It is abundantly clear that a handful of the most powerful western Central Banks have lead a massive raid on gold using every dirty trick in the book to slow the inevitable march of non-debt encumbered money from appearing to be inevitable, which of course it is, regardless of their increasingly blatant, illegal and DESPERATE operations to manage their intractable systemic problems of opaque, dishonest and indebted policies of a system which can not function without ever increasing debt, a function largely born of removing any substantial backing to paper money and moving from a system of value based on productivity to one of value based only on debt.
One could argue why they would do this. Perhaps they realize they need QE immediately and they want to give the impression that we are entering a period of steep deflation to gain cover. How can you do QE when gold is signaling hyperinflation? Obviously the broader public doesn't realize and the mainstream media don't realize that gold will be even stronger if the US defaults on its debt obligations, which would then make US treasuries plummet and take the dollar with it. For those that don't think that could happen merely consider what happens to the debt service payments if we move to near interest rates to say 5% interest payments on $15 Trillion or $750 Billion. Hmm, that could take a byte out of the budget expenditures. How about at an interest rate of 10%? It doesn't take much in the way of credit down grades or expanding debt as a result of a slowing GDP and dropping tax revenues to make the US look like Greece II x 10,000
All the so called "austerity" measures will never be enough in either Europe or the US to achieve the required twin goals of GDP growth and deficit reduction because the fundamental operative premise of an economic system in which currency and GDP growth are based on ever expanding credit, i.e. debt and that is for multiple reasons. The first is that within any eco-system there are constraints to growth which is a function of energy, natural resources, size of the population and so forth. Due to the natural dynamics of a system based on consumption, debt and expansion, it is clear that within the constraints of the Earth eco-sphere and that the current system has reached a maximum in which this can continue. For the near term, the only way to prevent a sharp bounce off of this system before a better system of currency and economic activity based on natural constraints and a new paradigm of value outside of just jobs and growth and greed, in order to prevent market, social and other disorder, that thee is a need to provide further monetization and unconventional means of stimulus.
What I find strange is that if the fear is of mass deflation that these western banks want to pain a picture of deflation and thus accelerate the problem through attacking gold. I think it is probably because I over estimate the intelligence of the "central planners" and the inefficiency of a system which relies on them.
What is evident to me is that the consumer economy is highly dependent on government spending, government employees and that austerity is going to cause two things, a contracting GDP, lower tax revenues and an expanding budget.
All this taken together means one of two things:
1. The Central Planners devalue the currency in order to make the debt repayable at lowered debt levels via expanding the value of assets that are now deeply depressed like houses and thus inflate our way out of depression.
2. Allow deflation to take hold, allow all the global sovereign debt to default, go through massive social, market and economic upheaval,
probably world war and the complete devaluation of all currencies as the bonds that support them will be equally worthless.
My guess remains that option one is more preferable to the still Bank run world. Unfortunately, for the moment, the ECB doesn't have the ability to monetize the way the Fed does.
For some reason the Fed and other largest Western European banks and likely Japan want to paint a picture of deflation by attacking gold. I would think that in order to avoid the impression that deflation, default and depression are coming they would instead be buying gold.
Perhaps market chaos, social revolution, the failure of the existing financial systems and the like are their motive because what they really want is to start a war, kill off a large portion of the population and crank up the military industrial complex? I don't think so.
The clear signs that gold was under a coordinated attack are as follows:
1. A continuing series of large margin hikes on gold and silver through the US metals futures exchange COMEX.
2. The focus on taking silver down. Silver is the most efficient price lever on gold due its smaller market cap.
3. That it clear that the COMEX margin hikes were leaked to key major, and the largest metals derivatives players (guess who).
4. The proximity in time to the Fed meeting, G20 pronouncements to support banks and the massive drop in silver prices just prior to the margin hikes.
It is clear that this was a well orchestrated take down in gold and silver executed with extreme precision and the tactics that the folks at GATA have been analyzing and detailing through years of research. Ultimately, no matter how much they try, this tactic can succeed very little in the future as the East knows that the US debt situation is just as bad as the Greek debt situation and that the US debt is even less repayable at the current currency values than that of Greece. It is precisely for this reason that nations are calling their gold back from the vaults of the biggest manipulative gold banks and exchanges to their home lands, and China is setting up the Pan Asian Gold Exchange.
Either way, deflationary depression or long term monetization and more gradual inflation, real money, hard cold cash holds value and the current system of debt based currency and economic activity will ultimately erode the value of fiat currencies.
So, while the futures paper markets can be manipulated a while longer until China and other nations can get honest exchanges set up (Pan Asian Exchange is coming on as we speak), this game will soon be at an end. I'll be buying as much physical silver and gold as I can as this raid comes to an end.
Silver is now in full backwardization thanks to the completely false price readings that the manipulators are painting with their their corrupt futures markets. Keep in mind, there is only about 1/10th as much available above ground bullion as there was in 2008 and demand is far higher than it was then. The central banks long ago sold off their silver bullion and mining supply is level and will drop sharply as mining for industrial metals like copper drops as it is largely mined as a byproduct of mining other metals.
There is more I could say and will say. For the long term buy and hold crowd to which I belong, do not let them shake your faith in honest money, gold and silver and do not believe the charts these master thieves are trying to paint for their own ill conceived machinations.
Gold and silver represent honest money, honest dealing and moral integrity. These central planners and their very greedy short sighted banking buddies have no intent or even concept of the words "transparency," "integrity," "honesty," and ethical and moral behavior. They are concerns only with short term gain and passing the buck. Pun intended.
Hang tough. I am, even if through sometimes sleepless night. I will not sell to facilitate this robbery for the short term gain of thieves in suites. Gold and silver will hold value centuries after all fiat currencies and corrupt governments have fallen and I intend to pass that on to my children and theirs too.
Jesse remains one of the smartest and most level headed expert gold ananalysts and unlike the mainstream pundits that are trotted out to provide some one dimensional explanation he knows what a few of us do and our views are fully concurrent.
Here is the link to his article today
Note: Click on the link above and read the whole article and bookmark his site if you plan on keeping abreast of the real story behind gold and read the post below to find out why this type of mass manipulation will soon be coming to an end as Asia sucks up this raid with their own new gold exchange, accessible by all Chinese and Western markets alike.
"…"Yesterday, the textbook was thrown out the window. All asset classes saw sudden and sharp moves far in excess of normal volatility patterns. To an old timer, that points to one conclusion. Liquidation. Wide-spread liquidation across asset classes. Currencies, bonds, commodities and stocks all moved swiftly and sharply in a direction that screamed – Seek safety! Raise cash! Get liquid…
All of that had a quick and discernible negative impact on markets. But, the selling was far more pervasive and dramatic than simply a conscious adjustment of positions based upon new data. Thursday’s action screamed liquidation – and not all of it voluntary."
Art Cashin, 22 September 2011
"That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."
Paul Volcker, Nikkei Weekly 2004
There was a major sell off in gold and silver today that was due in part to the liquidation of assets coming out of Europe. That is the basis of the quotation from Art Cashin, and he is right in what he says.
But while stocks and the dollar all paused today, gold and silver were hammered, and the selling looked to be more calculated than incidental as it has been throughout the week.
There is little doubt that some of this is the association with usual gaming of the Comex option expiration next week, and the potential delivery situation on that exchange with their unusually thin supplies and concentrated short positions held by a few of the banks. Comex Hikes Gold, Silver, Copper Margins After the Bell.
But today in particular seems to be even a little more than that.
Every time the central banks and their affiliates get desperate, some economic essayist trots out an outlandish argument about why gold is a 'barbarous relic.' Here is one that tops even the almost petulant argument of Willem Buiter in 2009.
The Price of Gold in 2160 – Statsguy and James Kwak
I had to read this essay twice to make sure it just was not satire. I can summarize my reaction by saying that finding gold in outer space with assumed technologies speaks to supply, but the author does not present any assumptions about population, economics structures, and of course future demand.
The method by which gold is formed in relatively rare supernova events is fairly well known, and its distribution relative to other elements and compounds is not completely eccentric, at least not as random and eccentric as pseudo-scientific economic theories might become these days.
The author's premise of the discovery of new bullion supplies in outer space is analogous to the discovery of the New World by Europeans, and the remarkable finds of gold and silver on those two vast continents.
And yet here we are today.
Some might say that the author was merely saying in a cute way that commodity based currencies always fail, with an example being salt or Yap stones as Mr. Buiter had argued to greater effect.
And I would say that all currencies do go in and out of favor in their time, since there is an element of relativism in value that can be enforced by ruling authorities, who themselves tend to come and go, even if in their time these authorities might seem invincible, their empires intended to last for a thousand years.
But some stores of value, not based on passing utilitarian criteria or force, do tend to be resilient, and come back again and again, and retain an element of value from generation to generation. Or as some might with a more profound understanding of money might say, they maintain the confidence of their steadfastness that is a pre-requisite of sound money that is difficult to maintain by mere force of will.
As some historians of money have pointed out, the Federal Reserve was initially set up to emulate this type of external immutability of value in what later became a purely fiat currency. As men like Andrew Jackson would have predicted, they failed in exactly the same ways and for the same reasons that every other attempt at this has failed throughout history.
All systems are prone to corruption and decay, but none so much as those that rely exclusively on the goodness and wisdom of small groups of powerful men, especially when acting in secret.
It does seems quite cheeky for a modern economist to criticize a natural store of value with a 5000 year history, while standing on the platform of a purely fiat currency, given the short half life of every fiat currency throughout history. They may be recreated and devalued, but they never retain much of their value and character, with the only remnant their name.
I hear the sounds of printing presses over the horizon. Get ready for Quantitative Easing European style, and massive European bailouts, and increasingly absurd arguments from the econo-sphere as they avoid the subject of justice for the sake of expediency.
I have some limited sympathy for the dilemma facing the increasingly desperate western central banks, and understand their rationalizations. But they are doing something that is the very epitome of moral hazard, and abuse of power, in their attempts to stabilize the unsustainable, without allowing for meaningful change and reform.
The heart of the issue is that the existing monetary and financial system is becoming increasingly arbitrary and corrupt. A relatively small group of interconnected crony capitalists wishes to create a digital money out of nothing, and distribute it increasingly as they will, to whom they will.
And this is the basis of my resentment with this policy abuse, and the irritation with the assault on reason by those in the financial demimonde engaging in what might be politely called perception management.
This self-serving arbitrariness, even if done for 'good motives,' is the very reason why all fiat currencies fail. No matter how you want to rationalize it they are going to create money out of nothing, and give it to whom they will, while corrupting the political system in the process.
And the cumulative results of this abuse of power are corrosive to society. Lawless example by a ruthless few brings out the worst in all the people, always. And that is a shame.
"Our government teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.”
Louis D. Brandeis
I am reading The Garden of Beasts by Erik Larson, and it is diverting as well as instructive, full of personal vignettes of Berlin in the 1930s told from the standpoint of the US Ambassador and his family. It is perhaps not surprising that most cruelty is based in casual disregard for others, and a pre-occupation with the self. And of course, that evil flourishes when the good do and say nothing.
As a preparation for this I read The Long Night by Steve Wick. Perhaps this is responsible for my gloomy frame of mind this week. But these things do not happen overnight, but by measures, until one is firmly in the crude grip of the banality of evil. And then of course it is too late to escape from the maw of the abyss.
So don't go there.
In what is a clear sign of continued coordinated market manipulation in my opinion, it is clear to me that someone or some group of entities who had a very large position in short silver had advance (and totally illegal notice of this), i.e. strategically leaked and probably timed with the Fed's meeting and the G20 pronouncements, and I wouldn't be surprised if it wasn't the usual hit men for the anti-gold Western monetary authorities, the giant Derivatives players in silver and gold that we are all too familiar with. Their massively underwater short positions were going to be very costly and so they got support from the criminals with a legal hall pass to steal and they bombed the market as they have done before.
Those searching for real market access to physical gold based exchanges outside the manipulative US exchange will be happy to know that the Pan American Metals Exchange will open soon and the word is getting out in regard to these desperation moves. The US and London Exchanges will ultimately raise margins to 100% and when the weak longs are finally completely out, gold and silver will demonstrate their role as real money despite every machination of an insolvent and dying global financial system based on graft, manipulation and chart painting. That there is no enforcement on what is far too close a proximity between margin hike announcement and the giant sell off is a clear indication of the degree of rot and corruption in the market system in my opinion and also a clear sign that end of empire levels of desperation are at work, compounded by the increasingly and massively risky derivatives markets.
Here is the link to the story about the COMEX margin hikes on gold and silver that was reported just a little while ago at Kitco:
There is no one who has been more accurate about gold's action and no one I trust more than Sinclair. This is a vital report and one that those with a conviction on the macro position of the global financial system should hear in my opinion.
A quote from CIGA Eric today completely encapsulates what we are experiencing in the gold market:
This is a repeat of 2009 – actually even more extreme readings than 2009. We are severely oversold today. Anyone not buying here does not believe in the fundamental story. In my opinion, this will be a huge entry point by 2012.
In conversations with Kenny we examined the worst case scenario in terms of the correctness of Eric’s comment with which we both totally agree.
Our conclusion is:
Market situations like this will be found to have held and created bear traps in several instances of similar pattern action over the past 30 years WITHOUT having continued further down to first major support. The current corrective pattern over the past 23 trading days strongly implies that the move below $1690 would continue on down to the core at $1665 at minimum as first bottom, and in the extreme to $1615, but not below $1584. This will happen prior to exhaustion and a return to the full bull trend.
So far the remaining successive levels of $2450/$2510; $2850/$2900, and $3280/$3330 are not affected.
Gold shares are being impacted by a field of problems as a result of the large short positions held in almost all. They are being taken advantage of today by pressuring the entities in hopes of causing long term holders to collapse in their commitments.
It is evident to me that the massively short bullion banks operating on behalf of US, UK and Swiss bullion banks are taking advantage of massive MOPE and market panic to gain lower prices to exit their underwater positions. It could also be the Chinese pushing the paper market down in order to get lower levels of entry. As usual they are using silver to press gold down and silver is taking the brunt. There is no question in my mind that this is as good as it gets for entry into the silver markets. Now, lets look at the headlines and put them together to see what may be going on beneath the surface. Note: I will not be selling any gold or silver during this massive Bullion Bank intervention being performed by the usual suspects and their key anti-gold central bank masters. In my opinion it is time to buy the fear in the gold and silver markets because there is no question, based on long term observation and the headlines below that fear and manipulation are what is being levered. With the Asia Pacific Gold Exchange coming online next month and the G20's announcement that they will support "banks," it is clear that the only way to support insolvent banks is through monetization and stimulus, i.e. printing money, it is clear they are making a last ditch and desperate move to hide the fact that all fundamental macro analysis points to the increasing likelihood of sovereign debt default or the only cure they have, monetization by manipulating gold temporarily lower. So far, all I see is a strong coordinated effort to hammer gold and silver, the arch nemesis of the debt laden and debt dependent fiat currencies. Nothing they do will change my conviction on this. I see this as a buying opportunity and the best we'll see in 2011.
Finance ministers and central bank governors of the G20 countries pledged for a strong and coordinated international response to boost global economic recovery
Basically this is the G20 saying that they will push to monetize the technically insolvent large banks and all of their sovereign debt. They said this probably because of all the agency rating downgrades. Basically, this is a hollow promise as the Fed is supposedly an independent operation and just announced it would be twisting in the wind and not actually doing quantitative easing. I believe the Fed is behind the massive attack on gold even in the face of the promise by the G7 and of course the UK, and Swiss central banks are intervening in gold as well because they can not have the stock market selling off while gold and silver climb. It is important to keep the long view in mind as they interview, which is that ultimately, if the G20 and the Fed actually plan on supporting their primary dealers and the largest European banks, they will have to monetize and that means further currency debasement as the means for monetization, ie QE.
Moody's Cuts Eight Greek Bank Ratings by 2 Notches
Basically, with the talk going around by the mainstream and analysts, this news feeds the idea that Greece will default and hence the call by the G20 to support the banks that have large Greek exposure. Part of the deal with the Devil of the central banks appears to be "sell or swap your gold." The central banks remain terrified by the challenge of gold to their monopoly money and its basis in debt and that is why they are leveraging market fear to push out the weak longs, including the large banks and the ETFs. Ultimately, this move will push the global economy towards deflationary depression and despite this effort, the dollar and other debt laden currencies will be worth less and less over the long run. If you were looking for an opportunity to get back into gold and especially silver, this may be the best opportunity in my opinion. You have to see the futility of their game to hold the line. I see a major bounce coming after this blatant raid. The take down in gold in silver will also take the stock market down as it will give the impression that economy is heading into a deep deflationary depression if goes much further in my opinion.
15-20 Europe Banks Need Recapitalizing: Regulator
Basically, this is another understatement and it also being used to get the banks to cough up their best assets to help the Fed, Bank of England and BIS to gain the undesired cooperation of the major banks to swap or sell their major assets to gain support and in turn those swaps are being used by the operative bullion banks to work on the market take down in the futures markets. The take down in Gold will accelerate the increasing drop in stocks as the impression of acceleration deflation kicks in. Further major drops in stocks will accelerate if that happens and at some point even QE will be too slow to create the desire response. The Fed should be buying gold though its bullion banks but that is contrary to the Fed's long term pattern. If the Chinese are behind the selloff, the Fed really needs to be buying but given its history, don't count on it.
Handelsblatt quoted a German economic professor saying that Germany has EUR 5trl of hidden debt, while Deutsche Bank said co.’s write downs on Greek bonds could be higher than the 21% level foreseen in a July agreement
Just more confirmation that a massive increase in QE will soon be undertaken to protect the Western banking system in the largest Western nations, Germany, France, the UK and US.
Jesse remains one of my favorite analysts and commentators and in my opinion should be a regular read for anyone in the precious metals. Here is today's update. Keep in mind, much of the macro discussion behind my thinking is posted at the Duffminster Times
Also, go to the link below if you want to see the charts and scan all of Jesse's wonderful blog:
"…Big Sell Off today in US markets as cash was being raised over renewed fears of a Euro-meltdown and a US recession.
The long gold – short stocks trade provided balance into this correction, but as of today the stock shorts are gone.
Let's see if the short term trends have bottomed. Unless this is the big one Elizabeth, I think they just might be. If you are not in it, wait for it.
Yo Blythe, these moves in the metals in front of options expiration are getting way too obvious, and even a bit old. You will never top Kweku Adoboli at this rate. …" If you want to know who Blythe is, think JPM precious metals futures trader.
Today is the liquidation of the weak longs and large scale bullion banks taking advantage of the market tantrum that Wall Street is having for not receiving actual QE 3. QE 3 is coming (despite the fact it is the result of 40 years of debt based currency) and the Fed is the only entity that can stop a full on cascading melt down in the US, EU and UK banks.
The leveraged funds are getting knocked out and with the Asian Pacific Gold Exchange ready to open, this is the last shot the highly leveraged paper shorts in silver and gold have to try to get out of their massive and deeply in the red short positions before the physical market throws them off.
The dollar a safe haven? Please, don't insult my intelligence. The one thing I know with certainty is that the dollar in absolute terms is valued inversely proportionally to the amount of net sovereign and private debt in the United States. Gold is valued proportionally to the global net of sovereign debt. Yes, the Fed and other central banks can manipulate the dollar up relative to other currencies and can for a short period (for the time being) also work on making gold look like it weakening relative to the dollar on a very short time scale. On a longer term scale (step away from your trading screen), the dollar is buried under unrepayable debt, which explode if the economy takes a nose dive even steeper than the one its in.
Increasing Debt = Dollar Devaluation and Gold Appreciation. Given that that even the Fed acknowledges significant downside risk (which is deep understatement), they have done so to prime the pump for the next round of QE 3, which I expect will be announced within 30 to 60 days or sooner if the markets don't level out pretty soon. The one thing I am certain of is that the dollar and the debt will be moving in inverse relation over the long run and that debt will increase if the economy doesn't pick up, making the risk to the US sovereign debt increase. Here is a recap of Jim Sinclair's formula that describes the completely untenable situation that the US and EU financial systems now find themselves in. Keep in mind that only because of QE has item 1 not been seen yet. QE devalues the dollar as well as a crashing economy because QE simply prolongs the increasing debt cycle:
September 1, 2006
1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella – Goldilocks situations.
3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.
5. Lower profits leads to lower Federal Tax revenues.
6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.
COMEX, the Fed Primary Bullion Banks, the UK Bullion Banks and the London Exchange have been capping gold all the way up. China's introduction of a new system that enables investors, including the Chinese, to accumulate physical gold in an accelerated means outside the scope of manipulative practices of the largely short biased Western gold capping system, sorry exchange system.
"…In this edition of On the Edge, Max Keiser interviews Ned Naylor-Leyland from Cheviot Asset Management.
He talks about the new pan Asian gold exchange and what it means for global currency and commodities markets…."