A bloodbath is believed to be imminent in the silver market, now that its cheerleaders have herded their flocks into the corral, ready to be fleeced again.

In the last update posted early last week, we expressed the view that an intermediate top was forming in gold and silver, a view that is reinforced further by the inability of both metals to break higher later in the week, and the now towering Commercial short position in silver as revealed by the latest COTs.

On its 6-month chart we can see how silver has continued to track sideways beneath a resistance level approaching $35. It had a go at breaking out upside on Thursday when the dollar apparently broke down, but failed, and weakened again on Friday. If we look carefully at this chart we can see that, following failure of the steep uptrend that began in the middle of August, a potential Double Top is completing beneath this resistance that portends a drop, and we have already observed several bearish candlesticks with long upper shadows developing beneath the resistance, which is a big reason why we turned bearish. Failure of the support level shown, which is probably imminent, can be expected to lead to a brutal plunge.

…..read more and view 3 more charts HERE

(Ed Note: Clive Maund’s latest on Gold including the powerful line “Commercials now have massive short positions in gold and immense short positions in silver” )

Gold Price Set for Sharp Drop, Opportunity to Go Short

by Clive Maund

It has been widely assumed across the markets that the forces of deflation have been vanquished by the Fed’s making it plain a couple of weeks ago that it is going to throw all of its firepower into the battle to defeat it. So let’s make this as clear as possible – the forces of deflation will not be defeated by anything until they done their work of expunging the massive overhang of debt from the system. The Fed’s latest stated policy is merely a display of desperation and a symptom of intellectual bankruptcy in that they seem to think that more of what created the problems in the first place is now going to somehow fix them. We are going into a depression anyway, and they have made it plain that for good measure they are going to destroy the currency into the bargain. In reality, all they are trying to do is buy as much time as possible – they know they are cornered and that the system is doomed and procrastination is all that is left to them.

Anticipation of the QE to eternity proclamation by the Fed drove the dollar down steeply, and simultaneously drove the Precious Metals higher. After the announcement was made the dollar crept higher as the dollar unfriendly news was then all priced in and it was oversold and entitled to a relief rally, and at the same time the Precious Metals trod water, moving sideways.

Right now the belief is widespread that the dollar has just completed a “bear Flag” and that another vicious downleg is starting, which will synchronize with a big rally in the Precious Metals, that many investors have positioned themselves for, but we are instead seeing important and compelling evidence that before the dollar continues much lower it will first stage a significant countertrend rally that will trigger a fairly short but possibly brutal selloff in Precious Metals markets, and if another deflationary scare should occur at some point despite the QE largesse, any such rally could be amplified by a Pavlovian flight into US debt and thus into the dollar. Let’s now review this evidence.

Our 3-year chart for the dollar index shows that there is now a quite high degree of “compression” – it has dropped a considerable distance below a still flat 200-day moving average to become oversold. The tendency to proportion in markets points to a rally of the kind projected on this chart, to complete the Right Shoulder of a large Head-and-Shoulders top. Why, fundamentally, might it do this? – here’s one very good reason; right now sentiment towards the dollar is awful, it is at negative extremes with only about 7% confident of a dollar rally. That kind of extreme just by itself is enough to generate a rally, if only because there’s virtually no-one left to turn bearish. Another good reason is that upon the Fed’s QE announcement the dollar was broadly written off as “toast”, with those doing the writing off temporarily forgetting that many other countries have plenty of reasons of their own to debase their currencies, not least Europe, which pipped the Fed at the post when the German court members, dressed in fancy red finery, and perhaps feeling the nozzle of a gun at their backs, cleared the way the day before the Fed’s revelations for massive European QE. So as the various fiat currencies jockey for position in the race to the bottom, the heat could come off the dollar for a while, with the worst news regarding it now in the public domain.

….read more & view 5 more Clive Maund charts HERE

Bill Gross, the head of PIMCO, the world’s largest bond manager, has published a jeremiad (see below) that makes my “Boomergeddon” thesis look Pollyanna-ish by comparison. To avoid an economic meltdown, says the money mogul, the United States needs to close its fiscal gap by $1.6 trillion, equivalent to 11% of the GDP. In my book, I anticipated the need to close the budget gap by a measly $1 trillion — and found the task to be so daunting as to be almost impossible.

My thought in trimming spending and/or raising revenues by $1 trillion a year was to create a U.S. budget surplus over the course of a normal economic cycle, factoring in modest surpluses during boom years and modest deficits during recessions. But Gross looks beyond the current business cycle, emphasizing crushing long-term obligations to Social Security, Medicare and other entitlements that are only beginning to kick in and will become more onerous in the decades ahead. Scarily, in his most recent essay, he doesn’t even mention the debilitating burden of paying interest on a national debt that recently passed $16 trillion and is growing relentlessly higher.

Looking at the fiscal balance sheets of the world’s major economies (as well as Greece for a point of comparison), Gross shows the U.S. in a fiscal “ring of fire” in the company of the United Kingdom and Japan. As seen in the chart above, the current deficits of all three countries are as high as Greece’s and their structural (long-term) fiscal gaps are larger.

Armageddon is not “around the corner,” Gross opines, but he does see the possibility of a “fiscal train wreck over the next decade.” It is often said that the U.S. is the cleanest of the dirty shirts, implying that we have less to fear than others do. Gross disagrees. “When it comes to debt and to the prospects for future debt, the U.S. is no ‘clean dirty shirt.’ The U.S., in fact, is a serial offender, an addict whose habit extends beyond weed or cocaine and who frequently pleasures itself with budgetary crystal meth. Uncle Sam’s habit … will be a hard (and dangerous) one to break.”

…..read the Writer’s bottom line HERE

Bill Gross, the Ring of Fire, and Gold Prices

Deborah Baratz via Money Morning

That’s because Gross, the Pacific Investment Management Co. (PIMCO) founder and co-chief investment officer, released his October 2012 investment outlook Tuesday that came with a warning for the U.S. and investors. 

Gross said that U.S. fiscal problems have put the country in a “Ring of Fire” that’ll burn investors if they aren’t protected by gold and real assets. 

Gross warned that recent studies have concluded that “[T]he U.S. balance sheet, its deficit and its “fiscal gap’ is in flames and that its fire department is apparently asleep at the station house.” 

……read more HERE

Damages

(The Ring of Fire of Essay by Bill Gross)

– The U.S. has federal debt/GDP less than 100%, Aaa/AA+ credit ratings, and the benefit of being the world’s reserve currency.

– Studies by the CBO, IMF and BIS (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. 

– Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow, and the dollar would inevitably decline.

…..read Bill Gross’s The Ring of Fire  HERE