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The Last Days of the Dollar?

Discussions about the economic and financial ramifications of PEAK OIL
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Re: The Last Days of the Dollar?

Unread postby MrBill » Thu 14 Dec 2006, 10:54:22

Well, plus if Japan keeps running a ZIRP, while China sterlizes their inflow of dollars by printing yuan notes, and the FED looks like they are willing to do anything to stave-off a recession, then I am guessing that the immediate future will look like the recent past, which means more of the same asset price inflation. How is that for a run-on sentence?

So although rental income producing property may not be the perfect investment I guess so long as the revenue covers the costs then the zero cost option is the chance of capital appreciation in a generally inflationary environment. Not something one can count on with bonds or stocks, and although mold is an inflation hedge it is non-income producing asset in the meantime.

The homemade medicine idea is not a bad one. Can you guarantee its purity? ; - )
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Re: The Last Days of the Dollar?

Unread postby Doly » Thu 14 Dec 2006, 11:24:31

$this->bbcode_second_pass_quote('MrBill', 'W')ell, plus if Japan keeps running a ZIRP, while China sterlizes their inflow of dollars by printing yuan notes, and the FED looks like they are willing to do anything to stave-off a recession, then I am guessing that the immediate future will look like the recent past.


You mean, if everybody keeps doing what they are doing, then the immediate future will be very similar to the present? That's fairly deep financial analysis.

Let's suppose something changes. Like, the expected recession in the US starts looking nasty. What, then?

$this->bbcode_second_pass_quote('MrBill', '
')The homemade medicine idea is not a bad one. Can you guarantee its purity? ; - )


Purity isn't the main issue with medicine. A good estimate of concentration and a guarantee that it isn't contaminated with anything undesirable is what you need. Concentration is fairly straightforward to estimate with antibiotics, but contamination is a trickier issue.

And then, when all the technicalities are resolved, you have the legal aspects of selling medicine. You probably don't want to get there.

It's best to stick to something simpler, like production of yoghurts with gut-friendly bacteria.

:razz:
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Re: The Last Days of the Dollar?

Unread postby MrBill » Thu 14 Dec 2006, 11:49:13

$this->bbcode_second_pass_quote('', 'Y')ou mean, if everybody keeps doing what they are doing, then the immediate future will be very similar to the present? That's fairly deep financial analysis.

Let's suppose something changes. Like, the expected recession in the US starts looking nasty. What, then?


There are no dumb questions, only stupid answers. It would be foolish to tell you with certainty what will happen. We are in new territory here. Completely uncharted. Therefore, we do not know how it is going to unwind?

A simpleton may think this is a Made in the USA problem, but that is only half the story. As we have pointed out the rest of the world have been getting a piggy back on faster growth underwritten by the US trade and budget deficits. They did not make the imbalances, but they allowed them to accumulate to dangerous levels to stimulate jobs and growth at home.

So, if the US recession gets nasty, the FED cuts more aggressively, and the dollar falls. But if America's trading partners do not let the dollar fall then they start to hold down the value of their own currencies. It is still just more of the same.

As Asian growth slows and their margins contract they may try to make up for falling margins by increasing volumes. And printing more of their own currencies to try to keep themselves export competitive.

Oil exporters who have currencies linked or pegged to the US dollar, but have imports in euros, may try to withhold production to try to keep their revenues, as measured in a basket of currencies, constant. That means higher nominal prices either from a falling dollar and/or a reduction in physical supply.

Either way the US has to wean itself off debt financing by actually saving instead of waiting for a growing economy or a weaker dollar to inflate away those debts. And the rest of the world has to let the US dollar correct by accepting those foreign exchange losses on their dollar holdings. They will also have to accept lower export earnings and slower growth at home as well.

At least that is the way I see it? The prisoner's dilemma may mean that some exporters and central banks will quietly try to cut their exposure before this actually happens, but it is clear they all cannot accomplish this, so someone is going to be left taking the brunt of the pain.

I really do not think the issue is terribly complicated. Probably too much ink has been spilled over it already. But where is the will from the various players to act to rein in not just global imbalances, but also accept slower growth and less jobs?
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Re: The Last Days of the Dollar?

Unread postby MOCKBA » Mon 05 Feb 2007, 17:20:25

$this->bbcode_second_pass_quote('MrBill', 'W')ell, plus if Japan keeps running a ZIRP, while China sterlizes their inflow of dollars by printing yuan notes, and the FED looks like they are willing to do anything to stave-off a recession, then I am guessing that the immediate future will look like the recent past, which means more of the same asset price inflation.


USD is still the top dog.
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Re: The Last Days of the Dollar?

Unread postby threadbear » Mon 05 Feb 2007, 18:38:31

Mockba, From the same site, different analyst:

Russell does not hesitate to question the character of Friday's sell-off: "Ironically, no sooner did gold bullishly break out of its fanline pattern, than the metals were whacked. And I wonder, was this just the action of traders taking profits on a breakout or was this the result of someone or some group dumping a load of gold on the market in an attempt to 'stem the bullish gold tide'? In the end, it really doesn't matte r..."
Bill Murphy's thesis that gold is subject to manipulation, advanced in his site http://www.lemetropolecafe.com/, seems to me to be gaining ground. Earlier this week The Gartman Letter made virtually identical comments as Russell, while doubling its recommended gold exposure

See "golden suspicions" Marketwatch.

This would have some bearing on the dollar's "strength" too.
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Re: The Last Days of the Dollar?

Unread postby MrBill » Tue 06 Feb 2007, 03:50:02

$this->bbcode_second_pass_quote('MOCKBA', '')$this->bbcode_second_pass_quote('MrBill', 'W')ell, plus if Japan keeps running a ZIRP, while China sterlizes their inflow of dollars by printing yuan notes, and the FED looks like they are willing to do anything to stave-off a recession, then I am guessing that the immediate future will look like the recent past, which means more of the same asset price inflation.


USD is still the top dog.


Thanks for the link Mockba. Here is some of the better analysis that I have seen most recently. Economic Think Tank

Threadbear who exactly benefits by 'manipulating' the price of gold lower? Why do not they turn their evil intentions to other commodities as well? Just curious. I mean when the IMF publicly announces they plan to sell another 400 tonnes of gold to pay their bills it seems pretty transparent to me? Thanks.
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Re: The Last Days of the Dollar?

Unread postby Micki » Tue 06 Feb 2007, 19:30:27

$this->bbcode_second_pass_quote('', 'T')hreadbear who exactly benefits by 'manipulating' the price of gold lower? Why do not they turn their evil intentions to other commodities as well? Just curious. I mean when the IMF publicly announces they plan to sell another 400 tonnes of gold to pay their bills it seems pretty transparent to me? Thanks.


Who benefits?
Central banks, holders of short positions, any one with particular interest in keeping the fiat currency game going.

Why not other commodities?
Gold and silver are smaller markets and manipulation can have greater impact. But who's to say there is no manipulaiton in other markets? Plunge protection team keeping up the shareprices? Possible manipulation of oil/energy?
I can't say for sure as I have been focussing a lot on GS, but it is funny how Dow weakness always seems to reverse, gold/silver rallies capped, lots of selling in the thin after market, important releases/speaches resulting in capped GS prices, GS prices turning down on important breakouts etc.

IMF transperancy?
Or a way to try to talk gold down without actually selling?
Becasue they didn't announce a sell, just a proposal.
If they do intend to sell, it is the best way to not profit from the sale. But look at the number of similar type of announcement always appearing when GS wants to rally.

These guys are supposed to help poor countries. Keeping down gold and silver price has been hurting many poor countries in Africa and South America. IMF is just part of a scheme to get poor countries to sell out all their national resources and enterprises at a low cost and to accept international banking.

If IMF is making a loss and needs more money, why sell gold, which is in an uptrend?
Why not downsize the organisation until they get more business?
Why propose to sell such an amount? Their shortfall is ~$100M /year.
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Re: The Last Days of the Dollar?

Unread postby MrBill » Wed 07 Feb 2007, 04:43:55

Micki wrote:
$this->bbcode_second_pass_quote('', 'W')ho benefits?
Central banks, holders of short positions, any one with particular interest in keeping the fiat currency game going.


Central banks have assets and liabilities on their balance sheets. in case you missed the 'Where's All the Petrodollars?' thread I made a concerted effort to'link' to the sites that give us a breakdown of their reserves and where they are invested.

As you can see from these numbers there are no shortage of central bank reserves from Asian exporters and oil producers. But only a handful of these CBs control over 75% of the official reserves. Unless you suspect China, S. Korea, Russia and Japan as being beind manipulation of the price of gold I think your case is hollow. No one else has big enough surpluses to actually rig the market.

If I see the price of gold correctly it has risen from $254 to $704 since 1999. Anyone who was short, and had leveraged their position large enough to actually affect the market price for gold, has lost $450 per ounce, multiplied by their leverage (10X-100X), has lost all of their capital and no longer has a job.

Let us get a grip on reality. No one was short in size from $254 to $704 in large enough size to affect the price of gold and lived to tell about it. Again looking at central bank statistics we do not see any losses. In fact, it was the longs that made money and controlled the markets during that period of time. The shorts got killed.

Anyone who is interested in keeping the fiat currency going is a long list. So I guess you have to narrow it down to who has the control over the assets to keep the game going. Certainly a country that spends $2.9 trillion per year and has to borrow $1.0 trillion of that from international markets does not have the left-over assets to play games in the gold market. I think they are more worried about funding their deficits than where the price of jewelry is in Chindia.

As for the IMF they are quite irrelevant. Emerging market countries, especially those that export commodities, base metals and oil & gas do not need their money or their expertise at the moment. The IMF is owned by the UN and its members. All 180 of them (if I remember correctly). They have to propose to their members to sell gold. They cannot just rundown the fund's shareholder equity without asking the respective countries that contributed that gold in the first place. That gold does not belong to the IMF. It belongs to the shareholders of the IMF.

I would agree with you. The IMF needs to reduce their costs, not spend their capital. Selling their gold gives them less assets to deal with any impending financial crisis in the future. And there will be one. Then they will not be as irrelevant again as they appear now. By the way, the IMFs biggest customer is Turkey. Not a big producer or exporter of commodities, base metals or energy. Or gold for that matter.

I think that gold is a good hedge against inflation. Other than that no one cares what the price of gold is except those who produce it to sell at an expected profit. And those who use the stuff for jewelry. Central banks and finance ministers around the world have bigger worries, like global imbalances, than trying to figure out how to manipulate the price of gold out of the public's eye. But that is just my opinion.
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Re: The Last Days of the Dollar?

Unread postby Bas » Wed 07 Feb 2007, 04:54:32

mrBill; do you write for the Economist?
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Re: The Last Days of the Dollar?

Unread postby MrBill » Wed 07 Feb 2007, 05:14:39

$this->bbcode_second_pass_quote('Bas', 'm')rBill; do you write for the Economist?


No, but I considered it. That or the EIU in emerging markets. I do however read The Economist cover to cover everyweek. They are not always right, but there is no better source of general information, and I quite often stumble across stuff I would not ordinarily read. That and the daily newfeeds from Reuters, Bloomberg, etc.

I rarely read the financial papers. But sometimes I get newspaper articles from the Internet for example. My job gives me the luxury of HAVING to read 8-10 hours a day. That is nice. However, I have been neglecting my own research by spending too much time on peak oil dot com. And I am also supposed to be improving my Russian. I guess I am guilty of procrastinating!

p.s. your new forum The Embassy is not very inclusive?
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Re: The Last Days of the Dollar?

Unread postby Bas » Wed 07 Feb 2007, 05:22:25

well, I've found from what I read from you that you thoroughly know your economics, you are always very complete in what you write and all that in a simple and nice-to-read style; much like the economist. I used to be a member of the magazine myself but cancelled the subscription when I quit studying economics, still sometimes buy it from the newsstand though.
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Re: The Last Days of the Dollar?

Unread postby Bas » Wed 07 Feb 2007, 05:27:35

$this->bbcode_second_pass_quote('MrBill', '
')
p.s. your new forum The Embassy is not very inclusive?
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; - )


I do think you have to make an account before you can do all those things ;-)
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Re: The Last Days of the Dollar?

Unread postby MrBill » Wed 07 Feb 2007, 05:33:49

$this->bbcode_second_pass_quote('Bas', 'w')ell, I've found from what I read from you that you thoroughly know your economics, you are always very complete in what you write and all that in a simple and nice-to-read style; much like the economist. I used to be a member of the magazine myself but cancelled the subscription when I quit studying economics, still sometimes buy it from the newsstand though.


Buttonwood has gone downhill since Richard Cookson left to go to HSBC. The woman after him tried to copy his style, but without success. The new guy used to write for The Securities and Investment Institute in London of which I am a Member. However, he understands his bean counting better than his trading and financial markets.

Ironically, The Economist, like peak oil dot com, tends to be quite pessimistic overall. They quite often look for the dark lining in the silver cloud. Good so. Financial newspapers on the otherhand tend to focus too much on what is happening today without much of an overview of the larger picture. A day old newspaper is next to useless, but I constantly find interesting articles in The Economist that are just good background reading. Kind of like watching The History Channel! ; - )
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Re: The Last Days of the Dollar?

Unread postby Bas » Wed 07 Feb 2007, 05:47:52

$this->bbcode_second_pass_quote('MrBill', '
')Buttonwood has gone downhill since Richard Cookson left to go to HSBC. The woman after him tried to copy his style, but without success. The new guy used to write for The Securities and Investment Institute in London of which I am a Member. However, he understands his bean counting better than his trading and financial markets.


Buttonwood; why did I have to think about the NYSE? I never really got those names of the journalists at the Economist in my head, excuse me for that.

$this->bbcode_second_pass_quote('', '
')
Ironically, The Economist, like peak oil dot com, tends to be quite pessimistic overall. They quite often look for the dark lining in the silver cloud. Good so. Financial newspapers on the otherhand tend to focus too much on what is happening today without much of an overview of the larger picture. A day old newspaper is next to useless, but I constantly find interesting articles in The Economist that are just good background reading. Kind of like watching The History Channel! ; - )


I always thought the Economist was spot on; not pessimistic and not optimistic. And I liked their overall depth and (social)liberal views; at least they seemed to be alot more to the left than any newspaper, but that's just my opinion. And yeah, you can read some businesspapers, but they often only report, well, about business and not about broader movements in the (world) (economy) and if they do, the reporting is not as in depth as the reporting that the economist does. And now we're talking about it, just this week I got an email from ISS (subscription service) if I was interested in a new subscription for the economist, while I cancelled it a few years ago and hadn't heard much from them since....
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Re: The Last Days of the Dollar?

Unread postby Revi » Wed 07 Feb 2007, 10:06:20

I love the economist, but it's too much every week. My mother has a subscription, so when we get down to visit her we always bring a few issues back. It seems like real news, which is very refreshing, since nowadays what we get for news in the US is silly. I like the dollar index in the back. It's instructive to see what is going on. I find that I can build a picture of what's happening from the articles in that magazine, and from this forum. Without it we're flying blind.
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Re: The Last Days of the Dollar?

Unread postby Micki » Wed 07 Feb 2007, 19:38:48

Hi Bill.
Haven't read your whole post but regarding this;

$this->bbcode_second_pass_quote('', 'I')f I see the price of gold correctly it has risen from $254 to $704 since 1999. Anyone who was short, and had leveraged their position large enough to actually affect the market price for gold, has lost $450 per ounce, multiplied by their leverage (10X-100X), has lost all of their capital and no longer has a job.


Not necessarily so. You are assuming they use leverage on all their short positions.

The way it more likely works is that when price takes off upwards, the short selling increases and triggers black box selling, weak hand selling and possibly other fund selling.
The bullion banks can then recover positions at a profit.
The short selling is done either using physical or at least with backing of physical in case of delivery.

Take a look at how G&S went to 30,000 contracts short on TOCOM and then is jumping pretty much on a daily basis one or several thousand contracts up and down.
It seems to be a game where they are loosing control, but as long as they have profits from paniced weak longs and black boxes, this funds continuation of their core (short) position.

Secondly, having a multi billion loss position does not necessarily mean anything if you don't get margin calls or asked to return the gold.
This is now just my own thinking and not backed by any serious analysis; If the CB's co-operate with the bullion banks, both parties are in on the deal at the highest level.
The bullion banks only pay a percent (if anything at all) to lease the gold from the CB and they know they are not going to get the call to return the metal in any hurry as it is in the CB's interest to keep gold down and not burn the bullion banks.
So even if the position may add up to a huge loss, they bullion bank just keeps paying a percent interest and as the money from the sold gol is invested at a better return, there is no real issue unless the gold must be returned.

Furthermore, the gold price manipulation is just part of a larger picture to support the current system. Loss positions in gold can be justified by obscene profits that can be made in other areas by keeping the system going. A non-manipulated system (actual inflation is reported, PM's trade by free market etc.) would send the current system crumbling down.

What the market now is indicating is that there is less physical gold left for shorting. (The shorts are trapped in their positions)
This is why for instance recently the CB in Germany went out and commented that they had been approached by other CB's to negotiate swaps.

This leads to the main issue I have with CB leasing out large quantities of gold.
So much gold has been leased out that it is no longer realistic that it all will be returned. There will either be defaults or a settlement paying back with useless paper money.
The US Fed gold, is to my knowledge, not owned by the fed, it belongs to the people, so once loosing the gold would just serve the fed in their mission of a new world order.


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Re: The Last Days of the Dollar?

Unread postby Micki » Wed 07 Feb 2007, 22:03:11

$this->bbcode_second_pass_quote('', 'I') think that gold is a good hedge against inflation. Other than that no one cares what the price of gold is except those who produce it to sell at an expected profit. And those who use the stuff for jewelry. Central banks and finance ministers around the world have bigger worries, like global imbalances, than trying to figure out how to manipulate the price of gold out of the public's eye. But that is just my opinion.


This remark sounded surprisingly ignorant.
Have you now even read Alan Greenspan's Gold and Economic Freedom ?

Fiat currencies come and go (usually ending with hyper inflation and collaps). Gold has a 5000 year history as store of wealth and is one of the few protections we have from confiscation of wealth.

James Paul Warburger (Banking Axis member and founding member of Council of Foreign Relations:
$this->bbcode_second_pass_quote('', '')We shall have World Government, whether or not we like it. The only question is whether World Government will be achieved by conquest or consent.”


Greenspan before he crossed over to the dark side:
$this->bbcode_second_pass_quote('', 'T')his is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.
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Re: The Last Days of the Dollar?

Unread postby MrBill » Thu 08 Feb 2007, 03:41:06

Micki wrote:
$this->bbcode_second_pass_quote('', 'T')his remark sounded surprisingly ignorant.
Have you now even read Alan Greenspan's Gold and Economic Freedom ?

Fiat currencies come and go (usually ending with hyper inflation and collaps). Gold has a 5000 year history as store of wealth and is one of the few protections we have from confiscation of wealth.


I have a problem with people, not necessarily you Micki, that say, "Greenspan is an evil bastard, a serial bubble blower, who is responsible for this mess in the first place", and then go on to quote him to support their own arguments. It seems like a double standard to me? But on the ethernet anything goes it seems.

Fiat currencies come and go. So what? Governments, nations, empires and civilizations have come and gone in the past 5000 years as well. Quite a few to be more exact. A transaction currency like dollars, euros, yen, Sterling or renmimbi may or may not be a good store of value over time. We know that inflation eats away at their purchasing power in any case. Which is why we invest in assets.

So I guess if I sound surprisingly ignorant about gold's central role to a stable world order. I am guilty as charged. I am so dumb that I think you could substitute gold with grain, salt, fish, meat or firewood and say, "fiat currencies are only as good as the government backing them as a transaction currency, but men will always do a day's work to earn enough to buy grain, salt, fish, meat or firewood from their neighbors or stop working to produce or catch grain, salt, fish, meat or firewood to trade."

I would also be so bold as to say that if 75% of the world's gold goes into the making of jewelry then gold's main value is in the making of jewelry.

A society that produced nothing else but gold in order to trade for other gold would collapse. I think we have historical examples. So whatever intrinsic value it has it is neither absolute nor central to sustaining a society. It can be used a transaction currency, a store of wealth and a hedge against inflation.

I own no gold and I am fine with that. I have no problem sleeping at night knowing that my worthless fiat currencies are working for me even while I am asleep. That and those assets which I can buy with my worthless fiat currencies.
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Re: The Last Days of the Dollar?

Unread postby MrBill » Thu 08 Feb 2007, 04:32:06

Micki wrote:
$this->bbcode_second_pass_quote('', 'H')i Bill.
Haven't read your whole post but regarding this;

$this->bbcode_second_pass_quote('', ' ')
If I see the price of gold correctly it has risen from $254 to $704 since 1999. Anyone who was short, and had leveraged their position large enough to actually affect the market price for gold, has lost $450 per ounce, multiplied by their leverage (10X-100X), has lost all of their capital and no longer has a job.



Not necessarily so. You are assuming they use leverage on all their short positions.

The way it more likely works is that when price takes off upwards, the short selling increases and triggers black box selling, weak hand selling and possibly other fund selling.
The bullion banks can then recover positions at a profit.
The short selling is done either using physical or at least with backing of physical in case of delivery.


So long as I am being accused of being surprisingly ignorant, I may as well shed some light on how gold manipulation might work in the scenario you outline above.

So the price is rallying and I decide to sell. Where do I sell? On the LME or Comex? Okay, so then I am using leverage. About 10X as I am buying on margin. Those positions will be marked to market each and every day, and I have to meet those margin calls with cash or the position will be closed out. Period.

If I am going to influence the price I have to sell more gold than the buyers are willing or able to purchase. If there is a buyer for every seller then I need to tip the balance. To trigger those stop losses of the weak longs that you mentioned.

According to COTS data that is about 150.000 contracts long against an equivalent amount of shorts on the Comex. 150.000 x 10 troy ounces x $600 per ounce = $900.000.000. A one percent move higher would cause a margin call of $9.000.000 in cash. A move from $254 to $704 is 277%. So if the shorts did not close out their positions then they made $2.493 billion in margin calls. And that is just on the COMEX. If they did close out their shorts then they added to the buying interest.

NYMEX/Comex gold futures contract & delivery specifications

Don't forget if I am going to manipulate one gold contract, I have to manipulate them all, otherwise there would be an arbitrage opportunity for someone else to buy gold on the Comex and simultaneously sell it on the LME or elsewhere. I have to be like DeBeers. Always willing to buy-up someone else's diamonds. Or in this case, always willing to keep selling. And that is going to take deep, deep pockets if the price of gold rises from $254 to $704 per ounce multiplied by all that leverage.

But what about as you say, I am trading in and out to manipulate prices. Well, anytime I sell and then buy back at a profit I have zero open interest. My buyback offsets my sell. My buying adds to demand. I would never have to borrow gold if I keep closing out my position before delivery. Therefore, gold leasing from a CB or bullion bank would not be necessary at all. But if I did deliver gold to fulfill my short position you would notice this.

$this->bbcode_second_pass_quote('', 'D')elivery

Gold delivered against the futures contract must bear a serial number and identifying stamp of a refiner approved and listed by the Exchange. Delivery must be made from a depository licensed by the Exchange.

Complete delivery rules and provisions are detailed in Chapter 113 of the Exchange Rulebook.

Delivery Period

The first delivery day is the first business day of the delivery month; the last delivery day is the last business day of the delivery month.

Exchange of Futures for Physicals (EFP)

The buyer or seller may exchange a futures position for a physical position of equal quantity. EFPs may be used to either initiate or liquidate a futures position.

Grade and Quality Specifications

In fulfillment of each contract, the seller must deliver 100 troy ounces (±5%) of refined gold, assaying not less than .995 fineness, cast either in one bar or in three one-kilogram bars, and bearing a serial number and identifying stamp of a refiner approved and listed by the Exchange. A list of approved refiners and assayers is available from the Exchange upon request.


So how could anyone deliver gold with a unique serial number more than once to the exchange clearing house? How could a number of short manipulators deliver the same gold? Or in fact deliver the same gold to multiple exchanges?

I have to admit. I do not think about these things very much. I have only traded physical gold as a hedge once, and that was during the Russian currency crisis in 1998. Other than that I do not trade gold. I did not like to pay the rollover each month of $1 for safe storage and insurance. However, as the price was around $285-300 at the time, I could have made money had I kept it for the past 9-years and incurred the $108 in safe storage fees. $285 + $108 = $393 or about 179% if sold at $704. Mind you I think there have been better investments over the past 9-years as well. Russian debt purchased after the crisis has gone from $16.61 to $188.32 or about 1133% using the RF28 bond as my benchmark.

But if you love gold. Go for it! Good luck. However, I do not see how anyone who was short gold has made out like a bandit? It must be me? ; - )
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Re: The Last Days of the Dollar?

Unread postby Micki » Thu 08 Feb 2007, 19:45:54

MrBill.

I wouldn't go as far as blaming Greenspan for all the evils of the world. He did however represent the Federal Reserve, which is a Central Bank controlled by private interests.
They make money by lending, so an in debted nation is in their interest.

Secondly, all coins have two sides.
The feds kept the interest rates at a very low level for a very long time. Which is good as people didn't have to pay so much interest but bad as it does tend to build bubbles. I think the housing bubble is a collective responsibility where a lot of ignorant people have invested just on the assumption that prices never will come down and then withdrawn whatever equity they have.

$this->bbcode_second_pass_quote('', 'F')iat currencies come and go. So what? Governments, nations, empires and civilizations have come and gone in the past 5000 years as well. Quite a few to be more exact. A transaction currency like dollars, euros, yen, Sterling or renmimbi may or may not be a good store of value over time. We know that inflation eats away at their purchasing power in any case. Which is why we invest in assets.

I also invest in different intruments. Far from 100% is in physical PM's. There are however times when paper based assets become riskier and assets like gold can gain a value beyond being jewlery. (i.e. remonetization)

$this->bbcode_second_pass_quote('', 'I') think you could substitute gold with grain, salt, fish, meat or firewood

Grain, fish, meat and firewood will go bad over time. Gold won't.
Salt, like fiat currency can be produced in unlimited quantities.
So as much as I agree they have certain value in that they arte necessities, they don't make good money or store of weatlh.


$this->bbcode_second_pass_quote('', 'I') would also be so bold as to say that if 75% of the world's gold goes into the making of jewelry then gold's main value is in the making of jewelry.

That is becasue fiat currency has been running the world for the last century. In a case of remonetization of gold, this all changes.
Also bear in mind that since 1913 US$ has lost 90% of its value while gold has maintained it's buying power.

$this->bbcode_second_pass_quote('', 'A') society that produced nothing else but gold in order to trade for other gold would collapse. I think we have historical examples. So whatever intrinsic value it has it is neither absolute nor central to sustaining a society. It can be used a transaction currency, a store of wealth and a hedge against inflation.

That was a bit unnecesary remark. Any country that produces only one thing is in trouble as soon as that one thing looses value. (i.e. producing just gold would work as long as the gold could be used buy everything else.)

$this->bbcode_second_pass_quote('', 'S')o the price is rallying and I decide to sell. Where do I sell? On the LME or Comex? Okay, so then I am using leverage. About 10X as I am buying on margin. Those positions will be marked to market each and every day, and I have to meet those margin calls with cash or the position will be closed out. Period.

Assuming you do everything with leverage. Although I think there is a mix. But we do know that 7 players on TOCOM hold >100,000 contracts short. G&S alone holds around 30,000 of these.
(And on TOCOM you can follow how they are trying to manage gold on a daily basis by increasing shorts on any rally/breakout and covering on weakness. They are however stuck around 30K contracts short and any coverage they have done has been followed up with rallies, forcing them to increase short positions again.)

$this->bbcode_second_pass_quote('', 'A')ccording to COTS data that is about 150.000 contracts long against an equivalent amount of shorts on the Comex. 150.000 x 10 troy ounces x $600 per ounce = $900.000.000. A one percent move higher would cause a margin call of $9.000.000 in cash. A move from $254 to $704 is 277%. So if the shorts did not close out their positions then they made $2.493 billion in margin calls. And that is just on the COMEX. If they did close out their shorts then they added to the buying interest.

Assuming all the open short positions are held by just one party.
More likely, like in TOCOM, there are 6-8 large short holders.

2.493 billion in margin calls - let's put this in perspective.
Last year Goldman alone had $10B in profit. Total derivatives positions are around $110Trillion where of JP Morgan holds about $30T. A few billion suddenly doesn't sound so big.

What you don't see in those figures is however where leased gold has been sold. The open position is then against the CB and not visible in COTS data. So the amount under water could be significantly higher.

$this->bbcode_second_pass_quote('', 'D')on't forget if I am going to manipulate one gold contract, I have to manipulate them all, otherwise there would be an arbitrage opportunity for someone else to buy gold on the Comex and simultaneously sell it on the LME or elsewhere.

VERY frequently the price gets hit in US after 10AM after the LBMA fix is in, so you have little competition from other markets.
Image
I see this type of behaviour all the time. Gold rallies upwardes, come US market it is stomped down.

Gold is also sold on the thinly traded access market (so obviously it is shorts painting tape as longs wouldn't sell large positions in such thin markets).
Also Friday painting of the weekly charts.
Upside breakouts are of course sold heavily also.
And, what has lead me to believe there is political influence, when ever there is a fed or treasure speech, or important report released, independently of wheter it is gold bullish or not.

I see these patterns over and over.

$this->bbcode_second_pass_quote('', 'B')ut what about as you say, I am trading in and out to manipulate prices. Well, anytime I sell and then buy back at a profit I have zero open interest. My buyback offsets my sell. My buying adds to demand. I would never have to borrow gold if I keep closing out my position before delivery. Therefore, gold leasing from a CB or bullion bank would not be necessary at all. But if I did deliver gold to fulfill my short position you would notice this.

But if I did deliver gold to fulfill my short position you would notice this - THIS IS NOTICED. That is why analsysis has shown that half the CB gold is missing (leased out).

For a long time there was no particular interest in closing out the short positions and the carry trade (lease for 1 percent, sell and invest the proceeds for a few percent) was hugely profitable and the leasing/shorting is done with the co-operation of the CB's, who did not want gold price to rise.
Now the bullion banks are left holding toxic positions that they can't close without making huge losses.

This may however not be an immediate issue for them either, as the CB's may not be requesting return of their gold.
So meanwhile as long as they don't have to cover, the carry trade can remain in place as it is.

What may cause some preassure on the bullion banks here is that some CB's may have started calling back their swapped gold (i.e. CB of XX calls US Fed and request return of X tons of swapped gold. If the fed doesn't have this at hand, they need to get the bullion banks to initiate coverage in order to return leased gold.
Micki
 
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