Macro

520
Fri, Sep 16, 2011 - 9:46am

Gold is recovering today and is actually green on my screen. Wow! How unusual! Let's see if we can rally today and crawl back above 1800 before we call it a week. There's been some very interesting "news" rolling around for the last 24 hours and I wanted to take a minute to give you my non-educated opinion.

The crux of the matter is summarized quite well below:

https://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011987/china-to-liquidate-us-treasuries-not-dollars/

Between these comments and the wikileaks cables, one can quickly conclude that the Chinese are considering (if not already actively engaging in) further "diversification" of their vast U.S. treasury holdings. In the article above, Mr. Pritchard makes this sound as if there will be some happy and pleasant side effects of these moves. "Don't worry", he seems to say, "those dollars will flow into hard assets like stocks, land and gold". As if it's a zero-sum, no-big-deal event. On this point, he is dreadfully wrong.

As you know, I have long maintained that the real purpose of Quantitative Easing is not to promote economic growth. It is to promote low interest rates. Remember how rates on U.S. treausries are set...through auctions. Simply stated, if you need to borrow $50B and there are no takers at 2%, then you have to try 3%. If no one wants your bonds at 3%, then maybe they'll take them at 4%. Low or no demand means higher interest rates. Period.

With U.S. borrowing needs at all-time high levels, the rest of the world must be induced to buy treasuries. But, rates cannot be allowed to rise. As Mark Steyn points out in his new book, if long-term rates were to return to 5.7% (the average for the period 1990-2010), debt service projections for 2015 would increase from $290B to $850B! Additionally, the only "way out" of our current fiscal disaster is to magically increase tax revenues through economic growth. A return to higher rates would stifle and crush any potential "recovery".

So, what's a Boy Wonder to do? The answer: MORE QE MORE QE MORE QE.

The U.S. has managed to cover its necessary funding needs since June by managing the headlines. Have you noticed that nearly every time a treasury auction arises or the POSX moves down toward critical support, some type of intervention takes place. Whether it's a foreign central bank devaluing their currency or a rash of suddenly scary headlines out of Europe, events seem perfectly timed to keep money flowing into treasuries. This can work in the short-term and it obviously has. The yield on the 10-year note has actually declined since the end of QE2 in June. This won't and can't continue. A recent study from the University of Wisconsin showed that, by 2020, U.S. funding needs will soak up nearly 20% of the total annual global GDP! Do you really think that that is possible? There can be no world GDP when world economic growth is crushed under that type of debt burden.

But, that's in the future. What about the near term? Eventually, rates will rise when buyers (like China) disappear. Faced with an immediate funding crisis, QE will resume with vigor. Left with no other government funding option, the Federal Reserve will be forced into creating trillions of new greenback, simply to keep the social security checks flowing, the doctors paid and the military shooting. The dollar will resume its long-term decline into obscurity.

In the end, all of the central bank intervention in the world will not be able to suppress the global demand for true safe haven financial protection. Gold will rise to heights that even you, my dear reader, may currently think are unattainable. Silver will most certainly come along for the ride. Therefore, do not be fearful. If you use the time left to prepare...mentally, financially and spiritually...you will survive, and even prosper, in the days ahead.

Here are your updated charts. Unfortunately, both have taken on the appearance of range-bound markets. This can be managed as it affords us the clear opportunity to buy at the bottom of the range and sell at the top but it certainly isn't as much fun as runaway efforts to the upside. For today, don't get too excited until/unless either metal is able to firmly trade through the blue trendlines I've drawn inside the ranges.

I'm going to be away and unavailable for most of the day today so, just as John said to Yoko, "looks like you're on your Ono". I will be monitoring things from afar, however, and will attempt to update if conditions warrant. Have a great day and a relaxing weekend! TF

p.s. Another preparatory move for the opening of PAGE:

https://www.reuters.com/article/2011/09/16/cjina-gold-idUSL3E7KG1IG20110916

About the Author

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  520 Comments

redwood
Sep 16, 2011 - 1:31pm

svm video

Carson Block of Muddy Waters has recently "fallen" into this new career path of witch hunting. But he seems earnest enough, and I believe he thinks he is providing a valuable service.

Given that, it makes his reticence in responding to SVM even more compelling. This man is in deep doodo, and he knows it. Raises I think some serious questions about the management of his team, and therefore their credibility. I'm not even sure that being short the stock before/during the release of the letter is even pertinent. His face (and blushing) tell the real story.

Nigel Black
Sep 16, 2011 - 1:35pm

@Missiondweller

I believe it was Winston Churchill that said,:

"America will always do the right thing, but only after exhausting all other options."

Brace yourself. It is going to be a rough road ahead.

Haole redwood
Sep 16, 2011 - 1:40pm

Something or nothing?

If anything happens out of this latest JPM silver manipulation case other than a couple of scapegoat traders going to jail and JPM paying a 100 million or two in fines with free money courtesy of the taxpayers I'll be amazed.

olderman
Sep 16, 2011 - 1:41pm

Change of Pace

For the Greenies in the crowd

40 years after the founding of Greenpeace, International Executive Director Kumi Naidoo and Greenpeace International co-founder Rex Weyler discuss where the organization has come from - and where it's going.

Greenpeace 40 Years - A Conversation in Pictures (with Rex Weyler and Kumi Naidoo)

olderman

Eric Original
Sep 16, 2011 - 1:43pm

two threads at once

We sort of have two theads going at once today. Maybe we should all move over to the newer one.

https://www.tfmetalsreport.com/blog/2423/weekend-homework#new

Jake
Sep 16, 2011 - 1:45pm

Money Printing Insanity to Prop Up European Banks

Interesting Article From Dave in Denver

What Exactly Happened Today?

https://truthingold.blogspot.com/2011/09/what-exactly-happened-today.html

EXCERPT: "I don't have time to explain the details, but essentially over the past few days the Fed, ECB, Swiss National Bank and Bank of England have been working in concert in order to make liquidity available to prevent the European banking system from collapsing..."

It also is interesting to me that some big, anonymous banks/Central Banks are lending/swapping out their gold holdings in order get their hands on badly needed U.S. dollars to meet dollar liquidity needs: LINK

What would be frightening to me with these gold swap transactions is that there is a high probability that a lot of this gold being leased out may actually be coming from the same HSBC vault that "safekeeps" the GLD gold. HSBC is one of the largest LBMA depository banks, which contain a large percent of the world's 400 oz. gold bars. This is exactly why Hugo Chavez wants Venezuela's gold removed and delivered to Venezuela. Remember the CNBC video in which Bob Pisani is standing in the HSBC vault and supposedly picking up a bar from the GLD "allocated" section? Remember how that bar was NOT actually a bar on GLD's gold list but was purported to be a GLD bar? More than anything else you read, that event underscores why you can't trust ANY of the gold in that HSBC vault and you can't trust that GLD truly has 100% backing of unencumbered bars (i.e. leased out or used in derivatives deals).

I said in my original GLD research report back in Feb 2009 that one day we'll wake up and the price of gold will be up $200 and the opening price of GLD will be down 50% (you can see that report HERE ). What is happening right now in the financial system is exactly the kind of scenario and events that I envisioned would cause GLD to ultimately be exposed for what it is. We could be closer than any of us realize to this type of situation actually occurring. In other words, if you own GLD and think that you own gold, you don't. Get rid of your GLD and buy the real stuff.

Finally, do not let this latest 2-day smack on the price of gold shake you out of your positions or scare you off from buying more physical gold/silver. This hit on gold, I believe, was nothing more than a coordinated Central Bank intervention in order to get the price lower ahead of all of the above massive fiat/liquidity operations. This is what happened in the summer of 2008 as well. It also means that the global financial system is in far worse trouble than anyone not inside the Central Bank nerve centers realizes."

Economical Disaster
Sep 16, 2011 - 1:49pm
Dakini
Sep 16, 2011 - 1:54pm

Ha Ha Ha America ~ Love Letter From China

A Love Letter from China to America. Talk about chilling....I remember the chill I felt watching this video a few years ago....

https://www.atom.com/funny_videos/haha_america/

Available on youtube in 3 parts:

Part 1: https://www.youtube.com/watch?v=dmANxHJ6s9M

Part 2: https://www.youtube.com/watch?v=FxJdEqaCcGc&feature=related

Part 3: https://www.youtube.com/watch?v=F7wsBNqM8AQ&feature=related

Drifter exiledbear
Sep 16, 2011 - 1:54pm

@ exiledbear that was

@ exiledbear that was good

It's the sitting that makes you the money. The part that Livermore left out was "it's the sitting on thumbtacks that makes you the money".

meegoreng1
Sep 16, 2011 - 1:56pm

CASH FOR GOLD

Ever notice that the signs on these businesses that are popping up everywhere nationwide have PERMANENT LIGHTED NEON SIGNS installed at their store front. These are expensive signs costing between $6-10k each. I know cause I own a small business and have paid the same amount for my sign.

This only tells me that these stores are here to stay for a long while. Now when they switch those signs to Gold for Cash then I'll start to worry about my PM stack.

Thank you all for your contributions here. I learn so much from you all. This is my # 1 website to visit now.

Oh by the way....

KEEP ON STACKING!

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