Friday Thoughts

Update on the action in the precious metals + why the EU is way ahead of the U.S. in several respects.

Unless the o/i report is wrong, sometimes it is and they make adjustments reflected two days later, yesterday's gold o/i went up 912 contracts. To me this increase isn't the cartel shorting into momentum- buying by black box funds, it's dip buyers making fundamental buys. The computer hedge funds do not buy on days like yesterday. That's bullish. Second, yesterdays silver smash was all about the liquidation of the July contract ahead of 1st notice today. Silver o/i in July dropped 6268 down to 3952. Interestingly 6704 bought/rolled into Sept silver. My bet is that buying occurred late in the day after the SPX rallied back huge. This too is bullish. Furthermore, and I'm sure July o/i wall fall a bit today, but as of yesterday there were still 19.7 million ounces of silver which are funded for potential delivery. Those contracts can still be sold, but it's a lot of silver standing for delivery. I wouldn't read much into yet, but it's definitely something to keep an eye on. Finally, today's action shows what happens when cartel manipulation wakes up the physical buying world in the eastern hemisphere. Indian import ex-duty premiums were as high as $15 last night which means India was buying physical gold on the sell-off driven by the paper Comex very aggressively. China and Japan were also active buyers last night. When these buyers buy, the physical supply disappears.

Obviously today's snapback in the metals was fueled by the news out of the EU summit. A lot naysayers like Bill King of the King report are adamant that the ECB and the FED are done printing. I say that may be true, but that only happens if the ECB and the Fed want to see the banking system collapse. Germany has $109 billion in direct investments, most of it sovereign and bank loans, to the Club Med countries plus Ireland:

(click on chart to enlarge)

86.3 Billion euros = approx. $109 Billion U.S.

Most of that would be held by banks AND there would be substantial off-balance-sheet OTC derivative exposure. The real exposure just by German banks to southern Europe/Ireland could well be several hundred billion dollars. With that at stake, the best Merkel can do is put up a really dog fight for her own political benefit. Ultimately she will not go down in history as the person who triggered the EU/U.S. banking system collapse. Same analysis applies to the U.S. banks and the Fed. That is why I believe Bill King and Ray Dalio are wrong about no more printing.

The other interesting point of note - and no one in the media, even the good sources of analysis - have thought about this, but at least Europe is having systemic reform discussions. Whether or not they amount to anything is another matter. But at least the conversation is taking place. That is in direct contrast to the U.S., where not only are the systemic reformation discusssions NOT taking place, but the U.S. continues to accelerate its deficit spending and debt accumulation at both the Federal and State levels. Obamacare is a great example. I don't recall which organization put it out (people can google it) but a study was done that went thru the Obamacare legislation line by line and determined that it would add something $3 trillion to the Federal deficit over the next 10 year. I may be low on the $3 trillion but that's the number I recall. To me the EU is way ahead of the U.S. in this regard and it means the next move in the currency will markets will be: 1) dollar tanks 2) euro rallies 3) gold/silver really move higher.
 
Have a great weekend.  I'm out next week so posting might be spotty.