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More determined bear raids today, winnowing out the weak hands, the overleveraged, and the speculators. Look for silver to hold the most resilience and snapback on the shorts, as the shortage in wholesale supply continues to deepen.
Remember that January 26th is the option expiration at the Comex.
" You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold."
George Bernard Shaw
The precious metals have had a remarkable run since their breakouts last year, and are due for a pullback and consolidation which we have been in for some time as some of the seasonal factors waned.
Gold in particular is correcting as we can see from the next two charts. There is support at 1340 and 1320 which are both at natural fibonacci retracement levels, depending at what point in the rally one wishes to begin to measure.
In the correction of early 2010, gold fell roughly 6% from its peak reached on January 10, as is shown in the third chart.
From its recent peak of 1420, a decline of 6% would take gold roughly to 1334.
So it appears that this is a consolidation that one might expect. The impact must be greater in assets with higher leverage such as mining stocks, or even in the higher beta silver bullion.
IF there is a panic liquidation in stocks, then we might expect to see something more extraordinary.
If I have any disappointment it is that gold is moving with stocks, and has not yet diverged to move more closely with the currencies, and as a safe haven. That apparently is yet to come. But for now it is moving as if it is running with the monetary inflation being generated by the Fed. And so it will continue while the Fed is printing.
As an aside, there have been some recent comments about accounting changes at the Fed and some constraint regarding its 'insolvency.' This is an accounting technicality and a bit of a red herring.
The Fed as the agent of Treasury has always been incapable of becoming practically insolvent, because as Benny has allowed in a rare moment of candor, it owns 'a printing press.' Sovereigns who can print their own currency do not become insolvent, or bankrupt. States and the PIIGs can go bankrupt because their money is contingent. But with sovereigns, their currency becomes increasingly worthless as they pay their debts, denominated in their currency, with more of their currency. The difference is important because it tells you what to watch for, and how things will break down if they do. And by the way, this is why the sovereigns have an hysterical animosity towards gold and silver.
The only practical limit on the Fed's ability to monetize is the acceptability at value of US bills, notes and bonds, and the dollar is a Treasury bill of zero duration.
2011 is a year of revelations, and 2012 will be a year of wonders, at least in the worlds of politics and economics. Maintain your perspective, as panic, too often fed by over leverage, is the great enemy of your portfolio. If you trade, then trade. But if you do not know how to trade, how to protect yourself and hedge, then by all means stay out of the short term trades in the markets, for you will surely lose.
"In the past, those who foolishly sought power by riding on the back of the tiger, ended up inside."
And for the sake of comparison with the current situation in America, here is Franklin D. Roosevelt's first inaugural address, given during the depths of the Great Depression in March 1933. It is interesting to say the least, and quite a contrast with the current US leadership.
"Gold pays no interest because it is ultimately safe. Gold is the only currency that has lasted through the centuries, going back 6,000 years. Currencies have to pay interest so that they will be attractive enough for people to hold them. As a rule, the poorer and riskier the nation, the more its currency must pay in interest in order to attract investors. Normally, the dollar would be paying an attractive rate of interest, except for the manipulations of the Fed. Thus short rates in the US are around zero, courtesy of the Fed."
Richard Russell
"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions...In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves."
Alan Greenspan
Note: Extended levels of support and added an important trendline after the close early this morning.
