Silver as an investment

It didn't hit 16.30. I fat fingered in the wrong digit.

Shelby wrote:

As for holding out for more gains, my current theory (and psychology I am trying to discipline on myself) is the key to winning in trading is taking astronomical gains off the table (and being patient on choosing entry points to minimize downside risk). If you have 21.5% gain in less than a month, that is phenomenal gain if compounded annually. Afaik, most people would take 21.5% with a big smile for an entire year's gains.

I also watch how aggressively buyers are over or under bidding the NAV for AGQ. I can see when they are getting overexcited, that is another sign for me to exit. It is not excessive today, but I do notice they've moved from underbidding (expecting a decline) to overbidding (expecting it to move higher). I want to bet against the majority opinion. But this contrarian signal is not too overwhelming today

Yep, I should have taken the 21.5% gain. I saw the latest candle stick, and I expect a 20 cent move down. I sold at 13.70. Rats.

http://www.gold-eagle.com/editorials_08/vermeulen072309.html

...With everyone so bullish on gold I have to wonder if we are about to get a sharp correction hence the reason I wait for a low risk setup...

Fireworks to upside in August or Sept?

http://www.gold-eagle.com/editorials_08/crossroadsfx072309.html
http://www.gold-eagle.com/editorials_08/watson072309.html

Interesting how accurate Armstrong's predictions from late 2008 have been:

http://www.contrahour.com/contrahour/2009/01/martin-armstrong-the-coming-great-depression.html

...The ideal lows on a timing basis for the stock market will be as soon as April 2009...

...During '09, the support area appears to be 6,600...

And his pending predictions:

...Clearly, resistance is shaping up at 9,700-9,800...

...The more pronounced lows would be due on a timing basis between December 2009 and April 2010. The most extreme target would seem to be August 2010...

...During '09, the support area appears to be 6,600, 5,000, and 4,000-3,600...

So he predicts we may see a new lower low (5000?) by end of this year up to April 2010. He predicts top of current rally at 9,700, so we are nearly there.

Well silver did run to low $14s, which wasn't much higher than the $13.81 I sold, but now we've got a dip. But is this just more consolidation for a further run up? Or has this bounced down from overhead resistance at 50 DMA (daily chart) and now headed back down to 200 DMA support at $12.30?

I do not have a strong instinct either way. Thus I can not enter any trade now. I will sell physical silver if we get a further run into $15s. I will buy AGQ if we get a dip into mid or low $12s, especially going long 100% if we have panic selling.

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ADD: Looks like a reversal candle today, similar to June 1 on Daily Chart for silver? Or just a consolidation day like May 13?

Vermeulen may have issued a buy alert today:

http://www.gold-eagle.com/editorials_08/vermeulen072709.html

Contrast Maund's logic in link below, with Vermeulen's in prior post:

http://www.gold-eagle.com/editorials_08/maund072609.html

However, I intrepret the silver COT situation differently than Maund. First of all, notice that silver broke Maund's uptrend line yesterday. Then note that when silver was had very steep rises, as it was dropping down to it's low in mid-April, that the COT structure was continuing to decline as silver was rising during those interim bounces along the way down to below the 200 DMA. The current COT structure in silver is still too high for the final low of this cycle. Also notice that the COT structure for gold was rising in late March early April, as the silver's was falling, thus gold dragged the silver price down. I see a repeating pattern in price chart and COT structures.

Thus, I still believe I am correct that we must test the 200 DMA one last time, before we blast off past $16 and gold past $1000, which concurs with the European 4 tests inverse H&S experience that mirrors our current one:

http://www.gold-eagle.com/gold_digest_08/hamilton072409.html

I missed the run from $12.50 to $14, because these are extremely risky (sharply volatile) rises to play, as was the case in March/April also. I continue to wait for the very low risk setup. Maybe silver can run to $16 from here and stock market make it's another big push up, which is why I won't dare short this now. But I think it is more likely the dollar will rise for a while, the stock market will consolidate, then we have another pig push up in August/Sept, as everyone returns from summer vacation and notices the markets have been rising without them all summer. I think it makes sense that the markets get take up strongly into Fall, before the next wave of severe disturbances (take down, deflation scare) in the markets. I even think there is a small chance the stock markets could run hard into 2010 before next wave of real estate defaults and drying stimulus effects. However, it appears more probably for a blow off peak in 2009, with a new round of stimulus crap in 2010. Actually it is getting very murky (unstable) as I look out that far. I think it will become increasing risky to trade this market that far out, as if Obama's Health Plan passes then radical revolution increases in probability in shorter time (and the PTB have less need to keep the people fooled as they have their ace in the hole law in place at that point to start the revolution and mass fascism move). I am waiting for one more whopper trading set up and to exit the markets significantly going long physical and some new "based in unique maximum value" cash flow business I want to launch in Philippines.


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ADD: I wrote the above at 9:37am, when silver was still at $13.60. Silver touched $13.18 already today. How far down are we headed? Am I correct back to 200 DMA? Or should we be locking in now for resumption of the upward trend (Vermeulen's scenaio)?

Btw, Vermeulen replied to my logic of this post (I emailed him) and he did not give an indication of his opinion. I think he takes in a lot of input from many people, then tries to use that to judge the sentiment of the market.

Natural gas already rolled back into toilet with lower lows, and looks like oil is ready to crater also:

http://finance.yahoo.com/news/Energy-prices-slide-as-unused-apf-3476707173.html?x=0&sec=topStories&pos=8&asset=&ccode=
http://finance.yahoo.com/tech-ticker/article/292128/Oil-%22Well-Overpriced%22-and-Will-Keep-Falling-Gasoline-to-Follow-Energy-Trader-Says;_ylt=AmBjXwN3SBF5VPiF1jpBI7u7YWsA?tickers=XLE,USO,OIL,OIH,DXO,DIG,UCO&sec=topStories&pos=9&asset=&ccode=

Will stock market, gold (and silver especially) be dragged down by outlook on global economy with oil demand falling? I think very likely. Any way, it only takes a few news stories and some manipulation of the future's markets for the PTB to create these volatile reversals. At this point, oil and $ may be somewhat inversely correlated as people use oil as an alternative investment instead of dollar.

Right on cue, here is an article on Yahoo Finance to bring everything down for a dip:

http://finance.yahoo.com/news/Beyond-Earnings-Five-Things-cnbc-2726781056.html;_ylt=AtG4CFJgVT82MkglPFMpDjy7YWsA?x=0&.v=1&sec=topStories&pos=6&asset=&ccode=

We could see a turn back to upside as soon as Friday:

http://finance.yahoo.com/news/Fed-survey-Stabilization-seen-apf-3337584772.html;_ylt=Ap9c.wv83MBZI9q68yUnr3y7YWsA?x=0&sec=topStories&pos=main&asset=&ccode=

...Many analysts predict the recession eased considerably in the April-to-June quarter. They're forecasting that the economy shrank at only a pace of 1.5 percent in the second quarter.

That would mark a big improvement from the annualized 5.5 percent drop in the first three months of this year. The government will release the second-quarter results on Friday. Many economists also believe that the U.S. could start growing as soon as the current quarter...

However, someone else sees Gold not bottoming for a while yet, thus we could see this fall go on for a while:

http://www.kitco.com/ind/Trendsman/jul292009.html

I can not understand why people still trust the banks:
http://www.zerohedge.com/article/project-mayhem-research-multiple-anomalies-detected-silver-etfs

Looks like I was correct about Friday bounce:

Shelby wrote:...We could see a turn back to upside as soon as Friday:

http://finance.yahoo.com/news/Fed-survey-Stabilization-seen-apf-3337584772.html;_ylt=Ap9c.wv83MBZI9q68yUnr3y7YWsA?x=0&sec=topStories&pos=main&asset=&ccode=

...Many analysts predict the recession eased considerably in the April-to-June quarter. They're forecasting that the economy shrank at only a pace of 1.5 percent in the second quarter.

That would mark a big improvement from the annualized 5.5 percent drop in the first three months of this year. The government will release the second-quarter results on Friday. Many economists also believe that the U.S. could start growing as soon as the current quarter...

However, someone else sees Gold not bottoming for a while yet, thus we could see this fall go on for a while:

http://www.kitco.com/ind/Trendsman/jul292009.html

Nearly all analysts think we are going to have a big break to upside for silver, because of the inverse H&S pattern in gold is bullish intermediate term:

http://www.gold-eagle.com/editorials_08/burak080109.html

However I see the same potential pattern from early 2008, where most silver investors incorrectly thought the Fed was monetizing and hyperinflation, so they hysterically bid up price to $21:



I see the blue 50 DMA is rolling over similarly and the 200 DMA is turning up similarly to that time. And similarly to that time, I know we have brewing a false sense of re-flation in the economy. Also note the declining volume from the peak $14 to peak at $16, that could mean that I am not contrarian after all.

I still have > 50% of my net worth invested in physical silver & gold, so I am well hedged for rising prices and I am hoping for rising prices near-term. However, with my speculative money where I want to play with leverage, I want to make sure I am buying/shorting at an exhaustion point (either blood/hysteria).

Seems to me on the speculative portion of my net worth, that if the true trend is hyper-deflation, then other than the worry about capital controls, holding cash is gaining value all the time, so we can wait for silver bugs to reach exhaustion point, before making a highly leveraged bet.

My bias is that during hyper-deflation, capital preservation is the priority.

I am not well read on technical analysis. I've read that H&S patterns (the one in gold) are pretty important, and I suppose inverse ones are very rare. And I guess silver broke out from a Cup & Handle. But, sure seems to me that in deflation, silver needs to come back down and test that low from late 2008 again. Okay I know that the hysteria was more volatile then perhaps, because people were caught off guard. And now people have had more time to think about where they stand on what is happening, so perhaps they are more rational, which is explains the lower volumes. But aren't we seeing daily volatility increase?

10 years out, I am confident physical silver will have paid off big time (assuming I can protect it). But near-term, I have conflicting trends:

1) "re-flation" hoax
2) deflation reality (hyperinflation if people move to PMs in mass)
3) long-term monetary interest in silver rising (e.g. Indians buying it now instead of gold)
4) default on COMEX or capital controls would send physical PMs to moon and send dollar into hyperinflation (flight would accelerate).

It seems to me that we are no where near capital controls or a physical default, as the PTB can just let the price overshoot to soak up such demand, then crash it back down. Why would they want to tell the world that the dollar is toast when the people are not really awake yet?

Right now the insiders are moving their capital out. We do not yet have the masses significantly moving capital out of dollars yet?

However, PTB will want to do a bank holiday before the masses start to move out. But seems to me they can a lot more people into paper PMs first, increasing the size of their kill, because the longer this deflation goes on, the more PMs scrap jewelry the people will sell.

Look at this chart from page 32:

http://www.elliottwave.com/club/protected/pdf/GoldSilverEbook.pdf



Note, silver fell to high $8s, since that chart was made, so maybe silver has already bottomed before his 2012 cycle timing date? But read what he wrote above.

And read what Pretcher wrote on page 34:



and page 38:



Specifically I think shorting the S&P500 might be a good idea (700+ PE ratio!), but maybe not quite yet:

http://www.elliottwave.com/single-issues/ff/0908FF_Worst_is_Over_Optimism_Sets_Up_Volatile_Third_Wave_Surprise.aspx?code=cg
http://www.elliottwave.com/single-issues/the/0907EWT_The_Bounce_is_Aging_But_the_Depression_is_Young.aspx?code=cg

Also notice on the following chart:

http://www.shadowstats.com/imgs/sgs-gdp.gif

how the red official GDP has narrowed the gap by 50% compared to the SGS blue line. So it appears the govt is preparing to show an improvement in GDP by letting that gap expand again. The sucker's bounce:

http://finance.yahoo.com/news/2-Obama-officials-No-apf-2491158742.html?x=0&sec=topStories&pos=2&asset=&ccode=

Listen to Obama speech except in first min of this, he says basically that:

http://www.netcastdaily.com/broadcast/fsn2009-0801-1.mp3

http://finance.yahoo.com/news/2-Obama-officials-No-apf-2491158742.html?x=0&sec=topStories&pos=2&asset=&ccode=

...Alan Greenspan saying he is "pretty sure we've already seen the bottom" of the recession...

...On Friday, the government released a report that suggested the worst recession in the United States since World War II appears on the verge of ending. The economy dipped only slightly in the second quarter of this year -- falling at a 1 percent annual pace, better than expected...

http://financialsense.com/fsu/editorials/mchugh/2009/0802.html

...We have found huge Head & Shoulders Top patterns in formation for the U.S. Dow Industrials, the U.S. Russell 2000 small cap index, Germany’s DAX, Japan’s Tokyo NIKK, and Australia’s SPASX200. These patterns are not yet confirmed, but will be with declines below the horizontal necklines shown in these charts, requiring a 30 percent drop from here. Once/if those necklines have been broken, there is a high probability that the downside targets will be approached. Those downside targets are close to zero, believe it or not. This is horrific if in fact these patterns confirm...

It is clearly consistent that silver can rise while the stock market is. I have not failed to mention since $12.50 that silver could rise. But for the same reason that I won't go long on stock market right now, that is why I am finding the risk of going long on silver in a leveraged way. BTW, I am long PMs in a big way in physical. I just don't know when this re-flation hoax will be aborted and I feel we are closer to the top, than to the bottom. Thus I would rather wait for exhaustion move to the upside, and then short the stock market, then catch the precious metals on their exhaustion move back down. I think Pretcher called for a $8.39 low in silver towards 2012 and I don't know if that was before silver hit it's lows in upper $8s. I am waiting to get access to his current predictions (paid for subscription and there is some technical issue with accessing what I paid for). I understand some people are short-term day traders and want to try to outsmart the small gyrations in the price. I have no interest in Las Vegas, because I know that in the absense of some fundamental datum, all gamblers lose to the house over time.

Also about silver in general, don't you ever think it is a little bit odd that we have one man fighting the whole world (Ted Butler), yet he doesn't talk much about the 15 Boz estimated to be in jewelry and silverware. And Hommel probably hasn't even looked at the Hyper-Deflation logic seriously. I know Hommel well and while appreciating his positive qualities and impressive abilities, when he thinks he knows something, he very often (not always) shuts out (even ridicules) new contrary data. He will be quick to dismiss the datum on some narrow technicality and not search the solution set for a wider understanding of how the datum fits. I have many examples, such as when I discussed the possibility that China may have huge stores of silver left over from when the Communists seized power. China was overloaded with silver because they had been paying a premium for it, so all the world's silver flooded in, which caused the deflation which was a factor of why the Communists were able to consolidate power later. This is what Fekete thinks is backing the big banks. That is what all authoritarian govts do, they steal all the wealth. Hommel uses GMFS data that China was exporting silver in past decades, but I read the detailed GMFS report on China and they have no solid data about the past decades.

I have no doubt that silver will go much higher if the current fiat system finally dies, but the interim time can be entirely opposite of what silver bugs are expecting.

I remember two instances where I tried to be contrarian against silver bugs, but was thwarted. In Oct. 2007, I wrote that I had moved 58% to cash (from stocks, and kept my physical silver), but I was attacked by Hommel and in the Hommel forum, so I capitulated to peer pressure to re-enter the PM stocks and lost more than I would have. In March 2008, I called Hommel and asked him to sell 50% of the silver he was holding for me (about $21), and he replied that he couldn't sell because his normal dealer contacts were not buying. The truth of the matter is he didn't even try very hard to sell, because I know Tulving was buying at that time. I had the problem at the time that I was working for him, so I couldn't just say "ship my silver to Tulving" without angering him, besides I was unfamiliar with the dealer process, because all my silver had been obtained from Hommel up to that point (so I guess I shouldn't be complaining, thanks Jason!). Well I did have my silver shipped over the next weeks to a 3rd party vault (silver was dropping so I was too late to sell) and of course we know that Hommel went ballastic against me since that (only recently calming down and unblocking my email address).

So it is hard to be contrarian, especially when you care about the people in your herd (yes I care about Jason Hommel). Investors need herds, because they subconsciously feel risk is magically mitigated by being in a group. This is Pretcher's theory as to the basis of Elliot Waves-- the herd behavior.

And he sees an similar A-B-C wave pattern as what took us to $16 in June:

http://www.kitco.com/ind/vermeulen/aug032009.html

As I said many times, I really can't call the short-term on this. I wait for signs of hysteria (herding in) and then bet against the crowd. Vermeulen has a more fine-tuned setup, where he sets a stop and takes losses sometimes, but makes up for them by taking larger stops on the long side. His game is a bit too tedious for my tastes. I had no trouble going long near $12 when we came out of the Cup & Handle in silver and rode it all the way to $15.76. That was an easy call.

Note I bet Vermeulen only publicly publishes a few days after the fact, his winners, not his losers.

I stand ready to sell physical silver if we can get into oversold on RSI again, hopefully in the $15s or higher.

Look at this chart again:



I see a bearish H&S could develop if silver runs comes back down again to $12.5, then runs to $14+ again, then drops off a cliff back to $9.

He is calling for top between 9000 - 10000 DJIA, 1000 - 1100 S&P, and still thinks gold will fall below $680, silver $8.39, and DJIA below 400 by 2012 (+/- 1 year). He thinks 30 year Treasuries will be back below 4% within a few weeks, so he thinks the top is now or very near. Notice others have said DJIA could peak at 11,000. He says be in cash right now. I didn't see anything yet about his shorting recommendations.

I see Pretcher agrees with me that downside risk for silver is very great, he thinks C down wave started at $16, expects this bounce to end at $14.50 or so, then down we go...he sees Gold continuing to post lower highs since March $1033 peak.

He says dollar fall will end Tuesday at $78.32 or could have one more decline below that, then it will rise for long huge rally.

Martin Armstrong said 9,700 - 9,800 (or 12,000 max) for DJIA, but felt the crash will be between Dec 2009 and April 2010 (or Aug latest).

http://www.kitco.com/ind/Summers/aug042009.html

...As you can see, gold has formed a long-term inverse head and shoulders formation (two smaller collapses book-ending a major collapse). Typically a head and shoulders predicts a massive collapse. However, when the head and shoulders is inverse, as is the case for gold today, this typically predicts a MAJOR leg up...

The big dip was where deleveraging overtook the gold bugs, and the rise back up to $1000 is gold bugs thinking that the Fed is inflating, but the negative marginal utility of debt means Fed is printing money that creates deflation.

Since we crossed the line-of-demarcation into negative marginal utlity of debt, that is why the patterns from 1970 do not correlate. In the 1970s, the Fed was indeed inflating, because the marginal utility of debt was positive.

http://www.kitco.com/ind/katz/jul312009.html

...THE GOVERNMENT WILL PRINT MONEY AND “LEND” TO ITSELF. The U.S money supply will balloon from $1.3 trillion in early 2008 to somewhere in the neighborhood of $5 trillion by 2012. What do you think is going to happen to the value of the U.S. dollar with that kind of a massive increase in the money supply?...

No the govt is giving money to the insider banks (TARPs) to lend back to the Treasury, so the debt being added is being paid out to the insider banks. This is why the marginal utility of debt is negative, because the entire economy is being flushed down a funnel to the insider banks.

The H&S might not fail and we might see spiking up of precious metals prices, but I am nearly sure that the deflation is going to take the prices down hard again eventually. Pretcher's prediction is $680 gold, $8.39 silver at some point between 2011 and 2013.

I would still hold gold and silver, because they may not fall as much as that. But I will definitely sell any peaky hysteria rises, because until the world dumps the dollar, it will just get stronger during deleveraging.

Compare that gold chart to the S&P (long and near term both have inverse H&S):

Did not yet sell any physical nor go short on stocks. I think we need another burst higher. I want to see people acting crazy. We may need to get a dip first.

I did miss this run up with my speculative capital. We can not win them all.

I think the reason I missed that run up, was my own research was "in process". Now in highsight, it was clear to see that sentiment was fearful at $12.50 and that we needed one more push higher in all markets before any crash.

Yet another confirmation evidence that Pretcher may be correct that silver will decline and reach a new low before 2012:

http://www.kitco.com/charts/historicalsilver.html

Culmulative average price of silver had increased every year since 2001, but is currently at $13.23 with 2008 high was $14.98, so price would need to average above (($14.98 - $13.23) x 2) + $13.23 = $16.73 for remainder of the 2009 year. That seems very unlikely, unless silver does a rocket shot then stays above $17 most of the rest of the year.

Whereas, the situation in gold is opposite:

http://www.kitco.com/charts/historicalgold.html

Gold's culmulative average for 2009-to-date is $919, and for 2008 was $872. Thus in order to not set a new high, gold would need to average under $872 -(($919 - $872) x 2) = $778. So even if gold has a take down to Pretchers predicted low of $680 (and Pretcher/EWI thinks that low won't come until 2011 or so), unless it is sustained then gold is likely to set another culmulative average high in 2009.

http://financialsense.com/fsu/editorials/willie/2009/0806.html



I am not necessarily going to wait for dollar to hit 72 before selling more silver and shorting the S&P500, but that does give me a strong basis to expect we are not yet ready for the turn towards another crash. We are getting closer.

One problem is that 50 DMA can't get down there for few more months. But this would coincide with Martin Armstrong's call for a top in Dec at earliest (9,700 - 9,800 DJIA).

I am watching sentiment also as a big factor. Right now the sentiment in PMs is very high, and everyone is anticipating the big run from the "inverse H&S in gold", but I am thinking it is not yet hysterical, so I am holding on a bit to see if the silver bugs can get too excited. I am still waiting for Hommel to say "buy now!". However, Hommel's business model has changed, and the premiums go down (in % terms) as prices go up, so he may no longer be a great contrarian indictor.