Jim Sinclair: Gold sounds the alarm

By Jim Sinclair

www.JSMineSet.com
Sunday, October 21, 2007

Gold started this U.S. evening up $6.70 in Asia, and that was the alarm sounding.

In came the soldiers charging over the hill to stabilize (aka manipulate) to keep Operation White Noise in place.

You can push gold around for a day, sometimes longer, but as long as the dollar keeps falling, no force on earth can keep gold from rising. Pushing gold down only compresses the spring that will shoot it higher.

The stabilizers should take a hint from Bert Seligman, who said, "The only way to manipulate any entity successfully is to push the item in the direction it wants to go anyway."

This advice is simply expressed as "Never stand in the way of a locomotive," which is a good metaphor for gold moving well above $1,000.

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The Manipulation

Of The Gold Market

Submitted by Bill Murphy on Wed, 2005-11-16 08:00.

The key to understanding the manipulation of the gold market, this enormous scandal and fraud, is that it can be compared to a murder trial. In the United States a murderer can be put to death if he is found guilty beyond a reasonable doubt. Many times murder defendants are convicted

based solely on "circumstantial" evidence because a reasonable person could reach no conclusion other than guilty.

For seven years GATA has discovered one piece of evidence after another supporting our long-held contention that the gold market is managed by certain central banks and their agents, the bullion banks. It is

a price-fixing case involving some very powerful people and institutions … in fact it is a Gold Cartel. The U.S. attorney handling the Samsung conspiracy conviction said in an interview this fall that the United States had experienced an "epidemic" of price-fixing cases in the late 1990s. All GATA has done is uncovered one of them, the grandest of all.

For one to appreciate how this can go on

and on and not be brought to the attention of the public, one need only to reflect on Enron and Refco. Before its initial public offering of stock, Refco was audited by the most highly regarded firms on Wall Street and nothing wrong was discovered. Yet look at what was really transpiring behind the scenes. Now the company is bankrupt and under criminal investigation.

That said, GATA does have its "smoking gun." It has to do with derivatives and central bank gold. The mainstream gold world says the central banks have nearly 32,000 tonnes of gold in their vaults (minus a small amount that has been sold in recent years or is on loan to gold producers for their hedging operations). GATA says the central banks have less than half of that -- the difference being what was clandestinely fed into the market to suppress the gold price over the last 10 years. The work o

f three respected GATA consultants -- Reg Howe, Frank Veneroso, and James Turk -- each using different methodologies, supports GATA's contention of vastly diminished central bank gold supply.

Veneroso made a presentation at GATA's African Gold Summit in Durban, South Africa, on May 10, 2001, laying out why the central bank gold loans are far higher than generally believed. This presentation, "Facts, Evidence and Logical Inference ... A Presentation On Gold Supply/Demand, Gold Derivatives and Gold Loans," may be reviewed at:

http://www.gata.org/node/5275

Howe and Turk have done the same at their Internet sites:

http://www.goldensextant.com/

and http://www.goldmoney.com/.
Meanwhile the International Monetary Fund has instructed central banks to lie about their gold reserves -- to count gold loans and swaps as gold in their vaults. So as not to be so audacious without backup to validate our more than dramatic claim, let me explain. Canadian GATA supporter Andrew Hepburn posed the following question to the IMF in October 2001:

Why does the IMF insist that mem

bers record swapped gold as an asset when a legal change in ownership has occurred?

See http://groups.yahoo.com/group/gata/message/903

The IMF responded:

"This is not correct: the IMF in fact recommends that swapped gold be excluded from reserve assets. (See Data Template on International Reserves and Foreign Currency Liquidity, Operational Guidelines, para. 72, http://www.dsbb.imf.org/guide.htm"

(For more on this, see http://groups.yahoo.com/group/gata/message/904. The IMF link mentioned above is no longer operating. It was in 2001 as noted in the GATA dispatch.)

Yet a footnote on the Internet site of the central bank of the Philippines contradicts the IMF's claim and reveals it to be bogus:

"

Beginning January 2000, in compliance with the requirements of the IMF's reserves and foreign currency liquidity template under the Special Data Dissemination Standard (SDDS), gold swaps undertaken by the BSP with non-central banks shall be treated as collateralized loans. Thus, gold under the swap arrangement remains to be part of reserves and a liability is deemed incurred corresponding to the proceeds of the swap."

(See http://www.bsp.gov.ph/statistics/sefi/fx-int.htm.)

The European Central Bank and other central banks corroborated exactly what the central bank of the Philippines declares about counting gold loans the same as gold in the vault.

The "smoking gun" part of this has to do with the gold derivatives on the books of the Bank for International Settlements in Switzerland. The gold establishment says the gold derivatives on those books have been associated with gold producer hedges. Yet in the last four years gold producers have reduced their hedges by more than 2,000 tonnes of gold, or more than 50 percent of their hedging at its peak. Consider this excerpt from a Reuters report from November 8, 2005:

"LONDON -- .... The Hedge Book report produced by Haliburton Mineral Services and industry consultants Virtual Metals said the so-called hedge impact of the global book fell by 1.0 million ounces to 52.8 million ounces. ... The global hedge impact in the July-September quarter was just more than half its level in the same quarter of 2001 when it peaked at 102.8 million ounces."

Meanwhile, gold derivatives have gone up during that period of time, not down. While these are complicated and technical, Howe updated GATA's evaluation of the BIS gold derivatives in a report he posted at GoldenSextant.com in June, "Gold Derivatives: Skewing the World":

"On May 20, 2005, the Bank for International Settlements released its regular semi-annual report on the over-the-counter derivatives of major banks and dealers in the G-10 countries for the period ending December 31, 2004. The total notional value of all gold derivatives rose from $318 billion at mid-year 2004 to $369 billion at year-end. As subsequently detailed in table 22A of the June issue of the BIS Quarterly Review, released June 13, 2005, forwards and swaps increased slightly from $129 to $132 billion while options rose dramatically from $189 to $237 billion."

Howe's report can be found here:

http://www.goldensextant.com/commentary29.html#anchor3776

The only explanation for the dichotomy between the reduced hedges and the increased gold derivatives on the books of the BIS is undisclosed lending of gold and writing of central bank call options associated with the price suppression scheme.

There is one other anecdotal point to make proving how right GATA has been all along and what it means for gold investors in the years to come. For years GATA has claimed that the key to the eventual surge in the price of gold was the rising physical demand for gold amid the diminishing supply of central bank gold used to suppress the price. The gold establishment has associated the rise in the price of gold over the years with the weakening of the U.S. dollar. GATA has claimed otherwise.

We said the Gold Cartel was using the action of the dollar for price-rigging purposes. GATA has said over and over that the price of gold could rise hundreds of dollars per ounce and the dollar do nothing relative to other currencies. We said it would happen when the gold cartel began to lose control of its price manipulation scheme.

Well. ...

The euro came into existence on January 1, 1999, at $1.17. The price of gold that day was $284. As this is written in mid November 2005, the euro approached $1.17 again while gold has rocketed $194 per ounce since the beginning of 1999.

Here's more that helps to prove GATA's case about the gold market. At the beginning of 2005 gold was $420 and the euro was $1.30. In mid November the euro was trading at $1.17. But the price of gold was $478. The argument that gold is tied to the dollar has gone the way of the Dodo bird. Of course, should the dollar crash, which it should, this can only help the gold price.

The price of gold is headed to well beyond $2,000 per ounce. GATA knows why.

Now you do too.

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Bill Murphy is chairman of the Gold Anti-Trust Action Committee and proprietor of www.LeMetropoleCafe.com, an Internet site devoted to financial commentary with emphasis on the precious metals

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Will Derivatives Wipe Out Some Currencies?

By Chris Laird Sep 6 2007 10:26AM www.prudentsquirrel.com

Over the last several years, there has been a lot of discussion about the size of the derivatives market, and how much it has grown since 1990. That market was around $20 trillion in size in ‘90, and now is estimated by the BIS to exceed $600 trillion world wide.

Given that amount is 10 or 12 times the entire world GDP of roughly $50 trillion a year, this amount of derivatives is just astounding. The fact is that world currencies are threatened if these go sour. We will get into this in a moment. First, let us discuss some derivative basics.

Derivatives proponents (brokers and bankers) have previously stated that the actual value of derivatives is a fraction of the actual total size, and that all the worry is overblown. The total size is called the ‘notional amount’. For example, if we decided to make a contract on the price of gold for 100 ounces, (a private futures contract between us) the notional amount would be 100 times the price of gold. If the price of gold rose $1, the value of that contract would be $100, but the notional amount is $68,000 (680*100). Derivatives proponents state the cry about the incredible notional amounts is over done, and try to get us to focus on the smaller ‘value’ amounts and not to worry.

Oh yes, we should worry!

*snip* For more, read HERE.

Marketwatch Column this week

Go to the link to get the live quotes and action!!

From the comments:

Energy trading has been one of the greatest conduits for moving money from the masses to a few and unlike housing there has been no upside to the masses on the continuous escalation of energy prices. This is likely to get worse.

While people might claim energy trading is a free market, it really isn't in the academic sense which requires the ability for all concerned to get complete information and be able to act on it efficiently.

When history is written, the last decade will come to be knows as the decade when the financial industry created financial instruments that for the first time in history created more problems for the society than it benefitted. As to how it ends, we will have to see...

MARKET SNAPSHOT

U.S. stocks seen falling next week on growth fears

Fed speeches highlight otherwise light week for economic data

By Carla Mozee, MarketWatch

SAN FRANCISCO (MarketWatch) - U.S. stocks are expected to extend their declines next week, following a sell-off from Friday after a weak August payrolls report stoked fears that economic growth has stalled in the wake of the subprime- and credit-market turmoil, strategists said.

Investors are expected to focus on Federal Reserve speakers early in the week as they look for clues about whether the central bank plans to cut the benchmark interest rate from 5.25% at its meeting on Sept. 18, a move that is widely anticipated by market players. The attention on these speeches is likely to trump any effect from the relatively light calendar of economic data releases, analysts said.

Federal Reserve Governor Frederic Mishkin, San Francisco Fed. President Janet Yellen and Fed. Chairman Ben Bernanke are all expected to speak early in the week.

Investors "want to know that the Fed is in there, they are ready, and they are not going to let the consumer just fall off the table," said Kenny Landgraf, president of Kenjol Capital Management.

The government on Friday announced an unexpected drop of 4,000 jobs in U.S. nonfarm payrolls in August, the worst showing in four years. The report surprised investors, undercut optimism about economic growth, and sparked widespread calls for the Federal Reserve to cut interest rates when it meets later this month. See full story.

The Fed funds futures market is currently pricing in a 75% chance for a 50 basis point cut in September. The odds were under 50% ahead of the August payrolls report.

Worries that the soft jobs report may presage an economic pullback will keep market players on edge as they scrutinize the speeches by Fed officials and, later in the week, August retail sales, industrial production and consumer sentiment.

"Volatility [in stocks] will remain elevated and given the employment number, combined with the fact that the market had rallied in the last couple of weeks, the bias is to the downside," said Michael Malone, trading analyst at Cowen & Co.

Investors drove down equity prices following the jobs report, snapping a two-week run of wins on the Dow Jones Industrial Average

Dow Jones Industrial Average

*snip*
See full story.

Fed speak

Roberts said that Fed officials could start giving indications that a rate cut is on the way to quell nervousness in the market. That prospect puts the spotlight on Fed officials slated to speak ahead of the central bank's informal "quiet period" that comes a week ahead of rate meetings.

"I don't think they will cut inter-meeting unless there is a severe crisis, but even if the [economic] data improves, my guess is that are going to cut by 25 basis points," he said.

Mishkin, a voting member on the Federal Reserve's Open Market Committee, will speak on Monday night about the outlook on the U.S. economy at a dinner being held by the Money Marketeers of New York University.

A co-author with Fed Chairman Ben Bernanke on a number of papers, Mishkin said at the Fed's recent economic symposium in Jackson Hole, Wyo. that monetary authorities "have the tools to limit the negative effects on the economy from a house-price decline." See archived story.

Bernanke will be in Berlin on Tuesday to deliver a speech at a Bundesbank conference on "Global Imbalances: Recent Developments and Prospects."

Yellen will speak Monday morning at the National Association for Business Economics meeting in San Francisco. Yellen does not hold a voting position on the FOMC this year.

The week for economic data is light, with the most anticipated reports set to come on Friday.

The Commerce Department's report on retail sales for August is scheduled for release on Friday. August retail sales are expected to have risen 0.4%, up from a 0.3% increase in July, according to a MarketWatch survey of economists.

Economists are looking for a rise of 0.5% excluding automobiles, compared with an increase of 0.4%.

*snip*

Gold for December delivery or 0.7%, to close at $709.70 an ounce. It closed up more than 4% for the week. See Metals Stocks.

The dollar dropped to its lowest level against the yen in about a month and fell against its other rivals Friday. See Currencies.

Carla Mozee is a reporter for MarketWatch in San Francisco.