Screwtape Files

Metals recap, 3/2/2012

2012-03-02T20:34:00.012-05:00

Note: This will be my last post till April as I have no time for trading this month, and could use some time off, frankly.

I love how silver traded this week. My prediction from last week calling for a net consolidation turned out to be on the money ("though this week may show a lot of volatility, my guess for the weekly close is between $34.60 and $35.60, which will be the area between the 34-week and 55-week moving averages, in a pattern similar to 2009"). Note how ho-hum the weekly chart looks after the Tuesday melt-up and the Wednesday scare:

So, first, silver *finally* hit the downward trend line connecting peaks on the log daily chart and the daily-chart of closing prices:

This of course called for a dip and perhaps a longish correction, but what happened instead was another suspicious vertical drop, such as has been happening with great regularity, often at important technical points, though in shorter and shorter intervals, since November 2010 (as per "Ranting" Andy Hoffman's astute observation). This out-of-nowhere violence downwards had even (get ready for this!) Dennis Gartman crying foul ("The market's plunge may not have been solely the result of pure market forces, but may have been the result of a very real effort to 'manipulate' the market lower"), as well as bigwigs like Jean-Marie Eveillard (First Eagle) and Cesar Bryan (Gabelli), who appeared on King World News and joined Bart Chilton (CFTC, Hair Club for Men) in legitimizing Eric King as a trustworthy news source.

Note the gold-silver ratio had been following my green dotted-line downwards before moving up a bit in the last few days:

What to expect for March? I'm thinking we'll get a weekly close on the peak-connecting downward trend line on the weekly chart soon (see first chart), before another brief correction. I'm keeping an eye on the "10-year yield in silver" chart, which bounced off the blue dotted line yet again:

The purple channel continues to be resistance, and when you throw in the "10-year yields paid in crude" chart, which just hit the bottom of the channel this week:

as I explained a while ago, it suggests interest rates are going up, since I wouldn't bet on oil getting cheap any time soon. Higher interest rates suggest to me really high silver prices in the near future. At least that's how I will continue to bet until I see the heretofore highly reliable 10-yr/silver ratio chart lose its cred.

Gold performed worse, which shouldn't be surprising, as it appeared to be the target of the massive dumping strategy I alluded to above. Well, the bastards got the weekly out of the black channel. Kudos. Note though that that happened briefly in 2008 too (see grey squares). So hard to say whether we recover quickly or retest the red dotted line at $1650 in the coming weeks.

I'd be surprised (though not shocked; nothing shocks me) to see a move below $1650 on a daily-closing basis, because I believe the red channel on the below chart established itself after the late December shenanigans (when a deep correction to the lower blue trend line looked conceivable. Note that the top of the red channel is in the stratosphere).

Alright, good luck trading friends, and see you soon.

-GM

Sunday pre-game 2/26/12

2012-02-26T17:24:00.015-05:00

I've heard it said that technical analysis isn't rocket science. I tend to agree. I liken it more to particle physics or quantum chemistry. As we know from the ninth and tenth laws of thermodynamics, the entropy of the universe is always increasing. George W. Bush eloquently captured a corollary of this concept in 2001 when he said "God has planted in every heart the desire to live in freedom." In fact, Bush was just a few equations short of independently discovering the Uncertainty Principle, which Werner Heisenberg came up with while studying Doji candlestick patterns of Volkswagen stock during the Weimar hyperinflation. Hesienberg's conclusion (my rough translation is from the original German) was: "Just as particles act to maximize their positional ambiguity at all times, so do prices on charts."

Once silver broke the top long-term blue trend line on Thursday, it ambiguously moved right below it on Friday, matching its high from last October, and thereby maximizing its freedom of interpretation to sustain hope in both bulls and bears. (Incidentally, this is why crossing points of two or three trend lines seem to exert such strong pull on prices; the maximal number of interpretations is kept in play for the longest time possible. It's physics...).

I'm going to make the bullish case here. First, we're still smack in the middle of the steep green 2012 channel on the above chart, so $34.50 should be a fairly robust first line of support this week. Now, as I mentioned a few weeks ago in explaining my bullishness, I think the lower blue trend lines (the dark blue line which completes the downwards channel, and the light blue line which completes the falling wedge) are no longer realistically in play; I don't think silver can be pushed below $25 in the case of the wedge, and below $19 for the channel. Given that these formations are now obsolete, in a sense, the silver chart has "given away" its hand. I suppose the red horizontal line at $26.50 is not yet out of the question (especially with JPM shorting like there's literally no tomorrow).

So lets look for more evidence to make our case. On the linear chart of closing prices, we see that the red line extending from the lows preceding silver's August 2010 explosion and connecting the December 2011 lowpoint creates a massive wedge and approaches $28.75, well above $26 and the other bearish lines on the previous chart. Moreover, in weeks past, I have drawn other horizontal levels of strong support that will each be difficult to break. So, in short, while of course nothing can be ruled out in markets (especially corrupt markets), I think the top blue trend line is due to be broken reasonably soon.

That said, I doubt it will happen this week. On the weekly chart, note that silver finally crossed the 34-week MA for the first time since September and stalled at the 55-week -- in similar weekly action to the last time the two MAs had completely crossed (see red boxes and arrows). So, though this week may show a lot of volatility, my guess for the weekly close is between $34.60 and $35.60, which will be the area between the 34-week and 55-week moving averages, in a pattern similar to 2009. Note that the grey zone on this chart also shows a stable floor at $30.

Here's an old long-term daily chart (now colorized) that I stopped posting last November, when it looked like the long-term green trend channel had been decisively broken. Au contraire. Silver has valiantly made its way back in there, such that $34.60 should be initial support with $32.80-$33 (in the green zone) even stronger this week.

Finally, the weekly "10-year yields measured in silver" chart argues against any major waterfall sell-off. It shows a lot of room for upside in silver (i.e. downside for the ratio, which bounced off the top of the purple channel again last week before falling almost 8%, still hovering near the top).

Gold just finished a really important week. Whereas the week before, we had ended right on the lower black trend line, so that a further decline would've been quite bearish (short term, anyway), three weeks of consolidation proved enough, and this week gold shot up a good $60. How much gold goes up or down in the next two weeks doesn't really matter so much as that its weekly finishes remain in the black trend channel (>$1755 this week). Of course, ceteris paribus, the greater distance gold creates from the black line, the more bullish the chart looks, and a visit to the center becomes more and more imminent (while the late 2011 tanking will look more and more anomalous, like the big correction proved to be in late 2008). The backdrop is of course the G20 meeting where our noble leaders will continue trying to hold the corrupt banking system together with duct-tape and string. Does anyone really think they don't care about the price of gold?

Finally the HUI looks poised to attack the top white line. In fact, it's behaving exactly as I predicted three weeks ago, which drove me to take profits Thursday, since whenever a plan seems to be working too well, I know it will invariably crash and burn (it's physics).

Silver alert

2012-02-23T12:35:00.006-05:00

UPDATE: I revised this (rushed) post and added a chart.

Silver is right at its long-term trend line. Some lightening up might be in order to see what happens next. Pay attention to the closing price, which has not yet broken the long-term trend line (see second chart).

Until the blue downward wedge (or flag, or pennant) on both charts is broken decisively to the upside, the lower trend lines are still in play and will still exert some pull.

Gold at $32,000 in three years?

2012-02-20T10:31:00.007-05:00

Never let it be said that Jeanne d'Arc doesn't publish anything bullish. Not convinced? Well how about gold reaching $32,000 by 2015? How do you like them apples, eh?

Still not convinced? Well, then read on, my little chuckie egg...

Sadly we're not the first to report on this - friend of Screwtape, Bron Suchecki, got the scoop here, but only because he has a time zone advantage over the rest of us, I'm sure... ;-)

Well known chartist Nick Laird, who provides a lot of the charts for Ed Steer at Casey Research has been following the gold market for at least as long as there's been an interweb. He has used and talked quite a bit about Elliott Wave Theory, which is a not entirely uncontroversial method of linking investor and broader social psychology to market trends (and sometimes vice versa), often over decades-long periods. Elliott Wave Theory has had some notable successes and failures, and has its fair share of proponents and detractors.

It will not surprise you that I'm something of a non-believer in EWT, although the more ungenerous amongst you would probably submit that I am a non-believer about most things. I attribute this peculiar state of mind of mine to long periods spent in GM Jenkins' coal cellar whilst being forced to reflect on 'the kind of person you are, Jeanne, and the kind of person you think you might like to be'. But I digress. The fact is that for better or worse, EWT has very much a firm hold in many investors' minds, and for that fact alone it is to be discounted out of hand at one's peril.

Nick Laird has just produced what he describes in true Aussie style as something of a 'ripper'. More to the point, he is hopeful that it will serve as 'a roadmap which gold may take as it climbs to new highs'. Here's the chart, followed by Nick's explanation in his own words:

The first two uplegs (the blue line) generate (through the formulae) the future uplegs (the red line) as the price heads to its peak at W5(5). The time, price and percentage of each leg up and down are shown on the edge of the chart. So, having left W4(A) behind, for the next 16 months we are heading up to W4(B).

The presumption is that the blue line (actual gold price) will stay above the red line for the first half of the next up-leg, falling to below the red line for the second half of the upleg and rising steeply into the peak of W4(B) as gold likes to do.

Perhaps gold's final top is W4(D) or W5(1) or higher. Perhaps the timing won't play out right, but this presumably will be something close to the shape of gold's rise over the next few years.

Exciting stuff for gold holders. It's not really for me to comment on whether or not I think this will or won't happen, as all things are possible, and I lack even the basic cursory details of EWT that I would need to go head-to-head with a real expert on charting (and, despite his modesty, on EWT) like Nick.

However, I can, I think, bring myself to point out the obvious. If $32,000 gold in 2015 were to come to pass then it would essentially accompany a devaluation of the dollar so quick, and so hard, that it would make your nose bleed.

This chart is not just a roadmap for price acceleration in gold. It is essentially the road map for the disintegration of an empire, the ruin of the world's reserve currency, and a time of fear not seen since Europe in the late 'thirties. For that reason, if no other, then even though I own gold myself and would like to make a bob or two out of it, I hope that Nick is wrong. I hope that he is very, very wrong.

Sunday pre-game 2/19

2012-02-19T18:54:00.011-05:00

I only have time for a quick post this weekend, as I have company. Not much happened last week.

In gold, we've now closed 4 weeks on or above the lower trend line of the black channel. Looks to me like gold wants to try $1920 again, at the center of the channel. But because the third try at that level will probably break through resistance, leading to > $2000 gold, my guess is that this sideways trading in both metals is indeed active price suppression by those who feel threatened by such an event, and (perhaps especially) the media attention that would ensue. However, note that if gold drops say 5% from here, that would begin the last part of a major inverse head and shoulders pattern (perhaps even more so in silver) that would probably get the technical funds going strong long.

On the weekly silver chart, the last four weeks have drawn an almost straight horizontal line. That to me reflects strong hands unwilling to give up their positions. I've boxed the last time silver traded so flat for 4 weeks on the weekly chart. Note it was right before a moderate move higher, followed by a four-month consolidation, culminating with the August 2010 explosion to $30, then $50.

On the daily chart, we finally touched the green line that I had patiently been waiting for (or close enough for me).

Finally, the same HUI index chart as last week. The crossing point of the green and white lines was indeed hit. It popped up from there, as expected, but let's see if the wedge can be broken to the upside.

GoldMoney and its end-of-day price 'manipulation'

2012-02-17T08:06:00.023-05:00

GoldMoney is something of a darling of the precious metals community. It is a way of having a claim to ownership of gold, silver, platinum or palladium physical metal, and having it stored in a secure vault in a choice of three countries. It's not especially cheap (with premiums of 2.49% for small USD gold purchases, and 3.99% for silver, you're certainly not getting your bullion for sp(r)ot(t) price). But the premiums are not too much higher than on-line bullion vendors and coin shops, and the storage costs - at least for gold - are not extortionate.

An ambition of GoldMoney was to make gold money in a very practical way. The company foresees a time when online payments will routinely be made in gold, and had offered a facility for clients to make and receive such payments to each other. I say 'had offered', as this aspect was withdrawn on 21 January this year. So GoldMoney is no longer gold money. It's just a glorified bullion dealer.

Part of its popularity no doubt stems from the near perma-presence of its spokesperson, James Turk, on the silverogosphere. It seems like hardly a day goes by without Mr Turk popping up on KWN, Casey Research, or one of a multitude of other sites, to regale listeners and readers with tales of $10,000 gold in ten days or $600 silver in a fortnight (I am paraphrasing here for effect - but only slightly). Mr Turk actually no longer owns GoldMoney, contrary to what many seem to think, but rather acts as their paid spokesperson and consultant. GoldMoney is in fact owned by a collection of investors including Doug Casey (Ed Steer's boss), David Tice, IAMGOLD (a large Canadian mining company) and our old friend, Eric Sprott. I will leave you to draw your own conclusions about the ties between the silverogosphere, the big physical metal investors and GoldMoney and its spokesman, as that is a story for another day...

Today's little mystery concerns a curious effect that I've followed on GoldMoney's charts for some time. Now, GoldMoney's advertised prices are supposedly at spot (with the premium then added on at the time of purchase). Thus, their USD/oz chart is identical to the Kitco USD/oz chart. Gold priced in other currencies should therefore follow the normal convention of converting that currency into USD according to the current exchange rate, followed by a conversion of USD into gold at spot price.

But what I've noticed is that on days when there is a big fluctuation in the GBP/USD pair (e.g. of more than, say, half a cent) then something odd happens after 18:00 GMT. See if you can spot the difference in these two charts, which cover exactly the same time period (clue: look at the end of each of the blue lines):

As is obvious, there is a spike up (of around £7/$10) in the GBP chart at around 18:00 GMT which is not replicated on the USD chart. Now on that day (10 February), the GBP had weakened considerably against the USD, so the gain in gold priced in GBP is not unexpected. What is unexpected is that although the GBP weakened gradually throughout the day, this chart implies a sudden devaluation. However, a check of the USD/GBP chart for that day shows that no such sudden devaluation took place.

Further, one can check the GBP/gold chart for 10 February on any other website, and one will find that this spike is simply not there. It only appears on the GoldMoney charts.

The effect works in the other direction too. Check out these charts from yesterday, a day when the GBP strengthened significantly against the dollar:

Same effect, different direction. The downspike (of around £5/$8) on the GBP chart is not replicated on the USD chart. But the USD/GBP charts for yesterday show no corresponding sudden USD devaluation against the pound. The GBP strengthened against the USD throughout the day. And, as with the first example, the GBP/gold charts available elsewhere show no such downspike.

I have posted just two examples here, but please be assured that this happens every time that there is a substantial shift in the GBP/USD pair. Knowing this has actual predictive power: I knew yesterday that this was going to happen, and was ready and waiting to get the screen grab when it did.

Unfortunately, I have not worked out a useful way of profiting from this effect. Although a genuine arbitrage opportunity most definitely exists, knowing that this spike is coming is not much use unless the spike will be greater than the premiums for buying. In other words, had I sold my gold just before the downspike yesterday, and then bought it back immediately after the spike had finished, I would indeed have benefited from a £5 arbitrage (roughly 0.5%). But I also would have had to pay a 2 - 3% premium on my new purchase, which more than wipes out my hypothetical gain. I suppose a change in the USD/GBP pair of more than 3% in a day might make it worth one's while to capitalise on this, but such days are mercifully rare in the FOREX markets.

Anyway, I digress. This trait is germane to GoldMoney and GoldMoney alone. It is subtle, and not avowed (I can find no mention of it anywhere on the GoldMoney site). Now, GoldMoney presents its prices as following spot, but it is obvious that this is not always the case for purchases in GBP, and perhaps other currencies too.

The only possible conclusion is that GoldMoney is regularly carrying out its own little - and sometimes not so little - 'end of day' currency adjustment. Now that's a bit cheeky, especially as clients are not warned about this. Imagine you had just bought some gold priced in GBP at 19:59 GMT on 16 February, and then immediately lost £5 per ounce thanks to GoldMoney's idiosyncratic little currency adjustment. It would hardly seem fair, would it?

More to the point, it is difficult to describe this cheeky end-of-day currency adjustment which is (a) not avowed, and (b) not done by anyone else, as anything other than a form of price manipulation. The irony of this darling of the silverogosphere effectively manipulating its price on an end-of-day whim is not lost on me.

I should stress that I do not think for one minute that GoldMoney is doing anything illegal here. I just think it's curious that they are so hush-hush about it.

Food for thought.

When to buy silver?

2012-02-14T08:30:00.012-05:00

One of the more enjoyable rewards of writing for this blog, aside from the hedonistic pleasures of being GM Jenkins' official beard trimmer, is that I (and the others) often get nice emails from readers. Sometimes they're just to say, 'hi', or to say thanks for an article they liked. Sometimes they expand on points raised on the blog, or they ask for advice. I always do my best to reply to each one. But one common theme that comes up again and again is 'when should I buy gold/silver?' 'What's a good entry point?' Or, occasionally, 'Should I be selling?'

Of course the only truly honest answer to such a question is, 'Dear X. No idea, Guv. Yours, JdA.' That said, I also often think I could probably write 5,000 words on the subject without breaking sweat. It's such a big question, and one that all our readers and contributors probably ask themselves at least once a day.

I received one of these emails last week and so - rather than just giving my opinion - I thought it might be interesting for Screwtape to do its first ever joint post. So today five of us will be setting out our brief thoughts on this most pertinent and popular of topics. We all prepared our answers independently, with absolutely no collusion, to see what the results might be...

When should I buy silver?

Robert Leroy Parker: My non-expert opinion says not right now. In fact, imo, right now is the time to be exiting your silver positions in preparation for the next economic wave of catastrophe. The collapse of Bear Stearns was a 5-month leading indicator to the far more devastating collapse of Lehman Brothers. MF Global collapsed at the end of October, so if history rhymes, we’re getting closer and closer to the next Wall Street blow up. The MF Global debauchery continues to get worse as noted in the NY Times last week. How much worse will the next casino implosion be? On a scale of “not so bad” to “epic disaster,” my money is on “the Mayans were right.”

Anybody that has bought and held silver before mid 2010, whether it be ETFs or physical bullion, has done very well. At worst, you’re near a double with silver at $34/oz. You would have outperformed the S&P by 60% if not much more. However, anyone that bought silver pre-Bear Stearns had to sit through a greater than 50% fall in 2008. The volatility of silver is a sight to behold, and from my view, it’s best to watch from afar, especially when the criminals running Wall Street and Washington D.C. remain in power.

I’m sure many will disagree with this assessment, and will point to silver bullion’s lack of counterparty risk as an advantage against the system. And while I would agree with you in a different era, I don’t think it applies to our current situation. Unlike gold, silver is primarily an industrial commodity; a deflationary wave of sufficient force will drastically reduce both demand and price (e.g. 2008). I expect gold to suffer a similar massive price drop if such an event should occur, but there is a little thing called freegold that keeps my gold close to my chest. Perhaps some will point to a future of bimetallism, but that is unrealistic in my opinion. The return of silver specie would vastly encumber industry, and it is simply not necessary to have two metals performing the same function, whatever that function turns out to be.

Bimetallism is an interesting subject however, so here are a couple of Milton Freidman papers on the subject that you may enjoy on your spare time: The Crime of 1873 and Bimetallism Revisited.

To conclude: When to buy silver? Imo, it will be a good time to consider buying silver when the ashes of Wall Street have finally settled. When the IMFS is no longer in a state of vast uncertainty, silver fundamentals will be far easier to analyze, and issues such as peak supply will come into focus. Currently, demand for silver as a monetary commodity makes silver a hazy investment, but I expect the situation to clear up within a year or two.

Louis Cypher: This is going to be quick and dirty: TA method: magic 8 ball, chicken bones and human entrails.

Looks to me like Silver is rolling over, and I expect it to drop tomorrow [written Monday evening - Ed.] as will most commodities. I expect a choppy Wednesday. Thursday and Friday are make or break.

If it drops I will use palladium as the windsock to judge the bottom. I expect palladium to bottom out at $675-650 and that will signal the end of the plunge across all commodities. $650 absolute, absolute bottom for palladium.

Warren James: In a nutshell, it depends what your goals are. If you want price exposure (because you believe you can increase your cash holdings by being in the silver game) then an ETF is your best bet - it's easy to use and liquidate, and the premiums are low. I have no trouble recommending SLV because all evidence shows me that they do indeed have silver in the vault! In fact, I recommend it because it's not PSLV (which has a premium jumping all around the place ... gave a listen to this guy, who basically echoes my sentiment - don't take his advice, but do observe his growing realisation about Sprott's fund; p.s. drugs are bad).

If you want to buy silver because you think it's a hedge against the global financial insanity taking place, then you're probably better off holding the metal yourself. But bear in mind that each time you transact in physical, you're paying a small premium to the dealer each time you buy, and each time you sell, which means that with short term trades on physical stuff, you're losing out a little with each trade (that's how the bullion dealers make their money), i.e. if you're chasing the price on short term gains then you may as well be trading an ETF.

So like any investment, it's purely an assessment of risk - what's acceptable to you and what's not. I personally am of the opinion that silver will continue to be volatile - mostly because I see that a pump is occurring ... from my research there appears to be no real shortage of silver, despite the many stories (and talking bears) ... and the big traders are using this to their advantage to skin the little people. The two silver corrections of 2011 personally made my nose bleed although I gained overall. I have realised that for my own purposes (of long-term wealth preservation) I am probably better off buying gold. If I was after quick cash then I would have done just as well (if not better than silver) with Jeanne's recommendation of buying Lloyds TSB (article link).

So, once you've done an honest assessment of (1) your personal investment goals, (2) your risk appetite and (3) your liquidity needs, then the rest of the answers are just a matter of putting in solid research and finding the guys who know their stuff (recommended link). For bullion purchasing, I recommend the Dollar Cost Averaging strategy - works nicely. For trading the spot price, I recommend reading GM Jenkins's weekly charts and paying attention to MACD and RSI. My recent strategy involved buying a big bunch of Silver ETF after the price plummeted dramatically. The strategy worked (for $ gain), which lent some confirmation bias to the idea of buying when there is blood in the streets.

Following from that, if you're actively trading the silver price then the recent $26/ounce was a gift. If you believe, like I do, that there are agents out there with an active interest of gunning the silver price up and ramming it down every four months, (and missed the recent one) then around about April or May you should have another opportunity shortly so keep your powder dry (or you could chase the pump). Some more hints to this timing including watching the premium action on PSLV, as well as the intensity of silver rumours - yes, I'm watching the strategic placement of silver memes in the social media, and using this as a leading indicator (go figure).

PS: I worked really hard to trump GM's cougar-on-coke analogy, but couldn't.

Jeanne d'Arc: I'm not a buyer at the moment - I'm a seller. I just sold a tranche from the silver stash I picked up recently at $26 - 28. If the price goes up, I'll sell another tranche, and so on. The final tranche will be sold hopefully just before silver inevitably crashes again or if (if) it hits $40 - whichever happens first. If the price goes down, I'll hold as I doubt it will crash far below my cost average, and my profits from selling the other tranches will cover any losses if it does. I will not buy silver priced above $30 for many years, as even this level is above the post-2009 trend line.

I'm something of a bête noire to the silverogosphere (perceptive regular readers may have picked up on this) - I trade silver to (hopefully) make a quid or two, and I don't have the slightest emotional attachment to it. It's not money, and it isn't going to be. I ditched it like a stone in April 2011 when the RSI went mental, and my only mistake was then getting back in too early, which cost me all my April profits (silly JdA).

As for all stocks, commodities, bonds, whatever, the decision about if/when to buy depends on (a) your planned holding time, (b) your risk appetite (and, linked to this, the scale of your proposed investment), and (c) the opportunity cost from not using your money to buy something else.

For (a), I don't think now's the time to be thinking too long term. If Greece exits the Euro, which it still may, then there will be a 2008-style crash, no question. The recovery may in fact be swift, but for a time money will pour into the dollar and you can say hello to $22 silver before you can mutter "I think I'd better log into my trading account". That's when you should buy.

Conversely, Mr Bernanke announcing QE III would give silver a lovely boost, certainly, but the same can be said for all stocks and commodities and frankly I think the upside is going to be greater for them than silver. But if you are thinking long term, and have the stomach to live through several silver crashes, then you could buy now. It's not at a crazy price, and there could be some nice upside left. But that brings us to (c) - what is the realistic upside for silver compared to other choices? My deliberately polemic article on silver vs. banking shares was essentially all about this opportunity cost. Where is the smart money going now?

But if you do really want to buy some silver, then the answer's pretty simple in my book. Do what the successful traders do. Be patient. Wait for the next crash. For silver, you can almost guarantee that you'll get one within 12 months (more likely six). Wait till the heart-ripping plunge is over, and for the dead-cat bounce to finish, and then buy. In the meantime, if you can't sit on your hands, then use your trading account to buy other things that have just been punished and then sell on their dead cat bounces, so that you can have more money with which you can buy your beloved silver when the time comes.

If you must.

Grundlemaster Jenkins: Though my contract explicitly states I'm obliged to write only one post per week, I have agreed to briefly contribute to this symposium in exchange for a small sack of adderalls that JdA keeps in her purse.

When should one buy silver? Right now! I arrived at this conclusion through a proprietary algorithm it took me several years to develop, which involves Markov chains, Bessel functions, Fourier-Stieltjes transforms of spherical harmonics, and the Quadratic Formula. But since I've heard that silver investors aren't the smartest lot, I'll explain my rationale using a somewhat simpler measure [don't lose your audience, GM... Ed.].

When was the last time silver traded flat for 15 straight trading days (I'll define flat as +/- 2% of an average value)? If you increase the range (percentage-wise) a bit, you'd have to go back to when silver traded between $17.50 and $19.25 throughout the summer of 2010, after which it did the straight shot to $30. The other two times in the recent past that silver traded flat for an extended period (though fewer than 15 days) was December 2010 and October 2009 (and check out the RSI during those periods: very similar to the action now). In December 2010 it popped up to close the year, and in October 2009, though it sold off ~8%, that only lasted 6 days, followed by a lightning fast 20% jump to its yearly high.

So, in short, if you wait, you might miss a strong move up, and even if you're lucky and it rolls over, you may not have a lot of time to get in at a lower price anyway. As I wrote in my post below, I don't see another waterfall correction in the works, so start building your position.

[Please consult your medical professional before taking my advice, as side effects could include dizziness, high blood pressure, glaucoma, and loose stools. This is silver after all].

Conclusion

To finish, let me point out that all of the above are just personal opinions, philosophies and rants. It is not investment advice (please read our disclaimer at the bottom of the page if unsure about this). In fact, it is the opposite of investment advice: this is a quick and simple exercise to show that there's no such thing as a guru who knows it all, who has privileged insight into the future, or who can painlessly guide you onto the path to fabulous wealth. Ask five blog contributors, and you'll get at least six opinions.

Sadly, the opposite is all-too-often true, and blindly following those who claim 'to know' will send you to the poor-house. So perhaps 'no idea, Guv.' is actually by far the best investment advice anyone could ever give...

Sunday pre-game 2/12/12

2012-02-11T17:46:00.016-05:00

I'm happy with the gold action the past two weeks. We've seen a well-needed consolidation to the bottom of the black trend channel on the weekly chart, which, as I mentioned three weeks ago, was to be expected, since we entered it so suddenly, without resistance. Gold hadn't closed a week *on* the black line since July, and if you note, the weekly closes on that line have presaged every strong, sustained rally on the chart (I recall being concerned that the false breakout in October was based off of a poor consolidation).

On the daily chart over the same period, I have drawn in the "$25 Yellow Zone" again, a buffer for all corrections until (what is looking like) the Great Bear Trap of December 2011. Note, we finished right on the upper boundary, after bouncing off the 144-day MA (pink) yet again, which divides the buffer zone in half. I'm bullish from here. Maybe the RSI will fall to the 50 level again, but I'd be a big buyer at that point.

The HUI also looks like it has a lot more upside than downside here. Note that only a 2.5% drop from here will take the HUI to the important intersection of the white line with the $510 horizontal level (which marked the important December 2009 top). I have my dry powder ready if that happens.

Let's return to silver, where, even more than gold, we're going to find out soon enough if the awful action of December 2011 was an anomaly/bear trap. We cleared the purple dotted line a few weeks ago, and it's been effective support since. Let's see if it can hold.

Everybody who follows silver is familiar with the wide downward channel that began with the -35% May 1 Massacre, the top of which we haven't tested since the -40% September Massacre. Though I don't usually look at non-log charts, it appears a lot of people do, and the top of the post-May downtrend channel (purple) is now passing the important $36 level, where it looks like it wants to be hit harder than a cougar who just snorted several lines of coke and poured a bottle of liquid cialis into your vodka martini while you were taking a piss. Granted, around the silver blogosphere there's a lot of talk about JPM shorting silver like crazy, which surely is not a good sign, but I still think the top purple line has to be tested sooner rather than later, because frankly, it seems to me the bottom of the downward channel (red), or even the downward wedge (orange) is no longer in play, on account of so many strong points of support along the way (see grey lines for examples). An obsolete chart formation should be tested on the upside, and resistance should become support. Or so that's what I learned during years of grueling study getting my degree in Chart Science at the University of Phoenix.

On this familiar chart of daily closes, perhaps we'll hit the solid green line first, which I've been waiting for to expand my trading position.

Traders of AGQ (which I generally am not) might find the $54 level enticing:

Another reason to be bullish: the 10 year yield measured in silver hit the purple channel again last week, and bounced off Friday when yields fell 3%.

Here is a magnified view with only daily closes:

Finally, just as I view the past two weeks consolidation in gold and silver healthy, the gold:silver ratio chart also shows that it was falling a little too fast, and now is more in line with the slope of the big move that started in August 2010 (see parallel green dotted lines):

Stuff From the Web (Personal Bookmark)

2012-02-10T09:32:00.001-05:00

Lots of great reading out there this week. We love it when we come across thought-provoking, well written interpretations of the financial world. I didn't want to lose the links, so I've written them here ...

1. The Turd Speaks - great observations on the current state of things, peeling back the covers of the financial matrix and hitting a home run in the process.
http://www.tfmetalsreport.com/blog/3367/ramblings-lets-talk-dollar-gold-silver-crude-and-freedom

2. The Many Values Of Gold - by Victor the Cleaner - nice summary of the role of gold including some sections on Freegold.
http://victorthecleaner.wordpress.com/2012/02/08/the-many-values-of-gold/

3. "Warren Buffett: Why stocks beat gold and bonds" - my namesake lets everyone know he doesn't like gold and trys to slip as many tulip bubble suggestions into his narrative, with some sage advice on why productive assets trump inactive ones (in normal business environments this is true).
http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/

4. (Via Zero Hedge): visual representation of debt (by 'demonocracy.info'): I simply love visuals like this.
http://demonocracy.info/infographics/usa/world_debt/world_debt.html

I wanted to tie them all in together - the main point is not to forget all that debt represents someone's asset, somewhere out there. That's a lot of assets - so in fact the world is very rich! But it's the quality of said assets that is the question, and whether the productivity of the folk making the regular payments, can keep up (like the Greeks, for example). And, that $160 billion eq. of new gold each year that Buffet complains about, doesn't look so bad when you consider how many $ are out there, swapping between asset classes. I was trying to figure out the comparative value of all the gold stock in the world, against these towers of money ... anywhere between 5-10 trillion, as a really lazy estimate. To be honest, the pile of debt didn't look so bad against all the gold in the world - it's similar to the assets:loan ratio that an average person might have on their house.

Chart update, and a challenge for manipulation deniers

2012-02-06T19:13:00.009-05:00

First, I left out an important short-term silver chart yesterday - an updated version of my chart from last week suggesting good entry points into the silver market after the strong move two weeks ago. My omission turned out fortuitous, because the dotted green trend line I was watching was hit again today, making tomorrow's action worth following closely. Will silver bounce up, or close below it -- perhaps all the way down to the solid green line (which would be an even better entry point, IMO). I'm short term bullish so long as that solid line isn't broken, the overbought status on most momentum indicators notwithstanding.

Moving on, I'd like to open a discussion concerning manipulation. I find myself far closer to the "tinfoil hat" side of the debate than most of the contributors here, including most of our distinguished commenters, who are all strongly skeptical of any pervasive interference in the metals markets (as alleged by GATA, Turd Ferguson, Ranting Andy Hoffman, SGS, etc.)

I defend my position using three simple axioms, from which, as I see it, the necessity for manipulative mechanisms (if not the actual constant perpetration thereof) follows rather plainly: (1) The demand for gold and silver increases as the price goes up; (2) "a runaway gold price would certainly be the end of the current fiat money system in very short order" (Ed Steer); and (3) every ruling class (indeed every organic entity) will fight relentlessly for its self-preservation.

So I'd be interested in how those I will rather uncharitably call "manipulation deniers" would explain the following popular chart from Ed Steer, of Casey Research and GATA, which I regard as pretty strong empirical evidence of the axiom-based manipulation hypothesis:

Steer explains this chart, made for him by Nick Laird, as follows:

The red line is the price rise or fall that occurs between the London AM fix and the London PM fix ... Except for a handful of years, it's been showing a negative price bias just about every year for the last 42 years. It's particularly noticeable during the current bull market.

So what the overnight markets giveth, the London and New York markets, working together, make every attempt to taketh away. This is where the name of the chart comes from "LBMA London AM-PM Bias."

[In] January [data not shown on above chart]… the overnight bias showed an increase of $169...or 10.4%. The London intraday bias was -0.02%. So here we have one of the biggest bull market rallies in January in recorded history, and the cumulative move during the 4.5 hour intra-London trading hours during January was actually negative. This is Anglo/American price fixing scheme laid bare [emphasis mine].

Chart Porn 2/5/2012

2012-02-05T17:55:00.019-05:00

*UPDATE: To maintain my unblemished integrity, I feel compelled to disclose that my Super Bowl protest was postponed till next year. Alas, I too gave in to the call of the herd, gorged myself on absurd amounts of unhealthy food, and partook in the exuberance of an event the sheer pagan excess of which presages the imminent disintegration of our civilization.

Special thanks to commenter Dr. Durden for the title suggestion, which I have changed from the usual "Sunday pre-game" in protest of the Super Bowl. If you're unlike me, and you actually care which group of mercenary thugs, oafish simpletons, and peacocking dullards proves better at a childish game than the other, then may I suggest you just check the score when the contest is over? (Rooting for a team has no effect on the outcome, you know… so why subject yourself to the corny commercials rigorously engineered to elicit the maximum number of retard smiles from the proud engine of the global economy, the semi-literate American consumer?). That said, I do recommend you catch at least part of the halftime show. It's a man's duty never to escape from reality, but rather always to look it head on, however ugly it may be. Tonight's decrepit performer, who at her best was a talentless, hysterically vain, self-promoting whore, has finally transmogrified into something meaningful: nothing less than the perfect symbol of her nation (she has surpassed even the globally broadcast military hoopla during the introductions carefully designed to bring fear into the hearts of our numerous enemies, whose pathetic resistance against the noble hegemony of American democracy shall never prevail!)

This will be an important week in the metals. My silver chart (now in color!) reveals two very important crossing points. The $36 level in mid-March and the $33 level in mid-May. But if silver rallies this week, making its way into the purple zone where it was rebuffed Thursday of last week, then it could very possibly go straight to the third important crossing point, the $42-$45 level as early as March. On the other hand, as seems likely, if silver corrects further this week, then this chart is telling me that the red downward channel will continue to exert resistance, such that a strong move in the near future becomes less likely.

Here is the 10 year yield measured in silver. Note we bounced off the blue dotted line once again. The overall downward trajectory seems on track (see light blue lines in purple channel) (note: updated, 2/6)

Here is the weekly gold chart, where as badly as last week ended, it never fell out of the channel that it had impressively entered the week before. The weekly close this week will be very important. Gold can fall out of the black channel during the week, but a weekly close below would be quite bearish.

Here's the daily chart with the Fibonacci moving averages (144 day, and 377 day, pink and green respectively), as well as the 200 day (yellow) and the 252 day (i.e. yearly) (brown). Note that they are all currently right around their lines of best fit, all of which share the same slope, also shared by the top two black dotted trend lines which go back further than this chart in terms of resistance (note: chart updated, 2/6).

Is gold trading like a safe haven? One way to determine this is to look at the ratio between gold and the CRB commodities index (of course gold is part of that index, but we can ignore that). The CRB goes up with inflation, so if gold goes up faster, then that (at least partly) means people are actually looking for a store of value in fear of future inflation (which other components of the CRB, except for the other precious metals, really are not). You will see that the three red horizontal lines represent three "tiers" over the past decade, such that gold's status as a safe haven is a step function of sorts. The 2008 financial fiasco raised it to a much higher level, and then the "debt ceiling" fiasco of last August took it another small step higher, where it has been trapped, despite 11 attempts to break the top red line (most recently Thursday).

Finally, the HUI. I'm watching the $530 level (red/green line). If that can hold we could break out of the white quasi-pennant formation soon. Otherwise, another test for support at the bottom white trend line is very much in the cards.

How the PM blogosphere behaves like a cult

2012-02-04T08:09:00.014-05:00

I first started seriously browsing the PM blog sites at the end of 2010. I'd traded for years (stocks mostly), but was a relative newcomer to the world of investing in gold and silver. I was struck by the huge amount of apparently helpful online advice, charts, and discussion, all dedicated to gold and silver. I'd never had such a resource to draw from when trading the FTSE, so I became something of an avid reader of these sites. A whole new world was opened up to me: one of Turds and talking bears and Keisers and KWNs and Zero Hedges; not to mention Harvey's Organ [sic] and too many others to name.

In years of trading I'd never come across all this kind of stuff before. Such passion! Such depth of feeling about conspiracies and manipulation. And the stories seemed to work: my new investments in gold and silver performed stunningly, and I cheer-leaded the near parabolic price rises along with the all the other obsessive readers.

But something never sat right with me. Something on which I could never quite put my finger. Amidst the charts and the stories (which even back then, before the crashes, I knew to be demonstrably ridiculous) there always felt like there was a dark side. And I'm not talking about Blythe and JPM here. I was kicked off numerous blogs for asking reasonable questions. The venom I received in April 2011 for pointing out the silver RSI had prompted me to sell my stash (and advising others to do the same) was remarkable.

I switched from participant to observer, and started to pay closer attention. Every psychological tool in the book was being employed: confirmation bias, creation and deployment of memes, use of single sources to imply many sources, aggressive trampling of contrary opinions, herd mentality, isolation of 'us' from 'them'. The works. It was these observations that encouraged me to start contributing to Screwtape, and to look more deeply and systematically into what I term the silverogosphere.

Entirely by chance, last week I came across some research which identifies the key defining characteristics of a religious cult. As I read through the checklists, I was flabbergasted. Almost almost every single one of these characteristics are readily identifiable in the silverogosphere. Have a look at the following list, and see what you think:

Key Characteristics of a Cult (adapted from the research of Janja Lalich and Michael Langone and of Marcia Rudin)

1. The group displays excessively zealous and unquestioning commitment to its leader and regards his belief system, ideology, and practices as the Truth, as law. The leader is not accountable to anyone.

2. Rational thought, questioning and dissent are discouraged or forbidden.

3. Members are encouraged to interact only with other group members. Thus, cult members are isolated from the outside world and any reality testing it might provide.

4. The group is elitist, claiming a special, exalted status for itself, its leader(s) and members (for example, the leader is considered the Messiah, a special being, an avatar—or the group and/or the leader is on a special mission to save humanity).

5. Cults, particularly in regard to their finances, are shrouded in secrecy.

6. The group is preoccupied with bringing in new members.

7. The cult weakens the follower psychologically by making him or her depend upon the group to solve his or her problems.

8. Members often devote inordinate amounts of time to the group.

9. The most loyal members (the “true believers”) feel there can be no life outside the context of the group. They believe there is no other way to be, and often fear reprisals to themselves or others if they leave (or even consider leaving) the group.

10. The group is preoccupied with making money.

11. Subservience to the leader or group requires members to cut ties with family and friends, and radically alter the personal goals and activities they had before joining the group.

12. Cults are apocalyptic and believe themselves to be the remnant who will survive the soon-approaching end of the world.

13. The group has a polarized us-versus-them mentality, which may cause conflict with the wider society.

14. There is frequently an aura of or potential for violence around cults.

15. Cults exist only for their own material survival and make false promises to work to improve society.

Now regular readers of Screwtape, and my long-suffering co-contributors, know that I'm no stranger to scrutinising the information put out on other blogs, and that I've been sometimes a rather vocal critic of how readers are - in my opinion - frequently misinformed or downright lied to. But reading the above list came as something of a revelation. We see exactly these features every day on the silverogosphere:

- The silverogocult's 'truth' is the only Truth. Any different interpretations, or contesting of their Truth is immediately damned as heresy. Their Truth is never to be questioned, and their leaders (we all know who they are) are above reproach. They must never be held accountable for their misinformation, no matter how blatant. Hard-core silver bugs react quickly and ruthlessly to defend their leaders. Conversely, their leaders are to be praised at all times: the silver cult is expected to be fawning and enthusiastic in its adoration of certain hosts, otherwise the hard core quickly whip them into line.

- Group members are quickly trampled on, flamed, or banned from sites if they express any contrary opinions, no matter how politely. Negative comments are routinely deleted. Further, other blogs (such as ours, KD's, Bron's, and others), which actually question the 'facts', are never linked to by the silverogocult, and cult members are frequently warned against reading us, accusing us of being bankster shills and disinformation merchants.

- The silverogocult is self-aggrandising: they have 'information' that the 'sheep' do not. They will be 'saved'. They are the only truly wise ones. Their salvation will come through following the words of their leaders, and brooking no heresy.

- New recruits must be constantly brought into the silverogocult. The word must be spread - tell your family, your friends. Convert them if you can. But don't pollute yourself with their heresy if you can't [note: I'm really not exaggerating here - I've seen comments exactly along those lines!]. Don't let anyone lead you off the righteous path.

- The end of the (Keynesian) world is nigh, the silverogocult preaches. Get PMs, stock up on food, get weapons and bullets. Lots of lovely weapons. And fantasise about being a rich land-owner (grâce à l'argent) and defending your domain from the remnants of a shattered society too foolish to prepare in advance by stacking, stacking, stacking... And in the meantime, it's us versus them: crash the banks (by buying silver, of course), fight the Evil Empire.

I could go on, and do this for each of the 15 points, but you get the idea. And you'll have seen many examples of all of this on a multitude of blogs (which will remain nameless, as it's perfectly obvious to which sorts of sites I'm referring).

What's particularly scary to me is the balls-out use of standard religious cult methodology to impart what is effectively just investment advice. Why would anyone go to such lengths? Some of the silverogocult leaders certainly believe their own words, and do it out of a personal conviction, I'm sure. But one could say the same of David Koresh, so that's hardly a ringing endorsement. And others will be doing it to make a buck: they've found a great niche, and a willing audience, and are now capitalising on this. Others are, it seems, simply paid marketeers for big-name PM investors and companies, and are just using known psychological tools to do their day job.

Regardless of their motivations, cults are indubitably a dangerous affair, whether they be religious or investment. And it behoves any reader to always be aware of such techniques and organised group think when reflecting on what they read. Always question what you read; always fear confirmation bias; and always beware of any ideology which raises the views of its adherents to 'privileged' and untouchable status.

Otherwise you're just a sheep waiting to be skinned.

Have Precious Metals in a Swiss Bank Deposit Box? The IRS Wants to Know

2012-02-01T22:10:00.000-05:00

A few weeks ago we had a discussion in the comments of a post here on Screwtape about the issues of storing precious metals abroad. Questions were raised about the potential for metals held in Swiss banks to be subject to future onerous US laws, including confiscation. Mark Nestman recently posted an article that sheds some light on the subject. Entitled "IRS: Offshore Banks will Need to Disclose Precious Metals Held by US Clients", Mr. Nestman wrote on how new regulations under the Foreign Account Tax Compliance Act (FATCA) take aim at US citizens holding precious metals overseas.

I highly recommend reading the article in its entirety, but below is a key passage:

4. What assets need to be reported? I summarized financial assets that need to be reported on Form 8938here. Henderson confirmed that foreign real estate owned by a U.S. individual isn’t reportable. By extension, precious metals, art, or other personal possessions you maintain in a foreign residence aren’t reportable, either. But, when asked about the reportability of precious metals held by an individual in offshore safe deposit boxes or private vaults. Henderson briefly consulted with one of his colleagues and replied, “That will be covered in forthcoming regulations under Chapter 4.”
Henderson was referring to Chapter 4 of FATCA, the subject heading of which is “Taxes to Enforce Reporting on Certain Foreign Accounts.” This is the notorious section that imposes the 30% withholding tax on most U.S. payments to FFIs and NFFEs.
To avoid withholding, FATCA requires FFIs (but not NFFEs) to:
“…Comply with requests by the Secretary for additional information with respect to any United States account maintained by such institution.”
In the context of offshore precious metals holdings, it would be simple for an FFI holding a custodial account on behalf of a U.S. person to provide this information to the IRS. However, Henderson was specifically asked about the reportability of precious metals held in a safety deposit box or private vault.
The only way the FFI would be able to obtain the requested information for a safety deposit box would be to obtain an inventory from the owner, or break open the safety deposit box and take its own inventory. If it failed to do so, the FFI would presumably be subject to the 30% withholding regime. I hope this draconian interpretation is incorrect, but the answer will apparently be found in the future regulations for Chapter 4.
However, an offshore private vault is arguably not an FFI. FACTA defines a FFI as any non-U.S. entity that:
“… (i) accepts deposits in the ordinary course of a banking or similar business, (ii) holds financial assets for the account of others as a substantial portion of its business, or (iii) is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, or commodities.”
An offshore private vault that isn’t engaged or holding itself out to be engaged such activities would seem to be a NFFE, not a FFI. As such, the private vault shouldn’t be subject to FATCA’s withholding regime so long as it can prove that it doesn’t have 10% or greater U.S. ownership. Nor should the vault be required to disclose the names or the investments maintained by U.S. customers.
Henderson’s response also implies that offshore precious metals held by an individual in a safety deposit box or private vault aren’t reportable for Form 8938 purposes, at least not for 2011. The case for not reporting the holding on either disclosure form is strongest if you have exclusive access to the box, because in that event you arguably need not report it on either Form 8938 or the FBAR. For the reasons why I don’t think it’s reportable on the FBAR, read this post.

Thus based on the interpretation above, the IRS indeed is indeed looking to force foreign banks to release information on precious metals holdings of its US clients, even if such metals are stored in a safe deposit box. However, private depositories still appear to be exempt (at least for now). Investors with offshore metals holdings would be wise to contact their tax advisors and remain on top of these rapidly changing regulations.

Sunday pre-game 1/29/12

2012-01-29T14:45:00.015-05:00

Dear readers, I have a long end-of-month post for you this week. I had actually planned on writing from Davos, where as part of the Screwtape crew I received a customary VIP pass. But as you might have heard, the damn place got run over by a blizzard, so Brian let us take his lear jet to San Felice del Benaco, where, on a delightful bird-watching jaunt between Brescia and Verona, we were recognized by some lovely fans who showed us the warm hospitality for which the Italians are justly renowned. (That's Kid Dynamite in the yellow speedos).

So special thanks go out to Brian, who on account of a talk he had to give at Davos, couldn't join us this week. I'd be remiss to omit that his speech ("From Banker to Blogger: a Shill's Journey") was, by all accounts, one of the high points of this year's convention. A poignantly honest account of his battles with sex addiction after joining JPM's lucrative "Remuneration for Misinformation" campaign, it featured such uproarious lines as when, in reply to an irate Jamie Dimon, who had accused him of blogging too infrequently, he shot back: "You scratch my back, sir, I'll snatch whores," a line greeted by boisterous, rip-roaring laughter in a standing-room only venue which included such luminaries as Gary Cohn, Richard Gnodde, Indra Nooyi, Carl-Henrik Svanberg, Terry Leahy, Saddam Hussein, and Bono.

The gold chart proves that events trump technicals. I expected a fight to get back into the 3 year +25% black channel, but the Fed announcement drove the gold price right back in there with hardly any resistance for an important weekly close. A consolidation in the channel would be a big deal. The center black line (which it's hit regularly over the past 3 years) will be at $2000 in a few months.

The daily chart over the same 3 year period shows similarly bullish price action. The "yellow zone" captures the low points of every single price correction since late 2008 (up until the surprising drop last December). The fact that gold shot right through that zone is important, as it had posed strong resistance over the past few weeks. I think it will stay above there.

Here's a chart with all the monthly closes for the past decade. Note that we didn't even hit the top of the narrow channel last August. Gold is now finishing the month right back in the center of the channel, which slopes upward at over 1.5% per month. Looking at this chart, I hope during the next big correction everyone has the good sense to avoid talking about "the death of a bull" unless gold at least finishes a month below its 21-month MA (purple, dotted line), which has happened only once (October 2008). That MA is now at $1476 and has just entered the grey channel again for the first time since 2008. (Of course, in October 2008, gold went far below the 21-month MA, hitting the 3-year MA, for the only monthly close out of the channel, and yet the bull was still very much alive. Perspective is important.)

Regular readers know I have occasionally pulled out the $GOLD:$USD chart, which appeared to have some predictive power for much of last year, though I have complained I don't quite understand how to interpret it. Well, while lounging by the infinity pool at an Italian spa after my man-facial and massage on Thursday, with two comely Ukrainians by my side whose names I have unfortunately forgotten, and noting that our time together seems to last longer with every trip, I had a eureka moment. See, like most of you, I keep my net worth in gold, and whenever I travel, I sell a gold brick or two for some spending cash, and then convert the dollars to the currency of the nation to which I travel. And that's exactly what the chart measures: purchasing power outside America over time when gold is converted first into dollars and then into foreign currency. The chart is notable for narrow channels with exactly the same slope (purple) which appear to last 3 years or so before a consolidation. More on this in a future post.

Moving on to silver, I cashed out of my trading account last week, proving the adage "discretion is the better part of failure." There was only one red day last week to rebuild my position, as seen on this chart (which shows that the pattern I recognized a few weeks ago is still active - see green boxes and blue lines):

I'm looking for some re-entry points at the green lines; the solid green line is actually an important long term trend line:

Finally on the weekly, daily candlestick, and daily close charts (respectively), the $36-$38 level continues to be exerting serious pull, as I mentioned last week.

What's the real premium for bulk silver purchases?

2012-01-29T10:17:00.016-05:00

Strewth, cobber, the controversy surrounding premiums for bulk buys of silver continues to rumble on.

The basic premise was that the seriously wealthy would face huge premiums of up to 30% if they wanted to buy silver in large quantities. This figure is not as random as it might appear: it first started doing the rounds when Sprott's PSLV hit a premium of above 30% (peaking at 35% before his secondary offering on 18 January). In other words, such an extraordinary premium had to be justified in the silverogosphere by grounding it in fundamentals, viz. such an astonishing premium must imply a huge shortage in the silver supply.

This shoddy thinking reached its glorious nadir in Zero Hedge's abysmal pump of PSLV, as discussed here by Screwtape's Brian O'Flanogan; a number of commenters also waded in to patiently add to the debunking.

If that wasn't enough, Sprott's second issue caused the premium to collapse to 6%. This really should have been the death-knell for one of the most ludicrous of all the silver memes floating around on t'internet. I mean, if a premium of 35% implies a shortage, then presumably one of 6% implies a sudden glut in supply? Which would mean that Sprott's sudden large purchase of silver had somehow increased supply! It's enough to make one weep. This chart (courtesy of gotgoldreport.com) shows quite clearly just what a bad deal the holders of PSLV got in comparison with those of SLV:

But, one should never underestimate the resilience of silver ~~religionistas~~ memes. The facts never get in the way of a good bit of propaganda, even if all it takes is about five seconds' thinking to realise that the propaganda makes no sense at all. The great and the good of the silverogosphere continue to chant the new axiom that silver is unobtainable for less than a 30% premium when buying in bulk. The meme has legs, and all efforts to kill it at birth by the more rational parts of the community have failed.

I'm going to have one last go, before giving up. In recent private correspondence I was challenged to find ways of buying a million ounces of silver without incurring hefty premiums. So, I borrowed $34,000,000 from GM Jenkins (using the indentured slavery of my first born as security, as per his usual terms) and decided to do a bit of silver shopping. Here's what I found:

1. I could buy some silver futures contracts on the COMEX and stand for delivery. This way, I will get the silver at a spot price that I think will be a good price in the future (e.g. a few weeks ago, I could have easily picked up some futures for silver at $28 an ounce, which would have been a great deal; but even today, I could buy some futures at $34 an ounce quite cheaply). The costs associated with this will be the broker's contract fee and commission for the trade (a tiny fraction of a percent for such a large trade) and some storage or delivery costs once the contract is closed (again, this would be a tiny fraction of my $34 million order), plus some insurance. A bonus for conspiracy fans out there is that by doing this I'll be contributing to the collapse of the COMEX [/sarcasm].

2. I could buy and redeem SLV. Basically, this needs to be done in 'baskets' of 50,000 iShares. So my $34,000,000 will get me 1,031,553 iShares of SLV (before open of play on 29 January, silver is at $33.99 per ounce and SLV is at 32.96). So, let's say that I'll buy a round million iShares which will get me 20 baskets. The 'premium' will be what the iShares prospectus describes as 'applicable fees, taxes, expenses and charges'. One of these fees is $2000, which is neither here nor there if you're splashing out on $34 million of silver with GM's hard-earned cash. The rest adds up to just a few percent [if anyone can do this calculation more precisely, then I'll be grateful, and will add it to this post with an acknowledgement].

3. The Perth Mint is (at the time of publishing) selling silver 100-oz bars at 2.4% over spot (i.e. $34.65 as opposed to their last quoted silver spot price of $33.84 spot price) So, I'd need 10,000 of those. However, the Perth Mint Depository’s standard premium for 1000-oz bars is $0.20 per ounce over spot, which in practice would usually be stored in their vault. But for buyers of size (High Net Worth individuals), they will do “cash and carry” if requested and - for delivery to the USA by sea - an additional three to five cents over spot should cover freight. So purchase and delivery would come in at a rather tasty 0.74% premium. [Many thanks to Bron Suchecki of the Perth Mint for this information.] I'm sure every other major bullion seller around the world would also have similar fees and services for HNW clients and I wouldn't be surprised if there were some quantity discounts of list prices.

4. GoldMoney: If you don't trust the evil SLV, then perhaps you'll have more confidence in a White Knight in the form of James Turk. Here you can see GoldMoney's rates. Not surprisingly, the more you buy, the lower the rate. So a million dollars or more will get you a rather nice 'premium' of 1.99% for physical silver. And they'll deliver it to your house, if you like (although that will cost you a couple of percent extra).

I found about a million (well, half a dozen) other ways of getting my bulk purchase of silver for a low premium, but I don't want to labour the point...

So, to answer the exam question, 'what is the rate for bulk purchases of silver', it is between almost zero and 2%. That's quite a long way from 30%, I think you'll agree. Now, the die-hard cynics amongst you might say, 'well, that's all well and good in theory, but can you give an example of someone who has actually recently bought a large amount of silver without paying 30% premiums?'

Funny you should ask that. In fact, I know of a certain Mr E. Sprott of Toronto, Canada, who - according to the publicly available records of the PSLV Trust - has just bought 8 - 9 million ounces of silver (and rumour has it that he didn't even need to borrow the fiat off GM to do so...) I don't want to blatantly plagiarise someone else's work, so please check out Kid Dynamite's analysis, which shows quite clearly that Eric picked up his shiny stuff at very close to sp(r)ot(t) price.

Now this should come as no surprise. There are three incontestable facts about billionaires. The first is that they are very, very rich. The second is that they didn't get to be very, very rich by paying a 30% premium for something that they can get for almost no premium at all. And the third is that they tend to employ very smart, efficient people, who lose their jobs very quickly if they waste their employer's money.

So Sprott probably just got his people to buy his silver on the COMEX, at virtually no premium. Sprott cheerleaders on the silverogosphere then went around implying (again) that silver was in a shortage, and the premium-to-NAV proved this (even after it crashed).

It is, in fact, precisely this level of chutzpah which distinguishes filthy-rich billionaires from unpaid small-time bloggers whose eldest children are now condemned to spending the rest of their years darning GM Jenkin's socks...

So much trouble for a little tungsten…

2012-01-25T09:00:00.001-05:00

I really have to vent about this article on Zero Hedge, a stunning examination of a 2008-published brochure on the gold vault of the Federal Reserve Bank of New York. While the article does note the age of the information, the piece is little more than a cheap jab at the vault, complete with this gem of a conclusion: “To think: so much trouble for a little tungsten…”. Repeat a lie often enough, people will start to believe it. But I suppose poking fun at a three-year old brochure really is the ticket for a slow news day - everyone is waiting for the next event (e.g. FOMC meetings) to move the metals price or is busy discussing how the indian-gold-for-iranian-oil is going to somehow trigger the next invasion of the middle east.

So this is a worthless post about a worthless post – attracted only by the opportunity for some recursion. After the euphoria passed, I realised that getting the scoop on ZH running a piece perpetuating a common metals misinformation meme was not actually that special, and I started to consider Charles Hugh Smith’s strategy of setting up a site dedicated to lol catz or something (surprised by my own design of distraction but might have something to do with the fact it’s rained here for nearly 5 days straight with another week to go making life a little crazy).

"Crazy !!!"

On the topic of intellect, here’s a quick mystery - Dr Peter Trzaska (one of our recent commenters) has spent 20 years in the metals industry and is currently making a living as a trader. There is no question that he is more intelligent than my good self. According to his blog (which bloomed briefly during October 2011 last year) he thinks Sprott is great and believes that silver is scarce. With all his knowledge, why does he think that? And why did he delete my comment that I left on his blog, enquiring into this? (which was not offensive – purely asked for his opinion because I was interested in what he had to say). I haven’t deleted your comments here Peter, that’s just not the way we work. I genuinely want to know why you think that silver is scarce, since all the evidence is against it.

Sunday pre-game, 1/22

2012-01-22T17:57:00.015-05:00

Greetings, friends-

I continue to believe silver, not gold, will lead the metals over the next few months. So like last week, I've got just one gold chart for you … basically, gold has to get back into the black channel before I'll get excited (currently at exactly $1700).

Note, if gold hits the center of the channel again this year, that would be over $2000/oz. I think the correction that people would expect at $2000 already happened at $1900 (double top, in fact). My guess is, if gold hits the center black line this year, then $2250-2700 would rapidly follow (i.e. the top black line, depending on when it happens) . So if you believe, like I do, that your corrupt ruling class is deathly afraid of exploding gold, we probably shouldn't expect gold to enter back into the black channel without a fight.

Regarding silver, last week I noted a similarity between the big January 2011 correction and the one that capped off 2011 (see blue circles):

Well, silver actually went past my target: see the blue line I drew last week (note, same slope as last January). So, I actually went all cash (in my trading account) as the market closed on Friday. I don't plan on sitting this out long; I will phase back in on red days. However, I felt extra reason to be cautious after the 5% jump Friday, what with the State of the Union and options expiration coming up, plus the FOMC, which has provoked strong sell-offs over the past year whenever QE3 isn't explicitly announced.

I took the opportunity to draw from last week's trading profits to host a special welcome dinner at my house for Robert LeRoy Parker, who contributed a fine post this week.

On the long term weekly chart, two big bullish developments: silver has decisively broken through the falling wedge, and the 34-week MA and 55-week MA have crossed on schedule:

On the long term daily chart, I'll be keeping my eye on these two trend channels (dark, light blue); the $37.50 crossing point (within 2-3 weeks) seems to be exerting some pull.

One thing I'd like to do (actually its third on my list after picking up jazz dancing and learning how to ride a bicycle) is to come up with an objective measure of the strength and fidelity of a trend channel. The concept of finding long term trends in seemingly random short-term data is on the cutting edge of mathematical statistics, whereas your typical TA chartist will just draw 2 lines and call it a day. Thinking about it, the vertical distance between a channel (on a log chart) is a straightforward measure of "strength" -- i.e. your percent profit as the price moves from the bottom to the top of the channel in a bull market.

To measure the usefulness and fidelity of a trend channel, I suggest two parameters. First, a metric taking in account the number of times a channel has served as resistance/support (with some algorithmic penalty for overshoots). Second, the horizontal distance between the channel, measured in time. Given the assumption that price has to stay within the channel, horizontal distance is the maximum time you'd have to wait after buying at a top before you would break even (and vice versa in a bear market trend). So for example, a big reason why I keep turning back to my "yields paid in silver" chart:

is because of the tightness of the channel horizontally (the purple channel is ~9 months apart). For a counterexample, check out "yields priced in oil"

There's a similar 15 year (!) downtrend, proving that, priced in real goods, the government has been finding it steadily easier to borrow. Moreover, the "strength" of the channel is good (100% profit from bottom to top). However, the horizontal distance on this channel is ~4 years. This makes it far less useful -- except when we reach a boundary. Which we have.

Now here's a logical chain for you. Assumption 1: the downward trend channels in both the "10-yr yield:silver" and the "10-yr yield:oil" chart will continue to hold; Assumption 2: with looming war in Iran (and the believable recent OPEC consensus to floor oil at $100), oil won't go down significantly. Ergo, yields have to start going up. Ergo, silver has to start going up even faster than yields.

Of course, the assumptions need not hold. But note also on the lower part of the chart below that the 10-yr yield appears to have broken out of its green wedge.

We'll have a lot more info to gauge these bullish prognostications when the DOW finally falls from its recent frothy, low-volume upswing (its RSI is at 70). Will the PMs outperform?

Lord Gordon William Humphreys Richardson AKA Baron Richardson of Duntisbourne AKA Governor Richardson AKA ANOTHER

2012-01-20T13:16:00.016-05:00

Note: The following is purely conjecture and is in no way meant to dishonor the memory of Lord Richardson who passed away in 2010.

Approximately one and a half years ago I came across the Thoughts! of ANOTHER. Up until that moment, I shared the "hard money socialist" views of many in the online precious metals community. I sincerely believed in the gold standard and even gave bimetallism consideration. However, if I may borrow from my friend Hedy Lamarr, since that moment my mind has been a raging torrent, flooded with rivulets of thought, cascading into a waterfall of creative alternatives. Essentially, I've become bizarro Steve Jobs:

FOFOA has stated that the words of Another (and FOA) are "the kind of inside information that never made it into the history books and still resides at the level of former Oil Ministers and National Security Advisors." That's pretty high on the pecking order. Kind of makes you wonder who they were, no? Well, this post will not delve into the subject matter of ANOTHER's thoughts or FOA's gold trail for that matter. However, it will in fact take their words nearly at face value, and from that perspective, I'll present my attempt to decipher their secret identities based on anecdotal and historical evidence. So, lets dive right in.

There are two clues as to ANOTHER's identity which significantly narrow the field of candidates. First and most important, ANOTHER was English. FOA told us so in his antepenultimate post. He was heated and anger driven in response to ORO's incoherent babble, or as FOA put it, the "words of a fool."

FOA:"I will say this for the record: Another is English and not Islamic!" -- Link

FOA's emotions got the best of him at that moment, and betrayed the location of ANOTHER's batcave, which may have ultimately influenced their final disappearance. In that same exchange, FOA reveals additional clues about himself, but I'll work back to that. The second important clue, and most obvious, is ANOTHER's clear connection with the Bank for International Settlements (BIS), and his personal knowledge of the top secret Saudi oil for gold trade.

The BIS is the clearing house for the central banks of the world. They deal in currency and gold, and operate out of this building in Basel, Switzerland:
Image taken from BIS.org

According to Edward Jay Epstein's fascinating 1983 article in Harpers Magazine, the "unabashed purpose of [the BIS's] elite monthly meetings is to coordinate and, if possible, to control all the monetary activities in the industrialized world." They are run by a highly secretive group, mostly composed of European central bank governors. An example of BIS secrecy: "In 1944, following Czech accusations that the BIS was laundering gold that the Nazis had stolen from occupied Europe, the American government backed a resolution at the Bretton Woods Conference calling for the liquidation of the BIS. The naive idea was that the settlement and monetary clearing functions it provided could be taken over by the new International Monetary Fund." Sounds like America needed Michael Fassbender on the case instead of the IMF... Bottom line - this is where the Saudi trade was initiated.

Epstein describes the hierarchy of the BIS: "artfully concealed within the shell of an international bank, like a series of Chinese boxes one inside another, are the real groups and services the central bankers need - and pay to support." There is the board of directors, high level committees, and the ultimate "chinese box called the Group of Ten or simply the 'G-10'."

As of 1983, right around the time of the Saudi's secret deal, the G-10 was composed of eleven (go Alex Smith! We saw this coming when we drafted you #1!) members "representing the eight European central banks, the U.S. Fed, the Bank of Canada, and the Bank of Japan. It also has one unofficial member: the governor of the Saudi Arabian Monetary Authority." Wow! Epstein got the goods for this article. What separated membership in the ultimate Chinese box?

"The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments."

This is not an easy position to hold for an Englishman says Epstein, as the "Bank of England is under the thumb of the British government." But nevertheless, one Englishman was still admitted to this group. "Lord Richardson [BoE governor 1973-1983] was accepted by the inner club because of his personal adherence to this defining principle. But his successor, Robin Leigh-Pemberton, lacking the years of business and personal contact, probably won't be admitted to the inner circle."

So there you have it. There was one Englishman in the inner circle, and it was Lord Gordon Richardson, the former head of the Bank of England. Richardson's role at the BIS is confirmed on their website here. He served as Vice Chairman of the Board of Directors twice! From 1985-1988 and again from 1991-1993. I'm pretty sure number 2 is a member of the inner circle.

Of course this doesn't prove anything. But there is some additional evidence that leans in the direction of Lord Richardson being ANOTHER. Here is a link to a speech Lord Richardson gave to the house of Lords in 1987. A lengthy excerpt:

"In thinking about the solution I find that it is helpful if one can look at how the imbalances began. In my view they began in the divergent policies taken on the one hand by the United States and on the other hand by the other major industrial countries in the 1980s. The United States went for monetary contraction and massive fiscal expansion; the other industrial countries went for monetary restraint with a parallel fiscal restraint. I believe that the root of the imbalances lies in that divergence.

The growth of demand in the United States in the 1980s compared with its growth in the other developed countries has been dramatic. Demand grew at something like twice the rate in the United States through the 1980s compared with the other developed countries, and imports into the United States expanded almost two-and-a-half-times as fast as imports into other countries.

In those circumstances the budget deficit appeared, a trade gap yawned wide open and the United States, in order to supply the deficiency of its own domestic savings, sucked in savings from the rest of the world, where it is fair to say they were available partly by reason of the constrained fiscal policies being pursued in those other countries. But the scale of that sucking in of savings was enormous and the imbalances are there clear to see for everybody and they are unsustainable.

It is clear that the United States cannot go on calling on the rest of the world's savings at that rate to supplement its own deficiencies. It is clear too that a massive disequilibrium between the industrial countries cannot form the base for sustained growth and stability in the world. Beyond that, the disequilibrium between the economies has meant that we have had a switchback in the dollar, first rising to unsustainable levels and then subsequently having the possibility emerging of a downward correction of an excessive kind unless the appropriate policy measures are taken.

...

But the fact is that the United States has basic problems, and those basic problems are excessive consumption and inadequate domestic savings. They have been borrowing more than they save and they have been spending more than they produce. As a matter of analysis, that has to be corrected through an intermediate time-scale. The domestic savings gap, which has been running at something like 100 billion dollars in recent quarters, has to be closed in that time-scale.

Speaking again analytically that can only happen if for an extended period of time domestic consumption in the United States is below domestic production. In order to allow the trade flows to rebalance themselves room must be made for exports. On the other side complementary measures must be taken, and in the surplus countries domestic consumption has now got to exceed for a period of time domestic production. That is the only way in which the balance can be re-established."

That sounds familiar. Could be ANOTHER. But what else might there be? How about age? We know that ANOTHER was elderly, given the way he often spoke about the freegold transition taking place in "your lifetime" rather than his own. Lord Richardson passed away at the age of 94. That would place him at 81 when ANOTHER started posting in 1997. It is reasonable to assume that an 81 year old may not be as concerned with jeopardizing his positioning at the international table by posting top secret information on the internet. We know that Richardson was a veteran of WWII.

FOA: This person does not know me or my associates. Indeed, most of us let blood for this country in a war long gone...You are not part of the same country I served!

FOA is referring to America here, but it is fair to say the Allies bled for each other. Is he implying ANOTHER served as well? Could be. There is some other information that I have dug up which shows Richardson voicing concern over gold, but I think I've made a reasonable case. The key element that is missing is the FOA connection. Who is FOA and how did he become so close a confidant to ANOTHER? This is where my theory may split with others. I understand that many believe FOA to be American, but I think this could be misdirection.

FOA signed off in his penultimate post as "Sir Douglas, Your Trail Guide." I don't know many Americans that refer to themselves as Sir, but that's neither here nor there. What is here and there, is the man who served as Secretary to Her Majesty's Treasury from 1974-1983 and UK Alternate Executive Director at the IMF from 1976 onward. One Sir Douglas Wass, born 1923, veteran of WWII, Princeton graduate, and distinguished British civil servant.

Coincidence? Maybe. But I wonder if the secretary of the treasury and the head of the central bank had much interaction over their coinciding ten year terms? Sir Douglas can still be found participating in lectures at the British Academy. He is 88. In 2008 he published a book titled "Decline to Fall: The Making of British Macro-Economic Policy and the 1976 IMF Crisis." Excerpts are available here.

I have yet to research Sir Douglas Wass' work more thoroughly.

So are Lord Gordon Richardson and Sir Douglas Wass ANOTHER and FOA? You tell me.

P.S.

Special thanks to Screwtape Files for lending me the soapbox

Gold will hit an all-time high in days (updated) (again)

2012-01-19T10:44:00.027-05:00

Yes, you read that right, and, no, I haven't been smoking the dried banana skins again. I am as close to certain as one can be that gold will in the very near future - perhaps in a matter of weeks or even days - make a brand new all-time high.

I can almost smell the scepticism through the inter-tubes. 'Where's GM, the real TA master?' I hear you cry. 'JdA doesn't do the analysis - get GM back.' Well, if you must know, GM is sadly indisposed, following a difficult conversation in which I requested permission to be unleashed on the charts, and he exhibited some initial reluctance.

Moving on swiftly (before he can bite through his binds), here are your charts. They all track the London gold fix for the past 12 months. As you can see, each makes quite a compelling case for gold hitting a brand new all-time high very, very soon:

UPDATE (21/1/2012): By the wonders of the internet, these charts will continue to update themselves automatically. So interested readers can check by from time to time to see how long it actually did take for gold to reach its new all-time high. The reference point for this article (and thus my call) is 19 January 2011. As you can already tell (as of 21/1/2012) it's not going especially well... Sigh...

UPDATE (27/1/2012): I'm over-joyed. My first call on Screwtape, and it was a blinder. Gold did indeed just make an all-time high, just seven days from posting this article. For detailed info, please see the comment section. But please remember that JdA is NOT a soothsayer, a psychic or a witch...

Now, you might think that that's cheating. Or you might assume that the average Screwtape reader doesn't do a great deal of gold buying in Złotys or Forints. You'd be right on the latter point (although we are quite big in Sweden, apparently), but cheating this is not.

You see, most of the main arguments used by the 'gold is in a bubble' proponents of this world are based on the gold chart in US dollars. I won't reproduce that chart here, because you're all familiar with it. But it's certainly true that it can look a bit 'toppy' when viewed from certain angles (although anything but toppy when viewed from others, of course). However, TA - especially TA conducted in one currency only - is only part of the story. We also need to factor in events, and we also need to consider sentiment.

In other words, how are worldwide investors, big and small, viewing gold at the moment? Does gold still have its old magic? The charts above suggest to me that the answer is unquestionably, 'yes'. It's no coincidence that the four currencies I chose are all in trouble, for a range of reasons. And so Serbian, Hungarian, Polish and Czech investors who have bought gold have had their finances relatively protected over the last six months. For them, gold has acted exactly as it should - as a safe haven. And those who bought in earlier will have made a pretty healthy fiat profit thanks to their foresight. In case you're still questioning the 'gold to make new highs in days' title, I will point out that for each of these currencies gold only needs to increase in price by between 1.5 and 2.5% to do so. Considering the general worldwide momentum that is behind gold as it comes off its low, this does not seem to represent much of a challenge.

But I can't deny that these markets are not especially large. And these currencies are in more trouble than the dollar, the pound, or even the euro. My point is that the weakest (genuinely independent) currencies will have the flight to gold first, and these will be followed by the next weakest, etc. You might think that I have chosen deliberately obscure examples to hammer home my point. Well, bearing in mind that I said the Koruna, Złoty, Forint and Serbian Dinar only have to shift by 1.5 - 2.5% to reach new highs, how far does gold priced in some of the bigger boys have to move?

To make a brand new all-time high, the price of gold in Euros only needs to rise by around another 5.2%; in Swiss Francs, 4.5%; and in Norwegian Kroner, 4.3%. Perhaps surprisingly, the British Pound Sterling is doing better, as gold needs to rise 9.6% to make a new high. This reflects the fact that the GBP has become something of a shock safe haven in recent months, as investors have rapidly exited the Euro.

Now before anyone tries to point out that a lot of this is a function of currencies devaluing against the dollar, the currency in which gold is bought, I am fully aware of this. But my point is bigger than that: those who like gold as an investment often point out that it is an excellent hedge against currency devaluation. But this confidence has taken a knock in recent months, as the shine of gold's safe haven status has appeared to tarnish, and the dollar has emerged as the safe haven par excellence. What the above data show is that gold remains an excellent hedge against devaluation, and the fact that the devaluation is against the dollar rather than (as expected) against gold itself is neither here nor there if your money is in one currency and you have to buy your commodities in US dollars, as is the case for most of the world.

So what of the dollar itself? Well, the poor old USD (thanks to its strength) still has to lose another 15% to make a new all-time high in gold. US dollar sentiment appears to be declining, however (with the USDX falling from 81.8 to 80.15 in four trading days); this should make its gold price climb climb easier. And if US dollar sentiment really did fall quickly over the next month, then I admit that my prediction of brand new all-time highs in a range of other currencies may well be put off a little longer.

Bankster Shills

2012-01-17T12:00:00.001-05:00

The thing I love the most about this blog is that the contributors are a collection of very different individuals, with very diverse views. I think it's fair to say that we're all generally bullish on the PMs, and that we have declared positions in gold and silver, but apart from that our only unifying trait is that we love debate, getting to the heart of the matter, and seeking to dispel myths and shoddy thinking as often as we can. If we see something we disagree with, we probe and challenge - including our fellow contributors' views.

Unfortunately, this approach has done little to endear ourselves to certain quarters of the PM community. Although that's a shame, it's perhaps understandable given that we're often a bit cheeky and polemic (or just good old-fashioned devil's advocates). However, what is less understandable is how a brand new PM meme has started doing the rounds: i.e. that the Screwtape Files is a fully paid-up psyops front for bullion banks.

The abuse in some parts of the blogosphere has been predictably banal and depressing, spiked by Brian O'Flanagan's recent question about the relationship between ZeroHedge and Sprott's PSLV. Here are a few of my favourite recent comments about Screwtape, taken from a number of sites, including ours (the asterisks are my addition, for those of a nervous disposition):

Tyberious: Those little piss ant, SLV, GLD, c*ck suckers[...]What the f*ck! They shall have no quarter here![...]I know these guys a paid shills for JPM, or whatever banks' d*ck they suck! Look nothing against homos, but these guys are whores! For all those that are new, these guys (KID D*CKINMYASS [sic], and butt buddies) pray on the ignorant and pretend that all is well, like there is no manipulation in the PM markets, that SLV and GLD actually have the metal they report to have and they attempt to spread misinformation and worst of all they f*cking do it for money!

PaidInFiat: Jeanne, eat a d*ck. How's that for an explanation? [and, later] Jeanne darc, gobble a donkey d*ck, you elf.

Silver Stacker: I don't doubt what you say, but I don't believe it either. It equates to me stating that the contributors to this blog like to suck each others d*cks and blow loads in each others faces.

Bay of Pigs: They are useless tools on gold or silver, IMO. Better off to ignore them. They have deadpanning gold and silver and supporting the MSM status quo since I can remember. They don't acknowledge anything being wrong/corrupted in the markets (especially the COMEX).

Green Lantern: That must be where the trolls go after they have finished flaming Turd on the main blog. I guess they need a place to wet their whistle also. From simply a journalistic point of view, did you notice that his entire blog is dedicated to flaming individuals/sites and point of views and rarely puts forth his own world views?

Ledbedder: Looks like the boys and girls at the other blog are green with (fake gold) envy.They think because they write "articulately" that they can fool some folks. Go right ahead, try. I honestly do not know anyone that can make an argument against the PM's not going higher over the next few years. Yes, 2011 wasn't their best, but look at the 10 years before that. Guess a decade isn't enough data to go on. That was my roughly written 2 cents as I didn't get a degree from Brown or HAAAAAAAAAAAAAAAvard. One last thing, look down your noses at us because we type swear words, who cares? Tell us you don't let out a good "F*CK" when you bang your shin on the coffee table. Liar.

SGS: Yeah. These morons, especially kid dynamite [sic] are part of a paid JP group to discredit us.

Anonymous: Screwtapefiles is just a front site run by the Bankers. Zero credibility there.

Anonymous: screwtape has zero credibility. The people authoring there have been exposed and countered many times before. It's a site of the banking shills, by the banking shills and for the gullible.

SGS: Dont come back here. You realize that I know who you are now. My tech seems shitty on the front end, no[t] so bad on the backend. You've been warned.

Lovely. What is very striking about such posts (and there are many more) is the level of visceral hatred for those who do not necessarily share their world view or - more importantly - the world view of their heroes. It is also hard not to pick up on a certain amount of deep-seated auto-erotic tension, which I imagine would be better released in a more amorous rather than aggressive way - but I'll leave that train of thought to the psychologists.

However, what is utterly conspicuous by its absence is any attempt to engage with the question at hand, to refute it through evidence, or to present a coherent counter-argument. Responses are limited to either "you're a c*ck sucker" or "you're a bankster shill".

Now that's a bizarre approach. Let's say for a moment (for the sake of argument) that they're right, and the only things we love in life are violent oral sex and getting fistfulls of dollars from JPM. How, exactly, does that refute the facts we have pointed out, or answered the questions we've posed? It's simply a diversionary tactic to avoid answering the difficult questions. So we are forced to ask: why would such diversionary tactics be used by certain elements of the PM blogosphere? If what they say is an open-and-shut case, why respond with abuse and allegations, rather than simply presenting their evidence and explaining their reasoning?

It is obvious to anyone who has ever read Screwtapes that we are not paid up Bankster Shills. We all give our time free to this site, despite us all having extremely busy day jobs and family lives. You will notice that there are no adverts on this site, and there is no donation button either. We make not one penny from this site by any means. We strive to hold the highest levels of integrity, and make full disclosures when necessary.

Sadly this cannot be said for other elements on the web. Some sites earn serious cash from their traffic, and others have direct links to those with a corporate interest in promoting precious metals. Not all sites - and I want to stress that. There are good guys out there. But suffice to say that the supposedly 'independent' content and advice peddled on certain PM sites is often as partisan and sponsored as that which emanates from certain parts of the MSM about which they scream foul on a daily basis. Corporate shills by any other name. I will expand on some of these themes in future posts.

Most of us are long the PMs, and most of us accept that there is a degree of manipulation in the PM markets. But we refuse to subscribe to the cartoon version of evil empires and wicked witches; a world of Zionist plots and farting bears. If a claim is made, such as Sprott's delivery problems or DSK's imprisonment at the hands of the Cartel, or a problematic gold bar in a vault, then we will investigate it. If we find it to be true, we say so. If we find it to be false, then we say that too.

This refusal to blindly accept all we're told, or to unthinkingly cheerlead the latest silver memes does not make us 'anti gold' or 'anti silver'. It does not make us 'perma bears'. And it certainly does not make us Bankster Shills. We value your comments, and we want you to challenge us (politely). If shown the evidence we will change our views on the spot.

We are beholden neither to the banks and Wall Street, nor to those with an interest in selling as many coins and bars as possible.

And it is that which makes us the most independent PM site on the web.

RSI & gold corrections

2012-01-17T01:29:00.006-05:00

I like the momentum indicator RSI (Relative Strength Index) because it captures an important phenomenon of market psychology (and a phenomenon independent of "fundamentals"). An intuitive way I like to think about it is: "Over the past 3 weeks, who's been happier: bulls on the "up" days or bears on the "down" days?" In other words, the total number of up or down days out of the past 14 has no direct bearing on RSI; only the cumulative gains on the up/down days matter, whether those days be few or many. Thus, the slope of RSI over time gives you an idea of the changing relative happiness of bulls vs bears on their respective "happy" days.

Over the past 3 years, whenever gold has exceeded the "overbought" 70 RSI-level and then come down to near-oversold levels below 35 (see red line), its downward path has been capped to the upside by similarly-sloped trend lines (see black lines). Observe that every time the RSI has finally broken its black trend line to the upside, the closest "local" minimum preceding the breakout has coincided exactly with at an important price minimum, preceding a strong rally (see purple vertical dotted lines).

I'm watching the RSI. I'm confident the pattern will repeat, and gold is about to begin a strong rally. But, if the RSI does fall below the green trend line, be careful: that's another sign "things are different" now, and that patterns over the past 3 years may no longer be dependable.

Silver Stackers on Alert as Sophisticated Fakes Hit Market

2012-01-15T20:16:00.003-05:00

As if physical silver stackers didn’t have enough to worry about these days, with Cartel manipulation and all, now we are seeing increasing reports of sophisticated fake silver coins and bars hitting the market. I recently went through a batch of about 1,000 Morgan Silver dollars and spotted about 30 fakes out of that batch. The fake Morgans were fairly easy to spot, all them were key date or Carson City issues and all were at least 5 grams underweight. Given how easy they were to indentify, it wasn't much of a concern.

However, the sophistication of the counterfeiters has been increasing in recent years and their shift in focus from high value numismatic coins to low value bullion is raising alarm bells throughout the industry. OzCopper has been doing some outstanding work acquiring some of these high quality fakes from China and exposing them on their website and on Youtube videos.

Their most recent video shows some fake silver Canadian Maple Leafs that they acquired for $2 each in China. The fakes are the best we have seen yet. The weight is only slightly under by about 0.5 grams, which wouldn’t be noticeable unless put on a scale. Furthermore, the details of the coins are quite good with the flaws being in the details of the leaf which wouldn’t be noticed on a quick inspection (be sure to visit OzCopper’s site for pictures of these details).

The good thing is that although the fake Maples are fairly good, they are easily identified with close inspection. Nevertheless, investors dealing in physical silver must dramatically increase their diligence when buying physical and remain a step ahead of the increasingly sophisticated counterfeiters.

Silver and the bubble curve: where is the Smart Money heading? (Clue: it ain't silver...)

2012-01-14T12:36:00.019-05:00

This post will make me about as popular as a fart in a spacesuit, I know. Certainly the PM blogosphere will react with a mix of mockery and vicious hatred. And even my esteemed fellow contributors at Screwtapes will probably run out of eyebrows to raise at what follows.

But I don’t care. There is so much nonsense talked about the PM markets on the web, and so many people are being unwittingly dragged into cult-like devotion to lumps of metal they think will make them millionaires, that I believe it’s becoming ever more important to present every possible side of the case.

So here’s an article about how silver is not the only fruit, and anyone whose sensibilities this offends can b(l)og off and instead read the latest spittle-flecked pant scrapings from SGS (which will no doubt be about Blythe destroying nuclear power plants in J apan at the request of Mossad, or – the new comment section favourite – aliens hoping to steal silver from the COMEX).

Bubble curves and the ‘Smart Money’

Most PM investors are familiar with this kind of

graph, not least because it is touted all over the place as a way of supporting the assertion that silver was not in a mania last year, and will not be in a mania if the price doubles (or triples) this year. Now is the time that the ‘Smart Money’ should enter, so we’re told.

This is not new: in April last year, the Blogosphere buy screams were deafening at $47, cautioning their readers against missing the boat to $250 – 500. The Smart Money should get in immediately they said. They’re beginning to say the same thing again, with silver at $29. Now don’t get me wrong: I doubt I could be more bullish on silver at the moment. I have a nice stash bought at $27 which I’m very much looking forward to selling at between $38 – 42. Claims that Screwtapes contributors are ‘perma bears’ couldn’t be further from the truth.

But the silver chart has nothing of the Smart Money about it. Real silver bears would say that actually we’re between the ‘Return to normal’ and ‘Fear’ stages. I personally don’t agree with this (QE, and its effects on commodity prices, the continuing push for a mania in the tiny community that is silver, and the fact that silver is not currently too far from its trend line suggest otherwise). However, at best – I mean, in the most positive possible interpretation – we are somewhere in the Mania phase.

I’ll repeat: this does not mean that silver won’t now rise (possibly quite dramatically) for the next few months. I think it will, and I hope to profit from it. But Smart Money it ain’t.

So where should Smart Money go now?

Imagine I’m a greedy investor (I am). I don’t want a x2 or (very optimistically) a x3 return from what’s left of the silver mania in 2012. I want a x10 or a x20. Like the clever swine who bought silver at $5 back in 2003. So where is the Smart Money going at the moment? First, let us examine the qualities which potential investments should have in order to be considered Smart Money.

1) The vehicle (stock, bond, commodity, whatever) should have been in a lull (i.e. stagnant) for a considerable period of time. Like gold was between 1998 and 2002 (range: around $270 - 350) or silver between 2000 and 2004 (range: $4 – 6).

2) It will thus have been written off by all pundits. The price gets so low that no-one will sell. But new buyers aren’t drawn in because of the perceived opportunity cost of having their money sat stagnant in a non-performing asset. Like silver in 2003.

3) The vehicle is, however, sound. In other words it is not a company facing bankruptcy or a commodity or good that no-one will ever need again. The business is still profitable (perhaps only just) or the country (referring to bonds, here) is still solvent (also perhaps only just). In the case of silver, it was always going to be valued for jewellery and industrial uses and by ‘eccentric’ retail investors, so there would always be some support to prevent the price dipping (much) further or – in the worst case scenario – to zero.

4) There are clear upside events on the horizon, which – once they take hold – will bring in new buyers, and potentially very quickly. Using gold as an example, we could have said that the Smart Money buying at $280 was anticipating currency devaluation, Middle East crises/oil shocks, whatever. The point is that although the Smart Money did not know the timescale, it knew (or hoped) it would happen. These people are now getting seriously paid (and, in some cases, doing the selling...)

So what assets are there currently floating around that look like they fit these criteria?

Enter stage left, the bank stocks

Boo, hiss, shame!, get out of town, you fully paid-up bankster shill...! We always knew you were a JPM hack...! I bet Blythe sticks [insert large object of choice] into your [insert orifice of choice] and you [insert degree of pleasure of choice] it.

Now that’s out of the way, let’s have an objective look at the situation. I’m going to use the example of Lloyds-TSB (LON:LLOY), simply because it’s a UK company so I’m familiar with it and the back story, and have some experience from trading it for a while. But I’ll make my disclosure right here: I’m long Lloyds-TSB (and RBS and a few other banks) and I hope to initiate new positions in the next few months. However, I receive no payment from, or have any kind of professional relationship with, any bank (which is a shame, because it would mean I could stop wasting my time blogging and finally land that foxy Brazilian lingerie model of which I’ve always dreamt).

Lloyds-TSB, like many banks, lost most of its value post-2008. In fact, it went from 591 BPC (British Pence) in 2007 to a low of 21.84 BPC in November 2011. In short, it has been in a period of decline/stagnation for over three years (criterion 1). Its chart sure looks like the Smart Money part of our bubble curve:

The overwhelming popular sentiment is that Lloyds-TSB (and I again stress, I could've picked many other banks here - the use of Lloyds-TSB is merely illustrative) is going nowhere, and that the shares will not recover. However, no-one's selling their shares because, frankly, if you had a position at 590 BPC, you’re unlikely to sell just because the price has shifted from 22 to 24 BPC in daily fluctuations. If you’ve held through all the trauma to date, you’re about as strong a hand as one can imagine (criterion 2).

Lloyds, however, is not bankrupt. Sure, they’re not the money-sucking machine that they once were, and they’ve had a few years of losses, but it looks like 2012 will be the first year since the crash that they declare a profit. Their customer base (on the high-street banking side) is as strong as it ever was, and their efforts to recapitalise have been successful. Their exposure to foreign debt is not great (and has, in any case, been insulated against by their recapitalisations and UK government protections). So, on criterion 3, it’s looking pretty good too.

[An aside: There are always those who will say that the Western banking model is dead, and that the shares will go to zero. Maybe they’re right. But my response to this is that if the UK’s largest banks go bust, then we’ll be so royally [insert expletive] that the best we can hope for is a life of trading acorns and eating our grandmothers and less-favoured children. Good luck buying tinned bacon with your silver in such circumstances: all that awaits a genuine apocalyptic financial meltdown in the US/Europe is death, destruction and chaos. Your PMs will either stay in your possession for approximately a femtosecond or live out their days buried in whatever forest in Montana or Wales you left them. Regardless, the loss of your investment in banking shares will be the least of your problems.]

Now, back to reality, 2012 is likely to see a dividend paid (again, for the first time since 2008) by Lloyds-TSB. And, as mentioned above, its first profit announcement since 2008. Even more important is the fact that the UK government has a 43% stake in the company, at an average of 74 BPC per share acquired during the part-nationalisation. This actually came about not directly because of the 2008 crash, but rather because Lloyds was heavily arm-twisted into bailing out the doomed HBOS during the crash. In any case, the UK government wants its money back. Further, it has to get its money back, as the UK faces decades of austerity if its investments in Lloyds-TSB and RBS don’t pay out. This part should appeal to those who implicate TPTB in every financial machination: the British government has a massive interest in doing whatever it takes to get the share price of Lloyds-TSB at least back up to 74 BPC. Otherwise, ‘good-bye’ ministerial cars and Yes, Prime Minister, and ‘hello’ back bench obscurity. What would you bet on? I rest the case for criterion 4.

Are we at the end of the Smart Money phase for bank stocks?

The night is always darkest before the dawn breaks, goes the old cliché. Continuing with the example of Lloyds-TSB, last year was very dark indeed. The Euro crisis hit it hard, as did the threat of extra regulation and the temporary loss of its chief executive, António Horta-Osório. All of this pushed its share price down to what feels like a bottom of 21.84 BPC. Tellingly, trading in this particular bank stock has since been exceptionally volume-heavy: investors are piling in. It’s risen nearly 50% since then (from 21.83 to 29.97; cf. silver’s move of $32 – $26 – $29 during the same period), and shows no sign of abatement even in the face of potentially very bad news. On Friday, when the news of France’s downgrade was announced, it dipped in line with the rest of the FTSE, and then surged on new buying to finish nearly 3% up on the day.

Why should this be? My theory – and I accept that it is only a theory – is that we are nearing the end of a Smart Money phase in some bank stocks. Those banks that remain profitable and relatively insulated against further risks, and for which most risk has already been priced in, seem to have very little further downside and a hell of a lot of upside. For silver to make a x10 return, it needs to go to $300 an ounce. For Lloyds-TSB to do the same, it needs to go to 220 BPC a share.

It all comes down to which you think is more likely in the next three – five years: $300 silver to achieve six times its best ever price, or Lloyds to claw its way back to one-third of its pre-2008 price. I know there are many who read this site who would say, “that’s easy – silver every time”. Fine. I have silver too, and will be happy with that. But a good investor is a hedged investor, and is also a realistic one. And, for now, I expect TPTB to look after their own interests and restore value to their directors’ shares far more quickly than they will enable silver investors to reap massive rewards.

FULL DISCLOSURE: Long LON:LLOY and LON:RBS and physical silver and physical gold. New positions in each of these are likely to be taken throughout 2012.

Metals musings, 1/13

2012-01-13T19:43:00.016-05:00

Silver's where it's at right now. In my view, if we're going to see the metals break out of their 4 month slump, silver will lead the way. So, I have just one gold chart, the weekly.

The trend lines on this chart connect every closing price since 2008. There looks to be a symmetry in the recent action with the 2008 bottom.

I said on Christmas that the silver bottom would be in within 4 weeks. We will enter the fourth week on Tuesday, and I have no reason to change my forecast. I had calculated that in the coming week the 34- and 55-week MAs would cross, and that should indeed happen, with bullish ramifications, if historical patterns have any weight.

On the above weekly chart, it also looks like we broke out of the falling wedge. Barely, I'll admit, as an emphatic breakout was prevented yet again with a few very sudden, violent, high-volume, last-minute bear raids. This has been the case almost without exception since Labor Day. Still, my gut tells me that if the lower grey dotted line of the wedge was going to be tested, this would've been the week, and it wasn't; while the finish today +25 cents in closing hours was important. I think we're headed to $36 over the next few weeks.

I missed the breakout Monday, but I used the daily chart from last week to get in today *right* at the bottom ($29.45), which hopefully will be the final low before a strong ascent (see case 1, brown arrow). But, I'm not celebrating just yet, as there are 2 other strong possibilities that I consider more likely than others and that I want to be prepared for: Case 2 (see green arrow), in which we test the bottom of the light blue channel again, and it functions as support, confirming that the black down channel has been "trumped" by the longer term up channel; or Case 3 (see red arrow), in which we fall through the light blue channel, suggesting to me that the $26 red/green horizontal support line will also fail this time, and we will fall at least to the bottom of the downtrending black channel at $25. Don't get too aggressive!

I'm encouraged, though, partly because of the tell-tale 10-year treasury:silver ratio charts. The ratio seems to be falling like clockwork after denoting yet another bottom:

Weekly version:

I'm also partially encouraged because the price action over the past few weeks has strongly resembled the pre-explosion bottom of 11 months ago:

Finally, the gold:silver ratio chart I posted on Christmas:

It sustained a day of damage during the low-volume late December crash, but looks to be back on track.

Of course with looming events such as war with Iran (and possibly WWIII shortly thereafter) it feels kind of foolish to look at charts at all. Truth be told, as big a fan as I am of the metals, I'm afraid that our ruling elite fears and detests gold hoarders with such intensity, even more than they do serial killers and pedophiles, that it's hard for me to feel too encouraged that PM investments will ever be allowed to pay off in a really big way. But, so long as studying chart patterns continues to pay off for me, I'll keep studying them and sharing my ideas with you. Have a nice weekend, everybody.

Metals musings, 1/8/2012

2012-01-08T18:56:00.011-05:00

First, I figure I'll share my thoughts on BOF's heat-generating PSLV post below. In fact, I think the more heat put on Sprott, the better, because it's unconscionable that for all of his interviews, no-one has ever asked him any tough questions, like those Kid Dynamite has painstakingly brought up. For example: "Why did you quietly unload all your shares of PSLV if you believe the premium is rational," or "If the market is so tight, why didn't you just procure your silver from SLV, since you don't contest the enormous SLV inventory in your presentations," or "What is the difference between the PSLV premium now and the PHYS premium of 2010, which fell from 20% as soon as you issued a secondary?" Perhaps there are good answers to these, but I'm not aware of them.

That said, I personally wouldn't push the anti-PSLV argument too far. As I recounted here at the time, I dumped a large position of PSLV last spring when the premium went well over 20%, so I'm not unsympathetic to the idea that there are irrational forces at work. But the important question shouldn't be whether stupidity is a component of the PSLV price (stupidity is a component of lots of prices), but rather how much of the PSLV premium is stupidity; or phrased differently, what would a fair premium be? Sure, 30% seems outrageous, but is 15% (i.e. where it was a few weeks ago?).

A friend once only half-jokingly told me he saw no point in buying more physical gold than he could store in his ass. Without having to think about the physical logistics of this proposition too carefully, the concept does bring to light a certain (ahem) painful difference between silver and gold. Put simply, there are very, very few people I know who would feel comfortable even considering buying silver in large bulk to keep in their homes (or on their persons); and finding a secured vault or safety deposit box to hold several hundred thousand dollars worth of silver bars is a nontrivial matter. (Aren't nickels currently worth something like 10% more than their face value? How many people can take advantage of that in size?) I won't even go into the liquidity problems (both real and perceived) that make holding large quantities of metal a non-starter for many (especially for us Westerners immersed in paper like fish in water), nor will I get into things like tax advantages and pension/IRA provisions except to say that though I know little about them, they surely contribute to making direct comparisons between the PSLV premium and bullion premia a little problematic.

Simply put, right now, I think a lot of long/intermediate term buy-and hold type investors and institutions are catching on that $28 silver has significantly more upside than downside, and are seeking ways to capitalize on upcoming silver mania in a way that doesn't involve renting brinks vaults and security details. (Obviously if silver is back at $50 by 2013, even if the PSLV premium is back down below its average of ~15%, and premiums on coins don't go up at all, there will still be a lot of happy PSLV investors.) Personally, if I had to, I'd choose CEF, with it's tiny premium to NAV (though no redemption mechanism). I'm fine with SLV and DBS and AGQ for trading, but I couldn't with a good conscience recommend SLV for a long-term investor. I know there's really no hard evidence of malfeasance behind it, so I won't try to convince anyone of my position, but after recent events, let me just say I feel justified to go with my gut. I'm talking about events like Madoff getting away with his Ponzi for decades despite being monitored by the SEC (couldn't they just have asked for evidence of, you know, actual trades?), or MF Global customers' money somehow ending up in JP Morgan (maybe they'll give it back?), or the fact that the CFTC has been "investigating" what Bart Chilton has called a criminally manipulated silver market for what, 3 years now, with no substantive update whatsoever (so why not just end the investigation already? What about the lawsuits that weren't summarily dismissed as incoherent paranoid accusations should be?) At this point, nothing would surprise me. not even if all of the SLV silver bars were made of cheese.

Anyway, I thought I'd do my metals update on the plane back from Philadelphia, but alas it's almost time to turn off electronic devices (or to pretend to do so). So a few quick charts that I'll probably have to post after markets open when I get home.

I'd be surprised if this is a good week, because both metals fizzled after a good opening, with gold being stymied by its 200 day MA. FWIW I had joined a "two week trial membership" to GATA's "Le Metropole Cafe" to see what it was all about. A contributor there, James McShirley, mentioned some complicated "Cartel" signs he saw early in the week which led him to all but guarantee gold wouldn't make it over it's 200 day MA this week, and that Friday would be a down day; while in a similar vein, Ed Steer of GATA/Casey Research wrote: "As has been the case for many years, there's always a spike up in gold and silver the moment the job numbers are released...followed by the usual smack-down within half an hour or so. Let's see if that holds true again today." Their confidence inspired me to buy some ZSL Friday morning (I use those leveraged ETF's only for very quick day trades). If nothing else, I kind of looked forward to hammering them here for talking shit with such confidence, but they turned out to be dead on. Let's see how they do this week.

So, while I expect a down week, I'll be watching the weekly gold chart for a weekly close above $1575.

As for silver, the 34-week MA should cross the 55-week MA this week (bullish). I'd like to see a weekly close no lower than ~$27.50 to keep the potential flag/falling wedge alive.

Similarly, on this daily chart, i'd like to see the bottom of the black rising channel function as support (vs. a drop to the bottom of the falling blue channel below it, which would mean the several month downtrend is still very much alive). Success there would augur an eventual test of the green dotted line (and ideally the tops of the blue then black channels) before too long.

The mundane machinations of a mania: the story of Wynter Benton.

2012-01-07T08:01:00.012-05:00

WARNING: This post is a work of FICTION.

The original intent of the story was to provide a plausible explanation for how the Wynter Benton legend was born. It is based largely on a text supplied to us by Trinity B (which she described to us as fiction herself) at the end of May 2011.

We decided not to publish it at the time, but – given recent interest in the themes expressed in Trinity’s work - we have now decided that it actually could serve as a useful insight into just how easy it is to craft plausible stories about the silver market. Of course, we also cannot rule out the possibility that Trinity ‘got lucky’ with some of her guesses, or that she knew more than she was letting on.

It has been edited by me and Warren. There is also an epilogue, not penned by Trinity B, but written in keeping with her style (we hope) to ‘round off’ the story.

Get a cup of coffee, and enjoy...

THE MUNDANE MACHINATIONS OF A MANIA

By Trinity B (June 2011)

This post describes no murders, no conspiracies, and no mention of the CIA, Bilderberg or a New World Order. It deals largely with the mundane reality of slightly dodgy web use to promote modern business. Please look away now if the lack of references to smoke-filled rooms, failed assassination attempts or George Soros may offend you.

Flushed with success following her appointment as President of a new precious metals dealer at the end of 2009, X and others in her organisation scouted around various Toronto-based ‘PR solutions’ companies looking for novel ways to make an impact that would benefit both her end of the family business and that of a soon-to-be-launched new silver ETF. The idea, common when starting new ventures, was to use ‘new’ media to support her family’s standard tactics of creating a buzz around a silver shortage. Rumours about JPM’s silver short positions and their use of SLV to suppress the price had circulated for years, but some of the hedgies were beginning to get pretty uptight about it, and a number of events had started to make such discussion more mainstream. X thought there might be some mileage in seeding this rumour in retail quarters, which was not a bad idea, as we now know.

Two ideas were proposed:

1. Message boarding: Wynter Benton’s first posts in March – July 2010 were tests/examples, to show how such a process might work. They weren’t serious posts, nor part of any particular project, and were not especially meant to be read by anyone. Blythe, never a popular figure in the banking world, was used as an example of how stories have more traction if things are personalised. This was rather a quirk of fate – half a dozen other names might equally have been used.

X gave permission to go ahead in order to see how the process might develop. She was not especially hopeful, but felt sufficiently convinced that it might create a bit of a buzz and a bit of extra interest in silver useful to her and her family’s plans for the year.

2. A Canada-based blogspot. Again, a few test posts were created around the same time (summer 2010). The final format, aims and tone of the site would be decided later. The website played around with a few articles and videos reposted from elsewhere, with no particular attempt to ‘add value’ by the ‘host’, gradually developing a focus on the JPM/silver shortage meme. But results were poor – traffic to the site was execrable and lagged far behind that of the WB posts.

At a rather frosty meeting in October, the PR company were told to either drop the blog project or pull something out of their behind. Further, X wanted ‘WB’ to become more convincing, more likely to appeal to grown up silver investors. The rather crass September/October posts by Wynter Benton, which had followed the summer test posts, had not impressed.

So, at the end of October, the PR solutions people assigned someone else to manage the project and X assigned time from an analyst to provide intelligent-sounding details to WB about the Comex, JPM, silver price, etc. We then started to see classical references ('Varro at Cannae'), more precise, technical –sounding information ('Based upon the COT and BPR, if silver hits $60, JPM will lose around an additional $6 billion dollars'), a back story developing (the 'interesting career moves'), and a more articulate writing style. Traces of previous authors had to be left in – notably the ‘body bag’ references – to provide continuity. The claims were magnified for exaggerated effect, and responses to the story were monitored, reposted and encouraged in various forums, along with the help of other ‘entities’ supporting the claims and creating ‘buzz’.

On a roll, the PR solutions people reached a climax of creativity and on 3 December (2010) the blog did something new. Suddenly, the reposted articles (sans commentaire) were replaced by something that would quickly go viral in the silver community. Pushed by ZH and available to all who typed ‘Silver, JPM’ into YouTube, a new audience was rapidly created.

X was (understandably) delighted by the success. A whole new tranche of retail buyers had been drawn in. Even some of the hedgies began to pay attention to some of the crap that was being spooled out on the net – not necessarily because they genuinely believed any of it, but because they knew when to buy a good rumour. Price increases ‘predicted’ by Wynter Benton and others suddenly became a self-fulfilling prophecy. Already in a bullish phase, silver demand started to fuel more demand. Traffic to websites spiked. Blog posts that might have got only a dozen comments before Christmas were now getting a thousand. Posters talked about using credit cards to buy silver at $47, all spurred on by talking bears and a multitude of websites spinning a good yarn about skulduggery at the Comex.

But unfortunately for retail, the cartoon bears forgot to tell anybody what hedge funds always do after they have bought the rumour...

EPILOGUE

By The Screwtape Files (January 2012)

In order to wrap the project gracefully, ‘Wynter Benton’ had left a last communiqué to let them know that hell or high water, they would ‘stand for delivery at the Comex’. With no remaining obligations to the community, Wynter Benton retired, the project finished. Ownership of the blog was gifted to an associate who wished to maintain the brand for the purposes of ad revenue. The May crash followed.

Months passed. Most staff by this point had moved up or moved on, but after the waterfall there were some who smelled an opportunity for a second round. Unknown to X, two members of the original team took the story to a large trading firm, then quickly defected from the design company taking with them the login details for the wynter_benton alias. The new crew wasted no time in re-pumping the Wynter Benton story – the claims were bigger and grander, taking advantage of offering new hope to demoralized silver investors.

The new trading group also had a plan – they would use client funds to purchase futures and be long or short at critical times. Everything was going great, but without the guidance of the senior advertisers and copywriters the story started to wobble in the hands of the less experienced crew. It was also difficult to work separately from the Canada blog. Price calls were suffering because the silver market was not as robust as at the start of the year. Hope was placed on QEIII or a Greek default to make the calls come good. To make things even worse, silver suddenly crashed down through the much-vaunted $36 mark – exposing their fraudulent claims they would ‘defend’ that price point or ‘bust the Comex’.

Once again the two hapless individuals were called to task by their furious new partners – massive losses were made when suddenly silver plunged, and the original ‘purchase’ of the Benton Story had become a very sad investment. In desperation, the junior marketers decided to rescue the story by putting all their chips into a final price call – ‘$45/oz by the end of November’. No caveats, no excuses – words used by the management team who needed to make good their losses or be exposed.

The trading firm filed for bankruptcy at the end of October – the 8th biggest in US history.

IMPORTANT: This entire piece is a work of creative fiction, based on the Wynter Benton story as it unfolded throughout 2011. It should not be reproduced without permission from the Screwtape Files, and any approved reproductions must carry this caveat.

Is someone paying Zero Hedge to post propaganda?

2012-01-06T18:26:00.002-05:00

They’re back! Many of us thought that with all the hype and misinformation spread around the Internet early last year on silver being thoroughly exposed as pure nonsense, the discussion on precious metals markets would return to common sense. Seems like it has been a long time since we heard talk of 80% premiums to cash settle on Comex, silver coin dealer inventories being wiped out, panic in the halls of Comex due to impending collapse, midnight meetings by the Cartel, the Pan Asian Gold Exchange to crush the Cartel, a run on Comex inventories, secret derivative liabilities that would bankrupt JP Morgan and viral videos of talking flatulent bears (I’m sure I’m still missing a few). But unfortunately, that doesn’t appear to be the case.

ZeroHedge, perhaps the greatest merchant of misinformation on silver in the world is at it again with a post today entitled “Physical Silver Surges to Record 30% Premium over Spot, In Backwardation”. As one who deals in precious metals on a day-to-day basis, that was news to me. Today I was seeing 100oz bars trading for less than 4% over spot, maple leaf and phils for 8.5% over and eagles for 11%. That’s retail - size transactions would be at a discount to those prices. If one were interested in junk or scrap silver, the price would be even less. Silverware can be had at spot and junk silver coins at slightly under spot - all at any size. Likewise, exchanges for physical (EFP) can be had at a slight DISCOUNT. That is, one could trade their futures for physical at a price lower than contract.

So where’s the 30% premium for physical? Oh, it’s not physical at all. It’s the premium to NAV for Sprott’s silver ETF! From the post:

And for a good sense of what the “real” price of the metal is, not one determined by institutions whose interest it is to preserve the hegemony of paper, one can either try to procure gold and silver at a retail merchant, or one can look to the premium of a dedicated physical ETF over spot. Such as Eric Sprott’s PSLV which as of today is trading at an all time high premium of 30%! In other words, someone is willing to pay up to 30% over spot for the right to be closer to the physical metal than merely have a paper claim on a paper claim (pre hyper rehypothecation and what not).

How is that physical? An ETF is a stock. It’s a piece of paper that says you own an interest in an entity that owns some physical silver. That paper can be borrowed, lent, hypothecated and re-hypothecated a million times, just like any other stock. So in ZH land, physical isn’t physical, paper is physical. Not all paper, only paper issued by one entity - Sprott. Coins aren’t physical, bars aren’t physical, silverware isn’t physical - the only physical silver in ZH’s mind is the Sprott ETF. (Sure, ZH did note something about "coins" above but obviously did not inquire with any physical dealers).

I’ve wondered for a long time how ZeroHedge can continue to produce articles on gold and silver that are so wrong on so many levels. Tyler Durden is an intelligent person, who surely has the capability of reporting responsibly on issues impacting precious metals industry. But he still posts misinformation such as the above on a regular basis. Does he care about his credibility? Is he just trolling for clicks? Or perhaps is he just being paid to post such articles? Are entities such as Casey, Sprott, GATA etc, giving ZeroHedge money for propaganda?

Enquiring minds want to know.

Platinum/Gold Ratio near a 30-year Low. Opportunity?

2012-01-05T20:09:00.001-05:00

Hat tip to Kid Dynamite for bringing the platinum/gold ratio to my attention.

Jonathan Hoenig wrote an article on Smart Money today highlighting the sharp decline in platinum relative to gold in recent years. Over the last 40 years, platinum has traded at a discount to gold for only short periods of time in the mid-1970’s and 1980’s. As shown on the chart below, this highly volatile ratio has ranged from 0.75x at the low end to 2.35x at the high end. Generally, the ratio tends to move with economic conditions but the supply/demand dynamics of each metal at a given time also plays a major role.

With the ratio now back below 1.0, Hoenig thinks that platinum is the more attractive metal. Certainly from a mean reversion perspective, I would agree. However, gold has outperformed for good reason in recent years - a global economic recession and declining faith in the global financial and fiat currency system which favors monetary metals over industrial metals. If one believes economic growth is poised to rebound and the financial system regains credibility, platinum is likely to outperform substantially. But if not, the ratio may fall even lower.

I'm on the fence on this idea. I like it from a mean-reversion perspective and also somewhat as a hedge to my gold positions. That is, if by bearish view on the global economy turn out to be wrong, platinum will most definitely outperform. So it may make sense to own some as a diversifier. But it could be too early to step in now.

Industrial Demand for Silver not Enough to Drive Higher Prices

2012-01-04T18:36:00.007-05:00

One of the bullish arguments I frequently hear about silver is that its use in industrial and medical applications was growing exponentially and that such rapid consumption of silver would lead to a squeeze on available supplies. The technologies touted included increased use in electronics, batteries, solar panels, RFID tags, medical applications and of course the much hyped cruise missiles. While these new uses of silver has led to tremendous growth in industrial demand for silver, is it enough to drive the price of silver much higher? The short answer is no.

Consider the chart below from the Silver Institute’s 2011 World Silver Survey. Notice the strong increase in industrial demand since 2001. Over that period, the use of silver in industrial applications increased from 350 million ounces to 487 million ounces, a 39% increase. However, over the same period demand for silverware and photography has dropped considerably more. Silverware demand fell from 106 million ounces to 50 million while photography dropped from 213 million to 73 million today. Thus although the use of silver for industrial purposes has and will continue to grow strongly, it has not been enough to offset the loss from other applications.

The silverware component has been particularly interesting to me recently. Over the past three months I’ve been doing consulting work for a precious metals refiner and was surprised by not only the quantity of silverware being returned to the smelter but of the quality. I have seen many high quality silverware sets, including some that were still in their original packaging that likely sold for $10,000 or more retail being scrapped like it was nothing. If one can only get melt for a beautiful sterling silverware set, it makes sense that manufacturers will not be making much more of it in the future (if you’re in the market for sterling silverware, let me know!).

In fact, as shown in the chart above and further detailed below, if not for investment buyers silver supply would greatly exceed demand. That is not necessarily a bad thing. Gold’s industrial and jewelry demand as a percentage of supply is even smaller and that hasn’t negatively impacted the metal. Likewise, it doesn’t mean that I am bearish on silver. Quite the opposite, at current levels it appears to be very attractive. But it is investment demand (and a declining dollar) that will drive it higher, not its industrial uses.

2012

2011-12-31T20:40:00.011-05:00

Happy New Year everyone. I have about 20 minutes to write this out so hopefully my thoughts will be organized. Before I give my bullish prediction for 2012, I think it's good form to present my best bear case. I'd actually prefer a quiet year -- I'm certainly not among those rooting for WWIII and massive riots so metals become more expensive. (Will I lose even more cred in the PM blogosphere by admitting that I also find it hard to root against Bernanke? I dunno, maybe it's because the dude seems like a pretty cool guy to drink a beer with. He would've made a good wing man when he was younger) (though one of us would've had to shave, because that would be kind of weird). In all seriousness, the fiat world is unjust and I want to see it collpase from a sense of justice, but I'm aware it's not going to be beach towels and lollipops when it does and I doubt I'll be "happier."

It's hard to come up with a bear case from fundamentals alone (which of course doesn't mean there won't be big short term declines). All the reasons gold has popped since 1971 have not receded but gotten stronger. Just consider the need for low real interest rates and liquidity via money printing: is it weaker or stronger this year compared to others? On the other hand (and this is something few appreciate) exploding gold prices are more dangerous to current government power than nuclear bombs. In fact, here's a good article on how war and terrorism (in this case "The Many Benefits of 9/11) are actually big boons for the government elite. So, if this is indeed the year gold risks getting out of control, expect "wars on speculators" and 90% windfall taxes and all that crap, combined with all kinds of market bombing, rumors of mine nationalization, and other psy-ops tactics that will cause even the most confident gold bugs to fear God (in the form of our omnipotent Feddle Gummint). The past week was nothing.

Let me also add that the question of whether gold is overvalued relative to other goods right now is a legitimate one. This struck me when I bought a new car recently and realized I could've exchanged this marvel of modern technology for a number of gold coins I could hold in my coat pockets. Consider the thought experiment of being transported with a nice car to some ancient civilization with your pockets stuffed with American Eagles. The natives would've seen the coins and thought "Wow, what a fancy screw press exists in this Visitor's world!", whereas they'd see the car and give me their wives in exchange for clemency. (Strangely, silver seems better in this respect. You can't get a lap dance for $30 these days.)

Alright charts! With silver, to update my prospectus from last week, the 10 year treasury yield to silver ratio appears to have changed direction right on cue, despite silver having a very down week. This bodes well: with yields at 1.89, if we are indeed continuing the pattern by heading down, silver will have to explode, and soon.

Daily:

Same chart, weekly:

And another bullish update: the 34-week and 55-week MAs are even closer to crossing: note how that has been unequivocally bullish in the past.

After the awful week for silver, I decided to indulge in an optimistic exercise. I tinkered with a chart from last week by trying to make the most bullish chart possible. In other words, let's say silver has bottomed this week (I give it 50% odds, though I see it going back into the thirties by February). Which chart in hindsight would make that appear expected? Here's what I came up with.

With respect to gold, the weekly chart is important. These trend lines are the only ones that fit every closing price since late 2008. I was watching it last week hoping we would finish above $1565, which at least is in line with the closing price from the 2008 bottom. And we did, so hopefully now we can slowly wend our way back into the black trend channel.

If you recall, back in early June, I posted a chart with the 144-day moving average, and seeing that it looked relatively linear, I extrapolated the price forward to Thanksgiving. It actually had overshot by that date, but the exercise was valid: note how the 144-day MA continues to move within +/- $25 of a straight line.

We're pretty much right back to a linear trend. That's what a "correction" means. Because the gold market is manipulated (only the extent is an open question), it's wise to worry only about long term averages and to not get too pessimistic so long as we're not too far from linear trends. (Of course a linear trend on a log chart is actually parabolic.) So let's extrapolate ahead another half year. I don't have time to do the calculations as precisely this time around, but the 144 day MA should be at ~$1900 by the end June, which means the actual price will move up even more.

Martin Armstrong on Government

2011-12-28T23:40:00.000-05:00

Having given up waiting for Martin Armstrong's rebuttal of Freegold, occasionally I raise an eyebrow when his writing contains some of the same titles as some FOFOA articles (like the classic 'It's the Debt Stupid'). Most of Armstrong's ideas appear solid, but like my friend at the Christmas party he believes the Euro system is doomed, so I take what he writes with a healthy amount of salt and wonder what percentage of his views are incomplete. That there is no unified consensus between the heavyweights should be a cause for concern - the diversity of opinion means it is mathematically impossible for 100% of a single person's views to be proven 100% correct, 100% of the time.

But I do like Martin's latest: "Financial Border Controls" [link] (a solid read), in which he points out the primary cause of today's economic ills as being an out-of-control government, which lacks the ability to contract and must gobble up capital and productivity in order to increase it's bloated girth. This is easily documented in the home - where the simple task of renewing car registration includes the following charges: 'stamp duty, goods and services tax (11%), statutory insurance scheme levy, nominal defendant levy, hospital & emergency services levy, administration fee, Traffic Improvement fee', or where the Tax Office suddenly harasses my elderly mother regarding a property sold more than 5 years ago, citing a clause that a property over 2 acres in size has a different capital gains tax rate. Even the accountant had never heard of that one and had to look it up. No doubt they need the extra funds to cover up the various mis-allocation of capital in the public sector, like the Queensland Health Payroll disaster where a $219 million overhaul of the payment system resulted in workers not being paid AS WELL AS overpaying other staff by at least $60 million. It will take at least another $20 million to clean up. So you can see why the Tax Office is doing data mining and going after my mother for extra revenue. This whole process is exactly what Armstrong writes about. I don't see the monetary system failing - I see that it is working very well indeed for the people who run this gig. In fact, and they will continue to keep it running this way at your expense, as long as they are able to coerce you into surrendering your savings and productive effort.

I wanted to mention Armstrong's piece, not just because he does some great commentary on Roman History, but because he includes (again) the chart from 'Decline & Fall of the Roman Denarius Based on Silver Content':

... or the old semi-legible version:

... which is this chart which FOFOA uses as the basis for his inverted waterfall / orbital launch pattern, simply by turning it upside-down:

... which projects the movement of GOLD during its Freegold transition [link].

Just wanted to point out that the collapse itself took place over decades - something as big as the Roman Empire doesn't just disappear overnight (despite the problems), and in my view neither will the modern constructs of the US Dollar. In a Giants time-frame, the movement over decades would be appropriate. It's what we've just seen in the last 11 years with the gold price. But applying a slightly-longer-than-expected timeframe yields all kinds of goodies - this doesn't require the 'physical' and 'contract' price of the metals to decouple. It still allows the investment banks to slice and dice newbie investors and scalp value like they have done for years, without affecting the core trend. It also allows for FOFOA to be right, and parts of the 'currency is doomed' crowd (but probably not in the apocalyptic way they anticipate, since a longer play has the same effect from A to B, but society can cope better with the disruption).

So I figure in 100 years time, they'll see that Freegold movement on the 100-year charts and they'll say "oh my goodness, look at that period where the value got sucked out of fiat currency due to credit expansion and where gold took over the store of value function". And chapters will be dedicated to FOFOA's writings, but they'll nod their heads sagely with the knowledge that during that same period, the contract markets, though manipulated and volatile, still formed part of the fabric that forms the metals markets. Perhaps too, Turd Ferguson will get a mention in that history book, but they will still look up from that page and toast a portrait painting of the great GM Jenkins who in the early part of the century provided the legacy of their wealth through successful negotiation of the precious metal charts.

The one-ounce Christmas Dinner bet about the 'end of the euro' is a good example of how some folk will in the short term become 'richer' at the expense of another, based on an interpretation of the market and world events. At the minute, the best 'safe-haven' for your capital seems to be 'wherever the government can't get it's dirty mitts on it'. This includes silver, gold, and hard assets, but requires vigilance to protect yourself from whatever random liabilities will be thrust upon your balance sheet. That includes a consideration about the time-frame for conversion of your metals to fiat, where required.

Silver 2008 vs. Silver 2011

2011-12-27T11:36:00.011-05:00

More evidence that silver has bottomed?

Note that both charts represent the same number of days. The similarities are eerie. Of course, there's a rather fine line between pattern recognition and ... schizophrenia :P

Silver Bells

2011-12-25T17:31:00.017-05:00

Merry Christmas to all of our readers.

Studying my charts over a tall glass of 100-proof eggnog (which perhaps should be kept in mind), I've come to the striking conclusion that 2012 will be a good year for silver, and that if the silver bottom isn't already in, it will be by the end of January.

Amazing that after all the excitement of last spring, 2011 will go down into the history books as a negative year for silver. But nothing is more auspicious in a secular bull market than a negative year. The silver bull has seen red, as it were.

After the big crash eight months ago, it was obvious that a long consolidation was necessary. I've been saying that the next truly explosive move in the metals wouldn't occur until even the diehard PM bugs started having gnawing existential doubts, similar to the cognitive dissonance felt by the members of an apocalyptic cult when the world didn't end on the preordained day. I'm beginning to suspect that all this talk about the paper price of silver "decoupling" from the physical price is just such an indicator. I say this because there seems to be no hard evidence whatsoever that such a phenomenon is taking place.

Bron Sucheki, who should know, commented here:

Mining companies sell their 5-6t of weekly production to us at spot and all our big distributors are buying at spot, so paper price = physical price. There is no divergence.

When mining companies stop swapping their metal for London unallocated and buyers start paying a premium above spot (in addition to manufacturing premium) for physical metal, then you'll have divergence.

I'll let you know when that happens.

My point is, even the most diehard PM bugs are bearish on the paper price of silver. But if the paper price is the physical price, you have the first prerequisite of a bottom after a parabolic rise and collapse.

Additionally, just as I suspect that people afraid of deflationary collapse aren't thinking clearly (will central banks really sit and watch that happen, without printing like madmen?), so I also suspect that people afraid silver will trade as a "commodity" when gold trades as a "safe haven" are also irrationally ignoring strong historical data that suggests otherwise. You can go anywhere in the world, even visit the Yanomami in Brazil or the Kombai in Papua New Guinea: I promise you someone will give you value in exchange for gold, and wherever that may be, someone will also give you proportional value in exchange for silver. Both are "intrinsically" valuable in that way (a different connotation of intrinsic than, e.g., "edible," which causes no end of misunderstanding in PM debates). Silver is a safe haven. If it doesn't trade like one at any given time, it's because people aren't really looking for a safe haven.

Now, here's a chart of relative gold and silver performance. I went back 10 years ago, but the results don't qualitatively change if I go back 5 or even 20 years. Silver performance is in red. For gold, I show only plus or minus 20% of gold's performance (in blue). Note silver is generally within the blue channel, and has never performed worse than <20% of gold, but has performed >20% better several times, and in fact isn't too far from +20% even now, after a negative 2011. The take home is this: if gold does well, silver will do well, and probably significantly better in the long term.

Now some charts. Regular readers will recall the chart depicting the ratio between the 10-year Treasury yield and the price of silver (which can be interpreted as how much silver the government must pay you every year for borrowing your money). Over the past 2.5 years, the top of the purple channel has been a great "buy" indicator, and vice versa at the bottom of the channel. Well, we're at the top once again. Maybe we'll overshoot. But do you really want to bet against this ratio's downward trend (that began symbolically after Sept 11, 2001)? And if you're going to bet the ratio will continue to trend downwards … do you really think falling yields will do the work? How much lower can they go? If we hit the bottom of the purple channel in the next 6 months, they'd have to be below 1.0% if silver is to continue falling.

The weekly version of the same chart may even be more elegant:

Regular readers will recall I've used the fibonacci 34-week and 55-week moving averages profitably until September, when they broke down. Well, I've unveiled them again. Look where I've circled (in red) the 4 most memorable "bottoms" of the past 7 years. I've also drawn solid vertical green lines marking all the spots where the 34-week MA (pink) has come down to cross the 55-week MA. Coincidence? (The dotted vertical line marks where the cross occurred in the opposite direction, also at a local bottom).

A back-of-the-envelope calculation tells me that if silver averages greater than $26 and less than $32.50, it will take 4 weeks for these averages to actually cross. So perhaps the bottom won't be in till then. However, note also that the bottom has more often than not come a few weeks before the moving averages actually crossed.

Here's a daily chart of closing prices from the 2008 peak to today. When I connect the 2008 peaks to the April 2011 peak, the slope has the exact same magnitude, opposite direction, as silver's downward trend channel for the past 9 months. Note we're at a triple crossing: the intermediate downward trend channel meets the long term upward trend channel meets important horizontal support -- horizontal support which also happens to be the 50% retracement between the 2008 low and the 2011 peak (see brown lines). (Note the 62% fibonacci held for a long time, and now the 50% is being tested.) The dotted lines depict alternate possibilities, but all suggest a bottom is quickly approaching if not here.

Finally, the gold:silver ratio. The clear long term trend is down. And it appears ready to continue that trajectory, having hit a potential line of resistance.

Look, you don't have to tell me. In the end everything will depend on events. Events (including manipulative events) override everything. But events are inherently unpredictable (otherwise they're already priced in) and fundamentals are poor short term predictors, so if you're an inveterate gambler like me, technicals are all you have. And my analysis tells me things are looking good.

The London Trader

2011-12-21T11:48:00.015-05:00

Eric "Leading the Witness" King's listeners globally are, no doubt, familiar with "The London Trader," who my sources assure me is not Mr. King's imaginary friend, despite the fact that his interviews are never released in audio form. Rather, he is a mysterious gentleman with a knack for popping up whenever the flagging enthusiasms of PM investors are badly in need of rekindling.

So today, almost on cue, hard upon gold's slicing through its 200-day moving average like a hot knife through butter, provoking ceaseless chatter of the "death of a bull" (and just days before Christmas!) ... he has come.

"We are making a historic bottom right now ... this recent plunge was orchestrated with borrowed gold, and that borrowed gold is now gone."

"Interestingly, so many people are bearish on gold right now and looking for a collapse in the price of gold. They don’t understand what is happening in the physical market"

"[There will be] a huge, tectonic shift in price dynamics going forward, because [direct buyers are now] taking price discovery away from the bullion banks ... Every single month producers have a certain amount of gold and silver they sell. Normally they sell it to the bullion banks and the bullion banks, of course, leverage this gold and sell up to 100 times that in paper markets to control prices ... "

“The [silver] game is getting so stretched that it’s going to break ... The only way they have been able to keep silver depressed is by borrowing silver from SLV to meet immediate demand ... There isn’t enough silver for investors to buy (in large amounts), so ... SLV is over 20 million ounces short on the silver they are supposed to have in the vaults."

"Part of managing the price of silver recently has been for the central banks to attack the gold market ... [Their agents, the bullion banks] short-sell just enough tranches of COMEX contracts to surgically take out important support pivots ... turning the momentum buyers into sellers."

So, what to make of this guy, who purports to have his finger on the pulse of the Asian investor? (A constant motif of his is how Asian investors are eager to "suck up" the gold being thrown away by the desperate Western banks.) What's his track record?

He first emerged onto the scene on January 14, 2011, right after the metals had crashed from their New Years highs, saying: "The physical silver market is still extraordinarily tight here. Somewhere around the $28 area there should be a firm base as there is tremendous physical demand in that zone.”

Well, it wasn't the most auspicious start, for silver fell another $2 in the next week. But, undaunted, he made a reappearance soon thereafter, on January 26, redeeming himself by essentially calling the bottom of the correction to the day:

"Physical demand is incredibly robust from the eastern hemisphere creating a floor on the downside preventing a further breakdown. There are certain banking interests which have been making an effort to keep a lid on prices of gold and silver ... [but] big money is lining up to buy into any attempts to flush the price lower."

Also noteworthy, in keeping with his regular theme of deriding traders clueless about physical markets, he had this to say:

"Many of these hedge funds are run by kids who are only out of university for three years now and are literally just chasing a dot up and down a screen. They don’t look at what is happening with inventory levels at the Comex or what’s happening with SLV where real metal is being pulled out of that ETF"

After this formidable call, he went into hiding for over three months, as gold and especially silver rose parabolically, and PM bugs had no need for his services. But a few weeks after the May crash, out of the ethernet he emerged. He had this to say on May 16:

"[On account of Asian buying], gold is not going to go down much further at this point, so you should not see an awful lot more damage to silver."

And once again he was right. The very next day, silver began a steep ascent from the low thirties to ~$38 an ounce the last week of May. Next, we heard from him on July 18. When many of us were expecting the seasonal summer doldrums, he claimed that there was "major potential for short covering." He continued:

"If we get a pit close today in the US above either $1,600 gold or $40 silver, then you are going to see some huge capitulation by the shorts."

In this he was not quite accurate, as gold and silver finished right at his specified levels, yet still fell steeply the next day. Nonetheless, after 3 trading days, gold began the first leg of its ascent to $1900, pausing at $1650, when he made a reappearance (August 4):

"If gold closes above $1,680 we will also see some capitulation on the part of the shorts in silver as well, which will cause a huge pop because there will be an air pocket these guys are trying to cover into ... Remember, $1,680 is the key here."

Two days later, gold gapped up to $1680, and exploded into the $1700s, indeed because of massive short covering. He did not miss his chance to gloat; his victory lap on August 10 was titled: "Many Gold Shorts Wiped Out, Lost Everything!"

"These guys in London woke up with their asses handed to them and I don’t think some of these guys will ever be short again, if they are still in business."

Then, he added, correctly: "I believe there is still enough momentum to push gold into the $1,800’s."

and

“I fully expect to have $2 moves in silver and $50 moves in gold as absolutely normal at this point. If you don’t expect that, you are not going to understand what is going on."

Like Wynter Benton before him, perhaps he should have quit with a near perfect record. For, his piece on September 20, positing a "massive physical floor under the gold market" was a cataclysmic bust:

"There are massive orders between $1,715 and $1,760. This has the effect of putting a physical floor under the price of gold. If they make a push to the $1,715 level that would be suicide in my opinion. There are simply too many massive orders for physical gold down to that level for that to be breached."

Gold of course fell (briefly) to $1535 within days.

"As far as silver goes, it is possible there could be a spike to $37 or $38 in thin access trading, but the bottom line is that serious physical buying will be taking place anywhere below $40"

Here, too, he was dead wrong, although the attack did take place in "thin access trading."

Unlike Wynter Benton, however, the London Trader did not then disappear with his tail between his legs, never to be heard from again. No, he was back less than two weeks later, not to acknowledge his terrible call, but for more bullish prognostication -- though he did offer an explanation:

"The [hedge funds I spoke to] were not happy about [selling] their only good performing asset they had, in order to offset the losses on their common stocks. This was done for the purpose of end of the quarter window dressing. The indication was that they wanted to get back in as soon as possible"

"Western central banks got together, leased out some gold, and the bullion banks sold the gold. The central bank gold being unloaded by the bullion banks was not to get the best price, but to smash the price. The smartest way to sell the gold would be to do it in the liquid sessions. But the pattern during the decline was they were selling it in the overnight session when things are quiet. This was no different that what we saw at the end of April, beginning of May on that coordinated smash."

He concluded with a typical bullish evaluation of the battlefield:

"As it stands today, there are an unbelievable amount of physical orders that have not been filled. When gold was briefly down at $1,530, almost no one got any physical gold. No one was even getting fills."

But (perhaps chastened), he offered no specific price targets. Still, the metals began a slight rise that day, and in keeping with his measured optimism, sunk no lower over the next few weeks.

Then, with 2 posts on October 21, he hit another home run. That very day, when bearishness was all around, gold began a dramatic rise from the low $1600s back to $1800. Some excerpts:

"What we are seeing now is this consolidation pattern where the commercials are getting out of their short positions whenever possible. All the while they are squeezing fresh shorts. They take the metals down, make the charts look bearish to bring in fresh shorts, and later they squeeze them out of their positions on a rally and pocket the money"

"The Chinese bought a massive amount of physical today at the lows and that is why the market turned where it did ... Having said that, most of the physical orders are sitting ... between $1,585 and $1,605. We are talking about massive tonnage.” [Note that level has not yet been breached to the downside]

On silver, he continued with a favorite theme:

"The price of silver has no reality to the paper market at all, absolutely zero reality there anymore. There is extraordinarily tight supply right now in Asia. When you order silver there is so little available at these prices, that’s the trouble. Chances are you are not going to get quantity at this price."

My verdict on The London Trader is that he definitely deserves to be taken seriously, though of course skeptically. Look at the gold/silver charts below, with vertical lines marking the days of his bullish (and often contrarian) posts, and decide for yourselves.

Events, dear boy, events

2011-12-20T10:49:00.006-05:00

Thus goes the reply from Harold Macmillan, the 1960s Prime Minister of the UK, when asked by a journalist, what represents the greatest challenge to a statesman? Macmillan knew what he was talking about. His premierships were rocked by ‘events’ that appeared seemingly from nowhere: the Cuban missile crisis, the loss of the British Empire in Africa, and the aftermath of the Suez crisis. His efforts to bring normality and prosperity to swinging sixties post-war Britain were frequently derailed by much-feared ‘events’ outside of his control.

2011 has perhaps been the most eventful-est year since 1989. The Arab Spring, civil war in Libya, Syria not far behind, Iran burned down the British Embassy, Pakistan got more unstable by the day, Norway suffered its worst post-war tragedy; the Euro nearly melted down, the US lost its triple A rating (and France will follow any day soon), Greece went bust, Ireland and Portugal hang on for dear life, the Swiss pinned their currency to chocolate or some-such, the Occupy movement gathered force; the earthquake and tsunami in Japan, Fukushima, the Thai floods; Gaddafi got slotted in Sirte, Kim Jung-Il shuffled off this mortal coil, Mubarak went to jail, Gbagbo and Mladic sit in the Hague, and UBL got Seal-clubbed; ETA declared peace, Gilad Shalit got swopped for a thousand Palestinian prisoners, the Iraq war ended (apparently), South Sudan was born; seven billion now share the planet, Will and Kate got hitched.

Only the last two were genuinely predictable, and only the last was not a game-changer in its own right. These events (by no means all negative), served as constant challenges to what we thought we understood about our world, our powers of prediction, and – if we’re honest – our vulnerability as souls floating in a stream of events and their consequences, all of which rest outside of our direct control.

When it comes to the price of silver and gold, most of the PM blogs have chosen to focus on Technical Analysis and macro-economics. Very sensible too: the 144-day moving average for gold, for example, worked brilliantly for three years and I personally was able to profit from that. And the basic thesis that an increase in the money supply (such as through QE) should be good for gold (and bad for savers) makes sense. But we ignore the events at our peril. Gold is – and has always been – an emotionally traded commodity. As a child, before I even knew what a commodity was, I still remarked on the fact that every time the BBC covered some crisis or disaster or other that they mentioned at the end, “and gold was up $X”. The link between events and fear and gold is a strong one, and it has entered our collective consciousness as an axiom.

This year has shaken that feeling, however. The correlation worked well at the start: gold appeared to pop with every new development in Egypt and Libya. The loss of the US’ triple A rating (which I’m treating as an ‘event’ rather than a macroeconomic driver, as clearly the house-keeping figures are exactly the same whether S&P say they’re worth AAA or ZZZ; it was the event of the announcement – the confirmation of lack of sentiment if you prefer – that mattered) sent gold sky-high.

But then there was a really big event. A massive one. Not a split-second event like the Seal’s bullet entering UBL’s brain, or an ‘event’ contained over a finite but defined period of time such as the Libyan conflict. No, this event started as a far more fuzzy entity, which only gradually came into focus as the year progressed. It wasn’t thrilling – no historian in 2111 will mention it (although a few economists might). But it was the goldbugs’ worst nightmare. Bit by bit, price tick by price tick, we grew to learn that the 'event – fear – gold' axiom might actually not be axiomatic at all. When things were bad, the investor chaps bought gold. But when things were very bad, they rushed into the dollar. Good old ‘Agatha Pigstie’ (© a turd).

Now that’s just not cricket! War in the Middle East, gold goes up – fine. The Euro attempts to pull its guts out through its own arsehole – gold gets shredded, again and again and again. This really started in spades when the Swiss Franc devalued. One safe haven committed suicide, and another (gold) was side-lined. The last rites for gold were read by the usual collection of dingbats. And we all – be honest – began to doubt. ‘It’s unfair’, they wailed. The events aren’t ‘working’ anymore. The dollar’s crap, but still those sheeple (© another turd) have faith in it. This was then compounded by gold finally crashing through its 144-MDA, and then the 200-MDA for good measure. The TA had failed; the macroeconomics had failed; and the events had failed. Night, night, gold.

But I beg to differ. Last week, something very interesting happened. A rumour went around that Iran had closed the Straits of Hormuz, and both oil and gold popped instantly on the news. Not the dollar. Gold and oil. Once it was clear that this was a non-story, the gains were quickly reversed, but that’s not the point. What we saw was the first glimmer that events – or at least, a certain kind of event – still had the power to prove the old axiom right. That old trading reflex was still there – dramatically so, in fact.

The recent dramatic moves in gold (and silver) have surely washed out all the speculative money. The quick buck chasers, the hot cash, the naive small investor. We’re back, more or less, on the trend lines. And gold is ready to get back to playing its events-driven role once again. All we need now are a few likely-looking events in 2012 and the TA could magically 'restore' itself, just as it did after 2008.

And this is the point of this probably infuriatingly long and dry introduction to a new Screwtapes feature, which will aim to examine world affairs, provide (hopefully) some insight into them, and try to add some value to our existing (and excellent) work by GM and his Technical Analysis, Warren and his data mining, Louis and his broad vision, and Brian and his confirmation-bias checks. This work will not be PM-centric (but will certainly include them). My trading interests and instincts are broader, and I'm becoming increasingly fascinated by the 'smart money' part of the bubble curve, i.e. identifying the dogs of today that will become the stallions of tomorrow.

Regardless, I submit that 2012 will be a year of events like we have not seen in generations, and it is important for a site like this to have a handle on such matters. I hope that you will find it of some use.

Phase change

2011-12-17T14:24:00.009-05:00

Greetings from Memphis, friends. Might head to Tunica for some poker. Hopefully I'll have better luck than last week, when I bet that the medium term trend channels (and some very long term ones) in silver and gold would hold. They didn't, and there's been serious chart damage, no two ways about it. Now, I think ultimately that's a good thing, which I will explain below.

But first, let me say I suspect it might be naive to think we're near a bottom, as I've been hearing here and there. I mean, far be it from me to call Jim Sinclair naive (he thinks the recent technical damage is a false move that could quickly be erased with a quick recovery of the 200 day MA). But in my view, this weekly chart speaks for itself:

Also, keep in mind, even in a best case scenario, you gotta believe the 200 day and then the 144 day moving averages will be massive resistance.

With silver, all the long term charts that have been serving me so well have also, finally, failed. Going, then, to the monthly chart, please pay attention to the 2 year moving average (green).

As we approach the end of the month, a December close under $31would be ominous.

The daily chart suggests that $28.50 will continue to be support, and note the red dotted line connecting the two low points from September and last week. If we can stay above that, forming the lower half of a wedge that approaches $28.50, my intuition tells me that level may serve as a jumping board for a push back up into the mid-thirties. But again, the damage has been done and all bets are off.

I think we've reached a critical state in the metals markets, and we're on the verge of a phase change of sorts. We can perceive the steady increase in prices (especially over the past 3 years in gold, which seemed almost certainly "assisted," and thus rather predictable) as the heating of a boiler with a steam valve. Whenever the risk of overheating seemed imminent, the price would fall back to a predicable trend line (~27% growth) and start again.

However, the mania stage of a bull market is a massive explosion, impossible without a shut-off steam valve. (Note that a gold mania is a doubly exponential function, having both fear and greed as its drivers). Alternately, perhaps the heating will slowly come to a stop, and the boiler will cool down? This directional uncertainty is part of what we can expect during a phase change, and it's been missing so far, as gold has ascended steadily but surely for years now.

Obviously, I'm betting on the explosion, so an end to this controlled (perhaps literally controlled) ascent is not at all unwelcome to me. I should also add that I think technical analysis is less useful during a phase change. I mean, if everyone offers a prediction, someone will be right, but it's a lot like guessing which snowflake will trigger an avalanche. So in the next few months, I'll probably spend more time looking for interesting out-if-the-box charts (and sharing other sundry ideas) than trying to guess PM price movements, which to me now seems like merely trying to predict if and when QE3 will be announced and other similar things out of our control and sight (e.g. when will the Wynter Benton group finally bust the COMEX??).

Metals update

2011-12-13T21:07:00.011-05:00

Gold has closed below its 144-day MA for the first time in 3 years. However, this still could be a monstrous bear trap. I have no intention of giving anyone investment advice (for which I am eminently unqualified) but we do have many readers who apparently like my silly charts, so for the record I haven't panic liquidated, though I'm somewhat hedged with a short position on the S&P500 (SDS).

The rest of the week will give us a lot of information as to what to expect in the medium term. (In the long run, this is of course just a game of waiting for some event, like a bank run, which should trigger the subsequent liquidity pump/money creation. But the Fed honchos are very, very clever at managing sheeple perceptions so that their own class, the banking class, may continue to prosper at our expense- let's please give credit where credit is due). If we have another day of waterfall declines, I will probably liquidate my main trading accounts and buy physical until the money printing event occurs. If anyone could tell me about their experience with Goldmoney.com, I'd truly appreciate it.

Critically, on the weekly gold chart, we need to close above the black line by Friday, and ideally not go down much further even intra-weekly.

Here, the dotted red line, touched by the 200 day MA, must hold:

Then, the silver YTD:

and the other daily chart from yesterday, magnified to the past 5 months:

and the long term chart, right at very important support, as of yet unbroken.

Monday night metals

2011-12-12T19:40:00.011-05:00

Hello friends, just got back from a weekend in London. Here's my take on where the PMs are headed.

I'm a buyer tomorrow of gold and silver if we don't go lower. I realize the risk involved; I see the ~3 month head and shoulders that has developed, I understand some weird things are going on with the rehypothecation etc., which has metals commentators saying paper and physical are finally decoupling (Maybe Kid Dynamite can comment on that; he's been strangely silent on this latest blow-up, though i understand he is mourning a murder most fowl) Nothing would surprise me, but I like to give my opinion, and that is that we're going higher from here.

We've closed at the 144-day MA for the first time in over a year. That's good.

I suggested we were heading back to the lower black line, and there we are. No damage.

We're at important monthly support too:

With respect to silver, first the YTD. All is OK so long as we don't close below the blue (turqoise?) line...

And a few other charts show major support has held so far.

If we have another big down day tomorrow, I too might start getting pessimistic, but I'm not tonight.

The Paper Aristocracy

2011-12-08T14:41:00.006-05:00

in action:

Market News International reports that the Bank for International Settlements, the Bank of England, and the Federal Reserve sold gold today to smash it back down after it spiked up this morning. "So much for all those sworn testimony claims that the central bankers do not manipulate the price of gold" - Tyler Durden

"Ladies and gentlemen, the President and I weren't back there blaming Jon Corzine then. You know what we were doing? We were on the phone calling Jon Corzine. Literally. I said 'Jon, what do you think we should do?' " - Joe Biden

http://youtu.be/xm3VMrKqJSA

"The Post got hold of Hank Paulson's telephone records back in 2009 … Among his regular phone buds was Lloyd Blankfein, who, for example, spoke six times with Paulson on Sept. 18, 2008. That was a day of great market turmoil … There were many recipients of Paulson's calls. And the conversations went on for years and were especially frequent when Washington needed a friend on Wall Street … it is the biggest story that'll ever be broken in the history of American financial journalism -- the U.S. markets are rigged, with the elite and connected getting a distinct unfair advantage over the rest of us schlumps." -John Crudele, New York Post

"The game is rigged and nobody seems to notice. Nobody seems to care. Good honest hard-working people . . . white collar, blue collar it doesn’t matter what color shirt you have on. Good honest hard-working people continue, these are people of modest means . . . continue to elect these rich ***** who don’t give a ***** about you. They don’t give a ***** about you . . . they don’t give a ***** about you. They don’t care about you at all . . . at all . . . at all, and nobody seems to notice. Nobody seems to care. That’s what the owners count on. The fact that Americans will probably remain willfully ignorant of the big red, white and blue dick that’s being jammed up their ass everyday, because the owners of this country know the truth. It’s called the American Dream, ’cause you have to be asleep to believe it . . .”

-George Carlin

Dancing on Wynter Benton's Grave

2011-12-06T07:51:00.001-05:00

We are not surprised that Wynter Benton has vanished from the scene - after all it is literally a point-of-no-return once announcing that 'Silver will trade higher than $45 before November 30 - no caveats, no excuses' - we wonder what the excuse or caveat is this time, and wonder if anyone placed money on the 'Benton Guarantee'.

A few on the Yahoo boards have poured much deserved scorn on the wynter_benton writer, and as you know, even we graded Benton once it became clear the claims were inconsistent.

Alas, this last round of 'Benton' was most dissatisfying. We were not able to debunk them - they debunked themselves. Whoever it was who started writing again last August really did a lame job and painted the story into many corners. We much preferred Amber and Sam Sterns (Benton Round 1) who threaded a coherent semi-plausible story with enough woven intrigue such that the story was entertaining. Benton Round II reminded me a lot of SilverGoldSilver, and I still wonder if he managed to somehow get a hold of the login name in order to drum up the story again.

[ speaking of which, by the way - our most recent theory was that the SGS identity was as a kind of tag-team between Mr Dalal and an (unidentified) trader in London, Ontario. We had traced as much as we could at the time and confirmed some patterns with various weather references mentioned in his posts. I personally no longer read his blog.]

Without literally no hard data on the Benton alias, in this big old world there are plenty of possibilities. A popular one kicked around was whether the Benton Group traders were in fact MF Global and that they were taken out in retaliation for their targeting JPM. In theory that explains why their last prediction went haywire and is also a decent caveat. But that is purely clutching at straws to give some justification where none is deserved - the simplest and easiest explanation is that they were using the channel to provide themselves with some kind of trading advantage. The April and September silver waterfalls coincide with the post appearances, and if we're looking for explanations then perhaps they themselves orchestrated the slides. There is simply no way of telling.

So be careful out there - whenever someone presents a claim, first figure out whether they are making money from saying it, and then work from there.

[ Work on the database continues - huge. There is so much data that I had to make some structural changes just to save space. We are now writing the remaining processing filters for the ETF data, as well as adding Platinum and Palladium to the bars index. The list of documents imported is impressive, and these archived lists are being copied direct to the cloud storage for public access. The process is now fully automated ... all I have to do is press a button and it will download about 12 different ETF source files, unzip them if necessary, extract to text, then load to the database and copy the source file to a public archive. I only have to write the processing filters for each one and check for anomalies if there is a problem (e.g. if a spreadsheet layout changes). I will be writing more on this, as GM Jenkins has mentioned, early in 2012. There is only about another 30 hours of technical stuff to do and then it's into hardcore data analysis - including some answers to some of the 'bar volatility' questions asked by Victor.]

Sunday pre-game 12/4

2011-12-04T19:26:00.015-05:00

I do not know if it will happen in gold or silver first, but the price management schemes that have been in place for a few decades now in the metals markets are reaching a tipping point ... The hyper-inflation of financial paper is happening quietly and off the books. The growth rate in derivatives held by the Banks is mind boggling Jesse's Cafe Americain

A mathematician once told me that Andrew Wiles' proof of Fermat's theorem was so complex and labyrinthine that maybe 10 people in the world could completely understand it. I think the same goes for the shadow world of banking, with its derivatives and structured financial vehicles and such. Of course, you don't have to understand how something works to know what it does. And that the goal of this mountain of OTC derivative paper that has transmogrified into something grotesque is ultimately theft should be obvious to anyone with the courage & desire to see things as they really are.

Does it not seem that every day unveils more and more evidence that a criminal overclass has commandeered civilization for its own base aggrandizement? Like the wasp that lays its eggs into a caterpillar, causing it to behave erratically and even absurdly, we witness all around us our once proud civilization faltering in terminal decline, being eaten from within by the maggot spawn of these parasitic wasps.

And like the drunk who looks for his car keys near the street lamp not because that's where he dropped it, but because that's where the light is, most market commentators are too afraid of this dark reality to probe into it, using instead their energy to pretend the world around them is essentially sweetness and light, always ready to find rationalizations for the plentiful examples of malfeasance in front of their noses, always eager to present them as isolated incidents or exaggerated misinterpretations, always quick to sneer and flout at the more skeptical viewpoints, in effect serving the criminal overclass as the most useful of idiots (to borrow a thought from Lenin).

Let's quickly start with gold and concentrate more today on silver.

We're at 1748. This could be a decisive week, what with L'il Timmy Jeethner meeting in France, Spain, Italy, and Germany on Tuesday and Wednesday, then the Euro summit Thursday and Friday. Don't be surprised if there's some perception management bullshit pertaining to Europe (e.g. to set the stage for money printing) or some genuine deflationary scare (e.g. as reckless brinksmanship immediately before the money printing), or even some geopolitical bullshit (yup, these venal clowns are taking us to war again). Where's our support? Starting at $1735 (the 89-day MA which held during the June correction, and generally demarcates the minor corrections from major), we go down in increments of $5, to the 20 and 40 day EMA's ($1730, $1725 respectively), after which we'd approach the 50 day MA at $1700 with super strong support at the 144 (pink, below) at $1665 and eventually at the 200 (yellow) $1605.

Turning to silver, the daily chart of closing prices that I posted last week turned out to be very important, as the bears did not allow silver to close above the grey dotted line:

Here's the other daily chart form last week, where we see that we're running out of time to break out of the wedge. It appeared like that was happening on Friday morning, but the rally was emphatically pushed back down in what appeared to be a premeditated strike (see my post below). This chart also shows us that the $31.5 level is important this week:

Looking at the two long term charts (with slightly different trend line slopes) we see how stubbornly silver refuses to fall out of the blue channel; we don't want to fall too far below $32.

Note also on the chart below how we're squeezing closer to the point where the purple dotted line will meet the red dotted line. Both the red and purple lines have been support/resistance repeatedly since the September crash.

Finally, a quick look at the CCI. Look what happened the last time the 200 day MA (blue) crossed the 233 MA on its way down (see light blue vertical line). Could that presage another breakout? Stay tuned. Less speculatively, the two red/green horizontal lines denote a very important buffer zone between the two peaks of 2008. Strong resistance/support there, I'd say, and something to keep an eye on.

Learn to trade like a criminal

2011-12-02T20:02:00.006-05:00

Note: Our fearless leader, Louis Cypher, will be out of commission for awhile, so this site will be less active than usual for the next few months. Warren's piece de resistance on SLV and GLD should be unveiled in early 2012.

Regular readers might recall one of my favorite plays (e.g. here). (And who knows how many similar opportunities I miss, on account of the day job).

When I see the silver mining shares fall precipitously while silver and the market indices are still well in the green, I buy a ton of ZSL. I bought five times my yearly salary's worth today at around 10:40, when I woke up and saw the following: (see black vertical line)

Yup, silver, up almost 2%, but SLW, PAAS, HL (and others) all in the red, up to 3% down (the Dow Jones was up a steady 0.5%, staying out of the red all day). The whistleblower Andrew Maguire had said this was some signal that one group of banksters sends another (I forget exactly the details, nor do i care)

Anyone who scoffs at theories of massive silver manipulation (a group which, incidentally, does not include the Chairman of the CFTC) will miss out on god knows how many similar ways to scalp a quick profit. Unfortunately, blinders, once in place, are difficult to remove. Confirmation bias is a terrible thing.

Sunday pre-game 11/27

2011-11-27T15:17:00.015-05:00

*Update: Please be sure to see victor_the_cleaner's arguments in the comments as to why he thinks the euro zone is unlikely to fall apart. Discussion welcomed.

Happy Thanksgiving, everybody. While my family was stuffing themselves with turkey, I was busy poring over these charts, and this is what I came up with.

I'm bullish on the metals this week, which I guess puts me in a minority of one. In fact, if silver doesn't jump overnight, I will buy some out of the money call options on SLV tomorrow. Yes, I agree, this chart looks bad (and recall the falling wedge I also drew on this same chart last week which suggested a fall to $26):

But, look at this YTD chart with daily closing points only:

Then, one of my long term charts also indicates we're at strong support:

The $SILVER:$USD chart is also about at major support:

While the $US10Y:$SILVER chart (a proxy for the worth of a coupon payment in silver) looks like it will make one quick move to the top of the purple channel before a rally, or else, follow the new dotted channel down this week.

On the weekly gold chart (first chart below), I suppose a fall to $1630 may be in the cards, although it might be the case that (on a closing basis) the lower black trend line has shifted up $50, which would be similar to how the 144 day MA on the daily chart appears to have shifted up by that amount (see how the purple dotted line on second chart below has been strong support since January):

Monthly gold looks to me like we're at strong support to close out November, ready for a breakout to the purple line in the months ahead:

And the $GOLD:$USD chart looks about ready for a rally, which one would think would come more from gold strength than dollar weakness:

I think how you play the metals here (or whether you play them at all) really comes down to your risk appetite. A catastrophe (e.g. out of Europe) seems at least an order of magnitude more likely than even in the recent past, in which case, in the short term, the metals might plummet. But I think the probability on an absolute level is much smaller than is being screamed from the rooftops. And barring a cataclysm, I don't think the metals can be pushed down much further. Let's see if I'm right.

Monday Night Charts

2011-11-21T23:05:00.011-05:00

Once again I had a crazy week, though I'm happy to say I'm all moved in to my new place (though unfortunately now several work weeks behind) (lesson learned: moving sucks, which is a special case of the general law, everything takes 10X longer than planned). See, I decided to make a contrarian play and buy a condo. That's what contrarian investing is all about, right? Do what seems really counter-intuitive, even retarded to common sense. Since it seems obvious to me that soon (maybe in a few weeks) there's a good chance we'll all be skinning rodents with bowie knives and looking for animal hoof prints full of rainwater to slake our dysentery-driven thirst, what could be a wiser move than buying a well-appointed condo?

Speaking of contrarian indicators, I'm really enjoying the bearishness I perceive on the metals. I saw a comment from our friend Yukon Cornelius the other day, on Turd Ferguson's site, saying, basically, that the fear and dejection even there means it's probably a good time to buy. I agree. So long as these corrections continue to go as they have the past 3 years, with no serious technical damage, they are simply wonderful trading opportunities. Look at weekly gold: i predicted last week that we'd hit $1730 (center of lower channel), which was indeed where we closed the week. Then, had I had time for my typical Sunday preview yesterday, I would've said: it can go either way here, back up or back down to either trend line, but with options expiry on Tuesday, I'm betting on down. (I really would've said that, though if gold had gone up today, I probably wouldn't have told you I was going to say that). Now a continued fall to the bottom of the channel is very likely, although it may not necessarily happen this week. Be prepared for when we get there. This week, it would be around $1630.

On the daily chart, I'm really working in some nice colors, which is something that you must admit sets me apart from others who enjoy popping off about technical analysis.

Here's the interesting thing. The 144 day moving average (pink) is at $1650. So, my best guess is we compromise between the daily and weekly charts, and go down to the purple line this week, maybe tomorrow.

The great news is that the 200 day moving average (gold) (which is nearing $1600), is now at the red dotted line. That red line has been inpenetrable support since Jan 2009. So, if that gets broken, it means something catastrophic has happened, (although the term black swan should be retired because, let's face it, with criminal nihilists like Corzine and venal incompetents like [your senator's name here] running the show, some kind of world-historical catastrophe is a virtual certainty eventually, not some six sigma event or "tail risk" that the idiot savant (idiot saquant?) economists who will have blood on their hands like to talk about. A lot of good people around the world are going to suffer immensely for what? i'll tell you what, so that a bunch of glad-handing shit-eating politicians, effete parasitic bankers, and aspergery egghead economists, simple if not soulless creeps almost to a man, can live their sick dreams.

Here's the $GOLD:$USD chart, which looks like it should bounce off 21 in time for another gold rally.

As far as silver is concerned, it stubbornly refuses to fall out of this channel (on a closing basis) that I presented after the September takedown (actually I had posted the channel months earlier).

This version of the same chart (different trend lines) also shows support at 31.5, and as I mentioned last week, very strong support at $30 (on a closing basis):

But even if it goes down to $26, I'm not worried, because it means we have a descending wedge, which is bullish, and will signify a breakout within months. There is no silver bubble, and we are trading about as low as we can go, barring a cataclysmic deflationary collapse.

Other peoples money

2011-11-20T14:46:00.001-05:00

This post is going to be a series of bullet points. I am going to put the dots out there and you guys can make what you want of them

1.Per Bloomberg
"JPMorgan Chase & Co. (JPM) is in “detailed” discussions with administrators to MF Global about acquiring its 4.65 percent holding in the London Metal Exchange, Sky News reported, without saying where it got the information." 2 days ago

2. LME has a few offers on the table from GS, JPM, MF Global (yes, you read that right) etc. This was a story from the Financial Times a few weeks ago. Below is the list of current shareholders with trading rights on the exchange.

Amalgamated Metal Trading Limited
Barclays Bank Plc
E.D. and F. Man Commodity Advisers Ltd
J.P. Morgan Securities Ltd
MAREX Financial Ltd
Metdist Trading Ltd
MF Global UK Ltd
Natixis Commodity Markets Ltd
Newedge Group (UK Branch)
Société Générale
Sucden Financial Ltd
Triland Metals Ltd

3. If JPM acquires the MF Global shares it will be the largest shareholder of LME with 10.9 %
Shares of LME rarely come on the market.
4. However, LME shareholders are expecting bids for the exchange worth more than £1bn, giving MF Global’s stake a potential value of as much as £47m ($75m).
5. LME is also considering being it's own clearing house http://www.lme.com/self_clearing.asp
6. MF Global is dead and 600 Million is missing. Presumed to be residing with JPM who just happens to want to increase it's control of LME in the future and MF Global in the short term.

unfinished. Will add more later.

Herman Cain is a satrirical genius. Gold. Justice.

2011-11-18T09:47:00.003-05:00

I was randomly flicking through the channels early this morning and came across this. It is the funniest thing I have seen in ages. Herman Cain's campaign is apparently an art project. Satire that goes beyond the clumsy scribblings of Jonathan Swift or Plato. High brow art that Banksy would be envious of. Enjoy!

Noteworthy stuff from Matt Taibbi in which he wonders why Wall St. gets bailouts and poor people get Jail time. Obviously Mr. Taibbi is Commie.
The cliff notes version is this vile, evil Woman lied on her application for food stamps and said she had no criminal convictions (drug conviction). She was caught in this web of lies that threatened the financial stability. Possibly the very fabric of of society. Fortunately she was caught and forced to pay back the $4300 and got a jail sentence of 3 years. It is unfortunate the Judge didn't force her to pay for her incarceration and foster care for her children as that will be extremely expensive and heap more burden on the state. Fortunately, in this country we value honor and justice above money so we won't concern ourselves with the math.

Full article here
http://www.rollingstone.com/politics/blogs/taibblog/woman-gets-jail-for-food-stamp-fraud-wall-street-fraudsters-get-bailouts-20111117

Gold:
The big picture

Demand for gold is rising by 6pc a quarter as investors around the world become concerned about the debt crisis. They are accumulating the metal to protect their wealth and this has pushed prices to a record, the World Gold Council said. Various forms of gold are being bought: some are buying into gold funds, while others prefer bars and coins.
Demand from central banks in 2011 may be the most since at least 1970.
Gold climbed to a record $1,921.15 (€1420) an ounce in London on September 6 and is heading for an eleventh consecutive annual increase. Central-bank and government-institution purchases jumped more than sixfold to 148.4 tons in the quarter, the council said.
Central banks may buy 450 tons for this year -- the most for any year since at least 1970.

Bill Downey has a couple of self explanatory charts from goldtrends.net he also has some noteworthy commentary on his site. So click the link and take have a read.

Contingency plans being put in place for Euro Collapse

2011-11-15T17:44:00.001-05:00

Merkel and Sakozy are known to have discussed Euro implosion and/ or two tier Euro system etc. so it's no surprise international businesses will do the same.

ONE of the world's biggest travel operators may ask Irish hotels to sign contracts agreeing to pay it in punts if the euro collapses or Ireland exits the eurozone.
TUI Group runs both LateRooms.com and HotelBeds.com, booking rooms for well-known hotel chains including the Radisson, Clarion and Jurys Inn and tickets for the venues The O2 and Grand Canal Theatre.

The request has caused uproar in Greece, and the head of the Greek tourist board said no hotelier should sign it.
"TUI Travel always seeks to avoid any possibility of being adversely affected by currency and macro-economic situations and plans accordingly," a spokeswoman said. "This may mean that from time to time we seek amendments to contracts with our suppliers".

*****Expect to see this trend accelerate*****.

All you need to know

2011-11-15T10:31:00.002-05:00

Jim Sinclair has a little something, something from Alf Fields.
"Once this correction has been completed, Intermediate Wave III of Major THREE will be underway. This should be the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way."
Alf Fields latest

Now where have I seen this 40 years in the desert Moses theme before?

Moving swiftly along;
Martin Armstrong also has a little something to say on the matter
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/11/14_Martin_Armstrong_-_Gold_Upside_Take_Off_Only_Months_Away.html

Bart Chilton on CNBC this morning talks about MF Global and Ponzi Schemes
http://video.cnbc.com/gallery/?video=3000056772

Photo from outside the Paris Stock exchange with fake EU500 notes.