Today's Market Observation 11.02.2009 Mon Tue Wed Thu Fri Kirby Archive

Disinformation or Ignorance?

Take Your Pick

BY ROB KIRBY | november 2, 2009

Over the past few weeks, anecdotal accounts of shortages of physical gold bullion have been surfacing around the world. Empirical observations supporting this development include [below excerpted from Eric DeCarbonnel – Market Skeptics];

• Mints are seeing a sharp rise in sales this year due to interest so strong that dealers are reporting a shortage of products such as Krugerrands and one-ounce bullion coins.
• China is now pushing their citizens to buy gold.
• Anecdotal accounts from “boots-on-the-ground” gold and silver brokers are reporting heavy ‘net with drawl of physical metal’ at COMEX depositories, raising doubts as to whether there is gold in inventory to match existing warehouse receipts.
• London gold vaults are being emptied. Hong Kong is pulling all its physical gold holdings from depositories in the UK and moving their $63 million worth of gold home to newly built vaults near the city's airport. Dubai is also planning to withdraw its gold from London. Meanwhile, private investors and Swiss ETFs continue to move gold out of London.
• Many large money managers who were formerly in paper gold are now demanding physical gold bullion instead.
• Anecdotal accounts I have already reported on, during the week of Oct. 5, some large allocated physical transactions that were settled in London under VERY strange circumstances. Banks like JPMorgan and Deutsche Bank (who sold endless amounts of gold futures at prices of 950 to 1025) and then tried to make “side deals” with the folks they sold the futures to – offering them spot + 25% (around 1,275 per ounce) to settle in fiat – after their counter parties demanded [allocated settlement] substantial tonnage of physical gold bullion.

Additionally, wide-spread reports specifically relating to COMEX include:

• Delays and complications in the delivery process have become increasingly commonplace. It is taking weeks and possibly even months, and sometimes dozen of inquiries, for investors to get the gold they already own out of the warehouse.
• More restrictions are being applied to overseas buyers requesting delivery.
• Some brokerages will not help with the delivery process or refuse to help even after the commissions are paid.
• Investors withdrawing their 100oz. bars from the Comex depositories are being given bars with incorrect serial numbers or weight.

The Fiat Empire Lashes Back

Responses to those of us reporting these unfortunate, criminal developments in the gold market have included hysterical, clownish rebukes from ‘pretend’ financial journalist attack-dogs and hastily contrived, inaccurate diatribes by highly conflicted pundits / commentators.

One conflicted diatribe I had the displeasure of reading over this past weekend was a rambling dissertation extolling the virtues and infallibility of fractional reserve banking – excerpt below:

“Where so many of these people [goldbugs] are wrong is that they look at the numbers [open interest] & conclude that if all the numbers [contracts] were called on then they would default. They are simply ignorant that most all COMEX contracts are delivered [settled] in cash. They make the same stupid mistake with LBMA.

These institutions [exchanges] have been running for decades on fractional lending.

Why all of a sudden should investors change from what they have been doing for the last 40 years? Another aspect that is stupidly overlooked.

Many of these contracts can be purchased for a few hundred dollars; yet with gold contracts control 100oz of gold. So a $100 contract covers $100,000 of bullion

The screwed up goldbug says, “where will they get the gold to cover these contracts working on the presumption that all will be called on. But he fails to think it through - that for all the gold that is “sold short”, the buyer must come up with the money to purchase it.

For every holder who has a $100 contract now has to pony up the difference to purchase the bullion at $100,000

This is where the goldbugs simply fail to engage their brains.”

It is tragic to read such utter tripe and its author [who I will not name, to spare them public ridicule] should be ashamed.

You see folks, what the author of this “fertilizer” appended above did not mention in his glorification of fractional fiat reserve banking is the following, which we are so aptly reminded of by none other than the Dallas Fed President, Richard Fisher;

“I have spoken in previous speeches of our “faith-based currency,” a term I use only slightly tongue in cheek. The dollar—like the euro, the yen, the British pound and other currencies—is what economists call a fiat currency. It is backed only by the federal government’s power to raise the revenues needed to meet its obligations and by the rectitude of the U.S. central bank. If the market were to lose faith in either assumption, the dollar would be debased.”

The key here folks, is that “FAITH” is the glue that holds together ANY fractional reserve banking system – PERIOD!

As Mr. DeCarbonnel stated,

“Gold is becoming money once again.”

This should come as no surprise to any of us, because gold has ALWAYS been money. We know this because every Central Bank in the world – despite their attempts to fool the public by ‘demonetizing gold’ has ALWAYS listed gold bullion as an official reserve asset.

Remember folks, it was none other than the former Vice Chairman of the Federal Reserve, Alan Blinder, who appeared on PBS back in the 1990s and uttered the famous words,

"The last duty of a central banker is to tell the public the truth."

In recent weeks and months the buyers of gold futures and paper promises have increasingly become “monetary interests,” i.e., foreign Central Banks – who have clearly recognized the fiat profligacy of Anglo-American Central Banking and their rampant gold price rigging. The reason for the physical shortages of gold bullion ARE SPECIFICALLY because these entities possess more than adequate means to produce the fiat money required to purchase ALL the “relative pittance” of physical gold bullion backing the ridiculous amount of paper promises of gold that have been sold into the market place.

Even a blind squirrel [or an informed shill, perhaps?] should be able to stumble across the litany of actual, historical evidence that shows how ALL fractional, irredeemable, fiat money systems ever devised by mankind have ended in abject failure.

Today’s fractional reserve gold market will be no different.

The last duty indeed! Have you got physical gold yet?

Today’s Market

Overseas equity markets began the week on a negative note with Japan’s Nikkei Index dropping 231 points to 9,802. North American markets went the other way with the DOW adding 76.70 to 9.789.40, the NASDAQ ahead 4.09 to 2,049.20 and the S & P adding 6.70 to end the day at 1,042.90. NYMEX crude oil futures added 1.08 to finish the day at 78.08 per barrel.

On foreign exchange markets the U.S. Dollar Index dropped .18 to 76.23.

Benchmark interest rates: The 5 yr. Government bond finished the day at 2.34% while the 10 yr. bond ended the day at 3.43%.

Precious metals advanced across the board with COMEX gold futures adding 14.50 to 1.062.20 per ounce while COMEX silver futures gained .09 per ounce to 16.43. The XAU Index added 1.45 to 158.09 while the HUI Index added 3.66 to 394.55.

On tap for tomorrow, at 10:00 a.m. Sept. Factory Orders data is due – expected +1.2% vs. prior -.8%. At 2:00 p.m. Oct. Auto and Truck Sales data is due.

Wishing you all a pleasant evening!

Rob Kirby
Registered Representative