Forecast - February 2009 to Shift Commercial Valuations Down Further

Friday, December 19, 2008
By Benjamin Train
President, Online Consultancy Network


February of 2009 will be a time of woe, challenges, and hardships
for many across America and abroad. Meanwhile, the Federal Reserve
has printed trillions of U.S. dollars in South Korea, to lend; for
free, to the approved list of friends of the offshore corporation,
that postures itself as a Federal Government division, or department.

The banking industry, or Federal Government is about to announce,
due to re-assessment valuation of commercial portfolios by regulators,
that more bank failures are immanent, and that if necessary, they
will announce a banking holiday for approximately one week in some
areas of the U.S., or until asset valuations can be properly valued
by bank regulators.

What that means is that your local bank will be closed for a week in
February, and may not be allowed to re-open, depending on how many
commercial loans it has that will be down-valued after the closure of
thousands of retail stores after the Holidays, and the vacated retail
space holders, go into default.

I wrote about this phase of the economic collapse in 1991, and
republished it here in our Financial Journal in 2005. Please look up
that article in our archived articles for that year for further
information. I believe it was in May.

While the general public continues to loose their jobs and assets by
the thousands, hope will begin to turn to despair for many who are
unprepared. 1907 may a good year model to review for those studying
potential scenarios.

The commercial real estate sector valuation collapse will most likely
be felt by banks holding loans. But Cities, Counties and States will
also have to readjust their books, based on tax disclosure dates.

Tax disclosure dates of March and April will further impact local,
county and state municipalities, causing unfunded pension funds to
close, or collapse.

Fixing our economy will not take place in 2009. This coming year,
may become known and one of the worst depressions in the
history of America.

The financial crisis has now spilled over to Europe, Russia, Latin
America and Asian markets. Which is why European and U.S. central
bankers coordinated a global rate cut of epic proportions. The result
has crushed the U.S. financial system. China's sovereign wealth fund
has cut off further investment in the U.S. Foreign investors are
avoiding U.S. investments.

August will be seeing further decline in residential valuations that
will place additional pressure on all financial components, including
the residents that owe more than their homes are valued at by banking
systems and regulators.

In case you have missed it, Federal Reserve supported banks are no
longer lending money to even profitable businesses, or private banks.
They are hoarding money to buy, or take over target banks and
independent banks with assets, and credit unions.

If you, as a Citizen, do not support your local private bank and
community, you will be subject to a very unfortunate year ahead, and
into 2010-2011.

Help build your local economy, and it will support you. Take control
of your lives, and your own economy. Abandon your hopes that your
401k, Treasury bonds yeald, or government will save you, and support
your local "independent" bank, or expect it to close.

Buy food from your local farmers, and stop depending on food from
factory farms in South America, or further abroad. That food may not
be in your local store, in the future. If you do not support your
local farmers, then you may not have food to eat.

Stop pretending, that everything is going to be OK, and the
Government will save you. Stop giving your money away to buy useless
trinkets. Stop listening to peddlers. Embrace those that are close
to you, that have value and meaning in your life.

Support your family and your community. Speak up at public meetings
to keep your local city council, and state Representatives
responsible for their actions. Turn down any further taxation, or
fees without representation, or any accountability.

Wake up America. That is all I am going to say.

Here is an Excellent Artical on the Manipulation of Gold Prices

December 04, 2008
The Manipulation of Gold Prices

By James Conrad
Seeking Alpha
http://seekingalpha.com/author/james-conrad

There is no other leveraged commodity market where short sellers increase
their positions, materially, as the price rises, and increase them even more
when prices are exploding, except gold and silver.

The reason traders don’t normally do that is that it exposes short sellers to
unlimited liability and risk. Yet, in both March and July 2008, and on
countless occasions over the past 21 years, vast numbers of new gold
and silver short positions were temporarily opened up, with the position
holders seemingly unconcerned about the fact that precious metals had
just risen exponentially, and that there was a very real potential they would
bankrupt themselves with unlimited upside potential. Normal traders
would not expose themselves to such unlimited risks.

I conclude, therefore, that over the last 21 years or so, “fake” precious
metals supply in the form of promises of future delivery have habitually
been increased when prices increase until increased “supply” managed
to overwhelm increased demand, leading to a temporary price collapse.
This is compounded by the fact that the futures prices on COMEX tend
to dictate the “official” report price for the precious metals elsewhere.

First, when I say that the gold and silver shorting behavior is abnormal to
commodity markets, I am talking about commercial short positions. The
vast majority of speculators are always long on gold and silver. They are
generally the victims, not the perpetrators. The so-called "commercials"
... are the short sellers, and they are heavily represented by the big
bullion banks.

There is no other commodity, other than gold and silver, in which
commercial short sellers create huge numbers of highly transient short
positions in the middle of bull markets, ignore the fact that the market
keeps rising, and keep adding to their short positions until the market
comes crashing down. This has continued to happen in the midst of
vastly increasing world demand for gold and silver.

Take oil, as an alternative example. When demand was high, commodity
speculation was running rampant, and prices were exploding. Then, with
demand destruction, prices crashed. In the gold market, we know that
demand is soaring, but prices on the futures markets have, nonetheless
crashed. This is abnormal price behavior. If this were only happening
now, I would attribute it to the recent credit default event selling, but it is
not unique to now. It has been happening, over and over again, for at
least the last 21 years.


Here's an example of how the gold market is played.

In the beginning of last week, with the prospect of an avalanche of delivery
demands, records indicate that commercial shorts added about 5,000
transient short positions. This crashed gold to the $700 range.

In "olden times", when the non-leveraged longs did not exist, this would
have prevented most deliveries from happening, as the longs panicked
and sold their positions back to the short sellers, being unwilling to take
more loans in order to take possession of a declining metal. This time,
however, when the short sellers finally realized that they were dealing
with a different "animal" and that non-leveraged longs would be filing
their delivery demands no matter what, the increase in open interest
abruptly closed, and a mini-panic began, sending gold prices up by
over $100 per ounce, in a matter of only 3 days.

This type of shorting behavior is not unique to last week.

In July, just before the U.S. government initiated what I believe is its new
policy of paying interest to foreign money center banks who agree to
sequester eurodollars, 3 major gold shorting banks suddenly increased
their short positions by close to 10 times what they were, just one month
prior to that.

It is now rather obvious that these banks had inside information from the
U.S. Treasury or Federal Reserve. They knew what was going to be done
to the dollar. No one without inside information would have increased their
short positions by 10x, in a fast rising futures market, in the midst of
exploding world demand, and at a time when no one else guessed
that the dollar was going to rally. We can only guess the identity of these
banks because, unlike futures markets in nations like Japan, U.S. futures
regulator, CFTC, refuses transparency and will not agree to release the
bank names.

COMEX futures contracts are backstopped by the entire membership of
the exchange, and it is doubtful that the U.S. government would allow the
exchange to go bankrupt, even if it meant releasing a small portion of
Fort Knox gold to save them from uncovered delivery demands.

The same is even more true of NYSE-Liffe, which has the entire wealth
of the New York Stock Exchange membership backing it up. So, I think
you will get your gold or silver, if you pay in full for your contracts,
and take delivery.


It is important to start buying gold and silver on futures
exchanges for two reasons.

First, it is the cheapest place to buy both metals. You can avoid all the
hefty dealer markups if you buy futures and take delivery.

Second, in order to end the manipulation more quickly, the short selling
crew needs to be put out of business. They have accomplished what they
have, over the last 21 years, by taking advantage of leveraged long
desperation. If you are not leveraged, and have sufficient liquidity to
really buy your contracts, you will be immune to their shenanigans.
You can simply take delivery, put the gold into your safe deposit box
or other safe place, and no matter how they manipulate the price in the
short run of a few months to a year, the price will rise exponentially in
the longer run.

This is a mathematical certainty because of fundamentally flawed dollar
dynamics, and a continuing worsening of the differential between world
supply and demand for both metals.

Now that the European central banks are refusing to sell gold, the supply
has dried up, which is probably why some of more honest portions of
various investment banks are forcing COMEX to make deliveries.

If people continue to force the short sellers to make deliveries, the game
will be over, because naked gold shorts no longer have easy access to
real metal. Last week's delivery demand avalanche was coupled with
the exit of leveraged Longs. Furthermore, it follows on hefty demands
for delivery in late September.

Another episode, hopefully even bigger, in the February delivery month,
will, in all likelihood, sink the gold manipulators, and catapult gold into
the stratosphere.

Let me give you some facts about how to do this.

First of all, you need to open a futures account. There are hundreds of
brokers, but not all alleged futures brokers are really full fledged futures
brokers. Many will refuse to facilitate delivery. For example, Interactive
Brokers, OptionsXpress, ThinkorSwim, and many others only claim to
handle futures. Such brokers refuse to deliver. RJ O'Brien, MF Global,
E-futures, and many others on the other hand, DO facilitate delivery.

Make sure you open your account at a brokerage houses that
accommodates delivery, and doesn't just push you into the
casino-like speculation game. Remember that in casinos,
in the long run, only the house wins.

DO NOT BUY COMEX miNY contracts.

They ARE NOT SUBJECT TO DELIVERY DEMANDS! MiNY COMEX
contracts are cash settled.

If you don't have enough money to buy a full contract, buy the NYSE-Liffe
mini-Gold and mini-Silver contracts. With NYSE-Lifee, you can take
delivery of 32.6 ounces of gold, and 1000 ounces of silver. However,
if you do have the cash, the standard 100 ounces gold and 5,000
ounces of silver are usually cheaper per ounce, and you can buy them
either on COMEX or NYSE-Liffe.

ALL 100 ounce and 5,000 ounce contracts
are subject to delivery demands.

Taking delivery and paying for temporary storage on gold, will set you
back $25 plus about $12 per month storage for each bar at one of the
COMEX warehouses.

There will also be a charge from your brokerage house. Yes, I know, you
won't leave your bars at the exchange, but, you will need to pay for a few
days storage, before you pick them up, or have them delivered by Brinks,
so they will hit you for the whole month minimum charge on each bar.

Brinks, and a number of other gold delivery agents can take the bars
and deliver them to you anywhere in the USA, or even overseas, at a
relatively low cost, compared to the value of the gold. You can contact
them for more information, or ask your brokerage house. Jim Sinclair,
at JSMineset.com, is currently putting together a summary of delivery
charges, from the various gold/silver delivery services. The costs of
delivery are a few dollars cheaper on NYSE-Liffe, at least
at HSBC, but the difference is not significant.

After the market is broken, shell-shocked leveraged long market
participants have always been thrown out of their positions by margin
calls, and/or have been happy to sell contracts back to the short sellers
at much lower prices. This process has always allowed short sellers to
cover short positions at a profit.

If for some reason naked shorts needed to deliver, they could always
count on various European central banks (and some say the Fed
basement repository) to backstop them, releasing tons of physical
gold into the market. It seemed that there were always another
34 tons or so of gold dumped at strategic times to bring down fast
rising prices. Meanwhile, huge physical market demand in Asia and
severe shortages buffered the downside. Because of the physical
demand, prices steadily increased but, perhaps, at a much slower
pace than would have been the case in the absence of market
manipulation.

Rarely was there ever a serious short-squeeze. Rarely, that is, until
Friday of last week when the deliveries demanded by non-leveraged
long buyers reached record levels. In spite of an avalanche of
complaints from gold and silver investors, the CFTC (Commodity
Futures Trading Commission) has never bothered to audit even one
vault to see if the short sellers really have the alleged gold and silver
they claim to have. There is a legal requirement that, in every futures
contract that promises to deliver a physical commodity, the short
seller must be 90% covered by either a stockpile of the commodity
or appropriate forward contracts with primary producers
(such as miners). Inaction by CFTC, in the face of obvious market
manipulation, implies a historical government endorsed price
management.

Things, however, are changing fast. As previously stated, the first major
mini-panic among COMEX gold short sellers happened last Friday.
As of Wednesday morning, about 11,500 delivery demands for 100
ounce ingots were made at COMEX, which represents about 5% of
the previous open interest. Another 2,000 contracts are still open, and
a large percentage of those will probably demand delivery.
These demands compare to the usual ½ to 1% of all contracts.

The U.S. economy is in shambles.

Both commercial and investment banks are insolvent. European central
banks no longer want to sell gold. China wants to buy 360 tons of it as
soon as humanly possible, and as soon as it can be done without
sending the price into the stratosphere.

A close look at the Federal Reserve balance sheet tells us that Ben
Bernanke eventually intends to devalue the U.S. dollar against gold.

There has been a vast expansion of Fed credit, which has risen from
$932 billion to $2.25 trillion in the last two and a half months. The Fed
has bought nearly all toxic bank assets that were supposed to be
purchased pursuant by the $700 billion Congressional bank bailout.

Official bailout funds have been used to buy equity interests in the various
banks instead. By avoiding the use of monitored Congressional funds, the
Fed has embarked on a secretive campaign to buy toxic assets. They
have refused to give any accounting of their activities, even though they
are using taxpayer money to do this. The Fed has refused, for example,
to comply with a “freedom of information act” request from Bloomberg
News. That refusal is now the subject of a major lawsuit.

The Federal Reserve has embarked on the biggest money printing surge
in history, though the world economy has yet to feel its effect. To prevent
newly printed dollars from causing immediate hyperinflation, these newly
printed dollars have been temporarily sequestered into the banking
industry’s reserves, rather than being released for general use.
This was done in a number of creative ways.

First, the number of “reverse repurchase agreements” has been
increased to $97 billion. A “repurchase agreement” is a non-recourse
method by which the Fed increases the money supply by paying dollars
for collateral. The collateral, in this case, are toxic defaulting mortgage
bonds that banks want to be rid of. The cash enters the system and
theoretically stimulates the economy because it supplies banks with
money to make loans with.

A “reverse repurchase agreement” is the exact opposite. It is a method of reducing
the money supply by selling bonds to the banks, and taking the cash back out of
the system. In this case, the Fed gave banks cash for toxic defaulting mortgage
bonds. Then, it took the same cash back by selling the banks new treasury bills
just received from the U.S. Treasury. The Fed, in turn, bought these T-bills with
the newly printed dollars. The banks, having gotten rid of toxic assets, were
allowed to transfer private risk to the taxpayers. This process bolsters bank
balance sheets by privatizing bank profits, and socializing bank losses.

At the same time, the U.S. Treasury has been very busy selling newly printed
Treasury bills to anyone foolish enough to buy them. To a large extent, the fools
reside overseas, but some reside inside this country, and the sale of these U.S.
bonds has resulted in a substantial inflow of foreign reserves to the Treasury.

Banks have also been offered favorable interest rates on both reserve and
non-reserve deposits held at the Fed.

This was combined with what is probably a tacit agreement by which the banks were
given the money and led to redeposit most newly printed cash back into the Fed, in
a category known as “Reserve balances with Federal Reserve Banks”. This category
has ballooned from $8 billion in September to $578 billion on November 28th.

On October 9, 2008, the Federal Reserve began paying interest on deposits at
Federal Reserve Banks. The overnight rate happens to have dropped way below the
“official” federal funds rate. Meanwhile, rates paid by the Fed on required
deposits are only .1% less than the federal funds rate, and on voluntary deposits
only .35% less than the federal funds rate. Accordingly, U.S. banks can engage in
a dollar based one-nation carry trade, which further sequesters the newly printed
dollars.

Banks are borrowing from the Fed, then taking the same money, redepositing it, and
earning a spread on the interest rate differential. Banks can also deposit newly
printed dollars into a category known as “Deposits with Federal Reserve Banks,
other than reserve balances.” This category also earns interest in a similar way,
and has risen from $12 billion to $554 billion in the same time period. The funds
will eventually be used for direct lending from the Fed to open market borrowers,
at huge levels of risk that even the free-wheeling cowboys who run things at
America’s private banks are not willing to accept.

That being said, most money center banks in America are certainly NOT risk averse,
even now. People who are bailed out of foolish decisions never become risk averse.
They are, however, very insolvent, and, aside from the non-recourse provisions of
Fed repurchase agreements, they would prefer, for bad publicity reasons, not to
default on their obligations to the Fed. Aside from the newly printed dollars
given to them by the Fed and the recent transfer of all risk to the taxpayers,
they have no liquidity of their own with which to make new loans. That is why they
aren’t making any. The Fed will eventually make the loans itself and take all the
risk, while using the private banking system as merely a means for delivery.
Right now, however, the Fed wants to sequester the new dollars, until the U.S.
Treasury has finished the major part of its funding activities. That will allow
the Treasury to borrow money at very low rates. The Fed intends to feed money into
the system, but at the minimum rate needed to prevent the DOW index from staying
under 8,000 for any significant period of time. Right now, most measures are
designed simply to stop U.S. banking laws from automatically requiring the closure
of most big banks.

The extent of manipulations engaged in by this Federal Reserve is mind numbing.


The total number of sequestered dollars has now reached well in excess of $1.2
trillion dollars. That means that Fed credit, so far, has been effectively
increased only by about 10%, over the last 2.5 months, rather than 150% that
appears on the surface of the Fed balance sheet. The rest is temporarily
sequestered.

Back in July, the U.S. Treasury, through the ESF (Exchange Stabilization Fund),
sold billions of euros and, I believe, established a dollar sequestering
“derivative” by paying interest, perhaps in Euros, to foreign money center banks.
This was designed to keep dollars out of circulation, overseas. It was the
beginning of the dollar bull back on July 15th.

I had thought, at the time, with good reason, that the U.S. would run out of
foreign exchange and would be forced to close down the operation within a few
months. I underestimated Ben Bernanke.

Instead, the Fed managed to establish currency swap lines with various foreign
nations, under the guise of supplying them with dollars. This need for dollars
arose partly as a result of the actions of the Fed, in sequestering Eurodollars in
July, and partly as a result of the multiple credit default events which triggered
over $2.5 trillion worth of selling in the stock and commodities markets, as 50 to
1 leveraged players were forced to cover about $50 billion worth of credit default
insurance obligations.

In truth, the Fed needs the foreign currency more than the foreign central banks
need dollars. The Fed is using its new foreign currency resources, in part, to
control the value of the dollar, and to ensure that U.S. bailout bonds are sold
for the highest possible prices at the lowest possible long term costs. Anyone who
buys long term Treasury bills is going to lose a fortune of money in the long
term.

The Fed has also taken a number of steps beyond those already discussed to
restrict aspects of the normal money supply which most strongly affect exchange
rates. For example, they only allowed “currency in circulation” to rise by $33
billion in aggregate, while at the same time increasing foreign reverse repurchase
agreements to reduce foreign availability of dollars by $30 billion, and reducing
the “other liabilities” category dollar availability by another $7 billion. Since
it is likely that “other liabilities” involve foreign held dollars, this resulted
in a net deficit of $4 billion on foreign exchange markets, as compared to
September, 2008.

All these actions, taken together, have supported the dollar overseas, and led to
a breakdown of the commodities markets. The adverse effect of a paradoxically
rising dollar has been especially severe in dollar dependent commodity producing
nations, such as Ukraine.

The net effect is that the U.S. dollar, in spite of terrible fundamentals, is now
King of the Currencies once again, at least temporarily. The rising value of the
dollar happens also to support naked short sellers of gold and silver, on COMEX,
and these are old friends of the Federal Reserve. Supply and demand ultimately
determine the price of gold but, in the shorter term, it is inversely tethered to
the dollar. When the dollar is artificially high, gold prices will often plunge
artificially low.

But, in short, the Fed currently has gained complete control over the value of the
dollar. It can now adjust and micromange the dollar on a day-to-day basis. All it
needs to do is open and close the “dollar spigot.” When they want the dollar to
rise, the Fed can reduce the number of sequestered dollars. When they want it to
fall, they simply ease up, releasing dollars into the financial markets. There is
only one problem. Real investors are fleeing the stock market, and stock indexes
are becoming more and more dependent upon government cash in order to avoid
collapse.

People are liquidating holdings in mutual funds, and redeeming against hedge funds
at a fantastic rate. This has created heavy downward pressure on stock prices. If
the DOW falls below 8,000 for any significant amount of time, most big American
insurance companies will be forced to recognize huge losses on their portfolios,
and will become insolvent. Insolvent insurers, like insolvent banks, must be
closed by their regulators as a matter of law. Obviously, mass insurer
bankruptcies would be yet another major destabilizing slap in the face to an
increasingly unstable economy.

The Fed now has only two ways to stop this. One is by brute force. It can buy
securities directly, through its primary dealers, thereby supporting and pumping
up stock prices. It has done a lot of that in the past few weeks, but this method
is highly inefficient and costly. It is better to catalyze upward market movement
rather than force it. Catalysis of markets involves opening up the money spigot a
bit, allowing some of the sequestered funds to bleed back into the system. This
allows the stock market to rise or stabilize naturally, as the equivalent of
inflation is created mostly in the stock market without substantial bleed through.

At the same time, however, opening the money spigot reduces the value of the
dollar and causes gold prices to rise. Rising gold price adversely affects COMEX
short sellers who are, as previously stated, old friends of the Federal Reserve.
Gold buying enthusiasm, everywhere but at the COMEX, is at record levels, whereas
stock market investing appetite is low. For this reason, when the Fed tried to
constrict the money supply on Monday, it caused more damage to the stock market
than to the price of gold. Gold declined by over 5%, but the S&P 500 collapsed by
over 9%. The next day, the Fed eased up on the money supply spigot, allowing the
dollar to fall and the stock market to reflate. If the Fed repeats this
performance over and over again, stock investor psychology will be seriously
harmed. Withdrawals from mutual and hedge funds will accelerate. The stock market
will sink at an uncontrollable rate, and the world will surge onward toward Great
Depression II, much worse than the first. At some point, there will be nothing the
Fed can do about it, no matter what manipulations it attempts. Hopefully Ben
Bernanke is aware of the dangerous nature of the game he is playing.

The Federal Reserve must now make a tough choice. In the past, Federal Reserve
Chairmen may have felt it necessary to support regular attacks on gold prices to
dissuade conservative people from putting a majority of their capital into gold.

Now, however, the world economy needs much higher gold prices in order to devalue
paper money, not against other currencies in a "beggar thy neighbor" policy, but
against itself. This can jump start the system. If the Fed continued to support
gold price suppression, that would collapse the stock market far deeper than they
can afford, most insurers will end up bankrupt, and there will be no hope of
avoiding Great Depression II.

I think Ben Bernanke is aware of this. Gold shorts will be abandoned, to avoid
financial catastrophe. In commenting, I take a practical view, accepting what
appears to be so, without passing judgment on the acts and omissions of the last
21 years.

Anyone who reads the written works of our Fed Chairman knows that Bernanke’s long
term plan involves devaluing the dollar against gold. This is the exact opposite
of most prior Fed Chairmen. He has overtly stated his intentions toward gold, many
times, in various articles, speeches and treatises written before he became Fed
Chairman. He often extols the virtues of former President Franklin Roosevelt’s
gold revaluation/dollar devaluation, back in 1934, and credits it with saving the
nation from the Great Depression. According to Bernanke, devaluation of the dollar
against gold was so effective in stimulating economic activity that the stock
market rose sharply in 1934, immediately thereafter. That is something that the
Fed wants to see happen again.

It is only a matter of time before gold is allowed to rise to its natural level.
Assuming that about half of the current increase in Fed credit is eventually
neutralized, the monetized value of gold should be allowed to rise to between
$7,500 and $9,000 per ounce as the world goes back to some type of gold standard.

In the nearer term, gold will rise to about $2,000 per ounce, as the Fed abandons
a hopeless campaign to support COMEX short sellers, in favor of saving the other,
more productive, functions of the various banks and insurers.

Revaluation of gold, and a return to the gold standard, is the only way that
hyperinflation can be avoided while large numbers of paper currency units are
released into the economy. This is because most of the rise in prices can be
filtered into gold. As the asset value of gold rises, it will soak up excess
dollars, euros, pounds, etc., while the appearance of an increased number of
currency units will stimulate investor psychology, and lending and economic output
will increase, all over the world. Ben Bernanke and the other members of the FOMC
Committee must know this, because it is basic economics.

Many venerable names in banking agree, although none have gone so far as to take
their thoughts to the natural conclusion. Both JP Morgan Chase's and Citibank’s
analysts, for example, are predicting a huge rise in the price of gold. That is
interesting because GATA has come up with fairly compelling evidence that JP
Morgan Chase (JPM) and HSBC (HBC) may have been big COMEX naked short sellers in
the past.

Goldman Sachs (GS) is also a huge bullion bank, which allegedly is heavily
involved in downward gold price manipulation. However, this month, both HSBC and
GS took lots of deliveries of gold from COMEX. Given the size and bureaucracy at
such firms, it is certainly possible for the majority of traders to be entirely
honest, while others, at the same firm, may be totally corrupt.

More important, however, than dwelling on the accuracy of conspiracy theories is
the fact that huge international banking firms normally do not take metal
deliveries from futures markets. They normally buy on the London spot market. The
fact that they are demanding delivery from COMEX means one of two things. Either
the London bullion exchanges have run out of gold, or these firms are finding it
cheaper to buy gold as a “future” than as a spot exchange.

Smart traders at big firms may be buying on COMEX to sell into the spot market,
for a profit. This pricing condition is known as “backwardation”. Backwardation is
always the first sign that a huge price rise is about to happen. In the absence of
backwardation, there is no rational explanation as to why HSBC, Bank of Nova
Scotia (BNS), Goldman Sachs, and others are forcing COMEX to make large
deliveries.

The fact that this backwardation is hidden from the public eye is not surprising.
In spite of the ostensible existence of a so-called “London fix”, 96% of all OTC
transactions are secret and unreported. The transactions happen solely between two
parties, and are done opaquely, in complete darkness. The current London fix may
well be just as fake as the bank interest rate reports that comprised LIBOR proved
to be, just a few months ago.

It won’t matter much if you purchase gold at $750, $800, $850, $900 per ounce, or
even much higher. All of these prices will be looking extraordinarily cheap in a
few months. The price of our pretty yellow metal is about to explode, and it is
probably going to soar, eventually, to levels that not even most gold bugs
imagine. COMEX gold shorts will be playing the price a bit longer, in an attempt
to shake out some remaining independent leveraged longs. Once that is finished,
however, and it will be finished soon, the price will start to rise very quickly.


Disclosure: The author holds physical gold and is long positions in GLD and gold
futures.

James Conrad, Ph.D., is and has been, an investor and trader of stocks, bonds,
options, and precious metals for 37 years. He is also the editor of a closed
circulation daily market newsletter, which provides investment news, analysis and
opinion. Because of the time-sensitive nature of the information contained in the
newsletter, subscriptions are not currently open to the public. New subscribers
are accepted only on recommendation of existing subscribers. His articles on
Seeking Alpha, and elsewhere, however, mirror the subject matter, analysis and
opinions currently covered in the newsletter.