Saturday, December 24, 2011

Merry Christmas North Korea


North Korea Howls About South Korea’s Christmas Lights, Forcing Shutdown

"North Korea’s so serious about mourning Kim Jong Il that it’s cancelled Christmas. That is to say, Pyongyang’s furious protests over South Korea’s plan to display Christmas lights near the two sides’ border has persuaded Seoul to cancel the display as a gesture of good will.


"Psychological warfare" is how the communist regime of North Korea described the capitalist South’s plan to switch on the lights topping three tree-shaped steel towers at Aegibong within two miles of the North-South border, reported the Daily Telegraph.


Seoul’s Unification Minister Yu Woo-Ik, who is responsible for cross-border ties, emerged from a meeting of senior South Korean officials Tuesday to announce the holiday lighting display would be postponed out of respect for the official mourning period announced by Pyongyang."

Fall on your knees: official mourning period "fake tears" celebrations in the North

Meanwhile, down in Whoville…

150 comments:

Tyrone said...

All I want for Christmas is FreeGold.

Merry Christmas from Tyrone.

(Alternatives to FreeGold for Christmas... if A/FOA/FOFOA revealed themselves; just sayin'. Cheers!)

Nickelsaver said...

Merry Christmas FOFOA! Merry Christmas Everyone!

mr pinnion said...

Merry Christmas FOFOA.
Keep up the good work.

Merry Christmas to the rest of the Freegolders as well.

Regards
Ozzy

78Rubies said...

Happy Holidays!

burningfiat said...

I feel so sad for the poor North Koreans... Luck must soon be turning to the better for this people.

Merry christmas to all PGA's.

Dr. Peter T said...

Free Gold is close, very close...all unfolding as it must, as it always would.

FOFOA said...

Whoville Santa Baby!

ElaisaKasan said...

Thank you all for the Golden Lignt.
Merry Christmas and Happy New Year!

www.gregor.us said...

Another fine year of postings FOFOA, each wonderfully crafted. You are doing wonderful work in the long-form tradition. A request: could you select full RSS so that we read the posts fully on our devices? I and many others do a lot of reading while in transit on RSS apps, and not having to open up a browser is an advantage. I too take donations at my own website but I have always chosen the full RSS feed for my blog. Readers really appreciate it. Hope you will do the same. Best, g

johnniedomehead said...

Merry Christmas FOFOA and to all the other great commentors on this great blog. Please have a wonderful and safe holiday season!

Victory said...

Merry Xmas FOFOA, Costata, VTC, JR, Enough, and all my other TrailGuides!

If you would indulge my rudimentary walkthrough for a moment I would greatly appreciate it:

JR, you once said that if any of the Euro Sov’s defaulted it would explode the price of gold. I asked you what you meant by that statement – in other words the mechanics behind the cause and effect – but I don’t believe you had time to reply.

I’ve been thinking about it and I have the following rough understanding:

The inflationary impact of a Sov’s default will depend largely as to who is holding the Sov’s Bonds at the time of default, i.e. the ECB or Eurosystem Private Banks.

If there is a large percentage of defaulting Sov’s held at private banks then this would be deflationary since credit money initially expanded though the private banking system must now, due to default, instantly contract. The private banking system will be required to sell assets, default on their own bonds, lose shareholder equity, or even liquidate deposits (outside of deposit insurance) and go into receivership closing its doors.

When on the other hands a Sov defaults and these defaulted bonds are held by the ECB it is instantly inflationary because the initial credit expansion is now instantaneously and permanently base money (without contraction). Concurrently the asset side of the ECB’s balance sheets shrinks dramatically without a commensurate increase in liabilities. In order to keep the accounting identity equation balanced and the ECB solvent, the one asset that can expand in value on the asset side of its balance sheet does just that, GOLD!

To summarize the impact on inflation and the price of gold during a Sov default will depend largely on who is holding the bag so to speak at the time of default.

Seems to me like the larger the ECB’s balance sheet grows through SMP and LTRO (sterilized or otherwise) the greater the inflationary impact and subsequent gold revaluation will be if and when a Sov(‘s) defaults.

Although the effect of LTRO is a bit murky - since it not an outright purchase by the ECB will private banks be permitted to simply forfeit their pledged collateral (defaulted bonds) and walk away without further recourse.

Jonas said...

Christmas song.. IN ENGLISH??? Whazaaa??? I thought they spoke Korean.. And most of the people there don't understand a word of English.. It's like that famous Egyptian writer, who only writes in English.. Only way to get recognized nowadays is to do it in English, never mind your own language or culture, that won't get you anywhere.
Koreans know they are Koreans in the North as well, grampa and gramma are still sitting there freezing and starving.. They all just wish the Americans would leave..

Jonas said...

Oh, BTW it's pretty funny how your article portrays "christmas" as some important event in Korea.. It's not, it an American event the Koreans inherited. Let's see them cancel "New year"(not the American one, but the Asian one). Ain't gonna happen. Christmas is a display of how American you are. OK, granted the South win, so can you please shut those damn lights off now.. !

Aquilus said...

Jonas, glad we have you to show us how the poor South Koreans are forced to use English and sing about Christmas.

J said...

BEIJING (Dow Jones)--China should adjust its foreign-exchange portfolio and buy more gold assets when the price of the metal drops, People's Bank of China Research Bureau Director Zhang Jianhua said in remarks published on Monday.

The Chinese government should be wary of the risk of inflationary pressures picking up, and should buy gold as a hedge against that possibility, Zhang said in the central bank-run Financial News.

China already holds a small portion of its US$3.2 trillion of foreign reserves in gold.

Zhang did not give any indication of what proportion of China's foreign-exchange holdings should be held in gold in future.

PBOC Official: China Should Adjust FX Portfolio, Buy Gold Assets When Price Drops

J said...

Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said.

Japan will also apply to buy Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday. Encouraging direct yen- yuan settlement should reduce currency risks and trading costs, Japan’s government said.

China is Japan’s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier. The pacts between the world’s second- and third-largest economies mirror attempts by fund managers to diversify as the two-year-old European debt crisis keeps global financial markets volatile.

“Given the huge size of the trade volume between the Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd.

China also announced a 70 billion yuan ($11 billion) currency swap agreement with Thailand last week as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asia Nations and establish free trade zones. Central banks from Thailand to Nigeria plan to start buying yuan assets as slowing global growth has capped interest rates in the U.S. and Europe.

China, Japan to Back Direct Trade of Currencies

H/T Zerohedge
World's Second And Third Largest Economies To Bypass Dollar, Engage In Direct Currency Trade


$ is losing it's grip

costata said...

I posted Merry Christmas on the previous thread but I want to repeat it here. I hope everyone has a great day.

J said...

I've had better but we all need to earn a paycheck somehow. Hopefully Freegold brings me home by next year =)

For now I'll keep earning and stacking while it's cheap

Merry (late) Christmas all

Aaron said...

With Christmas passed in my corner of the world -- Happy New Year to all fellow PGAs.

May we all find prosperity and may each of our paths afford us grace.

--Aaron

Aaron said...

...oh, and buy your safety cookies while the blue light special lasts.

Did anyone catch the end date in last week's flyer?

J said...

Ukraine selling gold certificates for gold still in the ground

"The National Bank of Ukraine introduced currency exchange controls for citizens, government issued “devaluation-insured” dollar-denominated debt and central bankers even created “gold coins and certificates” for citizens.

According to Oleksandr Sugonyako, president of the Ukrainian Bank Association, these have no clear backing and are a sale of yet “unmined gold in Ukraine.” No worries, though, as the national bank is on top of this: A law passed on Dec. 22 allowed it to mine for precious metals.

Wacky as these measures may seem, their purpose has been rational. Ukraine’s citizens have $50-$70 billion in savings, explained Sugonyako, an amount the central bank would like to use to replenish reserves. Expect moves in this direction to continue."

Ukraine will start 2012 in precarious condition

Gary said...

I wish all readers a happy and healthy New Year. Thanks to everyone that has commented over the years, and I am still trawling through the archives, picking up little nuggets of knowledge along the way.

Here is some interesting reading on past hyperinflations, and I think you will have a little chuckle when you reach the end of the article:

https://infocus.credit-suisse.com/app/article/index.cfm?fuseaction=OpenArticle&aoid=179052&lang=EN

Gary said...

Here's a comment from FOFOA regarding the US breaking the gold tie in 1971:

'But you've got to admit that what ANOTHER wrote above is pretty different than everything else we know about the end of the gold standard. He's saying that Nixon had the choice of either revaluing the US gold to continue backing the dollar with higher priced gold, or else removing the backing altogether and managing the price rise as the market took it higher. And it was decided that, because oil liked gold, the latter option would effectively raise the price of oil which they wanted so that more non-ME oil would become economically viable.'

I'm trying (but currently struggling) to work out the difference between the two options described above, as it seems that either would have lead to a revaluation of gold? Is it that the removal of the backing enabled gold to get to a much higher level than would have been the case with a revaluation?

And also, was it the removal of the backing that forced the Saudi's hand in raising prices of oil, which it would appear the US were after in order to open up new oilfields?

I am also still pondering which was the true motivation for the removal of backing: saving the US gold reserves from being emptied, or causing oil to rise to a higher price, or was it a bit of both?

Is anyone able to offer any thoughts please?

Motley Fool said...

Merry X-mas and a happy new year.

J said...

1/2
Date: Sun Nov 02 1997 21:52
ANOTHER (THOUGHTS!) ID#60253:
Western thought is still linked to gold as a commodity. That thinking is going to change! The world will witness an almost instantaneous run into this commodity the likes of we have never seen before! It will not be "a trading rally" or "a two way street". Bullion will have become a holding for "the lifetime" never to be sold. "Sell and spend everything but not gold"!

Do you think in these terms: "if gold goes up $100+ next week I'll sell my futures, gold stocks and 10 K-rands for a fat profit and laugh all the way to the bank" If the gold market was the same as in the 70s and 80s, that might be a good move. But this market is not the same. The world has changed and left most goldbugs fighting the last war! Only this time they are much smarter and have many more tools to work with. But, what if you do battle with your modern missiles pointing the wrong direction?

For us to understand what is about to happen we must pull our minds out of the paper trading world. Instead enter the world of real things! Here we will see concepts more clearly.

All currencies and most treasury debt are little more than digital units of perceived value. You don't own them, your account is "credited" with this value. Foreign governments, such as Japan are no better off than American citizens, they don't own anything either! What is really owned is "the right to offer what is credited to you, to a bidder in exchange for real things or other credits". It is a strange way to hold wealth. One might say "my net worth is the intention of others to pay me a credit from someone else". This thinking has worked well until the late 80s. It was at this time that a few wealthy and very smart people started to see the end of this. They understood that the US$ was not going to crash, it already had. It, along with all major currencies would lose all sense of value and become only trading digits of account. The treasury debts were little more than the same thing.

You see, all currencies now compete with each other, not for value of wealth but for "USAGE". The game has now become "whose currency gets used the most for trading" not for value against goods! It was easy to know the currency that got used for oil would win this game. Today, all currencies are traded against the dollar for it's usage as a medium of oil exchange! Take away that link and the entire currency/ debt exchange system, as we know it will collapse! The US$ must be maintained as the "most used" if the other currencies are to have a chance to survive.

Will Japan sell US treasury debt and risk taking dollars out of "usage"? Not in your life! Nor will any other CB! They will talk about it. They will sell a little. But sell a lot? It will not happen. You see oil is the key and that connection to the dollar is changing. Foreign CBs will even sell some gold to try and keep the US$ in play ( see my other posts ) . Ever wonder why the US treasury has not sold gold, it would have the opposite effect! The oil that sense the early 70s, held together the world monetary system is now causing it to slide apart! We are not going to see inflation or deflation again. What we are now seeing is the "destruction" of our paper monetary system.

Someone once asked "if the currency/ banking system breaks down, how will we know what gold is worth?". My answer, gold above ground will be worth a lot more than gold below ground, a lot MORE!


Looks like Japan has taken a major step away from the U.S with the recent Japan – China economic pact. This move definitely reduces the “usage” of the USD in trade between Japan and China, the 2nd and 3rd largest economies. Ditching the $ seems to be a trend in Asia lately.

continued..

J said...

Continued..2/2
“Bangkok Bank (China), a locally incorporated bank in China and part of the Bangkok Bank group, has joined with six leading Chinese banks to provide Thai Baht versus Chinese Yuan interbank FX trading services in China. The new service was launched on December 19 at an inauguration ceremony in Kunming, Yunnan.

Before this development, interbank FX trading in Thai Baht against Chinese Yuan (or RMB) needed to be executed through a third currency, such as the US dollar. The process is inefficient and costlier than if the currencies were to be exchanged directly. Moreover, transacting banks and ultimately end customers are subject to higher FX risk.

The new service offered by Bangkok Bank (China) as the market maker for Baht-Yuan FX trading in China's interbank market will help strengthen cross-border trade, especially between Thailand and Southern China, and international trade and investment between the two countries," said Bangkok Bank President Chartsiri Sophonpanich. "This service will in turn allow importers and exporters to reduce transaction costs and avoid unnecessary currency risks, as Thai Baht can be exchanged directly for Yuan, and vice versa, without the need to convert to a third currency beforehand."


Thailand and China have also ousted the $ and it appears the rest of the ASEAN region is following suit. If usage is the name of the game and the only thing that is holding the $ system together and preventing freegold is usage, I have to wonder where does the new demand come from? Can the void be filled or is “this it”. The dominos appear to be falling on the $’s usage demand in trade knocking down 1 after another at an accelerating pace. Can a higher price of oil fill the void or will the direct currency swaps and trade in Asia take away more “usage” than the system can handle?

Thoughts?

mr pinnion said...

Aaron
I m hopeing mine are fortune cookies.

Regards
Ozzy

Michael H said...

comments ...

J said...

Gold Rush in Iran

"State television this week showed lines of people camped out overnight in front of state banks, with sleeping bags and blankets, saying they were waiting to buy gold coins. The central bank cut off their supply as of Dec. 20 and said it’s imposing a more “just distribution” system. Under the new rules, gold paid for now will be delivered four months later, according to the state-run Mehr news agency."

Iranians Rush to Buy Gold, Dollars as Sanctions Tighten Grip

Reports from an Iranian over at Kitco with pictures

Kitco

First I've heard of it. Looks like it's been going on for over a week though

JR said...

Gary,

You wrote: "I'm trying (but currently struggling) to work out the difference between the two options described above, as it seems that either would have lead to a revaluation of gold?"

They needed to raise the dollar price of oil, not the dollar price of gold. Here is FOFOA on oil just wantingtthe flow of gold from It's the Flow stupid:

It is that the price of gold does not matter to the producer/saver, only the flow of gold matters. I'll say it again. The producer/saver doesn't care about the price of gold, only the flow. To the producer/saver the price doesn't matter because it is a straight currency exchange, like exchanging dollars for euros.

Did you see it in the article? Aramco owed the Saudis $3 million a year, but it had to be paid in gold. They didn't owe 2.67 tonnes of gold per year, but that's what they had to pay because the US fixed the price of gold at $35 per ounce. The US could have raised the price of gold to $100/ounce and then it would have only had to ship .93 tonnes of gold to the Saudis! Would the Saudis have been displeased with such a move? No. The guaranteed price of gold only matters to the printer of paper gold. To the producer/savers, all that matters is the guaranteed flow of physical!


So the US could have officially devalued the dollar and shipped less gold. Give the USG the dollars back and the USG ships the gold. Instead it becomes take the dollars and buy gold on the market, where the dollars continue to circulate and chase up prices, because the US gold window is closed. Another:

What if, the US dollar was taken off the gold standard, and gold was managed "upward" to say, $208 per ounce? The dynamics of the market would force oil to rise and allow for much needed capital to search for the higher priced oil that was known to exist! The producers would find shelter in gold even as the price of oil was increased in terms of a now "non gold dollar"! Price inflation would rise, but gold and oil would also increase. The dollar would continue to be used as the only payment for oil, and in doing so replace gold as the backing for this "reserve currency". All would be fair.

Gary said...

Ok, thanks JR.

That does make sense, as if they had merely revalued against gold, say 40%, then the oil price wouldn't have gone as high as it did, and they would still have been shipping gold til they ran out.

J said...

big discussion on Freegold over at Zerohedge today

The comments aren't a complete waste of time for once

Zerohedge freegold

Wendy said...

Merry (Late) Christmas, and Happy New Year to all.

I'm away for Christmas (Vancouver) so I fell a bit behind in the blog sphere of life.

In addition to FOFOA there are way too many talented, intelligent, articulate commentors to list you all. Thanks so much for your time an effort .........

Ok, I'll name a few ;)

Costata, JR, Ender, DP, S, Jeff, Victor, Texan, Topaz, Alex, Ivo, Belgium, Jimmy, Mortymer, Martyjn, MF, desparado, and of course Tyrone.

May we continue to live and be healthy in interesting times.

Heartfelt, kindest regards to all.

Wendy said...

and our buddy crack of course

J said...

More snippets from China

Zhang said bleak economic conditions, increasing international liquidity as countries turned to monetary easing and the resulting high inflation had dampened investors' confidence. He said that gold had become the only "safe haven" for risk-averse investors. "No asset is safe now. The only choice to hedge risks is to hold hard currency - gold."

Zhang didn't specify what proportion of China's $3.2 trillion foreign reserves should be held in gold.
..

"But it's impractical for China to put its foreign reserves into commodities, including gold, because all these markets are too small for such a big hoard.

"For example, China's purchasing gold would push up the price of the metal and increase its own cost," said Li.

Li added that there was no easy way for China to get as much gold as it wished because major economies such as the US hold the majority of gold and market supplies are very limited.

Nation urged to increase holdings of gold

tripper said...

I just read this:
http://www.zerohedge.com/news/gold-down-chinas-tightens-controls

Unfortunately, I can't seem to find actual articles on this. My first thought was: "Oho, first move by China for restricting or banning gold, like in Vietnam". On second thought (glad I have that), that's a silly conclusion to draw from few short headlines, but I'd like to hear some details on this.

I suspect that there might be rampart fraud that lures victims using gold, and this is the govt response. I actually see this trend (scams and fraud) in my country. I expect to see a lot of news stories like "Bought gold, lost all life's savings" to pop up in the coming months. Gold's gonna get a lot of bad press, me thinks.

One Bad Adder said...

http://stockcharts.com/h-sc/ui?s=$TYX:$IRX&p=W&b=5&g=0&id=p45182883202
Seasons greetings one and all hereabouts - "interesting" times are just around the corner ...if not here already ;-)

In the above Chart, there is an ever-so-slight indication we are commencing the scramble out of the "future" ...and into the here-'n-now.

Buckle-up Goldhearts ...it could get rough in the weeks ahead!

High 5 said...

FOFOA,

Fairytale of New York

"They've got rivers of gold."

http://www.youtube.com/watch?v=FwXBtmRTsFs

Edwardo said...

http://www.bullionstreet.com/news/chinas-pan-asian-gold-exchange-in-trouble/683

costata said...

They have their own China now. Game over. Old Europe wins.

(My emphasis)

16 December 2011

Russia has finally joined the World Trade Organization (WTO) at a ceremony in Switzerland on Friday, after 18 years negotiating its membership.

The Swiss brokered a deal between Russia and Georgia earlier this year that removed the last obstacle to Russia's accession.


www.bbc.co.uk/news/business-16212643

Wendy et al,

Thanks for the kind remarks and good wishes.

Happy New Year everyone.

costata said...

Hi FOFOA,

We should adopt this map as the official world map of this blog.

It makes it much easier to see where the centre is.

holdinmyown said...

Hello Costata.

Regarding your map: Very interesting perspective ... Though it makes Australia look like a reluctant appendage, almost an after-thought.

Bosco said...

Lol, so much for the physical only exchange hype! They should have known better, Chinese are the most avivd gamblers on earth and love leverage.

enough said...

Comex registered gold inventory fell from just over 90 tonnes on 12/23 to just under 79 tonnes at close today, a decline of over 12% in one business day.

Gold standing for delivery at Comex was over 68 tonnes for dec. so it looks like just one more big delivery month (feb.) and Comex will be cleaned out.

There have been no significant inflows into comex registered inventory in a very long time.

It's coming soon people !!!

Edwardo said...

Can someone help this man?

http://finance.yahoo.com/news/india-tycoons-got-tons-cash-064653323.html

Costata, I know that you've discussed the subject of Russia being admitted to the WTO before, but perhaps you could flesh out your thoughts on why it's game over with Old Europe as the winner. In the meantime, Putin moy Giroy, nyet.

henq said...

Max Keiser on twitter:

====
@maxkeiser
Max Keiser
The Euro is acting like a gold-standard (somewhat) and that's a good thing.
====

Bosco said...
This comment has been removed by the author.
Motley Fool said...

Haha Bosco. Frustrating isn't it? The simple answer is that the managed paper price is just that. The current drop could be reflecting a loss of confidence in the paper markets after the MF Global debacle.

Who knows. We wait and see what happens. :)

enough said...

As Bron says.....

"Mining companies sell their 5-6t of weekly production to us at spot and all our big distributors are buying at spot, so paper price = physical price. There is no divergence"

anyone care to refute?

At least at the retail level there is no premium rise. In fact premiums are cheapest I've seen in a while. One oz. Roo's at +$40/$50 everywhere.....

Motley Fool said...

enough

Refute what? The facts you state? Or the implication that it will remain true forever? ;)

Ignoring facts is silly. I wouldn't. :P

enough said...

Hi MF,

There has been mention on some other sites that size is trading at substancially higher premiums. (J. willie, Turd)

I believe cash settlement is coming sooner rather than later given what is going on at Comex and unprecedented physical demand from CB's.

Seems to be a massive disconnect between physical demand and paper price. Whether it's ripple from MFG, futures are now seen as "bad contracts", paper mgmt. or just year end profit taking in illiquid mkts...who knows.

But registered inventory level at Comex is approaching danger level. All it would take is few small giants to move their gold from unallocated to out the door and it's over.

Comex has 80 tonnes left. That is what china has been IMPORTING per month in Oct/Nov.

So Bron is right.... until he is not. He will cease to be right within seconds of cash settlement IMHO. Which might come a soon as Comes feb. OPEX (end of Jan.)

Robert Mix said...

Every time we have one of these days where gold jumps off the cliff, I see that the 24hgold.com / eBay widget shows high premiums for Gold and Silver Eagles (16% and a whopping 52% respectively). Meaning that sellers of 1 oz Eagles are slow to drop their asking prices in the wake of a "paper" plunge.

At some point this widget may point to a physical scarcity.

Robert LeRoy Parker said...

While this is not an effecient process now, technological advances leading to cost reduction and a $50k/oz price may one day make it feasible.

Legit Gold Alchemy

That would mess up the freegold paradigm. The inevitability of bitcoin?

victorthecleaner said...

Merry Christmas and a happy 2012 to all!

enough,

... what is going on at Comex and unprecedented physical demand from CB's.
Seems to be a massive disconnect between physical demand and paper price.


I don't think so. Although GLD puked last week, its inventory has been stable since. GOFO has a healthy contango. Nothing is pointing towards a disconnect between unallocated and allocated.

If you want to find out whether the COMEX short sellers have enough physical to deliver, it is unfortunately not enough to look at the COMEX eligible and registered inventory. It would be sufficient if the short seller has the physical somewhere outside COMEX and checks it in just in time right before delivery.

It is true though that large COMEX deliveries indicate that the COMEX future price was at some point lower that the OTC forward price for physical gold, and someone put up some arbitrage in order to capture the difference, This discrepancy may have already disappeared though - and it is just the arbitrage position that remains until expiry.

Victor

Edwardo said...

Hey RLP,

In the immortal words of Don Rummy,


"There are known knowns; there are things we know we know.
We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – there are things we do not know we don't know."

Apply this to the freegold thesis and any other well constructed conjecture on the course of events.

Texan said...

Silver is getting absolutely mauled. If this keeps up I may look to upgrade my flatware.

Happy New Years everyone! Kiss someone you love.

enough said...

Hi VC,

Do you have any metric to explain this weakness?

It seems relentless and without corrolation....risk on/gold down....risk off/gold down....oil up/gold down....oil down/gold down....$up/gold down.....$down/gold down....

Lease rates have normalized, GLD has had a cluster puke....

CB's have report record monthly purchases and 70 tonnes stood for delivery at comex in dec.

Hard to believe there is sufficient selling to balance this buying let alone cause a $250 collapse in the face of it....

Do you believe in a managed gold mkt?

costata said...

hmo,

Though it makes Australia look like a reluctant appendage, almost an after-thought.

Yep


Edwardo,

In terms of natural resources there are three great prizes on this planet. First, by a huge margin, is the north American incontinent.

Third is Australia perforce of the age of this incontinent and its isolation. Most of the mineral resources here are close to the surface due to weathering and the population is relatively tiny compared to the landmass and resources (hardly anyone is over a metre tall, unlike Africa and South America). Australia is the perennial "50% off sale" of natural resources and politicians.

Second to America is Russia. A truly great prize. The only rival on this planet (in terms of natural resources) to America. Interests with the power to allow China to emerge from a "third world" basket case to developing nation status have permitted Russia to join the WTO club.

If the Russians take half of their public servants out to a field and shoot them its economy alone will rival America's economy in less than 20 years. If not, it may take a lot longer. (That's somewhat deceptive of course. The same could be said for most countries on Earth.)

The EU economy is already somewhat larger than America's economy. With Russia in the EU fold (de facto) they need no one else to trade with. If necessary it can be completely self sufficient in agricultural products, energy and intestinal parasites. The ME can now, if it pleases, go eff itself (and, if history is any guide, it probably will).

As a bonus Russia unites Europe with Asia. As Bucky Fuller's map shows so pointedly it's the centre of the world for those who like to keep their feet dry.

costata said...

MF,

The current drop could be reflecting a loss of confidence in the paper markets after the MF Global debacle.

Not so. It's reflecting our recent purchase of paper gold. The price always drops soon after we buy.

Nickelsaver said...

Costata,

You're going to have to explain that one. How does buying create the illusion of a sell-off.

Victory said...
This comment has been removed by the author.
Victory said...

...about this recent & relentless drop in paper$, this is my unsolicited humble two cents on the matter

1. CB's have leased a bunch of Gold to EU commercial banks (as evident in the recent negative lease rate spike bottom) who have then proceeded to sell said gold into the OTC market in order to obtain short-term funding/liquidity. At the same time these commercial banks are buying forward contracts to hedge any physical price exposure when they unwind their leases and pay back the gold. This would explain the healthy contango in GOFO as VTC pointed out.

2. As to why price continues to decline I'm thinking shorts (JPM HSBC, HF's ect.) are piggy backing off this leased gold being sold into the market to do what they do (never let a good crisis go to waste). There are two separate head and shoulder patterns in both Gold and Silver that these shorts could be attempting to paint the tape with. In gold the small HS bottoms about 1500, the larger about 1375. In silver the small HS bottoms about 26, the larger about 18.

I think the larger HS' are probably more of a convenient scare tactic and won't actually be attempted, the smaller ones however sure look possible/probable as of today.

enough said...

http://www.metalaugmentor.com/analysis/charlatan-exposed-negative-gold-lease-rates.html

this was a very good piece IMHO.....

made my head hurt though :-)

One Bad Adder said...

Enough etal:-

Today in these light markets we (presumably)saw the heavy hand of the Fed engaging in their - sell the short, buy the long end of the curve campaign.

In trying to put the Horse before the Cart, I feel it necessary for "faith" in the future (Investments, Long T's and whatnot) to succumb well before a general loss of faith in FIAT (paper) per-se.

It is absolutely necessary they manage this current PoG downdraft in an orderly fashion and not have it spiral out-of-control.

We watch ...enthralled!

enough said...

thank you Victory and Adder...cheers

One Bad Adder said...

http://stockcharts.com/h-sc/ui?s=$IRX&p=D&b=5&g=0&id=p73458434997

HA! ...the tranche of 3mo's put up for grabs thus causing the above Chart to pop to 0.01 earlier has been well and truly gobbled up and the status-quo (ie: flatline) has resumed.

victorthecleaner said...

enough,

Hard to believe there is sufficient selling to balance this buying let alone cause a $250 collapse in the face of it....
Do you believe in a managed gold mkt?


In the late 1990s, when everyone saw the CBs selling, the right question to ask was who is buying. Today it seems the question is who is selling.

From what I can see, there is enough physical gold available. Apparently, someone keeps selling, and it is not just paper.

Victor

enough said...

Thanks VC...

I hope this comment gets a response.....cheers

"From what I can see, there is enough physical gold available. Apparently, someone keeps selling, and it is not just paper."

costata said...

enough,

I think Tom Szabo's analysis fits the facts. Gold leasing to raise cash for commercial banks with hedging in the forwards.

Recently there have been other mentions of European banks selling gold for liquidity purposes.


Nickelsaver,

Not sure I understand your question.

costata said...

WSJ piece titled:

The Federal Reserve's Covert Bailout of Europe

When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.

http://online.wsj.com/article/SB10001424052970204464404577118682763082876.html?_nocache=1325091067684&user=welcome&mg=id-wsj

Edwardo said...

Thanks for your thoughts, Costata. I guess all I'll say at this juncture is, we'll see.

J said...

"Gold exports from Japan have reached the highest value since 1985 in the first ten months of the year, as citizens are selling at record prices jewelry purchased in the past.

“More and more people who bought gold and jewelry in the 1980’s and 1990’s are selling back what they purchased,” explained a dealer of precious metals at Mitsubishi Materials Corp. in Tokyo. He added that exports have been increasing to Southeast Asia and especially China.

In the first ten months of the year, gold exports to Thailand increased three times, while those to Singapore doubled, according Japan’s Ministry of Finance.

Japan shipped a total of 95.6 metric tons of gold during the January-October period, according to Takahiro Morita, the Japan director of the World Gold Council, who referred to data from the Ministry of Finance.

Japan’s gold exports will reach 100 tons this year, Morita estimates.

Tanaka Kikinzoku Kogyo K.K., Japan’s largest gold retailer, announced it purchased 40 percent more jewelry and gold bars from individuals in the first nine months of the year.

The paradox is that Japan is probably the only country which massively exports gold without being a producer, experts say."

Here's where some is coming from

costata said...

Hi Edwardo,

Sorry for being flippant. Blame it on the holidays.

On a serious note I think that modernizing Russia will provide a growth engine for Germany and some of the other exporters in the EU.

The other factor, of course, is China's positive impact on Russia's economy. Developments in the ASEAN trade zone should also bolster China and other economies across Asia.

No instant miracles but I think it will help Europe to ride out this global slowdown.

Bosco said...

MF,

No, I am not frustrated at all. What I was suggesting is that the Euro gold MTM structure is not as big as many here make it as.

Bosco said...

Victor,

Yes. I concur with you on the physical gold being made available for sale on the market part. Let's not brushed Gartman's gold bear case argument too quickly. His suggestion that the gold price is not responding to favourable news at all indicating a turn for a bear market. I think he has a point in that while we are seeing reports of CBs becoming biggest net buyers for years this year, and China importing record ammouts amid all these sov. debt issues; yet gold price is falling like a rock (and hit the euro MTM thingy in the face at quarter end). Forget all those nonsense shit by Turd et al on paper and physical price separating, no, someone is making large amount of gold available on the physical market front.

Aiionwatha's Nation said...

Deep roots the system has, much gold will flow before you know it's true value. These beliefs are held by the same people that print your money and extend your credit and therefore control the price of things.

The shaky dollar didn't get this far by accident and it's been shaky since 1962. At this point you'd have to be brain dead to think it's only a natural in the name of trade issue.

I can't see the non indefinite detainment way from here to there as we are clearly staring at a total collapse of the dollar. The Euro balked and missed the window or there is simply no gold left on this side of the Atlantic marking down its utility.

I think we'll see a lot of upside from the high 1400's but will we ever break free> Asking .gov to give up the world wide inflation tax aint going to happen without a major fight See: Vietnam, Cuba, Iraq, Afghanistan, Mexico, Central America, Libya, Korea. Further research, Indonesia, Myanmar, Phillipines, Africa and general South American policies.

There is no out. Only in and for what. The dollar.

victorthecleaner said...

Bosco,

yes, you should at least take into account the possibility that we will see a repeat of 2008. The financial industry is still up and running and they are in a deflationary mood these days.

This would mean about 1300$ per ounce, and only then you would get backwardation and COMEX deliveries so large that the price cannot drop any further. Still, 2008 was just a dent in the long term trend.

Why not once more? The best argument I can come up with is that according to the historical average of the Reinhart-Rogoff study, we are now overdue with a currency or sovereign debt crisis (3 years after the bank collapses). Well, Europe was on schedule. Japan, by the way, is now more than 20 years behind schedule.

Victor

mr pinnion said...
This comment has been removed by the author.
mr pinnion said...

December 29, 2011 12:31 AM
mr pinnion said...
"Not so. It's reflecting our recent purchase of paper gold. The price always drops soon after we buy."

WTF?

"Hard to believe there is sufficient selling to balance this buying let alone cause a $250 collapse in the face of it....

Do you believe in a managed gold mkt?"
It is hard to believe and yes i do.

After much thought and research on the subject, i think i ve come up with the closest answer to the truth .This is how the gold price is 'discovered'.
It s the only answer that fits all the facts.

http://www.youtube.com/watch?v=OhqxF40M4Cg&feature=related

Regards
Ozzy

Bosco said...

Victor,

Mind pointing me to a link on that Rogoff study?

Motley Fool said...

Haha

Costata the contrarian indicator eh?

and speculating? Tsk tsk. :P

TF

KnallGold said...

But then, Prechter might have his 15 minutes, finally...

Motley Fool said...

Bosco

Don't miss the forest for the trees. Short term fluctuations is simply noise. :)

TF

costata said...

MF,

Not speculating, hedging a currency exposure which we plan to spend when it is available.

And BTW if the GSR gets to 60:1 we'll be converting some of the paper gold to paper silver (unless we perceive a wheels-fall-off event is in immediate prospect).

enough said...

Gold price mgmt.?

Does it exist?

These are my observations and as such are biased by my perceptions.

2 of the largest mkts in the world, U.S. Treasury mkt (and by default, all mkts priced off treasuries) and FX are actively and openly managed by their respective "sponsors". Since this is the case why should we not assume that all mkts are managed that effect policy goals?

Gold was at $1900 and acting as a safe haven along with swiis franc. 5 minutes before the announcement that the Swiss CB would peg the SF to the euro, gold began a verticle plunge. Gold, now the only safe haven got murdered.

Since then many of these gold plunges have occured in the dead of night (somewhere) at the most illiquid of times. Where the seller moved the price $30 or more where if these sales occured during LBMA, COMEX hours, the seller would have done better with a much smaller tail in an orderly, liquid mkt. Why commence these operations in such illiquid times unless the intention was to drive price lower and trigger stops?

It also seems that whenever there is gold friendly news, gold does not act even indifferently but aggresively contrary.

As if to say, you see I do not act as I should. I offer no safety in rough seas. I am unpredictable with little corrolation to other asset classes so dont bother trying to figure me out. I am extremely volitile and will keep you up at night worried, just like your other assets.

I wont even go into margin hikes where S&P futures have been extremely volitility and margins have only been LOWERED.

So IMHO the gold price is actively and aggressively managed for the sole purpose of scaring the daylights out of the public and asset managers.

comments are welcome......

enough said...

IMHO

With just China IMPORTING 70 Tonnes per month, this vicious selloff is unlikely to be a physical supply/demand imbalance.

I believe it's more likely that we are witnessing aggressive price mgmt in illiquid end of year mkts or we are seeing the abondonment of the futures mkt.

again comments are welcome and thank you for the input recieved.

Edwardo said...
This comment has been removed by the author.
Edwardo said...

Enough, someone fears and loathes gold, and it's pretty clear that the someone in question is the $IMFs crowd and their fellow travelers. The other side of the $IMF gangster crew uses these take downs to load up on PMs. I imagine they do with with a sentiment that goes along the lines of "thank you very much, expletive deleted."

FWIW, Martin Armstrong has just put a bulls eye on the back of gold with his latest prognostication which says that a weekly close below
1522.70 spells gold at 1225. Presently gold is sitting right on the 65day MA which, save for '08, has contained sell offs. I think it's going lower. That and a couple of dollars might get you a cup of joe.

Dr. Octagon said...

Personally, I do not know the cause of the current price drop. I have read several reasonable explanations, but as I'm simply browsing the internet, and not privy to any inside information, I can't really know for sure.

But that's ok, as it has no bearing on my decisions. Whenever I save up enough to buy a gold coin, I do. I will be sitting on it for a few decades before selling, so the month to month price fluctuations don't bother me, as they will be minor in the long run.

JR said...

Hi Victory,

You commented: "JR, you once said that if any of the Euro Sov’s defaulted it would explode the price of gold. I asked you what you meant by that statement – in other words the mechanics behind the cause and effect – but I don’t believe you had time to reply."

===============================

I think we missed each other in passing. Here it is, an example of one way this "nuclear option" might play out (not necessarily the only way) from a comment to FOFOA's last post

"Here is a thought from an email with FOFOA on what might happen if a nation-state or commercial bank disruptively defaulted and caused problems for the bonds on the ECB's balance sheet. FOFOA:

"Greece essentially borrows commercial bank liabilities which it spends. Then the commercial banks borrow CB liabilities which they use to clear all the spending. There are less CB liabilities floating around than there are commercial bank liabilities because you only need X base to clear about 10X M2/M3 etc…

The economy’s “money” is the commercial banks’ “liability” or obligation to provide CB liabilities which make up the base. The commercial banks can borrow these CB liabilities at a low cost. The argument is that the commercial banks’ balance sheets are insolvent because when you MTM their assets (Greek promises to pay back the loan of liabilities), they have more liabilities outstanding than they have assets (at MTM price).

The reasoning is that the commercial banks sell these assets on the secondary market when they need CB liabilities to fulfill their obligation to provide CB liabilities. So they should be MTM. But that’s not the only way they can obtain CB liabilities. They can also obtain them by borrowing them from the CB itself. In doing so, they sign their own “promise to pay back the loan” to the CB, much like Greece did for them. This “promise to pay” is held by the CB as its asset offsetting those CB liabilities it issued. But the CB doesn’t MTM that asset, because A) there is no market for those and B) the CB doesn’t need to sell those commercial bank promises to pay in order to raise euros for clearing. The only issue is a technical one regarding the collateral that would be confiscated by the CB if the commercial bank went bankrupt.

So let’s say a commercial bank does go bankrupt for whatever technical reason. The CB then confiscates that Greek debt that was used as collateral. The argument is that there are too many CB liabilities floating around out there versus the assets the CB holds, which are now Greek obligations rather than the (now-defunct) commercial bank obligations. So the market (superorganism) sez the euro should devalue. This is where the CB reserves come into play.

The CB can “buy back” some of its own liabilities with its reserves. If a commercial bank fails and the market tries to take the euro down, the CB simply defends the euro. And what do you think it would use first? It’s dollar reserves, or its gold reserves? Let’s say Greece defaults, which takes down some commercial banks and now the ECB has all this devalued Greek debt on its balance sheet so the marketplace attacks the euro. What would the ECB do?

It would first sell all its dollars to buy back its own liabilities. But what if… just saying, what if… it used its dollar reserves to openly bid for physical gold in London? What if it did this instead of buying back its own liabilities? Think about the RPG effect on its reserve account! Suddenly you’ve got Freegold and now the ECB can quietly buy back any excess liabilities using a very small amount of gold. Just sayin’"
"

JR said...

Victory,

Also check out this and that comments from "Unambiguous Wealth" for a little more color on this idea.

Cheers, J.R.

JR said...

Divorce yourself of trying to understand the timing or the why, and instead focus on appreciating the importance of the concept to paper price movements.

This may or may not have anything to do with what's currently going on, I don't know. But I do know understanding this dynamic is real important to beginning to appreciate what the paper price represents.

==========================

Timing Is Everything

FOA (06/12/00; 19:48:25MT - usagold.com msg#26)
Put your cards on the table!

.. It seems every Gold bug sees only half the trade and has great faith that contract law will favor a short squeeze. Yet, none of them see where it is the long that will be dumping and forcing the discount!


So what did you think of the gold "take down" yesterday? Did July 1st mean anything to you?..

What if yesterday's "dip" was not the result of a coordinated pounding, but from the abrupt and unexpected absence of certain "giant" "longs"?

Why did paper gold hold its own all through June -- at or near its ALL TIME NOMINAL HIGH -- only to drop off a small cliff on July 1st as if one of its main support pillars called in sick for the day?

Were the "commercials" REALLY just waiting to turn the calendar page before pounding the snot out of gold? Or were certain "giant" LONGS propping up PAPER GOLD to book important numbers... on an important day? And if so, what does this imply about the real PHYSICAL prospects for the paper gold market going forward?

Dante_Eu said...

I guess when the Giants really starts to shake, many of us small ants will fall off.

Anyone who played "Shadow of the Colossus" knows what I am talking about. :-)

enough said...

Hi JR,

you wrote

"Or were certain "giant" LONGS propping up PAPER GOLD to book important numbers... on an important day?"

I take from this that the Giant longs were interested a good mark at the quarterly MTM party and that maybe thse paper price was managed upward for this event. When the mark was in,it was no longer necessary to prop it up.

you again.....

"And if so, what does this imply about the real PHYSICAL prospects for the paper gold market going forward?"

as to this part,

"physical prospects for the paper gold market"....no capiche?

One Bad Adder said...

Enough:-

FWIW - I understand "managed" to generally mean: having others do the heavy lifting ...all the while knowing the potential for said lifters to revolt - a Sheep-dog managing a flock ...yes?

There is a tendency to regard all management as omnipotent (the Fed and their various dalliances come to mind) - NO management action is a guaranteed success ...and fails miserably regularly!

On the Gold front, aim to mentally differentiate (a) Physical Gold in Hand (b) it's paper equivalent (c) the $ pricing mechanism for the latter ...and all the uncertainty it represents.
...and rest assured through these $PoG downdrafts, an estimated 99.9% of real Gold sits still and silent ...and whatsmore - couldn't care less!

Max De Niro said...
This comment has been removed by the author.
Max De Niro said...

I take 'managed' to mean manipulated down AND up, ie 'managed' is used rather than 'suppressed'.

Paper markets are used for 'managing' the price, whilst the 'suppression' is done by the very structure of the fractional reserve system.

This allows people like Jeff Christian to make comments in the vein of his CFTC testimony to the effect of 'this is just how commodities trade - with more paper issuance than the underlying, as the commodity futures markets are not used purely for buying the physical asset'.

This is true for commodities, however, gold is not a commodity.

enough said...

Yes Max,

I used the word "managed" rather than suppressed for that very reason you mention . The paper price is managed both directions.

As JR noted with regard to the paper price rising to and dropping from all time highs the moment the 7/1 quarterly MTM "snapshot" was in. In this instance the paper price was managed upward to get a good mark.

Maybe sometimes it's managed upward for various reasons. Maybe to slow down physical buying but mostly I think it's used to suppress.

thanks everyone.....

I wish I could divorce the paper fluctuation and volitility from my conscious. But it is difficult.......I'm all in (gladly starting in Q4 2008).......best, E.

Victory said...

hi JR,

Thanks for the on-point reply - a scenario in which the ECB bids for gold in order to defend its currency from devaluation after a sov default is an interesting idea and it makes sense, I get it.

In this example however the ECB could only do this to the tune of their dollar reserves ( or non Euro reserves) right? If the ECB bought gold using Euros, then although they may successfully drive the price of gold up they would at the same time be adding more euro liabilities to their balance sheet - therefore sort sort of running in place.

Unless of course the gold price appreciation in percentage terms was significantly larger than the contemporaneous euro fx devaluation. Maybe the physical gold market is so small that even an ECB with no fx reserves could force freegold by bidding in the open market ( confidence hyper-revaluation)?

-v

Edwardo said...

It seems to me that the key issue with "the nuclear gambit" is at what price does the river (of gold) start to flow in sufficient quantities so as to allow the plan to work. What price will cause the giants to dishoard?

Jeff said...

Hi Victory,

If you want scenarios, there are many:

FOA: Stop here and see how it could happen two ways (or a combination of both):

You see, all it takes is for one or two government and/or private entities to pull the cord. Most all of you long ago came to the same conclusion; a Dollar / Euro currency dispute could set this off. Outside parties begin buying gold with dollar reserves,,,,, on the barrel head for 5 day placement. It begins with twenty or thirty 100 ton orders ,,,,,, a billion$$ or so each! Not derivative orders, mind you,,,, hard delivery orders that aggravate and outline the soft nature of modern gold banking. They keep coming,,, days on end! Then, suddenly the paper markets "are no more".

OR:

The price of oil rises until price inflation can no longer be contained. Unmined physical gold is withheld from the markets to such an extent that even limited demand runs the physical price to a large premium. More and more investors pay a larger escalating premium to get physical "now". Such a premium overwhelms and discredits the function of paper market pricing. Bullion Banking must revert to currency banking to cancel out it's contracts. The run begins.

One more:

FOA: With most of the world oil reserves located outside the US,,,,,, and the US slowly running out of it's domestic reserves,,,,,,, using oil as a backing dynamic somewhat controlled the "free will" of the US. If indeed, the US backed away from managing a cheap gold market or ran it's printing press too fast,,,,,, oil prices could be managed upward in a devaluation of the dollar.

Jeff again. So who is really managing the price of gold, who is suppressing it? The $IMF or the buyers who want to get as much as possible before the end??

Jeff said...

Do the paper markets exist with permission from those who could end them?

FOA: There is simply no possible way the dollar debt load could have been expanded to it's present scale without a massive worldwide helping hand. Yet conversely, to help explode dollar assets was clearly and end time maneuver that would destroy everyone's assets. Unless some other system was on the wind, ready to take over.

The wonderful recent essays by Mr. Howe expose and document a system as it currently stands,,,,at the end of it's timeline of usefulness. The purpose, need and use of gold banking has run headlong into a world class political storm. This end time battle has been in the making from before Another ever started writing. Truly, this Gold War will be about a transition from world dollar dominance.

Today, oil flow has moved from playing a fundamental game of pricing "use value" with supply and demand to pricing it's "monetary value" in supporting any major currency block. Concessions are now there for the taking by oil producers. Dollar prices for oil can rise considerably higher with the US giving behind the scene support for this action. In addition, the world paper gold markets can and are being dismantled as a further concession to retain dollar settlement of oil.

Greenie said...

What are the objective criteria to accept/reject FOA/FOFOA hypothesis? What, if it happens, can allow us to say that FOA is right or FOA is wrong? For example, Aswin from Automatic Earth blog presented an alternate hypothesis predicting huge drop in gold prices. Can we say he was right, if gold falls to $1500 (or $500)? Can we say he was wrong, if gold stays at $1800 for the next five years? Just wondering.

I hope this is legitimate question given that 2011 was marked as RPG year, and we have two more days left in 2011.

Greenie said...
This comment has been removed by the author.
Aquilus said...

And now for the second most loved topic of this blog: the USD.

John Williams from shadowstats.com has released a short post (subscription-required) regarding the recent Friday before Christmas release of the US 2011 financial statement:


It’s ugly.
We now know why this was released on the internet with no comment on the Friday before Christmas.
Here are the highlights, you pay for the detail. Well worth the money.

- Actual 2011 Federal Deficit Topped $5.0 Trillion
- U.S. Government Debt and Obligations Top $80 Trillion
- Long-Term U.S. Insolvency/Hyperinflation Remain Virtual Certainty

In each of the last two years, the US has had an annual deficit of $5 trillion, not the $1 trillion plus as reported in the media. These are the losses on the US income statement.

If you include long-term obligations of Medicare and Social Security, the real deficit jumps to over $80 trillion. These are the losses on the balance sheet.

We can not grow out of a continued $5 trillion plus a year deficit, let alone $80 trillion. We can not raise taxes enough to cover the $80 trillion obligations. Social Security and Medicare programs will be cut.

Completely unsustainable. There is no reason to assume that 2012 will not have at least a $5 trillion short fall, if not more.

Right now, the US is selling bonds (more debt) to cover this continued short fall. At some point in the future, the US will have a no-bid bond auction. Then we will have not just a balance sheet and income statement problem, but a cash flow statement problem.

These three reports: the income statement, the balance sheet, and the cash flow statement (and the footnotes of each!) tell you all you need to know about a company or country.

Aquilus said...

A little bit more detail about the above


A link to the raw pdf data

costata said...

Hi Greenie,

You wrote:
I hope this is legitimate question given that 2011 was marked as RPG year, and we have two more days left in 2011.

Who "marked" 2011 as RPG year?

Texan said...

Greenie,

Not speaking for TAE (I like their blog summaries a lot), but I think they expect everything to go down in value, and stay there. So if they are right, I don't really care. I am trying to protect purchasing power, so it's all a relative bet. sort of like my house price. I gotta live somewhere, and I gotta park savings somewhere.

In their scenario, I suppose cash or Treasury debt would be the best bet , but I just don't think cash will "win" for very
long in terms of increasing purchasing power. Too many vested interest aligned against "cash", too much debt that needs to be serviced.

Enough, right on! Has to be manipulated and managed, right? I will do you one better. I think they are engineering a deliberate sell- off in everything to wheedle out the non-TBTF players. The pie is shrinking, they can't have so many at the table. But while they are doing this, they especially can't have gold outperforming everything else by 30% +., or heaven forbid, go UP while stocks crater. They absolutely cannot lose control of the money supply by having it bulll rush into gold.

JR said...

Victory,

"In this example however the ECB could only do this to the tune of their dollar reserves ( or non Euro reserves) right?"

The "that" link I posted above details a FOFOA comment from Euro Gold where he addressed buying gold in Euros. So I'm not sure why you would write the above.

==================================

This is an excerpt from the comment discussed in "that:"

"In Jeff's quote from FOA (found on goldtrailtwo) where he said the ECB could buy gold with printed euro, what do you think would be the ECB's purpose of doing that? Would it be:

A.) To get moar gold? or
B.) To raise the price of gold?

FOA wrote that particular post in September, 2000, right when the euro had just tumbled from $1.10 down to 86 cents. FOA wrote: "If their currency continues to fall before the dollar begins it's terminal phase, this option is wide open to them."


http://fofoa.blogspot.com/2011/07/euro-gold.html?showComment=1310618094160#c1166225796087794509

enough said...

Hey Texan,

Am I correct in saying that you believe the TBTF's are engineering to the best of their abilities a collapse in price of all real physical assets so as to take possession of as much of the whole kit & kaboodle as they can? Just a big monopoly board with planet earth on it.

If this is what you're saying I'm completely on board. Game over when the TBTF own all the real stuff and the people are stuck with a "model portfolio" of 'diversified" digital credits which they have been brainwashed into believing is where they shoud store their savings.

All the while Team $IMFS buy, foreclose or re-possess all the good stuff during a drawn out managed/contrived deflationary collapse. Only to hyperinflate away any loses they might suffer during such an episode.

Even if this is not what you're saying, I think it's spot on !!

But where are we now? Terminal phase? Pile drive the percieved value of all things real as low as possible and scoop up the earth while the publics digital credits of stocks and bonds are humming along so nicely in these "managed" mkts? I mean superficially "real assets" are acting horribly (except oil) while the model portfolio has been, well.....model, and creating more digital credit for said portfolio owner.

I think if they can "manage" the paper price of gold down in a slow/orderly fashion, they can probably keep physical tied to spot almost all the way down.

RogerW said...

costata, FOFOA made a post at the end of 2010 titled "2011 Year of the RPG":
http://fofoa.blogspot.com/2010/12/happy-new-year.html

victorthecleaner said...

JR,

Timing Is Everything:
...
So what did you think of the gold "take down" yesterday? Did July 1st mean anything to you?..
...
What if yesterday's "dip" was not the result of a coordinated pounding, but from the abrupt and unexpected absence of certain "giant" "longs"?


Sorry, but I don't buy this story and this is for at least a hundred different reasons. One of them is
a) look at the price action over the past couple of days
b) tomorrow (Friday) is the last LBMA trading day of the year and the quarter

Victor

costata said...

Thanks RogerW,

I forgot about that "post". The music video compilation made a stronger impression on me than the title I suppose.

Cheers

costata said...

US Job Numbers

These job numbers are deeply troubling coming during the Christmas sales and holiday period.

Quote:
"In the week ending December 24, the advance figure for seasonally adjusted initial claims was 381,000, an increase of 15,000 from the previous week's revised figure of 366,000. The 4-week moving average was 375,000, a decrease of 5,750 from the previous week's revised average of 380,750."

Denninger writes:
Yeah, and the unadjusted number was 490,364 -- a lot higher.

http://market-ticker.org/akcs-www?post=199820

Victory said...

Hi JR,

you ask why I made that comment - the 'that' link you so kindly provided took me here:

'In the CB world buying gold from the London markets and taking it into CB possession is called monetizing it. Selling CB gold into the commodity market is likewise called demonetizing the gold. Commodity gold/paper gold trades in dollars. If any CB enters the London commodity market as a physical buyer, at best that's going to skyrocket the price in dollars, at worst it will destroy the dollar paper gold market.

As the price of gold rises, so does the published value of the Eurosystem's gold reserves. Compare that USDEUR chart I linked with the gold value chart up in the post. Can you see any similarity? In fact, the ECB could potentially buy gold from London and NY while simultaneously selling gold for euro to Europeans, you know, those European savers saying "oh, sh1t". That would cause a physical inflow of gold from the US/UK into Europe while supporting the value and market convertibility of the euro with gold sales inside the zone. Making sure physical gold is always readily available for sale at a floating price prevents a currency from collapsing. Something to think about.

Sincerely,
FOFOA'

I understood this to mean that the ECB would be buying gold with Euros - now if the $ price of gold is rising as it relates to the euro it means one of two things. 1. the dollar/euro fx rate could be falling (dollar depreciating against the euro and euro's not necessarily buying gold) 2. the fx rate could be stable but euro's are buying gold thus bidding up the euro price of gold (and implicitly the $PoG). However, in the example above I figured that euros were being printed to buy gold and thus the dollar/euro fx rate would be rising (dollar appreciating against the euro) while at the same time euro price of gold is rising (as euros buy gold). So theoretically these two events could be cancelling each other out as it related to the $PoG.

But then I added the part about the price of gold in euros increasing significantly faster than euro fx rate depreciating against the dollar. Since the gold market is so small and confidence dependent (given it's fractional reserve paper mechanics) if the ECB starting bidding on gold in open market it could blow up the paper gold system. If we are on the same page then this last paragraph is the key no?

Jeff,

Thanks for those quotes. I like your last sentence "So who is really managing the price of gold, who is suppressing it? The $IMF or the buyers who want to get as much as possible before the end??" A trader I admire once said that Chinese state sponsored hedge funds (Sov wealth funds) have been know to short miners into the ground and then take controlling interest through buyout offers at what would normally be below market value. I recently read an article (don't know how credible) about the new Pan Asian Gold Exchange possibly being derailed by the Chinese government. This is the exchange a lot of people have been speculating would put pressure on the paper gold price discovery mechanism since it is a physical only exchange for the most part. The Chinese do have a lot of dollars still, maybe they aren't in such a hurry for freegold?

costata said...

Military Adventures In The Middle East

It seems unlikely to me that planners would be oblivious to the effect on the price of oil from regime change and US military actions in the ME and Libya. Higher oil prices are making the US less dependent on the ME. This article reports:

Today, half of net U.S. petroleum imports come from the Western Hemisphere, and half of that (or a quarter of the total) comes from Canada. Only 12% came from Saudi Arabia last year, down from nearly 19% in 1993.

(Note: I suspect they mean oil rather than petroleum.)

The link to the USA Today story came from a post by Robert Rapier writing over at Financial Sense.

Aided by rapidly growing output from North Dakota’s Bakken field, oil production in the U.S. rose for the third year in a row. Natural gas production also continued the growth trend that started in 2005, and in 2011 was on the verge of breaking the U.S. Dry Natural Gas Production record set in 1973.

These two pieces present a very interesting picture of the energy markets in the USA.

The U.S. exported more oil-based fuels than it imported in the first nine months of this year, making it likely that 2011 will be the first time since 1949 that the nation is a net exporter of such goods, primarily diesel.

...the U.S. is importing a smaller share — 49% in 2010, down from 60% in 2005 — of the oil it uses.

Ethanol production, unemployment and declining living standards are also reducing America's dependency on the ME.

Other factors contributing to the U.S. net export of petroleum products is the federally mandated use of ethanol, which has boosted its production and reduced demand for regular gasoline.

Gasoline demand is also down because Americans are driving less. They've been driving fewer miles every month since March, according to a USA TODAY analysis of data from the Federal Highway Administration.

As Rahm Emanuel remarked "never waste a crisis".

Greenie said...

costata said...
>Hi Greenie,
>Who "marked" 2011 as RPG year?

Hi Costata,

Someone we know :)

J said...

While on the topic of oil

"China wrote history this week after gaining approval for oil exploration in the Amu Darya Basin in Afghanistan, making it the first international oil deal made by Afghanistan with a foreign country in several decades."

China-Afghanistan oil deal signed as tensions mount in Middle East

"Dec 30 (Reuters) - State-owned China National Petroleum Corp (CNPC) has received its first cargo of crude oil as payment for helping develop Iraq's Al-Ahdab oilfield, the top Chinese oil firm said on Friday.

A CNPC unit picked up the 650,000 barrels of oil on Dec 29, following a framework deal with Iraq's state oil sales company in June, CNPC said in its inhouse newspaper.

The parent of PetroChina Co Ltd started work on the Al-Ahdab oilfield in March 2009 after successfully renegotiating an old development deal. The field had estimated reserves of 1 billion barrels.

Output in the field in the first phase reached 60,000 barrels per day in June, half a year earlier than planned, and the construction of the second phase with capacity of 120,000 bpd was completed on Friday, three years ahead of schedule, CNPC said.

CNPC, the first foreign oil company to sign an oil service contract in Iraq after former president Saddam Hussein was toppled, has also started to get paid for developing Iraq's largest Rumaila oilfield along with BP."

CNPC says gets first payment for developing Iraq oilfield

The U.S invades and China gets first dibs on the oil. Funny how that works

burningfiat said...

Edwardo said:
It seems to me that the key issue with "the nuclear gambit" is at what price does the river (of gold) start to flow in sufficient quantities so as to allow the plan to work. What price will cause the giants to dishoard?

I was also wondering at what point I would dishoard if I was a giant, and I guess that there would be a point where giants would marginally dishoard for other investments like land and other stuff. But the thing about giants is that their wealth is for many, many generations, so it would only be a small percentage of the hoard that would be sold. It's different for us shrimps, right? We typically don't own our own houses and we don't have 10 Ferrari's yet.

Shrimps will therefore arguably dishoard a relatively bigger chunk of their stash, so much of the gold will maybe come from new-rich shrimps, and not so much from giants who already have their target number of yachts?

/Burning

JR said...

WTF are you talking about Victor?

My point is that its stupid to talk about the price of anything without considering demand.

I was absolutely clear that the nonsense you are suggesting has nothing to do with my post. I was talking about the concept of demand. Of course it has *nothing* to do with booking paper gains around a MTM revaluation, why would you even suggest that?

JR said...

Victory,

No, not that at all. Demand matters. You are ignoring it in lieu of a supply focused analysis.

When Jeff writes "So who is really managing the price of gold, who is suppressing it? The $IMF or the buyers who want to get as much as possible before the end??" he is supporting my point above about the importance of demand. Supply is half the story.

Edwardo said...

"The Chinese do have a lot of dollars still, maybe they aren't in such a hurry for freegold?"

If indeed they aren't aren't in a hurry it may be because they would like to see their citizenry acquire more gold before the transition. China needs to turn some large number of its population into robust buyers of its own production and insuring that more John and Jane Chens have more ounces in their coffers is integral to pulling off that plan.

In the meantime a revaluation of several orders of magnitude, even today, would go a long way towards compensating China for the loss of purchasing power of their dollar denominated assets.

On another note, it's interesting when technical (see my post on the 65 day MA) and fundamental factors (see VTC's last post) appear to act in concert.

Edwardo said...

Uh huh.

http://www.gata.org/node/10828

Aquilus said...

A little off topic but it made me think:

Greenspan as Francisco D'Anconia, weakening the dollar system from the inside

JR said...

Victory,

Freegold and dollar hyperinflation are separate events that will most likely be rolled up in the same messy ball.

In terms of hyperinflation, its all about demand. Another:

Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!



Big Gap in Understanding Weakens Deflationist Argument

""Where will the money come from?" is a question of supply. Yet the answer to hyperinflation lies on the demand side of the equation. This is Rick Ackerman's big gap in understanding. Let me explain.

The value of money, like everything else in life, derives from supply and demand. There are two distinct entities that each control one side of the equation, kind of like a tug-of-war. The printer controls supply and the marketplace controls demand. A tug-of-war is actually an apt analogy. When demand for a currency spikes its price, the printer just eases his grip on the rope, releases more rope and the whole demand side just falls on its butt.

We saw this with the yen after the earthquake and with the dollar a little over a year ago. With a fiat currency, this is the way it works. No matter how hard demand pulls, if the printer doesn't want the price of the currency to spike all he has to do is release more rope. It's his ace in the hole. He can always send the marketplace to its butt. The printer is firmly in control of the supply side.

But in the same way that the marketplace has no control over the supply side, the printer is powerless on the demand side. ANOTHER alluded to this years ago when he wrote:

Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!

So it is the receiver of currency—not the giver—that determines its value. That's the power of demand.

[...]

Fear is the main emotional motivator in any currency collapse, just like it is in financial market meltdowns. And as we saw even just last night, the herd can stop on a dime and reverse course 180 degrees overnight, from greed to fear, based on a single news item.

The initiating spark of hyperinflation (currency collapse) is the loss of confidence in a currency. This drives the fear of loss of purchasing power which drives people to quickly exchange currency for any economic good they can get their hands on. This drives the prices of economic goods up and empties store shelves, which causes more panic and fear in a vicious feedback loop.

The printing of wheelbarrows full of cash is the government's response to price hyperinflation (currency collapse), not its cause. This uncontrollable (knee-jerk) government response happens in some cases, but not all. Let me repeat: The massive printing that first comes to mind when anyone mentions hyperinflation is not the cause, it is an effect, in the common understanding of hyperinflation which is the collapse of a currency."


cont.

JR said...

cont.

So like think about it in terms of "is there demand for the currency." Certainly currency management issues like "printing money" impact demand, but its really all about demand.

Victory, I was responding to this: "JR, you once said that if any of the Euro Sov’s defaulted it would explode the price of gold. I asked you what you meant by that statement – in other words the mechanics behind the cause and effect – but I don’t believe you had time to reply."

What I referenced above were examples of the Euro area's "nuclear option" - to revalue gold. If for example a debt crisis were to threaten the Euro's existence, the Euro could revalue gold and extinguish its liabilities and thereby ushering in Freegold. So what good does that do if they are, as you seem to wonder, printing Euros? You seem to focus on a line of thought like "Why won't this extra supply weigh down on the dollar exchange rate?"

Because its all about demand.

cont.

JR said...

cont.

from the same Euro gold comment referenced in "that" same comment we have been discussing from above:

"I agree with you, Texan, they wouldn't get much gold, but that's okay because that wouldn't be their goal. You write:

"What I am saying is that if the ECB announces it is bidding for gold, there will be no sellers, and private holders of euros will panic and race to buy what little gold they can find."

Yup! Agreed. And…

"the moment the USG says it is, in effect, bidding for gold, is the moment all gold holders say " niot my gold for your now officially worthless currency". And it is also the moment all savers go, " oh, sh1t", where can I get some gold. Ie, it's the day the dollar dies. It would be the same for the euro. No one is going to fall for that con."

Exactly! And what happens to the price of gold when the Giants clinch and the paperbugs say "oh, sh1t"? I guess you fell for "the con" after all, Texan, because that's exactly how they hoped you'd react.

In the CB world buying gold from the London markets and taking it into CB possession is called monetizing it. Selling CB gold into the commodity market is likewise called demonetizing the gold. Commodity gold/paper gold trades in dollars. If any CB enters the London commodity market as a physical buyer, at best that's going to skyrocket the price in dollars, at worst it will destroy the dollar paper gold market.

As the price of gold rises, so does the published value of the Eurosystem's gold reserves. Compare that USDEUR chart I linked with the gold value chart up in the post. Can you see any similarity? In fact, the ECB could potentially buy gold from London and NY while simultaneously selling gold for euro to Europeans, you know, those European savers saying "oh, sh1t". That would cause a physical inflow of gold from the US/UK into Europe while supporting the value and market convertibility of the euro with gold sales inside the zone. Making sure physical gold is always readily available for sale at a floating price prevents a currency from collapsing. Something to think about."

===========================

Victory, did you see that part about how to ensure demand for your currency:

Making sure physical gold is always readily available for sale at a floating price prevents a currency from collapsing.

cont.

JR said...

cont.

Currency value is all about demand.

Making sure physical gold is always readily available for sale at a floating price prevents a currency from collapsing.

The Eurosystem holds 10,800 metric tons of gold, roughly one third of world gold reserves.

So the moment all savers go, " oh, sh1t", where can I get some gold," where do they then go get the gold?

"In fact, the ECB could potentially buy gold from London and NY while simultaneously selling gold for euro to Europeans, you know, those European savers saying "oh, sh1t". That would cause a physical inflow of gold from the US/UK into Europe while supporting the value and market convertibility of the euro with gold sales inside the zone. Making sure physical gold is always readily available for sale at a floating price prevents a currency from collapsing."

================================

Do you see - people want your currency if they can get physical gold? The link to free floating physical gold, the fact that physical gold is convertible in a currency makes people demand that currency, no?

As FOFOA says, its the end of parity between paper gold price discovery [aka dollar gold market] and physical gold price discovery [euro gold market].

==================================

It’s the Flow, Stupid:

You see, the European gold reserves are far better, far more credible than the US gold reserve, simply because they engage in a two-way gold market, and have for decades. The US gold has been hoarded and locked away for more than 30 years, never deployed in case of emergency. The European CB's took a lot of flak for selling gold over the past two decades, but that action is precisely what makes them so much more credible (and valuable!) than the US gold hoard. Any trading partner knows full well that if all else fails, gold will be paid.

Cheers Victory, Happy New Year!

J.R.

JR said...

link

The last London gold fix of 2011 came in at $1,574.50 per ounce – some 11.6% higher from the end of 2010, and recording gold's 11th year of consecutive gains.

enough said...

another good post by Chris Powell at GATA

http://www.gata.org/node/10835

Dante_Eu said...

@JR:

Yes yes, but when one is brainwashed with RPG and super high prices, 11.6 % goes something like this:

Parturient montes, nascetur ridiculus mus.

Anyway, Happy New Year! :-)

arthur legg said...

Lots of ways to look at that 11.6% gain.It s barely kept pace with inflation.It s also better than holding your value in cash.
I ll give it till middle of 2012.
Things will be a lot more clear at that stage, me thinks.

Regards
A Legg

JR said...

Happy New Year!

FOA: Several years ago, many gold bugs and gold advocates missed the path as the trail turned. Something I pointed out at the beginning of these "message" talks. As most of you will no doubt agree, almost all gold discussion still centers around "the dollar's war with gold". Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began! A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar / IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating the gold market place with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.

Yes, the war now is between the Euro and the dollar! The Washington Agreement placed gold "on the road to high prices" as it signaled a phasing out of Euro support for our American gold values. How fast gold can, now, rise will gauge how much staying power the dollar has in all this. If there is any gold war now, it's to be in just how fast the dollar gold market can disintegrate into worthless IOUs! So, don't count on this destruction of our paper gold market to mark the real value and availability of physical gold; that ratio will split somewhere down the goldtrail. This action will scare most harden gold investors to death; especially the ones in leveraged gold stocks and lesser white metals!

The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it. A market caught between how Western perception thinks gold's price should be "discovered" and at what price level trading in physical gold craters the entire paper structure. A structure of American based "paper gold".


==================================

Monday, August 6, 2001 - GOLD @ $267.20 - FOA: "The result will be a massive dollar price rise in gold that performs over several years.

Tuesday, January 1, 2002 - Launch of euro transactional currency
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500

Nickelsaver said...

a date that I believe is relavant to that timeline.

Nov 10, 2001 – China is admitted to the World Trade Organisation

Texan said...

Victory, if I understand JR correctly, he thinks that if the Euro sovereigns default on their PAPER (or are about to default, I am not sure which), the "ECB" will somehow save the euro (or is it the sovereigns?) by selling the "euro gold" which is on the "ECB balance sheet" (but I think is actually owned by the defaulting sovereigns, so I am not really sure how the ECB decides whose gold they sell, and whether the poor sovereign in question will actually part with their gold as they are simultaneously defaulting), to their own concerned citizens. I presume the ECB will ask for ID of some sort.

Because while the ECB is helping their own kind bail out of the euro into gold, they will be craftily taking those same euros and buying like mad in London and New York. What an arbitrage! No one will see it coming.

And while the ECB is openly bidding like mad for gold (sure to inspire confidence in the euro, because you know, it's "on the balance sheet" and all), the price of gold in dollars will skyrocket and blow everything to bits in the Us and UK and no one will want dollars ever again, only euros (except in euro land, where they will all be busy buying gold).

JR, did I miss anything? I am just having fun by the way, I lov reading your stuff.

costata said...

Russia and China

Mutual distrust, hard-nosed business styles and a fear of dependency have hurt what could be a symbiotic relationship between the world’s largest petroleum producer and its biggest energy consumer.

http://www.washingtonpost.com/world/china-finds-promise-and-peril-in-pursuit-of-russian-energy/2011/11/27/gIQA1H9hzO_story.html

Interesting graphs.

http://www.washingtonpost.com/world/a-would-be-energy-axis-between-china-and-russia/2011/12/28/gIQAMU7LNP_graphic.html

mr pinnion said...
This comment has been removed by the author.
DP said...

ECB bidding like mad for gold, with what?

With dollars.

Dollars bid for gold. Gold bids for euros.

One of these currencies is NOT like the others.
One of these currencies isn't the same.
Can you tell which currency is not like the others,
Before I finish my song?

Happy New Year, grampa lemon (and everyone else, especially Wendy).

enough said...

Ex-Fed Governor Warsh again confirms gold price suppression...

"policy makers are finding it tempting to pursue 'financial repression' -- suppressing market prices that they don't like." He added, "Efforts to manage and manipulate asset prices are not new."

http://www.gata.org/node/10839

Texan said...

DP, good point. The ECB, having no dollar printing press that I am aware of, will borrow the dollars from the Fed via a currency swap line so it can bid up gold and end the dollar hegemony. I am sure the Fed will be perfectly fine with that, no problemo!

I think this would actually work with the Yen, now that I think about it. I think they are pretty desperate to have a much weaker currency. Hmmm.....what say you, DP? Maybe it's the YEN whose time has come!

costata said...

ECB - Euro

Sterilizing the LTRO:

Only 14.5 billion Euro left in circulation from LTRO: ECB was 29bn Euro yesterday h/t Delusional Economics

from the MacroBusiness blog here:

http://www.macrobusiness.com.au/2011/12/december-30-links/

The LTRO program was around 500 billion Euro if memory serves me. So 15 billion amounts to petty cash.

Looks like the ECB is keeping a firm grip on their end of the "rope".

FOFOA said...

JR! :D

You quoted: "The last London gold fix of 2011 came in at $1,574.50 per ounce – some 11.6% higher from the end of 2010, and recording gold's 11th year of consecutive gains."

Indeed! And the last fix in euros came in at €1,217.05!! Somehow, during the dark of night, euro gold mysteriously levitated its way up from yesterday's PM fix of €1,184.16 which would have been a disappointing declined since the last MTM Party which marked gold at €1,206.39.

So the trend continues!

Incidentally, while you note an 11.6% rise in dollar gold, euro gold actually marked a 15.3% rise! How did your 401K do in 2011?

Happy New Year everyone! Look for a new post late tonight.

Sincerely,
FOFOA

costata said...

How Do You Solve A Trade Imbalance?

Part 1/2

If you are the IMF you do this:
…. the EU/IMF adjustment programme affects the entire internal demand indiscriminately (106.5% of GDP). It is, in effect, like using a sledge-hammer to crack a nut.

Instead of this:
Fiscal devaluation policy aims at replicating, through the rebalancing of a country’s tax structure, the effect of currency devaluation.

The idea is that, since tax and social security receipts represent, on average, around 40% of GDP in Eurozone economies, then they represent, on average, the largest cost factor of every single economic activity.


This analyst is discussing Portugal. A fine example of what not to do. The IMF and Brussels haven't targeted the area of the sovereign balance sheet and economy where structural changes are needed. My emphasis below.

For example, Portugal’s trade deficit in 2010 was 6.5% of GDP. Its income-balance deficit was 4.6% of GDP. Much because of these two large deficits, Portugal’s net borrowing requirements (public plus private) were approximately 8.5% of GDP. To achieve a sustainable reduction in the budget deficit, the EU/IMF adjustment programme should have targeted a reduction in the trade deficit. If done well, such a reduction would have had a marginal impact in Portugal’s economic activity (just about corresponding to the reduction in the trade deficit).

In addition, the adjustment program should have targeted a reduction in the income-balance deficit through a realistic debt restructuring.


Instead, the EU/IMF adjustment programme affects the entire internal demand indiscriminately (106.5% of GDP). It is, in effect, like using a sledge-hammer to crack a nut. Only by chance or accident, or through drastic reduction of economic activity, will the adjustment programme be able to reduce the trade deficit by anything close to 6.5% of GDP and thus achieve, as necessary, a sufficiently large reduction in the country’s net borrowing requirements. Moreover, given the sheer number of measures foreseen in the adjustment programme, the likelihood for policy mistakes is very high.

In addition, the EU/IMF adjustment programmes pay insufficient attention to the income-balance deficit. Average interest rates on the peripheral countries’ external debt may rise, rather than fall.3 Therefore, the income-balance deficits of these countries may increase, putting upward pressure on net borrowing requirements and thus on the budget deficit.

Continued/

costata said...

/Continued

Part 2/2

In practice, the EU/IMF adjustment programmes are not likely to result in a substantial reduction in net borrowing requirements, but instead in a change in their composition. Public sector net borrowing requirements may fall in the short run, but private sector net borrowing requirements will likely increase. Since the private sector is unable to increase borrowing in the current context4, the adjustment programmes will simply result in an unprecedented and pointless destruction of private sector activity.

These businesses’ failures will also reduce tax revenue, exacerbating the situation while causing unnecessary and self-defeating hardship upon the populations of these countries. This is, by the way, what we have seen in Greece and Ireland. It is what we are about to see in Portugal.


Translation – reduce the burden of the taxation/public sector on the private sector or you simply exacerbate the problems.

Let me break it down for the stragglers. If one section of society makes All of its income from taxing the rest of society and then pays tax on Some of that income it is a sham transaction. In net terms no “tax” is actually paid. It’s nothing more than an accounting entry on the sovereign balance sheet.

About half of the adjustment suggested above should be done through improvements in the trade deficit (through fiscal devaluation policy), with the remainder accomplished through improvements in the income-balance deficit (through a debt restructuring).

And since they will have to restructure the debt eventually anyway, they might as well get on with it now.

Fiscal devaluation policy aims at replicating, through the rebalancing of a country’s tax structure, the effect of currency devaluation. In contrast to earlier proposals, the proposal I make (Cabral 2011) argues for a far greater rebalancing of the existing tax structure, and argues that VAT rates should be reduced, not increased. The idea is that, since tax and social security receipts represent, on average, around 40% of GDP in Eurozone economies, then they represent, on average, the largest cost factor of every single economic activity.

Now this is worth repeating: “the rebalancing of a country’s tax structure (replicates) the effect of currency devaluation”.

costata said...

Gold Mining Stocks

Check out this analysis of gold mining stocks from Adam Hamilton's business partner. How's this for completely back-asswards thinking? (My emphasis)

He doesn't like gold stocks because, get this, they can't find gold.

After I finished laughing out loud, I realized that this was yet another confirmation that the fortunes of gold stocks are due for a change. Now in a sense this bald-headed anchor is correct, gold companies are indeed having trouble finding economic deposits at a fast-enough pace to renew reserves and grow production. But contrary to his logic, the fact that the supply chain is coming up short is exactly the reason for folks to invest in this sector.


Even a broken clock tells the correct time twice a day. This “bald-headed anchor” from the MSM could be correct. If the miners can't replace their reserves faster than they are being depleted it is a sound reason to buy metal in preference to the gold miners’ stock.

Also according to this analyst the junior miner ETF is down 40% for the year but happily the seniors ETF is only down 18%. And for an apples to apples comparison: How does this performance compare to the physical metal ETFs?

Throughout the course of gold's bull these miners haven't had a problem finding investors to purchase their shares. Both the issuers and subscribers were confident that return on investment, in the form of stock appreciation, was imminent in the very near term.

But, unfortunately, it wasn't "imminent". It never showed up.

Considering the lackluster share performances, juniors especially have had a real tough time procuring capital. As a result, those that were undercapitalized going into 2011 have been forced to get by with leaner operating budgets and/or have had to delay exploration/development projects. And those that have pursued aggressive financings have had to issue a lot more shares than hoped, greatly diluting shareholders.

Then he compounds his back-assward thinking with this contradiction:

With the low-hanging fruit long gone, it is getting harder and harder to find gold. In order to sustain and grow supply the miners therefore need to look for gold in harder-to-access locations and develop lower-grade higher-cost deposits. They need more capital than ever to do what they do!

Great! The prospect for both steep rises in production costs and more shareholder dilution.

And all the while the miners are sitting ducks for governments who may be watching their tax revenues collapsing in the (likely?) event of another severe downturn in the international economy.

In the hands of a miner gold is merely a commodity that has to be exchanged for cash (or used to pay back a gold loan). In the hands of a sovereign gold is money (the IMF says so). So just to reinforce this point: Does a rising gold price make the assets of a gold miner more or less attractive to a sovereign up to their eyeballs in debt?

Edwardo said...

Costata wrote:

"Does a rising gold price make the assets of a gold miner more or less attractive to a sovereign up to their eyeballs in debt?"

And to think that, back in the halcyon days of '08 that some of us thought it was going to be the big money center banks that would be nationalized. Au contraire, it was going to be mining companies that would, in effect, become government property.

Aiionwatha's Nation said...

I agree the miners are a bad play for three key reasons: share dilution assocaited with acquiring new properties, government intervention like GM, and forward demands associated with market forward delivery to the source of their financing.

I agree with just about everything FOFOA has written, but I think you have to look deeper into the development of the futures and derivatives markets to understand inflation/demand in the current market dynamic.

The guys on the business end of the printer can set the rules, dictate price and make new rules as they go along.

I had to document every progamme associated with the 08-09 bailout and I can't remember even half of the Acronyms that were used and poof, most of them are gone now.

I make my point only to say that this will be settled politically in the now or slowly over a long period of time. As things sit now, I see no reason reason why anyone (controlling government) would give up the press for an unknown environment of free competiton with an unregulated barometer at its nucleus. China is socialist, Europe is split in half, The USA gets a lotta somthin for nothin, the third world is constructively in disarray, and the queen's countries belong to london.

Sh*t, if I had my own printing press, would I give it up? I hope so, but the precious can torment even the purest of heart.

Happy New Year All!

costata said...

Hi Edwardo,

Australia and South Africa (at minimum) are a dead certainty in my opinion. Australia because, back in 1997, that is what the RBA said it would do if we needed to replace the reserves. And SA because there is already a vocal movement advocating a takeover of the gold mines.


AN,

I may be reading your comment incorrectly. This could be read two ways:

I see no reason reason why anyone (controlling government) would give up the press for an unknown environment of free competiton with an unregulated barometer at its nucleus.

If you are referring to government bear in mind that only around 5 per cent of the "money" supply is base money. A government controlled printing press isn't the main prize for democratically elected governments. It's the ability to (1) issue debt and (2) levy taxes (in that order). The seignorage from issuing currency is peanuts in most countries.

In relation to the miners I think you can add in a fourth key reason. Shareholders are the most "un" of unsecured creditors. I would love to see a detailed analysis of the web of secured debt around the miners and the beneficial ownership of same. Then we would see who is in the driver's seat. (I imagine that analysis would give the conspiratards a woody as well.)

I'll lay you long odds that secured creditors would be insulated from any losses in the event that gold miners are ultimately turned into contractors under the control of governments.

Happy New Year everyone.

Aiionwatha's Nation said...

I might take those odds, but it would depend on who the secured creditors were.

Credit and base money both buy things, so if I can control them, there is no stopping me.

Buy my 2% debt and I'll give you this payment protection plan, which you can leverage up or sell or better yet, offset with this guy's payment plan.

Every single weakness has been exposed:

Physical to paper leverage
counter party derivative risk
deficit melt down
waning treasury demand
bypass of the dollar in trade
lower reliance on ME oil
global instability
large reserves of dollars looking for an out

Yet somehow there is still perceived value in the dollar. Amazing, but political in my mind.

Edwardo said...

AN wrote:

"Yet somehow there is still perceived value in the dollar. Amazing, but political in my mind."

You've made some interesting observations. You've no doubt heard, many times, the metaphor of the ocean liner that turns very slowly. Perhaps one could say that the $IMF system is akin to a fleet of aircraft carriers. Having said that, and to deviate from the metaphor a tad, the fleet is heading towards the shipyard for permanent mothballing. What's more, that process is accelerating, however imperceptibly.

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