In the most recent release of the Commitment of Traders (COT) report, the data show commercial traders now expect gold and silver to stop falling. But more to the point, historical data suggest that when commercial traders, the ‘smart money’, cuts back on their short positions to low levels on a relative basis, precious metals prices have risen, and sometimes, and most recently, in a violently manner. Get my next ALERT 100% FREE
For week ending Apr. 24, 2012, gold market commercial traders reduced their short position to 316,231 contracts, an amount not seen since gold‘s historic breakout above the $1,000 mark in Sept. 2009. Gold, then, proceeded to rally 92 percent throughout a 23-month rampage, as traders fled to the metal during the Federal Reserve’s ‘Quantitative Easing’ policies of QEI, QEII and ‘Operation Twist’.
Silver prices, after struggling below the $15 level in 2009, broke out to the upside to test the $20 mark in Aug. 2010 for a 33 percent gain, before surging through $20 in Sept. 2010 on its way to a continuation of a breathtaking 232 percent rally from the initial breakout above $15.
“ . . . large commercial traders have greatly cut back their short positions in gold and especially in silver,” global precious metals specialists GoldCore wrote in an open letter to traders. “This has often been a sign of a bottom and suggests that they do not expect gold and silver to fall much further.”
GoldCore went on to state that, for the week ending Apr. 2012, COT data show that speculators (dumb money) have reduced their net long positions to 107,600 contracts, a meager amount not registered at the CFTC since Jan. 2009. At that time, gold and silver traded calmly at $900 and $12.50, respectively. Then came the fallout of the Lehman collapse and QE announcements from the Fed that followed. That’s when the fireworks began.
As Europe teeters on the brink of a Lehman collapse “times 1,000”, a threatening financial Armageddon of proportions never witnessed in modern times, expectations for more QE to match the magnitude of a Lehman-times-1,000 event grow each day, according to precious metals expert Keith Barron.
“Spain is in a tremendous amount of trouble right now. They have had a lot of their major banks downgraded,” Barron told King World News, Monday. “The country’s debt has been downgraded, yet again . . .
“The unemployment rate is now almost one in four people, it’s just over 24%. If this place was in South America, they would be verging on revolution right now . . . Maybe that’s coming.
“Greece is certainly not out of the woods. We know that Portugal is in big trouble too. The fear is that things are going to start spreading to Italy, that’s the big shoe to drop….”
And that shoe could make investors of precious metals rich, according to legendary newsletter writer Richard Russell of Dow Theory Letters. He said the rich have been buying precious metals in preparation of the collapse of the Europe Union—and by extension the United States, as the two largest economies of the world have never, and will not, decouple from each other—a point grossly underplayed by mainstream media financial programming.
In essence, Europe’s $16 trillion economy will in the end mostly likely serve up to be the United States’ PIIGS. As far back as the Greatest of Depressions, the 1873-1896 Depression, the Panic of 1907, the mini-Depression of 1921, and the Great Depression of the 1930s, Europe and the US have always collapse together after mutual economic prosperity and asset-price inflation.
That historical context may easily explain the urgency by the Fed to egregiously open currency swap lines with Europe to the tune of more than $500 billion and fund the International Monetary Fund in a backdoor bailout plan for Spain, Portugal, Italy, and again, Greece—providing concrete evidence to support Jim Sinclair’s “QE to infinity” mantra.
Richard Russell sees it that same way as Sinclair—mutual destruction on both sides of the Atlantic and central banker policy response to match.
“Technically, both the US and Europe are dead broke, and their GDPs would have to run wild on the upside to make the debt to GDP ratio more acceptable,” Russell penned in his daily commentary to investors of last week. “How will it all end?
“It will end with the central banks churning out junk fiat inflation-adjusted ‘money’ in order to service the debts. Meanwhile, the precious metals and other tangibles are being bought up by millionaires and billionaires as they await their turns to feast on the remnants.”
But unlike the Great Depression of the 30s, Russell sees Fed Chairman Ben Bernanke and other central bankers from the G-6 nations inflating in an effort to avoid systemic price deflation—a scenario which Bernanke vowed will never happen under his watch.
“During the Depression [of the 1930s] wealthy individuals husbanded their dollars, and later got rich buying the battered remains of the Jazz Age of the twenties,” Russell ended his piece. “It may not be that easy and cut and dried this time around. This time history may not Rhyme.
In other words, don’t count of a Bernanke-led Fed to withhold the monetary spigots of ever-more money printing. The smart money is banking big on it.
Related: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), ProShares Ultra Silver ETF (NYSEARCA:AGQ), ProShares UltraShort Silver (NYSEARCA:ZSL), iShares Gold Trust (NYSEARCA:IAU), ETFS Gold Trust (NYSEARCA:SGOL).
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