Precious Metal Pandemonium - Silver Spikes Limit-Up, Gold Surges As China FX Basket Hits Record Low

Tyler Durden's picture

Update: Silver just exploded above $21 - up almost 8% - its biggest single day surge since September 2013. Silver is limit up on SHFE as Gold is also surging back towards Brexit highs near $1360... China's CFETS Renminbi basket just hit a record low..

All of this is happening as China's currency collapses to a record low since it began being published against a broad basket of majors...

 

Notably silver's strength has unwound all of gold's post-QE3 gains...

*  *  *

As we detailed earlier, following silver's best week since August 2013, dramatically catching up to gold's recent performance, it appears, despite the volumeless meltup in stocks, that Brexit has sparked huge demand for the safety of precious metals.

 

For a second straight week, funds boosted their net-long futures and options positions in the two metals to the highest since the data begins in 2006.

 

Money managers have been piling in on demand for havens and speculation that interest rates will stay low as central bankers around the world struggle to contain the economic fallout from the U.K.’s vote to quit the European Union.

But what happens next?

 

As a reminder, on April 21st PIMCO's Harley Bassman suggested "The Fed should monetize gold"...

In "Rumpelstiltskin at the Fed", Bassman goes down the well-trodden path of proposing Fed asset purchases as the last ditch panacea for the US economy, however instead of buying bonds, or stocks, or crude oil, Bassman has a truly original idea: "the Fed should unleash a massive Fed gold purchase program that could echo a Depression-era effort that effectively boosted the U.S. economy."

He is of course, referring to FDR's 1933 Executive Order 6102, which made it illegal for a citizen to own gold bullion or coins. Americans promptly sold their gold to the government at the official price of $20.67, with the resulting hoard of gold was then placed in Fort Knox.

The Gold Reserve Act of 1934 raised the official price of gold to $35.00, a near 70% increase. It also resulted in an implicit devaluation of the US dollar. As Bassman points out, over the three years from January 1934 to December 1936, GDP increased by 48%, the Dow Jones stock index rose by nearly 80%, and most salient to our topic, inflation averaged a positive 2% annually, despite a national unemployment rate hovering around 18%.

In short, a brief economic nirvana which was unleashed by the devaluation of the dollar confiscation of gold. In fact, we have frequently hinted in the past that another Executive Order 6102 is inevitable for precisely these reasons. However this is the first time when we see a "respected economist" openly recommend this idea as a matter of monetary policy.

Bassman says that the Fed should "emulate a past success by making a public offer to purchase a significantly large quantity of gold bullion at a substantially greater price than today’s free-market level, perhaps $5,000 an ounce? It would be operationally simple as holders could transact directly at regional Federal offices or via authorized precious metal assayers."

What would the outcome of such as "QE for the goldbugs" look like? His summary assessment:

A massive Fed gold purchase program would differ from past efforts at monetary expansion. Via QE, the transmission mechanism was wholly contained within the financial system; fiat currency was used to buy fiat assets which then settled on bank balance sheets. Since QE is arcane to most people outside of Wall Street, and NIRP seems just bizarre to most non-academics, these policies have had little impact on inflationary expectations. Global consumers are more familiar with gold than the banking system, thus this avenue of monetary expansion might finally lift the anchor on inflationary expectations and their associated spending habits.

 

The USD may initially weaken versus fiat currencies, but other central banks could soon buy gold as well, similar to the paths of QE and NIRP. The impactful twist of a gold purchase program is that it increases the price of a widely recognized “store of value,” a view little diminished despite the fact the U.S. relinquished the gold standard in 1971. This is a vivid contrast to the relatively invisible inflation of financial assets with its perverse side effect of widening the income gap.

And it seems someone is front-running that moment...

Source: Bloomberg

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arkel's picture

Silver cut through that $19/20 resistance line like butter.
Although I always get nervous when you have so many longs piling in.

BaBaBouy's picture

SILVER already up .50 ...

Could be Asian buyers but who knows...

Somebody noticed that SILVER is mined at 10 ozs to 1 Of GOLD, not like 75 To 1 ...

santafe's picture
santafe (not verified) BaBaBouy Jul 3, 2016 9:09 PM

Would have been higher if they weren't manipulated. Still, no surprise there as Money itself has become the Problem.
https://goo.gl/IoiSjv

BaBaBouy's picture

NOT MUCH SILVER AROUND in the grand scheme of things ...

The SLV SILVER ETF Holds a Paltry $6.5B Fiats worth of Physical.

JUST One Billionaire Like Buffet could buy that 10 Times over...

ALSO GOLD/SILVER Miners are exploding... Check out the run of CDE ...

ARE Some UK Buyers converting their endangered FIATS To PM's ??? Maybe ?

Or Asia/Russia ??? Or All of the above and Others .?. More Likely ...

AGAU's picture

My dealer is out of stock, or just not selling ... whatever, I don't know but this is the first time that's happened. I'm looking on with interest, my explanation for what's happened is that enough people in the world have got smart and figured out the deal and TPTB have disintegrated because of this. I honestly think that once the shakles have been thrown off we will achive a much more enjoyable lifestyle and 'SHTF' will actually turn out to be amazing....and so forth and so on.

erg's picture

Silver is limit up on SHFE.

Ah yes, the 'ole Shit Hit Fan Exchange.

Eat it!!

Theosebes Goodfellow's picture

Good to see you around, Smith. I checked out your blog. I see you're still with the Dragon Lady. Has that gone completely passive-agressive? Is she trying to murder you with spicy food? Be well my friend.

Theo

Calmyourself's picture

He should be helping his kids with their math instead of trolling. 

Proofreder's picture

B. S.

Detail:  A suspicious person was approached by Saudi security guards in the parking lot of Fakeeh Hospital, adjacent to the heavily fortified US Consulate in Jiddah, KSA whereupon he detonated his suicide vest.

And once again, bullshit headlines impose a false narrative on actual events - brave Saudi guards protecting the 'mercian state against a terrorist bomber at the Embassy in Saudi Arabia.

No one seems suprised any more at the slant evidenced in most rewrites of an AP story containing the facts in the first sentence.

Been 12 years since al-ciada attacked the Consulate, killing five local employees and four guards over a three hour battle on the compound.  Security has since improved, apparently; there was no entry into the consulate or any building, and the parking lot escaped injury except for a small crater, and some cars were lightly damaged.  

Saudi blown to bits in hospital parking lot - two police wounded with minor injuries.

holocene's picture

OMGOSH and now through $21!!! Up 6.5% in four hours!!! Hang on!!!!

holocene's picture

Ooooooh. Someone isn't happy and just sold who knows what six minutes ago dropping it 65c in a minute! (21.05 to 20.40). Keep trying... That game don't work no more...

SilverRhino's picture

And the monkey hammer from 21.05 to 20.28 just happened.

SilverRhino's picture

And it's already back up to 20.44.   

Squid-puppets a-go-go's picture

whats the bet they 'forget' to apply the limit down if that line should be reached (crossed) ?

PlayMoney's picture

The usual 2:15 am monkey hammer used to send it negative. Now it drops it to 3% up. Those near record shorts the bullion banks got has to be chaffing that azz. They must be hedging with miner stocks.

Mr. Bones's picture

Limit up, only for PMs.  AAPL would not have this problem.

I MISS KUDLOW's picture

Hyperinflation is already well under way,,,,its being disguised by an ultra low gasoline pump price,,,,,,anytime now all this extra money has to flow into the tiny little gold market so its not weimer,,,,,i love the sound of water starting to flow from too many holes in the dyke

 

We may need a call to the bullpen to get get Biden as our next president,,,,the hillary thing aint going to work and as much as i love trump i just dont think he can be president nor do i think he REALLY wants it,,,,,,,

Mcguyver's picture

Agreed - I feel positioned nicely and ready to rock. Best part is I am a miner who works conventional methods (narrow vein gol and silver) and my trade took a beating for years because of regulations and protectionism .... Now mines are booting up all over the worlds shit holes and I have work available. Onward to the collapse.

ebworthen's picture

The paper markets for PM's need to be destroyed.

Phony Baloney.  If you don't hold it you own it.

sessinpo's picture

Looks like I nailed another one. I knew that we will see limit up days and that physical supply would be running out.

http://www.zerohedge.com/news/2016-07-01/5-million-unemployed-spain-stil...

http://www.zerohedge.com/news/2016-06-30/silver-surges-21-month-highs-go...

I wasn't joking. Around the brexit situation, dealers were having the busiest time ever. I've been on ZH for about 5 years now and over that time I had been bearish silver all that time until this last February when I started stacking in mass. I hope everyone got some. I'm already able to cash out some and get my original investment back.

Rusty Shorts's picture

 

 

ECONOMIC THREAT LEVEL

Harmonious. :)
Content. ;)
Indifferent. :-
Discontent. :/
Almost fucked. :( --------- YOU ARE HERE --------
Totally fucked. :0

Takeaction2's picture
Takeaction2 (not verified) arkel Jul 3, 2016 9:16 PM

The monkey hammer seems to be gone?  What is up...I am so used to tese spikes being whacked down.  Maybe all of the big banks are now on the other side of the train so they are going to let it rip?  I have no clue...just know that Silver is way too cheap.  

Tall Tom's picture

 

 

 

 

A COMEX Margin Requirement Hike on Tuesday will monkey hammer it down.

 

You can always count on Jeffery Christian.

BadDog's picture

Absoutely, a margin hike is on its way.  At 100% it will be a physical market only and then physical pm's will disappear into hiding as Greshams law comes into play.  If you don't have it by now, it's going to be hard to come by within a few weeks.

DeadFred's picture

Would love to know when the bullion banks have to cry uncle. That and when/if GLD and SLV get outed as the frauds they likely are. THAT will be the trade of the century if one were to have an inkling.

NotApplicable's picture

Why I'm quite sure that each and every ounce is accounted for...

In the form of Comex receipts.

in4mayshun's picture

One aspect I haven't heard about yet is that miners DO have to turn some kind of profit eventually. How the hell do you make money on mining silver at $12/oz??? If one thinks about the increase in business costs the last three years, it has been considerable. At some point that has to flow down to the all-in cost of digging silver out of the earth. It seems reasonable to assume that silver has to re-balance to $25-30/oz just to keep mining feasible. Sure The banks can keep whacking the price but at some point they'll run out of sellers.

Mcguyver's picture

As a miner I can answer that - more than one miner I know of is not selling just producing ... They are not ignorant to supply and demand

38BWD22's picture

 

And that is extremely interesting.  Mines keeping even some production off the market leaves LESS for everyone else.

But, since (in gold) the stock:flow ratio is so high, the effect will likely be marginal.

Unless demand kicks in big time.

We will see.

 

Tall Tom's picture

 

 

 

 

Forward selling. Promising delivery at today's prices tommorow.

 

That is another Bank shorting scheme. They make the deal that they will keep the company afloat with loans collateralized by Silver in the ground if they receive the metal in the future at the price offered today. That is one reason that Banks are interested in keeping prices down. They like it on the cheap also.

 

No.  They willnot run out of sellers. They have the miners as guaranteed sellers...to them. It is a form of enslavement.

aurum4040's picture

You spoke too soon, monkey hammer will be around for a while yet my friend.

DeadFred's picture

The critical cue in this market is what happens AFTER the monkey hammer hits. How many new contracts are being issued now to try to cap this explosion? This stuff goes on their balance sheets and for gold they will show $20 million in losses for every dollar the price goes up, using last weeks data. After tonight is it $30 million? then $40 million. The monkey hammer only works if they can turn the crowd. After Brexit will they be able to? How deep is their tolerance for pain? With .GOV backing it will be very deep but not infinite.

ZH Snob's picture

it's so weird.  once again, it's like the men behind the curtain have fled.  like brexit scared them all back into the holes they crawled out of of one creepy moonlit night.

Troy Ounce's picture

 

 

Don't count on it, snob.

The manipulators are still in charge. Everything you see is bullsheit.

We must wait for revolt and blood.

ZH Snob's picture

I dig your rosy outlook.

what must be, must be, I guess.

BobEore's picture

Lol.

them 'men behind the curtain' haven't gone anywhere - in fact, there's a new spring in their step, as they watch the next phase of the master plan unfold relentlessly.

Yeah - the part where metals skyrocket/pm analysts backslap themselves silly, and the usual suspects such as Soros make hay with the short positions on Deutsche Bank and long one's on gold. Same ol same ol.

The only thing that will be fleeing soon is the consensus trance storyline that will be put to the test to explain this new phase of   manipulation, err, activity -and found sorely lacking.

Manipulation - it's something that works only one direction you see! It's just "economics 101 - or sumthin!

You dont' say!

Tough Times's picture

And this is only the beginning, especially with endless QE coming soon to Europe:

https://toughtimessite.wordpress.com/2016/07/04/endless-qe-in-europe/

 

Canadian Dirtlump's picture

I love it, but point blank... look for a margin hike this week. If only to allow the cartel buttplugs to cover some shorts. I can't believe that this hasn't been mentioned already. No doubt. They'll say "too far too fast, put the breaks on to dissuade speculation"

FX223's picture

If your silver is the printed kind then there is probably danger ahead.. this is a trap.

 

If your silver is the stacking kind...then keep dollar cost averaging and wait for the paper to get killed and BTFD. 

 

keep stacking my friends.

tarsubil's picture

I only care about physical so price hikes are not good news.

American Psycho's picture

I agree withe you tarsubil.  It's nice to see a bump in price, but if you don't expect to ever sell, then the increase price means nothing.

ATM's picture

Who the hell can stack that much silver? It's too B-I-G.