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I felt the need to take my eyes away from the
screens today and write about a few things irking me involving the precious
metals space. First though, we all need reminding that silver has continued
to fall since hitting its high back in May of 2011. Gold, since double
topping back in the fall has also failed to recover its gains. These facts
aren’t lost on me and neither should they be lost on you.
Before I get started, I want to say to you that this
piece is meant to provoke thought is not meant to predict the price movement
of any precious metal going forward. I have grown increasingly frustrated of
late trying to present both sides of the argument and getting smashed and
spammed via email and in the comments section with the same arguments about how
only gold and silver are real money. That isn’t what this post is
about. I ask you to read this with an open mind and comment intelligently
if you chose to do so. It takes time to evaluate these things and try to
formulate some opinion. I don’t do it for just for the sake of doing
it. Life is too busy to drum up controversy. I could care less about whether
or not gold and silver is money. I just want to pay my bills and if means
paying them in the only way that my creditors accept (fiat currency) then so be
it.
First though, take a look at the 18 month silver and
gold charts.
 
What really sparked my need to write this post was
the commentary that I started seeing pop up around the internet from all the
usual metal bug suspects. Jim Sinclair, John Embry et al. This is not a slam
on them. They are very intelligent men who know their stuff and have many
more years of experience than I will ever have in this game. However that
doesn’t mean that they are always correct.
You can cry for years that the price of silver and
gold will go up and when it does you are vindicated and hailed a hero for
having called it correctly, despite the fact that it might have taken 10
years or so for your prediction to materialize. The followers forget that
part. Most of these men 10 years ago predicted $1,000 gold but a funny thing
happened along the way. Most of the same few writers on gold, including the
fine minds at GATA (and I do mean that with the utmost respect) continued to
raise their price estimates for metals as the price of the metal continued to
rise. $1,000 gold quickly became $1200.00 gold, which quickly became $1700.00
gold which then quickly became $2,000 or higher gold. The problem with
continuing to revise your upward forecasts beyond the current targets is that
there comes a certain point in time when that last target will never be met.
The same happened with silver. When gold started to become too expensive for
the normal “Joe” silver became the metal of choice for most of
those writers. Silver was (and still is) easy to get, relatively cheap and
has a great story attached to it. The fundamental basis for owning silver is
one argument but the monetary
instrument argument is a different beast altogether. I
won’t get into that here because it isn’t the point of this post.
I have always maintained that if you are going to own silver, own it for the
fundamental reasons, i.e. that it is an industrial metal with vast uses.
If you look at the Charts you will see that after
both metals hit their tops they tried on more than one occasion to rally yet
were always met with resistance at or near their trend lines. We never heard
a peep out of the gold and silver camp about manipulation or corruption on the rise up. All was
fine. The fact that silver was moving in a parabolic fashion in May was
absolutely fine with the precious metals camp. They never once, except a few
like Bob Moriarty, warned that the rise was scary and set to end badly. Such
warnings never came from the others in the camp but instead, many an
investor/speculator bought into the hype and continued to buy silver to the
top. ($55.00 or more was what the last ones in paid (when you factor
premiums, shipping and mark-ups if you happened to buy from Ebay)
But a funny thing happened. To cool the speculative
fever, the CME group raised margins. If you look at the chart of silver
leading into May, you can not make an objective
argument that speculation was not present. Too many speculators were in the
market up to their necks in margin. To cool the euphoria, margin hikes were
implemented. This led to the first major decline in silver last May. However,
those that refuse to look at the other side of the argument will blame the
CME group while completely ignoring the fact that silver had gone
parabolic.
Once the dust settled we saw a slow and steady rise
again in Silver. People, thought that the worst had passed and started piling
in again not realizing that the major selling in May could have signalled the end. We’ve all heard of the the dead cat bounce term but I am reluctant to say that
this was what happened because this piece isn’t about picking sides.
Then it happened again … another collapse in
the price of Silver in the fall of last year.
On the silver chart above I circled the lows of the
sell-off in green for a reason. Each and every time silver
sold off, the same “experts” came out to tell investors that
this marked a great buying opportunity and that the silver price would still
rocket to new highs. We also heard how the sell-off was due to contrived
raids by the “cartel”.
But wait … wasn’t the rise in the silver
and gold price due to massive monetary expansion? The silver and gold camps
often looked for testimony from Ben Bernanke to signal and build their case
for higher metal prices. Shouldn’t the opposite be true when the
Federal Reserve signals that it will not move on a QE3 program? Many staunch
and one-view pundits have argued that FED printing was why the metals would
explode. Doesn’t a signal that there won’t be additional QE
justify the fall in gold and silver? Not to agree on this point is
contradictory in my view.
The pundits didn’t waste any time at all
coming out proclaiming that this was an orchestrated raid again offering no
proof just regurgitating each others’
unfounded statements to that effect. If this was a true raid, what was it
when the price of the metal was rising exponentially? In fact, commercials
were piling on the shorts over the last two weeks and even the staunchest
longs should have taken notice. The fact they made more money than the longs
somehow invokes fury and envy. Don’t fight the ‘JP Morgans’
if you think they control the game … play along with them and make a
killing.
We heard from Embry who told King World News today:
This relates to the massive blowout in open interest
in both gold and silver over the last few weeks. The market is always
vulnerable short-term in that situation. Central planners can’t
announce they are going to have constant and massive QE or everything would
go to the moon. So the idea is floated around that QE3 is off the
table.”
Does this mean anything in the long-run? Absolutely
nothing. It’s just another great buying opportunity. I think the price
will come back within days. This is just one of these momentary smashes where
the speculators get cleaned out every time....
“If gold and silver are going to head a lot
higher from here, this is what you would expect the manipulators to do ahead
of that move to make sure as few people as possible are on the long side.
When asked about gold, Embry responded, “We
are going to see the same thing happen in the gold market. Even though they
smashed the price down over $75 at one point to $1,706 spot this morning, it
doesn’t mean anything. So they clean out some speculators and then the
advance continues.”
Jim Sinclair on his own site wrote:
Today’s Window Dressing Fall In Gold
My Dear Friends,
Please do not be bothered by today’s intervention.This day’s fall in gold is pure window
dressing. Do not be concerned.
These guys said the same thing after the May
collapse in silver and the October collapse in gold.
I am sure that over the course of this evening the
others will pile on with talk about a contrived sell-off in gold and silver,
ignoring their own bullish thoughts about how QE would propel the markets
while poo-pooing the talk of no QE3 as being a
catalyst for the fall.
The reality is that silver has been in a downtrend
since May of 2011 when it made a double top after the
parabolic rise and each and every one of the group of silver and gold bugs
has indicated after the sell-off that it was then a good time to
buy…but something has happened that has caught my attention that these
pundits won’t tell you.
After 10 months, the market has never come close to
challenging the old high in silver that still sits at $49.82. The market
instead has continued to make a series of lower highs and lower lows. The
market has tried 3 times to rally back, all 3 times failed. To most, this
would seem as though the bubble has truly popped. To the hard-core silver
crowd it’s manipulation. But wait,
manipulation didn’t get in the way of the run to almost $50.00….why
is manipulation going to be blamed for the inability of silver to make new
highs? You can’t have it both ways.
The same story applies to gold. It too has been in a
downward channel after making a double top in the fall of 2011. As with gold,
the same pundits came out and urged the public to keep buying as the fall in
the price of the metal was due to contrived manipulation but the rise was
solely based on fundamentals, not speculation. If fundamentals change,
(No more QE) then
shouldn’t those fundamentals change the longer term outlook?
I respect many of the pundits I often write about
greatly. However, as investors, we cannot get trapped into thinking that
there is only one story to the entire picture. If, as gold and silver
investors we believe that the stock, gold and silver market has been kept
afloat by FED infused liquidity and that this continued liquidity was going
to be the catalyst for further upside gains then we cannot ignore that
closing the spigots will mean that the opposite is true. Perhaps one of
the greatest paradoxes is the belief among hard core metal bugs that it was
liquidity that would drive the metals while most of them continued to
disbelieve the stock market rally. News flash: The same reasons why gold and
silver were rallying apply to why the market rallied. The FED was
re-inflating the balloon and when the air runs out, we all know what happens.
Back in the late 1970’s the metals rose, fell
and rose again in a second euphoric phase….it was that second rise that
trapped most people and flushed them out for good. Both metals would then go
on an extended bear market.
A I
said at the outset, this is not meant to be a slam on gold or silver. I love
the metals but will only continue to trade what the market gives me. If the
market wants to move them lower then I won’t stand in its way but will
instead join them as I will when the market decides to take them up. But
don’t ignore all the facts to only focus on facts that support your own
belief system.
With that said, today could be an initial or
over-reaction to the FED hinting that they will not embark on an official QE3
program or it could simply be an initial knee jerk that took out a bunch of
cascading stops along the way. However,
don’t discount the possibility that today could have marked the end to
a countertrend rally off the initial sell-off lows of last year signalling lower prices ahead. By keeping all your
options open can you really take an objective look at the situation and make
an informed decision.
Don’t for one minute become complacent and
think that silver won’t crash further below $26.15 or that gold
won’t trade to $1500.00 or less. At the same time, don’t fool
yourself into thinking that silver will trade over $50.00 and gold over
$2,000 anytime soon. Always keep an open mind and analyze all
opinions…from both camps, not just the stories that are re-circulated,
often without any fundamental analysis behind them. Just because everyone
repeats the same story doesn’t make it fact. Don’t look for facts
to reinforce your own beliefs, look for as many different opinions as
possible.
On a technical front, pay attention to the bearish
engulfing candles that formed on today’s chart implying that further
losses are most probably expected. Today’s selling did create oversold
conditions so we may see a relief rally tomorrow but once that oversold
condition is worked off, it is likely that the price declines will continue
for the intermediate time frame.
Like I said in an earlier post today no matter what
camp you are in, today is good news.
- If
you believe that gold and silver are going to the moon, as is your
right, then today’s action should present itself as a buying
opportunity for you. Don’t complain.
- If
you believe that silver and gold were in bubbles and that the bubble has
finally popped but never got a chance to sell the remainder of your
“stash” then have now been presented with what might be your
last opportunity NOW to get out and minimize your losses or taking
profit from the lows put in last fall and early winter. Rarely after a
bubble pop does the asset give you 3 chances to get your money out.
Whatever your views, please examine all
possibilities to minimize your chances of getting hurt in this cruel market.
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