Gold And Silver Update

I was going to take a break from writing for the remainder of the year, but before I do I want to write one more article on gold and silver as developments now in late November may prove to be historic.  No guarantee from me that gold and silver may be ready to take off, but there are some very interesting trends in the precious metals markets I want everyone to be aware of.

First let’s look at the silver to gold ratio (SGR) or the number of ounces of silver one ounce of gold can purchase.  Currently the SGR is at 72.65, which is an indication of how cheap silver is.  Silver could get cheaper, but only because of the shenanigans of the big NY banks and their overseas brethren who government regulators allow to sell thousands of tons of silver they don’t have in the paper futures markets.  When this farce is over, we will never again see silver this cheap in terms of gold, or in dollars.

Moving on to gold and its step sum below, we see that since August 2011 it has formed a massive step-sum bear box.  The step sum is a market sentiment indicator of the only people who opinions on the marker really matter; those who go to work every day to buy and sell in it, and below we see that the gold bulls are remaining very stubborn in the face of massive losses.  Usually these bear boxes are resolved by the bulls capitulating, seen by a collapsing step sum down towards a still declining price plot.  But I beginning to believe that there is a real chance of seeing the below bear box “invalidated”, by seeing the price of gold (Blue Plot) reversing sharply upwards, taking its step sum (Red Plot) up with it.

Silver’s bear box (below) is even more extreme.  The price of silver was down almost 70% three weeks ago on only a net of six down days in its step sum from April of 2011.  Are the silver bulls going to capitulate?  Well after forty-three months and a loss of I don’t know how many billions of dollars, they haven’t yet!  There is something going on here that will provide plenty of material for market historians in the years to come, but for us, we can only watch and wait.

Two charts up we see the price of gold plotted in dollars, so let’s look at that data in my Bear’s Eye View format (BEV).  The BEV plot looks at price data like Mr Bear does; every new high of the move, and every all-time high are seen as a big fat Zero.  What is the difference in the chart above?  Well the last all-time high (Terminal Zero) of the 1969-80 bull market was $825.50 in January 1980.  Our current bull market in gold didn’t exceed that price until November 2007.  So the BEV Zeros seen below that occurred before November 2007 are new highs of the move.  The BEV Zeros that occurred after are new all-time highs.

The first BEV Zero seen in 2002 was from gold rising to $325, the last BEV Zero in 2011 was from gold rising to $1888.  That’s a big advance in dollar terms, but to Mr Bear they each rated only a Zero, as all he cares about is how large a percentage of the bull’s gains can he claw back from any all-time high (BEV Zero).

In gold’s current correction Mr Bear (actually the Western banking system) has been particularly successful clawing back the bull’s gains.  This correction has gone on now for over three years and has twice attempted to find a bottom.  The second bottoming attempt appears so out of place in the BEV plot above.

The current decline in gold seems like it will never end, but trust me this correction will prove to be but a temporary setback in a bull market that has many years and well over ten-thousand dollars to go.  The “best and the brightest” in finance and government have made sure of that.

Here’s silver’s BEV Chart, and it’s ugly.  But interestingly, silver’s 68.48% decline from a few weeks ago still saw silver at $15.31, well above its credit crisis low of $8.79.  Not that it matters as since April 2011 no one has grown rich being long silver; that’s for sure.  But keep in mind that this price decline was achieved by selling massive amounts of fictional silver in the paper silver markets by banks that don’t mine, refine or sell newly produced silver bars in the spot silver market.   

A question never asked by the financial MSM is exactly why government regulators are allowing banks to function as de facto price setters in a market they actually have little to do with in their normal course of business.  Mining companies that do provide silver to satisfy actual demand are being forced to shut down their operations at these insanely low prices.  Exploration companies’ efforts to discover new deposits of gold and silver have seen their projects delayed for over a decade because of this foolishness; and for what purpose?

There is a crisis pending in the silver and gold market that will one day overwhelm the banks’ best effort to keep the old monetary metals price down.  When it strikes, expect the price gains in gold and silver to shock the markets and cause seismic upheavals of panic throughout Wall Street.

So when is this crisis suppose too happen?   I wish I knew.  It might happen this week, but I can’t say if it will for sure.  Still the stars are aligned for something big to happen in the COMEX gold and silver December contracts, which the longs can begin to demand delivery of actual metal at the end of this week – metal that the shorts don’t have.

Here’s a table for the December 2014 open interest at the COMEX.  Each silver contract has a short that promised to deliver 5,000 ounces of silver to a long, and each gold contract has 100 ounces of gold promised to be delivered.  With only a few days left in the December contract, the longs as they usually do, have not closed out their positions and rolled over to a new contract for March 2015.  If the longs were going to settle for dollars, why are they still holding on these contracts?   I haven’t a clue, but maybe the stubborn bullishness seen in gold and silver’s step sums in the charts above; the refusal for their step sum plots to collapse is telling us that something is different this time.

Here is the price and open interest chart for gold.  Since October 2^nd the banks have flooded the COMEX gold market with 90,000 additional contracts, each promising to deliver 100 ounces of gold sometime in the future, but not necessarily in December 2014.  That is nine million ounces of additional gold the shorts have promised to delivered (sometime in the future) in the past two months.  This is gold the world will never see delivered as these banks don’t have the means to deliver it.  Heck the New York Federal Reserve can’t find Germany’s gold in their basement, and they have been looking for it for over three years; good luck finding this additional nine million ounces of gold somewhere in the COMEX!

Here is the price and open interest chart for silver.  Since July (the highlighted area) the longs have had to pay billions of dollars in margin calls on these long positions.  If the longs settle in dollars, as they usually do, they agree to move on and take their losses.  I know fools and their money are soon departed, and if a fool had a few billion dollars there would be no better way to lose it that what we are seeing below.  But is that what we are seeing below, or are the longs in the COMEX silver market not a gang of affluent idiots? 

Given that the longs have only two choices:

• Settle in dollars and lose billions like fools.
• Demand delivery of metal that the COMEX (the big banks) do not have and become rich.

It’s hard to figure out what these guys are going to do because we really don’t know exactly who they are.  If, for example, China and Russia are behind this, they may be willing to lose a few billion dollars in exchange for something else that is of strategic interest to them.  And then maybe having JP Morgan, HSBC and Goldman Sachs suffer from a default in the COMEX gold and silver market is their strategic interest.  I really don’t know, but this situation gold and silver futures market is fascinating. 

My advice to my readers is the same as it always has been; purchasing gold and silver at today’s low prices is an excellent long term investment.  Other than that, I recommend that you enjoy your turkey on Thursday and watch the football game.  If something of interest comes from all of this, we’ll see it on CNBC and the possibly on the evening news next Monday.  Now I can take my break from writing.

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