Why is gold behaving as a risk asset?

To those who understand the gold market the most interesting question at the moment is: Why is (paper) gold behaving as a risk asset?

Why does (paper) gold rally with stocks, and fall with stocks?

And there is only one plausible answer: because in a casino everything is a risk asset.

On Friday stocks and (paper) gold rallied together.

Why?

Because Europe announced they would print an unspecified amount of Euros to funnel directly to the banks without any need for "austerity" which is to say - no strings attached. 

Just as the US Fed does here on a continuing basis.

Nobody thinks this is anything but the most temporary stop gap measure to the continuing European - and World - banking crisis.  Nobody believes that anything resembling a solution has even been proposed, much less debated, much less accepted, much less implemented.

So why did everything rally on the news?

Because only Banks and large Hedge Funds have the capital to survive - and influence - the massive volatility of the risk markets - which is to say all paper markets.  They are the only ones left in these markets.  And they run them in increasingly sharp spurts in either direction based on "News."

Of course, they create the News, and those closest to it (Goldman Sachs, JP Morgan) run the markets through Futures sharply in a matter of seconds, while those slightly farther away (Bank of America, Citibank) surf the tail end of these massive moves.

And, of course, this gives retail brokers a chance to churn retail accounts on the tail end of the moves for any poor retail investor dumb enough to want to try to make sense of the rigged casino.

It is important to keep in mind, however, that  the Central Banks and many large Hedge Funds are amassing huge Physical Gold positions even as they manipulate the paper gold markets.

How is this possible?  For central Banks through direct investment and control of mines, and large scale, off-market purchases of tons of bullion that nobody hears of until months or years later.

At some point this will create an enormous divergence between the paper price of gold and the physical price.  And at some point it will not be possible for the retail investor to purchase physical gold.

I don't know when that will be.  But I suspect it will happen very suddenly.

Purchases of real things soar - but only at the high end

As global growth falls, Deal activity stalls, and markets for everything seize up, the rich continue to aggressively diversify out of paper:

 

IMF slashes global growth forecasts

• Eurozone GDP expected to fall 0.5% during 2012
• UK set to grow 0.6% – sharp fall from earlier 1.6% estimate
• World growth downgraded from 4.1% to 3.3%

 

Ancient Jewish Coin Brings Record $1.1+ Million At Heritage Auctions

Prototype Year 1 Silver Shekel, among the first minted by Jewish rebels when they ousted the Romans from Jerusalem, brings world record price of $1,105,375 in New York on March 8 as part of the estimated $10+ million Shoshana Collection of Ancient Judaean Coins
NEW YORK – The first silver shekel struck in Jerusalem by Jewish forces rebelling against Roman oppression in the first century CE, one of only two specimens known, brought a world record price of $1,105,375 at Heritage Auctions on March 8 as part of the auction of The Shoshana Collection of Ancient Coins of Judea. The coin sold to an anonymous overseas collector. The collection, consisting of more than 2,200 coins in total, is expected to realize more than $10 million over multiple auctions this year, the first of which began Thursday.

George Washington's US constitution sold for $10m

Auctioneer John Hayes closes the lot to secure the sale

George Washington's personal copy of the US constitution has sold for almost $10m, Christie's auction house says.

The book, with the first president's own annotations, was printed in 1789 - his first year in office.
It had an estimated price of $2m (£1.3m) to $3m but bidding boosted the price of the 223-year-old book.
Historians say Washington's notes are what make the book so valuable, as the president was keenly aware of the precedents he would set in office.
The leather-bound book is described as in nearly pristine condition and is stamped with the Washington family crest.

The Scream’ Is Auctioned for a Record $119.9 Million

Jennifer S. Altman for The New York Times

The work, a pastel on board, is one of four versions created by Edvard Munch; the other three are in museums in Norway. The buyer bid over the telephone.

By CAROL VOGEL

It took 12 nail-biting minutes and five eager bidders for Edvard Munch’s famed 1895 pastel of “The Scream” to sell for $119.9 million, becoming the world’s most expensive work of art ever to sell at auction.

Records Set at Christie’s Contemporary Sale in London

By CAROL VOGEL

Christie’sAn untitled Basquiat canvas from 1981.

LONDON – At Christie’s post-war and contemporary art auction here on Wednesday evening – an event aptly described by the super dealer Larry Gagosian as “Masterpiece Theatre’’ – collectors from around the world dropped millions of dollars on works by many of the major names of the 20th century, and record prices were set for two of them: Yves Klein and Jean-Michel Basquiat.

Record-Breaking Wine: What Does $168,000 Taste Like?

• By Tanya Lewis
• June 28, 2012 | 

The world’s most expensive wine, Penfolds 2004 Block 42, is housed in 750-ml glass ampoules. Photo: Penfolds

Today, the Australian winery Penfolds announced the world’s most expensive wine sold directly from a winery, eloquently dubbed “2004 Block 42.” The $168,000 wine is a produced from a single vineyard, from what the winery claims are the oldest continuously producing Cabernet Sauvignon vines in the world. It will be sold in 12 glass ampoules (above), which look more like something you’d use to kill a vampire than to serve wine. Each holds the equivalent of a standard wine bottle.

Gold and The Politics of Hatred and Mistrust

As the presidential election looms there are two powerful narrative dominating the US domestic ariwaves:

Republican Narrative: Barrack Obama is an Evil Black Socialist who secretly hates white people, hates capitalism, hates successful people, hates business.

Democratic Narrative: Mitt Romney is an Evil White Plutocrat who secretly hates poor people, hates people of color, hates all social institutions that help anyone but very rich white people.

The fact that the policies of Democrats like Barrack Obama and Republicans like Ronald Reagan have been virtually identical for over half a century doesn't seem to occur to any of these world class hate mongers. 

Facts be damned. All the political class cares about is winning.  And hatred has become the exclusive weapon of political choice.

The only thing that the politics of hatred can accomplish is the destruction of the paper economy.

Why?  Because the paper economy is completely dependent on trust. And never before in the history of the world has the global economy been 100 percent dependent on paper which means 100 percent dependent on trust.

All paper economic instruments are completely dependent on Trust.  If someone hands a piece of paper that promises something you'll only accept this paper if you trust that the promise will be honored.

And trust in the instruments of power is nearly non existent.  Once it is completely destroyed, the paper economy will cease to function.

And then the economy based on precious metal, commodity and barter will reassert itself.

If someone hands you a piece of gold, you don't need trust.  You know exactly what that lump of gold is worth.
 
We all know - or should know - at this point that the central banks of the world are designating gold as an official tier one capital asset.  We all know - or should know - that the central banks of China, India, Russia, Brazil, Indonesia, Vietnam, Turkey are accumulating gold.

Over time, this will put tremendous upward pressure on the gold price.

But gold will fully assert itself as trust in the institutions that control the paper economy collapses.

And the Political Class in the United States is currently doing everything in its power to destroy trust.

FDIC FOLLOWS BASEL; MAKES GOLD A TIER ONE CAPITAL ASSET

FDIC Rule Follows New Basel guidelines: Returns Gold To The Center Of The Banking Universe

June 18, 2012, the FDIC distributed a rule-making notice to member banks, telling them it intends to change collateral rules, among other things. The changes are not purely the work of the FDIC alone. Prior to the notice, the agency got the approval of all US federal bank regulatory agencies. These include the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board of Governors and the Office of the Comptroller of the Currency (OCC).
The purpose is to harmonize and address perceived shortcomings in the measurement of risk-weighted assets, in part by implementing changes made by the Basel Committee on Banking Supervision (BCBS) to international regulatory capital standards. It is also intended to implement aspects of the Dodd-Frank Act. The proposed rule would:
1) Revise risk weights for residential mortgages based on loan-to-value ratios and certain product and underwriting features;
2) Increase capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short-term loan commitments;
3) Expand the recognition of collateral and guarantors in determining risk-weighted assets;
4) Remove references to credit ratings; and
5) Establish due diligence requirements for securitization exposures.
One key provision significantly strengthens restrictions on the way banks estimate their exposure to derivative risks. Banks use these estimates, and disseminate them to regulators, for purposes of setting and/or justifying capital levels. Estimates of exposure using so-called "net current credit exposure" (the cost of canceling the contracts prior to the occurrence of a trigger event) and/or purely subjective mark-to-fantasy "models", concocted by the bank financial team, would no longer be acceptable. Notional exposure would become a mandatory part of calculating the "risk" of derivatives.
Under new rules, the following would be entitled to a zero percent risk weighting:
1. Cash;
2. Gold bullion;
3. Direct and unconditional claims on the U.S. government, its central bank, or a U.S. government agency;
4. Exposures unconditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency;
5. Claims on certain supranational entities (such as the International Monetary Fund) and certain multilateral development banking organizations
6. Claims on and exposures unconditionally guaranteed by sovereign entities that meet certain criteria, as listed in the notice.
 
Under this joint proposal, co-sponsored by FDIC, OCC and the Federal Reserve, gold will once again be a zero risk asset in the private banking world. It has been legally barred from that most important of positions for 80 years now.

U.S. Stocks Rise as US Banks buy Bank Stocks as Bank Stocks Rally After Moody’s Bank Downgrades

By Rita Nazareth - Jun 22, 2012 1:16 PM ET

U.S. stocks advanced, following yesterday’s selloff, as bank downgrades from Moody’s Investors Service were no worse than the firm had warned.

The Banks showed Moody who's boss, by jumping into the market and pumping up their own stocks with money borrowed from the FED. 

"We may be broke, but we can get as much money as we want from the Fed to pump into the market however we want," said Tobias Levkovich, Citi Chief Equity Strategist, "So we're buying citi stock today with both fists.  Take that Moody's.  Take that dumb as mud US retail investors.  Take that global economy."

Questions for Jamie Diamond that not one elected official thought to ask:

10 Crucial Questions for Jamie Diamond that not one single elected official thought to ask:

Question: You say you are not too big to fail.  Yet you were too big to fail in 2008.  What's changed?

Question: You say the recent multi billion dollar trading loss was a Hedge.  A Hedge by definition defrays risk.  The trading loss was off a huge position in an illiquid market: thus inherently extremely risky.  How does an extremely risky position defray risk?


Question: Do you have any idea what RISK means?  How can Risk and Hedging of Risk be exactly the same thing?

Question:  If you, the CEO of JP Morgan Bank has no idea what Risk means, how can you manage a vast multi billion dollar trading operation?

Question: Why should a vast, enormously risky multi billion dollar trading operation be subsidized by the US Taxpayer?

Question: How is your Counterparty Risk quantified?

Question:  How is your Counterparty Risk made transparent for your shareholders?  How is your Counterparty Risk made transparent to the US Taxpayer who subsidizes your Counterparty Risk?

Question: If you don't even know what Risk means, how can you understand your own Counterparty Risk?

Question: If you have no understandingof Risk or Counterparty Risk why should you, a Federally Subsidized Bank, be allowed to trade at all in the risk markets?

Question: Even if you understood risk, which you obviously don't: Still, even if you did, why should you, a federally subsidized bank, be allowed to gamble in the risk markets?

When will gold take off again?

When will gold take off again?

If this were a real market I'd say it already has.  There's a wonderful, big fat Island Reversal with a nice retest.

If the Gold Market existed as part of an interwoven matrix of a real markets, with real investors, it would be easy to tell.

But there are no real markets anymore.  This is just a massive global rigged casino operated with Funny Money printed and distributed by the Global Central Banks. 

There's a huge difference.  So in the short run you can't tell a damned thing. 

But rigged casinos make forecasting the Long Run much much easier than forecasting the long run of  Real Markets.

Because Rigged Casinos always move towards their intrinsic value of their Funny Money over the long run: which is to say: Zero.

And when the Rigged Casino moves towards Zero, Gold moves towards Infinity.

Of course, Gold is not going to infinity.  But it is going up.  Over the Long Run.  Anyone but a stooge of the Rigged Casino System can see that.

What, me worry?

The cafe's are full in Amsterdam.  The Tapas bars are full in Barcelona.  The ouzo bars are full in Athens.  The brasseries are full in Paris.  The bistros are full in New York.  And in Shanghai, everyone's at the disco sipping Brandy.

No kidding.  People are out having a good time.  Even in places that are supposed to be falling apart.  So really, how bad can things be?

That's pretty much the attitude all around the first world.  And why not, after forty straight years of furious money printing to fuel forty years of debt-propelled asset bubbles, Trickle Down Economics has insured that most everyone's lifestyle has been lifted to previously unimagined heights.

So nobody really cares if we have a few years of temporary set backs.  We'll just cut back to only three cappuccinos a day.

Sure, maybe the banks have gotten a little out of hand.  Let's have some party-protests about that.  Maybe they'll write us up in Rolling Stone.  Sure, maybe the governments have gotten a little bloated.  Let's paint our faces and hold up placards a few days a year.  Maybe we'll get interviewed by our favorite gossip journalist at Fox News.

PARTAY!

But what if this isn't just a few tough years?  What if 40 years of debt propelled asset bubbles lead to forty years of paying down debt?  What if this problem doesn't magically somehow fix itself?

Nah, grandpa, couldn't happen, right?

Institutionalized Stupidity

How do you solve an economic problem with two intractable and institutionally stupid political parties?

Not one word of financial sense has come out of the mouths of either Obama or Romney this entire election season.

Not one word.

All you hear from Obama is spending proposals, all you hear from Romney is tax cuts for the wealthy.

We get exactly what we deserve.


What should they say?


Well, until we re-enact Glass Steagall, wherein the banking industry and the hedge fund/gambling industry are separated, we are indeed just arguing about the color of the cushions on the deck chairs of the Titanic.


Why?

Because the Banks have to return to the business of business lending.  Currently they have no incentive to engage in this business that only returns 4-5 percent on capital if done properly.


Right now, why should they commit any capital to such a small return, when they can try to make 40 or 50 percent or 400-500 percent by sheer gambling?  And when they lose, they know they will be bailed out by the Fed anyway.



Until they return to the business of business lending from the business of sheer gambling, they will continue to suck capital out of the economy, instead of directing capital to productive purposes.


Until this happens, nothing we do will make any difference at all.  Not tax cuts, not spending, not investment in infrastructure, not smarter regulations, not investment in energy, not nothing.



Not even at the edges.

What are the odds this will all happen here too?

Exclusive: Euro zone discussed capital controls if Greek exits euro: sources

Related News

• Merkel says will campaign for financial transaction tax
  Mon, Jun 11 20

By Luke Baker: Reuters

BRUSSELS | Mon Jun 11, 2012 12:16pm EDT

(Reuters) - European finance officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario should Athens decide to leave the euro.

Greek Bank Deposit Outflows Said to Rise Before Elections

By Elisa Martinuzzi and Christos Ziotis - Jun 13, 2012 4:37 AM ET

Greek deposit outflows have accelerated before this weekend’s elections, two bankers familiar with the situation said, on concern the nation may move closer to abandoning the euro.
Daily withdrawals have increased to the upper end of a 100 million-euro ($125 million) to 500 million-euro range this month, one banker said, asking not to be identified because the figures aren’t public. A second banker said the drawdown may have exceeded 700 million euros yesterday. 

Greek power regulator warns of energy meltdown

Greece's power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country's electricity and natural gas system. 

RAE took the decision after receiving a letter from Greece's natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company.

Greece: when the drugs run out

The country's pharmacies are owed 500m by the state-backed healthcare insurer, according to reports. From next week patients will have to stump up the cash for their medicines upfront, and then claim a reimbursement from the National Organization for Healthcare Provision (EOPYY).

Barcelona doctors, ill patients protest health cuts

BARCELONA, Spain — Doctors and sick patients threw fire crackers and blew whistles Wednesday in a second day of noisy protests in Barcelona against crisis spending cuts that have shut down hospitals.

Europe's PMIs collapse, unemployment surges to record

Spain's lost generation: youth unemployment surges above 50 per cent

More than half of young Spaniards are out of work, according to fresh statistics, signalling a lost generation that has been hit hardest by Spain's economic woes, as the total number of unemployed surged above five million.

Young Spaniards complain that even a university degree leaves no guarantee of finding work Photo: AFP/GETTY

By Fiona Govan, Madrid

4:54PM GMT 27 Jan 2012

42 Comments

The number of 16-24 year old Spaniards out of work rose to 51.4 per cent in December, more than double the European Union average, according to a report by Spain's National Statistics Institute. The national unemployment rate hit 22.85 per cent, the highest rate in nearly 17 years and the current highest in the industrialised world.

loomberg News

Italy Tax Increases Backfire as Monti Tightens Belts

By Andrew Frye - Jun 12, 2012 6:00 PM ET

Italian Prime Minister Mario Monti is facing signs that tax increases are beginning to backfire as his new levy on real estate goes into effect.
Value-added tax receipts have declined since Monti’s predecessor, Silvio Berlusconi, raised the rate by 1 percentage point in September as the economy was slipping into recession, government data released June 5 showed. The amount collected fell in the 12 months ended April 30 to the lowest since 2006.

Unemployment From Italy to Spain Fuels Debt Crisis

By Emma Charlton on April 18, 2012

• Nomura's Newton Says Spain May See Civil Unrest

• 

Surging unemployment rates from Spain to Italy and Greece are threatening efforts to quell the region’s debt crisis and keeping bond yields close to record premiums relative to benchmark German bunds.

Deepening crisis of capitalism in Spain building up to a social explosion

Written by Jorge Martín Wednesday, 06 June 2012

May ended in Spain with frantic attempts to prevent the collapse of the banking system, saddled with a massive amount of toxic loans linked to the housing bubble. The government attempted to involve the European Union in the rescue of Bankia, while there were rumours of IMF plans for a bail out of Spain. Meanwhile miners have gone out an all out strike in defence of jobs.
Miners on strike, May 31. Photo: Pierre Rocke Castell             The miners are blockading roads with burning barricades in the mining counties and 10,000 of them marched in Madrid and warned that “next time round we will come with dynamite”.

Increasingly in Europe, Suicides ‘by Economic Crisis'

Posted: 04/14/2012 7:38 pm Updated: 04/14/2012

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New York Times:
On New Year’s Eve, Antonio Tamiozzo, 53, hanged himself in the warehouse of his construction business near Vicenza, after several debtors did not pay what they owed him.

Read the whole story at New York Times

 

Chart of the day: homelessness surges

Number of homeless families increases to 48,510, the biggest rise for nine years.

By George Eaton Published 08 March 2012 16:52 While the right-wing press frets that a mansion tax may force some people to sell their £2m homes, what of those who don't have one at all? New figures out today show that the number of households officially classed as homeless rose by 14 per cent to 48,510 in 2011, the biggest rise for nine years. The data, which includes those in temporary accommodation, also reveals that 69,460 children or expected children are in homeless households.

Skid row street population surges back in Los Angeles

• Posted By: Jerome Adamstein
• Posted On: 5:18 p.m. | March 30, 2012

A city initiative had reduced the numbers, but the weak economy, a court ruling and the early release of criminals have spurred an increase, officials say. Activists have a different view.
Read Alexandra Zavis’ article

 

Lisbon Protests: More Than 100,000 Rally Against Austerity In Portugal

Posted: 02/11/2012 2:34 pm

By Andrei Khalip

LISBON, Feb 11 (Reuters) - More than 100,000 people packed Lisbon's vast Palace Square on Saturday in the largest rally against austerity and economic hardships since the country resorted to an EU/IMF bailout last May, and organisers vowed to step up protests and labour action.

NICE PATTERN ON GLD

I'm the first to admit/claim that all technical analysis loses most of its meaning in the face of massive government intervention/bank intervention in the markets.

But large Island Reversal Patterns have signaled imminent rises in gold even through this period of massive governemnt/bank intervention.

This is not a science.  This is not a prediction.  This is not a trading recommendation.  Just an interesting chart occurrence.  And one that I find particularly encouraging.

Spring gold coins auctions: The middle gets slowly crushed.

As is so often the case, the rare gold coin market serves as a reflection of the broader economy: and as in the broad economy, the high end is doing very well, thank you very much, while the middle gets slowly crushed.

In the broad economy the US leads the world for wealth and income inequality as the top 1 percent takes in 25 percent of the income and owns between 70 and 75 percent of the wealth - and the the skew has been accelerating even after the financial crash of 2008.

The rest of the world is not far behind.

What this means, of course, is that the top 1 percent has the most wealth to protect and they are actively seeking to diversify out of paper and into tangible goods.  This movement takes place regardless of what appears to be happening in the broad stock market, the bond market, and the broad commodities market.

Rather it is the High End "Collectibles" market where we see high end money flooding into the market, and competing for rare, high quality historically significant items.

This is equally true in coins, manuscripts, paintings, antiquities just as it is true with modern "classics" such as cars, jewelry, and wine and sports memorabilia.

In the Ancient and Medieval coins world we see this with condition rarities just as well as with numeric rarities.  High end darics, Alexander Staters, Alexander Portrait staters, Kroisos staters, gold Carthaginian staters all continue to moves to ever higher levels, while the same coins in the middle end of the market are stagnant in price, and quite slow to sell.

Rarities in good condition, of course, are still bid to astronomic levels, while rarities in off condition are stagnant in price though they generally do sell.

In fact, good high end material is ever in very short supply.  In this entire round of spring sales there was only one auction of consistent high end rare material and that was the NAC Auction of Roman Republican coins which realized fantastic prices for even off quality rarities (see the coin above), as is often the case when a collection of fantastic breadth is presented thus drawing the interest of an array of wealthy bidders.

Many other auctions, most of which are now represented at Sixbid,  had coins of material interest to specialists and collector/investors, but most of which were buried in an avalanche of mediocre to poor material, which means that broad high interest was notably lacking thus presenting opportunities for the diligent.

All of which is to say that it is still only the very wealthy that 'gets' the idea that wealth must be protected by a movement out of paper into tangibles, while the middle class concerns itself largely with issues of survival and fleeting pleasures.

This will change of course when gold resumes its bull run.  Unfortunately by the time it will have become clear to the middle class that wealth must be protected at the expense of momentary pleasure, the Upper 1 Percent will have stripped the market of most of the valuable tangibles.

NEW BASEL RULES MAKE GOLD A TIER 1 RESERVE ASSET:

Markets can stay irrational for only so long in a crisis 

Market rules could lead to 1,700 tonnes gold purchase, says Sharps Pixley

• By: Jonathan Boyd
• 29 May 2012

London precious metals trader Sharps Pixley's CEO Ross Norman says new Basel rules could force banks to buy huge quantities of gold.

 
Banking capital adequacy ratios, once the domain of banking specialists are set to become centre stage for the gold market as well as the wider economy. In response to the global banking crisis the rules are to be tightened in terms of the assets that banks must hold and this is potentially going to very much favour gold. The Basel Committee for Bank Supervision (or BCBS) as part of the BIS are arguably the highest authority in banking supervision and it is their role to define capital requirements through the forthcoming Basel III rules.

In short, they are meeting to consider making gold a Tier 1 asset for commercial banks with 100% weighting rather than a Tier 3 asset with just a 50% risk weighting as it does today. At the same time they are set to increase the amount of capital banks must set aside as well. A double win potentially.

Hitherto banks have been much dis-incentivised to hold gold while being encouraged to hold arguably riskier assets such as equity capital, currencies and debt instruments, none of which have fared too well in the crisis. With this potential change in capital adequacy requirements. bank purchases of gold would drive up its value relative to other high quality qualifying assets, increasing its desirability for regulatory purposes further. This should result in gold being re-priced to bring it on a par with all other high quality assets.

Currently banks have to have core Tier 1 capital ratio of 4% of which will rise to 6% from the beginning of next year. In addition to its store of value merits, central to the argument in favour of gold as a bank reserve is its countercyclical nature to most other assets in that it tends to be inversely correlated. Gold is ideal as it bears no credit risk. it involves no other counterparty and it is no one's liability. It is a reserve asset diversifier if you like.

This is a treble win for gold - it would be a major endorsement of its role in preserving wealth and as a store of value from the highest financial authority, it would lead to significant purchases of gold by major financial institutions and it would lead to a reappraisal of its value with respect to other Tier 1 capital such as quality sovereign debt. Under the new rules gold could become a very significantly larger proportion of a reserve pool which is about to grow very much larger.

The 2 questions that come to my mind are when and how much metal - on timing Basel III kicks in from January 2013 with a further tightening in capital adequacy ratios in 2018. That said, it is not yet clear when gold's re-rating to Tier 1 might take place.

In terms of amount of gold that could be purchased that is harder still - if we thought that say 2% of total current Tier 1 capital held by commercial banks globally might be converted into gold (forgetting for a moment about the increases in capital yet to be seen) - this would suggest that 2% of the $4,276 bn would be converted to gold. That is equivalent to $85 bn in gold which at current market prices is equivalent to 1,700 tonnes of gold.

Another way of looking at this is to consider that commercial banks would be holding gold for precisely the same reason that central banks do - and the largest 110 central banks in the world have 16% of their reserves as gold - as such a figure of just 2% is really quite a modest expectation - ultimately it will be a question of price and expectations of price change that would determine the rate of uptake in the short term.

For those anxiously about the lacklustre market - this could well promise to be game-changer of epic proportions.

Let's check the score board

A huge debate is raging: is gold still a good buy?

Leading Team Gold right now is: John Paulsen, Kyle Bass, George Soros, Marc Faber, the wealth management team at Goldman Sachs and the central banks of China, Turkey, Vietnam, India, Russia, Mexico and Thailand.

Leading Team Paper is the James Paulsen, Ric Edelman, Jonathan Burton, Lewis Braham, the Wealth Management team at Merril Lynch and the IMF.

Join your favorite team.

Meanwhile for those who were afraid that Congress just doesn't get what's going on in the world, TAKE COMFORT!  There are those in congress who are very much on top of  the crushing issues of the day:

House Adopts Measure to Halt Light-Bulb Efficiency Law

By Jim Snyder, bloomberbg - Jun 6, 2012 12:15 AM ET

Republicans in the U.S. House adopted a provision designed to save traditional incandescent light bulbs by blocking what one lawmaker called the “energy police” from enforcing an efficiency standard.

ONLY THE REAL OLD TIMERS GET IT:

RICHARD RUSSEL: "Important -- Note on the daily chart below that the widely-followed S&P 500 Composite closed below its long-term 200-day (red line) moving average on Friday. 

 "I'm still stunned by the fact that I received a definite Dow Theory bear signal, and not one other advisor or "expert" appears to have identified the bear signal. I carefully searched the latest issue of Barron's for a sign that any of their columnists had identified the Dow Theory bear signal. Not a hint of it in Barron's. 

Thus it appears that Wall Street and the great majority of investors are operating blindly -- by that I mean that they are optimistic and investing, or still holding stocks -- unaware that they are operating in a primary bear market. I've never seen anything like it.

I said that nobody else had identified the bear market signal. I was wrong -- my old friend, Bob Prechter, of Elliot Wave fame caught it. The paragraph below is from Bob's actual recent report.

"By the way, the Dow Transports (Figure 13), by failing to get above their 2011 high, have left behind a striking Dow Theory non-confirmation. Under Dow Theory, if both averages were to break their October 2011 lows, it would confirm that a new primary bear market is in force. Richard Russell taught me that 40 years ago."

The Real Cost of owning a Tiny Brain:

Bloomberg: The Real Cost of Owning Gold

By Lewis Braham - May 30, 2012 11:02 AM ET

All That Glitters

"For some people, gold is an investment. For others, it's a religion. The latter aren't satisfied with a gold fund. They need to own the metal itself. "People buy physical gold usually for one of two reason," says Peter Hug, director at Kitco Metals, a Montreal-based precious metals dealer. "One is privacy: They don't want anyone to know they have it. Secondly, they're worried because newsletter writers since the '80s have been saying the government's going to confiscate your gold, the world's coming to an end and you're going to need gold to barter." Acting on such fears come at a price."

Yes, owning physical gold is a matter of religious belief.  How crazy is that?  Yes, for the billions of people world wide in China, India, Europe, who believe that owning real physical gold is the only safe way to secure wealth against government seizure through inflation - physical gold is just a crazy religion.

Almost like believing in God.  Or believing that the material world exists outside our own mind.  Or believing that Time exists objectively outside of the space/time continuum.  Or believing that books printed in the seventeenth century were in fact dictated to humans by GOD two thousand years earlier?  Who would believe anything crazy as that?

How stupid can people be?  Don't they get that the government-sponsored paper money is the only REAL MONEY?  Don't all those silly Foreign people understand that they have to pay REAL PAPER MONEY to own, and store their religious gold?

Jeesh!  Get with it people!  If you are going to waste your time with gold at least buy Paper Gold.  I mean, have a little Faith in the Paper System.  Those guys selling you paper gold are good honest trustworthy Americans.  Put your religious belief in them.

Why did gold soar Friday?

Why did gold saor 60 bucks Friday?

Record short commitment of trader interest?

combined with:

Huge negative sentiment?

combined with:

Poor employment figures yielding talk of QE3?

Sounds plausible - in a free market.  But all those things could have made it tank 60 bucks with the market.

So, what really happened?

We'll never know.  But I'll bet you an ounce of gold to 1625 paper dollars that the real scenario went something like this:

William Dudley President of the NY Fed, and ex Goldman Sachs Strategist, calls up Goldman's Head of derivatives trading and says, "Hey Joe, Listen, as you know the Employment figures are coming in very weak, so I was talking to Bernanke and we decided at next week's meeting we're going to say something to suggest QE3.

 Joe: "Thanks Bill, who else knows about this?

William: "Just the usual suspects over at Morgan, Black Rock, Paulsen, you know... But listen, don't place the trade until after the announcement at 8:30.  Make it look like you're reacting to the news."

Joe: "Hey, what am I, an idiot?"

William: "Sorry, I had to say it. that's my job."

Okay, maybe the dialogue's ludicrous.  But If you don't think it went down that way, you have no business anywhere near this market.