Legendary gold trader Jim Sinclair has sent an email alert to subscribers today stating that the Bundesbank’s announcement that they will repatriate 300 tons of gold from the NY Fed and 374 tons from the Bank of Paris is in direct response to outgoing Treasury Secretary Timothy Geithner’s take-down of gold at $1800 in October via the ESF.
Sinclair states that a Central Bank would not insult another major central bank unless it is an act of financial war, and that a full blown financial gold war is coming as soon as 2015-2017.
Sinclair also states that Geithner’s parting shot to break gold’s back by the Exchange Stabilization Fund was considered a direct attack on the Euro strategy for what the end game recovery will look like. The Free Gold thesis requires significantly higher gold prices to work and to elevate the euro back in reserve by choice category.
Have we seen the initial shot in a full blown global currency war?
Sinclair’s full alert is below:
From Jim Sinclair:
I respectfully disagree with most of the explanations given today on the why of German actions in gold. My understanding is that the causal event of this notification actually came from the actions of the US Exchange Stabilization Fund and the long term plans to strengthen the euro.
I have published a chart from Patrick showing the extreme change in the ratio of gold to fiat currency presently being held in reserve by Euroland.
First you need to understand what the Exchange Stabilization Fund is and is not. It is an account at a major gold bank in the name of the Exchange Stabilization Fund. This fund can legally trade in gold and does. The President of the USA and the Secretary of the US Treasury run this fund. Those two managers by law are permitted to designate another manager if they wish. The fund can trade long or short, borrow or lend anything. Basically this is a an account that can legally do anything it wants whenever it wants in secret as the year end statement can easily be brought to only benign activates by warehousing all the trades.
Their broker is quite an expert in that strategy to wash year-end positions for clients.
What occurred as I am told is an act in Germany in reaction to a parting shot from the retiring Secretary of the US Treasury via the Exchange Stabilization Fund.
When gold traded at $1918 it was setting up for a challenge of a very important round number, $2000. The sell off was a product of long liquidation in an anticipation of $2000 in a fast market. Gold did fall on its own weight into the $1800 area, however the body block at $1800, $1775 and $1750 was a product of the Exchange Stabilization Fund operating as an account of a major Gold Bank. Seeing that, this gold bank went to the short side for the account of its hedge funds and not wholly owned trading arm. This gold bank issued a public statement that the gold market was dead as a doornail, finished and completed.
On the level of central banking there are no secrets. The long term plan for the currency war between the euro and the dollar is a derivation of the Free Gold Thesis. That means a significant change in the percentage of fiat currency versus gold at market value held by Euroland as reserves. This thesis has a target for cooperating Asian central banks for gold holdings at no less than 15% at market value. I question some of the thesis of Free Gold thinkers, but much of it has been in my writing for more than a decade on what the end game recovery will look like.
I am told that the parting shot to break gold’s back by the Exchange Stabilization Fund was considered a direct attack on the Euro strategy for what the end game recovery will look like. The Free Gold thesis requires significantly higher gold prices to work and to elevate the euro back in reserve by choice category.
The German reaction was not political but rather a direct warning that they could demand return of their gold just like DeGaulle of France did in the 60s by making a direct and immediate demand for conversion of the US dollar holdings into Gold.
A major central bank will not insult another major central bank unless it is an act of financial war. It has not come to that yet, but it is not that far away. It is 2015 to 2017 and not 2020.
The reason that gold is relatively firm after the media leak and release on the night of the 14th is that I am not the only person who knows the real story. The price of gold will go to and beyond $3500. Gold will be market to market by the majority, if not all, major central banks. This will balance the balance sheet of the many and major debtor nations and will provide the platform for recovery after unwinding.
Exchange Stabilization Fund
From Wikipedia, the free encyclopedia
The Exchange Stabilization Fund (ESF) is an emergency reserve fund of the United States Treasury Department, normally used for foreign exchange intervention. This arrangement (as opposed to having the central bank intervene directly) allows the US government to influence currency exchange rates without affecting domestic money supply.
As of October 2009, the fund held assets worth $105 billion, including $58.1 billion in special drawing rights (SDR) from the International Monetary Fund.
The U.S. Exchange Stabilization Fund was established at the Treasury Department by a provision in the Gold Reserve Act of January 31, 1934. 31 U.S.C. § 5117. It was intended as a response to Britain’s Exchange Equalisation Account. The fund began operations in April 1934, financed by $2 billion of the $2.8 billion paper profit the government realized from raising the price of gold to $35 an ounce from $20.67. The act authorized the ESF to use its capital to deal in gold and foreign exchange to stabilize the exchange value of the dollar. The ESF as originally designed was part of the executive branch not subject to legislative oversight.
The Gold Reserve Act authorized the ESF to use such assets as were not needed for exchange market stabilization to deal in government securities. The Fund had no statutory authority, however, to engage in other activities that it began to undertake. The principal such extraneous activity it devoted itself to was lending dollars to politically favored governments.
In 1938-40, the director of the Division of Monetary Research, Harry Dexter White, worked on a proposal for loans to Latin America and participated in plans for an Inter-American Bank, which did not materialize. The plan for an Inter-American Bank, however, inspired White’s first draft of the subsequent plans for the International Monetary Fund and the World Bank that White prepared in 1941 at Secretary of the U.S. Treasury Henry Morgenthau’s direction.