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XMFSinchiruna (27.78)

Nothing Has Changed for Gold and Silver

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35

July 19, 2010 – Comments (20) | RELATED TICKERS: CEF , SLW , TC

Stay the course, intrepid precious metal longs. If you want to try to get fancy and play this pullback by pulling out some exposure and trying to get back in near the next major support around $1,150, I am not here to argue against that sort of trading ... just accept this friendly reminder that as quickly as the momentum shifted from a bullish springboard in a cup and handle formation a few weeks ago to an unexpected pullback amid tectonic shifts of paired trades in the FOREX market, it can launch higher again with similar ferocity. 

In other words, provided you are as confident as I am in the continuation of the longer-term secular bull market for precious metals, and in your assessment that nothing fundamental in the economy has suddenly reversed itself to render precious metals a less attractive vehicle for protection, then one has an important job to do in comparing the theoretical opportunity costs between the two strategies ... staying long and strong while the vioent swongs play out, or trying to get fancy and time a manipulated market.

As I've said before, I've had some uncanny success trading out of maybe 5% or 10% of my pm exposure at strong highs and trading back in where I see key support. This past time, the near-term move caught me off guard, and I have little capacity to play this particular move. Fortunately, I don't perceive any likelihood that this will be a prolonged nor severe slide. Once the longs figure out that much of the selling pressure is coming from trading one paired FOREX strategy for another, they too will go long and strong to insist that such games do not impact the gold price for long.

For a few weeks here, the Euro came out of focus and the incredibly impaired USD came into focus. It is my (speculative) opinion that all the resulting shifting of capital is primarily responsible for this slide ... along with a hefty dose of pile-on heft from the bullion banks who understood just how critical it was for them to hold the line on their short positions when $1,265 crossed the tape amid strong technical indicators. It was one of several key "judgement days" for the bullion banks, of which we will see more. As longs, we are in a long and enduring battle of wills against those leveraged price-suppressing positions of the bullion banks. As longs, we are also in a constant battle against the psychotic mania of enormous hedge fund positions in the gold market. Their disruptive presence in the market shifts mindlessly between long and short biases according to hyper-short-term market flows, such that a single concerted attempt by the bullion banks to hold a key line of resistence can experience a significant pile-on effect. When you toss in a tectonic shift in paired currency trades as I mentioned above, the result can be quite dramatic and leave bullion bank executives sharing celebratory cigars at our expense. 

There are only two things that we have in our arsenal, as a popular collective of resolute precious metal longs:

1. Stay long and strong. Weaker hands only make it thst much easier for the professional shorts to trigger their momentum-driven sell-offs. They prey upon those weak longs, and laugh all the way to the bank. I'm not asking anyone to sacrifice their own capital for a cause (as I mentioned, I too trade in and out of positions with a small portion of my pm allocation) ... nothing like that... the fact is that I believe a stronger long position that can't easily be shaken in and out of the market is the strategy for gold and silver that will yield superior returns over the long haul. In my opinion, active trading in this market is best reserved for only a very small portion of one's own pm allocation. 

2. Take physical delivery. The entire arsenal of the professional shorts consists of naked short positions backed by nothing but meaningless paper leveraged as much as 100:1 over any realistic capacity to supply physical metal. A stranglehold is maintained around COMEX gold by means of a ponzi scheme, and like anyt ponzi scheme the only thing that can break its grasp is a calling of the bluff. In this case, it just happens to be mother of all ponzi schemes, and it will take a group of dedicated, and preferably deep-pocketed longs to tear the pyramid down.

 

Look what this poor lady had to go through just to withdraw her own silver bullion in one of the more insane stories of problematic delivery on pm certificates. Don't let this be you:

http://www.theglobeandmail.com/news/national/christie-blatchford/an-unkind-complicatedness/article1643419/

Consider investor Harvey Organ's experience with the very same bank back in 2008:

http://www.fool.com/investing/general/2010/04/13/everybody-out-of-the-gold-pool.aspx

 

Notice a pattern? They either don't have the bullion on hand, or they are desperate not to part with it. In both cases, it tells a clear tale of systemic impropriety.

 

Meanwhile:

http://www.reuters.com/article/businessNews/idUSTRE66I05U20100719

(Reuters) - China should cut its holdings of U.S. Treasury securities when market demand is strong, a prominent economist said in remarks published on Monday.

"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.

Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.

 

Nothing has changed for gold or silver. This dip is merely noise, or a fortuitous trading buying opportunity for any laggards looking to step into position for the next big run-up. Stay long and strong.

 

Strongman (TMFSinchiruna)

20 Comments – Post Your Own

#1) On July 19, 2010 at 10:53 AM, alstry (35.35) wrote:

Interesting......and Sinch you and I agree on most things.

But what happens if Government's around the world, currently hoarding metals, outlaw gold and silver?  Like in 1933, but this time on a global scale and only accept a new world Digital currency for legal/tender transactions?

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#2) On July 19, 2010 at 11:03 AM, outoffocus (22.86) wrote:

I'm trading very cautiously right now. I sense some deflationary pressures in the near term so I don't want to "catch a falling knife". I'll resume buying when I sense a change. Since I'm not selling anything I won't lose anything if I happen to miss the move back up.

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#3) On July 19, 2010 at 11:04 AM, silverminer (31.11) wrote:

alstry

I just don't see that as a likely scenario, Alstry.

But in the low-probability hypothetical scenario you offer, then black market gold and silver prices would skyrocket (recall that, despite the sizeable adjustment, gold still had a controlled exchange rate with the USD in 1933.) 

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#4) On July 19, 2010 at 11:05 AM, silverminer (31.11) wrote:

outoffocus

I'm nibbling here and there on big swings in the juniors, but otherwise I am likewise in spectator mode.

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#5) On July 19, 2010 at 11:20 AM, silverminer (31.11) wrote:

outoffocus

Despite the apparent contradiction, deflationary pressures are not an obstacle to gold and silver prices.

Deflationary pressures are destabilizing for the sovereign debt risk profile of the U.S.

Deflationary pressures mean an automatic return to the printing press.

Deflationary pressures mean years of additional loose monetary policy.

Deflation is the one thing our government and our Fed will not permit to occur without another fruitless reflationary fight.

Because of the very strange quagmire we now reside in from a macroeconomic perspective, deflation and inflation are each sources for upside pressure on gold prices ... which is precisely why I view gold and silver as the best investments of this new decade and have allocated my own investments. Gold skeptics may seek to ridicule such an apparent contradiction as analytically unsound, but the unfortunate reality is that there is no road forward that does not include increasing stress upon the USD. The responses to deflationary pressures are 100% predictable, and they include further stimulus and further quantitative easing. 

All roads from here lead to at least $2,000 gold.

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#6) On July 19, 2010 at 11:25 AM, 1315623493 wrote:

I made a $1000 bearish option trade on GLD and I have a profit of $596 as of 11:22AM EST or 59.6% profit. The technicals are against gold. I hope you guys keep buying gold. Otherwise, I'd have no one to sell to. Keep it up!

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#7) On July 19, 2010 at 11:32 AM, outoffocus (22.86) wrote:

silverminer

I wholehearted agree. Thats why I clarified that I feel the deflation in the near-term (the next month or so). This is going to weigh on all asset classes, including commodities and PMs. You know the saying, "the markets can stay irrational...blah blah blah".  I think PM equities are going to suffer in the near term, (they already are) so I'm holding out for some really good prices as opposed to "buying on the way down". I've establish a comfortable enough position that if PMs suddenly skyrocket I won't miss the boat.

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#8) On July 19, 2010 at 11:36 AM, silverminer (31.11) wrote:

outoffocus

I hereby certify that you have the right mindset in place to invest successfully in gold and silver through the remainder of this secular bull market. :)

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#9) On July 19, 2010 at 11:38 AM, silverminer (31.11) wrote:

BetapegLLC

Congratulations on a timely trade. 

While I do not recommend shorting gold under any circumstances, I am pleased whenever a fellow Fool conducts successful transactions like that one.

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#10) On July 19, 2010 at 12:48 PM, cbwang888 (25.90) wrote:

$1180 is a key support and I still think it is a good entry point for a long term. 

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#11) On July 19, 2010 at 1:36 PM, silverminer (31.11) wrote:

Straight-up wisdon on the inflation debate from Jim Sinclair:

Dear CIGAs,

If gold market participants were all tank drivers their machine would have but one gear – reverse. The smallest book in the world is the book of confirmed gold price visionaries.

Someone says deflation and the long gold positions hit the fan. Gold banks make their short covers even though the fuel in Bernanke’s Helicopter Money Drop is founded in the dreaded use of the “D” word.

People are so fixed in present time that they cannot picture a euro back towards its high and the dollar back towards its low because the financial condition of the USA dwarfs the problems of the USA.

Hyperinflation is always the product of a loss of confidence in currency resulting in a “Currency Produced Cost-Push Hyperinflation.”

No one with a synapse talking to another synapse expects a “Demand-Pull Inflation.”

All hyperinflation in modern history has occurred for one reason, and one reason only. That is loss of confidence in currency.

Loss of confidence in a currency can be brought about by many reasons, but there is one constant factor. When hyperinflation has occurred in modern history EVERY economy involved was decimated as and when it occurred.

It has never been caused by “Demand-Pull,” but always and without exception caused by “Currency Induced Cost Push Hyperinflation.”

The nonsense being spread by the F-TV taking heads is that the Fed is out of ammunition to fight deflation. That is raving BS. The Fed can and will do QE to infinity which is restricted as a tool by nothing whatsoever. The ECB will not be far behind the Fed.

Argue all you want, but this is exactly what is going to happen starting now. Stop being glib. Study hyperinflation in modern times listed below before you ask me to explain it one more time.

What is out there today (QE-wise) is enough to result in hyperinflation as confidence falls in currencies due to two characteristics, QE and volatility.

Try meditating on the concept of “Currency Induced Cost Push Hyperinflation,” rather than loading your pants over gold banks manipulation full of sound and fury, but meaningless in the great scheme of things.

Examples of hyperinflation in modern times:

Angola, Argentina, Belarus, Bolivia, Bosnia-Herzegovina, Brazil, Bulgaria, Chile, China, Congo, Free City of Danzig, Georgia, Germany, Greece, Hungary, Israel, Japan, Madagascar, Mozambique, Nicaragua, Peru, Philippines, Poland, Russia, Taiwan, Turkey, Ukraine, United States, Yugoslavia

 

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#12) On July 19, 2010 at 3:35 PM, silverminer (31.11) wrote:

Ludicrous gold headlines continue to provide consistent chuckles:

Gold Sinks on Housing Number Report this comment
#13) On July 19, 2010 at 3:42 PM, silverminer (31.11) wrote:

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#14) On July 19, 2010 at 3:54 PM, 100ozRound (29.44) wrote:

Thanks Sinch - I'm having drawdown anxiety today

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#15) On July 19, 2010 at 4:09 PM, DarthMaul09 (29.63) wrote:

TMFSinchiruna

I completely disagree with your title:

Nothing Has Changed for Gold and Silver

What has changed is that the proftis will be even greater for those who waited to invest now, since I suspect that there will be a rebound in the PM market within the next month or so.  This will be a golden opportunity (pun intended) for day traders and long-term investors looking for a good buy in price.

You can quote me later if I'm right.  If I'm wrong, you can take comfort in the knowledge that I would have been severely punished by my recent stock investments.

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#16) On July 19, 2010 at 7:00 PM, XMFSinchiruna (27.78) wrote:

Reality is Up For Grabs:

http://edegrootinsights.blogspot.com/2010/07/reality-is-up-for-grabs.html

A major break in the dollar’s counter trend rally goes by without a headline whimper.

U.S. dollar ETF (UUP):
{Navigate to link for chart}

Meanwhile, gold and the gold shares decline during a paper operation that is clearly supported by strategically generated headlines. No cares to notice that the retest of May lows is occurring on a fraction of the volume created during their initial formation. This lack of participation suggests waning downside energy.

Gold Miners Index ETF (GDX):
{Navigate to link for chart}

The whole setup reminds of the dialog between Trapper and Hawkeye during Season III episode Iron Guts Kelly in which Trapper suggests that reality is up for grabs.

Trapper: I got a bad taste in my mouth. I'm gonna go gargle with a martini.
Hawkeye: There you go, hiding behind booze again, afraid to face reality.
Trapper: Reality is up for grabs. One man's reality is another man's fantasy... (he trails off, realizing the two gorgeous nurses behind them)
Hawkeye: Right. You take the reality one, I'll take the one with the big fantasy.
Reality is up for grabs. Today’s casino-style markets profit from confusion, misdirection, and degree of difficulty in reading the message of the markets.

 

 

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#17) On July 19, 2010 at 7:21 PM, NOTvuffett (< 20) wrote:

Sinch,

I sold my shares in a silver miner a couple weeks ago.  My thinking was that a little over half of silver demand is for industry and I am becoming increasingly more pessimistic about the rate of recovery in the economy.

Do you have an idea when it may be time to come back into silver?

I owned PAAS.  Do you have a favorite miner at current prices?

 

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#18) On July 19, 2010 at 8:48 PM, 1315623493 wrote:

silverminer, 

In that chart you posted, great find of a upside down head and shoulders. But couldn't you also see a triple top? 

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#19) On July 20, 2010 at 9:12 AM, silverminer (31.11) wrote:

BetapegLLC

One could certainly see that, but as I discussed in great detail in that infamous GoodVibes post where he claimed the triple top on gold and I claimed a bullish upside-down head and shoulders, the well-understood fundamental conditions underlying any market trump purely technical interpretations.

If you haven't read through that post from October 2009, I recommend it highly.

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#20) On July 20, 2010 at 9:19 AM, silverminer (31.11) wrote:

NOTvuffett

Much of the downside in industrial silver demand has already taken place, and the investment demand more than adequately picked up the slack. We still have a massive undersupply of silver and extremely small inventories. The same is true on the investment side, where physical metal to back paper positions simply doesn't exist. These two conditions combined are likely to propel silver well into the mid to upper $20s just as soon as that $20 ceiling can be taken out. That could happen next week, or it could happen months from now ... I can not know. I do know that I'm a buyer of silver here, and not a seller.

PAAS is a supreme value here, and remains one of the most copmmonly overlooked miners in the space (they need a new name). :)  Coeur d'Alene Mines is in sweet spot of production growth, and is like the Yamana Gold of the silver space. If you're willing to go small in order to go huge, it's Great Panther all the way (GPRLF).

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