Philman

The Great Dollar Pump of 2008: A Doomed Central Bank Intervention

NG, the only place you will pay $10 for a latte in France is at the airport, or in a fancy cafe in the center of Paris. Try buying a latte at a fancy restaurant in Manhattan. It is quite expensive. Most of France is still cheaper than the USA.

The dollar has a long way to fall, but, I admit, so does the euro, pound and a lot of other currencies. Basically, paper money will fall in value, everywhere, because they are printing too much. Gold and silver would fall in value (in more than a temporary way) only if the central banks could print it...but they can't. They can only use the futures market to manipulate the price in the short and medium term.

Mr. Conrad began the discussion of futures market price manipulation, and still leads the discussion, with the clarity of his reasoning, and the excellence of his writing -- but others are following the lead, and making discoveries beyond where Conrad leaves off.

Check out this article on Bloomberg. Apparently, everything that Conrad has been saying about corruption on the futures markets is slowly being proven to be true.

www.bloomberg.com/apps...

The Great Dollar Pump of 2008: A Doomed Central Bank Intervention

User 118015, are you joking! Are you a believer in socialism?

This takeover is an unmitigated disaster, proving that the credit crisis is far from over. The U.S. government will be forced to print up to $500 billion, as noted by James Conrad. That is extremely inflationary.

Do you believe that Soviet style communism is an efficient way of handling the economy? That is what we've now got, complete with Orwellian double-speak from the Soviet days. Except it is in America! Who would have ever believed it would come to this?

Capitalism is the best system, not socialism. Fannie and Freddie should have been forced to file Chapter 11 bankruptcy. Did you know that their former Presidents are going to get over $10 million in severence pay from the government? Incredible! All of us will pay for this, big time.

Socialism will sink us, just as it sank the former Soviet Union. Freddie and Fannie's bailout by taxpayers, after all profits were sucked out by executives, is the worst example of how socialism has taken over in America. It will put us into a Wiemar Republic style inflationary depression. Look forward to real inflation (not the baloney statistics coming out of Wash DC) of 30-40% two years from now, or much more.

The Complete List of Currency ETFs

Good work! A lot of meat in this article. No fluff. Nice!

Independence Day: Decoupling Gold and Silver from the Dollar

Bron, I tried posting this on your web blog, but, for some reason, it didn't make it through. Here are my thoughts on your feeling that there is only a retail, and not a wholesale shortage of gold and silver.

I would point out, in starting, that as a resident of Western Australia, you happen to be in the center of one of the biggest gold mining areas in the world (Australia, I believe, is #5 in the world now), in addition to being one of the most sparsely populated countries in the world. Since the mines are so close at hand, you may not feel the shortages as quickly as the rest of us do. What you say about free availability of wholesale gold and silver makes a lot of sense, except...

The shortages are not retail only. Johnson Matthey, the big silver refiner in Salt Lake City has stopped pouring 100 ounce bars. All capacity is now
dedicated to pouring 1,000 ounce bars. Why? Do retail customers buy 1,000 ounce bars? No.

100 ounce retail bars have nicer premiums, and are more profitable. As you point out, maybe they want to satisfy long term customers...banks, jewelers, etc.? But, the argument fails to convince. If they must use all their available resources to pour 1,000 ounce bars, it means that demand for 1,000 ounce bars, not just 100 ounce bars, is way up. This is because the average man on the street does not buy 1,000 ounce bars? Wholesale customers. Wholesale
demand must be so high that they cannot keep up with that wholesale demand. After all, previously, they managed to have the time and resources to pour both 100 ounce and 1,000 ounce bars.

Now, you will argue that, maybe, the 1,000 ounce bars will be melted down to make coin blanks, and those are in hot demand. But, the U.S. Mint just prints the coins. They don't pour their own blanks. Johnson Matthey, I believe, also makes the coin rounds.

But, let's say the 1,000 ounce bars are being supplied to someone else who makes the rounds. How would supplying a customer whose own customers (retail Mint producers) have demand that goes up and down like a roller coaster be any different than supplying the retail customers directly? Fickleness is fickleness. It doesn't become less fickle, simply because the U.S. Mint's name is on the order. And, besides, the retail shortage indicates that they are not remanufacturing the 1,000 ounce bars into retail coins and bars somewhere else. The market is simply not being adequately supplied.

The most likely explanation is that the 1,000 ounce silver bars are going to large investors, as well as electronics and jewelry manufacturers. In the meantime, UBS in Europe is reporting the "strongest gold sales volume since 2006" which was a banner year for volume. We have had a banner year, so far, in 2008, for dollar value sales, but, up until the price attack, not for volume. In 2006, I believe the ETFs sucked up several hundred tons of gold. Now, of course, the ETFs are not growing. Rather, it must be
banks, maybe insurers, jewelers, electronics manufacturers and even -- dare I mention the
possibility? CENTRAL BANKS, maybe Russia/China/ are demanding physical product.

At any rate, the demand must be primarily wholesale buyers. Otherwise, how could JM be so busy pouring 1,000 ounce bars that it has no resources left to pour more profitable 100 ounce retail bars? If they have good relations with larger customers, as you suggest, they should be able to delay the 1,000 ounce bars a bit, while make the extra money pouring more profitable premiums on 100 ounce bars. How could a reasonable long term customer deny them the possibility of making this money -- unless the wholesale customers are desperate for silver!

I suspect that the price of 1,000 ounce bars must be fetching premium simiilar to 100 ounce bars. But, who is paying the premium? Certainly not entities like the Perth Mint, or other wholesale end users. Could it be the Federal Reserve? It has bigger interests at stake, and to it, a mere $30-40 million might be well worth spending if doing soo advances its end game of supporting the dollar.

Anyway, I might note that some bank in Switzerland recently put in an order with the manufacturer of Kruggerands that is so large that they cleaned the place out! So, it was not a retail order, although the end result might or might not go partially to retail buyers.

Statistics on August demand in India just came out. The Indians consumed 100 tons in August, and it is not yet the real wedding/holiday season! August orders are just advance orders -- small potatos compared to what normally happens in September. This compares with 22 tons in July. The avid anti-gold/pro-stock market commentators are still ignoring this, and saying that Indian demand is "down sharply" for 2008 due to "high prices." Well, so-called "spot" price is about $800-830, right now. Is that very low? Is it very high? Apparently, it is low enough to spark a huge surge in Indian gold buying.

In short, my intuition and common sense tell me that we are in a severe shortage situation that is being masked by the fact that most of the big players know each other by first name, and are cooperating in not allowing the public to know the true situation, until later. The Perth Mint may be somewhat isolated from the hubbub, because of its location, and the fact that it has its own refiner, and is so close to so many gold mines.

Independence Day: Decoupling Gold and Silver from the Dollar

Bron,

Something big must be happening. Here's what I just learned from Bloomberg News Service:

"Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an ``unusually large'' order from a buyer in Switzerland."

"The U.S. Mint suspended sales of one- ounce ``American Eagle'' gold coins, Johnson Matthey Plc stopped taking orders for 100-ounce silver bars at its Salt Lake City refinery and Heraeus Holding GmbH has a delivery waiting list of as long as two weeks for orders of gold bars in Europe."

"Johnson Matthey's Salt Lake City refinery doesn't have the capacity to meet investor demand for 100-ounce silver bars, said spokesman Ian Godwin in London. He wouldn't comment on whether the company may expand capacity or end production. The refinery usually gets orders for 1,000 ounce bars from banks and silver grains from jewelers, Godwin said. "

From: www.bloomberg.com/apps...

Independence Day: Decoupling Gold and Silver from the Dollar

Bron,

I guess you could argue that the law that says they can only use U.S. mined gold could partially explain the shortage of gold eagles, though if gold were available, it would be easy just to keep U.S. mined gold for the Mint and sell foreign gold to other buyers who don't care. The USA is the 3rd biggest gold mining nation (bigger than Australia) in the world, so there's plenty of gold here.

Also, I just looked up the enabling law for the Mint, and they were clearly not being honest. It only limits them on gold sourcing, not silver. The U.S. Mint is supposed to source silver whereever it can find silver. They started rationing the silver American eagles even before the gold. Now, silver eagles have been suspended.

Today, I read that Johnson Mathley, the big refiner in Salt Lake City has suspended production of 100 ounce bars of silver, and are only pouring 1,000 ounce bars. Sounds like they are rationing. The 100 ounce bars are typically bought by investors, whereas the 1,000 ounce bars are bought by manufacturers of silver products, and the banks.
Meanwhile, I looked at the lease rates for silver, at the London Bullion Market. They are definitely negative. Very negative...but, for players like Mints, I suspect the rate will always be positive. I'll bet dollars to donuts that only fake paper claims to alleged vaulted silver get the negative rate. Mints need real silver, so they need to pay.

There are shortages everywhere. Something big is afoot...

Independence Day: Decoupling Gold and Silver from the Dollar

Looks like Conrad is a little ahead of the curve. I just read that, today, Thursday, the big Swiss investment bank, UBS, is now advising all its private wealth clients...yep...that's the rich people...to start buying gold. Since they are also the biggest of the world's bullion banks, and the investment division has lost so many clients, recently, that they'd be very eager to restore their client's faith with a bit of super-good advice...it seems to me that this fact is incredibly meaningful. See, www.bloomberg.com/apps...

Independence Day: Decoupling Gold and Silver from the Dollar

Lester, people who have gold have a currency that will always be accepted in every country, but as much as I love the yellow stuff, I don't think it can make you into a sovereign of your own realm. I think that, back in the early 30's, the government was "forced" to confiscate gold because the government had printed too many dollars, and, at that time, the dollar was "good as gold". In other words, the law said people who exchange dollars for 1/20th of a troy ounce of the yellow stuff. There was probably a run on gold by foreigners and Americans who were presenting huge numbers of dollars for gold. The gold at Ft. Knox just wasn't enough, maybe, and the Democrat President, Roosevelt decided to confiscate private gold. Hey, the Dems still want to unconstitutionally confiscate your property, and give it to the people who voted for them. That's nothing new! Wait to see what happens if Obama becomes President!

Independence Day: Decoupling Gold and Silver from the Dollar

Bron, how is the availability of gold for Perth Mint? I am wondering why the Royal Canadian Mint needs to beg to borrow 400,000 ounces, if there are 1 billion ounces of above-ground stock. What is happening? Any insights?

Independence Day: Decoupling Gold and Silver from the Dollar

Excellent article! Really hits to the truth that so many fools want to deny. It should be obvious that precious metals, like everything else, respond to supply & demand, not the value of the dollar, and yet, we have so many fools, even inside the people who commented on this article (User 52172 comes to mind), making so much market chatter that they take us off course. Where does the bitterness come from? Maybe, they are involved with the market manipulations Jim talks about? Anyway, Bravo! I agree with the article 100%!