Download Deflation is now creating inflation, which will ultimately

Deflationisnowcreatinginflation,whichwillultimatelyimplodedebtand
propelgold
China,ZIRPandOPECtriggereddeflation,lowerprices
Thetwomainreasonsfordeflationaryforcesarethestronglyreduceddemandforgoods
fromChinaandtheQE,ZIRPandNIRPprogramsfromthemainCentralBanks(CBs).Chinese
GDPgrowthofapprox.7%can’tbemaintainedforaneconomythesizeoftheUSeconomy.
Especiallywhenallthegrowthfactorsboostingtheeconomy,thebuildingofghosttownsand
infrastructuralprojectsandcompetitivewagesareexhausted.Wejustwitnessedthatrailcar
trafficinChinadeclinedto2007levels.In2015railfreightvolumeplunged10.5%andthe
economywassupposedlystillincreasing6.9%?Whichispreciselywherethingsdon’taddup.
Thisisconfirmedbythedataforthefirstquarterof2016,whichwereevenworsewithrail
freightvolumeplunging9.4%year-over-yearto788milliontons,accordingtodatafromChina
RailwayCorporation.Atthisrate,railfreightvolumeforthewholeof2016willbedown20%
from2014andwillendupwhereitwasin2007!
Firstquarter2016GDPfigureswerereleasedonFridayApril15,2016withGDPgrowingby
6.7%,downfroma6.8%gaininthepreviousquarter,whichwasinlinewithexpectationsof
6.7%thoughstilltheweakestsinceQ12009.Retailsalesbeat(+10.5%vs.+10.4%exp),
industrialproductionbeat(+6.8%vs.+5.9%exp)andfixedassetinvestmentbeat(+10.7vs.
+10.4%exp).ThoughChina'seconomystillslowedfurtherinthebeginningoftheyeardespite
Beijing'spoliciestorevivegrowthwithold-styletoolssuchaslendingandconstruction.
Doyoustillbelievetheofficial6.7%GDPgrowthfortheChineseeconomy?Howcanone
calibratethenegative9.4%freightvolumefigureswithGDPgrowthof+6.7%????Inmypoint
ofviewGDPgrowthismorelikelytobeflatorevennegative.TheChinesearesufferingfrom
thesame“makebelievestories”asthoseintheUSforobviousreasons.AnywaywithChinain
thepasthavingaccountedfor50%ofworldwidedemandforhardcommoditiespriceshave
declinedsubstantiallyforallindustrialcommoditiessuchascopper,ironoreandcoaltoname
afew.AsktheAustraliansandBraziliansiftheybelieveChinesegrowthstillis6.7%!
NexttothestrongfallindemandfromChinathezerointerestratepoliciesoftheWestern
CBshaskeptalotofbusinessesmuchlongerinexistencethanwouldhavebeenwith
normalizedinterestrates.ZIRPorNIRPrepresenttheultimateformofdeflationorlower
interestcosts.CentralBankspumped$29trillionintotheglobaleconomyoverthelastfew
yearswiththeFedaloneinjecting$4.5trillionintheU.S.Centralbankerswere“forced”to
takesuchstepsbecausegridlockedgovernmentsdidn’tacttoputmorefiscalstimulusinto
theireconomiesafterthe2008financialcrisis.Andasaresultoftheultralowinterestrates
wewitnessedmuchmoresupplythandemandresultinginstronglydeflatedprices.Ontopof
thatOPECformarketshareand/orgeopoliticalreasonsopenedtheoiltapandforcedoil
pricesdownfrom$110/bbl.mid2014to$26/bbl.(-76%)midFebruary2016.Andwedidn’t
seeanyimprovementinconsumerspendingbecausethereisnotrustintheUSeconomy.
Wagesdidn’tkeepupwiththeinflationofday-to-dayhouseholdnecessitiesreducingreal
income,thenumberofgoodspeoplecanbuywiththeirmoney,to2000levels.
Andnowthedeflationiscreatinginflationorhigherpricesbecauseoftheverylowprices,
theflightintotangibleassetsandaweakerdeflatedUSdollar
Oversoldprices
SincethelowinFebruaryoilpriceshaverecoveredtoalmost$44/bbl.(13/4/16)oragainof
69%!Inotherwordswewillmostlikelybelookingatstronginflationaryforcesin2016
becausewehavedepartedfromsuchalowbasetriggeredbythestronglydeflationaryforces
in2015.Oilisanimportantpartofconsumerpricesanddaytodaylivethinkheating,driving
andtransportandtheproductionofgoods.
Akindofsimilarpricedevelopmentasforoilwewitnessedforironorepriceswithpricesof
$95perdrymetrictonneinJuly2014and$40/tforDecember2015(-58%)andnowwithina
whiskerof$US60atonne(+50%),sendingsharesinBHPBillitonandRioTintosoaringin
Londontrade.AndasmainreasonfortheriseofironorepricesismentionedthatChina’s
exportssurged11.5%inMarch,risingforthefirsttimeinninemonths,and“thus”soothing
fearsaboutthehealthoftheChineseeconomy.Againnothingislesstrueasdemonstrated
withtherailcarshipmentvolumefigures.
Commoditiesarenon-dilutiveassetstheycan’tbeprintedcontrarytopapermoneyhence
thelikingfortangibleassets
Anotherreasonforthehighercommoditypricesinmyopinionstemsfromaflightfrom
intangibleassets(bonds,equitiesandcurrencies)intotangibleassetslikeoil,copperandiron
oreandagriculturalland.Peopledon’ttrusttheintangibleassets(basicallyanypaper
promise)anylongerwithalltheirartificialbackingwithstronglydilutedpapermoneyfrom
QE,ZIRPandNIRPprogramsthatareclearlynotworking.Justlookatthevelocityofmoneyin
theUSwhichisathistoriclowsandlookatJapanwherefundsarenotsellingtheir
governmentpaperbecausetheydon’tknowwhatisavailableandwhattheywouldgetin
return(10ynowyielding-0.084%)leadingtostrongilliquidity.TheJapaneseareevenissuing
CDSs(CreditDefaultSwaps)inordertogeneratehigherreturns(soundsfamiliartotheAIG
CDSdebacle?).Germanyisalsogoinginthatdirectionwiththe10ybund“yielding”now
0.131%only13bpfrom0%.Anywayitistheincreasinguncertaintyandmistrustthatis
forcinginvestorsintotangibleassetsthatwillalwayskeeptheirvalue,whichcan’tbesaid,of
paperpromisessuchaspapermoney.Papermoneyisnolongerworththepaperitiswritten
on!Resourcesneedtominedorliftedoutoftheearthandtheamountoflandintheworldis
notgoingtobeincreasedcontrarytotheamountofprintedfiatorpapermoney.
Commoditiesarenon-dilutiveassets!!Hencetheireternalvalue.Rememberthis.
TheUSdollarwillfallwhichwillpropelgoldandsilverbecauseofitsinversecorrelation
TheQEs,NIRPandZIRPhavecausedcompetitivecurrencydevaluations.Withtheirmoney
creationthey,theCBs,havedrivendown,dilutedthepurchasingpower(thenumberofgoods
thatcanbebought)oftheircurrencies.Theauthoritiespumpedmoneyinthemarketsinan
efforttostimulatetheeconomies,whichfailed,insteadtheavailabletangibleassetswerebid
uporbecame“worth”moreandthusasaresultofwhichpapermoneybecameworthless!
Theadditionalproductivityfromthestimulusmeasureswaslimitedbecausetherewasandis
noconfidenceamongsttheconsumers.Wageshaven’tincreasedatallbecauseofthehuge
outsourcing(cheapwagesandtaxes)andautomation.Anywayyoucanbringahorsetothe
waterbutyoucan’tmakeitdrink.
Andthusthethirdandprobablymostimportantreasonforthestrengthinthehard
commoditiesandespeciallygoldandsilveristhatthemonetarypolicieshavefailedwithall
thetoolsinthetoolboxbeingexhaustedwhichisfinallyweakeningtheUSdollar,thereserve
currency,towhichallcommoditiesareinverselycorrelated.Thiscommodityinflationclearly
doesn’tstemfromstrongerdemandforgoodsstemmingfromahealthystrongeconomybut
fromcurrencydeflationstemmingfromweakeconomicfundamentals.
Inmyopinionallpositivefactorsfordollarstrengthhavenowfinallybeendiscounted.The
Fedkeepsonreducingthenumberofratehikesbecauseoftheweakereconomicand
corporatefiguresthananticipated.NexttothattheweaknessintheYenandtheEurohas
kepttheUSdollarstrongforawhile.AshasbeenarguedbymanypeopletheUSdollarwasn’t
strongbecauseofitssoundfundamentalsbutbecausetheweaknessoftheotherworld
currenciessuchastheEuroandYen,whichwereartificiallyweakenedbecauseoftheQEsand
earlyZIRPandNIRPprograms,whichnowseemtolackanylastingimpact.TheYen,which
stronglyinfluencesthefateofthedollar,isnowstrengtheningaswehavebeenwitnessing
becausealltheYendepressingmeasureshavefailedandbecausetheJapanesecurrent
accountsurplusandrepatriationoffundsisnowputtingupwardpressureontheYen.The
riseoftheUSdollarisover!!Andthiswillbeoneofthemostimportantfactorsboostinggold
andsilverpricesgoingforward.NexttothattheweaknessintheUSdollarinconjunction
withstrongerinflationaryforceswillforceinterestrateshigher.
InflationwillforcetheFed’sorinvestors’handtoincreaseinterestrates,whichwillimplode
thebondmarket
InordertostayaheadofthecurvetheFedmightbeforcedtoincreaseinterestrateswhilst
theeconomyisnotstrongatallasconfirmedtheAtlantaFedforecastsfortheeconomy
reducingGDPestimatesfor1Q2016to0.3%.TheNewYorkFed'stodayslashedQ1growthto
just0.8%(from1.5%inFeb)andcollapsedQ2growthto1.2%from1.9%lastweek.Thiscuts
theentireH1estimatefrom1.5%to1.0%.
Theeconomywaspurposelymadetolookstrongusingmanipulatedemploymentandother
managedfiguresthoughasweknownothingislesstrueasconfirmedbytwoofthe12
FederalReserveBanks.Itistheartofdeceptiontopretendthateverythingishonkeydory
tryingtokeeptheeconomyafloat.Itisallonebigairballoon.Andthereforewheninflation
figuressuddenlystarttorisebecausethepercentagestrongincreasesincertainCPI
constituentstheFedorthemarketmostlikelywillforcemuchhigherlong-terminterestrates.
Andwithalltheilliquidityinthebondmarkets,followingtheQEprogramssuckingthebond
marketsdry,themovementsinthebondmarketcouldbecatastrophicandcauseabloodbath
takingtheothermarketsinitspathwithit.Thiswouldforceinvestorstolookforassetsthat
wouldpreservetheircapitalandwiththepreciousmetalswellinversedtotheequitiesand
bondsgoldandsilveraremostlikelytobecomethepreferredassetclassforinsurance.
PerhapsyoushouldalsohavealookintotheFederalReservehavingreleaseda19-pageletter
onApril14thatitandtheFDIChadissuedtoJamieDimon,theChairmanandCEOof
JPMorganChase,onApril12asaresultofitsfailuretopresentacredibleplanforwinding
itselfdownifthebankfailed.Isthisawarningsignforwhatistoocomeand/orisJPMorgan
justtooarroganttotakeadequatemeasures?
AsasidenoteIdon’tunderstandwhyCNBCisgoingonaboutalltheseflawedS&P00
companiesandtheirflawedresults(comparingresultswithestimatesandnoty.o.yearnings!
Asham!)andbuy-backswhilstgoldhasrisenby17%from$1,061/oz.to$1,243/oz.sincethe
beginningoftheyearwhilstGDXroseevenby62%!!!from$13.72to$22.21.TheGDXwas
createdbyvanEckanditsholdingsincludemostmajorgoldminerslistedintheUnitedStates
andCanada.SomeofthelargestholdingsoftheETFareGoldcorp(GG),BarrickGold(ABX),
NewmontMining(NEM),Franco-NevadaCorporation(FNV),NewcrestMining(NCM),Silver
WheatonCorp.(SLW)andAgnicoEagleMinesLimited(AEM).Theindexismarketcapweighted.
Itshouldbenotedthatgoldsharesnormallyhaveabetathatistwicethelevelofthe
underlyinggoldpricewhilstsilverminingshareshaveabetaof4xthemovementinthegold
price.SowhatdoyoupreferS&P500stocksatpeaklevelsorgoldandsilverminingstocksat
bottomlevels.Whereisthevalueinyourmind?
Only30%ofallthesilverproducedintheworldbypuresilverminingcompanieshencetheir
highermultiplethangoldminingcompanies.Silverforthelargestpartisaby-productofgold
copperandzincandwhentheproductionofthebasemetalsfallstheproductionofsilveralso
falls.
ArbitragefromtheShanghaiGoldExchangecouldforcethehandsoftheLBMAandComex
Asstatedmanytimesthecurrenciescanbeseenastheultimatebenchmarkofyourwealthor
purchasingpowerhencewhyIbelievethattheircurrentweaknessisringingthebellforthe
resumptionofthebullmarketinthepreciousmetals.Goldandsilverarethemirrorimageof
thehealthofthereservecurrency’seconomyanditspolicies.HencewhytheUSauthorities
hadtosuppressthegoldandsilverpricesinordertoavoidtheperceptionofweaknessofthe
USdollar(alsoseeDeutscheBank’sadmittanceofsilverandgoldmanipulation).Don’tforget
papermoneyprintingequalsunrestrictedgrowthwhilstphysicalgoldandsilverequal
discipline,onecanonlyissuesomuchmoneyasisbeingmatchedbynewlyminedgold.Gold
forobviousreasonsisseenasaconstrainttothe(flawed)policiesofthepoliticianshencewhy
theysuppressthegoldprice.Withgoldasthereservecurrencytheycan’tpromisetheworld
totheirelectorate!!
Thoughtheauthoritiescanonlykeepthepricessuppressedforsolong.Suppressionislike
keepingaballpushedunderwater,ultimatelythewaterwins!Anditlookslikeallthefactors
infavorofgoldandsilverarecomingtogether.The19AprilpricingofphysicalgoldbytheSGE
(ShanghaiGoldExchange)inYuan(physicalagainstcash)couldmeantheendofthe
manipulationofpaperorgoldfutures(papergoldversusnominalsettlement)orchestratedby
thebullionbanksandmonetaryauthoritiesusingtheLBMAandComexastheirplatforms.
ThephysicalgoldversuscashsetstheonlyrightpriceandiftheLBMAorComexpricesetting
willbelowerthanthepriceattheShanghaiGoldExchangeSGEmemberswillarbitrageitand
demandphysicaldeliveryfromtheLBMAandComexparticipantswhichwillinturnforce
muchhigherprices.
Why?Becausethepapertophysicalratiorangesbetween100-300x,inotherwordsforall
100-300futurescontractsontheLBMAandComexthereisonlyonephysicalouncein
registeredinventories.Inotherwordsthereisnotenoughgoldinregisteredinventories
(bullioninventoriesqualifiedfordeliveryonthefuturescontracts)tomeetthedelivery.And
thusitwillforcetheLBMAorComextocallaforcemajeureallowingtheLBMAorComexto
settleincash,thoughthiswillatthesametimerendertheexchangetechnicallyindefaultand
endtheirviabilityandcredibility.Andthatsituationwearegettingeverydayclosertoasis
demonstratedbytheadmittanceofDeutscheBankofsilverandgoldmanipulation.
Deutscheadmitstosilvermanipulation(beingalawyerdon’tgivemethatcrapofpayinga
penaltybutnotadmittingwrongdoing,thisissuchafallacyofwhatjusticeshouldbe!!)
AccordingtoaReutersarticleofApril13,2016DeutscheBankAGhasagreedtosettleU.S.
litigationoverallegationsitillegallyconspiredwithBankofNovaScotiaandHSBCHoldingsPlc
tofixsilverpricesattheexpenseofinvestors.DoIneedtosaymoretoallthosenaïvepeople
thatdon’tbelieveinconspiraciesbecausetheydon’tunderstandtherealworkingsofthe
governmentsandthereasonswhy?Youjusthavetolookatthedumpingof10,000futuresin
themarketonSundayeveningswhenthetradingvolumeisatitsthinnest.Doyounowfinally
believewhatisreallygoingonbehindthecurtains?Yourgovernmentincooperationwiththe
bullionbanksisstealingfromyou.Andtocounteranyargumentsthattheprosecutionbythe
governmentmeansthatthegovernmentisnotinvolvedseetheCTFC“investigation”below!
Wakeupandseebelow.
WhatispotentiallyevenmoreinterestingreDeutsche’sadmissionisthefollowingstatement.
“Inadditiontovaluablemonetaryconsideration,DeutscheBankhasalsoagreedtoprovide
cooperationtoplaintiffs,includingtheproductionofinstantmessages,andotherelectronic
communications,aspartofthesettlement.InPlaintiff’sestimation,thecooperationtobe
providedbyDeutscheBankwillsubstantiallyassistPlaintiffsintheprosecutionoftheirclaims
againstthenon-settlingdefendants.”
Finally,we'lljustremindreadersthattheUScommodity"regulator",theCFTCin2013closed
itssocalledfive-yearinvestigationconcerningallegationsthatthebiggestbullionbanks
manipulatesilvermarketsandprices.ItproudlyreportedinSeptember2013thatitfoundno
evidenceofwrongdoinganddroppedtheprobe.Thisiswhatitsaid:
“TheCommodityFuturesTradingCommission(CFTCorCommission)DivisionofEnforcement
hasclosedtheinvestigationthatwaspubliclyconfirmedinSeptember2008concerningsilver
markets.TheDivisionofEnforcementisnotrecommendingchargestotheCommissioninthat
investigation.Forlawenforcementandconfidentialityreasons,theCFTConlyrarely
commentspubliclyonwhetherithasopenedorclosedanyparticularinvestigation.
Nonetheless,giventhatthisparticularinvestigationwasconfirmedinSeptember2008,the
CFTCdeemeditappropriatetoinformthepublicthattheinvestigationisnolongerongoing.
Baseduponthelawandevidenceastheyexistatthistime,thereisnotaviablebasistobring
anenforcementactionwithrespecttoanyfirmoritsemployeesrelatedtoourinvestigation
ofsilvermarkets.”
InlightofthisconfirmationthattheCFTC'sprobewas"lacking"perhapsitisperhapstimefor
theso-calledregulatorwhoatthetimewasheadedbyex-GoldmaniteGaryGensler,to
reopenitsinvestigation?Seehowfullof@#$%&thesepeoplereallyareandhowonecan’t
trusttheseinstitutionsandespeciallywhentheyareheadedbyexGoldmanemployeeslike
GenslerandtheNYFedpresidentWilliamDudley.OtherGoldmanitesareCarneyoftheBOE
andDraghi.Doyoureallythinkthatthesepeopledon’ttalktoeachother?Takeoffyournaive
hatandstartthinkingmanipulation,conspiracy,insideinformationandfrontrunning!!!All
servicesperformedbyGoldman.Goldmanjustpaid$5+bninpenaltiesfortheirmortgage
securityfraudwithshareholdersmoney(basicallystealingtwice!)andnotthepartners’
money,whichshouldhavebeenthecase.
AnywaythisadmissionandcooperationbyDeutscheandtheSGEYuanpricingshould
ultimatelyleadtoendingthesilverandgoldmanipulation.Inotherwordsinterestingtimes
forgoldandsilverespeciallyinlightofallfactorsthatareplaying.
©GijsbertGroenewegen,[email protected],2016