Monday, January 31, 2011
This past Friday for instance, the US stock markets were getting beat down substantially for the first time in months. The US Government doesn't want to see the markets going down. This upsets US investors, and fractures their fragile confidence in the economy. There must be a "reason" why the markets were getting beat down. Hey, let's blame the "civil unrest" in Egypt!
And so it began. A day of financial news headlines like the following:
Worries over Egypt, Suez Canal leave stocks reeling
NEW YORK — Fears over unrest in Egypt sent U.S. stocks reeling Friday to their biggest one-day decline in months and put an end to the market's eight-week win streak, as investors sought safety while oil prices surged.
One by one, stories and headlines appeared all day blaming the fall in stocks on Egypt, half a world away. Not once was a surge higher in the US Dollar mentioned as a cause for the abrupt fall in the equity markets.
Today began with more worrisome headlines about Egypt as the US equity markets opened the week expecting the worst. Remarkably, the US equity markets rose today in spite of the continued civil unrest in Egypt. Not once was a substantial drop in the value of the US Dollar mentioned as a cause for the reversal in the equity markets today.
Instead we get a "surge in Oil prices" blamed on the civil unrest in Egypt:
Oil Surges to Two-Year High on Egypt Unrest
An important oil price benchmark topped $100 per barrel on Monday for the first time since 2008, as investors kept an anxious eye on Egypt and worried about unrest there disrupting the flow of oil from the Middle East.
Read the entire story, not one mention of a fall in the value of the US Dollar today. Instead the story is full of fabricated reasons for the rise in the price of Oil over the past year. The validity of each questionable, when last years fall in the value of the US Dollar is considered.
Oil is up because the Dollar is down...and that is the TRUTH.
Another TRUTH is that the civil unrest cited in pro-Western lead Egypt, Tunisia, and Yemen can all be laid at the feet of the US Federal Reserve, the central bank that is flooding the World with Dollars resulting in a 25% global increase in food prices last year. All of the problems encircling the globe today can be laid at the feet of the US Federal Reserve and the US Dollar.
Morocco, Algeria, Libya, and Jordan are all facing similar protests sparked by difficult economic times. Emerging economies in the Middle East are having to deal with massive unemployment and soaring costs...all the result of US Dollar hegemony.
Oddly enough, Gold and Silver were stopped in their tracks today in London and New York, despite a falling Dollar ...no real surprise there. Silver was stopped dead at it's 20 day moving average both in London and New York when it reached 28.40 twice today. It is safe to surmise then that a close above 28.40 will give Silver's momentum back to the bulls.
Gold ran once again into not-for-profit selling at it's downtrend line extending off the early January high of $1424. Gold must close above $1347 to move momentum back to the bulls. a move through Gold's 20 day moving average at $1355 should send the bears towards the exits.
This Saturday a most informative, and revealing essay regarding physical gold and the Gold ETF GLD was posted on the FOFOA web site. I highly recommend reading this essay in it's entirety.
Who is Draining GLD?[MUST READ]
...since December 21st alone, 2.2M ounces have been sold from the ETF, basically a bit more than an entire quarter of production from Barrick gold (the world's largest producer). The normal run rate of global recycling plus mine production is approximately 2.95M ounces per month. So in the same period, assuming GLD was the only source of outflow, total global absorbed gold supply was 5.15M ounces. If outflows continued at the current rate, the GLD ETF (the largest investor depository of gold by far) would have no gold in 18 months.
Supply increased 75% in the short term to see price only fall 4.5%.
Someone else is doing the buying, clearly.
2.2M ounces is more than 68 tonnes... since December 21! Who is taking this stuff?
Now here's a bloodhound that might be on to a scent worth following. Lance Lewis, in his subscriber newsletter, follows what he calls "the GLD puke indicator" which tracks GLD physical gold regurgitations [emphasis mine]:
Just in case anyone missed it in last night’s letter, our GLD puke indicator that has nearly a flawless record at marking lows in gold triggered a buy signal yesterday after the ETF spit up 31 tonnes (and some blood) to trigger a 2.48% decline in its bullion holdings.
As we’ve noted before, one-day declines in the holdings of this ETF of over 1% have tended to be capitulatory in nature and have typically occurred near important lows in the gold price during gold’s secular bull market.
Consider that since the GLD ETF’s creation back in 2004, it has seen 1%+ one-day declines in its bullion holdings only 41 other times. When one goes back and looks at where these declines in bullion holdings have occurred, virtually all of them occurred “at” or were “clustered at” important lows in the gold price.
The pattern you see emerge after today’s 1%+ puke, just as on those prior occasions, is that these “pukes” of bullion by the GLD ETF have always tended to occur at or very close to important lows in the gold price, and declines of over 2% have only occurred at MAJOR lows, such as the two major lows that were hit in 2008.
Note that one of those lows on September 9, 2008, which is the closest in size to today’s puke, also occurred just one day before a 5-day short squeeze/meltup of 30 percent in the gold price that kicked off on September 12, 2008. Perhaps the remaining shorts in the gold market will now pay a similar price for betting against a bull market?
Perhaps history will repeat and perhaps it won’t with respect to such a short squeeze, but given this indicator’s near flawless record at marking lows in gold, it's not to be ignored.
Gold’s Biggest Gain in 12 Weeks Is ‘Capitulation’ End
By Pham-Duy Nguyen and Yi Tian
The “capitulation” in gold that drove the metal to its worst January in 14 years may be ending as escalating violence in northern Africa spurs demand for a haven and after a key technical indicator held.
Gold’s rebound from the 150-day moving average of about $1,306 is a sign that prices are poised to rally, said David Hightower, the president of the research firm based in Chicago. The metal may climb to $1,630 by the end of June, he said.
150-Day Moving Average
Prices rebounded from the 150-day moving average three other times in the past year, data compiled by Bloomberg show. The last time gold traded near the average was in late July. Since Aug. 1, prices have advanced 13 percent. They touched a record $1,432.50 on Dec. 7. The metal has not fallen below the average since January 2009.
“People take these longer moving averages as a key measure of confidence,” said Hightower, who correctly forecast that gold would rally above $1,400 last year. “Gold has respected the 150-day average in the past. By repelling from that level, it suggests that gold has value, and that the bull camp was not scared and forced out of their positions.”
The metal’s decline this month is “a healthy break,” Hightower said. “Gold has cleaned up its act and washed out the weak hands.”
This month’s decline in prices has precedents in the decade-long bull market. Futures slumped about 8.5 percent in the five weeks to July 28 and almost 15 percent in a two-month stretch that ended in February 2010. There was also a 34 percent retreat from March 2008 to October of that year. Prices have more than doubled since then.
“The short-term negative sentiment in gold will be dramatically curtailed,” said Jon Spall, a product manager for precious metals at Barclays Capital in London, who expects the commodity to reach $1,700 this year.
Despite correction, gold can still reach new highs this year
By Jeffrey Nichols
WHO'S SELLING . . .
To understand where gold prices are headed this year, it is important to recognize that most of the selling in recent weeks has come from U.S. and European short-term institutional traders and speculators - banks, trading firms, commodity funds, and hedge funds - operating mostly in derivative markets, some simply taking profits, others betting on the downward momentum of the market, and many reacting to the reversal of "safe-haven" funds that late last year sought security in U.S. dollar assets and gold.
These players have no long-term view of gold and certainly no allegiance to the metal as an inflation hedge, store of value, portfolio diversifier, insurance policy, and traditional savings medium. They simply sense a profitable trading opportunity. Today gold is in their sights. Tomorrow, it may be petroleum, cocoa, rice, steel or long-term U.S. Treasuries. And, one day they will be buying gold again.
. . . AND WHO'S BUYING
In contrast, strong physical demand not only continues but may very well have picked up as lower price levels attracted bargain hunters. Much of the buying has come from Asian markets - China, India, and other countries where gold has great cultural appeal as a store of value, savings medium, and harbinger of good luck and prosperity to those who hold it.
Big premiums (over New York and London prices) on gold bars in Hong Kong, Mumbai, and other gold-trading centers across the region indicate a shortage of physical metal as refiners struggle to meet strong demand for the various bar sizes popular in the Asian markets.
It is also likely that some central banks are taking advantage of the current price decline, quietly adding to their gold reserves or accelerating their purchases. Likely buyers include the People's Bank of China, the Bank of Russia, and possibly one or more of the reserve-rich oil-exporting countries.
In fact, all of the central banks that have bought gold in recent years today remain significantly underweighted in gold. All still hold the lion's share of their official reserves in U.S. dollar securities . . . and all have an incentive to buy gold on major price declines.
Significantly, this dichotomy between buyers and sellers means that gold is moving into very strong hands and much of this metal is unlikely to come back to the market anytime soon.
Buyers in Asia are mostly long-term holders, often for a lifetime. Similarly, many of the retail and wealthy buyers of bullion coins and small bars in America and Europe are motivated more by fear than by greed and are likely to retain their physical gold holdings for years to come.
As a result, when the current wave of selling abates, gold will have the potential for a swift and sizable recovery - all the more so if these same players view the metal as an attractive vehicle for trading and speculation on the long side of the market.
Physical Demand Remains Robust
by Peter Grant
Jan. 27th (USAGOLD) — Despite the recent corrective retreat in the precious metals, demand for physical metal remains robust. The World Gold Council’s latest Gold Investment Digest notes strong and broad-based demand in Q4-10 and throughout 2010. The US Mint has already sold more than 4.7 million 2011-dated silver Eagle bullion coins in January, the highest one-month total ever.
The WGC report begins with this overview:
The gold price rose for the tenth consecutive year driven by a recovery in key sectors of demand and continued global economic uncertainty. Not only was gold’s performance strong, but its volatility remained low, providing a foundation for a well diversified portfolio.
That sums things up nicely, but here are a few other important points:
Gold rose for the 10th straight year, with a final London afternoon fixing price in 2010 of $1,405.50 an ounce, up 29% from the prior year.
This was the second-largest percentage increase of the decade-long bull run, behind 32% in 2007.
Gold’s volatility of 16% on an annualized basis was in line with its historical 20-year average.
Investors bought 361 tonnes of gold in 2010 via ETFs, bringing total holdings to a new high of 2,167.
Investors bought 1.2 million ounces (38.0 tonnes) worth of American Eagle bullion coins, according to the US Mint, just shy of the record 1.4 million ounces (44.3 tonnes) sold during 2009.
Despite higher prices, global jewellery demand totalled 1,468.2 tonnes during the first nine months of 2010, increasing 18% from the same period during 2009.
Investment activity in China remained high. Physical delivery at the Shanghai Gold Exchange totalled 836.7 tonnes in 2010, with 236.6 tonnes delivered during Q4.
In China, physical delivery as a percentage of trading volume had increased to 33% by the fourth quarter, as Chinese investors sought to get hold of gold bullion.
Thursday, January 27, 2011
"If you want to remain slaves of the bankers and pay for the costs of your own slavery, let them continue to create money and control the nation’s credit."
- Sir Josiah Stamp[1880-1941]
Has the mother of all Bear Traps been set in the Precious Metals markets? As Gold and Silver move from weak hands into strong hands during this "correction", is the stage being set for the next major leg up in these markets?
In September 2010, Gold broke from a bearish rising wedge and raced to $1400 on the rumour that the Fed was going to institute it's QEII program to further support our failing economy. Gold traders and investors bought this rumour with vigor.
Following the country's trip to the polls on the first Tuesday in November 2010 for the mid-term national elections, the Fed came forth with it's QEII program of economic salvation. The Fed announced that they would spend [create] $600 BILLION to buy US Treasury debt and keep interest rates low to spur economic growth. Coupled with the spending on US Treasury debt already taking place with "income" from the maturing mortgage backed securities on their balance sheet, the Fed effectively announced plans to make available over $900 BILLION to buy US Treasury debt though June of 2011.
This announcement buoyed Precious Metals traders and investors, and the drove Gold to an all-time high in price, and Silver to a 30 year high in price, as the year 2010 came to a close. But a funny thing has happened along the way...
Interest rates on US Treasury debt began to rise, instead of fall or remain steady, as the Fed had planned with their QEII announcement. A new Republican controlled Congress began to question the validity of the Fed's plan to purchase US Treasury debt as they came forward with demands to contain the country's rising debt load. And then, as if by magic, economic data points signaling an upturn in the economy began to appear in the headlines daily.
Though suspicious, these positive economic headlines began economists wondering if perhaps the Fed's QEII program was unnecessary, and would be curtailed prior to it's June 2011 end-date. This, and the Congress' reluctance to see the Fed buying US Treasury debt, created enough uncertainty about the Fed's QEII program, and it's inflationary implications that the wind came out of the Precious Metals market's sails. Gold and Silver prices began to drift lower.
Sensing opportunity, the bullion banks at the bedeviled CRIMEX decided that the Precious Metals markets were ripe for a take down. And so they have been, much to the chagrin of Gold Bugs globally. The opportunity for these crooked bullion banks to bring in prices and cover their naked ass shorts was too good to pass up as it would save them BILLIONS of dollars in potential losses, AND afford them the opportunity to load up on Gold and Silver to the long side at discount prices. These CRIMEX bullion banks might be crooked, but they aren't stupid. They know just as well ans you and I that Gold and Silver are going multiples higher from where they are today.
Here in the West, as foolish traders, and even more foolish investors, have dumped their Gold and Silver holdings at the beginning of 2011 believing the nonsense about a bubble top in Gold, Gold and Silver investors in the East have been Hoovering up Gold and Silver at wonderful discount prices. The transfer of wealth from the weak hands in the West to the strong hands in the East is now in full swing.
As the suspicious positive economic data that closed out 2010 is now being replaced by the reality of poor economic data coming into view as the New Year unfolds, the Fed yesterday proclaimed a steadfast determination to continue the purchase of US Treasury debt in a never ending effort to "sustain" an economic recovery. Well, the illusion of one anyways...
The reaction in the Precious Metals was quick to the upside on the Fed's announced continuation and "need" for QEII to contain deflation and raise inflation to levels that will support growth in the economy. Yesterday the Fed basically announced that they intend to promote rising prices to give the illusion of growth in our economy to the rest of the World. This is fiscal insanity! It is also a call to anybody listening and paying attention to buy Precious Metals to protect oneself from this stealth debasement of the US Dollar.
The Bear Trap in Precious Metals has been set, we wait to see if it will be sprung. The low in Gold and Silver for 2010 may well be established by the close of trading February 4, 2010 and the beginning of the Chinese New Year, the Year of the Silver Rabbit.
Fed Keeps Rates Unchanged, Says Bond-Purchase Program Needed- AP
Ending its first meeting of the year, the Fed made no changes to the $600 billion program. The Fed says the economy isn't growing fast enough to bring relief to millions of unemployed Americans.
Treasurys Fall As FOMC Statement Fuels Inflation Worries - WSJ.com
NEW YORK (Dow Jones)--Treasurys fell Wednesday, led by the 30-year bond, as the Federal Reserve's latest interest-rate statement prompted investors to deliver a double-whammy to the bond market.
January 26, 2011
Inflation Is So Much Worse Than We're Told[MUST READ]
By Chris Martenson
Inflation is actually much higher than what the BLS claims it is; something that purchasers of college tuition, pharmaceuticals, or health insurance know all too well.
To give the BLS some credit, they must try and estimate a single rate of inflation that applies to everyone equally. But that is a completely impossible task. An octogenarian living in Seattle on a meager pension and taking lots of prescription medications will have a totally different inflation experience than an 18 year old living in their parent's basement eating Ramen noodles.
But even after spotting the BLS some slack, there are some enormous and glaring errors in their methods that render the official inflation measure hopelessly - and dangerously - inaccurate.
In this article, I am going to reveal how US inflation numbers are badly understated, how this practice short-changes institutions and fixed-income individuals alike, and why this means fiscal and inflationary train-wrecks are the most probable outcome for the US -- and, by extension, the globe.
Richard Russell - Get Out of Your Dollar Assets Now!
From Eric King, KingWorldNews.com
The real news, the critically important news, centers around the US dollar. It's as if you are reading a report on a building you want to buy. The report tells you all about the heating system, the repairs to the roof, the condition of the wood floors, but the report leaves out the critical fact that the foundation of the house is crumbling.
So it's the dollar, the dollar, the dollar, that I'm directing my subscribers' attention to. If the dollar collapses, every investment you own will be adversely affected -- your home, your stocks, your insurance policies, your bonds, your 401K --everything that is denominated in dollars.
The Russell advice -- swap your dollars for physical gold or CEF, GLD, or SGOL. In other words, do as China and Russia and many other nation are now doing -- get out of your dollar assets.
...I realize that what I've written above may seem outlandish to many subscribers. Outlandish? Then you tell me how the US is going to finance a national debt of $13.9 trillion (some say the real debt is over $50 trillion). The fact is that we now BORROW just to pay the interest on the national debt. Treasury is moving the debt to ever-shorter maturities, hoping that the current zero interest rates on short debt will ease the situation. But with bonds sinking, rates are now rising, so what's the answer?
The answer is that we're eating ourselves up alive through compounding interest on our debt.
There's only one way out that I can think of. The dollar amount of our national debt stays the same. But the item that we pay the debt off with -- is variable, and I mean the dollar. Thus, our government hopes to pay off the carrying charges of the debt with cheaper dollars -- MUCH cheaper dollars.”
Tax cut deal pushes deficit to $1.5 trillion: CBO- CNNMoney
The federal deficit for 2011 will hit $1.5 trillion, driven higher by the "slow and tentative" economic recovery and the bipartisan tax cut deal passed late last year, the Congressional Budget Office said Wednesday.
The deficit forecast would equal to almost 10% of the economy.
Durable goods orders drop 2.5 percent- AP
U.S. factories saw a disappointing drop in demand for their products in December, reflecting weakness in demand for commercial and military aircraft.
S&P cuts Japan's credit rating on debt concerns- AP
Foreclosure activity up across most US metro areas- AP
Tuesday, January 25, 2011
Gold Market Update
By: Clive Maund
We are now seeing a convergence of indications that a reversal in the Precious Metals sector is at hand that will lead to a major uptrend soon.
...the big news at this time is the latest COT figures which show that the Commercials have scaled back their short positions in gold dramatically - and remember that the latest data is only up to date as of last Tuesday and thus does not factor in Thursday's sharp drop, which will have resulted in even lower readings. The COT chart, posted below the 8-month gold chart to enable you to compare readings at gold's peaks and troughs, is startling and a very strong positive indication for bulls as it shows that the Large Specs (dumb) have scaled back their long positions to levels even lower than they were last July, while the Commercials (smart) have scaled back their short positions to levels even lower than they were last July. This - just by itself - is viewed as sufficient evidence that we are close to another big upleg developing in gold. What about the breakdown below $1360 on Thursday that we had earlier rated as technically significant? - the latest indications, especially the COT figures, strongly suggest that this was a "big money" gambit to wrong foot technical traders and they certainly have the clout to do it.
How right you are Clive! Harvey Organ in his Gold & Silver Report shares with us today that the Open Interest in the futures markets over at the CRIMEX today eperienced a "massive" record drop:
I have never witnessed the following:
In the gold comex, the open interest plummeted from 580,750 to 498,998 for a loss of 81,752 contracts. The previous record for a drop in open interest is around 28,000 so this is absolutely enormous. I can understand a drop of stay 10,000 contracts but 81,000? Something is seriously going on behind the scenes. The front options expiry month of January saw its open interest fall from 17 to 9. There were zero deliveries the day before so we mysteriously lost 8 contracts who decided to either settle in cash or pitch their longs.
The all important front delivery month of February saw its open interest drop a huge 36,417 contracts or 44% of the drop in total open interest. The estimated volume today was a rather robust 270,.034. The confirmed volume yesterday was also very high at 256,469.
Thus on an confirmed volume of 256,469 contracts we lost 81,752 contracts. Regardless of how or why it happened, this has to be the most bullish anyone can be in gold today with the revelation of this massive hit in open interest. The open interest has fallen from a high of 611,000 contracts to a low of 498,000 on a drop of gold from 1420 to today's 1332. Thus on a huge open interest contraction we lost only 88 dollars. A lot of work for our bankers with marginal effect!
Let us see if we got the same kind of contraction in open interest in silver:
The total silver comex open interest fell by 5368 contracts to 128,228. We did not see the liquidation of open interest in silver as we did in gold. The front options delivery month of January strangely saw its open interest climb from 76 to 179 for a gain of 103 contracts.
Some silver options holders who exercised surfaced for air today. The front delivery month of March saw no liquidation as the open interest here remained resolute. Today reading is 70,067 vs 70,438 yesterday. The estimated volume today was a rather good at 64,361. The confirmed volume for yesterday was high at 70,438. Thus on a confirmed volume of 70,438 we had a contraction in open interest of 5368 or 7.2%.
He continues with an observation regarding the number of option holders in the month of January standing for Silver to be delivered in March following expiration on the February Silver CRIMEX contract:
Get a load of this next announcement; the comex folk notified us that a huge 126 notices were served upon our longs. The total number of notices served thus far this month total 670 or 3,350,000 oz of silver. To obtain what is left to be served upon, I take the deliveries of today at 126 and subtract that figure from today's open interest in January at 179 leaving me with 53 notices left to be served upon for a total of 265,000 oz of silver.
Thus the total number of silver oz standing in this non delivery month of January is as follows:
3,350,000 oz (already served) + 265,000 oz (to be served) = 3,615,000 oz (yesterday's total 3,100,000)
Please note that in the slowest month of the year for deliveries we have so far got total notices representing 3.615 million oz. I just cannot wait until March and see who will be taking on these crooked bankers. Judging from the March comex figures, the long holder refused to budge like their cousin, gold.
There have been rumours that certain hedge funds and sovereign wealth funds are willing to take possession of all gold and silver. In gold it is the February month and in silver it is March. If this is true, the game is over as there will be a default at the comex
which will bring on defaults at the SLV and GLD, and then a default at the Bank of England, and then all the banking system in the USA.
So in the conclusion, we saw a massive contraction in OI with respect to gold, which is in itself extremely bullish as the cartel washed away all of our weakest longs. Those that are now standing after a month of pummelling are in strong hands.
In silver, we saw no liquidation. If the long holders here are sovereign wealth funds, then they are also in strong hands and quite capable of bringing down the usa financial system.
Understand, the reason the open interest in the metals markets rises is because the crooked bullion bankers are selling UNBACKED Precious Metals contracts to meet the demand of traders seeking Gold. This is why the open interest in these futures contracts rises as the price of the metal rises. Imagine how quickly the price of Gold and Silver would rise if the CRIMEX bankers had to come up with REAL PHYSICAL metal to sell. Just the other day, contract volume on the CRIMEX...for just that single day...represented 511 MILLION ounces of Silver. THE CRIMEX HAS ONLY ABOUT 50 MILLION OUNCES OF SILVER AVAILABLE. How can they be allowed by the CFTC to trade contracts representing 10 TIMES the amount of Silver available for delivery? This is absolute FRAUD!
In effect, the CRIMEX crooks are "printing Gold and Silver" to meet demand when the price is rising...this is how they control the rise in the price incrementally. This is why position limits are so important. By selling a futures contract that is NOT backed by physical metal, the crooks give the illusion that supply can meet demand. This works great for the crooks if 1% or less of the futures contract holders demand to take delivery of the physical metal promised to the buyer of the futures contract.
Falling open interest then results from the sale of the contracts on the long side of the market because of the "illusion" that supply has swamped demand. As price declines, so then does the open interest. As the longs leave the futures market, the demand for the crooked bankers unbacked paper Gold and Silver wanes, prices in the Precious Metals decline, and the whole crooked procces begins again.
Clearly then, the only way to break the backs of these crooked bankers...essentialy break the back of the entire banking system, is for the holders of the physically "unbacked" paper Gold and Silver contracts, is to DEMAND DELIVERY of the contracted for Precious Metals...and expose the fraud now known as the CRIMEX.
Too much gold paper, not enough metal, Hathaway tells King World News
Submitted by cpowell on Mon, 2011-01-24
Dear Friend of GATA and Gold (and Silver):
Interviewed this weekend by Eric King of King World News, Tocqueville Gold Fund manager John Hathaway remarks that all the fundamentals for gold's rise remain in place, that there is hugely more paper gold than real gold, that only high real interest rates or gold backing for currencies can restore confidence in the financial system, and that any gold backing for currencies likely would put gold's value in four or even five digits. The interview is 13 minutes long and you can listen to it at King World News here:
CHRIS POWELL, Secretary/TreasurerGold Anti-Trust Action Committee Inc.
Great Depression, Debt and Economic Decline: Ireland, Portugal, Greece, US, UK
by Bob Chapman
We have two economic and financial Americas, one of poverty and advancing poverty and one of sumptuous wealth. The top 20% own 93% of financial assets, which could be the seeds of upheaval. The average family is one or two weeks away from starvation and debt collapse. How do you make up the difference working 34.3 hours a week as gasoline rises from $2.50 to $3.50 a gallon and the price of food advances 50%? If you do not own gold and silver related assets to offset these increases you are just plain screwed. If QE2 isn’t translating into recovery then QE3 is fast on the way. It will be kicked off later this year or in 2012. It won’t work either. Throwing money at a problem never has a positive desired result. Even though other nations have problems the dollar will remain under pressure. The gauge should not be the USDX. It should be every currency versus gold and silver, which are the only meaningful yardsticks. For two years gold and silver have been propelled by a flight to quality. A primary fight between gold and the dollar, which obviously gold has won hands down and will continue to do so. Inflation hasn’t even entered the equation yet, but it will this year and next. That will cause gold and silver to roar to the upside along with gold and silver shares. The elitists who control government are about to lose another battle and in the end the war against gold and silver.
U.S. home prices slide into 'double dip'
By Alejandro Lazo, Los Angeles Times
A "double dip" in home prices appears to be underway in the nation's biggest cities, jeopardizing the tepid U.S. economic recovery.
The widely followed Standard & Poor's/Case-Shiller Index, which tracks the real estate market in 20 major U.S. cities, showed that prices dropped 1.6% in November from the same month a year earlier, the second consecutive year-over-year decline. What's more, the index fell 1% in November from October, marking the fourth consecutive monthly decline.
Last year, a recovery in housing prices seemed to be on track. But analysts now say that that improvement was juiced by home-buying tax credits that have now expired. In addition, unemployment has remained stubbornly high and millions of Americans are still at risk of foreclosure.
Bernanke the Alchemist
By Nickolai Hubble • January 22nd, 2011
The modern financial system is based on the idea that central bankers can perform alchemy. More specifically, that American central bankers can do so. That is because the US Dollar is the world's reserve currency. And it can be created out of thin air.
The idea that people are willing to trade real goods and services for a piece of paper because everyone believes that piece of paper is money is, of course, the most important idea in the world fractional reserve banking. Without that idea a lot less global trade and a slot slower or lower global economic growth.
So how did the dollar come to be so central to the global system? Why is its status now in doubt? And if the dollar standard of the last 50 years falls, what will replace it...
Who in the hell is really selling any REAL Gold or Silver?
I looked closer at the chart of the Euro last night and have identified the possibility that the bearish properties identified last evening "may" have been in error. After adding the 20 and 50 day moving averages on the chart, it becomes obvious that today's bullish cross-over in those averages may indicate an explosive move higher in the Euro may be at hand. The two previous bullish cross-overs lead to moves higher of 7 and 8 points in less than five weeks time each. The disconnect between Gold and the Dollar can not last long in the event the Euro should leap higher from here.
The risk here is being out of the Precious Metals Markets. Be Right, and sit tight.
Monday, January 24, 2011
Ted had a couple of things to say in a private note to clients early on Friday. The first was this..."The sole reason for this latest swoon in the price of silver is coordinated and collusive manipulation upon the part of the big commercial interests, including JPMorgan, on the CME Group's Comex market. I realize that I have to make this statement repeatedly whenever there is a significant sell-off in silver. I don't set out to be repetitive, nor do I have my mind made up in advance; it's just that commercial manipulative behavior always stands out as the sole cause of every silver sell-off. Certainly, one would think if it weren't so clear, that the commercials were engaged in collusive illegal behavior on what I call a criminal enterprise of a market [the CME], one of them would object to my characterization of them as crooks. I'll let you know when, and if, that occurs."
"Collusion is a strong word. I don't use it loosely. It's easy for me to label the large Comex commercial trading entities as operating collusively on this sell-off, because they have operated collusively on every silver sell-off over the past 25 years. The proof is simple and clear...and contained in CFTC data...and both the COT and Bank Participation Reports. This sell-off...and every sell-off...have always been met with uniform commercial net buying. There has never been an exception to this pattern. How is it possible that the big commercials can always find themselves to be net buyers on every sell-off? Easy--they are acting collusively. In fact, considering their easily-documented history, it is not possible for them not to be acting collusively. How otherwise could one cohesive group always end up buying big on every decline?"
Then there was this comment on what happened in the silver spread market earlier this week. This is only two of the many paragraphs that silver analyst Ted Butler used in his explanation...and I don't completely understand it myself... "On Wednesday, the Comex experience an epic event in the silver spread market. Let me state this clearly--the spread difference between the various trading months in Comex silver futures experienced the largest price changes in history. The price direction of the spreads was to relative price strength in the nearby months...and weakness in the more deferred months; a dramatic "tightening" of the spreads that may be a precursor to backwardation, or a premium developing on the nearby months. Let me by frank--I'm not sure what this monumental spread price move may mean at this point. There is no news from knowledgeable and trusted observers, just that the market changed."
The spread tightening was unusual in that it didn't appear driven by delivery considerations. Generally, spread pricing is more gradual and trending than the sharp out-of-nowhere event that occurred on Wednesday. It appeared to be driven by spread traders for financial reasons. The tightening was completely at odds with the dramatic fall in the price of silver these past few days, as such spread tightening would normally be thought to result in sharply rising silver prices. Instead, the opposite occurred. I don't know how this is connected to the manipulation, but I have been conditioned to believe that there can be no coincidences in a market as crooked as silver. I don't mean to leave you with more questions than answers regarding the spread event, but I don't want to make things up. I'm sure we'll know more as time rolls on."
Despite it being annoying, it is quite amusing that with physical demand surging for Gold and Silver around the globe, the price would be falling.
Chinese Silver Demand Surges Four Fold in Just One Year
by Tyler Durden on 01/21/2011
Gold is flat and silver marginally lower despite dollar weakness this morning. Some market participants are blaming the precious metal sell off on speculation that China may take more monetary action to curb surging inflation. This is unlikely to be the reason for the sharp selloff, rather it looks like another paper driven sell off in the futures market by leveraged players on Wall Street with various motives.
The fact that silver is again in backwardation at the front end of the curve suggests that tightness in the physical bullion market continues and may even be deepening. Indeed, the massive increase in silver bullion demand from China (confirmed overnight - see below) suggests that silver’s bull market remains very much intact despite becoming overvalued in the short term towards the end of 2010.
Surging inflation in China, India, wider Asia and much of the world is of course positive for gold and silver as it will likely lead to an even greater appetite for the precious metals in order to protect against the ravages of inflation and the further depreciation of paper currencies.
Russia plans to buy 100 tons of gold a year
by Grigori Gerenstein
January 24, 2011 (The Wall Street Journal) — The Central Bank of Russia plans to buy from domestic banks 100 metric tons of gold a year in order to replenish the country’s gold reserves, Deputy Head of the bank Georgy Luntovsky said Monday, according to the bank’s press service.
In 2010 Russia’s gold reserve increased 23.9% to 790 tons, or 25.4 million Troy ounces.
Every day we see another story about rising demand for "physical" Gold and Silver, and/or a story about rising premiums being paid to take delivery of physical metal, yet the "price" continues to fall? Why certainly! On the CRIMEX, anything is possible...
Consider that in just this week we have begun, the following "anti-Gold" events are on the immediate horizon:
January 25th: The State of the Union Address
January 25-26: The Fed's Open Market Committee meets to discuss interest rates
January 26-30: The World Economic Forum Annual Meeting 2011, Davos, Switzerland
Are the criminals on the CRIMEX, and their brothers operating over in London on the LBMA, going to allow the price of Gold and Silver to rise as the World's fiat money leaders espouse the virtues of their monopoly money flooding the planet? Of course not!
And let us not overlook the expiration of options and futures contracts this week on the CRIMEX. Nothing says a drop in price like an expiring CRIMEX option or futures contract. However, one might consider that with Gold down 6% already this month and Silver down 12%, we could see a rush to cover here with an abrupt rally in price into the week's end.
Were this relief rally to occur, one might be wise to sell going into the weekend, and Monday's First Notice Day, as our criminal bankers are likely to be overwhelmed by delivery demands going into Gold's February Delivery. One more take down in the Precious Metals next week following First Notice Day and this reaction in the Precious Metals may well be over...for the year.
It has been interesting, if not unnerving, to watch the Precious Metals prices fall as the US Dollar has also fallen over the past couple of weeks. This defies all logic in these markets. However, if we consider that the "big trade" late last fall and into the end of the year was to be short the Euro and long Gold, January's bizarre market action might actually make sense if this trading scenario was being unwound here.
Note that the Precious Metals Platinum and Palladium have performed in lockstep fashion with the Dollar of late, yet Gold and Silver have not. This could be further proof that Gold and Silver are now trading more as currencies than as commodities. And taking that into consideration, note that as the Asian currencies have strengthened, Gold and Silver have weakened. Have Gold and Silver forsaken the US Dollar for the rising Asian currencies in a major disconnect foretelling the future disposition of the US Dollar as the World's sole reserve currency? It's too soon to tell, but it is an interesting thought.
The recent rally in the Euro that has coincided with the fall in Gold and Silver prices is looking a bit overheated here. The Euro has almost retraced 61% of it's most recent decline this month, and is now approaching it's broken downtrend line from below. This sort of action often signals a resumption of the previous trend, and exposes the recent rally as nothing more that a "bear market rally". Were this to be true, will Gold begin to rise again as the Euro falls...and the US Dollar rises? This appeared to be the case last night during trading in the Asian markets as the Euro fell to open the week, and the Dollar rose along with Gold and Silver. This move higher in the Precious Metals and the Dollar was quickly squashed as the European markets opened this morning and quickly bid the Euro higher.
James Turk - Silver in Backwardation, Set to Explode
Eric King, KingWorldNews.com
James Turk has alerted King World News that silver is in backwardation. Turk spoke with KWN saying, “Silver is in backwardation which is an extremely important development. Most are aware that when backwardation occurs, the spot price is higher than the futures price. Backwardation happens regularly in most commodities, but it is rare in the precious metals.”
“Silver is in backwardation not just in the short-term, this time it is extending twelve months forward!
The last time this happened Eric was in January of 2009. Over the next few weeks silver rose from about $10.50 to $14.50, a roughly a 40% move higher. The key to understanding backwardation is that the price must rise to entice holders of physical metal to sell and accept a national currency in return. I think we can expect a similar event to repeat over the next few weeks.
A similar type of move would clearly put silver well above its previous high. What this backwardation shows is that there is a disconnect between the physical and the paper markets in silver. As I said previously, the silver shorts simply cannot hold the paper price down here any longer without seriously discrediting the paper silver market as a price discovery mechanism.
Gold is not in backwardation, nevertheless the demand for physical gold is extremely intense. With the sentiment indicators at very low levels, it suggests we are about to see a stunning short covering rally in gold.”
Weakness in the metals can end as quickly as it began. When the metals turn, this next move should be breathtaking.
Favorable Interest Rates And Inflationary Concerns To Support Gold
By Mike Stall on January 23, 2011
After a record ten straight years of annual gains, gold has entered a critical phase in one of its longest rallies. Markets are abuzz with contradictory views on whether gold will continue to rise in 2011. Signs of a slowdown are apparent in the short to medium-term. However, we investigate two compelling factors affecting gold prices and find out why there is no reason that the prolonged rally does not continue well into this year as well.
Gold to benefit as currency woes continue
By David Levenstein
Since 2000, gold has been in a bull market that has driven the price of the yellow metal from around $250 an ounce to just over $1400 an ounce. Even though this impressive five-fold gain has occurred in the US dollar price of gold, the price has recorded major gains in almost every currency around the world. Although, after ten successive years of price increases, it may be tempting to ask if prices are peaking, I don't believe so. In fact I think this bull market has a long way still to go.
While the price of gold is influenced by a myriad of different factors, the main contributing factor over the last 10 years has been the declining values of the major currencies in particular the US dollar, which as measured by the Dollar index, has dropped from a high of 120 in 2001 to a low of just above 70 in April, 2008.... a loss of some 35%.
A quarter century of uninterrupted and unprecedented credit expansion begun by the US in the 1980's, came to an abrupt in August 2007 when global credit markets froze, precipitating an economic crisis the severity of which surprised all except those who expected it. And, in order to prevent a collapse of our financial system, central banks were forced to bail out numerous financial institutions. But, since these central banks did not have a stash of cash available, and could not borrow money from selling new issues of bonds, they were forced to print more money disguising this in a list of new terminologies like "quantitative easing."
A fiat currency is a medium of exchange composed of some intrinsically valueless substance which the issuer does not promise to redeem in a commodity or a fiduciary money. And, because a fiat currency has no direct legal connection to a commodity money (in terms of redemption) and, therefore, no real economic cost to its production, the supply of a fiat money can never be self-limiting.
The following three links are to a series of interviews with Peter Schiff. They are all well worth your time as Peter discusses how Gold and Silver uncover the lies of the fiat money masters at the Fed:
Wednesday, January 19, 2011
Yesterday evening as the US Dollar was slipping through a five week support line, Silver lifted off from it's strong 28.89 CRIMEX close and raced through the 29 handle around 7:30 PM est. Silver continued to rise overnight through the Asian AND European markets. And as the world turned, Silver found itself at 29.48 as the CRIMEX threw open it's doors to the criminals that trade there. From 8:30 AM est., until now as I type this, Silver has given up $0.84 thru the CRIMEX trading session and into the after hours "thieves market". It is presently 3:15PM est.
This reaction in Silver during the CRIMEX market hours has occurred with the US Dollar under strong pressure all morning.
Folks, this is "crime in broad daylight".
How can the price of Silver be "under pressure", when demand for physical Silver is at record highs?
Silver Up as US Mint Reports January Eagle Sales Reach Record High
The US Mint has reported that sales of American Eagle silver bullion coins (1 oz) have reached 4,588,000 ("in ounces / number of coins") which is a record since the US Mint commenced selling the coins in 1986.
This shows that retail bullion demand remains very robust despite the recent feeble economic recovery. It also shows that silver buyers have not been deterred by the surging price of silver. On the contrary, higher silver prices and increased concerns about the US dollar, the euro and other fiat currencies are leading a minority of 'hard money' advocates to increase allocations to gold and silver.
Silver bulls are über bullish but they are a tiny minority of the American and international retail investment and savings marketplace. The average investor and saver in the US has no allocation to gold, let alone to silver.
Therefore it would be wrong to assume that these record sales are a negative contrarian signal and that silver has become a bubble with the so called "dumb money" "piling" in.
Rather, a tiny segment of the US public, many of whom are contrarian investors who are worried about the dollar and other macroeconomic and geopolitical risks, are going overweight silver.
However, the majority remain blissfully unaware of silver at this time and the majority of the retail public could not tell you the spot price of silver today or the gold to silver ratio let alone how to invest in it.
This report is shocking! More Silver Eagles have been sold "so far" in the month of January 2011 than were sold in the entire year of 1996 when only 3,466,000 were sold.
And yet the price of Silver is down? Only at the CRIMEX.
We should all thank the CRIMEX for creating an environment whereby the average investor can buy into the "greatest investment opportunity of a lifetime" at discounted prices.
The failure of derivatives regulation of precious metals
By Alasdair Macleod
The regulatory failure of precious metal contracts in US derivative markets will have important systemic consequences, and nowhere is the problem becoming more obvious today than in silver. Several banks have been running a substantial short position for a considerable time. This position has been permitted to continue because of weak management by both Comex as the principal dealing exchange and by poor oversight from the US Commodity Futures Trading Commission as regulator.
Between them Comex and the CFTC have ignored two fundamental truths about the market. The first truth is that the continual rolling of short or long positions is fundamentally unhealthy, and is indicative of a growing risk of trader default over time. The second is that no market participant in an open outcry system has any commitment to deal or provide liquidity, unlike a market where there are licensed market-makers who have to make two-way prices at all times. There is therefore no reason why such a long-running speculative position should be permitted even for the Commercials (the banks), and their long-term presence, for which there must be a reason, may be evidence of price manipulation.
The deficiencies of the system have led to the silver market becoming completely polarised. There is a divorce between derivatives, where there is inadequate control over large long-running positions, and the physical market, where there is now virtually no metal for delivery. It has become a dangerous reversal of functions that is now complete: paper silver is no longer priced on the back of physical metal; it is the physical that is notionally priced on the back of paper. The tail is wagging the dog to the point that the free supply of derivatives has led to the metal being driven from circulation. [i]
While the market for silver derivatives may interest only a minority, the same problem occurs for gold, which is a far more serious systemic issue. The separation of functions between market and regulator has facilitated a similar price suppression scheme, totally negating the principal function of derivative markets, which is to provide liquidity by harnessing speculative demand for the benefit of prudent hedging activities.
This simply does not happen for precious metals. The Commercials on Comex are mostly banks that also provide unallocated gold accounts, which they manage on a fractional reserve basis. Their basic risk requirement is for a hedge to offset the effect of a rise in the gold price on these unallocated accounts, so they should be holding long, and not short gold contracts. Unfortunately, the size of unallocated account business is too large to hedge on Comex anyway. Furthermore, the majority of the speculating public are and always will be net buyers when they have any interest at all, so both non-Commercial and Commercials are fundamentally buyers. For this reason the concept of an effective public derivatives market for precious metals is flawed from the outset, and must not be confused with those commodity derivatives where there is a healthy deal flow provided by product suppliers and industrial demand.
For any bank running unallocated bullion accounts on a fractional reserve basis, markets that allow the public to buy gold and silver only increase the price risk to its own position. The temptation to use these markets to manipulate prices downwards, or at least to try to stop them rising is therefore very great, and this is exactly what has happened. There is now an accumulated short position by the Commercials of about 700 tonnes of gold. To this must be added the far larger short position on the bullion banks’ unallocated accounts, and the uncovered sight accounts run by the central banks in the major dealing centres. No one knows for sure how much the total short position amounts to, but we can be certain that the Commercial shorts on Comex are by far the smallest component.
It is the inevitable unwinding of these massive short positions that will have adverse systemic consequences. The unallocated accounts, probably the largest element of the problem, can be closed out for cash under the standard LBMA account terms, probably with a multi-government bail-out. The resolution of uncovered sight accounts at the central banks will be kept a close secret. It is Comex which will probably bear the most visible manifestation of the crisis.
Gold Versus Defective Economists and Delusional Leaders on Drugs
By James West
It has always been my opinion that the so-called science of economics in its current form is victim to the problem of not being able to see the forest because of the trees. The fact that 60 percent of 242 members of the National Association for Business Economics think that the U.S. Federal Reserve is doing the world a favour by maintaining non-existent interest rates is hard evidence in support thereof. If you give something away (money) at no cost, then its value is zero. Something is only worth what someone else is willing to pay for it. Why oh why do our illustrious leaders fail to grasp such elementary logic?
The global economy has just OD’ed on credit, and the Fed’s response is to make the offending intoxicant free for all the junkies. And, to make matters worse, the Fed sees itself as its new best customer. Even street-level drug dealers know better than to get high on their own supply. Metaphors aside, and as increasing numbers of unemployed, under-employed, un-housed and unpaid Americans know, the United States is in the terminal stages of a broad systemic failure brought on by the excesses of too much money in the system. And sadly, the patient is still in denial.
Economics, this now more dismal than ever of sciences, fails to reconcile the fact that the amount of capital available to the global economy and its movers and shakers must needs by directly proportional to real demand for actual products. Opportunity is not created by the mere manifestation of unlimited quantities of counterfeit zero-cost capital. The excessive amounts of ersatz wealth created by the dot com era, the derivatives matrix, and incomprehensibly complex mortgage securities has resulted in the present problem of Too Much Stuff. There are too many houses, too many cars, too many baubles and gadgets and plastic doodads manufactured in China sitting on shelves and in lots around the world un-purchased and un-wanted because the demand for these things is gone. Everybody’s got one or two or three, and the population will not grow fast enough to generate sufficient demand to consume the output of our horribly efficient industrial infrastructure.
All that is accomplished by making capital freely available to the world who doesn’t want it or need is to confirm for even the unborn and newly dead that the capital proffered is worth exactly its cost: zippo bippo.
The distance between the present reality and current delusion under which these doped out leaders and their woefully befuddled economists operate is vast in terms of required economic policy revision. Credit needs to cost, and currency levels need to be reduced. Gambling on Wall Street with taxpayer’s equity needs to be outlawed. The incestuous inter-relationships among government and banking is shockingly blatant. And criminal. Though not in our current legal system, which is presently aiding and abetting as opposed to overseeing and regulating.
Brace for a ‘perfect storm’ in gold
By Thomas Kaplan
Investment implies moving some part of one’s assets from financial safety to a position of acceptable risk with the hope of increasing wealth over time. What qualifies as “acceptable risk” may thus be seen to be the gating question for the investment criteria of a “prudent man”. This has come to be known as the Prudent Man Rule to guide persons entrusted with the finances of others.
Although the rule remains a guiding principle in the fund management industry to this day, at least one key element has changed. In 1971, our understanding of ultimate safety was transformed when President Nixon ended the US government’s certification that each dollar in circulation was, in effect, worth exactly 1/35th of an ounce of gold.
Since all major currencies had been linked to gold via the US dollar since 1945, when the US held the majority of monetary reserves, the announcement provoked a momentous change in the financial culture. Cash no longer meant gold: the amount of dollars the Federal Reserve could print would not be restricted to some degree by a stored metallic tangible asset with a finite supply. In a great leap of faith, paper dollars and traded US federal liabilities became “risk-free” assets while gold, long regarded as money itself, was disdained as a “commodity”, a volatile “risk asset”.
This historically radical new notion was validated by the arbiters of money themselves. Central bankers dumped gold, driving prices down sharply during the 1990s. They thereby reinforced the MBA textbook perceptions that the dollar and US Treasury bonds were “risk-free” assets and gold a “barbarous relic,” as John Maynard Keynes famously called it.
Even today, as the gold rally has reached the 10-year mark (following a 20-year bear market), the metal represents a mere 0.6 per cent of total global financial assets (stocks, bonds and cash). This is near the all-time low (0.3 per cent) reached in 2001, and significantly below the 3 per cent it accounted for in 1980 and the 4.8 per cent it was in 1968.
However, there are changes afoot. After a lengthy absence, some asset managers and central bankers are readmitting gold back into the group of prudent asset classes. Assessing the devastation of financial industry and government balance sheets, fiduciaries have been reminded that one of the principle reasons to hold gold – that it is the only major financial asset that does not represent someone else’s obligation to repay – is not the arcane concept it once appeared.
U.S. National Debt from 1940 to Present
Here's are two graphs of great interest...and importance posted on Ed Steer's Gold & Silver Daily web site.
The title says it all..."U.S. National Debt from 1940 to Present". The year 1971 is pretty easy to pick out...as that was the year that Nixon pulled the pin on the gold standard.
Cumulative Value of Global Gold Production
...the graph looks suspiciously like the U.S. debt chart posted above. This one is entitled "Cumulative Value of Global Gold Production"...and, once again, the title says it all.
The Fed Adds a Third Mandate
By: John Mauldin, Millennium Wave Advisors
The Fed has two mandates: keeping prices stable and creating an economic climate for low unemployment. I am sure I was not the only one to listen to Steve Liesman’s interview of Ben Bernanke this week and shake my head at the spin he was giving us. First, let’s set the stage.
In a paper with Alan Blinder early last decade, Bernanke made the case for the Fed to target a specific inflation number, and the number that came to be accepted as his target was 2%. In his famous helicopter speech in late 2002, he assured us that deflation could not happen “here,” even if the short-term rate was zero, because the Fed would move out the yield curve by buying large amounts of medium-term bonds. This would have the effect of lowering yields all along the upper edge of the curve. This became known as quantitative easing. In Jackson Hole last summer, he made very clear his intention to launch a second round of liquidity-injecting quantitative easing (QE2). In that speech, in later speeches in the fall, and in op-ed pieces he said that such a program would lower rates.
Then a funny thing happened on the way to QE2: long-term rates began to rise all over the developed world. As Yogi Berra noted, "In theory, there is no difference between theory and practice. In practice, there is." It’s got to be driving Fed types nuts to see the theory of QE, so lovingly advanced and believed in by so many economists, be relegated to the trash heap, along with so many other economic theories (like that of efficient markets). The market has a way of doing that.
So, Liesman asked Bernanke about one minute into the clip (link below) about the little snafu that, following QE2, both interest rates and commodity prices have risen. How can that be a success? Ben’s answer (paraphrased):
“We have seen the stock market go up and the small-cap stock indexes go up even more.”
Really? Is it the third mandate of the Fed now to foster a rising stock market? I wonder what the Fed’s target for the S&P is for the end of the year? That would be an interesting bit of information. Are we going to target other asset classes?
Understand, I am not against a rising stock market. But that is not the purview of the Fed. And certainly not a reason to add $600 billion to the balance sheet of the Fed when we clearly do not understand the consequences. If it looks like they’re making up the rules as they go along, it’s because they are.
Here is the clip: http://www.cnbc.com/id/15840232/?
Could the U.S. central bank go broke?
By Pedro da Costa and Ann Saphir
(Reuters) - The U.S. Federal Reserve's journey to the outer limits of monetary policy is raising concerns about how hard it will be to withdraw trillions of dollars in stimulus from the banking system when the time is right.
While that day seems distant now, some economists and market analysts have even begun pondering the unthinkable: could the vaunted Fed, the world's most powerful central bank, become insolvent?
Almost by definition, the answer is no.
As the monetary authority, the central bank is the master of the printing press. It can literally conjure up money at will, and arguably did exactly that when it bought about $2 trillion of mortgage-backed securities and U.S. Treasuries to push down borrowing costs and boost the economy.
The Fed's unorthodox steps helped it generate record profits in 2010, allowing it to send $78.4 billion to the U.S. Treasury Department. But its swollen balance sheet leaves the central bank unusually exposed to possible credit losses that could create a major headache at a time of increasing political encroachment on the Fed's independence.
Asked about the issue of potential losses during congressional testimony on Friday, Fed Chairman Ben Bernanke suggested the risks were minimal. If liabilities on the Fed's balance sheet were to exceed its assets, it would only be so because of rising interest rates in the context of a thriving economy, he suggested.
"Under a scenario in which short-term interest rates rise very significantly, it's possible that there might come a period where we don't remit anything to the Treasury for a couple of years. That would be I think a worst-case scenario," Bernanke said. Customarily, the Fed submits surplus profits from its operations back to the Treasury's coffers.
But the Fed's newfangled policy steps and the potential for credit losses raises, for some experts, the prospect that the Treasury may actually be forced to "recapitalize" the Fed -- economist-speak for what others might call a bail-out.
That would be a strange role reversal given the Fed's efforts to ease monetary policy by buying the Treasury's debt, and it could raise a political firestorm from lawmakers who believed all along the Fed was putting taxpayer money at risk.
Tuesday, January 18, 2011
On Friday, China told banks to set aside more deposits as reserves for the fourth time in two months, stepping up efforts to rein in liquidity after foreign-exchange holdings rose by a record and lending exceeded targets. This, of course, led to an across the board sell-off in commodities on the fear that a liquidity crunch in China would stifle demand for commodities globally.
Yesterday, Chinese President Hu Jintao emphasized the need for cooperation with the U.S. in areas from new energy to space ahead of his visit to Washington this week, but he called the present U.S. dollar-dominated currency system a "product of the past" and highlighted moves to turn the yuan into a global currency.
This morning, we learn that China, the biggest buyer of U.S. Treasury securities, reduced its holdings in November after four months of gains. According to the US Treasury, China's holdings of Treasury debt dropped 1.2 percent to $895.6 billion.
In addition, we learned this morning that China's central bank has reportedly cut its 2011 lending target for banks by 10 percent from last year in a bid to slow down free-wheeling lending and tame inflation.
One wonders if the unusual volatility in the currency and commodity markets the past few days were to prepare for this weeks visit to Washington by Chinese leader Hu Jintao, or simply a play set up by the banks to take advantage of all of the moves by China to fight inflation there.
Of course, there is always the belief that the Precious Metals markets were again experiencing "bear raids" by the bullion banks that operate outside of commodity law at the CRIMEX in New York. This is a pertinent belief because the recent vote on position limits by the CFTC last week does little, if nothing, to thwart the abuse of commodity law by the likes of JP Morgan.
Analysis: CFTC "position points" lack bite of hard limits
By Roberta Rampton and Christopher Doering
(Reuters) - The largest speculators in U.S. commodity markets have little to fear from a new plan by their regulator for heightened surveillance -- a precursor to position limits that won't likely force anyone to exit trades.
Traders such as Goldman Sachs, JPMorgan and Morgan Stanley will likely get extra questions about their over-the-counter swaps from the Commodity Futures Trading Commission when they exceed certain complex thresholds in 28 energy, metals and agricultural futures markets.
The added surveillance, known as the recently proposed "position points", is an attempt to appease Bart Chilton, a CFTC commissioner who says the agency should act faster to make sure speculators cannot help drive up prices at a time when food and copper have hit records and oil nears $100 a barrel.
It is an interim measure until the CFTC has the data needed to put in place speculative curbs required by a new Wall Street reform law.
But barring an extreme price spike or market emergency, lawyers and analysts say the CFTC probably will not force speculators exceeding the "position point" thresholds to liquidate positions.
Emergency powers are reserved for times when markets are threatened by manipulation or during major disturbances, said Jill Sommers, a Republican commissioner.
"It's my opinion that our emergency authority does not extend to us being able to tell a market participant to get down just because a position is large. There are other people who feel differently," Sommers told Reuters.
Why does the Congress even pass laws to protect consumers and investors if the bank lobby is allowed to dictate how the law should be written?
JP Morgan Wins: CFTC Position Limits Do Not Apply (To Them)[MUST READ]
By Chris Martensen
Speaking of changing the rules...
Gold and silver are now down hard over the past two days, and the reason may have something to do with the fact that the CFTC utterly caved to JPM in their long-awaited decision on position limits in a 4-1 vote.
While position limits will eventually be set, maybe, someday, the course of action taken by the CFTC grandfathers in JPM's (and HSBC, et al.) current outlandish positions.
Here's the background:
On the flip side, the fall in the paper price of Gold appears to be creating a scarcity of Precious Metals for physical buyers. The contention has long been that when actual physical supply shortages become real, the paper manipulation of Precious Metals price would be revealed as the true fraud that it is, and this derivative market will come crashing down like the mortgage derivatives markets in 2008. Could we be fast approaching a "tipping point" where shortages of Precious metals make it impossible for the CRIMEX shorts to meet delivery demands?
Gold prices buoyed by China demand
By Jack Farchy in London
A spike in gold buying by Asian investors has created a scarcity of investment-grade gold bars in the region, supporting prices even as western investors trim their holdings.
Traders said that gold sales to China had jumped 30-50 per cent since Christmas, driving the cost of kilo bars in Hong Kong more than $3 per ounce above the market price of gold, the highest level since 2008 and an indication of the tightness in the physical market.
“Physical demand has rocketed in China at the start of the year,” said Walter de Wet, head of commodities research at Standard Bank.
The metal’s price has dropped 4.6 per cent from its December record price of $1,430.95, trading at $1,364.10 on Friday, as optimism about prospects for US growth has led western investors to turn their attention away from gold to other commodities and equities. “We have a balanced situation where one part of the world is buying and the other part is selling,” said a senior trader in Hong Kong. Chinese and Indian investors are increasingly turning to gold to protect savings against sharply rising food prices.
Investor buying of gold bars jumped 80 per cent to a record 144 tonnes last year in India, according to GFMS, the precious metals consultancy, while across east Asia bar hoarding was up 125 per cent at a 15-year high.
Strong Indications of Gold & Silver Shortages [MUST READ]
By: Adrian Douglas
Since reaching new highs at the end of 2010 gold and silver have been sold off, and the selling has been particularly intense in the last few days. The news on the economy is almost exclusively bullish for the precious metals. From the price action one might be falsely led to believe that investment demand for the precious metals is waning. On the contrary the data analysis I will show in this article reveals strong indications of growing shortages and furthermore that the gold and silver markets are approaching “tipping points” that will lead to an acceleration of price appreciation.
The clear trend in the data clusters that has developed over the last ten years indicates that the gold open interest will soon be declining with a rising price as is the case for silver. Taken together the data shows that in both gold and silver there is a growing reluctance of the traditional short sellers to meet rising demand even at elevated prices. This is strongly indicative of looming physical shortages. This conclusion is corroborated by many other market observations and anecdotal evidence. We are likely very close to the “tipping point” where shortages become exposed and a stampede of investors into precious metals to benefit from the accelerating prices will give rise to a feeding frenzy that will exacerbate the shortages.
Perversely the more the market becomes close to the tipping point the more we can expect the cartel of bullion banks to make bear raids as we have seen this last week because they desperately need to cover their short positions. However, in the case of silver and soon to be the case with gold a negatively correlated open interest to price relationship means that lower prices lead to higher open interest; in other words there is no way to cover at lower prices; the only way to cover is at higher prices. As this becomes increasingly obvious to the cartel the severity of the bear raids will decrease, particularly when the premiums in the physical market are showing that the bear raids are stimulating massive physical offtake making the predicament of the cartel ever more precarious.
This makes the brouhaha about the CFTC imposing position limits on the Comex a complete joke because, as always, the regulators are going to be too late.
Just like all the other nefarious financial engineering schemes that are falling like houses of cards, the scam of selling precious metals that do not exist is fast approaching a rendezvous with its day of reckoning.
Premiums Play a Role in Indicating Silver Manipulation
By: Dr. Jeffrey Lewis
Silver investors should remember to always pay attention to the per ounce premium they pay to receive physical metals. While premiums are important as a barometer of the actual silver you're obtaining per dollar, premiums also play a very important role in gauging current market manipulation.
There are a number of headlines and stories that today focus on the rising premiums being paid for physical Precious metals:
Jewellers book gold at high premium on supply squeeze
Demand for Physical Bullion Sees Silver Eagle Sales Soar and Premiums Rise
Right now, the demand for physical gold in China is surging. The premiums for gold bars for spot delivery jumped to their highest levels in two years there.
Bank dealers said premiums may rise to $1.65-1.75 an ounce from the current $1.40/1.45. "Supply is still a problem, and it looks unlikely to be solved until February. If this demand trend continues, we might see further rise in premiums," said the state-run bank dealer.
Gold Shorts Beware China's Million-Strong Gold Savers
Bullion Demand Surges in Middle East & Asia
Of course supply shortages and rising premiums for physical metals leads one to wonder about default scenaios over at the CRIMEX.
Precious Metals Default Scenarios
By Jeff Nielson
For obvious reasons, there has been a great deal of discussion about actual, formal “defaults” in the gold and silver markets. Among those “obvious reasons” is that informal defaults are apparently already taking place in both markets.
Beginning in the London gold market over a year ago, and now rumored to be occurring in New York's “Comex” silver futures market, buyers who have legally contracted to take “physical delivery” of the metals they have purchased are said to be accepting large, paper bribes to accept a “cash settlement” instead.
There are many reasons for investors to take such “rumors” seriously. Empirically, we see the premiums being charged for physical bullion (even from large, established dealers) rising to levels never before seen (around the world). This strongly suggests a very tight market for bullion. This is confirmed through the anecdotal reports of both industrial users and large institutional investors (such as Sprott Asset Management) that they are having a great deal of difficulty locating any large quantities of bullion available for sale.
In theoretical terms, we are merely seeing the culmination of arrogant bankers attempting to defy the elementary laws of supply and demand for over a quarter of a century. Even those with no training in economics know the basic rule (since it is merely an expression of common sense): when prices rise, demand falls; when prices fall, demand rises.
There are many derivative principles which flow from this one basic law. Among the most salient (and the one apparently beyond the comprehension of bankers) is that if you under-price any good it will be over-consumed. I have demonstrated the unequivocal truth of this principle previously, and so will not do so again. Suffice it to say that in deliberately under-pricing gold and silver for well over a quarter of a century (through their relentless manipulation of these markets), the bankers have caused more than 25 years of excessive demand – where previous surpluses in these markets have been transformed into huge supply-deficits.
China or the CRIMEX? Who knows why the Precious Metals are being toyed with here. Suffice it to say, the fundamental case for a continued rise in the prices of Gold and Silver only gets stronger by the day. Gold is far from being in a bubble, and the US Dollar is far from being a pillar of economic strength. China may hold a lot of the global economic economic cards right now, but the growing supply shortages and rising premiums put the pillars of wealth protection in the holders of physical Gold and Silver.
Be right and sit tight as the world's fiat money system spirals to towards it's demise.
Thursday, January 13, 2011
What's this? Have the CRIMEX goons gone to the well one last time in the face imminent position limits?
Gov't moves to limit speculative commodity trades
Marcy Gordon, AP Business Writer
WASHINGTON (AP) -- Federal regulators took a step Thursday to limit speculative trading of oil, food products and other commodities, responding to critics who say that has driven up consumer prices.
The Commodity Futures Trading Commission proposed limiting the volume of futures contracts that financial investors can trade for 28 commodities. The panel voted 4-1 to advance the rule, which opens it to public comment.
The restrictions are aimed at Wall Street firms and others who trade them to profit from swings in market prices. Agricultural companies, airlines and others who use futures trading to hedge against price changes would not be affected.
Lawmakers had proposed establishing limits on speculative trading of commodities as part of the financial overhaul law enacted last summer. But they left the details of the rules to regulators to sort out.
Eight senators -- seven Democrats and one Independent -- sent the regulatory commission a letter Thursday raising concerns about lobbying efforts by the financial industry aimed at watering down rules. The senators urged regulators to enact rules that place limits all traders other than those with "bona fide hedge positions."
The letter was sent on the same day that the Labor Department reported that higher oil and food costs pushed wholesale prices up last month by the biggest amount in nearly a year.
"The growing role of hedge funds, financial traders, and long-term passive investors in energy and other commodity markets has had devastating consequences for the average American," the senators wrote. "These speculators have contributed to rising volatility and periodic price spikes in the cost of gasoline and food."
Hmmm..., no mention of the US Governments debasement of the US Dollar as a factor in the rising prices of commodities? Well, I guess it's just easier to blame somebody else, than it is to look in the mirror. Funny that the legislator's focus is on the "rising costs" of energy and food prices, as completely ignore the suppression of the prices of Gold and Silver. Who are they going to blame when energy and food prices keep rising even after position limits are enacted AND enforced?
Jobless claims jump, wholesale food costs surge
By Pedro Nicolaci da Costa
(Reuters) - U.S. jobless claims jumped to their highest level since October while food and energy costs boosted producer prices, pointing lingering headwinds for an economic recovery that had been showing renewed vigor.
A surge in exports to their highest level in two years helped narrow the trade deficit, however, an encouraging sign.
Despite the more positive outlook for growth in recent weeks, the job market still appeared to be struggling.
The number of Americans filing for first-time unemployment benefits rose unexpectedly to 445,000 from 410,000 in the prior week, the Labor Department said on Thursday. It was the biggest one-week jump in about six months, confounding analyst forecasts for a small drop to 405,000.
U.S. stock index futures added to losses after the jobless claims data, while government debt prices rose.
"The jobless number highlights the patchy recovery we've seen in the job market and reinforces that it will be a slow process bringing down the jobless rate," said Omer Esiner, market analyst at Commonwealth Foreign Exchange in Washington. "The one bright spot was a further decline in the trade deficit, which should contribute positively to fourth-quarter" growth.
A Labor Department official did note the rebound in benefit claims occurred following the holidays, which may have hindered new applications and created a backlog. Without the seasonal adjustment, claims were up by nearly 200,000 to 770,413.
As last year drew to a close, food and energy costs were rising relentlessly at the wholesale level despite a tame underlying inflation trend, complicating the outlook for monetary policy.
U.S. producer prices climbed 1.1 percent in December after a 0.8 percent rise in November, according to another Labor Department report. Economists had been looking for a repeat of that 0.8 percent advance in December.
But didn't the President of these United States just tell us this past Saturday that our economy is heading in the right direction? Didn't that funny man with a beard just tell the US Senate that America has entered a "sustainable recovery"? Oh damn what was that clowns name? Pinocchio? No wait, I remember...Bumbling Ben Bernanke!
Damn, things sure look great if you don't use Energy or food products, or own a home. :-0
2011 to top 2010 record of 1 million foreclosures
After a record 1 million home foreclosures in 2010, this year is likely to be even worse
Janna Herron, AP Real Estate Writer
NEW YORK (AP) -- The bleakest year in the foreclosure crisis has only just begun.
Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in.
"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year.
The blistering pace of foreclosures this year will top 2010, when a record 1 million homes were lost, RealtyTrac said Thursday.
Didn't somebody about this time last year make the claim that 2010 was going to be the "peak" in forclosures? Yeah right, and the unemployment rate rally fell from 9.8% to 9.4% last month. LOL!
There is still TOO MUCH HOPE out there in land of talking heads and financial media writers. As long as there is hope, there will not be a bottom.
Yep, things are so good in the American economy that the Dollar is being slapped around like a beach ball on the Fourth of July today. Geez, I wonder if Turbo tax Timmy Geithner's comments on the Chinese currency had any impact on the Dollar today?
Geithner warns Beijing on currency policies
Geithner says undervalued Chinese currency is increasing inflation risks in China
Martin Crutsinger, AP Economics Writer
WASHINGTON (AP) -- China's currency is substantially undervalued and Beijing is moving too slowly to fulfill its promise to let it rise, Treasury Secretary Timothy Geithner said Wednesday.
Geithner said it's in China's own interests to accelerate the pace of currency reform. He said the undervalued yuan is increasing the risk of inflation that will harm Chinese growth.
"This is not a tenable policy for China or for the world economy," Geithner said. "We believe it is in China's interests to allow the currency to appreciate more rapidly in response to market forces. And we believe that China will do so because the alternative will be too costly -- for China and for China's relations with the rest of the world."
What?! Little Timmy Geithner, who promised the WORLD that the US would NOT devalue its currency, is no lecturing the Chinese on the perils of inflation? Little Timmy fancies himself an economist, eh? I wonder if he has considered that the rapidly devaluing US Dollar is the cause of inflation in China and THE REST OF THE WORLD?
Aye, I am feeling a wee bit salty today, YES! This BS in the Precious Metals today has got me stirred up like a hornets nest. What a load of C.R.A.P.
Now this IS funny!
Here's Why The Credit Picture Isn't All Bad
From CNBC [where else do you get gnius like this?]
Consumer-credit delinquencies are on the rise again, but that doesn't mean the consumer credit picture is worsening, according to FICO CEO Mark Greene.
"We're sort of tentative and cautious," Greene said in an interview with CNBC.
"Our view at FICO is we probably have 2011 as another year of working through these issues, particularly on the housing side-the mortgage industry is the one we're most troubled by at the moment-and we are probably into 2012 before we see clear signs of recovery, so this is a period of tentative recovery at this time," Greene said.
Despite the increase in credit-card delinquencies in the third quarter, Greene expects that credit quality has been improving overall.
He explained that many people have focused on consumers with lower credit scores, many of whom have seen their credit scores worsen as job loss and a poor economy have hurt their ability to repay consumer loans.
However, FICO also has seen those with higher credit scores experience further improvement in their credit quality as they tightened their belts and paid off debt during the economic downturn.
In other words, credit scores continued to push both higher on the top and lower on the bottom.
Um, in other words, things are rosy as a peach...if you ignore the truth. The American economy has been driven by credit for the past 50 years...without it there is no economy. The rich can't support the economy...and certainly not if you "tax the rich".
Is this a joke, or am I just having a bad dream today?
Why $4 Gas Will Cause Less Pain This Time
Rick Newman, US NEWS
When gas prices hit $4 per gallon back in the summer of 2008, America's drivers had a collective breakdown. No other single item affects the American psyche like gas prices, which are advertised on every street corner and magnified by the media every time they hit an uncomfortable threshold. No wonder car sales stalled, consumer-confidence collapsed, and some motorists even mothballed their cars, switching to buses or bicycles to get around.
Gas prices retreated during the recession, plunging all the way to $1.60 by the end of 2008--a much-needed break for consumers at a time when many other things were going wrong. But a recovering economy has once again lifted the price of gas above $3, an unusual spike during the winter months, when motorists typically drive less. With the global economy heating up--especially in oil-thirsty China--many forecasters expect oil prices to keep rising, bringing gas prices along with them.
The next gas-price spike, however, won't be quite as painful as the last one. Here's why:
Drivers have downsized.
Cars have smaller engines.
Hybrids have gathered steam.
People are driving less.
The government has mandated better mileage.
If the economy wasn't moving in the right direction, I'd swear it was because 22% of the workforce is unemployed and don't need to buy any gas, cause they have no place to go!
Here's a little propaganda busting Molotov for you Mr. Newman:
"Gas prices retreated during the recession, plunging all the way to $1.60 by the end of 2008..." Yes, they did. And the US Dollar rose to a THREE YEAR HIGH at the end of 2008...it then fell HARD during the entire year of 2009...AS GAS PRICES ROSE. Gas prices fell again in the spring of 2010...and have been rising since the Fourth of July. ODDLY enough the US Dollar rose in the Spring of 2010, and has been falling since the Fourth of July. The value of the US Dollar is about 12% LESS today than it was in the Fall of 2008. THAT IS WHY GAS PRICES HAVE RISEN...and NOT because of a "recovering economy".
...and we sit here dumbfounded as the prices of Gold and Silver decline. NOTHING! Absolutely NOTHING justifies the fall in the price of Gold and Silver today.
The US Dollar is getting jack booted, soft commodities are rising [food stuffs], energy is flat, and the Precious Metals are getting beat up as if they were the Dollar. I guess this is how free markets work then, eh? Successful sales of bad debt in Europe equals superior reason to sell Gold and Silver? Apparently...
Bah, it's just another day of BS. Just another day of pouring fuel into the tanks of the rockets that are going to carry the Precious metals to heights never seen. Buy while the sale prices last.
Silver: From $30/oz to over $500 by 2020
By: Jason Hommel, Silver Stock Report
(And from $500 to $5000 by 2030!)
Silver: From $30/oz. to over $500 by 2020. In under a minute, I can tell you why that price must happen, and likely when. It seems to me that the public will one day wake up and start buying silver to protect from inflation. Thus, long before, say 10-20% of people buy silver, at least 1% of the American public will buy silver. We can calculate what might happen to the silver price when that happens.
The amount of money in US Banks is about $18 trillion. 1% of that is $180 billion.
Very little silver is left; it's mostly all been consumed, so most of what is available to buy is the annual new mine supply which is 700 million ounces.
$180 billion is $180,000 million. Divide that by 700 million, and we get an implied price of $257 per ounce. Do the math yourself. I'll wait.
But that price would mean that there is no newly mined silver left over for any industrial use, and that nobody else outside of the USA could buy any of the world's newly mined silver. Clearly that can't happen; those two groups would continue to buy silver, competing to buy, and driving up the price even more.
Thus, silver is very likely to be about $500/oz., by about the time that 1% of the American public wakes up and starts to buy silver. That will be the very beginning of the bull market in silver, when measured by "popular demand" -- and at that price, silver would still be very unpopular.
Just remember these key facts, and don't let anyone, or even yourself, trick you out of this developing bull market in silver. Don't try to time the peaks, don't wait for dips, just buy and hold real silver, not any kind of paper silver promise.
James Turk - Momentum Toward Hyperinflation is Accelerating
Eric King, KingWorldNews.com
With gold and silver strengthening off of the lows, King World News interviewed James Turk out of Spain. When asked about the action and gold and silver and increasing inflation Turk stated, “So what we’re seeing here is the money being printed by central banks around the world is going to useful and valuable tangible assets. These rocketing prices are a clear warning that the momentum toward hyperinflation is accelerating.”
ou have to look at the big picture here. You’ve got commodity prices up across the board, but let’s look more closely at what’s happening. Corn prices have nearly doubled since June, wheat and soy bean prices are up more than 50% since June. People can blame bad crops and bad weather, but the reality is there is too much money chasing the availability of food.
Which brings us to gold and silver, the CRB continuing commodity index is at a record high. What King World News readers need to understand is that there is a direct correlation between the CCI and gold and silver prices.
With the CCI poised to climb even higher because of the increasing attention paid to food prices being at record levels, you should understand this will translate into higher gold and silver prices going forward.
Remember, last Friday when I was talking about the black-box trend followers reversing their positions and feeding the pockets of the commercials, that’s the first half of the story. The second half of this story is that the black-box trend followers will reverse their positions once again and become buyers above $1,400 gold and $30 silver. When that buying comes in, that will be the momentum to drive both gold and silver to new highs.
Investors should continue to accumulate both gold and silver with their monthly buy programs.
Bullishness by gold traders has dropped to shockingly low levels at this point in the bull market. I would say that we will need to have an increase of almost 25% more bulls for this move in gold to crescendo.
In order for that to take place gold will have to put on one hell of a move to the upside. If the sentiment numbers turn out to be a proper guide, I would say the gold shorts are about to be butchered once again, much to the delight of hard money advocates around the globe.