Thursday, May 24, 2012

Central Banks Still Significant Buyers On Gold Dip


Original source

Central banks internationally continue to diversify their foreign exchange reserves into gold bullion due to concerns about fiat currencies – including the dollar and especially the euro.

IMF data shows that central banks were again net buyers in April with Turkey and Philippines being the largest buyers of gold.

The Philippines increased their gold holdings significantly by 32.13 tonnes to 194.241 tonnes in March – a 17% increase in their gold reserves in the month.

It was the single largest addition Philippines has made since September 2008. They have been pretty consistent buyers of gold over the last few years, but the 17% increase in April was another big rise.

Turkey expanded its gold reserves by 29.7 metric tons in April. Turkey’s bullion reserves climbed to 239.3 tons last month meaning that Turkey increased their gold reserves by 14% in April.

The central bank on March 27 doubled the share of lira reserves banks can hold in gold to 20%, saying it would provide 6.1 billion liras ($3.3 billion) of extra liquidity.

Mexico increased gold holdings by 2.92 tonnes to 125.5 tonnes in April.

Kazakhstan raised gold holdings by 2.02 tonnes to 98.19 tonnes in April.

Ukraine upped gold reserves by 1.4 tonnes to 30.607 tonnes in April.

Sri Lanka raised gold reserves by 2.177 tonnes to 7.807 tonnes in January. There is a delay in Sri Lanakan gold reserve reporting to the IMF.

Central banks added 456.4 tons last year, the most in almost five decades, and will buy as much as 400 tons this year, the London-based World Gold Council estimates.

While the gold tonnage demand from central banks in recent months has been significant, gold remains a tiny fraction of most central banks, especially emerging market creditor nations such as China, foreign exchange reserves and therefore the trend is sustainable and indeed may accelerate.

Central bank reserve diversification into gold may increase given the Eurozone debt crisis and the risk of debt crisis spreading to Japan, the UK and the U.S.

Indeed, there is the increasing possibility that some G8 debtor nations, such as the UK and Japan, may decide to once again add to their gold reserves in order to protect their currencies and guard against the risk of devaluations of the euro, dollar, yen, pound and a wider international monetary crisis.

Price is not a determining factor in central bank buying rather they are more likely being guided to secure an allocation of a percentage of their overall foreign exchange reserves into gold bullion.

Sovereign government buying of gold is likely to support gold at these levels and indeed could be the driver to higher prices in the coming weeks and months.

The US Treasury prize, the Euro's demise, and Facebook lies w/Paul Craig Roberts

May 23, 2012 by

Bilderberg Meeting in Virginia to Reveal Whether Financier Elite Backs Obama or Romney

Webster Tarpley on Alex Jones Show Sunday May 20, 2012.

Bilderberg Meeting in Virginia to Reveal Whether Financier Elite Backs Obama or Romney; Romney-Netanyahu Axis Gives GOP Upper Hand to Carry out Sinister "White Horse Prophecy"; Support Alexis Tsipras and Syriza Bloc in Greek Elections.

Get source video and audio files of this interview at

Dollar Backwardation


Original source

by Keith Weiner of the New Austrian School of Economics

Dollar Backwardation

The current financial crisis, may progress to a phase where people demand and hoard dollar bills but take electronic deposit credits only at a discount which increases until electronic deposit credits are repudiated entirely. The Federal Reserve would be powerless to solve the problem, because while they can create unlimited electronic deposit credits they can’t create unlimited paper dollar bills, “money you can fold” as Professor Antal Fekete calls it. There would be a glut of electronic deposits, but a shortage of dollar bills.

Before the financial crisis metastasized in 2008, Fekete wrote a paper that I think is underappreciated and under-discussed. “Can We Have Inflation and Deflation at the Same Time?” ( In his paper, he discussed the “tectonic rift” between paper Federal Reserve Notes (i.e. dollar bills) and electronic deposits. By statute, the Federal Reserve cannot print dollar bills without collateral (e.g. Treasury bonds). Also, they have limited printing press capacity that is insufficient to keep up with a catastrophic crisis.

He discussed the inverted pyramid of John Exter. Gold is the triangle at the bottom, and then above is silver, dollar bills, and then the various kinds of electronic deposits, stocks, real estate, etc. In a crisis, people want to move from top to bottom of the pyramid, but of course there isn’t enough of the stuff at the bottom.

In a scenario in which desperate, panicky people are trying to cope with the enormity of a collapse that they don’t and can’t understand, I think this split between “physical” dollars and “electronic” dollars is very plausible.

Just as there is nothing to be accomplished by selling an underlying security as it becomes worthless, only to buy a derivative of it, selling Treasury bonds and buying dollars is equally nonsensical. The dollar is the Federal Reserve’s liability, backed by the Treasury bond as the asset. If you believe the Treasury bond is worthless, then you ascribe no value to the dollar either. This is why gold will go into permanent backwardation. Holders of dollars will provide an unlimited bid for gold that will not be reciprocated by holders of gold. The latter own the only safe asset, and the only monetary asset that is not ultimately backed by the Treasury bond or the dollar, and they will have no desire to give it up.

The concept of backwardation is simple. It is when people accept a future promise to deliver only at a discount to physical stuff handed over right now. This could be when there is a shortage, such as wheat before the harvest. Or in the case of gold, backwardation signifies a collapse in trust. But isn’t this the same phenomenon of a tectonic rift between paper dollars and electronic deposits?

In a certain sense, the “money you can fold” behaves like a physical commodity, a present good (I realize I am stretching the concept here more than a bit). The electronic deposit credit is most definitely a future promise. In my gold backwardation thesis, the action begins with the offer on the futures contract falling below the bid on spot gold. The bid-ask spread on spot gold widens, as the offer is relentlessly advancing, pulling the bid behind it. The bid-ask spread on the futures contract also widens, as the offer remains stubbornly high, but the bid withdraws and retreats as gold buyers don’t trust futures and buy physical gold instead. Eventually, there are no more sellers of physical gold and that is that (except for the dollar-commodities-gold arbitrage, a backdoor way for dollar holders to get a little gold before the end of the game).

If this split occurs in the dollar, I think it will play out the same way. At first, sellers of real goods may accept electronic credit money, but demand a higher price. The spread on the electronic dollar widens, with the bid from real goods falling. At the same time, virtually unlimited demand for the “real” paper you can fold causes the bid on the paper dollar to rise.

Who knows how long it could last? People could go on accepting paper dollars out of long habit. Obviously, this is an unstable situation that must necessarily collapse. Unlike gold, the paper dollar has no value other than the broken promises that back it.

I dub this “dollar backwardation”.

Quote of the Week

Pure truth, like pure gold, has been found unfit for circulation, because men have discovered that it is far more convenient to adulterate the truth, than to refine themselves.


May 22, 2012 by

Woody O'Brien says that he's decided to do a "Barnhardt' and get out of the markets while the gettin' is good. O'Brien says he's been told by regulators that federally regulated brokers should not be giving advice about buying physical silver, so he's decided he no longer wants to be 'federally regulated'. Remember, physical silver really is the Achilles' heel of the corrupt fiat banking system.

We also talk about JP Morgan's now $7 BILLION derivatives blunder - and we cover what Woody calls the Facebook victory.

Woody's site:

Too Big To Cut: Germany fails own budget benchmark

May 23, 2012 by