May 3, 2006
Ben, Maria, and the makings of a precious metals panic
By Brady Willett

He Said

If he says he didn’t think that his comments were on the record he looks like a schmuck.  If he acknowledges that he is ‘worried’ that traders ‘misunderstood’ his latest testimony he looks like an even bigger schmuck. In short, Fed Chairman Bernanke, a mere three months into the job, is going to have to chalk up his first ‘rookie mistake’ as a learning experience.  Fortunately his remarks didn’t roil the financial markets for more than a few moments, although his credibility has been taken down a peg.

She Said

Covering Mr. Bernanke’s comments was CNBC’s Maria Bartiromo (of “Use the News: How to Separate the Noise from the Investment Nuggets…” fame ~ available while supplies last for a penny). Not one to shy away from the spotlight, Bartiromo appeared on Kudlow & Company last night and claimed “in his [Bernanke’s] heart, I did him a favor.”  Apparently Mr. Bernanke and his staff work tirelessly to craft well thought out speeches so that after the speech is delivered, and while slopping down a few drinks with friends, Bernanke can convey his up to the second monetary policy opinions to the ‘money honey’.

He Used To Say?

Unlike the Dixie Chicks, Mr. Roach is ready to play nice - this after seven years of playing the heavy.  Roach was calling the US housing market a bubble in 2001, more than five years ago he warned “Over the next several years, the personal saving rate must go up”, and in 2002 he climbed aboard the unsustainable current-account deficit train (or when the US CAD was around 4% versus GDP). Given that each of these threats/imbalances has grown increasingly ominous, I am sure that if you met him at a party Roach would tell you that his latest comments were misunderstood.

Does Anybody Hear?

Following Russia, Argentina, and Venezuela (to name three), Sweden recently became the latest central bank to reduce its dollar reserves.  Along with central bank diversification away from USD, there is the growing threat that ‘petrodollars’ will start trading in euros, that precious metals will, or already have returned as being the safest of havens, and that American policy makers are actually for a falling greenback. As the world embarks upon the painful practice of ridding their mattresses of US dollars, it is with surprise that Castro’s actions have received the strongest response from America to date.  Greenspan used to have a plaque sitting on his desk that read ‘the buck starts here’. Perhaps Bernanke’s reads ‘the buck ends here’?
Trees at risk of falling

From COT week to COT week the price of gold is up by 4.75%.  This is the strongest weekly performance since November 22, 2005. Back in November the gold commercials aggressively padded their short position in an attempt to hold gold below $500 an ounce. Today $700 an ounce is beginning to look like a forgone conclusion as the commercials reluctantly admit their defeat.

Silver jumped 11.67% last week for its strongest weekly (COT) rally since February 15, 2005. In February 2005 the silver commercials responded to surging silver by adding to their short position for four consecutive weeks.  Today the silver commercials have covered their shorts in each of the last three weeks.

That the commercials are net short (futures & options) 16.9 million ounces of gold and more than 300 million ounces of silver as precious metals price soar is big news.  And like all important nuggets of news it is left uncovered by a media interested in sound bites and rumors.

Is the precious metals bull really about to start spitting out the carcasses of the evil commercial manipulators?  Just so there is no misunderstanding: It all depends on the dollar…