Gold Is Screaming Danger

[BuyingBear]

I can't see this gold bull just stopping in its tracks just yet. But I'm only a few mouseclicks away from being 100% cash so no sweat really.

What are you in... bullion, GBS, spreads, miners? Do spill the beans

[urban_hymn]

What are you in... bullion, GBS, spreads, miners? Do spill the beans

Nothing complicated. The bulk of my gold position is in Merrill Lynch Gold and General unit trust which has grown about 120% since I bought about 13 months ago. Buy through a fund supermarket.

I think the really smart way to gain maximum bang for your buck out of gold is junior mining stocks but for those of us in the UK it doesn't seem that easy.

There's REI.L (which I wish I'd bought when Dr Bubb first name dropped it here) :angry:

I've just opened an etrade U.S. account but it all seems very clunky. You can't transfer funds to it with a debit card rather you have to do some sort of bank transfer.

[Guest Riser]

I've read that miners are "dehedging" gold. Does that mean they are dumping it, or am I just being stupid?

It takes something like five years to develop a mine by which time the price of gold may have changed so in the past mining companies would effectively pay for the price to be fixed by taking out options which allow them to sell at a fixed price at a fixed future date. This was fine as the price of gold went down in the 1990's as they were effectively able to sell their gold at a higher price than the market.

However since 2002 the price of gold has started to rocket so many of the miners are now selling their gold at well below the market price which probably goes some way to explaining why the rise in the value of their companies has not been as spectacular as many expected.

It would appear that many miners are reducing the amount of hedging which indicates that either the markets are looking for higher premums for fixing the price which makes hedging uneconomic, or that miners have become more confident in the future price of gold and are prepared to take the risk.

Edited May 6, 2006 by Riser

[a1vin]

I can't see this gold bull just stopping in its tracks just yet. But I'm only a few mouseclicks away from being 100% cash so no sweat really.

I shorted my silver via goldmoney on Wednesday, just before it dropped 8%, however I was unable to sell my silver holdings in their entirety as goldmoney.com threw up a disturbing message - I contacted goldmoney.com for clarification;

Upon trying to sell my entire Silver holding this morning, a message was displayed saying that I cannot sell over 1,500oz of Silver in 1 'business day'. Will I face any similar restrictions for selling any/all of my current Gold holdings?

Their reply was;

I apologize if the wording on our website is confusing. This message applies not to the amount of metal that you can sell in one day (this is not remotely restricted) but rather the rate that we will guarantee when you place the order itself.

We will confirm a purchase or selling rate (i.e., we "lock" the rate) for orders up to 2,000 goldgrams or 1,500 silver ounces. This limit is for each business day, and when placing an order, you are automatically notified if you exceed the daily limit.

Larger orders above these limits can of course be placed, but we cannot confirm the purchase or sell rate when you place your order. For Buy orders, the price will be based upon the first London PM Gold Fix or London Silver Fix after we receive your payment. The price you receive on your Sell order is based on the first London PM Gold Fix or London Silver Fix after the order is received, provided we receive your Sell order at least 30 minutes prior to that Fix. Orders received less than 30 minutes before the Fix will be processed on the subsequent day's London Fix. This 30 minute window is necessary to enable GoldMoney to prepare and place its buy and sell orders on the London Fix for that day.

If you have any additional questions, please don't hesitate to contact us.

Rachel Parker

GoldMoney Support Team

Imagine shorting your entire stock, say 3,000gg or higher at 700/oz, only to find it plummets 30 mins before the fix and you find you're selling for 650/oz... :/

Its not as cut-n-dried as one might think.

[vinny]

Brave enough to short it?

No, I NEVER short anything. I do not like the use of any derivative instrument, save for going long on a CFD or the use of in the money puts. Others may remember some of my posts saying as much???

Let me be clear on gold. I think it is overbought and is due a correction. I think that is what will probably happen. I do not like it when charts go vertical - I would certainly not be looking to add to my gold pile at the moment. I also see a "j" shape in the chart at the moment, classical "not time to buy" sign with any commodity. I feel "safer" though for holding bullion as insurance against many scenarios I see having a high possibility of playing out.

Another point if I may?

I can see gold taking out $700 with ease in the very near future - although it may not have moved much in GBP - (short term perhaps a fair way go go against $).

There's a time and place for everything, adding to your own gold holding is, IMO, not the thing to do at THIS moment.

[urban_hymn]

A1vin

I think your concerns are very valid. During the London tube bombings my e*trade share dealing account went offline and all the phone lines for dealing were engaged.

A lot of people like to invest in ways that protect them from various armageddon type scenarios. It may happen that when armageddon arrives you can't cash in your rocketing gold/silver stocks/oil futures etc.

I can certainly understand why some people prize "physical" metals in hand over the superior leverage of stocks.

I accumulated a variety of 1 oz bullion coins from eBay in the days before they became scarce. I sometimes wonder if I should forego the leverage of gold stocks in favour of a miser's hoard?

Edited May 6, 2006 by urban_hymn

[vinny]

A1vin

I think your concerns are very valid. During the London tube bombings my e*trade share dealing account went offline and all the phone lines for dealing were engaged.

A lot of people like to invest in ways that protect them from various armageddon type scenarios. It may happen that when armageddon arrives you can't cash in your rocketing gold/silver stocks/oil futures etc.

I can certainly understand why some people prize "physical" metals in hand over the superior leverage of stocks.

I accumulated a variety of 1 oz bullion coins from eBay in the days before they became scarce. I sometimes wonder if I should forego the leverage of gold stocks in favour of a miser's hoard?

I tried to buy shares before the market rallied that day and was unsuccessful. I did get though by phone and was told I could not buy because there was a "security" issue with my account - I'd have to sent ID to trade!!!!!

I've posted elsewhere hinting of my preference for holding bullion directly - perhaps it's at least an idea to have part of your portfollio in your own hands.

[malco]

No, I NEVER short anything. I do not like the use of any derivative instrument, save for going long on a CFD or the use of in the money puts. Others may remember some of my posts saying as much???

Let me be clear on gold. I think it is overbought and is due a correction. I think that is what will probably happen. I do not like it when charts go vertical - I would certainly not be looking to add to my gold pile at the moment. I also see a "j" shape in the chart at the moment, classical "not time to buy" sign with any commodity. I feel "safer" though for holding bullion as insurance against many scenarios I see having a high possibility of playing out.

Another point if I may?

I can see gold taking out $700 with ease in the very near future - although it may not have moved much in GBP - (short term perhaps a fair way go go against $).

There's a time and place for everything, adding to your own gold holding is, IMO, not the thing to do at THIS moment.

I was thinking that back in the days when gold was "only" $550-$600. So I waited for the pull-back that ought to have come but never came. Like you I see the rate of increase has been steadily steepening since this current run up in price began last August. But under the special conditions we now have, gold may never fall below $600 again. It's not a nice situation to be buying in, bt I think I will have to buy.

Note that today an important new opinion came out in the Peak Oil development:

http://www.peakoil.com/fortopic19886.html

I think we're going to see gold an awful lot higher yet. At worst, there will be a mild correction back to about $650, but I very much doubt it will stay there long now.

[jonpo]

I had a shit load of gold and Swiss francs on 7/7.

they went up a bit. they went down. gold despite being the safe haven of choice did hardly move a dollar.

Thats when I quit the gold market...... to say that the current price is all about Iran is just wrong.

gold is a signal that Higher rates ar on the cards bigtime. Last gold spike $800. you know what rates were at then ? 17%!!!!!!

[vinny]

I was thinking that back in the days when gold was "only" $550-$600. So I waited for the pull-back that ought to have come but never came. Like you I see the rate of increase has been steadily steepening since this current run up in price began last August. But under the special conditions we now have, gold may never fall below $600 again. It's not a nice situation to be buying in, bt I think I will have to buy.

Note that today an important new opinion came out in the Peak Oil development:

http://www.peakoil.com/fortopic19886.html

I think we're going to see gold an awful lot higher yet. At worst, there will be a mild correction back to about $650, but I very much doubt it will stay there long now.

Who knows mate, Gold and Oil have the potential to make the best look like a monkey. Perhaps(given that I'm far from the best) it was brave or foolish of me to make a short run prediction!!!!

Be careful will being too bullish on oil - things are not always what they seem. At $15 bbl few were talking about peak oil. With $80 in sight every trader "knows" about peak oil. NO MORE predictions from me - BUT is this a classic sign that we are around the top?

[Guest]

When people say gold is due a correction, can they quantify what they would consider as a correction?

5%? 10%? 15%?

I know that some people on here take bets on the price direction of markets over tiny time periods (say a week/a month), but I am interested from a buy-and-hold viewpoint, ie: where will we be in 6 months, 1 year, 2 years?

As an inexperienced trader, the chance of me being able to do something better with my money over 6 months is slim, so if gold slipped to $600 now, and took off again in August, this would not be the end of the world for me.

Edited May 7, 2006 by megaflop

[cgnao]

http://news.independent.co.uk/business/new...ticle362302.ece

AngloGold Ashanti, the world's third-largest gold miner, posted a loss for the first three months of the year yesterday as bullion prices climbed to a 25-year high.

The South African mining group took a hit from losses on forward sales contracts, in which it had agreed to sell gold in the future at a fixed price.

It underestimated the rise in the market price, which is now higher than the level agreed in the contracts, meaning that the contracts are recorded as a loss in the company's accounts. That meant the group's loss attributable to shareholders totalled $185m (£99.5m) in the first quarter, which compares with a loss of $227m in the previous quarter and a profit of $22m in the first quarter of last year.

....

AngloGold said the gold price "seems set for a sustained positive cycle".

The global gold short position, mostly due to miners' hedge books and central bank covert gold loans, is in excess of 10,000 and perhaps 15,000 metric tons. This is at least 4 years worth of total world production. There is no way the shorts can unwind their increasingly underwater positions without making the gold price explode upwards by at least one order of magnitude.

What we are seeing now is only the beginning. It is only a matter of time before panic buying begins and the gold price reverts back to (and overshoots massively) the level it would be at had it not been manipulated down for more than two decades, in an ill-fated attempt to convince the world population that unbacked paper money is sound.

Using Technical Analysis to chase intermediate tops/bottoms is doomed to fail in this market. Volatility is on the rise and explosive price moves are becoming more likely. The correct strategy remains accumulation. Hold on to your position for much higher prices and welcome any pullbacks or price weakness as an opportunity to add to it.

Protect yourselves.

[AvidFan]

http://news.independent.co.uk/business/new...ticle362302.ece

The global gold short position, mostly due to miners' hedge books and central bank covert gold loans, is in excess of 10,000 and perhaps 15,000 metric tons. This is at least 4 years worth of total world production. There is no way the shorts can unwind their increasingly underwater positions without making the gold price explode upwards by at least one order of magnitude.

What we are seeing now is only the beginning. It is only a matter of time before panic buying begins and the gold price reverts back to (and overshoots massively) the level it would be at had it not been manipulated down for more than two decades, in an ill-fated attempt to convince the world population that unbacked paper money is sound.

Using Technical Analysis to chase intermediate tops/bottoms is doomed to fail in this market. Volatility is on the rise and explosive price moves are becoming more likely. The correct strategy remains accumulation. Hold on to your position for much higher prices and welcome any pullbacks or price weakness as an opportunity to add to it.

Protect yourselves.

You make a very strong case for Gold Cgnao, and always have. I'm 15% physical right now and I'm protected from loss down to around $600/ounce. I'm feeling okay about things at the moment.

I guess you're saying "buy" regardless, and yet you always add the proviso of waiting for a pullback. Meanwhile, your message penetrates and the urgency overtakes ones rational thinking.

If you weren't 100% Gold and only say 15% now, would you be buying at $680+ / ounce ?

[vinny]

Vinny says:

"Let me be clear on gold. I think it is overbought and is due a correction. I think that is what will probably happen"

that is sensible. Why hasnt it happened yet?

Because big miners like Barrick, who have shorted alot of gold, are now dehedging:

and buying the dips. And the Chinese are steady buyers, diversifying out of Dollars

Doc, can you be clearer please?

What are you seeing?

Are you saying that without the factors, as you mention, gold would pull back - but now you don't expect a significant drop / consolidation?

Up - up - and away?

Using Technical Analysis to chase intermediate tops/bottoms is doomed to fail in this market. Volatility is on the rise and explosive price moves are becoming more likely. The correct strategy remains accumulation. Hold on to your position for much higher prices and welcome any pullbacks or price weakness as an opportunity to add to it.

Do you know - I agree with this in many ways.

Gold is a rascal to predict / trade.

Admission from me :

I tried to trade gold, the only reason I made money was because I was dealing with a bull. I was wrong many times but still made money. Overconfidence on my part. As a side point property bulls are different from me - as I realise my many limitations - I appreciate WHY I have made money (when I have done so).

Realising you have made a mistake - Humility and honesty with yourself - are the most valuable commodities in investing.

Edited May 7, 2006 by vinny

[oracle]

I had a shit load of gold and Swiss francs on 7/7.

they went up a bit. they went down. gold despite being the safe haven of choice did hardly move a dollar.

Thats when I quit the gold market...... to say that the current price is all about Iran is just wrong.

gold is a signal that Higher rates ar on the cards bigtime. Last gold spike $800. you know what rates were at then ? 17%!!!!!!

iran is merely a catalyst for this to happen!!

3m barrels a day of supply disruption,not to mention what it wil do to the region in general will certainly bring $100 oil..with china and india expanding at astronomical rates the race is on to find alternatives....and they won't come fast or cheap....inflation for us will be contained by MUCH higher IR's,to the detriment of most,who have to pay higher utility bills....this will keep going for 5years or so!...if not price,look at volume!!

Vinny says:

"Let me be clear on gold. I think it is overbought and is due a correction. I think that is what will probably happen"

that is sensible. Why hasnt it happened yet?

Because big miners like Barrick, who have shorted alot of gold, are now dehedging:

and buying the dips. And the Chinese are steady buyers, diversifying out of Dollars

sure,but we might not get one!!!.....the reason being a large weakening of the dollar.

....we are already seeing the dollar lose ground to asia and euro.IF it weakens further then we may see "consolidation" at the $630-650 mark.

for overseas investors this marks a pullback.

anything below $600 at current exchange rate i am interested....obviously I will rethink if the price or exchange alter.

http://news.independent.co.uk/business/new...ticle362302.ece

The global gold short position, mostly due to miners' hedge books and central bank covert gold loans, is in excess of 10,000 and perhaps 15,000 metric tons. This is at least 4 years worth of total world production. There is no way the shorts can unwind their increasingly underwater positions without making the gold price explode upwards by at least one order of magnitude.

What we are seeing now is only the beginning. It is only a matter of time before panic buying begins and the gold price reverts back to (and overshoots massively) the level it would be at had it not been manipulated down for more than two decades, in an ill-fated attempt to convince the world population that unbacked paper money is sound.

Using Technical Analysis to chase intermediate tops/bottoms is doomed to fail in this market. Volatility is on the rise and explosive price moves are becoming more likely. The correct strategy remains accumulation. Hold on to your position for much higher prices and welcome any pullbacks or price weakness as an opportunity to add to it.

Protect yourselves.

.....major assets work in cycles of 15-18 years.....did with bonds.....and property...and commodities in the 80's...etc etc.

this one started in 2001....we have until 2020ish to ride it.....short of bird flu becoming an outright beast which disrupts supply chain and overall demand..........why??...because US and UK are stimulating a couple of VERY large markets(1/3 of global population).....better than the 600m US/UK/EU can muster.

[cgnao]

Another extremely alarming sign of financial instability.

Time has definitely run out.

Protect yourselves.

http://news.bbc.co.uk/1/hi/business/4983562.stm

Dollar falls 1% against the yen

The US dollar fell 1% against Japan's yen on Monday, after a US official said Tokyo should continue to restrain from talking down the Japanese currency.

....

Japan's Finance Minister Sadakazu Tanigaki on Monday declined to respond specifically to the comments of US treasury official Tim Adams, but said Tokyo's stance that exchange rates should reflect economic fundamentals remained unchanged.

"I will not comment on day-to-day movements," said Mr Tanigaki.

[Buylowsellhigh]

Forget Iran, which is a smoke screen. I have solid reasons to believe that we are in the early stages of a run on the US dollar and consequent global financial turmoil.

In my view the reason that Gold is rallying has as much to do with Iran as it has any other factor. If/when Iran opens it's Oil Bourse, US Dollars will start to disappear as fast as a hookers drawers at the Assembly of the Church of Scotland. It's simple a case of supply and demand. A Euro based Oil Bourse will reduce demand for the Dollar dramatically ...eventually. However, currency traders won't wait for eventually, they will dump the Dollar if there is even a threat of trouble, as they have already started to do ...again.

Currently, the world is drowning in dollars, even a small movement could trigger a massive recession in the United States. There’s nothing remotely “conspiratorial” about this. It is simply a matter of supply and demand. If the oil bourse creates less demand for the dollar, the value of the dollar will sink accordingly; pushing energy, housing, food and other prices higher ...“If the dollar lost its status as the world’s reserve currency, that would force the United States to fund it massive account deficit by running a trade surplus, which would increase inflationary pressures.” ; http://informationclearinghouse.info/article12960.htm

Where is the news that is so important and significant that it would justify the big Dollar sell-off of the last few weeks ? Just because it's not being reported on CNN and the BBC does'nt mean jack. The Iranian Bourse is the only significant event on the radar ...or should I say, under the radar, that is capable of devaluing the Dollar by 5% in a fortnight.

Here is a chart of the December US$ Future going back to 1992;

The yellow arrow is when word first got out that Saddam was planning to switch Iraq's oil sales from Dollars to Euro's. As can be seen, the Dollar sold off on the news. However, the media went into spin mode as they told investors that this would be suicide and that only a madman would do such a crazy thing ...and so the market stabilised again, eventually putting in a new high.

The black arrow is when it became clear that Saddam was not bluffing. The Dollar went into severe decline.

The blue arrow is where US troops attacked Baghdad and secured the Iraqi oil ministry. The double bottom was registered when Iraq's oil sales were switched back from Euro's to Dollars again.

The orange arrow is where the Iranian oil Bourse was scheduled to begin operating. Word is it has been delayed several times for unknown reasons, but by all accounts the Iranians still intend to go ahead with it. IMO the Americans will not allow this to happen without a fight.

---

[cgnao]

Embry Sees Trouble for Paper Money;

Gold Headed for US$1,000, Sprott Strategist Says

By Levi Folk

National Post, Toronto

Monday, May 1, 2006

We are "in the early throes of paper money getting seriously debased," warns John Embry of Sprott Asset Management, and the price of gold is headed to US$700 this year and US$1,000 conceivably "within two to three years -- maybe quicker."

This story is finally gaining traction because of the remarkable deterioration in the financial position of the United States, he says. Confidence in U.S. paper money is starting to ebb, "and, boy, when it really starts to move, you'll be shocked, I think, at how fast the prices will move."

"I think what you've got here is a perfect storm," he concludes. The United States has shown "very little interest in any fiscal responsibility," and has created, in the face of declining savings, "an enormous debt pyramid" that can be sustained only by ever-greater credit expansion, he explains.

The supply of money is ever expanding, whereas the supply of gold is relatively scarce, hence the "perfect storm." Insufficient exploration for at least the last five years suggests "at best a flat production profile" for gold, says Embry -- this in a situation where demand already outstrips supply by roughly 1,500 tons/year.

Behind this "perfect storm" is a conspiracy theory advanced by Embry that points to the U.S. Federal Reserve Bank doing whatever it can to hide the truth about its debased currency. To give one subtle example, the Fed recently stopped publishing a broad measure of the money supply (M3) because it suggests that the money supply remains accommodative despite the rate hikes in the United States. To take another, central banks have been selling gold over the past decade to make their currencies appear stronger.

[apputtu no 1]

From http://www.financialsense.com/editorials/f.../2006/0504.html

BULL IN BEAR'S SKIN?

by Antal E. Fekete,

Professor Emeritus, Memorial University of Newfoundland

May 4, 2006

Dear Mr. Northwest:

Thank you for asking the provocative question whether the current bull market in gold is stage-produced by the powers-that-be in order to divert attention from the deliberate devaluation of all currencies. Your letter has given me an opportunity to sort out my own thoughts on the subject. Here is the result.

Supply and demand

My analysis of the gold and silver market is very different from the conventional. I am a monetary scientist. Supply and demand equilibrium analysis means nothing to me. For a monetary metal both supply and demand are undefinable. There is no way to quantify speculative supply, still less demand. Yet without it the gold market is like Hamlet without the prince, to borrow a phrase from Samuelson.

Speculators can jump back and forth between the long and the short side of the market at a moment’s notice, and in case of monetary disturbances they do. If you insist on using these concepts, the most you can say is that both the supply of and the demand for the monetary metal or its paper substitutes are infinite. Therefore the price can approach any conceivable figure, including infinity for the metal, zero for the paper substitutes. Of course, the banks and the government want to maintain the myth that futures markets provide a reliable link between the two. The fact remains, however, that this link is tenuous and illusory.

It follows that any scientific analysis of the gold market must sidestep concepts such as supply, demand, equilibrium price and replace them with concepts such as asked price, bid price, spread, basis, contango, backwardation.

Corner and short squeeze

The literature on corners is scanty. Yet it is the possibility of corners and short squeezes that must be analyzed if we want to understand the present situation. The facts are as follows. While short squeezes are common, true corners are exceedingly rare. So much so that some authors flatly deny that successful corners are possible save under siege or blockade. By a corner I mean the attempt of longs in a commodity exchange to prevent the shorts from making good on their contractual obligations by forestalling supply. However, the shorts are going to move heaven and earth to get supplies to the market in time for delivery. The higher the longs have bid the price, the greater the incentive for the shorts to deliver. If we examine the historical corners in the Chicago wheat pit we shall see that every one of them was a short squeeze that fell short of being a successful corner. The shorts used every available means of conveyance from dinghies to triremes, from barrows to lorries to move supplies from distant places to the appointed elevators in time.

Contrary to popular beliefs, the shorts are not stupid. Nor are they suicidal. They are responsible businessmen well able to calculate, including calculation of the cost of transportation by the fastest conveyances available such as supersonic aircraft if need be to carry supplies half-way around the globe. Whenever they sell short, they are not acting on impulse. They act on cold facts. They know full well that the futures markets fail to be symmetric. They know that there is a built-in bias favoring the longs at the expense of the bears: the risk shouldered by the former is limited (as the price cannot fall below zero) while that shouldered by the latter is unlimited (as the price can theoretically go to infinity). Whereas an individual short seller might miscalculate, it is virtually impossible that the shorts collectively would.

Are the shorts really naked?

It is a fatal mistake to underestimate your opponents, in this case the short sellers in precious metals, arguably the smartest lot on earth. They know how to do what Aristotle and latter-day economists have said was impossible: to make gold beget gold. I don’t for a moment give credence to the fable that the commercials are selling short naked. Most of their short position is hedged most of the time, if not directly by metal in their possession, then certainly indirectly by metal in the possession of the principals, i.e., for whom they act as a man of straw. The commercials are agents. They act on behalf of their customers, be they wealthy individuals who want to sell call options or futures on their gold hoard anonymously, or banks and governments that do not want you to find out what they are up to. The fact is that selling covered calls and puts is a more efficient way for a bull to husband his resources than buying gold and sitting on it.

Consider the hypothetical scenario that the government of Israel wants unobtrusively accumulate gold. Or, to furnish an example of a more populous country, let’s assume that the government of China wants unobtrusively to accumulate silver in any conceivable amounts. The task is cut out for both countries. They have respectable hoards to begin with. Gold is the most portable form of wealth and the most frequently mentioned word in the Bible after God. China has been on a silver standard since time immemorial and did not participate in the silver-demonetization farce of the 19th century. The best course of action for a government wanting to accumulate gold or silver is to mislead the market by fomenting the bearish case. The net short position in gold represents its stake that it is willing to risk in an effort to get more gold and silver through market manipulation. In other words, the net short position is only apparent, a red herring to throw gold bugs off the scent. It is the tip of the iceberg that you can see and touch. What you don’t see and can’t touch is the bulk of the iceberg submerged: the huge physical gold and silver hoards that the owner wants to increase further by hook or crook. It can be done by hiring agents in the commodity pits. The commercials sell the metals short in excess of visible supplies, acting on behalf of their faceless principals. They sell more gold than the future output of the mines going out five years. They sell more silver than the total inventory held in exchange warehouses. The longs take the bait eagerly. They buy and hold in the hope that the shorts are overextended and will not be able to deliver. The point is that this is exactly what the shorts want them to believe.

It is easy to predict what will happen in such a situation. The longs are sitting ducks and the shorts keep preying on them. They raid them periodically so that, after the shake-out, they can pick up gold and silver dropped by weak hands. Not only do they buy back what they have sold short as bait; they pick up a lot more. It is a wolf in sheep’s skin or, if you like, a bull in bear’s skin. The name of the game is to mislead the public and induce it to give up monetary metals for a pottage of lentils. I am not putting this forth as a thesis. It can never be proved or disproved. It is merely a hypothesis more plausible than the one suggesting that the shorts are as stupid as they are suicidal.

Ted Butler believes that mountains of surplus silver, remnants of silver demonetization six score years and fifteen ago, that were still around in 1945, have long since been dissipated and “consumed”. Of course, the shorts welcome such beliefs and help foster them by all means. Aided by this myth they accumulate still more silver by fleecing the naive and overconfident longs who are cocksure that they are facing naked shorts in the pit. Meanwhile the watchdog agencies know that physical silver exists and can be delivered if necessary. One should not be so sardonic as to think that he was the only one to discover that silver was dirt cheap at $3. The “wolf pack” has also discovered it and started accumulating, albeit very, very quietly. Theirs is quite different from Butler’s “buy and sit” strategy. They are not waiting for the miracle of silver in four digits to happen. They do something in order to start drawing benefits from their investment immediately. From their vantage point the longer the price rise is stretched out, the better. Why? Because they know something that Butler apparently doesn’t: how to make silver yield an income provided that you can hide it under a bushel.

There is no need to cry “foul play”. It will do nicely if you credit the shorts with more wits than you assign to the longs.

Short covering and profit taking

Granted that the shorts are bluffing to tease, taunt, and bait the bulls, it is clear that at one point short selling must become counter-productive. Large bait tickles small fish. When it does, the shorts pull in their nets. They cover. But the fact stands out that it is they, the shorts who call the shots even though their paper losses appear to be staggering, not the longs. Unknown to the public, these losses are far surpassed by gains on physical gold that the shorts have been amassing clandestinely at the expense of the longs for half a century. When the shorts pull the plug and cover their position, the longs are jubilant amidst cries of “cornered rats”. Yet all the longs can show for their effort is paper gold, while the shorts control an increasing slice of physical pie. The price of paper gold is destined to go to zero; that of physical to infinity. Who is fooling whom?

The shorts realize that in any bull market there is bound to be periodic profit-taking. They don’t have to induce one. It will happen on its own accord. It is spontaneous and unpredictable. While it scares the daylight out of the longs; it is picnic for the shorts. It provides a reliable steady income for them, one that the longs sorely miss. Moreover, the shorts tend to sell into strength and buy into weakness. This is their strength. The longs typically buy into strength and sell into weakness. This is their weakness.

Backwardation and basis

Instead of the COT reports Butler should concentrate on such direct indicators as backwardation and basis. Backwardation is the market phenomenon whereby nearby futures are selling at a premium over the more distant. The normal condition for monetary metals is the opposite, contango, indicating that supply is plentiful. Backwardation in monetary metals is a foolproof indicator that supplies are getting tight. Basis is the name for the spread between the nearby futures price and the spot price. Its shrinking reveals that short selling is becoming counter-productive so that the shorts may be getting ready to cover. Conversely, the widening of the basis tells you that shortages may soon end the shorts are likely to start selling once more. Butler will write a hundred pages about the COT reports while writing half a sentence about backwardation. As far as I can tell, he has never written even a quarter of a sentence about the basis, in spite of a challenge I issued to him privately two years ago. Perhaps he has never got around to take a refresher course, so busy he was poring over reams of COT reports. Be that as it may, the basis is a most sensitive market indicator. When negative, it is a red-hot alarm indicating that offers to sell gold are drying up fast, and may be withdrawn at any time. Please don’t take me wrong. I am not against studying COT reports. All information is useful if you know how to interpret it intelligently. But it is not a very intelligent construction to put on the COT reports to assume that the bulk of the short position of the big commercials is naked.

Having said this, I must credit Butler for advocating the ownership of metal fully paid for as against futures positions or ownership of unallocated metal in public warehouses. He also admits the possibility that the “wolf-pack” may engineer another sell-off even after having suffered horrendous paper losses during the latest run-up of the price.

Can depression be averted?

Where does all this leave us? The short-covering and profit-taking charade will continue, possibly for several years to come. There will be no disorderly cut-and-run by the shorts and no meteoric rise in the price. Spectacular rises, yes. But they will be followed by equally spectacular and sometimes protracted corrections testing the stamina, staying power, and intestinal fortitude of the longs. Volatility will increase faster than the moving averages. Exchange rules may be changed unilaterally favoring the shorts, prejudicial to the longs.

Obituaries of the dollar are a bit premature. We cannot rule out the possibility that policy-makers favor a controlled devaluation of the dollar in terms of gold. By now they must realize that bilateral devaluations against selected currencies will never work. They would provoke trade wars and competitive currency devaluations. By contrast, a 1979-80 style devaluation of all currencies against gold should be acceptable to all governments, even though the outcome would be the same. The dollar would be devalued against other currencies at various rates, higher for the yen, less for the euro, and least for the renminbi. The trading partners of the U.S. would tolerate that without retaliating with discriminating tariffs and quotas.

You see, my position is close to your own. Yes, as you say, there is an iceberg of gold and silver which is unseen that never enters the market. Yes, the watchdog agencies know this (as well as the identity of the principals of the short sellers who fool the market in posing and parading naked while in full armor, in a reversal of Andersen’s amusing tale) but they are sworn to secrecy. And yes, it is not impossible that this bull market in gold is stage-produced in order to devalue all currencies deliberately without the policy-makers making a scape-goat of themselves. The purpose of the exercise? Why, it is to get rid of the debt-incubus short of deflation, defaults, and depression. Come to think of it, a measured devaluation of all currencies against gold is the only hope to avoid an enormously destructive and protracted depression of the world economy that would be triggered by the sudden toppling of the Debt Tower of Babel. A planned melt-down, well-entombed inside of a golden sarcophagus, is the preferred way to go.

What if I am wrong and policy-makers are getting more band-aid out of the medicine cabinet to patch up the disintegrating international monetary system? In that case may God help us survive the coming Armageddon.

Yours, etc.

A. E. F.

May 4, 2006.

[OzzMosiz]

Just found out my best mates sis works for Goldmoney, she says the Americans are going crazy for it!

[bottletop]

Just found out my best mates sis works for Goldmoney, she says the Americans are going crazy for it!

finally decided to buy from them today - have gone for silver though as it's so much cheaper than buying physical....1 kilo at goldmoney approx £250, on ebay £320+

[Guest Riser]

Don't remember seeing this on the 6 OClock news, nice quote from the Vice Premier of Isreal.

'Iran can also be wiped off the map'

'Iran can also be wiped off the map'

By ASSOCIATED PRESS

TEHRAN, Iran

Vice Premier Shimon Peres said Monday in an interview to Reuters that "the president of Iran should remember that Iran can also be wiped off the map," Army Radio reported.

According to Peres, "Teheran is making a mockery of the international community's efforts to solve the crisis surrounding Iran's nuclear program.".............

[Manic Miner]

Don't remember seeing this on the 6 OClock news, nice quote from the Vice Premier of Isreal.

Anyone here got any theories as to why Warren Buffet is investing in Israel at the moment? Is it purely a case of good value, or could there be more to it?

Edited May 8, 2006 by Manic Miner

[BuyingBear]

Don't remember seeing this on the 6 OClock news, nice quote from the Vice Premier of Isreal.

'Iran can also be wiped off the map'

Oil $1 lower as Iran jitters ease

http://news.bbc.co.uk/1/hi/business/4751275.stm' rel="external nofollow">

The price of oil has dipped by $1 after Iran said it had sent a letter to the US, prompting hopes the West's nuclear row with Iran may be nearing an end.

US light crude for June dropped by $1.10 to $69.10 per barrel, while Brent crude fell $1.06 to $69.89.

The letter follows weeks of tension prompted by US claims that Iran was developing nuclear weapons, a statement that Iran has repeatedly denied.

[/b]

Ahhh.

[cgnao]

$690

Protect yourselves.