DEC 13, 2016
Jim and I have received many panicked calls and e-mails regarding Martin Armstrong’s latest article. In it he again claims gold will collapse to below $1,000 per ounce and thus the fearful communications.
In this very short article, Armstrong questions whether India will begin gold confiscation suggesting door to door searches for “tax evaders”. He suggests if a gold confiscation is undertaken, the Indians will switch to purchasing silver …something the BIS has not thought about yet. The logic of a switch to silver is a good one, surprising considering some of what he has opined in the past…
We posted two articles late last year refuting his poor logic and efforts at rewriting history. In the first one, we refuted his claims that markets are not manipulated. Since then of course we have had many settlements by large banks for just that…MANIPULATING MARKETS. Last week saw Deutsche Bank admit to manipulating the gold market and agree to pay a $60 million fine (peanuts) and offer some seriously damaging evidence in the form of captured communications. As they have turned state’s evidence and squealed on others, this will become very interesting no doubt! we would simply ask, are banks in the business of handing out “free money” in the form of $billions if they’ve done nothing wrong? JP Morgan, Citi, DB and many others have coughed up large fines. Was this “largesse” or was it to head off the decapitating legal procedure called discovery?
Then a week or so after the first article, we were forced to pen another one,. Mr. Armstrong truly erred when he made the statement gold was “devalued” against the dollar in 1934. It was no slip of the pen or tongue, he actually tried to rationalize and “explain” how gold was devalued versus the dollar. The fact is, gold was REVALUED over 70% higher versus the dollar in 1934. The claim that “the dollar” was the best performing asset during the Great Depression is outright bogus and why we give zero credence to anything the man now says. We write this today because so many readers have again had the wits scared out of them.
The “timing” is peculiar. India’s (Modi’s) timing of their boondoggle by demonetizing 86% of their paper currency cannot be a coincidence. The action came right on top of India’s wedding season where their international gold purchases are seasonally strongest. It was our opinion right from the start, the action was directly taken to cut off and mute their physical demand and offtake from world markets. The only problem is that it backfired miserably as reports of physical gold changing hands internally within India at $3,000 per ounce and more.
Who couldn’t have seen this one coming? When you cut off supply …and autonomously tell people their “savings” in paper currency have been ostensibly wiped out, what would you expect to happen? Supply and demand still works, price rose as supply has been cut and true demand has had a fire lit under it. If you wanted proof that gold is still seen as a safe haven in the midst of turmoil, here it is! Meanwhile, India’s real economy has crashed unlike nearly anything seen in modern history. Giant Foxconn is eliminating 25% of their workforce due to the monetary insanity. Trucks are littering the sides of the road as the cash does not exist to purchase fuel. The disaster is just beginning, coming days and weeks will surely see “hunger riots”.
A similar question was raised about China over the weekend by Yra Harris regarding an article Kitco ran. What will happen if China decides to stop their importations of gold? Jim and I talked at length about this and then spoke with Yra to get his take on our conclusion should this happen. Wouldn’t the ban of imports cause a huge drop in paper gold prices but not necessarily cash price? The answer is yes, no, and we may well see the “mechanism” to reset global markets if we do.
Looking at China following India’s lead was an interesting thought process if you follow it through to the end. The fear of crashing price by “cutting off demand” is logical only if you stop the process before finishing the to the final answer. You see, were China to preclude gold imports, the immediate reactions by COMEX and LBMA would most probably be a crash …maybe even a $500 crash! Would that matter? Again, yes and no but stay with me to the end. “Price” in the West may crash, but “what” exactly is it the price “of”?
Paper prices may very well crash …while price for real gold within China goes to the moon. We are already seeing large spreads existing between Shanghai and COMEX, these would only get larger and expose one market as …not really a market. Will the Chinese look at COMEX prices and shun physical or in the ground gold? Or will they look at what real gold is changing hands at inside of China and decide to “arbitrage” it out of the ground (and from Western vaults) and into their own market?
This is the crux of what we theorized. Yes, it is certainly possible to see paper prices collapse from here and possibly sparked by China banning imports (temporarily). Set in motion would be paper prices dropping and physical markets rising (something I have written about since 2007 and spoke of since early 2000′s). China (official state) would then “purchase” and demand delivery of ridiculously cheap gold (while there is still inventory left to deliver). As Jim put it during our last weekend interview, “you could see COMEX gold at $10 offered and no bid with Chinese cash markets $5,000 bid and no offer”.
China (Russia and India) will ultimately “make price” as they are the physical markets and collectively have more gold than the West (please don’t reply with GFMS or World Gold Council numbers as they are laughable). A “reset” of global finance is certainly coming, the only questions are how, when and how much? We believe the event will be very rapid, probably over a weekend but China could force a reset via Mother Nature and arbitrage in a slower manner. Real gold will find its way into India (and China should they ban imports) simply due to the human characteristic of profit motive and black markets. Once Western vaults are emptied, who do think will “make price”? Those who don’t have it but suddenly want it, or those who have it and always wanted it? If we were running China, this is the exact mechanism we would use to remonetize gold and silver …and remonetizing metal is exactly what we believe they have wanted to do for many, many years!
To finish, Martin Armstrong was wrong about gold during the Great Depression even with the benefit of recorded history. Now, he could possibly be correct regarding the direction of his invention of derivative contracts … but we believe he is entirely wrong about the underlying physical product. He most likely has correct reasoning about a huge move into silver as he aligns with Mother Nature’ views the man made 70 to 1 g/s ratio as incompatible with her own at 10 to 1. One thing is certain, should the current paper versus physical pricing spread continue and expand, Netjets will become a great investment as a freight carrier for arbitrage!