Greece on the brink.

Greece is a small country with a small economy. That is, compared to Spain or England it is small. But, in many ways, Greece lies at the heart of the financial troubles of Europe. You might say that the chickens are coming home to roost. And it is getting near to impossible to paper over the failure of Social Democracy (Socialism). Greece is the canary in the European Socialist vote mine.

Here is the latest. Simply put: Greece can not pay its bills. In order to stay afloat, Greece must borrow money. But, lenders are willing to lend only if Greece pays a very high interest rate. Greece can not do that, so the Europeans, the IMF and the FED have bough Greece's bonds to paper over the crisis. In return, the lenders demanded "austerity" from Greece - meaning a cut in government spending.

Did it work? We were told that it did. Now we find out that it did not. Greece's economy kept shrinking, so it needs another round of cash infusion and another round of austerity.

Can this be put in place? That is doubtful now. Each plan unfolding has significant opposition. The IMF is out of chits. Creditors view the idea of "restructuring" (i.e. postponing the payments) as a default. And, of course, the Greeks themselves oppose the idea of the creditors interfering in their economy and financial affairs demanded by the plan.

In the end, it will come down to whether the creditors figure the default is preferable to the rescue.

Meanwhile, Portugal and Ireland are marching to this same ending, while Spain and Italy are getting their credit rating lowered.

Back in the US of A we are drifting toward the tipping point. The Dems in the Senate voted down the House-approved budget, assisted by NO votes from five RINOS. O'Bungle's budget got zero votes in the Senate. And the Senate refuses to produce its own budget. The Dem strategy seems to be to preserve current spending by forcing to keep the govt running via continuing resolutions. Democrats are jubilant that they found the formula to regain the House by the Mediscare tactics applied in NY 26. But, the Country can not remain on this course till Jan 2013 when the next Congress is sworn in. The clock is ticking. This will be an interesting Summer.

Precious Metals: The techicals.

We begin the documentation by comparing the US Dollar (top graph), gold (second graph) and silver (third graph). We can see that the rally in the US Dollar and the correction in silver and gold all began at the beginning of May. We know that margins for silver contracts were changed five times for a total of an 85% increase, virtually wiping out those on margin. This obvious ploy to drop silver prices was accompanied by shrill cries in Seeking Alpha that the PM rally was over. The next graph shows that silver prices were soon oversold. Furthermore, the silver market split into two: the actual price of physical silver and the price of contracts. In fact, the drop in paper silver set off a scramble, so that it became very difficult to buy silver without delay (backwardation increased in other words).

The next graph (XAU) shows that the larger gold and silver miners began to rally even before silver and gold (next two graphs). However, not all miners are rallying to the same extent. Gold miners are doing a better rally than the silver miners (I choose the same miners as before to facilitate comparison).

What this shows us is that the second tier miners are slower to rebound than gold and silver. Whether these stocks will catch up or not remains to bee seen. However, this makes them even more of a target for acquisition.

Meanwhile, the pressure cooker in Europe and in the US continues to acquire more pressure. What will set off the next leg of PM rally? I believe that the next leg is already under way, but not the robust rally we expect. Only 1% of ,investors now hold gold. When that doubles, gold prices will go parabolic.

Precious metals: the fundamentals.

A few of the Bloggers on Seeking Alpha doubted that there was such a thing. Fundamentals of gold? Or silver?

By fundamentals we mean the reasons why PMs will be more expensive in the coming months.

To consult the opinions of people knowledgeable in the field, one of the best places to consult is King World News. The people interviewed flesh out the reasons why PMs are going higher:

1. Western governments are carrying on a Ponzi scheme: governments have gotten the voters to accept govt handouts that are financed by borrowing and increasingly - by money printing;
2. Inflation is hitting people hard and that is the underlying motivation for the Arab Spring. "Benefits" are being phased out, the cost of living is increasing while jobs are harder to come by.Wages are not keeping up with inflation.
3. The Ruling Class is handing itself bonuses and high pay.
4. There is a resource scarcity as it costs more and more to produce needed materials. This is aggravated by the Chinese buying up all they can.
5. Decoupling the Dollar from gold has made it possible for the political class to spend without discipline.

Will there be more QE's? The consensus is YES. It might be called different, but the govt can't stop. The causes of hyperinflation are such that once a nations enters the path, there is no way out. Consider the US: the Dems want to increase the debt ceiling by 2T. They threaten US default if they don't get their way. A default could be the event to set off a PM rally not seen since 1980. But, if the debt ceiling is raised, it will fuel inflation and more printing as well. European countries are really behind the eight ball. Who will default first? Greece? Ireland? Portugal? Even the ratings of Italy and Spain are getting its trimmed, which will increase the cost of financing their debt.

Attempts to rein in the deficits will bring demonstrators into the street such as the "Arab Spring." In fact, Gerald Celente (in the Summer Trend Journal) predicts revolts by the Summer or at the latest by the Fall.

As the extent of the disintegration of the Western financial system becomes known, PMs will rally. When? This Summer. It is not known what will be the catalyst that sets things off.

As for the gold and silver miners, these are grossly undersold. An ounce of gold identified by THM, for example, is valued at $40. Such companies may become takeover candidates. The large producers are getting flush with cash, but their production is dropping. A wave of consolidation looms for some of the smaller miners.

Predicted Inflation and PM prices.

I have in front of me the rec's of the Real Wealth Report. It deals with the effect of expected inflation. It is a sobering and frightening reading. Why? Here are the Minimum, Probable and maximum prices:

Wheat: minimum $52/bushel making for a loaf of bread at $15;
Gasoline: minimum $7/gal, probable $9/gal, maximum $11/gal;
Silver: minimum $135/oz, probable $170/oz, maximum $245/oz;
Gold: minimum $2,400/oz, probable $7,700/oz, maximum $10,000/oz.

The scariest part is that some of these expectations are for 2016; which forecasts that O'Bungle is predicted to be re-elected.

House of cards.

Some folks are very skilled in putting together a house of cards. It grows and it grows, seemingly defying gravity. The Builder seems immune to physiological needs (or to foibles such as shaking hands) and acts as is the edifice will grow on forever.

Social Democracy is like that. Socialism is a failure economically, so Socialists build an economy built on debt. They maintain the illusion that people do not need to work hard, do not need to invest, save or otherwise inconvenience themselves. All they need to do is keep re-electing Socialists and government benefits will flow.But, just as a house of cards does not grow forever, Social Democracy fails, because debt can not grow on forever.

The house of cards built by Socialists is beginning to fall. Will the fall be swift or slow then accelerate all of a sudden?

Talk of default is everywhere. The measures adopted to stabilize the Greek debt has failed. In fact, Greece is now worse off economically and its deficit has grown, while its ability to repay its debts has shrunk. So, what is the problem with that? The problem is that the debts are partially hidden by European banks owing huge sums to each other. Once a default occurs in one place, it will spread - what the financial world calls "contagion." (Patrice Hill in the Washington Times: Europe debt crises forces nations to make tough calls). Ireland and Portugal are next and even Spain is shake.

Back in the US things are not much better. The US Post Office Service will default on its financial obligations and Democrats threaten to force the County into default if the Debt Ceiling is not raised.

We live in interesting times.

Doomsday sayers.

There are two kinds of doomsday Sayers; those who look at events long term and those who look at things short term. Long term, the US Dollar is toast, inflation will go higher and precious metals (PMs) will end up in the stratosphere. Short term, we see a counter trend of QEII ending, markets adjusting, commodities getting clobbered along with the PMs. Ceteris paribus (all things staying the same), these are the predictions people make. All things, however, do not stay the same.

Next year is a presidential election year. No matter what the Media says, the economy is NOT GETTING BETTER. I am not going to rattle off the numbers, but housing is in the dumps, unemployment is way high and inflation is beginning to bite. A Republican House will not pass another Stimulus Bill to keep unionized State workers paying dues to the Democrat Party. The House demands cuts in the trillions and the US has exhausted its authority to legally borrow more money. The Chinese are dumping their Treasuries as are some big bond firms. Greece is again on the brink and the Euro is teetering.

Do you think the FED will stop printing money at the end of June? Do you think the Democrats will agree to cuts?

We have reached a time of maximum uncertainty and the Markets are confused. THAT IS THE SOURCE OF VOLATILITY.

I was duly reporting the wedge formations that forecast a breakout and the breakouts DID occur. On the downside. PM prices are stabilizing at 34 for silver and 1,480 for gold, but there is no clarity for direction. As for the miners, they still are being sold off.

There are some true bargains out there.

As for the sudden, apparent switch in the Obama policy on drilling, this is phony. Lifting the drilling moratorium means nothing. EPA can still block things, so the policy is designed to shift blame to EPA and away from Obungle.

Irish Eyes Are Crying.

One thing to say that Ireland is a financial basketcase, another thing to cite the numbers.

By 2014, Irish debt will be 270B Euros, or 120,000 Euros per worker. That is about 60% larger than the GNP. Ireland is toast.

Precious metals: now what?

Every time there is a correction is PMs, the gold bears start shouting..'the bubble has burst, the bubble has burst.' So the first graph from the top shows what happens in a real bubble. The first bubble is the gold runup during the Jimmy Carter years. The second bubble is the NASDAQ bubble in about 2000. Compare to this gold price changes the last 2-4 years. We do not see the almost vertical rise in pries at the end of the bubble. There will be a bubble in the PMs, it's just a question of WHEN.


The first graph is important because it gives us clues of how and when to get out of the bubble. The graph shows that the bubbles ended the same way. When the top was reached and prices peaked, we saw a drop of about 30-35% of the final blow off, then a 35% recovery of the drop then a further drop. While gold prices did drop, they still remained above the pre-bubble level. The lesson for PMs? We may not know the exact top, but if we miss it, then we can unload during the recovery peak. The Jimmy Carter gold bubble unraveled after the election of Ronald Reagan. The Obama bubble will pop if he is defeated (or looks like he will be defeated). If he is re-elected, the scenario does not bear thinking about.

The next graph shows the changes in gold prices in the correction. This was a steep correction. Is it over? I do not know for sure, but I think so. If not, we are close to the bottom.

The graph of the silver prices is the next. Again, a steep correction of about 38%. Here is a description of what happened: 1. many investors know that the prices run up to a new high twice before the price busts through the third time. The approach to $50/oz was the second run up, so a lot of investors sold some holding, including myself. The CRIMEX and the CME used this opportunity to lower silver prices to save some banks and others who were short silver. They did this by increasing margin requirements five times, which forced these traders to dump their holding (mostly paper). As silver prices began to fall, stop losses were triggered and more stuff was sold. So, paper silver was decimated, but actual silver is still hard to come by.

Silver and gold miners were shorted by hedge funds and some short covering may have happened during the silver correction. The next graph shows that gold is once again rising in relation to silver. The silver miners are also rising in relation to silver (penultimate graph).

The last graph is the actual spot price of silver with the RSI (relative strength index). Drops in silver prices are noted by small blobs on the RSI graph. The first drop was in July 09. Silver prices dropped below the 50 DMA and the 200 DMA. The word was out: 'the bubble has popped.' The next significant drop was in 2010 and silver prices again dropped below the 50 DMA and the 200 DMA. The next two drops occurred this year, one in March and one in May. This time the price dropped only below the 50 DMA. It occurred on very large volume and Seeking Alpha had an article every day about PM prices were going down from hereon.

According to some experts I read, the reversal in silver prices will begin this coming week, between Monday and the end of Wednesday.

A final comment about fundamentals. Precious metal prices are rising, because of the wrong-headed fiscal policies of the Obama regime and its European counterparts. May 16 is the date when the Treasury officially runs out of authority to borrow more money, because of the debt ceiling. A few more weeks and Sec Treasury Gaithner runs out of tricks to avoid the hard reality of facing the reality that the govt is broke. I don't want to make predictions about the political machinations that will take place to force the Republicans to agree to lifting the debt ceiling or do away with the debt ceiling altogether. We are also witnessing the continued saga of Greece and Portugal trying to borrow more when their credit rating is zilch. Greece may even leave the EU and face certain default. All these are reasons for people to trust no paper currency any more than they trust the governments who issue them.

Consulting the bones of May.

Some fortunetellers would throw a few bones and judging from the patterns of their scatter, they would make predictions for the future. I wonder if they, like we, were consulting their memories to discern a pattern in the past. Then we make predictions based on what happened in the past.

This is the third year of the misrule of Obama and we can compare events to what happened under Jimmy Carter's misrule. During the Carter years, it was the third year of his misrule when precious metals hit the top of the chart then retreated as people figured that Carter would be a one term President. Figuring in for inflation, gold should hit $2,300 and silver $200. I suspect that as the Obama regime is busy undermining the dollar, these numbers should be obsolete and precious metals should hit twice these numbers. In THIS year. Should this turn out to be the case, gold and silver prices should accelerate from hereon.

Let's consult the bones. This time, the figures should be read from the bottom.

Gold (bottom graph) and silver (next up) have been rallying since March and the rate of rise in prices is accelerating. Friday, gold hit $1,570, before it settled back to $1,563 and change. Thus, an earlier prediction of gold hitting $1,555/oz has already been exceeded. What is next? $1,700 is believed to be the next top. The fundamentals of financial developments will encourage gold prices to rise. The default bluff of the Obama regime could very well be carried out. The US Dollar is already on a slippery slope.

The next graph up is THM. We see that THM increased by steps, rather than by a steady increment. THM has 10M oz of resource in gold to support mining for 20 Years. The company is about to enter the permitting process. Note that every increase in price is preceded by a double bottom. Volume has increased in the stock, but not all that much.

The last graph is the trading pattern of GPL(Great Panther). It can be thought of as primarily a silver miner with other metals thrown in, including gold. GPL has an ace up the sleeve, the potential gold mine where they have found electrum. GPL's rallies have ben short, its corrections deep and so we can expect the next rally to be steep as well. Rumor has it that the stock has been shorted and its holders have been encouraged to sell it. If past pattern is an indicator, GPL should hit between 8 and 9 on its next upleg. As the price of PM's is accelerating, we may expect an acceleration in the price of GPL as well.