gold, silver, the ratio, platinum european fears, and central banks

Suppose the Federal Reserve bought it? US Treasury Notes are considered assets in regards to backing the base money supply. Same for Foreigners. No bank reserves were affected.

 

Log in or Sign up to hide this ad.

Hopefully people didn't get on the recent rally and stayed in sidelines', as i mentioned couple days there is too much uncertainty in the market it is best to stay with cash till we get better picture of what is going, Gold and Silver can easily test their 52 week lows.

 

Well for one a gold standard would be a solid currency issued by Congress not by a privately owned foreign bank. Any new gold back currency could be issued without debt. So any 'debt' that anyone went into wouldn't be in the form of inflation but in traditional debt vehicles like bonds, etc. Artificial devaluation of the gold back currency wouldn't be so easy.

On a separate note I did see some guy on fox say that they could simply add a zero to the value of and ounce, for instance, and this would account for the worlds GDP. In 5th grade math terms (simplified) 60 trillion in world GDP, 6 trillion USD worth of gold exists, add zero and now 60 trillion dollars of gold exists. Logistically it seems possible but a gold standard decentralizes power, which is in the hands of a central bank who runs the currency. Since the same people run the government, I don't see them ceding control back to 'the people' over their wealth.

I see gold as only a store of wealth against inflation. A gold standard won't happen, not out of their own volition anyway. The currencies of the world seem over leveraged; we saw it in the housing bubble and now looks like corporate bonds. By my standard the system in place is not sustainable, but economics is esoteric when its run by manipulation.

 

This is true, but it doesn't refute my point, which was that without this ability the debt would not be able to expand to its current levels. Yes, fractional reserve banking expands the debt regardless (however that is also impossible on a gold standard since no money could be created without more gold), but the debt sold by the US Treasury would not be able to be internally monetized without the Fed which owns 60% currently. This 60% was purchased with government printed money, without which would fall to the open market expanding the available supply by 150% (40% becomes 100%), which would impact the supply/demand of these bonds forcing either the value or the supply to drop by 150% to equalize the amount of money currently allocated for existing bonds, OR forcing leadership to be fiscally responsible enough to warrant a 150% higher price on the open market which would in and of itself require less debt to command that level of trust.

 

Going to hard money websites, and I am sure anyone can google them, the federal reserve exists as long as the US government wants them, but if congress voted to eliminate them the cost beside salaries,parachutes, is less than 500 million USD. But they are limited by law how much they can receive as interest for their profit ( max I found was 6%), so why would a large banking member of the federal reserve want to be tied to such? IMO.because the knowledge of the direction of the economic movements and their influence within their clients are 2 I can think of.

As far as foreign ownership, almost any bank large enough to be a member bank of the Fed. is not private owned by 1 person, most likely there are 10,000+ entities that own stock or portions of the bank. JPM has clients world wide, and stockholders worldwide, but most people consider it US.

Some think that the value of PM can set currency values, and I would agree if we were a small isolationist country as we have a goodly ratio of the stuff, but a small isolationist country such some un-named European countries, would soon be out of luck. Nature did not bestow equal amounts of anything except maybe silica ( like sand/rocks) to each country or the world. If they discovered a huge deposit of gold in Costa Rica ( theoretical), they could affect a gold based economy and the world currency. World counties such as China, Russia, US, India, various oil-rich countries do want to be the world currency, to control; their commodity value, not just to feel good.

IMHO there will not be a world PM based currency until there is only one "country", by everyone of them agreeing on a PM ratio, and that is not my idea of a good thing because of the disparity of PM.

 

I'm not sure what you mean, but the Depository Institutions Deregulation and Monetary Control Act of 1980, forced all banks in the United States to effectively become members of the Federal Reserve. In other words, they have no choice in the matter. In the 1970s many bankers had become alarmed at the actions of the Fed and the government and moved to setup an alternative clearing system among themselves. Many resisted joining the Fed. This was not unprecedented. This law squashed that effort.

Yet the world ran on the gold standard established by the BOE in the 1570s until Nixon ended it in 1971. So we had 300 years of the world running on a gold standard. The present fiat based system is only 41 years old in comparison and right now an entire continent's financial & political system is melting down for having relied on the abuses enabled by fiat.

History is on the side of the gold standard.

 

like other precious metals, may be used as an investment. For more than four thousand years, silver has been regarded as a form of money and store of value. However, since the end of the silver standard, silver has lost its role as a popular legal tender in manydeveloped countries such as the United States. In 2009, the main demand for silver was for industrial applications (40%), jewellery,bullion coins and exchange-traded products.[SUP][1][/SUP][SUP][2][/SUP] Millions of ounces of Canadian Silver Maple Leaf coins and American Silver Eagle are purchased as investments each year. The silver maple leaf is legal tender, at 5$ per ounce, and there are many other silver coins with higher legal tender values. There are some Canadian silver $20 dollar coins. Silver is legal tender in Utah, and can be used to pay all debts.

 

I would prefer to keep fiat currency as is than to have a gold based currency that required us becoming a nation state in a global government. However I don't necessarily think that is a requirement. Any nation can have a gold based monetary system and set the ratio for their own currency. As long as gold was the constant variable among different nations' currencies they wouldn't have to agree on a ratio, because they could just do the conversion into gold and use that as the common factor. Essentially gold would be the money, and every currency would vary in strength depending on the ratio they choose.

To your point that some nations don't have much gold, and would be at a disadvantage initially since that would either restrict them to a lame ratio or a small money supply, this is true, but if they are a wealth producing nation they will be able to trade their surplus for gold and the system would reward the best horses in the race. Whether that surplus is due to gold deposits, oil wells, crops, timber, fiscal responsibility, or simply their ability to produce a superior product, it makes no difference. Things would equalize accordingly.

The nations that come out ahead would have the option of acquiring gold to strengthen their currency which would then allow them to buy more from other nations using existing currency without any extra out of pocket, so it would have a practical benefit and balance out the surplus given up to get the gold. Or they could instead spend that surplus internally if they don't care about currency strength if they are for example not interested in international trade, but rather only having a reliable medium of exchange for their people.

Of course forcing nations to adhere to this would be bad for their sovereignty and a step in the wrong direction, but the incentives of the system should be sufficient since nations that do this would gain currency strength against the nations that do not. It would be a self reinforcing paradigm not requiring any central oversight on a global scale. As soon as one nation does this others would most likely follow suit if they are in a position to do so.

 

Wall Street update:
Commercial shorts increased on the COMEX SILVER this week........those who follow probaly have agood idea who this is.........a major bank
Spec long were forced out although it was a small amout

Options volatilities rose as prices declined due to the NO QE announcement. My professional thought, ifs that with the funds all shorting Silver at 27 and WTI crude at 78-79 we are very near the lows. Silver continues to hang on by a thread as the 26.00 area has been a major supprot for over 2 years now.

Funds have done the heavy lifting by selling there commodities, and buying govt paper therfore decreasing the food and energy inflation while making it lesse expesive for the USA to borrow money. Fund perfornames in general during May annd June have been AWFUL as they tend to buy tops and sell bottoms. Many algos's have blown out and will or be out of business. So with rates where they are and commodity prices down, except for grains, QE will not be happening.

THere was a huge call buyer in JAN SLV 2013 36.00 CALL, 80,000 contracts purchased by a fund. It was an opening trade, and it is pretty much the year high price for SLV so they are placing a large bet on a late year Silver rally.

Gold continues to base at the 1530-1550 area, and the longer it hold here, the greater chance of a sharp move up.

Silver and Gold low prices of the Day came around 10:30 eastern time on Friday, this is common as the Margin clerks usally give a bad position an hour or so after the open, in this case SLV and GLD open. They held there lows and cash Silver actually made a year low and closed up on the day.

The new lowere prices have attracted more short in the futures complex, as they like to sell new lows. We are still of the belief that this will be a range year with 1520-1800 as the Gold range and 26-37 as the Silver range.

Options volatilities are still low, so if you know options, there are some very rewarding structures you can place to make a bet on SIlver, or Golds rise. Platinum is excessively low, but as long as Europe is still in trouble which should be for another 4-5 years, short will Keeep coming in selling the PL rallies. It has no business being under Gold, and the Gold SIlver ration is ata major extreme of 59:1 silver being very cheap relative.

Just because Bubblevision as we wall streeters call it, (networks that only have positive news on the world, you can figure the ones we mean), continue to talk about APPLE at 600 and the Dow being up today, does not mean the world is fine. Europe is still imploding, DENMARK SOLD BONDS AT A NEGATIVE YIELD THIS WEEK!!!!!!! People over there are so scared they are willing to take a haircut to give them money, that does not seem like a world where everrything is fine.

It will now be the rest of the world's turn to do some lifting via money printing, and QE or whatever they can come up with.

Conclusion: Gold and Silver still remain hard currency that is honored any where in the world. Russia, China, Turkey made large cash Gold purchases again.

Gold is in the process of being made a tier 1 asset, as it ws back in the 60's, this would put it back in the same light as tbill, bonds and cash, and you would get 100% "Margin" for you holding. We believe this to be a game changer. Europe will not be solved for many many year, nor will our 15 plus trillion dollar debt. If you have a longer time horizon than 1 day, 1550ish gold and 27ish Silver are still going to be very friendly to you personal wealth in the future.

PS: This is simply info from a WS perspective, hopefully spelling grammar and page breaks are better than last week, I will check in with my fellow coin collectors later on. I hope this may give some of you an insight which you may have not known previously.

Have a pleasant weekend,
Sincerely,
QSILVER007

 

Thanks qsilver007. Very informative, and I like the term 'bubblevision'.

Do you have any idea who bought Denmark's negative yield bonds? I find it hard to believe the open market would pay a nation interest to have the privilege of holding their debt, as opposed to a central bank, unless Denmark is just the best debtor around. Is it because their debt is safer, or because something is happening there specifically causing a rush to safe haven by the people who live there?

The stupor committee had suggested doing as much here in the US last year, and I have a feeling this will become more prevalent. I'm interested in anything else you know about this subject as I'm still trying to wrap my brain around the full impact relating to negative yield bonds.

 

I am more of a commodities specialist in the PM's not in fixed income, or in this case no income. With feb funds in the US at 8 basis points, and japan they are 3 basis points, it appears to me that the UBER welathy living in Europe are obviously the ones putting there money in these bonds. It was Denmark last week and a month ago it was Germany I believe issuing a 7 year at zero interest.

The fact that Golbal rates have been at historic lows for more than 5 years now should wake people up. It's little thing like this that us WS guys have to pay attention to. Strangely enought they did that the day before the US fed met.

If you lived in Greece and had say 100 million in the bank, and you were worried there are very few options to put that much capital, so in this case the least ugly duckling over in the EU now is Denmark, so they are taking advantage of that. Im sure they will somehow funnel the money back to Greece.

And not mentioned either next week is the fact that the ECBhas made the bailout fund PERMANENT!!!!!!! At last count it was up to 1.44 TRILLION EUROS, which if neede they may leve up to 4X.

I am a student of history and a pratician of technical analysis. As stated earlier, the metals especially silver have been money for multiple thousands of years. As Gold is becoming a tier one asset, banks and other will want it more, and the higher the price the more beneficial it will be as they will be able to collateralize it 100% just like t bills and other crapgovt paper, except they can't print more Gold.
Just my thoughts............QS