A difficult Market to call.

The PM market has become almost too difficult to call. Perhaps the difficulty is due to which graph is being used. When Silver and Gold are plotted on a weekly basis, an uptrend is clear. But, when these are plotted on a daily basis, there is a lot of volatility, especially now. Furthermore, the PM trades are quiet different from the AM trades. And Advisers from the same company see it differently. Perhaps the biggest difference is the start of the next upleg in gold prices. While, it is being forecast fo July, Aug and September, the Market is tending solidly up but slowly.

Not an easy Market to call.

PM miner shorts squeeze is coming.

Gold stocks are seasonal (first graph). And the Summer months are not kind to their price action. What is developing now is something else. In an interview on KWN, Sinclair and Norcini forecast a coming consolidation among junior gold miners and an enormous shorts squeeze. Let's look at the facts and see why these experts make these predictions.

Gold has been going up steadily and the weekly chart of gold gives us two parallel lines for the 50 DMA and the 200 DMA(second graph). During the same time, gold miner stocks have been going down (see the graph for HUI-the AMAX index). Sinclair and Norcini point to the hedge funds shorting these stocks as the cause of this.

The drop in gold miner prices has two consequences: 1. they have become very cheap considering what they have in the ground and 2. once consolidation begins, it will set off a rapid shorts squeeze. The impetus for the consolidation is the desire of senior miners to acquire gold that can be mined for many years to come.

There are a number of junior miners that fall into this category. THM is one with 14M ounces of gold in the ground and 92M shares. The king of the juniors is NAK. It is located in Alaska, has about 100M ounces of gold and 55 billion pounds of copper and a fair amount of tungsten. Anglo-Gold Ashanti owns one half of the proposed mine and is committed to financing the development and permitting process to the tune of $1.5 Billion. NAK has roughly 100 million shares outstanding. If we multiply the ounces of gold by the gold price and divide by the number of shares, we get a number that represents the value of a share of stock. For NAK, this is (100M oz x $1,500/oz)/100M shares, or $1,500/share. That's just the value of the gold they have and at current prices. So, a share of NAK is worth roughly the price of an ounce of gold in American Dollars. The last figure shows what has happened to shares of NAK. So, NAK is valued 150 times of its current price/share even if gold went no higher.

Sinclair and Norcini remarked that eventually value wins out. The coming shorts squeeze will be awesome. When and what will set off the process? The two experts remarked that the final factor that sets off the run is usually something that you do not guess ahead of time. My guess is late July or early August.

A Moment of Uncertainity.

The gyrations in the financial world yesterday reflect the gyrations in the political world. Simply put, the era of Socialism in Europe and the United States is ending, but not without financial chaos. How can I say that Socialism is ending? Because the most forceful proponents of Socialism (the Communist Parties of Russia and China) have given up on Socialism.

This does not mean that clean, unfettered Capitalism will be restored in Europe, because Europe may come uder the domination of Islamic Fascism (excuse the redundancy). We are, however, witnessing the death throes of European Socialism. How? By seeing the currencies of the Socialist countries unraveling. These countries and the United States have covered up the shortcomings of Socialim by printing currency and kiting checks via their central banks and other banks owing large sums to each other. In reality, the billions of dollars European banks owe to each other should be added to the bonds these countries have issued. In the US, the indebtedness is mostly in treasury bills: over $14T and counting.

Yesterday was the first time the Euro was shaken badly. There will come other days like yesterday. As the Euro shook, it drove the Dollar up, which in turn reduced the price of gold and silver. The graphs of gold and silver show that both gold and silver dove below their trading channel and gold dove under 1,520 briefly and silver under $35. Both of these are support points. This morning, the US Dollar is dropping but so are gold and silver in the overseas markets.

Gold and silver miners fell again yesterday (check XAU), but it seems to me that the miners will bottom out.

What prognastications can be made at this point? Uncommon Wisdom forecasts continued weakness in PMs based on the Summer weakness in gold and silver. Mr Sinclair forecasts a sudden Summer rally that will catch people by surprise. How could this come about? If the Greek bailout holds and is ratified by the Greek Parliament, then the Euro will be stabilized for the time being. But, now it will be the Dollar's turn. July 2 is approaching and that is the deadline given by Republicans to the Obama regime. Needless to say, the regime has no intention to stop its march to Socialism and cut spending other than for defense. The US has no authority to borrow any more money. The regime is trying to blackmail the Republicans by talking about defaulting on US obligations. And as the economy deteriorates, the FED can be counted on to continue its money printing. This will weaken the Dollar.

We live the Chinese curse: THESE ARE INTERESTING TIMES!

And the status of Greece is...

Still uncertain. Papandreou won the confidence vote, but the chaos continues. The EU-IMF agreed to continue the bailout subject to increased austerity measures for 5 years. Will Parliament vote for it? That is the question. Greek Socialists (like ours) want the problem solved by reducing "benefits" and increasing taxes.

Why is the Greek Mess so messy.

Greece is teetering on the edge of chaos. Crowds are chanting and rioting in front of Parliament as PM Papandreau tries to hocus pocus his way out of the mess.

The reason why this process is so messy is because it is not simply a question of giving Greece the money to bail it out(in fact, even Pres O'Bugle offered to fork over the money). The UE and the IMF are demanding that Greece dismantle many of the government support programs. That is what is called "austerity." Greeks have become accustomed to living like the Germans and the French, but that is only possible by borrowing some of the money needed. Forcing them to lower their living standard is widely opposed.

Then there are the political machinations. The opposition wants Papandreu to resign and the President of the Republik to name a caretaker government to renegotiate the terms of the bailout. This would mean papering over the default, but it is highly uncertain that it work.

Papandreu wants Parliament to vote in the austerity measures and THEN he will resign and call for elections. In fact he would like nothing better than to hand over the austerity to the opposition. There is a problem though. PASOK had only 155 seats in a 300 seat Parliament One defected and another resuses to vote for the measueres. My info is that the vote failed. Now the question is WHEN, not IF.

Nearing the tipping point.

There is a debate raging among gold bugs about the divergence of the gold miner index (first graph) and gold itself (second graph).

Gold seems to be holding up much better than the gold miners. When I last posted, gold was heading up and so was the gold miner index. Since then, gold went sideways and the gold miner index gave up its last gain.

In fact, PM miners are being sold off (allegedly by the hedge funds). It is easier to short gold and silver miner stocks than gold itself.

Nothing changed much fundamentally. Greece's financial ratings fell to CCC, the lowest in the world. Greek default is imminent. US default is not far off. In fact, the Chinese rating agency already considers the US in default, because of the drop in the value of the US Dollar. There is also a game of chicken between the House and the Democrats aided by the Media. The Obama regime threatens default if the debt ceiling is not raised. The deadline is Aug 2 or thereabouts.

Meanwhile, the US economy is sinking and the FED is saying it is done with QEII. Treasury notes in fact are not selling well and some people expect the FED to raise interest rates. But, to raise interest rates in a worsening economy is to invite a Depression and political defeat. Make no mistake! There will be more money printing. Only the method is in question.

What about PM miners? I consulted my internal instinct. I see panic and a desire to sell. That means we are nearing the bottom. Just another month now.