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Turk:  It has now been four months since gold and silver made their lows, Eric.  They are under massive accumulation with the result that they are forming important bases.  For example, take a look at this gold chart.

Downtrends in prices rarely turn on a dime.  They form reversal patterns, which is what we see on this chart.  Gold is forming a huge head-and-shoulders base....

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“The right shoulder is deeper than one would normally expect, but I think that distortion is a result of intervention.  The central planners are struggling here to keep a lid on gold. 

One indication of the battle they are waging is the recurring bouts of backwardation.  Gold has been backwardated an astounding 62% of the trading days since its low price was reached at the end of June.  And even though gold is trading at 5-week highs and has risen $140 since the June low - which by the way is a stunning 33% annualized rate - gold has been backwardated for nearly the past two weeks.

The apologists for the central planners are out in full force trying to explain away the backwardation.  They have come up with all types of excuses, but they cannot hide the fact that gold continues to flow from West to East, causing a shortage of physical metal and the backwardation. 

They are overlooking one essential fact:  Asians understand that gold is undervalued, so naturally they want more of it.  And they are very willing to exchange dollars, euros and other Western currencies to buy more physical metal as the central planners try to keep a lid on gold's price.

These circumstances cannot continue forever, Eric.  It looks to me that the stage is set for the dollar to collapse.  The euro might benefit in the short-term by continuing the uptrend that began several weeks ago, but the only long-term winners will be gold and silver.

The President and the Democrats generally are going to feel their position has been strengthened by holding firm and not negotiating any reduction in spending with the increase in the debt, which can grow without any limit until February 7.  And the Republicans are going to be more careful about taking any stand to fight because of the upcoming November 2014 mid-term elections. 

This continued chaos in Washington means the debt is going to soar.  To paraphrase Winston Churchill, this is the beginning of the end, and the end comes when the debt limit is increased again - and possibly even removed once and for all - when the February 7 deadline approaches.

By the way, to make up for being unable to borrow for five months, the debt this month has risen by over $330 billion so that the total now stands above $17 trillion.  Basically, the government has been borrowing all along, but doing so with debt not counted in the overall limit.  Spending and borrowing in Washington are out of control.

Turk added: “I have an interesting silver chart too, Eric.  Look at this huge base being formed.  It is a classic cup-and-handle formation. 

This chart is illustrating over a decade of distribution from 1980 to to the early 1990s, a decade of stabilizing, and since 2003, a decade of accumulation marked by rising prices.   Silver also made its low in June, but the four months since then are hard to see on this very long-term chart.  Nevertheless, the base being built by silver around $20 per ounce is forming the bottom of the handle.

In many ways everything happening today regarding money and investing is unprecedented, Eric.  But in some ways older guys like me have seen this all before, and maybe the younger people out there have read about it in history books.  But there are many similarities today with March 1968 and the collapse of the London Gold Pool.

In the years leading to the Pool’s collapse, the central planners dishoarded 12,000 tons of gold from Ft. Knox at the unbelievably low price of $35 per ounce.  The rest of the world gobbled up all of the gold they could get at that price until the central planners finally threw in the towel rather than empty their vaults any further.

We are seeing the same thing today.  Physical metal is coming out of central bank vaults and their propaganda machine rarely misses a chance to disparage gold in the same vain attempt as the 1960s -- to make the market believe that gold is of little use here.  But try as they might, the central planners cannot stop people from flocking to undervalued assets like gold and silver. 

In other words, the market is bigger than any government or group of governments trying to defy reality by making the market believe that the dollar is worthy of being the world’s reserve currency, when events in Washington make clear that it is no longer suited for that critical role in global commerce.”

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© 2013 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.

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