Almost all the gold game observers, myself included, have posited that the gold cartel has lost its grip on the price of gold and is currently unwinding its short position. In a purely physical market, the price rise would support this theory. But the futures derivatives market is 30 times the size of the physical one, and it's all paper-based, meaning those in control can stay in control.
The price of gold isn't being pushed by a surge in demand, it's being pulled up by the puppetmasters.
So the most recent theory on the matter sent to me by my favorite economist makes a lot of sense:
Bernake may even set gold free. Let the gold price rise. It might be the only way to bring the current account deficit down. If we devalue the dollar, everyone follows suit and we gain no advantage. If gold goes to $800/oz, countries may start to question all the dollar debt they are holding and pull back although this may be a pipe dream.
Gold's ascent isn't a catalyst, or a byproduct of the inflationary race to devaluate currencies, it's being used to ensure that we win the race.
I'm more bearish than the average gold bug - the consensus being that $510 was a lower limit and $500 is a bargain, but I don't believe a 3 day reversal will satisfy the gang of pirates. I like to watch the price of gold in euros, and think that we have one more stair step to drop to at €412.
Stubborn Gold bugs are still itching to get back in because they see the dollar falling away, even though we've been taught for the last few months that it rises when the dollar gets stronger (you can't fool the bugs' long term picture), therefore I think this is the opportunity for gold and the dollar to decouple from the contrary revisionist economic theory introduced lately: Gold will take more lumps because the dollar is going to rise until the new year.
Last week saw silver's knee jerk rally with off-balance bulls getting in late, and getting faded through volatility that may still test 8.90. I think we ought to get a solid 8.20 pullback and even break that bottom for 7.80 at which point pessimism should have run rampant. Then the metals will go parabolic, the dollar will fall out of bed, and there won't be any way to hide what's happening.
As an aside, I should retract an earlier diary that claimed a proposed silver ETF had been denied. It is still pending.
