Oil prices are above $90 per barrel. OUCH!

Brace yourself for the inevitable crash. If the bull gets legs and it turns into a real bubble the deflationary impact will be shattering.

The higher the price the greater the downturn. The crash could happen tomorrow or next year. The new high could be the 2008 annual average price of $97 or the 2008 high of $147 could be retested. At some level economic activity cannot support the price and the cascade begins.

Look @ all these supported and inflated asset markets as currency traps. It looks as if the oil trap is getting ready to close. When it does the rest of the currency/liquidity traps world- wide will follow. Liquidity will vanish and margin calls begin. It seems the oil price spike/crash will be the trigger of the next, long- anticipated deleveraging event.

It will be hard to see how the Fed will be able to contain either the revealed risk(s) or the resulting panic.

Here is where the waste- based economy and what is wasted come together. Folks blame Bernanke for this but the Fed doesn’t buy crude — it would have to resell it — but everyone else does. It is the prospect of recovery which is sending crude higher, recovery in the US, in the Eurozone and continuing in Asia (with the exception of Japan). You are watching the oil price governor on ‘growth’ in action.

The total number of people around the world who actually make a financial gain out of their final use of petroleum products is likely the same number who own gold. That is the readership of Zero Hedge.

The rest who ‘use’ petrol simply waste it. 60 years, a trillion barrels, all gone and nothing to show for it but crushing debts and a bunch of crumbling ‘infrastructures’ built to waste fuel.

Peak oil is real, folks. You are getting a chance to live your oil constrained future.

Oil bulls are in denial, they believe — as in religion — that high oil prices have little economic effect other than an increase in their personal profits and ‘more production’. As modern experience has demonstrated repeatedly, oil price spikes have been followed by price crashes. The last bull market that ended in 2008 failed to bring new production onto the markets. What happens instead is that high prices destroy oil demand. The mechanism is high prices bankrupting businesses that enable crude waste.

It isn’t pump price: the customer can afford $4 gas but cannot afford the new house or new car or new jet ski or a vacation. Companies fail … and they have been. The customer loses his or her job.

Keep in mind that pretty much ALL business in developed countries are versions of the oil business, they ALL use crude, that oil is embedded in all goods and services. As countries develop and use more fuel their economies orbit around fuel as well.

The CFTC has not made rules ending position limits for non- hedgers (banks). Open interest in forward months is increasing. Both of these are ominous. Specs piling on an oil bull will pretty much destroy the US economy.

There are many risks in the US and overseas building against the economy: political, F/X and current account imbalances, unserviceable debt, deflating asset bubbles, inflation in energy producing states — including China which exports coal in the form of consumer goods — and deteriorating environment. The risk that is front and center is the new oil bubble. Unlike the PM bubbles, oil is used wasted by every person in the world every day. The food you eat is really petroleum, shipped by petroleum, held in stores and shops built with petroleum, taken to your home by petroleum. There is no escape from the risk.

Oil price rise allocates funds from other presumably remunerative uses. The high prices starve other activities. This is why high prices are self- limiting and deflationary. Funds directed toward fuel are directed away from wages, housing, manufacturing, benefits and other economic interests.

It’s going to be ugly, folks.

Meanwhile, the gold and silver markets are … ‘interesting’. Gold and silver on the forward markets are in long- term backwardation which is unprecedented. As a commenter here suggested, the futures markets are so unbalanced currently they are becoming useless for price discovery and as a venue for physical exchange. As is usual with gold and other precious metals, the owners are hoarding and supply has vanished leaving would- be longs and canny speculators nowhere to turn but to paper derivatives.

The amount of physical gold in the markets (bullion/coins/jewelry) is small and diminishing. Gold is hard to find @ coin dealers, on Ebay, in the bullion markets and elsewhere. Superimposed on this small physical trading market is an immense and growing ‘paper gold’ market of futures contracts, options on futures, gold mining stocks, EFT’s, warrants, forwards, leases, etc. While it is hard to say how large the paper gold market is relative to physical it is massive.

Many of these paper derivatives are outright frauds. The rest are not as blatant, merely Ponzi schemes.

Trust me when I say there is a lot more paper than physical, this is collateralized by physical held in institutions. All that paper represents putatively valid claims against the physical. As you are certainly aware, the institutions are better positioned to perfect their claims against that physical and to do so at the expense of individuals.

That is why I tell peeps over and over to hold your own physical gold, no paper gold.

The markets are totally lopsided with (unlimited) demand against shrinking supply. Sellers have been bought out of physical markets to the degree that it is more profitable for them to hold or lease rather than to sell. When this happens it is generally the market/exchanges themselves become the counterparties to increasing paper long positions. The exchanges have massive and growing short positions as a consequence; these are settled with more paper with the settlements being pyramided increasing the short leverage exponentially.

Gold is self- marketed as an asset that never loses value like real estate was in the early oughts. Once the marginal gold buyer has entered the market OR some outside force demands margin, the market imbalance swings 180 degrees. The massive short holder now becomes the only buyer for paper gold.

Chances are, the time to sell is when you HAVE to sell or be sold out.

Guess what? That ex- short position- now only gold/silver buyer on planet Earth is Goldman- Sachs or JP Morgan- Chase! Sorry about your gold trade, dude!

BTW, Max Keiser’s silver short squeeze against JPM is futile; the bank can borrow unlimited amounts of ‘paper silver’ from the Fed. It’s the paper positions that hold the gold/silver markets hostage even as they are levers used to pump the prices. This is what people don’t seem to recognize. Paper gold derivatives are driving PM prices the same way mortgage- backed securities drove real estate prices five years ago.

It’s the same people, doing the same thing!

Paper gold instability is why the PM market declined in 2008 as the exchange’s banks raped their paper gold customers who had to dump physical to make margin. They had to sell on a market to buyers who had lost billions in other Wall Street Ponzis or they had to surrender margin back to the exchange’s banks.

Gold and silver are the Ponzi schemes of the moment. Yes, you can make money if you are nimble. People DID get 20% returns from Bernie Madoff. But … your physical gold position is held hostage by bank- and insurance company paper gold positions and by lopsided markets.

As for monetary gold: you are living the reason why gold will never be money! If the dollar was gold there would be none in circulation. Gold has always been hoarded as it is right now. That is why ‘paper gold’ exists in the first place! Think about it! Gold is to money as paper- or fiat gold is to fiat money.

When the oil price spike crashes the physical economy it will crash the ‘gold money (paper gold) market at the same time. For those who are insightful it will be a demonstration of gold currency and gold- backed ‘paper gold money’ in action.

Finally, the US dollar is a defacto hard currency backed informally by crude oil. The upper bound or the price level in dollars where the economy stalls/crashes fixes the dollar/crude relationship. That is, the point where the dollar cannot lose any more value as measured by crude oil.

This ‘money’ value cannot be determined by gold or silver because the only markets for these elements are fiat derivatives: paper gold or paper silver which are no less fiat than paper dollars. Oil is in common use by all while gold is held only by a few and of that few most gold is held by institutions such as the Treasury, central banks and a few large commercial and bullion banks.

Those are your adversaries/counterparties to your gold dreams and visions. Be careful!