I had planned to write a piece entitled “Gold and Silver Can Never Go Up” but will defer that until tomorrow. Don’t worry, it’s not what you are thinking I assure you. Instead, I will expand on my “Kill Switch” theory a bit and for a lack of better term call it “checkmate!”
Before getting into this I want you to understand the relationship between the U.S. and China… from China’s point of view. They view us as an adversary, they always have and always will. Sure they will smile and do business with us but to what end? The answer of course is “theirs.” I have posited in the past that China has been absolutely brilliant in playing our “debt game” over the last 10-15+ years. They used the American consumer as end sales for their production of goods. This created cash flow and allowed them to build out their production and manufacturing base at a rate much faster than any civilization in history.
They also built “ghost cities” and all of the infrastructure that goes with it. Had they not played the “debt game” this could never have been done. Remember, earlier this year China made crystal clear their stance on derivatives. They announced that should they choose, they will default on any derivative at their prerogative… because they know. They know the derivatives game is a naked sham and “product” does not for the most part exist behind many contracts. I believed and now believe more strongly than ever, China played the game knowing full well the debt would collapse. They also created new infrastructure and manufacturing capacity while ours is old and in decay. They looked 100+ years into the future while we were still looking at the past.
That said, I believe China has set up via incredible chess management a trap that even the best fictional writers would envy. First, they have purchased and amassed well over $3 trillion worth of U.S. dollar reserves and Treasury securities. This position alone makes them our largest banker and puts them in a position of power over us. It has been speculated the Chinese could just start dumping Treasuries and dollars to short circuit our financial system and thus the economy. I don’t think so …all by itself. Yes this would probably put a serious wrench in our system but what if it didn’t completely do the job? What if the Fed stepped up (they will) and magically bought everything China sold? The Fed has already quadrupled their balance sheet in 6 years, what would another doubling be? What would stop the Fed from simply bidding for anything and everything being sold? They’ve pretty much already done this with the various “QE’s” so what is another $3 trillion or so? My point is this, it could be done by the Fed and China knows this.
China has also accumulated an absolute minimum of 6,000 tons of gold since 2008 and more than likely have 10,000+ tons which would make them the largest holder in the world even if our 8,133 tons exists…which it does not. This speculation does not even include “legacy gold” which was mined and accumulated over 100’s if not several thousand years. Their total very well could be in the 15-20,000 ton range but let’s assume they only have 6,000 tons. This amount makes them number one in the world no matter what the Fed, the Treasury or the Wizard of Oz has to say.
Next is the silver side of it. I have told you my theory on why open interest would rise as the price fell. Some are saying that each time the open interest rose the price then followed and got killed. This is true but “it’s different this time.” I know “scary words” but it really is different this time because in the past, open interest rose …along with price…and sentiment …into what we’ll call “peaking action.” Now, open interest has steadily risen while price and sentiment were ground into the dirt, there is no “froth” whatsoever. In fact, a better description would be “despair.” So it really is different and the longs must also be very different entities because they have stood tall and increased their positions while taking billions of $ in losses, who could or would do this?
The answer of course are the Chinese. They “could” withstand major losses because they have the money to do so. They also look very very long term down the road and couldn’t care less if some margin clerk hits them over the head with daily calls, they just fund them and know the Sun will rise tomorrow. The situation in COMEX silver has gotten very lopsided as the open interest for Dec. silver is a staggering 700 million ounces while the registered inventory is only 60 million. Obviously this is a very big potential problem.
The Chinese also just opened their physical exchange Friday only to see gold hit for another few dollars and silver attacked for .50 cents. The gold community is scared witless because the usual suspects have all turned up as traders on the Shanghai exchange. I would like to point out that the Chinese do not put up with “fraud” very well. In fact, they just executed a billionaire 2 months or so back because he was involved in fraud. How many Americans other than Stanford and Madoff got jail time not to mention being executed over the fraud involved leading up to 2007 and ’08? None. Nobody. Can you say “Jon Corzine?”
Also of note is the inventory of silver now held in Shanghai. What was nearly 1,200 tons a year ago is now a measly 92 tons. This for round numbers works out to only $50 million. $50 million? I know several individuals personally who could write a check of this amount. Unless we see metal entering their vault very shortly an arbitrage is going to begin in earnest. Maybe I should just call it a transfer but what will happen logically is a search at other vaults will begin. The LBMA, COMEX, and SLV are obviously the most visible and logical places. If demand from Shanghai, Singapore, Hong Kong or even Dubai cleans out THEIR inventories then “no worries,” it can be sourced at these locations…or can it? And if it can, for how long?
As I started out with, China maybe could put some pretty serious hurt on us by dumping Treasuries but as in the “Art of War” by Sun Tzu, they will not go off halfcocked and everything must be fully planned down to the minute details. Putting this all together I believe China has engineered a masterpiece. They are our banker and we owe them trillions of $. China has built out their manufacturing base and productive capacity unlike any civilization ever. They have accumulated massive amounts of gold which could have ONLY come from Western vaults …so “their imports” were “our depletion” and came at our expense. I believe they also have their finger on the trigger of the silver market by cornering the December contract which will now be followed by their own “pricing mechanism” of a physical exchange. What will be the “real price” of silver if a physical exchange runs out of silver? I believe COMEX will ultimately be embarrassed by non-delivery and the exposure of massive fraud, this will be just one of the punishments China sends West.
While I’m at it I might as well add a “cherry on top” for appearance sakes. What just happened this past Friday? Well, Alibaba of course. Alibaba raised nearly $22 billion in capital which valued the entire company at $168 billion. It has since risen in value to that equal to Walmart …only a handful of U.S. companies are larger. Is Alibaba really worth this much? No matter opinion, the Chinese “sold” at what they believed to be a good price and sucked up $22 billion worth of capital in the process.
You can say what you want, say “it’ll never happen” or whatever. The chess pieces are on the table and our “opponent” is not in this for bragging rights or loose change, they are in it for all the marbles! China is our biggest banker and supplier of capital, our biggest supplier of consumer goods, they have been the biggest hoarder of gold and I hypothesize the “mystery owner” of huge positions in Dec. silver. Every move they have publicly made for over 2 years has been dollar negative and yuan/trade positive. They have built cities, infrastructure, plant and equipment which is clearly beyond current needs for capacity. China has done deals with our friends and foes alike, they have supported geopolitically nearly anything and everything contrary to public U.S. views and policy. They are supporting Mr. Putin financially while the U.S. tries in vain to punish him financially. Would, could, the U.S. place “sanctions” on China for breaking the “sanctions” on Russia? I know, that was a bad joke but it’s a real question.
Before finishing let’s not forget about the “cherry on top,” did China just dump the largest IPO in U.S. history at the top of the market? A market, financial system and economy that I believe they are now in a position to destroy at the flip of a switch and the timing of their desire? Like I said, laugh at this, laugh at me, do whatever you’d like, all I am doing is pointing out the very obvious. No country or nation should or would ever put their adversary in a position to destroy them, we have allowed it and even encouraged it. We are broke, we depend on our adversary for funding, trade, and we have given them all of our real money, what’s next? Trading them Manhattan for a few trinkets? The danger to their plan in my opinion is this, just as it is dangerous to corner a wild animal it is more dangerous to bankrupt and financially corner a nuclear power.
Bill – Price of silver on shanghai gold exchange includes 17% VAT. Exclude it and silver is selling at a 4% discount to comex. Silver is in backwardation over all months. That’s why there is no contango so why carry any silver inventory?
Shanghai future exchange shows that silver volume is comparable to comex silver volume. Koos Jansen has a nice graph on his website showing this. No question in my mind that the bullies are papering silver to death on comex but it’s got to be a co-ordinated effort with shfe. A big drop in silver prices within seconds on comex is reflected instantaneously on shfe.
I’m looking for answers too.
I guess we’ll have to wait a month or two to see what happens when there is no inventory.
Bill,
I very much enjoyed “Chinese Checkmate”. I have a few further thoughts on this. I think your emphasis on the long-term planning by the Chinese is right on the money. This is something that the US does not do at all. Also, Putin seems to have learned a thing or two from the Chinese in this regard. My ideas about the situation agree with your own. My synopsis follows. The Chinese, quite a few years ago, realized that the world economy is nothing but a Ponzi scheme (see John Hussman’s latest weekly commentary) which is destined to collapse. Of course, this would also lead to the collapse of their economy since their biggest customers are the Europeans and Americans. So they decided to take advantage of the situation and use it to ensure that after the collapse they would emerge as the leading economic power on the planet. This led to what you describe, the building out of their infrastructure and the buying up of as much gold and silver as possible. Now, I don’t think the Chinese would cause a crash, but they know a crash will happen; it is inevitable and they are patient. When the global collapse arrives the Chinese will repudiate all their debt and will start with a fresh slate, but with all their new infrastructure intact and with a gold-backed yuan. It may also be possible that there will be a coordinated global collapse controlled by all the central banks, followed by a debt reset, since there seems to be no other way out of this mess. Planned collapse, or not, the Chinese are getting ready while the rest of the world is delusional. After the collapse the Chinese will quickly become the world’s dominate economic power. I agree that it is dangerous to corner the US, but I don’t think the Chinese have to do that because the US economy is going to collapse in any case. Remember that China is also a nuclear power, and that Russia is a bigger nuclear power than China; the combination is a match for the US. There are no winners in a nuclear war. Checkmate indeed.
Thanks Mark.
So what do the middle class in North America do to protect ourselves financally?
start with silver and gold.
Bill,
with a COMEX registered inventory of 60 million ounces of silver, if someone wished to “pull the trigger” wouldn’t any amount in excess of the above be enough to
end the game? Why 700 million ounces?
Thanks.
P.S. you are my favourite writer on the internet.
I visit your site every day and enjoy your analysis immensely.
Thank you Frank, I am flattered. December currently has open interest of 650 million ounces (I erred by writing 700 million). You are correct, anything over the total inventory unless more can be found would be enough to create a default. For a lousy and whopping $1 billion!
Whichever way you look at it, the $$ price of Silver is going down.
Is it cheap?
Compared to about $21 in mid July you could I suppose think it is cheaper.
With nothing but thin air between now and $8.40 I see no reason to purchase any at this stage.
A capitulation selloff will likely drive the price to $13.50 area and could happen very quickly indeed.
There is plenty of time.
Do you think the COMEX can survive cheap silver without defaulting?
In my opinion, no. There is only $1 billion worth registered for delivery and won’t be nearly enough in a big rush for metal.
Good article Bill. I´m starting to think the Chicoms have been building those goast cities as a hedge against public unrest when the great reset hits. Remember when Mao felt he was under threat? He rallied the young. Busted out the little red book. Did some cultural revolution, and kept his power. He had his plan B.
I think the Communist Party learned from that. Always have a political plan B ready to go if your plan A is having problems. It will ensure your survival, and you will maintain power. What better way to maintain party power than to reward millions of poor party loyalists with a nice apartment on the outskirts of Goast City #4?
thanks Mike, we’ll soon see.
Bill, again another great article. I agree with you on everything. We shall see what happens in December. I do believe, however, that the Rothschild Global Banking Cartel is working in concert with the Chinese to Control the PM price though – Until the Big One. I do not think They want the Collapse and Reset of all things before Sep/Oct of 2015. So, if the PM reset does not take place by the end of this year – then I believe the Fall (pun intended) of 2015 be it for sure.
who knows for sure?
Bill,
Another great article.
So much going on it’s hard to keep current.
On another matter we have not heard of a “Debt Limit” in a long time. Was the debt limited suspended and shoot for the moon in debt? If so, to play fair why isn’t main street (you, me, and every one else) given a plastic credit card with no limit on it? Let us be able to play the same sick game !!!
thanks Farrell, I believe the “limit” was suspended.
I was thinking today that ” silver can go to zero”. Then the next question any thinking person should ask is “what is actually going to zero? Silver or what it is priced in?
You see here is what I see different. If the price of silver goes to zero, technically it is not the value of silver or gold that has been lost, but actually the mechanism by which it is priced in has been lost. Hence that will mean the dollar is worth zero because it reflects price and not value. How do we know this?
Well, no one will sell their silver for $0.00 and since there will be no silver to buy at $0.00 then that price only reflects the true value of the dollar not silver or gold. I believe this is why we are seeing the price continue to fall instead of rising. Nothing that is dying ever rises unless it is done so artificially. The other fiats are the life support for the dollar. The reason we see the market rising is because of Japan money printing. Just overlap a chart of the yuan with the Dow and you will see the exact correlation from April 2013 when the PM were smacked down.
for contracts this is possible.
I was thinking today that ” silver can go to zero”. Then the next question any thinking person should ask is “what is actually going to zero? Silver or what it is priced in?
You see here is what I see different. If the price of silver goes to zero, technically it is not the value of silver or gold that has been lost, but actually the mechanism by which it is priced in has been lost. Hence that will mean the dollar is worth zero because it reflects price and not value. How do we know this?
Well, no one will sell their silver for $0.00 and since there will be no silver to buy at $0.00 then that price only reflects the true value of the dollar not silver or gold. I believe this is why we are seeing the price continue to fall instead of rising. Nothing that is dying ever rises unless it is done so artificially. The other fiats are the life support for the dollar. The reason we see the market rising is because of Japan money printing. Just overlap a chart of the yen with the Dow and you will see the exact correlation from April 2013 when the PM were smacked down.
I meant to say yen not yuan. A chart of the yen with the Dow
Thanks for this article. I have been saying pretty much the same thing since 2004-2005 and everyone has looked at me since then as if I was crazy.
This is simple strategy – the Chinese don’t want to go to war with the USA, but they will definitely apply pressure (financial or otherwise) if need be to prevent, or stop, a conflict.
Here is what I wrote in 2005 on another blog, for instance: http://www.thomaspalley.com/?p=24
Bill, any thoughts or comments on the following?
If there is no East/West conflict; wouldn’t this call into question your position? Thank you.
http://redefininggod.com/2014/09/mainstream-globalist-propaganda-reveals-eastwest-conflict-is-a-farce/
this is possible but I believe the Chinese (and Russians) are sovereign and act in their own best interests, not BIS puppets
“The danger to their plan in my opinion is this, just as it is dangerous to corner a wild animal it is more dangerous to bankrupt and financially corner a nuclear power.”
Profound words indeed.
Keep stacking.
thank you velikovsky.
Sun Tsu also advises that captive soldiers should be kindly treated and kept, ie, using the conquered foe to augment one’s strength. The only stratagem that comes to mind in a financial cornering maneuver, being careful not to arouse the anger of a wounded superpower, would be to capture the financial titans by the balls then show them grace by enticing them with an escape that involves switching sides. That is, doing their captors’ bidding.
yes, otherwise live fire WW III.
Interesting thoughts.
thank you.
Just wondered why the Chinese and other countries would not dump their treasuries onto the Federal Reserve?–at least while the Federal Reserve maintains some credibility. In fact, isn’t that what QE has been all about all along?–bailing out banks, government and all the powers that be?
it would be an act of war wouldn’t it?
Well I doubt if China would announce their “puke”, but the bear flag on the “trashuries” that has been running for what seems like forever, is now showing some signs of faltering. Maybe a sign of dumping activities beginning and possibly, a bad future for “tapering?” (LOL)
http://finviz.com/futures_charts.ashx?t=ZN&p=w1
if/when it comes, it not be a “puke”. It will be well thought out and part of strategy.
So it will be like the GSE, after all we are all banksta brothers, type thing? I guess nobody really knows the level of fraudulent games that can be played out, but we may know eventually. Thanks!!
there are too many to be counted so all will not come to light. Known or unknown they will still not “perform” as per contract.
Interesting comments regarding the Abstractness of Things, RF & Marco. More people should try to detect systems. They would be blown out of their chair! Too many base their decisions & investments on assumptions. Today, that is fatal error, I say. It is my opinion that such mindset will lead to catastrophe. Not next time, but this time. Not sure what to expect really, neither does government. They don’t have a clue. I’m sure time will tell. Oh, I’ve been thinking about the relation “time & debt” and I think the relation is totally out of sync. When the people get it, they’ll all feel betrayed. I really think this is a huge problem.
Ahh, this actually should have been posted under “Gold and Silver Will Never Go Up Again”, Bill.
no problem.