Illusion Of Gold, Silver Weakness Created By Economic Recovery Illusion

Only the paper market (and manipulated at that) is moving the Precious Metal prices down by highly questionable concentration of only a few sellers comprising the entire net short position of the futures market. Meanwhile physical demand for Gold and Silver quietly increases on each dip. Only the unsuspecting and small time day traders who always seem to get caught up in these manipulations are the actual losers. Gold and Silver Prices ended sharply lower for the week as short-term sentiment in the Precious Metals changed to negative, mainly on a strong US economic data. Gold Prices broke below the crucial support level of $1621 that set off some more momentum-based selling and Comex Gold futures fell below $1,600 on Friday for the first time since August 2011.

I had mentioned in my previous article, Comex Gold has a crucial support around $1621 which only if breached with sustained momentum, could again lead to the strong flooring around $1540. As alerted earlier also, Comex Silver prices have a dual support around $30 & then at $29.20. This seems to be a very strong support & may be tough to crack. But if breached, could drag Silver all the way to $25. Gold and Silver markets have taken in some beating lately by improved optimism about a global economic recovery that has had investors & traders moving away from disaster insurance like Gold and are instead seen chasing equities and other raw commodities. News that that major investors such as George Soros and Louis Moore Bacon sold some of their Gold ETP - exchange-traded fund holdings added to the change in sentiment.

China Gold Bulls & ETFs to Gain as Gold and Silver Markets go on a Sale:

Whether Gold extends price declines might depend on what Asian buyers do next week when China returns from the week long Lunar New Year festival. The absence of trading activity from China did lead to thinning of Gold and Silver trading volumes which was the real reason for the price fall. While Chinese liquidity coming back into the bullion market may just to the trick with Gold at much lower prices than were at a week ago, Chinese investors & traders would have a market changing decision to make. If they step in on bargain hunting, Gold may garner the necessary support to rise but if they choose to remain in the sidelines to wait & watch, prices could tumble further. Comments out of the Group of 20 meeting, which officially will be released Saturday, will also have their impact on the Gold and Silver Market sentiments. Currency Was have not had any major impact on global pricing in Gold and Silver yet, but that can change soon & is in fact expected to be a very influencing factor.

US markets remain closed on Monday, Feb 18 due to Presidents Day holiday and trading activity could largely remain subdued if China chooses to wait and watch also. The current Gold and Silver price weakness is probably just what China needed as it plans to launch its first Gold ETFs backed by physical bullion this year as reported by the Financial Times reports, citing the World Gold Council. “The launch of Gold ETFs in China has been hotly anticipated by some gold bulls, who believe it could trigger a new wave of demand for the precious metal,” the newspaper reports. The amount of bullion held by gold ETFs listed around the world increased 274.9 metric tons over 2012, reaching a record 2,632.5 tons on Dec. 20, or the equivalent of a year’s worth of mining production. Marcus Grubb, managing director for investment at the World Gold Council, said new rules adopted last month by Chinese regulators “effectively paves the way for physical commodity ETFs.” “Where ETFs are likely to score highly in China is with larger scale investors such as institutional or sovereign wealth,” he added.

Last year, China’s Ministry of Industry and Information Technology announced that it expected Gold consumption in the country would be running at more than double national gold production by the end of 2015, more than double Chinese gold consumption forecast for 2012. According to the MIIT statement, domestic demand is set to surpass 1000 tons by the end of 2015. It said this would ‘widen the fundamental market shortage’ and noted that the shortage of supply will persist in the coming few years as domestic gold supply ‘might only reach 450 tons by that time.’ China is looking to diversify its assets away from the US dollar and to protect its national savings against devaluation and inflation by investing in one Currency that no central bank can print – Gold.

The Reality behind the Economic Recovery Illusion:
Trillions of dollars and tons of monies in other currencies have been printed & created in order to reflate the economy & the stock markets. All this will in turn create a recovery in the property market, which will only serve to re-inflate real estate prices closer to their former unsustainable levels once again – Which actually lead to the economic collapse in the first place. Central Bankers since 2008 have been on a mindless mega-money printing spree to try & reflate the economy, trigger higher employment & yet keep Inflation in check. The governments now seem to be attempting to do everything that they can to manipulate & keep projecting that their wisdom & thereby chosen path is now leading the economies to the expected highs. How can drowning in more & more Debt over earlier debts to keep repaying debts lead one to prosperity? This can only help to create to a temporary sparkle of recovery. This show of economic recovery & prosperity is nothing but an Illusion – a Bubble which will lead to more grave situations. Inflation expectations are picking up again as policymakers signal greater tolerance of rising prices; this could also prove supportive for the Gold and Silver Market.

Gold and Silver Market weakness a manufactured illusion:
An illusion of weakness tends to prevail in such situations as seen now because the majority of Gold and Silver Market traders do not seem to understand the difference between a paper claim and the real thing, nor do they seem to realize that only paper contracts or claims are being sold when the price of the precious metals drops — not the actual metals itself. The two fundamental problems with price targets are that the price is measured in a fiat currency, and that the price can be managed by manipulating the commodity futures markets that do not require the seller to deliver a physical commodity into a futures contract. Basically, the futures contract seller cannot be forced to deliver physical metal, and so sellers can simply settle their profit or loss on the trade in cash. Furthermore, the fact that such price drops are typically initiated by the dumping of huge swaths of paper contracts by proprietary traders working at giant bullion banks that are too big to bail and/or fail, makes them seem more like manipulative attempts to scare the precious metals market into a selling panic.

Perhaps instead of looking at the price, investors could simply open up the COT report and follow the flow of paper futures and option contracts if they want to know the state of a currency or financial system. The investors should take scrutinized looks at a country’s annual fiscal deficit, its debt to GDP ratio, the size of any ongoing monetary expansion or quantitative easing programs, and the level of its unfunded liabilities to arrive at a better understanding of the current & the future trend of a market. Coming back to my earlier point – the manipulator thus creates the illusion of a bear market, which further is fanned by a slew of self proclaimed market experts who fall right into line by describing a hundred reasons why the selling might have occurred, without ever getting close to stating the real reasons that the crash happened. No matter how blatant the sudden dumping is, it is almost always painted and viewed publicly as a ‘longs selling’ event. Also remember that the Short & Long term viewpoints are two very different things. The bullish fundamentals for higher Gold and Silver Prices are slowly but surely forcing their way into the psyches of the few market participants whose minds remain open & can clearly see the manipulations of the “Too Big to Fail”.

Global central banks bought more Gold Bullion last year than at any time in the past 50 years, according to figures published by the World Gold Council. They added 535 tons to reserves, 17% more than in 2011. Gold imports into India surged 23% to 100 tons in January this year as traders snapped up supplies ahead of a hike in import duty. January’s Gold imports by India were the highest in 18 months. The one solace that I see is that the global awareness among futures traders about retail and wholesale shortages developing in the physical market is growing combined with the widespread acceptance that central banks of the developing world are accumulating gold at a feverish pace. The overwhelming concentration of net shorts on the Comex, whether hedged or not, constitutes the basic violation of the fair market pricing mechanism. That this concentration is allowed to exist, despite purported and publicized investigation into Silver Market Manipulation, remains a testament to the power of those that stand to profit the most from it.

One need not be an expert in Currency Markets to simply understand what has recently occurred in Venezuelaor Japanwhere Gold and Silver have shot up massively in a very short while – simply as a result of the ongoing raging Currency Wars.

I do not say that Gold will make extraordinary rises to new highs but it seems too early to give up on the upside. I have maintained since long that Gold may find it very difficult to rise above $1855 without a gigantic new support. The need for a disaster Insurance – a hedge is all the more necessary now than ever before & Silver will now replace Gold in terms of investment popularity, appreciation or price rises. That does not indicate that Gold will not rise at all nor does it implicate an immediate weakness in Gold. I had forecasted that Gold may see restrained rises but Silver will gather excellent momentum from 2013 onward.