Tuesday, August 30, 2011

Physical Gold And The GLD: Just What Is Going On Here?

Friday afternoon Hurricane Irene hits.  Saturday morning power goes out.  Saturday evening power comes on.  Sunday clean up the mess.  Monday go back to work.  Monday evening Internet goes down.  Tuesday morning eye glasses break in half.

Life's A Beach!

Over the past week the mainstream financial news media has been all a twitter about the "Gold Bubble Bursting".  Unfortunately for the top callers, Gold has to be in a bubble before it can burst.  In my post on August 23rd, the morning of the Gold take down from it's recent ALL-Time high, I tried to make a clear case that Gold was nowhere near being in a bubble.

It's amusing how the mainstream media determines a market is "in a bubble".  It rises quickly to a new high, therefore it must be "in a bubble".  What simpletons.  Gold rose over $400 from it's July first low because of a massive short squeeze of the Banking Cartel.  Gold bubbles are not created on the back of a short squeeze.

Yes, Gold did fall dramatically from it's early morning August 23nd high above $1900, and why or what caused it to fall is irrelevant.  Gold is not in a bubble, and it's bubble did not burst.  On August 23rd, Gold fell $67 an ounce.  On August 24th, Gold fell $79 an ounce.  At one point on August 25th, gold had fallen ANOTHER $49 an ounce.  Over the course of two and a half trading days, Gold fell $195 an ounce..over 10%.  A minor, overdue correction.

What if I told you Gold's drop in price August 23-25 was designed by the banking cartel to get their hands on much needed physical gold to make deliveries on the August Gold contract before they were wiped out in the short squeeze that began July 5th, and accelerated on news of Hugo Chavez's demand that Venezuela's Gold be repatriated?  What if I told you that the 10% correction in Gold is a signal that Gold is about to rocket higher in the coming weeks towards yet ANOTHER new ALL-Time high?

Lance Lewis, a newsletter writer, has developed an indicator he calls "the GLD puke indicator".  This indicator tracks the fall in physical ounces of Gold held by this ETF.  Of particular interest are daily drops in the Gold holdings of GLD in excess of 1%.

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.

When one goes back and looks at where these 1% declines in bullion holdings have occurred, virtually all of them occurred “at” or were “clustered at” important lows in the gold price.

On August 23rd, GLD's Gold Bullion holdings dropped 1.93%.

On August 24th, GLD's Gold bullion holdings dropped 2.16%.

Note that the last significant "puke" of Gold bullion from the GLD was on January 25th, 2011.  The GLD coughed up 2.48% of it's bullion holdings.  Gold bottomed on January 27th, 2011 at $1318, and then went on a run three month rally that peaked on May 1st at $1577 an ounce.

The GLD also puked up 1.82% of its Gold bullion holdings on August 11, 2011.  COINCIDENTALLY the day of the first CME margin hike.  Gold prices bottomed on August 12th at $1725...the early morning of August 23rd saw Gold at $1917, up a full 11% in eleven days after the GLD puked.

Geezo-beezo, is it just another coincidence that the GLD pukes up 4.09% of it's Gold bullion holdings between August 23 and 24 just in time for the second CME margin increase in Gold on August 24th?

Just what is going on here?  Could the GLD puke indicator be telling us that physical Gold bullion is in far tighter supply than any of us has imagined?  Is the Banking Cartel so desperate for physical metal to meet delivery demands that they must force a sell-off in the Gold price so that they may then buy discounted shares of GLD and then redeem them for physical Gold from the GLD trustee?  Could the GLD puke indicator be signaling traders that the banking cartel are ripe for a short squeeze due to their lack of physical bullion to meet delivery demands?

On January 29, 2011, FOFOA posted on their blog site an essay Who is Draining GLD?  This is where I first learned of the "GLD puke indicator".  In this essay FOFOA considers that "buyers of size" may be behind the take downs in the price of Gold, and the subsequent puking of bullion by the GLD.

What was relevant then, relative to "buyers of size" in the market at a Gold price of $1318, is probably even more relevant today with a Gold price of $1900.  I'll let FOFOA explain:

What we appear to have here is a severely tight noose around the supply of Bullion Bank deliverable physical gold at a time when the Giants are chomping it up! Bullion Banks have many means at their disposal to shuffle around a globally limited quantity of gold reserves and get it to where it needs to go. Especially when "important clients," like those in the East or Middle East, come calling for physical delivery or allocation.

Upon getting requests from unallocated depositors for either outright withdrawal, or more simply for transfer into allocated accounts, any Bullion Bank has options. Yes, it can seek to acquire (through borrowing or purchase) the requisite ETF shares for redemption of a "basket" in its special capacity as an Authorized Participant of GLD

But what if those other options are disappearing faster than a sack of currency left on the COMEX trading floor? If gold (in size) on the open market is scarce, the unallocated pool is spoken for (in other words, undergoing allocation) and the fraternity brothers are all suffering the same noose, what do you think becomes the most efficient and cost-effective option? Raiding the GLD reservoir perhaps?

Did you even know that you could take physical delivery from GLD?

I highly recommend reading the entire essay.  It is very insightful.

A basket of GLD shares is 100,000 shares.  Each basket equals 10,000 ounces of Gold.  This is the minimum that can be redeemed for physical Gold.

A basket of GLD shares can ONLY be redeemed through an "Authorized Participant"...

Authorized Participants are: BMO Capital Markets Corp., CIBC World Markets Corp., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., EWT, LLC, Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA LLC, RBC Capital Markets Corporation, Scotia Capital (USA) Inc., and UBS Securities LLC

The bullion banks, aka the Banking Cartel. 

Is the GLD a front, a Gold reservoir for the CRIMEX?  Was the GLD created specifically for the purose of supporting the CRIMEX Gold price suppression...perhaps as a safety valve?

The GLD puke indicator would seem to suggest the GLD's existence is twofold.  One to give the impression that physical Gold supply is greater than that which actually exists in the hopes of suppressing price with "supply", and two, to give the Banking Cartel a reserve from which to meet demand that exceeds CRIMEX supply.  Is the markets management of the physical Gold supply nothing more than a shell game, with price being the victim?

More questions I struggle to answer, but find ever easier to ask.  Clearly however, the data shows that when the GLD pukes up physical gold bullion, a rise in the price of Gold is soon to follow.

Gold has since risen $132 from the August 25th low following the two-day GLD puke of 4.09% on August 23-24.  The GLD puke indicator's accuracy is proven once again.  It would pay to pay close attention to the GLD physical Gold holdings in the event of another CME margin hike as another major short squeeze of our banking Cartel appears to have been initiated.  At this time, $1705 would appear to be a major low in the ongoing secular Bull Market in Gold.

Gold Bubble blowers be damned...don't fight the Fed.

From Zero Hedge
The UBS daily note reports that “the mood among gold investors appears to be to buy the dip rather than chase the market, which is understandable given last week's volatility.” UBS conclude that the “violent sell-off hasn't done any lasting damage to gold, and the reasons investors bought gold in recent months remain valid. Our one-month forecast of $1950 remains in place.” UBS three month price view is $2,100 per ounce. Very significant demand being seen for bullion internationally and especially in Asia means that gold’s correction is likely to again be of short duration. Indeed, the scale of demand suggests that gold may not need a long period of consolidation and could again surprise to the upside.  Bank of America-Merrill Lynch said in a research note it was revising its 12-month gold target to $2,000 an ounce. JPMorgan said that gold could reach over $2,500 per ounce prior to year end. The recent sell off has not seen banks and analysts revise down their price forecasts.

A Dispirited Fed Chairman Emerges From Jackson Hole
From Zero hedge
A thoroughly chastened and discouraged Fed Chairman Ben Bernanke gave his annual speech last Friday at the Fed conference in Jackson Hole, Wyoming. After reading this year's speech, and then re-reading last year's speech, I found his tone gloomy and dispirited. This is a far cry from the younger, more confident Ben Bernanke who in 2002 told Milton Friedman at his 90th birthday party that Milton was right about the Fed causing the Great Depression and "we won't do it again." Of course Milton was right about the Fed but for the wrong reasons, which could be part of our problem.

If you have followed Bernanke's speeches over the years, at least since the Crash of '08, you will get a flavor of the man. Like all Chairman his tone has to be sober, reservedly confident, and in control. Unlike The Oracle, Chairman Alan Greenspan, who gave little clarity or direction at all, Dr. Bernanke has tried to be more "transparent" in communicating Fed policies. It is my impression that while he has tried to exude confidence, he is now clearly discouraged. As well he should, since none of the Fed's "suite of tools" have worked as intended and almost every forecast the Fed has given since the Crash has been wrong.

From Zero Hedge
Who would think that all it takes for gold to surge by $40 in under an hour is for the Fed to resume the old song and dance. Yet that is precisely what happened: ever since Chicago Fed president Evans sat down with Steve Liesman to discuss that he would be in favor of more easing, and saying he believes in "room for accommodation" and that we "still need to do more on monetary policy", gold soared from under $1790 to over $1830. And confirming that gold will go far higher is his statement that "Fed policy was not a driver of the commodity price surge." In other words, these buffoons have not learned anything, and the commodity price shock is coming. However, as usual, it will be blamed on speculators. Luckily the CME can hold them in their tracks with a relentless series of margin hikes. Or not. When will the CME finally hike margins on printer toner cartridges?

By Jeannine Aversa and Scott Lanman
A few Federal Reserve policy makers this month favored more aggressive action to stimulate the economy and lower unemployment, minutes of their meeting released today showed.

Those members, who weren’t identified, “felt that recent economic developments justified a more substantial move” beyond the pledge adopted at the Aug. 9 meeting of the Federal Open Market Committee to hold its key interest rate at a record low until mid-2013.

Fed officials discussed a range of tools, including buying more government bonds, to bolster the economy, without coming to an agreement on what they might do next should the economy weaken further. They will more fully debate their options when they gather next month for a two-day meeting that was originally scheduled to last one day.

At the August meeting, the Fed staff cut its estimate for gross domestic product in the second half of 2011. That was the fourth consecutive downward revision to its near-term outlook, the longest series of downward revisions since the recovery began two years ago. The staff also cut its 2012 outlook and lowered its appraisal of the economy’s potential growth rate.

Besides buying government bonds, the Fed could cut the 0.25 percent interest rate it pays bank on the $1.6 trillion in excess reserves parked at the Fed. It also could replace shorter-term securities with longer maturities, which may help lower interest rates on mortgages and other long-term debt. The Fed also could pledge to keep its balance sheet near a record $2.86 trillion for an “extended period” or for a specific time period.

In contrast, some Fed officials “judged that none of the tools available” to the Fed “would likely do much to promote a faster economic recovery,” the minutes said. These officials were concerned that providing additional stimulus would risk boosting inflation without providing a “significant benefit” to bolstering economic growth or lowering unemployment.

The mere discussion of more economic stimulus from the Federal Reserve was enough to send stocks higher Tuesday. The Dow Jones industrial average rose 20 points, and the Nasdaq added about 0.5%.

From Zero Hedge

The charts below demonstrate the 6 month change in the 6 month forward looking Consumer Confidence outlook: in other words, this chart measure just how deceived US consumers have been by hopium consumption 6 months ago compared to reality now. In short: 2011 has been the most disappointing year for Americans in history. Whether it is due to excess hopium consumption or not... well, it is not irrelevant.

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