Cyprus Gold...and Silver, too

Mon, Mar 18, 2013 - 10:37am

As if this week wasn't going to be crazy enough, the knuckleheads of the EU have really thrown everyone a curveball with their latest.

Here's the latest from ZH and it's a good place to start:

The gist of it is this:

This is a big deal, regardless of how Cramer and CNBS attempt to downplay it. Why? Fractional reserve banking. As depositors across Europe realize that they are potentially next in line for a similar (or worse) "haircut" if their bank fails, the realization will dawn upon them that keeping money in said bank, at 0% interest no less, is not a very good idea. As depositors begin to withdraw their cash, the entire fractional reserve system begins to seize up. So let's start first with this, a reminder as to how the fractional reserve system works:

You should also be reminded here that this is another reason for the current gold price suppression. At this critical time gold, which also doesn't pay any interest to the holder, must not be seen as an alternative. An illusion must be maintained where there is no alternative to keeping money in a bank or national/regional system. (This is why so many foresee capital controls in the near future.)

So, again, this is why this latest EU "bailout" idea is such a huge mistake. And the proverbial genie is now out of the bottle, too. Even if the deal is amended or if the Russians sail in to make the deal less painful, the EU has tipped their hand. No bank depositor in Greece, Spain, Portugal, Italy, France...anywhere...should now feel comfortable and "guaranteed". And this is what the buffoon Cramer misses entirely with this "analysis":

OK, moving on. Prices rallied sharply at the open last evening but were then beaten back lower. Why? If you've been following along here for the past several weeks, you already know why. There were an abundance on buystops above 1600 and an effort was made to protect them and keep price below 1600 at the Comex open. This effort ultimately failed and price surged at the Comex open as these stops were tripped. I currently have gold hanging around $1610 so our mission is accomplished for far. What we need to see is gold hang in there and close near these levels, at a minimum, with a 16 handle. This will set the table for another run back to important resistance at $1626. As you can see below, that level is important as it is the lows of the new year, Jan 3-4 selloff, and getting back above there is critical for shifting sentiment. And sentiment is key. There was a lot of talk this weekend about the extraordinarily large hedge fund short position in both gold and silver. Why is this so overwhelmingly bullish? Because the hedge funds have neither the intent nor the ability to deliver. They will need to cover at some point. That's buying pressure. And if they can be flipped long at the same time...That's buying pressure times two. So, keep a very close eye on 1626 and 29.40. Those are two very important levels as we go through this week.

It's already getting late and I need to get this posted so just one more item for today...the GLD. It continues to be liquidated and now shows an "inventory" of just 1233 metrc tonnes. Again, on 1/2/13, the GLD had an alleged inventory of 1,349.92 metric tonnes so this baby is down 117 metric tonnes year-to-date or roughly 8.7%. Again, mainstream "analysts" would have you believe that this is entirely due to "investor selling and reallocation" and that this metal has simply been returned to Authorized Participant vaults. OK, sure. Maybe it least a little. But I am 100% confident that the majority this drawdown is from large investors converting their paper GLD shares into physical metal.

Why am I so sure? Check these three data points:

  • Every two months or so, the Comex offers delivery of gold. The latest delivery month of February saw 13,910 contracts stand. That's 43 metric tonnes and about 3X the typical amount that stood for delivery each time in 2012.
  • London regularly sees 15-20 metric tonnes allocated and delivered each day. Though these numbers are not publicly reported, they are confirmed by our friend Andrew and his closely-connected contacts within the LBMA system,
  • And Andy also has considerable contacts in China and Asia. From there, his contacts report that the Shanghai Exchange has delivered over 153 metric tonnes of gold in just the 12 trading days this month! That's another 10 mts/day.
  • It is clear to me that there is a global movement afoot to acquire and deliver physical gold (and silver) as quickly as possible. This physical demand WILL, eventually, turn the paper "ship" around and lead to much higher...and even new alltime high...prices. It is not a question of "if", it is a matter of WHEN.

    I'm not going to be as readily available as usual for the next 2-3 days as MrsF and the LTs require some attention over Spring Break. I will be around and updating the site, just not as much. Hang in there and keep the faith. Buy some more physical today, while you still can.


    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Mar 18, 2013 - 10:39am

    Read this article, too

    An industrious Turdite found and posted this op-ed into the previous thread. You should read it and fully consider what is being said here:

    Mar 18, 2013 - 10:42am

    link trouble

    Once I switched formats to put in the CNBS video, it looks like I lost the YT video on fractional reserve banking. Here it is below:

    Monetary Policy: Money Creation in a Fractional Reserve Banking System
    Mar 18, 2013 - 10:48am
    Mar 18, 2013 - 10:50am


    yeserbe 2nd

    well certainly looks to be the begining of the end of this joke

    Next week we have the Debt cealing for the US and hopefully their loss of AAA

    Gold has to break through 1611

    Mar 18, 2013 - 10:52am

    ability to deliver

    realistically, how many longs have the ability to stand for delivery?

    I'd assume not that many.

    I know when we are in strong uptrend, I have more long equity calls than I could exercise on, so I have to close them early.

    Mar 18, 2013 - 10:52am

    The Golden Butterfly....Does It Have Wings?

    March 18, 2013, 8:21 a.m. EDT

    If Cyprus is the butterfly, is gold the pesticide?

    By Michael A. Gayed

    Developments over the weekend in Europe have been nothing short of stunning. A bailout deal for Cyprus was announced after the close on Friday to help save the country from crisis, and yet it is the very nature of the deal which appears to be causing one.

    As part of a bailout, a percentage of all bank deposits would be confiscated, causing those who had nothing to do with the crisis to directly foot the bill. ATMs stopped working, banks were closed, and money is being blocked from leaving borders.

    This is how bank runs happen. Cyprus itself isn't the issue. The problem is the precedent this sets. If Cyprus deposits in banks are at risk of being taken (even if it is a small percentage), then what's to say all deposits across Europe aren't at risk of the same thing happening? This is the bigger problem — the potential fear depositors in other European countries might soon express, which in turn would then cause renewed stress in the euro zone.

    "What's a butterfly garden without butterflies?"

    Roy Rogers

    Somehow, price was sensing this on Friday. While up until Thursday intermarket trends were moving further away from risk-off mode, some hard changes occurred Friday during the day.

    Our ATAC models used for managing our mutual fund and separate accounts sensed some kind of a minor deflation pulse once again, causing us to rotate out of stocks and into bonds. I made it a point last week to say that such a move could happen if the trade to stocks was a false positive, as such rotations week to week have happened in the past for our inflation rotation strategies.

    The question now is if Cyprus is the butterfly flapping its wings which can cause a hurricane across the region. In nonlinear dynamic systems, small changes can result in big consequences (aka chaos theory). As of now, intermarket trends worsened by enough for us to rotate into bonds, but it is not yet clear if they will deteriorate aggressively again to warrant fear of a correction as they did when I made the case for one (that didn't come) late January.

    The stock market may ultimately not care if Cyprus is the butterfly that brings back the “Gray-Haired Bears” given the pesticide of QE from the Fed. However, I do think caution in risk assets should be taken here. The bulls have the next fat pitch of emerging markets EEM -0.77% bouncing off oversold levels on their side. The bears have potential contagion of a bank run in other countries on theirs

    So what does one do? It seems more clear to me that bonds and gold GLD +0.88% can do well in the weeks ahead. The $85-billion question is if stocks can hold their own. Take a look below at the price ratio of the SPDR Gold Trust ETF relative to the S&P 500 SPY -0.48% . As a reminder, a rising price ratio means the numerator/GLD is outperforming (up more/down less) the denominator/SPY. For a larger chart,visit here.

    Gold relative to stocks has been a poor trade from an opportunity cost standpoint, but with the ratio nearing three-year lows and a relative support level in place, I wonder if Cyprus is the catalyst for a reversal in trend.

    Historically, gold outperforms stocks during deflationary pulses, and this seems to be precisely what may be about to unfold in Europe should deterioration persist internally in the markets and overseas news worsens.

    Ironic that this happens after a historic streak higher in the Dow, isn't it? Ironic how this could make the correction call of late-January with hindsight not wrong, but early, isn't it? Remember folks — the year is long, and there are plenty of opportunities for “Nouveaux Bulls” and Gray-Haired Bears to make money with the right timing.

    And the Gray-Haired Bears may have a butterfly named Cyprus to thank for their return...

    Joe Dokes
    Mar 18, 2013 - 10:52am
    Roger Godberd
    Mar 18, 2013 - 10:56am

    Faust! - Cyprus Heist...coming to a country near you soon

    We are all doomed!

    Agree completely TF. Rule of law no longer exists. They can and will shaft you with impunity.

    6 Myths about Money & Banking – Josh Ryan-Collins

    Antony von Clearwell
    Mar 18, 2013 - 10:58am

    top 10 :)

    top ten. new to the game and already top rank?....

    Prize Fighter
    Mar 18, 2013 - 10:59am

    "Ooooo, that's a bingo!"  Is

    "Ooooo, that's a bingo!"

    Is that how you say it after $28.835 filled?

    "We just say, 'Bingo.'"


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    Key Economic Events Week of 10/14

    10/15 8:30 ET Empire State Fed MI
    10/16 8:30 ET Retail Sales
    10/16 10:00 ET Business Inventories
    10/17 8:30 ET Housing Starts and Bldg Perms
    10/17 8:30 ET Philly Fed MI
    10/17 9:15 ET Cap Ute and Ind Prod
    10/18 10:00 ET LEIII
    10/18 Speeches from Goons Kaplan, George and Chlamydia

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    Key Economic Events Week of 8/19

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