Here’s the news of the week – and how we see it here at Mcalvany Wealth Management:

A Low Blow

I am not a firm believer in conspiracy theories, fairytales, and/or man’s ability to contain or control the forces of nature. One must admit, however, that there are times when that resolve is put violently to the test by the markets – and this is certainly turning out to be one of those times. As many of you know, the metals took it on the chin today, with gold shedding a little over 5.0% and silver 5.9%. The question on everyone’s mind is, in reaction to what, exactly?

4-12-13Away from the action in metals, markets were rather quiet. If anything could be said, it’s that a more defensive posture was developing following another round of dismal economic data. Advanced Retail Sales fell to a nine-month low (-0.4% for March), as did Michigan Consumer Confidence numbers (from 78.6 to 72.3 in March). Stocks were off in the early going, but fought back to the line of scrimmage by the close. The dollar fell (again), and Treasuries rose – despite reports to the contrary in the early going by the MSM (see box scores).

Earlier in the week (Tuesday), the metals were behaving nicely. In fact, the Wall Street Journal ran an article titled “Gold Showing Some Technical Signs of Tracing Out a Bottom” – a conclusion we happened to agree with at the time – not just for technical reasons, but fundamental as well. That sentiment didn’t get the chance to fly. By the very next morning, the Journal released an above-the-fold story in which Goldman Sachs (with no stated or apparent rationale) recommended that folks “short gold,” subsequently lowering their price target for the metal to $1450 by year-end 2013.

One can certainly question the timeliness of Goldman Sachs’ recommendation. Gold is seen improving or stabilizing one day, and the order is given to squash it the next. Is Goldman net short on gold? Are they protecting or securing for themselves and/or their clients a profit on that position? It was also rumored that Cyprus offered to sell its 10 tonnes worth of gold to satisfy its banking issues – an allegation that was denied by Cypriot officials on Thursday. But it may be that someone behind a big desk (or a big short position) on Wall Street was in fact expecting Cyprus to dump its gold, and when it didn’t, decided to extract the profit from the metals anyway.

We can’t see how anyone can profit from manipulating markets to an extreme, at which point the markets usually snap back into balance once again. But for now it appears that market traders have stopped trying to fight the goliaths of the industry (i.e., Goldman), allowing the gold price to fall where it may. Perhaps $1440 for gold is what market operators had in mind all along.

On the other hand, physical demand continues to grow, away from our markets, as foreigners take advantage of our gross contradictions and corruption. An estimated 400 tonnes of gold have been delivered to Shanghai in the last five weeks alone (not including the rest of the world) – this is relative to the estimated 500 tonnes sold in the futures pits back at the ranch (U.S.A.) over the same period of time.

As we have stated here before ad nauseam, there are very few reasons left to be selling the metals. In fact, quite the opposite is the case. Unfortunately, this has not stopped certain parties from pursuing their inimical agendas. Comfort can be drawn from the fact that these concerted attacks are taking place at the low end of a correction – to my recollection a first in this bull metals market and perhaps indicative of the absolute desperation among the powers that be to make us believe the fairy tale that printing our way to prosperity actually works.

We have no roadmap to metals recovery. Technical damage has been done. We know only that the markets are bigger than the Fed, or any central bank, for that matter – which is why every “grand experiment” thus far has met with ultimate disaster.

Best regards,

David Burgess
VP Investment Management