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From David’s Desk

JPMorgan, HSBC and friends did their usual number on gold going into the April options expiry date.  Every time there is an options expiry on Comex, you can be certain that the bullion banks will take down the price of gold.

As pointed out by LeMetropole Café, The ideal cartel close is below 1400, but they make money on expirations with a close between 1410 and 1415. If they can’t keep gold below 1420 for the close, it means they are having trouble capping.”

The $1,400 level is offering up solid support for gold.  Now that the options expiry charade is over, gold can once again mount an assault on $1,440 and higher.

The following article by Chuck Butler is important.  IF the Fed does in fact exit QE2, several things could happen.  (1) Gold and silver will fall, bailing out Larry Edelson on his bearish short-term call.  (2) The damage to the stock market, the bond market (rising interest rates), the housing market and the economy will jolt the Fed back into action in short-order, but now they will have an “excuse” for debasing the dollar with a new QE3.  They can say “see, we told you so, we have to add liquidity into the economy or it will collapse.”  (3) The Fed chickens out and QE2 moves directly into QE3.  This will be very good for gold and silver and bad for the dollar.  (4) The Fed will continue monetizing the debt but covertly – with funding for the Treasury auctions emanating from unidentified “Caribbean hedge funds.”

Now is a very crucial time for gold and silver.  All eyes are on the Fed.  Will they or will they not continue to print money to support their low interest rate policy and keep the Treasury Bond Market from collapsing?  This is one time where the Fed’s actions will have an immediate and dramatic affect on the price of gold and silver.  They can drop or rise rapidly, based on the Fed’s actions.

Sinclair would say the Fed will jawbone the dollar up but will continue with “QE to Infinity,” either in the open or covertly.  He says the Fed has no other choice. Russell says the same thing, but he uses different words.  Russell says the Fed’s policy is “inflate or die.”

Don’t lose any sleep over this, since this will affect the metals only briefly.  The best the Fed can hope to accomplish is short-term support for the dollar by stepping back, and letting the bond market do its thing (fall, while interest rates rise).  Once interest rates start to rise, the Fed will have no other choice but to jump back into the market and start buying up Treasury Bonds again.

China is no longer a major buyer of bonds.  Japan has their own issues now and they are not a buyer.  Middle East money is not a possibility since the entire region is in chaos and they are too concerned with their own problems now. Who is a buyer for some $100 billion a month of Treasury Bonds?  The Fed, that’s who, so really, how can they stop?  My bet is that they will continue one way or another, with QE3.

And if they do, gold and silver are off to new highs before summer.

Final Thoughts from Jim Sinclair:

My Dear Friends,

The paper gold market is not the gold market. As in the 1970s, cash will rule the ultimate price. Gold’s involvement in a new virtual world currency will sustain 80% of that high price.

In the 1970s paper gold was a short term game and influence on price. Today paper gold has been just that.

Greg’s article posted today has reviewed what you must realize by now. Pay no attention to the games the gold banks are playing. That is for their short term benefit.

Gold will trade at $1650 before it goes much higher.


From Ed Steer’s daily:

In his note to clients over the weekend, silver analyst Ted Butler concluded his commentary with these remarks…”Once again, there is only one real question to ask when trying to decide if the silver market has been manipulated and/or still has a long way to run on the upside. That question is: what would the price of silver be if JPMorgan’s 125 million ounce COMEX short position, or the big 4’s 220 million ounce short position, didn’t exist? Or more correctly, what price would it take to convince a wide diversity of many market participants to sell, what only a few entities hold short today? As Chairman Gensler said in his recent speech in Brussels, “at the core of our (the CFTC’s) obligations is ensuring that markets don’t become too concentrated.” COMEX silver is way too concentrated on the short side and until it isn’t…and until the factors critical to silver are resolved…it would appear premature to pronounce the silver bull over. Hold on to your horses, because the ride will get increasingly rough, but it is not about to be concluded any time soon.

By Chuck Butler

Daily Pfennig: St. Louis Fed Head Bullard Suggest a Quick Exit from QEII…


In This Issue.

* St. Louis Fed Head Bullard suggests a quick exit…
* Italy moves ahead with bond auction…
* UK business confidence falls…
* Commodity currencies rally…

And, Now, Today’s Pfennig For Your Thoughts!

St. Louis Fed Head Bullard suggest a quick exit from QEII…

St. Louis Federal Reserve President James Bullard dominated this weekend’s news with a suggestion that the Fed should consider exiting QEII prior to spending the full $600 billion which was approved for the purchase of US Treasury securities. Apparently Bullard feels the 3% GDP reported for the 4th quarter on Friday is strong enough to prompt an early exit from round two of the quantitative easing program. “The economy is looking pretty good,” Bullard said to reporters in France on Saturday. “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short,” he said. QEII is scheduled to continue through June, and many (including myself) still think there is a good chance we see a third round of easing before the end of the year. Chairman Bernanke has not shown any desire to end the program early, and continues to be worried about the ‘jobless’ recovery here in the US.

But the dollar bulls liked what they heard from Bullard, and the dollar is up slightly in European trading. The reason for the dollar strength goes back to supply and demand. The Fed has been pumping dollars into the markets with their purchase of US Treasuries. So the currency markets have already priced in the additional $600 billion of supply, but if the Fed stops the program before placing all of these funds into the markets there would be less US currency flooding the markets and therefore the value of each dollar should rise. An early exit by the Fed from the bond purchases would also move rates higher, decreasing the interest rate differential which has been widening recently. The dollar also got some help from predictions that this morning’s Personal Spending data will show US consumers are increasing their purchases. Personal spending is expected to have increased .5% in February, and Personal income is expected to have increased slightly less at .4%. We will also see pending home sales numbers for February which will probably be disappointing.

Both Gold and Silver are off their highs of last week, but are still trading at fairly strong levels. The precious metals declined on Friday on signs the US economy is improving, decreasing the need to hold them as a hedge. Bullard’s talk of ending QEII early eased inflationary concerns, pushing the metals lower. NATO success against Libyan military forces have also helped ease the ‘need’ for the relative safety of the precious metals. Global events over the past few months confirm our belief that all investors should hold a diversified portfolio including metals and currencies. Diversification is an investor’s best protection against the unknown!

Recap: St. Louis Fed Head suggested the FOMC should at an early exit to QEII, which pushed the dollar higher. Portugal had a ratings decrease, but the President is confident that he will be able to get his government to accept austerity measures. The Euro will be tested by Italy’s bond auction this week, but is looking like it will hold up above $1.40. The Pound sold off as UK business confidence is at the lowest point in two years. Commodity currencies continued to rally as ‘risk’ trades were put back on, and Gold and Silver sold off their highs, but continue to protect investors.


David Schectman

Miles Franklin