Gold Daily and Silver Weekly Charts - When the Unsustainable No Longer Sustains

“Benign remedies are for the innocent.  Misdeeds, once exposed, have no refuge but in audacity.  And they had accomplices in all those who feared the same fate.”

Tacitus, Annals

Gold and silver were hit early on today, and knocked lower on high volume in relatively quiet trade, while the stock market was being pumped higher.

The Fed would like to set the stage for their FOMC meeting next week, and rather badly so.   They are afraid to do it with these unstable equity and bond markets, because if they raise and the market breaks, they will be blamed for it.  You can see that the IMF and the World Bank have already covered their posteriors by warning.  And Larry Summers has also chimed in.

It is not a 25 basis point increase that will break these markets. They are already broken, an accident waiting to happen.  The trail of policy errors goes back to the Greenspan chairmanship of the FOMC.

The Comex continues to bleed out, with additional gold and silver leaving their warehouses yesterday.

Registered (deliverable) gold has fallen to 185,314 troy ounces, a low we have not seen since before the year 2000.   On a quick calculation pending the final numbers early tomorrow, I would think that the ratio of paper claim to actual deliverable gold at price is now at an unprecedented level of 226:1.

Say what you will, this is not 'normal.'

Unless something changes, you can stick a fork in the NY version of 'price discovery', it is done.

Who is going to keep honoring a price set by a bunch of jokers playing liar's poker with a stack of paper claims?

The largest gold bullion exchange in the world outside of Asia, the LBMA in London, is scraping the bottom of the barrel trying to find enough bullion to keep satisfying delivery requests for Asia at these prices.

The indications are that the costs to borrow physical for immediate delivery, which means refining into kilobars and shipment to Asia never to return, are soaring. That is worth watching closely, although the clubby London exchange has always been light on disclosure.

There are increasing signs of desperation.   Once again they look to India to cut imports and start 'utilizing' the gold held privately in that country.  That means to hypothecate those long term gold holdings as collateral for other peoples' obligations, and into the bullion float, never to return.

From what I have been reading, it seems as though JPM introduced quite the scheme to do just that with unallocated gold, ETFs, and a number of private sources around 2011 in London.  And that kettle seems to have reached a full boil.

I suppose that the mining companies, having been obliterated by forward hedging in the first leg of this bull market, the best example being Barrick, have failed to rise to the occasion.  So they must keep looking elsewhere for bullion.   And the CEOs of the big firms always seem to want to go along to get along, even to the disadvantage of their shareholders.

The gold pool in London and NY shows every indication of a late stage Ponzi scheme.  If it was not operating under the 'thin cover' of some unwitting, bureaucratic boobs, it would probably have toppled over already.  The regulators have failed in their sworn duties, and wantonly so.

Wall Street and the City have skated through so many lawsuits and criminal cases that they have fallen into a recidivistic spiral of white collar crime.  They think that they are teflon dons.

Listen to what Peter Hambro has to say in the first half of this recent interview, here.   He is making his Bloomberg interviewers very uneasy it appears.

What I don't quite understand, and I admit it, is why the gold pool keeps pressing prices lower in what is clearly an unsustainable and highly corrosive gambit?   Where do they think they are going with this, or have they extinguished all impulse to conscience and caution?

Ok, Jesse, but the price just went lower, and I'm confused, angry, and depressed (head hits table, clunk).

When the going gets tough, these jokers keep doubling down, almost every time, with a false bravura. But they are breaking the cardinal rule of never adding new money, even when you are winning, to a proposition that is steadily becoming mathematically unsustainable.   That is how almost every major secular financial failure, from LTCM to MFGlobal to the London Whale, went wrong.

This gold manipulation pool, durable as it might seem, is no different from any of the others, such as the infamous London Gold Pool.   And the countdown to its end is underway.

Money, except during the relatively short life of a totalitarian state, is a function of market acceptance and global valuation.

Private individuals and governments have always intervened in the valuation of many markets including money.

I watched the ruble burn in the 1990's.  I watched the currencies of the former Soviet bloc pass from an Orwellian fixed value system to free exchange.   No currency has ever been held its value against the market forces outside their own borders, and inside, never for longer than the power of the State to control nearly everything, every facet and thought of peoples' lives.

Given time, the markets have always won. Always.

I am concerned that if these folks do not wise up soon, we will not see an orderly rise in the price of the underlying commodity, but a series of dislocations and breaks sharply high as Jim Rickards appears to now think.  That will not be constructive.   They forget that it is never the act, but always the extended coverup, that brings even the most powerful down to disrepute and failure.

Storm warnings are out.  Time to get our own houses in order.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Slippage

The Fed wants to raise their key interest rate by 25 basis points next week, at their meeting on September 16-17.

The reason they would like to raise is not because of the real economy or any concerns about inflation or even 'full employment.'

The Fed has been stuck on the emergency zero bound for far too long, and stood idly by while economic inequality widened through the gaming of a corrupt system, and paper assets once again grew into a dangerous bubble.

They would like to raise rates to give themselves some room to maneuver policy when the next financial crisis comes.

They, and much of the status quo, is caught in a credibility trap that inhibits them from reforming the corrupt system that has been rewarding them, handsomely. The US is currently in the hands of a relatively small number of oligarchs.

There are indeed other countries that are 'worse.'   That does not make what the US is now 'good.'  Putting aside both good and bad for a moment, as a democratic republic it is not sustainable.  

Sustainable recovery will only come when true reform of the political and financial system is accomplished.

Thinking people around the world are increasingly wise to the true nature of things. Their reactions vary. The rest of the people are angry, confused, and unfortunately often malleable to suggestions and PR campaigns from the major media.

That is the situation which we are in. I do not think I can state it any more clearly. Keep it in mind and it will help you to understand what happens next.

Is there anything you don't understand about this?

Have a pleasant evening.

Comex Registered Gold to Open Interest at New All Time High 207:1

The ratio of open interest to registered gold is at an all time high of 207:1 potential claims per ounce.

Since this is not an active month for gold it is not pressing.

However, the amount of registered (deliverable) gold at these prices has fallen to at least a twelve year low and perhaps more.

Of late the Comex has fallen away from physical delivery in gold, with most of the bullion in the warehouses being held in storage.

More concerning is the overall tightness of the gold market, particularly in the LBMA which serves as a major wholesale physical bullion distribution hub for the world.

Speaking of London, I came acress a brochure from JP Morgan's new London based service for taking unallocated and ETF gold and applying it as collateral in tri-party arrangements around the world.  Leveraging up the assets you might say, adding a bit of income performance to the old portfolio.  Counterparty risk as well I would imagine.

It was a very slick brochure for the high end portfolio managers with excess bullion just laying around gathering dust that might be put to work as they say.

What was particularly interesting is the way in which they describe the gold market in 2011.  Does this sound like the familiar refrain from the financiers and their talking heads?

Here is a brief excerpt.

Gold has many characteristics that make it appealing as collateral. It is liquid, high quality, and traded and priced globally. As counterparties seek to diversify their collateral pools and stringently review their collateral options, gold takes its place amidst other high grade collateral such as government securities and cash.

Gold has the added attraction for collateral takers of being 'right way collateral,' which means that in times of crisis, its price is generally expected to rise, thus providing added protection and diversification to traditional forms of non-cash collateral such as fixed income or equities.

According to John Rivett, global business executive for collateral management, 'It would be difficult to find a more stable and secure asset than gold. Gold shines when there’s a flight to quality: it runs counter to the market in valuation whenever there’s a credit crunch or fear of contagion.'

J. P. Morgan, Golden Opportunities, 2011

Gold Daily and Silver Weekly Charts - Good Thing Where Has It Gone

"The woods decay, the woods decay and fall,
The vapours weep their burthen to the ground,
Man comes and tills the field and lies beneath,
And after many a summer dies the swan."

Tennyson, Tithonus

Among the usual suspects worth watching, there are two things that any experienced trader watches carefully: counterparty risk and liquidity.

The issue of liquidity in the physical gold market is quite easily overlooked, because its true nature, and that of counterparty risk, and kept veiled behind an opaque curtain in a market structure that might have been designed by carnies.   And that is probably being unkind to most carnival folk.

There was intraday commentary titled Claims Per Deliverable Ounce' Likely Soars to over 200:1. You may wish to read it, consider the pros and cons, and then do what you will.

I am getting a bad feeling about the markets in general.  Especially with regard to the precious metals markets.  Perhaps I should just blithely dismiss all these things that seem unusual as some are wont to do.   Things will just continue on forever, in a downward spiral that we will keep calling 'the new normal.'

I do think that an ounce of caution here is advisable.

But I have had a similar caution and have been mistaken in my caution before, particularly in 2013.  I underestimated the audacity of the privileged and the powerful.

But I was all too right about 2000 and 2007.  And I made quite a bit of money in them, and protected my portfolios extraordinarily well.

And I have made mistakes also, and paid for their tuition dearly.  Every experienced trader, if they are honest with themselves, has done the same thing.  It is part of the learning process.

Only act on your own convictions, or otherwise circumstance will blow your decisions here and there, and dissipate your plans.

I do not expect these jokers in the financial sector to give up their 'good thing' too readily, that is, the gold and silver market manipulation so similar to so many others they have had.

I will feel much more confident in my suspicions when I see an actual chart pattern form and work.

Right now the markets seem well in hand, someone's hand at least.  But unlike purely speculative markets, at some point the precious metals may prove to be a worthy nemesis for their protracted abuse.

But there are signs enough that the night grows long in the tooth, and the party is almost at its miserable but inevitable end, and so some caution here is advisable I think.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Paving the Way For the FOMC

The Fed would very much like to see calm and stable markets as it considers its first interest rate increase off the zero bound on September 16-17 next week.

Let's see if they can get what they want, one way or another.

There was intraday commentary here that was prompted by the Consumer Metrics statement about the US that Among Major Economies, Only the Chinese Numbers Are More Suspect.

Either I am getting smarter as I get older, or these fellows are not bothering to hide their antics as well as they once did.

PPI might be interesting on the 11th, although it may be overlooked by the commemoration of the horrific loss of life on 911.  I do not think I will ever forget it.

Have a pleasant evening.

'Claims Per Deliverable Ounce' Likely Soars to over 200:1 as JPM Pulls Another Large Tranche

JP Morgan, who as I shared last month tends to move large amounts of gold into the registered (deliverable) category on the Comex just in the nick of time, took another huge tranche of gold out of that category last Friday.

Registered (deliverable) gold is now down 202,000 troy ounces or a little over 6 tonnes,  a level which we have not seen there since Nick Laird started keeping track of the Comex warehouses in 2003.

A quick calculation that awaits the updated open interest figure shows that the 'claims per deliverable ounce' has now likely soared to over 200:1.  We have never seen a ratio that high.

I will put up the 'official calculation' from Nick when the official number becomes available.  We might not see the ratio climb if there has been a plunge in open interest, however unlikely that might seem.

Not just considering the Comex, which I consider to be a atavistic pricing mechanism, a conjunction of several things trouble me in the light of Ronan Manly's second article in his current series.

He does a meticulous estimate that indicates that the levels of unencumbered gold in the LBMA, which some of us have come to call 'the float' of physical bullion, are now so low that he calls it 'a game of musical chairs' to cover the unallocated gold accounts.

You may read Ronan's entire article here.

Things being what they are, I am now persuaded that 'the float' is tight enough so that the probability of a 'break' or dislocation in the physical bullion market is high enough to warrant some extra caution. Not panic, but caution, at least until the situation clarifies, particular with an eye to the historically significant month of December.

The other item that greatly concerned me is Jim Rickards assertion that in this type of situation the price of gold is not likely to go up gradually, but may suddenly rise step-wise, almost overnight, by more than a hundred dollars or so per step.  You may watch it here.

I do not claim to have the contacts or pull that some may have or claim to have.  But I have now seen enough to think that in terms of insurance and conservative investments that caution is warranted, now, rather than later.

So, IF you are an investor, not a short term trader, and are holding some percentage of gold in your portfolio as insurance, you may wish to reconsider any arrangements that you may have in which you cannot exercise reasonable control over your possession of bullion which you have purchased.

This is what I believe Kyle Bass referred to as fiduciary caution.

Particularly at risk of a forced cash settlement would be any leveraged or unallocated holdings with an indeterminate counterparty risk, or what some people refer to as 'paper gold.'

I am not saying that there will be a hard default, in terms of outright confiscation in a bankruptcy court, not at all.  Although that may happen.

But I would consider carefully any arrangements that offer guarantees or assurances that could be satisfied with a cash settlement at a price to be determined by someone else without your consent.  As we saw in 1933, they settled at one 'official price' and then allowed the price to resume some 40% higher.

If you are a short term trader, do what you will, but be mindful of your leverage, and take uncovered short positions at your own risk.  And if covered, carefully consider your counterparty risks, because the bigger players will be lawyered up and looking for patsies and victims.  Again, a hard lesson from MFGlobal.

This market may likely turn extremely volatile, even to the extent of a big down move followed by a sizable move higher.  This is how these jokers roll.  When the going gets tough, they tend to keep doubling down and running a bravura bluff.   This was the story of 'the London Whale.'

In the meanwhile, we will have to bear up as best we can with this ridiculous lack of transparency and secrecy and sound regulatory oversight in public markets in the age of crony capitalism.

I have included the latest silver Comex chart as well.   I have to admit that I do not feel I have the same grasp of silver that I hope to achieve in gold.   There seems to be a steady bleed in the inventories, and one huge difference is that with silver there is no great central pool of it to cover short term gaps in the physical markets through leasing as there is with gold.

So, I will keep an eye on silver, because the premiums there are acting more oddly on the retail level than gold is, and its market structure is such that a festering problem can become a big and obtrusive problem rather quickly, and the central banks would be in a poor position to do anything about it.

I would tend to exercise the same caution with silver investments as insurance as I would with gold.  And so I am.

'Among Major Economies, Only the Chinese Numbers Are More Suspect'

On the surface this report shows solid economic growth for the US economy during the second quarter of 2015. Unfortunately, all of the usual caveats merit restatement: 

-- A significant portion of the "solid growth" in this headline number could be the result of understated BEA inflation data. Using deflators from the BLS results in a more modest 2.33% growth rate. And using deflators from the Billion Prices Project puts the growth rate even lower, at 1.28%. 

-- Per capita real GDP (the number we generally use to evaluate other economies) comes in at about 1.6% using BLS deflators and about 0.6% using the BPP deflators. Keep in mind that population growth alone (not brilliant central bank maneuvers) contributes a 0.72% positive bias to the headline number. 

-- Once again we wonder how much we should trust numbers that bounce all over the place from revision to revision. One might expect better from a huge (and expensive) bureaucracy operating in the 21st century.

Among major economies, only the Chinese numbers are more suspect. 

All that said, we have -- on the official record -- solid economic growth and 5.3% unemployment.

What more could Ms. Yellen want? 

Consumer Metrics Institute, BEA Revises 2nd Quarter 2015 GDP Growth Upward to 3.70%

Thanks to Wall Street On Parade for pointing the way to this commentary above.

The campaign to smother the true state of the US economy with paper, both in terms of paper money and manufactured statistics, is an outgrowth of the credibility trap.

Having crippled the real economy with incompetent and corrupt policy decisions, the status quo of pampered privilege is going full out to try and save the day– for themselves.

Meanwhile, underneath the public relations campaign to persuade people that all is calm, the pressures of a decade or so of malinvestment and crony capitalism continue to build.   The persuasion of the official numbers is becoming more and more ineffective, as people hear one thing but see another in their daily lives.

Yes, there are more jobs.  And they are of an inferior quality with low pay and often little or no benefits such as basic healthcare, which despite assurances otherwise is becoming increasingly expensive, and as in the clear case of Big Pharma, unnecessarily so but supported by government policies.

And the urge is to spread this malicious monopolistic drug policy globally through secret trade deals such as the TPP and TTIP.

The public is rejecting the 'establishment' in increasing numbers, such that such voices of the privileged are now recognizing them, but dismissing them as a sociological phenomenon,  expressive individualism.

The political and economic establishment has failed, again and again and consciously so, because it was to their short term benefit to do it.   It is the failure of an oath, of personal morality, and of office.

But now that the consequences of their actions are becoming apparent, they cannot possibly admit to them because, after all, it was they who are responsible.  And there is still plenty of money left on the table.

And so they must deny the problems, cover them and distract attention away from them, and continue to press on with what has been working all along, for them and their friends. The oligarchy has indeed become audacious. both in its lust for looting the system, and its bravura in the attempts to cover up the consequences of their decisions.

"Some appear to believe that 'confidence in the banks' can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit."

James K. Galbraith, Testimony to Congress, May 2010

Related:   LBMA Apparently Restated Its 2013 Gold Refining Number 2,200 Tonnes Lower