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I spend hours every day reading about precious metals and the global economy. Every now and then, an article, or a sentence or two really stand out and grabs my attention. The following comes from our number one source of inspiration, Jim Sinclair. Jim wrote:
The movement in gold continues and is playing out quite nicely according to Kenny’s alternative of the “Accordion Chop” which has not technically damaged the various higher price objectives.
This is just another period of consolidation/reaction in gold without fear of a full valuation having been established.
Gold and silver are now going through a period of “consolidation,” though it seems like the bottom has fallen out of the gold and silver markets. Believe me, it hasn’t. This has been a screwy year. The summer, which is usually a down time for precious metals, was a ringing success. I never remember a summer quite like it. The best time for gold and silver is usually from September through March, but this September/October, gold and silver were taken to the cleaners.

When you step back and view the damage that has been levied on gold and silver, with the perspective of the charts above, you can see the “waterfall” drop, is followed by a leveling-off, a sideways consolidation. Gold and silver are in the process of building a powerful base that will be the launch point for the next move up which is waiting in the wings yet this fall.

Viewed through Andy Hoffman’s eyes, the plunge in price was deliberately orchestrated by the cartel. Trader David R. says it is a rush to liquidity by the hedge funds. The gold and silver market were “oversold” and needed to retest their 200-day moving averages. When buyers back off and only sellers are left, this is what happens to the price. The one thing both of my friends agree on is that “this too shall pass.”

Yesterday afternoon, David R. sent me the following comments on gold –
There’s just 7 more trading days until month end.
Gold is currently struggling against follow-through weakness following its 2nd worst Month this decade. Gold finished September down > 11% (only Oct 2008 was worse with 16.8% loss).
However, it’s technically attractive for bulls:
Long-term Trend: Gold has held and continues to solidify an important long-term bullish trend.
Long-term bullish trend still in tact —> it remains a simple buy-the-dip strategy…
I try and keep an open mind but I do favor the “manipulated” market viewpoint. Where both views come together is when the Cartel shorts the market to the point of precipitating a mini-crash, the hedge funds, run not by people but by computer algorythms, follow blindly along. They join the Cartel in a selling frenzy. When the last of the “long gold and silver” funds have bailed, the price stabilizes and then reverses, rising to new highs, and then the whole process starts all over again.

From my perspective, what happened was that TPTB (the powers that be) realize that the Sh** was about to hit the fan in Europe. A default is looming in Greece and the rest of the PIIGS are not far behind. The fall out to the banks will be something to behold. That includes the major to-big-to-fail US banks as well. It will be chaotic. It is best that gold and silver explode, as they will, from these lower price levels than from their recent highs of $1,900 and $50. Now, when “the event” occurs that starts things in motion, gold will push back up to $1,900 or $2,000 instead of $2,300 or $2,500 and silver will recover the $50 plateau instead of moving up to $75. When this happens, all of us will rejoice at our gains, when in fact we were fleeced by the bullion banks, ONCE AGAIN. Only those who picked up silver in the low $30s or gold in the low $1600s came out ahead on this round of aggrivation. (John Hathaway agrees with my view on this: Tocqueville’s Hathaway muses about intervention against gold.Interviewed by King World News yesterday, Tocqueville Gold Fund manager John Hathaway muses that central bank intervention against gold may have been undertaken to defend negotiations for more sovereign bailouts.The link is here.)

We just went through the second biggest one-month drop in the price of gold and silver in the last decade. What followed the last such drop was a quick recovery to all-time new highs. Such will be the case again. As my number one mentor, Jim Sinclair says:
… this has not technically damaged the various higher price objectives.
This is just another period of consolidation/reaction in gold without fear of a full valuation having been established.
Russell is still tucking away more gold coins, not dollars. He, along with Sinclair views this latest “correction” as normal and necessary, prior to the next move up.

Next week Susan and I will be busy packing up for our trip down to Aventura, Florida for the winter. I never thought I would become a “snow bird,” but the new condo swept me off my feet (just like Susan did 48 years ago). If you are a Miles Franklin client, and live in – or will be in the Miami area and would like to meet with me personally, call our office (1-800-822-8080) and ask Laura to get hold of me and I will see what my schedule looks like.

Also, next week Andy Hoffman will be a guest at our Minneapolis offices. We will show him how a precious metals company functions, from the inside, and we will take him to see our wholesale operation and storage in Fargo. I will do my best to get the daily out every day, but no promises. I will not be writing on Monday, Tuesday or Wednesday, October 31, and November 1 and 2. I will be busy setting up shop in Aventura. I will try to bribe Andy Hoffman to write a couple of special “Rants” in my absence. I promise you, the world will not come to an end the first week of November. For those of you who go into “withdrawal” when I miss an issue or two, my apologies. I know how you feel. I feel the same way when Sid Hartman, the best sports writer in Minneapolis, goes on vacation. I feel lost. Truth is, commentary on the local sports scene is not much different from commentary on the latest events in precious metals or the economy. Tomorrow is always a new chapter in the never-ending story. Life goes on.

Here’s an interesting chart. It shows us how poorly the precious metal equities are doing relative to the price of gold itself.

I took the following article on what the recent CFTC position limits ruling means for silver from LeMetropole Café. I think it is extra important so I am inserting it here, along with my personal comments.
CFTC position limits and what it may do to raise silver prices
By George Maniere
One of the best parts of writing is that I get so many great ideas from my readers. The readers of this site are some of the smartest people I have ever spoken with. Even the people who have never traded bring a fresh and new prospective to the way I see the market.
Yesterday I was proved right and completely blown away by a post from a reader. I did some homework on other sites and the probabilities of his post being accurate are 80%. So let’s get to it because I think you are going to like his thesis.
The Commodity Futures Trading Commission (The Cartel) on Tuesday approved a much-debated, long-delayed rule designed to curb bets on oil, gold, Sugar and in particular silver.
CFTC Chairman Gary Gensler said the limits will protect the markets. The 3-2 vote-cast along party lines-illustrates how divided regulators remain over the role of government in the markets. The debate leading up to the vote also shows how even some CFTC commissioners supporting the rule think it may not have the desired effect.
Opposed by Wall Street and in particular JP Morgan Bank the rule aimed at capping the positions firms can take in certain commodity contracts in order to curb sharp price increases. The rule gained traction in Congress during a Silver price spike in 2011, which some attributed to excessive speculation by short-term traders. Along with a number of other rules, it was mandated by the Dodd-Frank financial-regulatory overhaul.
So finally position limits in silver will be enforced. Will there be delays? Of course and you can bet your bottom dollar that the Cartel will be out in force with their lawyers challenging the ruling. However, there is a very high probability that on a beautiful day in 2012, JPM, et al will finally be feed of its shackles and the price of silver will move dramatically higher.
Don’t think this will happen smoothly. Beginning today, all bets are off. As of last Tuesday’s Commitment of Traders survey, the commercial short position in silver was 58,000 contracts. At 58,000 contracts the speculation is that the short position is still between 15,000 and 20,000 contracts. Clearly, they have a lot of work to do to bring themselves into compliance.
As you are aware if the go blindly covering short positions they will drive the price of silver higher and higher and create steeper and steeper loses. They are going to want to continue to inspire more and more selling at lower prices in order to cover their shorts.
JP Morgan need to force silver lower in the days and weeks ahead otherwise they will be in the position of covering thousands of contracts at steep losses. The question is how do they get people to sell? The answer is simple. Let the CME do the dirty work.
Remember the CME only raises margins in response to volatility. If the Cartel can create enough volatility the CME will be forced to act.
So the answer is simple:
1) Violently manipulate Silver to create unprecedented volatility.
2) Have the CME raise margin rates again in response to this volatility.
3) Use dips I price to quickly cover short positions.
4) If Cartel buying spikes price back up, this added volatility will force additional margin hikes.
Eventually two will have been accomplished:
1) JP Morgan will have extricated themselves from the short position and brought themselves into compliance with the position limits today.
2) To help avoid a subsequent run on the CME – owned COMEX, margins will have been increased so significantly during the process the COMEX will have made the leverage will have dropped 3 to 1. This will have made the COMEX a physical only exchange. Making the COMEX a physical only exchange will preserve the viability of the exchange and limit future liability of the CME Group.
Now here is what you have to do:
1) Don’t get caught up in the wild volatility, emotion and disinformation of the next three to six months. When the silver you bought for $36.00is now $22.00 keep in mind that this is a plan that will pay off handsomely in the end. You must have faith and confidence that you are right and will prevail in the end.
2) Set up a disciplined, regular physical purchase plan. You should make it a priority to buy some physical silver every week until the limits are finally enacted.
Because silver will become a physical, spot priced market, you can rightfully expect significant price increases in 2012. Unencumbered by suppression, there will begin to be true price discovery. Does this mean that Gold and silver will finally revert to 16or 12 to 1? Yes, it probably does. When will it happen? There are too many variables to hazard a guess but the day is coming. Please see the chart below

In conclusion, Steel yourself for the tremendous volatility that is coming and use every advantage to buy on dips. This may be the last chance for you to own silver at these prices. If holding physical silver is a logistical problem buy PSLV for silver and PHYS for gold.
Courtesy: http://investingadvicebygeorge.blogspot.com/