Gold & Precious Metals

Getting Positioned in the Precious Metals

Posted by Rambus Chartology

on Thursday, 13 February 2014 15:48

Before we get into tonight’s charts I would like to explain what my goal is right now for the precious metals complex. We never know 100% for sure when we have a bottom in place. All we can do is look at the charts and indicators and try to get the odds in our favor on when to make a move. For the short to intermediate term I think we have a decent bottom in place in which we can try to take advantage of a move higher.

The hardest part of getting on board for an intermediate move is in the very beginning stages. First you have to identify a bottom, in the case of the precious metals complex, and then you have to start buying. Think of these impulse moves as two steps forward and one step back. We have just had our two steps forward and today marks the point of a possible one step back. This is normal market behavior. Giving back some of your hard earned gains makes you feel uncomfortable and you get this feeling, in the pit of your stomach, that you must sell. If we are truly in an impulse move higher your mentality should be to buy weakness. When your in a trading range is the time to sell into strength not in an impulse move. These are two completely different techniques. Right now I think we have entered at least an intermediate term move in the precious metals stocks and that is how I’m going to play this move until something tells me different.

My experience has taught me to trade the intermediate term move and hang on for dear life when things start moving both going up and coming down. This is where the big money will be made IMHO. Those that try to trade in and out will get a few good trades off but will eventually get out of sync with the move and find themselves on the sideline when the heart of the move takes place. I know for a fact that this is already happening with some of our subscribers that decided to sit out the move in some of the 3 X long eft’s we’ve been buying for the intermediate term move.

This is the point where one has to decide on which type of trader they want to be. If you want to be a short term trader then you really need to be disciplined and follow your system to the letter. If you chose to be an intermediate term investor then you need to get positioned for the longer haul by buying your favorite precious metals stocks now. You need to have the mindset that there are going to be corrections along the way but you have the confidence in the trend to hang on. It takes a lot of discipline and courage to ride out these inevitable corrections but that is the only way I know to make the big bucks. With that said lets look at some charts and see what they maybe telling us.

Lets start by looking at a daily chart for gold that is showing us a potential inverse H&S bottom that is the second bottom of a possible much bigger double bottom that goes back to the June low. This is exactly where one wants to see one of these reversal patterns form. If you recall gold made that very small double bottom, in December, that is now the head portion of the bigger inverse H&S bottom. Note the little unbalanced double bottom that was made back in June of last year that started the bottoming process and the small H&S top that was made at the 1430 top which I’m labeling, for the time being, as the double bottom hump. You can see how important the 1430 area is going to be for our intermediate term move. Note the last two bars on the far right hand side of the chart that shows the price action for gold doing a ping pong move between the 150 dma and the neckline. This is a big deal folks. Its showing us two very hot lines right now, one that is resistance and the other support. As I’ve shown you many times in the past when a stock is trading up against an important trendline, that is acting as resistance, you often see a smaller pattern form just below that important line of resistance. A moving average is no different than a trendline as they both can act as support or resistance. What makes me think that gold will break above the 150 moving average is the inverse H&S bottom that is forming just below it. If gold does in fact break above the 150 dma that will be a very big clue that gold has some legs to run higher.

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…for larger charts go HERE

 

What’s the Game Changer for Gold?

Posted by Frank Holmes CEO & Chief Investment Officer U.S. Global Investors

on Wednesday, 12 February 2014 19:53

image001With the games in Sochi underway, people around the world are tuned in to watch the competition heat up in their favorite cold-weather sports, including cross-country skiing, snowboarding and hockey.

Back in Washington, we watched Ben Bernanke officially “pass the puck” to Janet Yellen, who became the new chairman of the Federal Reserve’s Board of Governors last week.

Imagine if the puck were the Fed’s assets—that would mean the disk is five times bigger today than when Bernanke became chairman in 2006. At the beginning of his reign, the Fed’s assets were $834.6 billion. Now, the balance sheet has grown to $4.1 trillion, a previously inconceivable size.

Until last year destroyed gold’s multi-year bull reign, the expansion of the U.S. balance sheet and the price of gold over the past decade moved in near lockstep. From 1999 through 2012, the correlation coefficient of the rising price of gold to the Fed’s climbing assets was 0.95.

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Even with the tapering of the bond purchases that began in late 2013, the Fed’s balance sheet remains on an upward trajectory and much higher than the price of gold. This suggests we should see much higher prices.

What will break gold of its losing streak? Will inflation, which is a lagging indicator, be stronger than expected? In one of my most popular posts last year, I said that based on the jobs market, the limited housing recovery and regulations slowing down the flow of money, the Fed would have no choice but to start tapering and raising rates very gradually to keep stimulating the economy.

Read the Fire Fueling Gold.

In CLSA’s Greed & Fear, Christopher Wood points out the forward-looking U.S. data, pending home sales index, is “clearly suggesting stalling momentum.” Pending home sales have been declining for seven months in a row, “plunging by 8.7 percent month-over-month in December to the lowest level since October 2011.”

There’s also a weaker demand in mortgages in the past quarter. According to a survey of banks, nearly 30 percent reported weaker demand for prime mortgages, which is the “worst data since April 2011,” says CLSA. About 46 percent of banks are seeing weaker demand for non-traditional residential mortgages, the worst since January 2009.

The ISM manufacturing new orders index is also off. In January, new orders fell from 64.4 in December to 51.2 in January, which was the largest monthly decline since December 1980.

So even if investors shrugged off the latest disappointing jobs report, we’re pretty certain the incoming chairman is paying close attention to the scoreboard.

What looks promising today is gold’s bounce off its bottom, as you can see in the chart below:

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Want to read more on gold? See a summary of the gold market from the first week in February here. You can also join thousands of subscribers across 170 countries who receive our weekly email by subscribing to the Investor Alert. Or keep informed by following U.S. Global Investors on Twitter, Facebook or LinkedIn.

The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.

In this interview, Rickards notes that gold is technically set up for a massive rally; he has a three- to five-year price target of between $7,000 and $9,000 per ounce. This prediction is based on a collapse of confidence in the dollar and other forms of paper currency.

Rickards discusses what a rising gold prices means for gold investors and where physical gold is going. As for whether gold will rally: “There is a total supply of gold in the world. But to corner a market or squeeze a market, you don’t need to buy all the gold, you just need to buy the floating supply. Think of all the gold in the world, it’s about 170,000 tons. Think of a little sliver on top of it that is the floating supply available for trading.”

“Gold that’s in the Comex or JPMorgan or GLD vaults is available for trading. Gold purchased by the Chinese will not see the light of day again for the next 300 years, and is not available for trading. So with the gold going from West to East, and from GLD to China, the total amount of gold is unchanged, but the floating supply is declining rapidly.”

“This means that the paper gold that sits on top of the floating supply is becoming more and more unstable and vulnerable to a short squeeze, because there is not enough physical gold to support it. So that’s likely to collapse at one point and lead to a short squeeze and heavy buying.”

Click to read full article

also – click to read the whole Bullion Buzz Newsletter

Silver Money’s Historic Problem

Posted by BullionVault

on Wednesday, 12 February 2014 14:34

How silver investing’s money motive got hamstrung 150 years ago in the US and India…
 
I’M CONSTANTLY reading books on the history of both gold and silver as money,writes Miguel Perez-Santalla at BullionVault.
 
A book I recently picked up on the history of silver currency in India relates more the actual operational use of money in their marketplace. The Indian peoples in the 19th century had no confidence in paper money. Though it was in use, it was not readily acceptable outside of the larger cities. Because of this silver was prominent in India.
 
Gold of course was of higher value than silver. Yet silver was the metal used more commonly for regular day-to-day business transactions than any other method in that time. The Indian people did love gold and esteemed it highly, but their preference to use silver for transactions outweighed the demand for gold.
 
Gold still came into the marketplace, just not at the same pace. Between 1836-1891 there would be 2.21 times mores silver than gold imported into India by value.
 
Back then, in the 19th century, the Indian subcontinent was still under British colonial control. In essence they did most of their business through Great Britain. The technology shared and developed by the British helped the country modernize, notably with the addition of train lines which would support India’s economic growth into the future. But the one complication in modernization was the country’s greater use of silver over gold. This caused trade deficits moving forward.
 
Why? Great Britain had been on a Gold Standard legally since 1816 and effectively since Sir Isaac Newton got his sums wrong 100 years earlier and cut the price ofsilver to 15.5 from 12 ounces per ounce of gold. So all accounts for Pounds in reality were denominated in gold. Invoices for the services provided by the rail developments were of course in Sterling, which although its name came from silver now meant being payable in gold, or gold-backed paper Pounds. Hence the Indians suffered when the value of silver fell versus gold. Because any debts to the colonial mother country were due in kind.
 
Oddly, India’s silver money trade balance problems really began with big trade surpluses. During the Civil War of the United States of America between 1861 and 1865, the Indian sub-continent – which was rich in natural resources – filled the gap of need for many of the products that traditionally were imported from the US into the United Kingdom. India enjoyed a tremendous boom in exports, and so its balance of currency, received in gold and silver, grew. But the traditionally greater demand for silver to use as money for domestic commerce would soon affect them negatively. Because silver money was slowly being devalued and then rejected by the world’s rising power, the United States of America.
 
Already, on 3 March 1849, Congress authorized America’s first $1 gold coin, and launched the $20 gold coin, making both “legal tender for all sum whatsoever”. This bill effectively de-monetized silver, but many people in the US were unaware of this change, and continued to use silver coins concurrently with paper money. There is no doubt however that the Bank of England in London had held sway over John Sherman, the politician behind the bill, in its goal of bringing other countries onto Great Britain’s mono-metallic standard.
 
Even though this bill had been passed, the next half-century would see new bills attempt to reintroduce silver as an acceptable form of payment and currency in the US. Firstly, because it was then (as now) a major producer of silver, the US had a big “silver lobby” active in Washington DC. Secondly, silver money continued in wide use amongst ordinary people.
 
In the year 1873 however, another currency law – the Fourth Coinage Act – reaffirmed gold’s place as the monetary standard, by ending the ability of silver owners to have their metal turned into coins by the Mint. Again, John Sherman was closely involved. Major uproar followed from the silver lobbyists, who called it the “Crime of 73”.
 
A bill finally passed in 1891 was again unsuccessful in reintroducing silver as the main money standard, but the Sherman Silver Act (yes, him again) did add government support for the silver industry. Because it set the official price of silver at 15.988 ounces per ounce of gold, and confirmed that the US government would continue to buy silver at that ratio to use for payment of debts. Five years later, however, the US would officially and irrevocably join the gold standard. By government order, silver perpetually lost its place as money on the books of the United States in 1896.
 
Since the US was a still a major silver mining producer, a surplus of silver developed, as it was no longer needed for payment of government debts. This lowered the price of silver against gold, and back in India – as US manufacturers and commodity producers also rejoined the international markets after the Civil War – traders suffered losses in exchanging their silver for gold.
 
Looking back, it’s interesting to note that, time and again, as European and then the US nations came to stop using gold as their monetary standards in the 20th century, their central banks continued to hold large quantities in reserve. But silver had already been demonetized a century earlier, while gold ruled as money. And just as central banks coordinated to end the use of silver money in the late 19th century, so they have since coordinated to use only gold as their reserve commodity today, reflecting ideals which have now become permanent in our modern monetary structure.
gold-silver-ratio-1869-2014
 
Because of this deep history and practice, there will always be a monetary uptake on gold that is missing in the silver market. Currently central banks hold over a trillion dollars in gold reserves basis today’s $1250 per ounce price. None holds any sizeable or strategic silver reserves.
 
This missing volume of official purchases in silver precipitates the much higher gold-to-silver price ratios we are now accustomed to in this modern age. Currently around 64 ounces of silver per ounce of gold, over the last twenty years the ratio has traded primarily between the ratio of 30 to 90, a wide berth with opportunities to profit from short term imbalances in price moves.
 
Can silver once again regain a place in the fabric of the global monetary system? Is there any mechanism even remotely considered to put such an action in place? At this time it does not appear to be in the cards for silver.
 
Though many in the Western world still view silver as having a quasi-monetary value, its core value right now lies in its demand for industry and personal consumption as jewelry. Yet on the continent of India, where people today continue to have a high regard for both gold and silver over paper money, the question is not even viewed as a concern. Just because the central banks don’t hold any investment silver bars does not mean it is not a good vehicle as an alternative asset. Indeed, from my vantage point, it may be beneficial. Because unlike gold, which suffered from heavy central-bank selling in the late 1990s, silver cannot face the same concerns about government’s interfering in price action by reducing stockpiles.

Buy gold at the lowest prices in the safest vaults today…

China is poised to snag the title of the world’s biggest gold buyer, a feat that could support prices of the precious metal as well as accelerate the global bullion market’s shift eastward.

Gold purchases by Chinese consumers jumped 41% last year to a record, according to data released Monday by the China Gold Association. China has long had a cultural affinity for precious metals, and the increasing affluence of consumers there, along with more relaxed investment restrictions, has boosted the country’s demand for gold bars and jewelry alike.

The increase was enough to overtake India, which for decades, if not centuries, held the No. 1 spot, according to estimates from several analysts.

….read more HERE