Gold Daily and Silver Weekly Charts - The Fed's Fugue For Tinhorns - Can Do, Can Do

I got the horse right here
The name is Paul Revere
And here's a guy that says that the weather's clear
Can do, can do, this guy says the horse can do
If he says the horse can do, can do, can do.

I tell you Paul Revere
Now this is no bum steer
It's from a handicapper that's real sincere
Can do, can do, this guy says the horse can do.
If he says the horse can do - can do - can do.
Paul Revere. I got the horse right here.

Can do - can do - this guy says the horse can do
If he says the horse can do - can do, can do.

Guys and Dolls, Fugue for Tinhorns

Gold was hit by selling early in the New York trade and stayed there, while silver, which is now in its active month, showed a little more resilience.

Things were remarkably quiet at The Bucket Shop yesterday.

There was intraday commentary about the steady increase in leverage of physical gold over a greater number of paper claims in New York, and most likely in London.  You may read that here.

I do not look for a proper overt default on the Comex.   I also doubt it will be the initial locus of any dislocation in the gold market.   I would look eastward towards London and the physical markets of Asia for that sort of situation to manifest.    Those who are just looking at the US markets are likely to get hit with a world class blindside if something breaks in the gold pool operation.

Tomorrow is the Non-Farm Payrolls Report.

This report takes on a special significance because the Fed has the itch to raise its benchmark interest rate in its September meeting. They want to get themselves off the zero bound in the worst way because they do not have enough ammunition for the next phase of policy action they will need to take, most likely to correct the asset bubbles that they have created, again, in financial paper.

The commentary on the financial network from the usual suspects was enlightening.

Jeremy Siegel says that the Fed should only look at the unemployment rate tomorrow. It is 5.3% now. The Wombat of Wharton thinks that a drop to 5.2 is good, but a drop to 5.1% would be a clear 'go' signal for the Fed to raise in September, without regard to any other economic data such as number of jobs added, hours worked, Labor Participation, Wages, Demand, etc. Hmm.

The commentary from the institutional carnies like Deutsche Bank's talking head on Bloomberg is that the economic recovery is robust, and he rattled off a long string of reasons why the Fed should raise now because employment and the recovery are so good. Meanwhile Dean Baker sat there listening to this bilious balderdash like someone had just served up some funk beer with refried wiener schnitzel from last week.

The Fed is shooting themselves in the foot if they try to make the case that raising rates is a good idea because the economic recovery is so great that it is time to start worrying about inflation.

No one is going to believe that, except for those whose paychecks depend on their agreement.  And it will be especially hard to maintain that story when the economy craters again, even if they try to blame it all on China, or whatever else is handy.

But they cannot keep delaying it because next year is a Presidential election year and the Fed has a long standing rule to cool it with the monetary policy changes close to key elections, since they are supposed to be 'independent.'

The otherwise widely discredited IMF has served up a 'too soon' caution for the Fed.   It's a no lose derriere covering piece of advice for Madame Lagarde, one of the Valkyries of global wealth destruction.  

Let's see how the Jobs Report comes out. wink wink, nod nod.

I still think that the Fed is going to raise rates before year end, but that they will be doing it between a rock and a hard place, and a race with a devil of their own creation.

Did I mention that we will be seeing another Non-Farm Payrolls report tomorrow morning?

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Non-Farm Payrolls Tomorrow

The usual suspects are out there banging the drum for the Fed to hike rates in September today.

Let's see how the Non-Farm Payrolls report comes out tomorrow morning.

The rest of the data today was nothing to cheer about.

I think the Fed might be in a race with the equity markets.    They do not look healthy at all, for all the reasons we have discussed, and mostly been ignored.

The risks will be especially greater in the next eight to ten weeks.

US Financial Markets:  Theater of the Aburd

Have a pleasant evening.

Gold 'Claims Per Ounce' Spikes Back Up to 126:1

The 'claims per ounce of gold' deliverable at current prices has spiked higher once again, to 126:1.

As soon as the 'active month' of August was over at The Bucket Shop, JPM took a chunk of gold back off the registered for delivery roster.   In the silver market JPM is gaining the reputation for a large physical silver hoard, and the role of a 'fireman' to maintain the stability of leverage in supply and demand.

These spikes higher in the ratio of open interest to deliverable bullion at current prices is not something that has happened in the past fifteen years at least.   And neither has the steady increase in the ratio which we have been seeing in the past couple of years.  This is shown in the last chart.

The Financial Times has finally noticed that the price for 'borrowed' gold bullion that is taken to Switzerland for re-refining and then final shipment to Asia for purchase and withdrawal is rising.

These are signs that one might expect to see in a late stage gold pool in which the manipulation of a market has gone too far for too long.   One thing you can say about the financial speculators is that they never know when to quit.   Remember the London Whale?   He never stopped trying to rig the prices until the rest of the professional participants raised a fuss that he was disrupting the entire market!

The clever quislings for the bullion banks will note that an actual default on the Comex is unlikely, and they are right.  It is not really a 'physical delivery' exchange, but is now primarily a betting shop.  There is plenty of gold in the warehouses, if you do not concern yourself with the niceties of property rights.  And claims can be force settled in cash on a declaration of force majeure.  

Heck, as we saw in the case of MFGlobal,  when JPM shoved to the front of the assets allocation line, even receipts for actual physical gold owned outright can be forced settled in cash.   If you hold gold in a registered warehouse or an unallocated account,  then your ownership is philosophically 'conceptual.'

The physical delivery exchanges are in other places, like the LBMA in London and especially the markets of Asia such as the Shanghai Gold Exchange.

And this is where we will see the first signs of a breakdown in the gold price manipulation pool of the bullion banks, first as signs of 'tightness' in the delivery of metals, and then in the initial 'fails to deliver.'

Rising prices will provide relief.  But the pool operators are not shy about pressing and doubling down, in a familiar pattern of overreach.  Remember the eventual demise of 'the London Whale?'

And although it is hard to believe, perhaps rising prices may not be so easily allowed.

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.   

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it." 

Sir Eddie George, Bank of England, September 1999

And it might not surprise anyone if it turns out that the wiseguy bullion banks are operating under the 'cover' of some bureaucratic boobs and a policy exercise gone horribly wrong.  It would be like giving a platinum credit card to a gambling addict.  Except you do not think that you ever have to pay the bills when they come due, since you are playing with other people's money.

"I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market.  (just a little)

There's an interesting question here because if the gold price broke [lower] in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology.

Now, we don't have the 'legal' right to sell gold but I'm just frankly curious about what people's views are on situations of this nature because something unusual is involved in policy here. We're not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing."

Alan Greenspan, Federal Reserve Minutes from May 18, 1993

Just a little 'perception management' gone horribly wrong, right?   And no one could have seen it coming.