'The Silver Bomb' Bombs

A gratuitous book review of ‘The Silver Bomb: The End of Paper Wealth is Upon Us’ by Michael MacDonald and Christopher Whitestone (An independently published book, USA, 2012).
This self-inflicted chrissy prezzie arrived (from the UK but not from Amazon) in time to get read over the holidays when, in order to stay married, I didn’t dare leave home to go to my hide-out to get something worthwhile accomplished.  Anyway, as Jd’A has been fickle, the dust is building up again in the library there, and the weather down under here was a pleasant 26 degrees Celsius on Christmas morning and the view of the Poinciana tree covered in bright red blooms over its dark green foliage was stunning from the back deck at home, so that is where I parked myself to deal with this book. What a disappointment!

London Trader Redux

Observers of recent gold and silver price action will note that December 2012 is closely following December 2011's script. Last year, too, gold responded to bullish news by falling below its 200-day MA.

Also, on December 20 & 21 of last year, the London Trader made an appearance on KWN, prompting one of my more popular posts, an objective appraisal of his claims to insider connections (e.g. in Asia) and market foreknowledge. My best conclusion (in the comments) was: 
So, it seems [The London Trader] has a knack for coming right before big movements, in either direction. . . Next time he appears, think long straddle.
Well, it turns out that was pretty good advice for 2012. The red, dotted vertical lines on the chart below mark the dates that the London Trader appeared on KWN since last year's post:

Interestingly, on December 20 and 21 of this year, the London Trader did not make a KWN appearance, but Andrew Maguire did. It's pretty obvious, though, that Andrew Maguire is, in fact, the London Trader. For example, if you listen to the latest interview, the London-dwelling trader Maguire says that futures players at hedge funds are "just chasing dots on a screen," which echoes the London Trader's locution from last year: "These kids are literally just chasing a dot up and down a screen" 

So, I suppose we should expect some violent price action in the near future, either up or down.

GM's call of the year

November 18, 2012:
"I'm long the S&P 500 because I don't think the Plunge Protection Team will let gold outperform the S&P 500 in 2012, as it currently is on this ratio chart:"

Jim Sinclair:
Goldman is, in all practical senses, the Exchange Stabilization Fund because ESF is only a brokerage account. There is no fund in terms of what one thinks a fund’s office should look like. Read the law.

The President or US Secretary of the Treasury may appoint ANY person or entity to act on their behalf as the manager of the Exchange Stabilization Fund. The Exchange Stabilization Fund has a broad mandate that allows it to trade many things including GOLD.

And buy stocks, of course.

On Keeping my Little Lemur Purse Firmly Closed

It's been a while since I actually checked the gold price (I haven't owned any since around $1800, as regular readers are wont to remind me, usually in the same sentence as words such as 'naive' and 'deranged'). But a few emails plooping into my inbox over the last 24 hours prompted me to have a wander over to Kitco.

Oh, the humanity.

It's certainly pretty nasty. I mentioned in a comment a while ago that I was open to buying some gold at some point, and that I felt arrogant enough to declare that I would 'know' when that would be.

This ain't it, I don't think. Not by a long chalk. My little lemur purse is staying firmly closed.

Metals update 12/19

This sell-off will get ugly if the following lines are broken in gold and silver:

Eric Sprott's Third Bar List for PSLV

At the end of September 2012, Eric Sprott's funds quietly released an updated bar list, marking the third document for PSLV (and the fourth for PHYS). In light of this stupendous event, I felt it important to analyze the document!

Good Reading in the Metals 'osphere

I'm always inspired by good discussion, especially when it's others doing the hard work writing good content - here's my picks from the last month, in no particular order. Many of you will already have read these, so this is more like a personal bookmark with my own comments.

Sunday pre-game, 12/9/2012

I'll be traveling over the next two weeks, so a very brief update here. 

Nothing really surprising happened last week in gold, as the important $1695 level held on a closing basis. 

I know Screwtape readers are probably sick of the following monthly chart, but it's been my main moneymaker in 2012 (well, aside from my lucrative gig stripping at bachelorette parties). 

I sold my puts from last week at the bottom of the channel:

The real real interest rate

What is the real real interest rate measured in? (If you didn't say "gold" then go directly to King World News. Do not pass go, do not collect $200. And for f#@%'s sake, stop reading Jon Nadler.)

Let's extend my previous analysis. First, if we wish to fit a parabolic curve of the form ab^(-t^2) + c to a series of descending price points (or ratios of prices, as I've been doing), the constant c is important, because a "singularity" only happens if c is negative (as we saw with 10-yr yields measured in ounces of silver).

That doesn't look to be the case with gold.

Yes, the $TNX/$GOLD ratio is also descending parabolically on the log chart. And, as usual, we can interpret the $TNX/$GOLD ratio as the amount of gold the US Government gives you every year for lending it $1000 for ten years. Throughout the 1990's, that amount stayed constant at 1/5 of an ounce (almost literally; see horizontal regression line in chart below). Nowadays, it's below 1/100 oz.

Note also in the graph above that, as with silver, I had only to shift the upper curve down and (slightly) to the left to get a nice parabolic channel. 

The Silver Singularity

We all know that a line on a log chart depicts steady growth, where price = ab^t, where t is time, and the price increase per unit of time is equal to 100(b-1) percent. 
But what about a parabolic curve on a log chart, such as the one below? (The chart depicts the $TNX/$SILVER ratio, which can be interpreted as the number of ounces of silver you get in return for lending the US Government $1000 for ten years.)

Sunday pre-game, 12/2/2012

This is a huge week for gold and silver (also palladium; has anyone noticed its RSI is at 73?). I expect some dramatic price action. So many long term charts are at critical points.  I'm pretty much in cash except for some GLD puts I bought over the past week. 
Gold has to shit or get off the pot. Starting to look like it's rolling over:

Timeline to the Apocalypse

 You wouldn't believe how many emails I get from my subscribers asking: "GM, when will the whole shit-house go up in flames? It is incumbent upon me to prepare accordingly."

I always seize this opportunity to rejoinder: "If I knew, I'd be on a yacht off the Isle of Man snorting blow off a stripper's ass." The irony being, of course, that when I respond thusly I usually am snorting blow off a stripper' ass, frequently on a yacht (or some reasonable facsimile thereof, such as a well-appointed catamaran with fine leather and granite finishes). Ergo: I do in fact know when the shithouse will go up in flames. And, feeling charitable towards humanity on account of the solicitous ministrations I am presently receiving (even as I write) from a stripper (the backside of whom I have just availed myself of to snort blow), I will herein reveal it to the general public.

First, consider that the final collapse of the dollar is equivalent to the price of commodities approaching infinity. And when the price of commodities approaches infinity, any ratio with commodity prices in the denominator will, of course, approach zero. 

What if we could find a ratio that loses a constant value every year, such that its zero on the time-axis can be easily extrapolated? 

My data goes back 23 years, so I am looking for a ratio (1) whose linear regression fits the data well over that period, and (2) has the same linear regression line no matter where you start or end over that 23-year span (e.g. 1990-2013, 1994-2012, 1990-1995, 1990-1999, 2002-2007, 2002-2013 etc.). If such a ratio with commodity prices could be found, extrapolation would be justifiable.

It would also be nice if this ratio had some fundamental significance. For example, if the dollar collapses, it will almost certainly collapse because government debt has become unmanageable and needs to be monetized. The easiest way to maximize the life of the shithouse, then, is to lower interest payments on the debt in real terms as gradually as possible, until you can't do so anymore. 

Well, look no further, we have our ratio. 

Buy silver, earn $0.07 a week

 Out of curiosity, I looked at regression lines for silver on the weekly linear chart, starting at the 2001 bottom (green), the November 2005 bottom (purple), and the 2008 bottom (brown).

As with gold, the post-2005 linear fit (purple) looks very good (silver is in fact touching the line at this moment). Interestingly, that line depicts growth at $0.07 per week, which would mean silver takes close to 5 years to get to $50 again. Of course, that assumes no parabolic jumps going forward, which I don't consider likely. Nonetheless, these linear regressions are illuminating, not least because they show that silver did in fact regress to its mean after the 2011 fireworks, overshooting all regression lines to the downside this past summer. Since then, it has continued to coil around its main regression line (purple) that's right between what can be viewed as upper and lower boundary regression lines (green, brown). Nothing about this chart says silver is either overbought or oversold in the intermediate term.

Regression Analysis of the Gold Bull Market

As we approach the end of 2012, there's a lot of talk about this being the 12th year of the gold bull market. While true, it's worth noting that with respect to charts, as late as 2005 there really was nothing all that special going on in the gold market (the fundamentals were a different story). What I mean is that gold had entered the $380-$500 range several times after the 1980 crash, where it was still meandering for virtually all of 2004-2005. For example, most of 1987 and 1996 were spent in that range. So, if we want to settle on a date when the 21st century gold bull market began, we have several possibilities. 

As a lower boundary, of course, we can pick the earliest date on which gold hit a price that it never touched again. That occurred in Dec 2001, with gold hitting $270 for the last time.   

Then, we can focus on the all-important $370-$500 range, choosing the date gold finally busted its ceiling since the 1980 crash. That day occurred exactly 7 years ago, around Thanksgiving of 2005. We can also pick the date when gold hit $370 for the last time and never looked back. That occurred in May 2004.

Finally, we can narrow our horizon somewhat and just look at the "QE" period since the crash low of 2008, after which gold has climbed up at a strikingly fast and regular rate, its narrow channel only broken in April of this year. (It made a low shortly thereafter, but has actually continued to climb at a similar rate, just shifted ~$75 lower.)

I'm getting into this because I chose to look at linear regressions of the gold price, and I had to pick critical dates on which to begin the analyses. A linear regression will find the line that minimizes the squared distance of the prices around it. The slope of this line will give you a good estimate of the average daily increase in price during the period you're looking at. It should be kept in mind, however, that in this analysis the residuals from the line of best fit are not independent; if price is far below the line of best fit today, chances are it will still be below it tomorrow. So it's not as good a predictive tool as would be the case if the "errors" from the line were independent of each other. But it is still informative and illuminating.

So with no further ado, here is the weekly candlestick chart with the regression lines. The vertical lines denote the critical dates I described above. (Note that they are opaque, so they cover the candlesticks for that week, but rest assured they are at minimum points). Each regression line begins at its corresponding vertical line. (You can ignore the lines parallel to the "center" regression lines for this analysis.)

The light-blue regression line is a lower bound of sorts. It captures the action of the bull market since it's very beginning in 2001, reflecting a price increase of ~$12/ month. The light-green regression line is an upper bound. It captures the rate of price increase since the 2008 low, at ~$24/month. Gold is not unexpectedly between these 2 regression lines. In fact, it is smack on another line I drew midway between them (pink), which also covers the other 2 regression lines I drew (rationale described above) which start in May 2004 & December 2005.

As you can see, I've "widened" the upper and lower boundary lines somewhat, because as price moves, the actual regression lines will slowly change in slope. But the widened light-blue and light-green bands should capture the true regression lines for awhile. Again, gold is right in the middle of those 2 lines, so right now the direction it goes is anyone's guess (i.e. it's not underperforming or overperforming). I'll be watching the action over the following weeks closely for a hint. Is the nearly perfect cup and handle that is forming going to amount to anything?

My guess is we'll continue to see a lot of volatility between the two boundary regression lines until one is emphatically breached. The lower boundary is approaching $1650 -- and as I've been saying for awhile, I don't think that level will be broken.  Nonetheless, I'm thinking $1800 won't be decisively cleared either, not until earliest April 2013 (see red circle), about 3/4 to the end of the obvious ascending wedge (see red lines). So I think gold bugs should be patient.

**Update: here is an analogous monthly chart with regression lines drawn from significant dates. The 7-year linear fit to gold since December 2005 (dark blue) is quite good, indicating that gold has grown more linearly than exponentially during that period, at ~$16/month.

Chasing Chinese Bars

Eight months worth of Julius Baer Precious Metals Fund data was successfully loaded into the database this week. Their vaults contain ~ 8,902 gold bars so we thought we might be able to catch a glimpse of some bars of Chinese Origin - no luck. Ever since Dominic Frisby talked about GLD having no Chinese-refined bars link, I've been wondering where and when they might show up.

GLD is the world's biggest repository of gold bars, if you remember the 'country of refiner origin' breakdown, this is the most recent snapshot (data is from a specific document issue - not an aggregate). I have also included the graphic to remind that we're only interested in the 400-oz variety.

GM Jenkins' Fundamental Law of the 21st Century Gold Bull Market

This is looking to be a volatile week ahead. Risk-averse traders need not apply.

I'm not feeling especially bullish, but I'm nonetheless long GLD and SPY, and I closed my UUPT position (3X US dollar ETF) Friday.

I'm long gold because I think it will close November above where it is now. If it doesn't, that would be just the second month since 2001 it closed below this 40% trend channel (which it's currently just barely below, with 9 days remaining). 
Moreoever, we're close to long term support (300-day MA of daily highs and daily lows), which I doubt will be broken again anytime soon. If it is broken I will reconsider, of course, and probably change my tune. But until then, I like the post-QE3 potential upside here compared to the downside, and want to be long. 

Jeanne d'Arc jumps the shark

My name is Bond. Jeanne de Bond.

One of my central theses (as opposed to one of GM's ventral faeces, which is another matter entirely) is that in an inflationary environment, gold is really just not that great a hedge. Currently, I own no gold (paper or solid), and I make no apology for that: it's neither (a) necessary, nor (b) profitable. Shoot me.

I don't really enjoy philosophical debates about gold emerging as the new real money, or it being liberated from its chains to enrich a few sharp billionaires and web-obsessed PM market followers. It's not that I'm utterly humourless - oh no - I enjoy spluttering into my tea at the latest silver fiction splurged out onto the silverogosphere as much as anyone, and I like to think of myself now as some sort of connoisseur. It's just that when it comes to gold, the level of debate is just so... how can I put this?... so, un-rock and roll. It's a bit of wealth protection here, a bit of cheat the gubbernment there; a bit of inflation hedge here, a bit of doomsday over there. I just can't grind with that kind of solipsistic navel gazing: Louis has just given me my pocket money, and I want to make it worth more - now!

Deep Thoughts, with GM Jenkins

So another election is over. Voting in these things is of course irrational to the point of insanity. And yet ... there appear to be a hundred million Americans who did indeed vote. Perhaps it's more a question of innumeracy than insanity. But if we compare voters to scratch-off lottery players--those textbook examples of innumeracy--the sad thing is, the scratch-off lottery players are infinitely more rational. Of course, that would be the case even if the outcome of these massive federal circuses mattered -- even if (say) you stood to be tortured to death if your candidate lost. In fact, were it actually the case that I'd be tortured to death if my candidate lost (Jill Stein, by the way, on account of her good looks, even unadjusted for age), I'd probably go ahead and hit the polls just to get in a little mental revenge at the stupidity of it all before they broke me on the wheel--by voting for the other guy, the candidate I hated most. 

No, anyone who votes in these elections thereby forsakes his right to laugh at a grown man who leaves cookies under the chimney for Santa Claus or puts his broken teeth under the pillow after losing a bar fight. In fact, the only thing more disturbing than the mental and physical energy so many otherwise intelligent people waste on voting* is the perfunctory response I get whenever (owing to my kind and generous nature) I attempt to disabuse them of their irrationality. "What if everybody acted that way?" goes the invariable response, not without some misplaced indignation, by which an alarming inability to understand a dynamic system (or, less charitably, reality itself) is betrayed. Obviously, if I felt there was even a tiny chance that a hundred million people, somehow cured of their innumeracy and/or addiction to moral masturbation, would stay home on Election Day, I'd be the first at the voting booth, if only to do my part to ensure we saw more of Jill Stein's comely face and less of Obama's insufferably haughty demeanor, his sickening faux-concern for the middle class, and his grating, pseudo-folksy nasal plosions

If the world ever becomes nobler and wiser, the denizens of that better world will surely look upon the irrationality of one hundred million American voters with astonishment, perhaps also with a condescending smile, the way we look at a Yanomami tribe performing a rain dance. 

Except their condescension would be as justified as ours is not, seeing as the Yanomami are having the time of their lives, high off their asses on Ayahuasca, watching sexy girls shake their rainmakers, while we suffocate amongst irritable, self-important fools in long lines which probably smell of farts. 

How can we trust the Bar List Data?

Recently, video blogger Alexiscom1 did an analysis of some of our material and asked some questions link. Questions are good - they help us interpret the world around us. One of his questions I thought would make a good post: (paraphrased) "How can we trust the Bar List Data?" Alexiscom1 says: "... any report from SLV in it self would not worth much if they are doing their own audit them self." A popular sentiment! Also talked about by Dave in Denver: 'Any reports generated by SLV/GLD are only as good as the paper they are recorded on.' link. The bar lists are my data source, so I better talk about it at least once.

The Bill Murphy wager update

This is the correspondence between Bill and I regarding the wager. 
According to bill gold should be at $3200 shortly. Below is the original post which I sent bill in an email. See linky for original post

To: elpresidente@gata.org
From: Louiscypher
cc: GATA

Dear Bill,

I read your piece via Zerohedge.com yesterday and 
was pretty much in shock. I assumed your account 
got hacked and some rogue hacker is now running 
around twitting, twatting, skit skating, spamming and flambĂ©ing with your good names. 

However, it's been 24 hours and there are no denials so I guess you guys really, actually expect the price of Gold to double in the next 90 days.
Now seeing as you have put this out there I'll assume you are going to buy some leaps and make some paper on this. 

Indeed (as newsletter writers like to say), as you are entirely comfortable having the general public make similar bets I have a proposal for you guys.

I will bet 1 Oz of 24K gold US mint issued coin that it will not double. I will also eat your shorts if it does double in the the next 90 days. If however it does not double in the next 90 days then you will give me a 1 Oz 24 K Gold coin issued by the US mint. 

Now I'll understand if you guys want someone to hold the coins and shorts in escrow. May I suggest the boys at ZH for the Gold and JPM for the shorts?

Louis D. Cypher

Read Bill's reply below

Life imitating art

Just a quick post, before a more comprehensive one that I hope to release soon. Readers that followed the Screwtape Replies to Brother John F post will have enjoyed commentator Michael H's parody of the paranoia and conspiracy-theory mindset of the silverogosphere, viz.:
My best source of solid reliable gold information (who only talks to little-known PM bloggers who don't hyperventilate and over-inflate their claims, to better preserve their credibility) told me that the Bundesbank is on to your latest plan of using HAARP to generate and guide hurricane Sandy to NYC, to create a cover for the heist you described.
As told in the New York Times, "HAARP will zap the upper atmosphere with a focused and steerable electromagnetic beam" which can cause "hurricanes, drought, earthquakes, floods, forest fires, lightning, tsunamis, acne, diarrhea, constipation, and hemorrhoids.

Michael H, Screwtape Files, 31 Oct 2012 

Sunday PM pre-game 11/4/12

Quick update, as I'm traveling this week. Gold hit my target from a few weeks back. After -$40 Friday, I'd be surprised if this will be a V-shaped bottom, but I don't think we'll see below $1650 on a close. That's how I'm betting anyway.

Same with silver. I expected the 34- and/or 55-wk MAs to be tested on a weekly close. I don't think we'll see a weekly close below $30.50.
A longer update next week!

What and Where Was All That Silver?

A Report on Stocks of Silver Around the World, The Silver Institute, 1992.

Thanks to Nick Laird, my little research project on the form and whereabouts of stocks of silver had a major breakthrough a little while ago which I would like to share with you at this time.  Nick has had, for quite a while now, a link on his web site (http://www.sharelynx.com/papers/CRAAGReport.php) to the summary conclusions of the Silver Institute’s publication ‘Stocks of Silver Around The World’ (SSATW), prepared for them in 1992 by Charles River Associates (CRA).

[I have now, in the evening on 31/10/12 downunder here, corrected some typos and improved some awkward or misleading phraseology in what follows.  I have also added the observation that the SSATW figues corroborate my earlier estimate that above ground silver stocks are four times as large as existing gold stocks.]

With apologies to Ansel Adams

Look closely and you can see a future Darwin Award recipient.

Screwtape responds to Brother John F

With thanks to reader, Duggo, my attention has been drawn to the video-blog of a certain Brother John F. I considered sincerely the idea of concocting a well-thought out, fact-based response to this.

But. in the end, it seems pretty obvious that the best response is to just simply post Mr BJF's video here and let our readers draw their own conclusions about the coherence of the information contained therein.

It is as unhinged as you might expect it to be.

Thank you, Brother John F. You have added much ammunition to my thesis that the silverogosphere is a fanatical, self-serving organism that seeks to deliver a perma-bullish analysis to a naive investing public.

You should be truly, truly, ashamed of yourself. Now go to your room.


Fake Fake Gold bar manufacturers story

Whilst helping a friend out with a crowd funding project, http://www.indiegogo.com/nthdeploy, I suggested he use the fake gold tungsten bars from tungsten-alloy.com as part of the "Banker reward". This is the one that is trotted out as proof China is making and exporting fake gold bars. We have mentioned them in the past as have ZH etc.
However, easier said than done when ordering. He wasted 6 emails and 5 phone calls trying to place orders for 10 Oz knock offs. They finally gave him a price of $300 plus shipping.

As part of this shameless plug stuffed with link baits please check out his geek reward prizes including his "light bulb repair kit", "CCTV anonymity kit" and his "Schroedinger's cat experiment". The project he is trying to raise funds for ain't bad either. The basic idea is to create a plugin for VMWare Virtual Center to speed up deployment of Servers even more.
Shameless plug over. Now back to the regular scheduled programming of bickering and name calling but all in the best possible taste.

Here is what is on offer for $300