Back on Feb 17th, a friend emailed me wondering if the pullback in gold that had started then was the significant (albeit short term) pull back that I had been suggesting via emails to friends and family for several quarters eventually would come about.  Instead of responding to him directly, I sent the following email to my friends and family list.  I think now is a good time to share it on my blog.  The full text of that email is below and then some analysis from today follows.

~~~~~~~~~~~~~~~~~~~~~~~ Start of friends and family email~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Wow, gold is $1610, is this the pullback you predicted?

xxxxxxxxx

Hey xxxxxxxx,

As you know, the whims of the herd are impossible to predict. This is why I don’t advise market timing. But if you want my EW based model opinion which is, of course, for the purposes of financial entertainment only, I think the last peak was the end of a 3^rd wave. Means we should see a 4^th and then a 5^th before the big pullback.

Triangles are supposed to always be penultimate waves (4^th waves if we are talking about impulse waves, B waves if we are talking about corrective waves). We just saw a triangle bring us back to a line that is parallel with the line between the peaks of waves 1 and 3. This is textbook EW. Then we broke out of the triangle. Now the market (the herd) has to decide if we…:
1. …just saw the entire 5^th wave transpire with the peak to $175 on the GLD ETF chard. This is possible, would be called a so called “failed 5^th”. Failed 5^th waves are a sign of weakness and the basis of the declining double top that I like to call “owl ears”. It could lead to a dramatic decline. If this breaks below the low of the 4^th wave, EW computers that assume failed 5^th will assume that we have an a-b-c decline to at least 38.2, perhaps 50 and possibly 61.8 fib. Those levels are marked on the chart below. OR:
2. …just saw wave 1 of the final 5^th wave has just completed and this is only a “vee” pullback into wave 2 of 5 that will rebound dramatically into a 3^rd wave upward that leads to an all-time high. This possibility will be negated under EW rules if the suspected wave 2 goes below the starting point for it (i.e. around 150 in the chart below).

In either scenario, sellers will pile on if the GLD price goes below 150. Keep in mind that right now, the vast majority of the gold market is fake. It’s all paper trading with very little real gold changing hands. That means gold will be volatile like any other paper assets until the paper scheme finally dies, probably as a result of the collapse of the COMEX due to failure to deliver gold when gamblers demand it instead of settling in dollars. As long as there is a paper market for gold, it is open to government manipulation based on very high leverage. That means that true market driving fundamentals can be obscured/overpowered for a time. As soon as the paper market for gold collapses, which probably only can happen in conjunction with some major political and social upheaval, gold will skyrocket far beyond what anyone thinks is possible. The more they manipulate it down with paper contracts and derivatives, the higher it will skyrocket when the paper scam collapses.

If you are intent on trying to time the market, which again I think is not for most people, wait to see what happen with the required support at $150 on GLD. If it cannot hold, lower prices are expected. When those lower prices come, China will be accumulating along with other foreign governments looking to get out from underneath the economic tyranny of the fraudulent USD. So all of this manipulation of gold prices sows the seeds and accelerates the growth of the destruction of the status quo.

~~~~~~~~~~~~~~~~~~~~~~~ End of friends and family email ~~~~~~~~~~~~~~~~~~~~~~~~~~

Fast forward to today. 

The Internet is full of increasingly dire news about the state of the collapsing Euroscam.  The most recent tidbit is that the powerful members of the con (Germany) want the weaker ones to sell their gold to pay their debt even though such sales will not even think about putting a dent in their bill given the low price of gold relative to paper obligations that exist.  Enter the Cypridiots.   The rumor is that they will sell their (somewhat tiny) stock of gold in order to pay their debts.  While Cyprus doesn't have much gold, the fear is that success in pressuring Cyprus into such a ridiculous move would force other weaker players to throw their gold away at cheap prices as well and that the result of all this sudden selling will crater the gold price.  Here is a snippet from this article to that effect: "The price of gold fell to its lowest level in more than 18 months on Friday night amid fears that sales of the precious metal forced on Cyprus by its desperate financial plight would lead to wholesale dumping by hard-pressed countries in the coming months."

Well, let me say a few things about that.  Cypridiot leaders may indeed sell their people down the economic river in order to stay in power a few months longer.  But they better be careful because hyperinflation is an ugly thing and since selling their gold will come nowhere near being able to pay off their debts, Cyprus will eventually leave the EU by hook or by crook.  When they do leave, they will need their gold to back their historical money, the Cyprus Pound.  Without that backing, hyperinflation is assured .  I wonder what those "leaders" will be thinking when the angry crowd finally figures out how it got screwed by these con men.  I wonder how many public executions, Qaddafi style, that we will see as a result.  History should serve as fair warning to rogue leaders who are in league with foreign powers: the people will not be kind to you.  Not kind at all.

In any case, there are a lot of people playing every paper market that exists and they are doing it on high leverage.  Afraid of their margin risk and upon hearing this news, some of them have decided to take some paper leverage off the table.  As a result, the paper price of gold and silver are getting whacked.  A quick look at the GLD chart (which is of course a paper gold trading fund) shows that technical support has been broken.  The chances for a further pullback are quite high in the face of all of this.

Per my original email, I think that GLD's Elliott wave chart has now revealed itself: that the last peak was actually a failed 5th wave.  That means the next action should be a good sized a-b-c type pullback.  It could also be that this is all part of an ongoing a-b-c pullback from the 3rd wave peak in mid 2011.  That would be unusual because it's all happening outside of the prior channel but it would not be the first time I've seen it.  The support could happen at the 38.2 fib as circled in orange or it could take a 61.8% retrace as shown in the orange oblong.  But either way I think it has to be seen as a short term buying opportunity and not a reason to sell.

Remember, only an idiot thinks gold is an investment which they can effectively trade on a weekly or monthly basis.  Gold is a form of long term retirement savings. You don't go sell your retirement home each time the property value take a plunge, do you?  When things eventually settle out the old "golden rule" will apply: He who has the gold makes the rules.

Also, look at the fundamentals.  The fake paper money system of the world is collapsing left and right.  At the end of the day we will all default Argentina style like the old guard from Portugal is now saying about Portugal.  We will be damned lucky if the con men running the show don't take us all to war over it when in fact that would only be a ploy for them to retain power while we the citizens of the Earth get to die on the battlefield over it.  

Any funny money loaned has already been lost.  Their paper based accounts are just accountings of the fraud.  Meanwhile, normal people seem to be paying full price for retail amounts of silver coins.  Check out this recently ended EBay auction:

As you can see, today 2 coins went for $33.83 each, shipped.  Meanwhile, spot silver is trading at $25.79.  One might think that spot silver dropped so rapidly that the bidders on this auction bid early and got "caught" by the move in metal price.  Well perhaps it is true but if so, then why were they still bidding the metal up today into the close of the auction?

Perhaps people are figuring out that the spot metals price is a paper price, not a delivered metals price.   Oh sure, if you buy wholesale levels of metals then the spot price has certainly lowered your buy cost of the real metal but how long will it take to get delivered?  There is also the increasing risk of failure to deliver.

I promise you that one day they will stop delivering the physical metal, declare Force MajEUre  ;  ) and send you your money back due to insufficient metal stock in hand.  They will only do that probably after having held onto your money for a long time leaving you without access to it.  See my earlier posts on metals depletion at the COMEX.  

The smart money will be buying metal and taking delivery on it at these artificially lower prices as long idiots are willing to sell it here because anyone with a brain knows that the paper money system in place on this planet is swirling the toilet bowl.  There is no such thing as limited default!  Once Portugal and Spain throw in the towel instead of trying jump through hoops for more rollover loans at usurious terms in order to avoid default, the truth will spread like wildfire that the whole damned system is bankrupt.

Here is the bottom line truth of it: gold is money and nothing else is.  If debts were made in funny money then they should be paid back using funny money or defaulted on.  Paying off inflated funny money debts using real money like gold (OK silver too) is analogous to being taken as a slave in an on-line fantasy war game and then having that be used as the basis for you to sign yourself over as a slave to the other player in real life.   You don't repay a loan of fake labor with real labor.  You don't repay a loan of rotten cabbage made to you when you are starving with a kingly feast as soon as you have two nickels to rub together.

Like a fantasy game, fiat currency might seem real but only to those all caught up in it.   But the creators of the game, they know what is real life and what is fantasy.  They want us to live in a fantasy world while they enjoy real life.  There is no possible way that the entire gold reserve of the US is only worth ~$385 billion but that is today's market price of it if you go by $1475 per T. Oz.   How can that make any sense at all when our national debt is over $16 trillion and unfunded liabilities are many multiples of that?  The answer is simple and clear: the dollar is a promise to pay NOTHING.  It is a con by the elite.  They play it boldly, right in front of our noses.  We used to have this.  Now we have this.  The latter is just like the former but without the promise to pay anything.  Technology might have changed a lot of things on this planet but it has not changed math and it has not changed human nature.  The human nature of the elite is to use math and logic as weapons against the people in order to steal their labor.

Smart people will just let the games play out and continue to accumulate gold and silver in the sure and certain knowledge that the entire global economic system is now in the collapse phase of a debt Ponzi of historical magnitude and that paper money that is unbacked by anything at all will some day be understood to be completely worthless.  Don't ask me when it will happen, that is a childish question akin to asking "are we there yet" from the back seat as daddy drives to the vacation home.  Simply know that we will get there even if it takes longer than some people have patience for.  The math, logic and history of this situation will afford no other final outcome.