Hrunner -Sure, now that scenario you lay out makes more sense - or at least something similar anyway.
"As a quid pro quo for that backstop we gave you in 08/09, don't pump up the oil markets like you guys did in 2008, and if/when you get a chance to whack gold, we certainly won't object. In fact, we'll put in the good word with the CFTC if they start making trouble. Of course if you go long the metals, we might have to rethink some of our positions on bank sizing, leverage, regulation and the like…"
I think that's all they'd need to do. "Go forth and make money on the short side." But if its not a money maker, if the demand is too strong, the banks won't be "taking one for the team." They'll just act to pop bubbles when they get too far extended. I.e. silver at 50, for instance. That's my theory anyway, FWIW.
But that's not the same thing as a Fed Secret Room where they have vast resources dedicated to pounding the crap out of gold using Fed Funny Money at every turn. Not saying you were suggesting that, but … some of the comments I read do sound that way. I mean, such a place could exist, but if word got out things could get ugly. Tough to keep a secret like that, might be a career-ender for some bureaucrat.
I think its also possible that, every so often, someone at the Fed picks up the phone and asks a favor of someone at a trading desk - "any way we could get a special effort today in the area of the yellow metal? We're calling a few other places with this same request."
Just out from Jesse of Jesse's Cafe Americain:
Many are still sorting through the data to try and figure out what happened, but it is hard to look at the available data and the market action and conclude that the recent 'flash crash' in gold was anything but a calculated takedown. Some big players had been trying to work the market price of bullion down in stair step fashion for some time. Their tracks on the tape were big enough to be hard to miss, and any number of people who watch the market structure as it develops were seeing them, and a few were reporting what they saw. But it just wasn't enough. The pressures were building, and something had to be done. A plan for a market operation to relieve the pressure was made, and then executed ahead of the upcoming option expiration on the Comex on April 25th. The word was quietly spread so the important monied interests would not make a fuss about losses when the time came, as in the case of MF Global and Cyprus. And then Goldman gave the signal to the market with their 'short gold' call. As I said at the time, I was not sure if this was done to try and avert a disaster, or to cover up some longer term corruption. Or perhaps a bit of both. Motives are never easy to discern where leverage and opaque trading pools are involved. There were rumours of a potential default situation at both the LBMA and the Comex. Well, one has to take those with a skeptical eye. But there are some data that point to the LBMA in particular, although the drawdown of bullion from the two exchanges could have been more general...
...It seems that the word has gone out to the media and the stories are being spun to protect the system. And the parrots dutifully pick up the chatter, without knowing why. The story being spun that there was a speculative excess in gold being held by pension funds that panicked. Foolish people, outsiders really, got over their heads and caused this regrettable incident. There is probably a grain of truth in that, but I think it is more likely that they were forced out of their positions by a market operation designed to do just that. And market insider knew exactly what they were holding. Price declines caused by legitimate selling and panicked longs are not marked by increasing open interest. That is the hallmark of short selling with a purpose. This is a big deal, and it was writ large across the media. And that suggests that there is an equally big problem that had to be dealt with quickly and brutally. Ordinarily market operations are more adept and protracted. Something was close to breaking, and it most likely still is.And if it broke, it would prove to be embarrassing to quite a few very important people. At least, that is what this situation suggests to me.
Even the endlessly levitating stock markets seem a bit 'edgy' with a tension on the tape.
I cannot possibly know what is at the root of this. Can't find Germany's gold, and can't buy enough at the LBMA to deliver it, because the market is leveraged 100 to 1?
Maybe not that but something of that magnitude. A major TBTF tottering on the brink of a derivatives domino collapse? There are rumours out of Switzerland about Italy and France.
Most eyes are on the States, but how quickly we forget that ABN/Amro declared a force majeure and stopped all physical delivery of bullion, forcing settlement in cash. The soft default of a major bullion bank is no joke, especially when it appears they could not obtain suitable goods at any price…
...Changing the subject, if you wish to get a bit more baroque, gold may have been a necessary misdirection with the real target being silver, which hardly anyone is talking about, even the house economists and spokesmodels for the status quo. Keep an eye on stocks and the markets. The big money always moves first, because they get to know what is happening first. But I have to remind you, your guess is as good as mine. It is an opaque market, and it has gotten worse and not better, despite all the show of 'reform.' When the tide goes out, you not only get to see who is naked, you see who they are naked with. And so the smokescreens go up. I suspect that this is going to get ugly.Full text here.
Grover -The Fed is a bank. Bank assets are debt, liabilities are deposits - they make money on the spread, like all banks. I did see buildings and the like listed in their annual report audited by DLT. Here - see "bank premesis and equipment: 2.76 billion"
http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt2012.pdf
I have no idea why their gold isn't revalued at the standard price of gold the way foreign currency is. The ECB does do that, from what I recall. Its an oddity.
I don't trust them either. They are far too free with my money and far too cozy with the government. I agree with Stockman - they should be constrained to lend money to banks in trouble who bring good collateral to their discount window, and that's it. No setting interest rates, no two-pronged mission statement, end of story.
But I also don't want to make up stories about stuff they didn't do. Once you start doing that, when someone disproves it, you lose all credibility.
I found this to be quite an interesting meeting on the day before the grand theft.
April 11, 2013, 10:57 AM
Full List of Bankers at White House Meeting Thursday
President Barack Obama is meeting with members of the members of the Financial Services Forum Thursday morning at 11 a.m. They are expected to discuss the economy, the employment picture and the administration’s new budget proposal.
Here is the list of bank executives who will be attending, according to a White House official:
• Lloyd Blankfein, Chairman and CEO Goldman Sachs GS -2.43% • Jacques Brand, CEO Deutsche Bank DBK.XE -3.36% Americas • Michael Corbat, Chief Executive Officer Citigroup C -1.97% • Jamie Dimon, Chairman, CEO and President J.P. Morgan Chase JPM -3.51% • Sergio Ermotti, CEO UBS UBSN.VX -3.40% • James Gorman, Chairman and CEO Morgan Stanley MS -1.74% • Gerald Hassell, Chairman and CEO Bank of New York Mellon Corpo BK -2.05%ration • Jay Hooley, Chairman, President and CEO State Street Corpo STT -1.75%ration • Abby Johnson, President, Fidelity Financial Services, Fidelity Investments • Steve Kandarian, Chairman of the Board, President and CEO Metlife MET -1.38% • Brian Moynihan, President and CEO Bank of America BAC -4.72% Merrill Lynch • John Strangfeld, CEO, Prudential • John Stumpf, Chairman, President and CEO Wells Fargo WFC -1.35% • Jim Weddle, Managing Partner, Edward Jones • Bob Benmosche, President and CEO American International Group AIG -2.53%
She's a fundamentalist with her religious views but she was one of the first people out with what happened when MF Global imploded. I check her site periodically and found this…I don't pretend to understand the futures market but I think what she is saying is worth paying attention to.
REPOST I: ESSAY ON MARKET DECOUPLING
POSTED BY ANN BARNHARDT - APRIL 14, AD 2013 8:33 PM MST
First, a repost of a piece I wrote months ago on cash markets decoupling from the futures and derivatives markets, specifically in the context of metals. I have not changed anything, but I have bolded the key, key points.
For all of you Bitcoin fans, you are now realizing the massive flaw in the Bitcoin paradigm. You have no cash commodity to arbitrage. All you were ever dealing with was zeroes and ones on computer servers. I am hard-pressed to think of ANYTHING more vulnerable.
As I have been saying all along, if you can't stand in front of it with an assault weapon and physically defend it, then it isn't yours, and probably never was.
(Ahem. Cough. 401ks. Cough.)
Originally penned and posted on December 15, AD 2011, seven weeks after MF Global. 3. Finally, a very simplistic explanation of how the cash commodity markets are soon going to decouple from the futures markets. This is a little complex, but stay with me. I think this is important to understand because none of us who have lived our whole lives in the U.S. have ever seen a market disintegrate. The threat (or promise) of delivery upon expiration is what keeps the futures markets tethered to the cash markets. Up until now, if an unreasonably wide spread between the futures price and the underlying physical commodity market got too out of whack, a process called “arbitrage” would kick in. Arbitrage is when a party simultaneously buys and sells on two separate but related markets in order to capture an inefficient spread between those two markets. I’m going to use precious metals as my example commodity because there are alot of metals guys reading this, and because the metals markets will be the big tell in term of when decoupling and thus total futures market disintegration is upon us. But these examples apply to all of the physical commodities. Let’s say that the physical silver market is trading far lower than the silver futures price. This is what is called a WEAK BASIS. The BASIS is the relationship between the cash market and the futures market and is very simply defined as (CASH minus FUTURES). If cash silver can be bought at $25.00 per ounce and the futures are at $30.00 per ounce, the cash is $5.00 under the futures. When cash is under the futures, this is called a WEAK basis. Up until now, what would a metals trader do? In very simple terms, he would buy the cash silver at $25.00 per ounce and then simultaneously sell the futures at $30.00. Because he has short-sold the futures, he could hold the contract to expiry and then deliver the $25.00 cash silver he bought to make good on the contract and receive his $30.00 price. So his simple net profit would be $5.00 per ounce. As many traders saw this spread and simultaneously executed this same strategy of buying the cash and selling the futures, what effect would this have? Right. It would cause the cash-futures spread to move back in toward convergence by pushing the futures price down (lots of sellers) and propping the cash market up (lots of buyers). Now the opposite scenario: a STRONG basis. Let’s say cash silver is trading at $32.00 and the futures are trading at $28.00. A trader might take physical silver that he has in inventory and sell it in the cash market, and then immediately take those proceeds and buy back and equal number of ounces in the futures market and take delivery. Since the same number of ounces in the futures market cost $4.00 per ounce LESS, he would end up with the same number of ounces in his inventory PLUS $4.00 per ounce in CASH in his pocket. If he and many other traders saw this condition and they all sold cash silver and bought the futures, this would, again, converge the spread between the cash market and the futures market. The lynchpin that is holding this dynamic together and keeping the futures markets tied to the underlying cash market is the fact that the futures contracts are deliverable, and a trader can either deliver or take delivery of actual physical silver via his futures position. Are we seeing a problem yet? The futures markets have lost their viability and trustworthiness because of the MF collapse and theft.At some point in the not-too-distant future, people everywhere are going to realize that the delivery mechanism is not reliable. Heck, just holding cash and/or positions in a futures account is no longer reliable. The the market itself is not reliable, traders will no longer attempt to arbitrage these basis spreads because the risk to the trader that the rug will be pulled out from underneath them is simply too great. And in the metals markets, the delivery process itself is . . . um . . . shall we say, easily corrupted? When you “take delivery” of physical metals, it doesn’t get sent to your house. All you get is a certificate saying that X number of ounces are being held in a certified vault somewhere with your name on them. After the MF collapse, that sounds like a joke, right? A CERTIFICATE with my NAME ON IT? Yeah. That really is how it works. When the arbitrageurs finally lose all confidence in the markets, the cash market will decouple from the futures because no one will be willing to take the risk of having their money, positions and/or physical metals stolen/confiscated. If no arbitrageurs are willing to trade these spreads – no matter how wide they may become – and thus there is no force causing the cash and futures to converge, we will see the basis spreads become extremely wide. As people flee the futures markets, the futures prices will drop, while the cash markets hold steady or even diverge and actually rise as all of the former paper players realize that physicals are the only remaining game to be played. Watch for this. Watch for the gold and silver futures to sell off as people walk away from paper while the online cash dealers, seeing that market demand for their physical inventory is robust, begin to ignore the futures prices and hold their prices steady or even raise them. When you see this basis decoupling and absence of arbitrage, lo, the end is nigh. A parabolic spike is coming.
Adam, thanks for sharing Jesse's post. I find him to be the coolest, most moderate head out there. He seems to never get worked up and emotional and 100% certain about anything. About the only thing that really bothers him is immorality and corruption. That post you shared is as urgent as he ever sounds. Admitting his caution about being absolutely certain, I think he's on to something big. And it hasn't gone away (just delayed).
Here is the message for the obtuse. (Not my message. The Godfather's.)
There is only one place to put your money. In the stock market.
Davefairtex,I think you're (we're) clearly on the right track, but two comments.
Price movements always are an opportunity to make money. Add to that, if you can direct the magnitude and direction of prices, then profits on price movements are always possible, virtually certain.
So you can scratch the comment "if it's not a money maker". No reason technically food and oil could not be manipulated as well, but there's a thorny issue that people globally need food to eat and survive, and gas to get to work, the hospital etc.
So that's why the precious metals have a special place in the "commodities" universe.
My other comment- per Chris' post and data referenced above, if you multiple $1540 per oz times the 13.4 million oz involved, you get about $20 billion nominal that is necessary to achieve the recent manipulation.
$20 billion is a lot to you and me, but is less than 1/4 of the monthly QE that the Fed is openly (who knows how much secretly) funneling to commercial banks and primary dealers.
However, if you factor in the fact that the bullion banks use 100:1 leverage, then 'only' $200 million (I know it's a lot to us, but keep it in context of the fact that these TPTF banks measure their balance sheets in trillions) is required to move the gold market in a 30 year historic price down direction.
I assume that much money falls out the executive's pocket on the way to work.
As far as word getting out and Fed secret manipulations, please don't hold your breath. Recall it took Bloomberg several years and multiple lawsuits to get a partial FOI release to reveal the U.S. Fed's trillions of dollars swaps to European financial instituitions.
[quote=RaviNathan]A scientific mind constantly looks for evidence to disprove its hypothesis. The absence of such self criticism leads to cult like herd behavior. Here are some of the ways that the editorializing on this site fall short of the ideal and yes, I do take responsibility for my decisions.
- Gold is Money. This needs to be thoroughly questioned and is often assumed here to be an axiom, a self evident truth. Money is first an agreement between people. There is no guarantee that presently or in the future that gold will be commonly accepted as money.
- Gold is the ideal store of value. If the drop of the last two days wasn't evidence against this, I don't know what is. It is high time that this belief is thoroughly examined.
- Gold is manipulated. Yes, as Chris M says, if the equivalent volume of grain had been sold short, it would have led to similar consequences. Yet, the analogy does not go far enough. The difference is that consumption demand for grain and its supply would lead to grain prices recovering their true value quite quickly and the shorts would need to scramble to square their positions. This is unfortunately not the case for gold which could remain in the lower trading range for a long time since it is not consumed in its use. Also, if gold is so manipulated, then it contradicts the belief in 1 and 2. How can gold then be good money and a trust worthy store of value ifs price can be so thoroughly manipulated?
- Limiting conversation to believers. This site is at a big risk of confirmation bias, inviting and speaking only to other true believers. I would recommend that at least one conversation a month be devoted to economists and other researchers like Krugman who hold contrary opinions on gold and the thesis of the three E's. Please look actively for evidence that disproves your thesis. Has anyone else noticed how often Mish Shedlock resorts to ad hominem attacks calling people stupid or dumb? That is often a sign that the arguments are weak and I experience them as a big turn off.
In full disclosure, I have allowed my enrollment to lapse, because this site has stopped putting careful emphasis on disconnecting the dots that it has so carefully connected. It can be painful, but questioning our thesis when evidence arises to the contrary is a sign of integrity and intellectual courage which needs to be sustained throughout. I would like to see more evidence of this type of inquiry and will gladly rejoin then.
[/quote]
Scientific minds rarely look for evidence to disprove their hypotheses–once a theory becomes entrenched. When that theory appears to be supported in the real world, year after year, there is even less of an inclination to distrust it. Chris Martensen is hardly 'wrong' to promote a theory that has held up so well in the past. The recent extreme drop may be indicative of a sharp reversal and entry into bear gold market–or not.
What bothers me about Buffet, Krugman and other paper bugs is they have been inferring those who bought gold were tin foil hatted loonies for years, while gold tripled and quadrupled in value. The attacks against gold, smearing not just the metal but all who held it, seemed like the insane mutterings of victims of some hysterical disease. Relic-phobic? Pretty idiAUtic, if you ask me.
I think your idea of welcoming contrary opinions on board is a good one. But I think some kind of track record of making sense, readily apparent in retrospect is important.
As far as gold goes, I'm rebalancing. Began the process of trading some gold and paper for more real estate over a month ago. I am open to all arguments about what will happen to gold in the future, both pro and con-- but not from 'experts' who have been calling it wrong for 11 years!!
Or, despite the deep amount of thought we are all caught in a bubble. Happens to smart people. I think we should all go and watch the crash course chapter on bubbles again, and pay attention to how newton was caught up in one.
I was waiting for cypus to push the price of gold to stratospheric levels. I got that horribly wrong. So either one of three things can be true:
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I don't understand enough to be able to understand the economy (by extension this would apply to everyone here as well)
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I understand enough, but a conspiracy of dark financial wizards (economists) have put a curse (play) on the gold market.
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The market is insane and defys any analysis.
I'm not rulling out any of the above. What I am doing is still laughing, I've followed CM's advice for years and I'm still double my initial investment. I'm going to sit down, watch the crash course again and follow fundamentals. Basic stuff, laws of scarcity, supply demand, debt. Nothing complicated.
Hi Nigel, I am beginning to think all major markets are heavily managed. Whether you call that conspiracy or not is a matter if definition. A better word would be 'policy'. I am struggling with trying to intuit how and when a break out will occur in an opaque environment. You would think that at some point market forces will force the hands of the controllers. But I just don't know. Further to that–it's pretty obvious nobody else does either. There have been a few times that you would have thought gold would have pole vaulted in the last several years… and it didn't.
The one time it DID take a huge jump up was during the budget fiasco a couple of years ago. Was that jump the result of market forces pure and simple or did it serve the govt to scare an unruly congress into some sort of compliance or temporary compromise. The sequestration talks are coming up again and soon, aren't they? Will they let gold take off again after a preemptive slap down to once again try to gain the upper hand with legislators? Just a theory. I find the timing interesting.
Markets operate to disappoint the greatest number of people possible. For instance, how many times have you seen fantastic earnings result in the drop in price of a popular stock? It defies logic. Yet the answer is often not "manipulation", instead it is that everyone who wanted to buy in this current wave has already bought. The marketplace has exhausted its supply of buyers, and there is nobody left to push the price higher. So of course the price drops.Not everyone that buys gold is waiting for the big kaboom. Many are momentum players, and when they see momentum change, they bail out. Various signs of this can be read in price charts. Moving average crossings can be important, as can price relative to those moving averages. If you look at the price of gold relative to the 50 day moving avg (blue line in the chart below), you can see the 50 acted as a cap on the price during the most recent move down from 1750 all the way until today.
Likewise, it seems that the price of gold broke down once it became apparent the 50 MA (blue line) was going to cross the 200 MA (red line) - that famous "death cross". Those momentum players will return once those moving averages look better. Once the price crosses the 50 again thats the first sign of a positive momentum change. The next one is when the 50 crosses the 200 (the "golden cross").
Momentum traders use moving averages to help guide their purchases because "picking the bottom" is an exceedingly difficult task. Often people focused on picking the exact bottom end up catching falling knives, which ends up being no fun at all.
http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&b=5&g=0&id=p65256905426
There are lots of players in the game here. It isn't just a case of evil bullion banks vs. the little guy buying gold for all the right reasons.
King World News has been doing some great interviews and broadcasts recently. Today KWN had this headline from Jim Sinclair, at http://www.kingworldnews.com/kingworldnews/King_World_News.html. I'll be interested in people's comments here!! :
[quote] Today legendary trader Jim Sinclair stunned King World News when he revealed that a dear friend of his who is very affluent just had a Swiss bank refuse to return his large hoard of gold when he asked for it out of an allocated account. Below is what Sinclair, who was once called on by former Fed Chairman Paul Volcker to assist during a Wall Street crisis, had to say in this remarkable and candid interview…
“They told him the amount was in excess of 200,000 Swiss francs and the central bank had instructed them not to do it because it has to do with anti-terrorism and anti-money laundering precautions.
I really wonder whether those are precautions or whether the gold simply isn’t there. Now you tell me that a London delivery has basically failed. It has to raise our suspicions that the lack of physical gold behind the paper gold is literally so severe that we are coming to understand that it is in fact not there..." [/quote]
Dave,I didn't want to hijack this thread while it was still active, but it appears to have gone stale. I agree with your statement that telling stories subverts our credibility (taken as friendly advice, BTW.)
If we were in mid September, 2008, would you argue that the Fed wouldn't venture into the overt buying spree that was to begin less than 1 month hence … simply because it hadn't happened to that point? If so, you would have been correct and subsequently blindsided by the events that transpired.
You know more about this subject than I do. I honestly thought the bank's balance sheet still contained most of the toxic assets from their 2008 buying. You proved me wrong and I admitted it. <speculation> They've overtly shuffled the mess to other buyers. But, rhetorically, at what cost? </spec>
I was reading www.jsmineset.com today and happened across this article: http://www.bloomberg.com/news/2013-04-24/central-banks-load-up-on-equities-as-low-rates-kill-bond-yields.html In it, they say that central banks (although not the Federal Reserve (yet)) are buying stock shares. Is there anything in the Federal Reserve documents that preclude them from purchasing stocks or any other "assets"? (This is the one question I'd like you to answer if you can.)
I'm assuming that other Central Banks operate similarly to the Fed. The Fed returns nearly 95% of their earnings to the Treasury. They only keep enough to function - magnanimous. The article says that these banks are chasing yields since their typical investment - government debt - has been driven to abysmal levels. If they are not "For Profit" why would this be important? Could it be that they have ulterior motives? As I said: "I still don't like them. I don't trust them. I abhor the power they have." I'd like to add "This will end badly."
Grover
Everyone is looking for an explanation for the drop in gold. The fact is that it dropped when everyone was expecting that it was bottoming in readiness for a fresh thrust upwards. People always believe what they want to believe. If they are invested in gold they will naturally expect it to go up. When it does the opposite, then it must be someones fault. The favourite current theory is to blame the bullion banks for orchestrating a massive sell off. Do you really think that they all got together in late night phone calls and emails to orchestrate a simultaneous plunge? Some of these banks cannot even control their own traders ( the so called rogue traders) and you still think that they can plot and orchestrate? In addition, banks are competitors with each other. To conspire effectively, they would have to reveal their positions to each other. I do not think that is likely.
The gold market had visited the 1520-40 region in September 2011, December 2011, May 2012 and March 2013. Either it was going to bounce or it was going to break down. Which was the most likely? The gold market had also failed to top the November 2011 corrective bounce off the early September 2011 to late September 2011 fall from the all time high. In Elliott Wave parlance, this was a classic 1 down / 2 up followed by another 1 down / 2 up movement. The chance of a breakdown after almost 6 months of steady decline from late September 2012 was quite high. From a contrarian point of view I would add that the extremely positive sentiment towards gold and the constant reports of central bank/ sovereign buying were further indication that things were far from rosy for gold. Did none of the gold bugs notice that, the very day that Bernanke announced the Federal Reserve would be creating money at the rate of $85 billion per month (over $1 trillion per year) with no set time limit, the gold market peaked. That was December 12th 2012 and the market has not re-visited that level since ($1723).
I would have thought that might have triggered some thoughts of doubt about the direction of gold. But there does not appear to have been any doubt at all about the direction of either gold or the equity markets. The latter are as bullish as they have ever been - exceeding on some sentiment indicators the complacency of early 2000 and late 2007.
There are so many theories about gold - that it is a safe haven, that it is a hedge against inflation, that it is a store of value, that it is real money or that there is no counter party risk. All of them have some element of truth at one time or another but the most obvious element to me is that gold went up right alongside commodities, real estate and equities over the last decade and a half. In short, gold rose when economies were expanding and fell when they were contracting. Despite the very strong market sentiment towards equities, many of you (if not most) who follow Dr Chris and others on this site have serious doubts about the onward and upward direction of equities. You can see at least one good reason - the astronomical creation of new money by the Fed. However, other than by government spending ( maintaining/increasing government programs, federal/state salaries etc), not much of that money is really escaping into general circulation. Mainly, it is in a fairly closed loop carry trade (as described by James H.Kunstler in his excellent summary on April 22nd).
Some may also think that the Japanese central bank display of machismo is only adding to the likelihood of further rises. The strange thing is, though, that yields along the Japanese yield curve have all risen - the opposite of the intended effect!
The assumption, of course, is that the Fed (with the connivance of the politicians and the banks) can or will keep up their inflationary attempts for as long as they want. That this really is a new paradigm. Well, we know what happened to Greenspan's "new paradigm". The only meaningful players in the markets at the moment are the large financial institutions but judging by the paltry volume level, even they are somewhat reticent. The only times that volumes have risen over the last 4 years have been when markets are falling.
I put it to you that this recent record-breaking fall in gold is a harbinger of the deflation to come. One can speculate that the Cyprus banking fiasco is an indicator of the parlous state of European bank balance sheets. The fact that they would turn to the stupid expedient of simply helping themselves (robbing) even the smallest depositor and then to compound their stupidity by backing off. Clearly, the creditor banks think that they have lobbied and bribed their way so successfully with the politicians that they can do what they like to shore up their positions at the expense of the debtors. The general public across Europe now has an inkling that depositing money in a bank does not necessarily mean that the depositor is in credit because the bank may be in so much debt that the depositor is, in fact, lending to an institution that is broke. Banker venality is probably only surpassed by Politician venality. In the final analysis, politicians deal in vote currency rather than money currency - especially as the money currency is (in reality) in such short supply. Politicians will pay more attention to voters in the future because voters are at last recognising the reality of sovereign and commercial bank indebtedness.
Unless you are trader (and by now you have missed the boat) this is not the time to be buying gold. I expect it will bounce to test the former support line in the 1520-40 area but I would be surprised if it can make a breakthrough. To breakthrough I think it would have to close above 1600.
Grover -If it were mid-2008, would I argue that the Fed won't monetize at some point in the future?
Why on earth would I have done that? The future is uncertain. If asked today, "will the Fed buy equities at some point in the next 5 years" I'd say I don't know, but I think its entirely possible they will in some way either buy them, or cause them to be bought somehow by funding those who do. Heck, they might even be doing that now, although their budget for doing so is limited to that fraction of "Other Assets" that isn't accounting for other stuff. Unless they are engaging in wholesale fraud, and their balance sheet is simply fiction. I'd call that last bit "possible, but not likely."
I don't know what's in the Fed Charter as to them directly buying equities. I've read the stories, but I haven't checked it out for myself. I'd bet their legal team has found a way to make it happen, however. Japan's BOJ has bought them dating back to about 2002, other central banks have done so as well - Korea I think. Putting my conspiracy hat on, the bloomberg story might be a testing of the waters, to see how the public reacts to the idea of overt Fed equity market support programs.
There are two issues here. Predicting the future, and analysing what is happening now. I don't like to stray too far from actual evidence as to what is going on right now. The future on the other hand is a mass of possible outcomes to which I attach probabilities. As a result, I try not to say "never", instead I say "possible, but not likely."
Now, if you'd asked me in 2007 that 5 years from now the Fed will have printed 2.2 trillion dollars and the result is, the dollar is holding steady at 82 and mortgage rates are at 3.5%…well honestly, I might have even said "impossible." And that is one reason why I try not to use that kind of language anymore.
If you say "in 5 years will the US will be in a deflationary debt crash" I say "sure, its possible". Likewise, "will we have engaged in truly massive reflationary efforts" (i.e. printing 10 trillion or more at a single shot) I say "sure that's possible as well." Once the debt bubble pops and that train jumps the tracks the future becomes a lot less certain, to me at least.
Thats why I'm a fan of diversification.
Politicians will pay more attention to voters in the future because voters are at last recognising the reality of sovereign and commercial bank indebtedness.With electronic voting machines, Citizens United, and 50 (100? 1000?) lobbyists for every elected official, you're kidding me, right? Aloha, Steve
Dave,
I should have prefaced my question with "Based on the charts …" Charts are best when the underlying rules are static. The more the rules change, the less predictive past performance becomes. I was stunned when the bailouts occurred in 2008. Sure, there was the S&L crisis and the LTCM debacle as historical precedents, but nothing near this level of engagement. Their sudden and overt commitment of funds tells me that the underlying rules weren't working anymore. The worst part is that they didn't fix anything. They just papered over the gaping wounds. The big boyz have figured out that the surest way to socializing their losses is to become even bigger.
I agree that diversification is the safest way to negotiate the future. I don't have a trader's mindset. I like to buy right and sit tight. Unfortunately, the legal teams can worm their way through the tightest rules. What seems like a "right" buy can muddle along or deteriorate rapidly when it threatens those in power (and they change the rules.) Nothing is safe.
As for the PM takedown, it could have been the result of individual traders looking at the charts to find support levels. Shorting at opportune times would have triggered stops which would have caused further price declines. That is a possibility. I'm haunted by Volcker's statement that his biggest mistake was letting the price of gold get out of hand in 1980. It is hard to believe that the "Powers" didn't take that statement to heart.
Grover
Anyone have a quick explanation why CEF is down today with both gold and silver up stongly?
Because of those times of uncertainty and volatility, especially while waiting what the Fed will be doing next, I found this method which is quite simple and can secure some revenues during those times (while waiting for another rally!).
http://www.buygoldordie.com/2013/07/make-20-profit-with-gold-trading-in-1-month/