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Chances are if you read an article claiming the bull market in gold is over, or gold has a long way yet to fall, the writer will base his claims on deflation.  Sure, they say, the Fed is increasing the money supply, but the banks are not lending it out.  In addition, bankruptcies and foreclosures are sucking as much money and credit out of the system as the Fed is adding in at the other end.

This is NOT what Larry Edelson says.

Most of the views that state gold is still in a bull market and we are at or near the bottom of a “normal” correction fall into the inflation camp.  They bring up trillion dollar deficits and QE.  They haul out the “classic” definition of inflation.  Inflation is an increase of the money supply leading to higher prices. Inflation is not rising prices.

This is usually the result of deficit spending, because the Fed prints money to buy a portion of the debt (in our case, most of it) to hold down interest rates and that helps support the economy, the housing market and the stock market, all good things for incumbent politicians.

So the logical question becomes…

Do deficits matter or don’t they? Are we on the edge of collapse or aren’t we? The only thing anyone can say with absolute certainty is anyone who claims to have the exact answer to that question is either lying, misguided, or both.

Even the economists who pretend to know where all this is going are only guessing. “As a general rule,” quipped economist Dean Baker after the Reinhart-Rogoff fiasco, “economists are not very good at economics.”

 – Matt Taibbi, Rollingstone.com, May 22, 2013

Since 2008, we are sailing in uncharted waters.  Slashing interest rates had no effect on the flat-line economy so Bernanke tried a radical new method to revise it – the Fed directly injected new money into the financial bloodstream, buying things from the banks like (MBS) mortgage backed securities and treasuries.  A new word was devised to describe this policy – Quantitative Easing.

The original program was supposed to last for 18 months and provide $1.75 trillion to the economy.  It did little for the economy, but it worked wonders for precious metals prices.  Next, QE2, which added an additional $600 billion.  The results were once again not sufficient to reduce unemployment and jumpstart the economy.  If at first you don’t succeed… Then the Fed announced an open-ended program of injecting $40 billion a month into the banks to buy MBS bonds to hold down interest rates and jump start the housing market.  They also injected another $45 billion a month into US Treasury purchases.  This is what Jim Sinclair dubbed “QE to Infinity.”

At their most recent meeting, Bernanke announced that there was no immediate end in sight to their programs.  (Gold did not react.  It is still drifting aimlessly around $1,350 – $1,400)

Meanwhile, the BOJ (Bank of Japan) announced their own version of QE, which is expected to top $1.4 trillion by the end of next year.  They plan to double their money supply!  This is all open-ended stimulus with no exit plan or historical precedent.  Really, no one knows how this will end.  But many of us think we know.

Jim Sinclair is absolutely certain that the Fed has no other options left but QE to Infinity!  That, Sinclair says, will ultimately weaken the US dollar, sending it tumbling below 70 on the USDX.  He is equally certain that China and the BRIC nations will continue to increase the gold backing of their currencies with as much gold as possible.  The artificially low gold price is welcomed with open arms in the East.   They will use their “gold-backed” currencies to unseat the dollar as the world’s Reserve Currency and Petro-Dollar.  Gold, Sinclair promises, will top $3,500 an ounce on the way to a much higher price.  On this matter, the future price of gold, Edelson agrees.  Neither would be shocked by gold at $10,000.  But it’s not about the “destination,” it’s about the “journey.”  That’s where they differ.

Yesterday, I promised to focus today’s newsletter on Larry Edelson.

Here is what Larry Edelson wrote:

Gold’s Next Bull Market: The REAL Forces That Will Drive It …

Larry Edelson | Monday, May 27, 2013 at 7:30 am

Almost no one thought gold and silver could ever get hit as hard as they’ve been hit. Not even the likes of big gold investors like George Soros … John Paulson … Rick Rule … Jimmy Rogers, and many others.

The thing is they don’t really understand the gold market. They thought they did, but they failed miserably.

They failed to understand that the gold and silver markets are like any other market. What goes up for 11 years straight has a very high probability of pulling back for 1 to 2 years. That’s simple technical analysis, and those high-flying money managers didn’t even get that right.

Continue reading on moneyandmarkets.com

Here is a recap of what he wrote.

Gold and silver will soar – after it falls further, toward $1,100.  The next leg up will be caused by inflation, money-printing, currency devaluations AND “A nasty set of conditions where governments are at war militarily or financially with each other.”  We are still a couple of years early.

Edelson downplays inflation, QE and future dollar devaluation, which are the main reasons Jim Sinclair and Miles Franklin cite as the most important reasons for the coming rise in price.

The first issue, conspicuous by its absence, is the blatant manipulation of gold and silver.

After watching what happened in mid-April, can there be ANY doubt that the markets are heavily manipulated by the bullion banks (JPM, GS, etc.) and the Fed?  The crash was precipitated by massive dumping, by a “motivated, not-for-profit seller.”  Much has been written about this event.

Much has also been written about the unprecedented accumulation of PHYSICAL gold by China, Russia and the Middle East.

Larry’s entire essay does not address either of these issues but we put them at the top of the list of what you need to know to understand where we are headed and WHY.  In Larry’s world, manipulation doesn’t seem to exist.  It’s all about technical analysis and the actions on the Comex by the large hedge funds.  That certainly has come into play, but it seems to me he is putting “the cart before the horse.”  The manipulation CAUSED the massive selling by the technical and momentum funds.  It was designed, not normal market action.  Take a look at the following chart and see how “unnatural” it really was.

60 Day Gold Chart

Here is what Bill Holter has to say about that:

Yes, Mr. Edelson started calling for the precious metals to drop since the beginning of the year.  He was correct.  But was his “reasoning” for this to happen correct?  No matter what anyone says, the events surrounding and in particular April12th and 15th were clearly and most in your face blatantly “operations” designed to crash the price.  April 12th on its own was a 5 Sigma event, something that would be expected to happen only once in 4,700 years.  The two day event pushed out to 8 standard deviations, something that will happen only once in 1 billion times, a virtual impossibility in nature.  In less than 12 trading hours between those 2 days, more than 40% of the world’s global gold production was sold.

-Bill Holter, Larry Edelson: Right for the Wrong Reason, May 28 2013

Eight standard deviations from the norm!  The drop was so far out of the ordinary that it could never be predicted (in Larry’s charts or anyone’s).  The odds were something like a billion to one that this could happen.  The Dow rising for 20-days in a row is so unheard of, it could never be predicted.  Not in a free, un-manipulated market at least.  Edelson may be correct, so far, in where the markets are moving but he doesn’t understand WHY they are moving in the manner that they are.

The second major omission by Edelson.

He somehow forgets to even discuss the huge accumulation of physical gold and silver.  It’s like ignoring the elephant that’s lying on the floor in the dining room.  It is taking place on both the investor level and a central bank level.  A disconnect seems to be taking place between the “paper” price on Comex and the “real” price that is being paid for physical gold in India and China.  Jim Sinclair makes a big deal out of this.  In fact, he says Comex is on the way to going to a “cash” market.  No margin!  The contract will cost the same as the physical.  “Can’t happen,” you say?!  It not only can happen it did happen in 1980, in the silver market, with the Hunt brothers trying to corner the market.

US Mint Resumes Selling One-Tenth Ounce Gold Coins… At A 40% Premium To Spot

Submitted by Tyler Durden on 05/28/2013 – 11:47

When news broke a month ago that the US Mint had suspended selling one-tenth ounce gold coins, perhaps the most surprising news was that there were thousands of consumers willing to pay the exorbitant retail premium demanded by the US mint, with the resulting order deluge promptly sapping the mint’s stretched inventories. Well: we have good news – as of moments ago the US mint has once again restocked on the popular denomination (with a 20,000 production limit), and without a limit per household. The even better news: the coin will set you back just $195. This means a “tiny” 40% premium to spot.

Continue reading on ZeroHedge.com

According to Eric Sprott, Bill Murphy, Jim Rickards, and others, the “paper” gold market is leveraged around 100 to 1.  The paper gold is “rehypothecated” (or the same ounce is sold over and over again 100 times in a bank-like fractional reserve Ponzi scheme) and cracks in the dam occur when the buyer stands for delivery of real gold, not a payoff in dollars.  This is starting to happen now.

On May 26th Jim Sinclair wrote:

As the smoke clears the situation at the Hong Kong Mercantile Exchange begins to take a form we can interpret. The key detail is that there are failed paper contract settlements pending resolution tomorrow. You can be sure that they are metals contracts with no metal behind them, past due for delivery. I expect a cash settlement either in part or whole, which constitutes a default. This sounds like the first default of no-metal paper contracts with no metal in any warehouse to cover it.”

If that is so then the emancipation of physical gold from paper gold is in process, and we know the reason for the manipulation of the gold price lower.

Anyone writing to our community that denies gold and silver are manipulated is simply a Trojan horse or a horse’s rear end.

jsmineset.com, May 26th 2013

Since all markets function on “trust,” the failure of the Hong Kong Mercantile Exchange is a very big deal.  It casts doubt on the existence of physical gold backing the paper contracts on all of the exchanges and funds.  And this is not the first firm to default and settle only in dollars, instead of the metal.  This leads to an even greater demand for the physical metal.  The more that is withdrawn, in this hugely-leveraged Ponzi scheme, the closer we are to the meltdown where they all close down and if you don’t already have your gold and silver, you won’t get it!!!  By ignoring this and suggesting you stay on the sidelines until a bottom is reached, $200-$300 below the current price, Edelson could well be putting you in harm’s way.  He is mostly interested in selling you his service, his advice, his subscription.  The very fact that he stands alone, with a view that is opposite so many bright, experienced and successful people in our industry should give you reason to pause.  Yes, gold could fall further, or not.  His crystal ball is based on incomplete information – there is more to this than moving averages!

Why is it important to understand this and why is it important to question Edelson’s conclusions, especially his view that gold will continue to fall before resuming the bull market?

Well, he is looking for gold in the $1,000-$1,100 range and the turn-around to be off in the distance for another 18 to 24-months.  But the shortages of physical gold and the failure of a Mercantile Futures Exchange may well throw both his price projections and timing way off.  In this market, it makes no difference if you accumulate your gold at $1,000 or $1,300.  The only mistake you can make is holding off and NOT accumulating, while you can still buy it.

His market is one that functions freely, controlled by paper traders using moving averages and computer algos to buy and sell.  We feel there are other factors involved, factors he is not considering.  Major factors.

Let’s talk for a moment about his statement that it will be war, financial or military clashes that are needed along with money creation, inflation and currency devaluation.

What kind of war is he talking about?  Does he really believe it is off in the distance, two or three years away?  Read the following:

Contrary to Obama, the Terror War Has Barely Begun

May 27th, 2013 – 12:42 pm

by David P. Goldman

The collapse of Middle Eastern states from Libya to Afghanistan vastly increases the terrorist recruitment pool, while severely restricting the ability of American intelligence services to monitor and interdict the terrorists. In addition, it intensifies the despair that motivates Muslims like the Tsarnaev brothers or Michael Adebolajo to perpetrate acts of terrorism. That makes President Obama’s declaration that America is winding down the “war on terror”–a misnomer to begin with–the worst decision by an American commander-in-chief since the Buchanan administration, perhaps ever.

Continue reading on PJMedia.com

Now I ask you, do you think we have until the end of 2015 or 2016 before this explodes in our face?  Do you think the on-going war in Syria, which is threatening to spread beyond her borders, will stay contained for another 18-24 months?  What about the possibility of Israel attacking Syrian arms depots to destroy the new hi-tech weapons that are on the way from Russia, and they come with Russian technicians who would also be in harms way?  Are we playing with TNT over there?  Trust me, if the Middle East goes up in flames and the price of oil explodes as a result, do you think Larry’s timetable will mean anything?

It’s heating up over there…

Four Russian S-300 batteries shipped to SyriaMoscow reports that four batteries of S-300 systems with 100-150 simultaneously deployable, guided anti-aircraft missiles have already been shipped to Syria complete with Russian military “adviser” crews. DEBKAfile: An Israeli strike to smash this weapon would entail hitting their Russian crews.

 – Debka File, Debka.com, May 17,2013

Russia sends Syria upgraded anti-ship cruise missilesUS officials report the delivery to the Syrian government Yakhont anti-ship cruise missile updated with advanced radar for extending is range and accuracy. It is designed to counter any effort by international forces to supply Syrian rebels from the sea, impose a naval embargo, establish a no-fly zone or carry out limited strikes. DEBKAfile adds: The improved Yakhont enables Syria to keep Israeli missile ships far from its coast and block troop landings.

– Debka File, Debka.com, May 17,2013

I asked Andy Hoffman if he cared to comment on Edelson’s report.  Andy said:

I respectfully decline to comment on “Larry Edelson.”  Before joining Miles Franklin in October 2011, I had not ever heard of him in nearly ten years of being a well-known commentator (and 100% investor) in the PM business.  I have met EVERYONE there is to meet – and aside from the pages of David Schectman’s blog, have no knowledge of his existence.  For a decade, I have railed against the charlatans that try to get people to PAY for their blogs by fear mongering; particularly with “proprietary technical analysis” in a rigged world where TA no longer has ANY bearing.  Such people are invariably “long-term bullish, but short-term bearish”; seeking to get you to TRADE PMs – in which 99% of the people lose, including experienced COMEX traders.  I could not care less what Edelson has to say.  My goal is to PROTECT your wealth with long-term inflation insurance; his is to STEAL it – both directly and indirectly.

I also asked Bill Holter to comment.  Bill agreed with me, it would be much better to address Edelson’s comments than to ignore them.  I urge you to read his article from yesterday titled, “Larry Edelson: Right for the Wrong Reason.”