Why is gold dropping when it shouldn't?

Why is gold dropping right now when anyone in their sane mind would expect it to rise? The simple answer to this question is, " because Comex-gold isn't gold " - and because it deceptively pretends to be 'the' price-setter for real gold.

Gold is gold, paper is paper, and "Comex gold" is nothing but paper masquerading as gold while simultaneously pretending to be the price-setting medium for actual gold in the world. Now, finally, Comex-gold is in the process of being unmasked. The real supply and demand determinants for Comex gold are not actual gold investors but fund managers . Fund managers are inextricably intertwined with the world of contract-based credit instruments. They use bet on Comex gold contracts to hedge their other (currently horrendously losing) bets with something they all, in their in-bred belief in paper markets, believe will 'go up' in value while everything else is going down.
However, these very same fund managers and their paper-bound investment psychology are the exclusive reason why Comex gold is dropping in these times when everyone (including fund managers) expects gold to rise. As already stated, though, and as they now finally realize to their own dismay, Comex-gold just isn't gold - and that causes even further selling.
Fund managers' other bets are losing money fast, now, so they need to raise cash to keep up the overall value of their respective funds, so they can earn their management bonuses and avoid getting booted for lack of relative performance. Guess what they cash in on? The very same Comex paper-gold they mistakenly bought as a 'hedge', of course. Meanwhile, real investors in real gold are enjoying their shopping spree - except that the spree turned into a treasure hunt as the shelves and display cases of gold dealers look more and more like the supermarket shelves in the old Soviet Union - bare . This is the only 'bare-market' in real gold the world will see for a long, long time to come. With this split, this disconnect, between Comex illusion and gold reality, one thing or the other will have to give, and it won't be physical gold that gives. My reaction: I am certain the US is less than a month away from a currency collapse. The fed and treasury are not even taking the time to think at this point: they are just throwing money and guarantees at each new problem that pops up without worrying about the consequence. Since no one can imagine a currency collapse, there isn't the political will to take the painful steps needed to prevent it (reign in fed and let institutions fail). The forces and trends behind the financial collapse are too powerful to stop.
By Eric deCarbonnel http://www.marketskeptics.com

Market shutdown

Former Clinton economic adviser Nouriel Roubini says hundreds of hedge funds will fail and that policymakers might have to shut down financial markets for a week or more in response.

"We've reached a situation of sheer panic. There will be massive dumping of assets," and "hundreds of hedge funds are going to go bust," said Roubini, a New York University professor. He was speaking to attendees at a hedge fund conference in London.Roubini is known for his predictions. In July 2006 he said that the United States would enter an economic recession.Earlier this year, he forecast a "catastrophic" financial meltdown that he said global central bankers would fail to prevent and would lead to the bankruptcy of large banks exposed to mortgages and a sharp drop in equities.He warns, too, that the world is heading for a protracted recession that will end the financial dominance of the United States.Roubini told CNBC that he believes the United States is going to have two years of negative economic growth, quite at odds with most predictions of quarter or two of recession ahead."The last two recessions lasted only eight months each. … This time around, this is going to be three times as long, three times as deep. This is going to be the worst recession the United States has experienced since the 1980s."Emmanuel Roman of GLG Partners, a former division of Lehman Brothers Holdings, agreed with Roubini's dire prediction.He told the Telegraph that 25 percent to 30 percent of the world's 8,000 hedge funds will disappear "in a Darwinian process," either by going bust or deciding that meager profits are not worth the effort."This will go down in the history books as one of the greatest fiascos of banking in 100 years. There needs to be some scapegoats, and the regulators are going to go hunt people. That will be good in the long run," Roman said

Government meets business

The federal government wants to hear what actions, apart from its $10.4 billion economic stimulus package, business leaders believe are necessary to help Australia weather the global financial crisis.
Prime Minister Kevin Rudd will meet business leaders in Sydney on Friday.
"It's very important to hear directly from the business community on the ground about what's going on and about what further actions may be necessary in the future," Mr Rudd told Sky News.
"Canberra is not the ultimate repository of all wisdom.
"So we'll be out and about talking with the business community and the general community over what's still going to be a very, very tough time ahead."
Some of Australia's biggest companies will be represented at the round table.
Bosses from miners BHP and Xstrata, accounting firms DeLoittes and Ernst & Young, American Express , property group Leighton Holdings, IBM and Microsoft and News Ltd are expected to attend.
Meanwhile, Mr Rudd has likened the world financial crisis to a "cancer" which has spread to the Australian economy.
He also defended the government's decision to implement a $10.4 billion economic stimulus package ahead of official data to be released next month revealing the strength of the local economy.
Mr Rudd said financial institutions had spread around the risk of "dodgy loans" made in the US.
"When the original mortgage payments couldn't be made, the cancer didn't just stay local, it spread across the world to all the other institutions that had been wrapped up in it," he told Sky News on Friday.
The crisis was now affecting the real Australian economy.
Mr Rudd is resisting calls from the opposition for the release of Treasury advice the government received in developing its stimulus package.
Updates would be included in the mid-year economic forecasts, due for release next month, he said.
But the government could not wait for "final, conclusive proof of economic problems" before taking action, Mr Rudd said.
"Guess what, by then it's too late, you need to act decisively and early because it takes some time for these stimulus measures to flow through to the economy."
"The logic of the Liberal Party's position is this, they would say that you should wait until basically the car starts to sputter through lack of petrol in the tank before you put more petrol in."
When pressed about what the government was doing to help self-funded retirees weather the financial crisis, Mr Rudd said the government was maintaining the stability of the financial system.
Guaranteeing bank deposits would help them, he said.
Opposition Leader Malcolm Turnbull says, many small businesses have not seen any benefit from the recent cut in interest rates, even though the federal government is prepared to risk billions supporting the banks.
Only one bank had passed on fully this month's one percentage point rate cut to small business, a sector of the economy that employs most Australians, he said.
"So ( Prime Minister Kevin) Rudd is providing deposit guarantees to help the banks, he's providing wholesale term funding guarantees, which by the way puts the taxpayer potentially on the hook for many billions of dollars," Mr Turnbull told Sky News on Friday.
"So he's doing all that for the banks, and he's spending $10 billion in stimulus, but the stimulus of the interest rate cut is not yet apparently finding its way in that part of the economy where most Australians are employed."
Mr Turnbull is continuing to press the government to reveal what advice it used to formulate its $10.4 billion economics stimulus package announced and what impact it would have on interest rates.
"They're the one's sitting around the table with Treasury, what has Treasury told them, everyone is entitled to know," he said.

Recession alarm rings around the world

World giants in the automobile, airline and technology industries have ordered emergency action in response to the financial crisis, while the IMF set aside more than $US200 billion ($A297.09 billion) for debt-laden countries.

Even a 1.5 million barrel a day production cut by OPEC failed to stop oil prices falling in the face of swelling fears of a deep global recession which led shares to take a hammering yet again.

Wall Street followed other exchanges downwards as a wave of panic selling and a meltdown in share prices swept around the world.

US shares later recovered some of their losses and fell less than many other global stock markets in early trade.

Grim financial news came in from around the world.

Iceland's government said it had asked for $US2 billion ($A2.97 billion) of support from the International Monetary Fund, the first Western country to do so since 1976.

The IMF said it had tentatively agreed to the loan and announced it had set aside hundreds of billions of dollars to rescue stricken nations.

"The IMF has more than 200 billion dollars of loanable funds and can draw on additional resources through two standing borrowing arrangements with groups of IMF member countries," the institution said on its website.

China, Japan and 11 other Asian nations agreed to set up an $US80 billion ($A118.84 billion) war fund to fight what ex-US Federal Reserve chief Alan Greenspan called a "once-in-a-century credit tsunami".

French automobile giants PSA Peugeot-Citroen and Renault ordered huge production cuts, while Japan's hi-tech giant Sony Corp and Europe's biggest airline Air France-KLM issued profits warnings.

In Britain, official figures confirmed the country was about to enter a recession, while Turkey's central bank took action to strengthen bank liquidity and prop up the slumping currency.

The combined impact sent shares tumbling in both Asia and Europe.

Japan's Nikkei index plunged 9.60 per cent, ending below the key 8,000-point level for the first time in more than five years, and Hong Kong fell 8.3 per cent.

European shares had lost up to 10 per cent by midday trade before mounting a late rally.

French shares still fell 8.0 per cent to finish at five-year lows, while Frankfurt's DAX 30 index and London's FTSE 100 were off around five per cent.

"The best word to describe what's going on right now is panic," said Credit Suisse strategist Satoru Ogasawara.

Technology giant Sony, a bellwether of corporate Japan , saw its shares plunge more than 11 per cent after forecasting net profit of 150 billion yen ($A2.31 billion) for the year to March, down 59 per cent on last year.

Air France-KLM suffered a near nine per cent drop in its share price after acknowledging it would be "very difficult" to meet its billion-euro ($A1.93 billion) earnings target.

Europe's biggest airline unveiled a plan to cut costs by up to 1.2 billion euros ($A2.32 billion) over the next five years.

The suffering extended to the automobile industry. with Renault ordering almost all French plants closed for at least one week and shorter shutdowns in Turkey, Russia and Slovenia.

PSA Peugeot-Citroen chairman Christian Strieff said he had ordered "massive" production cuts as the group forecast a 17 per cent fall in car sales in Western Europe in the fourth quarter.

Chrysler LLC , the number three US automobile maker, meanwhile said it would cut up to 5,000 administrative and temporary jobs by the end of the year.

ArcelorMittal, the world's biggest steel producer, shut smelting furnaces on a temporary basis in France, Germany and Belgium, according to union chiefs who met with management.

New figures showed industrial confidence in both France and Italy had fallen to the lowest level since 1993.

There was also grim data on the jobs front, with Spain's unemployment rate jumping to 11.33 per cent - the highest level in more than four years.

Adding to the gloom, OPEC oil ministers decided at emergency talks in Vienna to cut output by 1.5 million barrels per day from November 1.

The cut was designed to increase prices but Brent North Sea crude for December delivery slumped to $US61 per barrel, the lowest point since March 2007.

"There won't be any impact on inflation, there's not going to be any impact on growth," the cartel's president Chakib Khelil told reporters.

"Growth has disappeared already in the US, it's disappeared in Europe."

New figures meanwhile showed Britain's economy shrank by 0.5 per cent in the three months to September, compared with the previous quarter, marking the first contraction since 1992.

The country's economy screeched to a halt in the second quarter with zero growth. However, it must experience two successive quarters of negative economic growth to be classed as in recession.