Replies

Re manufacturing: the dollar must and will fall. Then we will see the gradual return of the manufacturing sector as domestic production becomes more competitive with imports.

Re JPM: they are enormously short gold. They have been involved in the gold carry trade whereby they lease gold from the Fed, sell it short into the market, and invest the proceeds in Treasuries. In the past, the lease rate paid to the Fed was roughly 1% and the return on Treasuries was close to 5%, yielding a nice spread. Now the spread is gone. The problem is that this is a great game as long as the price of gold does not rise. The companies involved in this kind a trade all use risk management software that tells them to buy gold (if they are short gold)if the value of their positions reach a certain level. That level is widely rumored to be $330 and we have seen $330 act as a price barrier which leads one to believe that someone, namely the shorts, is defending that level.

There was a paper that came out last week by Howe/Bolser that shows that the CB's have leased out 16,000 tons. That is a huge number, equal to about 7 years of global production. This paper was based on a recent report by the BIS. Howe is associated with GATA, and although this paper is really saying the same thing they have been saying for years, it is apparently getting some attention, perhaps because it is backed by BIS numbers. The speculation is that hedge funds are licking their chops to take on the shorts and we have seen some significant price pressure over the last few sessions. Personally, I don't think JPM will go down over gold. The exchange will simply change the rules. My guess is these contracts will be settled in cash, rather than forcing delivery of physical gold. Of course, that means the CB's are out their gold and it also means the price suppression will cease.