A lot has happened, so I’ll just hit these points briefly and give you links if you’d like to look deeper.
MARGIN HIKES
The CME has raised margin again (gold up 21%, Silver up 16%), Of course they waited to do this as the price drops, thus compounding falling equity (positive cash) in traders account with more margin (deposit) to cough up to hold those positions.
http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv11-345.pdf
Then on 9/26/2011 the Shanghai Gold Exchange also raised the margin on silver from 15% to 18% (a 20% increase) http://www.sge.sh/publish/sge/jyzn/jysgg/7469.htm
HEDGE FUNDS
Some hedge funds have sold huge stakes in gold/silver, for a couple of reasons; 1. To book quarterly profits. 2. To meet margin requirements 3. To meet redemptions.
http://www.cnbc.com/id/44638898
On a whole hedge funds have been doing very poorly this year, and many investors are pulling out money from the hedge funds forcing them to sell holdings to meet redemptions.
LEVERAGED ACCOUNTS:
Markets all across the board experienced great volatility, margin clerks were forcing many leveraged traders (Hedge/Institutional/Individual) to close their positions, and in some accounts their positions were so underwater that they had to liquidate all holdings and those traders lost everything. In a situation like that, people often sell what they can, what they've made some money on, to satisfy the margin call.
Recently a 'rogue' trader at UBS lost $2.3 billion resulting in CEO's resignation, I wouldn't be surprised to find out over the next week, if other bank or hedge funds also imploded over these moves last week.
REGULATORY FRONT
Meanwhile the CFTC in the U.S. has been sitting on it's hands, they're probably been threatened with world chaos if they actually did their job and conclude the investigation in silver manipulation, (the longest in CFTC history) and got the banks out of their still massive short positions!
What I see is a last ditch attempt by these banks with massive short positions, to put their 'houses', their contractual paper obligations (futures, stocks etc) to deliver the metal, in order before another attempt at revaluation of the metals as monetary metals. JP Morgan, Goldman's etc, are all just corporations, which are designed to do the bidding of and limit the risk of it's share holders, they can go bust, probably will, and that's probably the plan but not before they deliver their positions in the monetary/precious metals into the hands of their masters.
U.S. MONETARY POLICY
Many were expecting QE3 (fresh currency unit creation) but at this time it was too threatening, the FED has become too visible a target.
-Trading partners of the U.S. have been complaining about the devaluation of the dollar through the QE’s
-Thanks to Ron Paul, the FED is front and center of the U.S. Presidential debates, and the FED and those benefiting from it would like to keep the status quo, even Rick Perry (Presidential Candidate) called Ben Bernanke’s printing ‘Treasonous’.
http://www.huffingtonpost.com/2011/09/12/rick-perry-ben-bernanke-treasonous_n_959356.html
They will eventually add another dose of the financial drug called QE but they will most likely wait until everyone is clamoring for more QE, because of market plunges etc, before the engage in more overt money printing, probably hoping that when they do, it’ll last through to the 2012 election. –I do think this may have been the part of the plan as Bernanke got this ball rolling (crashing of world markets) with his 'significant downside risk' quote in his most recent announcement. http://www.europac.net/commentaries/twist_paves_way_qe_iii
So the move that the Bernanke announced (coined "operation twist") doesn't create much 'new' dollars, as they are just re-shuffling their portfolio trying to bring the yield curve down (the interest paid on debt) on the middle to long end (15-30 year), by selling their present short term debt holdings (2-5 year). But please remember that 1. the FED have promised to continue to reinvest maturing debt (principal plus interest), 2. Keep interest rates low for at least 2 more years, and 3. buried in the details of the Fed announcement of Operation Twist is the policy of not letting the mortgage-backed securities roll off as they mature (remember all those ‘toxic assets’?). That means more "printing" to purchase the agency debt in order to keep the holdings at the same level. This is from their FOMC announcement: "To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. " So although there is less money creation there will continue to be some, and they’ve promised to hold down rates, if the market challenges them on this then we’ll see another round of QE (or whatever they want to call it).
At the same time that Bernake can say he’s 'tightening' (with Operation Twist) he’s also opened up unlimited currency swap agreements with central banks around the world. As mentioned in previous posts, the dollar is still the reserve currency of the world and most contracts are still in dollars, so perversely there can be rush into them, creating a increase in demand (when viewed in FX pairs) to get paper dollars to fulfill those contracts while at the same time they are being depreciated. Smoke and Mirrors. -and the problems in the Euro only help to support the dollar.
http://www.economonitor.com/blog/2011/09/the-fed-bails-out-eurobanks-yet-again/
There are dissenting voices within the FED, they are not all full blown Keynesian economists read what Fischer has to say;
https://mninews.deutsche-boerse.com/index.php/feds-fisher-signif-risk-recent-fed-pol-may-prove-ineffective?q=content/feds-fisher-signif-risk-recent-fed-pol-may-prove-ineffective
Bernanke is getting a lot of flack from the banking sector too, as this takes away much of their profit from lending. The banks are reluctant to lend, trying to repair their balance sheet (one of the reasons for, as of now, benign inflation), so this puts them in an even more precarious position. http://www.newsmax.com/MichaelCarr/carr-Operation-Twist-Hurt/2011/09/28/id/412533
–the unintended consequences of central planning trying to protect bondholders, shareholders, and reflate assets prices! For example BOA instead of declaring bankruptcy, restructuring itself, they are going to lay off 30,000 employee’s; http://www.newsmax.com/StreetTalk/Whalen-Bank-America-Bankruptcy/2011/09/08/id/410185
And of course pensioners and those living off the interest from their savings, are having to risk more chasing higher yields!
Still trying support a debt, consumption based economy. It’s time to allow capital accumulation through savings, which will lead to investment and job creation in the private sector.
U.S. FISCAL POLICY
I’m not even going to comment on Obama’s $400+ Billion plan, gimmicks and tricks to say that it’ll be paid for. The U.S. is fast approaching another ‘debt ceiling crisis’ in Congress, as the amount needed to continue to pay off debt escalates the time between needing to get new cash will get shorter and shorter. –I don’t think they’ll get to the election without dealing with this again.
EUROLAND
Over in Europe there no 'solution' in sight, there has been a yo-yo of rumors and talks recapitalizing the banks, nationalization of banks, hair cuts on PIIG bonds of 50--75% and growing calls that the ECB, EIB, EFSF (a 440Billion Euro fund) may need to buy 2 trillion Euro's of PIIGS debt to paper over the problem. --its still the same mess, but heading towards a resolution in the very near future! All of this has been helpful for the dollar, U.S. Government financing as people pile into the ‘safety’ of U.S. Treasuries. Some world leaders, particular treasury secretary Geithner wanted the Europeans to leverage the EFSF, but there is strong resistance to this in Europe.
http://www.cnbc.com/id/44673564
Interactive look at who owns whose debt,
http://graphics.thomsonreuters.com/11/07/EZ_BNKEXP0711_SB.html
As expected the Germans are pulling back;
http://online.wsj.com/article/SB10001424052970204138204576598643746175236.html
FDP and CSU not fond of further increase of EFSF. Leading figures from the FDP and the CSU, the Bavarian branch of the CDU, rejected any thoughts of a further increase of the EFSF (either directly or indirectly through leverage). FDP general secretary Lindner said that ” the chancellor should make clear immediately that there is no change to the business model of the EFSF”.
http://articles.economictimes.indiatimes.com/2011-09-27/news/30208315_1_euro-zone-efsf-finance-minister-wolfgang-schaeuble
German court curbs future bail-outs, bans EU fiscal union
http://www.telegraph.co.uk/finance/financialcrisis/8748393/German-court-curbs-future-bail-outs-bans-EU-fiscal-union.html
Banks are pulling deposits from each other, afraid to lend or have money on each others books.
http://www.bloomberg.com/news/2011-09-21/lloyd-s-of-london-posts-697-million-pound-loss-on-disasters-1-.html
Foreign banks are pulling funds out of the PIIGS banks, and other European banks are putting their money at the ECB deposit facility (where they get a little interest but less than intra-bank market) rather than leave it each others banks. See the chart below.
This combined with the citizens of European nations pulling out money from their banks, we have the ingredients for a bank run and collapse. Which ties back into the earlier point mentioned; the currency swap agreement between central banks for unlimited dollar funding.
U.S. Mutual funds (money market funds) have long pulled out massive amounts of buying of Euro Sovereign Debt.
http://www.businessweek.com/news/2011-09-28/euro-crisis-makes-fed-lender-of-only-resort-as-funding-ebbs.html
The Euro has always been about political unity, and starting with a monetary union was the first step, those in power want more and to do so they are going for fiscal unity, euro debt issuance, a supra-national institution which euro-states voluntarily turn over their sovereign fiscal policy to. Then they can come into the country and demand changes, like the IMF, ECB, WB are doing with Greece now, demanding that they sell off assets, and cut spending. This fulfills the intent behind the present euro creation;
"I am sure the Euro will oblige us to introduce a new set of economic policy
instruments. It is politically impossible to propose that now. But some day
there will be a crisis and new instruments will be created."
- Romano Prodi, EU Commission President, December 2001
SWISS FRANC?
–Safe Haven no more! Swiss draw line in the sand to cap runaway franc
http://www.reuters.com/article/2011/09/06/us-swiss-snb-idUSTRE7851LV20110906
Another Reason to Buy Gold: Franc Losing Safety Status
http://www.cnbc.com/id/44410858
Here is a chart of the minutes before and after the SNB (swiss national bank) promised unlimited purchases of the euro to peg the franc at 1.2, with new freshly created francs. Look at what the central banks did to the gold price moments before the announcment lest this extremely bullish factor lead to even higher gold prices and collapse in fiat faith.
GOLD IN SWISS FRANCS
JAPAN
Japan, has once again seemed peaceful, on the economic front, not yet announcing new measures to devalue against the world’s currency’s. This has allowed its citizens to continue to enjoy low inflation, invest abroad, buy up assets. --But you can bet that they’ll take their turn to devalue, as the export sector complains. They have already announced their intentions, set up the facilities, and the precedents, it’s a matter of timing, not everyone can devalue at the same time. Right now it is the emerging economies that are being given the chance to devalue against the dollar, see these charts below;
CHINA
Finance Minister Xie Xuren, in a statement released at the IMF meeting in Washington, said the IMF should also “promote diversification of the international reserve currency system and build the international reserve currency system into one with stable value, rule-based issuance and manageable supply.”
http://www.businessweek.com/news/2011-09-23/emerging-market-stocks-fall-in-biggest-weekly-tumble-since-2008.html
China to liquidate U.S. Treasuries
http://blogs.telegraph.co.uk/finance/author/ambroseevans-pritchard/
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011987/china-to-liquidate-us-treasuries-not-dollars/
EMERGING MARKETS
Are now being given a chance to devalue against the euro/dollar spheres, in this latest phase of currency wars, although it enhances exports making them competitive it has it's disadvantages, see below.
If you think Gold/Oil fell it's probably because of the currency lens you are viewing it in;
BRENT CRUDE IN INDIAN RUPEE
GOLD IN BRAZIL REAL
GOLD IN MEXICAN PESO
SCRAMBLE FOR PHYSICAL
Bolivia's central bank will buy gold from local producers to boost its
international reserves, the Andean country's Vice President Alvaro Garcia
Linera said today.
http://www.bloomberg.com/news/2011-09-07/bolivia-central-bank-to-buy-local-gold-output-to-boost-reserves.html
Romania's central bank will analyze the future structure of the country's
international reserves and a possible increase of the gold reserve, Mediafax
reported, citing Governor Mugur Isarescu.
http://www.bloomberg.com/news/2011-09-05/romania-central-bank-to-discuss-reserve-structure-mediafax-says.html
Central Banks are net buyers
CONCLUSION
Although many don’t recognize the causes, the social consequences of end of this 40 year debt super cycle, are continuing to rise, and at least it’s effects are being discussed.
-N.Y. Mayor Bloomberg warns of riots unless there are more jobs; http://www.newsmax.com/InsideCover/economy-bloomberg-riots-obama/2011/09/16/id/411312
Michael Moore says; http://www.realclearpolitics.com/video/2011/09/22/michael_moore_threatens_the_rich_lets_deal_with_it_nonviolently_now.html
Wrongly the blame will be put on gold/silver, free markets and capitalism, and not enough government and not enough regulation. When in fact debt based fiat money, fractional reserve banking, government intervention in the reallocation of capital (recessions), and redistribution of wealth through taxes and entitlement programs, bailing out politically connected financial institutions & companies, and bloated government agencies the world over are responsible. As it’s been said;
http://www.youtube.com/watch?v=iHtL3hUTAaQ
I feel for my generation, I fear that they will also choose socialism, and an authoritarian state rather than the present crony socialism/capitalism. There are young people who are going to be out of work, angry at the establishment, but many not understanding the reasons. Like the ‘Occupy Wall Street’ protest which are continuing for nearly 2 weeks now,
http://www.youtube.com/watch?v=meT8CJgEBQw
And I fear a state that through history has come to power through social unrest brought on by currency collapse; Mao in China, Napoleon in France, Hitler in Germany. –think it won’t happen? –here are the baby steps; http://dailycaller.com/2011/09/28/new-audio-nc-governor-struck-serious-tone-on-suspending-congressional-elections/
-‘suspend freedom, while we work out the problems, --trust us!’ –give me a break!
We'll have the G20, the IMF and ECB try and calm the markets again probably promise more money printing ('liquidity'), once they’ve exhausted themselves and that seems pretty close, as even the IMF needs a ‘bail out’ (see link below) they may try to bring SDR's up again, kicking the debt can up to a global entity, but after that doesn’t work, I believe it'll be back to revaluating the monetary metals. --not out of choice, but necessity and market forces.
http://www.telegraph.co.uk/finance/financialcrisis/8788223/Christine-Lagarde-IMF-may-need-billions-in-extra-funding.html
My physical metals haven't changed, but I've lost quite a bit of 'value' built up in paper positions over the year! --all in 24 hours! I'm changing part of my strategy, moving more to physical, and the structure of my portfolio, but will continue to add. They've taken the 'safe haven' status away from the Swiss Franc, the Yen is still trying to shake it, and now they've given gold and silver a good kick in the pants, this will buy them some more time, and faith from the masses to keep their savings in paper money. –I’m sure many who were looking at protecting their purchase power by buying gold/silver have been scared out over this last week!
Many dealers were cleaned out of inventory over the last weekend, many refused to sell inventory as it was purchased at much higher prices, those that do sell have raised premiums across the board, but most notably on silver. --and China/India and every creditor nation are more than happy to exchange their fiat paper IOU money in for tangibles at these lower prices, which may have also been part of the deal between these nations to keep things creditor nations happy and playing the game a little longer. We'll see what the open interest and bank participation reports say, but I doubt if these manipulators will telegraph their intentions before hand, so I'm not going to try and pick a bottom, just follow it down as best I can, and then if it keeps going lower and I don't have any paper left, it's time to sit it out. -it won't be too long.
I'll leave you with 2 long term charts;
Since I finished yesterday there have been 3 important points mentioning;
1. The German parliament OK the expansion of the EFSF. There is still the restraint demanded by the Constitutional court, but this is inflationary, more money to bail out banks (recapitalize/nationalize), and probably buy PIIGS debt.
http://www.forbes.com/sites/afontevecchia/2011/09/29/efsf-2-0-a-step-toward-a-euro-bailout-fund-but-still-has-baby-teeth/
2. As I wrote and suspected Bernanke promised more;
"If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation,"
http://www.reuters.com/article/2011/09/29/us-usa-fed-bernanke-idUSTRE78R5QK20110929
3. I should have seen this 9/16 press release from the CFTC, it would have been a clue to what was in the works, they are telling the public that they've allowed the banks 'relief' from following the rules to be enforced until Nov 30th, 2011, basically giving these large banks the ability to pile on more, without having to worry about reporting. --hopefully the CFTC will enforce position limits after that. -we'll see,
http://www.cftc.gov/PressRoom/PressReleases/pr6113-11
