ECB begins bailout of banks.

Just in on Drudge. The ECB extended 3-year loans to 589 banks in Europe. The loans total E523B. This insures immediate liquidity but is being described as totally inadaquate to backstop national debts or protect the European economies from a Depression. But, it is a beginning.

On the manipulation of PM markets.

London Trader describes the process in today's (Dec 21) post of King World News. Here is how it works: The bouillon banks of England coordinate their activity with the Central Banks of Europe. In the middle of the night, when trading activity is low, the bouillon banks flood the market with paper orders to sell in order to lower the price of gold. They do this three successive nights, each night taking out one support level. The central banks loan the bouillon banks gold to cover actual sales. Short term traders and even some funds are forced to sell. However, Asians are wise to this practice and have scarfed up 100 tons of gold in this latest "sell off." Silver prices are kept in line by selling silver borrowed from SLV. London Trader estimates that SLV is short 20M ounces that it lent to the midnight thieves.
Meanwhile, silver stocks are very low again, with the waiting period being 3 months on large order delivery. Meanwhile, you can buy shares in silver miners for a song and dance. When this game of manipulation breaks down, expect prices to rise very rapidly.
What about Larry's prediction of gold going to $1.200 an ounce on the demise of the Euro? IMO, forget it. Will the ECB allow Europe to slide into a depression, the Euro discarded and the EU busted up? I don't think so. The ECB and the FED will digitize trillions to prop up the banks. That inflation will follow? So? It will make the remaining gold worth more and the central banks will be brought back into the black.

So, where is the bottom?

Once again we ask 'have we hit the bottom of the correction?' We, of course, reject the idea of the MSM that gold's bull market is over. None of the forces (fundamental causes) that propelled gold has improved. Some got worse.

The graph is from "Casey Research" and shows the sizes and dates of the corrections in the gold bull market. The current correction is 12.5%, about average.

Gold is hovering around 1,600 and full hundreds tend to act as support and resistance. The US Dollar is above 80.2 and shows some tendency to stabilize.

Pundits defer as to where we are. Larry is most bearish, forecasting gold to fall to 1,200. Others (myself included) simply do not know. Larry's forecast for the low is February next year. Tempus fugit.

Liquidity crunch hits the West.

The REPO RATE (the discount rate of repurchasing govt security by the central bank) is a measure of the money supply. To temporarily increase the money supply the central bank reduces the repo rate. This was done in 2008 when a liquidity crunch hit the West and it is being done now. The cause of the liquidity crunch is the European financial crisis that drives people into dollars. Consequently, the Dollar Index has skyrocketed to 80.57 this morning, (abrogating its double top) and sent gold into a free fall, flirting with the 1,600 level. This then continues with the gold breakout on the downside.

Larry forecast the drop in gold and the increase in the Dollar Index. He forecast that the Index may hit 82 and that gold may fall past 1,500. According to Larry, gold will hit bottom in February, which is the forecast rate for the end of the Euro. The fall in the repo rate tells us that the FED is pumping out money to keep European banks afloat, but the ECB must digitize more Euros if that currency and the banks are to be rescued.

The rate of fall in gold also tells us that some country (perhaps Italy?) is selling gold big time, although it is the paper gold market that is being liquidated. These are interesting times.

Financial Stress Continues.

Weiss Research claims that its ratings are more accurate that Fitch, Moody and the rest. And Western Countries do not fare well, as indicated by the top graph. The US continues to run a monthly deficit of about 40% (graph two). What is more critical is that we are about a month away from bumping up against the latest debt ceiling.

Debt-related events are still driving financial news. Weiss's list of problem banks indicates that US and European banks are nearly insolvent. Opening the Dollar Window to European banks had staved off insolvency for now, but Greeks have pretty much emptied their banks. That means that the Greek economy can not recover and must again be bailed out and soon.

The convergence of these two events(reaching the debt ceiling and threatened default in Europe) are expected to raise gold prices, as it did last time (lowest graph). Gold and silver prices are still consolidating, but we are beginning to see higher lows. For example, during this current slide in gold prices, gold fell to 1,700, instead of the 1,680 support level. PM miners have been in a consolidation phase for a year and their breakout is now suggested. Yamada's reading of the financial bones (technicals) suggests a continuation of the consolidation, while Larry predicts gold to hit a low in February. Trends are converging.

The Markets refuse to...

follow the predictions of those pundits,who are predicting a drop in gold prices and a continued strengthening of the US Dollar. Take Larry. He continues to see a very serious weakness in gold and figure it will drop to $1500, maybe lower. The weekly gold prices tell a different story. Gold continues its upward climb. In fact, the MacD histograms give up a double peak below zero, which means that we are not yet to the half-way point of the current rally. Look at the Feb-July period of last year and we see a similar formation. We can expect then the rally to continue for an equal time, such as during Dec and January.

We see the opposite with the US Dollar. We see a double top formation, with the Macd being in the positive territory while the actual value of the Dollar Index is beginning to fall. Again, Larry's prediction of the Index going to 81 and above is not likely.

Finally, I have said in a previous post that the FED can act any time and it is not likely to wait untill the DOW goes to 9,000. The bailing out of the European banks creates something like $800B, so this may act as QE3. Indeed, the FED's action lifted the Markets and the DJI finished above 12,000 for the week. Europe's long term problems have not been fixed, but in the short term, they have the FED ready to bail them out.