In Greater Detail

I've gotten a few emails and I saw a few comments overnight, so I thought I should take some time to discuss again the ongoing relationships within our wholly computer-driven "markets".

To wit, the questions basically center around this:

"Turd, why the heck does gold move with the yen? This makes no sense. Fundamentally, a weaker yen (or any major fiat currency) should be positive for gold, not negative."

And my answer is:



This is the point. The question is fundamentally correct. The yen is a major, major global fiat. Only The Pig and the euro have a more prominent role in global finance. And the Bank of Japan recently announced that they are now going to be printing (devaluing) the yen to such an extent that they will be completely monetizing ALL ongoing Japanese government debt. An announcement like that should have driven gold much higher. Instead, as you know, it went much lower. Why?

Because, at present, the small handful of hedge funds that are trading gold derivatives have been programmed to sell gold with every downtick in the yen, likely because every downtick in the yen leads to a corresponding uptick in The POSX. So, a hedge fund computer "sees" a falling yen and it almost immediately responds by selling paper gold. There's no logic in this and certainly no assumptions regarding the fundamentals that are being made. Instead, this is simply a fully-electronic transaction, executed by high frequency trading computers.

Fools and goons, like those in the financial media or at the Perth Mint, would have you believe that this is "the gold market". That the "price" is set by about 60 actively trading hedge funds versus 6-8 Cartel banks and, to a certain degree, they are correct. So long as physical transactions continue to occur at/near the paper Comex price, then the electronic derivative market continues to have legitimacy.

Ahh...but what happens when it doesn't?

Somewhere between paper price $1155 and paper price $155, there will be an economic disconnect. Conceivably, the machines could mindlessly drive paper price to zero if the only factor taken into consideration when trading paper derivatives was changes to the value of the yen vs the dollar. But, at some point along the way, holders of physical metal will refuse to sell at the falsely-contrived paper price. This equals less supply. Also, at some point, miners of physical metal will refuse to operate their mines at the falsely-contrived paper price. This also means less supply. And if this occurs while demand continues or increases, the "market" will break.

Why? Because for a paper commodity derivative market to have any legitimacy at all, there must be physical deliveries made at the paper price. Again, why? Because if no physical deliveries are made at the paper price, then the price is pure fantasy.

Think of it this way. Let's say your local supermarket decides to offer strawberries at 25¢/pound even though there are no strawberries to be had on the wholesale market for anywhere less than $2/pound. Buyers soon show up and take delivery on all of the strawberries the supermarket had in inventory at the uneconomically low price. In order for the the market to then continue selling strawberries at 25¢/pound, they'll need to find a source of new berries willing to provide them at that price level. But holders of existing strawberries aren't selling below their real value and farmers aren't going to produce them at 25¢/pound and, so, the supply of that price...dries up. There is no "market" left. Oh sure, the supermarket can pretend that they still have strawberries on sale at 25¢/pound but if no one is actually buying them and taking them home at that price, then it's all just a fantasy regardless of the goons who are quick to declare a relentless bear market in strawberries.

So, what the hell am I writing about here? (And this is why I like the podcasts so much!) These "markets" are hopelessly broken at present. Physical price is being set by a small collection of hedge funds that are only selling paper derivatives based upon downward movements in the Japanese yen. This has no connection to economic fundamentals and this has no connection to physical supply and demand. Don't believe me? See for yourself:

Again, physical delivery must take place at the paper price or the paper price loses all legitimacy. Notice the blue ovals on the charts above. A disconnect has suddenly appeared in the yen/gold correlation. Is this the first sign that paper price has been driven down as low as it can go without breaking the paper---physical connection? Maybe.

The anecdotal evidence continues to come out of London where the supply of readily-leasable, 400-oz gold bars is apparently quite tight. GOFO rates plummeted again today and are back to the 15-year lows that we first saw last Thursday. Note the overall change from Oct 22 to today but pay particular attention to the dramatic change that began when the calendar flipped to November:

And so why is all of this important? Because:

  • If the yen is going to be devalued to almost nothing
  • And if the computers are going to continue linking the yen with gold
  • And if physical supply continues to be found at lower and lower prices
  • Then there is nothing stopping price from moving even lower

Charts, fundamentals, physical demand be damned. None of it matters if The Bullion Banks are able to continue delivering physical metal at the electronic derivative price. And that's the main question, because if the Banks don't have the metal to deliver here:

  • Paper price MUST rise to the point where delivery stress subsides OR
  • The long-awaited end of "futures wagging spot" is upon us

And, either way, this will be very exiting and good news WHEN it happens.

Lastly, before I head out, I just want to thank everyone for the kind notes and words of wisdom following yesterday's podcast. Again, the message I meant to convey is this:

Please try to help others when you can. Maybe even just a smile or a kind word. You never know what demons some other person might be struggling with and maybe, just maybe, a kind gesture from you could be the one thing that turns everything around. None of us exist on an island and all of our actions and interactions have consequences, some known but most unknown. To that end, try to be a force for good and endeavor to always make your impact a positive one. You weren't put here to simply serve and enrich yourself and, as the world seemingly grows darker with each passing day, it is imperative that we all keep this in mind.

More later,



Turd Ferguson's picture



Just a note on this as the numbers are still preliminary and I usually wait to discuss OI changes in the afternoon podcasts.

But this is amazing and very strange! As noted yesterday, total Comex gold OI surged on Friday by over 16,000 contracts to its highest level in 16 months. This was not unusual or unexpected given the sharp rally on Friday but significant, nonetheless.

Here's where it gets amazing and strange:

The preliminary numbers for yesterday, when price gave back about 40% of Friday's gains, show another increase of nearly 13,000 contracts! If shown to be final and accurate, this would bring the total Comex gold OI up to 447,204. That's the highest level since 5/22/13 and an increase of 86,000 contracts (+23%) since the multi-year low OI of 360,935 seen back on August 27 of this year.

Why the sudden HUGE jump? And why yesterday?? Simple logic would have led us to assume that OI would have fallen yesterday as some of those who bought on Friday were chased right back out. Instead, even more OI joined the party! This is extremely unusual and I'm not sure what to make of it. Taken in tandem with the GOFO rates, it certainly has me curious.

Again, let's wait for the final numbers this afternoon and this will give me some extra time to analyze and consider the ramifications.

Turd Ferguson's picture

Thursday A2A


Again, this week's A2A will be with Mr. Turk. If you're sick of the KWN headlines and would like, instead, to ask James your own questions...well, this is your chance.

You can register to join us by clicking here:

landplanner's picture


my first first?

Edit:  Thank you Turd and Company for continually providing your observations, thoughts, and insights into this market.  It's the anchor that grounds me to the reality of our situation, that allows me to continue to purchase physical in the face of this onslaught.  Since my last post, I've made good on my statement of buying at 18, 17, 16, and will continue if need be at 15 on down.  Feels good.  The 'bets' on the miners and the leveraged etf's in my 'possession' not so much.  Looking forward to seeing Santa this Saturday.  I'll provide a brief synopsis if I can this weekend.


arch stanton's picture

no 2

happy vets day all

Condolences from yesterday

Marcus's picture


Yes, you're right, Turd. Let's try making this a better world by the time we leave than it was when we entered. A smile and a kind word cost nothing but can sometimes mean so much (who know what burdens others might be carrying?). We're all in this together. Thank you for so poignantly reminding us of this in yesterday's very difficult and sad podcast. You're a good man, Turd.

DeaconBenjamin's picture

Putin's gallantry upstages Chinese host at APEC

In this Nov. 10, 2014 file photo, Russia's President Vladimir Putin, right, puts a shawl on Peng Liyuan, second right, wife of Chinese President Xi Jinping, seated second left talking to U.S. President Barack Obama, left, as they arrive to watch a fireworks show after a welcome banquet for the Asia Pacific Economic Cooperation (APEC) summit in Beijing. It was a warm gesture on a chilly night when Vladimir Putin wrapped a shawl around the wife of Xi Jinping while the Chinese president chatted with Barack Obama. The only problem: Putin came off looking gallant, the Chinese summit host gauche and inattentive. (AP Photo, File) CHINA OUT


BEIJING (AP) — It was a warm gesture on a chilly night when Vladimir Putin wrapped a shawl around the wife of Xi Jinping while the Chinese president chatted with Barack Obama. The only problem: Putin came off looking gallant, the Chinese summit host gauche and inattentive.

Worse still were off-color jokes that began to circulate about the real intentions of the divorced Russian president — a heartthrob among many Chinese women for his macho, man-of-action image.

That was too much for the Chinese authorities.

The incident at a performance linked to this week's Asia-Pacific summit originally was broadcast on state broadcaster CCTV and spread online as a forwarded video. But it was soon scrubbed clean from the Chinese Internet, reflecting the intense control authorities exert over any material about top leaders while also pointing to cultural differences over what's considered acceptable behavior in public.

"China is traditionally conservative on public interaction between unrelated men and women, and the public show of consideration by Putin may provide fodder for jokes, which the big boss probably does not like," said Beijing-based historian and independent commentator Zhang Lifan.

Xi's wife, Peng Liyuan, was once a popular folk singer more famous than her husband, and in contrast to her predecessors she has taken on a much more public role, prominently joining her husband on trips abroad as part of China's soft power push to seek global status commensurate with its economic might.

Propaganda officials have built the image of Xi and his wife as a loving couple. Photos of Xi shielding his wife from rain on a state visit, picking flowers for her, or simply holding her hand have circulated widely on China's social media, prompting much oohing and aahing.

"When the president personally held up the umbrella for the madam, it complies with the international norm of respecting women," blogger Luo Qingxue wrote on the news site for the party-run newspaper People's Daily last year after Xi was seen holding an umbrella over himself and Peng on a state visit to Trinidad and Tobago.

But Putin messed up the script Monday night while Xi chatted with the American president.

In the video, Peng stood up, politely accepted the gray shawl or blanket offered by Putin, and thanked him with a slight bow. But she soon slipped it off and put on a black coat offered by her own attendant.

It spawned a flurry of commentary on China's social media before censors began removing any mention of the incident.;_ylt=AwrSyCS.OWJUG2AAINvQtDMD

Marchas45's picture

Great Heads Up Turd

On the OI can't wait till this evenings podcast for more of an update as I'm an Auditory learner, hence why I don't post that much and only express by video.

Also, well said,  "Please try to help others when you can. Maybe even just a smile or a kind word. "  It's my goal to do that every day. Keep Stacking

Steve Silver's picture

Turk A2A

Hi Turd

Always liked Turk excited to be able to ask some questions. Its often difficult for me to join the A2A because of work.  So here are my questions for Turk. 1. Since Gold Money has to purchase physical gold how can they do that if LBMA vaults empty. 2. Is there a delay time for bullion delivery and how has it varied. 3. Is GOFO accurate or manipulated BS. 4. has the bear market significantly reduced Gold Money customer holdings. I trust an answer from Turk alot more than the GLD banksters.



SilverX3's picture

All the signs we look at are being confirmed by price

At least for now - very positive sign that gold is moving up based on :

1) Huge jump in Gold OI on price jump and price smash

2) GOFO back down sharply negative

3) Price is back above $1160 as we speak

4 oz's picture

WOW~~~ Todays Holter!

Very “quietly” the world’s 20 largest economies will meet in Brisbane, Australia later this coming week. I use the word “quietly” because here in the U.S. almost no mention of the upcoming meeting has been made.....

nadgeskaul's picture

Dollar vs. Gold

While I agree that central banks devaluing their currencies in concert should be positive for gold, we have to remain conscious of the fact that the trading world views everything in a different light.  

Quite simply, if the Central Bank of Japan is going to fully monetize debt, it's currency should depreciate, measurably, to gold.  In other words, gold denominated in Yen should rise dramatically.  That said, as the trading world views gold as an alternative "currency", those events paint a different picture.  As gold rises in terms of yen, it should, therefore, fall or remain stagnant when denominated in dollars as the dollar strengthens against the Yen.  Gold does get additionally punished due to it losing the "safe haven" status in this environment, along with easing of fears and excessively low volatility. 

That is the only reason we have not witnessed an explosion in gold prices...the dollar is becoming stronger against all other currencies (and has been since 2012). However, gold is becoming stronger against those currencies as well.  So, at the moment, if you hold both dollars and gold, you're riding the best waves.

However, as we all know, the dollar will eventually meet it's peak when our central bank has the baton passed off to them to again increase QE.  That is the moment when you will see gold, denominated in dollars, rise. 

The floor is established with a lack of evidenced by this morning's dramatic Yen devaluation against the dollar with, virtually, no reaction in precious metals.

We are at or very near bottoms unless ample physical supply becomes available.  However, we will not see a rise in price until the dollar gets devalued further (or, some outlier event such as a prescribed reset...wishful thinking).

It's that simple.

Mr. Fix's picture

These may be computer program trades,

But please keep in mind who is the computer programmer.

It is the bankster  cartel, who we euphemistically referred to as the evil empire. Things are going according to their plan, the confiscation of all wealth.

This is why the paper prices will continue to collapse, the yen/gold ratio is simply the mechanism.

By design, this will not end well.

freemarkettrader's picture

@ Turd GC Open Interest

DeaconBenjamin's picture

Brent oil falls to $82 per barrel after hitting four-year low

LONDON: Brent crude fell to $82 per barrel on Tuesday as a firm dollar and robust production from U.S. shale fields outweighed a drop in Libyan output, although it recovered in part from a four-year low early in the day.

The U.S. dollar rose against a basket of currencies and hit a seven-year high against the yen, suppressing demand for oil and other dollar-priced commodities by making them more expensive in other currencies.

But a supply shock in Libya supported prices as a rival government that has seized the capital took control of its most productive oilfield, El Sharara.

El Sharara and the eastern oil port of Hariga, which was shut by protests on Saturday, remained closed on Tuesday, bringing Libya's output sharply down from a peak of over 900,000 barrels a day achieved in September.

"Libya is likely to see a reversal of its recovery in oil output as the civil war deepens," analysts at Eurasia Group said in a note.

Brent for December was down 34 cents at $82 per barrel at 1415 GMT after reaching $81.23, its lowest since October 2010. U.S. crude was down 10 cents at $77.30 per barrel.

Grey Mare's picture

permanent backwardation

Interesting article on Mineweb:

by Fraser Murrell (an Aussie a cut above Bron) who outlines the argument for gold arbitrage by the bullion banks whenever Libor does not equal GOFO.  Essentially, banks make money by issuing certificate gold  when GOFO < LIBOR and buying the certificates back when GOFO > LIBOR.  If gold goes into permanent backwardation (i.e. gold owners, even those who own the 'paper' gold, refuse to part with it), the banks can no longer by their certificates back and run the market up and down.  Ties in nicely with Turd's bottom line price at which seller's disappear.  Would make a good podcast topic?


amarula4's picture

@Turd - question for Mr Turk please

is it true that the only area where COMEX/LBMA gold and silver prices actually strongly control the price of physical is in the small-buyer retail OTC market? We can buy a few gold sovereigns or kilo of silver in Europe at spot rate plus a small premium, so it works for us at today's bargain prices. But has the disconnect already set in at larger size? Does spot hold for those buying a few tons from a bullion bank direct, or is it all too secret to say?

Yukajub's picture

At the Devil's Advocate..

Just to keep the discussion balanced, the whole premise is that physical demand will eventually over run physical supply and then the paper gold breaks and the game is won. However, what if for gold, TPTB are able to kill the demand? Gold is not an industrial metal, most of the mined gold is socked away somewhere. So if TPTB can convince countries that gold is indeed a relic and held for 'tradition' and reduce the demand, then physical demand could be taken out of the equation. Perhaps the next strategy will be the mother's mother of all MOPE, timed with a Swiss "Yes" vote to take gold down. That would certainly be demoralizing to see gold go down the days and weeks following a Swiss "Yes" vote, instead of being the defining bottom. No, it probably will not take gold to $155, but could be good for decent test of $1050. 

The Yen/Usd/Gold/Silver is right in our face that even us little people can see it plain as day on our free chart services. Blatant. Flashing in neon colors. Blinding. Blinding? So is that what is going on, a big distraction until the plan is devised. 

Speaking of physical demand, silver maybe the more interesting Achilles heal where the industrial uses for silver will find a spot where demand will outstrip supply and therefore hard to keep below industrial demand. 

- Yukajub

CPE's picture


"if the TPTB can convince countries that gold is indeed a relic"...

Well the CFR, which ranks very high on the TPTB list is trying to do that then they aren't prosecuting it well at all...

The Council Of Foreign Relations Apologizes For The "Greenspan Glitch"

Last week, we brought to the public's attention a controversial 'missing' section from the official transcript of Alan Greenspan's interview last with the Council of Foreign Relations where he dared utter his honest opinion that, "Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it." Well, it turns out the reason for the practically heterical section's omission was "a glitch in the live stream" and CFR has apologized and posted the full transcript. Interesting coincidence that this gold-loving, Bernanke-denying section was the only one to be hit by the 'glitch'; we are confident it's mere coincidence...

CFR has apologized...

To Whom It May Concern

Thank you for pointing out the gap in the video and transcript of our October 29 meeting with Alan Greenspan.

The error was the result of a glitch in our live stream. Full-length CFR event video, audio, and transcripts are posted unedited.

We have reposted the video and transcript of the event.

The audio, which was posted without gaps on October 29, can be found here.

Please excuse the inconvenience.


Jake Meth
Communications Coordinator,
Global Communications and Media Relations

Council on Foreign Relations

Thanks Jake. And we most certainly understand: transcript "glitches", especially when the former Fed Chairman is praising gold over the US Dollar, happen all the time. You are excused.

tmosley's picture

Yuka: That ship has sailed.

Yuka: That ship has sailed.  China and her allies know what's up.

SteveW's picture

ISIS wants to introduce its own currency: Dinar and dirham

Found this on an early morning post in the last thread.

Seems I recall Ghaddafi had the same idea shortly before he was deposed after ruling Libya for almost 41 years.

So is that really why we're fighting ISIS over gold and silver?

And are we really fighting Islam because of usury (or rather the lack of usury in true Islamic banking)? I've never seen this even broached anywhere on the net so is the topic too taboo  or have the Western bankers so indoctrinated us with their propaganda that few even consider this possibility? For a quick review of usury see:

Keg's picture

Happy Veterans' Day

Happy Veterans' Day to all veterans in Turdville.  Thank you for your service.

silver66's picture

Remember --Muammar Gaddafi--ISIS dinar

He was going to have a gold dinar for oil

Did not work out so well for him, things that make you go hmmm?One of the  rebels first acts was to set up a central bank...I wonder why that is? Oh Yeah and that pesky problem of the nations 77 tons of gold going missing


rl999's picture

much ado about nothing, as usual

The 'excitement' that swept through the PM permabull community about the 'great ASE shortage' of 2014 is over. Although, strangely (/sarc) I haven't seen this piece of news on every (any) website that ran the other.

I am beginning to realize that the PM community has the same problems as the mass media. Bias & sensationalism, lack of follow through / follow up, an inability to admit to errors.


U.S. Mint To Resume Selling Silver Coins On Allocation Basis Monday

The U.S. Mint says it will resume selling 2014-dated American Eagle silver coins, on an allocation basis, on Monday...

“As you know, the drop in silver prices has led to significantly increased demand for American Eagle silver bullion coins in the last four weeks,” the Mint said in a memorandum to authorized purchasers late Monday. “We anticipate having over 1 million 2014-dated American Eagle silver bullion coins available when we go back on sale, on an allocation basis, Monday, Nov. 17th.”

The Mint added that release dates for the 2015 American Eagle coins have not been set yet, but the agency expects to launch the sale of these coins in early January, as in the past.


Let's do the math. A (sub) two week hiatus will result in approx 1mm units produced.

Assuming a 24 hour work schedule for a two week period (24*14 = 336 work hours)

1mm / 336 hours = 2976 units per hour.

Note: production of 200k ase per day for 250 work days per year equals 50mm ase per year.

Production of 50mm units over 8760 hours (24/7/365) equals 5708.

(I already edited out my questions as I don't want to appear 'inflammatory' or 'trollish'. One can consider for themselves whether the mint could produce more ase,  what effect that would have on price and premium, relate it to past 'shortages', and decide how things play out.)

Dr Jerome's picture

Barbarous relic

The IMF and their cohorts have a monumental ask on their hands to convince the entire world that paper is better than physical. They have to persuade the 80% of the globe (Asians, Indians, Russians, Arabs, and more) who firmly believe in gold-as-money to trade it for Western fiat-based paper promises with counter-party risk. I cannot see how this can happen. The 80% already seem to be on to the gold scam, taking advantage of it by trading for gold as fast as they can. And as the propaganda against gold in the west continue to be successful, they continue to be that final buyer. It is just a matter of time--though that time has been longer than we all expected.

DeaconBenjamin's picture

Gold firms as 2 per cent slide tempts price-sensitive buyers

European stocks rose, with investors bullish after Wall Street posted a fourth straight record close and Tokyo's Nikkei hit a seven-year high.

LONDON: Gold firmed on Tuesday as demand for physical metal picked up after the previous day's 2 percent slide, though prices remain under pressure from gains in the dollar and stocks.

Buying of physical metal gathered pace in Europe and major consumer China on Tuesday, traders said, supporting prices after dollar strength pushed them sharply lower in the previous session.

"Retail demand is very strong since prices came off," Heraeus trader Alexander Zumpfe said. "Overall, physical demand is lending some support - Asia is also showing steady buying interest, though not on extreme levels."

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 1.8 tonnes on Monday to 725.36 tonnes, a six-year low. The fund has seen outflows of 15.8 tonnes so far this month.

erewenguy's picture

rumor mongering

Just rumor mongering at this point, but I thought this post on a financial discussion board was interesting:

Comex Dec. open interest 260,000. Holding steady, no leakage or rollovers. A couple of weeks until first notice day 11/28/14. Big money is going to Stand for delivery IMO. That's what Biggie on the floor told me
BullFlag - Tue, Nov 11, 2014 - 09:39 AM

Metals are peripheral to most of this Wall Street Bear Discussion board.  I don't post there, only lurk.

Pssst - Like all good 2nd hand stories, I have now taken his rumor and made it yours.

DeaconBenjamin's picture

QE isn’t dying, it’s morphing--Nomi Prins

A funny thing happened on the way to the ‘end’ of the multi-trillion dollar bond buying program known as QE - the Fed chronicles. Aside from the shift to a globalization of QE via the European Central Bank (ECB) and Bank of Japan (BOJ) as I wrote about earlier, what lingers in the air of “post-taper” time is an absence of absence. For QE is not over. Instead, in the United States, the process has simply morphed from being predominantly executed by the Federal Reserve (Fed) to being executed by its major private bank members. Fed Chair, Janet Yellen, has failed to point this out in any of her speeches about the labor force, inflation, or inequality. 

The financial system has failed and remains a threat to us all. Only cheap money and the artificial inflation of asset values can make it appear temporarily healthy. Yet, the Fed (and the Obama Administration) continue to perpetuate the illusion that making the cost of (printed) money zero by any means has had a positive effect on the population at large, when in fact, all that has occurred is a pass-the-debt-ponzi-scheme co-engineered by the Fed and big US bank beneficiaries. That debt, caught in the crossfires of this central-private bank arrangement, is still doing nothing for American citizens or the broader national or global economy. 

The Fed is already the largest hedge fund in the world, with a book of $4.5 trillion of assets. These will plummet in value if rates rise.  Cue the banks that are gearing up their own (still small in comparison, but give them time) role in this big bamboozle. By doing so, they too are amassing additional risk with respect to interest rates rising, on top of all their other risk that counts on leveraging cheap money.

Only the super naïve could possibly believe that the Fed and its key banks haven’t been in regular communication about this US Treasury security shell game.  Yet, aside from a few politicians, such as former Congressman Ron Paul, Congressman Sherrod Brown and Senators Bernie Sanders and Elizabeth Warren, the notion that Fed policy has helped bankers, rather than other people, remains largely divorced from bi-partisan political discussion. 

Adding more fuel to the central-private bank collusion fire, is the fact that the Fed is a paying client of the JPM Chase. The banking behemoth is bagging fees for holding and executing transactions on the $1.7 trillion New York Fed’s QE mortgage portfolio, as brilliantly exposed by Pam Martens and Russ Martens.

Wouldn’t it be convenient if JPM Chase was also trading this massive mortgage book for its own profits? Or rather - why wouldn’t they be?  Who’s going to stop them – the Fed? Besides, they hold more trading assets than any other US bank, so why not trade the Fed’s securities ostensibly purchased to help the public - recover?

According to call report data compiled by the extremely thorough website, nearly 97% of all bank trading assets (including US Treasuries) are held by just 10 banks, led by JPM Chase with 43.80% and followed by Citigroup at 24.51% of all bank trading assets.

Last quarter, US Treasuries were the fastest growing form of security bought by banks, increasing by 26.3% or $72 billion over the prior quarter. As the Fed tapered, banks stepped in to do their part in the coordinated Fed-private bank QE game. In the past year, banks have added $185.8 billion of US Treasuries to their books, more than doubling their share of government debt.

Just seven banks comprised nearly all ($70.5 billion) of this quarterly increase: State Street Bank, Capital One, JPM Chase, Wells Fargo, Bank of America, Bank of NY Mellon and Citigroup. By the end of the third quarter of 2014, Citigroup, with $95 billion, was the largest holder of US Treasuries, followed by Bank of America at $54.8 billion and Wells Fargo at $37.8 billion from nearly zero at the start of 2014. Bank of NY Mellon holds $25.3 billion and JPM Chase holds $15 billion US Treasuries.

This increase in US Treasury holdings reflects another easy money element of our federally subsidized banking system. Banks take deposits from individuals for which they pay close to zero in interest, in fact, charge customers fees for keeping their money  (courtesy of the Fed’s Zero-Interest-Rate policy.) They can turn that around to make a cool risk-free 2.3% by parking the money in 10-year US Treasuries. Why lend to Joe the Plumber, when the US government is providing such a great deal?

But, the recent timing here is key. Banks only started buying US Treasuries in earnest when the Fed announced its tapering plans. Thus, not only are they participants in the ZIRP game as recipients of cheap money, they are complicit in effecting monetary policy. As the data analyzed so expertly by Bill Moreland at makes clear, there has been no taper.  Thus, the publicized reason for tapering – better job and economic growth – is also bogus.

Yukajub's picture

re: Yuka: That ship has sailed.

I can deal with the ship sailing and happy to see holes being poked into this. 

However, if that's true that physical demand can't be stopped, then what does the country with possibly no gold, but is still THE global super power and THE reserve currency, do? Just roll over and take it? 

I get annoyed when someone just posts a bunch of questions and expect answers, so I better throw in a few responses.

a) War! There's no bigger distraction than a war. A big, big war. A big, big war means all sorts of war measures can be used. Go plunder and pillage. However, that's gotta be the last card to play. 

b) Economic destruction! Sink the world into a deep depression and hope that we are fat enough to weather the storm better than everyone else. What's this do for gold? Well, countries are already buying record amounts of gold, so this will not reduce demand, it will increase it. This is already happening, so it is part of option d. 

c) Economic recovery!  People are actually employed with real jobs, interest rates rise. People are happy and not worried. Real capitalism is back. Gov't gets out of the way. Gold is forgotten. I like this, but debt is a wee bit of a problem, so not possible.

d) Change nothing, and print like crazy. MOPE til you can't MOPE no more. Control everything. Let paper gold die then make gold somehow irrelevant. 

e) The question is flawed because it's not about the U.S. or USD, it's about TPTB, and as far as TPTB go, I'm assuming they transcend petty "countries" and "currencies" so they'll be just fine. In fact, ZH just put out an article stating the 0.1% are now richer than the bottom 90%. 

So (a) or (d) or (e)

- yukajub

wildstylechef's picture

Makes perfect conection Yen Carry trade>Gold

As the yen continues to deflate and interest rates are still .25% any investments are a bargain as you have the bonus of the differential in the bond rates of Australia @ 4.5% and many others add on a 100 to 1 leverage  and many other derivatives and every time the yen deflates multiply it by the difference in yield and the leverage and bonus the declining amount that you have to pay back especially if you are holding  US securities where the deflation of the debt is 13% alone, 10 year bond 2.75% (dif) multiply by 100 and you have 1575% never mind if you had invested in stocks

DeaconBenjamin's picture

Russia braces for long economic war with the West

Russia's central bank warns that capital outflows will reach $128bn this year and slashes its growth forecast to zero for 2015 as the ceasefire collapses in Ukraine

Russia is battening down the hatches for a long battle with the West, expecting sanctions to last until at least 2017 and admitting that capital flight has been significantly higher than previously claimed.

The central bank slashed its growth forecast for next year to zero and warned of near-recession conditions until late in the decade. It said capital outflows would reach $128bn this year.

The new realism ends the pretence that Russia is strong enough to weather the end of the commodity supercycle without suffering serious damage, or that Western sanctions are little more than an irritation. President Vladimir Putin had previously said the effect would dissipate within months.

It comes as the ceasefire in eastern Ukraine disintegrates and international monitors (OSCE) report large incursions of heavy weapons, tanks and troops moving into the Donbass region, clearly from Russia. The White House called it a “blatant violation” of the Minsk accord agreed in September.

The rouble soared 3pc despite the bad news after Mr Putin vowed to “take action” to stabilise the currency and denied any plans to impose capital controls. The rouble closed at 45.74 against the dollar, still down 32pc this year and clearly still in danger.

The central bank ditched its strategy of defending the currency with half-hearted measures, instead threatening liquidity curbs and a lightning strike on speculators to prevent an exchange rate crash.

The bank said the rouble would be allowed to float freely. This ends Russia’s dual-currency basket and its attempts to stem the currency slide with fixed dollops of intervention, $350m for every five kopecks, which became a one-way bet for traders. The bank has burned through $40bn of foreign reserves since the start of October.

Crucially, the bank vowed to act with force against “financial stability threats”. It will tighten rouble liquidity used by local speculators for bets on the dollar, evoking punishing memories of the 2008 crisis, when overnight rates briefly punched to 3,000pc and scorched those caught on the wrong side of the trade. “Rouble liquidity is being used for games on the currency markets,” said Elvira Nabiulina, the bank’s governor.

“The rouble is rallying because of a short squeeze but it doesn’t change the big picture,” said Tim Ash, at Standard Bank. “They’ve got their heads in the sand if they think this is driven by speculators. Fundamentals and war risk are behind this.”

One hedge fund manager said traders were wary of a sudden counter-strike by the authorities. “Russia can still put up a good fight. We can argue over whether Russia has enough reserves in the end, but it certainly has enough to destroy your position as a trader on any given day if it wants to. We’re not talking about Nigeria or Ghana here,” he said.

Yet Russia remains in the eye of the storm as sanctions bite deeper and the collapse of oil prices change the economic landscape. Mr Ash said Russia was already suffering from the “Dutch Disease” before the invasion of Crimea, addicted to commodity exports that hollowed out the country’s industry and pushed the rouble too high. Non-oil exports have fallen from 21pc to 8pc of GDP since 2000.

Urals crude has fallen from $115 to $83 a barrel since June, prompting speculation by Mr Putin that the move is part of an orchestrated political campaign by Russia's enemies, clearly meaning the US and Saudi Arabia. Otkritie Capital, in Moscow, said the fall in crude is likely to pull down EU gas prices by 22pc next year due to linkage in Gazprom contracts. This will further erode Russia's foreign revenues.

Renaissance Capital said in a report that the marginal cost of new oil projects in Russia is around $90, warning that the country could lose 350,000 barrels a day of output next year if "economic logic" prevails.

The central bank has to pick between two poisons. The slide of the rouble is stoking inflation and asphyxiating companies with dollar debts, yet currency intervention entails monetary tightening and risks a banking crisis. The authorities learned the hard way in 2008 that selling reserves into a recession has ferocious side-effects. “The money base contracts and it crushes the economy,” said Lars Christensen, at Danske Bank. “We think Russia is already in recession, and contraction is going to get worse over coming quarters.”

The central bank expects oil to average $95 next year, an optimistic forecast as China steers its economy away from heavy industry, and renewed supply floods the market from Libya, Iraq and perhaps soon Iran. Deutsche Bank says the “fiscal break-even” price needed to balance the Russian budget and pay for the country’s growing military machine is around $100.

Mrs Nabiulina said foreign reserves will drop to $422bn by December, $35bn lower than previous estimates. This is still ample but not as large as it seems. Russian banks, companies and state entities have $731bn of external debt, mostly in dollars. They must roll over $162bn in the next few months, yet global capital markets remain almost entirely shut.

Oil giant Rosneft has requested $49bn in state aid, while VTB bank has reportedly sought $4.8bn. The bank’s president Andrei Kostin said it was thinking of switching VTB’s listing from London to “Chinese bourses” to make it easier to raise capital.

Lubomir Mitov, from the Institute for International Finance, said it would be “very dangerous” if reserves fell below $330bn. Foreigners have pulled back almost entirely and the financing gap has reached 3pc of GDP each year. A further fall in oil prices would push Russia into a current account deficit. “Russia is already in a perfect storm,” he said.

Circumstances are very different from 1998, when the crash in oil prices pushed Russia into default on its external debts. Yet the trauma of that episode is still fresh in people’s minds, and the illusion of high reserves can evaporate fast. “If they lose another 100bn in three months they’ve got a problem. People would start to panic, it could turn vicious very fast,” said Mr Ash.

Syndicate contentComments for "In Greater Detail"