Category: zerohedge

During a CNBC inteview today, when discussing the historic Brexit vote outcome, Alan Greenspan unleashed a fiery sermon that could have been prepared just by reading a random selection of posts from this website, the former Fed chairman told his shocked hosts that the current period, far from the raging “Obama recovery” spun every day by adaministration propaganda appratchicks and one that prompted the Fed to unleash a ridiculous rate hike cycle in December just as the US is sliding into a recession, and is instead the “worst period” he has seen, surpassing even the infamous Black Monday in severity.

“This is the worst period, I recall since I’ve been in public service. There’s nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away. I’d love to find something positive to say.“

EXCLUSIVE » Fmr. Fed Chair Greenspan to CNBC: “This is the worst period I recall since I’ve been in public service.” http://pic.twitter.com/mu0p471fAm

— CNBC Now (@CNBCnow) June 24, 2016

Of course, what he is referring to was a market shock which was the result of a massive capital account imbalance resulting from the aftermath of the Louvre Accord coupled with the then trendy Portfolio Insurance (in which everyone was on the same side of the boat, much like now) and not so much an all out economic malaise. Which, however, does beg the question when a Black Monday-like market crash is coming?

Rhetorical questions aside, Greenspan was referring to the unprecedented combination of economic stagnation, deteriorating demographics, insolvent entitlement programs, social inequity and wealth division, and of course, a historic debt overhang which could and should have been cleared out in the crash of 2008 but instead was preserved to avoid wiping out the same “equityholders” who also happen to be the Fed’s direct and indirect stakeowners.

To be fair, Greenspan, who in recent years has become one of the loudest advocate of gold alongside billionaires such as Druckenmiller and Soros, did not say anything our readers did not know. The former Fed chairman said that the root of the “British problem is far more widespread.” He said the result of the referendum will “almost surely” lead to the Scottish National Party trying to “resurrect Scottish Independence.”

Greenspan said the “euro currency is the immediate problem.” While the euro and the euro zone were major steps in a movement toward European political integration, “it’s failing,” he said.  “Brexit is not the end of the set of problems, which I always thought were going to start with the euro because the euro is a very serious problem in that the southern part of the euro zone is being funded by the northern part and the European Central Bank,” Greenspan said.

He then repeated a point that has been widely accepted in recent months, namely that monetary policy – while still the only game in town – is now impotent. Greenspan said the ECB is limited in what it can do because these fundamental problems like the stagnation of real incomes don’t have easy solutions. “There’s a certain amount that monetary policy can do, but our problem is fundamentally fiscal,” he said, adding that this is true in the United States as well as “every major country in Europe.” Part of the problem is that the “developed countries are all aging very rapidly,” which is leading to a higher ratio of government spending in the form of entitlements, Greenspan said.

A far bigger part of the problem is the toxic loop of monetary and fiscal policy which we have pounded the table on for years, and which S&P laid out for all to see when it said that the more monetary easing takes place, the less incentive there is for reform and actual fiscal policy.

Since we have covered everything Greenspan said extensively in the past seven years, we won’t spend time repeating ourselves. Readers can watch the 90-year-old former Fed chairman admit everything we have said in the following two clips.

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Gold Surges 15% To £968 Per Ounce – BREXIT Creates EU Contagion Risk

– Sterling and euro have fallen sharply on fx markets
– Gold bullion surged 20% in sterling to £1,015/oz
– Gold now 15% in higher in GBP at £967 per ounce
– Gold 8% higher in EUR and 5% higher in USD
– Stocks globally are down sharply – FTSE down 9%
– European stocks down sharply
– Euro Stoxx 50 Futures collapsed over 11% at the open
– Bank shares are down 20% to 25%
– Cameron has resigned – adding to uncertainty in markets
– Record online sales at this time of day for GoldCore
– Nearly all buying with a preference for gold over silver
– Some selling – with some investors choosing to take profits after sizeable short term gains

Silver Prices (LBMA)
24 June: USD 18.04, EUR 16.32 & GBP 13.18 per ounce
23 June: USD 17.29, EUR 15.16 & GBP 11.61 per ounce
22 June: USD 17.20, EUR 15.23 & GBP 11.72 per ounce
21 June: USD 17.36, EUR 15.34 & GBP 11.78 per ounce
20 June: USD 17.34, EUR 15.30 & GBP 11.85 per ounce
17 June: USD 17.37, EUR 15.43 & GBP 12.19 per ounce
16 June: USD 17.71, EUR 15.79 & GBP 12.54 per ounce
15 June: USD 17.41, EUR 15.51 & GBP 12.26 per ounce

Gold News and Commentary
GoldCore experienced record online sales for the time of day and may have to restrict trading to existing clients if demand remains high (Bloomberg via Business Times Singapore)
Elderly customer fearing economic collapse asked if she could invest all of her life’s savings in gold, despite the recommended investment level of 15% (WSJ)
Gold Sees Biggest Gain Since 2008 in Rush for Havens From Brexit (Bloomberg)
Gold Soars as Investors Seek Haven Following ‘Brexit’ (WSJ)
‘Buy gold’ searches soar 500pc after Britain votes to leave EU: here’s how to get your hands on the yellow metal (Telegraph)
Pound Plunges to Lowest in More Than 30 Years as Brexit Looms (Bloomberg)
Deutsche Bank to shut 188 German branches, cut 3,000 staff (CNBC)

Gold Soars Most In 42 Years For British Buyers (Zero Hedge)
Britain Votes to Leave E.U., Stunning the World (NY Times)
EU Referendum Live (Telegraph)
U.K. votes for Brexit: Latest on the fallout from the EU referendum (Marketwatch)
Britain votes leave: Don’t panic – this is an opportunity (Money Week)
Read More Here

Recent Market Updates
– BREXIT Day – Markets Becalmed – Gold Panic Prelude – Trading Hours
– Gold Lower Despite “Panic” Due To “Supply Issues” In Inter Bank Gold Market
– Gold Slips Despite UK Gold Demand Surging – Investors “Seek Stability”
– Gold Prices Surge to Highest in Nearly Two Years On FED and Brexit Haven Demand
– Gold Bullion Has Little Downside, Brexit Or Not, Says HSBC
– Central Bank of Ireland Warns Risks are Debt, Brexit, Geopolitical Tensions and Migration
– Gold In Euros Surges 6.5% In June and 17% YTD On BREXIT Concerns
– Soros Buying Gold On BREXIT, EU “Collapse” Risk
– UK Gold Demand Rises On BREXIT “Nerves”
– Pensions Timebomb in “Slow Motion Detonation” In UK, EU, U.S.
– Silver – Perfect Storm Brewing in the Market
– Martin Wolf: There Will Be Another “Huge” Financial Crisis

Note
– There has been record online sales on the GoldCore website for this time of day and the phones are ringing off the hook. We have had more sales than during the Lehman crisis and at the height of the Eurozone debt crisis. It is nearly all buying with a preference for gold over silver. We may have to restrict trading to existing clients if we continue to see this level of demand.

– We are seeing more selling then expected and seeing some clients choosing to take profits after the very sizeable short term capital gains. As a percentage of overall trading though, sellers are vastly outnumbered by buyers.

– Bullion inventories had already been increased to record levels and we are confident that the UK leaving the EU will lead to a sustained increase in coin and bar buying in the coming months.

– Sales of Britannias and Sovereigns which are CGT free for UK buyers have been very high and we are replenishing coin inventories this morning.

– We are seeing demand for legal tender British coins, both for delivery to clients in the UK but also for storage in Zurich.

– We are not selling out of any products and do not anticipate we will in the short term unless high net worth clients buy coins and bars in volume.

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“On days like today,” Bloomberg’s Richard Breslow explains “there’s a penalty for overthinking. And a premium for being able to pull the trigger.” That’s the essence of mayhem day survival…

It’s done. Britons voted to leave the EU. But this isn’t the time to be sitting around with mouth agape, shaking your head. Market technicians talk about “key day reversals.” They’re important signals that are ignored with peril. Warning of a powerful rejection of a trend at its most extreme. If you look at the charts this morning you’ll find them all over the place. Daily, weekly and monthly charts confirming each other.

 

In this case, it’s an even more imperative call to action because it had a major fundamental cause. A key day reversal for U.K. governance with global economic implications.

 

Traders can’t sit with positions that are obviously wrong way round hoping for a bounce. Hit the bid, get square, sell some extra if you think it’s going to keep going. There’s no clear thinking while you watch your trading life pass by your eyes.

 

 

Better if it bounces and you didn’t get the best level than keep passing on lower and lower prices: which is soul-destroying.

 

Volatility is scary because central banks have tried to distort it out of existence. But the truth is, this is going to be a traders’ market. You don’t have to do size, just be active. How rare it’s been to have multiple opportunity days.

 

And I hear most banks are accepting stop/loss orders again.

 

If you believe that huge moves are coming, try to get in. At least have a plan. You can’t say, “this is going to go 15% but I’m not taking a position.”

 

Everything in trading isn’t buy the dip. Sometimes you have to think out of the box and get short.

 

And please, no matter how upset you may be with the result, there’s nothing immoral about taking advantage of the opportunities.

*  *  *
No matter what, there will be blood on the streets today.

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When we reported that California tax revenues had missed projections by nearly $1 billion in the first four months of the year, we pointed out that one key driver was that over 250,000 residents left the state between 2013-2014 alone, taking that tax base with them.

It turns out that it's going to get worse before it gets better for California, because as Mercury News reports, state Finance Department statistics show that 61,000 more people have exited California than have moved to the state during a twelve month period ending June 30. The net outward migration was the largest since a net 63,000 people left the state in 2011. "The main factors are housing costs in may parts of the state, including coastal regions of California such as the Bay Area. California has seen negative outward migration to other states for 22 of the last 25 years." Dan Hamilton, director of economics with the Economic Forecasting Center at California Lutheran University in Thousand Oaks.

"They are tired of the expense of living here. They are tired of the state of California and the endless taxes here. People are getting soaked every time they turn around." said Scott McElfresh, a certified moving consultant.

The cost of living has increased as the second tech boom has come to the Silicon Valley area, and the region's soaring housing prices are cited as a key factor driving dissatisfied residents to leave. The higher paying jobs provided by the tech boom have increased the cost of living overall for everyone, but especially hard hit are those that are still in what's left of the middle class. For those residents, it has become increasingly difficult if not impossible to keep up with the higher cost of living in the area.

"There is a declining middle class in the Bay Area. Widening income inequality can create polarization socially and economically." Said Christopher Hoene, executive director of the California Budget & Policy Center.

According to Mercury News, in 1989 the middle class accounted for 56% of all households in Silicon Valley, but by 2013, that had fallen to 45.7%.

Lower income residents accounted for 30.3% of Silicon Valley's households in 1989, and that number grew to 34.8% in 2013. On the other end of the spectrum, upper income residents had 13.7% of the share of households in 1989, and that jumped to 19.5% in 2013. This illustrates the economic divide that has grown in the region, and why many simply can't afford to keep up with living expenses.

"A lot of middle class jobs have vaporized. The support positions, the assembly line positions, the jobs that paid the middle class, a lot of those have gone away." said Russell Hancock, president of San Jose-based Joint Venture Silicon Valley.

Skyrocketing costs for housing, food and gasoline along with the area's insufferable gridlock prompted four-decade Bay Area resident Kathleen Eaton to move to Ohio. "It was a struggle in California. It was a very difficult place to live, it's a vicious circle" Eaton said, adding "You can't get ahead. It's more than the cost of living; it's the high taxes."

Eaton and her sister had a $724,000 house in The Villages in South San Jose that they sold before moving to Ohio. Their mortgage payment was $2,200 a month, plus $1,000 for association fees in the community. In Ohio, they were able to pay $300,000 cash for their home.

The same story goes for Priya Govindarajan, a San Francisco resident who is planning to leave the Bay Area with her husband. "My husband's salary would be in the six figures, but six figures is not enough to cover the rent, day care, and food prices. It all starts to add up." Priya said.

"I get why people want to live in the Bay Area, I really do. But it is so difficult to live here, especially for people coming here for the first time." Priya added.

* * *

"This summer, I have booked more business than in any of the other 27 years that I've been working. People are packing up and leaving" said McElfresh. We have news for that moving consultant, when the fact that the second tech bubble having burst becomes a reality for more and more of those who live in the Silicon Valley area, his business is going to go through the roof.

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For European banks, today is worse than Lehman with a 13%-plus collapse in the broad index. The major banks – like Credit Suisse and Deutsche Bank – have crashed over 15% to record lows as "Lehman moments" loom. This crisis prompted massive demand for USDollars, sending basis swaps (and other funding vehicles) spiking which it appears is why The Fed said it was ready to provide liquidity.

The broad EU banking system is collapsing…

Led by the majors…

Raising "Lehman moment" alarms again…

And sparking desperate demand for USDollars…

And Sterling was sold hard into the European close (down 200 pips)

As counterparty risk looms again…

Which explains why The Fed stepped up already with swap lines…

And then Lagarde confrmed:

• *LAGARDE REITERATES SUPPORT FOR C.BANK LIQUIDITY READINESS

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Brexit doesn’t happen so often – but it does happen.  Many will remember the days when Maltese Lira, Cyprus Pound, and others joined the fledging Euro.  During that time it was possible to have a 400% return in your account in 1 day due to planned exchange rates on the conversion day.  Now probably a flood of copy cat referendums will sweep the EU, certainly by those already in the works in breakaway regions.  As we’ve been saying for years, the Euro finally will be shattered into regional Euros, and mixed with a return to national currencies such as the French Franc, Spanish Peseta, Italian Lira, and so on.  Probably, the Euro will always exist as accounting currency, and probably will always be accepted by merchants for payment in Europe.  In many countries such as Russia for example, a 3 currency system already exists.  Countries that don’t have strong domestic currencies often use foreign currencies as a benchmark, or a place to keep their savings in times of currency crisis.  In most cases, this is primarily the US Dollar and secondly the Euro.  Finally – to please all these conspiracy nuts; they are right – there is a plan to create a one world currency – but it’s not SDRs and it’s not the Amero, it’s the US Dollar.  Last night, as results came in indicating a “Brexit” – the GBP collapsed.  Forex involves a pair trading system – it’s not possible to just ‘sell’ the Great British Pound (GBP) – it must be ‘bought’ against another currency.  That means, while the GBP was collapsing – other currencies were rising.  So this event was net positive for most other currencies, most notably the US Dollar.  See the below hourly chart of GBP/USD:

What this means is the GBP (Great British Pound) went down and the US Dollar (USD) went up.  The USD is a net benefactor of many foreign market volatilities – not only in FX.  Probably you’ve heard about ‘flight to safety’ – well since the CIA killed off the safety of this little canton north of Italy we call today “Switzerland” – the US is effectively the only ‘safe haven’ left.  By eliminating offshore locations on a number of levels, it sucks money back into the USD which is a natural support of the USD – both domestically and USD accounts held overseas.  The US has effectively an unsaid policy supporting the USD through foreign policy, including but not limited to military intervention, gunboat diplomacy, and a number of other techniques.

Hats off to all GBP FX providers that maintained superb trading conditions in a difficult volatile environment.  Brexit trade was an excellent ‘stress test’ of what happens to when such existential events take place.  FX markets functioned, and functioned well.  

Day traders had many opportunities to profit, from an obvious one way trade down.  Also this is an excellent example of why any investor should include FX in their portfolio.  While it was easy for day traders to book huge profits last night, it could simply have offset other losses.  Let’s take the following trade example:

Some of the trades:

These trades were poorly placed and captured only about 5% – 10% of the opportunity, but it also proves that last night was such a one directional move – that took many hours – anybody could have made money from this move.  It didn’t happen all at once, it took hours – and often retraced.  

From a hedging perspective, let’s say the profit on this account balanced out other Brexit related losses.  Most investors aren’t pure FX speculators, so this is a solid example of why FX should be in any portfolio.  Because this was an FX event – the GBP moved against most other currencies that it trades against.  See in the above example GBPNZD, GBPMXN, GBPCHF, GBPCAD, GBPSGD, and GBPUSD.  

Finally – this FX event is a strong indication that more events like this will soon come to fruition, that FX is going to be the new focus of international markets, especially in Europe.  The Euro itself is in question – if countries such as Spain leave the Euro, it can start a trend that shatters the fundamental threads holding the Euro together.  This will be net positive for FX and net positive for countries who leave the EU – but it will create massive volatility on all global markets, as assets are repriced and money is moved around.  The good news, FX provides a plethora of methods for profiting, hedging, and investing.  

Now is the perfect time to learn more about this important market – a great place to start is by reading Splitting Pennies – Understanding Forex.  If you are in the United States or are a US Citizen, you can open an account with Oanda through Fortress Capital with only $10 by clicking here.  If you are outside of the US – open an account here at LMAX exchange.  Also, Fortress Capital offers Forex managed accounts for QEP (Qualified Eligible Persons) – visit Fortress Capital Forex to learn more.

While FX has received a lot of bad press recently (and for good reason) today’s Brexit trade is a great example of what’s possible in FX in a good way, how investors can benefit from it as speculators or hedgers to protect themselves.  

Also – it’s a sign of things to come – buckle up!  Markets are going to experience turbulence!

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Following weeks of declining volume due to fears of an “unfavorable” Brexit outcome, it was only logical that the same “unfavorable”  Brexit outcome would result in a historic surge in pent up volume. And, as Bloomberg reports, “a turbulent start to the open of the London market propelled trading volume as much as 700 percent higher than normal, while at least one dark pool was suspended as investors around the globe digested U.K. voters’ decision to leave the European Union.”

Think August 24 in the US, only this time in Europe: while the London Stock Exchange was functioning properly, many stocks took longer than normal to start trading amid a spike in volatility.

“A number of stocks were going into volatility halts at the open,” Mark Hemsley, chief executive officer of Bats Global Markets Inc.’s European unit, said in a phone interview. “We’re just seeing really high volumes. It’s a heavy day, but we’re nowhere near our peak capacity rates.”

As Bloomberg details, the shock Brexit decision sparked an outpouring of buying and selling: European markets saw 25.5 billion euros ($28.3 billion) in trading — at least half of a typical day’s volume — by just 9:10 a.m., according to Bats, which operates the biggest exchange in Europe.

However, unlike the US, where last August a historic volatility surge broke ETF pricing models and sent the entire VIX calculation engine at the CME offline for nearly 30 minutes, European market participants had a more practical solution: just shutting everything down.

Case in point, Morgan Stanley’s dark pool – the venue where these days most size, block trades are executed due to fears of HFT frontrunning – was offline this morning, Bloomberg reports. The pool is up and running now. Morgan Stanley declined to comment. “The first hour was pretty horrific,” Rob Boardman, chief executive officer for Europe of Investment Technology Group Inc., an electronic broker and dark-pool operator, said in a phone interview. “There was almost no trading before 8:10 a.m. because prices were just bouncing around, stocks struggling to open. Now we’re actually seeing volume go through the market properly, prices are becoming a bit more real.”

Deutsche Bank followed suit, and temporarily shut off outside market makers in its dark
pool, SuperX. The bank
told outside market makers that they would be prohibited from trading in
SuperX on Friday, until the bank notified them it was ready to resume.

Bank of
America Corp. asked some outside trading firms to cut their messaging
volume by half, said the people, who asked not to be named because the
announcements were not public.

And then, all it took for trading to resume were a few central bank, IMF, and G-7 statements to soothe frayed nerves and restore confidence that Draghi, Yellen, Kuroda et al have traders’ backs.

Bats says equities on its European platform are subject to price collars, which reject orders that stray too far from previous reference prices. The thresholds range from about 5 percent to 10 percent.

Meanwhile, over in Mahwah, New Jersey, the amusingly named “New York” Stock Exchange announced it would widen its price collars to 10 percent for all stocks. The company said premarket trading was heavier than usual. Today will also see a volume boost from the annual rebalancing of FTSE Russell’s stock indexes. In 2015’s rebalancing exercise, U.S. equity trading jumped by more than 10 billion shares.

The good – or perhaps bad – news, is that unlike Europe, US markets went online without a glitch.

While extended auctions are to be expected on such a volatile day, there are signs, based on how markets in Asia performed, that the infrastructure has the capacity to withstand the shock of Brexit, said Philip Gough, chief executive officer of Convergex Ltd.’s London-based brokerage.

 

“When you look at how the Asia infrastructure held up, I didn’t hear of any issues,” Gough said by phone. “The capacity people have put into technology is drastically different than a few years ago. So far everything has held up.”

Needless to say, as all global markets approach the CYNK singularity, where ever lower volumes lead to ever higher prices, only to eventually result in a burst bubble at which point trading is halted, this is merely a precursor, and a handy harbinger, of what is coming as all those “pent up sellers”, who have been so very dormant for the past several years, decided to finally cash out. We wish them the best of luck when they do.

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After the dust settles and some fundamental analysis is attempted, what analysts will try to calculate is which S&P500 sectors, and companies, have the most exposure to a post-Brexit UK, a country whose growth expectations have been slashed in angry retribution by all those sellside strategists and experts whose “scaremongering advice” was ignored, and which many banks now expect will promptly enter recession (for the variant perception read Albert Edwards’ latest note, according to whom the dramatic sterling devaluation is precisely what the UK economy needs).

One place to start would be the following analysis from Factset, which analyses which sectors and companies in the index have the highest revenue exposure to the UK?

According to FactSet Market Aggregates and FactSet Geographic Revenue Exposure data (based on the most recently reported fiscal year data for each company in the index), the aggregate revenue exposure of the S&P 500 to the United Kingdom is 2.9%. This is the third highest country-level revenue exposure for the index, trailing only the United States (68.8%) and China (4.9%).

At the sector level, the Energy (6.4%), Information Technology (4.0%), and Materials (3.7%) sectors have the highest revenue exposures to the United Kingdom.

At the company level, 30 companies in the S&P 500 have revenue exposure of more than 10% to the United Kingdom, led by Newmont Mining (64%), Molson Coors Brewing (34%), and PPL Corporation (31%).

It is interesting to note that since February 20 (the date the UK announced the June 23 timeline for the EU vote), the companies in the S&P 500 with more revenue exposure to the UK have seen higher average and median price increases relative to the index as a whole.

For the entire S&P 500 index, the average price change for a stock from February 20 through June 16 was +11.3%. For the companies in the index with more than 10% revenue exposure to the United Kingdom, the average price change for a stock over this period was +16.7%. For the entire S&P 500 index, the median price change for a stock from February 20 through June 16 was +9.6%. For the companies in the index with more than 10% revenue exposure to the United Kingdom, the median price change for a stock over this period was +14.3%.

Source

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From the moment S&P 500 futures were halted limit-down overnight, ‘they’ have been hard at work pressing on the throat of volatility, crushing VIX futures from over 27 to under 20 now as the machines desperately try to enable some momentum off the carnage in US equity markets…

Spot VIX also just broke below 20…

And dip-buyers are in…

And while that is modestly helping US stocks, European equities are a bloodbath…

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With precious metals soaring on safe haven buying…

We thought John Rubino's thoughts (via DollarCollapse.com) were particularly prescient…

Gold analyst Michael Ballanger just posted an article noting how much things have changed — perhaps for the better — in the gold market. Here’s an excerpt:

 

Commercial Traders Have Just Gone Over the Top

(24hGold) – With Friday’s Commitment of Traders Report, the ridiculous has just metastasized into the sublime as the Commercial Cretins have just gone “over the top” and added another 5.4M “ounces” to their synthetic gold short position. At 298,077 contracts declared short, they are now carrying the largest short position in Crimex history. The scary part is that these figures don’t include the big rise in open interest yesterday and you just KNOW that it ballooned out due to more Cartel shorting.

 

 

While these numbers are synonymous with prior tops like in 2008 and 2011, the difference today lies in two realities: 1) The Shanghai Gold Exchange is keeping the Crimex and LBMA (London Bullion Market Association) thieves at bay through some voracious arbitrage, and 2) Raw demand from the Far East and from Western investment pools are keeping inventories tight. If this was back in 2011-2015, the market would be limit down on Monday as the criminals have their way with us. However, this is a NEW bull market and dips are to be bought while holding onto your core position for dear life as I have been trying to do with my GDXJ (Market Vectors Junior Gold Miners ETF) position. I can’t tell you how many times I have had to lock myself in the wine cellar during trading hours because the temptation to “SELL!” was so overwhelming.

 

The bullion banksters and their well-armed trading desks have now arrived into somewhat of a “pickle” in that the movie reel that they thought would play out with the bad guys winning and gold following through to the downside on what should have been another Freaky Friday where gold and silver get clobbered. Since it DIDN’T, they now have to await selling from the Asian markets in order to give them the slightest chance of a downside flush this coming week.

 

What IS a certainty is that the PMs are trading in a totally bizarre fashion, and anyone who fails to pay attention to Commercials are indeed paying no attention to “that man behind the curtain” who most certainly is pulling levers and spinning dials frantically in order to secure the desired effect while being short nearly 30 Moz of phony, synthetic gold that closed within a whisker of a new closing high for the move. There must be carloads of Pepto and adult diapers being handed out to the Cretins as the wait in agony for the Sunday night opening.

Let’s expand on that “voracious arbitrage” idea: The Shanghai exchange is a physical market, where buyers go to get actual gold and silver. So prices there are set by sellers with metal to move and buyers who want to take delivery. On the Western paper exchanges, in contrast, the players mostly gamble on price movements using futures contracts with very little actual metal changing hands.

But if the price set in the Shanghai physical market is higher than in the paper markets — reflecting the different aims of the respective sets of traders — then it becomes profitable for holders of long futures contracts in the West to demand delivery of the metal, ship it to China and sell it at the higher Shanghai price.

Once this process gets going it will quickly clear out the inventories of the Western exchanges, leaving nothing for future arbitrageurs. The exchanges will then force those wanting delivery to accept cash instead, in effect defaulting on their promises. Then it’s game over, with the big futures manipulators no longer a factor in pricing.

Presumably from then on gold and silver prices will reflect rising physical demand in the East (and in the West from individual stackers). And gold will begin its long climb to the $10,000 or so price necessary to balance the amount of fiat currency created during the inflation of the Money Bubble.

This phase change could take a while, creating the possibility of some more nasty corrections while the paper players retain the upper hand. And once it gets going it could be steady and relatively peaceful or a “punctuated equilibrium” move where the failure of an exchange or bullion bank sends gold from $2,000 one day to $6,000 the next. Either way, the dominance of physical exchanges implies that much higher prices are coming.

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