Monday, April 15, 2013

The Gold Enigma*Updated

First off, I am glad that gold and silver are taking a cliff dive. It has been absolutely breathtaking and it's going to take a lot more than two days worth of diving to shake my resolve. This should have happened long ago. This may be the beginning of deflation. It is the natural by-product of loose credit.

In 2002, Ben Bernanke announced in a speech that he believed deflation was the single greatest problem facing the United States after 1929. It was deflation that Bernanke vilified as the culprit that extended the Great Depression- nowhere did he mention that it was the ridiculous amount of credit being extended by banks. Credit in terms of real money- real money that had never existed to begin with.

By 1933, the government seized American gold so that they could revalue gold higher and issue additional and now unbacked worthless fiat currency. It was one of the greatest thefts in American history accomplished apparently without thought to the fourth amendment which was designed to protect Americans from illegal searches and most importantly- illegal seizures. Depriving a citizen of his privacy and the use of his property used to command the utmost attention- but by 1933 and the usual sales pitch- it meant nothing.

The same thing would re-occur within a few short years when the American government decided to deprive Japanese Americans of their civil rights and property.

It amazes me that our government can simply ignore the law of the land whenever it so chooses. They always have a decent excuse and they will always have a cadre of statist cheerleaders cheering them on. Convince one person beyond a draw and you get a mob rule democracy.

Which brings me to the present day.

With the re-occurrence of the same loose credit conditions that caused the Great Depression- the Federal Reserve has been bailing water on the good ship US Titanic since 2007. By manufacturing money and sticking it in member banks' pockets- the Fed has caused the greatest equity bubble of all time.

Thus the enigma of our time, due to the unprecedented printing of 7 trillion in stimulus, has been trying to figure out how all of this plays out and ends. Having read gobs of economic theory, economists from every school, and watching this drama unfold- has left me with one inescapable conclusion. I am convinced...

That absolutely nobody knows how the hell this is going to turn out. All we do is guess. That's why they call it an enigma. Hell we don't even know when QE will end.

There is only one thing that I have been fairly confident about. Something that has occurred at the end of every credit expansion when the bubble pops. Deflation.

Deflation never had a chance to square it's account. Sure, there was some deflation occurring in late 2008 and that fact is borne out in the BLS stats for that period. Before deflation could take hold and punish the people who deserved punishing- the borrowers- Ben Bernanke swooped in and began the greatest money printing campaign of all time. He created stagflation (with plenty of inflation) to avoid deflation and managed to screw every saver in this country.

Which brings me to the present day. Why am I happy that gold and silver are taking a nosedive?

Quite simply, this may be the start of the deflation that should have occurred in 2008. In fact, there are deflationary signs everywhere. They were simply delayed. I have always believed that a serious round of deflation followed by Fed induced inflation was the only way this fiasco would resolve itself. Think about Japan. They have never accepted their medicine. The best way to describe this is by metaphor.

You can keep a brain dead patient alive indefinitely until such point that the people with standing eventually realize that the life is over. That their loved one is not coming back. This comatose economy is a perfect example of that.

What is skewing our ability to accept that which we have been evading for 5 years- is that we have bought into this idea that this time it is different. The only thing that has been different  this time is the willingness of the FED to QE everything and a government more than happy to help sell the lie by manipulating markets and statistics.

Maybe, this will all unravel soon. The metals, as well as other commodities, are due for a bout of deflation. So are economies and currencies. I'm not sure just how much longer the Fed can keep the patient on life support but then again- that is the great enigma.

None of us are sure anymore.

So you can read all of the gold analysis you want, lord knows I do that everyday. If you are anything like me- it will simply re-enforce your belief that nobody knows what's going to happen and when. The only thing that I know for sure is that I would rather own gold and silver than nothing at all.

*UPDATE

*Dave in Denver reported in his comments today that Andrew Maguire's version of what happened seemed the most plausible. I snipped this piece from the KingWorldNews site. The London Bullion Market...


“Entities went to the LBMA and said, ‘We don’t trust anybody anymore.  We want our physical metal.’  They were told they would be cash settled instead by a bullion bank.  The Western governments have been trying to plug holes, and the reason for it has to do with the default that was taking place at the LBMA.

This is why this smash has been orchestrated because of the run that has been taking place on physical metal.  So Western governments had to do this because of an imminent run on the unallocated LBMA system.  The LBMA bullion banks had become so mismatched at one point on their trading positions vs real world demand that they had to orchestrate this smash. 

This orchestrated smash in gold and silver was nothing short of a bailout for the bullion banks.  So there is a run on physical gold that is taking place and the Ponzi scheme the West is running is being threatened because of it.”

Maguire also added: “We are nearing the end of this decline.  Physical demand is already beginning to catch up with leveraged paper.  If gold were to trade into the low $1,300s it would be unsustainable for very long.”





18 comments:

Anonymous said...

Really could of not said it better...

Anonymous said...

Another thing to ask if you can help, how on earth do you get an account approved on Zero hedge to post? I sign up but they never activate it?

Brian said...

Zerohedge has always let me post links. I am not sure why. I have the same issue on naked capitalism...so I tried changing from firefox to safari and that worked for awhile. Maybe we have a posting link enigma as well...

Anonymous said...

So what did your hairdresser say? ;-)

I feel absolutely rotten watching these markets but I couldn't agree anymore with you about no one knowing what is going to happen next. Its sad to watch 2 or 3 years worth of gains vanish in ONE day ;-(

Brian said...

I understand and I feel a lot the same way.. But the truth for me is and was- I wasn't going to sell anyway. I own only 8.5 oz of gold which I averaged in at about 1425 an oz. I own 300 oz of silver and I am in that around 29.

So I've taken a fiat haircut here too. But, I gotta say- I wasn't going to sell anyway. If you liked the prospects back then at those prices- I think you have to like the metals at their new prices. I honestly don't know what the fuck is going on...but I do know that the world has not solved their debt problem. Until they solve that, I still think the metals bull is on-

Brian said...

My gal switched shops, so I missed her and my chance to get her opinion- which is just as valuable as any other opinion I've been hearing or reading...lol

Anonymous said...

I bought my gold at $400 and silver at $6...$14 and $21 so I am still up but its still brutal to work out the (paper) losses I have taken on in the last couple days!

I just hope you are right and that the bull market resumes. I used to think I understood what was going on (after years of much reading) but now I know, I have absolutely no idea how this is all going to play out.

SIGH.

Anonymous said...

I forgot to mention...the last couple weeks I have been thinking...they actually don't want any of us to save/invest our money. They just want us to be scared that we could lose what is ours so all this chaos going on (bank runs, banks stealing from account holders, etc etc) so that we feel FORCED to spend our money every month so that we don't lose it next month. Does this make sense?

Investing...bad.

Saving...bad.

Spending all the time...good.

We are screwed. Good night.

Brian said...

Me either. I guess if I have learned anything in the last two days, it's that I don't know wtf is going on. I shall...SIGH...with you.

Brian said...

They don't need our money. They are getting free money from the FED. They aren't loaning shit out because they don't have to.

So yea, I agree with you. Investing good as long as it's in their equity casino. Saving, useless. Borrowing money and delivering them 5% on money that costs them .25% is good.

Thanks for stopping by.

Anonymous said...

Call me dumb...but I continue to try and catch the falling knife. I said if the price falls below $1350 and $23...I gotta get me another 50gram gold chocolate bar and 5/10oz silver rounds. I have another 30k that's waiting for $1250, $1150 etc...I mean really do I really want $350k just sitting in equities....I think not....trying to protect our retirement...and u certainly don't get anything good with cash in the bank...don't need a Cypress to take 30%...fukin crooks.

Brian said...

I was going to go down to the coin store tonite. Then I thought, maybe I will wait a day or two longer.

There is a problem. Not only is the real metal scarce but at 1200, and 22 respectively, the miners are better off leaving it in the fucking ground. Supply should dry up chop, chop.

Jon said...

Is this smackdown a) preparing for what we don't want to happen anyway - a violent snap back to the upside with the obligatory crisis of confidence. b) more business as usual, i.e. la de da, la de da, or c) something that's unpredictable? I haven't spent much time on the Boston Marathon bombing because I really haven't a clue of the agenda? It's not like the Arab oppressed can't, at their choosing, create havoc. They can as I work at an American uni and it wouldn't take a major operation for them to blow a campus or two to kingdom come.

My best guess is this is short covering and maybe not reversing positions to longs but that wouldn't surprise me either. All, in all, this is like watching a petri dish full of bacteria with a benefactor. Unlimited food, or not, it will end with a major die off. When is the question?

Anonymous said...

Same here Bro, same here.

Brian said...

I don't see any snap back Jon, they've already hiked margin requirements now that the damage is done. I have been reading various accounts all night long.

I am still convinced nobody knows what really happened. Maybe in the days that follow we will hear something believable.

Anonymous said...

I'm tired of trying to catch the falling knife. I'll catch it on its way up from WHATEVER BOTTOM it hits knowing that I'll be happy paying $1600/oz on a sure thing rather than $1200 on a chance.

Anonymous said...

Bottom line the markets are manipulated. Last Thursday all the "heads" of the T.B.T.F. banks met in Obummers office. Does anyone think it strange that Goldman called for 1450 gold the next day after the meeting? The Fed cannot allow gold to rise because that would affect the dollars reserve status. Also strange as gold was falling the dollar did not rally? There is something getting ready to blow in the derivitives market. These banks are way over leveraged and the economic numbers all suck.

Brian said...

That's a good point. I forgot about that. What a coincidence...