Strike Back At The "Beast" - The Truth Strikes Back

Fiat Currency and Government Debt = 666

The Global "Fractional" Paper Bullion Market Is Collapsing

I wrote last week that there was a scramble going on globally by entities seeking to take physical possession of the gold on which they have a legal claim, most of which is sitting either in alleged "allocated" big bank bullion vaults or in alleged "allocated" accounts in Comex custodial warehouse vaults. 

I also demonstrated mathematically, using the reported numbers on the CME website for precious metals futures open interest and warehouse gold/silver stocks, that the amount of gold represented by Comex futures open interest far exceeds the amount of deliverable gold on the Comex (the analysis is even more extreme for silver).  In fact, if less than just 10% of the buyers of June gold contracts demand delivery, the Comex won't have enough gold to cover the legal claims.  For silver (July silver) it's even more extreme.

This is a global problem and not just endemic to the Comex.  Globally, the legal claim of ownership on physical gold far exceeds the amount of gold represented by paper futures, LMBA forward contracts, leased gold and vault receipts.  The latter - vault receipts - is where the big banks in London have the most severe problem, as gold this is supposed to be sitting in "allocated" accounts under the name of the legal owner who bought and paid for those bars has been largely leased out.  I'll get to that in a minute.

First, I received this comment from John Brimelow's "Gold Jottings" report, which comes from Gerhard Schubert, head of Precious Metals at Emirates NBD, the largest banking group in the Middle East.  Keep in mind that Middle Eastern buyers demand physical delivery of their gold.  Here's the quote from his latest weekly report:

I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…

I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.

The price hit of two weeks ago has triggered a serious scramble for physical gold and silver.  Reports like the above comment have been flooding from Europe, the Comex has had about 30% of its gold bars literally drained from the customer accounts of the Comex bank custodian vaults and the U.S. mint is running way behind on demand for silver eagles and some weights of gold eagles.  Ditto for the Canadian mint.

And then I get a call from a close friend in NYC last Friday.   His career has been in private wealth management in the private bank department of the Too Big To Fail banks.  He's been looking for work and chats with old colleagues all the time.  He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago.

This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact.  He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment.  The Bundesbank/Fed and the ABN/Amro situations triggered this move.  He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it's very wealthy clients assuring them their bars were safe, in allocated accounts.  He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100's of millions in investment portfolios to competitors.  His wording was "these people are putting a gun to the heads of private banks and demanding their gold."

I know this information is good because I know my friend's background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend's source said that there's no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares.

Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting - supposedly - in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes.  After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years.  To this day, the time required for that shipment has never been explained.  Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months.

And regarding the ABN/Amro situation.  ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out.  About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption. 

I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway. 

In fact, what we are now seeing is the final stages of the paper gold/silver bullion market, which has grown at a parabolic rate over that last 13 years, and includes Comex futures, LMBA forward contracts, OTC derivatives - which is an even bigger paper market than the Comex - leased gold claims/contracts and warehouse receipts. 

At some point there will be an even bigger "run on the bank" by those looking for delivery of the physical gold/silver that they have been "assured" is sitting in their "trusty" bank custodian vault.  I know for myself that I have seen enough from the JPM's of the world to not trust anything they do or say.  I think a lot more people are finally coming to that same conclusion.  At some point there will be a complete collapse of trust in the paper monetary system and the price of gold/silver will really go parabolic, as the masses realize all at once - and far too late I might add - that everything that was rumored over the last 13 years about paper gold, gold leasing, etc is actually true.

Is Your Gold Missing?

When it becomes widely known that all of the people who think they own gold in fact don’t own gold, that it’s been hypothecated and re-hypothecated so many times that there are 100 claims for every single ounce of physical gold, that is when the prices of gold and silver will really go berserk to the upside, and at that point the shorts will have serious problems  - John Embry on King World News

 The press pounced all over the massive smack down on gold/silver last week.  Headlines were thrust in everyone's face.  Gold dropped  $200 dollars in two days and the media wanted to make sure everyone knew about it.  Well, guess what?  As I write this, gold has gained back over $100 that drop. But is this being broadcast in flashing marquee lights the way the sell-off was?  Of course not.

In the aftermath of that sell down, a lot of facts have come to light.  But first, the bounce we're seeing is illustrative of the fact that you need to hold on tight in this sector in order to truly benefit from the wealth benefits of investing in physical gold/silver and good mining stocks.  As an example, since late 1999, the mining stocks have suffered two periods in which the mining stocks had severe sell-offs of this magnitude - late 1999 to early 2001 and mid-2008 - Oct 2008 - in response to large manipulated drops in the metals.  But after the sell-off ended, it literally took less than 3 months for the HUI/XAU indexes to double from their bottom and then head to new all-time highs a few years after that.  I feel bad for anyone who was shaken out this time around, but I guarantee you that Wall Street does not harbor the same sympathies...

At any rate, what's been exposed from this market price correction is the fact that 1) more people now understand why it is important to own physical gold and silver, as evidenced by the fact that the U.S. mint quickly sold out of silver eagles and is on a track to sell a record monthly amount of gold eagles; and 2)  there is a serious problem globally with the amount of gold that is available for physical delivery to the buyers who are demanding actual delivery.

I thought I would go over some statistics from the Comex to illustrate why we know this is the case.  The total gold held on the Comex is 8.5mm ozs, of which 6.3mm is not available for delivery - i.e. it's investor gold being held in Comex vaults.  Stunningly, over 2 million ounces of gold -  roughly 60 tonnes - has been removed from the Comex vaults in the last three months.  Most of it has come from investor accounts.  You have to wonder why all of a sudden big investors have removed their gold from the Comex.

Investor gold is not "eligible" for delivery on futures contracts.  The gold that can be delivered is sitting in "registered"accounts. The amount of registered gold currently is 2.28 million ozs.  The total open interest in futures contracts for gold is 416k contracts, or contracts representing 41.6 million ozs.  Essentially there's 18x more paper gold in the form of futures open interest than there is gold that can be delivered.  The June front month for gold has 255k open contracts, or 25.5mm ozs open.  That's 11x the amount of gold available for delivery.  If even 10% of June gold contract longs held for delivery, the Comex would be completely wiped out of its gold and would have to default on the delivery of some.  But the Comex has a "force majeur" clause in its contract that allows cash settlement.  We won't see that happen in the near future most likely, but it will eventually happen.

In silver the total open interest represents 786.3 million ozs.  That's about 3/4 of global annual production, which includes 257mm ozs of recycled silver.  So, the total open interest on the Comex is about equal the total annual amount of silver mined globally.  There's 39mm ozs of silver available for delivery.  In other words the amount of paper silver on the Comex is 20x the amount of silver the Comex has for delivery.

I think that explains why big investors are removing their gold from the Comex.  The Comex is one giant Ponzi scheme.  Anyone who is going to rely on the Comex as a source of silver, either industrial or investment, is going to be left holding a giant, empty paper bag.  That explains why we are seeing a such frenetic activity - not just in this country but globally - by investors looking to get their hands on gold/silver that can be physically delivered into their possession.  A long-time colleague of mine prepared this caption, which sums up the situation perfectly:

As the severity of the physical gold/silver shortage vs. the paper claims issued (futures, LBMA forwards, OTC derivatives and Central Bank leases and swaps) against that actual amount physically available - as demonstrated by my Comex example, which is only part of the global problem - the price of gold and silver is going to start to go parabolic.  Although most of you are not aware, but from 1974-1976, the price of gold dropped 47%.  But from 1976 to 1980 the price of gold went up 800%.  Given what we know about the massive, unsolvable global financial problems, and the enormous amount of money that will have to be printed to keep the system from collapsing outright, it's a good bet the next extended move in the metals will dwarf the move gold made in the late 1970's.

Unintended Consequences

US MINT TEMPORARILY SUSPENDS SALES OF ONE-TENTH OZ 
AMERICAN EAGLE GOLD BULLION COINS, CITING STRONG DEMAND

2:57 PM Eastern Daylight Time Apr 23, 2013 Copyright ©2013 (C) Reuters 2013. All rights reserved. Republication or redistribution of Reuters content, including by caching,framing or similar means, is expressly prohibited without the prior written consent of Reuters.

Now you can't find silver eagles except at 32% premiums - if you can find them - so Americans who "get it" turn to the next best version of "poor man's gold" - 1/10's oz coins.  Now those are sold out.

Imagine what it will be like when even more people "get it" and there's a serious rush in demand for gold/silver THAN CAN BE DELIVERED TO YOUR POSSESSION.  That time is coming and it will be upon us a lot sooner than most think...

Is This The End Game For Paper Gold/Silver?

The real market in gold/silver is what is going on in the markets where physical delivery is REQUIRED.  That would be China, India, Russia, Middle East and the U.S. retail minted coin market  - The Golden Truth, April 22, 2013

To go along with my statement above, I find it interesting that the United States' is going to take 7 years to deliver 300 tonnes of gold back to Germany.  Seven years.  I find it even more interesting that not many people have scrutinized this situation.  After all, it took Venezuela only about 4 months to get 200 tonnes of its gold repatriated from London and Switzerland.  Hugo Chavez may be remembered by many as a crackpot, but I have a feeling the world will soon understand why one of his last moves before he died may have been his most brilliant.  After all, Venezuela now has possession of its foreign-stored gold - Germany does not.

Something else that has been extraordinarily overlooked, or intentionally ignored by the media, is the fact that about 80% of the recent price hit in gold/silver has occurred during Comex trading hours, after the physical buying markets in the east (China, Russia, India, et al) have gone to sleep or home for the weekend.  Please note:  the Comex is a paper trading market.  The Comex may have enough metal to settle about 5% of the entire open interest of gold and silver, if the entities long the paper contracts decided to stand for delivery.  Typically less than 1% stand for delivery each delivery month.

So when you hear accounts that 100's of tonnes of "gold" were dumped on the Comex market last Monday, please understand and know that this was "gold" as represented by a paper Comex gold futures contract.  On the Comex gold grows on trees - everywhere else in the world that wants to own gold, physical gold has to be delivered.

And while that thrift shop mannequin some call "Attorney General Eric Holder" will never require that the big banks which control Comex explain why a paper bomb representing 100's of tonnes of paper gold was dropped on the Comex, the rest of the world - including the thousands in this country trying to take advantage of the price drop by buying U.S. minted silver eagles - either can not actually buy phsyical gold/silver for delivery or have to pay substantial premiums over the spot price in order to get something delivered.   Go ahead, call your local coin dealer and ask them to sell you some 1 oz. silver eagles.  You'll either hear "we're out" or you'll be offered something at around $7-8 over the current spot.  Note that the price where you can buy silver eagles - silver eagles that you can take home with you as opposed to rely on some counterparty for delivery - will cost you about the same price as it would have before the take down in the metals this past week.

Even more significantly are the reports from around the world of precious metals counterparties failing to deliver physical metal.  It started a couple weeks ago - and not coincidentally right before the price hit started - when big Dutch bank ABN/AMRO notified its clients who had invested in a "gold bullion" account that the bank would no longer make physical delivery of the gold that was supposed to be in the account and that all accounts would be settled in cash:  LINK

This morning we woke up to an interview with  Jim Sinclair, who reported that  "a person that I know with significant deposits in one of the primary Swiss banks, in allocated gold, wanted to take out his gold and was just refused on the basis of directives from the central bank. They told him the amount was in excess of 200,000 Swiss francs and the central bank had instructed them not to do it because it has to do with anti-terrorism and anti-money laundering precautions"  LINK.   Sorry, that excuse does not hold water.

As you can see, and as originally predicted by GATA, the purveyors of paper gold/silver are now having trouble delivering physical gold/silver at the stated spot price.  Where is it you might ask?  Look to China (and other eastern hemisphere gold buying countries:   "Asia is witnessing one of the strongest waves of physical gold buying in 30 years, with bargain hunters using the drop in prices to secure jewellery and gold bars." (Financial Times).

In the aftermath of last week's paper price smash, demand for gold in the markets in the world that REQUIRE physical delivery has gone parabolic.  I could link dozens of reports from Reuters, the Indian Economic Times, the Financial Times, etc, but you can google it if you are interested.  And what I do know for sure is that, ultimately, physical delivery on the Comex is not required.  There's a force majeur clause in Comex contracts that states contracts can be settled in cash if necessary.

I can recall getting on the phone with my business partner last Monday and the first thing he said was "this may well be the first stage of the end game for paper gold."  Since then, several highly respected bullion market professionals have made similar comments.   The crux of the problem for the Too Big To Fail/Prosecute Banks is that the amount of paper gold outstanding in the world - including OTC derivatives - is somewhere between 50 and 100 times amount of actual physical gold/silver that can be delivered.  If enough counterparties stand for delivery, the global physical bullion market will freeze up - prices will go beyond parabolic.

This brings me back to the issue of why the U.S. will require seven years - at least - to return 300 of the 1800 tonnes of German gold being held - allegedly - in the basement of the NY Fed.  300 tonnes.  Supposedly 100's of tonnes were sold on Monday.  GLD has liquidated several hundred tonnes since January.  And yet, the U.S. can't produce Germany's gold on demand.

I'll leave off with a comment from a recent interview with Kyle Bass - manager of the Texas State Teachers retirement fund - who recently took physical delivery of roughly 19 tonnes of gold bullion being held on behalf of the pension fund:

Open interest in gold futures and options traded on the Comex typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand.  If you own a paper contract where they can only deliver you 10 cents on the dollar or less, you should probably convert it to physical,” said Bass.  LINK

The average U.S. investor is starting to understand the difference between buying gold/silver for physical delivery and owning a paper surrogate like GLD or SLV.  That would explain why the recent price take down stimulated an unprecedented amount of demand and shortages for U.S. mint 1 oz silver eagles and other silver products.   It also means that the end game for paper derivative gold and silver has started and the price take down on the Comex we just witnessed is one giant bluff by bullion banks who have nothing in their hand but crappy paper cards.

The U.S. Economy Is In Trouble

As a follow-up to yesterday's post about the massive spike in the demand for physical gold and silver since the price hit, I wanted post some more evidence.  This is from an Arab newspaper about the spike in demand over in Saudi Arabia:

The crash in the prices of the yellow metal has sparked off a gold rush across Saudi Arabia.  In the last three days, gold souks in the Kingdom have come alive with buyers flocking to cash in on the sharp drop in gold prices. Most of the shop owners in the gold souk in Kandra said that their businesses have increased 50 percent in the last three days, whereas those in Balad said sales of 22-carat had gone up by more than 75 per cent and were expected to rise further.  LINK

Here's the headline from a Reuters article:   Slump in gold price releases years of pent-up retail demand  LINK   And here's an accounting from a colleague of mine who operates a cash-for-gold business in Florida and deals with one of the biggest coin dealers in Florida:

He's got nada.  A guy came in who had ordered and fixed the price on 300 silver eagles last week before the crash and my dealer couldn't tell him when he might get them.  My partner ordered three monster boxes last week and paid for them.  This week he was told delivery is at least 60 days out - and this dealer is a "hitter."

As I've told people who have asked me how long before the next move higher begins, no one can say for sure.  But if you run into people who tell you the bull market in gold/silver is over, ask them to sell you some 1 oz. gold/silver eagles.  And if they don't have any, ask them to go find some let you know where they can offer them to you.  Talk is cheap.  Talk does not make markets. 

Markets define "price" when a buyer and seller agree on a price and then make the exchange.  Paper markets like the Comex do not define price except in the short run.  All a paper futures contract and all an ETF represents is a "promise" to deliver something down the road if you put up the money now.  The market is not defined until the promised commodity paid for up front is physically delivered.  Given what we know about how corrupt banks are and the Government's unwillingness to prosecute this corruption (see Eric Holder's statement to Congress about a month ago), I would not trust the Comex banks or any of the ETF custodians (except Sprott) to make good on that "promise."

As for the economy, I wrote a piece yesterday for Seeking Alpha about more evidence I was seeing that the economy is headed quickly in the wrong direction:

About a week ago I wrote an article in which I postulated that, based on some recent company and economic reports, the economy is in worse condition than is being reported by the mainstream media and Wall Street.

You can read the entire article which includes hard data here:  The Economy Is In Trouble

After my article was written, the Philadelphia Fed released its manufacturing/index and it came in much lower than expected.  The employment sub-index went negative. In addition the leading indicators index was published by The Conference Board (formerly published by the Commerce Department) and it was -.1 vs the +.2% expected.   Also, the Fed's Balance sheet was released and it showed a $67 billion jump in size vs $12 billion the week before.  What's the Fed worried about if it needs to print money like this?

And today it looks like the Dell leveraged buyout deal may be falling through, as one of the big sponsors is worried about PC sales.  All the above tells me the U.S. economy is in trouble.  There's just no way the Government can cut back on spending, which means the debt ceiling debate that pops up in May will likely entail another round of kicking the can down the road, which means even more Treasury debt issuance to finance the deficit spending and even more money printing by the Fed.

The Law Of Unintended Consequences

Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.  -  Bernard M. Baruch

Something most unusual happened yesterday - in the aftermath of the one of the most brutal one-day price drops in gold that I've ever witnessed  -  a paper/futures driven sell-off, mind you - U.S. retail buyers bought 63,500 ozs of gold American eagles from the U.S. mint.  This is by far a one-day record.   This is nearly 2 tonnes of gold purchased in one day by retail buyers.  A staggering amount.  That's 20% of the amount the falsely-reported gold sale from the Cyprus Central Bank.   What's most stunning about this is that historically, gold/silver buyers have scattered like frightened deer when gold undergoes a big price drop.  But this time was different.

While the widely reported price drop in gold has made great media "shock and awe" headlines, quietly the nationwide coin dealer supply of 1 oz. silver eagles and maple leafs has been rapidly depleted.  Dealers two weeks ago were selling silver eagles for spot +$2.50 +/-.  Yesterday I spoke with a very large owner of silver  eagle mint boxes (500 ozs/box) who was offered (bid) spot +$3.75 by two large coin dealers for everything he owned.

In fact, if you can find dealers with silver eagles to offer, you'll pay spot + $7.50-8.50 plus shipping.  So, in fact, despite the big sell-off in the price silver - again, driven by the paper/futures Comex - the true price of 1 oz. of real, physical silver that gets delivered to your possession has not declined at all (large buyers might be able to find silver eagles in quantity at more like spot +$4.50-5.00). 

If you see offers from your bank or insurance company-employed financial advisor to invest in an account that has gold/silver in it, run the other way.  ABN/Amro - the large Dutch bank - recently defaulted on investors who invested in a gold "account" and who wanted delivery of that gold:   LINK  If you had invested in that account and called to have the account liquidated and the gold sent to you, you got a letter back with a check in it.  This is exactly what gold market professionals have been warning about for years.  Coming soon to a fractional, paper precious metals account near you.

And don't think that can't happen in this country - like many Americans are delusionally wont to believe.  But it already has.  Morgan Stanley settled a big lawsuit several years ago because it defaulted on a silver investment account product.  When enough investors went to redeem their account and have the silver delivered, Morgan Stanley didn't have the silver.  The account was a Ponzi scheme:

The lawsuit, filed in August 2005, alleged that Morgan Stanley had told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley was actually making either no investment specifically on behalf of those clients or making an entirely different investment of lesser value and security, according to the complaint.  LINK

The unintended consequence of all this banking system and corporate fraud that is going unprosecuted by the Obama Administration - contrary to what he promised to do in 2008 when he was campaigning - is that a larger cross-section of the American public are starting to catch on to the game being played by the banking and political elite.  Yesterday's gold sales by the mint is proof.

A paper currency that has no wealth-backing in the form of real, substantiated economic growth - or stored wealth created in the form of gold and silver (see Bernard Baruch's quote above) - is illegitimate.  Any Government that issues and prints such a currency is illegitimate.  The U.S. Government is illegitimate and the massive and growing amount of unpayable Treasury debt and unpayable future liabilities is the proof.

That more Americans are understanding the necessity of converting illegitimate paper dollars into physical gold and silver - especially when given the gift of a big price correction - is the unintended consequence of the past week's attempt to discredit the legitimacy of gold and silver by the banking/political elite.

What The Heck Just Happened To The Metals?

Buy when there's blood in the streets, even if the blood is your own.  -  Baron Rothschild, 18th century British nobleman and member of the Rothschild banking family

I have to say, for as many people out there who fancy themselves a "contrarian" investor, the amount of kicking and screaming and fear that I've witnessed across all sectors of the investor community is quite staggering.   I guess many of you were not around in 2008, when silver and gold were systematically taken down from $21 and $1020 to $8.50 and $700, respectively in a 5 month time period, with most of it coming in July and August that year.  And the problem was that back then it was impossible to see what the catalyst would be to create the next bull run.  Furthermore, the big Central Banks were still net sellers of gold.  In other words, we didn't have the massive bid for physical coming from China (China imported nearly 100 tonnes of gold thru Honk Kong in February) and other big non-NATA countries who are buying gold aggressively.

And I guess very few were around for the early days (2001 - 2004).  I remember waking up in the morning and seeing gold down $10 and then watching in horror as the Comex operators took gold down another $10.  $20 on a base of $400 is 5%.  A 5% intra-day down-swing was not uncommon back then.  But not many people watched the sector (CNBC didn't even have a gold price indicator on it's market scroll) so not many remember those days

No one said this sector was going to be easy.  After all, gold is the "anti-Christ" of fiat currency-based Governmental and Central Bank systems.  It's Dave vs. Goliath, people.  The Old Testament tells me that David kicked Goliath's ass.

What just happened in the metals market was a by-product of a creatively planned and well-orchestrated take-down of gold/silver by the Federal Reserve, with the help of the bullion banks (JPM, Goldman, etc) and the unwitting help of the big, computer-driven macro hedge funds.  I don't want to go into a play-by-play accounting of the details - it will put you to sleep or many of you would be in disbelief.  But I know how manipulation works.  I used to help manipulate the junk bond market in the 1990's.  I remember the trade that put me on the map at my firm was $10 million face trade of bonds that the RTC had acquired in the S&L liquidation and into a firm owned by the very wealthy owner of one of the NFL football teams.  We manipulated that trade in order to create a 50% mark-up from the price we paid the Government to the price we got paid by the smart investor.  We had to hold the position overnight to get around the old NASD 5% mark-up rule and convinced the compliance people to look the other way.  Back then a $3 million profit on a junk bond trade might compose 30% of the desk P&L for the year. We did that in one trade.  Ya the market isn't manipulated...today the numbers involved and degree of illegality is many multiples of what they were 20 years ago.  Today we wouldn't have had to hide the trade from compliance until after the cash register was rung.

I have a bone to pick with an article posted on Yahoo yesterday in which some shit-for-brains market "expert" from Societe Generale claims that the "era"  of gold is over.  You can read his mindless drool here:  LINK   Here's the commentary that made me roll my eyes: 

Gold is a different animal than the rest of the commodities complex, driven primarily by macrodrivers,” and those macro-drivers now are driving gold prices lower... because the macroeconomy looks stronger.

Unless this guy, Michael Haigh, is unbelievably stupid, that has to be one of the most intellectually dishonest statements I have ever seen with regard to the relative strength of the economy and the true factors driving gold.

What are the factors Haigh is examining?  Is it the recent plunge in retail sales?  How about the fact that for the month of January the number of households using foodstamps hit a new record (23 million, which means roughly 20% of all households)  LINK.   How about the plunge in railcar loadings (I bet most of you weren't aware of that grass-roots economic indicator)  LINK   How about the fact that over 100 million people in this country are either unemployed or haven't been able to find work for so long that the Government has decided they're not part of the "labor force?"  Are those the indicators that Haigh is using in his analysis?

How about the fact the sovereign domicile of Michael's French employer, Societe Generale, is considered to be a candidate for the next EU country to go tits up?   It's unlikely, however, because both Germany (you'll have to plug this aricle into google translator but it basically reports how Germany is helping to fund the French financial system right now:  LINK) and the U.S. are taking measures to keep the French financial system solvent, including the Fed injecting $100's of millions into Societe Generale's U.S. subsidiary.  As a taxpayer, Michael, you're welcome.

At any rate, the true factors driving the price of gold are:  1)  the unstoppable and growing amount of money printing occurring globally;  2) the inability of Governments, especially the U.S. Government, to reign in massive and growing spending deficits;  3)  as a result of #2, the growing amount of outstanding direct Government debt being issued and the growing amount of indirect off-balance-sheet liabilities (medicare, Obamacare, pensions, war on terror, etc);  growing exposure to and potential catastrophic risk of the Too Big To Fail Bank OTC derivatives exposure.

There are other factors but 1-4 above are the primary drivers.  Just for the record, the decelerating - and soon to be tail-spinning down - U.S. economy will unmitigatingly prevent the Fed and the Government from fixing factors 1 thru 3.

What investors should really be afraid of is not the price-action in the gold market - but the underlying reasons for why the Fed orchestrated this paper attack on gold.  Recall that in 2008, two months after the metals take-down referenced above,  Lehman/AIG/FNM/FRE all collapsed and so began the great financial crisis and the massive Government/taxpayer funding and Fed money printing required to keep the system from completely collapsing and to let the big banks fund massive employee bonuses.

Given the shock and awe nature of this recent take-down, I would suggest that something really ugly - even worse than 2008 - is coming at us in the financial system and it will be just a matter a few months before we find out.  I would suggest that the event in Cyprus is likely what re-lit the fuse on the financial system that was stamped out with use of at least $1 billion in direct taxpayer money and, so far, more than $2.2 trillion of printed money.

The Wheels Are Coming Off In Cyprus - This Is Bad News For the U.S.

        
If you want to discern the next big turning point in the tide of global affairs - look as far away as possible from the present seats of global power - The Privateer paraphrasing Felix Dzerzhinsky, Lenin's head of the secret police and expert global affairs analyst.

As The Privateer's Bill Buckler points out, "Cyprus now is a valuable window into what the world is going to face at some point in the future." 

It was announced that the size of the bailout for Cyprus is now 23 billion euros.  That's up from 17 billion euros.  Originally it was set to be 10 billion euros.  While most people could probably care less or fail to see the relevance, the fundamental banking problems that got Cyprus into trouble are the very same banking activities practiced by all big banks globally - and to the extreme in the U.S. and Europe.

The amazing thing is that no one even flinches at the fact that the Federal Reserve is currently printing up and injecting $85 billion per month into the U.S. financial system - 66 billion euros, or 3 times the amount of the Cyprus bailout on a monthly basis .  So you have to wonder what's going on beneath the well-polished veneer of economic reports being fed to us by the mainstream media.

It just so happens that I have some data that shows the U.S. economy is falling apart:

Retail sales for March were reported today: off a cliff - unit volume sales seriously declined if nominal sales were down .4% and .2% after gasoline is stripped out.  January retail sales revised from +.2% to negative .1%.  The consumer is disappearing.

Consumer confidence plunged.  The sub-indices did absolute cliff-dives.  The miss vs. expectations was the largest miss in history for consumer confidence.  

Housing sales declining now in most regions.  JPM and WFC reported their earnings today.  Below the headlines they were a disaster.  Net interest margin is declining and has been for several quarters for JPM.   WFC is the largest home loan lender now - it's revenues from home loans has dropped 15% year over year and 12% vs. last quarter - how can that be if housing is truly recovering?

That's what's happening.  It's going to get ugly this summer and it is highly likely - just like the bailout bogey for Cyprus keeps getting larger - that the Fed will have to once again increase the amount of money being printed and injected into the banking system.  De facto, the Fed is indeed bailing out the U.S. banking system right now.  The problems that hit in 2008 were never truly addressed - just papered over.  And now they are bigger and more problematic then in 2008.

Anyone happen notice that the U.S. is escalating the "sabre rattling" going on between the U.S. and North Korea?  Now all of a sudden the Government has decided that North Korea's nuclear capabilities are more sophisticated than yesterday.  Kind of reminds of the storyline about Saddam Hussein hiding all those weapons of mass destruction somewhere in the desert.  I guess the 50,000 troops still stationed in Iraq are still over there looking for them.

This current activity in the precious metals market is 100% the product of the paper market manipulation.  The price declines occur after Asia closes down every night and right at the U.S. paper/electronic market opens.  China imported 100 tonnes of gold into the country in February.  That's just gold we can track being reported through Hong Kong.  Last night alone 26 tonnes were delivered on the Shanghai gold exchange.

Today is a capitulation day.  Paper gold and silver products - GLD/SLV - are trading currently in volume at 5 times and 4 times their respective 3 month average daily volume.   Go have some fun this weekend and don't think about the markets.  If what I think is coming at us really comes at us this year, it will be a lot harder to have fun in the future.

"Trust In Gold Not Bernanke As U.S. States Promote Bullion" - Bloomberg News

      
Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender. Arizona is poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states.  (Bloomberg News link)

For a barbarous relic that Ben Bernanke adamantly claimed, under oath in front of Congress, is not a currency and that Central Banks only hold out of tradition, you have to wonder why 12 States are currently processing legislation that would authorize the use of bullion as currency in those States.

I guess some legislators in those States have actually read the Constitution and decided to try and reassert some of the Constitutional authority that our Federal Government has maliciously usurped.

And if Central Banks just hold gold "out of tradition," as stated in the same testimony by Bernanke, you have to wonder why the IMF/ECB is forcing Cyprus to unload 339,000 ozs of its Central Bank gold in order to help fund the bailout of the banking system there.  Why would they sell something no one wants?  I might suggest that perhaps the U.S. wants that gold to replace the 2 million of ounces of gold that have been removed from the Comex over the last three months and have disappeared into private vaults.

Finally, in April 18th, the Canadian Broadcasting Company is going to air a documentary called "The Secret World of Gold:"

Some claim that much of the gold held by the Bank of Canada, the Bank of England, the Federal Reserve and Fort Knox is gone — that for every 100 ounces of gold traded, there exists only one ounce of real, physical gold. So, where is the gold — and who really owns it?

Here's a link to the announcement:  The Secret World of Gold

Maybe the fact that wars are started over the possession of large quantities of gold throughout history going back to the Roman Empire is really why Keynes referred to it pejoratively as a "barbarous relic."  And maybe we should all be asking ourselves why use and possession of gold creates such controversy.

If gold is nothing more than Central Banking tradition, why is the Fed refusing to comply with a Freedom of Information Act request to supply information regarding the Fed's gold trading activities?  The Fed is so adamant on this, in fact, that it is taking the lawsuit over this issue to the Supreme Court.   Kinda makes you wonder...

Is The U.S. Economy In Serious Trouble?

The Federal Reserve should continue buying bonds through this year due to a "scarring" of the labor market, and even more aggressive policies may be warranted if unemployment remains persistently high, a top Fed official said on Friday.  - Eric Rosengren, Boston Fed Head from Reuters  LINK

That an insider from a high level in the Federal Reserve would remark in response to Friday's jobs (or rather, "jobless") report that more QE may be needed kinda makes you wonder what the "insiders" are seeing that is not being accurately reported by politicians, Wall Street and the media.

I took a stab at looking at some of the data that might not make it into your daily mainstream media news regimen in order to shed some light on the "real" economy:

With the ability of the consumer to spend as represented by retail gasoline sales, the likelihood of a plunge in U.S. exports to Europe and the high probability that the real estate "boomlet" is ending, the U.S. economy could go into a tailspin.

You can read my analysis here:  Is The U.S. Economy In Trouble

Subsequent to writing and publishing that article, it occurred to me that, in addition to the negative GDP-effect from the pressure put on U.S. exports to Europe by a recession there, most you know that Japan has implemented an extraordinary money printing policy designed to push the yen lower vs. the dollar.  This will have the effect of boosting Japanese exports to the U.S., decreasing U.S. exports to Japan and depressing manufacturing further in the U.S.

This situation with the yen makes my analysis even more relevant and probably explains why the Fed is terrified by the state of the U.S. economy.  Otherwise why is the Fed adding money to the money supply at a parabolic rate (see my article)?   Obviously this makes the argument for gold even stronger, as now it's the U.S.' turn to fire a shot in the ongoing global currency war...

A Disastrous Employment Report Is Even Worse When You Look Behind The Headlines

In a time of universal deceit - telling the truth is a revolutionary act

        - George Orwell

The Bureau of Labor Statistics released its monthly employment report this morning.  The Wall Street brain trust consensus estimate was for an increase of 193,000 jobs.  The seasonally adjusted, highly manipulated for political purposes "actual" number was 88,000.   This was a stunningly large differential from what our best and brightest had pre-calculated.  For those of you who let some of the big Wall Street firms manage your money, here's a sampling of the individual firm estimates:  JP Morgan 210K, Bank of America 200K, Goldman Sachs 175K, HSBC 174K, Citi 175K, Barclays Capital 175K, UBS 190K, Deutsche Bank 160K (source, Zerohedge.com).

If you strip out the 92,000 jobs that Government "estimated" were created on a net basis from the formation and termination of new businesses during the month of March and assume that the Government was egregiously wrong with this estimate - which it likely was - then in fact it's possible that employment - the way the Government guesstimates it - actually declined in March (here's the birth/death model report:  LINK).

But let's play "pretend" with the birth/death numbers and look at input behind the headline report, which is what most people in this country look at and assume as fact.  From February to March, the Government tells us that the "civilian non-institutional population" (people 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions - penal, mental facilities, homes for the aged - and who are not on active duty in the Armed Forces) increased by 167,000.  BUT, the "civilian labor force" declined by a shocking 496,000.  That's half a million people who left the labor force.  Disappeared.  They don't matter anymore except that they get student loans, food stamps and social security disability.

Next the Government tells us that the "employed" number of people declined by 206,000.  So, how on earth, when you look at those numbers, can the Government tell us that employment increased by 88,000?  The numbers above come from the Household survey and are not seasonally adjusted.  In other words, they don't get put thru Government statistical meat grinder and spit out in the form some kind of unidentifiable "sausage."   It looks to me that based on the household statistical survey, our economy lost a lot of jobs in March.  Here's the household data:  LINK

Now, the Government also wants us to believe that the unemployment rate declined to 7.6%.  What a great looking number for the headlines and the idiots who report mainstream news.  But let's look under the "hood" of that number.  The unemployment rate is calculated by taking the number of people defined to be in the "civilian labor force,"  155 million and divides it by the "civilian labor force,"  244.9 million.  That yields a civilian labor force participation rate of 63.3%  Last month it was reported to be 63.5%.  In March 2012 it was 63.8%.  Hmmm.  I went and dug up the history of this number on the Federal Reserve website, LINK, this is the lowest percentage of the population of the U.S. that is "participating" in the work force going all the way back to May 1979.

The way the Government "engineers" a decline in the unemployment rate is it gives more people student loans to go to "college" and it gives social security disability benefits to more people who no longer qualify for jobless benefits (the jobless benefits people are part of the "labor force" number).  The unemployment rate is calculated by taking the number of unemployed and dividing it by the civilian labor force number.  The labor force participation rate hit a 34-year generational low.  Given that this many people dropped out of the labor force entirely, mathematically we would expect that the unemployment rate should decline.  But remember, there's really more like 500,000 people who completely disappeared from the Government's meat grinder.  That's the "sausage" that was consumed by the system and a high percentage of those people were moved from receiving jobless benefits to other forms of Government welfare assistance.

As you can see if you were able to stay awake while reading that dry analysis, there's a huge difference between the headline numbers that get fed to the general public and the actual facts about the number of workers employed in our system.  In my view, it's truly catastrophic that an opportunistic politician like Obama will likely later today get in front of the public and promote the decline in the unemployment rate and take credit for that. It's truly tragic that the truth is that our system continues to lose 100's of thousands of workers each month.

The Frightening Truth About The Cyprus "Bail In"

"If there is a risk in a bank, our first question should be: 'Ok, what are you the bank going to do about that? What can you do to recapitalise yourself?' If the bank can't do it, then we'll talk to the shareholders and the bondholders. We'll ask them to contribute in recapitalising the bank. And if necessary the uninsured deposit holders: 'What can you do in order to save your own banks?'" - Jeroen Dijsselbloem, March 26, 2013 (bold edit is mine, I sourced this quote here: LINK )

That statement - and specifically the phrase used in bold - is directly taken from a global banking agreement for bank rescues that was ratified in 2011 by the G20 members (further elaborated below). Although the U.S. media is not reporting this fact, it is extremely important to know so that you can take the necessary pre-cautions to protect your money.

Like everyone else, when I saw the first reports that bank depositors in Cyprus banks where going to take a loss on their bank deposits, I was in shock and disbelief. At first it was all depositors, but as the situation unfolded, the deal - known as a "bail-in," was restructured to protect depositors up to their Government insured deposit amount of 100,000 euros. The amount of loss that will be suffered by deposits in excess of 100k euros has not been solidified, but the latest reports suggest it could be as high as 60%.

What most people do not realize is that when you deposit your money in any bank, from an accounting and legal standpoint, you are loaning the use of that money to the bank. In other words, you become a creditor to that bank. Look at any bank balance sheet and you'll see that "deposits" are listed in the "Liability" section of the balance sheet. Defined as such, it means that as a bank depositor, you are exposing yourself to the ability of the bank to give you back your money when you want it. The bank is your legal counter-party.

The only reason people believe that their money is completely safe in a bank is the existence of Government-sponsored deposit insurance. The only difference between what is happening in Cyprus now and what happened in the U.S. in 2008 is that the U.S. has the ability to print its own currency in order to bailout the banks and fund depositor insurance. Cyprus is dependent on the ECB to make that decision.

In addition to printing money, the big bank bailouts in this country and in Europe were funded by the taxpayers. That's exactly what TARP is and, most people are unaware of this, but the Treasury (i.e. the taxpayers) placed a guarantee on a significant portion of the assets the Fed assumed from banks in exchange for providing immediate liquidity. If these measures were not implemented, it is likely that U.S. bank depositors would have suffered the same fate as their Cypriot counter-parts.

Because the use of taxpayer-funded bailouts would likely no longer be tolerated by the public, a new bank rescue plan was needed. As it turns out, this new "bail-in" model is based on an agreement that was the result of a bank bail-out model that was drafted by a sub-committee of the BIS (Bank for International Settlement) and endorsed at a G20 summit in 2011. For those of you who don't know, the BIS is the global "Central Bank" of Central Banks. As such it is the world's most powerful financial institution. I sourced a copy of this Agreement here: LINK

I read through the Agreement and was quite stunned by the terms of the agreement and also by the implications for any bank depositor in any country. The bank rescue model lays out a complete, systematic procedure for the rescuing and restructuring of any institution that is considered a "SIFI" - a Systematically Important Financial Institution. Here is a link to the Agreement:  LINK

The Preamble specifically states:

The objective of an effective resolution regime is to make feasible the resolution of financial institutions without severe systemic disruption and without exposing taxpayers to loss, while protecting vital economic functions through mechanisms which make it possible for shareholders and unsecured and uninsured creditors to absorb losses in a manner that respects the hierarchy of claims in liquidation.

As you can see the agreement references specifically avoiding more taxpayer bailouts. It also refers to bank deposits in excess of Government insured amounts as "uninsured creditors." This is essentially the standard legal bankruptcy model which uses creditor hierarchy (secured lenders, unsecured lenders, preferred equity, equity) and applies to the rescuing of banks.

This is very important to know about and understand because what is commonly referred to as a "bail-in" in Cyprus is actually a global bank rescue model that was derived and ratified nearly two years ago. It also means that bank deposits in excess of Government insured amounts in any bank in any country will be treated like unsecured debt if the bank goes belly-up and is restructured in some form.

Because this is a legal Central Banking agreement that will be applied globally, it also means that U.S. bank depositors will not be immune to this rescue mechanism. It means that no one should keep any amount in any bank that exceeds the FDIC guarantee. In fact, I would recommend only keeping enough money in the bank to fund your monthly or quarterly bill paying requirements. Any amount in excess of FDIC deposit insurance will be exposed to the risk bankruptcy.

Death By 1000 Paper Cuts

If you're intellectually honest with yourself, what's happening in this country right now is truly frightening...people who understand the markets are terrified by what's going on...Now we know why Bernanke is stepping down and running for the safety of his academic ivory tower - it has to be embarrassing for him to stand up in public and say: "look at the stock market - see, everything is fine."

Those comments are from a good, long-time friend of mine from NYC who used to tell me back in 2003 - in response to my prognostication about what's unfolding in this country and why owning gold was imperative - that I was "seeing black helicopters coming."

In fact, he called me up this morning and said "I really hate to think about it, but your scenarios for what could happen in this country are starting to look real.  He also commented that "the system crashed in 2008 and never really recovered except superficially from all of the money printing by the Fed and financial support of the banks by the Government."

Regarding his remark about people who understand the markets and are terrified - that observation comes from the fact that he chats regularly with high level wealth management people at the big banks.

The truth is, any kind of economic recovery is really only being "experienced" by an increasingly smaller part of the population.  Fact:  food stamp usage hits a new record every month - currently 48 million (as of the end of December) were on food stamps - that's  15% of the population and by household, 19% of the households.  Fact:  currently a record 11 million people are now receiving social security disability benefits - 5.9 million added during Obama's 1st term.   Fact, the labor force participation rate (the number of people working + the number of people looking for work divided by the population) is down to a near-record low 63.5% - it was 65.7% when Obama was inaugurated and and has declined nearly every month since then.

How can Bernanke possibly claim the economy is improving given those FACTS?  Now you know why he wants to leave at the end of his current term.  A two-term'er vs. Greenspan, who was a 6-term Fed head.  We all know why, it's just very few are willing to be "intellectually honest with themselves."

The fact is, there's 2.2 trillion reasons the economy superficially appears to be improving and the stock market keeps hitting new record levels.  That's the number of dollars printed and injected into the system since the Fed QE program started in March 2009.  By the end of 2013, that number will be 3.2 trillion.

The housing market?  Really?  Fact:  the Government is financing, using Taxpayer-subsidized money, around 97% of the mortgage market now.  In fact, the Government has recently ramped up its refinancing of underwater mortgages to now include the once-notorious no-documentation mortgages.  This is for mortgages that are already underwater and in danger of defaulting.  Since the FHA stepped in to replace the void left by the FNM/FRE bankruptcy, the FHA's liberal home purchase mortgage programs have gone from 2% of the housing market to close to 20%.  FACT:  the 2008 vintage FHA mortgage delinquency rate is now approaching 30%.

Want more?  FACT:  since the Fed announced the additional mortgage QE - i.e. printing money to buy mortgage paper, the Fed has been purchasing roughly 2/3's of all Government agency-financed mortgages.  Translation:  the Fed is printing money to enable some people to buy homes.  FACT:  currently, based on Census Bureau numbers, there are 18 million vacant homes in this country, of which about 4.5 million are in process of being converted by investment funds into rentals (there goes the rental market) and 4.5 million are considered vacation homes.  That's 9 million vacant homes with no intended purpose.  I'm not making that up, those are Census Bureau numbers.  There goes the low housing inventory story.  Wanna know where a lot of those homes are?  They're sitting on bank balance sheets, foreclosed, being financed by the money printing:  LINK

As my friend said, the economy collapsed in 2008 and never really recovered.  Instead, there's been slow systematic erosion in the general standard of living for an increasing percentage of the population.  Here's one more FACT:  since June 2009, the inflation-adjusted median household income has declined by 7.2%.  That is not the type of statistic we would be looking at if things were really getting better.

The golden truth is that the Fed's money printing program is doing nothing more than delaying the inevitable:  a complete systemic reset/collapse which will likely destroy the standard of living for everyone in this country except the truly wealthy .5% (that's point 5 percent).  And those in the .5% who don't own any gold/silver will be reset into relative poverty.  Death by a 1000 paper cuts (or 3.2 trillion printed dollars).

It Happens Two Ways: Gradually, Then Suddenly

  Ernest Hemingway on how you go bankrupt from "The Sun Also Rises"

The common delusion held by most people with whom I chat about this country's economic and fiscal problems is that "it can't happen here."  I've been trying to decide if this view is borne from childish naivete, motivated denial or intentional ignorance.  Quite frankly, it actually depends on the particular circumstances of each individual but the common denominator is "the Fed/Govt will take care of us."

Those are famous last words.  For those of you who like to see at least a possible explanation for what's really happening behind the curtain that's been collusively pulled over our system by DC and Wall Street, you would be served well to watch the less than 7 minute video below which compares the U.S. now with the German Wiemar period of the early 1920's.

While you watch this, keep in mind that China - in a ground-breaking trading agreement - has agreed to conduct all-out trade with Australia using full yuan/Aussie Dollar convertibility, outright bypassing use of the $US completely:  LINK  China has been methodically signing limited-scale agreements with several of its larger trade partners to conduct trade without using the $US.  This one with Australia would be the first 100% direct currency agreement.  The reserve status of the $US is being eliminated, slowly then suddenly.  That's the event that will lead to severe hyperinflation here: