Dec 10, 2011

Claude Trichet just finished his stint as head of the ECB. As president, he said he would raise rates. He lied.
Mario "European Pinocchio" Draghi tells you he's not going to buy any bonds, but he's going to offer unlimited loans to commercial banks who can buy bonds with those loans.
Oops, I wasn't supposed to say they could buy bonds with the loans. Sorry Mr. Draghi, I'll be quiet now.
Gold lease rates have dropped hard over the past couple of months. All but the 12 month or longer rates are now negative, meaning a holder of gold has to pay the borrower a fee to loan them their gold!
Central banks lease gold to commercial banks and other entities. Some analysts & investors think the commercial banks then sell the gold, and buy govt bonds that pay a higher rate of return than the lease rate.
After the lease is up, they buy the gold back in the open market (think about that) and give it back to the central bank. In practice, what the commercial banks have done in the past is short gold in the futures market, against the leased physical gold.
Now, the banksters have appear to be well on their way to making gold Tier 1 capital, worldwide, so right now an approved entity could lease gold from the central bank, get paid for doing it by the central bank, and then use that gold as collateral to buy something else, including gold futures and govt bonds.
The agreements between commercial banks and central banks are murky on a good day. One of the big issues with some gold ETFs, like GLD-nyse, is not so much about whether they bought the physical gold or not, but who they bought it from, and what are the ramifications of the technicals of that purchase.
There's a reason I paid a securities lawyer to look at GLD-nyse and SLV-nyse, and a reason why I only short those funds, and today you will understand "MF Global Style", why that is.
It's entirely possible that the gold held by GLD-nyse is actually, to a substantial degree, leased central bank gold. It gets very murky as to just what would happen if the central banks suddenly "happened" to want that gold back.
From a legal standpoint, GLD-nyse supposedly owns the gold, whether it is leased gold or not. From a practical and bankster games standpoint, I'm not sure how much that matters to the maniacal banksters.
What if there is some loophole the banksters designed, to be able to repo that gold? What happens to GLD-nyse investors at that point? I don't know, but I know I wouldn't want to be partying on the GLD-nyse or SLV-nyse cruise ships when the banksters opened fire on them.
In regards to lease rates themselves, some of you have noticed that gold has fallen, in the short term, on some moves, along with some drops in the lease rate. The theory is that the rate falls because the commercial banks don't have as many buyers for the gold they lease, so the cost to lease that gold falls, with the lower demand for it.
I'm not so sure that's what is going on, right here, right now. Draghi Boy has admitted there's a massive problem with the European repo market. I think what is going on is the central banks are "force leasing" gold onto the commercial banks. [!] They are desperate to create liquidity, or at least want to appear that way.
Whether that force leasing is really a scheme of commercial banks or is initiated by central banks doesn't matter, in terms of liquidity flows. The bottom line is that lease rates are tanking because any and all stops are being pulled out to use gold for collateral to borrow dollars, probably to meet margin calls on euro bonds in the tank.
Lease rates are tanking, and tanking lease rates are different from "drifting lower" lease rates. Gold lease rates last tanked from Oct 2008, which saw gold blast out of the $680 hole like an Apollo rocket.
The symmetrical triangle and 1530-1920 congestion zone, combined with tanking lease rates, suggests that some sort of sustained blast-off move in gold may be near. A lot depends on whether that leased gold is being shorted, or just posted as Tier 1 collateral.
I'm not seeing much commercial shorting on the comex, so I have to conclude the lease rates smackdown is most likely related to the posting of gold as collateral, with the commercial banks ordering the central banks to pay them positive absolute rates of return to do so.
Is it possible that OTC derivatives are being used to short gold, rather than the comex? Yes, but banks don't short gold on weakness, whether it is otc derivatives gold or comex gold. The weight of the repo market evidence argues that central bank gold is being used to flood financial markets with liquidity, not to depress gold prices.
How any analyst can see the overall operations of the ECB over the past month as gold-negative is mind boggling to me. They have announced unlimited liquidity to commercial banks, have cut rates, and announced a mid-Jan chop to the commercial bank reserve requirement of....50%!
In the end, we can't know which way price is going to break from this powerful congestion pattern in gold, silver, and GDX, but we can prepare and endure.
While GDX might be about gold stocks, there's a rare DIAMOND technical pattern in play on GDX. Click this weekly GDX chart now. Note that the diamond sits within the enormous sideways trading rectangular price blob.
It seems that showtime approaches, and we're either going way way higher, or way way lower. Either the gold community (YOU) gets chainsawed by the dollar bugs, or you do the chainsawing, but the evidence suggests high noon is approaching fast, and the resolution of the diamond pattern could indicate the winner of the battle, or at least hint at it.
That black irregular rectangle that surrounds the diamond pattern on GDX is enormous, in terms of time. The time factor suggests that when price blows out of there once and for all, in whichever direction, the movement is going to substantially exceed the math targets of $33 for the dollar bugs on GDX, or $80 for the gold warriors (YOU).

Report Card Day. Strictly technically speaking, there's a 2/3 chance we go to the upside, and I think it happens, but this is an all-epic crisis, so I'd put the odds of a move up or down at 50-50. Don't allow yourself to think any other way than 50-50, to survive a possible downside meltdown, yet be invested to party at GDX $80-100, if that is the move that happens.

After my morning exercise, I'll answer some of the 1 billion emails I'm behind on answering to many of you. Have a great week-end. Over and out, but not for long!

Thanks!

Cheers