Bumble is at it again

We need Yukon Cornelius to detooth the Bumble one more time.

The latest from Stockhouse:

"The very largest traders for gold and silver are, wouldn’t you know it, big U.S. banks. It looks like a few big banks, some of the same ones whose brilliant management helped spawn a global financial crisis, have the largest positioning in gold and silver futures. As of February 3, their positioning in gold and silver futures was big all right – big and short the market for gold..."

"According to the monthly CFTC Bank Participation in Futures and Options Market report released Friday, February 6, two large reporting U.S. banks held zero long and 27,189 short futures positions in COMEX silver futures as of February 3. All commercial traders as a group held a net short silver position of 33,173 contracts that same day; so just two banks held 81.96% of all the COMEX commercial net short positioning for silver. "

All the information leads everyone to believe they have been affecting the price of gold and silver since late last summer. That is when the big spike in oil prices was starting to fall back. Oil peaked in July, 2008, and within a two week span, dropped almost $30. It kept falling. But that was after running up from $62 BBL to $150 BBL in ten months time.

The big banks have exchanged some of their toxic derivatives with the Federal Reserve for safe US Treasuries. In November of 2007, the Fed had no derivatives on its balance sheet. Today it has well over $1 Trillion. The reason for this is simple, and Bernanke admits it is an attempt to get liquidity back into the credit markets. No entity, bank or otherwise, will lend against any derivatives. Banks loan to each other all the time, or at least they used to. Because all the big banks have some exposure to derivatives, they know how worthless they really are. If their derivatives won't find any buyers, why would any other bank's derivatives find buyers? Since most of the claimed net worth of the big banks lies in these toxic assets, that may be worth $0, interbank lending has screeched to a halt.

The big banks that have received Treasury notes from the Fed through exchange have borrowed against them. They then take that money to the commodity exchanges, and place bets on futures contracts. That is what caused the spike in oil.

From December 2007 through June 2008, the amount of money at play in oil futures contracts on the NYMEX increased by $248 Billion. From December 2007 through June 2008, the amount of derivatives exchanged with the Fed for good Treasuries was, are you ready, $248 Billion.

Yeah, it's probably just a coincidence.

Because of the economic uncertainty, gold and silver are being hoarded by institutions and individuals, and there is very little free to buy. Go to your local gold or coin dealer. Spot price of gold is $942 per oz, right now. The dealer will not sell you a US Gold Eagle (1 oz.) for less than $1,100. Most will want $1,200 or more. Already the market, outside of the exchanges, is pricing in a sizeable premium. This is because demand is greater than supply. Since demand is greater than supply, logic dictates that gold and silver should be higher, and going higher.

But the current action on the COMEX concerning gold and silver could be the same type of play as oil was last year. Except to the downside, betting the metals will fall. Two reasons for this, the first is greed, the second is greed.

The first is to try and maximize profits by controlling price swings. If gold and silver should go down a little more, then they might go all in on the upside. What I mean is if they can get gold back to $850 oz., then when gold rises, that's an additional $90 per oz. profit. They know, everyone knows, sometime in the near future gold may easily double. Silver might triple.

The second reason is a bit more complicated, yet is likely to be more correct. If gold should rise, the value of those Treasuries the big banks have borrowed from the Fed goes down. So does the value of the dollar which those Treasuries are representative of. Since most of the big banks are are already insolvent, every penny means something.

The banks aren't just betting the amount they have in Treasuries, they borrowed up to 9 times more than that. It is that amount they are betting with. It's called leveraging, and is what got the financial system to where it is now.

Concerning the COMEX, the real danger lies with the other side of the trade. Should the people who have the other side of the contracts that the banks are betting on demand physical delivery of the metal on expiration, the banks are screwed. They have 10% of the total amount of gold and silver they are betting on (because of leveraging). If 20% of the other side of the trade demands physical delivery on the third Friday of the month (expiration for options and futures), the banks must scramble and go on the open market to buy what they can to meet settlement.

The first problem they will then have is the premium being charged. They may be forced into paying 10% or more than the settlement price just to get the metal.

The second, and more important problem, is the amount they will need to buy for settlement is usually not available. To make it available, they will have to pay even more. This will cause gold and silver to spike, instantaneously.

Fear of loss would set in, and gold, the one true perceived money that transcends all currencies, would gain in demand. This would cause another set of Treasury note holders, those buying very short term Treasury Bonds (at 0.5% or less coupon) to sell and chase gains in metals, forcing the price of gold and silver up even more furiously.

That sell off of US Treasury notes will cause all other notes to decline in value, just as fast as the rise in metals. Since the Bond market will be flooded with sellers trying to cash in and get a gain in metals, that means there will be few buyers of bonds. If supply is greater than demand, prices fall.

Should gold and silver spike in the near future, which seems almost certain, then a bond market crash is almost as certain.

It was the sell off of bonds in 1931 - 1932 that caused the Great Depression.

The Fed has enabled the big banks, who have already demonstrated they are fools with our money, to recreate the same scenario that caused the Great Depression.

Then again, maybe they are just following a blueprint. JP Morgan was able to increase its ownership of US businesses three-fold from 1930 - 1933. By buying at firesale prices. Bear Stearns did go from $62 down to $2 in less than a week.

Man, if that isn't firesale, I don't know what is.