Topic: Gold: I smell a trap - page 28. (Read 90826 times)

Sure, if debt were simply debt. Securitization has changed debt into a form of money - it now functions as such.

There is a difference between debt that is simply extended credit which can be withdrawn, and debt that is effectively monetized by market actions. The Fed's printing is really just a formality, so it doesn't matter whether it continues or not (although pressure will persist for it to proceed).


Cause and effect are reversed here. Again, the functional monetization has already taken place. Gold is not dependent upon the formality of the Fed introducing monetization to maintain liquidity; everything is already in place for gold's upward revaluation. The base monetary inflation is reactive and simply locks that fate in.


The quote in question from February 12th, 1973 is available at Jesse's. It is from Volcker's memoirs.

"Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake." Paul Volcker, Nikkei Weekly 2004

Note the bolded section in the full sentence. When taken in context, it suggests a controlled appreciation in gold's price, not an all out assault to keep it down. Many held US dollars because they were conveniently convertible to gold, much like Perth Mint certificates are today. At that time, gold was still set at a fixed rate in relation to the dollar, so the same trick of severing the connection is not available this time around.

What happened after the dollar was no longer directly backed by gold? Demand for gold via dollar convertibility, now being viewed by other nations as unreliable, shifted to direct ownership of gold.

As Jesse states in the Volcker post linked above: "The banks love to whack gold and silver prior to a market operation.  This way if the metals rally, they have less opportunity to break out and run  even higher."

By running the price down prior to revealing QE3/OT/Flood-the-world-with-snakeoil, gold and silver will simply run up to resistance at prior record highs instead of hitting new ones. Subsequently, their rise will continue, but it won't be with as many participants as it almost certainly would've been if gold were nuzzling its peak when the banks let loose. Instead, many will be surprised and in disbelief that the price could continue to rise, then hesistant to re-enter for fear of another top. That's the systematic "intervention in gold sales to prevent a steep rise in the price of gold" in action.

It is good to keep in mind that commodity trading firms did not merge with the major banks until after the gold bull in the 1970s. Having these trading houses under their wing, the bullion banks now stand to gain from gold appreciation rather than be raked across the coals.

The question has been posed before, but wasn't answered: if gov't has the power to permanently maintain a low price in gold, why did it rise at all? In fact, why do these crises even occur?

Other than that, I agree with your and netrin's assessment. Also, gold will be sold - but with dollars unreliable as a store of wealth (again), that (massive amount of) capital will flow into gold.

As for how things will unfold - a spike in gold's (and silver's) price to entice selling (the cure for high prices is high prices) prior to futures delivery deadline at the end of the month, followed by another violent smash down at the beginning of October. The same will repeat after options expiration in October - a large spike rise in gold's price during the latter half of October.

Finally, the debt crisis in Europe will be proclaimed "solved" and the pols will pat each other on the back while the system continues to crumble under their feet. Regardless of the fact that the same pattern arose in 2008, this is very apparent from everything but price action. Use all the tools at your disposal when it comes to gold, or resort to running blind.

The gold price analysis I'm describing has already been explained in detail; cypherdoc, maybe you could post your most clearly explained analysis to make assessing the accuracy of differing methods easier to follow.

Dollars are not an IOU for gold. Does the issuer of dollars owe you gold? No. This used to be the case but not anymore. USD is fully a fiat currency backed only by it's value in exchange, which is backed by the businesses and consumers which use it.

cypherdoc is basically suggesting banks will purposefully destroy themselves to "save the dollar". I think such action would be good for gold as well. This will never happen though.

By definition, perhaps. In function, I disagree. Explanation?


Assuming the relevant banks fail, yes. And yes, it would be good for precious metals so long as there isn't a cataclysmic collapse of society.

That's not a commodities futures brokerage or anything like that.

I hope people on this forum check out BTfuture.com and start bidding on the commodities markets!

*My Bitcoin Mint is not associated or paid by BTfuture.com to make this endorsement, but we sure do want to trade in the commodities markets with Bitcoin

If banks fail, the gold and silver shorts will fail along with the paper markets right?

So good for physical gold and silver in such an event no?

you're developing the proper perspective.  this is exactly why the Weimar marks just given to me are STILL worthless after all these years and despite the age.  those paper marks were not debt and could never be cleared from the economy thru default.  USD debt however is vaporizing as we speak decreasing the amt of virtual USD's.


this is correct.  Fed manipulations lead to extreme bubbles/busts.  gold is at an extreme and will crash.  USD short interest is at an extreme and will skyrocket.  the interest on the short end of the yield curve is now negative!  investors are now paying for the privilege of buying UST debt.  why?  b/c it is the most liquid mkt of all.  gold bullion IMO is the most illiquid mkt.

gold bulls are making a big deal about Operation Twist and how the extra liquidity is going to drive gold much much higher.  price action tells us differently  in fact, i invoke Antal Feketes paradox; the mere fact that the speculative players know that the Fed will be entering the long end of the mkt encourages them to front run and buy more UST's at lower prices to then flip them to the Fed and American taxpayer.  hows that for a paradox and non linear thinking?  this will just make matters worse for the general economy b/c the gov't UST mkt is acting like a huge black hole vortex sucking all capital into itself thus killing business and the real economy.  


precisely the dynamic you espoused above; the bottoming out of the impending bust cycle when the Fed and gov't will be forced at the bottom to print even more and thus cause a HT.  but this will take about 5 yrs before we get there.

i was listening to FSO and the Ryan Puplava interview on the way into work this AM.  he said that the scramble for USD's is so intense that banks are now lending out their gold to get ahold of USD's.  how's that for a brain twister?  THIS is how bad the USD crunch is.  you see it all over the headlines now with CB's having to coordinate to provide USD liquidity.  problem is they can't do it and they don't really want to do it.  they want to save the USD.

in fact this gold lending will eventually lead to gold selling as i predict.

also the famous Volcker quote that the CB's failed back in the 1970's to "suppress the price of gold" as being a mistake.  why can't the gold bulls take that statement for what it is?  what it is is a lesson to CB's to never let that happen again b/c they lost a lot of money in the HT of the 1970's.  this time they won't let it happen again.  what ever happened to the accepted theory that the Fed used the gold price as a warning sign that their profligate activities were getting out of hand?  everyone assumes they've forgotten that tenet but i say they haven't.

I've just finished Adam Fergusson's 1975 book on Weimar Germany, Austria and Hungarian HT. The parallels are alarming and the US is not at war to the extent of WWI and German's reparations, though current US military budget approaches Germany's debt to Versailles relative to GDP. However, as has been pointed out various times in this thread, higher aggregates will evaporate in our economy, which was not possible in the Axis economies. Paper money just kept piling up.

What we are seeing and I think will continue to see are larger and larger bubbles and busts. Investors will be scrambling from one volatile market to another. The dollar is strong, and the UST are selling like hot cakes, in my opinion because it's the only game in town. Europe is not credit worthy at any interest rate and Asia (and everyone for that matter) is depreciating their currencies to prop up exports. In this environment the US can get away with issuing more bonds while lowering its interest rates by buying them with new dollars. The inflationary risk of UST is stifled by the massive flight from the euro.

Catch me please if and where my logic is unsound.

The US has created a very risky but profitable scenario. They will continue to issue bonds, indeed they must as long as the budget is unbalanced, and can keep the rates low by buying many of them back with new M0, thus slowing down the appreciation of the dollar which will be applauded by the US export industry, workers, and politicians. I don't see what would pop this transparent ponzi bubble. As long as the USD appreciates against gold, money will continue to flood in to the US, interest rates for many foreign bonds will increase until default, which will pump UST even more.

What possible scenarios would decrease demand for UST and what would force the interest rate up?

this is the 4th break of gold below $1800.  i think it could very well be its last.  added to my GG short at 52.34 this am.

The $DXY successfully tested the 76.20 mark and is ramping hard today.

Thanks, cypherdoc.

I hope to see soon whether we are right. At current prices + overall infrastructure and development, Bitcoin has become a splendid bet once again for investors who see things the same way.

Netrin, the interview is here: http://www.youtube.com/watch?v=c9MHp_dwFN0

Well, the mood has changed because the people left are pretty much the core plus a few trolls/critics. Anyone who’s bought even at 10 has certainly been burnt if he didn’t actively manage the investment or at least averaged down.

Not anymore.

What interview? (links?)


+1
I even feel the mood on this forum has lifted - or the weak finally left.

Hey, do you guys have some thoughts on RMB? CNYUSB has been rising at a very steady 5% clip up for years (with a year plateau) last year resuming the trend in 2011. Nice controlled deflation against the dollar.

Is this the what you meant by deleveraging and contraction?: UBS $2 billion rogue trade

Blitz:

i'll start off by saying its a feel or an intuition based on all the fundamental analysis of Bitcoin technology compared to gold as well as experience in my years of trading.  i'll be the first to admit i may be wrong but i'm willing to take the risk.

its funny, but when i first started buying gold and silver in 2005 i didn't have anywhere near the excitement i have with Bitcoin.  i had read most of the fundamental analyses back at that time and was nervous where gold would head. there were no good alternatives at the time and i could see the trouble ahead in the housing/stock mkt and wanted a hedge.  indeed it served its purposes quite well for me up until Bitcoin came along.

the fundamentals of gold apply quite nicely to Bitcoin IMO and even more so with our current digital age.  i was a relic of the Nasdaq runup and subsequent crash.  everyone thought the internet and its companies were toast.  but look at whats its done in the last 11 yrs.  Absolutely amazing growth.  i'm a big fan of tech and think that computers have interwoven themselves into our society to a large and irreversible degree which will only grow.  i'm not going to miss this Bitcoin bull which will integrate perfectly with this growth as well as address all the criminality in the financial world.

i had the good fortune of speaking directly with some of the devs very early on allowing me to understand the math behind the blockchain.  i'm a believer.  its a concept thats been begging to be invented.  Bitcoin has been around for almost 3yrs now and is solid.  it keeps getting better and look how its squashed the alt chains. watch yesterdays BW interview with Gaving and Stefan.  we're fine and getting stronger IMO.  there ARE several big players slowly and surreptitiously coming into the space.  its only a matter of time.

Stefan said something that struck me in the interview.  he said we all understand it better now even compared to a couple of months ago.  i can say i do as well.  and i'm even more bullish now than i was when i bought in.

It’s not directly related to this thread, but I’m more interested to hear your thoughts on Bitcoins as I’ve been reading some of your posts. Interestingly, you seemed bearish on the PMs as well as Bitcoins in the beginning (April).


Basically my very compressed fundamental analysis is that as long as block chain technology is the only thing known to man which can enforce pre-defined monetary rules, and Bitcoin is the dominant block chain in terms of community and difficulty backing, then even one BTC unit is bound to be worth a whole lot eventually.

Unfortunately I find it hard to predict if those conditions will apply in the future as well, and for how long. The infrastructure is doing better now, in terms of exchanges, mobile apps, etc., but the Bitcoin community and difficulty are on a slow decline. Also, the risk for competitors coming up with good branding, PR, financial backing exists. Do you have some reasons for Bitcoin being "the one" to take off in the next 5-10 years?

It’s always interesting to have a look at the Bitcoin inflation: https://en.bitcoin.it/wiki/Controlled_Currency_Supply#Projected_Bitcoins_Short_Term

If Bitcoin can dominate even until 2013, its yearly inflation rate would start to converge to those of fiat currencies, and with 12.5% would really be easy to surpass with more rising demand. I consider even the current inflation rate of 50% quite low when you look at how much growth has indeed happened alone from January (with price ranging from 0.3 to 0.95$) until now, justifying a significantly higher price.

Jim Rogers does not use the term 'manipulation' explicitly. Rampant monetary inflation is not manipulation? Perhaps we should have an agreed-upon definition, because virtually everything being done now is manipulative, as far as I'm concerned. The markets are being whipped around by the major institutions and that's been their entire means of preventing collapse - keeping market participants too confused to make a cohesive decision one way or another.

You called for a USD rise, which is fine. I took no issue with that, only your insistence that your concept is radically new when it isn't. The mechanism has been described by others.

Please keep the focus on the concepts and avoid ad hominem arguments.


It was a compliment.



There are a lot of links and quotes in my posts. I add them when they're relevant and make my point further.


Absolutely - this was one of the things we agreed on. Essentially, N^th derivatives. The problem with assuming the USD is everything is that it's also a derivative: of gold.


I point to all but very long-term technical charts and indicators as being suspect, stemming from the fact that manipulation paints false signals. In addition, assets and the means to make use of them are disproportionately distributed throughout the world, with the productive capacity and infrastructure decaying among developed nations.


This relies as much on policy decision as hyperinflation.



A dominant world currency is very possible. There will be alternatives so long as currencies exist.


Margin calls will hit and losses will occur. So what happens on the other side of the trade? Derivatives form reservoirs into which capital flows. The flow into them doesn't immediately disappear - it's a process. Where does that money go?

When paper market volatility is extreme and the price is collapsing, will investors continue to risk leverage in markets on an instrument decoupled from its underlying, in-demand asset? No. After seeing so many lose their shirts in paper, they'll have to buy the asset itself or risk further losses. It's a learning process and those who learn quickest will be the most successful.

Write-downs can only occur to a certain extent, that being the level of the derivative-holder's solvency. Beyond that, its assets become forfeit. Valuation thus flows out of that entity and into the recipient by way of asset transfer.

Derivatives have been great for turning profits without getting hands dirty. If a trader wouldn't normally be trading the underlying asset, a precarious situation exists for any market. With gold, demand for the asset is rising naturally - i.e. not forced. This is opposite the dollar, which is being forced higher.

Should the derivative valuation be crushed and demand still exist for physical, the financial instruments won't matter at all. They key is demand for the underlying asset, not the derivative. Nobody wants a herd of cattle or hundred barrels of oil sitting in his yard, but a hundred ounces of gold? Who would want a bundle of dollars if it's dropping in value relative to real assets? Only those who see the numbers go up, but don't think about what the numbers are going up in relation to.


As explained above, demand for the real asset is all that matters, regardless of any initial shock that may occur due to derivative disintegration.

Gold is a real asset. Bitcoin is a... surreal asset?


Please re-read. Fundamentals provide overall direction; technicals offer points of interest. Driving fundamentally west from Washington, DC? Stop at the Arlington Memorial and the Grand Canyon on the way to Los Angeles.


Of course it's a warning: that's the idea. Market moves can take a long time to unfurl. This helps to scare out those trading without patience. It helps to have unlimited cash-flow in the form of an illusion to blind the populace.

The price activity we're seeing has been exhibited very often just before options expiration. With physical delivery of gold and silver becoming overwhelming in the futures markets, any additional strain will be prevented at all costs. If that includes throwing what the banks know is worthless paper at the problem, then that's what will happen. Is it in the banks' best interests to have thousands of new millionaires minted because they held some well positioned longs in precious metals?

Look at the price action recently - from the beginning of each month, PM prices are hammered right up to options expiration. After options expiration, prices rise. Behind the scenes, the numbers strongly suggest short covering: the banks are getting out of Dodge. Add to that the FOMC decision coming up; this is no surprise, only the exact events are curious because they echo past events.


Try a logarithmic chart, or you'll see exponential rises everwhere.

From August 26th:


There's a problem: the banks are now stuck holding each others' debt. The crap that was flushed down the financial sewers finally clogged up the works and is backing up into the bankers' own homes. If it's impossible to break the clog, the next best thing is to dilute the junk so that it isn't so toxic anymore, consequences be damned.


Painted charts are picture-perfect. Be nimble and mind your stops - best to you with your trading.

Once again, options expiration followed by the FOMC next week. You may as well consult a Ouija board for the daily predictions. The targets of $1,740 and $1,680 remain, with $1,700 a likely point to be retested intraday during the Fed announcement.

Yes, GLD is supposed to be backed by gold bullion that is completely unencumbered. There is question as to the "unencumbered" status, but we don't need to touch on that topic for now. It's only necessary to know that there is some flexibility available to GLD management in keeping the fund backed by gold.

In order to redeem any of the physical gold from GLD, a block of 100,000 shares must be redeemed in one shot. Also, this can only be done by an "Authorized Participant". This is impossible for the majority of investors, even with approval to go through the "Authorized Participant" for the redemption process.

At several points during its existence, the GLD fund has experienced major outflows of metal that do not seem warranted by any stretch. The largest instances of these are what trigger the GLD Puke Indicator.

GLD is used as a trading vehicle as well as for exposure to gold. Because of this, and the popularity of the fund with neophytes, it's easy for large interests to squeeze out those unprepared. Those big "authorized" players then pick up all the shiny GLD shares which can be redeemed as needed.

This is how the divergence occurs: as demand for gold continues while supply decreases, the fund will have an increasingly difficult time sourcing the asset. During these downdrafts in gold's price, major chunks of the metal in trust have been redeemed and will be again. If that's followed by a major rise in the price of gold with no supply available, the paper price will rise without a commensurate increase of gold held in the trust.

With little to no supply during a true bubble-like situation, the price of gold will not come down. Any of the approved institutions can still withdraw from the fund, taking additional gold with them. When this happens, the paper price represented by GLD will plummet while the physical metal will be virtually impossible to obtain. The GLD fund will then be forced to close and investors who couldn't get out (individual investors, retirement funds, etc.) will take a 100% loss because there won't be any gold remaining to back the ETF.

That point has obviously not been reached yet and there are other funds which have much more stringent standards and easier redemption mechanisms, but I wouldn't want to even be exposed to the possibility of being caught in such a situation.


Sure, China's got the reserves to do so. It makes them look like the good guy and puts a yoke on the collective neck of the Eurozone nations. Also, since China has been buying up real assets for the past few years with it's depreciating US dollars, this is another means for the country to make its USD stockpile continue to work instead of just sitting there losing value.

There has to be a buyer for distressed assets. China (and other well-positioned nations) will be buying up foreign debt in distressed sales using the same crap paper they were paid. Paying back the debt will mean that the debtor nations will effectively become slaves (indentured servants, to be more euphemistic) to China - unless the debt can be paid off with worthless currency or war breaks out. This is the global transfer of wealth - it's taking place in more than gold.

LOL!  The $DXY came within a penny of my 76.20 target.  i guess the Fed has decided to make this a valid breakout.  oh my, there's going to be hell to pay.

They let credit and monetary inflation run wild before you know? Did they lose loads of money on this "mistake".

+1  this is why i don't think bankers let HT happen.

THey make money from pushing the credit system to the extreme which makes interest rates lower. They make most money on fraud.