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.

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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.


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.

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.


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?

SafelyGraze's picture

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

Tinky's picture

Mitt Romney approves of this arrangement.

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...

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.


donsluck's picture

Please let me know when something occurs to heterosexuals.

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.

old naughty's picture

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

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

PontifexMaximus's picture

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

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.

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.

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.

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.

Missiondweller's picture

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

Dr Benway's picture

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

alfred b.'s picture


    ...yess, we know!


Canadian Dirtlump's picture

what type of potato was that pic generated on?


either way  pedal to the metal on acquiring precious metals.

Manthong's picture


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

malikai's picture

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

suckerfishzilla's picture

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

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?

Bay of Pigs's picture


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

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



boogerbently's picture

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

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...

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.

malikai's picture

Dear Gresham, thank you for your observance and law.

Dr Benway's picture

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

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.

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.

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.

boogerbently's picture

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

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

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......

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

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.

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.

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......

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...




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....

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.

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.