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Gold price rises on monetary stimulus hopes

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Publié le 13 mars 2013
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SUIVRE : Bundesbank Eurozone
Rubrique : Marchés

24hGold -  Gold price rises on...Yesterday, for the first time in March, the gold price broke through its short-term ceiling of $1,585 and approached the $1,600 mark, while silver moved back above $29. During a press conference concerning the Bundesbank’s annual report, the German central bank’s president Jens Weidmann stated that short term inflationary pressures were subsiding.

As Weidmann – a member of the ECB Governing Council - is one of the strongest opponents of Draghi’s "whatever it takes" approach on monetary policy, his newest remarks were judged as a sign for a continuation and maybe even more leeway regarding future ECB stimulus. However Weidmann also reiterated that the crisis in the eurozone has not been resolved and cannot be solved by central banks. "It is fiscal policy, not monetary policy that will decide the overcoming of the crisis", said Mr. Weidmann.

Interestingly the Bundesbank withheld nearly €7 billion in profits from the German government as a provision against the increased risks that come with the purchase of European sovereign debt on behalf of the ECB. On the one hand this means a shortfall of €800 million for the German budget. On the other hand it obviously raises the question why the ECB – facing very similar balance sheet risks – has only been setting aside €1.2 billion in provisions in 2012 despite the fact that its balance sheet is about four times the size of the Bundesbank’s.

Across the ocean the Dow Jones Industrial Average closed at 14,450.06 points for its eighth consecutive all time high posing the question whether the definition of inflation by central bankers is not of completely dishonest nature. It is not hard to forecast what is going to happen to the price of gold when the reality – that inflation is in fact the dilution of a currency’s value – slowly sinks in.

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If the PM markets are rigged or controlled in some way, and clearly the ten years rise within a channel and the regular slap downs strongly suggest that, why does logic (psychological) and technicals so suddenly become a deciding factor is calling the future. Has the rigging stopped; is an almost flat-line pattern evidence that the manipulators are gone away? If the answer is Yes, and we can therefore because of fiat debasement assume a PM ascendancy, fine. But why would we assume anything so logical if the bad guys are still around. Surely it will go where they want it to go when they want it to go there. Otherwise, the suggestion is that they have lost control.
They may have, but it would be a first certainly. They have controlled everything war-peace; depressions-booms, politicians, churches and the media and they have always done it for a reason. I would love to think that order had been restored and law/order re-instated, but Dimon and the Whale are back in the news today about even more monkey business around that event. So why are we all assuming that PM will be allowed to behave in a logical and technically way here? I am not playing devil's advocate lightly, but, ladies and gentlemen, either the puppet masters are taking a coffee break, or we are making assumptions on a very weak foundation. Most of us would be entitled to some optimism around PM if an outbreak of the plague had killed all the big money manipulators, but they are free to do whatever they want, right or wrong; lawful or unlawful, and so my purpose is genuine - to remind you they have shown themselves capable of anything; the regulator is completely powerless and no law and order exists at their level in the western world. All to say, I urge caution and considered action by all.
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You have raised some most interesting questions with your post. i cannot give you definitive answers, just my own thoughts on some of your points.

To begin with, i am taking it that the control of the precious metals markets that you believe is strongly suggested has been to keep the price suppressed. If that is the case, a 10 year rise of some 500+% in gold would suggest that those who would attempt to suppress the price have been extremely incompetent. As i am sure you know, no market goes straight up or down and it seems to me that prices rise when gold is oversold and drop when the opposite is true. There have been, of course, exceptions to this, but it is nevertheless a fairly good rule of thumb to follow when making personal decisions on entering or exiting the market.

Your comment does not really make clear just which banks you believe to be behind the manipulation. If you are referring to the Fed, i would agree that they could have some interest in keeping the price of gold down, given that gold used to represent money not all that long ago and with their non-stop money printing, they might not want to have it appear that there is a viable alternative to the stuff they print. However, with regard the big, private banks, i have my doubts. They would not have the same vested interest that the Fed has and more importantly, i think they are incapable of having plans that take 10 or more years to unfold. The way they are structured, the only thing they are interested in is their quarterly performance reviews, for that is what their bonuses are based upon. And that is being generous. i suspect most of them are unable to see beyond their current trade. To be sure, if they think they can make a quick buck betting against the price going up, they will not hesitate to put out some bullshit report to their clients saying the price is about to take off and then short the market. But that is short term thinking, not some devious master plan of an evil genius.

As for whether control has been lost or not, that is a no-brainer. Control was lost years ago. And there is no way for them to regain it. Their ZIRP is now in its fifth year and will continue for years to come. Their Q.E. programs go on unabated and despite their hollow protestations to the contrary, they cannot stop without the bond market crashing spectacularly. Well, that is only partially true. They could stop and hope that folks would still buy their debt, but 10 year notes would go for a song and offer 15-20% interest. That would force the government to default, so not a very palatable option. As well, there has been absolutely no talk whatsoever of going back to what were generally accepted accounting practices. Mark to market died in April of '09, replaced by mark to model. That enabled the banks to repair their damaged books that would have otherwise forced them into bankruptcy, but it made it impossible for the banks to trust each other. Those are all examples of just how badly control was lost. And believe me, it is gone for good.

Precious metals will respond to all of this and as i see it, they are and will continue to do so. The problem may not be with the markets, but your expectations of what they should be doing. You must remember that unlike bonds which offer interest and stocks which pay dividends, gold and silver just sit there, often costing money to store....There are many interconnected things which move the markets and to be certain, at this stage, very few people are aware of just how precarious the times we live in are. That will change as time goes on. But there are still a number of events that will have to occur before we see the sort of rise in gold and silver that you are expecting. And it will take at least 2 more years before we begin to see the sort of price action some gold bugs are hoping for. (Be careful of what you wish for.) Before that can happen, i believe that first the euro and then the yen will have to collapse. Those events would cause the dollar and inflation to soar (with everyone having money in those places trying to park it in a place they perceive to be safe) and that would make it far too costly for America to service its debt; given that it is all denominated in dollars and so much of it (almost $7 trillion) is owed to foreigners.

With regard your questioning whether or not the authorities have lost control of the situation, as i stated, i believe the answer to that is quite obvious. More perplexing to me is why the citizens of these nations, especially America, have not organized to give the system a proper burial. Allowing it to kill itself only gives them more time to try and save themselves and as we all should know, their attempts to do so mean that ever more of us will be forced into abject poverty, as their only strategy is to squeeze us for our wealth so as that they can keep paying the almighty bond holders.



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I appreciate your taking the time to reply. But there are a few clarifications necessary. The ten year rise has been in a clearly defined channel and is part of a strategy to protect the USD as reserve currency. This is done by the Fed and has involved several banks and obviously even offshore activity in the currency and bond markets. Also, the first word in my post was IF. The Consensus on this site seems to be that the markets are all rigged. I was very careful to say, IF that were true...then....clearly if it is not true the rest of the post was irrelevant. Granted I did admit (in keeping with consensus) that such a pattern was strongly suggestive (if not supportive) of what most seem to believe. I do go on to say that IF true, we had carried on making assumptions of patterns and rationality that did not seem logically consistent with such rigging. It must be one or the other. If it is rigged, it will go where the people doing the rigging want it to go - up, down or flat - and there has been an effort to debase the USD to reduce the impact of debt (don't buy the trade argument). It was not a finger pointing exercise, but a warning that manipulation is manipulation. If it exists it exists in whatever form the manipulator desires. Having said that, Ranting Andy was the first, I think, to time the pops and smackdowns at set times during the day to keep things in channel. I don't think I suggested keeping the price down - it would be a function of the USD, competing currencies and HFT logarithms at the very least....sometime up, down or flat. Flip the gold chart over as a member has suggested here today, and you have the dollar debasement chart. Coincidence - possibly; likely - not so much, but who knows? This all lies at the feet of the Fed and its various agents or not at all (it might also involve or have involved BIS or other CBs who dump or buy gold in the public market and who loan and lease to support one another. If not "managed", the PM is the only non-manipulated market in the world and will behave rationally and predictably. I was simply pointing out it had to be one or the other. I was also implying that having held gold flat for some time, it could stay flat, go up, or go down, but if manipulated its movement would not be as predicable. To be as concise as I can - if there is manipulation, things will proceed in the direction the manipulators want/need/prefer and can engineer. Again the key word is IF. I did not say the price was suppressed, I said it was allowed or controlled within a rising channel. I should have mentioned the correlations that would have had to apply in that case. I assumed a certain level of fore-knowledge by members here. As for lost control, I would be less categorical than yourself. I think they are stupid like a fox. It is unwise to underestimate the cabal. They know where they want things to go, and it is not where people who think they are idiots might believe obvious. They have in mind a new system or paradigm, and they will position gold where they need to, so that they are on the right end of things after the transition. I don't want to defend my perceptions, because you seem to have read them into my post. Obama and the Fed are maxing out their credit cards - for either a change in the monetary system, loss of reserve status or, theoretically, a default. I don't quite think they will go that far, however. They will give up reserve status and will let the USD drop like a stone to accommodate gold revaluation within a new system. To suggest that all this can be done by morons or is not well planned in advance is too big a stretch for me. But please READ CAREFULLY, then respond on point or we will go in circles endlessly. PM will eventually increase, it will have to under the new paradigm (to deal with debt and re-balance the international system to some degree). Until then, unless they slap it down, do nothing. If they do, buy. All will unfold in due course.

My apologies if I did not make myself clear. I do hope this clarifies matters.
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i am far from clear why on earth the Fed would want to see gold rise 500+% within the clearly defined channel you mention. That it is part of some strategy to protect the dollar's reserve status makes little sense to me IF the manipulators can make the price reflect their desires, as you suggest they can and if they actually exist. Having gold go up like that would only serve to make gold seem the better store of value, would it not?

It would seem more likely that if the Fed is indeed in the gold manipulation business again (Plaza Accord), their desire would be to keep the price from really taking off and they would do so by getting those you mentioned to do them a favour. Not that those banks need any encouragement from the Fed to short gold when they have been making big piles of cash doing just that time and time again.

For the Fed, if they even give gold a second thought, it has to do with psychology. They would not want it to appear that there is a better store of value out there that was used as money not all that long ago. But that is it. The gold market is way too tiny to keep the governors awake at night; accounting for a mere 0.2% of the world's annual economy.

IF there is anything to keep them as well as the folks at Treasury awake at night, it is the CPI. That is the largest factor in controlling their costs and it is that and other metrics which they constantly fiddle with to screw you and me. i mean, if inflation really is running near as high as John Williams says, by putting out the phony numbers that they are, they are saving a sum nearly equal to or greater than the value of the annual world gold production.

IF there is some plan for a new monetary system, you can be 100% certain that gold is not a part of it. If such plans are being discussed, they would focus entirely around going digital. America has become a police state and what they are really looking for is not terrorists, but money. Digital would give them the ability to grab their pound of flesh from every transaction that takes place. Gold will take its place, as it always has, in the underground economy. Now China, with their very favourable balance sheet, is a different story. i could see them going with a gold backed yuan; say at 10%. But America owes $7 trillion to foreigners (annual world gold production amounts to about $125 billion at today's price), so switching to gold for them would be too stupid for any words to convey. If not for that very reason, why do you suppose Nixon closed the gold window in '71?

Changing the monetary system would be a default. No way around that. Every contract, every Treasury, every everything is denominated in dollars.... The reserve status that the dollar currently enjoys cannot be given up without America going through the worst upheaval it has ever witnessed. America will lose the reserve status for its dollar and along with it the privelege of exporting its debt, but not without a fight. It is beyond belief to think that losing that is part of their master plan.

While i maintain that the system is irretrievably broken, i am quite certain that the Fed and Treasury have some tools still left in their tool belt that they have not yet told us about. For one, should foreigners show a stronger distaste for buying U.S. debt, do not be surprised if they move to force savers to convert a portion of their savings into government debt. Capitol controls may be introduced to limit your ability to transfer money out of the country. And if a run on the banks seems imminent, expect them to either limit how much you can withdraw at any one time or make you wait 30 days to get the funds, or both. That is what is coming. They will attempt to sell it as a painful but controlled management of the crisis in order to prevent the catastrophy that a disorderly default would cause. These are the strategies of those who have totally lost control of the situation. Endless money printing, ZIRP forever and a new accounting practice (FASB 157) designed to hide trillions in toxic assets all scream of a broken system. (And that is to say nothing of them preparing for war with their own citizens!)

You indicated that the aim of the Fed is to weaken the dollar (to make paying off the debt easier) and i would agree with that. Yet armed with a printing press and resolve, the dollar sits on its index precisely where it did in the summer of '07. Worse still, it is rising! (Look for that trend to continue as smart money floods out of Europe and Japan. The gold market will absorb some of it, but the bond and stock markets will get the lion's share of it for the near term.) What sort of control does that speak of if not a loss of control? No, they just dash madly about from one crisis to the next, trying to insure that this will not be the one that crashes the whole system.

None of this should suggest that the precious metals markets are not manipulated. They certainly appear to be. But i suspect most all of it originates with the big trading and bullion banks, not the Fed. And they do it because they always have and it has always been a money maker for them. And as Mr. Holder has informed us, (as the unintended consequences of bringing them to justice could be so catostrophic, no action will be taken) they have a green light to keep on robbing us blind. So we would be naive to believe that they will not return to do it again and again. They will. And let them. It is to my advantage in that i operate with the firm conviction that the system is broken beyond repair and will die one day. i do not sell when the price goes down and will not until the system has died and a new one has taken its place. If they knock the price down, i just look at it as an opportunity to go out and buy more at a cheaper price. As it were, i measure my wealth in ounces, not dollars.
Listen to the recent interview with Dr Paul Craig Roberts on KWN and all will become clear to you.

Jim
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Listen to the recent interview with Dr Paul Craig Roberts on KWN and all will become clear to you. Jim Lire la suite
SirJames - 18/03/2013 à 13:26 GMT
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