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By Bill Holter
Jim and I have received many panicked calls and e-mails regarding
Martin Armstrong's latest
article. In it he again claims gold will collapse to below
$1,000 per ounce and thus the fearful communications.
In this very short article, Armstrong questions whether India will
begin gold confiscation suggesting door to door searches for "tax
evaders". He suggests if a gold confiscation is undertaken, the
Indians will switch to purchasing silver ...something the BIS has not thought
about yet. The logic of a switch to silver is a good one, surprising
considering some of what he has opined in the past...
We posted two articles late last year refuting his poor
logic and efforts at rewriting history. In the first
one, we refuted his claims that markets are not manipulated.
Since then of course we have had many settlements by large banks for
just that...MANIPULATING MARKETS. Last week saw Deutsche Bank
admit to manipulating the gold market and agree to pay a $60 million fine
(peanuts) and offer some seriously damaging evidence in the form of
captured communications. As they have turned state's evidence and squealed
on others, this will become very interesting no doubt! we
would simply ask, are banks in the business of handing out "free
money" in the form of $billions if they've done nothing wrong? JP
Morgan, Citi, DB and many others have coughed up large fines. Was this
"largesse" or was it to head off the decapitating legal procedure
called discovery?
Then a week or so after the first article, we were forced
to pen another
one. Mr. Armstrong truly erred when he made the statement
gold was "de"valued against the dollar in 1934. It was no
slip of the pen or tongue, he actually tried to rationalize and
"explain" how gold was devalued versus the dollar. The fact
is, gold was REVALUED over 70% higher versus the dollar in 1934. The
claim that "the dollar" was the best performing asset during the
Great Depression is outright bogus and why we give zero credence to
anything the man now says. We write this today because so many
readers have again had the wits scared out of them.
The "timing" is peculiar. India's (Modi's) timing
of their boondoggle by demonetizing 86% of their paper currency cannot be a
coincidence. The action came right on top of India's wedding season
where their international gold purchases are seasonally strongest.
It was our opinion right from the start, the action was directly taken
to cut off and mute their physical demand and offtake from world
markets. The only problem is that it backfired miserably as reports of
physical gold changing hands internally within India at $3,000 per ounce and
more.
Who couldn't have seen this one coming? When you cut off
supply ...and autonomously tell people their "savings" in paper
currency have been ostensibly wiped out, what would you expect to
happen? Supply and demand still works, price rose as supply has been
cut and true demand has had a fire lit under it. If you wanted proof
that gold is still seen as a safe haven in the midst of turmoil, here it is!
Meanwhile, India's real economy has crashed unlike nearly anything seen in
modern history. Giant Foxconn is eliminating 25% of their workforce due
to the monetary insanity. Trucks are littering the sides of the road as
the cash does not exist to purchase fuel. The disaster is just
beginning, coming days and weeks will surely see "hunger riots".
A similar question was raised about China over the weekend by
Yra Harris regarding an article Kitco ran. What will happen if China
decides to stop their importations of gold? Jim and I talked at length
about this and then spoke with Yra to get his take on our conclusion should
this happen. Wouldn't the ban of imports cause a huge drop in paper
gold prices but not necessarily cash price? The answer is yes, no, and
we may well see the "mechanism" to reset global markets
if we do.
Looking at China following India's lead was an interesting
thought process if you follow it through to the end. The fear of
crashing price by "cutting off demand" is logical only if you
stop the process before finishing the to the final answer. You see,
were China to preclude gold imports, the immediate reactions by COMEX and
LBMA would most probably be a crash ...maybe even a $500 crash! Would
that matter? Again, yes and no but stay with me to the end.
"Price" in the West may crash, but "what" exactly is it
the price "of"?
Paper prices may very well crash ...while price for real gold
within China goes to the moon. We are already seeing large spreads
existing between Shanghai and COMEX, these would only get larger and expose
one market as ...not really a market. Will the Chinese look at COMEX
prices and shun physical or in the ground gold? Or will they look
at what real gold is changing hands at inside of China and decide to
"arbitrage" it out of the ground (and from Western vaults) and into
their own market?
This is the crux of what we theorized. Yes, it is certainly
possible to see paper prices collapse from here and possibly sparked by China
banning imports (temporarily). Set in motion would be paper prices
dropping and physical markets rising (something I have written about since
2007 and spoke of since early 2000's). China (official state) would
then "purchase" and demand delivery of ridiculously cheap gold
(while there is still inventory left to deliver). As Jim put it
during our last weekend interview, "you could see COMEX gold at $10
offered and no bid with Chinese cash markets $5,000 bid and no
offer".
China (Russia and India) will ultimately "make price" as
they are the physical markets and collectively have more gold than the West
(please don't reply with GFMS or World Gold Council numbers as they are
laughable). A "reset" of global finance is certainly coming,
the only questions are how, when and how much? We believe the event
will be very rapid, probably over a weekend but China could force a
reset via Mother Nature and arbitrage in a slower manner. Real gold
will find its way into India (and China should they ban imports) simply due
to the human characteristic of profit motive and black markets. Once
Western vaults are emptied, who do think will "make price"?
Those who don't have it but suddenly want it, or those who have it and always
wanted it? If we were running China, this is the exact mechanism we
would use to remonetize gold and silver ...and remonetizing metal is exactly
what we believe they have wanted to do for many, many years!
To finish, Martin Armstrong was wrong about gold during the Great
Depression even with the benefit of recorded history. Now, he could
possibly be correct regarding the direction of his invention of derivative
contracts ... but we believe he is entirely wrong about the
underlying physical product. He most likely has correct
reasoning about a huge move into silver as he aligns with Mother
Nature' views the man made 70 to 1 g/s ratio as incompatible with her own at
10 to 1. One thing is certain, should the current paper versus physical
pricing spread continue and expand, Netjets will become a great
investment as a freight carrier for arbitrage!
Standing watch,
Bill Holter,
Holter-Sinclair collaboration
Comments welcome bholter@hotmail.com
Bill Holter writes and is partnered with Jim Sinclair at the newly
formed Holter/Sinclair collaboration.
Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a
retail stockbroker for 23 years, including 12 as a branch manager at A.G.
Edwards. He left Wall Street in late 2006 to avoid potential liabilities
related to management of paper assets. In retirement he and his family moved
to Costa Rica where he lived until 2011 when he moved back to the United
States. Bill was a well-known contributor to the Gold Anti-Trust Action
Committee (GATA) commentaries from 2007-present.
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