THE GOLD GROUNDHOG GRIND
Jim Willie CB 28 March 2012
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Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
A very important objective change has taken place in the gold market. Its price is not moving above the resistance established in the 1600 to 1900 wide berth range. Its price is not moving below support in the same wide permitted range. When the gold price has approached the 1800 level recently, all manner of naked soldiers emerge with imaginery swords to whack the price down, to bring it under heel. The ruse has a high cost in the real world though, as the gold cartel has been forced to shed an enormous supply of gold as punishment for each naked short episode. The opponents to fraudulent controlled manipulated markets have emerged in force to respond. They fight from the East. They fight for a fair and equitable market. They are poking holes in the floor of the syndicate helm where legs fall through. Demand for the gold core has become acute with pitched battles. The financial presss reports none of it. In desperation, the cartel has conducted regular and routine raids of the Exchange Traded Funds, using shorted shares as the ticket at the rear dock window to cart off gold bars. What a corrupted bill of lading. Meanwhile, the major gold suppliers from mine output appear to be on the defensive or actually on the ropes. The deficit in silver only punctuates the precious metals shortage, as investment demand ramps up. The dutiful lapdog press prefers to tell the story of reduced jewelry demand, without noting how it emphatically signals the powerful bull market. The stories rely on the public being poor students of history. Still, the underlying forces behind the Gold & Silver bull markets remain a team of horses, the 0% cost of money and the debasement of currency in sovereign bond redemptions. The system is broken. Long live the new system that comes, based upon gold and barter, as the USDollar loses its vital ticket in global trade settlement.
GOLD REVOLVING DOOR BLEEDS GOLD
The battle has expanded. It is no longer solely on price. It has focus on draining the crooked camps of their physical gold. The latest wrinkle is the revelation that the derivative sector is as corrupt as the bond core, as banks are liable for hundreds of $trillions they cannot pay following years of hefty ripe fees taken in. The constant backdrop since 2008 is that the big Western banks are almost all hollow bankrupt insolvent and moribund operating zombies. The talk of tight lending standards is intended to conceal their deep insolvency and inability to serve as the economic credit engines. The lack adequate reserves to serve as system lenders. They are slowly having their gold removed, methodically bank by bank, as a consequence of their insolvency and ruin, aggravated by their derivative exposure. The newest agent in the game is the anonymous London Trader, whose activity has been nicely chronicled by King World News in a series of interviews. A central bank has been buying with both hands with lust for the yellow metal. What great news for gold investors, an enforcer.
The Gold Wars have significantly changed in the last two years in particular. From 2004 to 2009, the battle was to win a fair higher gold price. No longer. The war has turned the corner and reached an end game scenario. The objectives have changed. The tactics used have been altered. The upper hand by the Good Guys against the Crooked Boyz is evident. Some new confusion has entered the room. The objective is to remove gold from the bullion bank inventories and major bank inventories, all of it. This is a new battlefield in the war. Being a Zombie bank means losing all the gold in reserves, in a time hourglass process that reflects the reality of their balance sheets. By the end of 2013, no big bank will own any physical gold. They cannot defend against off-side positions in the sovereign bond market and the currency market. See what happened to JPMorgan in such a case, as it preyed upon MFGlobal accounts. Other big banks are losing all their gold from the balance sheet. UBS is a dead body on the field, their false story of a rogue trader having provided a little distraction. Few if any financial press stories are honestly told anymore. Certainly not the Libya story, where 144 tons of gold were confiscated as war booty by London. That supply filled some gaps but only temporarily.
Price implications are part of the sacrifice, as the Good Guys will help to push down the Gold price at times in order to kill a gold cartel player. Like right here, right now. Every couple months (the last being in January), a massive group of orders must be filled at a low price, for the benefit of the Good Guys, with an evil player in a vulnerable position, who knows he is dead and must forfeit its gold. The gold market stalls until the hairball is passed and another gold cartel player is gutted, carried off the battlefield under the cover of press darkness. Therefore the Gold price stays down until the order is completely filled, and only then will recover a couple hundred dollars in price per ounce, but only after this gold cartel player is killed off. The player will be identified later, in the fair market obituaries known to the internet journals. The tombstone epitaph will be carved by an Eastern hand. The US press would never report on a cartel bank having to sell $70 to $100 million worth of gold bullion to remove their big off-side position in bonds or currencies. The Good Guys have put in a series of escalating orders at low prices, from extremely well funded accounts whose war chests boast tens of $billions. The damage done to the gold cartel is immense, yet not adequately reported. The pattern showed itself in January, when after a similar event, the gold price moved from roughly 1600 to almost 1800. By February 29th, the cartel leaped on the day into position to conduct one of the largest naked short events in history. The press never seemed to catch wind, since paid not to notice.
RAIDERS OF THE ETF ARK
Nothing new on this Modus Operandi, used heavily for over three years. The game is easy. The ignorance is widespread. The gold analysts barely notice, certainly not the deaf dumb blind Adam Hamilton. The cartel wrote the GLD and SLV prospectus. They permit shorting of shares for some odd reason, yet pose in legitimacy. They permit satisfaction of short shares in the removal of bullion from inventory. They might not permit altered bar lists that bear no consistency, but that is convenient to cloud the loading docks from which bars are removed in high volume. The gold and silver supply in a pinch for cartel banks is the very metal that stooge nitwit naive folks believe they indirectly hold by exercising their lazy fingers to punch in GLD or SLV while eating at their desks. The smart investors, the intrepid winners, they own vaulted accounts of physical metal in safe distant lands, untouched by the vagaries of paper certificates, the ultimate in forged wealth. The ETFund investors are victims to be revealed at a later date, when those corrupted funds trade at a 25% discount to the spot price and the differential is blamed on something lame like accumulated management fees. The march of lawsuits will make for great theater, possibly more entertaining than the MFGlobal & JPMorgan criminal travesty. The metal taken from these Exchange Traded Funds will soon gather much attention, and high time!
SUPPLY REDUCED FROM THE FIELD
A comment will be made on only two camps, but significant camps. Australian gold production fell in year 2011. Supply is struggling to keep pace with surging physical demand. The dynamics are gradually changing as the gold price rises, making deeper and lower yielding deposits more attractive and profitable. The output might decline, but the profits have continued upward. The consulting firm Surbiton Associates conducted a study on Australian gold production. On a full year basis, for the year 2011, output went surprisingly into decline. Last year, Australia retained its position as the second largest gold producing country after China, but in comparison with 2010, Australian gold production dropped by two tonnes. In 2011 mining companies Down Under produced a total of 264 tonnes (=8.5 million troy oz) of gold. This occurred despite a higher average gold price, proof of my longstanding argument of an inelastic gold supply in the equation. Output does NOT respond to higher price. In 1997-1998 Australian gold production reached a peak of 318 tonnes, a record not matched in recent years despite more attractive prices. Production declined by 6% year-on-year in Q4. Despite the decline, most Australian mining companies increased their profits due to higher gold prices. Last year China produced a total of 300 tonnes. America is the third largest producer. Couple the burgeoning investment demand with reduced supply to arrive at a simple conclusion that the gold price will rise in a powerful way in the next couple years.
South Africa has become a basket case, predictably though, since the marxist track record is so well established. Gold production has hit a 90-year low in the former gold giant. Multiple factors are involved, from gross mismanagement by the marxist clowns in charge, to labor interruption, and even to deposit depletion. The official blame is given to depletion, but it is a lame excuse actually. A real example is given in contradiction. The scale of the collapse is utterly incredible. The gold output from the former leader in South Africa has fallen by a factor of five or more in the last 40 years. The old Apartheid regime might have exaggerated the volume of their national gold production. In January, a sizeable 11.3% decline was realized, which eclipsed the already hefty December 8.2% gold output decline. The explanation attributed by the Jo-burg government ministry is that many of the country's biggest gold mining operations having reached the ends of their lives and have closed down. They say depletion has occurred. Don't believe it, nonsense. They fail to mention recent attempts to impose higher taxes on the cash cow industry. The higher gold price justifies deeper mining efforts and even lower yields, as seen in the Australian story.
A real example came in response from a gold trader source who has SA contacts. He offered details about a reclamation project that turned into riches, a success story. He wrote, "The white mine owners went underground for centuries, but totally ignored the placer/aluvia deposits. Those are very rich and plentiful. The big mining firms jump for joy if they get 3 to 5 grams per ton of dirt moved. We have a number of aluvia mines exclusively supplying refiner outfits that have 150 to 285 grams per ton. A South African mining engineer recently bought a closed shaft, deep mine from his former employer for peanuts. He turned the mine into an aluvia operation and produced 890 kilograms of nuggets and dust at 94% purity last year. He expects to bring it up to 2 tons this year and beyond for the next 10 years." So opportunities exist is these so-called shut down mines that are supposedly depleted. The Marxist morons cannot even assess what is under their noses, after they destroy an industry.
The global gold investment demand is growing exponentially, while physical gold production in several important nations is flat, in decline, or in South Africa's case in steep chronic decline due to horrendous mismanagement and stupidity. It all adds up to shortage of supply and much higher physical gold price. Observe the reduction since 1970 from 2600 tons of annual SA output, while the SA share of global output has fallen from 80% to 15%. Marxist morons do what they do best, ruin industries amidst elevated crowd support and noise from the dumbest sections of society.
SILVER DEFICIT CHART
Mine output for silver is running a losing battle. Notice how silver demand in 2005 was greater than in 2011. However, the silver price was around $9 per oz a full seven years ago. Higher price does not translate into reduced demand, even four times higher price! It might result in more recycling of scrap and recovery of grandma's silverware from the hope chest though.
The zinger factor is investment demand. Notice the dark green segment on the rise, powerfully so in 2009 after the Lehman, Fannie, and AIG disasters. These were Titanic sink events following in delayed fashion the Pearl Harbor event of 2001. Investment demand has at least tripled from 2005 and 2006 to today. The same surge is seen in coin demand, shown in the darker gray bar segment. Conclude that reduced mine output will come against fast growing investment demand, to produce an upward price spike in silver. Just a matter of time. Actually time is necessary to remover the crooked players who sell silver contracts without the benefit of collateral or metal, with the full permission and blessing of the USDept Treasury, which operates on a leash from Wall Street. Of course, the motive is to keep America strong. For the purchase of exciting Tennessee oceanfront property, enter the room to the left.
GROUNDHOG GOLD PRICE REDUX
The repeated episodes of naked short ambush in price takedown, followed by depletion of gold cartel member banks, followed by swift rising price, all to be replayed in two months, is a pattern made evident. Most within the gold community have little clue of the depletion, except for the London Trader accounts barely heard. The motive for the naked short illicit ambush was clear. On the week of February 29th, the central banks poured $1.2 trillion in funny money into the banking system. To offset the powerful monetary hyper inflation, they sold 22 million oz of gold without the metal. The Bernanke comments this week gave lift to gold. He and Mario Draghi and Mervyn King, along with the other central bank chorus, have no choice except to keep the monetary press running. They begin to comprehend how the economies do not respond to the supposed 0% stimulus, when in fact it kills capital. They must recapitalize the big banks. My guess is that the coordinated Greek solution is not much of a solution, merely a patch job with a focus on covering the newest black hole in the derivative market by pitching paper money at the big banks. The next $trillion joins the previous several $trillions in a great debasement of the USDollar, the Euro, and the British Pound. The Dollar Swap Facilities have been abused to the hilt. The hidden nugget lies in Germany, where vast rescue funds have been replenished for the expressed purpose of aiding their big banks, should the nation depart from the Euro currency. Imagine all that bad debt from the PIGS pen to absorb. The European Monetary Union is doomed. Look for France to be the Lord of the Flies. Great disruption cometh to the FOREX currency market. Big gains lie ahead for Gold.
As the cycle plays out, up and down, up and down, the market forces have set up a potential for a strong reversal with momentum off a familiar reliable pattern. The Head & Shoulders reversal pattern is quite reliable to forecast high breakout prices. Look to the Eastern Coalition to eventually resist the next paper ambush that has contributed to the ruin of the COMEX integrity. Let's watch JPMorgan squirm before Congress. Will it be soft lobs or hard line with prosecution for high financial crimes? Sometime in the near future, the day will come when JPMorgan is brought to trial for $trillion fraud, $billion fraud, and $million fraud, all of which has brought the nation to the brink of systemic failure.
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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He a