Been There, Done That

“As bad news continues to rattle global confidence in its financial system, we see two repeating facets of the decay. First the announcement of the next phase of bad news send markets lurching lower and sidelines investors as they absorb the consequences. Second, the natural optimism gets used to the news assumes that it is now at its worst and looks on the bright side, unready for the next shockwave. Then the process is repeated. Over time investors turn to gold and silver even more as a safe place to go as uncertainty grips even harder. When the bad news hits all markets, including gold and silver fall initially because as long-term investors pause in their purchases, traders read the market as ready to fall and move in to take prices down. But long-term investors are not sellers at this point.

As investors factor in the bad news support grows for safe-haven investments and investments re-emerge taking prices either consolidative or higher. Volatility becomes the hallmark of all markets. As fear breeds fear, so volatility breeds volatility.

Whereas the picture of a decaying U.S. has dominated the investment world, the focus is now turning to the Eurozone. The € was treated last year as a counter to a weak $, but as potentially far worse news for the € threatens the very monetary unity of Eurozone, we see Europeans turning to gold as never before. Now the weakness of the € joins the weakness of the $ in pointing to a globally deflating world. In jerks and lurches the global economic crisis decays, but gold after pausing and becoming as volatile as other markets, will turn upwards as a counter to currencies.”
- Julian D.W. Phillips, http://www.goldforecaster.com/

We should all know by now that the "spot" price of Gold is a lie. Bitching about it is joyful because it helps us get our frustrations about the market out. No "real" Gold was sold the last several days. Who would sell Gold in an environment like this? "Paper" Gold was sold in force. Recall that paper Gold, in the form of futures contracts is nothing more than a financial derivative. Entities that trade these contracts in volume do so as agents of the Treasury and Fed. These are the Criminals of the CRIMEX. True, there are legitimate "traders" of the paper Gold products, but in the end they all get the same for their efforts, NOTHING. Because there is no Gold backing them up.

Efforts to suppress the Gold markets are as feeble as efforts to prop up the worlds insolvent banks. Both efforts will do, and are doing, more harm than good. The global financial crisis we are now forced to endure will NOT end until the government stops propping up the zombie banks, and ceases in it's efforts to suppress the price of Gold.

I have posted above a daily chart of Gold that shows the entire new up leg in Gold off of the October 2008 low. Please click on it to enlarge. There should be no panic in Gold here. Through panic we play into the CRIMEX criminals hands. They not only want to suppress the price of Gold, they WANT your Gold. Do not give it to them. Let them play their paper games. Take advantage of the sale prices they present you. Gold is going much, much, much higher from here. All efforts to suppress the price of Gold are temporary and ultimately fail. If they were successful, Gold would not have risen to 1000 again.

It should be noted that over on the "open" TOCOM exchange in Tokyo. The TOCOM exchange is transparent. By rule, all players and there positions must be reported to the public daily. [ If only that were so on the CRIMEX. ] Goldman Sachs remains out of the market since the end of last week. At present Goldman holds no short OR long positions on that important exchange at this time. This is significant. Goldman has almost always held a short position against Gold on that exchange for years.

Gold has strong horizontal price and Fibonacci support here around 925. Silver, as always, shadows Gold, and swings more violently because of the tiny size of it's market. Also, Silver is often victim of a collapse in general commodity prices more so than Gold, because of its "industrial use" profile. Silver is no longer thought of by many as "money", and unfortunately gets lumped in with all the other commodities. This perception is changing due to the increased investment demand for Silver. SOLID support for Silver rests at 12.66.

Why the IMF and Fort Knox Won’t Put the Hurt on Gold
It’s true – the United States and the IMF (International Monetary Fund) have a lot of gold in reserve. Some of you fear a good chunk of that gold could be dumped on the market, acting as a sharp break to the yellow metal’s rise.

Let’s start by asking the question, just how much gold do these guys have?

The World Gold Council regularly updates the stats on official holdings of central bank reserves. According to December 2008 data from the WGC, the U.S. holds 8,133.5 tonnes (metric tons) of gold. The IMF holds 3,217.3 tonnes.

When you do the math, that adds up to 11,350.8 metric tons (tonnes), or 12,512 short tons, of gold. Converted to ounces at $1,000 per ounce, that’s a touch over $400 billion bucks worth of bullion.

Does this count as a lot? Yes and no.

On one hand, it represents 8-10% (very roughly) of all the gold in the world. On the other hand, there are a heck of a lot more dollars in the world... and demand is the key driver to consider here.

Take Russia, for example. Russia has recently stated its intent to raise total gold holdings to 10% of total reserves.

Again according to the World Gold Council, Russia held 495.9 tonnes of gold as of December ’08, accounting for just 2.2% of reserves.

We can do the math and see that, for Russia to hit its stated target of raising gold holdings to 10% of reserves (assuming total reserve values don’t change), they would need to purchase 1,758 tonnes of gold in the open market.

By stating a desire to up their gold holdings to 10% of reserves, Russia has all but said “Yeah, we wouldn’t mind owning another 1,750 tonnes of gold or so.” And that’s just Russia.

When you think about it, 10% is a pretty modest allocation. You think China wouldn’t like to have more of its dollar mountain converted to gold?

What central bank wouldn’t want to have 10% of its assets (or more) in bullion at a time like this, with paper currencies getting debased like crazy and creeping geopolitical tensions around the globe?

Remember, the U.S. and the IMF hold roughly 11,351 metric tons of gold.

If just these 10 central banks elected to raise their reserve allocations to 10%, they could hoover up all that U.S. and IMF gold by themselves (and still be hungry for more). And believe me, there are plenty more than these 10 with the same thoughts... not to mention institutional demand, don’t even get me started on that.

This doesn’t paint anything close to the total picture, of course. But it should help give you a better grasp of supply and demand. Right now, demand for gold is high and rising... and there just isn’t that much of it left to go round in the world.
http://www.taipanpublishinggroup.com/taipan-daily-022409.html

Emerging economies eye gold reserves as dlr fears rise
DUBAI, March 2 (Reuters) - Major emerging economies are seeking to raise their central banks' gold reserve holdings as fears of a sharp depreciation in the U.S. dollar mount, senior industry officials said on Monday.

Investors have been piling into gold as a safe haven as the the world's worst financial crisis since the 1930s depression sent global stock markets crashing.

"In this recession it is India and China which are going to grow at a slow rate, but they are growing," said Aram Shishmanian, chief executive officer of the World Gold Council.

"And they will naturally be looking to gold as part of their reserve asset management strategy, and I see them buying."

China, the biggest foreign holder of dollar denominated treasury securities with some $681.9 billion or about 12 percent of treasury papers outstanding, could reverse that by paring its dollar holdings.

"China has $2 trillion of reserves, and only one percent in gold and nearly all of the rest is in U.S. dollars," said Marcus Grubb, managing-director of investment research and marketing at the industry-sponsored World Gold Council.

"What we are seeing is a reassessment of the risk associated with the high exposure to the dollar. Obviously at the moment you see the dollar appreciating 25 to 30 percent against most currencies around the world, but a lot of that is obviously driven by liquidity."

But Grubb said the strength of the U.S. dollar is likely to be short-lived.

"That is a temporary phenomenon, if you look at the size of the bailout packages in North America the fact that the U.S. economy may well enter a depression ... there is a real fear of that," he said. "In that scenario I wonder what will happen to the U.S. dollar."
http://www.reuters.com/article/marketsNews/idAFL219529320090302?rpc=44&pageNumber=2&virtualBrandChannel=0


AIG warns on ratings, collateral calls, solvency
The government is going to such great lengths to save AIG because the company is still comprehensively intertwined with the rest of the financial system. The insurer's portfolio of derivative contracts known as credit default swaps was still notionally worth $302.2 billion at the end of 2008, despite government-supported efforts to aggressively unwind it during the fourth quarter.

CDS's are derivatives that pay out in the event of default. If AIG fails to repay what it owes on these contracts, or can't meet demands for more collateral, the financial institutions that purchased the protection could suffer huge losses. That, in turn, could make them default on similar promises they made to other counterparties, triggering a meltdown of the financial system.

The government has lent almost $50 billion to AIG, mainly to make sure the insurer's derivatives unit, AIG Financial Products, has enough money to meet collateral demands on the CDS contracts it wrote.
http://www.marketwatch.com/news/story/AIG-warns-ratings-collateral-calls/story.aspx?guid=%7B6E7A44F9-33E6-4FEB-996C-ED19C74A76E2%7D