Window-dressing or the management of prices for a favourable mark-to-market valuation at year-ends, half-years and quarters has long been a distorting feature in financial markets.
And, with bank capital adequacy ratios at stake, not to mention traders’ bonuses, it has been an increasing feature. With the onset of June 30th it seems reasonable to expect this factor to be a reason why gold and silver prices have generally failed to reflect escalating systemic risk in the face of Greece’s insolvency and a developing bear market in bonds. Indeed, losses from bonds are bound to encourage window-dressing of banks’ short positions as an off-set, and they are generally short of gold and silver futures contracts.
The common error of confusing growth with progress goes largely unnoticed, though it permeates all macroeconomic analysis.
There is no better example of this mistake than the fallacies behind the interpretation of Gross Domestic Product (GDP).
GDP is the market value of all final goods and services in a given year.
As such, it is only an accounting identity reflecting the quantity of money in the economy.
China is in the late stages of constructing its thirteenth five-year plan, a process that commenced over a year ago and will result in a first draft in October.
This could mark the end of the era of pure fiat currencies, which started with the Nixon shock in 1971 when the Bretton Woods agreement died. Competition from gold-backed currencies from Asia would be the most serious threat yet faced by American hegemony.
20,000 metric tonnes. Nearly triple the US’ “official” gold reserves of a little over 8,000 metric tonnes.
The number boggles the mind. Macleod’s claim has been ridiculed by the establishment and alternative media alike.
But just for a moment, pause to think… What if the astute, Head of Research at Gold Money, London Gold Expert is correct??
There appears to be little or nothing in the monetarists’ handbook to enable them to assess the risk of a loss of confidence in the purchasing power of a paper currency. Furthermore, since today’s macroeconomists have chosen to deny Say’s Law1, otherwise known as the laws of the markets, they have little hope of grasping the more subtle aspects of the role of money in price formation. It would appear that this potentially important issue is being ignored at a time when the Eurozone faces growing systemic risks that could ultimately challenge the euro’s validity as money.
Gold and silver rallied strongly last Friday and into Monday’s overnight trading (UK time) before spending the rest of the week drifting lower from initial highs to consolidate above notional support at $1200 and $17 respectively.
As of Friday morning, in US dollars gold is now up 2.2% and silver 10.2% on the year.
Monetary policy has now become like a pressure cooker with a defective safety-valve. Central bankers realize it and investors are slowly beginning to as well. Add into this mix a faltering global economy, a fact that is becoming impossible to ignore, and a dash-for-cash becomes a serious potential risk to both monetary policy and the banking system.
There is an obvious alternative to cash, and that is to buy physical gold.
This does not constitute a run on the banking system, because a buyer of gold uses electronic money that transfers to the seller. The problem with physical gold is a separate issue: it challenges the raison d’être of the banking system and of government currencies as well.
Many of us are now predicting another round of QE, quite possibly before the leaves are finished falling off the trees this fall around the country.
The one thing the Fed really is frightened of is contracting bank credit. And this idea of collateral liquidation leading to more selling of collateral by the banks to cover loans is sort of self-feeding into nasty collapse if you like in asset prices.
Now that’s not going to happen because they are going to print money to insure it doesn’t happen.
We are very very close to that sort of tipping point and I think that people who have an understanding of this are not going to hang around and wait for the Fed to print money. They are going to go quite quickly against the dollar…
Anybody who doesn’t own physical silver or gold could miss out. I think there’s a big change coming.
The US dollar continued to lose ground this week, contributing to a firmer trend for precious metals.
Gold rose over $40 to $1223, and silver by $1.13 to $17.45, though prices initially opened a little lower in early European trading this morning, perhaps anticipating some pre-weekend profit-taking.
The US economy is on death watch when measured in REAL accounting data like plummeting GDP and the downward revisions in the BLS reports., according to Alasdair Macleod, the Director of Research for Gold Money.
In fact, according to John Williams from shadowstats, as the ranks of the unemployed in the United States reaches 23%, the economy is now beginning to suffer the effects of inflation, and Williams says, we are on track to hit hyperinflation of the Dollar in 2016.
The problems that caused that 2008 economic crisis have not been addressed or fixed and loose monetary policy continues unabated.
With the average age of a minimum age worker in the United States 36 years old, and with 93 million Americans out of the workforce altogether, hyperinflation of the Dollar is the death knell for the Republic and for all we once held dear.
Alasdair Macleod points out that once confidence in a currency is lost, that currency is doomed.
At that point, panic ensues, and we are now headed in that direction. Alasdair says, “There will be people in the west panicking because they haven’t got any physical silver or gold.” And by the time the panic is palpable, it will be too late.
There is an unwarranted assumption that market prices are always right, and represent “fair value”.
In the case of commodities, particularly metals, this is not necessarily true, because regulated financial markets make it too easy for government agencies and large banks to game the system:
The prices of gold and silver initially rallied this week from the lows of $1170 and $15.93 respectively last Friday to challenge the $1200 level for gold and $16.70 for silver on Wednesday, before losing about half these gains yesterday.
On the year gold, is now hardly changed while silver is up 5% and is one of the best performing assets in financial markets over this timescale.
Precious metals appear to be locked into the same torpor as other markets, but there are two developing stories:
Financial markets are becoming aware that the US economy is stalling, so investors increasingly take the view that with demand likely to stagnate or even fall, prices for goods and services will soften. This is already threatening to be the situation in a number of other advanced nations, with negative interest rates to combat it becoming commonplace. For this reason, gold and silver priced in dollars are expected by many traders to drift lower.
Putting the prices of precious metals to one side for a moment, there are some serious issues with this analysis:
This week started with a sharp bear squeeze, which took gold from $1178 to $1214, and silver from $15.70 to $16.71.
These higher prices on Wednesday proved to be the peak for both metals, before they fell back sharply Thursday on better than expected US initial jobless claims. The Federal Open Market Committee’s FOMC statement, which admitted the US economy is softening, had little effect when released yesterday.
We can be fairly sure the rise in the gold price on Monday and Tuesday was due to bears being squeezed:
Last Monday there was a meeting in Washington hosted by the Official Monetary and Financial Institutions Forum (OMFIF) to discuss the future relationship, if any, of gold with the Special Drawing Rights (SDR).
Funny that this meeting wasn’t mentioned on the Nightly News…
There is an underlying argument that quantitative easing is not working, and zero interest rates are not preventing deflation. That being the case, there are many fund managers who are not only bullish on the US dollar in currency markets, but they believe its purchasing power in terms of goods and services is likely to increase. If this analysis is correct, then, it follows that gold priced in dollars will continue to fall.
Whether or not this undermines the gold price in the short-term remains to be seen, but empirical evidence tells a very different story.
There are two connected reasons usually cited for the current dollar strength: the US economy is performing better than all the others, leading towards relatively higher US dollar interest rates, and that this is triggering a scramble for dollars by foreign corporations with uncovered USD liabilities.
There is growing evidence that the first of these reasons is no longer true, in which case the pressure to buy dollars should lessen considerably.
Precious metal prices were broadly unchanged this week, confined to a tight trading range of $1210 to $1185 for gold and $16.60 to $16.00 for silver.
There were several attempts by sellers to force prices to break down, but from the price action there appeared to be buyers waiting for the opportunity.