Traditionally, metals markets are supposed to be a solid fundamental signal of the physical and psychological health of our overall economy. Steady but uneventful commodities trade meant a generally healthy industrial base and consumption base. An extreme devaluation was a signal of deflation in consumer demand and a flight to currencies. Extreme price hikes meant a flight from normal assets and currencies in the wake of possible hyperinflation. This is how gold and silver markets were originally designed to function – however, welcome you to the wacky world of 2013, where bad financial news is met with the cheers of investors who believe stimulus will last forever, where foreign investors dump the U.S. dollar in bilateral trade while mainstream dupes argue that the Greenback is invincible, and where everyone and their uncle seems to be buying precious metals yet the official market value continues to plunge.
Is this weird? As Bill Murray would say: “Human sacrifice! Dogs and cats living together! Mass hysteria…!”
The reason our entire fiscal system now operates in a backwards manner is due to one simple truth – every major indicator of our economy today is manipulated by our central bank, which uses its printing press to prop up everything from equities to treasuries to municipal bonds. They openly admit to it. They are proud of the fact. They swagger about as if they are the heroes of the day. They act as if we should be thankful. But what is reality here?
First, let’s lay out some very straightforward undeniable facts about our economic situation that no one with any intelligence could argue against:
Fact #1 : Our Economy Is Supported By Federal Reserve Stimulus
For the past few years, the Fed has created dollars out of thin air to fill the debt void in corporate banks, in U.S. Treasury Bonds, in city and state municipal bonds, in stocks, and even in foreign banks in the EU. Former Federal Reserve Chairman Alan Greenspan and current branch head Richard Fisher have both admitted in mainstream interviews that stock markets are essentially sustained by the central bank, and that this has been done to give people the psychological illusion of economic health. This stimulus has been relatively constant in one form or another, from TARP bailouts to QE1 to QE3. Fed interest rates on bank lending have been artificially reduced to near zero, meaning international banks can borrow money from the Fed (which it creates from thin air) at almost no extra cost. The fiat is flowing nonstop.
Fact#2: Our Economy Is Addicted To Stimulus
Anytime the Fed suggests it might end or “taper” stimulus measures, the stock market takes a dive. Anytime there is a semblance of good economic news, the stock market takes a dive. Anytime conscientious government representatives (what few there are) suggest that uncontrolled Fed printing is dangerous and should be stopped, Fed or Treasury officials claim that without such stimulus measures, everything will collapse.
Anytime there is detrimental economic news in the mainstream, the stock market rises as investors take bets that the Fed will continue stimulus for just a little longer. I think it is safe to say that it is a fact that our financial culture has become utterly addicted to money printing from the Fed.
Fact #3 : Stimulus Has Done Little Or Nothing To Improve Our Economic Situation Since 2008
Where are the tangible benefits of the Fed printing bonanza? Yes, our debt crisis has been stretched out for a few extra years, but has it been solved? Of all the trillions in national debt accrued through government spending, where has the money actually gone?
Have lending standards been relaxed, and are private loans (not corporate loans) anywhere close to pre-2008 levels?
Have real jobs with sustainable incomes actually been created? Or, have millions of full time high paying jobs been replaced with low hour low pay wage slave jobs? Is the Labor Department counting temp-jobs with three month turnovers created by big box retailers like Walmart as real jobs? (Hint: The answer is yes.)
Has the housing market actually improved, or, are private owners disappearing as big banks and corporate investors swoop in to snatch up insolvent properties for pennies on the dollar and then putting them back on the market as rentals? (Hint: The answer is an emphatic “yes”)
Is the stock market really on solid footing, or, if stimulus stops, will it completely implode?
What has stimulus actually accomplished other than sacrificing the stability of our currency for the sake of five years of financial doldrums?
Fact #4 : Stimulus Cannot Continue Forever
This is one fact the average mainstream financial analyst does not seem to grasp. I hear the argument that foreign exporters need the U.S. and the dollar, and that they will “never” dump the greenback. I’m sorry to have to break it to those folks, but they are ALREADY dumping the dollar in bilateral trade with each other. China, the second largest economy in the world, the largest exporter/importer in the world, and the largest foreign investor in U.S. dollars and treasuries, has been slowly but surely removing the dollar as the reserve currency in most of its international trading:
I could go on and on and on. The latest news announces that China has just signed a new deal with Russia supplying china with 25 years worth of petroleum, and this oil will NOT be purchased in dollars, meaning the Greenback’s status as the petrodollar is being openly challenged:
Foreign investors are moving away from the dollar. This is a fact, and it will inevitably lead to the end of the dollar’s world reserve status, and thus, the end of the dollar as we know it. Stimulus, at that point, would be useless, as our currency’s overall value crumbles and the Fed is forced to hyperinflate just to pay the bills. Stimulus will end, one way or another, and when it does the results will be the same; moderate to severe collapse followed by skyrocketing prices on all goods. The longevity of the event will depend on how it is handled.
Gold And Silver Go Three Dimensional
As I pointed out earlier, metals markets are supposed to reflect certain fundamental trends in our fiscal system. However, as has been thoroughly documented, international banks like JP Morgan and companies like the CME have gone far out of their way to manipulate PM markets. JP Morgan has been caught red handed using coordinated short positions to force silver down. Gold and silver certificates (otherwise known as ETF’s) have been issued by banks for literally tons of metals that don’t exist. There is no vault where these metals are held. JP Morgan’s physical holdings are limited, and when they finally run out, the scam will be exposed, and the ETF market will go down like the Hindenburg.
Official market prices for gold and silver have seen a heartbreaking drop in the past few months, yet, foreign central banks around the world are buying like they know something average Americans do not. China is set to become the largest holder of Gold reserves in the next two years:
Russia continues to stockpile gold every month for the past nine months:
Sales of U.S. Mint gold and silver coins are hitting record highs in 2013:
So, if demand is high, and purchases are high, then why is the market price on metals going down. I believe this conundrum has much to do with something I warned about years ago as a sure signal of coming economic breakdown; namely, the decoupling of Paper Metals from Physical Metals.
Investors are beginning to shun ETF’s and fake gold and are beginning to buy only physical holdings. The official market value is based almost entirely on the flow of ETF’s. People stop buying paper metals, and paper metals go down. But, this is absolutely no reflection of the real value of physical coins and bars on the street. This trend is dangerous for the manipulation game headed by giants like JP Morgan. The more physical gold investors buy, the less they have to back their fake ETF’s. Eventually, they will be exposed, and metals trade will break through the 2 dimensional world of paper trading into 3 dimensional physical supply and demand.
This is probably why JP Morgan has suddenly announced that the bank will be leaving commodities trading entirely:
The news come conveniently as multiple large banks including JP Morgan come under scrutiny by regulators for everything from energy price manipulation to shadily run “metals warehouses”:
Both China and Russia have begun discussing a new Bretton Woods-style agreement which would back the Yuan with gold and change the very fabric of the international monetary system. This concept falls right in line the developing nations’ demand for a replacement of the U.S. dollar, and, the IMF’s new Special Drawing Rights currency, which is partially valued in gold, and backed by the IMF’s unaudited gold horde:
JP Morgan fleeing commodities markets? Paper gold decoupling from physical gold? China and Russia suggesting a new Bretton Woods? Is this a signal for something monolithic on the horizon for the global economy? If there is a sudden shift by developing nations away from the dollar and towards a basket currency system partially valuated in gold, this would be disastrous for the American fiscal structure. I have been tracking the slow dump of the greenback since 2006, and I have to say, I’ve never seen escalation like I have seen in the past year. If foreign central banks are planning to drop the dollar as the world reserve, their behavior in metals markets suggests they may be ready to act soon.