Well, 9/11 came and went – i.e., the last trading day before the dreaded “Shemitah”; and as you can imagine, it was yet another across-the-board manipulation fest. Thursday, Zero Hedge specifically pointed out how U.S. stocks (and likely, everything else) were rigged by illegal “spoofing” algorithms; in their words, depicting a “day in which the total breakdown of the market, and sheer dominance of various HFT algos, was painfully obvious for any remaining carbon-based traders to see.” As for Friday, it started out with the now ubiquitous “Hail Mary” close of the Chinese market – which since the “Eastern Point of No Return” was reached last month, occurs essentially every day. And of course, amidst overwhelming, across-the-board “horrible headlines,” the same “dead ringer” algorithm that has supported the “Dow Jones Propaganda Average” since at least the 3½ years since I first discussed it.
As for Precious Metals, as unprecedented global fear continues to fuel explosive, record-setting physical demand – amidst rapidly vanishing inventories, and a collapsing production outlook – the “2:15 AM” EST attack algorithm arrived at the London pre-market open for the 509th time in the past 581 days to suppress prices and sentiment; whilst the parallel “equity 2:15 AM” arrived equally promptly to goose U.S. stock futures. Subsequently, with absolutely no other market budging, just before the NYSE open, in true Cartel form, paper silver was taken down an entire percent in less than one minute. Same old, same old, as I have observed for the past 13½ years. By day’s end, paper silver had recouped its entire, ridiculous $0.35/oz loss – except for the last few pennies, of course, in true DLITG, or “don’t let it turn green” form; whilst gold’s equally comical $12/oz loss ended in a – what do you know – $1/oz decline. In other words, TPTB successfully manipulated the most important “last to go” markets – i.e., the Dow and paper PMs – on a day when “pre-Shemitah fears” could easily have made things ugly.
That said, essentially all other markets continued to succumb to the “unstoppable tsunami of reality” – like European stocks, which plunged for the second straight day. And oh yeah, WTI crude – which despite countless attempts by the woeful, hapless “oil PPT,” ended the week below $45/bbl. And broadly speaking, the CRB Commodity Index, which despite last week’s orchestrated dead-count bounce, remains just 6% above the 40-year low it touched two weeks ago. Yes, just as the gold Cartel will ultimately, spectacularly, be blow out of the water (more on that shortly), my “direst prediction of all” – of hideous, overwhelming commodity oversupply, will continue to play out for years to come. Even Goldman Sachs espoused a strong possibility of $20/bbl oil, just as U.S. Congressional attempts to block the inevitable Iran “peace” deal officially failed. And how ironic – and ominous – is it that before the deal has even been signed, Iran is sending troops to the increasingly “Ukraine-like” Syrian arms buildup, supporting Russia against the U.S.?
Finishing the point on “deflation,” we’re told the “odds of a Fed rate hike” this coming Thursday “surged” upon the “hotter than expected” PPI report, printing at a whopping ZERO; when in fact, said “odds,” based on money market trading, rose from a measly 25%, to an equally paltry 28%. And this, as interest rates plunged, following near-record demand for the prior day’s 30-year Treasury auction; and the longest inflow of global capital into U.S. Treasury bonds – massive Chinese selling notwithstanding – since 2011’s Global Meltdown II (ironically, when the U.S. was stripped of its triple-A credit rating). Not to mention, on Thursday morning, we learned that August import prices plunged by a whopping 11.4% year-over-year, representing its largest monthly drop since the heart of the 2008-09 financial crisis.
Moreover, the only reason the PPI wasn’t negative was a 23% surge in “chicken and eggs” – which I highly doubt would catalyze the Fed to choke off an already liquidity-starved global economy about. Not to mention, the catastrophic plunge in consumer sentiment, which “missed expectations” by the largest amount ever; whilst the U.S. inventory-to-sales ratios surged to a level last seen at the eves of the 2001 and 2008 economic collapses. Consequently, you can see why the “debate” about what the Fed should do next week is largely moot. As I wrote last week, the “only financial event more cataclysmic than a significant Yuan devaluation” would be a Fed rate hike – of any amount. And thus, unless they actually want to create an international political and economic incident, their best policy move would be to shut the hell up!
Heck, even the U.S. “debt ceiling” fiasco is about to heat up again; as after six months of pretending the national debt has stabilized through the use of “extraordinary measures” – i.e. accounting chicanery, and stealing public funds from various sources – Treasury Secretary Jack Lew says the U.S. government must dramatically raise the debt ceiling – and consequently, the reported national debt – by the end of October, showing the entire world just how rapidly the nation’s real debt load has been growing.
To that end, Germany’s hyper-hypocritical Finance Minister, Wolfgang Schaeuble, espoused that global “monetary policy is moving in a very dangerous direction”; whilst the head of the Austrian Central bank joined the growing cacophony of pleas to Whirlybird Janet, in warning of the potentially catastrophic impact of even a miniscule Fed rate hike. And to a man, if bigger understatements have ever been uttered, please let me know what they were.
Yes, horrible, parabolically-expanding “horrible headlines” as far as the eye can see; from rapidly increasing interbank credit risk spreads; to the all-out collapse of the bonds of Brazil’s largest company, oil-giant Petrobras – just one day after Brazil was downgraded to junk status, as its currency simultaneously plunged to an all-time low. To wit, Zero Hedge’s article “junked Brazil falling apart at seams, cancels bond auction” incorporated not one, but two of the themes of articles I posed in the last week; 1) “death of the BRICS”; and 2) “coming apart at the seams.”
And if you really want to be fearful of the deflationary tsunami destined to wipe out the global economy for years to come, take a look at this horrific chart depicting just how much resources China’s ill-begotten “ghost city” stimulus strategy has used. Word is that the myopic, moronic Chinese government is considering another $200 billion stimulus program to slow down its rapidly expanding economic implosion; and trust me, the “marginal benefit” of the short-term financial market relief it would engender would be offset many, many times over by the increased “overhang” of already record infrastructure oversupply.
Which brings me to today’s provocative title – which frankly, could refer to one of many “horrible headline” inspired items. However, in my mind, the “story of 2016” – from a financial perspective – will be the historic breakdown of the “New York Gold Pool,” following two decades of sowing the seeds of its own, spectacular failure.
Working at one of the nation’s largest bullion dealers, there is no doubt in my mind – nor that of Andy Schectman, Miles Franklin’s President and co-founder – that a 2008-like Precious Metals’ shortage, especially in silver, is heading for us like a runaway train; as the aforementioned “terrifying trio” of record, exploding demand; dramatically depleting, record-low inventories; and inevitable, historic production declines are at this point, “set in stone.”
Regarding the former, I’m not sure I can emphasize more how powerfully demand has surged this year – and particularly this summer – the world round. Regarding gold, Chinese gold deliveries on Wednesday alone were a staggering 19.2 tonnes – or three times the entire, collapsing inventory of COMEX registered gold. Meanwhile, as long-time industry guru Peter Hambro claimed “it’s virtually impossible to get physical gold in London, to ship to India,” the CEO of the LBMA, or London Bullion Market Association, revealed there are just “500,000 bars in the London vaults, worth ~$237 billion.” Which is what the ECB is printing every four months – amidst growing rumors that it is considering expanding the pace of its thus far miserably failed QE scheme.
Here in the States, this interview with the CEO of one of the largest U.S. Mints – the Sunshine Mint – depicts an industry splitting at the seams with exploding silver demand. Not to mention, an equally dramatic plunge in COMEX silver inventories. As for India, which before its insane government initiated prohibitive PM import tariffs two years ago – spawning the creation of a massive, tax avoiding “black market” – was the world’s largest physical PM importer; not only has its official gold demand (excluding the black market) rebounded to nearly its all-time high pace; but after an explosive August, Indian silver imports are literally going parabolic.
Which begs the question – as physical silver premiums measurably increased this week – where future supply will come from, as demand continues to surge, and above-ground inventories virtually exhaust? Let alone, as collapsing base metal prices portend massive mine closures; as don’t forget, essentially half of all silver production is the byproduct of copper, lead, and zinc mines?
To that end, I’m not going to write my thousandth article about how dire the situation is for the collapsing mining industry. By now, anyone can see that mining stocks are trading at all-time lows, amidst a horrific combination of ugly finances, hemorrhaging operations, rapidly depleting assets, and the specter of massive, catastrophic, balance sheet destroying write-offs in the coming months. The first to go will be miners with the highest cost bases – such as essentially the entire South African mining industry, as illustrated by the Rand closing the week at an all-time low. And next, those with questionably accounted for “assets” – such as the “measured, indicated, and inferred resources” I described earlier this year as at best “arbitrary guesses,” and at worst fraudulent. Which, either way, at current, historically suppressed prices – way below the marginal cost of production, and WAY below the cost of long-term industry sustainability – is a moot point, as everything not nailed down is about to be written off, permanently, into the accounting ether. And with said write-downs, the ensuing bankruptcies; capital expenditures reductions; mine closures; and debilitating, dilutive mergers they will spawn will be a sight to behold. And more importantly, they will herald the guaranteed “peak gold” and peak silver the Miles Franklin Blog has predicted for years.
Frankly, I’d be thrilled if the “story of 2016” were limited to simple financial issues like collapsing miners and exploding gold and silver prices. However, my guess is they will just be one part of a terrifying global mosaic of political, geopolitical, economic, financial, and social instability – that will define not just this generation, but generations to come. And thus, my belief that the time is NOW to protect yourself from what’s coming – whilst you still can – has never been stronger.