Bond Boycott Or Gold Breakout?

U.S.–China Currency Spat Threatens Treasury Auction, Powers Gold
By James West
Timothy Geithner’s first major fumble as incoming Treasury Secretary could be a big one. Accusing your number one creditor of tampering with their currency in a very public way is downright dumb. Especially when the country you’re making accusations from is the most notorious manipulator of currencies, commodities, derivatives and precious metals in the history of humanity.

And with a major Treasury auction coming up this week, don’t be surprised if China decides to vent its displeasure by boycotting the sale. And if China doesn’t buy, there are a lot of other sovereign investors who are going to pass on this most fragrant of U.S. exports.

It is that awareness and its associated anticipation that is lighting a fire under and giving serious legs to the gold and silver markets this week. If that does indeed come to pass, it will be the catalyzing event that both sends gold to $1500 before the summer, and sends the U.S. Dollar index to below 50 in the same time frame.

While admittedly a brazen statement, there are interesting developments to support it.

Barack Obama has now hit up Congress for $1 trillion in bailouts, with the caveat that he might be back for more before that bill even wends its way through the legislative process. There’s only one thing that can prevent Obama from achieving his goal more effectively than congressional resistance – an empty bank account and the cutting up of the national credit card.

If U.S. Treasury auctions begin to fail, not only will the U.S. be incapable of kiting checks to itself – it will trigger a global flight to safety in gold and silver, while initiating a stampede for the exits in U.S. denominated assets. Foremost among those will be Treasuries.

The problem is that there is a Mexican standoff developing, where the world’s biggest holders of U.S. T-bills are nervously eyeing each other across the oceans, waiting to see who is sidling up to the sell trigger. The entire worth of the United States dollar is predicated on a confidence that is rapidly becoming ethereal. When that confidence transforms thoroughly into panic, the dollar will collapse so fast it will make the Weimar inflationary period look like so many feathers swirling in a gentle breeze.

This will be the event that plunges the United States into the deepest depression in its history, and will essentially be the catalyzing event that dethrones America from its position of number one in the world in ALL things, and transform the citizenry into a nation of beggars.

The only hope for Americans with any net worth left whatsoever, is a flight NOW to gold and silver coins and bullion, followed by producing miners, with a healthy smattering of advanced quality junior precious metals explorers thrown in for maximum leverage.
http://news.goldseek.com/GoldSeek/1232985648.php

Treasuries Decline as TIPS Auction Opens a Week of Debt Sales
Jan. 26 (Bloomberg) -- Longer-term U.S. debt fell for a sixth day as an $8 billion sale of 20-year inflation-indexed bonds drew a higher yield than bond dealers forecast and the government prepared to sell $70 billion in notes this week.

Thirty-year bond yields touched the highest in almost two months as investors sold longer-term securities on concern new debt will cheapen their value...

The auction of 20-year Treasury Inflation Protected Securities, or TIPS, drew a yield of 2.50 percent, compared with an average forecast of 2.37 percent by seven bond-trading firms in a Bloomberg News survey before the sale.

Investors bid for 1.92 times the amount of debt on offer, below the average bid-to-cover ratio of 1.98 for the previous five auctions. Indirect bidders, a class of investors that includes foreign central banks, were awarded 54 percent of the securities. The average for the previous five sales was 57.2 percent.

The U.S. will sell $40 billion of two-year notes tomorrow and $30 billion of five-year debt on Jan. 29.

“We’ve got lots of supply coming over the next few weeks,” said Theodore Ake, head of U.S. Treasury trading at Mizuho Securities USA Inc. in New York, one of 17 primary dealers that trade with the Federal Reserve.

“We’ve got lots of supply coming over the next few weeks,” said Theodore Ake, head of U.S. Treasury trading at Mizuho Securities USA Inc. in New York, one of 17 primary dealers that trade with the Federal Reserve. “The economic data came out less terrible today than people were looking for, but I think it’s more about supply than anything else.”

The government will likely sell $32 billion of three-year securities, $22 billion of 10-year notes and $15 billion in 30- year bonds Feb. 10-12, according to Wrightson ICAP, a Jersey City, New Jersey-based research firm that specializes in government finance.

The U.S. will probably borrow a record $2.5 trillion this fiscal year ending Sept. 30, almost triple the $892 billion in notes and bonds sold in the prior 12 months, Goldman Sachs Group Inc., another primary dealer, said last week

“I see supply really dominating the Treasury marketplace right now,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors.

Fed policy makers meeting tomorrow and the next day are exploring the purchase of longer-maturity Treasury securities in an effort to push up their price and bring down the yield.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0k3eXioXWhI&refer=home

So, if China and "other sovereign nations" decide to pass on purchasing more US Debt, the Fed will step up to the plate, and buy the Treasuries themselves in a futile effort to keep interest rates low. The Fed will "in effect" monetize the country's debt...as in print money to refinance our own debt. Ah, spending our way to prosperity...BRILLIANT! Joe Biden is more right than he may know. Things are going to get worse before they get better...much worse. Keep a close eye on these Treasury auctions this Tuesday and Thursday. Gold may not react positively to "news" that the auctions went "better than expected".

Gold had a nice follow through this morning following Friday's stellar breakout of resistance at 885. However, Gold's failure to hold onto this mornings gains have given that breakout the look of a short squeeze running out of gas at the top of the uptrend channel. If real buyers were coming into the market, Gold would have had a much stronger close today. As suggested yesterday, a reaction here would be technically constructive. The Shorts in Gold clearly have their backs against the wall here, and it is now up to the Gold Bulls to put pressure on the Shorts by buying into any dips here. The big money sitting on the sidelines is waiting patiently for the "golden cross signal" when Gold's 50 day moving average crosses over its 200 day moving average.

It should also be noted that, "seasonally", Gold is approaching a "weak season" in February and March that is much like the "weak season" we just endured in October and November. Please click on the chart posted above. Seasonal charts are pictures of the "average" seasonal movements in a given market. Though there is no guarantee that Gold will move down in February and March, we must respect the "law of averages", and prepare for the potential of just such a move down. This is the Crimex we're dealing with people, and until they're put out of business, anything is possible in this Gold Market.

Silver of course will continue to shadow Gold.

Gold Market Update
By: Clive Maund
Gold is now in position to break out to new dollar highs and embark on a very powerful run. It is not its action on Friday which gives rise to this positive view, although that was certainly impressive enough, but the extremely bearish action in the dollar last week, which suggests that it is on the verge of a breakdown and savage decline.
http://news.goldseek.com/CliveMaund/1232953200.php

Restoring Sound Money in America
By: James Turk
...the mandates of the Constitution requiring gold and silver currency were clear.

The new Congress and President Washington obviously understood those mandates when they passed into law in 1792 the Coinage Act, one of the first acts of the newly formed federal government. It established the Silver Dollar, weighing 371-1/4 grains of fine silver, as the monetary unit of account of the United States. This Act also defined the value of gold in terms of silver, namely, 15 grains of silver were deemed to equal one grain of gold. By setting this rate of exchange between gold and silver, the new Congress and President Washington were fulfilling their Constitutional duty as required in Article I, Section 8, which states: “To coin Money, regulate the Value thereof…”

This clause – “regulate the Value thereof” – is often misunderstood today, but its intent was clear to the framers. It meant only one thing. Congress was required to fix the rate of exchange between gold and silver, and by so doing, determine whether the country would be on a gold or silver standard. A silver standard was established by the 1792 Act and remained the monetary standard until the Gold Standard Act was passed and signed into law in 1900.

To “regulate the Value thereof” did not mean that Congress and the president could change the value of the dollar or debase it with inflation. The dollar is supposed to be an unchanging unit of measure like a ‘foot’, a ‘pound’ or a ‘gallon’. The federal government has no Constitutional authority to change the ‘size’ of the dollar, just like it has not been granted the power to change any other measure.

As evidence for this conclusion, note that clause 5 of Article I, Section 10 reads in its entirety: “To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” The framers understood that money is no different from other units of measure, and accordingly, they placed these items within the same clause by granting to Congress the power to establish these standards. And so it was, until 1933 with the confiscation of gold by Franklin Roosevelt, which began the process – which continues to this day – of debasing the dollar and moving it further from the requirements of the Constitution.
http://news.goldseek.com/JamesTurk/1232989200.php

No Depression
by Howard S. Katz
The first thing you need to understand is that, in the long run, money and credit move together. If the central bank wants to ease credit, the only mechanism it has is to buy U.S. Treasury bills (or related instruments). Since the central bank has no savings and no earnings, then, when it buys T-bills, it pays for them by counterfeiting the money. Thus an easing of credit is accompanied by an increase in money (2008 being a good example). The period of the 1930s was just the opposite. Credit tightened, and the money supply dropped by 30% from 1930-33. It is possible to have minor discrepancies for short periods of time. For example, Greenspan kept on easing credit in the late 1990s, but the private banks fought him by offsetting his increase in the money supply, and the net money supply for that period was flat. But such discrepancies between money and credit are rare and not of long duration.

The second thing you need to understand is what is happening in the immediate future. Is credit easing and money going up, or is credit tightening and money going down? These are directly opposite economic events. The first case is bullish for gold; the second case is bearish for gold (and most other goods). You cannot protect yourself from both events at the same time. So you have to know which is coming.

The problem is complicated by the fact that establishment economists speak with forked tongue. Instead of calling a contraction of money and credit what it is, terms such as “deflation,” “recession” and “depression” are used. These terms are not well defined, and the intention is to arouse your emotions, not to appeal to your reason. You can see this when you are in a discussion with an establishment person, and he says to you, “Don’t you have any concern for the unemployed?” He is trying to make you feel ashamed because you are not a person of love. It is a blatant appeal to emotion and an attempt to embarrass you. And it has nothing to do with economic truth. In essence, “deflation” and “depression” refer to a money/credit contraction. “Recession” is an inbetween state best defined as a mild depression.
What is happening right now is that the establishment is screaming at us: “RECESSION,” “DEPRESSION,” “DEFLATION.” But the only evidence they can offer us are economic statistics which are the result of their (earlier) screaming.

In contrast with what the establishment is saying, we get a completely different picture when we look at what they are doing.

Starting in September (about the time that the Wall Street bailout bill was working its way through Congress), the Federal Reserve started to create money, in the form of Federal Reserve Credit. At this time, the level of Fed credit has multiplied by 2½. Much of this has already flowed into the monetary base, and this has doubled during the same period. From the monetary base, the money will next flow into the money supply proper. We can thus be fairly well assured of a doubling in the U.S. money supply, or worse, and this only if the Fed does not further increase its credit.

To put these numbers in context, the U.S. money supply more than doubled during WWII between 1941 and 1945. It almost doubled during the Reagan Administration (1981-89). Here we are threatened with a doubling of the money supply in approximately 1-2 years time. This is the worst money infusion in American history. Such events have always caused a corresponding increase in prices.
http://news.goldseek.com/GoldSeek/1232985840.php