China Warns About The Dollar

(I know a lot of you saw this article already, but I am compelled to add my  2 cents, especially since the reader who has incessantly busted my stones over my bearish dollar call has disappeared)

When China speaks, the U.S. should listen: 

Any appreciation of the dollar is “really temporary” and a devaluation of the currency is inevitable as U.S. debt rises, Yu said in a speech in Singapore today...Such a huge amount of debt is terrible,” Yu said. “The situation will be worsening day by day. I think we are one step nearer to a U.S.-dollar crisis.

Here's the link if you have not seen the article by now:  LINK

This guy also goes on to say that "China should reduce its holdings of U.S.-dollar assets to diversify risks of 'sharp depreciation...'” Essentially this is a statement telling the world that continued support of the U.S. dollar by China will be limited at best.  Translation:  the dollar is going a lot lower.

Make no mistake about it, even though the comment above came from "a former advisor to China's central bank," when the Chinese Government wants to make a policy statement, it's usually done through "representatives" like this.

As per the graph below, you can see that the dollar has broken a head-and-shoulders chart formation, which usually implies much lower price levels are to be expected:

(click on chart to enlarge)

To be sure, the dollar is technically a bit "oversold" and can bounce at any time.  But the weekly chart is not reflecting an oversold condition, which means any corrective "bounce" will be brief.  Of course, this also means that gold and silver will going much higher.  Got any?

Here's The Problem - And Why Gold Will Go MUCH Higher...

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence.  Destroyers seize gold and leave to its owners a counterfeit pile of paper.  This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values."   - Atlas Shrugged

August 15, 1971.  That date should be etched in everyone's mind and it should be tattooed on the forehead of ass-absolutes like "Mish," Prechter, Denninger and every other imbecilic deflationista out there. Here's the chart, which I took from the free access to Nick Laird's http://www.sharelynx.com/ and added the two date-markers:

This is the key to the understanding the root cause of the collapse of the United States - economically, politically, morally, spiritually.

The Bretton Woods agreement in 1944 established the U.S. dollar as the world reserve currency.  The proviso was that all U.S. debt obligations were to be backed 1:1 with the gold owned by the United States.  While this was only a partial currency anchor, you can see that from 1944 - 1971, the amount of Treasury debt outstanding barely increased.

Then, on August 15, 1971, all hell breaks loose.  The terms of BW allowed foreign sovereign holders of U.S. debt to exchange that paper for gold at the Fed "window."  The U.S., in order to pay for the largesse of 8 years of Democratic socialist programs and Viet Nam, had issued a lot  more paper to foreigners than was backed by gold in Ft. Knox.  Charles deGaulle had figured this out and decided to turn in all of the U.S. debt held by France in exchange for gold.  Nixon had no choice but to close the gold window or risk an unmanageable political and economic crisis:  it prevented a run on gold that U.S. did not have.  Wars are started over issues like this.

For whatever reason for which I have yet to find a plausible explanation, the rest of the world accepted this U.S. Government default under Bretton Woods and continued to accept the U.S. dollar as the global reserve currency.  The only thing I can think of is that at the time the U.S. was by far the strongest economy, had military presence in close to 200 countries and by far had the most nukes to fling.

Now, if I were to dig up a long-term chart of M3 thru March 2006 and extended it with M2 + assumptions thru today, you would see a similar chart pattern to the one in the Treasury debt chart above.  Serious price inflation is percolating in the system and will soon be felt by everyone.

And now our system is mired in an irreversible debt/death spiral.  At some point our Asian/Anglo financiers will say "NO MAS" and then we'll really see the meaning of Bernanke's infamous "helicopter" speech.  The Fed will have no choice but to hyperinflate the money supply in order to fund the Government and keep our system from collapsing.  I'm not sure where Bernanke is coming from, because for a supposedly educated PhD economics expert, he sure is ignorant.  I guess the joke's on us...

Richard Nixon and every subsequent President, Arthur Burns, G. William Miller, Paul Volker, Alan Greenspan and now Helicopter Ben Bernanke are ALL destroyers of money.  Do you know where your gold is?

Obama Is Worse Than Bush: Looks To Control Cross-Border Money Flows

Under the thinly disguised excuse of trying to control organized crime and terrorism, Obama's Polituburo has introduced a proposal that would require all banks and Western Union to report all cross-border financial transactions.  Here's the news report:  LINK

Let's cut to the chase here.  To begin with, it can probaby be argued that this further violates the Constitutional implied right to privacy, which was established with Griswold v. Connecticut, a landmark decision which led to the Roe v.  Wade decision.  If this proposal becomes law, BHO will have once again lifted his leg and urinated on the Constitution, one of the favorite activities of his predecessor and seemingly a source of great satisfaction as well for the current POTUS.

That in and of itself is bad enough.  But what's really going on here is a movement by Government to control capital flows in and out of the country.  This is one of the hallmarks of a failing system and one in which devaluation of the currency is about to go parabolic.

As Barak continues the shift of our system from freedom to fascism, there are a lot of reasons to move as much of your wealth as possible into gold/silver and a lot of reasons to regard Obama as a complete scumbag and a failure.  This proposal, should it become law, is yet another reason for both.

South Korea Joins The Global Race To Devalue Fiat Currencies

Bank of Korea intervenes overnight, selling won and buying U.S. dollars.  Here's the news story:  Link

This is just more fuel to support the next move higher in gold/silver.  On a related note, Tulving http://www.tulving.com/ is the most sold out of gold/silver sku's as I can ever recall seeing.  Other than gold/silver eagles and maple leafs, it looks like physical supply is growing thin...

Gold Setting Up For A Big Move Higher

Gold and silver have had a big price run since the beginning of August.  I'm not prepared to argue that gold will move higher from here without some kind of corrective pullback or sideways consolidation.  In fact, I would argue that this would be healthy way for the market to set up another big price run during the 4th quarter.

From a fundamental perspective, the seasonal demand for gold in India will play a big factor in supporting higher gold prices. It is apparent that India has adjusted to these higher prices and has been aggressively buying gold on any price dips.  This is somewhat contrary to its buying behavior since the gold bull began, in which Indian buying disappeared on big moves higher and did not re-emerge until big price corrections.  As such, I wanted to post a comment by a reader from India:

There is Deepavali approching, a festival of lights, celebrated for Victory of Good over Evil. So it is considered to be auspicious (as per Hindu mythology) to buy PM's during this time. By the way Deepavali is celebrated in Thailand, Indonesia, Malaysia, Vietnam etc moreover all over south-east-asia region. Even Whitehouse is celebrating Deepavali from last few years. Would they buy Gold? ; )

Let's hope this physical buying could bring in end to price manipulation by the Bullion banks.

I consider Gartman, Soros, Nadler, Jeff Cristian, all are linked (to the right places) players. Take the case of Soros, No one has balls to take on a central bank like Bank of England, without insider knowledge. I can even put Berkshire into this league, did you see the rant by Munger recently? They all feed on their connections in right places.

On a lighter note, let everyone in the world celebrate Deepavali, buy into PM's hand over fist during this time and bring an end to the evil designs.

From India

The Indians are paying attention to the corrupt market manipulation of the western bulllion banks.  And the surge in individual wealth there is fueling India's huge appetite for gold and silver.

In addition to Indian buying, it looks like Vietnam is once again going to become a factor in the physical gold market.  Local market premiums went positive last night after being quite negative since late July.  There have been media reports of accelerating price inflation in Vietnam plus a growing distrust of the U.S. dollar, to which the local Vietnamese currency, the dong, is pegged.  As JB commented today regarding the Vietnamese gold market:  "...it will be remembered that high Vietnamese premiums preceded the world gold rise of last Fall."

I want to end by posting the latest and highly regarded 5x3 point and figure chart of gold published by the-privateer.com:

(click on chart to enlarge)

Per my commentary earlier, this chart shows the likelihood of some degree of price pullback/correction. But it's hard to imagine a chart looking any more bullish that this.

Currency Wars Set To Escalate

Between the idea
And the reality
Between the motion
And the act
Falls the Shadow...T.S. Elliot, "The Hollow Men"
 
In what could be possibly the worst piece of legislation to move through Congress - after the healthcare catastrophe of course - during Obama's failing reign, a House panel is set to approve a bill which would deem China's currency, the yuan, as "undervalued" and allow the U.S. to slap import duties on Chinese goods coming into the U.S. Here's the link: Confederacy of Dunces

The aspect that I find most problematic with this legislation is how exactly can anyone determine the "correct" value for any country's currency?  Perhaps the U.S. dollar is substantially overvalued.  In the absence of free markets, there is absolutely no way to determine "fair" valuation for anything.  How about if China threatens to sanction the U.S. if the Fed/Treasury does not cease and desist from capping the price of gold?

If the U.S. were to succeed in forcing China to revalue its currency higher, however, two huge problems will result.  First, this will drive up the cost of imported Chinese goods for the U.S. consumer and fuel the already percolating price inflation.  Walmart has already raised prices on average by over 5% this summer.  Prices will escalate even more if Congress is arrogant enough to slap import duties on Chinese imports.

Even more problematic, at least for our borrow-and-spend Government, is the effect this will have on China's appetite for buying Treasury paper.  If China were to "artificially" revalue its currency higher vs. the dollar, the net effect would be to create massive currency translation losses on its holdings of U.S. Treasury bonds.  And perhaps this is part of Congress' motive.  Create a mechanism in which to repay large Treasury bond holders with "cheaper" dollars.  Of course, it's also a way to discourage further foreign participation in financing the the U.S. Government's rapidly escalating borrowing requirements.

Friday Music:  "U.S. Blues"  I'm Uncle Sam/That's who I am/Been hiding out/In a rock n roll band

Metals Action Leaves The Ignorant Scratching Their Head...

Someone sent me an email mentioning that Dennis Gartman may have finally re-entered gold (later denied by Gartman).  My response was "who gives a shit what Gartman does?  He's irrelevant, especially when it comes to gold - and he can't even spell 'silver.'"

The key to the kingdom is to understand what is happening in the physical market.  GATA layed out the trail map over 10 years ago when Bill Murphy presciently declared that eventually the demand for actual physical gold would completely overwhelm the ability of the bullion banks/Central Banks to manipulate the price using paper. 

Are we there now?  I don't know.  But the character of the current market certainly reflects the obvious inability of the manipulators to keep a lid on the metals at key price points.  If you read the invaluable report produced daily by "JB" (and accessible at http://www.lemetropolecafe.com/) on the condition of the global physical market, you will understand that the eastern hemisphere central banks and population are buying physical gold and silver much more aggressively than in the past. Here's an excerpt from today:

UBS has an important comment: “When gold pulled back to $1270.75 on Tuesday, Indian buying interest returned: flows noted by our Swiss sales desk were the strongest since late July, and twice the year-to-date average. Given current lofty prices, demand is understandably inconsistent - but the Indian market has sent a clear signal that it is prepared to raise its price threshold…Importantly for gold, scrap supply has not risen to significant levels, ensuring that this potential rally dampener is not playing a major role right now.”

That tells a big part of the story.  India has become a lot less price sensitive than in the past and is aggressively buying gold on every pullback.  That we know of, and the caveat is that we have no idea what China is really doing other than buying hand-over-fist, India is the largest importer/consumer of gold in the world.  Turkey has resumed its importing in the last several months.  Russia accumulates several tonnes every month. And the southeast Asian countries are voraciously accumulating (Bangladesh just bought 10 tonnes from the IMF). 

JB's report also references that India's second largest gold importer sees the Oct-Dec imports potentially being 37% above that of last year's levels.  Not only are the Indians hoovering up gold, they have acquired an avaricious desire for silver.  Here's the article, worth reading  India's Gold/Silver Vaccum

Also note that another aspect that distinguishes this year's market from the past is the dearth of scrap gold/silver flowing into the market as the price rises.  JB has reported on this several times over the course of the last 6 months.

Another indicator which is followed closely by my friend and colleague, "Ranting" Andy, is the premiums being paid on Ebay for rolls of 1 oz silver eagles.  Yesterday he commented on the fact that there are very few sell listings on Ebay right now compared to the past.  And just today he reported that silver eagle rolls were being sold for $25-28/oz.  That's a $4-7 premium over spot.  Premiums like this on Ebay are indicative of growing scarcity of supply in the small-lot/retail market and the coin dealer network.  This market is defined as the buyers who can only afford to buy silver in small amounts.

The point of all of this is that it would appear that the demand globally for physical gold and silver is such that, at this current moment, the price manipulators are struggling to keep the metals from grinding higher.  Technically this is readily apparent in the action on the "tape."  Every sell-off is met with buying and a subsequent high-volumn move higher.  Higher lows and higher highs.  Classic indication of a market that wants to go higher. 

I don't know if we're at Bill "Midas" Murphy's point-of-no-return in which the bullion banks are carted off the Comex floor on stretchers, but I do know that this market wants to go higher for now.  And this is being supported by the easy money banking policy that has been implemented by the global Central Banks (some of you might refer to this as "the global race to devalue fiat currencies").

Since it's my birthday today, I'm cutting the day a bit short.  I'd like to sign off with the lyrics of the Grateful Dead's "Deal" in tribute to all those who have no fucking clue what is going (we all know who they are):

Since it cost a lot to win
and even more to lose
You and me bound to spend some time
wondring what to choose
Goes to show you don't ever know
Watch each card you play
and play it slow
Wait until your deal come round
Don't you let that deal go down

I been gambling here abouts
for ten good solid years
If I told you all that went down
it would burn off both your ears
It goes to show you don't ever know
Watch each card you play
and play it slow
Wait until your deal come round
Don't you let that deal go down

Since you poured the wine for me
and tightend up my shoes
I hate to leave you sittin there
composin lonesome blues
It goes to show you don't ever know
Watch each card you play
and play it slow
Wait until your deal come round
Don't you let that deal go down

Dennis, CNBC et al:  Thanks for pouring my wine and tightening up my shoes!