Gold: Chart Updates - Gold is a Counter Trade to Currency Risk

Although the gold bulls took a severe 'gut check' today, the cup and handle formation ultimately proved too powerful for the bears and bullion banks to break. It is an epic struggle, with much broader, perhaps even historic, implications than most of us can now realize, being too close to the event to see its true dimensions.



The weekly chart shows that gold is in a bull market. Anyone who does not acknowledge this, especially any metals analysts, are talking their books and private agendas. I can think of no other profession that allows for such blatant deceptions as the US financial sector.

The hysteria that accompanies every minor, albeit somewhat sharp, pullback in the price of gold borders on the ridiculous. It is often a 'psych job' by hedge funds, and unfortunately a mass of the deluded who simply do not understand currency markets and money. They think they do, but they don't, and in this case a little knowledge is a dangerous thing for their accounts.

Gold is a counter trade to currency risks. Monetary inflation is only one example of that risk. So the simplistic model is bewildered when gold rockets in the face of deflation caused by credit destruction and weak aggregate demand. What it fails to account for is the dramatic deterioration in the backing for the currency due to the corrosive decay of its underlying assets, the degraded ability to tax and service debt, and the actual assets held by the central bank.

And this is why at times some governments seek to control rival currencies such as gold. It is the economic equivalent of rolling back the odometer, or putting sawdust in the crankcase of a car which you wish to sell to the unsuspecting. It is a means to a control fraud, the deliberate hiding of the dilution of your currency to support a set of political and personal objectives. And this is why the citizenry, if they are wise, will insist on transparency in the metals markets and the asset holdings of their country.



The miners are doing reasonably well all things considered, but may not stand up well IF there is a sell off in the general equity markets.



You may as well hear it all now, because in the event of war, the truth will be the first victim.

US Equity Markets At a Key Juncture Ahead of Jobs Report and Holiday Weekend

SP 500 September Futures Daily Chart

At least a dead cat bounce after a drop such as this to key support. But heading into a holiday weekend with an important non-Farm Payrolls Report and wavering confidence, anything can happen after that.



The SP 500 Cash Weekly Chart give a better perspective on how important a test of support the market is facing.



VIX is approaching levels where one would either expect the market to stabilize and begin to recover its footing, or quickly break down and fall apart.



The Nasdaq Composite is in the same situation, so it is clearly a macroeconomic statement, and not something particular to one index.

Currency Wars: Jim Rickards on Financial Warfare

This is likely to be the spin:

The problem is not that an irresponsible Fed and a corrupt Congress ruined the US dollar through a failure in stewardship, crony capitalism, and a series of control frauds culminating in a financial collapse that caused great harm to other countries, particularly in Europe. The dollar is a 'victim' of the evil empire that is jealous of our success and who hates freedom. (Let me have some 'freedom dressing' on my sandwich, please.) Markets are only useful when they do what we wish them to do, when they support our agenda and serve our will to power. The rest of the world is required to obey our enlightened rule, and serve their proper roles in the New World Order."

I am not quite sure where Rickards is coming from on this, but read the entire paper and judge for yourselves. What seems ironic is that the US has been the dominant user of economic warfare, economic hitmen if you will, since WW II. For example, US Banks Financing Mexican Drug Cartels. This is in part the natural outcome of its being the clear financial superpower, supplanting the City of London and the British Empire of private corporations against which the US had itself rebelled successfully, an event which it will commemorate in a few days on 4 July. But it has also gotten much worse in the past twenty years because of the erosion of regulation and the capture and corruption of key political processes.

You should also be aware that one of the financials bestsellers in mainland China is a book, with a recently published sequel, titled 'Currency Wars.' The author is said to fall into the old memes of scheming international bankers, which has been used by some to issue a blanket condemnation and discredit his premise in the West. I confess I have not read it, since it is not available in translation. What is most important is that the book has a wide readership and influence in the Chinese intelligentsia.

"Worse even than the long, slow grind along the bottom described in the foregoing section is a sudden catastrophic collapse. In that context, the greatest threat to U.S. national security is the destruction of the U.S. dollar as an international medium of exchange. By destruction we do not mean total elimination but rather a devaluation of 50 percent or more versus broad-based indices of purchasing power for goods, services, and commodities and the dollar’s displacement globally by a more widely accepted medium.

The intention of Central Bank of Russia would be to cause a 50 percent overnight devaluation of the U.S. dollar and displace the U.S. dollar as the leading global reserve currency. The expected market value of gold resulting from this exchange offer is $4,000 per ounce, i.e., the market clearing price for gold as money on a one-for-one basis. Russia could begin buying gold “at the market” (i.e., perhaps $1,000 per ounce initially); however, over time its persistent buying would push gold-as-money to the clearing price of $4,000 per ounce. However, gold selling would stop long before Russia was out of cash as market participants came to realize that they preferred holding gold at the new higher dollar-denominated level. Gold will actually be constant, e.g., at one ounce = 25 barrels of oil; it is the dollar that depreciates.

Another important concept is the idea of setting the global price by using the marginal price. Russia does not have to buy all the gold in the world. It just has to buy the marginal ounce and credibly stand ready to buy more. At that point, all of the gold in the world will reprice automatically to the level offered by the highest bidder, i.e., Russia.

Basically, the mechanism is to switch the numeraire from dollars to gold; then things start to look different and the dollar looks like just another repudiated currency as happened in Weimar and Zimbabwe. Russia's paper losses on its dollar securities are more than compensated for by (a) getting paid in gold for its oil, (b) the increase in the value of its gold holdings (in dollars), and (c) watching the dollar collapse worldwide."

Jim Rickards, Economics and Financial Attacks

Robert Rubin Runs Obama, SP 500 Futures, and Gold

The June Non-Farm Payrolls Report will be released on Friday, July 2. Tomorrow June 30 is the end of the quarter.

The 234th anniversary of the US Declaration of Independence is this weekend.

"I am well aware of the toil and blood and treasure it will cost us to maintain this declaration, and support and defend these states. Yet through all the gloom I see the rays of ravishing light and glory. I can see that the end is worth all the means. This is our day of deliverance." John Adams

The equity market feels somewhat artificial, if not contrived. Indeed, I think we are in a period of intensified disinformation running ahead of the fog of war, whether it is between countries, or classes, or both. It is customary to neutralize pre-emptively the moral standing of the friends and allies of something which you intend to attack and destroy.



Bear raids were coming hot and heavy as Gold attempted to break out through overhead resistance. HSBC was spreading talk of Central Bank selling of bullion that did not seem to be apparent in the physical market. As you know, HSBC is one of the banks most heavily short the paper metals markets.



Chris Whalen of the highly respected Institutional Risk Analyst sees Robert Rubin as still pulling the strings in US financial policy and is virtually running the economic policy in the Obama Administration from behind the scenes, through surrogates.

"t comes as a surprise to many people that, despite the fiasco at Citigroup (C) and his role in causing the subprime mess (See "The Subprime Three: Rubin, Summers and Greenspan," The Institutional Risk Analyst, April 28, 2008), Rubin remains inside the circle at the White House. Nearly two decades after first migrating to Washington, he apparently is still calling the shots of U.S. financial and economic policy with the full support of President Barrack Obama. Working through his favorite marionettes, Treasury Secretary Tim Geithner and Economic Policy Czar Larry Summers, most recently Rubin managed the defense of Wall Street following the great crisis. No matter what Secretary Geithner says or when he says it in public, you can be sure that those utterances have the full knowledge and approval of his handler Larry Summers and their common political owner and sponsor, Robert Rubin.

A modern day colossus, Rubin effortlessly bestrides the worlds of political and finance, and mostly without leaving a trail of slime that often betrays the average political operator. Rubin stood at the right hand of Alan Greenspan on the famous February 1999 Time cover entitled: "The Committee to Save the World." Not an entrepreneur like Pierpont Morgan, Rubin is a mixture of banker, politician and global technocrat, a super fixer of sorts, but with a proper sense for public-private partnership. Case in point: The famous letter from Rubin to Goldman Sachs clients when he first went to the Clinton White House saying that just because he was in Washington didn't mean he wouldn't be looking after them...

The end result of financial reform is inconvenience for the financial services industry and more expense for the taxpayer and the consumer. But it should be noted that, once again, Wall Street has managed to blunt the worst effects of public anger at the industry's collective malfeasance. The banks can now start to focus their financial firepower on winning back hearts and minds on Capitol Hill. All it takes is money.

Notwithstanding anything said or done by the Congress this year, operating through trained surrogates such as Geithner, Summers and others, Robert Rubin is still pulling the economic and financial strings in Washington. The fact that there is a Democrat in the White House almost does not seem to matter. President Obama arguably has a subordinate position to Rubin because of considerations of money. If you differ, then ask yourself if Barack Obama could seek the presidency in 2012 without the support of Bob Rubin and the folks at Goldman Sachs. Case closed.

For America's creditors and allies, the key question is whether the Democrats around Rubin are willing to embrace fiscal discipline at a time when deflation in the US is accelerating. That roaring sound you hear is the approaching waterfall of the double dip. With the US at the moment eschewing anything remotely like fiscal restraint and the rest of the world going in the opposite direction, to us the next crisis probably involves U.S. interest rates and the dollar.

Judging by Rubin's performance in the past, when he talked first of a strong dollar, then a weak dollar policy, and fudged the issue regarding fiscal deficits, we could be in for quite a ride. But at some point the Obama Administration should acknowledge that this particular former CEO of Goldman Sachs is still driving the policy bus. If the Republicans are in control of the Congress come next January, maybe they should subpoena Rubin to appear periodically. At least then we all can hear directly to the person who is actually making national economic policy."

The World According to Robert Rubin, Chris Whalen, IRA

One has to wonder, of course, who is running economic policy for the Republicans? It seems to be more of a case of competing crime families, than a simple good vs. evil.

If Rubin does indeed run Obama, the question remains, who runs Rubin, and where do his loyalties lie? Whom does he serve?