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EJ
08-28-08, 05:48 PM
http://www.itulip.com/images/invisiblehandLogo.jpgThe dollar, precious metals, and the 'other' invisible hand

I don’t always disagree with Mike (Mish) Shedlock. He and I are in agreement on gold and silver manipulation: there isn’t any. Unless you count the actions of central banks trying to maintain a dysfunctional global monetary system.
"What you have here is the footprints of the hedge funds exiting the commodities' markets in a mass stampede. Nothing more than that."

Jon Nadler, Senior Analyst Kitco, Chimes In On The Precious Metals Conspiracy (http://globaleconomicanalysis.blogspot.com/2008/08/jon-nadler-senior-analyst-kitco-chimes.html)
Correct.

From our March 5, 2008 Gold Update: The small trade within the big trade (http://itulip.com/forums/showthread.php?p=29425#post29425):
"We remain long gold as we have since August 2001. Recent price action compels us to remind readers that the precious metals markets have two primary drivers, with the currency depreciation and inflation trade driving long term prices and highly leveraged trades by funds driving short term price action.

"Within the current rapid speculative trade, we are watching for short term price volatility much as occurred at the end of the previous similar period C (H1 2006): a 20% correction from $720 to $580. A similar correction today would take gold prices down $200. We are also within the long term for volatility that will portend the end of the currency depreciation and inflation trade that began in 2001."
On August 13, 2008 when gold was trading at $844 we estimated that the gold price correction driven by fund selling for this dollar rally would take gold to $780 then stop. The table below is from People are sentimental, markets are not (http://itulip.com/forums/showthread.php?p=43525#post43525):


http://www.itulip.com/images/goldmarketcompcorrection.gif


Another lucky iTulip guess.


http://www.kitco.com/LFgif//auaug08.gif


FIRE Economy vs Adam Smith





Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. - Adam Smith, The Wealth of Nations, Book IV Chapter IIAdam Smith, writing in the 1700s, never imagined the FIRE Economy or the circumstance of governments around the world banding together to extend and maintain uneconomic system of money and trade.

Precious metals prices are primarily a function of dollar purchasing power, and dollar purchasing power is now dominated by foreign central bank demand for dollar denominated financial assets. One cannot forecast long term trends without incorporating the actions of the "other" invisible hand in the money markets, that of global central banks, into one's investment thesis.

According to our theory of the "Dollar Ratchet" since 2001 the dollar has been managed down by central banks in a series of depreciations such as 2001 to 2005 and 2006 to 2008, with an approximate one year rest period between depreciations to allow economies to adjust. We estimate the next period of depreciation starts up again in 2009 and the dollar and commodities move sideways until then, unless there is an accident that forces the Fed to cut rates and other CBs do not go along with it, in which case the dollar continues down sooner than later.

Since the mid 1980s, currency intervention primarily occur indirectly via purchases of dollar denominated financial assets, namely Agency and Treasury debt, by foreign central banks versus overtly as currency interventions by the Treasury Department.

FIRE Economy and the Dollar Ratchet ($ubscriber) (http://www.itulip.com/forums/showthread.php?p=43523#post43523)

http://www.itulip.com/images/foreigntreasuryholdings1952-2008.gif


Starting in 1957, the year foreign private institutions and individuals were able to buy treasury securities, foreign private holdings of US treasury debt grew to 28% of the total by 1959. Foreign private holdings then steadily declined after that until 1973, the year after the US officially abandoned the international gold standard, collapsing to a mere 1% of total foreign holdings.

Markets saw it coming from day one, so central banks stepped in to keep the game going.

After 1973 private foreign holdings had only one way to go, up. The big game changer was the birth of the FIRE Economy in the early 1980s. Private market driven holdings steadily increased until reaching parity with official foreign holdings in 1998.

Private treasury holdings then began another long period of decline, falling to the current level of 34% for foreign private investors and 64% foreign central banks. Our macro analysis views the start of that decline as the beginning of the end of the FIRE Economy, and much like the decline that started in 1959 at 28% and ended at 1% reflects the assessment of markets that the US economy and the standing of its debt and currency are in secular decline.

The other major US financial asset that foreign investors by is US agency debt, primarily Fannie Mae and Freddie Mac bonds. At the end of 1991, 91% of foreign ownership of agency debt was private, mostly institutional holders, and only 9% were official. By the end of the first quarter of 2008, 64% of agency debt was held by foreign governments and only 36% by private institutions. So much for the faith of the invisible hand of markets in US housing as an investment.

In the mean time, the decline in purchases of US agency and treasury debt, and the associated weakness in the dollar, is managed down by the central banks of governments that 1) are hurt by a rapid collapse of the dollar, and 2) have sufficient economic surplus to allow them to intervene.
U.S., Europe, Japan Devised Plan to Prop Up Dollar, Nikkei Says (http://www.bloomberg.com/apps/news?pid=20601087&sid=aafNFhZiOg.w&refer=home)

By Timothy R. Homan

Aug. 27 (Bloomberg) -- Finance officials from the U.S., Japan and Europe in mid-March drew up plans to strengthen the U.S. dollar following troubles at Bear Stearns Cos., Nikkei English News reported, citing unnamed sources.

he intervention designed by the U.S. Treasury Department, Japan's Finance Ministry and the European Central Bank called for the central banks to purchase dollars and sell euros and yen, with Japan providing the yen needed for the currency swap if the greenback's value dropped significantly, the news service said.

The three groups, which considered making an emergency statement through the Group of Seven industrial nations, did not stipulate a specific exchange rate for the potential intervention, nor did they detail the amount of money to be used, Nikkei said.
As news of the planned intervention leaked out in March, funds not eager to trade against governments unwound their dollar hedge positions in commodities, including gold and silver; platinum – less discussed by the precious metals conspiracy types, presumably because few don't own any, fared even worse.

iTulip Gold Forecast

Medium Term (six months to a year): Trades sideways to moderately up.


Dollar Ratchet price of gold
http://www.itulip.com/images/golddollarratchetNOTES.gif


Long Term (two to seven years): Eventually peaks around $2,500.


Dollar versus gold across four major economic epochs
http://www.itulip.com/images/dollargold2008-2015projectionNOTES.gif


iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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jtabeb
08-28-08, 11:56 PM
http://www.itulip.com/images/invisiblehandLogo.jpgThe dollar, precious metals, and the 'other' invisible hand

I don’t always disagree with Mike (Mish) Shedlock. He and I are in agreement on gold and silver manipulation: there isn’t any. Unless you count the actions of central banks trying to maintain a dysfunctional global monetary system.
"What you have here is the footprints of the hedge funds exiting the commodities' markets in a mass stampede. Nothing more than that."

Jon Nadler, Senior Analyst Kitco, Chimes In On The Precious Metals Conspiracy (http://globaleconomicanalysis.blogspot.com/2008/08/jon-nadler-senior-analyst-kitco-chimes.html)
Correct.



Sorry EJ, not buying. [Thanks LUKESTER for this post]

HOUSTON (ResourceInvestor.com (http://www.resourceinvestor.com/)) -- On August 6 the Got Gold Report took a look at this year’s action in silver and noted that it looked like we were headed for a harsh August, similar to the previous August in 2007. That article, with the prophetic title “August Silver Swoon Again (http://www.resourceinvestor.com/pebble.asp?relid=45097),” suggested that the first two weeks of August this year might be rough for silver metal, because it looked like technical support levels had been breached.

The price action for the second most popular precious metal since that report has been rough indeed. Silver literally fell off a price cliff, ripping through sell stops and trailing stops for silver investors and traders. Silver dived lower so far and so fast that it became a seemingly unexplainable and irrational panic. However, over the past few days some startling evidence has surfaced which just might explain silver’s record-breaking August plunge of 2008.

Once the evidence now coming to light reaches the mainstream Wall Street press, just about everyone will likely conclude that silver investors world wide were just sucker punched by two very well funded U.S. banks.

Silver Smacked 40% Lower Despite Big Popular Demand

Silver just endured a near collapse, having fallen from the $19s in July all the way down to test the middle $12s. Very seasoned silver traders who correspond with this report have expressed their shock and disbelief as to how violent and how strong the down-spike has been so far.

In the world of silver just about everyone has to be asking how it was possible that during the month of July silver would peak at over $19.00 and even though physical silver was commanding high premiums even then, the metal could plunge off a cliff seven dollars or more, a drop of 40%?

Well, it could be that silver commentator and analyst Ted Butler has discovered evidence of what might be the single largest commodity manipulation in the history of the metals futures markets in the U.S. If Butler is correct, (and the data are compelling that he might be), two U.S. based banks apparently crushed the silver market with an overwhelming onslaught of short selling of silver futures on the COMEX, division of NYMEX in New York, sometime between July 1 and August 5, 2008.

In a short article entitled “The Smoking Gun (http://www.investmentrarities.com/08-22-08.html),” Butler examines the reported positioning of banks in the futures markets. The bank positions are reported monthly by the Commodities Futures Trading Commission (CFTC) and those public reports are available on the CFTC website here (http://www.cftc.gov/marketreports/bankparticipation/index.htm).

What caused Butler to issue a special report about the most recent CFTC bank position report was the fact that exactly two U.S. banks had apparently taken extremely large short positions on the COMEX just prior to the recent plunge in price for silver metal.

Before concluding whether this is just a case of a couple banks getting it right and profiting from their superior analytical skills, or whether it was a case of a couple banks intentionally manipulating the global market for silver metal by forcing the market lower themselves, let’s take a closer look at the data brought to everyone’s attention by Butler.

Silver Market Sucker Punched by Two U.S. Banks?

This first chart takes a look at the net positions in COMEX silver futures by U.S. banks according to the CFTC Bank Participation in Futures Markets Reports (http://www.cftc.gov/marketreports/bankparticipation/index.htm) since September, 2006. For that 24-month period there were two to four U.S. banks reporting positions. The report also includes participation by non-U.S. banks, but this analysis is focused strictly on the U.S. bank’s reporting.

http://www.resourceinvestor.com/MediaLib/Images/Home/Sections/GoldSilver/Got%20Gold%20Report%208-25-08.png

From September 2006 to July of 2008 the COMEX net silver contract positioning of the two to four U.S. banks reporting ranged from being 3,376 contracts net long on September 4, 2007 to being 12,381 contracts net short on March 4, 2008. As of July 1, there were two U.S. banks reporting and they collectively held a net short position in silver futures of 6,177 contracts as silver closed at $18.10. By August 5, 2008, after silver had declined to $16.45, these two U.S. banks had increased their net short positioning to a staggering 33,805 contracts.

So, using just the COT reporting dates, from July 1 to August 5, as silver declined $1.65 or 9.1%, these two U.S. banks INCREASED their net short positions by 27,628 contracts or a mind boggling 547%.

A short position of 33,805 contracts is a big number. It represents 169,025,000 ounces of silver. That is a net short position by two U.S. banks of 5,257 tonnes on silver worth about $2.7 billion at $16.00 the ounce.

In order for these two U.S. banks to have taken these net short positions, they had to sell short silver futures on the COMEX. Lots and lots of them. Apparently, sometime between July 1 and August 5, these two U.S. banks became the dominant force in the New York silver futures markets. As anyone can see from the data, they were dominant on the short side, or the side pushing the price of silver lower on the futures markets.

For perspective and to show just how much the trading of the two U.S. banks might have affected the COMEX silver futures price, and thereby affecting the spot price, this next chart looks at the two U.S. bank’s net silver futures positioning relative to the entire open interest for silver on the COMEX.

From September 5, 2005 to July 1, 2008, the net short positioning of the 2-4 U.S. banks never amounted to more than 11% of the total open interest. Then, suddenly, as of August 5, 2008, with only two banks reporting, their net short positions spiked up to 25.37% of all the contracts on the COMEX, division of NYMEX.


http://www.resourceinvestor.com/MediaLib/Images/Home/Sections/GoldSilver/Got%20Gold%20Report%20TWO%208-25-08.png

On August 5, exactly two U.S. bank’s net short positions for silver futures accounted for over a quarter of all 133,255 of the contracts on the COMEX. Two banks, whose identities are protected and kept secret from U.S. citizens by the rules of the CFTC, had taken an overwhelming net short position in silver (and in the process drove silver much lower in price) and these two banks were so sure of their silver-is-going-lower call that they increased their short positioning AFTER silver had already fallen over 9%.

It would be one thing if these two U.S. banks were merely part of a much bigger exodus out of silver metal; if the positions of these two unnamed U.S. banks were merely a small percentage of many commercial entities taking the short side. It would not raise the slightest question if two bank’s net short positioning was large if the overall commercial net short positioning for silver was much larger. But when we compare the net short positioning of these two U.S. banks on August 5, 2008 to the entire commercial net short position of all commercial traders on the COMEX, we find that these two unnamed U.S. bank’s net short positioning accounted for a sickening 60.95% of the entire silver commercial net short positioning on the COMEX.

http://www.resourceinvestor.com/MediaLib/Images/Home/Sections/GoldSilver/Got%20Gold%20Report%20THREE%208-25-08.png

From September 5, 2006 to July 1, 2008, the 2-4 bank’s net short positioning never accounted for more than 18.21% of the commercial net short positioning on the COMEX. Then, suddenly as of August 5 it spiked up to 60.95%.

Demand for SLV Surging

Sooner or later, if large players attempt to overwhelm the market in one direction, (as has apparently just occurred), their efforts will run into the very real laws of supply and demand. (As the Arabs and the Hunt brothers learned from the other side of the market in January, 1980.)

What has demand done during this historic decline for the price of silver? Demand has exploded for all kinds of silver metal products here in the U.S. Bullion dealers are reporting they have been overrun by investors trying to buy the actual metal. Premiums for physical silver have shot much higher for those dealers still willing or able to book new sales and many dealers have no silver to sell at all.

Some dealers have resorted to booking sales now, but promising to deliver metal in the future from future business. Unless the dealer has learned to “lock-in” his sales using the silver ETF or some other method of hedging, booking physical silver sales today for delivery from future activity can be a dangerous business practice for a bullion dealer because it is like selling silver short. We’ll have more about that in future reports.

At any rate, as silver has come down so far in price, one would naturally expect that there would have been a panic out of the metal and into cash. If this sell down for silver were something systemic or something that threatened the very sustainability of the silver bull market, one would have expected the “smart money” to have dumped their holdings in both physical silver and in the silver exchange traded fund.

That hasn’t happened. Instead premiums, the amount over the current spot price demanded by dealers for physical silver, have skyrocketed and availability for silver is extremely scarce even at the injuriously high premiums evident in the physical marketplace today.

The silver ETF has seen consistently more buying pressure than selling pressure throughout this August silver swoon too. In fact, just since August 15, SLV has added a huge 308.839 tonnes to hold 6,474.04 tonnes of average 1,000 ounce silver bars.

The authorized market participants for SLV have to add shares to the trading float and increase the amount of silver held for SLV when buying pressure is significantly stronger than selling pressure. The reverse occurs when there is more selling pressure than buying pressure.

Instead of the silver price plunge creating a panic exodus out of SLV it has just created much more demand for it as shown in the chart below.

http://www.resourceinvestor.com/MediaLib/Images/Home/Sections/GoldSilver/Got%20Gold%20Report%20FOUR%208-25-08.png

It should be obvious that investors have not panicked with silver and are instead thankful for the lower prices so they can buy more of it with the same money.

People Don’t Like to be Sucker Punched

Everyone can look at the data and form their own conclusions. But when silver is in short physical supply, commanding injuriously high premiums and difficult to locate; when investors are piling into the silver ETF in droves, a 40% silver price plunge is not only not warranted, it smells.

It is difficult to imagine a legitimate reason that two U.S. banks could quickly and systematically amass a net short position on the COMEX which amounts to over a quarter of the entire action on that bourse. It will not be surprising at all if we learn that these two U.S. banks are taken to task by regulators for their actions. It will be even less surprising to learn that they have become the target of multi-billion dollar class action lawsuits by hungry lawyers representing silver investors everywhere.

Futures markets are supposed to answer the actual physical markets, not the other way around. In other words, futures markets are supposed to be a place where producers or large holders of a commodity can lay off price risk to speculators and thereby hedge against unforeseen adverse movements in the price of the commodity. Futures markets are definitely not supposed to be a place where a couple of well connected and well funded entities can bully the market with their own heavy handed trading.

If silver really was just taken down by a couple of very big U.S. banks to irrationally low levels, it won’t be long before the laws of supply and demand reassert themselves. Got silver?

metalman
08-29-08, 12:03 AM
that is a friggin loooong reply. you guys must own a lot of silver!!!

jtabeb
08-29-08, 12:11 AM
that is a friggin loooong reply. you guys must own a lot of silver!!!


25% more than I owned two weeks ago (if it actually gets delivered, that is)

metalman
08-29-08, 12:17 AM
25% more than I owned two weeks ago (if it actually gets delivered, that is)

you made a good buy but for the wrong reasons, if your post is any indication.

silver bottomed with gold as the fund shorts pissed their pants.

the game goes on and on until the big shoot out.

so which one of these players folds first?

http://www.itulip.com/images/tithead.jpg

that is THE question!!!

figure that out and you're in the big money.

so... where is the russian or chinese central bank head in the picture? :D

World Traveler
08-29-08, 12:45 AM
Metalman,

These are some very intriguing hints that you posted. Since I'm probably not as financially sophisticated as some other folks on this board, I'm having trouble reading the tea leaves.

"the game goes on and on until the big shoot out. so which one of these players folds first?

that is THE question!!! figure that out and you're in the big money.

so... where is the russian or chinese central bank head in the picture"

Followup Questions:

1. What do you mean by the big shoot out? And by implying that one of the central banks folds first? Which one might fold first and what happens then?

2. How will not being in the picture benefit Russia and China?

Thanks,
WT

phirang
08-29-08, 12:47 AM
you made a good buy but for the wrong reasons, if your post is any indication.

silver bottomed with gold as the fund shorts pissed their pants.

the game goes on and on until the big shoot out.

so which one of these players folds first?

http://www.itulip.com/images/tithead.jpg

that is THE question!!!

figure that out and you're in the big money.

so... where is the russian or chinese central bank head in the picture? :D

EJ/FRED/MGMT: Can we have an ECB/BoJ/PBoC/Fed/BoE thread, where we track policy, statements, trips (when they fly around, they mean biz!), etc? It'd be great to have a single thread where we can keep au courant with the FX gods and also discuss and futilely second-guess them:D.

Contemptuous
08-29-08, 12:49 AM
silver bottomed with gold as the fund shorts pissed their pants.

Metalman - Are you taking someone's word for this, or is that a high confidence assessment of your own? I don't see it as at all clear that gold has clearly bottomed. And as for silver, it's got a 50% chance of seeing further lows, IMHO. I like Silver just like Jtabeb, and if I was underweight in silver I might well buy a significant further increment at these prices. But silver is definitely vulnerable in the next year - more so than in previous years. Of course six years out from now, silver could trounce gold's returns. But that does not mean we are unlikely to see it behave in seriously ugly fashion in a severe global recession. I guess Jtabeb's the right sort of guy for this kind of positioning however, as his stomach is likely accustomed to "high G's". For all I know the guy even enjoys it. Like kicking the afterburners when you are already headed straight for the ground. Nuts! :D

However bottom line is I agree squarely with Jtabeb. Read Butler's pointed commentary above. It evidences just how far we are supposed to strain our own credulity in order to continue regarding this determinedly as a correction brought about solely by hedge fund deleveraging. In the context of this article's exposition of the extraordinary concentration of shorts, with their vertiginous multiplication into only one or two large bank hands, stating "it just isn't manipulated, period" seems an assertion that's encountering at very least some headwinds. The thing to keep in ind about this commentator (Szabo) is that he has been a most determined proponent of exactly what EJ is suggesting, that there IS NO COLLUSION. He is however growing increasingly intrigued by Butler's own claims, while avoiding adopting them wholesale.

There is a point to posting all this stuff here. The point is, even despite the below careful investigation of WHO it was, who actually piled on the massive short positions in the PM's, which coincided (or preceded rather) the recent plunge in those PM's, what Mr. Szabo is illustrating is that he "remains unsure" despite all the added clarification as to the participants uncovered here, whether these shorts were hedging positions or if they were indeed naked and manipulative positions. The operative term is REMAINS UNSURE. I have nowhere seen EJ's meticulous deconstruction of these trades, only a brief dismissal of any collusive thesis. What I wonder therefore is, how could EJ be so assured, while Szabo, a skeptic every bit as much as EJ about collusion (in fact even more so in the past), claims that "there is ultimately no real way to know for sure here"?

Tom Szabo writes of Mish's " great expose' " on this topic:

Mike “Mish” Shedlock takes no prisoners in his blast at conspiracy theorizing in the gold and silver camp. While much of his logic is dead on, he does flippantly dismiss several factors that deserve more analysis. For example, the large short position by the two “U.S. Banks” constituting Ted Butler’s “naked gun” does not appear merely to be a matter of longs and shorts doing their thing in the futures markets (it could turn out to be that but right now it does not appear that way).

Similarly, what we recently saw in the silver market, where the price traded down dollars at a time in illiquid electronic markets yet market orders were filled with almost no slippage, does not appear to be merely a matter of longs and shorts doing their thing.

Furthermore, Mish states the following: “When a long sells his position, a short automatically covers.” This is either ignorance or gross oversimplification. A long, of course, may sell his position to another long. In fact, the only way to determine whether a long is selling to another long who is establishing a new position or to a short who is covering a short position is by looking at open interest. But since the open interest figure is only available on a daily basis, as an analysis tool it is more often a sledgehammer than a scalpel. Still, that doesn’t mean we should ignore it.

And this further commengt from Szabo, delving into the identity of the participant banks or other entities playing in the massive short positions which developed:

August 28th - The Usual Suspects after All:

I said before (http://silveraxis.com/todayinsilver/2008-08-22/mr-butlers-smoking-gun/) that the 2 or 3 “U.S. Banks” that have reported, per the Bank Participation (http://www.cftc.gov/marketreports/bankparticipation/index.htm) report published by the CFTC, a huge short position in COMEX silver and gold were not “money center banks” or “dealers”. Well, after an exhaustive review of the bank quarterly Call Reports (https://cdr.ffiec.gov/public/SearchFacsimiles.aspx) filed by each U.S. commercial bank with the Federal Financial Institutions Examination Council (FFIEC), it seems that I’ve established that in fact the primary U.S. banks involved in the futures market are the usual suspects after all. The specific banking entities reported by the CFTC are not “dealers” per se in the sense of being futures brokers but they most definitely have “swap desks” and they are “money center banks”.

Before getting to my findings, I will discuss the process I used so you can try to recreate, if you wish, what I did. First, I took the Quarterly Banking Profile (http://www4.fdic.gov/qbp/2008jun/qbp.pdf) as of 6/30/08 issued by the FDIC and noted the total “Commodity & Other” derivatives were $1.137 trillion in notional value across all FDIC insured commercial banks and state-chartered savings banks. See Table VI-A on page 11 of the report. Also, I noted that “Futures & Forwards” were $23.6 trillion. In addition, I noted that more than 99.9% of derivatives were held by banks with assets greater than $10 billion. Then I ran (http://www4.fdic.gov/sdi/main.asp) an “FDIC - Statistics on Depository Institutions” report that matched and reconciled the derivatives totals to the Quarterly Banking Profile. This statistical report indicated that the top 84 commercial banks over $10 billion in assets held the vast majority of commodity derivatives and all futures and forward contracts, while the top 48 savings institutions held almost none.

Note that savings institutions file quarterly Thrift Financial Reports (http://www.ots.treas.gov/?p=ThriftFinancialReports), not Call Reports, and the TFR does not provide notional amount information on derivative positions (only market value or credit risk equivalents are reported). Still, we can safely assume that savings and loans are not involved in commodities or futures and forward contracts to any large extent on a notional basis (this is probably why they don’t report the notional amount of derivative positions in the TFR). Not a lot to be surprised about except I didn’t think Wachovia would have that much in commodity futures ($12.2 billion). What does come as a bit of a surprise is that more than 99% of commodity (and equity) futures and forward contracts held by U.S. banks are concentrated in just 5 institutions. Yet if we look back at the Bank Participation report for July 1, 2008 (http://www.cftc.gov/dea/bank/dmojul08f.htm) (which corresponds very closely timewise with the 6/30/08 Call Reports), we indeed can see that no commodity futures were held by more than 5 U.S. banks. And now we know the names of those 5 banks: JPMorgan, BofA, Citibank, HSBC and Wachovia.

And further on in this same article:

So, which of the 5 are the actual 2 big shorts in COMEX silver and 3 big shorts in COMEX gold? Well, the Call Reports seem to reveal that as well (Schedule RC-R, Page 40):

JPMorgan
Gold Contracts: $85.2 billion
Other PM Contracts: $10.9 billion

HSBC
Gold Contracts: $27.5 billion
Other PM Contracts: $6.9 billion

Citibank
Gold Contracts: $0.5 billion
Other PM Contracts: $3.0 billion

Bank of America
Gold Contracts: $0.4 billion
Other PM Contracts: $0.2 billion

Wachovia
Gold Contracts: $0.0 billion
Other PM Contracts: $0.0 billion

Bank of Oklahoma
Gold Contracts: $0.0 billion
Other PM Contracts: $0.0 billion

Thus, it appears that the swap of forward contracts for futures contracts is being driven by the need of the JPMorgan and HSBC banking subsidiaries to hold most of the consolidated capital reserves. And that, in turn, could be the result of the massive loan write-offs on subprime mortgages and collateralized securities, which apparently have required JPMorgan and HSBC to boost banking reserves at the expense of the reserves held at the futures dealer subsidiaries. You can see what I’m talking about by reviewing some of the historical (http://www.cftc.gov/marketreports/financialdataforfcms/fcmreport_archive.html) Futures Commission Merchant reports, noting that most other large futures dealers have increased their reserves by a multiple in the past couple of years whereas JPMorgan and HSBC have remained near historic levels despite a large increase in their futures trading activities.

One final note. JPMorgan and HSBC are obviously huge individual players in the gold and silver markets and that includes the COMEX. The Call Reports prove, I believe, without a shadow of a doubt that these two U.S. banks constitute a significant portion, and probably the outright majority, of commercial short positions (both gross and net) in COMEX gold and silver futures. That might get the conspiracy-minded among us to start hootin’ and hollerin’, but I do want to point out that JPMorgan and HSBC have a much larger book of forward gold and silver contracts than they do COMEX gold and silver contracts. As a result, it is impossible to conclude with any degree of certainty that the COMEX gold and silver short positions are not in fact hedges of forward gold and silver long positions. Unless, of course, we have an agenda and a propensity to jump to conclusions.

phirang
08-29-08, 12:51 AM
Metalman,

These are some very intriguing hints that you posted. Since I'm probably not as financially sophisticated as some other folks on this board, I'm having trouble reading the tea leaves.

"the game goes on and on until the big shoot out. so which one of these players folds first?

that is THE question!!! figure that out and you're in the big money.

so... where is the russian or chinese central bank head in the picture"

Followup Questions:

1. What do you mean by the big shoot out? And by implying that one of the central banks folds first? Which one might fold first and what happens then?

2. How will not being in the picture benefit Russia and China?

Thanks,
WT

fold = cut rates.

the EMU is in chaos right now, especially with the resurgent Russian "threat" (imho a paper tiger). If the EMU punishes the crappy FSU states in the EMU, then, well, we could see an opportunity for Putinistas to come to power.

It's complicated, and the politics involved are beyond my ken. Insights here are appreciated.

metalman
08-29-08, 01:04 AM
EJ/FRED/MGMT: Can we have an ECB/BoJ/PBoC/Fed/BoE thread, where we track policy, statements, trips (when they fly around, they mean biz!), etc? It'd be great to have a single thread where we can keep au courant with the FX gods and also discuss and futilely second-guess them:D.

i second that. call it 'dollar cartelology' the modern equivalent of kremlinology :D

Charles Mackay
08-29-08, 09:54 AM
Sinclair, Turk, and Murphy say it's manipulated. Therefore, it is manipulated. But, why not use the manipulation to your favor for the extraordinary buying opportunities that it provides. Sinclair says the manipulators will ultimately be the ones that make the most money from the long side.

Charles Mackay
08-29-08, 10:16 AM
Frank Barbera's US dollar chart showing the 30 year support line being broken...and the obligatory retracement to the support line for a "kiss goodbye"

http://www.financialsense.com/Market/barbera/2008/images/0826.5.jpg

j4f2h0
08-29-08, 10:59 AM
Ted Butler, Israel Friedman and Jim Sinclair have convinced me that the market has manipulation end of story! I am struck by EJ's prediction of the top in the gold price is basically the inflation adjusted number of the peak in 1980, around 2500. So after all this insanity, i have a hard time believing that the 2-7yr projection is 2500 bucks. IN 5yrs the inflation adjusted 1980 high will probably be way higher the 2500 bucks, so i am to believe that the top actually lies lower than the 1980 top?????? I have a hard time swallowing that!

phirang
08-29-08, 11:30 AM
Ted Butler, Israel Friedman and Jim Sinclair have convinced me that the market has manipulation end of story! I am struck by EJ's prediction of the top in the gold price is basically the inflation adjusted number of the peak in 1980, around 2500. So after all this insanity, i have a hard time believing that the 2-7yr projection is 2500 bucks. IN 5yrs the inflation adjusted 1980 high will probably be way higher the 2500 bucks, so i am to believe that the top actually lies lower than the 1980 top?????? I have a hard time swallowing that!

Please fully read all EJ's relevant (i.e. more than the one above) articles before posting on them.

j4f2h0
08-29-08, 11:47 AM
Please point me in the right direction i haven't seen any other numbers predicted.

metalman
08-29-08, 11:59 AM
Are you taking someone's word for this, or is that a high confidence assessment of your own? I don't see it as at all clear that gold has clearly bottomed.when did you buy into gold and silver? in 2006 or so? if so that explains why you can't see it. these corrections have happened over and over since 2001. as ej says, short term a function of funds, long term of gov'ts. it's just that simple.


I have nowhere seen EJ's meticulous deconstruction of these trades, only a brief dismissal of any collusive thesis. and i think that's smart. no guarantee that these 'meticulous deconstructions' are looking at all of or even any of the relevant data that explains what happened. just because they supply a lot of data doesn't mean it's good/relevant data. sometimes less is more. pretending to understand what is going on inside a 1000 black boxes run by funds by watching a few inputs/outputs is like trying to figure out where a race car went on a course by measuring the gas consumption and exhaust out the tailpipe. ej's approach? as he's explained it... talk to the drivers and 'put it together'. if you don't have access to the fund managers and can't put it together you measure gas tanks and sniff tail pipes. nuff said.

when do we decide that 780 was the bottom for this latest of the series of corrections since 2001? when itulip made the claim some here said 'that's too low'... such as aaron krowne... and others too high. it's been holding for only 2 wks. when do we decide 'that was it'? that's what we ought to be debating. here's my take...

http://www.kitco.com/LFgif/au2006.gif

let's say it's a 2006-ish correction. price fell from a peak of 725 in may 2006 to 567 in june... a 20% correction.

then went up for a month, then traded down slightly below the post-correction low, to 560 in oct. and hasn't seen 560 since.

or maybe this is more like the 2004 correction...

http://www.kitco.com/LFgif/au2004.gif

peaked at 423 in march, fell to 375 in may, then never looked back.

similar deal in 2003...

http://www.kitco.com/LFgif/au2003.gif

nothing like that happened in 2007...

http://www.kitco.com/LFgif/au2007.gif

so it looks like what we just saw was the 2007 + 2008 'annual gold price corrections' bundled together into one big 30% plus decline this year...

http://www.kitco.com/LFgif/au2008.gif

now... if gold prices start to get reeeealy volatile, with $50 and $100 swings in a day and that goes on for a couple weeks... i'm getting off. that ain't funds trading, that's the market rolling over, just as the stock market is with its huge moves. but instead we're seeing physical demand outrun the spot price while spot prices gradually recover in muted trading... hardly a sign of a market rolling over.

my 2 cents.

Charles Mackay
08-29-08, 02:39 PM
It looks like many people are "taking advantage" of the manipulation :)


Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an ``unusually large'' order from a buyer in Switzerland.

The order was for 5,000 ounces and it will take until Sept. 3 for inventories to be replenished, said Johan Botha, a spokesman for Rand Refinery in Germiston, east of Johannesburg. He declined to identify the buyer.

Coins and bars of precious metals are attracting investors as a haven against a sliding dollar and conflict between Russia and its neighbor Georgia. The U.S. Mint suspended sales of one- ounce ``American Eagle'' gold coins, Johnson Matthey Plc stopped taking orders for 100-ounce silver bars at its Salt Lake City refinery and Heraeus Holding GmbH has a delivery waiting list of as long as two weeks for orders of gold bars in Europe.

http://www.bloomberg.com/apps/news?pid=20601012&sid=acH4WhPh1WJ0&refer=commodities

jtabeb
08-29-08, 03:27 PM
you made a good buy but for the wrong reasons, if your post is any indication.

silver bottomed with gold as the fund shorts pissed their pants.

the game goes on and on until the big shoot out.

so which one of these players folds first?

http://www.itulip.com/images/tithead.jpg

that is THE question!!!

figure that out and you're in the big money.

so... where is the russian or chinese central bank head in the picture? :D

If it goes up eventually, I did it for the right reason;)

jtabeb
08-29-08, 03:30 PM
Sinclair, Turk, and Murphy say it's manipulated. Therefore, it is manipulated. But, why not use the manipulation to your favor for the extraordinary buying opportunities that it provides. Sinclair says the manipulators will ultimately be the ones that make the most money from the long side.

Do I know you? Or, are you just good at reading my mind?:)

bart
08-29-08, 03:33 PM
It looks like many people are "taking advantage" of the manipulation :)




Precisely the main actionable point of my dollar intervention and ECB gold intervention and Treasury TIO intervention, etc. fact based & posts.

Not only is my motto to ignore the real & proven men behind the various curtains quite perilous, but its also that the signals are extremely useful for trading and investing.

Just ignore the noise of folk like Mish and digger and most main stream media bozos... although I still like the concept of the real Bozo for President. ;)

jtabeb
08-29-08, 03:33 PM
Like kicking the afterburners when you are already headed straight for the ground. Nuts! :D



Only IF you are BELOW CORNER VELOCITY! If you are above it, it's IDLE and SPEEDBRAKE till you get to corner, then power to maintain it.

FYI

JT

Contemptuous
08-29-08, 03:52 PM
Metalman -

You wrote:


when did you buy into gold and silver? in 2006 or so? if so that explains why you can't see it. these corrections have happened over and over since 2001. as ej says, short term a function of funds, long term of gov'ts. it's just that simple.

Regarding the potential manipulation of Gold and Silver, here's why I see it differently. I look at the mountain of derivatives which have sprung up over the past few years, it's multiplication without any restraining limit, and I have to conclude it would be highly improbable to expect that any one sector of the markets is immune to their influence while other sectors such as currencies can be freely influenced. Currency markets dwarf every other global market by orders of magnitude. And almost everyone here is 100% on board with the thesis of currency manipulation existing, right? Also we are all on board that speculation exists in the oil markets? Now compare the oil markets with the gold and silver markets.

There may be modest derivatives influences upon the massive global oil market, as well as forex markets, but take a look at the comparative size of the oil markets to the sizes of the tiny gold market, and the absolutely gnat sized, truly minute silver market, and you'll understand derivatives could have their premier manipulation candidate in gold and silver. There is unparalleled potential in these tiny markets. And curiously, the PM's have a big fat red target painted on their backs, as former currencies in their own right. Don't need any Sherlock Holmes to have gotten this far.

Your blanket denial of any manipulative influence in the PM's in agreement with iTulip, may instead be an exposed and difficult position to defend. These two tiny metals markets are by definition the "anti-fiat-money", and yet your view is that while derivatives can sway markets as massive as the currencies, they are miraculously not present in the monetary metals. The above article excerpt evidences that Szabo (in very workmanlike fashion) narrowed the massive short positions down to two money center banks, as the owners of 60+ percent of the COMEX short. And EJ asserts "it's all due to hedge funds deleveraging". Doubtless the hedge funds dumping the metals positions has had a huge effect. But to claim it's "all" due to them is an exposed argument.

Szabo supplies a bit of "agnostic" sleuthing at least, examining the potential here for collusive manipulation having contributed to the recent metals plunge. His diligence uncovers without too much work, a not irrelevant detail - two money center banks "owned" the entire short positions trade. EJ confines himself to making an "unequivocal assertion" to the contrary. You then observe: "Too much sleuthing obscures more than it clarifies". In this case to choose not to bother with identifying these two banks, does not give the impression of minimal diligence, as to contributing factors on these metals' recent price action. I think there are a number of us, people following the PM's, who maintain a healthy skepticism for conspiracy theorizing, but we also choose to apparise this picture overall (means beyond the hedge funds) for a sense of probability levels pro and con one or two money center banks involvement too.

It is not irrational to broaden one's scrutiny here.

When we see two money center banks piling on an obscene 60%+ of the COMEX short position in astonishing synchronicity with the largest plunge in the metals in 7 or 8 years, we conclude that this crcumstance is at very least, "highly anomalous". When we then note that an entirely similar operation occurred in the currencies, and this is even corroborated by news clips of central bank "memoranda of understanding" for concerted currency operations, we consider, not irrationally, that 3/4's of the "conundrum" may have just been resolved. A better and firmer understanding of what underlies the manipulation in metals AND currencies, requires A PRIORI, an undogmatic approach. I will take Bart's conclusions here any day, over the "categorical" assertions of Mishmash. Bart takes the tough position to argue. Mish? Well, let's just say we've caught him out on a few occasions making some truly whopper flawed assertions.

In case my point is not clear on what's interesting regarding "plausibility" here, I reiterate it - if we here at iTulip all do freely consent that currency manipulation exists, is it not odd that we draw off a "hermetic quarantine" area, in the Precious Metals, and claim "Oh no! The manipulation does not extend in there - not at all!". We go on to claim in explanation "The manipulation does not need to extend into there, because currency manipulation alone can swing the metals at will anyway!". This reasoning appears to me somewhat arbitrary.

With regard to EJ's consigning any trace of manipulation in the metals to the dustbin, my best guess is that he's climbed out on a limb on this one and it's a position that requires some work to defend. Mish's methodology elsewhere has been shown to be arbitrary and prone to build constructs on top of false premises. We have seen some examples that were inescapably so, and you are entirely familiar with that. You can read an article of Mish's and a great majority of what he (on occasion) may write will appear eminent common sense. Then you stumble across a whopper of a misconception and realise you have to be constantly on the lookout for them in his writing.

Szabo demonstrates that there have been only two money center banks involved in these short positions on gold and silver, which appeared suddenly and were very large. iTulip's assertion here is that it's been the "hedge funds deleveraging". You agree with this. So would you then explain to us why the hedge fund community's hasty flight from gold and silver has been the sole agent of this collapse, while these two money center banks who have snapped up such a massive quantity of short positions in the meantime, are considered to have been neutral to the bullion prices concomitantly? The burden of proof would appear by common sense here, to rest instead on those asserting that "the hedge funds are responsible for this", as the actual data Szabo has pulled out, is pointing to a very large quantity of gold and silver contracts (short), placed by a couple of money center banks instead?

Just my two cents.

Contemptuous
08-29-08, 03:55 PM
Yeah, well, I would not fly in one of those buckets with you even if I had a gun pointed at my head. No sir! I like feeling solid ground under my feet at all times! [ groundhog personality ].


Only IF you are BELOW CORNER VELOCITY! If you are above it, it's IDLE and SPEEDBRAKE till you get to corner, then power to maintain it. FYI JT

jimmygu3
08-30-08, 01:04 AM
Only IF you are BELOW CORNER VELOCITY! If you are above it, it's IDLE and SPEEDBRAKE till you get to corner, then power to maintain it.

FYI

JT

Fire, Rotate, Thrust. And if the little saucer gets too close- hit Hyperspace!

jtabeb
08-30-08, 04:09 AM
Fire, Rotate, Thrust. And if the little saucer gets too close- hit Hyperspace!

Now, what you are referring to is the F-22 ( I don't fly it, but we all drool over it)

http://www.youtube.com/watch?v=e_Q6Vb9xJM0

Spartacus
08-30-08, 03:48 PM
This post does NOT mean I agree with Butler - it's to clear the air against what I see as unfair cricitism, sloganeering and name-calling (Mish is SO GOOD at some things). If you're going to claim you've refuted someone, there should actually be a refutation there.

All those words Mish has expended to "disprove" Butler, and not done it at all.

Disproving Butler would be "the shorts have access or have plans in place to access this metal (pointing to the metal, showing its location or planned mining or delivery) to be delivered against the short contracts in some reasonable time period, say 6 months or a year."

As I understand Butler, his position is, the function of the commodity market has been corrupted with respect to Silver.

Butler's position: shorts should have reason to believe they could deliver on their promises within some reasonable time period. A producer who can produce in 6 months to a year, or a company that has Silver in their vaults. That's the function of the commodities exchange, not to hedge 20 years of production or to hedge against other paper. The current short positions cannot be delivered against in any reasonable time frame using any publicly documented Silver supply or supplies or stockpile.

As I understand it, Butler has never written that there is any secret cabal controlling the price of Silver. The small number of players holding an enormous short position have unfair market power, but that's NOT a conspiracy theory. Calling Butler a conspiracy theorist is the lazy, easy way out.

To refute Butler one needs to point to the Silver or some way in which the shorts can reasonably expect to get their hands on Silver. This cannot be Silver already owned by others (for example, a short cannot point to some current mine supply which is contractually promised to industrial users and say they'll use that for delivery).

Calling Butler a "conspiracy theorist" does not answer his arguments.

Please read all of Mish's writings and judge for yourself if he actually answers Butler.



CEO of PAAS, who took on Butler's claims as well - that the large commercial shorts do in fact have offsetting positions in both physical and OTC derivatives markets, where they act as middlemen for a much larger group of customers

NOte very carefully what is NOT written: "the short positions can be delivered against in a reasonable time period, using Silver held in xxxx vault or to be mined & delivered in 1 year from yyyy mine"

he "took on" a figment of his imagination and called it Butler. He absolutely did not "take on" Butler, much less refute him.

if the COMEX paper is being used to hedge off-COMEX paper (that's my understanding of the ex-CEO's quote), that is REINFORCING what Butler wrote, NOT refuting it.


Time and time again Butler and others point out the "massive concentrated short position" as if that was proof of something in and of itself.

The COT reports are basically a measure of concentration. Look at the structure of those reports. That's the COMEX and CFTC telling you that CONCENTRATION ITSELF is bad (EDIT: I suppose that's my interpretation. Mish might say COMEX is measuring concentration just to employ a few people who might otherwise work at BLS, but when they work at COMEX/CFTC they are beyond reproach). Except in the case of Silver and Gold shorts - then concentration is fine, and anyone who criticizes it is a conspiracy theorist.

When Butler warns against concentration he's a "conspiracy theorist", when the regulators warn against it ... when the basic structure of the regulator's reports admits it's a bad thing ... when the regulators regularly move against much smaller concentrations on the long side ... what? No response, Mish?


Anyway ... I could go on - I noted tons of other extremely weak "arguments" (or rhetoric & slogans being passed of as arguments). Mish has NOT refuted Butler. There is a very specific thing that Butler claims , and nothing that Mish has written in the last few weeks comes close to refuting Butler.


I suppose one could write (if one wanted to be honest) "I suspect Butler's wrong, but I can't provide the specific proof that would prove him wrong - he's just asking for too much detail, for too much information that's not publicly available. Here are some indications that he's wrong ..." (this is my position) and proceed to list some sources of Silver that Butler doesn't know about. But again, this is NOT what Mish has done - he's gone in for the classical tactics of "sraw man", "name-calling" and "sloganeering".



I have not read US commodity law, probably don't have the background to make sense of it, so I don't know if Butler's correct on that point ... but even if Butler's wrong on that point, that does not make Mish correct. If Mish wants to correct Butler that way, he needs to quote a commodities lawyer saying
"commodity law expects that shorts will never expect to have to deliver. There is no such rquirement or expectation."
(and even as I write this I know it must be wrong - I vaguely remember one of the futures markets tried to introduce a no-delivery contract a while back and no one was interested in it)

bart
08-30-08, 04:26 PM
This post does NOT mean I agree with Butler - it's to clear the air against what I see as unfair cricitism, sloganeering and name-calling (Mish is SO GOOD at some things). If you're going to claim you've refuted someone, there should actually be a refutation there.

All those words Mish has expended to "disprove" Butler, and not done it at all.
...


Well said. And just for the record, I do agree with Butler on most items.

I also note that the CFTC did charge the Dutch company Optiver with oil manipulation. In other words, Mish's allegation about futures being zero sum and having balanced shorts & longs being reason enough that futures manipulation is not possible is completely bogus and not backed up by actual facts, and actually & provably ignores those actual facts.

Mish also quoted Jon Nadler:

"One can take any data and make it suit their argument," said Jon Nadler, senior analyst at Kitco Bullion Dealers.
"The theory that the market is somehow sinisterly manipulated, especially as it comes at a time when U.S. regulators are keeping a keen eye on the goings-on in the commodities and financial markets for just such type of evidence, is simply ludicrous and totally out of touch with market reality."
Note allegation of "sinister" and the use of "ludicrous", when the actual subject is manipulation and facts alone - more Mish style logic.


And again:

"What you have here is the footprints of hedge funds exiting the commodities markets en masse," said Kitco's Nadler.
Note that hedge funds are primarily trend & TA followers (as per "because investors, particularly short-term, technically-oriented funds, were selling." said Jeffery Christian, founder of commodities research firm CPM Group) amongst other actual facts.
Nadler's implication that they're the trigger covers less than the full & complete picture.

I await further attempts to muddy the water with partial facts and questionable logic.

Funny how Mish and others ridicule the area and spin the concepts and facts, even going so far as to pretend that Butler and others have no facts when the facts are actually there and clearly presented.

Maybe Mish will even attempt to spin that the PPT or CRMPG etc. don't exist and act too. After all, secrets like the Manhattan Project can't be hidden from the huge majority of people for many years. :rolleyes:

And again and just to be clear - manipulation and intervention are far from the only factors that influence prices. But they do provably exist.

"Only puny secrets need protection. Big discoveries are protected by public incredulity."
-- Marshall McLuhan


And just to establish a base definition:
Manipulate
To influence or manage shrewdly or deviously: He manipulated public opinion in his favor.
To tamper with or falsify for personal gain: tried to manipulate stock prices.

As an aside, I'm no longer publishing any of my ECB gold manipulation work - I'm tired of dealing with the hate mail, threats and other effects and factors. I've gotten more of it on my ECB work than anything else I've ever published, but at least a factor of 10.

Spartacus
08-30-08, 04:32 PM
I await further attempts to muddy the water with partial facts and questionable logic

I have a sneaking suspicion that the next tool in the toolbox or arrow in the quiver is selective quoting.

Unfortunately this could be quite effective with Ted.

We'll see.


EDIT: to get a clear view of the difference between Mish & Butler, please read some Butler. Note how carefully he separates facts (various documents on the Silver industry) from his opinions. Note how careful he tries to be about telling his readers when he's going off into his own imagination. He's definitely not perfect at it, but compare with some of his opposition ... the difference will be stark.

bart
08-30-08, 04:51 PM
I have a sneaking suspicion that the next tool in the quiver is selective quoting.

Unfortunately this could be quite effective with Ted.

We'll see.

Sad but likely true... and I've been on the receiving end of that crud too. Its takes very high efforts to counteract it, and is virtually impossible with the many who have fixed ideas. :(

What Mish and others likely don't see and realize about that "style" of tool though is that it always backfires eventually.
I hope he sees the current relative crash in his blog ranking and attributes it correctly to his dubious journalism, but I'm not holding my breath.

Contemptuous
08-30-08, 04:53 PM
Kitco's Nadler and Mishmash make very comely bed-fellows! [ pair of hacks, maybe that's the similarity. ] All tucked in and comfy under the blankys, are we? Just go perusing through a collection of Nadler's articles and see if you can spot where his "umbilical chord" is attached. ;)

bart
08-30-08, 05:09 PM
Kitco's Nadler and Mishmash make very comely bed-fellows! [ pair of hacks, maybe that's the similarity. ] All tucked in and comfy under the blankys, are we? Just go perusing through a collection of Nadler's articles and see if you can spot where his "umbilical chord" is attached. ;)

http://www.nowandfutures.com/grins/scooby_ruh_roh.jpg


I see that your tinfoil hat is still firmly in place too... ;)


On a personal note, I actually warned Mish the very last time we spoke about these type of issues and getting over confident. *sigh*

*T*
08-31-08, 11:24 AM
As an aside, I'm no longer publishing any of my ECB gold manipulation work - I'm tired of dealing with the hate mail, threats and other effects and factors. I've gotten more of it on my ECB work than anything else I've ever published, but at least a factor of 10.

A shame. You might have taken it as an indication that it was commensurately worthwhile.

Contemptuous
08-31-08, 05:14 PM
DUE DILIGENCE FOR ANYONE OWNING GOLD AS A LONG TERM INVESTMENT.
DUE DILIGENCE ALSO FOR ALL "DEBUNKERS" OF GOLD PRICE MANIPULATION.

Jim Sinclair has long subscribed to Mr. Veneroso's own thesis of manipulation on more than a mere whim.

Veneroso's point is that the conditions leading to a large short position on gold did not spring from "active collusion" (aka cloak and dagger conspiracy), but rather, have sprung up quite naturally as a consequence of gold leasing, which over the past fifteen years has progressed well on the way to creating a "trap" for central banks with now quite large amounts of "leased gold". His point here is to pull together six separately gleaned segments of deductive general data which in aggregate points to a fair likelihood that the real volume of CB leased gold is a good deal greater than the commonly accepted volumes, and that's regarding multiple central banks. He aggregates the volumes of leased gold suggested by broad deduction here - then fully halves his own estimates, for extreme conservative projection - and charts what that would suggest as a progression forward. The conclusions are startling.

His point is that if the volumes leased have been much larger than commonly accepted, their dampener effect on the price progression thus far has also been much larger than many would conclude, and their course to eventual depletion of this CB gold disbursement presents a very different picture when all these stealthy additional leased volumes are included. Hence to be "pro or contra conspiracy theories" within Veneroso's illustration of the large issue, is a misconception. You only have to look at the mechansm of leasing, with concomitant structural growth of a chronic short position on gold in the form of secondary and tertiary counterparties of that leasing, growing on this 15 year trend like a large and permanent crust of "barnacles". This is the real story. So it is not a story sprung from "conspiracy", but nonetheless those who debunk conspiracy here and replace it with hedge funds are focusing on a lesser story. The larger story suggested here is structural, grown very large, causes notable price distortion, and has grown straight out of central bank leasing over the past 15 years.

The thing to keep in mind here is that Veneroso is talking about "stealthy leasing", NOT Central Bank Gold sales, which garner all the hoopla and publicity. We know the CB's make a lot of noise about selling gold and then quietly decline to do so. His point has been about the leasing going on in the background all along - which has a large cumulative and spring loaded effect at the end of it's trajectory. Depletion, and a cessation of that ploy.

Veneroso's work on this and GATA's therefore, have performed a tremendous service to the general public to alert us of a very large anomaly playing out in the markets. And BTW, this is the "truth" which Bart works on uncovering and upholds as well. It takes real integrity to undertake positions which are so vulnerable to "debunkers". The "debunkers" have it easy here. Those suggesting the picture is more complex have it a lot harder.

_____________________________________________

<!-- begin content -->Facts, Evidence and Logical Inference, by Frank. A.J. Veneroso

Submitted by Administrator on Thu, 2007-07-19 14:38. Section: Essays (http://www.gata.org/taxonomy/term/4)

A Presentation On Gold Supply/Demand, Gold Derivatives and Gold Loans
By Frank A. J. Veneroso

INTRODUCTION Currently head of Veneroso Associates, formerly partner of the hedge fund Omega Advisors where he was responsible for global investment policy formulation. Through his own firm, Mr. Veneroso has been an investment and economic adviser in investment strategy to institutions and governments around the world in the areas of money and banking, financial instability and crisis, privatization, and development and globalization of securities markets. His clients have included the World Bank, the International Finance Corporation, The Organization of American States.

He has advised the Governments of Bahrain, Brazil, Chile, Ecuador, Korea, Mexico, Peru, Portugal, Thailand, Venezuela and the United Arab Emirates.

Frank is a graduate from Harvard and has authored many articles on the subjects of international finance.

FOLLOWING ARE ONLY EXTRACTS. FULL ARTICLE HERE:

http://www.gata.org/node/5275

QUOTE [ F. VENEROSO ]

Well, James Turk gave you interesting detective work that shows the possible hand of Government intervening in the gold market---sexy stuff. I am going to talk about the dry stuff---which is statistics on gold supply and demand. I sort of apologize for this but I guess it is an important part of the whole case. I am going to try and focus just on facts and evidence and simple logical inferences from them---rather than allegations, footprints, paper trails and the like. You might want to know why I have come all the way down here to participate in this conference. I find it extremely annoying that there is a hell of a lot of obvious evidence out there that something is happening in the gold market---that there are very large supplies coming into the market---larger than the consensus would claim---and no one is willing to discuss it.

I have had interviews with the press. After the interviews, its has always turned out that the articles were killed. I have requested debates with Goldfields Mineral Services and they have refused to show up. I have asked the World Gold Council to fund pertinent research studies and they have not responded. I never get a response that counters the evidence that I can bring forward. I simply get extreme silence. Only GATA has looked at this evidence and taken it to the public, and so, as a result, I feel it is incumbent on me to present it once again in their forum because I think that it represents evidence of very large undisclosed official supplies in the market that is systematically ignored. If there are any producers here who have influence on organizations like the Gold Council---if you find this persuasive---you should go to them and say, "Hey, listen, this guy has real evidence. He may not be right but it poses serious questions. It should be addressed. Why isn't it being addressed?"
_____________________________________________

It is a simple, simple idea. Central banks have bars of gold in a vault. It's their own vault, it's the Bank of England's vault, it's the New York Fed's vault. It costs them money for insurance - it costs them money for storage--- and gold doesn't pay any interest. They earn interest on their bills of sovereigns, like US Treasury Bills. They would like to have a return as well on their barren gold, so they take the bars out of the vault and they lend them to a bullion bank. Now the bullion bank owes the central bank gold---physical gold---and pays interest on this loan of perhaps 1%. What do these bullion bankers do with this gold? Does it sit in their vault and cost them storage and insurance? No, they are not going to pay 1% for a gold loan from a central bank and then have a negative spread of 2% because of additional insurance and storage costs on their physical gold.

They are intermediaries---they are in the business of making money on financial intermediation. So they take the physical gold and they sell it spot and get cash for it. They put that cash on deposit or purchase a Treasury Bill. Now they have a financial asset---not a real asset---on the asset side of their balance sheet that pays them interest---6% against that 1% interest cost on the gold loan to the central bank. What happened to that physical gold? Well, that physical gold was Central Bank bars and it went to a refinery and that refinery refined it, upgraded it, and poured it into different kinds of bars like kilo bars that go to jewelry factories who then make jewelry out of it. That jewelry gets sold to individuals. That's where those physical bars have wound up---adorning the people of the world.

Now, this bullion banker is net short gold when he conducts this operation. Remember he borrowed gold and now he has a dollar financial asset. He is making a 5% return on the spread, but he now has a gold price risk. As a banker he is not normally in the business of putting on speculative positions like this. He is an intermediary, so what does he do? For the most part what he does is he hedges his gold price risk. He goes long the forward market to offset his physical short. Now if he goes long in the forward market someone else must go short, because every such contract in the forward market has two sides---a long and a short. In doing this he allows private market participants to go short the forward market. Who are those private participants who go short the forward market? They are producers hedging future production, they are jewelers who are hedging their inventory, and they are speculators who want to go short the gold market because they believe the price will go down and they earn a forward premium or 'contango' which happens to be, in this case, roughly equal (though not quite) to the difference between the rate of interest on the dollar asset held by the bullion bank and the rate of interest paid on the gold loans by the bullion bank.

So, basically, in doing this operation the bullion banker has a hedged position on the gold price and he takes a small margin---like a half of one percent---from this intermediation. In doing so, he allows private market participants to go short gold. That's why we elide the two phrases---going short in the gold market and gold borrowing. The ultimate borrowers in the gold lending operation are these shorts in the gold futures and forward markets. Now that we understand what this mechanism is all about, I am going to talk about the commodity case for gold.
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Since then we have done some more analysis and we have found four more bodies of evidence that point to the same conclusion: consensus (Gold Fields) estimates of global gold demand and supply are significantly understated.

http://www.lemetropolecafe.com/p2_files/image034.gif

The first of these four is data on the gold derivatives of commercial banks reported to the BIS in conjunction with BIS capital adequacy requirements. In the US there is a monthly report by the US Controller of the Currency on the balance sheet of the US banking system which includes US commercial bank derivatives. I had seen the gold derivatives data included in this report over the years, but I did not know what to make of it. I thought it described a lot of derivatives that were duplicative. I didn't think it was significant.

But then something strange happened in 1999---there was a big shift in the locus of these derivatives. About that time there was also an explosion in the gold price, after the Washington Accord. People then began to focus on this derivative data. Reg Howe did a lot of research on these derivatives and he found similar derivative data on the German banks and on the Swiss banks. We took this data and we tried to interpret it. Now the World Gold Council, Jessica Cross, Antony Neuburger and the bullion banks--- they've all said this is meaningless data---it's transaction data---it's data not about stocks or positions but about transaction flows and you can't draw any conclusions from it about the amount of gold lending outstanding. In fact, Reg Howe has shown that, in the BIS' own accounts of what they are compiling and reporting, they make it very clear that this is in fact position data, not transaction data.

Now we believe we have figured out what this data means. Let us go back to the process of bullion banking. The central bank deposits its gold with the bullion banker. The bullion banker sells the physical gold into the spot market, and then goes long forward to hedge his physical short. That forward is a derivative. If all that was done by a bullion banker was to go long forward against the gold deposited with him by the central banks, there would be a one to one correlation between his gold deposits and his gold derivatives. But in fact that is not what happens. What happens is that sometimes he hedges with options rather than forwards. In the latter case the hedge is the delta on those options. I won't go into the details---basically these options will have a nominal or face value that is several times the value of the gold deposit operation being hedged. Now if we mixed together some option hedges and some forward hedges, a bullion bank's gold derivatives would be a small whole number multiple of the deposits (or at least those deposits that were hedged).

I want to say that what James Turk was talking about earlier today---that some bullion bankers will borrow gold, sell it spot, and take positions in currencies like the dollar without a hedge---these operations, these gold carry trades, carry no associated derivative. Gold derivatives are only spawned if bankers choose to hedge their physical gold shorts. But based on the way I described the operation you will see that it is likely that the derivatives would be perhaps two or three times a bullion banker's deposits, assuming that they hedge most of the physical gold shorts generated out of their gold deposits. Now it is likely that there is some double counting in this data due to duplicative positions that would make this ratio somewhat higher. On the other hand, some bullion bankers presumably have unhedged physical shorts and, in this case, there would be deposits without an associated derivative that would tend to make this ratio somewhat lower.

Now we have a survey of our own of gold deposit taking from central banks, not deposit taking from other bullion banks, but just from central banks. The survey encompasses only a partial sub-set of the gold dealers. Of importance is that some of those gold dealers are also among the ones who report their gold derivatives. We took a ratio of what we thought were their deposits and what were their derivatives disclosed to the BIS, and that ratio came out almost exactly to what you would think given my description of bullion banking operations.

It turned out that, for this small sub-set (and it was small and it could be unrepresentative), the face value of gold derivatives was maybe three times our estimates of gold deposits. That meant that, from the derivative data that had fallen into the public domain, we could infer a number on total gold loans from official lenders outstanding based on our analysis of the data on the gold derivatives. Once again, our sample is partial--- it is not total---but we believe it's pretty representative. We estimated from BIS data that the total amount of the gross gold derivatives of the bullion bankers, all 37 of them, has been somewhat more than 40,000 tonnes. That would suggest something like 10 to 16 thousand tonnes of gold have departed from the official sector as a result of official gold lending. This is an inference from a small sample, but it's an interesting corroborative piece of evidence.

http://www.lemetropolecafe.com/p2_files/image036.gif

Okay, now, let us look to yet another piece of evidence for more support for our gold loan estimates. In the Gold Book Annual we analyze the gold market like you would analyze any commodity market using microeconomics. What is analysis of commodity markets all about? It is all about elasticities with respect to price of the market's supply and demand variables---variables like jewelry demand, or mine supply, or scrap supply. It is also about changes in these variables over time. What is important about such changes over time with commodities is that, for a constant real gold price, for most commodities, demand grows less rapidly than global income. In economics we say that the income elasticity of that commodity is less than unity. In commodity jargon we say that this commodity has a declining intensity of use. Now, almost all commodities have an income elasticity of less than unity; in other words, they almost all have a declining intensity of use over the long run, at least in modern economies. BUT NOT GOLD. Excluding the monetary use of gold and focusing only on jewelry, on electronics, and the like, if you look at 200 years of data until 1997 what you find is that gold has an income elasticity in excess of unity. That is, demand rises more rapidly than global income over periods in which the gold price is constant in real terms.

Now, in commodity analysis you also have to look at the supply side over time. What we find out also about commodities is that, because of technological change and exploring new lands, for a constant given real gold price, mine supply increases. In the jargon we say that, because of technological change and the exploitation of new lands, the supply schedule for the commodity shifts outward at a certain rate. Now for most commodities, it shifts outward fairly rapidly. A combination of an income elasticity that is less than unity and a rapidly outwardly shifting supply curve implies that most commodities have, on trend, a declining real price. For copper, silver and the like, what has happened to their real inflation adjusted price over 100 years? It has fallen in real terms by 70%. But gold has not---gold has kept a constant real price.

This is an amazing thing because half of demand 100 years ago was monetary demand and today there is no monetary demand. In fact, monetary demand is negative because the central banks are dishoarding their monetary stock. So, if we just looked at the commodity dynamics of gold we would see that the gold price would tend to rise in real terms. Why is that? It is because demand tends to rise more rapidly at a constant real price than global income and mine supply tends to rise less rapidly. And, in order to make supply equal demand every year, the gold price has to rise in real terms to ration down price elastic demand and encourage more supply and thereby clear the market. Two hundred years of data from Eugene Sherman suggests this and 25 years of Gold Fields Mineral Services data, which is somewhat better data, suggest the same between 1971 and 1996. Now here is what is interesting. If you look at the Gold Fields data since 1996, what you find out is that, despite a big decline in the real gold price (remember gold demand is elastic with respect to the gold price), and despite perhaps 3% per annum increases in global income, demand has only increased by 10%.

Now if you apply the income elasticities that we have estimated from 200 years of data and the income and price elasticities that we have estimated from 25 years of data to the last four years---1996 to 2000---demand should have risen by something like 40% - 45% over those four years. Income went up, and the real gold price went down by a lot. The World Gold Council's demand series shows that demand went up by 20%---not 45 %---but the Gold Fields data contends that demand only went up by 10%. To assume it went up by only 10% implies that gold's income elasticity and gold's price elasticity have totally changed relative to history. We don't think that's plausible. We think at a minimum that the Gold Council's data is more reasonable; it allows for a certain amount of reduction in demand versus historical trends, perhaps because gold has gone somewhat out of fashion. But the "official" Gold Fields data is almost unbelievable. Now remember, the Gold Council's data shows an increase in demand much less than history would suggest; yet, it implies much higher levels of demand and much higher levels of supply.

http://www.lemetropolecafe.com/p2_files/image038.gif

Let us present yet another piece of corroborating evidence. These under reported official gold flows we are talking about are coming out of the depositories of the central banks. Now, in keeping with their unwillingness to be transparent, the central banks don't like to tell us what physical gold is in these depositories. However, we have data on what is in two of these depositories---the BIS and New York Fed. The physical gold in these two vaults at the beginning of the 1990's accounted for about one third of the officially held gold. Now, if you take a look at that 1/3 window on the total, what you find out is that we have lost almost four thousand tonnes of gold. The amount that has left those depositories that comprise only a third of all the gold in official depositories is almost equal to all the gold (5000 tonnes plus) that has supposedly left the official sector vaults in this decade through both selling and lending. If we prorate this drawdown from one third of the official depositories---that is, if we assume basically that there was the same kind of drawdown out of the other depositories (the country vaults, the Bank of England depository, etc.)---we come up with a draw down or liquidation that is consistent with OUR numbers on total gold lending and gold sales and not the official statistics. I should add, however, that this inference supports our more conservative estimates of outstanding gold loans (10,000 tonnes) and not our more aggressive estimates.

http://www.lemetropolecafe.com/p2_files/image040.gif

Now, in addition to the above three corroborative bodies of evidence we did a little bit of field research---we have had other people make inquiries with bullion bankers. (We went to other parties to make the inquires, since we feared that, as analysts, these dealers would be less forthcoming with us.) Some of these bankers had left bullion banking, some had been fired and felt disaffected and inclined to speak, some are still employed. In any case, they were willing to talk. We have gotten, albeit crude, estimates of gold borrowings from the official sector from about 1/3 to 1/4 of all the bullion banks. We went to bullion dealers and we asked, "Are these guys major bullion bankers, medium bullion bankers, or small scale bullion bankers?" We classified them accordingly and from that we have extrapolated a total amount of gold lending from our sample. That exercise has pointed to exactly the same conclusion as all of our other evidence and inference---i.e. something like 10,000 to 15,000 tonnes of borrowed gold.

So I have now given you 6 completely independent pieces of evidence that a hell of a lot more gold has left those official vaults than the consensus would contend. This implies that the flow, the draw down rate, the liquidation rate from official gold stocks is substantially higher than what the consensus contends.

Now let us put these two suppositions together. Remember our pie chart--- a big chunk of the official gold reserves reported to the IMF has already gone. Remember our supply/demand balances---this outflow on an annual basis is substantially larger. Now, let us project forward. First of all, as the years pass, global income will rise. At a constant real gold price we could then expect demand would rise somewhat. At the same time the current very low gold price is close to the total cost of production and we are having less exploration. We have more or less exhausted the pipeline of projects that we created through higher exploration expenditures years ago. Also, cash flow strapped miners are high grading the eyes out of their mines. Mines deplete in any case by about 7% a year. Mines are depleting more rapidly now because miners are high grading. In essence, we are not coming up with new projects to replace what is being depleted, and depletion is occurring at a rapid rate. Overall we can expect mine output will fall over time. Therefore, we can assume some growth in future demand, we can assume some decline in supply, so that the deficit in the gold market---that rate of flow of gold out of the central bank vaults---should increase in order for the gold price to remain at its current level in real terms.

Now, we will make two sets of assumptions. First let us take the current rate of drawdown and project it forward. Second, let us also assume some growth in that rate of drawdown. Let us then take our estimates of what is left in them thar' vaults and figure out how long this process can go on.

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http://www.lemetropolecafe.com/p2_files/image050.gif

First, we take our conservative numbers--- our lower rather than our higher estimates of gold lending. Here we project how long this process can go on if we assume no growth in demand and no decline in supply and conclude it will take a decade to empty the vaults. In this alternative projection we have assumed some growth in demand and some decline in supply. It will take about 7 years to empty the vaults.

http://www.lemetropolecafe.com/p2_files/image052.gif

http://www.lemetropolecafe.com/p2_files/image054.gif

If we use our more aggressive numbers, we have less in those vaults and it is flowing out at a faster rate; consequently, it takes less than seven years to empty the vaults.

So whatever is happening in the gold market--- whatever is keeping the gold price down---if our numbers are correct, it can't go on that much longer, because we know not every central bank will lend or sell all it's gold. In fact, if our analysis is correct, the official sector knows what is coming. If the official sector is rational, it knows what will happen to the gold price when this large flow that is depressing the price abates and ultimately ends---the price will go up by a lot. Therefore, some rational central banks will not sell and lend down to the last ounce. Instead they will start to buy. So regardless of what has been happening in the gold market, if our data is correct, then, within a couple of years, whatever the official sector is doing, it will terminate and the gold price will rise.

What are the implications of all this dry statistical analysis for the claims of GATA? To our mind, it is very simple. There is much evidence that the consensus data on supply and demand is wrong and that the supply coming from the central banks is higher than the consensus estimates. In our opinion, the fact that the central banks do not acknowledge this but simply keep affirming the consensus data---despite abundant evidence to the contrary---represents considerable support for the allegations of GATA that there may be something deliberate and intentionally clandestine about the large flows of official gold that have been depressing the gold price.

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MY COMMENT:

What does 10-15 years laxly regulated "metals leasing" into the markets produce? Dysfunctional price signals: What the following evidences is not conventional "conspiracy", but rather much more significant - entrenched "dysfunction" due to long term laxly regulated metals "leasing" run amok.

Assume all this vast pile of "silver" longs sold in August represents hedge fund liquidation, all streaming through two money center banks. This is the MISH thesis. These two Banks were and are only conduits for hedge long liquidation. Anyone concluding this invalidates "collusions" misses the larger point. The quite obvious larger point is that all this silver they "sold" for the hedgies is 90%+++ "paper silver". In monthly sales volume, this quite remarkable dump represented 40++ times the monthly recent average real silver investment consumption worldwide, all disgorged into the silver market in a 30 day period, and this event provided little if any discernible physical silver stock liquidity to that silver bullion market, which has instead locked up with supply problems.

This is where Mish becomes a little disingenuous, and begins to mangle his positions. He's refuting "manipulation" by claiming it's "self evident" here that it's instead "free market action" at work. Nice, black and white lesson for the chalkboard. Like a morality play, which shows up muddle headed conspiracists for the doddering fools they must be. He intentionally or unintentionally, omits mentioning, that there is a large and quite evidently dysfunctional mismatch of deliverable bullion available to the market vs. volume of contracts being liquidated. Of course this is common knowledge. What is striking is his omission of this "large grey area" within his agenda driven argument. His conclusion and Nadler's then leads them to broadly hint (so the morality play about muddle headed conspiracists can have a nice crisp conclusion), that the "free market" is at work here, while in fact it is a very distorted example of markets in action which is visible here, due to this oversize pile of liquidated silver contracts not producing much of any corresponding silver bullion liquidity.

This is the real "conspiracy" point - the product these hedge funds have disgorged is the direct SYMPTOM OF GOLD and SILVER LEASING having become DYSFUNCTIONAL. The "manipulation" is not in the sale of these silver futures, or banks actively bludgeoning the silver price down although there may be a component of that - the much broader and more systemic (real) manipulation is inherent in the very existence of this many silver futures unbacked by readily liquidatable silver to correspond to all those contracts to begin with.

That is the much broader and more interesting point of Veneroso's article above. "Manipulation" = uncontrolled, runaway and unregulated metals "leasing". It is a market phenomenon, but it speaks of an even larger market distortion at work. It is a spontaneous commercial phenomenon, which eventually grows enough to become dysfunctional and highly distorting, with a trapped set of parties at one end of the market distortion. Those trapped parties are by definition the original lessee's of silver and gold.

Lessee's do not have good chances of getting that leased silver (or gold) back because of the very large disparity between liquidating futures contracts and the greatly reduced or non existent volume of corresponding real silver to that volume of contracts, as we have just witnessed. It is a thoroughly accepted fact that paper silver trading represents close to 100 times the volume of deliverable silver in the markets. This is it's manifest market dysfunction in full display. Massive disgorging of contracts = zero noticeable increment of real silver coming to to market. He who has let the original commodity go is now permanently dangling on the string.

This Augusts's gargantuan market-distorted paper bullion selloff tells the tale. Mish's great "conspiracy debunk" wishes to illustrate like a beautifully coherent allegory celebrating "market realism", that these bullion markets were obeying "natural market laws" while they in fact were obeying market distortion laws (metals mis-pricing already, both up AND down, due to runaway and stealthy metals "leasing" and resultant uncontrolled proliferation of paper metal volumes a hundred times larger than available metal). So in true agenda-driven fashion, Mish coyly omits mention of the larger, deeper and more interesting systemic point entirely, in hot pursuit of a cookie cutter story that more clearly matches the thesis he had adopted beforehand and was merely seeking to validate. The curiosity driven agnostic process of discovery is nowhere to be found in his method.

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J. Hommel, commenting on August silver sales and debacle.

"A short position of 33,805 contracts is a big number. It represents 169,025,000 ounces of silver. That is a net short position by two U.S. banks of 5,257 tonnes on silver worth about $2.7 billion at $16.00 the ounce."

$2.7 billion worth of "silver sold" has important implications, as even more 7th Grade Math will show.

The CPM Group has estimated that out of the 550 million ounces of silver produce by the mines, only about 60 million ounces are purchased by investors annually; the rest, and more (from recycling and government selling) goes to industry, jewelry, and photography.

The 60 million ounces purchased by investors, at an average of $13/oz., as 7th Grade Math shows, is $780 million dollars, or less than $1 billion.

Interesting. Let's use more 7th Grade Math to compare those two numbers. $2.7 billion divided by $.78 billion = 3.46.

See, two U.S. banks sold 3.46 times as much silver in a month, as investors worldwide, bought in an entire year.

Doing more math, we can divide annnual investor demand by 12 months, to see what investors buy in a typical month.

$.78 billion / 12 = $.065 billion, or $65 million.

Doing more math, we can compare what the two big banks sold in a month, to what investors buy in a month.

$2.7 billion / $.065 billion = 41.53

Wow. In one month, the banks sold 41.53 times as much silver promises as investors buy silver. No wonder the price went down.

... ... ...

If two banks sold that much silver, then where is it? Who has it? Why isn't it for sale?

Oh, that's right, they didn't sell silver. They sold paper promises to deliver silver, to gamblers who never take any chips off the table. See, that's what even a 7th Grader can know if they do the basic math.

Jay
08-31-08, 10:28 PM
I think there is manipulation but really I don't care because I'm holding for the long term and manipulation is a short term tool, isn't it? The long term economic forces will eventually rule. Please correct me if this isn't necessarily true. How long can the manipulators hold on? Bought silver on the dip and will buy more if it falls farther.

Contemptuous
08-31-08, 10:38 PM
Jay - Manipulation seems far more likely to be a gift, not a curse, with the 5-10 year time horizon in mind. The secular shift of wealth to Asia is obviously in progress and is obviously tectonic, and given the evident state of the US, does not proceed without secular scale monetary disruptions. If that reasoning is sound, then we just ride the resulting monetary disruption. It's a very large trend with room to run, and the emergence of unsustainable leasing as argued by Veneroso is programmed to shut itself down by it's very nature. Unsustainable.

Jay
08-31-08, 10:51 PM
Jay - Manipulation seems far more likely to be a gift, not a curse, with the 5-10 year time horizon in mind. The secular shift of wealth to Asia is obviously in progress and is obviously tectonic, and given the evident state of the US, does not proceed without secular scale monetary disruptions. If that reasoning is sound, then we just ride the resulting monetary disruption. It's a very large trend with room to run, and the emergence of unsustainable leasing as argued by Veneroso is programmed to shut itself down by it's very nature. Unsustainable.
Then, may I ask, why were you so freaked by the recent drop in PM prices?

Contemptuous
08-31-08, 11:32 PM
Jay -

Metalman seemed confused about that too, expecting that everyone here has to only post viewpoints with which they agree. I figure it's interesting to post viewpoints that are expressly contrary to one's own views regularly to challenge one's own viewpoint and throw around any ideas that seem to have robust arguments, but that seems to sow confusion as people think, "why don't you just post whatever you actually believe in"?

As far as Veneroso and this manipulation question however I do believe that the entire pricing of the PM's is under distortion. The weird anomalous effects we are noting between plunging prices and availability at the retail level, despite all the glib disclaimers that it's nothing but retail bottlenecks, hints broadly at market price dysfunction. The "market price" is screwed up, the systematic, accumulated leasing and it's corrolaries are a big deal, and we need to think very carefully before dismissing people like Jim Sinclair on this.

Jim Sinclair "knows gold". That is what he does. It's his entire business. He and Frank Veneroso have been around this block a lot of times. Old dogs. Wise dogs.

Jim Nickerson
09-01-08, 01:18 AM
Jay, that Lukester is hard to pin down sometimes. I thought his answer to your question above was an excellent example of evasiness.

It seems to me that when gold was going up, up, up, there was never any commentary about manipulation of anything being the cause. It was all inflation, inflation, inflation, ad infinitum.

Now gold has gone down some and it's manipulation. Why not disinflation or deflation?

I think the most pertinent post concerning this issue was by Finster on 8/23/08 copied into here for those who may have missed it.


You probably have a better handle on that than I do! It is noteworthy, though, that the recent advance in the conventional forex-based dollar index has been "confirmed" by the FDI. In other words, it is real, not merely an artifact of other currencies declining.

http://users.zoominternet.net/~fwuthering/FFF/FinsterFinancialForecast.htm

http://users.zoominternet.net/~fwuthering/FFF/FDIW.png

Then bart asked if the graph above was not showing disinflation?

To which Finster responded:


The hard stuff, El Bartos. De-freaking-flation!

Remember that unlike most 'flation guages, the FDI is sensitive to short-term movements. Technically disinflation would show as a shallower slope of decline, an outright rise is always deflation. Only if a rise were to persist at a high rate and/or for a substantial period of time (e.g. as in 2000-2002) would conventional measures begin to register deflation.

Keep in mind the FDI only registers what has already happened (even if it is more timely than conventional price inflation guages). Whether and to what extent the trend may continue might be better guided by your monetary indicators ... Emphasis JN

Now Finster has been around here a fairly long time and my assessment of him is he is not given to bullshit or a lot of misadventure when it comes to speculating (plus he may never actually use cuss-words), so when he writes the FDI is showing "De-freaking-flation," personally I think it would be wise to screw all this bickering crap of manipulation of the price of gold and pay attention to the FDI. Caveat: it may be that only Finster and I pay any on-going attention to the FDI, and I am not positive about him, but I am about myself.

Contemptuous
09-01-08, 01:36 AM
Jim -

Your world is too polarised and simplistic. The two events are by no means mutually exclusive. Actually I also think Finster is spot on - and I don't say this to pre-empt you in some rhetorical game.

Finster is right - we may well be heading into a deflationary interlude and the USD is showing extraordinary strength "within the paradox that it should not be". And that brings me to my point in your regard. You are looking for "consistency of viewpoint", where you score consistency in terms of how few points in contradiction to one another a poster may endorse. I embrace contradictions. I see people like you (and Metalman expressed the same "concerns"), who prefer to think along straight lines such as "get off the fence and tell me which way it's gonna be, so I can plunk down my appropriate investments, already!".

To post some long comments on someone like Veneroso, who points out dysfunction in the leasing of precious metals and then on other posts to posit a deflationary interlude when the USD actually has a good shot at breaking out - these things are NOT contradictory - what they are Jim, is COMPLEX. That means the currents can interact, cross each other in mid-stream, and leave you flummoxed as to the "clear actionable conclusion. Where I differ from you in how I view these pages, is that I don't see them as a place whose primary function is to "deliver clear actionable calls for investment". That is a straightjacketed, blinkered way to use this vehicle. It is like driving a Lamborghini to the corner grocery store to buy a gallon of milk. These pages are a place where all the ideas with some validity are to be examined.

The hallmark of an agnostic examiner is that he does not have an "investment agenda" guiding the "theories" that he puts forward. He will put forward ideas that can be entirely contradictory, and both could be true.

Too tough to grasp for U??


Jay, that Lukester is hard to pin down sometimes ... excellent example of evasiness.... Now Finster has been around here a fairly long time ... so when he writes the FDI is showing "De-freaking-flation," ... I think it would be wise to screw all this bickering crap of manipulation ... and pay attention to the FDI.

jk
09-01-08, 02:16 AM
one complication here, jim, is that finster has never been willing to discuss the composition of the fdi. it may even be that the lower gold price is an fdi input, which would make your argument circular.

Contemptuous
09-01-08, 03:07 AM
Jim -

FWIW, Finster's post here sounded spot on to me. I think your question to him on the dollar trend and his reply actually answered something i've been dwelling on as well. Sounds about right! But the stuff Veneroso's writing about has been developing for a decade or more. It's not simply going to vanish. It will keep percolating in the background.

Now have a cold beer and relax mate.


It has been stunningly sharp, Jim. Best guess on why would simply be that the trend had just overshot way too far and once it broke, was like a crack in a dam.

The FDI itself does not tell us how much further the deflationary trend will continue. Nevertheless, based on both fundamental conditions and Elliott Wave considerations, some speculation is possible. I expect a small "B Wave" retracement just about any time now, followed by another deflationary wave of substantial magnitude. The latter, due to the magnitude of the debt (short position in dollars) extant, along with the already-extended nature of monetary policy tools. This will last perhaps some months. Then I expect another round of severe inflation.

The B wave retracement should manifest itself in financial markets as a rally in commodity prices, stock prices, or both. Then they will fall. As a lagging indicator, I expect the CPI to moderate substantially over the next year. As the concern of policymakers turns again towards deflation and economic weakness, however, I expect a renewed full-court press, probably accompanied by further "innovative tools" from the Fed.

Notably, I expect as the US Treasury begins to absorb credit losses from such failing institutions as Feddie (Fannie and Freddie), the credit quality of US Treasury paper itself will deteriorate. Since the default mode of such soveregn debt is usually inflation, that would likely be accompanied by stepped-up monetization of Treasury debt, leading to either a renewed decline in the dollar, sharply rising interest rates, or both.

Jim Nickerson
09-01-08, 10:08 AM
one complication here, jim, is that finster has never been willing to discuss the composition of the fdi. it may even be that the lower gold price is an fdi input, which would make your argument circular.

Luke, I always love it when you explain to me how I am thinking. Almost no one else has that presumed capability.

jk, what you wrote may be true, and I recognize the lack of knowledge all of us have about what constitutes the FDI. Nevertheless, for the moment I personally am sticking with what the FDI is indicating, but even more importantly what I have tried to do with my own positions in PM's has been to pay attention to what their price actions have been doing, which in that attempt has resulted in my lessening my exposures.

FRED
09-01-08, 12:53 PM
Jay, that Lukester is hard to pin down sometimes. I thought his answer to your question above was an excellent example of evasiness.

It seems to me that when gold was going up, up, up, there was never any commentary about manipulation of anything being the cause. It was all inflation, inflation, inflation, ad infinitum.

Now gold has gone down some and it's manipulation. Why not disinflation or deflation?

I think the most pertinent post concerning this issue was by Finster on 8/23/08 copied into here for those who may have missed it.



Then bart asked if the graph above was not showing disinflation?

To which Finster responded:

Emphasis JN

Now Finster has been around here a fairly long time and my assessment of him is he is not given to bullshit or a lot of misadventure when it comes to speculating (plus he may never actually use cuss-words), so when he writes the FDI is showing "De-freaking-flation," personally I think it would be wise to screw all this bickering crap of manipulation of the price of gold and pay attention to the FDI. Caveat: it may be that only Finster and I pay any on-going attention to the FDI, and I am not positive about him, but I am about myself.

EJ writes in:


Great holiday discussion. First, a couple of definitions:

Deflation: Negative rate of inflation (e.g., -2%)

Dis-inflation: Declining rate of inflation (e.g., from 3.5% to 2.1%)

Dis-inflation in iTulip parlance is "Ka" of the "Ka-Poom" inflation/disinflation cycle.

Perhaps Finster's FDI is indicating that the US has entered a "Ka" disinflation period, and he interprets the FDI to indicate that disinflation may continue until actual deflation occurs. I don't believe is claiming that the US is currently experiencing a negative inflation rate.

On his site Finster says (http://users.zoominternet.net/%7Efwuthering/FFF/FinsterDollarIndex): "The FDI therefore is designed to be a broad measure of the value of the US dollar somewhat analogous to a reciprocal of the CPI in that it tends to capture long term changes in the value of the dollar against real things, but takes into account the full scope of global commerce. It is analogous to the US Dollar index in that it provides a series explicit in the value of the dollar, but measures it against real goods, services, capital, and labor, rather than currencies which themselves fluctuate and decline in value."

When attempting to correlate the money supply and currency values with inflation it is critical to take output into account. Many charts we see that measure CPI against M3, for example, show correlation but then jump to the erroneous conclusion of short term causation. They are ignoring the "jockey on the horse," that is, the actions of central banks to maintain that correlation. This leads to a lot of circular reasoning.

The main point of confusion I see in many discussions of the money supply and inflation is there are not two but four important variables that relate inflation to the money supply:


Supply of money
Demand for money
Supply of goods
Demand for goods

There are two ways that inflation occurs:


The supply of money increases relative to the supply of goods
The supply of money increases relative to the demand for money

When both occur at the same time, rapid inflation results. At times when only one occurs, more gradual inflation results. In the event that money supply is increasing relative to goods but is falling relative to demand, the inflationary and deflationary impacts can cancel each other out, at least for a period of time. However, longer term the first factor effects the second, and the second the first. A monetary policy response to falling output and a rising demand for money is to increase in the supply of money. If they do not, disinflation occurs.
The Fed cannot cause output to rise or fall directly, but can by affecting changes in short term interest rates cause the money supply to rise or fall in relation to expected of future demand for money, of which expected future output is a variable.

Recessions are periods of declining output. Recessions are associated with disinflation but do not necessarily cause disinflation. The Fed has since the early 1980s used the opportunity of declining output as a tool to manage inflation by failing to meet the increased demand for money that is caused by recession and the attendant decline in output. What appears to be causation – recession causes disinflation – is in fact the result of the policy of a central bank to use recession to cause disinflation. So far the Fed has responded to the current recession by meeting the increased demand for money, so that the US has experienced a decline in real output but not nominal output; as this week's Barron's points out, adjusted for inflation, the US is in recession but grew, nominally, by over 3% in Q2.

With respect to the currency exchange rate, there are times when the exchange rate value of a currency is highly correlated to inflation and periods when it is not.

By raising interest rates to protect the yen during the first year of debt deflation (asset price deflation) in 1990, by intentionally failing to meet the rising demand for money two years later the Bank of Japan lost control of inflation, with inflation falling below zero in 1993.


http://www.itulip.com/images/JapanDeflation.gif


Subsequently, the Japanese economy has experienced periods of inflation, disinflation, and outright deflation that at times was correlated to the exchange rate value of the yen and at at other times to other factors. The Fed determined long before the US debt deflation started to not make this error; instead of raising interest rates the Fed kept rates low and has allowed the dollar to decline, both to blunt the deflationary impact of debt deflation and boost exports. The Fed hopes that by only partially meeting the demand for money caused by falling demand and output, that inflation caused by rising input costs, especially energy, will abate without an Japan 1990s style increase rates increases. In any case, as the US is a debtor not a creditor, such increases are not feasible. So the strategy had better work. They are also hoping that recession outside the US will increase demand for dollars, slowing the week dollar as a source of inflation; the FDI may be indicating this part of the program is working.


http://www.itulip.com/images/japanflations1986-2008.gif



The moral of the story: A one size fits all measure of future inflation such as the FDI is desirable but ultimately impractical because different factors determine inflation over time and the actions of central banks cannot be forecast this way.

The major challenge facing me in making future forecasts is that political uncertainty is the most relevant variable in determining the outcome of the US debt deflation.

Major inflations experienced by indebted countries typically start off the way inflation has for the US, with the central bank making "live to fight another day" decisions, such as by allowing inflation to rise above stated target levels on the belief that inflation can be painlessly manged down later as recession creates a new opportunity to not meet the inevitable rise in the demand for money.

The wild card is this: will the conditions of debt deflation ever allow the Fed to not meet the demand for money as recession intensifies, and what impact will that have on the dollar and, in turn, on inflation? If the current Fed strategy doesn't work, then the US is faced with the secondary stage of a major inflation, when the purchasing power of tax revenues declines and the government is forced to print to meet obligations if it cannot borrow to meet those obligations. The US is vulnerable to secondary effect because so much of the operation of the Federal government is funded by foreign borrowing and of local governments by revenues from taxes based on rising asset prices.

Jim Nickerson
09-01-08, 01:33 PM
If what I read is correct, ole Richard Russell probably lost a few more good brain cells recently, but somehow he seems to have enough to keep putting forth his assessments. Here is one (http://www.investmentpostcards.com/2008/08/31/words-from-the-investment-wise-for-the-week-that-was-august-25-%e2%80%93-31-2008/#more-1990)put up by Prieur du Plessis this weekend.



Richard Russell (Dow Theory Letters): We’re heading for de-leveraging and deflation
“Brilliant Bloomberg columnist Caroline Baum probably knows the bond market better than anyone else I know. Caroline starts her current column as follows. ‘Inflation expectations are so weighted down that investors are buying 10-year Treasuries yielding 3.8% with inflation running at 5.6%. Federal Reserve policy makers couldn’t ask for a stronger mooring in the face of disappointing inflation news. A pair of reports on consumer and producer prices for July showing year-over-year increases of 5.6% and 9.8%, respectively, the fastest pace in 17 and 27 years, failed to rattle the US Treasury market.’

“What’s going on? ‘One school holds that bonds are mispriced. Buyers are either complacent or smoking something stronger than tobacco. Even if they are in full command of their faculties, they are choosing liquidity over yield.’

“Russell Comment – Bond people tend to be very sophisticated. I think they are thinking in terms of the great international de-leveraging that may be coming up. Or why would the 10-year T-notes be selling at a lousy 3.8% yield which is actually below the rate of inflation? Obviously, the bond crowd sees deflation ahead. And nobody else does. Maybe the stock market is just getting wind of it now!

“Remember, years ago I said that the big problem coming up would be INCOME. Everybody’s going to need income, and income will be hard to come by. I’m still of that same opinion. My dear subscribers – hunker down – there’s a hard rain a’comin’. We’re heading into de-leveraging and deflation, and nobody’s positioned for it.”

Source: Richard Russell, Dow Theory Letters (http://www.dowtheoryletters.com/), August 25, 2008.

bart
09-01-08, 06:13 PM
A shame. You might have taken it as an indication that it was commensurately worthwhile.

Thanks for the good thoughts. Maybe I'll bring it back someday but it has affected my health and attitudes, and also affects other ongoing research and education efforts. It wasn't an easy decision.



I think there is manipulation but really I don't care because I'm holding for the long term and manipulation is a short term tool, isn't it? The long term economic forces will eventually rule. Please correct me if this isn't necessarily true. How long can the manipulators hold on? Bought silver on the dip and will buy more if it falls farther.

Spot on in my opinion if one is a boy & hold investor. The only value to knowing about the intervantion specifics is to answer why some drops occur and to tip one off that it can be (but isn't always) a buying opportunity.



By the way Lukester, good pick up on the Veneroso data. :cool:

The bottom line is that there is way more than one factor that effects PM prices or for that matter any price. Money supply/inflation, sentiment & expectations & fear/greed, manipulation, TA, and supply & demand are a few key ones.

Could we see real deflation - of course. But I remain in the camp that believes if it happens (far from an assured scenario), that it will only be for a very short time period.





EJ writes in:


When attempting to correlate the money supply and currency values with inflation it is critical to take output into account. Many charts we see that measure CPI against M3, for example, show correlation but then jump to the erroneous conclusion of short term causation. They are ignoring the "jockey on the horse," that is, the actions of central banks to maintain that correlation. This leads to a lot of circular reasoning.



I've also seen more than a few folk mistake my chart showing 10 year moving averages on M2, M3 & CPI as meaning that the short term gyrations are directly translatable into more or less inflation on shorter terms. It just plain ain't so.

The main points of that chart are both to show *long* term trends and to also show that inflation as measured by a corrected CPI have an unmistakable relationship to money supply. There are many factors that have effects on future inflation and that chart only provides a very broad framework, much like the FDI does.

I do have some unpublished charts and work that do take output into account in various ways, but they're not ready for prime time.

Contemptuous
09-01-08, 06:30 PM
Thanks for the guidance here Bart. My totally whacked out "US dollar (and stock markets!) is gonna soar" bull pundit must be smoking some more of the hoochy. He sees another nasty swoon in the PM's upcoming, right at the end of this week. Possible fall of gold to "well below" $780 and silver (once again, I feel like retching) to $9.80

This is part of what prompted me to (finally) sign up and become a 'card carrying" iTuliper. I guess I needed that "cattle prod" jolt to wake up and smell the (lime green) coffee here! Kind of like trying to grab hold of the mast on the boat, in a force 8 gale. If iTulip is telling me "it ain't gonna break $780" then I'm accepting this advice gratefully. Meantime, we'll see whatever we see.

BTW, this "guru" is claiming we are staring at a multi year bull market in the dollar and a multi-year "outperformance" of the US stock markets over every other bourse in the world. It's madness. I gotta dump this guy by next Janury for sure - unless he's turning out to be right! :eek: :eek: :eek:

If he were right on that call, we'd be looking at a multi-year bear market for the PM's. Goes to show - there is nothing out there that can give one real peace of mind. Nothing. The markets are going to maul you and age you, any way you approach them.


Could we see real deflation - of course. But I remain in the camp that believes if it happens (far from an assured scenario), that it will only be for a very short time period.

bart
09-01-08, 08:48 PM
Thanks for the guidance here Bart.


My pleasure Lukester, but fair warning - I'm at least as uncertain and confused as EJ and probably more so. The cross currents and the legion of mixed signals are rougher to decipher than I've ever seen them.

My trades the last few months have been both less frequent and have used less leverage than at any time since I got back up to speed in 2005 or so. I won't exclude a break below $780 gold either, but temper that opinion with me being a short term trader too.

And congrats on signing up to be part of the in crowd as a subscriber and true cognoscenti... ;) ... there really is a difference in those areas.

Jim Nickerson
09-01-08, 09:10 PM
Thanks for the guidance here Bart. My totally whacked out "US dollar (and stock markets!) is gonna soar" bull pundit must be smoking some more of the hoochy. He sees another nasty swoon in the PM's upcoming, right at the end of this week. Possible fall of gold to "well below" $780 and silver (once again, I feel like retching) to $9.80

This is part of what prompted me to (finally) sign up and become a 'card carrying" iTuliper. I guess I needed that "cattle prod" jolt to wake up and smell the (lime green) coffee here! Kind of like trying to grab hold of the mast on the boat, in a force 8 gale. If iTulip is telling me "it ain't gonna break $780" then I'm accepting this advice gratefully. Meantime, we'll see whatever we see.

BTW, this "guru" is claiming we are staring at a multi year bull market in the dollar and a multi-year "outperformance" of the US stock markets over every other bourse in the world. It's madness. I gotta dump this guy by next Janury for sure - unless he's turning out to be right! :eek: :eek: :eek:

If he were right on that call, we'd be looking at a multi-year bear market for the PM's. Goes to show - there is nothing out there that can give one real peace of mind. Nothing. The markets are going to maul you and age you, any way you approach them.

Luke, are there two of you using the screen name of "Lukester" or is the one of you suffering some sort of a multi-personality disorder?

Why just the other day you advised poor olivegreen to:


Olivegreen -
.
.
Ignore the deflations, buy a really sensible portfolio rigged for inflation and just sit on it, like the supremely patient Horton the Elephant. And the best part is saved for last. You are thereby delivering yourself, from the constant, soul consuming and spirit-pinching angst of constantly rejiggering your positions to fend of these catastrophic end-of-time deflationary interludes. What you do with the rest of your life is far more valuable that what you do with your investments.

And it just so happens that this is the era's hidden great gift to us, among all the other miseries it doubtless will also deliver - the simplicity of the remedy will allow us to get on with the rest of our lives. The investments for the next 10-15 years are really simple. Rig for inflation, and forget about it.


Are these not inconsistencies in your thinking and advice, or does the problem lie with my failing to understand what you are writing?

"Now have a cold beer and relax, mate," before you set about to reconcile this dichotomy.

Contemptuous
09-01-08, 10:45 PM
Here Jim -

This is for Olivegreen. Here's some "boosterism" for that flagging and increasingly threadbare "long term investments rigged for inflation" idea (from an iTulip contributor that "keeps contradicting himself") I think you've read a little of this guy's work too? I may not make any sense, but that David Bensimon character sure seems to have some lucid ideas as to where this is all headed, eh? ;)

INTERVIEW WITH BENSIMON OF POLAR PACIFIC (http://commoditywatch.podbean.com/medias/web/aHR0cDovL21lZGlhMS5wb2RiZWFuLmNvbS8yNTE2L3UvbW9yZ2 FuYmVuc2ltb25idWJiLm1wMw/morganbensimonbubb.mp3) (great holiday weekend listening!)

[ where are those wayward and frisky metals going to go eventually, hm? ]

metalman
09-02-08, 07:20 AM
Here Jim -

This is for Olivegreen. Here's some "boosterism" for that flagging and increasingly threadbare "long term investments rigged for inflation" idea (from an iTulip contributor that "keeps contradicting himself") I think you've read a little of this guy's work too? I may not make any sense, but that David Bensimon character sure seems to have some lucid ideas as to where this is all headed, eh? ;)

INTERVIEW WITH BENSIMON OF POLAR PACIFIC (http://commoditywatch.podbean.com/medias/web/aHR0cDovL21lZGlhMS5wb2RiZWFuLmNvbS8yNTE2L3UvbW9yZ2 FuYmVuc2ltb25idWJiLm1wMw/morganbensimonbubb.mp3) (great holiday weekend listening!)

[ where are those wayward and frisky metals going to go eventually, hm? ]

i'm attached to my gold, too... not looking forward to the day i'll need to sell it but surely that day will come.

Jay
09-02-08, 10:12 AM
Could we see real deflation - of course. But I remain in the camp that believes if it happens (far from an assured scenario), that it will only be for a very short time period.

I was under the impression that, at least from EJ's point of view, that once you hit a zero bound mark and get into outright deflation, that it is self-reinforcing and difficult to pull out of, like a plane in a flat spin and that Bernanke would do everything he could to keep this from happening. Dis-inflation yes, deflation, no. Do I understand this right? And if so, how much of a possibility do you see in the deflation senario?

metalman
09-02-08, 10:27 AM
I was under the impression that, at least from EJ's point of view, that once you hit a zero bound mark and get into outright deflation, that it is self-reinforcing and difficult to pull out of, like a plane in a flat spin and that Bernanke would do everything he could to keep this from happening. Dis-inflation yes, deflation, no. Do I understand this right? And if so, how much of a possibility do you see in the deflation senario?

google 'disinflation then lots of inflation (http://www.google.com/search?hl=en&q=disinflation+then+lots+of+inflation&btnG=Search)'

years ago itulip said the fed and treasury will not sit on their hands and watch inflation fall to zero... are committed to reflation... and that is EXACTLY what happened... contrary to the deflationist theory that they 'can't' or 'won't' do anything.

events have totally discredited the deflation theory. if anything, itulip did not go far enough. but markets still don't get it... they think deflation is coming.

richard russell says watch out for deflation... again. here's russell exactly 4 yrs ago...


August 28, 2004 -- I've been focusing on the movements of the commodities. They all appear to be under pressure. Declining tops, declining tops everywhere in commodities. At the same time the dollar is actually turning strong. And the bonds continue to creep higher. What is all this telling us? It's telling us that the Fed, despite its frantic money creation and low interest rates, is failing to hold back the forces of deflation.

Yes, it's incredible but with twin US deficits adding up to a trillion dollars a year, the forces of deflation are active and more powerful than the actions of the Fed -- more powerful than the action of all the central banks taken together.

The simple, basic fact is that there's too much supply in the global market, and not enough demand. That is the classic recipe for price deflation.

The picture is changing very slowly, very subtly, unnoticed by most analysts. But I'm convinced that Greenspan is well aware of what's happening.. Greenspan has studied the Japanese situation carefully, and Greenspan knows that the great unseen monster of deflation is still very much alive. I also believe Greenspan has told George Bush about the specter of deflation, and for this reason you will see Bush avoid any talk about the enormous budget deficits.

The truth, the unspoken truth, is that Bush wants deficits. Bush needs deficits to fight the forces of deflation. The easiest way to produce huge deficits is via defense spending. You can spend your bloody head off in defense and who can complain? Who dares complain, particularly with the nation in constant danger from terrorists?

So watch for a coming huge build-up in government deficits -- most of it stemming from defense spending. Furthermore, Bush will constantly harp on the terrorist danger. This will allow him to spend and spend more on defense -- with any objectors branded as being anti-patriotic and close to treasonous.

Kerry doesn't see or understand the situation. Nobody's told Kerry about the danger of deflation. Few people know about it. Kerry's talking about cutting the deficits. This is the path to economic disaster, as counter-intuitive as that seems. Subscribers who have no idea of what I'm talking should read Richard Koo's brilliant book, Balance Sheet Recession.

I now believe Kerry will lose the election. He'll lose because he doesn't see the picture, and therefore he'll be talking the wrong talk. And advocating a policy of walking the wrong walk.

The major problem entails the underlying forces of deflation. It's the deflationary background, I believe, that is holding gold and silver back. Forget manipulation -- the precious metals sense deflation. how many times do these guys have to be WRONG before people stop listening to them? :eek:

bart
09-02-08, 10:39 AM
I was under the impression that, at least from EJ's point of view, that once you hit a zero bound mark and get into outright deflation, that it is self-reinforcing and difficult to pull out of, like a plane in a flat spin and that Bernanke would do everything he could to keep this from happening. Dis-inflation yes, deflation, no. Do I understand this right? And if so, how much of a possibility do you see in the deflation senario?

I don't want to put words in EJ's mouth, but yes - that's my understanding. I also agree with it (or you could also say that EJ agrees with me ;) ).

I currently give the significant deflation scenario no more than a 10-15% probability. You can refer to the That '70s connection (http://www.itulip.com/forums/showthread.php?t=4399) thread to see the charts and rhyming aspect with the '70s that's my preferred framework or scenario.

metalman
09-02-08, 10:51 AM
(or you could also say that EJ agrees with me ;) ).

in your dreams. :D ka-poom theory... disinflation/inflation... is 8 yrs old that i know of.

bart
09-02-08, 11:00 AM
in your dreams. :D ka-poom theory... disinflation/inflation... is 8 yrs old that i know of.

Truth - EJ was way ahead of me in predicting it, especially in public.

bill
09-02-08, 11:28 AM
Coordinated effort of liquidity by CB when needed,,,,no deflation

BIS Quarterly Review, September 2008
1 September 2008

http://www.bis.org/publ/qtrpdf/r_qt0809.htm

<TABLE><TBODY><TR><TD colSpan=2>Recent initiatives


</TD></TR><TR><TD></TD><TD>Recent initiatives by the Basel-based committees and groups


</TD></TR><TR><TD></TD><TD>Full text (http://www.bis.org/publ/qtrpdf/r_qt0809j.pdf) (PDF, 10 pages, 89 kb)




Central bank operations in response to the financial market turmoil
examines how central banks have adapted their liquidity operations (the
provision of central bank money to eligible financial institutions) in response to
the money market tensions that emerged during the turbulence. The report was
prepared by a study group convened by the CGFS in cooperation with the
Markets Committee. It discusses the various measures taken by central
banks,8 assesses the outcome of these measures and sets out a number of
recommendations for central bank liquidity operations.
.
.

The report was drafted during a time when central banks were closely
monitoring market developments and, more or less simultaneously, needed to
respond to the evolving challenges. Some of the specific recommendations
discussed by the study group had already been implemented during the
drafting period. Beyond this report, which reflects the study group’s experience
and assessment only up to end-April 2008, central banks will continue to draw
lessons from the turmoil and to examine how their liquidity operations can be
made more effective. In particular, central banks are further exploring the steps
they might take to facilitate mobilising liquidity across national borders.



</TD></TR></TBODY></TABLE>

jtabeb
09-02-08, 12:16 PM
Facinating, the spot price of silver IS $1.00 lower than when I purchased two weeks ago, YET.....

The physical product price is $1.00 HIGHER!

HIGHER Physical price with a lower spot price (Right NOW)
vs
LOWER Physical price with HIGHER SPOT price (two weeks ago)

Hmmmmm.

Thoughts?


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<FORM name=addToCartForm onsubmit="return validateAddToCartForm(this);" action=/catalog/addToCart.do method=post><TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR><TD class=tableButtons noWrap align=middle width="100%" colSpan=4><INPUT class=formButton onmouseover="style.backgroundColor='#8A8A8A';" style="BACKGROUND-COLOR: #336699" onmouseout="style.backgroundColor='#336699'" type=submit value=" Add Below Qty to Cart "> <INPUT class=formButton onmouseover="style.backgroundColor='#8A8A8A';" onmouseout="style.backgroundColor='#336699'" type=submit value=" Estimate Cost ">http://www.bulliondirect.com/images/site/spacer.gif </TD></TR></TBODY></TABLE><TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR><TD class=HeaderTitle noWrap align=left colSpan=4>Bullion: Silver </TD></TR></TBODY></TABLE><TABLE class="" id=part cellSpacing=0 cellPadding=2 width="100%" border=0><THEAD><TR><TH class=tableLabels align=left>Qty</TH><TH class="order1 tableLabels sortable sorted" align=left>Symbol (http://www.bulliondirect.com/catalog/selectProducts.do?d-49553-p=1&category=1&cat=Bullion_Silver&d-49553-s=1&d-49553-o=1)</TH><TH class=tableLabels align=left>Description</TH><TH class="tableLabels sortable" align=right>Price ea. (http://www.bulliondirect.com/catalog/selectProducts.do?d-49553-p=1&category=1&cat=Bullion_Silver&d-49553-s=3&d-49553-o=2)</TH></TR></THEAD><TBODY><TR class=odd><TD noWrap align=left><INPUT type=hidden value=344877067 name=productKey[0]> <INPUT maxLength=5 size=5 value=0 name=quantity[0]> </TD><TD noWrap align=left>SIAE001:D (http://www.bulliondirect.com/catalog/lp/American_Eagle_Silver_Coin_Delayed_(1.00_oz).html)</TD><TD align=left>American Eagle Silver Coin - Delayed (1.00 oz.) (http://www.bulliondirect.com/catalog/lp/American_Eagle_Silver_Coin_Delayed_(1.00_oz).html)</TD><TD noWrap align=right>$15.77</TD></TR><TR class=even><TD noWrap align=left><INPUT type=hidden value=647768532 name=productKey[1]> <INPUT maxLength=5 size=5 value=0 name=quantity[1]> </TD><TD noWrap align=left>SIAE500:D (http://www.bulliondirect.com/catalog/lp/Am_Eagle_Silver_Coins_Mint_Sealed_Crate_Delayed_(5 00.00_oz).html)</TD><TD align=left>Am. Eagle Silver Coins -Mint Sealed Crate - Delayed (500.00 oz.) (http://www.bulliondirect.com/catalog/lp/Am_Eagle_Silver_Coins_Mint_Sealed_Crate_Delayed_(5 00.00_oz).html)</TD><TD noWrap align=right>$7,985.00</TD></TR><TR class=odd><TD noWrap align=left><INPUT type=hidden value=592419889 name=productKey[2]> <INPUT maxLength=5 size=5 value=0 name=quantity[2]> </TD><TD noWrap align=left>SIAP001 (http://www.bulliondirect.com/catalog/lp/Austrian_Silver_Philharmonic_Coin_(1.00_oz).html)</TD><TD align=left>Austrian Silver Philharmonic Coin (1.00 oz.) (http://www.bulliondirect.com/catalog/lp/Austrian_Silver_Philharmonic_Coin_(1.00_oz).html)</TD><TD noWrap align=right>$15.02</TD></TR><TR class=even><TD noWrap align=left><INPUT type=hidden value=105708524 name=productKey[3]> <INPUT maxLength=5 size=5 value=0 name=quantity[3]> </TD><TD noWrap align=left>SIB999:0001 (http://www.bulliondirect.com/catalog/lp/Silver_Bullion_999pure_Bars_Rounds_(1.00_oz).html)</TD><TD align=left>Silver - Bullion .999pure[Bars/Rounds] (1.00 oz.) (http://www.bulliondirect.com/catalog/lp/Silver_Bullion_999pure_Bars_Rounds_(1.00_oz).html)</TD><TD noWrap align=right>$14.42</TD></TR><TR class=odd><TD noWrap align=left><INPUT type=hidden value=976422898 name=productKey[4]> <INPUT maxLength=5 size=5 value=0 name=quantity[4]> </TD><TD noWrap align=left>SIB999:0100 (http://www.bulliondirect.com/catalog/lp/Silver_Bullion999pure_Bars_(100.00_oz).html)</TD><TD align=left>Silver - Bullion.999pure[Bars]- (100.00 oz.) (http://www.bulliondirect.com/catalog/lp/Silver_Bullion999pure_Bars_(100.00_oz).html)</TD><TD noWrap align=right>$1,372.00</TD></TR><TR class=even><TD noWrap align=left><INPUT type=hidden value=651448673 name=productKey[5]> <INPUT maxLength=5 size=5 value=0 name=quantity[5]> </TD><TD noWrap align=left>SIB999:0100:OPM (http://www.bulliondirect.com/catalog/lp/Silver_Bullion999pure_Bars_Ohio_Precious_Metals_10 0_oz_(100.00_oz).html)</TD><TD align=left>Silver - Bullion.999pure[Bars]- Ohio Precious Metals 100 oz. (100.00 oz.) (http://www.bulliondirect.com/catalog/lp/Silver_Bullion999pure_Bars_Ohio_Precious_Metals_10 0_oz_(100.00_oz).html)</TD><TD noWrap align=right>$1,377.00</TD></TR><TR class=odd><TD noWrap align=left><INPUT type=hidden value=202543186 name=productKey[6]> <INPUT maxLength=5 size=5 value=0 name=quantity[6]> </TD><TD noWrap align=left>SICM001 (http://www.bulliondirect.com/catalog/lp/Canadian_Maple_Leaf_Silver_Coin_(1.00_oz).html)</TD><TD align=left>Canadian Maple Leaf Silver Coin (1.00 oz.) (http://www.bulliondirect.com/catalog/lp/Canadian_Maple_Leaf_Silver_Coin_(1.00_oz).html)</TD><TD noWrap align=right>$15.52</TD></TR><TR class=even><TD noWrap align=left><INPUT type=hidden value=573902101 name=productKey[7]> <INPUT maxLength=5 size=5 value=0 name=quantity[7]> </TD><TD noWrap align=left>SICM001:2008 (http://www.bulliondirect.com/catalog/lp/Canadian_Maple_Leaf_Silver_Coin_2008_(1.00_oz).htm l)</TD><TD align=left>Canadian Maple Leaf Silver Coin *2008* (1.00 oz.) (http://www.bulliondirect.com/catalog/lp/Canadian_Maple_Leaf_Silver_Coin_2008_(1.00_oz).htm l)</TD><TD noWrap align=right>$15.52</TD></TR><TR class=odd><TD noWrap align=left><INPUT type=hidden value=553958691 name=productKey[8]> <INPUT maxLength=5 size=5 value=0 name=quantity[8]> </TD><TD noWrap align=left>SICM500:2008 (http://www.bulliondirect.com/catalog/lp/Canadian_Maple_Silver_Coins_2008_Mint_Sealed_Crate _(500.00_oz).html)</TD><TD align=left>Canadian Maple Silver Coins *2008* -Mint Sealed Crate (500.00 oz.) (http://www.bulliondirect.com/catalog/lp/Canadian_Maple_Silver_Coins_2008_Mint_Sealed_Crate _(500.00_oz).html)</TD><TD noWrap align=right>$7,760.00</TD></TR><TR class=even><TD noWrap align=left><INPUT type=hidden value=294946845 name=productKey[9]> <INPUT maxLength=5 size=5 value=0 name=quantity[9]> </TD><TD noWrap align=left>SIUS40%:$10 (http://www.bulliondirect.com/catalog/lp/US_40_Silver_Coins_$10_Face_(196569)_(2.95_oz).htm l)</TD><TD align=left>US*40%* Silver Coins $10 Face (1965-69) (2.95 oz.) (http://www.bulliondirect.com/catalog/lp/US_40_Silver_Coins_$10_Face_(196569)_(2.95_oz).htm l)</TD><TD noWrap align=right>$39.67</TD></TR><TR class=odd><TD noWrap align=left><INPUT type=hidden value=294941237 name=productKey[10]> <INPUT maxLength=5 size=5 value=0 name=quantity[10]> </TD><TD noWrap align=left>SIUS40%:$100 (http://www.bulliondirect.com/catalog/lp/US_40_Silver_Coins_$100_Face_(196569)_(29.50_oz).h tml)</TD><TD align=left>US*40%* Silver Coins $100 Face (1965-69) (29.50 oz.) (http://www.bulliondirect.com/catalog/lp/US_40_Silver_Coins_$100_Face_(196569)_(29.50_oz).h tml)</TD><TD noWrap align=right>$361.72</TD></TR></TBODY></TABLE><TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><INPUT type=hidden value=1 name=category> <TBODY><TR><TD class=tableButtons noWrap align=middle width="100%" colSpan=4><INPUT class=formButton onmouseover="style.backgroundColor='#8A8A8A';" onmouseout="style.backgroundColor='#336699'" type=submit value=" Add Above Qty to Cart "> <INPUT class=formButton onmouseover="style.backgroundColor='#8A8A8A';" onmouseout="style.backgroundColor='#336699'" type=submit value=" Estimate Cost ">http://www.bulliondirect.com/images/site/spacer.gif </TD></TR></TBODY></TABLE></FORM><SCRIPT language=Javascript1.1 type=text/javascript> <!-- Begin var bCancel = false; function validateAddToCartForm(form) { if (bCancel) { return true; } else { var formValidationResult; formValidationResult = validateRequired(form) && validateInteger(form); return (formValidationResult); } } function addToCartForm_required () { this.a0 = new Array("category", "category is required.", new Function ("varName", " return this[varName];")); } function addToCartForm_IntegerValidations () { this.a0 = new Array("category", "category must be an integer.", new Function ("varName", " return this[varName];")); } /*$RCSfile: validateMinLength.js,v $ $Rev: 376673 $ $Date: 2006-02-10 13:42:31 +0000 (Fri, 10 Feb 2006) $ */ /** * A field is considered valid if greater than the specified minimum. * Fields are not checked if they are disabled. * * Caution: Using <code>validateMinLength</code> on a password field in a * login page gives unnecessary information away to hackers. While it only slightly * weakens security, we suggest using it only when modifying a password.
* @param form The form validation is taking place on. */ function validateMinLength(form) { var isValid = true; var focusField = null; var i = 0; var fields = new Array(); var oMinLength = eval('new ' + jcv_retrieveFormName(form) + '_minlength()'); for (var x in oMinLength) { if (!jcv_verifyArrayElement(x, oMinLength[x])) { continue; } var field = form[oMinLength[x][0]]; if (!jcv_isFieldPresent(field)) { continue; } if ((field.type == 'hidden' || field.type == 'text' || field.type == 'password' || field.type == 'textarea')) { /* Adjust length for carriage returns - see Bug 37962 */ var lineEndLength = oMinLength[x][2]("lineEndLength"); var adjustAmount = 0; if (lineEndLength) { var rCount = 0; var nCount = 0; var crPos = 0; while (crPos < field.value.length) { var currChar = field.value.charAt(crPos); if (currChar == '\r') { rCount++; } if (currChar == '\n') { nCount++; } crPos++; } var endLength = parseInt(lineEndLength); adjustAmount = (nCount * endLength) - (rCount + nCount); } var iMin = parseInt(oMinLength[x][2]("minlength")); if ((trim(field.value).length > 0) && ((field.value.length + adjustAmount) < iMin)) { if (i == 0) { focusField = field; } fields[i++] = oMinLength[x][1]; isValid = false; } } } if (fields.length > 0) { jcv_handleErrors(fields, focusField); } return isValid; } /*$RCSfile: validateUtilities.js,v $ $Rev: 376673 $ $Date: 2006-02-10 13:42:31 +0000 (Fri, 10 Feb 2006) $ */ /** * This is a place holder for common utilities used across the javascript validation * **/ /** * Retreive the name of the form * @param form The form validation is taking place on. */ function jcv_retrieveFormName(form) { // Please refer to Bugs 31534, 35127, 35294, 37315 & 38159 // for the history of the following code var formName; if (form.getAttributeNode) { if (form.getAttributeNode("id") && form.getAttributeNode("id").value) { formName = form.getAttributeNode("id").value; } else { formName = form.getAttributeNode("name").value; } } else if (form.getAttribute) { if (form.getAttribute("id")) { formName = form.getAttribute("id"); } else { formName = form.attributes["name"]; } } else { if (form.id) { formName = form.id; } else { formName = form.name; } } return formName; } /** * Handle error messages. * @param messages Array of error messages. * @param focusField Field to set focus on. */ function jcv_handleErrors(messages, focusField) { if (focusField && focusField != null) { var doFocus = true; if (focusField.disabled || focusField.type == 'hidden') { doFocus = false; } if (doFocus && focusField.style && focusField.style.visibility && focusField.style.visibility == 'hidden') { doFocus = false; } if (doFocus) { focusField.focus(); } } alert(messages.join('\n')); } /** * Checks that the array element is a valid * Commons Validator element and not one inserted by * other JavaScript libraries (for example the * prototype library inserts an "extends" into * all objects, including Arrays). * @param name The element name. * @param value The element value. */ function jcv_verifyArrayElement(name, element) { if (element && element.length && element.length == 3) { return true; } else { return false; } } /** * Checks whether the field is present on the form. * @param field The form field. */ function jcv_isFieldPresent(field) { var fieldPresent = true; if (field == null || field == undefined) { fieldPresent = false; } else { if (field.disabled) { fieldPresent = false; } } return fieldPresent; } /** * Check a value only contains valid numeric digits * @param argvalue The value to check. */ function jcv_isAllDigits(argvalue) { argvalue = argvalue.toString(); var validChars = "0123456789"; var startFrom = 0; if (argvalue.substring(0, 2) == "0x") { validChars = "0123456789abcdefABCDEF"; startFrom = 2; } else if (argvalue.charAt(0) == "0") { validChars = "01234567"; startFrom = 1; } else if (argvalue.charAt(0) == "-") { startFrom = 1; } for (var n = startFrom; n < argvalue.length; n++) { if (validChars.indexOf(argvalue.substring(n, n+1)) == -1) return false; } return true; } /** * Check a value only contains valid decimal digits * @param argvalue The value to check. */ function jcv_isDecimalDigits(argvalue) { argvalue = argvalue.toString(); var validChars = "0123456789"; var startFrom = 0; if (argvalue.charAt(0) == "-") { startFrom = 1; } for (var n = startFrom; n < argvalue.length; n++) { if (validChars.indexOf(argvalue.substring(n, n+1)) == -1) return false; } return true; } /*$RCSfile: validateFloatRange.js,v $ $Rev: 376673 $ $Date: 2006-02-10 13:42:31 +0000 (Fri, 10 Feb 2006) $ */ /** * Check to see if fields are in a valid float range. * Fields are not checked if they are disabled. *
* @param form The form validation is taking place on. */ function validateFloatRange(form) { var isValid = true; var focusField = null; var i = 0; var fields = new Array(); var oRange = eval('new ' + jcv_retrieveFormName(form) + '_floatRange()'); for (var x in oRange) { if (!jcv_verifyArrayElement(x, oRange[x])) { continue; } var field = form[oRange[x][0]]; if (!jcv_isFieldPresent(field)) { continue; } if ((field.type == 'hidden' || field.type == 'text' || field.type == 'textarea') && (field.value.length > 0)) { var fMin = parseFloat(oRange[x][2]("min")); var fMax = parseFloat(oRange[x][2]("max")); var fValue = parseFloat(field.value); if (!(fValue >= fMin && fValue <= fMax)) { if (i == 0) { focusField = field; } fields[i++] = oRange[x][1]; isValid = false; } } } if (fields.length > 0) { jcv_handleErrors(fields, focusField); } return isValid; } /*$RCSfile: validateIntRange.js,v $ $Rev: 376673 $ $Date: 2006-02-10 13:42:31 +0000 (Fri, 10 Feb 2006) $ */ /** * Check to see if fields is in a valid integer range. * Fields are not checked if they are disabled. *
* @param form The form validation is taking place on. */ function validateIntRange(form) { var isValid = true; var focusField = null; var i = 0; var fields = new Array(); var oRange = eval('new ' + jcv_retrieveFormName(form) + '_intRange()'); for (var x in oRange) { if (!jcv_verifyArrayElement(x, oRange[x])) { continue; } var field = form[oRange[x][0]]; if (jcv_isFieldPresent(field)) { var value = ''; if (field.type == 'hidden' || field.type == 'text' || field.type == 'textarea' || field.type == 'radio' ) { value = field.value; } if (field.type == 'select-one') { var si = field.selectedIndex; if (si >= 0) { value = field.options[si].value; } } if (value.length > 0) { var iMin = parseInt(oRange[x][2]("min")); var iMax = parseInt(oRange[x][2]("max")); var iValue = parseInt(value, 10); if (!(iValue >= iMin && iValue <= iMax)) { if (i == 0) { focusField = field; } fields[i++] = oRange[x][1]; isValid = false; } } } } if (fields.length > 0) { jcv_handleErrors(fields, focusField); } return isValid; } /*$RCSfile: validateInteger.js,v $ $Rev: 376673 $ $Date: 2006-02-10 13:42:31 +0000 (Fri, 10 Feb 2006) $ */ /** * Check to see if fields are a valid integer. * Fields are not checked if they are disabled. *
* @param form The form validation is taking place on. */ function validateInteger(form) { var bValid = true; var focusField = null; var i = 0; var fields = new Array(); var oInteger = eval('new ' + jcv_retrieveFormName(form) + '_IntegerValidations()'); for (var x in oInteger) { if (!jcv_verifyArrayElement(x, oInteger[x])) { continue; } var field = form[oInteger[x][0]]; if (!jcv_isFieldPresent(field)) { continue; } if ((field.type == 'hidden' || field.type == 'text' || field.type == 'textarea' || field.type == 'select-one' || field.type == 'radio')) { var value = ''; // get field's value if (field.type == "select-one") { var si = field.selectedIndex; if (si >= 0) { value = field.options[si].value; } } else { value = field.value; } if (value.length > 0) { if (!jcv_isDecimalDigits(value)) { bValid = false; if (i == 0) { focusField = field; } fields[i++] = oInteger[x][1]; } else { var iValue = parseInt(value, 10); if (isNaN(iValue) || !(iValue >= -2147483648 && iValue <= 2147483647)) { if (i == 0) { focusField = field; } fields[i++] = oInteger[x][1]; bValid = false; } } } } } if (fields.length > 0) { jcv_handleErrors(fields, focusField); } return bValid; } /*$RCSfile: validateMask.js,v $ $Rev: 376673 $ $Date: 2006-02-10 13:42:31 +0000 (Fri, 10 Feb 2006) $ */ /** * Check to see if fields are a valid using a regular expression. * Fields are not checked if they are disabled. *
* @param form The form validation is taking place on. */ function validateMask(form) { var isValid = true; var focusField = null; var i = 0; var fields = new Array(); var oMasked = eval('new ' + jcv_retrieveFormName(form) + '_mask()'); for (var x in oMasked) { if (!jcv_verifyArrayElement(x, oMasked[x])) { continue; } var field = form[oMasked[x][0]]; if (!jcv_isFieldPresent(field)) { continue; } if ((field.type == 'hidden' || field.type == 'text' || field.type == 'textarea' || field.type == 'file') && (field.value.length > 0)) { if (!jcv_matchPattern(field.value, oMasked[x][2]("mask"))) { if (i == 0) { focusField = field; } fields[i++] = oMasked[x][1]; isValid = false; } } } if (fields.length > 0) { jcv_handleErrors(fields, focusField); } return isValid; } function jcv_matchPattern(value, mask) { return mask.exec(value); } /*$RCSfile: validateDate.js,v $ $Rev: 376673 $ $Date: 2006-02-10 13:42:31 +0000 (Fri, 10 Feb 2006) $ */ /** * Check to see if fields are a valid date. * Fields are not checked if they are disabled. *
* @param form The form validation is taking place on. */ function validateDate(form) { var bValid = true; var focusField = null; var i = 0; var fields = new Array(); var oDate = eval('new ' + jcv_retrieveFormName(form) + '_DateValidations()'); for (var x in oDate) { if (!jcv_verifyArrayElement(x, oDate[x])) { continue; } var field = form[oDate[x][0]]; if (!jcv_isFieldPresent(field)) { continue; } var value = field.value; var isStrict = true; var datePattern = oDate[x][2]("datePatternStrict"); // try loose pattern if (datePattern == null) { datePattern = oDate[x][2]("datePattern"); isStrict = false; } if ((field.type == 'hidden' || field.type == 'text' || field.type == 'textarea') && (value.length > 0) && (datePattern.length > 0)) { var MONTH = "MM"; var DAY = "dd"; var YEAR = "yyyy"; var orderMonth = datePattern.indexOf(MONTH); var orderDay = datePattern.indexOf(DAY); var orderYear = datePattern.indexOf(YEAR); if ((orderDay < orderYear && orderDay > orderMonth)) { var iDelim1 = orderMonth + MONTH.length; var iDelim2 = orderDay + DAY.length; var delim1 = datePattern.substring(iDelim1, iDelim1 + 1); var delim2 = datePattern.substring(iDelim2, iDelim2 + 1); if (iDelim1 == orderDay && iDelim2 == orderYear) { dateRegexp = isStrict ? new RegExp("^(\\d{2})(\\d{2})(\\d{4})$") : new RegExp("^(\\d{1,2})(\\d{1,2})(\\d{4})$"); } else if (iDelim1 == orderDay) { dateRegexp = isStrict ? new RegExp("^(\\d{2})(\\d{2})[" + delim2 + "](\\d{4})$") : new RegExp("^(\\d{1,2})(\\d{1,2})[" + delim2 + "](\\d{4})$"); } else if (iDelim2 == orderYear) { dateRegexp = isStrict ? new RegExp("^(\\d{2})[" + delim1 + "](\\d{2})(\\d{4})$") : new RegExp("^(\\d{1,2})[" + delim1 + "](\\d{1,2})(\\d{4})$"); } else { dateRegexp = isStrict ? new RegExp("^(\\d{2})[" + delim1 + "](\\d{2})[" + delim2 + "](\\d{4})$") : new RegExp("^(\\d{1,2})[" + delim1 + "](\\d{1,2})[" + delim2 + "](\\d{4})$"); } var matched = dateRegexp.exec(value); if(matched != null) { if (!jcv_isValidDate(matched[2], matched[1], matched[3])) { if (i == 0) { focusField = field; } fields[i++] = oDate[x][1]; bValid = false; } } else { if (i == 0) { focusField = field; } fields[i++] = oDate[x][1]; bValid = false; } } else if ((orderMonth < orderYear && orderMonth > orderDay)) { var iDelim1 = orderDay + DAY.length; var iDelim2 = orderMonth + MONTH.length; var delim1 = datePattern.substring(iDelim1, iDelim1 + 1); var delim2 = datePattern.substring(iDelim2, iDelim2 + 1); if (iDelim1 == orderMonth && iDelim2 == orderYear) { dateRegexp = isStrict ? new RegExp("^(\\d{2})(\\d{2})(\\d{4})$") : new RegExp("^(\\d{1,2})(\\d{1,2})(\\d{4})$"); } else if (iDelim1 == orderMonth) { dateRegexp = isStrict ? new RegExp("^(\\d{2})(\\d{2})[" + delim2 + "](\\d{4})$") : new RegExp("^(\\d{1,2})(\\d{1,2})[" + delim2 + "](\\d{4})$"); } else if (iDelim2 == orderYear) { dateRegexp = isStrict ? new RegExp("^(\\d{2})[" + delim1 + "](\\d{2})(\\d{4})$") : new RegExp("^(\\d{1,2})[" + delim1 + "](\\d{1,2})(\\d{4})$"); } else { dateRegexp = isStrict ? new RegExp("^(\\d{2})[" + delim1 + "](\\d{2})[" + delim2 + "](\\d{4})$") : new RegExp("^(\\d{1,2})[" + delim1 + "](\\d{1,2})[" + delim2 + "](\\d{4})$"); } var matched = dateRegexp.exec(value); if(matched != null) { if (!jcv_isValidDate(matched[1], matched[2], matched[3])) { if (i == 0) { focusField = field; } fields[i++] = oDate[x][1]; bValid = false; } } else { if (i == 0) { focusField = field; } fields[i++] = oDate[x][1]; bValid = false; } } else if ((orderMonth > orderYear && orderMonth < orderDay)) { var iDelim1 = orderYear + YEAR.length; var iDelim2 = orderMonth + MONTH.length; var delim1 = datePattern.substring(iDelim1, iDelim1 + 1); var delim2 = datePattern.substring(iDelim2, iDelim2 + 1); if (iDelim1 == orderMonth && iDelim2 == orderDay) { dateRegexp = isStrict ? new RegExp("^(\\d{4})(\\d{2})(\\d{2})$") : new RegExp("^(\\d{4})(\\d{1,2})(\\d{1,2})$"); } else if (iDelim1 == orderMonth) { dateRegexp = isStrict ? new RegExp("^(\\d{4})(\\d{2})[" + delim2 + "](\\d{2})$") : new RegExp("^(\\d{4})(\\d{1,2})[" + delim2 + "](\\d{1,2})$"); } else if (iDelim2 == orderDay) { dateRegexp = isStrict ? new RegExp("^(\\d{4})[" + delim1 + "](\\d{2})(\\d{2})$") : new RegExp("^(\\d{4})[" + delim1 + "](\\d{1,2})(\\d{1,2})$"); } else { dateRegexp = isStrict ? new RegExp("^(\\d{4})[" + delim1 + "](\\d{2})[" + delim2 + "](\\d{2})$") : new RegExp("^(\\d{4})[" + delim1 + "](\\d{1,2})[" + delim2 + "](\\d{1,2})$"); } var matched = dateRegexp.exec(value); if(matched != null) { if (!jcv_isValidDate(matched[3], matched[2], matched[1])) { if (i == 0) { focusField = field; } fields[i++] = oDate[x][1]; bValid = false; } } else { if (i == 0) { focusField = field; } fields[i++] = oDate[x][1]; bValid = false; } } else { if (i == 0) { focusField = field; } fields[i++] = oDate[x][1]; bValid = false; } } } if (fields.length > 0) { jcv_handleErrors(fields, focusField); } return bValid; } function jcv_isValidDate(day, month, year) { if (month < 1 || month > 12) { return false; } if (day < 1 || day > 31) { return false; } if ((month == 4 || month == 6 || month == 9 || month == 11) && (day == 31)) { return false; } if (month == 2) { var leap = (year % 4 == 0 && (year % 100 != 0 || year % 400 == 0)); if (day>29 || (day == 29 && !leap)) { return false; } } return true; } /*$RCSfile: validateFloat.js,v $ $Rev: 376673 $ $Date: 2006-02-10 13:42:31 +0000 (Fri, 10 Feb 2006) $ */ /** * Check to see if fields are a valid float. * Fields are not checked if they are disabled. *
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metalman
09-02-08, 12:45 PM
paper silver market now behaving like the paper oil market, disconnected from supply/demand of stuff?

jtabeb
09-02-08, 12:50 PM
paper silver market now behaving like the paper oil market, disconnected from supply/demand of stuff?

Yeah, but it makes me mad. I can't benefit from it! I can't buy the real stuff for a cheaper price. It's not actionable in an advantageous way. (well, other than knowing "DON'T SELL any real stuff!!")

Charles Mackay
09-02-08, 03:40 PM
Precisely the main actionable point of my dollar intervention and ECB gold intervention and Treasury TIO intervention, etc. fact based & posts.

Not only is my motto to ignore the real & proven men behind the various curtains quite perilous, but its also that the signals are extremely useful for trading and investing.

Just ignore the noise of folk like Mish and digger and most main stream media bozos... although I still like the concept of the real Bozo for President. ;)

One of Mish's main arguments for deflation is that he doesn't see inflation taking hold during a time when credit is contracting and housing is falling in price. But, we just had a fairly recent experience in the 70's where an asset price (Bonds) fell by 50% and inflation still roared with gold doing an x25. True, houses were still going up in the 70's but I believe the bond market is bigger than the housing market and it lost half it's value. Doesn't that historical fact trump his argument that you can't have inflation during collapsing asset prices? Maybe this has already been noted in your article... is so, I may have missed it.

Contemptuous
09-02-08, 04:26 PM
Correct me if I'm wrong guys, but isn't it possible to buy 1000 oz bars (silver, not gold, unless you are as rich as Croesus) on the COMEX right close to the current spot price and then take delivery? Or did this archaic and quaint notion go the way of the dodo?

bart
09-02-08, 04:29 PM
One of Mish's main arguments for deflation is that he doesn't see inflation taking hold during a time when credit is contracting and housing is falling in price. But, we just had a fairly recent experience in the 70's where an asset price (Bonds) fell by 50% and inflation still roared with gold doing an x25. True, houses were still going up in the 70's but I believe the bond market is bigger than the housing market and it lost half it's value. Doesn't that historical fact trump his argument that you can't have inflation during collapsing asset prices? Maybe this has already been noted in your article... is so, I may have missed it.

Basically yes - the various historical facts from the '70s, 2002 and even from the '30s do trump Mish's deflation points. It's not in my various articles too, partially since just one chart below shows the monetary aggregates and credit picture in the late '20s is extremely different from now.

He also doesn't define deflation the way most do, which is a little too convenient for my taste.

Another of his points is that he doesn't believe credit demand can be affected by the Fed, in a directly opposite manner to what actually happened in 2002, the '70s and also the '30s.
To maintain that people won't borrow if they actually realize and believe that inflation (for example) is 12% and rates are at 5% is illogical at best.



http://www.nowandfutures.com/download/m1m3_gdp_1920-1940.png

FRED
09-02-08, 04:38 PM
Basically yes - the various historical facts from the '70s, 2002 and even from the '30s do trump Mish's deflation points. It's not in my various articles too, partially since just one chart below shows the monetary aggregates and credit picture in the late '20s is extremely different from now.

He also doesn't define deflation the way most do, which is a little too convenient for my taste.

Another of his points is that he doesn't believe credit demand can be affected by the Fed, in a directly opposite manner to what actually happened in 2002, the '70s and also the '30s.
To maintain that people won't borrow if they actually realize and believe that inflation (for example) is 12% and rates are at 5% is illogical at best.

The most succinct piece of evidence we've ever found to refute this claim is this slide from a presentation by the Fed in 2003:


http://www.itulip.com/images/USdeflation.png


1932 - 1933: Dead banking system, crashed asset prices, collapsed money supply, 28% rise in inflation from -14% to +14%.

Devaluing a currency is a foolproof inflationary tool.

bart
09-02-08, 04:54 PM
The most succinct piece of evidence we've ever found to refute this claim is this slide from a presentation by the Fed in 2003:


http://www.itulip.com/images/USdeflation.png


1932 - 1933: Dead banking system, crashed asset prices, collapsed money supply, 28% rise in inflation from -14% to +14%.

Devaluing a currency is a foolproof inflationary tool.





I give it at least a 9.9. :D

bart
09-02-08, 05:01 PM
Correct me if I'm wrong guys, but isn't it possible to buy 1000 oz bars (silver, not gold, unless you are as rich as Croesus) on the COMEX right close to the current spot price and then take delivery? Or did this archaic and quaint notion go the way of the dodo?

It's not simple to do, but unless the rules have changed in the last few months - yes, to the best of my knowledge.

Charles Mackay
09-02-08, 05:37 PM
It seems like the problem in any discussion of inflation/deflation is that the words have been bastardized. The MSM will never let anyone maintain a proper definition of the word. Even though EJ posts his definitions, the words will always be argued within shifting sands of meaning.

Therefore the words should be banned on iTulip! It's very much like using the words conservative and liberal which also have no meaning anymore. Communists were conservatives for instance.

"There is NO inflation"... even though gold has done an x4 and oil an x10 say the deflationists.

"Inflation is an increase in the money supply. PERIOD!" say the Austrians.

This is a Marshall McLuhan moment!

I nominate EJ and Bart to create some new words to define certain constructs. Just as M1, M2, and M3 have certain meanings, we should have words that won't always have to be redefined.

a symbol or word to represent, for instance:

1) Increase in fiat money
2) Increase in fiat money and credit
3) Increase in consumer prices
...etc.

bart
09-02-08, 05:56 PM
I defer to EJ or Fred.

"Bonar" for the dollar is way beyond my ability... and I don't want to risk getting my tongue permanently stuck in my cheek... ;)

Charles Mackay
09-02-08, 06:57 PM
1) Increase in fiat money
2) Increase in fiat money and credit
3) Increase in consumer prices
...etc.

TM stands for TulipMoney

TM1 = Increase in fiat money
TM2 = Increase in fiat money and credit

TMP = Increase in prices ???

yada, yada, yada

jk
09-02-08, 09:44 PM
Facinating, the spot price of silver IS $1.00 lower than when I purchased two weeks ago, YET.....

The physical product price is $1.00 HIGHER!

HIGHER Physical price with a lower spot price (Right NOW)
vs
LOWER Physical price with HIGHER SPOT price (two weeks ago)

Hmmmmm.

Thoughts?<table width="100%" border="0" cellpadding="0" cellspacing="0"><tbody><tr><td class="leftBlend" valign="top" width="100%">
</td></tr></tbody></table>

my best theory is that there's a bottleneck in fabrication. the gold spot market is in good for delivery 400oz gold bars held in specific vaults. the retail market is coins and small bars. the coins etc are selling at higher and higher premia to spot because retail investors see the market quotes and decide now's the time to buy. so there's a shortage of fabricated small quantities. same reasoning applies to silver.

edit- in fact, we can deduce that there is a fabrication bottleneck, because otherwise some entity would be arbitraging the spread between spot and physical-for-retail.

metalman
09-02-08, 09:48 PM
my best theory is that there's a bottleneck in fabrication. the gold spot market is in good for delivery 400oz gold bars held in specific vaults. the retail market is coins and small bars. the coins etc are selling at higher and higher premia to spot because retail investors see the market quotes and decide now's the time to buy. so there's a shortage of fabricated small quantities.

but hasn't that always been the case?

Contemptuous
09-03-08, 12:06 AM
JK -


my best theory is that there's a bottleneck in fabrication.

This hypothesis is getting a little thinner by the month. The retail shortages emerged last March, remember? They loosened up a bit in the intervening months, and it's certainly understood that today's super low gold and silver prices are "borrowing demand from the future", but this "retail shortage" has been dragging on for five months. Yesterday there was a smarmy post by John Nadler with Mish, both practically falling into each other's arms in mutual admiration of their astute skepticism in the face of "mass hysteria". The topic? Retail shortages of bullion. It's posted over at Kitco. And Nadler's stance was what the retail tightness getting reported worldwide, is due to "persistent bottlenecks" in the flow of COMEX and large commodity bourse bulk bullion to refiners and dealers of the metal to the retail investor public (worldwide, not just here).

A five month long bottleneck. When I was out of college many years ago, I worked in a Silver foundry for six months. They made silverware, but in the investor category of foundries, there are a very limited number of molds and presses to handle. The notion that a foundry or refiner, in a world of "ample bullion supply", would require five months to pour sufficient new retail products out to quell shortages is frankly disingenuous. These are standard mold products, small bars, coins, 100 oz bars, rounds, etc. The production of this stuff could be geared up in weeks, not months, to put sufficient supply out there for retailers with their shelves completely bare. Five months "bottlenecks" to ease retail shortages, while bullion supply is supposedly ample is bullshit, by my reckoning. It does not add up. It's too long of a time.

The article gets so vehement that this is the reason that it's practically hanging off the chandeliers. Meanwhile, there is zero mention that this has been dragging on since the early spring of this year . And that the notion that refiners are "anxious to maintain regular flow of bullion to their large scale commercial (industrial metal consumer) clients, rather than divert that flow to the retail public" only highlights the strained, anxious sounding arguments Nader is putting forward regarding the silver bullion supply problems.

Think about it. Five months to resolve bottlenecks, while he states the supplies of very large scale bullion of the major exchanges is "copious and plentiful", and that the refiners are "dragging their feet" about diverting some of this "copious" availability into small retail forms of the metal for fear of angering or disappointing their large commercial consumer clients? If they are afraid of interrupting supply to their large commercial clients by diverting some to the retail area, how is it then possible that the supplies on the COMEX and other exchanges are so abundant?

We are supposed to believe that the "bottleneck" between the large commercial scale bullion stores, and the retail market, is progressing at the same inching pace of resolution in every disparate market worldwide? Would it not be more plausible that in some countries or areas, the links between refiners and retail market operated some faster and some slower, if the supply of bullion was genuinely abundant? Instead we see little or no variation. They are ALL bereft of ready retail supply, STILL, after 5 months of such reports.

Why are not retailers in India progressing to a resolution at a different pace from retailers in Europe, or retailers in North America? No. They all remain "stuck" in the same lack of inventory.

If you read the article there are lots of plausible sounding arguments, but if you pay close attention you can also pick up a little of the urgency behind the arguing. Nadler works for a bullion retailer. They have a regular sign posted on their site that they can't supply immediately. We look around and see the Kitco dillemma re-iterated in every large and mid-sized bullion dealer worldwide, and it's been the case, worldwide, for five months? At very least, that should awaken a trace of healthy skepticisim when you read these people talking about how "abundant" the bullion supply is on the exchanges. I think Nadler's line is hogwash, and I'm not a conspiracy minded guy at all.

Oh, and E-Bay and Craigslist are indeed very consistently arbitraging the spread, and have been ever since the price plunged. That is one of the few places where the silver seems to be coming to market! One last comment. I don't follow the guy much, but Greg McCoach is a bullion dealer as well as newsletter author in gold stocks. I read something of his this weekend where he's noting that availability on the COMEX and other large bullion exchanges is not good either. If McCoach is right, and he's got a better rep for independent reporting than Nadler, then Nadler is either being foolish, or disingenuous, or a bit of both. I don't trust Nadler, about as much as I distrust Mish.


my best theory is that there's a bottleneck in fabrication. the gold spot market is in good for delivery 400oz gold bars held in specific vaults. the retail market is coins and small bars. the coins etc are selling at higher and higher premia to spot because retail investors see the market quotes and decide now's the time to buy. so there's a shortage of fabricated small quantities. same reasoning applies to silver.

edit- in fact, we can deduce that there is a fabrication bottleneck, because otherwise some entity would be arbitraging the spread between spot and physical-for-retail.

Jim Nickerson
09-03-08, 12:45 AM
JK -



This hypothesis is getting a little thinner by the month. The retail shortages emerged last March, remember? They loosened up a bit in the intervening months, and it's certainly understood that today's super low gold and silver prices are "borrowing demand from the future", but this "retail shortage" has been dragging on for five months. Yesterday there was a smarmy post by John Nadler with Mish, both practically falling into each other's arms in mutual admiration of their astute skepticism in the face of "mass hysteria". The topic? Retail shortages of bullion. It's posted over at Kitco. And Nadler's stance was what the retail tightness getting reported worldwide, is due to "persistent bottlenecks" in the flow of COMEX and large commodity bourse bulk bullion to refiners and dealers of the metal to the retail investor public (worldwide, not just here).

A five month long bottleneck. When I was out of college many years ago, I worked in a Silver foundry for six months. They made silverware, but in the investor category of foundries, there are a very limited number of molds and presses to handle. The notion that a foundry or refiner, in a world of "ample bullion supply", would require five months to pour sufficient new retail products out to quell shortages is frankly disingenuous. These are standard mold products, small bars, coins, 100 oz bars, rounds, etc. The production of this stuff could be geared up in weeks, not months, to put sufficient supply out there for retailers with their shelves completely bare. Five months "bottlenecks" to ease retail shortages, while bullion supply is supposedly ample is bullshit, by my reckoning. It does not add up. It's too long of a time.

The article gets so vehement that this is the reason that it's practically hanging off the chandeliers. Meanwhile, there is zero mention that this has been dragging on since the early spring of this year . And that the notion that refiners are "anxious to maintain regular flow of bullion to their large scale commercial (industrial metal consumer) clients, rather than divert that flow to the retail public" only highlights the strained, anxious sounding arguments Nader is putting forward regarding the silver bullion supply problems.

Think about it. Five months to resolve bottlenecks, while he states the supplies of very large scale bullion of the major exchanges is "copious and plentiful", and that the refiners are "dragging their feet" about diverting some of this "copious" availability into small retail forms of the metal for fear of angering or disappointing their large commercial consumer clients? If they are afraid of interrupting supply to their large commercial clients by diverting some to the retail area, how is it then possible that the supplies on the COMEX and other exchanges are so abundant?

We are supposed to believe that the "bottleneck" between the large commercial scale bullion stores, and the retail market, is progressing at the same inching pace of resolution in every disparate market worldwide? Would it not be more plausible that in some countries or areas, the links between refiners and retail market operated some faster and some slower, if the supply of bullion was genuinely abundant? Instead we see little or no variation. They are ALL bereft of ready retail supply, STILL, after 5 months of such reports.

Why are not retailers in India progressing to a resolution at a different pace from retailers in Europe, or retailers in North America? No. They all remain "stuck" in the same lack of inventory.

If you read the article there are lots of plausible sounding arguments, but if you pay close attention you can also pick up a little of the urgency behind the arguing. Nadler works for a bullion retailer. They have a regular sign posted on their site that they can't supply immediately. We look around and see the Kitco dillemma re-iterated in every large and mid-sized bullion dealer worldwide, and it's been the case, worldwide, for five months? At very least, that should awaken a trace of healthy skepticisim when you read these people talking about how "abundant" the bullion supply is on the exchanges. I think Nadler's line is hogwash, and I'm not a conspiracy minded guy at all.

Oh, and E-Bay and Craigslist are indeed very consistently arbitraging the spread, and have been ever since the price plunged. That is one of the few places where the silver seems to be coming to market! One last comment. I don't follow the guy much, but Greg McCoach is a bullion dealer as well as newsletter author in gold stocks. I read something of his this weekend where he's noting that availability on the COMEX and other large bullion exchanges is not good either. If McCoach is right, and he's got a better rep for independent reporting than Nadler, then Nadler is either being foolish, or disingenuous, or a bit of both. I don't trust Nadler, about as much as I distrust Mish.

Luke, you are suggesting that there is a shortage of gold and silver, aren't you?

If there is a shortage, and on the other hand retail purchasers are standing in line for metals, then shouldn't the price of somethings that are apparently scarce be going up, yet from where I read the web, that does not seem to be the case.

Contemptuous
09-03-08, 12:56 AM
Jim - It's a disconnect between "paper" bullion and actual bullion. What half this thread's posts have been about? Remember - Silver = roughly 100 times as much in paper silver claims as is available in readily deliverable silver. We are operating on Nadler's assumption - that this does not make any difference and the spot price is the "real market price", and that all recent events have been pure free market action. It may be, or it may not be "free market action", but even if it is, it is so only up to a point. There is a very large and distorted disparity between the paper claims and what's really "available". Meanwhile we have Nadler posting copious articles arguing energetically that there is no distortion in the market due to that large disparity between paper and real metal. Nadler works for a bullion dealer. Lots of discussion going on about that these days.

Contemptuous
09-06-08, 04:36 PM
Here is some additional input on this debate - this time from SEEKING ALPHA. (Whatever the bottom line - the truth appears indeed "complicated")

<!--*-->GOLD FUTURES DIRTY LITTLE SECRET (Part Two)

by: Nicholas Jones <!--*-->posted on: September 05, 2008 | about stocks: ABX (http://seekingalpha.com/symbol/abx) / GLD (http://seekingalpha.com/symbol/gld)
_____________

PART TWO

We ended the first part (http://seekingalpha.com/article/93651-gold-futures-dirty-secret-part-i) of this two part series with an unanswered question: Why has physical supply dried up now?

The answer to that question lies in the two vehicles that have made the gold carry trade possible. This is another issue that I’ve alluded to in prior issues of B&B, but I would again like to briefly explain this notion.

Gold Carry Trade

The gold carry trade takes two forms. The first is enacted by the central banks of the world. Essentially the banks use the futures market to pre-sell gold. This is a beautiful deal for the central banks when the price of gold is going down. Here’s why:

The process is almost overly simple. The banks short sell gold on the futures market. The short sales, being as large as they are, put downward pressure on the market. This makes the trade a self-fulfilling profit for the banks. Prior to the expiration of the futures contract, the banks buy back their short positions, but at a lower price, therefore profiting on the trade. Instead of ending there, the banks will then roll over the cash into fresh short positions. This is a process that went on for a very long time, and is only now beginning to come to a close.

The second form of the gold carry trade is undertaken by a few miners. The most pronounced of whom was Barrick Gold Corp. (ABX (http://seekingalpha.com/symbol/abx)). Barrick was actually indicted on price manipulation charges. It appeared that Barrick was in bed with the federal government in this case of illegal price fixing.

Anyways, here’s how it worked. Barrick would pre-sell its gold on the futures market, in a process called hedging. This is not an uncommon practice by commodities producers. It simply reduces their risk-reward scenario. The problem with Barrick is that it was selling its gold below market value. Again this puts artificial supply on the market, but this time below fair market value, hence gold experiences downward pressure. You can take it to the bank that if the price wasn’t manipulated to the extent that Barrick would profit, it would receive Federal kick backs that went unnoticed.

Carry Traders Coming Up Short

So the central banks and some of its mining cohorts used sheer size and volume to move the markets down. The result of this is a market equilibrium based on the assumption that this artificial supply is real. On paper, as long as that supply is continually flipped over and not pulled from the market, the lower price equilibrium can be upheld. But for this process to work, it requires the continual deflation of the gold market otherwise the massive shorts would get burned, seizing up the artificial supply.

Once prices begin to rise, massive losses are in order. Let’s look at it from the carry trader’s scenario and put some hypothetical numbers to the trade. Say the central bank or miner sold short a large quantity of gold futures contracts at $800/oz. Time passes and the contract nears expiration. The problem is that gold is now trading at $900/oz.

At this point the carry trader has the option to either buy back its short at $900/oz or deliver the gold in the contracts. Now, each gold futures contract is worth 100 oz of gold. So the carry trader is looking at a loss of $10,000 per contract. Depending on the number of contracts sold short by the carry traders, the short covering will put massive upward pressure on the market. This would, in turn result in more carry traders covering their shorts. This is simply called a short covering rally.

Remember that the carry trade and massive short sales of gold resulted in an artificial supply to the market, and the market cannot determine between good and bad paper in the short run. As taught in Economics 101, an increase in supply results in a lower price equilibrium. Take that supply back out of the market, and prices shoot back up.

Special Golden Delivery

The other option for the carry traders is that they could ride out their shorts until contract expiration and make delivery on those contracts. For most entities, this would be impossible, but for miners and central bankers, this option is more than feasible.

Let’s look at the miners first. They can simply use their production to eliminate their hedge books and make delivery on their shorts. That is exactly what has been going on.

Online metal consultant Virtual Metals reported that in the past quarter alone, aggregate hedges by gold miners fell 15%. In fact, aggregate hedges are down 70% since the peak in the 3Q of 2001.

By the way, Barrick eliminated the majority of its massive hedge book (7.7 million oz) costing it $1.8 billion. It was the largest de-hedger, followed by Newmont Mining (NEM (http://seekingalpha.com/symbol/nem)), just an interesting tidbit of information.

Moving on, in the case of the central banks, they also have the ability to make delivery on a massive scale. In fact, central bankers are responsible for the largest compilation of gold in the world. This is not as easy to find statistics on, given Ft. Knox and its peers haven’t actually been audited in ages.

Gold Futures Debunked

So you’re probably sitting there asking what in the hell am I getting at. I’m saying that a large portion of carry trade, which is artificial supply in the futures market, was delivered in physical market. This either made up for lack of supply or resulted in a supply glut in the cash market.

Eventually miner’s gold hedge books run out and central bank gold reserves dry up. In fact, according to Reuters, gold de-hedging is expected to be reduced by some 50% in 2008.

So the supply in the cash market has really been a short covering of the futures market for lack of a better word. Just look at what these markets are telling us. The cash market is telling me I can’t even buy gold because there is next to none for sale. The futures market is telling me that I can buy gold at just over $800/oz. Considering the current and expected monetary inflation, $800/oz is dirt cheap.

What do I expect? Well, I expect the futures market to freeze up just like the cash market already is. It is the ONLY possibility at this point. There are many of you who have read this far and are probably screaming at the computer that a freeze in the gold futures market is impossible.

Please don’t be so ignorant. First of all this was foreseeable, even if we didn’t have the manipulation of the gold market via the gold carry trade. The race to inflate has taken grip globally. While growth in fiat currency is seemingly infinite by today’s monetary policy, gold is very finite. For crying out loud, the cash market is already frozen. I dare you to try and buy a decent quantity from any dealer you can find, best of luck.

Otherwise, I would recommend re-reading both the first and second parts to this article. Understand the stipulations, email me your questions, and take financial actions.

Personally, while the gold carry traders are rolling over their now diminished shorts, I will be rolling over my long positions. I have and will continually use both the options and futures markets to grow capital. I promise you this:

when the futures market does freeze, I will have a sizeable long position on that which will have grown exponentially leading up to the fireworks, because when the market freezes, you will no longer be able to get long these markets. I wonder how regulators will handle that. Maybe they’ll take the speculators out and hang them.

Note: The author and publisher do not hold positions in the securities mentioned.

_____________

PART ONE

Cash markets and futures markets carry both similarities and differences. For example, both markets are a form of price discovery. Also, both markets are used by commercials and speculators alike. Given that, their differences are much more pronounced.

In a cash market, the physical product changes hands immediately. Both buyer and seller are looking for delivery of the commodity. This only happens in futures markets if you are left with an open position when the futures contract expires. In most cases, futures deliveries are intentional. If a market is more illiquid, unintentional deliveries are more common.

What I’m essentially getting at is in futures markets, the initial buyer or seller of a contract is very rarely the one who ends up with that contract on delivery date. In the meantime, the paper contract will change hands between large specs, small specs, commercials, etc., many times before it reaches its final destination. On the other hand, in the cash market, the initial exchange of goods is simply the extent of the deal.

I’m here to tell you that I’m actively involved in both markets, and the cash market and futures market are telling me two very different things.

Paper Discrepancy

In prior issues of Bourbon & Bayonets I’ve discussed my more recent dealings in the gold cash market. For those who missed it, here’s the brief recap. When I started buying physical gold in the early 2000s, I could easily receive overnight delivery. It was this way for many years, even as the price of gold multiplied.

Just over a month ago, I was on the phone with my dealer. He explained to me that it was going to be a three week delay on my bullion delivery. It turns out that the market for gold was drying up. Even the dealers were having trouble getting their hands on anything substantial.

Well, things have gotten even tighter in the physical markets. In fact, I called my dealer last week, and he simply told me that I was out of luck. He can’t get his hands on ANY gold. I’m saying that he couldn’t get me a U.S. Eagle, Toronto Maple Leaf, or South African Krugerrand.

What could cause such a freeze up of markets on such a massive scale?

Cash is Trash

My cash dealer explained a few things to me. He said it was a deadly combination of tightening supply and massive growth in demand. On the manufacturers' side, the plants that could get raw metals were working 24/7 and were still backlogged on orders.

While he was telling me this, stories like this one from Bloomberg (http://www.bloomberg.com/apps/news?pid=20601012&refer=commodities&sid=acH4WhPh1WJ0) started popping up:

Aug. 28 (Bloomberg) -- Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an ``unusually large'' order from a buyer in Switzerland.
This was particularly unfortunate, because the Krugerrand is my favorite of the 1 oz coins.

Here’s another article from CoinNews (http://www.coinnews.net/tag/american-eagle-gold/):

(Aug. 17, 2008) The Gold Anti-Trust Action Committee [GATA] reported Friday that the United States Mint has suspended sales of American Eagle gold coins to their network of Authorized Purchases.
So these issues that are in the cash market are beginning to leak their way into the crevasses of the media. Right now, you kind of have to do some digging and searching to find news on this sort of topic. I imagine that in a short time, this will be making headlines. Of course, it will be the speculators who are blamed.

Regardless, we still need to look into this a little deeper and find where the issues stem from and how this sort of market irregularity can exist. In doing so, we will also identify why the cash market is frozen and the futures market is still running…for now.

More Supply and Demand

The demand side of the picture is not something that requires a lot of brains to analyze. When the systematic destruction of the world’s reserve currency begins to show up in commodities prices including, copper, corn, oil, etc., people want to hedge their falling dollars with precious metals. Throw in some foreign central banks that are now net sellers of U.S. dollars and net buyers of precious metals, and you have a flood of new demand in the cash market, ranging from lack of sufficient mine production to lack of manufacturing infrastructure, and you get a tight market.

I noted the lock ups in curtain production and distribution facilities. The question now is why would distributors run out of supply now? Why would curtain producers now lose access to the raw minerals necessary to produce?
The answer to that question will require an in depth analysis on the disruption in the supply side of the futures market. My views on the supply side of the gold futures market are both controversial and revealing. It will not only helps us understand the freeze in cash markets, but it will also make clear to us how a cash market and futures market can be telling us two drastically different things. These questions will be answered in a “do not miss” issue of Bourbon & Bayonets later this week…stay tuned.

_____________

ABOUT THE AUTHOR:

Nicholas Jones has spent several years researching and preparing for the ripsaws in today's commodities markets. Through independent research on commodities markets and free-market macroeconomics, he brings a worldly understanding to all who participate in this particular financial climate.

Nick was educated at the University of Minnesota in economics, statistics and mathematics. He took his educational background to Wall Street, where he worked for some of the largest independent financial research firms in the business. He counseled readers on favorite micro-cap commodities plays along with a broad array of market analysis. With that comes Nick's ongoing demand for pure free market economics.

Nick currently works in the wheat futures pit at the Minneapolis Grain Exchange and brings his up close and personal experience with commodities markets exclusively to you.

Visit: Oxbury Research (http://www.oxburyresearch.com/)'s "Bourbon & Bayonets (http://www.oxburyresearch.com/index.php?option=com_content&task=blogcategory&id=2&Itemid=36)"

Seeking Alpha original article link here:

http://seekingalpha.com/article/94111-gold-futures-dirty-secret-part-ii?source=d_email
<SCRIPT type=text/javascript _extended="true">SeekingAlpha.Initializer.LogAndRun(load_article_to olbar);</SCRIPT>

jk
09-06-08, 11:07 PM
Quote:
<table width="100%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr> <td class="alt2" style="border: 1px inset ;"> Originally Posted by jk http://itulip.com/forums/images/buttons/viewpost.gif (http://itulip.com/forums/showthread.php?p=45930#post45930)
my best theory is that there's a bottleneck in fabrication. the gold spot market is in good for delivery 400oz gold bars held in specific vaults. the retail market is coins and small bars. the coins etc are selling at higher and higher premia to spot because retail investors see the market quotes and decide now's the time to buy. so there's a shortage of fabricated small quantities.
</td> </tr> </tbody></table>
but hasn't that always been the case?
i think the drop in pm prices has caused a big rush from folks who've been waiting for a pullback to buy physical. their concentrated demand cleaned out inventories, and the fabrication pipeline is too small to satisfy it. when gold [e.g.] crossed 800 on the way up, there was no jump in demand for physical. when it drops back to 800 from 1000, there are lots of buyers. but inventory was limited and the mints only punch so many coins per month. thus we get a jump in premia on physical.

metalman
09-06-08, 11:11 PM
i think the drop in pm prices has caused a big rush from folks who've been waiting for a pullback to buy physical. their concentrated demand cleaned out inventories, and the fabrication pipeline is too small to satisfy it. when gold [e.g.] crossed 800 on the way up, there was no jump in demand for physical. when it drops back to 800 from 1000, there are lots of buyers. but inventory was limited and the mints only punch so many coins per month. thus we get a jump in premia on physical.

i think you've been visiting too many pm geek sites. what of crashes in other commodity prices that were simultaneous?

jk
09-06-08, 11:26 PM
i think you've been visiting too many pm geek sites. what of crashes in other commodity prices that were simultaneous?
what of it? gold went down with a lot of other commodities. i thought the "mystery" to be explained was the shortage of physical. at least that was the question i was addressing in post #69.

metalman
09-06-08, 11:30 PM
what of it? gold went down with a lot of other commodities. i thought the "mystery" to be explained was the shortage of physical. at least that was the question i was addressing in post #69.

are you friggin kidding me? (http://itulip.com/forums/showthread.php?t=5024)

jk
09-06-08, 11:39 PM
are you friggin kidding me? (http://itulip.com/forums/showthread.php?t=5024)
ej's post in the thread you linked indeed addresses the issue of gold's descent along with that of other commodities. i didn't notice that it also discussed why physical is in short supply. did i miss that?

metalman
09-06-08, 11:43 PM
ej's post in the thread you linked indeed addresses the issue of gold's descent along with that of other commodities. i didn't notice that it also discussed why physical is in short supply. did i miss that?

yeh, it's all about the funds with the $$$ paper betting on the ??? physical.

jk
09-06-08, 11:58 PM
yeh, it's all about the funds with the $$$ paper betting on the ??? physical.
no, it's about the funds' selling driving down the price of commodities. it doesn't help poor lukester understand why he can't find those silver maple leaf and silver eagle coins he's desperately seeking.

Contemptuous
09-07-08, 01:35 AM
<TABLE cellSpacing=0 cellPadding=3 border=0><TBODY><TR><TD>
"What you have here is the footprints of the hedge funds exiting the commodities' markets in a mass stampede. Nothing more than that." Jon Nadler - Senior Analyst Kitco. Chimes In On The Precious Metals Conspiracy. ... As news of the planned intervention leaked out in March, funds not eager to trade against governments unwound their dollar hedge positions in commodities, including gold and silver _______________


Jon Nadler proves Precious Metals manipulation (no really, he does…) By: C. Loeb - Posted Sept 5th 2008

A recent posting by Ted Butler analyzing the sudden sale of an additional 27,606 COMEX silver contracts by 2 banks as of August 5<SUP>th</SUP> has created renewed interest in the possibility that COMEX silver is manipulated. Not surprising, given a $6.00 collapse in silver concomitant with the placing of this short side bet.<?XML:NAMESPACE PREFIX = O /><O:P></O:P>
<O:P></O:P>
Jon Nadler, Senior Analyst for Kitco Bullion recently posted an exhaustive rebuttal of the notion that precious metals market pricing is in anyway manipulated by the actions of large traders. The full text of Mr. Nadler’s thoughts can be found here:

http://www.kitco.com/ind/nadler/aug292008B.html (http://www.kitco.com/ind/nadler/aug292008B.html) <O:P></O:P>
<O:P></O:P>
This Kitco posted analysis is a verbatim repeat of a congratulatory email sent to ‘Mish’ Shedlock of Sitka Capital from Nadler, after Shedlock made the remarkable discovery that a futures contract represents a long for every short, and therefore there can be no manipulation, no matter how concentrated a particular futures position may be. Verbatim, that is, except for the deletion of assertions of retail silver abundance Nadler made in the email version that were apparently too ridiculous to be posted twice, even by Nadler. Nadler’s email to Shedlock, with the portions included regarding how much retail silver is available and that was deleted from his Kitco posting can be found here: <O:P></O:P>
<O:P></O:P>
http://globaleconomicanalysis.blogspot.com/2008/08/jon-nadler-senior-analyst-kitco-chimes.html (http://globaleconomicanalysis.blogspot.com/2008/08/jon-nadler-senior-analyst-kitco-chimes.html)
<O:P></O:P>
...Mr. Nadler inadvertently and unknowingly confirms the mechanism by which these markets can be manipulated through the very process he describes as benign. <O:P></O:P>
<O:P></O:P>
His analysis attempts to refute all thoughts of manipulation with two arguments. The first is the very model of intellectual sophistication and asserts that if you disagree with him and instead believe that the sale of 165,000,000 ounces of silver (25% of world silver production) on the COMEX by 2 <?XML:NAMESPACE PREFIX = ST1 /><ST1:COUNTRY-REGION w:st="on"><ST1:PLACE w:st="on">U.S.</ST1:PLACE></ST1:COUNTRY-REGION> banks had a depressive effect on the price of silver then you:<O:P></O:P>
<O:P></O:P>
a. Are ignorant<O:P></O:P>
b. Are stupid<O:P></O:P>
c. Flunked out of freshman economics<O:P></O:P>
d. Are on drugs<O:P></O:P>
e. Are all of the above <O:P></O:P>
<O:P></O:P>
Since I have, at various times, met or been accused of all of the above criteria, I will stipulate that there is a possibility that he may be right on this one. Having said that, and as sophisticated and nuanced an analysis as this represents, I am not sure that this in and of itself disproves silver manipulation, so let’s get on with the second half of his analysis that actually proves the opposite of what he thinks it does.<O:P></O:P>
<O:P></O:P>
This second point is that there exist “Banks/Bullion Banks” that are “market makers”, who “passively” buy and sell gold and silver, apparently taking these positions out of a sense of altruistic civic “obligation” in response to other trader’s demands. In his view, the sudden appearance of a short position of 33,000 COMEX silver contracts is simply the result of these civically minded banks hedging on the COMEX an OTC position they purchased from funds “stampeding” out of the silver market. Therefore, he goes on, the appearance of this short position on the COMEX is nothing unusual, not manipulative, and if you disagree please pick from the list above the characteristic that describes you best.<O:P></O:P>
<O:P></O:P>
Nadler here intentionally, or out of a lack of knowledge, attributes to commodity traders the function of a market maker in a stock security. In stocks, the underwriting banks of a public offering do make a market in the stock, buying where there are no other buyers, and then selling out of any inventory of the stock to new buyers. However, in commodities, the concept doesn’t apply except in very thinly traded markets. In fact, the CFTC glossary of terms, notes this about market makers in commodities:<O:P></O:P>
<O:P></O:P>
Market Maker: In the futures industry, this term is sometimes loosely used to refer to a floor trader or local who, in speculating for his own account, provides a market for commercial users of the market. Occasionally a futures exchange will compensate a person with exchange trading privileges to take on the obligations of a market maker to enhance liquidity in a newly listed or lightly traded futures contract. <O:P></O:P>
<O:P></O:P>
In other words, there are no ‘Market Makers’ in gold and silver, except those trading for the speculative benefit of their own accounts, and they are certainly under no obligation to buy a massive amount of anything they don’t think they can make money on. After all, who does Nadler presume imposes this ‘obligation?’ Nadler is simply wrong when he tries to assign a market makers ‘obligation’ to bank trading activity that is purely speculative. This is not “passive” trading, but for profit trading, and as long as there is nothing manipulative or illegal about such activity, more power to them. So now let’s look at the activity Nadler describes, and consider whether it is as benign and passive as he contends.<O:P></O:P>
<O:P></O:P>
We’ll assume for a moment that the 33,000 short contracts held by 2 banks were put on as Nadler asserts, and do not represent a government coordinated intervention in the gold and silver market to support the dollar, or a government coordinated bailout of a failing or near defaulting commercial trader, which are both possibilities, if hard to prove. If Nadler is correct, then what happened is that these 2 banks bought 165,000,000 ounces of silver from panicking funds on the OTC, where all such transactions are private, invisible, essentially unregulated and then turned around and sold 165,000,000 ounces on the COMEX, a completely transparent market where any change in price is instantly and electronically communicated to millions of traders worldwide, regularly tripping buy or sell orders in the process. So, you have an invisible purchase, and a visible sale of a massive amount of silver. Based on Shedlock, Nadler and CFTC analysis, this represents a perfectly rational hedge, can’t be manipulative because as we all know, hedging is largely neutral since as Shedlock so insightfully notes, there is a long for every short in the hedge.<O:P></O:P>
<O:P></O:P>
However, at this point one begins to wonder if a hedge of this size – 33,000 contracts in silver and 86,000 contracts in gold – that has one leg in a visible market and one leg in an invisible OTC market is quite as benign as Shedlock/Nadler/Szabo/CFTC et al insist it is. We have been told for years that the fact that the COMEX silver market structure sports a larger commercial net short position than any other significant market is of no manipulative import because it represents a hedged position, long someplace else. The someplace else, according to Nadler, is the OTC market. If he is correct on this, then this type of ‘hedge’ is precisely the sort of position needed to manipulate the market while flying below the radar of a somnolent CFTC and some of the more modest intellects in the analytic world. I think the inherent potential for a COMEX/OTC spread for mischief can be demonstrated by considering the following possible sequence of events, which would be perfectly consistent with Nadler’s views on what happened during the latter part of July and the first two weeks of August, the published data, as well as the trading opportunities open to the banks holding the reported positions:
<O:P></O:P>
<O:P></O:P>
1. Hedge funds begin selling silver and gold on the OTC market, and the 2 banks that show up on the Bank Participation Report begin buying.<O:P></O:P>
2. As the banks buy OTC they sell COMEX, and by August 5<SUP>th</SUP> they are long 165,000,000 ounces of silver on the OTC and short 165,000,000 ounces COMEX. <O:P></O:P>
3. The selling on the COMEX of such a massive amount of silver and gold contracts trips stop losses, further depressing the price of silver and gold, ultimately hitting a 40% decline in silver from recent highs.<O:P></O:P>
4. The banks at this point have a large profit on the short COMEX position and a large loss on the OTC long position.<O:P></O:P>
5. The banks now begin covering the short position on the COMEX. Not huge amounts that would cause the price to spike, but enough to have it rise over the next couple of weeks, if not dramatically. <O:P></O:P>
6. Since no one is ‘obligating’ them to do so, they don’t bother to sell any of their large under water OTC long position to match the liquidation of their COMEX short position. After all, with a retail shortage of silver and increasingly gold, long positions would seem to be pretty good bets.<O:P></O:P>
7. Periodically, the banks throw a few large sell orders out to slow or reverse building rallies. The thinly traded overnight markets work well for this because it doesn’t take a lot of volume to have an immediate effect on price. Kind of a 2 steps forward, 1 step back approach.<O:P></O:P>
8. Over the course of a few weeks, the banks cover some percentage of the COMEX short position, making money. Based on price action since mid July and the Bank Participation Report cutoff date, the banks would have a minimum basis for their 27,606 new short COMEX silver position of $17.65 and their 79,000 new short COMEX gold position of $925.00. <O:P></O:P>
9. Now, let’s assume that over the next week or two, the price goes up a bit and more COMEX short covering occurs. At some point, and barring another successful whap down of the price on the COMEX, whatever profitable short covering is possible on the COMEX would have occurred.
<O:P></O:P>
<O:P></O:P>
So, how much profit might the banks have made on this trade so far? Well, the COT reports from July 15 (peak price) to August 26 give us a clue. During that period, the gross commercial short position in silver was reduced by 20,000 contracts and in gold by 109,000 short contracts. Based on the Bank Participation Report dated August 5<SUP>th</SUP> that showed 2 banks holding 25% of total open interest in silver and 3 banks holding 21% of total open interest in gold, I don’t think it unreasonable to assume the banks participated in this short covering proportionally. If so, as of Friday, August 29, the banks would have realized a minimum of $100,000,000 in silver and $228,000,000 in gold, with a lot of daylight still left between the spot price and their short basis, so the fun isn’t over yet. <O:P></O:P>
<O:P></O:P>
The banks are in a position, whenever they wish, to spike the PM price upwards by the simple mechanism of buying back additional portions of their remaining COMEX short position with the happy result that after having made money on their short leg, their long leg on the OTC becomes profitable. At some point they stop buying back on the COMEX, but at whatever point they stop, they have made money on a good chunk of the COMEX short, their OTC excess long is also now solidly profitable, and any remaining COMEX/OTC spread isn’t doing them any harm. And the wonderful thing about this money machine is that it is a RENEWABLE RESOURCE! As long as you can rely on the CFTC, Jon Nadler et al to keep telling people it’s all ok and there is a nickel left in the pockets of COMEX silver investors you can KEEP DOING IT! This manipulation does not involve beginning to short silver at $7.00 and hanging on with your teeth through a relentless price increase. It only involves the ability to put on gargantuan COMEX short positions from the safety of the Commercial category of traders without regulatory interference so that you can reap profits in induced sell-offs both on the short and long side of a hedge in 2 different markets – one that sets the price (COMEX) and one that reflects it (OTC). And we owe it all to Jon Nadler to explain to us the mechanics of this clever manipulation.<O:P></O:P>
<O:P></O:P>
What a wonderful world. <O:P></O:P>
<O:P></O:P>
- C. Loeb - Independent silver investor



</TD></TR></TBODY></TABLE>

jk
09-07-08, 08:55 AM
lukester, i believe that what loeb is describing is what jesse livermore would have called a "raid." be grateful. it changes nothing in the long run, while it offers us the opportunity of cheaper purchases for long term holdings.

metalman
09-07-08, 12:07 PM
no, it's about the funds' selling driving down the price of commodities. it doesn't help poor lukester understand why he can't find those silver maple leaf and silver eagle coins he's desperately seeking.

luke oughta get a subscription and read all about it... It's called Selling (http://www.itulip.com/forums/showthread.php?p=46213#post46213)

we_are_toast
09-07-08, 01:18 PM
I'm a newbie here, and have read as much as I can find about the physical shortage of gold and silver in a price declining market and still don't get it.

All the commodities took a hard hit this summer. Sugar, Soybeans, Oil, Copper, gold and silver...

This morning; my coffee was just as sweet, my fried tofu was just as good (you have to acquire a taste :)), I had no problem filling my truck with gas, I bought a copper pipe to do some plumbing work at a cheaper price than 4 months ago, and yet I still can't buy a silver or gold coin without paying a huge premium! After checking on craigslist there are plenty of offers to buy, and I couldn't find one offering to sell. Why is the gold and silver market acting differently than the rest of the commodities?

Hmmmmm, I'm not much for conspiracies, but I still haven't seen an explanation why the gold and silver markets should react any differently than the copper, oil, or other commodity markets.

Jim Nickerson
09-07-08, 01:28 PM
luke oughta get a subscription and read all about it... It's called Selling (http://www.itulip.com/forums/showthread.php?p=46213#post46213)

Luke is a subscriber, the front office just does not have it in his screen description.

jk
09-07-08, 01:41 PM
I'm a newbie here, and have read as much as I can find about the physical shortage of gold and silver in a price declining market and still don't get it.

All the commodities took a hard hit this summer. Sugar, Soybeans, Oil, Copper, gold and silver...

This morning; my coffee was just as sweet, my fried tofu was just as good (you have to acquire a taste :)), I had no problem filling my truck with gas, I bought a copper pipe to do some plumbing work at a cheaper price than 4 months ago, and yet I still can't buy a silver or gold coin without paying a huge premium! After checking on craigslist there are plenty of offers to buy, and I couldn't find one offering to sell. Why is the gold and silver market acting differently than the rest of the commodities?

Hmmmmm, I'm not much for conspiracies, but I still haven't seen an explanation why the gold and silver markets should react any differently than the copper, oil, or other commodity markets.
copper is ubiquitous in the economy, that's why it's the metal with a ph.d. in economics. gas, sugar, soybeans are processed in enormous quanities as they are consumed in enormous quantities. retail precious metal production is tiny and the fabricators have limited capacities. right now buyers are metaphorically trying to drink a gallon a minute through a soda straw.

Chris
09-07-08, 03:21 PM
EJ's evidence that hedge fund selling in the main driver of the short term gold price is quite convincing but he also predicts a sideways move for gold for the next 6-9 months. Does this mean that the inflationary consequences of the GSE bailout are already factored in to the gold price even with the massive sell-off by the hedge funds?

Contemptuous
09-07-08, 04:26 PM
Out of curiosity this morning I "proofread" the two versions of the original NADLER email to Mish as posted on Mish's blog, and subsequently Nadler's "spruced up" version posted to the KITCO website (links to both in the post above). Some curious and revealing little "edits" emerged, which provide a nice "Rorschach Anxiety Test" of NADLER's unspoken concerns, which run like an uneasy undercurrent to his editorial on KITCO.

All mentions to silver delivery delays, silver bullion "abundance" and so forth have been artfully excised from the KITCO copy of this text. Now why would Mr. Nadler not simply re-post his email to MISH in it's entire original form? Well, evidently when you get into publicly posted articles, there are more stringent questions of "accountability". Why not acknowledge silver retail shortages - clearly they exist, no? Notice also the inserted effusive homage to the ever-vigilant "US - CFTC regulators keeping a keen eye on the market"?

Based upon the edits below, I view Nadler as an analyst more concerned with hewing to the KITCO proprieties than he is to posting inquiring articles. The KITCO article was not an essay inquiring vigorously and impartially into the topic - it was an "opinion piece" which remains symbiotically curled up within KITCO's own corporate interests and concerns in this matter. The hints abound therein, that NADLER is a "tame" analyst - at least in coverage of this story.

NADLER'S ORIGINAL EMAIL TO MISH READ:

The 'smoking gun report' is completely in error. What we may have here is a bullion analyst grasping at straws, and trying to incite the retail public to buy physical silver in the hopes that it will reverse the growing tide of money exiting the commodities complex. The so-called “shortages of physical silver” are simply localized coin blank inventory problems (the US Mint) or manufacturers not operating on a 'let's stock it, whether we think we can sell it or not' basis.

NADLER'S "SANITIZED" RE-POST TO KITCO THEN READS:

Such 'smoking weapons reports' are completely in error. Bullion 'analysts' are once again grasping at conspiracy straws and are trying to incite the retail public to buy physical silver in the hopes that they might reverse the growing tide of institutional money exiting the commodities complex. The theories that the gold and/or silver markets are somehow sinisterly manipulated – (especially as they comes at a time when US regulators are keeping a keen eye on everything in the stock and commodities markets for just such behaviors), is simply ludicrous and totally out of touch with market reality. Caveat lector.

[ COMMENT: Seems the "so-called shortages of physical silver ... are simply coin blank problems" mention has been quietly "dsappeared", as it was realised this might get KITCO into a sticky corner regarding claims of "abundant stocks", given KITCO is currently still notifying clients of zeroed invengtory and delivery delays? Are we to conclude Nadler had an "accountability epiphany" here? :D Therefore we observe a stern editor's pen drawn through this mention, and to put some "body" back into the paragraph, it has been substituted with an approval of the "vigilant regulators" instead. Very adroitly done, Jon! :rolleyes: ]

NADLER'S ORIGINAL EMAIL TO MISH READ:

While everyone is aware that physical demand can and did rise on the massive price break we've had since the highs of March, and those of July, such a reaction by the would-be buying public is quite normal. Surely, many would love to try to bring down a $20 (or higher) initial cost on their metal if they have a chance to buy more at $12 or $13 per ounce. As for silver supplies, there is quite an ample supply of the raw material from which to manufacture any small product. Let fabricators come back from their summer holidays and the situation might change soon.

There are no problems securing Austrian, Australian, or Canadian silver coins and (as of yesterday) and dealers feel confident that their current and pipeline US silver coin supplies will ensure the satisfaction of all of their commitments to their customers. The theory that the market is somehow sinisterly manipulated – (especially as it comes at a time when US regulators are keeping a keen eye on the goings-on in the commodities and financial markets for just such type of evidence), is simply ludicrous and totally out of touch with market reality. Caveat lector."

(COMMENT: The above two paragraphs are simply "disappeared" entirely and a different article close is substituted, introducing Mish. Reassurances about ironclad delivery commitments to customers was dropped. We must conclude Nadler decided that it "just did not sound quite right". Symbiosis with KITCO's own concerns in the matter, is addressed by "downplaying" the point to 100% invisibility? )

NADLER'S "SANITIZED" RE-POST TO KITCO THEN READS:

While Prof. Antal Fekete (who is seen on this site on occasion) has already and quite lucidly addressed the issues of naked shorts and related topics in some of his previous articles, one of the most compelling rebuttals written in recent memory comes - no, not from the CFTC (although it has also spoken quite unequivocally on the matter) but from Sitka Pacific Capital Management's Mike "Mish" Shedlock.

Yesterday, we relayed Mike's take on the psychology of conspiracy theories. It was as insightful as possible. We encourage you to revisit the article. Herewith, his latest post on the Great Non-Existent Gold and Silver Conspiracy. Long read, yes. Worth the read? Priceless. You have the long weekend to digest it. Then, send a missive to your favorite conspiracy advocate. Here goes Mike (please note that these are his observations and opinions on matters):

bart
09-07-08, 04:44 PM
Out of curiosity this morning I "proofread" the two versions of the original NADLER email to Mish as posted on Mish's blog, and subsequently Nadler's "spruced up" version posted to the KITCO website (links to both in the post above). Some curious and revealing little "edits" emerged, which provide a nice "Rorschach Anxiety Test" of NADLER's unspoken concerns, which run like an uneasy undercurrent to his editorial on KITCO.

...



Nice job Lukester.

I also note that Mish has been quite silent in the whole area for many days. I also note that Mish's blog stats on Alexa continue to drop, both in reach and rank.

Contemptuous
09-07-08, 04:58 PM
Maybe he's concerned some prior incautious and flamboyant "bold assertion" in the matter will sneak up and bite him in the ass while he's napping? That kind of worry can run you ragged after a while.

bart
09-07-08, 05:31 PM
Maybe he's concerned some prior incautious and flamboyant "bold assertion" in the matter will sneak up and bite him in the ass while he's napping? That kind of worry can run you ragged after a while.

http://www.nowandfutures.com/grins/rimshot.mp3 ;)

He actually very specifically noted last week that he was "moving on" from the intervention and 'conspiracy' areas.

I'm among those who think that was a clear (and masked) admission that he blew it big with his dubious journalism and poor research and attention to actual facts. Perhaps he will learn from it, but I'm not holding my breath.

Spartacus
09-08-08, 12:56 PM
That's a CLAIM ASSERTED WITHOUT PROOF by some parties.

An easy and quick evasion, which cannot be proven ... I want to ask for proof, but even I am stymied ... how would anyone prove or disprove it?

An easy and quick evasion, which cannot be proven ...
convenient.
timely.
easy.

This claim surfaced months ago with Silver, less than a month ago with Gold, yet when several wholesalers started rationing 1000 oz Silver bars (no fabrication bottleneck) these same people (who originated the "only shortage is in coinage", then "only shortage is coinage and small-size rounds") refused to address the issue.


months ... has it been six? in this age of "instant or sooner" arbitrage and instant availability of almost everything, including the most sophisticated contracted manufacturing and design, that can duplicate a new Nike shoe in days, and if a book can be written about Sarah Palin in a couple of days and be in bookstores within a few weeks, and you can order up custom cars to be delivered in a week - and in that world, NO ONE is able to tool up coin production - that's been done for thousands of years, in 6 MONTHS to capture $7 per ounce premiums? sales on ebay are at $17 and $18, which is today a $7 premium over spot.


yes, I know this is "argument by personal incredulity and hysterical, hyperbolic rhetoric", but at some point even logical fallacies make some sense.

EDIT (more hysterical hyperbole) : so at one week of high Silver premiums (Gold had yet to have a huge paper to metal spread) the arbitrageurs and the entrepreneurs and the rapid-manufaturers of the world all thought it wouldn't last. At 1 month, they thought the same, even though the spread was rising. At 2 months, the same ... at some point, Gold gets into the action, and still no response?


retail precious metal production is tiny and the fabricators have limited capacities. right now buyers are metaphorically trying to drink a gallon a minute through a soda straw.

Contemptuous
09-08-08, 09:59 PM
... in this age of "instant or sooner" arbitrage and instant availability of almost everything, including the most sophisticated contracted manufacturing and design, that can duplicate a new Nike shoe in days, and if a book can be written about Sarah Palin in a couple of days and be in bookstores within a few weeks ... and in that world, NO ONE is able to tool up coin production ... in 6 MONTHS to capture $7 per ounce premiums?Thinking Like "Fat Tony" - by James Turk - September 08, 2008 -

_______________

In his daily market commentary on September 1, 2008, Bill Murphy (Le Metropole Cafe') observed:

"You have to wonder how many times people can look at the exact same chart, with gold dropping at the same time, before they ask what the heck is going on? Free markets just don't trade that same way over and over and over, no matter what the outside fundamental factors are."

Indeed, one really does have to wonder, which made me think of two of the characters in Taleb's book, "Fat Tony" and his complete and total opposite, "Dr. John". Here is how Taleb describes them:

"Fat Tony... more politely, Brooklyn Tony', because of his accent and his Brooklyn way of thinking, though Tony is one of the prosperous Brooklyn people who moved to New Jersey twenty years ago...He started as a clerk in the back office of a New York bank...and figured out the game of how you can get financing from monster banks, how their bureaucracies operate, and what they like to see on paper...Tony has a remarkable habit of trying to make a buck effortlessly...Tony's motto is "Finding who the sucker is."...Finding these suckers is second nature to him. If you took walks around the block with Tony you would feel considerably more informed about the texture of the world just "tawking" to him. Tony is remarkably gifted at getting unlisted phone numbers, first-class seats on airlines for no additional money, or your car in a garage that is officially full, either though connections or his forceful charm."

"Dr. John is a master of the schedule; he is as predictable as a clock...Dr. John is a painstaking, reasoned and gentle fellow. He takes his work seriously, so seriously that, unlike Tony, you can see a line in the sand between his working time and his leisure activities. He has a PhD in electrical engineering...Since he knows computers and statistics, he was hired by an insurance company to do computer simulations...Much of what he does consists of running computer programs for risk management'."

Taleb then brings these two completely different people together in a make-believe encounter to ask them a question in order to compare their answers. He tells them that he has a coin and that it is "fair", meaning that it has an equal probability of coming up heads or tails when flipped. He then tells them he has flipped it ninety-nine times and the coin has landed heads each time. Taleb then asks them to calculate the odds of the coin landing tails on the next throw.

[I]"Dr. John: Trivial question. One half, of course, since you are assuming 50 percent odds for each and independence between draws.

NNT [Taleb]: What do you say Fat Tony?

Fat Tony: I'd say no more than one percent, of course.

NNT: Why so? I gave you the initial assumption of a fair coin, meaning that it was 50 percent either way.

Fat Tony: You are either full of crap or a pure sucker to buy that "50 pehcent" business. The coin gotta be loaded. It can't be a fair game. (Translation: It is far more likely that your assumptions about the fairness are wrong than the coin delivering ninety-nine heads in ninety-nine throws.)

NNT: But Dr. John said 50 percent.

Fat Tony (whispering in my ear): I know these guys with the nerd examples from my bank days. They think way too slow. And they are too commoditized. You can take them for a ride.

As Bill Murphy noted, free markets just don't trade the "same way over and over and over." If the gold market were a coin' flipped ninety-nine times in recent years, each time it came up heads. As Fat Tony understands, da coin gotta be loaded.

Taleb goes on to write: "Now, of the two of them, which would you favor for the position of mayor of New York City? Dr. John thinks entirely within the box, the box that was given to him; Fat Tony almost entirely outside the box...Have you ever wondered why so many of these straight-A students end up going nowhere in life while someone who lagged behind is now getting the shekels, buying the diamonds, and getting his phone calls returned?...Some of this may have something to do with luck in outcomes, but there is this sterile and obscurantist quality that is often associated with classroom knowledge that may get in the way of understanding what's going on in real life."

Here's another example how Fat Tony may see current events. We are told that the US Mint is unable to meet the demand for American eagle gold coins. Do we accept the Mint's word for it, or dig deeper and consider other possibilities?

Well, before answering that question, take a look at the accompanying chart of US Mint coin sales. It was prepared by Nick Laird of Sharelynx.

http://www.safehaven.com/images/turk/11193.png

What's clear from this chart is that current sales demand (the blue line shows sales of one ounce gold eagles) is not out of line with previous periods in which the US Mint was able to meet demand. So why can't the Mint meet demand this time around?

Here's something else about the US Mint that Fat Tony may find curious. The Treasury reports the US Gold Reserves monthly at this link: http://fms.treas.gov/gold/index.html

These reserves include "gold held by U.S. Mint facilities", which the report labels as "working stock" and describes it as "the portion of the U.S. government-owned Gold Bullion Reserve that the U.S. Mint uses as the raw material for minting congressionally authorized coins." The August 29, 2008 report says the quantity of working stock is 2,783,218.656 ounces. Yet we are told by the Mint that none of that can be minted into gold eagles? Would Fat Tony say we are a "sucker" to believe that the Mint cannot produce gold eagles to meet demand?

Here's something even more bizarre. One would assume that the size of the Mint's working stock varies from month to month, just like inventory varies from month to month in any business as a result of changes in production and the ebbs and flows in sales. And indeed, the Mint's inventory did vary monthly, up until March 2006. But according to the Treasury's reports, the Mint's working stock has remained exactly 2,783,218.656 ounces since April 2006. How is it possible that the Mint's working stock has remained unchanged for 28 months? Have you ever seen any business anywhere in the world for which its working stock was unchanged for a day, let alone 28 months?

It's not hard to imagine what Fat Tony would say about the accuracy of the Treasury's reports. And he would no doubt call anyone who believes them a "sucker".

phirang
09-09-08, 09:30 AM
Thinking Like "Fat Tony" - by James Turk - September 08, 2008 -

_______________

In his daily market commentary on September 1, 2008, Bill Murphy (Le Metropole Cafe') observed:

"You have to wonder how many times people can look at the exact same chart, with gold dropping at the same time, before they ask what the heck is going on? Free markets just don't trade that same way over and over and over, no matter what the outside fundamental factors are."

Indeed, one really does have to wonder, which made me think of two of the characters in Taleb's book, "Fat Tony" and his complete and total opposite, "Dr. John". Here is how Taleb describes them:

"Fat Tony... more politely, Brooklyn Tony', because of his accent and his Brooklyn way of thinking, though Tony is one of the prosperous Brooklyn people who moved to New Jersey twenty years ago...He started as a clerk in the back office of a New York bank...and figured out the game of how you can get financing from monster banks, how their bureaucracies operate, and what they like to see on paper...Tony has a remarkable habit of trying to make a buck effortlessly...Tony's motto is "Finding who the sucker is."...Finding these suckers is second nature to him. If you took walks around the block with Tony you would feel considerably more informed about the texture of the world just "tawking" to him. Tony is remarkably gifted at getting unlisted phone numbers, first-class seats on airlines for no additional money, or your car in a garage that is officially full, either though connections or his forceful charm."

"Dr. John is a master of the schedule; he is as predictable as a clock...Dr. John is a painstaking, reasoned and gentle fellow. He takes his work seriously, so seriously that, unlike Tony, you can see a line in the sand between his working time and his leisure activities. He has a PhD in electrical engineering...Since he knows computers and statistics, he was hired by an insurance company to do computer simulations...Much of what he does consists of running computer programs for risk management'."

Taleb then brings these two completely different people together in a make-believe encounter to ask them a question in order to compare their answers. He tells them that he has a coin and that it is "fair", meaning that it has an equal probability of coming up heads or tails when flipped. He then tells them he has flipped it ninety-nine times and the coin has landed heads each time. Taleb then asks them to calculate the odds of the coin landing tails on the next throw.

[I]"Dr. John: Trivial question. One half, of course, since you are assuming 50 percent odds for each and independence between draws.

NNT [Taleb]: What do you say Fat Tony?

Fat Tony: I'd say no more than one percent, of course.

NNT: Why so? I gave you the initial assumption of a fair coin, meaning that it was 50 percent either way.

Fat Tony: You are either full of crap or a pure sucker to buy that "50 pehcent" business. The coin gotta be loaded. It can't be a fair game. (Translation: It is far more likely that your assumptions about the fairness are wrong than the coin delivering ninety-nine heads in ninety-nine throws.)

NNT: But Dr. John said 50 percent.

Fat Tony (whispering in my ear): I know these guys with the nerd examples from my bank days. They think way too slow. And they are too commoditized. You can take them for a ride.

As Bill Murphy noted, free markets just don't trade the "same way over and over and over." If the gold market were a coin' flipped ninety-nine times in recent years, each time it came up heads. As Fat Tony understands, da coin gotta be loaded.

Taleb goes on to write: "Now, of the two of them, which would you favor for the position of mayor of New York City? Dr. John thinks entirely within the box, the box that was given to him; Fat Tony almost entirely outside the box...Have you ever wondered why so many of these straight-A students end up going nowhere in life while someone who lagged behind is now getting the shekels, buying the diamonds, and getting his phone calls returned?...Some of this may have something to do with luck in outcomes, but there is this sterile and obscurantist quality that is often associated with classroom knowledge that may get in the way of understanding what's going on in real life."

Here's another example how Fat Tony may see current events. We are told that the US Mint is unable to meet the demand for American eagle gold coins. Do we accept the Mint's word for it, or dig deeper and consider other possibilities?

Well, before answering that question, take a look at the accompanying chart of US Mint coin sales. It was prepared by Nick Laird of Sharelynx.

http://www.safehaven.com/images/turk/11193.png

What's clear from this chart is that current sales demand (the blue line shows sales of one ounce gold eagles) is not out of line with previous periods in which the US Mint was able to meet demand. So why can't the Mint meet demand this time around?

Here's something else about the US Mint that Fat Tony may find curious. The Treasury reports the US Gold Reserves monthly at this link: http://fms.treas.gov/gold/index.html

These reserves include "gold held by U.S. Mint facilities", which the report labels as "working stock" and describes it as "the portion of the U.S. government-owned Gold Bullion Reserve that the U.S. Mint uses as the raw material for minting congressionally authorized coins." The August 29, 2008 report says the quantity of working stock is 2,783,218.656 ounces. Yet we are told by the Mint that none of that can be minted into gold eagles? Would Fat Tony say we are a "sucker" to believe that the Mint cannot produce gold eagles to meet demand?

Here's something even more bizarre. One would assume that the size of the Mint's working stock varies from month to month, just like inventory varies from month to month in any business as a result of changes in production and the ebbs and flows in sales. And indeed, the Mint's inventory did vary monthly, up until March 2006. But according to the Treasury's reports, the Mint's working stock has remained exactly 2,783,218.656 ounces since April 2006. How is it possible that the Mint's working stock has remained unchanged for 28 months? Have you ever seen any business anywhere in the world for which its working stock was unchanged for a day, let alone 28 months?

It's not hard to imagine what Fat Tony would say about the accuracy of the Treasury's reports. And he would no doubt call anyone who believes them a "sucker".

Metals are volatile, and so unless you've a two-week payback period, it's a terrible investment to add to capacity (unless you can forward-sell).

Spartacus
09-09-08, 11:24 AM
And all this having been written ...

after committing myself so vociferously and dramatically in x number of posts (albeit with some qualifying and hedging language), how, oh HOW do I maintain the proper skeptical attitude required for good investing?

If "the market" is always right, what is "the market" telling us?

And which market is speaking?
ebay or COMEX?

COMEX, which has seen enormous "sales" of "Silver" and "Gold",
or SLV, the Silver ETF, which has seen NO net disposal of Silver stock, that I've seen reported so far, and, in fact, has been adding Silver?

And apparently the Gold ETFs have sold off a little, but definitely not much.

Being in precious metals is like being cheesed (like being creamed, just takes a lot longer)


That's a CLAIM ASSERTED WITHOUT PROOF by some parties.

An easy and quick evasion, which cannot be proven ... I want to ask for proof, but even I am stymied ... how would anyone prove or disprove it?

An easy and quick evasion, which cannot be proven ...
convenient.
timely.
easy.

This claim surfaced months ago with Silver, less than a month ago with Gold, yet when several wholesalers started rationing 1000 oz Silver bars (no fabrication bottleneck) these same people (who originated the "only shortage is in coinage", then "only shortage is coinage and small-size rounds") refused to address the issue.


months ... has it been six? in this age of "instant or sooner" arbitrage and instant availability of almost everything, including the most sophisticated contracted manufacturing and design, that can duplicate a new Nike shoe in days, and if a book can be written about Sarah Palin in a couple of days and be in bookstores within a few weeks, and you can order up custom cars to be delivered in a week - and in that world, NO ONE is able to tool up coin production - that's been done for thousands of years, in 6 MONTHS to capture $7 per ounce premiums? sales on ebay are at $17 and $18, which is today a $7 premium over spot.


yes, I know this is "argument by personal incredulity and hysterical, hyperbolic rhetoric", but at some point even logical fallacies make some sense.

EDIT (more hysterical hyperbole) : so at one week of high Silver premiums (Gold had yet to have a huge paper to metal spread) the arbitrageurs and the entrepreneurs and the rapid-manufaturers of the world all thought it wouldn't last. At 1 month, they thought the same, even though the spread was rising. At 2 months, the same ... at some point, Gold gets into the action, and still no response?

Contemptuous
09-09-08, 04:38 PM
Phirang -

The entire point of the post above :

http://www.itulip.com/forums/showthread.php?p=46298#poststop

Was that all market participants who maintain constantly fluctuating positions long the metals by virtue of commercial inventories do forward sell to hedge their changing positions. From the CB's down to the bullion banks, down to the refiners, down to the retailers. One should assume most of the larger actors are of course hedging. In the silver market especially this is a given.

Therefore the argument that PM's supply is constrained coming to the retail market because of the price risk and because "it's a terrible investment" for those punting into a sharply fluctuating price environment, is an invalid argument.

You are employing arguments whose primary task seems to be to refute that any tightness in supply can really exist, up at the top wholesale levels of the world bullion markets, e.g. COMEX. If it did really emerge, that there were increasing hints of real tightness at those global wholesale levels, this would be huge information to the retail public.

It's not an article to be taken on faith. It is a point wherein skepticism is an asset, rather than a liability, in 2008.

Skepticism is an excellent working trait to adhere to - but in the precious metals markets, in a world of quite evident looming fiat currency dysfunction, one should make sure the habitual skepticism does not obscure or impede one's ability to look with a gimlet eye at the plausibility of the displayed facts. This was the point of Jim Turk's "Fat Tony" analogy.


Metals are volatile, and so unless you've a two-week payback period, it's a terrible investment to add to capacity (unless you can forward-sell).

The McClellan Market Report detects a "peculiar behavior" emanating from gold's price action here too apparently. An increasing number of observers are beginning to note the curious convergence of myriad little "hints" of these anti-fiat hedge market segments behaving "oddly".

Here is an excerpt from the current week's McClellan's newsletter. Notice his comment regarding the "peculiar" constrained quality of the action in Gold? A lot of alert analysts are paying attention to this. It seems here at iTulip we have a contingent who adhere to the "skepticism theology" with undue universality.

Charles Mackay has an excellent post in the select forums (which I believe you've read) commenting on the slew of "odd coincidences and conundrums" which when all assembled into a line-up and scrutinized with due skepticism, in fact seem to share certain slightly malodorous "common denominators".

Taken as a group, their collective little coincidences require a "suspension of disbelief" which begins to put a strain upon the "skepticism theologians" habitual moorings in a world where collusions are considered a-priori to be the least probable hypotheses.

As evidenced by my posts everywhere around here for the past couple of years, I have in fact been vehemently anti-collusion practically everywhere. I've long considered it to be an expression of weak-mindedness.

But when it comes to fiat money getting increasingly dysfunctional, and in the case of the USD, now backed into a corner, the habitual anti-collusion view of the world begins to llook increasingly like it needs an overhaul in this particular regard.

Observers such as Sinclair and Veneroso have long since understood the "Fat Tony" thesis. Everyone else is playing catch up.

___________

McClellan Market Report (current excerpt)

T-Bond traders did not like the weekend news about Freddie and Fannie at first, but they warmed up to it as the day rolled on, and as the dollar made a huge rally. The growing consensus seems to be that the financial situation in the USA might look bad, but it looks a lot better than everywhere else. Richard Russell writes in his latest Dow Theory Letters that the price for loose diamonds larger than 10 carats has gone up dramatically. Why, you ask? Because Russian capitalists who are worried about economic troubles and devaluation of their rubles are scurrying to put money into a safe and mobile form, and large diamonds fit the bill. T-Bonds are also safe and mobile, at least compared to other assets. But that perception of safety can quickly erode once inflation rears its head again.

The up close on Monday for December TBonds means that bonds have made a marginally higher high. This has happened on a single day price bar that saw a big long tail, and a close high in the day’s range. We saw a similar condition back in March, circled at the left end of the chart, when a big-tailed reversal bar was followed briefly by a higher close on a similar daily bar. That did not stop bond prices from entering a 3-month downtrend, and it seems likely that we will see a similar outcome this time. The really peculiar event on Monday was gold strength in the face of a strong dollar. Gold was initially up nicely as the dollar sold off on Sunday night, right after the open of trading and after the announcement about Freddie and Fannie. But the dollar turned around sharply intraday, and closed up by more than 1%.

That hurt gold a bit, but December gold futures still managed to finish about unchanged at the end of the day session on Monday, which keeps that contract very near the same closing price level it has seen for the past 3 days.

It seems just a little suspicious to have gold prices held so tightly at a specific price level, especially in light of wild gyrations in the dollar. Such behavior implies that somebody is holding gold prices in place until certain conditions are met, after which it can be released like the spring-plunger on a pinball machine. A good example of this comes from the flashback chart at the bottom of page 3, which looks at gold prices back in 2001. The 3 circled areas show examples of gold prices being held in a tight range, and then finally being released to fly free at the point of someone’s choosing. The robust pop of the last one was helped by the 9/11 attacks, but the principle is the same. At some point soon, the fetters will be loosed, and gold will fly.

563

phirang
09-09-08, 04:44 PM
Phirang -

The entire point of the post above :

http://www.itulip.com/forums/showthread.php?p=46298#poststop

Was that all market participants who maintain constantly fluctuating positions long the metals by virtue of commercial inventories do forward sell to hedge their changing positions. From the CB's down to the bullion banks, down to the refiners, down to the retailers. One should assume most of the larger actors are of course hedging. In the silver market especially this is a given.

Therefore the argument that PM's supply is constrained coming to the retail market because of the price risk and because "it's a terrible investment" for those punting into a sharply fluctuating price environment, is an invalid argument.

You are employing arguments whose primary task seems to be to refute that any tightness in supply can really exist, up at the top wholesale levels of the world bullion markets, e.g. COMEX. If it did really emerge, that there were increasing hints of real tightness at those global wholesale levels, this would be huge information to the retail public.

It's not an article to be taken on faith. It is a point wherein skepticism is an asset, rather than a liability, in 2008.

Skepticism is an excellent working trait to adhere to - but in the precious metals markets, in a world of quite evident looming fiat currency dysfunction, one should make sure the habitual skepticism does not obscure or impede one's ability to look with a gimlet eye at the plausibility of the displayed facts. This was the point of Jim Turk's "Fat Tony" analogy.



Scott McClellan's nose is twitching here too apparently, and he's not the only one. An increasing number of observers are beginning to note the curious convergence of myriad little "hints" of these anti-fiat hedge market segments behaving "oddly".

Here is an excerpt from the current week's McClellan's newsletter. Notice his comment regarding the "peculiar" constrained quality of the action in Gold? A lot of alert analysts are paying attention to this. It seems here at iTulip we have a contingent who adhere to the "skepticism theology" with undue universality.

Charles Mackay has an excellent post in the select forums (which I believe you've read) commenting on the slew of "odd coincidences and conundrums" which when all assembled into a line-up and scrutinized with due skepticism, in fact seem to share certain slightly malodorous "common denominators".

Taken as a group, their collective little coincidences require a "suspension of disbelief" which begins to put a strain upon the "skepticism theologians" habitual moorings in a world where collusions are considered a-priori to be the least probable hypotheses.

As evidenced by my posts everywhere around here for the past couple of years, I have in fact been vehemently anti-collusion practically everywhere. I've long considered it to be an expression of weak-mindedness.

But when it comes to fiat money getting increasingly dysfunctional, and in the case of the USD, now backed into a corner, the habitual anti-collusion view of the world begins to llook increasingly like it needs an overhaul in this particular regard.

Observers such as Sinclair and Veneroso have long since understood the "Fat Tony" thesis. Everyone else is playing catch up.

___________

Scott McClellan (current excerpt)

T-Bond traders did not like the weekend news about Freddie and Fannie at first, but they warmed up to it as the day rolled on, and as the dollar made a huge rally. The growing consensus seems to be that the financial situation in the USA might look bad, but it looks a lot better than everywhere else. Richard Russell writes in his latest Dow Theory Letters that the price for loose diamonds larger than 10 carats has gone up dramatically. Why, you ask? Because Russian capitalists who are worried about economic troubles and devaluation of their rubles are scurrying to put money into a safe and mobile form, and large diamonds fit the bill. T-Bonds are also safe and mobile, at least compared to other assets. But that perception of safety can quickly erode once inflation rears its head again.

The up close on Monday for December TBonds means that bonds have made a marginally higher high. This has happened on a single day price bar that saw a big long tail, and a close high in the day’s range. We saw a similar condition back in March, circled at the left end of the chart, when a big-tailed reversal bar was followed briefly by a higher close on a similar daily bar. That did not stop bond prices from entering a 3-month downtrend, and it seems likely that we will see a similar outcome this time. The really peculiar event on Monday was gold strength in the face of a strong dollar. Gold was initially up nicely as the dollar sold off on Sunday night, right after the open of trading and after the announcement about Freddie and Fannie. But the dollar turned around sharply intraday, and closed up by more than 1%.

That hurt gold a bit, but December gold futures still managed to finish about unchanged at the end of the day session on Monday, which keeps that contract very near the same closing price level it has seen for the past 3 days.

It seems just a little suspicious to have gold prices held so tightly at a specific price level, especially in light of wild gyrations in the dollar. Such behavior implies that somebody is holding gold prices in place until certain conditions are met, after which it can be released like the spring-plunger on a pinball machine. A good example of this comes from the flashback chart at the bottom of page 3, which looks at gold prices back in 2001. The 3 circled areas show examples of gold prices being held in a tight range, and then finally being released to fly free at the point of someone’s choosing. The robust pop of the last one was helped by the 9/11 attacks, but the principle is the same. At some point soon, the fetters will be loosed, and gold will fly.

563

The ECB sold some gold this week, but it's a drop in the liquidity bucket.

If there is a conspiracy, then why doesn't someone buy a bunch of gold futures and demand delivery? Why doesn't Russia go do that and f' the US hard?

Contemptuous
09-09-08, 04:56 PM
Phirang -

It is not "conspiracy" - this is a misnomer and a misconception, to some extent anyway. It is in great part a "dysfunction" in the PM markets, due to long term, laxly regulated metals leasing. There is a long legacy of "metals hedging" which on it's flip side by definition is metals leasing from the counterparty, which all parties have necessarily indulged in as a standard component of price risk exposure in the precious metals. It has quite evidently become dysfunctional as you need only look at the 100 to 1 ratio of paper silver to actual silver trading to readily accept. This is by no means a controversial assertion these days. That metals leasing legacy has been cumulative, bringing us to the point where, when credit markets dysfunction begins to heighten, which then demands increasing currency abuse, the spillover bid into the PM markets begins to put a strain on that same accumulated dysfunctionality which has been brought about by long term unregulated metals leasing. The metals leasing has quietly created large distortions in the PM's over time. Distortion in the real price signals, in availability, in underlying risk exposures, etc. This is where the "conspiracy" lies, and it is not conspiracy in the conventional, dumbed down sense.

phirang
09-09-08, 05:22 PM
Phirang -

It is not "conspiracy" - this is a misnomer and a misconception, to some extent anyway. It is in great part a "dysfunction" in the PM markets, due to long term, laxly regulated metals leasing. There is a long legacy of "metals hedging" which on it's flip side by definition is metals leasing from the counterparty, which all parties have necessarily indulged in as a standard component of price risk exposure in the precious metals. It has quite evidently become dysfunctional as you need only look at the 100 to 1 ratio of paper silver to actual silver trading to readily accept. This is by no means a controversial assertion these days. That metals leasing legacy has been cumulative, bringing us to the point where, when credit markets dysfunction begins to heighten, which then demands increasing currency abuse, the spillover bid into the PM markets begins to put a strain on that same accumulated dysfunctionality which has been brought about by long term unregulated metals leasing. The metals leasing has quietly created large distortions in the PM's over time. Distortion in the real price signals, in availability, in underlying risk exposures, etc. This is where the "conspiracy" lies, and it is not conspiracy in the conventional, dumbed down sense.

So I ask again, why doesn't Russia buy up all the gold in COMEX and force the 10yr to 7% and crush the US Empire in one day?

Contemptuous
09-09-08, 06:13 PM
So I ask again, why doesn't Russia buy up all the gold in COMEX and force the 10yr to 7% and crush the US Empire in one day?

Search me Phirang. Question seems a bit ingenuous coming from you. Quite apart from anything else, there are stringent limits on buy orders for physical delivery from the COMEX as you well know.

I don't see why any of a range of reasons either pro or con your observation will even much affect the "plausibility" of metals leasing that has long preceded this point. That leasing has been real, it's cumulative effects are real, and whatever astonishing opportunities for financial warfare are presented here are barely emerging at this point. I find the financial warfare thesis highly implausible in comparison to the reality of large scale metals leasing, which is quite a mundane reality.

Also I'd hazard a guess that hard headed global geo-political strategist would likely consider the financial warfare adventure you ask about as fraught with major imponderable secondary effects, which alone might give any nation pause before initiating such moves.

In short, I have no idea as to why Russia don't/won't/can't/shouldn't buy up all the gold on the COMEX to strike a deadly blow against the archenemy USA, or do/will/can/should do so. I doubt their ability to do such a thing today substantively (despite COMEX annual sales caps far smaller than any moves on these markets Russia could make) makes a bit of difference to plausibility of a precious metals leasing dysfunction having really existed.

This hardly seems like a robust argument to disprove the reality of dysfunctional metals leasing.

phirang
09-09-08, 06:17 PM
Search me Phirang. Question seems a bit ingenuous coming from you. Quite apart from anything else, there are stringent limits on buy orders for physical delivery from the COMEX as you well know.

I don't see why any of a range of reasons either pro or con your observation will even much affect the "plausibility" of metals leasing that has long preceded this point. That leasing has been real, it's cumulative effects are real, and whatever astonishing opportunities for financial warfare are presented here are barely emerging at this point. I find the financial warfare thesis highly implausible in comparison to the reality of large scale metals leasing, which is quite a mundane reality.

Also I'd hazard a guess that hard headed global geo-political strategist would likely consider the financial warfare adventure you ask about as fraught with major imponderable secondary effects, which alone might give any nation pause before initiating such moves.

In short, I have no idea as to why Russia don't/won't/can't/shouldn't buy up all the gold on the COMEX to strike a deadly blow against the archenemy USA, or do/will/can/should do so. I doubt their ability to do such a thing today substantively (despite COMEX annual sales caps far smaller than any moves on these markets Russia could make) makes a bit of difference to plausibility of a precious metals leasing dysfunction having really existed.

This hardly seems like a robust argument to disprove the reality of dysfunctional metals leasing.

Considering the impact of the Georgian conflict on Russia's ruble and economy, it'd perhaps countervail some of the damage.

Then again, does any oil-exporter want the US to stop consuming oil... naaaah!

Contemptuous
09-09-08, 06:30 PM
Then again, does any oil-exporter want the US to stop consuming oil... naaaah!

As you observe, the relationships between nations have become so profoundly symbiotic that this sort of warfare has very high "collateral damage" for the instigator as well. Meantime, who would argue that fiat money and credit markets dysfunction is a mere illusion? That's like saying a barn door you are standing right next to is illusory. What is fiat money deathly afraid of in it's hour of weakness? It is most vulnerable to the "anti-fiat money". The observation is of course popularized to the point of being threadbare, and even the hallmark of dozens of hack "economic analyst" websites, but the essential insight is that this does not make it any less true. The plausibility of gold manipulation being real is rated as *high* in this environment - and the reasons should be as obvious as that barn door. It would be ingenuous to conclude in this environment that no real or urgent reasons existed for manipulation to not eventually appear. And if it's plausible that it appear eventually, how "eventually" is "eventually"?

bart
09-09-08, 07:55 PM
So I ask again, why doesn't Russia buy up all the gold in COMEX and force the 10yr to 7% and crush the US Empire in one day?

For the same reason that China and others don't - "blowback". The U.S. could have totally destroyed Russia in the late '90s too, and didn't. Also the Hunt Brothers tried a corner in 1980 and were defeated - that's not the way the "game" is played.

Also keep in mind that conspiracy also means a joining or acting together, as if by sinister design: a conspiracy of wind and tide that devastated coastal areas and does not have to mean "smoke filled back room".

And even though I strongly believe and have shown much proof that behind the scenes manipulation occurs, not only is it not 100% "evil" but I also characterize it as "control" too. A sudden jump of gold to $1200 or $1600 or $2000 or whatever in a very short period of time would not be a good thing overall.

jk
09-09-08, 09:35 PM
So I ask again, why doesn't Russia buy up all the gold in COMEX and force the 10yr to 7% and crush the US Empire in one day?
why take the risk when the "correlation of forces" is moving their way anyway?