Last week we launched our campaign for the new and improved Free Competition in Currency Act. Today, please continue educating Congress about this bill.

You may copy or borrow from this letter . . .

Supporting this bill will enable you to honor your oath of office. The 10th Amendment to the Constitution limits federal powers to only those functions the Constitution specifically mentions. Congress has no power to . . .

* pass a legal tender law
* create a central bank
* create money (the Constitution only authorizes the federal government to make coins out of *existing* gold and silver money)

This means that our current system is the exact opposite of what the Constitution requires . . .    

* The Federal Reserve, created by Congress, is the nation’s central bank
* Congress has conferred legal tender status on Federal Reserve Notes
* the Treasury’s gold and silver coins are simply collectibles that cannot be used as money

The Free Competition in Currency Act would reverse this unconstitutional scheme by . . .

* repealing the legal tender law that established the Federal Reserve’s money monopoly
* allowing the private minting of coins that can be used as money
* prohibiting state and federal taxes on precious metal coins and bullion

These changes would . . .

* allow individuals to settle payments with each other on mutually agreed-upon terms, using Federal Reserve Notes, gold, silver, or any other form of money they might choose
* compel Federal Reserve Notes to compete with other forms of money, such as gold and silver

The Federal Reserve System is unconstitutional and should be abolished. The Free Competition in Currency Act will . . .

* allow the creation of a free market money system parallel to the Federal Reserve system
* prove that we don’t need the Fed
* provide a stable transition leading to the Fed’s ultimate abolition

Supporting the Free Competition in Currency Act will show me that you are committed to . . .

* Honoring the Constitution
* Protecting the value of my money
* Fostering my freedom to choose

END LETTER

You can send your letter using DownsizeDC.org’s Educate the Powerful System.

James Wilson
Assistant Communications Director
DownsizeDC.org

D o w n s i z e r – D i s p a t c h

Official email newsletter of DownsizeDC.org, Inc. & Downsize DC Foundation.

Today, GATA (the Gold Anti-Trust Action Committee) filed a lawsuit suing the Federal Reserveafter its separate FOIA request was denied.  For a decade, GATA has amassed enormous amounts of evidence that charges that the FED colludes with other central banks and bullion dealers to secretly suppress the market price of gold in order to make their own paper currencies look better.  The last time the central banks secretly manipulated the gold price was from 1961 to 1968, and ended with the violent collapse of the London Gold Pool and the bankruptcy of the post-WWII Bretton Woods global monetary system.

A year ago, Bloomberg L.P., a major financial news firm, filed a FOIA (Freedom of Information Request) from the Federal Reserve to disclose over $2 trillion in off-the-balance sheet emergency loans – funds that Congress and the President to this day have no idea how the nation’s quasi-private central bank spent.  Despite a momentary court ruling commanding the FED to release this information to the public, the FED has effectively evaded the motion.  

The Federal Reserve controls the money supply of the United States and can create or destroy currency.  It also controls interest rates.  To learn more about the FED, read “The ‘One Ring’ of the Federal Reserve” or my campaign’s FED plank.

Unknown to most Americans, gold is one of the world’s major financial markets due to its role as an international currency and a refuge from the smoking-hot printing presses of the world’s central banks.  Turnover in 2007 exceeded $20 trillion USD on the London gold market alone, a figure which is larger than current US GDP.   To learn more about the suppression of the gold price, read “The Summers Gold Price Suppression Scheme.”

GATA’s press release, links to the lawsuit, and a video introduction of GATA can be found below. The below right has an interview I gave earlier this year on the suppression of the gold market.

December 30, 2009

_____________________________________________________

2p ET Wednesday, December 30, 2009

Dear Friend of GATA and Gold:

GATA today brought suit against the U.S. Federal Reserve Board, seeking a court order for disclosure of the central bank’s records of its surreptitious market intervention to suppress the monetary metal’s price.

The suit was filed in U.S. District Court for the District of Columbia and targets Fed records involving gold swaps, exchanges of gold with foreign financial institutions. In a letter dated September 17 this year to GATA’s law firm, William J. Olson P.C. of Vienna, Virginia, Fed Board of Governors member Kevin M. Warsh acknowledged that the Fed has gold swap agreements with foreign banks but insisted that such documents remain secret:

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

The lawsuit follows two years of GATA’s efforts to obtain from the Federal Reserve and the U.S. Treasury Department a candid accounting of the U.S. government’s involvement in the gold market. These efforts parallel those of U.S. Rep. Ron Paul, R-Texas, who long has been proposing legislation to audit the Fed. The Fed has wrapped in secrecy much of its massive intervention in the markets over the last year, and Paul’s legislation recently was approved by the U.S. House of Representatives.

The Fed claims that its gold swap records involve “trade secrets” exempt from disclosure under the U.S. Freedom of Information Act.

While GATA has produced many U.S. government records showing both open and surreptitious intervention in the gold market in recent decades (see http://www.gata.org/node/8052), Fed Governor Warsh’s letter is confirmation that the government is surreptitiously operating in the gold market in the present as well. That intervention constitutes a huge deception of financial markets as well as expropriation of precious metals miners and investors particularly. This deception and expropriation are what GATA was established in 1999 to expose and oppose.

Of course GATA’s lawsuit against the Fed will take months if not years to resolve. We think we have a good chance of winning it in court. But we can win it outside court, and much sooner, if the suit can gain enough publicity from the financial news media and market analysts and prompt enough inquiry from them and from the public, the mining industry, and members of Congress.

So GATA urges its friends to publicize the suit and to urge journalists, market analysts, mining companies, and members of Congress to join us in seeking disclosure of the Fed’s gold market intervention records. If enough clamor is directed at the Fed about these records, the gold price suppression scheme will lose its surreptitiousness and fail.

Unfortunately the World Gold Council, which each year collects tens of millions of dollars in membership fees from mining companies in the name of representing them and gold investors, refuses to question governments about their surreptitious interventions in the gold market. These interventions powerfully influence not only gold’s price but the prices of government bonds and currencies, as well as interest rates generally and the value of all capital and labor in the world. There is no more important issue in the world economy than gold price suppression.

So what should have been the World Gold Council’s work has fallen to GATA, a non-profit educational and civil rights organization that operates from month to month on donations from people who share its objective — free and transparent markets in the precious metals and fair dealing among nations generally. As we prosecute our lawsuit against the Fed, we’ll be grateful for your support. We promise to do something with it.

For information about supporting GATA, please visit:

http://www.gata.org/node/16

GATA’s lawsuit against the Fed is listed in federal court records as civil case No. 09-2436 ESH, the letters being the initials of the district court judge assigned to it, Ellen S. Huvelle.

You can find the lawsuit here:

http://www.gata.org/files/GATALawsuitVs.Fed-12-30-2009.pdf

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

by John Browne, Senior Market Strategist, Euro Pacific Capital

As the price of gold has pulled back from its recent run up to $1,200, many investors are left to ponder what exactly drives the movement of such an important and financially sensitive commodity.

Most people are aware that gold prices respond to inflation expectations and that central banks, as the largest holders of gold, are big players in the market. But there is a very murky understanding as to why and how these players affect prices, and what their ultimate goal may be.

Although I profess no great insight into how central bankers from Bombay, Berlin and Beijing are looking to manage the global gold market, a better understanding of how our current system came to be provides some clue about gold’s recent behavior.

The First World War was not only catastrophic to an entire generation of Europeans, but it also left the international financial system in tatters. After the war, the great powers met in Rome to re-establish a workable international financial system. The British pound sterling, which had always been fully convertible into gold, was selected as the official ‘reserve currency.’ Then, during the Great Crash of the 1930’s, the collapse of Austrian and German banks triggered a run on sterling for conversion into gold. Unable to withstand the assault, sterling was replaced as the reserve by the U.S. dollar. Although the dollar was also convertible into gold, the Roosevelt administration had limited the risk to the U.S. Treasury by restricting redemption to central banks.

In 1944, the newly established International Monetary Fund (IMF) selected the U.S dollar as its ‘international reserve asset’, which enshrined a quasi-gold standard to undergird global financial transactions. However, the inflationary policies of most governments caused the market gold price to rise above the official price of $35 an ounce.

In 1961, as the price of gold drifted higher relative to the dollar, the major central banks formed the London Gold Pool, a ‘gentleman’s club’ to coordinate gold sales in order to stabilize gold prices. But by 1971, the dollar’s devaluation had overwhelmed their coordinated interventions. Ultimately, President Nixon was compelled to break the dollar’s last links to gold by closing the ‘gold window’ to other central banks. For the first time in human history, the world monetary system ‘floated’.

Since then, major central banks have continued to debase their currencies at pace with the U.S. dollar. In 1978, via the IMF, they moved to demonetize gold, which stood to expose the true inflation rate.

This was first carried out by massive central bank sales of gold in exchange for Special Drawing Rights (SDR’s) from the IMF. When this failed, the U.S. gained support, in 1999, for the Central Bank Gold Agreement (CBGA) to coordinate the release of central bank gold onto the market.

Officially, at least, this was meant to prevent central banks from dumping gold. However, it is highly suspicious that these nominally independent central banks would take coordinated action to support the gold price. This is especially true given that they’ve spent the last forty years trying to do the opposite. In my opinion, it is much more likely that the CBGA was designed to covertly time purchases and sales to magnify gold’s price volatility, in order to dissuade investors from holding it over the long term.

I believe this intervention is the biggest factor currently distorting the gold market. But the precious metals investor should understand that central banks can only pressure the market, not dictate it. Gold will move up as the following dynamics unravel.

First, the dollar has benefited from its reserve status, which creates demand for dollars to complete various transactions. However, the conditions that put the dollar on the world monetary throne have already changed, and it’s just a matter of time before it is forced to abdicate. Just as French endured as the international diplomatic language long after France waned as a world power, so too is the dollar coasting upon its former glory. When the dollar loses its reserve status, demand for the greenback will evaporate.

Second, many holders of surplus currency have diversified massively into the euro. But the euro is a tower built on unlevel ground. Already it is showing cracks as Greece, Ireland, Spain, and Portugal exhibit signs of economic failure. What’s more, the EU is about to assume responsibility for basket-case Iceland. If the solvent states of the union succumb to pressure to bail out their weaker neighbors, the euro will lose all of its newfound credibility with investors.

Third, the U.S government has been successful in distorting the official inflation figures downward, reducing evidence of current inflation. Fortunately for the feds, people tend to think in ‘nominal’ rather than ‘real’ value terms. For example, investors still feel good buying stocks and bonds of American companies in U.S. dollars. They don’t realize that when measured in terms of gold, or real money, the S&P has lost some 20 percent over the past ten years. Over the same period, the U.S. dollar has lost over 280 percent!

Fourth (and perhaps least understood), the massive inflation already created by the Fed remains hidden within the banking system. As long as banks are able to lend directly to the Fed and Treasury at no risk, they have no incentive to circulate their new dollars. Only when the banks leverage up and lend to industry, or are forced to do so, will the prices for consumer goods skyrocket.

Finally, by changing accounting standards for the banks’ toxic assets and making self-congratulatory pronouncements, the government has created the impression that crisis has been averted and faith restored in paper currencies. This feeling of relief is flawed fundamentally. It will not be long before investors are brought to the devastating realization that true recovery from a credit boom requires tightening and recession – that Washington did not avert catastrophe, but ensured it.

As these dynamics unravel, the full consequences of U.S. profligacy will be felt around the world. The central bankers could sign any agreement they wish but it won’t stem the meteoric rise of gold. By then, investors will understand that those left holding dollars will be left holding the bill.

by John Browne – Senior Market Strategist, Euro Pacific Capital

Over past years, we at Euro Pacific have taken an increasingly jaundiced view of paper currencies and written repeatedly about gold as an alternative. Along the way, we have urged investors to consider both the security and physical accessibility of their gold investments, and have advocated for at least some holdings to be in physical form. There are those who may have felt our views were overly cautious, even alarmist. Now, however, it is increasingly clear that major investors, including even central banks, are following our advice. Meanwhile, we continue to set the curve by calling for an even greater share of investors’ portfolios to be in physical bullion or secure equivalents.

Despite the trials Western economies have already experienced, worse economic times still lie ahead. The current administration appears unable to accept the pain of deleveraging and has instead set upon a course of limitless public-sector spending, financed by increased taxation, deficits, and the covert debasement of the U.S. dollar. Obama’s acolytes haven’t acknowledged the threat that their policies could cause the dollar to lose its privileged position as the world’s reserve currency, which would devastate the relative value of the U.S. dollar and many paper investments denominated in dollars, including Treasuries. Indeed, it would likely trigger a second financial collapse, this time with accompanying hyperinflation.

To protect their wealth from inflation and financial panic, big players like hedge funds, sovereign wealth funds, and central banks are turning not just to gold, but to physical gold.

Many investors are demanding and prepared to pay for physical delivery. This indicates an intention to remain invested for a significant period of time, removing considerable selling pressure from the market. More concerning, the willingness to finance physical delivery and storage indicates a fundamental decline in the credibility of paper contracts.

For centuries, gold has been the bane of profligate governments. For decades, Western governments, led by the U.S., have sought to demonetize the ‘embarrassing’ metal. Most recently, the U.S. led other central banks into the secretive Central Bank Gold Agreements (CBGA). These were designed to coordinate, through the IMF, the sale of some 500 metric tonnes of central bank gold into the market each year. The covert aim has been to make gold less attractive by concealing its appreciation and, simultaneously, create maximum price volatility to destroy gold’s legitimacy as a monetary instrument.

Since 1980, when gold reached $850 a fine ounce (or some $2,330 in today’s debased dollars), the CBGA has been successful at disparaging gold investment. To this day, most Wall Street commentators reflexively opine against gold whenever the conversation turns to it. Displaying staggering ignorance or bias, they cite the lack of interest paid on gold and its storage costs. They ignore completely gold’s total return, through capital gain, which is up by over 100 percent in the past five years.

In keeping with the CBGA, it has long been considered taboo for major central banks to be seen buying gold. But the pacts are losing their grip.

China, now the world’s largest gold producer, has quietly increased its gold holdings by some 75 percent in just 7 years, while remaining a ‘loyal’ CBGA player. Cleverly, she has sidestepped the unwritten CBGA non-purchase rule by quietly diverting part of her domestic production into the central bank’s vaults before it enters the global marketplace.

Publicly, China has led international calls for the replacement of the U.S. dollar as the privileged reserve currency by a basket of currencies and gold.

Unable to tolerate the continued debasement of their dollar reserves, other developing countries are now taking defensive moves. Earlier this month, India bought 200 metric tons of gold from the IMF at market rates, increasing its reserves by 50%. Then, just today, Russia announced that it will be shifting reserve ratios in favor of commodity currencies, like the Canadian dollar, and gold.

Far more distressing than the flight of central banks from the paper dollar are recent reports that certain governments, including Germany, Hong Kong, and members of OPEC, are now removing their gold holdings from the Federal Reserve and the Bank of England. If true, these reports could portend the risk of a gold run on the world’s two key central banks.

The actions of foreign central banks expose the most confidential views of their top government officials concerning the outlook for the U.S. dollar and the possibility of renewed panic throughout the global financial system.

Once again, I will go on record as saying that counterparty risk is rising, and the safest metal investment is either to take physical delivery or hold title to actual bullion in a stable country. Euro Pacific has long offered the Perth Mint Certificate Program for investors that don’t want the cost and risk associated with keeping gold ‘under the mattress.’ By holding title to gold in Australia instead of America, investors get better legal standing than with an ETF and the added comfort that the regime securing their holdings has among the world’s longest track records of stability and brightest growth outlooks for the next decade.

I hope – as we all do – that we are being ‘too cautious.’ But most investors are erring on the side of caution after witnessing half of their wealth disappear overnight. The problem is that investments traditionally considered safe might not be so, as the very assumptions built up over the last thirty years have been upended. During the October ‘08 crash, many fled into Treasuries and cash. All signs indicate that, in the case of another crash, a repeat of that behavior could wipe out much of our middle class. Those of us who still have doubts about this stimulus-laden ‘recovery’ are hedging our bets with history’s ultimate hedge – gold you can hold.

Roosevelt understood that he must apply the full force of federal power to suppress the natural desire for gold in troubled times. The Emergency Banking Act, signed into law March 9, amended the Federal Reserve Act by adding a new subsection (n), which empowered the secretary of the Treasury to demand that all Americans surrender their gold and receive paper money. The following day, Roosevelt issued Executive Order 6073, which made it illegal for Americans to take gold out of the country.

In his first “fireside chat,” delivered on March 12, Roosevelt didn’t say a word about his backstage maneuvering to seize gold. He remarked that “hoarding during the past week has become an exceedingly unfashionable pastime.”

Less than a month later, on April 5, 1933, Roosevelt issued Executive Order 6012, which expropriated privately owned gold. He ordered Americans to surrender their gold to the government by May 1, 1933. Violators would be subject to a $10,000 fine or as many as 10 years in prison.

Read the article here.

One of the key ingredients in attaining some semblance of freedom is to become financially independent. A new book, “5 Steps To Freedom“, by Jeff Nabers and Phoebe Chongchua supplies us with some extremely effective tools to escape financial slavery. Take elements of Tom Wood’s “Meltdown“, Ron Paul’s “Manifesto“, and Peter Schiff’s “Crash Proof” all rolled into one and you come very close to describing “5 Steps To Freedom”.

The five high level steps are:

1. Measure
2. Move
3. Maintain
4. Multiply
5. Mention

The first portion of the book is an education on topics such as:

• How to evaluate your wealth by creating your own currency without using the fluctuating values of federal reserve notes as your only measure.
• Knowing what inflation is and how it affects your wealth.
• Why investing in precious metals like gold is a great way to help protect your existing wealth.
• How the government manipulates economic statistics to make us believe we are more prosperous than we really are.
• And much more.

The final part of the book gives us several case studies that demonstrate how we should think about investments. This portion is extremely useful because it shows how seemingly good investment ideas can end up being much more risky than you think. It’s an effective method to teach an investment mindset geared toward income rather than speculation-a running theme in the book.

The principles of freedom are apparent throughout the book. It becomes obvious, even before he is mentioned several times, that the authors are huge fans of Ron Paul. The book can be thought of as a no-nonsense guide to investing for libertarians and freedom-seeking individuals of all flavors.

The only negative regarding the book is that I found the transition between the first part and the case studies to be a bit like an infomercial, but once the case studies started that quickly disappeared. Jeff Nabers promotes the Solo 401K in the book, but he does so mostly by example and never tries to force it upon the reader. It is offered as a tool for those looking for an alternative, freedom-oriented investment direction.

The philosophy of liberty is an ongoing theme and applying that to investment decisions makes this book indispensable in today’s freedom-eroding world. I recommend it highly.

Purchase “5 Steps To Freedom” and be sure to visit the accompanying web site: 5StepsToFreedomBook.com for more information.  Your financial net worth will thank you later.

I apologize for the poor audio, but that’s how the stream came across.

by Jake Towne, the Champion of the Constitution
Originally published on Sunday, June 14, 2009 at http://www.nolanchart.com/article6535.html

“When gold speaks, all tongues are silent.” – Italian proverb

This article will briefly review the history and aftermath of the infamous London Gold Pool. For those unfamiliar with monetary history, let me quickly establish the events framing the London Gold Pool.

In 1933, the FED’s monetary inflation caused the Great Depression which was also America’s first bankruptcy. FDR plundered the American people’s gold and one month later outlawed the private possession of gold, an illegal act that existed until 1975. From 1933 onwards, America was on a “gold bullion standard.” A “gold bullion standard” exists when gold coins are not minted and owned by the people, but large international transactions with foreigners are handled in gold bar. However, the FED, America’s central bank, continued inflating the monetary supply which debases the currency and likewise increases the foreigner’s redemption of gold.  (emblem)

Following the chaos of World War II, the heads of the world’s 44 industrialized nations gathered in New Hampshire, and made the Bretton Woods agreement. The Bretton Woods agreement made the dollar the world’s reserve currency, and stipulated that all member nations’ reserves had to consist of either physical gold or currency convertible into into gold (domestically the private ownership of  “monetary” gold remained a felony until 1975). These member countries then had a “gold exchange standard” and manipulated their currencies on their national level, often trying to devalue their currencies at the same or slightly higher rates than what the dollar was being devalued, or inflated, at.

The Bretton Woods system began to break down very quickly. In the 1950s, the United States found itself having to redeem vast sums of gold. In the recession of 1958, the FED created $2.25 billion of excess credit, which was redeemed by foreign central banks. This annual loss of 2,000 metric tons of gold still remains the largest known loss of gold in one year by any nation in history – currently, on paper the United States is still the largest official owner of gold at about 8,100 metric tons categorized as “Custodial Deep Storage Gold.” (see note 1)

By 1971, President Nixon had declared America’s second bankruptcy.  The FED had inflated the money supply by too much to fund the Vietnam War and President Johnson’s “Great Society,” and America was no longer able to redeem foreign-held dollars into gold. The world entered the twilight zone of freely floating exchange rates. In between 1958 and 1971, the several governments and central banks fiendishly created the London Gold Pool to suppress the price of gold.

THE LONDON GOLD POOL

In October of 1960, gold trading on the London gold exchange reached $40/ounce, which was $5 higher then the central bank’s target price. Rampant speculation that a Kennedy presidency would lead to more inflation, along with the building of the Berlin Wall and the U-2 spy plane incident, triggered fears about economic stability.

To curtail these fears, President Kennedy pledged in February 1961 that America would maintain the official price to our foreign creditors, and the price of gold fell to $35/ounce. Fearing a relapse, the international bankers of the BIS and the FED-US Treasury secretly formed the London Gold Pool. Each member of the Pool would pledge some of their gold to keep the London market suppressed. The Bank of England would dump their gold on the London market whenever necessary, and at the end of each month the other members would reimburse the BoE in accordance with the percentage of the pool they owned. The members were:

• 50% – United States of America with $135 million, or 120 metric tons
• 11% – Germany with $30 million, or 27 metric tons
• 9% – England with $25 million, or 22 metric tons
• 9% – Italy with $25 million, or 22 metric tons
• 9% – France with $25 million, or 22 metric tons
• 4% – Switzerland with $10 million, or 9 metric tons
• 4% – Netherlands with $10 million, or 9 metric tons
• 4% – Belgium with $10 million, or 9 metric tons  (Photo)

By acting in secret, the governments hoped to stagnate the market and keep potential buyers away. In 1962, a series of events involving Soviet sales of gold led to a change in strategy by the Pool. They found themselves able to profit off the changes in gold supply, and at one time in 1965 the Pool even reached $1.5 billion, or a five-fold increase over the initial Pool gold. However, the Vietnam War expenses after 1965 combined with the French shipping its’ $3 billion in gold from the New York FED to Paris, and leaving the Pool in 1967 led to catastrophic losses.

The FED’s meeting minutes from December 12, 1967 reveal the full extent of the central bank’s panic. Here are several excerpts:

“The announcement on Thursday, December 7, of a $475 million drop [422 metric tons - auth] in the Treasury’s gold stock seemed to have been accepted by the markets as about in line with prior expectations of the costs of the gold rush following sterling’s devaluation. What the market did not know, of course, was that only a $250 million purchase of gold from the United Kingdom saved the United States from a still larger loss in the face of some foreign central bank buying… The logistical acrobatics of providing sufficient gold in London were performed with a minimum of mishaps, although the accounting niceties were still being ironed out.

“Of greater concern, however, was the fact that the drain on the pool was accelerating again… the measures taken by the Swiss commercial banks and by some other continental banks to impede private demand for gold worked quite well, although it was clear from the start that such measures could serve only as a stop-gap until some fundamental change was agreed upon. Persistent newspaper leaks–mainly from Paris–about current discussions on this subject and their reflection in gold market activity Monday and today pointed up the need for speed in reaching a decision. ” (3-4/107) (photo of then-FED Chairman William Martin)

On page 15/107, the group then discusses placing “restraints on access to the London gold market” and it was commented that Italy and Belgium were “not prepared to stay in the gold pool indefinitely if that would mean continued substantial gold losses.” The group did agree to then implement “some program of restraints on demand, particularly in the London market, should be worked out; in the meantime, all of the participating countries were willing to stay in the pool… In particular, the British were concerned that limitations on access to the London market, by diverting demand elsewhere, would work to the detriment of that market which for the past 13 years had been the world’s principal market for gold.”

These excerpts also serve to remind us all that the central banks love their hold on the money power. However, from some of their perspectives, they may well believe they are simply doing “what’s best,” blindly disregarding the fact that all of their interventions and controls are only made necessary from their prior meddling with the free market:

“Although the German case was the most striking example of central bank operations following the meeting in Frankfurt, the availability of forward cover into guilders and Belgian francs at reasonable rates had also helped to reassure the [gold] market.” (7/107)

“Under Secretary [of Treasury] Deming, who had led the U.S. delegation to Frankfurt, made the necessary arrangements, and the group met with him in Basle yesterday. Meanwhile, representatives of the countries in the gold pool met in Washington last week to make a preliminary review of possible additional measures to keep the gold market situation under control. Not unexpectedly, the gold pool also was the main topic of conversation at the regular Basle [Switzerland, the home of the BIS - auth.] meeting on Saturday and Sunday, and it was discussed in detail by the governors on Sunday evening.” (12-13/107) (see note 2)

On pages 13-14, the FED also mentions the “gold certificate plan” which I personally believe is a likely prototype for the emergency fall-back position of today’s gold cartel after the price of gold spikes on the modern futures market. A particularly damning passage concerning the erosion of America’s sovereignty from Congress to the unelected Treasury Department to the cabal of international bankers is here:

“Governmental structures differed among countries, and the United States was almost unique in assigning to the Treasury sole responsibility for external matters involving gold. In many countries the central banks had primary responsibility in that area, although they often were required to consult with their governments. Moreover, central bankers commonly felt that they had greater knowledge and understanding of the practicalities of gold markets than did officials of their governments. Accordingly, it was probably the view in most countries that a meeting of central bank governors was the most appropriate forum for discussions of the type in question. The governors recognized, of course, that in the United States the Treasury had central responsibility with respect to gold, and accordingly they were willing to meet with Mr. Deming yesterday.” [Deming, of course, was quite literally a FED stooge, just like today's Timothy "Turbo Tax" Geithner, see note 2]

Following these minutes, on Sunday, March 17, 1968, the London Gold Pool collapsed and the global gold markets were closed for several weeks. The central bankers then decreed a “two-tier” gold price for “monetary” gold at $35/oz. and “non-monetary” gold. This system remains in place to this day, although it is clearly just an accounting sham. (see notes 3 and 7)

THE AFTERMATH OF THE LONDON GOLD POOL

On Monday, March 18, 1968, Congress removed the 25% gold reserve backing requirement for Federal Reserve Notes. In April, despite further panicked attempts to suppress it, the gold price reached $44/oz. The price was then kept bottled up by actions by the Swiss, American, and English central banks, including massive gold sales from the Soviets to the Swiss and gold redemptions by America.

By 1971, more than half of the gold illegally stoled by FDR from the people had been delivered overseas, mostly winding up in the vaults of European central banks. On August 15, 1971, President Nixon was forced to declare national bankruptcy and closed the Gold Window. This meant foreigners could no longer redeem dollars for gold.

The world’s central bankers and governments rushed to Washington, D.C. and made the Smithsonian Agreement, where, against all reason, all parties agreed to go on pretending as if the gold window had never been closed and merely set new fixed exchange rates. Finally, with the gold price at $90 and the turmoil resulting from the debasement of the dollar leading to a major recession, the system of fixed exchange rates completely collapsed, marking the final nail in the coffin of the Bretton Woods monetary system. From this point onward, all currencies “floated” against each other, opening wide the door to non-stop currency debasement, inflation, and FOREX market speculation. (note 4)

In 1974, New York’s COMEX futures market was opened to gold trading, paving the way to the “paper gold” derivatives and ETF’s of our modern day. In December 2008, the nominal value of all gold derivative contracts was $395 billion USD, or roughly equivalent to 15,000 metric tons of gold. In 2007, the last reported year, the LBMA, or the London gold market, exchanged over $20 Trillion USD in gold – the 2008-9 annual market turnover will likely dwarf this.

My message is a third American, possibly global, possibly even final, bankruptcy is imminent in the coming years as I first clearly denoted in this series. Similar to the closing of the gold window in 1971 being preceded by the demise of the London Gold Pool, this bankruptcy has been preceded by former Treasury Secretary and current Director of the National Economic Council Larry Summer’s gold price suppression plan enacted in the 1990s. (photo) (see note 5 and 6)

The “Summers Suppression Plan” has been bolder, more clever and more clandestine than the London Gold Pool, but may well be on its last legs. Though they may wear Brooks Brother suits and meet in corporate boardrooms and the highest political offices in the land, those who suppress gold are no different than mafia thugs in suits. For in doing so, they also suppress the free market and the prosperity it could deliver if the “money power” once more resides with We the People. More on Summers Suppression Plan in the upcoming parts of the Money Matrix series.

In the meantime, please mark my words. When gold speaks again, the Summers Suppression Plan will be no more.  As sure as night follows day, its fate is the same as that of the London Gold Pool.

Jake Towne is running for U.S. Congress in Pennsylvania’s 15th District in the 2010 election as a citizen unaffiliated with any political parties.  Jake also writes at www.LibertyMaven.com and www.CampaignForLiberty.com.  A master campaign presentation for internet viewing is available. [Reach the Author Here!]

For further reading on this subject, please see:

Lips, Ferdinand. 2001.  Gold Wars.  New York: The Foundation for the Advancement of Monetary Education.  Amazing perspective on gold from an ex-Rothschild banker.  The main source for the above information on the London Gold Pool.

Powell, Chris. “There Are No Markets Anymore; Just Interventions.” (2008) Article focused on the modern suppression of the gold market.

Gold Anti-Trust Action Committee. 2008. “A New Summary of GATA’s Work.”

Note 1 – The suspicious re-categorization of America’s gold hoard as “Custodial Gold,” then “Custodial Deep Storage Gold” is a critical topic in its own right and has been left unchallenged save for the efforts of a valiant few, Reginald Howe and the Gold Anti-Trust Action Committee (GATA). See  the US Mint’s 2008 gold audit, “Howe vs. BIS” and “The “Smoking Gun”” for more details.

Note 2 – Of course, Treasury Under-Secretary Frederick Deming was handpicked by the FED, which is similar to having NY FED President Timothy Geithner become Treasury Secretary.  In this “Memorandum for the President” from FED Chairman William Martin in 1964, Martin recommended Deming be named as a Federal Reserve Governor, but was instead assigned to the critical “gold” position in the Treasury in 1965.

Note 3 – The FED’s reported “gold stock” of 261 million ounces is currently listed as an asset of $11 billion USD, or $42.22/oz. At current market prices, this gold would be valued at nearly $250 billion.

Note 4 – Even though the government paper of today’s fiat currencies are completely unchecked by the discipline of gold, the below quote is from the same above FED meeting minutes. Back then central bankers at least attempted to not drink from the same punch bowl they served the financial markets:

“The excessive demands for goods and services and the accompanying rise in interest rates were, once again, beginning to curtail the availability of funds for mortgage financing. The longer the excessive demands persisted, the more certain it was that a serious “credit crunch” would come. Temporarily pacifying the financial markets by rapid injections of bank reserves, bank credit, and money was no real solution. Continued provision of bank reserves at the recent rapid pace only reinforced the excessive spending and market expectations and induced even more urgent demands for credit.

“Unfortunately… vigorous fiscal action to help reduce total spending, huge credit demands, high interest rates, and inflationary pressures had not been forthcoming. Economic stabilization depended on avoiding further excessive monetary expansion. Both domestic needs and the international balance of payments position of the United States called for the same policy prescriptions. Restraint on total spending was essential to relieve financial market pressures, to foster sound economic growth, and to protect the strength of the dollar at home and abroad. Moderate monetary restraint could contribute to achievement of balanced economic expansion.” (54/107)

Note 5 – In his paper “Gibson’s Paradox and the Gold Standard” from 1988, Summers realized that when real interest rates are positive, the price of gold declines as people prefer the government’s paper currencies.  The converse is also true – when real interest rates are negative, the price of gold increases.  Therefore, when the government embarked on a lengthy period of negative interest rates, they were aware that the price of gold must be suppressed.  This isn’t exactly the work of a genius, but Summers is no dummy either.

Note 6 – In the interests of fairness, Summers claims in his June 12 address to the CFR (Council on Foreign Relations) that “we only act when necessary to avert unacceptable — and in some cases dire — outcomes… Our objective is not to supplant or replace markets.  Rather, the objective is to save them from their own excesses and improve our market-based system going forward.” in relation to his actions for the Obama administration.

Note 7 - In the March 14, 1968 FED minutes (page 3/28) “the international financial system was moving toward a crisis more dangerous than any since 1931. The hurricane of speculation that had occurred on the gold market was likely to be succeeded by a similar hurricane on the exchange markets.”  The FED then made plans to increase swap lines and ‘inject liquidity’ – or print money and extend massive amounts of credit – to continue the scheme.

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Summary of Articles and Bibliography for Jake Towne, the Champion of the Constitution (6/8/2009)

Instead of answering the question directly the author analyzes the behavior of gold during times of inflation. The conclusion is that gold (at times) goes down during inflationary events:

Zoom out and the big picture gets even more interesting: The March 20, 2009 high in gold is below the February 20 high, which itself was well beneath the March 2008 all-time peak. Since then, the Fed’s campaign to breathe new life into the economy via cash infusions and credit creation has been tireless. (Last estimate: $12.8 trillion.)

In the end, the evidence speaks for itself. Gold has not fulfilled its promise as hedge against “inflation,” or an economic safe-haven. This scenario, while shocking to the bevy of gold bugs who swarmed around the metal at the onset of the Fed’s bailout binge — is no surprise to EWI subscribers.

While the stats given do not lie, I take issue with the general claim that “Gold has not fulfilled its promise as hedge[sic] against inflation or an economic safe-haven“. The author makes the mistake of assuming that “trading” in gold is the same as accumulating gold for wealth preservation. Sure, if the value of gold goes down it is worth less and those who are trying to trade gold for profit are going to be hurt. But those of us accumulating gold will just purchase more.

Why? The simple answer is, because gold always has value. It certainly has fluctuations in value, but it has always had value and it will likely always have value. No one can make that claim about fiat currencies with a straight face.

Perhaps an extreme hypothetical scenario is in order to answer the EWI article’s question effectively. Let’s say it’s 1997, you live in Zimbabwe, you have a bank account with Z$100,000,000  in it, and a safe with one ounce of gold in it. Your Z$100,000,000 would be totally worthless today. Your one ounce of gold would be worth around US$900.  Now US$900 may not seem like much, but what if we compare apples to apples and convert that to Z$  (as of 4/4/2009) using this conversion calculator:

US$900 = Z$33,711,099,300

I think that speaks for itself. Sure, these days 33+ billion Z$ are completely worthless, but 900 US$ are not.

The conclusion is that gold does protect wealth. It not only protects wealth but enhances wealth because it allows for flexibility. It may not always be worth US$900 but it will always be worth something. There may be better trading/investment options at any given time, but accumulating and holding gold in a portion of an investment portfolio is an insurance policy for wealth no matter what happens with inflation.

Making the decision to hoard gold for wealth preservation is akin to choosing what to do on 4th down while on your side of the field in football. Punting is hoarding gold to fight another day. “Going for it” is trading gold like a stock against all the odds. If you know football then you already know what choice the best coaches make. It is truly the difference between winning a little or losing it all.

I choose to punt. What do you choose?

(Check out The Great Credit Contraction Book for more information about our monetary system and wealth preservation. It is an excellent read. See our review here. A portion of sales go into supporting this site.)

by Jake, the Champion of the Constitution
Originally published on Sunday, March 29, 2009 at http://www.nolanchart.com/article6226.html

This article and charts is an update to an earlier article “18 Days and Counting – Silver Backwardation Persists in the London Market Place“. In “Silver and Gold ARE Money (PART 1/2)“, I charged that both silver and gold are money and shared information on the very important concept of gold’s “stocks-to-flow” ratio and the size of the LBMA markets for both metals.

[In case you do not yet understand futures markets, "backwardation" means that silver to be delivered today is now being priced higher than metal to be delivered later. This article refers to the LBMA, or London Bullion Market Association's futures market in London, England. For more details on backwardation, please refer to my five-part December series which starts here "The End for the Dollar and all Fiat Currencies (1/5)". Contango is the opposite of backwardation and exists when futures price is higher than the spot price as I explained for those new to futures terminology here "The Money Matrix - What the Heck Are Derivatives? (PART 10/15)". [As you read, please also note that I am NOT a commodities trader, I am just an engineer by trade, so feel free to help me out with my analysis or mistakes.] ( Photo) (2)

As we learned in “The Significance of Gold Backwardation Explained (4/5)“, backwardation is a sign of a very tight market, and a market that will be tight for sometime into the future either 1) current supply is very tight, 2) future supply is projected to be very tight, or 3) there is a severe distrust in counterparties that the short positions can deliver the goods on time per the contract, or vice versa that the long positions will not have the cash.

Please refer to the below graphs of LBMA’s silver mid rate, which is the midway point between the bid and offer prices. Here is what I note:

• Silver was in backwardation for the 47 trading days since January 21. On March 27, silver finally dipped out of backwardation.
• Most of this backwardation period was about three times more severe than the mild backwardation than existed from December 8 through December 24 in 2008.
• Although this backwardation was very long – most likely the longest in LBMA history – it was relatively mild. The 1-month contract was the most severe, but its average level of backwardation was only -0.20%, or about $3 USD per 1000 oz bar.
• Also, the disparity between the rates seen in 2006-2007 has largely disappeared; the market appears to be treating a trade on silver 12 months later as quite similar to a trade on silver 1 month later.

[All graphs in this article were created by me from this LBMA source and this US Mint source and my file is available by request.]

Let’s now also look at the LBMA Silver Fix price history for a 1000 troy ounce bar. Despite all of the tightness in the market as demonstrated by the SIFO chart, the Dollar price of silver is still well below the average price for 2006-2008, while the Pound is nearing a new high due to the FOREX market. The Pound price reached £995 within 5% of its March 2008 high. The current dollar price of $13.22/oz. is 37% below its $20.92/oz. high. From the chart, I speculate the Pound price may have been surreptitiously “capped” at £1000, or perhaps is a psychological barrier, similar to gold’s three recent tries at $1000/oz.

Let’s now take a quicker look at gold traded at LBMA. The GOFO, or Gold Forward Offered Rate, represents the rates at which dealers will lend gold on a swap basis against US dollars. From the below charts, I note:

• Recently, gold has only gone into minor backwardation once, in November 2008, for 3 days.
• As GOFO started its plummet in roughly September 2007, the prices began to diverge, and currently the 1-month GOFO rate is lower than the 12-month rate.
• The buckling of the British pound can be easily seen. The British pound set an all-time high of £690 per ounce of gold on February 23, 2009.
• The Euro set an all-time high of 782 Euros per ounce of gold on February 23, 2009 as well.
• Gold priced in Dollars is 10% below its 2008 high of $1,023, as of March 27.

It is simply too early to tell if we have seen the “Last Contango,” but as Dr. Fekete notes in “The Last Contango in Washington” (2006) and “Keeping Our Eyes Peeled for the Silver and Gold Basis” (2007), the consequences could be very stark for the dollar and hence all fiat currencies.

Now, of course, there are many other factors as silver guru Theodore Butler points out in “Tightening Production“. Industrial demand has been slammed by the economic fallout. However, since about 70% of all silver is typically mined as a by-product with other base metals like zinc, the supply is also greatly affected by the market conditions of zinc, copper, lead, and nickel. While the backlog in demand has greatly increased the inventories of these base metals causing a drop in their prices the inventory of silver is growing smaller while the price has increased over the past three months from $10 to $13/oz. Butler also relates that many of the base metal mines have been closing due since they are no longer profitable. At the same time, Butler reports that the American COMEX silver futures market is under investigation by the CFTC (Commodities and Futures Trading Commission) for market manipulation and price suppression. It is also possible the London market backwardation is temporary due to the severe loss of purchasing power (relative to others) of the British pound.

[For the Reader, NYMEX Gold Session Futures chart, Silver Session Futures chart. Gold spot price chart. Silver spot price chart. When the spot price is greater than the futures price, backwardation exists.]

There is some debate about whether backwardation is bullish for gold and silver. Due to the aboveground stocks-to-flow ratio of 60 years stock to 1 year of mine production, I maintain that LBMA backwardation in gold in is not only a bullish signal, but, more importantly it is blaring siren signaling trust in the Dollar is being lost. Since the aboveground stocks-to-flow ratio of silver (1.5) is more typical of other commodities and industrial metals, LBMA silver backwardation is also bullish, for the commodity but may not be as relevant to the Dollar unless the reasons for the backwardation are clearly understood. Up to roughly 12%, or 81 million troy ounces of silver are currented effected by strikes or slowdowns at Penoles, Hochschild’s, and Doe Run. As an amateur, I do not claim to know to what degree each of the aforementioned three possible causes (tight current supply, tight future supply, or counterparty distrust) effected the backwardation although the Pound’s recent relative devaluation and possible “capping” at £1000.  My educated guess is tight future supply combined with FOREX declines are the dominant factors, but I please remember I also subscribe to the price suppression theories of GATA and Ted Butler.  However we can look at what happened to the price of silver and gold during each of the three backwardation periods from 2006-2009 and we can see that backwardation has caused significant increases each time.

In addition to the annual supply-demand figures put together by the World Gold Council and the Silver Institute, another interesting item is US Mint-issued gold and silver bullion sales. As can be seen by the below, the 2008 gold demand quadrupled from its 2007 level, while silver demand doubled. In 2009 YTD, gold is on track to beat the 2008 mark, and silver demand is on track for roughly 24 million ounces, which would shatter its 2008 record level.

The inventory of SLV has leapt from 218 million ounces since January 1st, and reached 267 million ounces on March 26. This exceeds the limit of 264 Moz that the trust had set for the custodian, JP MorganChase (one of the “Pirates of the COMEX” as GATA’s Adrian Douglas recently wrote about here). In the new prospectus (pg 8/44), the text reads:

The custodian has no obligation to accept any additional delivery on behalf of the trust if, after giving effect to such delivery, the total amount of the trust’s silver held by the custodian exceeds 264,550,265 troy ounces. If this limit is exceeded, it is anticipated that the trustee, with the consent of the sponsor, will retain an additional custodian… As a result, the new agreement may differ from the current one with JPMorgan Chase Bank N.A., London branch, with respect to issues like duration, fees, maximum amount of silver that the additional custodian will hold on behalf of the trust, scope of the additional custodian’s liability and the additional custodian’s standard of care.

I have not been able to find out who SLV has named as the new custodian.  My flat-out guess is the new custodian will be HSBC since as Douglas highlights, they are the other big player in the paper gold and silver market.

For many reasons, I view SLV and GLD with distrust.  The Central Fund of Canada (third-party storage of gold and silver, CEF) and Central Gold-Trust (GTU, gold bullion only) are two ETF’s you could also check out, as well as goldmoney.com and bullionvault.com.  GTU and CEF currently traded at significant premiums compared to the spot price of the amount of bullion they store.  Physical metal can even be placed into an IRA and stored by a third party. All I can say on any of these options is to be VERY careful, there is no simply substitute for physical gold and silver in hand or even stored at a Brinks-type depository or safety deposit box. I view all of the above as simply ways to diversify storage.

As far as the immediate future, in manipulated markets it is impossible to tell.  Long-term, it is my belief the current fiat monetary system will fail, and this depression will likely not end until this occurs. Antal Fekete recently warned the quantitative easing phase of this Gold War could take quite a long time, but please prepare yourself and your family.

Let me close with a quote from Thomas Paine’s “Dissertations on Government.”

“When an assembly undertakes to issue paper as money, the whole system of safety and certainty is overturned, and property set afloat. Paper notes given and taken between individuals as a promise of payment is one thing, but paper issued by an assembly as money is another thing. It is like putting an apparition in the place of a man; it vanishes with looking at it, and nothing remains but the air.”

For the Republic,

Jake Towne, the Champion of the Constitution

[Reach the Author Here!] www.CampaignForLiberty.com (Banner courtesy Mike Burke)

___________________________________________________________________________

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.

Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.

___________________________________________________________________________

Nolan Chart Facebook Group Page Created

Summary of Articles and Bibliography for Jake, the Champion of the Constitution (2/1/2009)

As a disclaimer of sorts, I am a supporter of owning physical gold, physical silver, www.gata.org and www.goldmoney.com. Any investment or financial views expressed in the article are mine and mine alone, so make your own financial decisions by educating yourself. All I am doing is sharing my views to help you decide, even if its just to become aware that you do have a decision to make. These articles reflect the my opinion and are by no means a guarantee of future economic conditions. My articles are provided for INFORMATIONAL PURPOSES ONLY and are actually NOT MEANT to provide investment advice to anyone. You can even say its a charitable but naive act, given the historical tendency of the US government to oppress and steal.

by Jake, the Champion of the Constitution
Originally published on Sunday, March 29, 2009 at http://www.nolanchart.com/article6228.html

While gold trades as a currency (or “medium of exchange”) and also is a “store of value,” and even a “unit of account” for some, and very little is actually consumed. Economically speaking, gold trades even in the modern world as money. Gold is a luxury good with insignificant industrial usage. Its major market as a luxury good is Indian women’s jewelry, but to these women gold is their money or insurance if their mate leaves, dies, or is disabled so the metal is not consumed – it can be easily recovered. ( Photo) (2)

To make my case that gold is money, what seems to be little known is that the gold market is also quite large – the LBMA in 2008 traded about $80 billion USD per trading DAY per the data collected by the IFSL 2009 Bullion Markets Report p3/8 – which I took the time to verify to be correct from its original sources – or $20.3 Trillion in turnover in 2008 and 254 LBMA trading days. However, the IFSL makes a significant note that this volume is quite likely three-to-five times larger since much of the transactions are increasingly netted out and cleared without appearing in the statistics. Please compare this to the 2008 GDP of the United States at $15 Trillion and understand the rough estimate that 75% of the world’s trade in gold (and half of the world’s silver) is traded via the LBMA.

Silver, on the other hand, serves as both an industrial metal and a “store of value” for silver investors. As we learned here, both silver and gold are precious metals since there is very little aboveground stock. All of the gold stock in the world would fit into a cube 20.5 meters to a side. Due to high amounts of industrial usage, the silver stock is even smaller, less than 14.5 meters to a side.

However, as seen below, the silver market size at $10 billion is minuscule – just a tiny fraction of a percent – compared to the gold market. What is really mind-blowing is that the LBMA traded the entire annual mine production of silver every 6 days, while the annual mine production of gold was traded every 4-5 days, despite the fact that silver is priced as if it were a commodity similar to wheat, corn, or copper. You see, the aboveground stock of gold valued at about $4100 billion is equivalent to roughly 5.2 billion troy ounces of gold, but the annual mine production is only 0.087 billion. The aboveground stock of silver valued at $10 billion is estimated at roughly 1.0 billion troy ounces of silver and the annual mine production of silver is about 0.671 billion. (IFSL report, pages 5-8/8)

So the annual “stocks-to-flow” ratio of gold is 60, meaning that there is the equivalent of ~60 years of production aboveground for every year of production. In contrast, for silver the ratio is about 1.5, which is much closer to typical commodities which all lie around one year of production in aboveground stocks for every year of production. Gold is not just another commodity; mankind will never achieve perfection in all things, but nature’s “metal of the sun” is as close to perfect money as mankind is going to get. Modern-day gold mines are lucky to exceed 1 gram of gold from each metric ton (24,250 pounds) ground and processed. If you never have, try holding a one troy ounce (31.1 gram) gold coin in your hand. It’s 2.5 times denser than steel and took a lot of effort and risk to mine.

So, the equivalent of the entire aboveground stock of gold is exchanged every 269 trading days while the equivalent of the entire aboveground stock of silver is exchanged every 9 trading days at the LBMA.

I interpret the all of the preceding information to mean that gold has never stopped being used as both a money and a currency, even in the last 38 years of floating fiat exchange rates. Silver is money as well, but is not traded in high enough volumes, in dollar terms since the price per ounce is too low, to be considered a currency. Jason Hommel reinforces my point in his recent speech “Why Silver is Money.”

Folks, this “stocks-to-flow” fact is well understood, but remains unstated, by the financial elite, most notably Obama’s chief economic advisor, Lawrence Summers. If the world population widely understands the above and begin to both acquire the physical metal and clamor for the restoration of gold and silver as honest money, governments and central bankers could very well lose what is amounting to a stranglehold over the global economy. The world would realize that central banks are not needed whatsoever.

“Financial crisis”? Screw that, this is an all-out Gold War. Go GATA!!

For the Republic,

Jake Towne, the Champion of the Constitution

Per the Constitution of the United States, Congress and all states are forbidden to “make any Thing but gold and silver Coin a Tender in Payment of Debts.”

Part 2 will be finished shortly on silver backwardation and yet another new concern on the ETF SLV.

PS I realize I have a strong stance on the subject but please offer any rebuttals or feel free to ask any questions. I suppose another conclusion is that since gold trades around a quarter-quadrillion dollars every day, if you have saved money, depending on your circumstances it may be extremely foolish to not at least have some gold.

[Reach the Author Here!] www.CampaignForLiberty.com www.EndTheFED.us (Below is mine, photos linked above, graphs created by me from the same data the IFSL used.  Feel free to use the below anywhere to promote Honest Money!)

___________________________________________________________________________

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Summary of Articles and Bibliography for Jake, the Champion of the Constitution (1/1/2009)

___________________________________________________________________________

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.

Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.

Tu ne cede malis sed contra audentior ito. Do not give in to evil but proceed ever more boldly against it.

As a disclaimer of sorts, I am a supporter of owning physical gold, physical silver, www.gata.org and www.goldmoney.com. Any investment or financial views expressed in the article are mine and mine alone, so make your own financial decisions by educating yourself. All I am doing is sharing my views to help you decide, even if its just to become aware that you do have a decision to make. These articles reflect the my opinion and are by no means a guarantee of future economic conditions. My articles are provided for INFORMATIONAL PURPOSES ONLY and are actually NOT MEANT to provide investment advice to anyone. You can even say its a charitable but naive act, given the historical tendency of the US government to oppress and steal.

by Jake, the Champion of the Constitution

Originally published Saturday, February 14, 2009 at http://www.nolanchart.com/article5998.html

This article and charts is an update to an earlier article “Silver in Backwardation! Has the Last Contango Been Danced in Washington?“. The new text starts after the fourth paragraph.

[In case you do not yet understand futures markets, "backwardation" means that silver to be delivered today is now being priced higher than metal to be delivered later. This article refers to the LBMA, or London Bullion Market Association's futures market in London, England. For more details on backwardation, please refer to my five-part December series which starts here "The End for the Dollar and all Fiat Currencies (1/5)". Contango is the opposite of backwardation and exists when futures price is higher than the spot price as I explained for those new to futures terminology here "The Money Matrix - What the Heck Are Derivatives? (PART 10/15)". [As you read, please also note that I am NOT a commodities trader, I am just an engineer by trade, so feel free to help me out with my analysis or mistakes.] ( Photo) (2)

As we learned in “The Significance of Gold Backwardation Explained (4/5)“, backwardation is a sign of a very tight market, and a market that will be tight for sometime into the future either 1) current supply is very tight, 2) future supply is projected to be very tight, or 3) there is a severe distrust in counterparties that the short positions can deliver the goods on time per the contract, or vice-versa that the long positions will not have the cash.

While gold traded as a “store of value” (a currency, really), very little is actually consumed. Silver, on the other hand, serves as both an industrial metal and a “store of value” for silver investors. As we learned here, both silver and gold are precious metals since there is very little aboveground stock. All of the gold stock in the world would fit into a cube 20.5 meters to a side. Due to high amounts of industrial usage, the silver stock is even smaller, less than 14.5 meters to a side.]

Please refer to the below graphs of LBMA’s silver mid rate, which is the midway point between the bid and offer prices. Here is what I note:

• Silver has been in backwardation for the 18 trading days since January 21. The mid-rate for the longest contracts is now slightly positive.
• This backwardation is about three times more severe than the mild backwardation than existed from December 8 through December 24 in 2008.
• We can see that since 2006-2007 where rates were about 4-5%, this state of backwardation is fairly unusual. (The LBMA only lists data back to 2006, but I believe it is a fair comment to say that on an even longer timeline, this is unusual.)
• Furthermore, starting in roughly June 2008, the 12-month SIFO rate flipped over from being the lowest rate to, in general, the highest.
• Also, the disparity between the rates seen in 2006-2007 has largely disappeared; the market appears to be treating a trade on silver 12 months later as quite similar to a trade on silver 1 month later.

[All graphs in this article were created by me from this LBMA source and this US Mint source and my file is available by request.]

Let’s now also look at the LBMA Silver Fix price history for a 1000 troy ounce bar. Despite all of the tightness in the market as demonstrated by the SIFO chart, the Dollar price of silver is still well below the average price for 2006-2008, while Euro/Pound are nearing new highs due to FOREX market. During this latest backwardation, the Euro price is within 12% of its March 2008 high, while the Pound is within 23%. However, the dollar price of $13.37/oz. is 36% below its $20.92/oz. high.

It is simply too early to tell if we have seen the “Last Contango,” but as Dr. Fekete notes in “The Last Contango in Washington” (2006) and “Keeping Our Eyes Peeled for the Silver and Gold Basis” (2007), the consequences could be very stark for the dollar and hence all fiat currencies.

Now, of course, there are many other factors as silver guru Theodore Butler points out in “Tightening Production“. Industrial demand has been slammed by the economic fallout. However, since about 70% of all silver is typically mined as a by-product with other base metals like zinc, the supply is also greatly affected by the market conditions of zinc, copper, lead, and nickel. While the backlog in demand has greatly increased the inventories of these base metals causing a drop in their prices the inventory of silver is growing smaller while the price has increased over the past three months from $10 to $13/oz. Butler also relates that many of the base metal mines have been closing due since they are no longer profitable. At the same time, Butler reports that the American COMEX silver futures market is under investigation by the CFTC (Commodities and Futures Trading Commission) for market manipulation and price suppression. It is also possible the London market backwardation is temporary due to the severe loss of purchasing power (relative to others) of the British pound.

[For the Reader, NYMEX Gold Session Futures chart, Silver Session Futures chart. Gold spot price chart. Silver spot price chart. When the spot price is greater than the futures price, backwardation exists.]

Let’s now take a quicker look at gold traded at LBMA. The GOFO, or Gold Forward Offered Rate, represents the rates at which dealers will lend gold on a swap basis against US dollars. From the below charts, I note:

• Recently, gold has only gone into minor backwardation once, in November 2008, for 3 days.
• As GOFO started its plummet in roughly September 2007, the prices began to diverge, and currently the 1-month GOFO rate is lower than the 12-month rate.
• The buckling of the British pound can be easily seen. The British pound set an all-time high of 666 pounds per ounce of gold this week on February 12, 2009.
• The Euro set an all-time high of 740 Euros per ounce of gold on February 12, 2009 as well.
• Gold priced in Dollars is still 8% below its 2008 high of $1,023, as of February 13.

There is some debate about whether backwardation is bullish for gold and silver. Due to the aboveground stocks-to-flow ratio, I maintain that LBMA backwardation in gold in is not only a bullish signal, but, more importantly it is blaring siren signaling trust in the Dollar is being lost. Since the aboveground stocks-to-flow ratio of silver is more typical of other commodities and industrial metals, LBMA silver backwardation is also bullish, for the commodity but may not be as relevant to the Dollar unless the reasons for the backwardation are clearly understood. As an amateur, I do not know the root cause of the backwardation although I listed three possible causes earlier, plus the Pound’s recent relative devaluation. However we can look at what happened to the price of silver and gold during each of the three backwardation periods from 2006-2009.

In addition to the annual supply-demand figures put together by the World Gold Council and the Silver Institute, another interesting item is US Mint-issued gold and silver bullion sales. As can be seen by the below, the gold demand quadrupled from its 2007 level, and silver demand doubled. Adam Hamilton wrote an interesting article recently here.

Another sign of investor demand is the GLD and SLV ETF’s, which are probably fraudulent paper derivative scams as both James Turk and Jim Sinclair claim. The “inventory” of GLD has skyrocketed 205 tonnes to 985 tonnes since 2008 ended, which is within striking distance of the central bank reserves of Switzerland, the planet’s #6 holder of gold. The “inventory” of SLV has leapt from 218 million ounces to 244 million ounces since January 1. In several weeks SLV will likely hit its allotted maximum of 264 Moz per page 8/48 of the prospectus. Not sure what happens after that, but if there are any SLV experts out there, please assist!  I’ve also noted some erratic behavior with the ETFs while LBMA is in backwardation, but I profess I do not have the expertise to dissect it further.

From the latest COT report, non-Gold Cartel traders should be wary of another initial pullback-breakout-retest-blastoff in the COMEX market which is how gold historically trades, as shown by Jordan Roy-Bryne. Others (like myself) of humbler means who do not like to play with the fire of the “Gods of the Market Place” should be quite content with holding the mythological metals of the sun and moon in the palms of our hands. For did Rudyard Kipling not warn:

“As I pass through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all…

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!”

Fortune favors the brave. GO GATA!

Jake, the Champion of the Constitution

[Reach the Author Here!] www.CampaignForLiberty.com www.EndTheFED.us (Below is mine courtesy me, photos linked above, feel free to use anywhere to promote Honest Money!)

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Nolan Chart Facebook Group Page Created

Summary of Articles and Bibliography for Jake, the Champion of the Constitution (1/1/2009)

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We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.

Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.

Tu ne cede malis sed contra audentior ito. Do not give in to evil but proceed ever more boldly against it.

As a disclaimer of sorts, I am a supporter of owning physical gold, physical silver, www.gata.org and www.goldmoney.com. Any investment or financial views expressed in the article are mine and mine alone, so make your own financial decisions by educating yourself. All I am doing is sharing my views to help you decide, even if its just to become aware that you do have a decision to make. You can even say its a charitable but naive act, given the historical tendency of the US government to oppress and steal. Any questions, feel free to email me. [Reach the Author Here!]

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Other Related Articles by the Author

Silver in Backwardation! Has the Last Contango Been Danced in Washington?

The Money Matrix – Who Owns the FED (PART 7/15)

The Year of the Ox Arrives in China, Land of “Currency Manipulation” (PART 1/2)

GATA’s Message on Gold and Silver Manipulation to Barack Obama (PART 2/2)

Rioting at the Gates of Thermopylae: The Ramparts of the FED & Central Banks Shudder

• The “Great Slump” of 2008 (PART 1/2)
• Bernanke’s Great Lie – The “Gold Standard” and the Great Depression (PART 2/2)

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Gold and Silver Investigation Source List

The People’s Money – a Facebook group that I assist with news postings.

A Quick History of Gold

GO GATA! The premise of the Gold Anti-Trust Action Committee that the world gold market is artificially suppressed by central banks in order to make their currencies look stronger.  25 minute intro Part (1) (2) (3)

www.GoldMoney.com – GoldMoney is an international gold and silver warehouse with insured vaults in London and Zurich.  Ability to hold and pay interest on six major fiat currencies, issue payments in goldgrams, silver ounces, etc. Think of them as an alternative way to diversify where and how  your physical metal is stored, but I urge you to be wary and thoroughly investigate this and ANY method where someone else holds your metal for you before investing.  The best is always physical possession  (or pay for storage at a Brinks-type depository) although you should always be creative with your storage locations

The World Gold Council – A wealth of information on central bank holding, gold derivatives, supply and demand statistics and more.  Free login required.

Rothbard, Murray N. “What has the Government Done with Our Money?” (1990) A 50-page document that describes Austrian economics.  Rothbard has written a host of other great sources as well, like the 1994 work “The Case Against the Fed.”

www.jsmineset.com Expert Jim Sinclair shares his thoughts on gold investing, financial markets, and trading.  For free!

www.DollarCollapse.com This site’s main use is as a newsfeed for dollar, gold, and housing market current events.  They explain their dollar collapse theory here, which I partly agree with.

www.SilverSeek.com I particularly enjoy reading the columns of Theodore Butler and Jason Hommel

www.GoldSeek.com The sister site of SilverSeek.  The Mogambu Guru’s (aka Richard Daughty) column has tunnel vision but hilarious and educational..

www.professorfekete.com A seriously pro-gold scholar.

www.lemetropolecafe.com Offers timely gold market advice and a daily “Midas” column.  Try the 2-week free trial.

Paul, Ron. “Pillars of Prosperity.” (2008) A 400+ page compilation of Dr. Paul’s writings. After reading these, one realizes that Dr. Paul did very little recent work in putting together his best-selling “The Revolution” as most of this book was written 20+ years ago.

Millar, Peter. “The Relevance and Importance of Gold in the World Monetary System.” (2006). Self-explanatory title. Understanding Graph 2 on page 3 is key.

Greenspan, Alan. “Gold and Economic Freedom.” (1966) Interesting work from the Maestro prior to his conversion to inflationary Keynesian theory.