The Evil Empire Forces Cyprus to Sell Its 40 Tons of Gold

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Citibank Calls North Korea the Greatest Geopolitical Threat and Risk – Central Bankers Pledge Continued QE and Silver Rallies Hard – Silver Speculators Turn Net Short – Goldman Sachs’ New Gold Short Becomes A Self Fulfilling Prophecy – The Evil Empire Forces Cyprus to Sell Its 40 Tons of Gold.

The Evil Empire Forces Cyprus to Sell Its 40 Tons of GoldSilver embarked on a wild roller coaster ride over the week that ended Friday, April 12th. The white metal opened in spot markets at $27.21. It then rallied as high as $27.88. In the second half of the week, it plunged to close just over the critical line in the sand of $26 per ounce, at $26.02.

Silver gyrated wildly as North Korea earned a dubious honor for trouble, global Central Bankers pledged continued Quantitative Easing, silver speculators turned net short, Goldman Sachs recommended a new gold short, and the EU forced Cyprus to sell it’s 40 tons of gold.

Citibank Calls North Korea the Greatest Geopolitical Threat and Risk

After years where Iran represented the greatest threat to world peace and market stability, there is a new arch villain in the world. Citigroup Global Markets’ CitiResearch named North Korea as the greatest geopolitical risk for the year 2013. The threats from North Korea continued unabated this past week.

U.S. defense officials admitted that they are highly confident North Korea will fire off one or more medium range Musadan missiles to further inflame the situation. The U.S. Pacific Command commander testified to congress this past week that he could not think of a time where tensions were higher in the Korean Peninsula since the Korean War ended in 1953.

Besides this, there is a rising chance that North Korea will engage in more disruptive cyber attacks on U.S. and South Korean websites. It is an understatement that world leaders are showing growing alarm at the very real possibilities of an armed conflict in the Korean peninsula. In the early part of the week, this news was bullish and supportive for silver and the precious metals.

Central Bankers Pledge Continued QE and Silver Rallies Hard

At the beginning of the week, silver and gold found massive support from central bank actions and comments. Ben Bernanke came out swinging in his speech. He reiterated that the economy has significant room to improve.

Chinese government inflation data demonstrated that China’s central bank has more room to ease monetary policy. Rumors are flying that the European Central Bank will lower interest rates soon. To top it off, the Bank of Japan continued its incredible devaluation of the Japanese Yen.

Silver rallied as high as $27.88 and was up 2.7% at one point. Anyone who believes that central banks will soon back off their slap happy money printing policies is drinking the Kool-Aid. The race to the bottom that seemingly every major currency block is running was bullish for both gold and silver in the first half of the week.

Silver Speculators Turn Net Short

By mid week, the tide began to turn against silver and the precious metals. The weekly commitment of traders report (brought to you courtesy of the Commodity Futures Trading Commission) contained bad news for the white metal.

The big speculators’ category changed from net long to net short silver contracts for the first time ever in the disaggregated report that dates back to September of 2009. In the legacy report, silver’s net long position declined to its lowest level since the beginning of 2007. This represented a seismic shift in the speculators’ attitude towards silver. Prices began a sharp decline on the news.

Goldman Sachs’ New Gold Short Becomes A Self Fulfilling Prophecy

Silver is often a hostage to its big brother gold. This past week proved to be no exception. Goldman Sachs came out with both barrels of their smoking gun blazing. They announced to the world that they would short gold after having been long the yellow metal for some time.

George Gero of RBC then said that the open interest in gold had declined to the tune of around 20 percent. He claimed that all of the major asset managers of supposedly smart money had already positioned out of gold and into U.S. stocks. Gold began to plunge on these calls, and it took silver with it.

The Evil Empire Forces Cyprus to Sell Its 40 Tons of Gold

By Friday, gold had officially reached bear market territory. This means that the yellow metal had declined 20 percent from its old price highs of $1,891.90 per ounce set back in August of 2011. The final blow that took gold and silver to the mat Friday came out of Cyprus.

Speculation had abounded that Cyprus would be forced to sell its 40 tons of gold to help cover the costs of their banks’ bailout. The EU confirmed this action later in the day. Forty tons of gold is very small in a world where thousands of tons of gold are traded by central banks these days. The problem arose as analysts and speculators came to the conclusion on Friday that other fiscally troubled EU countries such as Spain, Italy, Greece, and Portugal may also be forced to sell their gold reserves.

That has yet to happen. The fear inspired the necessary terror to tip gold below its long term bull market support line in the $1,520’s per ounce. From there, gold and silver continued to fall almost to the spot market close Friday afternoon.

When the dust settled at the close, silver had declined close to five percent for the volatile week. The only silver lining in the end of week silver price action lay in the fact that the white metal managed to close above the critical $26 bull market support line.

Take Away on Silver Markets

No one can argue that silver has bled out over the past few weeks. Weak longs are beginning to run for the hills. The fundamental facts on the ground for the precious metals remain the same. As Kingsview Management’s Managing Director Philip Silverman astutely pointed out, central banks purchased more gold in 2012 than they have for the past almost fifty years.

You would not fight the Federal Reserve and its massive efforts to artificially inflate the stock market. You also would be a fool to fight central banks like those of China, Russia, India, South Korea, and Switzerland. In the end, the global central banks always have far deeper pockets than even the so-called smart money can possibly imagine.

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