Dear CIGAs,
Gold has taken on a life of its own as it bucks some headwinds:
1. China tries to talk it down but that seems like PRing your own book.
2. Germany lays verbal currency intervention on the Euro at 1.51.
3. The Wall Street Journal runs an article about the Fed breaking bubbles with regulations, which is more like blowing bubbles into hot air.
4. The first of the supersized Angels is at $1224. It was close this AM but that does not seem like much of a hindrance.
Jim Sinclair’s Commentary
This article is relevant as we witness gold taking a life of its own.
Gold seems to be in charge in the inverse dollar relationship tonight.
That is something I will not repeat.
More Evidence Gold is Being Hoarded as Comex Fulfills Gold Contracts With Paper
By Duncan Davidson|Dec 2, 2009, 1:31 PM
My bet that by 2020 we will return to some form of gold standard is looking better. Something is up when gold is being hoarded to such an extent that the futures exchanges cannot fulfill with metal but have to try to stiff the contract holder with paper. Now, they have done this in the past, and gotten away with it, but according to this story, never so aggressively.
Prof. Antal Fekete has been on this story for several months, and has set forth in some detail how the gold basis is being manipulated, perhaps because of hoarding. (The basis is the delta between the cash price and the next futures price.) Yves has had several posts on Gold Panic, and it is consistent with the good Professor’s analysis.
Another aspect of this story is the collapse of Barrick’s hedging strategy. Barrick Gold (ABX) is the largest gold mining company and had been following a really dumb hedging strategy which had been to take naked short positions (shorting gold they did not possess). In a world of gold hoarding, they may not be able to cover, even at a loss. The strategy was so risky that a conspiracy theory had evolved that Barrick was front-running the US government to keep the gold price down. Lending support to this is the question: why would a gold production firm try to cap the gold price? An answer which does not require the conspiracy is that Barrick had less gold in the ground than it wanted to reveal, and so was engaged in a confidence game of the first order. The weak Dollar (driving gold up) and the hoarding has called their bluff.
Gold-backed currencies, unlike fiat currencies, have the irreducible endpoint of debts being paid in gold, which has retained value throughout history. Fiat currencies have no such endpoint. You can make the argument that fiat currencies are backed by the productive capacity of the issuer, and that they have some irreducible value based on taxing that production. History has tested that case, and found it wanting. You see, fiat currencies tempt countries to over-extend.
What happens when the debts of the issuer are vastly beyond their productive capacity? Well, the country defaults, and the fiat currency is forcibly exchanged for scratch. A 2008 paper by Harvard Professor Rogoff and Prof. Reinhart, both members of the NBER (which calls recessions and recoveries) entitled This Time Is Different demonstrates that instead of fiat regimes making good, they have defaulted over and over throughout eight centuries of financial crises:
Jim Sinclair’s Commentary
I wonder if this contains any of the economic writers who were blissful over all the green-shots everywhere.
Washington Times firing 370 employees, Miami Herald 24
Dec 2 07:29 PM US/Eastern
The Washington Times will lay off 370 employees, reportedly around 40 percent of its workforce, as part of a major overhaul that will also see the paper distributed for free in some places.
In a statement, the Times’ president and publisher, Jonathan Slevin, said the cuts were part of a strategy to transform the paper into a 21st century media company.
"We have developed plans to secure our position and advance our vital role in an evolving media marketplace and through challenging economic times," he said.
Acknowledging the tough times being experienced in the media industry and economy as a whole, Slevin said future plans had to be constrained by "current marketplace realities."
"In this regard, the company is aggressively working to achieve efficiencies of scale that must include significant staff reduction of its 370 personnel."
Jim Sinclair’s Commentary
Maybe this is why Wall Street super firms are arming themselves.
Those guys are more apt to shoot themselves or each other than anyone else.
To the nice lady who wrote about unloaded guns locked in safes, this shows she has no experience with firearms.
North Koreans dare to protest as devaluation wipes out savings
Rush for dollars and Chinese yuan after Kim Jong-il’s surprise move to reassert control over economy
By David McNeill in Tokyo
Thursday, 3 December 2009
The North Korean leader Kim Jong-il is trying to smother his country’s fragile free market with a shock currency devaluation that has reportedly sparked panic, chaos and protests inside the isolated Stalinist state.
Monday’s devaluation of Pyongyang’s nearly worthless currency from 100 to a single won has wiped out the savings of impoverished North Koreans and generated a scramble for dollars and Chinese yuan, say sources behind the bamboo curtain.
Millions of Koreans have been given until next Monday to exchange their savings for the new won following Monday’s decree, which has caused "great confusion" and anger, says South Korea’s Chosun Ilbo newspaper.
Intelligence services in the South report that Pyongyang has stepped up security around the country of 23.5 million people as a safeguard against possible protests and riots, with army bases placed on standby. Officials are bracing themselves for a furious reaction to news that a deposit of 200,000 won in cash to a North Korean bank will yield just 1,100 won in the new currency. There were unconfirmed reports that brief protests on the streets of Pyongyang had already forced the authorities to slightly increase the amount of currency people would be allowed to exchange.
The devaluation has already sent the price of rice skyrocketing 15-fold, according to Daily NK, an online newspaper sourced by defectors and informers in the North. "This move will do nothing other than destroy the fortunes of the people," it warns.
- Economy and Financial System Face Eventual Great Collapse
- Government and Fed Actions Have Narrowed Hyper-inflationary Great Depression Timing to Next Five Years
- High Risk of Ultimate Dollar Crisis Unfolding in Year Ahead
By paid subscription (no financial relationship with JSMineset)
"Hyperinflation Special Report 2010"
http://www.shadowstats.com/
Jim Sinclair’s Commentary
The Chinese will do what they want to do, when they want to do it.
Wen labels renminbi pressure unfair
By Patti Waldmeir in Nanjing
Published: December 1 2009 02:00 | Last updated: December 1 2009 02:00
Wen Jiabao, premier of China, lashed out yesterday at demands for Beijing to allow its currency to appreciate, and suggested that foreign pressure for a strong currency could be aimed at reining in the country’s economic development.
Speaking at the conclusion of an EU-China summit in Nanjing, Mr Wen said: "Some countries on the one hand want the renminbi to appreciate, but on the other hand engage in brazen trade protectionism against China. This is unfair. Their measures are a restriction on China’s development."
He gave no hint that currency policy would change, repeating the standard form of words Beijing uses to describe its management of the renminbi.
"We will maintain the stability of the renminbi at a reasonable and balanced level . . . Maintaining the basic stability of the renminbi exchange rate has benefited China’s economic development and benefited world economic recovery."
The renminbi has been repegged to the US dollar since mid-2008, putting on ice the Chinese currency’s tightly managed rise during the previous three years against the dollar.
Jim Sinclair’s Commentary
Pakistan today.
Pakistan’s Zardari on borrowed time
Wed, Dec 02, 2009
PAKISTANI President Asif Ali Zardari’s rule looks terribly tenuous – there’s no two ways about it.
Political tensions forced him to transfer authority over Pakistan’s nuclear weapons to the prime minister last week.
It was a symbolic move, since the military remains in control of the arsenal.
But it highlights the deeply unpopular Mr Zardari’s scramble to pacify the opposition and head off calls for his resignation.
The turmoil raises the possibility, although remote, that another civilian government will fail to serve a full term in a nation ruled by the military for over half of its 62-year history.
Jim Sinclair’s Commentary
The only difference between Germany and the US is Germany is speaking about it. This is probably another method of oral intervention that is euro 1.50 related.
Angela Merkel alarmed by worsening credit crisis
The German government is rushing through a fresh package of measures to shore up ailing banks and prevent a second wave of the debt crisis suffocating large parts of manufacturing industry.
By Ambrose Evans-Pritchard
Published: 10:14PM GMT 30 Nov 2009
"We are in a very critical situation," said Chancellor Angela Merkel in her weekly radio address. "We are going to discuss with leaders of the financial institutions what can be done to head off a credit crunch."
The move comes days after the Bundesbank revealed that German banks face a further €90bn (£82bn) of likely write-downs over the next year.
Leaders of the new coalition are to meet industrialists and bankers tomorrow to thrash out an emergency plan. The proposals include a €10bn scheme to purchase toxic securities from banks. The idea is anathema in Germany and faces stiff opposition from Mrs Merkel’s Bavarian and liberal partners.
The renewed sense urgency follows a flurry of warnings from economists and business groups over the risks of a credit contraction.
A survey by Munich’s IFO institute revealed yesterday that lending conditions in Germany had tightened sharply in November. Some 53pc of large manufacturing companies found credit hard to obtain, suggesting that the problem has spread beyond small firms without access to the bond markets. "The financing situation of firms remains critical and poses a risk to economic recovery," said the group’s president, Hans-Werner Sinn.
