Gold and Silver Daily Chart

Gold



Silver

As T. E. Lawrence said after the massacre at Tafas in 1918, 'No Prisoners.'

This is what happens when the stranglehold of manipulation is relaxed on a market with tight supply and steady demand.

Target is 21.80, but watch out for pullbacks especially if there is a large selloff in stocks as we suspect there will be in the latter part of September. A pullback to 19.50 to retest that big resistance would not invalidate the chart formation.

Gold, Silver, Miners, and Big Daddy

Gold Daily

Gold is on the verge of breaking out of the handle of the cup and handle formation. A pullback and consolidation of the recent gains would not be unusual. However it will be most interesting if US stocks correct, and there is a flight to safety in gold. Let's see what happens.



Mining Sector (HUI)

The miners have not yet confirmed the break out in silver. This may be because of the thinness and uncertainty accompanying the rally in US equities, despite the impressive levels reached thus far.



Silver Weekly

Silver is a juggernaut having broken out of its big wedge, targeting 22. If the stock market corrects we should see a pullback in silver, but it may be short lived.

I cannot help but notice that the commodities in general have been rallying since the big banks started closing their proprietary trading desks.



US Ten and Thirty Year Treasuries

Since we said they looked toppy, the bonds have been in a swoon.

This will reverse if the stock market rally abates. Even with the low volumes they are shoving a lot of portfolio allocation around the plate, looking to hand off the hot potato in stocks to mom and pop, at the top.

SP 500 and NDX September Futures Daily Charts

As a reminder the 'front month' in the US equity futures is now December, and this Friday is a quadruple option expiration.

SP 500



NDX

On the Edge of History: Will Europe Join in Promoting the SDR as the Global Reserve Currency?

There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.

Julius Caesar: Act 4, scene 3, 218–224

China and Russia and some of the other developing nations have been proposing a reformulated SDR, with less US dollar content, a broader representation of currencies, and the inclusion of gold and silver, as a suitable replacement for the US dollar as the global reserve currency.

The US and UK are opposing the SDR as replacement to the US dollar as the new global reserve currency. They prefer to delay and postpone the discussions, and to maintain the status quo for as long as is possible to support their primacy in the financial markets. Control of the money supply is a huge hand on the levers of financial and political power.

It will be most interesting to see where the European Union comes out on this issue, especially in light of the recent drubbing that their banks have taken via dodgy dollar assets and a vicious dollar short squeeze, alleviated by a rescue from the Federal Reserve. It could have gone otherwise, and that provides things to think about. No one wishes to be at the mercy of a small group of unelected financial engineers who are closely aligned with an equally small set of Anglo-American banks operating with a somewhat opaque discretion. Or the goodwill of totalitarian governments who are acting aggressively from their own mercantilist self-interest for that matter.

One hears things. A deal being offered to Germany by the financial interests, for example, as a counterbalance to sentiment for greater latitude and independence in the EU. The lines of discussion move, and sometimes blur. Currency wars are the continuation of diplomacy, and possibly a revival of the cold war, by other means, to paraphrase Clausewitz. And a chilling fog is rolling over the landscape. This is what the timeless metal has been telling us, as it sounds an historic warning.

This is just the latest episode in a long unfolding macro change I have been calling Currency Wars after the Chinese best seller authored by Song Hongbing in 2007. I viewed it as the definitive spike in the theory of The End of History by Fukuyama.

It will continue to proceed slowly, at least for now, but such events tend to accelerate and sometimes dramatically as they progress. However the longer term implications for a change to the de facto Bretton Woods arrangement in place since Nixon closed the gold window in 1971, are enormous and yet little remarked yet by conventional economists, who too often prefer to glare at photons, gaping in the light. It has all the hallmarks of a classic conflict yet unfolding.

Rather than standing fast on an unsustainable status quo, as noted in Triffin's Dilemma, that serves the special interests of a wealthy few, the US might be well served to reform its banks, and balance its economy between service and industry, and stand once again for independent freedom and the common good, rather than narrow power and greed of the monied interests, and their willing tools and frivolous assistants. That is to trust in the wisdom and altruism of a people and their leaders who have of late shown a greater propensity to greed, deceit, and self-destruction. And so I say we must be in God's hands, because I recoil from Caesar's deathly grasp.

Some worry about deflation and inflation. Those outcomes are both hedged easily enough. I am more concerned about the next global holocaust of human destruction, and the bonfire of the vanities yet to come. That is history.

Financial Times
Germany asks US to give up its IMF veto
By Alan Beattie in Washington
September 14 2010 22:31

The US should give up its veto over important decisions in the International Monetary Fund in return for Europe accepting a smaller say, Germany has proposed.

The suggestion, which experts say will be strongly opposed by the US, addresses a politically highly symbolic dispute about voting power and seats on the fund’s executive board. Shifting power towards emerging market countries is one of the central elements in the Group of 20 nations’ drive to make the fund and other international institutions more representative...

Read the rest here.

Reuters
Lagarde says French G20 to discuss wider use of SDR
2010-09-01 18:06 (UTC)

JOUY-EN-JOSAS, France, Sept 1 (Reuters) - France will use its presidency of the G20 next year to discuss proposals for the wider use of IMF special drawing rights (SDRs) as a reserve currency as proposed by China, Economy Minister Christine said...

Read the rest here.

US Economy: Not Yet a Double Dip, But Certainly a 'Stall'

Chart courtesy of EconomPic

Gold and Silver Daily Charts

Gold

Gold Gains As Central Banks Stock Up - Financial Times

The Curse of Fiat Money - Thorsten Polleit



Silver

SP 500 September Futures Daily Chart

Breakout attempt failed at overhead resistance.

Today's action left a 'doji of indecision.

SP 500

Swiss Franc at US Dollar Parity

Swiss franc at US dollar parity and gold and silver soaring to new highs.

Risk off? At least some think so.

I wonder how long US equities can levitate in this environment.

Probably as long as the volumes remain thin and flashers can paint the tape.

If the shorts do not pile on in anticipation of a top we might see a nice dump into option expiration this Friday. Hard to say while the trade is so artificial.

Mom and pop are on vacation with the Griswolds in BondWalleyWorld. And that has the carnies edgy.



I must wait for confirmation from the BIS currency records which lag by six months, but it does appear that the recent dollar strength was attributable to another US dollar short squeezed caused by the further deterioration in the dollar denominated assets held by European banks and customer redemptions for currency.

Gold and Silver Daily Charts

Gold



Silver

SP 500 and NDX September Futures Daily Charts

Remember that this is a quadruple witch option expiration week for US equities.

SP 500



NDX

The Marriage of Mercantilism and Corporatism: When Free Trade Is Not 'Free'

"The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different." Paul Krugman

And he is exactly right. As regular readers know this matter of Chinese mercantilism and its toleration and acceptance by the West has been a key observation and objection here since 2000. Any economist who does not understand that devaluing and then maintaining an artificially low currency peg with a trading partner distorts the nature of that trade should review their knowledge of algebra.

Sophisticated oligarchs do not need to send real tanks against their people. They can accomplish the same objectives using fraud, debt, and corruption. Control the supply of money and care not who makes the laws. But it helps to have the lawmakers and regulators on the payroll.

It was in 1994 during the Clinton Administration that China was permitted to obtain full trading partner "Most Favored Nation" status, while vaguely promising to float their recently devalued currency some day, and address the human rights issues that were endogenous to their non-democratic, totalitarian government.

"From 1981 to 1993 there were six major devaluations in China. Their amounts ranged from 9.6 percent to 44.9 percent, and the official exchange rate went from 2.8 yuan per U.S. dollar to 5.32 yuan per U.S. dollar. On January 1, 1994, China unified the two-tier exchange rates by devaluing the official rate to the prevailing swap rate of 8.7 yuan per U.S. dollar." Sonia Wong, China's Export Growth

This served Mr. Clinton's constituents in Bentonville quite well, and has some interesting implications for the Chinese campaign contributions scandals. It supported the Rubin doctrine of a 'strong dollar' while facilitating the financialization of the US economy and the continuing decline of the middle class wage earners, under pressure to surrender a standard of living achieved at great cost. "How I Learned to Stop Worrying and Love the Currency Collapse." and China's Mercantilism: Selling Them the Rope

Not to limit this, George W. ratified the arrangement when he took office, and so it has gone on for almost fifteen years now, with China 'taxing imports while subsidizing exports' to the disadvantage of its western trading partners.

I expect certain economists who are serving their Chinese clients to make their case to muddy the waters, since this is what they are paid to do. But the silence of the many in this matter was so striking as to be incredible, almost mind boggling. But given the acquiescence of the many in the face of equally absurd theories such as the impossibility of a national housing bubble or pervasive market fraud in naturally efficient markets, we should not be surprised.

Even now someone as knowledgeable as Mr. Krugman can distinguish the inappropriateness of the Chinese unfair trade practice "in current environment" through currency manipulation with prior periods, as if it was all right back then, but somehow is no longer acceptable because of the current economic slump. How can one argue with a straight face that a currency peg that continues for years is not inherently unfair, and a contributing factor to economic imbalances, given the assumption that it imposes a de facto subsidy for exports and penalty for imports?

This is not a trivial distinction but tied to a generational assault on the US middle class. Class Warfare and the Decline of the West.

Perhaps it is a good time to reconsider the principle of the 'neutrality of money' with respect to exchange rates controls and global trade in a purely fiat reserve currency regime as was done with the 'efficient markets hypothesis.' Currency Manipulation and World Trade: A Caution. China is certainly standing western capitalism on its ear and giving it a spin. But this is not without historical precedent, and was predicted by V.I. Lenin himself. I would enjoy this spectacle perhaps if I were observing it from a distance in time.

In a global trade environment tied to external standards such as gold or silver, such egregious imbalances could not grow so large because the metals would impose a certain market discipline requiring a reconciliation and adjustment before monetary excesses became a potentially systemic catastrophe as pointed out so skillfully by Hugo Salinas-Price in Gold Standard: Protector and Generator of Jobs.

The policy errors of the Greenspan and Bernanke Fed, and the outrageously unrealistic if not romantic and utopian theories promulgated by economists about self-correcting markets make me, to borrow a phrase, want to 'bang my head against a wall.'

NYT
China, Japan, America
By Paul Krugman
September 12, 2010

Last week Japan’s minister of finance declared that he and his colleagues wanted a discussion with China about the latter’s purchases of Japanese bonds, to “examine its intention” — diplomat-speak for “Stop it right now.” The news made me want to bang my head against the wall in frustration.

You see, senior American policy figures have repeatedly balked at doing anything about Chinese currency manipulation, at least in part out of fear that the Chinese would stop buying our bonds. Yet in the current environment, Chinese purchases of our bonds don’t help us — they hurt us. The Japanese understand that. Why don’t we?

Some background: If discussion of Chinese currency policy seems confusing, it’s only because many people don’t want to face up to the stark, simple reality — namely, that China is deliberately keeping its currency artificially weak.

The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.

And in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs. Again, anyone who asserts otherwise is claiming that China is somehow exempt from the economic logic that has always applied to everyone else.

So what should we be doing? U.S. officials have tried to reason with their Chinese counterparts, arguing that a stronger currency would be in China’s own interest. They’re right about that: an undervalued currency promotes inflation, erodes the real wages of Chinese workers and squanders Chinese resources. But while currency manipulation is bad for China as a whole, it’s good for politically influential Chinese companies — many of them state-owned. And so the currency manipulation goes on.

Time and again, U.S. officials have announced progress on the currency issue; each time, it turns out that they’ve been had. Back in June, Timothy Geithner, the Treasury secretary, praised China’s announcement that it would move to a more flexible exchange rate. Since then, the renminbi has risen a grand total of 1, that’s right, 1 percent against the dollar — with much of the rise taking place in just the past few days, ahead of planned Congressional hearings on the currency issue. And since the dollar has fallen against other major currencies, China’s artificial cost advantage has actually increased.

Clearly, nothing will happen until or unless the United States shows that it’s willing to do what it normally does when another country subsidizes its exports: impose a temporary tariff that offsets the subsidy. So why has such action never been on the table?

One answer, as I’ve already suggested, is fear of what would happen if the Chinese stopped buying American bonds. But this fear is completely misplaced: in a world awash with excess savings, we don’t need China’s money — especially because the Federal Reserve could and should buy up any bonds the Chinese sell.

It’s true that the dollar would fall if China decided to dump some American holdings. But this would actually help the U.S. economy, making our exports more competitive. Ask the Japanese, who want China to stop buying their bonds because those purchases are driving up the yen. (Cui bono, Mr. Krugman, cui bono? - Jesse)

Aside from unjustified financial fears, there’s a more sinister cause of U.S. passivity: business fear of Chinese retaliation.

Consider a related issue: the clearly illegal subsidies China provides to its clean-energy industry. These subsidies should have led to a formal complaint from American businesses; in fact, the only organization willing to file a complaint was the steelworkers union. Why? As The Times reported, “multinational companies and trade associations in the clean energy business, as in many other industries, have been wary of filing trade cases, fearing Chinese officials’ reputation for retaliating against joint ventures in their country and potentially denying market access to any company that takes sides against China.”

Similar intimidation has surely helped discourage action on the currency front. So this is a good time to remember that what’s good for multinational companies is often bad for America, especially its workers.

So here’s the question: Will U.S. policy makers let themselves be spooked by financial phantoms and bullied by business intimidation? Will they continue to do nothing in the face of policies that benefit Chinese special interests at the expense of both Chinese and American workers? Or will they finally, finally act? Stay tuned

Net Asset Values of Certain Precious Metal Trusts and Funds

Gold and Silver Charts

Gold Daily Chart



Gold Weekly Chart



Silver Daily Chart

SP 500 and NDX September Futures Daily Charts

Drifting up on low volumes in a gentle ongoing short squeeze.

These types of markets typically run into a hard event and crumple. The timing may be problematic for the punters, and so the gentle short squeeze is fed daily.

The equity market commentary on the US financial news networks would make Baghdad Bob blush. I think the wiseguys are getting a little nervous because mom and pop seem to be sitting this one out.

SP 500



NDX

Soaring Corporate Profits As US Worker Pay for Productivity Hits Record Lows

Two sets of charts tell the story.

The problem is that when workers are pressed to the wall on pay they lose the ability to consume without taking on debt. And at some point the debt leverage mechanism for consumption breaks down.

Perhaps the problem is related to the one Wall Street is now confronting. How do you continue on in business after having impoverished, alienated, or driven away most of your clientele in the heat of a short term greed enabled by a corrupted political and regulatory system?

Those who were around in the late 1970's will recall the absolute disrepute in which equities were held by the public after the grinding bear market of 1973-74. Pit traders spent the better part of the day practicing their origami skills, for lack of serious 'outside participation.' Skinning each other when you have run out of greater fools is truly a zero sum game.

Weather report: Cloudy, with a chance of whirlwinds.



Fat profits, slim wages: the fruits of monetary bubbles and trickle down economics.



Charts courtesy of ContraryInvestor.

US Ranks Fourth In Global Competitiveness

I think the biggest surprise for US readers might be how high the US ranks in global competitiveness, and the countries that rank the highest. And of course there is the absence of China in the top ten. Shocking when viewed through the lens of an artificially managed-to-the-dollar currency pair.

Obviously having low paid and poorly treated workers is not the primary qualification for global competitiveness, at least in this national scaling. But it does seem to be a preoccupation of a significant portion of the Anglo-american crony capitalist elements which have never quite reconciled themselves to the laws against indentured servitude.

GenevaLunch
World Economic Forum Competitiveness Report: US falls to 4th place
10 September 2010

Geneva, Switzerland - Switzerland leads the pack, with Sweden and Singapore in second and third places respectively, and the United States in fourth in the latest edition of the World Economic Forum (WEF) Competitiveness Report, published Thursday 9 September. The US has slipped two places, after being overtaken in 2009 by Switzerland. The WEF attributes the lower ranking to “In addition to the macroeconomic imbalances that have been building up over time, there has been a weakening of the United States’ public and private institutions, as well as lingering concerns about the state of its financial markets.”

The report uses two sources: publicly available data and a survey of business leaders, with 13,500 business people in 139 “economies” queried for this year’s report. It contains more than 100 indicators for each country, part of the detailed country reports. “The survey is designed to capture a broad range of factors affecting an economy’s business climate. The report also includes comprehensive listings of the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform,” notes the WEF press release on the new report.

Nordic countries remain strong, says the WEF, with four of them in the top 15: Sweden (2), Finland (7), Denmark (9) and norway (14). China “continues to lead the way among the top developing countries” according to the report: it improved two places and is now ranked 27.

North African countries are competing more strongly, with several of them in the top 50.

Switzerland ranked number one in several areas in the report:

institutions, infrastructure, health and primary education, and financial market development. It was in the top five for labour market efficiency, technological readiness and innovation, giving it one of the top five slots in seven of the 12 indicators.

The most problematic factors in doing business in Switzerland remain inefficient government bureaucracy, tax regulations, restrictive labor regulations and access to financing.

Read the full report here

Gold Daily Chart

Gold corrected, somewhat predictably today, after a significant run higher and having left a 'gravestone doji' candle in yesterday's action.

There is decent support at the 1240 level. Let's see if the yellow dog can find its footing there.

SP 500 and NDX September Futures Daily Charts

The US equity markets were in rally mode on light volumes until this afternoon when news that Deutsche Bank will be raising a substantial amount of capital (9 billion euros or roughly 11 billion US dollars) through a share sale took the wind out of the sails of the financials which had been leading the charge higher.

Deutsche Bank, aka Buba, is considered the 'gem' of German banks, and this dilution of almost 30 per cent came as a shock as it is almost three times as much as was expected if they were making a significant increase in their 30% ownership of Deutsche Postbank AG that has been discussed. It brings into question what is coming out of the Basel III discussions, as well as further speculation about what bad debts remain undiscounted on the banks' balance sheets.

SP 500



NDX

The Nasdaq 100 futures chart in particular shows the significance of the resistance trend that the NDX faces right now.

Gold Daily Chart

Goldman Faces "Near Record Fine" In London

Even this 'near record fine' is likely to be little more than a wrist slap, a manageable cost of doing business compared to the massive profits and bonuses obtained from such dealings.

It appears that financial regulations such as the Volcker rule are getting some traction with Goldman and their ilk, compelling them to spin off their proprietary trading desks to institutions that do not drink so directly from the subsidies of the Federal Reserve.

Still, regulation is not a set of rules, but a mindset to enforcement and investigation for the many, with no favoritism shown to the powerful few.

Financial fraud has been a major export from the US for the past ten years. As we have noted elsewhere, New York financial firms may find themselves persona non grata in many of the overseas markets, especially the sovereign financial asset markets, which they have abused repeatedly from their US and London centers.

Financial Times
Goldman now faces large fine in UK
By Megan Murphy and Brooke Masters in London
and Francesco Guerrera and Henny Sender in New York
September 8 2010 20:05

Goldman Sachs is facing a near-record fine from the UK’s financial regulator following a five-month investigation into the investment bank’s international business initiated in the wake of fraud charges against the company in the US.

The fine, which could be announced by the Financial Services Authority as early as Thursday morning, will deal a blow to Goldman’s efforts to put the high-profile fraud case behind it following the bank’s settlement with the US Securities and Exchange Commission probe in July for $550m.

The largest fine handed down by the UK regulator came three months ago, when JPMorgan paid a £33.3m for failing to keep client money in separate accounts.

Goldman, the world’s best-known investment bank, has seen its reputation tarnished in recent months as questions continue to swirl over whether it favoured the interests of some clients at the expense of others during the financial crisis.

The bank’s business model is also under pressure amid volatile markets and regulatory reforms that have forced it to shut some of its highly profitable “proprietary” trading operations.

On Wednesday it emerged that KKR, the private equity firm, is in early talks with individuals in Goldman Sachs’ proprietary trading group that could lead to the hiring of a number of Goldman’s key people.

In settling the Abacus case with the SEC, Goldman said it made a “mistake,” but it neither admitted nor denied the agency’s allegations. Fabrice Tourre, the Goldman trader whose boastful emails about the deal were at the centre of the complaint, is still fighting charges brought against him by the SEC.

People familiar with the fine that will be levied on the bank by the FSA say that it is not based specifically on the Abacus transaction, but is the result of its investigation into the bank’s business practices in London sparked by the SEC allegations.

The FSA’s decision to launch its own inquiry, announced four days after the SEC case, was questioned by some legal experts at the time given that the Abacus deal was structured in the US. However, the SEC alleged that one of the biggest losers was IKB, the German bank