Gold is pulling back temporarily for a couple primary reasons, 1) because the paper traded funds are taking a hit, You’ve got the speculative players many of whom are driven by technicals and momentum, rather than fundamentals, who have been selling gold cause they flipped out over the MF scare. The people who don’t look beyond the 140 character event horizon of last moments trending stock symbol. Ultimately paper, all paper, including the dollar is going down the toilet bowl, just at different speeds. Gold ETFs are just going first because that was what MF Global was entangled with. Thousands of clients who owned 6, 7 figures in paper gold in the form of futures contracts at MF called up their brokers getting the response that they’ve received a “margin call” and that the money is “with a trustee”. The CME group, the supposed “guarantors” had only question dodging. Essentially, this and gold *paper* was all stolen, and there is an honest broker’s chance at Goldman of the clients ever seeing their physical assets. This is leading to massive bailouts of the paper gold market, and a switch to owning physical, as I’ve been saying is the course of action you MUST take. The only assets you own are those you actually *have* that are not some promise on a certificate by a counterparty. All paper is going boom, just with different length fuses.
The second reason is because dollars are needed in the brief term because banks need liquidity. There is a massive global run on banks, which is being spotlit in Europe (i.e. Greece where an unprecedented 6.8 billion Euros was withdrawn in a month) but is really occurring everywhere. Banks need the dollars to stay afloat. They would much prefer to hold on to the gold – this is why the ECB was demanding Germany put up it’s gold as collateral, same for Italy, and why all the central banks have all flipped to net buyers of precious metals – but because the banks need the cash right now to remedy the liquidity crisis, they are forced to sell the gold.
None of the gold bulls / doomsayers who have a solid understanding of the totality of things and don't just look at a descending red line on a chart while listening to a news report are holding their breath. The fundamentals on the ground for gold have not changed, despite wild swings in perception. The key is the continued excess of paper money relative to gold and the potential loss of confidence in fiat paper money that’s going to hit from over-printing. The ECB will print at the first sign of deflation. Bernanke will print to kick the can, and if the dollar gains in strength because the Fed needs the dollar to be weaker. There’s a currency war afoot and you don’t want to be caught out in the trans-continental crossfire. And now it seems the US is opening up a credit line to the IMF to help bail out Europe as well. Given that the US will be payed back not in dollars but in SDRs, it is implied that the [i]US Treasury itself[/i], which signs the dollar bills, is in fact SHORT the dollar.
If anything, the dip is a Christmas gift, an opportunity for everyone to buy up more gold and silver at a bargain price, and great news as paper gold has been fucking and warping the gold markets for a long time. As people switch to physical the artificial price depression of fabricated supply (through “closed pools”, derivatives, and rehypothecation) will decrease and the true supply of gold will be better reflected, thus pushing gold higher, and speeding the bullion explosion day when people figure out the above ground supply of PMS (especially silver) is not there to meet demand. If you take a ten year outlook on gold and silver you’re seeing returns on the order of 500%, outdoing every hedge fund, mutual fund, you name it, despite their constant labeling of taking physical delivery on PMs as “nutso Alex Jones shit”. But that’s just broker’s defending their own scheme-security because they don’t get to wealth-strip you for a percentage if YOU are in control of the hard assets (nor do they get to steal them out from under you in a puff of MF Smoke.) And this trend is not abetting despite this technical blip. If you had left your money in cash, sure it would’ve been a little safer than having it elsewhere, getting maybe a 2% (now zero% CD), but that’s all moot since you’d’ve lost nearly half your savings to inflation, the real rate of which for 2011 is estimated to be as high as 11%. Bottom line, cash is just for liquidity and basic operating costs; gold and silver are king for investments. PHYSICAL gold and silver. Don’t say you weren’t warned.
Which brings us to MF and its “rehypothecation”. Thanks to the Greatest Minds of Our Generation in the financial sector and all their brilliant “financial innovation” you can have your cake, eat it, eat your client’s cake, eat those cakes you’ve just eaten again, eat the cakes you’re eating whilst SIMULTANEOUSLY other firms are eating that cake, put the crumbs in a magic hat and pull out another cake, nanofax the same cake out of your butthole and eat it yet again.
In hypothecation, a borrower pledges collateral to secure a debt, retaining ownership of the collateral but is “hypothetically” controlled by the creditor who has the right to cease possession if the borrower defaults. Rehypothecation is when a bank or broker re-uses collateral posted by clients to back the broker’s own trades and borrowings. The practice of re-hypothecation runs into the trillions of dollars and is perfectly legal. It is justified by brokers on the basis that it is a “capital efficient way of financing their operations”. In the US, rehypothecation is limited to 140% of collateral. However in the good ‘ol U of K in London, through loopholes in their regulatory system, rehypothecation can go on essentially to infinity. It’s a perpetual collateral machine. Not surprisingly, this is precisely where MF Global was funneling their rehypothecation of sovereign debt through many many many times over. And MF Global is just the tip of the iceberg in this. JP Morgan, Goldman Sachs, Barclays, all the usual suspects have hundreds of billions or trillions of exposure due to this same ad-infinitum fraud of rehypothecation.
The Master Sharks are all bullshitting out one end of their mouth on TV talking about shoring up financial system X or saving Euro Y while they are fighting a tug of war to steal gold from the oblivious unwashed masses and each other, whilst simultaneously keeping the axiomatic unit of currency (the dollar) propped up through mass printing and market manipulation, long enough so that they can get their own gold-plated silver-lined ark constructed and lined with enough loot to weather the coming financial shitstorm that will make Lehman and 2008 look like a salubrious stroll through the garden of Eden. The United states seems safe relative to other countries *for now*, but if you look at the US fiscal predicament it’s exactly the same as Europe. We just have the largest “bullshit blower” media, market-manipulating banks, and “punting ability” in terms of our ability to keep can kicked with the help of the Fed. We have the greatest illusion of stability. We’ve fixed zero of the problems we had in 2008, just pushed the REAL crisis downstream, and everything is ten times worse in terms of debt, fraud, TBTF, off balance sheet WMDs, all the issues that matter. It's not just a liquidity crisis, nor even a solvency crisis. Now it's become an actual *systemic* crisis where the underlying basis for markets are imploding. The Eurozone is being sandblasted through the news to distract the non-0.01%ers from the fact that the rest of the world – that’s Asia, US, the dollar, everybody – is just as toast as Europe. Distract long enough so they can hoard all the gold. Because not if, but *when* we end this fiat experiment/scam version 3 and revert back to a gold standard, as always, whoever is holding the most yellow metal at the end of the song wins.
In the case of a collapse, it’s of course the weakest links which reveal their rotten cores first. The shallow stones are first to be exposed as the tsunami water recedes. That is Greece and Ireland, and as the rolling crisis continues Portugal, Italy, Spain, and France. The UK, the Global Greater Attractor of fraud through which the Lehman, AIG, Bear Sterns, and MF Global heists were all facilitated by David Cameron’s doctrine of Looters First, is itself beating out Japan for deepest underwater sovereign with total outstanding debt of over 1000% of GDP. And this is why Cameron is thumbing his nose at the Euro under the guise of “I am Churchill II, defending Britain from the continental invaders!”, because rather than allow French and German regulators to come in and implode the city of London’s business model as the “Financial Terrorism Exchange”, he would rather the destruction of the global financial system and his own 99% Brits continue so he can keep his high paying whore job with his Goldman and Barclay’s pimps.
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