Precious Metals

It's human nature for us to want to keep our wealth close at hand. Trouble is, you have all your wealth in one jurisdiction, and should that jurisdiction find itself in an economic crisis, all that “diversification” will be seriously at risk. If we’re being really truthful with ourselves, governments pose a greater threat than the average thief, as they can steal legally. Much of the world has gone on a massive spending spree and has, in effect, used a credit card to do so. Soon, that bill will need to be paid and the jurisdictions that are in debt will unquestionably be revealed to be insolvent. The economic crisis, when it hits, will be sudden and will be devastating.

The most pivotal importance of China is that it was the world’s latest financial hope. The yuan devaluation shatters that hope once and for all. The global economy looks a lot more bleak for it, even if many people already didn’t believe official growth numbers anymore. Because we’ve reached the end of the line, the game changes. Of course there will be additional attempts at stimulus, but China’s central bank has de facto conceded that its measures have failed. They just hope you won’t notice, and try to bring it on with a positive spin. Central banks are not “beginning” to lose control, they lost control a long time ago. The age of central bank omnipotence has “left and gone away” like Joltin’ Joe. Omnipotence has been replaced by impotence.

Just 3 weeks after the world could not purge itself fast enough of 'pet rocks', Gold is pushing to one-month highs this morning (at $1120) and Silver just broke a key technical level at its 50-day moving average as USD weakness and global turmoil have seen Precious metals gain for the last few days...

If yesterday it was the turn of the upside stop hunting algos to crush anyone who was even modestly bearishly positioned in what ended up being the biggest short squeeze of 2015, then today it is the downside trailing stops that are about to be taken out in what remains the most vicious rangebound market in years, in the aftermath of the Chinese currency devaluation which weakened the CNY reference rate against the USD by the most on record, in what some have said was an attempt by China to spark its flailing SDR inclusion chances, but what was really a long overdue reaction by an exporter country having pegged to the strongest currency in the world in the past year.

Hedgies are the most short ever... and Commercials are the least hedged in 14 years... and it appears rumors of PBOC buying along with dismal data from around the world has sparked a renewed awareness of another looming QE sending gold well north of $1100 and silver back above $15.

For the last three weeks, gold has experienced something that has never happened before - hedge funds aggregate net position has been short for the first time in history. However, as Dana Lyons notes, this week saw another 'historic' shift in gold positioning as commercial hedgers shifted to the least hedged since 2001... so the 'fast' money is chasing momentum and the 'smart' money is lifting hedges into them.

"The future is unknown and we are not dealing with markets that are free markets anymore...now we have government interventions everywhere. [But] in the last say twelve months, I have observed an increasing number of academics who are questioning monetary policies. That's why I think they will take the gold away and go back to some gold standard by revaluing the gold say from now $1000/oz to say $10,000 dollars. An individual should definitely own some physical gold. The bigger question is where should he store it? because... the failure of monetary policies will not be admitted by the professors that are at central banks, they will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because - they can argue - well these are the ones that do take money out of circulation and then the velocity of money goes down - we have to take it away from them... That has happened in 1933 in the US."

It makes logical sense that China would understate its gold aspirations. If you had the means to acquire hundreds, or even thousands, of tons of gold, you’d want to do so as stealthily as possible in order to avoid tipping off the market. If your strategic objective was to dramatically boost gold reserves over a period of several years, you wouldn’t want to see the price rise – at least not while you’re still accumulating. And if you had no ethical qualms about interfering in the market, you’d want to rig prices lower so you could obtain more ounces. Chinese officials are more than willing to manipulate markets, whether through subterfuge, deceit, or outright force.

Russia is resubmitting its claim of more than 460,000 square miles of the Arctic, including the North Pole, as its sovereign territory, saying it has enough evidence to convince the United Nations that its claim is valid. The Arctic, which is believed to contain as much as one-quarter of Earth’s undiscovered oil and gas, is part of a territorial dispute involving not only Russia but also Canada, Denmark, Norway and the United States. This is the second time Moscow has submitted a claim in the Arctic.

We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history. Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. Deflation and depression are mutually reinforcing, meaning the downward spiral will continue for many years. China is the biggest domino about to fall, and from a great height as well, threatening to flatten everything in its path on the way down. This is the beginning of a New World Disorder…

Back in the 1960s, Alan Greenspan wrote a well-known essay that to this day is an essential read for anyone who wants to understand the present-day monetary and economic system (which is a kind of “fascism lite” type of statism, masquerading as capitalism) and especially the almost visceral hate etatistes harbor toward gold. Greenspan’s essay is entitled “Gold and Economic Freedom”, and as the title already suggests, the two are intimately connected.

It does not matter what you hold your savings in only that it will retain value when conventional paper currencies become a despised possession. When that happens you need the ability to buy the things you need with what you physically have on hand. The question you must answer is what will you have on hand when that day comes.

More and more insiders are warning of a potential systemic event.

Having detailed yesterday the manipulation in the precious metals markets that implies the bear market in bullion is an artificial creation, we thought the following 'rational' chart effort at 'valuing' gold may provide some frame of reference for the level of riggedness occurring...