Gold & Silver Get Hammered!
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In This Issue.

* Currencies range trade.

* Is there more than free markets going on?

* Reliving 2001?

* No new developments in Europe.

And, Now, Today's Pfennig For Your Thoughts!

Gold & Silver Get Hammered!

Good day. And a Marvelous Monday to you! Cards are one game out, with 3 to play. Even if they don't gain a spot in the playoffs, they have at least played to the end. And maybe, they're persistence will pay off for them and the fans. maybe.

Yes. one of my all-time fave songs, goes like this. "Maybe. Maybe I'm wrong... to go on thinking, to sing my song." Yes. I've often thought about how maybe I was wrong to say this or that, or to think this or that. But, I always come back to square one, review the fundamentals, and retrace my steps, to make certain I was bang on, and what I'm seeing going on in the present is not of free markets. And that's what I did this past weekend. I thought long about what I've said about the dollar, and especially Gold.

And, I'm not ready to wave the white flag. Although I was searching for it on Friday, when Gold had fallen $110 at one point in the day. Silver was worse, but in percentage terms. what everyone sees is the $110 negative number attached to Gold.

Yes, Gold finished the week on the slippery slope, and finds itself right back on that slope again this morning, posting a $50 loss as I write. Sure, momentum trades happen. you know, when an asset hits a certain level, it triggers sells and those sells, trigger more sells, and so on. But, there's more to this than moment trades. Once again, there is proof that more than what happens in free markets is at work here folks. In Silver, there were 114,000 contracts traded on Friday, over 100% of the Total amount of Silver mined in one year and 114% of ALL OPEN ORDERS!

So.. maybe, one day in the future, someone on the "inside" will write a book, and they'll make a movie of it, and explain to us what happened, but by then it will be too late, too many people will have taken HUGE losses.

The fundamentals remain, and the demand remains strong for the precious metals. Interest rates around the world are Uber- low (except in some countries), which means Gold & Silver don't have to compete with deposit rates. And the dollar-based monetary system is teetering. Oh, there are a ton more reasons to see Gold & Silver underpinned, but right now, these precious metals are getting kicked, punched, and pushed around, by something more than momentum trades.

Ok. so, some of you are probably saying, Geez Louise, that Chuck sure has a boring life if that's what he thought about all weekend! And you would be right! But I had a lot of "down time" as my beautiful bride was out of town, and I was at a Swimming Invitational, that seemed to have lasted all day Saturday. And then yesterday morning, more time on the computer reading.

Well. you might not care about all that, so. showing my versatility, I'll switch over to the dollar rally we've seen for a couple of weeks now. I was also doing some heavy thinking about the dollar this past weekend, and I find it strange that the markets have gone "all-in" because the Fed has decided to put its balance sheet under stress, swapping short term bonds for long term bonds.

Makes no sense to me. except. back in like 2000 and 2001, after the NASDAQ Bubble burst, and the U.S. went into a tailspin, We saw something similar. When currencies were rewarded for "cutting interest rates" to promote growth. It was counterintuitive to anything I had ever seen in the currencies, and to my editor at the time, David Galland, who thought I had gone to the loony farm when I wrote that the Eurozone could cut rates to support the euro.

But, that's what was happening at that time. promote growth, by debasing your currency. Not of this world fundamentals I must say. but then it happened then, and appears to be happening again now. Now, it's not like that in Brazil, but here in the U.S. the so-called economic engine of the world. (for now, anyway) And once the rest of the world gets on the dance floor, grabs a hold of the dollar, and they begin to form a conga-line, the markets will have their Pavlov's Dog moment, and reward the currencies of countries that cut rates.

So. that's where we are this morning. Precious metals are getting hammered again, and the currencies are range-bound trading, but much, much weaker today, than they were before the Fed announced their Twist & Shout (Operation Twist).

There were no new problems in the Eurozone this past weekend, and Greece did not default. (it's been 3 weeks since the markets were convinced Greece would default that weekend) The markets seem to be OK with the euro trading around 1.3450-ish. We've had the usual going back and forth on whether Greece is meeting its austerity goals, to qualify them for the next payment in their bailout. I think the markets have grown tired of hearing about these. And we've had the European Central Bank kind of throw a spanner in the works of expanding the Eurozone Emergency Fund. I think they'll come around at some point.

On Friday, I told you about the strange twist of fate that Brazil saw, after hammering their currency down for a year, they had to come in to support it, because, as I always say, be yourself. no wait, what I always say is the markets will oblige you, sooner or later, if you really want your currency to be weaker! And the real, with its "newfound support" was the best performing currency, on Friday.

I glanced over to the currency screens to see what the Chinese renminbi was doing. And go figure. the renminbi is weaker this morning. I think the Chinese are sending a message to the U.S. Fed Reserve. The message might go something like this. "So, you're going to sell the short dated Treasuries that we've been buying, thus making them less valuable?... Well, then we're going to hold up on that faster appreciation of the renminbi" OK. I made all that up, but if I were a Chinese official, I would be saying that, along with a few XI*JG#$ words!

Because. long time readers might recall me telling them all about how the Chinese had been shortening up their maturities. Well, now they are holding the same short term bonds the Fed is looking to sell! Did anyone at the Fed call the Chinese before they made this decision, and ask their permission? I know that sound pretty far-fetched, we're the U.S. of A. why would we care what the Chinese think? Ahhh grasshopper, as I've explained many times since Alex was a little boy, sitting on my lap as I wrote the Pfennig. Once your country is so indebted to another country, that country can begin to dictate policy to you. I'm not saying that this is where we are now. but. it's close folks. very close!

And the Japanese yen just carries on, my wayward son, carries on. As if they can't be bothered with all these gyrations in the currencies and metals. No interest. no appeal. they have attempted to stimulate their economy many different ways since the mid-90's. with no success, but yet, the currency trades near all time highs. I think of yen as a rubber band, that's getting stretched. sure it can continue to stretch, but there comes that point, when it snaps. or is it when Ann shoots a rubber band across the room? HA! But seriously. when the rubber band snaps, it hurts. and it flies in all directions. But for now, the yen has lots of stretching ability apparently.

And the data cupboard will be quite busy this week, but not contain a lot of what we call "tier 1" or market moving data. For instance, today, we'll see New Home Sales for August, but we've seen this data as negative for so long now that it just doesn't seem to hurt any longer. Tomorrow, we'll see the color of Consumer Confidence, which is expected to rise. and I won't go into my tirade on how could that be again, so you're saved from that!

Then there was this. from the San Francisco Chronicle. "The Federal Reserve's latest plan to stimulate the economy by bringing down long-term interest rates - nicknamed Operation Twist - is not likely to benefit savers or most borrowers but is contributing to fears that central banks and governments worldwide are growing short of ways to fix the economy.

"This is what running out of bullets looks like," says Mike Englund, chief economist for Action Economics.

The previous two times the Fed tried to bring down long-term interest rates it bought longer-term Treasuries (and in the first case mortgage-backed securities) but it didn't sell anything. In those cases - dubbed Quantitative Easing or QE 1 and 2 - the Fed essentially printed money to buy bonds."

Chuck again. Yes, even an everyday newspaper writer understand what QE 1&2 were. printing money.

To recap. Gold & Silver got hammered to the point that Chuck was searching for the white flag on Friday, with more selling this morning. Chuck does his best to keep the pounding on the keys to a minimum as he points out that there is more going on in Gold & Silver than just "free markets at work". The currencies seem to be trading in a range, with no new developments in the Eurozone, except the ECB balking at expanding the Emergency Fund. We could be revisiting the past, where the markets reward currencies from countries that cut rates to promote growth. and China should be quite unhappy with the Fed's Twist & Shout program.

Currencies today 9/26/11. American Style: A$ .9810, kiwi .7795, C$ .9745, euro 1.3515, sterling 1.5525, Swiss $1.1070, . European Style: rand 8.00, krone 5.80, SEK 6.8325, forint 213.50, zloty 3.2525, koruna 18.25, RUB 32.27, yen 76.30, sing 1.2985, HKD 7.7975, INR 49.51, China 6.40, pesos 13.41, BRL 1.8335, dollar index 78.23, Oil $79.90, 10-year 1.85%, Silver $28.25, and Gold. $1,622.50

That's it for today. Well, like I said in the opening statement, my beloved Cardinals still have a chance, but they need to win their final 3, and hope the Braves lose at least one. They could end up tied, and the tiebreaker game would be played here in St. Louis. now that would be exciting! Our Rams got smoked by the Baltimore team. That should make my friend Erika happy, as she roots for Baltimore teams. Alex swam pretty good at the invitational this past weekend. The good wishes notes continue to come in, and again, I thank you all very much! I truly appreciate your thoughts, wishes and prayers. I'll give you all the skinny on what's going on, Wednesday. and with that. Thanks for reading the Pfennig, and I hope you can go out and make this a Marvelous Monday!

Chuck Butler


EverBank World Markets



Posted 09-26-2011 12:08 PM by Chuck Butler
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