Saturday, May 8, 2010

May 7.2010 commentary...very important

Good Morning to you all:
 
Before we get into the meat of the commentary, I would like to report on our newest arrivals to the banking morgue:
 

May

1st Pacific Bank of California, San Diego, CA with approximately $335.8 million in assets and approximately $291.2 in deposits was closed. City National Bank, Los Angeles, CA has agreed to assume all deposits, excluding certain brokered deposits. (PR-109-2010)

Towne Bank of Arizona, Mesa, AZ with approximately $120.2 million in assets and approximately $113.2 million in deposits was closed. Commerce Bank of Arizona, Mesa, AZ has agreed to assume all deposits, excluding certain brokered deposits. (PR-108-2010)

Access Bank, Champlin, MN with approximately $32.0 million in assets and approximately $32.0 million in deposits was closed. PrinsBank, Prinsburg, MN has agreed to assume all deposits. (PR-107-2010)

The Bank of Bonifay, Bonifay, FL with approximately $242.9 million in assets and approximately $230.2 million in deposits was closed. First Federal Bank of Florida, Lake City, FL has agreed to assume all deposits. (PR-106-2010).

 

The damage to the FDIC is much lighter than normal as this regulatory body had a massive bleed last week with those Puero Rico banks. Those banks represented 21% of total assets in

this protectorate of the usa.  The FDIC will report later this month on their lastest quarter.

 

Next week, the BIS reports on the derivative risk to all banks which it monitors. This data will be very important to us as we determine how short the banking industry is in

with respect to the precious metals and how the banking industry is coping with the huge worldwide demand for those metals. Reg Howe will present a paper on this plus

other important developments.

 

Gold closed up by 13.10 to 1210.00 by 1:30 comex closing time.  Silver skyrocketed up by 94 cents to 1843.

 

Today, we now have gold trading at record levels in all currencies including the usa dollar.  The cdn dollar gold price is 1265.00 per oz.  The GB Pound price is 808.7 GBP per oz.

The gold price in Euros is also a  record at :  952.30 E/oz.

Finally, the Aussia gold price per oz hit record levels reaching:  1359 Aussie dollar/oz.  The Swiss Franc gold price is 1341 SF/oz reaching its record level early in the day.

 

So we are witnessing a global run to gold and silver.

 

Here is a statement yesterday from the Union bank of Switzerland on gold demand:

 

UBS has dramatic news this morning too:

"…our Zurich and Geneva sales desk experienced exceptionally strong demand for small bars and coins. All size bars up to 1kg are wanted by retail investors. Buying has been evident all week, but demand yesterday was the greatest that we have experienced since 2008…Coin demand is so intense that supply is struggling to match, even as premiums rise. Capacity constraints, greatly evident last year, are once again a feature. We saw particularly strong demand for Kruggerands, but all coins are being sought right now….Physical demand has been most obvious in Germany this week. Considering their primary role in the Greek bail out and the near borderless European debt problem, with few viable investment alternatives Germany investors have turned to gold."

UBS officially raised precious metals to overweight this morning.

Since EMU problems will continue to flare, the immediate issue is, is this early 2009? Will extremely unusual Western bullion demand be quenched by unprecedented gold outflows from the normal buying markets, accelerated by FX moves? Eastern premiums will answer this shortly.

***

 

 

end.

 

Yesterday was the release of the non farm payrolls and the number reported was quite good with a gain of 290,000 jobs.

The street got wise to the number as they realized that the country hired 1 million plus workers to do the census.   I will report on this when I dwell on economic news.

 

Generally, the banking cartel use this opportunity to whack gold and silver down showing to the world that everything is well in the usa. The market meltdown on Thursday with all of those computer

trades certainly did not help all of those nervous nellies who are getting wise to the fact that the NYSE and Nasdaq are manipulated markets from 9:30 to 4 pm.

 

Even though gold was whacked down to 1192 early in the session, the cartel boys had extreme difficulty in forcing silver down. Demand for gold's cousin was so strong it overtook the massive

supply of contracts by the banks to score a big gain of 94 cents per oz.  The banking cartel are burning the midnight oil this weekend trying to figure out who is weather gold and silver's huge demand for physical.

 

The Office of the Controller released their report on deriviatives within USA banks for the quarter.  This number represents risk to usa banks only. JPMorgan stood out as the primary derivative leader in the usa.

The total derivatives increased by 4.2  % .  However what is scary is another increase in total derivatives in silver by a huge  125 % as per silver production in the quarter. The increase in oz of silver equals 220 million oz of silver.  Gold derivatives declined slightly by l%. The BIS will report on all the banks risks to these short sales and this will be reported to you. It looks like the total shortfall of all banks in silver

will exceed the 10 yrs of production in silver. 

Here is a summary of this important data release:

The U.S. Treasury Department's Office of the Comptroller of the Currency (OCC) has just released the Quarter 4 2009 bank derivatives report, which can be found here:

http://www.occ.treas.gov/ftp/release/2010-33a.pdf

This report contains shocking new evidence that can be interpreted only as blatant manipulation of the silver market. Before looking at that evidence specifically, consider some other important points in the report:

... Dispatch continues below ... 

Adrian Douglas comments:

 

"Executive Summary.

"-- The notional value of derivatives held by U.S. commercial banks increased $8.5 trillion in the fourth quarter, or 4.2 percent, to $212.8 trillion.

"-- U.S. commercial banks reported trading revenues of $1.9 billion in the fourth quarter, down 66 percent from $5.7 billion in the third quarter. For the year, banks reported record trading revenues of $22.6 billion, compared to a loss of $836 million in 2008.

"-- In the fourth quarter, net current credit exposure decreased 18 percent, or $86 billion, to $398 billion. Net current credit exposure dropped 50 percent during 2009.

"-- Derivative contracts remain concentrated in interest rate products, which comprise 84 percent of total derivative notional values. The notional value of credit derivative contracts, at $14 trillion, represents 7 percent of total notionals. Credit derivatives notional totals increased by 8 percent during the quarter."

Imagine: an increase of $8.5 trillion in notional value of derivatives in just three months.

It sure looks like the banks are working hard to reduce risk and avoid a recurrence of the financial meltdown of 2008 that was caused by the failure of Lehman Bros. and its monstrously oversized derivatives book.

It also looks like the regulators are working hard to make sure that the risks are not concentrated in a few banks that are "too big to fail." The comments in parentheses are mine, not those of the OCC, although you could probably have worked that out for yourself:

"A total of 1,030 insured U.S. commercial banks reported derivatives activities at the end of the fourth quarter, a decrease of 35 banks from the prior quarter.

"Derivatives activity in the U.S. banking system continues to be dominated by a small group of large financial institutions. Five large commercial banks represent 97 percent of the total banking industry notional amounts and 88 percent of industry net current credit exposure. While market or product concentrations are normally a concern for bank supervisors, there are three important mitigating factors with respect to derivatives activities.

"First, because this report focuses on U.S. commercial banking companies, there are a number of other providers of derivatives products whose activity is not reflected in the data in this report."

(Do you seriously expect us to believe that these other providers significantly dilute a 97 percent monopoly?)

"Second, because the highly specialized business of structuring, trading, and managing derivatives transactions requires sophisticated tools and expertise, derivatives activity is concentrated in those banking companies that have the resources needed to be able to operate this business in a safe and sound manner."

(You have to be kidding me! Where have you guys at the Treasury been the last two years?)

"Third, the OCC and other supervisors have examiners on-site at the largest banks to continuously evaluate the credit, market, operation, reputation, and compliance risks of derivatives activities."

(And how did that work out for you in 2008?)

"In addition to the OCC's on-site supervisory activities, the OCC continues to work with other financial supervisors and major market participants to address infrastructure issues in OTC derivatives, including development of objectives and milestones for stronger trade processing and improved market transparency across all OTC derivatives categories."

(How much more "transparency" do you need to "see" that $206 trillion of derivatives in five banks with combined assets of a measly $5.4 trillion is a "daisy-cutter" bomb big enough to wipe out all things paper on the planet?)

You have to love those "mitigating factors" that the regulators offer as to why five banks owning 97 percent of $213 trillion of derivatives is not a problem. The increase in notional value of all derivatives in just three months is equal to 75 percent of the U.S. gross domestic product. Do the "sophisticated tools" that these bankers require to write derivative contracts include bongs and the strongest hallucinatory drugs on the planet?

Let's have a look at the gold and precious metals derivatives and compare Q3 to Q4 2009.

The gold derivatives of all maturities declined 1.3 percent to $99.9 billion, which was due to a decline in JPMorgan Chase (JPM) holdings of 1 percent to $82.1 billion and a decline in HSBC holdings of 11.2 percent to $16.2 billion.

But the real shocker is in silver. The precious metals (silver) derivatives of all maturities increased by a mind-boggling 37 percent, from $9.29 billion to $12.8 billion. This came principally from increases in the less-than-one-year maturities where the JPM holdings increased 34 percent to $6.76 billion and HSBC holdings increased 58 percent to $4.7 billion. (Despite the radically different percentage increases, interestingly the increases at JPM and HSBC were identical in dollar amounts at $1.7 billion.)

This increase in notional value of silver derivatives represents approximately 220 million ounces, which is 125 percent of the global production of silver during the quarter -- and that is only the increase. The entire notional value represents 106 percent of annual global production.

What possible legitimate purpose could such a monstrous derivative position be serving with a maturity of less than one year?

The only purpose I can think of is for manipulation of the silver market. I am not a regulator but I can't think of any "mitigating factors" for that.

-----

Adrian Douglas is publisher of the Market Force Analysis letter (www.MarketForceAnalysis.com) and a member of GATA's Board of Directors.

 

The open interest on the gold comex increased by a huge 9000 contracts to 562000.  The record is 600,000 but that was when calender spreads were in vogue for tax avoidance.

This has been generally outlawed in 2008 and thus OI declined. In 2009 the record was 549.000 and we have now surpassed this level.  Demand is very high.

The volume on the comex on Thursday was a huge 298,000 contracts.  The estimated volume on Friday was over 300,000 without any noticeable switches.

I would like to remind everyone that june is the second biggest delivery month for gold (December is the largest)

 

The silver OI increased by a much smaller 700 contracts to rest at 121,600.  Obviously some of the smaller commercial banks are finding the heat at the silver comex too hot.

 

Lets go to the COT report which is basis Tuesday (before the rise in gold):

 

The gold COT report revealed:

*The large specs increased long by 8,039 contracts and increased shorts by 3,160

*The commercials increased longs by 6,091 contracts and increased shorts by 12,155.

*The small specs decreased longs by 2,471 contracts and decreased shorts by 3,656.

 

Here we are seeing the large specs entering back into gold by a huge 8000 contracts.  Some of the larger players seeing a little

froth in the gold market decided to increase some of their shorts by 3160 contracts.

 

Look at the commericals:  the smaller commerials sensing the collapse of world markets due to the Greek problems, increased their longs by 6000

However the larger commerials as always increased their paper shorts by a massive 12,155 contracts.(JPM and HSBC)

 

The smaller specs were annihilated last week as promised due to these guys going massive short.  They got fleeced again and thus will be very nimble when they try and

enter the arena again.

 

In silver:

 

Strangely, the large specs decreased by a tiny margin their longs by 766 contracts and also increased their shorts by 1142.

The commerials: increased their longs by a good margin of 2434  but also increased their paper shorts again for the umpteenth time by 1209 contracts.

The small specs:  tiny movements.  not in the game.

 

Remember this is basis Tuesday when silver was knocked down in price.  Looking at the figures you now know why----- the large specs sensed the banking raid

and the commercials went along with additional shorts.

 

Result:  they are all in trouble as witnessed by the OCC report.

 

There were two developments in trading that I would like to report:

 

First the Central Fund of Canada finished trading with a 12.4% premium to NAV. This is close to a record.  Eric Sprotts  PHYS finished the day with a 17% premium to NAV. That is a record!

These are the only funds that have a positive to NAV.

 

The CEF bullion vehicle closed at a premium to NAV of 12.4% and its peer PHYS at a remarkable premium of 17.417%. This is the highest since before CEF’s last offering in early November and probably the highest ever for PHYS which only started trading in late February. Bullion was definitely the flavor of the day.

The second big news was the release of this news..GLD reported a huge leap of 19.8 tonnes of gold.

 

The GLD ETF also conveyed this message, with gold holdings leaping 19.875 tonnes to a record 1,185.787730 tonnes. A very big increase by historic standards. MarketVane’s Bullish Consensus for gold and the HGNSI were however unchanged at 76% and 46.6% respectively.

 

end.

 

 

Catherine Fitts has done an extensive review on GLD and SLV.  She has concluded that the original inventory from the GLD came from the Bank of England or (some of European central bank

but the odds on favourite was the B of E due to its custodial position in GLD).  The inventory received was by way of a swap.  In other words, the B of E would swap its gold, say 1000 tonnes for

dollars.  The gold would move from one section of the bank to the other with a "new" owner sign on the physical gold:   GLD.  The B od E could at any time swap its gold back.

 

Thus shareholders of GLD if the need arises could not settle with the operators of GLD with gold.  They could only settle for cash.

This is why the GLD gold inventory can rise without disturbing golds price despite gold's scarcity. 

The GLD and SLV were put on earth to take away necessary demand.  If this vehicle was not present then demand for real silver and gold would have put a possible default at the banks much sooner, as the demand for silver and gold would have broken the backs of the banks as they could not deliver upon many of the comex and LBMA silver and gold contracts..  Many are catching on, that this vehicle of GLD/SLV is fraudulent. They are switching to the Central Fund of Canada and Sprotts  PHYS ..  This is why these two funds are trading at a huge premium and the GLD and SLV trade at a discount to NAV.

 

The SLV is probably a little different. We think that the original inventory of silver was real coming from Buffets sale of  silver (137 million oz).  However additional inventory is nothing but paper.

The bankers have probably used the 137 million oz of Buffet silver in satisfying comex longs for the past 6 years.  This is why we are  witnessing massive problems in the physical silver market,

and the violent activity at the comex silver inventory!

 

 

The data for the silver and gold inventories for Friday were not available so I will report on this on Monday.

 

 

 

Ok lets go Economic news.  Of course, this was the big news everybody was waiting for:

 

US nonfarm payrolls jump in April, jobless rate up

WASHINGTON, May 7 (Reuters) - U.S. nonfarm payrolls grew at the fastest pace in four years in April as private sector employers ramped up hiring, raising the strong possibility that the labor market recovery may be picking up steam.

Employers added 290,000 jobs in April, the Labor Department said on Friday. It revised figures for February and March to show 121,000 more jobs were added than previously thought. The unemployment rate, however, rose to 9.9 percent as the size of the labor force increased.

Payrolls have now risen for four straight months.

Analysts polled by Reuters had expected nonfarm payrolls to rise 200,000 last month and the jobless rate to remain unchanged at 9.7 percent. The median forecast from the 20 most accurate forecasters was for a payrolls increase of 188,000.

Private sector employment increased 231,000, also the largest gain since March 2006, after rising 174,000 in March.

Private payrolls have now grown for four months. Census hiring contributed 66,000 jobs.

Stubbornly high unemployment has been a political sore spot for President Barack Obama and his fellow Democrats, even though the job market appears to be slowly on the mend.

About 8.2 million jobs were lost during the recession and economists warn it is likely to take years to regain that lost employment.

U.S. consumers have begun to participate in what has been a manufacturing-led recovery, but job growth is crucial to sustaining that trend.

Last month, manufacturing payrolls increased 44,000 after rising 19,000 in March. Construction employment gained 14,000, rising for a second month and defying expectations of a fall.

Payrolls in the service sector increased 166,000, advancing for a third month.

Temporary help hiring increased 26,200, strengthening the jobs recovery theme. Temporary employment is seen as a precursor to full-time jobs.

Government payrolls rose 59,000, adding onto the prior month's 56,000 increase.

The average workweek rose to 34.1 hours from 34 hours in March.

-END-

08:30 Apr average hourly earnings m/m 0.0% vs. consensus 0.1%; average weekly hours 34.1 vs. consensus 34.1

* Mar average hourly earnings m/m unrevised from (0.1%)
* average weekly hours unrevised from 34.0 
* * * * *

 

 

This report  failed to discuss the huge gain in employment from temporary census workers. These workers will be laid off in June.  However, the street knew that the government hired 1 million plus census workers. The unemployment level rose to 9.9%

The Dow fell 140 points

 

Here is John Williams of ShadowStats; with his release:

 

im Sinclair’s Commentary

Any time you have a major statistic come out that you need to understand, subscribe to shadowstats.com

- Happy Assumptions and Census Hiring Help Payrolls  
- April Unemployment: 9.9% (U.3), 17.1% (U.6), 22.0% (SGS)  
- Real Annual Money Supply Contraction Deepens  
- Worst Is Ahead for Economic and Solvency Crises

"No. 295: April Employment/Unemployment, Systemic Risks" 
http://www.shadowstats.com/

 
 
end.
 
Here is a report on the census hiring:
 

The numbers below are reported by the US Census Bureau!

It appears the 635,000 positions hired for door to door follow up have all been filled at this time and the new employees began hitting the streets on May 1, 2010.

Respectfully, 
CIGA Bernie

Reach of 2010 Census: Mail back and Door-to-Door

134 million 
Approximate number of total housing units in the U.S. that have to be contacted for the census, either via mail or in person, to collect a form or determine if vacant.

1.4 million 
Approximate total number of positions to conduct the 2010 Census.

Recruiting and Staffing

3.8 million 
Approximate number of people that were recruited to fill positions for 2010 Census operations between 2009 and 2010.

635,000 
Approximate number of positions hired for door-to-door follow-up phase in 2010.

More…

Door-to-Door Visits Begin for 2010 Census 
Census Takers to Follow Up with About 48 Million Households Nationwide

About 635,000  2010 Census takers across the nation begin going door to door tomorrow to follow up with households that either didn’t mail back their form or didn’t receive one. An estimated 48 million addresses will be visited through July 10.

More…

 
 
Please note the U6 number is a real government number of unemployed is 17.1%.  It adds short term
underemployment plus all those discouraged workers who have given up looking for a job plus the unemployed receiving benefit.
 
John Williams  SGS unemployment/underemployment rose to 22%. This number is u6 plus long term
undemployment or long term temporary workers who seek full time work. (as opposed to short term underemployment in the official government stats of U6)
 
 
 
end.
 
Consumer credit rose fractionally last quarter:

U.S. March consumer credit rises by $1.95 bln-Fed

WASHINGTON, May 7 (Reuters) - Total U.S. consumer credit unexpectedly rose by $1.95 billion in March after a revised $6.21 billion drop in February, Federal Reserve data showed on Friday.

The March consumer credit outstanding rose at a 0.96 percent annual rate to $2.451 trillion. The Fed revised February's consumer credit data to show a fall of $6.21 
billion, much smaller than the $11.51 billion drop that it previously reported for February.

 
 
 
However credit default swaps rose in price signifying danger to the banking sector for defaults:
 

U.S. CDS index widens 9 bps to 137 bps

NEW YORK, May 7 (Reuters) - The cost of protecting U.S. corporate debt with credit default swaps jumped on Friday, extending a move on Thursday over mounting concern that a debt crisis in Greece would spread to other euro zone countries.

The main index of investment-grade credit default swaps rose to 137 basis points from 128 at Thursday's close, according to Markit Intraday. The index is now about 49 percent wider on the week.

The index suffered its second-largest widening ever in relative terms, or about 22 percent, on Thursday amid worries that risks in Southern Europe are becoming similar to the risk around banks in the United States in the fall of 2008, JPMorgan said in a research note on Friday.

-END-

 

 

 

.

And then this article on Bloomberg on the same subject as above:

 

Bank Risk Soars to Record, Default Swaps Overtake Lehman Crisis

May 7 (Bloomberg) -- The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers Holdings Inc., as the sovereign debt crisis deepened.

The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers soared as much as 40 basis points to 223, according to JPMorgan Chase & Co. The index closed at 212 basis points March 9, 2009. Swaps on Greece, Portugal, Spain and Italy rose to or near all-time high levels.

Credit risk rose for a sixth day on concern the Greek debt crisis is spiraling out of control and triggering concern banks may face losses on their sovereign bond holdings. The Group of Seven plans to hold a conference call today to discuss the turmoil, after a global stock rout that briefly erased more than $1 trillion in U.S. market value."Financials are caught in a really bad place right now," said Aziz Sunderji, a London-based credit strategist at Barclays Capital. "Investors are selling bonds, not just hedging with CDS. It shows investors are repositioning portfolios and there’s a more long-term repricing of peripheral risk."Pacific Investment Management Co.’s Mohamed El-Erian and Loomis Sayles & Co.’s Dan Fuss said Europe’s crisis may spread across the globe because of investor concern that governments have borrowed too much to revive their economies.Portugal, Spain

Markit’s financial gauge was trading at 198 basis points at 2:30 p.m. in London, according to JPMorgan. Contracts on Spanish and Portuguese banks rose to records, according to CMA DataVision prices. Portugal’s Banco Comercial Portugues SA increased 53 basis points to 579 and Spain’s Banco Santander SA rose 12 basis points to 253.

In the U.K., swaps on Royal Bank of Scotland Group Plc jumped 41 to 229 after Britain’s biggest government-owned bank posted the only first-quarter loss among British rivals.

The spread between the three-month dollar London interbank offered rate and the overnight indexed swap rate, a barometer of the reluctance of banks to lend that’s known as the Libor-OIS spread, is at 18 basis points, up from 6 basis points on March 15 and near the highest level in more than five months. It’s still far from the record 364 basis points in October 2008, almost a month after Lehman’s bankruptcy.

Swaps on Greece surged 75 basis points to 1,008 before the advance was pared to 950. Portugal climbed 42 to 502 before falling to 430 and Italy rose 24 to 255.5 before dropping to 227 and Spain increased 14 to 288 before trading at 246, CMA prices show.

British Swaps

Contracts on the U.K. rose 8 basis points to 99, according to CMA. Britain’s election produced a parliament without a majority for the first time since 1974, stoking concern the new government will be too weak to rein in its record budget deficit.

European policy makers are under mounting pressure from investors and foreign officials to broaden their response to the Greek fiscal crisis after a 110 billion euro ($140 billion) bailout package failed to ease concerns."We do not see a clear sign that markets will calm down in the absence of decisive action by authorities, which so far have ignored the opportunity to convince investors that they are capable of battling the European sovereign debt crisis," Markus Ernst, a credit strategist at UniCredit SpA in Munich, wrote in a note to investors…-END-

 

 

 

Notes:  the following is very important for you understanding the current economic malaise:

 

1. the Libor_OIS spread is rising from 6 basis to 18 basis points.  It should be contracting to zero do see lending by the commercial banks.

2. look at the credit default swaps of the various countries.  The CDS of Greece is 1008, which generally guarantees default within the next 5 years. However look at Portugal which has a CDS of 502. Italy at 255

and Spain at 288.

 

Actually the potential bailout of Greece is really the  bail out of French Banks.  France has a total exposure of 35 billion euros.  If Greece collapses, then the French banks which do not have nearly that

in total retained earnings will collapse in a similar fashion like the country of Iceland. You would then have a domino contagion throughout the world in a debt collapse!

 

German banks have an exposure of 50 billion euros.  They will survive the hit but it will damage their banks severely.

 

end.

 

For those of you who think the problem is strictly over in Europe...guess again:

Food-stamp tally nears 40 million, sets record

WASHINGTON (Reuters) - Nearly 40 million Americans received food stamps -- the latest in an ever-higher string of record enrollment that dates from 
December 2008 and the U.S. recession, according to a government update.

Food stamps are the primary federal anti-hunger program, helping poor people buy food. Enrollment is highest during times of economic distress. The jobless rate was 9.9 percent, the government said on Friday.

The Agriculture Department said 39.68 million people, or 1 in 8 Americans, were enrolled for food stamps during February, an increase of 260,000 from January. USDA updated its figures on Wednesday.

"This is the highest share of the U.S. population on SNAP/food stamps," said the anti-hunger group Food Research and Action Center, using the new name for food stamps, Supplemental Nutrition Assistance Program (SNAP). 

"Research suggests that one in three eligible people are not receiving ... benefits."

Enrollment has set a record each month since reaching 31.78 million in December 2008. USDA estimates enrollment will average 40.5 million people this fiscal year, which ends Sept 30, at a cost of up to $59 billion. For fiscal 2011, average enrollment is forecast for 43.3 million people.

 

 

end.

 

 

The total debt implosion is occuring across the globe. As the world sees paper upon paper printed up, they seek gold.  Eventually the banks run out of gold and they default

on all of those paper gold /silver obligations that they cannot deliver upon.

 

There is nothing like a gold rush...there is nothing like a bank run.  The two have not occurred together globally at any time together.  However when they do occur, it will

make this current economic malaise tame in comparison.

 

In other news, the British election fostered a hung parliament with no one party with a majority.  The pound suffered badly yesterday:

 

FT.com / UK / Economy & Trade - Producer prices hit 18-month peak

 

Amongst the inevitable fall out of the inconclusive election result here, news on the inflation front has yet again surprised on the upside and has not been heavily reported. The article below covers the news of the recent figures published by the ONS which discloses that the output price index rose by 1.4% and this was the largest rise since May 2008 and that the annual increase now is 5.7%. Short-term interest rates are well below this level and hence the outlook for further increases in inflationary pressures are there.

Gold ownership makes even more sense when you are sitting here.


http://www.ft.com/cms/s/0/13ffc034-59d1-11df-ab25-00144feab49a.html?nclick_check=1

http://www.ft.com/cms/s/0/13ffc034-59d1-11df-ab25-00144feab49a.html?nclick_check=1

 

end.

 

I thought that Bill Holter's commentary today was pretty good so here it is for you to read:

 

Protect yourselves!

Bill H:

To all; WOW what a day yesterday. I was out in the afternoon and came back to see the market down 340 points or so and thought to myself "the market is starting to crack and they closed it real weak". How wrong was that? Down 998 points at one point and roughly a 700 drop in less than 15 minutes! Roughly $1 Trillion or so in 15 minutes is even faster than the Fed can print it! "They" want to say it was the computers or a "fat finger" or blah blah blah. I have news for you, if the market wasn't so overvalued or the fundamentals so horrible, the market could never ever drop close to 10 percent in such a short period of time.

What happened yesterday is merely a taste of what is to come. Lots of volume but no liquidity, the grand ballroom called "the market" has only one door that many tried to pass through yesterday. Whether investors know it or not, they are trapped because the liquidity does not exist for big money to exit, yesterday was proof. The system cracked and broke yesterday, no one wants to believe it but it happened. Now we have a very serious game of chicken in the works. Investors thought the music stopped yesterday and all scrambled for a chair with a resultant nearly 10% drop. Now we wait to see how long it will take to happen again which is this game of chicken I mentioned.

Governments are broke, markets have been held up by freely printed money, spin and bubble gum, paper contracts for metal have nothing behind them, EVERYTHING is a fraud! Calling this "the perfect storm" does not do the potential calamity justice because storms do not detonate nuclear weapons. The coming defaults across the board from derivatives to everything financial to governments themselves will spark civil unrest as never seen before. This DID NOT have to happen if 8-10 years ago we were allowed to have a real recession that ran its course and washed out bad debt and malinvestment. We did not because it was not allowed to happen as anything and everything "bad" was papered over with freshly printed cash. This is a situation where financial nuclear landmines exist everywhere and each and every one can and will take the entire system down.

So here we are, waiting for the shit house to come down. Maybe today? Next week? It does not matter. What does matter is that investors now know that there IS another safe haven that has been there all along but finally escaped it's cage long enough to be noticed. Yes yes, Gold. Once the music stops because someone chickens out, bids from across the globe will chase Gold(they already are). The problem as you know is that the real physical market has not been able to keep up while "times were good", what's going to happen when fear runs rampant, bids foe Gold come in AND paper holders want delivery? As I mentioned, I believe yesterday was only the beginning, Gold will gap upwards 100's per ounce for days in succession. Maybe Jim Sinclair is right and $1,650 is a number that will relieve some of the upside pressure and a reaction sets in. I believe $1,650 will be a cheap and completely laughable number before this year is out.

I have written before that I believe "market and bank holidays" are in our future, can you now see how 2-3 days of say a 25% decline could trigger this? Can you see how a physical default in metals could cause this? A state bankruptcy? A sovereign? Do you see my point? The problem is not just one defined area, it can and WILL come from many different areas while at the same time the Anglo American financial system is at best weak and in reality crippled. I have written that "new currencies" would be introduced thus wiping out holders of the existing currencies, does this now sound as stupid as it did when I first wrote it? I want you to understand how ALL of these different frauds that viewed separately seem implausible as frauds and even more so as systemic risks, ARE each and every one able to create a chain reaction that will shutter the system.

Actually, I almost fell off my chair laughing when Larry "King Dollar" Kudlow spilled the beans yesterday and pronounced Gold "the worlds new reserve currency. Maybe he has shoved so much stuff up his nose that he doesn't realize that his statement alone could cause a "run" on physical Gold and Silver which alone could close the system and necessitate a new currency. Maybe the paper shorts have have accumulated enough physical and now know that the cupboards are bare. All they had to do is put the words Mr. King Dollar's mouth and start the ultimate run? Is this far fetched?

I know this is getting long so I will close here by asking you to take a few minutes with your tin foil hat on. Is it conspiratorialist or "whacked out" now to believe that the banking system could close? Is is out of the realm of possibility to see a sovereign government, a state or even the U.S. government to default? Is it ridiculous to believe that pieces of paper with no value called Dollars could actually be shunned and not accepted BECAUSE they have no value? Would you be an idiot to believe that because the amount of "paper metal" outstanding is far more than ALL real metal mined in all of history that THOSE pieces of paper have no value? Forget about the tin foil hat, just use everyday high school or less common sense, this thing is coming apart at the seams and is more dangerous financially than all frauds, all recessions, all bubbles and panics combined in all of history. Get the picture? Protect yourselves! Regards, Bill H

 

Here is a background story on the Greek solvency problem.  It pitted two guys with different opinions on how to solve the problem.

The IMF number one guy solving debt crisis:  Mr Poul Thomsen and Mr Savvas Robolis, one of Greece's most distinguished economic professors and who advised Government cabinet regularly.

The IMF fellow won out.  Here is this very important article from Germany's Spiegel:

 

The Mother of All Bubbles 
Huge National Debts Could Push Euro Zone into Bankruptcy 
Greece is only the beginning. The world’s leading economies have long lived beyond their means, and the financial crisis caused government debt to swell dramatically. Now the bill is coming due, but not all countries will be able to pay it. 
By SPIEGEL staff.

Savvas Robolis is one of Greece’s most distinguished economics professors. He advises cabinet ministers and union bosses. He is also a successful author and a frequent guest on the country’s highest-rated talk shows. But for several days now, it has been clear to Robolis, 64, the elder statesman of Greece’s left-wing academia, that he no longer has any influence.

His opposite number, Poul Thomsen, the Danish chief negotiator for the International Monetary Fund (IMF), is currently something of a chief debt inspector in the virtually bankrupt Mediterranean country. He recently took three-quarters of an hour to meet with Robolis and Giannis Panagopoulos, the president of the powerful trade union confederation GSEE. At 9 a.m. on Tuesday of last week, the men met behind closed doors in a conference room in the basement of the Grande Bretagne, a luxury hotel in Athens. The mood, says Robolis, was "icy."

Robolis told the IMF negotiator that radical wage cuts would be toxic for Greece’s already comatose economy. He said that the Greeks, given their weak competitive position, primarily needed innovation and investment, and that a one-sided fixation on cleaning up the national budget would destroy the last vestiges of economic strength in Greece. The IMF, according to Robolis, could not make the same mistake as it did in Argentina in the early 1990s. "Don’t put Greece on ice!" the professor warned.

But the tall Dane was not very impressed. He has negotiated aid packages with Iceland, Ukraine and Romania in the past, and when he and his 20-member delegation landed in Athens on April 18, they had come to impose a rigorous austerity program on the Greeks, not to devise long-term growth programs.

Thomsen’s mandate is to save the euro zone. And any Greek resistance is futile.

Time to Foot the Bill

Robolis versus Thomsen. For the moment, this is the last skirmish between the old ideas and ideals of prosperity paid for on credit and a generous state, against the new realization that the time has come to foot the bill. The only question is: Who’s paying?

The euro zone is pinning its hopes on Thomsen and his team. His goal is to achieve what Europe’s politicians are not confident they can do on their own, namely to bring discipline to a country that, through manipulation and financial inefficiency, has plunged the European single currency into its worst-ever crisis.

If the emergency surgery isn’t successful, there will be much more at stake than the fate of the euro. Indeed, Europe could begin to erode politically as a result. The historic project of a united continent, promoted by an entire generation of politicians, could suffer irreparable damage, and European integration would suffer a serious setback — perhaps even permanently.

And the global financial world would be faced with a new Lehman Brothers, the American investment bank that collapsed in September 2008, taking the global economy to the brink of the abyss. It was only through massive government bailout packages that a collapse of the entire financial system was averted at the time.

More…

 

As the real unemployment of the usa is around 22%, the usa is trying to kickstart the economy again.

before we had cash for clunkers, now it is cash for chaulkers, and the house approved a $6 billion stimulation for it. I am not making this up.

Here is this report from Jim Sinclair commentary:

 

Jim Sinclair’s Commentary

You have to admit two things.

1. The Federal Deficit is hopeless. 
2. This is totally nuts.

House approves $6 billion ‘cash for caulkers’ 
By Hibah Yousuf 
May 6, 2010: 7:42 PM ET

NEW YORK (CNNMoney.com) — House lawmakers on Thursday approved a $6 billion measure that aims to provide rebates to homeowners who invest in energy efficiency improvements — but not without a fight from Republicans.

The bill, officially known as the Home Star Energy Retrofit Act but better known as "cash for caulkers," has been touted by President Obama since December as one of the signature pieces of his administration’s larger job-creation strategy.

The act "is a common-sense bill that will create jobs, save consumers money, and strengthen our economy," President Obama said after the House passed the measure. "We have workers eager to do new installations and renovations, and factories ready to produce new energy-efficient building supplies."

House Speaker Nancy Pelosi, D-Calif., estimates that the legislation will create nearly 168,000 jobs in construction, manufacturing, and retail.

The House vote of 246-161 went through with support from the Democrats and overwhelming rejection from the Republicans. The vote simply authorizes the creation of the program; it does not appropriate the funds needed to run it.

The Senate is expected to take up the legislation this summer and determine how to pay for the program, which is likely to be controversial.

More…


 

This is just in from Bloomberg:  there is emergency meeting to rescue the Euro.

Monday will be fun.

I would like to wish all mothers out there, a very happy Mother's day,  and as well all mothers- to- be.

And a happy Mothers day to all the fathers, who made their beloved,-----mothers.

I would like to wish everyone a grand weekend, and I will report on Monday.

 

Harvey.

 

 

 

 

 

 

Thursday, May 6, 2010

May 6.2010

Good evening to you all:
 
Gold closed up by 22.00 to 1196.20 (by 1:30 comex close).  Silver closed down by 2 cents to 17.49.
 
The gold comex OI closed up by a 1000 contracts to 552,683.
 
The silver comex OI succumbed to massive raids by the banking cartel closing down by a rather large 2535 contracts
 
to 120,913.
 
Today's action belonged to gold.
 
The perennial bear on CNBC Larry Kudlow declared this tonight:
 

"Gold Is The New Reserve Currency, Amazing."/

 

Before going into details on the physical gold and silver inventories, I must comment on todays action on the Dow

 

The NYSE at one point today traded down by almost 1000 points but came back to close down 347 points.

 

The problem was program trading and you can see the error as Proctor and Gamble at 2 o'clock was 63 and when the meltdown started it plummeted

down to 40.00

 

Pand G is a member of the Dow thirty and thus magnified the loss.  The market was down around 225 points at that time and it immediately proceeded to lose another 700 points or so

as investors panicked.  The plunge protection team came in to bouy the market until closing.

However gold started its ascent early in the day and never looked back.  In access market trading, gold closed at 1208.00 usa. It rose in usa dollar terms and thus it set a record

in all currencies.  For example the Canadian Gold /oz price is 1280.00 usa an alltime record.

 

Lets go to the physical and gold inventories:

 

COMEX Warehouse Stocks May 6, 2010

SILVER

ZERO ozs withdrawn from the dealer's (registered) inventory 
2,000 ozs withdrawn from the customer (eligible) inventory 
Total dealer inventory 51.66 Mozs 
Total customer inventory 64.99 Mozs 
Combined Total 116.65 Mozs

GOLD

ZERO ozs withdrawn from the dealers (registered) category 
ZERO ozs withdrawn from the customer (eligible) category 
Total dealer inventory 2.45 Mozs 
Total customer inventory 7.73 Mozs 
Combined Total 10.18 Mozs

 

 

OK any strange entries tonight?  Nope.

 

Notice that zero oz of silver was withdrawn from the dealer inventory and only 2000 oz from the customer.

Big change from yesterday's activity.

 

Lets see the deliveries:

 

First gold:

 

There were 19 delivery notices issued in the MAY gold contract. The MAY gold delivery notice total for the month is 837 notices or 83,700 ozs.

 

This represents 2.69 tonnes of gold options exercised and this is only 6 days into the month.  Even in this non delivery month gold is very active. ( Please remember than May is a non delivery month for gold.)

 

Lets go to silver which is a delivery month:

 

There were 14 delivery notices issued in the MAY silver contract. The total delivery notices for the month in silver stand at 3165 or 15.8 Mozs.

 

 

Lot of activity here.  Fourteen contracts or 70,000 oz of silver notices were served.  The new total so far in silver is 15.8 million oz.

 

What is left?

 

The open interest in silver for the MAY contract INCREASED to 506 contracts from 497.

 

This is really interesting.  Someone must have been in a hurry to get silver and jumped queque.  The amount of contracts waiting to be served is 2.53 million oz.

 

The new total for all silver for the delivery month of May is 15.8 million  plus 2.53 million + 2.43 million (options exercised prev. month) =   20.76

We are now back to the original number of oz registered a few days ago.

 

Both silver and gold deliveries seem to indicate investors anxious to get physical metal.

 

Adrian Douglas has delivered a great piece on silver trading at the LBMA.  In a nutshell, the silver trades at a net basis equal to 95 million oz of silver.

Silver production per year is 680 million oz per year and in 7 trading days, the entire years production of silver is met.

Again, he ponders what on earth is covering these trades. It is not miners as they have stopped hedging. Adrian picked up from my CFTC submission and Reg Howe's paper on BIS derivatives

that the Q2 forwards (short sales) in silver represented 7.5 billion oz of silver.  The USGS has determined that all economical mineables reserves left to be mined in silver is 8.6 billion oz.

Then who could be selling forward 87% of the world's silver reserves?

Adrian Douglas:

 

 

I promised you some comments on silver trading on the LBMA OTC market.

The average daily trading is currently running at about 95 million ozs. That is "net ounces transferred" on a daily basis as per the LBMA website. It is NOT gross trade.

http://www.lbma.org.uk/stats/clearing

This is a phenomenal amount of trade. It is 5 times the average daily net gold trade on the LBMA of approximately 18 Mozs! What could possibly be backing this trading? There is very little above ground silver. The central banks have none. The largest identifiable stocks are on the COMEX and SLV which together total 400 Mozs. Experts estimate that there are only about 1 Bozs of silver above ground if ALL silver is taken into account. So how could the LBMA trade 10% of ALL silver above ground in the world on a daily basis? The global supply of silver from mining is around 2 Mozs per day. The LBMA OTC trade is 45 times the daily production. If we look at the forwards that are reported by the BIS in their Q2 2009 report they totaled 7.5 Bozs and is on a rapidly increasing trend. At the same time last year the USGS reported all economically mineable reserves were 8.6 Bozs. So the forward sales of silver represent 87% of the remaining mineable reserves on planet earth! Furthermore we must ask ourselves who could be selling forward 87% of the world's silver reserves? The ONLY legitimate candidates for such forward sales are the mining companies….but if we look at the major silver producers they are not hedged. So who could be selling such vast amounts of silver forwards? It has to be entities that don't own it above ground nor own it below ground! It therefore has to be "paper silver". This means that the price of silver is suppressed by this monumental phony "supply" of silver. This means that the shorts on the Comex that are supposedly "hedges" of "physical" silver in London are nothing more than paper hedging paper positions.

I think the wholesale silver market is in dire straits. This is why the Comex market is attacked with fury any time there is a pick up in real physical bullion offtake to try to frighten the heck out of would be investors so they will change their ideas.

In my opinion these numbers can not be reconciled with any reasonable trade that could 100% backed by real bullion. It is a fractional reserve operation that is using recklessly low reserves.

Of course, I am sure Jeffrey Christian would assert that everybody already knew this..right?
Cheers
Adrian

 

end.

 

This completely surprised me:

 

MarketVane's Bullish Consensus for gold and the HGNSI were unchanged at 74% and 46.6%. The GLD ETF added 7.00085 tonnes to stand at 1,166.00237 tonnes, a record.

 

 

end.

 

The world is desperate for physical gold and this Gold ETD finds no trouble in obtaining 7 tonnes of gold.

This is not a welcomed event for our banking cartel. It means demand for physical gold is scorchingly red hot.

 

Catherine Fitts has determined that the Gold at the GLD was obtained from a swap with a major central bank probably the Bank of England.

The swap would be gold for dollars with the proviso that the swap would be unwound at a later date.

Since the GLD is housed at the Bank of England, this gold would move from one little storage area to another and a change in label.

The gold is real.  The problem?  It looks like all of the shareholders of GLD have only a piece of paper, as the Bank of England can at any time take their gold

back from the GLD.  This is truly fraudulent!!

 

When gold skyrockets and the game of musical chairs stops, these shareholders will receive only cash and cannot receive the full value for their gold.

 

In economic news today:

 

U.S. jobless claims fall 7,000 last week

WASHINGTON, May 6 (Reuters) - The number of U.S. workers filing new applications for unemployment insurance fell slightly less than expected last week, government data showed on Thursday, implying a measured job market recovery.

Initial claims for state unemployment benefits dropped 7,000 to a seasonally adjusted 444,000 in the week ended May 1, the Labor Department said.

Analysts polled by Reuters had expected claims to fall to 440,000 from the previously reported 448,000, which was slightly revised up to 451,000 in Thursday's report. A labor department official described the report as uneventful, but said they had to make estimates for Tennessee because of floods which had left the state unable to process claims.

The four-week moving average of new claims, considered a better measure of underlying job market trends, fell 4,750 to 458,500, after rising for four weeks.

The labor market is on the mend after taking a beating during the recession, but the recovery pace may be painfully slow for the 8.2 million Americans who lost their jobs during the worst downturn since the 1930s.

Thursday's claims data has no bearing on April's employment report due on Friday, as it falls outside the survey period.

A Reuters survey predicted non-farm payrolls increased 200,000 last month following March's 162,000 gain. The employment rate is expected to have held steady at 9.7 percent for a fourth month.

The number of people still receiving jobless benefits after an initial week of aid dropped 59,000 to 4.59 million in the week ended April 24, the Labor Department said.

The level was in line with market expectations for 4.60 million and so-called continuing claims fell for a third week.

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, was unchanged at 3.6 percent in the week ended April 24, for a third week.

-END-

 

Not as good as anticipated.  We are well into the "boom" cycle and thus we should be seeing a massive increase in job creation.  We just are not seeing it.

Next;  non farm productivity rises a lesser than expected 3.6%:

 

U.S. Q1 non-farm productivity rises 3.6 pct

WASHINGTON, May 6 (Reuters) - U.S. non-farm productivity growth slowed sharply in the first quarter, government data showed on Thursday, suggesting businesses will have to raise employment to boost output.

The Labor Department said non-farm productivity rose at a 3.6 percent annual rate, the smallest advance in a year, after expanding at a brisk 6.3 percent pace in the fourth quarter.

Analysts polled by Reuters had forecast productivity, which measures the hourly output per worker, rising at a 2.5 percent rate in the January-March period.

Productivity expanded rapidly in the previous three quarters as businesses wrung more output from a small pool of labor. Despite the resumption of economic growth, firms have been reluctant to hire new workers, opting instead to increase working hours. With productivity slowing, they may need to start hiring workers to keep production up…

 

 

end.

 

Oh Freddie not again....Freddie lost another 10 billion dollars and since the financial crisis started this zombie enterprise has lost a total of 61 billion dollars of hard earned taxpayer dollars:

 

Freddie Mac Seeks Billions More After Big Loss

By THE ASSOCIATED PRESS
Published: May 5, 2010

WASHINGTON (AP) — Freddie Mac is asking for $10.6 billion in additional federal aid after posting a big loss in the first three months of the year.http://www.nytimes.com/2010/05/06/business/06freddie.html?ref=todayspaper

 

 

 

end.

 

Here is a great piece from the journal Economic Collapse:

 

How Is The U.S. Economy Supposed To Succeed When Our Politicians And The Big Banks Are Making Billions Of Dollars Betting Against It?

Most people around the globe think of America as a great "capitalist" economic machine, but the truth is that the U.S. financial system is essentially one massive betting parlor at this point.  In fact, there has been a whole lot of easy money made in this betting parlor over the past several years by our politicians and by the big financial players down on Wall Street.  So how did they make all of this money?  They did it by betting against America.  By betting that the U.S. economy would do badly, a lot of very powerful people have gotten insanely wealthy.  Literally billions of dollars have been made over the past five years simply by betting that the U.S. housing market would go into the toilet.  But is all of this "short selling" and are all of these "side bets" actually good for the American economy?  How is the U.S. economy supposed to succeed when the big banks and so many of our politicians are actively making bets against it?

Just take a moment and check out some of the folks that have been betting against America....   

*A Wall Street Journal analysis of congressional disclosures shows that 13 members of the U.S. Congress or their wives were engaged in substantial short selling during the financial crisis of 2008.

*An individual by the name of Jeff Greene made hundreds of millions of dollars during the real estate collapse by making huge bets against the residential housing market.  Now he wants to use some of that money to run for the U.S. Senate in Florida. 

*Goldman Sachs openly and brazenly bet against its own clients as the housing market began to implode back in 2007 and 2008, and they made a TON of money by doing so.

*John Paulson (with the assistance of Goldman Sachs) has quickly become one of the richest men in the United States by betting against America.  Shorting the subprime mortgage market enabled his firm, Paulson & Co.,to make 15 billion dollars in 2007.  John Paulson alone made approximately 4 billion dollars that year.

*Legendary investor Warren Buffett said on Saturday that he's bearishabout the ability of all currencies to hold their value over time because of massive deficits being run up by governments in the wake of the global financial crisis.

*The Federal Reserve holds credit-default swaps on the debt of Florida schools, and on debt owed by the states of Nevada and California.  So the Federal Reserve would profit if one of those states defaulted on its debt.

*JPMorgan Chase, Bank of America, and Citigroup are offering "municipal credit default swaps" that enable investors to make big money if U.S. states and cities end up defaulting on their debts.

It is one thing to make a legitimate profit on an investment.  It is another thing entirely for the biggest financial institutions in the United States and our politicians to be making massive amounts of money off of the economic collapse of America. 

You see, those making huge bets against the U.S. economy also have an incentive to do what they can to make those bets profitable.  So for those who have the power to do so, does there come a point where they give the U.S. economy a little "push" in the wrong direction so that their bets will pay off? 

The reality is that we have created a financial environment where fear rules.  For example, very few people want to back U.S. home loans anymore.  So now the U.S. government has to do it.  According to Inside Mortgage Finance, U.S. government-related entities backed 96.5% of all U.S. home loansduring the first quarter of 2010.  This was up from 90% in 2009.

We should really rethink a financial system where a few people make a ton of money off of the fact that everyone else is doing badly.  Sure a few people are laughing all the way to the bank, but America as a whole is hurting.

Just consider the following charts.  U.S. national income has never experienced such a radically negative change in modern times....

All of these economic problems have caused the revenue of the U.S. government to dramatically decline at the same time expenditures are rocketing into the stratosphere....

As the U.S. economy continues to tank, the U.S. national debt is going to keep spinning wildly out of control.  Back in 1980, the U.S. national debt was approximately 1 trillion dollars.  Today it is accelerating rapidly as it pushes past 12 trillion dollars and towards 13 trillion dollars....

The truth is that the massive deficits being run up not only by the U.S. government, but by governments all over the world, are something that is clearly not sustainable.  In fact, Warren Buffett recently made an interesting remark about how painful it is going to be when the debt party ends....

"How the world weans itself off huge deficit financing is going to be difficult to watch."

In fact, there are some nations that are in bigger trouble with debt than even the United States is.  Japan's gross public debt has reached 201% of GDP, and the only way that the government of Japan can avoid bankruptcy at this point is by borrowing ever-increasing amounts of money.

But the truth is that this game cannot be played forever.

There has never been a time when so many nations around the world have piled up so much debt so quickly.

When the sovereign debt bubble pops, things are going to get really messy and the dominoes will start falling really quickly.

But when that happens one thing is for certain - there will be a lot of people ready to make a lot of money by betting on the financial failures of others.

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Generally, the author thinks that the entire stock market is one big casino.

 

 

end.

 

David Rosenberg has been getting a lot of press lately.  He has come out and stated that gold will reach 3000 dollars per oz:

 

David Rosenberg: Euro Breakdown Could Drive Gold to $3,000

Wednesday, 05 May 2010 11:49 AM

Gluskin Sheff analyst David Rosenberg says the breakdown of the euro could well drive the price of gold to $3,000.

"The case for gold heading to $3,000 an ounce is getting stronger by the day," Rosenberg writes in a note to investors.

"The euro has already broken below 1.30 to the U.S. dollar and there is plenty of room for additional decline going forward."

"It's only at a one-year low — wait until it moves to a decade low."
http://moneynews.com/Headline/Rosenberg-Euro-Gold-3/2010/05/05/id/357940

 

I have received many comments on the supposed IMF inventory of gold.

Adrian Douglas has given a wonderful historical accounting of gold with respect to the IMF.

 

Adrian Douglas:

 

IMF Gold

The bail-out package for Greece is 146B$ offered jointly by the International monetary Fund (IMF) and the European Union (EU). If the IMF is taking half of the responsibility for this loan package it is on the hook for 73B$. The sale of 212 tonnes of gold in 2009 to India, Sri Lanka and Mauritius netted 7.1 B$. So to raise all the IMF's share of the Greek Bailout package they would have to sell a further 1,773 tonnes or 59% of the IMF gold reserves. If the IMF subsequently has to bailout Spain or Portugal it would then have no gold at all. But this is just hypothetical because the IMF doesn't have 3005 tonnes of gold to sell. It only has 168 tonnes which is what remains from the 403 tonnes it declared it was selling in 2009. This gold is what the IMF claims it earned through transactions it made after the Second Amendment to its Articles in 1978. The IMF is only authorized to sell this gold and when consulting the IMF Internet site it the only gold it actually has.

GATA has long maintained that the IMF has little to no gold. It only has pledges of gold that are part of the central bank gold reserves of the member countries. This view is supported by the inability of the IMF to tell Chris Powell of GATA where the IMF gold is stored and if it is audited (See http://www.gata.org/node/6242). The Business Insider's Vince Veneziani was also stonewalled when he posed questions about the whereabouts of IMF gold (see http://www.gata.org/node/8583).

The IMF Internet site lays out that the gold that has been pledged to the IMF before the Second Amendment, approximately 2,800 tonnes is subject to "restitution" to the founding members. (seehttp://www.imf.org/external/np/exr/facts/gold.htm).

"Restitution. The Articles also provide for the restitution of the gold the Fund held on the date of the Second Amendment (April 1978) to those countries that were members of the Fund as of August 31, 1975. Restitution would involve the sale of gold to this group of member countries at the former official price of SDR 35 per ounce, with such sales made to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment. A decision to restitute gold requires support from an 85 percent majority of the total voting power. The Articles do not provide for the restitution of gold the Fund has acquired after the date of the Second Amendment"

The former official price of SDR 35/oz equates today to about $68/oz. So this means which ever way you look at it, the IMF has no gold. The member countries pledged gold and at any time they can buy it back for $68/oz. Yes, it does require an 85% majority vote but would anyone vote against buying gold at $68/oz? This means that there is no way on earth that the 2800 tonnes of gold the IMF was pledged before the Second Amendment will ever be sold by the IMF to anyone except to the member country who originally pledged it. On this basis would anyone be naïve enough to think that the original gold ever physically changed geographic location? Of course not! The gold will have been left in the member's Central bank vault and no doubt double counted. Is this just guesswork? Absolutely not. The IMF approved gold sales guidelines in February 2008 which they explain on their Internet site:

The IMF's Executive Board has reaffirmed the long-standing principle that the Fund has a systemic responsibility to avoid causing disruptions that would adversely affect gold holders and gold producers, as well as the functioning of the gold market. To that end, in February 2008, the Board endorsed the following guidelines to govern the envisaged gold sales:

(i)Sales should be strictly limited to the amount of gold that the Fund has acquired since the Second Amendment of the Articles of Agreement (12,965,649 fine troy ounces or 403.3 metric tons, which represent one-eighth of the Fund's total holdings).[emphasis added]

So the IMF by its own executive board resolution can not sell any gold over and above the 403.3 tonnes it has already announced, leaving the only possible method of disposal of the remaining 2800 tonnes as a resale to the founding members at the original Special Drawing Right price! IMF gold is clearly just a ledger entry.

The 403 tonnes that the IMF earned since the Second Amendment probably is real gold and that is why they were obliged to sell it because the western central banks and their bullion bank cartel allies are desperate for liquidity to keep their gold price suppression scheme going. Once that gold is gone there is no more available from the IMF. And the balance sheet can be squared away with just 6.9 B$ to cancel out 2800 tonnes of ledger entry gold if at any stage they should wish to do so.

It is comical that the gold sale was spun as a way to raise money to set up an endowment fund that could be a better performing asset than gold which generates no income stream. So what is in the endowment fund that will perform better than 200 tonnes of gold? GREEK BONDS! They must have got investment advice from Gordon Brown on that one

In a dispatch on May 4, 2010 GATA reported that the World Gold Council (WGC) had discovered that the IMF has sold 5.6 tonnes of gold in February and 18.5 Tonnes of gold in March. This was only discovered by the WGC staff examining the financial statements of the IMF. This is astonishing news. The IMF has always announced vague determinations that it might want to sell gold at least five hundred times, and then when it decided to actually sell 403.3 tonnes this too was announced many times, followed by an announcement of the approval to do so then followed by the announcements it had actually sold gold to India, Sri Lanka and Mauritius. Suddenly in complete contrast it is now apparently selling gold in large amounts with total silence. This even appears to contravene the IMF's Executive Board's Guidelines approved in February 2008 which state among other things:

(v) A strong governance and control framework, together with a high degree of transparency, would be essential for gold sales conducted by the Fund. A clear, transparent communications strategy, including regular external reporting on sales, should be adopted, in order to assure markets that the gold sales are being conducted in a responsible manner.

So why have they not followed their own guidelines? Why are they not announcing these sales multiple times as is their wont? My interpretation is that this would mean they would have to declare to whom the gold has been sold. I believe that the bullion banks are in trouble to meet surging demand for real physical metal. Some of which has been stimulated by GATA's recent revelations of the London LBMA OTC market operating on a fractional reserve basis where much more gold has been sold than could possibly be delivered if requested. If this is the case it is clear that they would not announce who received the gold in exactly the same way that the Federal Reserve refuses to reveal which banks received TARP money.

If my interpretation is correct this is another indication that a physical short squeeze of epic proportions is fast approaching. It is right on target with the extensive market study made for GATA by Frank Veneroso in 2000 that concluded that the central banks would deplete the gold available for suppressing the market in 7 to 10 years. 
Cheers 
Adrian

 

It is our position that:

 

1. the IMF does not hold any gold and the majority of the gold has been double counted

2. the 403 tonnes of gold is real but most of that gold has been leased out already. If any real gold is sold, that quantum would be tiny.

 

 

That is it for today.  Saturday will be a great day for a thorough review as we get the COT report, the  OI release of today's number (released at the conclusion of Friday comex 1:30)

and of course, the fictictious jobs report.

 

see you on Saturday:

Harvey.

 

 

 

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