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I took a little break last week and plan to do the same this week but I did want to finish the year out with one last piece.  The three stories that jump out at me are seemingly exclusive of each other but in reality all connected at the hip.

The first story is that of the COMEX Dec. delivery situation.  As of right now, dealers barely have enough gold to make settlement.  The total standing (and stood) for delivery is 667,000 ounces of gold, just under 21 tons.  After deducting what has been delivered, there looks to be about 9 1/2 tons left to be delivered upon while the dealers have just less than 10 tons available.  Interestingly, JP Morgan has “stopped” 97% of all deliveries so far so they are accumulating the metal.  This is not a new story and we have watched it as it has unfolded all month long but may act as a spark that connects the dots.

If you recall, last January Germany “asked” for 20% of their gold back only to be told that it would take 8 years.  Fast forward to present and they have only received 37.5 tons.  Where the gold has come from we do not know.  Did the NY Fed make the shipments?  The Bank of England or Banque du France?  We do know that Germany should have received somewhere close to 90 tons by now, they have not.  We also know that China has imported through Hong Kong an amount of gold over the past 2 years equal to 50% of ALL gold that was mined over that time.  HALF!  Then of course you must add in the demand from India, Russia, Europe and the rest of the world.  Demand without a doubt has equaled and most probably close to doubled “current production,” the supply has had to come from somewhere.  That “somewhere” is obviously the western central bank hordes.  The question remains, “how much is left?”

Another truly big story is that of the relations between the US and Saudi Arabia.  Saudi Arabia looks to be “restless” for lack of a better term.  They have publicly voiced their discontent with the long term deal that they have had in supporting the “Petro Dollar.”  This past week they said that they feel like “they were stabbed in the back” by President Obama.  This on its own could lead to an overnight “rollover” scenario where dollars and treasuries are dumped wholesale with no buyers standing to bid with the exception of the Federal Reserve.  It is also known that Saudi Arabia has recently met with both the Chinese and Russians, gee; I wonder what was discussed in these meetings?

Lastly, the 10 year Treasury hit 3% on Friday.  The CNBC talking heads of course downplayed this and said that it was a “sign of strength.”  “Strength” as in economic strength?  Interest rates have now nearly doubled from where they were early last year.  This has happened even while the Fed pumped $85 billion into the credit markets each month…and they want us to believe that they will shrink this amount.  A simple question might be, “If interest rates have doubled while the Fed bought $85 billion ‘extra’ per month, what will happen if they truly do lessen QE from $85 billion?”

While all of these stories seem separate, I don’t believe that they are I believe that they are all signs or symptoms of the same story.  The “story” being the power of the US is fading very quickly.  The dollar is and has been the key to this power.  While initially after 1944 (Bretton Woods) the rule of the dollar globally was a no brainer, we have abused our privilege for many years.  The Germans (asking for their OWN gold), Chinese, Indians, Russians etc. want gold, this is quite clear and can be seen by their ramping of imports over the last several years.  A shift away from accumulating more dollar reserves is also quite clear.  New alliances are being announced on nearly a daily basis and the “old world” is changing…rapidly.  “Alliances” (economic, financial and military) all over the world have changed more in 2013 than any decade prior and possibly more than they have collectively since 1944.  Even the British seem to be preparing economic relations with the Chinese, exclusive of the U.S.

I will leave you with few disturbing questions.  What will happen if China and Japan were to come to blows over their disputed islands?  Would the U.S. back Japan as per treaty?  If so, would China just hit the “sell button” on their dollar and bond holdings?  What would be the ramifications of an Israeli (Saudi supported) strike on Iran?  Would we support it?  Back away from it?  What would China do?  Or Russia?  What will happen if (when) Saudi Arabia decides that they want something real (gold for example) for their oil?  Do they really want to keep accumulating more “IOU’s” from a bankrupt entity while their oil reserves deplete?

I guess that you could say “we” Americans are living for today.  Or better said, our policymakers are living to “keep the doors open for business for tomorrow morning.”  Foreigners on the other hand are thinking about next year, next decade, next century.  I think that sometime in 2014 we will get the answers to many of the above questions.  The answers will come AFTER we fail to deliver gold to someone, somewhere.  Once we are known not to have the ability to deliver gold, all bets are off and the fledgling new alliances will be made fully public.  We will be isolated and dollars will not be accepted for trade settlement.  Our ability to print “power” will be stripped.  As strange as it may sound, in my opinion this whole episode will come to a head when we fail to deliver gold.  To this point we have had the ability to make delivery.  It will not matter where or to whom we “fail to deliver” to, a single delivery failure will spread faster than a wildfire and our “lifestyle” will change forever.  As much as we “over lived” our means in the past will be paid back by “under living” our means in the future …until the debt is paid in full.  Paying back our overconsumption will be that much harder as we have already sold the family jewels.