Good morning Ladies and Gentlemen:
I am going to quote areas from the above two commentaries on the Midas site.
First of all, gold closed up by 1.40 to 887.20 and silver rose by 19 cents to 16.85.
As for the open interest numbers, they are simply mind-boggling. The gold OI fell marginally by 300 contracts to 422000 despite gold's constant pounding. Silver's OI contracted by a huge 23000 to 130000. (It looks like the silver contraction is simply calender spreads unwinding ). In gold OI , the price of gold has fallen from$ 950 to$ 887 with few contracts fleeing.
I strongly believe that I am correct in saying that strong hands are holding the gold comex contracts. When the front month comes due, all of these players will simply roll. They are not frightened that the usa will raise interest rates and cause the dollar to rise and gold to fall. The answer why is in the two commentaries above :
1. the Murphy commentary at the James Joyce table
2. The Ron Kirby presentation at the Hemingway table.
During the night we witnessed massive turmoil in Japan. Japanese long bonds tumbled causing the biggest jump in yields in over 5 years, after inflation accelerated at its fastest pace in decades. Bond futures fell as much as 1.8% causing the Toyko stock market to suspend trading for 15 minutes. The government announced prices rose by 1.2% in the month and causing speculation that the Bank of Japan will have to raise interest rates. This will completely collapse the dollar yen carry trade. Investors short on yen will have to buy back yen at higher prices. This will force investors to sell usa denominated assets as this is what was purchased with the borrowed yen.
We also learned that a usa ship fired on an Iranian ship in international waters. No explanation was given but that caused oil to skyrocket up by almost 3.00 to 119.00. Also a North sea pipe line is being shut down for repairs and Nigerian rebels have basically stopped the exporting of Nigerian oil.
All of the above, caused long bonds in the usa to fall. The long bond fell to 115.56 down from 119./00 earlier in the week. The world is now getting ready for long term rates to rise and this will be the death knell of the cartel.
Switzerland, sensing danger in the financial environment stated unequivocally, there will be no more gold sales by it after its current program of 250 tonnes have been finalized. At the end of Dec 31.07 , 145 tonnes out of 250 tonnes have been sold. During the first two months of 2008 only 11 tonnes for each month were sold. They have not announced any figures for March yet. The program ends in Sept 2009. It looks like Switzerland is loathe to supply any more metal, now or in the future.
In Kirby's commentary, he talks about the huge growth in notional derivatives at JPMorgan. It is extremely difficult for laymen to understand. So I will try and explain in plain English what is going on so you could fathom the gravity of the situation.
JPMorgan at Sept 2007 had 91 trillion dollars of notionals on its books. Of that 65% of that was swaps or 61 trillion dollars. Swaps are simply a trade with a broker that must be reversed say every 18 months. In essence, JPMorgan is swapping its 3 month paper (borrowed from the Fed) for 5 - 10 year paper from the brokers. The brokers cash these short term treasuries and buy stocks to kingdom come and short gold and gold shares. They have massive amounts of dollar infusion to do the above. On top of this amount of dollars, the Fed itself gives money to the brokers called repo pool money. However this money is temporary and occasionally, the brokers have to pay this money back to the Fed. However the first set of dollars remain in the system and this is the reason that the derivative pool continues to expand.
And now the problem: generally, when you do a swap, you hedge your bets. However Kirby determined that JPMorgan did not hedge their bets. In other words, they are continuing to bet that long term rates will continue to fall. If long term rates rise, or if Asia and other nations sell their USA holdings of treasuries, then JPMorgan will have astronomical losses on the bonds that it holds. You see as long term rates rise, bond prices fall and when each swap transaction is terminated losses will mount to the heavens.
In other words, JPMorgan is the Fed in that it is their policy to lower and keep rates low. The instrument of this action was Morgan.
So now, you can see the problem the usa is facing. The Fed has toxic waste from the brokerages with all the subprime stuff. They will receive more toxic junk in the weeks to come when all the ALT A's go. We are looking at an minimum of 1.2 trillion in that arena. Then the prime stuff will go and finally credit card defaults will mushroom. The Fed will purchase all of this toxic junk, printing massive dollars back to the brokerage boys for this low quality junk.
And now, JPMorgan will be in trouble as the world senses danger in the usa, with rising commodity prices and they start to bail out of USA assets especially bonds. We already witnessed Japan in trouble in the bond market, as citizenry over there saw food and other commodities rise. Long- Bond prices must now fall and yields rise. This will be the final derivative implosion. Your long awaited "banking holiday" will commence.
This will explain why Paulsen and team needed to suppress gold. It was the canary in the coal mine. They had to keep long term rates low to keep the game going. The game will go on until long term rates blow up JPMOrgan, or the last oz of gold is leased out by the iMF. My guess is that both will happen simultaneously!
Have a great day
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