Sequester This!

In 2012, the total interest expense on the U.S. Government Treasury debt was $360 billion.  For the first 4 months of fiscal year 2013, it's $151 billion.  The Government spent a total of $3.5 trillion in FY 2012.  Interest expense on Treasury debt was 10.2% of the total amount spent by the Government.

It gets more interesting.  Assume the average coupon of Treasury debt is around 2.3% ($360 billion divided by an average of $15.5 trillion outstanding during FY 2012).  Now, what happens if the Fed loses some control over interest rates - for whatever reason, not the least of which is that market forces force the issue - and the average coupon moves up to, say, 4%.  By then assume $17 trillion in Treasury debt.  Then you are looking at $680 billion in interest expense.  Assume the budget remains around $3.5 trillion.  Now interest expense is close to 20% of Government spending.

Apply that math to your own household budget.  If you were spending 20% of your net income before expenses on interest payments, you would have to file chapter 7 bankruptcy and restructure your debts.  The only choice the Government will have is to print more money.  Not only is QE not slowing down or ending, the Fed will unequivocally have to increase QE over time.

Hang on to your gold.

Sequester This Congress/Obama

This Is A Must Read And It's Why You Must Own Gold/Silver

Ben Bernanke has spent the last two days testifying to Congress - under oath - the economy is improving and that his money printing scheme has saved the system without risking inflation.  He really emphasizes the avoidance of deflation.

But what's so wrong with deflation?  If prices of goods and services decline, enabling the consumer to buy more of those goods and services, isn't that a good thing?  The real deflation to which Helicopter Ben refers is the deflation of all of the assets that have been financed by the banking system, potentially rendering the banking system insolvent.   But this would be a good thing too in the long run.

With that said, please take the time to read this commentary below which compares our current systemic with that of late 18th century France.  The parallels are startling:

The French were in the same boat in the 18th century. During the time of Louis XV, no one could imagine how French society could possibly function if they cut the welfare system or defense budget. So they kept spending… kept going into debt… and kept debasing the currency.

Here's the LINK

Back to Bernanke:  either he's complete liar or a complete idiot.  I doubt he's the latter.  No inflation? Anyone out there not paying more for energy, gasoline, health insurance, etc than just 6 months ago? Improving economy?  Government-reported GDP for Q4, 2013 was negative.    Housing is better?  There are 133 million housing units in the U.S., 75 million owner occupied and 40 million renter occupied.  That means there's 18 million vacant homes.  4.3 million are considered vacation homes and 3.9 million are available for rent.  That means 9.8 million homes are vacant (data is from the Census Bureau).  Is that a healthy housing market?  Every month more people move onto Social Security disability and food stamps.  Over 100 million people in this country receive Government entitlement payments.  Healthy economy?  Sure Ben...

"Game On" For Gold And Silver!

The emergence of technical fund and speculative short selling has created the finishing touches to a market structure set up that is good to go in gold and maybe in silver as well... The bottom line is that an important price low is being put in, if it has not been seen already. - Ted Butler

My corollary to Ted Butler's statement is:  outside of 2001 and October 2008, right now is currently the single best time to invest in the precious metals and mining stock sector over the course of this 12-yr - so far - bull market.  What makes now potentially more compelling than 2001 and 2008 is that the fundamental reasons for investing in this sector are stronger than at any time over the last 12 years.

Here's just one example:  back in 2001, the notion of a global currency debasement war was nothing more than the fantasy of gloom and doom conspiracy theorists.  Today, the world is in the middle of a currency war that intensifies with every official pronouncement that denies its existence (see the recent G-20 statement).

I wanted to follow up on my article last week that analyzed the Comex Commitment of Traders (COT) for gold futures. I had suggested the likelihood that the recent increase in the gold futures short position of the large hedge funds, and the concomitant large reduction in the net short position of the commercial traders (mainly the bullion banks), was a signal that this vicious price correction in gold/silver is nearly over.

The COT report released Friday (through Tuesday's cut-off day) was nothing short of stunning. I knew the hedge funds were piling onto the short side of gold and silver, and that's why the metals have been getting slaughtered recklessly like this. But the increase in the hedge fund gold short position is unprecedented, as far as I know.   You can read my latest analysis here:  Holy Hedge Fund Shorting

We probably won't see an immediate "V" type move here (although I wouldn't rule it out).  The large hedge funds have no choice but to defend their massive short position.  But as the physical market off-take intensifies - India and Asia have both been buying hand-over-fist over the last week (and that's physical off-take, not fraudulent paper contracts).  But, as the impending move higher builds momentum and pushes through key technical price points, the scramble by the hedge funds and small speculators to cover their unprecedented short position will ignite a move that will be explosive.

Extreme Capitulation

Gold discoveries from 1990 to 2011 have replaced only 56% of the gold mined during that same period  -  Metals Economic Group

Think about that statistic for a minute in the context of the fact that over the last two years eastern hemisphere Central Banks have been accumulating collectively more than half of the mined supply of gold in those two year.   China and India combined account for about 50% of the mined supply over the last two years, and that assumes the published numbers from China are accountable.  Most observers are certain China understates its published import numbers for gold (I can't imagine any Government not telling the truth).

The past couple of weeks have left many precious metals investors bordering on terrified.  The good news is that, based on long term sentiment indicators which have proved to be 100% accurate buy signals over the last 12 years, this price correction is largely over:

My view is that the precious metals and mining stock sector is forming a big bottom and is getting ready to start a move that ultimately will culminate with new highs for gold, silver, and the mining stock indices. I would be so bold as to say that next to October 2008 and early 2001, this is probably the single best entry point that investors will get during the course of the precious metals bull market.

You can read that entire commentary and see some incredible charts that show just how dismal the investor sentiment with regard to the precious metals has become here:   Extreme Capitulation

The bottom line is that the fundamental factors supporting the relative value of the precious metals in relation to paper currencies become stronger by the day.  To give you and idea of a possible price target for the price of gold over the next 12-24 months, here is a superb chart from The Daily Market Summary -  LINK:

(Click on chart to enlarge)

Is The Fed Serious?

The Fed minutes for January were released today and it suggests that the Fed will consider changes to the current QE policy of buying $85 billion of Treasury and mortgage bonds per month.  But does anyone really think this will happen?  Really?

Let's "play the tape" on what would happen.   To begin with, the Fed holds 41% of all 30yr Treasury bonds issued since 2009.  This month, the Fed purchased 75% of the recently issued 30yr Treasury auction.  Assuming the Fed continues buying at least its stated policy of $45 billion in Treasuries every month, and assuming the Treasury will be issuing roughly $100 billion per month (this is actually likely a low-ball estimate based on the annual increase in Federal debt over the past 4 years), the Fed will buying nearly 50% of all new Treasury debt issued. 

Imagine what would happen to interest rates if the Fed were to curtail it's Treasury purchases.   Imagine what it will do to the Government's interest expense if the Fed stops buying Treasuries and the market adjusts to a much higher "natural" interest rate.

How about mortgage paper?  I have written recently about the amount of money being thrown at the housing market by both the Fed and the Government to try and stimulate housing sales.  We're already seeing a significant slow-down in housing market activity based on mortgage application data and non-seasonally adjusted housing data.  If interest rates spike up, the housing market will be decimated.  In fact, the entire economy will fall further into a recessionary abyss.

The minutes also reflected the "view" that the economy was on a moderate growth path.  And yet, based on data that has been released since January, it is obvious that retail and housing sales have - at best - stalled.  In absence of the possibility that the FOMC members are idiots, the only conclusion we draw from the statements in today's released FOMC minutes is that the Fed is playing a dangerous game of political rhetoric.

Let's not forget that the FOMC co-chairman, Janet Yellen, has openly advocated using a negative nominal short term interest rate policy as a mechanism to stimulate employment.  The Fed is painted into a corner.  Unless Bernanke wants to go down as the guy who was at the helm of the Fed when the worst depression in U.S. history hit, I can guarantee that not only will QE continue but that the path of least resistance for QE is to increase its size.

Physical Vs. Paper: Is The Gold/Silver Price Correction Over?

Big movements take time to develop  - Jesse Livermore

Looks like I've got good company:

While the mainstream media continues to spew out bearish news and headlines on precious metals and (especially) mining shares, SAC Capital Partners LP, a $20 billion dollar group of hedge funds founded by Stephen A. Cohen, quietly positioned itself in over $240 million dollars worth of gold, silver, and mining share investments during Q4 2012...Of great interest is the structure of those positions. They are indicating, that the firm is expecting a massive spike in both gold and silver, as well as a staggering move higher in the mining shares.  LINK

It may not seem like the most auspicious day to post commentary outlining why I believe that the correction in the precious metals has just about run its course.  However, considering that all the downward movement this month in gold/silver has occurred exclusively during Comex trading hours, today further bolsters my conviction that this particular moment in the precious metals market is the pinnacle of a "contrarian's" play.

While I happened to have penned my commentary last night, it turns out that Zerohedge posted a piece a few minutes ago that reinforces my claims:

It appears that from the open of US equity trading pre-market to the close of Europe's equity markets (~0730ET to ~1130ET)[Comex trading hours, basically], Silver has been offered non-stop. Outside of that four-hour window, on average, Silver has not moved in the month of February.

Here's the LINK for the whole posting.  As you can see visually from the Zerohedge piece, 100% of the selling in silver (and gold) market has occurred in the paper trading market.  Meanwhile, China and India continue to hoover up physical gold while the Comex crooks sleep off their booze.

I've learned over the past 12 years to never call a definitive bottom to a rigged, corrupt market like the Comex.  However, I am willing to make a "the market is bottoming" prognostication.  I've explained why in this article posted by Seeking Alpha:  Market Is Bottoming

While an entry today is not a risk-free proposition, it is impossible to pick bottoms and those who make the claim that they can are charlatans.  However, buying nasty price corrections during the last 12 years of the precious metals bull has been richly rewarded and I will make the claim that this year will be the 13th.

Starting To Feel Like A Bottom

I can go to sleep at night and know one thing–the Fed will not allow deflation. The reason is simple, according to Harris...Debt based societies cannot absorb a deflationary spiral. - Yra Harris, legendary and longtime commodities trader.

 It's been a rough period of time since the beginning of October for precious metals and mining stock investors.  In fact, its been a rough 22 months, dating back to the end of April 2011, when Sunday night paper ambush on silver started the current price correction cycle in the precious metals sector.

I have to say, while this current bull market correction has been the longest so far since 2001, it hasn't been even close to the worst.  In 2008, the HUI index dropped  70% in the space of 6 months.  Ironically, if you had the courage to buy that drop, you are still sitting on a 250% gain.  The first correction I lived through back in 2002 took the HUI from 148 down  to 95  - 36% - in the space of a little more than a month.  The next one started in December 2003, lasted 18 months, and took the HUI down 34%.   For the current HUI correction (which started after silver peaked) dating to August 2011, the index is currently down 40%.  Please note and to reiterate, if you had bought (or added to positions) near the bottom in 2008, you are up 250% on that capital.

For comparison purposes, the SPX index is up 227% since its bottom in early 2009.  I think the fact that the HUI has outperformed the SPX since both indices' respective bottoms, which heralded the banking system collapse and the subsequent transfer of trillions of dollar of public wealth into the banking system to bail it out.

Before you lose your gold, silver and mining stock positions, you need to ask yourself this question:  Has anything gotten better?   Be honest.  Obviously, if look at the Treasury's balance sheet and the Fed's balance sheet, the fundamentals have deteriorated significantly since late 2008.  How about the Government's income statement?  That's gotten worse too.  Housing market?   If you believe the b.s. being thrown at you by Obama and the complicit media, you should read, or re-read this:  LINK  After you're done with that, read this:  LINK  And then read this:  LINK  The latter article is Obama's promise to transfer more money from the general public to the homebuilding companies and mortgage banks and to home buyers who otherwise can't afford a home.

The bottom line is that the fundamentals underpinning our economic and political system continue to deteriorate, masked only by trillions in funny money coming from the Fed and from complete Orwellian diarrhea of the mouth coming from Obama and both sides of the aisle in Congress (note: both Dems and Republicans).  It's those very fundamentals that vary inversely with same fundamentals driving the price of gold and silver.

Here's the only difference between now and 12 years ago when the bull market in the precious metals sector started?   Back 2001, it was primarily the deteriorating fiscal and economic situation in the U.S. and Europe driving gold and silver;  now, it's the deterioration of those same fundamentals globally that will lift the precious metals sector out of the current price correction and on to even higher price levels than the previous highs.  One more important factor.  Back in 2001, up until 2010, Central Banks globally were selling and leasing out their gold.  Now, except for the U.S., British, and European Central Banks, the rest of the CB's globally are accumulating gold - some of them hand over fist.

Have a great weekend.

Reasons Not To Buy Gold?

The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency -  Evgeny Fedorov, a lawmaker for Putin’s United Russia party in the lower house of parliament  LINK

Mark Hulbert, who writes a subscription market newsletter and writes for Marketwatch, wrote a shockingly inept article about gold for Barron's online, which was published last Thursday.  After I read through his article plus the research reports from which his article is derived, I felt compelled to issue a rebuttal.  My thoughts on Hulbert's piece are here:  Reasons Not To Buy Gold?

I actually emailed Hulbert and gave him a chance to address my criticisms before I wrote my article:

Your article in Barron's about gold is absurd.  Just the opening statement about gold being accepted universally as a "virtue" is way off the mark.  Globally investment institutions have less than 1% of their assets invested in the precious metals sector.  In 1980 the allocation was 6%.  Not really a signal the gold is being universally viewed as a mainstream investment

That's an example of one of my complaints that he chose to ignore/deflect.  Ironically, he pointed me to a section of the longer research report he cites that gave me more ammunition to reinforce my criticisms.  Finally, I lectured him on his statement that one of the authors of the report has bought gold in the past - and therefore was unbiased in his views - did nothing more than put lipstick on his pig of an article.

It does not surprise me that Hulbert had no problem getting paid to write a smear-job on gold for Barron's.  The fact that Barron's feels compelled to pile on to the extreme negative sentiment in the precious metals sector right now (see the chart below), is a signal to me that the current pullback is bottoming and getting ready to move higher. 

 (click on chart to enlarge)

 (source:  Sentimentrader.com)

Ironically, part of Hulbert's subscription newsletter monitors the sentiment of gold stock newsletters.  Currently, the sentiment index is at 6, after being at negative 12.5 for quite some time.  A negative reading means that gold stock newsletters are recommending going net short the gold stocks.  Every time the sentiment goes negative, it has marked a bottom.

State Of Collapse

 Leadership is a historical relic - a museum piece.   Money leads all.

A conversation with a good colleague of mine triggered my rant.  He had commented that our country is lacking in leadership.  In reference to Obama's appointments of Chuck Hagel and John Brennan - "I just don't see much in the way of top leadership..."  Here's my response:

"Leadership?  What leadership?  They're just figureheads.  Look at the money behind them?  It's just incredible to me that most people look at these politicians and they think that they're the people creating and implementing policy.  They definitively are not.  They are bought and paid for many times over by big corporate interests and wealthy individuals.  The rest is nothing but a dog and pony show.  The human version of the  Westminster Dog Show.

Take a look at the people Obama has appointed for Secretary of Treasury and the SEC.  You think for one second that if most of the people in this country bothered to look into their backgrounds and Wall Street track records and current Wall Street ties that they would vote for those two people if we could vote on appointments?   No way in hell.  Both Jacob Jack Lew and Mary Jo White are completely conflicted and heavily under the influence of Wall Street. 

Look at our "wonderful" President.  Go re-listen to his 2008 campaign speeches.  He promised to clean up DC and Wall Street.  Not only has he NOT cleaned those sewage pits up, he's enabled them to take even more control of lives and our wealth.  How about the first thing he did after he got elected:  he appointed someone as Treasury Secretary who was a pure lap dog for the big banks AND who was caught cheating on his taxes three god damn years in a row.  Are you kidding me?  The guy in charge of tax revenues is a tax cheat and Obama insisted on putting him in office.  So much for cleaning up the system. 

Our system is so completely sold down the river that watching Fox News or CNN is an absolute complete waste of time.  Pure mental masturbation.  Nothing but American Idol for the class of people who think they have higher IQ's than the masses.  But they don't.  They the same creature as the zombies that slavishly watch Jerry Springer, The View and Dr. Phil.

The Government is irrelevant except to the extent that it's used as a vehicle with which the truly inside elite are raping everyone else.  That and to continue funneling printed money to more than 50% of the population in the form of outrageous entitlements as a means of keeping the masses sedated. Just read through this thorough analysis of RomneyObamaCare:  Must Read Link

The biggest problem with our country is We The People.  We stand idly by while the politicians and business leaders confiscate our wealth.  We watch with disdain, yet with full acceptance, as more and more Americans pile onto the "entitlement" payroll:  8,830,026: Americans on Disability Hits New Record for 192nd Straight Month:  LINK

Now, whether or not you think people are entitled to a lot of Government support, someone has to pay for it.  Right now this massive, all-engulfing entitlement spending requires 100% of our taxpayer revenue PLUS additional Treasury borrowing.   That's right, even if we could cut defense spending to zero, this country would still run a big deficit.  Will someone please tell me how we will ultimately pay for this?  Before you answer that question, read this real life accounting of someone who definitively does not need Government support and yet is sucking the system for everything she can.  This account is from a good friend of mine who hangs out at night at a busy Denver Starbucks and has gotten to know a group of people, one of whom is this woman:

Here is that woman I told you about. Middle age woman, with husband and two kids
Husband doesn’t work, one child attends an expensive parochial school (on scholarship), one in public school.  She worked at a local food establishment, but then filed for disability, citing a back problem.  While on disability, she has used the time to complete as many community college courses as possible.  She has obtained student loans to attend this particular community college.  She brags about using some of one of the student loans to buy one child a bicycle.  Had enough money to fly her & her son to Dallas - spending the weekend, so the child could attend a school basketball tournament.  Spends days watching soap operas, then goes out to study every night. Either hangs out at her previous employer (Starbucks), mooching the fare for free, or at a local all night diner – armed with every coupon imaginable.  She manages to drive a nice car. She manages to have weekend getaways with her girlfriends at local casinos.  She is a huge Obama supporter and is adamant that her student loans should be forgiven.  Her son was arrested for egging Romney supporters and she's furious that one woman had the nerve to file charges against her son since “the eggs barely hit her.”

Now, does anyone really think this woman is entitled to disability?  Really?  Does anyone think she's entitled to use student loans to buy her son a bike and finance weekend getaway trips?  This is not an atypical story.  This is what We The People are paying for and eventually will be on the hook for.

This is not going to end well for our country.  The end of Saturday mail delivery is just another smoke signal indicating that the system is collapsing - a slow motion train wreck.  I don't know when, but at some point the train will hit the gas tanker stuck trying to cross the tracks.  If you want to see how this story ends, read or re-read "Atlas Shrugged."

The Next Big Move Higher In Gold

When you turn to the East and look at Japan, we are now almost at a record high gold price as measured in Japanese yen.  I think that tells you all you have to know about where the whole world is going in terms of the gold price.  The Japanese are being so overt about their intent to debase the yen that it’s being reflected in the gold price over there.That’s coming to America, Europe, and the rest of the world, where we see the same type of debasement going on... - John Embry, King World News

There's been a lot of media misdirection and appallingly invalid commentary about the relative strength of the economy and the outlook for the precious metals.  I've addressed the first issue in some previous posts, most notably my recent post on housing.

As for the latter, a blogger who goes by "Mad Max Trader" posted a widely distributed piece that suggested the bull market in gold has been fueled by China's huge buying over the past decade, that this demand will decline with the growth in China's economy, and the "air" will let out of the price of gold:  LINK.

Unfortunately, this analysis has absolutely no basis in actual fact.  The truth is that China imported a record amount of gold in 2012: LINK  It should be pointed out that this is gold that is "consumed" by the public and does not reflect the buying from China's Central Bank.  Furthermore, on more than one occasion a Chinese Central Bank official has made the comment that China needs to diversify its massive currency reserves by increasing the percentage held in gold.  The author further made no mention of the accelerating trend among most global Central Banks to accumulate gold; and neither did he mention the ongoing demand for gold in the largest gold buying countries like India and Viet Nam or the growth in demand coming from the Middle East.

On that note, I thought I would post this chart for everyone who is getting dragged down by the poor investor sentiment toward gold and the mining stocks:

(click on chart to enlarge)

This is a 10-yr weekly chart of gold.  I'm not sure that Richard Russell, or even Charles Dow himself, could create a more bullish snapshot of a bull market in process.  Keep in mind that in general, and certainly throughout the course of the 12-yr. precious metals bull market, extreme negative sentiment like we have currently has always marked the start of the next big up-leg for gold.  In fact, I can recall back in late 2003, when gold was trying to press through $400, famed Elliot Wave theorist Robert Prechter proclaimed that gold had failed the $400 level and was headed to $50.  You see how accurate the call was.

The Government is starting to run into a brick wall with regard to covering operating costs.  Just today the Postal Service announced it was cutting out Saturday delivery service in an attempt to stay alive without a massive bailout.  That bailout is only postponed.  The bigger problem for the Government is how to cover the more than $85 trillion of unfunded entitlement liabilities.  The truth is that the only way that can be dealt with is either by defaulting on them or printing the money needed to cover them.  They represent, by the way,  5.7x the GDP, so there's no way that the U.S. can ever hope to "grow" its way out of the problem.  Please note, the current amount of funded and unfunded liabilities does not account for any of the Government liability connected to the failing pension system (PBGC), the rapidly deteriorating quality of the FHA-guaranteed mortgage portfolio or the likely re-collapse of FNM/FRE.

As more money is printed to cover the accelerating Government spending and guarantees, confidence in the full faith and credit backing the U.S. dollar will plummet and the holders of the paper backed by that "full faith and credit" will seek refuge in hard assets, most notably physical gold and silver, which are increasingly seen as fiat currency alternatives.  Those who are the first to make this conversion will benefit the most from the inherent wealth transfer that will occur from the holders of paper assets to the holders of real assets.

The Housing Recovery Myth

What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media.  The credit boom is built on the sands of banknotes and deposits. It must collapse. If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders.  The final outcome of the credit expansion is general impoverishment.   - Ludwig Von Mises, "Human Action"

I've been talking about doing a write-up on the housing market. Most of this was written before the latest housing numbers for December were released, which show the high probability that this brief housing market bounce is over. 

The thesis is that a slight housing market bounce has been generated by $100's of billions in Government and Federal Reserve monetary stimulus and Government policy implementation with respect to mortgage underwriting and refinancing.  But when you analyze the critical variables underlying the housing market, it leaves no doubt that the market is still fundamentally damaged and overvalued, with a very high probability that market has another serious decline ahead of it. Furthermore, housing stocks have completely dislocated from market fundamentals and investors who hold them risk a significant loss of capital once the equity market discounts the underlying fundamentals outlined below.

You can read my analysis here:   The Housing Market Recovery Is A Complete Myth

Follow-Up From Yesterday - Non-Farm Payroll Report

Take the "L" out of BLS (Bureaus of Labor Statistics) and you get pure BS

I'm not going to focus on the enormous revisions the BLS made to the past monthly employment reports.  If anything, it shows just how unreliable are the BLS' monthly preliminary guesstimates, as well as its follow-up revision the next month.

As most of you have read by now, the non-farm employment report released this morning came in at 157,000 LINK  vs the consensus expectation of 175,000.  As absurd as it is to discuss and debate this number, as it will change over time and no one really understands how those changes come about, the report contained some of the inconsistencies with reality that I noted we might see yesterday.

First, the BLS is claiming that the retail trade added 32,600 (Table B-1 in the link above) jobs in January, with 15,000 of those added by electronics and clothing retailers.  And yet, I linked an article yesterday which listed the top-5 retailers in terms of store closings planned.  Three of the top 5 were Best Buy, JC Penny and Sears.  In fact, I would argue that - given the reports I've been reading and hearing regarding retail sales on either coast - it is highly probable that the retail industry experienced a significant decline in jobs.  This would be especially true since the last of the seasonal workers hired for the holiday season would have been dumped in January.

In addition to this, a couple of factors make the underlying substance of the employment report appear quite weak.  If you look at Table A of the Household data, the number of people unemployed in January actually increased by 126,000 over December.  Also, the number of people unemployed for 27 weeks or longer increased in January over December by 146,000 (not seasonally-adjusted).  If you go to Table B-8, you'll see the average weekly earnings of production and non-supervisory employees declined from December to January.  This is the heart of our middle class economy and taxable base of W-2 earnings.  Not good.

The precious metals spiked on the release of the unemployment report then did a u-turn lower when one of the Federal Reserve governors made the comment that QE could end even if the unemployment rate was in the low 7%.  After the market figured out that this was just another case of a trapped policy-maker trying to jawbone the dollar higher and metals lower, the metals bounced back toward their highs of the day and the mining stocks staged a nice rally.

The ability of the bullion banks to keep a lid on metals prices using fiat paper surrogates like Comex contracts and LBMA forwards is starting to decline at these price levels.  Enormous physical appetite out of India and China is occurring at these price levels.  In fact, a report to which we subscribe reported that 31 tonnes of gold were delivered on the Shanghai gold exchange last night.  Clearly the eastern hemisphere physical metal buyers are taking advantage of this price level.

Unfortunately, based on a lot of the non-mainstream media economic reports that I peruse on a daily basis, it would appear that the grassroots economy is stalling and will likely start to plunge pretty hard.  We are seeing more signals of impending troubles in the global financial system with the recent bank blow-ups in Italy.  These banks are going insolvent on derivatives positions.  I guarantee that derivatives are a growing problem for Euro/U.S. big banks in general.  

What this means is more QE, more debt accumulation by Governments and consumers and - most important - higher gold/silver/mining stock prices.