Bottom Formation & Price Painted Gold

The brains trust of gold focused investors, Sprott Assett Management, has produced a lot of clear thinking on the behavior of gold and silver during this financial shamozzel.

Below I have some text from two of their brightest lights—Eric himself and Rick Rule.

Eric deals with the facts of supply tracking and doing the math on published numbers and sees the potential for a huge shortage with the presence of voracious buying from Asia.  Rick points to gold market technical price behavior putting it in historical context.  both men point to the massive potential for equities that survive this bear cycle.

Will we have a massive capitulation this summer?  Maybe.  I would like that to happen.  But will it?  The effort put into creating just that internal questioning is a mark of the success that the operators of this market have had so far.  But we all know they are doing this manipulation, seeking a way out of the hole the financial system has dug itself (initially with greed and then using the government shovel). 

Still watching. Still waiting.  Still ready.

G

Excerpts:

Gold’s Lower Price Is a Ruse: Eric Sprott

By Henry Bonner (hbonner@sprottglobal.com)
Sprott Global Resource Investments Ltd.

"...It was my feeling that during the first quarter of the year, up until April 15^th, there were many signs that there was going to be a shortage of gold. We wrote an article about a year ago, titled ‘Do Western Central Banks have any gold left?’ where we quantified that there’s been probably an extra 2,300 tonnes of demand every year since 2000, and yet gold production has not gone up in that timeframe.”

But instead of a demand squeeze, driving prices higher, gold has declined from nearly $1,700 at the start of the year to lows of around $1,200 now. How could the price decline if there truly was a shortage?

Mr. Sprott continues: “I put the slam down to the people who are short gold – it’s been very well-documented that certain parties had very large short positions in gold. Shorters who were expected to deliver gold that was not deliverable could have created this downdraft in order to cause gold to come into the market.”

“But it totally backfired,” says Mr. Sprott. The sudden drop in price led to extreme levels of demand for physical metal even as “paper gold” sold off heavily, says Mr. Sprott, citing record demand for physical metal, particularly out of India and China. ..."

Read full article here.

Rick Rule: “The Precious Metals Could Sell Off Again”

By Tekoa Da Silva

"...in a couple of prior interviews that you and I did, I said that bear markets ended in capitulation selling but I hadn’t seen that yet. We are now in capitulation. This is the fourth time in my career that I’ve seen capitulation selling and it gets ugly and spasmodic, but this is the beginning of the end. Certainly I believe the precious metals themselves as bullion are oversold, but they could sell off again. That’s not uncommon, a double bottom.

I think if we do get a [stronger] rebound in the precious metals prices, that it will not in the near term pull over to the equities. I think we’re going to get washout selling this summer---absolute capitulation selling. Then you’re going to have a sideways tail in the equities as both the buyers and sellers are exhausted.

The market will certainly bifurcate. The better names will do better but they will only do marginally better. It won’t feel good. But we are setting up the type of recovery that we saw in 2002, 1994, and 1986. This is the way markets work. It’s bear markets like this that cause bull markets and the inverse reaction is a function of the strength of the action.

The depth and severity of this down market cycle, the fact that maybe 700 juniors will go away over the next 12 months, sets the stage for a truly spectacular recovery. Bear markets cause bull markets, and bull markets cause bear markets. >.."

 Read full article here.