This Week in Barrons – 8-12-2012
“Gold
and Silver were mixed with dirt, until Avarice parted them”
… proverb
Anyone
that has read us for any length of time knows that I am a big fan of physical
gold and silver. I began our gold buying
in 2001 and added to our holdings right up into the $1500 per ounce range. I began silver accumulation in 2007, at around
the $13 level, and bought it into the high $30's. All along the way we've talked about how
prices do not reflect reality, because gold and silver aren't priced by
physical supply and demand. Their prices
are set by paper trading futures, derivatives, forward leases, swaps, and
government interventions. These prices
have been manipulated for decades. In
Gold there was the "London Gold Pool" of the 60's that set the price
at $35 an ounce, and bought and leased gold daily to keep that price locked. Silver started being manipulated by the
Coinage Act of 1965, and President Johnson himself stated, “Investors should
not try and look for gains in silver because the US would dis-hoard their
stockpile.” It doesn't get much clearer
than that.
J.P.
Morgan Chase (JPM) is usually the target of silver manipulation – because on any
given day they might be short one-third of the ENTIRE silver production for a
full year! In fact, Andrew McGuire (a silver
trader) went to the CFTC and told them that a manipulation would occur on a specific
day, and "bingo" – on that exact day and time – the price moved to
the levels he suggested. At one time I
believe there were more than 14 separate lawsuits about silver manipulation. Recently a Financial Times article said that
they are close to shutting down the CFTC investigation into silver manipulation
due to lack of evidence. So are all the
silver traders just nuts – or is the CFTC covering up for JPM? Is this an example of the foxes guarding the
hen house? Well, ‘Yes’ everyone sees the
manipulation, but it’s difficult to prosecute the perpetrator when the
perpetrator is the U.S. Government.
The
gigantic shorting that you see at JPM isn’t because JPM has some issue with
silver. It’s a clear case of “Don’t
shoot the messenger.” JPM is simply one
of the vehicles the Government uses when they're executing their monetary policies
under the cloak of the ESF (Exchange Stabilization Fund). This is a fund our government uses to “push
metals around” in order to extract the highest advantage for them in their
banking/currency contracts. Big banks –
like JPM – become the trading platform to do their dirty work. JPM is not doing the manipulation – it’s just
carrying out the trades for the true manipulators – the U.S. Government.
Some
feel that because Uncle Sam himself is doing the manipulation, there's no hope
that silver will ever really break free. I do not believe that. While the government does it’s best to keep
gold in line (because it's viewed as a competing currency to the dollar),
silver is a different animal. Along with
being a currency, silver (unlike gold) is also used in industry. Except for all the gold that's been lost to
shipwrecks, most of the gold (ever mined) is still here. Silver however gets depleted as it's used in technology,
aerospace, and medical. There is less
and less silver available each and every year, and at some point the shortage
of the physical metal itself, will push the price higher. Yes the manipulations will continue, but they
will continue at a much higher price level.
This
past week, silver went into ‘backwardation’. That is when the physical price at the present
is higher than the futures price in months to come. That suggests that investors do NOT want to
give up their bullion. With the
possibility of the ECB and our own Federal Reserve going crazy next month (carpet
bombing the planet with fiat dollars), it is no wonder that people are holding
onto their metal. We are about to enter a
period of severe inflation.
So
‘Yes’ the price is manipulated, and ‘Yes’ the price doesn't reflect true supply
and demand. And ‘Yes’ I am still
accumulating the metal because I feel that the situation will be changing. I have predicted a silver price of $70 to $80
an ounce, and still believe it will get there. Considering that's about 3 times more than its
current price, it's our opinion that Silver is still one of the best
investments one could make. Besides, as
they debase our currency into oblivion, silver and gold just continue to make
sense. And, if the Central Bankers want
it, I feel comfortable wanting it too!
The Market – The Plot
Thickens…
We
saw the market roar higher on the hopium that Mario Draghi is going to get
Angela Merkel to go along with his plan to have the European Central Bank (ECB)
act like our Federal Reserve, and buy up all the toxic debt, thus relieving
Spain, Italy, Portugal, etc. of their debt burdens. Currently the market is trading sideways – not
wanting to give back the gains it's made, but it has NO volume to bust over the
resistance zone. The volumes on even the
biggest ETF's like the SPY are trading on levels like we’re used to seeing on Christmas
eve. Yet, the markets continue to inch
and claw their way higher.
In
a technical sense, we are looking at the market try and work off an overbought
situation by doing the ‘Pause and Shuffle’. That's fine, and very well may work. Everyone knows that the Fed is cooking up
something in the background, and nobody wants to miss it. In the past several days a Boston Fed Head was
out saying it's time the Fed did something about the economy. Now this particular gentleman doesn’t vote –
but he’s out there talking because it's the wink and nod to investors that
‘something’ is in the works. It’s coming
– it’s just a matter of when – and that’s why the market is holding up here.
Judging
by the way the market has held up (with no volume, and large overhead
resistance at the 13,300 level), my guess is that they are going to continue crabbing
sideways and just barely "up". I can't see them letting a meaningful pullback
hit when we're just a couple weeks from the Jackson Hole meeting, and then the
German vote on the constitutionality of participating in the ESM. I could
see a couple hundred points peel off on some weak trading days, but right now I'm
comfortable saying we've got a 70 to 75% chance of going higher.
I
took some money off the table this past week – but I’m still leaning long into
this market, and so far it's working well. If the Europeans do what Draghi wants at the
same time our “Fed Goes Wild”, we are going to see a rally of epic proportions.
Now we still have the German vote on
September 12th, and if they declare that they cannot participate in
the scheme, all bets are off. I believe
that the German courts will do an "about face" and go with the
program.
So,
I think we're going slightly up. I also think
we're going to get the "accommodations" both here and overseas that
will lead to a really sharp rally into year end. Now, the only reason we're not 100% invested is
the German vote. If they don't go with the plan, then all of this could
implode. So we’re leaning long – but not
over-exposed.
Tips:
Currently I’m holding:
- - SYNC – in at 11.15 (currently 9.96) – held
over earnings – my error!
- - SPY – in at 135.75 (currently 140.87) – stop
at 139.00
- - MRO – in at 26 (currently 27.74) – stop at 27.00
- - GDX – in at 42.50 (currently 44.85) – stop at
43.50
- - MLNX – in at 107.50 (currently 112.17) – stop
at 110.00
- - CLF – in at 45 (currently 44.85) – stop at
44.00
- - PBR – in at 21.80 (currently 21.95) – stop at
21.30
- - X in at 22.24 (currently 23.31) – stop at
22.80
- - TEX in at 20.17 (currently 21.96) – stop at
21.10
- - WRES in at 2.63 (currently 2.95) – stop at
2.80
- - GLD (ETF for Gold) – in at 158.28, (currently
157.16) – no stop ($1,619.70 per physical ounce), AND
- - SLV (ETF for Silver) – in at 28.3 (currently 27.20)
– no stop ($28.06 per physical ounce).
A couple stocks I’m watching are IBM over 200, and Intel
(INTC) over 27.50.
To follow me on Twitter and get my daily thoughts and trades
– my handle is: taylorpamm.
Please be safe out there!
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