Monday, November 30, 2015
Wednesday, November 18, 2015
Gold is near the lower support of a two year descending trading channel. So far it has bounced off this line three times to head off to the upper resistance line. Each time has been a potential end to the gold bear market of 2011-2015. The expectation is the technical traders will go long when this line is touched. Will it be enough to propel gold through the upper resistance line and into bullish territory?
Tuesday, November 17, 2015
Alleged Gold (and Silver) Suppression
As gold began its descent from $1190 to a recent low of $1073, certain quarters of the gold investment community began to retell a familiar tale. This drop was engineered by central bankers aided and abetted by unscrupulous investment banks in an attempt to stop gold being the canary in the inflationary mine. I won’t quote sources as they are not difficult to find.
The two charts (courtesy of infomine.com) below show the drop from the 15th October high for gold and the 28th October high for silver. In that time, gold has dropped about 9% and silver has dropped 13%.
I have been a student of conspiracy theories from a long time before I got interested in precious metals. When I did begin buying gold and silver in the late 1990s, it was not long before I was adding the theories of GATA and others to those about Jesuits, Freemasons and the Illuminati.
One may wonder why anyone would put a red cent into gold and silver if these metals are under the thumb of central bankers? But with tales of conspiracy comes tales of redemption as followers are encouraged to buy yet more gold as the day of reckoning draws near for the evil bankers as the so called deception of paper gold over physical gold finally cracks under hyper-demand for the real stuff.
Of course, we know that gold was under the direct manipulation of governments as the price was fixed in a tight range for decades stretching back to the 19th century and before. We know about the London Gold Pool and other gold control schemes, so why the need for secrecy?
I have three questions.
Firstly, gold went from $255 to about $1920 in the course of ten years. That is more than a seven fold increase. Now I would take this to be evidence, at worst, that if there is a gold suppression scheme, it is as useful as a chocolate teapot. At best, it proves it does not exist at all.
Secondly, inflation is currently running at nearly zero percent and has been moving around this level for the whole year. This is well below the Federal Reserve’s PCE target of 2%, yet we are told that central banking’s attack on gold is more intense than ever. Why does it need to be more intense than ever? Inflation is practically nonexistent; so the gold canary does not even need to clear its throat. Yet the powers that be decide to smash gold?! That doesn’t make sense; the Fed needs more inflation now, not less. Or perhaps they’re just practicing for the hell of it?
Thirdly, I had a look at the corresponding charts for some base metals.
Basically, all these base metals topped at about the same time as gold and silver. Copper dropped about 8%, lead by about 13%, tin by 12% and zinc by 16%. Compare these to gold’s 9% drop and ask yourself whether in fact all these drops have a common cause rather than a secret group gunning for gold? Did the central bankers also smash copper, lead, tin and zinc? I don’t think so.
The answer is more likely to lie in a more mundane explanation and that is the US dollar. During this metal downturn, the US Dollar Index rose by 6%. And the reason for all this is nothing to do with clandestine groups, but the fact that a stronger US dollar also weighs on base metals, because it raises the costs for buyers using other currencies.
And that includes precious metals as well. Somebody may quote people like Greenspan intervening in the gold market, but there is a big difference between haphazard interventions and consistent manipulation.
For your information, the latest issue of our newsletter addresses a similar misconception about precious metals and the money supply.
Saturday, November 07, 2015
Issue 38 of The Silver Analyst out now
The latest issue covers some myths concerning silver and the money supply. There will also be the latest silver stock rankings and a new recession watch section which is always important for the fortunes of silver.
Click on the "Buy Now" button to the right or click here for subscription information.
Thursday, November 05, 2015
Silver Breaking Down
We have looked at the weekly channel on subscriber updates and looked at the short term based on RSI and 20 day MA (see link). The short term bearish outlook is now confirmed as silver has dropped from its $16.35 high.
You can see the perfectly formed parallel daily channel which will determine where silver is going in the short term. Having bounced off the top channel for the fifth time, another visit to the bottom channel at about $14.70 is on the cards. Anything below that and it gets more interesting.
On the weekly channel side, we are a far way off touching its bottom line.
Friday, October 30, 2015
Silver and Pan American Silver
As we consider whether the silver bull has restarted and its consequences for mining stocks, it is salutary to examine how leveraging silver via mining stocks can be a hit or miss. This is best shown in one of the most favoured silver mining stocks, Pan American Silver. The first chart shows the company’s performance over the last twenty years with the silver price overlaid in green.
Not surprisingly, the two generally track each other over the course of bulls and bears, though it is clear from a cursory examination that the two do not rise and fall in a proportionate manner. The question is how PAAS has performed relative to silver over the past two decades.
To answer that question in visual form, imagine an investor bought PAAS on the 12th June 1995 and held it for a decent investment time horizon. In this case, I have chosen four years. Now we calculate how much PAAS returned above and beyond any absolute gain in silver on or about the 12th June 1999, four years later. That is our leverage number.
So, if silver and PAAS performed the same, the value is one. If PAAS performed twice as well as silver, the value is two. If PAAS performed twice as worse as silver, the value is a half. Now repeat this for the next trading day and so on until the present day and you get the PAAS to silver leverage chart below.
What becomes immediately clear is that PAAS had its big day back in December 2004 when it outperformed silver by a factor of four in the early days of the silver bull. Thereafter, the leverage dropped but did not drop to breakeven with silver until May 2006 during one of silver’s sharp downturns.
However, PAAS could only keep up with silver as it ran up to $21 in early 2008. Once the credit crunch hit, PAAS (like most silver mining stocks) dropped faster than silver and to this day, Pan American Silver has failed to outperform silver over a rolling four year holding period.
What went wrong with PAAS? The answer will lie in the fundamentals of the company, it may be found in a lack of anticipated resource discovery, unexpected production declines, bad management, the politics of governments and natural disasters. I will leave the finding of the exact areas of blame to someone else.
But while PAAS failed to outperform silver during the great run up to $50 silver between 2008 and 2011, others did outperform silver. I have monitored a representative batch of fifteen or so silver mining stocks since 2007 and during that big silver move; they collectively outperformed silver by a factor of 1.80. So you got 80% more than someone who bought silver bullion. The point being that one should not put all their eggs in one basket.
When I started tracking silver stocks collectively in 2007, there was only one silver mining stock fund on the planet. Today we have several to choose from, such as SIL and SLVP where you can spread the risk of investing in silver mining stocks.
PAAS may again be one of the best performers as it was in 2004, and indeed is currently one of the top performers since August. However, be careful, spread the risk and diversify your stock holdings!
Thursday, October 15, 2015
Gold SIlver Ratio Update
I posted an article on the gold-silver ratio (GSR) back in February 2009 which you can find here. My closing words were that “it looks like a top was set back in late January”. By that I meant a top in the GSR, not the price of silver which clearly had suffered a large drop during the mass sell-offs of the Credit Crunch. When the GSR peaks, the price of silver tends to bottom and that clearly came to pass as silver began a run up to $50 two years later.
How has the Gold Silver Ratio (GSR) been doing recently and how does this stand up against the price action of silver over the past years? Some will use this ratio to rebalance their gold and silver holdings. A high GSR means switch from gold to silver and vice versa. I did not pay much attention to any such signal back in 2009, but it was on my mind this week as I increased the holdings in my favoured silver ETF.
Where I did find it useful back in 2009 was as a trend changeover signal and as I show you the monthly GSR chart for the last twenty years, it is evident that the GSR has been on an upward trend since April 2001. The weekly GSR with the silver price superimposed in green is shown for comparison below it.
Since I am always on the lookout for indicators which are globally or locally useful to the price of silver or gold, one leapt out at me this week past and that was the 20 month moving average of the GSR, which is the red line on the first chart.
In this case, I noted something as the last three major uptrends of the GSR peaked in November 1996, June 2003 and November 2008. When the GSR then dropped below its 20 month moving average, it confirmed the start of a major move in silver. Using the guidance of a full month’s trading range below the moving average; the new upward silver trends were subsequently confirmed in February 1997, January 2004 and September 2009.
Now as we await a new silver bull trend to commence, again we see the GSR nicely moving just above the 20 month moving average but still giving no indication that it is about to breach below the moving average. Though the required full trading range below the average will happen some months after the chronological start of the bull, its arrival will give increased confidence to everyone who is poised or already committed to the next great move in the rollercoaster story of silver.
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