Saturday, March 8, 2008
Gold was up during Asia times and Europe and at 8:30 edt gold was up 6.00 The news came from the BLS that the economy endured job losses of 63000. Not only that but they adjusted previous job gains downwards. The dollar initially tanked where at around 8:35 the usa index was at 72.45. Gold skyrocketed up by 11.00 to trade around 989.00 then out of the blue for no reason whatsoever gold was tagged to go down by 9.00, (at 9:40), the dollar rebounded sharply, the euro sank, the swiss franc was hit.. you name it..it was total and blatant central bank manipulation. The stock market instead of being down by 120 points recovered to go positive but that was short lived.
In the end, gold basically finished even on the day despite being hit by a couple of dollars at the close. Silver refused to go down at all and finished on the positive side of the ledger. The Dow was down by 225 points with 1/2 hr to go. The PPT came in with their hail mary attempt to rescue the Dow. Sellers, upon seeing higher prices for the Dow responded in kind and the Dow ended the day down 152.points. The usa dollar index remained at 73.04 however I can assure you that on Monday morning it will resume its downward fall.
Almost all commodities were higher or flat yesterday such as copper, oil , zinc, nickel and aluminium. The only metals to fall were Gold,Platinium and Palladium.
South Africa announced that they were working on a plan that mining operations could work at 95% levels of electricity instead of 90%. That was the reason that these metals were hit in price. The open interest on gold comex fell by 4915 contracts to 484899. This was expected with the decline in price of gold on Thursday. The open interest on silver comex fell by a scant 256 contracts and remains at 165000. This is really surprising considering the hit silver had on Thursday.
There is no question that someone or some sovereign nation maybe taking on the cartel.
We are hearing that many users of silver and gold are no longer going to London to get their physical as they just are not getting anything to speak of at that side of the pond.
We are hearing that many are going to the mining companies themselves and doing the refining themselves and getting the material at spot prices plus a few percentage points.
The COT report came in as expected:
large specs reduced their longs by 9600 contracts and increased their shorts by 3910 contracts.(they supplied the paper gold) Interestingly, the commercials reduced their longs by 3700 contracts but also reduced their shorts by a whopping 16000 contracts.
Silver was more mystifying in that the commercials only could cover a few thousand contracts. The specs continue to supply the paper silver and thus go short.
Turkey continues to be a major importer of gold. It imported 13. tonnes of gold last month. Although down from Jan. levels it is still 76% higher than last Feb.
Turkey will import over 200 tonnes of gold this year. India is the worlds largest importer of over 1000 tonnes. The world produces 2400 tonnes a year.
It will be difficult for the price of gold to drop by any significant level due to the level of purchases by Eastern bloc countries.
And now for some more economic news of the day:
This one is big:
The Fed announced that the TAF auctions will increase the amount of liquidity offered in 2 rounds to the tune of 100 billion dollars. The Fed announced heightened liquidity problems for this action.
I would like to comment on this. If one were to take the supposed usa gold reserves of$ 200 million oz (7000 tonnes) and sell them you would get 200 billion dollars. So the Fed is auctioning off$ 100 billion to banks because of the liquidity crisis., or half the gold value. I would like to put everything in perspective.
I would also like to add another important aspect to consider. The 3 month fed funds interest rate is trading at 1.3%. The overnight rate is 3%. The Fed is still miles behind the curve. However , if Bernanke lowers the overnight rate by greater than 1/2% point he is signalling that the usa economy is melting with the addition of the TAF auctions.
If he does lower by 3/4 with the TAF auctions, the Dow could sink by 2-3000 points.
Although the TAF are temporary injections and not permanent, they generally stay in the system for quite a while. Normally the Fed does temporary repos with the brokerage people. That has been suspended and it is now deals directly with the banks. This is very worrisome as it basically states that the banks have run out of reserves. In essence, banks with problem CDOs etc can exchange with the Fed their garbage with newly printed money. This is a swap that must be reversed.
I doubt it will ever happen. The Fed is stuck with this garbage forever. My take on this is that the reduction in the total derivatives has wiped out the banks reserves with huge losses on its books. On March 15.08 they will have to come clean. We will follow this closely, as their off balance sheet losses become real.
The deal to save Ambac is toast. They are trying to raise 1.5 billion dollars to save their AAA ratings. There is zero chance that this will happen. The Fed will end buying this junk just like the CDO's in the above paragraph.
The big Thornburg Mortgage player , the usa's largest jumbo mortgage issuer stated that it must now restate earnings (loses or impairments to its balance sheet).
They stated that they have further impairment in ARMS purchases to the tune of 427 million dollars. Thornburg had 600 million dollars of margin calls which greatly exceeded its liquidity. This company is toast along with Countrywide, the Monolines, Freddie and fannie and the entire banking sector.
There were rumours on Friday morning that UBS dumpted its 24 billion of Alt A subprime mortgages at fire sale prices. This is what caused Europe and usa to tank early in the morning.
The Fed had to make a quite decision early Friday morning:
1. give an immediate 1/2 point reduction in the overnight rate
2. announce increases in the TAF auctions to 100 billion dollars to provide liquidity to the banks and try and shore up their reserves.
they decided on the latter but it did not save the Dow. We are witnessing a widening of yields on risk paper outside of treasuries. In other words treasury yields are going down whereas other commercial paper (risks) are rising. This is incompatible in the markets. The fear of counterparty risk is escalating!!
There is another situation that is occuring in the gold comex futures market that I would like to comment upon. I rolled from the June 08 to a Dec gold 08 and the cost for the 6 month rollover was only 10.00 or 1.60 per month on a 1000 dollar per oz gold contract.
Usually it is 3-4 dollars per month "penalty" for playing the game. If the cost to roll is small, many will enter this arena and continue to press as there is little penalty to roll to future months. It seems that the commodity players are pricing the 3 month rate instead of the overnight rate in the contango.
Future months in precious metals are always in contango. Contango is :
interest rate minus lease rate (zero for gold) divided by 12 . (It looks like the commodity players are pricing in an interest rate of only 1.66% per year)
Have a great weekend
Thursday, March 6, 2008
Today we experienced another raid by the bankers-cartel. Gold closed downby 11.10 to 975.00 . Silver fell by 49 cents to 20.13 In the access market following the close of trading at 1:30, gold wasclocked down by a full 24 dollars to a price of 963. and silver broke 20.00to trade at 19.80.
It reversed course as the Dow started to skid.The Dow ended the session close to its lows. The Dow finished down by 215 and the Nasdaq finished off by 52.00 points. Strangely the gold shares rebounded from its lows. The big winner was Agnico Eagle which finished the day at 74.55 usa or 73.55 cdn.
The open interest on both gold and silver continue to confound everyone.The gold comex OI rose by a small margin of 2000 contracts despite yesterday's big rise. However the big surprise came from silver which declined in OI despite the huge 98 cent gain yesterday.
So today's raid made no sense. We have commercials running for the hills and the small specs are supplying the paper (they are going short) and the cartel raid gold? This has never ever happened before.
Clearly, the cartel were hell bent on keeping gold below the 1000 mark. Also tomorrow is the all important jobs report and it will not be pretty.They probably want gold to start from a lower level.
On the economic front, there were many major stories today:
First of all, oil hit a record 106.00 a barrel. Then the Euro hit an all-time record of 1.5380 after Trichet stated that Euroland is very worriedabout inflation and they were not going to lower interest rates over there. The usa dollar tanked on the news and it closed at a record low on the usaindex of 72.95.
The we heard rumours that the Fed and usa Government were going to officially back the GSE's Fannie and Freddie Mac. Their bonds tanked on this news but recovered when it was reported that the rumours were false. However, the big news of the day had to be the failures at ThornburgMortgage and Carlyle Group . Thornburg is a huge jumbo mortgage lender and its stock tanked afterreceiving margin calls from JPMorgan. The amount on the margin call was 28million dollars. This hit Wall Street hard.
However, nothing can compare to the big default at Carlyle:
these guys are huge. The group that defaulted was the subsidary of the main Carlyle group in England known as Carlyle Capital of England. They have received countless margin calls and they met all the margin calls up to March 5.08. However they received 3 more margin calls that they cannot meet.This sent alarm bells around the world. The Carlyle Group is a huge management Mortgage fund.
What is fascinating here is that in July the English sub. raised 300 million usa dollars and purchased 22 billion dollars of mortgaged back securities of Freddie and Fannie Mae. Supposedly the press release stated that these bonds were rated AAA. My question is this:how could they buy 22 billion dollars worth of securities with 300 million dollars or a 73: 1 leverage.
There must be massive derivative notes written on this one. Please rememberthat the BIS announced on Friday a massive contraction in derivatives of 161 trillion dollars.
In plain English, the house of cards at derivative houses are falling apart.The entire banking system has totally imploded.I can assure you that if Carlylle group gets a margin call, you can bet that the entire banking system is 6 feet under the ground. They are all mortally wounded.
I would also like to point out that 3 month treasuries rates have now gone to a low of 1.22%. There is now no question that Bernanke will lower ratesby 3/4 of a point on March 18.08. If Europe falls big time tomorrow, we may see a rate cut as soon as tomorrow morning with a further cut at the March18.08 meeting. The Fed is scared of a massive deflationary credit crunch .
We are also witnessing a widening of the 10 yr/2 yr treasury yields to 2.06%which is hyperinflationary. We have only seen this spread this high only once before. We are also seeing a widening of the corporate mortgage rateover the same treasury time frame. Risk is showing its ugly head and thisis scaring Wall Street.As promised the Ambac deal is dead. It can only be rescued bynationalization of it and the GSE's Fannie and Freddie.
There is so much in the report tonight. I highlighted the important ones but there are many. I urge everyone to take some cash and bury it in your mattress. You can besure that shortly we will see a banking holiday of 6 months...no ATM machines . You will need cash to buy food. Gold will trade at maybe 30,000 bid no offer. Please take total care
Wednesday, March 5, 2008
Gold closed up by 21.70 . Its final resting price is 985.70. Silver was up
by 88 cents to 20.64.
The open interest on gold fell by a rather feeble 6600 contracts despite
Tuesday's raid. Silver's OI startled everyone by rising by 1000.
It is clear from both figures that liquidation was not the order of the day.
Short sales by the cartel accounted for most of the OI in both silver and
The cartel basically got stuffed today. The raid was ill-timed. It made no
sense attacking with open interest declining. The specs were on the wrong
side of the tracks. They were shorting as I pointed out to you on the COT
With no margin calls, gold and silver took off and that was it for the raid.
In economic news, we are witnessing Eurobond yields jump from country to
country. The spread btw German and Italian bonds for the same duration is
52 basis points. This is not good for the Euro zone.
The Ambac deal has been called off. They are still negotiating . However I
can tell you that there will be no deal. The only way to save the monolines
Stephen Kerch reported today that the housing crisis is in the deepest
decline since the Great Depression. He expects home sales to drop by 22%
Ambrose Pritchard Evans posted an article stating that the Federal Reserve's
Rescue attempt in early January has failed. The interest rate cut has
failed to halt the downward spiral of debt deflation. The banks have
The ADP report showed that there were 23000 lost jobs. Let's see how close
the Government BLS stats come to this figure.
In another startling development, we learned that 70% of all Muni bond
auctions have failed to attract buyers. Yield on these type of financial
instruments rose from 3.63% to 6.52% in a month. This market is
The ECB announced its weekly sales and only 1 captive bank sold 1.9 tonnes
and another, Germany, bought gold coins. It is interesting that Germany
continues to purchase gold on the open market for coinage when it is listed
as having 3,400 tonnes.
Switzerland again has averaged in the month of Feb 11 tonnes. Sweden sold 1
tonne. With Switzerland nearing the end of its 250 tonnes of gold to be
sold, there is no one to continue gold sales. It looks like the 500 tonnes
of gold to be sold by the Washington Accord II will not happen. It looks
like they will get around 350-400 tonnes with nobody to take up the slack.
That is all for today,
speak to you tomorrow
Click here to view my daily commentary:
Tuesday, March 4, 2008
As I promised you last night, the cartel raided gold big time today. Gold was hit by 15.50 to close at 964.00Silver was hit by only 32 cents to close at 19.74.
Gold was taken down by the cartel right on cue after Londons afternoon fix. That fixing came in at a record high 984.75. The reason for hitting it after the fix is to preserve precious amts of physical gold. A lower gold price will probably bring many players including sovereign nations to the table buying cheap gold with a depreciating usa dollar. The world is awash in dollars and they need to dispose of much of this paper.
The cartel knew they were in trouble yesterday when news of the contraction in the banking derivatives held by member banks was announced by the BIS. The decline from 680 trillion dollars to 527 trillion dollars was simply startling.( The decline was 21%.)
I would like to point out that derivatives continued to expand even during the Long term capital mess, the Y2K mess, and the Dot.com debacle. This is the first time ever that total derivatives outstanding declined.How could 143 trillion dollars disappear over night? The answer is that the banks are experiencing much bloodshed and losses are appearing on their off balance sheet accounts. There is lot of smoke in Charlotte NC and in NY.
The big problem of course, is that losses on derivatives must be paid. The banks are now basket cases as the entire banking system in the usa is totally fried.I doubt if any usa bank is solvent.What about Canada? Our major banks are also in serious trouble.
The CIBC has probably endured the most pain in derivative trading. It will probably not survive. The National Bank of Canada is caught up in the commercial asset back paper and its stock will be hit pretty hard. The Royal Bank bought huge amts of CDO's and are continuing to write these off. They have some exposure to derivatives. The Bank of Montreal reported big time problems and they are trying to sort of their mess.
Their big problem is that they own Harris Bank in Chicago and they have exposure to derivatives big time.That leaves two banks: TD and the Bank of Nova Scotia.I can safely tell you that TD has little exposure to this mess and will survive.Bank of Nova Scotia has little derivatives but they are the holders of the massive short in silver through their subsidiary Scotia Macotta.(The Bank of Nova Scotia has an indirect problem in the asset backed commercial paper). Martin Goldfarb,the pollster deposited 33 million dollars in money market funds in preparation for a dividend that he was going to declare to his shareholders. The Chairman of the BNS directed these funds to this asset backed commercial paper and now it was reported that the deal to save this group has gone sour. There is going to be a litany of class action legal actions against many in this arena).
Ted Butler in his commentary today, concluded that the fringe commercials have abandoned ship in the silver paper game. This will explain why OI continues to fall. It fell again yesterday by 1200 contracts. However the 1-4 largest suppliers continues to supply the paper and their short position is now 311 million oz of silver.
You can safely say that there are really only 2 suppliers of silver shorts in the world:1. HSBC , the huge Hong Kong bank and 2. Scotia Macotta. (wholly owned subsidiary of Bank of Nova Scotia.).
HSBC generally handles most of the transactions at the largest bullion market in the world, the LBMA. It is also heavily involved in the OTC market Ted Butler opines that most of the 311 million oz short at the comex is held by our own bank , the Bank of Nova Scotia.
The big question is this: are they representing a sovereign nation (China)or are they supplying the paper silver to keep the fiat system alive. Macota is the cartel member responsible in the silver arena whereas the other 6 members of the cartel handle the gold shorts. The major player in that arena is JPMorgan. JPMorgan is the world's largest derivative player as they hold close to 75% of all derivatives written.
It was rumoured that China had 300 million oz of silver and that they had depleted their reserves last year. Cartel members knew that the suppression of gold needed a supply of silver. China fitted the bill. However China had no gold. China has accumulated 600 tonnes of official gold . They supplied silver with the left hand and bought gold with the right. As the dust clears now, the two major exchanges (Comex and LBMA) are now short over 1 billion oz and the two banks mentioned above are the banks who are short and will ultimately be responsible to deliver when called upon. We do not have figures on the OTC market.I doubt if the world has 100 million oz. Much of the silver has been consummed and much silver has gone into private hands. There is no silver held in public hands any more.
It is for this reason that I strongly believe that we have a commercial failure upon us.
As I told you on previous commentaries, we are in a race to zero interest rates. Canada just lowered its discount rate to 3.5%. On March 18.08 the usa will probably lower its Fed Funds rate by 3/4%. The two year money is already trading at 1.55%. You will see that the ECB will start to lower as well as all European nations are angry at the usa. They are asking the usa to support it's "strong dollar policy".
It is interesting that officials at Dubai have stated that they believe Citibank is totally insolvent. They are correct.
speak to you tomorrow
Monday, March 3, 2008
In early trading in Europe, gold rose to 989.00 and silver rose to 20.60.
The open interest on both gold and silver declined with both metals risingon Friday. The OI for gold closed at 493000 and silver's OI declined to166000. Clearly, the cartel are running with rising precious metal prices.Platinium hit an alltime high of 2265.00 today. At base metals were on firewith copper finishing up 1.5% to 3.93 and nickel rising again up by 5.5%.The grains were limit up as was soyabeans and cotton. The CRB index closedat a record 416.75 up a full 3.99. Crude Oil rose by 61 cents to 102.45.
In economic news, January construction fell a huge 1.7% as the economystarted to contract.
The ISM manufacturing sector contracted below 50 to 48.3. A reading below50.00 signifies recession.
In a startling announcement the Derivative Exchange announced a hugedecline in trading by 21 per cent. The total trading is now down to 539 trillion dollars the biggest drop in 14 years. Actually, it is the first time ever than derivative trading contracted and this is the abyss that central bankers are afraid. The balloon for derivatives must expand at all costs if the credit machine is to continue. A contraction leads to deflation. These figures were announced by the Bank of International Settlements (BIS).
Mortgage lender Thornburg could not meet margin calls on 270 million dollarsand thus its stock fell by 50% to 3.92 from 8.50 today. The company isstruggling with falling prices for mortgages since the middle of 2007.
On the weekend, I pointed out that Anglo Ashanti has a problem with theObuasi mine in Ghana due to squatters. The mine produces 14 tonnes of goldand all of this gold is hedged.
Now we learn that Anglo is threatening a "force majeure" due to its uranium by-product on gold production. Is Anglo stating that it cannot deliver uranium because of the mining problems in South Africa and Ghana? This is worth watching!
I would like to report that put premiums on gold and gold shares increased at 2 pm today. Generally, we can predict quite accurately that the cartel will raid gold. I cannot predict if they will be successful. However if you wish to buy gold wait until tomorrow afternoon. You will get it a little cheaper.If sovereign nations are lurking in the background waiting for a raid then all bets are off.
There were no new deliveries in silver today.
speak to you tomorrow,
Sunday, March 2, 2008
Click here to view my daily commentary:
we have now received the COT report upon which Dan Norcini has given an excellent commentary.
As you can see, the silver shorts are in big trouble. The silver paper believe it or not was supplied by small specs who thought that silver has risen too fast.
They always get it wrong.
should be an exciting week.