With the unprecedented — and frankly brazen — attack on property rights that is at the core of the bailout of the Cyprus banking system there should be little surprise in the response by the gold market which saw it open $15 dollars higher in Sydney trading.  The capping began right after that as the need for those trapped short to keep the metals under control until the COMEX open in the morning is an imperative to allow the record hedge fund short position to be bled off at something close to reasonable prices.

Gold opened at $1605 along with Silver opening at $29.10.  The Euro is struggling to hang onto $1.29.

If Asian and early European action keeps prices above $1600 we will see significant short covering tomorrow and will leave $1600 behind until $1620 comes into view.

Silver has a tougher row to hoe, $29.10 is initial resistance and then $29.45.

The idea that this turn of events is in any way bearish for gold is crazy.  Nothing creates more fear than instability of deposits.  It happened with the hit on MF Global.  After that, a lot of professionals simply left that market.  I’m sure that was part of the design.  Thinner markets are easier to manipulate.

So, as this plays out the repercussions from the taking of people’s deposits in Cyprus will have long-ranging effects, the same as the undermining of the clearinghouse mechanism has had in the wake of MF Global.    Capital will flee markets where it is treated badly and more of it will move East because of this.