January 25th, 2012
Original Source: The Silver Bear Cafe
By: Patrick A. Heller

Gold Up 10 Percent, Silver 25 Percent  


In financial markets, if as asset's price rises 10 percent in a four-week period, that would be newsworthy. If an asset rose 25 percent in four weeks, that would normally grab headlines. That would be true for most assets, but not for gold or silver.

In the last week of December, gold and silver prices were repeatedly manipulated downward, with some success. During intraday trading on Dec. 27, gold dropped to about $1,510 a troy ounce and silver hit bottom just above $26 an ounce.

At that point, we were besieged with visitors and callers wondering if some so-called experts were accurate when they claimed that gold and silver prices had peaked and it was all downhill from there. Even some people who had been on the gold and silver bandwagon for a decade or longer were starting to wonder if the market cycle was on the downward slope.

The best I could do at the time was explain that the price suppression tactics were desperate moves in reaction to the growing flood of bad news in the European and U.S. economies and financial markets. From past experience, I understood that the price drop was almost certain to be temporary. I even added to my personal holdings in December.

Investors around the world were worrying about whether the boom in gold and silver prices had stalled. Enough "weak hands" owners of precious metals sold to accelerate the decline.

In the past four weeks, both gold and silver have quietly rebounded. There are three general reasons why this has been happening. First, those who were most afraid that prices would continue to drop have sold off their positions. They simply do not have any more metal to sell to help hold down prices. Second, now that we are past the holidays, trading volume has increased in gold and silver markets. That means it would take much more expensive suppression efforts to have the same result as in the last week of December. Third, financial costs of the suppression tactics used in late December were high enough that they could not be continued indefinitely.

There were also bits of news that the financial crises are still just as bad, if not getting worse.

The Greek government had been negotiating to have banks holding its sovereign debt to accept 50 cents on the dollar. Now the Greek government is telling the banks to accept 32 cents on the dollar, take it or leave it. Multiple European nations experienced credit downgrades, including France, Austria, Italy and Portugal. Portugal's sovereign debt fell all the way to "junk" status, with the soaring interest rate indicating a 66 percent expectation of default within five years.

The fallout from the MF Global Holdings bankruptcy is getting worse as time goes on. As part of the bankruptcy, several holders of maturing gold and silver COMEX futures contracts experienced defaults on delivery. Because of these defaults, some other investment companies have stopped trading gold and silver on the COMEX.

The biggest news in the silver market is that Sprott Asset Management announced that it would seek $300 million of new investment funds for its PSLV silver exchange traded funds.

Sprott had filed paperwork to allow it to seek as much as $1.5 billion last year. The $300 million would purchase less than 10 million ounces of physical silver, about half the size of its initial purchase last spring. However, last spring's purchase helped propel the silver spot price toward $50. Eric Sprott has stated that at least half of the physical silver his fund received last spring was mined and fabricated after the date of his purchase. A purchase this year of less than 10 million ounces of physical silver for immediate delivery just might wreak havoc in the silver market.

In European market trading on Jan. 23, gold surpassed $1,670 and silver was over $32.70. That was the highest gold price since Dec. 12 and since Dec. 1 for silver. Although they will not move in a straight line, gold and silver seem to be back on track toward much higher prices.

There are two possible interesting events this week that may affect precious metals prices. The Federal Open Market Committee holds its regular meeting through Wednesday. At the conclusion of this meeting, expect an announcement leading up to a stimulus program to support the residential real estate market.

On Thursday, former Federal Reserve Board member Kevin Warsh will give an address at Stanford, his first public speech since leaving the board. While serving on the board, Warsh had written a letter to the Gold Anti-Trust Action Committee, Inc. (GATA) that pretty much admitted that the Fed had arrangements in place to manipulate gold prices. In an article for The Wall Street Journal last month, Warsh wrote about the Fed needing to suppress prices of certain assets.

Perhaps a savvy reporter will be there to press Warsh about just which asset prices were suppressed and to what extent. It is possible that this speech could end up having a huge impact on near-term precious metals prices.

These articles are provided for informational purposes only and were obtained from publicity available sources on the Internet. These articles do not constitute financial advise or trading recommendations by Global Asset Management ("Global"). Global neither warrants the accuracy or completeness of the information contained in these articles, undertakes to update them, nor is it responsible for any omission or error contained in these articles. Viewers are encouraged to conduct, and should only rely on, their own independent research.
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