The EMU has now officially shot its wad at the crisis, committing total resources of over $1 Trillion (with a T) to bail out Greece, Spain, Portugal, Italy, etc…

What is so short sighted about it is the fact that the money is being borrowed from the very countries that will need to be bailed out because their debt levels are too high. Spain, for example, with its long history of financial irresponsibility, is a participant of “the fund”, and will have to “borrow” the money they have to contribute. If they have to borrow at 8%, how can they turn around and loan it out at 5%? Since they will have to get their own house in order, how are they to make budget cuts while at the same time increasing their budget deficit to fund the bailout? This is the flaw that is not being addressed.

The Fed has reopened its swap lines with Europe (that didnt take long), even though there is no immediate need for dollars over in Euroland. Makes you wonder if Bernanke knows this European contrived “rescue” is doomed to fail…

Gold has initially reacted to the downside – now that the crisis is averted there is no need for a safe haven, right? (insert sarcasm here). I am always amazed at the shortsightedness of the supposed “experts’ employed by some of these funds. Have they no ability to see beyond their own noses? Apparently not.

Rest assured, this decline in gold is temporary. Assuming the Euro stages a rally (relief or otherwise) that will pressure the dollar and will in all likelihood reinstate gold as the anti-dollar trade pushing gold up from underneath. An additional benefit will be to the mining shares as a falling dollar will be positive for the main markets and the mining shares may run with the main markets for a spell.

Silver is surprisingly strong – perhaps in anticipation of the US market and what the CFTC/DOJ investigations of JPM will portend in that tiny market… What seems apparent is that JPM/HSBC are going to be forced to cover their shorts as they will no longer be able to add fresh ones whenever necessary. This hindrance will enable silver to rise which will pressure their existing positions forcing them to cover and go long. This should provide quite a lift for silver.

Dont expect this to be a straight up rocketship to the moon. If anything, this will increase the volatility in both silver and the related mining shares – both to the upside and the downside.