End of the Bull?

The saying goes like this: 'What do you call an Economist with a prediction?' Answer: 'WRONG.'

All sorts of predictions are flying about as the end of Bernanke's term nears. Generally, these predictions include: 1. the end of QE; 2. the end of the Bull Market and 3. a steep rise in interest rates.

If all things remained the same (except for the end of QE and the Bull) we could expect interest rates to rise. But (and this is an important but), the FED is riding a tiger and you can not get off the tiger without dire consequences. The other important feature is that now that Obama is re-elected, he sees no reason to change his stripes, so I expect him to appoint a Leftist such as himself as FED Chairman. From the Left's point of view, Bernanke did a fine job. He increased the money supply, goosed the Stock Market and kept the economy on a slow trek, which called for growing the government.

The wild card? Increased gas and oil production in the US. Fracturing rock opened up reserves even with Obama and Interior sabotaging exploration.  Short of banning frakking, Obama's hopes of a revolution won't come true.

Gold and silver markets suddenly surge.

After being down over $25/oz, gold suddenly surged and is selling at $31 higher. Is this the turnaround?
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/20_Incredibly_Important_Developments_In_Gold_%26_Silver_Markets.html

NOTE. Soros is reported to have bought gold miner options. Does he know something?

Gold: the coming end of the correction (Larry has spoken).

There are many sayings on the Stock Market: 1. don't fight the FED, 2. Sell in May and go away, the Market always exaggerates, etc. Nowhere is the exaggeration more evident than in the case of the price of gold, silver, gold miner and silver miner stocks. I will give you one example. Impact silver (ISVLF or IPT.V) is a silver miner in Mexico owned by a Canadian outfit. It has no debts, is mining silver and has a book value of 90 cents per share. Its price? Fifty cents. Is this company heading for bankruptcy? Hardly. It was mining silver when the metal was selling for $8/ounce.

What in the world is going on? Can the price of gold and silver be manipulated by printing more paper currency? The answer to that is yes. But, will this insanity go on as writers suggest on Seeking Alpha? The answer to that is no. When will the insanity end?

My favorite prognosticator Larry Edelson wrote this on Jan 28 this year: "
 I will not turn bullish again on gold until either ...

A. Spot gold has closed above $1,823 an ounce on a weekly and monthly basis. Or ...

B. Gold cracks the $1,527 level and plunges to the $1,400 level, and even a tad lower.

Well, gold has dropped below 1,400 and in fact hit 1,320. Has Larry turned bullish? No. He said a few weeks earlier that the correction will end in Q2 of the year and his latest puts the end of the correction in the middle of July.

It is coming though. If we do drop to between 1,000 and 1,100 as Larry's reading of the entrails suggest, the ride up will be violent.

France joins EU recession.

France's economy slipped officially into recession with a growth rate of -0.2% for the second consecutive quarter, which is the average growth rate for the 17 countries that use the Euro. Germany's growth rate was +0.1% - not enough to make a difference. Spain and Italy contracted by 0.5%, while Portugal's rate of growth decreased 0.3%.

Tuesday's flash estimate "surprised" experts and speculation is rising that the ECB will drop its lending rate from 0.5% to 0.25%.

Raising taxes and cutting pensions is not working. DUH! How come not, Dr Krugman?

How banks manipulate the gold price.

Here is a short description:

1.  Banks short gold on the COMEX.
2.  This is incorporated into the London gold fix at a lower price. Margin contracts scooped up.
3. Contracts bundled are presented at NY Mellon bank and gold is drawn out.
4. Gold is allowed to rise in red hot Asian markets.
5. Gold is sold in Asia for profit

Rinse and repeat.
Sum: gold price dropping while physical gold is migrating to Asia:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/15_How_A
_Criminal_Syndicate_Of_Banks_Is_Raping_The_Gold_Market.html

Remaining question: The US Dollar is also manipilated. By whom? And how?

What ails the EU?

1. Poor countries can't compete using a strong currency.

This goes for Greece especially, but also for Ireland, Bulgaria and Slovenija. These countries could compete if they were able to devalue their currencies which would stimulate export and tourism. Using the Euro they can not.

2. Banks carry too much debt, especially bad debt. The EU has attempted to rescue them with disastrerous results. Greek bonds have been destroyed and some investors had to take a haircut. Who? Well, a couple of banks on Cypress, which made them insolvent. So, the Cypriot banks were rescued by more bailout AND BY RIPPING OFF large depositors. Large depositors (more than 100K Euros) were given stock in the bank and their remaining deposits are frozen indefinitely.

The Dutch Finance Minister blurted out that Cyprus will be a model for other banks and he had to walk back his comments. As it turns out, the EU authorities are discussing just that proposal:

http://www.ft.com/intl/cms/s/0/901823ae-ba87-11e2-b7c3-00144feab7de.html#axzz2THWtfGcR

What was the FED's May Day message?

By now most of you know that the FED is NOT a government agency, but a collection of privately owned banks. So, the Nation's money supply and currency is trusted into the hands of private individuals, whose number one interest is to enrich themselves and their customers. This is not a criticism, just a statement of facts.

Naturally, people in the business of investing parse the FED (the FOMC) statements as to what their intentions ARE.

The FOMC issued a statement in March, the twentieth. At the next meeting, the FOMC reissued the same statement except for one sentence: :"Fiscal policy has become somewhat more restrictive." So, what exactly does that mean? Does the FED mean that monetary policy is restrictive - meaning that it is going to loosen even more?

There are two factoids that I would like to connect. First, Goldman Sachs has exited a short position in gold. Second, look at the graph of the monthly closings on gold:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/13_This_Key_Chart_Tells_You_All_You_Need_To_Know_About_Gold.html

What this chart shows is that the monthly chart had a double bottom in 2008 and it is heading for that again. So far, the monthly closing price has not gone below the bottom line. That means that when the next downleg hits the ascending line, the rally resumes. Next stop: over $3,000.

How gold was taken down and its effects.

Has the Great Gold Crash Divorced Bullion from Futures Prices?

By Peter Krauth, Resource Specialist, Money Morning

May 10, 2013

Peter Krauth

In mid-April, a black swan crash-landed on the gold market.

Over just two trading days, gold futures prices shed 13%, falling from $1,575 to $1,375.

That $200 cliff dive was the largest two-day drop in 33 years.

Gold prices already had been in steady consolidation mode for 18 months. But the magnitude and swiftness of this dramatic move were rare...to the point of suspicion.

How did markets react? Unlike almost anyone expected.

What caused such a landslide, and who may be behind it? More importantly, what are the implications for the precious metals markets moving forward?

The conclusions will surprise you -- and help you invest more wisely.

--> 

Past as Prologue

To understand what happened, we need to first dissect the circumstances surrounding the event.

The gold futures selloff were so extreme, it's difficult not to conclude that whoever may have initiated this effort achieved exactly what was intended: a gold panic.

However, the law of unintended consequences tells us that some actions have unanticipated effects. And given the reaction in the physical gold markets, it appears the perpetrators of a gold panic (if they indeed exist) will find it difficult to achieve their goals in the future.

The Timeline

A number of bearish news stories were released in the days and weeks leading into the selloff.

First came word that infamous hedge fund manager George Soros had dramatically cut his fund's gold ETF holdings by 55% in 4Q 2012. But having already dumped (as a group) a total of 140 tons just in 1Q this year, gold ETFs were already suffering a bloodletting.

Three days before the initial selloff, the Fed's Open Market Committee minutes were leaked a day early. They revealed that some members were in favor of slowing the Fed's monthly purchases of $85 billion worth of mortgage-backed securities and Treasuries.

The next day, with gold trading at $1,575, Goldman Sachs lowered its 2013 and 2014 gold price estimates, and recommended shorting gold with a $1,450 target, suggesting gold prices had peaked.

Was Goldman prescient, lucky, or did they know what was coming?

The Plot Thickens

The very next day, news broke that Cyprus may be pressured by Europe to sell 10 of its 14 tons of gold reserves, worth some $400 million euros, in order to meet its bank bailout obligations. This was initially denied by Cypriot officials, then later confirmed.

But worry quickly spread that other debt-strapped euro members could be forced down the same path, potentially flooding the market with the Midas metal.

Further pressuring negative sentiment, the Commitment of Traders Report published by the COMEX showed that large speculators had become less bullish. As a group, they typically move with the market, and they'd recently become their least bullish in four years. What's more, their sheer size is enough to sway the gold futures markets in either direction.

It's anyone's guess whether any or all of these events contributed to the gold price crash. But it's impossible to imagine that what happened next did not. In fact, this single overwhelming factor was likely enough to smash the paper gold markets all on its own.

April 12 saw what I'd generously categorize as very conspicuous activity: The futures markets were simply deluged by two massive trades, perhaps the largest ever.

First an order to sell futures contracts for 100 tons was placed, almost as if to "test the waters." Then, about an hour later, a second order of 300 tons hit the offer.

Now here's a little perspective; 1 ton is the equivalent of 32,000 ounces, so 400 tons is 12.8 million ounces. That's $19.8 billion worth of gold at $1,550 per ounce. The equivalent of 20% of total world annual gold production was put up for sale within a few short hours!

Response in the gold futures markets wasn't surprising.

Paper Gold Reaction

Hit by an atomic bomb, gold futures sold off...dramatically.

The initial selling pressure was enough to push gold below its technically important $1,540, a make-or-break level it hadn't crossed in all of 2012.

An enormous move like this has a tendency to trigger stop losses. That in turn can become a vicious downward spiral with even lower stops being triggered. Margin calls are issued, and many positions are forced to liquidate. And that can lead to a panic, where traders essentially try to stampede out.

Exacerbating the situation, margin requirements are increased as futures contracts lose value. On April 15, after gold's largest two-day drop in 33 years, the CME Group pushed up margin requirements on gold futures by 19% and on silver futures by 16%.

Traders were then forced to post more cash, or sell at least a portion of their holdings just to meet the new higher margin requirements. Naturally, this helped to push prices even lower still.

But that's just half the story.

Physical Gold Reaction

Response in the physical gold markets was astonishing.

In the immediate aftermath of the selloff for both gold and silver, demand for physical bullion simply exploded. It appears there was substantial pent up demand waiting for an important price drop in order to buy. It also appears that the swift and unpredictable downward price action in the futures market spooked gold buyers into wanting nothing less than physical gold in their hands.

Numerous gold buyers saw the price drop as an opportunity to get into the gold market. What they hadn't anticipated was how many others were thinking the exact same thing at precisely the same time.

Premiums on physical gold and silver went ballistic. There are countless reports of physical bar and coin shortages at bullion dealers in both the Western and Eastern hemispheres.

China saw 15-month highs for gold premiums. The Financial Times reported the president of the Hong Kong Gold & Silver Exchange Society, Haywood Cheung, as saying that "in terms of volume, I haven't seen this gold rush for over 20 years. Older members who have been in the business for 50 years haven't seen such a thing."

Anxious gold buyers formed long lines in Beijing outside gold retailers. The Gold Exchange in Shanghai saw its contracts exceed 150 metric tons in the week of April 15 alone.

According to a Mineweb report, some Dubai gold merchants boosted their premiums by 750% above normal levels. And trading on the Dubai Gold and Commodities Exchange hit a volume record on April 16.

On April 17, the U.S. Mint sold a record 63,500 ounces (or roughly 2 tons) of gold coins. By April 19, year-to-date sales had already reached 62% of total 2012 sales.

In the physical silver markets premiums shot up from pre-selloff around 8% to post-selloff up to 37%. That totally negated the effect of the price crash, with silver bullion selling at the same price as before the selloff, near $31/ounce.

In the first three months of 2013, the U.S. Mint sold more than 15 million American Silver Eagle bullion coins. That's the first time ever the Mint has sold this many coins so early in the year, setting a record in the 27-year history of the series.

Coin dealers across the U.S. have been swamped with demand, regularly selling out of their inventories, desperate to get new allocations.

Some buyers waited in long lineups with the intent of buying silver coins. When they reached the wicket, only large bars at high premiums were left, which many bought nonetheless just so not to leave empty-handed.

This reaction indicates that the physical gold and silver markets appear to be at a crossroads. We may have seen the defining moment where physical markets begin to divorce themselves from the paper futures markets.

A quick internet search for gold and silver coins on Ebay or at bullion dealers easily confirms that futures prices may no longer be able to dictate physical precious metals prices.

Plunge Precipitation Team?

The gold selloff conspiracy question begs the question: "Who would do this and why?"

Experienced traders with a large order to execute, such as the mammoth 400 tons, know to spread these out into numerous orders over time. That allows the market to absorb smaller individual sales with much less dramatic downward price pressure, allowing for higher proceeds from each sale.

No one selling this much gold in such a large transaction is stupid enough not to foresee the immediate consequences. They have to have known that the gold price would get crushed. The seller was either desperate to unload it, or deliberately wanted a much lower price.

And there is a point at which evidence becomes so compelling that it's nearly impossible not to suspect some of the largest stakeholders in this market.

There have been a number of suggestions by well-informed market observers that a few large speculators have been manipulating the gold and silver futures markets for years. This recent sale of 400 tons in a single day looks and smells like a concerted effort to push the gold price way down in short order.

Who could pull this off? The most likely perpetrators would be either Western central banks or large bullion banks (large speculators), or perhaps the two groups in concert.

Quo Vadis?

The price of gold is a gauge of inflation, which is the result of printing fiat money. Central banks benefit from a lower gold price as it gives the impression that they are not dropping cash from helicopters.

On the other hand, a high and rising gold price signals concern for inflation as ever-increasing quantities of fiat currency are pumped into the money supply. Gold acts as the proverbial canary in the coal mine.

Large bullion banks, for their part, can benefit from the sheer size of their net long or short positions. If bullion banks choose to build up large short positions, and then initiate a gold price crash (as we may have just witnessed), they benefit by cashing in on their short positions. Once the dust settles, these nimble speculators can also profit from the likely bounce that almost always follows the selloff by going long.

However, let's not forget the law of unintended consequences. It now appears the perpetrators of the gold panic may find it increasingly difficult to achieve any future manipulations.

Law of Unintended Consequences

Back in March ABN Amro, one of Holland's largest banks, told its clients that it would no longer be delivering physical gold. All accounts with gold holdings would be settled in cash rather than bullion, whereas clients previously could have taken delivery.

This naturally raises suspicion that the custodian simply doesn't have sufficient gold to deliver on all accounts.

It's been suggested that as much as 100 times the amount of physically delivered gold is traded in the form of paper gold on futures exchanges.

The trigger for ending potential gold price manipulation could come from a default in the futures markets.

All it would take is for too many holders of gold futures contracts to demand physical delivery simultaneously. This would overwhelm the exchange, forcing it to settle in cash for lack of sufficient physical bullion. And that would instantly call into question the integrity of the exchange, much like Bear Stearns, Lehman, and AIG did to the financial system.

The news from ABN Amro, followed by the mid-April gold price crash, look like the first rains warning of an approaching hurricane.

A major default in the futures markets could remove the last shackles holding back a true free market gold price naturally set by supply and demand. Based on recent price action in the physical gold market, it appears we've taken a big step toward that outcome.

We may soon be on the cusp of a brand new gold paradigm, one where prices are set by the physical markets rather than the futures markets. That will make for interesting times.

Would-be manipulators beware: your job just got tougher.

.

Is Europe about to join the QE march?

The US is printing $85B a month (QE+buying mortgage bonds) and Japan is printing $79B month (with 1/3 of the size of our economy). Mario Draghi, Head of the European Central Bank, was heard to state that South Europeans can not manage their economies with the Euro being at $1.30.

We see He US Stock Market galloping in response to the injection of paper money and same for the Japanese. If Draghi is serious, the ECB can goose its stock markets by starting to print more Euros. \

Is this a good thing? NO!. The markets are expecting inflation and a loss of value of the currencies. That is why stock prices are rising. Politically, the rich get richer and the poor get poorer. They do not have the money to protect against inflation. Furthermore, it will be very difficult to walk back all that money without crashing the economy.

The news from Portugal: something good.

The Portuguese people have a checkered history. Used as cannon fodder by the Roman Empire, they became the Vandals and migrated from the Eastern edges of the Empire all the way to the Iberian peninsula. Then they became one of the staunchest Catholic people in Europe, inheritors of the culture of Rome. In fact, the Portuguese became noted sailors and colonizers. Brazil is to Portugal like Canada and Australia are to England: colonial descendants.

Today, Portugal struggles with the legacy of Social Democracy. Its national debt is 124% of the GDP and if it were not for the restraining force of the EU(the German influence), Portugal would be bankrupt. The country is headed by PM Pedro Passos Coelho of the Liberal Conservative Social Democrats. The real Socialist Party (the PS) is in opposition. It is no surprise that the current government is wishy-washy and accepts austerity as something forced on it.

In the midst of all this, the government has won a confidence vote and has instituted budget cuts via pension and pay cuts. These cuts are up for review by the Country's Constitutional Court and if the Court overturns the cuts, chaos will ensue.

It is against this background that Portugal held a bond auction. Five year bond yield ended at 4.891% and 10 year interest rates fell to 5.98% after being in double digits before the bailout. Is Portugal out of the woods? Hardly. This year is the third in recession  and unemployment hovers near 17%. It is a good start though.

Sean: jewelry sales lead increased gold prices.

China’s housewives are getting credit as a major force in gold buying. They reportedly spent $16 billion over the past two weeks ... as they purchased 300 tons of gold.

In fact, the China Gold Association reported that gold sales had tripled on many days, and there were long lines outside many shops.

It’s not just mainland China. Hong Kong retailers report they were swamped over the three-day May Day holiday by tens of thousands of mainlanders in search of one thing: cheap gold.

In April alone, Hong Kong gold sales soared 150%! However, there is a method to their gold-buying madness.

These buyers are price-sensitive, so we can’t expect this feverish pace to continue if prices go higher. But it should put a floor under the price of gold.

Here's why this is so important  ...

Booming Jewelry Demand Usually Leads Gold Prices. According to research from Citigroup, an increase in jewelry purchases like we’re seeing now is usually associated with gains in gold prices. Here’s a chart from Citigroup (jewelry demand is shown in blue)  ...

As you can see by looking at the chart, rising prices usually weighs on gold jewelry demand. Likewise, rising jewelry demand usually sparks higher prices.

India is Catching Gold Fever, Too. Demand for gold in India — the world’s biggest consumer — is double the level for this time of year, as Rajesh Mehta, chairman of Rajesh Exports Ltd., told Bloomberg last Wednesday. Premiums paid by jewelers in India to secure supply surged as much as fivefold in 10 days.

Some estimate that India will boost its gold purchases by 20% year-over-year. If India and China together were to boost consumption by 15% in 2013, that would result in 250 metric tons of gold being acquired by the two countries.

U.S. Mint Gold Sales are Booming. Sales of gold U.S. Eagles totaled 209,500 ounces in April, up from 62,000 ounces a month earlier, and up 10 times year-over-year, according to data on the Mint’s website. That’s the highest level in three years, since 231,500 ounces were sold in December 2009.

Central Banks Keep Buying. Central banks own about 19% of all the metal ever mined. Their combined reserves have risen to an eight-year high as nations from Russia to Kazakhstan to Mongolia expanded holdings, International Monetary Fund data show.

The banks bought 534.6 tons last year, the most since 1964, and may add as much as another 550 tons in 2013, according to the London-based World Gold Council.

Gold Buyers Forced to Go on Waiting Lists. According to a report in the London newspaper, The Telegraph, one company is reporting waiting lists of three weeks for some coins, and four to six weeks for gold bars.

The Telegraph reports that investment company Physical Gold says “many clients are willing to ‘do a deal’ and wait for delivery, as they want to secure the current price as they feel it will be higher in the near future.”

This documents my earlier statement that the elite made a mistake in the takedown of gold prices. What they have achieved is a stimulation of actual gold sales.

Gold: Deja vu all over again.

The great Bull Market in gold in the 1970s was interrupted in Dec 1974. From Dec 30 1974 till Aug 1976, gold went from $195 to $104, about a 90% correction:

http://www.the-golden-goose.com/2012/07/gold-corrected-for-20-months-from-1974.html

Keynesians were chortling about the "archaic metal" all the while they pranced around that they have learned to control the economy and that Keynesian measures would work. In 1976 August, gold began to rally and before the Bull Market was over it went to 870 dollars an ounce.

Fast forward to today. Gold hit 1975 and some dollars an ounce in Sep 2011 and has been losing steadily since. Twenty months is up in June and Larry predicts gold to hit $1,030/oz before it turns around and enters the final rally. That would be a 90% correction. See why I use the Yogi Berra quote?

Here comes the hard question. Will gold go to 1,030 before it turns around? It could, but I do not think so. The fundamentals have turned in favor of the resumption of the gold rally. First, the US, EU, UK and Japan have all increased their printing. Second, the actual sales of gold and silver have increased so that Swiss refiners can not keep up with the demand. Third, we see the left-wing media chortling that gold is finished.

Will history repeat itself? If it does, gold will eventually end at 8-9,000/oz. However, if the US Dollar is dethroned as a reserve currency, no telling what will happen.

An avalanche of new things.

Some inventions being worked on come from SciFi. For example:

1. The wireless contact lens able to display GPS, email, etc.

2. The invisibility device being experimented by the Israelis to coat missiles. (Look out Iran).

3. Drone detecting little gizmoes for less than $100.

4. Molecular computers small enough to fit is a human cell that detect cancer and destroy it.

5. Transparent TV sets and calculators mage of graphene that can be rolled up.

So, has Bernanke pulled the rabbit?

Some people think of Bernanke as a magician whose job is to pull a rabbit from a hat. The question is: HAS HE?

In order to try to answer this Q, I would like to examine two things: the financial and the economic picture.

THE FINANCIAL PICTURE.

Under this topic we need to examine what is happening to the US Dollar and other currencies and what is happening to gold.

The US Dollar made a few stabs at 83 then backed off to 81. Every time the Dollar moves Larry chortles that it is heading to 90 (like he told us), but the Dollar refuses to head to 90, even though the explanation that Europeans are turning Euros into US Dollars has credibility. Even though the FED is printing more and more, it can also manipulate it. When they accuse China of being a currency manipulator, I laugh.

Other major currencies are being cheapened as well. The Japanese Yen will double in monetary base. Consequently, the Japanese Stock Market is rallying. Even the Chinese Yuan is being printed more and more, but China is getting all the gold that it can, so in the future it will have a strong currency.

That brings us to gold. There is a very interesting article by Louise Yamada discussing recent events with gold:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/2_Yamada_-_3_Absolutely_Incredible_Gold_Charts_%26_Commentary.html

She notes the following:
1. Gold was dropped to 1,539, 30% down from the high, which more than meats the 20% down for a bear market.
2. The drop in gold was NOT related to Dollar strength.
3. The question of manipulation:
a) banks gave SELL signals to their customers;
b) the US and the EU continue to debase, but don't want the public to benefit from the gold price;
c)  the FED and other central banks want to force money into stocks.
4. COMEX gold (what they actually have) fell to record low.
5. It will take the US 7 years to return Germany's 300 tons of gold.
6. Current gold pattern has been damaged technically.

Q: has the gold bull market ended?
A: Concept vs Reality. You do the charting then look at the quotes.
Note: she does not know.
Added: The gold bull in the seventies corrected from 200 to 100 before it went to above 800.

The gold market is evolving (strangely enough) around the sale of gold. Only fools trade paper at the COMEX, where 90% of traders are losers. Yesterday's attempt to drop the price (Chinese markets were closed) failed and gold is heading to 1,500. Will it get there or will it be smashed again? Hard to tell.

THE ECONOMY.

The US economy is still shaky. Only the forcing of the Stock Market into new highs preserves the mirage of recovery. Yesterday's figure of 140,000 new jobs in April (revised now to 165,000) tells us that the employment picture is not improving, even though the number of newly unemployed fell.