Good Morning: Gold prices soared again Tuesday May 09, in a stunning display of strength, as it cruised through $700 in much the way we thought it might, culminating in a near Limit Up move for the first time in almost 26 years. Meanwhile, December 2010 Gold potentially may have set the all time highest price for Gold ever recorded, taking out the previous extreme record of $875 and closing at $888. And in doing so, delivered in record time on our prediction of some weeks back that we would soon hit all time record highs in Gold in the forward months and not too long thereafter and most probably within a year set new all time record highs above $875 in the current or spot month.

 

1. As we stated yesterday and on numerous previous occasions, the sheer power of the trend in a multi-decade breakout is truly stunning.

 

2. The alleged 10,000 ton short position in Gold, that must be increasingly bankrupting its holders and may be behind the latest big spike.

 

3. The growing Demand vs Supply deficit potentially already as much as 1,500 tons per year is unsustainable and yet slated to get worse.

 

4. The fact that the World really is running out of Gold. Many of the big mines are in serious decline and there is only 12 years supply left.

 

5. The Triple scenario or troika of the US Trade Deficit, War Deficit and Domestic Deficits all of which are unsustainable threaten the dollar.

 

6. The Triple War Scenario A three front asymmetric war in Afghanistan Iraq and possibly Iran with the prospect of a destabilized Pakistan.

 

7. A preemptive strike by Iran on Israel or vice-versa could send Gold prices soaring $100 overnight as could instability in Pakistan or India.

 

8. Nuclear proliferation and the threat of Nuclear Terrorism, domestic terrorism and the growing length of time since 911 bode plus for Gold.

 

9. $800 Billion going on one Trillion in War and defense costs and the prospect of fighting a three front war are really behind Gold's soaring.

 

10. Degradation and decline of Global Currencies led by the rapidly weakening Dollar and high Oil prices with massive inflationary impacts.

 

The US Dollar has been precipitously week, while US Treasury prices have been soaring. This is a dangerous developing scenario, as it is what everyone has been fearing might happen over the past 10 years or so and now it is finally happening. What does this mean? It means that all the money from China, Japan, the Middle East and Russia and all the other cash rich nations of the World that have been pouring their money into US Treasuries to take advantage of a strengthening Dollar, while it worked for a while, with the double whammy of rising bond prices and a rising dollar, has now reversed to reflect the dramatic synchronization and combination of falling bond prices and the US Dollar and this is being compounded by a mass exodus of funds from the US, which is bound to impact, what has up until recently been an economy awash with money and liquidity. Should and if this becomes increasingly severe, it like the soaring Gold, could be preempting another long term capital debacle of sorts or some sort of potential financial meltdown, as characteristically, when prices remain in a range for years as in the case of Bonds or for decades as in the case of Gold and Silver, traders and investors become accustomed to such flat trends and develop sophisticated option models for profiting from such activities, until they suddenly go badly wrong and get caught in a big short squeeze, not unlike what is now going on in Gold and Silver and on the downside in Bonds, what may be killing global investors.

 

What also tends to happen in the kind of runaway bull market in Gold as is now happening, is traders and investors short more Gold and Silver all the way up, thinking they have 'picked the top' of this now amazing run. Some $200 higher, since some commentators said Gold would not hold over $500 for long, are already out $200 and may be out of business if they haven't covered. This is essentially exactly what happened in 1979 ~ 1980, when many traders and investors called the top way too early. This time, given the strength in Platinum which set new all time record highs again yesterday and the fact that the World is running out of Gold, we expect prices to remain firm and trade in a new high range once the uptrend has exhausted itself and we fully expect that consolidation will in time work off recent excesses until such time as Gold and Silver are poised for their next major run higher which we believe will be towards $1,100 and $25 ~ $75 respectively.

 

Notwithstanding the fact that we have pulled back a little on Gold this morning, Gold, Silver and many other markets often have trouble in and around major milestone numbers such as $500, $600 and $700 for Gold, so the possibility of an interim top in Gold cannot logically be discounted, however should Gold in the short to intermediate term surge higher, then it would be very bullish indeed as in all likelihood, the Silver market would also surge to new highs and should that happen, it might send Silver prices to $18 plus or even past $20. One reason, why it might be unwise to count Gold out too quickly, is, with the kind of momentum behind this market, a 1980 type blowoff is possible...

 

As we have stated on many an occasion: This is not your father's Bull Market in Gold. This Greatest Bull Market Ever has only just begun.

 

Trade Well

From the Desk of Savant

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