This page has been archived and commenting is disabled.

The US Money Markets And The Price Of Gold

Tyler Durden's picture


Submitted by Martin Sibileau from A View From The Trenches

The US Money Markets And The Price Of Gold

What do USD money markets have to do with gold? Money market funds invest in short-term highly rated securities, like US Treasury bills (sovereign risk) and commercial paper (corporate credit). But who supplies such securities to these funds? For the purpose of our discussion, participants in the futures markets, who look for secured funding. They sell their US Treasury bills, under repurchase agreements, to money market funds. These repurchase transactions, of course, take place in the so-called repo market.

The repo market supplies money market funds with the securities they invest in. Now… what do participants in the futures markets do, with the cash obtained against T-bills? They, for instance, fund the margins to obtain leverage and invest in the commodity futures markets.
In summary: There are people (and companies) who exchange their cash for units in money market funds. These funds use that cash to buy – under repurchase agreements - US Treasury bills from players in the futures markets. And the players in the futures markets use that cash to fund the margins, obtain leverage, and buy positions. What if these positions (financed with the cash provided by the money market funds) are short positions in gold (or other commodities)? Now, we can see what USD money markets have to do with gold!
Let’s propose a few potential scenarios, to understand how USD money markets and gold are connected:
If money markets have liquidity, there is abundant cash to buy US Treasury bills (i.e. the repo market is more liquid), and to finance those who short commodities in the futures markets. This is negative for the spot price of gold. If money markets lack liquidity, shorting commodities becomes more difficult. This is positive for the spot price of gold.
If the US Treasury bills become riskier, on the margin, the incentive to buy them will be lower and either money market funds will reallocate the cash towards commercial paper or they will face redemptions from fearful investors. The repo market will then lose liquidity. This is positive for the spot price of gold.
Alternatively, if the rate paid by the US Treasury increases AND the risk of these bills is NOT perceived to be higher (something possible in these rigged markets with doubtful ratings), investors will be more eager to place their cash with money market funds (falling prey to an illusion) and the liquidity of the repo market will increase. This is negative for the spot price of gold.
Why do we bring this up? To be honest, it is not the first time we do so. We have introduced the topic in our letters of July 2nd, July 30th and August 6th. We bring this up today because we want to raise awareness on some measures under consideration by the US Treasury and the Federal Reserve, that will have a direct impact on the USD money market, and hence, the repo market and the price of commodities. These policies are:

1)         Minimum Balance at Risk (MBR): Kills USD money markets = lowers liquidity in repo market = Positive for gold

This has been in the works since 2010, but is only now taking shape. On August 15th, Bloomberg had a post on this under the title “Fed’s Dudley backs money fund rules to protect US Economy”. If enforced, there will be a minimum balance, which holders of money market fund units will not be able to redeem, but after a lock period. Effectively, under distress, redemptions will be restricted. As well, there are other potential measures, like floating the funds’ Net Asset Value and capital requirements. But the MBR one is the most relevant: It will make market participants see money market funds as a risky investment.
Personally, we do not see the motive behind this move because if, as some deduce, policy makers in all honesty believe that the savings currently in these funds will be reallocated as a result to bonds or stocks (boosting asset prices), they are being naïve at best and utterly idiotic at worst. Whoever invests in money market funds does so to make an extra buck on liquidity. If he/she cannot make it, then the funds will simply remain in a chequing account. Would banks use these funds in the chequing accounts to lever up their investments? Into what? Money market funds? The recent experience in the Euro-zone (discussed further below) shows it is not the case. Banks will not lend more just because they have more deposits available.
In any case, this policy would drain liquidity from the repo market and financing positions in the futures markets (i.e. shorting gold, for instance) would be more expensive. This would be positive for the spot price of commodities.
2)         Introduction of Floating Rate Notes by the US Treasury: Positive for USD money markets = Negative for gold in the short-term, positive in the long-term

We introduced this point in on August 6th, after reading a series of articles at Floating Rate Notes are variable rate notes. If floating rate notes were issued and interest rates rose (either driven by the Fed’s policy or by the market) they would have a strong bid from money market funds, bringing liquidity to the repo market. This could continue supporting speculative shorts in the futures markets, which would be negative for spot commodity prices in the short term.
However, if these rates are seen to be sticky, the Fed would have to intervene, targeting rate caps. But to guarantee the cap on the price of a good, one has to offer unlimited supply of that good. If the Fed had to guarantee a cap on NOMINAL interest rates, it would have to offer unlimited supply of US dollars. It is now easy to see why, in the long run, issuing floating rate notes would therefore be positive for the spot price, in US dollars, of commodities.
3)         Zero interest on excess reserves: Would kill USD money markets (just like it did in the Euro zone) = lowers liquidity in repo market = Positive for gold

After the July 5th decision by the ECB, to pay nothing on its deposit facility, Euro-zone banks’ deposits at the European Central Bank plunged (see below, source: Bloomberg), by the tune of EUR484BN!!!

Did this money go to stocks? No! To bonds? No! Where did it go then? To a chequing account at the ECB. In the process, the Euro money markets died and the repo market suffered heavily. We had warned here that this measure would only make Euro banks less profitable and hence, riskier.
Because commodities are not traded in euros, this has not impacted the commodities market. But should a zero interest on excess reserves policy be implemented in the US dollar zone, the effect on the repo market would be to drain liquidity, a negative for futures markets and a positive for spot commodity prices.
In conclusion, there are currently three potential policy measures that would have a relevant impact in the commodities markets. Forewarned is forearmed.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 08/18/2012 - 22:22 | 2717431 Money By Trading
Money By Trading's picture

What a great segue into my weekend report!

Sat, 08/18/2012 - 23:32 | 2717546 boogerbently
boogerbently's picture


Thank You,

Martin Sibileau used an incredible amount of time, energy, words and tell us NOTHING.

Like one of those 3 hour movies that stops 3 minutes short of completion and YOU are supposed to fill in the ending.


Sun, 08/19/2012 - 00:41 | 2717624 Confundido
Confundido's picture

But Martin is Austrian and Austrians don't give forecasts, they simply do aprioristic deductive reasoning. For endings, you may wanna read keynesians, like the Bernanke. They always have something to tell you and it takes them only seconds to write it.

Sun, 08/19/2012 - 07:47 | 2717813 long-shorty
long-shorty's picture

"What if these positions (financed with the cash provided by the money market funds) are short positions in gold (or other commodities)?"

What if I was married to four supermodels simulataneously?

What ridiculous crap.


Sun, 08/19/2012 - 09:16 | 2717876 Confundido
Confundido's picture

Good point, guess is though that the chances thay you marry four supermodels simultaneously are far, far, far more remote than those of having futures markets positions funded from cash secured in the repo market...don't you think?

Sun, 08/19/2012 - 10:03 | 2717921 SafelyGraze
SafelyGraze's picture

as most of you know, I am married to four supermodels

Sun, 08/19/2012 - 11:25 | 2718008 Tinky
Tinky's picture

Mitt Romney approves of this arrangement.

Sun, 08/19/2012 - 11:54 | 2718052 gmrpeabody
gmrpeabody's picture

Pretty soon, everybody is married to one, if not two or three supermodels. Then the value goes down....., no, ?

Perhaps they could be used in short positions...

Sun, 08/19/2012 - 13:45 | 2718355 mick_richfield
mick_richfield's picture

Then you had better be a lesbian.

Homosexual marriage is OK in the USSA.  Polygamy is not.

It has apparently not occurred to homosexuals that there is any reason why they should argue for marriage liberalization for Mormons, as well as for themselves.


Mon, 08/20/2012 - 01:18 | 2719819 donsluck
donsluck's picture

Please let me know when something occurs to heterosexuals.

Sun, 08/19/2012 - 01:19 | 2717665 Missiondweller
Missiondweller's picture

Read it again, more carefully. Its a little hard to follow but it does tell you something.

Gold and silver could go parabolic if JPM lacks the liquidity to keep their shorts that have kept PM's down.

Sun, 08/19/2012 - 03:02 | 2717704 old naughty
old naughty's picture

Yes, it does. Fuzzy logic (eh graph) aside...

Perhaps would drive you to read his other 3 posts mentioned, no?

Sun, 08/19/2012 - 08:21 | 2717833 PontifexMaximus
PontifexMaximus's picture

Forget about it, every US bank will get whatever they need , provided by our magic master BB. Always!

Sun, 08/19/2012 - 09:33 | 2717893 reload
reload's picture

And there are lots of other counterparties to take the MM funds side of the repo trade. Ben will di it if all else fails.

Sun, 08/19/2012 - 09:58 | 2717915 Future Tense
Future Tense's picture

This article assumes that the majority of the cash received is used to short gold. Where does that data come from? What if a majority of the cash is used to purchase gold? Then the entire analysis would be the opposite of what was discussed.

Sun, 08/19/2012 - 20:25 | 2719230 Confundido
Confundido's picture

It doesn't assume it. It simply states that if the cash is used to short commodities, should the repo market be impacted by the money markets, it will be more difficult to short, hence, a positive for the spot price of commodities.

Sat, 08/18/2012 - 22:27 | 2717432 Muppet of the U...
Muppet of the Universe's picture

LOL...  Noice pic mate.

& T-Bills are likely to turn around shortly...  So this idea that T-bills will collapse here and now is possible, but unlikely, given the likely span of this particular QE period.

Therefore, I can only assume that this QE will end, there will be market volatility, and the T-bills will explode.  Thereby ruining your theory for a giant drop in money market liquidity.

Doesn't much matter right now, Gold is still looking strong, and platinum and palladium have finally caught up.

Sat, 08/18/2012 - 23:34 | 2717549 boogerbently
boogerbently's picture



QE China.

Sun, 08/19/2012 - 00:58 | 2717645 StychoKiller
StychoKiller's picture

Meanwhile, Moral Hazard continues to increase...

Sun, 08/19/2012 - 01:20 | 2717667 Missiondweller
Missiondweller's picture

You don't get it. QU cannot end or the whole Ponzi collapses.

Sat, 08/18/2012 - 22:35 | 2717448 Dr Benway
Dr Benway's picture

If you do it too much you'll lose your sight

Sat, 08/18/2012 - 22:37 | 2717454 alfred b.
alfred b.'s picture


    ...yess, we know!


Sat, 08/18/2012 - 22:39 | 2717458 Canadian Dirtlump
Canadian Dirtlump's picture

what type of potato was that pic generated on?


either way  pedal to the metal on acquiring precious metals.

Sat, 08/18/2012 - 22:42 | 2717463 francis_sawyer
francis_sawyer's picture

WTFF?... A Gaussian blur?

Sat, 08/18/2012 - 22:54 | 2717488 Manthong
Manthong's picture


Stuff usually doesn't start looking like this until a little later in the evening.

Sun, 08/19/2012 - 03:48 | 2717717 malikai
malikai's picture

Looks like he accidentally posted a thumbnail. Can't make out anything from it.

Sat, 08/18/2012 - 22:40 | 2717461 suckerfishzilla
suckerfishzilla's picture

That's a lot of if's.  It sounds real iffy in fact.  Silver bitchez

Sat, 08/18/2012 - 22:44 | 2717468 DavidPierre
DavidPierre's picture


All that is needed...

Just one Billionaire to place an order on the COMEX for Silver and's all over!

Seriously, this is true, just a single $1 Billion order would basically wipe out ALL deliverable Silver held at the COMEX. Not only that, if a huge order came through (which is discouraged by position limits on the long side), much of the supposed "deliverable" Silver would change categories or even evaporate prior to being delivered.

Think about how small $1 Billion is. It is equal to roughly a mere 8 hours time of which our government borrows 24/7. It is like going to bed and getting a good 8 hours of sleep...wake up and we borrowed another $1 Billion. Only in this case, once this market gets broken and trust me, $1 Billion will do it, we will go to sleep, wake up, and no Silver will be available.

Years ago, Warren "Gold ain't money, it's barbaric" Buffett held 129 million ounces of Silver (equal to nearly $4 Billion at today's price). It was speculated at the time when he sold it that he had his arm twisted to do so, maybe, maybe not. There are now no hordes of this size available, ANYWHERE and the "threshold" to breaking this market goes down every single day.

Have you ever wondered what will happen when this market does get broken? You might at first think "who cares?" but that would be shortsighted because any action in Silver will surely spill over into the Gold arena and Gold exploding higher is definitely not a "confidence" builder, on the contrary, fear is THE greatest financial emotion of them all.

Putting the Gold market aside, what really will happen when the COMEX Silver pit gets broken and cannot make delivery?

Obviously, the price of Silver will rise. It will rise because the shorts will get scared and buy, the specs will get greedy and buy BUT, the real catapult will be sellers, or lack there of!  When sellers, whether they be paper or physical get a whiff of this, they will pull their offers and create an upside air pocket where anyone who wants in...will have to do so at much higher prices.  The physical sellers will probably go into TOTAL hibernation for a long spell where they will not accept any amount of fiat paper until they can "trust" what it is that they are getting in return of sale. 

A busted Silver market will spill over into everything. This one "little white lie" will expose many and far larger lies up to and including the fact that the entire system is a Ponzi scheme.  It is really this simple, Silver CANNOT be allowed to be "outed" because it will expose everything else so don't hold your breath for a miraculous CFTC ruling, failure to deliver WILL be the catalyst

This is all basic stuff but it is important to understand just how little money is now necessary to detonate the global financial system. It could be a Chinese or Russian billionaire, it could be a Carlos Slim or someone else that has mining investments, it could be a coalition or whatever. It WILL be done for the simple reason that it CAN be done, and it can now be done with very little money and very little effort.  The U.S.S.A. has made many many enemies over the years.  Stupid it is to have left exposed such an obvious and easily attacked Achilles heal to the entire system.

If a foreign sovereign government were to enter the Silver market?

$1 Billion? $5 Billion?

Are you kidding me?

Sat, 08/18/2012 - 22:57 | 2717493 Bay of Pigs
Bay of Pigs's picture


Well said. Please forward to all PM deniers...

Sat, 08/18/2012 - 23:11 | 2717511 DavidPierre
DavidPierre's picture



News come from a Hat Trick Letter subscriber who works at BNParibas in London. He wrote in early August,


"US authorities now going after RBS and Standard Chartered for money laundering. The crack between the Anglo-Saxon bankers is now apparent.  Bigger news will be coming out after Olympics are over. 

Another observation.

On my Bloomberg terminal, the bid/offer for Gold being quoted used to be dominated by Deutsche Bank and UBS. The waterfall declines were usually the handiwork of DBank. Over the last week or so, a new ticker has popped up making quotes which has started to set the price. It is ICBC (Industrial & Commercial Bank of China)."


The Chinese banks are entering the room to counter the corrupt London protectors of the free world whose stock & trade consists of naked short contracts from corrupted accounts and illicit leveraged strategies emanating from putrid office buildings bearing monikers from the gold cartel.

Jim Willie



Sat, 08/18/2012 - 23:45 | 2717566 boogerbently
boogerbently's picture

If they can't get the price of gold to rise on traditional markets, they will open their own PM market.

Sun, 08/19/2012 - 00:02 | 2717580 francis_sawyer
francis_sawyer's picture

Tell that asshole Zuckerberg...

If he gets the message before next week, he might just be able to afford it...

Wanna see jew vs. jew?... Watch while Zuckerberg dumps all his FACEBOOK shares to buy PHYSICAL metals & then watch all hilarity ensue...

Of course ~ we'd never see that... All we'll EVER see is indignant junks...

Sun, 08/19/2012 - 01:11 | 2717661 cranky-old-geezer
cranky-old-geezer's picture



I don't understand why anyone would gripe about low gold & silver prices.   Keep prices down, gives more time to "stack" at low prices.

Don't worry, one day we'll wake up to news the eastern alliance introduced a gold/silver backed currency, USD collapsed overnight, China's dumping treasuries, gold & silver skyrocketed while we slept.

Yea, it'll happen just that fast.

Sun, 08/19/2012 - 05:42 | 2717751 malikai
malikai's picture

Dear Gresham, thank you for your observance and law.

Sun, 08/19/2012 - 06:11 | 2717763 Dr Benway
Dr Benway's picture

The reason people are griping is they fear the manipulation has a longer life expectancy than they do

Sat, 08/18/2012 - 23:48 | 2717568 Muppet of the U...
Muppet of the Universe's picture

1 order for a billion phys delivery...  would result in that clearing firm or brokerages immiment bankruptcy.  no one is stupid enough to make that mistake again. 1 MF Global is all you need to see.  90% long euro position?  LOL yea, that was def an honest mistake, fer realz.


& taking advice from a guy who calls himself the golden jackass...  yea...

& for the record, when the LME went to China it was obvious they would begin playing a lkarger and larger role in metals exchanges.  Still, don't f'ing expect gold and silver to explode without a pile of explosives and matches...  this ISN'T fucking close to an m80 and this article is about as dangerous as a wet fart. 

What you should be looking for is the pile of symtek and wires... aka derivatives.  DUH.

Sun, 08/19/2012 - 10:06 | 2717922 oddjob
oddjob's picture

Pathetic effort from a 6 week troll. Jim Willie could fart and it would still be more informative than a lifetime of your bottom rung shill disinfo.

Sat, 08/18/2012 - 23:18 | 2717524 strannick
strannick's picture

Well said. +28 (current price of silver on sale). Dont know why people gripe. The longer the sale the better for stackers.

Sat, 08/18/2012 - 23:41 | 2717560 boogerbently
boogerbently's picture

Just getting to its old high of Apr. 2011 would be a 75% increase from here.

Sat, 08/18/2012 - 23:20 | 2717528 economicfreefall
economicfreefall's picture

I agree with you. There won't be anything done by the regulators, so only the market can put the manipulators back into their cages where they belong. There are so many billionaires out there and I'm a bit perplexed to why not more of them are buying silver. Even the ones like Jim Rogers who have openly said he loves silver seem to only be putting small amounts in the physical silver market. There were several articles out before about mysterious murders of investors who redeemed huge amounts of physical gold from COMEX. I wonder if there's a lot of pressure on the big silver investors not to drain the stocks of physical silver as well. I would certainly put a few hundred million dollars into physical silver if I were a billionaire... -portfolio tracker & analysis of gold and silver stocks

Sat, 08/18/2012 - 23:48 | 2717567 i-dog
i-dog's picture

There's something very fishy about the connections of most of those pushing the "buy silver" campaign.

Most likely, it's simply a play by the Khazarians to keep the more awake sheep's eyes off gold......

Sat, 08/18/2012 - 23:55 | 2717575 economicfreefall
economicfreefall's picture

I doubt it, since the vast majority of silver buyers also own physical gold. I myself own more gold than silver, even though I think the latter has more potential. Silver was demonetized in the States after a push by the elite in the 1870's. From a an elitist standpoint, gold should be easier to control than the more abundant little brother. -portfolio tracker & analysis of gold and silver stocks

Sun, 08/19/2012 - 14:02 | 2718420 mick_richfield
mick_richfield's picture

Argentum is only more abundant if you count 'deep storage' -- i.e. the stuff nobody has actually mined just yet.

If gold is a bomb waiting to go off, silver is the fuse.

Sat, 08/18/2012 - 23:59 | 2717582 Muppet of the U...
Muppet of the Universe's picture

I've been thinking the exact same thing.  Never trust someone who is pushing the pro gold pro silver agenda.  NEVER.

Trust your charts.  & block all the retards out.  There are a lot of them.  Just block them out.  They are unimportant.

Sun, 08/19/2012 - 01:17 | 2717636 i-dog
i-dog's picture

I'm not talking about the pro-gold stuff ... I'm ardently pro-gold, hold no paper and keep the barest minimum in a bank account.

I'm talking about the "BUY SILVER!! ... It'll make you fabulously rich and crash JPM!" campaign. Those touts are mostly well "connected" to the Khazarian kleptokrats.

Gold will be the lingua franca of the barter economy ... such as it will exist under the "all seeing eye" of the drones, blimps, cameras, storm troopers, snoopers, informers......

Sun, 08/19/2012 - 06:33 | 2717772 Disenchanted
Disenchanted's picture



IMO the Khazarians control (the supplies of) gold, silver, the global central banks and the various and sundry fractional reserve currencies that come along with those CBs.


The Babylonian Woe by David Astle

subtitle: A Study of the Origin of Certain Banking Practices, and of their effect on the events of Ancient History, written in the light of the Present Day


excerpt from the Foreword:

In all the writings of these great and practical scholars, the workings of that mighty engine which injects the unit of exchange amongst the peoples, and without which no civilization as we know it can come to be, is only indicated by a profound silence. Of the systems of exchanges, of the unit of exchange and its issue by private individuals, as distinct from its issue as by the authority of sovereign rule, on this all important matter governing in such totality the conditions of progression into the future of these peoples, not a word to speak of...




Sun, 08/19/2012 - 07:05 | 2717785 i-dog
i-dog's picture

Indeed they do. The quantity collected over the centuries by the Vatican and stored in various ways (church vaults, Swiss bank vaults, golden artifacts, etc) [allegedly] makes central bank holdings pale into insignificance. I have no doubt that that hoard will come into play in the NWO reset.

However, my point about the barter economy still stands. Gold is easily recognised, easily purified/assayed and entirely fungible down to microscopic quantities. There are utoob videos of barter in operation in African countries where the guy on the back of the HiAce weighs gold dust on his digital scales in exchange for a few loaves of bread, some veggies and a cup of rice. His customers keep their gold as tiny particles in a paper envelope to be weighed out as needed.

Silver, on the other hand, is generally of lower and not easily recognised purity, tarnishes easily to an unrecognisable metal, and is unlikely to be accepted by the guy on the back of the HiAce. And he's not likely to be bothered with looking up a Koin Kollector Katalogue either....

Sun, 08/19/2012 - 07:22 | 2717794 Ghordius
Ghordius's picture

you would be amazed by the amount of economies and cost cuttings the Vatican is doing right now. anyway:

    there is another important part to the gold and silver story. stocks.

big stocks = stable prices = monetary metal

small stocks = unstable prices = non monetary metal

a metal can only achieve monetary status if the price is stable - no numéraire can function if it's wobbly - this has been proven often enough in history. bad money drives good money, particularly if the bad money is more stable.

Sun, 08/19/2012 - 11:53 | 2718054 FranSix
FranSix's picture

Ther really isn't much in the way of an operating numeraire in financial markets if traders resort to fixing LIBOR for their own gain. Gold price markets can serve as a money market with a very high interest rate, especially in the case of negative nominal rates.

Sun, 08/19/2012 - 07:42 | 2717805 Disenchanted
Disenchanted's picture



Maybe somewhat true i-dog, but when(or if) we collapse to the point of a barter economy, a roll of TP, a book of matches, a packet of salt(or other spice/sweetner), a jar of canned vegetables, etc., etc. may be perceived by some(many?) to be of equal or more value than some form of gold. No?

I'm not sure the majority of the average 'Joe Blows' of today would even recognize/comprehend gold or it's 'value' as many of us that frequent ZH do. I've said here before, in today's world most people's exposure to precious metals consists of possessing a gold or platinum credit card. Would you agree?


But my point about who's controlling the supplies of gold and silver means the control of what else? The price or perceived 'value' of each.

Sun, 08/19/2012 - 08:34 | 2717836 i-dog
i-dog's picture

Though some individuals will be swapping TP for sugar, or bullets for beans, the vast majority will be flocking to the village square at the sound of the HiAce rolling up loaded with bags of flour and crates of eggs. Only those with the preferred currency will get the goods before the HiAce quickly disappears in a dust cloud to its hidden lair. That's how a free market works.

Barter will be banned by the government ... so don't expect a 'Sunday market' atmosphere with trestles laid out with all sorts of goods on display and shoppers casually browsing and bartering with stall-holders for a burger and coke. Only those familiar with purchasing booze from a speakeasy, or certain herbs from shady characters, will understand the mechanics of a barter economy under government prohibition.

On your other point: The street price of gold will be largely dependent on what the guy in the HiAce can get for it from his fence, who in turn will be dealing with rogue/approved agents of TPTB.

I believe that once the financial reset occurs (in just a few weeks, in my estimation), there will be two currencies: an official global electronic currency based on credits issued and managed by a single world monetary authority; and, gold.

Local communities not immediately subject to supervision by VIPR teams and squadrons of drones may transact in local currencies for a time, but they would have to be ultimately backed by gold (since they will be declared illegal by all NWO-participant governments).

Maybe some parts of the world will continue "as normal" for a while, but the US and then Western Europe are in for a sudden 'phase-transition' shock, IMO. I really do hope I'm wrong.

Sun, 08/19/2012 - 10:42 | 2717962 Disenchanted
Disenchanted's picture




In that sort of scenario I don't plan on being anywhere near the "village square." Hell I avoid it like the plague now.

Sun, 08/19/2012 - 09:56 | 2717911 Winston of Oceania
Winston of Oceania's picture

“Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves,”Norm Franz Money and Wealth in the New Millennium.


Strongly suggest diversivication, gold, silver, productive property and NO DEBT.

Sat, 08/18/2012 - 23:34 | 2717548 Muppet of the U...
Muppet of the Universe's picture

1 order for a billion phys delivery...  would result in that clearing firm or brokerages immiment bankruptcy.  no one is stupid enough to make that mistake again. 1 MF Global is all you need to see.  90% long euro position?  LOL yea, that was def an honest mistake, fer realz.

Sun, 08/19/2012 - 01:02 | 2717648 StychoKiller
StychoKiller's picture

Achilles had a "heel" that wouldn't "heal..."

Sun, 08/19/2012 - 01:39 | 2717677 Nage42
Nage42's picture

Ya, I hear all the fundamentals arguments of Silver if the demand side ramps with a fixed supply.  You are counting on a "dog pile" effect once "the gospil" gets out... but consider that those people will pile into either the Futures market (which Comex will settle in CASH instead of deliver), or they will go to SLV (which god only knows how far North of 100:1 claims per unit they have it rachetted to).

So, yes buddy, I hear you, and yes, I know there would be a squeeze (recalling Sprott's annecdotes when he floated his Physical Silver fund about trying to go to market to get $300M of silver and those 10M oz raised the spot by 5%), but I'm pretty sure that the "market fources" would rock in and channel people into Futures/SLV to take the pressure off.

How many Joe Lunchpails out there know the difference between paper and actual physical?  How many are in a position to take delivery from a Futures contract (must take 5000+ oz)?

China has recently come into the game, so it's prolly a case of they want some of this artificial market, so they'll purpetuate the lie along with the existing bullion banks and warehouses (read: bullshit banks and whorehouses).


Sun, 08/19/2012 - 11:26 | 2718009 nevadan
nevadan's picture

The YI contract allows for delivery of 1000 oz increments.

Sun, 08/19/2012 - 04:00 | 2717718 malikai
malikai's picture

Just one Billionaire to place an order on the COMEX for Silver and's all over!

There is a fatal flaw in your theory: History.

Remember the Hunt Brothers? Whoever the sole billionaire is who decided to make said order would quickly find himself in bankruptcy court after either:

  1. Being margined out thanks to the kind foks at the Crimex/CME/LME hiking margins crushing their position ala Hunts.
  2. A rule change of any sort targetting said "manipulator" of the markets. - Yes, the buyer would be labeled a manipulator, and would be crushed in any way possible.

Anyone with billions to put on a physical order would be well served to slowly drain the Crimex by taking delivery over time, which nullifies their ability to empty the shelves at the Crimex. See China.

My $0.02.

Sun, 08/19/2012 - 04:14 | 2717721 RestoreOurFuture
RestoreOurFuture's picture



Mr Pierre

If your scenario was true, someone like Eric Sprott (a very passionate silver investor) would have already done this!  

The COMEX is just a clearing house that ensures futures contracts (both short and long) are honored. In your scenario, the BROKER of the shorts would face all the pressure, NOT the COMEX.  The brokers (like JPM) would be forced to produce the silver that their clients had shorted, and in such an extreme scenario, the brokers could always take delivery from the inventory of the SLV (ask yourself who manages iShares) or even a mine. The COMEX would only be responsible to deliver from its inventory whatever portion of that $1 billion order had not been delivered by the shorts and their brokers.... most likely a tiny fraction, if anything. The inventory of the COMEX is sufficient for 99.99999% of all transactions and serves as an easy and reliable stock to satisfy virtually all deliveries.  In short, the legal obligation to honor the short contract does not stop at the clearing house; the clearing house can go after the broker, and brokers like JPM have an INFINITE amount of money.   

With silver prices being as volatile as they've been, no rational investor would risk taking delivery of such a massive order. In just the last five months alone, silver has lost over 25% of its value (~$36 to ~$28).  In your scenario, that would expose a silver whale to a possible $250M loss in less than 6 months.

The more important question is why we are concerned with silver in the first place? I would venture a guess it's because our current president has shown a total disregard for the value of our US dollar.  We need a leadership team that has the courage to make bold decisions to ensure the prosperity of this great land. 

Romney/Ryan 2012




Sun, 08/19/2012 - 05:41 | 2717750 malikai
malikai's picture

LOL. I can't tell if you're a troll, shill, or just an idiot.

If you're a troll. You're some serious competition for MDB.

If you're a shill, stick around, we'll have some fun with you..

If you're an idiot, huffpo is that way..


Let's take our country back!

Romney/Ryan 2012

Member for
1 week 29 min

Sun, 08/19/2012 - 08:43 | 2717850 nmewn
nmewn's picture

Probably another incarnation of RepubliKen/Texas Gunslinger etc. I'm thinkin these types are funded by the evil Karl Rove to make "progressives" look far, so good.

Just a theory ;-)

Sun, 08/19/2012 - 05:58 | 2717758 Freegolder
Freegolder's picture

David, no one with a billion is buying silver. But plenty with billions are buying gold. Some simple google searches would show this is true.

Silver is a purely industrial metal, and has been for many years. It is a shame if you are diverting funds to silver, at best it will hold its buying power in today's terms, but more likely will lose a little as the economy contracts in the aftermath of the reset.

Gold is where the leverage is at, it's the reserve behind ALL central banks, none of them hold silver. Look at the Chinese for your lead.

Good luck, I hope you have some gold.

Sun, 08/19/2012 - 10:58 | 2717985 SafelyGraze
SafelyGraze's picture

silver is an industrial metal

the actual *monetary* metals are specified at the usmint website

where we find that the dollar is backed by -- not silver or gold, but (drumroll) --


none of which have any industrial uses

up next in the non-industrial monetary metal pageant: steel

Sun, 08/19/2012 - 19:39 | 2718900 Chump
Chump's picture

Wait, what?  Every single metal you listed is used industrially.  Good links.

Sun, 08/19/2012 - 16:54 | 2718792 WhiteNight123129
WhiteNight123129's picture

Freegolder you think as if we were on Gold standard, which is exactly the opposite of Free Gold. A Gold standard is a manipulated non market price of Gold. Bimettalism was a lot better than Gold Standard which the first attempt by the elite to manipulate the monetary system. So a Gold Standard is a manipulated system, a free flowing bullion system with no parity at the currency level but a link at the bullion with choices between between Silver and Gold was superior (go and read Friedman, Landreau and others about that).

Are we in a Gold standard?, is Gold monetized at this point? People choose what they want to store wealth. You act as if the there was no free will. There is freewill. I would totally agree with you if we were under Bretton Woods or if we were under the Gold Standard. But the reality is that we are neither under a Gold or Silver standard and right now people in Indonesia buy either Silver or Gold (and you can find people using Silver coin in Indonesia (dirham) versus Gold (Dinhar), people in Switzerland buy either Gold or Silver. Why would I buy more Gold than Silver it does not make sense, I much prefer sit on my 750 kilos stack of Silver. If by miracle the output of the United States and the world expand very very fast, than the output of production will match the increase in the monetary base, that would make the dollar good and Gold will not be a good bet, a horrible one actually in that context, but Silver will have to be used in the many high tech application and less high tech applications, so I would love to own a company recycling Silver-Nickel batteries because business will be booming to supply the shortfall of 700 million ounces from mines versus 650 million ounces for industry demand predicted by 2015.

If the system collapses completely, what are you going to do with your Gold coin to buy food, you will need small denominations, and Silver will be more handy. 

The case of owning Gold and no Silver is only if there is an agreed upon, between nations deal to come back to Gold standard.

United STates and China and Russia agreeing upon a new monetary system. Those things come after a war usually with the Victor imposing its system. That is UK Gold standard from 1821, Gold Exchange Standard in 1921 in Genoa with Britain and US and Bretton Woods with the US.

By the time we get there, people will grab what they can as a store of value regardless of what the rulers say. Now when you see sign of a Gold standard coming, shift, but if you have total collapse you will be better off with Silver and if you have great ecnomic growth you will be better off with Silver. That being said rice, cotton, are probably better than Silver at this point, more upside. What happened in 2009 with Financial mayhem was that there was no financing for farmers and then supply was imbalanced against demand (demand did not move, so the price of soft commodities went V shape very quickly), had the system completly collapsed people would have starved...



Sun, 08/19/2012 - 17:22 | 2718862 Bay of Pigs
Bay of Pigs's picture

Rubbish. Silver is a precious metal as well. That is not a false statement, it's totally ignorant to even suggest it.

The Chinese? Yes, they are producing gold and silver like mad and exporting little to none of it. And fwiw, some CB's hold no gold at all. Please get your facts straight.

Sun, 08/19/2012 - 08:27 | 2717838 PontifexMaximus
PontifexMaximus's picture

You probably don't know the fantasy and their capacity of Gary Gensler and his entourage, dear DP!

Sun, 08/19/2012 - 13:47 | 2718368 grid-b-gone
grid-b-gone's picture

China buying mines directly may be even more telling. Buying proven reserves is a great way to own gold and increase control on the market without playing in the rigged futures and options markets, plus holding costs are greatly reduced. Earth is an effective, cheap vault.

When the price of little Alexandria Minerals got down below $5 million market cap recently, I thought this would be a great way for a modest millionaire to take a proven gold stake worth tens of millions and hold it with little security cost. The stock popped 75% last week.

Sun, 08/19/2012 - 16:32 | 2718752 WhiteNight123129
WhiteNight123129's picture

THat was very smart to throw Silver in landfills as a useless, infinite in supply commodity. To a certain extent you have to wonder if the Chinese encouragement for their population to stack up Silver back in 2009 is plain and simple financial warfare....


Sun, 08/19/2012 - 16:40 | 2718772 beachdude
beachdude's picture

I'll be a seller and totally out of paper when PSLV reaches $50 and SLV is at $125 or so.

Sat, 08/18/2012 - 22:47 | 2717476 balz
balz's picture

I drank too much alcohol.

Sat, 08/18/2012 - 23:34 | 2717550 jonjon831983
jonjon831983's picture

Funny, for the last few weeks since MMF policy has been hitting MSM I've been thinking to tell my parents to get out... just in case.


I told them earlier today over dinner, what's the point of holding MMF's?  Start getting out of them.Not only that - they thought MMF's are as good as cash.  I was like... mmmm... no.  They are not cash.

There really isn't much point holding MMFs...  you're just paying the salary of some dude who's probably getting some ridiculously high return with the scraps left for yourself .  Really, aside from other possible things... you might as well hold cash in hand.

Sat, 08/18/2012 - 23:54 | 2717573 phyregold
phyregold's picture

Gold to grow by a bigger percent when USD collapses

Silver to grow by a bigger percent when USD collapses

Sun, 08/19/2012 - 07:45 | 2717811 css1971
css1971's picture

Silver sits in a range between ~30 and ~80:1. During bad times, because silver is also an industrial metal, the ratio rises. i.e. silver becomes cheaper compared to gold. Right now, it's about the middle. USD collapse will be seen as bad times and the silver/gold ratio will rise.

Personally wouldn't touch silver till it is definitely cheap compared to gold. i.e. the ratio is above 60+ and maybe closer to 70.

Sun, 08/19/2012 - 00:00 | 2717576 rufusbird
rufusbird's picture

I'll bet my money on this one...

"If the US Treasury bills become riskier, on the margin, the incentive to buy them will be lower and either money market funds will reallocate the cash towards commercial paper or they will face redemptions from fearful investors. The repo market will then lose liquidity. This is positive for the spot price of gold."

(it went the other way after the gold spike in the 1980's, but that was an entirely different scenario than we face today.)

 Personally, I think you articulated a couple of fine points. Thanks for the post.

Sat, 08/18/2012 - 23:57 | 2717578 Elmer Fudd
Elmer Fudd's picture

Dont you know how a crooked house operates?  Even if Joe Billionpack does phones in an order, its not going to be delivered.  It wont be allowed to break, and that's that.  They make the rules.  Elephants are easy to target.  No, draining the COMEX silver has to be done by the ant swarm.

Sun, 08/19/2012 - 00:03 | 2717586 Muppet of the U...
Muppet of the Universe's picture

just forget it.  ZH posters are dumb as rocks.  They are have NO strategic thinking.  Fucking idiots are still thinking that everyone plays by the rules...

LOL.  All we have to do is buy more phys gold and silver and we can crah JPM! YAY!  -...Fed wires JPM another 100 billion in paper to short silver and gold.  LOL

You fuckers wanna beat them?  Beat them at their own games.  Otherwise you are high on hopium.

Sun, 08/19/2012 - 00:21 | 2717598 Zero Debt
Zero Debt's picture

The game is rigged.

Sun, 08/19/2012 - 01:05 | 2717655 Muppet of the U...
Muppet of the Universe's picture

It just seems like that.  They can be defeated, even at their own games.  I should know.

Sun, 08/19/2012 - 05:36 | 2717746 Al Gorerhythm
Al Gorerhythm's picture

Don't be shy. Spread the love. What are your tools, timing and strategies?

Sun, 08/19/2012 - 09:49 | 2717905 ParkAveFlasher
ParkAveFlasher's picture

ant swarm, bitchez! 

elmer fudd +100

silver is gold.  1:1.  if you hold it, you determine the price.

Sun, 08/19/2012 - 00:29 | 2717605 Confundido
Confundido's picture


Sun, 08/19/2012 - 00:29 | 2717608 Never One Roach
Never One Roach's picture

Why are the Fed and Fed bankers spenders spending millions suppressing the price of gold and silver? After all, The bernank testified that "gold is not money." If gold is so unimportant, why do they expend millions in dollars and time to manipulate the price downward?


Similarly, if gold is not important, why are Central Banks buying as much as they reasonably can? Why doesn't the Fed simply sell all of its gold if Ben was telling the truth?


Can The Bernank be lying?

Sun, 08/19/2012 - 01:05 | 2717656 StychoKiller
StychoKiller's picture

[quote]Can The Bernank be lying?[/quote]

That's a BIG 10-4, good buddy!

Sun, 08/19/2012 - 00:45 | 2717627 Schmuck Raker
Schmuck Raker's picture

Pardon my community college education of 1 1/2 part-time years, but:

What if these positions (financed with the cash provided by the money market funds) are short positions in gold (or other commodities)? Now, we can see what USD money markets have to do with gold!

...isn't that a bit like SUPPOSITION = CONCLUSION? Aaaand I stopped reading right there.


[Don't even get me started on that graphic: "A picture is worth 3 words"(W.T.F.).]

Sun, 08/19/2012 - 03:40 | 2717715 slewie the pi-rat
slewie the pi-rat's picture

did you junk yourself schmuck?  i do that sometimes, too

that graphic l0^0ks like somebody really gets excited over spongeBob...

... a lot!  

wtf?2 comrade_Raker

Sun, 08/19/2012 - 20:31 | 2719242 philipdybel
philipdybel's picture

The graphic is SpongeBob - eagerly vibrating at near-resonant frequency, due to the gold content of his habitat.  (Seawater, that is...)

Sun, 08/19/2012 - 09:39 | 2717899 Tompooz
Tompooz's picture

Shows that a thinking smuck-raking brain can spot the missing part of the (counter) argument even without being over-educated.


If money markets lack liquidity, shorting commodities becomes more difficult. This is positive for the spot price of gold.If money markets lack liquidity, shorting commodities becomes more difficult. This is positive for the spot price of gold.


Hey, genius, if money markets lack liquidity, short-covering or simply going long also becomes more difficult. Negative for the spot price in equal measure.

Sun, 08/19/2012 - 16:36 | 2718764 Confundido
Confundido's picture

Never knew that short covering in the futures markets is negative for the spot price....what else do you have to teach today?

Sun, 08/19/2012 - 03:31 | 2717714 slewie the pi-rat
slewie the pi-rat's picture

tyler has already coved the change in the redemption on the MMFs

in discussing these changes here, the auther writes:>

  Personally, we do not see the motive behind this move because if, as some deduce, policy makers in all honesty believe that the savings currently in these funds will be reallocated as a result to bonds or stocks (boosting asset prices), they are being naïve at best and utterly idiotic at worst.

the "motive" as i understand it was to stop a cascading selling panic if the MMF(s) "broke the buck" (again) triggering massive redemptions on the "race to the exits"

so yeah, the money will be "equally vaporized" by the banksters over the FUND's muppets and there won't be a buncha whiners who were 9 minutes later than the rest and got wiped out completely by the broker/managers

maybe i'm wrong, but at least i'm not pretending i can't understand the most basic reason why this is (probably?) happening (i think) {L0L}

what is this guy's game?  can he be dumber than slewie?  Yay! 

Mon, 08/20/2012 - 08:46 | 2720172 Confundido
Confundido's picture really assume that the minimum balance at risk will stop a cascade selling panic. You think it would be effective. That's why you can't understand the article. 

Sun, 08/19/2012 - 05:10 | 2717734 Silversinner
Silversinner's picture

In the end people always try to redeem the paper

claims for real gold.It is all about who gets first in line.

Once the exodus out of paper starts most people

will be holding the bag(full of empty promises)


Sun, 08/19/2012 - 06:22 | 2717767 rufusbird
rufusbird's picture

Interesting point you make. When the paper claims markets fails and everyone is trying to cash out of them, will it drag down the price of physical?

Sun, 08/19/2012 - 07:44 | 2717810 jmcadg
jmcadg's picture

It's a game of musical chairs. There are 400 people dancing around the last chair and if you are holding the phyzz, you are already sitting on the chair when the music stops.

Sun, 08/19/2012 - 08:28 | 2717839 Nage42
Nage42's picture

Hmm, you see... the important point you forgot about musical chairs is it's not about the people scrambling for chairs... it's about the fscker who are playing/not-playing the record, cause _they_ are the ones who get to say when the music is going to stop and quietly have ushered out all the chairs to their private holdings.

I'm just sayin...


Sun, 08/19/2012 - 08:57 | 2717862 Its_the_economy...
Its_the_economy_stupid's picture

Which is why Central banks are buying. Price suppression  and volatility is a manipulation to scare the saver away from the gold market. The die is cast....who will hold the gold in the end?


Note: I will be one of the few.

Sun, 08/19/2012 - 10:13 | 2717926 Pure Evil
Pure Evil's picture

Which makes me suspect that the Chinese are only joining the game in order to help suppress the price of PM's while they continue to amass their glittering horde.

Can anyone explain why the Chinese would want to buy gold at $5000 or $10,000 an ounce when they can continue stacking at current, or possibly cheaper manipulated price levels?

At the highest levels the Chinese are are just as corrupt as the theives residing in D.C., London and Moscow.

And, by the way, any billionaire stoopid enough to drop a significant chunk of change into SLV expecting delivery after what happened at MF Global deserves to have his ass drilled until it gushes oil.

The Mafia always reserves the right to itself to make delivery, if they don't, exactly what you gonna do about it. If you're lucky, they let you keep your life. If you're really lucky they return your money.

Sun, 08/19/2012 - 20:39 | 2719261 philipdybel
philipdybel's picture

Ok, let me see if I got this game straight:  PRC tells the Bernank, "yo we're down homey, we'll help you buy them gold shorts", thus eliminating those pesky billions of FRN $'s they have lying around, and they get to buy a lot more physical as a side benefit?  ("Game recognizes game"...)

Sun, 08/19/2012 - 08:44 | 2717852 KarlusMaximus
KarlusMaximus's picture

Riddle me this Batman, if the US guv is so keen on the price of gold being low, why do they bother to mint coins?

In b4 someone says the $20 premium to min...

Sun, 08/19/2012 - 09:02 | 2717866 tabernac
tabernac's picture

I keep hearing suppositions about about TBTF's and other connected entities holding massive short positions.  Pardon me if I am being ignorant, but is there documented proof of these positions? Irregardless, PM's are the logical place to be as fiat will get crushed over the 10 years, but I am trying to decipher facts from conjecture and hypothesis.

Sun, 08/19/2012 - 12:30 | 2718130 Confundido
Confundido's picture

Was Bruno Iskil's IG9 position documented? Did we get the evidence?

Sun, 08/19/2012 - 13:28 | 2718291 grid-b-gone
grid-b-gone's picture

This article and charts support the opinion that retail is pouring into the top of this market and commercial is shorting, or at least hedging positions at these levels.


Sun, 08/19/2012 - 10:00 | 2717917 jimmyjames
jimmyjames's picture

Because commodities are not traded in euros, this has not impacted the commodities market. But should a zero interest on excess reserves policy be implemented in the US dollar zone, the effect on the repo market would be to drain liquidity, a negative for futures markets and a positive for spot commodity prices.


Will this BS myth ever die?

Commodities-all commodities including oil trade and can be purchased in any major currency-

Sun, 08/19/2012 - 12:29 | 2718126 Confundido
Confundido's picture

Yes, they can be purchased in any major currency, but the USD is the global reserve currency...and when S&P downgraded the US sov risk, gold went to $1,900, but when the whole Eurozone is downgraded many notches by everyone, gold doesn't move....

Sun, 08/19/2012 - 12:56 | 2718187 jimmyjames
jimmyjames's picture

but when the whole Eurozone is downgraded many notches by everyone, gold doesn't move....


It looks different if you look at eur/gold

Sun, 08/19/2012 - 13:08 | 2718225 Confundido
Confundido's picture

You call that a move??? Please...

Sun, 08/19/2012 - 13:22 | 2718270 jimmyjames
jimmyjames's picture

You call that a move??? Please...


Do you know how to interpret a simple chart???

From 1150 to 1300 and in case you do not understand--the exchange rate is eur/usd 1.23 and was 127 at the point of the downgrade-

Sun, 08/19/2012 - 14:11 | 2718455 Confundido
Confundido's picture

One of 3 ratings agencies downgrades the US one notch, only one notch and the metal goes from $1,500 to $1,900/oz (+27%) in US dollars making higher highs in all currencies. All of the ratings agencies downgrade peripherals by many notches and gold, in euros, has not made higher highs in I right? From eur1150 to eur1300/oz we're only +13%...So: 1 notch downgrade of three gets you +27% and many downgrades for many notches with a destroyed euro repo market gets you tell me now...which currency is the relevant one here?? 

Sun, 08/19/2012 - 14:43 | 2718548 jimmyjames
jimmyjames's picture

From eur1150 to eur1300/oz we're only +13%...So: 1 notch downgrade of three gets you +27% and many downgrades for many notches with a destroyed euro repo market gets you tell me now...which currency is the relevant one here??


Ummmmm--did you add in the 21% exchange differential???

No you didn't--

So---21 + 13 = 34% in relation to the $

Got it yet???

Sun, 08/19/2012 - 14:56 | 2718568 jimmyjames
jimmyjames's picture

Here-before you continue barking up the wrong tree--again--try looking at this-


Sun, 08/19/2012 - 15:09 | 2718597 jimmyjames
jimmyjames's picture

One more thing whizz kid-

Gold was already at 1900 when the US was downgraded--Aug.2011

Sun, 08/19/2012 - 16:22 | 2718731 Confundido
Confundido's picture

Because markets are forward looking, jimmy, just in case you didnt know...

Sun, 08/19/2012 - 16:34 | 2718756 jimmyjames
jimmyjames's picture

BS- you're post had the downgrade as the "reason" gold went up-

I proved you were wrong-now your grasping at straws-

Sun, 08/19/2012 - 17:59 | 2718934 Confundido
Confundido's picture

Dude, where were you last year??? You think the downgrade caught everyone by surprise? Do you live in a bubble? I can even recall conference calls before the downgrade, assessing its impact....Of course the downgrade pushed the price of gold up...Just like everything went up before the announcement of QE2...Where do you live? In Mars?

Sun, 08/19/2012 - 19:20 | 2719094 jimmyjames
jimmyjames's picture

LOL--change the story as you go-

You're done-

Sun, 08/19/2012 - 20:52 | 2719292 Confundido
Confundido's picture

Me change the story? You first said the euro was as valid as the USD to impact commodities, and that to think otherwise was a myth. I proved you wrong. Then you asked me to see the price of gold in euros. I showed you it paled vs. that in USD. Then you CHANGED the story, leading to examine rate differentials. Fucking unconsistent, I must who changed the story? What is there to laugh about?

Sun, 08/19/2012 - 16:31 | 2718751 Confundido
Confundido's picture

Jimmy buddy, don't come to me with double standards! What f... rate exchange differential are you talking about??? If you are going to make your case on the cross between the euro and gold, you stick with that, namely, gold in terms of euros. Don't come to me with exchange rate differentials...and in fact, I think you got it backwards!!! Because a year ago a euro purchased more US dollars than today (Approx. 1.35 then and 1.21 today). ...Think about it, Jimmy. If you still disagree, we need to trade. I have something to sell to you...

Sun, 08/19/2012 - 16:43 | 2718778 jimmyjames
jimmyjames's picture

Clueless--1 USD trades at a 19% discount to 1 EUR-

If you have nothing better to do-figure out the gold price differential between the 2-if you know how-

Sun, 08/19/2012 - 18:03 | 2718937 Confundido
Confundido's picture

The purchasing power of 1 euro in 2011, when the events we discuss took place, was about 1.35 US dollars. The purchasing power today is 1.21...So, 1 euro purchases fewer dollars today. 

But don't get me wrong Jimmy. We were debating whether the eurozone sov risk has the same impact on commodities as the US sov risk. I think not. I think I made myself clear.

Sun, 08/19/2012 - 19:38 | 2719132 Ted Baker
Ted Baker's picture


Sun, 08/19/2012 - 20:45 | 2719275 jimmyjames
jimmyjames's picture

Shit can the stupid caps-and your answer is stupid as well-

It makes a fucken difference if you're buying or selling gold in eur or usd or any other currency-ask the people of Zimbabwe

Sun, 08/19/2012 - 10:16 | 2717929 Garth
Garth's picture

To me this doesn't make sense.  T-bills are accepted as margin for commodity positions so why repo them to get cash for supposed commodity position margin?  Just use the T-bills directly.

Now someone holding T-bonds with leverage (ie: not paid in full) could be funding the T-bond position via short term repo's with the money coming from money market funds (and the money market fund holding the T-bonds as security for the short term loan).

Sun, 08/19/2012 - 12:35 | 2718143 Confundido
Confundido's picture

It doesn't make sense to you because you are thinking at a micro level. Think at an aggregate, macro level, as the article does. In your supposition, someone can post T-bills themselves as security because somewhere else, who ever takes them, knows that they are liquid = The repo market works fine. But wait until that liquidity decreases and then go ask if those T-bills can themselves be posted for margin....

Sun, 08/19/2012 - 19:36 | 2719125 Ted Baker
Ted Baker's picture


Sun, 08/19/2012 - 20:22 | 2719217 Confundido
Confundido's picture

But isn't that exactly what the article says? Why is it different from what you say?

Sun, 08/19/2012 - 10:55 | 2717983 HurricaneSeason
HurricaneSeason's picture

If interest rates double, then the interest payment on the national debt goes from $4 Trillion to $8 Trillion. I wouldn't think doubling the current interest rate would cause a stampede in money market accounts. There wouldn't be extra liquidity to short commodities by raising the interest rate significantly, there would be more foreclosures and bankruptcies(including cities).

Sun, 08/19/2012 - 11:49 | 2718045 humblepie
humblepie's picture

"What if these positions (financed with the cash provided by the money market funds) are short positions in gold (or other commodities)? "

What if these positions are LONG positions in gold or other commodities?


Sun, 08/19/2012 - 12:26 | 2718120 Confundido
Confundido's picture

But he does not deny that they can also be long positions. Does he? If there is no liquidity and it affects futures markets, regardless what net positioning is out there, then the only way to be long is via spot...That's his point! And if you can only be long in the spot can that be negative for the spot price of commodities in a world of paper commodities? How? Over to you, for a reply...

Sun, 08/19/2012 - 12:22 | 2718108 grid-b-gone
grid-b-gone's picture

In short, most of the over-printed U.S. dollar has not gone to provide liquidity for markets that would otherwise freeze or be hampered due to a lack of flowing cash, but rather it has gone to prop up markets that would otherwise deteriorate due to a lack of demand for the product.

Dollars have gone into currency swaps to keep the euro and other out-of-favor fiat from falling even faster.

Dollars have gone to keep state and federal workers getting paychecks for jobs that core tax bases no longer deem a priority. Dollars have gone to humanitarian programs (justifiably, IMO) like foodstamps with little long-term recovery benefit other than to provide enough monthly calories to get 46 million citizens one month closer toward eventual, true jobs growth.

Big dollars, as the article targets, have gone into treasuries, just providing the framework needed to feign some sort of double-entry accounting balance that lends a realness to the system. Fed treasury purchases are to The Treasury balance sheet as a funhouse mirror image is to a portrait. 

The article is concerned mainly with the gold market, but a bigger issue may be the Fed's MBS holdings. Since soon after the 2008 collapse, the Fed has been working on rule changes with the SEC and FASB that would eliminate tri-party repo reserve requirements and bypass mark-to-market rules when assets are transferred.

The ability to drain liquidity effectively during recovery is the usual reason given for these requests, but it seems the actual motivation may be to tie MBS instruments to one of the few remaining valuable asset pools - U.S. money market funds.

If this is true, the process will succeed in:

1. Moving MBS instruments off the Fed books at 100 cents on the dollar, thus completing the process of giving the banks 100% as intended in 2008.

2. Allowing the repo market to hold the instruments without normal capitalization requirements while it markets the products to money market managers.

3. Getting money market managers to chase yield and, unknowingly in most cases, lock up funds in a "government guaranteed" instrument that will carry a much longer holding period requirement than is prudent for a liquid money market fund. Rules that now allow breaking the buck and extended withdrawal delay periods give MMMs the flexibility to add risk to money market accounts. 

Hugh Hendry may be correct with his "evil genius" characterization of Bernanke. Whether intended or not, the long period of non-existent CD rates, with little chance of changing anytime soon, allows for something seemingly impossible like this to happen.

Can gold, after an 1,100% multi-year run really go much higher than $2,500? Maybe, but it has to be easier to mess with markets that have not received recent attention. That is why housing could be moved so significantly from 2003-07.

Look at where the rules are changing for possible upcoming large market moves. That is where the big money has been active behind the scenes.




Sun, 08/19/2012 - 17:03 | 2718828 WhiteNight123129
WhiteNight123129's picture

The money market is a risk for the US, it is a quid-pro-quo type of assets, the buyer thinks he has some form of money while in fact it is a form of credit. It the most highly dangerous stuff out there, the US realized the problem when the Money Market Fund broke the buck. The US can not afford to have those components of M3 grow like nuts again. There is an on going conversion of M3 components (shadow banking stuff) into monetary base. The measure is to accelerate this conversion.


Sun, 08/19/2012 - 22:37 | 2719581 tony bonn
tony bonn's picture

excellent article...

Sat, 09/08/2012 - 11:25 | 2774543 WhiteNight123129
WhiteNight123129's picture

The only non-bank true good paper money are bills of exchanges (from non bank entities), those are the real indicator.


Do NOT follow this link or you will be banned from the site!