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Gold and Silver have risen quickly to a very important resistance level. I do not yet consider this an achieved breakout.
There are strong cross currents in these markets, the global sovereign debt situation in Europe, and the less remarked situation in the domestic US, highlighted but not captured by the debt ceiling debate which is more of a showpiece than a serious change and prioritization.
I suspect that if the US comes to a resolution of its troubles, for a few days at least the markets will rally, and the metals and perhaps Treasuries will be beaten like rented mules.
However, the looming crisis in Europe, which has the banks salivating for cheap national assets, is going to continue to weigh on markets by posing systemic risk in the manner of Lehman Brothers.
And as a reminder, the August Comex Options Expiration is next week.
I thought it was interesting that the US dollar has failed to rally along with Gold and Silver, at least to the same extent of breaking out to new highs.
Robert Baer, a distinguished ex-CIA officer, published a warning from his own knowledge and sources about a regional conflict in the Mideast in September between Iran and Israel. For now I consider this 'sabre-rattling,' and if Baer had not chimed in I would not even bother to mention it.
I would keep an eye on any developments, although these concerns are not new. Such a conflict, if it occurs, would have some benefits to a powerful few, but pose a significant risk to the many. Macro events and crises such as war can be used to hide a multitude of sins, but like most deadly things involving the will to power, they sometimes are difficult to control for other ends.
The SP held the important support at 1295, and actually closed at the psychological number of 1300.
The sovereign debt situation around the world is hanging on the market, as well as the deteriorating domestic GDP fundamentals.
We are now well into earnings season, and we should find the push and pull of the short term and the macro to provide interesting cross currents.
In other words, this is a traders' market.
Gold and Silver are at heavy resistance, and on the verge of breaking out. More on this in the gold and silver commentary this evening.
The Sprott Physical Gold Trust continues to underperform a bit on premium because the market is still digesting its follow on offering at $14. The numbers have been updated to include the details on shares and ounces of gold release thus far.
Although priced at $14.00, the fund paid a commission to the underwriters amounting to about $10.6 million, or about .56 per new unit offered, roughly 4 percent. So the effective revenue to the fund is about $13.44. I assume this is the price that the underwriters, Morgan Stanley and RBC Capital Markets, will pay for any over allotments which they take.
"The Trust has granted the underwriters an option to purchase up to an additional 2,850,000 trust units at the public offering price, less underwriting commissions, within 30 days of the date of this prospectus supplement, to cover any over-allotments."
Although the nominal US corporate tax rate of 35% seems high, and especially so given all the corporate funded propaganda promoting more tax cuts and givebacks, in fact the realized corporate rates are relatively low both in terms of historical experience and comparable developed countries. This is because of the many loopholes, subsidies, and accounting gimmicks available to its more influential corporate citizens from a corporate friendly government.
One could make the case that the tax burden is falling disproportionately on smaller businesses and individuals that do not have the infrastructure and latitude to take advantage of the loopholes available to the bigger business lobby companies.
State and local taxes appear to be regressive. The top echelons of corporations and private individuals seem to be doing rather well for themselves. When the fortunate complain that the bottom percentiles pay little Federal tax, they overlook how regressive the consumption taxes on gasoline, food, and consumer non-discretionary items fall on those with little income. Even with property taxes, the wealthy often use the guise of 'farms' to avoid a sizable share of their local taxes by raising a few cows or a token crop.
No wonder that the corporate class economists promote increased consumption taxes, and the oligarchs spend millions to persuade the naive that their hell is a heaven.
P.S. 'Like a dog returneth to its vomit,' so a few readers have made comments by email that rely on the efficient market hypothesis, some idealistic and simple model of macroeconomics, and the 'trickle down' theory of economic progress.
There is little more theory than well worn slogans behind this line of argument, and if I ask them about it they don't understand how it fits together. They have little knowledge other than sound bytes they have learned by rote from the corporate media and pundits, and a 'common sense' that is so far removed from reality as to be almost delusional. It reminds me of socio-economic discussions at university, very long ago, with dour faced suburban devotees of Chairman Mao.
To wit, if corporations pay more taxes, they will just raise prices, raising costs for the consumer. So we should reduce their taxes and take the 'savings.' And if the government raises more revenue from corporate taxes, it will reduce economic growth and freedom and waste more money on illegal immigrants, the unfortunate, and greedy old people.
Men do act madly in herds, especially with the right instruction and incentives, but regain their sensibility one at a time, but too often on viewing the wreckage produced by their devices. And this is what makes the herding instinct dangerous. No matter how artful the deceitful shepherd, the madness serves only itself.
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