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Elliott Wave Trading

Gold Price Breakout, The Ominous Silent Canary

Commodities / Gold and Silver 2010 Sep 16, 2010 - 04:33 AM GMT

By: Jim_Willie_CB


Diamond Rated - Best Financial Markets Analysis ArticleAlan Greenspan had full knowledge of his betrayal to the principles of sound money. He wrote early in his career about the only legitimate basis for a monetary system, namely Gold. His published works from four decades ago read like an indictment against his career for monetary crimes against the nation. His accommodation, giving the financial sector what they wanted, betrayed his mindset. He knew the nation courted disaster with a long delayed fuse. His quote is being circulated frequently and broadly lately, "Gold is the canary in the financial coal mine." Exactly, precisely, perfectly. Greenspan proved to be a great handler of the politicians, offering them obfuscation of the most erudite variety. They were so confused by his drivel to be immensely impressed.

The Jackass was not impressed, not after the 2000 events unfolded to reveal the US as a naked asset bubble blower. Not after the same events revealed Greenspan to be an inflation engineer specializing in serial asset bubbles blown to wreck the nation. My attitude years ago was to listen to his topics of debate, to ignore the words, and to anticipate a crisis event in the sector he mentioned. It worked every time. What Greenspan brought to the nation was a nearly complete interruption to the process of capital formation by virtue of the asset bubbles he engineered. His policies undermined and destroyed capital itself. He puffed up the finance sector at the expense of the tangible economy. Industry was forfeited in the pathogenesis of managed inflation.


To be sure, the war machine, immature during the Vietnam War, more mature for the advanced Iraq and Afghan Wars, accelerated and completed the process of saturating the nation with debt. The combination of domestic asset bubble development and war machine maturity conspired to gut the nation of industry and force it to depend upon a sequence of asset bubbles. They all busted. Few analysts dare to point a finger at the war costs, deemed sacred, rarely debated, always funded. Half the national debt of $12 trillion is attributed to war spending, hardly defensive anymore. The USMilitary expansion has become servant to its own gargantuan appetite, no longer driven by security motives. Expansion of war to secure supplies for the nation might be better explained as the global stretch of the military complex in order to secure supplies for itself. The complex is a vibrant independent enterprise. It might require new wars to secure its own supply chain in order to sustain its own operations, which increasingly depart from the objective of the people, and increasingly conform to the Syndicate objectives.

Deception of war motives and war purposes is replete with the same sort of deception inherent to USEconomic statistics. In Iraq, supposedly masses of troops are heading home. Those not heading home reveal a convenient reclassification. The soldier title of HBCT (Heavy Brigade Combat Team) was changed to AAB (Advise & Assist Brigade). Presto! Far fewer combat troops, but same duties, same operations. It reminds a person of economic statistic deception, relabeling what makes for an unemployed worker. The soldiers are mere accounting ledger items. The soldier death count is another statistical deception. The actual death count is at least triple the official number posted by the USMilitary. The official count is of soldiers who died on Iraqi soil, not those who were moved to hospitals outside of Iraq, like other Persian Gulf nations, a ship on the Gulf itself or the Mediterranean Sea, or even Germany. The best statistical accounting deception in the gold world is the USTreasury reporting. Gold on the USGovt balance sheets is accounted for as Deep Storage Gold, as per ore mined but not processed in a mountain. More tricks. For those Americans who engage in reading novels, the book "1984" is relevant.

The Jackass has a controversial forecast, initially made in autumn 2008. Expect the pressures to build eventually until the USMilitary complex, including the defense contractors and the military service contractors, are led to splinter off into a private corporation. Its business will be arms dealer and mercenary provider, with a core narcotics business segment. Those who deny this inevitable path must be blind, must be dumb, or prefer to wear underwear bearing the stars and stripes. In their wake will be a nation they once served sliding into the Third World. In their foreground will be vast wealth accumulated by the Syndicate.


In the aftermath of the tech telecom bubble bust ten years ago, Greenspan actively pursued the next bubble. Historical precedence dictated that a housing decline would come in 2001 and 2002. But such an event would have spawned a powerful recession that would have killed the banks, whose main diet had become credit derivatives. The lack of regulatory oversight enabled this queer racket to expand into a mammoth hidden business, a giant casino where the Wall Street banks actually placed billion$ bets against their own clients, against the major corporations of America. To say that constituted a conflict of interest is the understatement of the decade. Its scummy effects are slowly coming to fore in the United States and Europe, in the mortgage market and sovereign debt market. The awakening has led to great anger, harming the banker image irreparably, when combined with home foreclosure disgust.

Greenspan encouraged a housing revived bubble ten years ago. He actively lobbied the financial markets to believe that full support for a USTreasury rally and mortgage bond rally would ensue, given the full beneficial power of monetary policy. He spoke at conferences. He gave press conferences. He interviewed with the press. He leaned on Wall Street. He preached to the USCongress. He finally swayed the financial markets. The result was that a typical housing market correction was averted. Instead, a powerful housing market rally took place, a climax rally. It sucked in every conceivable vagrant buyer, including a homeless bum in St Petersburg Florida who bought two homes without income or assets, full exploit of the NINJA loans (no income, no job or assets). What a travesty and blotch in American financial history. Even Fannie Mae entered the act, advertising on television with minority actors to encourage the last buyers to fall into the bubble trap. They succeeded, and minorities became the first victims of the wrecked, dispossessed, and bankrupted citizens.

The subprime mortgage chapter was a planned event, not by Greenspan, but by Wall Street firms. They went far beyond what Mr Magoo planned. They needed fresh meat to feed upon. Unqualified buyers served as cannon fodder to Wall Street bond merchants, offering hefty fees in bond securitization. Foreign investors were lined up like toy soldiers on a table for execution. The backfires are a plenty. The MERS database for title registration, intended and designed to handle the rapid trading of mortgage bonds, has been declared in several states to have no legal standing. Thus MERS has turned into a crowbar that intelligent enlightened emboldened homeowners can use to apply pressure on the banks and mortgage firms to avoid foreclosure, and live rent free in a home while still holding title. The strategic mortgage default practice, simply not paying, has spread like a mild virus.

Greenspan built the next asset bubble with full motive. It was a doubled chambered asset bubble, which enabled him to retire before a deep intractable crisis struck. The housing bubble grew leaps and bounds, doubling prices in some regions, called the Sand Bubbles. Arizona, California, Nevada, Florida, they all expanded, and now have contracted. The city of Miami has hosted a national jamboree for the foreclosure victims, another blight much like the tent cities. New home prices in the Phoenix area have been cut in half. Talk about the wings being burned off the rising bird, which fell hard to the ground! Millions each year have been tossed onto the national dump of foreclosures, left with no savings, no homestead, often with no job, and too often with no pension, and clearly no hope. The other bubble was mortgage finance. A great majority of the Wall Street business model transformed into leveraging profits off mortgages, either from fees off bond securitization or nasty gains from insuring against bond failures as clients lost arms and legs. The parade of client lawsuits has replaced the parade of clients seeking bond issuance. Talk about wings being burned off the financially engineered bird!


Even though gone from the scene of the crime, Greenspan ensured the final asset bubble. Perhaps unwittingly, perhaps expectantly, no matter. When home prices inevitably and inexorably fell, the great housing bubble would transform into a charred ruin. Note the contrast in Time Magazine covers. What a difference five years can make. The Jackass forewarned back in 2005 that a great train wreck would happen, severe enough to render the entire US banking system a ruined victim, from a guaranteed insolvent condition. It happened as prescribed. So behold the final bubble implicitly and passively designed by Greenspan, the USTreasury Bond. It has gained attention as a bubble, but again no asset bubbles are bad until they are broken. Wall Street encourages asset bubbles, as that is their reason for being. They then exploit the bubbles as professional vultures. As the housing wreckage and the mortgage wreckage unfolded, the safe haven was grabbed and sought in USTreasurys. The current situation actually finds the bond rally to be proof positive that symptoms scream of systemic failure. The USTreasury complex is the only game in town that seems to offer investment gains inside the paper realm. Gold is the rising star on the tangible realm. Gold has begun to distinguish itself from the commodities, since the realization has come that GOLD IS MONEY.

The arrival of systemic failure was guaranteed by the Clinton Admin decision to grant Most Favored Nation status to China, our next trade rival and current bitter trade enemy. That the US nation could send industry to China, enjoy the benefits of Low Cost Solutions in sustained profit margins, remove legitimate income, replace it with debt off asset bubbles, and expect as economists promised a continued decade of prosperity testifies to the lunacy, stupidity, and heretical guidance of US economists. The US corporate sector seemed to grasp at a decade extension of economic good times. The result was the rise of China, the grand accumulation of $2.5 trillion in reserve assets, and the encirclement (aka strangulation) of the American body by Chinese investment and partnerships the world over. The decision to partner with China has not been questioned much, even now.

Witness on this side of the Pacific Ocean an embraced USTreasury Bond bubble, blessed as good, regarded as the ultimate in safe haven. In the next several months, watch a radical change unfold in the perception of the USTreasury asset, from safe haven to next broken bubble, even a tragic path toward debt default. My sources tell of a 2006 Christmas effort to devalue the USDollar by 50%, but the plan blocked by China. Watch for the 50% devaluation to be pushed and pushed until it sticks. Boycott of USTreasurys will go global. The USTreasury auction process will turn into a fraternity celebration of onanism. In fact, with the proliferation of high frequency flash trading on the stock side, the isolated monetization of USTreasurys and good ole boy nether relief practices will mark a complementary bond style perversion. Such lone hand satisfaction requires isolation and often darkness. Talk of Greek Govt bond default will turn into a fever. Next will be Spanish Govt bond default. We will see a parade of them, including Great Britain. The year 2011 will be tumultuous, as a new currency is introduced. Germany will lead the way, and the once formidable USTreasurys will be treated to an American sunset.


Behold the powerful Gold ascendancy. What great amusement comes from watching the squirming of financial anchors and their guests, the confused banter, the ideological pretzel contortions, the shallow discourse, the nitwit criticism, the self-serving errant banter, the fiat paper ideological warfare propaganda, the abject vacancy dressed in monetary mental monotone. The struggle to comprehend the rising Star of Gold by the financial media is much more amusing than frustrating. Five years ago with the advent of the Hat Trick Letter, a frequent stream of curses was directed at the television screen during interview of supposed experts. These past weeks and months, a smile comes during interviews of the same compromised deacons committed to the ideological priesthood, striving for a piece of the paper pie. It will not come. Instead, a pink slip of paper will arrive on desks, to the tune of 80 thousand jobs to Wall Street firms, according to Meredith Whitney, the former Oppenheimer analyst. Such reductions would comprise 10% of current workforce levels. The structural decline in Wall Street profits over the last three years began with busted bubbles, but continues with a perverse replacement of stock and bond issuance by client lawsuits. The damage extends to Europe and England. See Barclays, Credit Suisse, and Royal Bank of Scotland Group. Bear in mind that the USTreasury Bond bubble has sucked most capital from the world, as even bond offerings struggle and spreads widen.

Behold the powerful Gold ascendancy. What great amusement comes from watching the minimization of the gold price advances by financial anchors and their guests, the envious avoidance, the denigration from the loser corner, bizarre bubble accusations. The anchors seem not to show much respect for a 300% return on investment for gold in the 2000 decade, the clear victor among asset groups. It is only gold, the pesky yellow metal. It does not really count as an investment, since it is not an approved vehicle within the paper fleet. The 1973 movie "Paper Chase" with John Houseman and the subsequent television hit series in the following decade was cool. It featured a group of Harvard Law students struggling to succeed in a rigorous program made more difficult by a surly but competent professor not prone to smiles or displays of human tenderness. It was a favorite weekly show of the Jackass, young at the time and developing unorthodox iconoclastic tendencies. The gold community has turned away from the Paper Chase, the Wall Street game, the fiat charade, the heresy on paper wheels.

One key family member of mine shunned the advice given in 2001 to invest 25% of life savings, my future inheritance, in a gold investment. In 2010 after the quadruple was complete, the same person expressed satisfaction in NOT having invested in gold over those same ten years, since it seemed risky and went against the grain of the system. He comes from a different age, with engrained trust for the system, a veteran of a war long ago, one who prefers not to contemplate the threats made against his son by USGovt agencies. Little satisfaction comes to the Jackass except from personal colleagues and trusted friends in the gold community who get it. One might expect similar lack of satisfaction when preaching the gold theme to family members and close friends for other people, other gold warriors. My view is that acceptance of the Gold theme is much like politics or religion, should not be forced, but other opinions need not necessarily be given too much respect. A progression has been well noted of family and friends in response to the sequence of crisis events, full shock, and personal impact to them. They go through their defining moments, their watershed decision points, but usually continue committed to the paper trail. They tend to express hope that the nation can pull out of the current morass of problems. My stern replies of worsening forecasts go unheeded, each dismissed like the last, despite the string of correct systemic breakdown forecasts. Conclusion: make new friends, stick with the gold friends, as we will rule the earth, all in time. Family and friends might be given some help later, from a different pecking order.

Gold reacts to many things not seen by the mainstream. It reacts to the extreme distress of the creaking dying financial system. It reacts to the failure of debt denominated monetary system. It reacts to the insolvent US Federal Reserve. It reacts to the moribund environment for capital formation. It reacts to the debt saturation. It reacts to the burgeoning federal deficits. It reacts to the 20 months of 0% that cannot kickstart the USEconomy. It reacts to the still declining housing market. It reacts to the tragic march of home foreclosures. It reacts to the tragic march of the unemployed. It reacts to the 20% of the homes mired in negative equity. It reacts to the reluctance to serve remedy, reform, or restructure by the big banks who have the USGovt finance ministry in a choke hold. It reacts to the wars that exhibit a cancer upon the presidency. It reacts to the absence of industrial base, dispatched to Asia. It reacts to the hidden lack of comprehension for the consequences of unsound money. It reacts to the ugly aftermath following two decades of falsely priced cost of money. It reacts to the failed central bank franchise system. It reacts to the end of the road for additional bubbles to blow on the American landscape. It reacts to the growing despair extended from the dark clouds hanging over the current environment. It reacts to the lack of comprehension of money itself by the brain trust posing as bank leaders. It reacts to the lack of comprehension of economics itself by the brain trust posing as economists.


The mainstream financial press networks cannot grasp the meaning and potential of gold. They hate it. The broader comprehension of gold is superficial. They recognize the excess of  government deficits and debt issuance, but not their permanence. They recognize the fast vast creation of new money, but not the need for repeated episodes of more creation, to the point of total debasement. They recognize the need for safe harbor, but still cling to the notion of USTreasury Bonds offering that safety. They recognize the need for inflation to return, but not how a chronic dependence upon inflation brought the current wreckage. They recognize the inevitability of further debt burdens, but not the certainty of debt default. They recognize the need to reduce the US debt to manageable levels, but not the wicked foreign response in global revolt. They recognize the foreign angst over the USDollar and its teetering condition, but not the global revolt against it. They recognize the missing collateral reserves in the banking system, but not how gold used to serve that purpose. They recognize the sickness of the debt based monetary system, but not the ultimate requirement for a complete overhaul of the monetary system. They recognize the rise in the gold price, but not its identification as money in a moneyless world. They recognize the broken system, but believe it can be righted, if only naively by the passage of time. They confuse legal tender with money. They do not understand gold, but they will, probably when it is too late. GOLD IS BOTH THE STORE OF VALUE AND THE BALLAST IN THE BANKING SYSTEM. It offers stability, but seems like dead weight to the ignorant.

The gold price has broken out to new highs. This is just the beginning. The silver price has broken out to new highs. This is just the beginning. The mainstream has no idea how high the gold & silver prices can reach. My response is simple. No effort has come to reform the financial foundation. No effort has come to bring remedy the broken platforms. No effort has come to restructure its workings. The first steps involve liquidation of the vast swaths of badly impaired, often worthless bonds that clutter the banking system like discarded rags in a sewer pipe. No effort will come either, since orders to repair the financial platforms would bring about sudden death to the big banks that control the USGovt and its finance ministries. Gold understands all this very well. Gold realizes that no Big Fix can come without trashing the entire power structure, turning the system upside down, and giving invitations to criminal prosecution. The Gold price is constantly and steadily fed strong nourishment.

The gold & silver prices have broken out to new highs. Tremendous heights will be achieved. We will see $2000 gold, then later $3000 gold. We will see $40 silver, then later $70 silver. It is pre-ordained. It is written. It will be done. Nothing is fixed nor will be fixed. Much money has been wasted, and more will be wasted. Each round of economic stimulus pushes the gold & silver price higher. Each round of big bank bond redemption pushes the gold & silver price higher. Each round of sanctioned official debt monetization pushes the gold & silver price higher. Each round of inaction from political delay or stalemate pushes the gold & silver price higher. The only lack of satisfaction from the leaps higher in precious metal prices comes from knowing that the world as we know it will change, as the landscape shows evidence of economic scars. Supply chain disruption, price inflation, lost financial security, social unrest, and growing chaos will make it difficult to enjoy the strong purchasing power from a high gold & silver price from personal holdings in investment. But the alternative is so much worse than not holding them in investment. Gold & silver are a vote of no confidence in the paper system. Gold & silver are vast life boats during a tsunami. Gold & silver are a stake in the future.

Gold fights the big political battles, but silver takes the greater spoils. Behold gold on the verge of a powerful breakout. Gold is not an inflation hedge, but rather a monetary system failure hedge. Gold is not a dead asset, but rather the ultimate form of money. Gold is not an investment without yield, but rather the a store of value serving as ballast for the global banking system. Each round of stimulus, bond redemption, bank aid, and annual government deficit lifts the gold price potential another $1000, and the silver price another $20. Silver is favored on the supply side of the price dynamics, and silver is favored on the demand side of the price dynamics. Massive supply shortages are being reported and realized. Just this week a private off market silver sale took place in the multi-million$ at a $24.50 price, according to an information source. The disparity between the physical market and paper market will remain wide, even as both price structures move higher.

JPMorgan is on the extreme defensive. While the new Financial Regulation Bill might have caused some disarray of the price suppression gamers, the bill surely has emboldened precious metals investors. By the way, a deep contact informs that Bank of America suffered a death experience on the weekend of July 24th, the same weekend that the London Bullion Market Assn went dark on reported data. Around the same time the Bank For Intl Settlements was fumbling around with phony stories regarding their 340 ton Gold Swap contract. The truth is... the BIS bailed out the London metal exchange, on the edge of default, which has suffered repeated gold raids. They have been forced to defend against a sequence of coordinated raids, all legal, demanding vast gold bullion and obtaining it. The BIS bailed out not commercial banks, not the Portuguese central bank, but the London metal exchange. The LBMA is struggling to avoid completely empty inventory. More BIS backdoor supply handoffs will come. Expect the gold raids against London to continue until the corrupt Anglo bankers are plowed under like a weeded lawn laced with rubbish. Soon a big bank will fall, from the incremental drain from losses defending the gold price without success. My guess is Bank of America. It will be absorbed by the titans on Wall Street, the corrupt monoliths. Eventually only two will stand, by the time the USTreasury default approaches.


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by Jim Willie CB
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Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

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