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Fed changed nothing but gold was smashed anyway — Any questions?

Are the central banks so scared by accelerating inflation that they have to take down the gold price and dismantle gold as an inflation barometer so as to temporarily fool the market? Or do the central banks know that further market turmoil is imminent and need to take down the gold price so that when the gold price then rises, it will be from a lower level?   – Ronan Manly, Bullion Star

The U.S. dollar index, our friend Dave Kranzler of Investment Research Dynamics writes today, “is back to where it was right before Federal Reserve Chairman Jerome Powell’s press conference yesterday. When Powell said ‘maybe in November we’ll have a taper schedule,’ the dollar shot up and paper gold was slammed. With the dollar back down to its pre-presser level today, gold is still down $36.” Indeed, yesterday the Fed essentially said that it isn’t “tapering” its bond purchases yet, though it might (or might not) do so soon, nor is it raising interest rates, though it might (or might not) do so some time next year.

That is, the Fed offered only a lot of temporizing for the umpteeth time.

But what if the Fed did begin “tapering”? Presumably that would diminish demand for bonds, weakening their prices and making other assets, even gold, more attractive. As for interest rates, real rates are already deeply negative as inflation increases and traditionally gold has risen in price even as interest rates rise when they lag inflation so much. So gold’s latest counterintuitive performance might raise questions about what is going on, and particularly about official but surreptitious intervention in the market.

People in the gold industry might ask certain agencies about the frequent anomalies involving the gold price — agencies like the Fed, U.S. Treasury, U.S. Commodity Futures Trading Commission, the Bank of England, and the Bank for International Settlements, as GATA often has done:

https://www.gata.org/node/21371

But the gold mining industry and the World Gold Council always refuse to ask about intervention, and it must be assumed that, at least for the time being, adversaries of the United States that long have taken a strong interest in gold — particularly China and Russia — are going along with price suppression, in spite of or maybe even because of the gradual implementation of the “Basel 3” banking regulations that seem likely to reduce the gold derivatives positions of bullion banks.

Gold and gold mining investors who would prefer not to wait for central banks to decide the fate of gold can always ask the companies in which they have invested, their elected officials, their investment houses, and news organizations to pursue the market manipulation issue. GATA has made it easy, compiling the major documentation here:

https://gata.org/node/20925

Of course most of the important participants in the markets and news media have been bought off. But even then you can embarrass them with the documents.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

With Inflation Raging, Why Is Gold Not Moving Higher?

The gold price ran from $1,265 at the beginning of May 2019 to $2,089 in early August 2020.  That’s a 65% move 15 months.  Over that period of time gold outperformed every financial asset class. To some extent, the move was anticipating the price inflation that’s occurring now which resulted from the devaluation of the U.S. dollar with the Fed more than doubling the size of its balance sheet since March 2020.  Since August the price pulled back technically from an overbought condition and a stampede of fast money speculators chasing the price higher. It looks like it may have bottomed out from the 13 month correction and is getting ready to make another big bull move.

But you can’t have conversation about where the gold price is and where it should be without discussing the official effort to prevent gold from serving its role as the canary in a coal mine with respect to the failure of the Fed’s monetary policy and the Government’s failing fiscal and geopolitical policies.

Kai Hoffman of Soar Financial invited me on to his podcast to discuss the precious metals sector and the potential for a Fed taper. I also named a few mining stocks that I like right now:

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The mining stocks are once again historically cheap.  At some point this year I will be raising the subscription price, though existing subscribers will be grandfathered at the current monthly rate.   If you would like some ideas for investing in mining stocks, take a look at my  Mining Stock Journal.

Money Printing, Inflation, Gold And Silver

It’s my predilection to believe that the Fed not only will not taper but will eventually be forced to increase the amount of money it is printing, I believe we’ll see the mining stocks outperform the general stock market by a wide margin over the next 12 months. Adding fuel to this will be the market’s realization that not only is inflation not “transitory” but that it’s getting a lot worse.

Patrick at SBTV (and silverbullion.com) invited me back on to his podcast to discuss the Fed, inflation, the financial system and gold (recorded September 2nd):

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Some smaller cap/mid-cap producing mining stocks have been sold down levels from which I believe they will double or triple (or more) in the next bull move in the sector. One of the companies I cover and recommend in my Mining Stock Journal is throwing off close to 9% free cash flow yield. That is the definition of value stock.  Many of the junior exploration/development companies I cover, recommend and invest in have the potential to 5-10 baggers from their current down-trodden level. You can learn more about my newsletter here:  Mining Stock Journal information.  I do not take compensation of any type from mining companies and I have been doing my own research in the sector for over 20 years.

A Taper Is Likely Off The Table – Gold, Silver and Mining Stocks Are Ready To Rumble

The chart above shows the gold/HUI ratio going back to 2001. I would have used GDX but I wanted to take the graph back to beginning of the precious metals bull market and GDX didn’t start trading until May 2006. It’s not perfect, but in general when the ratio is below the horizontal red line, mining stocks are expensive relative to gold – note the big selloff in the HUI (bottom panel) in early 2009 – and the miners underperform gold. When the ratio is above the green line, gold is expensive relative to the miners and the miners will at some point outperform gold. The chart tells me that mining stocks are cheap right now.

This chart shows the XAU/SPX ratio going back to 1973:

It shows the degree to which the mining stocks are undervalued relative to the general stock market. The mining stocks are almost as cheap as they were in 2001 (when I started the HUI was trading at 45). This doesn’t mean that they can’t get even cheaper – something that could happen if/when a stock market “accident” hits. This is why I have been trying to emphasize the importance of keeping a lot of cash on hand in case that “accident” happens. There’s no need to try timing a bottom. If we can capture the middle 60-70% of the next move higher, we’ll make multiples of what we have invested now in mining stocks.

Another indicator that the precious metals sector may be starting to form a bottom is the Commitment of Traders report (as of August 10th, published August 13th):

The graphic above is from the August 13th COT report which shows Comex trader categories for paper silver through August 10th. Both commercial segments (producer/hedger and banks) have been reducing their net short position in silver futures. At the end of January this year the net short position for the swap dealers was 21k contracts. At the same time, the hedge funds (managed money) segment has started to reduce its net long position aggressively and pile into the short side.  The most recent COT report from last Friday showed the banks (swap dealers) were net short less than 400 contracts. Based on the change in the open interest in silver contracts (published daily) I would not be surprised to the see banks net long silver – in fact, I expect it. I also expect to see that the hedge funds have further reduced its net long position.

Historically when this pattern has occurred, the precious metals market has bottomed and began a move higher within a couple of months. The next COT report comes out tomorrow (Friday, August 20th). Based on the changes in the daily open interest reports since August 10th, I would not be surprised if the banks are net long silver contracts. The last time I can recall that this happened was in the fall of 2015. The precious metals sector bottomed from the 4 1/2-year bear cycle at the end of 2015.  I’m not saying it’s definitive that the pattern will repeat. But I believe, in conjunction with other indicators, that there’s a decent probability the precious metals sector could begin move higher this fall, absent a stock market accident.

Ultimately I think the precious metals sector is setting up for an eventual big reversal. It may have started today now that the employment report has confirmed my view that the economy is rapidly slowing down, which will take discussions of a Fed taper off the table (not that believed the Fed was going to taper anyway).  The mining stocks have been ruthlessly sold off over the last four months. However, since the sector decline began in August 2020, GDX managed to hold a double-bottom just above the first bottom it hit in March, which it traded down to its lowest level since June 2020. This has not been noticed by mining stock analysts but technically it is important. 

The commentary above is from the August 19th Mining Stock Journal. Some smaller cap/mid-cap producing mining stocks have been sold down levels from which I believe they will double or triple (or more) in the next bull move in the sector. One of the companies I cover and recommend in my Mining Stock Journal is throwing of close to 9% free cash flow yield. That is the definition of value stock.  Many of the junior exploration/development companies I cover, recommend and invest in have the potential to 5-10 baggers from their current down-trodden level. You can learn more about my newsletter here:  Mining Stock Journal information.  I do not take compensation of any type from mining companies and I have been doing my own research in the sector for over 20 years.

What Is The Fed Hiding? A Hidden Bailout Of The Banks?

Wall Street on Parade has discovered that three of the Fed’s programs used to monetize bad assets on the big Wall Street Bank balance sheets have been removed from the Fed’s monthly reports to Congress. The programs were legacy bailout facilities from the 2008 bailout program that had been resurrected in March 2020: the Primary Dealer Credit Facility (PDCF); the Commercial Paper Funding Facility (CPFF); and the Money Market Mutual Fund Liquidity Facility (MMLF). The transaction details no longer available to Congress and the public include the names of the recipients and the dollar amounts received.

Coincidentally, I was discussing with a colleague just last week the fact that, despite the fact that a large portion of commercial real estate loans outstanding are non-performing, we never hear about the fallout from this. It’s my belief that the Fed is monetizing TBTF bank exposure to distressed CRE assets, which include $100’s of billions in gross exposure via credit default swaps. Per the latest OCC quarterly report on bank trading and derivatives activity, the notional value of credit derivatives at the end of March at the top 25 commercial banks was $3.36 trillion. The notional amount of all derivatives (central cleared and OTC) was $189 trillion, most of which are OTC (not centrally cleared and therefore much higher risk).

As Wall Street on Parade points out, much of what the Fed does is hidden from public oversight. A report from the GAO in 2011 revealed that:

“The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression…”

As WSoP also discovered, a follow-up report from a private organization showed the total bailout from 2008 was $29 trillion.

The amount of money printed by the Fed and handed to the banks is just part of the Fed’s great hyperinflationary bank bailout policies. With the removal of three key bailout programs from public purview, its likely that the Fed’s clandestine monetization of distressed bank assets is about to go into over-drive – 2008-2010 on steriods. Is this what the Fed wants to hide?

It’s worth reading the entire report from WSoP: Three of the Fed’s Wall Street Bailout Programs Vanish from Its Monthly Reports to Congress

Jay Powell And The Horses Ass

“The concept of transitory is really this: it is that, uh, the increases will happen. We’re not saying they will reverse. That’s not what transitory means. It means that the increases in prices will happen, so there will be inflation, but that the process of inflation, uh, will stop so that, so that there won’t be furth- uhn fur-.. When we, when we think of inflation we really think of inflation going up year up year upon year upon year – that’s inflation. When you have inflation for 12 months, or whatever it might be, I’m just taking an example, I’m not making a estimate, then you have a price increase, but you don’t have an inflation process. And so, uh, part of that just is, uh, if it doesn’t affect longer term inflation expectations then it’s very likely not to infect, eh to, to affect the process of inflation going forward. So what what what I mean by transitory is just something that doesn’t leave a permanent mark on the inflation process. Again, we don’t mean, I don’t mean, that, that, that, that, you know, producers are gonna take those price increases back – that’s, that’s not the idea. It’s just that they won’t go on indefinitely.

So, to the extent people are, are, are implementing price increases because raw materials are going up, or labor costs, or something’s going up, um, uh, you know, the question really for inflation really is ‘Does that mean they are going to up the next year by the same amount, so you’re gonna be in a process where inflation, the inflation process, gets going?’ And that happens because people’s expectations about future, uh, inflation mo-, move up. And we don’t think that’s happening, there’s no evidence that it’s happening, all the evidence is that it’s not happening, but, nonetheless, we have to watch this very carefully because this is, you know, uh uh, we have two mandates: maximum employment and price stability: price stability for us means inflation averaging two percent over time, and so, we’ve gotta be very careful about that”. – Jay Powell explaining “transitory” inflation, verbatim from the transcript of the post-FOMC press conference (courtesy of James Anderson, SD Bullion, @jameshenryand)

Is The Fed Bracing For Impact? Got Gold (And Silver?)

“The concept of transitory is really this: it is that, uh, the increases will happen. We’re not saying they will reverse. That’s not what transitory means. It means that the increases in prices will happen, so there will be inflation, but that the process of inflation, uh, will stop so that, so that there won’t be furth- uhn fur-..” – Jay Powell, verbatim, on inflation at the last post-FOMC meeting press conference

Wall Street on Parade read through the Fed’s Annual Report for 2020 and discovered a direct correlation between the Fed’s deployment of large repo operations precedes the onset of a financial crisis.  This occurred at the end of 1999, 2008 and late 2019 (I predicted in October 2019 that the Fed’s repo operations were nothing more than QE dressed in drag and that a financial crisis was brewing – LINK). Wall St On Parade does the grunt work and it’s worth reading their findings (Repo loans/crisis) because the Reverse Repo operations certainly signal that something ominous is occurring behind the Fed’s “curtain.”

In the context of the high correlation between repo loan spikes and financial system accidents, it makes the Fed’s establishment of a $500 billion “standing” repo facility that is open to both domestic and foreign banks even more intriguing:

“The Federal Open Market Committee on Wednesday announced the establishment of two standing repurchase agreement (repo) facilities—a domestic standing repo facility (SRF) and a repo facility for foreign and international monetary authorities (FIMA repo facility)Under the SRF, the Federal Reserve will conduct daily overnight repo operations against Treasury securities, agency debt securities, and agency mortgage-backed securities, with a maximum operation size of $500 billion.” (FOMC standing repo facility)

With price inflation anything but “transitory,” notwithstanding Powell’s incoherent attempt to explain why he believes price inflation will prove ephemeral, and with economic activity once again deteriorating more quickly than most realize and the stock market at 2-3-sigma over-valuation measurements, the establishment of the $500 billion “standing” repo facility ($500 billion for starters, I predict) is quite possibly a signal that the Fed is bracing for another financial crisis.

“From year-end 2009 through year-end 2018 the Fed reported zero amounts of Repurchase Agreements (Repo Loans) because there was no cataclysmic stock market crash. But beginning on September 17, 2019, the Fed went into panic mode again and began shoveling out Repo Loans to its primary dealers (the trading houses owned by the mega banks on Wall Street) by hundreds of billions of dollars.” (Wall St on Parade)

Note:  There’s also a high correlation between periods of extreme official intervention in the precious metals markets using Comex paper derivatives and LBMA unallocated fictitious gold bars.  I would suggest that the recent massive interventionary efforts that may have culminated this past Friday and Sunday night are further evidence that a crisis is lurking.

As Ronan Manly queried: “Or do the central banks know that further market turmoil is imminent and need to take down the gold price so that when the gold price then rises, it will be from a lower level?”

Forget The “Taper,” More QE Is Coming Along With Higher Gold And Silver Prices

In the last FOMC policy announcement, the Fed announced that it is establishing a “standing” $500 billion repo facility open to domestic and foreign banks. A repo facility provides overnight or short term liquidity to the banking system. It moves liquidity around from banks that have it to banks that need it and enables the Fed to manage the Fed Funds rate. Yet for several months the Fed has been removing liquidity from the banking system on an overnight basis with reverse repo operations that are now averaging over $900 billion on daily basis.

Why on one hand is the Fed removing liquidity from the banking system on a temporary basis, yet on the other hand establishing a mechanism to inject liquidity into the banking system?  Isn’t this akin to a Ponzi scheme in which the Fed can print the money it needs to operate the scam rather than face the problem of finding stool pigeons to provide the funding?  This puzzling behavior by the Fed would suggest that there’s a couple of big banks domestically and in the EU that are facing liquidity problems. Citibank and HSBC come to mind as Citi was secretly the recipient of the biggest bailout by the Fed in 2008 and HSBC has massive exposure to commercial real estate, particularly in Hong Kong. But it could be any of the Too Big To Fail banks.

Wall Street Silver  invited James Anderson (SD Bullion) and myself on to discuss why the Fed will eventually be forced to print a lot more money and why this will translate into much higher prices for gold and silver (note: the current action in the precious metals is being driven by blatant manipulation primarily using Comex futures – it anything the aggressive effort to control the price of gold is an indicator that the Fed (and other Central Banks) will be printing a lot more money in the near future):

Kitco Acknowledges Gold Price Manipulation – Bloomberg Covers It Up

From GATA:

Congratulations to Kitco News market analyst Jim Wyckoff for tiptoeing up to the gold market manipulation issue in his commentary this morning: KITCO – Gold Manipulation

Wyckoff writes: “The overnight flash crash in gold and silver prices may also be due to thin trading conditions overnight amid the summertime doldrums. Many traders are on vacation and much of Europe is on holiday during August. Many times the ‘big boys’ like the investment banks will make very big trades in low-volume futures trading conditions in order to get the maximum bang for their buck, and that may be what happened overnight.”

Of course if this kind of thing has happened “many times,” as Wyckoff writes, no one would have known it from reading Kitco’s market analysis, just as no one would know from that analysis if those “big boys” include governments and central banks.

But at least Wyckoff’s commentary today implies that it’s getting harder not to acknowledge the elephant in the room. Bloomberg News isn’t yet capable of that, this morning offering only more of last week’s rationalizations for gold’s crash last night and making no attempt to determine who was suddenly selling so much on a not-for-profit basis. Bloomberg again covers up for the market rigging:  Bloomberg Propaganda

Bloomberg’s headline is “Flash Crash Shows Why It’s Tough to Be Bullish on Gold Right Now.” But what makes it toughest to be bullish on gold are government’s interventions and the determination of news organizations like Bloomberg not to report them.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org