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Much discussion and consternation surrounding a silver
manipulation conspiracy led by JP Morgan (acting as an agent for the Fed,
et al) has been circulating within the 'gold community' for sometime now, but
more recently, it, along with everything else the banking cartel does to
suppress precious metals, has become more than just 'paranoid hogwash' to increasing
factions of the mainstream. The reason for this is because those in the
know can sense the price is about to surge higher once again due to accelerating currency
debasement policy by the central bank(s)(don't be fooled it's an election
year and the printing is accelerating despite strategic rhetoric designed to
have you think the opposite), where increasing numbers are repositioning for
the coming paradigm shift, which will become apparent as the bull market in
precious metals increasingly imprints on the less aware through process and
time. At this moment we are at the beginning a period (sending prices higher
over the next year) that will be marked by full acceptance of the need for
gold (and silver) as money (a store of wealth not just another fiat currency)
by governments (central
banks) and institutional investors, but not the public -- not yet.
No -- the
public will not get it for some time yet (not until the third phase of the
bull market running into 2021), with silver being known as 'poor man's gold'
for a reason. No, like the tech bubble, which took the public roughly 20
years (from 1980) to jump into fully, sending prices into the stratosphere in
the year 2000 (note: my harmonics study points to 2021, a Fibonacci 21-year
cycle to mark the top in precious metals), if the precious metals bull market
the same time span (and returns of similar
degree), gold, silver, and any investments containing these words should
be tripping the light fantastic in about 8 years from now. This is when 'the
public' will get involved in precious metals if history is a good guide,
sending prices 'to the moon' in a mania that could make the tech bubble
appear tame in comparison. It's all happened before you should know, but this
time around, because this is the 'Big Kahuna' cycle wise, expect the mania in
precious metals (especially now beaten down shares) to be particularly
spectacular. The more something is hated now the more it will be loved in
2021.
And please,
whatever you do, don't listen to commentators who don't know what they are
talking about. Don't listen to projections that put a cap on the gold price
at $2,500 and silver at $130. These are the comparable inflation adjusted
targets dating back to peaks in 1980 and they will likely be hit next year.
Then, we will have another deflation scare post the election starting next
year (expect money supply growth rates to slow) and running into 2014,
followed by a build into the mania discussed above another seven years out.
Make no mistake about it, gold and silver are not going away anytime soon.
(i.e. its been ultimate money for thousands of years and will continue in
this fashion.) In fact, expect just the opposite until a full-blown currency
crisis (with the USDollar [$] at center) and mania in the shares have run
their respective courses. These requirements still need to be fulfilled
within the collective human psyche before an end to the precious metals bull
market can be declared, and a new trend in unsubstantiated currencies begins
again.
Now some are
of the opinion precious metals shares will never be fully engaged in a mania;
and, that the only reasonable play moving forward is in physical metals
because paper markets are to easily manipulated. And to be sure this view is
understandable given the performance of precious metals shares thus far in
2012. As pointed out in previous
commentary the shares are plumbing relative nadir's against a plethora of
measures dating back to the bear market lows of year 2000. What's more, and
as you can see
here, our most reliable sentiment measure associated with precious metals
shares (open interest put / call ratios on ETF's) is not indicating a bottom
yet either (it needs to diverge higher), which means more downside may be
needed to finally chase away bullish speculators in the ETF options market.
Remember, as pointed out previously, this is the only remaining sentiment
measure not followed by these aggressive speculators, which is why it still
works. (i.e. read the attached above carefully to discover why if you don't
know already.)
This is why
wrong-headed speculators are continuously toppled over by the authorities in
their efforts to keep precious metals prices subdued. It's not COT
conditions, or Market Vane's bullish consensus, or any other
widely followed sentiment measures that are going to help us identify a
possible lasting bottom in precious metals (the shares must bottom first --
hence the focus on them above). It's watching for a change in extreme gambler
behavior that will finally thwart our price managing bureaucracy's algo
attacks (the
machines) on precious metals paper markets, which with any luck will come
this week at options expiry. That's how these things go -- all of a sudden
these speculators become exhausted and open interest put / call ratios go
shooting higher. Then the short squeeze begins and the precious metals
markets, again, led by the shares, will put in key weekly reversals. And
there are a great many shorts in the market right now, so when the turn does
occur, it should be quite violent.
Side Note: The
trademark of a lasting bottom in the precious metals bull of the last
12-years has always been marked by bullish speculator exhaustion (dip buyers
give up), where as market conditions have matured, the degree of convincing
to have these characters believe the move is over has needed to get
increasingly violent. Easily the best example of this was the 78.2% retrace
in the shares witnessed in 2008 / 2009, which finally saw bullish speculators
give up the ghost and abandon their betting practices. With open interest put
/ call ratios across the sector still extremely low and riding prices lower,
if a marked shift in sentiment is not registered at options expiry on Friday,
the signatured
50% retrace in the shares already witnessed will likely need to be
exceeded convincingly once again. Make no mistake about it however, this
shift will occur at some point in the not too distant future, and like in
2009, the squeeze higher will be something to behold, especially if QE3 is
announced given current skepticism concerning the effectiveness
of central bank profligacy.
May tends to
be an important trend change month for precious metals (especially the
shares), so it's quite possible, if not likely some sort of speculator
exhaustion will be witnessed post options expiry this month. And we will be
sure to keep you abreast of the situation. With precious metals shares now
hitting a signatured 50% retracement from the 2009 low no significant further
downside is necessary to sponsor a lasting rally if earlier historical
harmonic signatures in the trade are still a good guide. Unfortunately
however, because the markets are now heavily controlled (think the machines)
betting parlors like never before; again, to arrive at this psychological
condition it may take more convincing. (i.e. lower prices.) It's encouraging
to see the open interest put / call ratios for GLD
and SLV
beginning to diverge higher, however in total we are still not there yet
attitude wise considering their ratios are still essentially half of 1, and
speculators in the shares, as measured by the GDX
contract (the largest ETF by far), is still plumbing the lows at .5 as well.
Turning to
some key charts from the Chart Room to illuminate on current circumstances,
we return (highlighted in my last public
commentary) to the monthly plot of the Dow / TSX Ratio because it has
triggered the much feared 'deflation signal' (with a breakout above 2008
highs), which is undoubtedly the chief factor why precious metals (and their
related equities) are falling at present. Certainly falling and generally low
open interest put / call ratios on the key ETF's also have an influence on
pricing (along with everything else algo, shorting, etc.), and it will be
interesting to see what happens next week post expiry, especially if Bernanke
doesn't say anything by then. Even if he doesn't precious metals will likely
bounce post expiry, but it won't last. (i.e. even if the lows are put in this
week, which is a distinct possibility, they would likely be tested by a
higher low sometime in July or August.) (See Figure 1)
Figure 1
Does all this
mean a lasting deflationary episode is about to grip global macro-economic
conditions? Answer: Given deflationary conditions are always with us (think
continuous capital destruction and currency burn-off), and that during times
of 'inflation' this simply means monetary authorities are printing more new
currency that is leaving the bubbles, the answer to this question is no. What
this does mean however is that if the Bernanke keeps playing chicken with
deflation, and he leaves this condition open too long, capital destruction
could domino uncontrollably, causing the need for hyperinflation sooner
rather than later. This of course assumes the decision to re-inflate will
always be the default program chosen by central bankers. History tells us
this is the safe bet, so it will be interesting to see if the powers that be
(think Bennie) will allow the monthly breakout here to occur. Even if he
does, the chart below tells us to expect a reversal in coming months, perhaps
as gasoline prices breakdown (his debt to Obama paid), and he figures out the
macro is now deflating at an accelerating rate. (See Figure 2)
Figure 2
Because in
terms of central banker logic this is not suppose to happen. What is supposed
to happen is money (it's really only currency) creation should be expanding
at an accelerating rate. What an actual deflation scare will do is simply
increase volatility as macro-conditions slip in and out of deflation / inflation,
giving us a schizophrenic economy / markets where volatility (and
instability) is the key operational condition in play. Again, what Figure 2
is telling us then is while we may continue to get a deflation scare in
coming weeks, hopefully the Bernanke figures out just how dangerous present
policy is and reverses course on the premise his buddy won't get re-elected
if the economy crashes either. This of course assumes he is capable of
figuring this out, which is questionable at best given his track record. One
thing is for sure, precious metals speculators will be far more wary moving
forward after this correction, which is likely why silver is on a major
timeline turn interval, meaning a reversal should be witnessed soon. (See
Figure 3)
Figure 3
And while it
should be noted silver could see additional downside before a bottom is put
in place given present technical conditions (which can be seen on the monthly
plot next as well), looking in the other direction, once Bennie and company
print enough new currency to bail the world out (most noticeably the banks)
once again, an inflationary tone (which will progress to hyperinflation
eventually when the feds panic) will return to macro-conditions, sending
silver through key resistance at $33. Once silver is through $33 it won't
take long for it to get back to previous all-time highs at $50, and then off
to trajectories unknown. (See Figure 4)
Figure 4
The key
understanding to grasp here is because human frailties and decision making
are involved, process will be 'sloppy', for lack of a better word. This is
why, as a long-term buyer/holder/whatever of
precious metals you must keep the faith Bennie and his buddies will repeat
previous behavior. But again, the ride will undoubtedly be a rocky one, which
means silver might need to fall into the $27 area, or lower if technicals in
Figure 4 (monthly chart) descend to delineated supports. (Note: RSI might
need to fall to channel support at 40, which would take silver back to the
sub-$25 range.) This would rattle some cages and change speculator betting
practices for a very long time most assuredly, which might cause the more
optimistic count denoted in Figure 4 (that the last wave up to $50 was only
wave 1 of C or that wave E extends
beyond belief) to become a reality. This is certainly possible from the
perspective participation rates in silver are still in their infancy, which
is reflected in ongoing depressed levels in Figure 5, measuring
macro-investor propensities for holding silver as opposed to stocks. (See
Figure 5)
Figure 5
Further to
this, and in relation to previous
commentary on the subject, it appears the world is now inside the pickle
jar with Bernanke and Obama, where the Bernanke is willing to risk all out
deflation in order to knock commodity prices (think gasoline) down in order
to have his buddy (Obama) re-elected. Because were Romney or Paul are elected
besides Obama, the Bernanke will be sure to receive an exit visa for his
prized position either way. What is happening is while Bernanke and company
are indeed printing money (monetizing), the rate
at which this is occurring has crashed in relation to levels in 2008 /
2009, which is having an aggregate negative drag on the world's always
deflating fiat currency economy(s). (i.e. the world's fiat currency economy,
which rides like a cloud above the real economy and can block any sunlight until
lifted, is like a big balloon with a multitude of little holes in it leaking
because of the inadequacies and burn off resulting from the human experience,
which constantly needs to be re-inflated (currency / money printing of
greater diversity and amounts) in order not to implode.)
Along these
lines then, what is happening right now is because the world's fiat currency
economy(s) is losing air faster than it's being replaced by the world's
central banks, where some key players are actually allowing
deflation at present (something the Fed will need to make up to maintain
the dollar ($) as world's reserve fiat currency), informed precious metals
investors (these are not necessarily smart / seasoned long-term investors who
expect this kind of thing from time to time in a bull market cycle) and
speculators (greedy / algo dependent hedge funds) are selling (many now
actually shorting) precious metals because of a deflation risk if this
condition (insufficient money printing) were to persist. This is of course
will never be allowed to happen (again, especially in an election year),
because even though Obama needs to knock the stuffing out of the commodity
complex (again, especially gasoline) (see previous
commentary for greater perspective in this regard), Bernanke is
essentially playing chicken with deflation in effect, where we are in fact
standing at the doorway to the abyss at this very moment. (i.e. see Figure 5
in directly above attached commentary.)
In this regard
I find it incredible it takes an actual deflation scare to get precious
metals paper market pricing mechanisms aligned to allow for higher prices
this far into the bull, where a 'wall of worry' must be reflected in gambler
betting practices (see explanation above) in order to squeeze prices higher,
but that happens to be the case apparently, so we will just have to live with
this condition. This will change at some point when physical bullion supplies
run out, but there's no telling how long it will take for such a condition to
develop. In the meantime, we will continue to be subjected to the vulgarities
of our banker controlled fiat currency based economies and markets, where all
that matters is how fast the balloon(s) are inflated, and speculator
perceptions / betting practices.
So, as for the
possibility of the Bernanke and friends allowing the larger economy to slip
into a lasting deflationary environment by mistake; consider this a low
probability, which means fade the present trade with a sense of purpose.
Because once they figure out this is the risk you will hear words emanating
from their general direction to the effect that QE3 is a go, and market
participants will know the Fed (and friends) were indeed only playing chicken
with deflation, and no matter how much stimulus is needed to drag the economy
from the bowels of recession is necessary it will be conjured up via the
printing presses. QE announcements are code language for this, and QE3 will
be no exception to this rule considering this is an election year, I can
assure you. QE3 is code language (Fed Speak) for it's serious this time boys,
which will turn leading hedge fund players and plugged in large speculators
from being sellers to buyers.
And I can also
assure you to expect growth rates on both M2 and the monetary base (seen here)
to accelerate higher from present levels, where further monetization (QE)
should send the later skyrocketing once implemented, and the former into
historical highs, and beyond. The degree of swing lower (extreme) in precious
metals shares may have you wondering in this regard, however again, I can
assure you this should not effect potentials and ultimate outcomes once the
negative sentiment feedback loop (persistent excessive bullish betting in
paper markets / derivatives) works its way through the markets, sending
prices dramatically
higher than most think possible today as they climb a true wall of worry.
(i.e. once gold / shares go above certain levels, like the stock market
today, speculators will sell all rallies, and the perpetual short squeeze
that aides stocks in trading far above their fundamentals will also help
precious metals (and especially their related equities) trade up to their
fundamental values, and far beyond.
Please, take a
good look at the potential and well-reasoned moves Mark Lundeen is talking
about in this attached
commentary. This is not fairy tale material we are talking here; simply a
repeat of history (in terms of investor psychology), which with any luck (and
lack of official interference) -- will at least rhyme. Here, it's difficult
to imagine paper currency prices not rising if like Ron Paul says, no gold
may be left in Fort
Knox, which is why an audit should take place. What's more, it's
difficult for me to imagine gold shares not rising if the public (and
institutions) are essentially locked out of the bullion market (because
Western governments need to outlaw future public purchases of physical metals
in order to replenish their own depleted reserves) -- very difficult indeed.
(i.e. with no other alternatives.)
There are
multitudes of uniformed (uninterested), disbelievers, and official
participants / sympathizers who will necessarily need to buy precious metals
one day who remain uninvolved to this day despite a decade (plus) long bull
market in precious metals. One day our society's collective denial about our
future prospects (economically, financially, etc.) will shift into a paradigm
that more closely resembles reality, and all this will change.
One day this
collective denial will shift rapidly to a buying panic as increasing numbers
realize, like this 12-year
old girl (it's shameful adults have difficulty in this regard), official
/ central bank related confiscation of the common wealth will not end until
our society is completely enslaved, where for all intents and purposes, it
already is. (i.e. enslaved by debt.)
So, ignore
these realities and eventualities at you own risk, where the stakes are
increasing every day.
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