In at press time and a good way to end the week from Mexico Mike...

Hi Bill!
The severity of the raid launched on gold and silver has been extreme but there are other factors at play that contribute to the weakness for the sector. Along with the tax loss selling this week, there is a December stock options expiry that I am sure has contributed to the short-a-thon for the mining stocks. For example, note how SLW was held below the round number of $30 late this week... The bottom line for me is that even though many of the miners have reported breakout years in terms of production, cash flow, and earnings, these stocks as a group have been hammered.

I know many people pin the 'high risk' warning on this sector. And I know there is a loud assortment of clueless analysts that advise against owning the mining stocks. But I still find it odd that these stocks are among the hardest hit in the financial crisis during the last few weeks. Some people attribute this to the fact that the miners were big winners in the last year or two and therefore they are first stocks to go when investors need to raise cash. I disagree. I think we have seen three distinct, severe selloffs in this sector during 2011. How many times can the same investors sellout their mining stocks?

Lets also keep in mind that mining stocks amount to a tiny fraction of the overall market. Collectively they would not generate a great amount of cash in a liquidity crisis. And the same goes for gold. Sure there has been extensive leasing and then selling of gold bullion and that has contributed to the downdraft in the spot market. But the total dollar value of that gold is a fraction of the amount of money being pumped into the system on a daily basis. Do rational people really think that selling has anything whatsoever to do with raising cash? Gimme a break..

The old fashioned explanation seems far more likely to me: This is a raid that has been timed and structured to ensure that in-the-money option holders are screwed, and to discourage participants from taking delivery. The selloff in the mining stocks is colateral damage and opportunistic shorting to follow up on the usual gang rape of the metals. Period.

Yes, there are other factors at work. Margin call selling is part of the story for sure after a meltdown event in just a few days of trading. But I do not see anything different about this takedown from the others. And the bozos that are filling the airwaves with the bearish chatter have played the same card in 2008 for the most part. They were spectacularly wrong then, and will be wrong again.

Now for another bit of evidence that at is well, just phone up your local bullion dealer and see how much stock they have in their stores, and at what price. I tried a few shops that I have dealt with before and learned the premium on silver bullion is running about $4 an ounce. I have also heard that very little bullion is coming back to market from retail sellers, and this is also confirmed by the premiums bullion shops are willing to pay, above spot to buy back silver bullion. If there was indeed a selloff of bullion, as some analysts have suggested, you would not find that bullion shops are willing to pay a premium to get it.

One final comment, if the spot price remains under pressure next week, and physical bullion sales remain brisk, that should stand up as yet another piece of evidence that investors are fleeing the corrupt COMEX and rolling their money to hold real bullion. Sure the lack of a paper market is going to hurt in the short term, but the drawdown of physical bullion inventory will trigger a strong rebound in the price of the metals shortly thereafter. And having fewer players on board willing to be screwed time and again by the COMEX crooks will just make it that much harder for them to raid the market next month.

I would also like to wish a Merry Christmas to all of the GATA army worldwide. I know its considered by some to be a thought crime these days if you dare to utter the word 'Christmas' but I trust people will understand. I just returned from a week in Asia and I am pleased to report that even in some countries where only a tiny minority of people celebrate Christmas, there were bright decorations in the hotels and no one seemed to mind. How odd that in some christian nations it has now become frowned on that someone may share some Christmas good wishes...

Better times are coming in 2012.
Cheers!
MexicoMike