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Dan Norcini continues:

“There is still continued fear regarding the Spanish downgrade of yesterday.  There are also ongoing fears about Greece leaving the eurozone.  The euro just made a new 52 week low against the dollar.  The Swiss franc also made a new 52 week low against the dollar.

As you would imagine, this means the US dollar index is hitting new yearly highs.  The yen is also moving higher.  Remember, the yen tends to rally against the dollar when you get a safe haven bid.  The 30-Year and 10-Year US Treasuries both just hit a new all-time highs.

So there was a steady rush of buying in the safe haven markets.  The surprise for many was the action in gold today.  Gold came off the lows and rocketed higher....

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“This took place when the dollar was moving higher, along with the yen and bonds.  That tells you gold is functioning as a safe haven.

We also saw the HUI come strongly off the lows.  This demonstrates that buyers are still finding value in the mining shares, even though the index has rallied up from roughly the 370 level, to the 420 area.  The shares are so beat down that they still remain a great value.

So the shares are holding up very well in the face of stock markets sliding globally.  That’s also another plus for gold as we move forward.  We had that strong rally off of a critical support level on gold today.  The rally actually carried $40 higher at one point in gold.  Gold has been contained in a very broad trading range for about eight months now.  $1,800 has been the top of that range, and $1,520 has been the bottom.

Every time we’ve gone down below $1,550 and dipped into this support level, we’ve had very strong, quality buying emerge.  Most of the time this type of buying is associated with central bank purchases, particularly central bank buying coming out of the East.

Gold had that $40 reversal off the lows today, even though the S&P was melting down, the US dollar was heading higher, and the Treasuries continued to get a safe haven bid.  The ‘risk-off’ trade was causing the jettisoning of commodities at this time as well. 

You had silver down, and copper was really hit hard today.  Crude oil and gasoline were down.  All of these markets were getting hit, along with equities.  But unlike many of these other commodity markets, which really are risk assets, gold turned around and had that sharp $40 rally. 

The bottom line is there was some very powerful buying that came into the gold market from some extremely strong hands.  They were strong enough that they could absorb hedge fund algorithm related selling, which is significant right now across the commodity sector.

What that tells us is the rumors that gold is dead as a safe haven asset are completely unfounded.  No market trades the way gold did today if it were not widely considered to be a safe haven.  Extremely strong hands are buying gold and they are buying it as a safe haven, and as a way to diversify currency positions.  These are the kind of buyers that do not chase prices, Eric. 

The longer gold trades above the $1,550 mark, the better it is as far as the longer-term price formation is concerned for gold.  What this does is create a very strong area on the chart, or a floor that buyers around the world can key in on and say to themselves, ‘This is where we want to buy gold.’ 

To see gold accelerate higher, we really need to break back above $1,600.  If that move above $1,600 were to take place, people would have to remember that it would be happening with a very low level of hedge fund exposure to gold.  This would allow for much greater gains for gold as the momentum swings to the upside.”

Norcini also added:  “I agree with John Embry’s comments earlier today on KWN, that the Fed is indeed keeping a close eye on key markets.  John understands that once the Fed unleashes further monetary stimulus, QE3 or whatever they end up calling it, you are going to see a great deal of selling pressure come in to the dollar.

At the same time, you will see a great deal of hedge fund money committing itself to the long side of other key markets such as commodities.  At that point you will see food and energy prices pushing sharply higher.

So I believe John is right that the Fed is definitely encouraging these moves in the markets prior to the launch of QE3.  I would go one step further and say the Fed is particularly keyed in on the gasoline market, Eric.  The reason is the gasoline market has the greatest impact on the US economy vs all of the other commodity markets.  So the Fed would love to see gasoline prices at a lower level. 

I believe the Fed would like to see wholesale gasoline prices down another 10% from current levels.  The Fed could then comfortably launch QE3 with the gasoline price a full dollar off the peak.  This would give the Fed quite a bit of cushion before they had to worry about rising gas prices impacting consumer spending and business activity.

I would also like to add that in our KWN interview on May 11th titled, If This Happens, It Will Signal A Collapse, I warned about certain events signaling a collapse in the markets.  Since that time, we have seen those events take place, and the Dow is already down over 400 points.

What we are seeing right now is that slow, grinding selloff.  The danger for the Fed, is this could accelerate very quickly into a full-blown panic and a disorderly collapse in the global markets.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interview with Newmont CEO Richard O’Brien is available now.  Also, be sure to listen to this week’s line-up of other KWN interviews which include John Hathaway, James Turk, Nigel Farage and Don Coxe by CLICKING HERE.

Eric King

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