Rob Kirby: Only a central bank could be shorting gold that much

Rob Kirby of Kirby Analytics in Toronto, a GATA consultant, tonight posted at Jim Puplava's Financial Sense Internet site an examination of the latest commitment of traders reports from the New York Commodities Exchange. Kirby's conclusion matches what silver market analyst Ted Butler reported last week in silver: an eleven-fold increase in the concentrated short position in gold, the short position held by three or fewer banks.

Such a short position, Kirby notes, can be only the work of a central bank, "because no public entity -- bank or otherwise -- has the balance sheet maneuverability in an impaired credit environment to conduct such business."

Yes, even coin and bullion dealer Kitco, employer of the gold market analyst who most steadfastly refuses to acknowledge the likelihood of gold market manipulation, isn't short that much gold.

You can find Kirby's commentary, headlined "Wake-up Call," at Financial Sense HERE

Chris Powell: A new summary of GATA's work

A new summary of GATA's work and the organization's outlook toward the world financial system, written by its secretary/treasurer C. Powell, has been posted in the "Essays" section of GATA's Internet site. It may be of some interest to people who have come upon the gold price manipulation issue only recently.

A new summary of GATA's work

By Chris Powell
Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Sunday, August 24, 2008

While the gold price long has been at least "managed" by Western central banks -- as with the gold standard itself, and then the London Gold Pool of the 1960s -- the current arrangement, largely surreptitious, may have originated with an academic paper co-written in 1988 by Lawrence Summers, then a professor at Harvard, later deputy to Treasury Secretary Robert Rubin and then his successor. The paper was titled "Gibson's Paradox and the Gold Standard" and was published in the Journal of Political Economy. You can find it here:

http://www.gata.org/files/gibson.pdf

It's very dense but GATA consultant Reginald H. Howe, a lawyer and gold mining company investor in Massachusetts, the first litigator against the gold price suppression scheme and a Harvard grad himself, put it in context in 2001 with his essay "Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices," which you can find in the "Essays" section on the home page at Howe's Internet site here:

http://www.goldensextant.com/

Essentially, the scheme as implied by Summers' paper is to keep interest rates down and government bond prices up by rigging the gold market, gold and interest rates ordinarily being inversely correlated.

I've long had a hunch that the scheme became U.S. government policy because of President Clinton's resentment upon being told, soon after taking office, that the foremost objective of his administration should be to placate the bond market. There is a famous quotation about this in Bob Woodward's book about the Clinton administration's early days, "The Agenda." The full book isn't available on the Internet but the quotation appears in several reviews of the book that have been posted. Clinton says:

"We're Eisenhower Republicans here. We stand for lower deficits, free trade, and the bond market. Isn't that great? ... We help the bond market and we hurt the people who voted us in."

Here's a link to one such review:

http://www.counterpunch.org/pollin10182003.html

My hunch is that not long after Clinton expressed this resentment of the bond market, Rubin told Clinton how the bond market could be deceived by rigging the gold market, and Clinton gave his approval.

While this scenario is admittedly speculation, the gold-carry trade, on which the gold price suppression scheme was based -- the lending of Western central bank gold reserves to investment houses at an only nominal interest rate, the investment houses' sale of those reserves, and their use of the proceeds to purchase government bonds for a risk-free income of 5 percent or so -- is a matter of public record. Even if it wasn't the intent, this had the effect of suppressing the gold price, supporting government bond prices, and lowering interest rates.

Further, a gold mining company executive, a longtime GATA supporter, who worked with Rubin at Goldman Sachs prior to Rubin's appointment as treasury secretary, witnessed Rubin's involvement in the gold carry trade at Goldman.

While the people who formed GATA sensed as early as 1998 that something was wrong technically in the gold market, it took us a couple of years to figure out that the culprits were not the visible players in the futures markets -- the New York investment banking houses -- but rather the Western central banks, and that the investment houses were just their agents, their cover. A British economist, Peter Warburton, may have been the first to put it together comprehensively, with his 2001 essay, "The Debasement of World Currency: It Is Inflation, But Not as We Know It," which you can find here:

http://www.gold-eagle.com/gold_digest_01/warburton041801.html

Warburton argued that the Western central banks meant to deprive the world of any standard by which their enormously inflationary policies could be quantified.

While the gold price suppression scheme is seldom raised in polite company and even less often acknowledged in the mainstream financial press, enough public documentation of it has been discovered to allow me to make a stump speech out of it. Here is the stump speech's most recent version, as presented at GATA's conference in Washington in April:

http://www.gata.org/node/6242

The speech contains Internet links to most of the documentation it cites.

An indication that maybe GATA is not just another conspiracy group came out of the blue in June 2004, when Oleg Mozhaiskov, the deputy chairman of the Bank of Russia, that country's central bank, gave a speech to the London Bullion Market Association's Bullion Market Forum in Moscow. Up to that point GATA had not knowingly had contact with anyone in Russia, and yet the only words in Mozhaiskov's speech that were in English were "Gold Anti-Trust Action Committee."

We heard something about the Mozhaiskov speech soon afterward but the LBMA refused to provide us a copy of its English translation. So I got in touch with Mozhaiskov by fax in Moscow and he agreed to provide a translation through an intermediary, Moscow Narodny Bank in London. (I told Mozhaiskov that I'd be glad just to get the Russian text, since at that time my newspaper employed a reporter who was fluent in Russia and had studied at length there, but Mozhaiskov was insistent on controlling the translation.) It took a couple of months but Mozhaiskov came through.

His remarks about GATA were less than a complete endorsement of our work but his meaning seemed plain enough: that the gold market was not free-trading and that it was subject to surreptitious influences.

Of course there was no need for Mozhaiskov to mention GATA if he didn't want to call attention to our work. And of course he thereby signified that the Russian central bank had been watching GATA for a long time, quite without our knowledge. You can find Mozhaiskov's speech here:

http://www.gata.org/node/4235

A year later, in August 2005, Andrey Bykov, an economics adviser to the Russian president, Vladimir Putin, attended GATA's international conference in Dawson City, Yukon Territory, at which the gold carry trade was a primary subject. We can't prove it but we suspect that it was at this point that the Russians understood that most of their central bank's gold had been deposited in London and leased out as part of the gold price suppression scheme, which served to suppress commodity prices generally and cheat commodity countries like Russia:

http://groups.yahoo.com/group/gata/message/3502

In any case immediately after GATA's conference in Dawson City, President Putin announced that the Bank of Russia would be adding to its gold reserves and buying gold on all markets, and gold's ascent quickened dramatically. We doubt that this was a coincidence.

Frank Veneroso, whose credentials in international finance are as good as anyone's, gave his analysis of the gold carry trade at a conference in Lima, Peru, in 2002. You can find Veneroso's presentation here:

http://www.gata.org/node/4249

And Antal Fekete, an economist dedicated to the gold standard, wrote a year ago what struck me as an excellent essay on the underlying purpose of derivatives, which are heavily involved in the gold price suppression scheme as well as the interest rate suppression scheme: to siphon away from real goods the vast increase in the world money supply. To a great extent Fekete's thoughts seem to echo Warburton's:

http://news.goldseek.com/GoldSeek/1187190300.php

I would summarize all this with the title of my stump speech: "There are no markets anymore, just interventions." Because government interventions in markets are now so pervasive, I don't think we have much of an idea of how anything would be fairly priced. The only thing I think we know is that Western central bank gold reserves, the crucial mechanism for market rigging, will be exhausted, likely within our lifetimes, at which point we may begin to discover market prices again -- as if commodity prices recently haven't been shocking enough.

***

Ted Butler: The smoking gun

Submitted by cpowell on 10:46AM ET Friday, August 22, 2008. Section: Daily Dispatches

2:45p ET Friday, August 22, 2008

Dear Friend of GATA and Gold:

Just as James Turk of GoldMoney and the Freemarket Gold & Money Report discovered in government documents the "smoking gun" of the gold price suppression scheme, silver market analyst Ted Butler has just discovered in government documents the "smoking gun" of the silver price suppression scheme, as well as another "smoking gun" for gold.

In commentary published today, Butler examines data from the U.S. Commodity Futures Trading Commission and reports:

"As of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. This is the largest such position by U.S. banks I can find in the data, ever.

"Between July 14 and August 15, the price of COMEX silver declined from a peak high of $19.55 (basis September) to a low of $12.22 for a decline of 38 percent.

"For gold, three U.S. banks held a short position of 7,787 contracts (778,700 ounces) in July, and three U.S. banks held a short position of 86,398 contracts (8,639,800 ounces) in August, an 11-fold increase and coinciding with a gold price decline of more than $150 per ounce.

"As was the case with silver, this is the largest short position ever by U.S. banks in the data listed on the CFTC's [Internet] site. This was put on as one massive position just before the market collapsed in price."

GATA urges U.S. citizens to forward Butler's report to their members of Congress and ask for an investigation of the CFTC's refusal to enforce commodity trading law in the gold and silver markets.

You can find Butler's commentary, headlined "The Smoking Gun" at GoldSeek's companion site, SilverSeek, HERE

Richard J. Greene: Amateur hour in the precious metals markets

Richard J. Greene of Thunder Capital Management strikes some brutal but well-deserved blows against all the bad guys in his new essay, "Amateur Hour in the Precious Metals Markets". Greene writes:

"You do not get a $200 move down in gold and $7 move down in silver in a month, because they were supposedly in a bubble, and then after everyone and his mother is selling you find it almost impossible to find any actual gold or silver to buy at major dealers across the country. Hundred-ounce bars on eBay are changing hands at $17 per ounce, more than $4 above the spot price. That is a heck of a lot closer to the market price than $12.68 spot, which is what the screen says right now but where you can not buy a single ounce of physical silver. After this display anyone who uses the paper markets to invest in gold and silver is just a dummy and deserves what he will eventually get -- nothing. How speculators can continually line up leveraged positions against bullion banks with unlimited cash backing which in turn repeatedly smack down the markets is a mystery."

You can find Greene's essay at GoldSeek HERE

Monty Guild: Fortune Favours the Brave

Below is the recent market commentary by Monty Guild and Tony Danaher of Guild Investment Management Inc.

Posted On: Wednesday, August 20, 2008
Author: Monty Guild & Tony Danaher

“FORTUNE FAVORS THE BRAVE”

FERTILIZERS, GRAINS AND PRECIOUS METALS

As you know, we are fundamental analysts, not technicians. We take an investment view on stocks and commodities, not a trading view. That being said, we believe that much of the panic and the savage price decline in food related investments and in precious metals is behind us. We are adding to our positions in these two areas.

We do not know if the correction caused by technical momentum traders is over. What we do know is that the emerging world is very strong economically, and these countries are large and growing consumers of high protein foods. Thus, a recession in Europe, Japan and the U.S. will not deter them from upgrading their diets. This will require the production of more grains and an increase in demand for fertilizers and other food production inputs. We own fertilizer stocks and we have recently been adding to our positions.

The world banking system is broken and badly needs to be re capitalized. How will they get new capital from investors? We doubt that the banks will be able to get many investors to buy into their optimism and buy their stock. In our opinion, the only long term solution is that governments print more money to re-capitalize and re-liquefy the banking system. The season for increased gold demand is upon us as India starts to buy more for the wedding season. Gold coins are in short supply at many coin dealers in the U.S. Stagflation, inflation, and deflation threaten the world in different parts of the globe. All of these events are bullish for gold and we are adding to our gold positions.

As we said earlier we are not technicians, or momentum players (the two groups that seem to have had control of commodity prices during the last few weeks). We are fundamentalists, and the fundamentals argue that food and precious metals are getting into attractive buy areas.

We do not know if this is the ultimate bottom in precious metals. We do know that we want to own gold during periods when the world banking system is flirting with collapse and the only solution is governmental takeovers and subsequent large money printing exercises, by governments in Europe, Japan and the U.S.

There has been no fundamental decrease in the value of gold as a hedge against both inflation and strong deflation. Clearly, many commentators believe that one or the other may be the long-term outcome. We believe it is still too early to call…but that inflation has the upper hand at this time. Historically, gold has fared well in both inflationary and strong deflationary periods. We will write more on this later.

Thanks for listening.

Casey Research: Gold bugs, you ain't seen nothing yet..

What follows is an excerpt from Casey Research's Managing Director, David Galland weekly missive: "The Room". This week it is -fittingly- titled "The Building Storm: Gold, the Dollar and Inflation"

"... So have we reached the moment when gold bugs must start questioning their deepest assumptions. Have they bought too deeply into the "dollar-collapse/M3 monetary bubble" tale, ignoring all the other moving parts in the complex global system? Nobody wants to be left holding the bag all the way down to the bottom of the slide, long after the hedge funds have sold out.

Well, my own view is that gold bugs should start looking very closely at something else: the implosion of Europe. (Japan is in recession too.)

Germany's economy shrank by 1 percent in Q2. Italy shrank by 0.3 percent. Spain is sliding into a crisis that looks all too like the early stages of Argentina's debacle in 2001. The head of the Spanish banking federation today pleaded with the European Central Bank for rescue measures to end the credit crisis.

The slow-burn damage of the over-valued euro is becoming apparent in every corner of the eurozone. The ECB misjudged the severity of the downturn, as executive board member Lorenzo Bini-Smaghi admitted today in the Italian press. By raising interest rates into the teeth of the storm last month, Frankfurt has made it that much more likely that parts of Europe's credit system will seize up as defaults snowball next year.

As readers know, I do not believe the eurozone is a fully workable currency union over the long run. There was a momentary "convergence" when the currencies were fixed in perpetuity, mostly in 1995. They have diverged ever since. The rift between North and South was not enough to fracture the system in the first post-EMU downturn, the dotcom bust. We have moved a long way since then. The Club Med bloc is now massively dependent on capital inflows from North Europe to plug their current account gaps: Spain (10 percent), Portugal (10 percent), Greece (14 percent). UBS warned that these flows are no longer forthcoming.

The central banks of Asia, the Mideast, and Russia have been parking a chunk of their $6 trillion reserves in European bonds on the assumption that the euro can serve as a twin pillar of the global monetary system alongside the dollar. But the euro is nothing like the dollar. It has no European government, tax, or social security system to back it up. Each member country is sovereign, each fiercely proud, answering to its own ancient rhythms.

It lacks the mechanism of "fiscal transfers" to switch money to depressed regions. The Babel of languages keeps workers pinned down in their own country. The escape valve of labour mobility is half-blocked. We are about to find out whether EMU really has the levels of political solidarity of a nation, the kind that holds America's currency union together through storms.

My guess is that political protest will mark the next phase of this drama. Almost half a million people have lost their jobs in Spain alone over the last year. At some point the feeling of national impotence in the face of monetary rule from Frankfurt will erupt into popular fury. The ECB will swallow its pride and opt for a weak euro policy, or face its own destruction.

What we are about to see is a race to the bottom by the world's major currencies as each tries to devalue against others in a beggar-thy-neighbour policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright slump.

When that happens -- if it is not already happening -- it will become clear that both pillars of the global monetary system are unstable, infested with the dry rot of excess debt.

The Fed has already invoked Article 13 (3) -- the "unusual and exigent circumstances" clause last used in the Great Depression -- to rescue Bear Stearns. The US Treasury has since had to shore up Fannie and Freddie, the world's two biggest financial institutions.

Europe's turn will come next. We will discover that Europe cannot conduct such rescues. There is no lender of last resort in the system. The ECB is prohibited by the Maastricht Treaty from carrying out direct bail-outs. There is no EU treasury. So the answer will be drift and paralysis.

When EU Single Market Commissioner Charlie McCreevy was asked at a dinner what Brussels would have done if the eurozone faced a crisis like Bear Stearns, he rolled his eyes and thanked the heavens that no such crisis had yet happened.

It will.

Gold bugs, you ain't seen nothing yet. Gold at $800 looks like a bargain in the new world currency disorder."

James Turk: A fabrication bottleneck or something more?

GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, comments on the retail market's shortage of gold and silver in his new essay, "A Fabrication Bottleneck or Something More?" Turk writes that GoldMoney had a record week for purchases last week but has not yet seen a shortage of the large LBMA-standard bars in which it typically does business.
But Turk speculates that central bank gold vaults could be cleaned out if gold does not return to $900 soon. You can find Turk's essay in the "Founder's Commentary" section of the GoldMoney home page HERE

P.J.Cooper: Hold on to gold for systemic protection

"Massive currency intervention ahead of the US presidential election explains the dollar rally that has depressed precious metal prices over the past two weeks.

But all the intervention in the world can not compensate for a monetary system that is fundamentally flawed with huge counterparty risk in derivative products and diving into a recession. Consider the logic of the dollar rally, there is none really.

We hear that the EU was in negative GDP territory in Q2 and Q3 is looking worse, so the EU might beat the US into declaring a technical recession. The dollar rises, US exports become more expensive for sale into a declining EU market."...

Please click HERE for P.J.Cooper's post

GATA: U.S. mint suspends gold coin sales; futures price is a fiction

12:25a ET Friday, August 15, 2008

Dear Friend of GATA and Gold:

The U.S. Mint has suspended sales of American Eagle gold coins and is refusing orders from dealers, two coin and bullion dealers confirmed Thursday.

The mint's suspension of gold coin sales follows its tight rationing of sales of silver eagle coins, begun in May, when sales to the public were terminated and sales to the mint's 13 authorized dealers were tightly limited.

Word of the mint's suspension of gold coin sales came from the American Precious Metals Exchange in Edmond, Oklahoma, and from Centennial Precious Metals in Denver, Colorado.

The suspension is overwhelming evidence that the futures contract price of gold on the commodities exchanges is substantially below the physical market price and that, indeed, the commodities exchanges are being used as GATA long has maintained -- as part of a massive scheme of manipulation of the precious metals, currency, and bond markets.

Michael Kosares, proprietor of Centennial Precious Metals and host of its Internet bulletin board, the USAGold Forum , explained Thursday:

"The U.S. Mint buys direct from the refiners, and this suspension of gold eagle sales may be an indication that the supply line is already backing up, or that the mint expects that it will back up for the rest of the year. I wonder who would give up physical metal at these prices and under these circumstances except distressed sellers. The central banks are in a hunker-down mode as far as I can determine, and it's the mines that supply the refiners. So if the mint, which buys from the refiners, is having a difficult time locating metal, what does that tell you? I keep saying that we may get a surprising rubber-band effect later in the year when the pre-holiday/festival season kicks off in September/October. It may happen sooner. One of our indicators of approaching a bottom in gold is how many calls Centennial Precious Metals gets from our U.S.-based Indian clientele. Here's a quote from my office's report to me at the end of the day today: 'Today was a good day. ... There must have been an Indian convention where someone was handing out USAGold business cards.' That may give you a clue as to thinking in India proper and probably the rest of the Asian rim."

That is, through their agents the bullion banks the Western central banks, desperate to prop up a corrupt and totteringt financial system, have put gold so much on sale that even the U.S. Mint can't find any now. The price reported from the commodities markets is a fiction -- a scary one, perhaps, but a fiction no less.

You can strike a blow at the market riggers who are defrauding the world -- just buy a little real metal. The dealers listed at the bottom right of this dispatch will be glad to help you do it.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

The Mogambo Guru latest Market ramblings...

... "Even Chris Powell, of the Gold Anti-Trust Action Committee, agrees with me and says, in a pithy phrase that should congeal your blood at the tragic implications, "There are no markets anymore…only interventions."

Ed Steer of Casey Research tells me that we are not alone, and presents a commentary by Peter Degraaf and posted at Bill Murphy's lemetropolecafe.com, who "doesn't mind admitting that (technical analysis) is pretty useless in the face of this kind of intervention."

What kind of intervention? How about foreign central banks suddenly plowing a staggering $28 billion into buying U.S. debt last week, and stuffing the enormous haul of government and agency debt into their accounts at the Fed itself, taking their total ownership of government and agency debt to $2.4 trillion! At a lousy 5% interest, this is $120 billion in cash that we are shipping out of the country per year to these guys, just in interest payments!

And why are these foreigners doing this? James Turk at goldmoney.com explains "When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly."

This would, then, explain why the dollar shot up last week, out of nowhere, for no reason that I can think of other than that all the alternative currencies suck even worse! Hahaha! What a world!

Aside from the stock and bond markets, Mr. Degraaf says that even "Gold closed just above the $850 support line during a washout caused by the performance of a US dollar that defies belief. Without any improvement in fundamentals, the dollar rose 132 points today. The largest gain in years! Despite a banking crisis, low interest rates, huge deficits, money supply running in double digits, housing sector in shambles, the US dollar has now risen 8 out of the last 9 days. Someone please convince me that this is not rigged. Meanwhile at $855.00 the gold price is back at $323.00 expressed in 1980 dollars!"

And it is not just gold acting weird and grossly under-priced, but silver, too, as Mr. Steer notes that "Ted Butler also mentioned yesterday that silver…by any measurement…is the most oversold it's ever been in its history." In history!

My mind screams, "It's the time to buy!" And I would, too, but I went to the kids' piggy banks this morning and there is nothing in them except useless scraps of paper that say "IOU $5. Love, Dad."

They are not going to be happy when I explain to them that we are both victims, as I have no money either, just like them, and similarly because the Social Security Trust Fund is holding my "money" in the form of IOUs, whereas at least I said "love" at the end, which is a hell of a lot more than the spendthrift, bankrupting government ever did for me! The bastards!"

Please click HERE for entire article

Mises Institute: The Great Gold Robbery of 1933

The Great Gold Robbery of 1933

Daily Article by Thomas E. Woods, Jr. | Posted on 8/13/2008

It's been 75 years since the federal government, on the spurious grounds of fighting the Great Depression, ordered the confiscation of all monetary gold from Americans, permitting trivial amounts for ornamental or industrial use. This happens to be one of the episodes Kevin Gutzman and I describe in detail in our new book, Who Killed the Constitution? The Fate of American Liberty from World War I to George W. Bush. From the point of view of the typical American classroom, on the other hand, the incident may as well not have occurred.

A key piece of legislation in this story is the Emergency Banking Act of 1933, which Congress passed on March 9 without having read it and after only the most trivial debate. House Minority Leader Bertrand H. Snell (R-NY) generously conceded that it was "entirely out of the ordinary" to pass legislation that "is not even in print at the time it is offered." He urged his colleagues to pass it all the same: "The house is burning down, and the President of the United States says this is the way to put out the fire. [Applause.] And to me at this time there is only one answer to this question, and that is to give the President what he demands and says is necessary to meet the situation."...

Please click HERE to read entire article.

GATA: Gold near a bottom? Ask the Western central banks

Dear Friend of GATA and Gold:

Your secretary/treasurer remarked last year at a meeting of the Committee for Monetary Research and Education that if a worldwide nuclear war broke out and only one financial market in the world was still functioning in a city that had escaped destruction, what remained of the U.S. Federal Reserve and Treasury Department would find that market and sell promises of gold, and gold would go down, at least for the day, lest any financial market people who had survived the war think that anything was wrong:

http://www.gata.org/node/5057

The war between Russia and Georgia isn't nuclear but it's a pretty good one with disturbing implications, including implications for the world's energy supply -- so of course today oil joined gold in declining.

Who is selling all that gold, or promises of gold? Apparently it's not the gold mining companies. Quoting Gold Fields Mineral Service, Mining Weekly reports that gold hedging by mining companies is at its lowest level in 20 years:

http://www.miningweekly.com/article.php?a_id=140413

The carnage in the gold market has drawn Resource Investor's Gene Arensberg away from vacation to produce a special edition of his Got Gold Report, which examines the panic and is headlined "Gold Near a Bottom?" If the question is more than rhetorical, it might best be put to a few Western central bankers, whose crucial meetings and records, unfortunately, are seldom public. In any case you can find Arensberg's report here:

http://www.resourceinvestor.com/pebble.asp?relid=45229

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Jim Sinclair: Important Message Regarding Today's Action in the Gold Market

Posted On: Friday, August 08, 2008, 5:30:00 PM EST

Been There, Done That

Author: Jim Sinclair


"My Dear Extended Family:

It is time to regroup, recognizing that nothing has changed. What we saw today in the seven trillion dollar a day global marketplace were hedge funds, black boxes and terrified longs all heading through the same door at the exact same time.

The door is big enough but can seem awfully narrow when panicked participants head for the exits at the same time. Like the entrance way to a good rock concert, however, the traffic can be equally as heavy in both directions.

Fear is an anomaly to witness. It appears as a stampede, with people kicking and shoving to get out of the same burning building. The awful truth is that there really was no fire - although perception is often worse than reality.

Ask yourself the following questions:

1. Are US banks more trustworthy today than they were on Monday?

2. Are you aware of a new problem called Auction Rate Bonds which are estimated at between $400 to $500 Billion? The Fed will have to pony this money up as the problem is focused on just those institutions that are already at the Fed Begging Bowl window. Logically, if they are borrowing to retain wiggling room, it is simple logic to understand the new problem is very much the Fed's problem, which in turn is another problem for your kids to bear.

3. Do you really believe that because technicals are presently supporting the dollar it will regain its prior position as the universal Reserve Currency of choice?

4. Do you really believe that your retirement funds will regain the value that has been stripped away by all forms of Securitized Investment Vehicles?

5. Do you really believe that there is such a thing as global demand destruction in the energy sector as Asia keeps ticking at high economic levels?

6. Do you really believe that after the Olympics are over that China will collapse?

7. Do you really believe that Europe's economic situation will be more severe that the USA's? Have you noted that the USA had a rather good head start towards a severe recession?

8. Do you really believe that any currency is a better storehouse of value than gold?

9. Do you really believe that all the OTC derivative problems are now behind us?

10. Do you really believe that the credit market is loosening up enough to benefit credit-starved businesses?

11. Do you really believe that the public entities whose entire business involves insuring the value of debt instruments can really make good as bankruptcies increase?

12. Do you really believe that present inflation is demand driven?

13. Do you not know that the price increases now being witnessed are a product of monetary inflation for which increased interest rates render no effect?

14. Do you not know that the ECB's action of leaving rates unchanged favors the euro over the dollar?

15. Do you really believe that the next move of rates in the US is up?

16. Do you really believe that all those central banks seeking to diversify out of the US dollar have changed their minds?

17. Do you feel certain that Israel will permit Iran to reach that point where a push of a button can incinerate its citizens?

18. Are you sure that Pakistan holds no challenge to life as we know it on this planet?

If the answer to all the above is yes then buy some cheap financials, sell all your non-dollar currencies and go long the good old greenback.

If you do not accept all the above as reality then be calm. As long as you are not on margin you have no problem.

The only result of this week's market action may be to postpone gold's ascent to $1,200 by 90 days. That is a big maybe, however.

I accept the responsibility of my words offered to you in truth to reinforce what is correct. Today was made difficult through the din of fear and the bullying of hedge fund fiends.

Respectfully,

Jim"

***

I.O.U.S.A.

Indebted Ever After

Scared by National Deficit? You Should Be, Filmmakers Say

By Frank Ahrens
Washington Post
Thursday, August 7, 2008

A private-equity billionaire, a former federal government official, and a Baltimore newsletter editor have made a documentary film that they hope can do what an endless parade of policy papers has not: Persuade Americans that debt has created a looming economic crisis that would make the Great Depression look like a market correction.

The movie, "I.O.U.S.A.," debuting Aug. 21, is an 87-minute alarum on what it calls the tsunami of debt bearing down on the United States' future, caused by the rising national deficit, the trade imbalance, and the pending costs of baby boomers cashing in on entitlements.

Early reviewers have dubbed the film "An Inconvenient Truth" for the economy, meaning it's not exactly the feel-good movie of late summer 2008.

Except for budget wonks in love, it hardly counts as a date movie. The film's thrilling action sequence has a guy going to a refrigerator for a Tab. There are no car chases and nothing blows up.

Except, possibly, for the entire economic future of the United States.

"I.O.U.S.A." offers up as its action hero David M. Walker, former head of the Government Accountability Office. With movie-star looks that scream "accountant" rather than "Terminator," Walker has been the Cassandra --- or Chicken Little -- of America's growing deficit for some time. Last August he compared the United States to the final days of ancient Rome, which he said was militarily overextended and fiscally irresponsible.

Since 2005, Walker has been traveling the country on the catchy-sounding "fiscal wake-up tour," preaching his apocalyptic message to half-empty rooms, at least at the start. The tour picked up steam after Walker's message was featured in a "60 Minutes" piece in March 2007.

In March of this year, Walker resigned from the GAO so he could be even more vocal on the debt crisis, becoming chief executive of the newly formed Peter G. Peterson Foundation, set up by Peterson, billionaire co-founder of the Blackstone Group, a major private-equity player.

Their message: You probably know that the national deficit is $9.6 trillion and rising. What you don't know is how bad things really are. If you include all the unfunded entitlement obligations -- Social Security, Medicare, Medicaid and so forth -- we are actually in a $53 trillion hole, Walker says.

And it will only get deeper as we get older.

In an interview, Walker is full of grim one-liners, such as: "The debt has increased our risk of being held hostage by foreign lenders," "Our situation is serious, and it is deteriorating with the passage of time," and "The financial condition of the U.S. is worse than advertised."

The nation's debt now accounts for 66 percent of the gross national product. But unless things change, the film argues that the cost of aging baby boomers will push that proportion to 244 percent by 2040, twice what it was at the end of World War II, our highest level of national debt. A debt that high, even super-investor Warren E. Buffett says in the film, "could create real political instability."

At this point in the movie, we're wishing we'd rented "The Towering Inferno" instead. Happier ending.

The film generally skirts specific solutions -- it does not recommend one form of Social Security reform over another -- but suggests broad entitlement overhaul, tough budget controls, conservation of energy, and, at the no-duh level, not buying things you can't afford. In the interview, Walker said that tax deductions and exemptions will have to be reduced and a national consumption tax should be considered.

"It's inevitable there will be some tax increases on fat cats like myself," Peterson said in an interview. "But any idea you're going to solve most of this problem with taxes is not realistic."

Not everyone agrees that the United States is headed off a credit cliff.

There's Arthur Laffer, for instance, author of the famous Laffer Curve, which says that if taxes rise too high, people lose incentive to work. Laffer argues that as long as the debt level stays where it is, it can be financed down over time, like a homeowner with a mortgage.

"Arthur Laffer said to me, 'Addison, I'm not a debt guy,'" said Addison Wiggin, executive producer of the film and editorial director at Baltimore's Agora Financial, a research firm and publisher of investment advice.

"But that doesn't take into account everything that's coming down the pike," said Wiggin, co-author of the 2005 book, "Empire of Debt."

Wiggin got the idea for turning his book into a movie while snowbound in a Vermont condo for two days in 2005. He watched "Commanding Heights," a six-hour documentary on the history of the global economy. Three times.

To finance the film, Agora set up Agora Entertainment, whose initial budget was $500,000 raised from investors, a figure Wiggin said was "exceeded by a long shot."

Wiggin knew of Walker's dire warnings and made him the first interview for the movie. He quickly became its star.

As the film began production, it laid out a number of dire economic events, such as the mortgage meltdown and credit crisis, that were predicted in Wiggin's 2005 book. But by 2007 the book's prophesies began coming true, forcing a panicked re-editing of the film in September with the goal of getting the film into the Sundance film festival in January.

Re-editing is expensive and by November, Wiggin's investors pulled out. Agora ended up financing the project. "People were saying, 'This is Addison's sinkhole here,'" he said. No one found it funny that he was deficit-financing a movie that tells people not to buy things they can't afford.

But the film made it to Sundance and got a standing ovation, Wiggin said.

Peterson's foundation, with Walker at the helm, had promised to pay for the movie's distribution. But they liked it so much, they bought it from Agora for $2.5 million.

The film will debut in 400 theaters around the country on Aug. 21, followed by a live video town hall meeting from Omaha, featuring Walker, Peterson and Buffett. The next day, the film opens in 10 cities, including Washington.

* * *

Gold: the BIG Picture....

...lest we forget where we stand vis-a-vis the Gold Bull Market.

Some elementary T.A. compliments of Trader Dan (JSmineset.com):

Click on graph for some great analysis in pdf format.

From RBC Capital Markets' report and outlook on gold

"The numbers in the markets indicate that gold exchange traded funds (ETFs), along with gold royalty companies such as Franco-Nevada, have outperformed practically all listed gold - and other resources - stocks over the past two months, a time when global resources stocks have been mercilessly hammered. Gold ETFs, representing a proxy investment in gold bullion itself, have been outperformed over the period by silver ETFs, which traditionally display a higher "beta" than gold bullion prices during times of crisis or stress, currently seen in global investment markets.

Specialist analysts at RBC Capital Markets have sought to look forward, and in a report out to clients this week, recommend that it's time to buy listed gold stocks, not least on seasonal factors. RBCCM analysts argue that the macro outlook remains constructive, on a combination of a US dollar "that shows no clear leadership as a global reserve currency", and, second, that "central banks continuing to aggressively reflate the economy will likely maintain pressure on currencies relative to gold and other hard assets. This backdrop is complemented by emerging market countries that are facing energy and agriculture inflation which is expected to be positive for gold". RBCCM's analysts see a positive outlook for the back half of 2008: "the seasonal slowdown for physical gold demand is nearly behind us, and we expect increased demand looking ahead to August, September, and October. With the US Federal Reserve rate cycle on hold for the time being, the US dollar drifting and inflation pressures growing around the world, particularly in the emerging market economies, we believe the timing is right for investors to be buying gold and gold equities".

As observed over the past 12 months, the RBCCM analysts anticipate that larger capitalisation listed gold stocks "with established production bases and higher share liquidity" will continue to outperform smaller capitalisation names. From a fundamental perspective, the analysts continue to favour gold companies with improving production and cost profiles, gold reserve upside, active exploration programs and strong management teams.

RBCCM analysts identify several positive factors for gold bullion prices:

• Non-European Central Bank announcements regarding gold purchases (Russia, UAE, Qatar)
• Chinese foreign exchange reserves topping $1.4 trillion, dominated by holdings of US treasury securities. The Chinese central bank continues to comment on the need to diversify foreign exchange reserves
• Firm demand for gold ETFs, near an all-time high of 29.8m ounces
• Gold equities pricing in gold bullion at $850-$875/oz long-term
• Expectations of a US Federal Reserve rate pause, and no rate hike expected, and
• Mine supply flat in 2008, with a decline expected in 2010.
• Potentially negative factors affecting gold bullion prices are identified as:
• Jewellery demand showing strong elasticity in India and the Far East
• Switzerland deciding to sell 200 tonnes over two years, replacing Germany in the ECB gold sales agreement, and
• The potential for IMF gold sales as part of the ECB gold sales agreement.
  

RBCCM analysts point also to the ratio of the spot dollar gold price to the Philadelphia Gold & Silver Index (XAU), given that the analysts believe that the ratio is an important indicator for identifying periods when gold stocks are relatively cheap or expensive, compared to gold bullion. The current ratio is around 5.4 times, and has averaged five times over the past few months. According to the RBCCM analysts, when the ratio is above five times, the average one-year holding period return for the XAU has historically been 40%; when the ratio is between 4.5 and 4.75 times, the average return has been 27%.

The RBCCM analysts also note that the net speculative long gold futures position on COMEX has coincided with the run in the price of gold. On 19 February 2008, the net long position in futures reached an all-time high of 25.3m ounces; with the recent selloff in gold, the RBCCM analysts expect a further decline from the 25 July level of 23.7m ounces. The analysts look for the "positive correlation between gold and the speculative futures position to continue, and look for the long position to remain strong as gold consolidates and makes another run at $1,000 an ounce in September-October 2008".

The RBCCM analysts also argue that seasonality provides a compelling argument for investment: "Over the past 28 years, gold has typically outperformed on a monthly basis in the months of April and May. This is usually followed by a seasonal slowdown in the [Northern Hemisphere] summer months, and an upsurge in the early fall. With this in mind, investors may be able to exploit near-term weakness in gold and gold equities before a positive run in the late summer, early fall period".

Finally, the analysts note that over the past couple of years, ETF gold products "have emerged as a meaningful component of gold demand, accounting for 7% of total demand in 2007. Following a slowdown in mid-2007, the five primary ETFs have added almost nine million ounces, coincident with the gold price rally". During the recent rally in the gold price from its low of around $850 an ounce in early May to around the $970 an ounce level in early July, ETF ounces under management bounced back from 25.9m to a record 29.8m ounces (and are currently 28.8m as of July 25). This overhauls the previous all time high set in March when gold bullion hit its record of $1,033 an ounce. "We believe", conclude the analyst, "that investors continue to use this product not only for short-term trading opportunities but also for long-term or strategic investment purposes".