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Ing:  “We’re telling people just to ignore the noise in gold.  It certainly looks like a bottom and feels like a bottom.  I can’t recall when sentiment has been this negative.  Pretty much every technician is also negative about the breakdown.  However, in the face of all of of this bearishness the fundamentals keep getting stronger....

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“There are hints of tapering once again, but if you scale tapering back, what are the ramifications?  Is the market big enough to absorb all of the bonds?  The answer is no.  Is the market happy with higher interest rates?  No.  So gold will be the go-to item.

But here we go again with strange activity in the gold market.  This is the third episode I can recall of a mysterious plunge, where 1,500 contracts were dumped on the market.  Remember, each contract is 100 ounces, so that’s an awful lot of paper gold.  Of course that resulted in everybody fleeing for the exits, but the reality as this selling is taking place in the paper markets, at the same time we have seen yet another pick-up in demand for physical gold.

Also, if you look at the gold stocks, there is a great deal of cash on the sidelines waiting to enter these stocks.  There are also a many bought deals taking place.  So even as the paper market struggles, I think the fundamentals are getting better.  As an example, the recent news regarding China distancing itself from the US dollar is really just recognition of the obvious.  They have already scaled back their longer-term purchases of Treasuries.  It’s just the short-term Treasuries they have been playing in because they are extremely liquid.

China really can’t stop piling up foreign exchange because of the nature of their economy.  This is, however, why you are seeing such massive demand by the Chinese for gold and other assets, as well as companies.  Also, the last official gold holding by the Chinese was announced in 2009, and that was a little more than 1,000 tons which is a little less than 2% of their foreign exchange holdings.  If you look at most Western countries they have 10% of their reserves in gold.  This is why the Chinese are massively accumulating physical gold.

Subsequent to the historic Third Plenum meeting which just took place in China, and this was not covered in the Western media, there were 300 reform items, and about 21,000 decisions.  There were 15 areas of reform and a lot of the concentration was on the market.  This bodes extremely well for continued Chinese growth, but we also see more of a free market orientation.  In fact, the next day the Hong Kong market went up almost 2%.

So I think we have some positive things coming from the Far-East, in particular for hard assets and for the gold market.  All of this is happening as China is the largest producer and consumer of gold in the world.  In fact, there is a lot of global demand for physical gold. 

The World Gold Council talks about a slowdown in the third quarter, but that only came about because India’s official demand has been suppressed as a result of higher taxes.  But now we find out that gold is coming in to India even through airport washrooms.  So there is a great deal of black market trading going on in India that is not reported in the official figures. 

But stepping back, Eric, the reality is that this paper market, the Comex market, is a precarious market.  It is very much a manipulated market.  Those coordinated sales smack of huge short sales.  So there is going to be a run on the Comex.  When this run on the Comex begins in earnest, we will have stunning $100 to $200 increases in the gold prices in a given day.”

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