swsprime's  Instablog

For most of this year gold enthusiasts were frustrated by massive gold bullion sales on the London and NY markets every time the price of gold climbed above $980.

This large volume sale was a three for the price of one shot for the Central Bank Cartel, it:

1.) Created a sudden reduction in gold value

2.) Reinforced the value of most Central Banks massive dollar holdings

3.) Rattled speculator nerves


For the last three or four years as a further precious metal price deflator, Gold and Silver ETF’s have been inflating the apparent amount of physical gold and silver with their paper,  (see J S Kim’s masterly analysis of this scam – Are GLD and SLV legitimate investment vehicles?) 

So for a long time everything has seemed hunky- dory in the world of Fiat money with big market players and sovereign banks working hand in hand to manipulate the price of precious metal, however now something really bad has happened from their point of view - they have upset China, big mistake! 

Before I discuss this upset we need to look at what I believe happened way back to create a mountain of fiat paper promises called US Treasuries. It started in 1980 when one of our all American imaginary heroes became a live hero, that is when Ronald Regan was ripped from our two dimensional movie screens and made into the most powerful man in the world; President of the United States.

In order to attract campaign funds, Presidential candidates need to make promises to money sources. Some of these promises are documented and some are not. It is the ‘not’ ones that cause most of the future pain. As an example:

Monsanto had spent 12 frustrating years trying to get the FDA to approve Aspartame, which most, better-informed medical researchers then said was a Neurotoxin. Monsanto decided to pour money into the Regan election coffers and guess what happened after Regan got elected? Yep, the FDA realized that Aspartame was not so bad after all. Donald Rumsfeld, the President’s honky, who was himself president of G D Searle, got Aspartame approved by the FDA.

(By the way, how do you take your coffee, with or without sweetener?).

I believe another Regan promise was to the big money players to ‘free up’ banking, and here too the President proved to be a honest politician, in the American sense of these words. Wall Street was allowed to let greed rip with leveraged paper in a manner never seen before in the financial world. Nixon had already decoupled the dollar from gold, and now with Regan 'freeing' the financial markets, the American public was encouraged to borrow huge sums of fiat money (US Dollars) at low interest sucking in massive imports, which were then paid for with borrowed dollars brought back to the US by to sale of Treasuries to the exporting nations creating the mountain of fiat paper promises we have now.

Eventually someone has got to start paying for this debt by higher taxes or inflation (an invisible form of tax), and for many years to come that someone will be you and me and our children, and maybe our children's children.

But hey? It was a great ride, twenty-five years of borrowing from our suppliers to buy their products. They bought our promises (Treasuries) so we could buy their products- oil (Mid East), raw materials (Russia, Australia et. al.) and consumer products (Japan and China). 65% of the world’s currency reserves are now our paper – Wow! 

Now back to the upset -China is our biggest creditor, two trillion of foreign currency reserves, the majority of it Treasuries. So now they’ve got these Treasuries what are they going to do with them? Sell them? Who to? Not us! To other mugs? Nope, none of that works. So have they worked all these long years to provide us with all our plastic throwaway thingamybobs only to have collected a pile of paper they can’t now sell? Yep they have! Are they angry? You bet! 

But they have a strategy, they are not stupid, they won’t sink their economy by trying to sell their Treasuries, it won’t work, because they won’t find buyers at any decent price and if they try they’ll cause a panic, which will kill the value of the dollar and therefore their currency reserves.

Gold, (and to a smaller degree Silver), is the key; it is the only long-term (proven over 5000 years) true holder of value, i.e. real money. Here’s what I think they are doing: 

1.)   Keep all their own gold production (250+ tons p/a)

2.)   Buy gold on the open market when the price is right

3.)    Encourage their inhabitants to buy and hoard gold and silver

4.)    Unwind from Treasuries in any way they can short of destroying their
         trading market.

So we should see the precious metal market buoyant from here on in. As the Cartel sells sudden tranches on the London Market to deflate the price and increase the value of their Fiat Currencies, China will sweep in and pick up Gold and Silver at reduced cost. As China does this they will encourage others to sweep in also and buy on any price reduction and the support price will rise and rise.

The Fiat Cartel has about 30% of the worlds Gold reserves, so technically they could go on hitting the market with Gold sales for a long time, but in reality as the price rises, they will see these interventions as a lost cause and will hold on to their reserves as a growing asset. 

One Red Flag: The Cartel has some of the brainiest people on the planet working for them. How else could they run the Ponzi of all Ponzi schemes for such a long time? They have plans. I think one of these is in operation right now – Its’ called the IMF. They may have let the Gold price rip these past few weeks in order to hit it hard and shake out so called speculators (Talk about the pot calling the kettle black.)

The IMF is about to auction off 400 tons of Gold. That’s an awful lot of the hard stuff. How they sell it and who buys it could have a very big effect on the market. My bet is that the Chinese will buy it and the market will only ripple a little on the surface at the time of sale, but I could be wrong and the Cartel could manipulate the sale, selling in big chunks suddenly, and driving the price of Gold down as these 400 tons flood in.  Could be, but there are so many dollar holders, not only the Chinese, who are keen to reduce their holdings now that  I hope the 400 tons will be mopped up quick and people will be looking around for more. 

China, once the sleeping giant, has been woken up with a sore head, and kicking over the Golden Apple Cart will be only the first of its' many world shaking actions as it arrises. 

Good hoarding!   

(By the way, my spell checker insists I replace Donald Rumsfeld with Donald Rusted, Anyone know why?)
 

Disclosure: Long on SLW, COLUF, EXK, FNLPF, MFN, MISVF, MNODF, MRZLF, RPMGF, OSKFF, no ETF's.