Fund Manager: Smoking Gun Evidence That Derivatives Melt-Down HAS BEGUN Behind the Scenes!

by The Doc and Eric Dubin, Silver Doctors

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With gold & silver hammered yet again Friday, Fund Manager Dave Kranzler joins the show, discussing:

  • Cartel algos send gold & silver down the elevator shaft on NO NEWS- whats amazing is they don’t even try to hide it anymore
  • Are we setting up for a short squeeze on next week’s FOMC, or is The Fed setting up the metals to be smashed through their lows for an Epic Waterfall- washout bottom on the FOMC?
  • Reverse Repos Go Parabolic: Has a ‘Liquidity Shock’ Derivatives Melt-Down Begun? Kranzler provides SMOKING GUN evidence why the answer is YES 

The SD Weekly Metals & Markets With The Doc, Eric Dubin, and Fund Manager Dave Kranzler is below:

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Dave Kranzler published a grand slam article last week (click here).  Doc and I were happy he could join us to discuss what I consider to be smoking gun proof that there is a low grade fire burning in the derivatives market, and it could flare-up into a crisis at any time.  You owe it to yourself to read the article, and for more context listen to our discussion.

I forgot to mention in the podcast one additional point:  ECB’s launch of QE would make a rather convenient compliment to any massive swap line that might have been launched between the Fed and the ECB back in that suspect mid December, 2014 period when all this Reverse Repurchase Agreements (RRAs) action was going on to stuff collateral into teetering European banks.  Bloomberg News filed Freedom of Information Act requests on the Fed and ultimately had to sue to find out what the Fed did during the financial crisis.  The Fed flipped Bloomberg the bird, but Bloomberg News won their court case.

That effort, combined with information that came from the very limited audit conducted as a result of Congress getting off their arse and passing Ron Paul’s last “Audit The Fed” bill submission revealed nearly 17 trillion dollars in swap lines and backstops that the Fed initiated.  For example, the Fed “printed” dollars, the ECB “printed” an equal value of euros, and the two institutions swapped the digital fiat currency in a clandestine operation to not only hide the effort to float European-based banks, but to dampen the impact of relative debasement of one currency versus the other — debase both by the same amount at the current exchange rate and the impacts to the exchange rate is dampened.

Who knows if there were massive swap lines on top of RRAs last December.  It wouldn’t surprise me in the least.  Nevertheless, this is total speculation on my part and I have no way of proving it, and I don’t have the deep pockets of Bloomberg News to sue!  But I encourage researchers to steal my theory and investigate because it would make sense that swap lines were used in addition to RRAs last December.  Western central bankers exercise extraordinary coordination amongst themselves.

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It just never ends.  The latest?  Talks between Greece and the Troika fail, which in a world with normal economic dynamics would have increased demand for gold on Friday.  Instead, gold and silver were smashed.  To add insult to injury, we have yet another example of in-your-face algorithm driven trading.  Just look at the match on Friday’s trace pattern going into the London close with Wednesday.  One match like the above doesn’t prove anything.  However, these type of echo matches over different trading days have been happening at least once per week for every week going back to at least as early as 2004.

Thankfully, if I’m correct, we’re going to see a steak driven into the heart of the precious metals bear this summer.  I believe China will declare she has gold holdings below 4,000 but above Germany.  My best educated guess?  Look for 3,900 metric tonnes to be declared versus the last official figure of 1054.6 metric tonnes declared in 2009.  The 3,900 figure will be well below what the Chinese government holds, never mind the massive pile Chinese citizens now control.  Alasdair Macleod has published publicly the very best work on what China might hold, documenting his assumptions and spotlighting key historical events (e.g., see here, here and here as examples).  25,000 metric tonnes?  It’s possible, reasons Macleod and I agree.

In any event, the mainstream financial world is too busy sucking on the teet of the World Gold Council and GFMS to recognize what’s going on in China.  This announcement is going to come as a major shock that will compel a percentage of the mainstream financial world to second guess their assumptions, leading to an elevated bid for gold from money that is otherwise indifferent today.

China will seek to declare part of her gold holdings in order to add credibility to the renminbi, which in turn will be critical to help China secure placement within a reorganized SDR basket at the IMF.  Make no mistake and don’t get hung-up on whatever you might think about Jim Rickards.  China wants this to happen and many top political and academic leaders in China have said as much in the media and within policy papers (e.g., see here for just some of the documentation).  The majority of IMF member states want this to happen and IMF president Lagarde said last month regarding renminbi addition to the SDR basket:  “It’s not a question of if, it’s a question of when.”  China needs the inclusion of the renminbi to the SDR basket because she will likely not have fully liberalized her capital account in time for this fall’s IMF meeting, and it’s also very unlikely that the renminbi will be aloud to float freely against the dollar (but I do expect the trading band to be expanded yet again before the IMF meeting).  Nevertheless, the IMF reorganization meetings occur only every five years, and the need to act this October is considered important and necessary given the desire to create a new “liquidity pump” to address the continuing rot in the global financial sector.  Western central bankers and even a percentage of American interests want this new tool.  So, get ready for “IMF QE.”  It’s coming.  But first, given that China will not fully meet all the requirements for renminbi inclusion into the SDR basket (free floating currency, liberalized capital accounts, etc.), she’ll try to more than make up for it by dropping a bombshell about her gold holdings.

I’ve been talking about this thesis for a few months on Silver Doctors, and on various podcasts elsewhere.  It looks like some of the mainstream financial world is catching up and catching on as well (e.g., click here).  But very few people have connected the dots to see how and why this chain of events is going to put an end to this precious metals bear market.  Sure, the cartel will likely come back after precious metals settle down at a MUCH higher baseline trading range and fire-up aggressive management once again.  I expect as much.  But if my theory is correct, gold and silver investors are going to be smiling regardless.

Listen to our podcast for more context.  I also joined Dave Kranzler for a conversation with Rory Hall and we discuss this topic along with a whole host of other juicy stuff.  Look for that to be released around Monday.  Rory has his editing work cut out for him.  We recording nearly two hours worth of material!

Worthy Links For The Weekend:

Also, visit Dave Kranzler’s website, Investment Research Dynamics.

Thanks for tuning in!  – Eric Dubin, financial and global macro analyst and managing editor, The News Doctors.

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