There are many financial and geopolitical events all coming together, culminating or beginning within the next couple of weeks. The two most notable are what will happen in Greece and Ukraine. There have also been many other clues pointing to some sort of event coming to pass. In southern drawl, you might say “somethin’s fixin’ to break”.
We have previously covered Greece and how it’s exit or default could affect Europe, the West, derivatives and ultimately the global financial system. We have also looked at Ukraine and the potential geopolitical/military ramifications involved. As of now, the Greeks have not yielded to taking on more debt and the cease fire in Ukraine never even took hold. What I want to look at today are two seemingly unimportant and entirely disconnected events that may turn out to be of utmost importance AND very connected.
Chinese New Year begins this week on the 19th and the gold/silver fixes are being altered in a very big way. I know what you are thinking, “so what?”. Please follow this thought process through, I have a theory and it will not take very long to find out whether or not it is valid.
The Chinese are a very methodical people. They believe in their “rural calendar” which most Westerners would call ritualistic or even superstitious. For instance the Chinese make plans and even business decisions based on this calendar. The calendar is based on the solstice year and 12 zodiac signs which Chinese believe “influence” personal traits, abilities and thoughts during the year and for those born in any particular year. True or not, the Chinese believe it and their actions are definitely affected by their calendar. They also are famed for making “five year plans” and look very far (100 years or more) into the future. Unlike the West who looks only to the next quarter, the Chinese look out to future generations (plural). They are also famous for making policy decisions which implement at the beginning of their New Year.
We also know the gold and silver fixes will be changed beginning in March. What was once five or six cigar smoking “gentlemen” in London deciding the morning and evening prices was recently pared down to only four. Now there will be 11 participants. The “fix” will now be done electronically and include 11 separate banks …several of which will be Chinese.
I mentioned a “theory” above: I believe there is a very good chance the way business is done will change with and as the Chinese New Year comes in. The Chinese understand the West may very well be thrown into chaos by the Greeks fracturing the Eurozone, Ukraine becoming a hot war zone, both, and or with many additions. As I have maintained over the last two years, I believe the Chinese have been accumulating gold and plan to eventually peg their currency to it. They have set up currency swaps and clearing facilities in a dozen “hubs” all over the world including Western capitals such as London, Zurich and Sydney. They have been preparing for this for several years. The Chinese have also backed Russia during her recent time of need and also signed several oil, gas, pipeline, currency, clearing and credit facility deals with them. Russia has in fact gone live with an alternative clearing system, 91 financial institutions have already joined. It is clear Russia and China are “partners” now and intend to be in the future.
I have also maintained the Chinese want to eventually see a “cash” market for physical gold and silver to actually “make” price rather than the paper markets of London and New York. The SCO has recently been opened and beginning to function in Shanghai, it is this “cash and carry” market that I believe will soon be “making” price. The Chinese fully understand the COMEX is a fraudulent casino. It is fractional reserve in nature and absolutely miniscule in relation to cash markets as to their inventory. For example, China imported 10 times the amount of gold in January as COMEX claims as available for delivery. China’s imports for just one month completely dwarf what COMEX delivers for an entire year. $10 billion or less could wipe this Western pricing mechanism clean with mere pocket change in today’s world.
Let me ask a few questions so you might understand how this could go down. If several Chinese banks are part of the new “fix”, what will happen if these banks decide on a higher price than that desired (and until now “forced”)by the Western banks? This process will be a “supply and demand” function where a clearing price is “discovered”. If the process is truly physical in nature, what will happen if these Chinese banks bid, and bid hard for physical metal? So hard in fact that delivery is made impossible? Do you see where this is going? I am asking a very real question, will (can?) the Chinese hijack this process and actually make whatever gold or silver price they desire? The answer is yes they “can”, the only question remains “when will they?”.
Before moving on, this train of thought fits perfectly with several of my past thoughts, namely, the physical and paper metals markets diverging and doing so in “gap” fashion. It is my firm belief we will go to sleep one night and wake up to a very changed world, my thoughts can be found here.
The “fix” is only one small cog in the wheel of coming change. Logistically, everything is very well in place for this change to occur. The Chinese have trade deals, currency swaps and trade credit facilities in order. Both the Russians and Chinese have clearing systems and credit card facilities in place. Militarily, Russia has moved hardware into place and also courted the Greeks (which by the way may be the reason they refuse European offers?), French, Germans and others.
A move “logistically” on the part of the Chinese and Russians is now doable and can be expected at any moment. The two seemingly unimportant and disconnected events of a new calendar year and new fix process may well be the doorbell. We will soon see. Please keep in mind, if it is not “now” …it WILL be. The Chinese and Russians have not done everything they have over the last several years to remain engulfed in a fraudulent and one sided monetary system …and one which they have little power over. I am not saying that any new system will be “Nirvana” nor will it not eventually be abused by its masters. What I am saying is this new system will initially (before abuse) be one where the weights and measures are fixed and thus more fair.
To finish, let me hypothesize a bit more. I think the Chinese will “peg” gold and maybe even silver to the yuan. They will do this via use of the daily fix price and they will thus bust the COMEX wide open. COMEX vaults will be emptied in an overnight arbitrage fashion and the dollar will begin a hyperinflationary implosion. Let me ask you a couple of questions so you may understand “how” this can easily be done. If China decided to push the fix price up to an arbitrary number of $1,500 per ounce, how could naked COMEX shorts then raid the futures market? Could they really be taken seriously that gold was actually dropping in price? No, arbitrage will set in immediately gobble up inventory. Let me explain this a little further because I believe it’s where we are surely headed. Several sources have contended the “cash” market for large gold orders is currently trading with premiums of 50% or even more. The COMEX apologists have and will surely say “this cannot be because arbitrage would surely step in and raise paper prices”! I agree, this would be absolutely so in fair markets …but this is a perfect example of how COMEX is operating. Before you call me a “whiner” please take into account the other side of the equation. As I just wrote yesterday, COMEX gold as of the Feb. gold contract has not only seen the open interest dry up drastically going into first notice day as it always has, it also saw the amount initially “standing” drop by 90% since FND. These standing longs walked away from 23 tons of gold which they had already fully funded the accounts for delivery. Why? As I wrote yesterday, I believe they are being “bought off” for the very reason of discouraging the arbitrage trade! Were China to create an “official gold price” via the new fix process, higher than COMEX …then how would the COMEX discrepancy be explained? The answer is …it could not. This is a very big problem and one which will expose the current fraud and reveal the ugly truth!
It is in this fashion we will see gold and silver in dollar terms explode upward. The fraud of the West will be exposed by empty vaults and unfilled offers at the London fix. The dollar will collapse versus the yuan and newly gold ratio’d ruble. Dollars will stampede our shores as the only place to spend them as foreign trade in dollars will dry up (this has already begun). It will be this wave of dollars bidding for everything from eggs to toilet paper to gasoline which will jack prices to unheard of levels. The Federal Reserve can try to “buy” as many of these homecoming dollars as they please …with newly printed dollars of course. Functionally it will not work as the supply of new dollars to “buy” old dollars will only increase supply and dilute value. I believe this scenario has a decent chance of being triggered as the “year of the goat” begins! We do not have but a few days to see what, if any changes are in store.