Saturday, April 23, 2011

Silver Still Soaring

Carl Swenlin
21 April 2011
While we don't often cover silver, it is worth noticing that it is about 6% below its all-time highs of 48 (closing basis) and moving up quickly. Technicians will assume that there is probably strong long-term overhead resistance at 48, and, considering that silver is in the vertical phase of a parabolic advance, there could be serious problems when the resistance is reached. Perhaps that is true, but I think there are other considerations.

First, let's consider the overhead resistance, which is presumably caused by people who bought at $48 in 1980, failed to exit when silver crashed, and are ready to dump their holdings as soon as they can exit on a break-even basis. Well, their could be some people still have their holdings after all these years, but 30 plus years is an awfully long time.

Next, the fundamentals are much different. In 1980 the move to $48 was caused by massive speculation, driven by the Hunt brothers attempt to corner the market in silver. Currently, people are being driven to precious metals seeking shelter from the insanity of sovereign debt buildup.

Even the technicals are profoundly different, as demonstrated by the PMO on the above chart. The PMO is based upon a rate-of-change calculation. In 1980 we can see how sharp speculative price moves drove the PMO to historical extremes. More recently the PMO has moved to the overbought side of the normal range, but it is not even close to being extreme because the price move has been more steady and deliberate.

As fo sentiment, Let's look at Central Fund of Canada (CEF). CEF is a closed-end mutual fund, that owns gold and silver exclusively -- the metals, not stocks -- at a ratio of 50 oz. of silver to 1 oz. of gold. Closed-end funds trade based upon the bid and ask, without regard to their net asset value (NAV). Because of this, they can trade at a price that is at a premium or discount to their NAV. By tracking the premium or discount we can get an idea of bullish or bearish sentiment regarding precious metals. Currently, CEF is selling at a premium of +2.8% (less than the markup on bullion) which shows that there is not the least bit of froth in the precious metals markets. The chart below shows that is a far cry from the bullish extremes of the past.

Bottom Line: As a technician, looking at a parabolic up move heading toward long-term resistance gives me heartburn, and we can observe that silver is prone to some extreme volatility. Parabolic and/or vertical advances are extremely dangerous. There is simply no way to know when they will end, but they usually end badly, with vertical declines as steep and speedy as the ascent.

However, there are reasons to believe that fundamental and technical conditions exist that will continue to be positive for precious metals. We could hope that, once silver reaches resistance, there will be a nice correction to provide an opportunity for those who missed the boat to get on board. For those who bought at much lower prices, from a long-term point of view I see no reason to be concerned about any pullbacks. The kind of extreme financial crisis that precious metal advocates have long predicted is now actually upon us.

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Technical analysis is a windsock, not a crystal ball.

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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.

Consumer demand in India and China will be long-term driver of Gold price

From the Irish Independent:

With the price of gold continuing to test record nominal highs, it would be easy for investors to think they've already missed the boat if they're seeking decent returns.

After all, in dollar terms, at over $1,500 an ounce, the price has risen two-and-a-half fold in the past five years; and even over the past 12 months, it's up 37pc.

Geopolitical turmoil, a yawning US deficit and concerns over its credit outlook, as well as instability in the euro region, are all elements that are helping to underpin gold prices.

This week, Evy Hambro, who manages the $17bn (€11.7bn) Blackrock World Mining Fund, said that he believed gold prices may keep rising for "some years into the future".

"When you look at the underlying fundamentals in gold, they're all very supportive of today's pricing points and of pricing points higher than where we're trading right now," said Mr Hambro.

"So we would expect to see this positive, gradually rising price trend in gold to continue for some years into the future. I think some of the uncertainty that exists around exchange rates, quantitative easing, what paper money will buy you in the future, all of that is only helping gold from a financial point of view."

But it's simple consumer demand that is also expected to sustain high gold prices. The World Gold Council (WGC) -- a London-based organisation that promotes the use of the metal -- recently estimated that by 2020 cumulative annual consumer demand for gold in India -- the largest market in the world for gold jewellery -- will increase to in excess of 1,200 tonnes.

"India's continued rapid growth which will have significant impact on income and savings, will increase gold purchasing by almost 3pc per annum over the next decade," the WGC forecast.

"In 2010, total annual consumer demand reached 963.1 tonnes [in India]," it noted. "As seen in the last decade, Indian demand for gold will be driven by savings and real income levels, not by price."


Peter Souleles B. Com. LLB.
20 April 2011
From time to time we need to reflect on what has passed, otherwise time and events are dwarfed by routine. Past outcomes, present realities and future plans need to be superimposed on each other as a means of recalibrating those aspects of our existence that we perceive to be of importance. All too often we fail to see in ourselves the unfortunate rat on the treadmill or catatonic goldfish in the fishbowl and as a result the wisdom of Socrates who said that, ''the uncontemplated life is not worth living" still rings true after almost 2,500 years. Such reflection is as important for governments, corporations and bankers as it is for individuals.

It is for this reason that I am re-visiting the continuing saga between the Icelanders and the British Government. Or should I say between the Vikings and the Vampires? This ongoing tragedy has broader implications about how we as a society, more often than not, seek confrontation rather than solutions. It also reminds us that the silver bullet and golden fleece afforded by precious metals are yet to be harnessed for the common good.

The facts briefly stated are that a number of private Icelandic banks which had British and Dutch depositors went belly up. The British and Dutch governments compensated their subjects for their losses but have since turned the heat up and the screws tighter on the Icelandic government to reimburse them for the payouts which come to around $5 billion.

The alert and defiant Icelanders backed by an even smarter President knocked back the initial repayment plan by a margin of 93% to 2% in the first referendum on March 6, 2010. The Brits went back to the drawing board and came up with a second proposal which was sweeter but which was once again put to a referendum by the President of Iceland in April 2011. The outcome was a repeat of the first referendum in terms of result albeit with a smaller but still decisive margin of victory (58% to 42%).

In January 2010, prior to the March referendum I had penned an article (Gordon Brown the Stone Thrower) admonishing Gordon Brown for the cost of his own foolishness in having sold 395 tonnes of Britain's gold some ten years earlier at an average price of $274.92 and without consulting the Bank of England. The loss arising from his infamous decision stood at $10.47 billion as at January 2010 and as of today with a gold price of $1500, the loss now equates to $15.55 billion. Yes my dear readers, Gordon on his own cost the British Nation $15.55 billion and counting.

Criticism is of course easy, particularly when it is delivered with the benefit of hindsight. I therefore lent a helping hand at that time by proposing a solution which would benefit both sides. In a nutshell, the proposal was as follows:

"There is of course one more option. May I suggest to Gordon Brown that he sell the remaining gold holdings of Britain of around 310 tonnes to Iceland at the (current) price of $1,100 per oz. This comes to an amount of $10.96 billion.''

In addition I proposed an interest charge of 4%.

Had Gordon Brown followed my advice at the time, the outcome would have been that Iceland would have made a profit of $3.986 billion on the sale of the gold on April 20th, 2011. After allowing for interest costs of $811 million (on the compensation sought by Britain plus the cost of the gold loan) and a repayment towards the original $5 billion demanded by Britain, this would have left a loan balance of $1.825 billion. Not a bad reduction (almost 63.5%) in 15 months.

You might counter with " but Britain would have missed out on the increased value of its gold pile." True, but why then did the IMF decide on the sale of 403.3 tonnes in September 2009? Was it a case of "Gordon's Disease" ? And if Britain was not in favour of selling its gold to Iceland, why couldn't an international financier finance the purchase of gold from the IMF whilst holding the gold as collateral?

Well we all know the answer - MORE BRAWNS THAN BRAIN. Or should I remind you dear readers that the Riot Act was read to the people of Iceland which in this case took the form of the U.K.'s Anti Terrorism Law?

Various central bank fools have over the years lent gold to banks at pitiful rates of interest and now cannot even get the gold back without exposing and collapsing the central banking system and everything that hangs off it. Why not do the same for Iceland?

As manipulation of gold and silver markets crumbles and various QE devices torch the world economy even further, the price of precious metals will continue to rise as un-serviced debts will continue to grow and fail.

Whilst gold and silver are not one stop shops for solving the predicament of the world's financial system, Iceland's missed opportunity to harness the suppressed value of these metals, is a salutary lesson for central banks and governments.

In short governments and central banks must take the initiative and revalue gold and silver immediately as a means of writing off what cannot be repaid rather than believing that they can extend and pretend until we come to the next bend on our road to hell.

If gold and silver are presently overvalued then any revaluation would serve little benefit as the holders would subsequently be faced with losses yet again. But we all know that this is not the case. It is not gold and silver that are overvalued but Keynesian economists, bankers and politicians that are over-rated.

Asset revaluation reserves abound in the accounting world and it is about time they were used to revalue precious metals and write-off the toxic rubbish that banking alchemy has created in the absence of regulation and oversight.

Continued failure to ignore such a method can mean only two things:

  • There is precious little gold at Fort Knox and other vaults with which to carry out such an exercise and/or
  • Certain governments will not be in favour of the restrictions that gold and silver will impose on deficit spending, trade imbalances, money printing and unfunded promises.

The essence of life no doubt includes the mistakes we make, but the real tragedy of mistakes lies not in their doing but in their repetition. This is why history has become so repetitive. We of course fail to recognize this because we focus on the detail which always changes rather than the results which are always the same.... debt, war, famine, destruction and currency debasement.

The current madness of those in the driver's seat is centred around low cost money supplied by quantitative easing and trapped depositors, which in turn is harnessed by insolvent banks to shore up profitability, write-off losses and engage in speculation in an effort to shore up their asset values and inflate their bonuses.

In closing I want to thank the indomitable Marc Faber who only recently said that investors "should be their own central banks and gradually accumulate gold reserves as a currency". This effectively echoes what I said in an article in article in December 2009 (The World's First and Best Central Bank):

"The truth is that gold and silver were the first central bank of civilized man and required no act of parliament, no monarch's seal, no standing army, no common language or numbering system. Their value was universally maintained and accepted without question for centuries....I repeat: there is only one real central bank. It has no offices and no headquarters. Above all it has no need for a Chairman."

I therefore close by asking, how much more debt, war, famine, destruction and currency debasement do we need to see before humanity realises its potential for progress rather than its tendency for evil? And for how long will we as a community allow gold and silver to be accumulated and hoarded in expectation of an Armageddon rather than to be used as a means of restoring intrinsic value to our money and life to the economy it is meant to nurture?

Peter Souleles

Sydney Australia

Silver Spikes And Corrections

Justin Smyth
21 April 2011
Silver continues its powerful and relentless move higher. From August 2010 until now this is the biggest rally during this silver bull market that started early last decade. Silver has also been the star performer of the financial world over the past year as you can see on the graph below.

How does this current silver spike compare to the past? The next chart shows the major moves higher in silver during this bull market in 2004, 2006, 2008, 2009, and the current rally. Also shown is the rate of change in price appreciation on a 1-month, 3-month, 6-month, and 12-month time frame. Interestingly, the 1-month rate of change shows that at the end of each rally, silver had it's biggest monthly gain of the entire move. Right now silver is close to putting in its biggest monthly gain of this rally and has a week yet to go in April. Silver would have to gain more than 25% during this month though to eclipse it's biggest month to date which occurred in 2009. On a 3-month and 12-month time frame this is clearly the biggest gain of this silver bull to date, but on a 6-month time frame it is still in the same ballpark as the silver rally in 2006.

I noted in a recent article that we've still yet to see a big increase in speculation in the gold market along with silver. The next chart shows gold with the same rate of change indicators and you can see that in 2006 and 2008 gold started to go parabolic at the same time as silver. This time around though gold has been extremely tame given the huge increase in activity in the silver market. The last speculative period in gold actually occurred at the end of 2009.

When will this parabolic move in silver end? I've still yet seen a technique that is good at timing the end of an extreme move in a market, including oscillators and overbought indicators. In 2008 many people tried to call the bottom early only to see the market swoon to levels most people didn't believe was possible. Currently the opposite is happening in silver, where it is blowing through the overbought indicators that previously worked to call major tops in silver. In bull markets the surprises come to the upside, and that's really what is happening right now.

What is more certain is what will likely happen after this silver spike ends, which is a correction in silver followed by a consolidation period. The correction will get rid of excessively bullish sentiment in silver, and the consolidation will move investors' focus to other markets, which will prepare silver for its next bull move. The next chart shows the peak to trough corrections in silver following the rallies in 2004, 2006, and 2008. Notice how the corrections were over after a couple months, and then the consolidation period began. The only deviation from the pattern was in 2008 when the financial crisis pushed silver to an extreme low, and also expanded silver's consolidation period which provided the foundation for this current explosive silver rally.

Justin Smyth

Gadhafi and Gold

24 Signs Of Economic Decline In America

74 percent of Americans said they plan to slow their spending in coming months due to rising prices

74 percent of Americans said they plan to slow their spending in coming months due to rising prices

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Checking the CIA World Fact Book, Syria ranks 33rd in oil producing nations, compared to Libya at 18th, so at least the Syrian people should be safe humanitarian bombing.

The downfall of JP Morgan

Donald Trump Wants Obama To Show His Birth Certificate

Gee what is the world coming to, now intelligent and influential white people are believing in conspiracy theories, where will this all lead to, the truth? surely not......

Pastor James David Manning - You can run but you can't hide

It is not only lonely white guys that believe in conspiracy theories, it is intelligent and influential black guys with PhD's as well......

If you found this video interesting you may also find Rev. Manning's pulpit questioning of Obama's parentage from late 2008 of interest.........Her name is "Ms. Ann"

Silver price pattern forms a bar code

Can anyone explain this bizarre "bar code" pattern in the silver price? If so answer in the comments section below this post.

James Grant on Inflation