We have heard of many “trades of the Year” such as Paulson’s subprime bets. The problem is these guys make a killing or two, and then get caught up in Sino Forest, Dell etc. The World’s absolutely best Trader, is the mighty US. The best and biggest trade is still working, year after year. Some insight  from Sprott;

Full report, click here.

From Gold Core,

All major currencies have fallen sharply against gold and silver again today with gold reaching new record nominal highs in Canadian and New Zealand dollars, in sterling, in euros and of course in dollars as turmoil continues in global markets.

In volatile trade, gold is down 1% from new record highs and is trading at USD 1,860.10, EUR 1,300.40, GBP 1,126.40, CHF 1,470.90, and JPY 142,414 per ounce and has risen some 2% in all currencies. Silver has surged by nearly 3% in all major currencies.

The London AM fix was a third consecutive record nominal high in US dollars. Gold’s London AM fix this morning was USD 1,862, EUR 1,299.28, GBP 1,126.91 per ounce (from yesterday’s USD 1,794.50, EUR 1,246.44, GBP 1,087.12 per ounce).

Markets continue to assess the ramifications of Venezuela deciding to repatriate their large gold reserves from London to Caracas. Their reserves are large in gold tonnage terms but small in dollar terms.

Venezuela’s central bank is the world’s 15th largest holder of gold, with 365.8 tonnes, of which some 211 tonnes, worth $12.3bn are held in London with the Bank of England and JP Morgan, Barclays, and Bank Of Nova Scotia.

Many analysts and the Gold Anti-Trust Action Committee (GATA) have long contended that much of the central bank gold reserves have been leased out by bullion banks and that in the event of central banks choosing to repatriate their bullion, significant supply issues could develop which would lead to a short squeeze and a parabolic increases in prices. 

The concern is that other central banks concerned about dollar and currency debasement and expropriation of their gold reserves by embattled large debtor sovereign nations may follow suit.

A short squeeze is quite likely given the scale of global investor and central bank demand.

GOLD SPOT $/OZ

Already, there is a small degree of backwardation developing in the gold market with certain near term futures contracts now trading at higher prices than longer term contracts. The near term August ’11 contract was trading at $1,871.40/oz while June ’12 contract is trading at $1,870/oz (12:16 GMT). The spread between spot and longer term contracts has fallen suggesting that gold may soon join silver in backwardation. 

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With Stoxx down some 8% from the Top (few hours ago), we are reaching the negative trend channel again. Make or break here? Some interesting formations today, as we have recouped some of the earlier losses. Maybe we are up for another leg up, just to get the last momos aboard.

Back in 2008 we had Lehman contagion that spread through the Financial World, causing among other things a funding situation in the World. We have seen that at least one of the European banks is using some of the ECB facilities to obtain funding. Soc Gen with a “renewed” 50 times leverage could be the bank in most trouble. European banks have been borrowing short in USD to fund long term EUR assets. With the markets all over the place, the problems of funding European banks has just started. From Macrobusiness;

We have known for some time that the ECB has been holding both the Euro-based interbank liquidity market and the sovereign bond market together with its balance sheet. But as I reported late last week the international liquidity being provided to banks is drying up and this is an achilles heal for the European banks.  They have been borrowing short in US dollars to fund long term Euro-denominated assets. This means they constantly need a rolling supply of $US in order to meet the repayments on their prior short-term funding obligations as their Euro assets mature more slowly. If the holders of $US no longer think they are a safe bet then they are caught in a good old fashioned banking liquidity trap.

We have seen evidence of this over the last few weeks as European banks started to tap the FX markets for $US swaps:

European banks are relying more on the foreign exchange market to obtain dollar funding, as fewer investors are buying their U.S. short-term debt due to fears that the region’s debt crisis could spin out of control. In the euro/dollar cross-currency market, where a bank can swap euro interest payments with a lender for dollars, the three-month cross rate spiked to minus 84 basis points, the highest since the end of 2008 during the global financial crisis.

This rate has doubled in three weeks, but it was still far below the peak of minus 300 basis points seen in the fourth quarter of 2008 when money markets froze after Lehman Brothers collapsed. Back in early May, it stood at about 18 basis points.

“It is the biggest sign that significant stress has emerged in the dollar funding market in Europe,” said Amrut Nashikkar, analyst at Barclays Capital in New York.

When the European markets traded 25% higher, everything was dirt cheap. Suddenly the World changed, and everything turned very expensive in August. The market is run by greed and fear, and that is a human element, hard to predict. For those who remember Farmer from Eco 101, he has some new twists on market psychology and high unemployment.

One explanation for the 2007-09 global crisis is that consumers, markets, and politicians were gripped by “irrational exuberance” that led them to believe the record-high house prices and stock prices were sustainable. This column proposes a new explanation based on rational behaviour and microeconomic theory. It argues that however high stock prices rise, there is always an equilibrium in which they can rise further.

Figure 1. Correlation between unemployment and wealth during the Great Depression and Great Recession

Full article by Farmer, click here.

Ft.com
French regulators have failed in an attempt to extend the short-selling ban to major European stock market indices in a climbdown that will allow investors to continue to bet on further falls in financial stocks, http://ftalphaville.ft.com/thecut/2011/08/19/657501/france-backs-down-on-short-selling-loophole/

Benchmark US borrowing costs fell below 2 per cent for the first time in at least 60 years as markets took fright at increasing signs of global economic weakness and equities worldwide, writes the FT. Bank share prices once again bore the brunt of the equity market sell-off. http://ftalphaville.ft.com/thecut/2011/08/19/657451/global-markets-in-turmoil/

Anna Hazare, the Indian anti-corruption campaigner, scored a victory over the country’s government on Thursday after police agreed to remove some of the restrictions on his public hunger strike in Delhi,http://ftalphaville.ft.com/thecut/2011/08/18/657336/hazare-agrees-deal-for-anti-graft-protest/

Vice-President Joe Biden is in China to get the measure of the country’s likely next leader, Xi Jinpingr, says Bloomberg. The US is keen to push for economic cooperation, although foreign journalists were bundled out of the room by Chinese security when Biden mentioned the economy in a speech, http://ftalphaville.ft.com/thecut/2011/08/18/656501/biden-presses-chinese-counterpart-on-economy/

Wsj.com
Asian shares were sharply lower Friday following a selloff on Wall Street as grim U.S. data triggered fresh concerns of a global economic slowdown.  Japan’s Nikkei Stock Average lost 2.0%, Australia’s S&P/ASX 200 fell 2.6%, South Korea’s Kospi Composite shed 3.9% and New Zealand’s NZX-50 was down 1.0%.  Dow Jones Industrial Average futures were down 46 points in screen tradehttp://online.wsj.com/article/SB10001424053111903596904576517032557747932.html?mod=WSJEurope_hpp_LEFTTopStories

U.S. inflation surged in July primarily because of climbing energy and food prices, but those costs are likely to retreat in coming months as prices for oil, grains, and other raw materials fall in a lagging economy. Underlying price pressures remain strong, however, which could constrain the Federal Reserve from taking more action soon to spur economic growth and hiring. The consumer price index jumped by a seasonally adjusted 0.5% in July, up 3.6% from a year earlier, the Labor Department said Thursday. Higher gasoline prices accounted for about half the gains, reflecting high crude oil prices earlier this yearhttp://online.wsj.com/article/SB10001424053111904070604576516651008178810.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

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