Gold Consolidation Nears End

Jim Willie CB
Jim Willie CB is the editor of the "Hat Trick Letter"
Apr 30, 2009

The battle for survival continues, as banks resorted to basic revisionist accounting (aka fraud) in order to claim improved health. Their reward was a financial sector stock rally of the most queer kind. The rally depended on all manner of contrived demand from the most sordid of chambers opposed to free markets, using tactics that are typically abhorrent. Next this beleaguered sector must withstand valuation checks and fair value scrutiny. Unless analyst dissent is declared illegal, the sector should fall in value. The new facade of Stress Tests has filled the void left by Financial Accounting Standards Board (FASB) concessions that led to phony balance sheets. These Stress Tests are neither a test nor a reflection of stress. They are rigged excuses for continued funds, and worse, might be used to coerce healthier regional banks into merging with dead Wall Street banks laced with insolvency and fraud. These ridiculously hollow institutions continue to engage in sales of USTreasurys with rampant failures to deliver funds in order to maintain cash flow, not mentioned in quarterly earnings reports. See a related article entitled "Wall Street Selling Imaginary Treasuries" on Market Skeptics (CLICK HERE). This is called naked shorting, counterfeit, and not even complicated fraud. Imagine selling lemonade at a stand and handing over empty glasses. Regulators remain quiet on the subject, a continuation of permitted fraud from lack of oversight that continues from the last administration to the new. Nothing changed except claims of change. The US financial sector is reminiscent of an army of zombies that usurp the vitality of any firm they come in contact with, aided by a guiding government hand that directs living firms into their snares (and shares).

The USGovt should not take control of any bank or corporation unless it plans to fix it, carve off the rubbish, send the acid assets into the drain, discontinue lunatic contracts, and sell the remnant core in the open market. The cynical view, which is wholly embraced here, is that the USGovt is doing precisely that, except a long pause is designed to take place where Wall Street firms under the direction of Goldman Sachs (aka USDept Treasury) engage in profound fraud from TARP and other funds, until the system is sufficiently exploited, and then the big banks collapse from within before any resolution or sale can take place. Watch General Motors fail before it can walk (or drive) even a few months down the road. The primary purpose of government takeovers is to enrich Wall Street firms, and to conceal the past fraud on a gigantic unprecedented scale. Fannie Mae and AIG were nationalized to hide bond counterfeit in the former and credit derivative losses in the latter. One should be aware, certainly not a broadcasted fact, that the special inspector general for TARP funds Neil Barofsky working on behalf of the USCongress has already recommended 40 criminal investigations for fraud from the total over $1000 billion in its funds disbursement during his ongoing audit. The primary focus is AIG payouts, for which Goldman Sachs has steered some very suspicious redemptions at 100% parity. Wall Street would call the program a success. Administrators would call it a great thrust of desperately needed liquidity into banks. The public should know that the program is run by the same bankster criminals and is laced with the same disease that produced the original bank crisis: fraud. The absence of broad disclosure remains the cloak to conceal the massive abuse of public funds.

The US Federal Reserve is trapped. Not only does the 0% monetary policy put them in a corner without options, but ownership of a couple trillion$ worth of heavily impaired bonds has given the august overseer of failure and fraud and money laundering a bad case of constipation on a dead end street. Any change in either situation pushes USTreasury interest rates up, pushes up USAgency Mortgage rates, and renders great harm to the credit markets. The dirty secret is that the USFed is stuck in mud with a bad diet of offal on a road to certain ruin. The dirtiest secret of all might be that the USFed is engineering an orderly collapse of the USEconomy from starvation of Main Street of economic bread, namely credit.

GOLD STRUGGLES HIGHER

The gold consolidation has been like a crock pot slowly cooking a beef stew over a long stretch, as hungry observers whet their appetite with hors d'oeuvres with the promise of bountiful meals. The gold chart presented in the last articles took a more long-term view, as it described the formation of the Right Side Handle in a clear bullish reversal pattern. That consolidation continues. Since February when gold touched the 1000 mark, the selloff and profitaking have taken place amidst a sequence of extraordinary USGovt and US Federal Reserve policy decisions. Gold actually fell following the announcement of $1050 billion in monetized USTBonds and USAgency Bonds, if you can believe that! The reason was an avalanche of (probably illegal) short COMEX futures contracts timed simultaneously, much like calculated denial of oxygen to a runner at the start of a race. The propaganda was that investors were worried about continued deflation, without benefit of knowing what deflation is. Monetary inflation has been historically off the chart, which should include credit derivatives and futures contract commitments.

The incident at the end of March involving Deutsche Bank and the COMEX pointed out serious exchange violations in all likelihood, as D-Bank surely did not hold 90% of its short gold positions in collateral. The German flagship bank almost defaulted. None of the big four banks hold proper gold collateral, routinely, and regulators look the other way. That is just another form of naked shorting, without prosecution. D-Bank in a panicky fashion came up with 850 thousand ounces of gold so as to satisfy a delivery, precisely at a time when the Euro Central Bank just happened to sell 1.141 million ounces of gold. The EuroCB event was anything but ordinary, but was treated as an asterisked event, with no explanation.

Regardless of market interference, despite all that the Powerz throw at gold, the weekly chart looks promising with a possible stochastix crossover in the making and a MACD momentum ready to turn up. The cyclicals look promising. A big battle is being waged. The bulls need a run above the trendline set from February joining three local tops. A move to 925 would establish the bullish rise out of the current pattern. The bear case would have a breakdown below the 860 mark toward 850 again. However, the moving averages show support, especially the 50-week MA. In the last week, some solid support has been seen with the less stable 20-week MA. Other extremely important factors are at work behind the scenes, which weaken the position of the gold cartel significantly this spring and into the summer. Whatever risk was present at the end of March will be more acute at the end of June.