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Jim Rickards On Silver Margin Changes, Peter Schiff On A New World Gold Standard
A couple of luminaries share their perspectives on recent developments in the precious metal space. First, we have Jim Rickards sharing his thoughts on what today's Comex margin hike means for trading. And second, and just as important, is Peter Schiff, who grades WB president Robert Zoellick's call for a new gold standards, and its implications for the future. Both are as always insightful and enlightening.
Jim Rickards - Three’s Company, Silver Margin Change
There's been a lot of buzz about today's price action in gold and silver. Beginning with the Monday push upwards based on the Zoellick op-ed in the Financial Times, the market surged upward through most of the day today and then hit a serious air pocket with gold falling 2% and silver falling almost 5% in a short period of time late in the trading day.
On a technical basis, there's nothing surprising about that; we've seen similar moves before and I expect to see them again. The overall trend has been upward with higher highs and higher lows. The market seems to find a strong bid at progressively higher levels even after sharp corrections. Nothing too disturbing there and nothing to indicate that primary trends are not still intact.
What was noteworthy was the catalyst for the pullback, specifically an increase in margin requirements for silver futures contracts. There was no comparable change in gold futures margin but as often happens in markets there was instantaneous contagion from silver to gold notwithstanding the different circumstances. Again, no surprise that the markets correlate to a great extent even when the news only affects one market or the other.
This is a pointed reminder to the readers and listeners of King World News and something we have discussed before. Most markets consist of two parties, the buyer and the seller. But in futures markets there's a third party in every trade which is the exchange and more specifically the rule making bodies and margin setting panels on each exchange. They act not in the best interests of buyers or sellers but in the best interests of the exchange itself and its statutory duty to maintain orderly markets. Of course, the word "orderly" can be in the eye of the beholder. What may be an "orderly" price spike to a long may be a "disorderly" rout to a short. Either way, the exchange has the last word. They have many tools at their disposal. They can increase initial margin (what you put up when you open a contract) increase the frequency of variation margin (make you post intra-day instead of end of day) and require "trading for liquidation only" which means longs can go short and shorts can go long but no one can expand a position or increase the open interest. Finally, an exchange can suspend physical delivery and allow offsets and rolls only. All of these rules have been invoked many times and will be again.
And Peter Schiff:
On Sunday, World Bank President Robert Zoellick wrote a remarkable article in the Financial Times of London. (FT subscribers, click here to read. Others, click here for a summary.) He called for a renegotiation of the global monetary order and - incredibly - the introduction of a new gold standard. In response, gold broke $1,400/oz on Monday.
This is a tremendous breakthrough for gold investors. For the head of the World Bank to make such a statement is unheard of in modern times. Among top bureaucrats and their economist friends in academia, the gold standard has always been a taboo - mostly because it prevents governments from using the "inflation tax" to finance military expeditions and entitlement programs. So, for such a high-ranking official to publicly express support for gold-backed currency, the dollar system must be nearing its end.
In fact, since the Fed's announcement last week of a new round of stimulus using $600 billion freshly printed dollars, world leaders from Brasilia to Tokyo have been protesting like never before.
This may be remembered as the moment the world rose up and said, "enough!"
While Zoellick danced around the edges of calling for a true gold standard, I believe that the transition is already taking place. Investors and foreign central banks are re-monetizing gold as they move their savings out of the dollar. In Zoellick's words: "Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today." That's why gold is breaking one record after another, and will continue to do so for the foreseeable future.
If gold were officially remonetized, the price would have to be about 47 times higher to pair central bank holdings with the assets of the global banking system (according to 2008 estimates from the McKinsey Global Institute). To look at it another way, central banks would be in the market for about 42.6 million ounces of gold to back up all the fiat money in circulation. Martin Wolf, columnist for the FT, asserted that a new gold standard "would generate huge windfall gains to holders of gold."
It has only been since 1971 that the world money system has functioned without a gold-backing. I believe this experiment is rapidly coming to a close. Commentators are right when they say there is no currency ready to take the dollar's place as the global reserve - but there is a metal with a great track record that has been waiting patiently in the bullpen.
It is hard say when the Fed's monetary Ponzi scheme will fall apart, but many of its biggest "investors" are wisening up. I strongly recommend preparing for a dollar collapse before it's too late. When the president of the Washington-based and Washington-funded World Bank speaks out against the dollar system, what more warning do you need?
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Gold and silver may go to the moon. Or maybe not.
The trade got crowded, and a lot of the late buying came on margin, thus the quick drop on the announcement of very reasonable margin changes. If folks here argue that IB leverage was absurd and an accident waiting to happen, then the same has to be said for futures market leverage. Sure when folks were buying on margin and driving the price up the last few days it was great fun, but one cannot praise that then complain when the margin buyers liquidate.
Another finite commodity is oil, except unlike gold and most of the silver in existence, oil has a definite use and it is destroyed via that use. The world can live with no gold and a lot less silver; the world cannot support 7 billion souls without oil. Despite that, after oil shot up to $147/bbl, this rare and essential commodity found a way, despite calls for $200/bbl, to fall 75%.
Perhaps all of your arguments about the death of fiat are correct. They certainly make sense, though they would have made almost as much sense a decade ago. On the other hand, fiat could last another hundred years. Nobody knows, though everyone has an opinion. If gold and silver find a way to do what an essential commodity did (fall 75% in a few months), let us not have complaints about manipulation. For many people (among them Paul Tudor Jones) gold is not a religion, but merely a trade, and their actions will have an impact on price, both up and down. People on ZH tend to be geniuses on the way up and victims on the way down.
Wow, precious metals is Tulipmania:
http://mises.org/daily/2564
Silver and gold have uses, industrial and as coin (as they are the ultimate store of value, unit of account, and medium of exchange-satisfying the rubric better than any other token on earth) and are destroyed as well. The world today, being technology, can not survive without gold and silver. The reason that the price of silver is revaluing is strictly because oil moving at this rate (the rate of silver's gain) would pinch a hole in food prices. The two correlate because oil producing nations do not want to hold FIAT, they want one tangible/industrial good for another. Gold and silver satisfy this.
Most of the gold mined since humans dug the first hole still exists. Precious little is used for electronics relative to how much exists, and since the digital camera age, silver's use has dropped. Yes, both have long been the first choice store of value, but they are not essential to survival.
Without petroleum, one British think tank estimate calculated that the Earth could support no more than 1.5 billion people. If all the gold and silver disappeared tomorrow, few would die. If we used the last drop of crude oil, billions would die.
My point was that the price of an absolutely essential commodity still found a way to fall 75% in a few months, so it is conceivable, no matter how unlikely or illogical it might seem, that gold and silver could do the same.
I do not think this will happen, but I need to be open to the possibility.
Roubini to Goldbugs... "Spam is a better hedge against inflation than gold: you can eat it and it lasts 1000 years. Gold is, as Keynes aptly said, a barbarous relic."
" there were more financial crises & extreme economic depressions during the classic Gold Standard than under any fiat money regime."
Why gold standard won't work: http://m.cnbc.com/us_news/40088925
I respect Roubini, but I still see gold as the alternative shelter currency albeit tied to others risks like leverage... comments?
That's right, and precious metals gave rise to Tulipmania
http://mises.org/daily/2564
Roubini eats shitcakes for dessert. He has no understanding for what a i) store of wealth is and ii) what a medium of exchange is. He and many others have been convinced by the msm and by themselves that IOUs are worth more than their weight. He spews talking points because that is what he is payed to do. He says, "Gold is in a bauble" without conviction and without citing why. He is the worst shill, a deflationista fear monger who gives no alternative other than the perceived FIAT fantasy he lives.
Okay. I hear ya. But - man did that guy get it right pre-2008. His shit-rattling in my ears for years made me sell out of the market in 06 and even dump a second piece of real estate. He was the lone wolf. I still defer to him but not married. I think he dislikes the gold standard talk more than he believes gold is in a "bubble", which colors his testimony on gold overall. I tend to agree pre-08 was more a failure of the U.S. democracy to oversight and regulate its institutions like banks and the fed, more than it is a failure of the concepts, standing alone.
I think he believes that too. So, he conflated gold standard folk with judgments on gold's price. I don't see them as necessarily tied together. You give me something ELSE to believe in, fine. I'll wait and might even support a currency plan. But - until then, I like gold. It might be a transition. A long one or not, who knows... but it is what it is, an alternative international currency while everything else looks shitty. If he thinks deflation is the game, then he think dollars are a better store of value relative to gold, but that doesn't answer the deficit/debt question.
I agree but, one aspect I've noted is that gold and silver and the other metals that constitute an alternative to currencies get Very Little play in any of the U.S. Newspapers (if you can call them that), I mean close to ZERO.
So anyone who argues against Gold, Silver and other metals is featured in the Press.
Not a coincidence.
Is R-Bini a shill? No, but on the other hand his article at this time, must be most appreciated by TPTB. Don't you think?
So he will accrue special (house credits) credits for his stand, especially NOW in view of the stregth in the group.
I'll go with that. Makes sense. He's now very much into his own popularity and his carte blanc, a little too much recently. He's capitalizing, no problem but will he bend the facts to his wishes and doctrine? Hell yeah.
Roubini was pulled from the closet to make main stream media noise because the head of the World Bank mentioned that a new gold backed currency might be needed to replace the dollar.
Expect a lot, lot more talking heads to appear before the fiat dollar crashes and burns...All of them will tell us how bad the gold standard/gold backed currency is/was.
The pure fiat currency experiment has allowed many to use credit/pulled forward demand to live at a higher standard than they would have otherwise enjoyed. It might have worked forever if the US Gov could stop spending more than it takes in via taxes/fees. But, no government under fiat has lived within it's means. Now the US has an unsolvable debt problem, both in the private and public sectors.
Human nature is the one thing that has not changed.
The pure fiat currency experiment has allowed many to use credit/pulled forward demand to live at a higher standard than they would have otherwise enjoyed.
so true. On the one hand, I like a world where a poor smart kid can get credit. On the other hand, what you said...that's my biggest values problem with it.
I agree with you.
It's not what Roubini thinks that counts. It's what the Chinese, Asians, and Middle Easterners, et.al., think that counts. Remaining Western confidence in fiat currency is irrelevant if the major players don't want it. Just a matter of time, and it's running out.
I think the long knives for gold are out because they want to delay the inevitable as long as possible for advantage. The East and West are just negotiating terms and conditions how it will play out.
.
"Spam is a better hedge against inflation than gold: you can eat it and it lasts 1000 years. Gold is, as Keynes aptly said, a barbarous relic."
...
I hate to think what kind of barbarous relic that spam would be after 1000 years.
Traders piled into silver long positions and got whacked today.
A couple of years ago traders piled into oil long positions and got whacked.
Apples to oranges comparison. Who has the storage facilities to take delivery of a million bbls of crude oil? OTOH, taking delivery of the equivalent amount/value of gold is not nearly as difficult.
PMs are also easily portable for trips to the local market. Try rolling a couple of drums of oil to the local market.
The ability to take physical delivery, and relative scaricity, of a commodity are the keys. Without having these inherent attributes gold/silver would not been used as money for thousands of years.
Every fiat currency experiment has come to dismal failure. Give me a reason that this one will be successful.
I tried hoarding barrels of crude at my house for years, but getting a permit to refine it in my backyard was a bitch, and my wife complained so much I just said to hell with it.
She is much happier now with our gold in a suitcase at my mother-in-law's.
"She is much happier now with our gold in a suitcase at my mother-in-law's."
Beware mothers-in-law. A worn cliche but "blood is thicker than water". If push comes to shove you will be odd man out of a triumvirate. I speak from experience.
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"This is a tremendous breakthrough for gold investors. For the head of the World Bank to make such a statement is unheard of in modern times."
That sounds too responsible. If something is too good to be true it probably is. The only thing I see any member of a higher authority do, with consistency, is go from bad to worse. Perhaps like a global currency?
http://mises.org/daily/4620
SZ:
I fully agree. Something does NOT feel right here. Zoellick is one scary MF, definitely in the wrong circles at the wrong time during the Cheney Presidency.
I too fear something like a global currency play. It will need to get much worse first, then the sheople may beg for it to be implemented as the way to save the global economy from war and famine
Give power back to the holders of gold? Right now IMF is #3, as they still accept payment on "loans" in bullion.
As your probably well aware, the IMF reportedly sold tonnage earlier this year to generate funds "to help the poor". When ever the IMF or World Bank sells or leases gold, esp. to "help the poor countries" --(An organization that had Wolfowitz as head for a short time) -- I feel queasy.
So gold and silver 'crashed' to what it was a few days ago, and this is some sort of panic?.. so say the gold haters. Haters because they missed the boat and wont get on board because they think it is too expensive...at 1100 1200 1300 1400 1500 1600
When I look back in a year or two 1400 is going to seem a bargain price. And how can you say something has crashed, or panic selling when it is the Cartel manipulating the shit out of it?
The same haters would be screaming murder if Equities were manipulated down in the same way.
Well, he must have rattled someone's cage, since he had to go out and clarify.
http://af.reuters.com/article/metalsNews/idAFSGE6A904Z20101110
JPM has raped itself courtesy of an extremely stupid Blyth Masters. Arrogance of banksters writ large.
They are not fighting against companies and speculators this time. Now its also sovereign nations and new Asian billionairs with very deep pockets accruing gold and silver. China could bankrupt JPM if it decided to go heavy in on silver. Cept they wont get delivery and will blow their money.
And like a adicted gambler in too far the Manipulators will now try to recover losses by doubling up and doubling up, digging deeper and deeper holes. One hopes.
APMEX doesn't have smaller lots of 2010 silver eagles. Did they run out, or does this signal something else? Pure speculation: They were told that silver would be walked down. APMEX probably realizes that such manipulation would drive investor demand into physical. Last chance to get silver cheap. So, rightly...they pull the product from the shelf. Paper manipulation can proceed without the consequences of lowered bullion prices. It will be interesting to see if they re-introduce 2010 silver eagles once paper manipulation is lifted.
They have them. Or at least offer them on their website.
http://www.apmex.com/Product/57010/2010_Silver_American_Eagles___Brilliant_Uncirculated.aspx\
They regularly run out of silver products. I have seen days where there are no bars or rounds smaller than 100oz. They eventually re-stock.
I have no problem with what the exchanges did. With the way silver is moving it's reasonable to raise the margin.
I do have a problem with how they did it though. I have reuters and bloomberg and didn't see any press release until at least an hour (more like two) AFTER some large players clearly had the information and front ran the news. This is as blatant as it gets. Why aren't more people talking about this? Or did I miss an earlier press release?
Literally millions of dollars were stolen from silver traders/investors because of the exchange selectively leaking the information.
JPM and other big manipulators live for moments like yesterday. If one is betting against a TBTF bank that is backed by Fed printing presses, one better have some very deep pockets.
Do not expect 'fair' to enter into JPMs or the exchange's calculations.
Slow physical is the safest way to play the game. Hitting a home run with margin against JPM/Fed is the quickest way to strike out.