Now that gold has broken out to its all-time nominal high, we have a showdown with great opportunities enabled by, but at the same time threatened by, great challenges. Consider:
“On June 30, QE2 ended with a whimper. The Fed’s second round of “quantitative easing” involved $600 billion created with a computer keystroke for the purchase of long-term government bonds. But the government never actually got the money, which went straight into the reserve accounts of banks, where it still sits today. Worse, it went into the reserve accounts of FOREIGN banks, on which the Federal Reserve is now paying 0.25% interest.
Before QE2 there was QE1, in which the Fed bought $1.25 trillion in mortgage-backed securities from the banks. This money too remains in bank reserve accounts collecting interest and dust. The Fed reports that the accumulated excess reserves of depository institutions now total nearly $1.6 trillion.
Interestingly, $1.6 trillion is also the size of the federal deficit…
If the intent of “quantitative easing” was to stimulate the economy, it might have worked better if the money earmarked for the purchase of Treasuries had been delivered directly to the Treasury. That was actually how it was done before 1935, when the law was changed to require private bond dealers to be cut into the deal…
Whatever is responsible for causing the local credit crunch, trillions of dollars thrown at Wall Street by Congress and the Fed haven’t fixed the problem… While we wait for federal lawmakers to get it right, local credit markets can be revitalized by establishing state-owned banks, on the model of the Bank of North Dakota (BND)…
Concerning the gaping federal deficit, Congressman Ron Paul has an excellent idea: have the Fed simply write off the federal securities purchased with funds created in its quantitative easing programs. No creditors would be harmed, since the money was generated out of thin air with a computer keystroke in the first place. The government would just be canceling a debt to itself and saving the interest.” (emphasis added)
“Why QE2 Failed: The Money All Went Offshore”
Ellen Brown, lemetropolecafe.com, 7/8/11
In case you were wondering why QE 1 and 2 did not stimulate the economy or reduce unemployment, one, of several, reasons was that hundreds of billions of U.S. dollars went to foreign banks via QE, not the U.S. Treasury, or, indirectly, american business!
This “under the radar” multi-hundred billion flow of funds is one of several developments providing the basis for ongoing and impending precious metals moves.
Important to note is that, certain of these “private bond dealers” to whom Brown refers are likely primary dealers and shareholders of the private for-profit Fed. Thus the incestuous interrelationships among the U.S. and European headquartered mega-banks are cause for heightened attention and concern.
“If the ECB's Jean-Claude Trichet is right in claiming that Europe was on the brink of a 1930s financial cataclysm a year ago - and I think he is - it is hard see how the threat is any less serious right now.
Fall-out from Greece flattened Portugal and Ireland last week. It is engulfing Spain and Italy, countries with €6.3 trillion of public and private debt between them.
Yields on Italian 10-year bonds hit a post-EMU high of 5.3pc on Friday… The interest burden on Italy's €1.84 trillion stock of public debt is about to rise very fast.
Spanish yields punched even higher, through the danger line of 5.7pc…
"We believe the European sovereign crisis might be entering a new phase with contagion reaching the larger economies," said Jacques Cailloux, chief Europe economist at RBS…
The implications of this are profound. Germany must now be willing either to buy or guarantee Spanish and Italian debt, and in doing so to cross the Rubicon to fiscal and political union, or accept that EMU must break up with calamitous consequences for German foreign policy.”
“Italy and Spain must pray for a miracle”
Ambrose Evans-Pritchard, telegraph.co.uk, 7/10/11
Indeed, increasingly it appears that citizens of several major countries are going to have to choose between only two options: saving their countries OR saving the mega-banks.
Meanwhile, the U.S. stimulus bills and Fed QE 1 and 2 which were billed as designed to help revive the economy and reduce unemployment, have in fact hurt both.
“While the myopic U.S. propaganda machine and the “experts” who shill for it will use the word “surprise” to describe yet another dismal U.S. jobs report, the only people who could have been surprised by today’s news are those who have had their eyes closed for the past several months (years?).
The U.S. government has just completed its most massive fiscal “stimulus” in history – by several multiples. It continues the loosest, most-reckless monetary policy in the history of the world. And yet the data is clear. This unprecedented effort to attempt to breathe life into the dying U.S. economy has produced nothing more than a feeble, temporary “dead-cat bounce”.
On the employment front, as usual the real data has been sugar-coated with more fraud by the Bureau of Labor Statistics. While the BLS is pretending there was a paltry 18,000 (net) jobs created in the U.S. in June, that number has no basis in reality. Merely subtract the phantom jobs from the absurd “birth/death model” and the U.S. economy lost more than 100,000 jobs last month – and that is before we factor in any more of the BLS’s statistical perversions…
As the U.S. dollar continues to teeter on the verge of an historic collapse versus other paper currencies, it’s important to totally dispel a myth which continues to be perpetuated by the U.S. propaganda-machine: that a falling U.S. dollar will “rescue” the U.S. economy through surging exports. In reality, the opposite is true…
With the Obama regime’s shotgun-stimulus now exhausted, and with the Fed’s hyperinflationary money-printing (supposedly) about to wind-down, there are no more “smoke and mirrors” which can hide the magnitude of the U.S.’s economic collapse.
I give it no more than a month before B.S. Bernanke’s latest “exit strategy” once again morphs into just more money-printing. This won’t “fix” anything, anymore than all the other $trillions printed-up by “Helicopter Ben”. It will, however, allow the U.S. government to hide its total economic collapse for a few more weeks/months.”
“U.S. Greater Depression Accelerates”
Jeff Nielson, lemetropolecafe.com, 7/8/11
In sum, most of the money created by the private for-profit Fed did not and does not benefit investor – taxpayers, or small business or households. For them the greater depression intensifies.
Moreover, the key point is that the threat of international financial contagion from fiat currency-denominated debt is growing. The massive debts allow the mega-banks to confiscate national assets around the world from Greece to the USA.
“All over the United States, politicians are selling off key pieces of infrastructure to foreign investors and big Wall Street banks like Goldman Sachs are helping them do it. State and local governments across the country that are drowning in debt and that are desperate for cash are increasingly turning to the "privatization" of public assets as the solution to their problems. Pieces of infrastructure that taxpayers have already paid for such as highways, water treatment plants, libraries, parking meters, airports and power plants are being auctioned off to the highest bidder. Most of the time what happens is that the state or local government receives a huge lump sum of cash up front for a long-term lease (usually 75 years or longer) and the foreign investors come in and soak as much revenue out of the piece of infrastructure that they possibly can. The losers in these deals are almost always the taxpayers. Pieces of America are literally being auctioned off just to help state and local governments minimize their debt problems for a year or two, but the consequences of these deals will be felt for decades.
Sadly, this trend continues to accelerate.”
“Our Politicians Are Selling Off Pieces Of America To Foreign Investors – And Goldman Sachs Is Helping Them Do It”
endoftheamericandream.com, 7/6/11
Indeed, it appears that gold is one of the main national assets targeted for confiscation.
“The Bank of International Settlement holds 500.7 tonnes of gold as at the end of 2010. Why?
In the third quarter of 2009 it held just under 120 tonnes. These were part of currency/gold swaps. There are no details of the names of the counterparties. Coincidentally, they could be nearly the total of the ‘official’ gold holdings of Greece, Portugal and Spain.
[Gold held as at the end of 2010
BIS…………... 500.7 tonnes
Greece…..... 111.6 tonnes
Portugal ….. 382.5 tonnes
Spain……….. 281.6 tonnes
Total………… 775.7 tonnes]
What of Greece’s 111 tonnes of gold?...
…Greece may get no more than $5.5 billion for its gold. But if the B.I.S. currency/gold swap were tied to sufficient bailout support being given, then its value would extend far beyond its price.
This is why gold’s price rise is far from over… That’s why central banks are gripping hard to the gold they have or buying more.
CONCLUSION
Are central banks tempted to confiscate debt-distressed nation’s gold?”
“The Greek/B.I.S. currency gold swap”
Julian D.W. Phillips, lemetropolecafe.com, 7/1/11
But at the same time, the clue to finding a profitable refuge from this intensifying disaster is found in J.D.W. Phillips’ fine Article.
Consider that a remarkable development occurred during the “risk on” equities rally in the last couple of weeks – the quintessential “risk off” safe havens, gold and silver uncharacteristically rallied also. A very bullish sign for these precious metals. And of course during this past Monday’s equities takedown, gold predictably strengthened also.
Conclusion: increasingly investors are becoming wary of a financial system too reliant on fiat currency printing and borrowing.
Indeed, increasingly resilient gold and silver prices (and notwithstanding ongoing Cartel takedown attempts) are one (of several) early signs that the world fiat currency system is crumbling.
Even more significant was the recent announcement that China is establishing a new gold exchange.
The potential for this exchange dramatically (and further) reducing the Cartel’s* ability to suppress gold (and silver) prices is enormous.
*We encourage those who doubt the scope and power of overt and covert interventions by a Fed-led Cartel of key central bankers and favored financial institutions to read Deepcaster’s December, 2009, special alert containing a summary overview of intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to the interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.
And Bernanke’s announcement Wednesday of this week that the Fed may launch (the hyperinflationary) QE 3 – a development which we forecast weeks ago – impelled gold to breakout to all-time nominal highs.
The fourth development which signals the increasing probability of an upward explosion in precious metal prices is the intensifying supply shortage of physical gold and, especially, silver. [We applaud the University of Texas’ recent decision to purchase $1 billion in gold, but seriously question the wisdom of their decision to allow it to be “stored” in a New York bank vault. We wonder if UT considered the possibility that it could be participating in a fractional reserve gold ownership situation.]
The physical supply shortage is especially critical in silver because, as Jeff Nielson notes, “Silver Stockpiles are depleted; Silver stockpiles all but gone.”
And yet another sign that the fiat currency system is starting to unravel, is the proposal to create a gold-backed Swiss Franc!
Imagine the dumping of fiat currencies and the rush to buy Swiss Francs were that to ensue!
One other factor, key technicals, which to be sure are merely reflective and not causal, show pressure continues to build for a surge up in both bullion and precious metal share prices.
Indeed, anticipating such pressure, Deepcaster recommended buying calls on a major gold company’s stocks and these were just liquidated at 150% profit in just two months.
Of course, the Cartel will be resisting moves up in the precious metals with all its might.
And of course, perhaps the most powerful forces impelling the precious metals upward are the congeries of (mainly Cartel caused) catastrophes – profligate and inflation-generating fiat currency printing, excess borrowing inducing, policies.
Most important, none of these intensifying catastrophes is being solved, but merely being kicked closer and closer to the end of the road.
Moreover, gold is not only in a multi-year uptrend, but gold is also recently up in all four major currencies – the U.S. Dollar, Euro, British Pound and Japanese Yen.
In sum, clearly, the pressure for gold and silver to explode higher, much higher, is building.
However, here we must note that there is still a substantial risk of substantial Cartel takedown of paper gold and silver prices (though that risk of substantial successful takedowns is diminishing, especially for gold).
And that is the showdown regarding which we forecast the timing and outcome as between the aforementioned forces impelling gold and silver higher versus ongoing cartel takedown attempts, in our august letter. We have also made several recommendations aimed at profiting from the opportunities provided by the recent surge in gold and silver prices as well as by any such successful Cartel takedowns.
Consider that only two months ago in late April/early May, the Cartel* was able to take down the price of silver by over 30%, and gold as well, but by only about 5%.
Our view is that the Cartel still has the capacity to drive down precious metal prices, but not as far or for as long as in previous years. And that provides superb investment opportunities at the right time.
Best regards,
Deepcaster
July 15, 2011
Note: 2011’s Best Equities Opportunities and Forecasts
Treasury Secretary Geithner recently hinted at resigning after the presumed U.S. budget deal.
And certain Wall Street mega-bank fed primary dealers, earlier bailed out by U.S. taxpayers, have announced layoffs.
Layoffs at mega-banks?!! Treasury Secretary resigning?!!
It is indeed an ill wind that blows, and… provides 2011’s best equities opportunity and one of its climacterics.
Climacterics impending in other sectors also.
To consider 2011’s best equities opportunity and buy recommendation, the impending climacterics and our forecast for gold, silver, equities, crude oil, U.S. dollar, U.S. T-notes and T-bonds, and interest rates, read our latest alert “Climacterics & 2011’s Best Equities Opportunity & Buy Reco.; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar, U.S. T-Notes & T-Bonds, & Interest Rates” posted in the ‘Alerts Cache’ at www.deepcaster.com.
