The big picture in simple terms:

• US national debt is huge, ugly, unpayable, and accelerating higher.
• Silver Eagles are pretty and are priced low.
• Silver prices will increase erratically, driven higher by a devalued dollar, along with increasing debt.
• Silver is currently at the low end of the silver to national debt ratio.
• Silver is currently at an 81 month cycle low.

Examine the next two graphs:

The above log scale chart of silver prices shows important lows in 1995, 2001, 2008, and 2015, all about 81 months apart.

It also shows that silver prices exponentially increased to higher highs from 2001 to 2011 and corrected thereafter.

But national debt has increased exponentially since 1971 about 9% per year and about 10% per year since October 2008.  Silver prices have erratically increased from $1.39 in 1971 to nearly $50 in April 2011 and have fallen to about $16.00 today.  The increase in national debt parallels price increases in crude oil, postage, food, cigarettes, many consumer goods, and silver.

Since the US government can only pay for entitlements and a few other government functions with current revenues, the interest on the national debt plus excess expenditures must be borrowed every year.  Expect borrow and spend politicians to increase debt until they can’t.

That increased debt will drive silver prices higher, along with most other consumer prices.

But the ugly truth, as I see it, is:

1. Silver prices must be constrained or gold prices will accelerate higher.

2. Gold prices must be constrained or investors, hedge funds, and other governments will realize the dollar is structurally weak and could accelerate lower.

3. The dollar must be supported or the $100 Trillion bond market will accelerate lower. The 30+ year bull market in bonds could reverse at any moment and a weak dollar, among several others, could be the pin that pops the bond bubble.

4. The bond bubble must be supported or $500+ Trillion in interest rate derivatives might accelerate lower, crash major banks, and freeze the global financial system making the 2008 crash look like a 4^th of July picnic.

5. Given that silver mining is tiny, less than $20 Billion annually, and silver prices are largely set on the paper COMEX market, constraining silver prices is both possible and relatively easy for the High Frequency Traders, major banks (such as JP Morgan), and central banks. As long as the financial and political elite are able to constrain silver prices, and it remains in their best interest to do so, silver prices will languish at unrealistically low prices.

But the day will come when silver prices can be constrained no longer, or the silver shorts cannot deliver their promised silver, or a major bank will force the silver market far higher.  When that day comes, the silver market, like the national debt, will exponentially increase again.

WHEN?

1. The silver chart shows an 81 month cycle bottoming about now. Perhaps silver is poised to rally.
2. Greece and the Euro are under stress. A sovereign debt or derivative crisis looks more probable every day.  The consequences could be ugly for the global bond market and beneficial to silver prices.
3. Puerto Rico owes $73 Billion in unpayable debt, but the related derivative contracts are far higher. This will produce more ugly consequences.
4. The world will eventually realize that Greece, Puerto Rico, Italy, Spain, and the United States are not dissimilar in terms of their excessive debt and inability to repay that debt. The global bond market is vulnerable because sovereign debts will never be paid, merely rolled over.
5. In the words of the IMF describing Greek debt and potential repayment, “these new financing needs render the debt dynamics unsustainable.” “Unsustainable” suggests the sovereign debt market and borrow and spend countries are about to “hit the wall” and burst into flames.
6. Silver and gold could begin a massive rally at any time, but the High Frequency Traders and central banks will attempt to restrain prices.
7. When central bankers face collapse of the currency and bond bubbles, a silver price rally will seem unimportant compared to the consequences of a dollar and bond market collapse.

CONCLUSIONS:

• National debt will increase. Silver prices will also increase, probably soon.
• Silver prices are currently low as shown by historical ratios with gold, the S&P, and national debt.
• Expect silver prices to rally based on fundamentals, systemic stress, and investor demand. Expect silver prices to be constrained by the financial and political elite, as long as they are able.
• Expect higher prices for silver in the year and decade ahead.
• Stack silver. It is healthy for your retirement and financial well-being.

Gary Christenson

The Deviant Investor

The situation is paradoxical – the charts of just about everything are positioned for a plunge – or a turnaround and limited recovery, which reflects the fact that markets are waiting on some sort of resolution of the standoff with Greece, either Greece walking away, a Grexit, or a fudge solution where Greece accepts defeat and is denied debt relief or it is obfuscated sufficiently for the markets to buy it and this may involve another “can kicking” exercise. While the charts for many commodities look scary, including gold and silver, their COTs now look bullish, which suggests that the fudge solution will be the outcome.

As far as the charts are concerned the situation remains the same as at the time of last week’s update, with the risk of a steep drop by both gold and silver. Both broke sharply lower early last week but went on to recover their losses as the week wore on. The big difference is in the COTs, which have improved rather dramatically over the past 2 weeks, especially silver’s COT, which is now flat out bullish, at least for the short to medium-term.

Let’s now proceed to look at the latest charts. The 8-year chart for gold shows it positioned for a C-wave plunge to the $850 – $1000 area, but its latest COT chart shown immediately below, reveals that Large Specs have almost given up on it, which in itself is bullish – these sort of readings have almost always marked important bottoms in the past. The COTs for both copper and silver now look positive too, in copper’s case after a quite steep drop. Here we should note too that the Chinese market has scope for further recovery after its recent brutal plunge, and the US stockmarkets are positioned to rally back to near their highs – if there is an easing of the Greek crisis.

The 1-year chart for gold shows that it is testing a zone of important support at its November and March lows, which is clearly a good point for it to turn up, although the positioning of the bearishly aligned moving averages close by above could force a breakdown to new lows.

It’s worth digressing to look at the charts for copper, which provide circumstantial evidence of a possible intermediate bottom in commodities here. On copper’s 1-year chart we see that it too is in a good position to turn up, because after a steep drop from its May highs which got panicky early this month, it is oversold and at important support at its January lows. We shorted copper early in May.

Copper’s COT is now looking increasingly positive, with the ever right Commercials building a bigger long position…

The biggest threat to commodity prices is the potential for another big upleg in the dollar, and what happens with the dollar depends on what happens to the euro (the dollar index has a 57% euro weighting), and what happens to the euro now depends now on the outcome of the Greek mess. In the last update we pointed out that the dollar was poised to begin another major upleg – it still is, BUT the breakout attempt is starting to look shaky and like it could fail. If it does fail and the support in the 93 area on the index fails, which just to be where the 200-day moving average is, which makes it more significant, then things could get ugly fast. This may be what the positive commodity COTs are signaling.

What about the dollar hedgers chart? – it is still showing quite strongly bearish readings, although they have eased from the extremes of a couple of months ago. So the dollar could be topping out after all. The big dollar rally of the past year has been driven by a combination of the euro’s woes and unwinding of the global carry trade ahead of an expected Fed rate rise. While it is hard to see the euro improving much, since a fudge solution of the Greek mess will only buy time for the beleaguered single currency, the carry trade unwind could stall out if the market senses that the Fed is bluffing re raising rates, because it can’t due to its back being to the wall. This would probably be the reason for a drop in the dollar.

Chart courtesy of www.sentimentrader.com

Now let’s proceed to view various indicators for gold as usual.

The gold hedgers chart, a form of COT chart going back further, is starting to look quite strongly bullish, having improved markedly in recent weeks. This certainly suggests that at least a bounce is probable in the weeks ahead…

Chart courtesy of www.sentimentrader.com

The Gold Optix has improved substantially over the past couple of weeks to levels that are flat out bullish…

Chart courtesy of www.sentimentrader.com

Rydex Precious Metals assets readings are now strongly bullish, since the dumb Rydex traders are always wrong and their holdings are now at a very low level. Their holdings peaked at the top of the bearmarket rally late in 2012. Interestingly, we have seen a pickup in volatility in this gauge in recent weeks, suggesting that some Rydex traders may be having second thoughts.

Chart courtesy of www.sentimentrader.com

Finally, it is worth keeping in mind that we are now entering the most bullish time of year for gold, as the seasonal chart below shows…

Conclusion: while it may look like this update is a classic example of fence sitting, there is a good reason for this, since the situation depends on the outcome of something which is unknowable, except to God – the outcome of the negotiations between the EU and Greece. What we can be sure about is that the scales will tip one way or the other very soon, and we do have some indication in the COTs, which are suggesting that after much protest the Greeks will kneel before their European masters and live on bread and water for years – in other words the recent vote will be ignored. However, if they walk away and out of the euro, a global selloff is likely to be the result involving a rising dollar and falling commodities, including gold and silver.

The precious metals sector is enduring losses for the third straight week. The gold miners and Silver have led the way down, though Silver has rallied over the past two sessions. Gold has also rallied yet remains dangerously close to making a new weekly low for the bear market. While the metals recovered some losses on Wednesday and Thursday, the gold miners failed to generate anything positive and closed near their lows for each session. The inability of the miners to recover to even a small degree augurs badly for the entire sector in the days ahead.

Continued weakness in the miners is not much of a surprise considering they are breaking down from their 2008 and 2014 lows. We plot monthly bars below for GDM (forerunner to GDX) and the HUI. GDM closed at 468 and lacks strong support until 400. The HUI is in full blown breakdown mode and does not have strong support until the low 100s.

In the chart below we plot the HUI’s weekly price going back 20 years and two oscillators which can serve as overbought and oversold indicators. We plot the HUI’s distance from its 40-week exponential moving average and its rolling 40-week rate of change. The HUI is certainly oversold but these two oscillators argue the HUI is some distance from reaching the extreme oversold condition seen in spring 2013, late 2008 and late 2000.

Turning to Gold, it appears ripe for a breakdown below $1150/oz in the days ahead. If that comes to pass, then the focus should be on its next strong support around $1000/oz to $1040/oz. The chart below includes the weekly plot of Gold as well as the net speculative position as a percentage of open interest. The net speculative position will be updated Friday and figures to be close to 10%. In our view that needs to go below 5% (the 2013 low) for sentiment to be considered extreme. A reading below 5% would mark a 14-year low.

We appear to be in the early stages of the final act in this precious metals bear market. Gold breaking below $1140-$1150/oz could put us in the middle stages. Our work shows that miners are not yet extremely oversold and have room to fall before reaching strong support. Gold breaking below $1150/oz and then $1100/oz would initiate further losses in the miners and bring them very close to that extreme oversold condition. It is the combination of an extreme oversold condition coupled with strong technical support that creates a very favorable buying opportunity.

A few weeks ago we noted that it was potentially a very dangerous time for bulls. It still its. However, the closer the miners get to extremely oversold and the closer Gold is to $1000/oz then the closer we are to risk favoring the bulls. It is always darkest before dawn. At somepoint within a few months, the switch will flip and we could have some epic buying opportunities in the precious metals complex.

Consider learning more about our premium service including our favorite junior miners which we expect to outperform in the second half of 2015.

The situation in the silver market seems to point to the beginning stages of a GLOBAL RUN ON SILVER.  I say, “it seems to point to a RUN on silver” due to several indicators I am looking at.  This also may force the global silver market to suffer shortage.

…..continue reading the analysis and charts HERE