Ecuador – Goldman & Gold
Ecuador hands Goldman Sachs 466,000 ounces of gold worth roughly $580 million at today’s ruling price. Ecuador under its socialist President Rafael Correa is seeking sources of cash after they borrowed over $11 billion from China because they defaulted on $3.2 billion of foreign debt five years ago. This is the consequence of debt and in the hands of socialists-communists, the bonds ultimately are always defaulted upon.
Like Zimbabwe, who had to adopt foreign currency because people will not trust their own, Ecuador is the only country in South America that is using the US dollar as currency. Ecuador did not sell its gold, it effectively borrowed against it in exchange for more liquid assets. Ecuador expects to turn a profit of as much as $20 million on the transaction and it will get the gold back within three years and the central bank expects to turn a profit of as much as $20 million on the transaction without explaining how.
It appears that Goldman will most likely sell the gold forward helping to break the back of gold and will most likely look to replace it at the lows under $1,000.
Will The Petrodollar Die?
There has been a prevailing piece of propaganda used by the dollar-haters to support this idea that the dollar is really the Petrodollar and that the move in the Middle East to create a single currency like the Euro and the Russia-China energy deal will make the yuan soar and the dollar collapse are just not reality. These “theories” (if not prayers) focus everything upon fuel as if this were the lion-share of world trade and the ONLY reason the dollar survives. This maybe suitable for a James Bond movie plot, but the numbers just do not support it.
Even if we look at the fuel trade compared to manufactures goods, fuels are just 29% of that number – $3,374,854,000,000 for fuels and $11,489,647,000,000 for manufactured goods. (see trade by sector). Nonetheless, total world trade that includes services such as money flows (investment banking) is rising since 2007 as a percent of total World GDP because the global economy is shrinking. This is causing world capital flows for trade in energy, merchandise, and investment to rise in proportion of importance as domestic GDP declines in the ensuing world economy recession that began in 2007.15. This sets the stage for the next age of protectionism.
Our preliminary figures show total flows of capital for these three categories is about 60% of World GDP. Consequently, this theory of the Petrodollar is just another exaggeration of those who pray for the demise of the dollar every night without contemplating what that really means.
The strength of the dollar is NOT trade. The dollar is the only currency not to default or be cancelled regularly to prevent people from hiding cash – a favorite European trick. These 1861 Demand Notes, the first paper currency issued by the Federal government post-American Revolution, are still legal tender and you can spend them if you are crazy enough to do that. It is the capacity of the dollar to provide the parking spot for world capital that is its strength. It does not matter if the Middle East creates a single currency, they lack the capacity to absorb those funds and still will need to invest and park in dollars. The same is true for the Russia-China trade deal. Even if all of Asia used the yuan for trade, they still have to park their funds in dollars. China lacks a mature investment capital base at this time.
Those who pray at the foot f their bed every night for the demise of the dollar have no understanding of what they are praying for. The destruction of the dollar with no viable replacement at this time would be so catastrophic for all pensions would be void, civil unrest and civil war will ensure that blood flows down the streets, and not even gold would have any value for then you move to the final stage – a Dark Agewhere only food has value.
Metals Update
The two Daily Bearish Reversals are 1240 and 1186. We are holding the 1240 level for now with a minor Daily Bullish forming at 1262 and 1294. We see a turning point next week and the week of the 23rd. We do not see the meltdown yet without a monthly closing below 1190 area. We also see tomorrow as a turning point in both silver and gold.
In silver, we need to see a daily closing back above 1952 to suggest a reaction to the upside. The key resistance on a nearest futures basis stands at 1993 and only a daily and weekly closing above this level will temporarily relieve the downward pressure. It is 1825 where we see a big gap down to the high $15 range.
We see next week and the week of 6/30 as the key turning points ahead in silver on a weekly basis. The major support levels are at 17.30 and 13.30.
FATCA – Delayed or Realizing there is a Collapse Underway?
While they have been proud to announce that 77,000 foreign institutional have already signed up before July 1st, they did postpone it until July 2015. Nonetheless, the damage has been done long ago when this was passed. The huge fines they are imposing on foreign banks is further undermining the European and Swiss banking systems and this is the backlash behind the headlines. The US has set in motion a trend that is turning the globe into 1984 live and unplugged.
It is irrelevant if FATCA is postponed or not. No bank will deal with any American period! The damage has been done starting in 2011 and this is creating the sharp drop in liquidity. I have reported that this trend is getting really bad. I have reported that HSBC is one of the worst offenders out there. They have the audacity to harass even British citizens living in Bermuda – prove it is your money or they will freeze it. Dah! And I should have an account with HSBC exactly why?
The airlines have joined this anti-customer approach turning very nasty and openly practice consumer fraud. Try changing a ticket and it is $200 fee even if the ticket is $200. Once upon a time you flew a particular airline because of service. It has become line going to a restaurant and the waitress just throws your food down that is burned and tells you shut-up. Then expects a 20% tip and calls you a cheap SOB for refusing to tip her. This is degenerating into the way unions destroyed America – they come first. Airlines are making it so bad you just about have to book one way tickets in business. That seems to be the agenda to just rip you off for everything possible.
The best way to deal with the banks is withdraw from the big boys and move to the smaller regional banks. The more dirty they have been, the greater they will turn over customers to please government. You want to leave the no-service-big-rat-finks because they have been illegally trading with your money and got caught, so somehow it is your fault. For them to survive, they now need to give up the smallest accounts. Move to the regionals and diversify. (custodian banks such as Bank of NY and Brown Brothers may be exceptions from the money center trading banks)