By Jim Willie CB, Golden Jackass

Subscribe: Hat Trick Letter

A great disconnect exists in the gold market between the exchange futures contract price (the paper price) and the gold bullion paid price for transactions (the physical price). The differential in price is growing wider, enough to place tremendous pressure on the gold market itself. Look not to the gold premium paid for purchases, but to high volume purchases in the tens of million$. In mid-December, almost every demand for gold contract delivery was matched by a cash delivery, complete with 25% bonus premium offered. The officials even produced a new ledger item called ‘Cash For Delivery’ that was necessary to balance their badgered books. It prompted little attention. Some call it a basic bribe. Others call it a technical default.

Fast approaching is the event of GAME OVER for London, a condition that has already reached critical level, according to a key reliable source of information with Londonconnections and direct experience with its market events. How long can a major metals exchange sell contracts but have miniscule supply of gold in their vaulted possession? The paper gold market and the physical gold bullion market have finally separated in a practical manner, meaning actual gold has almost no role anymore in London paper contract settlement. The absence of gold in Londonrequires extraordinary tactics to settle contracts and to obtain gold bullion. Red tape procedures delay delivery for individuals, and bribes accompany gold delivery demands as standard practice. The London Bullion Market Assn has almost zero gold, its supply having been drained in high volumes since early December, a process currently in acceleration. The opportunity to convert fiat money into precious metal at prices considered reasonable is also vanishing. The London gold banker said,

“There is going on a lot more than meets the eye. The physical system is actually consolidating bigtime and is organizing itself with lightning speed, totally hidden from pretty much anyone, even the so-called insiders. The paper precious metal market and the physical precious metal market have defacto disconnected. The paper and physical gold markets currently operate in parallel universes. The outflow of physical metal from bank vaults is happening at a mind bending pace.”

Notice the reference to consolidation and re-organization in a manner not apparent to those fixated on the existing cockamamy corrupted system that is permitted by loyalist regulators. The officials in the LBMA, COMEX, USDept Treasury, and elsewhere are struggling to maintain the current system, and reportedly are not in step with awareness of the newly devised structures coming into place. In the background, far from view, new systems are being fabricated from scratch. Some involve complex barter systems soon to emerge and hit the scene with a splash, with impressive vertical integration. At the same time, new currencies for usage are still undergoing planning, foundation setup, contract latticework, and more for actual implementation.

The true gold price might very soon become unknown, an extremely positive development. Telltale events such as bankruptcy, lawsuits, and arrests are likely to come, all in time, since the breakdown in order has led to extraordinary reactions. Right now, we see extremely strong tactics using naked gold short contracts at theLondon metals exchange (LBMA) and the COMEX in the United States to drive down the gold price. It is all illegal and permitted. Margin calls have hit, forcing further selling of paper contracts. Gold investor sentiment among the naive and less informed has been dragging, ever since early December.

The world is approaching a climax event. Sure, many analysts have made such a claim for months. But with Europe in flux, the USCongress in flux, the Persian Gulf in flux, the US-China trade battles escalating, and USTreasury debt finance recognized more and more as monetized printing press activity, we are truly approaching a climax event as gold metal has exited the London market. The trigger event is unknown. It will likely not be directly related to the above event fronts. It will probably be a typical garden variety event pertaining to the far from ordinary stresses tied to the ongoing crisis in the credit market, gold market, and currency market.

The financial press is critically important precisely now, for not spilling the facts on the current gold market breakdown and divergence. Much of the pressures are hidden though, since the financial press networks report only the official paper-based prices. Do not expect to read in Reuters or Bloomberg or the Associated Press or Wall Street Journal or the New York Times or Investors Business Daily or Barrons that a grotesque gold shortage exists in the London metals exchange or at the COMEX in New York andChicago. They will not report that London is virtually drained of gold, yet still sells gold contracts. Accurate news reporting would accelerate the breakdown and remove the possibility for time extension. The press will not report that billionaires are emptying their gold bullion accounts at rapidfire pace, out of gross distrust of the bankers, since gold leasing has illegally been standard practice for many years. Imagine selling lumber contracts without wood delivered. Imagine selling mortgages without home titles delivered. Actually, Wall Street did precisely that from 2003 to 2007.

LONDON AS TARGET
Last August 2009, a busload of former key employees from the USDept Treasury and Wall Street firms arrived in Brussels Belgium. They turned themselves in to legal authorities in an attempt to avoid eventual prosecution. They came loaded with evidence, documents, emails, testimony, boxes of CDs, and much more. They won asylum in exchange for turning state’s evidence. The Brussels Serious Fraud Squad is running with the data. All indications point to a strategic decision made by the Brussels Interpol squad. Their target is London, because it lies at the center of the syndicate enforcement of the fiat currency system, where the gold suppression is centered, where the greatest point of weakness exists, where the absence of gold is most glaring to make them vulnerable. London is the weakest link in the Ponzi Scheme chain, known as the global monetary system with USDollar price mechanism and USTreasury Bond reserve component in banks.

Another important event occurred, this in December. A clearinghouse held a Letter of Intent to supply the London metals exchange with 250 metric tonnes of gold bullion. The contract was interrupted. The method used to disrupt and derail the contract is a story unto itself. Little is known in verifiable form. The point is thatLondon bankers were denied an important channel of gold in supply. At the same time, demands came from private billionaires to take back possession of their gold in allocated accounts. They are often called in the gold industry the ‘sovereigns’ politely. When pressed for details, my sources tell of their Chinese background. In recent weeks, the billionaires have been joined by others from Central Europe, in particular from Switzerland. So London is being drained of gold and not being resupplied, from the front door and from the back door. A breakdown is coming, and accidents assured. Gold is the ultimate vulnerability. It underpins the USDollar, competes with the USTreasury Bond, while the USDollar remains buttressed by the Petro-Dollar defacto standard. That too has been served notice. See the Saudi announcement last May 2009, with Russia, China, Japan, and Germany at their side. Eventually, crude oil sales will not be fulfilled in US$ settlement.

PARADOX OF INELASTICITY

Gold is unique as a market, as far as its tendency to seek equilibrium from matched supply and demand. Since the year 2005, my analysis has pointed out the unique condition of gold as far as supply inelasticity is concerned. My forecast over four years ago was to expect less gold output from the mining industry, even with higher gold price. That forecast was correct. In addition to more difficult mine projects, deeper ore bodies, thinner gold veins, and more costly projects, other paradoxical factors have been at work. The industry projects surely translate greater challenge into lower output. Introduce the lunatic management of the Marxist leaders in South Africa concerning electricity production. Dirty coal at power plants and higher mining firm taxation assure much lower gold output from the industry’s former leader. Numerous are the reasons for lower gold output in the current year, even with high gold price. The industry is in decline. Ultra-rich ore bodies are long gone.

My forecast of lower gold output at higher gold price, the inelastic factor, went like this. As large mining firms suffer the consequences of their unwise (surely illicit, perhaps illegal) future gold sales within their cratered hedge books, the losses would approach catastrophic levels. Take Barrick Gold for example. In 2007, they announced the complete cover of their disastrous hedge book. They lied and covered about one third, using dilutive new stock issuance and new long-term corporate debt. In summer 2009, they announced again the complete cover of their disastrous hedge book. The financial press forgot that they supposedly removed all future commitments just two years ago, hardly a surprise lapse of memory. Again Barrick lied, since they ran out of funds from yet another grand stock issuance that again crippled their stock from vast dilution. The Toronto and Wall Street investment community still loves this total dog of a stock, as collusion and kickbacks must be main features to prop the stock. Just look at its Board of Directors to detect vast syndicate presence. In fact, it has two Boards to provide extra service to the stockholders, more like one to the syndicate. So in conclusion, the cover of huge hedge books cost the big mining firms tens of billion$ in funds that otherwise would be devoted to mine projects and additional gold output. It did not happen, since mine industry funds went into the sewer of future gold price suppression. The most curious aspect of this factor is the lack of investor lawsuits for failed fiduciary responsibility.

The flip side to this important price reaction factor is the demand inelasticity. When on the upslope, the phenomenon is called Gold Fever. A rising gold price prompts a rising demand for gold. Imagine a 50% increase in the price of televisions resulting in lines forming to buy more costly TVs. Never. But such is normal for gold. When on the downslope, the phenomenon works in reverse. A falling gold price, in particular for the paper gold price dictated by brutal gold futures contract pressures, often not reinforced by the presence of gold bullion, results in a gradual darkened gloomy sentiment for gold. People do not rush to buy more gold since it has been offered at a cheaper price. Rather, they are trapped in margin calls when leverage is applied. Rather, they give up and sell out, dump their gold, and lick their wounds. These are the legion of dummies and risk junkies. These are the vast hordes who do not exercise patience and prudence, fully aware of the gold exchange distress. They will return, but when they do, they will purchase gold at a price 50% higher than when they abandoned the precious yellow metal. They will double up when the gold price has doubled.

DIVERGENCE TOWARD COLLAPSE

My forecast on gold made a couple months ago within the Hat Trick Letter was clear.The gold price will experience a remarkable divergence. As the collapse approaches, the paper gold price (from futures contracts) will decline while the physical gold price (from bullion purchases) will rise sharply. The differential will grow gradually at first, then burst into a grotesque price disparity. When this occurs, expect darkness to fall upon the gold market. At this point, pure speculation follows. My expectation is for the official gold metal exchanges to shut down, at least temporarily. They have no gold, after all, so there aint nuthin to sell! To remain open only aggravates their contract and legal risk. Look for prosecutions of middle level officials from the exchanges, heavy police pressures put on them, and deals cut to bring down the kingpins. This is standard police procedure. Lawsuits are the wild card, hard to control, difficult to predict.

Pressures build that contribute toward the divergence. Whenever large deliveries are made in recent months from the gold exchanges, a new rigorous procedure must be followed. Delivery verification involves strict assayer information like certificates and dates and firm names and stamps. Before autumn 2009, such procedures were unheard of. One can make two conclusions. First, the buyers are distrustful of the gold bullion quality, amidst prevalent stories of not just 80-year old bottom of the barrel London gold bar quality, but of tungsten bars with gold plating. My sources tell of widespread cooperation toward data gathering for the documentation of the pathways that prove broad tungsten bar fraud. The risk is palpable, as murder threats hang over the project. These are after all syndicates, and they have had full control of the government treasuries ever since 1992, when Robert Rubin infiltrated the scene as US Treasury Secretary from his former Goldman Sachs currency trading post.

My expectation is when the breakdown comes, several key locations across the world will post and publish their actual transaction prices without names. They will vary somewhat. Even today, the Hong Kong gold spot price differs from the London gold spot price by $10 to $20 per ounce. This is standard, and reflects different demand levels against different supply levels. However, in the not too distant future, several key locations will herald their actual gold prices, which will be averaged, thus enabling the first true gold prices in a few decades. That day is coming, and those who stubbornly hold their physical gold & silver, do not yield to pressures, do not react to phony paper prices, they will be rewarded.

People who expect that day to be accompanied by unaltered political and economic landscapes are badly misguided. Think ugly! In fact, some ugly developments already have begun to crop up. A new USGovt rule requires that any large volume gold purchase must satisfy strict anti-money laundering guidelines. So further restrictions have come. Maybe the day will come also for declaration of any American owning a foreign bank account to be illegal. Think desperation!

THE GOLD BASE AMIDST CONFUSION

Many are the background factors to gold. The principal story comes from Europe. The default of sovereign debt is assured to all but the experts, for Greece, for Spain, for Italy, for Portugal. Germany walks a fine line, as they pretend to prevent the breakdowns. They eagerly push for defaults, along with expulsions from the European Monetary Union, that group sharing the Euro currency. The Euro experiment has been a failure to Germany, ransacked of $400 billion each year in savings for a full decade. That tally is $4 trillion to Germany, which wants the Southern European fat trimmed off completely. The Euro currency decline will continue until clarity comes to the expelled member nations and to the new structure in the aftermath. The current Euro will continue to flounder in confusion, seen as a queer benefit to the USDollar. The European core with Germany and Benelux nations at its nucleus has firm fundamentals, a fact to emerge soon. European leaders benefit from a lower Euro valuation, as export trade can be encouraged in an economic stimulus, but more importantly as US$ reserve assets rise in value for bank support. Dubai started the process of debt intolerance. The Euro has embarked on a death-birth process, the end of the Broad Euro and the beginning of the Core Euro. The new Core Euro currency will resemble the old Deutsche Mark, whose return will coincide with other nations reverting to their former domestic currency. Except the new DMark will be strong and the reversion currencies will be trashed 25% to 40% lower. Unless and untilGermany emerges with a solid plan with a new Super-Trim Euro currency, theUS$ will benefit at the Euro’s direct expense. The Euro usage as a secondary global reserve has caused suffering. It was not designed for that purpose. Reversal is demanded. Gold faces competing forces to both lift its price and harm its price.

The currency market is in disarray. A bizarre USDollar rally seems to be underway, a second chapter to the Dollar Death Dance from one year ago. The chaos in the Euro currency combines with threats to sidetrack the extreme USGovt wasteful spending course, to offer cause for a higher USDollar. Such confidence in restored fiscal management is grossly misplaced, as the Black Holes of Fannie Mae & AIG expose colossal costs, and as the military budget grows without check or balance. The wrecked USGovt, USBank, USHousing, and USEconomy indicate a continued decline is justified. The Q4 Gross Domestic Product figure should have elicited laughter, but at least analysts noted the powerful effect of inventory buildup. Q4 data will reveal a climax sugar high, clearly evident as the USFed and USDept Treasury attempt to step back from powerful monetary excessese. Without a lower USDollar and lower USHousing prices, no economic recovery is remotely possible. A bright populist light attempts to expose the wayward US central bank. Chairman will defend its ramparts, but the syndicate is growing desperate.

Gold is hostage to the European reconstruction and the USCongressional revolt. At the same time, the paper gold market and the physical gold bullion market have finally separated. Divergence and havoc come next. The paper gold price might find the 1080 level to serve as a base for the next upward leg in recovery. Be sure to know that gold has entered the Twilight Zone, along with the major currencies. The USDollar and the Euro currencies float adrift in the FOREX seas of confusion, as fiat money is more openly doubted. What is the value of the Euro if suddenly two, three, or four nations must end its usage, default their debt in its denomination, revert to older drachma, peseta, lira, complete with devaluation? Who knows? Gold will benefit from the chaos and confusion. The USDollar appears to benefit. The USGovt is much like a desperate gambler in Las Vegas, who is doubling down as the bust looms large. The main tool used by the USGovt to finance its debt is the hidden Printing Pre$$. So far in the last twelve months, credit must be given not by creditors, but instead credit must be given to the Inflation Engineers who have managed to keep the vast monetization of USTreasury debt off the pages of the financial press and off the air of the financial networks. For every dollar financed by actual bond bids and purchases, three to five dollars are financed by Printing Pre$$ kept as  hidden as possible. The levitation of the USDollar in such an environment is a very temporary situation.

When the billionaire sovereigns demand their gold to be returned home, no longer under custodial mismanagement, this does not represent new demand. The new demand comes from legitimate funds like those run by Paulson and Sprott, which have actual gold bullion behind their funds as stipulated in the prospectuses. The trust for the biggest Exchange Traded Funds is grossly misplaced in my view. No further slam criticism will be provided for the GLD & SLV funds. In my view, they will each become objects of criticism, lawsuits, and possible legal action at later dates. When the flack comes, their shares will probably trade at deep discounts to the gold & silver prices, maybe sooner than one might think. Little fanfare came when the decade closed in December, and the big winner among all investment classes was Gold. As the story of its performance is more fully recognized, when the facts sink in, expect investment demand to increase.

Futures contract in gold are broken, and former failures to deliver will become common. Anticipate counter-parties to go bankrupt and investors to be stuck with worthless paper gold derivatives. Physical gold is the best protection. Sovereign gold reserve levels have been updated. These are lowball figures that exclude holdings outside central banks, like in certain sovereign wealth funds. The IMF & USGovt levels are pure fiction. The Russian central bank is ramping up its gold holdings. Private sources tell of Putin storing much more gold in non-govt Russian locations in addition, that avoids public accounting. China also has hidden gold holdings. At a mere 1.5% of stated reserves held in gold, China has much catching up to do. Most nations command 15 times as much gold as China in ratios. Demand by China will surely be steadily strong, powerful, and significant for years. Most industrial nations command a 60% to 70% gold ratio in total reserves. Debate aside on reserves reality, if Chinawere to strive toward 65% in gold ratio of reserves, it would need to accumulate 44,619 tonnes of gold bullion. Their deficit represents 27% of the total existing gold hoard held above ground. The path toward prudent reserves management will push the gold price skyward.

Gold inspectors have arrived in London, barbarians at the gate. The drainage of gold bullion at the exchanges is well along. Revelations of contract fraud and delivery failures has begun. Some analysts have dished out criticism of an article written by the Jackass last May 2009 about hitmen coming to bust the COMEX. Eric deCarbonnel of Market Skeptics seemed to require the signed contracts with dates and ordered hits, even weapons used, methods detailed, blood spray patterns documented, in a very foolish rebuttal. Curiously, Eric deC has provided corroborating evidence to fortify my arguments, with details on irregularities in well written articles to cover events from London. Otherwise, he does excellent analysis. My comments were general in the article, offered figuratively. In no way were they intended in literal fashion, like men with uzis and machine guns in a hail of bullets directed at exchange officials, laying waste to the corrupt halls leaving pools of blood. The process has begun, as hitmen have indeed arrived. The location is London, not New York, but no difference since a strong umbilical cord of fraud connects the two primary locations.

The hitmen came in two types. The first were contract holders who drained the London Bullion Market Assn of its gold in late autumn, especially December. Many were wealthy Chinese billionaires, demanding return of their own gold bullion, forcing return with legal action and hired attorneys. Others more recently were Swiss wealthy individuals, whose demands confirm suspicion of illegal and illicit practices, like leasing from gold accounts for sales. Now secondly have come the inspectors, hired by individual billionaire account holders who could soon demonstrate improperly leased gold. The inspectors are the HITMEN!! They actually began arriving in early December but have widened their scope of work. The metals exchanges cannot stop them from performing their inspections and verifying hundreds of million$ in gold account holdings, sometimes billion$. Gold bullion has improperly been leased. Exchange officials should be worried about lawsuits and claims of contract fraud, as well as prosecutions and middle level employees offering state’s evidence. They might be more worried about angry billionaires defrauded of their gold bullion, who hold mere paper certificates. Such men indeed have hefty budgets to hire professionals to do some dirty work in the shadows. Eric deC might actually see contract hits if patient enough.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

home:  Golden Jackass website

subscribe:  Hat Trick Letter

Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

“Thanks for the quality of the information you put forth in your newsletter. I read a lot of newsletters, blogs, and financial sites. The accuracy of your information has been second to none over the past couple of years.”
(MikeP in Missouri)
“Your October HTL was your best writing since I have been subscribing.  It just amazes me how much you write each month, all top-notch stuff.”
(DavidL in Michigan)
“I used to read your public articles, and listen to you, but never realized until I joined what extra and detailed analysis you give to subscription clients. You always seem to be far ahead of everyone else. It is useful to ‘see’ what is happening, and you do this far better than the economists! I can think of many areas in life now where the best exponent is somebody not trained academically in that area.”
(JamesA in England)
“You seem to have it nailed. I used to think you were paranoid. Now I think you are psychic!”
(ShawnU in Ontario)

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

By Jim Willie CB, Golden Jackass

Subscribe: Hat Trick Letter

The rise in gold pre-sages a currency collapse, led by the USDollar. Gold vaults at commodity exchanges in New York and especially London are being drained by delivery demands. Gold demand is skyrocketing, as distrust for the USDollar is broadening and revolt against the US$ is deepening. The quintessential finance war is between the United States and China, with the battlefield being the US$ and Gold. The race over the $1000 price level came in the face of mammoth shorting by the same Usual Suspects on Wall Street, which do so with paper, but without the required collateral. The gold market is poised for a surprise upward move from a basic broken condition, as the Powerz are losing control. It would be a joy to watch except for the extreme hardship due to come to the betrayed American people.

$$$ THE BIGGEST GOLD CRIME STORY OF THE CENTURY MIGHT BE SOON COMING TO FULL LIGHT. EVIDENCE IS BEING ACCUMULATING THAT THE CLINTON ADMIN WITH RUBIN AT USDEPT TREASURY REPLACED PERHAPS THE ENTIRE CONTENTS OF THE FORT KNOX GOLD WITH TUNGSTEN BARS PLATED BY GOLD. THE SALTED GOLD BARS ARE FASTING BECOMING A GLOBAL CRIME ISSUE. HONG KONG DISCOVERED THEM, AND NOW ASSAYERS ARE TRYING TO AUTHENTICATE MOST OF THE GLOBAL GOLD HELD IN BANKS. ENTIRE NATIONS ARE AT RISK. BEFORE LONG THE USGOVT COULD BE DECLARED A ROGUE NATION INTERNATIONALLY. $$$

My view is the story is not only credible, but it is the climax to the US financial collapse. In time the United States will be isolated, declared a Rogue Nation, unable to fund its debt except with monetization, whose leaders and former leaders face international prosecution. The resulting inflation will undermine the USDollar to the point that it will not be accepted. A USTreasury default will be forced, all in time. To be sure, some demand for gold might be frozen into inaction obviously, as customers would fear owning fake gold bars. However, the significantly greater effect is that sellers of gold will scramble to purchase real gold bars, so as to avoid fraud charges, criminal prosecution, and jail time. They will be motivated to repair the fraudulent transaction with full expedience. The replacement effect will cause an extraordinarily huge demand. Only at that time, will the risk of exposing the stolen gold come, as the thieves will want to cash out on their crime, at least partially. The removal and illegal swap of gold has precedent. In the 1960 decade, around 1968, President Lyndon Johnson ordered the removal of 7000 of the 8000 tons of gold from Fort Knox, and had it sent to England. The motive was to support the gold price at the time. Just a few years later, the US under President Nixon abandoned the US$ Gold Standard, as dictated by the Bretton Woods Accord. The gold was replaced during the Johnson Admin in Fort Knox by lead bars plated by gold. A contact of mine was in the USMilitary Police at the time. He reported long caravans exiting Fort Knox for weeks at a time, but the details of shipments were not known to the guards, only their duties.

For some excellent forensic financial analysis on the fake gold project, called Operation Grand Slam, see Rob Kirby’s article. It is entitled “On Doing God A New Take On Operation Grand Slam With A Tungsten Twist HERE), dated 12 November 2009. $$$ GOLD MARKET BREAKDOWN IS WITHIN VIEW. LONDON GOLD IS BEING DRAINED BY THE CHINESE. A DISMANTLE OF THE CRIMINAL APPARATUS IS THEIR GOAL. UPON FULL BREAKDOWN, THE GOLD PRICE WILL BE RELEASED FROM PAPER TENTACLES AND RISE SHARPLY. $$$

Pressures mounted in early October at the London metals exchange as gold contract holders demanded delivery of gold. My source tells me that the parties demanding gold were almost exclusively Chinese. It is mostly private billionaires. Their stated motive was to diversify out of US$-based assets. Their rumored motive was to ruin the exchange, expose the chronic fraud linked to government ministries, and force the USDollar to fight in the open to demonstrate value or lack of value. The source said the next round of gold contract delivery pressure comes in late November, then again in March 2010, and finally in June 2010. He said the gold is gradually being drained in London, and that all demands for gold delivery were met in October, using legal force, the courts, and powerful attorneys. Not a single gold contract was settled for cash with a 25% dividend bribe. He concluded that the financial system will be broken at the gold-USDollar cross beam. He openly stated that he could not conceive of the system holding together past June of next year, and a severe test is likely in March 2010. He said with sly tone, “There is a saying: Watch out or you become shit before your own shovel. That is what is happening to the BOYZ right now. The people in the driver seat of the bulldozer have clear instructions what to do in the gold market.” When the breakdown comes, it will be next to impossible to trade in USDollars, to settle commerce in USDollars, to finance the USTreasurys, to supply the USEconomy with credit, and to maintain the US banking system. The banks in the United States will then shut down in all likelihood.

My view is that a battle royal is being played out with gross global pressures, between the old broken insolvent corrupted powers of the West versus the new wealthy ambitious powers of the East, led by China. The future chapters will possibly involve the Intl Court in The Hague for prosecutions against the Wall Street firms and former USTreasury officials. It will possibly involve a wave of murders from the middle levels, working up, since the guilty parties operate with impunity and government protection. It will surely involve relentless attacks on COMEX and London CME for gold deliveries, where collateral requirements are not enfoced. The practice is known as naked shorting, illegal. It will probably involve the isolation of the United States, with full recognition of a crime syndicate lodged within its government ministries and capital markets. These are truly incredible times.

Evidence is being gathered by perhaps a dozen key gold traders with diverse connections to the gold industry. They tie the delivery systems, the authentication processes, the assayers, record keeping, big financial firms, and trading platforms. Evidence mounts that as many as 1.5 million 400-oz gold bars were replaced at Fort Knox during the Clinton Admin with tungsten bars covered with a thin gold plate. This was a complex metallurgical feat, from what is told. The first ’salted bars’ were discovered in Hong Kong a month ago, reported by the Hat Trick Letter. Since that time, tens of thousands of bars have been examined, usually using four test holes drilled for direct sampling. Other non-invasive methods are being used as well, such as electro-magnetic tests to detect the actual lattice structure of the metal to distinguish gold from other substitutes. Word came this week that almost every available assayer in the world is currently tied up, charged with proving the authenticity of gold bars worldwide, right now! Rob Kirby suspects that the Street Tracks GLD exchange traded fund might be loaded with such salted bars. It is a perfect destination for them, since the Wall Street syndicate prevents any audit. The total value of gold removed within the plot was worth over $500 billion. So where are the real gold bars stored? My guess is the same location where the Madoff money is secretly held.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

home:  Golden Jackass website

subscribe:  Hat Trick Letter

Gold has broken out of its large Symmetrical Triangle to the upside, and is now in position for “the big one” – the breakout above the wall of resistance approaching last year’s highs in the $1030 area. However, those who are expecting it to …

Read more….

While Indian demand for gold jewellery and investment products has been painfully slow this year and looks like staying that way, a number of local incentives are underway to boost the industry

Read more….

Gold “Can’t Break Range” as Euro Rates Stay On Hold, Quantitative Easing “Not Working”

Read more….

“Charles Gibson, a gold expert at Edison Investment Research, argues in a new report that negative real interest rates (below inflation) in the US and beyond has upset the “leasing” machinery in the gold industry and led to a sustained market squeeze.”

Read more….

Although investments in other commodities have collapsed, Citigroup says surging investment demand is keeping the gold market robust.

Read more….

The VM Group looks at what lies ahead for the gold market this year in its Yellow Book.

Read more….

Yesterday, the Dow fell 38 points. But the real action is in the gold market – the price rose to $908 per ounce. Even the gold miners are finally going up. What does it mean? Is inflation closer than we thought?

Copper is up. Yields are up. Silver is up. The dollar is down to $1.31 per euro. Why?

We don’t know. But everyone seems to have a cure for what ails the world economy. All the treatments are dangerous. But only one is effective; unfortunately, it also – most likely — fatal. The only sure protection? You guessed it, gold.

For nearly 10 years, we kept a lonely vigil. We watched…we waited…we guffawed…

What were we waiting for? The bubble economy of 2002-2007 had all the appearance of a happy, healthy financial system. Trouble was, it was having far too much fun. People can’t party that hard without getting sick. We waited for them to start throwing up.

Now, there are so many sick people around you have to watch where you step…

Today brings news of more illness.

“More woe as 72,500 jobs axed in one day,” is the lead line in the Financial Times .

As expected, the New Year is brought the collywobbles. The financial crisis of 2008 is becoming the economic crisis of 2009.

The euro area is in its deepest slump ever in its 10-year history… The economy of Europe is expected to decline 1.9% this year.

The woe is most acute on the periphery. Spain, Ireland, Portugal, Greece – the countries that most benefited from low euro-land interest rates are those that suffer most from tightening credit. At the center, France and Germany are still in relatively good shape. But the periphery states are finding it harder to finance their deficits…and, with the limits on deficit spending imposed by the Maastricht Treaty, they have no way to spend their way out of recession (assuming that would actually work).

And out in the North Atlantic, problems caused by the financial crisis have become so severe that mobs are forming in the streets…inducing the president of the country, Geir Haarde, to resign.

Back in the USA, the government is still at work, but the working stiffs are rapidly running out of work to do. Caterpillar said it was cutting 20,000 jobs. Pfizer said it could do without 19,000. Sprint Nextel lopped off 8,000 people from its payroll. And Home Depot said sales were so slow it sent 7,000 of its employees home.

And this headline from the Wall Street Journal :

“IBM payroll cuts may be deeper than anticipated.”

Bloomberg reports that last year saw the biggest drop in house prices in the United States since they began keeping records…and probably since the Great Depression. The typical house lost 15% of its value in 2008.

Oh woe…oh woe…

But, fear not… every sentient meddler on the planet is offering advice…and solutions. More below…

*** Over in the Financial Times , the editorial staff tells the Obama Administration what it should do: “stop fretting over currency and press China to spend more.”

On the facing page, a pair of economists insist that government must recapitalize the banks, but must do it in a smarter way:

“The most politically robust solution is for the government to acquire not voting stock, but warrants – the option to buy such stock. These warrants would convert to commons stock when sold, and a Resolution Trust Corporation-type structure could manage the disposal of these controlling stakes into the hands of private equity investors.”

Even commentators who are usually sensible have given in to the urge to public service. Can you blame them? They see a problem…they want to fix it. Many of the leading fixers, of course, are either on the Obama payroll already…or angling for a job.

Other improvers are taking the mountain air at Davos… Maybe the altitude will help them think more clearly…and help them come up with solutions to the problem they clearly don’t understand.

Aside from a couple of economists – Roubini and Shiller – who are trying to explain to the group how market cycles work, none of the movers and shakers now jiggling the Alps or helping Team Obama saw the problem coming. None has any idea how an economy actually functions. None has a clue how to make it work better. In fact, almost all of them played some role – great or small – in CAUSING the crisis…either by omission or commission. Some were regulators who misled the public into thinking there were cops on the beat. Others worked on Wall Street. (Only recently, when they heard the police sirens, did they take the stockings off their faces and dump their pistols in the trash bins.)

Jonathan Weil:

“Almost half the people on Obama’s economic advisory board have held fiduciary positions at companies that, to one degree or another, either fried their financial statements, helped send the world into an economic tailspin, or both.”

But that doesn’t stop them from wanting to put things right. And the only fix they can imagine just happens to be a fix which, by pure coincidence of course, gives more power and money to the fixers. Yes, dear, dear reader…

…now, people are retching all over the place. We’re no longer waiting for them to get sick. We’re not on Bubble Watch any more. Now, we’re on Quack Watch…waiting to see how the quacks put them out of their misery.

At every level, the politicians are getting out their black bags and taking command of the situation. In California, for example, two cities aren’t waiting for the Obama ambulance to arrive on the scene. They’re giving mouth-to-mouth themselves. The WSJ reports:

“Victorville, a desert town on the main highway between Las Vegas and Los Angeles, recently approved a $200,000 loan to Victorville Motors, a 40-year-old family-owned dealer in the town’s auto park.”

So you see, dear reader, you don’t need bankers or capitalists to allocate capital. Any city councilman can do it. Yes, of course, the hacks will err…they will allocate capital stupidly and counterproductively. But not necessarily worse than the bankers have done recently…

What they won’t be able to do is to take a year off the calendar. We will never party like it was 2006, again. At least, not in our lifetimes…

Included in the Wall Street Journal this morning is an editorial, commenting on the Obama resuscitation plan. The emergency plan includes hundreds of billions for various projects designed to get the economy’s heart beating again. Trouble is, most of these projects don’t begin until after 2010. Infrastructure spending, for example, takes time. You don’t begin building a bridge tomorrow. First, you have to draw up plans…have engineering studies…and so forth. In other words, the patient is going to be a dried up corpse before the medicine takes effect.

The British newspaper, The Guardian , is also catching on to why the quacks won’t be able to cure what ails the world economy:

“In the 1960s and 1970s, total debt [in the US] was rising at roughly the same rate as nominal GDP. By 2000-2007, total debt was rising almost twice as fast as output, with the rapid issuance all coming from the private sector, as well as state and local governments.

“This created a dangerous interdependence between GDP growth (which could only be sustained by massive borrowing and rapid increases in the volume of debt) and the debt stock (which could only be serviced if the economy continued its swift and uninterrupted expansion).

“The resulting debt was only sustainable so long as economic conditions remained extremely favourable. The sheer volume of private-sector obligations the economy was carrying implied an increasing vulnerability to any shock that changed the terms on which financing was available, or altered the underlying GDP cash flows…

“From this perspective, it is clear many of the existing policies being pursued in the United States and the United Kingdom will not resolve the crisis because they do not lower the debt ratio.

“In particular, having governments buy distressed assets from the banks, or provide loan guarantees, is not an effective solution. It does not reduce the volume of debt, or force recognition of losses. It merely re-denominates private sector obligations to be met by households and firms as public ones to be met by the taxpayer. ”

We have suggested another way to look at this, several times. The WSJ further explains:

“…the money from this spending boom has to come from somewhere, which means it is removed from the private sector as higher taxes or borrowing. For every $1 the government ‘injects,’ it must take $1 away from someone else – either in taxes or by issuing a bond.”

The Journal , not to be left out of the orgy of civic spirit, favors a different kind of medicine: tax cuts. Permanent cuts in marginal rates, it says, are the best solution.

We never met a tax cut we didn’t like. But we don’t see how it solves the essential problem: whether the feds spend the dollar, or the taxpayers…it’s still just a dollar.

But everybody’s got some patent medicine he wants to try. The most potent elixir is the one from the central bank of the US, the Fed. In fact, it’s the only one that works. The Fed has cut rates to the lowest level in 95 years…

“What will the Fed do next?” asks CNBC.

“Since it can’t lower rates any more,” answers the WSJ, “it has begun effectively to print money in an attempt to bolster the economy.”

This is where it gets interesting. We’re not on Bubble Watch now…we’re on Quack Watch…looking to see how much damage the fixers do. We bring the binoculars up to our eyes…and look at the printing presses. And what do we see? Gold.

*** Have you noticed? Bernie Madoff bears a striking resemblance to George Washington. And so goes the nation…from the man who couldn’t tell a lie, to the man who couldn’t tell the truth.

*** Gold is moving again. It’s up 15% in the last 2 weeks and 34% from its October low. What’s going on? While almost every analyst expects a deflationary slump…gold is acting as if inflation were in the headlines.

What has bothered us is that so many people expect inflation…and a rising gold price. Where’s the surprise, we wondered.

We could only think of two. One – that deflation goes deeper and remains longer than expected…pushing the gold price down and discouraging the gold speculators. Two – that inflation arrives quickly…and violently – before investors have a chance to unload their government bonds, or buy gold.

Which will it be?

Until tomorrow,

Bill Bonner

for The Daily Reckoning Australia

Similar Posts:

• A Nation of Patsies…in a World of Hurt
• I.O.U.S.A. the Movie Opens in 358 Theatres Across the Nation
• The Senate Votes to Burden the Entire Nation with Wall Street’s Mistakes
• Keynesians Believe Governments Have to Manage Economy in Macro-Economic Way
• For Four Generations, America Has Been the World’s Alpha Nation