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Divergence between paper gold and physical gold
price is happening, the process begun. Actual physical shortages have kept the
price up. The naked shorting of futures has kept the paper price down. The
fraud cases and lawsuits, with no hint of prosecution, provide the levered
force to create much wider divergence, as traders and entire firms depart the
tainted crime scene that is the COMEX. Trust has vanished along with private
accounts. At the center of the backdrop for the divergence, apart from the
criminal events, is the economic deterioration and asset market downdraft. It
leads to margin calls, loan payment obligations, fading investor confidence,
negative sentiment, and a desire to avoid loss. Hence the huge liquidity
concerns, selling of good assets that command a strong price, and central
bank encouragement of gold sales even with lease. These forces conspire to
push down the gold futures price from the discovery process, called the paper
gold price. These forces, although real, are exaggerated by the Syndicate to
explain all. On the other side is the desperation among central bankers to
cover debt securities up for sale or rollover funding. They resort to utter hyper inflation by monetizing the many types of
government bonds. They are obligated to aid their banker cohorts, and thus
purchase truckloads of badly impaired sovereign bonds and other
collateralized bonds. Over time these sovereign bonds have proved toxic.
The compelling
need to stimulate economies, to redeem toxic bonds, and to recapitalize and
nationalize the big banks adds to the monetary inflation outcome.
Therefore, two sides are in opposition in a battle to the death of one or the
other. No middle ground can be achieved, not any longer. It is the
quintessential battle between monetary hyper inflation
and restoring bank system integrity to avert collapse. The insolvency has
recently met illiquidity. The battle features strong forces on each side. The
divergence between physical and paper gold price is widening.
The incurable speculator junkies committed to the
addictive leveraged game rigged by the Forces of Evil seem stuck at the
casino tables, where fingers are lost, finally entire hands and arms. If
their practice was to purchase physical, they could benefit from the paper
price swoon, and join the Forces of Good team, rather than fighting the evil
side on their dominated turf. To be sure, many aware analysts in the news
maintain a small gold position in COMEX that is rolled over constantly. Many
have physical positions but keep with the paper trades as a hobby, better
described as an addition to the juice. Leverage cuts both ways. Their
continued activity has left them exposed to theft, while knowing the
criminality was widespread within the arena. So many players and firms are
departing the arena altogether like Ann Barnhardt
of BCM Capital. The divergence
between physical and paper gold price is widening.
The desperation of the bad team is growing. The gold
cartel has benefited significantly from the fresh Libyan gold supply (144
metric tons) and Greek gold supply (111 metric tons), not to mention the
ample Dollar Swap Facility. It is the bankers New Gold, as reported by
intrepid Jeff Neilson. In a fresh sign of bankster
desperation, the lease rates for gold have been pushed down to net negative
levels. The fresh supply from the two broken nations has greatly aided the
COMEX, providing new cannon fodder. Perhaps more wars to liberate the
oppressed can be conjured up, to release more tyrant wealth. It is not a
coincidence that negative gold lease rates came when Libyan gold was made
available (heisted) and when Italian sovereign bonds went into critical DEFCON
mode. The gold supply helped to aid the lack of bond demand. The gold lease
story is analyzed more fully in the December Hat Trick Letter.
INELASTICITY
BLEMISH
A preface is warranted. The paper Gold market is
very different in its internal dynamics from the physical. The paper Gold
market shows signs of inelasticity that borders on comical. Witness the low
demand in 2001 and 2002 when Gold had a paper price tag at $300 or less per
ounce. Witness nowadays the amplified
selling when the paper price declines. The leverage from the corrupted
paper mechanisms forces margin pressures and sales. The leveraged game goes
opposite to the real world of price mechanisms. On the upside, global demand
rises with a rising physical price, called the gold fever. The inelasticity
on the supply side is prevalent in the paper market, while the inelasticity
on the demand side is prevalent on the physical market. To confuse the mix,
mining firms realize some inelasticity as price falls,
they are stuck with a liquidity crunch on their forward sales ruin. A huge
amount of money is required to cover their losses, urged on by Wall Street
advisors. Their mining operations suffer from lack of funds, and projects are
curtailed. The paradoxical differences in dynamics help to push the gap
between the paper and physical Gold price. The incompatible forces work to
rip apart the COMEX. The divergence between physical and paper gold price is
widening.
ILLICIT USAGE
OF CLIENT FUNDS AS COLLATERAL
The hypothecation battle will bring sufficient
publicity to help the divergence along. As more assets are seen as committed,
involved, and tainted in the process of grabbing, snatching, and securing
collateral, even by illegal means, the physical assets will be removed from
the system. Parties will remove
accounts and metal from the COMEX in response from basic self-preservation. On
the investment and speculation side, harm has been rendered to managed risk. The client funds have begun to flee. The
protection and security of money in private accounts has been under siege in
recent weeks since the MF Global crime scene was established and the yellow
tape cordon has been put in place. Investors are pulling money out of hedge
funds at a rapid rate. The COMEX will
be increasingly isolated. Clients funds were
redeemed to the tune of $9 billion in October, almost four times as much as
they pulled in September, according to Barclay Hedge and TrimTabs Investment Research. Investors in October yanked
more from hedge funds, setting a single month high over the last two years.
The redemptions are the largest for the hedge fund
industry since July 2009, when $17.8 billion was returned. The Barclay Hedge
office put lipstick on the corrupt pig by commenting on how investors have
lost patience with lackluster investor returns. To be sure, the average hedge
fund is down by about 4% this year. The global hedge fund industry size has
been reduced to $1.66 trillion, still sizeable. It is always interesting, if
not amusing, to read the spin from the isolated corners. Hedge funds are
seeing capital depart for the simple reason of moving away from crime
centers. In the process the COMEX is being isolated. With increased isolation
comes the easily recognized fraud. Look for some major stories soon about the
raids to the GLD and SLV inventories by their custodians engaged in naked
shorting. The Exchange Traded Fund fraud story is analyzed more fully in the
December Hat Trick Letter. The divergence between physical and paper gold
price is widening.
DYNAMICS OF PAPER
VERSUS PHYSICAL BASIS
Grand divergence dynamics are becoming clear. Ann Barnhardt
explained in detail how the COMEX will go away. It will not default, but
rather fall into irrelevance. She laid it out in credible detailed form
with numerous factors coming to play. The COMEX might still suffer the shame
and spotlight of criminal prosecution. It will more certainly suffer from
being ignored and shunned. The physical basis market will not respond to the
declines in the paper futures market. The current dominant market will go
away due to lost integrity and eroded trust. The consequences and
implications of the recent major scandal and coverup
are enormous, staggering, and sweeping. The changes from the MF Global
failure and theft of private segregated accounts will come in time, perhaps
accelerated by another similar event to slam the message home. The Syndicate
has turned desperate, resorting to theft in the open daylight, which has
resulted in direct consequences. Hundreds of COMEX clients waited in line for
delivery of gold, and had their wallets stolen by JPMorgan. Their Gold &
Silver set for delivery found its way into JPMorgan accounts at the COMEX.
The details of the missing silver then reappearing silver is discussed in the
December Hat Trick Letter. The slow mentally overlook this fact. The alert who point to fraud consider it a smoking gun.
On its face, evidence
mounts that JPMorgan simply converted 614k ounces of MF Global client silver
into JPM licensed vaults. Big hats off to the Silver Doctors for
excellent financial fraud forensic analysis. Do not expect prosecution over
the crime, for MF Global, for JPMorgan, or for the accomplices in London, not
even Jon Corzine. The Fascist Business Model in the Untied
States does not permit prosecution. The bigger the crime, the more likely the
perpetrator is in control of the government high offices, the financial
ministry, the printing press, or the regulators.
Ann Barnhardt explained how the COMEX will fade away into
oblivion. Its final chapter will be marred by a grand price divergence,
where the futures market price declines from shunned avoidance, while the
cash physical market price holds steady then rises.
Many including the Jackass had thought that a slew of delivery demands would
force a drain in their gold & silver inventory, eventually leading to a
slew of lawsuits, together to shut them down as a corrupt enterprise arena.
The MF Global theft reveals the alternative route that seems more clear. The gold cartel led by JPMorgan and secretly
by the USFed will not go quietly. They have
resorted to theft of private accounts on the open stage. The money is not
missing. That is the lie. It is held in JPMorgan accounts in London, where
fraud laws are more relaxed. We have seen this Madoff movie before, but it
will be shown on the silver screen again. The divergence between physical and
paper gold price is widening.
The backlash has begun and will gain strength. Barnhardt offered many cogent arguments with detail on
how the COMEX will be ignored from
distrust and suspicion of further thefts, as clients remove funds and close
accounts. Here are her main points. They apply to Gold & Silver. She has the Barnhardt
weblog: http://barnhardt.biz/
- Arbitrage is set to kick in. Players will
buy at the cheaper corrupt paper market in COMEX and sell in the higher
honest physical market, wherever brokers can match to make deals. (It is
the same phenomenon that ripped the Euro sovereign bond market apart, as
the German Govt Bond yields remained much
lower than the Spanish and Greek.) They will take advantage of a strong basis, buy at the discount offered by COMEX, and sell
into the cash spot physical market.
- A linchpin holds the market together.
Keeping the futures markets tied to the underlying cash physical market
is the fact that the futures contracts permit taking delivery. That delivery mechanism just broke
as linchpin in full view. The futures market has lost viability and
trustworthiness because of the MFG collapse and theft.
- The entire delivery mechanism has been
corrupted and undermined. Taking delivery has meant a holding of
physical metal bars is stored in a certified vault with your name
attached. No longer are such holdings considered safe. Thefts occurred,
and lawsuits have occurred to decided upon
ownership of bars in dispute.
- The de-coupling process comes when arbitrageurs finally lose all
confidence in market interaction dynamics, as the cash market will
lose connection on price from the futures market. Players will not be
willing to take the risk of having their money, positions, and physical
metals stolen or confiscated.
- As players flee the futures market, the
paper futures prices will decline. The cash physical market will hold
steady. The divergence will come and be noticed, then be widely
publicized. The players will realize that the physical market is the
only remaining game to be played with honest rules in effect. The cash dealers will ignore the
futures prices, no longer a valid price discovery, seeing that
market demand for their physical inventory is robust, and maintain their
prices steady. Later, they will even raise the physical prices. Then
later still, the parabolic spike
comes for physical Gold & Silver.
THE GREAT SHUN
BY MINERS
Asset management funds are appealing to mining firms
for direct metal supply. They are bypassing the COMEX in a new trend. It is a
natural development, as miners seek a fair price and the funds seek a
reliable supply. The COMEX is cut out of the process. The Sprott
Funds have revealed how they sourced their precious metal from mining firms
last year. The official exchanges are being cut off, a form of isolation as a
result. The divergence between physical and paper gold price is widening.
See the Ashanti story as typical. The COMEX is
seeing reduced supply lines, reduced operations, more criminal implications,
horrible publicity, and fewer clients. Criminal fraud does that, as lawsuits
will follow like cold rain. The trend shapes up well for higher gold &
silver prices. Mark Cutifani is CEO of AngloGold
Ashanti, a $16 billion mining firm. He said, "Major [asset management
fund] buyers are finding it is hard to get physical gold. People are
coming directly to us [for large gold purchases,] people who want tonnes of physical gold, people with serious financial
muscle, because they are finding it is very difficult to secure the volume of
gold they want. That is something we have noticed over the last 18 months,
and it has been increasing in the last six months. People are finding its hard to get physical gold."
The clear message is that the COMEX has no spare available metal at all. Cutifani
has good insights into the commodities and precious metals markets, and
describes a fascination new trend regarding the global picture. He pointed
out that major gold buyers are emerging from the Middle East and Asia. See
the Bull Market Thinking article (CLICK HERE).
NEW MARKETS
FLOWERING
New gold centers are forming, where the safety is
most assured. Hong kong and Dubai have emerged as reliable
honest brokers, and will continue to provide valid safe haven. Switzerland,
London, and other locations are fading fast. They are the corrupt centers
where fascism has become prevalent, laced through the financial system.Takahiro Morita, the Japan director of the World
Gold Council, reported that Japan's
gold exports in the 10 months ended October totaled 95.6 metric tonnes, their highest level since 2008, when it
registered at 95.5 metric tonnes. People who bought
gold and jewelry in the 1980 and 1990 decades are selling back what they
purchased, according to precious metals traders. Japan has turned into a big
exporter. Contrast to the official side. Central bank purchases have risen by
114% over the previous quarter. Purchases by central banks could hit 450
metric tonnes this year, concludes the investment
research at the council. The volume represents the highest level of central
bank buying since at least 1970, perhaps the greatest in recent history. A
veteran gold trader with actual experience in these locations pitched in to
explain. He said, "These are not
sales in Japan. They are exports, an important distinction. Many investors
are busily relocating their precious metal bullion to Hong Kong and Dubai
UAE. Look for Dubai to be the HK of the Middle East. The Chinese have made
that decision, and it is being implemented with lightning speed."
Most of the relocation from Japan shows up as exports, which require
payments.
October imports into China from Hong Kong rose 50%
over September, and up 40-fold from last year. The more attractive fair price
paid in Shanghai reached $50 above the corrupt controlled London price. The
arbitrage has been very active. Chinese gold imports from Hong Kong hit a
record. The Financial Times reported Chinese gold imports from Hong Kong hit
a record high in October and astoundingly, they accounted for more than one
quarter of the entire global demand. Data
showed that China imported 85.7 tonnes of gold from
Hong Kong in October, up 50% from the previous month and up more than 40
times from October of last year. It marks the fourth consecutive month
that China's gold flows from Hong Kong have hit new highs. The article noted
that the price arbitrage between London and Shanghai was favorable for
Chinese imports during late September and early October, giving astute clever
traders an edge. Gold on the Shanghai
Exchange traded up to $50 per ounce above the main global market based in
London, a record price difference. Purchases from China have fallen since
October, as the recent strength in the USDollar has
made gold more expensive. Also, considerable new strain has been felt inside
China in recent weeks. Conclude that price arbitrage has begun to show itself
across international boundaries. The divergence between physical and paper
gold price is widening.
ONE GOLD EVENT,
THE BIG SQUEEZE
No gold chart will be shown in this article, out of
disrespect deserved for the COMEX criminal activity. A story was recounted in
recent days from my best source of solid reliable gold information. The aware
gold community has overlooked a phenomenon that might be more profound in
action here and now. A major squeeze
is on that capitalizes on the artificially low COMEX price and the higher
honest physical price. The Barnhardt effect can
be seen, or at least recounted. A gold trader informed that some
multi-$billion purchase Gold orders have been in the process of filling at or
near the $1600 price per ounce. The price must remain near $1600 to complete
the orders and permit them to clear. Call it Agent2000 who seeks the massive
amount of Gold, one of the Good Guyz. The name fits
since their goal is to force the Gold price back over $2000/oz after the sale transaction clears. Since so large, the
orders take time to fill completely. The low-ball buy orders have been
filling for over two weeks. At the
same time, the Agent2000 buyer has enlisted the aid of numerous assistants to
push down the paper Gold price by putting extreme pressure on some bad
players, some nasty types from the usual list of suspects in the Western
banking sector. These bankers are being squeezed out of their gold, as
they contend with deep insolvency, reserves requirements, falling sovereign
bond values, depositors exiting, and more. They are players in what has been
widely called the Gold Cartel. The Jackass term has been applied in a wider
sense, as they have been part of the Syndicate that reaches into the Wall
Street banks, the defense contractors, news media, and big pharma.
The other side of Agent2000 is where additional intrigue
lies. He (they) have buyers lined up on the physical side some deals ready to
close at $1900 per ounce. Later the price will push over the $2000 mark. The
buyers are ready. One must infer that the buyers have a great deal of money
ready to devote to the battle. Maybe some is piled up to escape the clutches
of the cartel, removed from the system. Maybe some is piled up at a major new
slush fund to do battle with the cartel at their own
game. Maybe some is piled up and kept out of sight from greedy hands in
government officials, like off-shore in the Caribbean or sequestered in the
Persian Gulf. This story might be perplexing to many in the gold community
since the Good Guyz are pushing down the Gold price
in order to facilitate a gigantic order that will work toward crushing the
cartel by draining their gold. Their gold cannot be drained without the
completion of a great many orders. It is only natural to attempt to achieve
the lowest possible price. If the gold cartel insists on pushing the price down,
then they open the door for major volume sales at the artificially low and
very much bargain price. It is happening, but the gold community does not
enjoy the symptoms of the process.
So a huge huge huge buyer of gold is busy, and a multi-$billion order is
working through. The buyer demands a $1600 price, while on the other side of
the table Agent2000 has a sale lined up for the same metal at a $1900 price
on physical. The trade will take gold
bullion from the Bad Boyz hands and put it into the
Good Guyz hands. In the process, the COMEX supply
lines will be drained more. This is consistent with mining firms removing
supply lines to the COMEX. The Agent2000 buyer is pushing price down,
squeezing some evil parties hard, crushing testicalia along the way. He (they) describe to the
distressed seller at $1600 that pressures will continue until the deal is
closed. The seller is in tremendous pain with open distress showing. So many
assume the Bad Powerz are
pushing down the Gold price. Not so!! This event and transaction displays how
some pain comes in many isolated cases of Good Guyz
pushing the Gold price down to empty the Bad Powerz
vaults. My source would not reveal the identity of Agent2000 or the location
of the squeeze. It seemed like London. The money is not exclusively coming
from China. Word has it that Russia is also applying the pressure, with some
Chinese teamwork. The Competing Currency War has a new major flank. The
divergence between physical and paper gold price is widening.
Jim Willie CB, editor of
the “HAT TRICK LETTER”
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