While the market is all manipulation today, the fact is that soon the Pan American Gold Exchange will be online and COMEX and the handful of Bullion Banks that support Fed and UK/Swiss gold shorts will not be the only game in town any more and thus the games that titanic derivatives companies play in trying to manipulate market perceptions about inflation, currency and the like with gold will be an order of magnitude more difficult. Compound that with the fact that gold remains a minuscule part of most funds, pension, hedge and otherwise, and you can see that gold, as it begins to assert its historical role as "real hard cold cash," without counterparties or risk, will rise to its actual relative levels. China itself, I believe is likely seeking to have its currently, the yuan, eventually be the global reserve currency and as such will likely want it backed by gold in the long term. I could be wrong about that but it seems logical, reading from the playbook of one of their top advisers, Mundell.
Here is an article on the subject of Chinese Demand for Gold:
China’s Gold Investment to Top Record: Cheng>
Jim Sinclair’s Commentary
It is hard not to be bullish on gold.
China’s Gold Investment to Top Record: Cheng
By Joe Richter – Sep 18, 2011 6:16 PM MT
Gold investment demand in China is likely to top a record 200 metric tons this year, the World Gold Council said.
The country’s investment demand surged 70 percent in 2010 to an all-time high of 187 tons, said Albert Cheng, the Far East managing director at the World Gold Council.
China’s “investment demand has picked up exponentially,” Cheng said yesterday in an interview in Montreal. “The financial crisis has triggered people to be cautious of anything they don’t understand,” boosting demand for bullion as an alternative asset.
Gold futures have surged 29 percent this year, touching a record $1,923.70 an ounce on Sept. 6. The metal climbed as escalating debt woes in Europe and the U.S. boosted demand for haven assets. India is the world’s top bullion buyer followed by China. The two countries accounted for 54 percent of world gold consumption in the second quarter, Cheng said.
The council has estimated demand from China may double in 10 years. The forecast may be “too conservative,” Cheng said.
While it has been an intense week of jaw boning over Europe, nothing has changed there accept that banks with horrific balance sheets and many I would think with plenty of Greek bonds on the books got a fresh line of supply on US dollar loans from the US, Japan, Swiss and UK central banking system. While I expect continued volatility and continued attempts at suppressing the price of gold and silver by certain central banks, I expect that others who see the writing on the wall for the path out of mountains of un-repayable debt realize that after all the smoke and mirrors and jaw boning clears, we are looking at a massive decrease in global GDP and corresponding massive losses in tax revenues resulting in massive increases in already unrepayable sovereign debt as budget deficits rise and the need for further social spending goes up in proportion to unemployment. The only way that central banks can deal with this is through currency devaluation via quantitative easing. Whether Ben and Friends at the Fed make the announcement or not, it will be coming in my opinion because, short of allowing a complete financial meltdown and corresponding economic depression of indeterminate length, only through central bank purchase of toxic assets and corresponding currency devaluation can maintain the status quo, which is a terrible status but they aim to maintain it.
Silver continues to hold very firm at the horizontal red line drawn in on the price chart. Each time it has moved down to this level, a level which I might add is the intersection of TWO important support levels, it has drawn out solid buying and then moved higher. This region is a former congestion zone which seems to attract buyers and forces shorts to cover. The longer this impasse continues, the better for the bulls as it is basically base-building here.
My favorite commodities trader and analyst, Dan Norcini makes some excellent points. Gold is making new highs in lots of other currencies and is not far off the all time high in the dollar. Right now the dollar is rising because a lot of funds are bailing on the euro and stocks (globally) and that is infusing the US dollar with some short term relative strength even though anyone looking at the long term debt prospects knows that over time its value will be less and less and less relative to real goods and services and that is born out in history and charts.
This article is very valuable as is Dan's commentary in general and especially in filtering the noise in getting the big picture:
US based analysts continue to approach the gold market with blinders on as they focus exclusively on the US Dollar price of Gold and draw all their views of the market from that perspective. An apt comparison would be looking at the Dollar price of RICE and extrapolating future price action for the global price of this international food without even considering its price in Japan or Malaysia for example. This is shortsighted at least and foolish at worst as it betrays a flawed understanding of the role of gold in the international arena and its function as the currency of last resort.
With the vast majority of Central Banks around the world embarking on policies and practices designed to deliberately debase their respective currencies, those investors around the globe seeking to protect their wealth from such depradations are buying gold. That is why it continues to make one new high after another across a variety of global currencies.
Consider the price of Gold in Swiss Francs or "Swissie Gold". Ever since the SNB decided to debauch their currency and kill its historic safe haven status, gold has been soaring in terms of the Franc. Do you think that those Swiss who are financially savvy were going to sit idly by while their Central Bank plundered and looted their wealth?
Think citizens in Britain have any more confidence in their leaders than the rest of the Euro Zone? Guess again!
Judging from the price action of the US equity markets this morning, the investing community has as much confidence in the Obama Administration's efforts to create jobs and turn the economy around as the passengers and crew of the Titanic had in their captain to save them from their collision with that enormous iceburg. This is the reason that while the Central Bank attack on gold continues, they have not been successful in derailing it. No one trusts the hapless clods to fix anything.
Do you get the distinct impression that there seems to be a rising lack of confidence across most of the globe in their respective governments? Personally I shudder to think where the S&P 500 would be without the surreptitious buying of the Exchange Stabilization Fund.
Considering the debacle unfolding in the equity markets today, the HUI or mining shares index, is once again holding remarkably firm as this sector contines to outperform the rest of the broad market.
Not surprisingly, the US Dollar has become the safe haven currency for the time being not based on any merits of its own, but only because the alternatives are even worse. It is attempting an upside breakout above a key chart level in today's session would which confirm a bottom is in for the intermediate term as it flirts with the 25% Fibonacci retracement level from the decline that began last May. It still looks like a rally in an ongoing bear market however. It could push as high as 79 – 80 on this leg if it sees some follow through gains next week but I frankly would dismiss any long term sustained strength unless it could convincingly clear the 81 level.
The mainstream financial media pays little attention to developments which are likely to challenge the status quo in gold and the on-going attempts to cap gold price by certain "monetary authorities."
The article below from Jim Sinclair's JSMineset WEB site outlines how the creation of PAGE will finally begin to challenge the shenanigans played out by COMEX and their giant short precious metal primary bullion banks.
Two developments of great significance — in China and Russia — have attracted little attention from the Western financial media that is totally obsessed with the calamitous fiscal crises at home. We think you should know about them.
The Pan Asia Gold Exchange (PAGE)
The Pan Asia Gold Exchange (PAGE), backed by the Chinese Government, opens for business in the next few months and is expected to be fully operational by the end of 2011. This development represents an unprecedented challenge to the entrenched institutions that effect the price of gold and at the same time supports Beijing’s ambitions for world currency reserve status. In short, there is a new gold trading market in the wings with the potential to change global supply and demand dynamics and how gold can be traded.
Here’s the background:
PAGE will allow individuals to buy physical gold from their computer at home. Initially, the 200 million or so clients of Agriculture Bank of China will be able to buy 10-ounce mini contracts on the PAGE. Later, non-Chinese will be able to purchase International Spot Contracts through the exchange.
Ultimately, PAGE will provide an alternative playing field for global gold investors who hitherto have had to rely on unsecured gold futures contracts and the bullion banks to determine the price for gold. With PAGE, a gold buyer will be able to receive a 90-day International Spot Contract and actual title to the gold he/she buys, not just a futures contract or an unsecured note from a bullion bank, or an international banking institution. The PAGE gold’s in 10 ounce bars can be delivered to the customer with little effort. The international bullion banks, have been accused for years of manipulating the gold price. Such manipulation will now be more difficult.
PAGE could pose a challenge to the near monopoly on gold price discovery currently held by the members of the London Bullion Market Association (LBMA) that include many large banks.
For years, their practice has included leasing gold often from central banks and then selling it into the market to drive the price down. Leasing and selling of gold has been a profitable game for the savvy players involved. Every game has a loser, however, and in this case it has been less sophisticated gold investors. The selling activity has often created panic among gold investors who sell at the wrong time allowing the short sellers to buy back the bullion at low prices.
PAGE provides an alternative route that bypasses the bullion banks of the LBMA.
PAGE also provides a new way for international investors to own Chinese currency — the Renminbi (RMB). Here’s how: The buyers will purchase gold contracts denominated in RMB. They can then hedge out the gold in the dollar-based gold markets. As a result, they effectively own RMB.
We see here yet another example of multiple Beijing initiatives opening the RMB to world investors. Over time, these innovations will enhance the value of the RMB and create a deeper, more liquid foreign exchange presence for the Chinese currency. PAGE is another internationalization step forward for the RMB in the direction of world reserve currency status.
The advantages of being the world reserve currency, as well as the responsibilities involved, have not been lost in the Chinese government. They won’t rush the process, but they clearly have a long term plan.
Meanwhile, In Russia…
As the Chinese continue to lay the groundwork to be the world’s next reserve currency, Russian Prime Minister Putin is pursuing plans for his own region. A year ago he created a union between Russia, Belarus and Kazakhstan that removed tariff and custom controls along their internal borders. According to a recent article in the Financial Times, his arrangement will expand in January into a “common economic space” with freedom of goods, services and capital. A whopping market of 165 million people — or 60 percent of the former Soviet Union’s population — will be created. The leaders of the three countries envision a Eurasian economic union by 2013 and have even discussed a common currency at a later date.
For those who would like to know more about Mr. Putin’s ambitious plans, please refer to the following article.
While this article is over one month old as of the date of this posting (9/8/2011), it is clear to me that with recent announcements in Europe and from the German Supreme Court, and any type of sane stimulus plan for the US being put in place being completely in doubt, that much of Western Europe and the United States are on very shaky economic and currency ground.
The plan to try to cut our way out of this intractable problem is not going to work either in Europe or the US. The so called "Austerity Measures", if actually enacted, will simply slow growth where it is most needed (consumer spending) while at the same time decreasing tax revenues.
It is the 40 year experiment started by Nixon in the United States when he defaulted on the United States's Gold obligations and went to a system backed by nothing and then coupled that with ever increasing spending combined with ever lower taxes on large corporations and the wealthy and very wealthy via constantly lower income taxes on the upper end and ever greater loopholes for the rich and corporations.
While this explanation by Robert Pretcher in regard to how we can value the dollar applies to the US dollar, it applies equally to any currency backed by nothing but debt:
"…… Let’s attempt to define what gives the dollar objective value. As we will see in the next section, the dollar is “backed” primarily by government bonds, which are promises to pay dollars. So today, the dollar is a promise backed by a promise to pay an identical promise. What is the nature of each promise? If the Treasury will not give you anything tangible for your dollar, then the dollar is a promise to pay nothing. The Treasury should have no trouble keeping this promise…."
I wonder if Gartman knew this when he called another top in the gold market? Despite all the BS in the mainstream press with a million irrelevant reasons, it seems pure outright manipulation on a large scale by raising margins a whopping 26% is why the big boys placed their short bets with insider knowledge. I don't usually like to swear but all I can say is back the truck up and get ready to buy on the dip tomorrow because the cash market for real money is getting hotter by the day as nations and people want real gold, real silver and real money in the own vaults instead of in the hands of another way too big not to fail bank with questionable ethics and motives for its uses of real money assets.
Here is the article with the irrefutable evidence of the continuing BS by the paper markets and the exchanges that don't want a real alternative reserve currency and so single out gold and silver repeatedly even as the departments of corrupt regulation, ctfc and sec continue to do less than sit on their hands.
And There's Your Perfectly Leaked Explanation: CME Hikes Gold Margins, Again, This Time By 27% (Click on the link to see the CME document).
"…Two weeks after the CME hiked gold margins by 22%, and two days after the Shanghai Gold Exchange sent them higher by 26%, here comes the CME, as we expected, with another 27% gold margin hike (previously: "Should we expect 3 more SGE margin hikes in the next 2 weeks? Or will the CME rightfully accept the baton and do everything in its power to dent the parabolic rise in the alternative reserve currency? We are cautiously looking at what the CME will do today and will advise readers."). And now we know that this particular margin hike was leaked well in advance, and explains the entire $100 plunge in gold today. And as a reminder, the August 1 CME margin hike worked… for about 30 minutes…."
While it seems clear that the Fed will not overtly announce cash purchases of assets at the meeting tomorrow, I think its clear they will do but not say that they are going to do asset swaps (i.e. a temporarily synthetic form of QE3 (which is already in effect via the promise to keep zero interest rate levels for the next two years) or through the expansion of bank credit, also a highly inflationary stealth plan), which kicks the can down the road for a few more months until the broader investment community understands the real implications of this action should the Fed do this as the author of the article well suspects they may.
Here was my post earlier from the Duffminster Times with additional commentary and a link to the article on Bank Credit Expansion as a likely "alternative" approach to monetizing the debt ridden economy through less than direct methods and likely far more inflationary:
I love Zero Hedge because for the most part (comments aside) their analysis (in the main) is zero bullshit. This article cuts through all the massively over simplified dilutions of the mainstream media coverage on the gold and silver action and the Fed policy actions. If you are trying to protect your wealth from the corruption of empire and the insanity of debt gone wild, then you will probably benefit from reading this entire article at Zero Hedge. I'll excerpt a bit for you here and provide the link below. By the way, I didn't sell silver or gold today despite the massive manipulation in the markets by the masters of MOPE. In the meantime I haven't heard anything about how soon Venezuela can expect to receive their physical gold from London. Why do expect the answer may be "never."
"…Whether the Fed will upgrade QE2.5, or "ZIRP through mid-2013", to QE3, or Operation Twist, the form we have been predicting it would take since May (and here), is still unknown: very few people know what Bernanke will say on Friday, minutes after the first revision to Q2 GDP reveals a sub-1% number. What is known is that while cross-asset correlation has soared over the past few days, the biggest driver of stocks over the past few days has been nothing but the 2s10s30s butterfly, which in turn is driven by On and Off rumblings of Bernanke doing the Twist. And here is the rub: when the Fed announces Twist it will be extending duration, it effectively means selling everything 10 Year and older (yes, QE3 could very well be LSAD or Large Scale Asset Dumping instead of LSAP). The goal of this action: make the 2s10s will go vertical and to pancake the 10s30s: a move that the butterfly is now indicating it is once again pricing in – today alone we have seen a massive 15 steepening in the butterfly: a nearly 20% move in the curve. It also explains why gold is being sold off today, because simplistic investors believe that without an actual balance sheet expansion, the Fed will not be diluting paper. Completely wrong: it will merely do so synthetically, from a duration basis. Furthermore, the market will very soon read through the Fed's intention which will be predicated entirely on asset rotation and not on incremental fiat capital. The final outcome will be QE4 where the Fed will have to match the synthetic duration extension with actual cash bond deliverables, namely monetizing bonds, a move which will be even more critical once the deficit spend starts soaring again in the next 3 months. And when it does, it will have to do so double time, to make up not only for previous synthetic exposure extension, but for future priced in moves. In other words, nothing has changed, and we fully expect stocks to soar if indeed Bernanke mentions "duration extension", together with yet another gold dump. The issue is that Op Twist in the proposed format would be physically limited by the amount of 10 Year+ bonds held in the Fed's SOMA. At last check it was not that many at all. So any surge in stocks will be albeit both painfully transitory…."
Looking at how the take downs in gold both yesterday and today have been straight out of the US market openings and given that the nice round 300 point pop in the US stock market yesterday came on horrible economic news related to real estate and zero positive news, the fact that the new Chinese gold exchange just raised margin rates 26% after raising them just days before, should give you plenty of information to make decisions upon.
The previous article on the Jackson Hole Meeting at the Duffminster Times stands intact and should be reviewed. Bernanke would like to be able to announce QE3 but the political acrimony is too much and he would need the S&P to have dropped closer to 1000. On the other hand, there is a lot of pressure from the US banks to continue QE3 and so having the market look less than "going over a cliff" relieves some pressure from the pro QE3 market side.
The Chinese, in my opinion, are making these giant increases in margin rates because demand for physical gold and silver is accelerating vastly and the exchanges can not meet the demand at the current prices. We saw a large series of large margin rates in the US exchanges recently. The move is good to shake out the weak speculative longs but the overwhelming wave of demand for physical gold and silver a hedge against the cancer of fiat currencies and the unrepayable debt loads of much of the industrialized world only grows and the smart money knows that these big margin induced and manipulated moves in the markets are the entry points to order physical gold and silver at lower prices.
The manipulators have limited ammunition and the greater buying public is increasingly wise to the underlying realities of the corruption of the systems both politically and fiscally speaking. Gold and silver are increasingly being understood to be the real money and that is why nations are demanding their gold back from these giant banks that have been playing paper games in the lease and swap markets for years.
I wrote this over at Zero Hedge earlier:
"While it is unlikely that Bernanke will announce or even hint at QE3 at Jackson Hole, what is apparent is that the condition of some of the very largest banks in Europe especially among the PIGS is going to require expanding the dollar swap lines. This amounts to currency dilution as does the promise to keep rates low by the Fed until 2013, which is really a stealth form of QE3.
Despite the bullcrap from CBO, the US economy is faltering hard and the associated drop in tax revenues will push the deficit up as all the effective stimulus is being yanked due to the tea party grandstand move to turn the simple raising of the debt ceiling into a strong midsection punch to the economy just as it needed a little more stimulus. Most of the cuts will come from the poor who always immediately spend their money in the consumer economy. Economy was already stalling and now they just cut the power to one of the two engines. GDP will slow much faster than expected once these cuts really take hold.
In the meantime what is going down in Europe will have a cascading (domino effect) to the US and ultimately all other major connected banks via the various derivatives markets and "regulators" and others are at the distinct disadvantage of a system that is still entirely opaque, thus providing zero visibility in their paper printing interventional machinations.
Yesterday's 300 point miracle in the market and the US market attacks on Gold along with the Chinese margin hikes will become increasingly desperate as will the efforts to obtain physical gold and silver where its safe, in your vault or at home.
Expect more volatility and I'd say to the upside. Ben will have to wait until the S&P hits 1000 for political cover to announce and engage in above board QE3 instead of the ESF based stealth QE.
China is its own kind of trouble which is that its banks are having their own major liquidity and bad debt situation and they have plenty of counter veiling forces which are being fed by the FED. The truth is that even the Chinese need the US economy to pickup and the only possible way that will happen in this acrid political environment is through QE3 on steroids and soon before this 747 economy hits full stall speed and plummets and unrecoverable speed towards Earth, taking out not only Europe but China as well.
The fiat currency never ending debt expansion system can not simply reverse course given its design. I"m holding gold and silver for long term preservation of value and so is the rest of the smart money. Anyone who has filtered the noise in the matrix can see that these orchestrated, engineered dips in gold and pops in the stock market are buying opportunities for physical gold and sell opportunities, especially for big bad bank stocks and the broader economy dependent markets."
Today the market is grasping at straws. Everyone knew that Apple would beat is usually ultra conservative estimates and IBM is reflective of continued growth of multi-national corporations migration from US based operations to over seas operations, cutting into jobs, as the recent announcement of job cuts as Cisco reflects in my opinion.
The trend towards undermining the US economy to favor nationless multinational companies, many that originated in the United States is reflected in my opinion by the fact that products like the iphone are largely products of non-US parts manufactures. Given the problems with debt that we are seeing in the emerging economies like China, it is clear that the intense growth curve that is driving these sales has a limited life span as the breaks will soon hit as the global debt contagion moves outside of the western European and US arena to engulf the only remaining drivers of growth.
With Bernanke indicating that if there is a slowdown in the economy or we look like we are heading for a double dip that the Fed is ready to apply additional stimulus (read QE3, QE4, QE N), and given the dismal economic reports that have been coming out and the spun reports (like the recent foreclosures numbers), which don't indicate that the only reason there has been any drop in foreclosures is because of delays (estimated over 1,000,000 foreclosures) caused by the Robosigning forclosuregate that continues.
Bottom line, lots of smoke and mirrors and a well versed attack on gold and silver (largely unsuccessful today) that will provide a buying opportunity for those not buying either the smoke or the mirrors. Also the gang of six report on how to slash the budget deficit largely by attacking social security and medicare by undermining the cost of living increases by messing with the CPI is dead in the water because the seniors and probably everyone else will not take that lying down.
So, congrats to Apple and IBM for selling more over seas iphones, macs and mainframes than ever and as to the broader economy, jobs and US consumer spending, my response is "so what?" On the same day both Goldman Sachs and Bank of America got hammered. There is a deep rot born of corruption that is being "papered over" and the snow job continues. Don't buy into it. Buy on the dips and hold on the attacks. No one who has any conviction about the base condition of the global economy and financial system is buying the spin. To win in silver and gold is a long term process and requires a conviction about the fundamentals.
Here is an excerpt from the Kingworld Interview. I highly recommend Kingworld:
Embry – Possible High Triple Digit Silver Before This is Over
With gold and silver consolidating recent gains, today King World News interviewed John Embry, Chief Investment Strategist at the $9 billion strong Sprott Asset Management. Embry had this to say about the world’s present situation, “We all know the problems in Europe and in the United States, but there was apparently a failed Chinese auction due to the problem with the local debt over there. There has been so much local debt issued in the last few years as part of this expansion and I guess investors are getting a little indigestion. I think that just brings home the point even more strongly that debt will ultimately bring down the fiat currency system because there is far too much of it and we can’t service it anymore. The idea of repaying it has long since been forgotten.”
“Clearly they’ve opted in my opinion to go with printing whatever amount of money is necessary to keep this afloat, which will in the end lead to hyperinflation. At that point the debt will be cleaned out in the aftermath. The alternative would be to let it go now by imposing austerity plans in all of the various countries and that would lead to a depression very quickly. I don’t think anybody wants that to happen on their watch, so hyperinflation here we come.”
When asked about Sprott’s new issuance on its Physical Gold Trust Embry said, “Basically it was priced very well, it was priced almost right on the market instead of at a huge discount. It went very well, it was a $266 million issue and if the overage is exercised it will be $305 million, which will buy roughly 190,000 ounces (roughly 6 tons) of gold. In this market that is a lot of physical gold, but I think from every aspect we are very happy with the deal and we are very pleased that the public chose to participate.”
When asked about sentiment in the gold and silver markets Embry replied, “I still think it’s extremely constrained, the average person is still ignoring it. The driving force in the gold market right now is the unbelievable chaos in the world’s financial situation…This is what’s driving the bus right now in the gold market and it doesn’t make any difference what time of year it is, this is reality….
Really, read the whole article here: Embry – Possible High Triple Digit Silver Before This is Over
For other background information check out The Duffminster Times