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Gold closed down on Friday at $1612.25, indicating a full correction may be in effect. President Obama’s State of the Union Address did very little to change the market realities, resulting in sideways motion for silver, down to $30.18, now walking independent of gold. With the dollar strengthening and Europe indicating that it may have a fix in the works for Greece and Spain, risk-seeking investors who have traditionally favored gold ETFs are looking elsewhere, trying to find big returns in more volatile markets. Ironically, because these folks were so stocked up on paper gold, the net effect on the price was stunning, with the yellow metal recording as much as a 5% decline at one point during the week. The source of all hoopla was two whales dumping their positions in search of action in Europe. George Soros sold 55% of his positions while Louie Moore Bacon relinquished every single gold share in his portfolio. Meanwhile, physical gold holders and those long on the yellow metal will swoop in early this week to score some real deals. With the week in the U.S. potentially off to a slow start due to the President’s Day holiday, this may be just the time to get in; the bulls look poised to take off again.

With gold prices pinging around like a thought in a schizophrenic’s head, the real story this week is profit taking from gold and silver backed paper holders who are scrambling to get out of the way of the Eurozone meltdown. Gold closed down on Friday at $1,660 with silver making a lateral move closing down at $31.50. After a downgrade from Moody’s, Commerzbank in Germany announced the slashing of 6,000 full time jobs by 2016. Italy’s Unicredit is following suit with a shedding of 1,000 employees of their own. There are known issues in Asian investment banking and the “perp walks” have started for the Libor scandal. Emerging markets are trying to avoid joining in the currency battles initiated by all the quantitative easing of more advanced economies. Thailand is running a surplus, and will seek to create a “pleasant deficit” by shoring up its infrastructure to ease the pressure on its business community. Those addicted to the fast pace of burning paper are rabidly jumping from one investment vehicle to the next, trying to outpace everything from conversations on the U.S. debt ceiling to the IPO freeze in China. Those who possess gold can sit back and enjoy the show in peace. The fools are rushing out.

The historic Kumbh Mela ended in India this week; it is said that bathing near the event clears away all of ones sins. Maybe a wise man took a bath for gold and silver, with prices resurrecting and closing at $1675 and $31.50, respectively. Indians have come under increasing pressure from their own financial minister to curb their consumption of gold, but since there is not a viable Social Security system in the country, consumption is set to continue at current levels, even if taxes on the yellow metal goes up another 6%. A lot of the purchasing may even move to the black market. China has yet to surpass India in consumption of gold and is currently showing signs of an economic slowdown. Keep a close eye on India’s financial minister’s next move; nothing fuels social instability like unnecessary taxes; just ask Algeria, likely suffering from all that under-the-table gold moving between Turkey and Iran.

December 2012 was a touch-and-go month for gold, as it ended the month about $50 lower than it started. Some may be led to think that the value of the metal had tanked, at least judging from recent sensationalist headlines calling it a risk asset rather than the traditional hedge against inflation that it has served for centuries. A number of pundits have gone so far as to show the numbers behind why gold prices should be marked to oil, not the dollar. Others have begun to realize that gold has not tanked because more than Americans buy and trade the metal. Still others claim that like fiat money, gold’s value is a group hallucination.

But no one can deny one simple fact: Since 2001 – and including in 2012 – the price of gold has climbed each year over the previous.

Ranging across the marketplace, gold spent the week defying common wisdom and forcing the hands of crystal ball gazers all over the world. On Friday gold closed at $1,648, with silver walking alongside, closing down 2.8% at $29.32. These swings proved too much for paper gold, creating an illusion that the yellow metal was collapsing. Technical sell-offs caused many to scratch their heads as gold stayed above $1,600. The jobs report, a stronger dollar, and an announcement by the Fed that QE3 may end sooner than expected were used as explanation for the bearish bull. Something to watch, however, is the Indian government seeking to balance its trade deficit by raising taxes on imported gold. India is the world’s biggest buyer of gold. If these consumers are priced out of gold, what could we expect from silver? Only time will tell.

It wasn’t enough that our mysterious traders struck again last Wednesday, throwing speculators of paper gold into a frenzy, thus driving down precious metals prices for the close of the week, gold at $1696.25 and silver at 32.52. Nor was it sufficient that fiscal cliff conversations have now gone completely behind closed doors while the light is finally shining on the Libor scandal which got this entire party started to begin with. No, we still needed more news of the wild as the Tankan survey in Japan marks the country’s 5th straight year of recession, the rupee in India has strengthened a bit to ease anxiety over the price of gold, and China swears it’s not in a bubble, it’s not in a bubble. So with all this wild news and uncertainty still swirling around the domestic and global markets, coupled with sales of gold American Eagles reaching a 14 year high and the precious metals market heading for crisis due to US banks’ huge short positions in gold and silver, Egon von Greyerz proclaims, “A major short squeeze could be imminent.”

With the US elections over and maintaining the status quo for the most part, are we back to square one, or can we expect reverse motion away from the fiscal cliff? The markets didn’t think so last week, with gold closing up at $1,738 and silver at $32.16. As indicated last week by astute analysts, the election was a non-event for the markets, though it has made it clear that hedging in gold and silver is a very good idea. Have you talked to one of our precious metals specialists yet? It’s time to ready yourself for the likely paper burn as inflation picks up. You may reach us at (800) 355-2116.