Monday, December 31, 2007

LBMA's Integrity in Question

> Most of these bars will still be acceptable in the London bullion
> market, even if they are not fully compliant with the LBMA’s current Good Delivery Rules,


> However, some of these “deep storage” bars may no longer be regarded as acceptable, either
> because of physical defects or poor marking.

What are "deep storage" bars?

The phrase is not in their definitions list:

Be your own banker. Keep value in your own hands.

Saturday, December 29, 2007

Lowest Short Position

In the December 27 session on the TOCOM Goldman Sachs covered a huge 1,722 short contracts and went long 2 contracts to bring their net short to 6364 contracts. This is the lowest net short position they have held since January 2006.

To put this number in perspective, their biggest net short positon was about 52,000 back in the second quarter of 2006.

It looks like the boyz, the big time insiders, are getting out of Dodge.

Friday, December 28, 2007

Silver Review

It seems about time again for a review of silver. Here is one from October 25, 2006. The current gold:silver ratio is a little different, but not by much.

The gold price is in for a big change relative to the silver price. The gold price to silver price ratio now is about 50:1. Historically it was more like 16-17:1. Who knows, it could go to 1:1. The current world's financial system since 1971 is unlike it has ever been in history in that almost all of the world uses nothing but government fiat tokens redeemable in nothing. And almost all of those are nothing but digital bits on a computer's hard drive which is not in the hands of the alledged owner of the bits.

Silver is found in the earth's surface about 16-17 times more often than gold. For hundreds/thousands of years, the above ground supply of silver was a lot more than gold. So, naturally it was cheaper than gold, no matter how silver was related to some thing in order to get its price in order to compare it to gold's price. For instance, silver has a copper price or a milk price just like gold does. You can compare the relative values of gold and silver by pricing those metals in weights, or sometimes volumes, of milk, gasoline and many other things.

Over time man has found plenty of unique (there is no substitute) uses for silver. This mostly has not happened with gold. This explains a lot of the decrease in the above ground supply of silver. So much so that the above ground supply of silver is now substantially more rare than gold.

There are many products that simply must have silver or the product can not be made. Usually the product has only a tiny amount of silver in it so that the price of silver hardly matters to the overall price of the product that contains the silver. This means that a much higher price of silver can be tolerated for many industrial uses. There happens to also be huge amounts of silver being used that is consumed, meaning it is not recoverable. The amounts per product are incredibly small and the silver price is too low to make it worth while trying to recover these incredibly small amounts of silver per product unit.

Also, there seems to be a lot of politics involved in how the above ground supply of silver has gotten so low. Be that as it may, the above ground supply of silver has gotten into an opposite situation than it used to be relative to gold.

Right now estimates of the above ground supply of gold are about 4 billion ounces. Some estimates are as high as 5 billion ounces. 4 billion ounces times $600 = $2.4 trillion dollars.

Right now estimates of the above ground supply of silver are about 4-600 million ounces. Let us be conservative and call it an even 1 billion ounces. This compares to about 10 billion ounces available during WWII. 1 billion ounces times $12 = $12 billion dollars.

So, the market value of the supply of gold is 200 times greater than the market value of silver, right now. Or, the current USD value of gold is 200 times greater than the current USD value of silver. Or, the total value ratio is an historically whacky 200:1.

Historically this ratio is hugely different than what it was for 100s/1,000s of years. Considering all the increasing industrial uses of silver and the fact that it is also actual money like gold is, silver has more fiat price increase potential to the upside than gold does.

It is normal or it is human nature that most players in financial markets do not have respect for items that are low priced. Thus silver has no respect right now. It could be said that people think gold is more rare than silver because of gold's much higher price relative to silver.

It would not take much for people to change their perceptions.

All that is needed is for 1/2 of 1%, or less, of gold owners to decide to switch to silver. That would be the equivalent of the total USD value of silver in the world buying, going into, silver. For silver, that would be incredible demand and a huge massive silver price increase. There would be a radical reduction/decline in the gold price to silver price ratio.

Make sure you have some silver while you are waiting for the world to catch on to the real silver situation/story. Eventually world markets will force price rationing to happen in the silver world. That is just one of the iron laws of economics. Given enough time, there is nothing governments can do about it.

Never mind under $5. At $12/ounce, silver is still the Rodney Dangerfield of metals. It's current price is still "just this side of stealing". If you want to make huge percentage gains, buy something when nobody wants it, when it can't get any respect. In financial markets, the crowd is always wrong. Right now the crowd could care less about silver.


"...a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do." - Jesse Livermore, in Edwin Lefevre's 1923 classic "Reminiscences of a Stock Operator"

"A stock operator has to fight a lot of expensive enemies within himself" - Jesse Livermore

Think about the below when thinking about the US dollar:

"A democracy cannot exist as a permanent form of government. It can only
exist until the voters discover that they can vote themselves money from the
public treasure. From that moment on the majority always votes for the
candidates promising the most money from the public treasury, with the result
that a democracy always collapses over loose fiscal policy followed by a

The average age of the world's great civilizations has been two hundred years.
These nations have progressed through the following sequence: from bondage
to spiritual faith, from spiritual faith to great courage, from courage to liberty,
from liberty to abundance, from abundance to selfishness, from selfishness to
complacency from complacency to apathy, from apathy to dependency, from
dependency back to bondage." - Alexander Tyler

Teddy Roosevelt put it well:

"Not because of the ambition of Caesar or Augustus, but because it had already long ceased to be in any real sense a republic at all. When the sturdy Roman plebian, who lived by his own labor, who voted without reward according to his own conviction, and who with his fellows formed in war the terrible Roman Legion, had changed into an idle creature who craved nothing in life save the gratification of a thirst for vapid excitement, who was fed by the state, and who directly or indirectly sold his vote to the highest bidder, then the end of the republic was at hand. Nothing could save it. The laws were the same as they had been. But the people behind the laws had changed, and so the laws counted for nothing."

"How did you go bankrupt?"
"Two Ways. Gradually, and then suddenly."
- Ernest Hemingway, The Sun Also Rises

Wednesday, December 26, 2007

Gold Break Out

Today, the day after Christmas, gold made a break out of it's consolidation triangular flag. This week was supposed to be a quiet one. Guess not. A little Christmas present.

(click charts for larger views)

The US Dollar went down, not that it broke its short term 2 month up trend line, but it got real close to it.

Silver did similar to gold in that it broke up and out of its rectangular flag.

The US Treasury 10 year made a significant top about 3 weeks ago with a 2b signal and a 4+ (7 actually) up days in a row signal a week earlier. The 2b confirming the 4+ day signal. The 30 year treasury made a similar significant top minus the 2b. Both today made new lows today in their 2 week long new down trend.

Gold goes up. The Dow and S&P were steady. Debt (10 and 30 years) went down, and the US dollar went down. Looks likes a possible shift to the ultimate safe haven, gold, as apposed to the early and erroneously perceived safety of government debt instruments.

Remember, markets, not government central banks, control interest rates further out along the yield curve. Declining debt prices (increasing interest rates/yields) mean a perception of increasing risks to value stored in the debt instruments. Watch for much higher interest rates in the future as faith in paper financial instruments goes down.

There is no fever like a gold fever which has yet to happen.

Monday, December 24, 2007


The movie Goldfinger, like gold, is known far and wide.

Shirley Bassey singing Goldfinger

He's the man, the man with the Midas touch
A spider's touch
Such a cold finger
Beckons you to enter his web of sin
But don't go in

Golden words he will pour in your ear
But his lies can't disguise what you fear
For a golden girl knows when he's kissed her
It's the kiss of death ...

From Mister Goldfinger
Pretty girl, beware of his heart of gold
This heart is cold

Golden words he will pour in your ear
But his lies can't disguise what you fear
For a golden girl knows when he's kissed her
It's the kiss of death ...

From Mister Goldfinger
Pretty girl, beware of his heart of gold
This heart is cold
He loves only gold
Only gold
He loves gold
He loves only gold
Only gold
He loves gold

Colonel Smithers to 007:

'The great thing to remember about gold is that it's the most valuable and most easily marketable commodity in the world. You can go to any town in the world, almost to any village, and hand over a piece of gold and get goods or services in exchange. Right?' Colonel Smithers's voice had taken on a new briskness. His eyes were alight. He had his lecture pat. Bond sat back. He was prepared to listen to anyone who was master of his subject, any subject. 'And the next thing to remember,' Colonel Smithers held up his pipe in warning, 'is that gold is virtually untraceable. Sovereigns have no serial numbers. If gold bars have Mint marks stamped on them the marks can be shaved off or the bar can be melted down and made into a new bar. That makes it almost impossible to check on the whereabouts of gold, or its origins, or its movements round the world. In England, for instance, we at the Bank can only count the gold in our own vaults, in the vaults of others banks and at the Mint, and make a rough guess at the amounts held by the jewellery trade and the pawn-roking fraternity.'

'Why are you so anxious to know how much gold there is in England?'

'Because gold and currencies backed by gold are the foundation of our international credit. We can only tell what the true strength of the pound is, and other countries can only tell it, by knowing the amount of valuta we have behind our currency. And my main job, Mr Bond-'Colonel Smithers's bland eyes had become unexpectedly sharp - 'is to watch for any leakage of gold out of England - out of anywhere in the sterling area. And when I spot a leakage, an escape of gold towards some country where it can be exchanged more profitably than at our official buying price, it is my job to put the CID Gold Squad on to the fugitive gold and try get it back into our vaults, plug the leak and arrest the people responsible. And the trouble is, Mr Bond-'Colonel Smithers gave a forlorn shrug of the shoulders-'that gold attracts the biggest, the most ingenious criminals. They are very hard, very hard indeed, to catch.'

'Isn't all this only a temporary phase? Why should this shortage of gold go on? They seem to be digging it out of Africa fast enough. Isn't there enough to go round? Isn't it just like any other black market that disappears when the supplies are stepped up, like the penicillin traffic after the war?'

'I'm afraid not, Mr Bond. It isn't quite as easy as that. The population of the world is increasing at the rate of five thousand four hundred every hour of the day. A small percentage of those people become gold hoarders, people who are frightened of currencies, who like to bury some sovereigns in the garden or under the bed. Another percentage needs gold fillings for their teeth. Others need gold-rimmed spectacles, jewellery, engagement rings. All these new people will be taking tons of gold off the market every year. New industries need gold wire, gold plating, amalgams of gold. Gold has extraordinary properties which are being put to new uses every day. It is brilliant, malleable, ductile, almost unalterable and more dense than any of the common metals except platinum. There's no end to its uses. But it has two defects. It isn't hard enough. It wears out quickly, leaves itself on the linings of our pockets and in the sweat of our skins. Every year, the world's stock is invisibly reduced by friction. I said that gold has two defects.' Colonel Smithers looked sad. 'The other and by far the major defect is that it is the talisman of fear. Fear, Mr Bond, takes gold out of circulation and hoards it against the evil day. In a period of history when every tomorrow may be the evil day, it is fair enough to say that a fat proportion of the gold that is dug out of one corner of the earth is at once buried again in another corner."

"The history of the great events of this world are scarcely more than the history of crime." –Voltaire

Good sources of information:

Grandfather Economic Report
Shadow Government Statistics for a second source for a reconstructed M3.
"A world of possible financial futures"
Jim Sinclair (Mr. Gold) at

Saturday, December 22, 2007

Liquidity Review

For a variety of reasons, central banks having been increasing "money" supply like gangbusters recently, the ultimate future effect being even more increases of the price of the stuff we need for every day survival. In April of 2005, Jim Sinclair ( wrote a piece on liquidity which is good to review now since this action is going to extremes right now:

"Tonight, let’s talk about liquidity. Liquidity in the traditional sense is a product of Federal Reserve money market activities.

In the case of open market operations, the Fed constantly buys and sells U.S. government securities in financial markets, which in turn influences the level of reserves in the banking system. These decisions also affect the volume and the price of credit (interest rates).

The term "open market" means that the Fed doesn't independently decide which securities dealers it will do business with on a particular day. Rather, the choice emerges from an open market where the primary securities dealers compete. Open market operations are the most frequently employed tool of monetary policy.

In the non-traditional sense, liquidity became not a national equation but an international phenomenon. As the Bernanke Electric Mayhem Money Printing Press began to function, there was no consideration of bank reserves as a major tool of monetary policy nor was the dealership traded with just the Wall Street crowd. Also included were the City in London, the Banhofstrasse and all others willing to offer US Treasuries across all maturities.

The funding for this operation was not an internal exercise of the normal Fed blank check but rather the huge intervention Japan was practicing in order to maintain a non market related dollar/yen level.

Liquidity under the definition of the non-traditional method was international and in a practical sense out of control. That conclusion is best explained by the fact that the US Treasury instruments purchased cannot be sold nor can the liquidity injected into the system be withdrawn.

Liquidity is not the grease of the wheels of business but rather the grease of the wheels of the market that it selects to chase. When a particular market's wheels are greased, it moves faster on the UPSIDE.

In the 1930s when there was a de-linking of currency from gold and international liquidity was increased, a huge rally in the equities market took place. Today, the excess liquidity in the system has selected the equity market to follow.

The thesis pointed out by Chairman Greenspan is that liquidity injections affect the equities market which in turn impacts the thinking and actions of consumers and business executives producing a business activity recovery.

You just experienced that and during the Bernanke experiment, the equities market achieved its high water mark in this counter-trend rally in a long term equities bear market. This is a simple replay of the 1930s with one major difference: Today, the largest amount of liquidity ever injected into the world monetary system in the shortest time in history CANNOT BE WITHDRAWN.

As the equities market was making new highs, the shift began in this liquidity juggernaut from equities into commodities and the CRB was making new highs as equities made new highs. That is an unsustainable phenomenon because of the impact on profits as raw material rise in price. Something had to give.

What may well have given up the ghost is the equity market but the liquidity is STILL OUT THERE now looking for a new home. The difference between the huge equity rally of the 30s and today is the critical component of NO PRACTICAL METHOD OF LIQUIDITY WITHDRAWAL. Indeed, it will also be the MAJOR FACTOR in forming the future.

The inability of the Federal Reserve to drain liquidity negates any possible increase in the cost of money to dampen the impact of a mountain of Bernanke-produced liquidity. While that liquidity was pleasant at first, it will now blast any commodity with positive fundamentals up to heights that cannot be easily explained. Look at crude today as one example.

It is this mountain of liquidity that will pounce on the dollar and ram gold through $480 and to $529 and in time to over $1650. The reason is that there is no tool or policy to drain this international liquidity until it exhausts itself in its own bubble. That bubble will form from this moment forward to blow its top between 2011 and 2013. The game has just begun!

A few salient points:

1. Liquidity is the placement of cash into the hands of financial institutions - not businesses or the common man.
2. Those financial entities will put this new found cash to work in some form or another.
3. It is normal that their first target will always be the equities market.
4. The positive action of the equity markets impacts the decision making powers of the consumer and the companies that provide them with consumer products.
5. The positive decisions of consumers and producers will produce a recovery in economic indices.
6. In time, this liquidity - sensing that the equities market should be distributed and profits taken - will begin to accumulate cash again.
7. As cash is accumulated by the now Fatter Cats, it transitions to the commodities market with positive basic fundamentals.
8. For sometime, both the equity and commodities markets move up in tandem.
9. The cost of basic goods increase and profits are reduced as the cost of goods produced climb.

In normal circumstances, the Fed steps in draining liquidity in the traditional sense thereby increasing the cost of money and killing the entire party.

However, now the international explosion of liquidity cannot in any practical sense be drained, so anything with a clear fundamental case in commodities will be blasted to the moon beyond the capacity and knowledge of talking heads to understand. No one outside of you will understand why this locomotive of inflation, which does not depend on business activity, can be blunted in its power or impact on prices by interest rates.

Now you have to add currencies to the game because this is the largest of all markets into which this liquidity must go. So those currencies with positive fundamentals will go up beyond reason and those with negative fundamentals will go down beyond reason.

This is why I have been saying against all other advisors that the currency market is the most fundamental of all markets. Here the fundamentals will flatten the technicals, bottom callers, the Chairman of the Federal Reserve, soothsayers and anybody else that assumes any short covering rally is meaningful or long term.

Interest rates have NO ability whatsoever to blunt anything except the hope of a reduction in the US Federal Budget Deficit. They only serve as another tax on the consumer and business and thereafter on individual income and corporate profits. Therefore, there is no question in my mind about the US dollar plunging below .8000. That being said, gold is going to $480 and $529 and in time to $1650."

Friday, December 21, 2007

Gold and the US Dollar

The US Dollar has been moving up since about the middle of November.

Yet, gold does not want to go down.

What do you think gold will do when the US dollar starts heading back down?
This has got to have the boyz and the central banks sweating bullets.

What is going on in finance land right now is the stuff of great depressions.
If you do not know how serious it is, read Jim Willie's latest on the bond insurance companies:

Many in government, treasuries, central banks and finance land have been playing the games little children play: "pretend" and "make believe" for too long. Their games are coming to a rude end. The US Dollar is going back down and gold is going up.

"The most important thing about money is to maintain its stability... You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold." -- George Bernard Shaw
Even a Fabian socialist understood gold vs. government:

Wednesday, December 19, 2007

Gold Hanging In

Gold is hanging in the triangular bullish flag pattern. It makes sense for gold to be taking a break at this level as it recently hit the nominal level that it hit back in 1980, a resistance level.
[Click on charts for larger views]

"What? Me worry?"
- Alfred E. Newman

Alfred E. Newman on those worrying about the price of gold: "Most people don't act stupid: it's the real thing!"

What's wrong with this picture?


What's wrong with this picture?


"...the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds..." Professor L. Kotlikoff, for the U. S. Federal Reserve Bank of St. Louis. (July, 2006)

Sunday, December 16, 2007

The Word Inflation

Most people use the word inflation in a way that helps perpetuate a con/ruse. They use it to mean rising prices of real economic goods and services. They do not even use the word to describe rising prices of financial assets or housing. This is an effect of inflation. It is not inflation. Inflation is as increase of the "money"[**] supply. If people do not know this, then they do not know who to blame for a deep recession/depression that hurts them because they can not figure out the cause of the deep recession/depression that hurts them.
Therefor those that hurt them do not get the blame of those that got hurt. Who hurt them? Those that control the supply of "money": governments treasuries and central banks. The supply of money and currencies should be a completely private business phenominum. A study of monetary history shows this. Read Laissez-Faire Banking by Kevin Dowd. It is a study of the beginning of banking in the western hemisphere. It started in Scotland and was going well till the British government got involved.

["money" is what most people refer to government fiat digital bits and paper. Today's "money" is not money. Gold, silver and other things are money. Another word, the meaning of which has been perverted to obfuscate/hide what governments and their central banks have been doing.]

Henry Ford, the inventor of the Model T Ford and the assembly production line, has said that if people really understood the banking system, there would be a revolution the next day.

The connection, thus the discipline on supply, between gold and "money" was completely broken in 1971. Inflation, historically, really took off after that point in time. For most of that time, excess fiat digital bits went into financial assets and more recently housing, in the western world. The Dow index rose from 776 in 1982 to over 14000 in 2007. Somehow that was not viewed as "inflation". That is all changing now. Fiat bits are going into real economic goods for protection from the decline of financial assets. This is going to be happening for a good number of years to come.

Banana Republics

Since 1971, when the US broke its promise to redeem US dollars for gold, a new group of banana republics has been developing. The increase of the supply of digital bits of fiat "money" needs the banking system to create more credit/debt because no increase of the supply can happen otherwise. The increase of debt, and thus "money" supply, has finally gotten out of hand. Using current account deficits over the past year(borrowing to maintain a certain standard of living that has not been earned by an equal production of economic goods and services), here is a list of the new top 7 banana republics in the world:

United States: $US 793 Billion
Spain: $US 126 Billion
Britain: $US 87 Billion
Australia: $US 50 Billion
Italy: $US 48 Billion
Greece: $US 42 Billion
Turkey: $US 34 Billion

There is a big general difference between the western world and the eastern world. It's basically that one does more unearned consumption than the other. The unearned consumer is borrowing from the earned excess producer. Guess which one's standard of living is going down. The net consumer or the net producer of real wealth?

Another measure of the top banana republic, debt to GDP ratio:
1929: 260%
2007: 343%
That is not the only aspect of the US economy that is worse than it was in 1929. It looks like the top banana is in for another Great Depression, worse than the one that started back in 1930 and lasted about 15 years. Can you imagine what is going to happen to the purchasing power of the US dollar?

Inflation is a world wide practice

The top 7 are not the only countries inflating their supplies of fiat digital bits on hard drives. The broad "money" quantity gauges in the US, UK, Eurozone, and the BRIC group (Brazil, Russia, India and China) have increased by $11.5 TRILLION, just over the past 2 years!!!!!!!!
Now, that is inflation!!!!!!!!!!

No wonder a weight of gold is what is required to buy a house in Vietnam. No wonder a mortgage is a borrowed weight of gold. No wonder a mortgage payment is a monthly payment of a weight of gold.

"Gold is absolute objectivity. It is blind, like justice. It has no politics and ideology, no likes or dislikes, no friends or enemies. All it recognizes is its possessor, whom it serves faithfully so long as he has it." -- British historian Paul Johnson quoting Charles de Gaulle

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it." - Frederic Bastiat, 'The Law'

"It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine - that is, they made no real money out of it. Men who can both be right and sit tight are uncommon." - Legendary speculator Jesse Livermore, "Reminiscences of a Stock Operator" by Edwin Lefevre, 1923

Friday, December 07, 2007

Outside Day

Gold made an outside reversal day. Intraday prices went lower than the previous day, then went higher than the previous day, and closed higher than the previous day. Bullish.

"Betting against gold is the same as betting on governments. He who bets on governments and government money bets against 6,000 years of recorded human history. -- Charles De Gaulle

Tuesday, December 04, 2007

Gold Flag

There are high odds that a small triangular flag is developing on the gold chart. Friday's intra-day low was probably a higher low that establishes the uptrending lower side of the triangular flag.

There are only weeks left, not months, to gold breaking out above the down sloping upper side of the triangle.

This makes sense considering the rate at which elements of the US dollar and the world's financial system are getting worse and worse.