Oct 7, 2010

$6,000 Silver and ONE BANK

From RoadToRoota
By Bix Weir 

The silver markets are rigged. Every day. Every trade. Every option. Every derivative. The silver markets have been rigged since the early 1970's when Alan Greenspan introduced computer market trading systems to the world beginning the long term commodity market rigging operation.

Since that time there has not been a day when the silver markets have been "freely traded". Nobody, and I mean NOBODY, knows the true "Fair Market Value" of silver!

But like all price suppression schemes, the silver manipulation must come to an end and we are on the brink of that moment. The only remaining question should be "What is the true value of silver in terms of money?"

First a little background to set the stage.
Computer Commodity Trading

Beginning in the early 1970's, computers were introduced to control the order flow in financial markets. Order processing was drastically changed with the New York Stock Exchange's "designated order turnaround" system (DOT, and later SuperDOT) which routed orders electronically to the proper trading post to be executed manually, and the "opening automated reporting system" (OARS) which aided the specialist in determining the market clearing opening price (SOR; Smart Order Routing).

Today we have algorithmic trading, auto trading, algo trading, black-box trading, robo trading…and the list goes on. Algorithmic Trading is widely used by pension funds, mutual funds, and other buy side institutional traders, to divide large trades into several smaller trades in order to manage market impact, and risk. Sell side traders, such as market makers and hedge funds, claim to provide "liquidity to the market", generating and executing orders automatically. In "high frequency trading" (HFT) computers make the decision to initiate orders based on information that is received electronically, before human traders are even aware of the information.

Over the years computers have played an increasingly important role in everything related to our "free and open market system" such that today's financial markets CANNOT function without computers. The Federal Reserve, US Treasury, Wall Street insiders and the Exchanges were all instrumental in the integration of computers but they also gained access to secret trading information before the order hit the open market. This information coupled with the fastest computers on earth made market manipulation easy.

This power, the power to control markets, was too much for anyone to resist. Over time those who were given the official key to the back office operations have used and abused their position to its manipulative fullest. Although some of the time they used this power in an official capacity (for the good of the country), more often than not it was used in an unofficial capacity… for the good of themselves.

Bernie Madoff, the ex-head of the NASAQ, was a great example of this public to private transition as his private trading firm was all computer algorithm based market rigging operations. There are many other ex-Exchange/Wall Street officers that went on to open computer trading operations. Many continue to thrive such as EWT, LLC which became a dominant trading/market making firm using "state-of-the-art technology and algorithmic models". EWT was founded by Vincent Viola (ex NYMEX Chairman) and David Salomon (reported to Robert Ruben at Goldman Sachs) and are also an "Authorized Participant" in the iShares Silver ETF (SLV).

Are you beginning to see the problem? He who has the biggest, fastest and smartest computers (or programmers) can set the price and will ALWAYS WIN! No longer is there any kind of true supply/demand factors related to commodity exchanges or prices. Computer trading should be outlawed…the convenience and efficiency it provides does not offset the detrimental effects and potential for total and complete market manipulation.
CFTC Created to Cover Up the Manipulation

When the computer rigging programs were implemented there needed to be some kind of cover to ensure secrecy and maintain a false confidence in free markets. In 1974 Congress passed the Commodity Futures Trading Commission Act that overhauled the Commodity Exchange Act and created the CFTC as an independent agency with powers greater than those of its predecessor agency, the Commodity Exchange Authority.

From that moment the CFTC has been run by board appointees that showcased a revolving door of Wall Street insiders ensuring that the computer market rigging operations were not interfered with. The only notable exception is Brooksley Born who was fired by President Clinton when she found out the truth about our supposed "free markets" and tried to warn everyone. (see The Warning)

Listen to Brooksley Born explain the problems in her own words when she accepted her JFK Profiles in Courage Award in August 2009.

A while back I gave up my fight against the CFTC as I determined that they were NOT protecting the best interest of the investor but rather they were protecting the computer market rigging operations and the people involved. Here is one of my last articles on the subject:

Road to Roota III -- Who's the little man behind the curtain?

Now that you have some background let's get back to $6,000 Silver!

Historically, when any price rigging operation stops the violence of the ensuing price changes are determined by the length and scale of the manipulation as well as the underlying fundamentals of the item being rigged. Take for example the famous 1980's case of the Hunt brothers trying to corner the silver market. From early 1974 the Hunt brothers started accumulating silver which ultimately drove the price from $6/oz to $50/oz until January 21, 1980 when the CFTC finally pulled the plug on their operation. Within 2 months the price of silver plummeted from $50/oz to $10/oz and the silver price was back under control of the US Government and Banking Cabal. An excellent account of what transpired can be found here:

This account shows what can happen to the price of a manipulated commodity when the price manipulation is ended. In the case of the Hunt Brothers the manipulation lasted 6 years and involved approximately 130M oz of physical silver and 90M oz of COMEX silver contracts. This was an attempt at a Long Silver price manipulation but it was going on while the Short Silver Official manipulation was going on trying to keep the price down. The only way the Hunt's accumulated so much silver without the price heading into the many thousands of dollars was the official computer price suppression operation.

The manipulation was ended when the CFTC stopped all COMEX Silver purchases and allowed only silver liquidation sales instantly driving the price down. In 1980 the US Government held 3B oz of silver and in order to maintain the lower silver price levels they sold the entire stock of silver into the market over the next 25 years. That excess supply combined with other governments divesting their silver was enough to continue the price suppression scheme for almost 40 years. That supply is now gone.
One Bank has the Hot Potato

So here we are 40 years after the official manipulation of silver began and the world is finally awakening to the situation. The CFTC, having investigated silver manipulation allegations twice previously, has had an open investigation into silver market manipulation for almost 2 years. They have even stated that the investigation was moved to the "Enforcement Division" within the CFTC which pretty much tells you what the conclusion of the investigation revealed. The FBI has separately stated that they are investigating JP Morgan for silver market manipulation. These two facts and the absolute SILENCE from JP Morgan are strong indicators that the long term manipulation of silver is about to end.

Ted Butler of Butler Research has been exposing the official manipulation of Silver for the past 25 years. His research was instrumental in exposing the gold/silver leasing operations and the massive concentrated short positions in both gold and silver. On September 3, 2008 Butler published a report entitled Fact Versus Speculation where he showed how one bank, JP Morgan Chase, took over the Bear Stearns Silver COMEX Short position of 30,000 contracts or 150M oz.

Since this report was published JP Morgan has continued its silver market rigging antics in an effort to get out of this precarious short position. After Butler exposed JPM as the culprit there have been wild orchestrated swings in the price of silver as JPM attempts to cover their massive COMEX short position. The price of silver has risen from $13 to currently over $20 in this time frame and the size of the short position held by JP Morgan has gyrated wildly between 30k and 40k contracts as they desperately try to shake the longs to cover their shorts. But even with this rise in price the short position is STILL above 30k contracts according to the CFTC's latest Bank Participation Report.

Add to this various silver market manipulation tools such as naked shorting silver ETF's, falsifying COMEX warehouse data, unallocated silver, leasing and swapping metal and you have a situation that dwarfs the Hunt brothers case.

Of course, JP Morgan is no ordinary bank because they are also the LARGEST derivative holder in the WORLD at $75.3 TRILLION! Do remember Warren Buffett calling derivatives "Weapons of Mass Financial Destruction"? Well, JP Morgan holds the mother load when it comes to silver too with $8.4 BILLION of Silver derivative contracts!

(OCC Report table 9: Classified as "PREC METALS"… might be a little platinum but not much).

This report was for the quarter ending June 2010 when the price of silver was $18.50. That translates into over 450 MILLION OUNCES of notional silver derivative contracts that remain open!
COME ON PEOPLE! I'm starting to think my $6,000/oz silver call is too conservative!

What's going to happen when JP Morgan's derivative monument comes crashing down…which it almost did in September 2008?

So here's where I get to $6,000 per oz for silver.

1) I know silver has not been freely traded in 40 years so today's price if irrelevant.

2) I, like many, estimate there is only about 1B ounces in above ground physical silver for investment purposes.

3) I, like many, estimate there is only 5B ounces of above ground physical gold for investment purposes.

4) If the price of gold is not manipulated, like the banks claim, then the price of silver should be 5x the price of gold due to its supply/demand fundamentals.
CONCLUSION: The price of gold is around $1,300/oz so the true Fair Market Value of Silver should be over $6,000/oz in a FREE market!

It's simple, if you remove 
ONE BANK from the supply side of the equation the price of silver will SKYROCKET overnight.
ONE BANK controls the price of silver.
ONE BANK controls the fate of our monetary system.
ONE BANK is behind the curtain pulling the silver manipulation levers.
ONE BANK has control over a nation that was founded by "We the People".

May the Road you choose be the Right Road.

Bix Weir 

5 Key Principles That Unite Populist Progressives and Tea Party Libertarians

I was waiting for a good sense-based article like this from a long time:

From Activist Post:
"Rise like Lions after slumber; In unvanquishable number; Shake your chains to earth like dew; Which in sleep had fallen on you; Ye are many; They are few." -- Percy Bysshe Shelley

Human World Order
Activist Post

The establishment must do everything it can to suppress unity among the growing herd of angry citizens. However, victory for the people is within our grasp.  In a dangerous scenario for the establishment, populists from the left and the right are increasingly finding common ground.  A recent Mother Jones article titled "Tea Party or Pot Party?" revealed to progressives that they can actually agree with Tea Party libertarians on issues such as legalizing marijuana.  With an honest look at each other's principles we may find that what unites Populists is far more powerful than what divides us.

First, we must be cognizant that the establishment seeks to divide us by using such vile tactics as labeling progressives as "evil communists" and the Tea Party libertarians as "racists."  Naturally, old-school civil rights liberals hate racists, and free-market conservative purists hate communists. Can we not see that the establishment knows precisely what buttons to push to keep us from uniting?  These false labels are irrelevant in our current struggle with a tyrannical Corporate State.

It is clear that we the people are all suffering in similar ways under the current system. We grasp for someone to blame for this manufactured suffering, and the establishment is all too eager to provide a culprit to misdirect our anger.  Progressives have been conditioned to blame big evil corporations, while conservatives have been conditioned to blame big evil government. But now, both are finally realizing that corporate cartels and the government have merged into a most evil monster that cares not for them, or the health of America for that matter.  Even Michael Moore is waking up to the fact that Obama is a mere puppet of the corporate masters.

The people have been fooled and divided for long enough.  Now, we must go beyond phony labels that the establishment has carefully crafted for us, and join our fellow populists to unite around our common human principles.

Here are five co-dependent principles that unite populist progressives and tea party libertarians:

1. Peace - Ending Foreign Wars
Peace seems to be our natural human condition until the corporate controllers disrupt it for their tactical gain. Wars are sold through division, driven by military-industrial complex profits and the desire for power over resources -- period.  Those are not good enough reasons to kill, maim, displace and torture millions of human beings.  Real humans, if desperate enough, may kill for resources but are not inclined to simply kill for power -- and will engage in neither if they are reasonably comfortable.  The good news is, the elite sub-humans who use human pawns for war to increase gluttonous fortunes will eventually be toppled, because the true natural order of peace will always ultimately manifest. Acts of war are always immoral crimes against humanity, as war is hell and we must become the devil to win.

Libertarians and progressives have been consistently unified against the immoral, interventionist wars and the resulting atrocities on liberty.  Complacent progressives must forget about what party is in power and continue to fight for what is right.  It's not okay to excuse the wars, the torture, and the illegal wiretapping simply because the current Democratic president was presented with a Nobel Peace Prize.  If anything, that alone should prove to you the left-right paradigm is bogus.  And if pocketbook conservatives desire authenticity about reducing spending, then we must start with defense cuts across the board -- including ending the wars. Christian conservatives and liberal Jews must adopt the peaceful message of their religions, and realize that the real threat to their freedom and safety is far more dangerous than the engineered Muslim threat sold to them by the corrupt establishment. And those who still support military-industrial complex-owned neocons, God help you.

Common Ground: As Gandhi said, "There is no path to peace, peace is the path".  Ending the wars is the only moral and pragmatic policy to rescue our country.

2. Restoring Economic Justice and Fiscal Sanity
Economic fairness and fiscal sanity begins and ends with reforming our monetary system. The primary reason Americans should be angry about their economic situation is the fact that the Federal Reserve is a privately-owned entity.  It functions outside the jurisdiction of all branches of elected government and it owns the SEC and Treasury, which gives this privategroup immeasurable power to turn us and our government into debt slaves for their own gain.  The fractional reserve system for money creation inherently causes inflation that will always require more taxes from the public. In fact, the United States never had an income tax until the year after the Federal Reserve Act was passed in 1913.  The Fed, who continues to loot America, is also the engine that drives the ongoing global financial crisis.  To reclaim America it is imperative that the criminal banking cartel be abolished and sound money must be restored to the people.

We must learn from Woodrow Wilson who said: "Our great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of our nation, therefore, and all of our activities are in the hands of a few men . . . who necessarily, by very reason of their limitations, chill and check and destroy economic freedom."

This topic is so obviously beyond the false left-right debate that anyone who opposes it would appear to be a shill for the criminal banking system.  If Tea Party activists wonder who is to blame for their climbing taxes, they need to point their finger at the monetary system that encourages big government to keep spending, thus resulting in inflation.  There is already encouraging bipartisan cooperation in regards to investigating the Fed which has brought great awareness of their true nature to the public. 

Although there is no proposed legislation to fundamentally change the function of the Fed, we saw a progressive Alan Grayson (D-Fla) co-sponsor the "Audit the Fed" bill, drafted by ultra-conservative Ron Paul (R-TX), with another ultra-progressive Bernie Sanders (I-VT) introducing the Senate version. Furthermore, it is also encouraging to see a flurry of candidates from various states and political philosophies proposing citizen-owned state banks as part of the economic solution.  This nonpartisan issue is absolutely vital for all Americans to support if we hope to be free human beings.

Common Ground:  Thomas Jefferson said: "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered . . . I believe that banking institutions are more dangerous to our liberties than standing armies . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."  End the private Federal Reserve and establish sound money for the benefit of all Americans.

3. Limiting Government for the Restoration of Individual Liberty
Very simply, more personal liberty comes only by limiting the size of government.  As Americans, we all must hold dear our Bill of Rights which is clearly under assault. Conservative libertarians have long been known as the defenders of liberty, while progressive civil rights leaders in the 60s knew they had truth on their side when they declared that equality would ultimately prevail.  Since the civil rights victory, progressives grew to believe that government intervention works for social matters, and that well-funded regulatory agencies are necessary and good because they are looking out for our safety. 

However, the last decade has conclusively proved that all major regulators like the FDA, USDA, CDC, SEC, and DHS have become arms of the elite corporate cartels who use regulation to squeeze small businesses to further consolidate their industry empires.  These utterly corrupt and bloated agencies continue to sell "safety" to the public to justify their budget and jurisdiction expansions, where they limit our freedoms through over-regulation at the behest of their corporate controllers.

Despite being the strongest voice against the Patriot Act at the time, progressives are only now experiencing the personal ramifications of increased government regulation by the massive "Big Brother" surveillance-industrial complex -- and it is happening, ironically, under our supposedly "liberal" president.  They have witnessed an assault on their freedoms with the recent tyrannical raids on peaceful antiwar protesters, private organic food cooperatives, legal natural health choices like medical marijuana, and illegal surveillance of environmentalist anti-fracture gas drilling groups.  In every case, big business is directing big government to crush our freedoms. Big government and big cartel business feed off each other in a self-perpetuating system that must be broken.

Common Ground: Liberty is a natural order that unites us and will prevail.  As John Adams wrote: "Human nature itself is evermore an advocate for liberty."  Restore the Bill of Rights by ending the prohibition of drugs; and by reducing, or eliminating, regulatory agencies who impose fees, taxes, and statutes that threaten our freedoms.

4. Consumer Freedom and Free Markets
No form of government has been able to stop free markets in the history of mankind.  Even under totalitarian communism, barter systems or black markets thrive because free markets are yet another natural order for humanity.  The failed war on drugs is the most glaring example in America. The more tyrannical our government becomes toward limiting consumers' choices, the more we are seeing the rise of local organic cooperatives, many of which utilize barter systems.

For too long progressives and conservatives have confused what constitutes a free market economy. Again, this confusion and division has been deliberately manufactured  Conservatives who advocate for free market capitalism must admit that we haven't had that model since before the original Robber Barons, because Rockefeller and other elites live by the mantra "competition is a sin" -- thus cartels formed to create a form of corporate communism. While progressives like Michael Moore, director of Capitalism, must acknowledge that it is was not "free market capitalism" that caused the financial meltdown -- but rather it was the corrupt banking system and the utter lack of free market competition to blame. 

The general public is beginning to realize that anti-competition cartels use government regulatory agencies to further consolidate market share which erodes the free market as well as personal choices.  Food is the most obvious example of an industry that is run by near monopolies, while the FDA continues to suppress healthy choices for local food and natural health alternatives. Progressives and conservatives must unite with no fear of being called anti-business, and fight to break up the cartels and regulatory agencies if we're to have genuinely free and fair markets.

Common Ground: "The difference between free-market capitalism and state capitalism is precisely the difference between, on the one hand, peaceful, voluntary exchange, and on the other, violent expropriation."Murray N. Rothbard.  End the monopoly cartels and abusive regulations; demand true free markets with the liberty of choice, not the illusion of choice.

5. Respecting and Protecting our Ecosystem
Obviously a polluted ecosystem does not discriminate against political affiliations.  Humanity requires a healthy environment above all other concerns; as clean water, air, and healthy soil are essential to our survival. That we can all agree on. However, the modern environmental movement seems to have been hijacked by the elite who show no desire to protect the water, air, and soil.  Environmentalists have been made to believe that CO2 is the most dangerous element responsible for "Global Warming", and despite the establishment's constant betrayal of facts, many still put faith in the elite's proposed solutions that do nothing to reduce real pollutants.

The climate change debate has become the only environmental topic discussed in the mainstream and appears to be yet another example of manufactured political division. Environmentally-conscious progressives know they have been repeatedly lied to by the establishment left about everything from free-trade agreements, to the wars, to GMO foods, yet they seem to have a very difficult time questioning the man-made "global warming" theory and the elite's proposed solutions. 

At the very least, eyebrows should be raised since “hacked” emails exposed that the science data had been manipulated to fit the theory.  Alarm bells should go off when we learn that, as Vice President, Gore designed the proposed Cap and Trade system with Enron’s criminal CEO Ken “Kenny Boy” Lay years before the global warming propaganda had begun. A full blown revolt should take place knowing that the scandalous international Banksters and Big Oil (including BP) have shaped Cap and Trade to line their pockets. Finally, many of the proposed provisions appear to tax personal choices while major corporate polluters are exempt. Regardless of what we believe, it certainly appears that climate change fits the establishment's problem-reaction-solution model of social engineering and we should all beware.

Additionally, the global-warming-is-a-hoax crowd must concede that fossil fuels are still dirty and have a major impact on the environment regardless of whether they effect climate change.  The environmentalists who recently opposed fracture drilling in Pennsylvania did so because the practice contaminates ground water, not because natural gas effects climate change.  These protesters were nonpartisan Americans.  We must unite against practices that provably damage our health and the health of our ecosystem.  These can include oil spills and subsequent chemical spraying, industrial agriculture and factory farms, dirty coal and depleted uranium energy plants, deliberate poisoning of public water with sodium fluoride, and the production, promotion, and disposal of dangerous pharmaceuticals to name a few.

Common Ground: True pollution is obvious. "Truth is uniform and narrow; it constantly exists, and does not seem to require so much an active energy, as a passive aptitude of the soul in order to encounter it. But error is endlessly diversified; it has no reality, but is the pure and simple creation of the mind that invents it." - Ben Franklin.  We must unite to confront the provable threats to human health and the integrity of our environment, and we must do it rather quickly.

These principles should naturally unite angry citizens who have been relentlessly abused by the corporate state.  Sure, many will remain close-minded and submit to the manufactured division, but as we reach this crucial tipping point for free humanity, it is now imperative that we join in common purpose - FREEDOM.  Let us know what you think!

Here is the script: "YOU WILL ABSORB... YOU WILL OBEY"

More Neuro-linguistic programming from the terrorists, to in-form you that you will behave exactly how you are told when they will pull the trigger with another false-flag. Note how the following is about a forecast presented as a certainty or plain description about YOUR behaviour when a certain "something" happens:

Top Fed Repeats Ominous 'Absorb Terror' Rhetoric
Attack on U.S. soil would reinvigorate Obama's collapsing approval figures
Paul Joseph Watson - Prison
Thursday, October 7, 2010

Having already demonized Americans as the primary domestic terror threat, National Counterterrorism Center head Michael Leiter is now ominously parroting Barack Obama’s rhetoric, by indicating that America could absorb a terror attack, another indication that the threat of a false flag event to reinvigorate Obama’s collapsing approval numbers is higher than ever.


Possible Staged Terror Attacks As Operation RAILSAFE Set To Begin

The Emperor has no clothes: Obama is inventing nonsensical terror threats for political gain, say European and Pakistani intelligence

Thanks Obama!!!!

Health Insurance Companies Say That They Plan To Raise Premiums Significantly Because Of The New Health Care Reform Law

many of these health insurance companies are openly admitting that they are raising rates because of the mandates contained in Barack Obama's new health care reform law.  Of course when the health care reform bill was being debated, Barack Obama swore up and down that this would never happen.  At the time, Obama promised that the average American family would save $2,500 in yearly health care premiums under the new law.
Here's the article link which I sourced in tonight's Midas report at  Way To Go Barack

I had this debate about the Healthcare Farce Bill with several blindly ardent Obama/healthcare reform supporters.  It was blatantly obvious to me that Big Pharma, Big Hospital and Big Insurance were all going to pay off their reps in Congress in order to create a Bill which would transfer massive amounts of wealth from us to them.

Wanna know how I knew?  Follow the money:  Big Pharma spent $100's of millions in advertising and lobbying in order to get this legistlation through.  They didn't spend that kind of jake because they wanted to help Americans save money.

Big Insurance you say?  The proof is above.  But even moreso is the fact that 30 million or so uninsureds will now qualify for Government funded healthcare insurance.  That's 30 million NEW policies!!!  Nice, huh?  No biggie, now Obama can either find clever ways to raise taxes on those of us who earn our living and pay for our own h/c insurance OR Helicopter Ben can just print up more dollars and drop 'em right into the coffers of Big Insurance.

There's a lot of other collateral damage not covered in the media.  Many small businesses have had to cut their workforce because they couldn't afford the added expenses required by this "reform" legislation.  And several big corporations immediately took billions in charges to reserve for the added expense. The charges taken significantly reduce the level of taxable corporate income.

I never in my worst nightmares ever thought I would come to this, but it would appear to me that Obama and his Change Now policies have only changed things for the worse both for me and from the way they were with W in the Oval Office.

And please do not forget or overlook the the fact that the very Congressmen who passed this legislation largely never read the entire Bill AND they have their own Congressional, publicy funded healthcare plan that operates outside of this legislation.   I hope Harry Reid and Nancy Pelosi burn in hell.

Eurointelligence Daily Briefing - 7 October 2010: "Why the EU's bank rescue strategy is turning into a political and economic catastrophe"

  • World Economic Outlook maintains global growth forecasts, but sees greater risks as US growth is slowing;
  • also warns that lack of rebalancing poses additional risks; if risks materialise, central banks should consider another round of QE, low interest rates and financial market support;
  • Spain is falling rapidly in the league table of the world’s largest economies;
  • Wolfgang Schauble has offered Angela Merkel his resignation, but she declined, for now;
  • More French strikes loom; we a chart showing the persistence of the Portuguese deficit;
  • the Walloons are considering a francophone confederation with Brussels;
  • Wen Jiabao said revaluation would have catastrophic effects of China and the world;
  • the Irish regulator is considering voluntary agreement with senior bondholders to restructure or reschedule debt;
  • Tadashi Nakamae says Japan’s currency is, if anything, undervalued;
  • Daniel Gros says pooling of the eurozone’s votes at the IMF would increase the portion of cheap IMF money during rescue operations;
  • Paul Krugman observed that hints of QE2 have already led to a fall in long-term interest rates, and a rise in inflationary expectations;
  • Karl Whelan, meanwhile, says it would be a bad idea for the eurozone to link access to EFSF money to an increase in the corporation tax rate.
Comment and Analysis
By: Wolfgang M√ľnchau
The anniversary of the collapse of Lehman Brothers was without a doubt the single most symbolic moment of the financial crisis. But, at least for Europe, it was not the quintessential turning point. That came on Tuesday, 30 September 2008, when Brian Cowen, the Irish prime minister, gave a blanket guarantee for the entire banking sector. His decision bounded the other eurozone leaders into following suit. The rest is history.

This is the Daily Briefing from

On the Value of Gold

I've been a gold bull for a while now (see my post Ready to Ride the Golden Bubble from March 2009), but my rationale was more behavioral in nature. But now, Crossing Wall Street has a fascinating post on a possible model (or at least a framework) for the price of gold, which indicates we are nowhere near the peak.

I highly recommend reading the full post as it provides a nice background for why the model may work, but to the magic formula:

Whenever the dollar’s real short-term interest rate is below 2%, gold rallies. Whenever the real short-term rate is above 2%, the price of gold falls. Gold holds steady at the equilibrium rate of 2%. It’s my contention that this was what the Gibson Paradox was all about since the price of gold was tied to the general price level.

Now here’s the kicker: there’s a lot of volatility in this relationship. According to my backtest, for every one percentage point real rates differ from 2%, gold moves by eight times that amount per year. So if the real rates are at 1%, gold will move up at an 8% annualized rate. If real rates are at 0%, then gold will move up at a 16% rate (that’s been about the story for the past decade). Conversely, if the real rate jumps to 3%, then gold will drop at an 8% rate.
I wanted to see for myself, so I took Eddy's model and updated real T-Bill rates with historical T-Bills rates andhistorical CPI figures going back to 1950, then sized it so the output matched the current price of gold.

And while he is not trying to explain 100% of gold's movement, but rather the factors that drive that movement... the result in itself is rather impressive to say the least.

His six takeaways (summarized):

  1. Gold isn’t tied to inflation, but rather tied to low real rates (not always one in the same)
  2. When real rates are low, the price of gold can rise very, very rapidly
  3. When real rates are high, gold can fall very, very quickly
  4. Gold should not (and does not) have a long-term relationship with equities
  5. Low rates are likely to last for a long period of time
  6. Gold price is political; central bankers can crush the price if desired (i.e. raise rates)
This last point intrigues me. There is so much capital wasted (i.e. invested) in gold that my question is what would happen if central bankers did just that and raised rates?

The common thought (mine included) is that would kill the economy as we do live in a "credit economy" (i.e. there are lots of assets that are priced based on cheap credit, such as housing). But what if that forced capital away from gold and into goods and/or services that actually benefitted someone / something in the economy?

Data Source: 
Measuring Worth


Zero Rates "Not Low Enough"

Silent Crash: Dow Continues Slide vs. Gold

Ben Davies – Let’s Say Gold Went to $13,000

$5,000 Gold Bandwagon Now Includes These 65 Analysts – Got Gold?

Gerald Celente on Gold $5,000, Currency Crisis, and Crash of 2010 (7/10/10)

J.S. Kim: Gold and silver -- This time it IS different

Norcini, Sinclair - Financial Hurricane To Collapse the System

The noose tightens for gold bears