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Video: Keiser Report: Gold Price Manipulation (E926)

In this episode of the Keiser Report, Max and Stacy reject the idea that anyone should earn a basic guaranteed income for merely sitting...

Barclays Fined $44 Million Over Gold Price Fix

Barclays Plc has been fined 26 million pounds ($43.8 million) for failures in internal controls that allowed a trader to manipulate the setting of...

The Hows and Whys of Gold Price Manipulation

Paul Craig Roberts and Dave Kranzler. The deregulation of the financial system during the Clinton and George W. Bush regimes had the predictable result: financial concentration and reckless behavior. A handful of banks grew so large that financial authorities declared…

The post The Hows and Whys of Gold Price Manipulation appeared first on PaulCraigRoberts.org.

China, Gold Prices and US Default Threats

24 karat gold bars are seen at the United States West Point Mint facility in West Point, New York June 5, 2013. (Reuters/Shannon Stapleton) In...

Why does the “Paper Gold” Price Track the Physical Gold Price?

It’s curious, isn’t it? So-called “paper gold” (a futures contract) has a price that is not only very close to physical gold, but it remains locked to it. This is despite the fact that “paper gold” is reviled in the gold community.

I am writing this on Sunday evening with little liquidity in the market, and yet spot gold (XAU) is 1665.80 and the December future (GC Z3) is 1674.40. There is a small positive spread, about 0.5%, between spot and future. This spread is remarkably consistent from day to day. If spot gold goes down 1.2% then the December future,and the other months as well, go down by almost exactly 1.2%.

It’s worth underscoring that these are different prices for different things in different markets. “Paper gold” is not physical metal! If there weren’t some force that kept their prices locked together, they would detach and one could rise while the other falls, or vice versa. This is not, in fact, how they behave. They remain locked (at least for the time being). Why? What is this mysterious force that binds them tightly together?

Let’s take a step back for a moment. The futures market exists to serve the needs of producers and consumers. Producers—miners in this case—need to have predictable and consistent cash flow so they sell some of their production forward. Consumers, such as electronics manufacturers, and jewelers, have the same need so they buy some of their raw materials forward. Both can sign a contract now that locks in a price at some date in the future.

Of course, in the gold standard, there would be no such thing as a gold futures market. Futures for all other goods would be priced in terms of gold. Gold itself would not be available at a discount, nor would one ever need to pay a premium to get it. One could borrow it at interest, but that is in the bond market not in the futures market.

Once a futures market is established, speculators come in to bet on the direction of the price. They do not produce the good—gold in this case—nor use it. They cannot deliver gold to a buyer, nor do they wish to be delivered gold. They want to profit from a change in the price. They believe they have superior knowledge compared to the other market participants, and so use the futures market as an easier and more convenient way to bet than the physical metal market. And besides, the futures market offers leverage.

This is the basic theory of the futures markets, in a nutshell. Producers and consumers are trying to reduce risk. Speculators are making bets, pushing prices around, sometimes annoying the producers and sometimes annoying the consumers.

We still have not explained the fact that the price of “paper gold” tracks the price of gold metal. To do that, we need to introduce a third type of actor in the futures markets. The arbitrageur does not care about price; he is focused on spread. The arbitrageur can buy physical metal and at the same time sell a futures contract. This will earn him a little over $8 per ounce based on the prices I quoted at the top, or a bit more than 0.5% annualized. Compared to the yield on a 1-year Treasury, about 0.15%, this isn’t bad.

So long as the price of the futures contract is higher than the price of the physical metal, then the arbitrageur can buy metal and sell a contract to pocket this spread. This will obviously lift the price of the metal and depress the price of the paper, compressing the spread. The arbitrageur will stop when the spread becomes too small to be worth his time, effort, and risk.

If the futures contract ever became cheaper than the physical metal (called “backwardation”) then anyone who owns a gold bar can sell it and simultaneously buy a future with the intent to stand for delivery. In this case, the arbitrageur sells physical metal and buys a future, thus depressing the price of metal and lifting the price of the future. As in the previous case, the spread is compressed.

This is not merely academic theory. Analysis of this spread (called the “basis”) can shed light on what’s really happening in the markets. Sometimes (as now) there is a simple trade that is obvious, but only to someone looking at this spread.

In Part II of this article (free enrollment required for full access), we walk through the analysis and propose a contrarian precious metals trade.

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Guest Post: Is The Gold Price Dependent On China?

Submitted by John Aziz of Azizonomics blog,

China now buys more gold than the Western world:

Gold_Demand_China_WGC

Does that mean, as some commentators are suggesting, that future price growth for the gold price depends on China? That if the Chinese economy weakens and has a hard landing or a recession that gold will fall steeply?

There’s no doubt that the run-up that gold has experienced in recent years is associated with the rise in demand for gold from emerging markets and their central banks. And indeed, the BRIC central banks have been quite transparent about their gold acquisition and the reasons for it.

Zhang Jianhua of the People’s Bank of China said:

No asset is safe now. The only choice to hedge risks is to hold hard currency — gold.

Indeed, this trend recently led the Telegraph’s Ambrose Evans-Pritchard to declare that the world was on the road to “a new gold standard” — a tripartite reserve currency system of gold, dollars and euros:

The world is moving step by step towards a de facto Gold Standard, without any meetings of G20 leaders to announce the idea or bless the project.

Some readers will already have seen the GFMS Gold Survey for 2012 which reported that central banks around the world bought more bullion last year in terms of tonnage than at any time in almost half a century.

They added a net 536 tonnes in 2012 as they diversified fresh reserves away from the four fiat suspects: dollar, euro, sterling, and yen.

The countries driving the movement toward gold as a reserve currency by building their gold reserves is that they are broadly creditor nations whose dollar-denominated assets have been relatively hurt by over a decade of low and negative real interest rates. The idea that gold does well during periods of  falling or negative real rates held even before the globalisation of U.S. Treasury debt.

The blue line is real interest rates on the 10-year Treasury, the red line change in the gold price from a year ago:

fredgraph (15)

The historical relationship between real interest rates and the gold price shows that it is likely not “China” per se that has been driving the gold price so much as creditors and creditor states in general who are disappointed or frustrated with the negative real interest rate environment. What a slowdown in the Chinese economy (or indeed the BRICs in general) would mean for the gold price remains to be seen. While it is widely assumed that a Chinese slowdown might reduce demand for gold, it is quite plausible that the opposite could be true. For instance, an inflationary crisis in China could drive the Chinese public and financial into buying more gold to insulate themselves against falling or negative real rates.

Of course, this is only one factor. There are no hard and fast rules about what drives markets, especially markets like the gold market where many different market participants have many different motivations for participating — some see gold as an inflation hedge, some (like the PBOC) as a hedge against counterparty risk and global contagion, some as a buffer against negative real interest rates, some as a tangible form of wealth, etc.

And with the global monetary system in a state of flux — with many nations creating bilateral and multilateral trade agreements to trade in non-dollar currencies, including gold — emerging market central banks see gold — the oldest existing form of money — as an insurance policy against unpredictable changes, and as a way to win global monetary influence.

So while emerging markets and particularly China have certainly been driving gold, while U.S. real interest rates remain negative or very low, and while the global monetary system remains in a state of flux, these nations will likely continue to gradually drive the gold price upward.

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Gold Climbs as U.S. Wholesale Prices Curb Tapering Bets

Joe RichterBloombergDecember 13, 2013 Gold futures rose in New York after signs of low U.S. inflation indicated Federal Reserve policy makers meeting next week have...

Gold Climbs as U.S. Wholesale Prices Curb Tapering Bets

Joe RichterBloombergDecember 13, 2013 Gold futures rose in New York after signs of low U.S. inflation indicated Federal Reserve policy makers meeting next week have...

Paul Craig Roberts: Worse Than The Great Depression, Gold And Silver Prices Will Explode

Economist Dr. Paul Craig Roberts contends, “The situation is unsustainable.” It will blow up at some point, and Dr. Roberts predicts, “It will be...

Price of Gold Plunged, Panic Deepens on World Financial Markets

Global stocks plunged Thursday in the biggest one-day sell-off so far this year, after Federal Reserve Chairman Ben Bernanke said the US central bank...

Gold Market: What determines the Price of Gold

gold

In this interview for Matterhorn Asset Management, Robert Blumen discusses some important but widely misunderstood elements acting on the gold price. He explains that frequently cited gold demand statistics have no relationship to the gold price. In addition, he explains that the annual gold mine production is of very little influence, as gold is hoarded, not consumed like other commodities.

Robert_Blumen

Lars Schall: Mr. Blumen, how did you become interested in the subject of gold in general?

Robert Blumen: There were two main influences when I was growing up in the 1970s and 80s. We went through a period of very high inflation in the United States. President Nixon imposed wage and price controls in a misguided, or perhaps very cynical, attempt to fight inflation. And Nixon’s successor, President Ford, handed out these silly little lapel buttons that said “Whip Inflation Now”. I remember seeing a young man on the TV news who had reported a chain store for the economic crime of raising the price of one of their products. He was being given some kind of award for this.

The second historical event was the gold bull market of the late 70s. Then Reagan came in along with Paul Volker who he inherited from the former president, Carter. I wasn’t paying much attention at the time but it stuck with me that gold had made this huge move.

Those two things came together and had a life-long influence on me. From that time I took away a curiosity about inflation. And that led me eventually to be curious about the whole field of economics. I was lucky that I came upon the Austrian School of Economics. I started reading Austrian economics in high school. The Austrian School emphasized gold as the basis of the monetary system and how well that has worked out over the course of human history.

L.S.: The growing interest in gold was underlined recently in a report that was published by the Official Monetary and Financial Institutions Forum (OMFIF), which has the title “Gold, the renminbi and the multi-currency reserve system“. (1) I think that this report is quite remarkable for various reasons. Do you agree?

R.B.: The report suggests that the international monetary system will accept gold in a more recognized way as a reserve asset. I think that this is already true, informally. There are many signs of this. Central banks have gone from selling to buying in recent years.

On the intellectual plane, I think there the consensus of many decades, namely that gold had been permanently removed from its monetary role, is changing. There is increasing discussion gold as a monetary metal among the elites. Several years ago, Benn Steil, a CFR economist wrote an opinion piece for the Financial Times (excerpted here) suggesting that the global gold standard worked better than the current system of floating rates. Robert Zoellick, who was president of the World Bank at the time, wrote a gold-friendly op-ed also in the FT a couple of years ago.

L.S.: What is your overall view on China?

R.B.: The popular perception of China an economic juggernaut on a path to eclipse the economies of the developed world. And how did that happen? Because their wise central planners chose an export-driven growth strategy. Many people now think that this strategy has gotten them to a point where they are deficient in domestic consumption, so they need to switch to a consumption-driven mode of economic growth; and that this also will be accomplished by the same wise central planners through a series of carefully designed five-year plans.

I think almost everything about this view is wrong; it is still largely a centrally planned economy and we know from the economics of the Austrian economist Ludwig von Mises, central planners cannot allocate resources.

L.S.: Why not?

R.B.: Mises wrote a paper in 1920, which became quite a famous and very controversial thesis in economics that was debated for decades. His paper was called Economic Calculation in the Socialist Commonwealth and you can find it for free at the Mises site.
economicCalculation

If you have a very simple economy where people make consumption goods with their bare hands, this can be done with central planning. But Mises was trying to explain the economic growth that has occurred in the world from small villages to vast modern economies with millions of goods and a complex division of labor. How could this type of growth occur? The process requires the development of a complex inter-relationship of capital goods, natural resources, and division of labor.

In a modern economy, the number of things that could be produced is nearly unimaginably large. And the number of different production methods for even a single good is incalculable. Take gold for example – finding a deposit is quite complex. There are many ways to look for it. Magnetic fields, chemistry, electrical, drilling. How much drilling and where? And then, when you have the deposit, should it be open pit or underground? Should a resource estimate be established first or start mining and follow the vein? And what about the metallurgy, the chemistry? What type of electrical power? What types of labor? Refine the ore on site, or partially refine? Build roads, rail, or ship the ore? There are millions of decisions and each one needs to be fully answered down to the hire or purchase of specific pieces of capital and individual workers.

Mises’ point was that all of these production decisions, not only what gets produced and what does not, but how it’s done, can only be decided on the basis of prices. In particular Mises noted that the prices of capital goods are crucial to production decisions. Contrary to what you read endlessly in the financial news about consumption driving the economy, spending on capital goods is the major part of total spending.

Only with prices can you have accounting, which is the ability to calculate profit and loss. In a market economic system, the important decisions are made on the basis of an anticipated profit and loss, which is the difference between the expected prices received on sales and the costs.

Mises had the insight that prices of capital goods are only a meaningful tool for resource allocation if they are established by a competitive bidding process among entrepreneurs. Entrepreneurs must choose how much they are willing to pay to acquire a specific capital asset and hire the skilled workers they need. Entrepreneurs are people who put at risk their own capital, and will either earn a profit or suffer a loss.

The diversity of entrepreneurs is a key part of this. Each business firm or company founder has a unique view of their own market, which may be highly detailed and based on years of experience. Mises also noted that each entrepreneur has his idea about what the customer will want. The market is a decentralized process in which the entrepreneur who has the best plan for each particular asset, along with some cash, will end up in a position to choose how that asset gets used.

In my own former job, I worked for a company that was in a small sub-sector of a sub-sector. There are perhaps half a dozen people in the world who truly understood our industry, maybe fewer. The entire world is full of experts like this, people who understand a particular industry or product really well.

Can you imagine, for example, that we would have iPhones or Kindles if the technology industry was planned by a central committee? Before the iPhone, competition in the mobile industry was primarily over how many minutes per month you got on weekdays or weekends. When Steve Jobs decided to develop the iPhone, he risked $150 million of his shareholder’s money and took on the US mobile industry, who did not want a disruptive phone taking away the spotlight from their monthly plans.

Central planning means the abolition of this type of competition. And that is the problem that Mises identified. There is no way to replace this competitive bidding process with a single planner or a planning committee. The central committee cannot bid against itself for the opportunity to acquire specific capital goods and labor. That would be nothing more than the left hand bidding against the right hand. They could assign fake prices to resources and pretend to calculate the best projects, but the numbers that would come out of this process would not be prices, they would be arbitrary numbers that did not reflect the best possible use of scarce productive resources. Mises showed that a central planner has no basis for making economic decisions, even if the process did not become entirely politicized, as it always does.

L.S.: So how does that apply to China’s growth prospects?

R.B: The China bull story as far as I can tell is based on the growth rate of GDP. Their economy is allegedly growing at 9%, if you believe the number. But the GDP number is more of a measure of spending. You can go along spending money for quite a while, but that doesn’t mean that it’s a useful allocation of resources in the face of scarcity. In the end if you have nothing that people want to show for it, it was wasted. And GDP does not capture that distinction.

chinagdpgrowth

The idea of export driven growth, it’s a contradictory concept. Economic growth means the ability of an economic system to produce more goods and services that people want and are willing to pay for, at a higher price than it cost to produce them. What they call export-driven growth is really a policy of holding their own currency exchange rate below the market rate in order to reduce the domestic monetary costs of their export industries. This creates a misallocation of labor and capital and a relative over-productive of export goods at the cost of fewer imports and fewer goods for domestic consumption.

If the cost of China’s policy were properly accounted for, it would be evident that the marginal export goods that is apparently produced at a profit (under the phony accounting of depreciating money) is in reality produced at a loss. But this loss is hidden because it is distributed over the entire population by reducing the purchasing power of their currency. And that impacts their ability to buy imported goods, or, as many domestically produced goods that have an import component.

They have a huge infrastructure bubble. They are building far more roads, bridges, power plants in relation to the rest of their capital structure. Bridges and roads to nowhere show up as GDP because spending is required to create them. But not all spending is created equal. Spending on thinks you don’t need or things that cost too much to produce is waste and it moves resources away from where they are needed to create real growth.

A lot of the writers in the West are in awe of China’s centrally planned economic system. A friend of mine, the American investment writer Chris Meyer, sent me news story a few years about the highly reputed UK fund manager Antony Bolton who had come out of retirement to manage a new China fund. Bolton cited the advantages of central planning compared to a market economy as one of his reasons for his enthusiasm. Things didn’t work out so well for Bolton. The fund has under-performed, which can happen for a lot of reasons besides believing in an incorrect political-economic theory. But I think that he came in right near the top of China’s planning bubble.

Economist Brad Setser wrote a paper around 2006 about the Chinese banking system. In his paper, he went back a number of years into the history of their banking system. Setser found that during this time, interest rates had been set at below-market levels by the central planners. This of course meant more demand for loans than banks could supply. Rather than rationing by price, resource allocation had been largely driven by political favoritism. Not surprisingly, most of the loans from this period went bad. The entire banking system eventually became nothing but a sea of bad loans. Then there was a bail-out, putting all of the bad loans in a bad bank. And then, they started over from zero and rebooted the whole system. But by the end of the time that Setser covered in his research, they had gotten right back where they started, full of bad loans again. More recently Edward Chancellor and Mike Monelly of the respected value investing firm GMO have produced a research piece saying more or less the same thing.

Overall they have a completely dysfunctional capital allocation process. That’s why I’m a bit of a skeptic on China.

L.S.: Last year the Austrian gold analyst Ronald Stöferle mentioned you in an interview with me for GoldSwitzerland. (2) Mr. Stöferle, in my opinion one of Europe’s best men in this field, said that you belong to the crème de la crème when it comes to the issue of price formation, and that you have something original and unique to say in your writings. So I am curious about this. But let’s begin the discussion with a more general question: In your opinion, where do you think that many analysts go wrong in their understanding of the gold market?

R.B.: I see four problems but in a way they are all different versions of one problem.

The first is a focus on the annual statistics. Whatever happened in the last year is not that significant because most of the gold that exists at the end of one year was there at the beginning of that year.

The second problem, which you could argue is a subset of the first one, is the emphasis mine supply. While a lot of ink or electrons are spilt on mine production, it has very little impact on the gold price.

The third is the vast amount of brainpower that goes into quantifying gold flows into market segments, such as industry, jewelry, coins, and funds. These quantities may be interesting for some purposes, but they’re not really that relevant if what you’re trying to do is understand the gold price, because there is not a connection between quantities and price in the way that most people think there is.

The last problem is the idea in some circles that there is a gold supply deficit. If you really look at the market, the concept doesn’t make sense. It’s based on a strange way of lining up the numbers to produce something like an optical illusion. The gold market, structurally, cannot be in a deficit in the way that any other commodity market could be in a deficit.

L.S.: We will discuss the last point in detail later. — As already mentioned, in the past you have written several pieces about the price formation mechanism in the gold market. Why have you chosen to focus on this area?

R.B.: I think the reason I have chosen to focus on this is that I see a lot of misunderstanding about this topic, and since very few people are active in this area, I have decided to take it on. I am hoping that through my writing and through interviews such as this one, I can play some part in shifting the thinking of the gold community.

There are a few others who get it. Stöferle who you mentioned has covered this in his gold report. Paul Mylchreest wrote about this exact issue when he was at Chevreux/Credit Agricole. Acting-man, a site that covers the Euro market, has some excellent content looking at gold and the price system from the correct perspective. James Turk and the people at GoldMoney are quite friendly to this concept. And I recall reading something by the fund manager John Hathaway in which he seemed to be saying approximately the same thing. I hope that I haven’t left anyone out.

I believe that the tide is slowly turning on this issue. While the incorrect view still predominates, increasingly the correct understanding is beginning to be expressed more frequently. A report such as Stöferle’s from a prominent research firm is a good sign.

L.S.: How does your view of gold price formation differ from the views of most analysts of the gold sector?

R.B.: I think I need to start out by giving a little background, and then proceed to directly answer your question. I am going to start by talking about where the wrong thinking comes from so you can see that it might make sense to someone to think that way. Then I will show where they go wrong and then, the correct way to think about it.

There are two different kinds of commodities and we need to understand the price formation process differently for each one. The first one I’m going to call, a consumption commodity and the other type I’m going to call an asset.

A consumption commodity is something that in order to derive the economic value from it, it must be destroyed. This is a case not only for industrial commodities, but also for consumer products. Wheat and cattle, you eat; coal, you burn; and so on. Metals are not destroyed but they’re buried or chemically bonded with other elements making it more difficult to bring them back to the market. Once you turn copper into a pipe and you incorporate it hull of a ship, it’s very costly to bring it back to the market.

People produce these things in order to consume them. For consumption goods, stockpiles are not large. There are, I know, some stockpiles copper and oil, but measured in terms of consumption rates, they consist of days, weeks or a few months.

Now for one moment I ask you to forget about the stockpiles. Then, the only supply that could come to the market would be recent production. And that would be sold to buyers who want to destroy it. Without stockpiles, supply is exactly production and demand is exactly consumption. Under those conditions, the market price regulates the flow of production into consumption.

Now, let’s add the stockpiles back to the picture. With stockpiles, it is possible for consumption to exceed production, for a short time, by drawing down stock piles. Due to the small size of the stocks, this situation is necessarily temporary because stocks will be depleted, or, before that happens, people will see that the stocks are being drawn down and would start to bid the price back up to bring consumption back in line with production.

Now let’s look at assets. An asset is a good that people buy it in order to hold on to it. The value from an asset comes from holding it, not from destroying it. The simplest asset market is one in which there is a fixed quantity that never changes. But it can still be an asset even when there is some production and some consumption. They key to differentiating between consumption and asset is to look at the stock to production ratio. If stocks are quite large in relation to production, then that shows that most of the supply is held. If stocks are small, then supply is consumed.

Let me give you some examples: corporate shares, land, real property. Gold is primarily an asset. It is true that a small amount of gold is produced and a very small amount of gold is destroyed in industrial uses. But the stock to annual production ratio is in the 50 to 100:1 range. Nearly all the gold in the world that has ever been produced since the beginning of time is held in some form.

indiagoldjewelry

Even in the case of jewelry, which people purchase for ornamental reasons, gold is still held. It could come back to the market. Every year people sell jewelry off and it gets melted and turned into a different piece of jewelry or coins or bars, depending on where the demand is. James Turk has also pointed out that a lot of what is called jewelry is an investment because in some parts of the world there’s a cultural preference for people to hold savings in coins or bars but in other areas by custom people prefer to hold their portable wealth as bracelets or necklaces. Investment grade jewelry differs from ornamental jewelry in that it has a very small artistic value-added on top of the bullion value of the item.

So, now that I’ve laid out this background, the price of a good in a consumption market goes where it needs to go in order to bring consumption in line with production. In an asset market, consumption and production do not constrain the price. The bidding process is about who has the greatest economic motivation to hold each unit of the good. The pricing process is primarily an auction over the existing stocks of the asset. Whoever values the asset the most will end up owning it, and those who value it less will own something else instead. And that, in in my view, is the way to understand gold price formation.

Many of the people who follow and write about this market look at it as if it were a consumption market and they look at mine supply and industrial fabrication as the drivers of the price as if it were tin, or coal, or wheat. People who look at gold as if it were a consumption market are looking at it the wrong way. But now you can see where the error comes from. In many financial firms gold is in the commodities department, so a commodities analyst gets assigned to write the gold report. If the same guy wrote the report about tin and copper, he might think that gold is just the same as tin and copper. And he starts by looking at mine supply and industrial off-take.

I wonder if more equity analysts or bond analysts were active in the gold area, if they would be more likely to look at it the same way they look at those assets.

L.S.: In your writings, you mention quite often the marginal price theory. Where does this theory originate and what is it all about?

R.B.: Marginal price theory has been part of economic theory for well over a hundred years. Most historians of the field of economics itself see the so-called marginal revolution as the boundary between the classical school of economics and modern economics. I learnt marginal price theory from Murray Rothbard‘s book, Man, Economy and State, but it’s something you could learn in any course on economics.

Marginal price theory was developed to answer a question a lot like what we are discussing today. It was known as the diamond-water paradox. The question that classically economists could not answer is, “Why do diamonds cost so much more than bread when bread is necessary for human life and diamonds are a luxury?” The problem was that classical economists did not think in terms of individual units. The breakthrough was the realization that we need to think about economic action in terms of individual units. A marginal theory says that human action acts on individual units of a good. The last unit that you buy or sell is always the marginal unit. As an economic actor you’re thinking, “What do I want to do with this next dollar? Do I want one more unit, one more dollars’ worth of diamonds or one more dollars’ worth of bread?

L.S.: How does that apply to the gold market?

R.B.: Gold is an asset. People buy it in order to hold it. The price of gold is set as people balance, at the margin, the amount of additional units of gold they want to hold against additional units of other assets or cash they want to hold, or consumption.

If you think of the possible gold buyer as the guy who is saying, “Do I want to hold one more ounce of gold or this $1,800 that I have?” The answer to his question is going to be different for each person and for each additional ounce. You might say “yes, I want one more ounce of gold instead of $1,800”. Now, you have an ounce of gold and if I ask you the question again you might say, “No, now that I have bought that additional ounce, I’ve got enough gold”.

On the supply side, are the people who own gold. From their point of view they have to answer the question, “Do I want to keep holding this ounce of gold or do I want to sell it on the market and have $1,800?” That $1,800 might stay in cash or maybe they have another use in mind for it. The supply side is everyone who has any gold and the buy-side of the market is anyone who has any money that they might want to put into gold.

Now, we can eliminate people who don’t know what gold is, the ones don’t know where to buy it or how to buy it, and those don’t want any because they don’t understand it, or maybe they do understand it but they don’t like it. But that still leaves a large number of people who might add to their position some quantity of gold at the right price. The people who already own gold, they could be active on either side of the market as a buyer or a seller. I want to emphasize that everyone who owns any gold at all is part of the supply-side of the market, not all at the current price, but at some price.

In micro-economics there’s a nice formalism where they use supply and demand curves. If you took a micro course you would have seen those. Many people might feel more familiar with these concepts if they can see the curves. You can do a lot with these curves but you can’t forget that they supply and demand curves are a way of aggregating of the preferences of all the individuals in the market. Murray Rothbard does a great job of explaining this.

In the market, people rebalance between gold and dollars until they’re happy with what they own. At that point there will be no more trading if no one ever changed their mind. But now and again people do change their mind; they realize they want more of one thing and less of another thing. Then you have more trading to bring the market back into balance.

In finance there is a similar concept called, optimal portfolio theory in which they see portfolio management in terms where people are trying to hold the ideal amount of each different form of savings. The portfolio manager rebalances based on the expected properties of each asset until they have the right mix.

L.S: Is it realistic to assume that everyone is willing to sell their gold? The gold buyers are perceived as very strong hands with long time horizon, people who hoard for a crisis.

R.B.: Many of the people who have bought gold in the last few years are not remotely interested in selling at the current price or even double the current price, but there is always a price or some combination of price and circumstances where somebody would put some of their gold on sale — maybe not all of it but some of it. And people on the money side of the market are asking the same question in relation to gold. The market balances all of those choices out and you have a price that brings out the quantities on both sides of the market into balance.

Maybe that’s not totally true, maybe some gold is held by people who wouldn’t sell it for any reason. But I think that the concept of the gold bug who plans to take it all to the grave is over-stated. I asked a person the gold business whether gold retail trade is all selling and no buying. He told me, “No of course not, there are always buyers and sellers”. After all, what is the point of having a store of value if you never use the value? That is John Maynard Keynes and his parable of the cake that is never eaten. But Keynes was really painting a caricature of the capitalist system which encourages saving for the future. The future does arrives at some point, whether it is old age or emergency, and at that time, the value of additional saving is diminished relative to spending.

And it is important to understand the cost of owning gold is not necessarily the amount of money you could get by selling it. Prices are only a way of quantifying true costs. The cost of owning an ounce of gold is whatever other sort of economic opportunity that you are sacrificing by owning the gold instead. People who own gold are every day looking at “what other economic opportunities am I giving up by holding this ounce of gold?” and then “Do I want to shift the next ounce of gold somewhere else that will give me a better return or a better consumption experience?”. If you could swap an ounce of gold for one unit of the American Dow Stock Average that was at the time yielding 12% then the cost of owning an ounce of gold is not owning a unit of the DJIA. The cost of owning gold is the opportunity cost, of which holding cash instead is only one possible choice.

Let me give you another example; if the price of a new car that you like is twenty ounces of gold, you might prefer the gold. The cost of owning the gold is 1/20th of a car. But if the price of that car in gold ounces dropped to one ounce, you might say, “Nineteen ounces of gold is enough and I’d like to have that new car”. And at that point it makes sense to swap a single ounce of gold for a car. You still have nineteen ounces of gold, so you haven’t sold all of your gold, but at the margin, you have sold the least valued ounce for something that became more attractive.

L.S.: So your view is basically that of portfolio balancing. Do you see the price mechanism in the gold market as similar to the share market?

R.B.: Yes, in terms of the formal model of how pricing works it is similar. You see you have a relatively fixed quantity of a good and people are bidding the price up or down, based on who is the most motivated to hold that good, who is most willing to sacrifice the opportunity to hold a different asset or to increase their consumption.

Now, gold is different than shares in that gold is more of a cash-like asset whereas with shares you are buying an actual business that has a management team, products, and a financial statement. So, in that way it’s different. But in terms of the pricing process it’s quite similar.

L.S.: You use in your writings also the concept of “reservation demand”. Can you explain this further, please?

R.B.: There are two different expressions of demand for a good. If I trade with you, I supply one apple and I demand one banana and you do the opposite. We each demand something by offering something in supply. When there’s a buyer and a seller, the buyer demands and the seller supplies. That is exchange demand.

The concept of reservation demand is where you demand something by holding onto it rather than selling it. This concept might sound unfamiliar but it is very relevant to everyone’s life. We all have reservation demand for many goods. I have reservation demand at the moment for an auto, a dining room table, a couch, a mobile phone, and so forth. My reservation demand for cash in my pocket is $20. Any good that you’re any holding onto rather than selling, you are exercising reservation demand.

Most of the market research about gold deals with exchange demand, which has the advantage that you can measure it. But reservation demand is far more relevant to the price. The profile of reservation demand among people who own gold is the main determinant of the gold price from the supply side.

A very closely-related concept is reservation price. This is the price where you would be willing to sell a good that you currently hold. In the gold market, you can think of every ounce with a price tag on it. Or maybe today, it would be a QR code instead of a tag. That price depends on who owns that ounce of gold and their reason for holding it. Short-term traders might take a position for five minutes looking for a small move. If they got their $10 move they would sell and lock in a profit. You have other people who have a much longer time horizon, years or even decades, and a much higher expectation of where they’re going to sell. And even the same person will have a different price tag on each ounce. The first ounce you might be more willing to sell than your last ounce. It is important to understand that reservation prices are not necessarily money prices; they may be construed more broadly in terms of economic opportunities as I described just a moment ago.

You also might object that a lot of people may not know exactly what their reservation price is in money terms because it is impossible to know accurately what the purchasing price of money will be at a time when you might want to sell. And this is true. Many gold buyers are envisioning that we are going to experience hyper-inflation in some countries and their plan might be to look for distressed assets that go on sale during a hyperinflation. That would be the time to sell their gold, or more accurately, to swap their gold for assets. This type of person may conceive of the reservation price as, “When I can buy a small business, like a cleaners, for five ounces of gold” or “when I can buy a rental apartment for 10 ounces of gold”. People conceive of the reservation price more broadly in terms of what is going on in the world around them.

There is reservation demand on the money side of the market as well. Why does everyone not spend all of their money? Because we have reservation demand for money. The reason that you have any money at all and you haven’t spent it is you see some potential use for that money, possibly when you see something you need or want at a low enough price, that the good comes in ahead of your reservation price in so you buy the good.

The bid and ask that you see in the gold market at any point in time is the price offered by the marginal non-buyer and the price asked by the marginal non-seller. The marginal non-buyer is the person whose reservation price for their money is just below the ask and the marginal non-seller is the person whose reservation price for that ounce of gold is just above the bid. The equilibrium of the market is that you have the bid and the ask which are the best reservation prices are on each side.

L.S. Why do you object to the emphasis on annual statistics in looking at this market?

R.B: What I want people to take away from this interview is that the gold price is not primarily a way of rationing gold that was mined during the last year, it’s a way of rationing all of the gold in the world because all of the gold is held and everyone who holds it cares about the price one way or the other.

The gold market is not segregated into one market for the gold that was mined this year and another market for gold that was mined in past years. The buyer doesn’t care whether he’s buying a newly mined ounce of gold or buying from somebody who had purchased gold that was mined 100 years ago. All of the buyers are competing to buy and all of the sellers are competing to sell.

I think that the focus on annual numbers is another residual of the domination of this space by commodities-type thinking.

L.S. You have stated that mine supply is not a key factor driving the gold price. Most gold analysts would not agree with you. Please explain your view on this.

If you pick up a typical research report on a gold market from a research firm or a bank, you will find that the main portion of the report is about annual quantities. Annual mine production is the most important followed by the jewelry melted, jewelry bought, coin and bar sales, dental, industrial, and central bank. And these quantities are thought by most analysts to be critically important in determining the gold price but that is just not the case.

Gold is always owned by whoever has puts greatest value on it. The ask price is the value placed on gold by the individual who values their last ounce the least of anyone who owns gold, compared to the last buyer who got rationed out of the market, the guy who values gold the most of anyone who does not own that last ounce.

Mining add about 1% to the total supply each year. If the total amount of gold is 5.05 billion ounces rather than 5.0 billion, that allows a few more of what were the marginal non-buyers to become buyers.

I think of the miners and the gold destroyers – such as dentists and the electronics industry, as a small delta on top of the price formation process that is mainly about who is willing to bid the most to hold all of the gold. Mine supply is only a small share of all gold.

The only difference between a miner and someone else who owns the same amount of gold is that the miners pretty much have to sell because they are businesses and they have to cover costs. The investor who owns some gold doesn’t necessarily have to sell, they can hold as long as they want to or until they have a better place for their savings than gold. You can say that they are price takers.

You can think of the miner as coming in to that market and selling down into the bid side of the market a little bit. Of course the miner is going to enable some people to get into the market at a lower price than without the miner because those buyers are not forced to go up higher into the ask side of the market in order to buy their gold.

A lot of analysts go even further down the road to absurdity by looking at the growth rate of gold mining. If you start out from year 1 where mine supply is, let’s say 2000 tonnes, and in year 2 mine supply is 2,500 tonnes, that is an increase of 20%. So the thinking goes, if supply is up by 20%, then demand also has to go up by 20% and that looks like a lot. If buyers bought 2000 tons last year and this year you are asking them to buy the same and then 20% more, how is that going to happen? It’s really not a big influence. In math terms, mine supply is the first derivative and now we are talking about second derivatives.

L.S.: You have given your reasons for thinking that the impact of mining on the gold price is small. Do you have any way of quantifying that?

R.B.: I can’t say for sure but there are some ways to make an educated guess.

One is that mine supply only adds around 1% or 2% to the total stockpile of gold. You can think of mining as a form of gold inflation with a rate of around 1-2%. If we were looking at the supply of money in a country or shares of a stock we would expect the value to be diluted by something close to the growth rate. Miners are diluting the value of the existing gold stock by 1%. If this is correct, and if everyone who owned gold was trying to maintain a constant amount of gold in purchasing power terms, then all other things being equal, a 1% dilution would have a 1% impact on price.

Another way of looking at it is when the supply of gold is 5 billion ounces there is a price quotation, which is the best ask. Now one year later mining has brought us up to 5.05 billion ounces. A group of buyers was able to come in and buy the additional 50 million ounces. Where do those new buyers value gold? If we assume static preferences, maybe slightly above their buy price. Not a lot above their buy price or they would have become buyers the year before. So that would suggest a slightly lower price, depending on how deep you have to go down into the bids to fill the additional ounces.

I looked at some figures from geologist Brent Cook showing that all of the gold mined in any one year is about equal to a few days volume on the LBMA. And the LBMA is not the only market where gold is traded in the world. I’m not saying that the difference due to mining is equal to the ratio of trading days to volume. But the point is, selling the mined gold onto the market is a very small part of the market activity. It’s easily absorbed into a liquid market.

L.S.: In your most recent article you argue that many analysts are incorrectly bullish or bearish, because their data does not support their price outlook. Is that so?

R.B.: You see every day in the media statements like “Gold investment demand is up by 20 percent this year” and that’s supposed to be very bullish. Or “investment demand was down by 15 percent” and that is supposed to be bearish.

There is also I remember a wave of stories in the early 90s as the gold industry was increasing up exploration and bringing new properties on line, where it was popular to say, “Gold mine supply was 2000 tons this year and it’s going to be 2500 tons next year”. That is an increase of 25 percent in supply, and wow, that sounds like a big, big increase in supply. To keep up, the demand side of the market has to step up by 500 tons this year otherwise the price is going to be much-much lower. That would be a huge increase in demand. Where is all that demand going to come from to keep up with supply?

When you see statement like that, what does that mean, exactly? It means something like this. If investors as a sector had a net addition to their portfolio of 50 million ounces one year and the next year they added 60 million ounces they’re calling that a 20 percent increase in demand. And that’s supposed to be very bullish.

This way of thinking about the market is not logical. What they call “supply” and “demand” is the amount of gold that got moved around the market. And that is fine as far as it goes. The problem is when they go from the number to the price. Those numbers do not characterize the forces of supply and demand that do set the price.

L.S.: Then what do they mean by supply and demand? And why do you dislike their definitions?

R.B.: Let me explain how they come up with these numbers and what they’re supposed to mean and then, where they go wrong.

What analysts typically do is divide the market up into sectors such as mines, investment, jewelry, industrial and central banks and maybe funds or ETFs get their own sector. Often a country like China is considered a sector. They want to measure the amount of gold that was bought and sold that year by individuals or actors within each sector. Those are gross amounts. From grosses you can compute net amounts. The net is the difference between the gross bought and sold quantity for that sector. There’s always a net outflow from the mine sector because they’re in business to sell. For any other sector, the net might be a positive or a negative number during a year because people may have bought more jewelry than they sold, or the opposite. During any given year investors might on net have added to their positions or diminished their holdings.

When you read “supply” or “demand” in the financial media, the definition is not consistent from one place to the next. There are a lot of ways people slice and dice all of the numbers. Everyone does not do it the say way. However you do it, you have a number made by adding up some gross and net quantities. For example, one report might say that supply is mine supply plus gross jewelry scrap. Someone else might include gross investment purchases, and someone else might count only net investment as part of the demand number. When you read that demand is up, what they mean is that one of these contrived Rube Goldberg definitions that has the misleading name “demand” has changed from one year to the next.

Let me give you one example. The CPM Group (a research consultancy that produces in-depth reports on the gold and silver markets) does it like this: they define supply as the all of following: mine supply, the gross industrial sales, and gross jewelry sold. CPM defines demand as the sum of all of these: gross industrial purchases, gross jewelry purchases, net central bank activity and net investor activity.

CPM uses a mix of gross quantities and net quantities. This definition by itself strikes me as quite eccentric because of the mixture grosses and nets into the same aggregate. Gross quantities measure a flow, while nets are the change in magnitude of a stock. What happens when you add grosses and nets together? I have no idea. This reminds me of breaking the rules of dimensional consistency, something that the physics faculty at my university prohibited.

Now let’s delve into these net quantities a bit more. To simplify the situation, suppose there are only two sectors in the market. Let’s call those two sectors “mines” and “everyone else”. Then the relationship between the quantities is very simple. Whatever the miner sold somebody bought. There’s always a market for gold at some price. An ounce of gold is worth more than zero. Any quantity of gold that someone offers on the market will find a buyer at some price and that gold will end up in someone’s portfolio or maybe consumed. Mine supply gross (or net) sold is equal to everyone else net purchased. That is a simplified understanding of a two-sector market.

Now let’s complicate the model a bit more to get it closer to reality. If you have three sectors, mines, jewelry and investment, then you can have a net outflow from jewelry one year and that would have to show up as a net inflow into investment because all the quantities have to balance out. Everything still has to net out to zero across all sectors. The gold miners are always sellers but any other sector could be a net buyer or a net seller in any one year period.

You can keep making the model more complex by adding more and more sectors. Each time you add another sector to your model, that sector has inflows and outflows. But this doesn’t change the fundamental logic which is that every ounce that is sold in one place is purchased in another place. All of the flows have to balance out to the net change in the world’s total position, which is mine supply less destruction. And that is always a positive number as long as anyone has been counting.

Now, I’ve been saying that this is at best, not very useful, and at worst, misleading. By now you probably want to know, “what is the problem?” The problem is that these quantities and these flows have no causal relationship with the gold price. All we have done is to add up some of the volume in the market and shifts in aggregate holdings. But we are still no closer to the price because neither the volume of trading, nor position changes as are causes of the price. Quantities are not the cause of the gold price. Gross quantities are not the cause of the gold price. Net quantities are not the cause of the gold price. And so it must also be true that any Frankenstein monster number you invent, even if you give it a familiar name, like “supply” and “demand” also does not cause the gold price.

Suppose I tell you that there was a net flow of gold from sector A to sector B last year, then what is the impact on the gold price? There is no way to say. The gold price could be higher, lower or unchanged when gold moved from A to B. If the gold moved from A to B because the buyers on the A side were more aggressive and raised their bid prices, then you would see a higher price. If gold flowed because the people in B valued it less, so they were willing to let it go for less in return, then you would see a lower price. If both of those things happened, there would be a lot of trading but the price might end up about the same.

A price is a quantity of money that is exchanged for a quantity of gold. In these voluminous reports about mine supply and jewelry and everything, they’re only looking at quantities of gold. There is no way that looking at quantities alone can tell you anything about price because there is no money involved. It’s sort of like the is-ought problem in philosophy, which says that you cannot derive a sentence containing “ought” from any number of propositions that contain only “is”. You cannot make any conclusions about money if you do not have money in your premises. No matter how hard you study these quantities it won’t tell you anything about the price. Whatever the driver is of the price, it has to involve both gold and money.

L.S.: If not cause and effect, is there any relationship between these quantities and the gold price?

R.B. : Yes, it’s almost the opposite of what most people think. The gold price is formed by a balancing process, as investors shift different assets in order to hold the amount of gold, cash, and other assets they want. These quantities come about because of discrepancies between what people own, what they want, and the collective preferences of the rest of the market. These discrepancies are resolved by exchanging and that gets counted as a quantity. But these quantities do not drive the price. The more preference changes among the buyers and sellers, the greater the volume of trading required to get back to an equilibrium.

I recall Warren Buffet describing a cartoon of a financial news anchor with the caption, “There was no volume on the market today because everyone was happy with what they own”. This is quite funny but the serious point is that buying and selling comes about because there are people who wish to change their position in a way that is complementary to what someone else wants, so they are both able to change their positions to something that they like better. The one side wants more cash, less god; the other wants the opposite.

The volume of buying and selling shows how far out of adjustment people are between their own positions and the preferences of other people in the market which is what creates the opportunity to trade. Buying and selling as such do not cause the price, buying and selling come about because of a preference disequilibrium. That disequilibrium requires trading to equilibrate but it does not tell us at what price the trading occurs.

There might be a statistical correlation between, for example, a net inflow into one sector and higher (or lower) prices. If someone has a statistical model that works, that is great. But it’s not causal.

But it seems to me that even if someone has discovered correlations like that, they will be coincident with the price, rather than predictive. In order to forecast the price, you need an indicator that moves in advance of the price. You read all the time how bullish it is that people bought so many coins, or bars or whatever, but buying that was the cause of the price going up, then it would have already gone up due to the buying. That would not help you forecast at all.

L.S.: You say that the way supply and demand are reported in the financial media is confusing. Please explain to our readers your thought process in more detail.

demandsupplycurve

R.B.: When the average reader, or even the quite sophisticated reader sees the word “supply” and “demand” they don’t think to ask, “what is definition of that word” because we already have a good intuitive feeling about what those words mean. And we all know that an increase in demand drives the price higher, while an increase in supply sets us up for a lower price. And that is true if you use the terms “supply” and “demand” correctly to mean as the intensity of investor preferences on each side of the market.

If the author got all their numbers right – and some of these firms go to a lot of trouble to count up every microgram of gold dust in the entire world – then these statements are accurate in a very limited sense. But it is not true that a quantity made out of the sum of various flows and position shifts has any relationship to the forces that set the market price.

Everyone will agree: “The price of gold is set by supply and demand”. But what does did we all just agree on? Correctly understood, this statement means that the price balances out the overall the set of choices people make to offer on their desired terms from each side of the market. The price results from balancing those two sides.

Suppose that instead of “supply” and “demand” these aggregates were called X and Y, if you like algebra. Now if I change my statement to say “The price of gold is set by X and Y” you are immediately going to ask “what do you mean by X and Y?” And when you find that X = A + B + (C – D) + (E – F), etc. and Y is something similar it starts to make a lot less sense. At that point your head will probably start exploding. When you use X and Y in place of “supply” and “demand”, you no longer have a true statement.

The problem happens by starting out from truth and then changing the definitions of terms so the statement looks the same but it is no longer means the same thing and the thing that it now means is not true. By using words that have a clear meaning in our minds, but using them to mean something else this creates immense confusion. And hardly anyone realizes this when they are reading an innocent-looking statement.

L.S.: If not by quantities, then can the gold price otherwise be analyzed quantitatively?

R.B.: The gold price is set by investor preferences, which cannot be measured directly. But I think that we understand the main factors in the world that influence investor preferences in relation to gold. These factors are the growth rate of money supply, the volume and quality of debt, political uncertainty, confiscation risk, and the attractiveness (or lack thereof) of other possible assets. As individuals filter these events through their own thoughts they form their preferences. But that’s not something that’s measurable.

I suspect that the reason for the emphasis on quantities is that they that can be measured. Measurement is the basis of all science. And if we want our analysis to be rigorous and objective, so the thinking goes, we had better start with numbers and do a very fine job at measuring those numbers accurately. If you are an analyst you have to write a report for your clients, after all they have paid for it, so they have to come up with things that can be measured and the quantity is the only thing that can be measured so they write about quantities.

And in the end this is the problem for gold price analysts, you’re talking about a market in which it’s difficult to really quantify what’s going on. I think that looking at some broad statistical relationships over a period of history, like gold price to money supply, to debt, things like that, might give some idea about where the price is going. Or maybe not, maybe you run into the problem I mentioned about synchronous correlations that are not predictive.

Part of the problem is that statistics work better the more data you have. But we really don’t have a lot of data about how the gold price behaves in relation to other things.

James Turk: Central Banks Are Losing The War to Suppress Gold & Silver Prices

Submitted by Adam Taggart of PeakProsperity

James Turk: Central Banks Are Losing The War to Suppress Gold & Silver Prices

My guess is that 2013 and 2014 are going to be big up year for the precious metals, but we still have to contend with the central planners and the various government policies, which have been actively trying to keep the gold and silver prices from reaching fair value. The central planners are losing the war. They may win an occasional battle or two, but they’re losing the war, and eventually gold and silver are going to go higher.

So predicts James Turk, founder and Chairman of GoldMoney.com.

From James’ perspective, gold is not an investment. It’s a sterile asset, meaning it does not generate income. What it is, is money. Its function is to store wealth.

But money, like investments, can be overvalued or undervalued. And what we’re witnessing on the world stage is a gross mispricing of money as central banks engage in depreciation of their fiat currencies via inflation (i.e. money printing).

The process causes a transfer of wealth from those holding overvalued money to those who hold undervalued money. That’s what’s been going on for the past decade as the price of gold has steadily marched upwards versus fiat currencies.

But this process is not efficient. Mass awareness of this wealth transfer is low, so confidence in paper currencies is still high, supporting their perceived value. Market intervention by central banks and other parties conspires to keep the prices of precious metals artificially low and suspect.

This maintains an arbitrage for individuals to buy gold and silver at a discount to true value, which James believes will be slowly realized in full over the next several years as the bull market in precious metals approaches its third and final phase.

A factor in this rise will be the increasing fragmentation of coordination among the central banks. Increasingly, central banks outside the influence of the US’ Federal Reserve are treating the precious metals as true money, and becoming net buyers of bullion for their reserves.

Ultimately, Turk predicts the price of gold will move to somewhere between $8,000-10,000/oz, and that we'll see even higher price appreciation in silver.

The way markets normally work is, after you do have a big move, you get a correction. Even over the past 12 years, if you look at gold, you had big moves in 2005, 2006, and 2007 where you were in some years generating over 20% appreciation in gold. Then you had the correction in 2008. Even though that was a correction, gold was still up that year. Then, in 2009 and 2010 and the earlier part of 2011, you had again big moves. Then you had the correction where basically they moved sideways. My guess is that 2013 and 2014 are going to be big moves on the upside, because what’s important here is not so much the price of gold, but whether it’s a good value.

The proper way to manage a portfolio is, you move assets that are overvalued out of your portfolio and you concentrate on assets that are undervalued. That’s true regardless of whether you’re talking about investments or money. You want undervalued forms of money. You want undervalued investments. I use a couple of mathematical formulas which I’ve written a lot about, one being the Fear index and the other being the Gold money index; by both of those measures, gold is still very, very undervalued, as is silver, for that matter. Silver is even more undervalued than gold. My expectation is that these undervalued assets will continue to rise in price, because the market doesn’t like levels of overvaluation or undervaluation. The market is always constantly changing, moving money out of overvalued assets and moving into undervalued ones. And that’s what we’re basically seeing in the precious metals: people are moving out of overvalued fiat currencies and moving into undervalued gold and silver.

My guess is that 2013 and 2014 are going to be big up years, but we still have to contend with the central planners and the various government policies, which have been actively trying to keep the gold and silver prices from reaching fair value. The central planners are losing the war. They may win an occasional battle or two, but they’re losing the war, and eventually gold and silver are going to go higher – assuming that governments and central planners and central banks still continue to follow these same policies that they’ve been doing, which is defacing fiat currencies.

An interesting thing is that when we saw the price drop in gold and silver at the end of 2012, the demand for physical metal rose tremendously because people recognized that these assets are undervalued, and if they’re going to be sold down to such cheap prices, they may as well just pick them up and continue to accumulate them. So it certainly has a perverse affect when the central banks intervene. In fact, as we’ve noted, gold has risen 12 years in a row against the U.S. dollar – double-digit rates of appreciation. But I guess the best way is using an analogy. If you've got a pot of water boiling on the stove and it’s bubbling away, every once in a while you have to release or pull off the lid to let a little bit of steam out, and then you put the lid back on.

That’s sort of what the central planners are doing. Every year they release the lid, and gold on average has risen over the last 12 years by 16.8%. Then they put the lid back on. One of these days they're not going to be able to put the lid back on, and you're going to go into the third stage of a bull market where gold just keeps rising and rising and rising because confidence will be lost in the currency. I think that’s what we have to be focusing on.

I can’t say that trust between central banks is waning, but you have to recognize that there are two categories of central banks: There are central banks that are in the U.S. circle of control and dominance, and then there are central banks outside the circle of U.S. control and dominance. The ones that are outside of the U.S. control and dominance are accumulating physical gold. The ones within the U.S. control tend not to do that, although it’s interesting that Germany, Netherlands, and now Austria, too, are talking about bringing their gold back.

It’s quite clear that a lot of promises have been made, particularly by politicians and most governments around the world, and those promises cannot possibly be fulfilled. A lot of those promises are going to be broken. Particularly when it comes to the area of gold, a lot of central banks are relying on the promises of other central banks. Oh, yeah, we’ll be good for the gold if you ever ask for it. Those promises are likely to be broken as well, as the demand for physical metal continues to grow. Whether it’s going to accelerate in 2013, 2014, I don't know. But, my guess is the demand for physical metal is indeed going to accelerate over the next couple of years, because I’m looking for serious financial problems to be hitting. 

Click the play button below to listen to Chris' interview with James Turk (34m:47s):

Click here to read the full transcript

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As gold broke below the psychologically important level of $1,200 an ounce late in December of 2013, the mainstream financial media burst with headlines like this one from Marketwatch, "Gold’s Safe-Haven Role is Over".  The Nobel prize winning economist from The NY Times, Paul Krugman, penned a wicked missive on the ‘barbarous relic’ by invoking Keynes and the absurdity of miners going to “great lengths to dig cash out of the ground, even though unlimited amounts of cash could be created at essentially no cost with the printing press.”

The basis of a vibrant and dynamic society is an open and free marketplace where people ‘vote’ with their decisions on where to spend money, where to live, what to read, who to vote for, etc.  In the United States, a good example of what occurs when decisions are centralized is healthcare and education-  the key decisions are made outside the mainstream of the marketplace and the country ranks far below the rest of the developed world, even behind countries with considerably less economic wealth.  As central planning and regulations remove potential players and solidify the positions of special interests, the quality of education and healthcare has plummeted.

So what does this have to do with the price of gold?  Everything.


What is Money?


Gold is money.  Federal Reserve Notes are not money on one important score; they are a poor long term store of value.  One ounce of gold in 1938 was worth just about $35 and a new car was worth $860.  If a new car dealer took the money from the sale of a new car in 1938, converted it to gold and gave that gold to his new born son, when the boy turned 75 in 2013 he could have bought a brand new Toyota Camry with the gold his father had given him.  If instead, the father had given him the cash, he could have gone out and bought himself a fancy new bicycle with the dollars he'd held on to for 75 years.

If the old man, feeling flush, tossed in an extra ounce of the ‘barbarous relic’ for gas in 1938 his son could have bought about 350 gallons of gas for the ounce of gold.  If the kiddo had held on to the gas money in the form of gold, he could have, in 2013, bought almost the exact amount, 360 gallons. But if the youngster had made the mistake of converting his ounce of gold into dollars, he could have, in 2013, bought a good bottle of Spanish wine with the Federal Reserve Notes he received in 1938 for his ounce of gold.
.
Money is a means of exchange, AND a store of value.  The dollar is a great means of exchange but it's a pitiful store of value.

In essence, money is work.  If someone wants to sell 1,000 kilos of wild salmon for $10,000 he might find a few buyers who, if they wanted to proceed, would ask about delivery.  If the seller pointed toward the cold waters off the Alaskan coast and indicated that the fish were out there swimming around, he wouldn't have any buyers at any price.  When someone pays for fish, they are not paying money for the fish, they are paying money for the work involved in finding them, catching them, and transporting them to market.  Money is a means of exchange-  the fisherman exchanges his work (the fish) for money and he uses the money to maintain the value of his work and later exchange it for the work of others.  That is money for the working man.


The Sucker, the Conman and the Shill



Imagine the fisherman decides he needs a new boat and wants to finance the entire purchase price. He will go to his local bank and, if approved, will be given the funds to purchase the boat in exchange for signing a promissory note for the amount and terms of the loan.

When the fisherman signed the promissory note, he assumed that other fishermen, or their equivalents in productive society, worked, earned money, deposited that money in a bank to earn interest and that's the interest he was going to pay on his boat loan, plus the margin for the bank.  The interest rate he was paying seemed reasonable, 7%.  The guy who deposited the money needs a return, and so does the bank.  In fact, it seemed cheap to him. He probably wouldn't continue fishing if the best he could do was make what the bank or the depositor made, say about half of his interest rate, 3.5%.  For that, he would sell everything and buy a ten year bond that paid close to 3% and call it a day.  But he’s not a banker and he assumes they're making money some other way.

The banker is thrilled.  He did take some deposits and put them in reserve (about 10% of the loan amount) and he will be paid interest (.25%) on that amount by the Fed.  Then he created, out of thin air, the entire loan amount to give to the fisherman.  The money he gave the fisherman never existed before the fisherman signed the promissory note.  The banker is making more than 70% on the money he has left in reserve, for which is also earning interest.  Worst case, if the fisherman goes belly up, the banker will sell the boat.  He can’t lose much.

The PhD Nobel Laureate, writing for a one of the world’s great newspapers, never a word he speaks of this, for if he did, only for Zero Hedge would he write and not a penny would he see for his poetic prose.  So instead he writes about Democrats and Republicans and higher taxes on the fisherman to pay for the bigger deficits he is so fond of.  More deficits, more debt, he exclaims. Just print the stuff like it’s going out of style and we’ll all be living high on the hog.

The fact is, only the fisherman actually does something worthwhile for society, while the banker stuffs his pockets and the PhD stuffs his ego while filling the masses with fantasies.

So what does this have to do with gold going below $960?  Everything.


The Script



To survive as a human being in the United States, as well as in most corners of this world, one needs money.  Money to put a roof over one's head, money to buy food, money to heat one's house, money to put a shirt on one’s back.  The banker's script says that fiat money (dollars, yen, euros, etc.) is real money, the same as gold.  Money is work, and gold stores the value of work.  Fiat money is a claim on future work-  it's not work itself.

What banks do is the equivalent of allowing people to become indentured servants, signing away their futures for a stack of instantly made Federal Reserve Notes, and they get their hooks in early.  The average college graduate in 2012 had just over $20,000 in student loan debt on graduation day as well as additional credit card debt.  The banker's ability to create money out of nothing and lend it to kids is a good example of how they have completely demolished any semblance of democracy in America.  Who in their right mind would loan a kid $20,000 for a college education if the money they lent was earned through work?  Would we pay billions to the NSA to spy on us, or trillions to fight imperial proxy wars all over the world if we had to pay for them with work (gold)?

Of course we wouldn't.  If the money that was loaned to governments, businesses and individuals was real, much more critical thinking would be involved in its allocation and the cumulative votes of investors would render practical results, instead Twitter is valued at over $30 billion.  But when the Fed is pumping trillions into markets, who is thinking about risk?  If people actually decided on public policy through having to pay for those polices through work, the world would look much different than it does today.  When money is created by the trillions out of nothing and simply laid as claim on the future work of the populace, then the only ones deciding on those policies are the money masters who control the printing presses.

If gold were used as the basis of our money, the only way to make more of it would be to dig it out of the ground and that takes work, something bankers and shills are quite averse too.  To loan money they would first have to either work and earn it, or make a spread on what they paid in interest and what they earned on loans, becoming intermediaries.  Neither variant is to their liking as they much prefer to print it out of thin air, loan it out and keep the interest.  The now infamous 1% are dependent on this model of money creation and when their ponzi scheme collapsed in 2008, they turned on the presses overtime and made it all back and more in a few short years.

Gold is incredibly democratic in that there is no machine to print it.  But there is paper gold, which the bankers have leveraged about a 100 times and with which they can drive the price of gold wherever they want with their fiat money.  The script says that their money is real- the new and improved version of the outdated gold.  Gold is the enemy of fiat money because its intrinsic scarcity and universally accepted value is a constant reminder of the banker's ponzi scheme.

In April of 2011 gold hit a record high of $1,923 an ounce.  Come hell or high-water, the banksters want to announce in the corporate media they own, that once and for all the shiny stuff has been deemed a relic, nice for jewelry but wholly useless as money.  To do this they will drive the price below $960 an ounce, halving its price in dollars in about three years. It doesn't take much to imagine the headlines, Is Gold a Worthless Investment? etc.  But Dr. Krugman would say these are the fantasies of conspiratorial gold nuts.  Really Dr. Krugman?


On April 11, 2013 gold closed at $1,562 an ounce.  On April 12 someone sold 400 tons of gold, 300 of which was sold in just 30 minutes, driving the price of gold down below $1,500 an ounce, crashing through important technical levels and for many, marking the end to gold's bull run which began in 2000.  How much is 400 tons of gold?  It's about 15% of all the gold mined in 2011 or .25% of all the gold ever mined in the history of man, worth about $20 billion dollars at the time.  This was obviously not done by someone who owned gold because there would be no reason to drive the price down so dramatically if someone wanted to exit a position. This was a naked short, done by someone with deep pockets to make a dramatic, headline catching move in the gold market.  Not surprisingly, Dr. Krugman wasted no time chiming in and on April 15, 2013 he wrote of gold bugs, "Maybe, just maybe, the gold crash will finally bring intellectual capitulation. But I wouldn't bet on it."

That's very interesting coming from a Nobel prize winner who doesn't even understand the basics of money creation, as was clearly shown in his debate with economist Steve Keen.

Gold is much more than an investment, it's the backbone of liberty.  Without it we will be led by the banksters and their shills down the merry way of slavery, plutocracy and totalitarianism.

It's in the script.

Robert Bonomo is a blogger, novelist and esotericist.  Download his latest novel, Your Love Incomplete, for free here.


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Today’s AM fix was USD 1,308.50, EUR 959.87 and GBP 813.09 per ounce.
Yesterday’s AM fix was USD 1,278.25, EUR 944.75 and GBP 797.71 per ounce.

Gold fell $1.80 or 0.14% yesterday, closing at $1,279.50/oz. Silver slid $0.06 or 0.28% closing at $21.27. Platinum climbed $14.80 or 0% to $1,395.20/oz, while palladium rose $7.25 or 1% to $712.55/oz.

Gold prices jumped $36 in 15 minutes and it surged as high as $1,321 per ounce or as much as 3.6% at one stage. Silver jumped by an even greater margin, by 5.1%, and rose as high as $22.18/oz.

Gold rose for the first time in four days after U.S. lawmakers reached an agreement to increase the debt ceiling and increasingly important Chinese credit ratings agency, Dagong Global Credit Rating Co. cut its credit rating for the U.S.

This led to short covering and some safe haven demand for gold as the dollar fell against all major currencies.

Gold in USD and Debt Ceiling - Quarterly, 1933-2013 (Bloomberg)
Gold in USD and Debt Ceiling - Quarterly, 1933-2013 - (Bloomberg)

The smart money is scooping gold bullion up at these depressed levels. Gold is down 23% this year despite robust demand from central banks and especially from India and China.

Global sales of bullion bars and coins gained 78% in the second quarter, according to the World Gold Council, showing that demand actually accelerated.

The U.S. government has avoided default but remains essentially insolvent and its appalling fiscal state has deteriorated once again due to the debt ceiling being raised above $16.7 trillion. Although the U.S. national debt has already surged well above that and as of writing, the U.S. National Debt is actually nearly $16.97 trillion and rising at roughly $1 trillion every year.

It is worrying that the recent debate has again been superficial and revolves around the theatre and political chicanery of the Republicans versus the Democrats and the usual partisan support for opposing ‘teams’ rather than the substantive issue of America’s likely insolvency and the fact that the actual national debt is actually between $100 trillion and $200 trillion and there is little sign of political or economic will to tackle this fundamentally important issue.

The U.S. is engaged in fiscal and monetary policies that are akin to a Banana Republic.

In addition to electronically creating out of nothing $85 billion every month to buy its own debt in the form of bonds, the U.S. is also borrowing more money than it is authorized to borrow, from itself again.

The extra $264 billion or so in borrowing — the difference between the actual real time $16.964 trillion national debt and the $16.7 trillion debt limit — was lent to themselves - by one section of government to another - in recent weeks.  Treasury Secretary, Jack Lew, ex COO of Citigroup Bank, has been using “extraordinary measures” since the U.S. ran out of money a few months ago and has been using government retirement programmes to make up the difference.

This is a form of shell game or confidence trick used to perpetrate what is a dangerous accounting practice that tends to end in tears.


Gold and Silver in USD and Debt Ceiling - Quarterly, 2000-2013 - (Bloomberg)

These unusual, some would say fraudulent, accounting practices and the fact that the U.S. is borderline insolvent, contrary to copious amounts of denial globally, are extremely dollar bearish and gold and silver bullish.

The risks posed to the dollar, but also to the pound, euro, yen and other electronic and fiat currencies is why we remain confident that both precious metals will reach real (inflation adjusted) record highs in the coming months.

Silver will likely continue to outperform after its most recent period of under performance.

JP Morgan Chase has issued letters to its business account holders notifying them that as of November 17 the bank will limit all cash transactions, including deposits, withdrawals and ATM usage, to $50,000 per month, and will prohibit all outgoing international bank wires.

Chase Bank has moved to limit cash withdrawals while banning business customers from sending international wire transfers. This has caused speculation that the bank is preparing for a looming financial crisis in the United States by imposing capital controls.

Some have suggested the drastic measures were designed to push business clients into more costly premium business accounts. Bank officials confirmed yesterday that the new capital limits apply to all business account holders but could not say why the measures came about and whether they were bank driven, due to profit motives or government regulations.


Gold in USD and Debt Ceiling, 2011 - (Bloomberg)

The bank will stop processing any outgoing international bank wire, and that any monthly cash transactions in excess of the new $50,000 limit will be subject to penalties and fees.

JP Morgan is embattled after a series of scandals including allegations of manipulation in many markets including LIBOR, foreign exchange, oil and energy markets and of course in the gold and silver markets.

It has received some enormous ‘slap on the wrist’ fines as it attempts to clear up the mess created by the London Whale trading scandal. The bank will pay $100 million to the U.S. Commodity Futures Trading Commission (CFTC), conceding "reckless" behavior led to the trading debacle that generated about $6 billion in losses.

There remains the real risk of capital controls and it will be important to own gold bullion in the event of capital controls.

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Drip and drip again. It’s a walk through Triplicane. It’s a walk through the Triplicane and Royapettah areas of Chennai in July. It’s hot here. It’s always hot here. Watch your back. Watch your front. And, by the way, watch your side as well. Those mopeds, those scooters, those autos, those guided missiles from all directions. Around here, you walk in the road. Around here, city planners didn’t plan for much.  

A rush past half a dozen dimly lit pharmacy shops stacked to the rafters with boxes, bottles and more boxes. A rush past a dozen tiny one room eateries, non-veg, veg, wooden benches, plastic chairs, metal jugs of water on tables and metal mug waiting to be filled. A rush past street side shrines – tridents, Shivas, Nandis, Ganeshes, lingams. Smell the incense, feel the burn, sense the back streets of Triplicane.

It’s dusk. It’s dusk when each minutiae of life, each nuance, becomes more pronounced, more noticeable, in the neon-polluted haze. When traffic roars and darkness gathers. When anticipation prevails. When the aroma of freshly cooked food hangs in the air and women shop and cows munch. When dhabas bustle and chai shops steam. When firecrackers explode and a thousand vehicle horns blast. And through the choking traffic fumes, seated at the roadside, women sell bright yellow marigolds and sweet smelling jasmine.

A sharp left and off into the narrow lanes. Boys play cricket, children fly kites from rooftops. And dogs come to life after a hard day’s sleep in the shade. Intricately drawn kolams on the floor at the entrances to homes fade in the dark. Where art meets ritual, where community meets tradition, where the women who drew them assert their presence. Both young and old stop to offer a prayer at a small shrine, and a child says “hi” and continues with his game.

Look from a distance and see the cityscape. The occasional high rise jostles for space among a million concrete box buildings that spill across the landscape. Triplicane and Royapettah. Splashes in the spill.

The subtle shades of the night, the garish billboards advertising the latest blockbuster. The moustachioed handsome hero of the Tamil movie variety towers tall above the traffic. The hero, who dishes out and is sometimes the recipient of a form of slapstick violence that never really bruises, never really cuts and never really hurts. In make-believe movie-land, the pain is always dulled. Opium for the masses.   

And on the corner, by the cracked concrete entrances to the subways that traverse Anna Salai, the main thoroughfare, a bunch of cycle carts parked up. And a bunch of street stalls beckon. Frying, cooking, heating in the roasting night. A quick bite of dosa held in hand, a mouthful of rice shovelled with fingers. Street food served on the street, fast food eaten fast. It’s the India of roadside stoves, pots and pans. It’s the neighbourhood India of the common man, for the common man. It’s community.

It’s the type of small-scale enterprise India that many a politician would readily wrench from neighbourhoods in return for a pocket full of Walmart gold. India’s education system, healthcare system, infrastructure and welfare system has already been sacrificed for many a burgeoning Swiss bank account. Why not the rest of India too? It’s called accumulation by dispossession. It’s called stolen wealth. And the process has accelerated since the opening up of the economy in '91 (1). The impact is stark, but it’s not unique to India. A cheap con-trick sold to the masses on the road to some bogus notion of the ‘promised land’, some idiotic secular theology of neo-liberal fast track ‘development’.

A promised land of fortune, mansions and lavish living that the tricksters attained years ago - by cartels, force and duplicity masquerading as 'neo-liberalism', masquerading as the ‘free’ market. A global market rigged, bought and paid for courtesy of the Rothschilds, Rockefellers, Warburgs or various other billionaire fraudsters before India’s local mom and pop stores were but a twinkle in their parents’ eyes. No, it’s not unique to India. It's global. Like some of the pesticide-ridden/engineered crops in the fields, or the protruding bellies of the malnourished, it’s not genuine growth, but abnormal swelling. Like the soil sucked dry, people are left to wilt on the vine. 

The poverty alleviation rate in India is the same as it was 20 years back. Every second child is underweight and stunted (2). Eight of India’s states account for more poor people than in the 26 poorest African countries combined (3). Shopping and consumerism have become the concerns and priorities of India’s misinformed and misled creamy layer. Misinformed by news outlets that pass off infotainment as news. Misinformed by a government that cosies up to western multi-nationals with secretive ‘Memorandums of Understanding’ and then proceeds to target some of the poorest people in the country who resist as ‘the enemy within’ (4).

It’s all a bit of a mad dash this. An insane one. A corrupt one. We need to move to a different beat, to travel in a different direction, to make peace with our future (5).


Notes

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From GoldCore

JP Morgan Cleared Of Conspiracy "To Drive Down Silver Prices"

Today’s AM fix was USD 1,602.50, EUR 1,238.41 and GBP 1,059.78 per ounce.
Yesterday’s AM fix was USD 1,599.50, EUR 1,236.09 and GBP 1,057.45 per ounce.

Silver is trading at $28.86/oz, €22.38/oz and £19.16/oz. Platinum is trading at $1,605.25/oz, palladium at $757.00/oz and rhodium at $1,250/oz.

Gold climbed $13.70 or 0.86% and closed yesterday at $1,578.10/oz. Silver hit a high of $29.05 finished +0.56%. A national holiday was observed in Ireland yesterday and markets were closed.

The Troika's raid on the deposits of families and businesses in Cyprus is still being digested but it may be another watershed moment leading towards gold again becoming a foundation asset and key core holding of savers and investors internationally.


Cross Currency Table – (Bloomberg)

JP Morgan Chase & Co won their case of a nationwide investors' lawsuit accusing them of conspiring to drive down silver prices.

U.S. District Judge Robert Patterson in Manhattan said the investors, who bought and sold COMEX silver futures and options contracts, failed to show that JPMorgan manipulated prices, by creating long short positions that were not in synch with market events at the time period.

The judge acknowledged that the firm could influence prices, but said that it was not proven that the bank "intended to cause artificial prices to exist" and acted accordingly.


Gold Commodity, 6March2013-19March2013 – (Bloomberg)

The plaintiffs had nearly 43 complaints filed from 2010-2011, which accused banks of profiteering in over $100,000,000 by illegally manipulating silver prices.

The lawsuits against major Wall Street firms were consolidated, naming JPMorgan and 20 unnamed individuals as defendants.


Gold in Euros, 6March2013-19March2013 – (Bloomberg)

The complaint had sought triple damages for what it saw as antitrust violations in jiggering silver prices from 2007-2010, including through alleged "fake" trades during low market volumes. 

The CFTC began investigating queries of silver price manipulation in 2008, and after 2 years it tightened its regulations to foil traders who try to manipulate prices.

Silver remains a vital diversification and remains undervalued vis-à-vis gold and most assets.

NEWS   

Gold hovers above $1,600/oz on Cyprus concerns - Reuters

JP Morgan wins dismissal of silver price-fixing lawsuit - Reuters

Gold Tops $1600; Silver Eagle Bullion Coins Top 13 Million – Coin News

Bullish Bets Jump Most Since July as Gold Rebounds - Bloomberg

COMMENTARY

Daylight robbery in Cyprus will come to haunt EMU – The Telegraph

– Zero Hedge

Risk, complacency, perception and gold - Mineweb

Your rating: None

Shanghai Gold Exchange Sees Volumes Jump 24% In Year

From GoldCore

Shanghai Gold Exchange Sees Volumes Jump 24% In Year

Today’s AM fix was USD 1,582.50, EUR 1,216.37and GBP 1,065.30 per ounce.
Yesterday’s AM fix was USD 1,577.50, EUR 1,213.28 and GBP 1,058.37 per ounce.

Silver is trading at $29.18/oz, &euro;22.53/oz and £19.71/oz. Platinum is trading at $1,605.25/oz, palladium at $773.00/oz and rhodium at $1,200/oz.

Gold rose $3.00 or 0.19% and closed yesterday at $1,581.10/oz. Silver rose to $29.09 and finished +0.1%.


Cross Currency Table – (Bloomberg)

Gold gained for the third straight session, the longest rally this year, on the realisation that the European crisis may worsen. Fitch Ratings cut Italy’s credit rating by one level on Friday. Fitch downgrading Italy is likely providing support as is robust demand in Asia, particularly China.

Average daily trading combined volumes on the three main gold contracts on the Shanghai Gold Exchange in the first two months of the year jumped 24% on the year, according to Reuter’s calculations.


Shanghai Share Index, 5 Year – (Bloomberg)

"The strong physical demand in China is the main reason behind gold's resilience," a Beijing-based trader told Reuters. Physical demand prospects out of China remain positive in the weeks ahead, UBS AG said  according to Bloomberg.

China is very vulnerable to a property crash and its own economic crisis. The Chinese stock market has performed very poorly in recent years and Chinese people realise the importance of gold as a store of value.


Gold In Chinese Yuan, 5 Year – (Bloomberg)

The market continues to digest the better than expected U.S. jobs data with the risks still emanating from Italy and the Euro zone. Contagion in the Eurozone and indeed currency crises remain real risks – risks which are being completely ignored ... for now.

Sentiment is as bad as we have seen it in recent years which suggests to us that while gold may go lower in the short term - we are close to a bottom.

The global debt crisis is far from over and when it erupts anew, gold's appeal as an important diversification and safe haven will be appreciated once again.

NEWS

Gold futures log highest close of month – Market Watch

Gold sticks in range as growth hopes weigh, Asia buying supports - Reuters

Gold Little Changed as ETP Holdings Extend Drop Amid Recovery - Bloomberg

Gold Gains for Third Day as Europe Concern Boosts Haven Appeal - Bloomberg

COMMENTARY

Don’t Be Sucked In – Euro Zone Will Break Up - Reuters

Staring Armageddon In The Face But Hiding It With Official Lies –Paul Craig Roberts – Paul Craig Roberts

Presenting The Currence Crises, Devaluations And Regime Changes Since The Collapse Of The Gold Standard – Zero Hedge

Your rating: None

Chart of the Week: Gold

Gold is in a bull market; it is at support. Despite the questionable fundamental picture, I believe this represents a good buying opportunity as price sits at support. cow.2.17.13.gold from ARL Advisers, LLC on Vimeo. TacticalBeta offers a FREE Newsl...

Is This Where The Secret JP Morgan London Gold Vault Is Located?

In a world defined by "financial innovation", where $1 of hard collateral can spawn over $1000 in repoed and rehypothecated liabilities (and assets), where "shadow banking" is far more important than traditional bank liabilities (and to this date remains completely misunderstood), and where every month the central and commercial banks force create over $100 billion in credit money (which end consumers refuse to absorb and which therefore ends up in the stock market), the concept of a "hard asset" is an increasingly redundant anachronism. Yet while the Federal Reserve has emerged as the bastion of the New Normal's financial innovation front in which the concept of money is backed by absolutely nothing other than the Dollar's increasingly fleeting reserve status, when it comes to the definition of "Old Normal" money - gold - it still is the domain of the first and original central bank: London.

At first blush, most would not associate London with the hard asset mecca of the world: in fact, when it comes to some of the most spectacular hyper-levered "New Normal" cataclysms in recent years: AIG, Lehman, MF Global, JPMorgan's London Whale, all of them originated in London. Yet for the most part these events occurred precisely because of the mindboggling leverage already employed by the London financial system. Recall that the UK has some 600% in financial debt/GDP - an unprecedented amount compared to any other developed world nation. Yet, paradoxically, the fact that there is so much financial leverage implies that there must be an abundance of hard assets at the bottom of the London Exter Pyramid. After all, financial counterparties, especially in this day and age, may be insolvent but they are not idiots, and all will demand at least some paper representation that there is a trace of hard collateral at the bottom of the latest financial Frankenstein CDO, SPV, CLO, CPDO, RMBS or [insert any other modern financial "asset" acronym]. And keep in mind we are talking private sector gold: Gordon Brown's epic blunder of dumping the sovereign UK gold at rock bottom prices hardly needs a mention.

Which is why in order to spawn such a gargantuan amount of financial debt, London, which for centuries was the financial capital of the world and which sequestered the bulk of the world's real, tangible wealth until the ascendancy of the US in the 20th century, London's commercial vaults, are literally full of gold (as much as it may pale in comparison with the total notional amount of liabilities it has created).

After all it is the London Billion Market Association. Not New York, Zurich or Singapore.

Why is London such an integral part of the gold financial world? We'll let none other than JPMorgan explain:

The characteristics of the London market uniquely support the use of gold as collateral by ensuring:

  • Quality and liquidity: “London Good Delivery” sets the standard for gold quality. Rigorous specifications as to size and purity ensure that each London ood Delivery gold bar meets pre-set standards with little to no variation between one bar and the next. This consistency ensures that counterparties will receive gold of an expected quality (99.5% fine), which allows the metal to be easily transferred between members of the London Bullion Market. Ultimately, this facilitates trading and market liquidity—both desirable attributes for collateral.
  • Flexibility: The London gold market uses both unallocated and allocated gold. In layman’s terms, allocated gold specifically identifies each gold bar with a specific owner. Allocated gold is essentially held in separate accounts; it cannot be pooled with gold from others to satisfy obligations. In contrast, unallocated gold is held in a general pool by the bullion dealer and the customer has a general entitlement to the metal, but not to a specific gold bar. The LMBA states that unallocated gold “is the most convenient, cheapest and most commonly used method of holding the metal.”

    In practical terms, unallocated gold is comparable to putting dollars, pounds or euros into the bank. Once deposited, the money becomes fungible—you can withdraw the same amount of money you put in, but you will not receive back the same exact bills that you deposited. The use of unallocated gold allows for amounts smaller than a gold bar to be used as collateral between counterparties—a significant benefit to a collateral program given that a London Good Delivery bar weighs 438.9 ounces, and gold is currently trading for over US$1,700 per ounce.

  • Transparency: Readily available price information promotes market transparency and aids in daily mark-to-market and margin calculations. Gold is priced by the market twice daily (morning and afternoon) and widely reported by both the financial press and data vendors. Use of a predictable daily price fix point allows counterparties to mitigate their daily exposure and set haircuts to manage ongoing price fluctuations. The afternoon U.S. Dollar London old Fix is viewed by market participants as the appropriate way to mark gold given daily price fluctuations and increasing values.
  • Ease of transfer: The London Bullion Market clears daily using paper transfers that evidence the unallocated gold held between members. This allows them to simply and efficiently settle mutual trades and transfers to/from third parties while mitigating the costs and risks associated with physical movement of bullion. The use of paper transfers and unallocated gold facilitate easy transfers between counterparties when needed.

And speaking of JP Morgan, incidentally the subject of this post, what do we know about their London-based gold vault services? Once again, in their words:

J.P. Morgan recently integrated its gold vaulting service in London with its tri-party collateral agency service.

  • J.P. Morgan operates one of the two largest commercial gold vaults in London (one of only six in the City) and is a member of the London gold clearing system.
  • J.P. Morgan is also one of the few truly global providers of collateral management services. As collateral agent, J.P. Morgan works with two parties that have an established collateralized lending or financing arrangement.

Who is the other largest commercial gold vault in London? Why HSBC of course: the bank which has recently been embroiled in virtually every scandal involving global money laundering, also happens to be the custodian for such massive (supposedly) physical gold repositories as those of the SPDR Gold GLD ETF. The HSBC gold vault is also known as "Gold's secret hiding place" as CNBC penned it, when Bob Pisani was allowed to take a look deep inside the vault's bowels but only after he was theatrically blindfolded (a visit which we commented on at the time).

Yet Pisani's blindfold, while theatrical, was premeditated: the number of people who know where the HSBC vault is located is a handful, because the last thing commercial gold vaults, and certainly their customers, would want to deal with is a Simon Gruber-type Die Hard 2-style goldjacking.

Amusingly it was none other than the Bundesbank who in November invoked the ghost of the fictional New York Fed gold heist when a member of its executive board told NY Fed's Bill Dudley that  "you can be assured that we are confident that our gold is in safe hands with you. The days in which Hollywood Germans such as Gerd Fröbe, better known as Goldfinger, and East German terrorist Simon Gruber, masterminded gold heists in US vaults are long gone. Nobody can seriously imagine scenarios like these, which are reminiscent of a James Bond movie with Goldfinger playing the role of a US Fed accounting clerk." This happened two months before the Bundesbank diametrically (and embarrassingly) flip-flopped and decided to, all pinky swears to the contrary, begin repatriating its gold from the New York Fed (and Paris) after all. But not London (at least not yet). It also perhaps means that the days of Simon Gruber may not be "long gone", especially if the whereabouts of vaults containing billions worth of gold bullion were known to the public.

And just like the SPDR would want nothing less than to have the address of the HSBC gold vault made public (the same goes for HSBC of course), so those other ETF providers who use JPM's London gold vault as a custodian, such as Blackrock's iShares IAU ETF, or ETF Securities, would want nothing less than to have the location of JPM's vault exposed.

Needless to say, the actual addresses of "LBMA Vault" provided by the LBMA in its Annex 2 for "The Good Delivery Rules for Gold and Silver Bars" lists the headquarters office of the vaulting firm, and certainly not the actual address, because it would have been somewhat disingenuous to blindfold Pisani just to deliver him toe 8 Canada Square, or the HSBC head office in London, the address provided by the LBMA as vaulting address of HSBC. And certainly the address given for the JPM vault at 125 London Wall, aka Alban Gate, which was the firm's headquarters until its move to 25 Bank Street in 2012, is the last place even one bar of gold would be found.

Which is why we were quite stunned to find, in the deep recesses of the internet (and hosted by the Indonesian stock exchange of all place), a trade ticket from May 26, 2011, issued by the Perth Mint of Australia to Avocet Gold Mining (a West African gold miner), in which the Mint confirms its purchase of 2,126 ounces of gold at a price of $1,526 for a total transaction price of $3.246 million.

What is notable about the trade ticket is the additional information provided for the account clearer, in this case, none other than JPMorgan Chase Bank NA, London, as well as the number of the Gold Account held by said clearer: "No. 01380" but what is by far the most interesting, is that the actual physical address of the JPMorgan facility is provided: 60 Victoria Embankment, London.

Ladies and gentlemen: we may just have uncovered the actual location of the ultra-secretive JPMorgan gold vault in the city of London.

Where is 60 Victoria Embankment, London? See below:

The building's southern/river face is the glorious facade of the City of London School which occupied this location from 1879 until 1986 (and which is currently situated just east of here along the Blackfriars Underpass, next to the Millennium Bridge).

As the map above shows, it is a rather sizable building, located just off the Thames river and steps away from the Blackfriars Bridge, whose official designation until recently was Morgan Guaranty Trust Company of New York, Ltd, a remnant from the firm's merger with Guaranty Trust Company in 1959 (recall that JPM was called Morgan Guaranty Trust until 1989).

A cursory media search about the otherwise very nondescript looking building at 60 Victoria reveals that it had been fully leased by JP Morgan as long ago as 1991. What is more interesting, is that the property had previously been bundled as part of a high-profile commercial mortgage-backed securities, or CMBS, deal called White Tower 2006-3. The deal consolidated properties formerly owned by one-time London real estate mogul, Simon Halabi, one of the financial crisis most notable falls from Grace, who had an estimated net worth of $4.3 billion in 2007, and in April 2010 was declared bankrupt, and whose current whereabouts have since been unknown.

White Tower 2006-3, most infamous for being the first CMBS deal to be placed in liquidation after the start of the currency crisis, held a variety of properties near and dear to JPMorgan's heart, first and foremost 60 Victoria Embankment, the 420,000 sq ft of office buildings fully let to JP Morgan Chase; but notably Alban Gate, the 382,000 sq ft office property located on London Wall
in the heart of the City and fully let to JP Morgan Chase. The latter also was JPM's UK headquarters until last year.

What happened next is interesting: in July 2010 Carlyle bought the bulk of the "White Tower" asset portfolio from the defunct CMBS, paying some £173 million for the 60 Victoria Embankment location. Three very short months later, none other than long-time 60 Victoria resident JPMorgan bought the very same building from Carlyle for a whopping £350 million: a transaction which doubled Carlyle's money in an unprecedented three months! At the time the now former CEO of JPM's investment bank Jes Staley (and who currently works for BlueMountain - the same fund that made a killing by squeezing none other than JPMorgan's London Whale traders), said, "These properties are long-term investments and represent our continued commitment to London as one of the world's most important financial centres." Frank Bisignano, chief administrative officer, added: "These properties are among the most attractive pieces of real estate in London. These buildings ensure that our employees will have the necessary technology, infrastructure and amenities to take our businesses forward." Curiously, JPM showed zero love for its Alban Gate location, which it promptly departed to go to its new Canary Wharf HQ, and Carlyle was forced to pull the sale of this property a year later as it did not get enough satisfactory bids.

A pressing question remains: why did JPM, a long-time tenant of 60 Victoria not submit its own bid for the location it knew it would end up purchasing outright in a few months from Carlyle anyway? Why overpay by £177 million in exchange for merely having one more middleman do a three-month transaction? We hope to find out.

Yet what is very clear is that there was something of far greater value to JPM at the 60 Victoria location than at its old headquarters.

What that "thing" may be, and what is the missing puzzle piece in this story, comes from a very peculiar article written nearly four years ago in an Abu Dhabi/Arab Emirates website titled TheNational, titled "Mystery gold cargo linked to Saad, Gosaibi feud", which described just that - the fate of a series of very peculiar gold shipments, the key of which once again involved the two main abovementioned players: Perth Mint and 60 Victoria Embankment.

We repost the entire story below, while highlighting the key parts:

The Qantas freighter QF71 that took off from Perth Airport on November 3 last year bound for London would not have attracted any special attention, despite the fact that it was carrying 1.2 tonnes of gold bullion, then worth about US$28 million (Dh102.8m).

Perth, in Western Australia, is home to Australia's Gold Corporation Mint, where bullion is processed and turned into standard 12.5kg bricks. From there, the ingots are shipped daily around the globe to vaults in America, Europe and Asia, evidence of the world's apparently insatiable appetite for the precious metal. But what made this shipment unusual was that it was the first of 15 such cargoes, of varying quantities and values, which over the next seven months were eventually unloaded mainly in London. Smaller amounts were also delivered to Dubai and Zurich.

The total value of the bullion exported in these operations approached $430m at current market prices, and it weighed 10.4 tonnes. The other distinguishing factor was the identity of the recipients, or "consignees" as they are known. According to documentation seen by The National, they were all companies associated with the al Gosaibi family of Saudi Arabia. The al Gosaibis have since fallen out spectacularly with their partner, Maan al Sanea of Saad Group, in the biggest corporate scandal to hit the Middle East, leaving about 120 banks worldwide with debts estimated at up to $22 billion and a decreasing likelihood of getting their money back.

In a global hunt for assets to offset their losses, the banks have looked into every corner of the Al Gosaibi trading empire and the Saad Group controlled by Mr al Sanea. A small army of lawyers, forensic accountants and corporate investigators has been hired to track down assets over which the banks believe they have claim. They have turned up property, financial investments, relatively small amounts of cash and other baubles of the wealthy, such as aircraft leases. There was even a private zoo. But the most curious discovery so far is the Gosaibi gold.

Perhaps the most remarkable fact about the shipments is that although there are detailed and specific records of them having taken place, neither party in the al Gosaibi-al Sanea confrontation seems to lay any claim to their ownership. Each side denies it was responsible for the shipments. Despite being regularly ranked among the world's billionaires, neither the family's controlling partnership, Ahmad Hamad Al Gosaibi and Brothers, nor Mr Al Sanea's Saad Group has any previous known involvement in the bullion business.

The first shipment took place just as the world appeared on the verge of financial meltdown last November. They continued until May, when the crisis in the two Saudi families exploded into the public domain after they failed to make repayments on loans associated with their banking businesses in Bahrain. The shipments reached a peak in late February and early March, just as tensions within the al Gosaibi family intensified after the death of Sulaiman, the family patriarch and chairman, on February 22.

One shipping document shows that, the following day, "a shipment of 21,500 fine ounces of large 12.5kg gold bars, minimum 99.5 per cent purity" was sent from AGR Matthey, a well known Australian bullion dealer, from Perth Airport via Singapore to London's Heathrow. From there, the bullion was moved to the vaults of Standard Bank of South Africa, located in the London offices of JPMorgan Chase at 60 Victoria Embankment, Blackfriars, London.

The shipment was marked "London good delivery", meaning it met the internationally recognised standards for bullion delivery and could be deposited alongside bullion of the same quality. The Standard Bank account in which it was deposited was in the name of Al Gosaibi Trading Services, one of the companies owned by the al Gosaibi family. But financing such a transaction - the gold was worth about $20m - is a complicated process.

The usual procedure is for the consignee to arrange a letter of credit with the supplier, which is then guaranteed by a bank. In this case, the letter of credit bears the reference number "Awal 157". Awal is the Bahraini bank owned by Mr al Sanea, but which is now in the administration of the Bahrain Central Bank. Ten of the 15 shipping documents bear the Awal reference, while the rest have reference to "TIBC", The International Banking Corporation, the al Gosaibis' Bahraini bank which is similarly in administration.

It is common practice in the trade finance business for those letters of credit to be separately financed by a third party, such as an international bank. This is what happened with the Gosaibi gold. The amounts paid for the bullion were drawn down from lending facilities with these global banks but those borrowings have not been repaid, banking sources say. International banks, so far frozen out of the settlement process in Saudi Arabia or offered derisory amounts by the feuding families, are keen to track down the location and ownership of this bullion, to seize and offset against debts owed them. While most of the bullion ended up in London, two shipments went to other locations.

Also on February 23, some 629kg of "London good delivery" were shipped from Perth on Singapore Airlines flight SQ226/SQ490 to Dubai International Airport. The shipment was delivered to the Brinks Global Services facilities at the Dubai Airport Free Zone, marked for the attention of: "Malcolm Clingham, for account of Al Gosaibi Trading Services Ltd." Again, the financing reference was "Awal 158". Attempts to reach Mr Clingham were unsuccessful. An employee of Brinks in Dubai said he left the company about four months ago.

The other non-London shipment took place on April 29, when 689kg of gold left Perth on Singapore Airlines flight SQ226/SQ346 to Zurich in Switzerland. The shipment was marked for delivery to: "UBS AG Zurich, for account Standard Bank PLC." Although no named consignee account was mentioned on the shipping document, the financing reference was "TIBC 438". The final shipment to arrive in London took place on May 6, when 722kg was placed on a Delta Airlines flight DL94 in Salt Lake City, Utah, in the US. This was marked for the Al Gosaibi Trading Services account at Standard Bank at the JPMorgan Chase building in London. The financing reference was "Awal 177".

So while there is plenty of evidence that the gold shipments took place, there is huge uncertainty about who initiated them, who owns the bullion, and even where the gold is now. The company named as the bullion account holder, Al Gosaibi Trading Services (ATS), is a wholly owned subsidiary of Bahrain-based Al Gosaibi Investment Holdings (AIH), based in Bahrain which is in turn owned by three family members. But the management control of ATS and AIH is in dispute.

In a legal filing in New York, John D Potter, a former general manager of Al Gosaibi Investment Holdings, declared that: "Mr al Sanea exercised complete control over the operations and activities of AIH, to the exclusion or virtual exclusion of the other directors and the shareholders." Lawyers for Mr al Sanea, the London firm of Harbottle & Lewis, declined to comment on the gold shipments. But sources close to the Kuwait-born financier have denied he was involved in the transactions.

Creditor banks, which asked to remain anonymous, have told The National that their inquiries to Standard Bank in London have not so far produced any positive indication of ownership of the bullion, or even confirmation that it is still in Standard's vaults. Through its South African head office, a spokesman for Standard Bank said: "Our executives in London are adamant they cannot comment - not even off the record - as this would be a breach of client confidentiality."

Whoever ends up owning the gold from Perth will at least have made some money out of the Saudi confrontation, which has affected the kingdom's economy and stock market, and ravaged the balance sheets of regional and international banks. The gold price has risen by nearly 50 per cent over the past year. The shipment last November, worth some $28m when QF71 took off from Perth, is now valued at $42m - wherever it might be.

Courtesy of TheNational, we now know that one of the key features of the building at 60 Victoria is that it houses at least the vault of the Standard Bank of South Africa: in other words, somewhere deep underground, there is, indeed, a major gold vault. We also know, that after leasing this location for nearly two decades, JPMorgan decided to take the plunge and bought it outright in 2010, in a transaction that as shown above was a scramble to park cash and to procure the property for sale. In other words, JPM now has sole custodial possession of all the vaulting services offered under its 60 Victoria Embankment address.

So is this where the legendary JPMorgan London vault is located? Certainly nothing short of Blythe Masters admitting on live TV that yes, this is where one of the two largest commercial gold vaults in the UK is located, and as JPM admitted previously, only one of only six commercial vaults in all of London, there will be speculation and one can't be certain.

However, a quick cursory virtual trip around this building using Google's Street View feature shows that this building, barricaded on every side by a dense forest of bollards, is as protected from outside interest (especially of the automotive kind) as any modern day fortress.

The building's entrance on John Carpenter street, just north of Victoria's embankment - bollards everywhere:

The building's reinforced back/delivery entrance: corner of Kingscote and Tudor: barriers, a reinforced gate with a screen on top of it, and even more bollards which surround the entire building and prevent the parking of any cars in proximity to the building:

And finally, not one, but two rows of bollards, cordoning off a 60 foot area in the street on both sides. South view:

And north view:

Needless to say, no car, or any other potential threat, can enter that ~60 foot space from either side.

Is that where, dozens of feet underground, the world's most secretive commercial gold vault is located? Just below what was once the main campus of the City of London School for boys.

h/t Ro

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Health Care Spending: A 21st Century Gold Rush

Winston Churchill once remarked, “Americans will always do the right thing, once they’ve exhausted all alternatives.” His observation, at least the second half of it, is proving itself as we continue to struggle with our health care system, especially its out-of-control costs that are crippling the budgets of businesses and government alike.

There is a lot of money in our health care system, and no enforceable budget. That leads to carelessness when it comes to spending that money.

What are some of the reasons health care costs continue to rise? Here are a few examples.

For at least the past 40 years, I’ve heard colleagues say, “We’d better get our fees and charges up now, because next year they’re really going to crack down on us.” It has never happened, yet. The problem is intensifying as outpatient “providers” have morphed from being real people into being corporations.

The Los Angeles Times reported on a case where a teacher’s group health plan was billed $87,500 by an “out of network” provider for a knee procedure that normally costs $3,000. Her health plan was willing to pay it. Outraged, the teacher ratted on the orthopedic surgicenter to California’s attorney general. After the press got involved, the charge was “reduced” to only $15,000. Not a bad pricing strategy, from the surgicenter’s point of view.

The New York Times reported an incident where a student who needed emergency gallbladder surgery ended up with a couple of “out-of-network” surgeons through no fault of his own. He was billed $60,000. His insurance company was willing to pay only $2,000. He was left to deal with the rest of the bill on his own.

There are many more examples. Privately insured patients are not the only ones affected. Governors around the country are continuing to struggle with how to pay for their Medicaid programs. In Oregon, Democratic Gov. John Kitzhaber is trying to find ways to impose a fixed budget on Oregon’s Medicaid program without adversely affecting Medicaid beneficiaries. But, he acknowledges, disciplining Medicaid alone will not do the job. He hopes his approach will be adopted by most other health insurance programs.

In Maine, Republican Gov. Paul LePage is struggling not only with how to keep up with burgeoning current Medicaid costs, but also how to pay the state’s almost $500 million past-due Medicaid debt to hospitals. He has proposed lowering liquor prices to boost sales, and mortgaging Maine’s future liquor revenues to secure bonds to pay the debt. His Republican colleagues in the Legislature have described this idea as “creative.”

One of the central features of Obamacare is the creation of “health insurance exchanges,” or online marketplaces. But the law has recognized that many people will need help making the right choices. So it has created an army of “navigators” to help them. A recent Washington Post story points out that a huge number of such experts will be necessary (California alone plans to certify 21,000 of them). Their cost will be reflected in higher health insurance premiums and has sparked opposition from insurance brokers who view them as competition. That will be an expensive fight, without increasing the amount going to actual health care by a single dollar.

Then there is the purchase of politicians by powerful corporate interests. When the Medicare prescription drug benefit was enacted in 2003, it was prohibited from negotiating lower drug prices, even though the veterans health system and many Medicaid programs are permitted to do so. The lead congressman pushing that provision retired from Congress soon after it was passed to take a lucrative job with the pharmaceutical industry. This has become standard practice in Washington.

And don’t forget the for-profit levels of compensation paid to the executives of nonprofit hospitals.

Meanwhile in Massachusetts, where Obamacare was born, health care costs are expected to rise six to 12 percent next year. Last year, their legislature passed a law capping increases in total private and public spending statewide, limiting them to the rate of growth of the Massachusetts economy. But the job of figuring out how to actually get it done was turfed to an “expert panel” of “stakeholders.” My bet is that such cost control will be difficult or impossible to achieve unless we simplify and centralize the way we finance health care.

Why does this financial abuse of taxpayers and patients continue? Because we let it. Americans often react to structural problems by simply throwing more money at them. We seem to be unable to say “no more.”

Maybe it’s time to revisit the part of Churchill’s comment about Americans always doing the right thing — by emulating the policies of most other wealthy countries. They have health care systems that are more popular than ours, provide better access to care, get better results, and are far less expensive.

Maybe it’s time to put everybody into a single, nonprofit system we can all support, within a budget acceptable to the majority of people. That arrangement would eliminate the political fights among people in different health insurance programs, each questioning change by asking, “How does it benefit me?”

Such a system would be best if done at a national level. But it could work initially at the level of individual states, such as Maine. That’s how the Canadians did it — one province at a time. If Maine could be one of the first states to do that, the people of Maine could truly say “Dirigo, I lead.”

© 2013 Bangor Daily News

Physician Philip Caper of Brooklin is a founding board member of Maine AllCare, a nonpartisan, nonprofit group committed to making health care in Maine universal, accessible and affordable for all, and a member of Physicians for a National Health Program.

Health Care Spending: A 21st Century Gold Rush

Winston Churchill once remarked, “Americans will always do the right thing, once they’ve exhausted all alternatives.” His observation, at least the second half of it, is proving itself as we continue to struggle with our health care system, especially its out-of-control costs that are crippling the budgets of businesses and government alike.

There is a lot of money in our health care system, and no enforceable budget. That leads to carelessness when it comes to spending that money.

What are some of the reasons health care costs continue to rise? Here are a few examples.

For at least the past 40 years, I’ve heard colleagues say, “We’d better get our fees and charges up now, because next year they’re really going to crack down on us.” It has never happened, yet. The problem is intensifying as outpatient “providers” have morphed from being real people into being corporations.

The Los Angeles Times reported on a case where a teacher’s group health plan was billed $87,500 by an “out of network” provider for a knee procedure that normally costs $3,000. Her health plan was willing to pay it. Outraged, the teacher ratted on the orthopedic surgicenter to California’s attorney general. After the press got involved, the charge was “reduced” to only $15,000. Not a bad pricing strategy, from the surgicenter’s point of view.

The New York Times reported an incident where a student who needed emergency gallbladder surgery ended up with a couple of “out-of-network” surgeons through no fault of his own. He was billed $60,000. His insurance company was willing to pay only $2,000. He was left to deal with the rest of the bill on his own.

There are many more examples. Privately insured patients are not the only ones affected. Governors around the country are continuing to struggle with how to pay for their Medicaid programs. In Oregon, Democratic Gov. John Kitzhaber is trying to find ways to impose a fixed budget on Oregon’s Medicaid program without adversely affecting Medicaid beneficiaries. But, he acknowledges, disciplining Medicaid alone will not do the job. He hopes his approach will be adopted by most other health insurance programs.

In Maine, Republican Gov. Paul LePage is struggling not only with how to keep up with burgeoning current Medicaid costs, but also how to pay the state’s almost $500 million past-due Medicaid debt to hospitals. He has proposed lowering liquor prices to boost sales, and mortgaging Maine’s future liquor revenues to secure bonds to pay the debt. His Republican colleagues in the Legislature have described this idea as “creative.”

One of the central features of Obamacare is the creation of “health insurance exchanges,” or online marketplaces. But the law has recognized that many people will need help making the right choices. So it has created an army of “navigators” to help them. A recent Washington Post story points out that a huge number of such experts will be necessary (California alone plans to certify 21,000 of them). Their cost will be reflected in higher health insurance premiums and has sparked opposition from insurance brokers who view them as competition. That will be an expensive fight, without increasing the amount going to actual health care by a single dollar.

Then there is the purchase of politicians by powerful corporate interests. When the Medicare prescription drug benefit was enacted in 2003, it was prohibited from negotiating lower drug prices, even though the veterans health system and many Medicaid programs are permitted to do so. The lead congressman pushing that provision retired from Congress soon after it was passed to take a lucrative job with the pharmaceutical industry. This has become standard practice in Washington.

And don’t forget the for-profit levels of compensation paid to the executives of nonprofit hospitals.

Meanwhile in Massachusetts, where Obamacare was born, health care costs are expected to rise six to 12 percent next year. Last year, their legislature passed a law capping increases in total private and public spending statewide, limiting them to the rate of growth of the Massachusetts economy. But the job of figuring out how to actually get it done was turfed to an “expert panel” of “stakeholders.” My bet is that such cost control will be difficult or impossible to achieve unless we simplify and centralize the way we finance health care.

Why does this financial abuse of taxpayers and patients continue? Because we let it. Americans often react to structural problems by simply throwing more money at them. We seem to be unable to say “no more.”

Maybe it’s time to revisit the part of Churchill’s comment about Americans always doing the right thing — by emulating the policies of most other wealthy countries. They have health care systems that are more popular than ours, provide better access to care, get better results, and are far less expensive.

Maybe it’s time to put everybody into a single, nonprofit system we can all support, within a budget acceptable to the majority of people. That arrangement would eliminate the political fights among people in different health insurance programs, each questioning change by asking, “How does it benefit me?”

Such a system would be best if done at a national level. But it could work initially at the level of individual states, such as Maine. That’s how the Canadians did it — one province at a time. If Maine could be one of the first states to do that, the people of Maine could truly say “Dirigo, I lead.”

© 2013 Bangor Daily News

Physician Philip Caper of Brooklin is a founding board member of Maine AllCare, a nonpartisan, nonprofit group committed to making health care in Maine universal, accessible and affordable for all, and a member of Physicians for a National Health Program.

Gold Leaps Into Backwardation!

Since late January, the February gold contract has been in backwardation.  This means that one could make a profit by simultaneously selling a gold bar and buying a February contract.  One would still have one’s gold plus a little extra.  I coined the term “temporary backwardation”, to describe this curious and very recent phenomenon.  In our “new normal”, most gold and silver contracts go into backwardation as they get close to expiry.

When the Feb contract first jumped into backwardation, it was well within the “contract roll” period.  The roll is when naked longs sell the expiring contract and buy a contract for a more distant month.  This heavy selling of the expiring contract pushes down its price.  Since cobasis is Spot minus Future (oversimplified slightly), the cobasis rises purely due to the mechanics of this selling.

But today something more serious occurred.  The April contract, which is not yet being  “rolled”, fell into backwardation.  See the chart.

This is a chart of the cobases for the February and April 2013 gold contracts.

The market is offering a free profit to anyone who will sell a gold bar and buy an April contract.  For whatever reason, no one is either able or willing to take the bait.  This is proof that the market for physical gold metal is drying up.  Speculators in the futures markets may believe that the gold price “should” fall because the central banks say they are not going to competitively devalue their irredeemable paper currencies.  Owners of real metal are increasingly reluctant to part with it at the current price.

We don’t recommend that anyone ever naked short the monetary metals.   Instead, we always advise to use an arbitrage position such as long gold / short silver.

Using the basis theory, we have been bearish on silver this year, against the consensus posting two videos (here and here).

Using the basis theory on gold today, we would suggest that now is a great time and a great price to buy gold.

And to those who may be shorting gold due to downward momentum, we would say this.  Caveat venditor.

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Record Dollar Value Gold Demand In 2012 – India, China and Central Banks Buy

Gold edged up on Thursday, as bargain hunters showed buying interest and gold was particularly strong in euro terms after data from Europe confirmed the continent remains very vulnerable to economic shocks.

The euro area recession deepened and data showed that the euro area economy shrank the most since 2009 and its three biggest economies, Germany, France and Italy, suffered slumping output.

G20 nations should take a stronger stance against currency manipulation the Russian Finance Minister said this morning after G7 conflicting statements about currency wars in recent days.

Hong Kong opened trading today and is seeing the physical jewellery demand pick up, but the bulk of Asia is still closed for the entrance of the Year of the Snake for the lunar New Year.

U.S. weekly jobless claims are reported at 1330 GMT.    

The world's largest gold-backed ETF, SPDR, said its holdings edged off 0.07% to 1325.99 tonnes on Wednesday from 1326.89 tonnes on Tuesday, but remains near record highs.


Central Bank Gold Demand (1971 to Today)

According to the World Gold Council’s Q4 2012 report issued today, Global gold demand in Q4 2012 reached 1,195.9 tonnes, up 4% from Q4 2011. In value terms gold demand for the quarter was 6% higher year-on-year at $66.2bn marking the highest ever Q4 total and driving annual demand in 2012 to a record value of US$236.4bn.

Gold demand ended a challenging year on a strong note, with a level of demand in Q4 2012 second only to the record level in Q3 2011, highlighting gold’s ongoing attraction and resilience to economic uncertainty. Overall gold demand remains above the five year average with demand in Q4 2012 driven by India, China and the official sector.

In India, investment and jewellery demand reached their highest levels for six quarters with overall demand up 41% on Q4 2011. China recovered from a difficult start to the year, with strong demand in investment and jewellery, both up marginally on the high levels from the final quarter in the previous year. 


Indian Gold Demand (2005 to Today)

Central bank purchasing was up 29% on Q4 2011 marking the eighth consecutive quarter of official sector net purchasing, with full year 2012 seeing the highest levels of central bank purchasing since 1964.

The key findings from the report are as follows:
• Whilst Indian full year demand was down 12% on the previous year, the market performed strongly in the final quarter with total demand at 261.9t, an increase of 41% on the same period last year.  Both jewellery and investment demand reached their highest levels for six quarters. Demand for jewellery was up 35% year-on-year to reach 153.0t, and strong retail demand led to 108.9t of investment buying.  In India the prospect of duty increases, which came in to force in January 2013, may have added to strong buying in the final quarter to beat the anticipated price rises.

• Chinese demand was flat year-on–year, reflecting the impact of economic slowdown. However looking at Q4, total demand was up 1% on the previous quarter to 202.5t. Jewellery demand was137.0t up 1% on Q4 2011 and investment demand was 65.5t, up 2% on the previous year. These increases may reflect the fact that the economic slowdown in China appears to have been shorter than expected.

• Central bank buying for the full year rose by 17% compared to 2011, totaling 534.6t, the highest level since 1964. Central bank purchases stood at 145.0t in Q4, up 29% on the corresponding quarter in the previous year, making this the eighth consecutive quarter in which central banks have been net purchasers of gold. 

• Global investment in ETFs in 2012 was up significantly by 51% on the preceding year, though Q4 was down 16% to 88.1t when compared with the high levels recorded in Q3 2012.

The World Gold Council’s Gold Demand Trends report for Q4 2012 and full year 2012 is now available to download from here.

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Home Prices Are Back… To 1894’s Levels

Six years after the onset of the traumatic US housing crisis, the optics are there that suggest a stabilization is occurring. Whether real or manufactured by record-low foreclosures, bank supply withdrawals, and fed-subsidized cash REO-to-rent trades,...

Russia: The World’s Top Gold Buyer

gold

Over the last decade Russia’s Central Bank acquired 570 metric tonnes of gold. The amount is almost triple the weight of the American Statue of Liberty and makes Russia the world’s biggest buyer of gold.

The amount is a quarter more than runner-up China, Bloomberg reported on Monday.

Countries like Russia and China use such stockpiles as an economic buffer against another wave of economic crisis or US dollar devaluation, as both remain weary of the US Federal Reserve’s stability and prefer to edge their bets on gold.

It’s also proven a sound investment and opportunity for the Russian state to make money, with gold prices crawling upwards over the past 12 years, gaining 12% in 2012 alone.  On Monday gold traded at $1650 per ounce and analysts expect the price to keep growing in 2013 to reach $1825 by the end of the year. However French investment bank Natixis dampened the outlook by forecasting a drop in price to $1500 by 2014, Finmarket.ru reports.

But the link between high gold prices and falling crude has plagued Russia in the past. In 1998, when Russia defaulted on $40 billion of domestic debt, it took 28 barrels of crude to buy an ounce of gold, according to Bloomberg research. Two years later, when Vladimir Putin came to power, an ounce was worth 11.5 barrels. By 2005 the ratio had dropped to 6.5 and that is when President Putin ordered his Central Bank to buy. In just a month the proportion of gold in Russia’s total reserve rose from 2.2% to 3.5%.

In 2000 Vladimir Putin inherited a country with 384 metric tons of gold and more than doubled its gold reserve in 12 years – according to official data from World Gold Council, in October 2012 gold made up 9.6% of Russia’s national forex reserve and stood at 936.7 metric tons.

However it is still far from its historic high – in 1941 Russia held a record 2800 tons of the precious metal and thanks to these reserves successfully recovered after World War II.

Russia’s gold rush still doesn’t mean it tops the list of global gold owners. The United States holds the leading position with 8133.5 tons of gold which make 75.4% of country’s total reserve. Germany runs second with 3391.3 tons and the IMF third with 2814 tons. China and Russia are sitting in sixth and eighth place respectively.

China however is suspected of downplaying its actual volume of gold by 3-4 times, Zerohedge news website reports, and prepares to introduce Yuan as world’s reserve currency. Back in 2009 China set a goal to overtake the US in the rankings. When the Chinese Central bank is ready to officially declare its actual gold reserve volume, world markets will experience serious problems, Zerohedge.com believes.

Major global investor and consulting adviser to the Obama administration, George Soros also appears to have a golden investment streak. In August 2012 it was reported, Mr. Soros offloaded over a million shares in financial companies and banks and purchased $130 million in gold. His move to sell stocks and beef up on gold, is being interpreted by some as a sign of changing investment strategy in the world market.

Will Currency Wars End With A Return To The Gold Standard?

From GoldCore

End Currency Wars With Gold Standard? –Bloomberg Interview and FT Op-ed

Gold continues to flow from the west to east. Reuters reports that U.S. Commerce Department data showed U.S. exports of nonmonetary gold, which excludes central bank transactions, climbed by 43% to $4 billion in December from the prior month. 

That's the highest total and the largest month-on-month jump in U.S. private gold exports since September 2011, when gold rallied to a record nominal high over $1,920/oz. Hong Kong accounted for nearly half of the $4 billion.

The Group of Seven nations have reiterated their commitment to market-determined exchange rates and said fiscal and monetary policies must not be directed at devaluing currencies.

Actions speak louder than the words of the communiqué and the reality is that the fiscal and monetary policies of many members of the G7, and especially the U.S., are directed at devaluing currencies through competitive currency devaluations.

Concerns about the devaluations and the growing risk of a severe bout of inflation have led to calls for a return to fixed exchange rates and a gold standard.

Bloomberg’s Trish Regan and Adam Johnson interviewed TCW Group’s Komal Sri-Kumar and Bank of New York Mellon's Michael Woolfolk about the risks from currency wars on Bloomberg Television's "Street Smart."

Trish Regan asks whether there is a danger that “we have massive inflation worldwide for years to come?”

The answer is yes and both agree that inflation is a real risk as is a loss of credibility by central banks.

Komal Sri-Kumar is asked what the solution is and is asked about his Op-Ed in The Financial Times in which he calls for a return to a gold standard.

He replies that a gold standard today would be no different to “how good it was from 1945 to 1971.”

“It worked, the world was in prosperity, there was economic growth and there was clearly certainty in terms of what exchange rates were.”

He warns that “even in the short term there is nothing to be gained by devaluing. We have tried that in the United States. We have been devaluing through QE1, QE2 and QE Infinity, the most recent one ... we don’t have sustained economic growth.”

In his Op-Ed in The Financial Times, Sri-Kumar called for gold to be fixed just above today’s levels at $1,675/oz:

“A first step would be to fix the price of gold in dollar terms at near its current level of $1,675, with assured convertibility. To ensure that currencies are neither over- nor undervalued, the consumption basket (or the hypothetical loaf of bread) should be valued at roughly similar levels in different currencies at fixed rates against the dollar.”

Bank of New York Mellon's Michael Woolfolk says that you could back the dollar with gold as “the value of gold would have to be astronomically high to back the money supply”.

“At the time of the 1960’s a dollar was a unit of currency and $35 bought an ounce of gold, but the velocity of money is so much greater now the price would need to be higher”, Columbia University educated Kumar said.

The benefit of the gold standard was that there was a fixed exchange rate. 

“If we went back to the gold standard you would be looking at a global recession,” says Michael Woolfolk. “We don’t have enough gold and it’s not growing fast enough”. 

Kumar disagrees that by using a gold standard and that having it fixed exchange rates, the certainty would increase global trade and overall global production.

“The price of gold would have to be astronomically high, plus you couldn’t guarantee that all countries have different interest rates set”?

“Michael, I don’t think the inflation would be much higher if the country submits itself to a fixed exchange rate” said Kumar.

Sri-Kumar  concluded the following:

During the Bretton Woods period the The Vietnam War pushed the inflation up as the U.S. had to print dollars to finance a war. Then Nixon abolished the gold link in August of 1971 was death net. After that, money supply increased by 10% in one year and this was not consistent with the fixed exchange rate. If you had not done that we would have avoided the push up in inflation in 1973-1975 and the subsequent increase in oil prices in 1979.

This debate shows how gold is being seen as money and as a safe haven asset again, and shows the silly nature of the ongoing suggestions that gold is a ‘bubble’.

NEWS 

U.S. gold bars and coins find new home overseas on Asian demand - Reuters

Gold Rallies From Lowest in a Month on North Korean Nuclear Test - Bloomberg

Gold Declines to Lowest in More Than a Month; ETP Assets Drop - Reuters

Gold now oils the wheels of Iran’s economy – The Times

COMMENTARY

Video: Would Returning to Gold Standard End Currency Wars? – Bloomberg

Fix Gold and Exchange Rates To Revive Growth – Financial Times

Video: World's Most Gold-Hungry Country? Not the U.S. - Bloomberg

A Brief 2000-Year History Of Silver Prices – Commodity HQ

Year of the Snake is a Year to Buy Gold – SCMP.com

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Russia Flips Petrodollar On Its Head By Exporting Crude, Buying Record Gold

China has been a very active purchaser of gold for its reserves in the last few years, as we extensively covered here and here, but another nation has taken over the 'biggest buyer' role (for the same reasons as China).

Central banks around the world have printed money to escape the global financial crisis, and as Bloomberg reports, IMF data shows Russia added 570 metric tons in the past decade. Putin's fears that "the U.S. is endangering the global economy by abusing its dollar monopoly," are clearly being taken seriously as the world's largest oil producer turns black gold into hard assets. A lawmaker in Putin's party noted, "the more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency."

Putin’s gold strategy fits in with his resource nationalism, statist agenda, as Bloomberg notes when Russia defaulted in 1998 it took 28 barrels of oil to buy one ounce of gold, was 11.5 barrels when Putin came to power and when in 2005 it had fallen to 6.5 barrels (less than half what it is now), he went all in, telling the central bank to buy.

Russia has gone through bouts of hoarding before - from 1867's Tsar Alexander II to Lenin, for now, with more than five years left in Putin’s term, Russia plans to keep on buying - "The pace will be determined by the market," First Deputy Chairman Alexei Ulyukayev said in an interview in Davos, Switzerland, on Jan. 25. "Whether to speed that up or slow it down is a market decision and I’m not going to discuss it."

Via Bloomberg,

Putin Turns Black Gold Into Bullion as Russia Out-Buys World

When Vladimir Putin says the U.S. is endangering the global economy by abusing its dollar monopoly, he’s not just talking. He’s betting on it.

Not only has Putin made Russia the world’s largest oil producer, he’s also made it the biggest gold buyer. His central bank has added 570 metric tons of the metal in the past decade, a quarter more than runner-up China, according to IMF data compiled by Bloomberg. The added gold is also almost triple the weight of the Statue of Liberty.

“The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency,” Evgeny Fedorov, a lawmaker for Putin’s United Russia party in the lower house of parliament, said in a telephone interview in Moscow.

...

In 1998, the year Russia defaulted on $40 billion of domestic debt, it took as many as 28 barrels of crude to buy an ounce of gold, Bloomberg data show. That ratio tumbled to 11.5 by the time Putin first came to power a year later and in 2005, after it touched 6.5 -- less than half what it is now -- the president told the central bank to buy.

During a tour that November of the Magadan region in the Far East, where Polyus Gold International Ltd. and Polymetal International Plc have operations, Putin told Bank Rossii not to “shy away” from the metal. “After all, they’re called gold and currency reserves for a reason,” Putin said, according to a Kremlin transcript.

Lucky Guy

At the time, gold was trading at an 18-year high of $495 an ounce and the Moscow-based central bank held 387 tons, or 2.2 percent of its $165 billion total reserves. The share reached 3.5 percent within a month, according to data compiled by Bloomberg.

An ounce of gold for immediate delivery traded at $1,670 as of 7:24 p.m. Moscow time on Feb. 8. It rose 7 percent last year, the 12th straight year of gains. Analysts expect the metal to advance again in 2013, to $1,825 by the end of the year, according to the median of 26 forecasts in a Bloomberg survey.

“Putin’s gold strategy fits in with his resource nationalism, statist agenda,” said Tim Ash, head of emerging- market research at Standard Bank Plc in London. “It’s kind of a defensive play, but it worked, right?” Ash said in an interview in Moscow. “You need luck in politics and business, and clearly the guy has it.”

Brown’s Bottom

Other world leaders haven’t been as lucky. Gordon Brown, as U.K. finance minister, sold almost 400 tons of gold in the 30 months to March 2002, when prices were at two-decade lows. London tabloids have referred to the period as Brown’s Bottom.

Quantitative easing by major economies to support financial asset prices is driving demand for gold in the emerging world, said Marcus Grubb, head of investment research at the World Gold Council. Before the crisis, central banks were net sellers of 400 to 500 tons a year. Now, led by Russia and China, they’re net buyers by about 450 tons,

...

While Putin is leading the gold rush in emerging markets, developed nations are liquidating. Switzerland unloaded the most in the past decade, 877 tons, an amount now worth about $48 billion, according to International Monetary Fund data through November. France was second with 589 tons, while Spain, the Netherlands and Portugal each sold more than 200 tons.

No Hoard

Communist secrecy regarding the country’s gold holdings fueled speculation that party elites had amassed a huge hoard of bullion that they spirited out of the country before the Soviet Union disintegrated in 1991.

...

“When people ask about the party’s gold, my answer is always: Are you an idiot or something?” Gerashchenko, 75, told Afisha magazine.

For now, with more than five years left in Putin’s term, Russia plans to keep on buying.

“The pace will be determined by the market,” First Deputy Chairman Alexei Ulyukayev said in an interview in Davos, Switzerland, on Jan. 25. “Whether to speed that up or slow it down is a market decision and I’m not going to discuss it.”

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The Number One Reason to Invest in Gold…

With the the U.S. economy having once again dropped into negative recessionary growth, currency wars around the world heating up through direct and indirect devaluations, and trillion dollar fiscal deficits piling on, how is it possible that the stock market, a key measure of economic health for many Americans, is touching near all time highs?

Marin Katusa, Chief Strategist at Casey Research, suggests that this effect can be traced to monetary machinations that are happening behind the scenes, where few people are willing to look.

“Because they’re printing and making the availability of money so easy, the market is really confused right now,” says Katusa.

The reality is that literally trillions of dollars have been borrowed and printed to bail out the United States and Europe, and much of that money has been injected into stock markets to give the appearance of recovery.

It is, at best, an illusory effect.

Given that more people than ever before are out of work, over half of American households are dependent on some form of government disbursement to survive, and prices for essential goods like food and energy are consistently rising, it’s only a matter of time before confusion in financial markets turns to panic.

And when it does, just as we’ve seen throughout history, only real, tangible assets will be of value.

One such asset that has always maintained real value in times of calamity is gold.

Despite arguments that gold doesn’t grow like typical modern day investments and simply sits in a vault gathering dust, according to Marin Katusa in a recent interview with Future Money Trends, there is one key reason for why it should be in your diversified basket of goods.

The number one reason to invest in gold is insurance.

Because of the massive liquidity and the dilution of, not just the US and not just Bernanke, but all of the major countries – they are a printing press… The main reason to invest is because gold is money.

Before they had fiat currencies – that’s the currencies like today… there was gold.

The Romans. The Egyptians. The Babylonians.

For thousands of years they used gold before they used these fiat currencies.

And, every time in history a fiat currency ends in disaster.

We have recent examples. If you look at what happened to Yugoslavia, or Zimbabwe, or even Germany with their fiat currencies… gold always holds true value.

That’s why we believe gold is a true, original money.

I think at least you can see with gold, it is the insurance policy to bet against the bankers.


Watch at Youtube

With all of this money – literally hundreds of billions of dollars – being thrown into stock markets by leading financial institutions that were just a few years ago on the brink of insolvency, there are massive price distortions happening across the board. This includes rising stock markets, one of the key benefactors of the Federal Reserve’s printing press.

Another not so positive effect (at least not for the American people) are ever increasing prices in the free market, something that Katusa says is going to continue:

[There is a] One hundred percent [chance of inflation].

You can guarantee these three things in life: Taxes, Death, and Inflation.

Inflation is coming… I just don’t know if it’s next week, or in six months, or twelve months.

But the reality is, it’s coming.

That’s why if you have a percentage in gold, you’re covered.

It’s an insurance policy.

When all fiat monetary exchange mechanisms fail, only one asset has stood the test of time as a store of wealth.

Gold is and always has been an insurance policy.

It will be the only thing left standing when the U.S. dollar, the Euro, the Yen, and other paper currencies are inflated to oblivion by their respective governments.

Make sure you have some when that happens.

Goldilocks Sequester

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Gold Sentiment Poor Due To Range-Bound Trade and Banks’ Bearish Predictions

Gold is little changed today in pound, euro and dollar terms after the Bank of England and the ECB kept interest rates at record low levels. Ultra loose monetary policies continue.


Gold in Japanese Yen, 4 Day – (Bloomberg)

The ECB kept interest rates at 0.75% and the BOE kept interest rates at 0.5% the lowest level since 1694. The BOE pledged to maintain their ‘stimulus’ or money printing or debt monetisation programmes.

This morning the Japanese yen fell to new record lows against gold on the TOCOM at over 157 million yen per ounce.

Ultra loose monetary policies are set to continue which is bullish for the precious metals.

Mario Draghi’s news conference begins at 1330 GMT and the ECB President could set the course for the single currency. If Draghi’s speech warns about the recent rise in the euro then the euro may fall against the dollar and gold.

Gold's range bound trading between $1,650/oz and $1,700/oz since December continues.


Gold in USD, 2 Year – (Bloomberg)

Physical gold volumes have been quite low in recent days with very few new buyers coming into the market. More clients have been selling than buying in recent days. But the more aware and risk averse money continues to add to their allocations. 

The mix is quite unusual as normally there is a clear bias towards clients selling or buying. On recent years, during gold’s bull market the bias has been towards buying.

Recent technical action has been poor and the short term trend is down and this allied to perceptions that the global economic situation has improved slightly is leading to the preponderance of sellers.

Sellers have also be emboldened by recent bold pronouncements of the end of gold’s bull market – by many of the same banks who never predicted the bull market or advised their clients to own gold in the first place.

Many of the banks, now predicting gold’s bull market will end in 2013, never predicted gold’s bull market in the first place. Most were bearish on gold in the early to mid years of the bull market and most only became bullish quite recently.

Very few have been consistent and very few have been bullish on gold in the long term.

It is also worth noting that most of them do not understand gold and continue to see it as a trade. 

Many of these banks' primary focus is short term profit, often trading profits, and therefore they do not understand the long term, passive diversification benefits of gold in a portfolio or as financial insurance. 

It is also not profitable for them to advise a buy and hold diversification strategy as more prudent advisers have been advising in recent years.  

While sentiment towards gold remains poor after recent weakness, the smart money is focused on the fundamentals and is positioning itself for higher gold prices in the medium term. Soros, Gross, Faber, Rogers, Paulson and other respected investors who predicted the crisis have large allocations which they continue to hold.


Silver in USD, 3 Year – (Bloomberg)

Investors need to be patient, fade out the day to day noise from banks and hedge funds and focus on gold’s value rather than its price movements – particularly in the short term. 

It remains important to focus on the long term diversification benefits of having an allocation to gold, silver, platinum and palladium.

NEWS   
Gold edges up before ECB meets, PGMs near 17-mth highs - Reuters

Gold Rises in Asia, Near-Term Outlook Weak; Precious Metals Lower – The Wall Street Journal

China's 2012 gold output up 12% - Paper - Reuters

Gold vending machine in Florida may be first of many – The Palm Beach Post

COMMENTARY
'Europe's A Fragile Bubble', Citi's Buiter Warns Of Unrealistic Complacency – Zero Hedge

Does China Still Love Gold? – Market Oracle

Video: Horror Bankers Attack – Max Keiser

Video: Goldsmiths put the nation's coins through their paces – The Telegraph

For breaking news and commentary on financial markets and gold, follow us on Twitter.

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U.S. Dollar Collapse: Where is Germany’s Gold?

gold

The financial world was shocked this month by a demand from Germany’s Bundesbank to repatriate a large portion of its gold reserves held abroad. By 2020, Germany wants 50% of its total gold reserves back in Frankfurt – including 300 tons from the Federal Reserve. The Bundesbank’s announcement comes just three months after the Fed refused to submit to an audit of its holdings on Germany’s behalf. One cannot help but wonder if the refusal triggered the demand.

Either way, Germany appears to be waking up to a reality for which central banks around the world have been preparing: the dollar is no longer the world’s safe-haven asset and the US government is no longer a trustworthy banker for foreign nations. It looks like their fears are well-grounded, given the Fed’s seeming inability to return what is legally Germany’s gold in a timely manner. Germany is a developed and powerful nation with the second largest gold reserves in the world. If they can’t rely on Washington to keep its promises, who can?

Where is Germany’s Gold?

The impact of Germany’s repatriation on the dollar revolves around an unanswered question: why will it take seven years to complete the transfer?

The popular explanation is that the Fed has already rehypothecated all of its gold holdings in the name of other countries. That is, the same mound of bullion is earmarked as collateral for a host of different lenders. Since the Fed depends on a fractional-reserve banking system for its very existence, it would not come as a surprise that it has become a fractional-reserve bank itself. If so, then perhaps Germany politely asked for a seven-year timeline in order to allow the Fed to save face, and to prevent other depositors from clamoring for their own gold back – a ‘run’ on the Fed.

Now, the Fed can always print more dollars and buy gold on the open market to make up for any shortfall, but such a move could substantially increase the price of gold. The last thing the Fed needs is another gold price spike reminding the world of the dollar’s decline.

Speculation Aside

None of these theories are substantiated, but no matter how you slice it, Germany’s request for its gold does not bode well for the future of the dollar. In fact, the Bundesbank’s official statements are all you need to confirm the Germans’ waning faith in the US.

Last October, after the Bundesbank had requested an audit of its Fed holdings, Executive Board Member Carl-Ludwig Thiele was asked in an interview why the bank kept so much of Germany’s gold overseas. His response emphasized the importance of the dollar as the world’s reserve currency:

Thiele’s statement can lead us to only one conclusion: by keeping fewer reserves in the US, Germany foresees less future need for “US dollar-denominated liquidity.”"Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity.”

History Repeats

The whole situation mirrors the late 1960s, during a period that led up to the “Nixon Shock.” Back then, the world was on the Bretton Woods System – an attempt on the part of Western central bankers to pin the dollar to gold at a fixed rate, while still allowing the metal to trade privately as a commodity. This led to a gap between the market price of gold as a commodity and the official price available from the Treasury.

As the true value of gold separated further and further from its official rate, the world began to realize the system was unsustainable, and many suspected the US was not serious about maintaining a strong dollar. West Germany moved first on these fears by redeeming its dollar reserves for gold, followed by France, Switzerland, and others. This eventually culminated in Nixon “closing the gold window” in 1971 by ending any link between the dollar and gold. This “Nixon Shock” spurred chronic inflation throughout the ’70s and a concurrent rally in gold.

Perhaps the entire international community is thinking back to the ’60s, because Germany isn’t the only country maneuvering away from the dollar today. The Netherlands and Azerbaijan are also discussing repatriating their foreign gold holdings. And every month, we hear about central banks increasing gold reserves. The latest are Russia and Kazakhstan, but in the last year, countries from Brazil to Turkey have been adding to their gold holdings in order to diversify away from fiat currency reserves.

And don’t forget China. Once the biggest purchaser of US bonds, it is now a net seller of Treasuries, while simultaneously gobbling up gold. Some sources even claim that China has unofficially surpassed Germany as the second largest holder of gold in the world.

Unlike the ’60s, today there is no official gold window to close. There will be no reported “shock” indicator of a dollar flight. This demand by Germany may be the closest indicator we’re going to get. Placing blame where it’s due, let’s call it the “Bernanke Shock.”

It Takes One to Know One

In last month’s Gold Letter, I wrote about the three pillars supporting the US Treasury’s persistently low interest rates: the Fed, domestic investors, and foreign central banks – led by Japan. I examined how Japan’s plans to radically devalue the yen may undermine that country’s ability to continue buying Treasuries, which could cause the other pillars to become unstable as well.

While private investors and even the Fed might be deluding themselves into believing US bonds are still a viable investment, Germany’s repatriation news makes it clear that foreign governments are no longer buying the propaganda. And why should they? If anyone should appreciate the real constraints the US government is facing, it is other governments.

Our sovereign creditors know that Ben Bernanke and Barack Obama are just regular men in fancy suits. They know the Fed isn’t harboring some ingenious plan for raising interest rates while successfully selling back its worthless mortgage and government securities. Instead, the Fed is like a drug addict making any excuse to get its next fix. [See Bernanke's tell-all interview with Oprah where he confesses to economic doping!]

US investors should be as shocked as the Bundesbank about the Fed’s deception. While we cannot redeem our dollars for gold with the Fed, we can still buy gold with them in the open market. As more investors and governments choose to save in precious metals, the dollar’s value will go into steeper and steeper decline – thereby driving more investors into metals. That’s when the virtuous circle upon which the dollar has coasted for a generation will quickly turn vicious.

Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse. His latest book is The Real Crash: America’s Coming Bankruptcy, How to Save Yourself and Your Country.

Gold Reaches 155,180 Yen/oz – Near Record In Japanese Yen

From GoldCore

Gold Reaches 155,180 Yen/oz - Near Record In Japanese Yen

Today’s AM fix was USD 1,664.25, EUR 1,224.52, and GBP 1,057.47 per ounce.
Friday’s AM fix was USD 1,665.00, EUR 1,217.99, and GBP 1,052.46 per ounce.

Silver is trading at $31.57/oz, €23.37/oz and £20.17/oz. Platinum is trading at $1,701.00/oz, palladium at $754.00/oz and rhodium at $1,200/oz.


Cross Currency Table – (Bloomberg)

Gold rose $3.00 or 0.18% in New York Friday and closed at $1,667.80/oz. Silver surged to a high of $32.14 and finished with a gain of 1.18%. 

Gold advanced 0.54% for the week, while silver was up 1.99%.

Gold rose initially on Monday prior to seeing determined selling. Gold was unable to break its narrow trading range despite rising after the poor GDP number last week.

While sentiment towards gold remains lukewarm due to recent tepid price action and confusing, mixed economic data, platinum rose to a 4 month high ($1,705.25) and palladium soared to its highest since September 2011 ($759.75) primarily due to concerns about supply especially from South Africa.

The run up in platinum and palladium is also due to U.S. auto sales reporting that January topped estimates, as car buyers returned to U.S. showrooms.

This week’s U.S. economic highlights include Factory Orders at 1500 GMT today, ISM Services on Tuesday, Initial Jobless Claims, Productivity, Unit Labor Costs, and Consumer Credit on Thursday, and the Trade Balance and Wholesale Inventories on Friday.

The Eurozone Sentiment and PPI are also released today and currency and gold traders will be paying close attention to the ECB's monthly policy statement on Thursday for any attempt by the ECB to weaken the euro as currency wars heat up.

The Chinese week long holiday for the Lunar New Year starts on Saturday and therefore physical buying will continue this week and lend support prior to becoming quiet next week.

Holdings of SPDR Gold Trust, remained unchanged for its 4th session at 1,328.092 tonnes

The benchmark gold on Tokyo Commodity Exchange (TOCOM) hit a record high of 5,000 yen a gram, driven by a weak yen and the continuation of the Bank of Japan’s loose monetary policy.


XAU/JPY, 1 Year – (Bloomberg)

Gold bullion for delivery in December climbed as high as 1.2% to 5,000 yen per gram on the TOCOM. In ounce terms, the yen fell to 155,180/oz against gold, its highest level since 1980. 

According to the data on Bloomberg, the all-time record high for gold priced in yen was 204,850 yen on January 21, 1980.

Thus, yen gold remains 33% below the record intraday nominal high from 1980. Given the Japanese determination to devalue the yen to escape deflation, the record nominal high will almost certainly be reached in the coming months.

Platinum also climbed 2.7% to 5,130 yen per gram for the same month, the highest level for the most-active contract since May of 2010.

The yen was 92.97 per dollar on Feb. 1st its, the lowest ratio since May 2010. The Japanese yen dropped 2.1% last week its 12thweek of losses in a row.

Despite Japanese Finance Minister Taro Aso claiming that “the objectives from the current government are not intended to weaken the yen” – that is exactly what is happening.


XAU/JPY, Quarterly, 1971-Today – (Bloomberg)

A cheaper yen boosts Japanese exporters.  It helps increase the earnings abroad when they are funnelled back into yen, plus it lowers the price abroad of goods that are made in Japan and exported.  The country’s strong auto and electronics sector benefitting from the cheap yen are outperforming the benchmark index. 

The yen fell by more than 20% against gold in 2012 and analysts are concerned that Prime Minister Abe and his new government’s determination to stoke inflation, devalue the currency and promote growth could lead to further falls in 2013.

Competitive currency devaluations are set to continue and currency wars deepen and such beggar thy neighbour monetary policies will lead to debased currencies, inflation and the real risk of an international monetary crisis.

NEWS  

Gold in Tokyo Advances to Record; Platinum Reaches Two-Year High - Bloomberg

Gold Little Changed as Investors Weigh U.S. Jobs, Growth Outlook - Bloomberg

Gold slips as upbeat U.S. data trims safe-haven draw - Reuters

Platinum Market Seen Producing Deficit of up to 760,000 Ounces in 2013 – Fox Business

COMMENTARY

The Case Of The Disappearing Gold – Zero Hedge

Dubai gold dealers shun Turkish bars on fears of Iran link - Mineweb

Former Iranian Central Bank Head Caught Smuggling $70 Million Bank Of Venezuela Check Into Germany  - Associate Press

The looming gold ‘production cliff’ – Mining.com

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Gold Leasing: The Case Of The Disappearing Gold

From Jeff Thomas Of International Man

The Disappearing Gold

During the Cold War, Germany moved much of its gold to New York in case the USSR invaded Germany. It was assumed at that time that the US would be a safer storage location, and of course, they could always ask to have it returned if they wished.

But German citizens have become increasingly worried about the security of the 1,536 tonnes of German gold reputedly held at the Federal Reserve in New York. This has resulted in the Bundesbank pursuing repatriation of the gold, beginning with a request to view it in the basement of the Federal Reserve Building, where it is claimed to reside.

Of course, the German government had received periodic assurances from the Fed that the gold is there; however, the issue began to get a bit sticky recently, when the Fed refused a request for inspection.

The world then raised a collective eyebrow, and, whilst not panicking over this development just yet, closer attention has come to bear, not only on the Fed, but on any institution that is entrusted with the storage of gold for other parties.

Concern spread to Austria, where a question arose in Parliament as to where Austria’s gold is stored. The answer provided was that 80% of it (224.4 tonnes) is in the UK. (It was claimed that the reason for this is that, if a crisis of some kind were to occur, it could be more easily traded from London than from Vienna.)

Seems reasonable enough, except that the return of the gold to Austria, if it were requested, may be a bit difficult, as the gold seems to have been leased out by the UK.

To many, a second eyebrow might go up at this point. Lease out the wealth of another nation? Isn’t this a bit… irresponsible?

The New Gold Shuffle

Not to worry, it’s done all the time. In fact, the practice has been endorsed by none other than Alan Greenspan, former Chairman of the Fed. The gold is leased to a bullion bank, which typically pays one percent interest to the Fed, with a promise to return it on a specified date. The bullion bank then sells the gold on the open market and uses the proceeds to buy Treasury bonds, which will net a three to four percent return.

The nicest thing about such an arrangement is that the lessor continues to claim it on his balance sheet as a line item: “gold and gold receivables.” After all, an asset that we have leased out is still an asset, even if it has now been sold by the lessee.

In effect, this means that, if you bought a gold bar today, it is possible that it is a bar that was shipped from the Bundesbank to the Federal Reserve decades ago and is presently listed by the Fed on its balance sheet as “gold and gold receivables.”

Both you and the Fed are claiming to possess the same gold bar. The fly in the ointment, of course, is that only one bar can be the actual bar. The other is a receivable and therefore is an asset on paper only. This, of course, means that there is less gold in the world than has been claimed. How much less? That’s anyone’s guess.

The New Risks

But even if it became generally known that the Fed (and others) are holding paper, rather than physical gold, couldn’t we carry on as before? What could go wrong? Here are some immediate possibilities:

  • If there were a dramatic rise in the price of gold and the lessor were to call in the return of the gold by the bullion bank, the bullion bank could easily lose far more than the small two to three percent margin it had been enjoying.
  • If there were a crash in the bond market and hyperinflation set in, the bonds that the bullion bank had purchased could become worthless.
  • If the nations who shipped their gold to London and New York for safekeeping were to request their return, the storage banks could only deliver if they were to purchase gold at the current rate. If that rate were significantly above the rate at which the gold had been leased to the bullion banks, the storage banks would sustain a significant, possibly unsustainable, loss.

That’s quite a bit of risk.

In the present market, there are any number of possible triggers that could cause the people of Germany, Austria, or a host of other nations to demand that their gold be returned home. Indeed, pressure is on the increase. The governments who have shipped out their gold for “safekeeping” would have a lot of explaining to do to their constituents, if the storage banks are not forthcoming.

So, is it time for the odiferous effluvium to hit the fan? Not quite yet. Before that occurs, there will still be some dancing around by the Fed and others.

The Fed has already stated, in so many words, “We’re sorry, but we can’t let you have all your gold at one time, but we’d be prepared to send it to you over a period of years.”

For many observers, the present situation should be well beyond the point of the raised eyebrow. It should be glaringly apparent that the amount of gold presently claimed to be in storage in the world’s banks is, to a greater or lesser extent, overstated.

Continuing the Charade

The Bundesbank should, of course, now say, “I’m afraid that’s not good enough. It’s our gold. We’ve advised you how much of it we want back now, and we must insist that you produce it immediately.”

If they were to take this perfectly logical step and the Fed refused, there could be a run on the banks, and, very possibly, within as short a period as twenty-four hours, a worldwide bank holiday might be declared with regard to gold.

However, this is not what will transpire. Neither logic nor sound banking practices are the object here. The object is to maintain the charade that exists within the banking community. The Bundesbank is just as fearful of a run as the Fed and will be only too willing to accept the Fed’s terms.

What must be borne in mind is the root cause of the request. It was not the Bundesbank itself that originally wanted the transfer to take place; it was the German people who, quite rightly, have become distrustful of the fact that their gold has been in New York for so long and want to see it repatriated. It is not the banks who wish to correct the situation. Not one bank wishes to expose the inappropriate practices of any other bank. Their loyalty is to each other and not to their depositors.

So, is that it? Have we heard the last of this issue? I think not. The cat is out of the bag at this point, and the depositors’ distrust and uncertainty will not be quelled by the counter-offer. Tension will continue to mount amongst depositors, and, at some point, the situation will reach an impasse.

All those who presently have gold in a banking institution would be prudent to keep an eye on the present situation. We might consider taking delivery of any gold we have in a bank, wherever it may be. Regardless of what form it is in, from ETFs to allocated gold, we would do well to assess the degree to which we feel our gold is at risk. In doing so, we may determine that a gold account is more at risk in, say, a New York or London bank than a Swiss bank. (Not all banks will be equal in terms of risk.)

If we do resolve to divest ourselves of bank-related precious metal holdings, it would be prudent to take action soon. (Clearly, those who attempt to remove their wealth the day after a run has occurred tend to do less well than those who attempt to remove their wealth the day before the run.)

We might also consider whether a possible run may become systemic, causing a bank holiday on all the bank’s activities, thus freezing any currency that we may have on deposit. We may conclude that it is prudent to only retain in our bank enough money to allow cheques to clear – an amount sufficient to cover a few months’ expenses.

In the near future, we may well find that a significant amount of gold that is claimed to exist in the world will “disappear.” Whilst we cannot control this eventuality, we may be able to save the gold that is being held in our names from disappearing.

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JPMorgan Sees Gold At $1,800 By Mid 2013 As South Africa “In Crisis” And...

Gold fell $11.70 or 0.7% in New York yesterday and closed at $1,664.80/oz. Silver slipped to a low of $31.09 and finished with a loss of 1.66%.


Gold Spot $/oz, 60 Days, 30 Minutes – (Bloomberg)

For the month, the falls yesterday led to gold being 0.4% lower in dollar terms in January. It was also lower in euro terms but eked out strong gains against the pound and Japanese yen both of which saw falls on international markets.

On the week, while gold is lower today it looks set for a small weekly rise in dollar terms and by more in other currencies. It is currently 0.45% higher in dollar terms and 0.35% higher in sterling terms but has seen stronger gains in other paper currencies, 1.1% higher in euro terms, 1.9% higher in yen terms and 2% higher in Swiss franc terms. 

While the euro has strengthened against the dollar and pushed the dollar index to its lowest level since the end of December – both currencies look vulnerable to further falls against gold in 2013.


Gold Spot $/oz, 5 Days, Tick – (Bloomberg)

A higher close this week may help the negative technical and overall sentiment towards gold due to the recent price weakness.

U.S. nonfarm payrolls are published at 1330 GMT and a negative number should see more safe haven gold buying as was seen after the poor GDP number this week. 

The CME Group said it will add platinum and palladium options onto its Globex electronic platform starting towards the end of February. They intend to cater for the increasing investor interest in platinum group metals. 

New research confirms that having gold in a portfolio acts as a currency hedge and will protect investors from currency volatility in emerging markets.

The World Gold Council, examined eight periods of “crisis conditions” and found returns from portfolios that included gold in hedging were 2.4% higher than investments lacking measures to counter exchange-rate risk. Gold beat currency hedges by 1%, according to the Council.

Economic growth in emerging markets, along with “aggressive” monetary policies in developed countries, led to increases in interest-rates disparities and more expensive exchange-rate hedging costs, they noted.  

The World Gold Council has long been at the forefront of providing excellent research showing gold’s importance as a hedge, diversification and store of wealth for investors and savers.

JPMorgan Sees Gold At $1,800 By Mid 2013 As South Africa “In Crisis” And “Escalating Instability” In Middle East  
J.P. Morgan Chase & Co. said gold will rise to $1,800 an ounce by the middle of 2013, with the mining industry in South Africa “in crisis,” according to Bloomberg.

South Africa, once the largest gold producer, faces industrial unrest, high wage inflation and adverse regulatory changes for local mines, Allan Cooke, an analyst at the bank, said in a report dated today.

Gold will get a boost from prospects of more stimuli from the U.S., Japan and Europe, the potential for escalating instability in the Middle East and low interest rates, according to the report.

Geopolitical risk from the Middle East and the risk of war between Israel and Syria and Iran remains seriously underestimated by market participants and will provide support for both oil and gold. 

Only yesterday the crisis intensified after Israel stepped into the Syrian conflict by bombing the outskirts of Damascus. Russia condemned the attack and Syria has threatened retaliation.

GoldCore's Webinar on Gold and Silver in 2013
Dominic Frisby, Money Week’s gold expert, and GoldCore's Head of Research, Mark O'Byrne conducted a one hour webinar on Wednesday which discussed the outlook for gold and silver in 2013 and beyond.


Central Bank Gold Buying May Lead To Higher Prices in 2013 – GoldCore Webinar Slide

Frisby and O’Byrne presented a series of interesting slides. Both remain bullish in the long term but were cautious about the short term – primarily due to the poor recent technical action.

The webinar was extremely well attended and question and answers were again increasingly popular. Some of the interesting and important questions posed to both Frisby and O’Byrne included the following:

>> What is your opinion of the reasons for the German gold repatriation & why do you think it is going to take 7 years to do so?

>> What is your opinion regarding tungsten gold bars?

>> Do you believe the gold market is manipulated by bullion banks and central bankers who do not want to see gold going up? 

>>  If metals are going so high why only recommend 5, 10, 15% allocation in portfolio?

The  webinar can be watched and listened to by registering to view the recording at this link

NEWS
Gold headed for weekly rise; US jobs data in focus - Reuters

Gold futures rise ahead of U.S. jobs data – Market Watch

COMMODITIES - Profit taking hits grains, gold; index up 3% in January – Reuters

LBMA, IGE urged to end Iran-Turkey Gold trade – Bullion Street

Gold Seen Countering Emerging Market Currency Risk - Bloomberg

COMMENTARY
Gold mitigates foreign-exchange risk when investing in emerging markets – World Gold Council

A Wager on Metal's Silver Lining – The Wall Street Journal

Forget the slowdown in the US – the UK is the real worry – Money Week

The 10 Minute Gold Standard: It’s Much Easier Than You Think - Forbes

Rush To Safety: Americans Buy Nearly Half a Billion Dollars Of Gold and Silver In January – 24H Gold

Video: Should You Buy Precious Metals? - CNBC

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Rush To Safety: Americans Buy Nearly Half a Billion Dollars Of Gold and Silver...

While public officials may be ignoring the continued deterioration of our economy, job losses to the tune of hundreds of thousands of people weekly, and the unprecedented demand for government emergency support services like unemployment insurance and food assistance, Americans who sense uncertainty in the air are flocking to the safety of physical resources.

Our first point of interest is a recent report from the Federal Reserve that indicates some $114 billion dollars in cash was withdrawn from the nation’s largest banks in the last thirty days. Those holding their money at bailed out financial institutions are understandably concerned because the government’s $250,000 deposit insurance guarantee program, originally implemented to restore confidence in the wake of the 2008 financial crisis, expired at the end of 2012. That and the US fiscal situation has never been worse, with one Obama official recently having said the solution to the country’s woes is to simply kill the dollar.

This suggests investors and cash savers are no longer confident in the purported safety of the country’s “too-big-to-fail” institutions.

The next obvious question then is, “where did this money go?”

Part of the mystery may have been unraveled when the US Mint released its latest sales and inventory report.

According to the mint, investors purchased nearly half a billion dollars in gold and silver in the last 30 days. There was, in fact, so much money shifting into physical precious metals in January that the mint was actually forced to cease operations because they couldn’t meet demand.

massive 7.4 million Silver Eagles were purchased from the U.S. Mint in January, considerably higher than the previous record from early 2011.

After halting Silver coin production/sales for over a week, the Mint re-opened yesterday and demand once again surged.

Having almost doubled from the first week in January, there remains two more days before the book is closed on January’s sales.

At 140,000 ounces, the Mint has also sold the most ounces of gold in January in almost three years, suggesting the rising ‘currency wars’ are stoking people’s ongoing rotation from paper-to-physical assets as their ‘wealth’ slowing loses its value.

With a Silver Eagle trading at around $31 per ounce and the gold spot price at near all time highs of $1650, the US Mint saw some $460 million dollars shift into precious metals in the month of January alone.

What’s equally as interesting, and perhaps a harbinger of the coming chaos, is that the People’s Republic of China is also shifting a large amount of its cash reserves into physical resource based investments that include agriculture, energy, and precious metals, a move that has caused confusion among experts at the United Nations.

With the political situation in this country rapidly dwindling because of government interference on all levels, a recession for 2013 already baked into the cake, and a global economy on the brink of collapse, there is one primary motivating factor driving money into gold and silver.

Uncertainty.

As we’ve seen recently with shortages in emergency food rations and supplies, firearms and magazines, and now gold and silver, Americans are no longer confident in the stability of the system as a whole, and they are diversifying their assets into physical resources that will retain value should the global financial, economic, monetary, and geo-political systems come unhinged.

German Gold Repatriation Is Victory For Transparency And GATA

Gold fell $4.00 or 0.24% in New York yesterday and closed at $1,654.90/oz. Silver climbed to $31.30 in Asia before it eased off to $30.73 and finished with a loss of 1.09%.


Gold in USD, 1 Year – (Bloomberg)

Gold inched up on Tuesday as some investors judged the recent sell off overdone. Recent positive U.S. economic data is stirring misguided optimism of an economic recovery and may have led less aware investors to recently reduce allocations to gold.

Fitch’s rating agency said it is scaling back the chance of removing the U.S.’s AAA rating status, based on the recent deal reached on the debt limit. They cite this exercise in kicking the can down the road again as a reason to avoid the cut however they warned of continuing danger due to the appalling U.S. fiscal position.

Fitch said that the U.S. is not completely in the clear – which is putting it mildly. 


XAU/GBP, 1 Year – (Bloomberg)

England’s risk of a credit downgrade is said to have led to the sterling’s dive into a 13 month low against the euro and a 5 month low versus the greenback.

It also led to sterling falling 2.2% against gold in 2012 and those losses have accelerated in 2013 with sterling already down 2.4% in January alone. 

The U.S. Federal Open Market Committee meets today and tomorrow they will announce their policy statement but most economists expect their loose monetary stance to be unchanged which will support gold.

Economic data reporting today in the U.S. is the Case-Shiller 20-city Index (1400 GMT) and Consumer Confidence (1500 GMT).  ADP Employment, GDP, and a FOMC Rate Decision on tomorrow, Initial Jobless Claims, Personal Income and Spending, Core PCE Prices, the Employment Cost Index, and Chicago PMI on Thursday, and January’s jobs data, Michigan Sentiment, the ISM Index, and Construction Spending on Friday.

The Financial Times has said that the Bundesbank’s move to repatriate 674 tonnes of the German gold reserves from Paris and New York to Frankfurt is a victory for openness, transparency and for those who have campaigned for transparency in the gold market for years.

The FT said that the move is important -

“not for what it says about Germany’s faith in French or American vaults; nor for the cost of shifting 674 tonnes of gold; but because it is a major victory for transparency in the gold market.”

The move by the Bundesbank to be more transparent about the location of gold reserves was welcomed by the FT and the FT’s commodities correspondent Jack Farchy noted that while central banks should not have to reveal their trading strategies to the world, there is a world of difference between this and – 

“disclosing simple facts about your reserves – such as their quantity, where they are held, whether they have been lent or swapped, and so forth – with a delay if need be.”


XAU/EUR, 1 Year – (Bloomberg)

The article concluded:

“That the Bundesbank has been nudged into this new-found transparency must be chalked up as a victory for the groups of investors – most prominent among them, the Gold Anti-Trust Action Committee, or GATA – that have for years been asking central banks to reveal their activities in the gold market.”

“If central banks wish to refute suggestions from such groups that their gold does not exist, or that they are scheming to manipulate prices, they could do worse than to follow the Bundesbank’s lead.”

Those who have dismissed the Gold Anti-Trust Action Committee or GATA as “conspiracy theorists” may now wish to apologise and acknowledge the documentation and evidence that GATA have amassed over the years.

GATA have long made a strong case that certain banks may have been manipulating gold and silver prices lower. In the same way that banks conspired to rig LIBOR and interest rates.

The CFTC in the U.S. has been investigating the allegations for some years but have yet to come to a conclusion or adjudicate, leading to concerns that their extensive and lengthy investigations will come to nought.

The FT article is an important development and may help bring about a free market in gold and silver prices. This should lead to a revaluation of precious metal prices to the higher levels that have been expected by more astute analysts for some time and which are merited due to the very strong fundamentals. 

The inflation adjusted highs for gold and silver of $2,400/oz and $140/oz remain likely medium term price targets.

NEWS
Gold Snaps Four-Day Decline Before Fed Meeting as Silver Gains - Bloomberg

Gold off 2-1/2 week low but Fed meeting weighs - Reuters

China regulator mulls launch of gold ETFs – Market Watch

Gold coins from 17th century found in pub – The Independent

Mint Rations 2013 Silver Maple Leaf Coins – Silver Coins Today

COMMENTARY
Buba’s New Era Of Openness On Its Gold – The Financial Times

Two major warnings from history for investors in 2013 – Money Week

Are we going to ignore the obvious? - GoldSeek

Fed To Create Gold Rally & Bond Plunge Next Week – King World News

The Day the Music Died – 24HGold

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Guest Post: The Gold Guarantee Blowing Up In Singapore?

Originally posted at The World Complex blog,

Today's reminder of the importance of taking physical delivery of gold at the best price possible comes from Singapore.

The Gold Guarantee is (was?) a company based in Singapore allowing "investments" in gold. They had two separate schemes. One allowed victims to take delivery of their gold, but at an approximately 30% premium,  albeit with a monthly repayment of a small portion of the premium for as long as the gold was held (and the company remained solvent) and an option for the company to buy back the gold at a price related to the spot price. The other scheme offered a gold certificate and a higher monthly payout.

The monthly payouts amounted to over 20% p.a. I am unaware of any method by which a company could sustain such payouts through normal business practices. Were I aware of such a business, I would invest in it.

Today's Straits Times reports (unfortunately this story is not in the free online section) that the owner of the company is unreachable, and the offices have been shuttered since about January 9. The last communication most shareholders had was an email sent on January 8, announcing a merger between The Gold Guarantee and a similar company called Asia Pacific Bullion.

Customers have been dropping by the office and showing up at the CEO's home since he vanished, but to no avail. Some are facing losses of hundreds of thousands of dollars.

The latest gold price reported on the company's website is dated January 7. What appears to be an apologist blog posting for the company is dated January 3.

Here is a link to a discussion group which includes some unfortunates who bought gold from this company within the last few months. Note the advice they have received.

The scheme looks like a carbon-copy of the Geneva scam which fell apart in October.

Avoid certificates, and if you take delivery of gold, verify the spot price (it should be part of your due diligence).

Update:

Here is an article on the topic by a local financial blogger.

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Central Banking with “Other People’s Gold”: A Multi-billion Treasure Trove in Lower Manhattan

Germany is repatriating its gold reserves from the New York Federal Reserve. This decision has created a frenzy in the gold market. But that is just the tip of the iceberg.

According to the NY Fed, there are (2012) approximately 530,000 gold bars, with a combined weight of circa 6,700 metric tonnes stashed away in the Fed’s Lower Manhattan vaults.

These are official figures which are impossible to verify.

The gold is stored in the fifth sub-floor of the New York Fed building on Liberty Street. The vaults on the bedrock of Manhattan Island are located 80 feet below street level.

Each of the 530,000 gold bars weighs 400 troy ounces, or about 12.44kg.

At today’s market value of approximately US$1700 dollars a troy ounce, the New York Fed has within its vaults a multi-billion dollar treasure trove.

The 400-ounce gold bar is quoted at $677,640.

A 1kg gold bar is quoted at about $55,000. (purchase price)

Each metric tonne of gold is worth approximately $55 million.

The total value of the New York Federal Reserve’s gold bullion trove of 6700 tonnes is a staggering $368.5 billion.

But according to the New York Federal Reserve: “We do not own the gold. We are mere custodians.”

A wall of gold bricks in the globally owned collection at the Federal Reserve Bank of New York. (Photo courtesy of the New York Fed’s press center)

The gold is in “safe-keeping” on behalf of more than 60 sovereign countries and a few organizations. Close to 98 per cent of the gold bullion stored in the NY Fed’s lower Manhattan vaults, according to the Fed, belongs to central banks of foreign countries.

The remaining 2 per cent “is owned by the United States and international organizations such as the IMF.”

Germany’s central bank owns a total of 3400 tonnes of gold. According to recent reports, a staggering 69 per cent of its gold bullion bars (namely 2346 tonnes) are held in custody at the New York Federal Reserve, the Bank of England and the Banque de France.

The NY Federal Reserve Bank holds in custody 1536 metric tonnes of gold owned by the Bundesbank of the Federal Republic of Germany, 22.9 per cent of its total gold holdings in custody (6700 tonnes).

The Bundesbank has announced that it will repatriate “all of its 374 metric tonnes stored at the Banque de France (11 per cent of its total reserves), and 300 metric tonnes held in the vault of the New York Fed, reducing its share in the US from 45 per cent to 37 per cent.” .

Two other European countries, namely Italy and the Netherlands, have significant yet undisclosed gold bullion reserves held in custody in the vaults of the NY Federal Reserve Bank. There are no immediate plans to repatriate this bullion.

While the NY Federal Reserve Bank does not actually own the gold, it is guardian of a multibillion-dollar gold treasure, which indelibly provides ‘collateral’ (at virtually no cost) as well as ‘leverage’ in its multibillion-dollar central banking operations, often at the expense of its European partners.

The New York Fed’s gold vault on the basement floor of its main office building in Manhattan provides account holders with a secure location to store their monetary gold reserves.

None of the gold stored in the vault belongs to the New York Fed or the Federal Reserve System. The New York Fed acts as the guardian and custodian of the gold riches on behalf of account holders, which include the US government, foreign governments, other central banks and official international organizations.

In other words, the Fed runs its operation ‘with other people’s gold’, using this huge treasure as ‘collateral’ to back its various financial undertakings.

Foreign countries around the world were pressured after World War II into depositing their gold reserves, not within the vaults of their own central banks, but in that of the world’s foremost imperial power.


A view of the strongroom of the Swiss National Bank SNB in Berne. (Reuters)

According to the NY Federal Reserve:

“Much of the gold in the vault arrived during and after World War II as many countries wanted to store their gold reserves in a safe location. Holdings in the gold vault continued to increase and peaked in 1973, shortly after the United States suspended convertibility of dollars into gold for foreign governments.” (emphasis added)

For many countries, part of the US dollar proceeds of commodities sold to the US, were converted into gold at 32 dollars an ounce (1946-71) and then ‘returned’ – so to speak – to the US for deposit in the vaults of the NY Federal Reserve.

Germany’s decision to repatriate part of its gold has sent a cold shiver into the gold and forex markets.

The German Federal Court of Auditors has recently called for an official inspection of German gold reserves stored at the New York Federal Reserve, “because they have never been fully checked.”

Are these German bullion reserves held in the vaults of Lower Manhattan ‘separate’ or are they part of the Federal Reserve’s fungible ‘big pot’ of gold assets.

According to the Fed, “the gold is not commingled between account holders.”

Does the New York Federal Reserve Bank have “Fungible Gold Assets to the Degree Claimed”?

Could the Fed reasonably handle a process of homeland repatriation of gold assets initiated by several countries simultaneously?

According to the Fed, there are 122 separate gold accounts mainly held by the central banks of foreign countries, as well as a few organizations including the International Monetary Fund.

Following the verification process, the gold is moved to one of the vault’s 122 compartments, where each compartment contains gold held by a single account holder. In rare cases, small deposits are placed on separately numbered spaces on shelves in a ‘library’ compartment shared by several account holders. Each compartment is secured by a padlock, two combination locks and an auditor’s seal. Compartments are numbered rather than named to maintain confidentiality of the account holders.

The New York Fed does not indicate in any of its reports, including its annual financial statements, the names of the countries and account holders.

Most of the 122 accounts are held by the central banks of sovereign countries, which in addition to their gold accounts have statutory agreements with the NY Federal Reserve.

An employee of Deutsche Bundesbank uses a metal analysis device on a gold bar. (Reuters / Lisi Niesner)

Money and national sovereignty

America’s Unipolar World hinges on sustaining the US dollar as a global reserve currency. US hegemony in monetary matters is supported by the custody in the USA of gold bullion reserves on behalf of more than 60 countries.

Instead of gold bullion, national central banks (with the exception of the US) hold US dollar paper instruments as ‘reserves’. Gold reserves under national jurisdiction are central to establishing sovereignty in monetary policy, without depending on the Federal Reserve which holds a nation’s gold bullion in safe-keeping in its Lower Manhattan vault.

National sovereignty requires the repatriation of the gold bullion deposited in custody with the NY Fed. The leverage and collateral in all monetary transactions largely accrues to the NY Federal Reserve Bank rather than to the owners of the bullion deposited in custody.

Follow the example of Germany. Repatriate your gold.

In a related development, both China and Russia are dumping their US dollars and building up their gold reserves.

In turn, both China and Russia have boosted domestic production of gold, a large share of which is being purchased by their central banks.

Michel Chossudovsky for RT

Gold Backed Bonds – An Alternative To European Austerity?

From GoldCore

Gold Backed Bonds - An Alternative To European Austerity?

Today’s AM fix was USD 1,670.25, EUR 1,243.39, and GBP 1,058.93 per ounce.
Yesterday’s AM fix was USD 1,677.00, EUR 1,258.06, and GBP 1,059.18 per ounce.

Silver is trading at $31.55/oz, €23.54/oz and £20.04/oz. Platinum is trading at $1,689.00/oz, palladium at $723.00/oz and rhodium at $1,200/oz.


Cross Currency Table – Bloomberg

Gold dropped $17.90 or 1% in New York yesterday and closed at $1,667.70/oz. Silver slipped to a low of $31.60 and finished with a loss of 1.8%. Most traders were at a loss to explain the counter intuitive losses given the bullish backdrop.

Gold in Euros – 5 Years (Daily) - Bloomberg

Overnight gold bounced back from an almost 2 week low and was again especially strong in yen terms - strengthened by the Bank of Japan’s stance on aggressive monetary easing.

Russia’s Central Bank said it will continue to buy gold bullion as it seeks to diversify its foreign reserves away from paper assets, such as the euro, it views as more risky.

At Davos, George Soros, one of the largest buyers of gold in the world today, warned of currency wars and that “interest rates are going to take a big leap” - probably this year.

Bank of America warned of a “bond crash” comparable to 1994 that would trigger a string of upsets across the world. In 1994, the bond crash bankrupted Orange Country, California, and set off the Tequila Crisis in Mexico. 

Today, the world is much more fragile and the increasingly likely bond crash could lead to a Lehman style systemic crisis – but on an even greater scale.

These risks and the recent price drop has fuelled buying interest in physical metal and a minority of smart money gold buyers continue to diversify into allocated gold on the dip .

At 1500 GMT new U.S. new home sales data is released.

Across Europe, economic growth is faltering and in many Eurozone countries, sovereign debt yields are dangerously high and austerity measures are creating much hardship.

The World Gold Council has been exploring ways that Eurozone member states could use their gold reserves to help bring down the cost of borrowing.

The Eurozone is the largest sovereign holder of gold in the world and has over 10,000 tonnes of gold reserves. The Eurozone, including the ECB, has 10,787.4 tonnes of gold worth over a significant €450 billion.  Some of the countries worst affected by the crisis, including Portugal and Italy, own a significant proportion of these assets. Italy alone holds nearly 2,000 tonnes of gold. 

The Eurozone as a whole has 32.6% more gold reserves than the U.S. which has 8,133.5 tonnes of gold.

Due to the ongoing global debt crisis and significant systemic and monetary risk, it would be financial and monetary folly of the highest order to sell gold. Indeed, prudent creditor nation central banks are continuing to add to their gold reserves.

Most agree that outright sales of gold are not the answer. Aside from the obvious problem that the outstanding debt level of the struggling European countries far surpasses the value of their gold reserves, existing EU laws prohibit such a move to finance governments, as do the provisions of the Central Bank Gold Agreement, which limits gold sales.

To illustrate this point, the gold holdings of the crisis hit Eurozone countries (Portugal, Spain, Greece, Ireland and Italy) represent only 3.3% of the combined outstanding debt of their central governments.

A one-time sale of all of their gold reserves would probably not cover even one year’s worth of their debt service costs. This would be akin to an individual selling everything they owned in order to make one month’s mortgage payment.

However, there may be an alternative to selling gold for desperate cash strapped nations facing vicious austerity. The alternative is to use European gold reserves in a way that will buy time for growth to take hold. 

The World Gold Council and leading academics and international think tanks believe that using a portion of a nation's gold reserves to back sovereign debt would lower sovereign debt yields and give some of the Eurozone's most distressed countries time to work on economic reform and recovery.

According to research done by the World Gold Council using the European gold reserves as collateral for new sovereign debt issues would mean that without selling an ounce of gold, Eurozone countries could raise €413 billion. This is over 20% of Italy's and Portugal's two year borrowing requirements. 

The move to back sovereign bonds with gold would lower sovereign debt yields, without increasing inflation, which would help to calm markets. This should give European countries some vital breathing space to work on economic reform and recovery.

Some citizens would be concerned that there may be a risk that the sovereign nations who pledge their gold as collateral could ultimately end up losing their gold reserves to the ECB, or whoever the collateral of the gold reserves are pledged to, in the event of a default.

Unlike currency debasement and the printing and electronic creation of money to buy sovereign debt, under schemes such as Draghi's “outright monetary transactions” (OMT), the use of gold as collateral would not create fiscal transfers between Eurozone members, long term inflation or currency devaluation risk.

The proposal shows how gold is being increasingly seen as a safe haven asset and currency.

Indeed, it suggests that those who have suggested returning to some form of gold standard are not as deluded as they have often been portrayed.

Mobilising Europe's gold is a temporary move which the World Gold Council and leading academics believe will help to create a more permanent solution which in time would help the Eurozone extract itself from its debt crisis.

Europe and the world faces an exceptionally challenging period and unconventional policy responses are called for. 

A gold-backed bond may offer at least a partial solution to Europe’s woes. 

The video 'Leveraging Gold Reserves To Help Lower Eurozone Sovereign Debt Yields' explores why such a measure could offer an alternative to austerity for the Eurozone: 'Leveraging Gold Reserves To Help Lower Eurozone Sovereign Debt Yields' 

NEWS

Gold Seen by Morgan Stanley Extending Rally as QE3 Runs to 2014 - Bloomberg

Gold bounces from near 2-week low on euro, Japan policy - Bloomberg

Interest Rates Will Spike This Year: Soros - CNBC

Petrol Price Rise On Way As 'Floodgates Open' – Sky News

Russia central bank to keep buying gold: Ulyukayev - Brecorder

Ghana may repatriate Gold reserves from US, Europe – Bullion Street

COMMENTARY

Video: Gold Price To Rise In 2013 – The Telegraph

Bank of America issues `bond crash' alert on Fed tightening fears – The Telegraph

Video: Dalio's Perspective on Gold's Importance As Diversification - CNBC

Who Are the Whales Buying Gold? – Economic Policy Journal

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The Derivative Bubble: Speculating on Food Prices, Banking on Famine

bankster

Why does it seem like wherever there is human suffering, some giant bank is making money off of it?  According to a new report from the World Development Movement, Goldman Sachs made about 400 million dollarsbetting on food prices last year.  Overall, 2012 was quite a banner year for Goldman Sachs.  As I reported in a previous article, revenues for Goldman increased by about 30 percent in 2012 and the price of Goldman stock has risen by more than 40 percent over the past 12 months.  It is estimated that the average banker at Goldman brought in a pay and bonus package of approximately $396,500 for 2012.  So without a doubt, Goldman Sachs is swimming in money right now.  But what is the price for all of this “success”?

Many claim that the rampant speculation on food prices by the big banks has dramatically increased the global price of food and has caused the suffering of hundreds of millions of poor families around the planet to become much worse.  At this point, global food prices are more than twice as high as they were back in 2003.  Approximately 2 billion people on the planet spend at least half of their incomes on food, and close to a billion people regularly do not have enough food to eat.  Is it moral for Goldman Sachs and other big banks such as Barclays and Morgan Stanley to make hundreds of millions of dollars betting on the price of food if that is going to drive up global food prices and make it harder for poor families all over the world to feed themselves?

This is another reason why the derivatives bubble is so bad for the world economy.  Goldman Sachs and other big banks are treating the global food supply as if it was some kind of a casino game.  This kind of reckless activity was greatly condemned by the World Development Movement report

“Goldman Sachs is the global leader in a trade that is driving food prices up while nearly a billion people are hungry. The bank lobbied for the financial deregulation that made it possible to pour billions into the commodity derivative markets, created the necessary financial instruments, and is now raking in the profits. Speculation is fuelling volatility and food price spikes, hurting people who struggle to afford food across the world.”

So shouldn’t there be a law against this kind of a thing?

Well, in the United States there actually is, but the law has been blocked by the big Wall Street banks and their very highly paid lawyers.  The following is another excerpt from the report

“The US has passed legislation to limit speculation, but the controls have not been implemented due to a legal challenge from Wall Street spearheaded by the International Swaps and Derivatives Association, of which Goldman Sachs is a leading member. Similar legislation is on the table at the EU, but the UK government has so far opposed effective controls. Goldman Sachs has lobbied against controls in both the US and the EU.”

Posted below is a chart that shows what this kind of activity has done to commodity prices over the past couple of decades.  You will notice that commodity prices were fairly stable in the 1990s, but since the year 2000 they have been extremely volatile…

Commodity Prices

The reason for all of this volatility was explained in an excellent articleby Frederick Kaufman

The money tells the story. Since the bursting of the tech bubble in 2000, there has been a 50-fold increase in dollars invested in commodity index funds. To put the phenomenon in real terms: In 2003, the commodities futures market still totaled a sleepy $13 billion. But when the global financial crisis sent investors running scared in early 2008, and as dollars, pounds, and euros evaded investor confidence, commodities — including food — seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash. “You had people who had no clue what commodities were all about suddenly buying commodities,” an analyst from the United States Department of Agriculture told me. In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was roiling the markets. Food inflation has remained steady since.

The money flowed, and the bankers were ready with a sparkling new casino of food derivatives. Spearheaded by oil and gas prices (the dominant commodities of the index funds) the new investment products ignited the markets of all the other indexed commodities, which led to a problem familiar to those versed in the history of tulips, dot-coms, and cheap real estate: a food bubble. Hard red spring wheat, which usually trades in the $4 to $6 dollar range per 60-pound bushel, broke all previous records as the futures contract climbed into the teens and kept on going until it topped $25. And so, from 2005 to 2008, the worldwide price of food rose 80 percent –and has kept rising.

Are you angry yet?

You should be.

Poor families all over the planet are suffering so that Wall Street bankers can make bigger profits.

It’s disgusting.

Many big financial institutions just seem to love to make money on the backs of the poor.  I have previously reported on how JP Morgan makes billions of dollars issuing food stamp cards in the United States.  When the number of Americans on food stamps goes up, so does the amount of money that JP Morgan makes.  You can read much more about all of this right here: “Making Money On Poverty: JP Morgan Makes Bigger Profits When The Number Of Americans On Food Stamps Goes Up“.

Sadly, the global food supply is getting tighter with each passing day, and things are looking rather ominous for the years ahead.

According to the United Nations, global food reserves have reached their lowest level in nearly 40 years.  Global food reserves have not been this low since 1974, but the population of the world has greatly increased since then.  If 2013 is another year of drought and bad harvests, things could spiral out of control rather quickly…

World grain reserves are so dangerously low that severe weather in the United States or other food-exporting countries could trigger a major hunger crisis next year, the United Nations has warned.

Failing harvests in the US, Ukraine and other countries this year have eroded reserves to their lowest level since 1974. The US, which has experienced record heatwaves and droughts in 2012, now holds in reserve a historically low 6.5% of the maize that it expects to consume in the next year, says the UN.

“We’ve not been producing as much as we are consuming. That is why stocks are being run down. Supplies are now very tight across the world and reserves are at a very low level, leaving no room for unexpected events next year,” said Abdolreza Abbassian, a senior economist with the UN Food and Agriculture Organisation (FAO).

The world has barely been able to feed itself for some time now.  In fact, we have consumed more food than we have produced for 6 of the last 11 years

Evan Fraser, author of Empires of Food and a geography lecturer at Guelph University in Ontario, Canada, says: “For six of the last 11 years the world has consumed more food than it has grown. We do not have any buffer and are running down reserves. Our stocks are very low and if we have a dry winter and a poor rice harvest we could see a major food crisis across the board.”

“Even if things do not boil over this year, by next summer we’ll have used up this buffer and consumers in the poorer parts of the world will once again be exposed to the effects of anything that hurts production.”

We desperately need a good growing season next summer, and all eyes are on the United States.  The U.S. exports more food than anyone else does, and last summer the United States experienced the worst drought that it had seen in about 50 years.  That drought left deep scars all over the country.  The following is from a recent Rolling Stone article

In 2012, more than 9 million acres went up in flames in this country. Only dredging and some eleventh-hour rain kept the mighty Mississippi River from being shut down to navigation due to low water levels; continuing drought conditions make “long-term stabilization” of river levels unlikely in the near future. Several of the Great Lakes are soon expected to hit their lowest levels in history. In Nebraska last summer, a 100-mile stretch of the Platte River simply dried up. Drought led the USDA to declare federal disaster areas in 2,245 counties in 39 states last year, and the federal government will likely have to pay tens of billions for crop insurance and lost crops. As ranchers became increasingly desperate to feed their livestock, “hay rustling” and other agricultural crimes rose.

Ranchers were hit particularly hard.  Because they couldn’t feed their herds, many ranchers slaughtered a tremendous number of animals.  As a result, the U.S. cattle herd is now sitting at a 60 year low.

What do you think that is going to do to meat prices over the next few years?

Meanwhile, the drought continues.  According to the U.S. Drought Monitor, this is one of the worst winter droughts the U.S. has ever seen.  At this point, more than 60 percent of the entire nation is currently experiencing drought.

If things don’t turn around dramatically, 2013 could be an absolutely nightmarish year for crops in the United States.  If 2013 does turn out to be another bad year, food prices would soar both in the U.S. and on the global level.  The following is from a recent CNBC article

The severe drought that swept through much of the U.S. last year is continuing into 2013, threatening to cripple economic growth while forcing consumers to pay higher food prices.

“The drought will have a significant impact on prices, especially beef, pork and chicken,” said Ernie Gross, an economic professor at Creighton University and who studies farming issues.

So let us hope for the best, but let us also prepare for the worst.

It looks like higher food prices are on the way, and millions of poor families all over the planet will be hard-pressed to feed their families.

Meanwhile, Goldman Sachs will be laughing all the way to the bank.

Faber To Shiller: “You Keep Your U.S. Dollars And I’ll Keep My Gold”

From GoldCore

Faber To Shiller: “You Keep Your U.S. Dollars And I’ll Keep My Gold”

Today’s AM fix was USD 1,677.00, EUR 1,258.06, and GBP 1,059.18 per ounce.
Yesterday’s AM fix was USD 1,692.25, EUR 1,268.84, and GBP 1,066.19 per ounce.

Silver is trading at $31.92/oz, €24.05/oz and £20.26/oz. Platinum is trading at $1,692.75/oz, palladium at $718.00/oz and rhodium at $1,200/oz.


Cross Currency Table – (Bloomberg)

Gold fell $4.90 or 0.29% in New York yesterday and closed at $1,685.60/oz. Silver fell to $32.08 in Asia then rallied to a high of $32.47 in the afternoon in NY trade, but then it dropped off in the last few hours and finished with a gain of just 0.25%.

Gold edged down in most currencies on Thursday, easing off the one month high hit earlier in the week. More speculative players may be taking profits after the recent run from $1,625/oz to over $1,695/oz or 4.3%.

It is noteworthy that while gold is weaker in most currencies today it is again higher in Japanese yen as the yen has fallen sharply on the international markets due to concerns that the yen will be devalued in the coming months.

Gold in yen terms remains near record multiyear highs above 0.150 million yen per ounce. New nominal highs in yen terms above 0.2 million yen per ounce are only a matter of time (see charts). 

Bloomberg reported that Credit Suisse says gold holders may have withdrawn gold from the euro zone due to the region’s debt crisis. They noted the Bundesbank comment about capacity becoming available in its own vaults in Germany.

The World Economic Forum is into its second day in Davos, Switzerland, and with the theme of ‘Resilient Dynamism’ it appears a good time to announce or spin positive news in Europe such as a slight growth in consumer morale and confidence.  

I’m not sure what Europe the Davos attendees are living on but Ireland, Spain, Portugal and Greece’s ‘recoveries’ are bleak at best.

Spanish youth unemployment has risen again and is now nearly at 60%.

The U.S. House of Representatives passed a Republican led plan to allow the federal government to keep borrowing money through mid-May.

The borrowing and money printing party can continue a little while longer but it would be prudent to prepare for the hangover. 

Owning physical gold today is akin to drinking plenty of water and having a few pain killers to hand. When this party ends, those not owning gold are going to suffer one hell of a financial hangover.


XAU/JPY Daily, 2 Years – (Bloomberg)

“Everyone should keep gold in their portfolios” as the precious metal will be able to offer value to investors even in a worst-case scenario, said Marc Faber, the publisher of the Gloom, Boom & Doom report.

“In the worst case scenario, in the systemic failure that I expect, it would still have some value,” Faber, who is also the founder and managing director of Marc Faber Ltd., said today at an event hosted by Evli Bank Oyj in Helsinki.

Faber said his outlook was so bleak that he is “hyper bearish”. He joked that “sometimes I’m so concerned about the world I want to jump out of the window.”

He wisely said that `I advise everyone to have some gold.'

Faber said that he thought there could be a flight out of cash and overvalued bonds and into equities and gold. 

In response to a question from Yale University’s Robert Shiller querying the recommendation to hold gold, Faber said: “I’m prepared to make a bet, you keep your U.S. dollars and I’ll keep my gold, we’ll see which one goes to zero first.”


XAU/JPY Quarterly, 1971-2013 – (Bloomberg)

Shiller, who is the co-creator of the S&P/Case-Shiller index of property values, responded "I'm inclined to think gold prices after this crisis might return to a lower level. Given the low yields of the alternatives [ie, bonds], the valuation of the stock market doesn't look so bad."

Faber, whose advice has protected millions of investors in recent years, warned of a global systemic crisis possibly due to massive size of the global derivatives market which is now worth over an incredible $700 trillion.

He warned “when the system goes down,” and only plastic credit cards are left, “maybe then people will realize and go back to some gold-based system.”


What's Going To Happen To The Price Of Gold And Silver In 2013?

Join us for a webinar on Jan 30, 2013 at 1300 GMT.

?  Register now!

Join two experts - Money Week columnist, Dominc Frisby and GoldCore's Head of Research, Mark O'Byrne for a one hour webinar as they discuss the outlook for gold and silver in 2013. 

 
NEWS

Gold Seen Extending Rally as Fed Sticks With QE3 for Years - Bloomberg

Strong Silver Jewelry Sales Reported During 2012 Holiday Season – The Silver Institute

Gold drifts from 1-mth high, 'recovery' hopes dull appetite - Reuters

Currency war talk not appropriate – IMF chief economist - Reuters

COMMENTARY

The One Chart That Explains the Massive Risk of Investing in Gold & Gold Stocks – Zero Hedge

How Far Up Could Silver Go? - Minyanville

Video: undesbank's Thiele on Gold Relocation - Bloomberg

Central bankers should be brought to heel by elected parliaments – The Telegraph

For breaking news and commentary on financial markets and gold, follow us on Twitter.

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Goldman Sach’s Food Speculation Turns Global Hunger Into Wall Street Profit

As the world's most vulnerable populations succumb to surging global food prices—driven in part by drought, climate change, and a global food system increasingly vulnerable to the whims of commodity speculation—Goldman Sachs has managed to turn the poverty and suffering of others into profits for itself.

Farmer Darren Becker sifts through arid topsoil under a ruined crop on the family farm on August 24 in Logan, Kansas. (Getty) Pulling in more than $400 million in profits last year through risky and damaging food speculation practices, the Wall Street financial titan has once again profited from others' misfortune, The Independent reports Tuesday.

According to an analysis conducted for The Independent by the World Development Movement (WDM), 2012 investment practices in the "soft commodities" trade (e.g. wheat and maize) by financial institutions such as Goldman Sachs, drove prices to unprecedented highs while bank profits increased and banker bonuses were handed out readily.

"While nearly a billion people go hungry, Goldman Sachs bankers are feeding their own bonuses by betting on the price of food. Financial speculation is fueling food price spikes and Goldman Sachs is the No 1 culprit."

Goldman's food speculation contributed to a roughly 68 per cent jump in profits for 2012, The Independent reports, while it increased the average pay and bonus package of its bankers to nearly $396, 500.

Christine Haigh of the WDM stated: "While nearly a billion people go hungry, Goldman Sachs bankers are feeding their own bonuses by betting on the price of food. Financial speculation is fueling food price spikes and Goldman Sachs is the No 1 culprit."

The Independent explains:

Goldman makes its "food speculation" revenues by setting up and managing commodity funds that invest money from pension funds, insurance companies and wealthy individuals in return for fees and commissions. The firm invented these kinds of funds and continues to dominate the market, together with Barclays and Morgan Stanley. Swiss trading giant Glencore hit the headlines in August when its head of agriculture proclaimed that the US drought will be "good for Glencore".

The extent of Goldman's food speculation can be revealed after the UN warned that the world could face a major hunger crisis in 2013, after failed harvests in the US and Ukraine. Food prices surged last summer, with cereal prices hitting a record high in September.

As the global food crisis has worsened due to extreme weather brought on by global climate change, Rob Nash, Oxfam's private sector adviser, says the group is increasingly alarmed by financial food speculation.

"Especially in the light of increasingly extreme weather conditions which can reduce supply suddenly and severely deplete stocks," he said, the last thing the world's poor need is for that "volatility to be exacerbated by speculation and exploited for short-term profit."

The One Chart That Explains the Massive Risk of Investing in Gold & Gold...

chart of S&P performance v. gold & gold stocks from 2001 to 2012

Viewing the chart above, a six-year old child could tell you that investing in physical gold and gold mining stocks (as indicated by the AMEX HUI gold bugs index) yielded returns from 2001 to 2012 far superior to the returns of the US S&P 500 Index over the same time period. In fact, the truth of this statement is so self-evident, that if this same child was asked what asset classes he should have been invested in over the past decade by viewing the above chart, the simplicity of that question might lead him to think that one is asking a trick question. So why is it that all the leading Wall Street investment firms stated during the visible onset of the global financial crisis in 2008 (versus the real onset of the global financial crisis quite a few years earlier) that gold was one of the riskiest assets in which one could possibly invest? The simple answer, of course, is that if they were the ones involved in the scam to take gold and silver prices down, then certainly they would not tell you that the steep, rapid (but short-lived) drop in gold/silver prices was a massive buying opportunity. However, if a six-year old can see what is so obvious, then why should a man of Warren Buffet’s prominence continue to slander gold and why does his right-hand man, Charlie Munger, make idiotic statements like “gold is a great thing to sew in your garments if you’re a Jewish family in 1939” but not to own, instead of just stating the truth that “physical gold (and physical silver) was one of the best assets to build wealth since 2001”? And if a six-year old can look at the above chart and immediately know that he or she should have beeen invested in gold and gold assets, why, according to the World Gold Council, is still only 1%, or $146 billion of the $146 trillion investable global assets, invested in gold, and 9.1% invested in money markets, 48.7% in fixed income, 37.2% in equities and 4.0% in alternative investments? (though these most recent statistics are from the end of 2010, it is doubtful that these statistics have changed much in the past two years.)

One of the main reasons why it is still likely that only 1% of all global invested assets are invested in gold is the psychological hatchet job that Wall Street and the global banking industry has performed on gold and gold stocks. For decades, bankers have repeated their false mantra that “gold and silver are incredibly risky”, using the strategy that if you tell a lie often enough, it may just be accepted as truth by the masses. The fact that millions of investors today still won’t even consider buying the top performing asset classes for more than the past decade (physical gold and physical silver, NOT the GLD and SLV), serves as testimony to the success of the bankers’ anti-gold, anti-silver propaganda campaign. Thus, the reason why just a piddling amount of investors around the world have allocated a substantial amount of their resources to gold, silver and PM stocks as of today is due to, quite simply, investor psychology. The commercial banking industry spends billions of dollars every year in marketing campaigns (exclusive of their investor relations budget), influencing and shaping investors’ beliefs into accepting a heaping pile of false beliefs. For example, according to Forbes Magazine, Bank of America spent $2 billion and Citigroup spent $1.6 billion in 2010 marketing expenses, and the biggest banks spent even far more for their annual advertising budget in recent years. As a result, bankers have been able to convince their clients that what is right for them (physical gold, silver and PM stocks) is wrong, and what is wrong for them (investing in global developed stock markets) is right.

Why else would anyone stay invested in the US S&P 500, an index, that from 2001 to the start of 2012, was still in the red (not even accounting for the effects of inflation), but for one’s blind obedience to one’s investment adviser that sells his clients on that moronic 100-year chart of US stock returns that shows an upward progression of US stocks over an entirely irrelevant 100-year period, and keeps telling his clients to be patient, because the “US market, in the long-run, has always returned a phenomenal yield”? So here is how investment advisers, all over the world, convince their clients to ignore a chart, that in plain sight, tells them that being invested in gold & gold stocks (and silver & silver stocks) for the last 12 years over any of the developed broad stock market indexes in the world was clearly the unequivocal correct decision.

Below are the four methods global investment bank investment advisers employ to convince their clients to keep doing what is best for himself and his firm (earning the firm management fees) and what is worst for themselves (degrading their investment portfolios and wealth):

(1) Frame stock market and PM stock volatility in a biased, skewed and unforthcoming manner that sells their mission while ignoring reality.

For example, when the S&P 500 index crashed, US investment advisers used the bounce from 666.79 in March, 2009 to a high of 1219.80 in April, 2010 to falsely promote the “soundness” of the US stock market like ravenous hyenas that had stumbled upon an abandoned lion kill. In other words, they ignored the “bad” volatility of a 57.69% crash to take the S&P500 down to 666.79 level and repeatedly promoted the fact that the 82.94% increase in the S&P500 was “one of the best in history” over and over and over again on television, radio and newspapers, even though the S&P 500 has still failed to regain its previous high of 1576.09 prior to the crash in October of 2007. Furthermore, though gold stocks had crashed too during this time, all global bank advisers absolutely ignored the much more significant 343% increase of the HUI gold mining index between October 24, 2008 from 150.27 to a high of 516.16 on December 2, 2009. Forget that over this same time period, gold stocks outperformed the US S&P 500 index by 313%. How many people knew that gold stocks rose 343% during this time? Probably less than 1% of all investors. The focus of global investment advisers is to bury statistics like this that compete with their precious legalized casinos called stock markets and to keep their clients invested in their legalized casinos that are stacked against their clients even when far better opportunities exist.

(2) Frame performance in a manner that again sells only their desire to keep their clients invested in global stock markets and keeps the management fees rolling in.

For example, there have been tons of articles written over the last 3-years that have titles like “What’s Wrong With Gold and Gold Stocks?” and “Why You Should Not Invest in Gold or Gold Stocks”. Commercial investment advisers are amazingly keen to talk about holding on to stocks for a long period of time because they state that one can’t judge performance over a 2-3 year period when stocks are not performing. Yet when broad stock markets go through flat periods, as the US stock market has been trapped in a 12-year period now with virtually no gains, you will never ever, not once in a blue moon, not in a million years, see a blizzard of articles shouting, “What’s Wrong With the US Stock Market!" Yet, bankers ensure that the mass media is flooded with articles about flat or poor performance of gold and silver stocks during the past three years to keep their clients away from PM stocks and they harp incessantly about this matter while completely ignoring multi-year trends in gold and silver mining stocks and keeping this information buried as well. So let’s look at both asset classes and compare performance over a reasonable 12-year investment period, not the ridiculous 100-year chart investment advisers are so keen to use. If one looks at a reasonable 12-year period between 2001 and 2013, the S&P 500 has not even returned a piddling 9% during this period, while gold has returned a whopping +524.77% (silver also returned a phenomenal yield over this same period as well). And what about gold stocks even when including the very flat last three years of performance? An almost unfathomable +1009.86% return when compared to the US S&P 500’s anemic return of 8% and change.

(3) Sell rubbish diversification strategies as “expert” advice when it is the worst advice in the world.

A great many people are afraid to concentrate their assets in gold and silver, among the best performing assets of the last 12 years, because for decades, the commercial investment industry has pounded into their brains that anything but diversification when it comes to investing is unsafe, unsound and risky. Yet diversification is a rubbish strategy used by all commercial investment advisers precisely because they lack the expertise and knowledge to know how to concentrate a portfolio properly without excessive amounts of risk. If you have the expertise, you can utilize concentration without increasing the risk of a portfolio. That’s why for years, we’ve been advocating our clients to invest very substantial amounts of their portfolio into physical gold and physical silver because frankly, despite the notorious volatility of gold and silver, we just didn’t consider gold and silver risky when they were respectively $560 a troy ounce and $9 a troy ounce. In fact, every year for the past 12 years, gold and silver has fallen, at some point during each year, to price ranges that marked solid entry prices that were low-risk, high-reward. The artificial banker-created volatility through manipulation of gold and silver prices ensured this.

A recent study by Nobel Laureate Daniel Kahneman tracked a group of 25 wealth advisers/portfolio managers and the variance of their portfolio yields over an 8-year period. At the end of his study, Kahneman stated that he was “shocked” to discover almost no variance in the portfolio performance over the group of managers, simply because he believed that portfolio management was a task that depended upon skill and expertise. Consequently, Kahneman expected wide-variance among the managers as far as performance yields over an 8-year period were concerned. Instead, he discovered that the variances among the performance yields suggested that portfolio management was not a skilled job but one that nearly entirely revolved around blind luck. My first reaction to Kahneman’s study was that he should have started his study by sitting in an office of Goldman Sachs or JP Morgan for 3-months and he would have learned within 3-months what it took him 8-years to conclude - that Portfolio Managers have no skill and that they all use the terrible strategy of diversification to cover up their severe skill deficiencies rather than diversification being a strategy that allows them to demonstrate their skill. How many US clients were protected by the strategy of diversification in 2008 when US markets collapsed by 38.50%? By the anecdotal information I gathered, all my contacts at the big US global investment firms told me that nearly all their clients were down the same 35% to 40% that year as the S&P 500 Index. Therefore, diversification did nothing but assure that nearly all clients suffered the same uniform losses as the major global developed indexes that year. In fact, diversification is a protective strategy embraced by the global investment industry as insurance against "client flight". In other words, if all client portfolios show remarkably similar losses across multiple commerical investment firms during poor years of stock performance, the risk of client flight is small.

On the contrary, we at SmartKnowledgeU, have always taken the strategy of concentration over diversification, and in 2008, though it was a nominal gain, we still managed to yield nominal positive returns in our newsletter investment portfolio despite massive losses in all developed global stock markets. Massive outperformance can, and often, will be the result when skill and expertise, instead of luck, is applied to investment strategies. If concentration is so dangerous, and if diversification is a far superior strategy as nearly all investment advisers claim, then it may be possible for one fluke year to occur. But it is near impossible for five fluke years to occur. However, we at SmartKnowledgeU have been concentrating our Crisis Investment Opportunities portfolio since mid-2007 when we first launched, every year now for more than five years. Over that 5-&frac12; year period, we’ve outperformed the S&P 500 by +161.95% and even outperformed the HUI gold bugs index by +120.80% due to the strategies we use to take advantage of the banker-induced volatilty in gold and silver markets. So much for diversification and buy & hold being wise investment strategies.

(4) Sell “volatility” as “dangerous & risky” even though this simply is not true.

The reason some of you may be shocked by the chart I’ve presented above is not only due to the tactics of #1 to #3 employed by the global investment industry, but also because of one additional key factor. Many of you may think that gold & gold stocks are way more volatile than my chart above shows, and you would be correct. I’ve only plotted the beginning price level of each asset above at the beginning of each year to smooth out all the interim volatility, so that everyone can clearly see the trends of each asset, even in the notoriously volatile gold (& silver) mining stocks. The reason I’ve stripped out the volatility in the above chart is because anyone that has studied the price behavior of gold & silver assets knows that Central Banks and bullion banks deliberately introduce volatility into gold & silver assets to intimidate gold & silver newbie investors into terrible decisions of selling all their gold & silver assets, or to scare off potentially new gold & silver buyers from ever buying. Though a commercial investment adviser would never tell you this secret, the evidence of this is overwhelming and since I’ve blogged many times about this very topic over the past 7 years, I’m not going to go into detail about the mechanisms by which the banking industry deliberately creates volatile prices in gold and silver assets in this article. However, since the banking industry has already sold the masses of the very false mantra that “volatility = risk”, by artificially and deliberately causing short-term volatility every year in gold and silver assets, commercial investment advisers can show their clients charts of gold, silver and mining stocks with all intra-day, intra-month or intra-year volatility, and keep convincing their clients that gold and silver are the riskiest assets in the entire investment universe while convincing them that broad stock market indexes are the safest arenas in which to invest, when indeed, the exact opposite has been true for 12 years, and will likely be true for the next decade as well.

Sure, one has to understand how and why the bankers create volatility in gold and silver assets to ensure that one enters these assets at low-risk, high-reward price points instead of high-risk, low-reward price points in order to be successful, but anyone that has studied gold and silver price behavior and understands how bankers manipulate gold and silver prices should now have the expertise to do provide this guidance. If one doesn't understand what drives gold and silver prices and one enters at a high-risk, low-reward entry price, then certainly, one could have been taken to the cleaners after banker conducted raids against gold and silver executed in the paper markets, despite what the above chart illustrates. In addition, bankers also attempt to keep people out of buying physical gold and silver and PM mining stocks by painting charts to drive and intensify fear of gold and silver collapses during their multiple, annual banker raids on gold and silver prices. Every year, after there is intense short-term volatility in gold & silver in the form of a 3-5% drop in gold and/or silver in just a couple days, more than a handful of technical chartists will come out of the woodwork to predict massive collapses of silver and gold. Last year, when these situations occurred, more than a few chartists unnecessarily stoked fires of panic by predicting imminent collapses of silver to $20 an ounce and gold back to $1200 an ounce (or even lower). And every year, these predicted collapses of a gold “bubble” and silver “bubble” never materialize. But these false predictions gain enough publicity to keep many too scared from buying their first ounce of physical gold, physical silver or their first PM mining stock. Again, remember that bankers deliberately paint these gold and silver charts to give the appearance of an imminent collapse in prices even though the underlying, undiscussed fundamentals of the physical bullion world often directly contradict the price action of gold and silver during banker-executed raids on the PMs. This is why I have maintained for many years that technical analysis in gold and silver (and even in the highly rigged stock markets) is quite useless if conducted in a vacuum. However, if one uses technical analysis in conjunction with analyzing the underlying fraudulent mechanisms of what is causing great volatility in gold & silver markets, then one is much more likely to accurately assess these rapid declines in gold and silver price as buying opportunities as opposed to fostering clients to panic sell their PMs like fleeing lemmings off a cliff's edge.

As Nobel Laureate Daniel Kahneman recently discovered, and as we’ve been stating at SmartKnowledgeU for nearly a decade now, the entire financial industry is built upon deception and rigging of markets. Their entire existence as ongoing, viable entities is based upon the creation and maintenance of an illusion among all their clients that they know what they are doing even though they do not, and even though they have recommended the same course of action for the past 12-years that has greatly failed. As long as the commercial investment industry can keep this illusion going, they can keep convincing their clients that gold and gold stocks (as well as silver) are the riskiest investments ever and simultaneously prevent their clients from realizing the simple truth self-evident in my one chart above and escaping the inertia of their poor advice.

Furthermore, since the conditions that launched this present gold & silver bull are even stronger and more favorable today than at the start of this PM bull, the reasons to be invested in gold (silver) and gold stocks (& silver stocks) are even stronger today than they were 12 years ago. In conclusion, ignore the simplicity of the above chart at grave risk to your own future financial health and security.

About the author: JS Kim is the Founder & Managing Director of SmartKnowledgeU, a fiercely independent investment research & consulting firm with a mission of education and helping Main Street beat the corruption of Wall Street. SmartKnowledgeU was the first company in the west to move to a gold standard of pricing, a pricing mechanism to which the firm has remained firmly committed, even when gold prices have been moved lower by bankers as in recent times. Currently, we are offering a 5% to 10% discount on all SmartKnowledgeU services until the end of January only, a discount that when combined with our significant discount in prices due to current lower gold prices, will almost assuredly mark our lowest prices of the year for 2013. Follow us on twitter @smartknowledgeu.

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Pacific Group Latest Hedge Fund Buying Physical Gold – Converting 1/3 Assets To Gold

Today’s AM fix was USD 1,688.00, EUR 1,269.08,
and GBP 1063.58 per ounce.
Friday’s AM fix was USD 1,690.00, EUR 1,265.82and GBP 1,060.49 per ounce.

Gold was up 1.26% for the week and
silver was up 4.60%. Gold fell $2.80 or 0.17% in New York on Friday and closed
at $1,684.10/oz. Silver surged to a high of $32.11 before it also edged off,
but it still finished with a gain of 0.47%.

Gold inched up on Monday on concerns about currency debasement and an even
looser monetary  policies to be announced
from the Bank of Japan.

BOJ is examining an open-ended
pledge to buy assets until a 2% inflation target is near which is pushing the
yen to a 2 ½ year low. Gold bullion on the TOCOM soared to match a multi year record
of 4,911 yen a gram before giving up gains.

Physical gold demand is
also ramping up in Asia with the upcoming Lunar New Year festivities just
around the corner on February 10th.

This week’s economic
highlights include Existing Home Sales on Tuesday, the FHFA Housing Price Index
on Wednesday, Initial Jobless Claims and Leading Economic Indicators on
Thursday, and New Home Sales on Friday. Next week investor will closely listen
to the U.S. Federal Reserve's policy meeting is on the 29th and 30th.

Sweden’s central bank hasn’t carried out
any physical checks of its gold reserves deposited with central banks abroad
and relies on the respective authorities to do so, Dagens Industri reported,
citing the Riksbank. 

Central banks internationally, from Ireland to Germany and now in Sweden, are
being forced to answer legitimate questions about their gold reserves by
concerned citizens.

Swedish gold reserves are 126 metric tonnes 
and are valued at almost 45 billion Swedish krone.

The Riksbank confirmed that the majority of Swedish gold reserves are located
abroad.

Another respected hedge fund, the Pacific Group, has decided to convert one
third of its hedge-fund assets into physical gold.

The Pacific Group Ltd.,
which manages assets of over $100 million, believes that gold will continue to
rise as governments print more money to pay off debt according to Bloomberg.

Thus, continues the
trend of some of the smartest money in the world diversifying some of their holdings
into physical gold.

Respected hedge fund
managers and investors such as George Soros, John Paulson, Bill Gross, David
Einhorn and Kyle Bass have diversified into gold - the latter two opting for
the safety of allocated physical gold bars.

The Hong Kong-based
asset manager plans to take delivery of $35 million worth of gold bars that can
be traded on the London Bullion Market Association and other international
markets, William Kaye, its founder and chief investment officer, said in a
telephone interview on January 18.

It has secured vault
space at Hong Kong International Airport to store the gold, he said.

Investors disillusioned
with government money printing to service “insurmountable” public debt may seek
alternatives to fiat currencies, Kaye said.

Fiat currencies have no
tangible backing, such as gold or silver, except governments’ good faith and
can become worthless due to hyperinflation or loss of public faith.

Central banks have so
far been able to manipulate interest rates to allow governments to service
their debt at low costs, averting market seizures, Kaye said. Still, the next
big rally in precious-metal prices may be 18 months to two years away,
triggered by a “financial catastrophe,” he added.

Ownership of gold
through financial instruments based on it, such as Comex futures contracts, now
represents more than 100 times the physical gold that exists above ground
worldwide, Kaye said, citing the Pacific Group’s own analysis.

“Gold, the way we look at it, is anywhere from being undervalued to being
seriously undervalued,” Kaye said. “We’re in the early stages, in our judgment,
of what would likely be the world’s largest short squeeze in any instrument.”

The likelihood of a
massive short squeeze has been predicted for some years by GATA, the Gold Anti
Trust Action Committee and by financial journalist, Max Keiser and many others,
including GoldCore.

The idea appears to be becoming accepted in the wider investment world.

“All you actually need
for a major upward revaluation of gold is for a small fraction of people to
physically reclaim from major central banks or other depositories that are
holding your gold and using it for their purposes,” he added.

The Pacific Group has
just converted the first tranche of such investments, buying gold bars from
local refineries, Kaye said without giving the exact value of the delivery.

For breaking news and commentary on financial
markets and gold, follow U.S. on
Twitter

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The Real Reasons Why Germany Is Demanding that the U.S. Return Its Gold

gold_bars_7_200

The German’s are demanding that the U.S. return all of the 374 tons of gold held by the Bank of France, and 300 tons of the 1500 tons of bullion held by the New York Federal Reserve.

Some say that Germany is only demanding repatriation of its gold due to internal political pressures, and that no other countries will do so.

But Pimco co-CEO El Erian says:

In the first instance, it could translate into pressures on other countries to also repatriate part of their gold holdings. After all, if you can safely store your gold at home — a big if for some countries — no government would wish to be seen as one of the last to outsource all of this activity to foreign central banks.

As we noted last November:

Romania has demanded for many years that Russia return its gold.

Last year, Venezuela demanded the return of 90 tons of gold from the Bank of England.

***

As Zero Hedge notes (quoting Bloomberg):

Ecuador’s government wants the nation’s banks to repatriate about one third of their foreign holdings to support national growth, the head of the country’s tax agency said.

Carlos Carrasco, director of the tax agency known as the SRI, said today that Ecuador’s lenders could repatriate about $1.7 billion and still fulfill obligations to international clients. Carrasco spoke at a congressional hearing in Quito on a government proposal to raise taxes on banks to finance cash subsidies to the South American nation’s poor.

Four members of the Swiss Parliament want Switzerland to reclaim its gold.

Some people in the Netherlands want their gold back as well.

(Forbes notes that Iran and Libya have recently repatriated their gold as well).

The Telegraph’s lead economics writer – Ambrose Evans Pritchard – argues that the German repatriation demand shows that we’re switching to a de facto gold standard:

Central banks around the world bought more bullion last year in terms of tonnage than at any time in almost half a century.

They added a net 536 tonnes in 2012 as they diversified fresh reserves away from the four fiat suspects: dollar, euro, sterling, and yen.

The Washington Accord, where Britain, Spain, Holland, South Africa, Switzerland, and others sold a chunk of their gold each year, already seems another era – the Gordon Brown era, you might call it.

That was the illusionary period when investors thought the euro would take its place as the twin pillar of a new G2 condominium alongside the dollar. That hope has faded. Central bank holdings of euro bonds have fallen back to 26pc, where they were almost a decade ago.

Neither the euro nor the dollar can inspire full confidence, although for different reasons. EMU is a dysfunctional construct, covering two incompatible economies, prone to lurching from crisis to crisis, without a unified treasury to back it up. The dollar stands on a pyramid of debt. We all know that this debt will be inflated away over time – for better or worse. The only real disagreement is over the speed.

***

My guess is that any new Gold Standard will be sui generis, and better for it. Let gold will take its place as a third reserve currency, one that cannot be devalued, and one that holds the others to account, but not so dominant that it hitches our collective destinies to the inflationary ups (yes, gold was highly inflationary after the Conquista) and the deflationary downs of global mine supply.

***

A third reserve currency is just what America needs. As Prof Micheal Pettis from Beijing University has argued, holding the world’s reserve currency is an “exorbitant burden” that the US could do without.

The Triffin Dilemma – advanced by the Belgian economist Robert Triffin in the 1960s – suggests that the holder of the paramount currency faces an inherent contradiction. It must run a structural trade deficit over time to keep the system afloat, but this will undermine its own economy. The system self-destructs.

A partial Gold Standard – created by the global market, and beholden to nobody – is the best of all worlds. It offers a store of value (though no yield). It acts a balancing force. It is not dominant enough to smother the system.

Let us have three world currencies, a tripod with a golden leg. It might even be stable.

How Much Gold Is There?

It’s not confidence-inspiring that CNBC’s senior editor John Carney argues that it doesn’t matter whether or not the U.S. has the physical gold it claims to hold.

In fact, many allege that the gold is gone:

Cheviot Asset Management’s Ned Naylor-Leyland says that the Fed and Bank of England will never return gold to its foreign owners.

Jim Willie says that the gold is gone.

***

Others allege that the gold has not been sold outright, but has been leased or encumbered, so that the U.S. does not own it outright.

$10 billion dollar fund manager Eric Sprott writes – in an article entitled “Do Western Central Banks Have Any Gold Left???“:

If the Western central banks are indeed leasing out their physical reserves, they would not actually have to disclose the specific amounts of gold that leave their respective vaults. According to a document on the European Central Bank’s (ECB) website regarding the statistical treatment of the Eurosystem’s International Reserves, current reporting guidelines do not require central banks to differentiate between gold owned outright versus gold lent out or swapped with another party. The document states that, “reversible transactions in gold do not have any effect on the level of monetary gold regardless of the type of transaction (i.e. gold swaps, repos, deposits or loans), in line with the recommendations contained in the IMF guidelines.”6 (Emphasis theirs). Under current reporting guidelines, therefore, central banks are permitted to continue carrying the entry of physical gold on their balance sheet even if they’ve swapped it or lent it out entirely. You can see this in the way Western central banks refer to their gold reserves.

Indeed, it is now well-documented that the Fed has leased out a large chunk of its gold reserves, and that big banks borrow gold from central banks and then to multiple parties.

As such, it might not entirely surprising that the Fed needs 7 years to give Germany back its 300 tons of gold … even though the Fed claims to hold 6,720 tons at the New York Federal Reserve Bank alone:

Even Pimco co-CEO Bill Gross says:

When the Fed now writes $85 billion of checks to buy Treasuries and mortgages every month, they really have nothing in the “bank” to back them. Supposedly they own a few billion dollars of “gold certificates” that represent a fairy-tale claim on Ft. Knox’s secret stash, but there’s essentially nothing there but trust..  When a primary dealer such as J.P. Morgan or Bank of America sells its Treasuries to the Fed, it gets a “credit” in its account with the Fed, known as “reserves.” It can spend those reserves for something else, but then another bank gets a credit for its reserves and so on and so on. The Fed has told its member banks “Trust me, we will always honor your reserves,” and so the banks do, and corporations and ordinary citizens trust the banks, and “the beat goes on,” as Sonny and Cher sang. $54 trillion of credit in the U.S. financial system based upon trusting a central bank with nothing in the vault to back it up. Amazing!

And given that gold-plated tungsten has turned up all over the world, and that a top German gold expert found fake gold bars imprinted with official U.S. markings, Germans may have lost confidence in the trustworthiness of the Fed.  See this, this, this and this.

This may especially be true since the Fed refused to allow Germans to inspect their own gold stored at the Fed.

Currency War?

The gold repatriation is – without doubt- related to currency.

As Forbes notes:

Officials at the Bundesbank … acknowledged the move is “preemptive” in case a “currency crisis” hits the European Monetary Union.

***

“No, we have no intention to sell gold,” a Bundesbank spokesman said on the phone Wednesday, “[the relocation] is in case of a currency crisis.”

Reggie Middleton thinks that Germany’s demand for its gold is part of a currency war.

Jim Rickards has previously said that the Fed had plans to grab Germany gold:

Jim Rickards has outlined possible plans by the Federal Reserve to commandeer Germany’s and all foreign depositors of sovereign gold at the New York Federal Reserve in the event of a dollar and monetary crisis leading to intensified “currency wars” and the ‘nuclear option’ of a drastic upward revision of the price of gold and a return to a quasi gold standard is contemplated by embattled central banks to prevent debt deflation.

Is that one reason that Germany is demanding its gold back now?

China is quietly becoming a gold superpower, and China has long been rumored to be converting the Yuan to a gold-backed currency.

The Telegraph’s James Delingpole points out:

Back in the mid-1920s, the head of the German Central Bank, Herr Hjalmar Schacht, went to New York to see Germany’s gold. However the NY Fed officials were unable to find the palette of Germany’s gold bullion. The Chairman of the Federal Reserve, Benjamin Strong was mortified, but to put him at ease Herr Schacht turned to him and said ‘Never mind, I believe you when you when you say the gold is there. Even if it weren’t you are good for its replacement.’ (H/T The Real Asset Company)

But that was then and this is now. In the eyes of the Germans – and who can blame them? – America has lost its mojo to such a degree that it can no longer be trusted honour its debts, even in the unlikely event that it were financially capable of doing so. Which is why, following in the footsteps of Venezuela’s Hugo Chavez (who may be an idiot but is definitely no fool), Germany is repatriatriating its gold from the US federal reserve.  It will now be stored in Frankfurt.

***

[Things] may look calm on the surface, but this latest move by the Bundesbank gives us a pretty good indication that beneath the surface that serene-seeming swan is paddling for dear life.

If you want a full analysis I recommend this excellent summary by Jan Skoyles. The scary part is this bit:

Every few months there is a discussion regarding what China are planning on doing with the gold they both mine and import every year, with many believing they are hoarding the metal as an insurance against the billions of US Treasury bonds, notes and bills they hold. Many believe they will issue some kind of gold-backed currency in the short-term and dump its one trillion dollars’ worth of US Treasury securities. Whilst, at the moment the US seem to take their monopoly currency for granted, should the Chinese or anyone else behave in such a manner, the US will need to respond – most likely with gold, which on its own it does not have enough of.

Anyone who thinks this isn’t going to happen eventually should read Peter Schiff’s parable How An Economy Grows And Why It Crashes. If something can’t go on forever, it won’t.

In other words, Rickards and Skoyles appear to argue that Germany may be repatriating gold in the first round of musical chairs in which China is preparing to roll out a gold-backed Yuan.   Under this theory, the rest of the world’s currencies will sink unless their nations’ can scramble to get their hands on enough gold to lend credibility to their paper.

Postscript: Michael Rivero thinks that the war in Mali is connected:

Mali is one of the world’s largest gold producers. Together with neighboring Ghana they account for 7-8% of world gold output. That makes them a rich prize for nations desperate for real physical gold. So, even as Germany started demanding their gold back from the Bank of France and the New York Federal Reserve, France (aided by the US) decided to invade Mali to fight “Islamists” working for “Al Qaeda.” Of course, “Islamists” has become the catch-all label for people that need to be killed to get them out of the way of the path to riches, and the people being bombed by France (aided by the US) are not “Al Qaeda” but Tawariqs, who have been fighting for their independence for 150 years, long before the CIA created “Al Qaeda”. Left to themselves, the Tawariqs could sell gold to whoever they want for whatever they want, and right now China can outbid the US and France.

Profiting off hunger: Wall Street makes big gains over food price spikes

Powerful firms like Goldman Sachs have made hundreds of millions of dollars in food future trades. Critics accuse them of profiting off starvation and market manipulation, while traders claim their profits are due to increasing consumption in China.

­World food prices tracked by the UN Food and Agriculture Organization (FAO) have more than doubled in the past 10 years. The FAO’s Food Price Index, which baskets prices for five prime food commodities, peaked in 2008 and 2011, each time rising more than 50 percent from the previous year. The latest price spike was one of the key factors that triggered the series of uprisings in the Arab world resulting in the fall of several governments.

The year 2013 may see another price hike, following the worst draught in the US in 50 years and poor harvests in Russia and Ukraine. The UN has warned that the world may be approaching a major hunger crisis.

At the same time, the industry is bringing millions in profits to those who rushed to invest in food. Goldman Sachs made an estimated $400 million in 2012 from investing its clients' money in a range of "soft commodities," from wheat and maize to coffee and sugar, according to an analysis by the World Development Movement (WDM).

"While nearly a billion people go hungry, Goldman Sachs bankers are feeding their own bonuses by betting on the price of food. Financial speculation is fueling food price spikes and Goldman Sachs is the No, 1 culprit,"
Christine Haigh of the WDM told the British newspaper The Independent.

The London-based organization – along with similar NGOs like Foodwatch, Oxfam, or Weed (World Economy, Ecology and Development) – have for years blamed financiers for inflating food prices, or for at least making the market dangerously volatile.

They argue that the amount of speculative money is too big in proportion to the physical inventories of the commodities. Deregulation in the late 1990s allowed financial institutions to bet on food prices,  resulting in some $200 billion being poured into the market.

For example, hedge fund Armajaro virtually single-handedly sent the global price of cocoa to a 33-year high in July 2010 by buying around 15 percent of global cocoa stocks.

The overall effect of speculation on food prices is an issue of dispute. Influential analysts, such as US economist Paul Krugman, have argued that speculation is a marginal factor compared to rising demand from developing countries, as well as the expanding production of corn and maize for biofuels at the expense of foodstuffs.

Diagram from "The Food Crisis: Predictive validation of a quantitative model of food prics including speculators and ethanol conversion" By Marco Lagi, Yavni Bar-Yam, Karla Z. Bertrand and Yaneer Bar-Yam
Diagram from "The Food Crisis: Predictive validation of a quantitative model of food prics including speculators and ethanol conversion" By Marco Lagi, Yavni Bar-Yam, Karla Z. Bertrand and Yaneer Bar-Yam

­A study by the New England Complex Systems Institute last year showed that the Food Price Index should only change if ethanol production had an impact. The study estimated that a 2008 ethanol price hike was largely due to speculation, while a 2011 spike was significantly fueled by investors.

Many financiers dismiss the accusations, and say they will continue bidding against food prices. On Saturday, Deutsche Bank Co-Chief Executive Juergen Fitsche told the Global Forum for Food and Agriculture that Germany’s biggest lender “will continue to offer financial instruments linked to agricultural products.”

"Agricultural futures markets bring numerous advantages to farmers and the food industry,"
he said.

Others seem to be yielding to pressure. Last year, several German banks, including the second-largest Commerzbank, ceased to speculate on basic food prices for moral reasons.

Guest Post: The Unadulterated Gold Standard Part 4 (Intro To Real Bills)

Authored by Keith Weiner,

In Part I , we looked at the period prior to and during the time of what we now call the Classical Gold Standard.  It should be underscored that it worked pretty darned well.  Under this standard, the United States produced more wealth at a faster pace than any other country before, or since.  There were problems; such as laws to fix prices, and regulations to force banks to buy government bonds, but they were not an essential property of the gold standard.

In Part II , we went through the era of heavy-handed intrusion by governments all over the world, central planning by central banks, and some of the destructive consequences of their actions including the destabilized interest rate, foreign exchange rates, the Triffin dilemma with an irredeemable paper reserve currency, and the inevitable gold default by the US government which occurred in 1971.

In Part III we looked at the key features of the gold standard, emphasized the distinction between money (gold) and credit (everything else), and looked at bonds and the banking system including fractional reserves.

In this Part IV, we consider another kind of credit: the Real Bill.  We must acknowledge that this topic is controversial because of the belief that Real Bills are inflationary.  This author proposes that inflation should not be defined as an increase in the money supply per se, but of counterfeit credit.

Let’s start by looking at the function served by the Real Bill: clearing.  This is an age-old problem and a modern one as well.  The early Medieval Fairs were large gatherings of merchants.  Each would come with goods from his local area to trade for goods from other lands.  None carried gold to make the purchases for two reasons.  First, they didn’t have enough gold to buy the local goods plus the gross price of the foreign goods.  Second, carrying gold was risky and dangerous.

The merchants could have attempted some sort of direct barter.  But they would encounter the very problem that led to the discovery and use of money originally.  It is called the “coincidence of wants”.  One merchant may have had furs to sell and wants to buy silks.  But the silk merchant does not want furs.  He wants spices.  The spice merchant may not want silks or furs, and so on.  It would waste everyone’s time to run around and put together a three-way deal, much less a four-way or a 7-way deal so that every merchant got the goods he wanted to bring to his home market.  They developed a system of “chits” to enable them to clear their various and complex trades.  In the end, all merchants had to settle up only the net difference in gold or silver.

Clearing is necessary when merchants deal in large gross amounts with small net differences.

The same challenge occurs in the supply chain of consumer goods.  Each business along the way adds some value to the product and passes it to the next business.  For example the farmer starts the chain by selling wheat.  The miller turns wheat into flour and sells it to the baker.  The baker turns flour into bread and sells it to the consumer.  These businesses run on thin margins, and this is a good thing for everyone (though the baker, the miller and the farmer might disagree!)  The question is: on thin margins, how are they to pay for the gross price of their ingredients before selling their products?

This is an intractable problem and it only gets worse if they attempt to grow their businesses.  Further, it would be impossible to add a new business into the supply chain.  For example, a processor to bleach the flour might be a separate company.  And then it may turn out that when the bakery grows and grows, that it is more efficient to operate a small number of very large regional bakeries and then the distributor enters the supply chain to buy the bread from the baker and sell it to another new entrant in the chain, the grocer.

With each new entrant into each supply chain, the supply of gold coins would have to grow proportionally.  This is not possible.  Fortunately, it is not necessary.   If there were a means of clearing the market, then only the net differences would have to be settled in gold.  If consumers buy 10,000 grams of gold worth of bread from the grocer, the grocer could keep his 5% profit of 500g and pass 9,500g to the distributor.  The distributor would keep his 2% profit of 190g and pay 9310g to the baker.  The baker would keep his 10%, 931g and pay 8379 to the flour bleacher, and so on up the chain.

The obvious challenge is that the payments move in the opposite direction compared to the goods.  Whereas the wheat is eventually turned into bread as it moves from the farmer to the consumer, the gold moves from consumer to farmer.  The Real Bill is the clearing mechanism that makes this possible.

Without the Real Bill, the enterprises in the supply chain would have to borrow using conventional loans and bonds, which is less efficient and more expensive.  Or else the division of labor along with highly optimized specialty businesses would not be possible.

As we discussed in Part III of this series, everyone benefits if it is possible to efficiently exchange wealth in the form of savings for income in the form of interest on a bond.  The saver’s money can work for him his whole life, and he can live on the interest in retirement without fear of outliving his money.  The entrepreneur can start or grow a new business without having to spend his career saving a fraction of his wages, working a job in which he is underemployed.  Everyone else gets the use of the entrepreneur’s new products, and thereby improve their lives.

The same analogy applies to the efficient clearing of the supply chain for every kind of consumer good.  This is especially true as new entrants come in to the chain and make the process more efficient (i.e. less expensive to the consumer).  And it is also necessary for seasonal demand, such as prior to Christmas.  Clearly, there is an increase in the production of all kinds of consumer goods around September or October.  Everything from chocolates to wrapping paper must be produced in larger quantities than at other times of the year.  Without a clearing mechanism, without the Real Bill, the manufacturers would be forced to limit production based on their gold on hand.  There would be shortages.

In practice, the Real Bill is nothing more than the invoice of the wholesaler on the retailer.   In our example, the distributor delivers bread to the grocer and presents him with a bill.  The grocer signs it, agreeing to pay 9500g of gold in 90 days (probably less for bread).  It is an important criterion that Real Bills must be paid in less than 90 days, for a number of reasons.

  • First, the Real Bill is for consumer goods with known demand.  If the good does not sell through in 90 days, that indicates a problem has occurred or someone has misestimated the demand.  The sooner this is realized, the better.
  • Second, 90 days represents the change of the season in most countries.  What had been in demand last season may not be in demand in the next.
  • Third, the Real Bill is a short-term credit instrument that is not debt.  At the Medieval Fair, there was no borrowing and no lending.  The same is true for the Real Bill.  The wholesaler does not lend money to the retailer.  He delivers the goods and accepts that he will be paid when the goods sell through to the consumer.  The retailer agrees to pay for the goods when they sell through, but he does not borrow money.
  • Finally, if a business transaction requires longer-term credit, then it is appropriate to borrow money via a loan or a bond.  The Real Bill is not suitable for the risk or the duration.  Longer-term credit means that it is not simply being used to clear a transaction, but that there is some element of speculation, storage, and uncertainty.

What has happened in different times and in different countries is that Real Bills circulate.  Spontaneously.  No law is required to force anyone to accept them.  No banking system is necessary to make them liquid.  Real Bills "circulate on their own wings and under their own steam" in the words of Antal Fekete: The Real Bill is the highest quality earning asset, and the highest quality asset aside from gold itself (incidentally, this is why Real Bills don’t work under irredeemable paper—it would be a contradiction for a Real Bill to mature into a lower-quality paper instrument).

Opponents of Real Bills have a dilemma.  They can either oppose them by means of enacting a coercive law, or they can allow them because they will spring into existence and circulate in a free market under the gold standard.  We can hope that the principle of freedom and free markets leads everyone to the latter.

It is not the job of government to outlaw everything that experts in every field believe will lead to calamity.  And those experts should be cautious before prejudging free actors in a free market and presuming that they will hurt themselves if left alone.

In Part V, we will take a deeper look at the Real Bills market, including the arbitrages and the players...

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You Wanted Inflation, You Got It: Japanese Gasoline Price Rises To Eight Month High

When one thinks of open-ended, "inflation targeting" one usually thinks of soaring markets, at least in nominal terms, exploding central bank balance sheet, and happy central planners. What one usually does not think of, is, well, inflation targeting. Because while the shadow banking financial system, perfectly devoid of deposits, has for now provided a sufficient buffer from trillions of reserve injections from spreading into the broader economy of the US and Europe, and has primarily impacted stock markets as unsterilized liquidity injections are used by banks to bid stocks, Japan has been far less lucky in this regard. As it turns out, the massive slide in the Japanese Yen in the past 2 months on nothing but ongoing promises of open-ended action, something Europe has perfected, and the US most recently enacted, may have already achieved its goal of pushing inflation. only not to the desired 2% level, but about 50% higher. Luckily, it is for such trivial things that nobody really every needs, such as fuel and consumer products - just ask the BLS.

As the Nikkei reports "the average price of regular gasoline rose to an eight-month high of 150 yen per liter on Tuesday, up 1.2 yen from a week earlier, according to data released on Thursday by the Agency for Natural Resources and Energy. The price has climbed 4.5 yen, or 3%, since late November, when the yen's downswing started. The dollar-based price of crude oil has remained steady since November, but the yen's slide by about 10 yen to the dollar has resulted in higher import prices."

It gets better

The price of kerosene rose to a nine-month peak. Growing demand due to a cold spell have pushed the price of the fuel up more sharply than other petroleum products.

External hard-disk drives are selling at higher prices at volume electronics retailers, partly because key imported components are paid for with dollars. The average price shot up 540 yen from a week earlier to 8,580 yen, according to research firm BCN Inc.

At Rakuten Inc.'s (4755) online mall, one of the most popular Roomba robotic vacuum cleaners sells for around 29,000 yen. The price of the U.S. product could exceed 30,000 yen after the current inventory runs out in the spring, said a company official.

And that old barbarous relic just hit an all time high:

The domestic retail price for gold hit a 32-year high earlier this month. "Jewelry prices are closely linked to those precious metals, so price hikes will likely spread," said an official at F&A Aqua Holdings Inc.

The Nikkei's conclusion: "Households are beginning to feel pinched by the weaker Japanese
currency
."

Well, the Japanese people wanted Abe, and his inflation targeting policies. They got what they wanted: at least the endless jawboning part that is. We have yet to see just how the BOJ will implement the action that is supposed to back the surge in the USDJPY by over 1000 pips in two months. And now, they also have the surging prices to show for it.

And once the full impact of the spillover from unlimited monetization in the country with the JPY1 quadrillion in debt spill over, look for the prices of all goods and services to explode.

But at least Japanese exports will surge. Oh wait, that would assume that the nationalistic Abe government smoothes tensions with China, something it has not only not done, but exacerabted drastically in the past month or so.

We wonder how long the Japanese people will last until they say enough with this inflationary experiment, and kick Abe out on hopes of a prompt return to deflation.

Perhaps someone far smarter than the MIT and Princeton educated central planners conceived the saying that one should be careful what one wishes for...

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2007 Deja Vu As Goldman Sees $150 Oil By The Summer

While Brent closed 2012 at around its average closing price for the year, suggesting some stability, rolling a front-month contract garnered returns over 10% underscoring Jeff Currie's (Goldman's chief commodity strategist) note that money can still b...

Germany’s Gold Repatriation Unlikely To Assuage Public Concerns

Submitted by GoldCore

Germany's Gold Repatriation Unlikely To Assuage Public Concerns

Today’s AM fix was USD 1,683.25, EUR 1,260.11, and GBP 1,050.85 per ounce. 
Yesterday’s AM fix was USD 1,679.75, EUR 1,262.78 and GBP 1,047.55 per ounce.

Silver is trading at $31.53/oz, €23.68/oz and £19.75/oz. Platinum is trading at $1,687.50/oz, palladium at $725.00/oz and rhodium at $1,125/oz.


Cross Currency Table – (Bloomberg)

Gold inched up $1.00 or 0.06% in New York yesterday and closed at $1,679.90/oz. Silver rose to $31.46 in Asia before it dropped off to $31.07 in London, but it then climbed to as high as $31.551 in New York and finished with a gain of 0.25%.

Gold held firm on Thursday, as investors weighed concern about slowing global economic growth and expectations for more stimulus measures. 

Platinum supply shortages in South Africa limited its 7 day rally.

Thomson Reuters GEMS reported that gold investment favoured by negative real interest rates and debt concerns, is expected to drive prices to a record average high in 2013.

Although the U.S. Fed minutes earlier in the month stirred concerns about tightening monetary policy, the U.S. debt ceiling issue still looms and without an agreement the U.S. government will run out of money by mid February.

The Bundesbank announced yesterday that they will repatriate 674 metric tons of their total 3,391 metric ton gold reserves from vaults in Paris and New York to restore public confidence in the safety of Germany’s gold reserves.


IMF Germany Total Reserves Minus Gold in Millions of USD 

Whether the repatriation of only some 20% of Germany's gold reserves from the Federal Reserve Bank of New York and the Banque of Paris back to Frankfurt manages to allay German concerns remains in question. 

Especially given that the transfer from the Federal Reserve is set to take place slowly over a seven year period and will only be completed in 2020.

 

The German Precious Metals Association and Germany's ‘Repatriate Our Gold’ campaign said that the move by the Bundesbank did not negate the need for a full audit of Germany's gold. 

They want this to take place in order to protect against impairment of the gold reserves through leases and swaps. Indeed, they have called for independent, full, neutral and physical audits of the gold reserves of the world's central banks and the repatriation of all central bank gold - the physical transport of gold reserves back into the respective sovereign ownership countries.

It seems likely that we may only have seen another important milestone in the debate about German and global gold reserves.

Mohamed El_Erian of PIMCO in an op-ed piece in the Financial Times said that the German gold move should have “minimum systemic impact”. 

But he acknowledged the risk that this could be wrong and the decision could “fuel greater suspicion” which could result in a “hit to what remains in multilateral policy cooperation would be problematic for virtually everybody.”

He warned that “growing mutual mistrusts” could  “translate into larger multilateral tensions, then the world would find itself facing even greater difficulties resolving payments imbalances and resisting beggar-thy-neighbor national policies.”

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS

Germany creates pile of golden opportunities – The Financial Times

Germany's Bundesbank brings gold reserves home - Reuters

Bundesbank to Repatriate 674 Tons of Gold to Germany by 2020 - Bloomberg

Germany Repatriates Gold Reserves – The Wall Street Journal

Platinum up for 7th day as South Africa crisis stirs supply fears - Reuters

Concern in Dublin: Six tonnes of Irish gold in Bank of England – The Australian

COMMENTARY

Bundesbank Weighs Bullion Against Public Pressure – The Financial Times

The Meaning of Germany’s Gold Decision - The Financial Times

Gold Price On Rise: How To Invest In Bullion – The Telegraph

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Frenzy in the Gold Market: The Repatriation of Germany’s Post World War II Gold...

The decision of Germany’s Bundesbank to repatriate part of its Gold Reserves held at the New York Federal Reserve bank has triggered a frenzy in the gold market.

German news sources suggest that a large portion of the German gold stored in the vaults of the New York Fed and the Banque de France is to be moved back to Germany.

According to analysts, this move could potentially “trigger a chain reaction, prompting other countries to start repatriating the gold stored in London, New York or Paris…. “

If gold repatriation becomes a worldwide trend, it will be obvious that both the US and UK have lost their credibility as gold custodians. For gold markets worldwide, this move may mark a switch from “financial gold” to “physical gold”, but the process is definitely in its early stages.

The decision to repatriate the German gold is a big victory for a part of the German press that first forced the Bundesbank to admit that 69% of its gold is stored outside Germany. Almost certainly both the German press and at least several German lawmakers will demand a verification procedure for the gold bars returned from New York, just to make sure that Germany doesn’t receive gold-plated tungsten instead of gold. It seems that German decision makers no longer trust their American partners. (Voice of Russia, January 15, 2013, emphasis added)

While the issue is actively debated in Germany, US financial reports have downplayed the significance of  this historic decision, approved by the German government last September.

Meanwhile, a  “Repatriate our Gold” campaign has been launched by several German economists, business executives and lawyers. The initiative does not apply solely to Germany. It calls upon countries to initiate the homeland repatriation of ALL gold holdings held in foreign central banks.

While national sovereignty and custody over Germany’s gold assets is part of the debate, several observers –including politicians– have begged the question: “can we trust the foreign central banks” (namely the US, Britain and France) which are holding Germany’s gold bars “in safe keeping”:

…Several German politicians have … voiced unease. Philipp Missfelder, a leading lawmaker from Chancellor Angela Merkel’s center-right party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German daily Bild reported.

Given the growing political unease about the issue and the pressure from auditors, the central bank decided last month [September] to repatriate some 50 tons of gold in each of the three coming years from New York to its headquarters in Frankfurt for ‘‘thorough examinations’’ regarding weight and quality, the report revealed.

…Several passages of the auditors’ report were blackened out in the copy shared with lawmakers, citing the Bundesbank’s concerns that they could compromise secrets involving the central banks storing the gold.

The report said that the gold pile in London has fallen ‘‘below 500 tons’’ due to recent sales and repatriations, but it did not specify how much gold was held in the U.S. and in France. German media have widely reported that some 1,500 tons — almost half of the total reserves — are stored in New York.

( Associated Press, Oct 22, 2012, emphasis added )

A full and complete repatriation of gold assets, however,  is not envisaged:

“The Bundesbank plans to transfer 300 tonnes of gold from the Federal Reserve in New York and all of its gold stored at the Banque de France in Paris, 374 tonnes, to Frankfurt. beginning this year,

By 2020, it wants to hold half of the nearly 3,400 tonnes of gold valued at almost 138 billion euros – only the United States holds more – in Frankfurt, where it stores about a third of its reserves. The rest is kept at the Federal Reserve, the Banque de France and the Bank of England. (Reuters, January 16, 2012)

The German Federal Court of Auditors has called for an official inspection of German gold reserves stored at foreign central banks, “because they have never been fully checked“.

Are these German bullion reserves held at the Federal Reserve “separate” or are they part of the Federal Reserve’s fungible “big pot” of gold assets.

Does the New York Federal Reserve Bank have Fungible Gold Assets to the Degree Claimed”?  Could it reasonably meet a process of homeland repatriation of gold assets initiated by several countries simultaneously?

Why is German Gold held outside Germany?

“Why is our gold in Paris, London and New York” and not in Frankfurt ?

The official explanation –which borders on the absurd– is that West Germany at the outset of the Cold War decided to store its gold assets in London, Paris, and New York to “put them out of reach of the Soviet empire” which was allegedly intent upon looting West Germany’s gold treasures.

According to Reuters:

As the Cold War set in, Germany kept its gold reserves put, keeping them out of reach of the Soviet empire. But government officials have grown uneasy about the storage set-up and have called for the Bundesbank to inspect the bars.

The Bundesbank now wants to change the arrangement too, even though it has said it does not see a need to count the bars or check their gold content itself and considers written assurances from the other central banks as sufficient.

With the end of the Cold War it was no longer necessary to keep Germany’s gold reserves “as far to the west and as far from the Iron Curtain as possible”, Bundesbank board member Carl-Ludwig Thiele told reporters on Wednesday.

The Bundesbank gained more space in its vaults after the transition to the euro from the deutschmark. Reuters, January 16, 2013)

According to the Western media, in chorus, the threats of the “evil empire” in the course of the Cold War era had so to speak encouraged the “looking after” and “safe-keeping” of billions of dollars of German gold bullion in the secure central bank vaults of France, England and America. This was a “responsible” initiative undertaken by these three countries –”friends of West Germany”– with a view to assisting the Bundesbank located in Frankfurt am Main against an imminent attack by The Red Army.

But now fourteen years after the official end of the Cold War, the Bundesbank “plans to bring home some of its gold reserves stored in the United States’ and French central banks, bowing to government pressure to unwind a Cold War-era ploy that secured the national treasure.”

What was the objective of the US, in the wake of the World War II in pressuring countries to deposit their gold bullion in the custody of the US Federal Reserve?

Historically, the accumulation of gold bullion in the vaults of the US Federal Reserve (on behalf of foreign countries) has indelibly served to strengthen the global dollar system, both during the period of the (Bretton Woods) post-war “gold exchange standard” (1946-1971) as well as in its aftermath (1971-).

History: In the Wake of World War II

The gold bullion storage arrangement has nothing to do with the Soviet threat.

It has a lot to do with the history of World War II and its immediate aftermath.

The early postwar central banking arrangement was dictated by the Victors of World War II, namely America, France and Britain.

The military occupation governments of these three countries directly controlled the post-war monetary reforms implemented in West Germany starting in 1945.

West Germany had been split up into three zones, respectively under the jurisdiction of the US, Britain and France (see map below). From 1945 to 1947, The Reichmark continued to circulate with new paper money printed in the US.

__________________________________________________________________________________________________________________________________

File:Map-Germany-1945.svg

Post-Nazi German occupation borders and territories. Areas in beige indicate territories east of the Oder-Neisse line that were attached to Poland and the USSR. The Saar Protectorate, on the lefthand side of the map, is also shown in beige.  Berlin is the multinational area shown within the red Soviet zone.

__________________________________________________________________________________________________________________________________

In 1947, the US and UK controlled occupation zones merged into an Anglo-American “BiZone”.  In 1948, under a so-called “First Law on currency Reform”, the occupation military government set up the Bank deutscher Länder (Bank of the German States) in liaison with  the US Federal Reserve and the Bank of England.  The currency reforms were implemented in parallel with the Marshall Plan, launched in June 1947.

The Bank deutscher Länder (BdL) was to manage the monetary system of the Länder  (equivalent to states in a federal structure) in the Bizone under the jurisdiction of the US-UK military government, leading to the establishment of the Deutsch Mark in June 1948, which replaced the Reichsmark.

Ludwig Erhard –who became Finance Minister under the FGR government of Conrad Adenauer and then German Chancellor (1963-1966)– played a central role in the process of monetary reform.  He started his political career as an economic consultant to the US military Government (USMG). In 1947, he was appointed chairman of the currency reform commission. From January 1947 to May 1949, the US  military governor of the US zone (USMG) who supervised the setting up the new currency arrangement was General Lucius D. Clay, nicknamed “Der Kaiser”.

The Deutsche Mark initiative was then extended to the occupation zone controlled by France in November 1948 (“TriZone” arrangement), with the inclusion and participation of the Banque de France.

While the Federal Republic of Germany (FRG) (Bundesrepublik Deutschland), was created in May 1949, the Bundesbank only came into existence 8 years later, in 1957.

Germany’s gold reserves were under the jurisdiction of the Bank deutscher Laender (and subsequently of the Bundesbank). But the BdL was an initiative of the US-UK-France military occupation.

The important question is the following:

Did the procedures and agreements determined by the occupation military governments in 1947-48  envisage a framework whereby part of West Germany’s gold bullion was to be held in the victors’ central banks, namely the Bank of England, the US Federal Reserve and the Banque de France?

Gold Reserves from the Third Reich

The issue of the gold reserves of the Third Reich is a subject matter in itself, beyond the scope of this article.

A couple of observations: As of 1945, large amounts of gold from the Third Reich were transferred into custody of the military governments. Part of this gold was used to finance war reparations:

In September 1946, the United States, Britain, and France established the Tripartite Commission for the Restitution of Monetary Gold (TGC). The commission has its roots in Part III of the Paris Agreement on Reparation, signed on January 14, 1946 concerning German war reparations. Under the 1946 Paris Agreement, the three Allies were charged with recovering monetary gold looted by Nazi Germany from banks in occupied Europe and placing it in a “gold pool.”

Claims against the gold pool and subsequent redistribution of the gold to claimant countries were to be adjudicated and executed by the three Allies. ” ( for further details see US State Department, Tripartie Gold Commission, February 24, 1997,

A Foreign Exchange Depositary (FED) had been established at the Reichbank in Frankfurt. Referred to as the Fort Knox of Germany, a  process of collection had been established `by the FED on behalf of the Allied Occupation Council.

Gold was collected by the FED, both in monetary and non-monetary form. By October 1947 –coinciding with the establishment of the Bank deutscher Laender–  the FED, had accumulated 260 million dollars of monetary gold (at the 1947 price of gold, this represented a colossal amount of bullion).

A large part of this gold was restituted to different claimant countries, organizations and individuals. In 1950, the remaining assets of the FED –which were minimal, according to the US State Department– were transferred to the Bank deutscher Laender. (William Z. Slany, US Efforts to Restore Gold and Other Assets Stolen or Hidden by Germany During World War II, US State Department, Washington, 1997, p. 150-59)

Goldman Removes Boeing From “Conviction Buy” List

For those curious how it is that Goldman just reported a stunning beat across the board, here is a hint: the firm had flaming paperweight extraordinaire maker Boeing (a firm which has now had at least one component in 4 Dreamliners spontaneously combust, and has lead to the grounding of the entire ANA and JAL fleets) on its Conviction Buy list. At least until today, when the stock is indicated to open some 5% lower. Which means as of moments ago, Goldman is done selling BA stock to its clients. With conviction.

From Goldman:

What happened

We remove Boeing from the Conviction List, while retaining our Buy rating. We lower our 12-month price target to $90 from $98. Last night an All Nippon Airways (ANA) flight on a 787 aircraft made an emergency landing. Multiple reports state this was due to an alert in the cockpit of an issue related to batteries in the aircraft. This follows the January 7 incident in which a Japan Airlines 787 experienced a fire while parked at the gate at Logan airport, which was also reportedly caused by the overheating of a lithium ion battery. BA is up 31% since we added to the CL on 8/8/11 vs. SPX up 32%. It is up 3% the past 12 months (SPX up 14%).

Current view

We remain bullish on the fundamentals of the Commercial Aerospace sector, we continue to favor the long-term earnings and cash flow growth driven by the 787 product cycle, we continue to expect significant shareholder-friendly capital deployment from BA, and we still believe valuation for the stock is attractive.

We also believe it is normal for new aircraft programs to experience challenges in the early part of entry in to service, including many historical new aircraft programs requiring multiple FAA-driven changes. And it remains possible that the recent 787 issues fall in to the “teething” category, as much information is still unknown.

But despite our view on all of these items, we also recognize that there have now been two incidents in a very short window pointing to potential issues related to one part – lithium ion batteries – and the concentration and possible overlap of cause within these events heightens the risk of a potentially more meaningful required change to the aircraft and therefore a possible delay in the pace of the production ramp. This would make near-term outperformance of shares more difficult to see.

Our estimates are unchanged (our model already assumes 10 787s per month is achieved in mid-2014). We lower our price target to $90 from $98 on a lower P/E (13.8X vs. 15.0X prior) given these increased risks. Other risks include the new aircraft order cycle and DoD spending priorities.

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The War on Mali. What you Should Know: An Eldorado of Uranium, Gold, Petroleum,...

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The French government has stated that:

“it would send 2,500 troops to support Malian government soldiers in the conflict against Islamist rebels. France has already deployed around 750 troops to Mali, and French carriers arrived in Bamako on Tuesday morning…..

We will continue the deployment of forces on the ground and in the air…..

We have one goal. To ensure that when we leave, when we end our intervention, Mali is safe, has legitimate authorities, an electoral process and there are no more terrorists threatening its territory.” [1]

So this is the official narrative of France and those who support it. And of course this is what is widely reported by the mainstrem media.

France is supported by other NATO members. US Defense Secretary Leon Panetta confirmed that the US was providing intelligence to French forces in Mali. [2]  Canada, Belgium, Denmark and Germany have also publicly backed the French incursion, pledging logistical support in the crackdown on the rebels. [3]

If we are to believe this narrative we are misled again about the real reasons. A look at Mali’s natural resources reveals what this is really about.

Mali’s natural resources  [4] (emphasis added)

Gold: Mali: Africa’s third largest gold producer with large scale exploration ongoing. Mali has been famous for its gold since the days of the great Malian empire and the pilgrimage to Mecca of the Emperor Kankou Moussa in 1324, on his caravan he carried more than 8 tonnes of gold! Mali has therefore been traditionally a mining country for over half a millennium.

Mali currently has seven operating gold mines which include: Kalana and Morila in Southern Mali, Yatela, Sadiola and Loulo in Western Mali, and mines which have recently restarted production notably Syama and Tabakoto. Advanced gold exploration projects include: Kofi, Kodieran, Gounkoto, Komana, Banankoro, Kobada and Nampala.

Uranium: encouraging signs and exploration in full swing. Exploration is currently being carried out by several companies with clear indications of deposits of uranium in Mali. Uranium potential is located in the Falea area which covers 150 km&sup2; of the Falea- North Guinea basin, a Neoproterozoic sedimentary basin marked by significant radiometric anomalies. Uranium potential in Falea is thought to be 5000 tonnes. The Kidal Project, in the north eastern part of Mali, with an area of 19,930 km2, the project covers a large crystalline geological province known as L’Adrar Des Iforas. Uranium potential in the Samit deposit, Gao region alone is thought to be 200 tonnes.

Diamonds: Mali has potential to develop its diamond exploration: in the Kayes administrative region (Mining region 1), thirty (30) kimberlitic pipes have been discovered of which eight are show traces of diamonds. Some eight small diamonds have been picked in the Sikasso administrative region (southern Mali).

Precious stones consist of the following and can be found in:

  • Circle of Nioro and Bafoulabe: Garnets and rare magnetic minerals
  • Circle of Bougouni and Faleme Basin: Pegmatite minerals
  • Le Gourma – garnet and corindons
  • L’Adrar des Ilforas – pegmatite and metamorphosing minerals
  • Hombori Douentza Zone: quartz and carbonates

Iron Ore, Bauxite and Manganese: significant resources present in Mali but still unexploited. Mali has according to estimates more than 2 million tonnes of potential iron ore reserves located in the areas of Djidian-Kenieba, Diamou and Bale.

Bauxite reserves are thought to be 1.2 million tonnes located in Kita, Kenieba and Bafing- Makana. Traces of manganese have been found in Bafing – Makana, Tondibi and Tassiga.

 Other mineral resources and potential in Mali

Calcarous rock deposits: 10 million tonnes est. ( Gangotery), 30 million tonnes est. ( Astro) and Bah El Heri ( Nord de Goundam) 2.2 Million tonnes est.

  • Copper: potentialities in Bafing Makan ( Western Region) and Ouatagouna ( Northern Region)
  • Marble : Selinkegny ( Bafoulabe) 10.6 MT estimated reserves and traces at Madibaya
  • Gypsum: Taoudenit ( 35 MT est.), Indice Kereit ( Nord de Tessalit) 0.37 MT est.
  • Kaolin: Potential estimated reserves ( 1MT) located in Gao ( Northern Region)
  • Phosphate: Reserve located at Tamaguilelt, production of 18,000 t/per annum and an estimated potential of 12 million tonnes. There are four other potential deposits in the North of 10 million tonnes.

Lead and zinc: Tessalit in the Northern Region ( 1.7 MT of estimated reserves) and traces in Bafing Makana ( Western Region) and Fafa (Northern Mali)

  • Lithium: Indications in Kayes ( Western Region) and estimated potential of 4 million tonnes in Bougouni ( Southern Region)
  • Bitumen schist: Potential estimated at 870 million tonnes, indications found in Agamor and Almoustrat in the Northern Region.
  • Lignite: Potential estimated at 1.3 million tonnes, indications found in Bourem ( Northern Region)
  • Rock Salt: Estimated potential of 53 million tonnes in Taoudenni ( Northern Region)
  • Diatomite: Estimated potential of 65 million tonnes in Douna Behri ( Northern Region)

Mali’s Petroleum potential already attracting significant interest from investors

Mali’s Petroleums potential has been documented since the 1970’s where sporadic seismic and drilling revealed probable indications of oil. With the increasing price of global oil and gas resources, Mali has stepped up its promotion and research for oil exploration, production and potential exports. Mali could also provide a strategic transport route for Sub-Saharan oil and gas exports through to the Western world and there is the possibility of connecting the Taoudeni basin to European market through Algeria.

Work has already begun to reinterpret previously gathered geophysical and geological data collected, focussing on five sedimentary basins in the North of country including: Taoudeni, Tamesna, Ilumenden, Ditch Nara and Gao.

So here we have it

Whatever is reported by the mainstream media, the goal of this new war is no other than stripping yet another country of its natural resources by securing the access of international corporations to do it.  What is being done now in Mali through bombs and bullets is being done to Ireland, Greece, Portugal and Spain by means of debt enslavement.

And the people suffer and die

The Guardian reported 2 days ago [5] :

“The human toll has not yet been calculated, but a communique read on state television late Saturday said that at least 11 Malians were killed in Konna.

“Sory Diakite, the mayor of Konna, says the dead included children who drowned after they threw themselves into a river in an effort to escape the bombs.

“Others were killed inside their courtyards, or outside their homes. People were trying to flee to find refuge. Some drowned in the river. At least three children threw themselves in the river. They were trying to swim to the other side. And there has been significant infrastructure damage,” said the mayor, who fled the town with his family and is now in Bamako.”

Who knows what the death toll is today.

God help any country and its people with natural resources to be exploited.

Notes:

[1] [2] [3] http://rt.com/news/france-mali-french-troops-006/

[4] All information taken from Le Journee Miniere et Petrolieres du Mali (government information) http://www.jmpmali.com/html/miningandpetroleum.html

[5] http://www.guardian.co.uk/world/2013/jan/13/mali-neighbours-troops-french-intervention

Gold Market Instability: Does the US Have Fungible Gold Assets to the Degree Claimed?

According to Handelsblatt, a respected publication, Germany is serious about repatriating significant amounts of gold held outside of Germany, mostly by the Federal Reserve. This sends a message about storing gold near you and taking delivery no matter who is holding it.

When France did this years ago it sent panic amongst the US financial leadership to the degree of monetary aggression.

Why? The inviting question has always been does the US have fungible gold assets to the degree claimed.

ReservenBundesbank will deutsches Gold zurückholen
14.01.2013, 21:07 Uhr

Nach der Gründung der Bundesbank wurden große Teile der deutschen Goldreserven aus Sicherheitsgründen bei den Alliierten deponiert. Nun soll das Gold aus New York und Paris zurückgeholt werden.

Frankfurt.  Die Bundesbank hat ein neues Konzept ausgearbeitet, wo sie künftig ihre Goldreserven lagern will. Nach Informationen des Handelsblatts sieht dieses Konzept, das am kommenden Mittwoch bekanntgegeben werden soll, vor, den heimischen Standort aufzuwerten, in New York dafür weniger Gold zu lagern und überhaupt kein Gold mehr in Paris zu horten.

Damit reagiert die Notenbank auch auf einen Bericht des Bundesrechnungshofes, der die Jahresabschlüsse der Bundesbank prüft und ihr empfohlen hatte, ein aktuelles Lagerstellenkonzept zu erstellen und zu dokumentieren.

More…

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Charles De Gaulle was the first person in modern history to call the hand of the USA on its then obligation to convert French held dollar reserves into gold. I was a senior trader at the time.

History will look back on this salvo fired across US war financing as being the beginning of the end of the US dollar as the reserve currency of choice.

The reaction on the part of the US was to cut the tie between the dollar and convertibility. This again raises the question of does the USA have fungible gold to the degree that is claimed without 3rd party audits or any viewing publicly whatsoever.

If it is true as reliable sources today reported that Germany wishes to repatriate a significant amount of its gold, then that request is a modern version of the first salvo that Charles de Gaulle fired at the US treasury over convertibility.

Assume that no close violated Alf’s downside price and it is possible that today’s revelation concerning Germany is an event leading to gold’s first main target above the recent high of $2111. It is significant because under normal circumstances no major central bank would insult another major central bank in that manner.

Today’s report, if true, is a salvo fired at the concept that the USA has all the gold it claims and all the gold it stores for others. If true, this event is the most important gold development since Charles De Gaulle called the US hand that it would stand by convertibility which many then assumed it could not because even then the amount of gold held was publicly questioned.

Please review the following video of Charles De Gaulle

It Begins: Bundesbank To Commence Repatriating Gold From New York Fed

In what could be a watershed moment for the price, provenance, and future of physical gold, not to mention the "stability" of the entire monetary regime based on rock solid, undisputed "faith and credit" in paper money, German Handelsblatt reports in an exclusive that the long suffering German gold, all official 3,396 tons of it, is about to be moved. Specifically, it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Buba in Frankfurt, where just 31% of it is held as of this moment. And while it is one thing for a "crazy, lunatic" dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most. In brief: this is a momentous development, one which may signify that the regime of mutual assured and very much telegraphed - because if the central banks don't have faith in one another, why should anyone else? - trust in central banks by other central banks is ending.

Much more importantly, it is being telegraphed as such, with Buba fully aware of just what the consequences of this (first partial, and then full; and certainly full vis-a-vis the nouveau socialist regime of Francois Hollande which will soon hold zero German gold) repatriation will be in a global monetary arena, which is already scraping by on the last traces of faith in a monetary system that is slowly but surely dying but first diluting itself to oblivion. And in simple game theory terms, the first party to defect from the prisoner's dilemma of all the bulk of global gold being held by the Fed, defects best. Then the second. Then the third. Until, in this particular case, the last central bank to pull its gold from the NY Fed and the other 2 primary depositories of developed world gold, London and Paris, just happens to discover their gold was never there to begin with, and instead served as collateral to paper gold subsequently rehypothecated several hundred times, and whose ultimate ownership deed is long gone.

It would be very ironic, if the Bundesbank, which many had assumed had bent over backwards to accommodate Mario Draghi's Goldmanesque demands to allow implicit monetization of peripheral nations' debts has just "returned the favor" by launching the greatest physical gold scramble of all time.

From Handelsblatt:

Die Bundesbank hat ein neues Konzept ausgearbeitet, wo sie künftig ihre Goldreserven lagern will. Nach Informationen des Handelsblatts (Dienstausgabe) sieht dieses Konzept, das am kommenden Mittwoch bekanntgegeben werden soll, vor, den heimischen Standort aufzuwerten, in New York dafür weniger Gold zu lagern und überhaupt kein Gold mehr in Paris zu horten.

Derzeit lagert das Gold der Bundesbank ihren Angaben zufolge in New York, London, Paris und Frankfurt. In der amerikanischen Notenbank Fed lagern 45 Prozent der insgesamt 3.396 Tonnen Gold, in der Bank of England in London 13 Prozent, in der Banque de France in Paris elf Prozent und im Hauptsitz in Frankfurt 31 Prozent. Diese Verteilung soll sich nun ändern.

We present it in the original for fear of losing something in translation, but in broad English terms the above reads as follows:

The German Bundesbank is developing a new approach as to where its gold will be stored. According to exclusive information, to be fully announced on Wednesday, the bank will in the future hold less gold in the New York Fed, and no more hold in Paris (Banque de France). As a result, the distribution of German gold, of which 45% is held in New York, 13% in London, 11% in Paris and 31% in Frankfurt, is about to change.

There is no need to explain why this is huge news (for those who have not followed our series on the concerns and issue plaguing German gold can catch up here, here, here, here, and certainly here) . At least no need for us to explain. Instead we will let the Bundesbank do the explanation. The following section is the answer provided by the Bundesbank itself in late October in response to the question why it does not move the gold back to Germany:

The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. No further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.

And in case the above was not clear enough, below is the speech Buba's Andreas Dobret delivered to none other than NY Fed's Bill Dudley in early November:

Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany – a discussion which is driven by irrational fears.

In this context, I wish to warn against voluntarily adding fuel to the general sense of uncertainty among the German public in times like these by conducting a “phantom debate” on the safety of our gold reserves.

The arguments raised are not really convincing. And I am glad that this is common sense for most Germans. Following the statement by the President of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end – and it should do so before it causes harm to the excellent relationship between the Bundesbank and the US Fed.

Throughout these sixty years, we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the Fed [ZH may, and likely will, soon provide a few historical facts which will cast some serious doubts on this claim. Very serious doubts]. And for this, Bill, I would like to thank you personally. I am also grateful for your uncomplicated cooperation in so many matters. The Bundesbank will remain the Fed’s trusted partner in future, and we will continue to take advantage of the Fed’s services by storing some of our currency reserves as gold in New York.

Incidentally, what Zero Hedge did provide after this article, was factual evidence that the Buba's very much "trusted partner" had been skimming it on physical gold deliveries on at least one occasion, in "Exclusive: Bank Of England To The Fed: "No Indication Should, Of Course, Be Given To The Bundesbank..."

So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank, and that in light of all of the above, will make is explicitly very unambigous that the act of gold repatriation, assuming of course that Handelsblatt did not mischaracterize what is happening and misreport the facts, means the "excellent relationship" between the Fed and Buba, not to mention Banque de France which will shortly hold precisely zero German gold, has just collapsed.

Also, if the Bundesbank is first, who is next?

Finally, once the scramble to satisfy physical gold deliverable claims manifests itself in the market, we can't help but wonder what will happen to the price of gold: both paper and physical?

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Does Bank Of England Hold €235 Million Of Irish Gold Reserves?

Ireland's finance minister, Michael Noonan, has been asked about the country's gold vaulted at the Bank of England, such as whether the gold is held in allocated form with a bar list available and whether the gold is leased out into international markets. Answers are as of yet not forthcoming.

Even Goldman Says China Is Cooking The Books

That China openly manipulates its economic data, especially around key political phase shifts, such as one communist regime taking over for another, is no secret. That China is also the marginal economic power (creating trillions in new loans and deposits each year) in a stagflating world, and as such must be represented by the media as growing at key inflection points (such as Q4 when Europe officially entered a double dip recession, and the US will report its first sub 1% GDP in years) as mysteriously reporting growth even without open monetary stimulus (something we have said the PBOC will not engage in due to fears of importing US, European and now Japanese inflation) is critical for preserving hope and faith in the future of the stock market, is also very well known. Which is why recent market optimism driven by "hope" from Alcoa that China is recovering and will avoid yet another hard landing, and Chinese reports of a surge in Exports last week, are very much suspect. But no longer is it just the blogosphere that is openly taking Chinese data to task - as Bloomberg reports, even the major banks: Goldman, UBS and ANZ - are now openly questioning the validity and credibility of the goalseek function resulting from C:\China\central_planning\economic_model.xls.

From Bloomberg:

China’s unexpected surge in exports last month renewed concern from analysts at Goldman Sachs Group Inc., UBS AG and Australia & New Zealand Banking Group Ltd. (ANZ) that statistics from the nation can be unreliable.

The 14.1 percent jump from a year earlier was the biggest positive surprise since March 2011, according to data compiled by Bloomberg. The increase didn’t match goods movements through ports and imports by trading partners according to UBS, while Goldman Sachs and Mizuho Securities Asia Ltd. cited a divergence from overseas orders in a manufacturing index.

Smaller trade gains could signal a less robust recovery from a seven-quarter slowdown just as Australian Treasurer Wayne Swan says the economic rebound is a sign of improving global demand. Accurate statistics from the world’s second-biggest economy are increasingly important for domestic and foreign investors and for China’s government, ANZ’s Liu Li-Gang says.

Too good to be true:

ANZ’s Liu and colleague Louis Lam published research last week that underscored doubts about the quality of China’s economic data. They found that quarterly GDP, industrial production, fixed-asset investment and inflation data published in percentage terms failed to conform to “Benford’s Law,” which holds that in any series of numbers certain patterns will be found only if the statistics are naturally generated.

As we have previously observed, even China has previously mocked its own data "fudgability":

Li Keqiang, who may succeed Wen Jiabao as premier in March, was quoted in 2007 as saying he watched figures on power, rail cargo and loans because gross domestic product numbers were “man-made.” Li’s remarks were in a U.S. diplomatic cable published by WikiLeaks in late 2010.

One reason for the "surge" in recent data may be the demand of the new Politburo to telegraph that all is well following the latest Congress which took place in November, and that the economy is once again picking up, even if in reality it isn't:

After China’s statistics bureau reported third-quarter GDP in October, Standard Chartered Plc analysts said the 7.4 percent increase was “too good to be true” when compared with the slowdown in electricity production and the readings of a manufacturing index, while London-based Capital Economics Ltd. said its own analysis indicated expansion of about 6.5 percent.

The median forecast for December exports in a Bloomberg survey of 40 economists was for a 5 percent gain, with the highest estimate at 9.2 percent, after November’s 2.9 percent growth. Goldman Sachs, ranked by Bloomberg as the most accurate forecaster for the indicator, projected a 7 percent rise.

The increase, which was the biggest since May, could indicate exporters’ rush to finish year-end orders and government pressure to report exports before the end of the year to reach the government’s 2012 target of 10 percent growth, Shen Jianguang, Mizuho’s Hong Kong-based chief Asia economist, said in a Jan. 10 note.

A possible explanation for how Chinese companies are cooking their export books comes from none other than Goldman:

“It is possible that local governments may have tried to boost exports data by either making round trips in special trade zones” or by exporting “earlier than otherwise in an attempt to improve the annual exports data,” Goldman Sachs’ Beijing- based economists Yu Song and Yin Zhang wrote the same day.

Rushed shipments and even faked exports to secure tax refunds may have contributed to the stronger growth data, according to Alistair Thornton and Ren Xianfang, Beijing-based analysts at IHS Inc.

Some trading companies are turning to transportation providers like Shenzhen Global Express Logistics Ltd. for help in shipping goods through so-called bonded zones to claim export tax rebates or charge higher import prices for goods without them physically leaving the country. Shenzhen Global offers customs clearing and other freight services including a “one-day tour,” Lin Yongtai, a manager with the company in the city bordering Hong Kong, said in a telephone interview.

For a fee of 1,000 yuan ($161) per vehicle per day, the company will drive trucks into warehouses in bonded zones, where cargo must clear customs, so that businesses can obtain a refund of value-added tax on the “export” of their products or boost sale prices for goods that carry the cachet of being imported.

“A poor villager can boast he has thousands of yuan of turnover every day, but people later discover he only has one bull -- he takes the bull out every morning and brings it back every evening,” Lin said. “The same applies to some parts of China’s foreign trade.

Of course, there is also the simple test of matching one country's exports to another one's imports (after all, it is a closed loop). Once more, it appears that China is literally pulling numbers out of thin air:

UBS economists led by Hong Kong-based Wang Tao pointed to a “quite obvious discrepancy” in the growth of China’s exports to Taiwan and South Korea and those economies’ reported imports from China in recent months, even as historically they have tracked each other well.

Finally, that China is openly making up numbers is no surprise: it will continue doing that until, like everywhere else, the discrepancy between perception and reality (usually manifested in the case of China by a lot of angry people breaking something or simply rioting) becomes too glaring for even the most optimistically inclined to ignore.

What is a surprise is that it is none other than the banks - the primary carriers of the status quo gene - who are implicitly pulling the rug out from beneath the economy that is supposed to once again, as in 2008 and 2009, provide the bridge from a contracting "here" to a growing "there."

The question is why?

Is this an attempt to undermine the Chinese leadership which has so far merely sought to grow the economy by fiscal stimuli, while avoiding monetary ones: i.e., finally get the PBOC involved in not only growing the money supply (if not the economy), but in joining the rest of the world's central banks in a race to debase? And if indeed this is the case, what happens when China begins growing its own local inflation in addition to importing everyone else's.

Or is it a way to force a drop in a market that hangs on to every piece of good news like a drowning meth addict clutching at the tiniest of straws, allowing the same "skepticism-inducing" banks to buy at cheaper prices?

Or, more likely, is this merely a red herring to be used as a scapegoat when the latest dead cat bounce, so optimistically telegraphed by every sell side strategist, fails to materialize once more? After all: when in doubt, blame it all on the upcoming debt ceiling fiasco, and now: made up Chinese data.

We are confident we will get the answer very soon.

Your rating: None

Get Gold Now: “I Remember 1980… They Were Lined Up Around the Block”

Mainstream financial analysts want us to believe that gold’s unprecedented rise throughout the last decade is almost over – that it is just another bubble soon to pop. Central banks, state-sponsored economists and many well respected high dollar investors have all tried to convince us that there is no more upside for precious metals, often arguing that the 5,000 year-old relics are but worthless metals – not money.

The interesting thing is they’ve been saying that repeatedly, since before the financial crisis was ever recognized. Yet, gold has continued to rise unabated.

In the following Future Money Trends interview, well respected investment analyst Jay Taylor of MiningStocks.com discusses this powerful trend in gold, the government manipulation of the financial and economic system, the importance of diversifying your wealth, why precious metals are a good investment, some ideas for investors, and the signs you’ll see when gold does finally become a “bubble.”

A lot of the establishment would have us believe gold is already in a bubble.

But if you look at the supply of gold above ground relative to the amount of money that’s been created, it’s money and it’s the bond market that’s in a bubble.

Yes, I suppose that one day that could happen.

I remember 1980, when gold went from $35 a few years earlier to $850.

I remember that time there was panic buying of gold by people in the streets of New York City. They were lined up around the block… to buy gold and Krugerrands at that time.

I don’t see anything like that now.

If I walk down the streets of New York and ask people, “do you think you should have five or ten  percent of your portfolio in gold,” most people would say, “No, no way. That’s ridiculous. It doesn’t pay you any interest. Why would you own the stupid stuff?”

So, I think we’re a long way away from that bubble.

I think people in the rest of the world and don’t trust their politicians to the extent that Americans do, are buying gold.

Certainly the Chinese are…

I suppose that we could see a bubble at some time.

I suppose that, as we saw in 1980, there will be huge amounts of people that finally lose confidence and throw in the towel on the policy makers.

And, then there will be a rush to gold like we’ve  never seen before.

And when people start to insist on delivery of their gold… for the huge amounts of paper that’s out there in the futures markets… And if those people on the buy side want to take delivery… the price is going to go to the moon. I really believe that.

Via: FutureMoneyTrends.com

As an asset of last resort, precious metals like gold and silver have always been worth something. With the fiscal and monetary policies currently under implementation around the world, along with literally trillions of dollars in unserviceable debt, it wouldn’t take much to set off a panic buying spree in gold.

In the last 30 days, since the Newtown school shootings, panic buying has left gun stores across the country with nothing on their shelves and back-orders of six months or more. Tens of thousands of Americans have been lining up outside of firearms shops and gun shows, grabbing up anything they can get their hands on.

That’s what it looks like when the entire consciousness of a nation suddenly shifts.

That’s what it looks like when hundreds of millions of dollars of capital are rapidly reallocated.

One day in the not too distant future, the people of this country and around the world are going to come to the realization that our governments, central banks and state-sponsored financial institutions have been playing a shell game – that it’s all been one grand manipulation.

Confidence in our government’s ability to manage this crisis will be lost.

When that happens, as Jay Taylor notes, “there will be a rush to gold like we’ve  never seen before.” Precious metals dealers and coin shops all over the globe will sell out of inventory.

As we’ve seen with popular assault rifles, ammunition and accessories recently, this shift of capital will lead to almost immediate price increases, and subsequently more public interest and panic buying.

There will be a bubble in gold – perhaps one of the biggest asset bubbles we’ve ever seen.

But we’re not there yet.

When you see lines of anxious shoppers waiting around the block to get in to your local bullion exchange and when stocks in exploration and mining companies jump hundreds of percentage points in just a few weeks time, then you’ll know we’ve reached bubble levels.

If you haven’t acquired some gold and silver assets by then, it’ll be too late.

Get gold now.

Financial Manipulation? Hedge Fund Operations Are Affecting the Gold Market

The price of gold has been kept down by hedge fund redemptions. These redemptions will end in a week and after that a nasty hand that has been holding the price of gold down will be lifted. As we begin this new year news is starting to trickle out demonstrating that hedge funds as a whole have had a horrid performance last year.

According to incoming data nine out of ten hedge funds failed to beat the S&P 500 last year. According to a recent report by Goldman Sachs their average return was 8% while the S&P 500 posted a 13% gain for 2012.

What is worse is that the third worst fund tracked by HSBC was the Paulson Advantage Fund. This fund of 19 billion dollars lost 19% last year due to bets that the European euro crisis would continue and that gold would rise. It is one of the largest holders of the SPDR Gold Trust ETF (NYSE: GLD) and has been forced to meet investor redemptions.

These redemptions have undoubtedly caused selling in GLD in the past few weeks and will probably continue to hold gold prices down for another week. John Paulson also runs a gold fund that gave its investors a negative 25% return last year too. Paulson is not the only hedge fund manager facing big losses being forced to sell to meet investor redemption requests.

Most funds though didn’t generate huge losses, their program trading algorithms simply failed to beat the market. Ironically a few funds did beat the market last year by investing in places others wouldn’t. Dan Loeb’s Third Point hedge fund posted a 21% gain in 2012 by betting big on Yahoo and by buying Greek bonds. Pine River Capital Management also made 30% by holding depressed mortgage securities.

If you are a gold investor I do not think you should worry. Gold prices peaked out in the Fall of 2011 and since then have been consolidating in what I believe is a mere pause in a long-term secular bull market. The price of gold now has resistance at 1800 and support in the 1550-1600 zone. I think it will likely break out above its 1800 resistance level later this year, probably in the summer, and then begin a new bull run.

I know it’s easy to get anxious and worried when you see gold just slug around. I want you to know that much of the recent selling from hedge funds will soon be over. That will take one force of selling in gold out of the market. For disclosure purposes I have a position in GLD. We have seen several similar periods of consolidation in this secular gold bull market that have lasted well over a year. This one will come to an end the same way they did – with gold prices reigniting and leaving those that doubt the power of gold behind.

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Interview 895 — The Geneva Business Insider with David L. Smith

This month on The Geneva Business Insider, James Corbett and David L. Smith cover the recent EU parliamentary elections and the rise of the Euroskeptics as a political force. We also discuss the Scottish independence movement, the rising mainstream awareness of gold price manipulation, and an ominous meeting of globalists in London on "fairer capitalism."

The Federal Reserve Has No Integrity

Paul Craig Roberts and Dave Kranzler As we documented in previous articles, the gold price is driven down in the paper futures market by naked short selling by the Fed’s dependent bullion banks. Some people have a hard time accepting…

The post The Federal Reserve Has No Integrity appeared first on PaulCraigRoberts.org.

Market Manipulations Become More Extreme, More Desperate

Paul Craig Roberts and Dave Kranzler In two recent articles we explained the hows and whys of gold price manipulation. The manipulations are becoming more and more blatant. On February 6 the prices of gold and stock market futures were…

The post Market Manipulations Become More Extreme, More Desperate appeared first on PaulCraigRoberts.org.

Why is the Fed tapering?

Why is the Fed tapering? Paul Craig Roberts and Dave Kranzler On January 17, 2014, we explained “The Hows and Whys of Gold Price Manipulation.” http://www.paulcraigroberts.org/2014/01/17/hows-whys-gold-price-manipulation/ In former times, the rise in the gold price was held down by central…

The post Why is the Fed tapering? appeared first on PaulCraigRoberts.org.

Four-Letter “G” Word Discussed on TV

The title of the video clip under review and subject of their discussion is: “Would returning to the gold standard end currency wars?”  Obviously, countries which use gold as money would have to accept the fact that gold cannot be devalued.  This would be a huge improvement over today.

Michael Woolfolk from Bank of New York Mellon takes the anti-gold position, and Komal Sri-Kumar from Sri-Kumar Global Strategies is pro-gold.  Mr. Woolfolk seems the perfect representative of the establishment.  He works for a major bank and just wants to continue the status quo, though as most do, he has some quibbles with it.  While he admits that there is no long-term benefit to “currency wars”, he asserts that there is a short-term benefit.

Mr. Sri-Kumar, answers Mr. Woolfolk as he deserves.  Nothing good comes from robbing savers and productive enterprise via devaluation, in the short term or in the long term.  Unfortunately, he is not a great representative of the gold standard, as we shall see below.

Mahatma Ghandi once said, “First they ignore you, then they laugh at you, then they fight you, then you win.”  In this Bloomberg video clip, we see that we are currently somewhere between laughing and fighting.   Gold can no longer be ignored.

Mr. Woolfolk seems barely able to conceal his contempt at times.  In rebutting Mr. Sri-Kumar, he interrupts “but you can’t do that [adopt gold]… right?”  His face flickers to a smirk, which he quickly suppresses.  “I mean the value of gold would have to be astronomically high to be able to back the money supply.”  He adds,  “Wouldn’t it?”  He takes on a tone of exaggerated patience.

Mr. Woolfolk says we don’t have enough gold.  Whenever I hear that, I always feel an urge to ask three questions.  First, How much gold do you think we have?  Second, how much do you think we would need to have?  And finally, how did you arrive at these numbers?  There is little point in spending further electrons dwelling on Mr. Woolfolk.

Mr. Sri-Kumar made a point that I think is under-appreciated: central banks create uncertainty.  I would add that economic calculation as such is impossible under paper.  A construction worker cannot use a rubber band to measure the length of a beam; he must use a steel tape.  An accountant cannot use a rubber dollar to measure the worth of an enterprise; he must use gold.  Well, today, they do try to use dollars, but there is a systemic bias towards overstating profits and understating losses.

Unfortunately, Mr. Sri-Kumar’s main idea is wrong.  He wants governments to fix the price of gold.  He even claims he knows the magic number: $1675 per ounce.  Mr. Sri-Kumar and everyone else should be reminded that price fixing never works (and the price is always fluctuating in a free market).

Apart from this fatal problem with price fixing, government always gets the wrong price for two reasons.  First, they don’t have perfect information, and second there are special interest lobbyists.  Imagine the debate in Washington about a fixed gold price.  Debtors would want the price to be high, so they could liquidate their debts with as little gold as possible.  Creditors would want the gold price set low, so they can get more gold out of their counterparties.  The fighting between the special interest groups would be like the shoot-out at the OK Corral!

Mr. Sri-Kumar proposes to return to the last throes of the terminal gold standard, the twisted husk known as the “Bretton Woods System”.  In this system, it was a criminal offense punishable by imprisonment for a US citizen to own gold.  While Mr. Sri-Kumar did not endorse this particular feature, it is a necessary feature because otherwise unpredictable people could begin buying gold and force governments to either let the price rise or else drain their reserves of gold.

In Bretton-Woods, the dollar was redeemable only by foreign central banks.  Those banks were indeed redeeming, at an accelerating pace.  By 1971, they were bringing enough dollars to the US to take home over 100 tons per day.  The US government was within a few months or running out of gold at that rate.  President Nixon made his fateful decision to “temporarily” suspend redeemability as a response to this monetary crisis.

The failure of Bretton-Woods was inevitable.  Economists Jacques Rueff and Robert Triffin predicted it many years before it happened.

covered some of the problems of the pre-1913 gold standard, but it was superior in every way to Bretton Woods.  It certainly did not self-destruct.

It’s good that Mr. Sri-Kumar pointed out that there cannot be debasement and thus endemically rising prices under gold.  But there is much more to be said, if we are to avoid the fate of Rome.  The next time Bloomberg needs someone to talk about the gold standard, let’s hope they pick someone who  understands it fully. 

For those who are interested, I published a video yesterday discussing an important consequence of irredeemable dollar: the system is collapsing under the weight of the rising debt.

Frontrunning: January 22

  • Geithner allegations beg Fed reform (Reuters)
  • BOJ Adopts Abe’s 2% Target in Commitment to End Deflation (BBG)
  • Bundesbank Head Cautions Japan (WSJ)
  • In speech, Obama pushes activist government and takes on far right (Reuters)
  • Atari’s U.S. Operations File for Chapter 11 Bankruptcy (BBG)
  • Israel goes to polls, set to re-elect Netanyahu (Reuters)
  • Apple May Face First Profit Drop in Decade as IPhone Slows (BBG)
  • EU states get blessing for financial trading tax (Reuters)
  • Indian Jeweler Becomes Billionaire as Gold Price Surges (BBG)
  • Europe Stocks Fall; Deutsche Bank Drops on Bafin Request (BBG)
  • Algeria vows to fight Qaeda after 38 workers killed (Reuters)
  • GS Yuasa Searched After Boeing 787s Are Grounded (BBG)
  • Slumping pigment demand eats into DuPont's profit (Reuters)

Overnight Media Digest

WSJ

* U.S. President Barack Obama began his second term on Monday by setting an agenda for the next four years built on bedrock Democratic social policies, in a provocative speech coming at a time of deep partisanship in the capital and lingering economic uncertainty across the country.

* Jonathan Baum, chairman and chief executive of Bank of New York Mellon Corp's mutual-fund unit, has left the firm, the company said Monday.

* International investigations into the battery malfunctions that grounded Boeing Co's 787 jet are accelerating, with U.S. and Japanese experts pursuing some new and possibly differing leads.

* Wal-Mart Stores Inc is warning suppliers that it is adopting a "zero tolerance policy" for violations of its global sourcing standards, and soon plans to immediately sever ties with anyone who subcontracts work to factories without the retailer's knowledge.

* Japan's central bank agreed to adopt a 2 percent inflation target and strengthened its monetary-easing program in a bid to rid the economy of long-running deflationary pressures.

* Bundesbank President Jens Weidmann warned Japan not to "politicize" its exchange rate by pursuing an overly aggressive monetary policy, reflecting mounting concern in Europe that other central banks may cheapen their currencies as a means of stimulating economic growth.

* Federal officials are expected to slap a Deutsche Bank AG unit with a $1.5 million penalty in coming days after concluding that its energy-trading arm extracted illicit profits from the California electricity marketplace in 2010.

* Mary Jo White, who made her name pursuing terrorists, mobsters and white-collar criminals as a federal prosecutor in New York, is the Obama administration's likely pick to lead the Securities and Exchange Commission, according to people familiar with the administration's search.

* House Republicans on Monday moved to extend U.S. borrowing authority until May 19, setting a timeline for the next phase of budget wrangling between the White House and Congress.

FT

RULES ON OFFICE-FLAT CONVERSION TO EASE Developers will be able to convert office buildings into blocks of flats without asking councils for permission under radical changes to the English planning system. (link.reuters.com/keh45t) WEIDMANN WARNS OF CURRENCY WAR RISK The erosion of central bank independence around the world threatens to unleash a round of competitive exchange rate devaluations, which leading economies have so far avoided during the financial crisis, the president of Germany's Bundesbank warned. (link.reuters.com/qeh45t)

OBAMA DEFENDS ROLE OF STRONG GOVERNMENT Barack Obama mounted a vigorous defence of interventionist government and the role of a social safety net in an uplifting and uncompromising speech that marked the formal opening of his second term as president. (link.reuters.com/seh45t) HEATHROW AND BA DID NOT ACT ON SNOW ALERT The operator of Heathrow and airlines led by British Airways decided against taking pre-emptive measures to deal with snow that could have prevented the airport's descent into chaos on Friday, the Financial Times has learnt. (link.reuters.com/heh45t)

GRADE TO STEP DOWN AS OCADO CHAIRMAN Online grocer Ocado will reveal on Tuesday that Michael Grade will step down as chairman later this year. Grade has been chairman of Ocado for seven years and brought the lossmaking company to market in an 800 million pound float three years ago. (link.reuters.com/geh45t)

HUAWEI IN PLEDGE TO DISCLOSE MORE INFORMATION Huawei has pledged to start disclosing more detailed financial and shareholding information as the Chinese telecoms equipment maker tries to dispel fears over suspected ties to the Chinese military, which are hampering its global expansion. (link.reuters.com/veh45t)

FRUIT FARMERS LOOK TO FOREIGN LABOUR INFLUX British ministers are under pressure to allow migrant workers from Russia, Ukraine and Turkey into the UK to mitigate a predicted shortage of fruit pickers which is threatening the 3 billion pounds a year horticulture industry. (link.reuters.com/duh45t)

NYT

* U.S. President Barack Obama ceremonially opened his second term on
Monday with an assertive Inaugural Address, arguing that "preserving our
individual freedoms ultimately requires collective action."

*
The Bank of Japan set an ambitious 2 percent inflation target and
pledged to ease monetary policy "decisively" by introducing open-ended
asset purchases, following intense pressure from the country's audacious
new prime minister, Shinzo Abe.

* As Facebook and Twitter
become as central to workplace conversation as the company cafeteria,
federal regulators are ordering employers to scale back policies that
limit what workers can say online. The agency has pushed companies
nationwide, including giants like General Motors, Target Corp and
Costco, to rewrite their social media rules.

* Aerospace
represents the latest frontier for China, which is eyeing parts
manufacturers, materials producers, leasing businesses, cargo airlines
and airport operators. The country now rivals the United States as a
market for civilian airliners. And the new leadership named has publicly
emphasized long-range missiles and other aerospace programs in its push
for military modernization.

* Atari's U.S. unit, Atari
Interactive, filed for Chapter 11 protection on Monday as part of an
effort to cleave itself from its French parent.

* After four
months of fierce bidding between two Asian tycoons, a
multibillion-dollar battle for control of Fraser & Neave appears to
have reached its end. A bidding deadline on Monday evening came and
went, meaning the victor will probably be TCC Assets, which is
controlled by Charoen Sirivadhanabhakdi of Thailand.

* The
Maloof family has agreed to sell a controlling stake in the Sacramento
Kings, one of the NBA's most troubled and well-traveled franchises, to
an investment group led by Christopher Hansen, a hedge fund manager who
intends to move the team to Seattle by next season and rename them the
SuperSonics.

* A report from the International Labor
Organization predicted jobless levels to rise to 202 million worldwide
this year, and said government budget-balancing was hurting employment.

*
Jeroen Dijsselbloem, the new president of the group of ministers
overseeing the euro, said on Monday he wanted to heal the rift over
austerity policies that had bred mistrust between southern and northern
nations using the currency

Canada

THE GLOBE AND MAIL

* The demand for university education is not slowing down, as high school students continue to apply to Ontario institutions in record numbers. Preliminary figures released by the Ontario Universities' Application Centre showed that the number of high school students applying to first-year programs in the fall climbed by 2.4 per cent over the previous year.

* Cable sweepers and "hydrophobic" coatings are part of the British Columbia government's new plan to winterize the Port Mann Bridge, where last month vehicles and motorists were pummelled with ice falling from overhead cables. More than 340 insurance claims have been filed since the Dec. 19 snowstorm, according to ICBC spokesman Adam Grossman.

Reports in the business section:

* Rona Inc's two largest shareholders are taking matters into their own hands, installing a turnaround expert who is familiar with reducing costs to lead the board of directors.

The hardware retailer named Robert Chevrier as executive chairman, replacing Robert Paré, a Montreal lawyer who took the chairman's role in May, but who had little retail or operational experience.

* Sun News Network is pinning its hopes for survival on a ruling by Canada's broadcast regulator. Canada's newest and most controversial news channel has argued its signal must be broadcast into every Canadian home if it is ever going to recover from losses that have already reached C$17 million a year.

NATIONAL POST

* Canadian Prime Minister Stephen Harper's government said on Monday it will not include Governor General David Johnston in any future policy discussions with First Nations, further clouding its battle of wills with aboriginal leaders.

* Dan Ross, the former assistant deputy minister of defence materiel, has blamed the Stephen Harper government's culture of secrecy and a lack of accountability at all levels for the failure of the F-35 stealth fighter program.

FINANCIAL POST

* Bank of Canada will deliver a one-two punch on Wednesday, combining its latest interest rate decision with the central bank's latest quarterly outlook for the domestic and global economies.

* The Alberta provincial government said on Monday that its March 7 budget for 2013-14 will make a course correction from big spending to big belt tightening as a shortage of pipeline space and competition in oil production in the United States have tempered the surge in global oil prices.

China

CHINA SECURITIES JOURNAL

--A total of 1,271 funds in 70 fund companies made profits of 104.6 billion yuan ($16.81 billion) in the fourth quarter of last year, from a loss of 179.6 billion yuan in the third quarter, data showed.

--China's National Development and Reform Commission said it will reduce credit card comissions next month, with analysts expecting it could help merchants save 4 billion yuan a year.

SHANGHAI SECURITIES NEWS

--A netizen has demanded U.S. fruit distributor Chiquita explain why slices of apples sold in FamilyMart stores in Shanghai fail to turn brown after 80 hours, sparking a debate online whether the steps Chiquita is taking to protect apple slices from oxidizing are unhealthy.

SHANGHAI DAILY (www.chinadaily.com.cn)

--Subsidised license plates for new energy vehicles in Shanghai received a lukewarm welcome, with only one customer applying for the plates on the first day they were made available.

CHINA DAILY (www.chinadaily.com.cn)

--Chinese vehicle exports topped 1 million units for the first time in 2012, up 29.7 percent.

--Shanghai saw a contraction in total trade in 2012, the first time in three years.

PEOPLE'S DAILY

--China's central government will invest 122.2 billion yuan to support the domestic spring ploughing industry, the finance ministry said.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

ASML (ASML) upgraded to Buy from Hold at ABN Amro
ASML (ASML) upgraded to Hold from Sell at Deutsche Bank
Bank of Kentucky (BKYF) upgraded to Outperform from Neutral at RW Baird
Goodrich Petroleum (GDP) upgraded to Outperform from Market Perform at BMO Capital
Precision Castparts (PCP) upgraded to Buy from Neutral at UBS
Research in Motion (RIMM) upgraded to Outperform from Sector Perform at Scotia Capital
Viacom (VIAB) upgraded to Buy from Neutral at Goldman
VimpelCom (VIP) upgraded to Overweight from Neutral at HSBC
WESCO (WCC) upgraded to Outperform from Neutral at Credit Suisse

Downgrades

ARM Holdings (ARMH) downgraded to Hold from Buy at Benchmark Co.
Amgen (AMGN) downgraded to Neutral from Outperform at Credit Suisse
Becton Dickinson (BDX) downgraded to Neutral from Buy at Mizuho
Diamond Offshore (DO) downgraded to Neutral from Outperform at Credit Suisse
F5 Networks (FFIV) downgraded to Hold from Buy at Needham
FirstEnergy (FE) downgraded to Underperform from Hold at Jefferies
Fortinet (FTNT) downgraded to Market Perform from Outperform at JMP Securities
LRR Energy (LRE) downgraded to Neutral from Outperform at RW Baird
Och-Ziff Capital (OZM) downgraded to Market Perform from Outperform at Keefe Bruyette
Open Text (OTEX) downgraded to Hold from Buy at Stifel Nicolaus
Roche (RHHBY) downgraded to Neutral from Outperform at Exane BNP Paribas
Trinity Biotech (TRIB) downgraded to Neutral from Buy at Roth Capital
Urban Outfitters (URBN) downgraded to Neutral from Overweight at Atlantic Equities
Uroplasty (UPI) downgraded to Market Perform from Outperform at JMP Securities

Initiations

ExactTarget (ET) initiated with an Outperform at Credit Suisse
LivePerson (LPSN) initiated with a Neutral at Credit Suisse
PBF Energy (PBF) initiated with a Hold at Deutsche Bank
PBF Energy (PBF) initiated with an Outperform at Credit Suisse
S&W Seed (SANW) initiated with an Overweight at Piper Jaffray
Verint Systems (VRNT) initiated with a Neutral at Credit Suisse

HOT STOCKS

Ericsson (ERIC) to acquire IT services capabilities from Devoteam in France
KKR (KKR), Blackstone (BX) said to be among those in talks for Life Technologies (LIFE), Bloomberg reports
Caterpillar (CAT) to record $580M goodwill impairment charge in Q4
Shaw Communications (SJR) reported Shaw family acquired 750,000 class B shares
SeaCube (BOX) to be acquired by Ontario Teachers' Pension for $23 per share
NeoPhotonics (NPTN) subsidiary to acquire OCU unit from LAPIS Seminconductor for $36.8M
BGI-Shenzhen extended tender offer for Complete Genomics (GNOM)
FDA approved Botox (AGN) to treat overactive bladder
FDA approved Mallinckrodt's (COV) Gablofen prefilled syringe
OM Group (OMG) divested Advanced Materials business for up to $435M (FCX)
DaVita (DVA) formed JV with RHC in Taiwan
Daimler AG (DDAIF) created subsidiary for innovative mobility services
Pearson (PSO) sees tough market conditions continuing into 2013

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
DuPont (DD), Signature Bank (SBNY), TAL Education (XRS)

Companies that missed consensus earnings expectations include:
Verizon (VZ), Sierra Bancorp (BSRR)

NEWSPAPERS/WEBSITES

International investigations into the battery troubles that grounded Boeing’s (BA) Dreamliner 787, are growing, with U.S. and Japanese experts pursuing some new and possibly differing leads, the Wall Street Journal reports
Apple’s (AAPL) future is getting harder to read. Their move into new markets and its more complex supply chain are making its growth prospects more difficult to understand and predict, say longtime investors and analysts, the Wall Street Journal reports
Microsoft (MSFT) CEO Steve Ballmer is not the right leader for the software company but holds his grip on it by systematically forcing out any rising manager who challenges his authority, claims former senior executive Joachim Kempin, who has written a book about his time at the company, Reuters reports
South Africa's Competition Tribunal today gave the green light to the proposed takeover of global miner Xstrata (XSRAY) by Glencore (GLNCY). But the tribunal attached some conditions to the $33B deal to limit the merger's impact on job losses in the mining sector, Reuters reports
Consumption of high fructose corn syrup, used to sweeten products from Coca-Cola (KO) to H.J. Heinz (HNZ) ketchup and linked to obesity, is falling in the U.S. as health-conscious consumers drink less soda, Bloomberg reports
The world’s biggest investors are moving away from allocating money to government bond markets based on their amount of debt, a strategy that has favored the largest borrowers for three decades, Bloomberg reports

BARRON’S

A $14 per share LBO undervalues Dell (DELL)
Rockwell Automation, ABB provide good opportunities for robotics (ROK, ABB, ADEP, CGNX)
Crocs' (CROX) operational shifts could raise 2013 EPS by 11% to $1.55
Fossil (FOSL) could reach over $120 per share as earnings are reported
Data usage providing return on LTE investment for Verizon (VZ), AT&T (T)
Intel's (INTC) “branch prediction” on hybrid PCs a risky move

SYNDICATE

Performant Financial (PFMT) files to sell 7M shares of common stock

Your rating: None

Midas’ Commentary for Friday, Januaray 11 – “An Ape Man Could see It”

January 11 - $1660 down $17.30 - Silver $30.37 down 51 cents

 

An Ape Man Could See It

 

“Recent smashdowns in the gold futures markets have triggered enormous buying of real metal, causing Swiss refineries to fall far behind in deliveries.”  …  Swiss gold fund manager Egon von Greyerz

 

GO GATA!

 

The question many of us had going into today was whether the no follow-through allowed rule would be implemented yet again by The Gold Cartel for the zillionth time in a row. The odds of them preventing the price of gold trading like any other free market were off the charts in their favor and they didn’t fail to deliver.

 

It began in the most noticeable of fashions in the Access Market yesterday and then continued when The Gold Cartel traders reported for work in London … giving us PLAN A of course.

 

Then, a lousy US trade number…

 

Jan. 11, 2013, 8:30 a.m. EST
U.S. trade deficit widens 15.8% to $48.7 billion

 

… fueled a further sharp rise in the euro. So gold, which had dipped to $1667 (giving up half its gains of yesterday) rocketed back to the unchanged area when the goon squad reappeared and the price was sent right back down. Not only sent back down, but smashed with another waterfall raid…

 

At one point gold was pushed back to $1655, which means all of its gains of yesterday were lost in an hour of Comex trading following yesterday’s close. The ludicrous reason offered by The Muppets for the fall will probably be this one…
 
DJ Fed's Plosser: Wants Fed To Tighten Before Most On FOMC

Fri Jan 11 09:30:04 2013 EDT

SOMERSET, N.J.--The leader of the Federal Reserve Bank of Philadelphia
worried Friday that the central bank won't raise rates soon enough to prevent a
future inflation problem.

  While he doesn't expect inflation to rise above the Fed's 2% goal,
Philadelphia Fed President Charles Plosser said, "this expectation is based on
my assessment that the appropriate monetary policy is likely to tighten more
quickly than the Committee anticipated in its latest statement."

  Because of the divergence between outlooks, Mr. Plosser said he sees "some
risks to inflation in the medium to longer run, given the current stance and
anticipated path of monetary policy."

  Mr. Plosser's comments came from the text of a speech prepared for delivery
before a gathering held by the New Jersey Bankers Association, in Somerset,
N.J. The official isn't currently a voting member of the monetary policy
setting Federal Open Market Committee…

-END-

You have to be kidding me! How many times is The Gold Cartel going to go to their well to raid gold on hypothetical Fed talk? This guy is not even a voting member.

As mentioned on the last hypothetical Fedspeak raid, only gold and silver were affected today. If there was meat to what they are feeding into the market, in coordination with this The Gold Cartel intervention, ALL the markets would be affected, not just gold and silver. But, the euro didn’t budge off its early highs and the DOW barely blinked. Can’t gold beat reporters count to ten?

The gold market has been trading in such a predictable, Gold Cartel influenced way for so long now (EVERY DAY they can be spotted), an ape man could see it. But, since the mainstream gold world pundits do not have the intelligence of an ape man, they never report on what is really going on.

This Kitco guy couldn’t even count before the big hit…

Gold Lower on Chart Consolidation, Bearish Outside Markets - Kitco News, Jan 11 2013 8:21AM

..the key outside markets are also in a bearish posture for the precious metals Friday morning, as the U.S. dollar index is firmer..

-END-

But, not true … look at what his own website showed the dollar trading:

USD 79.45 -0.31

Dave from Denver’s take on the Plosser speech…

This is ridiculous

Plosser says in a speech that inflation is a risk if the Fed doesn't tighten sooner than is reflected in the latest FOMC minutes? He's projecting 3% GDP growth for 2013.

Is this guy living in a cave on Mars? I guess he doesn't follow business and economic news, because the trade deficit for November released today was significantly higher than expected. In fact, the trade deficit was 20% higher than was forecast by Wall Street's brain trust. I can't recall EVER seeing a miss this big to the downside for import/export numbers. The reason cited was Iphones, but that's absurd because 1) Iphone 5 sales have disappointed so far and 2) Import forecasts would have incorporated assumptions about the affect of Iphone 5 sales. Conceptually what this means is that the rest of the world is buying less U.S. exported goods and the U.S. isn't manufacturing the goods being demanded by U.S. consumers. What this means is that manufacturing, one of the primary drivers of GDP outside of consumption, is still declining. It means that anyone who asserts that GDP for 3% is either living in a cave on Mars or is lying, for whatever motive.

What does this mean, it means that GDP esitmates for Q4 will likely be revised to below 1%. Moreover, it is generally acknowledged now that holiday sales for 2012 were disappointing. The consumer is largely tapped out, the number of people dependent on the Govt for living expenses (food stamps, general welfare, social security, social security disability and student loans) rises every month.

Please tell me, Mr. Plosser, where exactly is this GDP growth of 3% going to come from given that the trend in GDP going into 2013 is declining, 1% or less and the main driver of GDP over the last 12 years - consumption - is quickly eroding.

Jim Sinclair calls this nonsense "MOPE." Management Of Perception Economics." Everyone else calls this "Orwellian." This smack on silver is a table-pounding buy.

***

It seemed to me before yesterday’s rally that the waterfall bombings ought to be over for now because the physical markets were just too firm at the bombed out levels. Maybe down there, but not so at higher levels as today was clearly another financial market terrorist attack, attacks which continue to unnerve those on the long side because they occur for no reason and cause huge losses in the futures markets in seconds.

Gold’s eventual low was $1652.70, while silver was trashed to $30.07 before recovering to some degree.  Nothing has been done to change the technicals in terms of the bottom formations in each precious metal. But those breakouts mentioned yesterday were shattered.

James Mc lays it all out…

Cartel checklist- 10 for 10

Bill,
1% cap job - check.
Weak trade into the access trade close signaling the next day - check.
No follow through allowed - check.
Gold plummets on bullish news, weak USD - check.
Flash crash for no discernable reason - check.
Down, hard following 1% rally - check.
Lower PM fix than AM fix - check.
Technical points rendered irrelevant - check.
Fresh spec longs mowed down - check.
CFTC as co-conspirators - check.

Just a hop, skip, and a jump now from Feb. op. ex. and FND. Ya think one in a million describes the odds of $1,700 gold by then? It's obvious that the intensity of the rigging is commensurate to the intensity of investors wanting gold. As such, and based on days like today, gold bullishness must be off the charts. Of course like all other charts the cartel renders them meaningless.
James Mc

Everyone in the mainstream gold world should read what James Mc put out today and keeps bringing to our attention. The ape man doesn’t have to read it. It is too easy to spot for him.

Pimco’s Mohammed El-Erian knows exactly what James is talking about and even uses the “M” word regarding markets, but doesn’t go into any specifics…

Ft.com
Beware the ‘central bank put’
By Mohamed El-Erian

Mohamed El-Erian on the split between prices and fundamentals

The investment recommendations made by many financial commentators are now dominated by cross-asset class relative valuation rather than the fundamentals of the investment itself. A typical refrain runs something like this: buy X because it is cheaper than other things out there. This is an understandable approach as unusual central bank activism has artificially elevated certain asset prices. Yet the dominance of this increasingly popular advice comes with potential risks that need to be well understood and well managed.
High quality global journalism requires investment.

Several asset classes now have highly manipulated prices due to experimental central bank activities, both actual and signalled. The more this happens, the more investors come under pressure to migrate to higher risk investments in search of returns. Ben Bernanke, Federal Reserve chairman, said as much at his latest press conference, noting that the aim of policy is to “push” investors to take more risk. True to his wish, many pundits seem eager to discard fundamentals in favour of searching for (and levering) anything that “yields” more…

http://www.ft.com/intl/cms/s/0/bb66425c-54cf-11e2-89e0-00144feab49a.html...

-END-

The gold open interest rose 2564 contracts to 141,122, not that much for such an extensive move in the price. The silver open interest is back above Rocket Rich’s pivotal 140,000 mark, rising 2281 contracts to 141,122. On December 28, with the price of silver at $29.92, the MIDAS headline was:

SHOOT OUT AT OK CORRAL IS COMING

They are still shooting at The OK Corral, with JPM firing on rallies towards $31 and the physical buyers firing back when silver plunges towards $30, or takes that level out.

Behavioral Finance

*The yield on the 10 yr T note is 1.9%.

*Behavioral Finance is the same as Jim Sinclair’s MOPE. An ape man could see what is going on here too. Even the very visible, very establishment Mohamed El-Erian is willing to go there.

While we all are aggravated about what is going on here, there is a silver lining in it all.  TW has it right…

Today’s action

Dear Bill,
Please ignore my musings but the frequency of these waterfall attacks suggests that matters may be reaching a critical stage. If the gold price collapses then the cartel have won themselves some more time but the other possibility is that the bad guys are nearly all in and there’s not much more they can do. Also, behind all the shenanigans of the paper market is the real physical market (I always think of a large but slow flowing river) and these takedowns must be accelerating the physical off take and hence the end game. Testing times but I think something may be building.
Best regards
TW

For months  a number of us have cited the increased market manipulation intensity by The Gold Cartel and noted it wreaked of desperation. It went into high gear after October 4, 2012 with the price of gold threatening to take out the key $1800 level and silver managing a small close above its pivotal $35 level. The scene…

October 4 - Gold $1794.1 up $16.80 - Silver - $35.04 up 41 cents
That day the euro closed at 1.3017.

Who knows what else is going on behind the scenes, but what we do know is the US is looking more pathetic by the week and month in our inability to solve our fiscal deficit/growing debt problems. They are both out of control and nothing is being done about them. Meanwhile QE3 and DE4 are in full bloom. And based on the information sent our way, the demand for physical gold is stout, to put it mildly.

Yet, since October 4th the price of gold has fallen to $1660 with the price of silver dropping to  $30.37. 

But, the euro has RISEN to 1.3341. What gives? What about the pundits who kept saying the most important aspect affecting gold is a weaker dollar? Where are they now?

Daily euro
http://futures.tradingcharts.com/chart/E6/

Daily gold
http://futures.tradingcharts.com/chart/DG/

It is ignominious for the US to have the euro soaring like this against the dollar with all the problems they still have over there. There is a reason for it. As long mentioned here, there are NO SOLUTIONS for the US to our growing fiscal/debt issues which are acceptable to the American people and politicians. Kicking the can on tough fiscal issues, and manipulating our financial markets, is catching up to those doing so. Chaos is likely to breakout over these issues in the near future, and they know it. So, a bit of panic has set in. All they know to do is SHOOT THE MESSENGER; defuse the widely watched barometer of US financial market health, that being the gold price. It won’t be long before this nonsense catches up with them too.

Brian Meyers lays it out is coming in this NO SOLUTIONS time in the US…

The only choices available to 'put things right' are:

1) dramatically higher taxes
2) dramatically lower spending
3) dramatic cuts in entitlements
4) dramatically higher inflation

... or some combination, more likely. But only one of those 'options' is politically feasible: the one the public doesn't really understand and won't know who to blame (tho the gov will make plenty of table-pounding suggestions, to include China, the ME, etc... it's their fault, right?), inflation. Of course, against this is the massive deflationary pressures overhanging economy, and it has absolutely nothing to do with the business cycle. It has *everything* to do with 60 years of economic mismanagement.

In the end, the Fed will do *whatever is necessary* to inflate. Weimer-style hyperinflation is a definite possibility. Perhaps low-delta, but any delta on hyperinflation means a lot of someones have screwed up something huge.

***

A picture is worth a thousand words, as they say…

America on a Roll

Mexico Mike…

Ground Hog Day again

Hi Bill!
Today is yet another example of the Cartel standard operating procedure. There is no upside follow through allowed in the PM sector under any circumstances. Never mind that the dollar is dropping like a dying quail, or any other positive fundamentals. This is about management of investor sentiment and nothing more. And I would challenge any of the bozos that suggest there is no manipulation to
present a counter argument on why the reversals occur with such regularity to wipe out any significant gains in a prior session. For the small investors in this sector, every trading day is like another trip to the dentist.

The commentary that gold declined due to higher inflation in China is a joke. The Chinese have been among the most aggressive gold buyers on the planet in part due to their desire to have a bullion hedge to protect against inflation. The idea that any real selling would come from this news is a misrepresentation of the facts. But more
importantly, consider how that selling occurred. The usual high volume waterfall event, probably entirely manufactured from one seller dumping a large short order to destabilize the market. This has nothing to do with the Chinese, except perhaps to help them quietly buy more bullion in the aftermath at a discount.

Again I say, there is a shelf life to all of this nonsense. Perhaps investors in the West are clueless of what is going on. But the real bullion demand is coming from Asia and the Mideast and none of this market rigging is going to discourage these buyers. In fact it will probably encourage even more aggressive accumulation.

I cannot wait to see how the media presents the story when the eventual default event happens. Will it be the usual 'rogue trader' that is blamed for the failure to deliver? Or some accounting error to explain why millions of ounces of allocated bullion disappears from somewhere? Or, my favorite is that when a big bullion ETF blows up, they will point to the fine print and say it was always there in the contract that the unit holders could be settled out in cash only and not have a claim, when it is revealed that the bullion supposedly held by the fund is in actual fact just a book keeping entry.

There is not enough bullion coming out of the ground or available in this market to meet all of the outstanding claims and this situation becomes more acute with every waterfall selling event. Sooner or later one of the leveraged bullion scams is going to blow up like a hand grenade. It will be amusing to me when the analysts are running
around with their collective hair on fire in the aftermath. Just like the furor over the MFG collapse, everyone will be shocked it can happen and trying to find out how. Well folks, it is going on before your very eyes right now, for those who bother to look. Sure as the day follows the night, sooner or later one of the crooks is going to go too far and then there will no longer be the cover of tinfoil hat speculation to discount what we have been saying all along.

Have a great weekend Bill!
MexicoMike

MM is right on too, as is James Mc about these hideous waterfall attacks and constant price suppression being long in the tooth. We are gearing up for something spectacular on the precious metals upside, and it should not be too far off.

Perhaps this is why the gold/silver shares paid scant attention to today’s financial market terrorist attack. The XAU only fell .25 to 163.36. The HUI lost .32 to 322.05.

Dave from Denver is right on too. We have a mania coming. Hang in there!

GATA BE IN IT TO WIN IT!

Bill Murphy
www.LeMetropoleCafe.com

 

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