The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, February 23, 2015.
Here's a new term for you to associate all the paper gold created out of thin air around the world every day, putting things in proper perspective - 'fiat gold' - gold buy declaration (fiat) - where the banks and financial establishment are able to sell as much fraudulent and unbacked representations of the physical commodity as they please. In case you are not clued in to why they do this - it's control - maintaining confidence in and control over the Anglo-Western financial system, also known as the status quo - by keeping prices lower. It is an unbridled system based in the interventionist Keynesian Model of currency by fiat declaration - hence the need for fiat gold in order to suppress prices when pressures get out of hand.
Because Western price managers will never give up their biases, so having the world most important and centralized markets pricing off these algorithms will always favor US / Western centricity, meaning stock and bond market propping and commodity / input price suppression. In case you have not been reading my work over the years, one should realize Western markets do not function in a normal fashion, but on how speculators bet in what are effectively casinos. What this means is it's the derivatives they are gambling in, and the algos programmed to exploit the human emotion that the decisions are based on, control the prices in Western markets today, making them sentiment based casinos in effect.
This is why high frequency trading (HFT) has become so important, because fundamentals don't matter anymore, just how the suckers are betting, and getting in front of them in the que. So unlike the movie Casino Royale, the house always wins under these conditions, because speculators continue to bet with their emotions set against dispassionate computers that execute 80 to 90 percent of volumes on all the markets in a cold-blooded calculus completely detached from reality. One does need wonder how something so stupid can go on for so long before collapsing onto itself, with the suckers eventually exhausting themselves (both financially and psychologically), however you must realize this is the Casino Royale, the biggest and flashiest Ponzi in the history of mankind, where the vice remains well hidden in the fraud, delusions, and distraction.
They say great empires, empires that essentially conquer a know world, where all opposition is crushed, die from within through time due to such corruption and human fragility. And certainly, in hindsight, this can be seen in the important instances, with Rome the profound example. However today, in the case of the American Empire and its apparent military (used to impose financial control) and financial conquering of the globe, while in hindsight this may prove to be the case once again, where the rampant corruption and debasement of society is visible for all to see, this time it may take an external shock to prick the bubble(s) - and this shock will most likely be provided by the Russian Chinese Alliance - in the form of military conflict.
Because given the increasing dumbed down nature of our present society, and it's increasing dependence on the nanny state, it's hard to imagine this inevitable outcome coming from within - at least not if 'big brother' has anything to say about it. And unfortunately, you may only have the bureaucrats and buggers to listen too moving forward if proposed internet censorship is forced on a sleepy society apparently busy to notice with all the other important distractions - the shopping (materialism), social networking (distraction and surveillance of society), and porn (debasement and perversion of society) - and all the other better uses for the net. Of course it could be argued the avarice of the surveillance state will ultimately alienate the US sufficiently to do the trick, that and all the other vulgarities Americans perpetuate on a once trusting world to maintain power, we will see.
If not, the land of the free will become a distant memory assuming a hero does not show up to save the day, but this is not a James Bond movie; so don't hold your breath. This means the bureaucrats could become even more empowered and emboldened, which in the end, and there will be an end to this madness at some point, will cause these bozos to piss-off the foreigners sufficiently to have them to push back with the lethal force that West / Washington dishes out every day in its continued conquest of the world, already being witnessed with increasing intensity, albeit such instances relatively unreported in the Western mainstream media. What's more, it's important to realize this is why the Western / US military machine continues attempting to push its way into the Ukraine, because America must keep colonizing so it can stuff more of its toxic credit down the throats of the vanquished.
But with the US war machine becoming increasingly challenged as the larger debasement process unfolds, where funding will literally 'crap out' if the doubling down in the bond market proves to be a dangerous gamble, don't be surprised if to counter this the powers that be have another war mongering Bush installed in the White House in 2016, where increasingly desperate measures to maintain the status quo would be expected. That's the plan anyway - just how it turns out this time won't look anything like Junior's Iraqi make work program, I can assure you, where now uncontrollably rogue Middle East players can be expected to resist reasserted colonization tooth and nail. We are already seeing this with ISIS threats to turn the screws up on Europe, the US led West's more vulnerable flank, if push comes to shove.
So expect process to be drawn out and messy in this regard, with external attacks on the US / Western Empire to increase in both intensity and orientation. Certainly the latest announcements out of Russia concerning their alternative to SWIFT, and the new BRICS bank, are omnipresent examples of this, where although small now, they could grow like wildfire under the right conditions. What are the right conditions? This is obviously a complex situation, where to cover all the important aspects would divert us (past most attention spans) from making the a more important subject that will directly affect your (financial) future; however, we would be amiss not touching on the point in general, the destabilization process of the US / Western Empire is accelerating, evidenced in the cadence of meaningful changes all around us, which will need to be properly reflected in the financial markets at some point.
Again, increasingly up until now, US markets (and to a lesser extent other Western markets) have essentially become sentiment based computer games (casinos), completely devoid of proper fundamental price discovery. So, as long as the news keeps getting worse, crazed and desperate (and drugged) US speculators will keep betting in the derivatives markets to capitalize on this bad news (down for stocks / up for precious metals), allowing the bureaucracies price managers (via these algos) to keep pushing existing trends further (up for stocks / down for precious metals) - at least that's the way its been going. We know this to be a fact based on put / call ratio and open interest trends these past years, of which long-term subscribers are well aware, where those who took warnings regarding not trading with the pack(s) seriously, would still be alive financially at this point. (i.e. those who maintained blind faith in the gold promoters have been decimated.)
The question then arises, when and how will this change, and what would such a change back to markets with proper price discovery fundamentals mean? A big question. First of all, the rigging of the US stock as a sentiment-based casino will never change, however this does not mean a combination of speculator exhaustion (bearish speculators stop buying puts) and outside changes will not eventually end the game. This last point is of particular importance regarding the precious metals market, where as Bill Holter explains, COMEX is becoming increasingly redundant within the big picture, and that when it decides to flex its muscles, China's physical markets will replace Western paper based frauds, where once this occurs we may finally find out the degree of re-hypothecation of precious metals in Western fractional reserve markets (think fiat gold and silver). (i.e. which will disrupt the entire Western fractional reserve banking system by forcing money into gold due to increasing systemic risk.) (See Figure 1)
As you can see above, Western price managers have been very successful at steering people towards stocks and away from precious metals since 1980 (using sentiment based markets and various intervention techniques [think increasing margin requirements, etc.]), where in fact silver, which is the bureaucracy's 'whipping boy' because it's a small and local market (think COMEX) that can be controlled, is still essentially where it was back at the last peak (1980) - the only commodity in the world with this distinction. And for silver, the mania in the COMEX market gets worse by the day, with neither losses nor time deterring reckless bullish speculators (think hedge funds) from playing chicken with infinitely (unlimited) better capitalized adversaries (think central banks with the Fed out front) - losing the game 99% of the time - time after time. I've said it before and I will say it again, this group of speculators, who are supposed to know what they are doing (did you ever think to check COT), are the dumbest bunch of idiots ever to bless a market - a godsend for the salvation / prolongation of the status quo. (See Figure 2)
Because keeping silver down is EVERYTHING now - both the speculators and status quo boys have seen to that. So, the question then becomes, 'what's going to happen to end the lunacy?' Obviously, and as borne out in the chart above, if history repeats, moving forward from here, the large speculators will need to reduce their long position by another 10,000 contracts before a lasting bottom can be expected, meaning as mentioned the other day in connection with our SPX / SLV Ratio analysis, the silver price could vex as low as the $14 area again before it's all over - given this is likely the last decline. The last decline? Yes, this should be the last decline all things considered, including sky high median stock valuations, which is a factor why precious metals shares are fairing well in the face of declining gold and silver prices - the other reasons being rising short interest in key ETF's, falling input prices (especially oil), and devalued currencies in operational locales (which also lowers input costs). So, once the hedge funds that still need to puke up some positions are done, we should get a meaningful rise in silver prices starting some time over the next month or so, as discussed previously, and as can be seen in the weekly plot below. (i.e. notice the Bollinger Band® Width Indicator has almost bottomed again.) (See Figure 3)
By the looks of things, this shouldn't take more than a few weeks, where if you were looking to increase exposures, this would be the time to do it. Next week is a down week for stocks (which should translate into an up week for precious metals) from a seasonal perspective, however with a Fed meeting scheduled, and the Fed's new recognition of a weakening global macro, who knows how things will go in the short term. With the Greek situation under control according to Western sources, nothing should surprise you. The SPV / SLV Ratio has reached resistance, so it's looking like we will in fact get a pullback in stocks next week, followed by another strong month in March if they keep following the seasonals, which is being confirmed in the patterning of the above. That is to say, once the SPV / SLV Ratio gains some energy on a pullback, the measured move on the flag is 25-points, putting it at approximately 160 as early as spring. (i.e. April - just in time for sell in May and go away time to kick in a little early.)
That being said, stocks could fail at any time between here and 2300 on the SPX, meaning the smart money is accumulating precious metals and sitting pat, waiting for the big turn. And lord knows there are enough fundamental reasons to buy precious metals out there now, everything from increasing international hostilities (see here, here, and here), to the financial Armageddon that is driving still rational people to gold, to the desire to find alternatives to the serial asset bubbles. Martin Armstrong likes to point out that people will not go to gold until confidence in government comes into question, and that precious metals are not manipulated. On his first point I must agree, but on the second point out that we would never get to the point of distrust in government if it were not for bureaucratic vulgarities, which based my observations include market manipulation (even if self manipulation - which makes you wonder why the banks pay out billions in fines for this kind of thing regularly) - especially today.
Of course one could argue that sentiment based markets controlled by computers (like never before) are a known, so if you understand what is happening but still participate, how can this be viewed as manipulation? All I can say to this brain wave is high frequency trading (HFT) is both real and it affects unnatural outcomes, which in turn causes emotion / logically thinking (but apparently unaware) human traders to lose money. The 'smart money' obviously bets with the computers, who apparently don't even care about volume, however it should be recognized this will all end badly when the machines cannot manipulate prices higher anymore - perhaps in concert with a problem in bonds later this year that several other credible sources (Armstrong, Shiller, etc.) see coming.
So stay spry - as good opportunities are coming later this year when it becomes apparent real trouble is brewing in the big casino.