Central bankers attempt to undercut psychology of gold buyers and fail...


Recommended Posts

As I understand it the Federal Reserve engaged in a massive naked short sale of paper gold futures recently which caused the drop in both gold and silver markets. Be aware that it exceeded the amount of gold that is mined each year! "Naked" short sale indicates that the seller does not actually own physical gold that is up for sale to a potential buyer on the other end of the contract, hence the term "naked."

One might wonder what would prompt a central bank to do such a thing. Ostensibly it was a move to dissuade people from owning physical gold given the "volitility" in its price.

Instead of getting the result desired by central bankers, people all over the world saw it as a unique buying opportunity and have literally lined up for hours to purchase physical gold.

I would encourage readers to go to www.kingworldnews.com and explore the interviews and blogs there to fully appreciate the import of these events.

One likely outcome might be a loss of confidence in the paper gold market where the paper dollar goes to its intrinsic value of zero while the price of real money for 6000 years, gold, goes up to unimaginable heights over time.

GG

Link to comment
Share on other sites

Yes, this is well known. It has been going on for about ten years - and no it never works. I am not sure why they do it, but they do not have a real-world epistemology.

A reverse conspiracy theory is that they are benevolent capitalists within the collectivist structure who want to keep gold affordable for you and your comrades. One can only guess...

Realize that monetary gold is only second in the demand structure, slightly ahead of industrial gold. Jewelry is the primary use of gold.

Link to comment
Share on other sites

Suppose you are using a public toilet and you have made a messy job. Which would you rather find on the spindle beside you: a roll of toilet paper or a solid gold spindle?

Link to comment
Share on other sites

Are you implying you would rather have toilet paper in your public washroom cubicle than find thousands of dollars worth of gold?

Aside from it's uses, gold is simply an optimal unit of exchange. You don't have to worry about anyone screwing with the supply of it.

Here's how you know gold is money:

In a free-market, with competing currencies, what easily transportable tokens of value would people choose to carry? Digital or paper notes created by a bank, surely, but if they had a choice between a bank that backed it's currency with physical assets and a bank that created its own fiat currency, which would they choose?

Which banks would have currency that businesses would prefer to accept? And between banks that did back their currency with physical assets, would those with higher reserve ratios be more or less preferable/trustworthy according to the market?

And of physical assets backing privately created currencies, what material would be ideal to use as reserves? The more technological a product, generally, the less stable it's price. So, for the sake of stable market value, the most basic materials would be ideal.

Link to comment
Share on other sites

This makes me worried of the possibility of PM confiscation like in 1933.

Gold was never illegal. The cases of actual confiscation were rare and noteworthy. The Secretary of the Treasury was William Woodin.

3) United States Pattern, Trial and Experimental Pieces by Edgar Adams and William Woodin First Edition 1913, Third Reprint 1959

This was the standard reference guide from its first edition in 1913 until the Judd book came out in 1959. Amazingly a second reprint edition of this book also came out in 1959 at the same time as the first edition of the Judd book. This work is still important for people doing research as, for almost a half century, all pattern coins sold were listed under “AW” numbers. This work is very incomplete, missing many pattern designs, and ignored die and hub trials entirely. Still, on occasion, a coin listed in this book which Dr. Judd thought was a mistake turns up.

http://www.uspatterns.com/basiclibrary.html

The law had a huge loophole for any coins minted before 1933 up to $100 face value total or about three months wages for an unskilled worker like a farmhand or factory worker (not at Ford). The actual seizures can be counted on one hand. Even a few years later, coin magazines of the 1930s publishes the London Spot Price for Gold. Collectors back then could buy coins that are considered "rare" today, such as the $3 golds, at or near the spot price of gold.

Link to comment
Share on other sites

Are you implying you would rather have toilet paper in your public washroom cubicle than find thousands of dollars worth of gold?

Aside from it's uses, gold is simply an optimal unit of exchange. You don't have to worry about anyone screwing with the supply of it.

Here's how you know gold is money:

In a free-market, with competing currencies, what easily transportable tokens of value would people choose to carry? Digital or paper notes created by a bank, surely, but if they had a choice between a bank that backed it's currency with physical assets and a bank that created its own fiat currency, which would they choose?

Which banks would have currency that businesses would prefer to accept? And between banks that did back their currency with physical assets, would those with higher reserve ratios be more or less preferable/trustworthy according to the market?

And of physical assets backing privately created currencies, what material would be ideal to use as reserves? The more technological a product, generally, the less stable it's price. So, for the sake of stable market value, the most basic materials would be ideal.

You're right. Better an ingot of gold and one's underpants full of shit than paper on the wall.

Link to comment
Share on other sites

Well, I gave you all a chance to comment in a rational fashion to the massive naked short futures sale by the Federal Reserve and what its consequence would be.

Instead nothing but irrelevant nonsense.

Here then is a commentary by Professor Antal Fekete of the New Austrian School of Economics:

http://www.professorfekete.com/articles/AEFWhoSaidDragon.pdf

<<<" WHO SAID THE HYDRA WOULD TAKE IT LYING DOWN

while its several heads were being chopped off one-by-one?
Antal E. Fekete
New Austrian School of Economics
I have never appealed to the so-called conspiracy theories in trying to explain the strange world of fluctuations in the price of monetary metals. But neither have I ever said that the fiat-money Hydra will take it lying down when it comes to chopping off its several heads one-by-one.
Markets for the monetary metals under fiat money
Here are the relevant facts:
(1) The U.S. government defaulted on its obligation to pay its short-term dollar debt to foreign governments and central banks in gold at a fixed rate, as confirmed by several international treaties and by the solemn pledges of several sitting presidents, on August 15, 1971. Subsequently it has been bankrolling a chorus of servile academic cheer-leaders and other sycophants to shout from the roof-top that the gold standard was a ‘barbarous relic’ anyway, quite ripe to be gotten rid of – in an effort to cover up the shame of fraudulent default (fraudulent because the U.S. did have the gold and could have lived up to its international obligations).
(2) Thus the U.S. confiscated some of the gold belonging to institutions outside its own jurisdiction, but could not confiscate all of it. University economics departments and research institutions have failed to investigate what gold at large will do in the long run. They just assumed that it will be business as usual without gold in eternity. Well, it didn’t quite turn out that way. Speculators soon started trading gold futures, first in Canada, then in 1975 in the U.S. as well. No universities and think-tanks showed an interest in studying gold futures trading and its long-run consequences. Why, gold has been reduced to
1
the status of frozen pork bellies. We know all that is to be known about trading frozen pork bellies, don’t we? Supply and demand, right? And when push comes to shove, it is easier to increase the supply of paper gold than that of frozen pork bellies, isn’t it? (With due apologies to the late Fritz Machlup of Princeton University for this interpretation of his theory of gold futures trading.) We may bypass the question whether our institutions ignored problems connected with futures trading of monetary metals on their own volition, or whether they did so under duress. As it turned out two scores of years later, the failure to study the consequences of the so-called demonetization of gold (euphemism for highway robbery) has caused an unprecedented world disaster: the disintegration of the world’s payments system that is now unfolding before our very eyes.
(3) A scientific inquiry would have shown back in the 1970’s that the gold basis (defined as the difference between the nearby futures price and the price for immediate delivery of gold) would be robust, in fact, it would be at its maximum (equal to the carrying charge, or opportunity cost of holding gold). But soon it would start its relentless decline all the way to zero and beyond. A negative gold basis, a condition known as backwardation of gold, would create an extremely unstable situation in international finance because it meant risk free profits for holders of gold. Knowledgeable market participants realize that persistently falling basis means increasing scarcity which, in the case of gold, is not and cannot be alleviated by current output from the mines. Output ultimately proves no match for the mass movement of gold going into hiding, first gradually, eventually reaching crescendo when the threat of permanent gold backwardation starts looming large. At that point all deliverable supplies of physical gold would be gobbled up by gold hoarding. In case of monetary metals, in contrast with all other commodities, high and increasing prices may not bring out new supply. Rather, they might make supply shrink. Monetary metals are exempt from the law of supply and demand.
Under permanent backwardation, as no gold were offered for sale at any price, the ‘price of gold’ would become a vacuous concept. Gold, silver and, soon enough, all other highly marketable goods would only be available through barter. In other words, paper money as we know it would simply cease to function. We cannot fathom how our complex world economy could operate under such circumstances. One thing was certain, though: the world economy would contract in a way that would make the contraction in the 1930’s appear as a blip on the screen.
(4) All bubbles, all currency and financial crises of the past forty years are direct or indirect consequences of the vanishing gold basis – whether we admit it or not. A few years ago Professor Robert Mundell of Columbia University invited me to attend his annual seminar at Santa Colomba, with most of the leading monetary scientist in attendance. I circulated a statement warning of the danger of permanent gold backwardation and how it would adversely affect the world economy.
I argued that permanent backwardation of gold would be a watershed- event. As long as the gold futures markets are open, U.S. Treasury debt is still gold-convertible (albeit at a fluctuating rate, never mind that the rate is minuscule). But no sooner had gold futures trading stopped after the advent of permanent backwardation than gold was no longer to be had in exchange for U.S. Treasury debt. The entire outstanding debt of the U.S. was worth not one ounce of gold. Not one gram of it. It is insane to pretend that this would make no difference in world trade, as pretended by official doctrine. This event would mark the transition from monetary economy to barter economy.
My missive did not provoke a single rejoinder. It was simply ignored. All the same, I have reasons to believe that people in the U.S. Treasury and the Federal Reserve started to listen and they took a crash course on the problem of vanishing gold basis and the threat of permanent gold backwardation.
(5) To summarize, in forcing the world off the gold standard in 1971 the U.S. government created a many-headed Hydra. The problem was compounded by the apparent gag order, muzzling research on the gold basis – as a face- saving exercise to cover up the fact of default.
Gold is not the same as frozen pork bellies after all
In waking up too late that there was a problem after gold futures markets have been flirting with backwardation for a year or so, officialdom was forced to act. Act it did in a typically haphazard fashion. A few days ago, on April 12 and 15 the paper gold market was demoralized by a ferocious attack on the lofty gold price. This in and of itself is proof that Bernanke is fully aware that permanent gold backwardation is imminent, and that it will create and unmanageable situation. It’s got to be stopped in its track at all hazards.
Well, well, well. Gold is not the same as frozen pork bellies after all. The Hydra is not taking it lying down. The kid gloves have finally come off.
Bernanke is trying to stop gold backwardation by selling unlimited amount of gold futures contracts through his stooges, the bullion banks. He is underwriting losses they are certain to suffer in due course. We can take it for granted that they haven’t got the gold to make delivery on their contracts. In fact, delivery of gold will be suspended under the force majeure clause. Short positions will have to be settled in cash, to be made available by the Fed’s printing presses. Gold futures trading will be a thing of the past.
Bernanke and columnist Paul Krugman, formerly his subaltern colleague at Princeton don’t understand that the issue is not the price of gold. The issue is backwardation or contango. In trying to wrestle the gold price to the ground the Fed makes “the last contango in Washington”* an accomplished fact.
From the frying pan into the fire.
Ostensibly a lower gold price would solve the problem Bernanke has. Demoralized gold bugs would be forced out of their holdings through margin calls. Disillusioned investors would shun gold. This would make physical gold available to rescue the strapped gold futures market.
In fact, however, a lower gold price is making the problem more intractable, not less. The Fed is diving from the frying pan into the fire. This is the point missed by almost all observers and market analysts. They ignore the underlying flight into physical gold that continues unabated, in spite of (or, better still, because of) the panic in the paper gold market. The Fed’s intervention in bankrolling short interest is going to back-fire, for the following simple reason. The Fed’s strategy is inherently contradictory. A lower price for paper gold makes it easier, not harder, to demand delivery on maturing futures contracts.
The more paper gold Bernanke sells, the lower the cost of acquiring physical gold in exchange for paper gold becomes. The price of the nearby futures contract will drop to hitherto unimaginable depths, relative to the cash price, making backwardation worse, not better. Ultimately this will make backwardation irreversible. Welcome to the world of permanent gold backwardation.
From what hole does the evil deflationary wind blow?
Academia and the financial press have utterly failed to recognize the relevance of gold backwardation as regards deflation. They might fret about hyperinflation as a result of unbridled money-printing (euphemism for the monetization of government debt). Yet the real danger is not on the inflationary but on the deflationary front as realized even by Krugman – while he is perfectly clueless on the question from what hole the evil deflationary wind blows (other than conservative wishful thinking).
Well, I can pinpoint the location of the hole to within yards for the benefit of Krugman. It is on Constitution Avenue, in Washington, D.C. The evil deflationary wind is blowing from the building of Federal Reserve Board.
If Bernanke thought that his attacks on the gold price would stem deflation, well, his efforts were counter-productive, to put it mildly. They have, in fact, made the flight into physical gold accelerate. Permanent backwardation of gold, and its concomitant, the re-invention of barter – the ultimate in deflation – will be the result.
There is no reason to fear that the Fed is pushing the world into hyper- inflation. In fighting the gold price the Fed unwittingly pushes the world into hyper-deflation.
All the same, it is destroying the dollar and the international monetary and payments system.
April 18, 2013.
Endnote
* The Last Contango In Washington, www.professorfekete.com, 2006-06-30

5">>>

Link to comment
Share on other sites

Also, Gulch, the price of mining gold and silver is very high, especially because of devaluation of the US dollar.

I haven't tried buying any PMs at these new low prices, but people are saying that all the dealers are saying "Sold Out" on all gold and silver. Not sure if that's true.

It doesn't make sense that they'd keep mining gold and silver at these prices, though.

Link to comment
Share on other sites

Dglg,

My favorite is http://www.apmex.com/

I just went to their site and find that they have plenty of certain coins in stock although there are some hot items which are not available.

Trick is to buy bullion coins so you don't pay much of a premium which they put on numismatic coins.

They ship by USPS registered mail for a flat rate of $25 so be sure to order enough to make it worthwhile.

If Antal E. Fekete is right we are about to experience the end of Western Civilization as we know it with some sort of collapse of world trade. I am confused as to whether it will be a hyperinflation or a deflation. I just hope I can afford to pay for gas so I can get to work and back each day without having to fight off hoards of starving desperate roving bands, gulp.

I scare easily.

gg

Link to comment
Share on other sites

[The naked in] "Naked" short sale indicates that the seller does not actually own physical gold that is up for sale to a potential buyer on the other end of the contract, hence the term "naked."

How can you sell something you don't own or that is owed to you? Though I understood little of Anta Fekete's article the following seems relevent:

Bernanke is ... selling unlimited amount of gold futures contracts through his stooges, the bullion banks. He is underwriting losses they are certain to suffer in due course. ... they haven’t got the gold to make delivery on their contracts. In fact, delivery of gold will be suspended under the force majeure clause. Short positions will have to be settled in cash, to be made available by the Fed’s printing presses.

Perhaps he's saying the banks are selling what they don't have because they can get cash from the fed, and instead of gold the buyer will be forced to accept dollars.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now