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Monday, November 4, 2013

Gold World News Flash

Gold World News Flash

Society is ripe for collapse! – Greg McCoach Interview

Posted: 04 Nov 2013 12:00 AM PST

GOLD, SILVER & BITCOIN: A Rebel’s Portfolio?

Posted: 03 Nov 2013 08:45 PM PST

Physical gold and physical silver are precious tangible assets, and both of these monetary metals have been treated to a rough patch in price over the past couple of years. Sure, this makes them an even better buy, but the real salt in the wound for silver & gold bugs is the price action in the crypto currency Bitcoin, which has skyrocketed from around $9 to a current price of around $200 this year alone. That’s the price action we ought to have seen in silver if it traded as freely as Bitcoin. In this interview with Justin O’Connell from GoldSilverBotcoin.com we try to get to the bottom of what’s causing Bitcoin to rise so high, and ask the fundamental question: Should Bitcoin be a part of a monetary rebel’s portfolio?

Maguire – Gold War Heats Up As Stunning Events Taking Place

Posted: 03 Nov 2013 08:00 PM PST

from KingWorldNews:

I know that the wholesale markets are very strong. And I can say that (in the month of) October, we are still evidencing 180 to 185 tons (of gold) a month coming out of Shanghai. So that's very, very strong.

Obviously when you get price discounts like this, wholesale demand rapidly increases. I think that we would see sovereign and central bank demand certainly coming in in the low $1,300s here — anticipating that this might be a possible bottom.

If there was any breach of $1,300, it would be short-lived. As we've discussed before, central bank and sovereign buying ramps up exponentially once we ever cross that line.

Maguire continues @ KingWorldNews.com

Guest Post: Yellenomics – Or The Coming Tragedy of Errors

Posted: 03 Nov 2013 05:35 PM PST

Submitted by Pater Tenebrarum of Acting-Man blog,

Keynesian Paradigm to Be Revived

We have come across a recent article at Bloomberg that discusses the philosophical roots of Janet Yellen's economics voodoo. This seems in many ways even more appalling than the Bernanke paradigm (which in turn is based on Bernanke's erroneous interpretation of what caused the Great Depression, which he obtained in essence from Milton Friedman).

Janet Yellen, so Bloomberg informs us, was a student of the Keynesian James Tobin at Yale, the economist whose main claim to fame these days is that a tax is named after him. Tobin, like other Keynesians, was an apologist for central economic planning, which made him eligible for the central bank-sponsored Nobel Prize in Economics. He was undoubtedly a man after the heart of the ruling class. It is therefore not a big surprise that one of his students gets to run the Federal Reserve, which is one of the main agencies, if not the main agency, by which the rule of money power and central economic planning are perpetuated. It should be noted that the inflationist who runs the central bank of Argentina, Mercedes Marco del Pont, was also trained in Yale. Marcos del Pont once asserted sotto voce in a speech that the enormous ongoing plunge in the purchasing power of the Argentine peso was not a result of her incessant massive money printing. Since she didn't deign to explain what actually causes it then (foreign speculators perhaps? Just guessing here…), it presumably is just a case of 'sh*t happens'. This just as a hint as to what can be expected from economists trained at Yale. 

From the Bloomberg article:

“When James Tobin joined President John F. Kennedy’s administration in 1961, the U.S. economy was struggling to recover from its third recession in seven years. As a member of Kennedy’s Council of Economic Advisers, the Yale University professor put his theoretical research on asset markets to work in fashioning a novel strategy — nicknamed Operation Twist — to reduce long-term interest rates.

 

Now, more than half a century later, two of Tobin’s Ph.D. students — Janet Yellen, nominated to be the next chairman of the Federal Reserve, and Koichi Hamada, a special adviser to Japanese Prime Minister Shinzo Abe — are applying some of those same concepts in their efforts to boost their respective countries’ economies.

 

Tobin’s work on asset markets with fellow Yale professor William Brainard “is essentially the backbone of quantitative easing,” said Edwin Truman, a former Fed official who taught at the school in New Haven, Connecticut, from 1967 to 1972.

 

The portfolio-balance theory found that policy makers had the ability to affect the prices of individual assets by altering their supply and demand in the financial markets. And that in turn would have an impact on the economy.

 

The research won Tobin the Nobel Prize in economics and formed the justification for the late economist’s strategy to twist the bond market’s yield curve in 1961 by selling shorter-dated securities and buying longer-term ones.”

(emphasis added)

Naturally, the Bloomberg article neglects to mention that Tobin's toxic advice to Kennedy laid the foundation for the later Nixon gold default and the roaring 'stagflation' of the 1970s.

What is not surprising though is that one of the witch doctors advising Shinzo Abe on his hoary inflationist policies also turns out to be a Yalie indoctrinated by Tobin. The only good thing we have to say about this particular circumstance is that it will accelerate the inevitable collapse in Japan, and thus perhaps bring forward the moment in time when unsound debt and malinvestments in Japan are finally liquidated.

Unfortunately it is to be expected that this will involve massive theft from Japan's savers and bring misery and misfortune to millions, as the statists will no doubt try everything to save the present system. The eventual confiscation of the citizenry's wealth is undoubtedly high on their agenda for dealing with 'fiscal emergencies'  (for proof, see the recent proposals by the IMF, which are more than just idle thought experiments. They are the blueprint for what we must expect to happen down the road).

 

 

Tobin

Keynesian economist James Tobin – he looks harmless enough, but was a wolf in sheep's clothing. There is no government intervention in the economy he didn't like or recommend. His work was directly responsible for the catastrophic 'stagflation' of the 1970s.

(Photo via AFP / Author unknown)

 

 

The Economic Illiteracy of the Planners

Bloomberg also  brings us a brief excerpt from a speech Ms. Yellen delivered on occasion of a reunion of the Yale economics department. The excerpt perfectly encapsulates her and the department's philosophy (which is thoroughly Keynesian and downright scary):

“Fed Vice Chairman Yellen laid out what she called the “Yale macroeconomics paradigm” in a speech to a reunion of the economics department in April 1999.

 

“Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not,” said Yellen, then chairman of President Bill Clinton’s Council of Economic Advisers. “Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes,” although there is “uncertainty with which to contend.”

(emphasis added)

She couldn't be more wrong if she tried. We cannot even call someone like that an 'economist', because the above is in our opinion an example of utter economic illiteracy.

First of all, the premise she proposes is completely mistaken. The unhampered market economy is the only economic system that can guarantee maximum employment. Only in an economy where there is no intervention in prices and wages at all will all those who want to work actually find work. It is precisely because the state intervenes in the economy and fixes wages and prices that perpetual institutional unemployment exists. In other words, she has things exactly the wrong way around. Of course, we may concede that in a complete command economy, unemployment can be made to disappear as well – along with all traces of freedom, human dignity and wealth. There was no unemployment under Stalin, but we doubt that his army of slave laborers such as that he forced into digging the Baltic-White Sea canal was particularly happy.

Of course Ms. Yellen's contention that the class of philosopher kings to which she belongs “has the knowledge and ability to improve macroeconomic outcomes rather than make matters worse”, must be answered with a resounding 'No'!

The historical record of interventionism speaks for itself: it is a history of constant, recurring failure, that quite possibly has thrown back economic and technological progress by decades, perhaps even centuries.

It can not be otherwise; if it were otherwise, then socialism would work, but socialism demonstrably cannot work. The same problem that makes socialism a literal impossibility – the calculation problem identified by Mises in 1920 – applies in variations to all attempts at economic planning. Central banks are a special case of the socialist calculation problem as it pertains to the modern financial and monetary system (see also J.H. De Soto's work on this point). Similar to the planners of a putative socialist economy in which the means of production have been nationalized and where therefore prices for the means of production no longer exist, the interventionists populating central banks cannot 'calculate'.

They cannot gauge the opportunity costs involved in their actions and compare them to the outcomes, as they are not subject to the market test -  the categories of profit and loss have no meaning for them. There is in fact nothing on which such a calculation could be based. It is an absolute certainty that their interventions will result in precisely what Yellen asserts will not happen: they will “make matters worse”. It is simply not possible for a central economic planning agency to 'improve' on a market-derived outcome. The Federal Reserve's handful of board members cannot 'know' what the ideal level of interest rates for the entire market economy is. Only the market itself can determine the state of society-wide time preference, and thereby establish the natural interest rate. The interventions of the central bank are intended to impose an interest rate that deviates from the natural rate, on the absurd theory that a gaggle of bureaucrats 'knows more' than the entire market!

The reality of what they know and don't know is amply demonstrated by the outcomes of their policies: the recurring booms and busts that have consistently damaged the economy structurally, and which have finally led to a situation where the economy found itself actually worse off when the last boom ended than it was on the eve of the boom. This demonstrates a rare gift for destruction, as normally credit booms cannot crimp the progress of capitalist economies completely. With the Fed at the helm, it has however apparently become possible now to actually enter a cycle of economic regression. Not only are we worse off than we would have been otherwise, we are now worse off in absolute terms as well. These people know less than nothing, which is to say, they do possess knowledge, but it is in a sense negative knowledge, due to the destruction it brings.

Here is Ms Yellen at a post 2008 bust hearing – from a report in the NYT that was dug up by Zerohedge a while ago (here is a link to the audio recording):

 

“Ms. Yellen told the Financial Crisis Inquiry Commission in 2010 that she and other San Francisco Fed officials pressed Washington for new guidance, sharing the problems they were seeing. But Ms. Yellen did not raise those concerns publicly, and she said that she had not explored the San Francisco Fed’s ability to act unilaterally, taking the view that it had to do what Washington said. “For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.” Her startled interviewers noted that almost none of the officials who testified had offered a similar acknowledgment of an almost universal failure.”

 

(emphasis added)

Robert Wenzel among others already reported on Ms. Yellen's absolutely dismal forecasting record. The reason why we are bringing this point up is that it has to be contrasted with the picture painted of her in the mainstream press, where she is regularly portrayed as a veritable Cassandra who foresaw the crash taking before anyone else did – but curiously did absolutely nothing about it, in spite of her position as a Fed governor. For another excellent and very detailed deconstruction of the myth that Ms. Yellen ever knew what she was doing, here is a video by Peter Schiff, who has dug into all the evidence (these days it is luckily very easy to fact-check and expose the lies the media want us to believe). Note that although Schiff is obviously philosophically opposed to Ms. Yellen and everything she stands for, his assessment is very fair. Even so, it is utterly damning:

 

 

Peter Schiff on the myth that Ms. Yellen has 'forecast the crisis'. She forecast absolutely nada.

 

 

What To Expect

It will probably be best to prepare the funeral rites for the US economy. The seemingly inexorable lurch toward socialism is going to be taken up another notch with Ms. Yellen's nomination to Fed chair.  From the Bloomberg article we learn that Anglo-Saxon central banking socialism is indeed going global these days – and that Ms. Yellen is one of its foremost proponents:

“Janet was a force — perhaps ‘the’ force — behind the FOMC’s decision to move to an even more accommodative policy last December,” said Laurence Meyer, a former Fed governor who is now a senior managing director at St. Louis-based Macroeconomic Advisers LLC.

 

Hamada, who retired from Yale this year after a 27-year tenure, also has been aggressive in pushing for more monetary stimulus in Japan, going so far as to publicly criticize his former star pupil Masaaki Shirakawa for not doing enough to lift growth when Shirakawa headed the central bank from 2008 to March of this year.

 

That was “a little bit of stepping out of the Japanese character,” said Richard Cooper, who taught Hamada at Yale and is now professor of international economics at Harvard University in Cambridge, Massachusetts. “It shows the American influence.”

 

The 77-year-old Hamada is one of the architects of the reflationary policies known as Abenomics and played a role in choosing Haruhiko Kuroda to replace Shirakawa as governor of the Bank of Japan. Under Kuroda, the BOJ is buying more than 7 trillion yen ($71.3 billion) in bonds a month in a bid to spur growth in the world’s third largest economy. The central bank today maintained its unprecedented easing and forecast that inflation will reach its target, even as some board members cautioned the price outlook was too optimistic.

 

The BOJ program “is an extension of the Yale Tobin-Brainard approach,” Hamada said in an interview. The Japanese central bank is “enhancing activity i

The dead end of interventionism

Posted: 03 Nov 2013 04:55 PM PST

"Government Exits Health Care Market" says a headline we'll never see.  Nancy "Are you serious?"/"pass the bill" Pelosi and her allies could tell us why.  Their statements about the poor and uninsurable notwithstanding, the whole point of the law was not to solve a problem, but to get a bill passed in the name of that problem.  Laws rarely if ever achieve the stated aims of the lawmakers, but once a law is on the books it becomes another foot in the door of the economy.  Even if it produces spectacular havoc and failure, the intervention itself will not be surrendered.  Why?  The people who championed ObamaCare are people for whom government is their raison d'etre.  To surrender the intervention would be to surrender power, and that kind of thinking has not produced the massive state we live under.

Besides, if the people who support government-mandated health care were serious about solving a problem they would not turn it over to the world's number one problem-creator.  

ObamaCare is already showcasing the inevitable effects of bureaucracy and interventionism.  If its level of incompetence is anything like FEMA's Americans will fear routine health checkups more than they do Cat 5 storms.  You'll recall it was Hurricane Katrina that launched FEMA from the pages of Catch-22 as we read about rescue personnel diverted to Atlanta for two days so they could be given classes in sexual harassment and FEMA history while people were dying in New Orleans and the U.S. president was telling FEMA head Michael Brown he was doing "a heck of a job."  To satirize government one need only report on it, as we saw last year when first-responder FEMA made a first response to a nor'easter by closing its offices.

ObamaCare of course is government's answer to government failure.  As an intervention, ObamaCare is the suppression of certain voluntary acts and the compulsion of other acts.  It's one more area where other people, not you, are in control of your life.

The key to the advancement of interventionism is how each stage is publicly perceived.  When interventions bring on a crisis, it's critical for interventionists that the free market take the blame.  Blame speculators, blame greed, blame Original Sin, blame the other party, but don't blame the government unless you're reprimanding regulators while calling for more or better regulation.  The reasoning behind this is straight-forward: If the free market is allowed to breathe, what would it do to the careers of people like Nancy Pelosi, Hillary Clinton, and Kathleen Sebelius - for that matter, any politician or bureaucrat?

Thomas DiLorenzo cites a 1992 study by Milton Friedman in which Friedman concluded that the problems in the American health care system are entirely due to government intervention.  DiLorenzo writes:
Friedman documented how, at the beginning of the 20th century, about 90% of all American hospitals were private, for-profit enterprises. State and local governments then began taking over the hospital industry. So, by the early 1990s only about 10% of all American hospitals were private, for-profit enterprises. Socialism characterizes at least 90% of all hospitals. Many other hospitals have received government subsidies, and with the subsidies come reams of regulation, making them fascist by definition. 
The effect of this vast government takeover of the hospital industry, Friedman documented, is what any student of the economics of bureaucracy should expect: the more that is spent on hospital care, the worse the quality and quantity of care become, thanks to the effects of governmental bureaucratization. According to Friedman, as governments took over an ever-larger share of the hospital industry (being exempt from antitrust laws), hospital personnel per occupied hospital bed quintupled, as cost per bed rose tenfold. 
Friedman concluded that "Gammon's Law," named after British physician Max Gammon, "has been in full operation for U.S. hospitals since the end of World War II." Gammon's Law states that "In a bureaucratic system, increases in expenditure will be matched by a fall in production.… Such systems will act rather like 'black holes' in the economic universe, simultaneously sucking in resources, and shrinking in terms of … production." Dr. Gammon surely knew what he was talking about, having spent his career in the British National Health Service.
Orthodox historians have always treated the Progressive period (roughly 1900–1916) as a time when free-market capitalism was becoming increasingly "monopolistic"; in reaction to this reign of monopoly and big business, so the story runs, altruistic intellectuals and far-seeing politicians turned to intervention by the government to reform and to regulate these evils. [Gabriel] Kolko's great work [The Triumph of Conservatism] demonstrates that the reality was almost precisely the opposite of this myth. Despite the wave of mergers and trusts formed around the turn of the century, Kolko reveals, the forces of competition on the free market rapidly vitiated and dissolved these attempts at stabilizing and perpetuating the economic power of big business interests. It was precisely in reaction to their impending defeat at the hands of the competitive storms of the market that big business turned, increasingly after the 1900s, to the federal government for aid and protection. [p. 38; emphasis added]      
With this understanding it's hardly surprising to find that health care industry lobbyists influenced and wrote the health care law. 

What blessings does intervention bestow?  It keeps headline writers busy.  Today it's ObamaCare's website and the cronyism behind its creation (health care intervention), yesterday and today it was and is NSA spying (privacy intervention), before that it was Putin trumping Obama over Syria (foreign intervention), sometime earlier it was IRS targeting of liberty nonprofits (economic intervention), then we have the pseudo-austerity of budget sequestration, the czars, Fast and Furious, Benghazi, the ongoing wars, student debt - youth unemployment, etc. ad infinitum throughout American history.  Government meddling also produces government debt, both official and unofficial, which according to economist Laurence Kotlikoff reached $222 trillion in 2011, an increase of $11 trillion from 2010.  But the headline writers don't talk about this.

Since 1913, a large part of the funding for an expanding government has been brought to us by the monopoly money producer of the U.S., the Federal Reserve, along with its partner in coerced wealth extraction, the Internal Revenue Service.  Since their creations both agencies have fine-tuned their craft, with the IRS benefiting from a war to get permanent tax withholding, and the Fed benefiting from a depression it inaugurated when FDR made it a felony for American citizens to own gold money.

Taxes, inflation, and debt do not profit most taxpayers.  For now the pain is tolerable for most.  But there will be a time when it isn't, and they will need an understanding of free markets if they are not to be conned into a new system of economic enslavement to replace the one that goes belly up.

Ebay Expands Accepted Digital Currencies, Says PayPal May One Day Incorporate BitCoin

Posted: 03 Nov 2013 04:36 PM PST

First it was China hinting that where Silk Road failed in monetizing, pardon the pun, BitCoin, the world's most populous nation could soon take the lead. Then, none other than private equity titan Fortress said it had great expectations for the digital currency. Now, it is eBay's turn to announce that it is preparing to expand the range of digital currencies it accepts, adding that "its payment unit PayPal may one day incorporate BitCoin." But not just yet. FT reports that according to eBay CEO John Donahoe, "digital currency is going to be a very powerful thing."

The ecommerce group, which has more than 124m active users, is initially focusing on incorporating reward points from retailers' loyalty schemes into its PayPal wallet.

 

"We are building the container so any retailer could put their loyalty points into the PayPal wallet," Mr Donahoe said.

 

"There is a limit to how many cards you will carry, or remembering what points you have or don't have," he said. "But in a digital wallet, you can put 50 different loyalty cards."

 

Mr Donahoe said Ebay was not expanding the PayPal wallet to include Bitcoins, "but we are watching it".

 

"That same technology could accept other digital currencies," he said.

While traditional retailers have so far balked at even the vaguest idea of considering allowing BitCoin as a viable payment method, all that would take to start a seismic shift in perception would be one angel idea "investor" to show that it can be done. That someone may well be eBay, which in a radical attempt to curry favor with "fringe" buyers and sellers, could open up its ecommerce platform, which started as an auction side for small traders, but may well become something far bigger.

eBay's efforts raise the possibility that virtual currencies such as Bitcoin may in time move beyond a niche role in online commerce. Some enthusiasts believe Bitcoin and other currencies that exist outside the traditional banking system represent the future of online payments.

 

The work to expand the PayPal wallet underlines the emergence of virtual payment systems as the latest front in the battle between the global technology giants, including Google and Apple, to increase consumer reliance on their products.

 

Corporate initiatives have sought to drum up interest in digital wallets for use online and on the high street. Companies from mobile and technology groups to banks and retailers are racing to use new mobile wallets to upend the payments business.

 

Most of these efforts have focused on new ways of paying with traditional currencies such as the pound and the dollar, rather than with niche mediums of exchange such as loyalty points or Bitcoin.

 

Bitcoin transactions are conducted through a peer-to-peer network of computers, outside the traditional banking system and largely beyond the control of governments and monetary authorities. The digital currency is accepted by very few retailers at present.

Paradoxically, the more accepted BitCoin becomes in the conventional marketplace, the more subject to various forms of mandatory regulation, supervision and enforcement it, its purchases, and its users will be. So will BitCoin ultimately become a victim of its own success? That remains to be seen, although what we do know is that neither eBay nor anyone else tightly embedded within the monetary fiat framework, is even close to contemplating expanding the Petrodollar cycle to include gold or other precious metals as viable legal (or illegal) tender.

Buying Time In A Brought-Forward World... And Why There Is No Plan B

Posted: 03 Nov 2013 03:45 PM PST

Here we go again, creating another asset bubble for the third time in a decade and a half, is how Monument Securities' Paul Mylchreest begins his latest must-read Thunder Road report. As Eckhard Tolle once wrote, “the primary cause of unhappiness is never the situation but your thoughts about it," and that seems apt right now. After Lehman, policy makers went “all-in” on bailouts/ZIRP/QE etc. This avoided an “all-out” collapse and bought time in which a self-sustaining recovery could materialise. The Fed’s tapering threat showed that, five years on from Lehman, the recovery was still not self-sustaining. Mylchreest's study of long-wave (Kondratieff) cycles, however, leaves us concerned as to whether it ever will be. More commentators are having doubts; and the problem looming into view is that we might need a new "plan." The (rhetorical) question then is "Have we really got to the point where it's just about more and more QE, corralling more and more flow into the equity market until it becomes (unsustainably) 'top-heavy'?"

 

Policy makers are pushing monetary systems and experimental policies to their limit, so shouldn’t we consider the possibility of correspondingly extreme outcomes in financial markets in due course... cause and effect?

No Plan B?

After Lehman, policy makers went “all-in” on bailouts/ZIRP/QE etc. This avoided an “all-out” collapse and bought time in which a self-sustaining recovery could materialise. The Fed’s tapering threat showed that, five years on from Lehman, the recovery was still not self-sustaining. Our study of long-wave (Kondratieff) cycles, however, leaves us concerned as to whether it ever will be. More commentators are having doubts, e.g. Andrew Law of Caxton in the recent FT interview. The problem looming into view is that we might need a new “plan.”

Does the incoming Fed Chairwoman have a new plan and, more importantly, one which could work? We have our doubts, the default strategy being continued reliance on liquidity-driven asset bubbles, while hoping for the best in terms of traction with the real economy. Our colleague, Andy Ash, commented last week.

“The biggest impact of QE1 was on metals and EM (emerging markets) indicating that the result of QE was predicted to be growth. The three lowest beneficiaries of QE3 have been Gold , Metals and EM, all SIZEABLY NEGATIVE IN RETURNS. So QE3’s effect unlike QE1’s has been nothing to do with global growth. The biggest return on QE3 was/is Western equities.”

If the US is locked into low growth for the foreseeable future, should the S&P 500 be trading on a 12-month forward earnings multiple of 16.2x, slightly higher than the 15.5x long-term average? Let’s not forget that Europe appears to be stuck in an even lower growth scenario and China’s growth rate is moderating. Moreover, corporate margins are close to an all-time high and earnings forecasts are being progressively downgraded.

So higher and higher valuations for more distant, and (arguably) increasingly uncertain, cash flows.

With the temporary deal agreed in Washington, QE looks set to continue running at US$85bn until March 2014, maybe longer. We’ve written about the QE/repo linkage a lot in recent months and it’s our opinion that the collateralisation of excess deposits created by QE has positively impacted equities via shadow banking conduits, e.g. repos.

Even the US Treasury (Treasury Borrowing Advisory Committee report for Q2 2013) noted the correlation between weeks when QE exceeded US$5bn and strength in the S&P 500.

Have we really got to the point where it’s just about more and more QE, corralling more and more flow into the equity market until it becomes (unsustainably) “top-heavy”?

...

Trying to Make Sense of Bubbles

If we are in a centrally-planned bubble (and it feels like it to us), we are reliant on second guessing policymakers, trying to gauge flows (positive for equities right now) and utilising any indicators which seem to be showing good correlations. An example of the latter is the Summation Index. This is a measure of market breadth, being a running total of Advance minus Decline values of the McClellan Oscillator. A pattern of declining peaks had formed since the correction in late-May, but this reversed with the recent upward move.

We are still in the biggest debt crisis in history and the banking sector will remain at the centre of its ebbs and flows. The divergence of the sector’s performance from the broader market pre-empted the Lehman collapse in 2008. In the US, we are keeping a close eye on the breakdown in the BKX.


...

In such extreme circumstances, we should also keep an idea of “crash patterns” in the back of our minds in case. These often play out as a peak followed by a failure to make a new high and a subsequent break of support. Here are some notable examples.

...

A final word on equity market indicators. In our reports since May, we’ve been “road-testing” a model for the US equity market (using the DJIA which has a longer history). It is based on cycles, not economic indicators, but cycles in time. It is created from the interaction of 18 cycles in US equities. These vary in length from just under 3 months to more than 30 years. Most of these cycles were discovered by the Foundation for the Study of Cycles (FSC), which has published a vast body of work during the last 70 years. We’d like to make contact with any readers who’ve also looked into this type of work, as trying to incorporate it into our research is very much work in progress.

While in its very early days, the model has been a reasonably good predictor of market direction since the beginning of 2009 (having also picked out most of the market peaks and troughs since 1905). We are slightly alarmed because it’s predicting that the Dow should be rolling over now into the first part of 2014.

Buying time in a brought forward world

Manipulating the Time Horizon

We’ve been reflecting on the idea that using unconventional monetary policies, i.e. QE at the long end of the yield curve, central banks have “bought time” in a profound sense by manipulating the time horizon. This leads to longer-term cash flows associated with financial assets being discounted at artificially low rates. It has been crossing our minds as to how much equity investors have really considered this issue, even if (like us) they are believers in equities overcoming bonds in the inflationary endgame (see “Inflationary Deflation” report from December 2012?

Fixed income investors are acutely aware that QE has forced them to extend duration. That comes with the scary knowledge that they might all rush for the exit at the same time. While many financial assets have long duration, equities have very long “duration,” often reflecting theoretical cash flows to infinity. Equity investors typically make detailed estimates for corporate cash flows, e.g. for 7-10 years. Beyond that, cash flows to infinity are capitalised (using long-term growth rate assumptions, ROIC fades, etc) in the form of terminal values...or until analysts predict that the deposit/reservoir will be depleted in the case of mining/energy stocks. QE obviously keeps rates lower than they would otherwise be and increases the value of these capitalised cash flows - especially more distant ones.

When we think about long-term economic cycles, one of (if not) the biggest single driver is the growth in debt (and, problematically, its eventual reduction at the end of the cycle). If we consider the US economy, the huge increase in debt has brought forward consumption over an extended period of several decades. That process has become increasingly “long in the tooth”, so it’s hardly surprising that credit and consumption growth is currently subdued.

When so much consumption has already been “brought forward”, it might seem counter-intuitive that the valuation of distant cash flows is being inflated via PEs above their historic average AND artificially suppressed interest rates. When you also consider that corporate margins are close to a historic peak, the market takes on the appearance of an athlete that is expected to continue performing at peak level almost indefinitely.

Hmmm, as Grant (“Things That Make You Go Hmmm”) Williams might say.

It Should Work Both Ways

In a world of US$85bn per month QE, the corollary of the discussion above should be that the valuation of long duration financial assets should be unusually sensitive on the downside to anything that threatens this current “buying time” and “brought forward” model for long-term financial assets. The obvious candidates are:

  • A rise in interest rates; and/or
  • An event which leads to a significant contraction in the time horizon for investors, such as a sudden deterioration in the macro outlook, or a geo-political shock.

The market turmoil induced by Bernanke and his colleagues with the taper threat (quickly watered down and subsequently canned) seems entirely fitting in this light. The consequence is that the Fed’s ability to taper looks ever more serious with regard to asset prices. This is the two-way version of the “Stockholm syndrome” between the Fed and markets we’ve highlighted before.

Boxed in?

 

Full Thunder Road Report below:

Thunderroad Report Q4.pdf

Guest Post: Finland's Gold

Posted: 03 Nov 2013 02:49 PM PST

Submitted by Alasdair Macleod of GoldMoney.com,

On Wednesday Finland gave in to public pressure and revealed where she stores her gold reserves. The statement followed a press release by the Bank of Sweden on similar lines released on Monday.

The totals (in tonnes) for these two Scandinavian countries are as follows:

Location Sweden Finland
Bank of England 61.4 25.0
Swedish Riksbank 15.1 9.8
New York Fed 13.2 8.8
Swiss National Bank 2.8 3.4
Bank of Finland - 2.0
Bank of Canada 33.2 -
Total 125.7 49.0

So far, so good. But then the Head of Communications for the Bank of Finland added some more information in Finnish in a blog run on the Bank's website. It is not available in English, so I asked her for a translation, but I am still waiting.

Instead, a Finnish reader of my own blog and a Finnish journalist who has been following this topic have independently given me an English translation of a highly relevant and interesting paragraph, three from the end. This is the journalist's:

"Maximum half of the gold has been within investment activity over the years. Gold has been invested among other things in deposits similar to money market deposits and using gold interest rate swaps. Gold investment activity is common for central banks. The risks associated with gold investments are controlled using limits, investment diversification and limitations concerning duration."

And my reader's translation:

"Throughout these years no more than half of the gold has been invested. Gold has been invested in for example deposits similar to money market deposits and gold interest rate swap agreements. Gold investment activities are common for central banks. Risks related to gold investments are controlled with limits, decentralising investments and limits regarding run times."

Half Finland's gold is stored at the Bank of England, and "no more than half" is "invested". If any "investment" is to take place it would be in London. It is not immediately clear what is meant by invested, but presumably this is a result of translation of what has happened from English into Finnish plus explanation for a non-specialist readership. However if it has been invested, then by definition it is no longer in the possession of the Bank of Finland, and will most probably have been sold into the market in return for a promise to redeliver at a later date. This follows the Austrian National Bank's admission to a parliamentary committee a year ago that it had earned EUR300m by leasing its gold through London.

The evidence is mounting that Western central banks through the Bank of England have been feeding monetary gold into the market through leasing operations. Indeed, the Finnish blog says as much: "Gold investment activities are common for central banks".

This explains in part how the voracious appetite for gold by China, India and South-East Asia is being satisfied, without the gold price rising to reflect this demand. It is also consistent with my disclosure earlier this year of the discrepancy of up to 1,300 tonnes between the gold in custody as recorded in the Bank of England's Annual Report, dated 28th February 2013 and the amount recorded on the virtual tour on the Bank's website the following June.

 

Three Dimensions of the Investment Climate

Posted: 03 Nov 2013 02:31 PM PST

There are three dimensions to the broader investment climate:  the trajectory of Fed tapering, the ECB's response to the draining of excess liquidity and threat of deflation, and Chinese reforms to be unveiled at the Third Plenary session of the Central Committee of the Communist Party.  

 

There has been increased speculation that the Federal Reserve can begin tapering in December.  The FOMC statement dropped the reference to tighter financial conditions and the manufacturing ISM was stronger than expected, as was September industrial production.  

 

For the same reasons we did not think it very likely in September, we are skeptical of a December tapering.  First, the impact of the government shutdown will distort much of the data in the coming weeks, including the October employment report on November 8 (for which the ADP data was disappointing).   There has been a trend slowing of non-farm payroll growth, illustrated by the fact that the 3-month average is below the 6-month average, which is below the 12-month average.  

 

Second, measured inflation remains low.   The core PCE deflator for September will be released on November 8 as well and may tick up to 1.3%, after reaching two-year lows in July just above 1.1%.  As we have noted before, the core PCE deflator, the Fed's preferred inflation measure, is lower now than in the early 2000s, when the then-Fed Governor Bernanke recognized the risk of deflation.  

 

Third, when the Fed revised lower its growth forecasts in September, it did not cut sufficiently, especially in light of the government shutdown.   It seems unreasonable to expect the Fed to taper at the same time as it reduces its growth forecasts.  The effectiveness of the Fed's communication has again been questioned in light of its decision in September not to taper.  

 

Fourth, and while perhaps the least appreciated, it is also among the most compelling reasons for the Fed not to taper in December.  The credibility of the institution is clear better served by maximizing the degrees of freedom for the next Federal Reserve Chair.     Tapering in December would needlessly tie the hands of Bernanke's successor and any anti-inflation chits to be earned would be wasted on the ongoing Bernanke, who will go down in history for the unorthodox policies adopted upon reaching the zero bound of nominal interest rates.  

 

This is particularly important because the Federal Reserve sits on the cusp of among the largest changes in personnel in the Fed's history.  Consider there are two vacancies already on the Board of Governors and that is before a successor to Yellen is found, assuming her nomination is approved by the Senate.  Another Governor's term expires at the end of January.  Another governor may choose to return to the university from which he is on leave.  

 

In addition, in the coming months, another governor may chose to leave, having long served on the Board and amid reports of philosophical (personal?) differences with Yellen.   Lastly, note that the fine print of Dodd-Frank also calls for the Board to have a second vice-chair to oversee the Fed's regulatory duties.  

 

We think there is a strong possibility that Bernanke steps down early.  While the Senate Banking Committee might be able to vote on Yellen's nomination later this month or early December, there may be some delay tactics when it comes to the entire Senate vote.  Recall Bernanke's nomination for a second term by Obama (Bernanke was initially appointed by Bush-the-Lesser) passed the Senate by a 70-30 margin.  Yellen needs 60 votes to over-ride a filibuster than has been threatened.

 

In any event, shortly after Yellen is confirmed, it is reasonable to expect Bernanke to resign.  It serves no one's interest to have two Federal Reserve Chairs.  That means Yellen is most likely to Chair the late Jan 2014 FOMC meeting that most expect to be Bernanke's last.  What this implies too, is that our March tapering call does not require Yellen to announce such at her first meeting, but rather, the second she chairs.  

 

II

 

Europe seems poised to snatch defeat from the jaws of victory.  It has been a particularly good year for EMU.  After initially blowing it, European officials managed to address the Cypriot crisis and although it retains capital controls, it remains in every other way a member of the monetary union.   The six quarter contraction ended.  Italian and Spanish stocks and bonds have rallied strongly, helping to ease their debt servicing costs and rebuilding investor confidence.     Target 2 imbalances have been reduced and banks have returned nearly 40% of the LTRO borrowings.  

 

Yet the repayment of the LTRO funds has seen the excess liquidity in the system fall.   Excess liquidity has fallen by about 470 bln euros to stand just below 150 bln.   Nearly 380 bln euros of LTRO borrowing has been returned, including what was announced before the weekend.   The remainder of the decline in excess reserves (~90 bln euros) is due to what the ECB calls autonomous factors. Without getting bogged down in the minutia, autonomous factors include items such as bank notes in circulation, government deposits) and the point is that they are not a function of the ECB itself.  

 

At the same time that excess liquidity is falling money supply growth is weak (M3 is up 2.1% year-over-year) and lending to businesses and households continues to shrink.  Many observers were still surprised to learn that EMU CPI fell to 0.7% in Oct from a year ago, drawing nearer the record low of 0.5% in 2009.  

 

With the traditional medicine of devaluation denied by the monetary union, the path of adjustment toward increased competitiveness requires inflation to be lower than Germany's.  Germany's ordo-liberalism requires low inflation.  This forces other countries to undershoot Germany's low target. The surprise to many is that they are doing it.  Using EU harmonized calculations, German CPI stood at 1.3% in October.  Italy's October CPI was 0.7% and Spain's was -0.1%.  France's September reading was 1.0%, while Greece's was -1.0%.  

 

In order to respond to the tightening of financial conditions in the euro area and the increasing risk of deflation, the ECB needs to do something as bold as the OMT announced in mid-2012. Consider the limitation of its options.  Many observers are talking about a repo rate cut as early as this week. Yet such a move would be ineffective.  In the current environment, the key rate is the deposit rate, which is set at zero.  Overnight rates (EONIA) trade closer to the deposit rate than the repo rate (50 bp).  

 

The ECB says that it is technically prepared to cut the deposit rate below zero, but it is obviously reluctant to do so and for good reason.  No major central bank has done this and the issue is not only intended and unintended consequences but also foreseeable and unforeseeable effects.  It could further harm the fragile financial institutions.  It could unsettle the global capital markets.  

 

Many observers expect the ECB to provide another LTRO later this year or early next year.  We had thought so as well.  However, it has become clearer, and seems only right, that in stress testing banks, those that rely on ECB funds, should be penalized in some fashion.  This means that while the ECB may offer another LTRO, it may not meet widespread demand, and, there may in fact be a stigma attached to its use.   

 

The ECB is continues to sterilize the sovereign bonds purchased under Trichet's SMP program.  In theory, the ECB could refrain from doing so and thereby ease liquidity conditions.  Yet this would not doubt raise the hackles of the Bundesbank, which may still be hoping for a Constitutional Court ruling that finds elements of the OMT program to go against the Germany's Constitution.   Remember, the former Bundesbank President and a German member of the Governing Council both resigned over the SMP program.  

 

Further dilution liberalization of collateral rules is beside the point, though incentives to strengthen the asset-backed securities market, may be a way to cope with the reluctance of banks to lend. If the ECB is going to lean against the deflationary forces and address tightening of monetary conditions, it does not have as many choices as it may appear.  One way to increase excess liquidity is to reduce the required liquidity (reserves).  A refi rate cut in conjunction would send a stronger signal.  While the sooner the better, given that the ECB had foreseen base effects and the decline in energy prices, so the low inflation number may not have been too surprising, December looks like a more likely time frame than this week's meeting.    

 

It goes without saying, one would have thought, that Draghi will strike a dovish tone at the press conference following this week's ECB meeting.  The real data has lagged behind the survey data that Draghi had previously pointed to and what had appeared to be improvements in the labor markets have been revised away.  Austerity among the debtors has not been offset by stimulus among the creditors. Although the citation of Germany in the US Treasury report on the foreign exchange market raised some eyebrows, got some chins wagging and keyboards clicking, there can be little doubt of the unspoken agreement throughout much of Europe. 

 

 

 

III 

 

At the end of next week (Nov 9-12), the Central Committee of the Chinese Communist Party holds its Third Plenary session.  The Third Plenary session has in the past been the platform from which important changes have been announced.  This one is similarly being promoted as having wide-ranging and substantial reforms.  

 

Chinese officials appear to recognize that reforms are needed or risk the middle-income trap, in which a country exhausts it resources in achieving middle income status.  There are three broad areas that reform is likely to be focused on:  improving the functioning of the market (including unified market for land), transform government by reducing red-tape and providing a basic social safety net for Chinese citizens, and fostering new private businesses and more competition.   The key take away point is that it is not a status quo government, but reformist.  

 

To be sure, despite being reform minded, the new Chinese government has shown little interest in addressing the contradiction that goes largely unspoken yet is ever present, between a modernizing and flexible economy and the archaic and rigid political superstructure.  Political reform and competition in that space is most unlikely to be forthcoming from the Third Plenary Session.  

 

The outcome of the session is unlikely to have much immediate impact on the global capital markets. Nevertheless, investors have a vested interest in the strategy of the world's second largest economy. The rise of China since 1978 stands alongside the fall of a little more than a decade later as the two most important geopolitical events since the end of the World War. 

 

China has taken significant measures toward giving greater market influence over some interest rates.  It has removed the floor for lending rates, re-opened bond futures and introduced a prime rate.  This new prime rate is a weighted average of 9 domestic commercial banks lending rates to their best customers.  This supplements and, perhaps, will eventually supplant the PBOC's current benchmark (1-year benchmark has been set at 6% since July 2012, last week the prime rate was 5.71%).    Further financial liberalization is expected in the coming months.  There are reports suggesting the Plenary Session may also take up calls for national deposit insurance.  

 

Chinese officials also appear to be preparing people for slower growth.  The emphasis is shifting toward quality of growth, which seems to emerge only as the quantity has slackened, even according to official data.   Although China's manufacturing PMI improved, forward looking new orders and export orders were softer, keeping the near-term outlook less certain at best.  

 

The yuan has been resilient this year and rising to multi-year highs into late October, it spent last week on the defensive, as the US dollar rallied broadly.  If our constructive technical outlook for the dollar is correct, it suggest further gains against the yuan as well.  The CNY6.12 area may offer a near-term cap.  It denotes not only the Oct high but also the 100-day moving average.   Above there, the CNY6.15 area is also interesting.  It corresponds to a retracement objective of this year's dollar decline and the 200-day moving average.  

The Macro Analytics: A Technical Update

Posted: 03 Nov 2013 12:17 PM PST

The Technical Analysis of the SP 500, key Currency Cross Drivers, Gold and Oil are discussed in this comprehensive 30 minute video presentation with 42 updated supporting graphics. Read More...

Large Forex Speculators Were Bearish on US Dollar Into Late October Bottom, COT Report

Posted: 03 Nov 2013 10:02 AM PST

The latest data for the weekly Commitments of Traders (COT) report was released on Friday by the Commodity Futures Trading Commission (CFTC) and showed that large futures speculators turned bearish on the US dollar on October 8th and then registered three straight weeks of bearish positions through October 22nd. Non-commercial large futures traders, including hedge funds and large International Monetary Market speculators, had an overall US dollar short position totaling $-3.64 billion as of Tuesday October 22nd. This was a weekly change of $-2.4 billion from the total position of $-1.24 billion that was registered on October 15th, according to data from Reuters that calculates this amount by the total of US dollar contracts against the combined contracts of the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

Maguire - Gold War Heats Up As Stunning Events Taking Place

Posted: 03 Nov 2013 09:53 AM PST

On the heels of some wild trading action last week, London metals trader Andrew Maguire spoke with KWN about the stunning events taking place as the gold war heats up, as well as some extraordinary information about what to expect in the gold market going forward. Below is what Maguire had to say in this tremendous interview.

This posting includes an audio/video/photo media file: Download Now

Disappearing Deliverable Comex Gold Bullion

Posted: 03 Nov 2013 09:48 AM PST

There was a change in status of 48,652 ounces of gold bullion in the JPM warehouse which were withdrawn from the registered to the eligible category. Apparently someone had a change of heart. Big change of heart. About one and half tonnes worth. The claims per ounce of deliverable gold stand at 55. As I have explained before, this is a metric, a way of measuring inventory against potential ownership.

Gold? What Gold? The Great 56:1 Imbalance

Posted: 03 Nov 2013 06:03 AM PST

So you think you own some gold because you own a gold ETF. Right? Think again! Atgold-truth best you share your gold with 55 other supposed “owners”. What a sham the gold market is. An utter sham! Here’s why.

By Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here).

It should come as no surprise to anyone that the gold that is claimed to exist in Fort Knox or any of the other gold depositories around the world does not exist to the extent claimed. Why? Because when Germany’s representatives came to New York and politely asked (and I paraphrase):

“We would like to physically see our gold before making arrangements to have it returned.”

they were rebuffed with the reply,

“Sorry, no one is allowed access to the vaults to inspect/verify their holdings. As for having it returned, no problem. We are prepared to return 50% of it to you over the next 7 years. We realize that you are one of the major economic powers in the world with major political clout and major financial resources at your disposal but, sorry, that’s the best we can do.”

If that is not enough to convince you that your paper gold holdings, supposedly backed up with an equivalent amount of physical gold, do not exist then take a look at the 2 graphs below which clearly show the discrepancy – a 56 to 1 discrepancy – between what is purported to be in the coffers of COMEX and the actual number of owners per troy ounce.

Gold-Paper-Claims-On-Physical-Oz

The bottom line is that you do NOT own much, if any, gold if you own paper gold in the form of a gold ETF. You only really own gold if you have it in your physical personal possession.

Got gold? Really??

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If you believe the government routinely lies or covers up its actions, we can't simply laugh off the idea that there's no gold in Fort Knox. Until an audit is done, the facts provide more questions than answers.  [This article explores the situation, implications and possible ramifications.] Words: 892 Read More »

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The post Gold? What Gold? The Great 56:1 Imbalance appeared first on munKNEE dot.com.

Easy Money Is Again Leading To Bubbles – Courtesy Of Central Banks

Posted: 03 Nov 2013 02:15 AM PST

In this week’s commentary, John Mauldin looks at two highly relevant concepts: easy money (call it QE, money printing, helicopter money, or whatever the term) and economic bubbles (based on his latest book, Code Red, which he launched last week). Obviously the two are linked to each other. Although in the minds of central bankers there is not necessarily a direct effect between both, we simple human beings all know that the inherent risks are huge. You would not be reading this article if you believed otherwise.

We know that this is going to end badly, as explained in We Created The Conditions For Catastrophic Failure and in 2013 – Start of Seismic Shifts in Money, Metals, Markets (among many other articles).

They key in the thinking of central banks is that policy makers believe they can “manage” the effects of their monetary policies. It is somehow comparable with driving a car; even in a risky situation, the driver can adjust the rest of the drive to get back home safely. This assumes they can somehow decide on the driving conditions, even if the remainder of the trip is on an ice road. This “blindness” is reflected in the first chart of Mauldin’s article.

Toby Nangle, of Threadneedle Investments found the following chart, created a few years ago at the Bank of England. In looking at the chart, pay attention to the red line, which depicts real asset prices. As in they know they are creating a bubble in asset prices and are very aware of how it ends and proceed full speed ahead anyway. Toby remarks: “This is the only chart that I've found that outlines how an instigator of QE believes QE's end will impact asset prices. The Bank of England published it in Q3 2011, and it tells the story of their expectation that while QE was in operation there would be a massive rise in real asset prices, but that this would dissipate and unwind over time, starting at the point at which the asset purchases were complete.”

QE managed 2013 economy

This is the most interesting chart we have seen in a while. Mind how the world works from the eyes from central planners. They truly believe they can exponentially inflate something and then manage it back to normal levels. So here is the question: what if things do not work that way in the real world?

Anyway, two other bubble signs that were spotted by Mauldin:

This is from my friend Doug Kass, who wrote: “I will address the issue of a stock market bubble next week, but here is a tease and fascinating piece of data: Since 1990, the P/E multiple of the S&P 500 has appreciated by about 2% a year; in 2013, the S&P’s P/E has increased by 18%!”

Continuing with our puckish thoughts, we look at stock market total margin debt (courtesy of Motley Fool). They wonder if, possibly, maybe, conceivably, perchance this is a warning sign? And we won't even go into the long list of stocks that are selling for large multiples, not of earnings but of SALES. As in dotcom-era valuations.

securities total margin debt 2013 economy

Easy Money Will Lead to Bubbles

The causal effect between easy money and economic bubbles is so intuitive that one could ask the question who in this world is not able to see it. After all, wasn’t it the monetary policy of the US Central Bank who paved the way for the housing bubble which catastrophically popped in 2008? Shouldn’t we have learned meantime what the risks are of market interventions? Look at this video from Peter Schiff to learn the ivory tower in which central banking policy makers are living.

John Mauldin puts easy money in some recent context:

Central banks are trying to make stock prices and house prices go up, but much like the winners of the 2009 Darwin Awards, they will likely get a lot more bang for their buck than they bargained for. All Code Red tools are intended to generate spillovers to other financial markets. For example, quantitative easing (QE) and large-scale asset purchases (LSAPs) are meant to boost stock prices and weaken the dollar, lower bonds yields, and chase investors into higher-risk assets. Central bankers hope they can find the right amount of dynamite to blow open the bank doors, but it is highly unlikely that they'll be able to find just the right amount of money printing, interest rate manipulation, and currency debasement to not damage anything but the doors. We'll likely see more booms and busts in all sorts of markets because of the Code Red policies of central banks, just as we have in the past. They don't seem to learn the right lessons.

Targeting stock prices is par for the course in a Code Red world. Officially, the Fed receives its marching orders from Congress and has a dual mandate: stable prices and high employment. But in the past few years, by embarking on Code Red policies, Bernanke and his colleagues have unilaterally added a third mandate: higher stock prices. The chairman himself pointed out that stock markets had risen strongly since he signaled the Fed would likely do more QE during a speech in Jackson Hole, Wyoming, in 2010. "I do think that our policies have contributed to a stronger stock market, just as they did in March of 2009, when we did the last iteration [of QE]. The S&P 500 is up about 20 percent plus and the Russell 2000 is up 30 percent plus." It is not hard to see why stock markets rally when investors believe the most powerful central banker in the world wants to print money and see stock markets go up.

Properly reflected on, this is staggering in its implications. A supposedly neutral central bank has decided that it can engineer a recovery by inflating asset prices. The objective is to create a "wealth effect" that will make those who invest in stocks feel wealthier and then decide to spend money and invest in new projects. This will eventually be felt throughout the economy. This "trickle-down" monetary policy has been successful in creating wealth for those who were already rich (and for the banks and investment management firms who service them) but has been spectacularly a failure in creating good jobs and a high-growth economy. The latest quarter as we write this letter will be in the 1 percent gross domestic product (GDP) range.

And to listen to the speeches from the majority of members of the Federal Reserve Open Market Committee, their prescription is more of the same. Indeed, when Bernanke merely hinted this summer that QE might end at some point, something that everyone already knows, the market swooned and a half-a-dozen of his fellow committee members felt compelled to issue statements and speeches the next week, saying, "Not really, guys, we really are going to keep it up for a bit longer."

Excessive Monetary Liquidity Creates Bubbles

Mauldin explains that the corporate bond market is looking particularly bubbly. He says: “Investors are barely being compensated for the risks they're taking. In 2007, a three-month certificate of deposit yielded more than junk bonds do today. Average yields on investment-grade debt worldwide dropped to a record low 2.45 percent as we write this from 3.4 percent a year ago, according to Bank of America Merrill Lynch's Global Corporate Index. Veteran investors in high-yield bonds and bank debt see a bubble forming. Wilbur L. Ross Jr., chairman and CEO of WL Ross & Co. has pointed to a "ticking time bomb" in the debt markets. Ross noted that one third of first-time issuers had CCC or lower credit ratings and in the past year more than 60 percent of the high-yield bonds were refinancings. None of the capital was to be used for expansion or working capital, just refinancing balance sheets.”

Now here is the key which all of us understand intuitively:

One day, all the debt will come due, and it will end with a bang. "We are building a bigger time bomb" with $500 billion a year in debt coming due between 2018 and 2020, at a point in time when the bonds might not be able to be refinanced as easily as they are today, Mr. Ross said. Government bonds are not even safe because if they revert to the average yield seen between 2000 and 2010, ten year treasuries would be down 23 percent. "If there is so much downside risk in normal treasuries," riskier high yield is even more mispriced, Mr. Ross said. "We may look back and say the real bubble is debt."

As we have re-iterated several times, debt is the biggest bubble.

bond bubble 2013 economy

Mauldin goes on to explain that agricultural is another bubble which is developing in many places in the United States although agriculture in other countries can be found at compelling values.

Why are we seeing so many bubbles right now? One reason is that the economy is weak and inflation is low. The growth in the money supply doesn't go to driving up prices for goods like toothpaste, haircuts, or cars. It goes to drive up prices of real estate, bonds, and stocks.

Excess liquidity is money created beyond what the real economy needs. In technical terms, Marshallian K is the difference between growth in the money supply and nominal GDP. The measure is the surplus of money that is not absorbed by the real economy. When the money supply is growing faster than nominal GDP, then excess liquidity tends to flow to financial assets. However, if the money supply is growing more slowly than nominal GDP, then the real economy absorbs more available liquidity. That's one reason why stocks go up so much when the economy is weak but the money supply is rising.

Finally, looking at the history of economic activity, it appears that boom and bust are going hand in hand in a centrally planned monetary world. Excess liquidity finds its way in the economy and affects asset prices in a way that is (a) unavoidable and (b) hard or impossible to turn back. That is the key to boom and bust.

It is also why stock markets are so sensitive to any hint that the Fed might ease off on QE. Real players know how the game is played. You can listen to the business media or read the papers and find hundreds of "experts" saying that stock prices are rising based on fundamentals. You can take their talking points and change the dates and find they are essentially the same as 1999 and 2006–2007. The rise in real estate, bonds, and stocks does not count toward any inflation measures. Excess liquidity flows from asset class to asset class. As you can see from Figure 9.3, booms and busts around the world happen whenever central banks tighten or loosen monetary policy.

booms busts 1965 2013 economy

Coming Clean, Dr. Joseph Farrell – Covert Wars & The Mysterious Strength of the US Dollar

Posted: 02 Nov 2013 06:00 PM PDT

“We already have the means to travel among the stars, but these technologies are locked up in black projects and it would take an act of God to ever get them out to benefit humanity…. Anything you can imagine, we already know how to do.” ~ Ben Rich, former head of the Lockheed [...]

Probes into forex trading spread across globe

Posted: 02 Nov 2013 03:59 PM PDT

By Daniel Schäfer and Caroline Binham
Financial Times, London
Friday, November 1, 2013

http://www.ft.com/intl/cms/s/0/1d20d216-431b-11e3-9d3c-00144feabdc0.html

A global probe into the manipulation of foreign exchange markets escalated dramatically on Friday when it emerged that Barclays had suspended six traders and two of the largest US banks revealed they had become embroiled in the investigation.

Revelations that Barclays had suspended six staff, including its chief currencies trader in London, capped a torrid week for some of the world's largest banks with signs that a wave of new regulatory probes across three continents poses a growing threat to earnings.

With more and more banks becoming ensnared and senior figures being put on leave, bankers and investors said the affair increasingly resembled the Libor rigging scandal. The Libor probe has so far led to the dismissal of many dozens of traders, while four banks and one interdealer broker have paid a total of $3.5 billion in fines.

... Dispatch continues below ...


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Authorities including those in Switzerland, the UK, Hong Kong, and the US have opened preliminary investigations into whether some of the biggest banks in the world rigged the foreign exchange market, which has daily volumes of $5.3 trillionn and is used by millions of companies, institutional funds and retail investors.

Crucial benchmark rates in the mostly unregulated market are set based on transactions made during short windows of 60 seconds for the largest currencies. Regulators are investigating if traders colluded to move these benchmarks, although none has been formally accused of wrongdoing.

After a series of high-level suspensions this week, there are now at least a dozen traders across six banks on leave. They include several of the most senior traders in the market such as Barclays' Chris Ashton, who oversees the bank's voice-spot trading around the world.

At least six of the leading banks in the foreign exchange market -- where everything from the leading reserve currency, the US dollar, to smaller currencies such as the Hungarian forint are being traded -- have now confirmed they have received requests from regulators.

Citigroup and JPMorgan on Friday became the latest banks to confirm they were co-operating with regulators on the investigations, joining Barclays, UBS, Deutsche Bank, and Royal Bank of Scotland.

US investment bank Goldman Sachs has also started to look internally for any signs of wrongdoing, as has HSBC, according to people familiar with the situation. All the banks mentioned declined to comment. Credit Suisse is also looking into the matter, it said in an earlier statement.

Authorities around the world are also examining whether other benchmark rates, including oil-spot markets, have been manipulated.

"This [litigation] risk is by far the one that worries me the most," said the global head of trading at a large investment bank. "It is like banks don't have an immune system any longer. A cold can kill you these days."

In the UK, Sir Philip Hampton, chairman of the majority state-owned RBS, played down the chances of the taxpayer ever receiving a profit on its L45 billion investment, partly because of the mounting costs of litigation and customer compensation.

He said that more than half of the L45 billion that was pumped into the bank had been eroded by "irrecoverable" losses -- including its bill for mis-sold payment protection insurance, interest rate swaps, and Libor charges.

* * *

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Much of West's gold is oversubscribed and unrecoverable, von Greyerz says

Posted: 02 Nov 2013 03:29 PM PDT

6:21p ET Saturday, November 2, 2013

Dear Friend of GATA and Gold:

Interviewed by King World News, Swiss gold fund manager Egon von Greyerz notes disclosures by Sweden, Finland, France, and Austria that much of their gold reserves is not in their direct custody but rather almost certainly "leased" and thus probably way oversubscribed.

Von Greyerz says: "How much of the West's supposed 23,000 tons of gold is still in the vaults? Nobody knows, but I would be surprised if it's more than half. We have a system where physical gold is owned many times over, and we also have a system where the paper gold market is 100 times the size of the physical gold market, with absolutely no chance whatsoever for people who hold paper gold to receive physical delivery.

"With this extremely fragile and precarious situation you wonder why anybody with a sound mind would hold paper gold or physical gold in a bank. There is only one way for investors to hold gold, which is in physical form and outside the banking system."

An excerpt from the interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/2_LB...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


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Jim Sinclair Plans Seminar in Florida

Gold mining entrepreneur and gold advocate Jim Sinclair plans to hold his next financial seminar in Kissimmee, Florida, near Orlando, on Saturday, November 2. Details can be found at his Internet site, JSMineSet, here:

http://www.jsmineset.com/2013/10/22/florida-qa-session-announced/


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LBMA Collapse To Expose US, Europe & BIS Gold Is Gone

Posted: 02 Nov 2013 12:27 PM PDT

On the heels of some wild trading action this week, today the 42-year market veteran, who correctly predicted that the Fed would not taper, warned King World News that as the LBMA system implodes, it will expose that the gold belong to the US, Europe, and the BIS is largely gone. Below is what Egon von Greyerz, who is founder of Matterhorn Asset Management out of Switzerland, had to say in this fascinating interview.

This posting includes an audio/video/photo media file: Download Now

Weekend Report: Dollar Surge

Posted: 02 Nov 2013 09:59 AM PDT

A rather interesting development occurred on Friday, and one that I wasn't really expecting. The dollar sliced right through its intermediate trend line on its first attempt. I thought for sure we would see some kind of pullback from ... Read More...

Gold Investors Weekly Review – November 1st

Posted: 02 Nov 2013 09:52 AM PDT

In his weekly market review, Frank Holmes of the USFunds.com nicely summarizes for gold investors this week’s strengths, weaknesses, opportunities and threats in the gold market. The price of the yellow metal went lower after two consecutive weeks of gains. Gold closed the week at $1,316.20 which is $34.6 per ounce higher (2.5%). The NYSE Arca Gold Miners Index went 8.15% higher.

Gold Market Strengths

Sell-side analysts and traders' commentaries have highlighted a noticeable pickup in generalist and fundamental accounts buying large cap gold names in recent days. According to Macquarie, the move appears to be motivated by the fact that a lot of the bad news is already out there, and it's likely for companies to surprise to the upside rather than perform negatively.

Barrick Gold reported earnings this week showing a noticeable improvement on the bottom line, with earnings per share of $0.58 versus the analysts' consensus of $0.51. Both gold and copper operations beat their operational targets, but the most significant improvement came on the cost side, where Barrick reported an 85 percent completion of its corporate downsizing program.

Gold Market Weaknesses

A recent International Monetary Fund (IMF) report shows that the gold holdings in Russia's Central Bank fell for the first time since August 2012, decreasing 0.4 tonnes in September. However, Russia has added more than 50 tonnes to its gold reserves this year alone and about 600 tonnes since 2007. It is expected that gold purchases by central banks will decrease to 350 tonnes this year from 544 tonnes in 2012. Despite the decrease, analysts agree that central banks will remain substantial net buyers of gold in years to come.

The spot gold price on the Shanghai Gold Exchange dropped below the London price this week, signaling that demand may be waning in the world's second-largest gold market. Bloomberg reports that gold was selling at a 54.14 percent discount to the London price on Wednesday on very low volume in the Shanghai Gold Exchange.

Gold Market Opportunities

Jeffrey Currie, an analyst with Goldman Sachs, suggested just under a month ago that gold miners should hedge their output and lock current prices. In his opinion, gold would be the next big short trade. Other analysts, including Tom Kendall of Credit Suisse, also followed with negative commentary on the gold market, adding their names to the short-selling list. It's interesting that this group dares to recommend that investors do the exact opposite of what asset allocation studies show: adding gold and gold stocks to a portfolio can add alpha without a significant increase to risk. Not only are these analysts ignoring proven academic research, they seem to be ignoring reality. BCA Research published a report at the end of last week highlighting that gold prices have failed to rise in recent months in spite of a weak dollar, adding that a catch-up is likely. BCA argues that gold is oversold on a technical basis, as seen in the following chart, which in itself could be enough to drive a gold rally above the $1,500 per ounce threshold.

Gold Stocks vs Gold Price November 2013 investing

Mineweb contributor Dorothy Kosich reports that in a rare show of bipartisanship, Congressional Democrats and Republicans introduced a comprehensive bill aimed at fostering and facilitating the domestic growth of critical minerals to prevent future supply shocks. This highlights the urgent need to facilitate the development of American mineral deposits. The ultimate purpose of the bill is to ensure that officials are required to set, and adhere to, timelines and schedules for completion of reviews as well as for inspection and enforcement activities in the mining sector. According to Hal Quinn, CEO of the National Mining Association, the slow and inefficient permitting system in the U.S. is the largest impediment to unlocking the full value of American minerals, adding that the U.S. relies on foreign countries such as China to supply many of these critical minerals.

This week, RBC Capital Markets published the fifth part of its study on capital and operating cost expectations in the gold market. In the report, RBC underlines that capital costs have stabilized while all-in sustaining costs could fall by $150 per ounce in 2014 alone. RBC argues that since prices have fallen by a larger extent than all-in costs, this should discredit gold producers' efforts to maintain or increase their returns on capital. After rising by 60 percent over the past three years, it appears 2014 may actually be a good time to build projects given the availability of engineering and equipment. Those companies that learned the importance of protecting balance sheet integrity and returns on capital will be the biggest beneficiaries of this new stage in capital costs, at the expense of those who were growing for the sake of growing.

Gold Market Threats

Alan Greenspan published his new book "The Map and the Territory" in which he warns, among other things, that the "Spectacle of American central bankers trying to press the inflation rate higher in the aftermath of the 2008 crisis is virtually without precedent." He follows up by commenting that this type of policy could easily trigger double-digit inflation. In light of this, David Rosenberg of Gluskin Sheff proposed a new mantra for the Federal Reserve: "Bring on inflation!" However, Rosenberg followed up by criticizing the Fed's optimistic sentiment that inflation is good for economic growth, in which there is no widely accepted evidence or studies to support the assertion. For those who still believe in the Fed's optimism after Wednesday's meeting, consider Rosenberg's list of market facts that show financial asset overheating:

  1. valuations are no longer cheap, no matter the measure;
  2. 80 percent of S&P stocks are trading above their 50 day moving average;
  3. mutual fund and ETF inflows are at dot-com bubble levels;
  4. NYSE margin debt just hit an all-time high;
  5. portfolio managers are sitting on thin, 3.5 percent cash ratios;
  6. the VIX is sitting at 13 points, showcasing how few feel the need to buy downside protection.

The list is simply too long to continue, but the point comes across easily.

David Zervos of Jefferies wrote quite an entertaining and ironic takedown on Janet Yellen's nomination to the Federal Reserve Chairmanship. According to Zervos, the most exciting part about having Yellen in the seat is her inherent mistrust of market prices and her belief in irrational behavior processes. Zervos adds that there likely will be a day in 2016 when unemployment is still well above Yellen's estimate and the headline inflation rate is above 4 percent, in which the Fed's models will still show a big output gap and lots of slack. This way, Yellen could continue talking down inflation risks. In fact, Zervos argues that Yellen's obsession with filling the output gap makes for a very real chance of policy mistakes down the road, similar to those resulting from an obsession with Keynesian mis-measuring of the output gap during the 1970s.

This Past Week in Gold

Posted: 02 Nov 2013 09:52 AM PDT

Summary: Long term - on major sell signal since Mar 2012. Short term - on buy signals but no set ups yet. Gold sector cycle - up as of 10/25. Read More...

China uses paper gold smashes to drain London market, Maguire says

Posted: 02 Nov 2013 08:42 AM PDT

8:35a PT Saturday, November 2, 2013

Dear Friend of GATA and Gold:

London metals trader Andrew Maguire tells King World News that the London gold market is in danger of default because of Chinese purchases of real metal when the Federal Reserve and its bullion bank agents smash the price of paper gold. An excerpt from the interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/1_Ma...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


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Conspiracy And The Threat To Democracy

Posted: 02 Nov 2013 08:29 AM PDT

HYPOCRISY DEMOCRACY  The deluge of news, views, opinions, theory and spin about everything from the weather – weather now means climate change – to why the price of gold is low and Facebook shares are high, or the outlook for economic growth in the US, Europe or Japan is what passes for 24/7 democratic open access information. Everybody has a right to too much bent information, but for the BBC's Brian Wheeler, October 26, the dark side of information – conspiracy theories – are destroying democracy. He says:

U.S. Dollar Surge Implications

Posted: 02 Nov 2013 08:22 AM PDT

A rather interesting development occurred on Friday, and one that I wasn't really expecting. The dollar sliced right through its intermediate trend line on its first attempt. I thought for sure we would see some kind of pullback from that trend line before a break. In my opinion this signals that there are a lot of people caught on the wrong side of this market.

Entire Fiat Money System is Bankrupt: Demise of the Global US Fiat Dollar Reserve Currency

Posted: 02 Nov 2013 07:58 AM PDT

Matthias Chang writes: It’s been a while since I last wrote an article on the on-going financial crisis. I don’t write for the sake of writing, as others do because they have to do so, on account of their subscribers who pay hefty subscription fees and demand their money’s worth. Major issues or trends do not change on a daily or even monthly basis. A trend may take a few years to run its course and unless there is a major factor that may affect the trend, there is hardly any need to comment any further on the trend or outcomes.

Gold And Silver - Fundamentals Do Not Matter

Posted: 02 Nov 2013 07:56 AM PDT

If fundamentals mattered, gold and silver prices would be substantially higher. They are not, and for a reason. It is not hard to define what factors are influencing price, for they are political, even criminal under normal circumstances. Read More...

Does the U.S. Dollar Have a Future?

Posted: 02 Nov 2013 07:35 AM PDT

“If the dollar does indeed lose its role as leading international currency, the cost to the United States would probably extend beyond the simple loss of seigniorage, narrowly defined. We would lose the privilege of playing banker to the world, accepting short-term deposits at low interest rates in return for long-term investments at high average rates of return. When combined with other political developments, it might even spell the end of economic and political hegemony.”– Economist Menzie Chinn, “Will the Dollar Remain the World’s Reserve Currency in Five Years?”, CounterPunch 2009

WEEKEND REPORT: DOLLAR SURGE

Posted: 02 Nov 2013 06:53 AM PDT

Dollar:
A rather interesting development occurred on Friday, and one that I wasn't really expecting. The dollar sliced right through its intermediate trend line on its first attempt. I thought for sure we would see some kind of pullback from that trend line before a break. In my opinion this signals that there are a lot of people caught on the wrong side of this market.
The ferocity of the first five days out of this yearly cycle low has me wondering if the megaphone pattern isn't still in play and we're about to see a test of the upper trend line area over the next 1-2 months.
If we take a look at the euro chart we can see that the daily euro cycle is only on day 12. That implies it still has another 8-13 days before finding its next daily cycle bottom. The dollar should have those same 8-13 days to rally before this daily cycle tops.
Originally I thought we might see a test of the 200 day moving average over the next 4-6 weeks. But the explosive nature of the first five days, and taking into account this daily cycle still has another 8-13 days to go before topping, we could see a test and break of the 200 day moving average over the next 1-2 weeks. I think we would then have at least one more daily cycle higher before the intermediate cycle tops. Two daily cycles of this kind of behavior could definitely send the dollar back up to test the upper megaphone trend line over the next 2 months.
I'm starting to get the feeling that this rally out of the yearly cycle low is going to be a lot more powerful then almost anyone is expecting, including me. In order to turn this back down it may require a fundamental change in the market such as an increase in QE. I don't believe that is politically feasible at the moment unless the stock market really starts to tank in front of the Christmas holidays.
For the rest of the report and to learn how I think this will affect the gold market click here to try a one week subscription to the premium SMT newsletter.

Gold And Silver Price – Fundamentals Do Not Matter

Posted: 02 Nov 2013 04:32 AM PDT

If fundamentals mattered, gold and silver prices would be substantially higher. They are not, and for a reason. It is not hard to define what factors are influencing price, for they are political, even criminal under normal circumstances. These factors are, in two words: central bankers. The money changers still have a stranglehold on the financial system, and nowhere it is more evident than in the price of gold. Will it end? Yes, but as has been the biggest mystery, no one knows when?! While the golden grip continues, it is inexorably loosening. The United States, and by extension, the United Kingdom, is fast becoming more and more isolated. First, it was the natural opposition, Russia, China, morphing into the BRICS. Unable to sustain their no longer warranted arrogance, the Western alliances are now falling apart. Note the cover from Die Zeit, symbolic of the growing attitude of the rest of the world toward the US:

Gold And Silver – Fundamentals Do Not Matter

Posted: 02 Nov 2013 01:29 AM PDT

If fundamentals mattered, gold and silver prices would be substantially higher. They are not, and for a reason. It is not hard to define what factors are influencing price, for they are political, even criminal under normal circumstances. These factors are, in two words: central bankers. The money changers still have a stranglehold on the financial system, and nowhere it is more evident than in the price of gold.

Will it end? Yes, but as has been the biggest mystery, no one knows when?! While the golden grip continues, it is inexorably loosening. The United States, and by extension, the United Kingdom, is fast becoming more and more isolated. First, it was the natural opposition, Russia, China, morphing into the BRICS. Unable to sustain their no longer warranted arrogance, the Western alliances are now falling apart. Note the cover from Die Zeit, symbolic of the growing attitude of the rest of the world toward the US:

die zeit 2013 price

It was not enough to give the stiff arm to Germany when its representatives came to inspect its own gold, purportedly held in New York. "Nein, nein, Sie konnen nicht es sehen." "You cannot see it, but not to worry, we will deliver half your gold in seven years," the Germans were told, after the insulting rebuke. This is evidence of the growing in- fighting going on, and the revelation of NSA spying has driven a wedge even further.

It is paramount for Western central bankers to keep the façade of owning tonnes of gold alive, for once it gives way, all control is lost. The unilateral actions on the part of the US ensures the eventual collapse of the existing fragile unity. Of course, the core reason lies in the massive creation of digital "dollars" that are now being rejected en masse by the largest creditors holding Federal Reserve [soon to be junk] bonds. The world is finally rejecting the US exporting its destructive inflation, via the Federal Reserve "dollar."

Continuing stories of one country or another increasing its gold imports has not been of significance, relative to the current price of gold. It may make for attention-grabbing articles, but the impact is nil. The direction for price is solely in the diminishing control of the New World Order via Basel down through the IMF and then central banks.

If ever a picture were worth a thousand words, it is this one of the dwindling registered gold stocks, the top graph, and the clincher graph below it showing the number of claims, almost 56 paper "owners" laying claim for each ounce of gold. This Gordian Knot cannot be resolved. It does not require much imagination to guess what will happen when 56 claims are made for each ounce.

If ever you want to see a simple graphic of supply v demand, this one encapsulates it all.

gold paper claims per ounce 2013 price

However unrealistic one may view the charts of the bogus paper pricing mechanism viewed on the COMEX, they still function as a loose barometer for the current direction of gold and silver, and by default, they will act as the weather vane until displaced by some other basis of reality.

No matter how bullishly one reads the ample news, in support of the demand for gold, it is not being translated into higher prices, as evidenced by the charts. This is why we see little value in parroting the same kinds of positive developments in the news. What is not being recognized sufficiently is the reality of the central banks maintaining control, even as it slips away, little by little.

October paints a more positive picture in the fight to rally price higher. After an attempt to decline under August and September, a rally did ensue. The negative aspect to the last bar is how sellers kept the range relatively small, proof that buyers are not able to wrest control away.

The ability to sustain the October performance is tenuous, going into November. Bulls have another month to demonstrate that the demand factors are going to translate into higher prices.

gold price monthly 1 november 2013 price

The takeaway from last week's negative outside range bar is that buyers have a few weeks to defend the swing low, at 2, and then create a higher swing high, above 1, and change the trend to the upside. Buyers are still not meeting this burden, but points 1 and 2 are a show of effort.

gold price weekly 1 november 2013 price

D/S = Demand over Supply on the rally bar attended by the highest green volume bar since mid-August. This is the kind of bar you will see buyers defend, on a retest. Three TDs later, [Trading Days], there was another relatively strong rally bar, and the low of that bar is minor support. It also coincides with a half-way retracement of the October swing low to late October swing high.

Friday's close was mid-range the bar, indicating balance between buys and sellers. Given that Friday was the third day of decline, it is a minor plus that buyers showed up to keep price from declining any further.

What is common to all three charts is the necessity for buyers to meet the burden of proof in shifting the trend from down to up. There is a degree of effort seen in the daily chart by virtue of a sideways trend. This is a first step in stopping a down trend that could possibly lead to an up trend. Time and price will tell.

gold price daily 1 november 2013 price

The relatively smaller range of October, combined with a neutral close and following a decline month for September, fits into the context of the strong, wide range rally of August, making the last two months a weak retest of that rally.

Again, fundamental news is not driving price directionally for PMs. The fact that India is on track to purchase 6,000 tonnes of silver, this year, compared to just 2,000 tonnes for all of 2012, is a clear sign that overtly bullish news is not impacting the market, at least not for now. Ultimately, it will, but for now, the charts ain't buying it.

silver price monthly 1 november 2013 price

For as long as the sideways TR, shown in the box, remains intact, holding above the TR at the lows from June/July, this has bullish connotations. That may be all well and good, for the present, but buyers need to step up their game. It is that simple.

silver price weekly 1 november 2013 price

What matters on the daily chart are the last three bars. We already know price is languishing at these lower levels. What is to happen for the near term, moving forward?

Price has been in a TR since early September. 23.50 is the upper bound, 20.50 is the lower bound. Wednesday's rally, 3rd bar from the end, was on high volume, ostensibly bullish as price rallied into recent high ground for October. Next day, price opened much lower, erasing the positive volume, and actually making it negative, for it trapped all those who were on the buy side of that volume.

Thursday's bar, 2nd from end, was even wider range down with a poor close and on equally high volume. Clearly, sellers took control, but in a trading range, it may not be as meaningful.

How to read Friday's small range bar? On the one hand, what happened to the sellers' momentum carrying price lower? It stopped, cold. On the other hand, the small range at the lower end of the bar tells us buyers were unable to rally price and extend the range higher, beyond the positive aspect of stopping the selling activity.

The mid-range close on the bar, and just about unchanged from the previous close, tells us buys and sellers were in balance. That gives a tenuous edge to buyers for showing an ability to halt the sell-off. No one knows how it will develop by Monday's opening, but we know if buyers do not show up, sellers will have another easy time pushing price lower.

The entire discussion has been focused on paper futures. We always add that continual buying of the physical metals should be an ongoing habit. It is impossible to know when instability will take over and align price with the reality of well known demand factors. When that does occur, the availability, not just of these great prices but for the metals themselves, may disappear overnight, for some period of time.

Keep accumulating physical gold and silver, and make sure you maintain physical control, as well. Do not, under any circumstances, trust banks, and for sure, not safety deposit boxes.

silver price daily 1 november 2013 price

Chinas Appetite for Gold: Waning or Surging?

Posted: 02 Nov 2013 01:00 AM PDT

Dollar Collapse

Comex Deliverable Gold Falls to 658,443 Ounces, Claims Per Deliverable Ounce at 55

Posted: 01 Nov 2013 09:37 PM PDT

Comex Deliverable Gold Falls to 658,443 Ounces, Claims Per Deliverable Ounce at 55

Posted: 01 Nov 2013 09:37 PM PDT

China's Appetite for Gold: 'Waning' or Surging?

Posted: 01 Nov 2013 07:37 PM PDT

Bloomberg's latest report on Chinese gold imports is a great illustration of a journalist's power to shape a message by highlighting certain data points and downplaying others. Read More...

Both Silver and Gold Prices Closed Lower this Week

Posted: 01 Nov 2013 05:03 PM PDT

Gold Price Close Today : 1,313.10
Gold Price Close 25-Oct-13 : 1,352.40
Change : -39.30 or -2.9%

Silver Price Close Today : 2180.4
Silver Price Close 25-Oct-13 : 2260.3
Change : -79.90 or -3.5%

Gold Silver Ratio Today : 60.223
Gold Silver Ratio 25-Oct-13 : 59.833
Change : 0.39 or 0.7%

Silver Gold Ratio : 0.01660
Silver Gold Ratio 25-Oct-13 : 0.01671
Change : -0.00011 or -0.6%

Dow in Gold Dollars : $ 245.83
Dow in Gold Dollars 25-Oct-13 : $ 238.00
Change : $7.84 or 3.3%

Dow in Gold Ounces : 11.892
Dow in Gold Ounces 25-Oct-13 : 11.513
Change : 0.38 or 3.3%

Dow in Silver Ounces : 716.18
Dow in Silver Ounces 25-Oct-13 : 688.86
Change : 27.32 or 4.0%

Dow Industrial : 15,615.55
Dow Industrial 25-Oct-13 : 15,570.28
Change : 45.27 or 0.3%

S&P 500 : 1,761.64
S&P 500 25-Oct-13 : 1,759.77
Change : 1.87 or 0.1%

US Dollar Index : 80.723
US Dollar Index 25-Oct-13 : 79.260
Change : 1.463 or 1.8%

Platinum Price Close Today : 1,449.40
Platinum Price Close 25-Oct-13 : 1,451.50
Change : -2.10 or -0.1%

Palladium Price Close Today : 737.70
Palladium Price Close 25-Oct-13 : 741.70
Change : -4.00 or -0.5%

Sorry about my absence yesterday. Our power went out at my office and at home. No power, no computer, no commentary. For those of y'all who follow end of month pricing, here 'tis: GOLD PRICE, 1323.6; Silver 2183.2; Platinum 1,445.9; Palladium 736.25; US dollar index, 80.2; Dow Industrials, 15,545.75; S&P500 1,756.54.

This week demolished all the work silver and GOLD PRICES had done in the previous two weeks. The SILVER PRICE lost 3.5% for the week, and 4.9% (111.4c) yesterday. The same concerted selling attack took gold down 1.9% ($25.40). Stocks peaked and began descending, although for the week the Dow gained 0.3% and the S&P500 .01%. Oddly enough, the white metals hardly moved week to week, although they, too, had risen quite a bit this week. Dollar index was the show, up 1.8% and a huge 146 basis points.

Yesterday silver dropped off a cliff, down 111.4 cents (4.9%) to 2183.2 and where we started. Gold lost 1.9% ($25.40) to $1,323.60. Today silver was quiet, losing only 2.8 cents to 2180.4c. Gold lost another 0.8% or $10.50 to land at $1,313.10.

Silver has now lost 53% of its preceding gain. It pushed for the high before last at 2344c, but stopped at 2309.c. Yesterday it closed below its 20 DMA (2208c) and of course its 50 DMA, 2247c. Unless silver can rebound quickly and close over that last high at 2309c, it will at least return to the uptrend line from the June low, now at 2100c. Unless silver shows more strength, seems headed for a retest of the June low, at a higher or lower level. That makes that 2100c level crucial.

The gold price has given up 50% of its preceding rise, and failed to better the last high at $1,375.40, and closed beneath its 50 DMA ($1,339.68) and 20 DMA ($1,317.15). Is it real, or Memorex? Who knows, but $1,300 again becomes the line that must be held. Remember in October when gold rocketed off its $1,251 low it blasted through resistance at $1,280, $1,300, and $1,320. Thus the $1,300 point becomes crucial. Gold meets its July uptrend line about $1,260, so that must hold.

It's odd, but yearly silver and gold price lows almost NEVER strike in October or December. About 20% of the time they come in November. Seems we can look for some low this month to confirm that June low.

Well, I'm plumb wordless. Federal Reserve creates roughly $2-1/2 trillion, and nothing happens. That's the story of the last 5 years, boosting Adjusted Monetary Reserves up 4.11 times. The various splurges of QE raise the stock market because new money runs first to the financial markets. Although the economy needs a mirror under its nostrils still to make sure it's breathing, stock market keeps rising. Meanwhile, silver and gold continue in a two year correction.

A friend of mine used to point to events and ask, "Is it real, or Memorex?" Is it real, or just a Potemkin government set up? Example: FOMC announces it will continue depreciating the dollar by creating $85 billion of new money a month. You would guess, if your brain is working, that would send the US dollar down, all the more so since the interest rate is so low. You would be on the wrong side of that market, because dollar index gained 110 basis points in the last three days. Real, or Memorex?

Contrary to some "experts," markets are IRrational. People don't buy value, they buy a rising market. They have the attention span of a gnat, and they are constantly bombarded by feel-good propaganda promising that "Every day in every way things are getting better and better." It takes time for fundamentals -- like money already pushed into the inflation pipeline -- to work its effect. But over time, Reality has a way of coming down on your head with a giant fly-swatter. So we patiently wait.

US dollar index had reached a low last Friday at 79.26, and bounced up off 79 -- straight up, above the downtrend line. Closed today 80.723, up 0.62% today alone.

The yen was not happy about this, losing 0.39% to 101.28 cents/Y100 today. But the euro took a brickbat to the forehead. It was just waiting to collapse. Wednesday it dropped sharply, then gapped down the next day beneath its 20 DA. Gapped down again today, fractured the uptrend line, and closed beneath its 50 DMA ($1.3491) to roost at $1.3488, down a modest 0.71% on the day. Back in September the euro broke out of its trading channel but for a long time refused to make good on it. Traded higher on the Debt Farce, but mostly with all the enthusiasm of a condemned man for a rope factory. Closed today back within that old channel line, wiping out a month and a half's gains.

All this whispers that the dollar will rally at least to 81, maybe even to the 200 DMA at 81.77 before it slows down. That's not the best news for silver and gold, since it raises a headwind against their progress.

Stocks probably ran out of gas this week, notwithstanding today's little gains. They were way overbought. Stocks bear market rally hasn't ended yet. May run into first quarter 2014.

Dow in gold and Dow in silver are zig-zagging up and down, up today of course. However, the establish downtrend remains intact.

Today is All Saints or All Hallows Day. Y'all were so distracted by Hallowe'en (All Hallows Eve) y'all probably forgot that.

Y'all enjoy your weekend!

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2013, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold or 18 ounces of silver. or 18 ounces of silver. US $ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down.

WARNING AND DISCLAIMER. Be advised and warned:

Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.

NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.

NOR do I recommend buying gold and silver on margin or with debt.

What DO I recommend? Physical gold and silver coins and bars in your own hands.

One final warning: NEVER insert a 747 Jumbo Jet up your nose.

Both Silver and Gold Prices Closed Lower this Week

Posted: 01 Nov 2013 05:03 PM PDT

Gold Price Close Today : 1,313.10
Gold Price Close 25-Oct-13 : 1,352.40
Change : -39.30 or -2.9%

Silver Price Close Today : 2180.4
Silver Price Close 25-Oct-13 : 2260.3
Change : -79.90 or -3.5%

Gold Silver Ratio Today : 60.223
Gold Silver Ratio 25-Oct-13 : 59.833
Change : 0.39 or 0.7%

Silver Gold Ratio : 0.01660
Silver Gold Ratio 25-Oct-13 : 0.01671
Change : -0.00011 or -0.6%

Dow in Gold Dollars : $ 245.83
Dow in Gold Dollars 25-Oct-13 : $ 238.00
Change : $7.84 or 3.3%

Dow in Gold Ounces : 11.892
Dow in Gold Ounces 25-Oct-13 : 11.513
Change : 0.38 or 3.3%

Dow in Silver Ounces : 716.18
Dow in Silver Ounces 25-Oct-13 : 688.86
Change : 27.32 or 4.0%

Dow Industrial : 15,615.55
Dow Industrial 25-Oct-13 : 15,570.28
Change : 45.27 or 0.3%

S&P 500 : 1,761.64
S&P 500 25-Oct-13 : 1,759.77
Change : 1.87 or 0.1%

US Dollar Index : 80.723
US Dollar Index 25-Oct-13 : 79.260
Change : 1.463 or 1.8%

Platinum Price Close Today : 1,449.40
Platinum Price Close 25-Oct-13 : 1,451.50
Change : -2.10 or -0.1%

Palladium Price Close Today : 737.70
Palladium Price Close 25-Oct-13 : 741.70
Change : -4.00 or -0.5%

Sorry about my absence yesterday. Our power went out at my office and at home. No power, no computer, no commentary. For those of y'all who follow end of month pricing, here 'tis: GOLD PRICE, 1323.6; Silver 2183.2; Platinum 1,445.9; Palladium 736.25; US dollar index, 80.2; Dow Industrials, 15,545.75; S&P500 1,756.54.

This week demolished all the work silver and GOLD PRICES had done in the previous two weeks. The SILVER PRICE lost 3.5% for the week, and 4.9% (111.4c) yesterday. The same concerted selling attack took gold down 1.9% ($25.40). Stocks peaked and began descending, although for the week the Dow gained 0.3% and the S&P500 .01%. Oddly enough, the white metals hardly moved week to week, although they, too, had risen quite a bit this week. Dollar index was the show, up 1.8% and a huge 146 basis points.

Yesterday silver dropped off a cliff, down 111.4 cents (4.9%) to 2183.2 and where we started. Gold lost 1.9% ($25.40) to $1,323.60. Today silver was quiet, losing only 2.8 cents to 2180.4c. Gold lost another 0.8% or $10.50 to land at $1,313.10.

Silver has now lost 53% of its preceding gain. It pushed for the high before last at 2344c, but stopped at 2309.c. Yesterday it closed below its 20 DMA (2208c) and of course its 50 DMA, 2247c. Unless silver can rebound quickly and close over that last high at 2309c, it will at least return to the uptrend line from the June low, now at 2100c. Unless silver shows more strength, seems headed for a retest of the June low, at a higher or lower level. That makes that 2100c level crucial.

The gold price has given up 50% of its preceding rise, and failed to better the last high at $1,375.40, and closed beneath its 50 DMA ($1,339.68) and 20 DMA ($1,317.15). Is it real, or Memorex? Who knows, but $1,300 again becomes the line that must be held. Remember in October when gold rocketed off its $1,251 low it blasted through resistance at $1,280, $1,300, and $1,320. Thus the $1,300 point becomes crucial. Gold meets its July uptrend line about $1,260, so that must hold.

It's odd, but yearly silver and gold price lows almost NEVER strike in October or December. About 20% of the time they come in November. Seems we can look for some low this month to confirm that June low.

Well, I'm plumb wordless. Federal Reserve creates roughly $2-1/2 trillion, and nothing happens. That's the story of the last 5 years, boosting Adjusted Monetary Reserves up 4.11 times. The various splurges of QE raise the stock market because new money runs first to the financial markets. Although the economy needs a mirror under its nostrils still to make sure it's breathing, stock market keeps rising. Meanwhile, silver and gold continue in a two year correction.

A friend of mine used to point to events and ask, "Is it real, or Memorex?" Is it real, or just a Potemkin government set up? Example: FOMC announces it will continue depreciating the dollar by creating $85 billion of new money a month. You would guess, if your brain is working, that would send the US dollar down, all the more so since the interest rate is so low. You would be on the wrong side of that market, because dollar index gained 110 basis points in the last three days. Real, or Memorex?

Contrary to some "experts," markets are IRrational. People don't buy value, they buy a rising market. They have the attention span of a gnat, and they are constantly bombarded by feel-good propaganda promising that "Every day in every way things are getting better and better." It takes time for fundamentals -- like money already pushed into the inflation pipeline -- to work its effect. But over time, Reality has a way of coming down on your head with a giant fly-swatter. So we patiently wait.

US dollar index had reached a low last Friday at 79.26, and bounced up off 79 -- straight up, above the downtrend line. Closed today 80.723, up 0.62% today alone.

The yen was not happy about this, losing 0.39% to 101.28 cents/Y100 today. But the euro took a brickbat to the forehead. It was just waiting to collapse. Wednesday it dropped sharply, then gapped down the next day beneath its 20 DA. Gapped down again today, fractured the uptrend line, and closed beneath its 50 DMA ($1.3491) to roost at $1.3488, down a modest 0.71% on the day. Back in September the euro broke out of its trading channel but for a long time refused to make good on it. Traded higher on the Debt Farce, but mostly with all the enthusiasm of a condemned man for a rope factory. Closed today back within that old channel line, wiping out a month and a half's gains.

All this whispers that the dollar will rally at least to 81, maybe even to the 200 DMA at 81.77 before it slows down. That's not the best news for silver and gold, since it raises a headwind against their progress.

Stocks probably ran out of gas this week, notwithstanding today's little gains. They were way overbought. Stocks bear market rally hasn't ended yet. May run into first quarter 2014.

Dow in gold and Dow in silver are zig-zagging up and down, up today of course. However, the establish downtrend remains intact.

Today is All Saints or All Hallows Day. Y'all were so distracted by Hallowe'en (All Hallows Eve) y'all probably forgot that.

Y'all enjoy your weekend!

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2013, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold or 18 ounces of silver. or 18 ounces of silver. US $ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down.

WARNING AND DISCLAIMER. Be advised and warned:

Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.

NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.

NOR do I recommend buying gold and silver on margin or with debt.

What DO I recommend? Physical gold and silver coins and bars in your own hands.

One final warning: NEVER insert a 747 Jumbo Jet up your nose.

FDIC, BoE brew ‘bail-in’ plan for banks, depositors

Posted: 01 Nov 2013 01:29 PM PDT

Sinclair says to step out of harm’s way

“The Federal Deposit Insurance Corporation (FDIC) and the Bank of England—together with the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, and the Financial Services Authority—have been working to develop resolution strategies for the failure of globally active, systemically important, financial institutions (SIFIs or G-SIFIs) with significant operations on both sides of the Atlantic. This work has taken place in connection with the implementation of the Financial Stability Board’s (FSB) Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes), as well as in connection with the reforms to the legal arrangements for handling the failure of financial institutions that were instituted in the United States (U.S.) and the United Kingdom (U.K.) in response to the recent financial crisis.

The goal is to produce resolution strategies that could be implemented for the failure of one or more of the largest financial institutions with extensive activities in our respective jurisdictions. These resolution strategies should maintain systemically important operations and contain threats to financial stability. They should also assign losses to shareholders and unsecured creditors in the group, thereby avoiding the need for a bailout by taxpayers. These strategies should be sufficiently robust to manage the challenges of cross-border implementation and to the operational challenges of execution.”

[Emphasis added]

Excerpted from FDIC-Bank of England document titled “Resolving Globally Active, Systemically Important, Financial Institutions” (December 10, 2012)

—–

Noted gold analysts, James Sinclair (JS Mineset) talked about what a ‘bail-in” might mean for the average investor:

“If you put your money in a bank you are an unsecured lender to that bank – unsecured lender – that’s not even as good as a bond holder….So the lenders are going to take the brunt, not the taxpayer, is how this will be packaged and sold. The lender is the person that hold what he thinks or she thinks is their asset in the bank. The moment you put your money in the bank it is no longer your asset. It becomes an asset of the bank and you become an unsecured lender.

Now, the IMF proposed one more very important criteria for the recent bail-in and that was that retirement funds are to be nationalized. After that we’ve had retirement funds nationalized in Russia where the Russians say they will pay back someday. And we’ve had retirement income nationalized in Poland where there has been no comment on any type of payback. . . .

“Which will put the onus of rescuing banks on the depositors and bond holders, which if you take everything into consideration in Cyprus, was a total of 83% of assets…the loss was catastrophic….. So the example of Cyprus which we may have considered a small little Russian island pretending to be European, is in fact the blueprint for what we are going to experience here in the United States…why bail in is written right into the budget of the Canadians….It’s in white papers signed by the United States, and the Bank of England, by the FDIC of the United States. It’s sitting there in BIS papers. People only have to look and see that they are in harms way.

Now, if you are in harms way, how do you get out of it? You step to the left or to the right… So if you sit there with your deposit in the bank, with all of your money with your brokers who are banks now, in many cases, and these banks and institutions which took aid from the government, most likely the ones to blow up again in fact do blow up, that your account at your broker, your bank account at your bank, are going to be hit for the amount of funds, and it may even be extended to equity or profitable positions.”

Full Interview of James Sinclair by USA Watchdog, October 30, 2013

GC comment: The example of Cyprus has now been established as the standard. What was once considered a special situation will be the blueprint for investors in the US, UK and Canada. By establishing a self-directed IRA or 401(k) diversified with gold and silver bullion coins, you stand the best chance of moving a portion of your retirement out of harms way – at least with respect to a bail-in of the banks. Your coins are held in a depository, which does not conduct any banking or brokerage activities. No leveraged positions are allowed. The metals are fully paid for. By choosing a self-directed, gold-backed IRA, you are able to hedge the potential crisis likely to accompany a bail-in. One can only assume that under such dire circumstances that the stock and bond markets would be in less than healthy condition.

Maguire - Big Banks In Trouble As Major LBMA Default Nears

Posted: 01 Nov 2013 01:20 PM PDT

On the heels of continued volatility in the gold and silver markets, today the man who three weeks ago correctly predicted gold would surge above $1,300, is now warning King World News that the LBMA is now moving closer to a major "default." London metals trader Andrew Maguire also spoke with KWN about what the big banks so incredibly worried at this point. Below is what Maguire had to say in this tremendous and timely interview.

This posting includes an audio/video/photo media file: Download Now

Gold Daily and Silver Weekly Charts - All Saints

Posted: 01 Nov 2013 01:15 PM PDT

Gold Daily and Silver Weekly Charts - All Saints

Posted: 01 Nov 2013 01:15 PM PDT

GATA Chairman Murphy interviewed by Kitco News

Posted: 01 Nov 2013 12:49 PM PDT

6:44a AEST Saturday, November 2, 2013

Dear Friend of GATA and Gold:

GATA Chairman Bill Murphy has been interviewed by Daniela Cambone of Kitco News about CPM Group's Jeffrey Christian's attack on silver market rigging whistleblower Andrew Maguire. The interview is six minutes long and can be viewed at the Kitco Internet site here:

http://www.kitco.com/news/video/show/on-the-spot/465/2013-11-01/GATA-Add...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


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12 Reasons Why Gold Should Bounce Sharply Higher in 2014

Posted: 01 Nov 2013 12:46 PM PDT

Is it time to throw in the towel? Is the bull market in precious metals really over? [Igold_price_surges_weak_jobs_data don't think so because my analyses suggest]…that nearly all of the fundamental factors that have been driving the gold price higher in the past decade have only strengthened in the past two years. Now that the correction has most likely run its course, I expect gold to rebound into the close of the year and bounce sharply higher in 2014. Here are the 12 reasons why.

The above are edited excerpts by Jason Hamlin (goldstockbull.com) in edited excerpts from his original article* entitled 12 Reasons Why Gold Will Rebound and Make New Highs in 2014.

[The following article is presented by  Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Hamlin goes on to say in further edited excerpts:

#1 – Rapidly Growing Debt

Just one day after President Barack Obama signed into law a bipartisan deal to end the government shutdown and avoid default, the U.S. debt surged a record $328 billion, the first day the government was able to borrow money. The U.S. national debt has increased by more than a trillion dollars in the past 12 months. This pushed the total debt above $17 trillion for the first time in history. As the debt increases and GDP growth slows, the debt-to-GDP ratio will continue to rise at an accelerating pace. This is simple math and it dictates an ongoing slide in the purchasing power of the dollar and rise in the purchasing power of real assets and particularly monetary metals such as gold and silver.

The following charts show the steepening rise in total public debt and the debt-to-GDP ratio of the United States. Many economists view a debt-to-GDP ratio of 100% as the point of no return. It is a slippery slope that is certain to push higher at an accelerated rate in the coming years.

debt chart

Note that alternate calculations of the total debt including unfunded liabilities and off-balance sheet items, puts the number somewhere closer to $100 trillion or more than 5 times the official figure. This equates to a debt-to-GDP ratio of over 500%, not the 100% charted below.

debt gdp ratio

Takeaway: The total level of debt and the debt-to-GDP ratio have both increased substantially in the past two years. This is bullish for gold, as precious metals have a positive correlation to total debt levels.

#2 – Inept Government and Partisan Bickering

The fight over the budget and debt ceiling shut down the government for 16 days and ended up costing billions more than if the government would have remained open. Standard & Poors estimates that the 16-day government shutdown took $24 billion out of the U.S. economy, and reduced projected fourth-quarter GDP growth from 3 percent to 2.4 percent. Not only that, but it tarnished the image of U.S. financial strength and has many people worldwide questioning how the United States will continue to pay its bills. These shenanigans also led Fitch to put the U.S. on "rating watch negative" and the Chinese ratings firm, Dagong, formally downgraded its rating of the US from A to A-.

Both sides of the political aisle continue to engage in deficit spending and neither side seems serious about addressing the debt and deficit. Sadly, my guess is that they will never voluntarily reduce spending and will have to be forced to do so via default or other events. The more they shine a light on the fiscal weakness of the U.S., the faster other nations dump U.S. debt and the sooner we will see the inevitable ratings downgrade and debt default (official or via hyperinflation).

ideology-is-the-source-of-political-gridlock-58326

Takeaway: The Western political system is broken and the idiots running the U.S. government severely damaged government credibility and brought the country dangerously close to a technical default. They haven't made any serious effort to balance the budget and their "solution" only kicks the can down the road for a few more months. Look for more of the same in the near future, which will further erode the creditworthiness of the U.S. government and faith in the U.S. dollar. This increases the bullish outlook for gold.

#3 – QE to Infinity Confirmed, as FED Balance Sheet Explodes

At Gold Stock Bull, we have long been calling QE3, "QE to Infinity" and doubting that any major tapering would occur. With weak economic growth and low official inflation, the FED's dual mandates would dictate more stimulus, not less. Just weeks ago there was a consensus for tapering in September. Now, analysts are talking about March of 2014 at the earliest. My expectation is that they will change the QE program, maybe give it a different name, but the end result will always be a net increase in stimulus efforts.

The FED's balance sheet has already increased from $869 billion in August of 2007 to $3.8 trillion today! The nomination of Janet Yellen as FED chief adds gasoline to the fire, as she is expected to be at least as accommodative as her predecessor and potentially much looser with the printing press. Helicopter Yellen?

Yellen4

Takeaway: The economy is addicted to QE and reliant on central bank stimulus to stay afloat. The world now understands that the FED cannot end the bond-buying program and has no intention of doing so anytime soon. If anything, we are likely to see increased quantitative easing in the future, just as a drug addict must up their dosage in order to have the same impact. This monetization of debt increases the bullish outlook on gold, as the gold price has historically trended higher along with the FED balance sheet.

fed balance

#4 – Dollar Losing Status as World Reserve Currency

The exorbitant privilege of being able to print the world reserve currency is coming to end.

  • "It is perhaps a good time for the befuddled world to start considering building a de-Americanized world," said a statement by Xinhua, the state news agency of China — which holds some $1.3 trillion in Treasury bonds.
  • "The United States will inevitably lose its reserve currency monopoly," wrote economists Hélène Rey of the London Business School.
  • Pierre-Olivier Gourinchas of the University of California, Berkeley, and Emmanuel Farhi of Harvard University said. "It can only be a matter of time before the world becomes multipolar."
  • The IMF echoed this sentiment, stating how "reserves concentration in the government debt of one country introduces idiosyncratic risks to the international monetary system.

 

Several nations now have bi-lateral trade agreements that bypass the dollar.

  • China has made arrangements to swap Yuan's for for local currencies with Japan, Russia, Australia, Iceland, South Korea, Malaysia, Brazil, India and South Africa. The BRICS nations are emerging as a powerful economic force and they are intent on conducting affairs without use of the U.S. dollar.
  • The growing rift with Saudi Arabia threatens the petrodollar.
  • Oil-rich countries that have attempted to sell their oil in currencies other than dollars include Iraq and Libya, both bombed into submission.
  • Iran is now trading oil for gold, bypassing the U.S. petrodollar. This is likely the real reason they are now in the crosshairs of the U.S. military.
  • Syria is seen as a stepping stone to attacking Iran, but widespread opposition from ally countries and citizens alike stopped the recent war momentum.

As the influence of the petrol-dollar continue to wane, so too will the power of the U.S. dollar as the world reserve currency. Without the ability to deficit spend and export our inflation, it will come home to roost and the dollar will suffer or even collapse as have other debt-ridden fiat currencies throughout history.

purchasing-power-of-the-us-dollar

Takeaway: The dollar historically has an inverse relationship to gold. As the dollar continues to lose its role as world reserve currency and its purchasing power declines, the gold price will move higher. Mike Maloney and other analysts have calculated that the gold price needs to climb past $15,000 per ounce to account for all of the paper dollars that exist today. As more and more money is printed and debt is monetized, this target price [for gold] only increases.

#5 – Global Race to Debase

It is not only the U.S. central bank that is printing money with wreckless abandon. Around the globe, central banks are trying to remain competitive in foreign trade by debasing their currency in line with the dollar. No countries are willing to admit it, but the currency war is on. As the competition heats up, they will no doubt overstep in their push to print money. This will translate into higher gold prices worldwide, measured across multiple currencies.

curr war

Takeaway: The race to debase has only intensified in the past few years, as evidenced by new stimulus programs in Europe and Abenomics in Japan. Put simply, the more fiat money that is created in this currency war, the higher the price of gold and other commodities will climb.

#6 – Inflation Will Pick Up as Velocity of Money Accelerates

Up until this point, a large portion of the new money printed since the financial crisis has been parked with the banks or as excess reserves with the FED. Banks are reluctant to lend and corporations are also hoarding cash. Individuals are consuming less, tightening their budgets amidst high unemployment and stagnant wages and paying down debt. This means that money has not been circulating throughout the economy at a very fast pace. The stimulus has disproportionately benefited banks and the wealthiest people in society, doing little for the middle class that continues to get squeezed.

To get money flowing, future stimulus efforts must be focused on tax breaks or refunds for the working class, who are more likely to spend that money into the economy than the rich that aren't living near the margin. With unemployment higher than desired and official inflation lower than desired, I think we will see Yellen and the FED focus more on consumer stimulus now that the banks finances have been shored up. This will lead to a sharp increase in the velocity of money and when multiplied by all of the money created in the last few years, it could lead to high inflation or even hyperinflation if the FED fails to soak up the excess liquidity in time.

velocity

Takeaway: An increase in the inflation rate, driven by an increase in the velocity of money, will be very bullish for gold.

#7 – Diversification of Price Discovery and Decreased Power to Manipulate Commodity Markets

With the rising power and influence of the East, we are seeing the centers of global finance reposition. These include the Shanghai Exchange and Pan Asian Exchange, where an increasing amount of physical gold and silver are being traded. If you believe the COMEX and London Bullion Market Association (LBMA) are helping to manipulate the prices of precious metals, it will be welcomed news to see new exchanges emerge that can provide alternative price discovery.

Takeaway: The diversification of price discovery in the gold market will lessen the ability of Western powers to manipulate prices…[and] any diminishing of this manipulative ability will be very bullish for gold.

#8 – Increasing Physical Demand Worldwide, Including Central Bank Demand

  • Consumer demand for gold was up 53% in Q2 according to the WGC.
  • Total bar and coin demand set a new quarterly record, exceeding 500 tonnes for the first time.
  • U.S. silver eagles sales are on pace for a record year.
  • Central banks continue buying at a frenzied pace, adding 534.6 metric tons to reserves in 2012, the most in almost a half century.
[The above] are just the reported purchases. China, Russia and other nations are thought to be buying discretely via third parties.

Furthermore, there is a growing movement of gold repatriation around the globe. First Venezuela, now Germany, the Netherlands, Switzerland, Poland, Romania, Finland, Ecuador and others are demanding their gold back from the FED and Western financial institutions.

Gold_Currency_Wars

Takeaway: Increasing demand, particularly by those taking physical delivery, will also serve

What Is Gold Really Worth

Posted: 01 Nov 2013 12:28 PM PDT

Al Jazeera released a TV interview with Nick Barisheff, CEO of Toronto based Bullion Management Group and author of the book “$10,000 – Why gold’s inevitable rise is the investor’s safe haven” Bullion Management Group has close to 0.5 billion of dollars worth of assets. Barisheff explains why he thinks gold could go to $10,000 in this decade and what the real value is of gold.

Coincidence or not, the video is not accessible in the US. That is why we are providing the transcript in this article of the most important elements of the interview.

Gold is not paying any dividend or interest so what is the usefulness as an investment?

Most people that really understand gold do not want to get it out of the vault in return for dividends or interests. The same would apply to physical dollars or euros in a vault; those currencies do not pay dividends. In order to get a dividend or interest, one should put its wealth at risk of not getting it back.

Is gold a commodity or a monetary asset?

There is a lot of confusion about precious metals being a commodity or a monetary asset. Gold, silver and platinum have been money for over 3,000 years. The financial statement of Western nations under their balance sheet shows monetary assets as a subcategory. That subcategory has only two items: foreign currency reserves and gold. There has not been any single fiat currency throughout history that has not ended in a hyperinflation and a complete collapse. Today, we have a different set of circumstances in that we have a global fiat currency system. It is starting to become exponential in terms of amounts of currency in circulation and amounts of new currency created. The ratio has always been in tact between total debt and the gold price.

Gold’s outlook: $10,000 gold or the inflation adjusted $720 per ounce?

If the gold price falls below the production cost ($1,200), gold exploration is done and demand totally overwhelms supply. Besides, as the gold price rises, some commodity based demand may drop but monetary demand goes up. In the new Shanghai futures exchange, the amount of gold deliveries per month is almost equivalent to total global mine supply. So it is the monetary aspect that is overwhelming; it is not the commodity aspect that makes the difference.

From a point of view of inflation, the accurate way to look at it is the wealth preservation aspects of gold. If we look at how many ounces of gold it took to buy a car in 1971, when it was depegged from the dollar, it was 66 ounces. Today it is ten. A house with 703 ounces 228. The Dow 25 today is 8. The only thing that held its value is oil: you would 12 barrels of oil for one ounce of gold in 1971, you get 12 barrels of oil today, even if the price has gone from 12 to 107. That is the true measure of wealth preserving aspects of gold.

Does the world need currencies linked to commodities?

As humans, we have not come up with the perfect system of money. In all religions, there is consistency that gold and silver are the only forms of honest money. The US Constitution says the same thing. It had its flaws but right now the problem is the ability of the central banks to print unlimited quantities of currency. In such a situation, they inevitable overprint. Once you get to the exponential curve, you get into hyperinflation. It always happened this way in the past, I believe it is where are going in the future.

Nick Barisheff was several times a guest on GoldSilverWorlds. Some excellent readings which fall in the “must read” category:
The Destruction Of Currency And Rise Of Gold
Why Mainstream Media, Main Street And Institutions Fail To See The Benefits Of Gold
Cyprus and Gold – Lighting a Candle in a Dark Room.

Euro heads for worst week in 16 months on ECB bets

Posted: 01 Nov 2013 12:20 PM PDT

01-Nov (Reuters) — The euro fell for a fifth day against the dollar on Friday, heading for its biggest weekly loss in 16 months, on growing expectations the European Central Bank will ease monetary policy further to protect growth.

More losses are likely as traders said the single currency’s climb in recent months was overdone. The euro hit a 23-month high above $1.38 last Friday, a gain of more than 8 percent from early July.

Plunging euro zone inflation is raising the specter of deflation in some areas and fueling bets the ECB will be forced to ease monetary policy in coming months. A rate cut will erode the euro’s interest rate advantage over other major currencies.

[source]

West distorts bullish Chinese gold news, Kaye tells KWN

Posted: 01 Nov 2013 12:03 PM PDT

6:03a AEST Saturday, November 2, 2013

Dear Friend of GATA and Gold:

Gold news out of China remains bullish but is badly distorted in the West, Hong Kong-based fund manager William Kaye tells King World News, and the reduction in gold price premiums in China is likely the result of action by the Chinese government to reduce exploitation of Chinese demand by bullion arbitrageurs. Kaye also warns against keeping funds in money-center banks. An excerpt from his interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/1_Pe...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


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Barclays said to suspend chief FX dealer, two others amid probe

Posted: 01 Nov 2013 11:54 AM PDT

By Gavin Finch
Bloomberg News
Friday, November 1, 2013

LONDON -- Barclays Plc has suspended three currency traders, including a chief dealer in London, amid a probe into potential foreign-exchange manipulation, according to a person with knowledge of the decision.

Chris Ashton, who was identified as global head of voice spot trading in a Barclays e-mail last month, and spot currency traders Jack Murray and Mark Clark were suspended, said the person, who asked not to be identified because they aren't authorized to speak publicly about the matter. None of the three has been accused of any wrongdoing, said the person. ...

Barclays, one of the four biggest currency traders in the world, is reviewing trading over several years and is cooperating with regulators' requests for information, according to a statement.

Regulators in the U.K., Switzerland, the U.S., and Asia are probing the $5.3 trillion-a-day foreign-exchange market after Bloomberg News reported in June that dealers in the industry said they had been front-running client orders and attempting to rig the benchmark WM/Reuters rates by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmarks are set.

... For the full story:

http://www.bloomberg.com/news/2013-11-01/barclays-said-to-suspend-chief-...


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Jim Sinclair Plans Seminar in Florida

Gold mining entrepreneur and gold advocate Jim Sinclair plans to hold his next financial seminar in Kissimmee, Florida, near Orlando, on Saturday, November 2. Details can be found at his Internet site, JSMineSet, here:

http://www.jsmineset.com/2013/10/22/florida-qa-session-announced/


Join GATA here:

New Orleans Investment Conference
Sunday-Wednesday, November 10-13, 2013
Hilton New Orleans Riverside Hotel
New Orleans, Louisiana

https://jeffersoncompanies.com/landing/speakers?IDPromotion=613011610080...

* * *

Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

http://www.goldrush21.com/order.html

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

The Daily Market Report: Gold Slumps as Dollar Gains Mount

Posted: 01 Nov 2013 11:49 AM PDT


01-Nov (USAGOLD) — Gold has come under additional pressure as the dollar continues to rebound from recent eight-month lows. The yellow metal slipped to a new two-week low below 1309.84; and while that’s a 3.4% decline from last week’s high, the market hasn’t even retraced half of the gains from the mid-October low of 1251.30.

As for the dollar gains, some are suggesting that the U.S. economy is showing signs of improvement and that is why the FOMC maintained the language that claims economic activity continues “to expand at moderate pace”. Suddenly some are worried about tapering once again, simply because the Fed’s policy statement this week wasn’t as dovish as they were expecting.

While there have been some better than expected PMI readings in the latter part of the week, the general tone of the data of late has still been quite lackluster. The Fed remains quite adamant that the scaling back of asset purchases is wholly reliant on the data; and the data weren’t supportive of the taper in September, nor in October…nor will it be by the December FOMC meeting.

In a sputtering economy, from time to time the data will offer little glimmers of hope (see Oct Chicago PMI beat), but that hope has all too frequently been quickly undermined in recent years by the preponderance of the economic evidence. Think back to the "green shoots" spring of 2009 and the "recovery summer" in 2010, when hopes that the recovery was gaining traction were summarily dashed.

St. Louis Fed President James Bullard spoke today, reminding us yet again of the taper’s “data dependency”. He too expressed concerns that economic gains in the past year — particularly in the labor market — might not be sustainable and cautioned about removing accommodations prematurely.

Bullard historically has been a moderate-hawk on policy, but more recently has become quite the dove. This shift in his thinking is driven largely by his concerns about the Fed’s inability to create its desired level of inflation, despite an absolutely massive expansion of the central bank’s balance sheet. This week’s PPI and CPI data undoubtedly added to Bullard’s level of concern and actually probably further diminishes the likelihood that the Fed will taper any time soon.

Similarly, the eurozone saw the flash estimate for October HICP inflation fall to a four-year low of 0.7% y/y. Suddenly analysts are all abuzz about the potential for a near-term ECB rate cut. After all, the ECB’s primary mandate is to maintain price stability; and while the influence of Germany has resulted in an inflation-centric concern, hints of disinflation in Europe must be troubling there as well.

If nothing else, the absence of inflation will give the ECB the necessary cover it needs to cut rates further. The rise in easing expectations has weighed on the single currency this week. The euro reached nearly a two year high of 1.3832 last week. Obviously the recent euro strength was probably a source of some concern for export driven economies within the eurozone, like, oh, Germany for example…

I submit to you that the recent dollar gains are not so much a function of actual dollar strength — supported by an improving economy and the tightening of monetary policy — but rather renewed euro weakness. This may be the latest volley in an ongoing currency war where countries relentlessly battle for export share by competitively devaluing their currencies.

Europe just officially came out or recession in the second quarter, primarily as a result of improving economic conditions in the core. Periphery countries, such as Greece, Spain and Portugal remain mired in depression. The last thing Europe needs right now is to see their limited gains erode as a result of a strong currency.

If ECB eases, or even if they maintain the current über-accommodative stance, it remains unlikely that the Fed. will start removing accommodations. One of these days the gold market is going to realize that the hints at tapering and tightening are nothing more than ruses to keep the market off guard. When that happens, gold may finally break out of the recent range to the upside.

China’s Appetite for Gold: “Waning” or Surging?

Posted: 01 Nov 2013 11:06 AM PDT

Bloomberg's latest report on Chinese gold imports is a great illustration of a journalist's power to shape a message by extracting certain data points and ignoring others. Here's the article:

China Gold Imports From Hong Kong Fall on Premium, Slow Demand

Gold shipments to China from Hong Kong fell for a second month after the premium to take immediate delivery declined, indicating waning physical demand in the nation poised to become the largest consumer.

Net imports, after deducting flows from China into Hong Kong, were 109.4 metric tons in September, from 110.2 tons a month earlier, according to Bloomberg calculations based on data e-mailed from the Hong Kong Census and Statistics Department. Still, the amount has more than doubled to 826 tons in the first nine months of the year, the data show.

Gold prices dropped in September for the first loss in three months amid speculation at the time that the U.S. Federal Reserve would slow its $85 billion in monthly bond purchases. The average premium that Chinese buyers paid to take gold for immediate delivery in Shanghai fell to $8.97 in September, compared with $13.57 a month earlier.

"Demand eased a bit in September as investment in China remained sensitive to the gold price outlook," said Wang Weimin, an analyst at Dalian Fortune Futures Co., before the announcement. "A lower premium was a good indicator that Chinese investment demand slowed after more sell-offs following the gold rout in April and in June."

Gold for immediate delivery in London traded at $1,323.91 an ounce at 10:18 a.m. Beijing time. Bullion, which dropped as low as $1,180.50 an ounce on June 28, has declined 21 percent this year as investors reduced holdings in exchange-traded products on prospects for a global economic recovery.

Overtaking India
China's total gold consumption this year may jump 29 percent to reach 1,000 tons, overtaking India to become the world's largest user, according to the World Gold Council. China and India combined account for more than half of the world's demand, according to the WGC.

Mainland buyers purchased 116.3 tons in September, including scrap, compared with 131.4 tons in August, data from the Hong Kong government showed.
China's purchases in September were 67 percent higher than the 69.7 tons a year earlier, according to the Hong Kong data. Mainland China doesn't publish such data.

Exports to Hong Kong from China were 6.9 tons in September, according to the e-mail today, compared with 21.3 tons in August and 28.2 tons in September 2012.

Bullion of 99.99 percent purity on the Shanghai Gold Exchange fell for the first time in three months in September, dropping 4.4 percent.

Now, despite including a lot of really positive stats, the article's clear message is that Chinese gold demand is headed down. But the same data could have driven a completely different slant. The title of the gold-bug version might be "Chinese Gold Demand Remains Robust," and the introductory sentence "Chinese September gold imports exceeded 100 tons for the seventh straight month." The article would then go on to highlight rather than mention in passing the massive year-over-year growth in demand.

And the gold-bug's version would definitely have included an updated version of this chart, comparing 2013 monthly gold imports to 2012's record levels. Looking at this chart, the last word that comes to mind is "waning."

China gold imports 11 13

Huge Cracks In US Financial Fortress, Petro-Dollar Final Death Throes

Posted: 01 Nov 2013 10:41 AM PDT

Many analyst writers choose the Black Swan analogy to describe deeply ominous events in progress, with little forward notice. The analogy simply does not fit anymore, as an armada of black swans is more appropriate, spotted on regular and frequent sightings. The Jackass preference is to describe a series of major cracks in the financial fortress that defends the USDollar system and its decrepit USTreasury Bond shuttle buggy. The vehicle is overloaded with supply and bereft of investors, upheld by a printing press, explained by pure heresy. Its derivative coil on the undercarriage axel system is broken from the overdone leverage and hidden machinations. The integrity of the USD/USTB brand name was cast off the American coat of arms along with the Lehman Brothers killing to save Goldman Sachs, the adoption of Fannie Mae to conceal the fraud, and the AIG to contain the derivative payouts. The October Hat Trick Letter explains the Wall Street saga behind the scenes on the GSax rescue, managed by the USDept Treasury office. The US financial fortress died in September 2008, when the Jackass made the USGovt debt default forecast. What has happened in the following long five years has been an incredibly prolonged and desperate attempt, its creativity recognized, to extend life support to a corpse beset by necrosis and sclerosis, whose blood has turned toxic, lacking any oxygen (capital). The US nation has lost its way, no longer capable of comprehending capitalism. Its policy initiatives actively destroy precious capital on the banker altar, celebrating the dark side with celebrations of fire. The emaciated body economic is being prepared to be handled by the JPMorgue for processing.
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