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Right
now commodities are where the action is in the financial markets. And
the precious metals are where the action is in the commodities market.
And silver is where the action is (for the time being) in the precious metals
markets.
Silver
can be described as gold’s little brother. It lags along behind
gold, underperforming for a long time. Then, all of a sudden, it comes
to life, makes up all of its underperformance and goes on to exceed gold to
the upside.
Gold
has a reputation for stability and conservatism. Silver is volatile and
subject to big price moves – both up and down.
The
key technical measure on silver at the present time is the price objective
line, which started in March 2008 at 21. Technical theory does not say
when silver will reach its price objective, only that at some point it will.
Further, this is a minimum price objective. The commodity may get
up to the objective line, back away for a while and then make a second
return
to the line.
The
chart on page 1 contains a great deal of information about the course of the
price of silver over the next few years. But to understand the chart
properly, it is first necessary to be able to read…THE ENGLISH LANGUAGE.
I
am sure that, when you were back in the 8th grade, you used to
grumble about your English course. “What use is all this stuff
anyway?” “I can read OK. What I want to do is to get
into the real man’s world where they are making money.”
Well,
here you are in the real man’s world where we are making money.
(I moved from gold into silver in mid-September of this year held for the big
autumn run-up, briefly stepped aside in November and then reestablished my
silver position.) And your instructor is telling you that one of the
requirements is the precise use of the English language. Your 8th
grade English teacher was right.
The
price objective line in silver is full of information, information which can
make us the big bucks – if it is interpreted correctly. First, a
price objective line, which occurs with regard to a triangle, is
different from a price objective point, which occurs with a head and
shoulders, a rectangle, a flag or pennant, etc. The point gives us one
number. The line gives us many numbers spread out over time.
For
example, a pennant formed in silver in November with a price objective of $40
(probably by mid-February). This is one number, simple and easy to
play. However, the price objective line for the ascending triangle in
silver on p. 1 is continuously rising. It is about $60 right now.
It will be at $100 in January 2012, and by Sept. 2012 it will be at
$150. This does not mean that silver absolutely has to get to one of
these points. But it does have to get up to the line at some
time. Clearly, the nearer points on the line will be exceeded, but the
further points will never be attained.
Here
is where I have difficulty and plead for the help of the English
teacher. For example, I may make the statement above, “The
price objective line in silver will be at $150 by September
2012.” Indeed, this is a true statement. But some
subscribers will read this as, “Silver will be at $150 by September
2012.” This is a much simpler, but wrong statement. It is
so much easier to deal with the simple than the true. It is sort of
like the case of the policeman who comes over to help a drunk looking around
in the gutter. “I lost my car keys” says the drunk.
So the policeman helps him look. After they have looked for a while,
the policeman says, “Are you sure you lost them here? And the
drunk says, “No, I lost them in the middle of the block.”
So the policeman says, “Then why are we looking here?” And
the drunk says, “The light’s better here.”
This
technique does not work too well for finding lost keys, and it certainly does
not work at all well for taking money out of the commodity market. You
cannot neglect essential elements of the puzzle simple because “the
light’s better here.” This is what I mean by precision of
language, and if you did not learn this in 8th grade, then go back
to your teacher, beg her forgiveness and crack the books on a special study
course to learn now what you should have learned then.
As
noted, silver is more speculative than gold. As a result, when the
precious metals markets are conservative, traders move into gold.
During such periods gold will outperform silver. For example, starting
in 2008 the media in this country started screaming “deflation.”
Both gold and silver got hit hard, silver worse, but they recovered
quickly. In Sept. 2009, gold broke out of its ascending triangle to the
upside. A year later silver did the same thing. By that time,
gold had advanced by 25% (March 2008 peak to early Sept. 2010), and silver
was flat. (OHE was able to remain in gold for the period up to early
Sept. 2010 and then switch to silver at that time.)
A
move in silver will normally last half as long as the corresponding move in
gold and peak not too far apart from it. (In early 1980, gold peaked in
January; silver peaked in March. The gold move of the late ‘70s
lasted 3½ years. The corresponding silver move lasted 2 years+.)
A
move in silver is a lot of fun because it has great volatility to the upside,
but this often happens with regard to commodities. Special situations
develop, and there is simply not enough supply to meet demand. A case
in point was early November when silver peaked at $29. The silver bulls
had been making money through the autumn, and they kept plowing this money
back into the market. The more money they made the more they plowed
back, and the cycle built on itself.
Obviously,
this cannot go on for too long. Either the exchange will cool things
down by raising margin requirements or fundamental traders will come in with
large sell orders. Either way, the sellers can break the market, and
…watch out below.
By
the way, there has been a group of people going around the gold/silver web
sites alleging a giant conspiracy to manipulate the price of silver in a
downward direction. And I am getting sick of this. To manipulate
any free market is virtually impossible. If one buys an economic good
and then tries to manipulate it higher, one must spend an enormously greater
amount of money doing this than one can reasonably make. And there has
been no successful manipulation on record in economic history.
First,
this was proven by the free market economists. Second, it was tried by
Bunker Hunt in the late 1970s. This idiotic venture cost him almost $6
billion of his father’s inheritance money (the H.L. Hunt fortune).
Anyone
who wants to make money in the speculative markets MUST anticipate some other
people coming in to buy his good away from him at a higher price. If
you can’t see that coming, then you should not be in that market.
I see people coming in to buy gold and silver away from me because Presidents
Bush-Obama have been printing massive amounts of money, and this will cause
all goods to skyrocket in price with the precious metals first on the
march. But this is reality, not manipulation. And, quite frankly,
a scheme as fantastic as is being alleged, is nothing more than the invention
of crackpots. No one can manipulate market forces for 10-20 years.
If
you are listening to these allegations, then you need to wake up and study
basic economics. Good speculation has to be based on economic
principles. If you don’t know what you are talking about, then
your chances of making it in the markets are not equal to a snowball in H___.
Since
gold and silver will probably peak at about the same time, I will be looking
for signals from both the chart on p. 1 and below to coincide.
 
We
are in the middle of a powerful move in the precious metals markets.
These markets are on fire, and now is the time to strike while the iron is
hot. You all know that Ben Bernanke is completing a program, called
QE-2, which will result in an approximate tripling of the U.S. money supply
from mid-2008-mid-2011. And this will lead to an approximate tripling
of the U.S. price level within the coming 2-3 years. It is to help you
protect yourself and make profits from this massive creation of money that
the One-handed Economist is focusing on the precious metals markets at
this time. If you would like to subscribe to the One-handed
Economist ($300/year), then go to my web site, www.thegoldspeculator.com, and press the Pay Pal
button. Or, send $290 to: The One-handed Economist, 614 Nashua St.
#122, Milford, N.H. 03055 ($10 cash discount).
Thank
you for your interest.
Howard
Katz
The Gold Speculator
Howard S. Katz is the editor/publisher
of the One-handed Economist, a financial letter which combines fundamental
and technical analysis. He was a bug on gold in the 1970s and became a bug on
gold again in late 2002.
Subscribe to the Gold
Speculator (the One Handed Economist)
You can subscribe to
Howard Katz’s thoughts on commodities, stocks, bonds and real estate
are available in a letter entitled The One-handed Economist and published
every two weeks giving specific advice on trades in stocks and futures. This
letter is available (both electronic and paper copy) for $300/year with a
3-month trial for $100. Send to: The One-handed Economist, 614 Nashua St.
#122, Milford, N.H. 03055.(Include both electronic and mailing address.)
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