Failure to Understand the Commodity Market
Some people are just so hung up on this idea of selling paper gold they do not have as being the source of gold’s decline. Sorry – it does not matter! A farmer hedges a crop and sells it “forward” before he has to lock in a price to guarantee a profit or gamble that he has worked a full season and the price collapses when it is harvest time and he loses the farm. Bad weather can then prevent him from harvesting and he will then have to go buy back his hedge causing a “short-cover rally”. This is the entire purpose of the futures markets. The person with the product is selling the risk to others willing to buy it and trade it. This is not a conspiracy or some dark lord trying to suppress a market, If someone sells gold they do not have, they run the risk of having to buy it back if the price goes against them. It is absurd to pretend that J.P. Morgan has vast naked shorts for years when they would have lost the bank if that was true when gold rallied from $250 to nearly $1900. They are hedging product. No big deal. If it were not for those “paper” positions gold would be worth much less because it is the existence of a market that brings value to whatever it is being traded. People are willing to buy a 30-year bondONLY because they know they can sell it when needed. If there was no market, then there would be less 30 year bonds for that is a long term commitment.
The futures markets in every respect are leverage and facilitate the VELOCITY of trading creating LIQUIDITY that then makes the instrument tradable. The mortgage securities were rated AAA, which made them acceptable for the REPO market. Had the credit agencies NOT provided the AAA guarantee, the bankers would NOT have been able to sell as much as they did. They were salable ONLY because they wereLIQUID!!!! .If there was no “paper” gold contracts, gold would be less liquid. There would be a greater risk in buying gold,even in coins, if there was no market accepting the product regardless of what it might be.
Marx read Aristotle who complained about the people “who made money from money.” He felt they were changing the lifestyle of Athens. Markets were emerging and then farmers began to produce more crops than what they needed for their own consumption because there was a market into which they could sell their product. This was altering the economy from a Villa Economy of a commune that was self-supporting into a Market Economy with contracts for future delivery of their product. Without such a market, there would be no gold mines for they would not risk producing anything if they were not assured they could sell it.
Futures contracts have been around since Babylon. That is the Market Economy that enabled civilization for it provided for economic interaction making it plausible to come together to create great cultures. Futures are NOT evil as the gold promoters have twisted things for without them we would be in a dark age when there was no wages or money for the common man, Futures do not suppress the price or a commodity – they create a market that expands its supply by creating a Market Economy rather than Communism as Marx tried to do by destroying those people “who made money from money.” Creating VELOCITY adds to LIQUIDITY and that is what provides theCONFIDENCE to trade expanding the economy. You would not buy a contract if you thought you could never sell it. Sorry, there is no evidence of futures suppressing prices on some perpetual basis EVER!!! Are there attempts at short-term manipulations? Of Course. But never regarding the economy that is beyond the control of even government as Paul Volcker acknowledge in his Rediscovery of the Business Cycle.
Eliminate those “paper” gold positions and you will destroy the market. Why is it that buying “paper” contracts in gold is always “real” but selling is “false”? Indeed, at the low, the majority are bearish selling short and that set it up for the reversal. The shorts then provide the ENERGY that makes the market reverse when they become excessive.
This is all nonsense and ASSUMES gold trades in total isolation. It does not. Regardless of whatever stories are told, you cannot MANIPULATE a single market against the trend of the whole. It cannot be done. Just look at the Euro, the collapse of the gold standard, or the collapse of communism – whatever! Not even government can force a market to do something against the trend.
Why has there been no inflation despite the increase in money by the Fed? Because that was far less than the destruction of capital from the DELEVERAGING of the mortgage bubble. Even worse still, the Euro is collapsing as is Japan. The dollar is theONLY place for big money to park.
You are looking at over $40 trillion globally that needs to park. The open interest in ALLcontracts on COMEX gold is less than 400,000. Times $1500 an ounce that is $60 billion or 0.0035% of the national debt. Gold is a tiny market within the whole scheme of things. Yet to listen to the gold promoters, you would think that the entire world revolves around the gold market. Gold is a hedge against government for the INDIVIDUAL, but it is not suited for the big institutional investors who require income not capital gains.
When someone sells a commodity or even what they do not own, it does not matter because there is a buyer on the opposite side. That is different from the LEVERAGEthat takes place by those buying more contracts than they have the money to pay for if they took delivery or a mine selling what it expects to get next year but is not produced now. That is entirely separate from the question of supply and demand and it is by no means only the seller that is leveraged but also the buyers willing to buy contracts far beyond what they have in fund if they took delivery. That goes BOTH ways.
You can argue all you want. The trend is the trend. Gold is NOT ready for prime time until everything is in place. It will not go up in isolation no matter how exaggerated the gold promoters get with their wild claims. The Euro and the Yen will crack BEFORE the dollar. Only after they fall will capital then turn against the dollar as was the case in 1931. Countries are like dominoes. They fall in a sequence, not all at once. This is notOPINION, this is simply the way this stuff happens. This is not what I “think” will happen – it is how things have happened. No gold promoter can do the same to demonstrate any major economy that went into hyperinflation – they all turned against their own people and confiscated assets. They only point to a communist revolution in Germany during 1918 or Zimbabwe. It may not be to your liking, however, neither were free markets to Marx and Keynes. But sorry, that is the way it works. You can try to yell and scream and talk the markets into doing what you would like against the trend, or perhaps you want to survive and not donate your money to nonsense. It’s your choice! The market isNEVER wrong! Either understand how it functions or try to say it is wrong. I doubt you will win.
The Collapse in the Rule of Law
One of the critical factors that contributed to the collapse of Empires, Nations, and City States is when the Rule of Law collapses. Some have asked where they can read more about jurisdiction and the Rule of Law. William Blackstone published in 1765 the seminal work on this subject. His writing served as the foundation upon which the United States was born. The Founding Fathers used his work, Commentaries on the Laws of England, to establish the Rule of Law in America.
The Rule of Law is being assaulted everywhere, but never as great as it is among the Anglo-Saxon nations. In Australia, we also see the drive to eliminate the right to remain silent and the denial of the right to the presumption of innocence. These are critical aspects of freedom.
The right to remain silent is the right to remain free from torture. The right to the presumption of innocence is the Biblical right in Genesis to Due Process of Law where God, who knew was Cain had done to his brother, (1) summoned him, (2) gave him the right to be heard, and (3) then sentenced him to exile. The eye for an eye (lex talionis) was never the divine decree, but merely the adoption of the Sumerian and Babylonian law that preceded the Bible. This is why Christ preached compassion and turn the other cheek preventing the stoning of a woman and did not subscribe to the lex talionis for clearly not even Cain was put to death for killing his brother. These are clear inconsistencies with the way the law is applied.
The Miranda decision of the Supreme Court came only after the abuse of decades by American police. The Miranda decision is hated by police, prosecutors, right-wing judges, politicians and citizens, based that decision upon the history of the right not to be coerced that began with the famous trial of John Lilburn (1615-1657) before the English court of the Star Chamber in 1637 where he stood tall and objected to the King’s torture. Lilburn’s crime was handing out pamphlets against the king for he was the great leader in the Leveller Movement of the 1640s and was a prolific pamphleteer who defended religious and individual liberty of the people. He was imprisoned many times for his views and was active in the army of the New Parliament rising to the rank of Lieutenant-Colonel. In October 1649 he was arrested and tried for High Treason for printing and circulating books and pamphlets critical of the government but was acquitted of all charges by a jury of his peers.
Not until 1647, do we find that people were given any notice of the law for then a pamphlet entitled The Lawyers Bane urged members of Parliament to summarize and publish the corpus of statutory law enacted over the centuries because men should “understand those laws and ordinances by which their rights, privileges, interests, and estates are secured.” This tyranny is also prohibited in the US Constitution known as the Ex Post Facto Clause whereby no one shall be held criminally for a crime enacted retroactively. Of course, pro-government judges have declared that does not apply to property, only one’s life and person.
This is the atmosphere surrounding the protests of John Lilburne. He defended himself vigorously in court, quoting from the works of the great jurist Sir Edward Coke (1552-1634) whose work the Institutes was the seminal statement of English law. The Mirandadecision quoted this right to remain silent enshrined in the Constitution of the United States known as the Fifth Amendment right against compelled Self-Incrimination. Lilburn proudly declared:
“Another fundamental right I then contended for, was, that no man’s conscience ought to be racked by oaths imposed, to answer to questions concerning himself in matters criminal or pretended to be so.”
This is what governments are doing. They are taking away all the safeguards that we cherished and so many died for defending those liberties. Politicians who advocate their abolishment, are no worthy of any power whatsoever.