The FOMC Meeting: The Fed…Caught in a Trap of Its Own Making

27 July 2019 — Saturday


The gold price rose and fell a small handful of dollars during the Far East trading session on their Friday — and the low tick was set at the 2:15 p.m. afternoon gold fix in Shanghai.  It rallied a bit until the 8:20 a.m. COMEX open in New York — and was sold down a bit until a minute or so after 8:30 a.m. EDT.  It rallied nicely until about 9:20 a.m. — and then was sold quietly and unevenly lower until around 3:45 p.m. in after-hours trading.  It then edged higher by a few dollars going into the 5:00 p.m. close.

The low and high ticks certainly aren’t worth my effort to look up.

Gold was closed on Friday at $1,418.30 spot, up $4.30 from Thursday.  Net volume was very much on the lighter side at 170,500 contracts — and there was a hefty 136,000 contracts worth of roll-over/switch volume out of August and into future months.

Silver’s price path was mostly similar to gold’s…except the rally that developed after the afternoon gold fix in Shanghai was more or less capped at the London open — and it traded pretty flat until shortly after the noon BST silver fix.  It then rallied a bit going into the COMEX open — and from there it was forced to follow a similar price path as gold.

The low and high ticks in this precious metal, which are barely worth looking up, were recorded by the CME Group as $16.49 and $16.70 in the September contract.

Silver was closed at $16.35 spot, down 2.5 cents from Thursday.  Net volume was on the heavier side at 74,000 contracts — and there was 6,700 contracts worth of roll-over/switch volume on top of that.

Platinum was up a few dollars by around noon China Standard Time on their Friday, but was then sold quietly lower until shortly after 11 a.m. in Zurich.  From that juncture it chopped quietly and unevenly higher until the afternoon gold fix in London — and from there it was sold lower until a few minutes before 12 o’clock noon in New York.  It then crawled a bit higher until shortly before 3 p.m. in the thinly-traded after-hours market — and didn’t do a lot after that.  Platinum was closed at $863 spot, down 3 bucks on the day.

The palladium price was all over the map in a ten dollar price range everywhere on Planet Earth on Friday — and it was closed at exactly unchanged on the day at $1,511 spot.

The dollar index was closed very late on Thursday afternoon in New York at 97.82 — and opened down 3 basis points once trading commenced at 7:45 p.m. EDT on Thursday evening, which was 7:45 a.m. China Standard Time on their Friday morning.  It crawled lower by a handful of basis points until around 10:45 a.m. China Standard Time on their Friday morning — and then began to rally unsteadily higher.  The 98.09 high tick was set about 11:15 a.m. in New York — and it edged quietly lower into the 5:30 p.m. EDT close from there.  The dollar index finished the Friday session at 98.01…up 19 basis points from Thursday’s close.

The price paths that silver and gold were lead on yesterday, certainly didn’t match up with the goings-on in the currency market on Friday.

Here’s the DXY chart, courtesy of Bloomberg as per usual.  Click to enlarge.

And here’s the 5-year U.S. dollar index chart, courtesy of the folks over at the Internet site.  The delta between its close…97.75…and the close on the DXY chart above, was 26 basis points on Friday.  Click to enlarge as well.

The gold shares had an up/down/up move once trading began at 9:30 a.m. in New York on Friday morning — and by 10:45 a.m. were back at the unchanged mark — and didn’t stray from it by much after that.  The HUI closed down 0.29 percent, which I found somewhat surprising considering that the underlying precious metal spent the entire New York trading session in positive territory by a very decent amount.

The silver equities traded wildly around the unchanged mark during the entire New York trading session — and they also closed a bit lower on that day.  Nick Laird’s Intraday Silver Sentiment/Silver 7 Index finished the Friday trading session down 0.12 percent…so call it unchanged.  Click to enlarge if necessary.

And here’s Nick’s  1-year Silver Sentiment/Silver 7 Index, updated with Friday’s doji.  Click to enlarge as well.

Here are the usual three charts from Nick that show what’s been happening for the week, month — and year-to-date. The first one shows the changes in gold, silver, platinum and palladium for the past trading week, in both percent and dollar and cents terms, as of their Friday closes in New York — along with the changes in the HUI and the Silver 7 Index.

Here’s the weekly chart — and because ‘da boyz’ were very active in the precious metals, both gold and silver didn’t do all that well — and the shares obviously suffered.  Although platinum and palladium fared better, that’s not saying much.  Click to enlarge.

The month-to-date chart is much happier looking — and the gold equities are vastly outperforming their golden brethren.But that’s a state of affairs that won’t continue in the longer term.  ‘Da boyz’ attempt to knock palladium lower this month, hasn’t met with much success.  Click to enlarge.

Here’s the year-to-date chart — and it’s pretty terrific looking as well.  And as I pointed out last week, JPMorgan’s near death grip on the silver price is more than obvious in this chart.  But the ratios are much more in line in both the HUI and the Silver 7…compared to the gains of their underlying precious metals.  Click to enlarge.

‘Da boyz’ are still out there going short against all comers — and there are no signs that I can see that they’re about to be overrun, so I’m not breaking out the party favours as of yet.  And as I said in this space last week, it still remains to be seen if JPMorgan et al can pull off another round of engineered price declines in both silver and gold, considering the current financial and monetary environment that they’re facing.  But regardless of that, it appears that the gold and silver equities are in accumulation mode, as they look to be pretty much the best performing asset class so far year-to-date.

NOTE: In the interest of full disclosure, I should point out that I made some internal changes to my stock portfolio yesterday.  I sold a decent chunk of my gold mutual funds — and half of my physical gold and silver funds…both of which I was overweight in anyway.  With the proceeds I increased my holdings in Alexco Resources by 50 percent — and my stake in First Majestic Silver by 100 percent — and Pan American Silver by about 100 percent.  I also purchased a position in MAG Silver — and have intentions of adding Impact Silver to my portfolio on Monday.

I’m still “all in”.

The CME Daily Delivery Report showed that 5 gold and 22 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.

In gold, the two short/issuers were ADM and Advantage, with 3 and 2 contracts respectively — and the three long/stoppers were Advantage, JPMorgan and Morgan Stanley…with 3, 1 and 1 contracts for their respective client accounts as well.

In silver, the two short/issuers were ADM and Advantage, with 17 and 5 contracts from their respective client accounts.  Of the two long/stoppers in total, the only one that mattered was the CME Group, as they picked up 21 contracts for their own account.  They immediately reissued those as 21×5=105 one-thousand ounce COMEX mini silver contract and, as usual, ADM stopped them all.

Month-to-date there have been 963 gold contracts issued/reissued and stopped — and that number in silver is 4,521.  These are also the totals for the entire month of July, as the remaining July contracts in both precious metals are now posted for delivery on Tuesday.

The link to yesterday’s Issuers and Stoppers Report is here.

The CME Preliminary Report for the Friday trading session showed that gold open interest in July declined by 4 contracts, leaving 5 open, minus the 5 mentioned a few paragraphs ago.  Thursday’s Daily Delivery Report showed that 4 gold contracts were actually posted for delivery on Monday, so the change in open interest and deliveries match.  Silver o.i. in July declined by 55 contracts, leaving only 22 left, minus the 22 mentioned a few paragraphs ago.  Thursday’s Daily Delivery Report showed that 56 silver contracts were actually posted for delivery on Monday, so that means that 56-55=1 more silver contract was added to the July delivery month.

Based on what you see in the above paragraph, the July delivery month will be completed as of the close of business on Tuesday, as the remaining contracts in both gold and silver are out for delivery on that day.

For the fourth day in a row there was a withdrawal from GLD, as an authorized participant removed 37,728 troy ounces.  And for the second day in a row there was a withdrawal from SLV, as an a.p. took out 1,029,574 troy ounces.

There was another tiny sales report from the U.S. Mint on Friday.  They sold 147,000 silver eagles — and that was all.

Month-to-date the mint has sold 4,000 troy ounces of gold eagles — 500 one-ounce 24K gold buffaloes — and 484,000 silver eagles.  The retail bullion market is still moribund.

There was a bit of activity in gold over at the COMEX-approved depositories on the U.S. east coast on Thursday.  There was 2,899 troy ounces received at Delaware — and there was 2,507.700 troy ounce/78 kilobars [U.K./U.S. kilobar weight] shipped out of Canada’s Scotiabank.  The link to that is here.

There was very little activity in silver, as only 226,111 troy ounces was received at CNT — and there was no ‘out’ activity at all.  There was a paper transfer of 85,066 troy ounces from the Registered category — and back into Eligible over Brink’s, Inc.  The link to that is here.

There was some decent activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday.  They didn’t report receiving any, but they did ship out 1,950 of them.  All this occurred at Brink’s, Inc. as per usual — and the link to that, in troy ounces, is here.

The Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday, July 23 was, as Ted said on the phone yesterday…”pretty much what I had feared“…as the commercial net short positions increased in both precious metals.

In silver, the Commercial net short position blew out by another 16,781 contracts, or 83.9 million troy ounces of paper silver.

They arrived at that number by decreasing their long position by 4,116 contracts — and they also added another 12,665 short contracts.  It’s the sum of those two numbers that represents their change for the reporting week.

Under the hood in the Disaggregated COT Report it was all Managed Money traders — and much, much more…as they increased their long position by 11,799 contracts — and also reduced their short position by 12,093 contracts.  It’s the sum of those two numbers…23,892 contracts…that represents their change for the reporting week.

The difference between that number — and the Commercial net short position…23,892 minus 16,781 equals 7,111 contracts…was made up, as it always must be, by the traders in the other two categories.  But it was mostly the traders in the ‘Other Reportables’ category that made up the difference, as they decreased their net long position by a very healthy 6,556 contracts, with the ‘Nonreportable’/small traders making up the 555 contract difference.

Ted unhappily reported that JPMorgan increased their short position up to the 20-25,000 contract mark…from the 10-15,000 contracts that he figured they were short in last week’s report.  He also mentioned that most likely 3 of the Big 4 traders on the long side were all of the Managed Money variety as of this weeks’ report.

The Commercial net short position in silver is now up to 76,138 COMEX contracts, or 380.7 million troy ounces.

Here’s the 3-year COT chart for silver — and the further deterioration should be noted.  Click to enlarge.

We’re firmly back in bearish territory in silver from a COT perspective once again, but whether we end up with the same old ‘wash, rinse, spin…repeat’ cycle that we all know, remains to be seen.

In gold, the commercial net short position increased by 10,431 COMEX contracts, or 1.04 million troy ounces of paper gold.

They arrived at that number by adding 10,431 short contracts — and it should be noted that they didn’t sell a single solitary long contract during the reporting week…it was all short selling.

Under the hood in the Disaggregated COT Report, the Managed Money traders didn’t do much for whatever reason, as they actually decreased their long position during the reporting week by a smallish 1,886 contracts, which was rather unusual.

Since that was the case, you have to add that number to the change in the commercial net short position…1,886 plus 10,431 equals 12,317 contracts…to get the net change for the reporting week.

Of course it was the traders in the other two categories that made up that difference, as both the ‘Other Reportables’ and the ‘Nonreportable’/small traders increased their net long positions during the reporting week…the former by 7,635 contracts — and the latter category by 4,682 contracts.  The sum of those two numbers adds up to those 12,317 contracts, which they must do.

The above numbers, along with the fact that the commercial traders didn’t sell one long position during the reporting week, I found most strange.  If it means anything, I’m sure that Ted will have something to say about it in his weekly commentary later today.

I seem to remember Ted saying that he felt that the Managed Money traders were about as ‘all in’ on the long side as they were likely to get, so that may account for the fact that their positions didn’t change much during the reporting week.

The commercial net short position in gold is now up to 28.78 million troy ounces.

Here’s the 3-year COT chart for gold, courtesy of Nick Laird — and this week’s further deterioration should be noted.  Click to enlarge.

We’re still firmly in bearish territory in gold — and a bit more after this week’s COT Report.  Ted said that JPMorgan et al could engineer a price decline in gold [and silver] at any time of their choosing, as they are still in control of these markets — and are still the short seller of last resort — and first resort, if required.

In the other metals, the Manged Money traders in palladium decreased their net long position in this precious metal by a paltry 83 contracts.  These are the kind of volumes that move the palladium market…piddling.  The Managed Money traders are net long the palladium market by 14,079 contracts…56 percent of the total open interest.  Total open interest in palladium is 25,034 COMEX contracts, down less than 200 contracts from the previous week.  And as I keep repeating, it’s a very tiny market.  In platinum, the Managed Money traders went net long by 6,706 contracts during the reporting week, the second big weekly drop in a row — and are now net long the market by a tiny 523 contracts.  These huge increases in long buying is the sole reason why the platinum price has risen during the last two weeks.  In copper, the Managed Money traders reduced their net short position in that metal by a further 6,709 COMEX contracts during the reporting week — and are now net short the COMEX futures market by ‘only’ 32,429 contracts, or 810 million pounds of the stuff.

Here’s Nick Laird’s “Days to Cover” chart updated with yesterday’s COT data for positions held at the close of COMEX trading last Tuesday. It shows the days of world production that it would take to cover the short positions of the Big 4 — and Big ‘5 through 8’ traders in each physically traded commodity on the COMEX. Click to enlarge.

For the current reporting week, the Big 4 traders are short 134 days of world silver production, which is up 10 days from last week’s report — and the ‘5 through 8’ large traders are short an additional 84 days of world silver production, which is down 2 days from last week’s report — for a total of 218 days that the Big 8 are short, which is seven months and change of world silver production, or about 508.8 million troy ounces of paper silver held short by the Big 8. [In the prior week’s COT Report, the Big 8 were short 210 days of world silver production.]

In the COT Report above, the Commercial net short position in silver was reported as 380.7 million troy ounces.  As mentioned in the previous paragraph, the short position of the Big 8 traders is 508.8 million troy ounces.  The short position of the Big 8 traders is larger than the total Commercial net short position by 508.8 minus 380.7 equals 128.1 million troy ounces.

The reason for the difference in those numbers…as it always is…is that Ted’s raptors, the 33-odd small commercial traders other than the Big 8, are net long that amount, which is preposterous on its face.

As I mentioned in my COT commentary in silver above, Ted figures that JPMorgan is short is around 20-25,000 COMEX silver contracts, up from the 10-15,000 contracts that they were short in the prior week’s COT Report.

The Big 4 traders are short, on average, about…134 divided by 4 equals…33.5 days of world silver production each.  The four traders in the ‘5 through 8’ category are short 84 days of world silver production in total, which is 21 days of world silver production each, on average.

The Big 8 commercial traders are short 43.4 percent of the entire open interest in silver in the COMEX futures market, which is a smallish increase from the 42.7 percent they were short in last week’s report.  And once whatever market-neutral spread trades are subtracted out, that percentage would be something close to the 50 percent mark.  In gold, it’s now 40.4 percent of the total COMEX open interest that the Big 8 are short, down a bit from the 41.3 percent they were short in last week’s report — and around 45 percent, once the market-neutral spread trades are subtracted out.

In gold, the Big 4 are short 52 days of world gold production, down 1 day from what they were short in last week’s COT Report.  The ‘5 through 8’ are short another 35 days of world production, up 2 days from what they were short last week…for a total of 87 days of world gold production held short by the Big 8…up 1 day from last week’s report.  Based on these numbers, the Big 4 in gold hold about 60 percent of the total short position held by the Big 8…down 2 days from last week’s COT Report.

The “concentrated short position within a concentrated short position” in silver, platinum and palladium held by the Big 4 commercial traders are about 61, 66 and 78 percent respectively of the short positions held by the Big 8.  Silver is up 2 percentage points from a week ago, platinum is down 3 percentage points from last week — and palladium is down 1 percentage point from a week ago.

The Vale of York Hoard, also known as the Harrogate Hoard and the Vale of York Viking Hoard, is a 10th-century Viking hoard of 617 silver coins and 65 other items. It was found undisturbed in 2007 near the town of Harrogate in North Yorkshire, England. The hoard was the largest Viking one discovered in Britain since 1840, when the Cuerdale hoard was found in Lancashire, though the Anglo-Saxon Staffordshire Hoard, found in 2009, is larger.

On 6 January 2007, David Whelan, a semi-retired businessman from Leeds, and his son Andrew, a surveyor, discovered the Harrogate hoard using metal detectors. The Whelans told BBC News they have been metal detecting as a hobby for about five years.

They found the hoard in an empty field that had not yet been ploughed for spring sowing. Later the field was searched but no evidence of a settlement or structure was found. About 30 cm (1 ft) underneath the soil, after parts of a lead chest that had been discovered were excavated, a silver bowl fell from the side of the dig. When it was examined on the ground, coins and scraps of silver were visible. The Whelans reported the find to Amy Cooper, Finds Liaison Officer of the Portable Antiquities Scheme: this was one of the first finds reported to Cooper. The pair were commended for displaying “exemplary behaviour in not unpacking all the objects from the bowl, but keeping the find intact.” The Whelans also made note of the exact location of the find before filling in the hole. This proved to be a valuable step as rains washed away evidence of the find when archaeologists returned only four days later. The hoard was transferred to the British Museum, where conservators excavated each find to preserve the objects and “contextual information.” The discovery was announced on 19 July 2007. The British Museum press release stated, “The size and quality of the hoard is remarkable, making it the most important find of its type in Britain for over 150 years,” and also said, “The find is of global importance, as well as having huge significance for the history of North Yorkshire“.

The hoard consists of 617 silver coins and 65 other items, including ornaments, ingots and precious metal. These items were hidden in a gilt silver vessel lined with gold (variously identified as a cup, bowl, or pot) which is thought to possibly be an ecclesiastical vessel from Northern France either plundered or given as tribute. Vines, leaves, and six running animals (two lions and four beasts of prey) decorate the cup. The cup is so closely paralleled by the Halton Moor cup, conserved in the British Museum, that both must be from the same Carolingian workshop and were produced in the mid-ninth century. The vessel was buried in a lead chest.  Click to enlarge.

I have a very decent number of stories for you again today, including a couple of long ones that I’ve been saving for my Saturday missive…plus I have a Cohen/Batchelor interview as well.


The House Passes Budget Deal to Increase Military Spending — Bill Bonner

Yesterday, the House voted to go along with the budget deal, providing more money (more inflation) to just about every cockamamie scheme the feds can come up with.

The Washington Post:

The House passed a sweeping two-year budget deal Thursday that increases spending for military and domestic programs and suspends the debt ceiling through mid-2021, sending the White House-backed legislation to the Senate.”

We pause to remind readers that “inflation” means an increase in the amount of money available. It can show up in consumer prices… or in asset prices.

The important thing is that once you inflate (stimulate with money and credit) an economy – either Main Street or Wall Street – people adjust their behavior. They pay more. They spend more. They borrow more.

Then, their livelihoods, their wealth, their reputations – and the entire economy – depend on more inflation. So, you’ve got to continue inflating… or go into rehab.

Inflate or Die. There’s no third choice.

This commentary from Bill, filed from Poitou in France, was posted on the Internet site early on Friday morning EDT — and another link to it is here.  The Zero Hedge spin on this bipartisan deal is headlined “Unprecedented, Wasteful and Obscene“: House Approves $1.48 Trillion Pentagon Budget

Trump suggests he could take steps to weaken U.S. dollar, fueling confusion

President Trump gave mixed signals this week as to whether he would intervene and try to weaken the U.S. dollar, telling aides Tuesday he had ruled out the idea but telling reporters on Friday he was still open to it.

On Tuesday, Trump rejected a recommendation from senior adviser Peter Navarro that the United States should take steps to weaken the U.S. dollar to boost U.S. exports, people briefed on the exchange said. Trump said intervening could damage the U.S. economy and cause problems that would difficult to control, the people said.

But on Friday, Trump told reporters he had not ruled anything out. He said the strong U.S. dollar was making it harder for U.S. companies to boost exports, something he blamed in part on the Federal Reserve’s decision to raise interest rates last year.

I could do that in two seconds if I want to,” Trump told reporters in the Oval Office Friday afternoon. “I didn’t say I’m not going to do something.”

This news item appeared on The Washington Post website at 5:20 p.m. EDT on Friday afternoon — and I found it on the Internet site.  Another link to it is here.  The CNBC article about this is headlined “Trump decides against currency intervention after meeting about ways to weaken dollar” — and I found that in a GATA dispatch as well.

Doug Noland: Fanning the Flames

Excessive debt can always be reduced through inflation – merely inflated away. Excessive asset prices can be at least partially mitigated by inflating consumer prices and corporate earnings. Understandably, central bankers are terrified at the thought of markets losing confidence in their capacity to manage a steadily inflating consumer price index. A world where central bank reflationary measures are viewed as ineffective is a world with suddenly elevated fear of unsustainable debt levels and asset Bubbles. Deficits do Matter.

Maintaining the pretense of effectively orchestrating higher inflation has become paramount to contemporary central banking doctrine. Central bankers pay lip service to ever widening wealth disparities. They surely recognize their activist reflationary policy measures are a primary contributor. Loose monetary policy fuels robust asset inflation, much to the benefit of the wealthy. At the same time, average workers with bank deposits receive essentially no return on their savings. Worsening wealth disparities then only work to exacerbate the extreme dispersion of inflationary effects, with more “money” flowing into assets markets relative to the extra purchasing power available to drive aggregate consumer price inflation. Focused on below target CPI – while ignoring assets inflation and Bubbles – monetary stimulus only intensifies inequalities and attendant social and geopolitical tensions.

It’s somewhat difficult for me to believe the Fed will reduce already low rates in the current market environment. Alan Greenspan weighed in.

July 24 – Bloomberg (Alister Bull): “Former Federal Reserve Chairman Alan Greenspan endorsed the idea that the U.S. central bank should be open to an insurance interest-rate cut, to counter risks to the economic outlook, even if the probability of the worst happening was relatively low. ‘Forecasting is very tricky. Certain forecast outcomes have far more negative affects than others,’ he told David Westin in an interview… ‘It pays to act to see if you could fend it off.’

Whatever happened to William McChesney Martin’s, the job of the Fed is to “take away the punch bowl just as the party gets going.” Or even the imperative for the Federal Reserve to “lean against the wind.” Wednesday the Fed will be spiking the punch – again – after one of the longest parties ever. Instead of “leaning against the wind”, they’ll be Fanning the Flames.

As you already know, Doug’s weekly commentary is always a must read for me — and another link to it is here.

America’s Late-stage Decadence — Doug Casey

International Man: Economically, the U.S. government continues to spend ever-increasing amounts of money. In 2018 alone, the federal deficit was $779 billion—a $113 billion increase from the year before. Politicians on both sides of the aisle are falling over themselves to offer new government freebies that could pay for college, medical care, and the list goes on.

How does this play into the theme of U.S. decadence?

Doug Casey: Well, whether you’re an individual or a family or a country, when you live above your means, you’re almost by that very fact decadent. You’re not planning for the future.

But the U.S. government’s debt and reported deficits represent only current cash outlays, not obligations in the form of future spending. If the deficits were represented with accrual accounting—which is what businesses have to do—the annual deficits would probably be more like $3 trillion.

Not to mention that interest rates are artificially suppressed to about 2% in the U.S. At more normal levels of, say, 6%, the annual deficit would be about $800 billion higher. So the financial situation is actually much, much worse than it seems.

On top of all this is the fact that these deficits come during a time of supposed recovery. But the “recovery” has been ramped up by creating trillions of new dollars and allowing people to borrow at effectively negative interest rates, certainly after inflation. This is all very decadent.

Eat, drink, and be merry, for tomorrow we die. That’s not the attitude of a rising civilization.

This longish Q&A session with Doug was posted on the Internet site on Friday sometime — and another link to it is here.

The Gods of Money: Wall Street and the Death of the American Century — F. William Engdahl

Chapter 5:  “Upending the World Chessboard

“Hitting two birds with one stone”

The 1925 return of Britain to the Gold Standard at the pre-war dollar parity, did not restore the pre-war role of the City of London as the world financial center. That place had long since been decisively assumed by New York. It did, however, place the City of London and the Bank of England again in the nerve center of the world banking system. That position would later serve as the vehicle through which London would shift the global balance of power once more to its long-term advantage. British strategic interests, not nostalgia, dictated the 1925 decision by Chancellor of Exchequer, Winston Churchill, and Bank of England Governor, Montagu Norman, to go back to the Gold Standard. How Britain was to use its new international banking position was soon to become evident.

In addition to alarm over the prospect that an anti-British government in South Africa had decided, unilaterally, to join an American-led postwar gold standard system, England was concerned when, in April 1924, Germany agreed to the reparations plan put forward by the American, Charles Dawes, a plan which resulted in Germany’s also putting the Reichsmark on the gold standard, along with the United States and a handful of other nations.

Within less than a year after the Dawes Plan, in early 1925, Norman and Churchill had brought British Sterling into the small circle of nations on the gold standard. By insisting on an artificially high value of the Pound Sterling in relation to the Dollar, the Bank of England and the City of London created a mechanism which, in the space of some months, would put the City of London in a position to bring down the world’s mightiest economy, the United States, and with it, the economies of Austria, Germany and much of the world.

But almost no one was thinking about such things in spring of 1925, when the New York Federal Reserve and a syndicate of New York banks, led by J.P. Morgan, agreed to make available to the Bank of England a $300 million credit line to defend the return of Sterling to gold.

Since the earliest days he took over leadership of the Bank of England, Norman had concentrated his energies on cultivating a special relation with America’s Benjamin Strong, Governor of the New York Federal Reserve Bank, and the single most powerful figure in the American central banking structure. Up until the time of Strong’s death in 1928, the New York banker maintained an extraordinary deference to the requests of his British friend Norman, even when Norman’s demands occasionally ran contrary to the genuine national interests of the United States.

This very, very long but incredible chapter from Engdhal’s book falls into the absolute must read category — and should be distributed as widely as possible.  I thank Tolling Jennings for sending it our way earlier this week — and for obvious length reasons, it had to wait for today’s column.  Another link to it is here.

U.S. Economic Warfare and Likely Foreign Defenses — Michael Hudson

[Keynote Paper delivered at the 14th Forum of the World Association for Political Economy, July 21, 2019.]

The Dollar Standard – U.S. Treasury debt to foreigners held by the world’s central banks – has replaced the gold-exchange standard for the world’s central bank reserves to settle payments imbalances among themselves. This has enabled the United States to uniquely run balance-of-payments deficits for nearly seventy years, despite the fact that these Treasury IOUs have little visible likelihood of being repaid except under arrangements where U.S. rent-seeking and outright financial tribute from other enables it to liquidate its official foreign debt.

The United States is the only nation that can run sustained balance-of-payments deficits without having to sell off its assets or raise interest rates to borrow foreign money. No other national economy in the world can could afford foreign military expenditures on any major scale without losing its exchange value. Without the Treasury-bill standard, the United States would be in this same position along with other nations. That is why Russia, China and other powers that U.S. strategists deem to be strategic rivals and enemies are looking to restore gold’s role as the preferred asset to settle payments imbalances.

The U.S. response is to impose regime change on countries that prefer gold or other foreign currencies to dollars for their exchange reserves. A case in point is the overthrow of Libya’s Omar Kaddafi after he sought to base his nation’s international reserves on gold. His liquidation stands as a military warning to other countries.

Thanks to the fact that payments-surplus economies invest their dollar inflows in U.S. Treasury bonds, the U.S. balance-of-payments deficit finances its domestic budget deficit. This foreign central-bank recycling of U.S. overseas military spending into purchases of U.S. Treasury securities gives the United States a free ride, financing its budget – also mainly military in character – so that it can [avoid?] taxing its own citizens.

This long commentary from Michael put in an appearance on the Internet site on Tuesday — and for length reasons, I though it best to wait for my Saturday column.  I thank Larry Galearis for sharing it with us — and another link to it is here.

Tales of the New Cold War: Rumours of Peace in Ukraine and War in East Asia — John Batchelor interviews Stephen F. Cohen

Part 1: John Batchelor opens this podcasts from Tokyo, Japan with news of South Korea opening fire against two Russian and two Chinese strategic bombers over Korean territory, and an additional incident involving a Russian reconnaissance aircraft that allegedly violated disputed (cross claimed Japanese/Korean) islands and was similarly fired upon by South Korea. These were headline items in Japan and John Batchelor calls them Cold War incidences. The Japanese are not happy that Korea responded in this way with territories that were in dispute between the two countries, and Professor Cohen’s reaction to this is to agree that this is Cold War related but with a difference that the major players are now scattered around the globe and also involve so-called First World powers. He also comments that these stories are not always verifiable, are political, and the discourse around them inconclusive or even conflicted by various parties. (The Malaysian airliner, MH17, shot down over Ukraine was cited as an example.) He also muses about how President Trump’s “efforts” in Korea may have influenced these events. But all of these factors may be in play with what may be an historic effort in Ukraine to find a peaceful solution to that civil war. Given the “epicentre” nature of Ukraine in this new cold war Cohen suggests that this may be very important, indeed.

A major political change has occurred in Ukraine with new President Zelensky’s electoral win and continuing win in his government’s parliamentary elections. Batchelor informs us that his party won 43% of the vote, a resounding victory except in the extreme west of the country. Cohen, somewhat tentatively, states that this suggests Zelensky has a mandate to pursue his policies that consist of peace with Russia and ending Ukrainian corruption. But his first duty, the professor maintains, is peace with Russia. This is mainly due to what he thinks he can do first – corruption being a much bigger problem for him to tackle at the moment. But although he is talking to Putin in pursuit of his first duty, he also undoubtedly faces opposition from American interests, interests that were clearly rejected in his election by the Ukrainian people.

Part 2: Batchelor begins this segment with Zelensky’s call to Putin and about his comments concerning problems ahead. The new president mentioned that his “partners” (meaning including Washington) were in opposition. Batchelor was impressed with the statesmanship of Zelensky in saying, “It was an issue of Ukraine, an issue of its citizens.” With this Batchelor asks Cohen about these obstacles he will be facing.  The professor offers up the big financial one in that Ukraine is dependent on the IMF, which is controlled by Washington. But given the huge mandate he won in the election for peace with Russia the president acknowledges this; he will start by ending the civil war with the Donbass.  However, there is a safety issue as the Ukrainian “Nazi” element is both violent and against peace with Russia. The second obstacle is, of course, Washington. Here Batchelor points out the Washington sanctions “industry” has not diminished and will be present when Zelensky negotiates with Russia. Cohen finds this interesting in that the Washington opposition is found in Joe Biden, the Democratic candidate, ex vice president and factotum overseer for Ukraine during the Obama administration. Batchelor affirms that Biden is repudiated by Zelensky’s peace policies, and Trump may use it as a platform issue in 2020. Trump may even use it to remind his supporters that he is a peacemaker and he may even support détente between Ukraine and Russia.

In the final segment John Batchelor asks: “What does the Donbass want in these peace negotiations?” Cohen answers that the Donbass in returning to Ukraine must be given some element of home rule. The second concern is that Putin and Zelensky actually meet and talk face to face, and exchange of prisoners would be on the agenda. Finally, the ceasefire declared recently has to hold. At the end Cohen suggests that Trump will likely be involved in this discussion in some way. However, the professor ends on a somber note that while in the past seeking peace was a positive election platform, with today’s politics in Washington war has now filled this niche.


Trump may support the peace initiative because he is against Obama’s interventionist policy in Ukraine. We have also seen  this kind of shallow motive operate with Trump with his most bellicose rants at Iran and may have actually been a factor in Trump leaving the Joint Cooperative Plan of Action Agreement. But he may take a more favourable influence over this Ukrainian peace initiative. On the other hand, his top advisors of Bolton and Pompeo are guaranteed to oppose this position. The IMF is also very wary of sending the Ukrainian government funds, as ending the thievery of past governments is but a platform promise of a new president and far from being a reality.

Will Russia get involved in supporting the new government in Ukraine? There are several aspects to this question. In the recent Oliver Stone/Putin interviews Putin stated that he considered Ukraine as historically and culturally part of Russia, and he and President Zelensky have already had some phone conversations. But Putin knows the Ukraine is a basket case economically, and to rebuild that state would have huge costs for Russia – and reducing Ukraine to a failed state was possibly also part of Washington’s plan to hurt Russia with those costs. Nevertheless he has accepted the refugee flow to Russia from the Ukraine and has granted Russian citizenship to these people. However, Putin will not be very open with any aid plans until foreign (NATO) troops are gone. Aid, if it is offered, will likely be business oriented only, if it happens at all.

This 2-part audio interview, with each part being about twenty minutes long, showed up on the Internet site on Tuesday sometime and, as always, it’s something that has to wait for my Saturday missive.  I thank Larry Galearis for his always excellent executive summary — and personal comments.  The link to Part 1 is in the headline — and here.  The link to Part 2 is here.

U.S. and Iran Stuck on Negotiation Ground Zero — Pepe Escobar

All bets are off in the geopolitical insanity stakes when we have the President of the United States (POTUS) glibly announcing he could launch a nuclear first strike to end the war in Afghanistan and wipe it “off the face of the earth” in one week. But he’d rather not, so he doesn’t have to kill 10 million people.

Apart from the fact that not even a nuclear strike would subdue the legendary fighting spirit of Afghan Pashtuns, the same warped logic – ordering a nuclear first strike as one orders a cheeseburger – could apply to Iran instead of Afghanistan.

Trump once again flip-flopped by declaring that the prospect of a potential war in the Persian Gulf “could go either way, and I’m OK either way it goes,” much to the delight of Beltway-related psychopaths who peddle the notion that Iran is begging to be bombed.

No wonder the whole Global South – not to mention the Russia-China strategic partnership – simply cannot trust anything coming from Trump’s mouth or tweets, a non-stop firefight deployed as intimidation tactics.

At least Trump’s impotence facing such a determined adversary as Iran is now clear: “It’s getting harder for me to want to make a deal with Iran.” What remains are empty clichés, such as Iran “behaving very badly” and “the number one state of terror in the world” – the marching order mantra emanating from Tel Aviv.

This commentary by Pepe was posted on the Internet site on Thursday — and I extracted it from a Zero Hedge article that appeared on their website around midnight last night EDT.  It’s worth reading — and another link to it is here.

Looking into Gold’s Future:  Nick Giamruno interview Jeff Thomas  [Repost]

The precious metals market is relatively stable at present, but how about in the midst of an economic crisis? As we get closer to the oncoming crisis, we might want to assess in advance how the market is likely to change. How might we change our present precious metals strategy in order to prepare for a metals market that could have a very different complexion than the present one?

We asked International Man feature writer and precious metals advisor, Jeff Thomas, to weigh in.

International Man: Recently, a noted precious metals prognosticator stated that the worst way for an individual to own physical gold is to hold bars, no matter if they are one ounce or ten ounce. He said the best way to hold physical gold is in coins. What’s your take on that?

Jeff Thomas: I’m familiar with that comment and its author. He’s an old-school gold guy, like me. He’d quite correct, if the question he’s answering is, “What form of gold will serve me best in a crisis?

Generally speaking, I see two primary age groups of gold investors. One is the under-fifty people, who are focusing on gold primarily as a wealth builder. The over-fifty camp tends to focus on gold more as an insurance policy against an economic crisis.

I had several readers mentioned on Friday that the link to this interview was corrupted in some way in my Thursday column — and it wouldn’t load up, so I’m reposting it here.  This worthwhile Q&A session between Jeff and  Nick was posted on the Internet site on Wednesday sometime — and another link to it is here.

Brazil gold heist: Gunmen steal gold worth $30m from São Paulo airport

The suspects entered Guarulhos airport in São Paulo dressed as police officers and took the gold, which had been destined for New York and Zurich.

Two airport workers were taken hostage, according to police.

Some reports suggested the suspects may have kidnapped the family of a senior employee on Wednesday to gain inside information about the cargo.

The suspects disguised their pickup truck as a Brazilian federal police vehicle and confronted workers, forcing them to move the gold into their vehicle.

According to security footage, four men left the vehicle and at least one had a rifle.

A spokesperson for the airport said that no-one was hurt in the incident but did not comment on reports of hostages.

This brief gold-related news item put in an appearance on the Internet site on Friday sometime — and it comes to us courtesy of reader Andy Lawrisuk who was staying near the GRU airport when the heist occurred yesterday.  Another link to it is here.

Central banks let gold market coordination pact expire without replacement

Today the European Central Bank announced the expiration without replacement of the latest central bank gold agreement. The ECB’s announcement is linked here.

What does it mean?

The announcement attributes the decision to let the agreement expire to the gold market’s having become “mature,” but how did the gold market suddenly “mature” when, upon the signing of the first central bank gold agreement in 1999, it was already a few thousand years old?

Of course there were de-facto central bank gold agreements at the Bretton Woods conference in 1944 and in various undertakings of the International Monetary Fund and the London Gold Pool since then. The agreements through the ECB are only the latest in the long history of central bank conspiracy against gold — that is, against a form of money potentially beyond government control.

Does the ECB’s statement today mean that central banks have nearly finished the redistribution of world gold reserves that the U.S. economists Paul Brodsky and Lee Quaintance suspected was under way seven years ago?

Does it mean that central banks no longer are in enough agreement about gold to continue to coordinate their market interventions and that they will let the market alone determine the monetary metal’s price, or let the anti-U.S. dollar faction of central banks determine the price through their own purchases and interventions?

The announcement says the parties to the agreement do not plan to sell significant amounts of gold, but what about interventions through swaps, leases, and derivatives, directly or through the Bank for International Settlements? The announcement doesn’t say.

One thing is certain: Mainstream financial journalism will never ask any questions prompted by this announcement.

This commentary from Chris, plus the embedded link to the ECB announcement, appeared in this GATA dispatch at 10:37 a.m. EDT on Friday morning — and another link to it is here.  Ronan Manly over at the Singapore-based Internet site had something to say about this in an article headlined “By Not Renewing the CBGA, Central Banks in Europe Look Ready to Buy Gold” — and I thank Patricia Caulfield for sending it our way.


Still in Peachland on May 20, I took this photo of a male white-crowned sparrow in full breeding plumage, using my vehicle as cover…sitting in the driver’s seat.  I’ve seen lots of these in my lifetime, but this is the first time that I’ve ever seen one with its crown raised.  I wasn’t even aware they could do that.  The second photo is of a free-range Polish chicken in our host’s yard.  How could I pass up that opportunity?  The third is of my daughter and myself standing in one of his cherry orchards just a few steps from his front door.  And the last photo shows the orchard, my daughter, our host — and the gigantic hawthorn tree whose flowers graced my Friday column.  Click to enlarge.


Today’s pop ‘blast from the past’ is from an Italian/American singer names Walden Robert Cassottoo…but everyone knew him as Bobby Darin.  This number was a huge hit everywhere in North America — and abroad.  I was 11 years young when this tune came out — and it finished at the No. 6 spot on Billboard’s Year-End Hot 100 Singles in 1959.  In this B&W video clip he’s interviewed briefly by a very young Dick Clark.  The link is here.

Today’s classical ‘blast from the past’ is a short piece for violin and orchestra.  It’s Camille Saint-Saëns – Introduction and Rondo Capriccioso in A minor, Op. 28…a virtuoso composition of the first water if there ever was one.  Composed originally for the great Pablo de Sarasate in 1863, this spectacular work is legendary among violinists for its passages of insane arpeggios in the early stages.  Here’s the incredibly gifted — and just as incredibly luscious Dutch violinist Janine Jansen doing the honours in this absolutely breathtaking performance.  It will never get any better than this.  The Berlin Philharmonic accompanies — and Neeme Järvi conducts.  The link is here.

Yesterday’s price action was further indication that JPMorgan et al are still running the precious metals show in the COMEX futures market — and the latest Commitment of Traders Report was further confirmation of that fact.

With both silver and gold in a bearish configuration from a COT perspective, it now remains to be seen if ‘da boyz’ will engineer price declines in order to ring the cash register on the brain-dead Managed Money traders for fun, profit and price management purposes.

But as I’ve been pointing out in my Saturday missives for some time now, the economic, financial and monetary headwinds that these mostly bullion banks face, is becoming stronger with each passing week.  Any attempts to run the Managed Money traders into the dirt, may not be as successful this time around.

Then there’s the matter of the huge deposits going into various and sundry silver ETFs over the last month or so.  It certainly appears that a big buyer has appeared on the silver scene with more than a few billion to invest — and the manner in which they went about it was all the proof that Ted needed to see that, whoever it was, was a very sophisticated investor, or group of investors.  So an engineered price decline may not turn out as planned, if attempted.

And I should point out that all the large traders holding August COMEX gold contracts that aren’t standing for delivery that month, have to roll or sell those positions by the close of COMEX trading on Monday — and the rest have to be out by that time on Tuesday.  First Day Notice numbers for August will be posted on the CME’s website around 10 p.m. that evening.

Here are the 6-month charts for all four precious metals, plus copper and WTIC.  With the exception of gold and WTIC, the remaining Big 4 commodities were closed lower on the day.  Click to enlarge.

I noted that the Draghi didn’t lower interest rates in Europe as expected earlier this week — and it remains to be seen what the Fed does when the FOMC meeting starts on Tuesday.  Nearly everyone on Wall Street is convinced that an interest rate cut is coming — and it’s only the size of that cut that is unknown.

I notice that Bill Bonner is the latest commentator to bring out the “Print or Die” quotation.  It has been used a lot in these last years, including this writer — and is cropping up with ever more frequency since the mini-meltdown in the equity markets last December.

And as Doug Noland so carefully pointed out in his Saturday missive on July 20

Now the Fed and global central banks are taking another giant leap – the latest iteration of New Age experimental central banking: The “insurance rate cut” – “an ounce of prevention is worth a pound of cure.”

This is not about prevention, and William’s vaccine analogy is misguided. The world is suffering from chronic (debt) illness. An individual with diabetes, heart disease or cancer will not find a cure in a vaccine. Over the years, activist monetary policies have been likened to giving an alcoholic another shot of whiskey or a drug addict another hit of heroin. While these have obvious merits, to counter Williams analogy I’ll instead use antibiotics. Global central bankers have been fighting the world’s chronic debt and economic maladjustment disease with steady doses of antibiotics. Not surprisingly, these pathogens have built up strong resistance to medication.

More stimulus at this point in the cycle is not for prevention – but instead a narcotic for sustaining unsound financial and economic booms (i.e. “extend the expansion”). The Fed and central bankers are again crossing a dangerous red line – compelled to aggressively administer antibiotics hoping to prevent a plague that has evolved to the point of thriving on antibiotics.”

The equity and bond markets of today have morphed into edifices of wild speculation — and fundamentals haven’t mattered for almost a decade.  When these markets do appear to falter, like they did in December, the gentle hands of the President’s Working Group always appear to nip any implosion in the bud — and then guide the markets higher.

The frustration by seasoned observers of the markets is exemplified in this headlined by Wolf Richter the other day that reads “I Got it, Nothing Matters. Tesla, Boeing, Other Stocks: It’s Like the Whole Market Has Gone Nuts“.  It has, Wolff.  Take two blue pills and call me in the morning.

As you know already, this insanity can only end one way — and that has always been the end result of all stock manias the world has ever known in the past.  This one will end no differently.

But with the powers that be creating all the liquidity the market wants, the end game keeps getting postponed…first in 1987…then in 1999 and 2000 — and lastly the subprime mortgage debacle of 2007/09.  With each crises, the fix becomes more expensive — and takes longer.  As many have pointed out, we still haven’t recovered from the market wipe-out of ten years ago.  Nothing has returned to normal since — and the debts keep rising.

And as stupid as these central bankers appear to be, they know perfectly well that the party they started — and continue to feed, won’t last forever.  And as I’ve said before, it will all end with a bang…either by circumstance…or design.  I suspect that it will be the latter.

Over the last few years we’ve seen the gradual increase of either central bank gold repatriation, or outright gold purchases.  Back then, they were doing it at a quiet and gingerly walking pace — and since the beginning of this year, it has turned into a trot — and in the not-too-distant future it will become a run…followed immediately by a stampede.

Then the “JPMorgan et al club won’t matter — and neither will the COT Report.  As Ted Butler says, JPMorgan is the king of the precious metal world — and with its 25 million ounces of gold and 850+ million ounces of silver, it can walk away from the current price management scheme at any time with obscene profits in hand, leaving the other short holders to, as I said last week, burn in hell.

And as Ted also said, that’s the way this price management scheme must end.  There is just no other way.

But don’t ask me what that day might be.  However, I do know that it keeps getting closer — and was one of the reasons I rebalanced my stock portfolio on Friday.  Because when the precious metal market really starts to fly, it will be, as Doug Casey says…”like getting trying to get all the water behind Hoover Dam through a garden hose.”

I’m done for the day — and the week — and I’ll see you here on Tuesday.