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Bear Raids Fail to Dent Gold Flight to Safety on Breaking Market Confidence

Commodities / Gold and Silver 2011 Jun 01, 2011 - 10:16 AM GMT

By: Jesse


Best Financial Markets Analysis ArticleMore bear raids today but they failed to detract from the flight to safety into gold as the precious metal significantly diverged from stocks, at least for today. Silver, being more correlated with industrial activity, felt the slump in stocks a bit harder.

Although the stock market decline is steep, and tied to bad economic results which were ignored during the month end paint job, it does have the smell of a wash and rinse within the trend channel, on manageably light volumes. This magic lantern show and churning is how the big trading desks make their money and their nearly perfect trading records. An intraday chart of the SP futures are below.

Let's see if the key support around 1300 holds if we get that far. For a trader this somewhat predictable volatility is like a steady paycheck, but for the average person it can be a source of understandable anxiety and confusion, which themselves are the currency of fraud.

I would like to make a brief comment to clarify my understanding of the premiums to NAV in closed end funds.

The premiums do not indicate that one trust or fund is better than another. I use them rather to select entry and exit points for that particular fund.

There are differences among the funds, and that is a data point of information about the market. PSLV has a reasonably good redemption policy on actual physical silver, and it therefore commands a higher premium to NAV than funds which do not have a reasonable redemption policy AND a high confidence level that the silver is actually there for the taking.

Based on all the data, there seems to be a strong indication that there is a widening gap between 'paper silver' derivatives and obligations and the physical bullion market. The wider that gap becomes, the greater the noise the market will make when the value at market and price discovery is free to operate.

In other words, the Comex looks as though it is heading towards a very severe market dislocation. When and if it does happen the pundits and players will feign surprise, and then some of the naysayers will become 'I told you so's.' But most of them will just climb under a rock somewhere and wait for another opportunity to emerge with the inevitable ups and downs of markets.

What we can expect now is even more volatility and increasingly blatant attempts to save the big players who are trapped, especially those too interconnected to fail. This failure of the markets is a result of the corrupting partnership between government and large corporations based on personal greed and amoral expediency.

I am now starting to wonder if this event will be associated with a failure in confidence in the dollar, and some sort of exchange or bank holiday. The timing of any event such as this is problematic for a variety of reasons having to do with lack of transparency and regulatory failure. A major break in the markets and a liquidation of assets could significantly set it back and delay it.

But the Comex deliverable inventory represents a sort of a visible indicator, if not a countdown, of how difficult the situation is becoming to manage.

If those in a position of authority wished to quietly debase the national currency without alarming creditors or the public, they could hardly do better than to surrepititiously promote theories that made people believe that bad times and money printing would make the currency stronger, despite all historical evidence, even to the point that they would disbelieve their own observations of higher prices and a dwindling savings, until it was too late, and the crony capitalists had secured most of the valuable and enduring assets favored by the independent judgement of people outside the system.

Even better if it prepares the many to welcome the strong hand of an autocrat government that is prepared to 'do something' to make their dream worlds come true, no matter the prices paid in freedom and fresh injustice and corruption.

This is the darker, the less probable side of what I am seeing and my interpretation of it, and so I would hope that it is wrong. More likely the jokers in charge will try and muddle through until external events force they hand, and then pain begins to be handle out in even larger portion according to some formula yet to be determined.

I do think that much of the current political discussion in Washington and New York (and probably London as well) revolves around the shaping of that formula for the distribution of pain. The monied interests wish to hand the public, and most likely the world at large, a shit sandwich, and compel them not only to eat it, but to pay dearly for the privilege as well. Whether or not they can accomplish this is another matter. But they are giving it a good try.

Let us therefore allow the market to reveal all its secrets to us in good time, and trade it according not to what we think could happen, but what is actually happening as we can best understand it. The key to success in this is knowledge, experience, and above all, humility.

By Jesse

Welcome to Jesse's Café Américain - These are personal observations about the economy and the markets. In providing information, we hope this allows you to make your own decisions in an informed manner, even if it is from learning by our mistakes, which are many.

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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