When?

It has been 11 months that gold began to drop. We have enough proof that gold prices have been manipulated. We also know that the longer a price is manipulated, the larger the reaction will be. The question is WHEN?

First, let's be thorough. Is it possible that the Obama regime will fix the economy, fix the fiscal mess and that Europe will return to sane fiscal management? Very unlikely. The Western world is in a deflationary spiral and there are only two cures for that: 1. more prudent governments that spend less and 2. printing more money.Europe and the US has not done either effectively.

There are important meetings this week by the FED and by the ECB. Sec Treasury Gaithner is in Europe today conferring with his counterparts. Will they actually do the printing or will they continue talking about it? The Market is quiet, waiting. Here is the graphic on the gold price which will react to decisions. The descending curve can be drawn two ways: 1. in one way (lower line) the breakout will occur shortly after 1,630; 2. the other way (upper graph) the breakout will occur above 1,700.

And Larry says? He thinks that a change in the Market (i.e. gold market) will come in the first two weeks of August. His numbers and equations call for a drop in gold price, because he does not believe that the Central banks will print untill their backs are to the wall. Here is the graph of gold.

Is it a breakout this time?

Using the data on how long it takes for a correction in gold price (as related to the size of the correction) I calculated that the correction was to be over at the end of May. It wasn't. It seems again that the gold price is breaking out of the wedge. Here is the graph:

The breakout is still modest, though this morning's gold price is up another 10 bucks or so. Some traders say that if the gold price goes above 1,700, it will initiate a large short covering and restore the rally. We know that the paper contracts to deliver are huge and so are the shorts.

The Euro: Preservation efforts get serious.

It is important to understand the problems of Europe and the US and note the difference. In the long term, both face the debilitating effects of Socialism; Europe more so than the US. Europe faces a liquidity problem (the fiscal crisis) from too much debt, the US faces a problem of a Socialist elite that wants to crash the economy so we have a revolution.

I have been commenting mostly on the European debt crisis. The crisis continued because Europe's leadership was unwilling to do what it needed to do in order to solve the liquidity crisis before tackling the long-term problems.

This is changing. Comments by Ewald Nowotny (Governor of Austria's Central Bank and Member of the ECB Council) has come around and threw his weight to the idea of letting the ESM become a bank that can 'print' money to rescue the banks of Spain. That alone buoyed stock markets in Europe and in the US and dropped the US Dollar below 83(just as Larry's forecast of the Dollar going to 86 came out). In addition, Mario Draghi, President of the ECB, declared that the ECB will do whatever is needed to preserve the Monetary union (meaning the Euro) within the EU mandate.Dire predictions of European hyperinflation are not in order as the Euro was clearly deflating.

The FED is meeting again and may ease though it is not likely that they will call it QE3. As I pointed out, the FED need not print, simply allowing the banks to reduce reserve requirements and use that to make loans 2-10X more than the reduction in reserve, is sufficient to act as a stimulus. Spanish and Italian bond rates dropped on the news.

Widening differences.

We are starting to have wide differences in forecasts, earnings and opinions on predictions.

Larry Edelson vs John Embry.

Larry is doubling down on his forecasts for a drop in gold and especially silver prices. In his opinion, economic and financial matters will have to get very desperate and then the FED and the ECB will have to act in concert at easing and that will propel the gold prices and inflation.

John Embry is forecasting a looming shortage in physical gold maybe as soon as August, which will propel the precious metals and mining shares. These people have long histories in the business. Why the diametrically opposite views?

The rating agencies also differ.

Moody has downgraded the outlook of France and Austria in February. This was followed by a downgrade in outlook for Germany, Netherlands and Luxembourg, leaving Finland stable.

Standard and Poor has left all four alone and reaffirmed their Aaa rating.

Meanwhile Italian 10 year notes hit 6.337% today (up 2.77%) and Spanish rates hit 7.498%, up 3.18%. Spanish regions are being downgraded, because they are out of money.

Some German figures.

They talk lightly of Greece leaving the EU and quitting the Euro. These folks are whistling Dixie( more precisely, they are whistling Deutchland, Deutschland über alles). The moment Greece leaves the Euro, it will default on its loans and there go a whole bunch of banks. That will be very costly.

Is Larry right that the ECB will wait untill the EU is in tatters to print? Spain and Italy need cash infusions big time and Germany, Holland and Luxembourg do not have enough to do the rescue. Only the ECB can do a rescue or the ESM can be raised to the status of a bank. What is plain to Larry is also obvious to every one else.

What will be the Black Swan event?

A Black Swan event is defined as an unexpected event that throws the Market(s) into a swoon.

We have a wide choice of Black Swans in Europe: 1. Greece leaving the EU, 2. The Eu kicking Greece out, 3. Spain entering default, 4. Italy entering default, Al Qaeda attacking the London Olympics. Then we have candidates outside of Europe: an Egyptian civil war, Iran closing the Strait of Hormuz and Syria deploying chemical weapons.

There are plenty of candidates in the US: the Press getting hold of Obama's use of cocaine, the murders of his homosexual friends and church members in Chicago, the FED declaring QE3 or turning loose the banks to quadruple the money supply, economic numbers deteriorating, etc.

The grand daddy of all black birdie would be the repudiation of the US Dollar as an international currency. Then there is the formation of military police deployable in the US to quell disturbances (Three battalions now exist), etc. These will be adventurous time, as of the Chinese curse.

It is raining debt in Spain.

Spain has 17 regions. They owe E140B, of which E36B has to be refinanced this year. Valencia has appealed for help from a liquidity fund set up by Spain (contains E18B) and now Murcia is considering to do likewise. It is raining debt in Spain.

Fed is looking for new tools.

There is an interesting report in the Financial Times on the FED's efforts to boost the economy:

http://www.ft.com/intl/cms/s/0/7015fcfc-d419-11e1-942c-00144feabdc0.html?ftcamp=published_links%2Frss%2Fworld_us%2Ffeed%2F%2Fproduct#axzz21PTO8FeF

Reducing rates has now become ineffective. Why? Because the rate is now 0.25% so it can not be lowered much more. Buying up assets has also been tried. The only thing that has not been tried is stopping paying the banks for their excess reserve and allowing them to really pump up the money supply. Theoretically, the banks can leverage their $1.5T into $15T! That would start inflation rolling.

Some experts conclude that Europe and us have only two ways to deal with the huge debt: 1. explicit default or 2. default via inflation. These experts believe that the US is two years behind Europe. However, we are now at 100% National Debt expressed as GDP. Together with unpaid obligations incurring, the deficit is nearly $5T annually.