"What is past is prologue", -- Billy Dee Shakespeare in 1611.
One of the advantages of writing these blogs day after day after day after day and composing volumes and volumes and volumes of observations regarding the endless and seemingly-infinite level of Fed/Cartel manipulation of the metals markets is this: After a while, you start to notice a few things. For example, patterns that repeat themselves.
MrsF has designs on a trip to the pumpkin patch this morning so, in the immortal words of Inigo Montoya. "Let me explain. No, there is too much. Let me sum up"...
- QE2 announced 7 weeks earlier.
- $600B over approximately seven months, roughly $85B/month from 12/10 to 6/11.
- Gold price initially rallies from $1322 a few days before the announcement to $1423 one week later.
- Gold subsequently trades as high as $1431 in December and finishes the year at $1421. In fact, at the close of trading on 12/31/10, we celebrated a truly rare achievement. Gold closed at an alltime high on the daily, weekly, monthly and yearly charts. Needless to say, I was a little excited: http://tfmetalsreport.blogspot.com/2010/12/once-in-lifetime.html
- But then momentum began to stall in January.
- The raids began on the Sunday Globex session of 1/2/12 and continued the entire first week of the new year: http://tfmetalsreport.blogspot.com/2011/01/thieves-and-criminals.html
- On Friday, 1/7/12, we got a BLSBS report that "unexpectedly" showed a 0.4% drop in the unemployment rate: http://tfmetalsreport.blogspot.com/2011/01/putting-bs-in-bls-bs-report.html
- The economic news "suddenly" began to improve: http://www.gallup.com/poll/145529/economic-confidence-improves-early-january-2011.aspx & http://www.people-press.org/2011/01/12/economic-news-seen-as-less-negative/
- And just three, short weeks later, there was desperation in the air: http://tfmetalsreport.blogspot.com/2011/01/darkest-before-dawn.html. Price had fallen all the way back to pre-QE2 levels and was threatening to head lower.
- Even open interest in gold had declined. On 11/2/10, before the announcement of QE2, the total gold OI was 618,381. By 1/18/11, it had fallen to 587,832.
- It was OVER. QE2 was a blessing, in fact in might even be ended early because the economy was already improving. http://blogs.wsj.com/economics/2011/02/23/feds-plosser-would-consider-early-qe2-end-if-economy-accelerates-more/
- BUT IT WAS ALL BULLSHIT.
- QE continued and those who saw through the fog of MOPE and SPIN continued to exchange fiat for metal.
- Silver traded through the 30s in March and, in April, a panic developed in silver as The Forces of Darkness were forced to hurriedly cover shorts in fear of a commercial signal failure. Price soared to near $50 by 4/29/11.
- Though silver was forcibly "corrected" over the summer, gold continued to rally as QE2 ended on schedule in June of 2011.
- The U.S. government reached a "fiscal cliff" in August of 2011 as the contentious debt ceiling negotiations rattled markets worldwide.
- Standard & Poor's downgraded the debt rating of the U.S. on 8/5/11 and this set off The Great Cartel Panic. Over the next four weeks, gold rallied from $1665 to $1920 as bullion banks rushed to cover their ill-begotten paper short positions.
So, let's stop here and sum up. Yes, gold went on to be forcibly corrected, too, and price has yet to fully recover. That's not the point. THE POINT IS THIS: From the desperation, MOPE and SPIN lows of January 2011, both metals went on historic rallies. Gold rallied from a late January low of $1308, all the way to an early-September high of $1920. This is a gain of 47%. The rally in silver was even more incredible. From a late January low of $26.50, silver climbed to $49.52 in late April. That's 87%!!
Now, let's take a moment and contrast this with present day. Shall we?
- QE∞ announced four weeks ago.
- Though initially pegged at just $40B/month in "non-sterilized" QE, this number will most assuredly grow when Operation Twist ends later this year.
- Operation Twist provides about $45B/month in long-term rate support for The Fed so, to fully replace it when it ends, The Fed will likely increase the size of their "non-sterilized" QE to $85B/month. Hmmm...where have we seen that number before?
- Gold price initially rallies from $1690-1720 in the days before the QE∞ announcement to $1790 one week later.
- Gold even traded as high as $1798 on 10/4/12, just three weeks after the announcement.
- On Friday, 10/5/12, we got a BLSBS report that unexpectedly showed a 0.3% drop in the unemployment rate. In the days immediately following, we also saw sudden improvement in consumer confidence, initial unemployment claims and housing starts.
- The upward momentum in the metals has stalled and prices have fallen. After peaking at $1798, gold has since traded as low as $1738. Silver is down from $35.45 to $32.57. This is compared to a pre-QE∞ level of $32.51 on 9/12/12.
- Gold open interest has retraced, as well. On 9/12/12, total gold OI stood at 464,281. By 10/4/12, it had grown to 492,479 but, by Monday of this week, it had fallen back to 463,350.
And here we are. So what happens next?
- Unlike QE2, this latest program has no stated end date. It is open-ended and the amount of non-sterilized, freshly-printed fiat will soon reach as high as $85B/month.
- The U.S is once again staring at a fiscal cliff. After the elections, Congress will return for contentious debates regarding the looming, massive tax increases of 1/1/13 as well as once again extending the debt ceiling. Could another credit rating downgrade be on the way?
- Physical demand for precious metal continues unabated. In fact, global investors and central banks have even less confidence in Western fiat currency than they had back in early 2011. Back then, there was still hope that the current system would recover. Now, in the face of overwhelming debt both in the U.S. and Europe, the movement to convert fiat reserves into hard assets is accelerating.
I would imagine that, at this point, you are beginning to see the rationale behind this exercise. If not, let me state this clearly for you: JUST LIKE JANUARY 2011, YOU ARE BEING PRESENTED WITH AN EXTRAORDINARY OPPORTUNITY TO BUY AND ACCUMULATE GOLD AND SILVER AT PRICE LEVELS THAT WILL SOON BE SEEN AS BARGAINS. Do not be misled by the SPIN and the MOPE.
Precious metal prices will soon recover and resume their UPtrends. If price rallies in a similar fashion to 2011, we should expect the following:
Gold today is $1750. Add 47% over the next seven months and you get $2572 by May of 2013.
Silver today is $33.00. Add 87% and you get a 2013 rally that sees price surpass $60.
Of course, simple extrapolation is never accurate and the numbers above should not be used as a forecast or a prediction. Too many variables can intercede. It's always possible that prices may rally but not reach the same percentage gains as 2011. Conversely, though, prices may greatly exceed the gains of 2011 as physical demand may not relent as QE continues to infinity. It's anyone's guess. What is clear, however, is that YOU ARE BEING PRESENTED WITH AN EXTRAORDINARY OPPORTUNITY TO BUY AND ACCUMULATE GOLD AND SILVER AT PRICE LEVELS THAT WILL SOON BE SEEN AS BARGAINS.
Observe. Think. Act. Prepare.
What is past is prologue.
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