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Extreme Gold & Silver Price Suppression Could Signal Coming Surge (12/09/2010)

The US stock market gave signs that it was ready for a major decline, but it looks almost certain that the President’s Working Group on Financial Markets (also known as the Plunge Protection Team) was very active at manipulating stock prices to keep them from collapsing.

Compounding the bad news, the German Bundesbank attempted to auction 5 billion euros worth of 2-year 1% Schatz notes.  The auction failed, with the Bundesbank retaining 995 million euros of notes for which there were no bidders at any price.

Jim Rogers, the chairman of Rogers Holdings who became famous working with billionaire George Soros to break the Bank of England on September 16, 1992, spoke at the Reuters Investment Outlook Summit in New York on December 7.  In his presentation, he called US government inflation statistics “a sham” that is leading the Federal Reserve to understate price pressures in the economy.  He also declared, “I expect interest rates in the US to go much, much, much higher over the next few years.”

Referring to commodities in particular, Rogers said, “If the world economy gets better, commodities are going to go up in price because there are shortages.  If the world economy does not get better, you should own commodities, because (central banks) are going to print more money.  Real assets are the way to protect yourself.”

In discussing the European Union debt crises and bailouts, he said, “I don’t expect the euro to be around within 10 to 15 years because they keep doing things like this and destroying the value of the euro.”  About troubled US banks and the rise in public debt, he feared, “We are going to have another lost decade or two.”

With all this bad news for the value of the US dollar and dollar-denominated paper assets, the US government had a huge urgent incentive to suppress gold and silver prices to discourage investors from aggressively moving from paper assets to precious metals.  Preliminary COMEX trading data shows this is almost certainly what happened.  If a lot of holders of long positions of COMEX gold and silver contracts were getting out of the market, the amount of open contracts would normally contract.  Instead the open interest in both the COMEX gold and silver markets increased.  There were almost certainly some long positions that were closed, but it seems obvious that there were more than an offsetting number of short contracts sold onto the market to hold down prices, which resulted in the growth in the quantity of open contracts.

As volatile as gold and silver markets have been so far this week, be prepared for even greater price swings in the near future.  When the really bad financial surprise hits the market, gold and silver prices will almost certainly start to take off.  The safest route to take advantage of the temporary price dip is to buy physical metals without using any leverage.  You don’t want to risk being closed out when margin requirements are increased, as happened twice in November.  And you don’t want to risk losing all of your investment when the counterparty on a paper contract defaults.

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Thursday, Decmeber 9, 2010   COIN UPDATE NEWS   by: Patrick A. Heller