Friday, August 15, 2008

Gold & Economic Commentary

Attended beer call with a few friends after work tonight and don't feel that I really have the wherewithal to conjure up any inquisitive or deep thoughts, so I plan to post up a couple links and snippets that I think capture the essence of what it transpiring right now.

But before doing so, I'd like you to take a look at the available gold and Silver inventory over at California Numismatic Investments (my favorite dealer): Price/Inventory link

Once you click on the link above, scroll down the page and note the "Our Sell Prices" for the following:

- Gold Eagles = NA (out of stock)
- Gold Buffalo = NA (out of sock)
- Gold Australian Kangaroo = NA (out of stock)
- Gold African Krugerrand = NA (out of stock)
- 1 Oz Pamp Suisse Bar w/Cert = NA (out of stock)
- 100 Gram Gold Bar-Pamp Suisse = NA (out of stock)
- 10 Oz Pamp Suisse With Cert = NA (out of stock)
- Kilo Gold Bullion Bar = NA (out of stock)
- Austrian/Hungarian 100 Corona = NA (out of stock)
- Mexican Gold 50 Peso = NA (out of stock)
- 100 Oz Johnson Matthey/Engelhard Silver Bars = NA (out of stock)
- 1 Oz Generic Silver Rounds (.999 Fine)= NA (out of stock)
- US Silver Eagles = NA (out of stock)
- Canadian Silver Maples = NA (out of stock)

Here's another link (thanks Dave) discussing physical silver shortages across the country: What the Silver Shortages Mean

Bottom line: No physical is available even if you wanted to buy! Something just ain't right...

Moving on to Commentary:

Gold Seeker Weekly Wrap-Up: Gold and Silver Fall Over 8% and 16% on the Week

“After breaking through some key technical supports in the mid-$800s, gold’s pullback deepened as funds continue to liquidate positions and add to the short-term negative momentum. This has made a move back up towards the mid $800’s difficult with many traders now waiting for a period of consolidation to ensue before seeing gold return back up to the mid to upper $800s. The fundamental drivers remain in place for gold and I would view this as an excellent opportunity to buy the dip of this long-term secular bull market. There is strong physical demand emerging which will help place a floor in the gold market around the $800 level.

The short-covering rally in the dollar is a prime driver for the pullback in gold prices and that was aided by free market intervention by Central Banks. All this has done is provided additional time before the serious nature of the financial crises has to be once again confronted. There are major banks and financial institutions which remain highly undercapitalized. I would expect some major news in the coming months which will again bring to the forefront the gravity of the situation. The ingredients are in place for a significantly higher gold price and this short-term anomaly only means that gold can still be accumulated sub $1,000 an ounce. The rapid rate at which dollars are being created (according to shadow stats the no longer published M3 is expanding at double digit rates) remains the primary driving force in the gold market, this cheap monetary policy will continue to debase the value, integrity and confidence in the faith-backed Dollar. Competitive paper money devaluations will enhance gold’s luster going forward as hundreds of billions of fictitiously created paper currency is used to continue these monstrous bailouts with government deficits rapidly growing.

I do believe we could easily see record gold prices as we close out 2008 and enter 2009. These are desperate times and desperate times call for desperate actions. The pullback is the result of free market manipulation by the powerful central banks.”- Peter Spina,

“Gold continued to drop on the back of COMEX and speculative selling as the $ climbed to almost 10% better than the low of its recent $1.60 low against the Euro. The market believes that the strength of the $ is being engineered by the G-7 central banks, because the interest rate differentials favor the Euro as well as the oil price ensuring still that the Trade deficit continues to bleed the U.S Balance of Payments. This almost straight line move by speculators exacerbates the volatility of the market in precious metals and now in the $. It seems too good to be true and in the past, when such intervention is seen, it almost always ended badly, so we expect considerable volatility in the currency markets as well as the precious metals and it could well be both ways.”- Julian D.W. Phillips,

You are witnessing violence in the gold market that is but a starter lesson. This violence has as its basis the first major coordinated currency intervention in the euro. The dollar as a mirror image of the euro rose with absolutely no economic basis. Gold fell as it is an inverse currency of the US dollar. Certain hedge funds went broke on other items. They were holding gold and the last of that was thrown into the market to sell after cash gold broke $800. Margined gold holders went in mass into negative cash positions which resulted in them being sold out last US evening as every commodity house now operates in the 24 hour market with computer margin real time valuations. All the gold and commodity bears are being dragged out for media exposure because it fits the agenda of the moment.

“December Gold finished down 22.4 at 792.1, 12.9 off the high and 8.1 up from the low.

September Silver closed down 1.415 at 12.815. This was 0.095 up from the low and 0.445 off the high.

The gold market suffered a rather significant downward washout on Friday and in the process prices fell to the lowest level since the late fall of 2007. Clearly the ever present strength in the Dollar provided the gold market with a large measure of the selling or liquidation pressure, but with oil prices also falling sharply the selling pressure could have come from a number of angles. In fact, the Dollar was showing signs of extending its gains in the wake of fresh inflationary warnings from a US Fed speech in the afternoon action. Given the massive declines on the charts it is likely that technical stop loss selling and out right technical selling pressure was adding into the slide in prices on Friday.

The silver market seemed to come under intense and somewhat historical liquidation pressure on Friday. While the US scheduled economic numbers didn't paint a negative picture on the economy Friday and the US stock market didn't seem to be factoring in a recession, one gets the sense from the magnitude of the slide in silver prices that some type of deflationary selling wave was being carried out. However, with the copper market actually managing to turn positive on the trade it was clear that not all physical metals markets were being viewed in the same bearish light on Friday.”- The Hightower Report, Futures Analysis and Forecasting

This is the prime example (as I told you a thousand times!) any margin in gold anything is a financial death wish.

As gold hit its lows last evening over $40 off I am told the Chinese entered the cash market to take the layoff in cash gold off the bankrupt hedge funds and negative value sellouts in the paper market. You have seen massive involuntary liquidation last US evening. That type of a situation is common to lows. The bull market in gold will not be broken because fundamentally the problems will not obey and go away.”- Jim Sinclair,


Last week, Fannie Mae and Freddie Mac had just announced record losses, and so had most reporting corporations. Unemployment was mounting, the foreclosure crisis was deepening, state budgets were in shambles, and massive bailouts were everywhere. Investors had every reason to expect the dollar and the stock market to plummet, and gold and oil to shoot up. Strangely, the Dow Jones Industrial Average gained 300 points, the dollar strengthened, and gold and oil were crushed. What happened?

It hardly took psychic powers to see that the Plunge Protection Team had come to the rescue. Formally known as the President’s Working Group on Financial Markets, the PPT was once concealed and its very existence denied as if it were a matter of strict national security. But the PPT has now come out of the closet. What was once a legally questionable “manipulator” of markets has become a sanctioned stabilizer and protector of markets. The new tone was set in January 2008, when global markets took their worst tumble since September 11, 2001. Senator Hillary Clinton said in a statement reported by the State News Service:

“I think it’s imperative that the following step be taken. The President should have already and should do so very quickly, convene the President’s Working Group on Financial Markets. That’s something that he can ask the Secretary of the Treasury to do. . . . This has to be coordinated across markets with the regulators here and obviously with regulators and central banks around the world.”

The mystery over what was going on with the dollar the first week in August was solved by James Turk, founder of GoldMoney, who wrote on August 7:

“The banking problems in the United States continue to mount, while the federal government’s deficit continues to soar out of control. . . . So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar, and here’s the proof.

“When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly.

“On July 16, 2008 . . . , the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. . . . So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others.”

Just as central banks manipulate currencies in concert, so gold can be manipulated by massive selling of central bank reserves. Oil and any other market can be manipulated as well. But markets can be manipulated by only so much and for only so long without fixing the underlying problem. There is more bad news coming down the pike, news of such magnitude that no amount of ordinary manipulation is liable to conceal it.

For one thing, roughly $400 billion in ARMs (adjustable rate mortgages) have or will reset between March and October of this year. Assuming 3 to 6 months for strapped debtors to actually hit the wall with their payments, a huge wave of defaults is about to strike, continuing through March 2009 – just in time for the next huge wave of resets, in option ARMs.3 Option ARMs are loans with the option to pay even less than just the interest on the loan monthly, increasing the loan balance until the loan reaches a certain amount (typically 110% to 125% of the original loan balance), when it resets. The $800 billion credit line recently opened to Fannie Mae and Freddie Mac may be not only tapped but tapped out, at taxpayer expense. The underlying problem is little discussed but impossible to repair – a one quadrillion dollar derivatives scheme that is now imploding. Banks everywhere are facing massive writeoffs, putting the whole banking system on the brink of collapse. Only public bailouts will save it, but they could bankrupt the nation.

What to do? War and threats of war have been used historically to distract the population and deflect public scrutiny from economic calamity. As the scheme was summed up in the trailer to the 1997 movie “Wag the Dog” --

“There’s a crisis in the White House, and to save the election, they’d have to fake a war.”

Perhaps that explains the sudden breakout of war in the Eurasian country of Georgia on August 8, just 3 months before the November elections. August 8 was the day the Olympic Games began in Beijing, a distraction that may have been timed to keep China from intervening on Russia’s behalf. The mainstream media version of events is that Russia, the bully on the block, invaded its tiny neighbor Georgia; but not all commentators agree. Mikhail Gorbachev, writing in The Washington Post on August 12, observed:

“What happened on the night of Aug. 7 is beyond comprehension. The Georgian military attacked the South Ossetian capital of Tskhinvali with multiple rocket launchers designed to devastate large areas. Russia had to respond. To accuse it of aggression against ‘small, defenseless Georgia’ is not just hypocritical but shows a lack of humanity. . . . The Georgian leadership could do this only with the perceived support and encouragement of a much more powerful force.”

Bruce Gagnon, coordinator of the Global Network against Weapons and Nuclear Power, commented in OpEdNews on August 11:

“The U.S. has long been involved in supporting ‘freedom movements’ throughout this region that have been attempting to replace Russian influence with U.S. corporate control. The CIA, National Endowment for Democracy . . . , and Freedom House (includes Zbigniew Brzezinski, former CIA director James Woolsey, and Obama foreign policy adviser Anthony Lake) have been key funders and supporters of placing politicians in power throughout Central Asia that would play ball with ‘our side’. . . . None of this is about the good guys versus the bad guys. It is power bloc politics . . . . Big money is at stake . . . . [B]oth parties (Republican and Democrat) share a bi-partisan history and agenda of advancing corporate interests in this part of the world. Obama’s advisers, just like McCain’s (one of his top advisers was recently a lobbyist for the current government in Georgia) are thick in this stew.”

Brzezinski, who is now Obama’s adviser, was Jimmy Carter’s foreign policy adviser in the 1970s. He also served in the 1970s as director of the Trilateral Commission, which he co-founded with David Rockefeller Sr., considered by some to be the “master spider” of the Wall Street banking network.6 Brzezinski, who wrote a book called The Grand Chessboard, later boasted of drawing Russia into war with Afghanistan in 1979, “giving to the Soviet Union its Vietnam War.”7 Is the Georgia affair an attempted repeat of that coup? Mike Whitney, a popular Internet commentator, observed on August 11:

“Washington’s bloody fingerprints are all over the invasion of South Ossetia. Georgia President Mikhail Saakashvili would never dream of launching a massive military attack unless he got explicit orders from his bosses at 1600 Pennsylvania Ave. After all, Saakashvili owes his entire political career to American power-brokers and US intelligence agencies. If he disobeyed them, he’d be gone in a fortnight. Besides an operation like this takes months of planning and logistical support; especially if it’s perfectly timed to coincide with the beginning of the Olympic games. (another petty neocon touch) That means Pentagon planners must have been working hand in hand with Georgian generals for months in advance. Nothing was left to chance.”

Part of that careful planning may have been the unprecedented propping up of the dollar and bombing of gold and oil the week before the curtain opened on the scene. Gold and oil had to be pushed down hard to give them room to rise before anyone shouted “hyperinflation!” As we watch the curtain rise on war in Eurasia, it is well to remember that things are not always as they seem. Markets are manipulated and wars are staged by Grand Chessmen behind the scenes.

Have a great evening!



Dave said...

As if we needed more evidence of manipulation, the U.S. Mint has suspended sales of gold coins ( ). They started rationing silver coins a while ago. This tells me they can't obtain physical silver and gold in a timely manner. Gee, if they drive the price down below its fundamental value, who's going to sell their metal? Duh!


Louisa said...

I don't believe the "we're out of silver" claim. I think it's probable dealers don't want to sell silver they have at a loss, with the dramatic drop it's had lately. People making this claim are probably trying to hype the market as they have some vested interest in doing so.

Also I don't believe the market would not be pricing in a shortage of silver - i.e. silver would be MUCH higher- if this were the true state of the supply.
Silver is used for many industrial purposes and I doubt they'd be able to hide a shortage like this without it showing up prominently as a major escalation of the price per oz.

Dave said...

I don't think anyone is saying "we're out of silver." I'm certainly not. I'm saying that there is a shortage of silver and gold relative to the demand. Therefore, according to the law of supply and demand, some demand will not be satisfied and the prices ought to be moving higher. At the very least they ought not be falling!

I think the explanation for the counterintuitive price movement is that "paper" silver and gold contracts are being liquidated, probably to cover other losses, thus driving down prices for all silver and gold, including physical metal.

I also happen to believe some of this paper trading of silver and gold contracts falls under the category of "manipulation."

Industrial users of silver typically buy well in advance, and evidently they've been able to satisfy their needs so far. But that may change and if it does, that would certainly cause a highly visible price escalation.

Another thing that I happen to believe is that silver is actually rarer than gold today. While nearly all the gold ever mined is still in existence, most of the silver mined has been consumed by industrial processes, notably photography until recently. So if price is dictated by rarity, silver ought to be selling for more than gold. Of course, rarity is only one factor in the price. The main factor is human psychology. Humans seem to value gold more than silver, perhaps because of tradition or because gold is prettier (it is in my opinion).


Anonymous said...

Louisa is right, there's no silver shortage and in fact, silver comes out of the groung for under$6 an ounce--silver will fall to $7/oz. eventually, at least in inflation adjusted 2008 dollars.

I bought some anyway on Friday, and there's no lack of supply. There's maybe a backlog to produce consumer sized bullion, but the dealers who stopped selling did so because they bought at $14 and aren't going to let you have it at $13.

Anyway, NWTMint will lock in todays price and send you your bar in 8 weeks (after they mint it).

This is just PM dealers talking their book--these guys are not your friends.


Anonymous said...

Hi Randy.

I have a list of banks that may fail over the next three years and go bankrupt.

You can veiw it here.

Anonymous said...


CNI has also been my favorite gold dealer and I was surprised by the lack of inventory. Here it is Tuesday (8/19) and the Au American eagle is available - for a 6.25% premium! I don't remember seeing their premium this high. What do you make of it? Are they a hot item right now, or are they taking it in the shorts, buying high and selling low?


Malcom said...

Oh my god, there's a great deal of helpful information here!
game pc | download mac games | games full download | play new games | free ride games virus


I say stay with gold.


Excellent news