Jim Willie Gold Report Feb 2011

GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* Golden Potpourri
* Heightened Risks From QE
* England Descends & Europe Flounders
* Angry China Ramps Up Gold & Silver
* Shortage of Silver Coins & Bars
* Raids on Corrupt GLD Fund
* Gold Cartel Shaken Up
* Gold & Silver Next Launch
* Crude Oil Past & Present


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HAT TRICK LETTER
Issue #83
Jim Willie CB,
"the Golden Jackass"
16 February 2011

"The main theme of the last 20 years is the title of the guy in government with the stealing rights. Whether Clinton, Rubin, Bush, Paulson, Franklin Raines, the Tunisian leader, or Mubarak in Egypt, or even the Saudi royals, it is clear that leaders have pilfered and stolen national riches beyond our imagination." ~ friend & colleague (prefers to remain anonymous)

"If the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that is not such a bad trade." ~ anonymous CEO of US corporation

"Silver is the best technology stock you can own." ~ David Morgan

"This new America is alien to me. It is an America of greed and corruption and avarice and mean spirited selfishness and hatred for the common good. It is an America of savage beasts roaring and tearing at the weak, and bullying the humble and peacemakers and poor and those without means to defend themselves. I am not welcome here anymore. I do not belong here anymore. It is as if some evil beast controls government, the economy, and our lives now." ~ Mark (from group of 99ers, whose extended jobless benefits are expiring). The Beast is real. It is the fascist Syndicate which extends control over the USGovt, Wall Street, Pentagon, News Media, foreign policy groups, and perhaps the Pharma giants. It has a name, which begins with the last letter in the alphabet, a name best not spoken.

GOLDEN POTPOURRI

◄$$$ MUBARAK HAS STOLEN EGYPTIAN GOLD BULLION IN ALL LIKELIHOOD. MUCH OF HIS LIQUID WEALTH IS STORED IN LONDON. THE SWISS APPEARED TO BLOCK HIS PLUNDER, BUT LONDON ENCOURAGED IT FULLY. THE GOLD EXODUS WAS CONCERTED AND DELIBERATE FROM EGYPT, SOME OF WHICH WAS INTERCEPTED. THE MORE THINGS CHANGE, THE MORE THEY STAY THE SAME REGARDING WESTERN PUPPETS. $$$

My theory, mentioned in private circles, was that Mubarak would leave when he had stolen as much wealth as possible, and when it was clear he could steal no more. That simplistic vile viewpoint seems spot on. Autocrat Hosni Mubarak delayed his exit only enough to ensure the proper plunder of Gold could be executed safely. It appears the president (funny title when opponents are imprisoned) has pilfered much of the gold supply from the Egyptian Central Bank. Bribes surely were paid to enable the heist. If only the people of Egypt knew. Numerous plane flights were intercepted on the ground in the last two critical weeks, but Mubarak probably used other means, even truck routes to friendly cooperative Arab nations. He was making certain that transfers of his assets, especially gold, completed to safe regimes, helped along by tens of $million in banker payoffs to be sure. Hardly ever does a banker stand in the way of an exiled tyrant bearing gold bullion. See the Shah of Iran, Marcos, and a dozen others. The UK Telegraph is a great rebellious journal that reports on controversial topics. They reported that a US official told one of their reporters, "Hosni Mubarak used the 18 days it took for protesters to topple him to shift his vast wealth into untraceable accounts overseas, Western intelligence sources have said. There is no doubt that there will have been some frantic financial activity behind the scenes. They can lose the homes and some of the bank accounts, but they will have wanted to get the gold bars and other investments to safe quarters. The Mubaraks are understood to have wanted to shift assets to Gulf states where they have considerable investments already, and crucially, friendly relations. The United Arab Emirates and Saudi Arabia have frequently been mentioned as likely final destinations for Mubarak and possibly his family." The unexpected key to Arab protests is the role of the internet and social networks.

The Egyptian dictator is accused of amassing a fortune of as much as $40 billion during his 30 years in power. It is claimed his wealth was tied up in foreign banks, investments, gold bullion, and scattered properties. When his downfall was assured, Mubarak scurried to place his assets out of the reach of potential investigators. On February 11th, the Swiss officials announced they were freezing any assets Mubarak and his family may hold in their country. The pressure did not extend to England, which eagerly received the liquid wealth, a strong signal of its criminal banker class. He has his best social links in Arab nations but his best business links to London. Urgent conversations were noted within the Mubarak family about preserving their ill-gotten assets. He and his financial henchmen routinely moved large sums of money. Any big money in Zurich is long gone, well placed in London. The World Gold Council estimated Egypt to have 75.6 tonnes of gold at the end of 2010. Watch this figure NOT change, to assure no evidence in official data to point a finger at Mubarak's plunder. See the Zero Hedge article (CLICK HERE).

Airports in Egypt intercepted outbound flights that included gold shipments worth tens of $millions, the nab occurring at the very beginning of the Cairo street protests. In a mirror image of the story out of Tunisia one week apart, Egypt has its own chapter. The Tunis leader departed his nation, leaving its central bank with 23% less gold bullion. The Cairo customs officials were on guard. According to Egypt News, its airport intercepted 59 shipments of gold directed for the Netherlands. The gold bars and stacks of foreign currencies were stuffed and hidden in pillow cases. To be sure, tyrants in exile do love gold, a confirmation of its status as money. They understand how Gold is fungible, transportable, and stores value even when stolen. London is always ready to accept stolen money, while the New York is always ready to accept narcotics money.

A quick comment on those idealists who believe democracy is being installed in Egypt. A wise ex-USMilitary subscriber SteveK shared a rebuttal of the extolled new democracy. He wrote, "Hosni was a Western stooge. The military is in charge now until the CIA & Israel can (will, maybe) have another stooge annointed. If they do not succeed in installing another stooge, the situation could blow up. Many including me do not believe Egyptians really want Democracy. They simply want to be free of corrupt puppets controlled by the Western powers. A firestorm is coming in my opinion." My view is that the the US agencies want a more unified Arab world laced together by somewhat radical Islamic convictions, in order to create a formidable enemy. The solidarity would assure a constant war atmosphere that the USGovt has pursued since the Cold War, Vietnam War, Gulf War, thus locking down strong uninterrupted military defense budgets. What the US press fails to mention is that the corrupt regimes serving as US-UK puppets in the Arab world are being dismantled, from a double hit. The first was the debt crisis. The second is the food price inflation. All are part of the crumbing US Empire.

◄$$$ PREPARE FOR A TREMENDOUS PROFIT MARGIN SQUEEZE FOR BUSINESSES. IT WILL DEEPLY DAMAGE S&P500 EARNINGS. IT WILL BECOME THE MAJOR STORY LATER THIS YEAR, MAYBE EVEN BY JULY EARNINGS REPORT SEASON FOR 2Q2011. THE DIE HAS BEEN CAST. EXPECT HIGHER USGOVT DEFICITS, HIGHER PRICE INFLATION, AND A MARCH TO SYSTEMIC FAILURE WITH A CLIMAX USTREASURY BOND DEFAULT. $$$

The price inflation scourge has finally hit the news headlines, billboards, main stages, and stock market, but not yet the CPI. The first recognized sign was higher food prices, which will be made worse at least in the SouthWest United States after a damaging freeze. The threat of profit margin collapse is here at last, with recognition spreading across the stock market in the form of individual company quarterly statements. The Jackass has been warning for two months of the big profit squeeze. In parallel, households will feel the squeeze in the form of shrinking discretionary spending funds after the higher costs for food & fuel are factored in. Major publications like the Wall Street Journal are focusing on precisely what the Jackass said they would, higher revenues (topline growth), cited as benefits from price inflation. The WSJ has begun to discuss the encroaching problem. They wrote, "But beneath the surface lurks a fresh worry: For many companies, the cost of raw materials is rising at a faster pace than revenue. Blame it on soaring prices of everything from cotton to copper and corn. That has squeezed profit margins more markedly than many analysts anticipated, and is serving as a worrying sign for future earnings." Exactly and finally acknowledgment, my realized forecast. Next on the earnings parade is a vanishing act and earnings plunge. Look for 2011 S&P 500 earnings per share (EPS) will come much lower than prevailing consensus. Companies like Proctor & Gamble, Ford Motors, and Kraft Foods have openly mentioned the cost rise effect. The Hat Trick Letter featured Whirlpool along the same theme. Adam Parker, the chief equity strategist at Morgan Stanley, has warned of potential disappointment on the earnings front if the cost factor bites harder into profit margins. Exactly, but Parker might be fired soon for talking truth, the enemy of the fascist state. See the Wall Street Journal article (CLICK HERE) and the Zero Hedge article (CLICK HERE).

The squeeze to businesses and households assures job cuts and spending declines, which will send the USEconomy deeper into recession. The USFed response will be continued 0% interest rates and an endless string of QE programs that instill and infuse hyper-inflation as part of the US system. A vicious cycle has begun. Higher USGovt deficits will result. Price inflation will rage. The nation is moving toward systemic failure and USTreasury Bond default, precisely as the Jackass forecasted in September and October 2008, when the US banking system died. A powerful inflationary recession is at the doorstep, fully forecasted!!

◄$$$ AMERICANS HAVE EXTENDED CREDIT CARD DEBT AGAIN. BANKS ARE ABUSING USURY, PUSHING RATES SKYWARD. BANKS ARE HITTING ALL FEE BUTTONS. AVERAGE BALANCES ARE STILL HIGH. BANKS. HOLIDAY RETAIL SPENDING IS EXPLAINED. DESPERATION HAS SET IN. HOUSEHOLDS HAVE FEW RESOURCES TO DRAW UPON. $$$

American households are racking up huge credit card balances all over again. Banker abuse is outrageous, raising questions of legality. The credit card companies have enforced interest rates higher than ever. One national credit card company with close to a million customers charges interest rates of up to 59.9% and gets away with it. The question is not stupidity of customers but desperation. People have exhausted most valid sources, no longer able to raid home equity. Another bank disclosure notice explained that the initial lending rate of 29.9% could be pushed up to 79.9%. First Premier Bank has since lowered the top rate on those cards to 59.9%, but that is still outrageous. The positive trend seen from the economic downturn had millions of American families drawing down revolving debt. Even a sustained trend of reduced credit card usage had been seen in the United States. The trend has reversed. December was the third straight month in which consumer credit grew. It had declined for 20 months before the turn. In many cases, the high usury costs are targeted at Americans that have a poor credit history, a predatory campaign of exploitation much like the subprime home loans.

A CNN story described how large numbers of US consumers with poor credit are gobbling up such credit cards. The scattered extra fees are amazing, many higher than in the past for the worst abusing banks. Banks are making money again!! First Premier Bank charges a $45 processing fee to open the account, an annual fee of $30 for the first year, a $45 fee for every subsequent year, a service fee of $6.25 per month. CNN reported that almost 700 thousand Americans have signed up for the card. Enter the treadmill of debt slavery in its most basic form. A $6000 credit card balance, at a 20% interest rate, if paid off with only the minimum payment each month, will require 54 years. The interest charges would stack up to $26,168 on that credit card, apart from repayment of the orginal principal balance. Sadly, impoverished Americans have few recourses. The US Census Bureau cites 1.5 billion credit cards in use in the United States, with an average balance of $15,788 among those who carry a debt. Many people buy things they do not need or cannot afford. More and more are using credit cards for essentials though, to maintain a standard of living. The dutiful mainstream media preaches that increased credit card spending stands as a signal that the USEconomy is returning back to health. It is a bus ticket to the Third World under the current circumstances. The great consumer mentality has led to eating capital rather than developing it, while the USGovt taxes capital. See the Economic Collapse article (CLICK HERE).

◄$$$ CHINA IS SLOWLY INDUCING AMERICANS TO DEPART AS PENSIONERS LIVING IN COSTA RICA. THE CR-COLON CURRENCY IS ONE OF THE STRONGEST IN THE WORLD, BENEFICIARY OF CHINESE INVESTMENT. THE VALUE OF U.S. PENSIONS ARE SLIDING IN VALUE. USGOVT PLAYERS REMAIN A CONSTANT FIXTURE THOUGH IN THE LAW ENFORCEMENT ARENA. $$$

China is indirectly pushing out the US citizens living in Costa Rica by means of support for the CR Colon currency. Pensioners are increasingly discouraged by the falling USDollar, which fell by 15% in 2010 and risks further declines. The CRGovt has been working on liberalizing the resident status rules. The Chinese have invested a few hundred $million in numerous diverse projects in Costa Rica, involving farms, ports, railroads, hotels, and city property. They are likely spending USTreasury Bonds. The Chinese have effectively reversed a 15-20 year trend of a weak CR Colon currency. Up to 2009, the CREconomy had an $800 to $900 million trade deficit. No more! Dimwitted Americans tell me that the CR trade gap is a huge problem, without awareness that if the USEconomy had an equivalent sized trade gap, the US trade gap would be only $48 to $54 billion. In fact, the US trade gap is 4x to 5x larger proportionally. In five years, due to the surprisingly strong CR Colon and weaker buying power of the pensions here, fewer Americans will be living as either residents or perpetual tourists. China built a national soccer stadium here as a gift, recently completed and gorgeous. They have donated dozens of police cars, bearing "Donado Por China" on them with red & blue insignia. More and more Chinese faces are seen in public places. They have their own restaurants and private casinos. My belief is they will stock their own brothels.

◄$$$ BANK EXECUTIVES ARE JUMPING FROM SINKING SHIPS, AS SENIOR BANK OFFICERS ARE RESIGNING FROM THEIR POSTS IN DROVES. WATCH LEGAL PROSECUTIONS OF BANKS COME WITHIN A YEAR. $$$

A raft of banker resignations and retirements seems fishy, if one accepts the premise that a USEconomic recovery is actually underway. Maybe the bankers wish to leave town before an implosion occurs, or before truly scummy information is revealed on bank conditions, or before banker violations are made public for legal prosecution, or before the masses turn hostile and even violent. Kevin Warsh tendered his resignation from the Board of Governers of the US Federal Reserve, effective end March. He focused on financial markets and the conduct of monetary policy. That sounds curious, since stock and bond markets are not the purview of a central bank. They should be focused almost entirely on bank operation oversight, reserves management, and counting money. Perhaps the professional banker wanted to withdraw from the central bank board while it has been engaged in what will become an endless stream of Weimar-like debt monetization, otherwise known as monetary hyper-inflation. See the Stop Foreclosure Fraud article (CLICK HERE). Wells Fargo CFO Howard Atkins retired after ten years, the statement citing personal reasons. In January, the highly controversial MERSCORP saw a resignation. Its CEO R.K. Arnold resigned his post. He must have wanted to avoid the countless mortgage foreclosure challenges in court. See the Stop Foreclosure Fraud article (CLICK HERE). The Freddie Mac Chief Operating Officer Bruce Witherell resigned last week. He left for personal reasons, and received no severance benefits. He must be a little worried, since the CFO David Kellerman was found dead in his home in April 2009, hanging by the neck in the living room. He clearly knew too much and wanted out. See the Stop Foreclosure Fraud article (CLICK HERE).

◄See the Special Report entitled "The Path to New Gold Standard" for the February Hat Trick Letter. The Bernanke USFed is on the road to triggering a USDollar panic, a nasty run on the greenback. The USEconomy can become more competitive if the USDollar declines hard and worker pay scales fall hard. QE2 then QE3 will present two alternatives, rabid price inflation or USTreasury debt default, since buyers of the debt have vanished. Debt downgrade is a big immediate risk. A QE3 program is guaranteed by the chronic $1.5+ trillion federal deficits, stuck in a vicious cycle of recession and economic tax from higher costs. Higher USTreasury bond yields are the currently ignored flashing signal. A powerful Reactive Law of Nature dictates that in the absence of a Gold Standard, the world will seek an alternative, a quasi-Standard, a stand-in functional substitute, whatever works reasonably well, like crude oil and homes in the past. The road to global dominance must be paved by a reserve currency of their own. China might be considering a gold-backed Yuan currency, but they must not go alone. Any launch of a currency with strong basis foundation will threaten to de-throne the USDollar, which faces a climax end. The extravaganza of monetary expansion ushers in the advent of hyper-inflation, amidst a great revolution of currencies. PIGS nations will see grotesque inflation first in Europe when kicked off the Euro currency. The response will urgent global demand for monetary discipline. The Gold Standard is a device for that discipline. Taleb urges avoidance of the USTreasury Bond and the USDollar. Bill Gross of PIMCO believes the a bond riot would be a positive event to enforce debt discipline by the USGovt. The USTreasury Bond is the final asset bubble, but a very harmful one. Its bust will release hyper-inflation, kicked into gear by the QE2 initiative, the monetary hyper-inflation underway. Its bust will ensure an economic depression. In 5 to 6 years into the future, the US will be dealing with the nasty aftermath of the USTreasury Bond bust.

Kahn from the IMFund has called for a new world currency. All such attempts to replace the USDollar by a basket of paper currencies is absolutely futile. Observe China, which will give more indications of their position at the upcoming G-20 meeting in Paris. They dominated the previous G-20 meeting. The currency basket concept is a subtle attempt at currency exchange rate fixing, since a basket of currencies inherently would contain fixed ratios within the basket. However, each item in the basket is deeply damaged. The Axiom of Sound Money dictates that only a hard asset currency can replace a broken fiat paper currency as global reserve used widely in banks and commerce. A new alternative as supposed solution to the monetary crisis is a foursome basket of global reserve currencies, a maneuver that would require a hefty US$ devaluation to even be initiated. Rickards of Omnis believes the international monetary system is obviously breaking down. Witness a desperate gambit revealed at Davos to retain the fiat paper currencies with multiple reserve currencies. The move would be an exchange rate price fix attempt, nothing more. The concept is akin to the IMF basket, and equally unworkable in a futile attempt to avert a return to the Go ld Standard. Lack of action assures chaos, the Jackass forecast.

Greenspan supports the Gold Standard. After almost two decades of making great contributions to destroying the global monetary system, encouraging a sequence of asset bubbles, blessing them as good, and reinforcing the calamitous bank derivative foundation, Greenspan repeated his devotion to gold. Some mechanism must be in place that restricts the amount of money which is produced because without it, inflation will take root with very harmful effects on economic activity. A Gold Standard would enforce laws against abuse, fraud, and basic counterfeit. The Gold price would require a reset to at least $6000 per ounce. The next QE3 initiative will be born from desperate need. Numerous causes will be put forward as beneficiary to the next Quantitative Easing. Its approval will invite a global shrill outcry, and demand for a Gold Standard. It is not only the obvious solution to enforce discipline, it is a reluctant solution since the banker elite prefer their fraud. The USFed must overcome the price inflation (especially food) objections in order to win political approval. The QE programs will be endless until the United States is cut off globally. Many are the causes and suppliers of bonds for USFed support, via the monetization engines, like USTreasury Bonds, Fannie Mae mortgage bonds, Mortgage Putbacks, Municipal Bonds, and Interest Rate Swaps. But the USFed must overcome the political objections before QE3 is launched.

HEIGHTENED RISKS FROM QUANTITATIVE EASING

◄$$$ BILL GROSS EXPECTS THE USGOVT DEBT LIMIT DEBATE MAY SPARK A BOND MARKET CRISIS. HIS PIMCO FUND HAS BEGUN TO SHED USTREASURYS. THE USDOLLAR COULD BE HELD HOSTAGE DURING EXTREME CONFLICT INSIDE THE USCONGRESS CHAMBERS. THE PROCESS HAS ALREADY BEGUN. WITNESS THE PRELIMINARY RUMBLINGS TO A FUTURE USTREASURY DEFAULT EVENT. THE STAKES ARE HIGH, AND THE WORLD WATCHES ANXIOUSLY. $$$

Bill Gross of PIMCO has long benefited from a cozy relationship with the USGovt. His giant funds have seen gains from the USTreasury Bond bubble. He manages its $241 billion Total Return Fund. However, at 0% yields the game is over on the short maturities, and on the long maturities a reversal has been suffered. He has turned into a harsh critic. An important event is nigh, for approval of extension to the current $14.3 trillion USGovt debt limit, which cannot be legally breached without approval by USCongress. Under the current limit, the USGovt can borrow another $234 billion, whose ceiling will be reached by mid-March. The Congressional Budget Office recently estimated this year's budget deficit will yawn again to a record $1.5 trillion, making liars of any official speaking of a USEconomic recovery. Lifting the limit has typically been a knee-jerk response, as the USCongress has raised it 74 times in the past 70 years. This time a major battleground has been created, a climax event turned fierce. If Congress fails to raise the limit, the USDept Treasury has a number of cash management devices to delay a default for a few months. They can buy time, but with horrible attention. They might shut down numerous federal office buildings. They might delay Social Security payments, holding them hostage in order to gain political force.

Gross believes the debt limit debate could spark a bond market crisis. The battle over raising the borrowing limit threatens to throw the debt market into a tailspin. The efforts to reduce spending have failed, all expedient response to the ongoing chronic powerful economic recession. The spending commission was a farcical exercise, its report ignored immediately, its findings mere empty platitudes. A political battle has raged over the debt limit. Gross said, "It is the wrong way to do it. Obviously, I am all for a move to a balanced budget over time. But this is like imposing the death penalty for shoplifting. The signal it gives to countries that hold Treasurys is that their assets are hostage to a rogue Congress. That is the message it sends. It is unacceptable. The Treasury market will sell off as this gets more press and with more invective. Investors like us, we sell now." Battle lines are drawn, and battle cry arguments are laid out. Republicans claim that bond investors will set off a Greek-style financial crisis in the United States if the national debt grows without bound. They demand deep spending cuts. The Obama Admin claims that if the debt ceiling is not raised in time, bond investors will flee USTreasurys and create a larger meltdown than the last one. The opinion of Gross matters, since global creditors must think in similar terms. The change in power over the House of Representatives came with a pledge to cut federal spending and the national debt. They are helpless to bail water out of a sinking ship of state. Some past history could serve as prologue. Another standoff occurred in 1995 between the Clinton Admin and Republicans in the USCongress. The federal government shut down for 26 days over a three month period since the two sides failed to pass a budget. That caused nervous investors to dump USTreasurys, lifting the yield on the 10-year USTreasurys from 5.52% to 6.46% quickly.

Gross has taken action, based on his soured view, and has sold USTreasurys within the PIMCO fund. Notice the dramatic shift in strategy with reduced USGovt debt holdings. His success with mortgage backed securities was impressive, the obvious beneficiary of insider information on USGovt purchases of MBS bonds using the USFed actions. His next act seems to be large scale selling of USTreasurys into the bubble, at high prices. The January update reveals the huge change in USTreasurys, down from 22% in December to 12% in January in percentage of assets, a steep $24 billion drop (shown as rose oval). PIMCO is essentially selling into the QE2 with the USFed as buyer. Cash levels have surged in the process, from a 7% short position to a 5% positive position. The one blemish on the Total Return Fund is the current heavy load of municipal bonds. It held $238.5 billion in January, down only $17.4 billion since October. Its USTBond type holdings are a shadow of their former volume, while mortgage bonds have begun to turn down. The left side scale applies to the individual asset holdings. See the Zero Hedge article (CLICK HERE).

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Bond investors are fiscal conservatives who urge smaller deficits and tighter budgets. They rightfully worry that rising interest payments will devour the country's income and damage the economy, crowding out investment. Bargaining over the debt limit, making it a national cause, also raises the specter of a USGovt debt default, a development that frightens investors. Damage has already come to the long maturity USTreasury Bonds. They suffered a decline in December after a deal was struck to extend the Bush-era tax cuts along with unemployment benefits. The total package will add $400 billion to the current year's budget deficit, a loud shrill echo to the commission report on reduced spending. As the debt ceiling is approached, risk rises for widespread USTBond selling by foreign creditors and domestic investors. Higher bond yields harm the USEconomy further, resulting in larger deficits from higher borrowing costs and lower tax revenues, even a bigger wallop to the busted housing market. Greece should serve as a lesson, but it will not, since Americans believe their debt is sacred and will be supported globally no matter what occurs. The USGovt bonds are different, since they bolster the global financial system. The Treasury Bond yield is used as a benchmark for setting interest rates in comparison around the world. A vicious cycle has been created, born from the lack of Exit Strategy options for the USFed itself. The vicious cycles have been a major theme described by the Hat Trick Letter for several years, inflicting great damage, causing downward momentum, and eliminating the potential for remedy. See the Money News article (CLICK HERE). Also, for a fine historical summary of the government debt situation among Western nations, see the John Mauldin article entitled "The Future Of Public Debt Is Terrifying" on the Business Insider (CLICK HERE). The trajectory path of public debt is unsustainable, dangerous, and invites higher systemic prevailing interest rates.

◄$$$ USTREASURY YIELD SPREADS ARE ACTUALLY NARROWING SLIGHTLY. VERY SIGNIFICANT TECHNICAL DEVELOPMENTS ARE OCCURRING IN THE BOND MARKETS. MY CONJECTURE IS THAT THE USFED IS FOCUSED LIKE A LASER ON PURCHASING LONG-TERM USTREASURYS AS PART OF QE2 IN ORDER TO REMOVE THE HIGHLY RELIABLE PRICE INFLATION SIGNAL AND TO AID THE HOUSING MARKET. $$$

Much of the investment community seems to expect higher price inflation in the future. The gap between long dated yields and short dated bond yields should be growing. Instead, the bond yield spreads are narrowing slightly. The phenomenon is argued, that money in the future will be worth less than money today as price inflation erodes value. Therefore the price of future money needs to be higher in order to compensate for the erosion. Reduced expectations of price inflation cannot be the reason for the tame long-term rates. It could be that the Interest Rate Swaps have required a critical adjustment. The more likely reason is the simplest. The USFed is in all likelihood watching the same nasty dire warning signals as the rest of us living outside the castles and marbled offices. They have probably targeted long-term USTreasurys as the object for QE2 debt purchases in order to remove the reliable price inflation signal that even the corrupt minds in the USFed understand. A steep yield curve means strong price inflation soon will hit the USEconomy. Another possible explanation, not too likely but possible, is that China captured the attention of the troublesome USGovt officials by staging a temporary boycott of USTreasurys in recent months. The long-term USTBond yield rose in direct consequence. Now the Chinese are buying again at lower bond principal prices, making friends, and sitting at the table with a very different bargaining position and under a more charged political environment. Just a guess, but it makes some sense. The Chinese might have reacted to damage they dealt to their own remaining USTBond reserves, since $900 billion is too much to discharge and unload. They could be preserving their hoard's value, but eager to give the American leaders a message like a kick in the shins (or higher).

◄$$$ IMPLOSION OF THE BIG USBANKS HAS CREATED A GIGANTIC BLACK HOLE. HIDDEN BENEATH THE BANK CARPETS ARE MASSIVE HOLES IN DERIVATIVES, WHOSE MONETIZATION MUST BE DONE SECRETLY. THEIR SUPPORT ENABLES THE USTREASURY BOND BUBBLE TO BE SUSTAINED. THE COST MUST BE IN THE $TRILLIONS EACH MONTH. NO AMOUNT OF MONEY, EVEN PHONY MONEY, CAN SAVE THE BIG USBANKS OR THEIR RECKLESS RAFT OF DERIVATIVES. $$$

Suspicion has arisen that the USFed is funneling $trillions into the Wall Street banks in order to prevent a bigger implosion than seen already, with chain reactions and nuclear financial events. Chairman Bernanke has made numerous bogus justifications for QE, like economic stimulus and three million jobs created. The obvious reason is to prevent a fast rise in mortgage rates that would kill the crippled US housing market. Another less obvious reason is to replace the countless USTBond creditors who have abandoned the formerly safe secure haven investment. Another highly likely reason might be to support the Wall Street banks in the prevention of a derivative event, with a chain reaction of deeply damage rippling through the USEconomy. Think ruined credit market apparatus and supply chain at a standstill. According to the Office of the Comptroller of the Currency, in their Quarterly Report on Bank Trading & Derivatives Activities for 2Q2010, the notional value of derivatives held by US commercial banks is around $223.4 trillion (not billion). Worse, the positions are extremely concentrated, with five banks accounting for 95% of the risk. They are the same banks that the Bernanke Fed has given focus in huge bailouts since the financial crisis took root. That is a big hint of the likely motive for QE2. Of this mindnumbling amount, $188 trillion is related to interest rate contracts. To put that figure into perspective, it is 13 times the entire US GDP, and nearly four times world GDP.

The QE1 and QE2 programs are desperate attempts and ploys to keep the interest rates low, in order to prevent derivative explosions. My first finger pointed is at the Interest Rate Swaps, which have been mentioned repeatedly in the Hat Trick Letter. The USTreasury Bond bubble requires hundreds of $billions to be supported, then add leverage. The credit derivatives require a few $trillion to be supported. Furthermore, asset bubbles always require an acceleration of feeder funds to sustain a constant valuation at their peak, a deadly dangerous phenomenon. With the passage of time, and a parade of lame excuses that do not wash, it is becoming clear that the USFed is backstopping the credit derivatives.

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These derivative contracts can be traded, positioned, and spread out in numerous ways by different banks in such a way to to disperse the risk. Small percentage losses result in catastrophic hits to bank balance sheets. It is my opinion that not only are the big US & UK banks insolvent, but if the credit derivatives were to face liquidation instead of deeper commitment, the big Anglo banks would take on losses between $15 and $30 trillion. Former USFed Chairman Greenspan has been well aware since 1999 that the derivative market, if pushed into the open and forced through a public clearinghouse, would implode the financial markets. The tragedy is that all the phony printed money devoted to rescuing both the big US banks and their reckless lease on life in the derivatives will not save them. They are destined to die and with them, to take down the US financial system entirely. The big US banks are not only too big to fail, they are too big to save. They are too bloated to manage. They are too corrupt to expose to light. It is truly game over for Wall Street and the USFed, but the game must be played through the final chapters. See the Seeking Alpha article (CLICK HERE).

ENGLAND DESCENDS & EUROPE FLOUNDERS

◄$$$ THE UKECONOMY IS INTO A RECOGNIZED RECESSION AS THE SHOCK OF 2008 HAS RETURNED. EVEN STATISTICAL FRAUD COULD NOT CONCEAL THE ECONOMIC DECLINE. THE HOUSING BUBBLE AFTERMATH FINDS THE CONSTRUCTION SECTOR LEADING THE WAY DOWN. NO INTEREST RATE HIKE CAN BE EXPECTED AS AN ANSWER TO FAST RISING PRICE INFLATION. THE BANK OF ENGLAND IS STUCK, JUST LIKE THE USFED. $$$

The UK Economy suffered a 0.5% contraction in 4Q2010. Severe weather slammed activity in the final three months of the year. However, the Office for National Statistics (ONS) claimed the quarter would have leaned negative even with normal weather. The usual profound lies or deep ignorance flowed from Chancellor George Osborne, whose open disappointment was followed by mindless comments about how its austerity program would not blow the USGovt finances off course. Of course it will, like everywhere such measures have ever been imposed. Apparently, officials refuse to look at evidence in Ireland and Greece, along with 25 other nations which experienced disastrous consequences from austerity, especially when forced by IMF loan conditions. Nothing was fixed in Greece, but its austerity model is repeated. In the last two weeks, the yield on the Greek Govt 10-year bond has risen sharply from 10.804% to 11.750% in nine straight days of damage, after a report showed their economy shrank for a 10th consecutive quarter. A downward spiral of even greater federal deficits should be anticipated, at least by people grounded in reality. Although deep spending cuts are wise in general, they are foolish without the mandatory ground breaking and laid foundation of diverse big bank liquidations in order to permit the spending cuts to enable capitalism seeds to germinate. The BBC economics editor Stephanie Flanders claimed worry is well placed about where the UK growth would spring from in 2011, especially as some robust early price inflation had dealt a further blow to household budgets. One must wonder if anyone with economics credentials in the US & UK realms comprehends a twit about capital formation, the key to capitalism and its success. My firm belief is NO.

The contraction in Q4 occurred after four consecutive quarters of growth. Much blame can be put on the construction industry, a large contributor to the decline. Its activity decreased by 3.3% in the quarter. Construction and transportation industries are the most fundamental in an economy. Hetal Mehta from Daiwa Capital summarized, saying "This is a horrendous figure, an absolute disaster for the economy. We knew that retail sales were heavily affected and that services output would be weak, but the collapse in construction was a major contributor to the downside surprise. While today's GDP figures are backward looking, they are nevertheless crucial to understanding the resilience of the economy to shocks. It seems that the economy is incredibly vulnerable. And with the fiscal tightening yet to fully bite, we will have to brace ourselves for a bumpy ride." True words without equivocation. Never lose sight of the wreckage caused by heavy reliance upon a housing bubble as faulty foundation for a full cycle spurt of economic growth. The USEconomy committed the same fatal error. By fatal is not meant simply damage done, but ruin of the economy when the bubble burst, ruin of the banking system, ruin of households, and eventual systemic failure. The decline in the construction industry is a symptom of the path to ruin. The boom bust of a bubble abused as foundation represents an error that cannot be recovered from. Systemic failure is in progress, whose recognition will come later.

Bank of England Governor Mervyn King finds himself in a grand bind, very similar to the straitjacket USFed Chairman Bernanke is bound by. King and the BOE face a powerful dilemma. They must address the fast rising price inflation but they cannot raise interest rates when the UK Economy is teetering into recession. David Kern, chief economist at the British Chambers of Commerce, described the dilemma and the expedient path. He said, "The Monetary Policy Committee must abandon any early interest rate rise until the recovery is more secure. On its part, the government must ensure obstacles that hamper businesses in their efforts to create jobs, invest, and export must be removed." Fine, but no discussion even has arisen of capital formation or its encouragement. Independent economic data reported by the ONS showed that public sector borrowing came in at 16.8 billion Pounds in December, down from 21 billion Pounds one year earlier, and some way off the record 23.3 billion Pounds reached in November. It is certain to rise again. Notice the emphasis on credit to fuel growth, not business investment. Economic policy guides the system to rock bottom. See the British Broadcast Corp article (CLICK HERE)

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The Bank of England faces a nightmare. Their policy makers have no policy options. The official Consumer Price Inflation is at 4%, expected to rise to 6% in the worst case. BOE chief King actually stated a mid-2012 forecast of a mere 2% CPI. It will be more like 10% to 12% in our world. The UKGilt 10-year yield is at 3.8%, assured to rise toward 5.0% in the next 12 to 18 months as price inflation rages. He made two key erroneous points in a pressure filled speech on February 16th, where he actually called the risks balanced and appropriate, like a drunkard staring into an empty glass of whisky. He focused on inflation expectations, and the risk of unwanted higher wages and product prices. Therefore King wishes for deep poverty and ruined households rednered incapable of managing the rising prices. He is encouraged to see no sign of wage hikes, except to bankers. The second point is an erroneous reliance upon spare capacity as a restraint on price inflation, something shared by the USFed. This theme runs parallel to the tame wages, since ample spare capacity in industry means plenty of job cuts, lower pay scales, and plant shutdowns. His reliance on excess capacity will result in no helpful feedback since the rising prices are a monetary phenomenon, not an economic one. Slack wages will come hand in hand with rising government deficits, in a vicious cycle he cannot anticipate or even recognize. He advocates poverty and unemployment and slack industry as counter-weights to rabid monetary inflation, in order to keep prices moderate. Big bank liquidation and an end to their aid would make for a promising alternative that is not rooted in poverty to the masses. King is cut from the same clueless corrupted cloth of economists as Bernanke, both fools with a wrecking ball toy working overtime behind their backs, as they march forward into the darkness blindly.

◄$$$ THE BANK OF ENGLAND WARNED OF SERIOUS DECLINE IN STANDARD OF LIVING. THE SAME COST SQUEEZE THAT WILL SLAM THE UKECONOMY ON THE BUSINESS SIDE WILL ACT AS A GRAND TAX TO HOUSEHOLDS AS THEIR COSTS RISE ALSO. LAST YEAR A SHOCKING 12% DECLINE IN TAKE-HOME PAY WAS SEEN. WITNESS A GRAND BREAKDOWN IN THE UKECONOMY AND THE BRITISH SOCIAL FIBER, A TRAGEDY. $$$

Mervyn King from the Bank of England has acknowledged some harsh reality. The British standard of living is set to plunge at the fastest rate since the 1920 decade. King warned that households face the most dramatic squeeze in almost a century, which will profoundly affect living standards. He anticipates that families will see their disposable income eaten up by higher costs, as the citizens pay the inevitable price for the financial crisis. He did not mention how the citizens would suffer due to the type of government response, as in double fisted rescues and heavy welfare of the big banks. Disposable income is expected to match 2005 levels, a reversal of fortune. Many economists openly call the situation a disaster. They would have expected it more fully if subscribers to the Hat Trick Letter for the last two to three years. At least the BOE head is grounded in reality due to the cost squeeze. The USFed head is not.

Mortgage lending by the major banks took a severe dive to an 11-year low during the December month. The British Bankers Assn reported that net lending decline to 880 million Pounds during the month, the lowest level since June 1999. The labor leaders criticized the public spending cuts. Nobody seems to realize that no foundation for recovery has been planned, developed, or laid out. King warned the savers in society, such as retirees, would have to be patient for higher interest rates, calling them the biggest losers in the squeeze. Again, more reality not shared by the USFed. The cost structure is a main problem. Disposable household income has been reduced sharply by hefty increases in the cost of food, fuel, and taxes, aggravated by wage restrictions for most workers. The national take-home income fell by a staggering 12% in year 2010, a trend expected to continue in 2011. The UKGovt is legislating poverty without a whiff of awareness.

The BOE governor King actually warned that the bank "neither can, nor should try to prevent the squeeze in living standards." Witness a managed systemic failure, without full proper assessment of the guilty responsible parties, namely economists and bankers. King declared price inflation to be public enemy #1. He was forthright about the topic, saying "price inflation could rise to somewhere between 4% to 5% over the next few months." Obviously, the actual price inflation will be more like 8% to 10%, perhaps higher. The finger was pointed to increases in crude oil and commodity prices, as well as tax hike in the VAT introduced in January 2011. Some hypocrisy is evident, since banker wages have been more than assured via government aid, rescues, redemptions, and basic elite welfare at public expense. Insiders and other bankers will surely continue to borrow at ultra-low rates, useful in redemptions and further speculation. The review comments by King painted a stark bleak picture. The public sensitivity is rising toward the acute level. The household squeeze on living standards comes at a time when multi-million Pound bonuses for bank executives are soon to be announced. Witness class warfare from government chambers. Big banks continue to receive public bailouts and other aid. Mervyn King offered a bleak outlook, but a realistic one. He said the following. He speaks of a recovery like a pure moron economist. He speaks of rebalance like a total banker tool. See the UK Telegraph article (CLICK HERE).

"In 2011, real wages are likely to be no higher than they were in 2005. One has to go back to the 1920s to find a time when real wages fell over a period of six years. The squeeze on living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies. If the MPC had raised the Bank Rate significantly, inflation might well have started to fall back this year, but only because the recovery would have been slower, unemployment higher and average earnings rising even more slowly than now. The erosion of living standards would have been even greater. The idea that the MPC could have preserved living standards, by preventing the rise in inflation without also pushing down earnings growth further, is wishful thinking. Monetary policy cannot be based on wishful thinking. So, unpleasant though it is, the Monetary Policy Committee neither can, nor should try to, prevent the squeeze in living standards, half of which is coming in the form of higher prices and half in earnings rising at a rate lower than normal. The Bank of England cannot prevent the squeeze on real take-home pay, which so many families are now beginning to realise is the legacy of the banking crisis and the need to rebalance our economy. I sympathize completely with savers and those who behaved prudently now find themselves among the biggest losers from this crisis. But a return to economic stability from our fragile condition will require careful and well-judged steps looking beyond the next few months. Households and small businesses with little housing equity may be unable to borrow at all or are able to borrow only in the unsecured market, where rates are much higher than before the crisis."

The social and moral fiber of the United Kingdom is also in fast decay and decline. Its human capital is wasting away. The United Kingdom has the highest drug abuse in Europe, the highest incidence of sexually transmitted disease, the highest number of single mothers. Marriage is gradually falling by the wayside as a social practice, with some exceptions. A ripe 20% of British children are raised in homes in which no adult works. Almost 900 thousand people have been out of work, sick for over a decade. They have been claiming sick benefits week in, week out, for ten years. Indolence (inactivity, laziness, sloth) is the greatest enemy of a free society, as Machiavelli explained. Rarely has any state embraced this oldest temptation as literally as Britain. The UKGovt is at the ready to pay for almost anything. See the New Criterion article (CLICK HERE). The ruin of America is matched by ruin in England.

◄$$$ IRELAND IS AN EXAMPLE OF THE WORST POSSIBLE DECISIONS. SOME LESSONS CAN BE LEARNED FROM THE ICELAND EXAMPLE. IN ICELAND, CREDITORS SUFFERED LOSSES, AS IT SHOULD BE. THAT NATION IS RECOVERING. IN IRELAND, TAXPAYERS VIA PUBLIC FUNDS, SHOULDERED THE LOSSES, A GREAT INJUSTICE. WORSE, IRELAND WILL NOT RECOVER FOR CLOSE TO A FULL GENERATION. TRUST IS BEING REBUILT IN ICELAND. HOWEVER, LIKE IN THE UNITED STATES, TRUST IN IRELAND HAS ENTERED A LONG SLOW DECAY PROCESS. $$$

When saving the big banks, the volcano filled Iceland has demonstrated that the rolling green hilled Ireland did all the wrong things. The Dublin government also accepted a poison pill IMF solution, guaranteeing perhaps a full generation of ruin and poverty. Nobel laureate economist Joseph Stiglitz said, " Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks. Ireland has done all the wrong things, on the other hand. That [nation] is probably the worst model." One could declare that Stiglitz finally agrees with the obvious, while most big name economists are still in denial. The Jackass called the Irish decisions all wrong from the start. The economists, scions of bankers, come from the crowd that feeds the IMFund and promotes poverty in the developing nations through global bank devices. The conventional route has been to support the big national banks. Doing so comes with the peril of destroying a financial foundation, not saving it. The United States and Ireland have promoted a model based in Elitism and Destruction. They injected $billion of capital (funny money to be sure) into their financial institutions to keep them afloat, yet they remain dead, lending remains flat, and the economies remain moribund. Applying blood transfusions to a dead corpse does not bring it to life, but rather wastes beneficial blood. By contrast, Iceland did not bow to the Elite. They placed the biggest lenders into receivership. Their creditors were left unprotected, after assets lifted to $209 billion during the housing bubble years, 11 times the Irish gross domestic product.

The Iceland landscape took heavy blows from doing the right thing. It suffered through a rough period. Over two years later, life in the banking world is returning to a semblance of normalcy. The crisis almost devoured the island nation. The krona currency lost 58% of its value suddenly by the end of November 2008, as price inflation spiked to 19% in January 2009 and the economy contracted by 7% that year. The Prime Minister Haarde resigned after nationwide protests. So creditors and leaders were disposed of. With the economy projected to grow 3% this year, the decision by Iceland to permit the bank failures has taken a look of wisdom and intelligence combined with courage. In time it might prove to be a model for others. In the last several months, Iceland has been on a recovery path. Three newly formed banks had combined profit of $309 million in the first nine months of 2010. GDP grew for the first time in two years in 3Q2010, only by 1.2% but it is growth. Price inflation is down to 1.8% and the cost of insuring government debt has tumbled 80%. Stores in Reykjavik were filled with Christmas shoppers in early December, and bank branches were crowded with customers. In the process great damage was done to trust, which disappeared overnight. CEO Birna Einarsdottir served as executive VP of commercial banking when Glitnir collapsed, and five years at Royal Bank of Scotland before that tenure. He said, "We had built trust over 100 years, but it disappeared overnight. It will take more than two years to regain that trust." Success and work toward true remedy have their own value, contributing to renewed trust. In the US, the trust is vanishing in a deadly roll down a long slippery toxic pathway. Expect all PIGS nations to follow the insane Irish path taken, not to remedy anything, to commit incredible sums of money, to protect the Elite, and to face utter destruction, maybe even become vassal states to China. The only device that will truly aid the PIGS nations will be departure from the Euro currency, a return to their former currencies, and a hefty devaluation.

Ireland has done the opposite, putting the entire nation at grave risk of systemic insolvency. They guaranteed all the big bank liabilities when they ran aground. The Irish Govt has been injecting capital, 46 billion Euros (=US64 billion) to date in a vain attempt to prop up the big banks. They cannot be saved. The insane decisions, mimicking those of the United States, have brought the country to the edge of ruin, to the abyss, where it remains. The greater risk of such a path is the tendency to commit more money after the first batch of money. Such policy perpetuates insolvency!! In the last few months, the Irish central bank has been printing money at a monstrous pace, equal in proportion to the United States printing $13 trillion. The Irish Govt set its disastrous course when its drunkard prime minister accepted a rescue package from the European Union in December. The Ireland situation is somewhat different. The Irish banks had more than 10 times the assets of Iceland's lending institutions, rendering their collapse more risk filled for the European financial system. Ireland was not in a position to devalue its currency since it uses the Euro, probably the biggest reason that Ireland will plunge into the sea economically. It lost its flexibility, the only advantage being access to funds to keep a broken system propped up. Even still, countries with larger banking systems can follow the Iceland example, claims Adriaan van der Knaap, a managing director at UBS AG, and active advisor to the Icelandic bank resolution committees. He said, "It would not upset the financial system. Even Irish banks are not too big to fail." See the Bloomberg article (CLICK HERE).

◄$$$ EUROPE HAS PUT PLANS TOGETHER FOR THE MASSIVE EXPANSION OF THE STABILITY FUND. BUT PLANS HAVE NOT BEEN ANNOUNCED, NO FUNDS COMMITTED. AGAINST ALL PROMISES, THE PERPETUAL SUPPORT PATH IS PROVING LETHAL TO THE CURRENCY. LEADERS STRUGGLE TO RESTORE CONFIDENCE, UNWILLING TO DO PRECISELY WHAT IS NECESSARY, LIQUIDATE THE BIG BANKS. $$$

European Central Bank Executive Board member Juergen Stark has gone public with a loose commitment for the EuroCB to purchase more sovereign bonds, and to recapitalize the banks. It remains to be seen if any large bank liquidations will be permitted. Measures to strengthen the region's Financial Stability Facility could include direct purchases of government bonds and cash injections into commercial banks. Expect the fund to double from the previous commmitments made. Stark said, "I could imagine the [Stability Fund] capitalizing banks or buying sovereign debt. But this issue has to be decided at the political level. [The decision] was an extraordinary step taken under extraordinary circumstances." Stark repeated his opposition to governments issuing new Euro bonds. In objection, he claimed they "would provide a disincentive to pursue sound policies at the national level." Then we went on to make one correct comment followed by one wrong comment, in my view. He said the Euro is a stable and well-respected currency and that the single currency will not fail. The Euro is going through a death process, just like the USDollar. The European leaders are showing increased desperation as they struggle to seek workable solutions. Their crisis response measures have shown that despite aid granted and austerity measures imposed last year, both Ireland and Greece remain crippled, stuck with spiraling deficits, and have not enjoyed a remote semblance of remedy, since no foundation was built. They continue to seek external aid. Empty calls by EuroCB president Trichet have come, where he has urged government leaders to restore confidence. Try liquidating some big banks!! See the Bloomberg article (CLICK HERE).

◄$$$ UNICREDIT BANK PROBLEMS ARE SIGNALED IN ITALY, AS EASTERN EUROPE COULD BE BLOWING A CRISIS ONTO ITALY. IT COULD BE THE TRIGGER EVENT TO PUT ITALY IN THE NEWS. THE DOMINOES CONTINUE TO FALL IN THE WEAK CORNERS OF EUROPE. $$$

Much turmoil has come to Europe in the last 15 months, mostly the Southern European nations known as the PIGS. Little attention was given to the largest Italian bank which suffered an astonishing share price decline on a single day. Some believe it was the largest valuation decline of any bank ever. UniCredit Bank could be in the middle of a massive short term funding problem with overnight liquidity troubles. The early first stages of a reserves crunch combined with a bank run could be in progress. Beware that Unicredit owns Bank Austria, a bank with the largest banking presence in Eastern Europe of any Western bank. Watch for dominoes falling from the Eastern provinces if UniCredit finds itself on the verge of suffering a massive toxic asset dump. On its own, UniCredit owns big investment stakes in troubled US investment companies such as Pioneer Global Asset Mgmt, Pioneer Alternative Investment, and Vanderbilt Capital Advisers. The UniCredit Ireland subsidiary is another site of big problems and basic rot. A good indication has been given that UniCredit will make the news in coming months in the bank failure news. Its failure might trigger a sequence of events in Italy, to bring its banking system to a critical stage. Spain has entered the spotflight in the last couple months. Expect Italy to enter the spotlight later this year, and figure larger in the news in the coming months. See the GolemXIV article (CLICK HERE), as a Lehman Brothers scenario is painted.

ANGRY CHINA RAMPS UP GOLD & SILVER

◄$$$ CHINA OPENLY CALLED FOR PLANS TO EXPAND ITS GOLD & SILVER RESERVES. IT HAPPENS THAT CHINESE SOVEREIGN WEALTH FUNDS ARE SIZEABLE INVESTORS IN THE G.L.D. FUND. THE TRADE WAR HAS MADE A TURN TOWARD HOSTILE, WITH SABER RATTLING DIRECTED AT THE MOST VULNERABLE POINT OF THE USDOLLAR REGIME, ITS PAPER BASIS AND ABSENT FOUNDATION OF GOLD. $$$

Bloomberg has reported that China central bank adviser Xia Bin urged the country to increase its gold and silver reserves, according to the Economic Information Daily. In an interview, Xia urged China to steadily increase its holdings of gold, silver, and other precious metals. He said, "Holdings of gold and silver can help establish the Yuan as an international currency by increasing China's final payment capacity." Last month, he gave a similar message, urging diversification of their massive $2.85 trillion foreign exchange reserves away from US$-based bonds, and an increase in gold reserves as a long-term strategy in order to achieve global standing for the Yuan. They wish to establish the Yuan as a currency used for payment and settlement in international trade. China claims Gold holdings at 1054 tonnes, only 1.6% of total reserves, a tiny amount compared to most other nations. With tight supply and raging demand, and central banks having become net buyers, any new marginal demand in Beijing coming from diversification out of their USDollar holdings and into Gold would make a noticeable impact, leading to higher gold prices. The reference to silver by Xia was important. It marks the first time that a central bank advisor or official has spoken about diversifying currency reserves into Silver. The unique white metal, Silver is gaining acceptance as a monetary metal, not just a industrial commodity. In fact, the Chinese formerly used silver as currency for most of their history, like most of the world including ancient Greece. Investment demand for silver has been prevalent in recent years. The cental banks are awakening to the monetary role of silver. By the way, my sources tell that the Chinese Govt has 5x to 10x as much Gold in reserves as they reveal, sort of a national strategy secret.

With reserves over $1 trillion in US$-denominated reserves, China must therefore not trust the collateral of these reserve assets. They must not trust the stability of the Nash equilibrium that addresses mutual benefit pricing systems (see John Nash, the 1994 Nobel Prize winner in Economics). Grand defections are in progress between the USGovt and the Chinese creditor. The relationship is breaking down in full global view, especially in forums like the G-20 Meeting. The USFed debt monetization has angered the USGovt creditors to the hilt, since it acts like a debt writedown without approval by means of a USDollar devaluation. The US leaders rely too heavily upon the Mutual Assured Destruction principle, where China would not act to harm its own hoard of assets. But they are in full gear protecting their wealth with a grand Gold & Silver hedge. As Chinese holdings in USTBonds have declined for over a year, the slack has been picked up by the historically unprecedented cancerous QE1 & QE2 buy programs. Worse, over 80% of new USGovt debt issuance into securities has been covered by the Printing Pre$$ run by the USFed in the debt monetization initiatives. Great strain has come to the stable equilibrium balance in which China has provided the US vendor financing, while the US imports Chinese finished products. The answer to QE2 seems to be an acceleration in the Chinese Gold & Silver accumulation. This is a direct frontal assault on the USDollar itself. Bear in mind that the Peoples Bank of China holds less gold bullion than even the corrupt SPDR Gold Trust, bound by GLD shares. To be sure, the Chinese are buying gold in numerous wide channels, officially and by citizens. See the Zero Hedge article (CLICK HERE).

◄$$$ CHINA'S THEIR DOLLAR SWAP WINDOW HAS BEEN DEVELOPING OVER THE LAST SEVERAL MONTHS. A QUICK SUMMARY IS USEFUL OF THE MAJOR ELEMENTS, FROM KNOWN TO SPECULATED. $$$

This topic is a pet project of mine, but surprisingly receives little media attention despite its huge consequences. With the expansion in the European Dollar Swap Window by the Chinese, the Euro currency has risen impressively. No benefit to Gold had been seen in the second half of January even though the USDollar fell. One should suspect the Chinese are busy dumping USTreasury Bonds. My forecast is they will sell more USTBonds than they purchase PIGS sovereign bonds. But also, the Chinese might have suspended some of their Gold & Silver purchases in official exchanges. They might have drained the COMEX gold inventory temporarily, and be waiting for replenishment. They might be targeting the GLD exchange traded fund to access Gold bullion, in order to break the US wall of corruption down. They might be anticipating a high volume Gold bullion purchase flow from the back door in Europe. Refer to EuroBonds bought at discount using the Dollar Swap Window, converted eventually to Gold. The discount is essentially the sovereign debt discount under distress. My conjecture (better by definition than guess, which itself is better than a hunch) is the little harlot IMFund will facilitate the Gold conversion from the EU member nation central banks from PIGS nations. The IMF will serve what seems with each passing month their new colleague China, a partner in training. Therefore, Gold is vulnerable to hits during the time China takes its foot off the accelerator pedal. China has found two ways to purchase high volumes of Gold bullion at a discount, an important development. So the PIGS debt will be rescued for a while, but with forfeit of their central bank gold in my opinion. See the Jackass public article entitled " China Plays the Europe Card" on GoldSeek (CLICK HERE).

◄$$$ CHINESE SILVER DEMAND SURGED LAST YEAR, AN INCREDIBLE FOUR- FOLD RISE IN JUST ONE YEAR. CHINA HAS TURNED FROM RELIABLE EXPORTER TO MAJOR IMPORTER. CHINA HAS TRANSFORMED THE GEOPOLITICAL CHESS GAME INTO A BATTLE OVER GOLD & SILVER, THE SLOWY RECOGNIZED FOUNDATION FOR FINANCIAL SYSTEMS. STRONG INDUSTRIAL SILVER DEMAND COMPLEMENTS WELL THE STRONG INVESTMENT DEMAND. CHINA DETECTS ACUTE VULNERABILITY IN THE WEST. $$$

The Silver market shortage has grown acute. Demand from several important traditional locations like China is growing in accelerated fashion. A massive increase in Silver bullion demand from China confirms the Asian bull market in silver remains very much intact despite a powerful upward price movement at the end of 2010. The annual totals show a 4-fold rise in Silver demand from 2009 to 2010, and a quantum rise from the levels in 2007 and 2008. The bull is strong. Notice in the table the negative years of 2005 and 2006. The process has reversed. China is back to building its silver supply, possibly motivated by the USGovt betrayal on the 10-year old lease as part of the Most Favored Nation status, and the entire QE programs that undermine their massive reserves.

Surging inflation in China is one relevant factor, but their government is openly urging citizens to save in the form of precious metals. It makes one wonder if they are trying to enlist a few hundred million people to attack the big US banks as legions. Price inflation in India also contributes to stronger silver demand. People are protecting their wealth in populous areas of the world that typically do not engage in heavy paper securities investments. Profound changes have come to every financial market as a result of the Chinese emergence as a global superpower, their renaissance. What has begun to unfold in my view, and the view of several other analysts, is that Chinese is using precious metals, and Gold in particular, as a geopolitical weapon against the United States and the West. They are using it as a leverage tool to open the door for entry to the global stage. They detect acute vulnerability. The impact will be direct on the global monetary system. The USDollar, the Euro, and the British Pound are all floating currencies supported by the intense Gold & Silver price suppression apparatus.

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A reversal has occurred in the last couple years in China relative to silver. A major tectonic shift took place in 2007. China was a net exporter of silver for many years, serving as a major component source for global silver supply. This changed in 2007 when they became a net importer of silver. A few years ago, times were confusing on the read of China. They were building a silver stockpile, but they were also a net exporter. Their silver mining industry was expanding at a rapid rate. Their government was taking a greater role in managing the industry. Finally, the door shut and the nation halted all exports of gold, but not silver. That meant simply GAME ON!! The details are clear and loud. China had gross exports of 1575 tons of silver in 2010, down 58% from 2009. Gross silver imports from China rose 15% to 5159 tons in 2010, according to their customs agency. The turaround was clear stark. In 2005, China was a net exporter of nearly 3000 metric tons of silver. But in 2010, China imported more than a net 3500 tonnes of silver. The Asian mindset is different from Westerners. After serious investment losses through currency debasement and price inflation, they have returned to their longstanding appreciation of Gold & Silver ownership. At the same time, strong industrial demand in China exists for silver. The huge range of industrial applications for silver seems to actually grow every several years, like the recent usage in pressure treated lumber with a non-toxic residue. While demand from the photography sector has declined, demand from the medical, solar energy, water purification, and many other sectors continue to rise significantly. Modern industrial uses account for 44% of worldwide silver consumption in a manner that complements investment demand. Prepare for the silver price to double again in the next 12 to 18 months.

◄$$$ A PROMINENT CHINESE ECONOMIST ADVISES THE COUNTRY TO SELL ITS $500 BILLION IN G.S.E. HOLDINGS BEFORE QE2 COMES TO AN END. WATCH FOR A POSSIBLE IMPORTANT BOND RUN COULD BEGIN SOON, WHOSE FIRES MUST BE CONTAINED UNDER THE USGOVT ROOF. CONCURRENTLY, RUMORS SWIRL THAT THE CHINESE S.A.F.E. FUND SUFFERED HALF A $TRILLION IN LOSSES FROM FANNIE MAE BONDS. $$$

The USFed has more creditor headaches that anyone can imagine. Popular Chinese economist Lu Zhengwei serves as a senior economist at China's Industrial Bank. He has advised that China promptly sell its Govt Sponsored Enterprise holdings, which are comprised mostly of Fannie Mae mortgage bonds. They include Freddie Mac, Ginnie Mae, and other bonds too. Lu suspects the USCongress will eventually discontinue their endless dole to Fannie Mae. He also anticipates that when QE2 is completed, the entire USGovt backed bond complex would be vulnerable to a major selloff. Actually, my forecast is the great void created by the end of QE2 will spawn a QE3, as the process cannot stop since numerous voids will have formed. The USTreasury default would occur within four to six months, as no buyers would purchase the stack of USTBonds that accumulate. Tyler Durden points out in game theory terms, how the first defection results in the minimized loss.

Lu Zhengwei advises increased awareness of risks related to debt securities issued by USGovt-controlled mortgage giants Fannie Mae & Freddie Mac. He suggested that China in its massive sovereign wealth funds sell the securities soon. The credibility and trust meter is falling for USGovt securities generally. The USGovt is considering phase out options for the giant financial cesspools, desperate to end the black hole deposits. They might wish to keep their operations secret, since Fannie Mae is the central clearinghouse for several $trillion fraud schemes run under the USGovt roof. Lu suggested that China sell its Fannie & Freddie assets before the Quantitative Easing sponsored by the USFed ends in June. THIS IS NEWS TO THE JACKASS ON THE VOLUME, SINCE THOUGHT TO BE ZERO. Economist Lu Zhengwei estimated in the report that Chinese organizations (as he called them) hold approximately $500 billion of credit assets of different types from by the two GSE firms. He admits to having used estimation methods based upon Chinese media reports, since their government has never confirmed the size of its GSE assets. Cross check. According to the USTreasury report on foreign holdings of US securities, China held $454 billion of long-term USAgency debt as of end June 2009. That includes $358 billion of asset backed securities based primarily by home mortgages, in addition to $96 billion of other long-term agency debt, like GSE corporate debt. It is known that China owns some debt from other USGovt agencies such as the Govt National Mortgage Assn, aka Ginnie Mae. Lu Zhengwei stated that reassurance from the Obama Admin amounts to an empty check (his words) without the support of the USCongress. Lu said, "However, looking at the current political situation in the United States, for the USCongress to give a clear guarantee on this issue is almost impossible." See the Zero Hedge article (CLICK HERE), which includes a denial that China has lost half a $trillion in the Fannie Mae cesspool.

Tyler Durden offered a conclusion. He wrote, "So if China decides to not only not buy any incremental debt issued by the US, but to fully commit to selling. This virtually guarantees QE3, as the only way to find a buyer for the debt will be to prime the Fed's printer. Which in turn will activate the timer fuse on the 21st century's first Wiemar Republic recreation. And to think of just how much of a coward Tim Geithner was forced to appear last week when he announced that China is not a currency manipulator. It will be so very fitting for the country to add insult to injury and literally take a bond dump on Geithner's front lawn." See the Zero Hedge article (CLICK HERE). My wrong belief that in October 2008, when Fannie Mae & Freddie Mac were nationalized to bring all the toxic paper under the USGovt roof, that the USDept Treasury had purchased almost all of the GSE credit assets from China. My error. Durden reports that China may and will commence selling GSE notes soon. China had already been selling from its GSE holdings for the past two years. The risk extends eventually to USTreasurys if a true bond sale panic is set off.

◄$$$ THE CHINESE HAVE EMBARKED ON A GRAND SECRETIVE $1 TRILLION PURCHASE PROGRAM. THE ELDERS HAVE ORDERED A GRAND LIQUIDATION OF MANY ANNUITY PROGRAMS, NO LONGER TRUSTING THE BASIS PRINCIPAL. SOMETHING VERY BIG IS UNDERWAY IN CHINESE WEALTH MANAGEMENT. $$$

It is hard to imagine a $1 trillion program being secret, but it is not in the mainstream or internet news channels. Two major developments are in progress, probably integrally related. Both parts of the story have been confirmed by two different independent sources. Word has reverberated around the world that China has gone on a shopping spree of staggering size. The volume of the asset purchases is in the hundreds of $billions, affecting several markets. They could actually be a primary factor in the broad commodity price increases. A global consultant source with European and Asian connections commented in confirmation. He said, "There is massive hard asset buying by the Arabs and Asians in Europe and Africa, as well as in Russia. The Arabs have invested incredible amounts of money in Russian & CIS natural resources and agricultural lands. What they do not realize is that no one likes the Arabs, and by the end of the day they own betray all players, since they cannot operate or manage those assets for a profit. There is also massive precious metal buying going on in off-market transactions. This goes all the way to low grade raw gold buying, especially by the Chinese who outbid everyone and then illegally export the raw gold under the cover of their diplomatic missions. The volume is hundreds of $millions every day, seen from my vantage point. Also, prepare for the demise of the Euro currency, as a new line-up will look quite different and refreshing. Next it is Berlin, Moscow, Beijing that will call the shots once the flash event will trigger the important upcoming events. The future of money as we know it will change. At the highest levels will be sophisticated barter in lieu of paper reserves management. A counter trade platform will facilitate international trade for goods and services."

Chinese Elders want release of annuity funds. Regard these people as those in ultimate power from the Communist Party, mostly over age 70 years. They give orders to the leaders in view who travel across the world and cut trade deals, make arrangements, facilitate platforms, and conduct meetings. The Elders are not content with monthly income, and no longer trust the underlying principal for several enormous investments that bear income, a huge shift. They want the original money. They no longer trust the financial foundation that delivers the income, primarily the US financial structure. They want the funds in order to purchase hard assets, commodity stockpiles, industrial plants, commercial buidings, port facilities, and farmland, among others. They might be aware of a planned flash event. A great turning point has been reached, and important decisions have been made, crucial marching orders given. The orders have been acted upon in the form of enormous asset purchases, and will continue since the sums of money are so large. The cartoon-like graphic would be more accurate if the Chinese were actually purchasing US assets. The cartoon needs the US symbol in the chest pocket where cash is stored. They are instead purchasing US debt, and thereby capturing the US sovereignty, complete with decision making influence, even during the friction filled trade war. They are using the USTBonds on their shopping sprees.

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◄$$$ CHINESE CRUDE OIL DEMAND SURGED IN DECEMBER TO A RECORD HIGH. NO EVIDENCE OF ANY ECONOMIC SLOWDOWN IN THE MIDDLE KINGDOM. CHINA HAS SLOWING BECOME AN OIL PRODUCT IMPORTER, WHICH MEANS GASOLINE, DIESEL, AND HEATING OIL. $$$

In the latest Platts Report, the oil demand from China in December hit a record high of 9.6 million barrels per day. That marked an 18% increase year over year to a record 40.73 million metric tons (MT). Both crude oil throughput and net oil product imports rose. The December oil demand was also up 7% from the November level of 9.3 million bbl/day, the previous record high. On a full year basis, the 2010 Chinese oil demand rose 11.43% annually to a record 434.40 million MT, or an average 8.71 million bbl/day, according to Platts. The state owned refiners processed 38.72 million MT of crude oil in December, up 11.92% from the same month in 2009, and up 5.64% from November, this according to China's National Bureau of Statistics. FACTS Global Energy expects China's oil demand to increase to an average 9.5 million bbl/day in 2011 as the Chinese Economy continues to expand. Fast rising vehicle consumption fuels increases in transportation. The country has an apparent insatiable appetite for oil and transport fuel. Refineries struggle to meet diesel and other motor fuel demand. China's net oil product (for fuel and heat) imports in December came in at 2.01 million MT, which compares to net oil product exports of 0.08 million MT in December 2009. Total net oil product imports in all 2010 stood at 11.35 million MT, down from 15.24 million MT in 2009. China is slowly turning into an oil product importer as well as major crude oil importer. See the Yahoo Finance article (CLICK HERE).

◄$$$ CHINA HIKED THE OFFICIAL INTEREST RATE AGAIN, IN AN ATTEMPT TO STEM PRICE INFLATION. SHANGHAI RAISED THE MINIMUM WAGE, IN REFLECTION OF RISING COSTS AND THE DESIRE FOR A BETTER STANDARD OF LIVING. IN 2011, THE USECONOMY WILL BEGIN TO IMPORT INFLATION, THE REVERSE OF THE LAST CYCLE. CHINESE PRODUCT PRICES WILL RISE IN SEQUENCE. THE BACKFIRE TO THE USECONOMY FROM THE QE PROGRAMS HAS ARRIVED. $$$

The Peoples Bank of China last week hiked interest rates for the third time in four months. They strive to halt price inflation, but they are way too late, after hitching their monetary wagon to the USFed inflation locomotive for over a decade. They wanted stability but earned asset bubbles and price inflation. The central bank would raise its one-year lending rate to 6.06% from 5.81% and its one-year deposit rate to 3.0% from 2.75% imminently. The last rate hike took place in October, the first time in nearly three years. Price inflation for 2010 rang in at 3.3% across China, above the official target of 3%. As the year closed, an acceleration was noted. Price inflation reached a 28-month high of 5.1% in November, before easing to 4.6% in December. It should rise again in January as food prices continue upward. See the British Broadcast Corp article (CLICK HERE).

Shanghai will lift its minimum wage by 10% across the sprawling city. Local media reported China's Guangdong province will raise its minimum wage by an average 18.6% from March, an indication that Chinese labor costs will rise strongly again in 2011. Rising wages enable the means to complete the cycle and manifest rising prices. It is called the wage price spiral. In the United States, leaders hail the absence of wage gains in the face of cost rises, but that is essentially a celebration of business failure and galloping poverty. Many regard Shanghai to be the epicenter of the Chinese froth, pushed by excess liquidity that has produced an inflationary bubble. Labor costs are set to surge, and corporate margins for Chinese corporations will fall hard. The many exporting firms will be forced to sell their finished products to the US markets at higher prices and thereby offset the profit margin plunge. The USEconomy will import more price inflation. Expect higher prices across the shelves of Wal-Mart, Target, KMart, Sears, Best Buy, and a wide range of business sectors like car parts and drug ingredients. By summertime, the US reverberations will include demands for wage hikes, which in turn will force either US companies to raise prices or cut workers and reduce operations. That could easily trigger decisions by the USFed to compensate the resulting equity weakness (lower stock prices) with more money printing. QE3 would be born. See the Zero Hedge article (CLICK HERE).

SHORTAGE OF SILVER COINS & BARS

◄$$$ THE USMINT SOLD A SHATTERING RECORD 6.472 MILLION SILVER COINS IN JANUARY, 50% MORE THAN ANY PREVIOUS MONTH EVER IN RECENT HISTORY. THE SHORTAGE IS MET WITH GIGANTIC GROWING DEMAND. BUYERS ARE GRATEFUL FOR DISCOUNTS GRANTED THE CORRUPTED PAPER MARKET. $$$

The USMint sold a record 6.472 million ounces in silver coins in January, an amount 50% greater than the previous highest single month. The volume is hard to fathom. That history includes 26 years of published sales. Bear in mind that the huge jump occurred during the small correction in the paper silver price over the same January weeks. Upwards to 50 thousand coins are being sold per day. Physical buyers are grateful for the discount pushed by the corrupt paper contract side, and have bought heavily. Doing so defeats the purpose of the paper price ambushes. See the USMint website for monthly sales details dating back several years (CLICK HERE).

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◄$$$ SILVER BARS ARE VANISHING FROM THE MARKET. A GREAT SHORTAGE HAS ARRIVED. IT WILL NOT ARRIVE, BUT HAS ALREADY ARRIVED. $$$

In numerous pockets across the world, silver bars are vanishing from inventory. Silver bars are likely to be gone within days, a Phoenix Arizona dealer reports. Bill Haynes of CMI Gold & Silver in Phoenix claims that immense tightness in the silver market supply lines is only growing worse in time. Great shortages have arisen. He predicted that 100-oz silver bars are likely to be out of stock within days. See the King World News interview (CLICK HERE). My resourceful colleague Craig McC relayed information that Tulving still has 100-oz silver bars for 79 cents/oz over spot. See the Tulving website (CLICK HERE). Colleague AaronK reports that EBay has 100-oz silver bars also, with a hefty premium built in. He believes the price weakness is definitely confined to the COMEX, as physical price remains firm.

◄$$$ SCOTIA MOCATTA HAS RUN OUT OF SILVER BARS. THE GLOBAL SHORTAGE HAS BECOME BROADLY BASED AND ACUTE, BUT NOT YET WELL PUBLICIZED. MOST MAJOR SOURCES ARE EMPTY OF SILVER PRODUCT. $$$

Scotia Mocatta has announced that it has sold out of all silver bars. Two weeks ago, Scotia Mocatta sold out of the Valcambi 1-kg block of silver. They quickly showed the 100-oz silver bar as back in stock. In just seven days, they sold out again. A chronic shortage from the most prominent and popular sources has hit the silver market. Scotia Mocatta is the biggest bullion bank in Canada. They have no silver bars of any type! See the Zero Hedge article (CLICK HERE).

◄$$$ THE PERTH MINT IS OUT OF 100-OZ SILVER BARS IN AUSTRALIA. THE SHORTAGES ARE IN EACH CONTINENT. $$$

The Perth Mint has been depleted of 100-oz silver bars for at least six weeks. King World News has verified with the Perth Mint that they have run out of the standard weight silver bars, and furthermore, they are not expected to be available again until the end of March. See the King World News article (CLICK HERE).

RAIDS ON CORRUPT GLD FUND

◄$$$ THE CHINESE ARE BUYING G.L.D. SHARES IN ORDER TO DEMAND THE GOLD BULLION UPON QUICK REDEMPTION, ACCORDING TO THE LONDON DEEP THROAT. THEY ARE BYPASSING THE EXCHANGES, A MANEUVER THAT WILL DIRECTLY WAGE WAR WITH THE GOLD CARTEL. NEXT THEY JUST LET IT BE KNOWN THAT THEY WILL DRAIN THE S.L.V. FUND OF ITS SILVER. THE CHINESE HAVE INTENSIFIED THE CONFLICT. ONE MUST WONDER IF H.S.B.C. IS OPENING THE DOOR FROM HONG KONG TO CHINA FOR GOLD BULLION ACCESS. $$$

Another hat tip to King World News, an intrepid channel for high quality news developments. The same Deep Throat gold broker contact out of London updated King World News on the extremely large scale Asian buying. They have been accumulating both Gold & Silver. Through the London source, Eric King has learned the following. The Chinese, are buying staggering amounts of physical gold. The news has just gone into the mainstream media. The Financial Times was months behind King World News in reporting this information. The Asians, particularly the Chinese, want physical gold and they want it tomorrow. So the Chinese have a new method. They are now planning to buy tremendous amounts of the Exchange Traded Fund GLD. They will then tender the GLD shares for immediate delivery of the gold. This bypasses all of the rules like at the COMEX that limit delivery. King believes there is no limit as to how much they can buy from the ETF GLD. There is no metal. Asia has opened the market to the retail public, met by massive fresh new orders to buy both gold and silver. Pressure will come to the only source available to meet COMEX demand, as the GLD inventory will be drained. By the way, these sovereign sources through their buyers can also purchase shares in SLV and stand for delivery. It is possible you may see that in the future (which was just confirmed). Notice the usage of the term sovereign sources, which means the ultimate purchaser source might actually be the SAFE or other Chinese sovereign wealth funds. Couple the new GLD strategy to obtain gold with the Dollar Swap Window in Europe, useful for converting discounted PIGS sovereign debt into Gold bullion with the assistance of the IMF. The Chinese are broadening their assaults of the Western gold fortresses.

The GLD avenue via a back door avoids the delays, delivery problems, and other procedural obstacles posed by Wall Street banks. The Asian parties are seeking for alternative ways to acquire physical gold, since they are having trouble procuring gold in sufficiently large quantities. This is explosive news. While Harvey Organ has given the Jackass credit on the story, not true. It is Eric King and his prolific London source. Mainstream media has been joined by deceptive analysts in trumpeting the wrong message, more pure propaganda. They point to drawdowns in GLD inventories and conclude the liquidation of gold tonnage is bearish for gold. They might not be aware of the latest Chinese tactic, which could easily be joined by other well financed parties. One can always count on their deceptions. This news is more than extremely bullish for the gold price. See the King World News article (CLICK HERE). Finally, an angle not mentioned by King. Recall that the gold bullion inventory for the GLD fund is managed by HSBC. A connection exists with Hong Kong. The Chinese might be exerting pressure on the HK bank officials to force the door open in London and create an avenue for Brinks trucks to drive through, loaded with gold.

◄$$$ THE CHINESE HAVE DECIDED TO RAID THE INVENTORY IN THE S.L.V. FUND ALSO, AND DEMAND SILVER BULLION REDEMPTION. THE PROCESS MUST SO FAR BE SUCCESSFUL ON THE GOLD SIDE. THE PATH FOR $50 SILVER HAS BEEN MADE. $$$

The London Deep Throat source has told King World News that the Asian buyers are expanding their raid to silver. The London source stated, "Not only have the the Asian buyers been purchasing large numbers of shares of the ETF GLD in order to take delivery of gold, but they have now in fact decided to buy SLV with the intention to take physical delivery of silver directly from that ETF. You have to remember that BlackRock sponsors SLV and I do not believe they will let anything happen to tarnish their good name. It would reflect badly on BlackRock if in fact SLV did not contain the physical silver to back up the shares. So the Asians will be successful in draining physical silver directly from SLV. The bottom line is they are comfortable with BlackRock being involved in the ETF SLV. In the end, BlackRock will have to ensure that the silver ETF makes good on redemptions from SLV. Another complicating factor is that there are currently 16.12 million shares short on SLV. This is an increase of almost 2.0 million ounces over the prior reading. BlackRock will also have to make sure that this silver which has been borrowed will be returned. We have serious [silver] backwardation, a supply shortage, short interest growing on SLV, and now we have the Chinese waking up to the fact that there is metal in SLV and saying, 'LET'S GO GET IT.' Let us not forget the paltry inventories on the COMEX." This expansion was fully expected by the Jackass, when word came of the GLD backdoor raid for its gold bullion. The key to expanding to silver was a proviso that the Chinese have been successful on the gold ramps. They apparently are. The official drainage will be soon complete, to enable the skyrocket shot to $100/oz in the next two to three years. By the way, that is a truckload of shorted shares to cover. The criminals managing the silver ETFund (JPMorgan) not only illicitly leased the silver bullion in inventory, but they shorted the shares in order to access and sell the metal into the market too!! Covering the SLV shorted shares involves bringing silver bullion to the table, not too likely. Therefore, the risks are rising fast for a huge controversy, then challenge, finally lawsuits with great exposure of the worst kind. The upcoming exposure of the corrupt GLD and SLV funds will be critical in lifting the Gold price past $3000 and the Silver price past $100.

A note of real world pressures and dealing with criminal syndicates. The GLD and SLV prospectuses clearly state limited delivery options. Eric King might not be aware. However, one should in my view take the rule with a grain of cartel sand, since JPM and HSBC do not read or honor the same prospectuses. One should think like a criminal. The Chinese will exert pressure to demand greater volumes than the prospectus permits, if they so desire!! They will use other leverage, like threats on USTreasury Bond sales, like selling USAgency Mortgage Bonds in much greater volume, like talking publicly about the broken Gold & Silver lease deal in 1999 as part of the Most Favored Nation grant by the USGovt, like reneging on large rafts of derivatives, like cutting off Rare Earth Metal exports, like not permitting the Yuan currency higher. The US vulnerability to publicity and exposure is compounded by a huge debt burden and foreign compromise.

◄$$$ SOMETHING SINISTER IS BREWING WITH THE G.L.D. FUND. A CONTACT WITH DIRECT BUSINESS DEALINGS, SUCH AS COMEX DELIVERIES FOR SEVERAL COMMODITY FIRMS, HAS TURNED SILENT AND WORRIED. NOTHING DEFINITIVE, BUT THE ALTERED BEHAVIOR IS SIGNIFICANT. MY SUSPICION IS A BLITZKRIEG IS IN FULL SWING TO DRAIN BOTH THE COMEX AND THE G.L.D. FUND OF THEIR GOLD BULLION RAPIDLY. $$$

A contact (codename GTL) passed along with ripe information. A friend of his has over 20 years of experience in COMEX deliveries. He has signaled something potentially big. His usual style of sharing information has suddenly halted at a wall. He wrote, "I hear stuff from a guy who has handled deliveries for several commodity firms for decades. I have known the guy for almost two decades, and he will say how stuff does not make sense. But when pressed in recent days, he completely clams up. It makes one wonder if he worries about more than his job. If I get something definitive, I will send it your way. In fact, I was talking to the guy the other day to update some storage charges on a little amount left in PM/COMEX vaults. He clamed up immediately, despite normally being extremely chatty." In other messages GTL mentioned he thought the guy seemed scared for the first time. His curiosity and even anger in the past has transformed into an eerie silence clouded by a hint of fear. The silence speaks volumes as to potential significant developments.

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To me it sounds like a clear pattern has changed in the delivery guy. When a pattern change is effected, it usually means something disturbing and possibly scary dangerous behind the curtain. Something has been elevated in importance very recently. No further word was passed my way in followup. Time for Jackass conjecture. My rough cut is that the GLD fund is being raided and gutted for its gold bullion inventory by the Big Four US Banks for its gold bullion, in order to meet COMEX delivery requirements. The delivery guy has noticed. At the same time, the Chinese funds have targeted the same GLD inventory in high volume acquisitions. The deliveries have tagged destinations, known to those involved in shipments. Worse, the Chinese might be using some special leverage with HSBC bank, custodian of the GLD fund. The Chinese might be threatening the COMEX to cooperate with illegal raids on the GLD inventory, just like the Big Four US Banks are doing illicitly. The avenue might be opened to China in order to prevent the exposure of the Big Four US Banks. The Chinese Govt has many available threats. A veritable Blitzkrieg might be in full swing. What could emerge in coming months is a clear example of the USGovt having lost its sovereignty and exposed itself to blackmail in the forfeiture of gold bullion, and later silver bullion. My forecasted event of GLD fund ruin is possibly near to reality. Over the last four years, steadily the Jackass forecast has been that GLD shares will eventually trade at a 20% to 30% discount to the gold price, and a stack of lawsuits will pile up as legal prosecutions for financial fraud could follow. My rough cut forecast applies equally to the SLV fund. The process might have started, perhaps in a middle gear.

A veteran gold trader contact with clients across the world pitched in with realistic and cautionary comments. He wrote, "All involved and knowledgeable are being forced to play along during the End Game scenario. It is the foot soldiers who do the dirty work, only to be left behind to be framed by the real criminals later. I suggest your contact to tell his Inside Source [delivery guy] to document every detail of what goes on and hand all the evidence to a trusted friend for safekeeping. It is the only way he will eventually secure immunity from being nailed to the wall later. If the source tries to get out or squeals, he will be iced. The source is one of many who now realizes what is happening."

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◄$$$ RAIDS ARE IN PROGRESS ON THE EXCHANGE TRADED FUNDS. SHARES ARE BEING REDEEMED IN GOLD BULLION. A TREND HAS STARTED THAT MIGHT NOT STOP UNTIL THE CORRUPT FUNDS ARE DRAINED DRY. THE MAINSTREAM CALLS IT BEARISH ON GOLD. ACTUALLY, IT IS AN INDICATION OF FRAUD CHARGES AND POSSIBLE PROSECUTION NEXT YEAR. $$$

Take the SPDR Gold Trust as example of an ETFund. An investor can legally take physical supply from GLD, using 100 thousand shares at a time to walk away with gold bullion through the Authorized dealers. A drain has begun, which when publicized, will leave the ETFund vaults empty. The bagholders will be the sleepy trusting investors, like the bright fool Adam Hamilton of Zeal Intelligence, who will lay claim to paper certificates. Next some analysis. An indicator dictates that whenever a 1% dump in physical metal occurs in GLD, the event marks a bottom in Gold. It just registered a Gold Buy Signal in the last two weeks. It has a nearly flawless record to foretell gold price rises on the very near horizon. Gold analyst Lance follows what he calls 'The GLD Puke Indicator' which tracks GLD physical gold regurgitations. The big ones shown as dots on the chart lead to upward thrusts in the gold price. Lewis wrote, "The GLD Puke Indicator has nearly a flawless record at marking lows in gold. It triggered a buy signal yesterday after the ETF spit up 31 tonnes (and some blood) to trigger a 2.48% decline in its bullion holdings." The $1400 gold price awaits and soon.

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A widespread misunderstanding has stuck in the gold market that when investors buy or sell shares of GLD, they put downward pressure on the price of gold. That selling shares of GLD is somehow equivalent to selling physical into the marketplace. Or that buying shares of GLD is somehow removing physical gold from the marketplace. No such thing!! The GLD share price is designed to track the price of gold. Certain tactics are used supposedly to snag gold for its inventory when the gold price is low, and vice versa. The reality is that any heavy selling of GLD shares is more like a popularity contest of its SPDR Gold Trust fund versus other competitor funds, or against other methods of ownership like vault facilities or basic coins. If massive GLD share selling occurs, it could be simple distrust of the fund and perceptions of rampant fraud and criminal activity behind its doors.

Randy Strauss at USAGold.com tried to set the record straight on the GLD deceptive reports and interpretations. He wrote, "Silly reporters. Instead of calling these outflows from the ETFs, it should be called what it is, a redemption of a basket of shares for physical gold by the Authorized Participants (e.g. bullion banks). Such share redemptions would actually be a bullish sign because it entails a reduction in the global supply of paper gold, while at the same time signifying a preference by the redeeming party for having the metal over the ETF shares. I have said it before and I will say it again now. The reporters are getting it wrong when they equate outflows of gold from the ETFs with sour investor sentiment. What they need to work harder to understand is that these are NOT actively managed funds whose gold inventory is tweaked to ebb and flow, based on public sentiment in the shares. Instead, the ETFs are more like a central coat-check room in which the various bullion banks have temporarily hung out their own inventories (i.e., meaning, their Unallocated stock which they hold loosely on behalf of their depositors). And whereas the claim tickets (ETF shares) may freely circulate on the open market, any significant outflow of physical inventory is simply and primarily indicative of a bullion bank reclaiming the original inventory based on a heightened need or desire for physical metal in a tightening market. For example, to meet the demands emerging from Asia." So GLD share sales might mean Asia demands the physical gold metal.

Colleague GregL made some astute comments about the ETFunds. He wrote, "HSBC is the custodian for GLD and JPMorgan is custodian for SLV. I know for a fact that delivery specs at COMEX were quietly changed to years back to allow GLD shares to be allowed for delivery. Now read the perspective and disclaimers for the ETFs. It does not take a rocket scientist to understand at least the first few layers of paper shuffling keeping this afloat. I suspect this is not quiet as it appears. As they panic, some people get out of GLD. It allows some of the borrowing and swaps to be unwound. It allows metal, or at least the paper promises, that were lent or swapped, to be repaid. This is part of the Great Shuffle."

A quick comment on premiums and penalties. The Sprott Funds are working at high premiums paid to Net Asset Value, like 10% to 15%. The GLD shares two weeks ago contained a 2.5% penalty discount to the spot price, which continues steadily at that amount. The SLV shares two weeks ago contained a 2.3% penalty discount to the spot price, which has come down to 1.9% this week. One must wonder openly if the GLD fund is in the process of losing important credibility, from illicit usage to assist the COMEX in meeting delivery demands, from fraudulent inventory management in basic leases to the gold cartel in suppression schemes, from recognition of Chinese raids, and more. My suspicion is that its integrity has been punctured. Eventually lawsuits and prosecution are to come.

◄$$$ THE FLAGSHIP G.L.D. EXCHANGE TRADED FUND REGISTERED A MONTHLY OUTFLOW OF METAL IN INVENTORY. A SUSPICIOUS FINGER SHOULD POINT AT BLATANT EGREGIOUS FRAUD. IT COULD MEAN THE ONSET OF LOST CONFIDENCE IN ITS MANAGEMENT AND LAWFUL STEWARDSHIP OF THE GOLD BULLION. THE CORRUPT FUND IS BEING RECOGNIZED FOR ITS LACK OF INTEGRITY, OR ELSE RAIDED HEAVILY, OR BOTH. $$$

The main Gold & Silver Exchange Traded Funds have posted major monthly outflows. The world's largest gold-backed ETFund, the SPDR Gold Trust, posted for January the biggest monthly drop in its gold bullion holdings since April 2008. The drain was the second biggest outflow in its brief but tarnished history. The SPDR Trust is supposed to issue securities backed by physical stocks of precious metal, according to its prospectus. But that prospectus has numerous gaping holes that permit profound abuses. The trust reported that its gold holdings fell 53.6 tonnes, equal to slightly over 4.0%, in the month of January. This outflow accompanied a 6.2% drop in spot gold prices over the month of January. They did not provide any information on shareholder sales, which should match the gold inventory reduction piece by piece. This is probably because the GLD gold bullion inventory is being raided!! Accounts and rumors are replete with stories about the COMEX demanding the gold to meet deliveries, and with stories of the Chinese redeeming GLD shares immediately for the gold metal. In full rhyme, the silver ETFund known as the iShares Silver Trust, simultaneously reported for January the largest monthly drop in its silver bullion holdings.

Propaganda came from Philip Klapwijk, chairman of metals consultancy GFMS, a regular tool used by the gold cartel. He gave a totally false statement about the GLD fund. He said, "If there is selling out of ETFs, it will put downward pressure on the price. Although I do not see this as the big turning point in the market." His comment is utterly false. The GLD fund is somewhat independent of the gold price. Selling from the ETFund would put downward pressure on their inventory, directly, with gold price considerations a reflection of the overall gold market and other funds. In no way is the GLD fund the dominant player in the entire gold market. Other ETFunds like the Sprott Fund are gaining huge acceptance as legitimate vehicles, run by honest brokers. The Central Exchange Fund of Canada is another competitor of high repute. The SPDR fund is being tarnished with heavy brushes of fraud in the last year or more, in seeming barrages of dubious activity. True, the SPDR Gold Trust is large, but only as a large chamber from which to wreck investors and defraud them of their claims to a higher gold price. The SPDR Gold Trust has been the object of constant accusations. Not one single independent audit has taken place of the fund, to account properly for its gold bullion held in inventory. The GLD fund holdings hit a record at 1320 tonnes on June 29th. The ETFund is the world's sixth largest holder of gold, bigger than many national central banks, provided their vaults actually contain as much gold bullion as claimed.

GOLD CARTEL SHAKEN UP

◄$$$ JPMORGAN WILL ACCEPT GOLD BULLION AS COLLATERAL FOR MARGIN REQUIREMENTS IN WIDE USAGE. THE IMPLICATION IS IMMEDIATE, THAT GOLD IS MONEY AND JPMORGAN DOES NOT HAVE GOLD IN SUFFICIENT QUANTITIES. THE MEANING IS DEEP, HUGE, AND FAR REACHING. THINK IN TERMS OF THE EXCHANGE TRADED FUNDS BEING RAIDED, AND COMEX DESPERATE TO MEET DELIVERY DEMANDS. THE LEVEL OF DESPERATION HAS GROWN AND SHOWS BADLY. $$$

JPMorgan has announced they will accept physical gold bullion as collateral for a wide variety of futures contract trades. From here onward, gold bullion can be used to meet inital margin and maintenance requirements for CME trades, such as for crude oil, gold, grains, stock indexes, and USTreasury Bonds. Some analysts were quick to herald the news as a strong signal that Gold has entered the monetization process, and is becoming a legitimate element to the global financial and monetary system. The ploy is obvious. JPMorgan is desperate to secure gold bullion in volume, and is trying with extreme measures to lure gold from the investment class. They must be close to exposure of grand fraud. JPMorgan is the custodian for the iShares Silver Trust, otherwise known as the SLV fund. They work closely within the cartel with HSBC, which manages the SPDR Gold Trust, otherwise known as the GLD fund. JPMorgan curiously announced they will not accept ETFund trust gold as collateral. Doing so would be taking delivery from oneself to oneself, in a certain manner.

Last October, the clearinghouse of global exchange CME Group, namely CME Clearing, announced it will accept gold as collateral for trades on its exchange. With no hint of shame or attempt to conceal, the CME stores their collateral gold at JPMorgan Chase Bank in London. The exchange claimed an intention to add additional depositories in the future, but no announcement of developments have followed. They probably lied. The use of gold to satisfy demands for performance bond collateral has been allowed on the London CME on a limited basis since October 2009. Also, since November 2010, the Intl Exchange (ICE) has accepted gold bullion as collateral on all Credit Default Swaps and energy transactions. Typically, banks accept only USTreasury Bonds and major stocks in such agreements. No declarations have been made by the USDept Treasury, European Union, IMFund, World Bank, or even the G-20 Meeting, with any semblance of declaring gold a new currency. Yet JPMorgan and some prominent financial market exchanges have effectively declared that gold is an alternative currency, in lieu of money. In other words, gold is money.

The global monetary system is crumbling. The sovereign debt market continues to suffer powerful disruptions. The big US banks are insolvent, walking dead financial entities. The COMEX and LBMA are fast running out of both Gold & Silver. Great controversy persists on corrupt management of both the GLD gold fund and the SLV silver fund, with bullion from the funds used illicitly to meet exchange delivery demands. Many demands are met with cash settlements and a 25% cash bonus, essentially a bribe to depart without legal involvement in the face of contract fraud. So many factors are working to add pressure on JPMorgan, even position limit rules and concentrated positions, that might soon expose their vast naked shorting game. In the midst of all these factors, the colossus bank has decided to accept gold bullion as margin cash. That sounds to the idle observer like gold is money!! Their decision reveals how the fungiblity of gold bullion is attractive and important, an advantage for real money. It reveals how its tangible nature makes it desired, set apart from counter-party risk and the endless paper fraud. That is another advantage of real money. JPMorgan is simply desperate to obtain gold bullion, caught in a vise. See the Zero Hedge article (CLICK HERE) or the Wall Street Journal article (CLICK HERE).

The JPMorgan story actually received some attention on Bloomberg Television news. They did not give a brief useless blurb treatment and cut away. They mentioned numerous consequences and tie-ins, like the GLD and SLV interplay involving fund management, like all the sequestered gold bullion from basic inflation hedges, which was mentioned as JPM being motivated to lure back into the system. Of course, they did not mention corruption of the ETFunds or JPM desperation to manage the COMEX metal shortage. Unfortunately the TV news story was being discussed before 5AM when in bed (6AM eastern time), with Jackass eyes a little fuzzy, looking at 90 degree angle sideways. The story was not repeated later that morning, from memory. When asked to comment, a great source with the gold trading industry replied. While he did not directly address the cash equivalent issue, he addressed the motive to make it equivalent in margin management. He wrote, "There are approx 60 thousand metric tones of gold from Allocated accounts that these criminals have sold. It is non-existent. That equates to approx 25 years of global production volume. Why do you think they opened vaulting facilities in Singapore, where no one with his head screwed on right would never vault even one gram of gold? Once this gigantic fraud is exposed, you will see interesting things happening." The Jackass is eager to witness the events unfold.

◄$$$ BIG RISK OF ENORMOUS DRAIN OF COMEX GOLD IN FEBRUARY AND MARCH. VARIOUS ANALYSTS HAVE HIGHLIGHTED SOME UNUSUAL EVENTS. MORE BASIC WITHDRAWALS OF SILVER HAVE BEEN TAKING PLACE AT THE COMEX. $$$

Harvey Organ has reported an unusual development in the silver market. The COMEX data shows a huge drop in Gold Open Interest, and huge deliveries demanded on Silver. He wrote two weeks ago, that "There have been rumors that certain hedge funds and sovereign wealth funds are willing to take possession of all gold and silver. In gold it is the February month and in silver it is March. If this is true, the game is over as there will be a default at the COMEX, which will bring on defaults at the SLV and GLD, and then a default at the Bank of England, and then all the banking system in the USA." See the Organ blog article (CLICK HERE). It remains to be seen on follow through, and not acceptance of cash settlement on the metals contracts. The finger is pointed directly at JPMorgan, which is desperate to acquire metal in order to satisfy demands.

Organ loves to take shots at Blythe, the head of JPMorgan metals trading desk. During a time when they let their guard down on a US holiday, not being in the office, the metals were left to deal with real Supply & Demand forces. Massive silver withdrawals have been occurring every few days, with very little deposits. Huge standing delivery orders are a regular occurrence. Also, the SLV silver fund has reported enormous silver withdrawals. On a single day in early February, the SLV fund dumped 97,000 oz in order to put some fires out. Physical silver demand at the COMEX has been rising hard and fast. Very curiously, the silver price was up significantly on the same day as SLV withdrawals. So SLV share sales did not correspond to the metal dumping. My guess is SLV silver bullion was raided to meet physcial delivery demands after the paper silver contract forced the price lower, enough to entice huge purchases at a grateful discount. Organ concluded, "Good for you Blythe, good for you. Thus it looks as though this is setting up to be a fantastic March for silver longs. Maybe the epic event we have been waiting for? Not too sure what can derail this train, other than some more fraud, I guess."

◄$$$ PROPAGANDA SUPPORT FOR THE GOLD CARTEL CONTINUES FROM THE FINANCIAL NEWS MEDIA. THEIR QUALITY OF JOURNALISM IS SHODDY. $$$

More weak-kneed mentally deficient reporting came from Forbes magazine, courtesy of Robert Lenzner. He did not do much homework before crafting his substandard brief tidbit article. In it, he mentioned that the GLD fund ranks in the top 10 holders of the precious metal in the world, alongside some central banks. Their gold inventory is worth $53.8 billion, all very impressive, especially if it is not actually paper gold certificates. He mentioned that a net $2 billion GLD shares were sold in January, redemptions amounting to almost 4% of the ETFund's current value. He even said, "This weakness coincides with the comparative strength of the dollar, which trades in inverse proportion to gold about 70% of the time, gold experts tell Forbes." He overlooked that the gold price in January corrected downward during a rising Euro currency and a falling USDollar, an utterly basic fact, if he bothered to check. On January 10th, the US$ DX index peaked short-term at 81.25, only to drop to 77.70 by the 31st and final day of the month. So one must wonder where the USDollar strength was seen. This paradoxical factor is in my view intentionally overlooked, since in February the US$ DX index rose from a 77.0 low to over 78.0 with continued GLD share selling, and fast depletion of the GLD gold inventory. The problem is not the temporarily weak or strong USDollar, but of the highly dubious integrity of the SPDR Gold Trust itself. Raids are being conducted on its gold inventory, since it is nothing but a gold cartel slush fund and congame. Lenzner claimed the corrupt GLD fund is a symbol of the market's appetite for gold at any particular time. Bull cookies!! See the Forbes Magazine article (CLICK HERE), and its poor journalism.

Gold was denigrated on CNBC Fast Money, by an analyst in a clown suit. Doug Kass is a fool with a near perfect (wrong) track record concerning Gold. Kass runs Seabreeze Partners Mgmt, and has some decent calls on the overall stock market. He made some very negative comments about gold, and offered a very bearish outlook with a much lower 2011 price target. The Gold futures options activity took a turn towards the bizarre on the day. Many people believed that the Doug Kass interview on Fast Money was the sole cause of this activity. But Kass is a Golden Moron of high order. Kass made his 2011 prediction: "Gold will drop $250 in a span of four weeks. Gold will briefly touch $1050/ oz and should finish the year $150 lower than where it is today." Wow! Sounds bad, but the only thing worse is his track record. He expects rising interest rates will cause money to flow out of the metal as a hedge and into higher returning assets, in this environment of an improving USEconomy. He mentioned China, Brazil, and others are raising rates to battle inflation, which will reduce demand form these countries for gold as a hedge. Let's check his history. The Kass 2010 gold prediction: "The price of gold topples. Gold's price plummets to $900 an ounce by the beginning of second quarter 2010. Unhedged, publicly held gold companies report large losses, and the gold sector lies at the bottom of all major sector performers." Very wrong!! The Kass 2009 gold prediction: "Gold never reaches $1000 an ounce and trades at $500 an ounce at some point during the year." Very wrong!! What a hack!! They love him on CNBC Fast Money, as in lose money fast in the gold trade.

◄$$$ THE DAY IS COMING FOR MAJOR GOLD & SILVER MINERS TO BOYCOTT SALES TO THE MAJOR EXCHANGES. THE MINERS ARE BEING DENIED A FAIR PRICE FOR THEIR BULLION PRODUCT. THE MINING FIRMS HAVE BEGUN TO FEED THE NEWER GOLD FUNDS DIRECTLY WITH BULLION SUPPLY. EXPECT THIS TREND TO BLOSSOM AND EXPAND. $$$

The North American gold & silver mining firms will eventually bring precious metal product to the market via alternative routes, like major funds. Think Exchange Traded Funds of metal. Think Sovereign Wealth Funds like in China, the Arab world, and Singapore. Soon, the major miners will step forward and object to the artificially low prices set by the corrupt Wall Street paper hangers. The independent funds are clamoring for gold & silver bullion, and the miners have final product from output. The desire and need by funds is matched by frustration and supply by miners. It is highly likely that the Sprott Funds for gold & silver obtained their inventory of bullion metal from mining firms eager to sell it to them at a premium. Expect this trend to continue, bypassing the major exchanges that clamp down on price

◄$$$ A SINGLE GOLD HEDGE FUND MANAGER CAUSED A SHOCK IN THE GOLD MARKET. THE MAINSTREAM LOVED THE STORY, SINCE IT ACCOMPANIED THE SOFT GOLD PRICE DURING THE RECENT CONSOLIDATION. $$$

The Wall Street Journal reported a huge trade by a tiny hedge fund caused disruptions in the gold market in the last week of January. Daniel Shak's $10 million hedge fund held gold contracts worth over $850 million. That is large even in the gold market. It amounted to more than 10% of the main US futures market, and notional value equivalent to South Africa's annual gold mining output. The actual nature of the positions was complex, a combination of long and short gold contracts arranged to exploit heavy volatility up and down. They went bad quickly, with great leverage involved. The entire fund position was forcibly liquidated. The number of gold contracts associated to the CME Group COMEX division plunged more than 81,000 to about 500,000, the biggest single reduction ever. Other activity was evident in the market, but this was the dominant theme on the day. An average daily change is about 3000 to 5000 contracts. See the Wall Street Journal article (CLICK HERE), which went inactive for some time. Regard the Shak fund as having weak hands. Once gone, along with other weak hands, the Gold price is ready to rise with gusto.

◄$$$ THE DUTCH CENTRAL BANK INTERVENED ON PENSION FUND MANAGEMENT, AND ORDERED A REDUCTION OF GOLD HOLDINGS. BASIC INTERFERENCE WILL NOT STOP THE DEMAND. THE CARTEL IS SCARED. $$$

The Dutch financial newspaper Het Financieel Dagblad reported that the pension fund of glass factories in Holland was not to be permitted a 13% stake in physical gold of their holdings. The Dutch central bank demanded a reduction to 3% in its holdings. They claimed that the high concentration of gold is not appropriate, according to the 'Prudent Person Rule' where the funds are obliged to act on the best interest of their pension participants. See the FD article (CLICK HERE). Perhaps savings the big banks is is not prudent or in the best interest of citizens.

GOLD & SILVER NEXT LAUNCH

◄$$$ GOLD IS BEING PURCHASED WHEREVER IT IS AVAILABLE IN VOLUME, IN RESPONSE TO THE GLOBAL MONETARY SYSTEM BREAKDOWN. RESERVES DIVERSIFICATION IS OCCURRING EVERYWHERE. THE USFED QE2 PROGRAM IS CAUSING A FLIGHT FROM THE USDOLLAR AND USTBONDS. HYPER-INFLATION IN PRICES HAS BEGUN TO TAKE ROOT. CHINA IS PURSUING THE EURO, DUMPING THE USDOLLAR, WHICH IS DUE TO TEST CRITICAL LOWS, THEN MAKE NEW LOWS. $$$

Precious metals are being purchased wherever found, at almost any price. Fiat paper and related sovereign bonds are being sold worldwide of US, UK and Euro PIGS variety. Expect much more divergence between the paper market and the metal market as the climax is approached. The consolidation is complete for gold and the next leg up has begun. New highs will be established in short time. The US$ DX index has met powerful resistance. The Chinese are dumping USTBonds in favor of PIGS sovereign debt offered at discount in Euro denomination. They will very likely convert them to Gold bullion. Expect the US$ DX index to set new lows this spring, and bring headlines worldwide of the monetary system breakdown in a raging hot crisis. Civil unrest and protests will come to the United States, sometime this year. The fuse has been lit by fast rising food and gasoline prices.

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The silver price has taken the leadership role over gold. It has recovered completely, and is set to break out to make new highs before gold. The silver stochastix index is extremely bullish. The sovereign wealth funds have begun to accept silver as a monetary asset in reserves management. The recent Chinese news of pursuing silver via the ETFunds is red hot bullish, since a nightmare has come to the COMEX, which is virtually out of metal. Hidden warehouses are being drained of metal. The consolidation in silver is long done, and a breakout imminent. Expect a $50 silver price by year end. The industrial metal counterpart in copper, known to have a PhD in Economics, is falsely interpreted by some analysts as giving a signal for global economic recovery. Instead, the copper price is marching upward in lockstep with the debasement of the USDollar via the QE2 program. A global reaction has been to hedge with commodities, to protect against rabid price inflation. The hyper-inflation spewn from the USFed has resulted in a diverse commodity price increases in a broad powerful positive response. The entire world will pay more for food, energy, and metal in order to finance the banker elite, without any prospect of economic recovery since no solution is attempted. The deflation argument to pull down industrial metals is vacant, evident of poor analysis. The driving force behind price structures is the diverse monetary inflation.

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◄$$$ SPROTT EXPECTS $2150 GOLD AND $50 SILVER THIS YEAR. HE CITES EXTREME SHORTAGES AND GREAT CHALLENGES TO SECURE 15 MILLION OZ SILVER FOR HIS FUND. HIS EXPERIENCE TAUGHT THAT NO SUPPLY EXISTS IN VOLUME EXCEPT FROM THE MARGIN OF IMMEDIATE PRODUCER OUTPUT. $$$

Some expolosive high forecasts for the Gold & Silver price have come from the credible venerable Eric Sprott. They are worth sharing, even though the Jackass believes a move halfway toward his firm's goals would make for a surprisingly wicked good outcome, an event of 50-50 perceived chance on my behalf. Eric Sprott is Chairman of Sprott Asset Mgmt with $8 billion under management. His fund had great challenges to locate and purchase silver bullion recently. Sprott commented on his experience, laden with forecast. The Sprott purchases were made at the margin of the industry, from unconventional sources, with new product, since supply shortage is acute. He said, "We had to go into the market and buy about 15 million net ounces from third parties and it took us about ten weeks. It was a very, very long process and the one thing we can read out of it is obvious, that there were not 15 million ounces sitting around somewhere. I have not had time to study where the bars came from. I can tell you by looking at the pictures of the bars, they look like they came right out of the refineries. So I suspect it is a hand to mouth situation in silver. I think if we went in to by 20 million ounces of silver, it would take a long time. I know we had an order to buy a million ounces about five weeks ago for a different account and the delivery was going to be two months. So I think silver is as tight as a drum. Our best technical advisor thinks gold is going to $2150, and he thinks it is going to $2150 this spring. I think silver is a little easier to predict because it is going to change relative to gold, which is a more predictable event and more timely. I have always thought that silver should touch $50, and I am not going to be surprised if it touches it by the middle of this year as people realize there is an absolute shortage." See the King World News interview of Eric Sprott, who discussed the precious metals markets and critical monetary events (CLICK HERE). Also see the StockHouse article (CLICK HERE).

◄$$$ AGNICO EAGLE CHIEF BOYD EXPECTS $2000 GOLD WITHIN 12 MONTHS, AND FOR SILVER TO DOUBLE IN PRICE. HE IDENTIFIED POSSIBLE SIGNIFICANT HEDGE FUND PROFIT TAKING SALES AT THE $30 SILVER PRICE LEVEL. $$$

Sean Boyd is Vice Chairman and CEO of Agnico Eagle, the mining firm whose marketcap is $15 billion. His opinion was solicited on the nearby future prospects for the Gold & Silver price in a King World News interview. He is obviously very excited by the global developments and the effect of policy response to the aftermath wreckage. He has a firm footing on reality, distinguished apart from the consensus viewpoint. Boyd said, "Investors are gaining more confidence not just in the economy, but in the world's financial condition. I think that that confidence is misplaced. I think what you have is a relatively modest pullback in gold and silver, and over the last ten years anyone who has stepped up and bought has done incredibly well. As you and Jim Rickards covered in your interview, if you are talking about the proposed creation of $100 trillion of new credit, it is not fixing the problem. It is delaying it. We see continued uncertainty. It is easy to propose a massive bailout that does not really deal with the underlying issues. This would just defer the problem. I think investors have to take a step back and look at the big picture. We had the love affair in paper in the late 1990s, and ever since that ended we have seen a move to hard assets. Some have been taking profits in both metals. Particularly in silver, you may be seeing some miners doing some forward hedging. We do not do that. You might have been seeing some byproduct selling and some hedge fund selling in silver at the $30 level, which accounted for the strong resistance in that area. When the $1400 [resistance barrier] falls, we will really begin to see the next leg higher in gold. At that point $2000 is very much in the cards within the next twelve months, During that run, silver could very well double in price. So it should outperform." So hedge funds engaged in heavy profit taking at the $30 silver price level. They will reload soon. My belief is that they will sell forward less after the next breakout, realizing their left money on the hedge table. Boyd astutely identified a fundamental problem, that no solution is even being attempted. No debt restructure has occurred, and no big bank liquidations have occurred. Huge rivers of funny money have been thrown at the crisis in a senseless manner that has produced the basis for hyper-inflation. Gold & Silver respond in price, almost without limit as long as no solution is pursued.

◄$$$ THE SILVER FUTURES CONTRACT WENT INVERTED AND BACKWARDIZED IN PRICE, A RARE EVENT NOT SEEN IN DECADES. A SHORTAGE IS SEVERE. IT INDICATED A NEGATIVE CARRY COST. THE MAINSTREAM BLAMES MINING FIRMS FOR FORWARD SELLING, BUT IT IS INSTEAD DUE TO THE EXTREME SHORTAGE HERE & NOW. THE SIGNAL IS CONFIRMED BY NEGATIVE SILVER LEASE RATES, AN INSANE CONDITION. $$$

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A highly unusual phenomenon has shown itself in the silver market, a condition not seen in several decades, if at all in its history. The current month silver price was higher than the forward months from futures contracts a week ago. The extreme inversion has changed slightly, so that the the July month is peak rather than the front March month. The lead monthly prices are essentially flat. The distant monthly silver contracts are cheaper than the nearby monthly contract. That is backwards, and does not give a positive value to the cost of carry from storage, vault facility overhead, insurance, and other items. The Silver price is backwardized, as they say, a strange word, but it instills fear in the metals exchanges and the hearts of officials. No value is given to the cost of silver carry!! Incredible, and extremely bullish on price, since it screams of physical metal shortage. Future deliveries are thus cheaper than immediate supply. Arbitrage players sell from forward months, drawing metal from it, to buy the current months, and deliver into it, thus aggravating the metal shortage.

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Scotia Macotta has pointed attention to strong silver buying from coin investors and product fabricators. They attribute the backwardation in silver prices to a combination of commercial bank borrowing and forward hedging among mining producers. Five unnamed silver mining companies apparently sold forward a large chunk of their future production to lock in current prices, the Financial Times reported last week. But that journal is a pure wagging dog servant to the gold cartel, has been, and will continue to be. They are almost a contrary indicator, their deceptive spin is so constant and wrong footed. Another signal showing scarcity is the lease rates on silver. They have risen to its highest level in many years. When the lease rate is higher than the investment rate, the forward price of silver is lower and thus indicates scarcity. In other words, the bankers would pay you to borrow silver, a totally absurd concept but it is done. See how the 2-month, 3-month, and 6-month lease rates have been negative during the price correction.

◄$$$ THE SILVER PRICE HAS BROKEN AWAY FROM THE GOLD PRICE, NO LONGER TIED AT THE PRECIOUS METAL HIP. GAINS IN SILVER ARE OUTPACING GAINS IN GOLD DURING THE LAST SURGE. MUCH MORE ACUTE SHORTAGES ARE REPORTED IN THE SILVER MARKET. MUCH GREATER ADVANCES IN SILVER ARE TO BE EXPECTED IN THE COMING YEAR, LIKE AT LEAST DOUBLE THE GOLD GAINS. $$$

The Silver price has advanced handsomely since July 2010. Its gains have outdistanced those of Gold. In the last two weeks, the rebound for Silver has embarrassed that of Gold. Thanks to Adrian Douglas for the fine chart, not showing the dimension of time but instead the paired prices of Gold & Silver. The chart exhibits how the Gold/Silver ratio is falling. He wrote, "This update of my previous work adds more fuel to the fire that the dynamics of the silver market have dramatically changed. Because silver has been suppressed for so long, we do not know what its free market price should be, but we are going to find out soon. I strongly suspect it will be many multiples of the current price." Agreed totally by the Jackass. See the Market Force Analysis article (CLICK HERE). Some quick pointers on how to view the graph below. It does not show time on either axis. The silver price lies on the vertical scale, and gold price on the horizontal scale. Therefore, a steady growth ratio for the two metals is maintained by a tendency of dots near a given sloped line. Over different time periods and different price ranges, a different line of the same slope would indicate the same steady growth rate from a different basis. Notice as the silver price advanced above the $23 level (2300 scale on chart), the pattern changed, and shackles were broken. From then onward, the silver price rose much more quickly than gold.

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CRUDE OIL PAST & PRESENT

◄$$$ SAUDI ARABIA IS GRADUALLY RISING ON THE PANIC METER. ITS CREDIT DEFAULT SWAP CONTRACT IS QUIETLY RISING TO REVEAL DEEP CONCERN, A POTENTIAL ARAB LIGHTNING ROD IN THE CRISIS. TROUBLED DAYS ARE COMING TO RIYADH, AND POSSIBLY TO THE CRUDE OIL WORLD. $$$

Egypt is just the beginning of strife and social disruptions in the Arab world. Gradually, the chaos will find its way to Saudi Arabia, the religious center and location of the extreme wealth. A reliable meter was useful in Europe to forewarn of financial problems. The Credit Default Swap served well also in Egypt, as it doubled in price to insure government debt from default, the tipoff of a climax in crisis. The Saudi Contagion Vigilantes have arrived as yet another forewarning of troubled times. Over a two week stretch, the Egyptian Govt CDSwap doubled from 200 basis points to over 500 bpts. That took it much higher than the Illinois State CDS level. More important to the financial centers, especially the oil world, the Saudi Govt CDSwap has also gone vertical. It has risen from 75 to pass 100 basis points in late January. It has since risen to 128 bpts by February 10th in response to reports that King Abdullah was seriously ill. Expect the bond vigilantes to do further serious damage. The past 15 months have taught that such a CDS rise means several months of crisis filled with potential social chaos. The If history is any precedent, there is a long way to go. See the Zero Hedge article (CLICK HERE) and the TDWaterhouse article (CLICK HERE).

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◄$$$ SAUDI POTENTIAL CHAOS HAS EXTENDED TO THE CRUDE OIL FUTURES PIT, WHERE $250 PER BARREL HAS FOUND SOME OPTION TRADES. SO FAR THE MAJOR SAUDI CITIES ARE RELATIVELY CALM, BUT STIRRING. CONTROVERSY HAS HIT THE SAUDI ARAMCO FROM WIKILEAKS, QUESTIONING THEIR INTEGRITY ON OIL RESERVES. $$$

Fears and concerns over potential Saudi oil production have resulted in increased futures contract bets for $250 crude oil. Actually a strong rise is sufficient for such contracts to perhaps double in value, without reaching that lofty level, depending on the time premium related to contract date. The obvious theory is that social protests and growing chaos in Egypt will spread across the Arab world to other important centers like Saudi Arabia. The link is the Suez Canal, where huge Saudi oil traffic passes en route to European destinations. Open Interest in the $250 call option for December climbed to 242 contracts from 142 on February 1st. The most active options on February 2nd were the March and December $100 calls followed by the December $120 calls. The May $125 call options were the most actively traded option, with 24,828 contracts exchanged. That overwhelmed the previous single day volume record of 1101 lots for the option, and is seen as a strong signal for $125 crude oil soon. Open Interest for that contract skyrocketed to 20,467 contracts from 1398 a day earlier. Official stories report that Suez traffic is unimpeded and running at normal levels. In the last few days a tanker has run aground inside the Suez, soon to be cleared. Private reports indicate police stations in the city of Suez being overrun by mobs. About 2.5% of global oil production moves into Egypt through the Suez Canal and the SUMED Pipeline. At risk is the oil production from the primary Persian Gulf exporting nations. None of the nations, from Saudi Arabia, the United Arab Emirates, to Kuwait, three of the six biggest OPEC oil producers, have witnessed social unrest. But Bahrain has seen some social protests. See the Bloomberg article (CLICK HERE).

A quick comment about recent Wikileaks. Cross-currents and controversy surround this source. Their motives or sources are not clear. According to recently released WikiLeaks cables, Saudi Arabia cannot pump enough oil to keep a lid on prices, as their production capabilities have been on the downslope in the last two decades. See the UK Guardian article (CLICK HERE). Furthermore, accusations have come that the giant Saudi petrochemical complex ARAMCO has consistently falsified their stated oil reserves by 40%. The Saudi giant issued a bland rebuttal. See the Arabian Business article (CLICK HERE).

◄$$$ HUGE DISPARITY IN OIL PRICES AMONG THE TWO MAJOR MARKETS. LOWER QUALITY BRENT OIL HAS A $15 PREMIUM IN ITS PRICE OVER WEST TEXAS. BRENT REFLECTS THE SUEZ SUPPLY RISK. TEXAS CRUDE REMAINS A PLAYTOY OF WALL STREET. THE MORE AMPLE SUPPLY FOR TEXAS CRUDE SHOULD ACCOUNT FOR $2 TO $4 IN LOWER PRICE. WITNESS EXTREME HIDDEN PRICE SUPPRESSION, THE USUAL JPMORGAN FARE. THE SAUDIS DO NOT USE THE TEXAS BENCHMARK TO PRICE THEIR SALES ANYMORE. ALSO, THE NATGAS PRICE DISPARITY IS WORSE, FROM $4 IN NORTH AMERICA TO $10 IN EUROPE. $$$

Quietly and without much notice or publicity, the Brent crude oil price has zoomed way above the standard West Texas crude oil benchmark. The price differential cannot be explained by the Suez Canal threat of reduced oil shipments. In the 1990 and most of the 2000 decade, the Texas crude traded $1 to $2 higher than Brent, since of higher quality with less impurity. All that changed when the Saudis broke ranks a decade ago. In November 2009, the Saudi Aramco conglomerate decided to drop the Texas benchmark for all crude oil sold in the United States. Most of the OPEC world followed suit, and Wall Street did not utter a peep of protest. To do so would invite questions as to why. This was a huge event that went over the heads of most financial analysts, the investors, and the public. In the view of many analysts, the Saudis were sick of accepting a lower oil price that was dictated by corrupt US markets controllers dealing in paper contracts. The Saudis began using the Argus Sour Crude Index (ASCI) which is ironic. They sold using the index for oil containing higher sulfur and far more impurities. Image selling fine pine wood at a much lower price than knotty pine pocked throughout the planks. Try selling pure apple cider at a much lower price than the cider with higher vinegar content. The upshot is that OPEC oil sells in the US at a higher price not controlled by Wall Street. The oil exporting nations to the US ranking #2, #3, #4, #5, #6, #8 all come from OPEC still. Worse, Canada sells at the lower Texas price, for political reasons, not wanting to anger their American neighbors. But Canada then buys imported oil at the higher price, oil of lesser grade and higher price. That disparity has made for a small Canadian trade gap, an injustice. Also, the USGovt statistical elves use the lower Texas oil price in Consumer Price Inflation calculations, to keep the CPI down obviously.

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The collapse of Wall Street banks in September 2008 had some lead events. They tell a tale of intrigue. In mid-2008, the energy prices saw price rigging in earnest. The crude oil price at the NYMEX fell from a peak $140 per barrel in July of that year to below $100 BEFORE the Lehman Brothers kill event. In an open manner, the USDept Energy disclosed that crude oil was diverted from the Strategic Petroleum Reserve in June 2008. That triggered the price decline clearly and unequivocally. The collapse in crude oil was not complete until December 2008, when it went below $40. Following the Lehman failure and grotesque event bound in broad big US bank insolvency, the Wall Street crew went to work, targeting their own hedge fund clients. They wrecked the gold price, pulling it below $800 per ounce. They wrecked the silver price, pulling it to below $10 per ounce. Then they basically went shopping on commodities in their basket, using TARP Funds. The $750 billion in visible TARP Funds was accompanied by $12.7 trillion in invisible USFed loans extended globally to a gaggle of central banks. They all went shopping for hard assets after the Lehman detonated was lit. The same USDept Energy attempted to do revisionist history, claiming in their 2009 Annual Report of the Strategic Petroleum Reserve that oil was not diverted until September 2008 due to the hurricanes. Liars, again!!

If you think the $15 premium for Brent over Texas crude is wide, check out the gap in the natural gas prices. The North American gas price is around $4 per Mbtu, versus a $10 price in Europe. The explanations are gibberish on the differential. Attention is pointed to the world's largest proven gas reserves being located in Russia. Heck, Canada has gigantic gas fields also proven. Meanwhile as usual, the North American gas price is driven by the paper trades in the NYMEX, determined often by the trading desks at JPMorgan. History shows the giant bank entered the natural gas trading arena in January 2006 with full motive to exterminate the Amaranth client, which had been invested heavily in natural gas over years of time. See the excellent analysis detailing the recent history of crude oil by Rob Kirby entitled "Dirty Rotten Scoundrels" from the GoldSeek article (CLICK HERE).

Thanks to the following for charts StockCharts, Financial Times, UK Independent, Wall Street Journal, Zero Hedge, Business Insider, Calculated Risk, Shadow Govt Statistics, Market Watch.