29 May 2015

Currency Wars, Gold Pools, and Comex Potential Claims Per Deliverable Ounce

Based on some interactions with newer patrons of Le Café, I thought it might be a good time to restate the general lay of the land in the gold market.   The occasion for this is the latest measure of what might be called leverage in the futures market, what it is, and what it may or may not mean and why.

Clearly the paper markets, involving associated trades in ETFs, mining company stocks, derivatives, and so forth are much broader than the futures market alone.  But the futures market is what one might call the locus of execution for our drama.

The potential claims number for gold at the NY Comex is calculated by Nick Laird at Sharelynx.com by taking the amount of gold bullion marked as 'registered' for delivery at current prices by the number of contracts open on the futures market at 100 ounces of gold per contract.

Yes there is more gold that the 373,000 ounces currently marked for delivery in all the warehouses.  But that gold is merely there in storage by its owners, so counting it towards delivery, without the prior consent of the owner, is a bit presumptuous to say the least.  One might safely assume that market rules apply, and more gold will become deliverable at higher prices.

With a potential 111 claims per ounce of gold marked 'registered' for delivery at these prices, one might expect to see quite a move higher in prices to reach a market clearing price, and perhaps even a significant short squeeze.

But we probably will not see any such short squeeze, and maybe not even a breakout from this price range, unless something unusual happens outside of the New York and London markets.

The Comex, aka The Bucket Shop on the Hudson, does not set prices in the usual supply and demand dynamics.  And London and New York are playing a tag team with any number of markets these days, from forex to LIBOR to bonds.

Gold could break out in a big way.  It would not take all that much for a large hedge fund, or even a well-heeled world class individual, to turn about three thousand of those contracts in for delivery AND take the gold bullion out of the warehouses, moving them to Asia and pocketing a substantial profit on the gain.  

This assault on an unsustainable price peg is how Soros and associates in Zurich took the Bank of England for over a billion in their selling of the pound against an unrealistic price  point. 

Why doesn't anything like this happen?  

Is it because people do not have the money to do it?  In times of billion dollar art auctions and $500M homes being built on spec?   Don't make us laugh.

Is it because people do not want gold bullion?    The Shanghai Gold Exchange is routinely moving  physical thirty to forty tonnes per week out of its warehouses.   Thirty tonnes is about 965,000 troy ounces, about three times the total deliverable at the Comex now in total.

No, it will probably not happen because the big money has been warned off the Banks' turf, and their game is to keep the wash and rinse price cycles running to provide a steady profit as long as they can.   

As long as price is the 'only component' in the market dynamics, with demand and supply artificially dampened by a 'no withdrawals' house rules,  the liar's pokers carney games based on very loosely regulated price action can continue.  

It is not all that dissimilar to a poker game in which there are unlimited raises, the rule of table stakes does not apply, and one does not have to show their cards, and can only be called if the house allows it. Those with the biggest wallets can keep selling paper gold as long as they wish at whatever price they wish, and never have to even show their cards, and cannot effectively be called unless they permit it. 

I know this example is a bit rough, but not all that much.   It almost looks like a scam, rigged in favor of the deepest pocketed players, doesn't it?   And what if they get additional information about the hands of the other players and the size of their wallets.  Well, now you know why I consider those smaller players who keep coming back to the action in that casino to be a bit out of touch.

So the bullion banks and their friends can keep cranking out steady profits while holding bullion prices within a range that is a comfort to the nervous money printers in the Federal Reserve.  This keeps the government happy, the regulators off their backs so to speak, and the wash and rinse cycles rolling.

The reason why this sort of imbalance could get sorted out in the currency markets but not in commodities is illustrated by the relative experiences of George Soros and the Hunt Brothers.

Lucky for Soros that the forex markets are so broad and deep that no single group of cronies can control the exchange rules in the 'cash markets' to suit their plays.  Yes some central banks can make it quite risky, even painful, but the solution is not so neat as what happened in with the Hunt Brothers and silver.  There the exchange the US regulators just changed the rules of the game and that was that.

If one were to do something about a price imbalance in a commodities market, as opposed to an unregulated global market, you would tend to wish to do it off exchange by slowly accumulating a large portion of the available global supply, as quietly as possible.  This only works obviously with a commodity that has inherently has a relatively stable supply.

The spoiler in the gold paper game might then be expected to be  those 'outside' the range of the gold pool.  They are those who do not do their business primarily in the betting parlors of New York and London.

If one cannot secure a sizable portion of supply via paper on the exchange where the cronies make the rules, one just cuts out the middlemen and buys it directly, and it works as long as they do it off exchange and have an unimpeachable line of credit.   And then one would keep stacking their physical metal while enjoying what they think are very attractive prices.

Some analysts think that they know 'what China wants.'  Who is China?  Have the Chinese had a meeting and hammered out a single policy plan?  How about the Americans, and the Russians? Or are their various competing domestic factions in every country.  And even more significantly perhaps, are there special interest groups, a self-defining elite, without preferences except for themselves.  As you can see this is a complex scenario with many variables.  

And in compressing the complexity of the scenario, we lose information and applicability, always, and sometimes intentionally.  Simple sells, and is successful depending on your sales objective.  Nothing was simpler and more powerful than the efficient markets hypothesis with perfectly rational actors.   It led to an otherworldly market ideology that caused one of the greatest financial crises in history.

This is not the first time we have seen such a de facto pooling arrangement.  There was the London Gold Pool, which sought to 'stabilize the gold price' at $35 dollars from 1961 until the collapsed in 1968.   That mispricing caused a 'run' on the gold in the US, and  led to the Nixon shock in 1971,  the closing of the gold window,  and the eventual rise in the price of gold to $850 in 1980.

Or we could point to the long bear market in gold, which reached its trough with the sale of England's gold in Brown's Bottom around $250 between 1999-and 2002,  This was resolved with the so-called Washington Agreement, which provided a plan for more measured selling and leasing of Western central bank gold to control the price of bullion largely amongst the Europeans.

Their intention was to have had this agreement continue until 2009, but alas, the rising economies of Asia and the BRICS were not sharing their vision of the future.  And so the purchasing of central bank gold reserves turned positive for the first time in over twenty years around 2006-7, ahead of the collapse of the US housing and credit bubble. 

As you may recall, gold subsequently rose to around $1900 in a fairly short period of time, and has now fallen back to the current price range in dollars of $1180-1230. 

And where are we now?

The BRICS are still buying.   There is quite a bit of secrecy and jawboning surrounding the actual levels of bullion available and unencumbered in the Western central banks.  The IMF, a ringmaster for the States if you will, has offered (threatened) to sell the same gold on about ten occasions. 

Not all the Western banks are holding to plan.  Some are even taking the unusual steps of repatriating their gold from the Anglo-American vaults where it has been since the Second World War.  They fear that if things go off the rails, and there is a reckoning of ownership claims, possession will once again be nine-tenths of the law.
The future composition of world government is a very open question.  There is very obviously an Anglo-American faction for 'the New American Century.'  But there are also Pan-Asian, Pan-Pacific, sub-Saharan, Eurasian and Pan-European elements as well.  Although it is most likely a bit of a reach, one has to wonder if this odd construction of the European Monetary Union is not some sort of a testbed for the future cooperation of regional oligarchies. 
I am not saying that there is 'A Plan' but there are certainly plans that some groups are clearly pushing towards their own objectives and agendas, and have been doing so for some time.   Professor Carroll Quigley, Bill Clinton's mentor at Georgetown, has been instructive on this.

It will be interesting to see where the market forces take us eventually, if they are allowed to do so.  I do not assume necessarily that they will.     

However the fact remains that the existing 'Bretton Woods II' de facto reserve currency arrangement for global trade, based on a fiat US dollar, which was unilaterally put in place by the US in 1971 on the closing of the gold window, has reached its point of unsustainability.

I do not believe that there has ever been a purely fiat global currency of this magnitude before in recorded history.  So we should not be too surprised if the situation seems to evolve rather slowly,

There is already a great deal of posturing by cross national special interest groups, with 'negotiation' on multiple levels from financial to diplomatic.  We may even expect the abusive use of the military to push certain proposals forward rather forcefully.

Bureaucrats can become quite draconian when their schemes for personal power go awry.  And in my own monetary thinking a purely fiat currency for international trade ultimately implies the development, or imposition, of a global government controlled by the monetary authority, whatever they may choose to call themselves.  The imposition of fiat valuation relies on control, which means power, and often plenty of it.

We are in exciting times with history being made it seems.  There are a number of possible outcomes, which quite frankly no one can accurately forecast at this point.  There are too many degrees of freedom, so they literally cannot.   But they can throw up theories and strawmen of what may happen, and charge you to read about it.  It is an honest source of income, rather like writing racing forms or novellas, or the weather report in the 1950's.  And it is fun to talk about while we watch things develop.

But make no mistake, when some of these fellows overreach with their claims of certainty, if they really knew what will happen they would  not be telling it to you.  They would be playing with their own money in the casino, for all they were worth.   Or running funds that increased their leverage for their theories, while providing a steady management income.  This is a longer term play after all, and so speculative leverage is a short term risk to be managed.  Banks like to catch the players indisposed.

And then, alas, there are those who play for pay, who promulgate their ideas for the special interests, spreading disinformation.  Or just make the most dramatic sort of stuff up, selling a kind of financial pornography.

This landscape is what I, and several others some more notable certainly, have called The Currency Wars.  

28 May 2015

Gold Daily and Silver Weekly Charts - Going Off the Rails on a Crazy Train

"And what happens when PR turns a profit, and truth goes penniless?"

Bill Moyers

"Insanity is doing the same thing, over and over again, and expecting different results."

Albert Einstein

"Has he lost his mind?
Can he see or is he blind?

Now the time is here
for Iron Man to spread fear."
Ozzy Osbourne, Iron Man
Most Americans are completely unaware of FIFA or what it does, and only a bit more aware of the World Cup and non-US football.  Unless they are school age children perhaps, the parents of same, or recent immigrants from Europe and South America.
The official reason for the US to proceed with prosecutions of FIFA this week, after a 24 year investigation, is that the payoff schemes involved some of the Wall Street Banks.  Since it is unlikely that there will be any action against these same Banks, one wonders as to the reason and the timing for this.
This week FIFA was expected to sanction Israel on Wednesday for their truly terrible treatment of Palestinian football clubs.   And the US was perturbed that Qatar was chosen as the 2022 World Cup host, despite their awful human rights record, and record donations to the Clinton Fund, and loyalty to the US ambitions in the Mideast.   And finally, FIFA dared to award the 2018 World Cup to Moscow.   
Have you noticed that this FIFA prosecution, which so few understand and care about in the States, is getting so much more media coverage than the latest massive thefts by the Banks in wholesale rigging in the forex markets, for which no one is being prosecuted and no serious reforms are being undertaken?  There are risks in standing in any way against the will of an empire.

And besides, FIFA is THEIR scandal, and it serves to distract from OUR scandals.
Speaking of gold, it appears that Austria has decided that the risks of storing its sovereign gold in London are too great, and are repatriating it home.   As well they may, because in the times that are just ahead, we might suspect that possession will be nine-tenths of the law, MF Global-style.
Gold and silver are quite obviously in some sort of locked down trading range.    Gold will become much more interesting next week as June is an active month, and the leverage on the deliverable portion of the Comex gold warehouses is historically rather high, indicating higher prices ahead.
Of course, that is not the way things work necessarily in The Bucket Shop on the Hudson.   The gold game in the US benefits The Central Bank storytelling, and the Banks, who 'make markets,' or make-up markets to suit themselves and their trading profits.  It is quite lucrative as we have seen in so many other cases like is such as LIBOR, forex, derivatives, and so forth.
On a final note, it must seem like madness to the non-US observers, what the Fed is doing with QE and top down stimulus.  Well not to the Brits, because they have taken such madness to heart, or the Continent, which is visiting senseless misery now on Greece, and a number of the usual suspects yet to come, until they finally make they way around to the volks at home.
And so here we are, running off the rails on the neo-con and neo-liberal crazy train.   
Have a pleasant evening.

Related:  Down With FIFA!  Next World Cup Should Be in the US

SP 500 and NDX Futures Daily Charts - And Quiet Flows the Con

"In the eyes of empire builders, men are not men but instruments."

Napoleon Bonaparte

Stocks had a bit of a bobble this morning on the much worse than expected unemployment claims number.

But Wall Street came to its senses, and realized how little the average American matters in the greater scheme of things anymore.

Let's see how stocks go into the weekend.

Timing will be a bit of a chore, but I suspect that a market break is due sometime this year.

Have a pleasant evening.


27 May 2015

Gold Daily and Silver Weekly Charts - Nothing New

"This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments.

That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages.

We desire both to be respectable and to be respected. We dread both to be contemptible and to be contemned. But, upon coming into the world, we soon find that wisdom and virtue are by no means the sole objects of respect; nor vice and folly, of contempt."

Adam Smith, Theory of Moral Sentiment

אֵין כָּל חָדָשׁ תַּחַת הַשָּׁמֶשׁ

Nihil sub sole novum.

There is nothing new under the sun.

Ecclesiastes 1:9

Their is surely nothing new under the sun, except those who are called and will be held accountable for their labor, under it.
Our moderns believe that they have learned to lie, to cheat, and to kill with unsurpassed skill, cleverness, and shamelessness.  
They have discovered their will to power.  Or perhaps, the will to power has discovered them.  
They think that they have gained some impunity, and have risen above humanity to become as gods.
This week will see the last of the May contracts, and the beginning of the active month of June for gold.

Have a pleasant evening.


SP 500 and NDX Futures Daily Charts - First and Last

“There was a certain rich man who was splendidly clothed in purple and fine linen and who lived each day in luxury. 20 At his gate lay a poor man named Lazarus who was covered with sores. As Lazarus lay there longing for scraps from the rich man’s table, the dogs would come and lick his sores.

“Finally, the poor man died and was carried by the angels to be with Abraham. The rich man also died and was buried, 23 and his soul went to the place of the dead. There, in torment, he saw Abraham in the far distance with Lazarus at his side.

“The rich man shouted, ‘Father Abraham, have some pity! Send Lazarus over here to dip the tip of his finger in water and cool my tongue. I am in anguish in these flames.’

“But Abraham said to him, ‘Son, remember that during your lifetime you had everything you wanted, and Lazarus had nothing. So now he is here being comforted, and you are in anguish. And there is a great chasm separating us. No one can cross over to you from here, and no one can cross over to us from there.’

“Then the rich man said, ‘Please, Father Abraham, at least send him to my father’s home. 28 For I have five brothers, and I want him to warn them so they don’t end up in this place of torment.’

“But Abraham said, ‘Moses and the prophets have warned them. Your brothers can read what they wrote.’

“The rich man replied, ‘No, Father Abraham! But if someone is sent to them from the dead, then they will repent of their sins and turn to God.’

“But Abraham said, ‘If they won’t listen to Moses and the prophets, they won’t be persuaded even if someone rises from the dead.’”

Luke 16:19-31
And so it was then, and is now.

Was yesterday's sharp downdraft in equities just another rinse day in the land of fools and grifters?
The global economy has become a deception and then a farce, which will end in tragedy. 
And this is because of the greed and self-delusion of a shameless few and their enablers, whose foolishness would make even the angels tremble.
It would have been better for them if they had never been born.

Have a pleasant evening.

26 May 2015

Gold Daily and Silver Weekly Charts - How Unusual: Precious Metals Hit on Option Expiration

“Sometimes people hold a core belief that is very strong. When they are presented with evidence that works against that belief, the new evidence cannot be accepted.   It would create a feeling that is extremely uncomfortable, called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn't fit in with the core belief.”

Frantz Fanon

"Certainly there were many others as reprehensible and irresponsible as those who played the leading roles. The German people were the victims. The battle, as one who survived it explained, left them dazed and inflation-shocked.    They did not understand how it had happened to them, and who the foe was who had defeated them."

Adam Fergusson, When Money Dies: The Nightmare of the Weimar Collapse

June is a big, active month for gold on the Comex.

And today was the option expiration for the precious metal June contracts.

Le voilà, comme prévu.

What else might we have expected?  Honesty?  Price discovery?  A market clearing price between users and suppliers?  

These are markets that have been willfully overwhelmed and misdirected by speculation.  There are no fundamentals in The Bucket Shop, just what is essentially full time market rigging, with little to no product changing hands between long term investors and suppliers.

And similarly, like healthy nourishment in a snack cake, so there is still little to no recovery in The Recovery™.  

When the reckoning for this protracted folly and organized plunder finally comes, they will all be so amazed.
It is so very modern to think that things are just as we say they are, because we say so.  And nowhere is this psychosis more apparent than in modern economics and money.  
 It is the ultimate tyranny of selfishness and egoism, and will last as long as the masters can keep extending their power and their will, crushing all dissent and all others in their path,
And then comes the downfall, the sickening plunge, and the moment of terrible lucidity when the music stops.  And the illusion dies.

Have a pleasant evening.


SP 500 and NDX Futures Daily Charts - Rinse Day

They don't always put up a billboard with flashing lights, but often enough the next move in the market is pretty well-illuminated for those who are not from out of town.

And so we had the downdraft in stocks today, because of 'better than expected economic data' that 'might cause the Fed to raise rates sooner' rather than later.

Complete and utter baloney, a story for the tourists.

Stocks were jammed up against overhead resistance, and the pros were handing off their inflated shares to the specs and institutions, and positioned themselves for a downdraft.

And so today I covered the 'aggressive' short and took the profit. Maybe we will get more downside, or upside, but it won't be because of any economic news of the mild sort we got this morning.

Durable good are notoriously volatile, and anyone who bases investment decisions off squiggles like this, or the consumer index which is a lagging indicator of the stock market. The housing data was pretty much inline, but housing data these days makes the work of the BLS look good.

So there you are, another day in the Imperial Republic.

Have a pleasant evening.