Just a few housekeeping items today. I also have for you the latest analysis from our buddy, Ned, in England.
First up, the metals. Reasonably solid action today. Prices were predictably smashed back in London but they recovered some in New York. As speculated in the last post, gold fell back to 1595 before catching a bid and charging higher. This was very nice to see and certainly constructive for the days ahead. Next, it needs to move through 1620 before the end of the week. If it fails to, The Cartel will be emboldened and may very well initiate a minor raid in an attempt to squash this nascent recovery and drive gold back under 1600. Silver is holding the line under 30 but, similar to gold, it needs to continue moving higher or the Forces of Darkness will prevail and drive prices back down. As of right now, it does not look to have the momentum necessary to mount the sustained charge through $30 that it will need to generate some interest.
OK, now let's talk some politics. I was amazed to see so many vitriolic comments overnight about the Iowa caucuses. Frankly, I'm just surprised that any of you actually thought that Ron Paul was going to win, much less charge on from Iowa to the republocrat nomination.
Some have tried to claim that this is a "Ron Paul site". It is not. Some folks want me to support Ron Paul. I do. But, see, here's the thing...it doesn't matter what I think or what you think. A candidate like Ron Paul would never, ever, in a million years be allowed to win the republocrat nomination. Ever. Romney will be the nominee to run against O'bottom, regardless of how badly you and I dislike him. It was decided four years ago. See, here's how this works:
- Nixon lost the election in 1960. Nixon stands down in 1964 as Goldwater is finally given his chance.
- Nixon returns in 1968.
- Reagan wants the nomination in 1976. Stands down for Ford.
- Reagan is rewarded for being a good soldier with the nomination in 1980. GHWB stands down.
- GHWB is rewarded for being a good soldier with the nomination in 1988. Dole stands down.
- Dole is rewarded for being a good soldier with the nomination in 1996.
- W gets the nomination in 2000. McCain stands down.
- McCain is rewarded for being a good soldier with the nomination in 2008. Romney stands down.
- Romney will be awarded for being a good soldier with the nomination in 2012.
You see, none of them had a chance. Perry, Gingrich, Bachmann and especially Paul. Romney was coronated in 2008. It is a done deal.
This is why I'm trying to control the blatant, political flaming on this site. What the fuck is the point? If you're going to come on here and argue for anyone other than Romney or O'bottom, you're wasting your time and everyone else's. It makes no difference how passionate you are. It matters not whether Ron Paul is the only candidate who has a chance of "righting the ship". All that matters is that the government/media/financial complex has already decided who will stand for election. Until and unless TPTB become The Powers That Were, none of the arguing, debating and voting will amount to any change at all.
And, finally, this great new piece Ned Naylor-Leyland. Ned neatly summarizes the events currently affecting the PM markets. Nice job, Ned!
Gold and Silver in 2012 – Deliverance
(DELIVERANCE: 1. ‘The act of delivering or the condition of being delivered’. 2. ‘Rescue from bondage or danger’.)
Why are Gold and Silver falling when they should be rising?
The collapse of MFGlobal proved that US Regulators now consider the balance-sheet stability of SIFIs (Systemically Important Financial Institutions) to rank above the cash deposits or collateral belonging to Joe Public. We have now officially gone through the Looking Glass and down the Rabbit Hole, into a world of Soviet-style central economic planning. The CME, the CFTC and the SEC appear to think it reasonable that a bank, lending funds to a brokerage house like MFGlobal, should then be able to take (and keep) the underlying client money and collateral as part of a margin call against the brokerage house. The implications of this event have not sunk in everywhere, even if they have to owners of Precious Metals. As ever, Gold and Silver investors are the most sensitive to issues of solvency and counterparty risk, and as such they have fled the COMEX and the paper market (as per the reduction in Open Interest). This flight has led to substantial pressure to the downside for spot prices. It is clear that the hypothecation of customer ‘assets’ held within the banking system is yet another form of woodworm hidden within the global financial architecture. Meanwhile, even if you can buy coins in the Bullion Dealer at 5% over spot, the much bigger wholesale market is showing signs of extreme stress and Deliverance. CEO of Anglogold, Mark Cutifani, summed it up as follows:
“Major [asset management fund] buyers are finding it is hard to get physical gold. People are coming directly to us [for large gold purchases,] people who want tonnes of physical gold, people with serious financial muscle, because they are finding it is very difficult to secure the volume of gold they want. That is something we have noticed over the last 18 months, and it has been increasing in the last six months. People are finding it’s hard to get physical gold.” Thanks to MFGlobal the custodial chains that lie behind the veneer of physical ‘ownership’ have been laid bare for all to see and the sight is truly ugly. No-one buying Precious Metals in size will now risk using the CME/COMEX, unsurprising after the debacle of the last month. They have shown their hand and it was a breathtaking sight. The CME could not make even less than $1B of customer funds whole, for fear of setting a precedent with respect to hypothecation.
Another important point with respect to the recent ‘price action’, is that when ‘selling’ something, the seller usually looks for ‘best execution’. That is to say he wants the highest price for whatever it is he is selling. If we are to imagine even for a moment that the price action in Gold and Silver is reflective of free markets, we can expect sellers to sell only when they get best price, during times of maximum market participation. The reverse of course is the case here; throughout 2011 we have repeatedly seen waterfall declines in both metals during the illiquid ‘access market’, designed to trigger further technical selling. Effectively, the big drops in price have all happened when any selling in size would guarantee the largest drop, as there were no buyers around to take the other side of the trade. This doesn’t sound like an attempt at best execution, rather an exercise in ensuring worst execution to drive the market lower. In the background, meanwhile, there are just 600million ounces of deliverable Silver in global inventories. Every year total annual mine production is around the 700million ounce mark while every day around 260x total annual Silver production is traded in global markets. We also know from recent comments by Jeffrey Christian of the CPM Group that the leverage in the huge unallocated Gold market is around the 350:1 level. No-one could reasonably claim that investors buy Gold to get just a 0.3% physical backing to their contracts. Investors buy Gold as a hedge against non-linear events, and as insurance against the behaviour of Bankers and Governments. The buyers of delivered physical metal are being swamped by the Collectivists selling paper promises of Gold and Silver which no longer have any semblance of reality.
With the leveraged western futures market now vacated by speculators after the outrage of MFGlobal, with a 1:1 allocated spot market being developed in China, and with institutional investors waking up to the difference between real and ersatz Precious Metals, 2012 is set up to be the ultimate year of Deliverance. This idea of a sea- change coming over the horizon is also supported by technical analysis of important and secular Bull markets, where the biggest move tends to happen after a period of capitulation by weak hands. See the comparison of the current Bull market in Gold and the decade-long NASDAQ (in blue):
Global ‘fiat’ currency markets are going through their death throes. These confidence-based currencies are being nursed and eased through their terminal phase by Central and Commercial Banks. On a cursory examination Governments and Bankers are doing a reasonable job of making the currencies appear viable in the short-term, despite the ever-expanding black-hole of indebtedness surrounding them. A closer inspection, however, reveals that the US is technically insolvent. The UK is technically insolvent. The Eurozone is technically insolvent. There is no viable way for Western nations, especially Spain, Italy or France (another SIF acronym) to borrow their way out of their deficits. The US recently even set up an esoteric and open-ended Dollar Swap line with the ECB to bail out the European Banks, keeping the overall ‘fiat’ system alive in the short-term and kicking the can just a little further down the road.
The US, the UK and European Governments are ALL intervening in Precious Metals markets in the vain attempt to prop up their currencies, as is shown by the flooding of leased (paper) Gold into the system in December. Indeed instead of charging a rate of interest to lend (paper) Gold, Central Banks were paying the commercial banks to lease and then dump metal this month. The London Gold Pool of the 1960s is back and in full and overt effect. The leased ‘Gold’ already has multiple owners, has been rehypothecated endlessly and serves to further depress the true coverage in the unallocated Gold market below the already absurdly anaemic 0.3% level. From here, on a macro ‘Central Banking’ level, there are really only 2 realistic outcomes – one is a total systemic banking collapse (caused by the black-hole of debt consuming everything in its path), leading to deflation and martial law. The other, one would hope, is the more likely outcome – more monetization (QE), dilution and leading from that, inflation. Historically, Central Bankers that have recourse to the printing press will always use it, and Ben Bernanke at the Fed is the most overt supporter of such activity there has ever been. He once even threatened to drop freshly printed bills from helicopters should the threat of systemic deflation rear its head in earnest. 2012 will undoubtedly see more rounds of Quantitative Easing. The US, the UK and the Eurozone have signaled as much already, it is just a question of timing. When this happens no amount of selling paper contracts into thin volume in the access market will stop the ascent of Gold or Silver. Genuinely, the only liquid and viable competition to ‘fiat’ stores of value are Precious Metals. Gold and Silver have always been the enemy of the Statists and have represented free markets and individual liberty for millennia. Never has the need to squash Gold and Silver been more critical to fractional-reserve banks or bankers. The clash between the individual and the State is building to a crescendo. The set up for 2012 looks profoundly bullish despite the brazen paper selling of promises to deliver Precious Metals by the collectivist paperbugs. This reversion to the mean (ie reversion to a physical market for the metals) has been a very long time coming. It does however appear in terms of today’s price on the screen, to have been an example of ‘be careful what you wish for’. Continued volatility can be expected from here, but I am with the Commercial Banks (for once!) in expecting new all-time highs for the metals as 2012 progresses.
Ned Naylor-Leyland, Cheviot Asset Management
Have a great evening. TF
p.s. A Turdite has started a new site. There he has posted all of the data he has acquired through following the am and pm LBMA fixes. You should check it out:
p.s.s. A special thank you to Turdite "Fool" who took the time to ship some "survival goodies" to Ron who then forwarded them on to me. I received them today. Very thoughtful.