Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

[Mega]

Je-sus EJ !!!!!!!!!!!!!!!!!!!!
FFS!

When will this shit end?
Mike

[lektrode]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

Je-sus EJ !!!!!!!!!!!!!!!!!!!!
FFS!

When will this shit end?

likely after the banksters take out the miners/producers = then they'll foreclose and own em and THEN the price will 'recouple with 'fundamentals'

[Raz]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

Phil Gotthelf is a very smart man, having created and maketed the first computerized futures trading system back in 1967-68.
But I have real doubts that the muslim crazies of MENA will handle MAD the way America and Russia did.

---

COMMODITY FUTURES FORECAST
WEEKLY REPORT

Prepared by Philip Gotthelf

Iran to Receive $150 Billion



(July 16, 2015) The Iranian nuclear “deal” that is not a treaty will be reviewed by Congress over the next sixty days. Although there is political chatter and positioning over rejecting the agreement, the President is well positioned to overcome any opposition. In usual fashion, Republicans relinquished any substantive hold on the deal by passing legislation that thwarts their control from the Senate. Since it is inconceivable that an entire political party can be that stupid, the only logical conclusion I can draw is that the Republicans want the deal to go through over their hollow protests.


It is fairly well established that the Iranian nuclear deal was not a negotiation. Effectively, Iran got everything and the U.S. got nothing. If we go back to the news articles from three years ago, we can see that all of Iran’s demands… even the most far reaching… were satisfied. Literally none of the U.S. “requirements” is in the agreement; not even spontaneous inspections. So, the entire process was little more than a show starring President Obama in the leading role and John Kerry as supporting actor. It should be up for a 2015 Academy Award.


Iran has been living under sanctions for more than a decade. Their domestic economy is a train wreck and all the spare money has been dedicated to building their war machine. That being said, Iran’s population as of 2013 was approximately 77.5 million. It is a little more than twice the size of Texas and has very little economic diversification. The main revenue comes from oil exports. Under the current theocracy there is little possibility that Iran will apply between $150 billion and $180 billion in released funds toward domestic programs. Most political scientists are convinced the money will be used for military purposes.


My focus over the next two months will be on the conversion of petro dollars into less attachable assets. I have pointed out that gold has been well supported by physical demand from the Middle East, India, and China. As U.S. and Western European investors abandon gold, other sovereign interests are happy to pick up the slack. I dedicated a portion of a previous SPECIAL REPORT to this process. Notably, I have repeatedly asserted that the Middle East no longer trusts in the Dollar or Euro Currency. There is a saying, “Fool me once, shame on you! Fool me twice, shame on me!”


The $150 to $180 billion Iran is about to receive is their own money that was frozen by sanctions. This is not a handout, it is a hand over. Having experienced the wrath of the West, I believe it is doubtful Iran will want to trust its newly freed up cash to a U.S. or European bank. On the other hand, Iran cannot conduct international business using their Rial. In fact, Iran has been side-stepping sanctions using gold.


Allow me to bring back some memories. Just before Libya fell I called attention to their currency that carried the picture of Gaddafi. I said that anytime a living dictator puts his face on the currency that currency is doomed. As soon as the political winds change as they dramatically did in Libya, you can expect the physical currency to collapse… which it did.

So, notice the Iranian paper currency. No, that is not a picture of Sean Connery on the latest iteration of the Rial bill. Just before Gaddafi was captured and killed he managed to raid the Libyan treasury and convert reserves to gold. That metal was promptly moved out of the country and no one knows where it is because the idiots who hunted down Gaddafi and his sons killed everyone before they could be interrogated.

Ask yourself the question, “If I know U.S. Dollar accounts and European Euro Currency accounts can be unilaterally frozen, do I want to keep my money in U.S. or European banks?” If your answer is “yes,” I have a bridge to nowhere I’d like to sell you! My sources tell me Iranian traders are already reaching out to establish contacts for buying and moving gold. Among those contacted include South African gold dealers, state owned Indonesian mines Australian producers, and Chinese dealers.


While the West continues playing the currency paper chase, entities like ISIS and countries like Iran are establishing primary and secondary gold currencies for transacting business. Little attention has been paid to Turkey’s acceptance of gold to conduct transactions with Iran as sanctions have remained in place. Iran has purchased oil rigs from Russia using gold as payment. It has been a two-way street. Iran has used gold to pay for weapons. ISIS sells oil for gold and has announced its own gold-backed currency. Knowing that any ISIS currency would lack legitimacy, gold is the only safe means of exchange.


In effect, regulations of the West encourage rouge trade using unconventional currency. As it turns out, gold may represent the most conventional of any unconventional currency. If this is true, why has gold declined from over $1,230/oz in May to $1,144/oz as I write today? Moreover, since I am presenting a bullish case for gold, why has COMMODITY FUTURES FORECAST recommended selling short twice?

The fact that the physical gold market remains tight has not affected certificated gold: i.e. ETFs, forwards, and options. By some estimates, the paper or “certificated” gold supply is 300% more than physical availability. Futures contracts double the supply again to suggest that prices are based upon a 600% exaggeration over physical realities.


It is unwise to ignore technical signs of weakness. The chart looks weak, but for the rapid approach of 1135.00/1134.00 support. Some chartists claim we have a well defined head & shoulders formation with a 1200.00 neckline. This has been definitively breached, pointing to a $990/oz objective. Can this be possible? Measuring from the January high around 131000 to 120000 support is $110. Subtracting $110 from 1200.00 support yields a 1090.00 first objective which is well within range. The second goal would be about $50 further down, breaching the sacred $1,000/oz mark.


Many analysts insist that gold is overpriced based upon the decline in crude oil and the Dollar’s advance. The prospect of interest rate hikes before the year end adds to skepticism over gold’s ability to reverse course. Clearly, the Dollar Index has responded to potential FED action and the Greek default crisis supports the Dollar as a safer haven than the Euro… for now. The U.S. economy continues showing signs of improvement even as China slows and Europe sorts through its universal debt difficulties.


So, there are few arguments to support gold and I have joined the general consensus in the near term. However, I am cautious about being overly enthusiastic about gold’s downside prospects. We were stopped out of our previous short position because I was too conservative with our trailing stops. Just when it looks like gold is about to crash, there seems to be a propensity for intense pops. When traced to a source, the increases are often uncorrelated with news and highly correlated with sovereign or quasi-sovereign accumulations. Consider that Vietnam has been a net buyer right up there with Russia and China.


When Iran begins to receive unfrozen assets I will be carefully monitoring physical gold movement in the Middle East. My suspicion is that Iran will turn to gold as a safer way to store wealth than the global banking system. I will also look at gold transactions to determine whether gold is becoming the de facto currency among Middle East nations. If this situation materializes, I believe there will be upside pressure on gold prices… silver will be taken along for the ride.


It is difficult for the West to understand the obvious. For some reason we assume that the ways of the U.S. and Western Europe must be the ways of the world. Nothing could be further from the truth. The vast difference between Muslim and Christian tradition is contrasted by the rise of ISIS and terrorism in general, yet we think they want to be us? This may be something President Obama understands better than Congress and the American public.


This brings up the point that Iran wants a nuclear weapon and cannot understand why the political leverage of having such weapons should be denied to them simply because the U.S. and its Western allies say so. After all, Israel probably has atomic weapons as do Pakistan, India, and North Korea. We view the situation from our perspective without considering how another sovereign feels about establishing a meaningful military footprint in a region that has been conjured up by the very people who want to control it.


Persia became Iran in 1935 as European politics were heading toward a second grand conflict. The region was in political play between Germany and England through World War II. Persia was parceled out between Russia and the British throughout the 1800s. An operational government was formed in 1906 and modern borders were formalized. From 1906 through World War II, Iran’s ruling class consisted of Christians and Jews who were officially recognized by their parliament as represented minorities. Thus, the theocracy we see today is very young in a history that stretches back thousands of years within the region.


Iran wants to gain a decisive advantage over Sunni neighbors without eco-political interference from the West. The fastest way to achieve this goal is to acquire an unacceptable threat… a nuclear arsenal. That threat must extend beyond the region to be effective. This is why Iran has an aggressive intercontinental ballistic missile program to compliment its nuclear ambitions. This is as clear as day. Anyone with a functioning brain understands the situation.


With this in mind many wonder how the President of the United States can tolerate a nuclear Iran. It appears to be irrational. However, President Obama has taken an aggressive “hands off” position with respect to the Middle East and most of the world. Obama is an anti-imperialist and believes that the aggressive colonialism of Western Europe, the United States, and even Russia is to blame for most of the historical atrocities. Included in this march of the West are the Christian Crusades that President Obama has referenced on several occasions.


President Obama was determined to reshape the world in his own ideology as quickly as possible. His familiarity with Islam has played a critical role in his approach to the Middle East. Although he has been forced to act against ISIS for political reasons, his actions are carefully tempered to avoid American influence in outcomes. Rather, he wants to see the local populations that are distinguished by religious or tribal affiliations struggle to a conclusion. Any other United States president would have been extraordinarily concerned about the “optics” of allowing Christians…the largest demographic in the United States… to be slaughtered by Sunni Muslims. President Obama is immune from such optics.


From a practical and non-partisan viewpoint, President Obama may very well be a genius. He understands the price of U.S. involvement and the futility of picking sides. He has seen how the concept of mutual assured destruction known as MAD kept the peace between world powers from World War II until now. He believes that the Middle East will do far better absent Western influence. The only way to insure that the West backs out of Middle East affairs is to allow them to have their own nuclear arms race.


This is the only logical assessment to current U.S. politics in the Middle East. President Obama is absolutely in charge. This is his deal and his legacy. We will have to see how this plays out well after President Obama has left office. Gold may become a consequential opportunity.


July 16, 2015
Philip Gotthelf
Commodity Futures Forecast
P.O. Box 566, Closter, New Jersey
201-784-1235
www.commodex.com

[lektrode]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

THANKS raz!
very interesting perspective and illustrates quite clearly - along with this one - just how many 'moving parts' there are to the entire calculation

[Mega]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

A 50% fall from all time high is not known, i think the same thing happened in the 70's.
Mike

[shiny!]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

Phil Gotthelf is a very smart man, having created and maketed the first computerized futures trading system back in 1967-68.
But I have real doubts that the muslim crazies of MENA will handle MAD the way America and Russia did.

---

... From a practical and non-partisan viewpoint, President Obama may very well be a genius. He understands the price of U.S. involvement and the futility of picking sides. He has seen how the concept of mutual assured destruction known as MAD kept the peace between world powers from World War II until now. He believes that the Middle East will do far better absent Western influence. The only way to insure that the West backs out of Middle East affairs is to allow them to have their own nuclear arms race.


This is the only logical assessment to current U.S. politics in the Middle East. President Obama is absolutely in charge. This is his deal and his legacy. We will have to see how this plays out well after President Obama has left office. Gold may become a consequential opportunity.

I'm with you, Raz, in that I don't think the ME can be trusted to handle MAD. I barely even trust the West to handle it.

Seems that if the US wanted to take down Iran, might it not serve US interests to let some other country pay for it? What better way to motivate the Saudis to pay for a takedown than to make a deal that scares the h*ll out of them? This seems more likely to me than Gotthelf's convoluted conclusions about Obama's principled genius. A game of chicken such as this is incredibly stupid, destructive and dangerous. That's the level of Obama's genius that I'm familiar with. On one hand, it makes economic sense (to me) to let other countries carry their own water. OTOH, what a terrible, dangerous mess this nuclear agreement is.

[Raz]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

Here's another interesting read from Mr. Gotthelf on the Commodity meltdown, and Gold.

COMMODITY FUTURES FORECAST
WEEKLY REPORT

Prepared by Philip Gotthelf

The Great Commodity Downdraft

(July 23, 2015) The financial media has picked up on the China story along with the anticipated Iranian deal. China’s stock market crash and associated economic slowdown has put significant downward pressure upon industrial commodities like base metals and chemical feed stocks. So copper, iron, tin, and aluminum have suffered the consequences just as additional production is coming online. It is the typical capitalist business cycle, but on steroids… unprecedented price inflation over the past decade and low interest rates. The effect has been a rapid capacity buildup.

I have said in previous REPORTS that Chile and Peru are literally tearing down mountains to extract copper and other metals and minerals because extraction and refining costs are a fraction of the selling prices. Australia’s BHP Billiton mining company has disproportionately expanded iron ore capacity in anticipation of extraordinary demand growth… particularly from China and India. I also predicted that alleged supply bottlenecks would turn into torrents as huge capital commitments brought new production to fruition.


The supply side does not even take a potential demand lapse into consideration. What we see is a major miscalculation by Chinese central planning as domestic consumerism lags export growth. Simply put, China could not develop its own domestic markets fast enough to substitute for significant portions of the global market. Moreover, the economic woes of the West stunted demand growth, leaving a vacuum.
Like any private sector system, there are going to be self-fulfilling prophesies of boom and bust. The problem is that China holds too much foreign sovereign debt to comfortably withstand a downturn in domestic economic activity while global demand also shrinks. This has been covered by many economists, but is essentially ignored by the media… and outwardly ignored by the Federal Reserve and European Central Bank. I say “outwardly ignored” because there is very likely a heated concern behind closed doors. I can’t see how it wouldn’t be a paramount issue.


The round-robin cycle of converting foreign receipts into debt relies upon an upward spiral with increasing momentum. What happens when the upward spiral turns into a meteoric plunge? Even liberal movie maker Michael Moore released a documentary about how we buy Chinese goods with Dollars and they buy U.S. debt with those same Dollars. According to Mr. Moore, if the Chinese stop buying U.S. debt, the system crashes. If the U.S. cannot finance the continuing purchase of Chinese goods, the system crashes. Well, both situations may be rapidly converging. This places China in a compromised position while, at the same time, threatens markets for U.S. and European debt.

Sovereigns like the U.S. and European countries have felt free to issue debt through their treasuries and buy it back through the FED or ECB. Differences between what central banks bought and what treasuries issued were available to the “private sector” through primary auctions. Many an article has appeared in The Wall Street Journal and financial publications about liquidity in sovereign debt markets. To be sure, the private sector does not have the capacity to absorb the debt. The absence of sovereign participation would represent a serious, if not fatal disruption.


In the meantime the U.S. Dollar Index is approaching parity (100) and the FED plans to increase interest rates towards the end of 2015. The higher the U.S. Dollar goes the less globally competitive U.S. goods and services become. U.S. agriculture becomes one of the obvious victims. So, we see weakness in soybeans and corn to start. I have predicted weakness in meats which we have already seen in hogs and are beginning to see in cattle.


The good news is that my short side perspective has paid off in most of the commodities including coffee and sugar. I was stymied in cocoa because African supply side uncertainty continued driving the price higher. That may have changed this week as September cocoa precipitously dropped from above 3300 to below 3230 yesterday. International soft commodities tend to be very Dollar sensitive. However, like other commodities that enjoyed higher than historical average prices, coffee, cocoa, and sugar producers have diligently worked to increase capacity.

Crude Oil and Gold

We all know about the correlation between crude oil and gold. Both are linked to the Dollar and both reflect general economic activity. Gold presumably moves in parallel or at least in tandem with crude oil. Thus, the glut that has driven crude down more than 50% since last year is supposed to have a commensurate impact upon gold. Until recently, gold held firm relative to oil’s decline. The pending Iranian deal has altered the dynamic. According to the news and analysis, releasing Iranian oil into the more competitive energy marketplace will further deteriorate prices. This combines with a Saudi objective of limiting Iran’s profits through a price war.


A more severe oil pullback trickles down into the cost of transportation, chemicals, manufacturing, and all other energy related sectors. Before stepping down as FED Chairman, Alan Greenspan remarked that oil no longer played the pivotal economic role it did during the 1970s through the 1990s. He was referring to the transition from a manufacturing to a service economy. Well, I think it is fair to say that Mr. Greenspan’s assessment was more than a bit superficial and naïve.


Recently, Mr. Greenspan has returned to his earlier position regarding fiat currencies and gold. Prior to being FED Chairman, Alan Greenspan was a gold standard advocate. Once he controlled the fiat Dollar, he changed his perspective and became an aggressive manipulator of the monetary base through monetary policy. Seeing the deterioration of discipline throughout the world, Alan Greenspan warns that money will lose its footing and gold will become a de facto standard… once again.


Most market analysts would probably say, “You wouldn’t know it by the way gold is performing!” Although I agree with much of Mr. Greenspan’s new “old” position, I have recommended shorting gold. And we touched two more objectives this past week. I don’t believe in fighting technical reality or the overwhelming consensus. In fact, I have been spot on in predicting where gold would go and approximately what the gold/oil parity should be. Still, there are reasons for caution.


Every decline in gold’s price represents a better buying opportunity. This is not simply true for investors. It is specifically true for governments that need to boost tangible reserves. Believe it or not, China is among the top countries needing a hedge against foreign reserves. India, too, needs to bolster its position relative to its own currency and the Dollar. Russia needs some definable way to position the Ruble. For sure, Greece needs to rely upon the few billion it has in gold reserves. Moreover, you do not see net sovereign gold distributions as the price declines. If anything, Middle East interest in physical gold has been growing as I have repeatedly pointed out in SPECIAL REPORTS.


Gold is the currency of the Islamic State and I have said Iran will convert to gold to avoid the possibility of having Dollar assets or Euro assets frozen again. Call it the Underground Gold Economy if you like, but there is increasing evidence of gold transactions and this will be reflected by a more fluid physical gold market. There may also be advances in certificated gold transactions.


Certificated gold was expanded with the development of exchange traded funds (ETFs). This added another level of certification that increased notional supply by at least 20%. Some ETFs have physical gold balances in proportion to certificate positions ranging from 100% to a nominal amount. Other funds are 100% notional with no physical gold behind the index. Structures call for cash-outs in physical metal or in cash. Regardless of structure, gold ETFs distort supply by expanding the volume of tradable gold. ETFs add to gold represented by futures, options, and forward contracts.


What has developed is a more pronounced two-tiered gold market where physical demand does not necessarily drive prices. I have pointed out many situations where physical gold premiums have been unusually high as the price of gold has declined. In some cases premiums have reached above 20% for premium gold bar (999.9 fine) and coins of the realm. I called attention to the speed with which ETF liquidations have been absorbed by physical demand even as prices decline.


The obvious question is, “What do the buyers know that the sellers don’t?” Alternatively we might ask, “How stupid do you have to be to buy gold as the price plunges and oil stays weak?” Extremely strong hands can accumulate and hold gold regardless of price. ETF investors are not strong hands. Gold is not a good stock investment. ETFs are simply stock certificates reflecting a commodity price. Unlike Apple or Google, gold has no yield, no dividend, no product development or management style. Gold is just a metal that is hardly used for anything. The ETF is nothing more than a convenient way to trade in gold’s value and to circumvent any rules or regulations that might prevent a fiduciary from speculating in a raw commodity.

Currency Evolution

From the beginning of commerce, currency has been evolving. Historical evidence shows evolution from bartering goods for goods to bartering goods for services. As societies expanded, currencies developed. From glass to sea shell to gold and silver, goods and services have been exchanged for stores of value. Last century the world decided to evolve further into total “faith and credit” currencies represented by paper, base coinage, and electronic entries. This is where we are today.

The current paradigm is being challenged by events like the Greek default and the emergence of rouge governments like the Islamic State. There is an important illustration in these events that is missing from main stream analysis. Economic sanctions like those imposed upon Iran further demonstrate an eco-political problem that may turn critical. Again, I have pointed out that the ability of economic super powers like the United States and European Union to impose sanctions and freeze currency deposits creates disproportionate power that is not likely to be indefinitely tolerated. The combined economic position of Iran and similarly situated nations or pseudo nations like Islamic State requires alternatives to eco-political control.

It may be argued that cyber transactions will eventually supplant currency. Consider the Bitcoin experiment. Call me old fashioned, but I don’t think sovereigns will be willing to turn control of their assets over to cyberspace where hackers are the least of the problems and bullying super powers are in charge. This is why gold has not been abandoned as the asset of last resort. This is why the gold trade remains robust regardless of the price declines or advances.

Gold is not divorced from cyberspace. In fact, it is possible gold will be enhanced or supplemented by electronic representation. For example, vault swaps allow gold ownership to be transferred through electronic re-positioning. I may have ten kilos of gold in Switzerland that I want to move to the United States. Rather than fly the bars from one location to another, a vault swap simply makes an electronic entry indicating that the gold in a Swiss vault has become the gold in the U.S. vault. This facilitates gold transactions without the risk of transport.

I envision more sophisticated processes for using gold more expeditiously. A friend of mine who I encourage to buy physical gold likes to email me about my flawed advice. In truth, the pleasure he seems to derive from ribbing me is worth far more than the loss in gold’s value since his purchase. What he does not understand is that gold’s price is irrelevant if it becomes a de facto currency. All that matters is whether it can hold relative value. That is no laughing matter today!

July 23, 2015
Philip Gotthelf
Commodity Futures Forecast
P.O. Box 566, Closter, New Jersey
201-784-1235
www.commodex.com

[don]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

Supply and Demand in the Gold and Silver Futures Markets


This article establishes that the price of gold and silver in the futures markets in which cash is the predominant means of settlement is inconsistent with the conditions of supply and demand in the actual physical or current market where physical bullion is bought and sold as opposed to transactions in uncovered paper claims to bullion in the futures markets. The supply of bullion in the futures markets is increased by printing uncovered contracts representing claims to gold. This artificial, indeed fraudulent, increase in the supply of paper bullion contracts drives down the price in the futures market despite high demand for bullion in the physical market and constrained supply. We will demonstrate with economic analysis and empirical evidence that the bear market in bullion is an artificial creation.

The law of supply and demand is the basis of economics. Yet the price of gold and silver in the Comex futures market, where paper contracts representing 100 troy ounces of gold or 5,000 ounces of silver are traded, is inconsistent with the actual supply and demand conditions in the physical market for bullion. For four years the price of bullion has been falling in the futures market despite rising demand for possession of the physical metal and supply constraints.

We begin with a review of basics. The vertical axis measures price. The horizontal axis measures quantity. Demand curves slope down to the right, the quantity demanded increasing as price falls. Supply curves slope upward to the right, the quantity supplied rising with price. The intersection of supply with demand determines price. (Graph 1)



A change in quantity demanded or in the quantity supplied refers to a movement along a given curve. A change in demand or a change in supply refers to a shift in the curves. For example, an increase in demand (a shift to the right of the demand curve) causes a movement along the supply curve (an increase in the quantity supplied).
Changes in income and changes in tastes or preferences toward an item can cause the demand curve to shift. For example, if people expect that their fiat currency is going to lose value, the demand for gold and silver would increase (a shift to the right).

Changes in technology and resources can cause the supply curve to shift. New gold discoveries and improvements in gold mining technology would cause the supply curve to shift to the right. Exhaustion of existing mines would cause a reduction in supply (a shift to the left).

What can cause the price of gold to fall? Two things: The demand for gold can fall, that is, the demand curve could shift to the left, intersecting the supply curve at a lower price. The fall in demand results in a reduction in the quantity supplied. A fall in demand means that people want less gold at every price. (Graph 2)



Alternatively, supply could increase, that is, the supply curve could shift to the right, intersecting the demand curve at a lower price. The increase in supply results in an increase in the quantity demanded. An increase in supply means that more gold is available at every price. (Graph 3)


To summarize: a decline in the price of gold can be caused by a decline in the demand for gold or by an increase in the supply of gold.

A decline in demand or an increase in supply is not what we are observing in the gold and silver physical markets. The price of bullion in the futures market has been falling as demand for physical bullion increases and supply experiences constraints What we are seeing in the physical market indicates a rising price. Yet in the futures market in which almost all contracts are settled in cash and not with bullion deliveries, the price is falling.

For example, on July 7, 2015, the U.S. Mint said that due to a “significant” increase in demand, it had sold out of Silver Eagles (one ounce silver coin) and was suspending sales until some time in August. The premiums on the coins (the price of the coin above the price of the silver) rose, but the spot price of silver fell 7 percent to its lowest level of the year (as of July 7).

This is the second time in 9 months that the U.S. Mint could not keep up with market demand and had to suspend sales. During the first 5 months of 2015, the U.S. Mint had to ration sales of Silver Eagles. According to Reuters, since 2013 the U.S. Mint has had to ration silver coin sales for 18 months. In 2013 the Royal Canadian Mint announced the rationing of its Silver Maple Leaf coins: “We are carefully managing supply in the face of very high demand. . . . Coming off strong sales volumes in December 2012, demand to date remains very strong for our Silver Maple Leaf and Gold Maple Leaf bullion coins.” During this entire period when mints could not keep up with demand for coins, the price of silver consistently fell on the Comex futures market. On July 24, 2015 the price of gold in the futures market fell to its lowest level in 5 years despite an increase in the demand for gold in the physical market. On that day U.S. Mint sales of Gold Eagles (one ounce gold coin) were the highest in more than two years, yet the price of gold fell in the futures market.

How can this be explained? The financial press says that the drop in precious metals prices unleashed a surge in global demand for coins. This explanation is nonsensical to an economist. Price is not a determinant of demand but of quantity demanded. A lower price does not shift the demand curve. Moreover, if demand increases, price goes up, not down.

Perhaps what the financial press means is that the lower price resulted in an increase in the quantity demanded. If so, what caused the lower price? In economic analysis, the answer would have to be an increase in supply, either new supplies from new discoveries and new mines or mining technology advances that lower the cost of producing bullion.

There are no reports of any such supply increasing developments. To the contrary, the lower prices of bullion have been causing reductions in mining output as falling prices make existing operations unprofitable.

There are abundant other signs of high demand for bullion, yet the prices continue their four-year decline on the Comex. Even as massive uncovered shorts (sales of gold contracts that are not covered by physical bullion) on the bullion futures market are driving down price, strong demand for physical bullion has been depleting the holdings of GLD, the largest exchange traded gold fund. Since February 27, 2015, the authorized bullion banks (principally JPMorganChase, HSBC, and Scotia) have removed 10 percent of GLD’s gold holdings. Similarly, strong demand in China and India has resulted in a 19% increase of purchases from the Shanghai Gold Exchange, a physical bullion market, during the first quarter of 2015. Through the week ending July 10, 2015, purchases from the Shanghai Gold Exchange alone are occurring at an annualized rate approximately equal to the annual supply of global mining output.

India’s silver imports for the first four months of 2015 are 30% higher than 2014. In the first quarter of 2015 Canadian Silver Maple Leaf sales increased 8.5% compared to sales for the same period of 2014. Sales of Gold Eagles in June, 2015, were more than triple the sales for May. During the first 10 days of July, Gold Eagles sales were 2.5 times greater than during the first 10 days of June.

Clearly the demand for physical metal is very high, and the ability to meet this demand is constrained. Yet, the prices of bullion in the futures market have consistently fallen during this entire period. The only possible explanation is manipulation.

Precious metal prices are determined in the futures market, where paper contracts representing bullion are settled in cash, not in markets where the actual metals are bought and sold. As the Comex is predominantly a cash settlement market, there is little risk in uncovered contracts (an uncovered contract is a promise to deliver gold that the seller of the contract does not possess). This means that it is easy to increase the supply of gold in the futures market where price is established simply by printing uncovered (naked) contracts. Selling naked shorts is a way to artificially increase the supply of bullion in the futures market where price is determined. The supply of paper contracts representing gold increases, but not the supply of physical bullion.

As we have documented on a number of occasions (see, for example, http://www.paulcraigroberts.org/2014...dave-kranzler/ ), the prices of bullion are being systematically driven down by the sudden appearance and sale during thinly traded times of day and night of uncovered future contracts representing massive amounts of bullion. In the space of a few minutes or less massive amounts of gold and silver shorts are dumped into the Comex market, dramatically increasing the supply of paper claims to bullion. If purchasers of these shorts stood for delivery, the Comex would fail. Comex bullion futures are used for speculation and by hedge funds to manage the risk/return characteristics of metrics like the Sharpe Ratio. The hedge funds are concerned with indexing the price of gold and silver and not with the rate of return performance of their bullion contracts.

A rational speculator faced with strong demand for bullion and constrained supply would not short the market. Moreover, no rational actor who wished to unwind a large gold position would dump the entirety of his position on the market all at once. What then explains the massive naked shorts that are hurled into the market during thinly traded times?

The bullion banks are the primary market-makers in bullion futures. they are also clearing members of the Comex, which gives them access to data such as the positions of the hedge funds and the prices at which stop-loss orders are triggered. They time their sales of uncovered shorts to trigger stop-loss sales and then cover their short sales by purchasing contracts at the price that they have forced down, pocketing the profits from the manipulation

The manipulation is obvious. The question is why do the authorities tolerate it?

Perhaps the answer is that a free gold market serves both to protect against the loss of a fiat currency’s purchasing power from exchange rate decline and inflation and as a warning that destabilizing systemic events are on the horizon. The current round of on-going massive short sales compressed into a few minutes during thinly traded periods began after gold hit $1,900 per ounce in response to the build-up of troubled debt and the Federal Reserve’s policy of Quantitative Easing. Washington’s power is heavily dependent on the role of the dollar as world reserve currency. The rising dollar price of gold indicated rising discomfort with the dollar. Whereas the dollar’s exchange value is carefully managed with help from the Japanese and European central banks, the supply of such help is not unlimited. If gold kept moving up, exchange rate weakness was likely to show up in the dollar, thus forcing the Fed off its policy of using QE to rescue the “banks too big to fail.”

The bullion banks’ attack on gold is being augmented with a spate of stories in the financial media denying any usefulness of gold. On July 17 the Wall Street Journal declared that honesty about gold requires recognition that gold is nothing but a pet rock. Other commentators declare gold to be in a bear market despite the strong demand for physical metal and supply constraints, and some influential party is determined that gold not be regarded as money.

Why a sudden spate of claims that gold is not money? Gold is considered a part of the United States’ official monetary reserves, which is also the case for central banks and the IMF. The IMF accepts gold as repayment for credit extended. The US Treasury’s Office of the Comptroller of the Currency classifies gold as a currency, as can be seen in the OCC’s latest quarterly report on bank derivatives activities in which the OCC places gold futures in the foreign exchange derivatives classification.

The manipulation of the gold price by injecting large quantities of freshly printed uncovered contracts into the Comex market is an empirical fact. The sudden debunking of gold in the financial press is circumstantial evidence that a full-scale attack on gold’s function as a systemic warning signal is underway.

It is unlikely that regulatory authorities are unaware of the fraudulent manipulation of bullion prices. The fact that nothing is done about it is an indication of the lawlessness that prevails in US financial markets.

Paul Craig Roberts, Ph.D., is a former Assistant Secretary of the U.S. Treasury.
Dave Kranzler is a University of Chicago MBA and is an active participant in financial markets.

[shiny!]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

This is terrific, Raz. Thank you!

[sunskyfan]

Re: Gold dead-er than a tin of SPAM !!!!!!!!!!!!!!!!

Gold and, for the past 40 years, oil are a reflection of the "value" of the dollar. I have maintained for several years now (since before the 2007-2008 crash) that it is the effective destruction of dollars that is the key factor. Mostly this destruction is via "Derivatives". This is why SEVEN years of effectively 0% prime interest rates still cannot create velocity in the system. As soon as a dollar is created it is quickly laundered by Wall Street and then locked into Derivative relationship that stores it in a digital mattress. The original itulip idea, at least as I understood it, anticipated a repatriation of dollars causing a hyperinflation. The explanation for why this has not happened is this phenomena. To borrow a Physics concept a singularity has formed that is sucking in dollars and the FED can't create dollars fast enough. Like a Black Hole there is an accretion disk surrounding certain parts of the Financial Sector producing light for this destruction and that is what is being portrayed as "The Recovery" but the glow is illusionary blinding us to the giant economic void. A "Dark" economy is forming. People will do what it takes to survive. If the logic I am presenting here plays out it will require a "physical" currency that cannot be sucked into the singularity. Gold? Perhaps, simply paper cash will suffice. But, we will return to economy looking more like 1940. Perhaps the current state of Mexico? Cartel Land? Perhaps investing in Pinkerton or Brinks might be a good idea ;). Or, maybe a cybercurrency will be developed that cannot be drawn into the singularity and all will be saved. This is the hope of the bitcoiners.