Highway To Hell

Premiums Soaring for Physical Bullion as Delayed Deliveries and Shortages Intensify Internationally
COMEX gold continues to surprise to the downside despite the incredibly strong fundamentals of gold bullion itself with increasing shortages, delayed deliveries and premiums soaring for physical bullion in Asia, Europe, the US and internationally. Premiums have soared on smaller bullion products (from 1 ozt to 5 kilo gold bars) and look set to soon rise on the larger 100 and 400 ozt London Good Delivery gold bars.

Large investors and bullion dealers are now looking to take delivery of the December gold contract and there is likely to be a significant number of longs who stand for delivery leading to COMEX warehouses being depleted and the increasingly ridiculous COMEX price then surging in value.

The possible default of COMEX is even being considered by some astute observers. It is estimated that COMEX only have enough gold to deliver on some 10% of the outstanding contracts. October is not a delivery month so the December contract is being targeted. Some large money interests also realise the potential for sizeable profits from taking delivery of large gold and silver bars and melting them down into smaller bullion products for sale at far higher premiums. The COMEX December Gold option expiry is November 20 and there may be fireworks in the gold market soon after the election on November 4th in anticipation of far higher prices due to the incredibly strong supply and demand fundamentals.

Bernanke's proposed stimulus package shows that his helicopters are well and truly dumping dollars on America like confetti at a ticker tape parade. While this may be bullish for stock markets in the short and medium term it is likely to have serious ramifications for the dollar and the global monetary system in the coming months.

The public finances of the US are in a mess and deteriorating fast and now the country is formally committed to "unlimited" creation of dollars and the national debt is rising at an annual rate of 75 percent. This will result in far higher gold prices in all fiat currencies in the coming months.
http://news.goldseek.com/GoldSeek/1224590400.php

USDollar Death Dance
Jim Willie CB
How many times have we seen the US stock market go down, non-government bond yields rise, the USDollar rise, and the USTBond yields fall? That has been the norm in the last few weeks. These are death signals, not investment signals. The USEconomy cannot afford liquidation and constricted credit, a well-known fact, seemingly forgotten today. These signals come amidst falling confidence, more bank distress measures, more job loss, more home foreclosures, and lately, trouble with letters of credit at port facilities.

Financial markets, including the USDollar, have yet to factor in the deep USEconomic recession. The USDollar rally flies in the face of deteriorating fundamentals. See job cut announcements at Caterpillar, Merrill Lynch, General Motors, Chrysler, several Wall Street firms including Goldman Sachs today. Weekly jobless claims at close to half a million per week, equal to peak during the unrecognized 2001 recession. See the UMichigan consumer sentiment, Philly Fed index, Empire Fed index, leading economic indicators, durable goods orders, on and on. Retail sales, the backbone of the backwards USEconomy, are plummeting. That is, the plummet is before inflation price adjustments. Car sales are plummeting also.

Exports are to be worse from the higher US$ exchange rate on the table, combined with slower foreign economies. The improved export trade has been a big boast from the lunatics running the asylum. The USEconomy is accelerating in its decline, certain to produce a recession and huge USGovt deficits. That deficit is likely to at least double and possible quadruple next year. USTreasury Bond issuance cannot conceivably finance all, or at least half, of the commitments. The printing press will do the rest, which will cut down the US$ valuation. The USDollar decline lies ahead, when the distortions slow or come to an end. Gold will soar on the other side of this liquidation.

An extreme backlash attack is coming against the USDollar. Rising import prices in foreign economies have already caused alarm. Foreigners will soon attack the US$ in a matter of time, using heavy US$-based reserves. Their banking sectors are in disarray, primarily because they are intimately tied to the US$ and USTBonds. The process has begun with Brazil and Mexico in Latin America, to use their strong reserves and sell into this queer US$ strength. That is what reserves are for. The process will spread to other nations.

GOLD MARKET CLOSE TO BREAKING
The gap between the physical gold market and paper gold market is widening. An example bears this out. In Toronto this week, a major off-market gold transaction took place. The price paid was $1075 per ounce on the physical transaction. Its volume was in the multi-million$. There was no US involvement in the transaction, and the settlement was in euros. Enormous repositioning is ongoing by the groups that will participate in the new, partially gold-backed currency. My take is this movement is from a large financial entity with global activity, and ties to central banks. It might be tied to the upcoming split in the euro, into a Nordic Euro and trashed Latin Euro. The Nordic version might contain a gold component. This and other transactions are taking place with European settlement. They are being satisfied in the alternative market, far from the distortions of COMEX. This was a physical transaction with the real metal being moved. Big shifts occur behind the scenes. A couple of months ago, 400 metric tonnes were moved into storage with the Royal Canadian Mint by a sovereign entity.

The more massive the paper manipulation, the more violent the coming correction. The asylum managers are losing control of their paper-physical arbitrage. Watch the gold lease rates, and silver lease rates, which have each more than tripled in the last two months. Lease rates precede price movement. Bullion bankers, including central banks, are reluctant to lease their physical supply. This time is no different, an event to come after the COMEX criminality is swept aside, or simply overwhelmed in return. One well-informed source, with over two decades of gold market experience, actually expects arrests to take place among COMEX officials before long.

John Embry of Sprott Asset Mgmt has raised the possibility of a December gold futures contract default. He is not predicting it, or claiming it as certain, but rather mentions how talk centers on the December gold contract as having extreme stress for actual delivery. Pressure is building. The December contract not only is end of quarter, but end of year. He suggests a possible default. He said, “there is probably going to be such an event to change perceptions.” He cited a possible force majeure that could act as a “seminal event that defines the whole situation.” He explained that the physical gold price would then dictate the paper gold price, a return to normalcy, and with a gigantic move up in the gold price. Right now the paper gold market is overwhelming the physical side, but the physical side is constricted on supply. He explained that hedge funds are being unwound on a massive scale, slaughtered by margin calls. The long side must call for delivery on many contracts. He also expects there will be many questions on the Exchange Traded Funds soon as well, although those are surely not as important as the COMEX contract defaults. Watch and listen to his interview on the Canadian Business News Network (CLICK HERE), and be sure to move to the 10 to 11 minute mark.
http://news.goldseek.com/GoldenJackass/1224791251.php

Aftershock and Gold Rocket
Welcome to the opening ceremony of a modern depression.

The bottom line is this: the massive repatriation of US Dollars as a result of de-leveraging globally and the unwinding of so many credit contingent deals is making the US Dollar look strong, while the gold manipulation cartel is exerting its utmost effort to keep the spot price of gold low through concentrated short positions on COMEX. The price of gold will emerge from this negative influence on the next leg down and the economy goes into a broader paralysis instead of being limited as it is now to real estate and financials. Most credible analysts are recommending a minimum 30% exposure to gold for institutional portfolios.

Though its hard to imagine in the current price environment, both gold and silver are on the verge of a tremendous breakout to the upside, and if you can’t get your hands on the physical bullion over the next 24 months, the producing companies will be next followed closely by well cashed up junior explorers with million ounce+ deposits in National Instrument 43-101 compliant categories.

Ignore the negative press on gold, and recognize the current price weakness for what it is: the last time you’ll see gold this cheap in a long time, and therefore a huge opportunity.
http://news.goldseek.com/GoldSeek/1224690519.php

Gold's recent slump bewilders investors
NEW YORK (MarketWatch) -- Gold is often seen as an investment safe haven whose price tends to rise when the economy falls into troubles, but its recent slumps have defied conventional wisdom.

The reason, according to analysts at the World Gold Council, is that the latest bout of the credit crisis has been deeper and more far reaching. Funds were forced to sell desired assets such as gold to meet margin calls, while weakness in European economies lifted the U.S. dollar, which then pushed dollar-denominated gold prices lower.

"The fact that gold did not head higher during the current leg of the crisis seems to reflect a combination of the rise in the dollar, deleveraging of commodity positions, sales to meet margin calls, and the unwinding of the long gold, short dollar trade," wrote Natalie Dempster, an analyst at the WGC, in a research report released Thursday.

"The current crisis has seen much more pressure on gold as an 'asset of last resort,' where it has been sold to meet margin calls when there have simply been so few other viable options available," Dempster said.

Trading in the over-the-counter gold market, where big institutions trade with each other directly in large orders, weakened in the third quarter due to the rise in counterparty risk and the lack of investment capitals, according to GFMS, a London-based precious metal consultancy.

A wave of liquidations occurred in September as funds were forced to raise cash in the face of margin calls and massive investor redemptions, according to GFMS.

"Trading credit lines are shrinking for key players in the commodities business," said S&P's Vazza.

Gold trading in futures markets also went through a similar declining trend. In the two major global gold futures markets in New York and Tokyo, speculators' buy positions have been falling, while their sell positions have been rising.

Some investment funds were forced to sell even their "most desired assets such as precious metals," said Peter Spina, president of GoldSeek.com. There could be "more victims of the fund collapse and more forced liquidations."

"Investors worldwide are selling everything, including the kitchen sink, and gold is no exception," said Peter Grandich, chief commentator at Agoracom, an online marketplace for the small-cap investment community.

A stronger dollar reduced gold's appeal as an investment alternative. "Investors unwound leveraged short dollar, long gold positions, mindful of the long standing negative correlation between gold and the dollar," said the WGC's Dempster.

Some analysts, however, said that in the long term, the U.S. rescue plans to inject liquidity into banks will stir inflation and a devaluation of the dollar -- something that would be bullish for gold prices.

"An extraordinary amount of liquidity has been pumped into the system this year," said Peter Grant, senior analyst at USAGOLD. "I anticipate further debasement of all currencies, including the dollar, which will ultimately drive gold prices higher."
http://www.marketwatch.com/news/story/golds-recent-slump-bewilders-investors/story.aspx?guid=%7B99E58018-14A0-4C54-9DEA-550C1B7F9490%7D&dist=msr_1

Pay Attention to Indian Silver Buying Spree
The massive correction in silver brings back Indian buyers. According to a Reuters story, Indians also shift to silver as the high silver/gold ratio of 80:1 makes the white metal appear cheaper to its competitor gold. Imports have jumped to 250 tons every month since August after a dull first half 2008 when record prices repelled buyers.

MUMBAI, Oct 20 (Reuters) - Indian traders may not be buying much gold with prices close to all-time highs, but are scrambling to stock up on silver that fell to its lowest in a little more than a year, dealers said."There is already a shift from gold to silver... people are very comfortable with silver prices," said Ajay Singh of Kiran Jewellers, a wholesaler in Jaipur.

Singh said his silver sales had risen five-fold from the same period last year, ahead of key festivals, Dhanteras and Diwali, next week. On the continuation charts of the Multi Commodity Exchange of India Ltd [MCX], silver futures MSVc1 were at 17,541 rupees per kg, close to a 13-month low struck late on Friday at 16,857 rupees.The current price is down 36 percent from its record high at 27,500 rupees on March 17.

Suresh Hundia, president of Bombay Bullion Association, said silver imports had accelerated since August, and demand was heavy early this month, when prices were in the range of 19,000 rupees and 20,000 rupees."Earlier in the year, there was hardly any demand but now since August, about 250 tonnes is being imported every month," Hundia said.Yet, imports stood around 800 tonnes so far this year as against around 2,280 tonnes in all of last year, he added.

Many traders said silver imports hit bottlenecks even at high premiums, with a global demand resurgence, difficult credit market and logistical woes. "Many banks are unable to get silver even if we tell them we will give them the full sum of money for the consignment," said Daman Prakash, director of MNC Bullion Pvt Ltd, a wholesaler in Chennai."There is shortage of space in flights and that is curbing the supplies," said Prithviraj Kothari, director at Riddisiddhi Bullions Ltd.A prominent Geneva-based supplier, Afshin Nabavi, senior vice president at MKS Finance S.A., said supplies were "starting to get tough."

"There is a huge demand for silver... it has not been this cheap for a while now," Nabavi said.

I would say this is another sign that the dichotomy between COMEX silver prices and prices paid is more then questionable. This may be a once in a lifetime opportunity at current price levels that are destined to change dramatically, only to catch up with inflation. The inflation adjusted all time high of silver is in excess of $135 per ounce and there are so many signs of a physical shortage when silver sold short on the COMEX now exceeeds one year of global production.
http://seekingalpha.com/article/101280-pay-attention-to-indian-silver-buying-spree?source=email

ONLY GOVERNMENT COULD DO THIS TO US
It must have been quite a meeting.

It began at 3:00 pm this past Monday at the U.S. Treasury's plush offices in Washington, D.C. On one side of the table sat U.S. Treasury Secretary Henry Paulson. He was flanked by Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.

On the other side were the chief executives of the nation's biggest banks. They were arranged in alphabetical order, with Bank of America's chairman on one end and Wells Fargo's CEO at the other. Between them sat representatives from the Bank of New York Mellon, Citicorp, Goldman Sachs, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, and State Street.

Although no reporters were present, journalists later pieced together what was said. All accounts agree on the following: For over an hour, Paulson and Bernanke told the assembled bankers just how grave was the situation threatening not just this country, but all the known world. (All together now, can you say, "the gravest financial crisis since the Great Depression"?)

At the end of Paulson's and Bernanke's remarks, aides handed each banker a document. The pages contained the government's terms for becoming their partner. It detailed how much money the Treasury would "invest" in each bank (a total of $125 billion for those present), how much ownership it expected, what their new dividend policies would be, even the limits that would be imposed on executive pay. (The top five officers at each institution could not receive more than $500,000 a year.)

While discussion was permitted, negotiations were not. Paulson explained the deal was for their own good and the good of the country. Then it was time to "shut up and sign." And every banker did.

Any questions, any doubts, any disagreements were blithely ignored. Thus was born a new age in what was once the land of the free and the home of brave. Government would "save" capitalism by becoming its partner … nay, its boss.

It may not be a Brave New World. But I can guarantee you, folks, it's going to be an expensive one. Time will tell how expensive - to our wallets and to the free-enterprise system.
http://www.dailyreckoning.com/Issues/2008/DR102208.html#essay