“The proof of our conviction that we have in fact already established a bottom in this gold reaction lies in the next few trading days.  I would say the next week of trading will give us the answer.  Wednesday’s plunge in gold was entirely manufactured.

We can clearly see the backpedaling on the Cyprus deal, and we also know that Cyprus can’t sell their gold.  Those reports about Cyprus dumping gold were fiction.... 

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“Discussions like that have to take place with the ECB, and all of the euro gold is really concentrated.  So they didn’t have the ability to sell or not to sell.

That is why there was no follow-through on the downside in gold on Thursday.  If in fact we have established a bottom, this type of action should carry on from here and the market should continue to stand firm against any further attempts to manufacture selling in the paper market.  This will also signal that gold is ready to move back up to retest and break the previous all-time high.

One thing that we do know, Eric, is the physical gold market is trading in volumes that have never been seen in history.  We can clearly see amongst the gold banks and policymakers that there is almost a terror present in their determination to keep the system together.

Wednesday was, in a sense, an embarrassment because all of it was manufactured and they threw everything they had at the paper market in gold, but were only able to move gold down roughly $20 in two trading days.  The only logical conclusion you can come to is there is a major problem out there of a much more serious nature than anything that has been suggested.

The reaction to Lagarde and the Dutch Finance Minister’s analysis of their actions as being a template almost caused a full blown international panic.  Why is that happening?  The answer is that everything is not as sound as the central planners would like to have the public believe.

Right now the big money is securing physical gold, and using the cover of the paper market in order to accomplish that.  I would add that bullion banks are doing exactly what they did in 1979.  It’s 1979 all over again and they know a massive up-move is coming in gold, and they are getting prepared for the liftoff.

The character of the gold market for the next few years will be a transition from paper to physical as the arbiter of price.  We are already seeing the inventories of the futures exchanges beginning to decline.  Price appreciation will follow this decline in inventories as sure as day follows night.

We will then see margins rise and, exactly as occurred in the Hunt situation in 1980, margins on the futures exchanges will go to 100%.  I think rather than failing in settlement, you will have, once again, a unilateral change in the terms of the contract.  That means that one party decides to change the rules, in which case delivery will be either a settlement in cash or shares of some exchange traded fund that claims to represent physical gold.”

Eric King:  “Jim, the 70s was a crazy time.  We had the oil embargo, long gas lines, ‘whip inflation now’ buttons, commodity prices soaring, and then it culminated in 1979/1980 where people literally thought the financial world was coming to an end, and the dollar was going into oblivion.  So is it safe to say the chaos going forward is only going to accelerate from here?”

Sinclair:  “You can define for our readers the coming chaos as being the lack of options.  Right now you can transfer your gold anywhere in the world you choose.  Right now you can ship money anywhere in the world you choose.  Maybe as soon as months you won’t be able to any more.

Currency controls are sure to come as the central planners lose control over the rates of currencies, inflation, and the price of gold.  So the takeaway here is you have options.  You can make decisions now that will give you greater flexibility and freedom.

Chaos is the mental condition of having no options.  So, again, get out of the system.  That’s what we’ve learned from Cyprus.  Maintain your options and get yourself out of the system before it’s too late.”

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Eric King

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April 12, 2013