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January 15, 2012

Issue 182  -  Silver and Gold
I hope you all read last week's article about the risks in the current financial system and how NO money is safe.  If not, please take some time to do so.  It's very important and could make or break your financial future.  In case you thought, "oh well, those MF Global customers will eventually get their SEGREGATED funds back, the government can't let that type of failure to happen," think again:
MF Global May Not Be Able to Pay Clients Back: Trustee

The trustee liquidating MF Global Holdings's collapsed brokerage does not believe the brokerage will have enough money left over after paying back creditors to close any shortfall in customer accounts.

The roughly $290 million in general estate funds — that is, money reserved for creditors that are not MF Global customers — may not be enough to make customers whole, James Kobak, an attorney for trustee James Giddens, said at a customer meeting in New York on Thursday.

Giddens has estimated that about $1.2 billion is missing from customer accounts at the brokerage. Some customers have argued that they should be allowed to make up for that shortfall by recovering money from the non-customer creditor pool.

"We might support that in certain circumstances, but at this point there simply isn't a substantial amount of general property available to make up for shortfalls," Kobak said.

Well, well, well, these people may not get their money back.  This is a crime, and yet no one is going to jail?  I hope you're coming around to my way of thinking here.  The system is run by the elite, for the elite.  Since they run the system, just what are the elite bankers doing?
Central Banks 'Printing Money Like Gangbusters': Gross

Published: Wednesday, 11 Jan 2012 | 5:13 PM ET

By: Margo D. Beller
Special to

The world's central banks are "printing money like gangbusters," which could revive the threat of inflation Pimco founder Bill Gross told CNBC Wednesday.

By putting "hundreds of billions" in currency in circulation, the central banks "can produce reflation—that's why we’re seeing the pop in oil, gold" and other commodities, he said in a live interview.

At the same time, "there’s the potential for deflation .if the private credit markets can’t produce some sort of confidence and solvency going forward," Gross said. "So we’re at great risk here, not only in the U.S. but on a global basis."

Gross has previously predicted a "paranormal" market in 2012 characterized by "credit and zero-bound interest rate risk" and fewer incentives for lenders to extend credit.

He said stock and bond investors must lower their expectations when it comes to returns, with 2 percent to 5 percent as good as they get this year.

He also told CNBC he expects the Federal Reserve will keep interest rates "exactly where it is at 25 basis points for the next three to four years."

Gross's Total Return Fund, the world's largest bond fund, had over $10 billion in outflows in 2011, but Gross stressed the fund "started 2011 at $240 billion and ended it at $244 billion."

That's an amazing assertion by the largest bond fund manager in the world.  Now if he's correct, and I believe he is, it means that gold and silver have no place to go but up.  It's basic math.
As the banks are printing money, just what are they doing with their excess funds.....hmmmmmm.....
Very interesting.  Central banks buying gold, I wonder why.....

Gold Lures Central Banks

Purchases Accelerated in Third Quarter Amid Debt Crisis          

LONDON—Total central-bank gold purchases in the third quarter more than doubled from the second quarter and were almost seven times higher than a year earlier as countries continued to diversify reserves, according to a World Gold Council report.

At 148.4 metric tons, gold buying among central banks was at the highest since the sector became a net buyer of the precious metal in the second quarter of 2009, according to the quarterly report.

Central banks and other official institutions, by comparison, had bought 66.5 tons of gold in the second quarter and 22.6 tons in the third quarter of 2010.

Xinhua/Zuma Press

Central banks bought 148.4 metric tons of gold in the third quarter, more than double the prior period and nearly seven times higher than a year ago. Gold replicas from the Old Summer Palace in Nanjing, China. 

"Central-bank buying was a highlight of the quarter. Statistics this year have been remarkable," Marcus Grubb, managing director of investment at the gold council, said in an interview.

The report included a significant number of purchases that hadn't been reported publicly and whose buyers couldn't be identified due to confidentiality restrictions, the council said.

"This large number is a surprise," said UBS analyst Edel Tully, who said her own tally of net purchases reported through the World Gold Council and International Monetary Fund totaled just 20.2 tons for the quarter. "This information is very bullish. And no doubt the market will be busy speculating on the identity of such buyers."

The World Gold Council, an industry association representing 22 gold miners, attributed the acceleration in central-bank demand to concerns over the credit-worthiness of Western governments, as sovereign-debt troubles remained in the spotlight.

"While one can account for some of the purchases—from Thailand, Bolivia, Russia, etc.—there is an unaccounted amount out there. A clue probably lies in the fact that a lot of buying has been from central banks that have been in surplus, [in regions] like Asia, Central Asian and Latin America," said Mr. Grubb, who expects the unknown buyers likely will be made public in coming months.

If you controlled the money supply and were printing like crazy, wouldn't you be ensuring that you had real money?This all ties into this article's theory on why gold is in short supply:

Given events over the last few years, I thought it could be useful to chart IMF data on official central bank gold transactions to try to discover possible trends. All data are through October 2011.

Now the interesting thing is that the spikes are shrinking. However, we must bear in mind the facts: 1) China’s announcement reflected several years of buying. 2) Saudi Arabia’s jump reflects an “accounting change.”

If we look at the totals using a bar chart, it’s clearer that central banks have announced (not necessarily purchased) smaller amounts of gold being bought each year after becoming net buyers in 2009.

The above graphs could indicate that either 1) central banks as a group preferred to buy less gold in 2011 than in 2009 and 2010 (while becoming more interested in gold than at any time in the recent past), 2) gold is becoming less available to buy right now, or 3) central banks are hiding even more of their purchases from the public.

The above chart is merely a more recent time frame – what's important here is that the gold sales by central banks are essentially 0! Compared with the longer-term graph, it is clear that central banks are not major sellers of gold anymore and are afraid to sell.

Now, if we start to make assumptions, we can see what sort of impact these central banks have on the gold price. Assumption 1: Countries, which started buying gold in 2008 continue to buy. Assumption 2: IMF data accurately reflect central bank SALES of gold (there may be large hidden buys that countries will not reveal, but not much in the way of sales – unless, of course, Western governments are surreptitiously selling). Given these assumptions, we know that the sales are not coming from central banks – which means the central banks by default must be buying from the market.

That, of course, could explain part of the gold price run-up. So far, gold has been a great investment – and if the central banks are really running out of new sources of gold, which appears to be the case, gold should continue to outperform despite the recent turmoil. If our previous assumptions were wrong, however, we can become even more bullish on the future of gold because that would mean there are more potential buyers and there is less gold available. In short, keep stacking gold coins! I remain long gold and silver.

This all makes perfect sense and it leads me to believe that central banks aren't reporting all the gold they are buying.  I believe they have been buying a lot more gold and concealing that from the public at large.  Why do that?  So they can buy more at a lower price, obviously.  Here's another one:
Bank of Korea Increases Gold Reserves by Massive Nearly $1 Billion or 39% in November Alone
Do you really think Korean central bankers are smarter than European ones?   I sure don't.  But there seems to be one small little fly in the ointment.  It seems that some of these central banks don't actually HAVE the gold.  At least in their possession:

90% of Dutch Gold Reserve Is Held Abroad

Jaco Schipper | 07-01-2012 | Gelezen: 50
Klaas Knot, the new president of the Dutch central bank, De Nederlandsche Bank (DNB), seems to be taking calls for transparency to a new level.

By Jaco Schipper
Saturday, January 7, 2012

Thursday night Knot gave a live interview to the television program "Nieuwsuur" in which he announced that about 40 percent of Dutch pensioners will soon face reduced pensions. Knot also argued for mortgage tax reduction to address the excessive indebtedness of Dutch households, which is about 120 percent of gross national product. Perhaps most interesting, Knot allowed "Nieuwsuur" to film in the central bank's vault, where the Dutch audience saw what is not there.

Based on the footage shown on Thursday and additional images found at the central bank's Internet site, we had already calculated that there are some 4,500 gold bars located in the bank's vault. Our calculation showed that there are at least 56 tons of gold stored in Amsterdam, possibly more, we speculated, in the form of gold coins. We proved to be not far off, as Friday night the definitive answer was given by Knot himself.

In a follow-up by "Nieuwsuur" Friday night (see below), Knot disclosed that some 67 tons of Netherlands government gold, worth 3 billion euros, is kept in Amsterdam. Knot acknowledged on camera that this is only a small portion of the Dutch gold reserve. For practical reasons, he said, most of the 612.5 tons of official gold reserve is held abroad, so that "if the Dutch central bank wants to sell some of its gold, we don't have to ship it."

Member of Parliament Ewout Irrgang told reporters that the Dutch gold reserve has always been surrounded by much hysteria and questions about its location. In September, Irrgang formally asked the Dutch Treasury where the gold reserves are located and how much is where. The Treasury replied that the Dutch gold is located in Ottawa, New York, London, and Amsterdam, but did not specify how much is in each place.

But now it is admitted that only 10 percent of 612.5 tons of the tenth- largest official gold reserve is held in the Netherlands itself, and Irrgang told the reporters that he was "startled" that 90 percent is abroad because gold "is the ultimate anchor of trust, especially during times of financial unrest and panic. With these kind of scenarios it is not practicable to have over 90 percent of Dutch gold reserves abroad." 

Financial analyst Jim Rickards' book "Currency Wars" caught the attention of "Nieuwsuur" and the program, interviewing him from New York, asked about the possible confiscation of foreign gold reserves by their custodian, the U.S. government. Rickards told about the U.S. Defense Department's financial war games and summarized elegantly: "U.S. lawyers have an expression: Possession is nine-tenths of the law, and since we possess the gold ... then we're 90 percent on the way to owning it." Rickards estimates that perhaps 100 to 200 tons of gold are located in New York.

Asked if he knew of suggestions that the U.S. government could confiscate foreign gold reserves in its custody to bring its own gold reserve to 17,000 tons -- 65 percent of official world gold reserves -- with which to establish a new reserve currency controlled by the United States, Knot responded: "I am not familiar with such a scenario. We are regularly confronted with the extra-territorial functioning of laws from the United States and usually these are not cheerfully received in Europe (laugh) and this one is also new to me. I would be surprised."

Willem Middelkoop, who manages the Gold&Discovery Fund and is author of three books, one of which foresaw many of the financial problems of today, was also interviewed by "Nieuwsuur," said the Dutch authorities should make use of Rickards' insights and bring the Dutch gold back to the Netherlands. "In the 1930s," Middelkoop said, "there was a risk of a German invasion, so there was a reason to move our gold reserve. Then there was the threat that maybe the Russians would invade us. But nowadays I don't see any reason not to locate the Dutch gold reserve in the Netherlands."

MP Irrgang also called for a change in the central bank's gold location policy and said he was surprised that the U.S. government might consider confiscating the gold of other nations.

But Knot took a different position. He said the Dutch gold has always been safe in New York and that Dutch-American relations have always been good. Asked if despite these good relations, it still would be wise to relocate the gold, Knot answered resolutely, "No."

Some important questions remain unanswered. Just how much Dutch gold is located in New York, Ottawa, and London? Exactly who has custody? Are the Federal Reserve, the Bank of England, and the Bank of Canada the custodians of our gold or has our gold been transferred to the custody of third parties such as bullion banks HSBC, JP Morgan, and Scotia Mocatta?

Since the Dutch central bank seems to be very reluctant to change its gold location policy, perhaps bank president Knot can continue with greater transparency and arrange and publish an independent audit along with the serial numbers of the Dutch gold bars held abroad. If all is well, then this should not be a problem.
No, no problem at all.  I'm sure everything is on the up and up, right?  There will be problem some day, and when it occurs there is going to be scramble for gold that has never been seen.  One world power is seemingly taking no chances:
Chinese goldbugs take the lead

By Jack Farchy

Did China just overtake India as the world’s largest gold consumer?

Little more than a year ago it would have been almost laughable to ask that question. In 2010 India’s gold consumption was a full 46 per cent – or 275 tonnes – higher than China’s, according to data from consultants GFMS published in the World Gold Council’s quarterly reports.

Even three months ago it would have been a stretch. In the first nine months of 2011, Indian gold demand totalled 743 tonnes, compared to 612 tonnes for China.

But data released in the last few days suggests that China may have closed the gap, inching ahead of India in terms of overall gold demand in 2011.

Some of us had predicted this, but the data are sketchy, questionable, and incomplete, so it remains a hypothesis at this stage. GFMS is releasing updated – but not final –2011 data on Tuesday, while the WGC should publish fourth quarter numbers in mid-February.

Nonetheless, at least one senior gold trader I have spoken to believes that China did indeed consume more gold than India last year. That conclusion implies an enormous divergence in gold buying in the two countries in the fourth quarter. And indeed, initial data and anecdotal reports from traders support that picture.

If the Chinese have indeed passed the Indians as the largest gold buyers, it signals a sea change in the world.  I don't for one second think that Western banks are going to let the Chinese just scoop up all the gold.  This means there will be more and more buyers for the yellow stuff.  This means higher prices.  This is justed getting started folks.  Here's the opinion of a guy who has survived the financial newsletter business for over 50 years.  That's a lot of experience to draw from.  What is he thinking:

Richard Russell last night…

January 11, 2012 -- For a decade I have been urging my subscribers to move into gold -- either physical bullion or other wise. Now I am at it again PLEASE MOVE INTO GOLD. Those who think gold has lapsed into a bear market simply do not know what they are talking about. Gold has simply been correcting in an on-going bull market.

This is a time when almost every central bank in the world is grinding out paper currency, grinding it out by the car-load. This is a time when people are searching for safety People are frightened and confused. Where is the land of safety?

There is only one safe asset on the planet: that safe asset is gold. Uninformed people believe gold is just a commodity. Wrong, gold is absolute money. Gold alone is the world's only completely safe currency. Gold has no counter-party against it, and no central bank has ever found a way to create gold.

The fact is that gold can only be produced by the sweat ingenuity and capitalization of men.

The key to the entire situation today is something you don't hear anyone talking about. I am referring to PAIN. I am referring to the fear and avoidance of pain. When a man loses his job it's painful. When A man does not know how he's going to feed his family it's painful. These are basics that every politician knows about.

The first job of every politician is to get reelected. If the pol's constituents are feeling pain they will not vote for the politician who represents them. Every politician knows this, and thus politicians always vote for spending plans that they hope will keep their constituents happy. All during the years following the World War 11 politicians have OK'd an endless parade of spending bills. As a result the US national debt has grown to over $13 trillion dollars -- an amount that would have been considered inconceivable just a few years ago. Almost every nation on earth has indulged in the same kind of fiscal madness.

To cover the insane spending, nations have had to create an almost endless amount of fiat currency. This avalanche of "money" has steadily reduced the buying power of almost every currency. The result is that it takes increasingly more paper currency to buy one ounce of real money – gold.

Gold may now be ending its latest correction (see chart on yesterday's site). If I am correct in this, gold is in a buying zone.

We are no where near the top of the gold bull. I've had people asking me if the gold bull is over, more and more and that is my biggest sign that it isn't the end.  That, and the crazy mad money printing which isn't going to stop anytime soon.  If you don't have gold and silver yet, what are you waiting for?
GORO (closed $24.25, up $.08, recommended at $6)
GORO has updated it's presentation on their web site.
Mexus Gold (closed $.065, down $.005, recommended at $.15)
Mexus will be presenting at an investors conference later in the month.  Hopefully that can gin up some new blood.
AXU (closed $6.57, down $.02, recommended at $7.90)
This is still an excellent company with outstanding long term potential.
MBI (closed $12.78, up $.49, recommended at $10.58)
MBIA had another settlement with one of it's opponents:

MBIA Reaches Settlement with BNP Paribas in New York Restructuring Lawsuit

MBIA Inc. (MBI) and BNP Paribas (BNP) settled litigation challenging the bond insurer’s restructuring, according to the New York Department of Financial Services.

BNP, which was among banks that sued MBIA, is withdrawing from two lawsuits in New York State Supreme Court in Manhattan, according to court filings today. David Neustadt, a spokesman for the Department of Financial Services, said the companies reached a settlement.

MBIA, based in Armonk, New York, was sued by a group of financial institutions after the 2009 split of its main bond-insurance unit into two businesses. They claim the restructuring was intended to defraud policyholders and rendered MBIA Insurance Corp. insolvent.

The New York State Insurance Department, which approved the split, was sued with MBIA in a separate proceeding. The insurance department is now part of the Department of Financial Services.

Cesaltine Gregorio, a spokeswoman for Paris-based BNP, declined to comment on the agreement. Marc Kasowitz, an attorney for MBIA, didn’t respond to an e-mail seeking comment.

A group of plaintiffs have withdrawn from the cases, including Wells Fargo & Co., Credit Agricole SA, HSBC Bank USA., JPMorgan Chase & Co. Bank of America Corp., Societe Generale SA, UBS AG and Natixis remain plaintiffs in the cases, according to today’s court filings.

“We are pressing forward until the policyholders receive full satisfaction from the court, MBIA or the Department of Financial Services,” the bank policyholder group said in an emailed statement.

The cases are ABN Amro Bank NV v. MBIA Inc., 601475-2009, and ABN Amro Bank NV v. Dinallo, 601846-2009, New York State Supreme Court (Manhattan).

As each of these banks drops out of the suit, the closer MBIA is to being able to write more insurance.  At present, they aren't allowed to conduct new business.  The big fish left in the suit is Bank of America.  They have conducted an obvious delay tactic here:
Banks Suing MBIA Press for Solvency Review
As each of these lawsuit member drops out, the closer MBI is back to being a normal company.  The big fish still left is Bank of America.  This is a totally bankrupt, to be to fall entity that is desperate.  They have made a delaying tactic here:
Lawyers representing a group of banks suing bond insurer MBIA Inc. have asked its regulator for an independent evaluation of the insurer's financial condition, as the four remaining banks push on with a fight over MBIA's 2009 business split.

In a Jan. 11 letter to Benjamin Lawsky, who heads the New York State Department of Financial Services, the banks' lawyers requested that a "qualified independent expert" be retained to analyze expected losses from insurance MBIA sold on subprime-mortgage debt and other complex securities.

This will have no effect on the case and is obviously a little desperate.  I think that this motion will be denied and BoA will be forced to settle up.  Still long here and the chart looks great.  Should we get a close over $13.51, the stock could move substantially higher.  ($16-17)
Stock Market (currently out)
I'll close this week with another world record.  Have a great week!  (oh and by the way, this same guy just broke his own record)