You are here

Franklin Sanders: Somebody's 'painting the tape' with gold and silver

Section: Daily Dispatches

As a Financial Tsunami Threatens, Everybody Runs to Sell Gold?

By Franklin Sanders
The Moneychanger
Thursday, October 2, 2008

Y'all may not be aware of it, but according to The Moneychanger Bank Liquidity Analysis, when the liabilities of the entire banking system are compared to the reserves of the entire banking system, the banks have about 69 cents for every $100 they owe in deposits. Admittedly, that's out of date a bit, because when the Fed discontinued publishing M3 figures, I couldn't figure it any longer. Shoot, by now they probably have 71, maybe even 73 cents.

And the Nice Government Men are worried about bank runs, you bet your life. That's why they raised the FDIC insurance deposit limit from $100,000 per account to $250,000 per account. Little known fact: banks have no cash. Literally. Haven't kept it for years. Greed decrees they keep no reserves, but put everything "to work," so why miss interest by keeping cash lying around in the vault. Illiquidity, thy name is bank! Now rumours of a banking holiday abound, when the government closes down the banks for a week or so to cool off the depositors' frantic desires to see their money again, foolish hoi polloi that they are.

Now, look here: The U.S. dollar index rose 74.6 basis points today, and early in the day was up over 81. Sure, sure, that's logical to me: entire U.S. and world financial system leans over the brink of meltdown, U.S. Congress is deadlocked over whether it will consent to bailing out the banks, nobody is in charge, derivatives collapse threatens worldwide financial holocaust, Fed & Treasury are intent on pushing thru more bailouts that will suck value out of a dollar like an otter sucks clams out of their shell AND the U.S. dollar rises. Sure, sure, sure.

And of course, silver and gold prices fall. The gold price dropped a colossal US$41.70 to US$839 while the silver price flushed 165.5 cents to $11.065. Sure, sure, that always happens when the world threatens a financial tsunami, everybody runs to sell gold. Right. The gold price has been driven back under its 200 day moving average. Ditto the silver price. Right.

Meanwhile stocks, are represented by the Dow Jones Industrial average, sank by 348.22 to 10, 482.85 or 3.2%.

What's the sum of these counter-intuitive moves? Why, my dear, somebody is "painting the tape" to make things look better than they really are. Now who would do such a thing? What to do? In case it hasn't been beaten into your skull yet, the Fed and the U.S. Treasury will inflate their way out of this crisis, even if they have to push money out of, well, helicopters as Ben Bernanke suggested in 2002.

When they do, silver and gold prices will soar. Right now (sorry for sounding conspiratorial, but it's not paranoid when there really is one) they must keep the lid on metals and pump the dollar. All without any will, they are offering you an escape route: buy all the silver & gold you can buy.

To give you an idea of what the real prices are, as opposed to the paper prices, if you wanted to buy the cheapest gold coins today, you would have paid US$878.76 an ounce (for Mexican 50 pesos) and for silver you would have had to pay $13.38 (for one ounce rounds). Of course, that's in the real world, not the government-run world.

* * *

Join GATA here:

Toronto Resource Investment Conference
Saturday-Sunday, October 4-5, 2008
Metro Toronto Convention Centre, Toronto, Canada

New Orleans Investment Conference
Thursday-Monday, November 13-18, 2008
New Orleans Marriott Hotel

* * *

Help Keep GATA Going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at