Hackers unite

Richard Wong, venture capitalist with Accel Partners, was in the middle of praising Google's Android and Apple's IPhone on CNBC--while politely questioning RIMM, Nokia and Motorola in the smartphone space, when he was unceremoniously unplugged by a black out in the middle of his commentary. After he came back on-line, he even joked about the "friends from Helsinki" in an opaque dig against Nokia, as the possible perpetrators.

Well done--by both parties.

Central banks stepping up to the gold window

India's central bank purchase of 200 tons of IMF gold grabbed the biggest headlines, but central banks from other countries are also buying gold. More are inevitably considering increasing their gold reserves in diversifying away from the USDollar.

http://www.reuters.com/article/businessNews/idUSTRE5AF0CP20091116?pageNumber=1&virtualBrandChannel=0

China, now the world's largest gold producer, has been stealthily increasing its gold reserves, doubling its tonnage since 2003.

Of particular interest is this note in the article:

The Royal Bank of Australia has not bought any gold since selling two-thirds of its reserve in 1997.

Australia is a huge exporter of natural resources, including gold. It would not surprise me if they keep more of their output for domestic use going forward. Selling gold in the latest 90's was classic selling at the bottom, much like Great Britain's Gordon Brown did.

In an amusing sequence of press releases, the Russia State Depository announced they would sell 50 tons of gold on the open market. A day iater, the Russian central bank denounced the planned gold sale (in light of gold's rising prices). The day after that, the State Depository announced any gold sales would end up in Russia's central bank. One has to appreciate totalitarianism.

Net purchasing--instead of selling, by central bankers worldwide infers gold's surge in price won't end any time soon.

President Nixon was a crook--and a liar

In this classic video, President Richard Nixon lies on almost every point regarding removing the gold standard. Note that since 1971, the USDollar has lost 97% of its purchasing power relative to the price of gold.

Gold in backwardation--again

I noticed gold went into backwardation against late Friday, signalling another run up in price in Asian trading this morning (it's Sunday night in the US right now). I've written several blogs on backwardation (please do a search for details), and what it infers. In normally functioning commodities markets, a contango exists where the spot price is lower than forward contracts, to account for storage, insurance, and security costs. This is normal in assets like crude oil or precious metals.

But when there is a physical shortage, and when buyers of forward delivery contracts demand physical delivery, in lieu of cash settlement, sellers have to scramble to find said inventory. This causes prices on the physical market to be bid up, which signals price bullishness.

Sure enough, gold and silver prices are trading up in Asian markets this morning. The huge short positions by the bullion banks will either cause a sharp pullback, or they are about to be stampeded by the long speculative funds and central bank gold buyers.

Zimbabwe

Zimbabwe has been the butt of many callous financial jokes, the poster child of runaway hyperinflation and its tragic consequences. As a result, President Roger Mugabe and his thugs were printing 100 hundred trillion dollar bills. Hence, citizens either starved or migrated to neighboring countries as grocery markets couldn't stock shelves due to government mandated price controls, even as their cost of goods spiraled out of control.

After the abandonment and collapse of the Zimbabwe dollar in February 2009--a reset of the currency essentially, the Zimbabwe economy has actually recovered robustly, albeit from very low levels. Unshackled by price controls and foreign currency regulations, free markets are returning in Zimbabwe, despite continued strict credit financing. The Zimbabwe case study may provide a micro illustrative portend of what is and could be occurring in the United States.

Let's hope the USDollar doesn't become the butt of currency jokes.

http://www.kitco.com/ind/Field/nov112009.html

Lloyd's Prayer

After Goldman Sachs Chairman Lloyd Blankfein glibly said his firm was "doing God's work" during an interview (a remark which he later dismissed as a joke), the jokesters on Wall Street had a field day. Among the more clever:

Our Chairman,
Who Art At Goldman,
Blankfein Be Thy Name.
The Rally's Come. God's Work Be Done
On Earth, As There's No Fear Of Correction.

Give Us This Day Our Daily Gains,
And Bankrupt Our Competitors
As You Taught Lehman And Bear Their Lessons.
And Bring Us Not Under Indictment.
For Thine Is The Treasury,
The House And The Senate,
Forever And Ever.

Goldman

Given taxpayers bailed banks out last year after horrendous losses, and given these same taxpayers are either furloughed or unemployed today, and given Wall Street is now patting themselves on the back for the recent liquidity-induced market rally, and given Wall Street is about to pay itself $30 billion in bonuses, "Lord" Blankfein should choose his words more carefully next time.

Jim Cramer jumping on the gold bandwagon

Jim Cramer of CNBC's Mad Money was praising gold's all-time new highs today, as well as a couple gold mining ETF's. Which caused me to pause, as he's been bashing the shiny metal for a while. To his credit, I believe his trust fund owns Agnico, a gold miner.

Could this about-face be the death knell for gold's ascent? Perhaps a correction is in order, and I did take a little profit off the table yesterday. Cramer has been a good contrarian indicator, as I believe most of his calls are wrong-way bets (sorry, Jim, but your track record is questionable), but that doesn't mean gold will stop climbing in price. A correction is expected after recent surges, but the secular bull market for gold since 2001 is still intact, in my opinion. In which case, I'm with Cramer on this one. Booyah!

As long as central bankers worldwide are accomodative with low interest rates and stimulative monetary policies, gold has nowhere to go but up.

I started buying gold and silver coins and mining shares last November, gradually adding to my holdings ever since on dips. With the exception of one, all the mining shares have appreciated triple digits since then, yet Cramer is only now touting the yellow metal. Curious, but predictable.

Does this mean I will exit all my precious metals holdings? After all, as a contrarian, you want to bet against the extreme majority. When sentiment gets too exuberant, you sell. Likewise, when there's blood in the streets, you buy. In other words, has the trade become too crowded? Absolutely not. Because even though some people are now understanding the logic behind holding precious metals as an inflation hedge and as a reliable store of value, very few have acted on this knowledge. I would argue most people don't understand the value of gold--or just have a distaste for the yellow metal. Most won't jump aboard until the mania phase kicks in at much higher prices, when everyone and their brother will be recommending gold as a speculative bet, without understanding its intrinsic role as a means of preserving purchasing power.

The prudent strategy is to sell into that mania--not buy into it. The parabolic rise in gold and silver prices probably won't occur for a few more years, the normal lag time behind an increase in the money supply. Inflation usually doesn't kick in until these massive liquidity injections eventually flow through the economy via bank lending. But then again, we are in uncharted territory. This is a monetary experiment run by mad scientists at the Fed and US Treasury. No country has ever printed so many trillions of dollars so quickly.

An orderly decline of the dollar will cause a steady climb in gold and silver. But should there be a run on the dollar in a currency crisis, the mania phase in hard assets will go into high gear almost overnight.

See disclaimers on the sidebar.

Disclosure: long gold and silver, and long gold mining shares.

Currency crisis

People challenge my assertions that a weak currency is ultimately bad for a country. They will argue that an artificially cheapened dollar stimulates exports and dampens imports, as exporters become more competitive in the global marketplace. This is true in the short-term, as exports are cheaper relative to exports from other countries. This leads to economic and job growth.

However, longer-term ramifications are insidious: currency debasement, inflation (diminished consumer purchasing power), asset bubbles, and higher interest rates down the road. If monetary easing is too exorbitant, it could give way to hyperinflation and ultimately, a currency crisis.

A currency collapse has eventually occurred to every paper currency known to mankind. It recently happened in Iceland and Argentina--twice. Many other countries are on the brink. The US is at risk over the next several years, due to rampant increases in the money supply.

Depicted is the aftermath of such a currency crisis, during Iceland's economic implosion last year:

The decline of the krona, which has lost half of its value since the start of 2008, has resulted in rampant inflation, which is now over 20 percent. Many people are seeing costs skyrocket, particularly on imported goods. Due to the high interest rates in Iceland, many people took out loans in foreign currencies where interest was lower. For them, costs have doubled

The economy is set to suffer a severe contraction in the coming year. Lars Christensen, an economist from Dansk bank commented, "Given the base now, GDP will then fall at least 10 percent, or even 15 to 20 percent."

Ironically, this information came from the World Socialist Website (see the whole article on Iceland):

http://www.wsws.org/articles/2008/dec2008/icel-d20.shtml

These are the unintended consequences of excessive government spending and public debt.

Unemployment

You thought the US had unemployment problems. The official unemployment rate in the US is 10.2%, but according to shadowstats.com, the unofficial rate is 17.5%, if you include people who stopped looking for work, and no longer receiving unemployment benefits (i.e. they are still unemployed) and workers at an undesirable position earning less than what they previously earned. These numbers are admittedly horrible by everyone, the worst since the early 1980's by some measures, or the worst since the Great Depression by others.

But Spain has it even worse. Their official unemployment rate is 19.3%, but their unofficial rate is 34%! Latvia's official unemployment rate is 19.7%. Folks, that's no recession--that is an outright depression.

The alleged silver lining is unemployment figures are a lagging indicator, meaning the economy recovers before employment does. This is true, but this Great Recession has been so deep, and the economy has been so severely impaired, that it may take much longer before cash-strapped and credit-starved companies start hiring again.

If the American consumer is broke and jobless, they won't be consuming.

Hence, the "jobless recovery" may not be a recovery at all.

von Mises vs. Keynes

John Maynard Keynes has more followers (inside the US government and its banking cartel), and has an economic theory named after him. Ludwig von Mises is largely forgotten by the mainstream financial press, even though his track record of predictions has been much better. A disciple of the Austrian School of Economics, von Mises was a libertarian who predicted in the 1920's that government intervention created distortions in credit and financial markets, causing asset bubbles that would eventually burst. Does that sound familiar?

In any case, his prediction came true in 1929, yet he was marginalized yet again with the emergence of Keynes in 1936, who espoused printing currency and running deficits in order to escape the throes of a Great Depression. Again, does that sound familiar?

Many from the intelligentsia mistakenly believe we are in the midst of a war of ideaologies, i.e., GOP vs. Democrats, conservatives vs. liberals, etc. In regards to financial policies, it's partially true, but not completely, because Administrations and legislators from both sides of the aisle have run up enormous budget deficits, while resorting to printing currency to fund the deficits. They have borrowed trillions from foreign sovereign funds, and contributed to the insolvency of entitlement programs such as Social Security and Medicare. We are simply a country that spends money we don't have.

In short, our government's fiscal and monetary policies have been reckless and irresponsible. President Obama and Congress are following the wrong playbook.

http://online.wsj.com/article/SB10001424052748704471504574443600711779692.html (you may need a subscription to read this article)

Another gem by Greenspan

Alan Greenspan did a complete 180 degree turn from his free market youthful days to a Keynesian, market-manipulating Federal Reserve Chairman. I presume that's how one climbs pay-grade levels within the Fed.

In this expose on how Gordon Brown sold the UK's gold reserves at the absolute bottom, plundering the country's wealth in the process, we learn several things:

1) Germany's gold reserves aren't in Germany at all. They are stored in New York.
2) Gordon Brown is a terrible market timer.
3) Greenspan's warning to Brown to not sell his country's gold needs no explanation: "Germany in 1944 could buy materials during the war ONLY with gold. Fiat money paper, in extremis, is accepted by NOBODY. Gold is always accepted." - Alan Greenspan, 1999

He should have added Germany lost World War II.

Spot price vs. street price

I stopped by a local reputable coin dealer yesterday, to pick up some gold and silver coins, and happened to see a sign on one of their displays: "We pay higher than spot prices for gold bullion." Remember: coin dealers have to mark up whatever they pay for their gold purchases, so why would they pay higher for gold bullion from a retail seller--when they could just buy a contract at the COMEX for a lower price? Could it be there is a physical shortage at the COMEX also?

In the local Vietnamese gold market, the premium on the street price for gold above the worldwide spot price reached as high as $59.37. Clearly, there is a worldwide shortage of physical inventory, as premiums firm up above spot prices.

Think about it: why would the spot price, established by the COMEX in New York, or the London Metals Exchange, be so much lower than the true market price? Could it be further evidence that bullion banks are using naked shorting of paper contracts to artificially suppress exchange prices? Furtheremore, could these lower COMEX prices not be reflective of the true price of gold?

Despite setting new all-time highs in nominal prices, gold seems to be setting new support levels--and not new resistance levels, as two central banks (from India and Sri Lanka) stockpile gold, instead of selling their inventory. Other central banks are looking to bid for the remaining IMF inventory for sale, after India swooped in and purchased half of the original 403 tons. China, Russia, and Brazil are looking to shore up their gold reserves. They are coming to the realization that holding USDollars in their reserves is a riskier proposition than holding gold.

Is a correction coming?

Shorts have been torched since the March lows, betting on a market correction as traders climb the wall of worry, waiting for the next shoe to drop. The problem is the Fed has flooded the market with liquidity, lending to banks at zero interest rates, encouraging the carry trade as these banks invest in equities, bonds, and commodities. Hence, the elevation in these assets, despite a lousy economy.

In essence, a cheapened dollar is bullish for other asset vehicles. The Fed, and now the G-20 countries, have declared easy money policies will be extended to at least mid-2010, when they may take the punch bowl away.

Having said that, I expect a correction in both equities and gold soon, albeit temporary, as the short dollar trade is getting really crowded. When a a consensus builds, it's usually prudent to take the opposing side--at least until sentiment becomes less lopsided. Additionally, as the dollar keeps getting trashed, foreign governments are becoming increasingly concerned at their stronger currencies vis-a-vis the dollar, making their exporting industries less competitive (although their consumers enjoy the weak dollar when they travel as tourists to the US).

So I believe their central banks will intervene in unison in buying dollars and selling their own currencies. It'll be a death race to the bottom---to see which countries can devalue their currencies the most, in order to stimulate their own domestic economies.

This (temporary) strength in the dollar will tank gold, commodities and stocks, in my opinion. This is what happened in Quarter 4 2008, although the dip won't be as pronounced this time around, as there are many more buyers to stem the decline, including big hedge funds and foreign central banks. The bullion shorts have more formidable opponents with deeper pockets now.

Obviously, President Obama, the Fed and US Treasury don't want a repeat of 2008, so they will keep printing dollars. After the correction, the dollar will resume its downward trajectory. The only question is WHEN this correction will occur.

I'm not selling everything, especially if I'm waiting for a biotech event, but I sold a small portion of my gold positions today. I will look to add to my gold position on any pullback. If it doesn't occur, I won't beat myself up. It's been a good run with the yellow and white metals already, up triple digits in the mining stocks. But when I see Bank of America forecasting $1500/ounce gold, and mainstream pundits predicting $3,000 gold, I get nervous.

Where were these analysts last year when gold was $675, and some of these mining shares were penny stocks? The answer was they were still in the major equities indices--and subsequently got hammered in the financial meltdown.

I'm not selling all my current positions in gold, because 5 years from now--or less, we could see $2500 gold. Trading in and out of positions is seldom rewarding. I'm just taking profits, only because I can, without running for the exits.

It's similar to when I sold some BCRX at $6.70 price per share (pps), after buying in the $2's and $3's after the initial swine flu outbreak earlier this summer. Do I regret it now that it's at $11? Yes, but after being honest about it, it was the right thing to do. I won't get rich on this one trade, but I'll be around to play another day. I still have house money on the table, and even added a little today on the dip, so I'm still in the game.

I'm not trying to optimize my returns--I'm trying to play the probabilities, and hedge my longs. Since the short dollar / long gold trade is too crowded, I'm stepping back from the cliff, but I'm not leaving the beach.

See disclaimers on the sidebar. Do your own due diligence. These are not specific recommendations on assets or positions. Good luck.

Disclosure: I am long gold and silver mining stocks, and long BCRX shares. But obviously, I am expecting pullbacks in both asset classes.

My Facebook post on deficit spending

Kathleen, not to single you out, as I do agree with you on the benefits of hope, but when the hopes are built on a false foundation, the house will crumble. Ask Shawna, as I'm sure she is aware of my thoughts--and investment theses. It's built on mistrust of government fiscal and monetary policies. It's got nothing to do with Dems vs. GOP, or conservative vs. liberal, etc. Obama and Pelosi just happen to take it to unprecedented extremes, as our nation's currency--and hence, our sovereignty are now at risk of being irrelevant.

Long story short, you could quite possibly be holding confetti, built on false promises from the Fed and US Treasury, with the complicity of our banking industry, who Congress conveniently bailed out, while they appropriate all this deficit spending. The US is running a massive Ponzi scheme, taking in taxes on social security and other unfunded entitlement programs--knowing full well payers will never see a dime back.

I'm in the business of risk management, not in the business of forming ideaological judgments, and unfortunately, the average American is an unwilling participant in the huge casino of the world's financial system. It includes citizens who pay taxes, have home mortgages, credit cards, retirement savings, or merely hold the USDollar. In other words, every single American.

The financial implications go well beyond whether Congress enacts healthcare reform, cap and trade, or any other bill. The crux of it comes down to you can't keep spending money you don't have. Because in our case, the foreign creditors who have been lending us this money, will eventually say "Enough!", and then the music will stop.

The US government has been bailing out failing industries, and foreign sovereign funds have been buying Treasury bills to fund our debts, but when they realize the US government itself is already bankrupt, they won't be bailing us out.

Sorry to take the punchbowl away, but the G-20 countries have already pissed in it.

FDIC is broke

The Federal Deposit Insurance Corporation (FDIC) insures bank deposits up to $250,000, and this is why it is broke:

http://www.fdic.gov/bank/individual/failed/banklist.html

This list of failed banks will grow longer as residential foreclosures continue, and commercial real estate loan defaults accelerate.

FOMC press release

In the November 4, 2009 Federal Open Market Committee (FOMC) press release:

http://www.federalreserve.gov/newsevents/press/monetary/20091104a.htm

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Furthermore,

Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

My take: great, as the average worker is losing their job--or has their salary cut, and their home value is further eroding, and they can't get a loan, they're managing to spend more money.

Anything wrong with that picture?

Sprott Management on the big con

I'm starting to like this guy John Embry. He's a gold bug, but he makes a lot of sense, and has a track record to back it up.

http://www.sprott.com/Docs/InvestorsDigest/2009/10_23_2009%20Con%20job%20in%20the%20financial%20markets%20continues.pdf

GLD vs. physical gold

The Exchange-Traded Fund (ETF) GLD has been a popular vehicle for investors interested in participating in gold price appreciation--and as a hedge against inflation and financial crisis. But there is a potential downside, as previous mentioned. According to James Turk:

“For now, gold is marching to a different drummer,” says Mr Turk. “We are seeing a scramble for physical metal, and that demand is driving gold higher. Buyers are opting for physical gold, not paper gold.”

He points out that when gold was trading at $870 an ounce back in early April, the SPDR Gold Trust – the world’s largest gold exchange-traded fund – recorded ownership of 1,127 tonnes of the metal. Since then, SPDR’s holding has shrunk by 20 tonnes, but gold has climbed by more than $200. “It is a clear example that buyers want physical gold and not paper gold. They are opting for the real thing, not a substitute.

“Why? Because risk aversion has returned to centre stage as worries about bank solvency have resurfaced. It is possible we have been in the eye of the hurricane. Physical gold does not have counterparty risk, which makes it the safest haven of all.”

With a shortage of physical gold, many doubt the gold paper certificates are actually backed by physical inventory, with matching serial numbers.

Of course, there are disadvantages of owning physical gold--especially with bullion, including safe storage and security. But in times of extreme financial crisis, claiming that physical gold may be difficult--if it doesn't exist.

Just in: Peramivir receives competition

http://www.nytimes.com/2009/11/06/business/06drug.html?_r=1

But peramivir will soon have competition. The federal government said late Thursday that it had also ordered 10,000 treatment courses each of intravenous versions of Tamiflu and Relenza, with options to buy 30,000 more courses of each.

Those drugs could not be used, however, until they received emergency use authorizations from the F.D.A.

The government is paying an average of only $450 a course for those other drugs — only one-fifth of what it is paying for peramivir.

Right now, Dr. Lurie said, peramivir is the only drug that can be used intravenously so the government had to pay a high price. “I would say that one of the things that happens in the market when you have competition is that the price drops.”

It looks like the government wants to create competition and reduce the price of intravenous (IV) anti-virals. The problem is that Tamiflu IV and Relenza IV, have not even gone through Phase 1 or Phase 2 clinical trials yet, much less Phase 3. Receiving Emergency Use Approval (EUA) will prove to be a challenge, as BCRX receiving EUA for Peramivir has been challenging enough--even after years of clinical trials.

This is a case of two big foreign pharmaceutical companies fighting back to regain market share they've lost to an upstart US biopharmaceutical company. Tamiflu and Relenza are still effective in many cases against the novel H1N1 virus in their present form, oral and inhalant, respectively. But the seasonal flu is almost 100% resistant to Tamiflu, and starting to show resistance against Relenza.

IV Peramivir has shown to have 90% efficacy in saving lives of complicated cases of the H1N1 virus--when all other measures have failed. If and when Tamiflu IV and Relenza IV receive EUA, it remains to be seen whether they can show similar capability in saving lives.

BCRX announces initial HHS order

BioCryst Pharmaceuticals (symbol "BCRX") announced shipment of an initial order from the Department of Health and Human Services (HHS). The order for 10,000 courses was for the amount of $22.5 million, setting a price of $2,250 per course for Peramivir, the intravenous anti-viral treatment for the novel H1N1 pandemic influenza virus. The order was shipped under the Emergency Use Authorization (EUA) issued by the Food and Drug Administration (FDA) on October 23, 2009. The HHS may order up to 30,000 more courses at the same unit price.

BCRX is manufacturing up to 130,000 courses total to be shipped by the end of the year, as they expect additional orders from other countries.

http://investor.shareholder.com/biocryst/releasedetail.cfm?ReleaseID=422102

In a related press release, "BioCryst Pharmaceuticals, Inc. (Nasdaq: BCRX) today announced that its partner, Shionogi & Co., Ltd. has filed a New Drug Application (NDA) in Japan to seek regulatory approval for intravenous (i.v.) peramivir to treat patients with influenza. As a consequence of this filing, BioCryst will receive a regulatory milestone payment of $7 million under its agreement with Shionogi."
http://investor.shareholder.com/biocryst/releasedetail.cfm?ReleaseID=421714

Disclosure: long BCRX shares.

Could gold shorts be heading toward the exits?

Previous blog entries detail the price suppression schemes of bullion banks, offering the Commitment of Traders (COT) and Bank Participation Reports as evidence of large, concentrated, and naked short positions of a few US banks. In fact, the fact that so few banks hold such large net short positions is by definition, price manipulation.

Let's look at the US Treasury's Office of the Comptroller's own website for additional supportive evidence.

Note Quarter 3, 2008 data on Bank Trading and Derivatives Activities. The sheer size of derivatives trading should scare readers enough, but let's just focus on gold derivative contracts on page 30:

http://www.occ.treas.gov/ftp/release/2008-152a.pdf
We see JPMorgan had $71,180,000,000 in notional value of gold contracts of less than 1 year expiration, and HSBC had $22,834,000,000 of gold contracts with less than 1 year expiration, which represents approximately 70 million and 20 million ounces of gold, respectively, for delivery within a one-year time period. Did JPMorgan and HSBC have this much gold in their vaults?

Almost a year later, we can examine Quarter 2, 2009 data, on page 30:
http://www.occ.treas.gov/ftp/release/2009-114a.pdf
JPMorgan had $57,922,000,000 of gold contracts to deliver. HSBC no longer had any gold derivative contracts.

Could this be a sign that bullion banks are slowly exiting their short positions, i.e. covering their consistently money-losing positions? And could this be why gold has continued to advance in price recently?

Only time will tell, but when awareness of the price manipulation of gold and silver becomes more pervasive, and the shortage of physical inventory becomes more acute due to said price suppression (when prices are artificially set too low and producers have no incentive to explore and mine for new resources, a supply shortage develops), a "fail to deliver" will turn a gently-sloping uptrend in prices into a sharp spike upward.

A shortage of physical precious metals

Since there is a shortage of physical gold and silver, bullion banks with permanent net short positions on COMEX gold and silver are also using the gold ETF GLD and silver ETF SLV as vehicles to put on naked short positions. This becomes part of their grand scheme to surreptitiously suppress the prices of both precious metals.

Exchange-Traded Funds are regulated by the SEC, while the watchdog for the COMEX is the CFTC, so price manipulation can occur in both markets, resulting in confusion (or complicity) among both regulators.

In other words, instead of a short seller delivering physical bullion as settlement of a COMEX forward contract, the short seller can just use shares of the ETF as collateral. Clearly, this avoids physical delivery, and enables naked short positions as no physical delivery occurs. These ETF's are merely paper certificates allegedly backed by real bullion, but their independent auditing is spotty, so theoretically, shorting an ETF can occur ad infinitum--which creates further selling pressure. Hence, naked shorting is illegal, yet the bullion banks (commercial shorts) are practicing it in order to suppress gold and silver prices lower.

In essence, bullion banks can now short COMEX futures contracts, as well as precious metals ETF's, many of those being naked short positions.

Until these criminal activities among bullion banks, gold producers, and the Federal Reserve itself are exposed for what they are, gold and silver buyers can do their part by insisting on physical delivery on expiry of futures contracts, in lieu of settlement via cash. This will force the short sellers to find physical gold and silver in the open market--if indeed their short positions are naked. Eventually, a "fail to deliver" will occur on the COMEX or London Metals Exchange, and the Emperors will truly be naked.

Barrick accelerates unhedging its gold positions

Barrick Gold, the world's largest gold producer, announced last month it was removing its hedge positions over the next year, as the hedges were dampening profitability in an environment of higher gold prices. In a Bloomberg interview, Barrick's CFO said it plans to accelerate the de-hedging strategy, buying back gold bullion and closing out short positions.

http://www.reuters.com/article/basicMaterialsSector/idUSL272564320091102

Translation: one the world's biggest gold shorts (at least they produce gold, instead of naked shorting it) is not just walking away, but RUNNING FOR THE EXITS, in anticipation of higher gold prices.

I wonder what the naked shorts at JPMorgan and HSBC are thinking right now. Hint: expect open interest (new short contracts) to explode over the next several days, as the shorts double down in an attempt to surreptitiously suppress COMEX gold and silver.

Either that, or the shorts will get trampled, which is an eventuality. A COMEX "failure to deliver" will occur within the next few years, but these IMF gold sales may ultimately leak back into the open market, causing a temporary decline. But there are just too many institutional and retail buyers worldwide to sustain a meaningful correction. The secular bullish trends in gold and silver are still intact.

Good luck to all.

Gold surges on big purchase from India

Gold surged over $30 an ounce on news that India purchased gold bullion from the International Monetary Fund.

http://www.google.com/hostednews/afp/article/ALeqM5gpy6qZffFaeQTCC8teVyT9Nka0JQ

The next relevant question is: who is next? Central bankers from China? Russia? India, again? Japan? Other Asian countries? The Middle East? Brazil?

Probable answer: all of the above.

Congress Created Dust Bowl

"Congress Created Dust Bowl"

That was the slogan on literally dozens of signs on both sides of Interstate 5, north of Los Angeles and south of Sacramento. The high winds of California's Central Valley created dust storms which reduced visibility to virtually zero last Monday, as on acre after hectare sat empty farm fields and orchards. Images of John Steinbeck's "The Grapes of Wrath" came to mind. Apparently, the drought and recession are taking their toll on farmers, as they can no longer afford fertilizer and water. I've read irrigated water costs $600 an acre now, up from $30 an acre pre-drought.

We had plenty of rain (and snow) earlier in 2009, but it has not made up for the previous 3 years of drought. With Las Vegas and southern California's appetite for water increasing annually, northern California and Nevada (the Sierra Nevada) just do not have enough water to distribute to their southerly neighbors.

What will this lead to? California is considered the world's bread basket, feeding half of the US, and a quarter of the world's population. If indeed farmers are letting their crops die and laying idle farm fields statewide, expect to see price increases in your grocery isles. Additionally, a weakened dollar will also increase commodity prices in the COMEX exchange. This will inevitably drive food prices up.

Michelle Obama and her daughters planting seeds for the White House garden wasn't just a Kodak moment--it was an omen.