The Unrestrained Rule of the Will To Power and the Death of Justice

"What is good? All that heightens the feeling of power in man, the will to power, power itself. What is bad? All that is born of weakness. What is happiness? The feeling that power is growing, that resistance is overcome.

Not contentment, but more power, not peace at all, but war; not virtue, but proficiency. The weak and poorly formed shall perish: first principle of our philanthropy. And one shall help them to do so. What is more harmful than any vice?  Active sympathy for poorly formed and the weak— Christianity."

Friedrich Nietzsche,  Der Antichrist, 1895


"He who makes a beast of himself gets rid of the pain of being a man."

Samuel Johnson

The Malicious Practices Act of 1933 was introduced to rid the German state of its ‘oppressors’ and ‘enemies’. In particular, the German state imposed new legislation that made it illegal to speak wrongly of, or criticise the regime and its leaders.

Coupled with the 1934 act against 'treachery,' a law sufficiently broad and vague, and carried out by a special set of courts with their own processes and procedures outside of the national court system, became a powerful tool for state fascism in the form of terrorism directed against their own people and any form of dissent, freedom of speech, of those guilty of social differences, no matter how fundamental or how trivial those differences might be.

LBMA Apparently Altered Its Gold Refining Flow Statistics By 2,200 Tonnes

Ronan Manly has published a fascinating analysis of the LBMA gold refining statistics today.

The gold refined by LBMA 'good delivery' refiners is sometimes involved in converting existing gold bars into kilobars which are suitable for export to the Asian Markets.

Ronan Manly offers quite a bit of detail with regard to a very large revision in the LBMA 2013 refining data and suggests that such a large restatement of gold statistics, almost 1/3, without explanation, seems odd.

The supposition is that the LBMA originally counted gold bars that were taken from existing sources, such as their own stores, ETFs, and the Bank of England and re-refined them into kilobars for delivery into Asia.  Later they restated the number much lower, by 2,200 tonnes.   We have not been given the exact reason for this, but one suggestion is that the gold did not come from new mining or traditional recycling.  And the LBMA was reluctant to advertise such a huge spike in gold refining spurred on by Asian demand.

Depending on how the GFMS and the WGC uses the statistics and sources, this could result in a significant (~2,200 tonnes) understatement of the flow of gold from Western sources into Asia in just that one year.  Considering how tight gold supplies have been this might explain quite a bit.

What exactly is the LBMA policy decision here, and what about subsequent years of 2014 and 2015?

What is the source of this gold?  And what is so special about 2013?

The one thing that seems significant about 2013 is that the price of gold was hit rather hard by selling after hitting a peak in 2012, and the total amount of gold held in Western depositories and ETFs dropped considerably concurrent with that hit in price.  A chart is included below for your convenience.

So far we have more questions than answers.  Perhaps more information will be forthcoming.  I am given to understand that the LBMA is not open to discussing the matter.

I have my own hypothesis.   There was a major effort to hold down the price of gold in 2013 after it had run to a new high.  That effort to suppress the price resulted in a huge spike in physical demand from China.

'Stopgap measures' were taken to meet that physical demand, but without allowing the price to increase.

As more and more gold was shaken loose from various sources, a campaign of stifling Western interest in gold was undertaken to permit even more gold to be taken out of ETFs and repositories.

However, the demand from China and India were not passing events, and have continued until even now. And so the stopgap measures of 2013 have turned into an ongoing shuffling around of existing bullion to try and keep the price of gold from running higher, and threatening some of the bullion banks and institutions who cannot possibly replace all that has been loaned out and sold at anything near today's prices.

Or it *could* be something else entirely.  Time will tell I am sure.  But I think that there are now two events that might be remembered as potentially pivotal:  one in 2007 in which the world's central banks became net buyers of gold for the first time in about thirty or more years, and 2013, in which the flow of gold from West to East put the Gold Pool into unsustainable endgame from which it could not recover without allowing prices to eventually run higher.

Ronan Manly suggests that he will have a follow up article explaining his own analysis, and I will most likely defer to his more informed judgement and wait to see what he says.  I do not have all the information and a few things still puzzle me a bit.  But  I do congratulate him on finding this and writing it up so well with so much thought.

For the detailed analysis about what happened read the entire piece Ronan Manly, The LBMA’s shifting stance on gold refinery production statistics

This is a quote from his article:

"There are 2,200 tonnes of 2013 gold refining output in excess of combined mine production and scrap recycling being signalled within the 6,601 tonnes figure that was removed from the LBMA’s reports on 5th August 2015.

Could it be that this 6,601 tonne figure included refinery throughput for the huge number of London Good Delivery gold bars extracted from gold ETFs and LBMA and Bank of England vaults and converted into smaller gold bars in 2013, mainly using LBMA Good Delivery Swiss gold refineries? And that maybe this 6,601 tonne figure stood out as a statistical outlier for 2013 which no one wanted to talk about?

The objectives of HM Treasury’s Fair and Efficient Markets Review (FEMR) include transparency and openness. It would appear that altering already published gold refinery statistics, especially for 2013, seems not to be in the spirit of these FEMR objectives.

Part 2 of this analysis of the LBMA’s 2013 gold refinery statistics looks behind the 6,601 tonne number at the phenomenon of Good Delivery bars being processed through the Swiss gold refineries in 2013, the gold withdrawals from the London-based gold ETFs, and the huge shipments of gold from the UK to Switzerland in 2013. Part 2 also examines the 2013 withdrawal of gold from the Bank of England, and how GFMS and the World Gold Council tried to, or tried not to, explain the non-stop processing of Good Delivery gold bars into smaller finer kilobars during 2013."

Related follow up article from Ronan Manly:  How Many Gold Bars Are In the London Vaults

Comex Registered Gold Inventories - 'Deliverable Gold' At Current Prices

As someone asked, since hardly anyone is buying gold on the Comex and taking it out, why would be concerned about any inventory levels of deliverable gold?

Indeed, why be concerned about price if it is just all a part of an extended game of liar's poker between speculative interests?

It is almost just a betting parlor now, hence the title The Bucket Shop.

However, that does call into question its role in price discovery in the global trade around the world, much if not most of which is physical.

And that price discovery in London at the LBMA is asserted almost every day in one of the clearest patterns of price manipulation that one might even try to imagine.

As I have said on a number of occasions, I am not looking for a 'default' in NY.   How can one default when forced settlements in cash can be easily accomodated at the Fed's window at any time?

No, the first cracks in the facade of the modern Gold Pool will appear in a key node of the physical market, most likely in London or Switzerland as fails to deliver.  Perhaps even in Shanghai.

However, like the ebbing of the tide, a ready supply of gold for delivery will likely start disappearing from the shelves around the world at both the wholesale and retail level as the vortex of actual delivery in Asia consumes the ready supply at current prices.  The cost of 'borrowing' gold will increase dramatically as the risk of a counterparty failure to return the bullion will intensify.

There will be a divergence between the price for immediate delivery of bullion and the paper price in the future, until the discrepancy becomes so obvious that there is a 'run' on the available short term physical supply, and real gold bullion goes to 'none offered' at any price close to the 'price discovery' of the paper markets.  And then there will be a halt, a settling, and a reset.

If the source where you hold your bullion does not offer a guarantee of the bullion itself, rather than the 'value of the bullion' then chances are unacceptably high that you will be force settled in cash prior to a reset of the price substantially higher.

This is what happened in the US in 1933 when the official gold currency in circulation was recalled.   People who had gold stored in the Banks had their monetary gold taken,  a paper payment was received for it at the official price, and then afterwards the price of bullion in US dollars was set 41% higher.  The increase in reserves was used to help prop up the insolvent banking sector.

Although such an action today is less likely since gold is no longer a monetary metal with a claim from the state, nevertheless such an action in a force majeure breakdown in the financial system whereby borrowed and 'shared' gold could not be returned at the current price faces a similar fate.  This is how the failure of MF Global was recently resolved, and I can easily see the same rules applying for a market break in any leveraged system of ownership.

Related:  Why the Federal Government Seized Gold In 1933

Gold Daily and Silver Weekly Charts - Belabored and Befuddled - 'Error and Repair'

"Andrew Jackson was compelled to fight every inch of the way for the ideals and the policies of the Democratic Republic which was his ideal. An overwhelming proportion of the material power of the Nation was arrayed against him. The great media for the dissemination of information and the molding of public opinion fought him. Haughty and sterile intellectualism opposed him. Musty reaction disapproved him. Hollow and outworn traditionalism shook a trembling finger at him. It seemed sometimes that all were against him— all but the people of the United States."

Franklin D. Roosevelt

The Non-Farm Payrolls report came in much weaker than expected, but the quixotic drop in the unemployment rate to 5.1% gives the Fed cover to take a policy action  of 25 basis points, which is exactly what they would like to do at their next meeting on September 16-17.

And I suspect they will, unless the wheels fall off global markets.  They are caught in a vicious cycle of 'error and repair.'

There will be a summary of the economic situation and a press conference with the Lady Yellen afterwards.

The hit on the metals was a bit half-hearted today, considering that China was still on holiday celebrating the end of WW II.  The three day weekend may have put the junior manipulators off their feed a bit.   No telling what those crazy Asians might do on Monday with pet rocks priced too cheaply.

And besides, the metals manipulation is probably getting a bit overdone on the paper leverage side, as demonstrated by the steady drain of bullion out of the Comex warehouses which continues.

I hear that there was a larger drain out of the LBMA which was far more important. But we will have to wait and see about the physical markets next week.

The US will be on holiday on Monday, celebrating 'Labor Day.' It is a quaint holdover from when the nation used to hold honest work in high regard.

The holiday abbreviated economic calendar for next week is included below.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Dog Day Afternoons

The Fed got what they wanted today besides the much weaker than expected jobs report.

The Unemployment Rate dropped to 5.1%, largely on the number of people who have been unemployed for so long that they are no longer counted as part of the workforce. Hence the record low 'Labor Participation Rate.'

The Fed is running on its own clock now, and wants to raise rates badly for policy reasons. Stan Lacker alluded to as much today.

And I suspect that unless the wheels fall off the stock markets in the next couple of weeks that is exactly what they will do.

Have a pleasant and long Labor Day weekend.

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.