Chuck Butler

Good day. What a long day on the desk yesterday! Whew! I’m glad I got through that without leaving a mark! And I came back! I laugh, because in the early days of EverBank, what I now call a long day would have been a short day! I remember buying breakfast sandwiches for the desk, lunch and pizza for dinner, as we worked on building the foundation that’s now EverBank World Markets. It’s now a strong foundation.

Gold has a strong foundation, too. And even after suffering through the shenanigans of last week, the shiny metal is off by 1.3% overnight, so the shenanigans haven’t stopped, and those of us that use pullbacks in the price of gold as an opportunity to buy at cheaper prices have to scratch our heads and wonder if the shenanigans are over — or will there be more?

Longtime readers know that I truly believe there are price manipulators in gold and silver. Well, last week, there was some interesting information being put out there for us to go through, regarding “an insider” that came clean and admitted what was going on. WOW! Of course, you can’t believe everything you read, right? Well, I believe that when the information is in a market letter, like Dennis Gartman’s, then you stop and think that it’s must be true.

OK, first of all, let me set this up for you. Dennis Gartman has long been a naysayer regarding the GATA people and people like me that say there is price manipulation going on in gold. My friends over at The 5 Min. Forecast had this to say yesterday:

“‘This was no free market,’ says a well-placed insider about why gold plummeted nearly $100 on Wednesday.

“The insider is unknown to us, but our longtime friend Dennis Gartman calls him ‘a very long-standing friend and client’ in his newsletter. The mysterious Mr. X is trusted enough that Gartman is re-examining his oft-stated vehement dismissal of the GATA positions that the metals markets are manipulated.

“‘As I have very intimate details of [Wednesday],’ says this individual, ‘I think it was, indeed, official selling. At the London fixing, an order came in to sell 3 million ounces of gold and it was explicitly ordered to be done in just a few minutes. No investor or speculator would 1) handle it this way and 2) do it at the fixing only.

“‘This [has] happened this way three times in the last year, [Wednesday] being the fourth time.’

“Concludes Gartman: ‘The market’s plunge… may have been the result of a very real effort to “manipulate” the market lower… perhaps on orders of a central bank hoping to break the market… to buy gold more cheaply after the surge of selling, or perhaps on the order of a government wishing to drive gold down for the “optics” of weaker gold prices.’”

Chuck again. Hmmm, so where’s the CFTC? Why aren’t they calling around, trying to find the mysterious Mr. X to talk to him? And the selling continues. I shake my head in disgust, utter disgust, folks, and you should, too, for this smells like, walks like, talks like and quacks like someone didn’t like the fact that the dollar was getting hammered by gold and silver), and they needed to do something about it!

I have more to talk about with gold regarding Warren Buffett’s annual letter, which leaves you scratching your head, and wondering if he really feels the way he talks about in his letter, why, then, doesn’t he own gold?

But in the interest of moving along, I’ll talk about that in more depth tomorrow.

Yesterday’s data here in the U.S. were interesting, in that the data prints were on opposite sides of the fence. First, the ISM nonmanufacturing index really pushed higher than expected, which is a good thing if you believe that to have a healthy, everlasting economy, you don’t need manufacturing jobs, and that the U.S. economy can survive being a service-only economy. I think you know where I stand on that.

The other piece of data that printed was January factory orders, which fell 1%. Oh, that’s right, we are now service-only.

On to the currencies. With gold getting hammered and all this dollar buying going on, you have to know that dollar buying in one asset class begets dollar buying in other asset classes. And that’s what’s going on in the currencies.

Every currency on the board is down versus the dollar this morning, except Japanese yen (JPY), which has eked out a very small gain versus the dollar. It’s a nasty morning for the currencies and metals. So one has to stop and ask why is all this dollar buying going on? Beats me. Stocks have dropped for the third consecutive day, and U.S. Treasuries remain with a 1.97% yield on the 10-year. So where’s the money going?

Sure, it’s tax time, and dollars are needed to pay taxes. but I doubt that it’s of the magnitude of what we’re talking about here. Not yet anyway.

The Reserve Bank of Australia (RBA) met last night and moved interest rates, but kept their foot in the door that houses rate cuts. By keeping their easing bias, the Australian dollar was hung out on a line. Hmmm… Rate cuts didn’t keep the A$ from pushing higher before, so why are the markets scared of them now? Uncertainty is the answer, folks. When the markets are uncertain about anything, they scramble to buy U.S. dollars and ride out the uncertainty.

I used to call gold the uncertainty hedge, and it still is in my opinion, but it sure is getting chinks in that title.

This dollar buying all began yesterday when the markets found out that China had lowered their target for GDP to 7.5% from 8%. After reading what I had said about this yesterday, my friend over at the Sovereign Society Jeff Opdyke sent me his two cents, and I liked them so much, here’s Jeff!

“Investors get freaked out that China’s economy is slowing, that that is somehow bad news and surprising. Alas, it is exactly what China told the world to expect last year when the country released its 12th five-year plan, the road map to social, cultural and economic growth that China draws up every, well, five years. China has a pretty good history of explicitly outlining — and generally achieving — the goals it sets out in these road maps. And in the 12th five-year plan, China specifically said it will gear down its economy to a more-sustainable growth rate of about 7.5% for the period.

“So people who freak out and scream the sky is falling because China’s growth is slowing need to spend more time understanding China and reading about China before they react to news from China. Great fortunes will be made by those who recognize what China is doing, and great fortunes will be lost by those who react to every perception of what they ‘think’ China is doing. Those who react without knowledge of the underlying context are destined to get creamed.”

Thanks, Jeff. I’ve known Jeff, first through email and then in person, for about 10 years now. He used to write for The Wall Street Journal, and he did a feature story on me and the Pfennig about two years ago in the Journal. Jeff is the king of overseas travel, and knows foreign companies and countries like the back of his hand. You can find him at the Sovereign Society website.

I’ve got a real doozy of a story for you. But before we go there, I want to highlight a story I read that plays well with my call in December that we would begin to see temporary stabilization in the eurozone. The story was in the International Financing Review (IFR) and highlights the fact that European banks’ funding costs are plummeting as bond buyers have regained their appetite for bonds issued by European banks, and even weak banks. More stabilization.

Then, from Bloomberg this morning, “Greek Government officials have disclosed information on a secret 2001 loan from Goldman Sachs, disguised as a derivative, that Greece used to conceal its ballooning sovereign debt from the European Union. Revealing the details for the first time of a contract that helped Greece mask its growing sovereign debt to meet European Union requirements, officials said they didn’t understand what it was buying and was ill-equipped to judge the risks or costs. “

There is so much more to this story, but before I give you the link to go to read the rest, I want to say that in private, it has been my opinion all along that Greece got snookered, and I have a good feeling by whom.

OK, here’s the link to the story, which I think you should read:

To recap: Dollar buying is the rage as all currencies, stocks, metals are being sold. But where’s the money going? Gold’s price drop last week may have been manipulated, according to an insider. Jeff Opdyke gives us his views on the China news this week. And the RBA left rates unchanged, but kept their easing bias, which has deep-sixed the A$.

Chuck Butler
for The Daily Reckoning

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