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Gold & Silver Are The Currencies of the Free
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Today's Gold/Silver Ratio: 44/1

Issue 124

Gold: $1813.40/ Silver: $40.73

SGS Notes: Our main article this week is one of several from the Cheviot Sound Money Conference that was held in the January. Clicking on the photo link will allow you to listen to one of the key speakers of the conference who gave this speech below. Don't miss the links in the right column of that page to other very informative other speeches...

Gold & Silver Are The Currencies of the Free

Dominic Frisby

The President of the World Bank, Robert Zoellick, called for a new post Bretton-Woods currency system involving gold, in November 2010. Zoellick said that gold was worthy of consideration as a reference point for modern currencies and as an indicator to help set foreign exchange rates.

At the end of January, the Cheviot Sound Money Conference held an excellent conference in London which examined the practical application of gold and silver as money within a modern context.

The context to these proposals is crucial as without an understanding of the modern financial and monetary system one cannot possibly comprehend the continuing importance of gold and silver.

We live in an era of surging trillion dollar deficits and surging national debts in the US and internationally.

The US recorded its biggest monthly deficit in history two days ago with a $223 billion deficit for February alone, the 29th straight month of deficits – a modern record. The US budget deficit in 2010 was over $1.45 trillion and is forecast to be of a similar magnitude in 2011. At the close of business on Feb. 28, the total federal debt stood at $14.195 trillion ($14,194,764,339,462.64).

We live in an era of massive creation of government bonds.

Foreign central banks hold $5 trillion in US Treasury bonds and agency debt alone. Chinese foreign exchange reserves alone are soon to reach the $3 trillion level.

We live in an era of of thousands of trillions of dollars, euros, pounds etc. of derivatives.

The enormous OTC sector of derivatives alone is worth nearly $600 trillion on paper, roughly 10 times world economic output.

We live in an era seeing the creation of and speculation with trillions of dollars (euro, pound etc.) of electronic currency.

According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets was estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007 - soon after the financial crisis began. Some firms specialising in foreign exchange have put the average daily turnover in excess of US$4 trillion.

We are experiencing a scale of global currency debasement, the likes of which the world has never seen before.

We live in an era where thousands of millions of people live on less than a dollar or two a day in the "developing world". While millions of people in the "developed world" are now debt slaves - both individually and as citizens of increasingly bankrupt nation states.

Reformation or replacement of our debt-based fiat paper and electronic financial and monetary system is one of the most important debates of our times.

The modern monetary system of paper and electronic money is inherently unstable and unsustainable and there is a strong case for considering using gold and silver as money once again.

At the Cheviot conference, Money Week's Dominic Frisby gave an excellent talk in which he outlined why gold is the currency of the free.

Frisby eloquently outlined how the modern system of finance, banking and credit (or debt) impoverishes and enslaves. It has "made wars that should never have happened possible; its brought about a relentless needless commercial expansion and malinvestment that has raped the earth."

He points out how the world is cursed by monetary illiteracy and it is amazing how few people understand the modern monetary system, and how it is to blame for the huge inequalities in wealth we see in the world today.

"Money must be sound and true, at the moment it is neither and society is corrupted as a consequence."

Dominic Frisby's lecture can be watched here:

There were a number of other excellent talks all of which are worth viewing. The highlights include Chris Powell, the Secretary/Treasurer of GATA (Gold Anti-Trust Action Committee), lecture 'Gold price suppression purposes and proofs':

There is then an excellent panel discussion and question and answer session on gold at the end which involved Max Keiser, James Turk, David Morgan, Ben Davies, Richard Cragg, Sandeep Jaitly. It is surprisingly entertaining and very informative:

GoldNomics - Cash or Gold Bullion?

Our educational video, 'Goldnomics - Cash or Gold Bullion?' complements the excellent interviews from the conference. It clearly shows how gold has retained value throughout history.

'GoldNomics' can be viewed by clicking on the image above or on our YouTube channel:

The US dollar has been the strongest fiat currency in the world in the last 100 years and indeed it became the reserve currency of the world during the period (due to victories in the two World Wars and the accumulation of the largest gold reserves in the world).

Despite that the dollar has lost 97% of its value in 97 years. The massive loss of purchasing power of the preeminent currency of our age, the US dollar, clearly shows gold's importance as a currency, as money and as a store of value.

Individuals, families and societies can never be free as long as money is based on debt and compounded interest and as long as the money we use day to day is constantly depreciating and being debased.

Other Articles      

Once Upon A Time

The story of two different monetary conferences, two "committees of experts" that both met in Genoa, and changed the course of monetary history.

Advanced Q & A on the Silver Manipulation
Bix Weir

Donald Trump Confirms His Confidence in Gold
NY Magazine

Identities of JP Morgan Silver Manipulators Exposed
King World News


The New Bankster 'Weapon' Against Gold/Silver
Jeff Nielson

The Precious Metals Tsunami

Run To Safety

Mary Anne & Pamela Aden

Central Banks Waging War on Gold At This Hour
Trader Dan

Gold-Backed Dollar Puts ‘Fair Value’ at $10,000 an Ounce

The Case for Gold and Silver Investment Gets Stronger and Stronger

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Silver Shortage This Decade, Silver
Will Be Worth More Than Gold
Future Money Trends



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The Death of Liquidity ~ Ted Butler
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Today's Gold/Silver Ratio: 44/1 Up

Issue 123

Gold: $1879.70/ Silver: $42.10

SGS Notes: from Jason Hommel: "This is a very insightful article; the short covering, and high frequency trading is creating higher volume, but lower true liquidity, which is spelling the end of the manipulation, and is likely to lead to much higher prices."

The Death of Liquidity

Ted Butler

I know I have been on a one-track mission recently about the extraordinary development of the COMEX gold commercials miscalculating in establishing their giant short position. I know I have been virtually alone in depicting the resultant commercial short covering as being the prime price driver behind gold’s $300 run from $1600 in early August. But government data still suggest that the unprecedented commercial blunder is very much at the core for explaining the volatile price action we are witnessing. Today, I would like to explore what this means for the future, even though I am on record as warning that the correct explanation for something that has occurred can be different from accurately predicting what may happen next.

Restating what I feel is the obvious; the dramatic gold rally was caused by aggressive buying by the group of speculative traders which are classified as commercials by the CFTC. Many make the mistake of assuming that just because these traders are classified as commercials that means their trading is purely for legitimate hedging purposes. Nothing could be further from the truth, as the bulk of their trading is speculative in nature. Therefore, while it would be technically correct to say that the gold rally has been caused by speculative buying, most would assume that meant new buying of long positions by easily-identified speculators such as hedge funds and momentum traders. That is definitely not what has transpired in gold recently, as the “normal” hedge fund and technical fund speculators have been selling COMEX gold contracts, not buying them. Instead, the big COMEX gold speculative buyers have been the commercials who were previously heavily short. Correctly identifying the true speculators driving a market is a distinction that makes all the difference in the world. That so few see it is amazing to me.

There is little doubt that the commercial gold shorts have taken a horrific beating in buying back their short contracts. My guess is that the collective loss on the covered gold contracts so far is on the order of $1.5 billion. Such a loss, even when spread among the roughly 40 traders classified as COMEX commercial gold shorts, amounts to a hefty per entity average loss of $37.5 million each. And I’m speaking of closed out losses only; there is still a large number of open gold shorts that the commercials are holding whose resolution remains to be seen. Those “open” losses run to an additional $8 billion at current gold prices. It is imperative to recognize the unprecedented magnitude of these closed out and open gold losses. It’s not enough to say that these commercials lost big-time; having never lost before on such a scale, the turnabout for these commercials must be shocking to them. As such, I’d like to explore what this may portend in the future.

The commercial COMEX gold shorts are banks and trading companies, not individuals. Every commercial trading corporation maintains some financial controls and is overseen by corporate treasurers and financial risk officers. The amount of loss generated in this recent gold short debacle dwarfs the gains recorded in prior years. (Same as with silver earlier in the year). Because of the suddenness and extent of the commercial gold short losses, it is not plausible that the corporate risk controls have not kicked in. For sure, the chief financial officers and corporate risk officials have restricted the traders responsible for the gold losses. Unlimited margin money is not being extended; quite the contrary – traders are undoubtedly being ordered to reduce risk and close out positions. Anything else would be irresponsible.

If my analysis as to what has just transpired in gold is close to the mark, what does this portend in the future for gold and, especially, for silver? The one result that looks almost certain to me is a severe loss of liquidity or true market depth. In fact, it looks like the death of true liquidity for COMEX gold and silver, the signs of which are increasingly evident. I can assure you that I am very much aware of the recent high volume statistics recorded on the COMEX and despite what may appear to be high volume and great liquidity; the real level of actual market depth may be near death. Please allow me to explain.

The big reporting COMEX commercials’ modus operandi has always been to serve as counterparties to almost all other market participants, particularly the technical funds which buy and sell based upon price signals. In this role, the commercials served as market makers, providing liquidity to the market. The tech funds buy and the commercials sell to them and vice versa. This is the rhythm of the market that I try to analyze in the COT reports. Since commodity markets are supposed to be open auction type operations and not a market dominated by specialists, I always thought this market making function of the commercials was bogus. It is also no secret that I have found the uniform dealings of the commercials to be collusive and manipulative. My personal feelings aside, there is no question that the big commercials have functioned as market makers on the COMEX.

Therein lies the problem for liquidity; the dominant commercial market makers on the COMEX just got creamed in the gold price rally and are sharply restricting their activities. This is what is behind the great price volatility in gold. The former big sellers of last resort are sellers no more. Concurrent with the withdrawal of the coordinated selling of the commercials is the rise of computerized High Frequency Trading. The mindless HFT activity does wildly increase daily trading volume, but the nature of this super-charged day trading only adds to price volatility while providing no true depth to the market. Legitimate hedging, the economic justification behind futures trading, is ill-served by HFT. In other words, there has been an immense increase in mindless second -to-second trading which adds little real benefit to prospective hedgers and a sharp drop off in the actual market making on which hedgers depend. This is the very worst of both worlds. And this development was made possible due to the activities of the CME Group, owner of the COMEX, which is hell-bent on expanding HFT. Thanks a lot, guys.

Just like commercial short covering was the prime driver of the gold price rally, it is also behind the increase in volatility. As these commercials withdrew from the market, not only did it drive gold prices higher, it also created a void in true liquidity. If the commercials don’t sell on higher prices, who will? Someone must take their place, as there must be a seller for every buyer, but it is increasingly obvious that the sellers replacing the commercials have not sold with the same force and power that the commercials formerly sold. To date, the noted sellers have been the technical funds and other long speculators who have cashed in on enormous profits. As a result, the gold price is subject to sudden spurts in price both up and down, as I have suggested previously.

On the one hand, the lack of additional commercial shorting has provided a lift to gold prices. On the other, the lack of technical fund buying allows for sharp downdrafts in the price as well. The withdrawal of the commercials and the cessation of buying for now by the technical funds (as we’re so much above all technical fund buy signals) have created a market devoid of real liquidity. Hence, we get great price swings on not much real overnight buying and selling. Yes, we get high volumes from HFT, but that’s garbage volume to everyone except the HFT web-bots themselves and the greedy pigs at the CME who collect on every contract traded, garbage or otherwise.

What does this all mean to regular investors? It means get used to the volatility, because it isn’t going away. Surprisingly, I think it means a lot more to silver investors than it does to gold investors, even though I have been talking more about gold than I have silver. There’s a reason for that. What I’ve described is a process that has already occurred in gold and to a much greater extent than in silver. There may be more commercial short covering to come in gold and if there is, that will exert continued upward price pressure. But the process is fairly well advanced and having already launched the gold price upward, it’s hard for me to predict what happens next, other than almost nothing would surprise me price-wise for gold. I see something very different for silver.

I believe we have also lost true liquidity in silver, as we have in gold. This can be seen in the volatility of the silver price, same as in gold. Back in April, the commercials panicked in silver and bought back shorts, causing prices to explode into the end of that month. Then, a giant manipulative takedown occurred, starting May 1. Recently, the commercial shorts in silver haven’t panicked as they have in gold. In fact, JPMorgan, who I believe to be the largest COMEX silver short, added to short positions in the last COT, as I reported on Saturday. Considering what has occurred in gold, I believe it is only a matter of time before the big commercial shorts also panic in silver. But the panic in silver will be much more profound than it has been in gold.

The prime driver in the gold rally was commercial short covering on the COMEX. In silver, if the commercial shorts panic, it will trip off other powerful forces as well. That’s due to the basic difference between gold and silver, namely, that silver is an industrial material in addition to being a precious metal investment. Gold and silver can go sky-high in price, due to commercial short covering or investment buying. But since gold in not an industrial material, it is most unlikely that it could experience a shortage or a rush to buy by industrial users. How can industrial users panic if there are no gold industrial users?

In silver, there are great numbers of industrial users throughout the world, who are like a vast herd of wildebeests grazing on an African plain. The wildebeests will panic at the first scent of lions. The scent that will cause the silver industrial users to panic will be sharply higher price along with delays in receiving silver deliveries. A commercial short covering on the COMEX will certainly increase prices, just as it has in gold and previously in silver. But given the consistently tight signals emanating from the wholesale physical silver market, it will take little to set off a scramble for physical material which will cause delays to industrial users. As the first few silver industrial users panic and buy physical inventory to insure continued production, this will further tighten supply lines and exacerbate delays in deliveries, thereby inflaming additional user buying. It’s impossible to say when such a process will start in silver, but we surely are closer to that than ever before. This is more a case of inevitability than it is of timing. It will come when it is least expected, but it will come.

It is lamentable that real liquidity seems to be dying on the COMEX, but that is of secondary importance to long term silver investors. Of more importance is that the death of liquidity will likely also signal the death of the ongoing silver manipulation. That’s because liquidity and manipulation are rooted in the big commercial shorts on the COMEX. If there is one thing that could put the price of silver to the stars, it would be the end of the silver manipulation. The message from gold is that the commercials are capable of miscalculating on a massive scale, causing prices and volatility to soar. The message from silver will be not just that, but also that the inevitable physical shortage will cause prices and volatility to soar far higher than any of us can comprehend.

Other Articles      

Full Blown Civil War Erupts on Wall Street
SGS Note: This would confirm what Bix Weir has been telling us at Road To Roota.

Continuance of the Greater Depression and the Brighter Prospects for Gold

Doug Casey


Gold, Silver Rocket as Recession Fears Deepen

Tom Petruno

Silver And Gold, Different Steps But Same Dance

Hubert Moolman

Financial Train Wreck Coming Soon

Eric Sprott


USPS warns of shutdown


Bix Weir Notes: "It is little know but the USPS is a VERY important entity in the Global Financial Monetary System as it is the second largest transfer agent of electronic money in the world. You would think that holding such an important position in our monetary system they would be under strict scrutiny...but that is not the case. Read what Wikipedia has to say about the USPS...

"The USPS is often mistaken for a government-owned corporation because it operates much like a business, but as noted above, it is legally defined as an "independent establishment of the executive branch of the Government of the United States", as it is controlled by Presidential appointees and the Postmaster General. As a quasi-governmental agency, it has many special privileges, including sovereign immunity, eminent domain powers, powers to negotiate postal treaties with foreign nations, and an exclusive legal right to deliver first-class and third-class mail. Indeed, in 2004, the U.S. Supreme Court ruled in a unanimous decision that the USPS was not a government-owned corporation, and therefore could not be sued under the Sherman Antitrust Act."

It is difficult to comprehend how the USPS bankruptcy situation will effect the monetary system but it is clear from Clif's work that the importance of this entity should not be underestimated. This is just one of MANY devastating blows headed towards our financial system in order to destroy the banksters and return us to our Constitution monetary system.


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Debt Collapse - $20,000 Gold - Mike Maloney On Gold and Silver

Full Presentation
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