Here We Go Again!

By Greg Hunter’s 

It was another 400 point loss on the Dow today.  Manufacturing is contracting according to the latest reports, and Europe is in very big trouble with sovereign debt (especially with Spain and Italy).  If the Euro falls apart, then the dollar will be the big near term beneficiary.  So, the buck could actually strengthen for a short while because it would be the prettiest ugly girl in the currency room.   If stocks (especially the banks) keep getting pounded and the economy keeps sinking, then the fed will be forced to act or let the economy and the market fall off a cliff.

Twelve of the 19 primary Dealers of Treasuries are foreign banks.  Maybe that’s why the Fed spent $5 trillion bailing out foreign banks during the financial meltdown of 2008.  If foreign banks get into trouble again, expect the Fed to bail them out again.  I just want to caution folks buying gold that the price will not go straight up.  At some point, there will be a correction, and the higher the price goes in this run, the bigger the correction will be.  However, long term, physical silver should be a core holding in everyone’s portfolio.

The Fed is meeting in Jackson Hole, Wyoming, next week, and the dollar is about 11% lower this year since the meeting last year.  I don’t think the Fed gives a hoot about the dollar, but I am sure it was not expecting a sinking economy after all the money it pumped into it.  Remember, QE2 ($600 billion in money printing) was hatched out of that meeting.  If there was ever a headline that said a third round of Quantitative Easing (QE3) was on its way, this is it:  “Gold Surges to Record on Haven Demand as Economy Falters, Equities Tumble,” Bloomberg’s story today wraps up another wild day for stocks and gold.  It reported, “Gold futures surged to a record $1,829.70 an ounce on demand for an investment haven as mounting concern that the global economy is faltering triggered a plunge in equities. The Standard & Poor’s 500 Index tumbled as much as 5 percent after manufacturing in the Philadelphia region unexpectedly contracted in August by the most in two years as orders plunged and factories shed workers. Europe’s debt crisis may freeze interbank markets and cut off funding, said Lars Frisell, the chief economist at Sweden’s financial regulator.  

“There is further decay in the European situation,” Sterling Smith, an analyst at Country Hedging Inc., said in a telephone interview from St. Paul, Minnesota. “The nervousness in the equity markets is pushing people toward gold.”  

Gold futures for December delivery jumped $28.20, or 1.6 percent, to settle at $1,822 at 1:45 p.m., on the Comex in New York, closing at an all-time high for the third straight day. The price has advanced 28 percent in 2011, after posting gains in the previous 10 years.  

“If gold continues to climb at this rate for the next few days, we may touch $2,000 by the end of this month,” Smith said.  

At the end of July, gold settled at $1,631.20.  

Morgan Stanley cut its forecast for global growth this year, citing an “insufficient” response to Europe’s debt crisis and the prospect of fiscal tightening.  

‘Inflationary Pressures’  

“A developed world with slower growth, a large fiscal deficit and near zero rates over the next few years, inflationary pressures in emerging economies, and larger political and economic uncertainty bodes well” for gold, Roxana Mohammadian-Molina, an analyst in London at Barclays Capital, said in a report.  

Holdings of the metal in exchange-traded products rose 10.8 tons yesterday, the most since Aug. 8, to 2,198.7 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons last week as Standard & Poor’s cut the credit rating of the U.S.  

Venezuelan President Hugo Chavez ordered the country’s central bank to repatriate $11 billion of gold reserves held in developed nations’ institutions.  

Venezuela’s move “suggests a lack of comfort with holding gold abroad,” Edel Tully, an analyst at UBS AG in London, said in a report. “This is another central bank that wants gold to play a greater role in its international reserves.”   (Click here for the complete Bloomberg story.)

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  1. Davis

    The Scramble For Physical Gold May Be About To Begin.

    It looks like it might be “game on” in the physical bullion markets, the long anticipated parabolic move upward coming your way courtesy of one Hugo Chavez, the erstwhile dictator of Venezuela. He started Wednesday by announcing that his government will be nationalizing all the gold and silver mining industries. This story alone may well have led to JP Morgan holding off on their usual Thursday raid on precious metals on the COMEX.

    Chavez quickly followed up on the move by announcing that he was going to seek repatriation of all of he country’s gold assets, beginning with some 99 tons held by the Bank of England. Venezuela also has requested return of gold deposits held at the BIS in Switzerland and the Federal Reserve Bank of New York. He has also indicated that he going to move Venezuela’s cash reserves out of western banks and into banks in China, Russia and Brazil. The problem for the B of E is that most of it gold holdings have either been leased out or are otherwise encumbered by cash swaps particularly to the aforementioned JP Morgan’s GLD ETF. I can only imagine the panic at the “Morgue” this evening. Blythe Masters and her flying monkeys who control the COMEX have a big problem. Namely the eligible vaults at the COMEX only have some 10.5 tons inventory!

    Somehow I don’t think Chaves is going to accept either shares in the GLD or a rubber check from Blythe’s commodity desk.

    Neither do I think el Presidente has a snowball’s chance in hell of actually getting his hands on that gold. He is clearly concerned that his wave of nationalizations has spawned a raft of civil action seeking compensation for the properties seized by his government and that it could lead to the freezing of his overseas accounts. The race will be on to see if sanctions can be put in place and accounts frozen before the logistics of currency transfers and moving physical bullion can be executed.

    No matter how this plays out the shorts on the COMX may be doomed. If Chavez presses his claim neither the B of E nor the Morgue have the physical to deliver. The B of E will be forced to reclaim their swaps putting the short squeeze on the Morgue placing Blythe in the position in having to buy gold on the open market and the price goes ballistic, and both the London Bullion Exchange and the COMEX are faced with default, just the rumor of which will push the price even higher.

    If the courts beat Chavez to the punch and freeze Venezuela’s assets before the transfers can take place they risk a third world political backlash, making the justifiable claim of the western banks waging economic warfare to prevent the collapse of their un-backed short positions. This could then in turn unleash another storm of sovereign states demanding the return of their own bullion deposits. Absent any similar legitimate claims for compensation as are held against Venezuela, the end result for B of E, JP Morgan, HSBC and the rest of the shorts on the COMEX will be the same. Got physical?

    My bet is that Blythe Masters and Ruprecht have the plane warmed up on the runway. Only now they might not be as welcomed in Venezuela as they had hoped.

    • Greg

      Great stuff, Thank you for the content. It is well worth reading!!!

    • Oldguy

      As I was taught many years ago, our gold in Fort Knox is in our vault. Each country has a vault in the same repository. Gold exchanges are done by transfer of the physicals from one vault to another. Do we have a vault for Venezuela in Fort Knox, or am I totally off base?

      • Oldguy

        PS: Maybe my mid-November disaster date is too late. I believe it’s the date when the Euro collapses, and when we start losing our reserve currency status to a basket currency established thru the U.N. under pressures by China and Russia. I hope I’m dreaming a nightmare.

      • Davis

        Foreign gold deposits are (allegedly) held in allocated vaults at the Federal Reserve Bank of New York.

    • Denarius

      Greg, excellent article as usual, exposing the links which allow us to
      connect them into a chain. This is what Davis does so extraordinarily
      well. Taking it one step further, how about connecting the miners’
      claims for redress with Venezuela’s assets scattered across the globe?

      Suppose the IMF, WB, and the BIS freeze those assets and then dole
      them out to the claimants. The “Bank for International Settlements”
      will be doing exactly what its name implies. That will externalize the
      whole process, thereby reducing Venezuela’s soverignty to mythology
      status, just what United Fruit started so many decades ago and the
      Economic Hit-men continue today. Of course, the settlements will be
      with shares of gold/silver ETFs and/or paper currencies/bonds printed
      up just for the occasion; no metal involved so, “Here We Go Again!”

      • Greg

        Thank you for continuing the analysis!!! Good stuff man!!

      • Davis

        From what I see the process has already begun with the announcement on Friday that Venezuela’s debt paper was being downgraded. Chavez may be right about wanting to escape the “dictatorship of the US dollar” but the man is his own worst enemy when in comes to understanding capital. I guess that’s what comes from hanging around with Castro.

        The banksters are going to want to get this matter into the courts as quickly as possible, ram it through and wait for gold to go up for all the other intendment reasons so they have to dole out as little as possible of it in whatever “special case” bonds or notes -payable in 10 years of course- to cover any settlements. Throw in the banksters usual “administration fees” and Venezuela is effectively stripped of it’s gold.

        The only overhanging question I see is if they have the time to put the scenario in place, courts can be frustratingly slow to act and other events accelerating the collapse could outpace their plans. Which then raises the question of war. Given the considerable US military presence right next door in Columbia, no telling what they can cook up. Kill off a couple dozen US soldiers, blame it on Chavez and there you go, the ready-made primary excuse for more uncontrolled printing, war. I here Ben may be backing up the truck loads of lithium grease to lubricate the presses going into hyper drive as we speak!

        I can almost hear the propaganda machine at work, “The Polish, err Venezuelan troops crossed the border and attacked our valiant troops defending the Reich, err Columbia. Blah, blah ,blah.

        As usual there are bad players on all sides and as usual it’s the troops and innocent civilians who will end up getting it in the neck as the result of the Machiavellian power plays of others.

        It’s going to be question of which gets people more riled up first, and who they blame for it; the ongoing financial chaos depriving them of house, home, jobs and food or some cooked up theater of the absurd in the Columbian jungles.

  2. james

    if chevez creates a new curency based on gold,and insist his oil be traded in his curency…could this start a chain event to a different gold standard world curency?

  3. Mitch Bupp

    As I have said before the stock market is a rigged game between the high frequency traders to the too big to fail banksters front trading with super computers. I can not be the only one who saw that when the brokerages started baiting investors to trade for themselves that the brokerages were looking for nothing but marks to scam. From my point of view; if a pro can not make money how many suckers can they get into the market for a fleecing. This nothing more than the realization that the train wreck called the American economy has derailed and it can no longer transport the bankers to the Promised Land.

    How bad is inflation even according to the governments CPI calculator…. have some fun…
    1.follow the link;
    2. Put $1 in the top box and reset it to 2011
    3. Put your birth year or another number into the lower box and

    PRESTO; see how little the dollar is worth today versus when you were born

    OK, I’ll save everybody the question that is nagging you…. the chart goes back to 1913 … and most of us know what happened in 1913……

    TODAYS DOLLAR IS WORTH four cents in 1913 currency

    HA HA HA

    Anymore questions about why to buy gold or silver???

  4. Art Barnes

    Well, well, well, did Wall Street finally figure out that their ponzi game is about up, that manufacturing is about over in the U.S., that consumers are out of money, that the unemployment is alot worst than that which they keep proclaiming, or is it a just a ploy that Wall Street is usuing for a very large round of QE3 giving the elite more wealth on the backs of the middle class? In my mind it is all of the above! What better time to contract the equities (the Dow) below the $10,000 level than just before the Wyoming meeting. FDR stated, “if it happens in politics you can bet it was planned”. The Fed will be happy to kick the can down the road and take care of the elite, old Ben and his criminals won’t let the opportunity of a contracting economy escape without usuing it to help with the destruction of the middle class. Make no mistake about it, this is class warfare and the history books will write about it and discuss how the middle class of our time could have stood up and protected itself but for many factors did not, which allowed its base and power to be taken over by the elite causing it to become the working poor and, as a result, a two class system was developed which had no middle class contained therein, only a rich and poor class. Ofcourse, the historians will point out that as the result of a two party class system caused the downfall of America as a world power but the elite and all their wealth did well during the entire destruction period of the empire. Greg, it certainly clear we are headed towards a two class system, all you have to do is read the news. As a Paul Simon record once said …”the words of the prophets are written on the subway walls…” if you back away just a little and look at all the loose ends one clearly can see the outcome of this period and it is the destruction of the middle class which will eventully make this the late great United States of America. By the way, the Romans did the same thing, they took and took from their middle class until there was nothing left with which to continue the upper class’s lifestyle. At that point in time it all became history, the rich with the poor.

    • MasterLuke

      There will not be history books at this pace . . . Look what happened to the Romans.

  5. Phil Fleming

    Hey Greg
    Did you see this story in The onion?

    ‘Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is’.

    Do you have any information on this story? Scary stuff if it’s true. Scarier that no one else is posting it.

    • Greg

      I posted it but it is a spoof. I think if Bernanke really did get drunk and spill his guts it would sound something like that.

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