From Friday’s MIDAS

Gold Action

Bill,
The Cartel is pounding on gold today in an effort to break it down against a back drop of bad economic news, rising bond rates and rising commodity prices. Meanwhile back at the COMEX another 268 delivery notices were issued in the April gold contract bringing the total to 11,906 cumulative for the month so far. This is 1.19 million ozs. The dealer’s only have 2.6 Mozs. The logical explanation for this week’s pounding of the gold price is for the shorts to offer above market rate settlement in cash for the delivery notices. If I am right I hope the entities standing for delivery are not stupid. The recent signs of mild backwardation, large number of delivery notices issued has the hallmarks of a squeeze. The bashing of the gold price is not an action of strength it is an action of desperation. If they can’t make the delivery notices for more than 50% of their stock disappear as they did in December they have only days left before the squeeze is on. They are unfortunately for them digging a big hole because the more they hit the gold price to persuade Westerners to quit their positions the Easterners will be turning up in droves to buy physical gold.
Cheers
Adrian

Where I think we are

Dear Bill,
I have been a member of the café for over 6 years now but I don't think I have ever seen such tight control over the price of gold than we are seeing at the moment. The authorities have always had the capability of controlling the price, initially through surreptitious sales of bullion and more recently via the futures market, but their actions have historically been constrained by their desire to remain within the law (or at least within the standards of what was traditionally regarded as acceptable market behaviour) and their desire not to destroy the long term viability of the futures market. It seems that both of these considerations have now been jettisoned with the result that they have an unprecedented degree of short term control but at a longer term cost to their position. The authorities are doing what they have always done best which is to play for time and hope that something comes up but I think it is now clear that that the remaining time available to them is very limited.

It is difficult to know what, if any, official figures to believe any more but using the evidence of our own eyes we can see that coins are at a significant premium (where they are available at all) and we can also see that the COMEX is in intermittent backwardisation. The COMEX physical deliveries are where the rubber hits the road and at a minimum we can logically expect the introduction of new delivery restrictions sooner rather than later. However, this is incredibly risky for the US authorities because the whole dollar standard and US economic model relies on supposedly open markets with free movement of capital and a perceived failure in a market as important as gold could well have systemic implications. The earliest Midas reference to the Stalker was about 6 years ago and it seems likely that the Chinese have been accumulating gold for at least this long so it is quite possible that they have several thousand tons of gold accumulated and are already quite well positioned for the post dollar world.

I have no idea how much longer this charade can be maintained but at the risk of yet again being too optimistic it seems to me very unlikely that the current level of market intervention can be maintained for more than another few months before the validity of the futures market is really called into question and who knows, silver might yet be the key which unlocks the golden door.

So why hit gold now? It has to be assumed that the dollar is going to take a hit when GM implodes and a big bailout package for AIG has to be paid for. By driving gold down into technical breakdown territory, the corresponding flight into gold after all of this settles out will just put the metal back where it was before the wheels came off. Say what you want about the crooks, I think we can at least admit that this is brilliant crisis management strategy.

I would have to assume that we will see a sudden blip higher in gold and the mining stocks right before the GM bankruptcy is announced. That would be from the short covering when all of the easy money has been stripped. I am looking for that day when we get a strong rally in the metals and the stocks for no apparent reason. Then we can expect the bomb to go off on the rest of the market shortly thereafter. Lets see how this all goes down in the days ahead, but as usual there is plenty of smoke out there to know there must be a fire around somewhere and it would not be the first time that extensive rigging in the gold sector was tied to an unrelated bad news disclosure somewhere else.

Those who are buying the dips for the metals will come out as clear winners in the long term.

If GATA is right there is very limited physical bullion left for the CBs to dispose of. Meanwhile the reckless monetary policy that is in play worldwide has assured more paper money is floating around than at any other time in history. How long can it be until someone is willing to throw a few billion towards buying up every ounce of gold or silver left in circulation and driving the metals higher for good?

Excerpts from Jim Willie “The Hat Trick Letter”

The story not told often enough is the utterly huge short gold futures contract positions put on by JPMorgan immediately when the USFed announced its $1 trillion monetization plan in mid-March, and the additional batch of gold short contracts they put on during the G20 Dollar Funeral event in early April. Perhaps the USDept Treasury can access some of the $1.9 billion from the AIG car insurance business unit sale to Zurich Financial to fund more market corruption and interference, with a simple handoff from to their free market brothers at JPMorgan. Still, despite all the harmful, unregulated, and relentless pressure put on precious metals, their prices refuse to be pushed down. The gap between the physical gold price and paper COMEX price continues to widen. The story behind the scenes that captured my attention centered on German demands to return all their gold bullion held in custodial accounts on US soil. The deep source contact said something like, “the German demand is making the US bank nazis sweat bullets. Pressure on COMEX will get much worse.” Expect even more pressure on the June gold contract than was seen with the March gold contract, as far as delivery default is concerned. Deutsche Bank saved the COMEX bacon with a last minute 850,000 ounce delivery, courtesy of the Euro Central Bank at the eleventh hour. Such are the games not told on national financial networks, but which are central to Hat Trick Letter analysis.

The gold price is busy carving out the Right Side Handle to a messy Cup & Handle reversal pattern, one which is testing the patience of yellow metal investors. When the weekly stochastix cycles down a little farther, the consolidation should be at an end. We observe not so much a battle of monetary inflation versus asset deflation, as with free market pricing structures versus disruptive USGovt custodial management that will someday be chronicled as the most corrupt in modern history. Asian and Arab creditors to the USTreasury Bonds are not pleased with what the management of either the USGovt bond securities or gold, and they hold both in great volume. The target for gold remains almost 1300, with a breakout inevitable.

The silver chart looks even more bullish. Instead of a clear reversal pattern, it shows a recovery pattern that struggles to find strong footing on the less stable 20-week moving average. Its move to reach old highs will be easier, once near-term resistance is overcome. The 50% retracement of the long run from last October to February would paint a line at the 12.3 level for Fibonacci support. He was a friend of Botticelli, Lambourghini, Zepharelli, and great grandfather to Roubini, surely good company to keep. Look for an upcoming crossover of the 20-wk MA (in blue) above the 50-wk MA (in red), a powerful technical bullish signal for moves to approach the July and March 2008 highs. It is also inevitable.

A few excerpts from Ed Steers latest rant:

One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be…The damage from this turn in the credit cycle — in terms of lost wealth, lost homes, and blemished credit histories — is likely to be long-lasting. - Federal Reserve Chairman Ben Bernanke, Bloomberg, 17 April 2009

“Well, Ben Bernanke said it all. Absolutely nothing has to be added to that above quote. He knows perfectly well…like you, dear reader…just how black it’s going to get as we move farther down the economic, financial and monetary road we’re travelling. As for gold and silver…the current gold cartel-inspired shit-kicking will end soon enough. It’s always darkest just before dawn…so hang in there”.