What a humdinger last week was in a money world that is chugging toward maximum velocity and turbulence. Readers know (and may be sick of hearing) that I'm allergic to conspiracy theories, but my allergy is not absolute or total and there are excellent reasons to believe that the smack down of gold and silver was an orchestrated event. By whom? So far, in the opaque realm of paper gold sales, we don't know, except that it was a 500-ton dump that set off the larger skid, and it is even quite possible, as one anonymous wag put it on James Sinclair's website, that the buyer and seller were virtually the same entity -- meaning that the probable naked short transaction only amounted to a mere bookkeeping jot when all was said and done.
Anyway, the 500-ton all-at-once dump could only be calculated to drive the price down. Any rational strategic sale of so much gold would be parceled out in smaller amounts over time so as not to drastically impair the sales revenue, as this sale did. And, by the way, who even has the roughly $25 billion holdings in paper gold besides a major government, a major central bank, or one of the Fed's Too Big To Fail handmaidens (Goldman Sachs, JP Morgan, Morgan Stanley)? Or who could afford to eat the $billion-plus loss on the smacked-down sales value? In other words, the usual suspects.
I hate the term The Powers That Be, with its odors of recycled paranoia and lumpen extremism, but signs of collusion abounded last week. First, on Wednesday, Goldman Sachs issued an advisory to short gold as the price flirted with $1600/oz. Then on Thursday, The New York Times planted a front-page story headlined: "Gold, Long a Secure Investment, Loses Its Luster." The story featured a quote by supreme market manipulator and world-class schmikler George Soros: "Gold was destroyed as a safe haven, proved to be unsafe," Mr. Soros said in an interview last week with The South China Morning Post of Hong Kong. "Because of the disappointment, most people are reducing their holdings of gold."
Well, there you have it. Soros sez: Gold = shit. If you get some on your shoe, scrape it off. All that set the stage for the Friday smack down. Notice how falling gold and silver prices make the US dollar look good -- it takes fewer dollars to buy more precious metal. The dollar must therefore be sound! And this is in the interest of whom? Say, perhaps, a Federal Reserve busy systematically melting away the value of dollars through so-called quantitative easing (money "printing" or promiscuous credit creation) plus financial repression (interest rate chicanery), and also a US government so deep underwater on its debt obligations that Treasury Secretary Jack Lew shares office space with the giant squid of the Aleutian Trench.
To complicate matters, the day of the gold smash, rumors flew of a plan by the Cyprus government to sell off its relatively small gold holdings to pay off its EU debt -- didn't happen -- but the rumor had the effect of further queering the gold price some more by implying that the EU would soon come calling on all the PIIGS nations to settle up their vigs with yellow metal.
Thursday, interesting things happened in another ring of the circus. The novelty investment called Bitcoin, having developed a hockey-stick chart profile, shooting up from about $60 a month ago to $260, got smacked smartly back down to $60. It had been attracting a lot of attention as a shelter from international monetary shenanigans -- and hypothetically as an eventual rival to funny-money central bank currencies. Bitcoin is a web-based species of virtual "money" invented by a shady character (or cohort of characters) called Satoshi Nakamoto whose true persona remains mysterious. Bitcoin's supposed virtue is that it can't be confiscated by governments -- though experienced programmers know any website can be hacked -- or otherwise meddled with, making it a more reliable store of value than the traditional "safe harbor" investments such as sovereign bonds and precious metals. Well, okay, but it raises a couple of questions: 1) Does the world need an even more abstract form of "money" than fiat currencies, CDOs, Fannie Mae promissory notes, and JC Penny stock? I don't think so. If anything, the world needs more tangible instruments to represent a store of value, a medium of exchange, and an index of price. Bitcoin is little more than a bundle of algorithms. Granted, math helps with the management of money, but is math "money?" 2) what happens if you can't get online to access your Bitcoin "wallet?" Is Bitcoin, after all, just another example of the techno-narcissism infecting contemporary culture?
That idea is just off the radar screens of Bitcoin pimps such as Jon Matonis of Forbes Magazine who said last week that "civilization won't regress to the state of having no electricity." Really? You think so? Just watch. Electric grids all over the world are aging and decrepit -- the USA's in particular -- and the capital is not there to renovate them. And perhaps you haven't noticed the gathering scarcity problem with fossil fuels. You bet society could regress to, first, spotty electrical service and then possibly no electricity at all in many places. But that is an extreme case because in the meantime all it would take is a "denial of service" incident to render Bitcoin useless -- and the mysterious Mr or Ms Nakamoto him/her/itself induced a half-day time-out in Bitcoin last week, taking its Mt.Gox trading platform off-line.
The week ahead in world money matters looks bloody and gruesome. Japan is committing financial hara-kiri by central bank desperation. In artificially suppressing the gold price, the American Powers That Be (yccchhh....) give China, Russia and other rivals the opportunity to buy gold cheaply, and to do so by dumping some of their US Treasury holdings, weakening the dollar's international exchange value -- which the gold smack down was supposed to enhance! China and Russia have both been steadily accumulating their gold holdings in plain sight, with the possible motive of backing currencies with more appeal in international trade settlements than the dodgy US dollar.
The weeks ahead could be a bloodbath for the four horsemen of monetary apocalypse: the dollar, the Japanese yen, the Euro, and Great Britain's pound -- that is, the core of the so-called advanced economies of the world. What a prankster history is!
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