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It was a week like we haven’t seen since the
beginning of the crash in early 2008, but this time it was mostly in the
commodity sector. Many stocks did
get hit hard, as well as the major indices, but the real damage came in
commodities, especially silver.
It’s not really that it wasn’t
warranted, but the swift and blatant nature of the move is suspect. If I didn’t know better
I’d even say the move in silver qualifies as manipulation. Thank god I know that NEVER happens in
markets. Sorry for the sarcasm.
I have never seen a commodity falling and still have
its margins risen. It may have
happened, but I don’t recall ever seeing it.
Normally if the powers that be at the CME think a market
is a bit too frothy they may raise margins to reduce speculation. This act just increases the amount of
money a trader has to lay down initially in order to trade a contract in said
commodity.
Silver has had its margins raised numerous times
during this latest run that began in August 2010. Every time we’ve seen a
correction. Mostly they’ve
been sharp and relatively shallow before moving back into new highs.
This time however, after each correction the CME
raised margins again, and again, and again, for a total of five times in only 8 trading days. The last margin increase was announced
late in the week and will take effect on Monday May 9th.
If this were a fight, it wouldn’t be
fair. It would be like hitting
your opponent with a knockout punch.
Letting him fall then get to one knee before hitting him with another
and another and another. The
fight would have been stopped by observers after the first and certainly the
second punch. But no such luck
when the CME is involved.
There has been talk and questions about just how the
CME determines when to raise margins, most of it revolving around some sort
of calculation. It’s obviously
a subjective decision as nothing should ever be hit when it’s down this
much over and over.
I don’t know who’s paying the guys over
there but some sort of backroom dealing is surely taking place. Will it be investigated or
punished? Don’t kid yourself.
In fact the talk has revolved around investigation speculators. I think investigating the CME would be
the more appropriate move, but who am I to say. I just watch and trade the markets,
not make them.
You’d get more jail time if you robbed the old
lady next door of her piggy bank while she was out of town than if you just
robbed wise investors who see the merit in silver of billions of dollars in
only a few days.
In the world of ultimate fighting silver has been
trying to tap out for the last $10 but the referee/CME is ignoring them
putting silver/the fighter in great harm. Although I’m not worried for
silver’s sake. Its
underlying fundamentals haven’t changed, it’s only gone on a
blowout sale, and it’s likely to be very short-lived.
Make your calls and place your orders now. We may see slightly lower prices so
perhaps place half your order now and the rest in a few days or a week is
best, but this gift is much better than the one you’ll get this coming
Christmas as it will keep on giving and giving for years to come.
This is one of those rare times in market history
when taking out a second mortgage and raising as much cash as possible to get
into this trade is warranted. Of
course I’m joking about mortgaging your home, but only just barely.
During secular bull markets, things tend to move two
steps forward and one step back.
While it’s been extreme, this is all it has been. If I told you one year ago silver
would be at $36 an ounce in a year you probably would have jumped with joy.
Ignore the volatility. Buy weakness and enjoy the
strength. We have much, much
further to go on the upside with both gold and silver.
Let’s look at a few chats and assess the
damage.
Gold fell 4.36% for the week which is a much larger
move than we’ve become accustomed to. Rest assured though that as the
secular bull market continues volatility will increase as well. Moves of well more than 4% will be
seen on a daily basis. Holding
the physical gold makes sitting through this volatility much easier.
As you can see gold is holding the uptrend line very
well and it’s also only retraced to the 38% Fibonacci level. While it was swift, it’s pretty
well textbook. In fact even a
further move to test the 50% Fibonacci level at $1,441 would be warranted.
As I mentioned above, this would fit perfectly with
the two steps forward, one step back flow of bull markets.
As I say, buy weakness and enjoy strength. This is weakness.
As for the GLD ETF which I track for volume
indications, it’s all out of whack, or perhaps I should say, it’s
whack!
Volume in the 25 million per day range used to
signify tops and bottoms relatively well, but now that seems quite low as we
saw this level was hit everyday this past week with Thursdays volume over 50
million. Volume isn’t
really telling me much right now other than Thursdays’ low so far does
look like a bottom with the spike touching and holding support areas and
volume being absolutely massive.
Right now I feel comfortable calling a tentative
bottom for this move with a potential for a spike low to the $1,441 area,
likely on an intraday basis.
Silver didn’t fare quite as well as gold as
you know and it was hit to the simply stunning tune of 25.63% for the
week. Wow!
Silver was smashed through support levels and all Fibonacci
retracement levels. The only good
thing is it held the 100 day moving average on a daily basis. To be honest I’ve been warning
readers and subscribers to avoid trading silver as it was in a bit of a manic
phase lately.
Thankfully subscribers did avoid the carnage as it
occurred so quickly that it was nearly impossible to comprehend let alone
trade.
A bottom could be in but in reality I think we may
see a further move to test the $30 area where we see some real support.
I’d say you could begin to buy physical silver
here with the hopes of filling your quota a bit lower but at the same time
accepting that you may have to pay up.
I am not yet willing to try and trade this, nor add
to my already heavy weighting of physical silver, although I may decide to
convert some gold into silver in the fairly near future.
It’s always a very personal choice just how
much physical to own and in which ratio, in term of gold to silver. I always tell subscribers to do what
makes sleep come easy.
As for the SLV ETF and its volume, its been absolutely off the charts. Nearly 300 million shares traded hands
Thursday and basically 200 million or more everyday for nearly two weeks.
Thursday’s spike low in price and spike high
in volume could be the low, but this market is still what would be termed a
falling knife. I prefer to keep
my fingers at this time.
I spent last weekend in the great city of New
York. Unfortunately I really only
had one free day as the rest was occupied by business which I thoroughly
enjoyed as well. In hindsight I
should have stayed down for the whole week as the weather was warmer and the
markets would have been better ignored.
I happened to be walking back to my hotel very late
Sunday night, actually quite early Monday morning when I noticed a moderate
crowd up to some tomfoolery in Times Square. At the time I had no idea that Bin
Laden had been killed and that’s what they were celebrating. I thought Bin Laden had been killed
years ago!
It just strikes me as curious that they can’t
seem to get their story straight, won’t release photos and have buried
him at sea before even announcing the news. Something sounds fishy about it to me.
And really was he that big a threat nowadays anyhow?
It all just seems so convenient.
With QE2 coming to an end in under two months
perhaps a good commodity spanking is due so Obama can pronounce how great
things are in America since gas is cheaper, your cereal is cheaper along with
your sugar and other goods, but he won’t mention that the package is
now smaller. And by the way
America is now safe since the frail old sick Bin Laden is dead.
I can just picture his speech now rambling on about
the above and stipulating a big, BUT, we just need to print a little more
money...
I read an article this past week, the link to which
has been lost, showing how nearly every country in the world has higher
inflation than they want, except the US!
You know how I feel about words that come from the
US government, especially when it concerns economic figures, all fabricated
lies. That’s really the
only reason I am sceptical of the Bin Laden thing. I heard it from the US government!
Along with the silver capitulation, the great
“i” company has also capitulated, at
least to me. As many of you know
my main creative computer has been in the shop now for over a month. They can’t find the problem and
it’s been a very uncomfortable situation for myself here, working
solely from my trading computer.
In this latest round of excuses they finally capitulated and said they
will give me a new computer, for free!
Great stuff, especially since all my old files can
still be transferred to it somehow.
While I would have certainly much preferred just have my old computer
for the past month, there is nothing wrong with a new free top of the line
computer, especially since they refreshed their computer line just very
recently. They say it will be
blazing fast compared to my old one so I’m looking forward to its
arrival this coming week.
The thing is my old one was 24 inch and this new one
is 27 inch! I may need a bigger
desk.
According to some sources George Soros has taken some profits in gold
along with a few other large fund managers. The media will tout this as the end of
the bull market every chance they get, but ignore it. There is nothing wrong with taking
some profits off the table during frothy periods and he’s got plenty
more gold to sell off in the years ahead. As the saying goes, you’ll never
go broke taking a profit.
Personally I haven’t sold an ounce as the tax
issues and plain hassle is not worth in for me right now. When I do decide to sell, hopefully at
the top, I’ll be selling at least half of it all at once, and the rest
is likely to follow suit quickly.
On the other hand John Paulson remains a staunch gold bull
and remains heavily long and is also calling for $4,000 gold in three to five
years. Mr. Paulson became famous
for making $3.7 billion in the housing collapse but he made $4.9 billion in
2010 with his gold positions! I
have a strong feeling his fame is going to increase by multiples over the
years to come.
The only thing I disagree with is his low
target. While $4,000 gold may
seem a stretch, I think it will go much higher than that, but as I’ve
said many times, targets are for fools so who really knows. It’s really all in the dollar,
or whatever gold is valued in that counts.
See the demise of the Zimbabwe dollar for the most recent
example of this. Gold was worth
quadrillions of dollars per ounce by the time the currency was abandoned.
We had only one bank fail this past week but five the
weekend before as I was gallivanting around the beautiful New York City. This brings the total to six banks that’ve joined this year list of biggest losers in
the past two weeks.
I’ll sign off here as I think I may try and
get a round of golf in.
Please enjoy your weekend and consider seriously
stepping up to the plate looking for a homerun in the metals market. Actually, I was lucky enough to see a
Yankees game last Sunday and a grand slam was hit. That’s really what you should be
looking for in the physical gold and silver market from here.
A Grand Slam!!!
Until next week take care and thank you for reading.
Warren Bevan
www.preciousmetalstockreview.com
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