Wednesday, June 26, 2013

Precious Metals Panic Liquidation

The precious metals are in complete panic liquidation mode right now with gold and silver's paper price water falling lower in the overnight session.

Silver has broken down below $18.50 with gold closing in on $1,200.

Sentiment has now reached the exact opposite extreme witnessed during the precious metal's high paper price marks just 20 - 24 months ago. During that period in 2011 as silver was close to $50 and gold touched over $1,900 the Daily Sentiment readings for each metal crossed above 98%, both new record highs.

That meant that 98% of the market felt that precious metals at that point were headed higher, with only 2% who believed they had a chance to fall.

Over the past week we are now witnessing the complete 180 degree reversal in sentiment. Investors now have the opportunity to accumulate physical silver at a 63% discount to the 2011 price and bullish sentiment readings are now hovering between 2% to 4%. 98% of the market now believes that prices are going lower.

Investors that poured into the markets in 2011 are now dumping frantically. Fear has taken control. Physical metal continues to move into the strong hands as the big players, such as China and Russia, continue to accumulate for the end game, not today or tomorrow's paper trading price.

For those dumping precious metals today in panic I would ask; what has changed fundamentally in the global economy to provide a reason why they so desperately wanted to buy metals in 2011 vs. why they so desperately want to sell today?

Governments around the world are now in far more debt than they were in 2011. The economies and tax base used to service that debt have slowed and continue to slow.

Banks, pensions, and insurance companies are far more insolvent today, as they have continued to accumulate government debt paper over the past 2 years.

Since 2011 we have witnessed Cyprus citizen bank accounts emptied by their government. European officials have admitted that the bail-in program would become a model for future crisis.

Central banks, which were printing money at an incredible rate in 2011, have now turned the heat up full throttle. The Japanese nuclear QE program was announced in late 2012. QE to infinity was announced in 2012 in the United States, with a large and ongoing QE program taking place in the UK. Europe's Central Bank, the ECB, has announced a backstop to purchase every piece of toxic government paper across the Eurozone should it be needed.

We continue to operate in a global fiat money system where since August 1971 the paper currencies in every country around the world are backed by nothing. They are just pieces of paper or electronic transactions.

We saw the first major crack in the great central bank experiment over the last 60 days where the bond markets in both the United States and Japan fell dramatically during periods where central banks have kept the throttle on full blast. This has shaken up the markets because for the first time investors are starting to ask the question which was formally unthinkable:

What would happen if central banks lost control of the markets?

This is not a question of if, but when. The bond markets around the world are far bigger than central banks and when they turn, which may have already begun, then the final endgame to the 70 year debt super cycle will have arrived. Then the real crisis, not the warm up we saw in 2008, will commence.

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