Of particular note this week is the COT (Commitment of Traders) most recent report which shows a significant decrease in the long positioning of the commercial interests in the gold futures market and an increase in the short positioning. The silver futures market does not show the same participation, which is of interest, and both markets show a lack of volume. This might be understandable given the current economic climate / crisis out there, but makes me wonder nonetheless. Regardless, anybody who has been trading gold or silver for any time sooner or later learns not to go directly against the commercial interests, and significant positioning as what we are currently witnessing suggests downward price movement in the precious metals market for the short term.
At some point however, physical demand is going to overwhelm the current depressed pricing set by the futures market, and things will change. The pressures building underneath this market are intense, as the general population is getting their first real education about the state of the country’s balance sheets and the banking system. With a leverage factor of 20 or 60 to 1 (depending on who one prefers to read) , throughout the financial system, I imagine more education is coming soon, and both how much and how little 700 billion dollars really is.
The whole nature of a debt based mathematical structure such as our monetary system, is a description of how eventually such a system reaches an compounding interest charge (eighth wonder of the world) that reaches into an exponential growth curve and eventually introduces numbers not only unpayable but ultimately incomprehensible. The Fed and government are faced with the corner of a box where if they try to curtail the inflation rate at all, then the markets quickly and dramatically swing to not only deflation, but the specter of out and out collapse. Yet if they do not attempt to constrain the inflation rate, then the compounding currency needed to support the pyramid of compounding interest due will just as quickly morph into a runaway inflation throughout the commodity portion of the general economy, or crippling hyperinflation. The hopeless job of the Federal Reserve (at this point) is trying to balance the amount of debt default against the amount of inflation within the system, all the while maintaining the promises of entitlement and expectation of the average american.
These are the final innings of the sport, and it doesn’t matter whether the system collapses soon as everybody expects, of next year or the following year, and whether slow or fast – it will collapse. The whole inflation game of our modern banking system has been supercharged by the growth of energy from virtually free oil and the follow on population curve, both and collectively which have provided the cover and momentum to push our paper game to stratospheric equations and beyond. There is only air and air and air underneath it for support.
Silver and gold may very well fall in value along with everything else, as this all may devolve into a barter society for a while, but the metals will ultimately provide the bedrock of the next evolution of our monetary system. At the core of this entire argument is not necessarily a political or even banking problem, but simply a numerical equation that has a numerical outcome; the only way to account for infinite interest due is with infinite credit, and even if everybody owned their own printing press, they couldn’t keep up with the paper delivery necessary to keep pace with the race.
