ISDA (International Swaps and Derivatives Assoc.): "Someone is broke"

PAY ATTENTION HERE:

The Impending Undeclared Default Of 5 Major US Banks

January 30, 2012, at 10:05 pm
by Jim Sinclair

The following interview with Ellis Martin of www.EllisMartinReport.com covers in detail the impending undeclared default of 5 major US banks this week by the International Swaps and Derivatives Association. 

This even has the potential to cause a second financial crisis that would require significant financial intervention. If you have time to spare, listen to this interview. If you don’t have time to spare, listen to it anyway.

So Be It
By Dave in Denver, The Golden Truth

"Fiat:"  an arbitrary decree or pronouncement, especially by a person or group of persons having absolute authority to enforce it: The king ruled by fiat - dictionary.com

The big topic of discussion in the cyberworld today was an interview with Jim Sinclair, who discussed an imminent ruling by ISDA - the board of OTC derivatives rules and enforcement - which would pronounce that any massive haircut in value taken by Greek bondholders would not constitute an event of default.  This is not new information, as it was reported as far back as October that ISDA would make this declaration once the a Greek restructuring occurred.  And it will occur despite the poker game going on, because if Greece defaults, then ISDA will have its fiat powers stripped by market forces when Greek sovereign paper goes offered without any bid (i.e. worthless).  You can hear Sinclair's interview at http://www.jsmineset.com/"

What bothered me was that Sinclair made ISDA sound like some dark, mysterious force out there that was largely hidden but imbued with supernatural powers.  ISDA has been around forever.  I used ISDA documents when we would engage in high yield bond swaps with funds like Harvard Investments in order to hide positions from the back office risk Nazis at year-end.  It was de rigeur back then.  It's rampant beyond control now.

The problem with ISDA is that it is governed by the same banks that stand to benefit the most from ISDA rule declarations:  the big banks that have been declared by fiat as "too big to fail" by Team Bernanke/Obama (really, just Team Bernanke, but Obama reads the script off the teleprompter like a good circus animal).   

So, in the Greek bond situation, what you have is a situation where big hedge funds and money market funds have loaded up the boat with short term Greek sovereign paper at high yields (and Italian/Spanish/Portuguese, etc), and bought OTC derivative credit default protection in the even of default.  The way this works, if Greece is unable repay its bonds at a minimum of some small discount to face value, or if Greece defaults outright, the issuer of the credit derivative - the big bank in most cases - has to make the investor whole.  On $10's of billions in Greek debt with credit protection issued, it can get expensive for the big banks.

To make matters even more interesting, there has been been outright speculation on Greek debt in which a hedge fund will bet on a Greek default by buying a fancy derivative from a big bank such that the hedge fund doesn't even have to own any bonds and it will still get paid.  It's like buying a put option on a stock betting it will go down without actually owning the stock.  Again, in the event that Greece has to "restructure" its debt at 30-50 cents on the dollar, or outright defaults, the big banks would have to cough up $10's of billions in "default insurance" payments.

But there's a way around this.  It's called rule by fiat (see the above definition of "fiat").  Since the banks control the rules and procedures of ISDA, if they determine that a Greek restructuring which requires a 50-70% haircut on the debt held by investors is not really a "default" event, so be it.  The Greek bond investor will be coerced into receiving a new bond that will be in the range of 30-50% of the face value of the original bond, thereby getting hammered on its investment, and the big bank who got paid a handsome premium to underwrite default insurance on that paper will get to keep the money it was paid and it will not have to make obligatory restorative payments to the investor.  Isn't it good to be King in a completely fiat system?

The problem with the fiat currency and financial system is that eventually it turns into one giant Ponzi scheme.  The politically/socially correct term for this would be "a fractional banking and financial system."  It's a system based on "full faith and trust."  When the trustworthiness of this system starts to fade, investors will start to move "fiat" money into hard asset currency - that is, gold and silver, the world's oldest and most trustworthy hard asset currency.  It's happening now, only it's a lot more prevalent in the eastern hemisphere countries like China, Russia and India.  In our own backyard, Venezuela demonstrated this movement by recalling nearly 100% of its sovereign gold that was being "safeguarded" by big banks in NY, London and Zurich:  LINK  Hugo Chavez, love him or hate him, is one smart hombre.

Gold and silver are on the cusp of another big explosive move higher.  James Turk in his latest commentary on King World News said it best: 

Regarding gold, I don’t think people realize that gold could explode from current levels.  I think the potential for explosion is there and what you are going to see is not only silver on the move, but you will also see gold smash through the $2,000 level

Here's the LINK.  If you don't understand why Turk makes these comments, re-read my commentary above.  If you still don't understand why, so be it.  Unfortunately, by the time the masses understand this, gold and silver will likely be too high in terms of fiat currency price for them to buy enough to matter.  It is what it is...


Somebody is broke...do you know who? Does it really matter?
by Bill Holter, GATA, [lemetropolecafe.com] subscribe!


To all; Jim Sinclair did an interview yesterday with Ellis Martin http://www.jsmineset.com/2012/01/30/the-impending-undeclared-default-of-5-major-us-banks/

The subject of the interview is nothing new as we we were already aware that the big banks are broke, what IS news is that Mr. Sinclair believes that THIS week is "when" it happens. Well...not the bankruptcies of course but a "decision" by the ISDA (International Swaps and Derivatives Assoc.) will make regarding the "non default" or "trigger" of Greek debt.

This has been written and talked about for months on end, the 5 largest banks in the U.S. have written 97% of the CDS (credit default swaps) on the planet. Think about this for a moment, were one (which would lead to many) defaults occur at the same time, we would have another AIG situation. However, this time it would be "AIG cubed, times 5"! The banking system would then be ..."officially" bankrupt rather than bankrupt for all intents and purposes. It is this decision by the ISDA that Mr. Sinclair believes will be made this week that will (and has already) lead to more massive QE money printing to liquify the system in the hopes of putting enough cushion in ahead of time for whatever reaction comes about.

He is talking about 10 or more "MF Globals" in the near future where sovereign debt was purchased, then hedged, yet the "hedges" have been made worthless because ISDA refuses to "admit" that default occured. THIS really is a big problem! Someone, somewhere is broke. Will it be the "writers" of the insurance? Or the "buyers"? Well, let me clear this up for you, IT DOESN'T MATTER! This is like saying you went to an orgy with 20 people and 1 of them had AIDS. Does it really matter who it was? Actually, this is a great metaphor for Europe at present, no bank trusts any other bank and thus interbank lending has basically ceased to exist. Then, going one step further, if the European banks don't trust each other, why would any other non European bank trust them?

"Someone is broke" is a fact and because the global financial system truly is "global", this means they, (thus "we") are ALL broke! Period, end of story! Which leads us back to broken record time. Nothing paper has the true value as is perceived today. Either they allow bankruptcies to occur as Mother Nature demands or they print $ Trillions more and throw it on top of the already raging bonfire. We know which choice will be made, TPTB will not ever admit defeat nor give up "power" willingly, they will print until the cows come home and the currencies approach zero. What we do not know is how long investors will leave their heads in the sand. Do they wake up and panic or continue their oblivious ways while $1,000 is not enough to purchase a Happy Meal?

I have believed all along that a panic will happen first, then and only then we will get a revaluation of the currencies. Can we go down the Weimar road for 2,3, 4 more years? Yes but I still believe that the "structure" and leverage of the current system makes an "accident" along the way very, very likely. Again though, does it really matter? Matter how? How you will prepare and protect yourselves with "precious metals everything" of course! No, no matter how this plays out, in a currency/debt crisis such as this, REAL MONEY is your best safe haven. Whether it is this week as Mr. Sinclair says or 6 months from now, "they" will have to decide what road we will take. Deny everything, admit to nothing and print...or call reality for what it is and let bankruptcys roll around the planet like atom bombs. It doesn't matter "when or how", what really matters is what you have done and are doing to prepare for it! Regards, Bill H.

What happens if Greece defaults?

The International Swaps and Derivatives Association (ISDA), has the final say on whether a "credit event" has occurred, triggering the payment of default insurance taken out on Greek bonds via the credit default swap …Daily Telegraph · 1/21/2012

Red Alert: Credit Default Swaps Explained

by Ann Barnhardt

News out of Brussels last night was that a package is being put together that would haircut Greek bonds by 70%, thus only paying back 30 cents on the dollar to anyone holding Greek paper. This will set a precedent that will eventually be played out all over Europe.

Full AP story HERE.

This is extremely bad, and will spell the end of the big U.S. banks and the financial system in total. But EVERYONE needs to understand credit default swaps (CDS) first. CDS are insurance policies that investors have traded – very similar to OPTIONS for my old clients and cattle people out there. Buying a CDS is essentially like buying a put. The buyer pays a premium, or fee, to the writer, or seller of the CDS that says that the seller will guarantee and make whole the buyer’s position in a specific bond IF the entity behind the bond (such as Greece) defaults. In exchange for paying the premium and being made whole after a default, the buyer of the CDS surrenders the bond position to the seller of the CDS, and the seller gets to keep both the premium paid plus gets to keep any salvage value of the defaulted bond.

So the CDS buyer pays a premium or fee, and the seller guarantees against a default but gets to take ownership of the bonds and keep any salvage value if a default does happen.

Here is what I STRONGLY suspect is going to happen with this 70% haircut plan. The bondholders are going to take the full brunt of the 70% haircut, BUT the body that actually dictates whether or not a default has happened – the International Swaps and Derivatives Association (ISDA) – will declare that this credit event is NOT a default, and thus all of the banks and entities that THOUGHT that their European debt positions were hedged with CDS will find out that they have no protection at all. And then the excrement hits the fan. Big time.

The argument that the ISDA will make is that a 70% haircut isn’t a default. This is, of course, abject horse manure. Try paying only 30% of your mortgage and see how quickly the word “default” is used. They are using the 70% figure because a 30% payout is just enough to make the legalistic argument that a FULL default hasn’t occurred - which makes NO SENSE because salvage value is one of the core concepts in CDS contracts. The SELLER GET THE RIGHTS TO THE SALVAGE VALUE, which by definition implies that the default need not be 100% in order to execute the CDS. ARRGGHH!!!!

The obvious question is, WHO IS IT THAT HAS WRITTEN ALL OF THESE CREDIT DEFAULT SWAPS, because they are going to make off like bandits. They are going to have received all of the premium, the default event will have happened, and they won’t have to pay out. Like the old Dire Straits song says, “Money for nothin’ and chicks for free.” Fish in a barrel. Lambs to the slaughter. Candy from a baby.

I will venture a guess as to who two of the largest writers of Eurotrash CDS might be. How about . . . oh, I dunno, Goldman Sachs and J.P. Morgan? Guys, what MF Global was doing with customer funds – “hypothecating” and leveraging the customer money into European bond positions “hedged” with credit default swaps – THEY’RE ALL DOING IT. All of the brokerage houses. All of the investment firms. All of the retirement account custodians. ALL OF THE BANKS. I can almost promise you that Goldman Sachs and J.P. Morgan have been sitting on a net short position in Europe, quietly betting against European paper, all the while pimping and selling long European positions (It will be fine! The bailouts will come!) AND happily selling TRILLIONS of dollars worth of CDS to their customers to “guarantee” the customers’ long-Europe positions against default, knowing full well that Europe WOULD collapse. (Duh. Anyone who can do 2nd grade math knows that.) When the collapse happened they knew from the beginning they WOULD NEVER HAVE TO PAY OUT ON THE CREDIT DEFAULT SWAPS THAT THEY WROTE because the ISDA was populated BY THEIR OWN PEOPLE, and the ISDA would therefore never declare a default. They would therefore pocket the premium received, but most importantly would then swoop in and BUY UP ALL OF THE BANKS AND BROKERAGES DESTROYED BY THEIR UNHEDGED NET LONG-EUROPE POSITIONS.

Think about it. Why would a Goldman or a J.P. Morgan write trillions of dollars of CDS on Europe in the first place? CDS aren’t like regular options. CDS are binary in their outcome. Either there is no default, or there is, and the payout required would be massive. There is no middle ground. There is no “moderate” payout on a CDS. It is either all-or-nothing. Why would Goldman and J.P. Morgan write these CDS contracts knowing full well that Europe was mathematically impossible to save and thus guaranteed to default, and that the inevitable European default would then lead to demands for payout that were – again – mathematically impossible? We are talking tens if not hundreds of trillions of dollars. We are talking multiples of the size of the entire economy of the U.S. - and that is just the exposure of ONE BANK (i.e. JPM @ $78TTT). There is no possible way to payout on that. It seems to me that these CDS writers knew from the start that they would never have to payout. They knew that their people in the ISDA would never declare a default, but would always leave some trifling payout to “legally” skirt default. If it ever got to the point that there was a full default, World War 3 would be the result and thus the entire point would be moot. The bankster oligarchs would at that point be moving fully to declare a new totalitarian world government and abolish and seize all private property. Game over.

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Bottom line:

A declared NON-default is still a default to those that own the bonds that are given a "haircut"...much will be lost in the way of fiat money by many.  The only way to make up what is lost, is to print more fiat to replace what is lost.  This is bad for the Dollar...PERIOD!

...and great for the Precious Metals!

Got Gold you can hold?

Got Silver you can squeeze?

It is not too late to accumulate!

 

The Fed's 2% Inflation Target: The Real Personal Consumption Expenditure

The Fed:  What did they really say Wednesday?

They kept interest rates at ZERO...this really only benefits the banks.  In fact, everything the Fed does is to benefit the banks.  Their concerns about unemployment and "price stability" are empty at best.

The Fed also announced an "inflation target" of 2%.  Ridiculous, I know... Everyone and their brother knows inflation is running FAR ABOVE 2%.  Everybody but the Fed that is.  But then they look at inflation differently than the rest of the world:

Federal Reserve Abandons Core Consumer Price Index

By David Shulman

Amidst all the hoopla surrounding the Federal Reserve's announcement yesterday of long term policy, the Fed statement was very clear that the relevant measure is the deflator for personal consumption expenditures, which is the broadest measure of prices in the economy. The Fed made a fundamental policy change in moving away from the concept of core Consumer Price Index which excludes food and energy, as its key inflation measure. Their exact words were,

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate targets.

[Read: Fed Opens Up on Interest Rate, Inflation Predictions]

The concept of core CPI was invented in the early 1970s by then-Fed Chairman Arthur Burns to allow for an easier monetary policy in the face of rapidly rising oil and food prices. The economic argument for this new concept of inflation was that it avoided transitory elements driving the inflation rate. However, as we all know energy prices have risen inexorably higher over the past four decades.

Thus the Fed's experiment with unusually low interest rates for a very long time could run aground if it triggers another commodity price bubble as it did last year. If the 2 percent target is for real, the Fed could very well be tested sooner than it would like.

The flip side of the policy change is that housing is weighted far lower in the consumption deflator than it is in the Consumer Price Index. Thus the incipient inflation in rents will be downplayed in the new measure. Perhaps the Fed is fearful that rising rents would make it difficult to maintain its zero interest rate policy going forward. Time will tell.
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So gone is the Fed's "core inflation" measurement where the cost of Food and Energy are not considered in measuring inflation.  Note worthy since "core inflation" has been on the rise of late, rising 2.2% last year.  And now they have a more esoteric metric by which to measure inflation.

What are Real Personal Consumption Expenditures?

The Real Personal Consumption Expenditure released by the US Bureau of Economic Analysis is an average of the amount of money the consumers spend in a month on durable goods, consumer products, and services.

Fancy, eh?

In fact the measure of personal consumption expenditures was released today along with this morning's weak 2.8% GDP growth number.


John Williams from ShadowStats.com has the latest stats you need to be aware of.
- Net of Involuntary Inventory Build-Up, GDP Growth Was 0.8% Instead of 2.8%
- Durable Goods Orders and New Home Sales Still Show Stagnation
- Fed’s New PCE Inflation Target Is Inconsistent with Plans for Ongoing Easing
No. 415: Fourth-Quarter GDP, December Durable Goods and Home Sales
http://www.shadowstats.com

Q4 GDP Misses Estimates, Inventory Stockpiling Accounts For 1.9% Of 2.8% Q4 US Economic Growth
From ZeroHedge
The US economy grew at a 2.8% annualized pace in the supposedly blistering fourth quarter, yet the number was a disappointment not only in that it missed estimates of 3.0% (and far higher whisper numbers) but when one looks at the components, where a whopping 1.94% of the upside was attributable to a rise in inventories as restocking took place. And as everyone knows in this day and age a spike in inventories only leads to sub-cost dumping a few months later. In other words, the economy grew at a 0.8% pace ex inventories. Yet for all intents and purposes, this is considered "growth." Personal consumption was also weaker than expected coming in at 2.0% on estimates of 2.4%. Perhaps the only silver lining was Core PCE which came at 1.1% on expectations of 0.9%, however as discussed extensively before, this was driven by an unsustainable surge in credit-binge spending, primarily for iStore trinkets, and is hardly sustainable especially as the US Savings Rate fell to 3.7% in the fourth quarter, the lowest since Q4 2007. In other words Joe Sixpack is living large, especially since Joe Sixpack no longer has to pay his mortgage. Unfortunately this is a collision course with every economic principle and the next taxpayer funded bank bailout is only a matter of time. Bottom line: the artificial economic pick up is over and Q1 will see inventories actually detract from GDP: as a reminder Q1 2011 GDP subtracted 1.8% points from the final 0.4% GDP, and that was following only a 0.9% inventory rise in the preceding quarter, Q4 2010. And that is not even mentioning the tight fiscal situation no longer being a benefit to growth. Oh yes, and gas is no longer falling. And not to even mention that the GDP deflator mysteriously imploded from 2.6% to 0.4%: that's odd - not even edible ipads seem to be coming down in price. Which means that using a reslitic deflator would have resulted in virtually no GDP growth. To paraphrase Lester Burnham, "It's all downhill from here."
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Real Personal Consumption Expenditure [PCE] printed this morning at 1.1%.  It was expected to be 2.3%.  3rd qtr PCE was revised higher from 1.7% to 2.1%.

In the Fed's statement yesterday, they announced that: "Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable."  We all know that is a load of baloney, but the PCE numbers released this morning allow the Fed to get away with "bending the truth" about inflation.

No doubt they will look to the 4th qtr drop in PCE and ratchet up their deflationary fear mongering so as to justify keeping interest rates and ZERO, and/or increasing their balance sheet by buying more toxic mortgage debt from the floundering banks here in the US.

Free money and inflation is just what the Dr. ordered for the Precious Metals as both Gold and Silver soared on the Fed announcement.

Jim Sinclair - Mainstream Entities Will Now Enter Gold Market

Eric King, KingWorldNews.com

With gold and silver exploding to the upside on the Fed announcement, today King World News interviewed legendary Jim Sinclair, to get his take on where things are headed.  Sinclair told KWN he now expects mainstream entities to enter the gold market.  Here is what Sinclair had to say:  “Today is an important day.  There are many days we talk but this is a mile-marker.  What the Fed did today is they turned on the light of what will be QE to infinity.  Today the light went on with regards to the intentions of the Fed.  They did that for very specific reasons, we have troubles people can’t see and this is one of the ways out.”

“The announcement itself is a game-changer because of the way this game is going to change, Eric.  I think you are going to see a very significant change amongst investors, corporations and companies with extra capital and people of the mainstream.  You’re going to find gold being accepted as a hedge against what’s going on by entities, that up to now, you would think would be the last ones to be buying gold.  How about someone like General Electric?

I used GE as an example because the principal of GE is a major advisor to the government.  That would be the most unlikely thing (for GE to buy gold).  But don’t count it out.  You are going to see a lot of things this year you thought at one time impossible, becoming reality.

I’m going to predict you are going to see a new definition of investors in gold that, up to now, haven’t even been considered.  Up to now there’s been the retail crowd and there’s been the international central bank crowd which have been the primary entities in gold....

“But you’ve never had mainstream investment, mainstream pensions, mainstream life insurance companies, mainstream health plans, which gather money looking to use a medium in order to maintain the buying power of what they’ve accomplished.  This is a huge change, huge new demand, a total new definition.

You’re going to find out that public companies with significant resources, tech companies (as an example), are going to start to recognize that gold is an important part of protecting what they have.  So I think you’ve identified a game-changer for corporate America and corporate global Western finance, to begin to look at gold as an alternative to the normal cash and debt instruments they would use to hedge themselves.”

Sinclair also added:  “Last year was the year of discussion and confusion.  I’ve labeled this year a year of action.  Not necessarily a year of solution, but a year of action.  Today you saw an action.  The Fed’s swap line is an action.  The IMF’s willingness to seek and to distribute loans, an action. 

Actions have consequences.  So this year is the year in which we are going to be experiencing the consequences.  $1,700 to $2,100 gold is a conservative range.  The reason why you got the breakout today is the light just went on.  So any idea the accordion chop in gold we were in is still on is total nonsense.  

Bear in mind that when gold breaks out above those ranges, it will do it based on a loss of confidence, primarily, in currencies.  And it is the dollar, not the euro, that is the specie in danger as we are having this conversation.” 

This interview with Sinclair is timely and important considering what the Fed did today.  The KWN audio interview with Jim Sinclair is available now and you can listen to it by CLICKING HERE.

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Eric Sprott - Aggressive Chinese Buying Will Spike Gold Price 

Eric King, KingWorldNews.com

Today billionaire Eric Sprott told King World News the Chinese cannot continue to buy gold as aggressively as they have been without there being a dramatic increase in the price.  Eric Sprott, Chairman of Sprott Asset Management, had this to say about Chinese purchases of gold and the recent announcement that Iranian oil will be acquired using gold:  “There are two things I think are important about that.  One, it’s a statement that gold is a currency.  That is by far the most important thing.  I think the other thing is, if it actually transpires that way, what does it mean for the demand for gold?  Because now it’s considered currency, it’s, in essence, your working capital.  You have to have it.  It’s like a store, you have to have money in the till.”

“So it’s obviously going to increase the demand for gold and we have seen some data that China has been a rather large buyer of gold.  People will consider it a currency and it has to necessitate more buying.  You know, Eric, I think one of the really interesting things that happened was the imports of gold into China, from Hong Kong, which always were less than 20 tons a month, all of the sudden, beginning about 5 months ago, went 20 (tons), 30, 40, 80 and in November 102 tons.  102 tons is a staggering number.

The world mines, excluding China, less than 200 tons a month.  China cannot continue to buy 102 tons and not have the price escalate dramatically.”

Sprott had this to say about today’s Fed announcement that it will leave rates at zero until late 2014:  “Obviously it’s dramatic what has happened.  It would appear there will be no restraint whatsoever on the part of the Fed.  Assuming this announcement causes gold to break its declining wedge, which I believe it has, I expect some serious fireworks to the upside.”

When asked about his latest PSLV offering, Sprott stated, “We closed on $349 million.  The underwriters did exercise the over-allotment in rather short order.  We have committed to purchase it (silver).  I think the deal was very successful.  Obviously the premium has come down here (on PSLV), but it’s typically traded at a 16% premium and right now it’s at 8%.  It takes a little while to digest the stock that was issued, but I’m hopeful we will get back to where we were.

There’s been a big move since we did the issue.... 

“We’ve all heard the reports that it’s pretty tight (in terms of supply).  Every data point I see suggests people and institutions want to buy silver in the same dollar amount as they are buying gold.

We see the US Mint has sold 5.6 million ounces so far in January and I’m sure they will have a record high month.  We’re selling as many dollars of silver coins as we are gold coins by the mint, which means we are selling 50 times more physical volume of silver.  The availability (of silver to gold) is 7 to 1 in physical, but people are buying it at like 50 to 1.  So something has to give there.

I would love to share with your viewers I was speaking with a company, this is a gold company, who is trying to organize a dividend payment being made in gold or silver and/or cash.  Apparently 60% of the people (asked) were opting for the precious metal and half of those agreed to take it in silver.  Again, another confirmation of silver buying.  Our last tranche (in PSLV) we raised $349 million. Our last tranche in gold we raised $312 million.  Again, one to one buying, so I’m pretty upbeat about where silver should be going.

As you know I always thought we would go back to the 16 to 1 ratio to gold, which means based on today’s prices silver should be $100.  I really do believe silver was going to blow through $50 back in April/May when, all of the sudden, margin rate increases came through and one billion ounces of paper silver was sold that day.

I’m of the feeling that it will go back through $50 this year.  Once it goes through $50 I think it could take on a whole new life and really energize itself.  Longer-term my target is 16 to 1 to gold and I’m very upbeat on gold.  I’m sure gold is going north of $2,000 this year, so obviously silver can get up to $150 in due course.” 

When asked if there has been traction with regards to his call to silver companies to hold physical silver instead of cash, Sprott replied, “There has been traction.  One company, Endeavor Silver, only sold 1/3 of their output in the December quarter because they thought the price was being depressed.  They decided to wait and sell it at a different time.

We did have one silver producer actually participate in the PSLV (offering), which was very encouraging to me.  I think we’re making a little bit of momentum on that front.  Of course, I’ve given lots of chats to silver producers about what I think has gone on in the silver market.  I think we’re making some progress.”

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Per the chart below, Chinese gold imports were a staggering 102 tonnes in November alone, or HALF THE WORLD'S PRODUCTION, not including Chinese gold production, which is entirely consumed by its government.   

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A chart from Dave in Denver at The Golden Truth:

Below is a 1-yr daily chart of the price of gold.   Those of you who are familiar with doing technical analysis on stock charts will recognize this particular chart as being nothing less than bull market full-on chart pornography.   When gold breaks above $1800, we will really be off to the races.  I think gold is going to make some moves to the upside that will shock most gold bears and surprise many bulls. 

(click on the chart to enlarge)

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Silver Price Forecast 2012:I Stand By $140 Silver Price In 2012

From: Hubert Moolman on SILVER and GOLD

Silver Price Forecast 2012:
There is a well-established relationship between how silver and gold trade. They often trade similar in the same time period, but also at similar milestones, although those milestones are sometimes reached at different times. This can cause silver or gold to be the leading indicator, depending on the particular milestone.
I have previously used this relationship to predict how silver will trade. Below, is an extract of that update:



Currently, there is another situation in the silver and gold market that provides an opportunity to predict how silver prices might trade over the coming months. I have pointed this out before, in a previous article. Here, I would just like to provide an update, and add a few more thoughts.

This situation or opportunity revolves around the 1980 all-time high for both metals. Gold passed its 1980 all-time high during 2008, while silver is yet to do so. By looking at the pattern of how gold passed its 1980 high, we can predict how silver might do it as well.

Below, is a comparison of silver and gold around their respective 1980 highs:



From the chart, you can see there is similarity in how gold and silver approached their 1980 high. Gold and silver made a triangle-type pattern (marked 1 -3) just before it reached the 1980 all-time high. When it came out of that triangle pattern, it rallied strongly to the 1980 high, which started the formation of a flag-type pattern (marked 3 – 9).

It appears that silver is now past point 9 (29 December 2011), and will now be eyeing that $50 level.

Market conditions often cause silver to fall behind gold, for quite some time, where after, silver normally catches-up in a big way. The fact that silver is still caught-up in a trading range lower than its 1980 high, at least four years longer than gold already, provides a classic opportunity for silver to follow that “catching-up pattern” and zoom to multiples of its 1980 high.

With gold having passed $1700 (twice the 1980 high of $850) already, given the above analysis, it stands to reason that $100 (twice the 1980 high of $50) silver is virtually guaranteed.

There are many indicators suggesting that we are close to a point where silver might catch –up with gold, relative to its 1980 high, in a big way. My recent analysis of the gold/silver ratio also seems to suggest this. So, as things stand, I expect silver to outperform gold for most of this year, and I stand by my target of at least $140 silver by the end of 2012.

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Bill Holter with GATA  (www.LeMetropoleCafe.com) sums up the Wednesday Fed announcement and it's effect of Gold and Silver prices:

The "mania" stage.

To all; the action in the precious metals yesterday was very very significant and after pondering on it overnight I truly believe the 3rd and final "mania stage" has been kicked off. Let's first look at the fundamentals. The Fed told you yesterday that they will foster a policy of negative (if they could create negative nominal rates I'm sure they would) real interest rates for at least 2 more years. We have also watched reported (probably fake) inventories of precious metals continue to drop. Central banks have become buyers of Gold while in the U.S. and Canada, sales of 1 oz. Eagles and Maples are now running at a faster pace than TOTAL production of all mines combined. Since Silver inventories in the U.S. and Canadian mints are nonexistent, if these coins are to be minted in the future, the mints must become buyers. Nevermind industrial demand, jewelry demand, investment demand of bullion bars or anything else, the sales of 1oz. coins are eating up all supply.

Then of course we have "rehypothecation" to the tune of over 100-1 in all sorts of scam paper products from ETF's to futures, options, pool accounts etc. To add to the "perfectness" of this storm, Sprott Asset Management pulled the trigger on a 10 million ounce order with another $1.2 Billion remaining shelfed for future purchases. Let's not forget the biggest "fundamental" of all, good 'ole common sense itself. Common sense tells you that while governments are getting stuck in the quicksand of bankruptcy (Portuguese 10 yr. bonds are now trading over 15%), the natural action of "protect oneself" has the demand of precious metals exploding. Please remember that 5 years ago, nearly no one differentiated between the fraudulent paper Gold and Silver products and the real thing. This siphoned real demand away from the real thing, this is changing rapidly and enough "big money" finally "gets it"!

So fundamentally, the perfect storm has arrived, technically or "psychologically" the set up is equally bullish. Just one month ago the average investor in PM's were suicidal to put it mildly. Short positions (many naked and illegal) in the mining shares ballooned and COT numbers show the commercials less short and the specs less long than in many a moon. Bullish consensus numbers got as low or lower than the bottom days in 2008 while "cash for Gold" shops spring up like lemonade stands (back in the 60's before 7 year olds needed "permits") . I must say that I did not understand the mental malaise or funk but it did exist and shook many investors off of the bull. If you hung in there (I hope you did), you deserve to pat yourself on the back because NOW it looks like you are going to really get paid for your pain!

Jim Sinclair put a piece out last night http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/25_Jim_Sinclair_-_Mainstream_Entities_Will_Now_Enter_Gold_Market.html where he says that "mainstream entities will enter the Gold market" and in my opinion is absolutely correct and will be joined by "John and Jane Q. Public". The public will have a much larger impact on the Silver market (poor man's Gold) while institutions will devour Gold itself. Let's not forget India's "Gold for oil" deal and other major countries like China, Russia, France etc. setting up trade deals without using the Dollar for settlement. The Sun is finally setting on the Dollar!

ALL of this has come together at the same time to create a perfect storm that just happened to kick off the day before an options expiration that surely has the shorts licking their wounds! The fabled "$6 Dollar rule" that in reality was simply a "2% rule" was soundly broken yesterday with an outside reversal day, the size of which I don't believe we have seen throughout the last 11 year bull market. Yesterday saw a bottom to top move of well over $60. We are also getting upside follow through today which has NEVER happened (or been "allowed" to happen) in the past so something is really really different now. Whether "they" have lost control or "allowed" yesterdays movement is a moot point because it "happened" and the genie cannot be put back into the bottle!

Bill Murphy's "price action makes market commentary" will now begin to work in favor of precious metals as opposed to against. If my opinion is correct, the 3rd and final "mania stage " has kicked off. In the words of Richard Russell, "there is no fever like Gold fever" and that is in "normal times". These are not even close to normal times. We are living through the end of an era where governments are going broke including the issuer of "the money". "The money" has gone bad at the same time investors own no or very little "real money" because of years of brainwashing. Capital has been concentrated at one side of the ship and has very slowly been moving back to the empty side.

It has taken 11 years to get where we are today, it could very well only take one more year (10% the time of what we have already been through) to clean up "all the marbles". What lies ahead of us price wise is anyone's guess. We could very well see a double, a ten fold, a 100 fold OR an "infinite move" in Dollar terms if the Dollar is lost. All I know is that a "re valuation" of paper money vs. real money is mandatory and been necessary for a very long, long time. THIS is it, the "revaluation" that has been working it's way through for the last 11 years has changed gears and with today's abilities of information (speed through computers) and leverage (options, futures and OTC crap) has an additional power boost! The computerized turbos and leveraged nitrous buttons will make what is to come in Gold and Silver legendary stories that will make the Dot Com/housing booms look like 2 pimples on an elephant's arse.

The biggest "difference" is that there will be no crashto follow the boom. When a currency dies (in this case ALL paper currencies), real money steps in and is "valued" to whatever new currency" that is introduced. Or at least this is the way they would like you to perceive it, the reality is that the new currencies are valued by how much Gold or Silver they can "buy". The important thing is that whenever a new currency is introduced, anyone sitting at the table with real money, ALREADY has "all the marbles". You will be entering the "next monetary system" wealth intact AND enhanced! "Payday" is much closer timewise than many true believers expect in my opinion. This is the start. Regards, Bill H.

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Got Gold you can hold?

Got Silver you can squeeze?

It's still not too late to accumulate!

QE3: "The last duty of a central banker is to tell the public the truth."

Tomorrow afternoon [Wednesday, Jan 25] at 12:30PM est, the great and all powerful Oz will speak...

O wait a minute...  I meant to say that the US Federal Reserve will step forth from behind their curtain and blow smoke up our ass.

Opps...

Tomorrow the US Federal Reserve, at the conclusion of their two-day meeting, are expected by countless financial market talking heads to announce QE3 [Quantitative Easing - Round Three].  The headlines of the past couple weeks say it will be so:

Fed to Weigh Further Easing Amid Doubts About Recovery

Fed's Latest Easing Could Cost $1 Trillion: Economists

The Fed Heads certainly "want you to believe" that they are going to ride to the rescue of the economy with more money:

Fed's Dudley: Fed Must Continue To Evaluate Need For Stimulus

Fed's Rosengren Urges Fed Purchases to Aid Housing

Fed may need to buy more bonds: Williams

Fed's Lockhart does not rule out more easing

Stocks have been rising since the first of the year in anticipation of a new round of Federal Reserve stimulus for the economy.  Commodities have been rising for no "fundamental reason" since the first of the year...in anticipation of the inflationary impact of new Federal Reserve stimulus.  The US Dollar has stopped rising on the belief that a new round of Quantitative Easing will debase the currency further, and launch the American economy into a hyperinflation.  Gold and Silver have "risen from the ashes" as every assurance has been given by the financial news media that QE3 will be announced by the Bumbling Bernanke & Co. Wednesday afternoon.

BUT WHAT IF THERE IS NO QE3 ANNOUNCEMENT FROM THE FED?

Why Would the Fed Launch QE 3?

By Graham Summers, via ZeroHedge

I continue to see commentators claiming QE 3 is just around the corner. I don’t see how this is possible because all of the Fed’s excuses for more QE are no longer valid.

First off, interest rates are already at or near record lows. So the Fed cannot argue that it needs to lower rates. Moreover, it’s not like lowering rates via QE 1, QE lite, QE 2, and Operation Twist 2 did much to help the US housing market. So QE 3 can’t be presented as a solution to housing.

Secondly, the economic data coming out of the US has been massaged to the point of not looking so bad. So the Fed cannot use the “economy is collapsing” argument this time either. And it’s not as though the public isn’t totally aware that QE 2 did next to nothing for the economy.

Indeed, the Fed spent $600 billion on QE 2 and had at most three months’ of improved economic data as a result (QE 2 was announced in November and the US economy rolled over in February 2011). The public is well aware of this as well as the fact that QE 2 saw inflation exploding higher.

            Despite end-of-year decline, 2011 food prices highest on record – UN

Global food prices declined in December, but the overall annual average was the highest ever on record, the United Nations Food and Agriculture Organization (FAO) reported today.

Last month, FAO’s Food Price Index level was 211 points – 27 points below its peak in February. The decline was driven by sharp falls in the international prices of cereals, sugar and oils due to a productive harvest coupled with a slowing demand and a stronger United States dollar.

However, despite the steady decline in prices during the second half of the year, the Index overall averaged 228 points in 2011 – the highest average since FAO started measuring international food prices in 1990. The second highest average occurred in 2008 at 200 points.

http://www.un.org/apps/news/story.asp?NewsID=40925&Cr=food&Cr1=prices

Food prices hit all time highs in 2011, resulting in numerous revolutions and riots throughout the world. The increased cost of living also drew a lot of negative attention to the Fed from the US populace. So it’s not like the Fed can use the “QE will stimulate the economy” argument anymore.

The final argument for QE is that Obama needs the economy to recover to win the 2012 election. This argument completely overlooks the fact that Bernanke and the Fed are now politically toxic.

If the Fed were not in trouble politically, why would it:

1)   Stage town hall meetings

2)   Open up to Q&A sessions

3)   Have “humanizing’ articles written about Bernanke in major media publications.

4)   Moving towards more transparency on its forecasts and projections

These are all defensive moves. And the Fed wouldn’t be making them if it wasn’t under pressure. Which makes it all the more unlikely that QE 3 would help Obama. The public is already outraged at the Fed moves. And QE 3 would send inflation through the roof.  How exactly would this benefit Obama’s Presidential campaign?

In the end, the bar for QE 3 is much, much higher than most people think. The days in which the Fed could do whatever it wanted are over. And there simply isn’t a decent argument for QE 3 at this time.

It’s not as though QE 3 would do much for the market anyway. Look at the recent coordinated Central Bank intervention in November… the benefits lasted less than a month.

And somehow QE 3 is going to send stocks through the roof? Give me a break. Look at earnings. They’ve been a disaster, and investors are pulling their funds from the market en masse.

On that note, I truly believe we’re on the verge of the next round of the Great Crisis. The credit and bond markets are already starting to predict another 2008 event. Only this time things will be even worse because the Fed has already used up its tools into combating the First Round of the Crisis.

___________________________

Things could get really ugly tomorrow if the Fed fails to deliver QE3.  Remember what happened after the Fed settled for "Operation Twist" instead of the "anticipated" QE3 last Fall?  That wasn't pretty!  Silver FELL $14 an ounce in three weeks...Gold fell $250 an ounce in the same three weeks...and the S&P lost 10%!

The Fed doesn't need to "deliver" QE3 tomorrow, they are already engaged in it covertly, behind the scenes.  Seriously, who do you think is going to buy the $1.2 TRILLION worth of debt Obama and friends are going to tack on to the "debt ceiling" later this month?  Who do you think has been buying US Debt since Operation Twist was announced September 21, 2011?

Foreigners Sell Record $85 Billion In Treasurys In 6 Consecutive Weeks - Time To Get Concerned?

Don't expect an overt, public QE3 announcement from the Fed Wednesday, and prepare accordingly..look for the opportunity to accumulate more physical Precious Metals at discount prices.

Do expect the Fed to try and jawbone the markets into believing that the Fed is doing something constructive by "targeting inflation", or announcing an "interest rate forecast".  Count on the Fed telling us everything but the TRUTH about QE3.

"The last duty of a central banker is to tell the public the truth."

Silver & Gold: The TRUTH IS - There Just Ain't Enough To Go Around

The US Dollar began rolling over this morning at 3:10AM est. from an over night high of 80.58 in Asia.  By 4AM est, the US Dollar was clearly beginning to trend down, and Gold exploded to the upside.  At 4:05AM est, Gold hit $1670...and promptly had it's legs kicked out from under it.

Strangely, as the slide in the Dollar gained momentum, the price of Gold began to fall along with it...by 1PM est the price of Gold had fallen $20 an ounce from it's overnight high to $1650.  The Dollar fell 40 ticks by 12PM est to reach a low of 80.18.

Ah, the wonders of the Western Banking Gold Cartel..."can't have the price of Gold rising on our watch."

The lengths to which the Western Banking Gold Cartel are going to, to suppress the price of Gold [and Silver], have breached the threshold of absurd.  The TRUTH is out there, and the prices of Gold and Silver WILL BE going higher no matter what the clowns in the financial news media offer as comment on the subject:

Why gold could lose its glitter in 2012

Gold may hit $2,000, as it ends long bull-run

Everyone is entitled to their opinion...and I am entitled to laugh at it!

Let's focus on some of the TRUTH that the mainstream financial news media flat out ignores when making their claims that the bull run in the Precious Metals is over:

GFMS reports substantial offtake of Gold by Central Banks
By Trader Dan Norcini

Dow Jones news is carrying a report this morning from GFMS (formerly Gold Fields Mineral Services)detailing the amount of gold purchased last year by the world's Central Banks. It was indeed a formidable number.

The net purchases of the yellow metal came in near 430 tons, a more than 5-fold increase on the previous year. It was also the highest level recorded since 1964.

To give you a sense of the significance of these purchases - the amount of NET purchases by Central Banks in 2010 was a mere 77 tons!

Surprising to me was the fact that Mexico was the largest buyer as far as the official monetary sector goes. GFMS reports that they added almost 100 tons of gold to their reserves. I would have thought it would have been China to lead the pack.

The other surprising fact was that signatories to the Central Bank Gold Agreement ( this was set up to limit the amount of gold sold by European Central Banks ) sold less than 10 tons for 2011.

The summary - Central Banks are now absorbing a significant amount of world gold production. This should continue to provide very good downside support for the metal on price retracements lower as these banks do NOT CHASE PRICES HIGHER but are there to buy at levels they consider gold to have "value".

London Trader - Staggering Gold Demand Creating Shortages

By Eric King, KingWorldNews.com

With many global investors still concerned about the price of gold and silver, today King World News interviewed the “London Trader” to get his take on these markets. The source stated, “We’ve still got a very, very compressed spring because the shorts are still trying to defend their positions, their naked short positions in both the gold and silver markets.  As an example, in the silver market, you saw that type of activity in the silver ETF (SLV).  Shorts borrowed another 3 million ounces to cover immediate delivery concerns.  There are 25 million ounces now borrowed from SLV.  It is getting worse and worse for them.”

“They are naked short on the COMEX and to meet immediate delivery demand they are having to borrow it from the SLV.  It is still unwinding and it’s still got a long way to go.  Yes, you will still see games being played and yes you can create paper gold out of thin air.  But there comes a point where each time you do that the physical buyers are taking it and it has a lagging effect that will catch up, and eventually it gets reflected in the price.

The demand for euro gold here in London is so intense it’s shocking to some of the players.  This is what has left some market participants in the US wondering why the price of gold has risen along with the dollar.  It’s because demand in the eurozone is unimaginably strong.  The euro physical gold demand is off the charts and it is creating shortages for metal, in size, here in London.

The physical gold market is actually being drained by euro gold buyers.  People are converting their euros to gold and there is only a finite amount of physical gold available.  Again, that’s why you are seeing the dollar and gold rallying together.

We are also seeing very strong markets in Asia with solid premiums.  Silver is in backwardation.  There are huge premiums for size (large tonnage orders) in silver and you are going to wait 3, 4 or 5 weeks for delivery.  There is constant backwardation into the March futures contract.  For the most part, the bid on silver spot has been higher than the ask on March futures.

These paper markets are a joke.  Nobody who is seriously in the business of taking physical delivery is trading on the COMEX anymore.  That is big news.  The COMEX is no longer a credible marketplace...

“You now have international funds, whose compliance departments are saying to them, ‘You can no longer trade on the Comex because the CME did not back client accounts.’  There are a tremendous number of international funds and hedge funds that can no longer trade on the COMEX as of the first of this year because of compliance reasons and no one is talking about this.  This is huge news. 

 

Back to gold, if we get a pit close above $1,650 you could see a lot of scared shorts begin to cover.  This could create a very quick move higher in the gold price.  Also, if we get a pit close above $1,650, we are going to see a very large tranche of unfilled wholesale orders moving a lot higher with their bids, and that will become a base.  There are massive orders for sovereign entities under the market here.  

The Chinese are long-term thinkers and they really don’t care whether they are paying $1,600 or $1,700 for gold.  What they do is get the best price they can.  When the new floor eventually becomes $1,700, they will buy everything available at that price.  When it becomes $1,800 they will buy at that price.  They are just looking to accumulate gold and they are never sellers, never.

There are two things here.  Yes, China wants a cheap gold price and they’ve been enjoying the fact the gold market was taken down.  They have recently taken another roughly 150 tons away from the Western central banks.  The Western central banks essentially donated that gold in an attempt to prop up their paper currencies.  Yet again these traitorous Western central bankers have given away more power. 

I see gold as power and once again they have given it away to the Eastern Hemisphere.  The Chinese continue to laugh.  As much as the Chinese would like to have a cheap gold price and have this manipulation keep going, they also want to bring the renminbi to the center stage.  

To them, it’s more important the Chinese currency becomes the world’s currency.  The dollar, despite the latest rally, is dying, we all know it’s dying.  So, the Chinese are moving to become the international currency of the world and the best way to do that is through gold.  It’s a very clever tactic.  Every time more gold arrives in China, the more their currency is backed, the closer they move technically to becoming the world’s reserve currency.”

The flow of gold from Western vaults to Eastern vaults is the most important symbol of the decline of the West.  As the East rises, the West falls.  “So goes the gold, so goes the power.”  Remember to be your own central bank by owning physical gold.  Many in Europe have apparently figured this out as gold demand is, “off the charts.”

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If central banks are now net buyers of Gold, in amounts not seen since 1964, [the London Gold Pool collapsed in 1967] and demand for Euro gold is "shocking", how can the price of Gold be falling in Europe...not to mention New York?

S & P, the bastion of late to the party credit ratings, downgraded several European nations sovereign debt last Friday, and the price of Gold has been under pressure ever since.  Huh?  The balance of Europe receives a debt downgrade, and the price of Gold is held in check?  And nobody in the financial news media questions this?

Central banks are buying Gold, and Europe is bankrupt, investor demand for physical bullion is off the charts and the US is about to raise it's debt ceiling by $1.2 TRILLION...and the price of Gold is predicted to be flat to down in 2012?

Yeah right...

Bill Holter from GATA chimes in:

The new normal?

To all; as you know, S+P downgraded various sovereign debt last Friday. They also downgraded the EFSF one notch over the weekend, thus stripping their pristinely stupid "AAA" rating. But just one notch? This is ridiculous because we could wake up on any given day facing an outright "run" and the EFSF would be exposed as the Ponzi engine that it is. How could it have been rated AAA in the first place? Various sovereign debt from Greece, Italy and today Portugal (which if (when) were to fail will take the Spanish banking system down) could not issue new debt OR survive without EFSF purchases of said debt. But what happens... if the EFSF were to have problems issuing debt of their own? Do you see where this all leads to?

A buyers strike, all owners selling and outright panic, that's where. This has actually already started to some extent and has been covered over here in the States and in Europe by clandestine purchases with "newly created" money. THIS sadly is the "new normal". ...And the worst part? The markets are just begging for more more more of it! Monetization has ALWAYS lead to ruinous hyperinflation, always. This try will be no different, but what amazes me is how many "smart people" they trot out in Wahington and on CNBC to tell us that this time will be different. It won't be. ...Well...maybe a little different.

THIS time the monetization is not in one country or one region, it is everywhere! We now face the prospects where even the ratings agencies are telling us that "risk" of non payment is rising everywhere (way after the obvious fact) and even IF investors went totally mad and decided to invest ALL new monies into sovereign debt, well, there just wouldn't be enough money! The debt "appetite" (actually , debt addiction that is now mandatory just to roll over old debt and pay interest) has gotten so large that the system is no longer generating (nor has the ability to) enough cash flow to sustain the debt necessary for the sovereign's to continue. No problem though, central banks will magically create what is needed!

I wrote back in the early fall of 2008 that "debt saturation" levels had been reached as individuals and corporations needed to deliver, I did not think that sovereign governments would bankrupt themselves to prolong the fantasy. Well, here we are and "they" have bankrupted themselves. Now, we have reached debt levels that are no longer sustainable on a "payback" basis by the sovereign's, NOR sustainable in amounts that the financial system can even provide. The wall has been hit and THE only thing left is for central banks to magically create credits to provide to various treasuries. This "new normal" that exists is not sustainable. Just because no one wants to acknowledge it doesn't mean it does not exist. Math is math and the amounts of debt necessary to continue cannot be funded "internally", the money is just not there. T We have arrived at Jim Sinclair's "QE to infinity" not out of desire, no, it is now out of necessity!

I say the above because the numbers are just getting beyond stupid! Our president has asked for another $1.2 Trillion increased debt ceiling to get us through the year (probably only August) and the ECB has just run through 250 Billion Euros since Dec. 21 (less than 3 weeks) and rumored to be announcing another 1 Trillion LTRO (long term refinancing operation) very soon. The whole thing is toast beyond toast mathematically while CNBC parades the goatheads to tell us "tech is cheap" or "Pharmaceuticals are a buy". I have news for you all, the entire system is 100%, completely and totally bankrupt! The governments are bankrupt which means their currencies are worthless and thus, everything saved in those currencies are worthless! Period! When all is said and done, history will remember this "new normal" as more infamous than when Fisher said back in 1929 that "we have reached a new and permanent higher plateau".

How could a "tulip bulb" be worth 30 houses? How could a tech stock with no earnings have a larger market cap than Exxon in 1999? ... How could "no one" (in the mainstream) not see this one coming? It will all be so obvious after the fact...as it always is! Regards, Bill H.

__________________________

The Fed and the ECB are printing money as fast as they can [despite their official denials] in the hopes of papering over the insolvency of the western world, and the price of Gold is locked down?

Demand for Precious Metals is rising to ever higher levels by the month, and yet the prices are flat or falling?

Global Gold Coin & Bar Demand Surges in 2011 - Thomson Reuters GFMS Annual Gold Survey

From ZeroHedge

Gold coin purchases gained 13% last year and will increase 2.7% in the first half. Purchases of gold bars increased by 36% to nearly 2,000 (1,194) metric tonnes, concentrated in China, Germany, Switzerland and Austria. East Asia demand for gold bars rose 53% to 456 metric tonnes. India rose 9% to 297 metric tonnes and western markets demand for gold bars rose 41% to 335 metric tonnes. Central banks increased net purchases by a massive fivefold to 430 tons last year, and may buy another 90 tons in the first half, GFMS said. Combined official holdings stand at 30,788.9 tons, data from the London-based World Gold Council show. “Attitudes among central banks haven’t really changed,” Thomson Reuters GFMS annual survey said. “There’s still that desire to come into the gold market to diversify some of the assets away from foreign exchange and to boost gold holdings.” The Thomson Reuters GFMS annual gold survey also predicts that gold will struggle in the first half of the year, increasing in the later half towards $2,000. It also says the gold bull market is losing steam and predicts an end to the run as economies recover next year and interest rates begin to rise.
___________________________

...And what about the demand for Silver?  Surely demand for Silver must have plummeted along with its price since September:

HOT OFF THE PRESS: Sprott Asset Management doing an overnight issue of the PSLV, which will be a minimum of $300 million, and hopefully will get even larger.

Sprott Physical Silver Trust Announces Follow-on Offering of Trust Units

TORONTO, ONTARIO--(Marketwire - Jan. 17, 2012) - Sprott Physical Silver Trust (the "Trust") (TSX:PHS.U)(NYSE:PSLV), a trust created to invest and hold substantially all of its assets in physical silver bullion and managed by Sprott Asset Management LP, announced today that it has launched a follow-on offering (the "Offering") of transferable, redeemable units of the Trust ("Units").

The Trust will use the net proceeds of the Offering to acquire physical silver bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to the Offering. Under the trust agreement governing the Trust, the net proceeds of the Offering per Unit must be not less than 100% of the most recently calculated net asset value per Unit of the Trust prior to, or upon determination of, pricing of the Offering.

The Units are listed on the NYSE Arca and the Toronto Stock Exchange under the symbols "PSLV" and "PHS.U", respectively. The Offering will be made simultaneously in the United States and Canada by underwriters led by Morgan Stanley and RBC Capital Markets in the United States and RBC Capital Markets and Morgan Stanley in Canada.

Copies of the U.S. prospectus related to the Offering may be obtained by contacting Morgan Stanley & Co. LLC, 180 Varick Street, 2nd Floor, New York, New York 10014 Attention: Prospectus Department (telephone 866-718-1649 (toll free) or 917-606-8474) or by e-mailing prospectus@morganstanley.com, or RBC Capital Markets Corporation, Attention: Prospectus Department, Three World Financial Center, 200 Vesey Street, 8th floor, New York, New York 10281-8098 (telephone: 212-428-6670, fax: 212-428-6260). Copies of the Canadian prospectus related to this Offering may be obtained by contacting RBC Capital Markets, Attention: Distribution Centre, 277 Front St. W., 5th Floor, Toronto, Ontario M5V 2X4 (fax: 416-313-6066) or Morgan Stanley & Co. LLC, 180 Varick Street, 2nd Floor, New York, New York 10014 Attention: Prospectus Department (telephone 866-718-1649 (toll free) or 917-606-8474) or by e-mailing prospectus@morganstanley.com. The Offering in Canada is only being made by the Canadian prospectus, which includes important detailed information about the Units being offered.

This news release does not constitute an offer to sell or a solicitation of an offer to buy the Units, nor shall there be any sale of the Units in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

__________________________

Bill Holter from GATA comments on the Sprott Silver purchase:

PSLV announced what with overallotment will amount to a $300 Million add on offering!  Notice the "exclamation point"?  Yes I for one am excited for several reasons.  One being that the physical market will be "tested" as to real supply.  How long will it take this time for Mr. Sprott to receive his metal?  Will it take 4 months like last year?  Surely it should take less time now because supply (you know, the actual real metal) should be in abundance since the price is down nearly 40% from the May 2011 peak?  Surely mining companies came in with massive new supply because the price was so high?  Surely investors ran down to their local dealers with heavy bags full of Silver to "cash in" on their gains and "flushed" the physical markets?  Right? 

Well... this is not what happened.  Actually mining supply moved up less than 5% and it was physical demand that skyrocketed, NOT supply!  Yet the price is down 30-40%?  The only new supply that hit the market were new and freshly (printed) offered paper contracts with even less backing than the existing fraudulent contracts.  THESE hit the market like a sledgehammer!  Please keep in mind that this offering is only about 10 million ounces and with what Jeff Christian and Jon Nadler tell us should be less of a problem than a pimple on an elephant's ass.  My next thought is this, what if it doesn't take less time to fill the order?  What if it takes even more than 4 months for the metal to be delivered? 

Please remember that Mr. Sprott "filed" for a total of $1.5 Billion, which I for one believe is not even doable in today's physical market.  Is he just "testing" the market?  Does he not want to be "the one" who craters the whole system by unmasking just how TIGHT this market really is?  Another question (comical as it may be) is "where" will this order be placed?  The COMEX?  This size order would deplete their deliverable inventory (if it really exists) by 25-30% and still not make much of a dent in the total $1.5 Billion filing.  If the total filing were used and placed as an order on the COMEX, it could not be filled...hmmm?

I applaud Mr. Sprott's "guts" here, I know he is only doing a small (VERY small order in the scheme of "paper" things) order but risks exposing the whole "fractional metal" scheme.  This should in a "perfect world" not even be a topic to write about or discuss but the truth is...we haven't been told the truth for a long time and this is a perfectly legal and logical way to get at it.  We will find out just "how tight" the Silver market really is and very soon would be my guess.  As a side note and I usually don't discuss much in the way of politics, I really question just how well Ron Paul's heart would hold out were he to actually take an obvious lead in even the most crooked polls?  Do you see where I'm going with this...?  Hopefully the guardian angel union up there in Canada doesn't offer vacation days to its employees!

Please recall that when Eric Sprott purchased $500 MILLION of Silver last year, the price of Silver doubled.  $300 MILLION equates to 10 million ounces of Silver at $30 an ounce.  The COMEX only has 32 million ounces of Silver available to meet delivery demands [or so they claim to].  

The US Mint sold 40 million ounces of US Silver Eagles in just 2011!  The Silver industry produces less that 700 million ounces of Silver annually.  Am I to believe that a 10 million ounce purchase of Silver is not going to affect Silver supply and "force" the price of Silver higher?  Eric Sprott and the US Mint have Silver supply needs that are 18 million ounces more than the COMEX has to offer.  Simple math tells me that the Silver market is in for a "boom" in prices in 2012.

Ted Butler (www.butlerresearch.com)

The second week of 2012 repeated the pattern of the first week with gold and silver rising (although ending the week somewhat sloppily). Gold rose $23 (1.4%) for the week, while silver climbed $1 (3.5%). As a result of silver's outperformance, the gold/silver ratio tightened in by a point to just over 55 to1. Despite the slight tightening in the ratio, silver still appears to be cheap relative to gold in many respects and also looks cheap relative to its closest base metal counterpart, copper.

Once again, this is not to suggest that gold looks expensive, particularly on a Commitment of Traders (COT) market structure basis. But the total dollar value of the world's three billion ounces of gold bullion has reached ridiculous levels relative to the dollar value of the world's one billion ounces of silver bullion. At current prices, the dollar value of gold is 165 times greater than the value of the world's silver. That's way too much for two items so closely similar. Here's another way of looking at it. Last week's $23 rise in the gold price increased the value of the world's gold bullion by almost $70 billion. That's more than twice as much as the total value of what all of the world's silver bullion is worth. I'm talking about the change for one week in gold being twice the total value of all the silver in the world.  That's crazy and is due to silver being artificially manipulated in price.

_______________________

In a post at GATA's LemtropoleCafe James Joyce Table:

The scrap silver myth Hi Bill!

The market sentiment is so easy to manipulate in the great propaganda machine that is our mainstream media. The bearish spin on the metals is beyond belief. And when the metals WERE making new highs week after week, the 'bullish' commentary that was circulating was often left-handed nonsense. Flat out, there is no hint of a legitimate market press coverage to report on the precious metals.

Case in point, I read commentary today that states silver will underperform in 2012 due to over supply. Right off the bat I had to wonder where this was coming from. Well, the article stated it was added scrap silver that would tip the market into surplus this year. Now lets just consider that assumption...

Last year I know for a fact that any silver not nailed down was being dumped in the junk bullion craze. We all know of these shops opening all over North America in shopping mall kiosks, pawn shops, mail-in promos, and even road shows that travel from one hotel to another with a heavy marketing blitz to suck in the stupid. I have seen scavenger silver buyers showing up in auctions to bid up the price of any sterling silver items and then sell them for scrap bullion.

As silver made its highs in 2011 the temptation to sell scrap silver was drawing in a lot of bullion. These people got paid a fraction of the value for their jewellry, cuttlery, candlesticks, and whatever else they were unloading. And now its mostly gone. There are only so many suckers that will fall for that kind of scam and most of them now hold no silver trinkets to unload on the next price surge. Also, with silver now priced much lower and therefore the prices these scrap vultures are willing to pay have also come down, the incentive to hang out at auctions buying junk silver items is also fading. Suffice to say that less scrap silver will find its way to market in 2012. That is not the story that you will be hearing elsewhere.

The flipside to this loss of scrap supply is that refined bullion demand continues to rise. I read an article earlier this month that suggested India may import an additional 100 tons of silver bullion in 2012. Think about that in a market that is already in short supply. Also, the loss of production from the Lucky Friday Mine for this year will probably reduce the bullion produced by 2.5 million ounces from mine supply. Lets also consider that producers like Endeavour Silver have been holding back some of their production in inventory, which also reduces supply. And former bullion exporting nations like China are now net importers of silver bullion, putting further stress on the demand side of the equation.

There are a handful of emerging silver producers that are setting new production records, adding a million ounces here, half a million ounces there to mine supply. I doubt that we will see any increase in scrap silver this year at all, and probably a sharp decline is coming. Meanwhile, demand continues to increase from a variety of retail investors,institutional money, national buying, and industrial consumers.

I think the game plan now for the bullion banks is to continue to encourage bearish articles about the metals in the major media, while they play games to rig the market and discourage investors from getting back on board. Meanwhile, I think they are winding in the short exposure and getting ready to go long. The failure of so many 'analysts' to mention or even recognize this scam is shameful but I think there are many good people now putting the word out and I think some investors are getting the message. I still see regular reports that inventory is low in the bullion shops and the premiums are high, which suggests a tight market and retail buyers are still active (no matter what the media presents...).

The days to run the spot price and bag a bunch of clueless specs on a short raid are nearly over. The next big scam will happen when the big banks are on the long side and then get their media buddies to report incredible bullish stories on the metals. Right about when a real squeeze has developed in terms of physical bullion inventory we will have the light turned on for the retail herd to thunder into bullion shops looking to pay any price for whatever metal they can get. I think that will be the mania that ends with a blowoff top and I hope it is still a year or two away.

So I am not overly concerned that the same hack writers are quoting the same bearish 'experts' to put out their hit pieces on the metal and projected prices for 2012. It just tells me the big banks are still looking to close out shorts cheaply and buy while the rest of the market is looking elsewhere. In time the sentiment is going off the charts. Good hell! I will feel sorry for those who wait until the mania stage to get interested in buying silver.
Cheers!
Mexico Mike

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If the prices of the Precious Metals are indeed tied to the inverse of the US Dollar, one looks at the markets this morning in dismay, wonder, or possibly anger.  Take heart wise Precious Metals investor, the days of the Western Banking Gold Cartel's manipulation of these prices may be numbered.

Not only is the "value of the US Dollar" questionable, its viability as the Worlds Reserve Currency may be in doubt as well.

Consider that recent "strength" in the Dollar is purely the result of weakness in the Euro, and a shortage of Dollars to meet debt obligations to be settled in Dollars primarily in Europe.  What if this phenomenon was to suddenly reverse itself?  

Say, a short squeeze in the Euro?

Everyone Hates The Euro - EUR Shorts Hit New Record High

 

...anyone who has euro shorts on here has their balls on the chopping block ...

GOLD/SILVER


Thoughts on the Metals/USD/Euro:

I have a feeling that the large artillery guns are being quietly turned toward the USD versus the Euro. Let us not forget that the largest debtor nation on the planet is the U.S.A. and were it not for the Ponzi-gifted Fed buying bonds for which there are no real buyers, the U.S. banks and Government would be dead.

The Russians and the Chinese and the Japanese are not terribly pleased with the Euro situation because Euroland is a very important market for them and is far closer to them than are U.S. markets. In fact only 7% of Chinese exports hit American soil so the hypocrisy of Tim Geithner wagging his finger at the Euro pols is not going unnoticed.

So before one gets too excited about the prospect for a huge dollar rally that will torpedo the metals (AND the CRB as well), remember that the paper "markets" (translate: "interventions" (Thanks Chris Powell)) are USD-denominated and if you believe that contrarian investing is a useful tool, the sheer enormity of the open interest in the short Euro/long USD trade is enough to send you scurrying into a cave.

The short Euro/long USD is one of the most one-sided, over crowded, taxi-cab-driver, shoeshine boy dominated trades of the past two decades and somewhat analogous to the one-sided-ness of the masses all being simultaneously long Petfood.com in 1999 being launched at 2,000 times 2007 earnings with zero assets and zero revenue.

Being short the Euro and by default bearish on the precious metals is like tightrope-walking the Niagara gorge in February in a blizzard blindfolded. It is not a wise action unless you like safety in numbers because short Euro is one very, very crowded trade.

Michael J. Ballanger B.Sc., B.A. 

Or maybe a decision by a number of Global sovereigns to eliminate the US Dollar from trade settlement between nations?

A new Reserve currency to challenge the dollar – What’s really going on in The Straits of Hormuz.
By Golem XIV on January 9, 2012 in latest

A little over a year ago on 1st November 2010 I wrote what I called “…a little bit of scurrilous speculation.” In it I speculated that an unintended consequence of QE had been to spur several countries to think very seriously of how they could replace the dollar as their settlement currency for international deals. The Settlement Currency just means the currency both parties agree is stable, internationally trusted and accepted, and in plentiful supply. Which may not be the case for their own currencies . I wondered if doubts about the longer term stability of the dollar and of US debt levels, was combining with a political desire in China and perhaps other countries as well to challenge the US via the dollar with the eventual goal of creating an alternative reserve currency backed by gold rather than, as the dollar now is, by debt.


Various countries have been buying gold. Russia, China, India have all bought a lot….Which brings me to my speculation. The list of countries accumulating gold is similar to the list of countries that were reported to be talking about the need for a new reserve currency to replace the dollar.

I wonder if those who are seriously thinking of trying to unseat the dollar and create a currency which is backed by something other than debt and is not under the control of America’s corrupt banks and even more corrupt government, are investing in gold as a precursor to making a real bid for a new currency.

Later, in Making the New Sub Prime Part 2 I looked at the growing network of bilateral agreements in major trade deals gradually replacing the dollar as a settlement currency.

Being a ‘Settlement’ currency is not quite the same as being a ‘Reserve Currency’ like the dollar, but it a major step in that direction. It is, in fact, a very large step. Which currency large international trades are done in matters. It is a fact that in 2000, Iraq signed an agreement to sell its oil, all its oil, in Euros. Iran was contemplating doing the same at around the same time. The Iraq decision involved the large French bank PNB-Paribas. France was not one of those who supported the war and Washington led a hate campaign vilifying the French. The worry was that a switch from dollar to Euro settlement might gain momentum. Any major move away from dollar settlement would cripple the US.

In January of this year the India Times reported that India was talking to Iran about moving out of dollar settlements so as to be able to buy Iranian oil despite a US embargo. India said it was discussing settling in Gold. Remember, India has just signed a settlement agreement with China to use the Yuan.

A very good summary of recent news by ZeroHedge suggests I may have been on the right track. And recently the pace has picked up.

China and Russia have been trading directly in their own currencies and using them both interchangeably for settlement for over a year. As the The China Daily article reports,

China is allowing greater use of its currency for cross-border transactions to reduce reliance on the US dollar, after Premier Wen Jiabao said in March he was “worried” about holdings of assets denominated in the greenback.

Then on 26th December 2011 Bloomberg reported,

Japan and China will promote direct trading of the yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said.

China is Japan’s largest trading partner. Japan will also start in 2012 buying Chinese debts. How much Dollar debt will either of them buy? They have both already been buying less.

Two days later (Dec.28th) the Iranain news service reported,

Iran and China on Wednesday signed two agreements on expansion of trade ties and joint investments.

These trades too will not be settled in Dollars or in Euros.

Three days after that The China Post reported that on the last day of 2011, US President Obama had signed a new law in which

U.S. imposes sanctions on banks dealing with Iran….Sanctioned institutions would be frozen out of U.S. financial markets.

Sounds tough. A bit like sending an aircraft carrier to the Straits of Hormuz. But as the article went on to report, with only barely concealed delight, the threat may be as hollow as the dollar itself. The law comes with exemptions which may eventually highlight America’s plight rather than its might.

The sanctions target both private and government-controlled banks – including central banks – and would take hold after a two- to six-month warning period, depending on the transactions, a senior Obama administration official said.

Under the law, the president can move to exempt institutions in a country that has significantly reduced its dealings with Iran and in situations where a waiver is in the U.S. national security interest or otherwise necessary for energy market stability. He would need to notify Congress and waivers would be temporary, but could be extended.

And as if to make the point, only a couple of days after this on Jan 7th, came the news that,

Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow.

So now almost none of Iran’s oil will be traded in Dollars.

India and Japan have also recently agreed a 15 billion dollar currency exchange. This will tie their two currencies closer together.

The list of countries and trades no longer using the dollar for settlement for their trade is now considerable. How close are we to reaching the tipping-point where it no longer makes sense for nations to use dollars and makes more sense for them, both economically and politically, to use the network of currencies tied to the Yuan? When we reach that point the Yuan becomes in reserve currency in all but name.

China, India, Russia and Iran are all large holders of physical gold and most of them are also large producers of it. None of them are firm allies of the US. They all have long term relations with each other. All of them have expressed oncercern over US debts and printing. None of them will like QE3, nor Euro printing, when they both arrive later this year.

I think the stand-off with Iran in the Straits of Hormuz over sanctions is as much to do with the moves to replace the dollar as anything else. The stand off is as much with China and its allies as it is specifically with Iran. The US is testing China’s nerve and the solidity of its network of bilateral currency settlement agreements. We are seeing military power deployed to counter economic power. I think the US will lose. Depending on the nature of its loss we could see a precipitate decline in the standing of the dollar as global reserve currency.

2012 could see the beginning of large scale defections from the dollar settlement currency. Which would in turn have massive, perhaps even catastrophic consequences for how the world perceives what is an acceptable level of debt for the US. What is acceptable when you have the global reserve currency is quite different from what is acceptable when you don’t.

And the reverse is also true. If China can transform the netwrok of bilateral agreements which centre upon China and the Yuan, in to becoming accepted as a de facto reserve currency, then for those, like me, who wonder how China can possibly avoid a hard landing as its bad bank and property bubble deflates faster and faster, look no further.

There is no denying China has an absolutely massive bad debt crisis fermenting. Every one of its banks is gagging on bad loans made to every one of China’s regional governments. Trillions of Yuan worth of loans which will not be repaid, on property and land valued at hugely inflated but now defaulting prices. But if China can become a rival and rising reserve currency at the centre of a new and growing collection of trading partners then China can and will bury the debts in a a mass unmarked grave somewhere in its hinterland.

At the moment when America is seen as being no longer the pre-eminant reserve currency and its debt load is re-considered accordingly, China and its debt load will go the other way. America and its currency risk being seen as too rotted by debt to be trusted and it’s claims of economic growth seen as fake, empty, paper-based, accountancy-conjured growth. The Dollar and America itself risk being seen as the fiat currency and fiat nation par excellence .While China and the Yuan will be seen as backed by sold gold and real growth.

One more question to ask in all this is – how far have the big banks and brokerages managed to turn even gold and silver (at least gold and silver held in the West) in to another fiat currency? Gold and bullion bugs amoung you might argue the question makes no sense. But consider re-hypothecation. How much gold and silver has been pledged and re-pledged, hypothecated and re-hypothecated? How many more paper contracts for and claims upon gold and silver exist above and beyond the amount of actual physical gold and silver? After all gold and silver are the ultimate in ‘good’ assets which counterparties will happily accept. So it seems likely to me that gold and silver (or contracts for them) will have been in demand in those repo and hypothecation markets. If so then I wonder how many conflicting and contesting claims will surround every ounce of gold and silver in the West when investors start demanding to see their ‘investment’.

I think the big old sterling silver coin may already have dropped for some investors. That is why prices for physical silver are surging above the price for paper claims on silver. I think some traders are getting nervous about buying paper claims on silver and now want only the metal itself. They suspect that in the end, if you have only a paper claim or contract for, silver that is exaclty all you will ever have – the paper. Only those with the actual metal in their hands, will get what they paid for. I think there is a fiat, paper currency version of gold and silver floating around and parasitising the metals themselves. Those who own that paper stuff may get…well … stuffed.

___________________________

Day to day, the prices of both Gold and Silver may lead to frustration and anger, but fundamentally, in the big picture and over the course of weeks and months, the ONLY path for the Precious Metals is higher...no matter what the boobs in the mainstream financial news media have to say about them.  These financial news journalists [hacks] write only what their sources ask them to write.  Few if any of them even understand the topic of which they comment on, let alone research their stories before writing them.

IGNORE THEM!

Got Gold you can hold?


Got Silver you can squeeze?


It is not too late to accumulate!