Gold and Silver - Perhaps the Bugs Have the Wrong Beast?

By Dr. Declan Fallon

FTAlphaville has sourced an article in the FT about hedge funds denominating their investments in gold in place of dollars.

Certainly there is no shortage of interest in the commodity; will a deflationary recession kill gold, or inflationary money-printing have gold bugs counting their coin?

Using the SPDR Gold Shares (GLD) as the example, the good news for gold bugs is the rally from October lows has cleared one level of declining resistance from July, but has yet to challenge a second dating back to March of last year. There is, however, room to maneuver up to the latter's resistance currently lurking around $92 which so happens to coincide with the pivot high of September 29th 2008.

click to enlarge


There is probably the momentum to get it there, but beyond that, it might struggle without first making it back to trend support first.

The problem for gold bugs is that since August of last year gold has far outperformed its counterpart, silver, suggesting a potential arbitrage play.

On December 11th 2008, iShares Silver Trust (SLV) broke through its 50-day MA and managed a successful backtest on January 14th. On January 23rd it broke through $11.48 resistance on solid volume.


Perhaps the Bugs have the wrong Beast?

I have created a YourCall for SLV for a push to the lower reaches of last September's consolidation at $12.89. I'll stick a stop below $11.48 support. Let's see how it fares. Follow this call on our stock charting service; use-of-service requires free registration.

Comments

[Conan the B...:]

Smarty: I know about the markup, I also know about the premiums currently being paid by those who want physical Gold. Premiums are Markups.

"Diamond and Emerald" Pendant, I did not get it for the gold content nor did I use it as an example to purchase Gold.

My example is for the deflation/inflationist... "Inflation is near" is the current Dogma but clearance sales are picking up a lot of steam. When you can get Jewelry at the virtual cost of the materials, No Markup so to speak, Deflation Not Inflation is the Immediate concern.

Try to buy Gold at spot on the open market. There is a Mark up here as well, so don't give me this "holier than thou" condescending attitude.

"Just so you know, retail markup on Jewelry averages 200%".

Just so you know, A. Jewelry is unlikely to be confiscated
B. Gold will easily surpass $1000
C. Gem Stones will not be left behind
in a hyperinflationary environment.

Please tell me you actually invested during an inflationary environment. The 70's were inflationary. What I'm Not looking forward to will make the 70's appear tame in relation.

This is the time to go shopping for Gemstones. They are much easier to store and transport if the need to leave the country arises.

And they have not been impacted as yet by the Inflation oriented. IMHO

Jan 30 02:40 AM

[Conan the B...:]

Roger: I was wrong, short interest on GLD is not 2%, its closer to 4% or above 10 million now, jumped when I wasn't looking.

Jumped 5 million when I wasn't looking.

Jan 30 03:29 AM

[SW Richmond:]

Gold is the only stable and incorruptible currency in today's environment. As such it will continue to be extremely volatile when priced in various fiat currencies, including the floatiest turd in the fiat sewer: USD.

This week's price action is no exception. Gold starts to exhibit decoupling from USDX. This could be early signs of the sinking of the turd.

Jan 30 07:20 AM

[know nothing:]

800 billion in pork being spent soon. Falling consumer demand. Rising unemployment, rising bankruptcy's, falling tax revenues, state tax refunds, in I O U's? Federal reserve out of ammo. State and local Gov't looking for bailout money, and it's not just California! The dollar rising and the price of gold rising with it? What am I missing? ROLEX18K, can't you see or don't you care? There are other facts that have gold prices climbing, dispite what the gov't media says about gold, it is far more than a inflation hedge! Do your home work, unless you just like to read your own writing?

Jan 30 09:36 AM

[ussmls7:]

It was coinflation.com at 1st,where a person could see what a 90% Silver Coin was worth as the daily spot prices were posted,now it breaks it down to grams,grains,.999,22K,... . You now find more ways to buy physical Gold & Silver in many forms! This gives truth to the fact,of more people taking physical PMs over keeping cash. Also it goes true to form, that some folks can't afford $50,000.00 of Gold Bullion,so buying a little bit at a time in .9999 grams adds up,thus when TSHF those that have been putting PMs away over time will be holding a nice nest egg!
No one has said a word of the on going investigation by the CFTC of the Silver markets! Any one can see the crimes if you read the CFTC own reports! Many bars of Silver & Gold has left Comex storeage,& it looks as more may be on the way out,that tells its on story!

Jan 30 10:34 AM

[nmelendez:]

Probably a 10K plated holder:). Bought any REAL gold lately?


On Jan 29 03:56 PM paultaut wrote:

> Roger: GLD has short interest outstanding. Last I saw was about 2%,
> say 5 million units. That's 5 million oz.
>
> Last year, the talk of the trade was the Big Saudi and Iranian purchases.
> Have they stepped up to the plate again?
>
> I just bought a new pendant for my wife at Mauidivers, their clearance
> section has more than doubled in the last 30 days, from 120 to 280.
> Diamond and Emerald combo with promo bucks $253, down from $720 retail.
> Free shipping, no sales tax. Markup? what Markup?
>
> The shortages of last year will be a thing of the past. African Production
> is back up to pre-power outage levels.
> The Commemorative Olympic and Presidential strains are behind us.
>
>
> If oil heads to the low $30's again, will gold continue to go up?
>
>
>
>

Jan 30 01:04 PM

[auto44:]

Hey Paul, The price you paid for some piece of jewlery with stones in it really has no useful place in this conversation. You have made a lot of very valid and useful comments over time and I look foward to reading you, but in the case of jewelry and where you bought it there are just to many variables for it to justify the argument. Regards

Jan 30 01:39 PM

[auto44:]

Paul, One furthur comment, Who is going to be the judge of the gemstones that are purchased? This is one place where very few folks have enough expertise to make an informed purchase.

Jan 30 01:47 PM

[auto44:]

Rolex whatever K

Jan 30 01:50 PM

[know nothing:]

Gold, inflation hedge? Safe heven currency? Both! The best is still ahead!

Jan 30 03:22 PM

[Conan the B...:]

Auto44: you are right. There are so many SA Articles that I thought someone would have written something on Gemstones. During the 70's, they were also doing a move to the upside.

I was hoping to get a serious response on it, instead I got Smarty P.

Guess I'll have to peck on the keys and hunt.

One thing that you should factor into the price of Gold.

It will Never be treated as a Currency onto itself. There just isn't enough of it and it isn't flexible. Therefore, for the time being, it will be priced in the currency of choice which, for now, is the USD.

Someone wrote an SA article on it, can't remember who, I dismissed it at the time but now believe that Gold can help the USD remain strong.

It is indeed a strange, new world.

GLD, is now at my Neckline for it. (I really, really suck when it comes to day trading)

Jan 30 04:44 PM

[doubleguns:]

Rolex18K, Only a fool would say never about the price of anything in this market. Gold could hit 3000 for all you know or think you know. 18 K rolex is not going to get you much of a return but the real 24k coins and bars should out perform that watch any day of the week.

Jan 30 05:02 PM

[doubleguns:]

On the subject of stones my advice would be to buy a diamond tester if you are going to get serious about gems. Pay next to nothing for every thing else. Gems are to easy to get burned on and if we get seriously into a situation where we need gold the average Joe wont want to touch your gems he will want gold and silver. Gems could be causing you to waste the one currency people want buying something no one can value and there fore wont take it in trade. Only at dirt cheap prices. .

Jan 30 05:07 PM

[jt:]

But...getting around to the (or at least one of the) main points of the article -- the other "Beast" -- YES, the price of silver has been suppressed FAR beyond even the suppression of gold. Why silver, too? Lots of reasons, but first of all, it's a very small market as $$ goes, not requiring "excessive" amounts of fiat money / electronic money to manipulate the market. But also b/c the "mule" as silver is called is known to also represent the working part of the "gold standard" In a gold standard economy, silver is used far more than gold for transactions, gold being the store of value, while silver is the worker except in large transactions. Silver is also known to be the vanguard sprinter that pierces the higher prices on upward moves of gold. Silver generally leads the way and confirms the breakout of gold. So suppressing silver also helps suppress gold. And of course they would not want silver to be heading toward where it should be while gold as being held down, as that just wouldn't look right, and the Orwellians need everything to "look right"

(That the suppression of the price of gold [and silver] is and was indeed the sum total of Rubin's and successors' "strong dollar" policy... has now been proven beyond a shadow of a doubt by the discovery of a secret memo from the early 1960s found in the archives of the Fed Res Bank of St Louis within the last several weeks. I'll try to put the information here: put links together if necessary, for those who haven't read James Turk's part- by- part commentary of the whole memo, it's a must read:

The Federal Reserve’s Blueprint for Market Intervention

by James Turk
January 16, 2009

Copyright © 2009 by James Turk. All rights reserved.


An important document buried in the Federal Reserve’s archives has been discovered by writer and researcher Elaine Supkis. This document is posted on her blog at: http: // emsnews2. wordpress. com /2009/01/15/1961- top- secret-fed-reserve-gol... /

The document, which is marked “Confidential”, is from the papers of William McChesney Martin, Jr., and this collection is held by the Missouri Historical Society. A scanned image of the original document is posted by the Federal Reserve Bank of St. Louis at the following link: http: // fraser.stlouisfed.org/... ical/martin/23_06_19610405. pdf

Martin was the longest-serving chairman of the Board of Governors of the Federal Reserve System, and worked there under five U.S. presidents from April 1951 to January 1970. It was during his tenure that the dollar devolved from “as good as gold” to a perennially inflated fiat currency backed by nothing but government promises, which makes one ponder what could have happened to the dollar had Martin been an advocate of sound money dedicated to preserving the dollar’s link to gold. Instead, during his tenure the US Gold Reserve declined by nearly one-half from 633.2 million ounces to 339.5 million ounces, while M3, the total quantity of dollar currency, soared more than three-fold from $190.0 billion to $616.1 billion....[cont.])

SO WHY SILVER??

But silver has been suppressed even more. I'm sure many here are familiar with the ongoing work of Ted Butler in documenting and making CFTC aware of the ongoing manipulation / suppression of the price of silver on the COMEX (aka CRIMEX) using the CFTC's own data!!...by two banks...JPMorgain4Elit... and HSBC...but primarily JPM. Their short position basically IS the short position on the COMEX and is equal to about 20% of total silver produced in a year...this from an entity that obviously is NOT in the silver mining business, ie, it is solely for the purpose of suppression of the price. The CFTC is now "investigating" (but the outcome is anything but certain to end it, let alone indict and punish the conspirators, being as JPM is essentially the "public" banki facade of the private Fed and therefore of our own govt).

Presently the ratio of gold:silver is around 75:1 with historical being around 15-30:1, so there's the first springboard for silver to head higher. But there are many other reasons why silver should be a better investment than gold in the near and possible VERY near future:

-unlike gold, there are few primary silver miners, silver being the byproduct of base metal mining, which of course leads to the fact that

-the production of silver from these mines is inelastic to price of silver

-as a matter of fact, with the smash down of the basic metals, the mines are being closed despite the now rising price of silver as the economics of most of these mines is based on the base metals' value

-reports have shown that though in the past gold was much rarer than silver, earth's crust-wise and therefore minable-wise, that situation has changed toward one of near parity, if not gone toward the side of

-that silver is used, and used extensively, in industry is used as a case AGAINST silver as a precious metal, ie, that it is more a "base" metal and therefore prone to influence by the business cycle, but to the contrary, its use, and it is totally used up in most industrial uses, unlike the photography industry where it can be recycled, makes it even that much more rare in terms of its monetary / investment availability

-and there are NO known above-ground hoards in governmental control that can be sold into the market to suppress the price, as is and has been done by the CBs with gold in their vaults, either by selling it or leasing it at ridiculously low rates to bullion and investment banks, such as JPM and Barclays and Goldman Suchs, for instance, to then be sold into the market, all the while the CBs are instructing member Banksters to keep that gold listed as reserves on their books!!

-silver is still highly affordable by the common man and will be the go-to precious metal when even the densest of the brainwashed American workers (the rest of the world has already been here before and is much more attuned to the fraud of fiat currency than most Americans) finally wakes up and tries to salvage something from his savings account (if he even has one)

-and there are other considerations as well, but these are quite enough for me

So, yes, the Silver Beast--the Mule, is the PM I'm backing to bust upward even more than gold, though I do have some gold as well. jt

Jan 31 11:40 AM

[jt:]

The two links got chewed up again (why seekingalpha, is this necessary?):

The end of the first should be: -gold-exchange-report/

The second should read, after fed/org: /docs/historical/ before martin/ etc

Jan 31 11:47 AM

[Conan the B...:]

jt: Your position is aided by the links provided by a commentator in an earlier SA Article titled "The Strange Case of Dr. GLD & Mr. Bullion, the Author was Graham Summers.

The commentator is "phdinsuntanning". His comment includes a series of links proving the manipulation of Gold by the US Government.

Your comments on silver could prove to be factual to a future generation when present actions by the Government are finally revealed. IMO

Jan 31 12:58 PM

[Conan the B...:]

jt: two other uses for silver:

Clothing machine washers are starting to use nanosilver particles to kill bacteria.

Food storage containers are infused with nanosilver to extend the life of the food placed within.

The second use will be very important to food sensitive nations like China.

Jan 31 01:10 PM

[Tetrapod:]

What's with the sudden drop in premiums for Gold and Silver coins / bars? Is it because the US and Canadian mints have started shipping again?
The dealers haven't dropped their premiums yet, but on trading sites such as bulliondirect.com, gold coins are selling at $30 / oz premiums over spot, and silver at $3.00 / oz over spot. 100 oz silver bars are going for less than $1.00 per oz over spot. This is way down from just a week or two ago.
Any ideas?

Jan 31 11:57 PM

[Yohei:]

Such amazing levels of frantic emotion. I am bemused. Certainly there is no room for such indiscipline in successful investing.

Feb 01 03:22 AM

[Zignals:]

Rising Green Trendline as first support test

January reaction lows around your $800 as second support test


On Jan 29 05:43 PM adan wrote:

> dr fallon:
>
> re: "There is probably the momentum to get it there {$92}, but beyond
> that, it might struggle without first making it back to trend support
> first." -
>
> would that be around (give or take) the $800 level as per your reading?

>
>
> thank you much

Feb 09 11:51 AM