Sunday pre-game 2/26/12

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.

Gold at $32,000 in three years?

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...

Sunday pre-game 2/19

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.

GoldMoney and its end-of-day price 'manipulation' (updated) (again)

[UPDATE: After reading this article, you may find the reply from GoldMoney, here, interesting.]

[UPDATE 2: But despite GoldMoney's reply, the story continues.]

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 I say 'had offered', as this aspect was withdrawn on 21 January this year.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?

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 co
mmodities. 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].


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

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)

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.

2. The Many Values Of Gold - by Victor the Cleaner - nice summary of the role of gold including some sections on Freegold.

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).

4. (Via Zero Hedge): visual representation of debt (by ''): I simply love visuals like this.

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

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

*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

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

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.