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CARTEL CAPITULATION WATCH
The financial markets were generally subdued. The dollar fell .12 to 89.35, while the euro rose .18 to 121.03. Crude oil lost another 37 cents to $43.10 per barrel. The DOW dropped 8 to 10,173. The DOG also sank 8 to 1852.
Some US economic highlights:
08:30 Jobless claims for w/e 8/21 reported 343K vs. consensus 335K
Prior week revised to 333K from 331K.
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10:00 July Help Wanted Index reported 37 vs. consensus 38
Prior reading was 38.
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Atlanta Fed's Guynn Says Pickup in Inflation Isn't Entirely `Transitory' Aug. 25
(Bloomberg) -- Increases in some consumer prices are ``beginning to stick'' and the Federal Reserve should continue to raise interest rates at a ``measured'' pace, said Jack Guynn, president of the Federal Reserve Bank of Atlanta.
``I'm not willing to conclude that most of the price pressures we've seen will turn out to be transitory,'' Guynn said in a speech in Atlanta. ``In fields where demand is strong and growing, we are seeing price increases beginning to stick.''
Guynn said he was surprised at how much the rising energy and commodity costs have seeped into consumer prices. The consumer price index fell 0.1 percent in July, led by lower gasoline and clothing costs, after a 0.3 percent increase in June, the Labor Department said last week. The core index, which excludes food and energy, rose 0.1 percent for a second month.
The statement from the Federal Open Market Committee on Aug. 10, when it raised the benchmark interest rate a quarter point to 1.5 percent, said that while inflation has been elevated, ``a portion of the rise in prices seems to reflect transitory factors.'' Guynn is a non-voting member of the committee.
Guynn said there aren't yet ``troublesome'' signs of inflation. Still, ``a continuation of accommodative monetary policy is not appropriate as the economic expansion gains momentum and breadth.''…
-END-
GATA’s Mike Bolser:
Hi Bill:
The Federal reserve added $19Billion in temporary repurchase agreements today August 26th 2004, an action that rammed the repo pool up to $54.515 Billion and even bumped the 30-day ma up a bit from its level status. Since there is to be a sizable expiration at the close today ($13.5Billion) added to the $19 issued this morning and the previous pool level of $49.015B, the INTRA-DAY repo pool is a whopping $81.52 Billion. Pundits should give up the notion that primary dealers can't achieve daily mischief with THAT kind of money! Tomorrow will also bring a large expiry so I see the Fed rolling out their heavy repo artillery for something special. Don't be short the DOW for ANY reason at this stage.
Even if I miss my Labor Day prediction of DOW = 11,750, I'm still going to claim victory if the Fed somehow manages to do their DOW launch to that number in the Sept options cycle since that is where one would naturally place their "Diamond" bets for a Sept 1 event date.
Although the Fed may at times seem invincible in their own little paper world, they are paper tigers in the world of ... cement. Yep, there's a massive shortage of cement due to the Fed's impossible credit and mortgage creation monsters, Fannie and Freddie. Anyone with a pulse can get "money" to build new residential dwellings, which has led to the cement shortage. Hurricane Charley hasn't helped either. The addition of so many new houses has also not helped the natural gas energy situation. The Fed has therefore created its own set of unintended consequences.
Of course, all this Federal Reserve mortgage "money" constitutes inflated dollars, sequestered away in bricks and mortar so it can't quickly seep back into the M1 cash sphere to do its inflationary damage (The best laid of Fed plans). There is $3 Trillion of this kind of "money" that will explode into the M1 world when the housing boom stops and owners attempt to sell.
Bursting bubbles, desperate men
I have suggested that the Fed will stop at nothing as they enter their monetary death throes, that no tactic will be too extreme. Indeed, they have said they will even "buy" gold mines. Of course to them, "buy" means "nationalize" in the great tradition of Lenin and Marx. This means Newmont, Placer Dome and any other large US gold resource firm can expect a knock at their doors when things get ugly.
After observing the Fed and its acolytes up close and personal at the minute-to-minute interventional level, one gets a sense of the ethics of the controllers. In my view, the needs of average citizens fall outside their perceptual field and therefore any act, including the termination of COMEX trading in precious metals would be EASY for them. Would other COMEX markets be effected? Perhaps, but the cataclysmic reverberations of $2,000 and $3,000/ounce external-to-US-gold prices would carry its own set of INTERNAL monetary damages such that effects on other COMEX markets might seem tiny in comparison. The Fed will do whatever it takes to intervene BEFORE the gold explosion occurs. I continue to believe that a single entity or perhaps two will decide one day in the future to secure as much of the COMEX and London gold as they can, triggering a closure strategy.
Bonds? What would a bond of ANY type be worth if its underlying currency had fallen by 10 times compared to gold in a few weeks or even a few days? With only paper assets, the average investor will be stopped out of the gold leap.
Thinking about this is as painful as thinking and acting to protect one's home from hurricanes, but it must be done. It's important to appreciate that the Fed does NOT represent your interests. Sean Corrigan has masterfully said, "ALL government is about coercion".
The following piece from the Economist tells a high-level story of what senior managers do when they run out of options...it isn't pretty. In their own way, the Federal Reserve will do exactly what the board of directors at Royal Dutch Shell did:
A damning verdict
http://www.economist.com/agenda/...id=312674
Aug 25th 2004
From The Economist Global Agenda
America¹s Securities and Exchange Commission has issued a damning report into Shell¹s overstatement of its oil reserves, which finds that the cover-up was older and more widespread than the company had previously acknowledged. The SEC and British regulators have also jointly fined Shell $150m
COMPANIES that find themselves in trouble these days tend to adopt one of two tactics. The first is to raise the drawbridge and unite against the enemy. The second, increasingly popular, is to identify the scapegoats and toss them over the battlements to the baying hordes‹regulators, irate shareholders and so on‹in the hope that such a sacrifice will save the city.
Royal Dutch/Shell tried both. END
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Get ready for anything now that the Fed has primed the repo machine.
Mike
More from Mike later:
Hi Bill:
After watching things in the markets a bit more today, I am leaning towards oil derivatives as the destination for the fed's recent huge repo funding. The simple test for this conclusion was to ask: With repos and the pool going sharply up, what other commodity was going down? The easy answer...crude oil.
But the Fed isn't out of the woods by ANY stretch. Keep watching the crude oil 200-day ma (DIVO) charts at http://www.pbase.com/gmbolser/root. When and IF it begins to dip the Fed will begin to breathe again.
Judging by the rapid acceleration of the Shiite uprising in Iraq, that area alone will keep oil bears on the run.
Mike
Jesse has a few thoughts:
Unless the GDP report pulls out some other adjustments, the revision will be down closer to 2% than 3% because of the yawning trade deficit that came out after the advance estimates. We 'might' get a surprise adjustment somewhere else that will keep it closer to 2.7% but it will be worth close scrutiny if it does.
But the Jobs Report will most likely surprise to the upside, because the 'Birth/Deal Model' of new business, aka The Imaginary Jobs Report,' will add back all the 91k imaginary jobs it adjusted out last month, and then some. So I would be looking at something around 200k to take the bad taste of GDP out of economist's mouths, and give a boost to the GOP apres convention.
Jesse
This development can only be a plus:
Central Japan Commodity Exchange to Commence U.S. Dollar-Denominated Gold Futures Trading in 2005
LOS ANGELES & TOKYO--(BUSINESS WIRE)--Aug. 25, 2004
C-COM responds to needs for currency and gold hedging, as well as overall trends in global gold futures markets
One of the world's largest commodity exchanges, Central Japan Commodity Exchange (C-COM), today announced that it will commence the U.S. dollar-denominated futures trading for gold contracts beginning in Year 2005.
The decision comes as a result of the in-depth analysis conducted by a specially appointed C-COM committee -- the Gold Futures Market Study Committee. Following a thorough evaluation of the Japanese market, Asian and other key global markets, the committee came to the conclusion to initiate the U.S. dollar-denominated gold futures trading to both meet the expanding needs for risk hedging and investment in U.S. dollar-denominated gold futures in Asia, as well as to determine transparent and appropriate prices.
Although there is a yen-denominated gold futures market (precious metal market at the Tokyo Commodity Exchange) in Japan, traders currently are unable to fully hedge the risks due to the fluctuation of the exchange ratio.
The U.S. dollar-denominated trading and inherent hedging is crucial, because high gold prices coupled with depreciated dollars (when compared against the yen), have an inverse correlation, and, therefore, the risk cannot be fully mitigated in a yen-dominated futures market.
Other key trends are also at play. In addition to the need for greater currency and gold futures hedging, the notion of asset management in Japan also is diversifying, as seen in the rapid increase in foreign currency-denominated deposits and other foreign exchange (Forex) (Note 1).
Furthermore, Asian nations, mainly China and India, have strong tendencies to buy and hold gold. In particular, market trends in China are critical to watch.
There is the U.S. dollar-denominated Loco London Market located in Hong Kong, a spot market for gold bullion (delivered in London); however, in Asia, there is currently no U.S. dollar-denominated gold market for futures trading. It is against this backdrop that C-COM will open the market, as an industry leader.
C-COM representatives said that the application for the gold futures contract will be sent immediately to the Ministry of Economy, Trade and Industry (METI) with the expectation of a rapid approval and successful listing.
-END-
http://www.themoscowtimes.com/stories/2004/08/26/046.html
From the Moscow Times
Central Bank to Buy More Euros Next Year
Reuters
Thursday, August 26, 2004. Page 6.
The Central Bank may slightly raise the euro portion of its hard currency reserves next year and cut the dollar component, a Central Bank official was quoted by Interfax as saying Wednesday.
"I think that next year we may revise the structure of the gold and hard currency reserves to increase the euro portion by some extent and to diminish dollar assets," First Deputy Central Bank Chairman Alexei Ulyukayev was quoted as saying.
"But we shall not take any drastic steps. Everything will happen gradually, without hurry, very carefully and with circumspection."
Currently, the Central Bank's reserves of $89.6 billion consist of 70 percent dollars, 25 percent euros and 5 percent in other currencies.
Central Bank governor Sergei Ignatyev said last week he expected the reserves to reach $100 billion by the end of the year. The reserves are boosted by a strong inflow of dollars due to high prices for oil exports….
-END-
In from London on the long-term XAU pattern, along with this note:
XAU with diamond parabs channel for email attach August 26 2004.ppt
You may recall a silver diamond of similar nature that I put over to you last year around July time. It worked well. I find the black parabola in this chart particularly interesting as well as the "Pivot Line", which I have brought to your attention before.
All the best,
David
Commentary from the legendary Jim "Mr. Gold" Sinclair at http://www.jsmineset.com today:
I own gold because the US dollar is headed for a backyard whipping and will no longer be the Reserve Currency of International Central Banks. This will happen no sooner than 11 months from now and no later than 3 years from January 1, 2004.
The entire world of finance revolves around gold vs. the US dollar. This is why COT is used by the US Treasury to fight gold continually. It is the Exchange Stabilization Fund (ESF) that we are fighting in gold today and in fact beat in the 70s. They will not succeed!
Now listen carefully and send the following to my respected colleagues John Embry at Sprott Management and to my friend Bill at GATA.
There is no ESF as an operating fund in the form you know management of a fund to be. The ESF is simply a name given to a trading account of the US Treasury and capitalized independent of the US Treasury. It can legally trade in gold and the US dollar as well as many other items. The ESF is therefore the Crash Protection Team.
Orders come from the US Treasury to high placed partners of the various COT firms as to what they wish done in a purely generic sense and how much cash or gold they can commit. The account of the ESF is masked in many ways from the eyes of the COT firm employees, other partners and clearing agents.
The problem the ESF has is that they must use the COT figures to mask these manipulative operations and the ESF is not capitalized enough to help the dollar out for more than a few minutes intra-day or night. All of this is legal with the possible exception of the trading activities and intentions to produce price without risk. But that is a separate discussion.
Since gold is tied to the US dollar at the hip, the ESF can only try and demoralize gold traders but can never turn a bull gold market into a bear gold market. They simply are undercapitalized to accomplish pushing a 1.2 trillion dollar per day crowd around. So it is the ESF and not COT that is the doer of the evil deed destined to failure for a simple reason: The dollar rules gold and not the Comex.
So John Embry's top notch article on the manipulation of the gold market (click here) is not about COT but rather about the US Treasury. That is fact, Jack.
Regards,
Jim
Based on the sharply building Comex gold open interest, we know the battle is raging between the spec/cash market folks versus the powerful Gold Cartel. Most of these battles have been won by the cabal over the years. However, there have been exceptions such as the battle the cartel lost to hold $330. They were simply overpowered. This can happen again. For it to occur gold must make new highs within a few days to keep the technical black box folks from pitching their longs.
One other point, if the UBS buying is as sizeable as we think (for cash market pricing or for long-term buyers such as large Saudi interests), this new open interest build up might not be a negative. That sort of buying by UBS will not be flushed out on a $10 dip. The key will be the physical market. If it is as strong as we believe, additional buying will cushion setbacks like this and could force the cabal into a retreat.
One further point. UBS has been conspicuously absent the past two days as to its daily commentary. This may also be very positive as it appears they have chosen not to be out saying anything publicly on the gold market while they have enormous buy orders to execute. It is important to keep in mind UBS has not been seen that often on the Comex floor these past months. For them to be SO visible all of a sudden and for UBS to clam up with their daily reporting, strongly suggests they are doing significant big picture buying for a major client, or clients!!! This development might be very instrumental in determining the price of gold in the days and weeks ahead.
The gold shares drifted lower with the XAU losing .81 to 93.30 and the HUI falling 2.15 to 203.18. The junior/exploration sector remains comatose. From a sentiment standpoint the market is extremely bullish, as reflected in the continually dismal Café Sentiment Indicator. Here we have gold comfortably above $400 for the moment and silver holding up quite nicely, yet investors around the world are yawning, paying scant attention. It is a contrarian’s delight.
GATA BE IN IT TO WIN IT!
MIDAS
