Gold Price Spike: Fed, Ukraine, Iraq, Kenya, Russia, China

Investors want to know: Are gold and silver prices spiking due to geopolitical tensions, Fed mumbling, China’s Yuan-fiddling, or all of the above? The answer is all of the above, but with some extra added ‘fundamentals’ to consider. I put the fundamentals in quotes, because these were not what would be considered fundamentals a decade ago.

However, in this new modern era of suspended disbelief, where national debt is measured in trillions, and a reduction in monthly capital fabrication from $45 billion to $35 billion is considered ‘sound financial stewardship’, the destruction of classic fundamentals as a result of reckless monetary policy has created new fundamentals.

The biggest fundamental now in existence is the “What did she say?” fundamental, wherein the utterings of Fed Chairperson Janet Yellin have the power to cause market surges and swoons based on the interpretations of her musings.

The FOMC release it’s bi-monthly statement yesterday, and as expected, counterfeiting was reduced by $10 billion per month.

“Beginning in July, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $15 billion per month rather than $20 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $20 billion per month rather than $25 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.”

That clear and decisive statement was followed up with this one, which is best categorized as ‘passive aggressive’:

“If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.”

In other words, ‘depending on which fudged numbers we decide to rely on, we may continue reducing the pace at which we treasonously destabilize the national currency and world economy, or we may in fact reverse course and increase quantitative counterfeiting. Janet et all apparently cling decisively to the idea that inflation does not exist, and real indicators aside, they’ll damn well ramp up the printing press again if they please.

Now this big leap in the gold price, while on its own is not necessarily significant, despite coming on the heels of yesterday’s FOMC meeting. However, the fact that there has been a coincident, or some might argue, inciting 5 basis point leap in 30-year Treasury Inflation Protected Securities alongside a 3.3% jump in precious metals prices suggests that a conclusion has been reached in the stratospheric capital management cloud that the sustainability of the Grand Delusion of the 21st century is starting to unravel in the most profound way.

Compounding that primary issue, geopolitical catalysts would appear to be intensifying.

Russia’s threat to refuse any restructuring of Ukraine’s debt could have the unintended consequence of forcing a show of force by the U.S. military, as that move on Russia’s part would connote a ‘justifiable’ military debt collection, should the situation continue on its trajectory of deterioration.

Then of course there is the problem with ISIS threatening to undermine all of the good work that the U.S. military has done in Iraq, and there is every indication that the 100 or so troops officially destined for that war could end up requiring a re-escalation of troop count there should 100 prove too modest a committment. Despite pressures from the Doves at home, Obama will face a domestic nightmare if the Vets who have spent the last decade in the Middle East watching comrades die far from home perceive a futility in those losses.

And then of course, we have what looks like rising influence of Islamic Fundamentalist factions threatening to undermine the ragged status quo of central Africa in Mali, Nigeria, Cameroon, and now Kenya. The savage murders of game wardens and police now number over 60, and that too is starting to point to a broader insurgence across Africa and the MENA region. Afghanistan and Pakistan are both tinderboxes smouldering away, and should unity of command or communication miraculously coordinate these presently disparate Islamic threats, then the prices of gold and silver will both notch higher in Big Leaps Forward.

And then of course we have the Chinese Great Ball of Confusion, which increasingly suggests a broadening recession, increasingly necrotic corporate and state debt, and currency that is looking incrementally shakier due to the incessant fiddling of the Party Central Bankers.

But most importantly in regard to China, is the impending launch of the Shanghai gold exchange, which has seen unofficial import numbers into China, using Hong Kong as a proxy on the rise in preparation, even while World Gold Council data suggest that buying in China will be flat to weak. A convergence of debt quality deterioration, alongside a perceived anticipation of coming Yuan fixing downward might induce hordes of Chinese to starting hoarding the world’s premier monetary metal in higher volumes.

All these factors and more – futures market COT reports come to mind – bear closer scrutiny in the days and weeks ahead. The foundation for a rather ‘perfect storm’ of upward gold price catalysts is decidedly present.