Thursday, June 22, 2006

Gold/Silver investors beware - Part II

Updating my 2nd June piece

we duly got those COMEX price movements beyond the fluctuation limits that were scrapped effective 4th June. In my opinion it won't be the last time either, not by a long chalk. On 12th June Gold - $42 (7%), silver -$1.69 (13%!!) ranges - practically all of it to the downside. Enough to scare the pants off most weak longs and panic them out of leveraged positions. Bet there were more than a few margin liquidation sales too.

Arch derivatives player Henry K Paulson - latterly CEO of Goldman Sachs has since been appointed US Treasury Secretary (Like other GS execs before him). One clear message this sends (among others) is that the the US monetary authorities - and by extension their sidekicks at the BOE are deadly serious about keeping some sort of cap on PM's prices - and particularly gold. It is the creative use of derivatives that is Goldman and Paulson's real forte and you can be sure both will be put to good use by the US government.

Couldn't possibly go into the detail of why; far too archane, murky and conspiricy theory sounding. But for anyone interested in the u-t-d position regarding pm's market price manipulation and its motovation - widely acknowledged to be self-evident among the pm's pros, here are are two must-read articles:

1. On Gold Price suppression
2. On
Silver & gold open interest at the COMEX

Among the more startling facts about the pm's: 4 or fewer institutions (could therefore be just one) hold a COMEX net short position in silver greater than the entire annual global production and similarly 45% of annual global gold production. That's totally unheard of until very recently. How could they possibly deliver if all longs required delivery? A rhetorical question of course; they couldn't; but hundreds of thousands of longs on the other side WON'T seek delivery, leveraged at 100-1, they haven't got the money and those (that) big officially backed institution KNOWS they haven't.

Bottom line: If you get involved in pm trading believing that all market participants are there to enter and exit contracts in pursuit of profit, then you are a lamb to the slaughter. The BIGGEST players (by definition those with both the ear of Government and Official -ie Central Banking - interests at heart) do not give a toss about profiting from rising pm prices, it is price suppression/capping/rise-slowing - at almost any cost that they are there for.

I personally still regard gold as a solid investment on an 18 month view - should at least break the 4 figure dollar barrier by then. However, it is only a total collapse of the dollar, and with it probably the entire global monetary system currently based on it, that will 'send gold to the moon'. You can bet your last penny that TPTB will use every trick in the book to prevent that happening. High on that list of tricks is action which will punish anyone foolish enough to go blindly into leveraged long positions in the pm's.

You have been warned.

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