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This Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks

It likely signals a big downdraft in the stock market, too
Monday, April 15, 2013, 3:55 PM

I am very disappointed by, but not surprised at, the latest transfer of wealth to the bankers from everyone else.  The most recent gold bear raid has vastly enriched the bullion bankers, once again, at the expense of everyone trying to protect their wealth from global central bank money printing.

The central plank of Bernanke's magic recovery plan has been to get everybody back borrowing, spending, and "investing" in stocks, bonds, and other financial assets.  But not equally so, as he has been instrumental in distorting the landscape towards risk assets and away from safe harbors.

That's why a 2-year loan to the U.S. government will only net you 0.22%, a rate that is far below even the official rate of inflation.  In other words, loan the U.S. government $10,000,000 and you will receive just $22,000 per year for your efforts and lose wealth in the process because inflation reduced the value of your $10,000,000 by $130,000 per year.  After the two years is up, you are up $44,000 but out $260,000, for net loss of $216,000.

That wealth, or purchasing power, did not just vanish:  It was taken by the process of inflation and transferred to someone else.  But to whom did it go?  There's no easy answer for that, but the basic answer is that it went to those closest to the printing press.  It went to the government itself, which spent your $10,000,000 loan the instant you made it, and it went to the financiers who play the leveraged game of money who happen to be closest to the Fed's printing press.

This almost completely explains why the gap between the rich and everyone else is widening so rapidly, and why financiers now populate the top of every Forbes 400 list.  There is no mystery, just a process of wealth transfer of magnificent and historic proportions; one that has been repeated dozens of times throughout history.

This Gold Slam Was By and For the Bullion Banks

A while back, I noted to Adam that the gold slams that were first detected back in January were among the weakest I'd ever seen.  Back then I was seeing the usual pattern of late-night, thin-market futures dumping, which I had seen before in 2008 and 2011, two other periods when precious metals were slammed hard. 

The process is simple enough to understand; if you want to move the price down for any asset, your best results will happen in a thin market when there's not a lot of participation so that whatever volume you supply has a chance of wiping out whatever bids are sitting on the books.  It is in those dark hours that the market-makers just dump, preferably as fast as possible.

This is exactly what I saw repeatedly leading up to Friday's epic dump-fest.  The mainstream media (MSM), for its part, fully supports these practices by failing to even note them.  The CFTC has never once commented on the practice, and we all know that central banks support a well-contained precious metals (PM) price because they are actively trying to build confidence in their fiat money and rising PM prices serve to reduce confidence.

Here's a perfect example of the MSM in action, courtesy of the Financial Times:

Gold tumbles to two-year low

“There is no other way to put gold’s recent sell-off: nasty,” said Joni Teves, precious metals strategist at UBS in London, adding that gold would have to work to “rebuild trust” among investors.

Tom Kendall, precious metals analyst at Credit Suisse said “Once again gold investors are being reminded that the metal is not a very effective hedge against broad-based risk-off moves in the commodity markets.”

There are two things to note in these snippets.  The first is that the main ideas being promoted about gold are that it is no longer to be trusted and that somehow the recent move is a result of "risk off" decisions meaning, conversely, that there is increased trust in the larger financial markets that 'investors' are rotating towards.  Note that these ideas are exactly the sort of messages that central bankers quite desperately want to have conveyed.

The second observation is even more interesting, namely that the only people quoted work directly for the largest bullion banks in the world.  These are the very same outfits that stood to gain enormously if precious metals dropped in price.  Of course they are thrilled with the recent sell off.  They made billions.

In February, Credit Suisse 'predicted' that the gold market had peaked, SocGen said the end of the gold era was upon us, and recently Goldman Sachs told everyone to short the metal.

While that's somewhat interesting, you should first know that the largest bullion banks had amassed huge short positions in precious metals by January.

The CFTC rather coyly refers to the bullion banks simply as 'large traders,' but everyone knows that these are the bullion banks.  What we are seeing in that chart is that out of a range of commodities, the precious metals were the most heavily shorted, by far. 

So the timeline here is easy to follow.  The bullion banks:

  1. Amass a huge short position early in the game
  2. Begin telling everyone to go short (wink, wink) to get things moving along in the right direction by sowing doubt in the minds of the longs
  3. Begin testing the late night markets for depth by initiating mini raids (that also serve to let experienced traders know that there's an elephant or two in the room)
  4. Wait for the right moment and then open the floodgates to dump such an overwhelming amount of paper gold and silver into the market that lower prices are the only possible result
  5. Close their positions for massive gains and then act as if they had made a really prescient market call
  6. Await their big bonus checks and wash, rinse, repeat at a later date

While I am almost 100% certain that any decent investigation by the CFTC would reveal that market manipulating 'dumping' was happening, I am equally certain that no such investigation will occur.  That's because the point of such a maneuver by the bullion banks is designed to transfer as much wealth from 'out there' and towards the center, and the CFTC is there to protect the center's 'right' to do exactly that.

This all began on Friday April 12th, and one of the better summaries is provided by Ross Norman of Sharps Pixley, a London Bullion brokerage:

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract (see below) in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand. 

Two hours later the initial selling, rumored to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".

(Source - originally found at ZeroHedge)

The areas circled represent the largest 'dumps' of paper gold contracts that I have ever seen.  To reiterate Ross's comments, there is no possible way to explain those except as a concerted effort to drive down the price.

To put this in context, if instead of gold, this were corn we were talking about, 128,000,000 tonnes of corn would have been sold during a similar 3-hour window, as that amount represents 15% of the world's yearly harvest.  And what would have happened to the price?  It would have been driven sharply lower, of course.  That's the point; such dumping is designed to accomplish lower prices, period, and that's the very definition of market manipulation.

For a closer-up look at this process, let's turn to Sunday night and with a resolution of about 1 second (the chart above is with 5 minute 'windows,' or candles, as they are called).  Here I want you to see that whoever is trading in the thin overnight market and is responsible for setting the prices cannot possibly be human.  Humans trade small numbers of contracts and in consistently random amounts.

Here's an example:

Note that the contracts' numbers, in the single digits to tens, are randomly distributed, and that the scale on the right tops out at 80, although no single second of trades breaks 20.

Now here are a few patterns that routinely erupted throughout the drops during Sunday night (yes, I was up very late watching it all):

These are just a few of the dozens of examples I captured over a single hour of trading before I lost interest in capturing any more.

As I was watching this and discussing it with Adam in real time, I knew that I was watching the sort of HFT/computer-trading robots that we've discussed here so much in the past.  They are perfectly designed to chew through bid structures, and that's what you see above.  They are 'digesting' all the orders that were still on the books for gold, to remove them so that lower and lower stops could be run.

Anybody who had orders up against these machines, perhaps with stops in place, or perhaps even while sleeping because this all happened in the hours around midnight EST, lost and lost big.

There is really no chance to stand against players this large with a determination to drive prices lower.  At the very least, I take the above evidence of computer-assisted declines of this magnitude to be a sign that our "markets" are completely broken and quite vulnerable to a crash.  That the authorities did not step in to halt these markets during such a volatile decline, when they have repeatedly stepped into other markets and individual equity shares on lesser declines, tells me much about the level of official support for such a decline.

It also tells me that things are speeding up, and the next decline in the equity or bond markets may happen a lot faster than anybody is expecting.

Unintended Consequences

If the intended consequences of this move were to enrich the bullion banks and to chase investors away from gold and other commodities and into stocks, what are the unintended consequences going to be?

While I cannot dispute that the bullion banks made out like bandits, I also wonder if perhaps, instead of signaling that the dollar is safer than gold, the banks did not unintentionally send the larger signal that deflation is gaining the upper hand.

With deflation, everything falls apart.  It is the most feared thing to the powers that be, and for good reason.  Without inflation and at least nominal GDP growth, if not real growth, then all of the various rescues and steadily growing piles of public debt will slump towards outright failure and possibly collapse.  The unintended consequence of dropping gold so powerfully is to signal that deflation is winning the day.

If this view is correct, then the current sell-off in gold, as well as in other commodities (detailed in Part II of this report), will simply be the trigger for a loss of both confidence and liquidity in the system, and that will not bode well for the larger economy or equities. 

In Part II: Protecting Your Wealth from Deflation, we explore the growing signs that the money-printing efforts of the central planners are seeing diminishing returns and are failing in their intended effect to kick global economic growth higher. Deflationary forces appear poised to take the upper hand here, sending asset prices lower potentially much lower across the board. 

If deflation indeed manages to break out from under the central banks' efforts to contain it, even if only for a short period, how bad will the ensuing wave of price instability be? How can one position for it? How extreme will the measures the central banks take in response be? And what impact will that have on asset prices, the dollar, and precious metals?

We are entering a new chapter in the unfolding of our economic emergency, one in which the risks to capital are greater than ever.  And the rules are increasingly being re-written to the disadvantage of us individuals.

The one unfair advantage we have is that history is very clear on how these periods of economic malfeasance end.  Let's exploit that as best we're able.

Click here to read Part II of this report (free executive summary; enrollment required for full access).

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78 Comments

earthwise's picture
earthwise
Status: Platinum Member (Offline)
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Posts: 829
Where's Jeff???

So now that gold took a two-day drubbing for more than $225 and Dr. Martenson is warning of deflation, we should all expect to hear JAG crowing anytime now.

What's that saying about a broken clock?

gillbilly's picture
gillbilly
Status: Gold Member (Offline)
Joined: Oct 22 2012
Posts: 380
Don't beat yourself up

Chris,

You've made it clear from the beginning that the priorities are 1. Extinguish debt, 2. Invest in Resilliency/Homestead, 3. Finally, hold gold or silver/PM

If we follow the priority list, then the short-term fluctuations in PM shouldn't be an issue (assuming you hold PM at all). It seems to me that if anyone is thinking of selling their gold, then they are not holding it for the right reasons...oh, and thousands of years of tradition will not miraculously change now.

I would like to commend those who keep driving the home message of the first two on the priority list (that includes Chris and Adam, but also Wendy, Treebeard, and others). The first two have made the most immediate difference in my life.

Okay, we now need to shift our prayers to those who really lost today...those in Boston.

Be well, healthy, and safe!

goes211's picture
goes211
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Posts: 1110
Broken clock?

earthwise wrote:

So now that gold took a two-day drubbing for more than $225 and Dr. Martenson is warning of deflation, we should all expect to hear JAG crowing anytime now.

What's that saying about a broken clock?

I actually agree that the gold price is manipulated but then again so are all financial markets.  The larger the market, the harder it is to manipulate, and the gold matket is not exactly a massive, silver even less so.  I even admit that gold is probably more manipulated than most markets, especially due to as Greenspan said in an earlier (more honest) life.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

But lets be honest, anyone that bought and held gold in the past 2 years is down right now.  That is a little more than a broken clock being right twice a day.  I don't even understand why this causes such convulsions in some people.   Gold has gone up by nearly a factor of 7 in the past decade.  Why are people so freaked out that it can decline by 30%?  It can't go up like that forever.  This should indicate a buying opportunity in the near future.

The problem I have with true goldbugs (I don't mean this as a pejorative because I am generally pro-gold and anti-state) is that there is really no way to have a rational argument with them.  If gold goes up, it confirms that they are correct.  If gold goes down, it must be a conspiracy.  Can someone that is a proper goldbug please explain to me what would have to change that would get them to rethink their beliefs?

anexaminedlife's picture
anexaminedlife
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Posts: 48
Simple question, probably not an easy answer

I will break my question down into the simplest terms: 

As I understand it, the fundamental reason for buying and holding gold is as insurance against the possibility that the Central Banks will not be able to reign in the consequences of their policies. At what point does it become evident that the Central Banks will achieve their objectives*, without the anticipated consequences against which gold is an "insurance policy?" That old saying "Don't fight the Fed" rings quite true today.

*even if it is by hook or crook

Jim H's picture
Jim H
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Goes

You said,

If gold goes up, it confirms that they are correct.  If gold goes down, it must be a conspiracy.  Can someone that is a proper goldbug please explain to me what would have to change that would get them to rethink their beliefs?

Look,  If the Bernank speaks and says they might pull QE.. and Gold tanks.. then that is not a conspiracy.  It is just stupid players responding to FED jawboning.  If though, Japan is embarking on the largest (relative to GDP) QE ever, two big Gold and Silver mines have just closed, A Dutch bank has defaulted recently on their physical Gold holders.. Germany has to wait 7 years to get their rightfully owned 300 tons delivered from NY, Comex inventories have been falling precipitously, GLD share owners have been pulling out phys agressively since early 2013 and then Gold and Silver fall 20% in two days.... well... that just doesn't sit right with me.     

goes211's picture
goes211
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Joined: Aug 18 2008
Posts: 1110
Suspicious, yes but ...

Jim H wrote:

Look,  If the Bernank speaks and says they might pull QE.. and Gold tanks.. then that is not a conspiracy.  It is just stupid players responding to FED jawboning.  If though, Japan is embarking on the largest (relative to GDP) QE ever, two big Gold and Silver mines have just closed, A Dutch bank has defaulted recently on their physical Gold holders.. Germany has to wait 7 years to get their rightfully owned 300 tons delivered from NY, Comex inventories have been falling precipitously, GLD share owners have been pulling out phys agressively since early 2013 and then Gold and Silver fall 20% in two days.... well... that just doesn't sit right with me.     

I agree that this move is suspicious.  By whos request was it going to take 7 years to repatriot the German gold?   To say that the Germans want it sooner and the FED does not have it seems like wild speculation.  As far as I know the Dutch bank did not "default" on their physical gold because they did not fail to deliver any gold that was requested.  What I thought they said was that going forward they will be out of the business of physical delivery.  Once again it seems a little strange but hardly conclusive.

My real question is while I agree that gold has a very long tradition of being money, what could be a game changer?  After all there was a time that horse power ruled the world, then came the internal combustion engine.  Is there anything that could move gold away from its traditional place as money and into more of a roll as just an asset?  My thinking is that computer technology might be that game changer.  What I hope is that we don't just get technology that is centrally planned and totalitarian in nature but that is a distinct possibility.

It seems to me that gold works best as money when trust is low in society.  Why give up work or goods for a money that is not trust worthy?  Because gold is desirable, portable, scarce, ... it makes an ideal money in a low trust environment because I am not just getting a potentially worthless IOU, I am getting a valuable commodity as a placeholder for value.  Gold is like money with an embeded put option ( basically insurance against it going to zero ).  However in a higher trust environment, I can see how gold would be less necessary.  This is why local currencies seem to work well on a small scale but gold might be necessary for larger scale trade.  It certainly does not feel like we are moving towards a high trust environment but if we did come up with a more balanced, transparent, free market based money, I could see gold would be far less needed, and possibly not needed at all.

Jim, I know you are a big fan of bitcoin but I personally think something along the lines of Paul Grignon's Digital Coin would be far better.

pinecarr's picture
pinecarr
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Posts: 1587
Andrew Maguire's opinion of gold takedown

Andrew Maguire proposed this reason for the takedown of gold on a King World Newsblog Interview today, at: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/15_Maguire_-_LBMA_Default_Triggered_Gold_%26_Silver_Takedown.html . 

Quote:
 Gold and silver only have this type of selling when there are extreme shortages of the physical metal.  I am totally aware that before this takedown occurred there was an imminent LBMA default.

...We had already seen COMEX inventories plunging.  In 90 days COMEX inventories saw an incredible decline.  So immediately available physical gold was disappearing.  People around the world don’t understand what has been happening since Cyprus....Entities went to the LBMA and said, ‘We don’t trust anybody anymore.  We want our physical metal.’  They were told they would be cash settled instead by a bullion bank.  The Western governments have been trying to plug holes, and the reason for it has to do with the default that was taking place at the LBMA.

This is why this smash has been orchestrated because of the run that has been taking place on physical metal.  So Western governments had to do this because of an imminent run on the unallocated LBMA system.  The LBMA bullion banks had become so mismatched at one point on their trading positions vs real world demand that they had to orchestrate this smash. ”

Jim H's picture
Jim H
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Goes...I have always liked Grignon

since his original "money as debt" series...  I watched the video and will have to digest a bit.  Perpetual coin does not seem much different than the role Gold plays in a Gold std. system... though it's not clear to me what the creation mechanism behind perpectual coin is.  I will have to investigate more.. thanks.  

AinSophAur's picture
AinSophAur
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Posts: 18
Don't panic.

Don't panic. Just act as the bankers and buy NOW!
 

davefairtex's picture
davefairtex
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Posts: 1275
deflation, conspiracies, and gold's recent crash

I'm going to attempt to explain what happened.  Since I wasn't "at the meeting" I have to use a certain amount of guesswork, and combine it with market experience, observations, and logic to arrive at a hopefully satisfactory endpoint.

Three things are clear to me from observation:

a) deflation - the monetary kind - is happening in europe

b) deflation tends to drag down commodity prices overall

c) some really big, repeated, market-influencing actions were taken by one or more big players that ended up triggering a waterfall move down in PM.

First A - deflation in europe.  Banks in the eurozone are clearly reducing outstanding loans. This has been happening for 6 months, and results in a shrinkage of money & credit, which I call monetary deflation.

Second B - deflation - and also the expectation of deflation - tends to drag down commodity prices.  This is just what I've noticed happening.  Every time credit contracts, commodity complex prices in general drop.  Furthermore, the extensive use of leverage in the futures markets provides the explosive fuel for cascading large moves in either direction delivered via margin calls.

Third C - big, deliberate actions resulted in the waterfall move.  Its clear from both my observation and Chris's charts that some participant intentionally triggered this move.  No participant sells so repeatedly, and in such a manner without intending to influence market direction.  That said, no explicit conspiracy (i.e. timetables, plots hatched at the Fed, etc) need exist for this to occur.  All that is required is regulatory acquiescence to the operation.  Simple profit motive from successfully influencing the market at a sensitive juncture is motive enough.

Commodity weakness + government turning a blind eye + big players seeking profit = big short side move down.  Or it could all be a big plot.  Either could be true, but the overarching sneaky plot is not required.

Some things are also clear to me.  An all-powerful manipulative power is neither required for this to occur, nor is such a power likely to exist.  If such a power existed, there would have been no bull market in PM, since the power would simply intervene to set whatever price it wanted, whenever it wanted to.  That hasn't happened, therefore such a power is unlikely to exist.

My alternative explanation: some big players took advantage of inherent market weakness and pounded the market at a sensitive juncture, with the acquiescence of the regulators.  However, this cannot happen at any moment, only at certain times - such as times of deflation, when commodities are already being sold by the market at large and the number of buyers tends to dry up.  Likewise, planted news stories were apparently needed to "soften things up" along with bank announcements in order to make the market more amenable to the attack.  An all-powerful instrumentality would not need such silly tools, it would simply exercise its power and prices would move accordingly.

So why do we care?  What's the point of all this theorizing?

The point is to clearly understand on a more scientific basis what moves markets, so we can be emotionally & mentally prepared for things such as this when they occur.  Likewise, the more we understand and observe, the better we are able to predict times of possible danger.

Since gold is a commodity, and since commodities seem vulnerable to downward moves during deflationary pressures, it seems clear to me that monetary deflation opened the door for this assault.  Therefore, it would seem prudent for us to educate ourselves as to what monetary deflation is, how to detect when it is occuring, honestly report on it, and acknowledge that such deflation makes the market vulnerable to exactly this sort of big player action.

Additionally, it is probably intellectually imprudent to blame all downside moves in PM on an all-powerful instrumentality.  That sort of thinking invites us to throw up our hands in helpless rage and despair at our powerlessness rather than spending our energy on looking for causes that might allow us to spot the next one coming.

As an example to further drive this home, there are two possible approaches towards explaining and/or addressing a recent hypothetical earthquake:

a) "The All Powerful Rooster God Causes Earthquakes!  We must stop doing things that anger him!"  CHS calls this a Cargo Cult Mentality, which is not so useful in connecting cause with effect.

b) "I wonder if those tectonic plates moving might have anything to do with the quake we just had."  This of course is the more scientific approach, it allows us to - with enough investigative effort - delineate the shape and also limitations of the potential threat allowing us to prepare more effectively, and is clearly the approach I favor.

anexaminedlife's picture
anexaminedlife
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Thank you Davefaritex!

Seems too many fall into camp a), i.e., the religious camp and that's what I think we are seeing plastered all over this site. I, for one, regret to admit that I have been somewhat of a skeptical member of the congregation, but a member nonetheless. 

cmartenson's picture
cmartenson
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Then you seem to have entirely missed the point...

anexaminedlife wrote:

Seems too many fall into camp a), i.e., the religious camp and that's what I think we are seeing plastered all over this site. I, for one, regret to admit that I have been somewhat of a skeptical member of the congregation, but a member nonetheless. 

This being your third comment directed at this place being some sort of a cult or religious site indicates that you have missed the central point of the place almost entirely, which is to trust yourself.

However, it seems that your gut is telling you that you are too easily led astray, at least by this site,  and since it keeps surfacing for you, I have to ask why you don't just trust that instinct of yours and assume responsibility for your own life?

Yes, there is a point of view here, rather unabashedly too.  If you choose to consciously incorporate the thinking behind that view into your framework, excellent, but if not, then that's fine too.  What's not fine with me, however, is passive-aggressively attacking this site and its members as being somehow intellectually infirm because we all might share your tendency to slip unthinkingly into 'congregational mode.'

Besides being just a tad insulting, it offers nothing concrete to react to, nothing intellectual to refine or debate, and therefore is unhelpful.  It rather reminds me of a member that stormed off in a huff a while back be honest.

Our core philosophy here is to Trust Yourself.  If you want someone to follow and then blame when things don't turn out perfectly, this will continue to be a frustrating place.

I do promote gold heavily because I cannot find a rational, rigorous end-game to all this monetary printing besides an outcome that either shreds the financial system (deflation) or ends in a very bad round of inflation.  In either of those outcomes, having sound money is an answer that works, and one of my missions is to help people preserve their purchasing power.

For those actually interested in this point of view, here it is:

  • Fossil fuels are finite, and the easy stuff is gone.
  • The Fed's policies are faaaaar more likely to end in tears than smiles.
  • Each Fed "fix" has created a larger crisis later on...this time is probably no different, which means the next crisis will exceed any prior crisis.
  • A wide range of countries, municipalities, and states are insolvent as their liabilities far exceed their assets.
  • Living with a lower footprint and in more resilient ways is rewarding, fun, and worthy of my time and energy.
  • Humans are living on this planet in an unsustainable fashion...sooner or later they will have to make a pretty serious set of adjustments.
  • People generally don't make any changes until they are forced to...creating positive action out of insight requires constant focus on what's really happening out there.
  • Our governments lie to us constantly in the form of manipulated statistics...they have for a very long time, and it's safest to conclude that practice will continue.
  • Most of the mainstream media gets most complex issues pretty much wrong or badly out of context, and so, yes, being a bit skeptical of promising or overly frightening claims is actually a rather important skill set to build.

I don't pretend to know exactly what is going to happen or when, only that risks can be tracked and the risks of more disruptions in the future are quite high.

If you would care to point out which of those bullet points strikes you as a religious "belief" then that would be welcome, but only if you use facts, cite examples, and are willing to support your views.

And, as long as we've come this far, and for the record, and far from being the central theme of this site, gold is #3 on our basic advice list, which reads like this.

  1. Get out of all debt that carries a high rate of interest.  A mortgage can make sense in this environment, but not credit card, student loan, or auto debt.
  2. Invest in your homestead and self.  These investments have magnificent, practically guaranteed returns.  Insulation, air sealing, and solar hot water are examples, as is improving your soil with amendments and growing your own food.
  3. Invest in physical gold. ...a minimum of 10% but perhaps as high as 20%, depending on your situation.  Along with this have 3 months of living expense in cash out of the bank, somewhere safe.
  4. Have money left over that needs to stay in the financial markets?  Great.  Please be sure to have it managed as safely and as carefully as possible.
Woodman's picture
Woodman
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Re Deflation and Conspiracies

Thanks Chris for an explanation of the gold slam.

My take is similar to Davefairtex;  while certainly big players take advantage of situations and have unfair advantages against us little guys it's just not useful for us to believe in an all-powerful market controller.

My last post was meant to ask, who are the central banks trying to fool if they are manipulating gold?  I'll most of the public doesn't pay attention, and the rest are too saavy to be fooled.

Jim H's picture
Jim H
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Posts: 1494
Davefairtex

You said,

Some things are also clear to me.  An all-powerful manipulative power is neither required for this to occur, nor is such a power likely to exist.  If such a power existed, there would have been no bull market in PM, since the power would simply intervene to set whatever price it wanted, whenever it wanted to.  That hasn't happened, therefore such a power is unlikely to exist.

This just seems naive to me....  The FED, the bankers (and bullion bankers) and the Gov't don't want precious metals to signal the sickness in their fiat money system.. hence they have every motivation, and certainly the "power" to manipulate the markets.  You have heard of them, right Dave???  The FED?  You know the saying, "Don't fight the FED"?  Do you know why people say that Dave? 

I consider the entire paragraph you wrote above as disinformation... propaganda Dave.  Certainly the power exists.  Certainly the CTFC has made if very clear that they will look the other way when obviously market moving positions are taken on by one or two entities.  You can write whatever you want.. but I will nail you on it when you try to twist things like above.     

The longterm bull market in PM's is the result of supply vs. demand.  Even in a paper market like the Comex, deliveries must be made, so what we have seen is a managed ascent.  The bullion bankers have used very trick in the book to try to contain this bull market, and the current tightness and problems show the extent to which they have run out of real Gold to play their games.. .even after stripping the GLD, even after leasing so much Gold from sovereigns, even after raiding allocated accounts... even after stealing the MF Global account holders Gold.. there still is not enough real Gold to keep their suppression games going.   

You also said,

Since gold is a commodity, and since commodities seem vulnerable to downward moves during deflationary pressures, it seems clear to me that monetary deflation opened the door for this assault.

Chris made it very clear in his essay that he does not view Gold as a commodity.  I don't either.  Certainly the money printers would like it to be so, and based on the strength of your arguments, you seem to be in the same camp.  So be it, but history says it's money.  So do the central banks who have been net buyers of Gold for the last few years.  Dave... if Gold is a commodity, and the smart folks at (generally non-Western) central banks know this.. .why would they be buying so much?  Why do central banks want a "commodity" when they know better than anyone else the true underlying economic weakness that is occuring?  I would really like you to answer this question Dave... or you can ignore it. 

http://www.alt-market.com/articles/1438-why-are-the-banksters-telling-us...

According to the World Gold Council, gold buying by global central banks in 2012 was at the highest level that we have seen since 1964...

Worldwide gold demand in 2012 was another record high of $236.4 billion in the World Gold Council’s latest report. This was up 6% in value terms in the fourth quarter to $66.2 billion, the highest fourth quarter on record. Global gold demand in the fourth quarter of 2012 was up 4% to 1,195.9 tonnes.

Central bank buying for 2012 rose by 17% over 2011 to some 534.6 tonnes. As far as central bank gold buying, this was the highest level since 1964. Central bank purchases stood at 145 tonnes in the fourth quarter. That is up 9% from the fourth quarter of 2011, and the eighth consecutive quarter in which central banks were net purchasers of gold.

This all comes on the heels of decades when global central banks were net sellers of gold.  Marcus Grubb, a Managing Director at the World Gold Council, says that we are witnessing a fundamental change in behavior by global central banks...

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anexaminedlife
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Actually not just this site

but the whole alternative financial/political media and commentators (i.e., not the mainstream types). I didn't mean to call out this site in particular; it just happens to be the one I am most active on because I tend to agree with the three E message.

I think my point though was not to attack PP but rather to observe that a lot of posters here and elsewhere are spinning the gold story like they know the truth and that truth is powerful manipulative forces. That is religion to me. 

I am sorry if this sounded like a passive-aggressive attack on this site; if you read my other posts, I believe I referred in general to the alternative media sites, of which I consider this one. I am not attacking the site per se, I am only attacking the seeming inability for many to consider possibilities other than the narratives confined to alternative financial sites.

I can go to the mainstream for their narrow analyses and I can go here for a different analysis. I am a bit disappointed only because I have always trusted this site for an honest and balanced dialogue and I don't feel as though I am seeing this now. 

All the best to this site and my apologies if I came off as attacking PP. I actually have a lot of respect for the message here.

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Jim H
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Examinedlife

Since you were very supportive of Davefairtex' interpretation of events (Deflation.. Gold as a commodity), let me then ask you as well, why are central banks around the world buying so much Gold if it is a non-monetary commodity?  How do you interpret this behavior on their part?  What is the truth?   

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cmartenson
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Davefairtex or Woodman

If you are implying that I have said that an "all powerful" force is controlling every tick of gold's price, please copy and paste the relevant text so that I can see where I am miscommunicating.

As far as I know, I have not said any such thing, nor even implied as much.

What I did say was that central banks have a set of policies they are actively promoting and all the evidence suggests that they either promote or 'allow' whatever works towards those policies.

A perfect case in point is the LIBOR scandal where it's pretty obvious that the Fed and US Treasury knew about the whole thing but did nothing because a lower LIBOR rate served their interest.  This was a massive conspiracy involving multiple large banks because to manipulate LIBOR you need the center four banks in the daily LIBOR range to all be in on it at a minimum. More likely, you need all the banks in on it because of how the rate is set.

What I tried to lay out was the set of dots that connect the bullion banks to market manipulating behaviors. That their motivation is making money is without a doubt.  That the CFTC and SEC and Fed, et al., will not investigate them for any overt market distorting practices is a belief I hold because, and only because, the usual direction of their market manipulation serves to drive down the price of PMs and create uncertainty and doubt over the safe haven status of PMs.

The corollary to this is that if they suddenly went the other direction, and began bull raiding the same markets, causing massive upwards volatility that suddenly the CFTC and SEC would be all over the situation in a skinny minute.

While I cannot prove these ideas with any scientific rigor, they are based on a lot of very direct observation and are pretty solidly locked in my mind as in the 90% probability range of being correct.

How does any of this help us?  Well, for starters I am a big believer in the idea that market distorting practices cannot win out against underlying fundamentals forever.  Whatever collusion and complicity underlies the market structure for PMs, and there's plenty of evidence to support the idea that there is lots of both, is merely building up pressure for the final blow off.

When that moment comes, it will be important to know why the blow off is particularly severe so that we can keep our bearings and know the what's the when's and the why's of exiting the PM trade and rotating into the next place that the wealth transfer cycle is aiming at.

I wish that I could just connect dots based on direct, observable data, but that luxury escapes us all.  There is much in our official statistics that is Fuzzy, distorted, and not really helpful except perhaps directionally.  Worse, there is much that is just outright fabrications and lies.

My personal position is that I trust myself as an experienced observer and dot connector.  I really do, and I don't know any other way to proceed in this world of smoke and mirrors.  For example, the Fukushima disaster was another moment where I took what little evidence existed, almost completely ignored the statements by Japanese officials, and went with the most likely scenarios that fit the information we had.

As it turned out, our assessment of the severity and damage made within the first few days of that accident were entirely confirmed, officially, more than a year after the fact.

For the article above, I am took my direct observations of the gold market and trading irregularities to make the case the the bullion banks pulled another fast one.  After reading more points of view, scouring the additional data, I stand completely by that view.  Of course, feel free to disagree, or not, either way trust yourself.

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Woodman
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clarification

I did not mean at all that Chris was implying an all-powerful force; I think he has presented a rational analysis that is in contrast to the less substantiated material one may read at other websites.

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LogansRun
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Gold is viewed as money, not a commodity...

by the Central Banks of the world.  What other "Commodity" have the Central Banks bought?  None that I know.  

If anyone has an answer to other commodities being bought by Central Banks, could you please bring it forth?  If you can't, the answer to the question "Is gold viewed as a commodity by the Central Banks?" has been answered.

And I agree Jim, I've watched a lot of disinformation being posted lately in order to get a specific agenda across.  Whether this is being done on purpose, or is just that persons stance, I have no idea.  

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Jim H
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More central bankers to buy one specific commodity

Asian central banker said that policy makers may take the opportunity to buy.  The decline in prices would give central banks an opportunity to buy, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said in an interview on Bloomberg Television today.  The Bank of Korea said that bullion’s drop isn’t a big concern as the bank’s holdings are part of a long-term strategy for foreign-exchange reserves according to Bloomberg.

http://silverdoctors.com/gold-gains-as-14-plunge-overdone-speculators-se...

Korea did not say commodity reserves.. .they said foreign-exchange reserves.  Right?  Did I read it wrong? 

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cnbbaldwin
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Rebalancing "Money" Portfolio

Whether anybody saw this sharp and deep a move coming in precious metals is now pretty much a moot point from a practical point of view.  Since the majority of us want and most likely require money (any good  that is widely used and accepted in transactions involving the transfer of goods and services from one person to another) in order to provide for our everyday existence with some degree of comfort, we all wrestle with the fundamental question:  "what is the proper balance of fiat money, currently the primary form of money used to conduct our transactions, and physical gold and/or silver that has been used in the past and may return to that role "sometime" in the future.  Hopefully, individuals had their "money" portfolio which I will just break into two buckets, a local paper fiat currency bucket and a commodity money bucket of gold and silver  (shells, rice, salt, etc have also been used in the past), balanced to meet what they perceived as their needs for money (to conduct day to day transactions) both short term and long term.  Without a crystal ball we can only guess what might be the proper balance of our "money" portfolio.  Many factors, not least of which, is our ability or inability to "earn" more money next week, next year or ten years from now, weigh heavily in that determination. 

If the preceding comments make sense to most, it may seem prudent to reevaluate one's need for money over whatever time horizon is deemed appropriate and rebalance, if necessary, one's "Money Portfolio".  This should be done carefully with the awareness that "waterfall" movements such as we have witnessed in the last few days, whether they be caused by nature or by "design", tend to prey on our very primal instinct to survive.  The associated fear that is generated may be more appropriate for surviving the attack of a carnivore than making an objective, unemotional, and thoughtful decision.  If you are contemplating rebalancing, give yourself a little time to get over the shock of what we have witnessed, and make a clear headed decision that you will feel comfortable with both today and a year from now.

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Arthur Robey
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Limbic activity.

I seem to detect a lot of Limbic activity in the posts. It would seem as though we are having a  little crisis with our models of how the world works. Let us not waste a good crisis. The salient points of Chris's hold firm. Exponential growth, money printing and we can see the bottom of the oil barrel. 

I for one think that all the money is smoke and mirrors. Logan's Yellow Brick Road  made a lot of sense to me. Who cares who gets to keep the gold if we The People get to control the printing press.

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Hrunner
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Davefairtex- Reality versus Religion

A)  Nobody with credibility on this site or others has referenced an "All-Powerful manipulative power".   As a Christian, I only believe one entity is all-powerful.

However, there is a rational possibility that there is a "very powerful" entity with legally-granted strong powers including to print money out of thin air (the Federal Reserve).

And it is very rational to me that such an entity would have access and influence on other powerful entities such as commercial banks with trillions of dollars of credit and reserves.

B)  If the Federal Reserve's stated main objectives are to preserve the U.S. economy- which by their publically-stated understanding means to keep unemployment low and inflation under control, means they must ultimately preserve the trust, both domestically and globally, in the U.S. Dollar.  That means the rest of the world must trust the U.S. Dollar, and by extension relatively distrust other 'money', most notably gold.  If the reverse happens, i.e. U.S. Dollars are withdrawn from "the system" into gold (or other commodities), this  means default and bankruptcy for the banks.  They (the Fed) are bankers first, thus their manipulation methods involve banks.  Thus the Fed openly acknowledges buying MBS and UST from banks, because they want other entities, both retail investors and institutions, to trust i.e. favor MBS and UST.  (One could reasonably question why the Fed doesn't just write checks to individual U.S. citizens if they what they want to do is stimulate 'aggregate demand' and reduce unemployment, but that's another discussion- who knows maybe that's the next Fed "First" to happen).  Ask the counter-question- why doesn't the Fed make a big show about buying gold?  Why isn't it because gold competes with the USD.

Davefairtex, your argument is not logical.  Can we at least agree to start from the assumption that dumping huge numbers of contracts into a futures market ensures that an institution will lose a lot a lot of money that it could have otherwise made if it had sold contracts just a bit more slowly and strategically?  Unless there is another actual motive (other than to maximize profit from contract sales), this is a nonsensical manuever.  The staff working at these entities are far from inexperienced or stupid.

So what is the motive?    First, what is the objective?  If we can reasonably agree the objective is not to maximize profit, then can we agree the objective is to lower the nominal price of gold (and silver et al)?  Ok, next question, why lower the price of gold?  What is your answer Dave?  Is it for fun, just to see if you can do it?  Given that this was the behavior that got the Hunt Brothers regulated out of existence (concentrating large positions in silver with the intent to artificially move the market price in their favor for profit-making), it seems very implausible.  There must be a strong reward for the entities involved.  So the next question- what is the reward?

Is it not reasonable that the contract-dumpers made lots of money by "betting" that price would be lower, and then guaranteeing that their bet would win by contract dumping (almost certainly unbacked "naked" contracts since the amount of gold and silver involved physically could not have suddenly "appeared" on planet earth over the weekend).  Is not making huge amounts of "sure-thing" money enough of a motive?  If you could bet on a racehorse and then, before the race, legally strap on a jet engine to the saddle of your chosen horse guaranteeing a victory, would you not place as much money as possible on said racehorse? 

The only problem with this strategy is that it is illegal (fraud) and against CFTC regulations.  So how and why would an entity as allegedly risk-averse as a commercial bank undertake it?  If you had assurances (/ encouragement) from the entities responsible for enforcing the above laws and regulations that you would not be prosecuted, would that not remove the issue?  Additionally, if some entity (the Fed) was willing to provide essentially free "seed money" for you to play with in the form of zero-interest loans, cash-for-trash payments for MBS's backed by the crap real estate loan instruments that the banks really don't want on their balance sheets, and UST's in the form of the tidy profit from the carry-trade of Treasury (buy low) to Primary Dealers (sell high, + transaction fees) to Fed, to carry out such highly profitable trades, why would you not do this (other than you had a moral compass and knew it was wrong- but the LIBOR and drug money laudering scandals seems to have indicated which direction the moral compass points with our friends at the commercial banks).

Davefairtex, you do understand that virtually all of what I (and Chris) just laid out are publically-known facts, except for the motivations and specific directives of the parties.  I agree with you in that we should try to remain skeptical about clinging to one theory or getting too deep into discussion about what is going on in someone's specific head (i.e. the Fed governors, and management at commercial banks) until more hard evidence (e.g. emails, testimony by witnesses, news reports from inside sources) is available.  We should look for and analyze counter-evidence.  We should assess whether counter-evidence is intentional disinformation (entities at war routinely use disinformation to gain an advantage) or is likely to be credible.

Rarely do we have complete datasets (I don't know about you, but I don't have access to all email servers or can tap the phone lines of the above entities, nor do I have inside sources).  However, I believe it is justifiable and proper to construct a belief system that is supported by the known facts and fits with my life experiences regarding human behavior.  FWIW, the folks at the Fed, and most economists do this on a a daily basis- its called "economic modeling".  You may call it religion or just sound judgement.  Whatever you call it, it doesn't change the reality of the situation nor should it change actions based on one's conclusions.

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earthwise
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Not the point

Actually Goes, my comment wasn't directed toward the gold issue as much as to JAG whose self-imposed exile is occasionally broken long enough to pop in to give us an eye poke regarding gold/deflation.

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RoseHip
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Posts: 85
Please help me understand?

How is the gold game influenced or will be influenced by held paper gold vs. held physical gold and how does this aspect correlate to the overall price and market fluctuations of gold? Is paper gold a control mechanism purposely built into this game for reasons of manipulation or at least it could be used this way?

Just like when the insiders in Cyprus saw what was coming and were able to get their money away from the banks. Won't the same story play out when the insiders holding paper gold see the divergence? What would one expect to see in the market if this where to happen?

Thanks,

Rose

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phecksel
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Posts: 148
I see this as a last ditch

I see this as a last ditch act of desperation to try and fix it before it all implodes.

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davefairtex
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Posts: 1275
gold, manipulation, et al

Chris -

Never said you were implying that the Fed (or other authority) controlled every tick of gold's price.  Didn't mean to imply it either.  In fact, I've never heard you say any such thing.  And your summary you put here fits pretty well within my world view also, so I'm certainly in agreement with you also.  I'm also in agreement that the bullion banks "pulled a fast one".  But then again, in most markets there are the moral equivalent of "bullion banks" and they are almost daily "pulling fast ones" both large and small.  So in some sense gold really isn't being singled out - most of the time.

Sometimes, I get the feeling gold IS singled out, for the political reasons you describe.  But most of the time I think it is just normal market activity - big boys playing games because the regulators look the other way, as they do in most every market.  Likely too the banks are constrained to play on the short side most of the time.  But there is this one event recently - 8:30 on 2013-04-05 - when gold jumped $22 bucks on 15k contracts on a one-minute bar that makes me wonder.  Is that "the Fed" running the short-side stops?  Why would they do this?  My gut says its the big banks gaming things on both sides.  "Too many people are leaning short, let's clean them out."

I do think there is a group-think both here, and in other places, that holds the Fed itself personally responsible whenever gold moves in a direction they don't expect - I suspect from ignorance of how downright cranky the market can be most of the time, and how adept it is at disappointing the largest possible number of participants.  Anyone who has had their stops run on the various other instruments knows what I'm talking about.  The market is a vicious place designed to manipulate people emotionally and siphon off as much money as possible.  That's just how it works, at least in my experience.  (If "the market" behaved in an easily understood way, we'd all be zillionaires sitting on a beach somewhere, and money would be as easy to make in the market as most imagine it should be.  Alas, its not.  Given your experience, I'm sure you know this.)

I also believe this same group generally holds The Fed solely responsible for the fact gold isn't rising steadily to $3000/ounce, like they expect it should.  Again - market acts to disappoint the largest number possible.  Not just the gold market does this - every market does this.  But that's my belief system, based on my experience.

Both my agreement with you, AND the previous set of beliefs can sit comfortably within my brain.

That's because I think sometimes there ARE monsters under the bed - just not every time the floor creaks.    I think there IS officially sanctioned manipulation that does occasionally occur, but mostly its about big banks playing games to make money - normal market stuff that happens in every other instrument out there.

Is it possible Goldman, Soc Gen, and a few others got together and said "Hmm, gold is close to support and we've got deflation eating away at the buyers - we could make billions if we broke support and ran it down to $1300...lets release some reports, get some stories going, and then hit it Friday."  You bet its possible.  It probably even happened.  On orders from FRBNY?  Possible, but not required.

Most importantly to the point we're on now, I think there are times when games/manipulations - by whomever - are much more easily accomplished, and there are times when its practically impossible.  Deflationary conditions are just such a time.  We deliberately blind ourselves if we ignore the effects of deflation of the price movements of gold, silver, oil, copper, palladium & platinum, and the other commodities.  I'm not claiming you blind yourself - I honestly don't know what you do.  You tell me.  But I do get the sense some people do, and that is the audience I'm addressing.

Which brings me to

Jim, Hrunner -

Yes, gold is a commodity.  Its also "my precious" for a large number of people too.  It can be both at the same time.  The market is comprised of a large number of participants, many of whom aren't buying gold to hide it under the mattress, and who use that 20:1 leverage to lethal effect.  With $6000 down I can affect the gold market just as strongly as you can plunking down $139,260 for your 100 ounces of My Precious.  Many see gold as a commodity, and they trade it that way.  As a result, it behaves that way.  Other participants are central banks like Russia and Turkey that buy and hold.  A third group - well you get the idea.  The market behaves in a way that reflects the combined belief systems of all of its participants.

I am not looking at this from a faith-based perspective.  I've watched intraday price movements for years.  Gold price often moves like a commodity.  Sometimes it doesn't, but often it does.  So - I lump it in there with the other commodities.  Silver behaves like gold, but is more sensitive to economic situations.  It races ahead of gold in a bull market, and tanks faster than gold in a bear market.  That's not some theory - thats how the prices move.  Don't ask me why this is - its just how it works.

I'm really less concerned with labels and ideas of "how stuff should work with gold" and the various stories people have about it, and more about what actually occurs out there.  That's because money is made and lost based on how prices actually move, not how we think they should behave.

In Nick Taleb land, that would be the difference between Fat Tony and Dr. John.

And yes, there are all sorts of games played with gold.  But unfortunately, if you look at enough markets, you'll see this in almost every one of them.  I do think there are special games played occasionally with gold at opportunistic moments, but usually its just the big banks looking to make money.  My opinion.

Last point.  Sometimes, its mathematically reasonable to run stops, if the amount of selling you have to do to break support is exceeded by the number stops that will be triggered by the break of support.

Let's say gold is sitting at 1525.  There are 1000 bids at 1525, and 10,000 stop orders at 1520.  So, Big Guy knowing this, sells 2,000 contracts, which easily blows through the 1000 bids at 1525, and triggers the 10,000 orders to sell at 1520.  Suddenly, those triggered stops are "doing his work for him", and he starts buying back the 2000 contracts he sold at 1525 - now at a price much lower than 1520, since those 10,000 sell orders have likely dropped the price another $10.  Big Guy covers at $1500, collects 2000 x $25 x $1000 and walks away with a big fat bonus check, his day's work done.

Conditions don't arise for this all the time, but the Big Guys have Big Computers that pretty much know where stuff is because they've spent billions figuring it out.  Once their computers tell them the time is ripe, they pull the trigger, and off things go to the races.

Breaking 1525 support most likely ran a huge number of stops.  Was it profitable?  I have no idea.  But it could have been.  Certainly once they got gold down $200, it most likely was profitable, because of all the forced selling from margin calls.  But that's just my guess.

Now, for those who have slogged through this far, I'll tie it all together.  My claim is that "monetary deflation" reduces the number of bids out there, so that the existing stops can be run with less risk and a higher degree of profit for the big players.  It takes buyers out of the marketplace, leaving things more vulnerable to those big downside moves.

And perhaps, without monetary deflation, this latest assault might not have even been tried, because there would have been too many bidders willing to buy at 1525.

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RaviNathan
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Posts: 31
Religious beliefs and Gold

A scientific mind constantly looks for evidence to disprove its hypothesis.  The absence of such self criticism leads to cult like herd behavior.  Here are some of the ways that the editorializing on this site fall short of the ideal and yes, I do take responsibility for my decisions. 

1.  Gold is Money.  This needs to be thoroughly questioned and is often assumed here to be an axiom, a self evident truth.  Money is first an agreement between people.  There is no guarantee that presently or in the future that gold will be commonly accepted as money.  

2.  Gold is the ideal store of value.  If the drop of the last two days wasn't evidence against this, I don't know what is.  It is high time that this belief is thoroughly examined. 

3.  Gold is manipulated.  Yes, as Chris M says, if the equivalent volume of grain had been sold short, it would have led to similar consequences.  Yet, the analogy does not go far enough.  The difference is that consumption demand for grain and its supply would lead to grain prices recovering their true value quite quickly and the shorts would need to scramble to square their positions.  This is unfortunately not the case for gold which could remain in the lower trading range for a long time since it is not consumed in its use.  Also, if gold is so manipulated, then it contradicts the belief in 1 and 2.  How can gold then be good money and a trust worthy store of value ifs price can be so thoroughly manipulated?  

4.  Limiting conversation to believers.  This site is at a big risk of confirmation bias, inviting and speaking only to other true believers.  I would recommend that at least one conversation a month be devoted to economists and other researchers like Krugman who hold contrary opinions on gold and the thesis of the three E's.  Please look actively for evidence that disproves your thesis.  Has anyone else noticed how often Mish Shedlock resorts to ad hominem attacks calling people stupid or dumb?  That is often a sign that the arguments are weak and I experience them as a big turn off.

In full disclosure, I have allowed my enrollment to lapse, because this site has stopped putting careful emphasis on disconnecting the dots that it has so carefully connected.  It can be painful, but questioning our thesis when evidence arises to the contrary is a sign of integrity and intellectual courage which needs to be sustained throughout. I would like to see more evidence of this type of inquiry and will gladly rejoin then. 

Jim H's picture
Jim H
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Posts: 1494
Ravi

You make a plea for more open dialogue, yet you lay out no arguments yourself.  The only argument I actually see you making is to use the most recent Gold smash to argue that Gold is not a good store of value, which is precisely what I think the intended propaganda vaue of the smash has been.. so this gets kind of circular, doesn't it?  Anyway, regardless of this very short term event, going back to the formation of the FED in 1913.. taking the really long term view, which has been a better store of wealth, dollars, or Gold?  One of these two has lost about 95% of it's buying power... which one?

On the confirmation bias question.. I think that is kind of absurd to make that claim when you are talking about views that are held by a tiny minority of the population.  How many people actually own Gold and Silver?  How many people know what (debt-based) fiat money even is?  How many people understand the implications of peak (cheap) oil?  We all know the counterarguments.  I read Krugman's piece in the Times over the weekend, making fun of Gold.  This idea that Chris, or any of us, somehow need to be more open to what I consider the propaganda coming from the Kenyesian majority is silly. 

I for one am here to seek the truth.  I have studied this for 12 years, and have chosen to accept certain tenants as settled truth so that I can move on to the issues that are in fact undetermined, such as what form our collapse will take.  You are welcome to go back several steps and decide whether you think more debt will help solve a debt crisis (Krugman approach), but please, don't come here and suggest that I, or anyone else here is being intellectually dishonest by not stepping back along with you.   

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goes211
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Posts: 1110
Seeking or have already found?

Jim H wrote:

I for one am here to seek the truth.  I have studied this for 12 years, and have chosen to accept certain tenants as settled truth so that I can move on to the issues that are in fact undetermined, such as what form our collapse will take.  You are welcome to go back several steps and decide whether you think more debt will help solve a debt crisis (Krugman approach), but please, don't come here and suggest that I, or anyone else here is being intellectually dishonest by not stepping back along with you.   

Jim,

I hate to say it but at least to me on this thread, it feels less like you are seeking the truth, and more like you have already found it.   If you don't find it informative to consider opposing points of view, I guess there is always the ignore button.  I personally find I learn more from those that I disagree with than those that I don't.  

I guess I agree with Ravi in that I fear this site is becoming less interested in opposing viewpoints and this risks this sites value and legacy.

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Larry Edelson on Gold: I’ll

Larry Edelson on Gold:

I’ll get right to the point …

First, gold’s historic collapse — losing as much as $233 in just the last four trading days, a whopping 14.7 percent … and $565, or 29.44 percent since its high in 2011 — is NOT over.

Second, expect a bounce to soon occur, but don’t buy into it. If you do, you will likely lose a bundle of money as gold heads even lower.

The same advice applies to silver, to copper, to platinum, to palladium, to crude oil and more. Their interim-bear markets are not over, not by a long shot. Ditto for natural resource stocks.

For now, I’ll confine this update largely to gold. I want you to have the important system support levels for gold from my trading models. That way, you will have a road map.

I’ll cover these technical levels first, then I’ll briefly review the fundamental forces driving gold lower.

Gold’s major support levels now lay at …

— $1,380. Gold is currently below that level.
— 1298.70
— 1244.90
— 1160.90
— 1028.40
— 993.90

Each of the above levels should temporarily hold once they are hit. But the operative word is “temporarily.” Based on my system models, gold will likely not bottom until it hits major long-term support at $1,028.

As for overhead resistance, there is plenty. For any bounce that soon comes into play, expect resistance to form at the $1,380 … $1,412 … and $1,458 levels.

As for the fundamentals driving gold (and other commodities) lower, they are the same forces I’ve been telling you about for many months now …

First, central bank money-printing has lost its impact on the markets. Why? Very simply put, there’s too much bad debt floating around the globe and there’s simply no way central bank money-printing can offset it.

Second, austerity measures in Europe and the United States are also overpowering the inflationary impact of money-printing.

Third, and most importantly in my view, the Cyprus confiscation of uninsured depositor money has completely turned the world upside down. Money is no longer safe in a bank in Europe.

That, in turn, is causing hundreds of billions of dollars to essentially go into hiding. But not in gold, which is subject to confiscation, real or imagined.

Instead, capital is largely going into cash, which is also bullish for the U.S. dollar, since it’s still the world’s reserve currency.

Fourth, Japan’s new aggressive policy to devalue its currency is also not bullish for gold. Japanese investors are plowing their money instead into their own stock market, and my sources tell me loads of Japanese capital is also fleeing to our stock market.

In fact, much of the selling in gold originated in Japan. It was just a week ago that gold hit a record new high in yen terms, due to the depreciating Japanese currency.

But instead of lining up to buy gold, Japanese investors queued up at gold dealers around the country dumping every ounce of gold they could get their hands on, even melting down jewelry.

Why? Japanese investors don’t trust their own government, and if push comes to shove with North Korea, Japanese investors want their money liquid and mobile. That means cash, not gold.

In essence, we are seeing what I call “Money on the Run” and its momentum is picking up, in Europe and in Japan. Panicked capital is going into hiding, but in cash and equities in the U.S. and Japan, not in gold.

Later, when everyone realizes that Washington has many of the same problems that Europe and Japan has, all of the above fundamental forces will flip back to the bullish side for gold.

But that time is not here yet.

In my special Money and Markets issue of April 3, and in earlier columns, I suggested hedging any metals or mining shares you owned via purchases of the inverse ETFs, the ProShares UltraShort Gold ETF (GLL) and the Direxion Daily Gold Miners Bear 3x Shares (DUST).

I also recommended the ProShares UltraShort Silver ETF (ZSL) for a play on silver’s downside.

If you acted on any of those suggestions, you’re sitting pretty. Hold those positions and stay tuned for further updates.

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I thought this was interesting. . .

I have to admit that some parts of this explanation I don't understand.  Anyone capable of clarifying?

http://www.alhambrapartners.com/2013/04/15/we-have-seen-gold-prices-act-like-this-before/

Rector

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Goes

You really confirm my belief that very, very few people will ever wake up from the martix-like environment we live in.. the draw is just so strong.. and I understand this.. it would be so nice if everything really could just work out.. and the dollar could continue on as it has been.. and we don't have to worry about this stupid Gold stuff.  Look how it goes down!  All those Gold shills were wrong!  Come on.. let's step back and reassess whether all this doom stuff is wrong..  maybe the dollar will actually increase in buying power and we will be able to buy up property on the coast of Spain cheap!  

     

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Each of Us Must Decide

Like many of you I have been listening to and reading about the markets extensively in the last 24 hours.  I am glad I don't have the responsibility of telling everyone "what happened, and what to do".  There are a few things that I know at this point:

1.  Only a damn few people KNOW exactly what is going on.  Fewer still can "prove it".  Lots of voices are wrong.  Which ones?

2.  Multiple complex dynamics are influencing the movement of all markets: manipulation, profiteering, HFT dynanmics, criminality, and good old fashioned supply and demand.  Hard to anticipate.

3.  It will boil down to a simple decision for me: buy / hold PM's, or not.

I'm not particularly interested in a consensus here.  I cannot get anyone's assurance that my decision is 100% correct.  It's called a "crisis" and a "collapse" for a reason.  The system is breaking down.  The rules don't apply anymore.  I am going to do what I can and that's going to be good enough.

My plan.  Wait a week.  Hold what I have.  Reevaluate.  I will make one prediction - we will know who was right soon enough.

Rector

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goes211
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Are you really that certain?

I am well aware of the matrix and I too believe that this ship is going down and there ain't anything we can do to save it.  What I question is your certainty of how this is going to happen.  

I remember a few years ago when silver went parabollic, you were in there heavy and if I remember correctly, claimed to have lost 6 figures when if got smacked down (if that is incorrect, I appologize in advance).  I don't know your situation, net worth, ... but unless you were far better off than the average personal on this site (myself inclusive), you would have had to have had a very large (probably unhealthy) percentage of your net worth (or leverage) in silver.  I assume the majority of this position was accumulated at a much lower price and did not buy at the high and therefore only lost paper profits.  This reminded me of all the paper millionaires that did not cash out of pets.com in time during the internet bubble.

It has now been over 2 years and silver is < 1/2 of its peak price.  You can either believe that the only explaination to this is that the big players are surpressing its value or you can step back and have a moment of introspection to see if there are any other possibilities.

Believe it or not I don't see the end game much different than you do.  Someday in the not so distant future, most people are going to wish that they owned some (or more) gold and silver.  And by all means if you already own gold and silver, especially if you accumulated it many years ago, I would not consider selling it.  I personally don't consider gold and silver to be money but I do consider them to be assets that have embeded puts on the stupidity of central planners.  Basically I don't much care about their price, and generally perfer it to be lower than higher.  Why?  Because I have no intention of selling (what little I have) and hope to use any extended period of low prices to acquire more.  Moves like the past week have not changed the fundamentals, that is if PM's have fundamentals, so why be concerned?  If it is being surpressed that just means that when the surpression finally fails, there will be even more upside.

Basically I have no idea what is coming but I am pretty sure that if the game is rigged (as I assume it is), I am not going to be able to out guess TPTB.   Whatever happens, it will not be a straight line, so expect to get slapped around as this economic system gyrates back and forth.

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fwiw

I sold my remaining (paper) gold holdings during Friday and Monday.  I didn't have much.  I have tended to the "deflation" view over the last few years, and have focused on investing in myself/home and getting out of debt.  My savings have mainly been in cash and short-term Treasuries for a couple of years (doing nothing much) while I learned how to garden and focused on building my business.  So my gold was a sort of half hearted hedge on inflation.  Not that I have a deep theory of it, I've just tried to spread my assets across the inflation and deflation scenarios while trying to focus on practical things I can control. 

It seems to me that the financial markets are a) pretty broken and illogical and therefore do not align with anyone's logical theories as to how they should behave and b) can still be moved and manipulated by big players who want to shake their money makers.  I don't think there needs to be a conspiracy theory to explain the latter - just powerful players doing what powerful players do.  Since I'm not a powerful player, and I don't have the patience or brains to try to figure the markets out, it seems to me to be safest to sit it out right now.  Longer-term, I think it will be very important to hold only "real things" but am increasingly of the view that "real things" should be income-oriented (productive real estate, skills, food production infrastructure, viable local business, etc) rather than worrying too much about stores of value.  I'm pretty sure I'll be able to get more done with a dozen laying hens that a couple of gold bars.  Don't mean to be flip, but I just can't see myself feeling comfortable with a stash of physical gold if things get rough. So, we'll see.

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What I am certain of....

I am certain that Davefairtex is correct in this paragraph from his second comment above;

I do think there is a group-think both here, and in other places, that holds the Fed itself personally responsible whenever gold moves in a direction they don't expect - I suspect from ignorance of how downright cranky the market can be most of the time, and how adept it is at disappointing the largest possible number of participants.  Anyone who has had their stops run on the various other instruments knows what I'm talking about.  The market is a vicious place designed to manipulate people emotionally and siphon off as much money as possible.  That's just how it works, at least in my experience.  (If "the market" behaved in an easily understood way, we'd all be zillionaires sitting on a beach somewhere, and money would be as easy to make in the market as most imagine it should be.  Alas, its not.

And all of us holding dollars, or dollar-denominated pensions, or dollar denominated bonds will, in the end, be the largest (possible) number of participants to ever be fleeced at once in any market in history.... remember.. not one man in a million. 

http://coyoteprime-runningcauseicantfly.blogspot.ca/2011/08/john-maynard...

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
- John Maynard Keynes
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LogansRun
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Again I ask?

being bought by the Central Banks?  If not, then we should all understand that, Gold is money.  Central Banks only deal in debt (money) and Gold (money).....correct?  And don't give me the argument that the horrid assets that they've bought are something other than debt (bad money)....doesn't fly.

Again I ask:  Is there another commodity that the Central Banks are known to have bought?

LogansRun wrote:

by the Central Banks of the world.  What other "Commodity" have the Central Banks bought?  None that I know.  

If anyone has an answer to other commodities being bought by Central Banks, could you please bring it forth?  If you can't, the answer to the question "Is gold viewed as a commodity by the Central Banks?" has been answered.

And I agree Jim, I've watched a lot of disinformation being posted lately in order to get a specific agenda across.  Whether this is being done on purpose, or is just that persons stance, I have no idea.  

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Floor Wax or Dessert Topping ?

LogansRun wrote:

Again I ask:  Is there another commodity that the Central Banks are known to have bought?

LogansRun,

I hate having to answer this. They buy all kinds of crap from the banks. They're recently into buying bad mortgages. Does that turn bad mortgages into money? (Hell NO!)

Gold has always been money. Gold has always been a metal. Metals are commodities. Gold is a commodity and the best money. Which is it? It all depends on your view. The price is variable, but the value is not. Economic theory suggests the highest and best use will triumph.

Grover

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I ponder this quote

After all I've read on this thread I ponder this quote:

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease ... But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.

- J.M. Keynes

Peace!

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LogansRun
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Grover, thanks for trying to answer but..

it didn't really answer anything.  

Sorry.  You just created a circle jerk, that gets no one off IMO.

Grover wrote:

LogansRun wrote:

Again I ask:  Is there another commodity that the Central Banks are known to have bought?

LogansRun,

I hate having to answer this. They buy all kinds of crap from the banks. They're recently into buying bad mortgages. Does that turn bad mortgages into money? (Hell NO!)

Gold has always been money. Gold has always been a metal. Metals are commodities. Gold is a commodity and the best money. Which is it? It all depends on your view. The price is variable, but the value is not. Economic theory suggests the highest and best use will triumph.

Grover

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QE4

LogansRun,

Are you suggesting that the US Central Bank ... who is deeply "involved" in QE 4-ever isn't buying MBS (possibly distressed) to support its member banks?

Just because they buy anything, it doesn't make it money. It is money because it is money first and foremost. They function to serve their owners. Their member banks need them to buy defunct mortgages to hide the fact that the member banks are insolvent.

(By the way, they also buy gold.)

Grover

PS Again, Damnit. Don't make me defend those bastards!

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Interesting commentary by Ted Butler

http://www.silverseek.com/commentary/price-smash-%E2%80%93-who-what-how-...

excerpt

For me, explaining what took place is easy, since the price plunge occurred in the confines of how I analyze gold and silver. First, what exactly did happen? Basically, a neutron price bomb was detonated in certain NYMEX/COMEX markets that selectively targeted gold, silver, copper, platinum, palladium and crude oil prices. On just about every other market, like stocks, bonds, currencies, grains, meats, soft commodities yesterday was non-eventful pricewise. The importance of this distinction that only selected markets experienced unusual price weakness is that it eliminates many general knee-jerk explanations about prices being impacted by broad macroeconomic factors. How could broad economic factors influence certain commodities and not the stock or currency markets? Looking deeper, the commodities experiencing price weakness all have different supply/demand fundamentals relative to one another, so as to eliminate the possibility that all those unique fundamentals changed yesterday in synch. Commodity fundamentals change glacially; it’s impossible for the supply/demand equation of many various commodities to change overnight.

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The bigger picture

I think that to undersand the global movement of markets, you've got to go up to 10,000 feet and get into subjects that are extremely controversial (which is why I have stayed way from these discussions, except to urge people to get out of the system to the extent possible). At this point I don't care to spend more time understanding the aglo-american empire and it's historical origins or what it's up to today and what forces are fighting and arrayed against it. Absolute power corrupts absolutely.  The boys at the big banks gaming the system are just the tip of the iceberg, I think that  it is safe to say whatever needs to be done will be done to protect the power and wealth of a fairly small group of people.  I am not conspiratorial, but I think at that rarified level, it is a smaller world than we think.  With the rise of the nation state, the corporate power structure and concentrated energy sources, there is sort of a balance of terror between a relatively small number of forces that has evolved organically over time.

What has been done, is being done, and will be done would raise the hairs on the backs of all our necks I am sure.  Nation states that have tried to get out of the dollar system have been bombed into the stone age, all in an effort to keep the dollar system afloat (although very different reasons have been given to those activities).  That has more to do with the strenght of the dollar and the price of gold than we would all like to admit.  IMHO, when you are gambling on the price of gold, you are gambling on the lives of millions of hapless people accross the globe, becuase gold has become a financial weapon in an epic global battle at the end of an age.

I know that precious metals have taken on the banner of righteous indignation for those who feel cheated by a system that has become perverted and out of control.  I would lke to humbly suggest that those true and good emotions be kept safe from the projection on any single idea or thing, but be made flexible in the way they express themselves in this rapidly evolving and changing world.  As an aside (Two things can be true about something at the same time, light is both a particle and a wave, it's behavior is dependent on our observation of it.  I would like to suggest that gold behaves in the same fashion, both as money and as a commodity, depending on relative circumstances.)

Perhaps PM's has a role to play, and maybe purchasing it will expose the fraud and bring the corruption to an end by exposing the paper counter fitters, but in that sense it is more of a political act than an economic one.  If that is the case, than we should be willing to ride the waves that come with such activity.  There is certainly also a economc gold ownership argument based on the logic regarding money (currency) printing and the value of true money (or asset). True money should hold the value of our rightfully earned wealth, but in a system so devoid the rule of law, what assurance do we have that economic or physical controls will not continue to be put into play to constrain the expression of its true nature indefinately? Especially, as so many have pointed out, if it's ture value is such a threat to the "system" (as long as the system is around).  Doesn't that drive round to a plolitical act again?

I wish those well who want to own PM,s but there is a lot more to this story than technical charts and bottom supports, its a lot to think about (as I have said before, I may in the end purchase some).  Sorry for perhaps a little more gas on the fire of an already heated discussion, a little more detail than perhaps I should have given about how I feel about gold.

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"they buy all kinds of crap"

Grover -

I hate having to answer this. They buy all kinds of crap from the banks. They're recently into buying bad mortgages. Does that turn bad mortgages into money? (Hell NO!)

I'm curious what you mean when you say "all kinds of crap" and "bad mortgages" - take a look at the current Fed balance sheet.  Can you point to the item(s) that you feel are "crap"?  All I can see under the heading of MBS are fannie/freddie guaranteed mortgages.  Fannie/Freddie (us) are on the hook for any losses, so I don't see the downside for the Fed there.

http://www.federalreserve.gov/releases/h41/current/h41.htm

Go to section 8, that's where they talk about their assets.

Perhaps you are referring to the Maiden Lane portfolio which really was crap they picked up in 2008/2009 from Bear and AIG.  It used to be much larger, but they've sold most of it off.  Took losses too, from what I recall.  But its down to 1.4 billion.  Chump change in a 3.2 trillion dollar balance sheet.

The Fed is doing crazy things.  But we need to differentiate between fact and story.

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I stand corrected

davefairtex wrote:

The Fed is doing crazy things.  But we need to differentiate between fact and story.

Dave,

You are absolutely correct! I was thinking of TARP, TALF, and all the other 4 letter acronyms instituted during the 2008 meltdown when I said "all kinds of crap." I was also making a logical leap - if they loan money based on collateral, they are buying the collateral if the loan defaults. Looking at this report, TALF and Maiden are all that remains. The amount is smaller than I would have expected.

On the mortgage quality, is there any way to find out the amounts in different quality categories? Just because a mortgage is guaranteed, it doesn't necessarily rate in the highest category - simply that another entity is on the hook when a default occurs.

Finally, they list gold as an asset. Why would they consider gold to be an asset? (This isn't a flippant question.) Is there any way to know how much they really have in their vaults and how much is lent out?

Grover

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digging into the Fed's assets

Grover -

The only reason I know this is because I thought the same thing you did - but then I wanted to get a handle on just how bad the problem was.  I too was surprised to find out it was mostly high quality stuff, and that TAF/TALF/ML1-3 were mostly all gone.

Here's a more detailed breakdown of what's on the sheet as of Q4 2012.  Its a pretty interesting deeper dive into what the Fed owns.

http://www.federalreserve.gov/monetarypolicy/quarterly-report-20120930.htm

How much does the Fed cost to run?  3.1 billion per year

How much net income? $86.6 billion/year - $81.6 billion refunded to Treasury

They've made money on most of their MBS purchases, based on their valuation assessments and the current low mortgage rates.  However were rates to rise, I think those MBS will stick around on the sheet for a very long time, especially the low coupon stuff.  I mean, 3.5-4%?

You can see in the ML breakdown just how crappy it all really was.  I recall going back and looking at old versions of this report (2010, 2011) and seeing billions in losses per quarter from ML - all swamped by interest income from Treasury and MBS holdings.  I mean, we paid for all those ML losses via less interest refunded to the Treasury, but if you look just at the Fed in isolation, the losses were within the range of risk that could be absorbed by all that interest income.

Its a really awesome business - this printing of money, buying debt instruments with the printed money, and then living off the interest.  The more you buy, the bigger your income!  Avg per-person salary burden at the fed: $149k (2.8 billion in salaries + benefits divided by 19k employees).

As to why they own gold...the place has been in business for 100 years.  A theory: the original owners loved the stuff, and New Guy doesn't dare sell it just in case it comes back into fashion.  He doesn't want to be "that guy" who the history books label as "the idiot who sold gold at exactly the wrong time."  Well, its one theory anyway.

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Paul Craig Roberts

This is stage one, 

What happens when this fails, what does stage two look like, god only knows.  I have a feeling it will not be pretty.

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KugsCheese
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FED and Gold

I wonder how times the FED can backstop the slam down.   Using the futures market is easy for the FED to conseal, no?  As long as this behavior is blessed by the powers that be gold could become a punching bag.

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davefairtex wrote: Grover

davefairtex wrote:

Grover -

The only reason I know this is because I thought the same thing you did - but then I wanted to get a handle on just how bad the problem was.  I too was surprised to find out it was mostly high quality stuff, and that TAF/TALF/ML1-3 were mostly all gone.

What I am keen to figure out, is what is in the Fed's "Other Assets" bucket on their balance sheet.  It totals $233 billion at present, nearly a quarter of a trillion dollars, and we know nothing about it besides it's a bucket labelled "other."

A simple audit would reveal much I think.

If this bucket consists of a lot of junk, which is possible, then the next question is from whom was this junk bought.  Again, I suspect the answer would be quite interesting.

I know we toss around big numbers all the time, like trillions, but to me $233 billion is still a significant number and it's rather odd that the Fed now sports a line item that is fully 25% the size of its pre-crisis balance sheet with nary an explanation.

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