SGS Notes: We're sending out our newsletter mid-week this issue because there is so much going on right now we want you to be aware of. The JP Morgan news is HUGE… so we are featuring various articles this week about that and the implications for all of us.

There are also things happening in the Eurozone and in Greece that will affect us all dramatically. Hold on to your seats, the ride is about to get bumpy. We're looking for the end of the metals manipulation when physical silver prices detach from the ETC prices… should be soon. We saw silver spot dip below $27 this week, and, looking at the Gold/Silver ratio… it's up quite high - again. Remember: that ratio SHOULD be in the 16/1 range. Still a long way to go.

Dismal Metals Sentiment - Just What Bernanke Ordered
Jeff Lewis

Since the dramatic drops the silver market saw in May and September of last year, prices in the precious metals market have been suffering from an excess of negative sentiment. This adverse perception is weighing on metal prices and keeping investor demand at bay.

Furthermore, although investors have continued to buy physical silver, the overall quantity being purchased has declined significantly, resulting in reduced support for the metal's price.
Nevertheless, the supply of silver is naturally limited by the quantity existing in the Earth's crust, despite ever growing industrial applications for the metal and rising price inflation. This key combination of factors still provides a strong fundamental basis for continuing to hold silver over the long term.

Could Weak Silver Sentiment be Conveniently Manufactured by Central Bankers?
Interestingly, this depressed silver market sentiment picture seems to be the perfect political tool needed during a U.S. election year to lend much needed psychological support to an ever weakening U.S. Dollar in terms of its ability to purchase goods and services.

Keeping silver and other precious metal prices low by depressing market sentiment, and perhaps even engaging in covert market intervention, seems suspiciously convenient after such an excessive amount of liquidity has already been pumped into the U.S. monetary system by the U.S. Federal Reserve Bank's highly controversial quantitative easing measures promoted by Fed Chairman Ben Bernanke.

In addition, given the high amount of liquidity the European Central Bank needed to inject to deal with the debt troubled Eurozone countries like Greece, Spain, Italy, Ireland and Portugal, the increasingly obvious end result will be higher consumer price inflation, despite ongoing denials by central bank and government officials.

More QE Measures Likely as U.S. Economy Languishes in Election Year
Bearish for the Dollar, but very bullish for hard precious metal currencies like silver, is the view among many market participants that further rounds of quantitative easing or QE measures by the Fed are still practically a given during this election year to help lend support to a stubbornly struggling U.S. economy.

Nevertheless, allowing metals to trade higher based on their strong fundamentals would severely dampen the U.S. central bankers' ability to overtly increase the money supply in a substantial way.
EU Moves Toward Ratifying ESM to Provide More Permanent Bailout Mechanism
Another related development is that the European Stability Mechanism or ESM is expected to be ratified by July of this year, provided that enough of the 17 Eurozone member states approve of the bailout system to represent ninety percent of its capital commitments.

This new EU rescue program is expected to permanently replace the existing temporary European Financial Stability Facility within the Eurozone, thereby making meta-government bailouts an ongoing feature of the Eurozone's economy.

As in the United States, a reasonable person can only expect more liquidity increasing measures will soon also follow in the EU, thereby making an even stronger case for continuing to hold and accumulate precious metals like silver.

Does Jamie Dimon's Problem Actually Reside in SILVER DERIVATIVES?

Facts are facts. Since May 7th the price of silver has been mercifully driven down below $30 and on May 10th Jamie Dimon announced a $2B derivative loss. The price of silver is continuing to be driven down which in my mind means only one thing...JPM is losing the physical silver game and having to drive the price lower to get their hands on physical at a price that would reduce their overall losses. Never mind that the paper silver short will increase...this is now a physical game.
A clue lies in the COMEX data that shows that silver is in backwardization!

Bix Weir,
www.RoadtoRoota.com

Other Articles      

Soros Quadruples Gold Holdings
Wealth Wire

Gold, Money, and the Parable of the Three Little Pigs
Lew Rockwell

The 2 Billion Dollar Loss By JP Morgan Is Just A Preview Of The Coming Collapse Of The Derivatives Market

Full Blown Bank Run In Greece

How The U.S. Dollar Will Be Replaced

This is Why World Markets are Incredibly Unstable
Stephen Leeb

Will See Three Digit Silver In The Next Couple of Years
Stephen Leeb

JP Morgan's Losses A Canary in A Coal Mine?
Bill Moyers

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

Bix Weir
JP Morgan Derivatives Book
Blowing Up

Lindsey Williams Part 1
Derivatives Market Collapsing & JP Morgan

Lindsey Williams Part 2
Derivatives Market Collapsing & JP Morgan

What Good is it if you Can't Spend It?
Jason Hommel

This article is more valuable than a Harvard Education!

Buying silver and gold today will likely be better than buying Microsoft or Apple stock way back when they first came out, and this article addresses the fundamental reasons why.

People often ask, "What good is silver or gold if I can't spend it?"

But that's exactly why we all should buy it! Low monetary demand means silver and gold are still cheap and undervalued liquid assets that investors should crave.

And crave it, they do. But 99% of silver investors are duped into buying the wrong kind of "silver", the kind that is not silver at all.

"Investors" have "bought" up to 200 billion "dollars" worth of "silver" in "accounts", which would be 15-20 years of annual mine supply. Clearly, that silver was never bought by the "brokers" who "sold" that much "silver" in "accounts" to "investors".

Source: http://silverstockreport.com/2012/morgan-silver-manipulation.html

Every word in quotes above needs clarification and/or translation. Each word is quoted to highlight the fact that while I'm trying to tell the story in the silver market, it's difficult to do, because there so much fraud all over the place that if I stopped to define each word as I went, it would be so distracting that I could hardly write a single sentence. Here's how those lines should read, if the discussion were a bit more truthful:

"Misinformed greedy gamblers" have "gambled on the paper currency value" of up to 200 billion "units of paper currency" worth of "paper promises of silver" in "computers", which if it were actually what it was supposed to be, would be 15-20 years of annual mine supply. Clearly, that silver was never bought by the "broker / casino operator / thieves" who "took money for" that much "paper promises of silver" in "computers" for "the gamblers".

Getting back to the point of why people should want real physical silver (outside of brokerage accounts) especially when you can't spend it.

The point is that without monetary demand, gold and silver are cheaper than they otherwise would be.

Also, as long as 15-20 years' worth of mine supply worth of investor demand is siphoned away from the real silver market into "computer" accounts, then silver prices will not go up as fast as they should.

Lower demand means a lower value. Investors know that they want to buy things that have a low value, knowing that the value will likely go up. But investors are still not understanding what silver is, since they continue to be satisfied with "paper silver", or perhaps "computer silver".

So, here's the fundamental reasons why gold and silver will continue to gain in value. Gold and silver are true money, even if they can't be used to buy groceries yet.

What makes gold and silver good at being money?

Many people are beginning to re-learn why gold and silver are the best money, and have been money for thousands of years. They seem to be able to recognize some of the self-evident and obvious truths that those metals have certain unique features making them essential and especially good at being money.

But these need to be listed, because sometimes people have funny ideas about money, because we live in a society that must convince us that paper is the best money.

There is a lot more here than I can remember all at once. I need a list I can refer back to and update, and you just can't find the truth about this stuff anywhere else. So you might want to keep this for future reference, too. None of this is "news", but it will be news to some, because they just don't teach this stuff anywhere.

I have a Harvard Textbook, "Principles of Economics", 4th ed., that defines the three functions of money, the medium of exchange, the unit of account, and the store of value.

http://www.amazon.com/Principles-Economics-Gregory-Mankiw/dp/8131503127/ref=sr_1_4?ie=UTF8&qid=1335397369&sr=8-4

It has a 5 star rating! So, it must be one of the best. But how can it be, when it is filled with so many lies?!

The book encourages the reader to "examine" the three functions of money on page 643, (and that's also the only page that mentions the gold standard!), but the book just defines the terms -- but they don't even explain what makes an item good at being one of the three functions of money; the medium of exchange, the unit of account, or the store of value. Furthermore, the textbook is full of lies, misinformation, and false innuendo about money.

It's propaganda of the State. Propaganda works best if you have to pay to learn it. Nobody would believe it if they strapped you to a chair, tied you down, and shouted at you, "believe our lies about the usefulness of paper money and the stupidity of gold, or else!" No, it only works when they make the kids have to pay to learn their propaganda, and then reward those who have the best memories for the lies, with high paying wall street jobs whereby they fleece the rest of the public.

The "Harvard" textbook actually suggests in two ways that only criminals have a large need for cash, because bank deposits leave a "paper trail", and because cash does not earn interest.

But paper is not the only form of "cash". There is also gold. Is all the gold owned by criminals, too? Nonsense. And why does gold have to earn 1% interest, when gold and silver have been going up in value by 15-30% per year for the last ten years? Interest on gold is nonsense.

Precious metals are a great store of value:

To be a store of value:

• It should be long lasting, durable, it must not be perishable or subject to decay. Gold does not decay, not even in seawater. Silver may tarnish and react with sulfur, but the tarnish is very thin and acts as a protective patina that prevents further decay. This is why food items, expensive spices, or even fine silks or oriental rugs, are not generally suitable as money.
• It should have a stable value. Gold and silver values do fluctuate, but their value has never gone to zero value, like paper money often does.
• It should be difficult to counterfeit, and the genuine must be easily recognizable. Paper money is rather easily counterfeited, and good counterfeits are very hard to detect.

Precious metals are a great unit of account:

To be a unit of account:

• It should be divisible into small units without destroying its value; precious metals can be coined from bars, or melted down into bars again, with a low percentage cost. Actually, gold gets more valuable when made into smaller tenth ounce coins, which carry a higher premium, or price percentage over spot. Furthermore, gold, when distributed to the people, creates monetary demand, and a higher value for the remaining gold in the world. Animal skins, or live animals, are not suitable as money, because they are not easily divisible, nor can they be put back together when taken apart. If an item can be divisible, it can be fungible, which is the next point.
• It should be fungible: that is, one unit or piece must be equivalent to another, which is why diamonds, works of art, or real estate are not suitable as money. If an item is fungible, then it can be countable, which is the next point.
• It must be a specific weight, or measure, or size to be verifiably countable. You must be able to weigh, measure, and count, your unit of account! And this is why paper dollars are not suitable as money any longer. What are you counting? What are you measuring? Dollars are nothing but promises to pay in more dollars.

Precious metals are a great medium of exchange:

To be a medium of exchange:

• It should be cheaply and easily tradeable, with a low spread between the prices to buy and sell, in other words, a low transaction cost, and be able to be quickly and easily bought and sold anywhere in the world. Land is not transportable. Even US cash is not accepted everywhere in the world anymore.
• It should have a high value to weight ratio, and thus be easily transportable, and cheap to store away. Precious metals have a high value to weight and size ratio. This is why oil, coal, or water are not suitable as money even though they are valuable. It's why real estate is not money, it's not portable at all. It's why copper is not money, nor is wheat, nor balloons. While even air is valuable and necessary to live more than 5 minutes, and while air can also fungible, air is neither rare nor valuable enough by any significantly measurable units to be useful -- unless perhaps you are a scuba diver under water.

  $300 of gold is .15 of an oz., and can be easily hiding in any wallet.
  $300 of silver is just under 10 oz., and such a bar easily fits into your back pocket.
  $300 of copper is 33 pounds, which is a major strain to lift.
  $300 of oil is 3 large barrels, and is too heavy to be lifted by a person's own strength.
  

• It should be durable. Gold does not decay. Silver tarnishes a bit, but it's negligible. Coins are often mixed with 10% copper to improve hardness and durability, and coins are made with ridges around the rim to prevent coin shaving or debasement. Paper money, surprisingly, is actually expensive as money, because paper wears out quickly, and it costs money to have to re-print the paper.

These fundamental reasons why silver and gold are true money, help to answer the top ten excuses why our friends have not bought silver and gold, which are listed here:

http://silverstockreport.com/2009/bashers-say.html

EXCUSE IN CAPS, followed by my answer/rebuttal.

TOO HIGH NOW. No, Gold and silver can never be valued "too high" against paper money. Paper money is by nature fraud, and always will be. It's interesting that people thought gold was "too high" at $1000/oz. back in Dec. 2009. Clearly, with gold at a stable $1600 just over two years later, we can see more clearly
that they were all wrong who called gold "too high" a few years ago.

HOW TO SELL? Gold and silver are easier to sell than US "dollars", which are not accepted in many nations these days.

CRAZY GOLD BUGS: No, we who understand gold are not crazy. People who pay hundreds of thousands of dollars to go to Harvard to be taught lies might be crazy.

I'M CLUELESS ABOUT GOLD: Well, if you went to Harvard, I can see why. And I hope this article helped to change that for you and your friends.

SHUT UP: Well, this is written, not oral.

PRICE CHANGES: As you can see, it's paper money that is changing in value, far more than gold and silver, but silver and gold will continue to gain value during this time.

GOVERNMENT WILL FIX: As you can see, government cannot change a single fundamental nature or property or feature of silver and gold. Gold and silver expose the lies of excess paper money printing by governments.

SILENCE: Yes, I know, the nay sayers are once again speechless. Hey, gold also doesn't talk, but that does not mean gold and the nay sayers are useless. Gold, if you examine it, reveals its properties to you. Similarly, by examining the arguments, or silence, of the nay sayers, we can see we are on the right track.

I'M BROKE: Hey, gold is not for every man. It's really just for those who would be kings.

BAD BROKERS: Now you can see why the brokers, and their lackeys, the "financial advisors", talk people out of gold and silver. They would go bankrupt if people bought the real things, because their short positions are 15-20 years of mine supply. Furthermore, brokers don't earn commissions on gold that you hold in your own possession and keep in your own vault, and neither do we. We only earn our commission one time, when you buy it from us.

Getting back to the fundamentals.

Gold is easily transportable. This means that the brokers really have no excuse to not send it to you when you buy it. Assays are free. Shipping and insurance for the shipping costs are less than 1% of the value. Thus, the only reason to not send you your gold or silver when you buy it, is because the sellers are running a scam, or are bankrupt.

And there you have it. You now know more about the essential nature of gold than 99.9% of people in the world.

http://www.silverbearcafe.com/private/04.12/whatgood.html

Other Articles              

Silver: The harsh realities behind diminshing supplies
Gaia Vince

Currency Debasement and Social Collapse
Ludwig von Mises

Why Did Gold Become Money?
Tyler Durden

JP Morgan Silver Manipulation
Jason Hommel

Why Silver Is Money
Jason Hommel

This is What I'm Doing with My Own Money Right Now
John Embry

A Return to the Gold Standard, or Gold Behind Currencies

Part 1
Part 2
Part 3
Part 4
Part 5

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

Silver is Money

This is fascinating… how silver is mined… and why it SHOULD be much more valuable! After you watch this, you will understand why everyone has been saying that silver is grossly UNDER priced… and… Why this price manipulation is causing a depletion /extinction of this metal in the marketplace.

Why Silver & Not Gold

The Silver Suppression Scheme
Is Ending
David Morgan

SGS Notes: Okay, we've crammed a lot into this newsletter, we admit it! But, if you've been following the economic news and the precious metals market, you'll be aware that there is a lot looming on the not-too-distant horizon. We feel the urgency to get you as much information as possible so that you can be prepared.

Two Scenarios For Next Precious Metals Rally (Part I)
Jeff Nielson, Bullion Bulls, Canada

Let me preface this piece by first stating that my reason for writing it was not to induce people to guess which scenario they found more probable, and then to place their bets beforehand. Rather, my purpose was exactly opposite: to prepare people for either scenario so that when they recognized one or the other unfolding they wouldn't do something stupid in a moment of panic (or greed).

Sadly, in our markets to "do something stupid in a moment of panic" generally means doing precisely the opposite of what one should be doing. This also explains why the bankers like to start panics. First of all, as the cause of these panics the banksters are neither "panicked" nor (obviously) surprised themselves. So they continue to operate calmly (in this feeding-frenzy) while the sheep make themselves especially easy to shear.

As a result of this never-ending game being played in our markets by the bankers, there is genuine utility in looking ahead (something the sheep almost never do) so that when events do unfold we will be prepared to act (calmly) - as opposed to reacting in panic (as the bankers desire).
With that preface out of the way, the next task is to explain/define these two, looming scenarios:

• The crash-driven rally
  
• The event-driven rally
  

Putting aside the fact that gold and silver are the most undervalued assets on our planet today; despite this ever-present truth the sheep generally need a "reason" to jump on the precious metals bandwagon. The irony here of course is that simply by jumping on the bandwagon the sheep supply the necessary momentum to drive prices higher - meaning that no "reason" is every truly necessary for gold and silver prices to go higher, in accordance with their ultra-bullish long-term fundamentals.
So the Catch-22 of the precious metals market is that we always need some catalyst to break gold and silver free of the intermittent bankster-created "log-jams" which have occurred in this market over the course of its 10+ year bull run, even though there is never any reason necessary to bid-up these grossly undervalued assets. In the last several years we have seen (arguably) three such catalysts. Two of those catalysts were events and one was a "crash".

Taking these catalysts in chronological order, the first of the three was the Crash of '08. Critics will argue that a "crash" is precisely an example of an event-driven catalyst. However, as I alluded to previously a market-crash is a particularly unique form of event, due to the extreme and unusual sentiments which accompany that event. The second reason to distinguish this catalyst from an "ordinary" event which serves to drive the market higher is that the circumstances prior to a crash will be markedly different from the circumstances of any other event-driven rally.

To begin with, one very likely clue that we will be on the precipice of another banker-created crash is that gold and silver (and likely all commodities) will begin to rally strongly without any identifiable cause for their strong surge in prices. To be more precise, the mainstream media (i.e. the propaganda machine) will not supply us with any "reason" for these soaring prices (other than pointing to their favorite scapegoats, the evil "speculators").

They will not tell us that those price increases are nothing but playing catch-up for the previous $trillions in money-printing. Understand that what responsible precious metals commentators generally tell their audience is that we accumulate gold and silver merely to preserve our wealth - i.e. we're not doing this (greedily) looking to turn a profit. However, the fundamental truth is that the decades of suppression, and the even more extreme manipulation of recent years mean that gold and silver are more undervalued today than they were at the beginning of this bull market over ten years ago.
Similarly, with the banksters' paper grossly overvalued, this means that most commodities should be soaring to much higher prices, simply based upon the long-term ramifications of year after year of hyperinflationary money-printing. Here we come to the ultimate fear of the banksters, and the political stooges who serve them: they know that the end of their entire, paper Ponzi-scheme will be imminent when prices for hard assets (i.e. gold, silver, and commodities) begin to soar without any explicit short-term causes.

Unlike the brainwashed sheep, they know their history. They know that the ultimate cause of all hyperinflation is a general loss of confidence in (worthless) paper - just as the Dutch "lost confidence" in their precious tulips 400 years ago. Thus when prices begin soaring (i.e. the paper begins to crash) "for no reason", the real reason will be that people are losing confidence in the paper and dumping it in favor of hard assets.

This precisely describes circumstances in the spring and summer of 2008, and explains why the bankers decided that nothing less extreme than a "crash" would suffice to put the brakes on the looming hyperinflation. What this means is that unlike an ordinary event-driven rally for the precious metals sector we will be tipped-off prior to the next crash being manufactured: we will see another instance of spiraling gold, silver, and commodities prices with charts showing a clear exponentially-rising pattern.

The banksters will not sit back quietly and allow their $100's of trillions in Ponzi-paper to evaporate. Inflicting severe economic hardship on 100's of millions means nothing to them. Indeed, the bankers have an even more extreme "solution" for dealing with a pending hyperinflation scenario: starting a war.

Hitler started World War II to cope with the aftermath of Germany's hyperinflation from the Weimar Republic. However Hitler wasn't a banker. He had no mountains of worthless paper to protect. His only motives were to create a smoke-screen for the economic ruin from the preceding hyperinflation and to cover-up his own economic mismanagement, which is an inherent aspect of all Fascism.
With the bankers (and the ultra-wealthy Oligarchs) being firmly in charge of our governments today, war would be a tool that they would use undoubtedly before any hyperinflation reduced their mountains of paper to what it really is: "Monopoly money". Thus should we see another repeat of the explosion in gold, silver, and commodities prices which took place in the spring and summer of 2008, many would suggest that we should hope for a market crash.

Those with the inclinations to be "traders" (i.e. the greedy) will be sensing opportunity at this point. They will note that we will have a clear warning before the next crash is manufactured. They will note that such a crash will occur when we see a distinctive repeat of what occurred in gold, silver, and commodity markets in the spring/summer of 2008. They will look at the charts for gold and silver for 2008, and they will think to themselves "sell".

This would be a colossal failure of analysis, and another triumph for naked greed. Simply because identical circumstances cause the bankers to use an identical "tool" (i.e. a market crash) does not mean that the consequences of their reckless intervention in markets will be identical.

Our economic circumstances in 2012 are enormously different than in 2008. Today our economies are all much weaker. Today our economies are all much less solvent. These two different dynamics both have significant implications in any crash scenario. Create a crash in a (relatively) strong economy and there is resistance; that is, that residual economic strength will push back against the downward economic pressure of a crash - slowing the descent and stretching-out the length of time of that downward slide before "bottom" is hit.

Conversely, create a crash in a weak economy and all you have is free-fall. We would (will?) see a crash which is much faster, and much more severe. This alternately means that anyone attempting to "time" this event by selling their gold/silver and then (assuming they can) buy it back it cheaper could miss badly in either direction.

The fact that a 2012 crash would tend to be a much faster event would mean that it could be over before all the would-be traders are expecting. They are sitting-and-waiting (for even cheaper prices) with their pile of depreciating paper, while prices have already began bouncing back. And as with the Crash of '08, the rebound in gold and silver prices will be at least as rapid as their plunge, and likely even more rapid - leaving all those greedy "traders" still waiting at the station.
On the other hand, with a crash in 2012 undoubtedly a much more severe economic event, would-be traders could easily jump back into the market too soon - and do their buying with prices about to plunge much lower. We can assess those relative probabilities by looking at our other different dynamic for 2012: much less solvent governments.

The Crash of '08 sparked the Money-Printing of '09, which in turn has directly led to the Debt Crisis of 2010-to-present. The "64-trillion-dollar question" today is this: if a crash in 2008 caused a debt-crisis (when our economies were relatively strong), what would a crash do in 2012 - with our economies all weak, and all of Europe already in a debt-crisis. The answer to that question is really simple. Everybody is Greece.

The combination of an even worse crash, with much weaker economies, already in the midst of a debt-crisis means that either the money-printing would have to be much, much more extreme (i.e. guaranteed hyperinflation) or it would fail to halt our economic crash despite the extreme money-printing.

Understand that every new "dollar" of paper created is created with more debt. Understand that our interest rates are already as low as they can go, and still we see the debt-dominoes going bankrupt one-by-one. So doing much more money-printing means piling on exponentially more debt onto already insolvent economies while revenues are simultaneously plummeting lower. This precisely describes what just took place in Greece.

So when "everybody is Greece" (including the world's worst debt-sinner, the United States) what are the holders of $10's of trillions in Western bonds going to do? Will they stoically and nobly "go down with the ship" like the Captains of Finance that they are? Or will they all scramble for the nearest "lifeboat" like proverbial rats deserting that sinking ship? I'll let readers answer that one for themselves.

In the Crash of '08, it was only the gold-bugs (and silver bulls) who were thinking to themselves "paper is going to zero". The sheep were still all running towards that worthless paper. In any crash in 2012 (or 2013) it will be obvious to everyone that "everybody is Greece", and all that paper is going to zero.

What this means is that in any future crash event, any sell-off in gold and silver will end very quickly and very abruptly, when all of the "rats" from the bond-market (belatedly) try to swap (worthless) paper for (valuable) metal. Naturally, all of the extreme money-printing taking place means that the underlying paper currencies are just as worthless as the bonds.

This should mean that all the sheep would be dumping their paper currencies for gold and silver too. However, that would imply rational thinking. Since the panic of any crash event means the opposite of rational thinking, the holders of our paper currencies will undoubtedly do even worse than the bond-holders.

As I continue to point out to readers, it would take much less than 10% of these paper-holders turning toward the 5,000 security of gold and silver to cause precious metals prices to soar to many multiples of present prices (especially in the tiny silver market). This comes at a time when people are only holding about 1/10th as much precious metals in their portfolio as is the historic norm.
The question for the precious metals bears and skeptics is this: if gold and silver prices can go on a 10+ year bull-run while ignorant Western investors have under-owned this asset class to the greatest degree in history, what happens when all of the "stupid money" of the West belatedly rebalances their holdings?

As an aside, this raises a secondary question: how can the drones in the mainstream media continue to talk about "bubbles" in gold and silver while these assets have never been so under-owned by Western investors?

When thinking investors begin to ask (and answer) these questions for themselves, their strategy for any crash scenario should be clear: don't idiotically sell the gold and silver they are already holding, greedily hoping they can cash-in on some "obvious" short-term trade. Rather they should be buying more gold and silver in any crash, even in the face of rapidly falling prices. They would know that any plunge would be very short in duration, and will reverse higher very, very strongly, when all of the paper-holders finally begin to "see the light".

Naturally, the my hope and that of all other gold and silver bulls is that we can see gold and silver begin their next, inevitable rally from some event which inspires much less fear and economic carnage than an economic crash. In Part II, I will flash-back to two such events, and note both their significant similarities and significant differences.

To read Part 2 click here

New At SGS!

Introducing our new Silver Bullet !

Whether you are protecting yourself from Werewolves or Inflation, this Silver Bullet is for you! We are excited to introduce this Silver Bullet novelty item. This item includes a set of TEN 1/10 oz .999 fine Silver Walking Liberty rounds, contained in a semi-transparent 12 gauge shotgun shell.

This item is not only a great investment in precious metals, it makes for a great conversation piece. If your group or organization would like to customize this item, we will work with you to create a custom label with your favorite slogan or logo. (Additional pricing will apply)

We also have the 1/10 oz rounds available for purchase individually on our site now. These are the size of a dime and a good alternative to junk silver which is only 90% pure.

Other Articles      

The Seven 'Ds' of the Developing Disaster
Alf Field

The Implications of China Paying in Gold
Jim Sinclair

Greenspan's Golden Secret
Bix Weir

Greenspan's Golden Testimony
Bix Weir

Gold & Economic Freedom
Alan Greenspan

Gold & Silver as Parallel Monetary Systems
Hugo Salinas Price

US Dollar VS Gold: Epic Money Battle
USA Watchdog

Gold "Bargain of Lifetime" As Gold Standard Inevitable, Possibly Within Year - $10,000/oz Looms
Goldcore.com

Golden Dreams & Global Nightmares
Alex Stanczyk

Harvey Organ:
Get Physical Gold & Silver!
Adam Taggart

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

Why Gold & Silver?
Mike Maloney

The Golden Revolution

Bill Murphy Pounding Away at the Gold Cartel!

On the lighter Side… ; - )

New 1/10 oz Rounds      

1/10 tr. Oz .999 fine silver

Coin Tubes also available!

Quote of the Week

"Paper money has had the effect in your state that it will ever have - to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice."

- George Washington

 Where a Nation's Gold and Your Gold Should be Held - Part I

Julian Phillips
Proprietor at Global Watch - The Gold Forecaster

Purpose of Holding Gold
Most central banks hold their nation's gold in the vaults of the world's leading financial centers' central bank vaults. These include New York, London, and Canada among others. In a peaceful, cooperative world, this is sensible as one of the prime purposes of central banks holding gold is to cover the nation's international trade payments when their own currency becomes unacceptable and their reserves of foreign exchange are depleted. By positioning the gold outside the country, it's instantly accessible for payments or guarantees of payments.

Dangers of a Nation Holding Gold in Another Nation's Central Bank
In the last week we have heard the announcement that Iran has (according to them) 907 tonnes of gold. The developed world has just outlawed Iran dealing in gold and silver (there are other places, where if they wished to do so they will be able to trade). With their gold inside Iran, it is outside the reach of the developed world though. If they had held their gold in the world's main, developed world vaults that would have been frozen along with Iran's other overseas assets. We may not agree to Iran's politics and attitudes, but there is a lesson to be learned here.
Ownership implies the freedom to do what you want with an asset. In this case we are talking about a nation's assets. The handling of Iran's assets by freezing of their assets shows that other nations can interfere with that freedom. Governments feel free to impose restraints on other people's assets within their jurisdiction. It is this concept of a right to restrain the rights of ownership that will prove a growing issue.

With the world changing from an under-developed world with a developed world to an emerging world drawing down power and wealth from the developed world, there are many changes taking place which will lower the levels of international cooperation in the days ahead as political, religious, monetary and economic pressures rise.

One nation that has foreseen these pressures coming is Venezuela. Their 160 tonnes of gold was held in Canada, the U.S. and European vaults and out of their full control. Their policies -including the nationalization of gold mining and export-have proved unpopular in the developed world too. With Venezuela being an oil exporter primarily, the unpopular President (outside the nation) felt it prudent to ship his nation's gold back home. The process began a few months ago.

Venezuela's Gold Comes Home
Venezuela has now succeeded in bringing its 160 tonnes of gold from the developed world's central bank vaults (i.e. Canada, U.S. and Europe). There's no doubt that such a move does secure the nation's monetary sovereignty. Now, Venezuela's gold cannot be subject to the political wishes of the U.S., Canadian or European governments.

Furthermore, there's a potential 3,000 tonnes of gold under the ground in Venezuela and the likelihood that the government will take that into their vaults over the time it takes to mine it. They will then be in a position to take the U.S. dollars they receive for their oil and pay their miners for the gold, so diversifying their reserves away from currencies and into gold. If they do that, then this is one more source of supply that will be removed from the gold market.

Whatever the nation's politics, it is a central banker's duty to do all in its power to protect its nation's gold and foreign exchange reserves in terms of control and value. With dollar hegemony, a great deal of that power remains in the hands of the issuer of that currency. As sovereignty issues grow, it is becoming incumbent on central bankers to do more to protect nation's reserves. The most vulnerable nations are those whose politics differ drastically from the developed world or those whose international trading is not dependent on the major developed world. After all, if you are a kind of economic colony of a major nation it will exercise its influence far more effectively through other routes.

The conclusion that best suits vulnerable nations logically is to hold as much of its gold at home. Its dollars have to be held in New York and its euros in Europe -something they can do little about. But a nation like Venezuela with its reserves of gold at home and a 'natural' diversifier in the gold under the ground, is acting in that nation's interests in building up its gold reserves at home.

China Following the Same Path
China has outlawed the export of gold and vigorously broadened the number of banking import licenses for gold. The resulting flows of gold in with nothing coming out, is leading to the total national stock of gold in China rising fast.

" Last year saw around 360.96 tonnes of gold produced there with the government encouraging this growth of local production. But this figure may be a heavy underestimation as scrap and non-China Gold Association member's production is not included in that number.

" 490 tonnes of gold came into China through Hong Kong with more imports possible through other routes, not included in this total.

" At the start of 2012, demand for gold during the lunar New Year jumped over 50% pointing to much higher imports in 2012. These could lead to a jump of reported imports of 750 tonnes in 2012.
China is preparing Shanghai as the center for Yuan trading and as their leading financial center. Hong Kong is the current, financial center and has huge modern gold vaults already. We have issued an article in our newsletter Gold Forecaster giving our views on China growing to a second or first gold market hub in time. But we repeat that NO gold is allowed to leave the country! With privately held gold open to confiscation at some point in time, we consider the total gold held inside China as part of that nation's available stock of gold in their reserves.

Read Part II Here

New At SGS!

Introducing our new Silver Bullet !

Whether you are protecting yourself from Werewolves or Inflation, this Silver Bullet is for you! We are excited to introduce this Silver Bullet novelty item. This item includes a set of TEN 1/10 oz .999 fine Silver Walking Liberty rounds, contained in a semi-transparent 12 gauge shotgun shell.

This item is not only a great investment in precious metals, it makes for a great conversation piece. If your group or organization would like to customize this item, we will work with you to create a custom label with your favorite slogan or logo. (Additional pricing will apply)

We also have the 1/10 oz rounds available for purchase individually on our site now;

Quote of the Week

"Nothing is more important than balancing the budget with the least increase in taxes."

- Herbert Hoover, March, 1932

Other Articles      

Gold and Silver Manipulation and How They Do It
Safe Haven

BRICS Plan to Abandon U.S. Dollar Will Hurt U.S. and Help Gold
TradePlacer

IMF: Gold Is Scarce "Safe Asset" And "Growing Shortage of Safe Assets"
Zero Hedge

Eric Sprott: Financial Train Wreck Coming Soon! Got Gold? Better Yet, Got Silver?
Eric Sprot

Silver Heading to $80 an Ounce
Greg McCoach, WealthDaily

How The Silver Manipulation Game Works
Ted Butler

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

Silver Shortage This Decade,
Silver Will Be Worth More Than Gold

New 1/10 oz Rounds      

1/10 tr. Oz .999 fine silver

Coin Tubes also available!

SGS Notes: Our key article this week is quite lengthy but very informative … I hope you will take the time to click the 'Read More' to see the full article… we are only able to publish the initial portion of it below:

The Coming Paradigm Shift in Silver

Steve St. Angelo

The biggest problem for investors today in trying to forecast the future price of silver is the enormous amount of contradictory analysis on the Internet. There are bulls, bears, paper traders, physical buyers, technical analysts, hedge funds, commercial banks and silver manufacturers all trying to play a part in this highly volatile silver market. Trying to sift through the huge volumes of silver analysis on the internet can be extremely frustrating. In addition, some of this information is not meant to inform, but rather to confuse or mislead the investor.

There is a great deal of misinformation on the internet when it comes to silver. I find it ironic that one of the so-called "bullion specialists" seems to give bearish commentary whenever the price of gold or silver rises to new highs. This is akin to a CEO of a corporation telling the media and shareholders that the company's stock price is too high and needs to drop down to more sustainable levels. What CEO on Earth would say something as stupid as this with the best interest of the company and shareholders in mind? Furthermore, how many CEOs would keep their job if they repeated this over and over for the past several years, and got it wrong time and time again?

Unless you have been in the precious metals markets for quite some time, it is easy to be misled by this type of information. This is the very reason behind the motivation that I had to write this article. In it, I will attempt to give the reader-investor a more detailed and fundamental comparative analysis of the future price of silver, rather than the typical fly-by-night technical charting or bull-bear rant. This should give a more commonsense methodology in forecasting the future path of silver and its eventual paradigm shift.

Paradigm Shift: -n, a radical change in underlying beliefs or theory

The coming paradigm shift in silver will not happen due to technical analysis, fundamentals, or supply & demand forces, but rather due to a change in mass psychology of investors. Even though fundamentals and supply-demand forces will play a part in this shift, they will not be the ultimate cause. I believe technical analysis as it is used today, only charts the amount of manipulation and mass psychology in the silver market.

Throughout history, a paradigm shift occurs in rigged markets when the manipulation of the financial system and economy is no longer sustainable. This occurred in the banking and housing markets in 2007-2008 when we had what I call a "Negative Paradigm Price Shift"- a trend where prices or values are declining.

Negative Paradigm Price Shift in Housing and Banking
Prior to 2007, the real estate market was kept alive by the work of clowns and magicians in the mortgage industry and banking system. For several years everyone was having a great time. As housing prices and sales continued towards the heavens, bank profits hit all-time records. Everything was going along just fine until the market realized one day that there was nothing left after "Liars Loans" were levied to keep the Ponzi going. Once the housing market collapsed, so too did the banking system. Like two twins attached at birth, one could not live without the other.

In true waterfall fashion, investment banks, commercial banks, government-sponsored entities and insurance companies went bankrupt, were either taken over or became a mere shadow of their former selves.

Read Full Article Here

Quote of the Week

Thus, the fight over gold and silver as media of exchange is about more than mere money, let alone making money. For it is a fight with only two possible outcomes: either control of their own lives by the people themselves, or control of the people and their lives by political and economic elitists.

- Dr. Edwin Vieira

Other Articles      

Blythe Masters Speaks Out On JPM and Market Manipulation: Take Our Word For It
Jesse's Café American

Why Blythe Masters Is Telling The Truth
SilverDoctors

The [Recovery] Has No Clothes
Sprott Asset Management

You Can't Beat Silver as an Investment
FutureMoneyTrends

A Massive Spike In The Price of Silver Is Imminent
SilverSeek

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

If Silver Goes Down All He** Will Break Loose
In The Physical Market

Silver is The Achilles' Heel to the Entire Economic System
David Morgan

The Banker's New Gold

Jeff Nielson
BullionBulls, Canada

In a fresh sign of bankster desperation, we recently learned that they have pushed lease rates for gold to the lowest, negative level in history - i.e. they are paying people more money to "borrow" their gold than at any other time. We know this is a sign of desperation, because back in the real world, buyers are paying premiums near record-highs to buy their (real) gold.
There are numerous implications regarding this latest bankster tactic to suppress the gold market, but before getting into those let's explore all of the reasons why bankers like "leasing gold" in the first place. The starting point is to note that it is with gold-leasing that we see the beginnings of the banksters' 100:1 leverage in the gold market.

A banker is holding a quantity of gold in his vault. He "lends" the gold to a trader, and suddenly you havetwo parties both pretending to be the "owners" of that gold. Naturally, the banksters also like the fact that this is a totally opaque, unregulated/unreported transaction. The banksters can secretly lend out their gold, and since the transactions are never reported, we lack the absolute proof that none of this "loaned gold" is ever repaid.

There is certainly plenty of circumstantial evidence on which to base such a conclusion, however. In order to review this evidence, we first need to know what is being done with the bankers' leased gold. A detailed analysis by veteran precious metals commentator Frank Veneroso explains how and why "The ultimate borrowers in the gold lending operation are these shorts in the gold futures and forward market."

We immediately see a second reason the bankers love gold-leasing: all of the "leased" gold ends up being shorted onto the market. What this directly implies then is that in order for these gold leases to ever be repaid the short positions must be closed out so that the gold (supposedly) backing the trade can be repatriated to the bank. However, what we see in the gold market is a huge, permanent short position in the gold market - which has swelled enormously since Veneroso wrote the article above nearly a decade ago.
We now know that at least some of these gold leases have never been repaid, since the gold that was loaned out remains on the market. However, as a matter of simple arithmetic we can deduce that few if any of these leases are ever repaid. As I noted above, each gold lease creates "paper gold" (i.e. a "fractional reserve" gold market) and increases the bankers' leverage in the gold market.

READ THE REST OF THE ARTICLE

DIVISIBLE TEA PARTY ROUNDS

The Divisible Tea Party Rounds will be available for purchase until Monday.
We will be minting a limited number of them next week.

If you would like to place your order, please go online to order before Monday.

Survival Podcast MSB Members Discount will apply. Find code after MSB Login on the Members Benefits page.

Take advantage of this offer while silver spot prices are low!

New Product: CIVIL WAR EAGLES

150 years ago, 11 US southern states declared succession from the Union to form the Confederate States of America. We refer to this as the American Civil War. This .999 fine silver medallion has been specifically designed to commemorate that event and those soldiers who died fighting for what they believed in.

Other Articles      

Gold, Silver, Currency Swaps and QE3
Matt Welke

Sprott Calls On Silver Producers To Hold Back Inventory

JP Morgan Crashed MF Global to Avert COMEX Failure, European Derivatives Implosion
Jim Willie

China Quietly Introduces New Currency System
Benjamin Fulford

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

David Morgan

SGS Notes: We're featuring a lot of material this week from Jeff Nielson, from BullionBulls, Canada... be sure to listen to the 3 Videos (which are really audio interviews)... We've had a lot of his articles in our Newsletter in the past... you can find them by searching his name on our Newsletter page on the SGS site.

In the past couple of weeks we have seen yet another bankster takedown of the precious metals prices... it is clear they are covering their short positions... see the link to the COT reports... and being allowed to do so by the very institutions that are to set position limits so that they cannot do this to the market. Wise investors should understand that this is an opportunity to BUY, because this activity will only create shortages in the marketplace which will drive prices to the moon...

Gold, Silver vs. 'Worthless' U.S. Treasuries

Jeff Nielson, BullionBulls, Canada

Two weeks ago, I wrote that volatility was "the new bankster weapon" in the gold and silver markets. In writing that this marked a "new phase" for these markets, I admit to never imagining that we would immediately see the bankers display this new phase with such a vivid "exclamation mark."

That said, it is now equally important to emphasize to investors that nothing at all has changed for gold and silver from a long-term perspective. What makes this current episode of market manipulation all the more surprising is that there wasn't even any serious attempt by the mainstream media to manufacture a "reason" for the plunge in gold and silver -- as "cover" for the banksters' actions.

With "competitive devaluation" still the mantra for the economically/intellectually bankrupt governments of the West, and with most of the rest of the world also being forced to play this game, we know that the banksters' fiat currencies will continue losing value at an increasing rate. Note the use of the word "competitive." It directly implies that these governments are driving down the value of their currencies as fast as they can.

Obviously, saying a currency is losing its value is exactly the same thing as saying that prices are going higher. As a matter of the simplest arithmetic, and the simplest logic, if most of the governments of the world are trying to push up prices (as fast as they can) then the prices for gold and silver can also only go higher over time.

Of course, some things are "different" in the gold and silver markets -- in comparison to where we were when this bull market started over 10 years ago.

Back then, the banksters had lots and lots of bullion to dump onto the market to depress prices. Now they don't. Back then, the governments of the world were not deliberately trying to drive up prices. Now they are. Back then, our governments were not obviously insolvent, and gold and silver were not viewed as "safe havens." Now they are.

In short, 10 years ago there were lots of reasons to worry about the "strength" and "stamina" of the gold and silver markets (as "long" investments). What happened at that time? The price of gold nearly quadrupled from under $300/oz to over $1000/oz. The price of silver more than quintupled, from under $4/oz to nearly $20/oz.

Another 'Must See' Video:

Other Articles      

Return to Good Money
Jeff Neilson

Extreme Times For Central Bankers - A Time For Gold
MineWeb

Big Hitters Very Sharply Reduce COMEX Silver Shorts
MineWeb

Currency Wars: Restricting Gold and Silver Sales In France
Jesse's Cafe American

Plan To Return America To the Gold Standard Set To Be Offered at Washington
NY Sun

It's Official: HFT Breaks Speed-of-Light Barrier, Sets Trading Speed World Record

This is the key to taking back our FREE MARKETS and until it is banned "they" will be behind the curtain pulling the strings of the market manipulation.This is the key to taking back our FREE MARKETS and until it is banned "they" will be behind the curtain pulling the strings of the market manipulation.

CFTC Facilitates Cartel Silver Raid
See also CFTC

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

Bankers Have Lost The War
Part 1 Interview with Jeff Nielson

Bond Fraud & Brainwashing
Part 2 Interview with Jeff Nielson

Bullion, Mining Stocks & Hyperinflation
Part 3 Interview with Jeff Nielson

SGS Notes: Our main article this week is one of several from the Cheviot Sound Money Conference that was held in the January. Clicking on the photo link will allow you to listen to one of the key speakers of the conference who gave this speech below. Don't miss the links in the right column of that page to other very informative other speeches...

Gold & Silver Are The Currencies of the Free

Dominic Frisby
Goldcore 

The President of the World Bank, Robert Zoellick, called for a new post Bretton-Woods currency system involving gold, in November 2010. Zoellick said that gold was worthy of consideration as a reference point for modern currencies and as an indicator to help set foreign exchange rates.

At the end of January, the Cheviot Sound Money Conference held an excellent conference in London which examined the practical application of gold and silver as money within a modern context.

The context to these proposals is crucial as without an understanding of the modern financial and monetary system one cannot possibly comprehend the continuing importance of gold and silver.

We live in an era of surging trillion dollar deficits and surging national debts in the US and internationally.

The US recorded its biggest monthly deficit in history two days ago with a $223 billion deficit for February alone, the 29th straight month of deficits – a modern record. The US budget deficit in 2010 was over $1.45 trillion and is forecast to be of a similar magnitude in 2011. At the close of business on Feb. 28, the total federal debt stood at $14.195 trillion ($14,194,764,339,462.64).

We live in an era of massive creation of government bonds.

Foreign central banks hold $5 trillion in US Treasury bonds and agency debt alone. Chinese foreign exchange reserves alone are soon to reach the $3 trillion level.

We live in an era of of thousands of trillions of dollars, euros, pounds etc. of derivatives.

The enormous OTC sector of derivatives alone is worth nearly $600 trillion on paper, roughly 10 times world economic output.

We live in an era seeing the creation of and speculation with trillions of dollars (euro, pound etc.) of electronic currency.

According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets was estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007 - soon after the financial crisis began. Some firms specialising in foreign exchange have put the average daily turnover in excess of US$4 trillion.

We are experiencing a scale of global currency debasement, the likes of which the world has never seen before.

We live in an era where thousands of millions of people live on less than a dollar or two a day in the "developing world". While millions of people in the "developed world" are now debt slaves - both individually and as citizens of increasingly bankrupt nation states.

Reformation or replacement of our debt-based fiat paper and electronic financial and monetary system is one of the most important debates of our times.

The modern monetary system of paper and electronic money is inherently unstable and unsustainable and there is a strong case for considering using gold and silver as money once again.

At the Cheviot conference, Money Week's Dominic Frisby gave an excellent talk in which he outlined why gold is the currency of the free.

Frisby eloquently outlined how the modern system of finance, banking and credit (or debt) impoverishes and enslaves. It has "made wars that should never have happened possible; its brought about a relentless needless commercial expansion and malinvestment that has raped the earth."

He points out how the world is cursed by monetary illiteracy and it is amazing how few people understand the modern monetary system, and how it is to blame for the huge inequalities in wealth we see in the world today.

"Money must be sound and true, at the moment it is neither and society is corrupted as a consequence."

Dominic Frisby's lecture can be watched here:
http://www.cheviot.co.uk/sound-money-conference/presentations/why-gold-is-the-currency-of-the-free

There were a number of other excellent talks all of which are worth viewing. The highlights include Chris Powell, the Secretary/Treasurer of GATA (Gold Anti-Trust Action Committee), lecture 'Gold price suppression purposes and proofs':
http://www.cheviot.co.uk/sound-money-conference/presentations/gold-price-suppression-purposes-and-proofs

There is then an excellent panel discussion and question and answer session on gold at the end which involved Max Keiser, James Turk, David Morgan, Ben Davies, Richard Cragg, Sandeep Jaitly. It is surprisingly entertaining and very informative:

http://www.cheviot.co.uk/sound-money-conference/presentations/panel-discussion-with-audience-q-and-a

GoldNomics - Cash or Gold Bullion?

Our educational video, 'Goldnomics - Cash or Gold Bullion?' complements the excellent interviews from the conference. It clearly shows how gold has retained value throughout history.

'GoldNomics' can be viewed by clicking on the image above or on our YouTube channel: www.youtube.com/goldcorelimited

The US dollar has been the strongest fiat currency in the world in the last 100 years and indeed it became the reserve currency of the world during the period (due to victories in the two World Wars and the accumulation of the largest gold reserves in the world).

Despite that the dollar has lost 97% of its value in 97 years. The massive loss of purchasing power of the preeminent currency of our age, the US dollar, clearly shows gold's importance as a currency, as money and as a store of value.

Individuals, families and societies can never be free as long as money is based on debt and compounded interest and as long as the money we use day to day is constantly depreciating and being debased.

Other Articles      

Once Upon A Time

The story of two different monetary conferences, two "committees of experts" that both met in Genoa, and changed the course of monetary history.

Advanced Q & A on the Silver Manipulation
Bix Weir


Donald Trump Confirms His Confidence in Gold
NY Magazine

Identities of JP Morgan Silver Manipulators Exposed
King World News
 

The New Bankster 'Weapon' Against Gold/Silver
Jeff Nielson

The Precious Metals Tsunami
Goldrunner

Run To Safety
Mary Anne & Pamela Aden
 

Central Banks Waging War on Gold At This Hour
Trader Dan

Gold-Backed Dollar Puts ‘Fair Value’ at $10,000 an Ounce
Bloomberg
 

The Case for Gold and Silver Investment Gets Stronger and Stronger
MineWeb

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

Silver Shortage This Decade, Silver
Will Be Worth More Than Gold
Future Money Trends

SGS Notes: from Jason Hommel: "This is a very insightful article; the short covering, and high frequency trading is creating higher volume, but lower true liquidity, which is spelling the end of the manipulation, and is likely to lead to much higher prices."

The Death of Liquidity

Ted Butler

I know I have been on a one-track mission recently about the extraordinary development of the COMEX gold commercials miscalculating in establishing their giant short position. I know I have been virtually alone in depicting the resultant commercial short covering as being the prime price driver behind gold’s $300 run from $1600 in early August. But government data still suggest that the unprecedented commercial blunder is very much at the core for explaining the volatile price action we are witnessing. Today, I would like to explore what this means for the future, even though I am on record as warning that the correct explanation for something that has occurred can be different from accurately predicting what may happen next.

Restating what I feel is the obvious; the dramatic gold rally was caused by aggressive buying by the group of speculative traders which are classified as commercials by the CFTC. Many make the mistake of assuming that just because these traders are classified as commercials that means their trading is purely for legitimate hedging purposes. Nothing could be further from the truth, as the bulk of their trading is speculative in nature. Therefore, while it would be technically correct to say that the gold rally has been caused by speculative buying, most would assume that meant new buying of long positions by easily-identified speculators such as hedge funds and momentum traders. That is definitely not what has transpired in gold recently, as the “normal” hedge fund and technical fund speculators have been selling COMEX gold contracts, not buying them. Instead, the big COMEX gold speculative buyers have been the commercials who were previously heavily short. Correctly identifying the true speculators driving a market is a distinction that makes all the difference in the world. That so few see it is amazing to me.

There is little doubt that the commercial gold shorts have taken a horrific beating in buying back their short contracts. My guess is that the collective loss on the covered gold contracts so far is on the order of $1.5 billion. Such a loss, even when spread among the roughly 40 traders classified as COMEX commercial gold shorts, amounts to a hefty per entity average loss of $37.5 million each. And I’m speaking of closed out losses only; there is still a large number of open gold shorts that the commercials are holding whose resolution remains to be seen. Those “open” losses run to an additional $8 billion at current gold prices. It is imperative to recognize the unprecedented magnitude of these closed out and open gold losses. It’s not enough to say that these commercials lost big-time; having never lost before on such a scale, the turnabout for these commercials must be shocking to them. As such, I’d like to explore what this may portend in the future.

The commercial COMEX gold shorts are banks and trading companies, not individuals. Every commercial trading corporation maintains some financial controls and is overseen by corporate treasurers and financial risk officers. The amount of loss generated in this recent gold short debacle dwarfs the gains recorded in prior years. (Same as with silver earlier in the year). Because of the suddenness and extent of the commercial gold short losses, it is not plausible that the corporate risk controls have not kicked in. For sure, the chief financial officers and corporate risk officials have restricted the traders responsible for the gold losses. Unlimited margin money is not being extended; quite the contrary – traders are undoubtedly being ordered to reduce risk and close out positions. Anything else would be irresponsible.

If my analysis as to what has just transpired in gold is close to the mark, what does this portend in the future for gold and, especially, for silver? The one result that looks almost certain to me is a severe loss of liquidity or true market depth. In fact, it looks like the death of true liquidity for COMEX gold and silver, the signs of which are increasingly evident. I can assure you that I am very much aware of the recent high volume statistics recorded on the COMEX and despite what may appear to be high volume and great liquidity; the real level of actual market depth may be near death. Please allow me to explain.

The big reporting COMEX commercials’ modus operandi has always been to serve as counterparties to almost all other market participants, particularly the technical funds which buy and sell based upon price signals. In this role, the commercials served as market makers, providing liquidity to the market. The tech funds buy and the commercials sell to them and vice versa. This is the rhythm of the market that I try to analyze in the COT reports. Since commodity markets are supposed to be open auction type operations and not a market dominated by specialists, I always thought this market making function of the commercials was bogus. It is also no secret that I have found the uniform dealings of the commercials to be collusive and manipulative. My personal feelings aside, there is no question that the big commercials have functioned as market makers on the COMEX.

Therein lies the problem for liquidity; the dominant commercial market makers on the COMEX just got creamed in the gold price rally and are sharply restricting their activities. This is what is behind the great price volatility in gold. The former big sellers of last resort are sellers no more. Concurrent with the withdrawal of the coordinated selling of the commercials is the rise of computerized High Frequency Trading. The mindless HFT activity does wildly increase daily trading volume, but the nature of this super-charged day trading only adds to price volatility while providing no true depth to the market. Legitimate hedging, the economic justification behind futures trading, is ill-served by HFT. In other words, there has been an immense increase in mindless second -to-second trading which adds little real benefit to prospective hedgers and a sharp drop off in the actual market making on which hedgers depend. This is the very worst of both worlds. And this development was made possible due to the activities of the CME Group, owner of the COMEX, which is hell-bent on expanding HFT. Thanks a lot, guys.

Just like commercial short covering was the prime driver of the gold price rally, it is also behind the increase in volatility. As these commercials withdrew from the market, not only did it drive gold prices higher, it also created a void in true liquidity. If the commercials don’t sell on higher prices, who will? Someone must take their place, as there must be a seller for every buyer, but it is increasingly obvious that the sellers replacing the commercials have not sold with the same force and power that the commercials formerly sold. To date, the noted sellers have been the technical funds and other long speculators who have cashed in on enormous profits. As a result, the gold price is subject to sudden spurts in price both up and down, as I have suggested previously.

On the one hand, the lack of additional commercial shorting has provided a lift to gold prices. On the other, the lack of technical fund buying allows for sharp downdrafts in the price as well. The withdrawal of the commercials and the cessation of buying for now by the technical funds (as we’re so much above all technical fund buy signals) have created a market devoid of real liquidity. Hence, we get great price swings on not much real overnight buying and selling. Yes, we get high volumes from HFT, but that’s garbage volume to everyone except the HFT web-bots themselves and the greedy pigs at the CME who collect on every contract traded, garbage or otherwise.

What does this all mean to regular investors? It means get used to the volatility, because it isn’t going away. Surprisingly, I think it means a lot more to silver investors than it does to gold investors, even though I have been talking more about gold than I have silver. There’s a reason for that. What I’ve described is a process that has already occurred in gold and to a much greater extent than in silver. There may be more commercial short covering to come in gold and if there is, that will exert continued upward price pressure. But the process is fairly well advanced and having already launched the gold price upward, it’s hard for me to predict what happens next, other than almost nothing would surprise me price-wise for gold. I see something very different for silver.

I believe we have also lost true liquidity in silver, as we have in gold. This can be seen in the volatility of the silver price, same as in gold. Back in April, the commercials panicked in silver and bought back shorts, causing prices to explode into the end of that month. Then, a giant manipulative takedown occurred, starting May 1. Recently, the commercial shorts in silver haven’t panicked as they have in gold. In fact, JPMorgan, who I believe to be the largest COMEX silver short, added to short positions in the last COT, as I reported on Saturday. Considering what has occurred in gold, I believe it is only a matter of time before the big commercial shorts also panic in silver. But the panic in silver will be much more profound than it has been in gold.

The prime driver in the gold rally was commercial short covering on the COMEX. In silver, if the commercial shorts panic, it will trip off other powerful forces as well. That’s due to the basic difference between gold and silver, namely, that silver is an industrial material in addition to being a precious metal investment. Gold and silver can go sky-high in price, due to commercial short covering or investment buying. But since gold in not an industrial material, it is most unlikely that it could experience a shortage or a rush to buy by industrial users. How can industrial users panic if there are no gold industrial users?

In silver, there are great numbers of industrial users throughout the world, who are like a vast herd of wildebeests grazing on an African plain. The wildebeests will panic at the first scent of lions. The scent that will cause the silver industrial users to panic will be sharply higher price along with delays in receiving silver deliveries. A commercial short covering on the COMEX will certainly increase prices, just as it has in gold and previously in silver. But given the consistently tight signals emanating from the wholesale physical silver market, it will take little to set off a scramble for physical material which will cause delays to industrial users. As the first few silver industrial users panic and buy physical inventory to insure continued production, this will further tighten supply lines and exacerbate delays in deliveries, thereby inflaming additional user buying. It’s impossible to say when such a process will start in silver, but we surely are closer to that than ever before. This is more a case of inevitability than it is of timing. It will come when it is least expected, but it will come.

It is lamentable that real liquidity seems to be dying on the COMEX, but that is of secondary importance to long term silver investors. Of more importance is that the death of liquidity will likely also signal the death of the ongoing silver manipulation. That’s because liquidity and manipulation are rooted in the big commercial shorts on the COMEX. If there is one thing that could put the price of silver to the stars, it would be the end of the silver manipulation. The message from gold is that the commercials are capable of miscalculating on a massive scale, causing prices and volatility to soar. The message from silver will be not just that, but also that the inevitable physical shortage will cause prices and volatility to soar far higher than any of us can comprehend.

Other Articles      

Full Blown Civil War Erupts on Wall Street
SGS Note: This would confirm what Bix Weir has been telling us at Road To Roota.

Continuance of the Greater Depression and the Brighter Prospects for Gold

Doug Casey

Gold, Silver Rocket as Recession Fears Deepen

Tom Petruno

Silver And Gold, Different Steps But Same Dance

Hubert Moolman

Financial Train Wreck Coming Soon

Eric Sprott

USPS warns of shutdown

Politico

Bix Weir Notes: "It is little know but the USPS is a VERY important entity in the Global Financial Monetary System as it is the second largest transfer agent of electronic money in the world. You would think that holding such an important position in our monetary system they would be under strict scrutiny...but that is not the case. Read what Wikipedia has to say about the USPS...

"The USPS is often mistaken for a government-owned corporation because it operates much like a business, but as noted above, it is legally defined as an "independent establishment of the executive branch of the Government of the United States", as it is controlled by Presidential appointees and the Postmaster General. As a quasi-governmental agency, it has many special privileges, including sovereign immunity, eminent domain powers, powers to negotiate postal treaties with foreign nations, and an exclusive legal right to deliver first-class and third-class mail. Indeed, in 2004, the U.S. Supreme Court ruled in a unanimous decision that the USPS was not a government-owned corporation, and therefore could not be sued under the Sherman Antitrust Act."
United_States_Postal_Service

It is difficult to comprehend how the USPS bankruptcy situation will effect the monetary system but it is clear from Clif's work that the importance of this entity should not be underestimated. This is just one of MANY devastating blows headed towards our financial system in order to destroy the banksters and return us to our Constitution monetary system.

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter.

Debt Collapse - $20,000 Gold - Mike Maloney On Gold and Silver

Full Presentation
This is a very informative presentation... allow about 90 minutes for the entire thing.

SGS Notes: This week we can only say, there's a 'Whole Lotta Shakin' Goin' On!' Not just geologically, but in the markets as well... we've seen silver up over $44 this week, and gold broke through the $1900 barrier before heading back down. We see the big manipulators scurrying to cover their short positions and a lot of new activity 'out there'... The Warren Buffet Bailout of B of A is a big item...another is the Jackson Hole conference on the economy. This week's newsletter, like many, will try to cover the highlights...

The Upside for Gold and Silver will Knock Your Socks Off Embry

Geoff Candy Mineweb

With no easy solutions to the globe's debt problems visible, Sprott Asset Management's John Embry expects gold and silver to be significant beneficiaries but the road ahead will not be easy.

With no easy solutions to the globe's debt problems visible, Sprott Asset Management's John Embry expects gold and silver to be significant beneficiaries but the road ahead will not be easy.

For many commentators, gold is considered not only a constant store of value but, also, a barometer for the health of the global economic system and the currencies that pump through its veins.

For, John Embry, chief investment strategist at Sprott Asset Management, the current parabolic rise in prices, which have beat even his optimistic performance expectations this summer, is indicative of the unsustainable debt situation in which the world now finds itself.

Speaking on Mineweb.com's Gold Weekly podcast, Embry explains, "We've reached a stage in the debt cycle where it doesn't appear we can move forward and on that basis you need more and more debt creation to generate the same dollar real GDP growth - and I don't think we can get that kind of debt growth. So to keep these systems stuck together they [governments] are going to have employ quantitative easing in massive quantities, and if they don't, the current softness in the economy is going to turn into a rout."

Given the current levels of growth, Embry says, any halt in the funds propping up the banking system will result in significant deflation in "fairly short order" because the deflationary pressures within the West are huge.

But, he says, it is not just the West that is likely to suffer. "The Chinese miracle is grinding to a halt, they've dined out in the West for years and they paid for it by taking back our crappy paper but the fact is that they kept their economy going at breakneck pace and I would also say it is probably one of the most unbalanced economies I have ever seen.

"They have depended so heavily on exports and capital spending and now the export markets are weakening at the same time they have massive over capacity. So those two engines are coming to a halt and the hope is that they can do lateral arabesque into consumer demand to keep the thing going. I think that will be a hard act in the short run and consequently China faces some fairly difficult economic problems going forward.

What this means for prices?

While this rather bleak scenario does not bode well for the financial system as a whole, gold's performance over time [as well as that of silver] is likely to "knock your socks off", Embry says. But, he adds, especially after this latest move, he would prefer to see a correction in prices before that happens.

"I don't want to see this thing just scream away and become out of control and conceivably if you got a strong effective action in either Europe or the United States - that might be the catalyst for a significant correction of a couple of hundred bucks - but having said that I don't see the easy solution."

Embry points out that it is also important to note that, "It's not gold and silver that are doing anything. There have been constant stores of value for centuries. It's the value of the paper money that they are being denominated in that is at risk here and you know every attempt in history, fiat paper currency has always ended in tears and this one has been going for 40 years since Nixon closed the gold window and it's probably in its terminal stages."

Indeed, he is of the belief that the world will ultimately see a return to some kind of a gold standard.

"When we do have to recast the currency system, just to restore confidence there will have to be some backing that maintains discipline - and gold has traditionally filled that role. So I can see gold being introduced as a maybe fractional reserve like there was before 1971 in the United States. but to do that given the amount of paper out there and the limited amount of gold, they would have to mark the gold price up dramatically."

And, while he cannot put any kind of timing on such an event, he does think that gold could move as high as $2,500 within the next twelve months.

Quotes  ____________     

“Gold, unlike all other commodities, is a currency,” he said. “And the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.”

Alan Greenspan

For Full Article, Click Here

SGS Note: Perhaps Mr. Bernanke needs to confer with Mr. Greenspan...

Other Articles      

Living Through A Currency Devaluation

Warren Buffet Injects $5 Billion into Bank of America

Think The Buffet Investment In BAC Is Investing Savvy?

JP Morgan May Take Over Bank Of America

Currency Devaluation and Revaluation

British Government Begins Stealing its Peoples’ Bank Deposits Ahead of the Global Financial Collapse

'Like' Us on Facebook
To Receive Updates
Throughout the Week
[Hint: This is where we post
articles that don't make it into the
weekly newsletter. ]

Buffetoon – Implications of silver remonetization
Response to
"A Wolf In Sheep's Clothing"
The Wolf Invests in Bank of America

The World's 30 largest banks by market capitalization