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Turk:  “With all of the recent selling pressure on the precious metals, Eric, gold and silver have moved back to the bottom of their multi-month trading ranges.  Both precious metals have also reached an oversold state, so a relief bounce is likely. 

I think the same conclusion can be made for the mining shares.  Although it is barely visible on the following chart, the XAU Index when priced in gold at the end of March is no lower than it was at the end of February.

So I see today's downdraft as a final desperate attempt by the shorts and central planners to shake out some more physical metal from weak hands.  I do not think they will be successful given that both gold and silver have rallied several times from these support levels over the past couple of years.  And because the mining shares are so cheap, even forced margin selling is not having that much of an impact.

To me the ongoing developments in Cyprus are far more important than this downdraft in the precious metals....

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“What Cyprus makes clear is the realization that there is not enough money in the world to bail out the banks.  So to keep the political experiment called the European Union alive, the oligarchs in Brussels have now resorted to stealing depositor money. 

The important point here is if they can steal it in Cyprus, they can do the same in Spain, Italy or any other country where the banks are insolvent, and the reality is that most of the global banking system is insolvent.  But sometimes it takes a while for a lesson to sink in.  Some people began recognizing the counterparty risk that comes with bank deposits when Northern Rock collapsed in 2007, and the point was driven home again in 2008 with the Lehman debacle. 

This crucial lesson is again being made clear from Cyprus, and the key point here is the one you and I have made time and again over the years:  It is essential to have money outside the banking system, and the best way to do that is to own physical gold and silver.

More details about the Cyrus bank collapse are starting to emerge, Eric, and it is not a pretty picture.  Depositors in those banks are going to lose a lot of money.  At Laiki Bank, which was the second biggest in Cyprus, the confiscation of depositor money went from 9.95% to what officials are now saying will be 80%.  

Depositors with over 100,000 euros in the Bank of Cyprus, that country's largest bank, are being told to expect to lose 50% of their money, and what they don't lose will be tied up for months with the capital controls imposed by the EU to prevent what money is left in the banks from being withdrawn. 

What the media is not reporting is that this money is being taken from depositors in order to repay the European Central Bank.  The numbers are difficult to pin down, but apparently 15 billion euros of deposits were wired out of Cypriot banks in the weeks leading up to the bank holiday.  

These withdrawals are now being studied by Cyprus's Parliamentary Ethics Committee.  They are also studying allegations that several Cypriot companies tied to politicians had millions of euros in loans written off by the Cypriot banks so that they would not need to be repaid. 

To remain liquid, the banks sought funding from the ECB to meet this drain on deposits, and now the ECB wants its money back.  So the oligarchs in Brussels are taking it from the remaining depositors in the Cypriot banks.  The conclusion is that banks are dangerous to your wealth.

It is important to note that the ECB could have avoided this mess by simply printing up several billion euros and giving it to the banks, in effect sweeping the mess under the rug.  Instead, the eurocrats decided to play hardball.  One has to ask why.

The reason for this is because they are getting ready for bigger bank failures.  The Dutch EU minister said taking depositor money is going to be the template throughout the EU, which should send shivers up the spine of everyone, whether or not they have money on deposit in a bank.

As if that were not enough, this Friday, Argentina is probably going to default on billions of dollars it owes banks.  When this year began, I was saying that we will a see another Lehman-type collapse in 2013.  Cyprus is the tremor, but the real earthquake isn't far away.

© 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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Eric King

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