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    Gold and Silver


    September 27th, 2010

    Comments (23)
    Read by 135 people

    image0023

    image0041Above are the weekly basis charts for gold and silver for the past 3 years. Two weeks ago silver broke out of a symmetrical triangle and started to move aggressively to the upside.

    Typically, during the first major term bull market in the precious metals silver will lag behind gold. At that time, the traders are conservative; hence silver, which is the more volatile metal, lags. But there comes a point where silver is so under valued that it starts to play catch up. In the first major term bull market of the 1970s (1970-74), silver played catch up from 1972-1973. Then both of the precious metals declined from year-end 1974 to mid-1976. In the second major term bull market in the precious metals, silver lagged behind gold from mid-1976 to mid-1978. Then silver exploded in mid-1978 until early 1980 in what is known as the Hunt silver bubble (where Bunker Hunt lost most of his fortune by trying to manipulate the silver market).

    The question we must ask ourselves is, is history repeating? Did the conservative phase of the precious metals bull move end on Sept. 3 and is the speculative phase just beginning. One of the reasons that it is important to answer this question is that the exploration stocks also come to life about the time that silver begins to move. The strategy here is to be in the conservative sector of the precious metals (gold versus silver and blue chip mines versus exploration mines) during the early phase and to be in the more speculative sector during the later phase.

    As we have seen, both gold and silver hit important highs in March 2008. However, since that time gold has gone up almost 30%, and silver is flat. So we have just been through a substantial period when silver lagged. Similarly, the exploration stocks (as measured by the CDNX) lagged badly in 2008. Will they now start to play catch up?

    image0061

    The 25 year chart of silver shows a long, slow base which lasted through more than the decade of the 1990s. The breakout came in 2004 in the form of a double bottom, and the 2008 decline took us back down to the breakout point of the double bottom. Here silver met support, and since that time has traced out two triangles, the first parallel to the 2006-07 triangle in gold, the second looking almost exactly like the 2008-09 ascending triangle in gold.

    The key to success in the markets is to wait for a fundamental mis-evaluation (where the market price is far distant from true value). Such mis-evaluations usually lead to long term moves, either up or down. Because these moves are so long there is plenty of opportunity to take a position. Once the position is taken, you just ride things out. Remember that the vast majority of the people are up too close to events. They cannot see the forest for the trees. They make their decisions on the conditions of the moment.

    For example, consider the 2008 decline in gold. I was bullish from early in the decade. When gold turned down in July 2008, I missed the decline and had to sit while the market went against me. But since the major trend in gold was still bullish, my decision to sit tight worked out nicely. I held through the Sept. Oct. decline and remained long through the October bottom and the ensuing rally back to $1,000 in Feb. 2009.

    This was in contrast with those members of the establishment who had “put 10% of their portfolio into gold in case of a rainy day.” They panicked on the 2008 decline, believed the establishment line about deflation and sold their gold stocks near the bottom. They lost on their gold stocks, and they lost on their conventional stocks.

    Meanwhile, what does the long term chart of gold show? It shows that gold has gone up since 1999 and is now (more than) 5 times its low of 11 years ago. There was nothing wrong with gold, but there was a great deal wrong with their timing. Gold is the play for our era, but no single economic good can bring you complete protection. The only complete protection lies in your wits. See reality as it is.

    image0081

    The above 25 year chart of gold gives us a good insight into this bull market. Notice the rounding bottom of 1998-2002, which broke out in Dec. 2002. Rounding bottoms are very slow to form. The advance which follows begins slowly. But it picks up steam as it goes along. Following the rounding bottom there are 2 triangles (that of 2006-07 and that of 2008-09). A triangle is a continuation formation. This means that after the triangle has completed the price will continue in the same direction it was going before the triangle formed.

    Finally, the advance becomes more and more rapid. Whereas the bottom was a period of boredom with very small price changes, the final stages of the advance are almost straight up. In this period, the speculative end of the precious metals is moving rapidly, and there is great excitement. Right now we have none of these characteristics, and this tells us that the bull move has a long way to go.

    The way to make money in the markets is to go with the long term trend. These trends persist and persist and persist. Go back to the rounding bottom in gold (above). It lasted 4 years, and the implications of the breakout will last much longer. The double bottom in silver lasted 16 years. The reason for this was that enormous numbers of people were selling at the bottom. Poor fools.

    And you know that many of the gold mines themselves did worse than selling at the bottom. They sold short on their own product at the bottom. They are supposed to know gold like no one else. But they proved to be idiots. It sort of reminds me of the 1963 Los Angeles doctors’ “strike.” In 1963, the doctors of L.A. went on “strike” (withheld their services, thus violating the Hippocratic Oath). They were hoping that lots of people would die and the community would be forced to give them more money. But in fact, once the doctors of L.A. withheld their services, deaths declined. Once again the “experts” were wrong.

    So the most important consideration for making money in the markets is to keep one’s perspective. Do not get caught up in short term events. Those who do are taken to the cleaners again and again. The proven path to profits in the financial markets is to remain focused on the long term.

    I publish a fortnightly newsletter, The One-handed Economist, fortnightly (every 2 weeks). The letter costs $300 and is dated every other Friday (most recent issue 9-17-10). It is mailed the next day. You may subscribe by visiting our web site, www.thegoldspeculator.com, and clicking the Pay Pal button. Or you may subscribe by sending $290, ($10 cash discount) to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055

    At the present time, the main question for gold bugs is, have we moved into the speculative era of the precious metals bull market? If so, how should we position ourselves? How long will it last? And how will we know that it is over? These are some of the issues which are discussed in the OHE of 9-17-10.

    Thank you for your consideration.

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    Views: Read by 135 people
    Date: September 27th, 2010
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    23 Comments...

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    1. Gods Creation says:

      (where Bunker Hunt lost most of his fortune by trying to manipulate the silver market).

      Hunt was trying to profit from and stop the manipulation of the silver market.  The manipulators changed the rules on him as punishment and caused his failure.  Had the manipulators not done that the market would not be manipulated to this day.

      Rate This Comment: Thumb up 0 Thumb down 0

    2. GMAFB says:

      Gold (PM’s) must be in a bubble…

      Rate This Comment: Thumb up 0 Thumb down 0

    3. Airborne71 says:

      ALERT !  European banks have STOPPED selling Gold !!  Go to Drudge Report for more info .

      Rate This Comment: Thumb up 0 Thumb down 0

    4. Tom says:

      *The following video contains sexually explicit material*

      Helicopter Ben is taking flight lessons in the C5.  First solo soon.  Probably twice as much.  Click bottom left symbol.  Ramp door open.
      http://www.m2film.dk/fleggaard/trailer2.swf

      Rate This Comment: Thumb up 0 Thumb down 0

    5. mushroom says:

      i don’t save suckerbaiting gold or silver coins because they will be illegal as money. look at the big mess in that gold coin company glenn beck stirs people to. gold is a racket. eventually gold coin sales  will be taxed as high as 50%. after a while they will be confiscated again. their use as barter will be prohibited by severe penalties including prison. americans can’t afford to have an alternate monetary system especially one that is hidden in secret from bank account rosters, the irs and peeking lawyers. look whar happened to lehman brothers and their silver coins.

      i save every ten dollar bill i can. this is the best investment in the future. the dollar built the empire state building, the interstatehighway system, the power grid, our sewer systems and won all those wars for american liberty. there is nothing more beautiful or patriotic then a glorious stack of ten dollar bills. in addition, no metal detector will enable a thief to steal them and they are free from form 1099 complications.

      god bless america, the federal reserve system, the ten dollar bill and all those wonderful executives looking out for our future in the goldman-sacks/jp morgan banking system…

      Rate This Comment: Thumb up 0 Thumb down 0

    6. miss mushroom says:

      the bubbles left to run are   gold/silver/platinum and oil.

      buy anv and slw now. then when the dow/nasdaq crashes soon also buy tza, faz and srty.

      see you on the beach boys…

      Rate This Comment: Thumb up 0 Thumb down 0

    7. lostinmissouri says:

      mushrooms….you left off the sarcasm tag.   You had me going there for a moment.    Saving $10 bills……..very funny!   I am saving toilet paper.   Let’s see which one is worth more in a few years.

      Rate This Comment: Thumb up 0 Thumb down 0

    8. TnAndy says:

      And may I be the first to say:  You can’t eat gold.

      Rate This Comment: Thumb up 0 Thumb down 0

    9. True for the most part TnAndy, unless you are eating this lovely $25,000 delicacy sprinkled with gold:

      Gold Dessert

      http://www.trendhunter.com/trends/25000-nyc-dessert-guinness-record-frrrozen-haute-chocolate

      Rate This Comment: Thumb up 0 Thumb down 0

    10. Tom says:

      Can’t shoot it also, but I don’t know what to do with it.

      Rate This Comment: Thumb up 0 Thumb down 0

    11. Goldenfoxx says:

      Comments….. Gold and silver just sits in a box or safe.  I decided to go through some jewelry boxes that I haven’t gone thorugh in 20 years. Sitting in the bottom of one of them I discovered several  silver dollars from the 1800′s just sitting there doing nothing.  I gathered them all up and put them with some other silver that I inherited.  And so, they will sit there for another 20 years doing me no good.  However, I do use toilet paper on a daily bases, and I do eat 3 times a day – those are the things of value.  I prefer to hoard stuff that I use everyday than to invest in something that fluctuates in value day-to-day.

      Rate This Comment: Thumb up 0 Thumb down 0

    12. wooba says:

      “the main question for gold bugs is, have we moved into the speculative era of the precious metals bull market?”

      All the above charts are useless for determining activity in the markets and the same could be said for most stock charts that span 2 years or more.

      In the 3 periods in question above, food, oil, accommodation, etc, have all doubled and tripled and quadrupled. In other words inflation in overall prices of everything must be factored in to see where Pm’s are really going. I know what fuel cost in 2000, what a sack of my kidney beans cost. If I look at gold’s 10 year run from 2000, some of the gains were a catchup from the prior 2 decades, a lot of the gains a simple tracking of real prices in the decade. But this is as it should be. This is gold’s function as real money and the same could be said for silver. Gold has risen 400+%, silver has risen 500+%. What did petrol cost you a gallon in 1985? What did a house cost you?

      An ounce of gold still buys a well tailored suit does it not? So what has changed?

      But of course that sort of analysis of the PM markets is not going to sell any subscriptions to wooba’s newsletter. So wooba had best finish his coffee and pull his work boots on and go earn some money the old fashioned way.

      Rate This Comment: Thumb up 0 Thumb down 0

    13. wooba says:

      O by the way’ I store food and toilet paper, tools and parts, lots of extra stuff. But I can’t store dental work, I have no way to store property tax payments (other than gold) and I can’t store the 10 000 liters of petrol I’ll need in the future.

      For these and a multitude of other reason I instead store gold.

      Rate This Comment: Thumb up 0 Thumb down 0

    14. Tom says:

      Reminds me of that ole saying:  Never look a gift horse in the mouth if it’s just sitting there!  The sweet thing about it, it doesn’t have to do anything.  Beam me up….

      Rate This Comment: Thumb up 0 Thumb down 0

    15. overtheedge says:

      Comments…..So the question is, “Are PMs a speculative play or a store for wealth?” I would suggest a person looks at the technicals and 5000+ years of history.
       
      A fundamental problem with making the decision is one of evidence vs. belief systems. Belief systems are articles of faith and by definition demands that the believer discounts all evidence contrary to the belief.
       
      So what is the evidence? Purchasing power of gold has remained fairly stable. Yes there have been fluctuations in purchasing power and some have been extreme. These have  manifested themselves for short periods of time. The most extreme was the Spanish inflationary period when PMs were being imported from the New World during the early conquest era.
      I would tender the argument that PMs will always retain purchasing power over the long run. Don’t look for real profits although the IRS will tax your profits in currency of the realm. The profits won’t be in increased purchasing power.

      Will the gov’t make PM ownership illegal? No. Even Roosevelt’s seizure had a plethora of exceptions. I would suggest those making the assertion of illegality read the law. But I refuse to  waste my time arguing with believers when I have a foot of snow to shovel and firewood to get in.

      No matter what or how much anyone hoards, this coming crunch will last far longer than anyone’s stash will. The key to long-term success will be knowledge, skills and tools. PMs will replace barter only once things stabilize and barter moves out of the local area and into the regional arena.

      The currency of the day is declining in purchasing power for essential goods. There does seem to be some evidence that purchasing power is increasing in discretionary goods. Or is it just a reduction in profit margins? Time will tell.

      Believing that gov’t can stabilize the economy is a silly notion. The evidence? If they could, they already would have. PMs will continue to retain real value, while the dollar declines.

      My play? Knowledge, skill development and tools. PMs will remain on my wish-list for that improbable day when I ever get some discretionary monies. There is a good chance down the road that I will have the skills and tools to do a job that pays in PMs. And should that happen, I will hold them until we have a currency of the realm that has tangible backing. The FRNs are just promissory notes payable in promissory notes by the Fed, not the Treasury Dept.

      History is replete with examples of bad decisions made based upon belief systems. Belief is not evidence. Do as you will.

      Rate This Comment: Thumb up 0 Thumb down 0

    16. clark says:

      According to these guys, you sure Can shoot gold!

      http://answers.yahoo.com/question/index?qid=20100111072346AAv6byy

      Gold is used in pellet guns too:

      Gamo Raptor PBA .177 Cal, 5.4 Grains
      “True Gold 18 Karat gold plating eliminates barrel corrosion and enhances accuracy shot after shot.”

      And here’s a few other ways people shoot gold:

      ‘Golden Bullet’ Shows Promise For Killing Common Parasite

      http://www.sciencedaily.com/releases/2007/12/071230093430.htm

      Golden Bullet Laser Diodes

      http://www.as.northropgrumman.com/products/ceo_goldenbullet/

      The ‘golden bullet’ that kills cancer

      http://www.dailymail.co.uk/news/article-463403/The-golden-bullet-kills-cancer.html

      Rate This Comment: Thumb up 0 Thumb down 0

    17. clark says:

      When the SHTF as the U.S. pulled out of Vietnam many of the locals immediately began trading their Dollars for paper thin sheets of gold that were easy to hide and use.

      Others traded for assets like real estate that were easily taken by the new government.

      So when people say things like, “PMs will replace barter only once things stabilize and barter moves out of the local area and into the regional arena,” I’m not so sure that’s a given.

      When people save or accept gold in trade, it could be because they think there’s going to be a tomorrow and a next day.

      And why worry about how much of a bite the IRS is going to take from your gold? Just start using it now as money (or later) you don’t need anybody’s permission to do so, just offer gold instead of Dollars and see which one the person you’re buying from will take. It’s easy.

      Try it with a silver coin too.

      Coins in one hand, Dollars in another, choice in the middle.

      Gold and sliver, you can trade it, save it, shoot it, wear it and eat it!

      Rate This Comment: Thumb up 0 Thumb down 0

    18. Bill says:

      Love my gold and silver.  Both up today!

      Rate This Comment: Thumb up 0 Thumb down 0

    19. wooba says:

      Gold has been the investment of the decade, has out-preformed every other asset class. Only a Tibetan monk or someone on a desert island couldn’t see that. Or of course an idiot who has spent the last 10 years glued to the TV set.

      Rate This Comment: Thumb up 0 Thumb down 0

    20. Bounty hunter says:

      Comments…..Mushroom you need to go in & have the puss infection drained out of your big head there is a world out there u know???

      Rate This Comment: Thumb up 0 Thumb down 0

    21. Tom says:

      The next 5 is going to be real interesting!  I don’t have any but it’s just sitting there doing nothing.  Cuddle up to that.

      Rate This Comment: Thumb up 0 Thumb down 0

    22. clark says:

      The comments in that link above were interesting, here’s a few more links to consider:

      Greenspan’s Warning on Gold

      “Fiat money has no place to go but gold,” the former Fed chairman said at the Council,

      http://www.nysun.com/editorials/greenspans-warning-on-gold/87080

      Investing in Gold: Frequently Asked Questions

      Interestingly, almost all the counterfeiting of gold coins is confined to numismatic coins…”

      http://www.lewrockwell.com/goyette/goyette15.1.html

      TnAndy – on SHTF
      September 2nd, 2010 at 5:14 am

      “Amazes me how many people assume you have to “sell” gold/silver, as in convert it back to fiat notes, to buy something ?  That simply isn’t the case.   For example, I recently offered my dentist a $10 gold eagle for a procedure he gets 700 FRNs for.he was quite happy to take the real money.  I have done this with other purchases as well..offer a pile of FRNs, and an equal value of gold/silver.you’d be amazed how many folks go for the gold.

      True..it is NOT common, due to Gresham’s Law ( people hoard good money, and spend the bad money first )but there is nothing to say you can’t simply circumvent the conversion process.

      AND if you use US coin, it’s not barter..it’s legal, competing, tender to the paper fiat.  I paid $10 for the procedure.he got $10 income..just like he would have in 1888 when that eagle was minted.

      Try it sometime.you might just be surprised how easy it is.”

      Monetary Freedom, Monetary Magic

      http://www.lewrockwell.com/orig5/johnsson7.1.1.html

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