PM Daily Market Commentary - 1/02/2014

davefairtex
By davefairtex on Fri, Jan 3, 2014 - 2:33am

Gold started the new year up +17.50 to 1222.30 on moderately heavy volume, silver closed +0.57 to 20.00 on heavy volume.  The gold/silver ratio dropped -0.89 to 61.12.  In the first four hours of trading in asia, gold jumped $20 on two spikes, the second spike clearing resistance and sending shorts running for cover. Silver performed similarly - it had a spike to 20.44 but that lasted only a minute.

The dollar rose +0.43 [+0.54%] to 80.71.  The dollar moved above its 50 MA and is moving towards the higher end of its trading range.  Dollar moving up big along with gold is an interesting dynamic, one I don't see too often, but its quite bullish when it happens.

GDX gapped up at the open, and continued to rise into the close, moving up +4.26% on heavy volume.  GDXJ did even better, up +5.31% on very heavy volume.  Both GDX and GDXJ are clearly above their 20 EMA lines and have broken out.   About half of GDX's move came from the gap up, and the other half from intraday movement, which I like to see.  (If the entire move came from the gap up, it looks like distribution, which is not so bullish - we saw that Dec 10th and the following day miners were down hard).   High volume, closing at the high, moving above the 20 EMA, it was a good day for the miners.  GDX still needs to break out of its consolidation box above 22, and then it looks forward to crossing the 50 day MA at 22.62.  Both of those moves would be a further bullish sign, and would likely cause more short covering.

All of the ratios look good: GDXJ:GDX bullish, $GOLD:$SILVER bullish, GDX:$GOLD bullish - actually a breakout there, and the 20 EMA turning up for GDX, GDXJ and silver.  Gold is a bit of a laggard still, a legacy from its December underperformance, since it remains right at its 20 EMA.

Taken together, its clear that the last day of 2013 and the first day of 2014 had very strong buying in the mining shares, and in gold as well.  Gold's sharp rebound off the 1181 low on the 31st was the starting gun, and from what I can tell the PM complex is off and running.  How much gas is in the tank I cannot say in advance, we must read the tea leaves as we go.  (Whew, that's three mixed metaphors).  At the start, a big chunk of the gains is always from short covering.  Those who complain about the shorts on the way down should remember to bless them on the way up!  For the move to continue, money from actual buyers must continue flowing into the mining shares.  That is just now starting to happen.

We will be able to tell about momentum by watching price and volume.  As long as gold keeps moving up on good volume, likely the rally will continue.  Any pause in the move will hopefully just have light volume - a high volume pause can be a sign of distribution.

 

30 Comments

Hrunner's picture
Hrunner
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Joined: Dec 28 2010
Posts: 256
Two Flows

Blessings and peace to all my fellow gold and silver watching brothers and sisters.

I repost a post from TFMetals, because I wanted to share a "2014 Perspective" that is equally relevant here.  This in response to a TFMR post where this one line kept gnawing at me:

"December Comex gold deliveries are finally completed and the numbers are jaw-dropping. For the month, the Comex delivered 6,493 contracts and the JPMorgan House Account stopped 6,254 of them or 96.32%."

http://www.tfmetalsreport.com/blog/5358/and-running  (paid site- well worth 10 dollars a month for podcasts, esp if you don't have time to read every day, like me)

Firstly, Turd your point about 96% of deliveries going to a single entity is spot on- it is stupefying that this is not the story of the month, that the CFTC is not investigating, etc.  Is there any other market, or industry where a single business entity can "corner" 96% of market?  What if these were crude oil deliveries?  Wheat deliveries?  Shares of GM?  I think not!

Second, we are in a trading range until the gold runs out.  Rob Kirby on Greg Hunter's USA Watchdog podcast/ vcast made the unequivocal statement that 'as rivers flow from mountains to the sea, gold flows from countries with trade deficits to countries with trade surpluses'.  And 'this stops when the Chinese can no longer get physical gold'.  Until then, Kirby believes ALL markets are under the control of the U.S. Treasury via the murky and basically unwatched ESF, using derivatives (that is commodities futures, interest rate forward agreements- which is, by the way. is a forcing function that makes banks hedge these derivative contracts by buying UST, thus suppressing bond yields).

I think it is probable that several flows on going on simultaneously right now.  The Chinese central bank is acquiring gold via London ME, unreported, quietly, under the radar.  None of us can really track this metric, so we only have anecdotal data from Andy MacGuire (and I'm thankful for that), but let's be honest, we don't have accurate, reliable, comprehensive numbers to make personal decisions on.

They will not report their holdings until it is part of a planned, co-ordinated PR campaign. This will be a big event.  You will know it when you see it.  They are positioning for the reset.  I.e. yuan is partially gold-backed and new reserve currency.  Dollar and Western financials are toast at that point (along with a lot of other things).

No one except Chinese government knows how far along they are, but my feeling is it is close.  10-20K ton of gold will put them at a "U.S. Superpower" level, with a much smaller economy and money supply.  I believe they are likely at 10K as we speak and counting this period of time as gravy to add to the stockpile for insurance.  When something is on historic sale prices, you buy all you can, don't you?  Why would you upset things and change while you're feeding at the trough?  I wouldn't.

This flow will stop when London cannot deliver metal in tonnage (at these firesale prices).  Where is the metal coming from (thousands of tonnage)?  U.S. Fed?  EU?  Swiss (I've always felt that the Swiss are not that stupid, FWIW).  U.S. buying more time.  I don't what their plan B is, but I fear military scenario to cover up their sins.

Second flow is happening via the Comex and Globex markets.  I believe JPM is a proxy for several interested parties that share similar interests in that they have dollars and they want to unload them for metal.  That is why JPM is taking physical delivery.  JPM is likely building its own private stockpile along with their clients.   These activities are not mutually exclusive.  You make money, I make money.  Their clients either aren't sophisticated enough or don't care if JPM makes side (illegal) profits by making correct bets on price movements that they then cause to happen, during this obvious price suppression period, as long as the clients get their metal.

These parties include wealthy Chinese that get dollars for goods, or who have made dollar profits in real estate, equity markets etc.  Wealthy U.S. and E.U. folks are ditto.  Do not think of these folk as Chinese, American, Belgian.   They are simply rich people who want to exchange dollars for gold.  They are happy to get cheap metal due to manipulation.  They are positioning right alongside Chinese government for the reset.  They don't care about the immorality and the cheating of naked shorting and manipulation and corruption.  They are simply getting cheap metal for dollars.

This flow is just like Number 1, and this will end when the metal runs out.  I don't trust the GLD number since so many numbers are manipulated or simply fraudulently reported.  If you trust GLD reporting, and follow the trend lines, then about a year is the timeline.  I think there will be a tendency to panic and accelerate as the vaults get closer to empty, so 6 months timeline is possible.  I'm going to think about taking a long vacation to Montana the day GLD is reporting less than 250-300 mts.

I have to believe the folks in Flow Number 2 have connections and insider information in the Chinese government, so the Comex breakdown is a good signal that the overall sovereign endgame is here.  I.e. if you can't get metal from the Comex, then you can't get the metal from the London over the counter.

The message is the same- stack physical metal while you can.  Think about making some sacrifices to buy more than you think you need.  After that, get prepared spiritually, physically, socially, emotionally.

Love and peace to all,

H

davefairtex's picture
davefairtex
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invited to the meeting

Sounds like you guys were all invited to the monthly meeting by those Powers That Be, and they allowed you all to take notes.  How else could you be so certain of what is going on?

Me, I'm on the outside, looking in.  No certainty for me.  So I read the tea leaves and do my best.

davefairtex's picture
davefairtex
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a gold conspiracy i can get behind

So of all the conspiracy theories I've read about gold, the one proposed by Ted Butler makes the most sense to me.  It actually has the virtue of being backed up by observed behavior and known positions.  While this was mentioned in the Daily Digest, I'll refer to it here again because I liked reading it so much:

http://goldsilverworlds.com/investing/2013-the-year-of-jpmorgan/

It goes along with my thesis - "banks are about making money" - rather than merely being a tool supporting the machinations of a shadowy group of people bent on, well, whatever it is they are bent upon.

Of course, when gold is already in a downtrend, and the commodity complex as a whole is in a downtrend, "manipulating" things to the downside is like sliding downhill - its much, much easier.

Grover's picture
Grover
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Dark and Dank Basement Vaults

Dave,

I don't know where I read it (or if I connected dots that weren't there,) but doesn't JPMorgan run (or have access to) a vault for the NY branch of the Federal Reserve? Since the Fed is theoretically storing some of Germany's gold, and assuming that it was essentially all leased out, how else could the Fed get enough gold to satisfy Germany's request?

JPM collected 6254 contracts. That is about 19 1/2 tonnes of gold ... during December only. Given the relatively small inventory numbers at Comex, this is a significant percentage. Is it desperation or simple greed?

Grover

davefairtex's picture
davefairtex
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JPM, Fed, leasing

Grover -

Jim Rickards has claimed that the central bank gold leasing arrangements were 20+ pages long, and the upshot of them was, the leased gold never in fact left the vault.

‘People don’t understand leasing,’ he adds. ‘They somehow think that if the federal government leases gold to JPMorgan, that JPMorgan backs up a truck and drives away. That is not what happens. The gold stays where it is. The gold doesn’t go anywhere. The gold’s in Fort Knox, the gold’s at West Point, the gold’s at the Federal Reserve.

‘When you look at all this, it’s very clear that the losers are not going to be the banks and the government. The losers are going to be the institutions and the individuals who think they own gold and don’t.’

And GLD's prospectus allows for a "sub custodian" to store gold for GLD.  Which could be neatly fulfilled by - the Fed, storing that "leased gold" that GLD happened to claim ownership of.  Which is sort of true, but also not, because there's no way the Fed will ever let that gold be taken out of the vault.

Perhaps that's why only the bullion banks are allowed to remove gold from GLD - and by contract, the leased gold cannot in fact be removed.  So perhaps some of the gold leaving GLD is simply the lease arrangements with the Fed expiring, to free up that gold for shipment to Germany.  Or maybe the Fed has decided it just doesn't want to lease gold anymore.  To say this is "not transparent" is a gross understatement.

Now then, why is JPM buying all that gold at COMEX?  Simple explanation: they think the price will go up.  Why physical gold and not paper?  Perhaps they see a risk of a default of some sort.  Or maybe they're short physical gold somewhere else.  Or maybe they know that the gold in the system (as alleged by goldbugs since the Universe was created) is about to run dry.

Regardless, I don't think we should ignore this bit of evidence.  I think it does mean something.  I'm not a fan of unsubstantiated charges - but this charge is actually backed up by something.  JPM really is accumulating gold.  And that's new behavior.  And it likely means something interesting.

Maybe even that the gold in the system really is about to run dry.

I don't plan to run off to Montana or anything, but I do think something interesting will eventually happen.  I can't see China actually backing their currency with gold (they'd lose a lot of control over their economy if they did that) but I can see them announcing a big gold reserve at some point.

 

cmartenson's picture
cmartenson
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Gold Leasing - It Doesn't Go Anywhere
davefairtex wrote:

Grover -

Jim Rickards has claimed that the central bank gold leasing arrangements were 20+ pages long, and the upshot of them was, the leased gold never in fact left the vault.

‘People don’t understand leasing,’ he adds. ‘They somehow think that if the federal government leases gold to JPMorgan, that JPMorgan backs up a truck and drives away. That is not what happens. The gold stays where it is. The gold doesn’t go anywhere. The gold’s in Fort Knox, the gold’s at West Point, the gold’s at the Federal Reserve.

‘When you look at all this, it’s very clear that the losers are not going to be the banks and the government. The losers are going to be the institutions and the individuals who think they own gold and don’t.’

And GLD's prospectus allows for a "sub custodian" to store gold for GLD.  Which could be neatly fulfilled by - the Fed, storing that "leased gold" that GLD happened to claim ownership of.  Which is sort of true, but also not, because there's no way the Fed will ever let that gold be taken out of the vault.

(...)

For the record, last I checked the custodian for GLD is HSBC and the stated sub-custodian is the Bank of England.

Rickards is right...I talked with Frank Venarosso for a long time on the subject of gold leasing and he said exactly what Rickards did.  The contracts are long and onerous and the gold never leaves the facility from which it is leased...it merely moves from one cage to another, if even that.

 

Hrunner's picture
Hrunner
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Posts: 256
Contracts do not comfort me

Chris, Dave, (Jim Rickards, Frank Venarosso)- re leasing agreements keeping gold in vaults in New York, I take your point.  And in a normal society of laws and not men, you are correct.

With all due respect, do I need to remind you:
Despite pages and pages of "laws" and "contracts" and "constitutional code",
MF Global segregated account holders had their money vaporized- against the law and common practice?

Cyprus bank account holders had 10% of their money effectively stolen because the government decided that certain banks needed to be made solvent- against the law and common practice?

GM bond holders were told to go to the back of the creditor line despite bond agreements and commerce statues saying the opposite- against the law and common practice?

The government shall not, by fiat decree, force the citizens buy goods and services they do not want and do not need, due to protections provided in the U.S. Constitution and safeguarded by the Supreme Court, except we now have to buy government healthcare or face monetary penalties and jail - against the law and common practice?

The president of the U.S. does not get to enforce selected parts of duly passed statutes, waive other parts, and create new parts out of whole cloth.  The president by constitutional authority must enforce laws passed by congress as written, or did I miss the part where President Obama arbitrarily delayed parts of Obamacare, arbitrarily implemented parts of ACA, coerced insurance companies to provide insurance for citizens that did not actually purchase policies- against the law and common practice?

Futures agreements for commodities are underwritten by entities that possess physical commodities in the unit amounts delineated that intend to deliver said physical commodity to the legal holder of the future agreement.  It is illegal and fraudulent to underwrite futures that are not backed by any physical commodity, except this happens in a widely acknowledged ratio of 100:1- against the law and common practice?

And you are telling us confidently that gold, the most important physical entity in the entire monetary universe, is sitting quietly in a vault in New York because it is protected by pages and pages leasing contracts and commerce laws enforced by our regulatory authorities and courts and politicians?  

Surely, you jest.

Hrunner's picture
Hrunner
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Posts: 256
Shadowy Fed and U.S. Government

Dave,
You don't have to see the same big picture from the individual pieces of data that I do.

And for the record, I wasn't invited to any meeting (and would not go if I was), I just read and apply life experience and critical thinking to the data I have access to.  No doubt, as I have posted numerous times, that actual photos of Chinese unloading wheelbarrows of gold from NY Fed vaults into the trunks of cars and speeding off to the loading docks would be more compelling.  We simply don't have that data (yet) and don't anticipate having it anytime soon.

Lord knows in the current world of deception and immorality, it is hard to know what data is accurate to even attempt to construct the big picture.

But please don't accuse me of constructing the big picture with no evidence.

We don't have to speculate about some "shadowy group of people" to propose that the Fed and U.S. government would manipulate gold as a critical world monetary commodity and currency stability signaling mechanism.

The Fed and the U.S. government already openly tell us that they are manipulating monetary signaling mechanism.  You may have missed it, but the Fed openly says it manipulates the price of money (ZIRP), it openly manipulates the price of government debt (QE UST bond-buying program), it openly manipulates the price of stocks (QE transfer payments to commercial banks in exchange for UST) and manipulates the price of housing and mortgages (QE MBS-buying program).  It proudly proclaims to manipulate consumer prices as a stated goal of an inflation-targeting policy.  It proudly proclaims that it manipulates the cost and supply of labor as it believes its job is to inject fiat currency to achieve some model-derived employment rate.  The Fed and the government together openly manipulate the financial sector constantly by injecting billions into private banks, private companies and private insurance companies.  The Fed secretly manipulated the prices of world currency through hidden trillion-dollar lines of credit to ex-U.S. banks, as finally exposed by Bloomberg.  I don't know why the Fed bothered to cover that one up, and brag about the other manipulations, but maybe you can tell me.

And now Dave, you're telling me I have to believe in some "shadowy group of people" to propose that the Fed and/ or the U.S. government, with obvious survival motivation, the same Fed that openly manipulates virtual every other market and economic health signaling mechanism, is manipulating the world's only physical money, the only real price signaling mechanism left that could destroy confidence in government and the Fed and Keynesian paradigm itself.  

You may be right.  Though you diminish me, I will continue to look for data that contradicts the construct like a careful scientist, and at the same time log data that supports it.

As far as Chinese gold imports as a prelude to a global monetary paradigm shift, some data for you to consider.

Hong Kong customs data says that China has been importing record amounts of gold:

UPDATE 2-China's gold imports jump to 2nd highest on record in October
http://www.reuters.com/article/2013/11/27/china-gold-imports-idUSL4N0JC0...

Chinese imported gold via Hong Kong is separate and apart from the 370 tons production by China, which is the world's largest producer. 

http://en.wikipedia.org/wiki/List_of_countries_by_gold_production

HK customs is not a comprehensive accounting of total gold imports, just the imports that we know about through HK.  I don't have high confidence in this number as China is well known to obfuscate data (such as debt and balance sheets of state companies), but even if is correct and not underreported, this is a huge amount gold- none of which ever leaves China.

So the contention that Chinese entities including the government (which theoretically owns all parts of the economy) are accumulating gold while at the same time increasing the criticism of Western monetary policy that is devaluing their current and future UST holdings, as a prelude to a monetary reset, is not fabricated.  It is backed by some tangible evidence. You are entitled to come up with an alternate theory- a surge in jewelry buying by Ms. Wong perhaps?   If so, then all that public criticism of U.S. and Western monetary policy would be a good head-fake by China to throw us off their real plans of cornering the world gold jewelry market.  We will watch and see.

Have a good weekend,
H

P.S.  I'll save you a spot by the campfire in Montana.

davefairtex's picture
davefairtex
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Posts: 5061
its about certainty

Hrunner-

Its not the story I find objectionable, its the certainty you attach to it.  That's what I was giving you a hard time about - it was the certainty.

I tell my stories too, but I try and add in words like "I think" and "perhaps" and "maybe" so as to indicate that I don't really know, but this is what I speculate.

Regarding Mrs Wong - quite clearly the Chinese government is encouraging their people to buy gold.  Their choice: real estate, bank deposits with a negative real return, or gold.  With real estate in a colossal bubble, "Alex, I'll pick gold for $200."  One must assume the government has a reason for this - it may be as you suggest, or it may be they simply see gold as a possible strategic advantage at some point in the future.  It is interesting, likely gold positive, but - the plan of the Chinese central government is not known.

We read all the time about their property bubble and their insane levels of pollution.  Is everything the Chinese government sponsors well thought out?  That's hard to say.  I think they're on the back of a tiger and they dare not get off.  How does gold fit in?  I think they do have a long term plan involving gold, but will it work out the way they think?  Or perhaps they are just diversifying out of dollars, which would seem to be a good idea.  They're also buying real estate in the US.  Should we run off and do that too?  [Heck, maybe we should.]

Again, the story told by Turd could play out the way he says.  Or not.  Its the certainty that its told with that concerns me.

The Fed and the U.S. government already openly tell us that they are manipulating monetary signaling mechanism.  You may have missed it, but the Fed openly says it manipulates the price of money (ZIRP), it openly manipulates the price of government debt (QE UST bond-buying program), it openly manipulates the price of stocks (QE transfer payments to commercial banks in exchange for UST) and manipulates the price of housing and mortgages (QE MBS-buying program).  It proudly proclaims to manipulate consumer prices as a stated goal of an inflation-targeting policy.  It proudly proclaims that it manipulates the cost and supply of labor as it believes its job is to inject fiat currency to achieve some model-derived employment rate.  The Fed and the government together openly manipulate the financial sector constantly by injecting billions into private banks, private companies and private insurance companies...

So let me get this straight.  The Fed openly manipulates the laundry list of stuff they think is critical to controlling the economy, spending literally trillions of dollars to do so, yet they manipulate gold in secret?  Why not manipulate it openly, like they do every other thing they manipulate?

This position has never made any sense to me.  Gold is either this super-duper important thing for the Fed to control in secret when everything else they do is either open (or was exposed in the audit) - or just possibly, they honestly don't care that much about it anymore, especially compared to interest rates, which they do care about a great deal.

Sure, they used to care about gold, back when we were just getting off the gold standard.  But now?  I think to them, gold really is a relic.  They dare not discard it - in a sort of bureaucratic cover-your-ass "who knows that old box of Grandfather's in the attic may be important someday" sort of way - but they prefer to operate on other stuff that has immediate impact: mainly interest rates, and the value of the USD which needs to be not-too-high and not-too-low.

I think they are all a bit crazy for their views and actions imagining that this will all end well, but - in in ascertaining the likelihood of the whole secretive gold manipulation scheme, what they think is the critical bit, and I don't think they really focus on gold much at all.

 

davefairtex's picture
davefairtex
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gold sitting quietly

Hrunner-

And you are telling us confidently that gold, the most important physical entity in the entire monetary universe, is sitting quietly in a vault in New York because it is protected by pages and pages leasing contracts and commerce laws enforced by our regulatory authorities and courts and politicians?

About this one, I'm confident.  The pages of contracts just happens to be backed up by the full force of the US Military which as we know is the most expensive in the world - more expensive than the next 10 nations combined.

Contracts + a Really Big Army make for an impossible-to-refute argument.

Heck if it comes to that and gold becomes important again, it will be a Matter of National Security.  Oops, sorry about that gold lease.  Best of luck, Mr Holder of GLD Shares.

Yeah, I don't think the gold is going anywhere.  I believe some amount of it is likely encumbered by leasing arrangements which gives temporary title to the lessee, but only over gold remaining within the vaults.

Since you like metaphors, let's assume I'm the Godfather of a certain region, and you own a grocery store.  You know the Godfather has a number of cars he's not using.  So you want to lease a car from me.  I say "sure Mr Grocer, I'll lease you the car.  But the way the lease agreement will read, the car must stay in my garage, and you cannot drive it, ever.  But in the document you get, which you can show to anyone you care to show, it will say you most definitely have temporary title to my car.  Luigi, show that man his car."

Think you can use that piece of paper to take possession of the Godfather's car?

First, the paper says you can't.

Secondly - the Godfather says you can't.

 

Hrunner's picture
Hrunner
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Posts: 256
Partial Data Sets

Dave,
As usual you make good points, and well stated.

Let me modify my thoughts- I am not certain that the Chinese government is accumulating gold in advance of global monetary reset.  There are only a few things that I am certain of.  I think it is very, very likely that the Chinese government is accumulating gold in advance of a global monetary reset.

Rarely do we get to make decisions with a complete data set.  This is especially difficult in environments where data sets are actively being hidden or manipulated.  This is well documented about our current data sets.  BLS falsification, bank mark-to-market valuations, amount of physical gold the Fed holds.

Given the lack of complete data sets, we have to assemble what data we have, and build a construct based on the available data, and what we know of human behavior, and our own life experiences and a study of human history.  Your point is well taken, these constructs are susceptible to confirmation bias and dismissing of counter facts due to ego, emotion etc.  FWIW, I've more often been wrong in under-estimating the depravity of human behavior, not the other direction.  Hard knock life experience has taught me not to reject constructs immediately because I thought no person or organization could be that evil or have such hubris to do certain things.

Given the partial data sets we have in hand (well documented here and throughout the web), plus understanding of human nature, and thousands of years of human history make it very, very likely that the Chinese are accumulating gold to back a future global trade settlement system.

I think you're right about the 'back of the tiger', real-estate is in a bubble in China, which was a mistake too-late realized by the government in letting things get out of hand by easy money and state-sponsored ghost city building projects. 

I would point out the Chinese have done many savvy things starting with accumulating gold, such as actively managing their Yuan exchange rate, and taking all that trade surplus and buying hard assets and resources around the world.  And building wealth generating assets like hydroelectric plants and investing in nuclear energy.  In contrast to the dictators in the Middle East that spent oil money on weapons and palaces instead of  infrastructure and education. Or the idiots in the U.S. government that would build thousands of inefficient, eagle-killing windmills as opposed to things that actually make electricity like nuclear power plants.  You win a few, you lose a few.

People in power most often do what they can get away with, and what is in their narrow self-interest, not necessarily what is right or best for their citizens or customers or shareholders.  This behavior has played out over and over in history.  

(Kind of makes for a good reason to have a limited government, with small concentrations of power, don't ya think?)

A common pattern in history is the corporation or country that is composed a large number of people at mid-levels in the organization that are mostly honest, decent and intelligent, who embark on a noble mission and often (notice how I did not say "always) are led down a dangerous and destructive path by a small number of people in leadership that are extraordinarily self-interested and highly narcissistic.  Alpha leaders and lack of humility or self examinations seem to go together, and can lead to achievement, but also ruin.

So, when you state that we should not worry because U.S. gold stocks are protected by both the pages of lease agreements but also the U.S. military, you imply that the command and control structure in the U.S. are decent and altruistic people, and will honestly do their best to support the Constitution and do what is best for the "American people".  I agree the mid-level decent and honest military "could" protect precious U.S. assets, but that is not the same as they "will".  Understand that they would need to be ordered to.

As far as the Fed obfuscation, there is a psychological subtlety that I think you are missing.  It is easy to cheerlead things going up in price- the stock market, home prices, bond values.  Human (well at least American) culture loves winners.  We want to feel good and optimistic about things.  Rising prices makes us feel good and wealthy.  This psychological manipulation is an open Fed policy- the wealth effect.  The Keynesian approach is "when times are good, spend, spend, spend.  When times are bad, spend, spend, spend (with borrowed government money that we don't have and can't afford)."

Openly telling the public that you are pushing the price of gold down is sending the opposite signal.  You are telling the world that, despite the trillions of dollars we are printing to make you feel good about rising home prices (and magically making banks solvent), something is terribly wrong.

If times are really good, productivity is high, and trade is in balance, the dollar should be strong and inflation risk should be low, why is the price of gold rising?   Why would the Fed need to push down the price of something that should naturally falls on its own.  Why indeed?

An additional issue is that controlling the price of gold (or other commodities for that matters) becomes a critical question of constitutional overreach by the Fed.  The American constitution and American ideal is that people and markets are free to live as they see is best for themselves.  These markets should not be and are not under central planning and control by the government.  

Manipulation of commodities (even though, in my mind, is no less unconstitutional than buying bonds and MBS) really looks and feels like central planning- the government is now buying and selling things we eat, we drive, we use.  Money manipulation via interest rates and bond purchases is more abstract and less connected to the things the average citizen buys with their daily purchases.

This constitutional overreach issue is the reason that I believe the trillions of dollars of Fed international swap lines was covered up.   Where in the U.S. Constitution is the duty of the American government to stabilize the currency and economy of France, Italy, Greece?  Their exposure by Bloomberg News should have precipitated a purge of the Fed and massive reforms, but I guess I underestimate the weakness and immorality of our current government and the lack of education and the level of distraction and disinterest of our citizens, unfortunately.

You should be aware the Fed is openly stating that they are using "communication tools" in highly vigorous way, more than they ever have done before.  Some may interpret that as simply benign Fed speak and good Fed policy.  That to me should be translated as "we will ramp up the propaganda and economic behavioral manipulation tools until the economy behaves like our models say it should behave."

What is there that is good in life, Apple iPads, U2 concerts, T-bone steaks, that needs to have a giant propaganda machine around it and a leviathan of special levers to makes us buy it?  People intuitively understand this.  Gold must be tarnished and people must not understand its real value as wealth preservation.

Dangerous and distorted times for sure.

H

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5061
chinese government, et al

Hrunner-

I'm still not convinced.  To my mind, the Chinese government might well be accumulating gold in order to diversify their reserves just like all the western governments have done.  They see Italy and Germany and the US with large gold positions, so they feel inclined to go along.  Does this mean they are planning to cause a global monetary reset, and seize the mantle of Reserve Currency to the World by backing their currency with gold?

A gold-backed money supply/Reserve Currency would bring inflation to a halt in the Chinese economy.  No more 7% growth, no more 15% inflation, no more control over interest rates, or growth rates, or lowering the cost of exports.  You may be very, very convinced, but to me?  I rate it only as "could be" - and less likely than the less dramatic explanation of simply diversifying reserves out of dollars the same way every other western nation has done.

That said, I do think collecting a stash of gold allows them to hedge the possibility of someone else introducing a gold-backed currency.  They see themselves as playing the great power game, and they want to have all the same tools that the other nations have.

So if someone else makes the gold-backed currency play, they can too.  If nobody does - no harm, no foul.  This lets them get rid of a strategic vulnerability.  And they get to diversify out of dollars, which makes them feel more comfortable.  And it gives the people a savings vehicle while at the same time allowing the CCP to retain the capital controls and control over interest rates and financial repression and growth rates that they love so much.

See there?  An alternate explanation that doesn't involve a gold-backed currency that still fits all the facts.  This explanation doesn't upset the apple cart quite so violently either.  If I had to pick between a radical explanation for something, and a more pedestrian explanation, I'd choose the one that doesn't involve quite so many changes.  Governments being risk-averse, fewer changes are better for the people in power.

As for the Chinese leadership running things cleverly...

In China, we have yet to see how that economy does when they eliminate capital controls, and let rates float, and all that malinvestment comes home to roost fully.  We've only seen half the cycle - just the upside.  Its like looking stock market market performance before encountering a recession.  "Hey these bull moves are fun.  Wait, the market goes down too?"

I remember back in the day when the Japanese were viewed as the savviest bunch on the planet, going to own the world in less than a year, with the emperor's palace in Tokyo worth a trillion 1988 dollars based on the price of the land.

China has done well as a command economy at picking off the low hanging fruit.  Trains, roads, factories, state owned enterprises, electricity, mining, big housing projects.  The FSU did that, had a massive growth rate for a few decades, we were all scared they'd overtake us - they eventually blew up.  The Japanese did that too, and we were scared - and they blew up also.  Think the Chinese will be any different?  I don't.  I've seen this play out before.  Maybe the Chinese won't blow up the same way, but the whole "super clever <foreign government> meme" is something I've seen come and go.

Sadly, we've turned our country into a command economy too.  That won't end well either, but that's yet another story...

Grover's picture
Grover
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Lease Questions

I'm trying to wrap my mind around the leased gold issue. It never made complete sense to me. Now, it doesn't make any sense. What advantage does a lessee get from this arrangement? How do they make money from the transaction? What do the 3rd party buyers get if the lessees don't have anything but a temporary promise to sell them? At some point, somebody has to deliver something.

What do the CBs get out of the arrangement? Seeing that the federal reserve "donates" excess profits to the Treasury, they don't need to do it for the money. Is it just a way for them to temporarily suppress the price of gold? What happens when the leases expire?

Ron Paul tried for years to audit the Fed and the gold reserves. Had the gold been leased out (and removed from the vaults,) it would make sense that "they" would resist an audit at all costs. If the gold is there, why wouldn't they want to have independent verification? Could it be that they are so arrogant that they don't want to submit to any checks whatsoever?

Grover

davefairtex's picture
davefairtex
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Posts: 5061
gold leasing

As far as I understand it, leasing gold ends up pumping low cost money into the system, but only if you as the party that is leasing the gold can turn around and sell it to a buyer that is ok with having (temporary) title to the gold without having to take delivery.

So - bullion bank borrows gold for a very low cost, sells the gold to a party that doesn't need to actually take delivery, and then uses the proceeds to invest in something that pays a rate of return higher than the cost of the lease.  Its an interest rate spread.  Of course, they must also hedge against the price of gold moving around too much, since they are effectively short gold at that point.

GLD, for instance, doesn't need to take delivery.  It "delegates" the warehousing of the gold to a third party sub-custodian - in this case, the Central Bank.  This works as long as the contracts are cleverly written.  "You just bought temporary title to the Godfather's car - you can't drive it, but you own it."

And with gold, it turns out that people are actually ok with having temporary title - unlike with cars, most would prefer not to actually take their gold out and fondle it like some large reptilian creature out of Middle Earth.  They are happy to have someone else hold onto it.  Storage, theft, and all that.

Leasing + selling does suppress the price of gold, because it puts more supply onto the marketplace.  Its not one of those things that happens realtime on COMEX though - its not a market manipulation intraday, but rather over the much longer cycle.  Perhaps gold leasing during the 80s and 90s was the reason for the 20 year bear market in the metal.  Who can say for sure.

So again according to my understanding, leasing is about borrowing/money creation.  Borrow gold from a central bank at the GLR, sell it to someone who is ok with buying a warehouse receipt (that he can't ever cash in), re-invest the money in something that returns a higher rate than the original GLR, and everyone is happy.  It is all legal, as long as the buyer never wants to take delivery.

As for the "audit the Fed" issue - no doubt part of the audit would involve questions about just how much of US gold had been leased into the marketplace.  If the answer is 90%, that's an interesting number.  The audit becomes less about "is the gold there" and more about "how vulnerable are the gold borrowers to a bank run/short squeeze?"   And also, to all those people who bought title to the Godfather's car that they can never drive - they get to ask the question, is that what you really intended to buy?  Does that sort of title still work for you?  And maybe the answer to that question blows things up, maybe it doesn't.

And by "blows things up" it means blowing up the bullion banks, since they are all effectively short all that borrowed & leased gold.

Of course this is all speculation on my part, and my understanding of how this all works may be imperfect too.  I think it fits the facts, but that doesn't mean there aren't other explanations that fit the facts too.

But I would be very, very curious to know what percentage of central bank gold has been leased into the marketplace.  A little transparency might cause some substantial waves...

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thc0655
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We can further conclude


KathyP's picture
KathyP
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Posts: 84
Gold Leasing

Dave,

Thanks for your attempt at explaining gold leasing.  It maps somewhat onto what I've been able to intuit from reading Jesse's discussions about using leased gold as collateral for new speculative investments. Then, the new holder of the collateral pledges the same leased gold again as collateral for yet another speculative investment.  Hypothecation and re-hypothecation, I believe, are the terms used to describe this activity.  A problem with this, of course, is that there is only a limited amount of collateral - only one Godfather's car.  What happens when there is an investment failure somewhere along the chain and somebody claims the right to the Godfather's car?  As Jesse puts it, "Stand and deliver."

I really don't know if I have this anywhere near correct, and certainly will appreciate feedback from anyone who knows more about this than I.

 

Kathy

Grover's picture
Grover
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Posts: 800
Good Explanation, Dave

Dave,

Thanks for the explanation. Now, I'm back to just not completely understanding it. (That's okay.) For some reason, I was convinced that the physical left their domain. Kathy's note that they hypothecate to the nth degree makes sense. They can get more bang, bang, bang for the phantom oz.

Do you know what percentage of GLD's various instruments comprise their tonnage? How much is physical, how much is leased from CBs, what other categories do they have?

Grover

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
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Posts: 5061
percentage of GLD central bank leased gold

Do you know what percentage of GLD's various instruments comprise their tonnage? How much is physical, how much is leased from CBs, what other categories do they have?

Grover, you've asked the million dollar question.  I have no idea.  Remember, my thoughts on this are speculation to begin with, so further speculations as to what percentage of GLD is speculated-to-be central bank leased gold is simply re-hypothecated speculation.  :-)  They haven't even admitted my claim is accurate!

I'd really be picking numbers out of ... the air based on no evidence at all.  I do think that some of the GLD shrinkage is the Fed (and Germany?) getting their gold back.  I also think some of it is likely real gold heading off to asia but that's just my gut feel.  It would explain both the activity in the refineries in Switzerland, and also the possibly interesting coincidence that a lot of the downside fuss started soon after Germany asked for its gold back.

Part of the reason I think this particular conspiracy theory has a basis in fact is the shrinkage of GLD is not being seen in SLV at all.

Hrunner's picture
Hrunner
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Posts: 256
China (and Hrunner) says U.S. manipulating Gold

Dave,

You make logical points, but they're superficial and rebuttable.

China is now openly saying that the U.S. is manipulating gold.

The President of the China Gold Association said the following in June:

At 20:18 on June 28 ,2013. Sina Financial News.

China National Gold Group Corporation, General Manager Sun Zhaoxue.

Sina Financial News June 28, 2013 – At the Lujiazui Forum River Nocturne sub-forum held today, China National Gold Group Corporation General Manager Zhaoxue said the United States intends to suppress gold to ensure the Dollar’s dominance, that the fall in the price of gold premeditated, and a part of the currency war.

“The hottest topic at the moment is oil and gold. The ground war we are seeing around the world is I think war for oil whereas gold is the currency war. Why? We observe that the integrity was the driver for US Dollar to become world reserve currency. The US Dollar and gold decoupling from 1971 caused the US Dollar to depreciate massively. From 1990 onwards, the Eurozone was in consultation to form a strong Euro to counter the US Dollar, in order to prevent the latter from stripping Europe of its wealth. The Euro was born in 1999, supported by its strong economy and 11,000 tons of gold.

With the birth of the Euro a competitor to the US Dollar was created, and so the US decided to lay a trap for the Eurozone as part of the currency war. Some countries in the Eurozone violated the Eurozone’s norms by issuing bonds. Which entities participated in the issuance? US investment banks. After the debt was issued, it was US ratings agencies that struck a blow to the Eurozone by saying that its economies had problems.

Only gold remains on par with the US Dollar to benefit from the Eurozone and Euros collapse. This is why the US began to suppress gold by issuing a statement two months ago that the Eurozone will sell its gold when it is unable to service its debt, then stating three days later that the news was false. Furthermore Goldman Sachs made a forecast for the gold price at the beginning of the year but suddenly changed its course saying the gold price will fall to $1300. Buffet said that he would not buy gold even if its price fell to 800USD. Our research indicates that Buffet made a lot of money from four gold companies. So his statement is inconsistent with his personal action.

Bernanke’s speech followed, saying that monetary easing will end, that the US economy is improving. This series of examples shows that the fall of the gold price is premeditated. So I say that this process is a genuine currency war.

Many people say that gold is just a beautiful thing. Then we have to ask the US why they store so much gold but instead of selling gold, they issue debt to other countries to rescue the financial market.  The US owes Germany so much gold but instead of repaying immediately, sets a 2020 deadline to return the gold. From this example and process as well as some typical factors, this is a downright currency war to maintain US Dollar hegemony by defeating all other currencies. I shall stop here.”

http://www.ingoldwetrust.ch/sun-zhaoxue-us-intends-to-suppress-gold-to-e...

You can read the rest of the short article, which actually hypothesizes 4 scenarios that overlap with our discussion.

I don't see how the most influential member of the Chinese gold industry makes this statement without the understanding that it falls into line with the policy and thinking of the Chinese government.  All industries, especially the gold industry, are state-controlled enterprises.  This statement, coupled with many others from Chinese officials criticizing U.S. government profligacy, all hang together in one picture- a China that is preparing the world for life without the dollar.

By my back of the envelope calculations, at $1300 per troy oz, the Chinese have spent at least $190 billion per 5,000 metric ton to accumulate gold.  Likely twice that if they have 10,000 mt as I and many believe.  These are not casual amounts for a minor "backup" plan as you propose.  They represent a big chunk of their $2 trillion USD in Treasuries that they have to unload and find correct investments for before dollar collapse.  This appears to me to be strategy and not 'insurance'.

As far as inflation, your argument is circular- the Chinese need inflation because their economy only works in an inflationary environment.  We are talking about a new currency regime, and a new economic regime.  Please consider going back and listening to Chris Martenson's Crash Course Chapter 10.  The U.S. grew strongly for over 300 years without inflation.  Growth does not require inflation.  We are talking a new economy which is at least partially gold backed.  Historically, with a stable currency that is gold and silver backed, economic growth is very possible.  (Profligate government spending, without taxing the citizenry to pay for the profligate spending, is not possible, which, in my humble opinion, is good).

Yes, China will have to live with and perhaps pay for its sins of state-controlled malinvestments.  The power of a gold backed currency will more than offset these sins and will make Chinese citizens who hold gold, or yuan, very wealthy.  These are far smaller sins than the U.S. sins of spending trillions of dollars on a military that devolved into the world's policeman and equal trillions on government beauracrats, boondoggle projects and "research", bank bailouts for bankers who provide no useful goods and services, and entitlements to citizens who won't work or cannot/ will not get the education they need.  And add to that massive imbalance of benefits and payments to retirees and pensioners far beyond the amounts they input.

FWIW, Jim Rickards, who is very thoughtful and who I respect and follow closely, thinks the future is about SDRs.  We had a good SDR discussion on this site a few days ago.  My conclusions (and perhaps Chris' also) is that SDRs are not really anything different than what we have now.  And what we have now does not give China the credit they will want for owning gold, resources, manufacturing capability of actual useful goods.  SDRs are just a modified version of the current meme.

Do I think Rickards is right and the West will try SDRs- sure, they could and maybe it is even likely.  But I think Rickards is wrong if he thinks this will be a stable and long-term solution.  It is at best a temporary band-aid.  It could last only a couple of weeks to months before we finally arrive at a gold-backed settlement system led by the BRICS.

We are setting up an economic Battle Royale between the profligate and increasingly less productive West, namely the EU, US and Japan against China, Russia and likely Rest of World (BRICS).  Can China and Russia survive economically without U.S. trade?   I think it will boil down to "beans, bullets and bandaids".  And between Russian wheat and oil/ gas, Chinese metals, including copper and rare earths, and manufacturing capabilities and Brazilian pharmaceuticals, manufacturing, agriculture and mining, (through in a little Middle East Oil) the pragmatic answer to me is yes, the ROW can survive and reset without Twitter, NBC Nightly News, and $100,000 per year arthritis treatments.

The things I consider as possible outcomes of this transition:

1.  Scapegoat war, initiated by U.S. and willingly joined by EU and Japan, to use distraction and propaganda to cover up the government's reckless and immoral behavior.

2.  Domestic unrest, as childish citizens follow the lead of their childish leaders blaming each other, George Bush, evil corporations, welfare recipients, when in truth there is blame to go all around.

3.  Slow, grinding poverty and crime as the dollar is greatly devalued.  Chronic 25% unemployment.  Greece-like atmosphere.

Some type of transition is guaranteed.  Hopefully the transition is short and the folks will rally.  I sincerely hope and believe the PPers and our ilk will form the core of the rebuilding, because we will not panic, and we can show folks there is life after iPads.  That is why I think sites like Chris' and Adam's are so important.

This is why I share Chris' sense of urgency that should be having the hard and adult conversations now.

Have a good week,

H

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 653
WHENCE Silver???

I wanted to share another prediction (and Top Predictions) with you.  Enjoy.

SRSrocco Report via google.com 
12:19 AM (6 hours ago)
 
to me
 
 
 
 

http://srsroccoreport.com)" rel="noreferrer noopener">SRSrocco Report

 

THE BIG QUESTION: Where Is The Price Of Silver Headed In 2014?

Posted: 05 Jan 2014 02:24 PM PST

Many precious metal investors would like to know where the price of silver is headed in 2014.  After the huge take-down of the price of gold and silver in 2013, investors would like to know if silver has finally put in a bottom and is getting ready for a new move higher this year

If investors are banking on much higher silver prices in 2014, then the typical Bank & Brokerage House forecasts are not going to provide any guidance or comfort for that trend.

Here are the 2014 silver forecasts from the Top Orthodox Analysts:

Analysts' 2014 Silver Forecast

As we can see, Barclays comes in at the lowest forecast of $19.50, whereas the majority range from $20-21.  Bank of America is the only one in the group providing a more bullish forecast of $26.38 for 2014.

I have actually come across these forecasts in some of the precious metal blogs.  It seems as if investors are now becoming so frustrated by the low price of silver that they are actually accepting the forecasts put out by the MSM analysts.

There’s a very good reason to ignore anything these banks and brokerage analysts have to say.  If we take a look a what these analysts forecasted for silver in 2013… you will see what I mean:

Analysts' 2013 Silver Forecast

The majority of these analysts’ forecasts came in December 2012.  At this time, the price of silver was trading in the $32-$33 range.  CitiGroup was the only analyst that predicted a lower price for 2013, while Commerzbank & Thomson Reuters GFMS forecasted higher prices in the $40 level.

According to Kitco, the average price of silver in 2013 was $23.79.  So, we can see that all of these Banks missed their forecasts by a wide margin.  What is surprising is the forecast made by Thomson Reuters GFMS.  This is the same company that produces the World Silver Surveys.

The World Silver Surveys provide detailed supply and demand data on the global silver market.  If anyone has a good idea of where the price of silver is headed, you would certainly think Thomson Reuters GFMS would be the best qualified.

After Thomson Reuters GFMS blew their 2013 silver forecast by a whopping $17+ over the average price of $23.79, they have become a great deal more conservative in 2014 with a forecast of $20.42 for the year.

Why Typical Silver Forecasts Should Be Ignored

I stopped paying attention to the majority of silver forecasts years ago… especially those from the typical bank and brokerage houses.  The reason why I don’t believe in these mundane forecasts or technical analysis is due to the fact that we don’t have free markets.

Rob Kirby discussed this issue in an interview, Colossal Fraud: There Are No Free Markets with Greg Hunter at USAWatchdog.com.  Kirby explains that the Interest Rate Swap market has dwarfed the entire financial system:

Financial analyst Rob Kirby says, “There is colossal fraud and price control going on.  There are no free markets.”  Kirby goes on to say, “What we’ve seen over the last six months is a ramp-up in interest rate swaps to the tune of $12 trillion . . . . What the build in these interest rate swaps is achieving, it’s stemming the rise in interest rates.”

Kirby is quoting figures from the OCC – The Office of Comptroller of the Currency.  I went to the site and downloaded the Q3 2013 Derivatives Report.  Here is a table showing the banks derivatives contracts by type:

Banks Derivative Contracts by Type Q3 2013

Here we can see that the total amount of Interest Rate Swap contracts have increased in the top U.S. Banks from $184.9 trillion Q1 2013 to $195.4 trillion in Q3.  When I do the math, I get an increase of $10.6 trillion.  Maybe Kirby is including additional data to get that $12 trillion figure that I am not aware, regardless it is still a large increase in two quarters.

Furthermore, you will notice that the total notional value of the Interest Rate Swap market in the U.S. declined significantly from the end of 2010 (Q4 – $193.4 trillion) to Q4 2012 ($178.9 trillion).

However, when Q3 increased to $85 billion at the beginning of 2013, we can see a change in the trend as the total of the Interest Rate Swap market increased $16.5 trillion from $178.9 in Q4 2012 to $195.4 trillion in Q3 2013.

Kirby believes that even with the supposed $1 trillion a year of QE 3 in 2013, the banks had to ramp up its Interest Rate Swap exposure to keep U.S. Treasury rates from rising.  Rob Kirby and Jim Willie both believe the huge Interest Rate Swap market is the mechanism that is keeping alive the whole PAPER HOUSE OF CARDS…. I agree.

How much has the Interest Rate Swap market grown in the past 12 years?  I have provided the entire table of the banks derivatives contacts below:

Banks Derivative Contracts by Type Q3 2013 FULL TABLE

It may be hard to read (click on the image for larger view), but we can see that the Interest Rate Swap market has ballooned from $38.5 trillion in Q4 2001 to $195.4 trillion Q3 2013.

The Interest Rate Swap Market was supposedly designed to protect the borrower against higher costs if rates increased.  Unfortunately, the artificially low Fed induced interest rates have put severe pressure on those entities who got in bed with the banks with these Interest Rate Swap products.

According to the article, How Interest Rate Swaps Are Crushing America’s Cities:

Last week, I drove through the Lincoln Tunnel. The cash fare to travel the 1.5 miles from New Jersey into Manhattan was a whopping $13 – more than 50% more than the last time I was there.

When I jumped on the subway a few hours later, a one-way fare was $2.50, more than 60% more than when I lived in the city in 2008. And my water at the hotel? Shut off in the morning because the water authority was struggling to handle maintenance requests due to being short-handed.

These increases are not the result of the expansion of the transit system or increases in union salaries (common misconceptions).

Ultimately, the explosion in costs and slashing of budgets in New York and many other U.S. cities in recent years are happening because of a little-known type of financial contract – known as an interest rate swap.

You see, U.S. cities and their agencies have been on the wrong side of bad bets with the Big Banks. Now, these municipal agencies are struggling to cover their losses.

So, as interest rates continued to decline, these small towns, cities and municipalities had to pay the Big Banks huge payments.  The article explains how the Interest Rate Swap works:

To understand what went wrong, you need to know how interest rate swaps work.

In the case of the MTA (New York Metropolitan Transportation Authority), the transit agency pays the bank (for example, JPMorgan) a fixed rate on a bond in the form of interest. That rate is prearranged and is typically just a bit higher than the going market rate at the time of the contract as a means of “locking in” the best deal. In this case, that rate might be 4.5%.

Meanwhile, through the interest rate swap agreement, the bank returns a payment of interest on a variable rate (which floats according to the global debt markets). If the going market rate is above the 4.5%, the MTA would make money. If it is lower than 4.5%, they will end up losing money on the deal. In most cases, it is sold on the premise that both entities will break even over time.

Unfortunately, Wall Street has a funny way of being right all the time. Following the financial crisis, low interest rates have meant that the banks still pay the higher fixed rate, but low variable rates driven by the Federal Reserve’s policies have meant lower payments from the banks to the municipal borrowers of these swap agreements. So if the variable rate is 1.75%, but the fixed rate is 4.5%, the borrowers have to somehow cover the difference.

That’s where the taxpayers (or users of the agency’s services) come in. Fees they pay are being raised to pay for that difference.

Because interest rates have been kept artificially low by Fed intervention, the majority of these cities and towns are paying the banks dearly.  However, the real threat is not from these banks making money on lower interest rates, but the disaster that takes place when rates rise substantially.

As rates rise, then the banks will have to start paying the towns and cities instead of the other way around.  So, the higher interest rates go, the more losses the Big Banks will suffer.

The massive Interest Rate Swap Derivative Market has destroyed the ability for the financial system to function properly.  The U.S. Banks now hold the most Interest Rate Swap derivatives ever at $195 trillion.

So, What Does This Have To Do With Silver?

The Bank with the largest amount of derivatives in the United States is JP Morgan.  JP Morgan held $73.2 trillion in total derivatives in Q3 2013, including $83.5 billion in Gold & Precious Metal Derivatives… 81% of the top 4 bank total of $103.4 billion.

Silver Analyst, Ted Butler believes JP Morgan has been instrumental in controlling the precious metal market.  From his recent article, 2013 – The Year of JP Morgan:

From the very beginning of the year to the last two days of 2013, JPMorgan has dominated and controlled the price of silver and gold.

The price plunge through the end of June resulted in JPMorgan making more than $3 billion on their short market corners in COMEX gold and silver. So, to conclude that JPMorgan had nothing to do with the price plunge is the same as concluding that $3 billion in commodity futures trading profits is a normal and regular occurrence.

As was the case in 2013 and every year since 2008, the next year in gold and silver will be determined by JPMorgan. But considering that JPMorgan now holds a long market corner in COMEX gold for the first time in history, it is hard to see how 2014 doesn’t shape up to be the exact opposite of 2013. Throw in JPM’s sharply reduced short position in COMEX silver and the massive quantities of physical gold and silver acquired by the bank and the start of 2014 couldn’t be more different than the set up of a year ago.

I have to agree with Butler here.  Not only is JP Morgan now long gold, they have drastically reduced their net short silver positions.  Furthermore, the Fed and its member banks (JP Morgue’n & Goldman Sacked) aren’t that stupid to push the price of gold and silver below its primary cost of production for an extended period.

According to my analysis, the top 12 Primary Silver Miners estimated break-even for Q3 2013 was $21.39.  I have not done the analysis yet on the top gold miners, but from what I understand their break-even is around the $1,150-$1,200 area.

As I have stated several times, I don’t believe in Technical Analysis in a rigged market.  I am quite surprised professionals still pay attention to this meaningless metric.

Lastly, I am not quite sure of where the price of silver will go in 2014.  There are just too damn many variables.  We could see an explosion in the price if we do get the “RUMORED” Global currency reset.  We could see a sharp move higher in the first quarter with a retrenchment and then a move higher by the end of the year.

Whatever the price movement, I doubt we will see much lower prices.

That being said, I have not invested in silver for short-term gains.  I believe in holding for the longer term.  Gold and Silver will be some of the best investments to own in the future… it just takes a great deal of patience to realize the gains.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5061
saying it doesn't make it so

You make logical points, but they're superficial and rebuttable.

I wonder, if you truly felt this, would you need to preface your response by first negatively characterizing my post or would you simply respond and let the force of your argument speak for itself?  Me - I choose just to respond to what you say.

Ok, so one guy in China - the guy in charge of GOLD IN CHINA - said six months ago that the US is manipulating the price of gold.  All right.  I'm a bit underwhelmed, I don't see how that leads inexorably to a gold-backed currency, but ok.  One would even think that were it the case China wanted to accumulate gold playing the long game eventually springing the gold-backed yuan onto the global stage by surprise, they'd keep mum and gleefully chortle over every drop in the price of gold, rather than have Mr Gold China run off and start pointing fingers.

And Rickards and his SDRs.  Ok, sure, its a scenario.  Might even happen.  Again, how does that lead inexorably to the whole China gold-backed Yuan/Reserve Currency thing?

Now then, if you've looked at the western nation reserve accounts, the vast majority of their forex reserves...just happen to be gold.  Have you looked at them?   Any guesses as to what the US currency reserve is vs gold holdings?  The eurozone?

US:  FCR $42.9B, Gold $321B [261M oz] - 88%

Eurozone: FCR $221B, Gold $426B [347M oz] - 66%

Russia: FCR $459B, Gold $40B [32.6M oz] - 8.7%

Turkey: FCR $133B, Gold $40B [16.3M oz] - 15%

Switzerland: FCR $480B, Gold $41B [32M oz] - 7.8%

China: FCR $3,557B, Gold $394B [321M oz - according to you - 10k tons] - 10%

So in the best case - BEST CASE - China has slight more FCR in gold as a percentage of total FCR than Switzerland and Russia, not as much as Turkey, and definitely not even close to the levels of the two major other players, the US and the Eurozone.

Is China diversifying out of dollars?  I would, if I were them.  They've gone and swapped a huge amount of production for paper, and now after doing that, they realize that perhaps they should have something more substantial than paper.  35% of their FCR are in dollars, according to the US treasury.  And yet, this diversification is still not prima facie evidence for China's allegedly inexorable move to a gold backed yuan.

Again, my contention is that China is arranging its reserves to match what the other great powers have: relatively larger chunks of gold, and relatively smaller chunks of currency.  If China has 10% of its reserves in gold - that's nice, possibly useful for them under certain circumstances, lessens their reliance on the US and its overindebted profligacy, but it is still not evidence of your claim of a virtually certain gold backed chinese Yuan becoming the global reserve currency.

As for gold being strategy - of course its strategy.  I said as much, by pointing out China wants to step into the role of big power politics, and gold is one of those things they need to play that game.  Its just another piece on the board.

But the fact they have a piece doesn't lead inexorably to that piece being used in the way you hope and assume it will.  Just because the Chinese have missiles does not then imply they are planning a first strike on the continental US.  Or Russia.  Or wherever.  Gold + paper gives them more options, whereas simply having a bunch of paper leaves them with fewer options.

I know its the great hope and dream of goldbugs everywhere that some nation will gold-back its currency.  China is just the latest country for goldbugs to pin their hopes and dreams on.  Sure it could happen.  Is it the likely scenario?  Meh.  Not to my mind.  There are lots of possibilities - retaining the status quo while diversifying out of dollars is the most likely one in my book.

But of course, intelligent people can differ on this, as is clear we do.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Gold and the FED

Since this thread is still alive... there is something that Dave said early in this thread that I would like to take a stab at rebuffing;

So let me get this straight.  The Fed openly manipulates the laundry list of stuff they think is critical to controlling the economy, spending literally trillions of dollars to do so, yet they manipulate gold in secret?  Why not manipulate it openly, like they do every other thing they manipulate?

This position has never made any sense to me.  Gold is either this super-duper important thing for the Fed to control in secret when everything else they do is either open (or was exposed in the audit) - or just possibly, they honestly don't care that much about it anymore, especially compared to interest rates, which they do care about a great deal.

Sure, they used to care about gold, back when we were just getting off the gold standard.  But now?  I think to them, gold really is a relic.  They dare not discard it - in a sort of bureaucratic cover-your-ass "who knows that old box of Grandfather's in the attic may be important someday" sort of way - but they prefer to operate on other stuff that has immediate impact: mainly interest rates, and the value of the USD which needs to be not-too-high and not-too-low.

I think they are all a bit crazy for their views and actions imagining that this will all end well, but - in in ascertaining the likelihood of the whole secretive gold manipulation scheme, what they think is the critical bit, and I don't think they really focus on gold much at all.

I think that the FED cares... a lot, and I don't find the, "open", vs. "secret" manipulation argument at all convincing.   I think that the FED and the Treasury work together on suppressing Gold.  I ran across one interesting tidbit today that made me think of this again... from Dave Kranzler's blog, in the comments section of todays post on the latest Gold smash attempt;

http://truthingold.blogspot.com/2014/01/the-price-of-gold-feds-60-second...

This still seems to be "effective" desperation. As long as they are allowed, and the crowd plays along, it will continue

Reply

Replies
 
  • Picture%2B013.jpg

    Not really. The big banks on the Comex are now very net long gold. The retail trader is net short. I think the last time the retail trader was short Comex gold was like 2000 or 2001.

    The paper manipulators are getting run over by the physical demand from the east and India may be getting ready to lift its import controls. The current Govt will get overthrown in the elections this spring if they don't. The front-runner is not friendly to the West. I have it from a good source - as in, used to be a White House insider in DC - that the U.S. Govt had a heavy hand in India's decision to put the gold import controls in place.

    This price capping on gold is almost over. They have to let price go up a lot in order to try and create some physical selling otherwise they'll default on Comex and LBMA forwards.
     

So there you have it... I have read speculation about the US strong arming India into their Draconian Gold capital controls last year.. but I had not seen anything, even anecdotal, as above, that was confirmatory.  But desperate groups do desperate things... and the fact that you can't make nor print Gold, and with the tightness in the physical markets.. something had to be done to keep the can kicked.  Squelching India worked for at least a bit, before the Gold runners figured out that they could get mules to legally carry 1Kg each on planes into India. 

Anyway, the other story that I want to highlight that helps make my point is this one;

http://www.zerohedge.com/news/2013-12-31/iranian-billionaire-promoting-p...

What is unknown is whether his detention was merely Iran no longer needing his assistance to promote the usage of petrogold as a bypass of the petrodollar system now that the Iranian sanctions have been lifted. The only question we have is how much of Zanjani's arrest was due to behind the scenes US influence making it clear that the Iranian detente will only take place - nuclear enrichment strawman forgotten - only if all those who made Petrogold possible are quietely put behind bars...

If you had been wondering why the US capitulated on the Iran talks without seemingly getting concessions with any teeth in them on the nuclear front.. it is probably just this;  it was all about the selling of Oil for Gold in the first place.

The FED's product is the Federal Reserve Note, aka dollar.  It's one thing when Oil gets sold in Yuan through the ever-growing matrix of Yuan swap agreements... but it's another thing entirely when Oil gets sold for Gold.  The FED-Gov can compete with other fiat currencies... but they cannot ultimately compete with Gold, if Gold becomes a popular means of exchange once again.  Gold must be suppressed.

Volcker understood Gold

http://www.gata.org/node/10926

"On November 15, 2004, The Nikkei Weekly published the following excerpt from your memiors about the U.S. dollar revaluation that took place on February 12, 1973. You wrote:

"'That day the United States announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.'

And Greenspan certainly understood Gold - from his 1966 writings 

http://www.constitution.org/mon/greenspan_gold.htm

As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

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.

The central bankers of the BRIC's nations.. that have been adding Gold to their countries' central bank reserves over the last few years  (http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart2_27-08-13.png) ... these guys are not some kind of dumb schlubs operating on imperfect information.  They all know exactly what is going on in the monetary world and they are reacting to it in a way that they deem rational.  Bernanke can play dumb about Gold all he wants.. I don't believe him for a second, and I would not recommend that anyone else does either.  Be your own central bank (BRICs style).     

 

    

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5061
does the Fed care about gold?

Jim, all your points flow from that one question.

If the Fed cares greatly, if - secretly - gold is the center of the Fed's concern about everything in the world, then everything you say makes complete sense.  It all hangs together quite nicely, its all evidence of the Fed/Treasury worldwide trickery and manipulation.

So if true, then the whole bond-buying QE affair is just a massive distraction game, their 4 trillion dollar spend on treasury bonds is one massive super-expensive headfake, while "the real game" is all about gold and making sure it doesn't come back.

Unfortunately, I disagree with that primary assumption, so what follows from that is your points that all depend on that assumption are also invalidated - at least in my opinion.  Claims that the whole Iran thing was all about gold & oil (when it "appeared" it was about nuclear weapons) seem unlikely, if we assume for a moment neither the Fed nor the Treasury care about gold in the way you say they do.  Occam's Razor would suggest that the whole game that is apparently about nuclear weapons is, in fact, about nuclear weapons.

Before 1971, the Fed most definitely cared about gold.  After all, its job was to manage a gold-backed dollar, so gold and interest rates were the critical parts to the whole game.  And for a time thereafter, they continued caring about gold, because institutional habits die hard, and they weren't sure this divergence away from gold wasn't some temporary phenomon.  But 5 Chairmen and 42 years later, I claim the Fed has largely forgotten about gold.  Everyone from the gold era has long since retired, and its institutional memory about gold is equivalent to the US Navy's institutional memory on how to best maneuver one's fleet to ensure the full weight of a battleship's broadside could be brought to bear on an enemy fleet.

So does the Fed care about gold today?  My sense is no - simply based on their spending, if nothing else.  Old documents dug up from the Age of Gold, or shortly thereafter, are not compelling to me.  They simply serve to convince me of something I already know: that the Fed used to care, back when it was their job to do so, but they do not anymore.

I realize they could be playing a secret, deep game, but I think the odds are against it.  Everyone who cared about gold at the Fed has long since either retired, or passed away.  That's my sense anyway.

I am not saying gold is some archaic thing that should be ignored, but I do think that the Fed believes this.  Gold is great insurance for individuals, and physical gold makes more sense than paper whose underlying ownership of the metal can change in all sorts of unfortunate ways.

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Falling into the Trap

Dave,

Regarding tone, when I wrote "superficial and rebuttable", I can honestly say I was trying to be descriptive i.e. referring to an argument that looks a few numerical data points and not at other dimensions, such as monetary history, culture and human behavior.

I can see how it may have offended you, since I want a substantive discussion, I won't characterize your arguments with adjectives.

Regarding the President of the Chinese Gold Industry, my point is that he is not "one guy in China", he is the most prominent industry representative of gold producers in China.  If this does not get your attention, then so be it.  FWIW he is on my list.

I appreciate why you might see a strategy is better where China is "mum" and quietly accumulates gold.  I think if you reflect about major transitions in world history (there's that other dimension again), many if not most consequential transitions that are 'managed' by countries with a strategic plan are paved with increasing rhetoric and opinion-shaping.

Recall the majority of people in politics are not engineers and scientists, but public relations and political theory types, not to mention lawyers who make a living on taking the same set of facts and putting their "spin" on it for their own advantage.  In other words, there is not a reflex admiration for facts and truth, there is a reflex admiration for spin and talking points, for wordsmithing and pushing emotional buttons.  Who was it that said 'a million deaths is a statistic, a single death is a tragedy".

Hitler didn't just wake up one day on the wrong side of the bed and say "gee, today would be a great day to invade Poland", there was a long runup where Hitler was openly claiming rights to lands outside of Germany, building up the military, annexing Austria etc.

For a recent example in our collective experience, Bush (not at all trying to be political or analogize Bush to Hitler, please hold comments) didn't just spring an announcement on U.S. citizens and say 'hey, guess what, we decided to take over Iraq'.  As you well know, there was beating of the war drums, Colin Powell at the U.N., congressional resolutions.  Public opinion shaping.  Propaganda.

Government PTB instinctively know they must win a propaganda war first, then they fight the real war.  That's why it's deadly serious to listen to what people are saying, personally or through proxies, in the propaganda war.  That's why we must take deadly serious Iran's nuclear threat, and when presidential candidates say they want to "radically transform America".

These propaganda wars are the art of saying what you want to say, when you want to say it, and holding back information that is of strategic value.   In advance of a global currency reset, I would play it exactly as China has, make increasingly shrill comments about U.S. profligacy, about U.S. manipulation of markets, and let some information leak slowly out about how you are accumulating gold and resources without revealing exactly how big your stockpile is.

Remember you are trying to align public opinion against your foe and in your favor.  You want sideliners to both love and fear you.  Global politics is about picking sides and searching out your own interest. 

Regarding the trap, you are falling into exactly the trap that the U.S.government wants you to- you are pricing everything in USD.  You are looking at a snapshot of the current state, not thinking like a chess master of what the future state will look like.

Everything you measure in USD.  You don't focus on the metric of oz.   What does a future look like after a currency reset.  What if the dollar has lost 50% of its purchasing power?  What if it loses 90% of its purchasing power?  And most importantly what if the price of gold is reset much higher in terms of USD?  5-fold higher or 10-fold higher?

Also, USD forex reserves are steadily declining in central banks.  And the huge balance of USD in the Chinese central bank is a legacy of decades of trade with the U.S. in dollars.  This is being unwound as we speak.  That theme is ending. 

Think like a politician (not saying you have to agree with their views), not like a propaganda target.

I sympathize with you since I perceive as a trader you seek out hard numbers and truth, just as I reflexively do from a scientific background.  Unfortunately, and I am learning the hard way, there is this squishy dimension of opinion and mindset, which amazingly has real impact on prices and the physical realm.

H

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5061
China: looking at the data

Hrunner-

Ok, grand, we can skip the characterizations.  :-)

So you're right, I like to look at data.  You brought up some interesting data point/assumptions that I ran off to check.

First - are US forex reserves "steadily declining" in central banks?

It depends on the time period.  Prior to the crash, they were, mainly because the euro's share was growing.   Since the peak for the euro in 2009, the USD percentage has been tracking sideways, unchanged since that time.  And this is on a percentage basis.   So mythbusters would have to say "mostly busted" on that one, since "steadily declining" should likely not include a period of mostly sideways movement over the last 4-5 years.

Is any currency rising or falling in holdings?  Holdings of the euro has dropped off - from about 26% at its peak in 2009 to about 24.2% today.  So has "other", which has dropped from 6% to about 3%.  No huge moves, in other words, except for "other."  Those expecting the dollar to have fallen off a cliff would be disappointed by the actual data - at least since 2010 anyways.

Gold has likely increased, but I haven't done a formal study.

It may surprise you to know that China's USD reserves haven't declined in absolute terms.  Its still about 1.3 trillion, pretty much where it has been (with an intervening dip) for the past couple of years.  It actually climbed over the past year, just FWIW.

As a percentage China's USD reserves have dropped, from a high of 45% in 2011 to the current level of 35%.  So I suppose its all in how you look at it.  Total exposure hasn't dropped, but the percentage of the portfolio has definitely declined.

Mythbusters might give you the benefit of the doubt and give you a "confirmed" - but only as a percentage rather than an actual decline.

Lastly, while China's FCR may have been decades in the making, China's UST reserves were 59B USD in 2001, 230B in 2005, 450B in 2008, and 1300B in 2011.  More than 60% of China's USD reserves have appeared in the last five years.  That's a "busted", I'm afraid.

What does all this data mean?

My belief: China looked at the trend of their overall FCR accumulation in 2008, and figured out that they were going to have to do something with a large number of dollars - and euros - and other currencies too.  Here's a chart that bears this out:

China has a 3.68 trillion dollar problem to solve.  They have to put all those reserves somewhere that will (hopefully) hold value.  They don't trust US or eurozone bonds as that sole vehicle.  So of course they're investing in all sorts of things.  Gold is just one of them.

Goldbugs just see things through the lens of "I want a nation to gold-back their currency" rather than from the point of view of the CCB and its massive 3.6 trillion dollar problem to solve.  Every nation with a sovereign wealth fund has a similar problem: how to invest the proceeds somewhere that will retain value over time?

Could this be a "secret plot to launch a gold-backed currency?"  I suppose - but I doubt it.  Occam's Razor says to me that the Chinese just have a big pot of money to invest, and gold is just one of the vehicles they chose.

As for Mr Gold China pointing fingers at the US - perhaps he is actually just communicating indirectly with his central authority and suggesting that they should provide more funding for his gold mines. The CIA and the DOD did the same thing with the alleged "bomber gap" and then the "missile gap" during the cold war.  It sounds like he's trying to cadge a bigger budget out of the central planners.  Or am I too cynical?  They'd never do the same things we did.  Would they?

I studied plenty of soft stuff in my years of study of political science and history (see references above to "bomber gap" and "missile gap.")  As I said, its possible this is some grand plot, but it feels more like a group with a big pot of money to put somewhere safe.  It is not at all as exciting as the variant you propose - in fact, my explanation is boring - but I think that's what is going down.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Occam's razor in the age of propaganda

Thank you for the reply Dave.  You can't argue that the FED wants light shed on every aspect of it's operations;

http://www.bloomberg.com/news/2011-12-23/fed-s-once-secret-data-compiled...

The data reflect lending from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Term Auction Facility, the Term Securities Lending Facility, the discount window and single-tranche open market operations, or ST OMO.

Bloomberg News obtained information about the discount window and ST OMO through the Freedom of Information Act. While the Fed initially rejected a request for discount-window information, Bloomberg LP, the parent company of Bloomberg News, filed a federal lawsuit to force disclosure and won in the lower courts. In March, the U.S. Supreme Court decided not to intervene in the case, and the Fed released more than 29,000 pages of transaction data.

You can go on believing Bernanke when he says he does not understand Gold.  You can go on believing that they really don't care about Gold anymore.  While it is clear to me that Bernanke must create the illusion that he does not care about Gold in order to keep the sheeple thinking that they don't need to care about it either... you know, the whole, "FED communication/jawboning" thing... I don't for a second believe that this is how they act.         

l am more receptive to the Occam's razor argument.. but I believe that now, more than ever, you have to be very careful in accepting the most obvious, simple answer, especially when it is the one being sent over the mass media airwaves.

Somebody once said, 

These propaganda wars are the art of saying what you want to say, when you want to say it, and holding back information that is of strategic value.

Oh yeah!  It was HRunner in the previous post!

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5061
The Fed and transparency

Jim-

One area of agreement we have is the Fed and their desire to avoid being transparent.  They moved heaven and earth to avoid fessing up to the huge truckloads of money they dumped pretty much everywhere in order to avoid a system meltdown in 2008.  All the junky bonds they bought, all the loans they made to foreign banks, all of it - they didn't want the details of any of that getting out.  Fed Dirty Laundry, to be kept secret at all costs.

None of it had anything to do with gold, of course, which I find interesting.  The stuff they wanted kept secret had everything to do with paper.  That's where they dumped their 16 trillion dollars of intervention money: buying paper.

Why is that, if gold is really the supersecret Fed Kryptonite?

Not only is there no evidence of the (modern, paper) Fed Caring about Gold, theres a distinct lack of evidence.  Of course, one could always say, "aha, well then, that PROVES its so secret, they had to remove that evidence from the audit, because then everyone would be really upset..."

The line of argument just isn't compelling to me.  Sometimes things are really the way they seem.  The Fed spent all their intervention money on paper, because their charter changed in 1971 from a gold-focused organization to one focused on paper, and so that's the arena they operate in.

Doesn't mean we should emulate them, of course.  I think the paper stuff will break down at some point, and in a pretty dramatic way.  The gold leasing stuff is one way that comes to mind.  Another is bail-ins.  But to go that next step and assume the Fed realizes this as well...and has launched a massive disinformation campaign to squelch gold in order to eliminate competition:

"Never attribute to malice that which can be adequately explained by stupidity."

http://en.wikipedia.org/wiki/Hanlon%27s_razor

Also known as the Disease of Victory.  They've succeeded so long, they think its because they are really, really smart, rather than the fact they were just riding the coat-tails of a multi-generational credit boom that has now popped.  And they are just now getting the glimmerings that their usual tricks may not be working...ah there's nothing like a big entrenched bureaucracy with 42 years of successful bubble-blowing operations facing a new situation, with the solution of course being: let's blow an even bigger bubble! 

What could possibly go wrong?  :-)

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3124
attitudes

Seems to me that the critical issue that isn't being discussed here is peoples' attitudes.  In the final analysis all money is fiat.  It's people's attitudes that make whatever fiat real money.  For the last 42 years our gov't and Fed have pursued a largely successful campaign of convincing us that gold is a relic.  The EU apparently has also.  I don't know the exact numbers, but those two entities still make up a large majority of the world's economy.  We have been convinced, so there doesn't have to be a huge conspiratorial effort to maintain that belief.  Just do what Ben did when asked about gold, he would shrug and refer to it as a commodity.  That continues to work.  As long as we don't believe gold is money, it isn't.

However, 60% of the world's population (mostly Asia) disagrees and is buying gold as fast they can and are encouraged to do so (except India) by their gov'ts.  Given the fact that their collective economy is growing faster than ours, sooner or later they will catch up and perhaps surpass us.  If attitudes remain the same then a majority of the world's population and economy will believe gold is money.  Then it will be, for all of us.  In the meantime the dollar is still king.

That may be simplistic, but it makes sense to me.

Doug

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Two Worlds

Dave,
I appreciate the details that you added. It still supports my contention.

The fact that total reserves have not gone up in the face of a huge trade deficit with the U.S. means that China is doing a fantastic job of unloading dollars. Into gold, into buying resources around the world, off-loading USD into the state-owned China Investment Corporation sovereign wealth fund. (~200 billion that we know of so far).

The fact that the relative percentage of USD reserves is going down means that China is diversifying its economy more, to sell more goods and services domestically and with non-U.S. trading partners that are getting more wealthy or at least increasing their relative imports of Chinese goods.

China simply needs less U.S. dollar liquidity in this environment.

If you widen the lens, you will see that China has the same problem that we PPers have:

(Well, I can't seem to upload pictures here, so I insert a link to the source)

www.tradingeconomics.com/china/central-bank-balance-sheet

China's real problem is that the U.S. is destroying the value of the dollar, and at the same time, China is expanding it's balance sheet equally as fast as the U.S. (currency wars, anyone?)

So do you think they want a huge amount of worthless dollars and a huge amount of worthless yuan in the future, or a huge amount of worthless dollars and a huge amount of valuable yuan backed by gold?

Seems like a straightforward answer.

Think about it. You look at China the same way that sheeple look at PPers.

Ergo, "you PPers think the dollar is worthless, but you get paid in dollars, you take out mortgages in dollars, you buy dinner at Applebees in dollars, but at the same time you are buying gold, seeds, food, tools, real estate, putting money into your homestead. So which is it, do you believe the dollar is worth something or worthless.?

You see, the answer is "both". The damnable thing is we have to live in two worlds. The immediate world where the USD is worth something, can be exchanged for things of value, most of our community uses the USD, but also with a foot in the future world.

You know, the world that Chris refers to as where "the next 20 years will be very different from the previous 20 years"

So it makes perfect sense to me that China accumulates dollars because it has to keep trade going in the immediate world, but buy lots of gold to prepare for the future world, one where the USD is no longer the sole reserve currency and where currencies are partially gold backed.

(For accuracy, I am not a proponent of a gold standard, I have been in favor of a sound money system that is more modern and wealth backed, in harmony with the functionality of money. We had a good discussion on this site with Chris- please refer to those posts to get a sense of the concept. I just believe that a gold standard is simpler than my 'modern wealth standard' and that is where the world will end up in a time of crisis.

Looking forward to more posts on gold and silver. I'll be watching the market and public data for cracks.
Thanks,
H

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KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 653
Latest SRSrocco Report (Charts)

 

 

Hi Gang.  Thought these charts might be of interest.  First time I've seen this type of info.
 
 
 

http://srsroccoreport.com)" rel="noreferrer noopener">SRSrocco Report

 

Big COMEX Gold Withdrawals & New Record Low Dealer Inventory

Posted: 09 Jan 2014 09:27 PM PST

After a brief pause in the decline of Comex Gold inventories, it looks like it has continued once again as there were several big withdrawals over the past few days.  Not only was there a large removal of gold from the Comex today, the Registered (Dealer) inventories are now at a new record low.

Scotia Mocatta had 63,786 oz of gold withdrawn from its Registered category.  This is quite significant as Scotia Mocatta’s total Registered gold inventories fell 41% in one day from 152,409 oz to 88,532 oz.

COMEX GOLD 10914

(click on image to see larger size)

Furthermore, you will notice that the total Registered gold inventories are now down to record low 416,563 oz.  The gold in the Eligible category is held by Customers at the Comex while the Registered inventories are the Dealer stocks.

A day prior to this update, there was 52,539 oz of gold withdrawn from JP Morgan’s Eligible category.

We can see just how much the Registered inventories have fallen since the take-down in the price of gold in April of 2013.  The Comex held nearly 3 million oz of gold in its Registered category, but today it has fallen 86% to 416,563 oz.

Registered Gold Inventories 10914 NEW RECORD LOW

The figures in this chart from 24hGold.com do not reflect the drop of 63,976 oz from the Comex today.  As you can see, the bottom left hand corner of the chart only goes down to 431,530 oz.

According to the 1 month Registered gold inventory chart, there has been a huge draw-down since Dec. 12th.  From a peak of 780,000 oz on Dec. 12th, the Registered inventories have declined 363,437 oz (46%).

1 Month Registered Inventory Chart

In addition, the GLD ETF has shed 1,108,673 oz from its inventories in the same time period which puts the total decline for the Comex & GLD stocks since Dec. 12th, at 1,472,110 oz.

It looks like a great deal of gold is still heading East as the West continues to live on borrowed paper time.

Big Withdrawal From Comex Silver Inventories

It has been a while since we have seen a large withdrawal of silver from the Comex.  Since Sept. 2013, inventories at the Comex have seen a steady build from 161 million oz. to nearly 177 million oz.

However, there were two large and one small withdrawal from the Comex silver inventories today which totaled 1,354,270 oz.

COMEX SILVER 10914

 (click on image to see larger size)

Some analysts see the build in Comex Silver inventories as a bearish outlook for price in the future.  While we have seen a substantial build in total silver inventories at the Comex, the majority of it has been in the Eligible (Customer) category.

From May of 2011 when the price of silver reached its peak, Comex silver inventories hit a low of 86 million.  Today the total is 175 million.

Here are the changes in Comex Silver Inventories:

May 2011 Registered = 26 million oz

Jan 2013 Registered = 50 million oz (increase of 24 million oz)

May 2011 Eligible = 60 million oz

Jan 2013 Eligible = 125 million oz (increase of 65 million oz)

Despite the large build in Comex Silver inventories, this will not be detrimental for the price going forward when we consider upcoming positive factors in the silver market.

This will be discussed in my next article, INSTITUTIONAL BUYING:  The Coming Silver Game-Changer… coming this weekend.

IMPORTANT UPDATE:  In the next few weeks I will be adding a new section to the site called the REPORT PAGE.  On the REPORT PAGE, there will be Free & Paid Reports.

I mentioned a few weeks ago that I was going to put out a BOMB-SHELL that may change many previously held assumptions.  I still plan on putting out that report, however it will be part of a U.S. & GLOBAL COLLAPSE REPORT that will be my first Paid Report.

For those who have been waiting for these Reports… I appreciate your patience.

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