Gold and Silver’s Saving Grace With a Sweet Spot Alert

If you did not have an opportunity to review the smart money’s ace up the sleeve during the summer months, I suggest you do so before continuing. There are details regarding the trade patterns of large speculators and bullion banks, as well as a breakdown of recent Commitments of Traders (CoT) reports and technical analyses on gold.

I will be publishing a full gold technical analysis update soon as a follow-up to my brief sweet spot alert posted on Oct. 2.

Gold and Silver Sweetspot Alert - Technical Analysis by TraderStef

The recent price action in financial markets implies that investors and mindless algorithms (roughly 85% of the market) have no fear of an inflation run or concern about the potential of a black swan or systemic default event. IMHO, the irrational exuberance exhibited underestimates the counterparty risk flowing through the wires of our interconnected global financial system.

“These algos have taken all the rhythm out of the market and have become extremely confusing to me — when you take away price action versus news from someone that has used it as the major disciplinary tool for 35 years – it’s tough” – Stan Druckenmiller on Real Vision, Sep. 28

While drudging through the daily onslaught of analyses on the gold and silver markets in the Western World, one meme appears to dominate the mindset of the disenfranchised investor or analyst: “The manipulators control the gold market.” Yes, there is manipulation, but not to the degree they would have you believe. The constant ramming of conspiracy that extends back to my depression-era grandmother (God bless her soul for hiding silver in her basement walls), bullion banks, central banks, hedge funds, FOREX, currency pegs, and a plethora of additional dark side entities all seem to defy the complexity of a global market and eliminate all counterparty risk in the process. It’s an absolutely stunning achievement, so much so that any new investor that ventures into the precious metals space is scared out of the market after perusing their first commentary or they immediately run for the exit on any whiff of volatility.

In a quantum world and based on simple math, it is impossible to accomplish what the man behind the curtain in The Wizard of Oz managed to pull off within today’s financial markets. The investor would gain a lot more wealth and wisdom if they would read both sides of the fence, follow none, and focus on learning the mechanics of how to buy low and sell high.

In the meantime, investing in precious metals has become ridiculously cheap. For many retail and unseasoned traders, the current price action may be distasteful, while the seasoned mercantilist observes such a situation as too good to be true. An undervaluation that permeates any asset class while it resides in an accumulation phase of a primary bull market is eventually greeted with a correction to its fair value, most especially in the commodities and metals space when the asking price in its paper-based derivatives market hovers around the average cost of production.

While on the topic of costs, let us flip on over to the concept of retaining your capital and review the price of a few products that were regularly purchased in the 1950s by a typical American household. The price of a USPS postage stamp was $0.03. A 12oz glass of Coca Cola was $0.10 at the local five and dime store. A subway ride in NYC was $0.10. A loaf of bread was $0.14. A gallon of regular gasoline was $0.20. Sirloin steak was $0.77/lb. A second-tier seat at Yankee Stadium was $1.25. A Philco model TV with a 62 sq. in. screen was $199. The average price for a Ford automobile was $1,800. The price of a middle-class home was $7,150.

The price for an American-made men’s business suit in the 1950s was $35-$45. Those same 35 Federal Reserve notes will not even buy you one well-made dress shirt at today’s prices, but the same 1oz of gold priced in today’s spot paper playpen at $1,200 (higher for standard mintage or numismatic coins) will buy you one high-end fitted suit at Lord & Taylor or a couple to a few in lower-quality brands. Gold’s saving grace as money vs. perceived volatility or value is that it still retains its purchasing power over time, and then some. Franky baby!

The silver content of a denarius coin during Roman times was ​1⁄10 ounce. Depending upon the location and time period chosen, that silver coin would purchase a loaf of bread or two, despite its debasement (graphic via Visual Capitalist) over the course of its existence, something that contributed to the demise of the Roman Empire. Based on the paper spot price as of Oct. 2, 2018, 1⁄10 of an ounce is equal to $1.50 and can purchase a loaf or two of fresh-baked bread at a Walmart Supercenter bakery. A pre-1965 U.S. quarter (aka Junk Silver) will purchase a few fresh-baked loaves or an off-the-shelf brand name loaf at your local grocery chain. That same quarter will also buy a gallon of gas to get you there today. The goal of retaining your capital with silver is as good as gold.

Before concluding this precious rant today, here are a few newsworthy items to consider:

  • Impact On The Silver Market Of The Auto Sector ElectrificationLBMA/GFMS, Jul. 2018
  • Fibonacci Pinball And How Did It Predict The Trump RallyElliott Wave Trader, Jul. 31
  • India continues to import enormous amounts of silverBGASC, Aug. 25
  • Silver Supply & Demand Disparity Could Result in Huge ReturnsLombardi, Aug. 28
  • CoT: Since 1986 Commercials Never Net Long Until This WeekTom McClellan, Aug. 31
  • Iraq takes advantage of USD dip to add 6.5t of gold to reservesAlistair Hewitt, Sep. 5
  • Asia’s super rich advised to add more gold to portfoliosSouth China Morning Post, Sep. 6
  • Monetary metals derivatives soar, so who ARE those guys?GATA, Sep. 12
  • Central Banks Go On Gold Buying Spree Over Dollar WorriesForbes, Sep. 11
  • Germany’s Heraeus opens new precious metals factory in ChinaXinhuanet, Sep. 13
  • Mongolia opens precious metal testing labs to increase gold reservesNew China, Sep. 18
  • Video: JP Morgan Corners The Silver MarketChris Duane’s Truth Never Told, Sep. 18
  • Swiss August gold exports 150t (+112% y/y) listed by destination MacroTourist, Sep. 23
  • Swiss August gold imports 245t (+19% y/y) listed by origin MacroTourist, Sep. 23
  • Barrick buys Randgold to create world’s largest gold minerFinancial Post, Sep. 24
  • Rediscovering Gold Is Cheap – You Do the MathBarron’s, Sep. 24

  • Look at how well gold has retained its value for 1,000 years agoSovereignMan, Sep. 27
  • The Dollar Doubts of a JPMorgan StarBloomberg, Sep. 27
  • Global Central Bank Buying Puts Floor Under Price of GoldPalisade Research, Sep. 27
  • Why Gold Is Poised To Pop Like A Jack-In-The-BoxForbes, Oct. 1
  • Russia cuts dollar, euro share in reserves, lifts weight of goldReuters, Oct. 1
  • Fed Indicates You’d Be Wise To Get Some GoldThe Daily Coin, Oct. 1
  • Bank of Nova Scotia to Pay Penalty for Spoofing Precious Metals MarketsCFTC, Oct. 1
  • You’re Not Invited As WGC Teaches Central Banks About GoldSilver Doctors, Oct. 1
  • “It Will End In Tears”: Stocks, Euro Slide, Italian Contagion SpreadsZeroHedge, Oct. 2

The following interviews are a must-watch for any precious savvies out there.

Modern Wall Street Roundtable LIVE at Delmonico’s with Jim Rickards, Stephen Guilfoyle, Douglas Borthwick, and David Williams to discuss gold, the U.S. dollar, cryptocurrencies, U.S.-China trade relations, and more.

Bloomberg Intelligence Senior Commodity Analyst Mike McGlone shares the indications futures markets are providing for the future, with a focus on gold and commodities.

Lastly, an excellent overview of the current situation at the LBMA’s paper gold playpen.

LBMA Clearing and Vaulting data reveal the absurdity of the London ‘Gold’ Market… “There have only ever been about 190,000 tonnes of gold mined throughout history, with nearly half of that said to be in the form of gold jewellery, and only 38% held in central bank and private hoards. Therefore on a monthly basis, the London gold market looks to be trading about 68% of all the gold ever mined in the history of the world, and on an annual basis, the London gold market looks to be ‘trading’ more than 11 times the amount of gold ever in existence, even though nearly all of this above ground gold is never in fact traded at any given time.

But it gets even more absurd. Recall from earlier in this article that as of the end of June, (the latest month for which LBMA vault and Bank of England vault gold holdings data are available), there were 7,684 tonnes in the LBMA vaults, 2505 tonnes in the LBMA vaults excluding the Bank of England vault holdings, and 998 tonnes in the LBMA vaults when excluding ETF gold holdings stored in London. And note that with LBMA and Bank of England vault holdings fairly static, these figures do not change much month to month. But each day in the London Gold Market, there are approximately 5880 tonnes  of ‘gold’ traded. So the equivalent of 6 times more ‘gold’ than the maximum amount of physical gold that could possibly be underpinning trading is being ‘traded’ every day in London. On a monthly basis, the equivalent of 130 times more gold is being traded than is available as physical gold in the London vaults to underpin trading. And a whopping 1470 times more ‘gold’ is being traded each year in the London Gold Market than is available in physical form in the LBMA vaults in London to underpin trading.” – BullionStar, Oct. 1

RIP anniversary tribute to Tom Petty – Saving Grace

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Originally published on October 4, 2018 by TraderStef at CrushTheStreet.