Sunday, April 13, 2008

Margin-Requirement Change Nuked Gold/Commodities--but Say Hello to Petro-Gold

Gold/Precious Metals/Commodities Correction Followed Margin-Requirements Change to Deleverage/Deflate Commodities Markets

Gold broke above $1,000 in the middle of March and threatened to move higher, but about March 19, in the most blatant manipulation yet, the private banking partners of the Federal Reserve (including J.P. Morgan Chase and Merrill Lynch) notified customers with leveraged commodity investments that the margin requirements for the leveraged accounts were being doubled. ... This forced many investors to instantly liquidate half of their commodity holdings. Commodity prices tumbled across the board ("Market Manipulation Points to Dollar Decline," By Patrick A. Heller, Market Update,, 3/31/08).
Nuking half the leveraged money out of existence by fiat might turn the clock back a month or two in prices but it will not stop the forces underway.

The artificial drop in commodities prices because of the regulatory change will give an ephemeral boost to equities (imagine if margin requirements for equities suddenly were doubled) and mislead bulls to call a bottom to the stock market.

The purpose of the commodities' margin-requirement increase might have been psychological warfare to prop up equities and discredit the bears.

However, fundamentals have not changed and commodities demand continues to grow.

New Demand: Turning Petro-Dollars into Petro-Gold

1.5 billion Muslims soon will have a new way to buy gold and short the US dollar (and any pegged curreny such as the UAE Dirham) with a shariah-compliant gold ETF, soon to be launched by Dubai Multi Commodities Centre and World Gold Council, based in Dubai, "The City of Gold."

The reputed Plunge Protection Team (PPT) continues to fight the deflationary tide.

Federal Reserve Chairman "Helicopter Ben" Bernanke is a self-described, inveterate inflationist whose only reason for getting out of bed in the morning is to inflate the credit/money supply.

He probably was hired for just this reason and he will try every trick in the book plus invent a few more (legal or not) to prop up the housing, equities, and credit bubbles.

May God have mercy on his soul.

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