Category Archives: Precious Metals

Get Ready To Party Like It’s 2008

Apparently Treasury Secretary, ex-Goldman Sachs banker Steven Mnuchin, has threatened Congress with stock crash if Congress doesn’t pass a tax reform Bill.  His reason is that the stock market surge since the election was based on the hopes of a big tax cut.  This reminds me of 2008, when then-Treasury Secretary, ex-Goldman Sachs CEO, Henry Paulson, and Fed Chairman, Ben Bernanke, paraded in front of Congress and threatened a complete systemic collapse if Congress didn’t authorize an $800 billion bailout of the biggest banks.

The U.S. financial system is experiencing an asset “bubble” that is unprecedented in history. This is a bubble that has been fueled by an unprecedented amount of Central Bank money printing and credit creation. As you are well aware, the Fed printed more than $4 trillion dollars of currency that was used to buy Treasury bonds and mortgage securities. But it has also enabled an unprecedented amount of credit creation. This credit availability has further fueled the rampant inflation in asset prices – specifically stocks, bonds and housing, the price of which now exceeds the levels seen in 2008 right before the great financial crisis.

However, you might not be aware that Central Banks outside of the U.S. continue printing money that is being used to buy stocks and risky bonds. The Bank of Japan now owns more than 75% of that nation’s stock ETFs. The Swiss National Bank holds over $80 billion worth of U.S. stocks, $17 billion of which were purchased in 2017. The European Central Bank, in addition to buying member country sovereign-issued debt is now buying corporate bonds, some of which are non-investment grade.

The table to the right shows the YTD performance of the US dollar vs. major currencies and the gold price vs major currencies. The dollar has appreciated in value YTD vs. alternative fiat currencies. More than anything, this represents the false sense of “hope” that was engendered by the election of Trump. As you can see from the right side of the table, gold is also up YTD vs every major currency. Note that gold has appreciated the most vs. the U.S. dollar. The performance of gold vs. fiat currencies reflects the fact that Central Banks globally are devaluing their currencies by printing currency and sovereign debt in increasing quantities. The rise vs. the dollar also reflects the expectation that the Fed and the Treasury might be printing even more currency and Treasury debt at some point in the next 6-12 months. This is despite the posturing by the Fed about “reducing” the size of its balance sheet, which is nothing more than scripted rhetoric.

“We have the worst revival of an economy since the Great Depression. And believe me: we’re in a bubble right now.” Donald Trump, from a Presidential campaign speech

Margin debt is at a record high. At $551 billion, it’s double the amount of margin debt outstanding at the peak of the tech bubble in 2000. It’s 45% greater than the amount of margin debt outstanding at the peak of the 2007 bubble.

Stock investors and house-flippers in the U.S. now make investment decisions based on the premise that, no matter what fundamental development or new event occurs, the market will always go up. “It’s different this time” has crept back into the rationale. The markets are particularly dangerous now. The concept of “risk” has been completely removed from investment equation.

This dynamic is the direct result of the money printing and credit creation which has enabled the Fed to keep interest rates near zero. The law economics tells us that increasing the supply of “good” without a corresponding increase in demand for that good results in a falling price. This is why interest rates are near zero. The Fed and the Government have increased the supply of currency via printing and issuing credit. Investors , in turn, are taking that near-zero cost of currency and credit and throwing it recklessly in all assets, but specifically stocks and homes.

Currently, anyone who puts their money into the stock, bond and housing markets in search of making money is doing nothing other than gambling recklessly on the certainty of the outcome of two highly inter-related events: 1) the willingness of Central Banks to continue pushing the price of assets higher with printed money; 2) the continued participation of investors who are willing to pay more than the previous investor to make the same bet. Most asset-price chasing buyers have no idea that they are doing nothing more than sitting at a giant casino table game.

The current bubble has been created by a record level of money printing and debt creation globally. Unfortunately, the upward velocity of rising asset prices has seduced investors to recklessly abandon all notion of risk. Based on several studies on investor cash holdings as a percentage of their overall portfolio (cash on the sidelines), investors are “all-in.” One would have to be brain-dead to not acknowledge that global Central Bank money-printing has caused the current “everything” asset bubble. But it’s a “fear of missing out” that has driven investors to pile blindly into stocks with zero regard for fundamental value. Even pensions funds, according to someone I know who works at a pension fund, have pushed equity allocations to the limit.

For the most part, Central Banks are now posturing as if they are going to stop printing money and, in some cases, “shrink” the size of their balance sheet (i.e. reverse “quantitative easing”). To the extent that the first chart above (SPX futures) reflects a combination of Central Bank money printing and investors going “all-in” on stocks (record low cash levels), IF the Central Banks simply stop printing money and do not shrink their balance sheets, who will be left to buy stocks when the selling begins?  If they do shrink their balance sheets, the central banks will start the selling as they have to sell their holdings in order to shrink their balance sheets.

Goldman Sachs Says Gold Is Better Than Bitcoin

“Precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” analysts including Jeffrey Currie and Michael Hinds wrote. “They are neither a historic accident or a relic.” Looking at properties such as durability and intrinsic value, they are still relevant even with new materials discovered and new assets emerging, such as cryptocurrencies, they said (LINK)

Here’s what blows my mind:  When gold ran from $250 to $1900, the entire western mainstream financial media called it a bubble. Bitcoin has run from $250 to $5500 and price momentum-chasers and the usual hypster con artists exclaim that it’s going to $100,000. Qu’est-ce que c’est, Rudolph Havenstein?

This is typically what a bubble looks like:

NVDA is without a doubt in a parabolic bubble. In a recent Short Seller’s Journal I explained in detail why NVDA’s fundamentals might justify a price closer $30 and provided ideas for shorting NVDA. Short-selling is the market’s method of introducing accountability and price discovery into the valuing assets. The problem with Bitcoin is that it can’t be borrowed and shorted. There’s no mechanism to impose express a bearish view of Bitcoin’s fundamental value.

The Goldman report goes on to say:   Intrinsic value:   There’s a limited supply of gold and other precious metals in the Earth’s crust, whereas in the case of cryptocurrencies, it’s easy to create alternatives, meaning there’s effectively no control over supply at a macroeconomic level and no intrinsic value due to rarity.  Unit of account: Gold is better at holding its purchasing power, and has much lower daily volatility. Bitcoin/dollar volatility has averaged almost seven times that of gold in 2017, the bank said.

All the pro/con-Bitcoin noise aside, without question the Bitcoin chart reflects “bubble-mania.”  Not everyone is “all-in” yet. As with all manias, it will probably become even more manic before someone whispers “fire” and the move toward the exits quickly goes from a brisk walk to a stampede.

But if everyone who has faith is all-in and no one is short, who will be left to buy when flood of sellers are looking for any bid to hit?

Largest Asset Bubble In History – It’s Not Different This Time

The current asset bubble has been created by a record level of money printing and debt creation globally. Unfortunately, the upward velocity of rising asset prices has seduced investors to recklessly abandon all notion of risk. One would have to be brain-dead to not acknowledge that global Central Bank money-printing has caused the current “everything” asset bubble. Current data that tracks the cash and investment allocation levels shows that investors – and this includes hedge funds and pensions, not just retail/high net worth – are “all in.” IF the Central Banks simply stop printing money and do not shrink their balance sheets who will be left to buy stocks when the selling begins?

Silver Doctors invited me onto their weekly money/metals podcast to discuss why the catalysts driving fiat-currency-based paper assets to historical valuations will unwind and will ultimately drive gold to a valuation level higher by several multiples than the current price. Eventually gold will not be measured in terms of dollars and possibly not in terms of any fiat currency:

If you want to find out more about my investment newsletters, click on either of these links:    Mining Stock JournalShort Seller’s Journal.

Raymond James Recommends Gold?

From King World News on October 12th:

With very little in the U.S. stock market looking like a low-risk entry, consider gold as an alternative option. Recall, the metal broke the downtrend that had been in place since 2011 back a couple of months ago, and has now pulled back to that former resistance line. It should now offer some support, and the 40-week moving average also sits around there, further adding to the importance of the zone (see bullish breakout and test of support below). (click to enlarge):

This graphic above from the KWN report is based on chart-reading analysis. I’m not a big “chartist” or “technicals” advocate, but hedge fund algos and day-traders love to chase “technicals” and price velocity – in either direction. To that extent, the completion of chart “formations” can become a self-fulling prophecy.

Having said that, the fundamental support for substantial upside adjustment to the price of gold becomes more compelling the day, not the least of which is an acceleration in the accumulation of physically delivered gold bullion by several eastern hemisphere countries.

I wanted to highlight the call by Raymond James because, interestingly, a couple different advisors from Raymond James subscribed to the Mining Stock Journal yesterday. I was wondering why until I saw the report posted on King World News. If just a small percentage of retail/high net worth investment advisors begin to allocate capitol to the mining stocks, it will trigger a massive move higher in mining stock prices. Currently, relative to the price of gold, the only time in the last 20 years that mining stocks have been more undervalued was in December 2015.

Sprott (the firm) is currently recommending that its clients invest in an emerging junior exploration gold mining company.  I recommended this particular stock to Mining Stock Journal subscribers in April about 25% below its current price.  I’m chatting with the CEO today and will be updating my outlook for this stock in next Thursday’s issue.  I will also be featuring the stock of a mid-cap mining stock that I think has 30-50% upside by the end of the year if the price of gold continues to move higher as I believe it will.

On average and in general,  since the inception of MSJ, I have been able to dig up junior mining stock investment ideas before the big firms discover, promote and channel client money into them.  I am starting to feature mid-cap miners with stocks that have been unreasonably beaten down in price this year because those are “low hanging fruit” risk/return plays in which 25-50% can be made in a short period of time.  I recommended call options on SA (Seabridge Gold) in the 9/21/17 issue that are up 300% since then.

You can find out more information by clicking on here:  Mining Stock Journal information.

Trading And Investing In Gold: Follow The Money

The paper gold attack that I first suggested might occur in the September 7th issue has taken gold from $1360 down to $1270 (continuous contract basis). Technically, gold has moved from an “overbought” condition to a mildly “oversold” condition. The RSI and MACD indicate that gold is slightly “oversold” but I believe both indicators will flash “extremely oversold” before this price attack over. This should occur sometime in the next 2-3 weeks.

I say this because I continue to believe the open interest in Comex paper gold, combined with the analyzing the weekly Commitment of Traders report, is the best indicator of gold’s next move, at least until the western Central Banks are unable to control the price of gold with paper derivatives. To be sure, the COT report is not always a perfect predictor but in the last 15 years the two reports combined have been around 90% accurate.

Currently, the Comex banks’ net short position in paper gold is at the high end of its historical range. Concomitantly, the net long position of the hedge funds is also at the high end of its historical range. Per last Friday’s COT report, the banks began to reduce the short positions, thereby reducing their net short position, and the hedge funds began to reduce the long positions, thereby reducing their net short position (click to enlarge):

The graphic above is from the CFTC’s weekly COT report for all commodities. I’ve referenced the COT report quite a bit so I thought I’d put some “meat” on the bones. The report was published Friday (Sept 29th) but the cut-off day for the data used is the Tuesday before last Friday (Sept 26th). Unfortunately, by the time we, the public, can see the data it’s three days old. By the time we can try to trade on it (the following Monday) it’s four days old. This is unfortunate and the CFTC could force a daily disclosure of the data, which would be ideal, but since when does the Government do anything for the benefit of the public? Having said that, we can still get a feel for then general “flow” of positioning in gold futures by the various trading cohorts. Note: though the CFTC publishes the COT report, the actual data comes from the banks who operate and manage the Comex trading floor and computer systems.

I’ve highlighted the data that is important to me. The reportable positions are the “producer/hedgers,” “swap dealers,” “managed money,” “other reportables” and “non-reportable.” The latter two are large money pools that are not hedge funds or mutual funds and retail traders, respectively. They are not a factor in the analysis except to the extent that it is thought, though unprovable, that the banks throw some of their positions into the “other reportables” category to hide them.

The bank positions are primarily in the “swap dealer” account but they also throw their trades into the producer/hedge category. It’s impossible to know how much without having access to the systems. The “managed money” is primarily hedge funds. On the left side is the open interest (o/i) number. You can see at the bottom the o/i declined by 20.4k contracts from the previous Tuesday. It had peaked a couple weeks earlier around the 580k level, if memory serves me correctly. [As of Tues,  Oct 10th, the o/i was 520k]

The bottom row data shows the change in the various positions from the previous week’s report. You can see that the swap dealers covered 14.5k worth of shorts and added 4.9k of longs. The producer/hedgers were net unchanged in terms of net position but still extremely net short. The hedge funds (managed money) sold over 32k of long positions and added 4.8k to their short position, effectively dropping their net long position by 36.8k contracts.

Note: The spread positions (“spreading”) are not important to this analysis. They represent a trade in which one side of the trade might be short October gold contracts and offsets it with a long position in December gold, for instance. This would be a “hedged” bullish trade because the entity with that position is expecting the price of gold to rise by December but wants to hedge out risk factors that might take the price of gold lower between now and then. There’s no way to know how the spread trades are positioned without access to the Comex systems.

You’ll note, based on the change in relative positions, it appears as if the banks have started to cover their shorts and add to longs, thereby decreasing their net short position. Similarly, the hedge funds did the opposite, thereby reducing their net long position from the previous week. The open interest as of this past Wednesday (published daily) was 522k contracts. This is 27k contracts lower than the o/i when the report was put together a week ago Tuesday. The o/i appears to be trending lower, which historically has indicated that the banks are collapsing their net short position and the hedge funds are collapsing their net long. We’ll know if this trend continued on Friday afternoon, when the next COT report is released.

If this trend continues, it indicates that we’re getting closer to a bottom and the next move higher. I’d like to see the open interest on the Comex decline by about another 100k contracts. This might take 3 or 4 weeks. We could also see some short-lived spikes down in price before this over. Typically what has been occurring over the last 3 years or so is that, as the hedge funds dump longs and add to shorts, the hedge fund computer algos overreact to the downside price momentum and begin to “flatten out” the hedge fund net position by rapidly unloading longs and piling into the short side. A couple times over the past few years the hedge funds have been net short for a week or two. This always has preceded a big rally in gold.

I don’t know if it will play out like that this time around. Currently the mining shares are “grudgingly” giving up ground. Often, though not always, that trading behavior in the shares indicates that a bottom is forming. Again, I don’t know if that will be the case and I’m braced for one more nerve-wracking move down to the $1250-$1260 area. We still have a hedge in our stock portfolio via owning in-the-money calls on JDST. We’ll probably remove that hedge sometime in the next week or two.

Although we might be in a for a bumpy ride over the next couple of weeks (then again, we might not be), the mining stocks, expecially the juniors, are setting up for big move after gold (and silver) bottoms out and heads higher.

The graph above (click to enlarge) is a 1-yr daily of GDX. From its bottom in December through Thursday’s close, GDX is up 21%. You can see in the chart the slope of the trendline I drew steepened slightly in mid-July. I still think we could see a short-term drop in GDX below the 200 dma (red line) but I would use this as an opportunity to add to positions.

The one factor that could derail the ability of the banks to engineer more downside to the gold price is China’s return to the market starting Sunday night. China has been closed down this past week in observance of a national holiday, which means their presence as a large buyer of physical gold has been absent. Quite frankly, I expected a bigger take-down of the gold price in China’s absence. The inability to do this may have been offset by India’s continued demand for gold, both through official avenues of import and smuggling. The gold flowing duty-free into India from South Korea has been curtailed but Indonesia, which is party to the same free trade agreement, has stepped in to fill the void. Just this past week, import premiums were high enough to indicate that legal importation of kilo bars also resumed.

One last note, some of you may have seen the report that Russia’s Central Bank has become the world’s largest official buyer of gold (“official” meaning Central Bank/sovereign). I would argue that China does not fully disclose the extent to which the PBoC is accumulating gold (for instance, it’s thought that the PBoC buys most if not all of the 400+ tonnes of gold produced by China’s mines. That said, both the Russian and Chinese Central Banks combined are accumulating an enormous quantity of gold. I would suggest they are doing this a precursor to re-introducing gold into the global monetary system.  In other words, follow the money.

The above commentary is from the latest issue of the Mining Stock Journal.  In that issue I reviewed several of the previous stock ideas, many of which have doubled in the last 52 weeks, and presented a high quality mid-cap producer silver mining stock as shorter term trade idea that I think could be good for at least 25% through year-end.  You can learn more about the MSJ here:  Mining Stock Journal subscription information.   All back-issues are included with your subscription.

GATA: Those Who Deny Gold / Silver Manipulation Won’t Answer Basic Questions

IRD Note:  For nearly two decades, GATA has seized on Frank Veneroso’s original research which provided first-hand evidence that Central Banks were actively operating to suppress the gold and has presented direct evidence of precious metals manipulation.  Beyond this, there are public admissions from Henry Kissinger and Alan Greenspan acknowledging this fact.   Unfortunately, those who deny that gold/silver are manipulated have never offered any response to the direct proof that Central Banks intervene directly in gold trading.  The article below presenting just the facts was published by GATA.

Newsletter writer Steve Saville of The Speculative Investor, who long has denied that manipulation of the monetary metals markets means much, has seized on the recent essay by Keith Weiner of Monetary Metals as the conclusive refutation of silver market analyst Ted Butler’s longstanding complaint that JPMorganChase has been rigging the silver market.

Weiner’s analysis, headlined “Thoughtful Disagreement with Ted Butler” and posted here – LINK – argued that JPMorganChase is undertaking only ordinary arbitrage in the silver market, exploiting spreads between bid and ask prices.

Saville, in commentary headlined “A Silver Price-Suppression Theory Gets Debunked” – LINK – cheers Weiner’s essay and goes on to remark: “Entering a debate with someone who is incapable of being swayed by evidence that invalidates his position is a waste of time and energy, so these days I devote no commentary space and minimal blog space to debunking the manipulation-centric gold and silver articles that regularly appear.”

But when has Saville himself ever addressed evidence of manipulation of the gold and silver markets? Of course if he declines to address the evidence, he too can’t be swayed by it. The manipulation deniers never address the evidence. [IRD note: this is similar to Hilary Clinton never denying the allegations of corruption – instead she deflected the issue using the scare tactic of blaming the Russians for making the evidence public]

Weiner’s technical analysis is no refutation of silver market manipulation, for even if JPMorganChase is just doing arbitrage in silver, a judgment on manipulation would require knowing for whom the investment house was doing the arbitrage. JPMorganChase’s former chief of commodity operations, Blythe Masters, said on CNBC five years ago that the investment house had no position of its own in silver and was trading only for clients:  LINK

So might those clients include governments and central banks, entities with nearly infinite resources sufficient to nullify markets?
The question is compelling because filings with the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission by CME Group, operator of the major futures exchanges in the United States, assert that governments and central banks are clients of the exchanges and that the exchanges give them special volume trading discounts for trading all futures contracts, not just financial futures contracts: HERE and HERE

Do Weiner and Saville know that JPMorganChase is not trading silver futures for governments and central banks? Do Weiner and Saville know that governments and central banks are not trading gold and gold derivatives surreptitiously? If Weiner and Saville think they know, they’re wrong, for the Bank for International Settlements admits that it operates as a broker in gold and gold derivatives for its member central banks: BIS admission

Indeed, in 2005 the director of the BIS’ monetary and economic department, William R. White, told a conference at BIS headquarters in Basel, Switzerland, that a primary purpose of international central bank cooperation is “the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful“: LINK

The BIS even advertises that its services to its member central banks include surreptitious interventions in the gold market: LINK

Anyone who wants to engage in honest argument about gold and silver market manipulation needs to address a few simple questions:

1) Are governments and central banks active in the monetary metals markets or not?
2) Are the documents asserting such activity genuine or forgeries?
3) If governments and central banks are active in the monetary metals markets, is it just for fun or is it for policy purposes?
4) If such activity by governments and central banks is for policy purposes, do those purposes involve the traditional objectives of defeating an independent world currency that competes with government currencies and interferes with government control of interest rates, objectives documented at length by GATA here?: LINK

Of course if largely surreptitious intervention in the monetary metals markets by central banks and governments is ever acknowledged, technical analysis of those markets is meaningless, which may explain why technical analysts like Weiner and Saville avoid the crucial questions and just sneer at those who raise them.

Is The World About To Take A “Gold Shower?”

The 1944 Bretton Woods international monetary system as it has developed to the present is become, honestly said, the greatest hindrance to world peace and prosperity. Now China, increasingly backed by Russia—the two great Eurasian nations—are taking decisive steps to create a very viable alternative to the tyranny of the US dollar over the world trade and finance. Wall Street and Washington are not amused, but they are powerless to stop it…Now, ironically, two of the foreign economies that allowed the dollar an artificial life extension beyond 1989—Russia and China—are carefully unveiling that most feared alternative, a viable, gold-backed international currency and potentially, several similar currencies that can displace the unjust hegemonic role of the dollar today.

The above is an excerpt from William Engdahl’s essay, “Gold, Oil, Dollars, Russia and China.” The essay is a must-read if you want to understand how the dollar was cleverly forced on the world as the reserve currency and how it is about to be cleverly removed and replaced with a trade system that reintroduces gold into the global monetary system.

Unfortunately, the U.S. educational system presents a fraudulent account of world financial and economic history from Bretton Woods to present.  Fed on a steady educational diet of U.S. propaganda, anyone raised and educated in the U.S. will wake up one day to an economic cold shower and eventual poverty unless they’ve taken the steps necessary to protect their savings (if they have any).

Let’s face it, the entire western monetary system is basically a fraud. It is privately made and privately owned, with the entire international payment system being controlled by the FED – which is totally privately owned – and the BIS (Bank for International Settlement, in Basle, Switzerland – also called the central bank of centrals banks).from an interview with Peter Koenig, geopolitical analyst and a former staff-member of the World Bank

Without a doubt, the Russia-China led BRICS axis is working toward a “reset” of the U.S.-centric dollar reserve global currency system: “Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

That quote was delivered by Putin at the annual BRICS summit in Xiamen, China.  I don’t know how Putin could have more plainly, yet diplomatically,  laid out the inevitable demise of the dollar’s status as the world’s sole reserve currency.

The news report from the Nikkei Asian Review of a gold-backed yuan oil futures contract to be traded in Shanghai was treated with predictable skepticism from the those who require an event to have already occurred in order to “see it.”

That report surfaced shortly after the BRICS summit in China.  I suspect China intentionally has made the world aware of its plan to roll out this contract eventually well ahead of the actual event.  China is imminently launching a yuan-denominated crude oil contract on the Shanghai Futures Exchange.  Please note, for anyone skeptical of this event, that  the announcement came from the vice chairman of the China Securities Regulatory Commission.  I suspect that once this contract is trading smoothly with a high level of liquidity, the next logical step would be to enable the users of this contract  to convert the yuan received for oil into gold.  The gold-backing would be an incentive “sweetener” to use this contract instead of dollar-settled futures contracts.

A gold-backed, yuan-denominated oil futures contract makes sense certainly from the perspective that Russia and China are already settling Russian energy sales to China in yuan.  They have also set up a mechanism by which Russia can convert the yuan received into gold.  Furthermore, the Central Banks of Russia and China combined, are  by far, the two largest buyers of gold in the world.  Why else would Russia/China accumulate a massive Central Bank gold reserve other than to eventually reintroduce gold as a currency stabilizer and a trade settlement “equalizer”  into the global monetary ?

Introduction of an oil futures contract traded in Shanghai in Yuan, which recently gained membership in the select IMF SDR group of currencies, oil futures especially when convertible into gold, could change the geopolitical balance of power dramatically away from the Atlantic world to Eurasia. – William Engdahl, ibid.

The consequences for America as a whole will be catastrophic. Currently the parabolic issuance of U.S. Treasury debt is funded primarily by a recycling of dollars used to settle the majority of global oil trades. Once a dollar-alternative for settling oil trades is established, the amount of dollars available to finance U.S. debt-fueled consumption will rapidly decline. But it’s the ability of the U.S. to issue debt unfettered right now that keeps the U.S. economic system from collapsing. The Fed’s printing press will be the only alternative to immediate collapse. History has shown us what the end of that pathway looks like. It’s far worse than waking up and stepping into an ice-cold shower.

The Daily Coin has published a fascinating interview with William Engdahl:   Gold, China and The Deep State.

Former FOMC Member Admits The Fed Manipulates Asset Prices

The Fed often treats financial markets as a beast to be tamed, a cub to be coddled, or a market to be manipulated. It appears in thrall to financial markets, and financial markets are in thrall to the Fed, but only one will get the last word. – Former FOMC member, Kevin Warsh – The Fed Needs New Thinking

Please note, a large portion of the source links, plus the idea for this commentary, were sourced from GATA’s latest dispatch regarding the possible appointment of Warsh as the next Fed Chairman.

The quote above is from former FOMC board member,  Kevin Warsh, who appears to be Trump’s top candidate to assume the Fed’s mantle of manipulation from Janet Yellen.   By way of relevant reference, Warsh happens to be the son-in-law of Ronald Lauder,  who is a good friend of Trump’s.  He is also a former Steering Committee member of the Bilderberg Group.    GATA has published a summary reprise of direct evidence from previous written admissions by Warsh the the Fed actively manages financial asset prices, “including bolstering the share price of public companies” (from link above).

In addition to stocks, Warsh admitted in the same essay that, “The Fed seeks to fix interest rates and control foreign-exchange rates simultaneously” (same link above). This task is impossible without suppressing the price of gold, something which began in earnest in 1974 when, under the direction of then Secretary of State, Henry Kissinger, paper gold futures contracts were introduced to the U.S. capital markets. This memo, written by the Deputy assistant Secretary of State for International Finance and Development, was sent to Kissinger and Paul Volcker in March 1974: Gold and the Monetary System:  Potential U.S.-EC Conflict (note:  the source-link is from GATA – it was discovered in the State Department archives by Goldmoney’s John Butler).

The nature of discussions after that memo, the minutes of which are now publicly available, center around the fact that several European Governments were interested in re-introducing gold into the global monetary system.  This movement was in direct conflict with the interests of U.S. elitists and banking aristocrats, as U.S. had successfully established  the petro-dollar as the reserve currency.

In 2009 GATA sent a Freedom Of Information Act request to the Fed in an attempt to get access to documents involving the Fed’s use of gold swaps (this letter written by Warsh confirms the existence of the use of gold swaps).  Warsh, who was the FOMC’s “liaison” between the Fed and Wall Street, wrote a letter back to GATA denying the request.

The fact that Warsh has openly acknowledged that the Fed manipulates assets, including an implicit admission that the Fed seeks to suppress the price of gold,  might give some in the gold community some hope that Warsh, if appointed to the Chair of the Fed, might reign in the Fed’s over interference in the financial markets.

On the contrary, I believe this makes him a bigger threat to democracy, capitalism and freedom than any of his recent predecessors.  Warsh is better “pedigree’d” and politically connected than either Bernanke or Yellen.  His high level involvement in the Bilderberg Group ties him directly to the individual aristocrats who are considered to be the most financially and politically powerful in the western world.    Without a doubt he has far more profound understanding of the significance of gold as a monetary asset than any modern Federal Reserve FOMC member except, perhaps, Alan Greenspan.

The good news for the gold investing community is that it becomes increasingly evident that China, together with Russia and several other eastern bloc countries, is working to remove the dollar as the reserve currency and reintroduce gold into the global monetary system.  A contact and subscriber to my Mining Stock Journal who happens to live and work in Shanghai has sent further evidence  (and here) that China is working toward launching a gold-backed yuan oil futures contract.

This will be a complete game-changer.  It’s also likely why the western Central Banks have doubled their efforts to keep the price of suppressed over the last 6  weeks.   My contact believes there’s a possibility that the contract will be rolled out after Xi is “re-elected” toward the end of October (the Party Congress convenes after the week-long National Holiday observance).

My personal view is that China will work more gradually to roll out a futures contract that effectively “disconnects” the petro-dollar and the dollar’s reserve status in order to minimize the adverse, albeit temporary, consequences of this.  The first iteration could be a simple yuan-denominated contract to get the system working.  The foremost consequence of this, of course, will be the massive transfer of wealth and power from the United States and its European vassal countries to the emerging global power in the eastern hemisphere.

Can The Fed “Normalize” Without Collapsing The System?

The official lies about the economy keep mounting.  The Dallas Fed reports that its regional economic activity metric surged in early September, despite the complete shut-down of Houston for a few days during the “measurement” period.  The “general activity” index spiked up to a 7-month high. Clearly the quality of this report is suspect, to say the least.

Contrary to this report, the Chicago Fed’s National Activity Index plunged to -0.31.  It was the weakest reading since last August and a huge plunged from the July reading of 0.03. The Street was expecting 0.11.  Because of the nature of this index (85 sub-components measured at the national level) it takes a lot to “move the needle” for this metric.  A negative point-three-one reading implies that the national economy broadly contracted during August.

Clearly the Dallas Fed propaganda was intended to reinforce the Fed’s empty threat to raise interest rates and “normalize” its balance sheet .  Silver Doctors invited me onto their Friday weekly market podcast to discuss the latest propaganda that spewed forth from the Fed’s FOMC meeting earlier in the week, the western Central Banks’ losing battle to push the price of gold lower and the continuing deterioration in the U.S. political and economic system:

The precious metals is in the early stages of another bull market run, like the one that occurred from 2001-2011. This one is being driven by the China-led movement to remove the dollar as the world’s reserve currency and replace with a currency that will incorporate incorporating gold back into the monetary system. The Mining Stock Journal is a bi-weekly newsletter that will help you get invested ahead of the next huge capital flow into the precious metals sector. To find more, click here:  Mining Stock Journal

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Why Is The BIS Flooding The System With Gold?

A consultant to GATA (Gold Anti-Trust Action Committee) brought to our attention the fact that gold swaps at the BIS have soared from zero in March 2016 to almost 500 tonnes by August 2017 (GATA – BIS Gold Swaps). The outstanding balance is now higher than it was in 2011, leading up to the violent systematically manipulated take-down of the gold price starting in September 2011 (silver was attacked starting in April 2011).

The report stimulated my curiosity because most bloggers reference the BIS or articles about the BIS gold market activity without actually perusing through BIS financial statements and the accompanying footnotes.  Gold swaps work similarly to Fed repo transactions.  When banks need cash liquidity, the Fed extends short term loans to the banks and receives Treasuries as collateral.  QE can be seen as a multi-trillion dollar Permanent Repo operation that involved outright money printing.

Similarly, if the bullion banks (HSBC, JP Morgan, Citigroup, Barclays, etc) need access to a supply of gold, the BIS will “swap” gold for cash.   This would involve BIS or BIS Central Bank member gold which is loaned out to the banks and the banks deposit cash as collateral to against the gold “loan.”   This operation is benignly called a “gold swap.”  The purpose would be to alleviate a short term scarcity of gold in London and put gold into the hands of the bullion banks that can be delivered into the eastern hemisphere countries who are importing large quantities of gold (gold swaps outstanding are referenced beginning in 2010).

I wanted dig into the BIS financials and add some evidence from the GATA consultant’s assertions because, since 2009, there has been a curious inverse correlation between the amount of outstanding gold swaps held by the BIS and the price of gold (as the amount of swaps increase, the price of gold declines).   You’ll note that in the 2009 BIS Annual Report, there is no reference to gold swaps so we must assume the amount outstanding was zero. By 2011 the amount was 409 tonnes.

The gold swaps enable the BIS to “release” physical gold into the banking system which can then be used to help the Central Banks manipulate the price of gold lower.   This explains the jump in BIS gold swaps between March 2016 and March 2017 and the drop in the price of gold from August 2016 until early July 2017.  It also explains the rise in the price of gold between July and September this year, which correlates with a decline in the outstanding gold swaps between April and July .  Finally, the hit on gold that began earlier this month coincides with a sudden jump in BIS gold swaps in the month of August. (Note: there would be a short time-lag between the gold swap operation and the amount of time it takes to “mobilize” the physical gold)

The graphic below shows the increase in gold swaps from March 2016 to March 2017:

As you can see, the total amount of the gold loans outstanding increased by 14.1 billion SDRs (note: the BIS expresses its financials in SDRs). The accompanying note explains that most of this gold loan is comprised of an increase in the BIS’ gold swap contracts outstanding.

I find it interesting that the reports of gold backwardation in London (see James Turk’s interviews on King World News) and the backwardation I have observed between the current-month (delivery month) Comex gold contract and the London gold fixings over the past several months  correlates well with the sudden jump in gold swap activity at the BIS.

Backwardation in any commodity market indicates that the demand for delivery of the underlying commodity is greater than the near-term supply of that commodity.  It’s hard to ignore that the backwardation observed on the LBMA and with Comex gold delivery-month contracts has been accompanied by soaring gold demand from India, as reported by the Economic Times of India (article link):  Gold Imports Jump Three-Fold in April-August.

Furthermore, it appears as if the BIS gold swap activity continued to increase between March 2017 and August 2017, as the BIS’s August Account Statement  shows another 2.2 billion SDR increase in amount of outstanding gold loans (a BIS monthly account statement only reports the balance sheet with no accompanying disclosure). These loans primarily are swaps,  per the disclosure in the 2017 Annual Report.

However, this jump in gold swaps between March and August is somewhat misleading. The outstanding amount of loans declined from 27.2 billion SDRs at the end of March to 24.6 billion SDRs at the end of July.   The price of gold rose over 11% between July and early September.   By the end of August, the BIS balance sheet shows 29.3 billion SDRs.  A jump of 4.7 billion SDRs worth of gold swaps.

It was around April that the World Gold Council began to forecast that India’s gold importation would drop to 95 tonnes per quarter starting in Q2.  As it turns out, India imported 248 tonnes of gold in Q2 2017.  This number does not include smuggled gold. Please note the curious correlation between the jump in BIS gold swap activity at the end of the summer and the unexpected surge in Indian gold imports.

In my view, there is a direct correlation between this sudden leap in the amount of gold swaps conducted by the BIS between July and August and the price attack on gold that began two weeks ago.   The gold swaps provide bullion bar “liquidity” to the bullion banks who can use them to deliver into the rising demand for deliveries from India, China, Turkey, et al.  This in turn relieves the strength and size of “bid” on the LBMA for physical gold which in turn makes it easier for the same bullion banks to attack the price of gold on the Comex using paper gold.  This explains the current manipulated take-down in the price of gold despite the rising seasonal demand from India and China.