As suspected from the price action and the inability of the paper shorts to break through this support, we learned that several foreign Central Banks have been very active buyers of the metals on these breaks in price. I see nothing on the horizon that would lead me to believe that anything has changed in regards to these Central Banks and their desire to acquire gold during these periodic bouts of weakness. I repeat for the sake of emphasis - Central Banks do not CHASE GOLD PRICES HIGHER - they buy when prices drop and only when prices are moving lower. It is only the brain dead hedge fund managers who are servants to their gods, the computer algorithm, who sell gold as it moves lower hoping to profit from momentum based moves.
In many markets this strategy works relatively well for them; however, gold is not just another market. It is the currency of last resort with no liabilities attached to it and certainly no connection to the Western Powers which are presiding over their own financial downfall by their insistence on papering over their structural problems.
To force some of these newer paper shorts out, we are still going to need to see gold climb ABOVE $1680 and stay there on any dips lower. That will be the signal that there are now buyers who do not mind paying up for gold.
The gold shares, as exemplified by the HUI continue getting more and more undervalued in relation to gold itself. At some point, these shares are going to be the trade of the decade. You now have to move as far back as early 2002, a FULL DECADE AGO, to find the shares at this level of valuation against an ounce of gold. Heaven help the shorts in these shares when the tide reverses - there will be no one left to sell to as they try to cover.
