Plunge protection.

We know that the US govt has a "plunge protection" team. It is activated if the US dollar is threatened. How? By a large increase in precious metal prices - which is almost the same as saying a 'drop in the dollar.'

Take the crazy action lately. Silver almost hit $50 yesterday before it was sold off to 46.07 today. How can that be done? Silver is in "backwardation." That means that the price of silver now and future price is backward. Delivery of silver in the future requires storing it (so it would cost more to buy silver futures -contracts to buy silver 3-4 months in the future- ) than buying silver today. All that means is that silver supply is very limited. If you believe that silver plunged from 49+ to 46.07, try buying a silver dollar at that price. You can't because silver dollar's are not available.

So, how come silver prices went down if the current supply is very tight? Yup, the plunge protection team must have ordered some banks to short silver by selling "paper silver," silver options. So, what if they lose a few millions? The FED will make it up to them.

It is not only the price of silver that has plunged, but the price of silver miners. I have reproduced the graph of GPL (Great Panther). As in a previous post, the wedge pattern is very clear. A wedge implies a coming and sharp breakout. In this case the breakout occurred yesterday and on the downside. Silver miners have been dropping even in the face of increasing silver prices. KWN had warned us that the reason for this was shorting by by certain funds. In addition, a newsletter published by Sean Broderick asked his followers to sell a half of their silver miners (GPL is one of those).

Sean explained the drop in GPL as follows: 1. rising oil prices will reduce profit margins, 2. Fear of expropriation - all of which encourages traders to buy the metal.

I have critiqued pronouncements coming out of Weiss Research (first by Larry Edelson) and told you that Edelson's expectation of a drop in gold to and below 1,250 was simply wrong. By now, Larry admitted it. This time I am telling you that Sean is wrong. First, gasoline prices are not hitting Mexico as hard as the US, so operating costs of GPL will not increase as much as gasoline prices in the US. Second, exploitation fears are justified in Bolivia, but GPL and IPT.V are in Mexico, while FVITF is in Peru, yet all three stocks took a hit also.

When you look at the technicals without wondering about the fundamentals, you see that GPL rose from ).75 to3.00 so its Fibonacchi number was near 0.7. The stock then corrected back to 1.75, between 2F and 1F. Then GPL went tp 5.00 with an F number of 1.1 A 1F correction took GPL back to 3.9 and we would expect another correction (about 1/2F) to produce a bottom of 3.25-, 3.35.Another day or two of falling prices will also bring GPL to 20, where the stock bottomed last time.

Happy investing.