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Got Gold Report – Stopped on Silver, Caution Flags Flying



-- Posted Monday, 10 May 2010 | | Source: GoldSeek.com

By Gene Arensberg       Esse quam videri – To be rather than to seem. 

 

Rig for heavy weather and hope we don’t get it.  

 

Greece is just the coating in the pan to fry PIIGS.” – Don Coxe, BMO Capital Markets. 

 

ATLANTA – Positive money flow into gold and silver ETFs showed strongly this week as the very viability of one of the world’s major fiat currencies (the euro) comes into serious question.  Indeed the very existence of the European Union now seems questionable where just two years ago its currency strangely seemed preferable to many.

 

What a difference two years makes these days. 

 

Wealth flowed rapidly away from the euro and into U.S. dollars, gold and other havens. We believe the main reason Greece has not already been cut from the E.U. is simple.  As long as Greece remains in, it takes the spotlight off the next PIIG in line.  We wonder if the now blowing-out credit default swaps have already discounted the next European shoe to drop, and we aren’t speaking rhetorically with that.        

 

Uncertainty, the bane of all markets everywhere, reared its hydra-like heads across many, if not all markets.  Gold stood tall and advanced, just as most of us thought it would in 2008. So far so good.  Silver took a sell-raid torpedo amidships tripping our reasonable trading stops with an unreasonably large move lower relative to gold. We’ll take the less-than expected “payday” and bide time until a new entry opportunity presents itself for that short-term ammo.   

 

What we worry most about under these unsettling conditions is a mad, indiscriminate rush to liquidity fueled by real panic, similar to the events which occurred in 2008 and again in March of 2009. We fear that the events in Europe are like a pile of tender waiting on a spark … possibly a rabid terrorist-caused event.

 

In 2008 the world faced a global meltdown of the entire banking system which is the same thing as our entire system of commerce.  We faced the business equivalent of Armageddon then and every sentient trader out there today carries in his or her mind an ominous, nagging, constant threat.  The worry that 2008 wasn’t The Big One, it was just the Start of The Big One.

 

Governments injected massive amounts of liquidity into their systems to stave off the worst case scenarios panicked advisors and bank officials painted. It took tremendous, never before seen or even conceived-of fiscal stimuli to keep this bloated, overloaded and heavily waterlogged global ship from sinking in 2008-9. With perhaps the only exception being China, all of that monetary stimulus was borrowed money. 

 

All across the western world governments have abused their ability to borrow and print money so much that we are no longer talking about their ability to actually repay their stupidity.  We are not really talking about whether governments that still have the printing press as a “lender of last resort” will end up using currency debasement to repay hideously large over-spending and gargantuan borrowings.  The question is now by how much? 

 

Over the next fiscal year the United States will have to borrow something like $120 billion per month – per month! - just to keep government checks from bouncing. We are old enough to remember when that was a high and unacceptable annual deficit.  Governments seem to never learn that debt problems cannot be cured with more debt, they can only be postponed and engorged by more debt. 

 

The primary recurring problem with fiat currencies has always been that the issuers of under-backed, irredeemable currency always end up abusing the privilege.  They forget or ignore that the only thing supporting the “value” of a fiat currency is people’s confidence in it as a store of value. The loss of confidence in currency is death for that currency. 

 

All previous experiments with un-backed or even under-backed fiat currencies have ended with the same result – they failed.  Eventually all had to be replaced with real money.  Not because politicians wanted to, obviously, but because their subjects and trade partners wouldn’t take anything else. 

 

We have a few more comments along those lines at the end of this report in the Vulture Comment section, but for now events have devolved to the point where we want to become much more cautious, so let’s move into the “meat” of this report.     

 

Frankly, we do not like some of the signals we are seeing in the markets just now.  Markets are over-reacting.  The smell of panic is present, and like it or not the proper thing to do under such uncertain circumstances is to haul out the caution flags, tighten stops on most short-term equity issues, and take precautions and downside option “insurance” for the stocks we intend to hang onto even through a hurricane.   

 

In short, rig for heavy weather and hope we don’t get it. 

 

With that intro, let’s move right into what has our attention this week.  First, here’s this week’s closing table:

 

May 7, 2010

 

 

 

 

Got Gold Report Indicator Comparison

This Week

Prior Week

Change

w/w Chg %

Gold Weekly Close (USD)

$1,208.50

$1,179.20

$29.30

2.5%

Silver Weekly Close (USD)

$18.37

$18.65

($0.28)

-1.5%

GLD Metal Holdings (Tonnes)

1,188.50

1,159.00

29.50

2.5%

SLV Metal Holdings (Tonnes)

9,087.72

8,912.94

174.78

2.0%

Gold Close COT Date

$1,171.09

$1,168.15

$2.94

0.3%

Silver Close COT Date 

$17.86

$18.18

($0.32)

-1.8%

Gold LCNS (Contracts Net Short)

271,586

265,522

6,064

2.3%

Silver LCNS (Contracts Net Short)

55,388

56,421

(1,033)

-1.8%

HUI EOW Close

451.57

463.73

(12.16)

-2.6%

US Dollar Index Weekly Close

84.58

81.82

2.76

3.4%

ICE Commercial Net $ Pos. (Contracts)

(32,653)

(27,463)

(5,190)

18.9%

Gold:Silver Ratio Weekly Close

65.79

63.23

2.56

4.0%

Gold Intra-week High

$1,213.46

$1,181.56

$31.90

2.7%

Gold Intra-week Low

$1,157.55

$1,146.67

$10.88

0.9%

Silver Intra-week High

$18.86

$18.75

$0.11

0.6%

Silver Intra-week Low

$17.08

$17.84

($0.76)

-4.3%

Gold High/Low Spread

$55.91

$34.89

$21.02

60.2%

Silver High/Low Spread

$1.78

$0.91

$0.87

95.6%

 

This Week’s Radar Screen  

 

The Got Gold Report – the full report – is published biweekly.  Between reports we communicate more regularly on the GGR web log, so it pays to stop by once in a while to catch the latest offerings. 

 

The purpose of the Radar Screen is to briefly summarize our positioning for the gold and silver markets, and also to highlight one, two or maybe even three of the dozens of indicators, ratios and graphs we keep in constant touch with at Got Gold Report.  Long-time readers know we update most of the Got Gold Report linked charts each week, even the weekends when we don’t publish the full report.

 

For a little while longer, readers need only pull up the last full report (even this one) and click on the chart links on “off weeks” to see any updated comments.  Changes are almost always completed by 6:00 pm EDT on Sunday evening and occasionally during the week itself as events unfold.  The chart links are always at or near the bottom of the reports.   

 

Pretty soon now, however, all of the chart links will have to change as we have transitioned to our new permanent web home, which we are proud to say is up, functioning and gaining lots of new readership at www.GotGoldReport.com.

 

Back to this week’s Radar Screen:  We returned to the gold bullish camp on February 5, with gold then in the $1,050s.  We have been patient and cautious, moving our stops up first to the $1,080s, then near $1,105.  Three weeks ago we moved our trading stops up to the $1,120 equivalent immediately following the SEC v Goldman news.  This past week, given the turmoil in all capital markets, gold’s strong surge and the collapsing euro currency, we opted to raise our gold trading stops once again to the $1,156 level, which is just under this week’s low print. We plant to stay put going into this coming week with gold.      

 

We have been comfortable with our positioning, which allowed us to participate should gold and silver move forward, while (at first) preventing our “winner” positions from potentially becoming losing ones, then we moved our stops higher gradually to protect our growing profit positions, but still content to allow for more than normal volatility.

 

Unfortunately a Tuesday/Wednesday sell-raid on silver tripped our $17.50 equivalent stops, giving us a nice, but less-than-expected “payday,” and sending us to the safety of the sidelines with our short-term silver positioning for now.  The selling pressure on silver seemed unusually strong and panicky, especially on Tuesday when the silver price virtually free-fell nearly a dollar and under those conditions we have to respect that we are small fish in a pool full of larger, better equipped sharks.

 

With oil plunging madly, the euro in free fall, the Big Markets snowballing lower and panic in the air, we may miss out on the best breakout of our time on silver with our short-term trading ammo, but maybe not.  We have noted intense “opposition” as silver approached the $19 mark since November.  Should $19.50 give way to the upside, the upside limit is likely measured in dollars, not cents, so we will be watching the trading even more intently than usual going forward. 

 

We thought the sell-down on silver this week was overly violent but we silver veterans have become accustomed to such harsh downside moves over the years.  We have said many times that when the largest “hedgers” have been given virtually unlimited exemptions to size limits they certainly have the opportunity to manhandle the market whether they do so or not.  We think it is obvious they do so from time to time.    

 

What was even more surprising to us, however, was the near-vertical blastoff for silver on Friday from about 12:15 to just before 13:00 as shown in the one-day chart below courtesy of Kitco.com. 

 

 

Some analysts and commentators are tying the sharp move higher on silver to a press release issued by the Commodities Futures Trading Commission (CFTC) on Friday at about the time the jump higher began.  In essence, the CFTC press release merely reminded traders that position limits apply even to intra-day positions, not just the positioning at the end of the trading day.   The CFTC release is at this link. 

 

We suspect, however, that Friday’s short-covering style jump higher might just as easily be attributed to rumors floating on Friday of a probe into the largest trader in the New York silver futures market.  Subsequent to the close of trading a New York Post story by Michael Gray revealed that “Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market.”

 

Citing sources “who did not wish to be identified due to the sensitive nature of the information,” Gray reported that “The Commodities Futures Trade (sic) Commission is looking into civil charges, and the Department of Justice's Antitrust Division is handling the criminal probe,” however thus far JP Morgan has not been charged with any wrongdoing.

 

Our friends at the Gold Anti-Trust Action Committee picked up on Gray’s report, and you can find it on the GATA website here. 

 

The problem we have with the idea that Friday’s surge higher for silver came from the CFTC warning about position limits is that the largest hedgers and short sellers already routinely go way beyond position limits by utilizing their exemptions to position limits, pretty much at will.  So we would think that a CFTC press release covering position limits doesn’t mean very much to them. We could be wrong, of course and would be glad to hear from individuals close to the action.    

 

The news of action by government regulators and the DoJ directly into the wheelhouse of the largest “hedger” on the planet is a equine of a different hue, however, and certainly could have sparked action in the vicious, take-no-prisoners metals pit. (We use the term “hedger” loosely because the CFTC does.) 

 

All we know for sure is that something sparked a violent rally on Friday, and it wouldn’t surprise us in the least if the CFTC notice and the reported probe into JP Morgan Chase were directly linked. 

 

We are on the sidelines with our short term silver ammunition, but we are like a bird dog on point waiting for a re-entry sign.   

 

We will have more about our positioning in the linked charts below and on the web log later this coming week, but for now we are long gold and nervously watching the signals. 

 

This week in the Radar Screen is a free-flowing run-through of several of the important graphs we track here at GotGoldReport.com.  With minimal commentary, just to give an idea of what we are looking at during this crazy, unsettling week, but first, here’s the short-term gold graph: 

 

 

The above is an excerpt of the full Got Gold Report.  To continue reading the entire report click on this link.  Thank you for doing so! 

 

Disclosure: The above contains opinion and commentary of the author.  Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure:  The author and/or his family currently holds a long position in SPDR Gold Shares, net long  iShares Silver Trust, long the following “Vulture Bargain Hunter Stocks” mentioned in this report or within the last year: Timberline Resources (TLR), Paragon Minerals (PGR.V), Forum Uranium (FDC.V), Odyssey Resources (ODX.V), Terraco Gold (TEN.V), Hathor Uranium (HAT.V),  Gold Port Resources (GPO.V), Bravo Venture (BVG.V), Millrock Resources (MRO.V), Atna Resources (ATN.T), Riverstone Resources (RVS.V), Premium Exploration (PEM.V), Constantine Metal Resources (CEM.V), Canadian Shield Resources (EXP.V), Rye Patch Minerals (RPM.V), Golden Predator (GPD.TO) (new) and currently holds various (approximately 10) other long and short positions in mining and exploration companies. The author receives no compensation from any company mentioned in this report with the following exceptions:  Canadian Shield is a sponsor of www.gotgoldreport.com.   To contact Gene use LLCCMAN (at) AOL (dotcom).  

 

  

 

A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets.  In 2000 Gene started sharing his own market research with fellow traders and fund managers.  Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web. Gene’s more in-depth market reports, insights and trading ideas are available at www.GotGoldReport.com.   


-- Posted Monday, 10 May 2010 | Digg This Article | Source: GoldSeek.com




 



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