Today In Silver

TODAY: New all-time high of AussieGold! $AUS 1200+!!

*BREAKOUT of gold against Euro and Pound imminent*

Stop staring at the USD and look at other paper currencies too.

Tom,
Do you believe the FED is acting pro or reactively. I think it may be proactive, with the timing maybe getting out of control. Don’t know how you feel about referring other sites, but there is one with a KA - POOM theory that matches what the FED is doing. That is, stoke the fear of deflation, in order to reign in the speculation and then at the right moment start printing like crazy to goose the system. After all, no matter what anyone says, I am sure Bernanke and all his advisors are well versed in economics.

And while I respect the deflationists in their analysis, especially Mish Shedlock, it seems, IMHO, they do not look at the personal/emotional side of deflation. First, try and imagine the chaos and damage if deflation were to take hold. This is not the 1930s. Look to Katrina to see peoples reactions. Further, when given the option, are the debtors going to fight tooth and nail, or accept their lumps, both the Rich and the not so. Finally, we like to watch movies and suspend disbelief. Would you rather owe 200k on a 300k house, but pay far more for staples? Or would you rather owe 200k on a 100k house, but pay a fraction of today’s costs for staples. It’s all relative.I believe people will opt for inflation and it will work. Otherwise, I am buying a gun and holeing up in my house.

Tom,
Gold has broken 1980 highs in all currencies except the YEN.
YEN/GOLD 1980 peak around 170000yen.
In 1999 yen/gold was in backwardation according to an essay i read back in 2005 by Reg H Howe at GOLDSEXTANT website entitled War Against Gold :Central Banks Fight For Japan.
Dollar/Yen at around 101 showing massive carry-trade unwinding.
Yesterday Auzzie dollar fell over 7% againsy yen, Brazilian Real almost 7%
I would be grateful if anyone can come up with solid answer as to why a currency{YEN} which yields 0% strengthens against gold.

Who says Yen strengthening against gold?
In 2000: 3000 yen per ounce, right now: 8800 yen per ounce.

Tom ,
I would also like to thank you and also Prof. A.Fekete on gold/silver basis essays which provide an insight into the dynamics of the future markets.

Message to DIEUWER
Yesterday at Kitco the yen intraday was the only currency which was trading up against gold while most currencies on the planet were being slaughtered and i can assure you i was not dreaming!

both the yen and the USD are/were strengthening due to the carry trade, or the lack of it.

The Yen has been used for years, due to its zero and near zero CB rate, as a carry. That is, borrow Yen at .5%, sell the Yen, and buy Treasuries at 4%. Free 3.5%, or buy equities or gold, or leverage them up, whatever. That is unwinding now.

The USD is/was a carry trade via the Euro and other currencies. That is sell the USD, and buy Euros, or commodities. As the commodities/Euro are sold off due to hedge fund and mutual fund redemptions/margin calls, they have to rebuy those USD, thus raising the price.

As for the Yen being stronger than gold, there was likely more urgency to unwind the carry position than to hold it and run to gold. I would expect that the Yen could get much stronger. I haven’t checked, but you would have to go back to when the carry was first being started, then it might overshoot some more to the upside.

So, the game seems to be can they pump money into
the markets faster than it’s evaporating?
Sort of like a water house squirting water into the desert
with the sun high, the temperature at 135F and the sand
bone dry at 0% humidity. The hot sand just seems to
suck it right up and demands more and more.

Is Bernankes hose big enough? No question he can get
a bigger hose if necessary. No problem with the water
supply , its virtually unlimitted. My guess is Ben
can pump all the water onto the sand he wants…question
is…will he know when to stop? At some point, the sand
will be saturated…then you have a flood on your hands!
My bet is that Ben will keep the spigot open long after
the sun goes down, right into the cool of the night.
I think we are in for a flood of Biblical proportions!

What we will need is an ark; what we will get is a ship of fools.

Any comments on SLV versus DBS?

Freddy, our Aussie Dollar got smashed down from 80c to 69c in a few days then rose a couple of cents AFTER our Reserve Bank CUT INTEREST RATES BY 1%. Work that one out.
One good result is my Gold and Silver holdings have risen substantially in Ausie Dollars…

On the surface, this dollar “rally” seems counter-intuitive. Some say the buck is rising because it’s viewed as “safer” than its competitors. IMHO deleveraging and foriegners “sending the toxic bonds home” as Jim Willie says makes alot more sense. Paulson has extended his helping hands across both oceans. The sudden rise in the buck is stalling and oil is getting its feet back. It won’t be long now for us to reap the benefits of our patience.
The modern mattress for electronic dollars, money market funds, have, for now, averted a serious confidence problem. I think serious doubts can be raised that the Gov can control the slide and at some point people will run to FRNs to stuff under their real mattresses.
With stagflation as a best-case-scenario and hyperinflation appearing more and more likely it seems those with enough courage to buy PMs (and PM stocks) right now are taking advantage of a once in a lifetime opportunity.

Does silver has a place in Exter’s pyramid?

Any comments on the skyrocketing lease rates? From previous discussions I remember that the basis now must decrease. Going from contango toward backwardation.
Seems like a short squeeze setup?

Tom, If the government can halt bank runs by backing money market funds up to $250,000, doesn’t that make these funds equal to FRN’s in the pyramid?

Quickthoughts: I have always assumed that the end-game (or I see now, a part of it) is bank runs. I look for writers who give me the upstream picture of how that comes about. If they deny this, I discount them.

Have you ever tried to remove all the dishes from the dinner table at once, by stacking them high on one another? You know what happens just as you pass through the kitchen doorway. We’ve all got that wobbly feeling now…

The phrase going through my mind is “American Corralito”, and it refers to the inability of Argentines to withdraw their bank accounts.

I sat long in the dentist office today after watching hours of CNBC, pondering all of the “customary” trading and “investing” people could still do with their financial accounts, even as those accounts were sequestered behind a wall of monetary lockdown, limited to tiny daily withdrawals and uncertain of ever re-entering their personal lives on the spending side…

A national financial life with INTERNAL Capital Controls.

Think on it… the variations are nearly endless…

For example, I pondered that drawing from a brokerage account in order to buy a house would be permitted, encouraged — helps that market stabilize.

Selling your house, in order to retire out of country? Verboten.

Or, at least you could leave, but you’d have to leave your money behind — perhaps might as well keep the house, renting to your children, who support you out-of-country by paying your US credit card at home? No, won’t work — that’s still money flowing out, use of credit cards abroad…. hmmmm….uh oh ….

I built a ferro cement boat once ala Richard Haliburton but did not disapear as he did. I am round a bout addressing Mr Gresham’s dilemma of getting it out. Silver that is. Bulky, heavy not small like gold. Perhaps we will all become boat builders. Anyone sleeping well lately? I always try to buy some silver on Ebay before I go to bed. Tonight I picked up about $100 worth of face value at 17% premium. It’s like hunting, its not the size of what we bag, it is the hunt. Night.

The PM market is still really baffling me. We all know at the retail level there are no metals available. The 1% of the public who understand the crisis can’t get any so what happens when joe shmoe six pack want to buy? Industrial bars are available but try taking delivery. Almost impossible. I’ve heard only members of the silver users association can take delivery. Lease rates have shot up and central banks refuse to lend gold at any price right now. Comex paper is slowly being abandoned which is leading to more physical investment rather than paper. What about the ETFs? How are they acquiring metals and why aren’t they trading at premiums to NAV?

Another disconnect are the juniors and even senior gold producers getting whacked. This is more easy to explain - margin call selling, fear of any paper between you and your gold, difficulty financing projects. But down 10% on a day gold rocked $30???

The only thing that seems true are the real prices silver and gold fetch on the open auction market of ebay.

I also wonder why so many people trip over each other to bid up the US bonds? This move doesn’t really jive with the all-encompassing disposal of all things paper. Of course for any of us that have done the calculations (or read the article by the guy that did), just 1% of this Tbill hot money would drive PMs to new highs.

“a simpler explanation is Exter?s inverted pyramid with gold at the bottom (peak) and FRNs next and then Treasuries. Money is squeezed down the pyramid as people seek safety.”

That was one of the images I had in mind when I wrote the following in 2001, applying the dynamic of the payments system to the “boiling down” of financial assets to hard cash in one or various forms:

http://www.usagold.com/hall/hallfame3.html#anchor470610

with excerpts:

AG and Payments System: Squeeze is On
I guess I should put it up top: This is the way I see the FOA gold rocket-price scenario happening. Combination of Fed “printing”, public “flocking” and “fleeing”, and ECB “re-balancing” reserves. … Somewhere around $1000 or $2000 (very explainable) we’d be getting “the rest of the story” from FOA & ANOTHER, and making our judgments from there.

AG and Payments System: Squeeze is On

In the interviews with Greider and others for their books on the Fed, Greenspan and Volcker have emphasized that their concern has been with preventing a breakdown in the payments system between financial institutions (US & worldwide). They couldn’t guarantee which way markets would go, but they wanted to be sure that the winners and losers could settle their deals quickly and finally in USD, and move on to more commerce.

The Fed acts to stand behind institutions with the required capital levels so that they are not driven over the brink by interruption of payments from less-solvent counterparties. In one instance during Volcker’s reign [INCORRECT time: Mr G], the breakdown (”Herstatt Risk” from an early-70s European crisis) was somewhat threatened by the different clearing times between US and European banks. I think one system had three-day, the other five-day clearance, and that difference would have left some banks gasping for liquidity for a fatal 48 hours. The Fed and other CBs had to tide over that difference during a cash flow crunch.

Many of AG’s speeches have been about technical improvements in the payments system, so that a glitch seemingly far-removed from the basic business solvency of the transacting institutions (which are playing brinkmanship enough as it is) does not bring down the system. “Cascading cross-defaults” I think was his phrase.

We get a whiff of that anytime a major bank or other institution is threatened with capital insolvency. The memory of Continental Bank, which was cleaned out by foreign overnight wired withdrawals nearly 20 years ago, must still be in the minds of some today.

Picture the money supply as somewhat concentric rings of asset types, perhaps akin to Dante’s rings of Hades(?), or the electron rings of a highly agitated atomic particle. At the outermost levels are the “flakiest” of funny moneys, but they exist because people can play with them in certain ways they can’t with the more stable moneys toward the center. (Can you Goldhearts guess what these might be?) The players are willing to accept higher risk to attain their ends of greed and excitement, though their risk/reward calculations have been actually been lousy if done at all and their information inputs inadequate.

They analyze their transactions on a two-dimensional map of risk/reward considering only market directions and maybe the psychology of counterplayers. They do not question the third dimension which, from an elevated perspective, says that the chessboard they are now winning upon can at any moment be swept clear by the hand of market breakdown and payments system collapse.

The US money supply today might be, for example, $7 trillion of all types (honest, I haven’t looked this up, and don’t care to research harder toward some useless specificity.) But this money supply represents debt of all types that people and institutions have committed themselves to work toward repaying, circumstances permitting. (Subject to many ways of discounting in future.) It represents paper currency that people commonly accept as money. And it represents real assets that can be used as money, or act as direct backing for a currency money.

Suppose that those categories boil down, in an economic “hard landing” scenario, to only $2 trillion of “hard” money. Money that really will be trusted in use, debt that will be worked down to sustain homes, businesses, and credit ratings. Right now, the public is looking toward the $7 trillion “mountain” of money that they’ve always known (and still remember from its smaller and less-flaky days). Right now, they believe that by working harder and smarter, a piece of that big mountain is to be theirs. A shift in psychology later, they turn around and see instead the smaller “hill” of $2 trillion. And, voila!, THAT becomes the real money supply, either very immediately, or eventually, after a longer and still-painful workout.

If that is what people believe is out there, then that is what they are willing to supply their labor and capital to work toward. That is THE Money Supply.

Alan Greenspan’s problem with the Bubble is that its puncture immediately puts the smaller amount on peoples’ credulity screen. All the funny money in various way-out orbits — whether created by flicks of the fickle Fed fingers, or by a lifetime of self-denying savings — flees toward the stable center when it is threatened, but like the crowded theatre on fire, the doorways are not wide enough. The available niches for more stable money in closer levels are fewer and cannot readily accommodate the flood of scared money. Much money, both borrowed and saved, departs for Money Heaven (where streets are paved with fiat.) Of course, back on Money Earth, prices rise for items representing the more stable money items.

In market Technical Analysis terminology, there is not much “Support” between $7 trillion and $2 trillion. Most “buyers” of money (”suppliers” of labor) will sit out the market slide as able, once their expectations shift, and they will thereby produce a bottoming out of the supply/demand equilibrium at a new low, but supportable, level. They will not bid their hard labors for the outer, flaky (mostly departed or soon to) moneys anymore but for the nearer to hand, harder, trusted moneys. Newly risk-averse, the cycle will funnel more of the remaining $2 trillion toward gold and assets near its central orbit of stability.

Of course, economic activity, statistically-measured, slows to a crawl as people re-jigger their ideas of what is worthwhile spending their now poorly-paid labor and dwindling cash upon. The Depression scenario, scary as it may be, may cause many people to repeat what was said in an earlier time: “We had everything in those days, except money.” Learning about values never ceases; money is just the warm-up.

The payments system is the artery through which trillions of dollars flow daily or weekly, and upon the constriction of those vessels, the economic “lifeblood” flowing will reduce to the lowest practical and supportable amount. Institutions will simply not hang out their entire corporate capital on a transaction or two, when a new “Creditanstalt” or “Herstatt” has occurred and more are waiting to happen, unknown which ones among all their routine transactions. This is how the payments system dies, regardless of Fed and CB backing. Even the Lone Ranger can fit only six Silver Bullets in his pistol.

Greenspan simply does not want the statistical implosion of the money supply to happen on his watch. He does not consider it inevitable, and believes that the Art of Fed Chairmanship, aided by public psychology, has a spitting chance of turning it back, or landing it “softly”. If he fails, his consolation prize would be history granting that he “did his best, in an impossible situation,” quite a re-write in itself. (If the camera is focused only upon the post-Crash period, though, he may get away with it. Awww, let him.)

But, as he has pushed back each harbinger or lesser trigger of that implosion, he has aligned all of the disparate elements in a grand conjunction, a parting of the economic Red Sea (in which his own chariots must perish), and the almost meticulously calculated as-if-planned Perfect Storm that will fall upon the economy with full fury and spare no frivolous item of economic waste from dissolution

News Flash:

Co-ordinated CB rate cut of 50 bps.
UK banks partially nationalised…(?????).

It is amazing how some comments in fiat-land follow the markets. A few months back the dollar was a “doomed currency”. David Merkel wrote something about how fundamentally flawed the Euro system is (article is worth a read)

http://seekingalpha.com/article/98895-big-troubles-for-the-euro

I hear growing chatter about Euro end-of-the-world scenarios. Has it got to do with dollar strength or what?

Meanwhile gold is gaining as the dollar strengthens. Seems to be a trend. Should it be always cash(T-bills) vs gold? Why can’t it be cash & gold - a position i believed & held since early 2006?A “flight to safety” scenario might involve a flight to both these Exter’s lower levels.

Disclosure: I had held long that genuine deflation would end the gold bull. But I believe the internet has changed that. Anything the Fed does to counter anything is instantly relayed in graphic detail like Tom’s helicopter edits. I believe the market “knows” today that deflation threat is countered by the printing press. This makes a mixed-bag “flight to safety” possible. thus, you can see commodities deflating in your currencies while gold is appreciating. enjoy the ride.

If the whole world is now fleeing to the dollar for safety then we are really REALLY screwed. The dollar could well be the next holocaust. At least for those that don’t already have gold and silver. It’s like the Warsaw Ghetto -seemed like a safe place at the time considering everything else going on. I think that “they” are limiting availablity of PM to the public. Try and buy physical PM. They can’t be found in quantity. Try finding Silver Eagles for less than $20 ea. There is now a huge unsatisfied retail demand. My guess is we won’t be seeing much new inventory of PM retail products. and premiums will continue to grow to $100+ for gold eagles and $5-10 for the silver ones. They’re already there on Ebay.

Basis = Oct - Nov

Gold basis: +$3.80
Silver basis: -$0.25

Correct? So gold will see short squeeze and silver not??

Dieuwer, - historically silver has tended to lag behind gold’s ascent and then catch up with explosive rallies which make it seem to outperform gold for a while, so hang in there! The restless metal has extreme volatility on the upside as well as the downside, so it is long overdue.

Antifiat, I am not concerned I just was wondering if I can determine the basis for myself. Not sure what time to pick as the Gold october and november contracts fluctuated a lot during the day.
I did buy some SLV today, although I would have been “happier” with physical. Bullion in my own possesion gives me more tranquillity than looking at screens all day long.
I will soon have a decent amount of paper FRNs again so I will once more visit my favourite coin shop to buy some physical.

If this crisis continues, I think in a few weeks you won’t be able to buy the SLV ETF anymore either. This will be the big wake-up call in the silver market.

At some point the 1000 oz bars will NOT be available and the SLVER ETF will NOT be able to grow to meet the demand. It will then go into a premium situation. Watch the SLV premium vs discount for clues in the silver market. I think this is as useful as the paper futures contracts basis analysis.

Eddy, good point and I’ve been wondering how one calculates ETF premiums to NAV. Tom is the expert here but has not commented on ETFs lately.

NAV on SLV is calculated according to the london fix.
Use this site to get NAV
http://us.ishares.com/product_info/fund/overview/SLV.htm