Wednesday, October 6, 2010

The Sky's The Limit

Well son of a beeeee-atch! If this is what a "tired" Precious Metals Market looks like, imagine what could happen once it catches its wind... This is crazy! This is what we have been anticipating for months, but it sure is confounding the chart technicians...myself included. And I as you know, am a diehard Precious Metals Bull.

I'll shut my trap for today though, and post up some excellent material I've been perusing the past 24 hours. I hope everybody finds it helpful in understanding what's driving these markets higher right now. Clearly the fundamentals of the Precious Metals are now beginning to assert themselves, and big money is now entering the setor.

I will note first that the Euro, at 1.39, just reached a 61% retracement of it plunge this spring. This is typically a stalling point before a market rolls back over. ... just a note. This occured with Gold just shy of $1350, and Silver just shy of $23.

Gold and Silver Prices Jump; Buyers and Sellers Start To Get a Little Crazy
By Patrick A. Heller
There are several threads having an impact on prices so far this week. Yesterday, US President Obama admitted that the US government is in an “untenable fiscal situation.” In doing so, he is basically admitting that the US dollar is overvalued.

About midnight Eastern time this morning, the government of Japan announced a plan to devalue the yen. At first, the yen dropped against the US dollar, but ended up in US markets actually appreciating against the dollar! The best interpretation of this result is that investors believe that the US federal government will be even more successful at driving down the value of the dollar in the near term than the Japanese will accomplish with the yen.

Then there were three major articles that appeared. A report on Reuters yesterday described how the super-rich are aggressively purchasing gold, including physical forms. Then today, Max Keiser posted an interview with gold analyst James Turk where Turk speculates that the German central bank has already disposed of at least half of its stated gold reserves and possibly almost all of it! The last article by Alix Steel and posted today on was a major discussion as to whether the gold and silver exchange traded funds (ETFs) have sufficient physical metals to meet their investor obligations. Although Steel did not flat out say they did not, she pointed out how the operations of these ETFs allow for multiple ownership claims on the same physical metal.

Of lesser importance was a statement September 30 by John Kanas, the chief executive officer of BankUnited at the Bloomberg Dealmakers Summit in New York. When considering that the Federal Deposit Insurance Corporation is currently insuring deposits at 7,830 financial institutions, Kanas said, “Most of us in the business think we probably need 5,000 and think we are on our way to 5,000 as this cycle, if this is a cycle, unfolds. We simply chartered too many banks.” Kanas apparently did not state how many of the allegedly surplus 2,830 banks would simply fail.

Could Foreclosure Fraud Cause Another Banking Meltdown?
By Greg Hunter,
Please take a moment and grasp the enormity of this problem for the banks. There are 60 million homes which banks loaned money on, and now they might not be able to legally get the property back if the homeowner defaults! Another colossal problem for the banks is the trillions of dollars in mortgages bundled into securities. Remember, the banks were giving anyone who could fog a mirror a mortgage which allowed them to create and sell lucrative mortgage backed securities. So, there are trillions of dollars in mortgage backed securities that now could have NO backing! Would you like to be the pension fund manager who bought that security? Do you think this just might cause an accounting problem for the banks? Do you think this could push some of the big banks into bankruptcy? Will there be another financial meltdown and government rescue?

Norcini, Sinclair - Financial Hurricane To Collapse the System
By Eric King,
The primary drivers in gold and silver today had to do with concerns over currency devaluation as well as securitized debt problems and the implications associated with it. Here is what Jim Sinclair had to say:

Jim Sinclair: “Each time that happens an item of collateral on the securitized debt publicly dies. That is why this is dynamite that people will realize very soon. This is one reason gold is up hard today.”

Norcini continues:

“That collateralized debt obligation is now effectively worthless because the collateral behind the debt can no longer be collected. The banks cannot go and get it.

Let’s say you have 10 mortgages at $1 million a piece, the sum total of those mortgages are $10 million. So, the banks took the 10 mortgages and bundled them together into a collateralized debt obligation or CDO with a face value of $10 million.

They then sold that new entity that they created to an investment group of some sort, a pension fund, hedge fund, etc. promising them a yield of let’s say 7%. The sales pitch would emphasize the fact that this CDO was backed by real collateral. In the event of loan defaults by the borrowers, the banks would tell the buyer of the CDO that the collateral behind the loan could be sold to recapture any potential losses on the part of the purchaser.

Everything seemed to work fine until the defaults began and the foreclosure process kicked into high gear. The foreclosure process has exposed fatal flaws in the system and the flaw is that the banks cannot prove clear ownership of the mortgage.

Consequently, they are then barred from foreclosing on the property. Because they can no longer foreclose on the properties, the CDO is now effectively worthless.

The hedge funds and the pension funds cannot now sell these CDO’s on the open market, so how are they going to recover their original investment? Perhaps you may say that won’t be a problem because these instruments were insured. The problem is now the credit default swap or the insurance policy that was purchased to protect against default assumes that the insurer has the financial wherewithal or resources to make good on the claim.

If there were only a small number of these problem CDO’s this would not be an issue. But as the number of the foreclosures continue to skyrocket, and more and more banks are prohibited from seizing the collateral behind the property, the sheer magnitude of the number of claims presented to the insurer will overwhelm their balance sheet.

In effect what you have is an insurance company which doesn’t have enough money to pay off the claims. Compounding the problem is the fact that the CDO’s and credit default swaps related to these claims form a mass network of interdependence. This then ripples through the entire system and creates a domino effect which can cause the failure of entities creating the next financial crisis.

Ultimately the Federal Reserve will be asked to step in and buy up the now worthless CDO’s and put those on its balance sheet. In order to do this the Federal Reserve will have to engage in massive quantitative easing, taking onto its balance sheet the worthless CDO’s in exchange for newly issued treasuries.

This of course will have a horrific effect on the US Dollar which is why gold and silver are heading much higher.,_Sinclair_-_Financial_Hurricane_To_Collapse_the_System.html

Global Central Bank Action May Follow BOJ Moves on Rates
By Simon Kennedy
The Bank of Japan may have acted first in a round of central bank action to prop up the global economy as recoveries in industrial nations falter.

The unexpected decision by the Japanese central bank yesterday to drop its interest rate to “virtually zero” and expand its balance sheet follows the U.S. Federal Reserve’s move toward more unconventional easing. Bank of England officials will consider further stimulus tomorrow, while the central banks of Australia, Canada and New Zealand are among those now holding fire on further interest-rate increases.

The renewed push for easier monetary policy comes as the International Monetary Fund warns that growth in advanced economies is falling short of its forecasts ahead of its annual meetings in Washington this week. The dilemma for policy makers is that their actions may do little to revive growth and end up roiling currency markets.

“The Bank of Japan is at the head of the pack,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $370 billion in assets. “It looks like a lot of others will follow. Whether it’s right or not is another matter.”

Group of Seven ministers will gather Oct. 8 in Washington on the sidelines of the IMF meeting. Currency issues will be discussed, Canadian Finance Minister Jim Flaherty, who will chair the meeting, said this week. Japanese Finance Minister Yoshihiko Noda said he’s ready to explain his country’s actions at that meeting.

IMF warns against currency war
By Steven C. Johnson
(Reuters) - Global policymakers clashed over currency policies on Wednesday as Western leaders warned China and other emerging markets that widespread efforts to weaken exchange rates threatens to derail economic recovery.

U.S. Treasury Secretary Timothy Geithner said countries with large trade surpluses must let their currencies rise lest they trigger a devastating round of competitive devaluations.

"When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same," Geithner said in a speech ahead of this weekend's semi-annual international Monetary Fund meeting.

Officials around the world fear such a race to the bottom may trigger trade tariffs and other measures that could damage global economic growth.

Using exchange rates "as a policy weapon" to undercut other economies and boost a country's own exporters "would represent a very serious risk to the global recovery," IMF Managing Director Dominique Strauss-Kahn was quoted as saying in Wednesday's edition of the Financial Times.

James Turk interviewed about metals breakout at King World News
GoldMoney founder and GATA consultant James Turk has given a quick audio interview to Eric King of King World News about the breakout in gold and silver and the prospects for mining shares. You can find it at the King World News Internet site here:
Competitive Devaluation and Gold, or Gold and the Bond-Bubble(s)[MUST READ]
by Jeff Nielson
As I read article after article about Western debtor-nations (and Japan, the surrogate “Westerner”), there is a common theme in the writing of all these commentators (at least by all the competent ones). In very nearly all of these economies, there is an enormously strong case to be made that the bond-markets of each/every one of these nations represent a massive bubble, on the verge of bursting.

What should be terrifying here to any/every person idiotic enough to hold any sovereign debt of the Western-debtors is that the argument being made about these bond-bubbles (and their imminent collapse) is 100% independent of the effect I just described: that destroying currencies must destroy all-banker paper.

Bond-holders can crow all they want about the “fabulous prices” these bonds currently fetch. Presumably bond-holders still retain enough of a vestige of intellect to understand what those nominal bond prices really mean – once converted into worthless currency. Yet even when totally ignoring the monetary argument which concludes that all Western bonds must go to zero, we have analyst after analyst arguing that on pure, domestic fundamentals alone, these markets already represent ridiculous bubbles – ripe for spectacular implosions.

While I write mostly about the U.S. bond-market (the largest and most-ridiculous of all these bond-bubbles), the general fundamentals are common to all:

1) These nations are simultaneously all dumping the most “supply” onto the market in history.

2) Since bond-prices are the inverse of interest rates, and all Western interest rates are near-zero, the bond-market is beginning this massive-dump with prices already near their absolute maximum.

3) All global bond-buyers either want to “diversify” away from sovereign bonds (in the case of Asian surplus-nations), or, they have nothing with which to buy bonds, except the latest funny-money, hot off of their printing presses.

Anyone who has ever cracked-open an Economics 101 text-book can tell you that when you increase supply that price goes down, and when you reduce demand price goes down. And you don’t even have to know how to spell “economics” to know that when the price of something is already at its maximum that the price must go down.

In a world of lemming-investors, bond-holders have the dubious distinction of being the largest herd, running the fastest, toward the largest cliff. As just mentioned, the only way in which Western governments (and Japan) can even temporarily prop-up the world’s largest, most-obvious bubbles is to print-up new “money” at an even faster rate – in order to buy-up their own bonds, or to continue the current bond-market game of “musical chairs”.

For those who still haven’t clued-in to what is happening already in bond-markets, we have these morally/intellectually/economically bankrupt Western nations pretending that there is still “demand” for their bonds, by printing-up more and more fiat-paper for the sole purpose of buying each other’s bonds. Such an exercise usually goes by the name “Ponzi-scheme”.

Simply, the only way to prop-up these doomed bubbles day-by-day is through accelerating money-printing, and thus accelerating the speed with which all banker-paper (including bonds) goes to zero (irrespective of nominal prices).

By Rob Kirby
A couple of weeks ago, I pitched an idea to some associates of mine who are involved in SERIOUS [tonnage] PRECIOUS METALS procurement – physical metal only – let’s just say HUGE money. I asked them if they would be interested in purchasing an “option” – cash up front - for the exclusive rights [first right of refusal on off-take] of a gold producer [miner] for a set number of ounces for 3 – 5 years “at the market” – using LBMA pricing [a.m. / p.m. fixes] in the future. The answer I got back from my associates was “show us a terms sheet, we definitely have interest”.

So, I spoke to a friend who is very close to an intermediate producer who is in the mode of raising money right now. I had them ask the producer if they would have interest – the producer said, “YES, we are interested - but just to let you know – J.P. Morgan has been asking us if we would sell them the same option”. So, while gold producers have shuttered their “gold hedge books” – the Bullion Banks are ‘synthetically’ trying to keep physical output captive – I would suggest FOR THE EXPRESSED REASON THAT THEY SELL EVERY PHYSICAL OUNCE AT LEAST 100 TIMES OVER.

Gold is going to get EXTREMELY scarce in the future folks. Big money interests are now cutting off [or bidding for / gaining exclusive access to] the traditional bullion supply chain “at the pit”.

The shorts of ‘paper gold’ at J.P. Morgan [the Fed in drag] are selling the daylights out of the paper market and simultaneously buying exclusive rights to producers’ future production so they can try to fudge their way through an unmitigated fraud and settle a big enough chunk of their bad bets to keep this ‘systemically ruinous’ precious metals ponzi-scheme alive.

Markets Soaring "But the World Is Worse Off," Jimmy Rogers Says
"When you print a lot of money, the people who get the money are better off -- there's no question about it. But the country, the world is worse off," Rogers says. "Sure some of us feel much better, especially people in the financial markets but...the world is not getting better. The world is getting worse."

"Central banks and governments are going to print money until we run out of trees. It's outrageous," he says. "Printing money is not the right thing to do, but they don't know that. Eventually, they'll run out of trees."

The dollar is a "terribly flawed currency" and is "going to have big problems in the next decade," he says. "But that doesn't mean it won't go up. Everyone is very pessimistic [on the dollar], including me. I wouldn't sell it right now.",SLV,GLD,UUP,TLT,DBA,MOO

Super-rich investors buy gold by ton
By Laura MacInnis
(Reuters) - The world's wealthiest people have responded to economic worries by buying gold by the bar -- and sometimes by the ton -- and by moving assets out of the financial system, bankers catering to the very rich said on Monday.

Fears of a double-dip downturn have boosted the appetite for physical bullion as well as for mining company shares and exchange-traded funds, UBS executive Josef Stadler told the Reuters Global Private Banking Summit.

"They don't only buy ETFs or futures; they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest.

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