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Gold, Silver SOAR, Gold Cartel In Shambles / PM Shares On The Move … Finally

By: Bill Murphy, Le Metropole Cafe, Inc.,

-- Posted Sunday, 21 August 2011 | | Disqus

August 19 - Gold $1848.90 up $30 - Silver $42.43 up $1.74

"The wind blows over the surface of the lake. In this way, the effects of the invisible are made visible." … I Ching


This morning was breathtaking. As I am still having trouble getting off London/France time yet, I am still rising VERY early. This morning was worth every second of it as I watched gold blow through the 2% Rule with ease, RISING 3% at its highs of its rocket run. Speaking of rockets…

haha Bill
you gotta laugh. Do you think he is referring to those GATA rockets?!

UK Guardian Blog:

The deepening panic on stock markets has sparked new metaphors, with gold - which broke through $1868 an ounce today - being described as a "rocket ship". Jeremy Cook, chief economist at foreign exchange brokers, World First, said:

Gold is a rocket ship at the moment and there are many factors that make us expect further gains.

Firstly, the global recovery has juddered to a halt and, with the obvious uncertainty surrounding the situation, people have been looking to buy tangible assets.

Secondly, we are likely to see inflation remain high and with the prospects of further quantitative easing in the UK and US this will translate to an increased erosion of the value of money; something that gold investors tend to crow about

Alright enough crowing for now

What the mainstream gold world and Planet Wall Street do not understand is that one of the reasons gold is acting like it has been is because of a Commercial Signal Failure. There were a number of players who have played the gold trading game allied with The Gold Cartel. They would short and short and then cover those shorts when The Gold Cartel attacked the price and forced spec longs to sell. This is how they made money over and over again by being short in a bull market.

Well, over the past couple of weeks the game totally changed as The Gold Cartel began to lose control of their management of the gold price, as evidenced by the breaking of the 2% Rule. The total financial chaos in Europe and the US sent them into a panic, and instead of shorting more as the gold price rose (which they have done for so long), they became buyers (taking huge losses on their short positions), leaving The Gold Cartel to hold the fort. In other words, these commercial shorts abandoned the fort. This is what the GATA camp foretold long ago.

The other factors which have to have them spooked are:

*The strong potential for a bank holiday, which could be announced out of the blue.

*Central banks asking for their lent gold back. You won’t hear this outside of the GATA camp, but the notion of lent gold to support the gold price suppression scheme has been one of our basic themes of understanding the gold market. If central banks, like Venezuela, ask for their gold back, it could cause a PANIC, and has to have sheeple central bankers who have lent gold out, to be in a twit. These are risk adverse types whose worst nightmare is to be embarrassed and exposed to their public as having been duped into folly. If this is so, as I suspect, the price of gold is likely to advance much faster than even we thought, as nervous central bankers start making demands of those who have their gold. Yeah baby!

More evidence of just how solid the move up in gold is … the AM Fix came in at $1862 and the PM Fix was $1848. The physical market is very firm at these newly high prices.

Our kind of chart:

Daily gold price star of the show on Comex was silver as it rose three times what gold did today, making a $42.56 high. Quite frankly, the action is picture perfect and is making this MIDAS silver comment spot on…

August 17 - Gold $1791.20 up $8.80 - Silver $40.35 up 53 cents

The best news of the day was silver finally making its presence felt and closing above $40. Look at all the work it has done below $40. Silver appears to breaking out from a massive base. This is a market ready to TAKE OFF….

Daily silver most likely do so with a GAP UP opening, one which catches JP Morgan off guard….

Investors are realizing around the world, there is no way out of the fiscal mess our politicians have put us in. It is a NIGHTMARE for the little guy and girl. It is SO BAD, investors don’t have to be convinced too much that gold can take out $3,000, even $5,000. Silver will be the big surprise. WATCH!


We got that gap up this morning, one that held like a rock.

General feedback to me is that one of the main reasons silver is finally giving JP Morgan and The Gold Cartel fits is because of Eric Sprott. He has been everywhere talking up silver as THE investment.

One fantastic looking chart:

Daily silver, JUST breaking out of a huge bottom formation

*** While the US stock market fell apart late, silver UPTICKED another 34 cents in Access Market trading ... YES! This is the sort of action we saw in the Access Market the last time silver shot up to $50. The big players know JPM is in trouble again.

STUNNING and great news … the gold open interest only rose 6633 contracts to 521,246, which is a trifle for the kind of move we had yesterday. This is a further indication that the Commercial Signal Failure is ongoing and contributing to the kind of move we saw again today. If this move was mostly speculative oriented, like in the past, the open interest would have been up something like 20,000 contracts, at least. Of further significance is the silver open interest went down 1130 contracts ahead of today’s sharp silver advance. This tells us the Commercial Signal Failure in gold is leading to one in silver.

Love it, from orator James Mc…

More cartel rules broken

While gold is currently trading today well below +2% it continues to defy its (former?) cartel masters. In just the first 15 trading days of August gold has exceeded the 1% rule 9 times, and the 2% rule twice on a closing basis. Furthermore the 2% rule has been called into action a whopping EIGHT times, or roughly half of all trading days. While there's still evidence of their all-out effort to keep gold controlled, in card parlance this is a "tell". The cartel has revealed they no longer possess the same kryptonite once used to kill gold rallies. The algos are telling their MIT masters they see an abyss. Gold and silver short losses are approaching catastrophic levels. With the Fed now bailing out Swiss banks they may also be making margin calls at the Crimex, assuming cronies are actually forced to meet them. If the CME still monitors MTM twice daily like they claim then they know short losses are increasing billions of dollars daily. Any further margin increases should effectively annihilate short sellers, however as we know they always spin it as bearish for longs. Another cartel rule broken is the negating of the breakout signal. Gold has correctly broken out, and advanced further like a NORMAL market does. Pinch me I'm dreaming.

In a milestone mostly overlooked today gold reclaimed its rightful throne as king of the precious metals. For at least 4 trading hours Friday morning gold was premium to both platinum and rhodium. You have to think back to June, 2008, when rhodium was $10,100 an ounce, and gold was $890. It took 11.35 ounces of gold to buy one ounce of rhodium. Now they're at parity. Gold is pulling away in a romp, and should now leave the other PM's in the dust. Anybody doubting $10K gold possibilities need look no further than a 2008 rhodium chart.

One can only marvel at the bubble of the century that's been blown. No, not gold as the idiot MSM portrays, but Treasury bonds. The CME offering 43-1 leverage in

T-bond futures is akin to when no-doc and liar loans were being peddled at the height of the housing bubble. That debacle got resolved nicely, no?
James Mc

Gold and Silver Commitment of Traders Report


*The large specs increased their longs by 596 contracts and reduced their shorts by 2,944.

*The commercials decreased their longs by 1,839 contracts and increased their shorts by 3,501.

*The small specs increased their longs by 327 contracts and reduced their shorts by 1,473.

What stands out is the commercials increasing their shorts that much. This represents JPM and friends trying to hold silver below $40, which has failed miserably.

Gold *The large specs increased longs by 4,566 contracts and increased shorts by 8,503.

*The commercials decreased longs by 2,910 contracts and decreased shorts by 3,269.

*The small specs decreased longs by 2,428 contracts and decreased shorts by 5,556.

What stands out here is a considerable amount of new large spec shorts were slaughtered

How bad is the dollar? Get ready for something that nears a collapse in the weeks and months ahead. Think about the horrendous news of late, about the problems in Europe and yet the euro is nearly 1.44, which is not far from its highs. Wait until the focus shifts back to the US. The dollar is in the deepest of trouble.

Speaking of the dollar…

By the way, I monitor the cash USDX, and a weekly close below 73.70 will "release" that market to the downside. That number has been in play since the first week of June, but the market has managed to close above it every Friday.

Jessie sent me the following last night…

Tough Day in the Gold Pits for the Bank of England


It is a nine minute clip called Zulu War Chants from the Movie ZULU, starring a very young Michael Caine, which just happens to be my favorite movie. The movie is about the Battle of Rorke's Drift, where the British successfully defended themselves against thousands of Zulu.

I will never forget GATA’s good friend Peter Grandich at a Cambridge House conference in Vancouver. Peter, the conference moderator, stood up on his chair and led the audience in one of those chants. The audience responded enthusiastically.

For those of you who might want to watch the clip, which catches the drift (no pun intended), of what the movie is all about, you might like to first understand how it fits into the GATA scheme of defeating The Gold Cartel.

The gold price suppression scheme was having an especially adverse effect on the poor miners in South Africa. 100,000 of them were out of work and each miner supported at least 10 others, so it was affecting a million+ people in that country. GATA decided to hold its first conference in May of 2001 in South Africa to bring attention to The Gold Cartel and the horror they were perpetuating, on purpose, on so many innocent people. The price of gold was trading between $252 and $275 at the time.

Before we held our GATA African Gold Summit, CP and I thought it would be a good idea for me to tour South Africa to drum up support for the conference. That is a story unto itself. Suffice it to say, back then I met GATA’s good friends Peter George (Mr. Gold of South Africa) and Chris Hellinger (both at Gold Rush 2011) in Cape Town. Then, it was off to Johannesburg, Durban, and Pretoria.

Now for how this relates to SHAKA and GATA’s plan to defeat The Gold Cartel with our own "Enveloping Horn" strategy, which HAS WORKED, but not in the manner which we planned at the time….

From the Durban daily newspaper:

2/14/01 - "THE KING and I"

"THE KING and I"

The following photo was taken at the Royal Hotel in Durban, South Africa of King Goodwin Zwelithini, leader of the Zulu people, and Bill Murphy, Chairman of the Gold Anti-Trust Action Committee. King Zwelithini is a direct descendant of the great emperor Shaka Zulu, Africa's greatest general.

The King was very receptive to GATA's claims and asked his aide, Moses, to call South Africa's Deputy-President Jacob G Zuma on our behalf. The Deputy-President is also a Zulu.


February 19, 2001

"LEADERSHIP LESSONS from emperor SHAKA ZULU the great" and The United States Treasury and Justice Departments***

GATA Chairman Bill Murphy's Address
GATA African Gold Summit in Durban, South Africa
Thursday, May 10, 2001

 …The GATA camp has a hard time imagining what the Gold cartel's end game is and how they are going to explain it all in the future. One can be sure that the guilty perpetrators are going to try and come up with some phony pabulum type of excuse to talk their way out of what they have done. That is just what they must not be allowed to do.

Think of it like a chess match. If the attendees at the summit ask the aforementioned questions and the press reports on the questions being asked, King Gold Cartel can be checkmated by us pawns and knights of this Round Table because of the resulting publicity and focus on the matter. If they then come out with some nonsensical, gobblygook of an explanation in the future, few will believe them. By asking the appropriate and fair questions NOW, future gold reparation claims will be strengthened.

It will also enhance the possibility that the gold manipulation scheme ends earlier rather than later -- for all the reasons we have brought to your attention.

It is time to fight back South Africa and sub-Saharan Africa, for what was rightfully yours in the first place. We have offered you a plan. GATA hopes you run with it. Allow the "enveloping horn," the famous battle tactic of the great African General Shaka, to win the day again.

Reg Howe and his lawsuit in federal court are the point of the buffalo horn. He has the gold cartel's attention. The left flank of the horn is our effort to mobilize the press and politicians. An unbiased press can help us move on the gold cartel by just FACTUALLY reporting on what was presented here today, while the other summit attendees can go to various politicians in an effort to obtain answers to the action plan questions. All along it was GATA's intention for the right flank of the horn to be mobilized gold producers. We hope after what was presented today, attending gold producers will be encouraged to speak out and also try and get answers to the Action Plan questions.

Meanwhile, the Gold Anti-Trust Action Committee will be on alert in the United States to help in anyway possible. We are just a phone call or email away.

The "enveloping horn" is now in full battle formation. By acting decisively together we can close the back end of the "enveloping horn" on the gold cartel. These financially and politically powerful institutions are likely to be slightly bewildered. The truth will see the light of day and we will win. So will all of sub- Saharan Africa.

Siyabonga kakhulu!
Hambani kahle! (Go well.)
Ukuthula kube nani! (Peace be with you.)


Entire Durban speech:


Behavioral Finance Report

*par for the BF course...

09:39 NY Fed President Dudley says banks in much better shape than years ago - Dow Jones
* Dudley again downplayed the Fed's monitoring of banks, saying it's something the Fed does every day. Dudley made nearly identical comments yesterday morning, saying the Fed is "always scrutinizing" banks, calling it "standard operating procedure" and adding that the Fed is "not focusing on foreign banks any more than U.S. banks."
* * * *

*The yield on the 10 yr T note is 2.07%.

*This week was a rout of the Gold Cartel and PPT operations.

The dollar fell .23 to 73.99. The euro went up .0101 to 1.4398. The pound rose .0011 to 1.6488. The yen gained .14 to 76.48. Early on the yen made an all-time high against the dollar at 75.94.

The CRB rose 2.81 to 329.23.

Crude oil fell 12 cents to $82.26 per barrel.

More gold goodies:

Thursday, August 18, 2011

Scotia Mocatta suggests $1,933 target

The CME Final for Wednesday reported that on volume of 153,033 lots, 14.6% or 19,500 lots above estimate, open interest was static: up 506 lots, 1.57 tonnes or 0.1%, to 514,613 lots. Gold of course was up 0.32% basis the stock market close. Once again, the absence of ballooning open interest on yet another record high close was a glaring contrast to yesteryear.

On Thursday the gold price inflection which began around 6AM NY time ran to a floor session high of up some $36.55 in Dec gold around 10AM NY. Gold then backed off some $12 before recovering to settle up $28.20 at $1,822. By 4PM gold had picked up $5 to stand 1.89% above the Wednesday stock market close. Silver on this basis was up 0.84%. Estimated volume was the highest this week, at 226,822 lots.

Gold shares had a disappointing day. The HUI and XAU were only fleetingly in positive territory, broke down badly in the afternoon and closed down 1.73% and 2.82%. Of course the Dow was down 3.68% but lacked the extra afternoon weakness. The GDX/GDXJ ratio reflected a flight from risk, (1.69%)/(3.29%).

Dan Norcini this evening has a lucid discussion of the apparent gold share undervaluation, pointing out that gold shares in relationship to gold a approaching the ultra-low relationship of late 2008. See particularly .

The bullion vehicles traded with gold. PHYS rose to a 4.88% premium to NAV and CEF to 2.3% (Wednesday 4.39% and 0.1%). The GLD ETF reported adding 14.84016 tonnes (1.17%) to bring stated gold holdings to 1,286.82507 tonnes.

MarketVane’s Bullish Consensus for gold added 2 points to 89% and silver’s added 2 to 79%. The HGNSI was unchanged at 27%.

Early on Friday morning local Vietnam gold stood at a premium of $6.52 to world gold of $1,832.45 (Thursday $14.03/$1,791.75).

India’s banks and so FX markets are closed tomorrow, so Indian buying will be impeded. Since gold has run on the above $1,840 spot, this may not be an issue. Dec gold has seen a high of $1,847.90 ($25.90 above Thursday’s floor close): at 12-30AM CME website volume at over 23,000 is quite heavy.

ScotiaMocatta comments tonight:

"We see the measured move target at 1933 from the distance of the 3 year bull channel break at 1689. So far there is no suggestion that the current bullish move is going to stop"


Friday, August 19, 2011

Macro Hedge Funds entering?

Indian banks were closed today, which means that the FX market was effectively shut and meaningful premiums cannot be calculated. Rupee gold prices broadly matched world gold’s dramatic action, but commentary suggests the public was not very involved. A very difficult time to be an arbitrage dealer.

As noted earlier, local Vietnam gold this morning stood at a premium of $6.52 to world gold of $1,832.45 (Thursday $14.03/$1,791.75).

Shanghai gold closed at a discount of $6.39 to world gold of $1,859.95 on very heavy volume equivalent to 17,952 lots (Thursday +$3.57/$1,793.15). World gold spiked up some $12 in the last half hour which may have distorted the situation. Mitsui-London remarks that earlier in the day premiums reached $20 on heavy buying but also notes scrap sales. The Chinese authorities saluted Vice President Biden’s visit by weakening the Yuan again – it slipped to a 6.77% post $US "depegging" appreciation (Thursday 6.86%).

In dramatic action overnight, gold initially crested around the Shanghai close, up some $39 on the NY floor close, faltered, and then recovered to make an up $59.40 intraday high of $1,881.40 in the Dec contract around 6-40AM NY. CME website volume at 8AM was some 110,000 lots and at 10-20AM the website is showing another 85,000 lots have traded.

UBS says of yesterday

"Macro hedge funds were noted buyers and may also have dominated demand during yesterday's Comex sweeps, which accounted for much of the price action…. If participation from the macro hedge fund community has only just started to accelerate, this adds a new dynamic to the gold market…"

Maybe this is what has cheered to gold shares this morning. From the perspective of traditional analysis, of course, this is a blow-off…again.


Friday, August 19, 2011

Thursday's O.I. suggests gold going higher

The CME Final for Thursday reports that on volume of 271,842 lots, 19.85% or some 45,000 lots above estimate, open interest rose 6,633 NY lots – 20.63 tonnes or 1.29% - to 521,246 contracts.

Amazingly, this is still over 25,000 lots short of the recent high of 546,631 lots, seen last July 20th.

Gold of course was up 1.57% basis the floor close and 1.89% basis the stock market close. Open interest growth is lagging price action.

JBGJ concludes the classic O.I. sign of a top – open interest ballooning above price moves as shorts dig in – is not present. Yesterday’s volume, exceeded several times in recent weeks, also does not suggest a crescendo. Combined with the increased faith of bulls who are very likely to buy any dip, this suggests gold is likely to move even higher.

JBGJ apologizes for omitting the Japanese data this morning. On heavy day session volume equivalent to 24,578 NY lots TOCOM open interest rose 1.82 tonnes or 585 NY, but the public cut 0.637 tonnes (3.65%) from their net long by raising their short a tonne. The active contract closed up 132 yen and world gold gained $20.70 during the session to go out $22.70 above the NY stock market close.

Also, the Indian stock market lost 1.99%.

Estimated volume of 239,341 lots at 12Noon suggests today is likely to be a heavier day than yesterday. Gold shares continue to do far better than yesterday but may still wilt if the overall market pulls back.



What an ugly day for the US stock market. Stinko, stinko, stinko. The DOW made new lows on the close, finishing down 173 to 10,817. The suddenly rabid DOG fell 38 to 2342.

Mexico Mike last night…

potential crisis brewing?

Hi Bill!
This sort of thing is above my pay grade, but I read the comments from Bill H with interest today in terms of the sudden spike in M2. It is my understanding that there are potentially trillions of dollars of CDS paper that could have been triggered by the downgrade in US debt last month, and therefore those bets must be paid off. We all know there is no real money backing those swaps and just as AIG was swinging in the wind after the mortgage bonds started detonating, I suspect some issuers of these CDS are in serious trouble here. We have no way of knowing just how serious the problem is because these are OTC deals. There was an initiative to install a central clearing house as a neutral counterparty to ensure that this kind of meltdown could be prevented and bring transparency into the system, but I think it stalled and went down in flames. So none of this paper has come to light yet, but I would think there is a very serious problem brewing here. So too with the rapid decline in the 10-yr note. Again, I do not play in that particular sandbox but I understand you can bet on the direction of interest rates as a form of hedging for those that put big money into bonds, and I would have to believe the total leverage on these derivatives could be in the trillions as well. Some firm somewhere is probably going off like a hand grenade right now and it has simply not surfaced yet as to the extent of the crisis.

No wonder there is such a desire to own physical gold even as the price sets a new all-time high on almost a daily basis. This kind of thing has never happened in history. When LTCM and Refco blew up many years ago, the boys got together and found a way to keep it all contained and divide up the losses amongst themselves. Can a problem of this magnitude be resolved quietly with a huge pile of money injected into the system? I guess we will be finding out soon enough. Just adding up the total amount of money that has been printed to keep things from getting terminal so far, I would have to assume it is many multiples of the total amount of gold on the planet even with the current higher spot market price. And it seems to me the only option left to keep the system even in pretend mode is to continue printing and papering over each new crisis that comes out of this mess.

Which brings me to question, when will it occur to some of the really big money players out there to just start buying up gold juniors with large undeveloped deposits? I can think of many that are trading below $50 per ounce of gold in the ground. Historically the market would value these juniors at 5 - 10% of in situ value and during manias that could climb much higher. Yet the juniors are getting cheaper by the day. Today alone I watched many solid juniors with multi-million ounce resources and huge cash positions in their treasuries getting hammered in the trading. Look up SBB, UXG, GCU, ER, EAS... These stocks have no reason at all to sell off in this market and if people start to understand that real gold and silver are the only asset of safety, then the light will have to go on soon and set off a buying frenzy in the high quality juniors.

Dave from Denver…

Friday, August 19, 2011

Friday Quickie!

A colleague alerted me to the recent bloodbath in the high yield market the other day (thanks JR) and then zerohedge happened to post that day that the high yield market had its worst monthly sell-off in its 25-year history: LINK I wanted to put some attention on this because - and zerohedge did not report this aspect because Durden was probably still in high school back in the 1990's - when I was trading the high yield market on Wall Street back in the 1990's, large directional movements in the high yield market always preceded the same kind of directional movement in the stock market. So now that we've had a big drop in the Dow/SPX which was preceded by a big drop in the junk bond market, it will be interesting to see if "hot" money piles back into the junk market, which would likely precede a big bounce in stocks.

One other point of note about the statistics as reported in the zerohedge link. The credit spread between BBB and BB bonds has blown out to over 300 basis points. To me this indicates that the underlying economy is in much worse shape than is being acknowledged by the Fed, Obama and the media. I would also argue that the stock market is not discounting this degree of economic deterioration, which means the risk of a big stock market "accident" is still very high. To put this credit spread widening in perspective, at the height of the credit/housing bubble, single-B rated credits were trading tighter than 300 bps to Treasuries. In other words, the "handicapping" of financial risk in our system has more than doubled over the last month.

The implications of this massive repricing of credit risk points to a developing liquidity crisis in our financial system, similar to 2008, and reflects the overall dismal economic condition of the real economy. I'm sure you won't hear this from the Teleprompter that sits in the White House and pretends to lead the country, but those two facts are what the big-money odds makers of the U.S. financial casino are telling us.

As this situation further develops, you can be sure that a lot of the "hot" money that has left the high yield market and that is mispricing the stock market will continue to flow into the precious metals and mining stocks. Recently the idea that gold is in some kind of investment "bubble" has been promoted all over the imbecilic media, including a widely circulated report from the Einsteins at Wells Fargo that reads more like some kind flamboyant yellow journalism from the National Enquirer in that is was very poorly researched - if any bona fide statistical research was done at all - and its premise and assertions lacked any basis in fact. Need I remind any Wells Fargo employee/analyst that the bank's balance sheet is connected to one of the greatest bubbles of all time and Wells Fargo would have been liquidated in 2008 had it not been for the generosity of Tim Geithner, on behalf of the U.S. Taxpayers...

So I wanted to link a must-read commentary from John Embry, one of the investing patriarchs of the current precious metals bull market. Specifically, I wanted to highlight his comment about the nascent transition globally that is occurring from a fiat currency based system to the restoration of a gold-backed currency system (which has been the currency basis for 90% of the last 5,000 years):

The unfortunate result of these machinations will be the destruction of the existing debt, the end of this experiment with pure fiat currency and the implementation of an entirely new monetary system. Assets that will see investors through this traumatic transition will be gold and silver just as they have done in every previous example of fiat currency destruction. The very fact that the average citizen has little or no understanding of this phenomenon virtually ensures its outcome. Those who do hold the precious metals and other hard assets instead of paper instruments of wealth will be the beneficiaries of the what will likely be the greatest transfer of wealth in history.

The bold emphasis is mine. I want to highlight that because it is either extreme stupidity or motivated deceit on the part of the bubble-promoters to label and define an investment bubble when the primary ingredient of dumb public money is so notably absent from the market. Here's Embry's piece: LINK

The next two weeks are usually among the slowest trading days of the year besides the year-end holiday period. I will try to post daily but most of my attention will focused on managing our fund and watching/playing a lot tennis.


U.S. economic news:

18-Aug-2011 22:54 BAC Bank of America may cut more than 10K jobs - WSJ (7.01)
CEO Brian Moynihan apparently sent out a memo this evening, though it's not clear how detailed it was. People familiar with the situation tell the WSJ:

* The bank is firing 3,500 this quarter, including positions in investment banking and trading.
* Thousands more jobs will be eliminated as part of "Project New BAC," whose scope probably won't be determined for a few weeks. Consumer banking, mortgage, legal, marketing, and HR will be targets, though one source says the cuts may be stretched over three years.
* Project New BAC's second phase will probably start in Q4 and target investment banking, trading, wealth management, and corporate banking.

More bad news:

JPMorgan Cuts U.S. GDP Growth Forecast

By Scott Hamilton - Aug 19, 2011 6:03 AM CT

The U.S. economy may expand less than previously thought in the next two quarters as consumer sentiment drops and the housing market fails to gain momentum, JPMorgan Chase & Co. wrote in a report.

Gross domestic product will grow 1 percent in the fourth quarter rather than the 2.5 percent previously forecast and 0.5 percent in the first quarter of 2012 instead of 1.5 percent, Michael Feroli, JPMorgan’s chief U.S. economist in New York, said in an e-mailed note to clients today.

US Recession Was Worse Than We Thought - Fed's Pinalto

By Cynthia Lin


The magnitude of the recession caused by the 2008 financial crisis is taking a bigger toll on the U.S. economy than most had expected, a U.S. central bank official said Friday, adding she was in favor of providing the nation's recovery with more support at the latest Federal Reserve meeting.

"The economy appeared to be strengthening, and yet once again, in the summer, storm clouds appeared," said Cleveland Federal Reserve Bank President Sandra Pianalto. "We learned that the magnitude of the recession was worse than we had thought."

In a speech to a community bankers association in Ohio, Pianalto said the U.S. has to grow by about 2.5% annually in order to keep the unemployment rate, currently at a towering 9.1%, from rising. She said it will take "quite a few years" to get that rate down to around 5.5%.

The central banker lowered her outlook on U.S. growth and sees inflation falling back to 2%. Given those projections, Pianalto said she was in favor of providing additional support to the recovery at a Federal Open Market Committee meeting earlier this month. She does not hold a voting slot on the monetary policy-setting FOMC.

With the targeted federal funds rate already near zero, Pianalto said the Fed explicitly announcing a mid-2013 time frame to stick to its loose monetary policy was a tool to help bring down interest rates along the yield curve.

"Under the circumstances, I think it made sense to take the unprecedented step of including that conditional guidance in our press statement," she said.

Pianalto now sees the economy growing at about 2% in 2011, and 3% in each of the next two years. In June, Pianalto said she expected the economy to grow at about 3% a year.

The Fed official points out that between June and August, several pieces of economic data showed a deteriorating labor market, tapering household spending and a still-depressed housing sector, suggesting that the U.S. was in store for a slower pace of recovery in the coming quarters than most expected.

With unemployment stubbornly high, consumer confidence falling and households expecting their income to decline in the next year, Pianalto said people are focused on rebuilding their wealth, not spending it.

"I put all of these facts together; I do not expect much of an economic boost from consumer spending any time soon," Pianalto said.

Turning to inflation, Pianalto sees inflation averaging around 2% in 2012 and 2013, expecting the pressures of rising food and energy costs to abate over time.


Municipal Bonds May Face Downgrades Following Final U.S. Budget, S&P Says

Standard & Poor’s, the credit rating company that cut the U.S. to AA+, said the federal budget deal may lead to downgrades on municipal credits.

The company, which said earlier this month that states and local governments could remain AAA even after the U.S. cut, said in a report today downgrades could come after reductions in federal funding or changed policy. Ratings changes would come based on "differing levels of reliance on federal funding, and varying management capabilities," and, after the Budget Control Act of 2011, will be felt "unevenly across the sector," S&P said.

"Experience tells me I would expect there to be some downgrades," said S&P credit analyst Gabriel Petek in a telephone interview. "These cuts are coming in addition to the losses of revenue that already came during the recession."

The initial budget cuts would be smaller than the revenue losses during the recession that ended June 2009, he said. States lost $67 billion in aggregate during the 18-month contraction, the report said. The federal government has planned $7 billion in cuts, most of which won’t be implemented until 2013, giving states some time to prepare, Petek said.

S&P will begin evaluating states and local governments starting Nov. 23, when a panel of 12 members of Congress, split evenly between Republicans and Democrats, is supposed to come up with recommendations, Petek said.

Federal Funding

In 2009, when the U.S. introduced economic stimulus, federal spending on average was 24.6 percent of state gross domestic product, the report said. States that had federal funds representing more than 30 percent of GDP included Alabama, Alaska, Hawaii, Kentucky, Maryland, Montana, Mississippi, New Mexico and West Virginia. The state with the lowest percentage was Delaware.

"We do not have immediate concerns at the state and local levels," said Natalie Cohen, managing director and senior municipal-bond analyst for Wells Fargo Securities, in an Aug. 16 report.

The 11,500 municipal bonds already downgraded from AAA in lockstep with the U.S. were a "logical extension," and "not a symptom of a meltdown in the municipal-bond market," she wrote. The debt was directly dependent on federal funding.

S&P mentioned possible changes to the municipal market if tax policy is altered. If tax cuts enacted during George W. Bush’s presidency are allowed to expire, federal taxes would increase and the tax exemption on municipal bonds would be more attractive to investors and drive yields on municipal bonds lower, S&P said.

Alternatively, Congress could limit some of the tax exemptions on municipal bonds to raise more government revenue, which would likely increase interest costs, S&P said.


What else is new…

MOODY'S ANALYST BREAKS SILENCE: Says Ratings Agency Rotten To Core With Conflicts, Corruption, And Greed

A former senior analyst at Moody's has gone public with his story of how one of the country's most important rating agencies is corrupted to the core.

The analyst, William J. Harrington, worked for Moody's for 11 years, from 1999 until his resignation last year.

From 2006 to 2010, Harrington was a Senior Vice President in the derivative products group, which was responsible for producing many of the disastrous ratings Moody's issued during the housing bubble.

Harrington has made his story public in the form of a 78-page "comment" to the SEC's proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody's processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic.

The primary conflict of interest at Moody's is well known: The company is paid by the same "issuers" (banks and companies) whose securities it is supposed to objectively rate. This conflict pervades every aspect of Moody's operations, Harrington says. It incentivizes everyone at the company, including analysts, to give Moody's clients the ratings they want, lest the clients fire Moody's and take their business to other ratings agencies.

Read more:


In the "You Can’t Make This Up" column:

Goldman Sachs VP Changed Name, Now a Top Congressional Staffer

Thursday 18 August 2011

by: Lee Fang, ThinkProgress | Report

Peter Haller, now a congressional staffer, was previously known as Peter Simonyi when he served as a VP to Goldman Sachs. (Photo:

Has Rep. Darrell Issa (R-CA) turned the House Oversight Committee into a bank lobbying firm with the power to subpoena and pressure government regulators? ThinkProgress has found that a Goldman Sachs vice president changed his name, then quietly went to work for Issa to coordinate his effort to thwart regulations that affect Goldman Sachs’ bottom line.

In July, Issa sent a letter to top government regulators demanding that they back off and provide more justification for new margin requirements for financial firms dealing in derivatives. A standard practice on Capitol Hill is to end a letter to a government agency with contact information for the congressional staffer responsible for working on the issue for the committee. In most cases, the contact staffer is the one who actually writes such letters. With this in mind, it is important to note that the Issa letter ended with contact information for Peter Haller, a staffer hired this year to work for Issa on the Oversight Committee.

Issa’s demand to regulators is exactly what banks have been wishing for. Indeed, Goldman Sachs has spent millions this year trying to slow down the implementation of the new rules. In the letter, Issa explicitly mentions that the new derivative regulations might hurt brokers "such as Goldman Sachs."

Haller, as he is now known, went by the name Peter Simonyi until three years ago. Simonyi adopted his mother’s maiden name Haller in 2008 just as he was leaving Goldman Sachs as a vice president of the bank’s commodity compliance group. In a few short years, Haller went from being in charge of dealing with regulators for Goldman Sachs to working for Congress in a position where he made official demands from regulators overseeing his old firm.

Truthout is supported by tax-deductible donations from our readers. Please make a contribution today to keep truly independent journalism strong! Click here to contribute.It’s not the first time Haller has worked the revolving door to help out Goldman Sachs. According to a report by the nonpartisan Project on Government Oversight, Haller — then known as Peter Simonyi — left the Securities and Exchange Commission (SEC) in 2005 to work for Goldman Sachs, then quickly began lobbying his colleagues at the SEC on behalf of his new firm. At one point, Haller was compelled to issue a letter to the SEC claiming he did not violate ethics rules. A brief timeline of Haller’s work history underscores the ethical issues raised with Issa’s latest letter to bank regulators:

– After completing his law degree in 2000, Haller was employed by Federal Energy Regulatory Commission as an economist, and later with the Securities and Exchange Commission in the Office of Enforcement.

– In April of 2005, Haller resigned from the SEC to take a job with Goldman Sachs. He soon began lobbying the SEC on behalf of Goldman Sachs.

– On September 2, 2009, Haller left Goldman Sachs to take a job with the law/lobbying firm Brickfield Burchette Ritts & Stone.

– In January of 2011, Haller was hired to work for Issa on the Oversight Committee. Under the supervision of Haller, Issa sent a letter dated July 22, 2011 to bank regulators (including the heads of the Federal Reserve, FDIC, FCA, CFTC, FHFA, and Office of Comptroller) demanding documents to justify new Dodd-Frank mandated rules on margin requirements for banks dealing in the multi-trillion dollar OTC derivatives market, like Goldman Sachs.

When he took over the chairmanship of the Oversight Committee this year, Issa dramatically shifted the committee’s focus away from its traditional role of investigating major corporate scandals. Instead, Issa has used the committee to mergethe responsibilities of Congress with the interests of K Street and Issa’s own fortune.

In June of this year, ThinkProgress broke the story about Issa’s own complicated relationship with Goldman Sachs. We revealed that Issa purchased a large amount of Goldman Sachs high yield bonds at the same time as he used the Oversight Committee to attack an investigation into allegations that Goldman Sachs had systematically defrauded investors leading up to the financial crisis. This conflict of interests, along with our exclusive story about Issa’s earmarks benefitting his own real estate empire,received coverage in a recent piece by the New York Times.

We also broke a story last month revealing other revolving door conflicts within Issa’s staff. Peter Warren, Issa’s new policy director, maintains some type of financial contract with a student loan lobbying group he led last year, and received a bonus from the lobbying group before leaving to work for Issa. Since joining Issa’s staff, Warren and his colleagues have fought to weaken the recently created Consumer Financial Protection Bureau, the new agency charged with overseeing student loans.

The new revelations about Peter Haller, however, raise even more significant ethical concerns than Peter Warren and other ex-lobbyists working for Issa. Why did Issa hire a high-level Goldman Sachs executive to work on stopping regulations on banks like Goldman Sachs? Haller’s direct involvement in the July letter brings Issa’s ability to lead the Oversight Committee — charged with conducting investigations on behalf of the public interest — into serious doubt.



King World News interviews John Embry on metals' explosiveness

Submitted by cpowell on 09:02AM ET Friday, August 19, 2011. Section: Daily Dispatches

12:01p ET Friday, August 19, 2011
Dear Friend of GATA and Gold:

King World News today interviews Sprott Asset Management's John Embry about GATA's London conference, where he spoke, and the explosiveness of gold and silver. A summary of the interview is headlined "Silver About to Roar Through $50 All-Time High" and you can find it at King World News here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Mexico Mike

Jeff Christian is at it again

Hi Bill!
Nice to see the 'gold expert' Jeff Christian is once again appearing on TV with comments that are at odds with the market behaviour. This interview on BNN is posted on the Kitco website: Gold Outlook with CPM’s Jeff Christian

Note that during the interview Christian states that demand is low for gold coins and retail investors are probably selling to coin stores. He states low premiums as his evidence of this trend, in the range of 3% for one ounce coins. Well according to the US Mint the demand for gold coins remains high. And if I use Kitco as a proxy for the retail dealers, we see the following message posted:

"Due to the worldwide surge in the demand for precious metals, we are experiencing extraordinarily high transaction volumes. As a result you may experience delays in some of our services over the coming days."

It does not appear to me that Kitco is experiencing heavy retail selling of gold coins, or they would not have a delay to round up shipments and meet sales.

As for the actual coin dealer premium, today Kitco is showing one ounce Canadian gold maples selling for $1935, a premium of about 4.4% above the spot price of $1850. Again, this evidence flies in the face of the spin from Christian. We are supposed to believe that smaller investors are taking advantage of the high gold price and selling according to his comments, but in fact it appears the opposite is true. When is Christian ever bullish on gold? When has this guy ever stated its a good idea to be a buyer? Last year during the PDAC in Toronto I stood watching him live as he stated that gold had probably topped and I believe gold was trading around $1250 or so at the time He even pointed out in his interview that he was a gold bull and had been right all the way up. The guy has absolutely no credibility.

What annoys me further is he goes on to describe the options market trading, with market makers relying on black boxes to hedge risk. In his view, the traders buy gold to protect their hedging as the gold price rises. Well that has been true only in the last few months as gold has risen strongly in part BECAUSE THE SHORTS ARE COVERING. This has been rare throughout the gold bull market, as it is well documented that the shorts tend to pile on as the gold price has risen, and in fact one may argue that it is intense selling from the shorts that often capped gold and drove it lower in years past. In a related note, when a trader dumped 50,000 contracts for silver in one minute last month, I wonder if Christian thinks that was some form of risk management or hedging strategy. And I also point out that he never describes the 'hedging' for what it is: shorting. Since the net short interest is usually larger than the total inventory of metals at the Comex, I would say hedging has very little to do with the trade. Price fixing and manipulation is more like it.

So why do the guys that are always wrong on the metals get invited back every time gold or silver go on another run? Nice miss Jeffery.
Keep up the good work...

Thanks MM. This guy Christian is truly weird. He wants to debate me at The Silver Summit. What is there to debate? Two years ago ago at that summit he said that gold (with the price at $980) would average $946 for the next decade. I was a raving bull, as usual. Last year with the price of silver at $23, he was bearish. I was a raving bull, as usual. The guy is shameless.

Hi Bill,
Two charts for you today.

Relative to gold, both the HUI and XAU are reaching extreme under-valuations. Aside from the 2008 panic, we have not seen the HUI:Gold ratio this low since early 2002. The chart also demonstrates the folly of over-hedging as the XAU (which was laden with heavy hedgers) effectively missed the entire bull run that the HUI experienced between late 2001 and late 2003:

About a month or so ago an expert who I respect mentioned that the gold stocks were mispriced by one full standard deviation. I’ve applied standard deviation (Bollinger) bands to a 60 day mean to produce the chart below. The ratio has struggled for about 4 months to regain the -1 (yellow) band, only briefly doing so about a month ago before again careening downward. This is the longest stretch below the low tide marker since the 2008 debacle (and almost as long). The presages a strong move up when it happens (hopefully soon). Note how the yellow line served as strong support for virtually all of 2010 and how the red line served as strong resistance for over half a year prior to the 2008 collapse.


Archive- Hoarders Rush Gold To Federal Reserve Pittsburgh Press, March 10, 1933

Click here: The Pittsburgh Press - Google News Archive Search


profit taking

hello Bill,
quick update on the options open interest for September gold....

On the CALL side there was substantial profit taking for the past < P>

For silver, the CALL selloff was greater and even the total CALL open interest < P not gain, but lost -4.2% last 20 days:>

The next big event will be the December expiry, < P for both metals, biggest open interests lie way ahead.>

For silver at 50, and gold at 2000 strike price, which to reach silver has to advance about 25% and gold only 10%...

wish a nice weekend,
miro, Slovakia

Hi Bill,
You will remember I sent you this LOG GOLD GBP graph before, I thought you might appreciate an update on it.

I have been plotting this hyperbolic curve on this longterm log chart of gold in the UK pound since 2008 and it is still fitting. The curve has recently been tested and proved as the reaction from hitting the it has been dramatic.

By the looks of things we are should be at least at £1800 an ounce by this time next year.

I am sorry that I couldn't make it to the GATA gold rush in London recently, but look forward to the DVD when it becomes available.

MJB last night…

Mining Share Ratio To Gold Back At Pre-QE1 Levels

Critical seventy-two hours for the PM shares and juniors…if they catch a bid by Tuesday, the Geek Squad will be buying our sector hand over fist. I see the Ides of August-Labour Day as the watershed moment for gold/silver equities.

The ultimate paired trade is long ABX (11.7 times earnings) and short GLD (heaven forbid!).


The XAU rose 3.92 to 210.44 and the HUI gained 13 to 581.26.

If you want to get excited about the potential of the gold/silver shares, take a look at this HUI chart. When it closes above 608, it will have completed a massive base which will have the technical power to send this index to the moon, the base will be that HUGE…


Yep, I think MJB is right on. For a change the gold/silver shares exhibited significant strength, right off the bat, even though the general stock market was soft. It has been expressed for some time by some contributors to this column, and by me, the precious metals share market has been worse than dreadful when compared to what the prices of gold and silver have done. It could have been because of general apathy, a hedge fund short side theme play, or something far more sinister. Hard to say. But, here is what I do know…

*It is of great interest that the gold/silver shares would pop like they did today, coinciding with the pop in silver. Both have been unnaturally suppressed, IMO.

*The undervaluation of the gold/silver shares as a group is at an extreme. We are headed back to the mean and then some to the upside.

*Gold and silver are JUST becoming mainstream investment plays. This has to spill into the shares.

*The Café Sentiment Indicator, dead all summer compared to the gold price move, has exploded the past two days. This may be an indicator the gold/silver shares will finally catch investor interest too.

*For every action there is equal but opposite reaction. As lousy as the gold/silver action has been, it will be the reverse on the upside as they take off. The gold/silver share market cap is tiny compared to other markets. The Dow has gone nowhere in a decade, interest rates offer little return, real estate is worsening. The name of the game: GOLD AND SILVER, which we know have a long way to go. Perhaps we are at the tipping point when hordes of investors will want in on the precious metals share sector. Once the tide bursts, it will be a sight to behold. Fortunes will be made quickly. Our tiny market cap sector will not be able to handle all the buying without pushing share prices up dramatically.

*Shorters who overstayed their welcome, will get crushed.

*It will be the momentum trading crowd which will power our sector to MUCH higher levels.

*There will come a point when any stock with gold and silver in their name, precious metals oriented or not, will move much higher.

This is an investment opportunity of a lifetime, handed to newbies on a gold and silver platter. There are so many investors out there who are clueless and don’t know what to do. Please send this MIDAS to as many friends as possible and have them sign up for a free two week trial so they can get a handle of what is going on. Out of sight of mind. Just suggest they read the last four MIDAS commentaries, which will be all they need to know.




-- Posted Sunday, 21 August 2011 | Digg This Article | Source:

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