04 March 2014

Gold Daily and Silver Weekly Charts - Ebb and Flow - Gresham's Law

"When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."

Gresham's Law
In case you were wondering why gold is flowing from west to east, it is Gresham's Law in action.  Nothing could be clearer.  What we have not yet seen is mispriced paper flowing back en masse into a vortex of defaults on counterparty risk.

It was 'risk on' in the markets as Russia's Putin reassured the world that he does not intend to invade the Ukraine, but will protect Russia's interests in the Crimea, a traditional base for their navy.

And so stocks soared, and gold and silver gave up some of the ground which they had taken yesterday.

So the ebb was in price, and there was no flow out of the Comex gold warehouse.

I suspect that March will be relatively quiet now, save for the stray exogenous event as we saw yesterday. The line in the sand has long been drawn on the charts, and the Anglo-American banking cartel is likely to try and hold the price about where it is now.

The wild card is the continuing physical offtake of real bullion in the Asia markets, particularly India and China.

President Obama submitted a 2015 budget today that was largely unnoticed with all the sabre rattling being done of the Congressional neo-cons.   It has an interesting infrastructure proposal, and some moves towards real tax reform by closing the massive carried interest loophole that serves the financiers and distorts capital allocation towards gimmickry. 

Given the broken state of the political landscape I sincerely doubt that anything constructive will be done.   Until the financial system is reformed, and balance is restored, there will be no sustainable recovery.   The plundering of the real economy by the moneyed interests will continue until exhaustion or collapse.

Bank of England Seeks to Suspend Derivatives Default Clause Now to Prevent Another Lehman.

I think when the time comes, when people finally wake up to the need to protect some portion of their wealth, there will be little or no physical gold or silver bullion available anywhere, at almost any price, for some period of time.

There will be a market dislocation as we saw in the credit markets when Lehman Brothers collapsed, and the pyramid of leveraged paper and cross claims came to a complete halt overnight, with no one knowing what is the real value of paper, and who owes what to whom.    It will be a cavalcade of broken promises and false representations.

And the Fed may face a daunting task in printing its way out of that one.  If it happens as I think, it will be a reckoning to remember.  It will be MF Global, writ large.

Have a pleasant evening.