News is bubbling out about the June 7-8, 2013 summit in California, between Chinese President Xi Jinping and United States President Barrack Obama. There is are plethora of issues that are being mentioned. From territorial disputes in Asia and the Chinese backing of Iran that is frustrating to the Obama administration, to copy right infringements and cyber security. Certainly these are all important issues, but one has to wonder why any of these issues would prompt a face to face meeting between the two leaders being moved up in date by months and the odd circumstances around the meeting being held in California and not in DC with ordinary large delegations.
Look back over the past year and you will find lot's of military deployments by the US in Asia and the responses by the Chinese that include an incursion into India and increase rhetoric toward Japan, the Philippines and Taiwan. For sure these topic will be discussed, but I have a different theory about the urgency and main topic of the summit, GOLD.
China snub the US last fall by sending a low level diplomat to the talks in Japan following the FED's QE to infinity announcement in September. They followed that up by going on a tear, and buying gold on a massive scale. Then in April there was a huge sell off on the Comex of paper gold. The amount was so large that it is hard to believe it didn't have central bank backing, due to it's scale and timing in after hours thinly traded markets. This type of action should it occur without approval in any market would certainly draw the attention of CFTC regulators. That type of selling is only done to manipulate market price, a normal sale would not draw the best price under these circumstances. This action may have blown out Chinese stop losses and forced their liquidations(pure conjecture on my part). Then we had the G-7 meeting hastily called in the early part of May in London. The west is likely caught and Obama is hoping to talk his way out of a major confrontation with the Chinese over US money printing. Gold is the anti dollar and the best weapon the Chinese have against the Americans and their massive advantage of the reserve currency and unlimited dollar creation. Their opposition is not so much for economic reasons, but geopolitical necessity. Likely all the market action is forced by this reality and the banks and whoever else is more then willing to make a fortune and call it their patriotic duty or "GOD's" work if you prefer. The error most precious metal commentators make is to assume "free" markets will trump the manipulations when in fact it is unpredictable geopolitics that is the real straw likely to break the camels back.
So where does that leave us? Well, I think it leaves us with sideways markets across the board. I do not see the FED allowing the President to head into such an important meeting with any further signs of weakness. I suspect the bond market will strengthen and PM's and stocks will head straight east on the charts going into the summit. The real question is how do we interpret the results of the meetings. We will likely see a lot of happy talk from the summit either way, with any sell offs waiting till mid month to begin so as not tip the markets into believing the summit was the cause. This would be an ominous sign that the Chinese dug their heels in and gold will move higher and soon. However, if we see gold trends sideways with stocks resuming their slow march higher this will be negative for gold long term and signal capitulation of the Chinese. The problem with this is I do not believe the Chinese can afford to capitulate on gold to the Americans. They do not have a military that can compete with the Americans and that leaves gold and cyber attacks as the only options to resist the Americans. The Americans will respond with higher gold prices and the move might be stunning. Followed by the stock market and sideways movement in bonds. Emerging market money will move back home due to political uncertainty and we will see civil unrest around the world spread. Stocks will correct slightly and the FED will lock down the bond market. Long term, all hell will break loose, but initially the Americans will be defiant.
This is just my two cents mid you, pure speculations, but it is what my tea leaves are telling me. You will have to divine yours for yourself and take appropriate actions.
Look back over the past year and you will find lot's of military deployments by the US in Asia and the responses by the Chinese that include an incursion into India and increase rhetoric toward Japan, the Philippines and Taiwan. For sure these topic will be discussed, but I have a different theory about the urgency and main topic of the summit, GOLD.
China snub the US last fall by sending a low level diplomat to the talks in Japan following the FED's QE to infinity announcement in September. They followed that up by going on a tear, and buying gold on a massive scale. Then in April there was a huge sell off on the Comex of paper gold. The amount was so large that it is hard to believe it didn't have central bank backing, due to it's scale and timing in after hours thinly traded markets. This type of action should it occur without approval in any market would certainly draw the attention of CFTC regulators. That type of selling is only done to manipulate market price, a normal sale would not draw the best price under these circumstances. This action may have blown out Chinese stop losses and forced their liquidations(pure conjecture on my part). Then we had the G-7 meeting hastily called in the early part of May in London. The west is likely caught and Obama is hoping to talk his way out of a major confrontation with the Chinese over US money printing. Gold is the anti dollar and the best weapon the Chinese have against the Americans and their massive advantage of the reserve currency and unlimited dollar creation. Their opposition is not so much for economic reasons, but geopolitical necessity. Likely all the market action is forced by this reality and the banks and whoever else is more then willing to make a fortune and call it their patriotic duty or "GOD's" work if you prefer. The error most precious metal commentators make is to assume "free" markets will trump the manipulations when in fact it is unpredictable geopolitics that is the real straw likely to break the camels back.
So where does that leave us? Well, I think it leaves us with sideways markets across the board. I do not see the FED allowing the President to head into such an important meeting with any further signs of weakness. I suspect the bond market will strengthen and PM's and stocks will head straight east on the charts going into the summit. The real question is how do we interpret the results of the meetings. We will likely see a lot of happy talk from the summit either way, with any sell offs waiting till mid month to begin so as not tip the markets into believing the summit was the cause. This would be an ominous sign that the Chinese dug their heels in and gold will move higher and soon. However, if we see gold trends sideways with stocks resuming their slow march higher this will be negative for gold long term and signal capitulation of the Chinese. The problem with this is I do not believe the Chinese can afford to capitulate on gold to the Americans. They do not have a military that can compete with the Americans and that leaves gold and cyber attacks as the only options to resist the Americans. The Americans will respond with higher gold prices and the move might be stunning. Followed by the stock market and sideways movement in bonds. Emerging market money will move back home due to political uncertainty and we will see civil unrest around the world spread. Stocks will correct slightly and the FED will lock down the bond market. Long term, all hell will break loose, but initially the Americans will be defiant.
This is just my two cents mid you, pure speculations, but it is what my tea leaves are telling me. You will have to divine yours for yourself and take appropriate actions.
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