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Climbing the Wall of Worry With Gold and Silver

madhedgefundtrader's picture




 

Now that gold has hit a new high of $1,302, the yellow metal seems to be begging for a rest. The street was bubbling today with rumors of some leveraged gold traders getting margin calls on their shorts. A major incentive last week was Japan’s massive $21 billion intervention in the foreign exchange markets to drive down the yen. Some believe that this is only the opening shot in a global attempt at quantitative easy in the run up to the November elections that will debase all paper currencies to the benefit of all hard assets.

The silver move carries broader implications in that with 50% of demand coming from the industrial sector, strength here suggests that the economy may be stronger than the “double dippers” realize. I never have been of the double dipper persuasion myself, instead believing that we would get real growth, but growth that is a shadow of its former self (click here for “Here Comes the Square Root Shaped Recovery” at http://www.madhedgefundtrader.com/january_4__2010.html ).

However, I did expect several double dip scares. That’s why I was pulling the fire alarm about equity exposure in April (click here for “How Can the US Go Up and China Go Down” at http://www.madhedgefundtrader.com/april_30__2010.html ). Such a scare certainly showed its ugly face this summer. Perhaps investors are looking at the chart below of ten year returns by asset class showing that gold has been trouncing all comers since 2000, with the yellow metal bringing in a blistering 343% return, versus a 31% loss for the S&P 500.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home

 

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Mon, 09/27/2010 - 04:59 | 606733 V07768198309
V07768198309's picture

__________________
Tract on Monetary Reform
__________________

Credit is Like Nostalgia:

It can lead to procrastination and prevent us to go forward!
 __________________
Our economy is slowly dying, your job, lifestyle are dominated by anxiety. The economy is kept alive artificially.

No one is proposing a solution because no one has the slightest idea of why it is happening and many have vested interest in the present system.

However an objective observation of the phenomenon can help us understand it and provide us with an innovative solution. Of course we can't solve the problem with the tools that brought us there in the first place and we need a new ideology. __________________

- Do you feel that your ideology pushed you to make decisions that you wish you had not made?

- Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact.

- You found a flaw in the reality...(!!!???)

- Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

- In other words, you found that your view of the world, your ideology, was not right, it was not working?

- That is -- precisely. No, that's precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

__________________

In order to alleviate those economic woes wee need to create, as fast as possible, a new credit free currency that will solve the credit crunch and bring incremental jobs, consumption and investments to the present system.

An Innovative Credit Free, Free Market, Post Crash Economy
Tract on Monetary Reform

It is urgent if we want to limit social, political and military chaos.

Is the fulfilment of these ideas a visionary hope? Have they insufficient roots in the motives which govern the evolution of political society? Are the interests which they will thwart stronger and more obvious than those which they will serve?

I do not attempt an answer in this place. It would need a volume of a different character from this one to indicate even in outline the practical measures in which they might be gradually clothed. But if the ideas are correct — an hypothesis on which the author himself must necessarily base what he writes — it would be a mistake, I predict, to dispute their potency over a period of time.

At the present moment people are unusually expectant of a more fundamental diagnosis; more particularly ready to receive it; eager to try it out, if it should be even plausible.
But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.
Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.

__________________

Credit Free Economy
More Jobs, No Debt, No Fear.
Prosperous, Fair and Stable.
__________________

Sun, 09/26/2010 - 21:31 | 606281 robertowalker
robertowalker's picture

Well, the funny thing about Mad Hedge is if you follow his advice you make tons of money. but you had better read his columns carefully. He tells you when it is buy and when it is wait and see. gotta use your brain in the end. He can only lead you to water.

Sun, 09/26/2010 - 17:01 | 605911 Djirk
Djirk's picture

Silver is a trade based on a belief in future value (or devalue of $$$)

One of the biggest segments of Agx industrial demand, photography, has been falling for nearly a decade. Silver for photography is near dead and not coming back kids!

The diminishing, but still vibrant (no pun intended) photo printing is in ink baby! Can you say Canon and HP?

Auto Agx demand was growing until 2008 and may make a come back soonish.

With the consumer "deleveraging" silverware and jewelry are not going to make up the gaps in Auto and Photo.  

I do not beleive this is an economic tell based on fundamentals but financial trading....stay alert!

http://www.silverinstitute.org/supply_demand.php

 

 

Sun, 09/26/2010 - 16:49 | 605895 Chris Swiss
Chris Swiss's picture

$2000 gold looks like the next big target.....But what do people think about when we might see it?

Sun, 09/26/2010 - 22:30 | 606369 RockyRacoon
RockyRacoon's picture

I say  August 25th, 2011 at 10:30AM GMT.

What's your guess?

Hey, this is fun!

Sun, 09/26/2010 - 15:54 | 605820 Sam Clemons
Sam Clemons's picture

I don't understand people thinking the economy is improving because silver is going up.  What about the 90s where silver stayed flat while the economy did well?  What about copper and silver both going up which increases the costs of production which negatively impacts the economy?

Silver, gold and even copper are money. This is a currency crisis, they are the best currencies.

Also, notice the declining correspondence between silver and the S&P - especially over the summer.

Sun, 09/26/2010 - 16:21 | 605858 Patrick Bateman
Patrick Bateman's picture

I completely agree. Eventually, (by 2015 is my guess) the dollar will not be used as the international exchange for commodities. Once it fails, the easiest solution will be to go back to a gold and/or silver standard, at least on a temporary basis. While America crumbles the rest of the world will be discussing what to trade for goods, gold and silver will be it. Watch, when QE2 hits gold and silver will take off again. When Debt does not = money, gold and silver will = money.

Sun, 09/26/2010 - 18:01 | 605996 Sam Clemons
Sam Clemons's picture

2015 is also the date I have pegged for hyperinflation in "needs" goods - goods that maintain value ARE goods necessary for survival.  People will have to trade 10 old dollars for one new dollar, Amero, SDR, etc. 

Sun, 09/26/2010 - 15:38 | 605801 Silversinner
Silversinner's picture

I think silver is still in fase one of it's bull market.

Gold already surpassed its all time high at 850 wich indecates for

me fase two.Silver still got a long,long way to go Just keep on buying

on every chance I have.I also have a big fetish for silver and buy a lot of

jewellery.For me silver and gold is more then just money,I also enjoy the

craftmenship of my coins and jewellery very much.

Sun, 09/26/2010 - 15:30 | 605787 Rich V
Rich V's picture

Since Silver is often thought of as the poor mans PM it would be informative to know if the recent "buyers" of Silver are coming more from small purchasers or large investors. The recent high price of Gold may be scaring the little guy into Silver.

Anyway of determining this? 

Sun, 09/26/2010 - 15:28 | 605784 woolly mammoth
woolly mammoth's picture

What I see is gold begging to be set free. I don't see it begging to take a rest. Though I would love to see Cheekys prediction of a major pullback. As far as silver, well the author needs to read Zero Hedge once in a while so he doesn't sound so silly.

Sun, 09/26/2010 - 13:55 | 605656 jailnotbail
jailnotbail's picture

Industrial use of silver declined by 20% from 2008 to 2009, and industrial use comprised only 40% of the demand for silver in 2009, using the Silver Institute's figures, so it would take a hell of a pop from the industrial side to generate price increases.

The buzz around silver is entirely focused on it's current undervaluation due to the price suppression schemes purported to be in regular operation at the LBMA.   There are also rumours that a number of well capitalized silver investors have determined to break those schemes by demanding delivery.  I don't trade futures, but the weekly commitment of traders reports appear to bear this out.

If anything, the so-called 'double-dip', actually a continuation of the first plunge after a brief plateau, increased demand for silver, as it confirmed that the government's efforts to arrest the decline had failed, and insured early and intensive use of the government's only tool, QE, to try to deal with the downward spiral.

As the Fed Chairman advised us all last week, silver speculators got that one right.

Sun, 09/26/2010 - 15:26 | 605778 doolittlegeorge
doolittlegeorge's picture

indeed.  "God forbid if we get a recovery."  And thanks for reminding everyone that "the Fed chairman had a word about silver as well."

Sun, 09/26/2010 - 13:08 | 605608 benb
benb's picture

"Now that gold has hit a new high of $1,302, the yellow metal seems to be begging for a rest."

How so? December contracts on the CONEX are  above $1500. IMO silver is nowhere near consolidating. But hey,hey, what can I say?

Sun, 09/26/2010 - 18:25 | 606030 unbeing
unbeing's picture

Now that gold has hit a new high of $1,302...

I want to know where he gets this "$1,302" figure - I've been looking around, and as far as I can tell the price hasn't yet breached $1,300.  Can anyone enlighten me?

Sun, 09/26/2010 - 23:36 | 606450 harveywalbinger
harveywalbinger's picture

http://www.apmex.com/

They seem to think it did.  Friday chart looks like it may have had a short pop above $1300 around 9 or 10am EST, then got knocked down $3-4 at 11am EST only to slowly recover for the most part prior to Friday's close...  Don't worry, you'll see it above $1300 again this week and that's where it'll stay unless there's some MAJOR distraction that knock down all the markets.

Sun, 09/26/2010 - 14:28 | 605695 jailnotbail
jailnotbail's picture

I've decided that rather than listen to all the arguments and counterarguments on gold, I'm just going to follow the lead of the Chinese, the Indians, and the central banks of the world.  When the Chinese retract their recommendation that citizens accumulate precious metals, the Indians decide that they're going to stop their cultural tradition of using gold as store of wealth, and the Bangladeshi Central Bank decides to sell the 4 tons they just bought from the IMF, I'll be right behind them.

Sun, 09/26/2010 - 15:24 | 605773 doolittlegeorge
doolittlegeorge's picture

rock 'n roll there tough guy.

Sun, 09/26/2010 - 12:43 | 605580 lynnybee
lynnybee's picture

....thank you to the wonderful people on ZEROHEDGE !!   I'm learning lots ! 

Sun, 09/26/2010 - 11:51 | 605520 Kina
Kina's picture

Prof Steven Keenes latest take on the US economy

"The latest Flow of Funds release by the US Federal Reserve shows that the private sector is continuing to delever. However there are nuances in this process that to some extent explain why a recovery appeared feasible for a while.

The aggregate data is unambiguous: the US economy is delevering in a way that it hasn’t done since the Great Depression, from debt levels that are the highest in its history. The aggregate private debt to GDP ratio is now 267%,  versus the peak level of 298% achieved back in February 2009–an absolute fall of 31 points and a percentage fall of 10.3% from the peak.

 

The aggregate level of private debt now towers over the economy, putting into sharp relief the obsession that politicians of all persuasions have had with the public debt. Rather like Nero fiddling as Rome burnt, politicians have focused on the lesser problem while the major one grew out of control. Now they are obsessing about a rise in the public debt, when in a very large measure that is occurring in response to the private sector’s deleveraging.

If they had paid attention to the level of private debt in the first place, then we wouldn’t be facing exploding public debt today."

http://www.debtdeflation.com/blogs/2010/09/20/deleveraging-with-a-twist/

Sun, 09/26/2010 - 14:20 | 605685 jailnotbail
jailnotbail's picture

The debt's still there, but it's beginning to look like consumers have figured out that the best way to deal with it is not deleverage - but just default instead.

There's increasing evidence that people are just walking away from their debts - stopping mortgage payments, telling the credit card company to go to hell, etc.

See this:

American Businesses and Consumers are NOT Deleveraging ... They Are Going On One Last Binge


Sun, 09/26/2010 - 11:40 | 605506 rhyzimmer02
rhyzimmer02's picture

+21.43

Silver has nothing to do with industrial demand

Silver and gold are money and they are increasingly being seen as such.  if you look at the 1970s precious metal rally you will notice two things

1. Silver lags gold

2. Silver eventually outperforms gold

Thats whats happening now, silver is moving into phase 3 and I wouldnt be suprised if we see $30 by year end and $200+ when this bull market is over

Neither gold nor silver are driven by industrial demand, jewlery etc.  its a monetary phenomenon. 

You are right there is no double dip, we never recovered and soon Mr. Bear will come back to kick the stock market in the teeth

Sun, 09/26/2010 - 15:21 | 605763 doolittlegeorge
doolittlegeorge's picture

More like a Central Banker!  Such fine teeth he has, too. 

Sun, 09/26/2010 - 11:23 | 605476 lynnybee
lynnybee's picture

I'm still very new at this precious metals stuff (just a mom & grandma) ,  the article was difficult for me to understand ........... so, does this mean that silver is going up soon or getting a smash down ?     Should I buy more here & now or should I wait for a pullback ?   Thank you !!

Sun, 09/26/2010 - 15:19 | 605759 doolittlegeorge
doolittlegeorge's picture

I'll give you that gurantee.  LOCK UP THE CUTLERY!

Sun, 09/26/2010 - 14:35 | 605707 DoChenRollingBearing
DoChenRollingBearing's picture

lynnybee

My biased opinion is that everyone should own physical precious metals

GoingLoonie offers a great suggestion just above.  Must be smart, that loonie!

Sun, 09/26/2010 - 13:17 | 605618 GoingLoonie
GoingLoonie's picture

From one bird to another, for every gold coin you buy twenty silver would be wise.  And do not forget the saying, "One gold or silver ounce in the hand is worth twenty in paper."

Sun, 09/26/2010 - 12:19 | 605544 Lionhead
Lionhead's picture

lynnybee, no one can answer your question definitively, however, silver has just completed its measured move to the current price that would indicate a consolidation or pullback. Both would be buying opportunities IMO. The fact that you're even interested in precious metals means you have a leg up on the average person.

Some good background info here to guide you in your decision:

http://jsmineset.com/wp-content/uploads/2010/09/Gold.pdf

http://www.martinarmstrong.org/files/Gold%20an%2011%20Year%20High%20for%202010%2009-17-2010.pdf

Armstrong is increasing becoming bearish on an economic rebound; he opines an economic collapse is eventually coming. In such case, precious metals are a prudent investment to preserve your wealth.  Best of Luck.

Sun, 09/26/2010 - 11:46 | 605510 NoVolumeMeltup
NoVolumeMeltup's picture

It means no one really knows, but he's ostensibly a columnist and needs to fill space.

IMHO the smart money has s small amount of physical P.M.s and doesn't care about the fluctuations (except to buy more when it goes down) because it doesn't worry about margin calls and suck.

Sun, 09/26/2010 - 12:20 | 605545 NoVolumeMeltup
NoVolumeMeltup's picture

You can tell I've been on the interwebs too long when I write "suck" instead of "such"

Sun, 09/26/2010 - 12:32 | 605560 Ned Zeppelin
Ned Zeppelin's picture

freudian slip merely revealing your true opinion of MHFT's post which is of course accurate.  Whatever happened to his trade of the century on treasuries as interest rates are sure to rise a scant 6 months ago.

Sun, 09/26/2010 - 12:53 | 605595 NoVolumeMeltup
NoVolumeMeltup's picture

LOL. You should see what I accidentally write when Leo posts

Sun, 09/26/2010 - 14:32 | 605704 Ned Zeppelin
Ned Zeppelin's picture

And Leo's call is for a huge "unexpected" positive in the employment numbers next month, or is it next month, or the month after that? No, it's not anytime as long as things continue the way they are now.

Whatever measly employment numbers you see in the next few months will be the equivalent of the truck pulling up in the town center at dawn and asking for a few "lucky" laborers for the day, as the rest dejectedly meander back to collect unemployment and wait for the food stamp VISAs to reload at midnight at Walmart on the last day of the month.   

Sun, 09/26/2010 - 19:47 | 606164 NoVolumeMeltup
NoVolumeMeltup's picture

Exactly, and in my mind that makes him nothing more than the MSM talking heads wishing on stars and predicting a major upswing, well, just because.

And it isn't enough that they have the MSM channels in a headlock, they need to violate the forums too. WHat are they afraid of.

Sun, 09/26/2010 - 17:11 | 605927 blunderdog
blunderdog's picture

Well, to be sure, ANY "positive" in employment numbers at this point would be unexpected.

As for "huge," well...guess that depends on what other stuff you're looking at to use as a gauge for scale. 

Sun, 09/26/2010 - 12:12 | 605539 bronzie
bronzie's picture

"It means no one really knows, but he's ostensibly a columnist and needs to fill space."

I had a similar thought - it is unfortunate that people like lynnbee are trying to make sense of an 'article' that is little more than marketing for the writer's website

Sun, 09/26/2010 - 13:05 | 605604 GoingLoonie
GoingLoonie's picture

And what is interesting is the website is much more bearish than the remarks here.....,

Sun, 09/26/2010 - 11:33 | 605492 beastie
beastie's picture

If someone could give a 100% guarantee either way then they would be the greatest trader the world has ever seen. The best anyone can offer you is an unbiased, educated opinion. In short, you have to do your own due diligence. It is your money at risk.

My biased opinion is; yes it is going up. If I am right you can throw all the charts out the window. Where it will stop climbing ?????

If you are buying to play the market then stop right now. If you are buying it as an insurance policy then buy today. Put it away and forget about it. 

If you don't know what I mean by insurance policy then don't buy it. 

Sun, 09/26/2010 - 13:16 | 605617 apberusdisvet
apberusdisvet's picture

Buy silver on the dips (we may get a doozie next week, at expiry), but just put it away until it will be useful for buying groceries; a situation that may occur sooner than most think.  Most objective PM research points to silver at $50 before gold hits $2000; a much better percentage play.

Sun, 09/26/2010 - 16:59 | 605914 DosZap
DosZap's picture

Expiry is tommorrow, the 27th,as soon as the Asian Mkts open at 5:00p.m., we will see where she's headed...........Silver.

Too many variables here, major shortage,and people know it.

And TURK say's once it held $21.30+/-, it would IN his opinion off to $30.00 in just a few weeks.Long term, I see it at $50/60.00.

Meltdown, forget it.

I agree, Industrials are not going to get caught short at $28/$30.When they bought it at $19.00+/-.

And unlike Gld this is a market almost anyone can afford.

RIGHT now.

Check Jesses Cafe Blog for his take on both, He and  Mr.Jim/Noricini, are IMHO dead on.

Sun, 09/26/2010 - 11:14 | 605469 unwashedmass
unwashedmass's picture

 

oh, for godsakes, could someone clue this guy on the situation at the Comex.....when you have price that has been artificially suppressed for twenty years, and ....you now have one entity short an entire years worth of global production of silver in an effort to continue to suppress the price....

you are going to have the price ramping for an explosion....

the demand or lack thereof isn't going to be a factor to any degree until silver experiences some actual price discovery.....for the first time in twenty years.......and we have actual supply of the hard stuff meet demand for the actual hard stuff...which hasn't happened in two decades.........

hello? reality is at the door, maybe you want to answer....

Sun, 09/26/2010 - 15:48 | 605815 rocker
rocker's picture

I think this is pretty easy to figure out. If you have the means to suppress the price like JPM does. And you have all the poor bastards in unemployment lines hungry because they lost their jobs, need money and want to eat. So they sell their physical that you are buying at a cheaper price. Forced liquidation because of immediate needs. But then something happens, others see the divergence and the opportunity. Those with enough money to start buying, do so. And just like the market goes up because of short covering, so does silver. The difference is, nobody is really buying stocks, but the sleeping investors are buying and holding silver now. The train has left the station and it looks like a "long" ride.

Sun, 09/26/2010 - 15:18 | 605758 doolittlegeorge
doolittlegeorge's picture

is that a banker inside that house?

Sun, 09/26/2010 - 12:36 | 605564 ISEEIT
ISEEIT's picture

madhedgefundtrader is obviously a glass half full type. I suspect that his vision is limited. He is a micro guy who gets his on the short term. Like a crow, he feeds on what just happens to be available at the moment. Like a crow, he will starve when the scraps vanish. I'm not in finance but I adore ZH and have been following for long enough to have my naturally sceptical mind convinced that the elite have structered for us a Ponzi that will inevitabely fail. It continues today mainly because so many are so invested into it that fear of reality terrifies them into continued motion toward the cliff, understandably, they would prefer to put off the times of reckoning, even though the charade is more clear with each passing day. Societal mass delusion. The resourse pool keeps dwindling though as indivuals continure to check out and seek cover. The last to establish defenses are going to get creamed.

This shit will not end well, actually I believe that it will, but only after 30-50 years of nastiness. Sucks that we have to endure it but we are not having to suffer any greater a burden than other citizens caught up by failed ponzi's of past elitist promotions.

Maybe next time they will devise a better way?

Like maybe outlaw human nature?

Better yet, how about a brilliantly constructed constitution?

Oops!

Tried that but they found a way around it.

Sun, 09/26/2010 - 11:04 | 605450 Sudden Debt
Sudden Debt's picture

When you drop 40% and climb 5%, I don't call it a recovery.

And because the entire recovery is only calculated in %, I don't believe shit about it. You can calculate yourself rich in % and go broke at the end.

There is a hidden inflation that is taking care of your "recovery" but only makes things worse.

Sun, 09/26/2010 - 16:02 | 605818 GoinFawr
GoinFawr's picture

There it is:

You can calculate yourself rich in % and go broke at the end.

See: Debt isn't money. It's debt. At its absolute best it's an easily perverted, unstable medium of exchange, and that certainly doesn't qualify it for currency duty. Not for long, anyway.

http://www.safehaven.com/print/18314/gold-attention-deficit-disorders-add

 

*I liked the article; not commenting on the mining picks.

Regards

Sun, 09/26/2010 - 15:25 | 605775 rocker
rocker's picture

That was a Slam Dunk. Ouch.

Sun, 09/26/2010 - 11:10 | 605461 Robslob
Robslob's picture

Then you would simply need to identify with great accuracy silver use in production cycles vs. Short covering to state your case MHFT.

Sun, 09/26/2010 - 11:35 | 605494 Oracle of Kypseli
Oracle of Kypseli's picture

Those who use silver in their production, may be buying more for inventory built-up before prices skyrocket, which pushes silver much higher. But it does not necessarily translate to silver demand because of a recovery.

Sun, 09/26/2010 - 15:17 | 605753 doolittlegeorge
doolittlegeorge's picture

?

Do NOT follow this link or you will be banned from the site!