Why I Believe Gold & Silver have been Massacred Since 2011
Fun and Games
Growing up, my brothers and I liked to roughhouse. We lived in the country, and had very large yards that were more than suitable for running and scuffing each other up. Boys will be boys, and all! As we would wrestle, and all the tackling and clawing would escalate, I can remember hearing my mother admonish us to stop, by saying. Well. Let’s see if you can guess what she said to us! It was a rather iconic line, that you’re probably quite familiar with too. In fact, I’ll say the first few words, and see if you can fill in the blanks: “It’s all fun and games…” I’m willing to bet, shield brother, that you finished that line either out loud, or in your thoughts, didn’t you? You’ve probably heard it a hundred times, I know I have. “It’s all fun and games, until someone loses an eye.” Have you ever wondered where that phrase came from? Well, etymology is a tricky business sometimes, but it gets even trickier for whole phrases. The only attempt at an explanation that I could find, came from a source who claimed this:
“‘It’s all fun and games until someone loses an eye’ is from Ancient Rome. The only rule in their wrestling matches was no eye gouging. The only way to become disqualified in wrestling sporting events was to gouge or put an eye out…..thus the quote.”
The source is dubious at best, but whether or not that origin is true, the phrase’s meaning is unmistakable. There are times when we’ve all acted badly, without thinking of the consequences of those actions, precisely because we don’t truly believe those consequences will happen. Oftentimes, people won’t stop whatever ill-advised thing it is that they were doing, until something terrible happens. There’s no question that in 2011, something terrible happened, which caused the “fun and games” for gold and silver investors to be “over” ever since. Let me explain what I mean.
Business as Usual
For roughly 10 years, the banks and U.S. government rigged gold and silver’s price in a long term fashion that could be called, a “managed, orderly ascent”. In the early 2000’s, they’d reached a point where supply and demand issues dictated a situation in which the precious metals could no longer be held at $250 and $4 per ounce. The metals had to be allowed to rise, but that rise also had to be “orderly”, so as not to excite too many folks about buying precious metals, while also not tipping off too many others that the dollar was going into cardiac arrest. One look at this gold chart below, clearly shows that the price was given a steady trend-line, which held as firm support for gold. This held true, especially since 2008, when a sharper uptrend was established in gold’s chart. The price eventually broke out of that channel, and soared all the way up to $1,925, before the bullion banks sent it lower again.
Likewise, silver’s chart was held at bay as long as possible, until at last, a clear breakout was established in 2010.
This breakout tripled silver’s price from roughly $18 to nearly $50 within 9 months. As you can see, from 2003, silver had been in a steady uptrend which, though managed, was undeniably powerful and decisive. Then something happened, which I believe, altered the “gameplan” of the market riggers.
The Mouse that Roared
As we all know by now, Washington D.C. suffers from a terrible, tyrannical desire to control the rest of the world(for the world’s own good, of course). As if that wasn’t enough though, D.C., for a good many decades has also been a trailblazer in all sorts of welfare experiments on its home-front. This means that the politicians of the American Empire have been “burning the candle” at both ends, so to speak.
After all, funding all these programs is a monstrously expensive undertaking. It’s so expensive, in fact, that many sensible people over the years, have stepped forward to warn the peoples of America, that D.C.’s chronic binge of spending, borrowing, and printing dollars was becoming a grave problem. Some like Ron Paul even warned that, if left unchecked, it would seriously undermine the U.S. dollar, as well as the livelihood and prosperity of U.S. citizens. Such warnings were always shrugged off by folks across the Potomac.
“That’ll never happen, ‘king dollar’ will always be king, and other nations will continue to buy U.S. debt, because”, they’d hilariously say, “they don’t have any other choice aside from U.S. debt, there’s no other game in town”.
On mid-July 2011 however, all that spending finally bore the bitter fruit that so many had feared, as the U.S. credit rating agency, Egan-Jones, made the historic decision to downgrade U.S. sovereign debt from AAA, to AA+.
Showing clarity of thought, their decision brief stated the following:
Real GDP increased at an annualized rate of 4.0% in Q1 2011, following an increase of 3.5% rise in the prior quarter. Personal consumption expenditures, exports, and nonresidential fixed investment contributed positively to growth during the quarter. Meanwhile, imports rose sharply. In the March 2011 quarter, trade in goods and services resulted in a deficit of $562B, many because of the high price of petroleum. However, the major factor driving credit quality is the relatively high level of debt and the difficulty in significantly cutting spending. We are taking a negative action not based on the delay in raising the debt ceiling but rather our concern about the high level of debt to GDP in excess of 100% compared to Canada’s 35%. Nonetheless, since the US’s debt is denominated in dollars, a hard default is unlikely…..Nota Bene: History has proven that defaults on domestic public debt do occur. In fact, seventy out of three hundred twenty defaults since 1800 have been on domestic public debt (1). Egan-Jones does not view a country’s ability to print its own currency as a guarantee against default. Additionally, Egan-Jones generally views cases of excessive currency devaluation as a de facto default.
Surprisingly, many within the investment community simply dismissed this action from the Egan-Jones agency. They thought it was a non-event. Even the intrepid www.zerohedge.com seemed to dismiss it at the time, saying:
“If this downgrade had been performed by Moodys or S&P, or even France-owned Fitch, today would have been a bitter appetizer of what is ultimately coming.”
Yet at the time, I remember thinking that this was a significant action, and looking back, I believe it was the catalyst for a much graver series of announcements about the dollar, and U.S. sovereign debt ratings that zerohedge warned about. That “bitter appetizer” was coming sooner than anyone imagined.
The Shot Heard Round the World
At first, many ignored this roar from the proverbial mouse on the rating agency scene. D.C. certainly didn’t seem worried, and why should it be? After all, the credit rating agency (CRA) industry had been a sick joke for years.
Two of the “Big Three” CRA’s which dominated the entire globe(Moody’s and Standard & Poor), were American agencies, and had always been counted on to defend every silly thing that the U.S. politicians had ever done. In fact, those two agencies alone accounted for over 80% of the global market share.
What a racket! It’s bad enough that D.C. has fooled the rest of the world into letting them keep their reserve currency all these years. Somehow however, it has also convinced the world that they can be trusted with the duty of impartially judging how stable and safe their own currency and credit is!
What would go wrong?
The modern CRA industry has been the ultimate conflict of interest, and an insult to investor intelligence.
The “jig was up” however, for the proverbial mouse had not only roared, but had stated itself in a way that was impossible to ignore. For the first time in history, the U.S. government which had possessed the world reserve currency for over 70 years, had officially had its credit rating seriously called into question.
This, of course, put pressure on the larger CRA’s to “put up or shut up”, as their strained credibility was now on the line. Should they follow suit in the wake of such an earth-shattering announcement? Or should they stay silent, and keep playing their Wall-Street/D.C. apologist game for as long as they could?
On August 6th, 2011, the world got its answer, as Standard & Poor shockingly announced that they too would be cutting the U.S. credit rating from AAA to AA+.
New Plan of Action
Predictably, the Fed and U.S. politicians publicly circled the wagons, telling investors worldwide that their credit rating was stronger than ever, and that U.S. dollars and treasuries were still the place to be. Privately though, they were panicked, and livid with rage. After all, it wasn’t the CRA industry’s job to “do their job”! It was their job to help Wall Street and D.C. continue this U.S. treasury ponzi scheme for as long as possible. Now the CRA’s had bitten the hand who’d fed them, and things were getting critical.
Remember, at that time, Treasury debt levels had never been higher, yet all the while, interest rates on that debt had never been lower. On the heels of this downgrade, some analysts had begun to muse that this carried the distinct possibility of raising Treasury interest rates between 60 to 70 basis points over the medium term(or at that time, raising the 10 year about 25%). Remember, the higher the interest rate, the more money that the U.S. government has to pay to borrow new money. This debt downgrade meant that D.C. might be paying an extra $100 billion per year just to sustain their debt levels.
This would’ve spilled over, and put downward pressure on the U.S. Stock market, since it was being levitated by the Fed and D.C. purchasing their own debt(quantitative easing). It would’ve also undermined trillions in pension and retirement funds, which had built an industry upon the bedrock of “stable and safe” U.S. treasuries.
The entire financial and economic system, which had been built upon a giant pyramid of debt,(with the U.S. dollar at the top of the pyramid) was at risk. If not dealt with, this tiny pebble falling down the U.S. Treasury hillside, would soon become a bond market avalanche. The old rules of managing perception no longer applied. Drastic new steps had to be taken, immediately, to safeguard the bond market, and to ensure that this embarrassment never happened again.
The U.S. government quickly sprang into action, with U.S. officials like Tim Geithner coming out of the woodwork to threaten Standard & Poor’s president. Even folks like Michael Moore, got in on the action, and one-upped Geithner, by urging President Obama to “show some guts”, play the dictator, and arrest the S&P president.
You stay classy, Mr. Moore!
Though the S&P president had been forced out within two weeks of the downgrade, his head wasn’t nearly enough. An example had to be made, and the whip had to be cracked to get these uppity CRA’s back in line. Shortly thereafter, D.C. unleashed the “dogs of war” as the SEC brought a formal lawsuit against Egan-Jones, for daring to be a mouse who dreamed it could roar in the first place.
Since that time, the government has made sure, through brute force, threats of arrest, and litigious activity, that no other CRA would actually do its fiduciary duty as a CRA.
One Last “T” to Cross
CRA’s weren’t the only uppity things that had to be dealt with though. The “managed ascent” games that the Fed and bullion banks had been playing in the gold and silver market for 10 years, were no longer working.
For you see, the moment the gold market opened after the S&P downgrade announcement, gold did this: See that green hockey stick? That’s what the market thought of all the D.C. and Fed assurances after the debt downgrade. For the next several weeks, gold went parabolic, as it soared from roughly $1660, all the way to a record $1925 per ounce! For the first time in decades, the gold market rigging banks were unable to stem the tide moving into gold, and the moves became violent, sometimes swinging as much as $100 in a single day. Only by great pains, and tons of extra gold high-frequency trading sales, coupled with hundreds, if not thousands, of tonnes of gold leasing by the Fed and the Bank of England, over the last 3 years, was gold’s explosive move stymied. While it’s true that silver’s parabolic move had come a few months earlier, the evidence is overwhelming that silver’s move was caused by a developing shortage of deliverable metal, evidencing once again, that the old “modus operandi” of a managed ascent in the precious metals market was becoming untenable.
Fun and games always continue til someone loses an eye. This occasion was more grave though, for this time the eye which was lost, belonged to Sauron in his mighty towers in D.C., when the Egan-Jones mouse had forced the hand of much larger forces than they.
It is my belief that since that time, precious metal markets have become a prime casualty in the war on truth, for this very reason. The Fed and U.S. Treasury have realized that a gradual, managed ascent is no longer a workable strategy, if their policy of maintaining the global perception of dollar and U.S. treasury strength is to be successful.
This is why the chartists and precious metals gurus, who consistently got price predictions right for 10 years, have now had egg on their face for the last 3: the old rules of the game no longer apply, but they’re acting as if they still do.
The intensity of the banks’ attacks on gold and silver prices have been long, drawn out, and merciless. The banks have been hitting completely “below the belt”. They are definitely “rough-housing” to the hilt, because this time they understand: it’s for all the marbles. Further external forces, such as the Germany gold repatriation request, have only exacerbated the situation, and forced them to double down on this new scorched-earth policy in gold and silver.
It is my firm belief that the Fed and U.S. Treasury now intend to prosecute these aggressive precious metal attacks until doing so is no longer possible. There is a new game being played here, a new normal. It behooves us to recognize that fact, and adjust our strategies and expectations to it.
Remember though, this is simply a game to them(and the stakes have never been higher). This new “rough-housing” game also has a shelf-life. For like all other “rough-housing” games, it will only continue until D.C. loses their eye, the trouble is, they’ve only got one eye left!
At that point, the issuer of the world’s reserve currency will be truly flying blind.
Do you really want to be without gold or silver when that happens?
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