Silver price: Launch Underway!

With the global shift back to the dollar-flight trade, let’s look at the silver price’s technicals to see where we are in the trade, with the emphasis on one-way bets on silver—long!  With physical buying pouring into the market, taking a short position is suicide.

During the massive plunge (normal for the silver market) in the silver price, noticed where the heavy buying came in—right below Richard Russell’s 20-month moving average.  Russell looks for where to 20-month MA is relative to the 40-month for long-term buy and sell decision points.

“I’m looking right now at a chart of 20-month and 40-month moving averages of gold [said can be said of silver],” Russell said in a roundtable discussion with FinancialSense Newhour’s, “and May of 2002 . . . the 20-month moving average finally moved above the 40-month moving average.”  Coincidentally, the buy signal in the precious metals followed UK’s Chancellor of the Exchequer Gordon Brown’s dump of 60% of British of England gold reserves.

With no foreknowledge of the schemes of the gold and silver cartel, it appears the sell-off in silver is complete.  Notice the similarities between the sell-off during the de-leveraging event brought on by the collapse of Lehman Brothers in 2008 and the sell-off in the silver price during the coordinated raid by the cartel in May, made easy for the cartel from all the shallow-pocket speculators jumping on a moving train.  A simple margin raise was in order and watch the speculative longs fall like dominoes.

Volume statistics, as shown in the above graph, suggest a confirmation of COT reports which show speculative longs flushed out of the market during the May sell-off.  But note the volume; it’s reached levels not seen since the summer of 2010 when silver traded below $20.

More importantly, the difference between the two sell-offs cannot be gleaned from the charts.  The action is in the physical market is decidedly different this time, as a slew of reports coming from bullion dealers across the globe tell of physical buyers jumping into the market with both feet at these lower prices—in stark contrast to the 2008 sell-off.  Goldmoney’s James Turk and Eric Sprott of Sprott Asset Management (read article here) have both reported experiencing equal dollar amounts of purchases between gold and silver.  Significant order of silver run weeks to delivery—again!

Considering the price ratio of gold and silver is 50:1, already-long delays in securing a supply of silver provides a critical disincentive for the cartel to act anytime soon—if at all, in the future.

Tocqueville Gold Fund manager John Hathaway told KWN, “To the extent that this is a rigged game, the game is now over.”

He notes that commercial physical buyers may panic to secure silver at any price to keep production of its products moving.  Due the small amounts used by commercials in the production of most consumer electronics, to them, silver is an inelastic commodity.  JP Morgan is very well aware of this dilemma and most likely won’t push this manipulation scheme to a de facto force majeure (may never officially acknowledge one) at the COMEX intentionally.

Chief Investment Strategist of Sprott Asset Management John Embry agrees. “Right now we are in the throes of something similar to the old ‘London Gold Pool’ getting overrun,” Embry told KWN.  “I remember the London Gold Pool situation quite well, you have to be old to remember it but I do.  I see absolutely no difference this time except conditions are infinitely worse this time around and there is less central bank gold [silver supplies worse] available for the manipulation.”

Embry added, “So to me if the seventies were fantastic as a result of the London Gold Pool being broken, this one is going to be way better.”

Gold Price “Close to a Breakout,” John Hathaway

As the gold price smashed past through technical resistance at $1,680 on Tuesday, King World News’ usual suspects came out this week feeling confident that another big rally in gold is underway.  The gold cartel shorts are covered and sentiment in the gold market is terrible, a set up, he said, is “really what you want” before taking a position in the metal.

Speaking with KWN, Tocqueville Gold Fund manager John Hathaway told Eric King the gold manipulation cartel may be losing grip on the powerful forces of the golden bull.  He likens the situation to the problems faced by the infamous London Gold Pool of the 1960s.

“The central banks are losing to the extent that they are failing to keep the gold price down,” said Hathaway.  “You know whoever is fighting this battle is fighting a losing battle.  So I just don’t think there is going to be much courage left on the central bank side.  If this latest ‘London Gold Pool’ style manipulation fails and at the same time you see more of this disgust with paper currencies, that’s where you will get nothing but air to the upside.”

Hathaway’s point brings back memories of James Turk’s famous ‘Gold’s Infallible Indicator’ article of 2007, a clever qualitative indicator which came about as a result of his observation that each time the UK business publication The Economist published a ‘negative’ outlook for the gold price, the complete opposite happened.

Turk’s notations from his original article, posted on Kitco.com:

Date Article is Published

Gold Price
On Date of Publication

Low Gold Price After Date of Publication

Number of Days Low Is Reached After Publication

Subsequent High in the Gold Price

Date of Subsequent High in the Gold Price

% Gain from Publication Price to High Price

23 Jan 1993

$328.60

$326.30

32

$407.00

30 Jul 1993

23.9%

11 Sep 2003

$379.70

$369.20

20

$426.40

9 Jan 2004

12.3%

1 Dec 2005

$502.50

$493.00

14

$719.80

11 May 2007

43.2%

8 Apr 2007

$674.20

$651.90*

34*

$1,032.00*

03/19/08*

53.10%*

ñ     Updated chart from original publication

Not included in the Turk’s chart is a May 13, 2010, article published by the The Economist, entitled, Gold to Fall Below $1,000 By End of Year: Economist.

The article’s publication, proving once again that Turk’s ‘Infallible Gold Indicator’ is, indeed, infallible, the gold price of the date of the article’s release was $1,229.20.  Subsequently, the yellow metal rallied, dropped, then drifted to as low as $1,158.00 on Jul. 27.  But by the close of the year, instead of trading at $1,000 as predicted by The Economist, the gold price achieved a print of $1,421.40—a gain of 15.6% from $1,229.20.

It should be noted that the May 13 article was published in a nick of time for the start of gold’s seasonal soft period range of mid-May and the last trading day before Labor Day (first week of September).

“How can The Economist get it so wrong?  Or in other words, why is this indicator so reliable?” Turk asked in his May 7, 2007, article.

He added, “While The Economist pretends to offer serious analysis of gold, in reality it doesn’t.  It has another objective – anti-gold propaganda.  It is an apologist for the Bank of England and the other central banks that want to keep the gold price low.”

But tell that to CPM Group’s Jeffrey Christian, the apologist for the Fed.  GATA right again.  In fact, any time someone accuses you of being a ‘tin-foil hat’ guy for suggesting the gold market is manipulated, just tell ‘em to Google ‘GATA right again‘.  The raft of links to article of GATA’s fine detective work on the subject of gold cartel manipulation scheme is so overwhelming that even a judge, if presented with so much circumstantial evidence surrounding a murder of a Catholic Calcutta lad, would send Mother Teresa to the gas chamber.

Then, appeal to the naysayer’s greed by sending the ‘useful idiot’ to Turk’s May 7 article.

Even the Financial Times of London has found the time between initiating rumors of the European debacle (see here . . . here . . . and here) to report that, maybe, just maybe, further investigative work by FT might lead to subsequent article, entitled, ‘GATA right again’.

Back to the KWN Hathaway interview:

“To the extent that this is a rigged game, the game is now over,” he said of the gold cartel’s diminished capacity to stem the avalanche of physical gold buying.  “We are not quite at stampede levels yet, but we will be.  Who wants to hold euros? And if the U.S. starts to intervene through some form of central bank asset purchases, lines of credit, whatever it is they use, nobody is going to want to hold the dollar either.”

He continued, “We potentially have nothing but air to the upside in gold.  We could see a big number on gold before the end of the year.  Nobody is going to want these paper currencies going forward.  That’s kind of where we are now, we’re close to a big breakout.”