Friday, December 10, 2010

They Really Shouldn't Do That

Look no further than the World Gold Council of the '60's for an example of how overt manipulation in the price of precious metals does not stabilize the price.  Back then, selling gold on the open market created long term implications of massive demand, as every time the US and Britain put some up for sale, the sale was met with huge demand.  Currently we know that demand is strong, not only for Russia and China and India who have all tried to double reserves over the last few years, but also remember that the "First" World has massive "gold" (Tungsten?) reserves in their Central Banks (supposedly).  There is nothing better for the long term price of gold than this, because the market will now expect massive selling.  What happens when it does not meet the supply?  Well that is the time bomb that Blythe and the rest of the gang has set off.

After being dumped on this morning, probably by a new algo feature fresh out of Blythe's stocking, gold has already made it back to its 1st support level of $1385.  This is what happens after several long days of manipulation by algos hoping to hit short positions; the buyers of the shiny stuff jump at the low price and demand outweighs supply.  The tricky part would be finding excess supply, but the LBMA and COMEX use leverage of 100 to 1 and few have questioned these tactics (question these tactics!).  Second support is at $1395, and if we can break out of $1400 I would think that we could see $1414 by the end of the day.

As far as next week is concerned I am already expecting great things.  With the world focused on China raising rates, I think there will be a very strong attempt to find investment in the least risky asset.  Gold has proven to be just that since the fall of '08, and even before.  Nothing changes the reliance on gold as a hedge away from FIAT currencies, and all paper assets.  The further down the yellow brick road we go, the more apparent that becomes.  The road will be crowded at some point, for now, enjoy the breathing room.

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