In Like a Lion and Out Like a Lamb: Gold

[UPDATE: THE SILVER VERSION OF THIS POST IS NOW AVAILABLE HERE.]

The old English proverb of 'in like a lion, out like a lamb' to describe the weather in the month of March seemed to fit equally well the markets this year.

The stock markets started the month with real strength, before going on to give up a good chunk of their Q1 gains and then pulling back some of these gains right at the end of the month (the S&P500 being an exception to this, as it performed solidly throughout March). The PMs started in a similarly fierce manner: Gold closed on 1st March at $1725 and silver at $35.50, before they cratered later in the month to $1625 and $31.25, respectively, and then climbed back to close the month at a timid $1668 and $32.28.

A lot of this can be attributed to end-of-quarter portfolio reshuffling (and in the UK the end of March is also the end of the tax year), but there was also renewed nervousness about the state of the world economy, with Chinese data disappointing many economy bulls. So what's next for the markets (both PM and non-PM) and will April finally be the month when PM bulls start to get paid?

I'm going to break this down into a few posts, I think, as it's a big subject. This is the one for gold (the one for silver is now available here). Let's go to the charts...

The FBI targets Screwtape

Well, it has been an exciting couple of days. First off, the Screwtape Files became the first on-line source to question the veracity of the now infamous story about tungsten-filled (or 'salted') gold story, which ruffled all manner of feathers around the gold- and silverogosphere. Since then, many other doubters have started to come out of the woodwork, and some serious examination of this story has begun.

This particular salted gold story may yet be proved to be true (although I personally doubt it, I have to admit), but the important issue was always about the challenging of dubious provenances of stories, and daring to question when certain others (including some mighty commentators) simply copy and paste.

I hope readers won't consider this too proud a boast, but the readership of Screwtape has been expanding of late, and we're delighted to welcome all our new readers and all the new people who have taken the time to comment on our articles. We always try hard to challenge, take the devil's advocate view, and never give in to group think. As I said in a recent comment: fans of Screwtape come here to hear the opposite of what they want to hear. Confirmation bias leaves one dead in the water in both Tradingland and Investingania.

Which makes us wonder all the more why even the Federal Bureau of Investigation now appears to have taken an interest in us.

The Relative Sizes of the LBM OTC Market and the COMEX/GLOBEX Futures Exchange

Is the COMEX/GLOBEX ‘the be all and end all’ of the world’s precious metals market places, or does the LBM also play a large role, one that even surpasses the former, not only in volume but perhaps also in significance when it comes to certain aspects?

For me, this issue of the relative size, and therefore potentially the importance, of the LBM (London Bullion Market – see end note) in comparison to the COMEX recently arose in a small circle of those I regularly correspond with on matters pertaining to gold and silver. I sent around a posting by Victor the Cleaner on one of the more popular PM sites, in which he said that the LBMA dwarfs the size of the COMEX. One of my correspondents thought that was interesting enough to ask Ted Butler personally if that were true. Ted replied that he didn’t think that was correct. He has now stated this in his newsletter as follows (as ‘stolen’ by Ed Steer in his March 22 Gold and Silver Daily):

"For more than 30 years, I have noticed that on unique U.S. holidays, when Europe is open for business and the US closed, worldwide trading almost stops altogether in gold and silver. That wouldn’t seem to be the case if the COMEX were [smaller than the LBMA]. Further, the most dominant COMEX traders are also the most dominant traders on the LBMA and the OTC markets...and the allegations of manipulation are principally aimed at these traders anyway." ...

Salted Gold or a Fishy Tale..? (UPDATED + Graphics) (AGAIN)

A long-standing allegation that one sees all over the gold- and silverogosphere is that most of the gold in Fort Knox is 'salted'. In other words, it's been fiddled about with so as to have a tungsten core.

Tungsten is a good metal to pick, as it is not ferromagnetic (so won't be picked up by electromagnetic detection techniques), does not significantly alter the weight of the gold bar, and - most importantly - is much cheaper than gold (around $400 per metric ton, rather than $1660 per ounce.)

Stories have abounded of these salted bars turning up in Hong Kong, and making their way into western central bank depositories, ETFs, and just about everywhere else. A lack of evidence has done little to hamper the progress of this on-line meme. Surely, if this practice was so prevalent, then someone, somewhere, must have a photograph of a salted bar?

The Platinum/Gold Ratio is at a Critical Point

Back in January, Brian O'Flanagan wrote an interesting piece for Screwtape on the Platinum/Gold ratio. Traditionally, platinum is a more precious precious metal than gold, and its ratio has reflected that: apart from on a couple of very brief occasions, it has always been higher than 1:1.

Until the latter part of 2011 that is, when platinum plunged from its highs of $1870/oz to a heart-stopping $1360/oz (27%). Although gold suffered its own drop ($1900 to $1540/oz), it was 'just' 19% - ergo the PLAT:GOLD ratio fell to below parity for essentially the first (sustained) time in modern memory. This is visually represented in these two charts:

The Victor in the Euro Conspiracy

(Artwork by Warren James, Screwtape Files 2012) 

In the last comments thread, JdA asked Victor The Cleaner what he meant about the 'European conspiracy'. I believe I've been following the story long enough to be able to answer the question, if I may be so bold. It's a long story and not easily summarised, but is easy with this lead in ...

How long before gold and silver get back to their highs?

I received two especially troubling emails today. The first was from a reader who had bought silver at $48 in April 2011 and gold in September at $1900, who wanted to know my opinion regarding when he might once again break even.

The second was from the Screwtape Files auditors, who wished to remind me that contributors are not actually paid by the word (or indeed paid at all, a revelation that was something of a shock to me), and so I might wish to keep my next few posts a little briefer.

Alors, on y va:

A Beautiful (Inverse) Head and Shoulders

Like many readers of Screwtape Files, I do some of my best thinking in the bath. Yesterday, whilst taking an especially long set of ablutions and trying to shake out the last few drops of shampoo from the bottle into my little furry palm, I suddenly had a εὕρηκα moment. The episode was fortunately captured for posterity by my man-servant, loyal old Mr Funkleberry-Hydesmuggler.

Please now steel yourself for some blue-eyed lemur semi-nudity...

(Artwork courtesy of Warren James, Screwtape Files 2012)

The Silver 'Pennant'

Our fine in-house TA tactician, GrundleMaster 'GM' Jenkins has frequently made reference to the large silver pennant that has formed on the silver chart over the last year (here being a fine example).

He is right to highlight this pennant's importance as, in my opinion, it is this formation that will govern the silver price through much of 2012. So I'd like to take a closer look, and see what conclusions we can draw about suitable buy-points and sell-points (for the traders amongst us) and a wise entry point for those wishing to sit on a stack of the metal for a long period of time (for the investors that grace this site).

Gold and its miners look ready for a big move

This has not been the happiest of weeks for PM investors. The sharp fall in the price of gold was triggered by that most feared of black swan events: Jeanne d'Arc wrote a bullish piece about gold mining stocks.

Literally seconds after hitting the 'publish' button, gold plunged by $35 an ounce, and went on to lose a total of around $70/oz from its pre-JdA-article level.

It's times like this that PM bloggers stare deep into what is left of their soul, throw their pens at the cat in frustration, and swear blind that they'll switch from writing about PMs to penning poems about lovely butterflies or creating daguerreotypes of renaissance sculpture. At least the butterflies won't change their spots seconds after a photo of them is published, and sculpture is harmless (and often armless) enough.

But I soon realised what utter nonsense this attitude was. Because the charts' indications haven't changed. And I still very much believe that we're about to have a big move higher in both gold and its mining stocks. Let me try to convince you again...

GoldMoney's at it again

Apologies to readers less anal than me about these things (which is just about everyone, I would imagine), but my little blue prosimian eyes almost popped out on stalks yesterday evening when I saw that GoldMoney's mysterious currency machinations are back again.

I first revealed this weird effect here - on days when the GBP significantly weakens or strengthens against the USD, there is a sharp spike in the gold price (up or down, as appropriate) after trading hours. This spike does not appear on any other Au/GBP charts: just those of GoldMoney. It was clearly a currency 'correction', about which GoldMoney makes no mention on its website. And it can potentially cost you (or make you) serious money, if you're on the wrong (or right) side of it. Please read the first article in full, if you'd like to learn more about this.

Attack of The Clones

(Artwork by Warren James, Screwtape Files 2012)

As a long-time studier of the original Wynter Benton messages, I had some fun reading the '1st WhistleBlower of many' letter, which I looked at only because a link graced my inbox today. The message appears at the same time as 'shocking revelations of fraud' from a former Goldman employee (which even reached the mainstream news here in the antipodes), the timing context presumably lends some 'association credibility', and infers that silver and gold are about to go ballistic.

Time to go long the gold miners again? (UPDATED) (AGAIN)

[UPDATE: For a major update to this post, please click here.]

Well, Jeanne's feeling very bullish today.

This may be because of Screwtape's fortunate escape from its obligations to pay Brian O'Flanagan a golden parachute on leaving the blog - an escape from financial ruin engineered solely through our having the wit of forethought to get photographic proof of some of his less salubrious peccadilloes (it's always the rich and powerful that end up in the basest of situations, you know...) Or perhaps it's because of my successful coup d'état which has left me the de facto sole contributor for a few weeks.

But whatever the reason, I've spent the last week or so picking up mining stocks. And here's the real reason why.

Realizing Your Investing Acumen

Before I continue my delightful absence I’ll chime in so Jeanne isn’t so lonesome. After all, there is no better way to sustain readership than a 24 hour glut of three posts followed by three weeks of inactivity. I suppose it is somewhat ironic that I joined this blog about the same time that I completely withdrew from the stock market. I'm not investing so I don’t have very much to contribute regarding investments nor was I ever qualified to speak on them. So when I consider the general content of Screwtape Files, it is fair to say that I won’t be posting very often. However, one thing I can contribute is my personal experience that some others might be able to relate to.

O Sole Mio

He who lives in solitude may make his own laws.

Publilius Syrus (1st century BCE)

Following my return from two weeks of hiking in Narnia, I found my inbox to be full to the very brim with emails replete with gnashing of teeth and wailing because of the recent reduction in posts at Screwtape.

Well, actually, I've only had five emails, of which one was for an apparently outstanding investment opportunity for a gold purchase from a former rebel general in Cote d'Ivoire and another offered to extend the length of the penis for which my Y-chromosome challengedness makes me an unlikely prospect. But the other three had some pretty decent wailing and teeth gnashing, let me assure you. Oh yes.

GoldMoney replies

Readers may recall this post of mine on 17 February, in which I reported on the curious phenomenon of 'spikes' in the GoldMoney prices for gold in Pound Sterling (GBP).

Essentially, on days in which there is a big shift in the GBP/USD pair there is usually a corresponding spike (of up to £15/$20) in GoldMoney's gold price after trading closes. No such spike appears on any other website's charts, so it appears to be a phenomenon unique to GoldMoney.

GoldMoney has been in contact with me and this is their explanation, which I think only fair to reproduce here:

Metals recap, 3/2/2012

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

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