GOLD MANIA

ENDURING GOLD CONSOLIDATION

The uptrend in the Gold chart is intact. A massive breakout is in a period of consolidation since August. Expect more USFed monetization purchase of USTreasury Bonds, a process that has not stopped. The main emphasis of the USFed and QE discussion is simple. They continue the debt monetization but have decided not to talk about it anymore, in an end to transparency. Expect more USGovt stimulus, as austerity is shoved aside. Expect $2 trillion in USGovt deficits next year, as revenues are on the decline and urgent new stimulus programs will be eventually passed. Gold rises from the ruin of the monetary system and elimination of all safe havens. People should not be discouraged by the relatively minor selloffs in Gold & Silver. The gold price is still at or above the uptrend line even after the minor panic on Thursday. Even at $1740, a hefty 12% gain in gold asset appreciation has been seen since the June $1550 price, for only one quarter in time. What a rout! What a distortion! What a joke! Climb aboard! When the storms pass and need for bank recapitalization occurs, the need for economic stimulus occurs, the need for more sovereign bond redemption occurs, the need for more debt monetization (new & rollover) occurs, the Gold price will fly past the $2000 mark.

Memories are indeed very poor and fleeting. The market slammed the Gold price in early May back down to $1500 during ambushes, yet in only four months new highs over $1900 were registered. History will repeat itself, but without the weak hands on the wagon train. They never learn, and neither do the nitwit Deflation Knuckleheads. They are consistently half blind. They were overrun by the gold train this summer, but maintain their arrogant erroneous views. Prepare for a massive Gold rally when the recapitalization, stimulus, redemption, and monetization comes forth in a very public manner. During the collapse underway, Gold & Silver will be among the very few assets standing. The USTreasurys eventually will be wanted by nobody except the USFed central bank. Their bid will be alone, leading to a USDollar symbolic of the failed monetary system. The USTBond will be in retreat from the 1.5% low point in yield, as foreign creditors will finally jump off the asset bubble zeppelin before it lights up in flames.

The hat trick letter

They are :

Peter schiff
Marc faber
Max keiser
James g rickards
Rick rule
Eric sprott
Bob chapman
Jim rogers
John embry
Mike maloney
Robert kiyosaki
Jim sinclair
Miceal pento
James turk
Ben davies
Rob mckewan
James dimes
Tyler durden
Dan norcini
Jim willie.

Not in any order… All have fantastic words of wisdom.

Many people believe the Jackson Hole was a non-event, a failure and it was. QE 3 was not announced, as we predicted. We believe that was being saved for mid-September when the $300 billion rollover in Treasury securities is completed. Mr. Bernanke has failed in a number of respects, the most glaring being zero interest rates for 2-years and no housing recovery. Even purchasing $1.3 trillion in toxic mortgages has only helped the banks. We still do not know what the Fed paid and what these bonds are worth. No matter what happens the Fed has to again purchase about $900 billion more Treasuries this new upcoming fiscal year. There is no way to avoid that and if they have to buy Agencies and more toxic bonds the figures will be higher. Auction failures cannot be tolerated. This will, of course, increase inflation in 2013 and 2014. Sales to consumers and profits will fall as a result.
Not so fast, the Fed still has more monetary ammunition most people haven’t thought about and it lying on its books. It is the funds that belong to member banks, some $2 trillion that banks have been refusing to put to work. We mentioned the beginning of the movement of these funds from the Fed to the banks just recently. Will this persist? We do not know, but we think it will. It is a natural answer to the funding problem, they perhaps had been deliberately held in abeyance. We believe this could in part solve the liquidity problem over the next year or more. The Fed has sent the word out to the banks. It is time to employ our secret weapon. As a result in July and August we saw what is tantamount to monetary stimulus, and do not forget this is monetization, money that has not as yet flowed into the system. That means its usage will be inflationary.
Heretofore, these funds were deliberately withheld from the system to be used at the perfect time. There were plenty of borrowers, but the banks did not lend, because they were told to wait for the right moment. The unleashing of these funds leveraged into the fractional banking system will cause damage and inflation, but they will provide temporary assistance to a failing economy. The Fed also needed some relief as their balance sheet grew close to 25%. The combination of Fed spending for treasuries, bank lending and perhaps some government spending, should reinvigorate the economy temporarily over the next year. Unemployment should decline slightly and consumption and personal debt should grow. We think Mr. Bernanke’s plan will fall far short, because like in the 1930s too much structural damage has taken place. Demand for goods and services will grow, but not as much as anticipated and as long as desired. This unfortunately leads to disruption within the system for no other reason than the previous systemic damage visited upon the economy. We are about to see a respite but not a permanent solution. America is headed for 2nd or 3rd world status and the Fed is trying to get us there as soon as possible.
If you really want to understand how desperate the elitists are you have to take notice of their control of the US media. Every time they can a big deal is made out of every happening, such as the recent tropical storm, Irene, or the BP disaster, or anything to shift attention away from the dreadful state of the economy, unemployment, CPI or anything financially negative. In NYC, Irene, gave Mayor Bloomberg the excuse to make NYC look like a nuclear attack was underway. He ordered the evacuation of NYC, closes off transportation when he knows few New Yorkers have cars. This is how desperate the elitists are. Any distraction is used to take people’s eyes off the real problem. The Bloomberg theatrics were beyond the stage. He threatened to jail anyone who did not heed his dictates. What a meathead. He should have stayed in Medford, MA, where my mother lived near his family in the Lawrence Estates. This shows you how far the elitists will go and how ridiculous they appear, just to use their power. At the end of the farce, the coast had rain and high winds. The interior suffered more. Irene was essentially a phony scare – on a par with their phony financial and economic remedies.
As the corporatist fascist model comes more into play and becomes more obvious Americans are going to take orders from a more progressively authoritarian government that will eventually become dictatorial. These bubbleheads will overact all the way, because their power base is rooted in Wall Street and banking. They use the same concept with these events as they do with the idiotic terrorist threat. The people in political authority in America are control freaks. They are all dummies and they know it, and they’ll be the first ones thrown by the elitist to the wolves. They are a ridiculous tragedy.
The elitists do not care who gets elected the next president. They own them all except Dr. Ron Paul. We are told that to win the presidency one needs $1 billion. This is incredible and it proves why we need a change in campaign laws to harness the power of all those behind the scenes that buy our elected members. No member of Congress votes the way they want too. As soon as elected they are raising funds for reelection and in that process sell their souls.
One of the interesting factoids we have come across is the accounting for the US dollars loss of purchasing power due to inflation over the period of the last 2 years; half of the men aged 30 to 50 years saw wages fall 27%. Today only 63.5% of men actually have a job of any kind. This is the second lowest figure since 1948. The members of that era now shortly are going to be asked to have their retirement cut, which they paid for, to supply the military industrial complex with more money for more wars. As it turns out the Illuminists and their purchased politicians have sold Americans out for the past 100 years.
Mr. Bernanke at the Fed has indicated that the culprit in this financial mess is none other than the US government. He is right in part, but the Fed has caused 90% of these problems. The Fed should have long ago been reabsorbed into the Treasury, especially after observing its performance over the past few years. The lying about what they had been doing in lending something close to $20 trillion and keeping it a secret. Not to be outdone, both the US dollar and the Euro are in serious trouble and both have to find new lower levels. Versus gold and silver, they are both off annually more than 20% versus gold and silver. We expect those performances over time will worsen. In the case of the euro we have to see what is accomplished with Germany and the loans to failing countries. No matter what the outcome both the Fed and the ECB will continue to create money and credit one way or another and in that process achieve little except a temporary solution and substantially more inflation. In Europe, interest rates are 1.5%; in the US they are zero. What does one do for an encore? Very simply, both the dollar and the euro are in a box and cannot get out. If it’s not QE 3 and stimulus 3 at least for the time being it is the banks lending money that was lent to them two years ago by the Fed. All of the Fed’s and ECB’ policies do not work. We know that already. Those who believe that the Fed and the EB don’t know what they are doing are wrong. Both central banks know exactly what they are doing. That is creating a framework for the financial and economic destruction of economies of the US, UK and Europe in order to bring about a New World Order. In order to not allow the system to fail can never heal itself. Insolvent banks were legally allowed to carry two sets of books with the approval of the US government, the Bank for International Settlements, the BIS, and the accounting rules group FASB. What is very important to realize here is that some of these banks that are insolvent own the Fed. As a result they tell the Fed how much money and credit they need, and as a result they flow to the banks in unlimited amounts. This has to end. Banks are holding assets that have little or no value. They hold 3.5 million foreclosed homes in inventory and over the next five years that number will be 8 to 10 million homes worth 20% to 30% less than they are worth today. Yes, the FDIC would cease to insure and government will do what it did in the 1930s, allow you to withdraw only 5% of your balance at a time. Your deposits would essentially be lost perhaps temporarily or maybe permanently. Now you can better realize how really dire the situation is.
Supposedly everyone dislikes the debt extension bill and this is the reason Congress went along with the concept of a “Super Congress.” They do not want to be responsible for its passage. The debt limit will go to $16.7 trillion and there are to be almost $1 trillion in budget cuts. The second stage of cuts would be $1.4 trillion. The cuts over 10 years are only $240 billion a year. These cuts are a drop in the bucket compared to a $1.7 billion annual budget deficit. It will be interesting to see if the second stage includes tax increases. Both parties are failing to understand the country is bankrupt. These small changes are not going to change anything. The endless debate will eventually lead to default and the method of doing so. For two years we have witnessed a fall in purchasing due to the unofficial inflation of 11.2%, and as a result of QE and stimulus 1. We projected 14% by the end of the year last November. Of course, Americans will be interested to see what the Super Congress decides by November. Watchful observes know the debt extension debate could have been solved in 15 minutes. The real goal was to gut Social Security and Medicare and to set up the 2011 Enabling Act patterned on the 1933 Enabling Act in Germany that made Adolph Hitler dictator.
As unemployment unofficially stands at 22.6% American corporate profits account for a larger share of GDP than at any time in the past 60 years. Over the past three years of financial and economic crisis personal incomes fell $270 billion. Record corporate profits have generally happened due to massive layoffs. Employees make up about 70% of costs, so they are the first thing cut. As a result the profits account for the largest share of GDP since 1950, or 12.5%. Wages and salaries are the smallest since 1955, or 55%. Unfortunately, Americans do not read publications such as the International Forecaster, so they do not understand what has been done to them.
No matter how you look at it quantitative easing is a bailout of the financial sector. That even applies to the Fed’s purchase of Treasury, Agency bonds and other toxic waste, because it relieves the financial sector of the responsibility of purchasing these bonds. Those funds are then freed up for speculation in markets. This approach to financial crisis assures the survival and profit of the vested interests.
One of the striking things about the Fed is that it pays no heed to what politicians, foreign countries and other detractors say. Their only real mission is to keep the financial sectors in NYC, London and Europe solvent and operating. There are no other considerations, except printing trillions of dollars to keep the stock market up. During QE and Stimulus 2 MZM went ballistic sending the Dow close to 11,800. As you can see the Dow and major financial players, including the government, are helped by little falls through the cracks to the taxpayers. Higher inflation ensued higher gold, silver and commodity prices, as the dollar again came under downward pressure. That effect is still in process and it will extend through next year, because just through the end of the year real inflation will be 14% and official inflation 5.5%. These are about the same numbers we saw three years ago just prior to the credit crisis. During the intervening years 2-1/2 interest rates from the Fed to the banks remained at zero and we are told by the Fed that they will remain there for 2 more years. As a result of this myopia approach wages have hardly grown, unemployment has continued to rise and consumer purchasing power has fallen about 10% year-on-year. Overall second quarter growth was 1% and first half GDP growth was 0.7%. A year earlier we predicted 1% to 1-1/2%, so we were close. 98% of forecasters were way off target, but that often happens to lemmings. None in Wall Street, banking or government has a care about the American worker, who is earning much less than 11 years ago, or retirees who have to find a way to exist on 1% or 2% yields on their meager savings. Those rates are costing them almost $400 billion a year in lost income, and now Congress is in the process of cutting Social Security and Medicare after they looted those trusts. Speculators, banks and hedge funds get richer and the old and poor starve, or cut back on prescriptions, which help keep them alive, so we can fund more off balance sheet wars for profit.
The economy cannot stay profitable and the financials can’t stay profitable and write off their lead debt with more than $2 billion in assistance annually. Nothing has been fundamentally done to solve the underlying economic, financial and economic problems. The rich get richer and the crime syndicate that runs America screws the public.
These are the same people who rig every statistic released by government and even some issued privately. Those who own the Fed know long ahead of time what statistical releases will be and we believe often they craft the results. A blatant example is the July release of a 0.8% increase in consumer spending. A month or so from now the figure will probably be revised lower, as usual. It is a game they play to goose the stock market and make illegitimate profits. They never go to jail for what they do. You cannot prosecute a wink and a nod. Statistics are crafted for the market and result in large gains in the market and a hive of profit for traders. The stock market is an integral part of financial and economic policy. For the insiders only the stock and bond markets mean anything. This must stay up or the public loses confidence and once that happens the economy comes unglued. The binding of statistics no matter how observed is an important part of manipulation. These people can justify anything as sociopaths. 86% of those polled said the economy is in poor shape, yet consumer spending is up 0.8%. Give us a break. Even the Conference Board says consumer confidence fell from 59.2 in July to 44.5 in August and government expects us to believe consumption rose 0.8%.
Many layoffs lie ahead as corporations continue to cut back. Their earning gains mainly come from layoffs and productivity gains are terrible. The future is again clouded and full of pitfalls.
Inventories at U.S. wholesalers rose more in July than a month earlier, boosted by automobiles and computer equipment, as sales stagnated.
The 0.8 percent increase in inventories followed a 0.6 percent rise in June, Commerce Department figures showed today in Washington. Economists projected a 0.7 percent gain, according to the median forecast in a Bloomberg News survey. Sales were little changed in July.
Weaker demand gives distributors less reason to build up stockpiles, a sign production may cool and contribute less to the recovery. At the current sales pace, wholesalers had enough goods on hand to last 1.17 months, the longest since October 2010.
 
Bank of America Corp officials have discussed slashing roughly 40,000 jobs during the first wave of a restructuring, the Wall Street Journal said, citing people familiar with the plans.
The number of job cuts are not final and could change. The restructuring aims to reduce the bank’s workforce of 280,000 over a period of years, the Journal said.

Bob chapmans advice

Please do not watch any videos on this website, the posts are not true, please go back to your couch and watch fox news and sky. The banks are all doing great, all countries central banks are stocked up with gold and there is no massive debt problem. The euro is doing great and all countries will soon forgive each others debts. Americas 15 trillion debt problem will soon be eradicated. Crack open a bud sit back and watch your massive flat screen tv life couldnt be better. Or switch on the laptop, laptop broken ? Call docklands laptop repairs and fix it.

 
THE LAST HAVEN STANDING
by Peter Schiff
 

The markets are going through another sell-off phase, yet the traditional notions of a ‘safe haven’ are changing. No longer is the US dollar the default shelter; instead, gold, the Swiss franc, and the Japanese yen are the preferred assets.     
  
All three of these havens – gold, francs, and yen – have been surging upward this month. Two of them, however, are being actively devalued by central banks desperately (and foolishly) trying to curtail appreciation. The Swiss and Japanese are enlisting both policy measures and all the banker-speak they can muster to stem the tide of investment flows into their currencies.

The game is Last Haven Standing, and Spielberg has already acquired the movie rights.

SWITZERLAND: FROM NEUTRALITY TO INTERVENTION

Looking to Europe, the Financial Times now has the awkward task of reporting that mighty European Union’s currency is coming apart at the seams, while neighboring Switzerland has barely enough hotels to house the world’s waterlogged financial refugees. The franc is up 5.41% against the euro this year and almost 14% against the dollar. One wonders if the only way to prevent a collapse of the these major debtor currencies is to back them with Swiss-made wristwatches. At least then they’d have a partial gold standard and there’d be no excuse to be late for an austerity protest!

Unfortunately, the Swiss National Bank is so afraid of the franc’s rise that it has flooded the market with liquidity and cut interest rates to zero. The SNB even recently threatened to peg the franc to the euro. It’s as if survivors on one of the Titanic’s lifeboats were so confused and bewildered that they began tying their boat to the sinking behemoth out of a desire for a ‘stable relationship.’

NOTE TO JAPAN: IT’S NOT THE SPECULATORS

Japan, ironically, has been blessed that while its debt problems are severe, they’ve been severe for so long that markets are willing to take that as a sign of stability. And, aside from the public debt problem, Japan does have fairly impressive fundamentals. They are still a productive economy with high personal savings and exposure to booming China. So, it’s no wonder the Yen has risen 6.63% against the dollar so far this year.

Former Finance Minister, and now Prime Minister, Yoshihiko Noda stated recently that he would “take bold actions if necessary and won’t rule out any possible options” to restrain the yen’s appreciation. Yet, while Noda has said the ministry will study whether “speculation” is behind the yen’s rise, he doesn’t seem to understand that this is a permanent move away from dollars and euros and into anything which might be a better alternative. This is not driven by Wall Street gamblers, but rather by everyday investors seeking shelter.

CLEARLY SHIFTING SENTIMENTS

My readers know that I see these past years in the US markets as one ongoing crisis. We’re not “facing a double-dip recession” as the media suggests; instead, we’re really in the midst of a prolonged economic depression. The periodic market panics since 2007, both in the US and Europe, all stem from the same disease and, as such, ought to be properly understood as related symptoms, not as separate events.

And as one long, ugly narrative, these subsequent panics resemble a series of steps; sharp drops leading down either to a dismal “new normal” or – more likely – a collapse in both the fiat dollar and euro currencies and a widespread return to gold as money.

My brother, Andrew Schiff, wrote an article for my brokerage firm this month reviewing the market turmoil and how it compares to previous crises since ’07. He found a steady shift in what investors perceive as a safe haven.

During the depths of the credit crunch, from October 2008 to March 2009, the S&P lost over a quarter of its value, as investors flocked to the US dollar, driving it up 8%. Foreign stock markets sold off and most foreign currencies fell substantially. The Swiss franc fell over 3%. Gold rose some 6.5% and the yen rose 5.75%, but neither kept pace with the US dollar, which rose 13.5%.

Then, during the dip between April 23, 2010 and July 2, 2010, the S&P dropped again by almost 15%. The dollar rallied barely more than 3%. The Swiss franc gained slightly instead of falling. And this time, both the yen and gold beat the dollar, gaining 4% and 5.5% respectively.

Now here we are in August, and what’s happening?

In extreme volatility, the S&P fell over 13% before rebounding to its starting place. The dollar has remained essentially flat even with intensified fears in the euro zone. The yen is also flat, despite heavy intervention to push it down. The Swiss franc rose 8% before Switzerland’s central bank threatened to peg the currency to the euro, and gold has surged almost 12%!

See the pattern? On each step of this multi-year downward spiral, global investors are slowly but coherently altering their preferred safe haven. Alternatives are being desperately sought, though actions first by the Japanese central bank and more recently by the Swiss have prevented their currencies from fully realizing potential gains as dollar-alternatives.

Fortunately, gold doesn’t have a central bank, so it can rise as fast as the dollar falls.

THE FIAT DOWNGRADE

Whether it is in their interests or not – and I argue it is not – central bankers look set on continued competitive devaluation of their currencies so that their economies don’t have to do the hard work of retooling for the new reality.

That is why gold is doing so phenomenally well, and why it should continue to do so. New gold comes into the market at a rate of about 2% per year. This number has been fairly steady over time, and reflects the ability of mining companies to locate, finance, purchase, and develop new gold mines. I invest in these companies, and trust me, it’s not an easy job.

Contrast this with a paper currency – more dollars can be created by Bernanke simply printing extra zeros on his banknotes. See that $10 bill? Shazam, it’s a $100!

The reason currencies like the yen and Swiss franc are considered safe is simply a longstanding habit of their central banks not to print too much. But a habit is much less reliable than a physical constraint.

Think of a dog that has been trained not to eat steak. If you put it in a room with a juicy ribeye, would you be more confident the steak would be there when you came back if the dog was in a kennel or just sitting there? Just like a dog always craves steak, and will grab a bite when no one’s looking, central bankers always crave the printing press.

That’s why we need to hold an asset for which scarcity is dictated by nature itself – gold.

As this realization becomes more commonplace, and as this depression accelerates, I expect gold to be the Last Haven Standing. This will not be a “new normal,” but rather a return to thousands of years of economic tradition.

A NOTE ABOUT THE FUNDAMENTALS

Those who do not really understand the fundamentals, such as commodity trader Dennis Gartman, continue to look at gold’s rise as a bubble. In fact, Gartman just called the top in gold, again, claiming that one of the “great bubbles of our time” had finally popped.

He cites as evidence the quick 200-point rise to over $1900/oz, which Gartman sees as a speculative blow-off top. He also cites the meaningless fact that one Gold ETF, GLD, has a larger market cap than one S&P 500 ETF. He absurdly compares this situation to the Japanese Emperor’s palace eclipsing the value of the entire state of California at the top of Japan’s real estate bubble. Those ETFs simply represent one way of owning assets, and do not, as Gartman contends, indicate that investors value gold higher than the entire US stock market. In fact, a true comparison of the two asset classes reveals gold’s value is historically low relative to the value of US stocks.

Rather than the bursting of a bubble, the recent technical action in gold is more indicative of a break-out. In fact, the positive divergence of gold stock from bullion in this recent correction is evidence that a more powerful leg in this bull market is about to begin. Up until now, the market for gold stocks has been characterized by fear. However, it now appears to me that gold stocks will make a new high before the metal itself. If the stocks finally begin to lead the metal, it means traders are finally starting to believe in this rally. Rather than evidencing the end of the trend, such a shift in sentiment likely indicates an acceleration in that trend. Maybe when the last skeptic finally throws in the towel, we may finally get the blow-off top Gartman thinks already occurred – but that day is likely many years into the future.  

In fact, all the talk about a gold bubble seems to be based on the fact that so many investors are now talking about gold. However, the problem with this argument is that despite all the talking, very few investors are actually buying. Bubbles are not formed by talk, but by action. Before we get a gold bubble, all those investors talking about gold actually have to buy an ounce. In fact, before a bubble pops, its not just investors, but the average man in the street who will have to be buying. Thus far, he has not even joined the conversation.  
  
Peter Schiff is CEO and Chief Global Strategist of Euro Pacific Precious Metals, a gold and silver coin and bullion dealer offering no-nonsense products at competitive prices.  
  
If you would like more information about Euro Pacific Precious Metals,  
click here or go to our website, www.europacmetals.com. For the fastest service, call 1-888-GOLD-160.,
 
  
A TALE OF TWO TAKE-DOWNS
by Jeff Nielson of Bullion Bulls Canada 
 

There’s something fishy going on in the metals market. I’m not going to call it a conspiracy, but let’s take a look at some recent events with an open mind and see where the evidence leads us.   
  
There have been two recent “take-downs” in the precious metals sector that have caught the eye of commentators. First, a plunge in the silver market at the end of April. Second, the recent mini-correction in the gold market. Both of these events were not borne of natural, profit-taking behavior, but rather changing margin requirements at the Chicago Mercantile Exchange (CME), where huge quantities of the precious metals are bought and sold on margin every day. As such, it requires delving into the inner working of that market to understand just what’s happening to our bullion investments.
 
A PERFECT CRIME
 
Let me approach the brief-but-sickening collapse in the silver market at the end of April from a somewhat unusual perspective. I’ll offer what I would submit to readers is the “perfect (hypothetical) crime” – and then compare that to actual events. Let the perpetrator of this perfect crime be a Financial Oligarch with tremendous “market power.” Specifically, the Financial Oligarch is sitting on a gigantic “short” position in the silver market (roughly twice the size of the legendary “long” position of the Hunt Brothers back in 1980), and has access to infinite amounts of 0% financing (i.e. “money to burn”).
 
If I were to assume the place of said Oligarch, here is how I would execute my strategy:   
  
First of all, I would engage in significant short-covering while the price of silver was rising. This would accomplish two aspects of my plan. One, it would cause the price to explode upward vertically. Two, it would significantly reduce my overall exposure, thus also reducing the effective amount of leverage in my short position.
 
However, I am also aware that trading in the silver market is watched (and analyzed) by a number of astute commentators who recognize short-covering when they see it. So, to disguise my strategy, I’d do something which no analyst would expect from a massive “short” (while prices are rising): I would also open some long positions.
 
Why would no one ever expect such a tactic? Because to do so while prices are rising and I’m also engaging in short-covering would cause the upward “spike” to be even more extreme, and thus the losses on my massive short position would be astronomical – more than canceling-out any possible profits from my long position. It would, however, effectively “muddy the waters” in silver trading, so that my short-covering was no longer obvious.
 
At this point, I’d go running to the regulator/administrator of this market. Being a dominant Financial Oligarch, this administrator is a close, personal friend.
 
I implore him to “do something” about this radical, vertical move in the price of silver. “The speculators are out of control,” I plead. Being a “too big to fail” Financial Oligarch, I hint that if the price of silver should continue spiraling higher that I could be wiped-out by the losses on my short position. I point out that this would be extremely “disruptive” not only for the silver market, but for global financial markets in general.
 
The administrator does “do something,” jacking-up margin requirements on silver contracts significantly. The price of silver immediately begins to plummet. Not only is the margin increase impacting other players in the market, but I do a couple of things myself to “help” this downward momentum: I begin adding to my short positions and liquidating my long positions. I don’t care about my paper-losses on those long contracts, as I can get all the “free money” I need from my other “friend” (with the printing press).
 
However, I’m still not satisfied. I return to my friend the administrator. I whisper into his ear that with such incredibly bullish economic fundamentals in this market that if the administrator were to “let up” on the downward pressure that the price of silver would immediately boomerang higher – and be more “bullish” (from a technical analysis standpoint) than if the administrator had done nothing at all!
 
The administrator accedes to my reasoning/pressure. Four more margin-hikes follow, in rapid-fire succession. The price of silver is reduced by one-third. All bullish sentiment has (temporarily) been bludgeoned out of this market. My “perfect crime” is a success.
 
SILVER MARKET REALITIES
 
What did actually happen in the silver market at the end of April?
 
For my money, there is no commentator whose analysis of the silver (or gold) derivatives market is on par with veteran metals-trader Dan Norcini. Here is Norcini’s analysis from April 21st (note that this was written before the CME Group raised margin requirements five times in the silver market over just a few weeks, and so there can be no claims of “revisionism” in his analysis):
 
“…This has been a strange market to read with what I consider to be confusing CFTC COT reports and various changes in the daily open interest as well as all manner of rumors surrounding the delivery process. If I had nothing to go on but price action, I would say that a large short or shorts are in serious trouble and are attempting to get out [i.e. being forced to "cover" their positions] but are not being allowed to by some very big and committed buyers
 
Even Norcini doesn’t suspect that this “committed buyer” might actually be the biggest short, itself.
 
Looking at the silver chart (below) in the critical days just prior to the five margin hikes by the CME, we see no alarming spike in “open interest,” which is what we would certainly expect to see in any manic buying by speculators. Open interest did not even approach a 12-month high, let alone go near “all-time” levels. There is simply no evidence that out-of-control “speculative buying” was taking place in the silver market at this time.
 
 
Click image to enlarge
 
Source: Dan Norcini, used with permission 
 
The timing of the hike is also suspicious. The end of April marks the end of the bullish season for precious metals and the normal onset of fresh ambushes by the shorts. Suggesting that speculators were “rushing into the silver market” at the end of April makes about as much sense as someone sticking their neck under a guillotine as the blade has just begun to fall.
 
With no reason for speculators to enter this market at that time, and no evidence that they had done so, we are left with one very disturbing (and unanswered) question for the CME Group: how could it possibly the justify the last four margin-increases, given that the price of silver never approached its recent high, but rather was in a falling trend as each new margin increase was announced?
 
Readers must understand that any/all pretenses by the mainstream media that the silver market had hit any sort of “top” are utterly absurd. Commodity markets universally exhibit one distinct feature: any/all “tops” in a bull market are always accompanied by significant build-ups of inventory. In the silver market, our record-low inventories continue to dwindle. This is conclusive evidence that silver remains under-priced.
 
WHAT ABOUT THE DIPS IN GOLD?
 
With this extremely suspicious event in the silver market now behind us, it’s time to look at a price-spike in the market of the other precious metal (no offense to fellow “gold bugs” intended). At this point, all evidence is that we are witnessing a radically different event.
 
Rather than being at the end of the bullish season (as we were with silver in April), we are now just entering the bullish season. Not only is the surge in the price of gold expected (if somewhat earlier than in recent years), but it is supported by enormously gold-bullish events in global financial markets and many of the world’s largest economies.
 
This places the two margin increases just put through in the gold market in a totally different context. Here are some further remarks from Dan Norcini from August 11th:
 
“…We did see some questionable margin hikes when silver was declining from the $50 area, margin hikes that were very suspicious, but that is not the case right here in gold. In fact, I am surprised the margins were not raised sooner and again I see nothing sinister here…”
 
Note that, unlike what happened in the silver market, when the recent, second increase in margin requirements for gold contracts was announced by the CME Group, the price of gold was above the level when the first margin-increase was announced. This reinforces Norcini’s prior conclusion, as it suggests that (unlike silver in May) bullish sentiment is continuing to increase, and thus this form of “braking action” in the gold market appears completely benign from the standpoint of motivation.
 
Looking at the two “take-downs” in precious metals (silver in May, and the $200/oz, 3-day plunge in the gold market last week), we see that any proper analysis of such events requires looking at much more than merely price-action in these markets. It also requires closely examining changes in open interest and inventory levels.
 
The failure of the CME Group to do this in May leaves it open to at least criticism – if not a formal investigation of its conduct. This is especially true given the testimony a year earlier from whistleblower and veteran metals-trader Andrew Maguire.
 
At this point, we have no indication of a repeat-event in the gold market. However, the need for all participants in these markets to remain vigilant is more obvious than ever.
  
Jeff Nielson studied economics and law at the University of British Columbia, obtaining his degree in 1989. He came to the precious metals sector in the mid-’00s as an investor and quickly decided he wanted to make it the focus of his career. He is the co-founder of Bullion Bulls Canada, a precious metals website with a global audience which provides economic analysis, commentary on precious metals, and detailed information on more than 100 North American listed mining companies.
 
Since starting Bullion Bulls Canada, Mr. Nielson’s work has been widely published on sites such as Seeking Alpha and TheStreet, along with dozens of precious metals websites.
 
For more of Jeff’s insights and analysis, visit www.bullionbullscanada.com.
 

THIS MONTH IN GOLD
 
JPM Eyes Gold at $2,500 by December
Financial Post – Prior to Standard & Poor’s downgrade of US sovereign debt, JP Morgan analysts expected gold to stay at or below the $1,800 an ounce level in 2011. Post-bombshell, however, that projection has been revised upward to $2,500. Analysts Colin Fenton and Jonah Waxman are encouraging their clients to buy commodities with an Asia, production, and inflation bias, and are counseling them to eschew those with a strong US or consumption link. Despite near-term headwinds for commodities as a consequence of global growth scares, the analysts foresee emerging market demand coming out of the dip with noticeably greater vigor.  Read full article >> 
 
Margin Hikes Hit Gold; Gold Hits Back
CNBC (Reuters) – Gold experienced volatility this past month, plunging almost $200 in late August. But you just can’t keep a good thing down. The correction – one welcomed and expected by buy-and-hold precious metals investors – quickly found support around $1750. Then, as if on cue, specie resumed its relentless uphill climb. The cause of the correction? Just as with silver in the spring, the cause was double-digit, back-to-back margin hikes by the CME Group, the world’s largest commodities exchange, which hit leveraged momentum traders the hardest. Secular investors were presented with a unique buy-in opportunity.  Read full article >> 
 
Central Banks Polish Gold’s Shine
Financial Times – In a Commodities Note, FT reporter Jack Farchy argues today’s 40-year-old fiat money system is “looking its age.” Following a generation on sabbatical, gold is once again recapturing its role as a cornerstone of the international financial system. The most striking proof lies in copious central bank buying as of late, a dynamic that is likely to undergird the market for years to come. The official sector bought an astonishing 208 tons of the yellow metal in the first half of 2011; the record since 1971 is 276 tons for all of 1981. The sea change puts paid to the pronouncements of commentators characterizing the gold market as a bubble, Farchy says.  Read full article >> 
 
Chavez Recalls Venezuela’s Gold
Bloomberg – Venezuelan President Hugo Chavez, ever the contrarian, is moving sooner rather than later. Predicting (and surely hoping to expedite) the demise of the US dollar system, President Chavez this month issued orders to his government to repatriate the country’s $11 billion in gold reserves sitting abroad. He also said he will nationalize the country’s gold industry to “halt illegal mining and bolster reserves.” What to do with the bullion once it’s back home? Why, invest in emerging markets, of course. President Chavez is urging the Venezuelan central bank to diversify its international reserves – of which gold comprises approximately 60 percent – away from US institutions.  Read full article >> 
 
The Nixon Shock
Bloomberg Businessweek – The year is 1971, and rather than disappoint the electorate with a recession and risk losing re-election, President Richard Nixon delinks the US dollar from gold, encourages money printing to paper over his problems, and thereby introduces the complex, volatile financial era of the present. In an informative, five-page investigative piece, Roger Lowenstein chronicles the issues and personalities surrounding the closing of the Federal Reserve’s gold window. “[Bankers] have become ever more apt to please politicians, deferring recessions at the risk of inflating asset bubbles… We see it now in the troubles of nations from Greece to Ireland to the U.S…This is Ben Bernanke’s unfortunate inheritance.”  Read full article >> 

My view on this is pretty clear. I don’t see gold as an investment and I don’t see it as speculation. I see it as insurance. Mostly we shouldn’t hope for the gold price to go up. We should hope that everything works out just fine and it goes down.

Think of owning gold in the same way you think of home insurance. You always have it just in case, but you really really don’t want to end up claiming on it. If you own a house in the middle of a nice safe area you expect to pay a low premium. If you live on the edge of a forest prone to summer fires you expect to pay more. And if you try and take out insurance after a nasty fire has started heading towards your porch you’d expect to pay a huge amount more. But you’d still prefer it if your house didn’t actually get burnt to the ground.

Lead indicators for Britain’s economy

Gold/silver ratio:
A warning for the markets Where to next for
UK house prices? Is Britain’s inflation
about to take off?
Same with gold. It costs more now than it did five years ago. But that’s because we have a) noticed the nasty macroeconomic fire headed our way and b) failed to figure out how to deal with it. When the danger rises, so does the cost of insurance.

So should you buy gold today? That depends on whether you think that the world’s central bankers and politicians can somehow get themselves – and us – out of the macro economic nightmare they are engulfed in. If you don’t, best get some insurance against their failure. Moneyweek.com