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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turd [at] tfmetalsreport [dot] com ()

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¤
Sep 18, 2011 - 5:52pm

The GDX chart...

...that shill provided at 321gold.com is probably even more impressive. How bullish!

No happy guesses by myself on the PM prices with 10 minutes to go. This will be an interesting week to say the least.

¤
Sep 18, 2011 - 5:42pm

Eye Candy Chart

Courtesy of @shill via 321gold.com Thanks. wow.

Vypuero
Sep 18, 2011 - 5:41pm

@Haole

I meant short term. I remain long/medium term bullish. Scared out of some futures positions only - they are much more painful when they go down. They are also much nicer on the way up.

Haole
Sep 18, 2011 - 5:33pm

Huh?

Bullish again? Scared out of positions?

Yikes

Vypuero
Sep 18, 2011 - 5:27pm

Shill

What is your opinion on that post from 321? Very bullish. I am bullish again myself. I just need to have some insurance when I buy now so I don't get scared out of my positions on a dip.

Eric Original
Sep 18, 2011 - 5:22pm
Shill
Sep 18, 2011 - 5:21pm
¤
Sep 18, 2011 - 5:03pm

China buys gold, challenges US dollar

China buys gold, challenges US dollar

WikiLeaks cables allege that China is buying gold to weaken the US dollar's supremacy as the world's reserve currency.

China plans to let its currency trade freely on international markets by 2015 [EPA]

China is shifting some of its massive foreign holdings into gold and away from the US dollar, undermining the dollar's role as the world's reserve currency, accoding to a recently released WikiLeaks cable.

"They [the US and Europe] intend to weaken gold's function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the US dollar or Euro," stated the 2009 cable, quoting Chinese Radio International. "China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold."

The cable is titled "China increases its gold reserves in order to kill two birds with one stone". Taken together with recent policy announcements from Chinese banking officials, it may signal moves by China to eventually replace the US dollar as the world's reserve currency.

Last week, European business officials announced that China plans to make its currency, the yuan, fully convertible for trading on international markets by 2015....

https://english.aljazeera.net/indepth/features/2011/09/20119917504652039...

¤
Sep 18, 2011 - 4:57pm

The Plain Truth: Life in the Shadow of Empire

September 16, 2011

The Plain Truth: Life in the Shadow of Empire

Judge Napolitano traces the history of American imperialism from the Spanish-American War through the security state deployed after 9/11 and explains how as an empire is built, freedom is lost.

https://www.foxbusiness.com/on-air/freedom-watch/index.html

DPH: A must see. You'll love it, if you like the Judge.

I think all of you who are connected to Twitter and Facebook should contact the Judge about the JPM silver manipulation lawsuit. He's a believer in hard, honest money and I've heard him mention Au & Ag on his show before. If I tweeted, I would. Not a FB person either.

Can you imagine if he starts talking about this on TV and the MSM picks up on it? I can.

Haole
Sep 18, 2011 - 4:47pm

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