Once
again, S&P is at it, issuing its monthly threat to the USGovt to fall into compliance or risk its AAA credit
rating. On the surface, these warnings have become rather laughable in that
the ratings agency feels the need to say something while, in effect, saying
nothing. As time has gone by, the idea that the markets would be jittered by
an actual ratings cut has become equally absurd. To hear it reported, you'd
think the market consisted of a bunch of first graders who need S&P,
Moody's or Fitch to tell them the sky is blue.
To
the average American, the threat comes not from what the ratings agencies
might do, but what is being done (or not done) to cause the entire flap to
begin with. The only real difference between the US and the PIIGS or anyone
else is that we have a standing contract with the moneychangers to provide as
much liquidity as is necessary to achieve whatever goals are desirable; not
to America, but to the moneychangers themselves. It is a subtle distinction,
but one that I notice way too many people who understand things are tripping over. We can't talk about debt without
talking about the Fed and we can't have a reasonable discussion about the Fed
without examining its motives. We have to mention that your local bank gets paid a 6% per annum dividend from
the fed for its mandatory participation
in the system, among many other things you won't hear on television.
Obviously
one of the ways dollar holders the world over have sought to fight back is
through the ownership of precious metals. They are the anathema of fiat
currencies. They cannot be forged, printed, or created as computer digits in
their physical form. This is nothing new; there has been a secular bull
market in metals for over a decade now while the dollar has faded from a
desired asset into a 'necessary evil' as the world speeds headlong into the
clutches of regional and perhaps even global
currency regimes.
The
moneychangers tolerated the bull market in precious metals for a time as even
they recognize the value of real money. Central banks went from being net
sellers of gold to net buyers several years ago and have been accumulating.
The story of Asian demand, largely unspoken of in the USFinPress
has been quietly driving the markets even higher. For US investors, precious
metals became a bright spot considering the equity markets have lost around
20% when adjusted for the government's overly modest inflation figures in the
past 10 years. The inflation cat escaped the bag in 2006 and 2007. The Fed
then cemented the truth that inflation is a monetary event by its
quantitative easing actions. The subsequent rises in virtually every tangible
asset since have created a clear causal relationship between monetary action
and price formation that even the most stalwart of Keynesians will have an
impossible task refuting. Finally, US investors had something that they could
rely on to provide protection against inflation. They'd lost the ability to
do so with traditional bank CDs, money market funds, and sweep programs. It
is only fitting that the moneychangers now try to change the rules they
themselves established. And it is even more fitting that they waited until so
late in the game to do so. The attacks are subtle to the point that the average
metals investor might not understand the implications, but there is a war
going on over money itself.
The Attack on Precious Metals
The
first of these two attacks has had a profound effect on metals investors, and
at the same time created a massive opportunity through the resultant market
dislocation. The attack plan all along by the banking cartel has been to
discredit gold and silver as monetary instruments while at the same time
accumulating large amounts of both. This rush to tangibles has left
warehouses with increasingly smaller amounts of metal to work with,
particularly silver (see graphic). Wonder of all wonders, people were
stepping up to the plate, motivated by people like Jim Sinclair among others,
and taking delivery of metals instead of playing in the paper metals markets.
People have begun to understand how the ETFs and many other 'paper gold'
instruments are merely tools of metals manipulators.
When
silver closed within a whisker of $50 an ounce back in early May, CME took to
action by hiking the margin maintenance requirements on silver contracts.
Without going into the sordid details, in essence it made it more expensive
to hold silver contracts in that the contract holder had to put up more
capital. The stated reason behind this action was to limit 'speculation' in
that particular market. The action followed the traditional mantra of the
manipulators – anytime metals prices increase it is because of speculation
and when they fall it is because of fundamentals. This is a losing battle
that has cost the megabanks untold sums of fiat cash to fight, but the supply
of currency is unlimited. CME has hiked margin requirements 6 times between
late March and early May, beating silver down from the high $40s to the mid
$30s. Gold has been affected as well, albeit to a much lesser extent on a
percentage basis. The more recent of these hikes have been on gold contracts
as well as silver.
The
second attack has come out recently in emails to customers of some online
futures brokers who are interpreting the new financial 'reform' bill to
inhibit the OTC sale of gold and silver on a leveraged basis. Without delving
into the legalese, it will become essentially impossible, starting July 15,
to buy or sell spot gold or silver in almost all cases. Many have asked if
this is going to affect coin and physical sales, and there has been no
indication that this is the case at all; it pertains to leveraged or margined
transactions only. So far.
Again,
the stated purpose of these actions in the aggregate is to curb
'speculators'. Obviously we could split hairs on the semantics of such a
statement since pretty much anyone who makes any type of investment is a
speculator in that they are making an allocation in the hope (not guarantee)
that they will profit from it. Oddly enough, in all this talk of speculators
nobody bothered to mention the major banks that are routinely short millions
of ounces of silver in the paper markets. Apparently they are not
speculators, nor are they engaged in rather poorly disguised attempts at
market manipulation. Those types of activities would quickly be sniffed out
and stomped by Congress and our ever-vigilant regulators. Wouldn't they?
It
is pretty clear what is going on here. The cartel is losing its metal (and
its mettle) and is attempting to flush out those contract holders who are
most likely to take delivery – the marginal investors who buy futures
contracts then remove the metal from the exchanges. Also obvious is the hope
is that the increased margin reqs will drive them
out. It will not bother the JPMorgans or the HSBCs
in the least. If nothing else, these actions reek of desperation and are
indicative of the fact that the physical, buy-and-hold crowd is substantial,
is here to stay, and is in fact winning the war. Keep it up folks,
congratulations on a job well done.
Until Next Time,
Andrew W. Sutton, MBA
Chief Market Strategist
Sutton &
Associates, LLC
Interested in what is going on in the markets and
the economy? Read Andy Sutton's weekly market and economic commentary 'My Two
Cents' - go to www.my2centsonline.com
