The answer to many questions often depends upon perspective, whether the questions are; should I buy silver, is the S&P 500 expensive, is huge and unpayable debt a problem, is another World War a bad idea, will eating potato chips and candy bars actually damage my health, and are Republicrats as useless and corrupt as they appear?
Many people have suggested that silver prices are hopeless and silver will never go up. This is an overly emotional perspective caused by 4.5 years of declining silver prices and negative sentiment. Consistent with this “hopeless” assessment are:
If silver prices ever get back to $20, or $30 or $40, I’ll sell and never put money into silver again.
I bought silver at $30 and now it is near $14 and I have lost money and feel stupid, especially as the S&P has gone up nicely in that time.
Silver bulls have been saying buy buy buy since whenever and they have been wrong wrong wrong.
I’m mad as hell and I can’t take it anymore. I’m selling out, taking my losses, and buying stocks.
Examining the above issues from a different perspective might produce the following responses:
If silver ever gets back to $30 I’ll sell. Why? What were your original objectives? Did you buy for short term profit or long term insurance against the massive debt increases and currency devaluations that our politicians and bankers have created and will continue to promote? If you bought for long term insurance your question should revolve around buying more, not selling your insurance.
You bought at $30 and it is now $14. Warren Buffet might suggest that if it was a good investment at $30, it is a much better investment at $14 and if you think it is a good value, you should buy more, not sell.
Silver bulls and bears, stock bulls, real estate sales people, and politicians all talk their book. At times they are right, other times wrong. Silver goes up and down, stocks go up and down, and real estate goes up and down. But debt always INCREASES and unbacked fiat currencies always DECREASE in value.
You are mad as hell and ready to sell out and take your losses. Fine! Do what you want to do.
Markets are frustrating unless you possess insider information, unlimited free currency backing, or can change the rules to suit your needs. The casino is partially rigged and favors the political and financial elite. You can successfully trade paper COMEX silver contracts, ETFs, stocks and bonds, but you are “swimming upstream” against sophisticated “algos,” computers, and professionals.
Those paper contracts, stocks, ETFs and bonds hide risk related to the value of the currency and confidence in the paper. Example: Who wants to be a billionaire in Zimbabwe dollars? Who wants to own a million shares of Enron stock? Who wants to own a 30 year bond from a bankrupt country that can’t pay its debts this quarter and may not exist in 30 years?
Enron stock may drop to zero, nobody wants Zimbabwe dollars and Confederate money will never rise again, but we NEED silver since it will always be valuable and is necessary for modern life. In addition we NEED silver because it hedges against currency devaluation, uncontrolled spending, massive debt, and loss of confidence in the currency, politicians, and economy.
From this perspective we don’t understand why people would sell their silver insurance at these prices given that:
Politicians will spend and borrow to excess and eventually drive the value of their unbacked paper currencies down to nearly zero. History confirms this. The only questions are when and how rapidly. We NEED protection from devaluation.
Debt (official debt, not including off balance sheet liabilities and unfunded liabilities such as Social Security and Medicare) has increased in the US from about $398 billion in 1971 to over $18,600 billion in late 2015. That debt can never be repaid in current dollars, which strongly suggests that the dollar must be devalued and consumer prices for the goods and services we NEED must rise. Silver prices will rise because we NEED silver products, supply is growing slowly and industrial and investor demand are growing more rapidly.
COMEX paper silver prices have dropped for over four years, but we don’t NEED paper silver. When prices for physical silver align with physical supply and demand, and not paper prices, the price of silver will make more sense.
War and military actions are increasingly common, costly and becoming worse. Example: A single helmet for an F-35 pilot was recently described in the media as costing $400,000. The forever war on terror will get more expensive and create immensely more debt. The military NEEDS silver for equipment and bombs, and we NEED silver to protect from the inevitable currency devaluation.
The powers-that-be may deem another World War necessary in order to justify massive bond monetization, deficit spending, economic stimulus, and to distract the masses from economic recession. Those expensive wars will devalue currencies and increase consumer prices for the goods, services, and silver we NEED.
The COMEX paper price of silver will rise when the major players are positioned to profit from a rising price. That probably will be soon, but asking when will it rise is the wrong question.
If you are buying silver to protect from fiscal and monetary insanity, then “when” matters very little. Fiscal and monetary insanity are not improving anytime soon and a thousand years of history suggest that all unbacked paper fiat currencies eventually descend to their intrinsic value (zero), debt always increases, wars will persist and become more expensive, and prices for the goods and services we NEED will continue to rise.
From this perspective, we NEED silver for economic survival. We don’t NEED paper silver contracts, paper stocks, paper currencies, and paper promises.
We NEED silver, or … you can place your trust in Hope and Change.
From John Hussman:
“Cutting immediately to the chase, we continue to believe that the U.S. equity market is in a late-stage top formation of the third speculative bubble in 15 years. On the basis of measures best correlated with actual subsequent S&P 500 total returns across history, equity valuations remain obscene. We fully expect a loss in the S&P 500 in the range of 40-55% over the completion of this cycle; an outcome that would be wholly run-of-the-mill given present market conditions, and would not even bring reliable measures of valuation materially below their longer-term historical norms.”
From Egon von Greyerz:
“But just like the paper money printing will fail so will the creation of paper gold. It makes absolutely no sense that unlimited supply of paper gold should have any value. I don’t believe that we are far from the point when the paper gold holders will realize that the intrinsic value of their paper is ZERO.
The geopolitical situation in the world is also looking very grim. Sadly the war industry is likely to prosper greatly in coming years.
And investors in the bubble assets of stocks, bonds and property will see a wealth destruction that they could never have imagined whilst holders of physical gold and silver (held outside the banking system) will maintain their purchasing power and preserve wealth.”
From David Stockman:
“…the gates of hell have been opened by Washington’s senseless destruction of regimes in Libya, Syria, Iraq, Yemen, Somalia, Afghanistan and elsewhere that refused to do its bidding. Yet not one of these backwaters of tyranny and economic and military insignificance posed any threat whatsoever to the safety and security of American citizens in Lincoln NE or Manchester NH.” [Expect more military spending and debt to fight the denizens who have escaped from the gates of hell…]
Paper Dies, Silver Thrives!
Every once in a while, we reiterate the importance of knowing the trend, in fact, calling the trend the number one piece of information. From it, everything else follows, in terms of knowing in which direction to base trade decisions.
2014 and 2015 were viewed as turnaround years for gold and silver, with expectations that price would rally to new, never before seen prices. In a little over a month, 2015 ends and 2016 begins right after. It is possible that 2016 may bring more of the same: disappointing expectations for PMs performance. It is just a possibility, for no one knows for certain how the future will unfold. What we do know for certain is that in order for PMs to rally, they must first stop going down.
We have been telling readers to avoid the long side in futures for the past few years. We are also on record for advocating the purchase of physical gold and silver at any price, and all purchases made in the past few years are likely in the red. While true, that is not the issue in owning the physical for the reasoning is totally different. Physical ownership is more a form of insurance against the failure of the fiat Federal Reserve Note, aka the “dollar.”
Reference was made to holding physical gold and silver as a form of wealth preservation. Some, perhaps even many may think their wealth is not being preserved very well for those purchases made since the PM peak, 5 years ago. This is true, in absolute terms when using a fiat currency as one’s measure. It is a testament to the ability of the globalists to keep a price lid on both gold sand silver, mainly through the US central bankers. Few believed the financial Ponzi scheme could be stretched as much as it has.
What we all have learned is to realize the importance of a fiat trend, as well as a market trend. When the fiat trend ends, the doors may close for the ability of one to buy more physical gold and silver, and the purchases made, even currently showing a loss in value, will be a saving grace after a temporary price disadvantage. Do not be discouraged and continue to buy more as one can.
All fiats fail, and the only difference this time around is the grossly exaggerated extent to which fiat has managed to survive. It also indicates that once the fiat “dollar” fails, and there are more and more cracks showing up in its ability to maintain its world reserve currency status, the move for physical gold and silver will also be favorably exaggerated to the upside.
The fiat “dollar” chart does not show any ending action to the upside. The last two TDs [Trading Days], were narrow ranges: buyers were unable to extend higher, but at the same time, sellers were unable to take advantage so buyers continue to prevail and price should eventually carry higher. The only thing that can alter this assessment is if sellers suddenly show up in force. They have not yet, so mention is made only to recognize the possibility.
The only purpose for including the weekly copper chart is to show how once a trend is established, it carries the prevalent momentum until the opposing force[s] become strong enough to effect a change. If that does not happen, you can see price will keep falling, more than most expected, and will continue to fall until it uncovers demand. Unless demand shows up soon, $2 copper is possible for as long as the trend remains down.
Gold’s decline is more controlled, no pun intended, as the lower lows do not go as deep as prior swing lows, which means the downside is just slowly giving way, but still going lower. This remains a function of price seeking demand, and until it shows up, just like in copper, price will continue to make lower lows.
The first two of the last four TDs were sharp declines, the last two on much smaller bars but volume increased. This would be an indication that buyers were more than able to match the increased selling effort sufficiently to prevent price from extending lower. More than likely the buying is short-covering and not new buyers. If true and the next rally is weak, without new buying for support, price will decline still more.
Because we know the trend is down, there is no guesswork about trading from the long side in paper gold. There is no need to “predict” the price direction. Just wait for more information that buyers are beginning to increase [which they are not, so far], and then have a strategy for buying in a changing up trend. Presently, there is no evidence of a change to an up trend, so wait for confirmation and keep one’s powder dry.
The EDM reflects how buyers cannot control selling. While price started to trade almost sideways, near the current lows, you can see, relative to the $120 decline from the last swing high, there has been no ability to mount a counter-rally, and that is a sign of weakness.
Any change always shows up first on the smaller time frames. Yet, even the intra day 60 minute chart shows no sign of ending the current decline. Read all you want about the bullish fundamental climate for gold and silver, the reality is market participants are ignoring the current news and dealing with where price is and is headed. This is why charts are always more reflective of what is going on, at all times.
Just like there was no ability to rally from the lows in daily gold, weekly silver is in a similar position. Last week’s tiny range is hard to read: price could neither rally nor decline, a stalemate. The trend is down, and the onus for change is with the buyers.
Until buyers make their presence known, expect more of the same.
The rally in early October was on wider range bars and sharply increased volume. It shows where buyers stepped in and made a difference. Typically, buyers will defend those prices, anywhere from the top of the first wide range bar to the bottom of it. That potential support was totally ignored as price declined over the last several TDs, and that says weakness.
Relative to the decline that started in late October, at a bull trap failed probe higher, once at the bottom of the current decline, there has been no ability to counter-rally. All of these observations are nothing more than reading developing market activity. They are simple and factual messages the market is conveying. These messages clear the fog formed from sentimental beliefs.
Jettison the beliefs and stay with what the market says. Trading life becomes easier.
In his weekly market review, Frank Holmes of the USFunds.com summarizes this week’s strengths, weaknesses, opportunities and threats in the gold market for gold investors. Gold closed the week at $1,057.98 down $19.90 per ounce (-1.85%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 0.03%. Junior miners outperformed seniors for the week as the S&P/TSX Venture Index climbed 0.14 percent. The U.S. Trade-Weighted Dollar Index gained 0.47 percent for the week.
Gold Market Strengths
Silver was the best performing precious metal this week with a slight decline of 0.6%. Short sellers apparently did not care if silver traded lower as over 18,000 gold contracts, or $1.9 billion notional, was dumped in overnight markets.
James Steel, chief precious metals analyst at HSBC, sees golds trading range at $1,025 to $1,275 for 2016, according to a November 24 report. Further 2016 forecasts from Steel include demand exceeding total supply, mine production falling and jewelry demand climbing.
The U.S. Mint has sold out of its 2015 one-ounce American Eagle gold coins, according to Bloomberg. In an email statement this week, the Mint confirmed that inventories have been depleted and no additional 2015-dated coins will be produced. According to bullion traders, the purchase of gold jewelry for wedding season demand, along with a firm global trend, contributed to a recovery in the price of the precious metal earlier this week. Silver bounced back a bit as well on increased offtake by industrial units and coin makers.
Gold Market Weaknesses
Precious metals funds posted their biggest outflows in almost 17 weeks, according to Bank of America Merrill Lynch, who said investors pulled out $1.0 billion in the four trading sessions to Tuesday. On the flip side, investors continue to pour money into money market funds a net $12 billion brings the accumulated inflow to a huge $132 billion in eight weeks, reported BAML.
Palladium was down 2.29 percent and platinum was not far behind with a loss of 2.16 percent for the week. Despite half the platinum mines making losses as the prices dip below $1,000, the PGMs were the worst performing precious metals this week.
Chinas net imports of gold from Hong Kong dropped for the first time in four months, according to Bloomberg. Net purchases fell to 87.8 metric tons from 96.6 in September on holiday-shortened October as well as lapsed demand in a lean season prior to the New Year.
Gold Market Opportunities
Mauldin Economics says there is one universal deficiency in most investors portfolios gold. Calling the metal the ultimate hedge against any unforeseen crisis, the group says most professional investors agree that this asset should represent between 3 and 5 percent of a portfolio. They go on to reference Ray Dalios portfolio which has a 15-percent allocation to gold and similar assets in 2015, along with Marc Fabers suggestion in August that investors allocate 10-15 percent to gold.
Precious metals bulls want to know why metals prices keep falling despite what appears to be great fundamental reasons for the contrary. A huge demand for precious metals hidden behind an enormous glut in paper supply could be why, according to Goldseek, who stated that the market has been overwhelmed by an increase in leverage. Referencing a chart in Zerohedge last week, the amount of paper gold has tripled in the past few months relative to registered stocks available for actual delivery.
BCA points out that worldwide savings rates point to continued downward pressure on interest rates. In recent years, there has been a trend of increasing investment, especially in emerging economies. However, the pattern appears to be changing, so there is an overabundance of savings as compared to investment. The shift toward lower investment rates in emerging markets may be another downtrend in real interest rates, despite the possibility of nominal interest rates increasing on December 16. Lower real interest rates should be supportive of gold prices despite the lift in nominal rates.
Gold Market Threats
Goldman Sachs believes the U.S. could see four interest rate hikes by the Federal Reserve next year. The central bank is expected to raise the short-term Fed funds in December, and according to a Bloomberg article, Goldman predicts the U.S. will continue to grow fast enough to spur the Fed to raise rates by an average of once a quarter.
Hedge funds dont believe that golds decline is over and money managers are holding their first net-short position in the precious metal since August. Talk of the U.S. raising borrowing costs for the first time since 2006 are leading investors to flee the asset class, according to Bloomberg. Assets in exchange-traded products backed by gold have reached their lowest since 2009.
Gold dropped to its lowest level since February 2010, as a looming U.S. interest rate hike in December has curbed the metals appeal. Fed funds rate data shows that the probability of an interest rate increase rose to 74 percent on Friday from 72 percent the day prior.
Nov 26 India’s gold buying in the key December quarter is likely to fall to the lowest level in eight years, hurt by poor investment demand and back-to-back droughts that have slashed earnings for the country’s millions of farmers.
The sluggish demand could halve imports by the world’s second-biggest gold consumer in U.S. dollar terms in the final quarter, a retailer and two bank dealers said, putting further pressure on global prices that hit a five-year low earlier this month.
December quarter demand could fall to 150 to 175 tonnes, said Bachhraj Bamalwa, a director with the All India Gems & Jewellery Trade Federation, from 201.6 tonnes a year ago and a five-year average for the quarter of 231 tonnes, according to World Gold Council data.
The December quarter usually accounts for about a third of India’s gold sales as it takes in the start of the wedding season as well as festivals like Dhanteras and Diwali, when buying gold is considered auspicious.
Two-thirds of demand comes from rural areas, where jewellery is a traditional store of wealth, but weak monsoon rainfall this year due to an El Nino weather pattern has eroded farmers earnings and their purchasing capacity.
“I incurred huge losses this year as my corn and cotton crops were wilted due to drought,” said Madhukar Patil, a farmer in the western state of Maharashtra, who had been planning to buy gold during Diwali.
A weak rupee has also kept local gold prices relatively strong compared with a slump in U.S. dollar-denominated gold, further denting demand, while investment buying has stalled as investors see little chance of a quick price recovery.
“In the first half of November demand was good due to Diwali, but since then demand has significantly moderated,” said Harshad Ajmera, proprietor of JJ Gold House, a wholesale in the eastern Indian city of Kolkata.
The Indian rupee has fallen over 5 percent this year, restricting the drop in local gold prices to 5.5 percent, compared with a 9.3 percent drop in U.S. dollar denominated gold.
India’s gold imports, which account for nearly all of its demand for the precious metal, could fall to around $5.7 billion in the December quarter, the Federation’s Bamalwa said. Two gold dealers forecast a similar fall.
Sluggish demand has been reflected in physical trading in India as bullion was offered at a discount even during Dhanteras, compared with a premium of $18 an ounce over London prices last year.
“Jewellers from rural areas are making fewer purchases. Their sales have been badly affected due to drought,” said a Mumbai-based bank dealer with a gold importing bank. ($1 = 66.4025 Indian rupees)
* Dollar around eight-month high
* U.S. markets shut for Thanksgiving holiday
* China’s Oct gold imports from HK slip to 71.58 tonnes (Updates prices, adds comment)
By Clara Denina
LONDON, Nov 26 Gold traded near its lowest in nearly six years on Thursday as the dollar held at multi-month highs after U.S. economic data reinforced expectations of an interest rate rise this year.
The U.S. currency was also supported against the euro, weighing on dollar-denominated gold, as European Central Bank officials told Reuters they were considering options such as whether to stagger charges on banks hoarding cash or to buy more debt. The ECB meets next week.
Spot gold was unchanged on the day at $1,070.76 an ounce by 1505 GMT, not far off the $1,064.95 hit last week, its lowest since February 2010.
Liquidity was thin, with U.S. markets are shut for the Thanksgiving holiday.
“The sense in the market is that the dollar will continue to rally due to the prospect for QE (quantitative easing) in Europe and the hike in the U.S.,” Saxo Bank’s head of commodity strategy Ole Hansen said.
“The focus is back to the negative correlation to a stronger dollar and that’s keeping gold under pressure.”
The dollar was up 0.1 percent against a basket of major currencies, trading close to an eight-month high reached in the previous session.
“The dollar index is within reach of the multi-year high of 100.39. A break of this level would put downside pressure on gold,” ScotiaMocatta said in a note.
Data on Wednesday showed U.S. manufacturing output in October rose well above economists’ expectations while business spending plans surged.
Gold had seen some safe-haven bids earlier this week after Turkey downed a Russian fighter jet, stoking tensions between the countries, but interest has faded as investors’ focus returned to a U.S. rate rise.
“People are preparing for the rate hike … if you look at strategists’ recommendations of the top 20 trades, gold is not in there,” MKS SA senior vice president Bernard Sin said.
In the physical markets, buying interest picked up as gold prices stayed near multi-year lows.
Premiums on the Shanghai Gold Exchange, a proxy for demand in top consumer China, were trading at a healthy $5-$6 an ounce on Thursday, versus $3-$4 at the beginning of the month.
China’s net gold imports from main conduit Hong Kong fell in October from a 10-month high reached in the previous month, data showed on Thursday.
Third-quarter gold buying in India, the world’s biggest consumer, is likely to fall to the lowest level in eight years, hurt by poor investment demand and back-to-back droughts that have reduced earnings for millions of farmers.
Silver was up 0.6 percent at $14.24 an ounce.
Platinum rose 1.6 percent to $852 after hitting a seven-year low in the previous session, while palladium gained 0.9 percent to $559. (Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Evans and David Goodman)
Gold prices fell yesterday in response to the dollar’s bounce after healthy US economic data raised expectations of an interest rate rise next month.
Prices hovered just above their lowest level in nearly six years, as spot gold fell 0.4 per cent to $1,070.46 an ounce, perilously close to the near-six-year low of $1,064.95 it hit last week.
The latest drop came after it was announced that manufacturing output rose well above economists’ expectations last month. A gauge of business investment plans in America also painted an optimistic picture.
“The orders number is surprisingly positive and that’s what’s weighing on the market,” Rob Haworth, the senior investment strategist for US Bank Wealth Management in Seattle, told Reuters.
Gold has been put under pressure by increasing speculation that the Federal Reserve will raise US rates next month for the first time in nearly a decade. Such a move would increase the cost of holding non-yielding bullion, having a knock-on effect on prices.
But Commerzbank analyst Daniel Briesemann said geo-political issues had played a part and predicted further falls for the precious metal. “The Turkey-Russia tension has only had a limited impact and now gold is back on its downward trend mainly due to the dollar and rate hike expectations,” he said.
“Uncertainty before the next Fed meeting will remain high and prices could head even lower in the next couple of weeks.”
Traders said dealings were relatively quiet ahead of America’s Thanksgiving holiday today.