October 2, 2022

Should Silver Investors Go “All In”?

Silver BarsBy:  GE Christenson

Unfortunately, there is not, that I can see, a simple pattern that predicts the next high or low in the price of silver. Markets seldom make it that easy. However, there are patterns that provide valuable information to help illuminate the “big picture” perspective of where the current price of silver lies in the up-down-up-down cycle of prices.

Process

  • Examine monthly prices since 1972 – over 40 years. Use monthly prices to see only the “big picture” with important lows and highs.
  • List the dates for important lows, and determine the number of months between adjacent lows.
  • Look for simple patterns.
  • Group One Lows: 8/77, 6/82, 5/86, 2/91, 3/95, 8/98, 5/04, 10/08, 4/13. They are separated by the following number of months: 58, 47, 57, 49, 41, 69, 53, 54. (average 53.5)
  • Group Two Lows: 2/93, 7/97, 11/01, and they are separated by 53 and 52 months.

Significant lows are separated by approximately 4.5 years, with rather wide variations. I doubt you can trade this; but, if you are investing for the long term, this indicates that buying aggressively approximately every four to five years should work out fairly well. April 2013 looks like it is at or near a multi-year low.

Big Picture Summary

    • Governments spend in excess of their revenues and create ever-increasing debts.
    • Central banks create the digital to keep the debt machines running, thereby increasing the supply and inevitably increasing prices.
    • Do you remember gasoline at $0.15 along with other goods and services at similarly “unbelievable” prices? Those days disappeared with the huge increase in the number of dollars in circulation, particularly after Nixon severed the link between gold and the dollar in August 1971.
    • Silver prices fall until there are few sellers left, rise until there are few buyers remaining, and repeat the cycle.
    • Each low to high to low cycle takes roughly 4.5 years. At price peaks, the silver bulls are euphoric, while they are depressed and worried at the lows.
  • Ask yourself, “Does now feel like a low or a high in the silver price?”
  • About 4.5 years ago there was an important low in the silver price – October 2008.
  • About 4.5 years before that, there was another important low in the silver price – May 2004.
  • Highs follow lows.

For additional information, read Silver – Keep it Simple! and Silver – A Bipolar Roller Coaster.

GE Christenson
aka Deviant Investor

Gold and Silver Bearish Sentiment Is At Extreme Levels

By:  John Townsend at The TSI Trader.

The usefulness of sentiment’s stealth crystal ball is about to be revealed to the litany of unsuspecting precious metal bears and skeptics who have convinced themselves that gold’s bull market is either over or, at the minimum, in need of lengthy ongoing retesting, restructuring and consolidation.

This article will bring us up to date as to the degree of current bearish sentiment regarding both gold and silver using no fewer than 5 sentiment indicators (with 9 illustrative charts), as well as provide the reader with an opportunity to observe the price outcome of previous bearish extremes using these sentiment indicators.

But first, let’s briefly consider the concept of investor sentiment.

Sentiment extremes, simply put, tell us that there are too many traders at one end of the boat and therefore the boat is about to tip over. Sentiment can strongly suggest that the trade, as some say, has become “crowded”. When someone finally yells “fire” in the “crowded” room there are so many of the market’s participants motivated to get out the same door and in the same direction that most get trampled – unable to reverse their trade fast enough.

Another way of characterizing a sentiment extreme is to say that the trade simply runs out of buyers or sellers, as the case may be. The extreme price momentum in one direction “exhausts” itself of all available ammunition to continue the trend and is sometimes signaled when someone yells “fire” in the “crowded” room, but often comes to a conclusion unrecognized by most traders as price reverses direction in an unassuming manner.

You may have heard comments when a particular market bottoms and then begins to trade higher and then continues to trade even higher yet, despite “bad” news, the assertion that the bullish price movement seems to make no sense – that it cannot possibly be sustained. At this time it appears to nearly everyone the common sense question to ask is how “bad” news that used to cause a market to go into free fall now seems to have absolutely no negative effect? And to observe that as this market continues higher, it always leaves behind those traders stuck in pessimism to declare that the market is “climbing a wall of worry”. That is, the “bad” news continues in the media, yet this particular market’s price reversal continues upwards.

We will begin with the put / call volume ratio of the options trade of the Silver Trust ETF (SLV) and the SPDR Gold Trust (GLD). Charts courtesy of Schaeffer’s Investment Research.

Click on image to enlarge.

The red line in the charts are the ETF’s price movement over the recent 2 years (GLD above, SLV below). The blue line is the put / call volume ratio. This considers the trading day’s volume of puts traded and is divided by the volume of calls traded. Generally, the higher the put / call ratio, the more bearish traders are about the ETF’s likely price movement, while the lower the put / call ratio, the more traders believe the ETF is bullish and going to rally higher.

Click on image to enlarge.

Undoubtedly you have noticed that both charts reveal that the put / call ratio is at the highs of the past two years; meanwhile price is at the lows of the past two years. I will leave it to you to observe the repetitively flip flop relationship between this sentiment indicator and price movement. For me, anyway, this indicator leaves little doubt as to the upcoming direction of GLD and SLV.

Next up is the Hulbert Gold Sentiment Index. This chart courtesy of Mark Hulbert’s Newsletters.

Click on image to enlarge.

This first Hulbert Gold Sentiment Index chart shows us that gold sentiment at present is even more depressed than at gold’s infamous 2008 low.

So there you have it. Sentiment on GLD and SLV options is crazy extreme, Hulbert’s Gold Sentiment Index reveals sentiment is not only more bearish than the 2008 bottom – it’s more bearish than anytime in the past 17 years (at least).

Read complete article here.

Is The Decline In Gold Predicting Deflation?

bernanke's paperBy GE Christenson

We all know that our cost of living in increasing, but how much?

The official government statistics assure us that inflation is running around 2% per year. It reminds me of the line attributed to Groucho Marx, “Who are you going to believe, me or your own eyes?”

But, your cost of living increase – your personal inflation rate – may be much larger or smaller than that of the person next door. Your spending choices matter a great deal in determining your personal inflation rate.

  • I think we can all agree that some items are increasing much faster than others. A few that come to mind are college tuition, medical care, hospital costs, and health insurance. Several that increase more slowly are postage and milk. If you spend more on medical care and health insurance than on postage, your cost of living increase will be much larger than the person who buys more stamps than health care.
  • If the official CPI goes up, then social security payments increase and total government expenses increase. Hence, government has an incentive to want low CPI inflation statistics. The US government has changed the process and the formula several times since the 1980s. The result, of course, is that the official CPI is low. Maybe it is fair, maybe not, but it is the official story, and it helps keep social security payments low.
  • The various statistical measures used to calculate the CPI have been discussed and criticized in detail in many other publications. In the opinion of many people, they don’t reflect economic reality for most people.
  • Other writers disagree and assure us the inflation rate is low.
  • John Williams, a competent economist and statistician, computes the annual inflation rate at about 9%. He uses the statistical calculation process that was used by the government in 1980.
  • Dennis Miller did an inflation rate survey. It was not intended to be statistically robust – just practical. His readers responded with an average inflation rate of 8%, but 23% of the respondents thought their personal rate of inflation was over 11% per year.
  • The Deviant Investor did a similar survey and received a large number of responses. Our readers thought their average inflation rate was nearly 8% per year, while 39% thought it was higher than 9% per year.
  • Rex Nutting thinks it is close to 3% per year and that most of us are “CPI Deniers.” Mainstream media mostly agrees – but I can’t find anyone (in casual conversation) in a grocery store who thinks food prices are only increasing 2 – 3% per year.

I estimate my personal inflation rate at about the average found in the surveys – around 8% per year. I am one of those “CPI Deniers.” Most people I know are “CPI Deniers.”

So How Important is a Few Percent Per Year?

A few percent seems unimportant, but over a decade it becomes very important. Let’s assume in this very simple example that your expenses increase 8% per year, and your income increases 3% per year. In year one your income was much larger than your expenses, and you saved the difference.

Sample Inflation Calculation

Year Income Expenses Net to
Savings
1 80,000 60,000 20,000
2 82,400 64,800 17,600
3 84,872 69,984 14,888
4 87,418 75,583 11,835
5 90,041 81,629 8,411
6 92,742 88,160 4,582
7 95,524 95,212 312
8 98,390 102,829 (4,440)
9 101,342 111,056 (9,714)
10 104,382 119,940 (15,558)

By year 8, in this simple example, the cost increases overwhelmed your income, and you were forced to withdraw from savings. Of course, in the real world, there are more variables and adjustments. We cut back on expenses, increase credit card debt, take a second job, win the lotto, file for bankruptcy – whatever. But the critical point is that your personal inflation rate is important, and a few percent over a decade can make a huge difference.

What to Do?

      • Cut back on expenses.
      • Get out of debt, and stop paying interest.
      • Increase your income.
      • Start a business, or take a second job.
      • Make investments that pay more than the minimal interest provided by savings accounts and certificates of deposit.
      • Invest in real things – gold, silver, diamonds, land, rental property.
      • Invest in “ABCD,” which for David Stockman is “Anything Bernanke Can’t Destroy.” We Have Been Warned!

According to the surveys, real people think their personal inflation rate is around 8% per year with a significant percent of the responders claiming 9 – 11% or more per year. Are you going to believe what the government is telling you or your own experience?

GE Christenson, aka Deviant Investor

US Mint Gold and Silver Bullion Sales Soar In April

geThe exploding demand for physical gold and silver has become a worldwide phenomenon.  Shortly after the price plunge of early April buyers rushed in to take advantage of bargain prices.  Dealers and mints worldwide have reported off the charts demand for physical gold and silver.

Intense demand across Asia has resulted in shortages of gold and silver in both India and China as dealers struggle to keep up.  Singapore’s largest supplier of coins and bars reports depleted stocks of silver and long delivery delays.

The surge in physical demand is also rapidly depleting U.S. gold inventories according to Reuters.

Physical gold held at CME Group’s Comex warehouses in New York have dropped to a near-five year low in a further sign that gold’s price crash unleashed a frenzy of demand as investors scramble to buy bars and coins.

U.S. gold stocks, comprised of 100-troy ounce COMEX gold bars, have fallen almost 30 percent since February, as dealers have switched to selling into the burgeoning Asian market, where prices and demand are higher than in New York.

But the pace of the outflows from vaults has accelerated since bullion’s historic sell-off, falling more than 7 percent last week for its biggest weekly drop since 2005.

The latest sales figures from the U.S. Mint for April are further confirmation of  the voracious demand for physical gold and silver.  Sales of both the America Eagle gold and silver bullion coins skyrocketed in April.

According to the US Mint, sales of the American Eagle gold bullion coin totaled 209,500 ounces in April, up a stunning 948% from the previous year and up 22% from the previous month.  The gold bullion coins had the largest amount of sales since December 2009 when 231,500 ounces were sold.

Gold and silver bullion coin sales have soared since the financial crash of 2008 and the subsequent repetitive use of the print button by the world’s central banks.  In order to get a perspective on the flight to precious metals, consider that over the entire year of 2007, the US Mint sold a total of only 198,500 ounces of gold bullion coins – less than montly sales during April 2013.

Sales of the American Eagle silver bullion coins were also very strong.  During April 2013, the US Mint sold 4,087,000 silver bullion coins, up 169% over April of last year and up 22% from the previous month’s sales.  The US Mint has struggled to keep up with demand even before the April surge.  Sales of the American silver eagles was recently suspended twice and in late April the US Mint suspended sales of the one-tenth ounce American eagle gold bullion coin due to inventory depletion.

Based on sales to date, it would not be surprising to see an all time record high amount of the American Eagle silver bullion coins sold in 2013.

 

Worldwide Buying Frenzy of Gold and Silver Continues

Liberty EagleDon’t precious metal investors read newspapers?  Despite proclamations from the mainstream press that the bull market in gold and silver is over, a buying frenzy in precious metals is occurring worldwide.  The gold rush mentality to buy gold and silver at bargain prices has resulted in stock out conditions for many retail sellers of precious metals, including the U.S. Mint.

Intense gold demand in India has lead to shortages as Gold Buyers Throng Indian Stores for Second Week on Rally.

Gold consumers in India, the world’s biggest importer, thronged jewelry stores across the country for a second week on speculation that bullion may extend a rally after the biggest plunge in three decades.

“We waited for sometime to see if prices will fall more but when we saw them moving up again, we decided it’s time,” said Sripal Jain, a 77-year-old silver dealer who came with his younger brother, daughter and daughter-in-law to buy gold necklaces at Mumbai’s Zaveri Bazaar. “We don’t have any wedding or occasion coming up. The rates fell, so we decided to buy.”

Bullion slumped 14 percent in two days, reaching the lowest price in two years on April 16, triggering a frenzy among coin and jewelry buyers from the U.S. to India, China and Australia. The surge in demand has helped prices rally 11 percent since April 16, and jewelers in India are paying premiums of as much as $10 an ounce to secure supplies, according to the Bombay Bullion Association.

Gold will rally to $1,800 an ounce by December as skepticism over the global recovery increases demand, billionaire Indian jeweler T.S. Kalyanaraman said on April 19.

The rush to buy has led to a shortage in India and jewelers are paying premium of as much as $10 an ounce compared with $2 just 10 days earlier, said Bipin Jain, owner of Vimalson Jewellers and a vice president of the bullion association.

The Perth Mint reports that while the media is talking about the bear market in gold, bullion buying has soared as bargain hunters move in.  As gold and silver prices corrected, Perth Mint buyers viewed the situation as a perfect buying opportunity and stepped up their purchases of gold and silver.  Activity on the Perth Mint website was so intense, that some buyers experienced long delays.

As the central bank of Japan continues its unprecedented experiment in massive monetary expansion, the Japanese Seek Refuge in Bullion as Yen Slumps, Inflation Looms.

Japanese consumers are poised to become net buyers of gold for the first time in eight years as the yen’s decline and looming inflation drive them to seek refuge in bullion, according to Standard Bank Plc.

Net sales of gold bars and coins by Japanese individuals shrank to 10.1 metric tons in 2012, the smallest amount since 2005, data from the World Gold Council show. A surge in purchases this month and the chance to buy after bullion slumped into a bear market foreshadow a turnaround in 2013, said Bruce Ikemizu, Standard Bank’s head of commodities trading in Tokyo.

The currency has depreciated 13 percent against the dollar this year and is trading near a four-year low after the central bank’s pursuit of unprecedented monetary easing to end deflation was unopposed by Group of 20 nations. Inflation may rise above 1 percent in the 12 months starting April 2014 and approach a 2 percent target as early as that year, Bank of Japan (8301) policy board member Ryuzo Miyao said April 18.

“The time has come for Japanese to buy gold with the government trying to engineer inflation,” Ikemizu, who has traded commodities for almost three decades, said in an interview in Tokyo yesterday. “Retail investors are turning from sellers to buyers of bullion.”

In India and China, the biggest gold-consuming nations, shoppers last week lined up in bazaars from Mumbai to Shanghai to buy the metal for brides, babies and strongboxes after prices fell. Indian consumers bought a net 312.2 tons of gold bars and coins in 2012, while purchases by individuals in China reached 265.5 tons, according to the World Gold Council.

The long term rationale for owning gold and silver remains intact.  The reasons for the recent smash-down in gold and silver may never be known but it has provided a gift opportunity to increase positions in gold and silver.

Silver Rally Is Imminent Based On COT Data

Silver ETFBy: GE Christenson

The Commitment of Traders data is published every Friday. It lists the reportable positions of the commercial and non-commercial traders for silver contracts on the COMEX.

STOP! Yes, I know

  • The data is manipulated. The same people who brought us LIBOR, flash crashes, high frequency trading, and the most recent gold and silver crash are the people who report the data.
  • Experienced traders like Jim Sinclair understand the inner workings of this data far better than I, and it is my impression that he is skeptical of the value of the COT data.
  • The data is subject to revision, errors, and occasional changes in definitions.
  • Not everyone in the world is honest in their reporting (really?), and the regulation and enforcement might be a bit lax (really?).

But, given the above, let’s look at the data and USE WHAT WE HAVE.

  • First: Take the non-commercial category and net the longs and shorts. Call this the non-commercial net longs.
  • Second: Take the commercial category and net the longs and shorts (longs minus shorts – may be negative). Call this the commercial net longs.
  • Third: Subtract the commercial net longs from the non-commercial net longs. This provides a rough estimate of the difference in commitment to silver between those two broad groups of traders on the COMEX. So what? Is it valuable? Does it tell us anything useful about probable future price changes?

Examine the graph. The COT non-commercial net longs less the commercial net longs (in the legend as “net long”) are shown in red. Pay attention to the red circles where the “net long” drops below 50,000.

Click on image to enlarge.

The price of silver (in dollars) since 2005 is shown. Note the black circles that roughly correspond to the red circles. Each red circle (low in “net long”) was a buying opportunity, and silver subsequently rose in price. Some were excellent long-term opportunities, such as September 2005, August 2007, October 2008, and April 2009. Others, such as July 2011, October 2011, December 2011, and June 2012, were good but short-lived buying opportunities.

Conclusions

In spite of the supposed manipulation and distortion in the data, it does have some value indicating future price direction.

The data is better at picking price bottoms than tops. Do NOT trade using this data alone. NOW looks like a price bottom.

The data will probably NOT tell you if the current “bottom” is one in a series of lower lows in a bear market or if it is a multi-year bottom and the beginning of a new bull market.

My Opinion

This current bottom is more like the bottom in 2008 after that 55% washout than any other bottom in the past three decades. I expect that now is a significant bottom, and we will see substantially higher prices over the next several months and several years. Unfortunately, I also expected the same after the June 2012 bottom. So, we’ll wait and see… In the meantime, go back and review the fundamental case for silver and gold. Read: Why Buy Silver? and Why Buy Gold?

GE Christenson
aka Deviant Investor

U.S. Mint Runs Out of Gold Bullion Coins

tenth oz gold-eaglesWe already knew from numerous previous reports that demand for physical gold and silver has soared since the early April precious metals crash.  Further confirmation of vanishing physical gold and silver inventory was provided today by the Untied States Mint.  Authorized purchasers of gold and silver bullion coins were informed by the U.S. Mint that sales of the one-tenth ounce American Eagle bullion coin would be immediately suspended due to depleted inventories of the coin.

As short term paper speculators run from the precious metals markets, long term investors have been lining up around the block to buy physical gold and silver.  Numerous coin and bullion dealers have reported growing shortages of gold and silver and premiums have expanded as demand overwhelms supply.

Based on mid month sales reports for the American Eagle gold bullion coins, it looked like monthly sales would exceed 167,000 ounces, the highest since December 2009 when the financial system was still in a meltdown.  As of today, U.S. Mint sales of gold bullion coins has reached 183,500 ounces, an astonishing increase of 818% over the prior year’s monthly sales of 20,000 ounces.  April sales to date have increased by 196% over March sales.  For all of 2012, average monthly sales of the American Eagle gold bullion coin were 62,750 ounces.  Gold bullion coin sales by the U.S. Mint are shown below; figures for 2013 are through April 23rd.

 

Gold Bullion U.S. Mint Sales Since 2000
Year Total Ounces Sold
2000 164,500
2001 325,000
2002 315,000
2003 484,500
2004 536,000
2005 449,000
2006 261,000
2007 198,500
2008 860,500
2009 1,435,000
2010 1,220,500
2011 1,000,000
2012 753,000
2013 476,000
TOTAL                                      8,478,500

Sales of the American Eagle silver bullion coins, which had already been selling briskly before the April silver smash-down, continue to sell at a rapid pace.  Total monthly sales as of April 23rd have reached 3,232,000 ounces, almost as much as the previous month’s total and 112.6% higher than the comparable month of 2012.

The steep correction in gold and silver prices that occurred in early April has certainly not disturbed the fundamental long term reasons for buying precious metals.  Expect the buying stampede to continue.

Physical Demand For Gold and Silver Skyrockets – Gold Bullion Coin Sales Highest Since December 2009

1881-CC-Morgan-DollarWe have probably all heard enough already from the mainstream nitwits who are forecasting the end of the gold bull market and further price declines.  Funny thing though, most precious metal investors don’t need advice from self proclaimed experts on how to invest their money.  The explicitly stated goal of central banks to increase the rate of inflation through currency debasement is blatantly obvious.  Investors are acting accordingly by taking advantage of the recent decline in precious metal prices.

A look at product availability and pricing at some major coin and bullion dealers shows spot shortages of gold and silver as well as large premiums as investor demand overwhelms supply.

The Perth Mint reports that retail customers are increasing purchases at a record rate even as gold slumps to a 21 month low.  As the experts were proclaiming the “Death of Gold”, the Perth Mint website recorded the highest activity of the year and one of the best days of the past year.  Bargain prices on gold and silver have greatly increased the demand for physical gold and silver by the public.  Demand for gold coins have skyrocketed with sales of Australian gold bullion coins increasing by 48% in the first quarter over the comparable prior year period.

2013-Australian-Kangaroo-1oz-Gold-Bullion-Coin-Reverse-S

Buying by U.S. investors of the American Eagle gold and silver bullion coins has also increased dramatically.  Through April 16th, sales by the U.S. Mint of the American Eagle gold bullion coins have already exceeded total monthly sales for the previous two months.  At the current sales pace, sales of the gold bullion coins in April will total over 167,000 ounces, an increase of over 260% from the prior month.  The last time sales of gold bullion coins exceeded 167,000 ounces was in December 2009 when the U.S. Mint sold 231,500 ounces.

Sales of the American Eagle silver bullion coins are also strong in April, continuing a trend that began with the financial crisis in 2008.  Sales of the silver bullion coins through April 16th total 2.2 million ounces.  If the current sales pace continues through the end of April total sales of the Silver Eagle coins will increase by 31% over the previous month.

Short term speculators may be crashing the precious metals markets, but long term investors in gold and silver see this as the ultimate golden opportunity to increase positions.

 

Where Does Silver Go From Here?

silver-eagleBy: GE Christenson

You bought silver with high expectations! Then it crashed while endless news reports informed you that silver would drop even further. Frustration! Misery! Despair! Depression! You have lived it all. There was no light at the end of the tunnel.

Darkness and despair covered the land of silver. There was no joy in silver-ville.

But, then from the depths of despair and ugly bearish sentiment, a rally materialized. But, not just a small rally, a HUGE RALLY – TOTALLY AWESOME! The price doubled in a few months. Then it paused, scared some of us out, and rallied even further. You heard that silver was going to $100 or maybe $200 per ounce. Analysts outdid each other with higher and higher projections. You congratulated yourself on your foresight and financial acuity by investing in silver – sheer genius – forgetting that you almost sold out for a loss at the bottom. The manic phase is great while it lasts…

Silver rallied, and you waited for even higher prices before you sold. If you were rational or just lucky, you sold out before it crashed 25% in a week. If you did not sell out, you screamed to anyone who would listen, “they crashed it,” and “I should have sold out before the crash,” and “it’s not fair.”

Silver investing felt like a bipolar roller coaster ride – manic up followed by depressing down. You began to self-medicate with alcohol and wishful thinking. You sought out others who agreed with you, told you what you wanted to hear, and…

… it goes on and on.

STOP!

I repeat. STOP with the bipolar behavior, the delusional thinking, the self-medicating, and the emotionally debilitating ups and downs. It is not good for your physical, emotional, or financial health. Just stop, hit the silver reset button, and reassess.

  • Silver is heavily manipulated by the big players (JP Morgan, etc.) – what else would you expect? They are in the business to make profits, and their profit at YOUR expense is just fine with them. No need to worry about the DOJ, congress, or any regulators … for obvious reasons. So just admit it, the price is managed and manipulated, the “fix is in,” and that is exactly what we should expect. But, it is still a better investment than most paper.
  • Silver has gone up, from January 1, 2000 (a good place to start) to the LOW in April 2013 about 14% per year. One more time, what is wrong with 14% per year?
  • Silver rallied from under $9 in October 2008 to a high of nearly $49 on April 29, 2011. The next week it crashed to a low of about $35, briefly bounced, and then fell again to a low of about $26 in June of 2012, rallied to about $35 in October, and fell again to about $27 in early April 2013. That was a wild ride on the bipolar silver roller coaster.
  • Since 1971 when Nixon severed the already tenuous link between the dollar and gold and encouraged money creation to accelerate, silver has risen, on average. about 7% per year, compounded annually, for 42 years. It will go higher because the value of paper currency is almost certain to continue its decades’ long decline.
  • Central banks around the world are printing money, expanding the money supply, and doing what they can to suppress the price of gold and silver. Given the financial mess they have created, what choice do they have? So expect money printing and erratic silver rallies to continue.

For your emotional and financial sanity and physical health, get off the bipolar silver roller coaster, buy physical silver, relax, and watch the spectacle as the central banks of the world drive the value of paper currency toward zero and the value of silver to $100 or $200 or $300 per ounce. You own it for insurance and to preserve purchasing power, so there is no need to fixate on the daily or weekly price, except to buy more at bargain prices – like now.

Again: Why do we own silver?

Read:

GE Christenson
aka Deviant Investor

Physical Gold Inventories Plunge As Gold Market Crashes – How Can That Happen?

worldKyle Bass recently summed up the thoughts of many gold investors when he said “the largest central banks in the world, they have all moved to unlimited printing ideology.  Monetary policy happens to be the only game in town.  I am perplexed as to why gold is as low as it is.  I don’t have a great answer for you other than you should maintain a position.”

Gold investors can easily be forgiven for being perplexed, especially when considering that gold prices are plunging at a time when stocks of physical gold are being rapidly depleted at the COMEX warehouses.  Is this just one of life’s unsolvable mysteries or is the gold market being manipulated?  Bill Downey at Gold Trends lays out a solid case on how market manipulation caused last week’s gold collapse and why it makes more sense than ever to increase holdings in physical gold and silver.

 

There’s been a recent huge draw down of physical gold at the New York COMEX and at the JP Morgan Chase depository. Look at the physical market draw down on the charts below. It has taken a drastic plunge.HOUSTON — we have a problem.Physical inventory drawdown at JPM
Charts by Nick Laird of www.sharelynx.com

GoldInventoryJPMAPril2013
Physical Drawdown at COMEX
Charts by Nick Laird of www.sharelynx.com
GoldInventoryComexApr2013
You can imagine the dilemma this is causing for the market interests behind these inventories. If the inventory runs out and one cannot meet deliveries then it has to be bought on the open market. Not only that but it could cause a run up in prices that would hurt the shorts in the market.So what to do?There is only one way out of this for the market controllers would be to devise a plan that would collapse the market and trip up all the stops at the correction lows in gold of 1525 thereby setting off the stop loss orders under this important market low. And what if the plan included a way to stop the physical market from purchasing gold under 1525 while that correction was underway?

And how can that happen?

They have to hatch out a plan and carefully orchestrate it in a series of events that takes the gold market by surprise and force the players out of their positions.

Read on for today’s lesson in market manipulation and allow me to relay my speculation about what transpired last week.

A successful ambush usually involves surprise.

One of the main new weapons in the FEDS arsenal is TRANSPARENCY.

After a lifetime of silence the FED all of a sudden has come out of the closet and has decided that the best thing for the market is to be transparent and to that end they now have televised communication meetings with the general public so chairman Bernanke can explain the FED policy and answer any questions that the market has on its mind as well as the usual minutes that get released to the markets that review the policy decisions and discussion of prior meetings.

Why does the Fed need to explain what they are doing now?

Well it isn’t because everything is going just fine. Put it this way. They must figure when you have 50 million people on food stamps and the Dow Jones is going up a few hundred points a week and making all time highs and you have 16 trillion dollars in debt and interest rates are zero, its best to have a communiqué every month before someone asks you to explain what is going on. It’s called staying ahead of the curve if you will. If you tell them what’s going on it makes it look like you know what you’re doing. Otherwise all we have is the statistics and by themselves they tell you something is wrong, something is terribly wrong. So they have become transparent.

During the last communiqué the chairman made it abundantly clear that QE was here to stay until the unemployment rate reached acceptable levels. This communiqué whether by personal appearance or by releasing the FOMC minutes of the prior meeting is something the FED relies on so market participants can remain comfortable and abreast of Fed monetary policy.

Three strikes and you’re out

The FOMC minutes from the last meeting were due for release during last week. But a funny thing happened. They got released EARLIER than expected. It was all a big mistake and the FED let the SEC and the CFTC know right away that the error had occurred. And lo and behold even with all its transparency there happened to be some language we didn’t get updated on until the FOMC minutes were released. The notes say that several members have been discussing cutting back on the stimulus. That was strike one. It got the gold market thinking that stimulus cuts might be coming.

Strike one

Surprise number two

Then a bombshell was released from news sources. It was reported that Cyprus would have to sell 400 million Euro’s of gold as part of the bailout package of raising money for their failed banking system. Gold prices came down to 1550 on the news and the day passed by. Even though Cyprus bankers tell us the next day that they didn’t discuss selling any gold, market jitters seemed to remain and Friday was just around the corner. This was strike two.

Now we need a strike three and you’re out. Gold is a nervous market to begin with as a lot of people have already lost a lot of money in the last six months.
With Gold at 1550, all that is needed for the market to drop is to get one more push where all the stops are (just below the 2 year low of 1525).

The selling began in the Friday sessions overseas. By time we got to the New York COMEX gold open, the price was down to 1542. Now all the players are there and the volume and liquidity is there to create the final blow to the market.

And then the attack began. Wave after wave of selling until gold got to 1525. Then they break down the price below the two year low and all the stops that have been accumulating there start getting tripped up and the selling accelerates as it begins to feed on itself. The physical market for gold sees this as a gift and gets ready to make their move and buy up the gold.

Now comes the part that is pure genius or a total coincidental thing that just so happens to be a gift to those who are short the market and those who would be responsible to deliver gold should the inventory deplete.

ALL OF A SUDDEN THE LONDON PHYSICAL PLATFORM THAT BUYS AND SELLS PHYSICAL GOLD GETS LOCKED UP. THE SYSTEM FREEZES.

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