Martin Armstrong on Government

[ Update - November 15th 2012. To anyone reading the link from TFMetalsReport, you're being led around by a troll. Yep. Analyze closely what was said by user JY896 and you'll find that this link, the graphs, and the assertions were expressed entirely out of context. Whoever it is, is trying to misrepresent the argument. Latest freegold discussion here: LINK  Cheers, Warren]

[ Update - November 30th 2013. So JY896 has a long memory and saw my counter here at the top of a relatively unimportant article and rolled it out here to discredit me (link) .. cool. His main contention is that I didn't give the original source of his original comment here (link to TFM). I stand by my assessment - the original comment was Freegold Trollism, was certainly out of context and did not fairly address anything I said here. His comment (on TFM) had the misfortune to appear at the height of our Freegold Troll infestation on Screwtape Files last year and at the time I (wearily) figured I would nip it in the bud because I'm sick and tired of FOFOA's stuff being taken out of context as well as social media manipulation (or just simple F.U.D. spreading). It's not my fight but I am still interested in the timing and matters discussed in my article here, I think the fact we're viewing things in 'Internet Time' just makes it seem a whole lot slower. Cheers, Warren ]

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

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

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

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

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

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

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

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

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

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.

[[ Update: October 2012 - please check out our comprehensive Wynter Benton Report explaining the history of the fraud in detail: http://screwtapefiles.blogspot.com/p/wynter-benton-myth.html ]]

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[ 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

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

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.