Fed and Q.E. to Cause Financial Collapse and Hyperinflation: John Embry

Gold rose about twenty bucks within the first couple of hours of trading on Wednesday morning in the Far East, but a not-for-profit seller showed up and sold it back to unchanged shortly after 8:00 a.m. Hong Kong time.

From that low, it rose and fell about fifteen dollars...and hit its low of the day about forty-five minutes before the London open.

But from there, it was onwards and ever upwards until a few minutes after 11:00 a.m. in New York...where it came within a dollar of breaking through the magic $1,800/ounce price level...before another not-for-profit seller showed up to sell it down about thirty bucks. The bottom of that sell-off came at 2:30 p.m. in the New York Access Market...and then a rally began that ended virtually on its high of the day at $1,795.40 spot...up $51.40 from Tuesday's close.

Volume was huge, but not in the same league as Tuesday's record volume day.

Silver's price path was similar. It rose smartly at the open, got smacked at 8:00 a.m. Hong Kong time, hit its low about forty-five minutes before the London open. The seventy-five cent rally that began at precisely 11:30 a.m. Eastern, got capped at precisely 12:00 noon thirty minutes later.

From there, the price wasn't allowed to do much...and [for the third day in a row] the price was not allowed to pass the $39.50 mark. Despite that, silver closed up $1.58 from Tuesday.

Volume was down quite a bit, but still pretty decent.

By the way, in case you missed it, there was something that happened yesterday that hasn't occurred for many, many years. The gold price closed higher than price of platinum

The dollar waffled around the 74 cent mark from the open...but drifted down to it's low of the day, which was around 73.84 around 6:30 a.m. Eastern...11:30 London time. From there, a rally of some substance emerged...and from its low to the 5:15 p.m. New York close, the dollar was up a hair under 100 basis points.

There isn't a hint in the gold chart anywhere that the machinations of the dollar had any effect whatsoever. Gold is now trading as a currency in its own right, independent of all fiat currencies...and I expect that trend to continue well into the future.

The gold stocks started off yesterday's trading day in negative territory, probably in sympathy with the general equity market markets. But, starting around 10:15 a.m. Eastern, the shares found their feet...and away they went. At one time the HUI was up almost five percent...but got sold off as the general equity markets headed south...closing up 3.14%.

I would bet serious coin that the major part of the rally in the gold and silver stocks yesterday was short covering by those funds that had been long the metals and short the shares...especially the juniors...as a lot of my junior silver companies finished the day with gains in the double digits...so they benefited from short covering as well.

Despite all this short covering in the shares, Nick Laird's Silver Sentiment Index was only up 2.16%...as several of the major U.S. gold and silver producers that make up this index actually finished down on the day.

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The CME's Daily Delivery Report showed that 62 gold, along with one whole silver contract, were posted for delivery tomorrow. Most of the issuers and stoppers were the smaller Commercial traders...Jefferies, Pioneer and Barclays. JPMorgan and the Bank of Nova Scotia were hardly a presence at all.

As of yesterday, there were still 2,761 August gold contracts that had still not been closed out, or delivered into.

Surprisingly enough, both GLD and SLV showed withdrawals yesterday. GLD showed a smallish withdrawal of 12,195 troy ounces...which could have been a fee payment...and SLV's stockpile showed a withdrawal of 799,661 ounces. Based on yesterday's price action in silver, it would be my guess that an 'authorized participant' redeemed their shares and took delivery.

While I'm on the subject of the SLV...I noticed that the short position in this ETF took a real nosedive yesterday...falling by 23.44% from the report two weeks ago...all the way down to 23,932,300 shares sold short. The prior report showed 31,260,000 shares held short. Let's see if this trend continues as times moves along.

There was a small sales report from the U.S. Mint yesterday, as they reported selling another 9,500 ounces of gold eagles.

There were big silver withdrawals from the Comex-approved depositories on Tuesday. They reported shipping 1,290,922 troy ounces out the door...and received nothing. All the activity came from Brinks, HSBC and Scotia Mocatta. The link to that action is here.

I 'borrowed' a paragraph from silver analyst Ted Butler's latest commentary to his paying subscribers yesterday that I thought you would be interested in.

"In gold, a different pattern has emerged, that I first alluded to on Saturday. Price action and daily statistics continue to suggest that commercial short covering may be a major contributor to the stunning gains. Never have we witnessed such large price gains in gold after a large commercial short position was established.. As I wrote on Saturday, the largest 4 commercial shorts in COMEX gold had bought back a notable number of futures contracts in the latest COT report, breaking away from the 5 thru 8 largest shorts and the gold raptors which both added to their short positions. This throws out hints that the gold commercial shorts may be in trouble. Certainly, it is easy to calculate that the almost hundred dollar jump in the price of gold on Monday and Tuesday has cost the 8 largest COMEX gold shorts over $3 billion in mark to market losses and margin calls. That’s over $360 million per trader on average. These sudden losses are unprecedented and suggestive that a real emergency may be at hand. While I can’t be sure, it seems to me that the sudden outbreak of unease in world financial markets may have driven enough worried investors to buy protection in gold and that this physical buying may have tipped the scales against the big COMEX shorts."

Here's an interesting chart that Peter Degraaf sent me yesterday. As he [gleefully?] points out..."Once again an ounce of silver is worth more than a share of stock in JPMorgan."

Here's a photo taken by Stephanie Powell, Chris Powell's daughter, at the conference in London that I was privileged to attend last week. This was the closing panel discussion during the Friday afternoon session. I'm seated between John Embry and Jim Sinclair...and that's James Turk on the far right.

¤ Critical Reads

California tax revenues plunge, deep cuts to schools could be triggered

Here's a story that I stole from yesterday's King Report.

California’s tax revenues plummeted in July, falling more than 10% below expectations and making it more likely that deeper cuts to public schools built into the state budget in case of a stalled economic recovery will occur.

Gov. Jerry Brown and state lawmakers patched up the final $4 billion of California’s budget shortfall this year by hoping for a windfall economic recovery. Those hopes are now fading fast.

Tax collections in July were $538.8 million below budget forecasts, according to state Controller John Chiang.

The story was in Tuesday's edition of the L.A. Times...and the link is here.

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How to 'fix' a market: John Crudele

Relax, all Washington has to do is rig the stock market.

Yes, you heard me right: rig the market -- as in, make sure it doesn't go any lower and scare the hell out of all the good, conscientious investors who once again trusted Wall Street to do what was right by them.

Sure, it would be a black eye to the American way of life. We believe in free, fairly traded markets. But that was back when we were naive and thought that America would never lose its innocence, the Ryder Cup or its AAA bond rating.

This story was posted in the wee hours of Wednesday morning...and is an item from the New York Post. I stole in from a GATA release...and it's your first must read of the day. The link is here.

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The Fed is a Rogue Elephant: Ambrose Evans-Pritchard

The Bernanke Fed has more or less ignored headline inflation until now, arguing that what matters is “core” inflation. This strips out energy, fuel and food, which none of us consume of course.

Unfortunately, core inflation has been catching up lately. The Dallas Fed’s “trimmed mean” measure known as core PCE has risen (on a six-month annualized basis) from 0.9pc in January to 2.1pc in June.

So what the does the Fed do? It switches tack and says that headline inflation is not such a bad gauge after all. They do this knowing that the oil and food shock has subsided and that the headline rate will fall back for a while. This will create the impression that inflation is abating.

This longish piece was posted over at The Telegraph yesterday. It's a Roy Stephens offering...and the link is here.

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British rioters: the spawn of a bankrupt ruling elite

The riots in London and elsewhere in Britain are a backhanded tribute to the long-term intellectual torpor, moral cowardice, incompetence and careerist opportunism of the British political and intellectual class.

They have somehow managed not to notice what has long been apparent to anyone who has taken a short walk with his eyes open down any frequented British street: that a considerable proportion of the country's young population (a proportion that is declining) is ugly, aggressive, vicious, badly educated, uncouth and criminally inclined.

Unfortunately, while it is totally lacking in self-respect, it is full of self-esteem: that is to say, it believes itself entitled to a high standard of living, and other things, without any effort on its own part.

This story appeared in this morning's edition of The Australian...and I thank reader Wesley Legrand for sharing it with us. The link is here.

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Bail-outs chip away at France and Germany too

Investors have begun to question whether France and Germany can credibly underwrite the debts of southern Europe without losing their AAA ratings and succumbing to the crisis themselves.

Credit Default Swaps (CDS) measuring risk on German bonds have doubled since early July to 85 basis points, rising above British CDS contracts for the first time despite the London riots.

Non-EMU Sweden enjoys lower borrowing costs than Germany. This has not been seen for half a century.

This is another Ambrose Evans-Pritchard offering...and it's courtesy of Roy Stephens once again . I consider this worth the read...and the link is here.

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French bank shares slump as rumours swirl around Société Générale

Société Générale, France's second-biggest bank, lost more than a fifth of its stock exchange value at one point on Wednesday afternoon following rumours that the bank was in serious financial difficulties and had held an emergency meeting with France's president, Nicolas Sarkozy.

The sudden fall in the shares, which wiped almost €3bn (£2.6bn) off the company's market value, raised fears that the 147-year-old bank might be on the brink of collapse. A Société Générale spokesman said the bank "categorically denies all market rumours", but he refused to comment more specifically.

This was filed in The Guardian late last night...and it's well worth skimming. I thank Roy Stephens again...and the link is here.

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Fitch downgrades Cyprus, voices bailout concerns

Cyprus isn't a very big place...but, like every other country, it's got serious debt problems...and is just another brick in the wall for the European Union.

Fitch Ratings said on Wednesday [that] Cyprus will probably be unable to meet its financing requirements during the rest of this year and early 2012 and will likely need an EU bailout.

Fitch made the forecast in an announcement that it had downgraded Republic of Cyprus long-term foreign and local currency issuer default ratings to BBB from A-, with the outlook negative on long-term IDRs.

It said financing requirements in the last five months of this year will be close to 1.1 billion euros and another $1.2 billion needed in January and February.

This is an AFP storied posted over at the france24.com website yesterday and, once again, a tip of the hat goes to Roy Stephens. It's a very short read...and the link is here.

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CME hikes gold margins, but prices still rising

Here's a story that should be no surprise to anyone.

U.S. exchange operator CME Group said late Wednesday it is raising the margin requirements for trade in a wide range of gold products, effective Thursday. The speculative margin requirement for a new position in Comex 100 gold futures will rise to $7,425 from $6,075, or to $5,500 from $4,500 for existing "current maintenance" margins. However, benchmark gold futures extended their rise in the wake of the announcement. Comex gold for December delivery rose to $1,807 an ounce from its $1,784 New York settlement level Wednesday, ahead of the CME announcement.

This marketwatch.com story was posted late last night...and I thank reader George Findlay for sending it along. Here's the link...but the entire story is in the above paragraph.

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Many Gold Shorts Wiped Out, Losing Everything

Yesterday, King World News' London trader source told Eric King of the devastation of gold shorts and delays in the filling of physical orders. The blog containing his comments is an absolute must read...and the link is here.

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No sign of gold losing its appeal as it hits $1,780

Gold is rising because investors believe the world's monetary system is being debased – and there is no sign of this stopping.

These fears have sent the price to record highs this week, with the price hitting a record $1,780 in intraday trading yesterday.

Commerzbank neatly summed up the case for gold in a note to clients yesterday. "Driven by concerns on sovereign debt in Europe and the US, many market participants are currently piling into gold, because they believe it provides protection against purchasing power erosion due to inflation and currency devaluation," the German bank said.

"The yellow metal is viewed not only as a safe haven and store of value, but increasingly as an 'alternative currency' as well."

This story from yesterday's edition of The Telegraph is Roy Stephens last offering of the day...and the link to this must read piece is here. The photo of gold kilo bars imbedded in the article is worth the trip all by itself.

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Fed & QE to Cause Financial Collapse & Hyperinflation: John Embry

Eric King posted a blog of an interview that was posted at his KWN website late last night. It's not a long read, but I consider it well worth your time. The link is here.

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James Turk interviews Eric Sprott at GATA's London conference

GoldMoney founder James Turk interviewed Sprott Asset Management CEO Eric Sprott during GATA's Gold Rush 2011 conference in London last weekend and they discussed the precious metals price suppression scheme, Sprott's belief that silver will be the investment of the next decade, how the Sprott gold and silver funds differ drastically from the gold and silver exchange-traded funds, the catastrophic leverage in the banking system, gold's return as currency, and GATA's work.

I stole this Chris Powell introduction from a GATA release that I received shortly after midnight. The interview is 33 minutes long and you can find it at the GoldMoney Internet site linked here.

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The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists. - Earnest Hemingway

Yesterday's volume in gold was enormous as well, but down quite a bit from Tuesday. The net volume figure was in the vicinity of 315,000 contracts...and the preliminary open interest number increased an eye-watering 23,143 contracts. It will be interesting to see how much of this vanishes when the final report is posted by the CME later this morning. None of this will be in Friday's COT report.

Ted Butler and I were amazed by Tuesday's final open interest number in gold, which showed a huge decline of 6,628 contracts. The preliminary open interest number showed an increase of about 10,500 contracts, so that's a swing of over 17,000 contracts between the two reports...and I'm hoping most of Wednesday's big o.i. increase will disappear in the same manner.

As Ted mentioned above...and the King World News story confirms...there has obviously been big short covering going on in the gold market. This has been a major factor in the dramatic price rise we've seen in gold over the last week or so.

This number will be in tomorrow's Commitment of Traders Report...a report which both Ted and I are awaiting with eager anticipation.

Silver's preliminary open interest number for Wednesday was up an insignificant 84 contracts...which is absolutely amazing in the face of the $1.58 rise in the price...so there was obviously significant short covering going on there as well...and it's a good bet that the final o.i. number will show a fairly chunky decline which, unfortunately, won't be in tomorrow's COT report.

The final open interest number for silver on Tuesday's trading day showed an increase of 1,573 contracts which, considering the price action...which is a bit shocking considering that, from its high to its low on Tuesday, silver 'fell' about $2.50. Tomorrow's COT report will certainly shed more light on that.

Here's the 1-year gold chart, which is now the mostly wildly overbought it's been in the last three years. Of course there's good reason, as the last three business days have probably been panic short covering. But, as you can tell, the RSI and MACD lines are at nose-bleed levels.

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Can this rally continue? You betcha. If the shorts are covering, then this overbought situation could last for a very long time...and the bullion banks could finally get over run. I'd just love to see that happen, but I'm always on the look out for 'in your ear'. But, with the world-wide rush to gold that's now underway, it remains to be see if JPMorgan et al can engineer a decline of any consequence...as the dip buyers are out in force and are competing for long contracts with the Commercial shorts who are covering. Massive volatility is now the name of the game. You can expect this sort of volatility for the remainder of this bull market, so fasten your seatbelts...and ensure that your seat-backs and tray-tables are in the upright position, as it's going to wild.

Here's the 1-year silver chart...and as I said yesterday...it's in complete contrast to the gold chart. This is just 'da boyz' trying to wiggle out from under their massive short position...which Ted Butler says is a hair over 20,000 contracts...or 100 million ounces. But they ain't going to make it...at least not using the usual tried and true methods that they've employed for the last 25+ years.

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Both gold and silver rose sharply the moment that trading began on the Globex trading system at 6:00 p.m. in New York yesterday evening...and both ran into not-for-profit sellers within half an hour. Gold made it through the $1,800/ounce mark for a short time...and silver actually punched through the $39.50 price ceiling...but this wonderful turn of events for both precious metals didn't last long.

London is now open...and as of this writing, gold is down about nine bucks and silver is down about twenty-five cents. Gold's net volume is already well north of 80,000 contracts...and silver's net volume is a 'measly' 8,000 contracts.

Well, this has certainly turned into a Star Trek type of precious metal market...boldly going where no man [or woman] has gone before. This is all terra incognita. I'm only guessing, but I'd say that Phase 3 of this bull market is either here now, or waiting in the wings once we get one more engineered sell-off by JPMorgan et al.

It should be another wild and crazy day in New York once trading begins at the Comex open at 8:20 a.m. Eastern time...and as I said yesterday, be ready for anything.

I hope your Thursday goes/went well...and I'll see you here tomorrow.