Don’t get crushed in this smash Editor: The next move in the gold (and silver) market is likely to be down. However, when a catalyst for higher prices does emerge – such as a surprise jump in the US CPI (to be announced tomorrow) – the massive short positions in the metals could quickly be unwound sending them right back up.

Sunday night, sellers continued to smash the metals, driving gold to a low of $1422 and silver $24 on the Globex, an Internet platform for metals trading. Although numerous major banks and investment houses issued bearish reports on gold over the last few weeks, this decline is not warranted. This smash is not the result of market forces, but primarily bullion bank selling on the COMEX.

LC (large Commercials, i.e., bullion banks) short positions in futures contracts and options are at record levels and had been growing larger before this smash, which means that the LCs have benefited immensely because of the price drops. Actually, so far they have benefited only on paper because until the short positions are covered (bought back) the profits are not realized.

Metals holders who get discouraged and think that the metals will never go up, as some metals investors have said, would be playing into the hands of the bullion banks. Sellers at these levels will be providing the gold (and silver) that the bullion banks need to cover.

There is little, if anything, on the financial/economic scene that suggests that any of the world’s problems have been solved. In fact, many reports indicate that economic woes are deteriorating. This issue is so important, let’s note some recent economic data about the US economy:

** U.S. retail sales dropped in March by the largest amount in nine months.

** Only 88,000 jobs were added in March when Establishment economists had predicted 190,000. When the US economy is running at an acceptable rate, about 250,000 new jobs are added a month.

** Much heralded was the unemployment rate in March dropping to a four-year low of 7.6 percent from 7.7 percent the month before. This is a bogus number as the drop came because 496,000 Americans quit looking for jobs. To the Department of Labor, if you are not looking for a job you don’t count.

** Last week’s initial unemployment claims were 346,000, against a four-week moving average of 358,000. This report means that at least 346,000 workers lost jobs last week. The actual number of workers who lost jobs was higher because not every worker who loses a job applies for unemployment.

Much of the reasoning behind the bearish sentiment on gold stems from the perception that the Fed may end early its $85 billion a month “asset purchases program.” Minutes of the recent FOMC meeting revealed that a few members of the committee had voiced opinions that the program could end early. A few weeks earlier, leaked minutes indicated the same. What’s important is that Bernanke’s office came out and said that it would tighten the controls on minutes because they had been misinterpreted, that asset purchases (Quantitative Easing) would continue until the economy had sufficiently improved.

It has now been five years since the Global Financial Crisis, and trillions of dollars have been created to save the world’s financial system and to revive the economy. Perhaps it can be argued that the financial system was saved, but arguments that this massive money creation has stimulated economic activity are weak. The best the money creation advocates can claim is that a depression was averted, but that is a claim that cannot be proven.

We can expect continued money creation as Bernanke promised. If the economy worsens, we can expect an increase in money creation. Money created “out of thin air” is inflation, which results in an overall increase in prices. Just because we have not yet seen huge across the board price increases does not mean they are not coming. Historically, we have always had price inflation following monetary inflation.

Meanwhile, do not be crushed in this gold smash. Nothing would bring the manipulators at the bullion banks more satisfaction than to buy your gold and silver at these low levels.

[Live prices for gold, silver, platinum and palladium from the Globex are now posted on our Spot Prices page below the table that shows prices as of the close of the New York exchanges.  To get up to the minute prices derived from the Globex, refresh the page]

Bill Haynes | President of CMI Gold & Silver.

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