Tuesday, September 6, 2011

The Jump Gate To "Infinity And Beyond" Is Now Open To The Precious Metals

Early this morning , shortly after the "other" crooked Precious Metals market, the LBMA, opened, BOTH Gold and Silver mysteriously go "no bid' and plummet like stones in the ocean.  How can the two monetary metals go into a free fall in the midst of today's global financial seizure?

The LBMA opens in London at 3AM est.  At 3:30AM est Silver suddenly begins an unexplained free fall.  By 4AM est, Silver had lost $1.04 in 30 minutes.

Gold reached a new ALL-time high of $1920.50 at 2:25AM est.  As the LBMA approached it's 3AM est open, Gold began to roll over as bids began disappearing.  As Silver hits it's first low of the morning, Gold just as suddenly goes "no bid" and plummets $29 in just FIVE minutes to it's overnight low of $1872.55, down $50 in just over ONE hour.

We then learn that Gold has fallen from a new record price on news of a Swiss currency debasement.  The Swiss franc, one of the last "paper" safe havens left to Europeans fleeing the destruction of the Euro, was capped today by their central bank.

Gold Falls From Record Price as Swiss Central Bank Imposes Franc Ceiling
By Nicholas Larkin
Gold fell from a record in London as some investors sold metal to cover losses in the Swiss franc after the country’s central bank imposed a ceiling to the exchange rate.

The Swiss franc tumbled after the bank set a minimum exchange rate of 1.20 per euro and said it will defend the target with the “utmost determination” if needed. Ministers from Germany, Finland and the Netherlands will meet today to discuss a Finnish demand for collateral in a bailout for Greece, while the Italian Senate will debate an austerity plan amid a strike.

The Swiss National Bank said it’s “aiming for a substantial and sustained weakening of the franc,” and “is prepared to buy foreign currency in unlimited quantities.”

Gold and Silver's reaction to this shocking news is somewhat baffling.  I doubt many investors "sold Gold to cover losses in the Swiss Franc".  This looks more like a coordinated Precious Metals take down by the Banking Cartel to halt, at least temporarily, the explosion in their price as the Swiss central bank abandons it's economic sovereignty and joins the global race to the bottom of the fiat currency barrel.

The Swiss central bank has effectively given the Euro zone the finger, and left them with only the Precious Metals as a monetary safe haven.  Silver and Gold are now all alone as the only forms of sound money that are truly safe havens.  The Swiss franc has cast into the wind the last hopes for fiat currency.  If you sold your Precious Metals on this news, you will very shortly be proven a fool.  Ignore this bump in the road.

The Jump Gate to "infinity and beyond" is now open to the Precious Metals.  Climb aboard, and enjoy the ride.

Dan Norcini, in a blog post Friday, summed up the "global race to debase" as well as any have:

“By now you have all learned about the abysmal payrolls number. What more can be said at this point except for the fact that the current Administration seems intent on gutting the American economy.

Remember at the last FOMC statement when the Fed announced that short term interest rates were going nowhere for the next two years? They then went on to say that there is only so much a Central Bank can do and if the economy is going to grow, it is going to require policy changes that reduce structural impediments to growth. That was a not so subtle dig at the current clueless occupants of the Executive Branch to get off their Marxist redistribution wagon and start putting forth some business friendly policies (not to mention spending us all into the toilet). Well guess what? After today's jobs number, the markets have given up waiting for anything coming from that quarter and are now practically begging the Fed to save them.

This is being evidenced by the fact that the long bond is rallying as traders now are fully expecting the Fed to roll the proceeds from maturing short term Treasuries into longer term Treasuries. In other words, exchanging short term debt holdings for long term ones with the idea that the Fed will now engage completely in focusing on keeping those long term rates low for an extended period of time as well. My thinking is that were it not for this thinking, the equity market would have utterly imploded today.

What has been occurring is that the more bad news we get, the more stocks refuse to break down, in some instances actually rallying in the hope, wish, prayer, etc, that the Fed will be FORCED to act. Personally I find this sort of activity repugnant. The greatest nation on the face of the Earth, its entire economic hopes are now hanging on whether or not a group of monetary authorities are going to buy US government debt. Am I the only one out there who shakes my head in dismay and disgust at what we have all been reduced to? Instead of being able to witness the unleashing of American ingenuity, drive, ambition, know how and hard work, we sit around and buy stocks because we think the dispensers of slips of paper known as Federal Reserve officials will inject us easy money addicts with more of the same worthlessly ineffective stimulus? This is America early in the 21th century! Sigh....

Anyway, gold is reacting to this nonsense as it rightfully could be expected to do - it is moving sharply higher because it instinctively realizes that the only "solutions" going to be offered for the current economic disease is going to be additional currency debasement. Whether it is Europe, the US, Japan or even Switzerland, all are going down the debasement path. That is why gold is either making new all time highs in terms of these various major currencies, or just shy of those record high levels.

Silver too is now catching a safe haven bid as many investors are viewing it as undervalued in relation to gold and as offering the potential for better gains on a percentage basis than Ol' Yeller.

I will kick some of this around on today's Weekly Metals Wrap with Eric King over at King World News but wanted to note that those who keep insisting that gold is in some sort of bubble are utterly clueless as to what is driving this market higher. It is going up because a steadily growing number of investors are wising up to the game that is being played by the monetary authorities at the expense of the wealth that they have spent a lifetime accruing by the sweat of their brow and the labor of their hands. As more and more of these investors and average folks learn the role of gold in protecting that wealth from the depredations of Central Banks and spendthrift politicians, gold demand (and silver demand) is going to grow.

It basically comes down to this - whom or what do you trust more - monetary authorities and Central Bankers who have a distinct bias towards problem solving in the most painless manner possible or gold, which cannot be conjured into existence and which has stood the test of time and history. The market always votes with its feet and the voting is obvious."

We begin the week looking forward to the Community Organizer In Chief's grand speech and plans to solve the Nation's haunting unemployment, and sustain the "non-existent" economic recovery.  Unless he plans to announce his resignation, I seriously doubt any drivel that fall from his lips will be very inspiring...unless of course you are a Gold and Silver investor.  The TRUTH is becoming clearer by the day:  The US Economy is a LIE.

"If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State."
 -Joseph Goebbels

It was sadly amusing that a US Government PR campaign convinced the American public that not raising the debt ceiling would create a financial crisis...WHEN IN FACT IT IS THE DEBT itself that is perpetuating the financial crisis!

Here is why S&P downgraded the US credit rating.

• U.S. Tax revenue: $2,170,000,000,000
• Fed budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000

Now let’s remove 8 zeros and pretend it’s a household budget.

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385

The US Government is fiscally irresponsible...end of story. Pointing fingers across the aisle in Washington will not make this FACT go away.

NOW...this is FUNNY:

Deja Vu All Over Again: Total US Debt Passes Debt Ceiling... In Under One Month Since Extension
From Zero Hedge
Remember when one month ago the US, to much pomp and circumstance, not to mention one downgrade, announced a grand bargain raising the debt ceiling from $14.294 trillion to something much higher, with a stop gap intermediate ceiling of $14.694 trillion, or $400 billion more. Well, as of today, or less than a month since the expansion, total US debt is at $14.697 trillion. Yep - the total debt is again over the ceiling, which means the US debt increased by $400 billion in one month. Score one for fiscal prudence. And while the total debt subject to the limit is still slightly less, at $14.652, one week of Treasury auctions and will be time for Moody's to justify again why the US is a quadruple A credit.

It's the dollar, not S&P
By Chris Powell
What's relevant here is only the value of the dollar. No one in authority -- not the president, the treasury secretary, or the chairman of the Fed -- will speak candidly on the point, but the record is plain enough. Devaluation of the dollar is and always has been government policy; indeed, the capacity for strategic devaluation, what is called a "flexible currency," has always been the very point of central banking.

Some people think this is good, as it provides a "lender of last resort" to stave off financial disasters. Some people think it is bad, since it hasn't always worked well and lately has hardly worked at all; since it has been perverted into a system of infinite patronage for the crooked financial elite; and since it has deprived the world of any stable measure of value, and thus has expropriated savers, sometimes overnight.

But the value of the currency and, more so, the location of the power to determine that value are what the argument should be about, not whether a ratings agency exceeded its competence.

The Last Haven Standing
by Peter Schiff
The markets are going through another sell-off phase, yet the traditional notions of a ‘safe haven’ are changing. No longer is the US dollar the default shelter; instead, gold, the Swiss franc, and the Japanese yen are the preferred assets.

All three of these havens – gold, francs, and yen – have been surging upward this month. Two of them, however, are being actively devalued by central banks desperately (and foolishly) trying to curtail appreciation. The Swiss and Japanese are enlisting both policy measures and all the banker-speak they can muster to stem the tide of investment flows into their currencies.

The game is Last Haven Standing, and Spielberg has already acquired the movie rights.

My brother, Andrew Schiff, wrote an article for my brokerage firm this month reviewing the market turmoil and how it compares to previous crises since ’07. He found a steady shift in what investors perceive as a safe haven.

During the depths of the credit crunch, from October 2008 to March 2009, the S&P lost over a
quarter of its value, as investors flocked to the US dollar, driving it up 8%. Foreign stock markets sold off and most foreign currencies fell substantially. The Swiss franc fell over 3%. Gold rose some 6.5% and the yen rose 5.75%, but neither kept pace with the US dollar, which rose 13.5%.

Then, during the dip between April 23, 2010 and July 2, 2010, the S&P dropped again by almost 15%. The dollar rallied barely more than 3%. The Swiss franc gained slightly instead of falling. And this time, both the yen and gold beat the dollar, gaining 4% and 5.5% respectively.

Now here we are in August, and what’s happening?

In extreme volatility, the S&P fell over 13% before rebounding to its starting place. The dollar has remained essentially flat even with intensified fears in the euro zone. The yen is also flat, despite heavy intervention to push it down. The Swiss franc rose 8% before Switzerland’s central bank threatened to peg the currency to the euro, and gold has surged almost 12%!

See the pattern? On each step of this multi-year downward spiral, global investors are slowly but coherently altering their preferred safe haven. Alternatives are being desperately sought, though actions first by the Japanese central bank and more recently by the Swiss have prevented their currencies from fully realizing potential gains as dollar-alternatives.

Fortunately, gold doesn’t have a central bank, so it can rise as fast as the dollar falls.

‘Unsinkable’ Gold
Written by Jeff Nielson
...the appropriate way to demonstrate the “unsinkable” status of gold is through fundamentals-based analysis...

Naturally the most important of these fundamentals is currency dilution. The equation is very simple. We have one form of currency (beautiful, durable, and precious) whose supply is increasing by roughly 2% per year. Stacked against that we have an assortment of paper currencies being diluted by double-digit amounts every year. Worse still, there is absolutely nothing “backing” this paper, and most of the nations issuing these currencies are rapidly progressing from mere insolvency to outright bankruptcy.

As I have pointed out on several previous occasions, un-backed paper currencies are literally nothing more than unsecured “IOU’s” of the governments issuing these currencies. It is a tautology that the “value” of an (unsecured) IOU from an insolvent debtor is zero – or nearly so. Conversely, gold is a currency which is not only free from any claims of debt but possesses its own intrinsic value (as a superior form of “money”).

Such a comparison is no comparison at all. We have more than a thousand years of history of “fiat currencies” (i.e. money backed by nothing) being inflicted upon various populations again and again – always with the same result: the paper currency system collapses. Meanwhile, gold has not only “stood the test of time” in being universally regarded as “good money” for nearly 5,000 years, but it has perfectly preserved its value over those millennia.

This is but one of gold’s impressive fundamentals. Also very important is that gold continues to become relatively more “precious” every year. What do I mean by this? Putting aside the reckless money-printing of bankers (which in no way represents “wealth”), the world is getting “wealthier” each year. While the industrialized West rots in its own decay, the more populous East is experiencing a genuine economic Renaissance.

Total global wealth is rising, and we can calculate that changing wealth by multiplying the percentage increase in the global population by the percentage increase in per capita income. With the global population increasing by nearly the same rate as the supply of gold, this means that any/every year that there is any significant increase in per capita incomes that gold is becoming relatively more scarce in relation to total global wealth. In short, gold becomes relatively “more valuable” almost every year.

These two fundamentals are conclusive demonstrations of both gold’s obvious superiority as money/currency and its scarcity/value. However, day after day we watch the market lemmings stampede in one direction one day only to stampede in the opposite direction the next day. Clearly (at least over the short term) “rationality” has little to do with investor sentiment. Rather, the lemming-stampede in one direction is based upon greed, while their stampedes in the opposite direction are based upon fear. In the jargon of the mainstream media, greed is referred to as “the risk trade”, or simply “worries over inflation”. Conversely, fear is continually mischaracterized as a “fear of deflation”.

As we have already seen throughout this 10+ year bull market, gold’s relative scarcity has made it the superior asset class (second only to silver?) with respect to “worries over inflation”. Despite this, we cannot forget the “psychological” aspect of markets and rely completely upon arithmetic-based arguments. What we have now also seen in recent years, however, is that gold has once again asserted itself as the “go-to” asset class in the fear-trade – often referred to as “a safe haven”.

Here is where the mainstream media (either deliberately or negligently) continually engages in its most shoddy analysis. It regularly refers to other “deflationary periods” and then claims that our current (massive) fiscal woes are somehow comparable to those previous periods. They aren’t.

For the first time in the entire economic history of our civilization we see most of the world’s major economies simultaneously insolvent (or close to it). There are absolutely no similarities between a mere deflation and a “solvency crisis”. In an ordinary deflation, an economy sinks (i.e. contracts) as a minority of over-extended asset-holders default on their debts. This “purges” the economy of this unhealthy debt, and allows the economy to bounce-back (generally stronger than ever).

A solvency crisis is an economic nightmare several orders of magnitude worse than a mere deflation. In a solvency crisis, “deflation” implies nothing less than bankruptcy. This is why our intellectually-bankrupt central bankers have refused to allow deflation to take hold in our economies. Our economies are saturated with “bad debt”, and when this bad debt is eventually purged from our economies our economies will default on their debts. Period.

In this scenario, deflation directly implies default (i.e. bankruptcy). And as I already discussed previously, the value of un-backed paper currencies in a default scenario is zero (or near-zero) just like the bonds issued by these deadbeat debtors. This is what makes our “default scenario” of today entirely different from any deflationary episode in our prior history.

In an ordinary deflation, “cash is king” (even arguably worthless paper currencies). However, in a solvency crisis “cash is trash” unless that cash is directly backed with precious metals.

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