James Turk: Lehman type Collapse in Weeks

Brace for impact and volatile trading, because Europe teeters to the brink, this time for real, according to James Turk.

Turk, the chairman of Goldmoney, told King World News he sees the signs of a rapidly approaching collapse in Europe’s debt markets, and the ramification will rival the collapse of the U.S. banking system in 2008 following the fall of Lehman Brothers. Sign-up for my 100% FREE Alerts!

Initially, what was a tiny Greek problem (2 percent of EU GDP), has moved to the heart of the eurozone through Italy (GDP of 2.1 trillion, or 13 percent of EU GDP), Though not a surprise, the attack on Italian debt this week has sped up the timetable for the needed chain of events to occur for a final resolution to the euro.

As Italian 10-year bonds trade above 7 percent, the line in the sand that Morgan Stanley said is where traders say Italy won’t recover, the crisis has moved definitively to the next step to resolution, one way or the other—monetize debt, break the euro, or allow the system to collapse.

If Italy won’t recover, the euro cannot recover—though “illegal intervention,” according to zerohedge in yesterday’s Italian 1-year bill by new ECB chief and former Goldman Sachs operative Mario Draghi served to grant more time for the euro—again, though not a surprise.  But an extended period of Fed-like shenanigans in European debt markets by the ECB is highly unlikely.  The Germans would recoil violently at the idea of a re-run to Weimar, taken behind closed doors, of course.

“Clearly the two percent plus drop today by the euro against the U.S. dollar is a warning sign that a major crisis is brewing,” Turk told KWN on Wednesday.  “I mentioned before that the Dexia and MF Global collapses are not the Lehman event I’ve been expecting before year end. But the markets are telling us that a major crisis is now brewing.  So be prepared for another Lehman type of collapse which will bring the financial structure to its knees.”

Turk’s grave assessment of Europe’s of the situation echoes countless among the media (not counting rumor mill central, The Financial Times of London), where the dialogue between the markets and the endless closed-door meetings of European leaders has been fancied.

French President Sarkozy and German Chancellor Merkel have already released some trial balloons to the effect of a euro breakup, a suggestion floated around by Wall Street and Main St. analysts for months.  Reuters served the European leaders their outlet to the markets yesterday regarding the latest solution.

“German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say. French President Nicolas Sarkozy gave some flavour of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe — the euro zone moving ahead more rapidly than all 27 countries in the EU — was the only model for the future.”

While the foundation for a breakup of the euro is laid, the toothless apparatchiks of Europe will bark and humiliate Italy until it’s finally released along with the other Club Med fiscal basket cases to a second tier euro, knowing full well what Morgan Stanley had rightfully stated is a “mathematically impossible” future of Italy’s ability to service its public debt.

“The EU and the IMF telling Italy that it must adopt austerity measures is advice that comes about five years too late,” Turk explained.  “The Italian government cannot cut enough or fast enough to improve their financial picture.  The bottom line is the fallout from Italy is going to get very bad very quickly.”

He added, “ . . the wheels are finally coming off the cart and they [KWN readers] need to be prepared for some volatile and cataclysmic events over the next several weeks.”

Turk suggests holding gold, physical gold, that is, while the banks attempt to seize Italy’s 2,450 tons of the yellow metal.

Gold Price: Chinese to Bust Gold Cartel

A higher gold price is inevitable for a variety of fundamental reasons, not least of which is the yellow metal’s limited ‘available’ supply against a backdrop of overall growing demand from private parties across the globe.  But Tangent Capital’s Jim Rickards points out that strong demand for gold coming from that very same global banking system should buoy the gold price, as well, every step of the way to, maybe, just maybe, Jim Sinclair’s $12,500 price tag.

Rickards explains the simple dynamic between the three dominant currencies in play during the epic global re-balancing act—the U.S. dollar, euro and the yuan (renminbi).   Each government behind these currency will ensure a long-term tailwind to the gold price for, we hope, many years, because an abrupt revaluation of the gold price could suggest untold social unrest, revolutions and war—which is a scenario Swiss money manager Marc Faber predicts.

“The main event is the three-ring circus of the U.S., Europe and China and their respective currencies, the dollar, euro and the yuan,” he wrote in a piece posted on King World News on Sept. 18.  “The dynamic is straightforward – all three would like a cheaper currency, relative to the others, to help exports.”

Correct.  Each country has its own constituency to reasonably satisfy under the most difficult of circumstances since at least as far back as the Great Depression.  Ultimately, no one wants a trade war, though during political seasons the hyped jingoism stirred up among pols to garner votes from the Colosseum crowd rears its ugly head as the true degenerates of societies play the old as it is tired game of tribalism rhetoric.

Cutting through the politics, Rickards explains why owning gold is important during the present state of war, a currency war, between the three blocks.

“This dynamic plays out as you might expect. The U.S. devalues against yuan and the euro – it gets all of what it wants. China revalues upward against the dollar, but keeps a peg to the euro – it gets half of what it wants,” he explained. “And the euro remains strong against the dollar and pegged against yuan – so it gets none of what it wants. This has been the prevailing paradigm since June when the Chinese finally let the yuan appreciate against the dollar in a serious way.”

Aside from the stresses between Germany and the PIIGS as a sequel to Rickard’s thesis, Beijing has a big problem with the way this currency war is playing out. That is, rapid inflation in China.

There is no way that China, nor any country, can escape rising consumer prices under the scenario, above.  But, between the U.S. dollar and the euro, representing 88% of total central bank reserves, China has been, and will continue to be mired in inflation for ever at the pace of devaluation of the dollar and euro must achieve to right global imbalances between debtors and creditors.

A U.S. or European citizen can absorb some inflation due to relatively high per capita purchasing power parities (though painful to the bottom of the economic ladder), but China’s $8,500 per capita PPP is too low to keep the natives calm during this expected protracted process.  Do Tunisia, Egypt and Libya come to mind?  All three countries weigh in with under $4,000 per capita PPPs.

The plan, then?  Beijing must grab as much gold for its central bank and its people as fast as possible without disrupting the gold price too much in an effort to absorb the inflationary effects of the depreciating U.S. dollar and euro of the future.

According to a WikiLeaks cable,


“China increases its gold reserves in order to kill two birds with one stone”

The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): “According to China’s National Foreign Exchanges Administration China ‘s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.”

It’s laughable to think the gold price means nothing to the Fed and ECB (Jeff Christian, are you listening?).  But, in this case, the price of gold is important to Beijing, as well.  As China accumulates gold to buttresses its reserves, a steady rise in the gold price, not a rapid one, is preferable to its long-term plan to introduce the yuan as a fully convertible reserve currency—backed by gold.  Strong evidence from bullion dealers, KWN’s anonymous London trader, Jame Turk and Eric Sprott indicate that Beijing was the big buyer (India, too) during gold’s drop to below $1,600 per ounce.

How this will all play out and who will get what they want from the new reserve currency regime down the road is unclear, but it’s no matter, according to Rickards.  Throughout history, the winners of currency devaluations have a 100 percent track record of emerging from the heap of paper.  No exceptions.

He concluded his piece, “ . . . it is not quite true there are no winners in a currency war. There is always one winner – gold.”

Just in from the Financial Times of London (subscription required, but excerpted by zerohedge.com):

Analysts expect the September import surge to continue until the end of the year as Chinese gold buyers snap up the yellow metal in advance of Chinese New Year, China’s key gold-buying period.

In September we saw some bargain hunters come back into the market on the price dip,” said Janet Kong, managing director of research for CICC, the Chinese investment bank.

Data from the Hong Kong government showed that China imported a record 56.9 tonnes in September, a sixfold increase from 2010. Monthly gold imports for most of 2010 and this year run at about 10 tonnes, but buying jumped in July, August and September. In the three-month period, China imported from Hong Kong about 140 tonnes, more than the roughly 120 tonnes for the whole 2010.

The last two months of this year are likely to see China’s gold imports surge further ahead of Chinese New Year, supporting gold prices, according to Ms Kong. “We’ve noted a quite strong seasonality in gold prices, typically prices go up in the months before the Chinese New year.

Silver price: Launch Underway!

With the global shift back to the dollar-flight trade, let’s look at the silver price’s technicals to see where we are in the trade, with the emphasis on one-way bets on silver—long!  With physical buying pouring into the market, taking a short position is suicide.

During the massive plunge (normal for the silver market) in the silver price, noticed where the heavy buying came in—right below Richard Russell’s 20-month moving average.  Russell looks for where to 20-month MA is relative to the 40-month for long-term buy and sell decision points.

“I’m looking right now at a chart of 20-month and 40-month moving averages of gold [said can be said of silver],” Russell said in a roundtable discussion with FinancialSense Newhour’s, “and May of 2002 . . . the 20-month moving average finally moved above the 40-month moving average.”  Coincidentally, the buy signal in the precious metals followed UK’s Chancellor of the Exchequer Gordon Brown’s dump of 60% of British of England gold reserves.

With no foreknowledge of the schemes of the gold and silver cartel, it appears the sell-off in silver is complete.  Notice the similarities between the sell-off during the de-leveraging event brought on by the collapse of Lehman Brothers in 2008 and the sell-off in the silver price during the coordinated raid by the cartel in May, made easy for the cartel from all the shallow-pocket speculators jumping on a moving train.  A simple margin raise was in order and watch the speculative longs fall like dominoes.

Volume statistics, as shown in the above graph, suggest a confirmation of COT reports which show speculative longs flushed out of the market during the May sell-off.  But note the volume; it’s reached levels not seen since the summer of 2010 when silver traded below $20.

More importantly, the difference between the two sell-offs cannot be gleaned from the charts.  The action is in the physical market is decidedly different this time, as a slew of reports coming from bullion dealers across the globe tell of physical buyers jumping into the market with both feet at these lower prices—in stark contrast to the 2008 sell-off.  Goldmoney’s James Turk and Eric Sprott of Sprott Asset Management (read article here) have both reported experiencing equal dollar amounts of purchases between gold and silver.  Significant order of silver run weeks to delivery—again!

Considering the price ratio of gold and silver is 50:1, already-long delays in securing a supply of silver provides a critical disincentive for the cartel to act anytime soon—if at all, in the future.

Tocqueville Gold Fund manager John Hathaway told KWN, “To the extent that this is a rigged game, the game is now over.”

He notes that commercial physical buyers may panic to secure silver at any price to keep production of its products moving.  Due the small amounts used by commercials in the production of most consumer electronics, to them, silver is an inelastic commodity.  JP Morgan is very well aware of this dilemma and most likely won’t push this manipulation scheme to a de facto force majeure (may never officially acknowledge one) at the COMEX intentionally.

Chief Investment Strategist of Sprott Asset Management John Embry agrees. “Right now we are in the throes of something similar to the old ‘London Gold Pool’ getting overrun,” Embry told KWN.  “I remember the London Gold Pool situation quite well, you have to be old to remember it but I do.  I see absolutely no difference this time except conditions are infinitely worse this time around and there is less central bank gold [silver supplies worse] available for the manipulation.”

Embry added, “So to me if the seventies were fantastic as a result of the London Gold Pool being broken, this one is going to be way better.”

Gold Price “Close to a Breakout,” John Hathaway

As the gold price smashed past through technical resistance at $1,680 on Tuesday, King World News’ usual suspects came out this week feeling confident that another big rally in gold is underway.  The gold cartel shorts are covered and sentiment in the gold market is terrible, a set up, he said, is “really what you want” before taking a position in the metal.

Speaking with KWN, Tocqueville Gold Fund manager John Hathaway told Eric King the gold manipulation cartel may be losing grip on the powerful forces of the golden bull.  He likens the situation to the problems faced by the infamous London Gold Pool of the 1960s.

“The central banks are losing to the extent that they are failing to keep the gold price down,” said Hathaway.  “You know whoever is fighting this battle is fighting a losing battle.  So I just don’t think there is going to be much courage left on the central bank side.  If this latest ‘London Gold Pool’ style manipulation fails and at the same time you see more of this disgust with paper currencies, that’s where you will get nothing but air to the upside.”

Hathaway’s point brings back memories of James Turk’s famous ‘Gold’s Infallible Indicator’ article of 2007, a clever qualitative indicator which came about as a result of his observation that each time the UK business publication The Economist published a ‘negative’ outlook for the gold price, the complete opposite happened.

Turk’s notations from his original article, posted on Kitco.com:

Date Article is Published

Gold Price
On Date of Publication

Low Gold Price After Date of Publication

Number of Days Low Is Reached After Publication

Subsequent High in the Gold Price

Date of Subsequent High in the Gold Price

% Gain from Publication Price to High Price

23 Jan 1993





30 Jul 1993


11 Sep 2003





9 Jan 2004


1 Dec 2005





11 May 2007


8 Apr 2007







ñ     Updated chart from original publication

Not included in the Turk’s chart is a May 13, 2010, article published by the The Economist, entitled, Gold to Fall Below $1,000 By End of Year: Economist.

The article’s publication, proving once again that Turk’s ‘Infallible Gold Indicator’ is, indeed, infallible, the gold price of the date of the article’s release was $1,229.20.  Subsequently, the yellow metal rallied, dropped, then drifted to as low as $1,158.00 on Jul. 27.  But by the close of the year, instead of trading at $1,000 as predicted by The Economist, the gold price achieved a print of $1,421.40—a gain of 15.6% from $1,229.20.

It should be noted that the May 13 article was published in a nick of time for the start of gold’s seasonal soft period range of mid-May and the last trading day before Labor Day (first week of September).

“How can The Economist get it so wrong?  Or in other words, why is this indicator so reliable?” Turk asked in his May 7, 2007, article.

He added, “While The Economist pretends to offer serious analysis of gold, in reality it doesn’t.  It has another objective – anti-gold propaganda.  It is an apologist for the Bank of England and the other central banks that want to keep the gold price low.”

But tell that to CPM Group’s Jeffrey Christian, the apologist for the Fed.  GATA right again.  In fact, any time someone accuses you of being a ‘tin-foil hat’ guy for suggesting the gold market is manipulated, just tell ‘em to Google ‘GATA right again‘.  The raft of links to article of GATA’s fine detective work on the subject of gold cartel manipulation scheme is so overwhelming that even a judge, if presented with so much circumstantial evidence surrounding a murder of a Catholic Calcutta lad, would send Mother Teresa to the gas chamber.

Then, appeal to the naysayer’s greed by sending the ‘useful idiot’ to Turk’s May 7 article.

Even the Financial Times of London has found the time between initiating rumors of the European debacle (see here . . . here . . . and here) to report that, maybe, just maybe, further investigative work by FT might lead to subsequent article, entitled, ‘GATA right again’.

Back to the KWN Hathaway interview:

“To the extent that this is a rigged game, the game is now over,” he said of the gold cartel’s diminished capacity to stem the avalanche of physical gold buying.  “We are not quite at stampede levels yet, but we will be.  Who wants to hold euros? And if the U.S. starts to intervene through some form of central bank asset purchases, lines of credit, whatever it is they use, nobody is going to want to hold the dollar either.”

He continued, “We potentially have nothing but air to the upside in gold.  We could see a big number on gold before the end of the year.  Nobody is going to want these paper currencies going forward.  That’s kind of where we are now, we’re close to a big breakout.”

Here we go again! Another Silver Shortage

In the midst of a Wall Street Journal article that suggests the groundwork for an addendum to the Fed’s ‘Operation Twist’ program is being laid right now, bullion dealer reports of lengthy delays securing silver are surfacing—again.

Of interest to traders seeking to catch the next big move in silver, both previous instances of shortages in the silver market led to an average price appreciation of 156% during an average of 10.5 months time span, with the second instance of a shortage catapulting the silver price higher in percentage terms and within a shorter time period.

“There is extraordinarily tight supply right now in Asia.  When you order silver there is so little available at these prices, that’s the trouble,” King World New’s frequent guest, ‘Anonymous London Trader’, told Eric King.  “You can order it all day long, but you are going to have to wait for it.”

Silver Price Manipulation Scheme Coming to a Close

The symptoms of Big Government seeking to defy nature’s law as it relates to the utmost important of all human behavior, that, of self-preservation, in response to a threat to said preservation, has become increasingly more self-evident in the silver (and gold) markets.  In the end, nature always wins.(1)

In that vein, KWN’s Anonymous sheds some light on the subject of the manipulated market price of silver and what he sees happening behind the scenes as the grip of government weakens on the price of gold’s kissing cousin.

“The price of silver has no reality to the paper market at all, absolutely zero reality there anymore,” Anonymous said.

“All of the sudden the game has changed because you have actual investment demand increasing exponentially vs. industrial demand, competing against industrial demand to buy,” (s)he continued.  “All of these sovereign entities buying silver know it’s manipulated.”

As the Fed successfully brought down the COMEX paper price (with a lot of help from speculative froth created by momentum traders who pushed the silver price up 171% within eight months) in April, the table is set once again for another Fed QE and another relaxation of the shortage of silver—which could result in an even higher percentage rally from the previous monstrous move in the paper price as we embark on the third go-around.

“To the extent that there has been intervention (in the gold market), you kind of have to wonder if the government in Europe or the European central bank didn’t want gold to be on the defensive because of all of these announcements about a lending facility,” another frequent guest to KWN, John Hathaway of Tocqueville, told Eric King listeners on Thursday.

The weekly Commitment of Traders reports illustrate an excellent source of validation of Hathaway’s suspicion in addition to his 40-year experience working the bullion markets.  According to the most recently published COT report, commercials scrambled aggressively to cover their shorts, suggesting, maybe, the a big rally could be coming as traders await word from the Fed of the possibility of an additional QE.

“I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities,” Fed governor Dan Tarullo stated in a speech at Columbia University on Thursday.

Add Tarullo’s statement to Fed Chairman Ben Bernanke’s recent language on the issue of more stimulus to the U.S. economy, as well as Thursday’s announcement that the biggest thorn to Bernanke’s behind, Kansas City Fed President Thomas Hoenig, has been appointed by Obama to vice chairman of the FDIC.  That should keep Hoenig quiet and serve as warning to other Fed governors who wish to remain at the Fed that transfers to other agencies of less distinction could be coming their way, too.

Aside form the political developments, the pattern of Fed intervention in the silver market prior to QE announcements may not be evident to the typical momentum trader who only watches price movements of anything that happens to be trading well, but for those focused on the Fed’s dilemma as it attempts to cushion a worldwide collapse of debt at ever level of the world economy, the Fed’s modus operandi makes much sense, but more importantly, the Fed’s timing model may provide clues to future movements and price levels along the way.

Back to Anonymous.  (S)he believes time is on the side of the silver bull.  As investors take on an ever increasingly greater role in the ‘pricing at the margin’ in the silver market, industrial demand will always play a critical factor as well, as a goof-ups by the Fed on the downside of price could ironically bust the COMEX.

If shortages become too acute through the Fed’s proxy JP Morgan and its criminal activities, the panic to buy the metal will most likely come from the commercial users, who will pay several times the manipulated COMEX price in order to secure the metal for their business applications.  After all, most industrial applications whereby, silver, specifically, is used, require too small of amounts to affect final product costs in any meaningful way.  For commercials, it’s not a matter of price, it’s a matter of availability.  Therein, lies the Achilles Heal.

But in the end, nature always takes its course, anyway.  The hogtied Fed will eventually strangle itself attempting to free itself from the virtuous Mr. Market.

“Yeah, any sort of attempt to hold back the market sooner or later falls apart,” Hathaway said.  “I mean we saw that with the London Gold Pool in the late 1960’s.  So you can keep the market off balance for a while, but you can’t do it forever and the longer the move is put off, the bigger the explosion on the upside.”

(1) Storing previously endured labor for future consumption as the intended lifespan of a human machine’s usefulness is reached is a serious matter.  But in the end, nature always wins; the human desire to survive outlasts the government’s ability to overcome that spirit.

Therefore, it’s truly time to move off the question of whether the silver price is manipulated.  The question, now, should not be whether Gold Anti-Trust Action Committee (GATA) is correct, or not, with its contention that the precious metals markets have been (and still are) manipulated; the question should be: Why do so few people know of a basic, undisputed sixteenth-century concept of economics, Copernicus-Gresham Law?  Why should GATA have ever existed?

Dexia Collapse further demonstrates Case for Gold

At this point, during the third year of the Kondratiev Winter, the politicians’ blueprint to hide another global Lehman-like collapse of the financial system should be clearly evident to anyone even remotely paying attention to the mentally-exhausting saga in Europe.

With this weekend’s collapse of the Belgium/France retail bank Dexia Group, the obfuscations, misinformation campaign and downright lies surrounding the imminent fall of this behemoth financial institution could easily serve as yet another textbook case for owning gold.

The kickoff to gold’s rise to prominence, once again, began this Sunday with the fall of Dexia and events leading up to its fall as not reported by media, a leading Wall Street institution and a credit agency.

“A severe crisis in Europe could cause significant damage by undermining confidence and weakening demand,” Treasury Secretary Tim Geithner told the U.S. Senate Banking Committee.

Taking politicians’ comments as worthless is obviously a given, but when those paid in the private sector to provide the heads up continue failing time and time again, gold shines—as it always has throughout history’s enumerable variations on the same play, but performed by different actors.

Here’s how the Dexia collapse was handled by those worthy of the big bucks:

First, the European banking system ‘stress test’ was performed to demonstrate the health (or lack thereof) of individual banks to absorb an impact of debt write-offs during the crisis.  Bogus results, either intentional, or not, were dressed up in  pomp to an ‘elite’ audience of financial shamans last week.  The irony of the conference in London wreaks of Captain Smith’s ‘unsinkable’ Titanic.

At the Bank of America Merrill Lynch Banking & Insurance CEO Conference held in London on October 6—three days before the Dexia bankruptcy announcement—America’s most destined to fail financial institution (that, for three days, shut down its Web site, presumably to prevent a run on Warren Buffett’s bank) assured the crowd of money ‘experts’ that Dexia would withstand a direct hit to an iceberg.

The now infamous ‘slide 9‘ of the presentation revealed that the champ of the rough financial seas was, indeed, Dexia Group.  The bank ranked No. 1 after the stress test.

Meanwhile, through the mainline arteries of financial information reporting, Moody’s eased itself into proving it was worthy of handicapping Dexia’s chances, decided on Oct. 3 to place Dexia on ‘review of a downgrade’ —fearing, again, it, too, would be placed on investors’ watch list for another credibility downgrade in the rating agency business.

“Moody’s Investors Service has today placed on review for downgrade the standalone bank financial strength ratings (BFSRs), the long-term deposit and senior debt ratings and the short-term ratings of Dexia Group’s three main operating entities — Dexia Bank Belgium (DBB), Dexia Credit Local (DCL) and Dexia Banque Internationale à Luxembourg (DBIL),” the credit reporting agency released in a statement.

“The review for downgrade of Dexia’s three main operating entities’ BFSRs is driven by Moody’s concerns about further deterioration in the liquidity position of the group in light of the worsening funding conditions in the wider market.”

Goldman Sachs, in its mission to do “God’s work,” almost missed warning investors of its concern for the Belgian/French bank by taking a full two days after Moody’s to figure out that its Buy recommendation may appear foolish days before the collapse.

“Our thesis was that, given time, Dexia’s legacy assets should run down, its unrealized loss pull to par (independently of credit spreads), in turn boosting equity growth and reducing funding requirements,” stated Goldman in a October 5 release.”

It continued, “The opposite took place: a deepening sovereign crisis increased the riskiness of these assets, resulting in a wider AFS negative reserve and forcing higher losses on disposal as well as higher than anticipated funding requirements. The headroom to progressively delever is therefore taken away and forced immediate action, as announced by the bank on October 4.”

After careful review, Goldman reported that Dexia was a tossup—downgrading the bank form a Buy to a Neutral.  Water was coming in at the bank’s hull, but the ship was already deemed unsinkable.

On Sunday, Dexia was reported as sinking to the ocean floor.

“Gold will eventually rally exponentially and investors who don’t own the precious metal are ‘insane,’ and may be showing ‘masochistic tendencies,’ Robin Griffiths, technical strategist at Cazenove Capital, told CNBC on Jan. 11.

Who’s Cazenove Capital?  It’s been rumored for decades to be the financial institution to the British royal family.

Jim Sinclair applies Chaos Theory to Gold Price; Krugman loses Sleep

As a growing sense of a world about to turn upside down at any minute—and pretty hard, too—one has to wonder if much of the extreme political, social and economic events coming at us all at once from across the globe tie to the natural forces of a world desperately disentangling itself from the gross unfairness of a global economic model, its political systems contrived to enforce it, and the side-effects of its once-willing participants seeking justice through a the use of a new model now that the old one no longer works from them.

Those studied in such matters have already made the connection between the post-Bretton Woods era and today’s payback.  In fact, many have predicted the inevitable turmoil—but the sense (the underlying connection not yet made by many) that the world is about to change radically has finally begun to take hold of the mainstream, where it really matters.

“Markets usually do a pretty good job of coping with problems one at a time,” Oaktree’s Howard Marks wrote in a note to clients.  “When one arises, analysts analyze and investors reach conclusions and calmly adjust their portfolios. But when there’s a confluence of negative events, the markets can become overwhelmed and lose their cool. Things that might be tolerable individually combine into an unfathomable mess whose extent and ramifications seem beyond analysis.”

Isn’t what Mark describes a manifestation of a complex global financial model taking on a life of its own, as discussed in Nassim Taleb’s book, The Black Swan, which was inspired, in part, from Benoit Mandelbrot’s Chaos Theory?

But unlike the surprise fall of the Soviet Union in 1989, the collapse of the U.S. and Europe, along with the two regions’ 88% lock on global currency reserves, has, so far, played out in a most cruel and slow death.  But maybe that’s about to change.

According to JSMineset’s Jim Sinclair, the notion that the gold price has strayed too far from its 200-day moving average neglects to factor in Mandelbrot’s theories of the unpredictable nature of complex modeling outcomes.  Sinclair has said that the gold price has now moved into the “geometric phase,” taking a page from Mandelbrot’s work and applying it to the gold price.  If the $1,764 hold this year, Sinclair may also have his timing correct for the geometric phase, as well.

How many fat-tailed correlation plots of historical Treasury yields, money supply levels, debt-to-GDP ratios and a plethora of other broken relationships to the norm need demonstrating before other gold experts wake up to realize that the “new normal” mantra spewed on financial programs is the latest misdiagnosis of a condition that seeks to explain a malady that’s anything but normal.

But when feigned explanations for the rapid advance of the gold price from none other than the Sigmund Freud of economics, Paul Krugman, comes popping out in an early-morning exercise of free association during a bout of unexplained insomnia, you really know that overdue canary (U.S. economy) is never coming back out of that mine hole.

For more on this point, read Peter Schiff’s article, The Last Haven Standing

“The conscience of a liberal” still can’t find a conscience, it appears, and may explain his insomnia.

“Yes, it’s 4:30 a.m. where I am,” Krugman began his post.  “I found myself wide awake, thinking about gold prices. You got a problem with that?”

No, hard-money advocates don’t have a problem with that, Krugman.  But apparently, you have one.

Ever since Jim Sinclair, James Turk, Peter Schiff, James “Mr.” Dines and Richard Russell began losing sleep, too, over the inevitable fate of the U.S. dollar—back in 1999—readers rightfully discerned the authenticity and motive of these fountainheads of money theory by taking action to protect themselves from a debauched dollar way back then—and have since been sleeping very well.  And by the way, anyone who seeks to communicate with made-for-Princeton deterministic graphs, not only shows a lack of understanding of the possible applications of Chaos theory to global markets, but demonstrates an unwillingness to communicate to others outside of the Church’s cryptic language, too.  Maybe that’s a good thing.  Go back to sleep.

Peter Schiff on Gold Confiscation; sees Gold Rush coming, slams former Goldman Sachs’ Dennis Gartman

In the latest of his regular appearances on Goldseek Radio, Peter Schiff takes on the question of the possibility of the U.S. government instituting a 1933-style gold confiscation against the American people—a tactic that crosses the minds of holders of gold who fear a desperate government will deploy desperate measures in the event of a Fed failure to save America from a serious collapse in the U.S. dollar.

First, Schiff clarified the event surrounding FDR’s Executive Order 1602, signed into law on April 5, 1933, which required U.S. citizens to deliver to the Federal Reserve all but a small quantity (more than 5 ounces) of gold held by them in exchange for $20.67 per troy ounce.

Contrary to myth, Exec. Order 1602, he said, didn’t include the threat of law enforcement knocking on doors and “ransacking” homes.  Instead, citizens quietly  volunteered to deliver their gold to their nearest Fed facility on their own.  There was no rough stuff from the Feds.

The word, confiscation, as it has typically been termed to describe Exec. Order 1602 is really somewhat of a misnomer, according to Schiff.  Even though penalties for not complying with the Order included stiff financial penalties, imprisonment, or both, it was not considered a realistic threat.  At that time, Americans typically rallied around the president during times of trouble, and were more likely to sacrifice for the good of the nation.

Today, a cynical populous would most likely take another Exec. Order 1602 as a sign that the dollar was imminently in trouble, therefore most likely affecting an opposite reaction by the American people and global participants; the rush into gold would be fierce, and probably would be the trigger that collapses the greenback.

Other stories of banks allowing Treasury officials across the nation access to privately held safe deposit boxes are just another twist to the mythology.

From Wikipedia:

In fact, safe deposit boxes held by individuals were not forcibly searched or seized under the order, and the few prosecutions that occurred in the 1930s for gold hoarding were executed under different statutes. One of the few such cases occurred in 1936 when the safe deposit box of Zelik Josefowitz, who was not a U.S. citizen, containing over 10,000 troy ounces (310 kg) of gold was seized with a search warrant as part of a tax evasion prosecution.  In 1933 approximately 500 tonnes of gold were turned in to the Treasury “voluntarily” at the exchange rate of $20.67 per troy ounce.

Though another FDR-style confiscation wouldn’t work today, Schiff said, it’s not something gold investors should ultimately fear today.  In fact, the government’s mission to devaluing the dollar has never been easier, he said.

“The reason we had confiscation in 1933 was because we were on a gold standard,” Schiff explained.  “And Roosevelt wanted to devalue the dollar, but he couldn’t do that unless he took everybody’s gold first.  Well, we’re not on the gold standard any more.  We’re devaluing the dollar every day.  Ben Bernanke just runs them off the printing presses.  That’s what Quantitative Easing is.  The government can devalue the dollar without confiscating gold.”

On the state of the gold market, Schiff senses a big move up in the price of gold is imminent and scoffs at the notion that gold is in a bubble.  He said the opposite is true.

“I think the bull market is about to go into, or has just entered into a brand new phase that’s going to see even more profits made, particularly in the mining sector,” Schiff stated.

And, on the subject of the publisher of The Gartman Letter, Dennis Gartman, Schiff slammed the “sheep-in-wolves’-clothing” (as many in the gold industry refer to him) and former Goldman Sachs analyst, chiding Gartman for gold bubble talk as pure “nonsense.”

Schiff explained that for gold to be in a bubble, more than just talk of a bubble in the gold market would lend credence to the idea.   Gold will enter a bubble phase when those talking about a bubble in gold, now, eventually become holders of gold themselves.  But by then, he added, they won’t see the bubble in gold.  That’s when a discussion on the subject of a gold bubble would make more sense to Schiff.