GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* USEconomy Beset by Shadows
* Revolt Against USDollar
* Financial Battle With Iran
* Gold & Unstable Financial Markets
* Gold & Rising Physical Demand
* Gold Price Big Picture


HAT TRICK LETTER
Issue #94
Jim Willie CB, 
“the Golden Jackass”
18 January 2012

"Dark Inventory: Inventory that is out there, but which no-one else can see. Both shadow and dark inventory phenomena pervert their respective markets, as well as the entire free market system as a whole, where everyone is supposed to have full access to information. Something both dark and shadow inventories make impossible. Something the 99% general public are not aware of, at all. The best way to make the connection between dark inventory in commodities and shadow inventory in real estate is to look at zombie money that pays for it." ~ Izabella Kaminska (of FT Alphaville)

"For Gaddafi, many speculate the real reason he was ousted was that he was planning an all-African currency for conducting trade. The same thing happened to him that happened to Saddam because the United States does not want any solid competing currency out there versus the dollar. Gaddafi was talking about a Gold Dinar." ~ Hugo Salinas Price (instead, the tyrant was found dead in a culvert pipe disemboweled, and his gold hoard was confiscated in London and Switzerland)

"In the event of a fire, do you want a fire extinguisher in Gold or a picture of one, as in Exchange Traded Funds or mining shares?" ~ Nick Barisheff (President & CEO Bullion Mgmt Group)

Editor Note: please stop requests for me to join any and all social networks. Although your intentions are good, the entire system enables tracking my movement, monitoring my face, and putting me in danger. STOP!! Hardly a day goes by without an invitation, all deleted immediately. Risks rise with each passing month and each new threat in USGovt law.

USECONOMY BESET BY SHADOWS

◄$$$ ALL AND EVERYTHING ABOUT THE HOUSING MARKET IS CORRUPTED AND RUINED. SEE HOME SALES AND MORTGAGE APPLICATIONS. THE FAILURE RATE OF APPLICATIONS TO PURCHASE IS ASTONISHING. THE SHADOW INVENTORY WILL REMAIN HIGH, EVEN GROW. THE PACE OF HOME FORECLOSURES WILL CONTINUE INTO YEAR 2012, AS ANOTHER ONE MILLION HOMES WILL BE SEIZED THIS YEAR. $$$

In a recent week, mortgage applications fell again. They have been falling several weeks in a row, from rather low to moderate levels. The pending home sales are reported as reasonably robust. The data will not be provided, since doing so would offer respect to them. They are hardly worth the time to search for. Dust bunnies are worth more. The reported failure rate of home sales is 33%, truly astonishing. To be sure, plenty of vulture funds and wealthy individuals are out there buying foreclosured homes. The fact remains that the housing market is nowhere near a bottom, nowhere near an end to the powerful price decline. The USEconomy is nowhere near entering a recovery. All is propaganda, born out in time as the quagmire extends another year. With each passing year, the previous year's distortions are revealed in naked form. The housing market is extremely important as an indicator for the USEconomy. Since much of American industry was forfeited in its dispatch to China from 2001 to 2005, the dependence upon home equity extractions became acute. Without a clearance and recovery of the housing market, no recovery across the land is possible, not even in the financial sector. The housing market is that important. It is that simple. The extreme dependence put in place to emerge from the 2001 recession has caused a systemic failure, EXACTLY as the Jackass forecasted. Never should an economy, or a central bank, encourage dependence on an asset inflation.

RealtyTrac forecasts that banks could seize over one million US homes this year, given the legal drag from higher contract scrutiny of foreclosure practices has faded. The Robo-Signing mortgage contract fraud has waned. Approximately 1.89 million properties received notices of default, auction, or repossession last year, down 34% percent from 2010. The heavy drag continues on adding to the shadow inventory of REO bank held homes. REO means real estate owned (silly name for bank owned homes). Lenders are finally beginning to push through some of the delayed foreclosures in select local markets, after past delays. The number of home repossessions is likely to rise about 25% from the more than 804,000 properties seized last year as lenders resume foreclosure actions, claims RealtyTrac. About 400,000 additional homes would have been repossessed without the legal pause and slowdown. Settlement talks are continuing with state attorneys general over documentation forgery, which surfaced in October 2010. It probably has not stopped, only the high volume of forgery. See the Business Week article (CLICK HERE).

◄$$$ THE US-BASED SHADOW HOME INVENTORY IS VASTLY LARGER THAN ESTIMATED. THE BANK OWNED INVENTORY IS ENORMOUS, BUT SO IS THE VARIATION IN THOSE ESTIMATES. ONE CALCULATION HAS ALMOST 25% OF THE ENTIRE FLORIDA HOME STOCK SOON TO BE OWNED BY FANNIE MAE AFTER THE NEXT WAVE OF FORECLOSURES. THAT CANNOT BE. WHAT IS CERTAIN IS THE VAST OVERHANG OF HOME INVENTORY HELD BY BANKS, AND THE STEADY FLOW TO REPLENISH THE HIDDEN INVENTORY TUMOR. THE USECONOMY IS UNDER CONSTANT POWERFUL THREAT, AND THE BANKING SYSTEM IS DEADER THAN DEAD. $$$

Accurate housing data is hard to come by. The housing crisis is arguably a national emergency, which crushed both the banking system and the USEconomy which had become dependent upon it for consumer funds. The USGovt-owned Fannie Mae still prevents the public from gaining access to loan data in detail, probably because multi-$trillion fraud is buried. It is far too difficult to obtain data from Freddie Mac also, and the MERS title database remains a black hole. My Jackass loose estimate has been tossed around frequently of one million bank owned homes in inventory, unsold, hanging over the market, rendering clearance and stability an absolute impossibility, with more home seizures always in the pipeline. The market cannot digest such an overhang, and cannot stop the price decline, especially since new foreclosures keep the flow into REO bank inventory. Banks refuse to clear their inventory, and are encouraged to hold that inventory since 0% financing is offered by the USGovt. If the shadow inventory is much larger than one million homes, then housing prices have much farther to go before they hit bottom, which has dire consequences for communities, homeowners, and the broader economy. It also means the US banking system is deader than dead.

On December 21st, less than one month ago, HousingWire reported that CoreLogic projected shadow inventory to be 1.6 million homes throughout the entire United States. Although CoreLogic is generally considered to have one of the best databases of loans, its estimates of loan performance and odds of default are based on credit scores, not a great method. Definition of a shadow inventory property varies widely. For example, the Wall Street Journal published an article last November, in which inventory size varied from the CoreLogic higher estimate to about 3 million by Barclays Capital. Other estimates are approximately 4 million by LPS Applied Analytic, roughly 4.3 million by Capital Economics. But the highest calculation comes from the source of most impressive methodology. Laurie Goodman of Amherst Securities offers the estimate of between 8.2 million and 10.3 million homes. Hers is regarded by many experts as having the most carefully crafted model, despite being the most dire of estimates. Michael Olenick has his own large reliable database. He has been on the job in analyzing liability to taxpayers, investors, and banks. He submits his assumptions in calculations, an honorable practice based in integrity. The Olenick analysis arrives at a total close to the Goodman range. Using a more narrow definition of what constitutes shadow inventory, he estimates 9.8 million homes are in bank inventory, or suspended animation within the system, waiting for liquidation, suppressing price further. These figures in assessment of the supply overhang exposure are an order of magnitude worse than my pocket estimate. Each month, each year, the figure grows, as the nightmare worsens even while compromised hacks pose as experts in the mainstream news declare a recovery in progress. They need to explain why they have been wrong for over two years. Long past critical mass, only radical out-of-the-box solutions will work. Massive loan forgiveness is the only solution, but it will never be done. USGovt ownership of one quarter of American homes is more likely.

Some light was shed on the vastness of the shadow home inventory when David King gave a deposition in South Florida. He has been known as the Foreclosure King, highly unscrupulous, a man who made a ton of money, used nasty techniques, and quit the business. Here is what came from the deposition. By the summer of 2010, before the fraudulent assembly line scandal behind document forgery caused a big slowdown in the number of foreclosures filed, Fannie Mae reportedly had 600,000 loans they expected to foreclose upon. Not the entire gaggle of federal agencies (Fannie Mae, Freddie Mac, FHA, VHA), but rather Fannie Mae alone. The agency FHFA cited the Fannie Mae share of total US mortgage debt at 27.7% by the end of 2010. The outcome stated that Fannie Mae had 600,000 homes they expect to foreclose upon in just Florida. But perhaps that figure is nationwide.

The Census Bureau reports there are just under nine million housing units in the entire state of Florida at the end of 2010. That means 25% of Florida homes would be owned by Fannie Mae after the next grand round of foreclosures. A total of 1044 foreclosure filings occurred per month in Stern's home county of Broward County Florida, and a whopping 22,144 filings sit as total on the books. If Stern is correct in his data, that would put a theoretical backlog of filings at 26,000 for that single county. Upon extrapolation, the US shadow home inventory has been dramatically under-estimated, in much the same way that existing home sales have been over-estimated. Clearly, either Stern lied during his deposition, or Fannie Mae lied to Stern, or possibly all private estimations are overblown. What is needed is more open disclosure by Fannie Mae and its cousin agencies, more open disclosure by MERS, by the USFed, and by banks. The issue serves as a matter of national security.

Conclude as inevitable that the nation will soon face widespread bank failures and even more staggering loss in home values, since the overhang of home inventory will force home prices down another 20%, my ongoing estimate that has been repeated and repeated ad nauseum. The problem is so great that the mortgage bond market can no longer be described as having viable parties and counter-parties. Too much bond counterfeit. Too much duplicate income streams used in mortgage bond securitization. Therefore, the principal parties do not want liquidations or scrutiny. History is going backwards, as the United States appears through a certain accurate lens to operate like an aristocracy, whose housing market functions more like a private ancient tax collector, demanding the dreadfully destitute peasants feed the monarchs and their cronies, lose their homes, and enter tax slavery. Most aristocrats throughout history realized boundaries and honored them. The American aristocrats commit $trillion crimes, have the USGovt agencies, market regulators, and the FBI cover them up, only to continue their crimes with more boldness than the previous round. Legal prosecution has become a farce, as civil settlements rule the day, and admission of criminality never occurs. Their motives are basic power and greed. A set of benevolent overlords would be a great improvement. See the Naked Capitalism articles (HERE & HERE).

◄$$$ GROSSLY DISTORTED PROCEDURES ON G.D.P. CALCULATIONS. BOTH HEDONICS AND IMPUTATIONS CONTRIBUTE TO ONE THIRD OF THE ENTIRE REPORTED GROSS DOMESTIC PRODUCT. THE CHINESE HAVE LONG COMPLAINED THAT HALF OF THE US-GDP IS MYTHICAL INTERCHANGE OF DEBT PAPER ACROSS DESKS. THEY ARE CORRECT ALSO. THE USECONOMY IS A FRACTION OF ITS STATED SIZE, AND IT IS STUCK IN CHRONIC RECESSION. $$$

A big hat tip to Michael Shedlock. He has been on the butt end of Jackass criticism, but only pertaining to his shallow Deflation nonsense. His analysis is excellent in focused economic sector topics. He provides an excellent overview on Hedonics and Imputations, to reveal their corruption of thought, whose concoctions he labels Grossly Distorted Procedures. Shedlock wrote, "Hedonics is a way of accounting for the changing quality of products when calculating price movements. For example, today's computers are 2 to 3 times faster and have more memory than models produced just a few years ago. If someone can buy a better computer today than last year for the same price, have not prices really fallen? Here is another example. Is it realistic to compare the price of a 1955 Chevy with the price of a 2005 Toyota with air conditioning, DVD player, anti-lock brakes, seat belts, air bags, side air bags, power steering, power brakes, etc? To say that cars have gone from 1955 prices to 2005 prices and calling the ENTIRE rise inflation is obviously wrong although many inflation alarmists do just that. Sorry folks, but that is not a straight up valid comparison. Would you be willing to drive to work a Model T ford today? If not, then comparisons of car prices today versus 1920 or 1950 or whenever are pretty absurd."

A big problem with hedonic adjustments is that by nature they are heavily subjective and ripe for abuse. The USGovt uses them to keep down the Consumer Price Index, thereby making inflation look lower than it is. That keeps Social Security increases down, keeps the threat away from USTBond raids, and paints an illusion of economic stability. The practice of hedonics is badly abused. Some recent examples pointed to a nicer clearer television monitor screen, whose jump in quality the US lab technicians deemed worthy of a 20% price reduction for the TV set. Absurd but typical. Minor improvements to car brake systems are given a 10% price cut for the CPI component calculations. In short, the USGovt makes unilateral decisions on value, in order to offset the rise in production costs from energy and materials, even labor. They justify their methods by pointing to manufacturing efficiency and economies of scale in production. The Jackass just bought a nice little Toshiba laptop PC as a spare, which cost a mere $450. It works great. This example is raised since it comes from the opposite side of the table where price has fallen drastically over the years while functionality has broadened. The laptop PC has a bluetooth WIFI chip. As other items rise in price, the lab technicians choose to cut the price with a phony adjustment due to perceived inherent hedonic value. They use the falling technology prices as justification for other abusive methods to reduce prices from inherent value on features which actually are subjected to strong price pressures.

Shedlock rightfully points out how the potential greater hedonic abuse has entered into methods applied to the Gross Domestic Product, a mainstay not to be cut out. The accounted size of the USEconomy is subjected to vast distortions in the calculations. As the measured price inflation is kept low by force, the estimated GDP result is lifted higher by the same force. The lie in the CPI has been 6% to 8% for the last few years. That means the GDP has been running consistently negative in the most profound and harmful economic recession in American history. My analysis relies upon the indefatigable work of the Shadow Govt Statistics group. They measure the GDP as one quarter versus the same quarter a year ago to demonstrate a clear downward trend, a chronic recession. Conclude that the US GDP has been falling by minus 4% to minus 6% for consecutive years. The housing collapse and bank system collapse are confirmation points. Shedlock has reported by means of Bureau of Economic Analysis data, that the US GDP is artificially lifted by a whopping $2.257 trillion in hedonic adjustments, equal to 22% of the entire GDP. The United States is the only major country that hedonically adjusts its GDP, or needs to. Nations like Japan considered using hedonic GDP estimates but rejected the notion. The USEconomy is among the weakest in the entire industrialized world from industrial gutting and chronic consumption and pursuit of asset inflation.

The other major abuse is Imputations, a part of GDP calculation that the USGovt fabricates in estimated value where no cash changes hands. The imputation derives from homeowner self-paid rent and checking account services. These are pure fairy tale absurdities. For example, homeowners are assigned an imputed rent, that they pay to themselves as though renters. The BEA treats homeowners as businesses, which pay rent to themselves for the service of shelter. Be sure to know that mortgage payments and property taxes are also accounted for, a double counting process steeped in corrupt accounting. A line item called "Rental income of persons with capital consumption adjustment" tallies a ripe $153.8 billion in imputed rent as part of the GDP calculations. There is more. Free checking account services from banks are not to go without abuse. A line item called "Services furnished without payment by financial intermediaries except life insurance carriers" tallies a ripe $335.2 billion in imputed bank services. The beneficiary is in Personal Income data reported by the clownish USGovt stat labs. Shedlock has reported by means of Bureau of Economic Analysis data, that the GDP is artificially lifted by a whopping $1.635 trillion in hedonic adjustments, equal to 13% of the entire GDP. Shedlock cites the total fabrication folly was a staggering 35% of the reported US GDP in 2003!! See the Global Economic Analysis article (CLICK HERE).

The Chinese have complained that half of the US stated GDP is a fiction, based largely in paper shuffling of debt securities and other contracts documenting debt trade like mortgages and car loans. They might be right. So conclude the USEconomy is much smaller than reported, hardly the world's largest. It is just the world's most corrupt from bank bond fraud, bank accounting fraud, and statistical accounting fraud.

◄$$$ THE US-TRADE DEFICIT ROSE IN NOVEMBER, DUE TO HIGHER CRUDE OIL IMPORT COSTS. THE DAMPER IS ON 4Q2011 WITH G.D.P. MEASURED. $$$

The US trade deficit rose again. A monthly decline in exports and a monthly increase in imports boosted the November 2011 monthly trade deficit to $47.8 billion from $43.3 (previously $43.5) billion. Net of inflation, including higher oil prices, the numbers suggested a neutral impact of what will be a net export account partially estimated on the advance GDP estimate of 4Q2011 growth. Some positive GDP growth impact had been suggested by the initial October trade report. It seems American consumers are back in the malls and stores, perhaps spending money from unpaid mortgages, or running up their credit cards again, always a favorite.

◄$$$ US-BASED RAILWAY TRAFFIC IS DOWN HARD, CONTRADICTING THE VACANT CLAIMS OF AN ECONOMIC RECOVERY. THE SLOWDOWN IS ACROSS NORTH AMERICA, THE WORST BRUNT FELT IN MEXICO. $$$

The Assn of American Railroads reported intermodal volume for the second week of January totaled 193,812 trailers and containers, down 9.3% versus the same week last year. The Eastern half of the nation was notably slower. Weekly carload volume on Eastern railroads was down 13.8% versus last year. The slowdown is across all North America. Canadian railroads reported cumulative volume of 40,281 trailers and containers for 2012, down 9.8% from last year. Cumulative volume on Mexican railroads for 2012 into only January is 10,857 carloads, down 15.2% compared to last year. Conclude that North American is in a severe deep recession, with the worst brunt felt in Mexico. Talk of recovery is Orwellian in its deception.

◄$$$ THE GASOLINE EXPORT SCAM BENEFITS THE UNITED STATES. DESPITE HIGHER REFINERY COSTS, THE US-BASED OIL FIRMS CAN PROFIT FROM GASOLINE EXPORT. WITH AID COVER GIVEN BY THE WEST TEXAS SPREAD BELOW THE BRENT OIL PRICE, THE BUSINESS THRIVES. $$$

An interesting development has come within the US gasoline industry. The US-based oil companies are exporting gasoline refined in US installations at bargain basement prices to their own foreign subsidiaries, the entire business segment subsidized by high American prices. Notice that the US oil prices (West Texas crude) are consistently $10 to $12 lower per barrel. Yet the gasoline prices have not fallen much in the USEconomy. The export trade is helping to mitigate the US trade deficit. The points to make are that American refineries run the highest costs in the world, with the highest wages for engineer staff. The gasoline exported was made from crude oil shipped halfway around the world, like from Saudi facilities or the Persian Gulf. In fact, gasoline usage around the world has fallen dramatically. The US energy product exports are subsidized from fixed and rigged systems. This entire phenomenon is an extension of the disparity between WTexas and Brent crude oil prices. The Wall Street factor is important in keeping down the US oil price. The USO exchange traded fund is another corrupting influence to keep down the US oil price. The motive is to encourage export trade in refined gasoline and diesel too. The newest wrinkle in this story is the rising oil price amidst a supposedly strong USDollar, while the Euro currency craters in full view. The Iran factor is prominent in keeping the oil price up, on speculation. The constant is the spread under the Brent price and the potential gasoline export.

REVOLT AGAINST THE USDOLLAR

◄$$$ THE USGOVT DEFICITS STILL RISE. THE UNITED STATES IS FAST LOSING ITS PREMIER POSITION, THE PRESTIGE WORN OFF. GLOBALIZATION HAS PUSHED THE USDOLLAR OFF THE PEDESTAL. CORRUPTION IN THE FINANCE SECTOR HAS PUSHED THE USDOLLAR TO ITS KNEES. IT WILL SOON LOSE ITS GLOBAL RESERVE STATUS. $$$

The ultra-low USTreasury Bond yields, corrupted by Interest Rate Swap applications, fails to reward investors for risk. The USGovt deficits are chronically over $1.5 trillion annually. The annual change in M2 money supply growth is around 10%. With a constant USEconomic recession in place, the money supply growth is pure inflation without benefit, except to stave off collapse. Think funds sent into a Black Hole of a monetary cemetery without benefit to the society. The monthly budget deficit rose to $85.97 billion in December, up from $78.13 billion in the same month a year ago. So claims of federal deficit improvement are a lie. The growth in cumulative debt assures continued 0% bond yields and artificially low borrowing costs, a new stiff arm to send foreign investors searching for more bond returns from China. The United States is fast losing its dominance, which when abused is called hegemony. The hegemony has been ripe and fierce since 2005. The volume of Chinese Govt Bonds denominated in Yuan has tripled into 2011, with volume of $18 billion. Funds are moving away from the West, where sovereign debt has become toxic and government deficits have grown like vast weeds and austerity plans are more like designer suicide pills. The globalization movement has delivered a serious blow to the US & Anglo centers of power. It means the end of the USDollar as the world reserve, on a path to the cemetery. Expect some response, except that the USDollar is a paper tiger. See the Zero Hedge article (CLICK HERE).

Many events could very arise in the course of the next several months. While empty talk continues about the continuation of QE3 (which never ended), the next salvo might come from the Assn of Southeast Asian Nations (ASEAN). They could abandon the USDollar immediately after their new central bank apparatus is put in place. The trade war atmosphere would certainty open a dangerous doorway. The West seems unprepared for such disruptive developments. The USDollar is at deep risk to lose its global reserve currency. The immediate effect would be the USEconomy has difficulty in obtaining adequate supplies and at attractive prices. Price inflation and shortages would result of bidding up the required currencies. No US-based economists are noticing, as usual asleep at the wheel with arrogant hands stretched on the helm. The West has entered the first stages of the catastrophic phase of the economic implosion. Many terrible consequences formerly considered theory or worst case scenario are about to become reality. The practical solution centers on defensive measures with gold & silver ownership. See the Zero Hedge article (CLICK HERE).

◄$$$ LONDON WISHES TO BECOME THE YUAN TRADING CENTER OF THE WEST. THE CITY WANTS TO REMAIN A MAJOR HUB FOR WHATEVER PAPER TRADE IS DOMINANT. THIS IS A GRAND CONFIRMATION SIGNAL OF YUAN ARRIVAL. $$$

London seeks a major role in the Chinese Yuan trade business. The UKGovt has confirmed plans to make London the leading international center for trading China's currency, the Yuan, also known as the renminbi (people's money). UK Chancellor George Osborne said, "London is perfectly placed to act as a gateway for Asian banking and investment in Europe." Expect billions of Pounds of business to result for the City. Osborne made the announcement in Hong Kong, stating a desire to establish London as the Western hub, as a complement to Hong Kong. He called London the world's largest center for foreign exchange, uniquely placed to assist in the development of this exciting market, following a relaxation of strict state controls in Beijing. London is the first of several cities to line up in the Yuan trade, where Chinese Govt Bonds will begin issuance. The Chatham House think tank released a report estimating that trade transactions settled in the Yuan currency would reach around $1 trillion dollars (=650bn GBP) by year 2020. What is overlooked is how London must shed its allegiance to the New York fraud kings. See the BBC article (CLICK HERE).

◄$$$ IRAN & RUSSIA REPLACED THE USDOLLAR IN MUTUAL TRADE. THE AMERICAN STRONGARM TACTICS ARE MEETING WITH STERN RESISTANCE, AS THE BACKLASH GATHERS MOMENTUM AND INTENSITY. IRAN COULD BECOME A BROKEN PLANK IN THE AMERICAN FINANCIAL HEGEMONY. $$$

Iran and Russia have replaced the USDollar with their own native currencies, thus solidifying trade ties. Tehran's Ambassador to Moscow Seyed Reza Sajjadi claimed that the proposal for replacing USDollar with Ruble and Rial was raised by Russian President Dmitry Medvedev in in Astana Kazakhstan during a sidelines meeting of the Shanghai Cooperation Organization (SCO) meeting. He added that many Iranian entities are using Ruble currency for their trade deals. The Kremlin leaders stand against unilateral sanctions on Iran conducted outside the UN Security Council, their position in diplomatic circles, which WashingtonDC avoids. The USGovt has a long track record of making unilateral decisions, and attempting to impose sanctions on third party nations, all done without the blessing of global governing bodies. The Russians have announced that they will not accept broad sanctions. The central bank in Iran is working feverishly to circumvent and overcome any isolation and income cutoff. The sanctions directed by the USGovt punish foreign firms that do business with the central bank in Tehran, and cut them off from the US financial system. Many even in the West believe that the move would prove futile. Most Iranian oil sales are processed by the central bank. The means to avoid the sanctions is to conduct trade settlement outside the USDollar, where the USFed would not act as processor. The peripheral impact is felt with intermediary entities such as Turkey's Halk Bank, which will likely choose to step aside and not risk being stepped on by American jack boots bearing London brand. Halk Bank has been instrumental in assisting India, which received 11% of its crude imports from Iran last year. In an end-around maneuver, the grand subcontinent is exploring the option of making payments for crude oil purchases through the giant Russian Gazprombank. No deal has yet been reached, but it is close to final. Recall that Russia has abstained from sanctioning Iran. See the Bloomberg article (CLICK HERE).

During the last two years, Iran has been replacing the USDollar with other currencies in its trade with the rest of the world. Iran has replaced the USDollar in its oil trade with India, China, and Japan. Late in November, the Reserve Bank of India (RBI) granted the necessary permission to the Central Bank of Iran to open Rupee accounts with two major Indian banks, seen as a solution final to the payment problems. The banks are UCO and IDBI. While payments for Indian oil imports would initially be in Rupees, they would be converted into a separate currency, which was yet to be decided by the Apex bank. Conclude that USGovt sanctions provide the fertilizer for developing a seedbed in non-US$ trade settlement. The next few months will demonstrate any flourishment. See the Zero Hedge article (CLICK HERE).

History is not likely to repeat. The Iraq challenges with Euro-based oil sales led to the invasion and annexation. Iran has too many partners in Russia, China, Japan, and India. Without any dispute, Baghdad was defenseless. With almost ten years to fortify its partnerships, Tehran is not defenseless. The backlash gathers momentum and intensity. Iran could become a highly important strategic broken plank in the US hegemony soon. A repeat of Iraqi challenges in Euro-based oil sales is happening, this time by Iran. Do not expect Iran to be invaded or annexed. It has at its disposal powerful Sunburn and Onyx missile systems, purchased from Russia. Instead, the ten years have been used to build up its alliances with the major players in the Eastern Alliance, namely Russia and China. Add in India and Japan to include a BRIC nation and a Western stalwart ally. These are truly dangerous times. If not friends, Iran has important powerful trade partners. That is why war has not broken out like it did in Iraq.

◄$$$ JAPAN & CHINA HAVE EMBARKED ON A TRADE DEAL THAT BYPASSES USDOLLAR SETTLEMENT. THE GLOBAL REVOLT DEEPENS IN ASIA. THE USECONOMY IS AT GREAT RISK OF BOTH PRICE INFLATION AND SHORTAGES, AS THE USDOLLAR LOSES ITS GLOBAL RESERVE GRIP. $$$

In a gesture loaded with defiance, Japan and China have embarked on a trade deal that directly bypasses the USDollar in settlement. The USGovt registered its objections to deaf ears. One more platform of the USDollar global fortress has been shown to be dismantled, in the important Asian region where global manufacturing is dominant. USDollar sole dominance is ending, although slowly. The mercantilist relationship held firm between China and the United States has shifted into reverse during the trade war in its third year, a trade war fully anticipated and forecasted back in 2005 and 2006 and 2007 in the Hat Trick Letter. China went from trade partner and corporate ally to trade adversary and global enemy, all the while still a supplier. With the new pact, Japan and China have made the arrangement public. They will promote direct trade in Yen and Yuan currency without USDdollar usage, in order to encourage the development of a market for the exchange, and to cut costs for companies. The Asian giants will realize some cost savings. The real surprise was the announced plan for Japan to buy Chinese bonds in the current 2012 year. Confirmation came from a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing in late December. Considering the huge trade volume between the two biggest economies in Asia, the pact is significant. Look for continued Yuan appreciation, and all the problems it will cause to their export industry.

Some shock waves are coming to the FOREX markets, where the USDollar is still seen as king in official circles. The year 2012 will prove to be highly disruptive to such a perception. The primary motive behind the bilateral trade deal is to reduce currency risks and trading costs, but the more credible motive is to further the revolt against the USDollar. Currently, about 60% of trade transactions between the two nations are settled in USDollars, a practice to be sharply reduced. China is largest trade partner to Japan, bigger than the United States, thanks to colossal direct foreign investment by American and European firms for a full decade. China already purchases Japanese debt securities. In turn, Japan holds $1.3 trillion of FX reserves, the world's second largest war chest. They wish to purchase Chinese debt securities. Nothing will stop this movement. The list of imminent investors in Chinese debt is growing, from Austria to Thailand to Nigeria. Look for more nations to line up, and thereby make distance from the USDollar.

◄$$$ CHINA HAS EXTENDED A CURRENCY SWAP FACILITY WITH THE UNITED ARAB EMIRATES. BILATERAL FINANCIAL COOPERATION WILL BE PROMOTED, ALONG WITH TRADE AND INVESTMENT, DESIGNED TO JOINTLY SAFEGUARD REGIONAL FINANCIAL STABILITY. THE PETRO-DOLLAR IS DYING A DEATH OF ONE HUNDRED CUTS. $$$

China is the new Protectorate in the Persian Gulf. The deal between China and the UAE confirms the role with a financial stamp of approval. The Peoples Bank of China has opened direct currency swaps with Dubai and the UAE. The amount of the swap facility is 35 billion Chinese Yuan (=US$5.5 bn), equal to 20.2 billion UAE dirhams, valid for three years. It can be extended by mutual agreement. It is just a start. Although a small deal in volume, it serves as a highly important sign of the continuing erosion of the Bretton Woods II currency regime. The Petro-Dollar is fading away amidst growing disorder in global banking. Without the distraction of European banks in turmoil and New York fighting back the financial fraud from several fronts, the Petro-Dollar assault would be defended more vigorously. The USGovt desired pathway toward the IMF and the Special Drawing Rights is failing. The basket of failed currencies is itself a failure by definition. Europe is crumbling in a sea of sovereign debt ink, battered by debt rating agency assaults. Germany is trying to break away, appearing almost two-faced in a delicate diplomacy game, with politicians one frontal voice and bankers the other background voice, expressed in contradiction of accords. A remaining bone of contention is the heavy and continuing USMilitary presence in the gulf region. The nation of Qatar has a huge US Naval Fleet. Therefore Arab nations will do what they best, play both sides carefully. See the Cafe Americain article (CLICK HERE).

◄$$$ SAUDI STATE OIL GIANT ARAMCO FORGED A MAJOR ENERGY PROJECT DEAL WITH CHINESE SINOPEC. THEY WILL BUILD A REFINERY ON THE RED SEA SHORE, READY IN TWO YEARS. THE LARGEST OIL SUPPLIER TO CHINA, THE SAUDIS WILL HOLD A MAJORITY STAKE IN THE PROJECT. LOOK FOR THE YUAN TO SERVE AS TRANSACTION CURRENCY BY THAT TIME. $$$

Saudi state petro-chemical giant Aramco signed a major energy deal with giant Sinopec of China, their lead petroleum and chemical firm. They agreed to build an oil refinery in the Red Sea city of Yanbu, projected to process 400 thousand barrels per day. The Yasref project is due to be operational in 2014. Saudi Aramco will hold a 62.5% stake with Sinopec the rest in the venture. The project stresses the growing Chinese role as an infrastructure developer in the Persian Gulf region. Given that Aramco is a major global petro-chemical producer, the project means that China is locking in Saudi supply. The Saudis seek Chinese partnerships in creating greater defense when switching Protectorates, from the US to China in the Gulf region security. The link is of major players, Saudi Arabia a major producer, China a major consumer. The desert kingdom is China's top oil provider, while Iran its third largest supplier. The growth in China is steady and strong, as it imported 232 million tonnes of crude oil in the first 11 months of last year, a 6.1% rise from the same period in 2010, according to customs data. See the Breitbart article (CLICK HERE). Regard the deal as yet another nail in the Petro-Dollar coffin, a USDollar requiem. The two nations will eventually announce a bilateral facility that avoids the USDollar for settlement in payments. They have two years to make such an arrangement. As China provides additional stabilizing force in the Persian Gulf region, against a backdrop of the United States providing destabilizing force, the decision will be easy. The Petro-Dollar has limited time.

◄$$$ TO THE CHINESE, TREASURY SECRETARY GEITHNER ADMITTED THE UNITED STATES HAS RUN OUT OF TOOLS AND AMMUNITION. THE CHINESE REBUFFED THE AMERICAN INVITATION TO SANCTION IRAN. IT SEEMS THE USGOVT OFFICIALS ARE GIVEN LIPSERVICE BY JAPAN AND SOUTH KOREA. THE ASIAN POWERHOUSES DO NOT WISH TO JOIN THE IRAN SANCTIONS, BUT DO NOT WANT TO INCUR AMERICAN ANGER EITHER. $$$

A senior advisor to the Chinese Govt said he was told by Treasury Secretary Geithner in a recent meeting that the US Federal Reserve has no more tools or ammunition left for another

round of Quantitative Easing. The USGovt is left twisting in the wind. Or more precisely, the ongoing continuous never-ending QE programs will never be confirmed, all to be kept hidden from view, especially from the view of foreign creditors. A run on the USDollar like in mid-2010 is not desired, thus the required deception. But Li Yang from the Chinese Academy of Social Sciences confirmed that the recent coordinated action by global central banks amounted to some form of QE3. Li Yang asked if the currency swaps and liquidity injections by six central banks recently is some form of QE3, to which Geithner agreed in confirmation.

Chinese leaders rejected calls by USTreasury Secretary Geithner during a visit. They are not willing to limit oil imports from the rogue nation of Iran. A vice foreign minister was handed to Geithner for a meeting. He said his nation "opposes imposing pressure and sanctions." However, Japanese officials kept the door open to sanctions and limited imports. They hit the main hot points. Finance Minister Jun Azumi said, "We want to take concrete steps to reduce our share in an orderly way as soon as possible. The world cannot tolerate nuclear development." The largest Japanese refiner JX Nippon Oil & Energy Corp is in talks with Saudi Arabia and other OPEC producers to replace crude shipments let go from Iran. JX purchases 90,000 barrels of Iranian oil per day. The Japanese Chief Cabinet Secretary Osamu Fujimura hedged the position, claiming the government has not made a final decision on cutting Iranian imports. He called the Azumi pledge just one of several opinions. Azumi later said he is seeking ways to make sure sanctions on Iran do not hurt the Japanese Economy. A concern is price paid and economic impact. Both seem to hedge and even placate the US diminutive emissary.

Japan serves as the world's second biggest importer of Iranian crude after China. In all 6.85 million barrels of Iranian oil were directed to Japanese ports in November, equal to 6.4% of the domestic total purchases for the month. The Chinese Premier Wen Jiabao is planning a trip to alternative oil providers in Saudi Arabia, the United Arab Emirates, and Qatar in mid-January. If no news comes from the meetings, interpret it as the Persian Gulf oil producers having no spare capacity, having lied for years about their reserve production output, as per my firm belief. A geopolitical backfire is at work. China stands to be the biggest beneficiary of US and European plans for sanctions against Iran. They will take advantage of the mounting pressure to demand better terms on Iranian crude, and organize the anti-US participants who resent the pressure in unilateral dictatorial fashion. They know full well that the nuclear played card is phony, and the USDollar traded card is real.

South Korea, the fourth largest Asian economy, announced on December 16th that it would expand sanctions against Iran. Leaders warned companies against importing petro-chemicals. Crude oil shipments were not included in cutbacks. The country will require central bank approval before foreign exchange currency transactions are permitted with Iranian entities. Iran is South Korea's fifth largest supplier of crude, with a 9.4% share in 2011. Vice Finance Minister Shin Je Yoon mentioned that 10% is not a small number, stressing the need to diversify toward other providers. He hedged by claiming too early to know their specific approach taken on Iran imports. Never overlook the fact that the USMilitary has very large bases on South Korean soil.

◄$$$ BRITISH RETAILERS ARE INCREASINGLY MAKING PAYMENT FOR CHINESE IMPORTED PRODUCTS IN YUAN CURRENCY. THE TREND IS ACCELERATING WHERE THE USDOLLAR IS NO LONGER EXCLUSIVELY USED IN PAYMENTS. THIS STORY COMES FROM THE WEST, STILL A STRONGHOLD. $$$

The USDollar revolt not only is pervasive in Asia and the East, but its effects are felt in stronghold nations. In the West, companies apparently must comply with Chinese producers. At issue is clearly the desire to avoid exclusive settlement in USDollars. If two nations engage in trade, it makes sense to use the producer's currency. That is how the USDollar became the preferred currency, once a great manufacturing power. The China Securities Journal published an article stating that a growing number of British retailers are paying their Chinese suppliers in Yuan. The unintended consequence strikes again. The USGovt has urged the Chinese Govt to relax on the Yuan peg, to allow it to rise more steadily. Consequently, businesses respond by making payments in Yuan terms. As the US$ slips in value versus the Yuan, those businesses lose out holding cash in US$ form. According to Barclays Capital, more British retailers are paying in Yuan to achieve an 8% cost savings. Chinese suppliers commonly embed a buffer into US$-denominated contracts to guard against further Yuan appreciation. With currency risks eliminated for Chinese suppliers, they would be more willing to give UK customers better deals.

The UK businesses face strain on profit margins due to the rising cost of imports from China, beset by rising price inflation in the nation. Michael Vrontamitis of Standard Chartered Bank said, "There was a growing number of companies switching to Yuan for trade settlements in the third quarter of 2011, showing that businesses are now more comfortable with this payment method." He noted that it makes more sense for businesses that have subsidiaries in China to carry out cross-border trade transactions in Yuan. This is especially the case for the garment industry, which has suffered annual sales declines and seeks ways to scratch out profits. When two-way trade flows are their norm, they can offset their transactions in net manner, and significantly cut their exchange rate costs. A growing list of retailers is considering Yuan payments in their business practices. This is another angle at work, how the USDollar will lose its prestiged global reserve status. The US is no longer a dominant producer. It is rather a grand debtor. See the John Galt article (CLICK HERE).

◄$$$ EUROPEANS SWEETEN THE POT, WITH PROPOSED HIKES IN GUARANTEES TO FOREIGN INVESTORS OF THE STABILITY FUND. THEY TRY TO ATTRACT CHINESE AND JAPANESE INVESTORS. $$$

At the cusp of developments is a potential deal that could bring an important linkage between crude oil and commodity trade settlement outside the USDollar, with provision for funding the European bank rescue fund, the European Financial Stability Facility. The concept was raised by the intrepid indefatigable Tyler Durden (bloodied but resilient) of the Zero Hedge crew. The bypass of the USDollar in trade is likely soon to be engrained in the financial system. The American trumpets continue to promote the deluded notion that all global trade is done in US$ terms, when the reality is far different, and the trend is in the opposite direction, as in global revolt.

Actually, the ZH crew merely took the ball and ran with it, as they do so adroitly and consistently. In my opinion, the Zero Hedge web journal is by far the most valuable and broad single source of relevant information in the global financial crisis, bar none. The German newspaper Bild am Sonntag had said Klaus Regling (CEO of the European Financial Stability Facility) is pushing to increase guarantees to up to 30% for investors external to the EuroZone, the amount confirmed by a fund official. Although the guarantees were non-existent a year ago, EFSF officials have stressed that state guarantees had always been planned to range from 20% to 30% range, and furthermore, such offering should not be interpreted as a deepening of the endless debt crisis. On the contrary, such denials serve as clear direct confirmation of a deepening crisis and threat to external funding sources. Clearly, the guarantees provide incentive to attract foreign funds. The nations with big foreign reserves like China have turned their noses up at Europeans in recent rounds. The Beijing leaders want more on the table. Think industrial collateral. Think access to central bank gold. Think official bypass of the USDollar in trade settlement. Think consolidated resistance to unilateral pronouncements and greater UN usage. Think indirect action to isolate the USGovt and its corrupt financial fortress. See the Reuters article (CLICK HERE).

◄$$$ ALL COUNTRIES IN THE SHANGHAI CO-OPERATION ARE BYPASSING THE DOLLAR, AND ALL ARE INCREASING THEIR GOLD RESERVES. THE S.C.O. GROUP HAS PUSHED ASIDE THE COBWEBS AND STUCK ITS FACE ON STAGE, IN A GRAND CHALLENGE TO THE USDOLLAR. FIRST COMES TRADE SETTLEMENT, NEXT BANK RESERVES BASED IN USTBONDS, FINALLY GLOBAL RESERVE STATUS. $$$

During the 2002 to 2005 period, the Shanghai Cooperative Organization aroused a considerable amount of publicity. It was originally a cultural exchange group between Russia and China, led by the surviving republics of the Soviet Union. Its agenda grew to include security matters when the Soviet Bloc in Eastern Europe caved in on USMilitary defense curtains exhibited offensive traits. Then later still, commercial trade and commodity supply entered the picture, as the resource rich nations lacking in economic development banded together. The added twist was the inclusion as guest SCO members such nations as renegade Venezuela, Iran, and others. India also was invited as guest. The SCO defiance began to escalate right about when the organization faded from view. It never faded away, only from view, as it coalesced into a powerful movement behind the scenes. SCO became a hidden movement to build fortifications in opposition to the USDollar. Its main thrust has been gold accumulation in the shadows, and possibly crude oil trade outside the USDollar. For instance, SCO advisors convinced Chavez to retrieve his gold bullion held in London.

The key to comprehension on SCO matters is to realize that all countries in the Shanghai Coop are working vigorously to bypass the USDollar, and all are increasing their gold reserves, preparing for the next chapter. They work in much more secrecy, probably at the direction of Kremlin and Beijing leaders. They have learned that avoiding direct confrontation and sanctions is the path to take. The proposal to end usage of the USDollar in bilateral Russian-Iran trade came from Moscow, not Tehran. One can be absolutely certain that Kremlin leaders are as stiff spined as they are motivated to challenge the USGovt and Wall Street leadership. They remember all too well the Yeltsin years and the Western oil company role to wrest control of their nation. The proposal to switch to the Russian Ruble and the Iranian Rial was raised by Russian President Dmitry Medvedev with his Iranian counterpart, Mahmoud Ahmadinejad, at a meeting in Kazakhstan. It was staged without herald as an continuance of the Shanghai Cooperation Organization. Iran has replaced the USDollar in its oil trade with India, China, and Japan. See the Zero Hedge article (CLICK HERE).

FINANCIAL BATTLE WITH IRAN

◄$$$ USGOVT FINANCE OFFICIALS MAKE IT CRYSTAL CLEAR THAT SHUTTING DOWN THE CENTRAL BANK OF IRAN IS THEIR PRIMARY OBJECTIVE IN THE SABER RATTLING AND WARLIKE POSTURING. THE SANCTIONS ARE DESIGNED TO ISOLATE THEIR CENTRAL BANK, REMOVE INCOME, AND FORCE ECONOMIC TURMOIL. THE MAIN ISSUE IS THE IRANIAN ATTEMPT TO BYPASS THE USDOLLAR, A VIOLATION NEVER DIRECTLY STATED. THE ANCILLARY RISKS ARE FOR ECONOMIC SHOCK FROM HIGHER OIL COSTS, AND A BUMP IN THE ROAD FOR THE OBAMA RE-ELECTION CAMPAIGN FROM THE SHOCK. $$$

The pervasive attempts at American sanctions are aimed to shut down the renegade central bank, a senior US official said last week. The nature of the hostility and risk of conflict is underscored by the need for the official to speak anonymously. The USGovt is moving quickly to implement the sanctions signed into law recently. The official spelled out that intention directly for the first time. He said, "We do need to close down the Central Bank of Iran. If a correspondent bank of a US bank wants to do business with us and they are doing business with CBI or other designated Iranian banks, then they are going to get in trouble with us." Foreign central banks that deal with the Iranian central bank on oil transactions face similar restrictions under the new law. The damage is assured with nations such as Russia and China, which are in open defiance.

So far, Japan has danced carefully in the middle. Western news networks report that Tehran has threatened to block the Strait of Hormuz, through which 17 million barrels per day flow. That is over one third of the world's tanker traffic. Whether that threat is real or not is debatable, as the US & London news sources are highly motivated to paint a villain and usually harbor political motive toward informational deception. Clearly, no interruption will be tolerated. But also, Iran relies upon the Strait too. The unforeseen rub could be a rise in crude oil price, which seems stubbornly above the $100 mark. Any blockage, even by the unexpected sinking (or scuttle) of a US vessel would cause the oil price to soar suddenly, a cause for war. Ironically, a sudden grand lift to the oil price would grant Tehran coffers a windfall front current oil sales if they can arrange for payment workarounds. Rising oil prices could also force a big stumble in the fragile USEeconomic, caught in an interminable recession. On the political side, the Obama re-election prospects would suffer on a price spike, a drumbeat of war, and further extensions in the endless war. See the National Post article (CLICK HERE).

◄$$$ THE WAR POSTURING AGAINST IRAN HAS A HIDDEN THEATER OF BATTLE IN DEFENSE OF THE USDOLLAR IN TRADE SETTLEMENT.  FIRST COMES TRADE SETTLED OUTSIDE THE USDOLLAR. LATER COMES BANK SYSTEM RESERVES DIVERSIFIED AWAY FROM THE USDOLLAR. A PARADIGM SHIFT IS UNDER WAY, IN PROGRESS, SOON TO STRIKE AND CAUSE A SHOCK WAVE. THE USDOLLAR IS NO LONGER DEFENSIBLE, WITH RAMPAGING USGOVT DEFICITS, INSOLVENT BIG BANKS, MAJOR STORIES OF CORRUPTION LIKE MF-GLOBAL, AND THE COST OF ENDLESS WAR. $$$

The defections and revolt are growing louder and bolder in the revolt against the USDollar. The sequence is historic, significant, unmistakable, and dangerous. One unintended consequence of Quantitative Easing had been to invite several countries to seek a replacement of the USDollar as their settlement currency for international deals. Their food and energy costs were deeply affected, harming their economies. A criterion for Settlement Currency is one that is stable, internationally trusted, widely accepted, and in plentiful supply. Many nations led by China have been seeking support for an alternative to challenge the USDollar, since the USGovt has been practicing extreme pressure filled tactics for years. Just keep in mind that in 2005 and 2006, when the South Koreans announced a desire to diversify away from USTBonds in reserves management, the USMilitary conducted exercises off their coast. The other side is bank sanctions, which is happening in recent months vis-a-vis trade with rogue Iran. The list of countries that trades no longer using the USDollar exclusively for settlement is growing. The world is at a tipping point for change, both economically and politically. A Paradigm Shift is in progress.

Consider a scorecard. China, India, Russia, and Iran all own large hoards of physical gold. Two are large oil producers. Two are economies on growth paths with expanding middle classes. None are firm allies of the United States, the poster boy nation in gold opposition. Look for the USDollar to be seen on milk cartons before too many months. All these nations have criticized the USGovt for its uncontrollable debts and expressed objections over its wantom monetary printing. The stand-off with Iran in the Straits of Hormuz has a hidden component in the potential to replace the USDollar in crude oil sales and beyond. The bank center sanctions serve as a response to the threat to the US financial sector. The warning shots are directed at China, Russia, Japan, and India, as much as Iran. The USGovt is testing the Chinese resolve and backbone, as it challenges the solidarity of the network of bilateral currency settlement agreements begun by China. Such accords extend to Brazil as well, as the anti-US$ revolt moving apace in its fourth year. Witness military power deployed to counter threats to economic power through the banking system fortress. David Malone expects the United States will lose, and so does the Jackass. The only question is the degree and depth of its loss, with direct reflection in a precipitated decline in the standing of the USDollar as global reserve currency.

Consider the stages. The first stage in decline is wider global usage of non-US$ currency in trade settlement. Clearly the most important commodity in trade is crude oil. The Saudis have been loyal subjects to the US & Anglo regimes, since military protection has been given for decades. The Saudi royals have been permitted to hold power, gain riches, and tuck them away in Swiss, London, and New York banks. The Iranians, although ripe with foreign bank holdings, are not part of the USMilitary protection scheme. They favor Russia and China. As trade is settled in other currencies, the banking systems for associated nations need not gather and harbor so many USTreasury Bonds. Payment would not be made in US$ terms, using USTBond as payment vehicles. What follows is an implicit avoidance of the USDollar, then a shun of it. The USEconomy would then be isolated and subject to powerful effects. If supplies cannot be purchased readily, then the US consumer will face greater shortages. If foreign currency must be bid upward to obtain supplies, then the US consumer will face higher prices. Imagine the US corporations bidding up foreign currency in order to purchase crude oil, and a raft of other commodities like copper and coffee, even finished products. The extreme kicker is purchase by US distributors of Chinese made finished products, payment to be made in Chinese Yuan currency. The US firms would have to bid up the Yuan, and in doing so, would drive down the USDollar exchange rate. Prices of imports would rise. But at the same time, Chinese suppliers would tend to go out of business, from lost profitability to the marginal firms, thus cutting off supply lines to the USEconomy. What irony! So trade settlement is the open gate to supply shortage and price inflation.

Malone believes that if China can become a trade rival, if its Yuan can become a rising reserve currency, if its trade partners can become a growing collection of powerful players, then China can and will bury the US$-based debts in a mass unmarked grave somewhere in its hinterland, in his words. What he might overlook is that a significant amount of Chinese reserves held in US$ denomination and various other debt securities might already be committed in resource purchases (like in Africa), energy deals (like in Iran projects), even domestic regional bank commitments. Clearly, at least half of their $1000 billion in US$-based reserves remains uncommitted in a vast stash hoard. Malone believes that when America is seen as being no longer the pre-eminant reserve currency and its debt load is re-considered accordingly, China will go the other way and relieve itself of the debt load. The perception is too clear that America and its currency risk is too rotted by debt to be trusted.

Furthermore, pushed by magnificent fraud stories, the international perception has changed over time to comprehend that USEconomic claims of gradual sturdy resilient growth amidst crisis are fake, empty, papered, and conjured by absurd accountancy, in his words. Malone sees the USDollar and America defending against extreme risks of being seen as the fiat currency and fiat nation, while China and the Yuan will be seen as backed by solid gold and real growth. He makes the case for gold, whose supply in the US financial system is much more diminished than advertised, given the threat of re-hypothecation. The widespread pledges of Gold & Silver in bountiful paper contracts make claims for the actual precious metal supply. The US system has far less gold in collateral than reported. The jig is up on US gold fraud, seen openly on a full stage with glaring lights cast upon MFGlobal and JPMorgan Chase. See the Information Clearing House article (CLICK HERE).

◄$$$ THE PETRO-DOLLAR IS ON THE VERGE OF PHASEOUT. THE CHINESE & RUSSIAN MILITARY SECURITY IS PROMISED TO THE PERSIAN GULF NATIONS, THUS FILLING THE VOID OF CREDIBILITY. IMPLICATIONS ARE VAST FOR THE USDOLLAR, SURE THEN TO LOSE ITS GLOBAL RESERVE STATUS. $$$

History has a grinding in gears in an attempted shift in speed, stripping the gears in the USDollar mechanism and works. Examine the real and most likely reason for the attack on Iraq. Check out "Petrodollar Warfare: Oil, Iraq and the Future of the Dollar" by William R Clark. He calls the weapons of mass destruction a mere sophomoric ruse in the call to war with Iraq. In his book, Clark expects a future to unfold chock full of war in the Middle East, as the United States takes preemptive measures to secure its crude oil supply, but more importantly, to assure a continuation of USDollar dominance in global trade. Failure would mean its collapse as a medium of exchange and value. That means usability in trade to ward off shortage, and vehicle as currency that could deliver price inflation to the USEconomy. Clark cites an anonymous source who told him the NYFed, through the all powerful Exchange Stabilization Fund managed by the USDept Treasury, ultimately dictates foreign policy via the USDollar. He further claims that any threat to the artificial support of its role as global reserve currency must illicit an immediate response at the NSA level. That means security forces and military forces, both. The anonymous source sees geopolitical forces and conflicts driving up the Gold price to $3000 per ounce and higher. See the Beacon Equity article (CLICK HERE).

An important battle was lost in April 2010 in a grand pan-Arab conference of billionaire sheiks, when they decided to accept Russian and Chinese military protection in the Persian Gulf. The meeting went totally unreported in the Western press. Nary a white face was present among the meeting's 200 attendees, not an Anglo, not a Russian, not a Chinese. One souce was present, who shared the agreement struck, but confidentially for a few months. Private jets arrived for the meeting, unmarked in the hangars. The sheiks also discussed Iranian matters, such as trade, travel, and the appearance of cooperation with the US. But the main outcome was what is best described as the pending death knell to the Petro-Dollar, where Saudi and Gulf crude oil is sold strictly in USDollar terms. Strip off the Gulf security and protection, and the Petro-Dollar stands naked to be soon dismissed, bared to expose its corruption and insolvency. They laid quite the Easter Egg indeed! As the Chinese influence in the Gulf has spread, so has the promise of the Chinese Protectorate. The Russian role is backup, with likely weapon hardware provision. Without the Petro-Dollar commercial role in force, the USDollar loses its global reserve status in a vulnerability sprint. The USEconomy would be compelled to bid up whatever currency is required to secure imports.

◄$$$ THE USGOVT POSITION VERSUS IRAN LACKS REALITY CHECKS. EVEN THE SANCTIONS ARE FRIVOLOUS. THE UNITED STATES AS A PAPER TIGER IS SLOWLY BEING RECOGNIZED ACROSS THE WORLD. THE NATIONS IN REVOLT ARE FROM THE EAST, ARE ORGANIZED, AND HAVE PREPARED ALTERNATIVE SYSTEMS. $$$

In a fit of accidental honesty, Defense Secretary Leon Panetta admitted on the "Face the Nation" television news talk show that Iran was not seeking to make nuclear weapons. To make certain the war drumbeat continues, Panetta went on to caution that Iran was indeed seeking nuclear capability, a cause for concern. He can apparently read their minds, or has telepathic powers, or has planted bugs in their high level conference rooms. They might have missile capability in 20 or 30 years. In my view this entire topic and threat is manufactured and nurtured with geopolitical motive, which most of the world recognizes. Given the military prowess and technological tools and security agency history, most countries would rather offer baseline cooperation rather than risk a confrontation. See Turkey.

Next the USGovt has slapped sanctions on three energy companies, from China, Singapore, and the United Arab Emirates. The move seems frivolous, if not mean spirited. The firms each have conducted business with Iran. Sanctions were imposed on Zhuhai Zhenrong Corp (state run by China), Kuo Oil Pte Ltd (in Singapore), and FAL Oil Company Ltd (in UAE). The foreign companies are barred from receiving US export licenses, US export-import bank financing, and loans over $10 million from US financial institutions, according to details from the USDept State. See the RT News article (CLICK HERE). An experienced colleague summarized well the errant gesture. He claims multiple successful businesses, and much foreign travel. He said, "It is extremely unlikely the three different companies engage in any dealings that require receiving US export licenses, US export-import bank financing, and loans over $10 million from US financial institutions. Thus, these sanctions are completely for the clown show and have no substance. What a joke the US leadership has become."

GOLD & UNSTABLE FINANCIAL MARKETS

◄$$$ SHADOW OIL INVENTORY SCHEMES HAVE ENABLED GOLDMAN SACHS TO CONTROL THE CRUDE OIL PRICE. THE BRENT CONTRACT IS A ELEMENT OF THE TOOLBAG. THE MAIN DEVICE IS THE WIDELY RECOGNIZED GOLDMAN SACHS COMMODITY INDEX (G.S.C.I.), USED TO CONTROL THE ENTIRE BASKET DOMINATED BY CRUDE OIL. PLATTS OFFERS AN IMPORTANT TOOL IN THE CORRUPT BAG. BRITISH PETROLEUM IS PART OF THE BROAD SCHEME. THE ENTIRE EXCHANGE TRADED FUND CONCEPT WAS BORN OF THE CRUDE OIL CRUCIBLE. $$$

Chris Cook, former compliance and market supervision director of the Intl Petroleum Exchange, shared some excellent in-depth analysis concerning the so-called dark oil inventory. Much hidden activity takes place behind the scenes in the crude oil market. The Hat Trick Letter has offered some basic analysis on Brent price spread above the West Texas price, the Cushing storage centers, and the Wall Street leaning on the futures contract. Cook goes much deeper, as he explains a potential crude oil price collapse this year like in 2008, when it fell over 60% in a few brief months. Such huge declines are proof positive of corrupt pricing systems. He expects to see the end of an era in which the market has been run by and on behalf of trading and financial intermediaries. The Brent Complex is truly complicated, an increasingly baroque collection of contracts relating to North Sea crude oil, but lately consisting of physical and forward BFOE (Brent, Forties, Oseberg, Ekofisk fields) contracts in North Sea crude oil intermingled with the key ICE Europe BFOE futures contract. The ICE device is not a deliverable contract, rather a pure financial bet based upon the price in the BFOE forward market. In addition, a plethora of other Over The Counter contracts involve not only BFOE, but also a huge transatlantic arbitrage market between the BFOE contract and the West Texas Intermediate. So much for the financial levers.

North Sea crude oil production has been in steep secular decline for many years. Its benchmark contract was extended from the Brent quality to become BFOE. Even still, there are now only about 60 cargoes of BFOE quality crude oil in flow, each of 600,000 barrels, delivered out of the North Sea each month, worth at current prices about $4 billion. Platts Window refers to this product, which undergoes BFOE-WTI arbitrage in price games. Ironically, the fewer cargoes produced, the more easily manipulated the underlying market. The Platts Window is the most abused market mechanism in the world, straight out of Wall Street trading rooms, from Morgan Stanley actually. The 1990 decade saw the new device abused with promoted hedge against price inflation. The Goldman Sachs Commodity Index (GSCI) was born, enabling investment in a basket of commodities, of which oil and finished products were the greatest component. Rolled over month to month, control of price became an easy task. Investors thought they invested in commodities, but what they did was aided Wall Street in controlling commodity prices, much like the corrupted USO for oil, the GLD for gold, and the SLV for silver. The formula is as old as it is proven effective. The enormously valuable GLD exchange traded fund was born from the learning experience in crude oil.

In order to better manage the mix of long and short entities in complex contracts, a marraige was arranged in 1995 between British Petroleum and Goldman Sachs. These companies are all incredibly dirty, corrupt, and foul with crime. From 1995 to 2007, BP and Goldman Sachs were joined at the head, having the same chairman, the Irish former head of the World Trade Org, named Peter Sutherland. Ignore his fall from grace on dalliances. The BP CEO Lord Browne also served on the Goldman Sachs board. The expedient was created to obtain interest free funding via Goldman Sachs, from GSCI investors, via sale & repurchase agreements. The raft of BP contracts became a fixture, where the oil giant would sell title to oil with an agreement to buy back the oil later at an agreed price. The BP inventory was thus monetized and brought under Wall Street control, all invisibly. The privilege gave Wall Street firms an information asymmetry, where they had access to key market information which others did not have. They exploit it still for profit. This ownership by investors of inventory in the custody of a producer has been termed Dark Inventory, the basis of much profit from controlled secular swings in price.

The entire Exchange Traded Fund ruse is built of similar instruments in other markets. The strategy and practice has become popular, even sold to fund managers, like hedge funds and pension funds. They play right into Wall Street's hands, as laziness is exploited. Hype and news stories support the Planet Hype ruse. See the Naked Capitalism article (CLICK HERE) and the Business Insider article (CLICK HERE). As footnote, notice that British Petroleum was treated tenderly, generously, and with kid gloves in its involvement in the Gulf of Mexico sabotage in the spring months of 2010. Countless violations went largely without punishment. Lawsuits are stalled. Payouts for damage are a myth. Whistle blowers are dead. BP and Halliburton were responsible in sabotage, but the topic is too dangerous to discuss further. The Peak Oil expert Matt Simmons was murdered over the story. He knew too much. He said too much. He drowned in three feet of water in a jacuzzi in his Maine retreat. He had help.

◄$$$ THE PAPER THIN C.O.M.E.X. MUST REACT TO GIGANTIC PHYSICAL DEMAND, THE LONDON TRADER REPORTS ANONYMOUSLY. THE STAGGERING GOLD DEMAND IS CREATING GREAT SHORTAGES IN THE PHYSICAL MARKET. COMPLIANCE DEPARTMENTS HAVE WIDELY BANNED PARTICIPATION IN THE C.O.M.E.X. ANYMORE. IT IS DRYING UP AS A MARKET. THE CHINESE HAVE EXPLOITED THE LOWER GOLD PRICE THAT RESULTED FROM THE EUROPEAN DISTRESS AND THE AMERICAN ACCOMMODATION WITH SIZEABLE LEASING. $$$

The anonymous London Trader pitched in again to provide extremely valuable information, this coming a full month after the MFGlobal crime scene cordon tape has been overrun. He opened by describing a compressed coiled spring in both the Gold & Silver markets, from huge physical demand. The Big Banks are trying to defend their massive short positions, like with 25 million SLV shorted shares. To meet the silver delivery demands, the cartel is borrowing heavily from the SLV, which will be gradually drained of metal in inventory. He closed by mentioning the extreme demand by individuals to buying and owning physical gold, seen as protection during crisis and threats to wealth. Many in Europe have responded to the unending financial crisis. Gold demand is off the charts.

The panic in Europe with a broken system is creating huge Gold demand. London Trader said, "The demand for Euro Gold here in London is so intense it is shocking to some of the players. This is what has left some market participants in the US wondering why the price of gold has risen along with the dollar. It is because demand in the EuroZone is unimaginably strong. The Euro physical gold demand is off the charts and it is creating shortages for metal, in size, here in London. The physical Gold market is actually being drained by Euro Gold buyers. People are converting their Euros to Gold and there is only a finite amount of physical gold available. Again, that is why you are seeing the dollar and gold rallying together."

Solid premiums are seen in Asian markets. With Silver in backwardation, huge premiums are being paid for size (large tonnage orders) in Silver, forcing long waits over three weeks for delivery. The March futures contract shows constant backwardation. London Trader said, "For the most part, the bid on silver spot has been higher than the ask on March futures. These [COMEX] paper markets are a joke. Nobody who is seriously in the business of taking physical delivery is trading on the COMEX anymore. That is big news. The COMEX is no longer a credible marketplace. You now have international funds, whose compliance departments are saying to them, YOU CAN NO LONGER TRADE ON THE COMEX BECAUSE THE CME DID NOT BACK CLIENT ACCOUNTS.' There are a tremendous number of international funds and hedge funds that can no longer trade on the COMEX as of the first of this year because of compliance reasons and no one is talking about this. This is huge news." Compliance of firms is a of utmost priority.

The strong voice in the London shadows expects a powerful move once Gold rises above the $1650 level, as shorts cover in open fear. The Gold price is $1658 as of Wednesday January 18th close. At that point he expects to see a very large tranche of unfilled wholesale orders move the price a lot higher with their bids, thus making that level a base. There are massive orders for sovereign entities under the market there. The Chinese are Gold buyers at all these prices, $1600, $1700, or $1800. They are buyers, never sellers, and public stories pure nonsense about their retreat. They have exploited the recent pushdown in the Gold price enabled by the European distress and the American accommodation. London Trader said, "There are two things here. China wants a cheap gold price and they have been enjoying the fact the gold market was taken down. They have recently taken another roughly 150 tons away from the Western central banks. The Western central banks essentially donated that Gold in an attempt to prop up their paper currencies. Yet again these traitorous Western central bankers have given away more power. I see Gold as power and once again they have given it away to the Eastern Hemisphere. The Chinese continue to laugh. As much as the Chinese would like to have a cheap Gold price and have this manipulation keep going, they also want to bring the renminbi to the center stage."

Witness the final months of the USDollar, as its reign is ending. The great Paradigm Shift is unstoppable and gathering momentum from the reduced Gold price as fashioned phalanx. The power shift is from West to East, confirmed by gold bullion movement. In fact, the Gold movement is the manifestation of the shift in power and elevation of the Chinese Yuan to the next global currency of importance. They are quietly and effectively creating a gold-backed Yuan, slowly but surely, with each shipment. London Trader said, "To them, it is more important the Chinese currency becomes the world's currency. The dollar, despite the latest rally, is dying, we all know it is dying. So, the Chinese are moving to become the international currency of the world and the best way to do that is through Gold. It is a very clever tactic. Every time more Gold arrives in China, the more their currency is backed, the closer they move technically to becoming the world's reserve currency. The flow of Gold from Western vaults to Eastern vaults is the most important symbol of the decline of the West." See the King World News interview of the London Trader (CLICK HERE).

◄$$$ THE SUBJECT OF PREMIUMS PAID IS GAINING ATTENTION. SIMPLY STATED, PREMIUMS OFTEN POINT TO DISTORTIONS OR DIFFICULTY IN SUPPLY SOURCING FOR TRANSACTIONS. GOLD HAS AN UNUSUAL PREMIUM OVER PLATINUM. ALSO, THE PREMIUM BUILT INTO THE SPROTT SILVER TRUST CONFIRMS ITS LEGITIMACY. PREMIUM PAID MEANS INTEGRITY AND TRUE INVENTORY. THE SPROTT FUND JUST ANNOUNCED YET ANOTHER SILVER OFFERING, SURE TO AGGRAVATE THE SILVER SUPPLY. $$$

Premium paid is a hot new topic, ever since the GLD & SLV fraudulent funds contrasted against the honest Sprott Fund, and important questions were raised. For the first time in years, Gold is trading at a premium over platinum. The amount went to a $240 high over platinum, down lately to $150 per ounce. In 2008 and 2009, platinum traded as high as almost 100% premium over Gold, back when the commodity trade was red hot. The hard assets were targeted for investment as a hedge against the weak USDollar. In recent months, a different odor is in the air. The powerful chronic financial crisis has disrupted the entire monetary system, its debt foundation in sovereign bonds, and the standard corporate stock & bond markets. The threat is of paper securities in general, as questions persist in visceral form as to what money is. The answer seems to be Gold, since without debt attachment and without counter-party risk. Pure Gold is pure money. Gold is acting as a premier currency. The strange twist is that the USDollar has periods, sometimes long periods, where it appears stronger than Gold. But the phenomenon is perverse, since debt is being destroyed and insurance payouts for default of various types are done in US$ terms. The strong demand for USDollars is thus an extension of the death pathogenesis of the system. Going back ten years Gold has been the undisputed #1 currency on the globe. The fact that platinum, grains, softs and even oil have lagged Gold in performance indicates a powerful currency crisis, banking crisis, economic crisis, and lost confidence in paper securities while the concept of money itself is debated and questioned.

The other important item on the premium front is the Sprott Fund premium. Most attention has been directed at their Silver Trust (symbol PSLV), since its premium over the corrupted COMEX silver price has gone wide again. Its previous high premium over Silver was 26% last summer. In recent weeks, the premium hit 30% in a surge. The interpretation is simple. The true silver price is much higher than the quoted COMEX price discovery, based on a corrupted entrenched system bound in massive naked shorting by the big New York, London, and European banks to preserve their system. Many question why anyone would pay such a premium. The answer is very simple! The honest brokers have a hard time sourcing big volumes of Silver, and must pay up, thus the premium. They trust Eric Sprott to find it, buy it, and conduct an honest business. The price required to locate and purchase Silver bars is much higher than the shady infiltrated COMEX shell game masters. The Sprott Funds submit to audits, guarantee in prospectus the redemption and delivery by investors, and do not permit shorting and inventory raids like the SLV fund managed by custodian JPMorgan, a cartel member. In summary, the premium paid in my opinion reflects the true market clearing price of Silver. Eventually, the COMEX will default, and succumb to gravity and physics and the rule of law. In time, Silver prices will converge to the current PSLV premium.

The corrupted SLV fund trades at a discount for other simple reasons. The fund has an open door to shorting the shares by the custodian JPMorgan itself, which are invoice manifest tickets for backdoor delivery of the silver bars. The custodian rapes the fund, as stupid lazy hapless slawjaw investors are none the wiser, believing a cartel member bank would act as honest broker and custodian. The premium paid to Sprott Funds can be regarded as votes of trust and integrity. These points bear repeating, since controversial. Many errant analysts criticize Sprott for the premium imposed in price. It is difficult to source actual metal. The SLV fund does not have this problem, because they buy far less metal than the investors put up the money for, an outright fraud in many respects. Furthermore, Sprott eliminated the premium last June and July by converting the extra value into mining stocks. He is honest. The Jackass has not met him, but his associate partner John Embry has had a few long conversations. He is also a subscriber to the Hat Trick Letter. Embry is a nice fellow, a bright man, a thoughtful gentleman. He noticed that the Jackass is not quite a gentleman, which caused great laughter with him and his wife before the Cambridge House conference in October 2008 at Toronto, my swan song.

Sprott is adding pressure upon pressure, to draw 10 million more physical silver ounces out of the already tight system. His efforts should expose the silver market as depleted. Watch the premium he must pay to source it, always the important issue. On January 17th, Sprott Asset Mgmt announced that it has launched a follow-on offering of silver shares, the high quality transferable redeemable units of the Trust. They will use the net proceeds of the offering to acquire physical silver bullion in accordance with their stated objective, according to their prospectus. The last offerings have built a supply chain directly from the Canadian mining firms, who prefer to sell to Sprott at the better price, and wish to avoid the corrupted COMEX arena. The Units are listed on the New York Stock Exchange (symbol PSLV) and the Toronto Stock Exchange (symbols PHS.U) respectively. The Offering will be made simultaneously in the United States and Canada by underwriters led by Morgan Stanley and RBC Capital Markets in the United States, as well as by RBC Capital Markets and Morgan Stanley in Canada. See the Silver Doctors article (CLICK HERE).

◄$$$ THE S.L.V. EXCHANGE TRADED FUND IS DRAINED FROM THE BACK DOOR. NUMEROUS BLEMISHES CAN BE IDENTIFIED. THE FUND CANNOT STAND SCRUTINY. IT IS ONE OF THE BEST CRIMINAL FRAUD VEHICLES EVER DESIGNED. THOUSANDS OF INVESTORS HAVE BEEN DUPED, BUYING WHAT THEY BELIEVE IS GOLD & SILVER, WHEN THEY AID THE CARTEL IN SUPPRESSING THEIR PRICES. THEIR INVENTORY IS ROUTINELY RAIDED. $$$

The SLV fund, formally called the iShares Silver Trust, contains much slippery language in its prospectus. The SLV provides funds for itself and custodian costs (managed by JPMorgan) by selling bullion, from the same fund. They actually achieve a benchmark price target for silver based upon their own sales. Their prospectus carefully states that the SLV share price reflects the value of the trust's silver holdings. It is a circular practice of self-fulfilling price achievement. They can rig their own market, pushing silver to a desired lower price. In fact, the number of silver ounces per share is falling consistently, just over 0.97 oz in recent weeks. Couple the practice of shorting SLV shares and voila, the circle is completed like a satanic exercise. Around 25 million shares are short on SLV. Any suspicion that JPMorgan is the predominant party holding short shares would probably be correct, but the giant bank covers their tracks well. They are the original expert in offshore concealment, having designed and run Enron. Then also, the SLV fund does not hold sufficient silver bars to correspond to all shares outstanding, but that fraud is carefully permitted under its prospectus and current legal structure. Another curious blemish is the supposed expenses, which doubled in a single year. But that might be a function of the silver price doubling, as fees under contract could be proportional. The fund did not grow that much. Track the shenanigans in a fine classroom style forensic analysis in video form by BrotherJohn (CLICK HERE). He covers a wide range of topics.

BrotherJohn gives the excellent analysis in clear understandable terms, with focus on SLV fund shenanigans. Here is a summary. The SLV fund has 300 million shares, each worth one ounce of silver, valued at almost $9.0 billion. But it has over 25 million shorted shares, or 8% of the float. The SLV shorts are not a Zero Sum Game, but rather enable an excessive manipulative scheme that abuses the fund in price suppression. To do a short, the shares must be delivered. Enter Bank of America, which owns a surprising 22 million shares, always a willing player to help push down the silver price. Check out September 30th, when the silver price fell hard from 40 to 30 per oz. The SLV fund had numerous big sellers that day in their listing. But the smoking gun is May 5th, when the silver price was busy falling from 48 to 34. The SLV fund had a single day volume of 300 million shares on that day in May, equal to its entire float. Conclude that naked shorting was taking place, or conclude that a leveraged arbitrage between the fund and the COMEX using futures contracts was taking place. Many fingers point to such arbitrage since the volumes are so great. Leverage must be involved. No legitimate stock has its entire float trade on a single day, and when such volume is linked to a 30% price decline, suspicions should be aroused sufficient to warrant an SEC investigation. The SLV fund is an important tool in silver price suppression, plain & simple. Credit to BrotherJohn was fine analysis in very logical terms.

The private equity fund BlackRock did a scummy analysis, justifying the SLV fund on numerous aspects. They claim silver sales are done in very small amounts in order to pay expenses, and that costs accumulate over time to result in gradual share price losses. They claim safeguards are in place. They claim JPMorgan has no legal rights to the inventory. They deny silver futures contract involvement. They boast of transparency, yet the bars list almost never contains consistency. They carefully remind that the SLV trust fund shares are expected to reflect the price of the silver. Key word is expected. They make a big deal about share investors selling in low activity times, enough to drag down the price, or speculators might take a negative view on silver, enough to drag down the price, or producers might increase their hedging activity, enough to drag down the price. They offer flimsy justification on net asset value and absent tracking versus the silver price, as coming from arbitrage opportunities and even adversity from its active management by the fund managers. Shares are redeemable, but only in large aggregated units called baskets, which keep the small investor away from the window. So the Trustee is Bank of New York Mellon, the sponsor is BlackRock, and the custodian is JPMorgan London Office, a Wall Street tagteam. Worse, BlackRock won numerous bids from the USGovt without competitive submissions to clean up the mortgage crisis and its colossal mess, while being a major mortgage bond security investor. They are a major insider. All the wrong parties are running the SLV iShares Silver Trust. Responsibility for the pump apologist ploy goes to the scum merchant Kevin Feldman of Blackrock (CLICK HERE).

◄$$$ THE RATIO OF G.L.D. TO P.H.Y.S. HIGHLIGHTS THE BREAKDOWN IN THE POPULAR FRAUDULENT FUND. THE DISCOUNT TO SPOT GOLD IN THE G.L.D. TRUST LACKS TRUST. THE POSITIVE PREMIUM IN THE P.H.Y.S. TRUST SHOWS LEGITIMACY. SUSPICIONS ARE AT THE EXTREME FOR VANISHED C.O.M.E.X. INVENTORY AND G.L.D. INVOLVEMENT WITH COMPLEX SCHEMES AT WORK WITH LEVERAGED ARBITRAGE. $$$

In the graphic is shown the ratio between the GLD share price (paper gold) and the PHYS share price (real gold). The price ratio broke down when traders began to understand the implications of the MFGlobal collapse. The grand shortage of precious metals motivated the theft at the COMEX window. Suspicions are ripe that the GLD fund is involved in the hypothecation schemes. Expect the PHYS and other gold trusts to outperform GLD and other ETFunds that do not submit to formal independent audits. They do not because they are corrupt to the core.

GOLD & RISING PHYSICAL DEMAND

◄$$$ GOLD LEASING WITH NEGATIVE RATES ENABLES FREQUENT RAIDS TO SUPPRESS THE GOLD PRICE. THE ACTIVITY IS CLEAR, BUT THE PARTICIPANTS ARE NOT. IN RECENT MONTHS THE EXTREME CASH SHORTAGE AND HUGE LOAN REQUIREMENTS MADE USDOLLAR DEMAND OVERSHADOW GOLD DEMAND. THE BIG EUROPEAN BANKS DID THE GOLD PAWNING. THE OTHER HALF OF THE GOLD LEASE STORY IS THE FRESH ARRIVAL OF SUPPLY. THINK LIBYA, GREECE, AND NEXT ITALY AND SPAIN. $$$

The negative gold lease rate debacle of the second half of last year attracted a lot of attention, but not too much comprehension. Negative rates imply that banks are pawning gold in exchange for USDollars, which tends to depress Gold prices. It has always been difficult to establish who was pawning the bullion, but it was very prevalent. A substantial surge in the demand for US dollars came during December as the sovereign bond contagion spread across Europe. Goldman Sachs wrote, "This demand for US dollars drove the gold lease rates to unprecedented negative levels as US dollars became increasingly more valuable than Gold. This new demand for dollars was mostly from European banks using the gold market to source US dollar liquidity when their funding from the US money markets dried up, which created a significant amount of gold selling." So the money market drain contributed to the leasing activity, an indirect byproduct of the Euro Central Bank cutting interest rates. A conclusion can be made that Gold underperformed in the second half of 2011, not so much from selling pressures as from gold pawning forces. The shortage of cash and required satisfaction of US$-based obligations caused a tremendous for USDollars. The source was made extra easily to lease the gold for sale, thus raising cash. The crisis had a steady cash crunch. Lacking credit lines from distrustful banks, merchants had no other choice but to liquidate gold in inventory, which discharged a lot of supply into the market, driving prices lower. See the FT Alphaville article by Izabella Kaminska (CLICK HERE).

The Greek central bank had 111 metric tonnes in its possession, once upon a time. Doubtful it still does. The Libyan hoard contained 144 metric tonnes with Muammar Qaddafi having signature authority. That bullion is long gone, a victim of war, its lease and sale done in the bank shadows. Keep in mind that Italy and Spain each have 5x to 6x the population of Greece. Do the math. A repeat of the bloodletting in Rome and Madrid could easily make available a few hundred tonnes of gold bullion for lease activity. Recall that Goldman Sachs preppie Mario Monti is on the job in Rome, watching over the ruins, keeping the rear doors open.

◄$$$ THE COMMITMENT OF TRADER DATA PAINTS AN EXTREMELY BULLISH SILVER PICTURE. DURING THE PRICE DECLINE IN THE LAST FEW MONTHS, THE SHORTS COVERED THEIR POSITIONS, THUS TAKING DOWN THE OPEN INTEREST. THAT IS THE FORMULA FOR A BASE UPON WHICH TO LIFT THE PRICE IN A NEW ROUND. $$$

The Net Short position of commercial silver traders is shown (in red bars) to be the lowest in at least seven years!! It went as low as 15,000 contracts (seen in left side scale) but has worked its way toward the still low 20,000 contracts. It means from the months of July and August, the Net Short level of 40,000 to 48,000 came way down as the Big Banks covered short positions in a very big way. The next chapter is ready to be written, a bull leg up again. The Open Interest is shown (in green line) at very low levels. As the bull leg begins, the OI will grow from its present 105,000 up toward the 145,000 level seen last April. This is a very bullish chart. Thanks to COT Price Charts for the graphic.

◄$$$ THE COMMITMENT OF TRADER DATA PAINTS AN EXTREMELY BULLISH GOLD PICTURE. DURING THE PRICE DECLINE IN THE LAST FEW MONTHS, THE SHORTS COVERED THEIR POSITIONS, THUS TAKING DOWN THE OPEN INTEREST. THAT IS THE FORMULA FOR A BASE UPON WHICH TO LIFT THE PRICE IN A NEW ROUND. $$$

The Net Short position of commercial gold traders is shown (in red bars) to declined sharply this past two weeks from 186,000 to 165,000 in a settling phase. The movement is more gradual and grudging with gold, but the direction is nonetheless still indicative of price movement direction. Like with silver, since the months of July and August, the Net Short level of 250,000 or more came down noticeably as the Big Banks covered short positions in a very big way. The next chapter is ready to be written, a bull leg up again. The Open Interest is shown (in green line) at very low levels. As the bull leg begins, the OI will grow from its present 420,000 up toward the 530,000 level seen last April and July. This is a very bullish chart.

◄$$$ NETHERLANDS ARE URGED TO REPATRIATE THEIR GOLD RESERVES. THE FEAR AND SUSPICION IS RISING THAT THE US-BANKERS NO LONGER HOLD THE GOLD BULLION FOR FOREIGN ACCOUNTS. ACTION HAS BEEN TAKEN. THE LIST OF SUCH NATIONS GROWS, TO INCLUDE ALLY AND FOE ALIKE. THE UNITED STATES IS BEING ISOLATED AS A ROGUE NATION ON GOLD MATTERS. $$$

A few years ago, both Switzerland and Germany demanded and received their gold bullion held in New York City. The trust was wearing out. Nowadays after the MFGlobal scandal theft, trust is long gone. The COMEX is under extreme suspicion, with many parties gone. Foreign nations are demanding the redemption of their accounts, largely held at the Federal Reserve Bank in New York City. In the Netherlands, gold experts advised their government to start the repatriation process of its gold reserves from the United States, even from Great Britain and Canada. Some fresh controversy has come to the nation after the Dutch central bank (DNB) confirmed a Dutch newspaper report by the de Volkskrant, where it was revealed as much as 90% of the national gold reserves did not reside within their borders. To toss gasoline on the fire, Dutch gold experts grew restless to the extreme after US gold analyst Jim Rickards said the USGovt has the power to confiscate whatever foreign gold reserves it holds in the event the global financial crisis shakes the system to the point that the USDollar loses stability. Dutch gold expert Willem Middelkoop led the charge to repatriate their national gold. See the Intl Business Times (CLICK HERE). The movement has gathered momentum after Chavez of Venezuela made rambunctious comments on his nation's gold bullion a few months ago.

◄$$$ CHINA GOLD DEMAND REMAINS ROBUST AMIDST FALLING PRICES. NO ECONOMIC SLOWDOWN SEEMS TO DETER CITIZENS FROM PROTECTING THEMSELVES. HONG KONG TRADERS ARE SUPPLYING MAINLAND CHINA IN A TREMENDOUS TRADE, THE BIGGEST PACE IN TWO YEARS. $$$

Chinese shoppers endure long lines in queue for making purchases of gold jewelry. The scene is common in the capital city of Beijing at gold jewelry stores. The lower Gold price compared to last spring and summer has resulted in robust demand and hectic store activity. The 20% price reduction has had a grand effect, like a sale promotion. Take Li Xiaodong, manager of Zhongjin Gold Flagship Store. He said, "Long queues like this have been occurring for half a month. We sold 50 to 80 kilograms of gold on average each day this month. Turnover is around 20 to 40 million Yuan on average each day." Retail prices of Gold in Beijing have declined three times in December, and time spurred investors into a shopping frenzy. See the English CNTV article (CLICK HERE). The strong retail trade is matched by strong investment trade. Mainland China imported almost 102.8 metric tons in November, valued at about $5.4 billion, trade data on January 11th showed. The imports came from Hong Kong, the most ever in a single month. Investors bought US bullion coins at the fastest pace in more than two years. See the FX Street article (CLICK HERE).

◄$$$ GOLD IMPORTS TO INDIA WERE DOWN HARD IN THE 4Q2011 QUARTER. THE DOMESTIC RUPEE CURRENCY FELL LAST YEAR, ADDING TO THE SURGE IN GOLD PRICE. THE CONSOLIDATION HAS BEEN MORE PAINFUL, WITH MUCH LOWER DEMAND. $$$

India is the world's leading gold consumer. Gold imports to the nation plummeted by 56% to 125 tonnes in 4Q2011. The full year imports fell by 8.4%, the result of record high prices and high interest rates. The nation of India imported about 878 tonnes of gold in 2011, down from 958 tonnes in 2010, according to the Bombay Bullion Assn. The shocker is that the final quarter October to December covers the peak festival and wedding season, when Indians traditionally make high volume purchases of gold jewelry and other investments. While the Gold price rose 32% in 2011 toward the September peak, the Rupee currency fell by 16%. So the price rise of the yellow enduring metal was amplified, and the demand effect was too.

Some degree of public buying fever took place on speculation of the bull market, which dried up fast. Investment demand accounted for about 22.6% of total demand in 2010, World Gold Council data showed. The factors that eroded demand and imports in Q4 are likely to linger in 1Q2012. President of the association Prithviraj Kothari said, "Imports were very bad in October to December, compared with previous year, compared with Q3 of 2011. People were even selling Gold in November. For them it was an investment. Jewelry sales were very low. Investment demand rose in 2011. People were interested in coins and bars. The share of investment demand has risen to 35 percent in 2011. Still prices are high. Interest rates are high. Liquidity is tight. I think imports in the first quarter of 2012 will be 50% lower than last year." See the BTimes article (CLICK HERE).

◄$$$ IN GERMANY GOLD MERCHANTS HAVE RESTRICTED SALES TO ITALIAN LOCATIONS. IN DEFERENCE TO THE ITALIAN GOVT, GOLD & SILVER SHIPMENTS HAVE BEEN CURTAILED. $$$

Italy has introduced capital controls, outlawing cash purchases of Gold bars valued over 1000 Euros. The border checkpoints search for cash attempting to depart Italy. Apparently Italy is cracking down on the purchase of precious metals as well. One of the top Germany online PM dealers GP Mettalum is advising Italian clients that they will no longer be shipping Gold or Silver to Italian addresses for the remaining 50 weeks of 2012. In a note to clients dated January 10th, the German firm advised Italian clients of possible Italian shipments to begin in January 2013. See the Silver Doctors article (CLICK HERE).

GOLD PRICE BIG PICTURE

◄$$$ THE GOLD PRICE IS RISING IN LOCKSTEP WITH GOVERNMENT DEFICITS. THE NEXT BIG JUMP IN THE USGOVT DEBT LIMIT WILL OPEN THE GATES FOR A HIGHER GOLD PRICE. MOUNTAINS MORE DEBT WILL COME, SINCE THE ALTERNATIVE IS ECONOMIC COLLAPSE OR QUICK DEBT DEFAULT. THE CLIMAX WILL COME WHEN THE USGOVT DEFAULTS ON ITS DEBT, MY STANDING 2008 FORECAST. AT THAT TIME, GOLD WILL BE MULTIPLES HIGHER THAN THE CURRENT PRICE. $$$

Nick Barisheff is President & CEO of the Bullion Mgmt Group and author of "$10 Thousand Gold" due to be published in a couple months. He delivered a speech recently that tied together many important relevant gold factors. Connected are the many irreversible trends of rising debt and rising gold price over the next five years. They include age demographics, outsourcing impact on jobs, rising energy costs, increased unemployment, faltered economic activity, reduced tax revenue, increased government deficits, descending spiral of home values, higher official borrowing, and lower debt ratings. The end result is either higher bond yields or more instilled monetary hyper inflation. Politicians and bankers will choose inflation. He notes that Gold trades on currency desks, not commodity desks. Gold is money, not an industrial commodity. The daily volume at the London Bullion Market Assn is $37 billion in gold, hardly volume for mere jewelry demand. Gold demand serves as a counter-balance to profound debasement of the monetary system. The current USGovt debt is $15 trillion, but by 2015 the USGovt debt burden should reach $23 trillion. That would indicate a $2600 gold price at minimum.

Although actual figures vary depending upon method of estimation, the unfunded liability for the USGovt is a ripe $120 trillion, which is over $1 million per taxpayer. Debt is growing faster than all forecasts, in an unsustained pace. In no way can the tax base grow from a natural response from productivity and export expansion. The answer is NOT more strict austerity on spending with harsh budget cuts. All austerity applications, whether Greece or Ireland or Portugal, result in more unemployment and higher deficits still. What comes in the pathogenesis is a string of official defaults on debt in several nations. As the likelihood of default looms closer, future debt security issuance is rendered impossible as perceptions change. The next chapter in the chronic unfixable financial crisis is to open the gates to permit more debt, since it has been and will remain the preferred political choice. Watch an intensification of export competitiveness from currency devaluation, the mainstay of the Competing Currency War. It will dictate loose monetary policy in utter accommodation. The inept Super-Committee demonstrates the failure of budget controls in the United States in spectacular visible manner. The alternative to open monetary floodgates is economic collapse and debt default. Instead, the chosen path will lead to inflation pocked by shortages, followed inevitably by debt default anyway. The type of debt default will be restructure clearly. See the YouTube video clip (CLICK HERE).

Some footnotes on the Barisheff arithmetic. Estimation of the unfunded liability for the USGovt is like grasping a balloon on a breezy patio. John Williams of Shadow Govt Statistics comes up with a total US debt using GAAP at about $80 trillion, including Social Security and Medicare. It might be $100 trillion if one includes outsized Fannie Mae, Freddie Mae, and AIG obligations. In 2005 there were over 134 million individual tax returns filed. Clearly, Barisheff's figures are a little overstated, but no dispute with Nick's conclusion. Williams is the acknowledge non-government expert in this area. In the end whether the true deficit is $80T, $100T, or $120T, such amounts of money go leaps and bounds beyond what can ever be repaid. That is the point all can agree upon. Let us not overlook the state and local debt obligations to be covered, sufficient to add a few more $trillion. Thanks to colleague Craig McC for his quick addendum.

◄$$$ SILVER EXCHANGE DATA POINTS TO A POWERFUL RALLY COMING IN THE SILVER MARKET. THE RELIABLE CONTRARY INDICATOR IS AGAIN AT AN EXTREME LOW. NUMEROUS ARE THE FACTORS THAT WORK AGAINST THE USDOLLAR FOR ITS VALUATION AND GLOBAL DOMINANCE. THE CHINESE YUAN WILL SHARE CENTER STAGE, A PROCESS OVER TIME. $$$

Jason Goepfert created Sentiment Trader, a service that tracks investor sentiment toward various asset classes. According to his work, Silver just bounced off its most pessimistic sentiment reading in four years. The Commitment of Traders data also confirms an extreme, itself indicative of a turning point. The last time his sentiment numbers were that low was in August 2007. Six months later, the price of silver was 59% higher in a massive unforgettable run, the long awaited breakout. It rose from $12 per ounce to $19 per ounce. Going all the way back to 2002, the pattern is evident as silver sentiment bottomed near 10,000 six times. On average, the price of silver rose 33% in the next six months and 54% over the next year, when such extremes have been reached. The same is likely to happen in year 2012. See the 24 Hour Gold article by Aubie Baltin (CLICK HERE).

Baltin highlights a payment device that reveals a new era, and pokes a big hole in the USDollar fortress. The event marks the beginning of the end of the USDollar being the world's only reserve currency. Apple announced acceptance of payment in Chinese Yuan for iTunes music and application downloads. The Chinese currency is growing in importance. It represents the fastest growing currency in world usage. It is the alternative currency besides the USDollar currently being used to pay for goods and services in Hong Kong, Russia, Brazil, Canada, Malaysia, Thailand, and Indonesia. The Yuan will gradually become as international a currency as the USDollar, which is due for further devaluations. As proof, the Chicago Mercantile Exchange (CME) announced that it will begin accepting margin deposits in Yuan. It is the world's largest trading exchange. The strength of Chinese economy dictates the nature and pace of change. The USGovt unstated strategy is to force the Yuan currency higher, thus the USDollar lower, in order to reduce the impact of the debt burden, to inflate the debt down. Such is a destructive policy.

As the United States undermines the value of the Chinese reserves by direct inflation, the Beijing leaders dig in to install numerous pillboxes around the world. They have devised trade facilities outside the USDollar. They have used USTBonds as currency to forge large energy and mineral deals. They have arranged with Hong Kong and London to become major Yuan trading centers. To demonstrate its influence, secretive agreements have been made that are extremely telling of the power shift. Canada is preparing to divert the proposed oil pipeline from the Alberta Tar Sands, originally planned for the Houston port as desination, to the West Coast instead. The plan is to sell the Tar Sands oil output to China instead. The Obama Admin aided in the changed decision, without any Rose Garden press conference.

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