Ed Steer's Gold & Silver Report - February 21 -22 , 2013..... Do read the Eric Sprott interview segments , second one at the top !

http://jessescrossroadscafe.blogspot.com/2013/02/gold-daily-and-silver-weekly-charts_22.html

Gold Daily and Silver Weekly Charts - Life During Wartime - Moody's Downgrades UK

After the bell Moody's tarnished sterling by downgrading UK debt from its treasured AAA rating. I suspect that this is in advance of fresh downgrades for Europe, and perhaps the US if the sequester rocks the corporatist boat. Spending cuts are for the little people.

The currency wars continue. I have intra-day commentary on Financial Dreadnoughts in Times of Currency Wars, among other things.

The idea of 'financial dreadnoughts' comes from an idea I had in about 2002, when I considered how I might wish to arrange things if I wanted to give the Fed and Treasury the latitude to act economically in the aftermath of a financial crisis while engaging in a currency war to support the Anglo-American petro-dollar.

I should add the significant caveat that incompetence, careerism, and corruption explain all the same things, much more simply, and with a certain experiential credibility. I hate to attribute to Machiavellian intent what can be attributed to unprincipled self-serving stupidity. And by the way in which these graspingly inept jokers have been blowing things up, in perfectly avoidable crisis after crisis, that might be a very good bet indeed.

Comex Option Expiration next week. I will be watching the action after expiration to try and get a better sense of where we are in this cycle of market monkey business.

The COT shows that as of Tuesday the hedge funds had deepened their short position in gold quite a bit in the combined futures/options category, in preparation for a takedown. Next week's report should give us some idea of how things went into the expiration.

Have a pleasant weekend.

http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold

Gold And The Potential Dollar Endgame Part 3: Backwardation And Gold

Submitted by Tyler Durden on 02/22/2013 19:24 -0500

• Backwardation
 
• Bank of England
 
• Central Banks
• Contango
 
• Counterparties
 
• ETC
 
• European Central Bank
 
• Lehman
 
• Lehman Brothers
 
• Muni Bonds
 
• None
• OTC
 
• OTC Derivatives
 
• Quantitative Easing
 
• Real estate
 
• United Kingdom
 
• World Gold Council
 
• Yield Curve

Authored by Joe Yasinski and Dan Flynn ofGold Bullion International,

In part one of our series we discussed stock to flow dynamics and their impact on the gold price. To briefly refresh, the stock to flow ratio is simply what percentage of the total stock (all the gold ever mined) is available for sale and this ratio is what determines gold’s price. This is the only relevant ratio when determining gold’s supply. Most analysts myopically stare at mining and scrap supply, yet these are a mere afterthought compared to the existing, and readily saleable gold already spread throughout humanity. The greater the “flow” the greater gold’s availability for purchase and ostensibly, the lower the price and vice versa. In part two of our series we discussed how “paper gold” meaning ETF’s, futures and various derivatives simulate flow where none actually exists. It is our contention that the very existence of this paper flow, rather than metal flow, gives the false impression that there is much more metal available for sale than there actually is. This by definition makes the stock to flow ratio appear to be much lower (more gold available for sale) than actually is and therefore suppresses the price. In the final segment of this series we want to explore an important signal that could identify the demise of paper gold and/or signal a loss of confidence in the $US Dollar and cause an abrupt increase in the stock to flow ratio and the physical gold price.

Before we delve into why backwardation in gold has some very unique and stark implications, let’s first take a moment to understand exactly what backwardation is. While we are at it, we’ll define backwardations mirror twin, contango. Let’s start with contango, since it seems to be the natural state of most commodities not in extremely short supply. The easiest way to visualize contango is to visualize a standard upward sloping yield curve where yield rises as maturity extends. Now visualize the same upward sloping graph but this time representing the price of any particular commodity for delivery out in time. There is first the “spot” price which represents the price paid for any commodity immediately. The farther out you want delivery of your commodity while locking in the price, the higher the cost to do so. Typically, this increase in costs represents a variety of factors of varying influence such as storage costs, time value of money (opportunity cost) etc.

The mirror image of contango is the real subject of this article, and this is called backwardation. Backwardation is the condition where the spot price is higher than the forward price. Backwardation often exists in perishable commodities, right before the harvest. This happens because even though demand is constant throughout the year for a commodity like wheat, the harvest only happens once a year. If you demand delivery right before the harvest, it will be more expensive than taking delivery one month later, after all the grain silos are full. Backwardation is usually a fleeting phenomenon, occurring only when a particular commodity is in short supply and there is great demand for immediate delivery, not in the future.

As discussed in parts 1 and 2 of this series, gold is a unique commodity in that it is not consumed. Gold is certainly not in short supply. Essentially every ounce mined since the dawn of man is scattered around civilization in governmental and private hands. Gold isn’t consumed, it’s hoarded. Estimates of world gold supplies are north of 170,000 tons. So what would backwardation mean in the gold market? If the gold market ever entered backwardation it would offer a seemingly risk free profit opportunity for an arbitrageur. One so inclined would simply sell their gold in the spot market, as it would demand the highest price, and then simultaneously buy a futures contract at a lower price for delivery at a future date.Logically, in an efficient and functioning market enough people would “sell spot gold” and “buy future gold” that the spot price would go down, future prices would go up and the backwardation would disappear. That’s how markets are supposed to work, they take advantage of risk free profits and they disappear. So if and when we see gold in backwardation, it should be considered something like a fire alarm for the system. Something serious is happening. Investors would be rejecting what should be a “risk free” profit opportunity. We would like to suggest two (not mutually exclusive) causes: 1) the threat of counterparty failure and/or 2) loss of confidence in the $US Dollar.

The first implication of gold in backwardation is straightforward and easy to understand. The market is pricing in significant counterparty risk of failure to deliver gold in the future. The paper gold market is highly leveraged and functions as long as participants have confidence in the ability of counterparties to deliver on their contractual obligations. It is interesting to note that the gold market has experienced brief periods of backwardation dating back to the mid-1990s. It is easy to identify the factors of market stress that caused those incidents of gold backwardation in the first place. Several academics as wells as gold analysts and commentators have pointed to these events. Of the several periods of backwardation in the gold market, two of the most interesting and significant followed the September, 1999 Central Bank “Washington Agreement” on Gold and more recently during the dark days of the 2008 financial crisis. In both instances we believe the primary force causing gold backwardation was near catastrophic collapse in counterparty viability.

The Washington Agreement (European Central Bank , 1999) was announced on September 26, 1999 by 15 European Central Banks. As summarized by the World Gold Council, “… they stated that gold would remain an important element of global monetary reserves, and agreed to limit their collective sales to 2,000 tonnes over the following five years, or around 400 tonnes a year. They also announced that their lending and use of derivatives would not increase over the same five-year period. The signatory banks later stated that the total amount of their gold they had out on lease in September 1999 was 2,119.32 tonnes. (World Gold Council, 2013). There is strong anecdotal evidence (VtC, 2012) that for the decade prior or longer, Central Banks had been the primary suppliers of gold and therefore served as a backstop to the rapidly expanding paper gold market. Based on the market reaction immediately following the WAG, the evidence is even more compelling. Given that the signatories of the WAG controlled approximately 45% of global gold reserves, it’s not surprising that in announcing a formal reduction of supply/flow into the market, the price of gold to exploded higher. Real supply was constrained impacting the STF ratio. Further, leveraged paper gold participants scrambled as they realized the previous implied Central Bank backing was going away. Counterparty Risk became real and gold went into backwardation. A large holder of paper gold had to question whether or not his counterparty (bullion bank) would really be able to deliver without official support. What would have previously offered a “risk free” arbitrage opportunity was now a rapidly unwinding collapse. There is wide speculation and some documentation that the panic was not contained until the US (who did not sign the WAG) and the UK stepped forward to supply the market with the needed physical gold to meet the run:

“In front of 3 witnesses, Bank of England Governor Eddie George spoke to Nicholas J. Morrell (CEO of Lonmin Plc) after the Washington Agreement gold price explosion in Sept/Oct 1999: George said "We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K." (GATA, 2003)

Now fast forward to the dark days of the2008 financial crisis. After the September 15, 2008 collapse of Lehman Brothers, a daisy chain of bank defaults seemed inevitable. As paper gold is only as good as the bullion bank selling it, it’s no surprise that again the gold market went into backwardation. This time, however, the price of (paper) gold was not rising. It was falling – and falling fast. During October and November of 2008, the price of gold fell by 20%. Is it possible that this falling gold price was signaling something deeper than potential bank failure? (FOFOA, 2013) We think it is certainly possible, and believe the second implication for gold backwardation is a collapse in confidence in the $US Dollar itself. As pointed out in an April 2011 interview with legendary gold, currency, and commodity investor Jim Sinclair, the Lehman collapse changed the game forever and may have set the stage for the final act in US Dollar hegemony:

“Before the failure of Lehman Brothers, OTC derivatives losses would have almost netted out to zero. You can consider derivatives like a string in a circle with various knots representing all the derivatives transactions.When Lehman went broke, the string broke. When Lehman couldn’t meet its obligations on derivatives, they could no longer be netted out to zero. That’s why the banks went down, and that’s why you had the government bailouts and quantitative easing.” (Sinclair, 2011)

Given the nature of today’s gold market with paper dominating physical flow, it makes sense to us that backwardation driven by a failing $US Dollar could initially coincide with a rapidly falling price of gold. Although this statement may seem counterintuitive, it is important to remember what we discussed in part 2 of this series. The paper gold market dwarfs the physical gold market in size, perhaps 15 or 20 to 1. Today, there is no meaningful separation in the price of physical gold and paper gold. Because paper gold supplies the marginal flow in the gold market, it sets the price. And consider for a moment Exter’s Pyramid:

If true that Lehman was the tipping point that put the global financial system on the brink, a rational response on the part of a paper gold holder (a derivative/financial contract) is not to wait and hope for an allocation or delivery of physical. Instead, the response is to sell immediately and move lower on the inverted pyramid. From central banks to individual savers, we see this happening every day. As the price of paper gold (and physical as there was no Comex/LBMA collapse) fell, real estate, corporate and muni bonds, and stocks fell. Even if the endgame is a dollar collapse, we would expect to first see a rally in US Treasuries and demand for cash, which we did. Further, towards the inverted apex of the pyramid there is ample anecdotal evidence that premiums on physical gold had begun to widen and in some local markets there was very tight supply – so perhaps we were witnessing what many physical gold advocates have been suggesting would ultimately occur. We believe that there were some interesting differences between the gold backwardation of 1999 and 2008.

Academics such as Professor Antal Fekete made a call for the imminent demise of the international monetary system. (Fekete, 2008) and based on his studies of the gold basis believed that gold was entering permanent backwardation. So what would extended or permanent backwardation imply? According to Prof Antal Fekete, “gold going into permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as is has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion or coined gold.”

Dollars would be bidding for gold, but gold simply wouldn’t be accepting dollar bids. This would imply a gold price of zero or infinity, take your pick. Since physical gold would no longer be convertible into dollars.

But as we know, 2009 brought a massive effort on the part of Central Banks and Governments the world over in order to restore confidence in the system. Only through this massive intervention were the markets able to steady themselves. Although damaged, things on the surface seemed to recover and Fekete’s and others calls for $US Dollar collapse seemed premature at best. It seemed that backwardation had subsided.

Today, we encounter investors and speculators that believe many of the issues facing the markets in 2008 have been resolved. To the extent that they have a position in gold, it tends to be a trade with paper gold. Some believe that they will be able to look at various metrics measuring the level of stress in the gold market or even backwardation and “know” when it is time to move to physical. Whether it is evaluating swaps, gold leases, or various versions of calculating the gold basis – they all have their crystal balls. One way of monitoring this is what’s called the GOFO (Gold Forward Offer Rate.) The GOFO rate is defined by the London Bullion Metal Association (LBMA) as… “Gold Forward Offered Rate - these are rates at which contributors are prepared to lend gold on a swap against US Dollars.”

In layman’s terms, the GOFO is the rate someone will loan you dollars on gold collateral. The GOFO rate will be lower than the rate of an uncollaterized loan and should always be positive, meaning costs more to borrow US Dollars than it does gold. If this rate were to ever go negative it would mean that gold is more precious than dollars. Essentially gold would be removing its bid for dollars. For physical gold owners searching for clues to tightness and demand in the physical market, they would be wise to keep a sharp eye on these metrics. It is our belief that this is happening, right now. Money is moving down Exter’s pyramid and while the final denouement may be days, weeks, months or years off, we are certain it would be preferable to be years early as opposed to a day late.

What do you view as a risk-free asset? The US Dollar? If the next global financial fire is coming, how confident are you that your alarm is working?

and.....



http://www.silverdoctors.com/eric-sprott-the-us-govt-may-be-exporting-german-gold-to-china/

( Simply a blockbuster report - no wonder the US is trying to attack china these days.... )

ERIC SPROTT: THE US GOV’T MAY BE EXPORTING GERMAN GOLD TO CHINA!

FEBRUARY 22, 2013 BY THE DOC 4 COMMENTS

Legendary precious metals expert Eric Sprott sat down with The Doc for an exclusive interview to discuss the Bundesbank’s gold repatriation request last month, and the correlation with massive physical gold buying in Asia. 

Eric pointed out that the US government exported 30% of US annual gold production to Hong Kong in December alone, and stated that as there is no excess gold available in the US, all of his analysis suggests that the US gov’t may be exporting the German, Dutch, & Austrian gold reserves held at the NY Fed to China in an attempt to kick the can and forestall the inevitable financial collapse a little longer.

The Doc asked Eric how tight the physical silver market is currently, and if he might soon be able to  achieve his goal of not being able to source the last bar of silver for an offering:  

That’s always one of my dreams!  Some of the things that those in the precious metals market might hope for:  1. Money printing- I mean who would have imagined when they got involved in 2000 that we would see money printing which began in 2008/2009?

And then we see bank runs, which are two of the most wonderful things for precious metals owners, because those are reasons you own precious metals, and then you see the physical demand coming through, these are the perfect things that we want to see.   As long as these continue we’re going to be ok.  Someday it will break, I don’t know what will break it to be honest- is it going to be a COMEX default, is it going to be an industrial users that can’t get enough silver that produces iPhones or the S3′s or something like that- I think SD had the article that one of the car maker’s was stocking silver in Switzerland – so I don’t know exactly how tight it is, I have the same anecdotal evidence you have, and the most obvious one is what you just mentioned- the US Mint is running out of blanks.

It has to be tight, we know that the COMEX bears no correlation to what’s going on in the real world, but seemingly (for now) that determines the price.   Someday, the physical demand (which it probably already has) exceeds physical supply, and it’s only a matter of breaking the backs of the short sellers on the COMEX and the LBMA who double, triple, quintuple counting of how much gold people think they own- I dont know when that’s going to happen, all I know is that if I had a choice of to buy bonds, to buy stocks, or to own precious metals, I know exactly what I’d do because over time we know we’re going to win the race.

The Doc also asked Eric about the Treasury Department releasing the results of their 3 year audit of the Treasury’s 34,021 gold bars held at the NY Fed- particularly with the timing of the release only a month after the Bundesbank requested the repatriation of Germany’s gold, and whether the official denial by the Treasury department of any purity issues with it’s gold stored at the NY Fed in fact confirms our worst  fears:

Well Doc, I read the so-called audit report.  It really said they audited the schedule of holdings- which I don’t even know what that means, the schedule of holdings.  What the NY Fed holds is a very small fraction of the total gold theoretically that’s owned by the US government, and in fact the gold held at the Fed might be German gold!  The Germans might be surprised to find out there’s only 350 tons in the NY Fed and it’s all supposed to be theirs! 

It was a sham, and it was another example of those who are attempting to mislead us as to what is going on, and there have been so many examples of things that are just not right and are totally misreported.

Let me give you the biggest example of that.  On Jan 17th, the Dept of Treasury released their GAAP budget deficit , and it was $6.9 TRILLION.  That’s the change in present value of true obligations in ONE YEAR plus the cash deficit- total deficit $6.9 TRILLION!  This is in a $16 trillion economy where politicians fight over $100 billion in spending cuts when the deficit is $6.9 T!  What I find most interesting about that number?  You will not see it reported ANYWHERE in the public press! 

You would think that would be something that would be deserving of some comment, but if you Google GAAP budget deficit 2012 you will not find it in any public news release, even though it was released by the Department of the Treasury.  We’re just ignoring the biggest elephant in the room here, and that’s the way they want to work it- more disinformation.

Sprott also discussed the massive physical gold buying in Asia:

Every time I look at the gold data, you see more and more physical buying of gold all the time.  If I annualized the latest imports into China from Hong Kong in their latest reported number, and if I annualized the latest India purchases, my goodness the shortage we would have in physical gold- I calculated 2,300 tons per year!  That shortage would be substantially higher.  And I might add that I don’t get to see data on what people who buy bars- we don’t get to see that data!

We don’t know what Russian billionaires have done.  We don’t know what the Saudi Shieks have done.  For example, when the University of Texas’ Teachers endowment bought $900 million in gold- that’s not an item where we see the transaction in the public domain, so I suspect the shortage is well above the number I calculated, because I can only add up the public data. 

As you know the gold market is only a 4,000 ton market, and we’ve seen this change of 2,300 tons per year- where is the gold coming from?  How does China import 95 net  tons of gold in a month when the mines ex-China only produce about 180?  They bought 50% of the world’s gold! Then I turn around and read that India bought 100 tons, over 50% of the world’s gold per month! 

The US gov’t has to be selling!  We saw the Treasury customs report for the month of December where the US gov’t was an exporter of $4 billion worth of gold!  (They call it non-monetary gold by the way)…which is 2.5 million ounces!  In a month!  The US only produces 8.8 million ounces in a year, where do you come up with 2.5 million ounces? 

Most of the gold produced in the US is consumed in the US!  There’s not much left over for exports.  
In the last year, the US gov’t has exported 250 tons of gold!  Where does 250 tons of gold come from?  
There’s no excess gold available other than what might have been at the central bank!   It might have been the German gold, might have been the Austrian gold, might have been the Dutch gold- all of my analysis tells me that’s whats happening! 

The Western Central banks – the guys trying to solve the problem- have been huge, non-transparent sellers of gold.

The Doc also asked Sprott how much gold China might have accumulated since it’s last official update of 1,054 tons in 2009:

I don’t think they’re going to update the statistics.   If you or I were running the financial affairs of China, we would want to be selling Treasuries and buying gold, but we don’t want people to know that we’re selling Treasuries and buying gold.  Simply because they want to buy as much gold as cheaply as they can.  To me it’s obviously a godsend for the Chinese that the price is where it is.   You mentioned they bought 900 tons of gold last year, I would venture to say that 3 years ago, they probably didn’t buy 100 tons of gold.   So you have an 800 ton buyer come into a 4,000 ton market, and the price goes down.  It’s an impossibility.  They took 25% of the market!  I always like to say what if the Chinese bought 25% more of the oil market or 25% more of the wheat market?  Wouldn’t people say there might be a problem, or how could you do that, is it even physically possible?  

The data we get from China is only from Hong Kong!  We don’t even know how much gold is going from Switzerland or Canada into Beijing- we only know what goes from Hong Kong into China, and I know that there’s lots of gold coming into China that doesn’t go through Hong Kong! 

Who knows what China’s reserves are, I don’t think we’ll find out until there’s some kind of collapse of the system or they want to make their move in terms of backing the Yuan with gold, and that could be some time soon.  I’m sure they are happy to sit there and accumulate gold at these prices, and we know that it must be coming from the Western Central banks!

With Sprott recently launching Palladium and Platinum trusts, The Doc asked Eric whether he still believed silver to be the investment of the decade:

I do, but I must say, that I am not a student of the platinum and palladium markets.  I don’t spend multi hours/ day looking at that.  I leave Rick Rule and other people in our office in Toronto in charge of understanding that market and I think they have a good grasp of it.

I don’t get into the minutia, but all the data we see on a macro basis- the problems in South Africa, the purchasing of platinum and palladium for investment purposes are all moving up here.  I’m actually a little stunned that the price hasn’t moved more than it has because in my mind, we have an absolute shortage of the two commodities!  There’s no telling where the price could go when somebody wants that last bar of platinum or palladium and they’re not going to get it.   I think the outlook for both metals is great, but it certainly doesn’t diminish any of my fervor towards the silver market.  As a precious metal, I think silver is more precious than platinum or palladium and will be the investment of the decade. 

Doc:  How do you see this all ending for the US?  Will we simply end up with 2 lost decades like the Japanese, will we actually see a hyperinflation of the US dollar, will China one day announce official gold reserves of 15,000 tons and introduce a new gold backed renminbe?   How do you see this whole financial crisis ending?

As you said at the outset, will we lose two decades?  I might argue we’ve already lost one decade! 

If you ask 70% of the population are they better off, the answer will be no, and it’s probably a lot higher than 70%.   Here in 2013 we have a 2% tax increase.  We have a possible sequestration.  You read the internal communications that leaked from WalMart that their February sales so far are a total disaster.

We’re printing all this money, and we’re spending all this money, and where do we stand today?  We stand in almost a world-wide recession after all those moves!  What more can we do to turn the economy around?  It’s just not turning around! 

Yes, I suggested that the recovery has no clothes, because you could see that it was temp earnings that was fueling the optimism early in 2012, those things all faded towards the end of the year, we ended up with a negative print in GDP.   We’re going to start this year with a negative print in GDP, and I wrote another article last year saying Weak begets weakness.

For example, if somebody lays off 5,000 employees, it’s not just those 5,000 employees that get impacted, it’s the people who are relying on those people to buy goods from them that also get impacted.
There’s only one way that weakness won’t beget weakness- you have to have outside measures come in in terms of fiscal policy or monetary policy.  In terms of fiscal policy we have no room for fiscal policy initiates anywhere.  Here we are arguing about sequestration and how much spending we’re going to cut.  There’s no fiscal stimulus.

Now let’s move on to financial stimulus.  We have 0% interest rates, and we’re buying $85 billion of our own bonds a month.  How much further can we go here?   There’s nothing left to try!  The printing of money has been a total failure other than making things look calm.  I can assure you it’s not calm, but it looks calm, and it will look calm until one day we all figure out that we’re just going down this slippery path of greater debt, greater money printing, and people will figure out that I don’t want to own these bonds because I know exactly how this thing’s going to end. 

1. Eric Sprott: The Cartel Will be Taken to Their Knees!

http://www.caseyresearch.com/gsd/edition/ambrose-evans-pritchard-gold-s-death-cross-buy-signal-china

Ambrose Evans-Pritchard: Gold’s Death Cross is a Buy Signal For China

Feb

22

• Yesterday in Gold and Silver
• Critical Reads
• The Funnies
• The Wrap

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"Where we go from here...and how fast we get there...is the other $64,000 question. "

¤ YESTERDAY IN GOLD AND SILVER

For a change, all the price action that really mattered occurred during the morning trading session in the Far East, when a new low price was set in gold.
The low came shortly after 10:00 a.m. in Hong Kong...and crawled higher for the rest of the day in the Far East and London.
The high tick [$1,586.10 spot] came at the precise close of London trading at 4:00 p.m. GMT...11:00 a.m. Eastern time.  From there, gold got sold off a bit going into the close of electronic trading in New York.

Gold finished the Thursday session at $1,577.00 spot...up $12.70 on the day...and as I pointed out in 'The Wrap' yesterday, volume was monstrous during Far East and London trading...and those volume levels continued for the rest of the day.  When it was all done, gold's gross volume was 233,000 contracts.

In silver, it's hard to tell whether the new low price tick came mid-morning in Hong Kong, or shortly after the London open...not that it really matters, I suppose.
Anyway, from the London low, silver rallied up until the noon GMT silver fix...and didn't do a whole heck of a lot after that.
Silver finished the day at $28.68 spot...up a whole twelve cents.  Net volume was heavy at 42,500 contracts, give or take.

Both platinum and palladium were taken out to the woodshed during the Far East and early London trading sessions on Thursday...and both hit their lows around 11:00 a.m. in London, which was pretty close to being the high tick of the day for the dollar index.  But to say that the price moves in platinum and palladium on Wednesday and Thursday had anything to do with the currencies, would be an outright fabrication.

The dollar index opened at 81.05 in Far East trading on their Thursday...and then rallied to its high of the day [81.49] around 10:30 a.m. in London...after that it traded mostly flat in a very tight range for the rest of the day.  The index closed at 81.36...up 31 basis points on the day.
Like every other day of this engineered price decline in the precious metals, the correlation between the currency moves and the physical metal prices has been hard to find...and that's being kind.

*  *   *


The CME's Daily Delivery Report was a bit of a surprise, as a rather chunky 1,582 gold contracts were posted for delivery on Monday....and it was all "the usual suspects".  The two big short/issuers were Canada's Bank of Nova Scotia with 938 contracts...and JPMorgan with 644 contracts.  362 of those JPMorgan contracts came from their in-house [proprietary] trading account...and 282 contracts were issued from their client account.  The two big long/stoppers were HSBC USA with 944 contracts...and Deutsche Bank with 613 contracts.
Those 1,582 gold contracts posted for delivery on Monday represents about 90 percent of the remaining open interest in the February delivery month.
There were no silver contracts posted for delivery.  Yesterday's Issuers and Stoppers Report is worth a peek.  The link is here.
The GLD ETF showed another withdrawal by an authorized participant[s] yesterday.  This time it was 285,733 troy ounces.  In the last two days 953,529 ounces of gold have beenwithdrawn from GLD...just under 30 tonnes.
But the big surprise for the second day in a row was SLV...as an authorized participant added silver again.  This time it was an eye-watering 2,030,225 troy ounces!  During this $4 engineered price decline in silver over the last eight business days, SLV has added about 3,480,000 ounces, or just over 108 tonnes.
Since December 7th...GLD has shed a hair over 2.0 million ounces...and SLV has added about 24.9 million ounces of silver
Something is up...but I just can't see the whole picture.
Joshua Gibbons, the Guru of the SLV Bar List, updated his website with commentary on the week that was in SLV.  It was posted on the about.ag/SLV Internet site yesterday...and the link is here.
On Wednesday, the Comex-approved depositories reported receiving 20,980 troy ounces of silver...and shipped 626,983 troy ounces of the stuff out the door.  The link to that activity is here.

Here are a couple of charts that Nick Laird whipped up recently...and I thought they were worth sharing.

(Click on image to enlarge)

*  *  * 

Selected news items.....

Congress Asks Bernanke For Full Risk Analysis On Fed's Soaring Balance Sheet

Rep. Jim Jordan (R-Ohio) is demanding that Federal Reserve Chairman Ben Bernanke explain exactly how he plans to wind down the Fed's massive portfolio once its run of bond buying comes to an end.
In a letter sent to Bernanke on Wednesday, Jordan asked for any research the Fed has done on unwinding its burgeoning portfolio, which recently topped $3 trillion — three times its size in 2008, the lawmaker noted.
Jordan noted that the size of such a portfolio could pose "significant problems when the Federal Reserve begins to unwind."
This lengthy must read article was posted on the Zero Hedge website yesterday...and the first person through the door with this story was West Virginia reader Elliot Simon.  The link is here.

CFTC sues NYMEX over information leaks

The Commodity Futures Trading Commission is suing the New York Mercantile Exchange, a unit of CME Group, and two former employees for allegedly giving secret customer trading information to an external broker.
The case is the first time the CFTC has sued Nymex since the 1980s, an official said. It reflects a growing push by regulators to hold exchange operators responsible for alleged misconduct.
The CFTC alleges that from early 2008 until November 2010 William Byrnes and Christopher Curtin, the former employees on CME ClearPort Facilitation Desk, provided a broker with order flow information, including "the identities of the parties to specific trades, the brokers involved in trades, the number of contracts traded, the prices paid, the structure of particular transactions, and the trading strategies of market participants."
This article showed up on the Financial Times of London website yesterday.  It's posted in the clear in this GATA release, but the first reader who slid this story into my in-box yesterday evening was Elliot Simon...and it's his second offering in a row in today's column.  The link is here.

France freezes spending to hit EU targets as slump deepens

France is to freeze spending on defence, higher education and research in a frantic bid to meet European Union deficit targets this year, tightening fiscal policy yet further as the country slides into deep slump.
The move came as Brussels slashed its 2013 growth forecast for France to just 0.1pc, implying a triple-dip recession. Paris had been counting on 0.8pc growth.
The severity of the downturn has caught officials by surprise. Markit’s survey data for French manufacturing and services fell to 42.3 in February, plunging at the fastest rate since the financial crisis in early 2009. Anything less than 50 signals contraction.
Markit warned that the country may be tipping into a “downward spiral” as sliding confidence causes businesses to delay spending. A key gauge of France’s money supply – six-month real M1 – has contracted faster than in Italy or Spain over recent months, pointing to a grim outlook ahead.
Ambrose Evans-Pritchard feasts on the bad news out of France.  This commentary was posted on the telegraph.co.uk Internet site yesterday evening GMT...and I thank Manitoba reader Ulrike Marx for sending it along.  It's worth the read...and the link is here.

Bank of England split on more QE as Governor Mervyn King over-ruled

The Bank of England’s fears for the health of the UK economy have been laid bare by a split among policymakers that saw the Governor over-ruled for only the fourth time after he voted for more quantitative easing.
The pound fell sharply as the markets reacted in shock to minutes from this month’s Monetary Policy Committee (MPC) meeting, which revealed that three members voted to increase QE by £25bn to £400bn – including Sir Mervyn King. Last month, only David Miles wanted to restart the printing presses.
The decision took traders by surprise as the Bank last week raised its forecasts for inflation from those made in November, warning that inflation would hit 3pc later this year and not fall back to the 2pc target until the beginning of 2016. Under normal conditions, the Bank would be expected to consider raising interest rates to offset such a rise.
The Bank has said it would tolerate the inflation overshoot, but few economists expected the MPC to encourage it. They had expected Mr Miles to be the only policymaker calling for more QE, so the decisions of both Sir Mervyn and Paul Fisher, the Bank’s executive director for markets, to join him raised the prospect of action next month.
It's print, or die for every Western central bank, so why is this story such a surprise?  I found it in yesterday's edition of the King Report...and it was posted on the telegraph.co.uk Internet site.  The link is here.

Three King World News Blogs

The first blog is with Dr. Stephen Leeb...and it's headlined "China Will Have World's Largest Gold Reserves in 2 to 3 Years".  The next two blogs are withDr. Marc Faber.  Blog #1 is titled "It's a Disgrace to Think Money Printing Solves Problems"...and Blog #2 is headlined "This is How the Great Money Printing Experiment Will End".

India bans gold jewellery from Thailand

In a fresh clampdown, India has officially banned the import of gold jewellery from Thailand. The government has announced that unless it is satisfied that gold jewellery imports from Thailand had received 20% value addition in that country, they would be banned.
The authorities suspect that Indian importers are misusing the duty free pact with Thailand to import bullion from the South East Asian nation.
The commerce ministry has recommended suspension of gold jewellery imports from Thailand in view of the increasing imports from the country. For some time now, the government has been looking to bring down imports of the precious metal into the country and has added several stages of import duties.
This story, filed from Mumbai, was posted on the mineweb.com Internet site yesterday...and I thank Marshall Angeles for today's first gold-related story.  The link is here.

Could Gold ETF Outflows Drive ‘Vicious Circle of Selling?’

The largest gold ETF backed by physical bullion saw its largest one-day outflow in 18 months on Wednesday and fell 2.5% on speculation the Federal Reserve may ease back on economic stimulus.
Bullion holdings in SPDR Gold Trust fell by 20.8 metric tons on Wednesday, the biggest one-day outflow since August 2011, Reuters reports.
The ETF currently holds about 1,299 metric tons of gold valued at $66.3 billion. In terms of performance, the gold fund is down about 7% the past month.
This "sky is falling" type story was posted on the ETFtrends.com Internet site yesterday...and was picked up by finance.yahoo.com...and I thank Scott Pluschau for sending it along.  The link is here...and the embedded chart is definitely worth the trip. [But the chart for SLV certainly doesn't look like that. - Ed]

Fear In Gold Market As Hedge Funds And Retail Sell – HNW And Smart Money Accumulate Again

Gold has come under pressure from heavy liquidation by hedge funds and banks on the COMEX this week. The unusual and often 'not for profit' nature of the selling, at the same time every day this week, has again led to suspicions of market manipulation.
Short sellers, technical and momentum traders have the upper hand and are pressing their advantage with momentum and sentiment on their side. Nervous longs are being stopped out through stop loss orders and concerns regarding the clear downward short term trend.
Gold’s so called ‘death cross’ scare is simplistic, bogus nonsense that should be ignored by all. Gold experienced a ‘death cross’ in April 2012 (see gold chart above) and similar alarmist analysis was put forward about the death of the gold bull market and the likelihood of a 1980 style plunge.
This did not come to pass, nor will it come to pass now given the real world fundamentals driving the gold market.
This Goldcore commentary from yesterday was posted on the zerohedge.comInternet site...and is a must read for all discouraged bulls.  I thank Marshall Angeles for sending it along...and the link is here.

Ambrose Evans-Pritchard: Gold’s Death Cross is a buy signal for China

It is a treacherous moment for gold bugs.
The first whiff of future tightening from the US Federal Reserve has sent bullion into a nose-dive, triggering a much-feared “Death’s Cross” sell signal on gold futures.
Gold has dropped by over $100 an ounce in ten days, touching $1556 this morning. The HUI index of gold mining stocks broke down weeks ago – as so often leading gold itself by a few weeks – and has already crashed to levels last seen in 2009.
Citigroup says the great bull market of the last 12 years is over. The “long cycle” has peaked. Economic recovery has yanked away the key support. So long as there are no big “street riots” this year, investors will stop buying precious metals as Armageddon insurance and rotate instead into stocks that generate income. Such at least is the argument.
This blog from Ambrose was posted on The Telegraph's website sometime yesterday...and I thank Paul Laviers for sending it to me in the wee hours of this morning.  The link is here.

*  *  * 

¤ THE WRAP

First, let me establish that the price takedown over the last nine trading days ($120 in gold and $4 in silver) qualifies as being termed deliberate. Especially in silver, I’m not sure what else could describe the decline other than deliberate. After all, there has been no indication of selling from existing silver investors either in physical holdings or in the silver ETFs (exchange traded funds); all the selling in silver has been on the COMEX in the form of paper contracts. Government-published data, in the form of the Commitment of Trader Reports (COT), have and will indicate heavy selling by speculators and technical funds and heavy buying by other speculators called commercials in COMEX silver futures. On this, few will argue. Some still insist that this is free market behavior, but many more grasp that what causes it to be deliberate is the consistency by which the commercials can get the technical funds to follow price signals controlled by the commercials (think HFT). That, and the overwhelming concentration held on the short side of COMEX silver by JPMorgan. Silver didn’t drop 4 bucks in two weeks for any reason other than deliberate commercial maneuvering on the COMEX. - Silver analyst Ted Butler...20 February 2013
Well, I'm guessing that we saw the bottom in all four precious metals during Far East and early London trading yesterday...as there was no price activity worthy of the name during the Comex trading session that followed.  If I'm wrong, we should find out shortly.
But where we go from here...and how fast we get there...is the other $64,000 question without an answer as of yet.  As Ted Butler has already pointed out...JPMorgan et al spent the entire engineered price decline buying back short positions and going long...as the technical funds were forced to sell their long positions, and have now loaded up on the short side.
Unfortunately, today's Commitment of Trader Report due out later this afternoon, won't show what happened during the final two days of this sell-off...as the cut-off for today's report came at the close of Comex trading on Tuesday.  The crucial Wednesday and Thursday price action...the final capitulation to the downside...won't be included.
Here are the 6-month charts for all four precious metals.  I found it very intriguing that 'da boyz' would set the low price in both gold and silver in Far East trading...and then do the same for platinum and palladium shortly after London open a few hours later.

(Click on image to enlarge)

(Click on image to enlarge)

For all those pundits bemoaning the state of GLD, I would like to point out that the situation is far different in SLV...and one has to wonder why that is the case...especially the deposits in SLV and the withdrawals in GLD during this price decline.  If the precious metals were going lower in the long term, why would JPMorgan go to all that trouble of covering their monster short position in that ETF?  The short positions in both these ETFs have been relegated to background levels...and are so tiny now, that they are of no significance.
Along with the recent frantic activity in SLV, there's the other matter that Ted Butler has been going on about for about the last two years...and that's the phenomenal churn in Comex silver.  It's not happening in any other metal...and you have to ask yourself why that is the case.  Ted thinks that "da boyz" are hand to mouth in silver...and I agree.  I'd also bet serious money that most of these good delivery bars that have been arriving and departing the Comex in the last couple of years are picking up quite a few "frequent-flyer" points during their travels, because it's my belief that a significant portion of their journeys are by air, as almost all of U.S. silver production is ending up at the U.S. Mint.
There are lots of commentators out there that feel that a re-pricing of gold is inevitable...and I'm one of them.  With the COT structure set up favourably once again, this may be used as an opportunity to let prices rip to the upside.  However, I'm choked with caution, as we've been at a similar COT structure several times in the last fourteen months...and nothing of that sort happened, as JPMorgan et al poured back on the short side during the subsequent rallies in all the precious metals.
Will it happen this time?  Beats me, but if I was the powers that be, this would be the sort of timing I would pick.  As I and others have mentioned many times over the years, the world's economic, financial and monetary systems are circling the deflationary drain ever faster...and they all want some 'positive inflation' in the world's economies...and a re-pricing of the precious metals, whether by market forces or by decree, would be an important step in attempting to right over 40 years of monetary malfeasance.  If there are any big changes forthcoming, I would expect them to happen quickly.
In Friday trading in the Far East...and in early London trading as well...not much of anything happened price wise.  As I hit the 'send' button at 5:15 a.m. Eastern time, volumes are pretty decent in both metals...and the dollar index is down about 10 basis points.  It will be interesting to see what develops in New York when the Comex opens at 8:20 a.m. Eastern time.

Before heading out the door, I'd like to remind you...as I do most every Friday...that the precious metal stocks have never been this cheap versus the price of gold itself...and it certainly appears to be the time to take the plunge if you haven't already.  So I'd like to remind you one more time that there's still an opportunity to either readjust your portfolio, or get fully invested in the continuing major up-leg of this bull market in both silver and gold...and I respectfully suggest that you take out a trial subscription to either Casey Research's International Speculator [junior gold and silver exploration companies], orBIG GOLD [large producers], with all our best [and current] recommendations...as well as the archives. Don't forget that our 90-day guarantee of satisfaction is in effect for both publications.
Enjoy your weekend, or what's left of it if you live just west of the International Date Line...and I'll see you here tomorrow.

and....







http://www.gata.org/node/12258

What then must we do?

Submitted by cpowell on Thu, 2013-02-21 21:26. Section: Daily Dispatches

1:46p PT Thursday, February 21, 2013

Dear Friend of GATA and Gold:

A friend, C.S., wrote to your secretary/treasurer today asking for comment on the beating gold has taken in the last few weeks. Your secretary/treasurer is no market analyst but couldn't leave her hanging and so offered the following.

* * *

And the multitudes asked him, 'What then must we do?' -- Luke 3:10.

The smashdown of the last couple of weeks, while maybe not unprecedented since I began following the monetary metals in 1998, may be the most demoralizing. And yet the world financial system never has been more unhinged, which may explain the smashdown in large part if it represents the increasing desperation and intervention of central banks.

At GATA's conference in Washington almost five years ago I said that there are no markets anymore, just interventions by central banks and governments:

http://www.gata.org/node/6242

If that is correct, then short- and medium-term investment strategy is entirely a matter of anticipating the next intervention, and of course the Federal Reserve doesn't call or e-mail me with any notice -- just the heads of the investment houses that act as agents for the U.S. government in the markets. So what is left for ordinary people to invest in if all values are manipulations, illusions, or just political calculations subject to change in an instant? What is there left to invest in if the British economist Peter Warburton was right in 2001 when he wrote that the main objective of central bank policy is to deprive the world of any standard of financial measurement?:

http://www.gata.org/node/8303

My answer to that question would be: the monetary metals, insofar as they are real at least and have and always will have recognized value throughout the world, even if we cannot rely on the ratio of their value to the value of government currencies.

But we can review history, and doing so we find that over the long term currencies have always been devalued against the monetary metals and the rigging of the monetary metals markets has always failed, if only when the metal available to the market riggers ran out. The most recent example of that is the story of the London Gold Pool, which collapsed in March 1968 because of a shortage of metal:

http://en.wikipedia.org/wiki/London_Gold_Pool

But Bill Buckler's Privateer newsletter has wonderfully summarized the rest of the modern war against gold and the market rigging involved:

http://www.the-privateer.com/gold2.html

I will bet -- have bet -- my life that the current war against the monetary metals will fail eventually as all the other such wars have failed and that the metals will be revalued upward as governments continue to retreat to a more defensible level for their ever-depreciating currencies. But will this happen in my lifetime? Two good friends of GATA, Ferdinand Lips and Adrian Douglas, bet their lives on the same proposition and while they saw some vindication they did not see the victory they deserved. Even if we too deserve victory, will we live to see it?

If GATA obtains sufficient resources, we may be able to hasten the day considerably by bringing new freedom-of-information litigation against the U.S. Federal Reserve, the Treasury Department, and the State Department:

http://www.gata.org/node/11606

In any case I think the revaluation will come in the next five years or so. If enough governments around the world want to drag the struggle out longer than that, maybe they can. But even so we may be able to depart confident that we have protected our families. And as much as we want to get rich, that is of no importance beyond ourselves. GATA is in this struggle not because of that or because we worship the golden calf or silver bull -- we are not idolaters -- but because we believe in limited, transparent, accountable, democratic government and free markets as the indispensable mechanisms for progress, liberty, and happiness.

Sorry to get cosmic on you; for the moment it may be all we have left. But it's still enough.

CHRIS POWELL, Secretary/Treasurer

http://www.silverdoctors.com/what-germanys-gold-repatriation-means-for-global-gold-market/#more-21969

( if the Federal Reserve hold no gold , what is the NY Fed doing holding gold ? )

WHAT GERMANY’S GOLD REPATRIATION MEANS FOR GLOBAL GOLD MARKET

FEBRUARY 21, 2013 BY THE DOC 2 COMMENTS

Guest Post

VENEZUELA, SWITZERLAND, LIBYA, NETHERLANDS, IRAN…

The announcement by the Bundesbank, the central bank of Germany, saying that it would repatriate 300 metric tons of gold held by the New York Federal Reserve raised many concerns. First, Fed attorney Scott Alvarez told Congressman Ron Paul, R-TX, during a House Subcommittee meeting in June 2011, that the Federal Reserve does not and has not held any gold bullion since 1934.  Second, it appears overall trust in the United States and the global monetary system in general is waning faster than the value of the U.S. dollar.  Germany also plans to repatriate all of its 374 metric tons of gold stored at the Banque de France in Paris. It is unclear what effect the Bundesbank’s move will have on the price of gold, but history tells us to prepare for a spike. [Read more...]

But what about this audit ? NY Fed holdin gol for the Treasury , right ? 

http://www.silverdoctors.com/treasury-dept-releases-findings-of-ny-fed-gold-audit-states-gold-more-pure-than-previously-thought/

TREASURY RELEASES RESULTS OF NY FED GOLD AUDIT, INADVERTANTLY REVEALS US GOLD STORES AT NY FED ARE ONLY 466 TONS!

FEBRUARY 18, 2013 BY THE DOC 46 COMMENTS

The Treasury Department has released the results of a gold audit on the Treasury’s gold holdings stored at the NY Fed which began in 2010. Not surprisingly, the Treasury report claims that the audit found no issues with the quality of the gold held at the NY Fed, or in any policies or procedures by the NY Fed.

The audit reportedly claims that in 3 of 367 tests of the gold’s purity, the gold was more pure than Treasury records had previously indicated, and as a result has increased the book value of the US’ gold holdings by 27 ounces.

The most newsworthy revelation in the report however was that the US (which is supposed to hold the vast majority of its gold reserves at the NY Fed) holds a total of 32,021 good delivery bars on deposit at the NY Fed:
As part of the audit, the Treasury tested a sample of the government’s 34,021 gold bars in the New York Fed’s vault five stories below Manhattan’s financial district.

Why is this so significant?  As anyone with a simple calculator can discover, the Treasury department has just inadvertently admitted that rather than the official 8,133.5 tons the Treasury reports as the US’ official gold reserves, the Treasury’s actual physical gold stores at the NY Fed are a measly 466.57 tons!   While the Treasury does reportedly also hold gold at Fort Knox, several reports have claimed that up to half of the US Gold is held at the NY Fed!
No wonder it will take the Bundesbank 7 years to repatriate 300 tons!

*  *  * 

and..


http://www.caseyresearch.com/gsd/edition/dr-marc-faber-bottom-forming-gold

( As Ed's report is posted in the morn of the date of the report , the data captured pertains to the day before... )

Dr. Marc Faber: Bottom Forming in Gold

Feb

21

• Yesterday in Gold and Silver
• Critical Reads
• The Funnies
• The Wrap

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"In Thursday's Far East trading, new low price prices for this move down were set in all four precious metals"

¤ YESTERDAY IN GOLD AND SILVER

All was quiet in Far East trading right up until 3:00 p.m. in Hong Kong.  At that point, the gold price developed a slight negative bias...and shortly after the London morning gold fix was in, the high-frequency traders went to work.

The rest, as they say, is history.

Then right at 2:00 p.m. in New York...probably on the Fed news...the bid disappeared and the gold price plunged another $20 in electronic trading.

Gold's low price tick [$1,558.00 spot] came minutes before 3:00 p.m. in New York...and after that it traded sideways until the 5:15 p.m. Eastern time close.

When the smoke cleared, gold finished the Wednesday trading session at $1,564.30 spot...down $40.30 on the day.  Volume was immense...around 276,000 contracts.

Silver followed a similar path, but the price was basically unchanged through all of Far East trading...and right up until shortly before 11:00 a.m. in London, the same time as the high-frequency traders showed up in gold.  Silver's low [$29.21 spot] came at the same moment as gold's...but recovered 35 cents going into the close of electronic trading.
For the second day in a row, silver had an intraday price decline of over a dollar.  Yesterday, it was $1.23.
Silver finished the Wednesday trading day at $28.56 spot...down 88 cents.  Net volume was very healthy at 58,500 contracts.  Gross volume was north of 138,000 contracts.

And, for the second day running, both platinum and palladium traded in a far different price pattern than did gold and silver...but both got smoked to the downside as well.  As I pointed out a couple of weeks back when the monthly Bank Participation Report came out...two or three U.S. bullion banks had been going short against all comers during the platinum and palladium rallies that had begun several months prior...and yesterday was the first day that they did the real dirty in those two precious metals...and rang the cash register on them as well.

The dollar index opened at 80.51 on Wednesday morning in the Far East...and faded down to 80.28 around 3:00 p.m. in Hong Kong...and less than an hour before the London open.  From there, the dollar began to rally...and by 2:00 p.m. in New York it had made it up to about 80.81...and then jumped up to 81.10 following the Fed news.  From there it traded sideways into the close, finishing the Wednesday trading session at 81.05...up 54 basis points from Tuesday's close.
The dollar index rally was well under way before the high-frequency traders showed up in London just after the morning gold fix, so to hang yesterday's precious metals price action entirely on the currencies, is a stretch...and that's being kind.
It's my opinion that this was a manufactured rally so 'da boyz' could hide behind this fig leaf as they did the dirty in the precious metals...and that's certainly not the first time the've used this technique.

*  *  * 

The CME's Daily Delivery Report showed that 22 gold and 8 silver contracts were posted for delivery on Friday within the Comex-approved depositories.  It was mostly the 'usual suspects' as issuers and stoppers...and the link to that activity, such as it was, is here.
The GLD ETF showed a huge decline yesterday, as at least one authorized participant withdrew a total of 667,796 troy ounces of gold.  I was expecting the worst when I clicked on the link to SLV, but was amazed to discover that an authorized participant added580,078 troy ounces of silver!  Is someone covering a short position?
Since the big engineered price decline began on Monday, February 10th, SLV has had 1.45 million ounces added to it...and GLD has had 890,000 ounces withdrawn.
After I hit the 'send' button on today's column, the good folks over at Switzerland'sZürcher Kantonalbank sent out their latest update early this morning.  As of the close of business on February 19th, they reported that their gold ETF declined by 47,805 troy ounces during the reporting period that began on February 12th...and there was virtually no change in their silver ETF.
The U.S. Mint had a sales report of sorts yesterday.  They didn't sell any gold eagles or buffaloes...but did report selling another 424,500 silver eagles.
Over at the Comex-approved depositories on Tuesday, they reported receiving 352,093 troy ounces of silver...and shipped 845,166 troy ounces out the door.  The link to that activity is here.

*  *  * 

selected items of news and views....

U.S. Banks Bigger Than GDP as Accounting Rift Masks Risk

Warning: Banks in the U.S. are bigger than they appear.
That label, like a similar one on automobile side-view mirrors, might be required of the four largest U.S. lenders if Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., has his way. Applying stricter accounting standards for derivatives and off-balance-sheet assets would make the banks twice as big as they say they are -- or about the size of the U.S. economy -- according to data compiled by Bloomberg.
“Derivatives, like loans, carry risk,” Hoenig said in an interview. “To recognize those bets on the balance sheet would give a better picture of the risk exposures that are there.”
This Bloomberg article appeared on their website late Tuesday afternoon..and I thank Manitoba reader Ulrike Marx for bringing it to our attention...and the link is here.

Global banks shun U.K. Gilts on 'stagflation' risk

A clutch of global banks and funds have warned clients to steer clear of UK Gilts, fearing that the Bank of England has opened the door to “stagflation” and risks losing credibility.
“Systematically forecasting a disinflation that never materialises has exposed the bank to ridicule,” said Nomura, Japan’s biggest lender and a conduit for Asian investors.
Nomura said the Bank’s refusal to check inflation running at 2.7pc validates suspicions that it is “actively seeking to inflate away debts. It seems the Bank of England may be taking the dubious path of ignoring stated targets when they prove problematic. Markets are becoming less forgiving,” it said.
I do believe that this is an example of the pot calling the kettle, black.  This Ambrose Evans Pritchard offering was posted on The Telegraph's website early yesterday evening GMT...and I thank Ulrike Marx for her second offering in today's column.  The link is here.

Spain's 'head is out of the water' as deficit drops below 7pc

Mariano Rajoy has declared that “Spain’s head is out of the water” as he revealed that austerity efforts have pulled the budget deficit for 2012 below 7pc of GDP.
The Spanish prime minister, who was delivering his State of the Nation address to the parliament in Madrid, said it was a “readjustment without precedent”. In 2011, the Spanish deficit was 9.4pc of GDP.
He said the results would end speculation about Spain crashing out of the eurozone. “A year ago, nobody looking at Spain from outside would bet on it,” Mr Rajoy said. “Today, no one would say we could leave the euro.”
However gloom was cast over Spain’s break-through by the Euroframe Group that warned that eurozone GDP is likely to fall by 0.3pc this year.
One data point does not a recovery make.  This is whistling past the graveyard, Spanish style.  The story was posted on the telegraph.co.uk Internet site late yesterday afternoon GMT...and it's courtesy of Roy Stephens.  The link is here.

Spain and Italy: The Euro Crisis Gnaws at Europe's Underbelly

The euro crisis may have dropped out of the headlines recently, but Spain and Italy would seem to be doing their best to bring it back. Real estate giant Reyal Urbis' bankruptcy has raised fresh concerns about Spanish banks and many fear that a Berlusconi election victory could drive Rome to seek emergency aid.
It had become a trend among top European politicians to forecast that the worst of the euro crisis had passed. A pledge by the European Central Bank to buy up unlimited quantities of sovereign bonds as needed, promising numbers from Greece indicating that the country was finally getting its budget deficit under control and a reform-minded government in Rome -- 2012 seemed set to go down in history as the year the crisis lost its bite.
This week, the outlook is looking less rosy. And much of the pessimism is focused on the two countries long seen as potentially the most dangerous should the euro crisis grow: Spain and Italy.
In light of what's in this article, it's hard to take the prior story about Spain's 'success' seriously.  This was posted on the German website spiegel.deyesterday...and is another Roy Stephens offering.  The link is here.

Berlusconi's Faithful: 'Only Silvio Can Save Italy'

Comparisons to Jesus, professions of love: Supporters of Silvio Berlusconi are rabidly faithful. As the campaign winds down ahead of elections in Italy, the rhetoric has heated up. For those who deify "Il Cavaliere," the Germans are to blame for their country's woes.
The savior is making the crowd wait and Giovanni Ferrante briefly lost his faith. "Where the devil is Berlusconi hiding," he says. He's been waiting for more than an hour in a stuffy crowded hall, with narrow seats. Just then the party anthem starts playing and the star marches into the theater in Palermo, shaking hands, winking and grinning. Even those in the highest seats can see the gleam reflecting off of his unnaturally white teeth. Ferrante waves back. Il Cavaliere has finally arrived.
Silvio Berlusconi, Italy's scandal-plagued former prime minister, is back. Just days before Italians are set to go to the polls on Sunday and Monday, he and his party are narrowing the once sizeable lead enjoyed by center-left candidate Pier Luigi Bersani. Just how narrow that lead now is cannot be known for sure; no new survey numbers can be published in the two weeks before Italian elections.
At least they're not screaming "Il Duce"...not yet, anyway.  This is another story from the spiegel.de Internet site yesterday afternoon Europe time...and the articles from Roy just keep on coming.  The link is here.

Bulgaria succumbs to euro deflation curse

Another euro-pegged government defending an overvalued exchange rate bites the dust, a reminder that the underlying economic and social disaster across the Europe’s Arc of Depression is still getting worse.
Bulgarian prime minister Boiko Borisov resigned this morning after days of mass protests against austerity across the country.
“I will not participate in a government under which police are beating people. Every drop of blood is a shame for us,” he said. “Our power was handed to us by the people, today we are handing it back to them.”
This must read Ambrose Evans-Pritchard blog was posted on The Telegraph's website sometime yesterday...and it's courtesy of Roy Stephens once again.  The link is here.

'Greece becoming third world country - economically and democratically'

As Greece struggles to pay back overwhelming amounts of bailout loans, journalist and documentary maker Aris Chatzistefanou says the country is facing an even bigger issue.

“When you have huge debt like the one that Greece and other countries in the European periphery are facing, you start losing levels of democracy and I’m afraid that has happened,” he told RT.

Many progressive economists have said for the last two or three years that these austerity measures will create not only social genocide in Greece, but they will destroy the infrastructure of the economy. And now we are talking about debt that is still increasing after three austerity packages. And if everything goes as planned, we will have a debt of 175 per cent of GDP. Don’t forget that before the IMF and the troika intervention in Greece, we had a debt of 115 per cent. So it’s exactly these austerity measures that create the problem.

There are many alternative plans for example, default, because everyone knows that right now it’s impossible to repay a huge debt like that – even if we accept that it’s legal. And many people say that it’s not legal. That it’s illegal. Many other economists have spoken about exiting the eurozone. Even Paul Krugman has characterized the eurozone as a straightjacket for Greece which created this huge debt to the economy.

This short article appeared on the Russia Today website on Wednesday...and I thank Roy for sending it.  The link is here.

E.U. deal on eurozone rules after MEPs back down on debt fund

EU lawmakers reached a deal on tightening the eurozone's economic governance rules on Wednesday (20 February), after MEPs conceded defeat on the swift creation of a fund to pool sovereign debt.
The deal, which has to be signed off by governments before a final vote in Parliament next month, tightens the EU-level scrutiny of national budgets.
Eurozone countries will now be required to submit their budget plans to the European Commission and euro finance ministers to ensure that their proposals will keep to the eurozone's debt and deficit limits.
This piece showed up on the euobserver.com Internet site early yesterday evening Europe time...and it's Roy Stephens final offering in today's column.  The link is here.

Three King World News Blogs

The first blog is with Kevin Wides...and it's entitled "Despite the Smash, Big Picture for Gold Points to New Highs".  Next is this interview with Ron Rosen. It's headlined "The Chart That Tells You All You Need to Know About Gold".  The last blog is with Marc Faber...and bears the title "Bottom Forming in Gold, But Global Stock Markets Shaky".

View full GSD edition

Ted Butler: A Manipulation Timeline

"While the commercials learned to behave collusively when dealing with the technical funds, there was an additional requirement that there would be one large commercial standing ready to be the short seller of last resort to backstop the combined commercial effort. Without a “Mr. Big” standing behind and guaranteeing that the combined commercial effort to trick the technical funds would never get overpowered, the long term silver manipulation would not have been possible. Over the past 30 years, there have been a series of Mr. Big’s that have been the paper silver short sellers of last resort. Therefore, the history of the silver manipulation can be recorded along the lines of who was the big short seller at any particular time."
This commentary by Ted Butler is from November 2012...and one of his few offerings that's been posted in the public domain over the last few years...but it's more than timely considering the engineered price declines we've had in all four precious metals over the last ten days.  I posted it in this column when it first came out...and if you've read it before, it's definitely worth another look.  It's posted over at the silverseek.com Internet site...and I consider it amust read.  The link is here.

*  *  * 

¤ THE WRAP

It is the self-professed (and sadly almost universally accepted) primary task of all modern governments to “run” the economy of the nation over which they preside. It is a fact that without monopoly control over what is used as the medium of exchange within the economy, no government could even contemplate this task let alone pretend that they can actually accomplish it. At the root of all government power OVER the people lies their monopoly over the lifeblood of any economy, which is the medium of exchange. That is why governments have transformed money into currency. It is also why this is the one subject they avoid more than any other. Every government knows that their legal tender law is the foundation under all the powers they have gathered to themselves. They are and will continue to fight tooth and nail to preserve it. - Bill Buckler...The Privateer...17 February 2013
At this juncture, I'd like to repost a paragraph I wrote in yesterday's column...
But the two $64,000 questions still remain.  Are we done to the down-side...and will JPMorgan et al go short the subsequent rallies in the precious metals whenever they commence?  You should be thinking of nothing else, because that's all that matters.
Well, we obviously got an answer to the first question...and that was no...at least not yesterday. However, there will come a time [soon I would think] when the bottom is in...when JPMorgan et al have covered every possible short they can...and at that time we should be looking for an answer to the second $64,000 question.
I'm going to insert the final paragraph from silver analyst Ted Butler's mid-week commentary to his paying subscribers yesterday...and this what he had to say...
"Obviously, I can’t pinpoint the exact low in silver or gold, even though I think I know what’s going on. I do know that we are already very advanced into this sell-off as measured by past and expected changes in the COT. Then again, we usually seem to go further than expected most of the time. Now that the commercials have succeeded in luring the tech funds onto the short side of gold (and I believe now silver as well) the final piece of the COT may be in place. At some point, the tech funds stop adding to short positions on lower prices due to risk parameters, i.e., the price drops too far below the moving averages. This is also fitting with my "last time" premise. In fact, it is more than fitting; it may be the most important factor of all. Everything I look at suggests we are severely oversold and due to bounce big to the upside. That is a perfect backdrop to this being the last time we go down like this."

I couldn't say it better myself.  The only regret I have is that this big blast to the downside on Wednesday won't be in tomorrow's Commitment of Traders Report.  But if it was, it would show a clean-out of biblical proportions...and Ted's comments above would be even more obvious than this next report will show.
Here, once again, are the 2-year charts in both gold and silver.  We are way into oversold territory in both metals...particularly gold...and it remains to be see how long prices are kept at these levels...and how the subsequent rally will unfold, or be allowed to unfold.

(Click on image to enlarge)

There's a lot of 'doom and gloomers' out there talking about the 'cross of death' as gold's 50-day moving average cuts through the 200-day moving average. Looking at the gold chart above...we did this 50-day moving average thingy last year as well.
Including the major drive-by shooting on May 1, 2011, there have been many engineered price declines in both metals since...and no matter how obvious it has become, or how financially damaging to the precious metal companies we collectively own, the managements and boards of these companies would rather watch our companies go under, than say or do anything to end this travesty by JPMorgan et al.  As an industry, their failure is complete...aided and abetted by the current and former top management of the World Gold Council and The Silver Institute.  Peter Grandich summed it up so well in his commentary posted in this space yesterday.

In Thursday's Far East trading, new low price prices for this move down were set in all four precious metals.  As I write this paragraph, the London open is about forty minutes away...and volumes are already monstrous in both gold and silver...just under 50,000 contracts in gold...and just over 10,000 net in silver.  Most of this would be trading on the Globex by "da boyz"...because normal Far East volume is mostly irrelevant in the grand scheme of things...but not today!
As I hit the 'send' button at 5:05 a.m. Eastern time...both gold and silver have recovered somewhat from their new low price ticks in Far East trading, but I also note that both platinum and palladium are a work in progress to the downside once again...and that started shortly after London opened.
Now that London has been trading for a couple of hours, gold volumes are now over 65,000 contracts...and silver's net volume is a bit north of 14,000 contracts.  The dollar index, which was only up about six or seven basis points around 2:00 a.m. Eastern time...is now up about 33 basis points.
Based on Far East and London price action, it will probably be another interesting day once the precious metals begin to trade in New York at the Comex open...or maybe the action will start sooner once the London noon silver 'fix' is in.  We'll see.
I know how hard it is to keep the faith when things are this ugly.  The precious metals story is like something out of The Matrix...and only the strongest and the bravest will reap the rewards at the end.  I'm still "all in"...and have no intention of selling...as this, too, shall pass.
See you tomorrow.