, short positions that give these banks and metal custodians a powerful interest in suppressing the price of the assets they supposedly are holding for investors who want those assets to rise in value.

How much gold do the major gold and silver ETFs really have in their vaults? How much of it is encumbered in some way? ETF investors themselves will never be permitted to know.

The biggest so-called "physical" gold market in the world is the one run by the London Bullion Market Association. The LBMA publishes statistics on how much gold and silver are traded by its members. But these statistics show spectacular volumes, more metal than could possibly exist. Of course much of this metal could be sold and resold back and forth many times every day. But an expert in that market, Jeffrey Christian of the CPM Group, acknowledged at the March 25 hearing of the U.S. Commodity Futures Trading Commission, as he had acknowledged in an explanatory report published in 2000, that the London bullion market is actually a fractional-reserve gold banking system built on the presumption that most gold buyers will never take delivery of their metal but rather leave it on deposit with the LBMA members from whom they bought it.

GATA board member Adrian Douglas has studied the LBMA statistics and Christian's work and estimates that the great majority of gold sold by LBMA members doesn't exist -- that most gold sales by LBMA members are highly leveraged. How leveraged? How much gold is due from LBMA members that doesn't really exist? The LBMA doesn't report that. Like the Fed's gold swap arrangements, the world mustn't be permitted to know. The consequences might be catastrophic for the banking interests that run the world.

For then the world might understand why even at its recent price above $1,300 per ounce gold has not come close to keeping up with the inflation, the currency debasement, of the last few decades, why gold has not fulfilled its function of hedging against inflation. That is, gold's enemies figured out how to increase its supply by vast amounts without going through the trouble of digging it out of the ground. They invented "paper gold" -- gold that doesn't exist but that many buyers accepted, never suspecting that major financial institutions might deceive or defraud them

He continues...

Since the United States now issues the reserve currency for the world, the dollar, the United States now more or less occupies most countries economically, even those countries that have their own currencies, since even those countries hold most of their foreign exchange reserves in dollars.

Free-trading and widely accessible gold always has been and always will be a threat to the rigging of the currency markets, always will be the escape from overbearing government generally and from any overbearing government in particular. That is why so many U.S. government records compiled by GATA over the years candidly discuss or advocate or describe controlling and suppressing the gold market. A declassified cable from the U.S. Embassy in Paris to the State Department in Washington, written in March 1968, even talks about the necessity for U.S. monetary officials to remain what the cable calls "the masters of gold." This is also why U.S. government agencies like the Federal Reserve are trying desperately to prevent other such documents from being disclosed.

That is, gold is the secret knowledge of the financial universe and its true value relative to currencies is vastly greater than its nominal price today, since much of the gold that investors think they own doesn't exist.

Gold Will Outlive Dollar Once Slaughter Comes[INSIGHTFUL READING]
John Hathaway
The world’s monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policy makers are unaware of the implications.

The only questions are how long the denouement of the dollar reserve system will last, and how much more damage will be inflicted by new rounds of quantitative easing or more radical monetary measures to prop up the system.

Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable. Such a transition is, by definition, nonlinear. So central-bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offers no guidance on what lies ahead.

It’s amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape. Until there is fundamental monetary reform on an international scale, most economic forecasts aren’t worth the paper on which they are written.

Telltale signs of future trouble aren’t hard to spot. Only a few months ago, Federal Reserve Chairman Ben Bernanke and a chorus of other high-ranking Fed officials were talking about exit strategies from the U.S. central bank’s bloated balance sheet and the financial system’s unprecedented excess liquidity. Now, those same officials are talking about pumping more money into the system to stimulate growth.

And they’re not alone: Six months ago, the chief economist of the International Monetary Fund, Olivier Blanchard, suggested that raising inflation targets to 4 percent from 2 percent wouldn’t be too risky.

This sort of talk must grate on the nerves of our trading partners, China, India, Russia and others, who have accumulated pyramids of non-yielding Treasury debt. No haven there. Return- free risk may be a better way to put it. And bickering among central bankers over currency manipulation and rising trade tensions doesn’t exactly reinforce one’s confidence in a scenario of sustained economic growth and a return to prosperity.

The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero. Bernanke, Jean- Claude Trichet and Mervyn King, his counterparts in Europe and the U.K. respectively, are huddling en masse upon the most precarious perch in the history of monetary affairs. These alleged guardians of monetary stability, in their attempts to shore up the system, have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life.

Wednesday, October 27, 2010

Nice breakout! ...NOT! Apparently the CRIMEX goons were none to amused by CFTC Commissioner Bart Chilton calling them on the carpet yesterday. Thousands of ounces of Gold and Silver that do not exist were sold today in New York to halt the resumption of the Mother Of All Short Squeezes in the Precious Metals Markets. Nothing shocking...

Patience grasshopper, the bear trap is being set. The best part about it is the bears are setting their own trap.

The question of will the Fed begin buying treasury debt after the election, or won't they, has been the catalyst for last weeks and this weeks market volatility. Again, nothing shocking...

The Fed has no choice but to begin a process of Quantitative Easing in one last ditch effort to "save the economy". Unfortunately, they only sow the seeds of it's destruction. Efforts to date, mostly covert, to pump money into the system have done little to "rescue the economy". And despite government claims to the contrary, inflation is raging behind the phony statistics the government uses to track it.

Chart of the Week: Inflation in the Real World
As is often the case, there is a big difference between what the government statistics are reporting and what’s going on in the real world. According to the most recent inflation reading published by the Bureau of Labor Statistics (BLS), consumer prices grew at an annual rate of just 1.1% in August.

The government has an incentive to distort CPI numbers, for reasons such as keeping the cost-of-living adjustment for Social Security payments low. While there’s no question that you may be able to get a good deal on a new car or a flat-screen TV today, how often are you really buying these things? When you look at the real costs of everyday life, prices have risen sharply over the last year. For simplicity’s sake, consider the cash market prices on some basic commodities.

On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October.

You probably aren’t buying new linens or shopping for copper piping at the hardware store every day, but I included these items to show the inflationary pressures on some other basic materials that will likely affect consumer prices down the road.

The jump in gold and silver prices illustrates that it’s not just supply and demand issues driving the precious metals higher – the decline in purchasing power of the dollar is also showing up in the price of physical goods. It is because stashing wheat and cotton in the garage is an impractical way to protect purchasing power that investors are increasingly looking to protect themselves with the monetary metals – a trend that is now very much in motion.

It is highly unlikely that by debasing the Dollar, the US Federal Reserve is going to save the economy. A loss of confidence in the Dollar will most likely lead to a hyperinflationary Depression, and the complete destruction of the economy as we have known it.

Jim Sinclair summarizes this whirlwind of Precious Metals volatility this way:

This is the entire story. All else is meaningless chatter.

The world of traders is locked onto November 3rd as if it was the Super Bowl of markets. It is simply more madness of the crowd as they count the minutes before “he does,” “he does a little,” or “he does nothing” on that date.

The following is the entire story, and may well be the only story until November 3rd.

Dear CIGAs,

Right now an exhausted group of manic speculators in all markets are tied to the question of "Will he or will he not QE on November 3rd."

The recent small upticks in international economic statistics is not a sign of economies turning strong for GB or the US. They are the normal play of government statistics.

Britain is not on the threshold of a turn towards the better. In fact it is the absolute opposite that GB will experience in the next 12 months.

Regardless of what comes on November 3rd, the only choice the Fed has is QE to infinity. This won’t be because it is good, but because all else is not.

November 3rd is only relevant date to the mad short term gambleholics. QE to infinity is what is coming and November 3rd is meaningless to that. Whether it comes November 3rd, December 3rd, January 3rd or any other date, QE to infinity is coming.

All the new converts to austerity in the Western World are going to do a 180 degree turn as their economies crater and their populations swear to vote every politician out of office no matter what party they are.

QE is coming, of that have no doubt. The markets fully expect it now, in fact they demand it. A failure to deliver as "promised" and the Fed only digs the hole they must fill with funny money that much deeper. Consider the recently unveiled "Forclosuregate Crisis". There is not a bank on the planet, including the Fed, that can make this fraud disappear. Is the Fed going to print SIX TRILLION DOLLARS to paper over this fraud along with the two to four trillion it needs to print to "jump start the economy" by buying the US Treasury's debt?


“The Wall Street Journal reported on Wednesday the Fed was likely next week to unveil a programme of Treasury bond purchases worth a few hundred billion dollars over several months, a "measured approach" which would contrast with purchases of nearly $2 trillion during the global financial crisis.

Expectations vary as to how much the Fed could announce in asset buying when it meets on Nov. 2-3, although investors' base-case scenario has been for an initial commitment to buy at least $500 billion over five months.

"There is a lot of speculation ranging from 100 billion per month for several months to at the most $2 trillion, so a few hundred billion is in the range," said Akihiro Nishida, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.”

The Six Trillion Dollar Problem
By Greg Hunter’s
When I was an investigative reporter at the networks, the first question we would ask when trying to decide if we wanted to do a story was: How many? How many people have been hurt by a defective product? How many defective products of a certain kind were in use? How many dollars will it take to fix the problem? In the case of the recent mortgage crisis – “Foreclosuregate,” the question of how many has been answered.It has been widely reported that there are a little more than 60 million home mortgages in the Mortgage Electronic Registry System (MERS). If every one of the 60 million mortgages are worth $100,000, that would mean a total of at least $6 trillion in home mortgages that are electronically filed. In MERS, there is no physical written record of a “Promissory Note.” In almost all states, you need that original “Note” to prove ownership of a home. That means in almost every single state, the banks cannot legally foreclose on your home without this document. Some say the loan documents were lost on purpose because the bankers did not want their massive fraud to see the light of day. Whether or not the “Notes” were lost on purpose or accident, the fact is the original “Notes” are nowhere to be found. That is what the “Robo Signing” part of the story is all about. It has been widely reported that “foreclosure mills” were creating massive amounts of counterfeit Promissory Notes so banks could legally foreclose on homeowners.

In the post I did earlier this week called “The Perfect No-Prosecution Crime,” I laid out several layers of fraud and white collar crime of mortgage and foreclosure fraud. The lack of the Promissory Note is the biggest of all the problems in this chain of chicanery. Here’s why. A Promissory Note is a financial instrument. It is in the same family as a Federal Reserve Note. For example, if you copied a $100 bill and then tried to spend that copy in a store, because you lost the original, is it still money?–Of course not. You need the original financial instrument (in this case, $100 Federal Reserve Note) to make a legal transaction in a store. The same is true for a Promissory Note. You need the original Promissory Note to legally complete a foreclosure. A counterfeit, or copy, of a Promissory Note is not a financial instrument, just like a counterfeit or copy of a $100 bill is not a financial instrument!

Can you see how big this problem really is for the banks? This is $6 trillion in real estate that fat cat bankers cannot legally prove they own. Likewise, that means trillions of mortgage-backed securities HAVE NO BACKING. I think this is the biggest financial fraud in history. This was not an accident made by someone pressing the wrong button or a few documents that weren’t handled properly, but fraud on a massive scale that took years and tens of thousands of people to pull off.

Be right and sit tight! If you are "in" the Gold and Silver market, rest easy. If you are a trader, why are you short this market? Do you have a death wish? Gold and Silver are on sale, stock up while the crooks are giving the REAL money away.

CFTC’s Chilton Probably Not Why Silver Strong[MUST READ]
By: Gene Arensberg
The idea that silver is now rising merely because of increased scrutiny by regulators on the short sellers is neither comforting, nor appealing, but we sincerely doubt that is solely the reason that silver has found a bid of late.

We are of the firm opinion that silver is not rising merely because of regulator’s newly found desire to promote “fair” futures markets. Indeed we believe that if there is any influence from the CFTC investigation into the silver futures markets, or increased scrutiny, or whatever, that influence is at best minimal, and more likely coincident to what is happening in the much larger and much less regulated physical markets.

To be sure we lament the unfair advantage in the futures markets that the traders the CFTC grants “bona fide hedger” status to (thus allowing a few elite traders access to larger positioning than their long-side opponents). And, it doesn’t take ownership of a tin-foil hat to have noticed multiple bone-crunching sell raids by those “usual suspects” in the past. All long-time traders are certainly aware of them. All long-timers have learned to survive them using one or another money management method (stops, options, nimble trading, etc.).

However, as we have said so many times in the past, one can manipulate the price of something temporarily for short periods of time given enough firepower and given the “right” execution of the trading, but nothing and no one can manipulate the global market price of something – no one, not bullion banks, nor even central banks can argue with the supply/demand/liquidity equilibrium of a global market for any length of time and certainly not indefinitely.

Our view: We believe there is a tectonic shift underway for silver. A shift of historic and generational proportions that is only just now starting to surface in a material way. We believe that global public demand for precious silver is once again returning the metal to its historic role as money – alongside its rarer cousin gold. We believe that the recent absence of concerted short selling is more likely a logical market reaction by hedgers and short sellers to the reality of much higher demand and the realization that existing and available supplies may not be sufficient to satisfy that burgeoning demand at current pricing.

If our view is correct, then it really doesn’t matter if the CFTC or any other regulator is looking harder at the positioning of futures traders. If our view is correct, then the market price of silver will find its own supply/demand/liquidity equilibrium whether or not hedgers and short sellers sell a few hundred million more ounces of the stuff in paper contracts in New York.

So much for that G-20 pledge for free currency markets
TOKYO -- Japan's government renewed its efforts to talk down the yen Tuesday, with both the finance minister and the economy minister weighing in to express discomfort with the soaring currency a day after it climbed to a new 15-year high against the dollar.

"I think the moves yesterday were a bit one-sided," said Finance Minister Yoshihiko Noda at regular press conference. "I will continue to closely monitor these moves with great interest."

The comments were Noda's strongest since finance ministers and central bankers of the Group of 20 advanced and developing nations met over the weekend in South Korea. Many market participants interpreted the G-20 agreement to avoid competitive devaluation of their currencies as a green light to sell the safe-haven dollar for riskier currencies. The dollar fell to Y80.41 Monday, a 15-year low.

Noda's stepped-up rhetoric was the latest reminder of how concerned the government is about the doggedly strong yen, which undermines the export-led economy by making Japanese products less competitive overseas and diminishing revenues sent back to Japan.

Echoing comments he made over the weekend, Noda again tried to steer market attention toward a separate part of the G-20 communique, in which officials agreed that advanced economies "will be vigilant" against excessive and disorderly currency market moves.

"'Vigilant' means not just recognition of the negative impact excessive foreign exchange moves have on economic and financial stability, but also that the countries with major currencies -- in particular the dollar, euro, and yen -- monitor market moves and cooperate appropriately," Noda said.

While acknowledging that any "announcement effect" from this part of the agreement was limited, Noda said he hoped there would eventually be an impact.

But the yen's continued strength early Monday pointed to the difficulty of verbally taming the currency's rise. The dollar fell to Y80.66 after Noda's comments, near the 15-year low.

When all else fails, talk, talk talk. Where I come from we call that bullsh!t.

CFTC Is Urged to Act in Silver Probe - WSJ [MUST READ]

Today's afternoon headlines:

Bond investors are now fighting the Fed- CNNMoney
Gross, Grantham blast Fed's asset buying- Reuters
Gold prices extend losses on QE caution- TheStreet
Dollar climbs amid questions about Fed program- AP
Treasury: Foreclosure woes not systemic threat- Reuters

Tuesday, October 26, 2010

An Honest Man In An Amoral World?

Gold began today under a bit of pressure because of the bid in the Dollar following Bank of Japan officials efforts to "talk the Yen lower"...good luck with that fellas.

It looked like another range bound day of trading for the Precious Metals ahead of next week's Fed meeting, and then late this morning CFTC Commisoner Bart Chilton stepped up to the microphone during today's U.S. Commodity Futures Trading Commission Public Hearing on Anti-Manipulation and Disruptive Trading Practices.

Thank you Bart!

Chilton: There Have Been 'Fraudulent Efforts' To Control Silver Prices
WASHINGTON (Dow Jones)--A federal futures regulator said Tuesday he believes there have been numerous attempts to fraudulently influence silver market prices, and he urged the agency to prosecute those who may have violated commodities laws.

Bart Chilton, a commissioner at the Commodity Futures Trading Commission, made his comments Tuesday at the start of a public meeting where the agency will be proposing new rules to strengthen its anti-fraud and anti-manipulation powers.

The agency's enforcement division for over two years now has been probing the silver market amid a flurry of complaints by investors who have raised fears about potential price manipulation. The CFTC hasn't provided any updates on the investigation, and Chilton said he thinks "the public deserves some answers to their concerns that silver markets are being, and have been, manipulated."

"I believe there have been repeated attempts to influence prices in the silver markets," he said. "There have been fraudulent efforts to persuade and deviously control that price."

He urged prosecution of those who may have violated the law, but said he can't prejudge what the agency will do with its investigation.

Statement at the CFTC Public Meeting on Anti-Manipulation and Disruptive Trading Practices
By: Commissioner Bart Chilton
I take this opportunity to comment on the precious metals markets and in particular the silver markets. More than two years ago, the agency began an investigation into silver markets. I have been urging the agency to say something on the matter for months. The public deserves some answers to their concerns that silver markets are being, and have been, manipulated.

The legal definition of manipulation under the law is a high bar to prove. It is a much different test than what the average person might consider as manipulation. Under existing law, to prove manipulation, the government is required to demonstrate not only specific intent, we also need to prove that as a result of the intent and market control, that activity caused an artificial price—a point which can certainly be debated by economists. Attempted manipulation is less difficult to prove—requiring an intent to manipulate and some overt act in furtherance of that intent. There are also other violations of law that could contort markets and distort prices.

I believe that there have been repeated attempts to influence prices in the silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told by members of the public, and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act (CEA) have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.

In saying this, I am fully aware of the prohibition from divulging trader names or information about their positions. I am extremely careful not to violate the law in this, or any, regard. I also cannot pre-judge anything the agency may do with regard to our silver investigation, or any other matter.

The Wall Street Reform and Consumer Protection Act, which I strongly supported, contains new manipulation provisions as well as antidisruptive trading rules. These new authorities, along with the implementation of thoughtful position limits in metals will go a long way toward ensuring more efficient and effective metals markets devoid of fraud, abuse, and manipulation.

Thoughtful investigations take time. The CFTC staff has worked extremely hard on the silver investigation. That said, there is a point at which it is our responsibility to say something. Within the law, I have done so. I am hopeful that the agency will speak publicly about the investigation in the very near future and when they do so that it will be in a more granular fashion than I am permitted from doing at this time.

Silver prices began to move higher as news of Commisioner Chilton's tongue lashing made it's way across the wires. The move became explosive once the CRIMEX closed and Precious Metals options expired for next month. Silver cleared 24 as the NY open access market reopened at 6PM est.

Trader Dan Norcini said it best in his daily post on

Hourly Action In Gold From Trader Dan
By: Dan Norcini
The silver market was abuzz with news today about CFTC Commissioner, Bart Chilton, concerns over price manipulation. The fact that he has come out so publicly took many, outside the camp of GATA and others, by surprise and lit a fire under that market which took it up into a resistance area near $24 on the charts. Strength in silver then worked to pull up gold which had been under pressure from the falling Euro and the subsequent bounce towards 78 in the Dollar.

You have to wonder about the many who have insulted GATA and its fine work over the years and ridiculed them in such a derogatory fashion whether they will now have the common decency to apologize for their shameless and contemptuous treatment of my friends Bill Murphy and Chris Powell and all the other dedicated members of the GATA board. The fact that Commissioner Chilton has come out so forcefully and chosen to use the words, “fraudulent” and “devious” in regards to the silver market is remarkable for its clarity and frankness. He was careful not to come to a conclusion about actual manipulation but as he pointed out, attempted manipulation is an entirely different matter. Based on his own words, it is evident that he strongly believes that attempted manipulation has been occurring regularly.

From here on, those who refer to GATA and its supporters as “the tin foil hat” crowd are only making fools out of themselves and revealing themselves to be mere hacks of the bullion bank crowd. GATA can no longer be dismissed as some sort of rogue band of disgruntled “gold bugs” but as the fine group of people that they are; people who share a genuine concern for the integrity of our financial markets and whose tireless research and efforts on the part of the precious metals markets deserves to be given the respect that is due to any organization which has produced work of the nature and quality that GATA has. I am not holding my breath however; very few are able to conquer their own pride and remain slaves to it all their lives. It takes a man of real character to admit he was wrong. Generally speaking, the most vocal opponents of GATA seem lacking in this department.

Hats off also to Commissioner Chilton for having the integrity to follow through on this even in the face of what no doubt must have been some very strong opposition. It is refreshing to see a man who actually takes what he does seriously and is working in the interests of the general public and not just a few favored special interests. If you have not done so, please take the time to send him an email encouraging him and thanking him for his efforts. So often men in his position only get emails or letters haranguing them.

Back to gold – it has reinforced its range trade after failing to take out $1,350 on the topside and moving lower back within its box that is defined by $1320 on the bottom and $1350 on the top. I still think it will work this range ahead of the next FOMC meeting in early November barring any drastic moves in the Dollar. Silver, even though it responded nicely to the Chilton news, has yet to break above $24 on the topside, which is the level it needs to best to give it a shot at $25 once again.

John Embry - Gold & Silver Commercial Signal Failure
By Eric King,
John Embry, Chief Investment Strategist for Sprott Asset Management, believes the long awaited commercial signal failure in gold and silver may be at hand: “...demonstrated by an explosion in open interest on the Comex as the usual suspects shorted aggressively in an attempt to mitigate the relentless buying that was occurring. This, I suspect, will result in either another correction, which should be short and shallow, or more probably, the long-awaited commercial signal failure in which the shorts are overrun and forced to cover in a rising market.”
October 25, 2010

John Embry continues:

“With the economic outlook deteriorating, more quantitative easing on the horizon globally, currency unrest mounting everywhere and physical supplies of gold and silver dwindling, the powers-that-be have their work cut out for them if they hope to keep the prices of gold and silver in check.

The suggestion that gold is in a bubble phase is the latest tactic of the anti-gold crowd, whose predictions, incidentally, for the price of gold and silver have now been consistently wrong for 10 years.

Jimmy Rogers, who is one of the world’s leading authorities on commodities, dealt with the bubble issue recently by recounting an interesting anecdote. While addressing a group of high-end money managers, he inquired as to how many of them held gold or silver in their accounts and, remarkably, 75 percent replied that they had never owned either precious metal.

As far as I’m concerned, that put to rest any idea that we are even remotely close to a bubble in gold or silver. When gold is trading at several multiples of the current price at some point in the future, you can be assured that every single person at a similar gathering would be long and then discussion of a bubble might be legitimate. In my considered opinion, we are many years and thousands of dollars in price away from that debate.”

Investors should continue to use weakness in gold and silver to accumulate both metals. Buy gold & silver and take delivery of the physical, do not use paper instruments. These monetary instruments will have you outside of the system, which will in all likelihood collapse at some point.

James Turk - Gold & Silver Will Breakout to the Upside
Eric King,
With gold and silver strong in Asian and European trading, King World News interviewed James Turk out of England to get his thoughts on the price action. Turk commented, “Hat tip to Gene Arensberg, I think he has got it nailed with this technical flag pattern on silver that he brought up in the KWN Weekly Metals Wrap. What I think is going to happen is we will break out of this flag pattern to the upside, and it’s going to stay strongly overbought for another 3, 4 or 5 weeks. ”
October 25, 2010

Turk continues:

“There is also a flag pattern in gold which means that both markets are in sync, and are ready to move higher. And keep in mind Eric, that we are still below 58 on the gold/silver ratio, meaning that silver is showing good relative strength. That is a bullish sign for both metals. My target is still 50 to 52 for the gold/silver ratio on this leg up of the bullish move.

I’m still looking for $30 on silver, which means we would have a target of around $1,500 on gold. One last thing Eric, I think Dan Norcini also made a good point in the KWN Weekly Metals Wrap this week when he gave the reasons why the mining shares have been underperforming the bullion itself.

The strategy has worked well for the hedge funds because the input costs had been rising faster than the gold and silver price, thereby squeezing the margins of the mining companies. But that is now changing Eric, as evidenced by some of the fantastic earnings and free cash flow the mining companies are now generating.

Eric, when I view gold and silver and the mining shares, I view them entirely differently. The shares are an investment, but bullion is money. If you want to take some of your hard earned money and invest it in the shares, now is the time to do it. When I was last interviewed on King World News I said that the bull market in the shares starts now.”

Well there you have it, first we heard from John Embry in the earlier piece on the blog, now James Turk. The market is acting extremely healthy here, and both Embry and Turk know we are headed significantly higher from current levels during the course of this secular bull market. And yes, there is a chance the pullback is over. We’ll keep our eyes on the previous highs in both gold and silver.

Gene Arensberg: Big commercial shorts not piling on in gold and silver

G20 forswears currency, trade wars but sniping starts right up again

Goldman says Fed faces $4 trillion hole
by Colin Barr
Economists at Goldman Sachs estimate the Federal Reserve may need to buy a staggering $4 trillion worth of assets such as Treasury securities to get the economy rolling again.

The Goldman economists, Jan Hatzius and Sven Jari Stehn, don't expect the Federal Reserve to go nearly that far when it resumes its asset-purchasing quantitative easing policy. Citing many officials' unease with the prospect of adding significantly to the Fed's already bloated balance sheet, Goldman expects the Fed to end up buying around $2 trillion worth of assets over the next few years.

But even the lower Goldman estimate at least doubles the size of the purchases most observers have been saying they expect the Fed to target when it unveils so-called QE2 at its meeting next week.

"The key strategic question is not the size of the first step, but how far Fed officials will ultimately need to move in order to achieve their dual mandate of low inflation and maximum sustainable employment," Hatzius and Stehn write.

Hatzius and Stehn say that with unemployment near 10% and inflation falling, there is no reason to believe the widely anticipated, modest second round of quantitative easing will pull the economy out of its funk. Economists have been bandying about figures between $500 billion and $1 trillion, though some suspect the Fed will stop short of using numbers even that large and simply announce a plan to buy $80 billion to $100 billion worth of Treasurys till conditions improve.

Monday, October 25, 2010

Geithner Told to "Get Bent" at G20 Meeting

US Treasury Secretary, and Tax Cheat, Timmy Geithner, afflicted with a severe case of diarrhea of the mouth, was sent packing from this weekend's G20 finance ministers meeting with a roll of toilet paper and a pack of breath mints. Timmy's proposal for trade balance limits and empty blather about a "strong Dollar policy" fell on deaf ears after the assorted ministers and central bank governors in attendance had finished hammering out a communique that was predictably long on nice phrasing and short on actual commitment.

The under lying sentiment at the meeting was: "How dare this Pinocchio come here and lecture us on currency devaluation when he and his cohorts at the Fed are presently engaged in the mother of all currency manipulations." It was rumored that Webster's added a new definition to the word "Dollar" in it's dictionaries: "Monopoly money backed by hypocrisy".

The Japanese Yen celebrated the end of these token world finance meetings by hitting a new 15 year high versus the US Dollar. The Euro resumed it's rise above 1.40. And the US Dollar was trampled underfoot as the world finance ministers made for the exits.

Gold broke sharply higher as markets opened in Asia last night, testing resistance at $1350. Silver also moved sharply in Asia. At 23.79 Silver was up almost a dollar from Friday's early morning lows. Follow thru moves higher during the CRIMEX today will be key towards the bulls regaining complete control of the Precious Metals this week as we head into the midterm elections and the Fed's QE2 announcement early next week. A close in Gold above $1342 today, and a close in Silver above $23.60 will tip these markets back into the bulls eye.

G20 Communiqué Triggers Further USD Weakness
The G20 communiqué from Finance Ministers' meeting in S. Korea contained some surprising language and cohesiveness but was generally vague. Forex traders were quick move back into their USD short positions. Clearly the divergence of “in country” perspectives & objectives eroded the ability for any meaningful consensus among the ministers. In addition the choice of Brazil not to send a high ranking official was the equivalent of an EM coup and may pay off.

In regards to FX intervention, G20 countries pledged "to refrain from competitive devaluation" while remaining watchful for "disorderly movements in exchange rates", in order to limit "excessive volatility in capital flows facing some emerging countries.” On trade imbalances, the statement issued an empty promise to keep trade balance “at sustainable levels.” To cap off the rhetoric-filled meeting, Treasury Secretary Geithner stated that Europe, Japan and the US all recognized the need for a stable FX market and reaffirmed his support for a strong USD.

After the G20 meeting, Japanese Finance Minister Noda asserted that he had gauged the reaction of his G20 peers on Japan's policy of FX intervention in Sept, however Japan would continue to take decisive steps in FX, if needed.

Interestingly Germany’s Rainer stepped into the fray by stating “an excessive, permanent increase in money is, in my view, an indirect manipulation of the exchange rate.” That comment could be direct at no one else but the US and the Fed’s potential 2nd round of quantitative easing. As we had discussed last week, we anticipated a relatively empty G20 statement and that the thin agreement, whatever it was to be, would buttress short-term risk appetite.

To begin the week, risk appetite pushed Shanghai’s composite up 2.57% while EURUSD climbed to 1.4080. USDJPY headed lower on renewed risk taking and reports that Toyota is now assuming a USDJPY rate of 80 for Q1 & Q2 2011. With the G20 behind us, it’s back to US data watching and speculation on the size of the US QE2.

While some policymakers hinted that the US was indirectly using monetary policy to competitively devalue the USD, the statement did say that all G20 nations (i.e. the US and UK) will "continue with monetary policy which is appropriate to achieve price stability and thereby contributes to the recovery.” We doubt the communiqué will shift the market’s perception of QE2 but it does clear the way for Fed action in early November.

Given the rapid, aggressive reloading of USD shorts and risk-correlated positions, we suspect that the market is disappointed by the G20. This week the market will be watching durable goods, advanced US GDP Q3 and Core PCE. In early November we have the Fed meeting and US congressional elections which both will add their share of event risk. For today, the light economic calendar will leave Forex traders with one eye on equities and the other on bond rates.

Dollar sell-off resumes post G20, Fed policy key
By Anirban Nag
LONDON, Oct 25 (Reuters) - The dollar dropped broadly on Monday, hitting a 15-year low versus the yen, as a Group of 20 agreement to shun competitive currency devaluations was taken as a green light to resume dollar selling by investors.

At the meeting in South Korea, G20 finance chiefs struck a surprise deal to give emerging nations a bigger voice in the International Monetary Fund, recognising the quickening shift in economic power away from Western industrial nations. They also agreed to exchange rates being market-determined.

Analysts said the outcome pointed to a status quo in currency markets, with the dollar staying under pressure due to market expectations for the Federal Reserve to unveil a second round of quantitative easing as early as November.

"The G-20 was seen as a hurdle by some and now that is over, investors are back to do what they are most comfortable with -- dollar-selling," said Ankita Dudani, G-10 currency strategist at RBS.

U.S. Dollar Update aka Geithner Is Full Of Sh!t

Harvey Organ posted this on his blog [] Saturday:

The very prestigious forum the :The Financeand Economics.Org came out with this paper on the problems facing the big commercial banks and their shortage of gold.

They are basically indicating what I have been telling you that the big banks are short 20,000 tonnes of gold.

Here is this paper in full for you to read:

Where can we find 20,000 tonnes of gold?

Having broken out convincingly into new high ground, gold and silver have now paused for breath. Despite the sharpness of this week’s reaction, their performance indicates good underlying strength.

This is not to say there is no speculative froth – of course there is. Rather, speculators play a distant second fiddle in this market. Bullion is still doing what it has been doing for the last year: when the commercials on Comex hit the price it backs off rapidly on little volume, until someone very big takes the opportunity to clean the market out. It becomes another ratchet on the torturer’s rack for the commercial shorts, who find that every time this happens they end up being stretched further.

On last week’s rise there were early signs of panic, as the commercials attempted to reduce their exposure. However, the commercials’ net short position on Comex is still a very high 933 tonnes. Convention suggests that the commercials know best, and even if they have an extreme position, they will still crush you. And indeed, the big commercials, being too big to fail and with the comfort of the Fed’s antipathy to gold, could increase their short positions even further. This is now developing into the biggest game of chicken the markets will probably ever see.

However, the TBTF commercials are not having things all their own way. Ten years of bull market must have pretty well exhausted the central banks’ bullion supplies, but parting with the physical has not been the only way gold has been suppressed. The very structure of the market might have been designed to neutralise speculative demand: on Comex physical settlement is little more than token, and in London forwards and leases are rolled or closed out by matching transactions. These markets encourage users to avoid delivery of the physical. True demand has been siphoned off into side-bets.

Investors may have been unaware of this, and while wheeling and dealing in these derivatives, they will be unaware that the truly wise long-term players have been quietly hoarding the physical, upon which this house of cards rests. In the ‘80s and ‘90s, central banks leased gold to the market that was then bought and accumulated by oil producers in the Middle East, and when it was ridiculously cheap large amounts were converted into jewellery. In this last decade the central banks themselves in aggregate have begun to accumulate bullion. It is important to understand that none of these earlier buyers will resupply much to the markets at higher prices.

The entry of China, Russia, India and a growing list of other politically-motivated nations into the market as limitless buyers of gold has created enormous difficulties for the old guard of interventionists, and a solution is desperately needed. It has developed into a power-struggle between this old guard, which is trying to manage a way through a crisis of its own making, and the new which so far has not managed to acquire enough bullion. Furthermore the new is building up excessive amounts of fiat paper issued by members of the old; paper which they know is loosing value at an increasing pace. On this basis gold is simply underpriced in paper currency terms.

The struggle between the old and new guards is illustrated by the IMF’s gold sales, the stated purpose of which was to raise funds to help smaller nations through the credit crisis. The inner circle at the Bank for International Settlements must have been tearing its hair out to see these Keynesian clots gift half this invaluable ammunition to India. And why is the IMF selling bullion to Bangladesh and Sri Lanka, when their policy objective is to provide “concessional finance” to these struggling nations? (These sales were agreed for this purpose at the London G20 summit chaired by none other than Gordon Brown - second time unlucky.)

But what must have really got under the skin of the BIS is that it knows the real value of bullion is considerably in excess of the market price. It knows gold is underpriced, because the BIS and its senior members have been suppressing the price for the last forty years, which has resulted in an acute shortage of stock. But when they embarked on this course in the 1970s they would not have foreseen how gold would be made available to the masses through yet-to-be-invented ETFs; nor could they have foreseen the emergence of Russia and China from deep communism into aggressive capitalist-style development, generating hundreds of millions of new gold-loving savers. Consequently the old-guard BIS members have lost embarrassing quantities of bullion and cannot confess this to the markets. Presumably they had hoped that by withholding this information they could bluff it out; and they might have succeeded had it not been for the very serious financial and economic deterioration in the global economy, which raises the possibility of a Fed-induced dollar crisis, triggering new demand for physical bullion.

As well as these problems there is growing evidence of disruptive intent behind the gold policy of the ex-communist nations. I recently covered this in an article that tied in the relationships of the Shanghai Cooperation Council. In that article I pointed out that the substantial majority of today’s gold-buying nations are members of, or are associated with this organisation. As if to confirm these fears, in the last few days Iran, which is an associate member of the SCO, announced it is now buying gold. Furthermore, China is restricting the export of rare earth metals, which with the energy policies emanating out of the SCO membership, has the appearance of a coordinated attack on the Western economic system. If such a conspiracy exists, gold is central to it.

The result of forty years of gold price suppression is not only the disappearance from the markets of unquantifiable amounts of physical into the firmest of hands, but also an accumulation of claims for physical bullion through the growth of unallocated accounts at the bullion banks; and the secret we would all love to know is how large this commitment has become. In the absence of hard facts, we have to make a reasonable estimate.

The only major bullion bank that declares its bullion holdings is HSBC, which at the end of 2009 held gold valued at $13.757bn (392.6 tonnes)[i]. We shall assume that this bullion is held against HSBC’s unallocated accounts and we shall further assume a reasonable fractional reserve multiple of 10, which gives us net uncovered liabilities of 3,533 tonnes for HSBC alone.

However, there are 35 banks listed as full members of the LBMA, and it can be assumed that nearly all of them offer unallocated account facilities[ii]. It is also possible, even likely, that the fractional reserve multiple for many of these banks is higher than 10, because banks have been generally reluctant to hold the one reserve currency that pays no interest.[iii] Furthermore, some of these banks are among the largest in the world. Taking all this into account, it is possible that LBMA members are short of over 20,000 tonnes on their unallocated accounts.

This liability is unlikely to be hedged, because it is difficult to see who would take the other side of such large amounts. And this brings us back to the theme of this article: the key market participants are desperately short of bullion.

As a result, the ratio of turnover in forwards futures and options to the underlying physical has become improbably high, and is still rising. The deteriorating economic outlook for the US, Europe, the UK and Japan is now beginning to generate new hoarding demand all over the world. And all this is before portfolio investors have even begun to invest: the statistics indicate that portfolio exposure is amazingly low at less than 1%, so the point where more hoarding triggers market dislocation cannot be far off. Indeed, a small bullion bank worried about its unallocated exposure would be wise to cover its position on Comex, and demand for long futures from these sources may soon become a market factor.

So, before any pundit makes a price forecast, and before anyone lucky enough to own gold thinks about selling, they should dwell on this important question: in this extraordinary market where the central banks are at war, where the devil and at what price are we going to find 20,000 tonnes of gold?

22 October 2010

In 1980 when Gold last peaked in price, 25% of investors owned Gold and mining less than 1% presently own Gold and mining stocks...this train hasn't even gotten out of first gear yet...

Investor exposure to gold:

Friday, October 22, 2010

Geithner Playing Chicken With His Creditors

If all the countries with trade surpluses, countries whose economies thrive on exports, [China, Russia, Germany and Saudi Arabia] , did as Timmy Geithner asks [G20 should refrain using FX for trade gains: Geithner ] the US Dollar would tank.

These countries sell their local currencies and buy US Dollars to keep the costs of their exports low and competitive in the world market. They use these Dollars to buy US Treasuries. In effect, by these actions in the currency market, they are propping up the US Dollar. "Today" this is bad for the US Economy. This is what has "for years" been behind the US' "strong Dollar policy".

Despite Timmy Geithner's blather about a "strong Dollar policy", the US needs a lower Dollar to be competitive again in world markets. Asia in particular is kicking our ass. The US also needs a lower Dollar to pay down its treasury debt.

U.S. Treasury Secretary Timothy Geithner, in a letter to finance leaders that was seen by Reuters, said "countries with persistent surpluses should undertake structural, fiscal and exchange rate policies to boost domestic sources of growth". - Oct 22 (Reuters)

What Geithner is trying to do is get the trade surplus economies to revalue their currencies higher, and force the Dollar lower. [Reverse the "strong Dollar Policy.] In this manner, Geithner can dodge the accusation that the US is debasing the Dollar on purpose by selling treasury debt to the Federal Reserve. [Quantitative Easing]

Nothing Geithner is asking the G20 to do regarding currencies is positive for the Dollar. It is extremely negative. The financial press have given Geithner a pass on this and instead focused on his, and the US' mantra, "strong Dollar" stance. In essence what Geithner is trying to do is force voluntary export restrictions on country's with trade surpluses. This was tried with Japan in the 1990s and had disastrous effects on the Yen. The Chinese are well aware of this ploy, and will strongly resist any attempts by the G20 to "manage" the global economy.

A strong Dollar at this juncture will kill the US economy, and the US equity markets. Need proof?;range=5d;compare=^gspc;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Dollar up, equities down. Dollar down, equities up.

Geithner is doing "everything in his power" to get the Dollar to go down because the "markets" forced it down, and avoid being accused of debasing the Dollar...when in fact that is exactly what the US Government is doing. Perceptions.

But Timmy, heed this warning: You can't have your cake and eat it too. You can't promote a "strong Dollar policy", claim the Dollar will not crash "in our lifetime", while at the same time running around the world coercing emerging market economies to let the Dollar fall to give your debt ridden country cover as it debases the Dollar.

Geithner's "actions" this week should be propelling Gold higher at an accelerating rate. His wishes for World currencies is hugely Dollar negative. Yet for some reason Gold languishes and drifts lower. The Dollar is less than 2% above it's October 15 low of 76.14 since Geithner began preaching the country's "strong Dollar policy" line on Tuesday. Gold is off it's recent high of 1387 by 5.2%. This is laughable.

The absurdity of Gold's recent decline in "price" is that it is occurring in a market where "price" is determined by selling Gold that does not exist...The CRIMEX. Gold is in the midst of a powerful bull rally right here and now.. Much of the fuel in this rally that began in late July is coming from "short covering". What we are witnessing this week is a major bear trap being set up in the Gold market by the bears themselves.

When this recent decline in price reverses on the realization that Geithner's demands are purely Dollar negative, and disingenuous of the "strong Dollar policy", those foolish enough to short this powerful bull rally here will get squeezed into oblivion.

Gold drifted lower overnight more because of inaction in the Precious Metal markets than on any moves higher in the US Dollar. The Dollar was essentially flat overnight, still just 1.7% off of it's October 15 low of 76.14. The US is desperate to keep the Dollar decline from accelerating, while at the same time desperate to see the Dollar continue to decline. This is what makes this decline in Gold so frustrating, but positive all the same. Gold need a rest, and it's getting one. But it better catch it's breath fast because it will soon be off to the race to new highs soon.

Gold has now retraced almost 61% of it's breakout from $1265. Support in this regard rests at $1311. The Dollar has gained little traction here near it's recent low, and the Yen remains near 15 year highs versus the Dollar. It is interesting to note that the Chinese Yuan is DOWN strong this morning in the face of Geithner's demands that it move higher. As I said earlier, this smells like a bear trap. A move down to $1300 cannot be ruled out, but it would appear that a further move downward here may be limited, and risk for traders is to the upside.

Silver is probing support here near $22.90, a 38% retracement of the breakout from $19.80. Silver definitely needed a breather. It will, as always, shadow movements in Gold, but tightness in supply and strong demand should do much to support prices up here.

Bottom line: THIS IS A BUYING OPPORTUNITY. One we expected to see when we noted the Precious Metals markets were looking tired at the end of September. Investors, add to your positions, traders...good luck if your are short this market.

U.S. plan for trade targets runs into G20 headwinds

Analysts: No High Hopes For G20; Renewed Dollar Weakness Eyed

Indian Traders bet big time on Gold prices

Richard Russell - Gold Action Knocks Out Weak Hands

No bubble as gold, silver rise on U.S. dollar woes

Thursday, October 21, 2010

Geithner's Got Diarrhea Of The Mouth

Gold Drops After Geithner Says Currencies `In Alignment,' Boosting Dollar
By Wendy Pugh
Gold declined after U.S. Treasury Secretary Timothy F. Geithner said that the major currencies are “roughly in alignment,” boosting the dollar and curbing demand for the precious metal as a haven.

Bullion for immediate delivery fell as much as 0.4 percent to $1,341.05 an ounce, before trading at $1,342.82 at 2:53 p.m. in Seoul. The metal gained for the past five weeks, touching a record $1,387.35 on Oct. 14, on speculation that the Federal Reserve may ease monetary policy further, hurting the dollar.

“After a period of weakness the dollar seems to be staging some sort of a minor recovery,” said Gavin Wendt, senior resource analyst at MineLife Pty in Sydney. Shifts in the U.S. currency are the “main driver of the gold price,” Wendt said.

The greenback rose as much as 0.6 percent against a basket of six currencies today. Geithner’s comments were reported in the Wall Street Journal, which cited an interview. Bullion tends to move inversely to the dollar.

“Geithner’s comments are giving a knee-jerk boost for the dollar,” said Takashi Kudo, general manager of market information service at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. in Tokyo.

Group of 20 finance ministers and central bankers meet in South Korea on Oct. 22-23 for talks on how to keep the global recovery on track amid concern that countries may be vying with each other to weaken their currencies. Geithner said that he’ll use the meeting to help “rebalance” the world economy to be less reliant on U.S. consumers, according to the Journal’s report.

Tax Cheat Timmy Geithner has ZERO credibility. He opens his mouth and sh*t falls out. Currencies are in alignment? Because Timmy Geithner says so? I guess that means the Chinese Yuan is fine where it is then, eh Timmy? What a load of crap. The weak hands are still in Gold and getting flushed as I type...good riddance to you all! If you are looking for a reason to sell, you will always find one...Little Timmy Geithner running off at the mouth is hardly a reason to sell your Gold...and it is even less of a reason to buy US Dollars. Please note that the Japanese Yen REMAINS at a 15 year high, despite Timmy's babbling...this will all be over by the end of the G20 blame fest tonight and tomorrow.

And let's not forget the foreclosure fraud, even if the banks and the US government wish you would...

This note from Jim Sinclair says it all:

Dear Comrades In Golden Arms,

The weakness that the shorts on the Comex have taken advantage of is the many comments, almost every day, by highly placed people around the world stating that the Fed is making a huge error by utilizing QE.

The dollar today has not rallied enough to account for the gold price decline. The 30Year Treasury Bills indicate that economic news is not a factor.

What you need to focus on is the fact that the Federal Reserve has no other option but to go with QE to infinity.

QE never ended, it only became camouflaged through the methods it was utilized such as guaranteeing everything in sight.

What the market anticipates is more on the down low commentary by the Fed concerning QE. Remember that the Fed sees things within the US financial system that even other governments cannot such as the real risk of the rollover of securitized mortgage debt OTC derivative instruments.

You are witnessing the beginning of a period in the gold price that will be marked by totally outrageous volatility. I have told you many times I have no doubt whatsoever about gold trading at $1650.

Historically I have done well with price objectives on gold. I will do well this time around. If I had any concern it would be that I am much too conservative in my objectives.

Bert Seligman had a great lesson to teach when he said "The weak succumb, the strong survive."

From me personally to you, stand strong!


Gold is on sale... I fully expect the Asians and Indians to take full advantage of these sale prices tonight.

Fed's Bullard: Any easing may be in $100B steps- Reuters

Fannie and Freddie may need another $215B: FHFA- Reuters

The Dollar is strengthening? LOOOOOOOOOOOOOOOOOOOOOOOL