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Tuesday July 29th 2014

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Need Or Want, Demand Is Dying

Here’s all you need to know – starting with today’s COMEX gold and silver options expiration.  Trust me, it’s no “coincidence” that we witnessed the 56thSunday night sentiment” raid of the past 57 weeks and 267th2:15 AM” attack of the past 301 trading days.

Moreover, TPTB are still reeling from Friday’s rare “key upside reversal” in the PM markets – and more importantly, the Treasury yield plunge that further solidified the “most damning proof yet of QE failure”; i.e., the inexorable decline of bond yields despite the propagandized “recovery,” Fed “tapering,” record debt and real inflation.  “All hands are on deck” to reverse these trends ASAP; in the former’s case, before this afternoon’s expiration and in the latter, the FOMC’s Wednesday policy statement.  To wit, the Cartel is terrified of the possibility of a physical PM short squeeze, while the Fed is equally terrified of markets “forcing its hand.”

Of course, putting “all hands on deck” on the Titanic doesn’t make the situation any more viable even if a few more hours are bought via a determined “bailing” effort.  Moreover, extraneous events like the rapidly escalating Ukrainian crisis could destroy their “best laid plans” at any time.  This is exactly why Central banks are printing infinite amounts of money, with no choice but to continually do so at exponentially faster rates.  So is the nature of Ponzi schemes – until inevitably, all “passengers” become aware of their fate rendering the additional “bailing” futile?

This is what is occurring right now, across the entire world.  In the PM markets – i.e., the “Achilles Heel” of the collapsing fiat currency regime – we last week saw the filing of a massive class action lawsuit centered on the fraudulent “London fix” with associated documentation reading like the gold manipulation primers I wrote three years ago.  Simultaneously, a second major lawsuit was filed charging – who else, but Deutschebank and HSBC – of manipulating the silver fix as well.  And for the coup de grace, the CME itself and several of its principals were accused of not only enabling manipulative high frequency trading programs, but colluding with HFT firms via secret incentive schemes.  Moreover, it was alleged that 50% of all Chicago-based CME trades are actually “wash sales,” in which the buyer and the seller are the same entity.  If this is even remotely close to the truth, this lawsuit could yield a crisis of confidence in the so-called “price discovery” mechanism of fraudulent U.S. futures exchanges such as the COMEX precious metal pits.

As for the economy itself, no matter where one looks, the “ship” is badly listing.  The Baltic Dry Index’s plunge to nearly an all-time defines the reality TPTB are desperately trying to whitewash with money printing, market manipulation and propaganda.  On any given day, non-stop “horrible headlines” speak of the same whether its record French joblessness, record low Spanish bond yields, multi-year highs in Japanese inflation, or irrefutable evidence that the average U.S. household’s inflation-adjusted net worth has plunged over the past decade.  However, few such headlines demonstrate the magnitude of the economic collapse than the catastrophic unexpected losses Amazon.com announced Friday and an even uglier second half outlook.

For months, we have highlighted how actual economic data has been horrible – as opposed to the increasingly isolated “island of lies,” where fraudulent jobs data and “diffusion indices” suggest “recovery.”  Below our tally of such data suggests 2Q GDP was closer to unchanged than the +3.0% consensus estimate to be published Wednesday morning; “coincidentally,” just hours before the FOMC statement.  Of course, that’s just the initial estimate, which undoubtedly will be revised significantly before all’s said and done.  Recall, the “initial estimate” of 1Q GDP was +0.1%, before settling at -2.9% two months later (actually, -2.96%, but apparently the BLS doesn’t understand the complex art of rounding).  John Williams, too, believes a negative 2Q GDP print – following said revisions – is possible; and this morning, Gary Shiller made the same forecast.  In other words, the aforementioned Treasury rate plunge is indeed signaling the expectation of “QE to Infinity,” as we have forecast for some time.

Durable Good Charts

We have long written of how Fed-generated inflation initially funnels into “need versus want” items like food, energy, insurance, and the above numbers describe these deleterious effects in spades.  To wit, Wal-Mart’s (since fired) CEO just two weeks ago claimed “lower- and middle-income customers appear to have made a number of changes to shopping habits, that were not the best thing in the world for a retailer,” as they “adapt to what has been a difficult macroeconomic situation.”  Meanwhile, McDonalds reported its worst sales growth since the 2008 financial crisis.  McDonalds actually added bags of ice to its “product line,” selling them well below retail averages in a desperate attempt to increase floundering “same store sales.”

Back to Amazon, this colossus of a company has taken over the “items we want” market in the same manner Wal-Mart dominates “items of need.”  To wit, nearly everything one buys on Amazon is of a discretionary nature – in my case, things like Kindle Books, soccer equipment, and gift cards.  And it’s not just online where discretionary sales are flagging, per the countless anecdotal data points we have highlighted.  Just looking at the dramatically weaker traffic at the golf course in my backyard it couldn’t be clearer America’s cumulative “credit card” is fully charged up.

It’s rare I get to use the analytical skills I spent 25 years culling in the financial sector, so in a morbid way it was fun looking at Amazon’s earnings statement.  Today’s Enron-like accounting liberality makes the analysis of such statements nearly impossible, but some things simply cannot be hidden.  Fortunately, this article breaks down the horrifying operating results – and terrifying long-term trends – in easy to understand pictures, such as this pitiful depiction of how the world’s leading “want versus need” retailer has done since the propagandized “recovery” commenced.

Zero Hedge

As Peter Schiff eloquently put it, consumers are “paying more for the things they need, and spending less on the things they want.”  Such a lethal economic cocktail is what the 2Q GDP report is facing on Wednesday, and Whirlybird Janet right on its heels.  In our view, “Yellen’s Last Stand” is in its final tragic days, as it shouldn’t be long before said universal realization of both the collapsing U.S. economy and fraudulent U.S. financial markets catalyzes the inevitable end of history’s largest Ponzi scheme.

And when it does, if you haven’t already protected yourself from such, it will be too late.  As this excellent video by Future Money Trends demonstrates the amount of actual physical metal is in extremely short supply.  We could not be more confident that when “the big one” inevitably hits – potentially, far sooner than most can imagine – the accompanying supply shortages will make those of 2008, 2011 and 2013 pale in comparison.  There’s a reason why we have put this slide in every presentation we have given since 2008; as being one of the nation’s largest bullion retailers, it has become painfully obvious just how fine the line between physical supply and demand has become.

Slide

Ukraine Goes “Twilight Zone”

I was away much of this past week and it was difficult to keep up with the news.  Upon catching up I can only say that the Ukraine situation has entered the “Twilight Zone.”  I say this because the back and forth really doesn’t make sense and it’s almost as if the threats and sanctions are aimed at the shooters own feet!

First and foremost, the U.S. is trying as hard as we can to shut Russia OUT of the dollar system …which is exactly what Russia wanted anyway.  Let me refine this, Russia does not want to be isolated and shut out of trade, what they do want is for the dollar to either wane, be put in the back row or to outright collapse.  Russia as you know has allied itself with China while China has been globetrotting around the world making business deals and friends.  “Friends” as in business partners that are treated with respect and equitable deals.

Europe is another “twilight zoner.”  I don’t understand what they can be thinking.  Late in the week they were considering further sanctions against Russia which included “oil technology” but not gas.  No, never gas…because the fall season is but two months away and in a “non- climate controlled” world is normally followed by a winter with cold weather.  If Russia were to retaliate by closing their natural gas spigots, yes it would affect and be painful for Russia.  But, it would affect Europe much much more as Russia is their largest natural gas supplier with no one standing in the wings to fill the void.

We also found out that the government of Ukraine collapsed on Thursday, what effect will this have?  Will past “deals” or pledges be honored by a new government?  Will any new government be more anti-Russian or move closer to Russia?  Will they give louder or softer pleas for help from the U.S.?  Or none at all?

I wrote last week and had a chance to speak to and hear many varying opinions while at the Sprott Money conference in Vancouver this week.  There seemed to be many different views from both sides of the spectrum, some believing that Putin is the bad guy and others believing the U.S. was the provocateur.

So which side is correct?  I go back to what I said recently, if Russia really wanted military action we would have already seen it long ago… good reason or no.  With each conversation that I had, I always reserved one question for the end which I believe opened the eyes of thought for almost 99% of who I spoke to.  First, the U.S. has THE best satellite system in the world.  Where exactly in the world do you think that we have recently had our most vigilant attention?  Do you believe that it is possible that “we missed it?”  “It” being the missile launched and the plane coming down.  So how is it possible that we have not shown pictures of the launch?  With exact coordinates and a nice shiny bright map with pins stuck in it showing that it was “Ivan” who in fact launched the attack…

Instead, we are watching finger pointing with almost no proof at all and we’re steered toward “you tubes” to whip up sentiment.  Now, the black boxes which were not “tampered with” will be examined under the “impartial” eyes of Great Britain.  Even this has ramifications because it has been reported that Russian oligarchs are pulling up stakes and withdrawing assets from London.  Who could have possibly foreseen this action?  This really does scare me because it looks as if we (and Europe) are hell bent on pushing Mr. Putin either into a corner or until he decides “no more.”  The odds of this morphing into a live and global conflict rise each time someone on either side opens their mouths.

I do want to point out that as was believed all along regarding Syria and now Ukraine, it all has to do with “energy.” This past week it was reported that none other than Joe Biden’s son has involvement in Ukraine’s gas business.  He is a director at Burisma which is Ukraine’s largest gas producer.  Any potential “conflict of interest” here?  Naw, I didn’t think so!  In any case, this is very high stakes business where both sides have the capacity to destroy life on our planet.  My hope is that a conflict is not manufactured and used as a reason that “our sound policies didn’t work.”  Mathematically the dollar and the rest of the Western financial policies are doomed to failure.  Nothing can change this, however, “perception” can be altered and this is exactly what both sides are trying to do.

Before finishing I do want to mention that current U.S. policy is 180 degrees backward from what the goal supposedly is.  It is imperative that demand for the dollar remain strong, we are pushing other sovereigns around and making the decision to abandon the dollar an easy one to make.  We are telling Russia “you cannot use dollars.”  We are sanctioning large banks with fines and making it so that their board of directors would be negligent if they continued to use dollars.  One can only surmise that the illogical actions are part of a grand plan, the question is “who’s” plan?

They’re Screaming We’re Not Going to Let You Out

Andy Hoffman joins Rory Hall from The Daily Coin to discuss the 10 year Treasury yield, the bond market, negative GDP growth, big attack on gold and silver, the U.S. economy collapsing, home sales are dropping, China and Russia.  To listen to this interview, please click below.

Andy Hoffman They’re Screaming We’re Not Going to Let You Out

The Best Laid Plans

On his weekly podcast, Andy Hoffman discusses negative interest rates, 10 year Treasury yield, jobless claims, home sales, Europe, gold and silver.  To listen to the audio, please click below:

Download the MP3 File: The Best Laid Plans

Video: The Best Laid Plans

The End of Gold and Silver Mining

How many reasons to own precious metals- and fear all else-what can I say? I guess we’ll see today, culminating in today’s topic du jour – the increased confidence in our long-standing prediction that not only has global gold and silver mining peaked, but will likely not rebound material even after the Cartel’s inevitable demise.

Let’s start with the so-called U.S. “recovery”; which with each passing day becomes more widely understood to be nothing but a scam fabricated by the propaganda machines in New York and Washington. To wit, when the CEO of Wal-Mart says demand weakness is pervasive and entirely non-weather related – it strains credibility to believe otherwise.  I mean geez, U.S. movie box office sales are down 25% year-over-year and 41% from two years ago!  Yesterday’s news that the IMF downgraded the U.S.’s 2014 GDP growth outlook to a measly 1.7% only solidifies this view; not to mention, its “recommendation” that the Fed maintains zero interest rates well past mid-2015.  Putting the “nail in the coffin,” Caterpillar – the world’s largest construction equipment contractor – just announced its 19th straight quarter of year-over-year revenue declines!

DavidStockmansContraCorner.com

That said, when even the “1%” is suffering, it’s even more damning.  And in no sector is this more evident than golf, where Dick’s Sporting Goods just fired 400 PGA golf pros due to plunging demand.  I’ve been to my local Dick’s several times in recent months; and by and large the golf section is a ghost town.  Not to mention, the golf course I live on; which by my estimation has probably held 75% fewer client-sponsored tournaments this year.  Heck, my good friend in the “golf entertainment” business told me his July business is down 95% this year with the only gig he performed discounted by 60%.  And guess who his lone client was?  None other than the U.S. government!

In the run-up to next Wednesday’s FOMC meeting, TPTB’s best laid “deception plans” have been under siege; as not only are “extraneous” events like the MH-17 tragedy emerging at an alarming pace, but the PPT has inadvertently created a 1999-like equity bubble – whilst Treasury yields plummet to the year’s lows, in what we described as the “most damning proof yet of QE failure.”  Actually the equity bubble is far worse than 1999; as back then, the entire population participated, under the false assumption of a “new paradigm” of economic prosperity.  However, this time around, it is entirely due to Fed money printing and PPT “support” – with only “the 1%” participating.  To wit, recall the incredible charts we published last week of how – thanks to Cartel suppression – gold and silver prices are now dramatically more “oversold” than at any time in history.  Conversely, as you can see below, the S&P 500’s MACD indicator is now more “overbought” than the 2000 peak (and way above the 2007 peak); which frankly, is the most shocking market development of my 25-year career.  Back in 1999, when I was an oilfield service analyst at Salomon Smith Barney, the market was so red-hot my team’s investment bankers were forcing us to focus all efforts on “internet oilfield stocks,” which they wanted to take public at multi-billion dollar valuations.  In fact, the “Bubba to Bubba” report I penned in February 2000 is unquestionably the most well- read piece I have ever written.  That my friends, was a bubble!

Black Graph

Back to precious metals, the current “suppression tactics” are more onerous than anything I’ve experienced in my 12+ years in the sector.  Literally, the “caps and attacks” occur from the second thinly-traded paper platforms open Sunday night to the second they close Friday evening.  Every rally is immediately squelched with “Cartel Herald” algorithms, every “key attack time” utilized, and all “PM-positive” news met with heightened paper selling and accompanying anti-PM propaganda.  That said, PMs are still the best performing asset of 2014, which should tell you all you need to know about the inexorable growth of global demand – principally from the Eastern hemisphere.

In our view, gold and silver fundamentals are by far, the most bullish since their respective bull markets commenced at the turn of the century.  To that end, as we wrote in “That Other Reason to Own Gold,” the outlook for global production may be as dire as the demand outlook is explosive.  We have written ad nauseum of the ugly circumstances that have yielded flat production from $250 gold in 2000 to $1,300 today.  However, said combination of product scarcity and exploding mining costs is accelerating, yielding our belief that regardless of price, production could plunge by 25% or more in the coming five years.

Recall last week’s article from the great Steve St. Angelo describing how the five largest gold miners’ 2013 ore grades hit an all-time low; ominously, during a period of “high-grading” that will only cause grades to plunge further in the coming years.  Since 2005, the average ore grade of these five companies, which cumulatively produce 35% of the world’s gold has plummeted by an astounding 29% to a measly 1.2 grams per tonne – or 1.2 parts per million.  Conversely, the amount of ore processed rose by 28% depicting how the utter explosion of production costs is occurring across-the-board.

Moreover, the new project pipeline is nearly non-existent; as care of depletion, exploding costs, and onerous permitting and environmental issues (not to mention, tragic mine collapses like Utah’s Kennecott), there have been practically ZERO major discoveries in the past decade.  Not to mention, massive cancellations and postponements such as Ecuador’s Fruta Del Norte and Argentina’s Pascua Lama.

2 Gold Graphs

Equally importantly, the junior mining industry – where nearly all major discoveries have traditionally been made – is not just dying, but dead.  The “capital strangulation” the Cartel – and a handful of major Canadian banks – has caused since 2007 has finally reached the “max pain” level; as no doubt, roughly three-quarters of all junior miners have since been bankrupted.  Trust me, I know as from 2002-08 my entire portfolio consisted of junior miners, and from 2006-11 I worked in the junior mining industry.  We discussed this inevitability in last year’s “Junior Mining – and Future Production – Death”; and this week’s announcement that the San Francisco and New York Hard Assets have been indefinitely cancelled “seals the deal” on our predictions.

I have been to all the major North American conferences, and no doubt San Francisco show was America’s largest and best.  With it now gone, as well as the less impressive, but highly symbolic New York show it should be crystal clear that the sector for all intents and purposes is bankrupt.  In Canada, the Cambridge retail mining conferences in Toronto or Vancouver remain on the docket.  However, the same fate will no doubt befall them in 2015 if PM prices are not dramatically higher.

Given exploding costs and “time to production” (from discovery to commercial mining) the financial hell rained down on the industry by seven years of gold, silver and mining share suppression will not be overcome by any circumstance – including the Cartel’s inevitable collapse.  In other words, the “perfect storm” of unprecedented global demand and historically low production is all but ensured; and possibly, far sooner than most could imagine.  Thus, while the “end of mining” may not occur literally, it by all and intents already has practically.

Radio Appearance with John Stadtmiller of RBN – July 22, 2014

Andy Hoffman joins John Stadtmiller of the Republic Broadcasting Network to discuss JPMorgan recent fines, U.S. dollar reserve, London Gold Fix, Germany, Russia, U.S. housing market, gold and silver.   To download the audio, please click on the link below:

Andy Hoffman – Republic Broadcasting Network – July 22, 2014

Peak Madness

Since TPTB realized their fiat Ponzi scheme had passed the “point of no return” in mid-2011, market manipulation has reached heights never before imagined – culminating in last week’s “absolute peak of lunacy,” when Goldman Sachs invoked the long discredited “Fed Model” to predict the S&P 500 would double by year-end if both Treasury yields and corporate earnings utterly implode.  Which, by the way, may well occur if the nearly all-time low in the Baltic Dry Index (including the weakest July in 28 years) means anything.

Zero Hedge

Zero Hedge

In holding the vast majority of my net worth in physical precious metals, it has been extremely difficult to watch gold and silver trashed by fraudulent naked shorting and covert Western dishoarding (to the East) over these three painfully long years.  However, my frustration in the accompanying global propaganda campaign has been far more powerful.  To wit, if Miles Franklin were based in China it would be experiencing record sales due to deep-seated time-honored Chinese knowledge regarding the value of, and urgent need to own precious metals.  Here in the States, however, anti-gold propaganda is so powerful, that most “investors” would sooner believe Goldman Sachs’ ridiculous assertion that gold will fall to $1,050/oz. – despite the most powerful fundamentals of our lifetimes and a mining industry on the brink of collapse.  Even the most powerful technical charts we have ever seen are ignored, such as this astoundingly bullish 43-year MACD chart for gold (silver is roughly the same); in essence, inadvertently created by the aforementioned three years of extreme counter-trend suppression.

Brown Graph

Everywhere we look – political, economic and social – blatant propaganda is prevalent and outright lies the norm.  So much so, that most people don’t seem to care anymore as the brainwashing of “the 99%” has so powerfully overcome their instincts.  For example, I was literally bowled over by the lunacy of the U.S. government immediately accusing the Russians of downing MH-17 – when we had essentially no evidence and no sentient being could proffer a coherent Russian motive.  Just days later, when the Russians published an iron-clad forensic analysis depicting a high degree of likelihood that not “pro-Russian separatists,” but the U.S.-supported Ukrainian government was responsible, the U.S. government suddenly changed its tune.  And thus, less than a week after accusing Russia of genocide, “U.S. Intelligence Officials” – better yet, “on condition of anonymity” – now claims MH17 was mistakenly shot down by separatists, with “no visible link to Russia.”  However, from the other side of their mouths, they claim Russia “created the conditions” for the downing of MH17.  I mean, seriously!  Just how little credibility can the U.S. government have regarding such an incredibly sensitive tragic event with the potential for yielding a global “Archduke Ferdinand Moment?”

And then there’s the insanity relating to the unrelenting propaganda of economic “recovery,” when the aforementioned Baltic Dry Index – and essentially all measures of real activity – state otherwise.  Including, by the way, one of the weakest GDP prints in U.S. history, utilizing the lowest ever price deflator amidst surging “need versus want” inflation.  Let alone, the “dog ate my homework” excuse that “the weather” was responsible despite iron-clad proof otherwise.  Better yet, we are actually seeing the weather excuse now during the summertime despite the warmest global May and June ever.  To wit, no less than the “International Council of Shopping Centers” claims “unseasonably cool weather hurt consumer interest in summer merchandise, despite clearance prices”; ending the statement in true Wall Street-like propaganda form, predicting such ‘pent-up demand’ may “shift to back-to-school shopping.”  Again, these are actual quotes from actual people in positions of authority!

Next up, we have Nobel Prize winning economists claiming history’s largest-ever debt explosion to be a non-event.   Yes, Paul Krugman – i.e., the Jeffrey Christian of economics – actually claimed the Congressional Budget Office’s own government-sponsored forecast that the national debt will reach $52 trillion by 2039 does not connote a debt spiral.  Better yet, his “proof” is the CBO’s simultaneous expectation that interest rates will only rise to 4.1% over the intervening 25 years whilst real GDP growth will average 4.3% (don’t worry, inflation is not possible).  Again, I’m not making this stuff up.  This is an actual Nobel Prize winning economist, regularly quoted in the most “prestigious” media outlets.  Ominously, under such assumptions, if real GDP “only” grows by 3.3% per annum during this period and interest rates do not rise above the aforementioned 4.1% level (well below historical averages), the budget deficit would spiral from $1 trillion per annum to roughly $7.5 trillion.  But don’t worry, this can’t happen, Krugman claims; as if so, “people will fear we’re about to turn into Greece – Greece, I tell you.”  Nuff’ Said.

Even the world’s smartest anti-propagandist website – i.e., Zero Hedge – can’t even get the most obvious manipulation in history correct; such as yesterday, when amidst surging energy prices, plunging Treasury yields, and wildly PM-bullish news in every imaginable direction, it attributed the gold market surge at 8:40 AM EST to the “hot” CPI report at 8:30 AM EST – and the ensuing plunge to the existing home sales “beat” at 10:00 AM EST.  Actually, the headline CPI number of +0.3% – rigged or otherwise – met expectations, whilst the core increase of +0.1% was lower than the expected 0.2%.  And as for the existing home sales “beat,” I’d hardly call 504,000 (seasonally adjusted) sales versus the expected 499,000 noteworthy.  In the big picture, following its usual 8:20 AM COMEX-opening plunge, gold attempted to rally at the only time of day such movement is “allowed” – before being viciously knocked down at the 10:00 AM EST “key attack time #1,” when the global physical markets close.  Better yet, when gold attempted to rally later in the day, take a guess what time it was again smashed back down.  Yep, exactly the 12:00 “cap of last resort” I first described a decade ago.  Sorry to bring this  topic up again, but in my view, such repetition – broadcast daily over the worldwide web – is one of the best methods of spreading truth; and ultimately, ending the price suppression destroying the global monetary system.

2hr Charts

And finally there’s the dissemination of PM-positive, non-PM negative “horrible headlines” that saturate the airwaves each and every hour.  I mean, to see such Western complacency towards gold and silver is utterly astonishing, when in just the past 24 hours headlines emerged such as “Turkish Prime Minister cuts U.S. ties, mulls de-dollarization with Russia,” “Portuguese President admits Espirito Santo failure could be systemic,” “Gaza death toll exceeds 600,” “NY Fed slams Deutschebank (and its €55 Trillion in Derivatives), accuses it of “Significant Operational Risk”; “One week left until Argentine default,” “Market Manipulation Probe Escalates as UK Opens Criminal Investigation Into Foreign Exchange Rigging”; “Venezuela’s Transformation To Socialist Utopia Is Nearly Complete as Its Factories grind to a Halt”; “China’s Clout on Show With BRICS Bank Formation,” “China signs currency swap worth 150 billion yuan with Switzerland,” and “Credit Suisse to Exit Commodities Posts Biggest Quarterly Loss since 2008.”

Fortunately, no amount of money printing, market manipulation, and propaganda can manufacture physical gold and silver which will unquestionably experience exponential demand growth ad infinitum amidst plunging worldwide production.  Richard Russell is dead on in his recent comment that,

It looks as though the U.S. has sold all its gold – and then some – in its frantic effort to keep a lid on the gold price.  Worse, many foreign nations have kept their gold “safe” and stored in the U.S.

-King World News, July 22, 2014

And thus, given the aforementioned laws of “economic mother nature,” it’s just a matter of time – likely, much sooner than most can imagine – before the entire scheme to control perception via market rigging implodes.  Jim Sinclair believes that time is this Fall; and even if he’s wrong, it likely won’t be by much.  And thus, we can only plead with readers to consider protecting themselves during this narrow window of summer doldrums-inspired lethargy – and “peak madness” – before the inevitable “end game” commences.

 

Miles Franklin Q & A: Interest Rates Affect Far More Than Just Derivatives

With the obvious and continuous price manipulation in the paper gold and silver markets, why does anyone use those markets to base the physical price on any more? 

Why doesn’t the physical market make a clean break from the fake paper casino? 

Have two markets: one based on paper for the manipulators to play their games (with no relation to the physical price), and a second that is strictly tied to physical, cash only (no leverage) settlement with only the physical metal?

Thank you for your time

David Schectman’s Answer:

The futures market was originally set up to allow producers (miners) to hedge the price of their “gold in the ground.”  The futures market does serve a purpose.  If a gold mine needs capital for exploration, expansion or for operating expenses, the bullion banks that lend them the funds collateralize the loan with a set price (a futures contract on COMEX) for enough future production to cover the loan.

The problem occurs when non-producers like the six bullion banks (Barclays Bank PLC, ScotiaMocatta, Deutsche Bank AG, and HSBC Bank, JPMorgan Chase Bank & UBS AG) buy and sell contracts with no intention of taking delivery of gold or silver.  That is, for lack of a better word, legalized gambling.  Add to the mix the large momentum hedge funds.  The “paper” gold and silver traded on a daily basis has no relationship to physical metal supply and demand fundamentals.

Recently, there were gold contracts dumped on the COMEX in a matter of a few minutes that were equal to around five times the gold that was available for delivery.  Of course, they were settled with dollars, not with physical gold.

According to Jim Sinclair, there is a move afoot in the Far East to establish gold exchanges that deal only in physicals, and do not allow margin.  Yes, Merril, in the next year you may see the divorce of the paper market and the physical market that you mention.  When that happens, the physical market will set the price of gold and silver, not the paper market.  All of us, who own physical gold and silver and/or sell precious metals, look forward to that day.  It is coming.

Read Ed Steer’s comments in today’s newsletter.  He sheds some light on the manipulation.

Thanks’ for your question

David

I have a question for your Q&A day on Wednesday.

Tell me please how the interest rate, i.e. 10 yr. Treasury Rate effects the derivative market?

Bill Holter’s Answer:

BIG question George and one probably above my pay grade if you want the nuts and bolt internals of the motor.  All derivatives have “interest” rates factored in as a cost to carry or to maturity.  First there are direct derivatives on interest rates themselves, so there is a direct effect.  Next, most all derivatives have a cost to carry or a “spread” if you will that is calculated from the beginning of the contract.  Interest rates are a very big factor particularly in foreign exchange contracts.  If interest rates move in a big fashion during the contract’s life, the original assumptions can be turned upside down and create unforeseen losses (or gains).  If rates move far enough there can be systemic risk if enough losses mount in individual books.  The problem is that everyone does business with everyone else and if there are individual banks or players that are bankrupted then they cannot make good to the “winners” which turn the winners into losers.

This is a very basic primer to a subject that is so complicated that it takes PHD’s in math to create the contracts in the first place.  The problem is that these PHD’s make their calculations with models of “past behavior” i.e. there can never be a hurricane somewhere because it has either never or almost never has happened before.

Of course, interest rates affect far more than just derivatives, everything “financial” in fact up to and including whether or not the U.S. Treasury can make their interest payments.  We may get to see what volatility in interest rates can and will do first hand in the not too distant future?

Hello, for your Wednesday Q&A day:

Would you mind addressing the outrageous statement made by Doug Casey recently that “Gold Manipulation Allegations are Ridiculous”? Link below:

http://www.kitco.com/news/video/show/FreedomFest-2014/722/2014-07-11/Gold-Manipulation-Allegations-Ridiculous—Doug-Casey

I thought Doug Casey was one of the good guys all these days. But is what he saying part of a controlled message: saying the right things most of the times (attacking Federal Reserve, inflation threat) interrupted outrageously? There are many examples of individuals like this, and it becomes a credibility issue for precious metals community. For example:

Jim Rickards – Works for IMF bankers, pushing digital SDR fiat currency for entire planet Jeffrey Christian – Works for World Bank & IMF. What more needs to be said about this fellow?

Bix Weir – Always present on GATA, but claims Alan Greenspan was THE good guy working for gold standard?!

[To be fair, one of Doug Casey's guys Bud Conrad had gone on record few months ago implicating JPMorgan in massive market riggings for many commodities - not just gold or silver. Video link below:

https://www.youtube.com/watch?v=SSeOVf0D-VQ

Andy Hoffman’s Answer:

This question is dead on.  We are not one to question his motives, but the vehement message of “no manipulation” makes not the slightest bit of sense for someone so intelligent and entrenched in the pro-gold camp.  The same goes for Rickards, who clearly has moved far more toward the side of truth in recent years (my guess is he is no longer a political “insider,” and thus is more inclined to tell it like it is).  As for Christian, no one has told as many blatant “mistruths” than anyone I am aware of in the PM world.  No doubt his motives are not based on truth, and given his background at Goldman Sachs, we are not surprised.  Bix is a unique case, as he is not saying Greenspan is “good”; but rather that he was part of some complex conspiracy that I have trouble understanding.  In the end game, Bix says the system is corrupt and one should own physical silver, so outside the strangeness of his message, he’s got the final recommendation right.

The moral of the story here is that, as I have long espoused, the most important research one can do is to find the handful of “good, smart people” that not only speak the truth, but have your best interests at heart.  They can be very difficult to spot sometimes, as within the financial industry, people have widely varied skill sets and motives.  And yes, given he has so many good people working for him, and presumably should be aware of the single most important and obvious aspect of PM trading.

New BRICS Bank Is Big

Bill Holter joins Kerry Lutz of the Financial Survival Network to discuss the new BRICS bank, the U.S. dollar, Germany, the new reserve currency, China, current debt levels, housing prices, GDP, gold and silver.  To listen to the interview, please click below.

Bill Holter – New BRICS Bank Is Big

Passing the Baton

The biggest news last week was that the BRICS bank has been formed and being funded.  Some may argue that the downing of the Malaysian airline flight was bigger but I don’t think so.  From a money and banking standpoint, the formation of the BRICS bank is the BIGGEST news since either 1971 or 1973 when the U.S. defaulted off of the gold standard or when the Saudis stepped up to the plate for the petrodollar.

The formation of the BRICS bank is in direct competition with both the IMF and The World Bank.  Both of these are “U.S.” controlled banks and the currency that they lend to “help” or “save” countries with are dollars.  During our lifetimes these two banks have been the lender of last resort for troubled banks, banking systems and sovereign countries.  Often the loans led to alleviating liquidity problems in the short term but then created bigger problems for borrowers in the long term.

Stepping back to look at what has happened and “why” the BRICS decided to form this bank is an important exercise.  This will allow and facilitate trade between nations without using dollars.  This is important because of the recent “fine” paid by French bank PNB Paribas and the looming fines for both Commerzbank and DeutscheBank of Germany.  They transacted business for customers which broke U.S. sanction “rules” regarding Iran and Sudan.  These fines as I understand it were levied because the money transfers were in dollars.  Anyone even simple minded would understand that to avoid any future “fines,” you just don’t use dollars.  It is this simple and foreigners will now use fewer dollars because they don’t have to use them and it is “safer” for them from a “risk” standpoint.

The BRICS bank has been a long time coming and certainly not done in secret.  This news has been widely known by foreigners in real time.  It has been a different story for Americans.  Mainstream U.S. press has barely even whispered the news yet it is the most important event for at least a generation.  To put it in perspective, this is the nullification of Bretton Woods outright.

I think that it’s important to understand that the action of forming a non-dollar competitive bank could only have been done if “everyone” went along with it.  We have seen in the past what has happened when a country spoke of no longer using the dollar.  Their “ruler” was displaced and the country as in the case with Iraq was bombed back into the Stone Age.  This is now a simple case of all the schoolyard kids lining up against the bully and “saying” (not asking) “what are you going to do about it?”

I have been very boisterous in my opinion that Saudi Arabia would be the final straw that breaks the back of the dollar.  They have had top level talks with both Russia and China with very little comment or “statement” after the meetings.  What was said?  What was decided?  My guess is that Saudi Arabia was “told” what was going to happen.  This is no different than a marriage that breaks up or even when “Mafioso” migrate from a weakening family to one that is strong and getting stronger.  Saudi Arabia will move to the East.

If you recall the movie “Rollover” from 1981 you will remember the scene where Kris Kristofferson talks about the Arab’s selling Treasuries and dollars.  Any announcement by the Saudis that they will accept currencies other than dollars will make “Rollover” come true …exponentially!  I say “exponentially” because the system is now 35 years into the futures and at least $1 quadrillion more bloated with debt and derivatives.  The system will implode and “wealth,” paper wealth will evaporate overnight.  As is said in the movie, “$2,000 gold will be cheap by tomorrow morning,” gold at the time if you remember was $400-$500.

Please understand the “what and why” of the BRICS bank.  The Chinese, Russians and the rest of the world know that the petrodollar system is on its last legs.  The case can even be made that the rest of the world has “carried” the U.S. for a few rounds so that they could get their ducks in a row ahead of time.  The BRICS bank has been put into place because there has to be “something” to “start over with.”  Prior to this bank being formed, were the Western banking system to implode the rest of the world had no alternative.  When I say “alternative” I am talking about no other clearing system and no place to “hide” so to speak.

It is clear to me that the BRICS bank formation and the massive accumulation of gold over the last several years has gone hand in hand.  “The rest of the world” has known for some time that the dollar, the U.S. and the entire Western financial system was on shaky ground and had finite lives.  A plan to distance them from the inevitable was formed and has been carried out.  All that now remains in my opinion is for Saudi Arabia to defect from the U.S. and knock the last remaining leg out from under the dollar.

My opinion as you already know is that within two weeks of a Saudi announcement, our world will change.  The purchasing power of the dollar will crash; this in turn will mean that more dollars will be needed to pay for foreign imported goods.  This will affect you directly when you “shop”… for anything.  The inflation which we have been exporting for all these years will wash back onto our shores.  The “baton” of world reserve currency issuance is being passed right before our eyes.  Actually I should reword this; the baton is being TAKEN from us because we have so badly abused the privilege.

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