Gold Prices Breaking Upwards Again

Gold looks like it will soon pass the $1300 mark. reports about bond buyers strike.

Bond Buyers Strike?
By Patrick A. Heller
September 14, 2010

In years past, there was such strong demand for U.S. Treasury debt that it was typical for bidders to offer to purchase triple the amount being offered for sale at the interest rate set in the auction.

A year ago, buyers started closing their wallets. Although
the Treasury is still trying to pretend that demand is very strong for all of its debt issues (the very short-term debt has been strong in reaction to this year' s European fiscal crises), it appears that a significant percentage of the longer term debt is actually being purchased by either the Federal Reserve or WITH THE PROCEEDS OF DEBT COLLECTIONS BY FANNIE MAE AND FREDDIE MAC. The reported data appears to be fudged to make it appear that outside buyers are as strong as ever.

Demand for long-term U.S. Treasury debt has fallen even more in the past year. It is becoming clear that
the U.S. government can no longer automatically count on the Chinese and Japanese central banks, other foreign investors, and large investment funds to extend credit to the U.S. government.

On Thursday,
Sept. 9, the Treasury' s auction of 30-year bonds FAILED.

That is not how the mainstream financial media reported the news. Instead of having the available bonds subscribed multiple times over, bidders only purchased about 38 percent of the bonds at prices guaranteed by the Wall Street banks that underwrote the auction. As a result, these banks were forced to buy the other 62 percent of the bonds at the guaranteed price. Officially, all of the bonds sold, but the reality is that the outside buyers have largely evaporated.

The clear meaning of the failed auction is that the former enthusiastic buyers consider the U.S. dollar to be overvalued. To protect themselves from a higher risk of decline in value, the buyers want a higher interest rate.

At some point, perhaps by the end of the year, the value of U.S. Treasury debt will decline to reflect the need for a higher interest rate. Compounding the problem, Wall Street banks will not want to take on more debt for very long when they face the prospect that this debt will fall in value.

This is just one more news note that indicates that

On Monday, Sept. 13, the price of silver closed on the U.S. COMEX above $20 for the first time in 30 months. Repeated attempts to bring down prices during U.S. trading hours were unable to overcome the continuing waves of buy orders. After the COMEX closed at $20.11, however, a late-in-the-day suppression tactic managed to push silver down to $19.93 in the electronic ACCESS market, despite a complete absence of any news that would affect prices.

In another interesting development, a buyer of a COMEX gold contract for delivery in September 2009 just received confirmation that the physical gold has finally been posted to his account. It is now stored in a bonded COMEX warehouse as “eligible” inventory, meaning that it could be easily transferred to a broker to become registered inventory to be available for delivery of a COMEX contract. The buyer noted that
the broker' s rules for owning this particular bar have changed from past practice. The only options open to the owner are to take delivery, to leave it in storage, or to sell the bar to a broker. In the past, owners of eligible COMEX inventories could leverage it, put it out on lease, or engage in other activities which might generate a bit of income. The new limitations on how the bar may be treated I interpret as a further sign of growing physical shortage in the COMEX gold and silver inventories.

If you don' t mind HAVING TO WAIT A YEAR for delivery of your COMEX inventory, then you can consider owning a COMEX contract. If you want to make sure that you have the physical metal, though, get it in your own custody immediately.

My reaction: When gold broke over $1,000 it was a signal of the dollar' s collapse. The continued rise of gold since then is just further confirmation.

It is hard to tell exactly when a ponzi scheme will end from the outside, but the evidence suggest that we are getting close for the dollar and the treasury market.

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2 Responses to Gold Prices Breaking Upwards Again

  1. stuart says:

    Thanks Eric for all your analysis. Your level of detail is staggering (although this post was short and sweet..GOT GOLD?!).

  2. mila says:

    This Depression will be one for the ages.

    Making my way through your piece on the finalfraud right now. Indeed, level of detail calls for many brain breaks.

    Btw, just landed into about 36 Hectares in SE Asia. Looks like I'll be diving into the AG sector also or at least trying to improve what AG infrastructure is there already.

    Looking to setup some mid-scale hydro/aquaponic setups. Curious if you're doing anything similar or sticking primarily with grains?

    FA in CA

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