This past week (I’m writing Saturday afternoon) was a perfect “new normal” period, in which essentially all news flow was violently negative, yet TPTB made sure “markets” suggested otherwise. To that end, I last month discussed how “oil, Greece, and the Fed” were the three most dangerous near-term market factors; and since then, the headwinds surrounding all three are significantly direr, with no end in sight.
This week a subscriber shared with me an interesting and well-written analysis. The focus was mainly relative to gold. He wondered if I might shed light on silver - based on similar parameters. First and foremost, I do not deny the complex tertiary dynamics with regard to the movement of physical gold. I am also painfully aware of the secondary technical indicators that arise from the short-term price action.
The old game is Rock-Paper-Scissors in which rock breaks (wins against) scissors, scissors cuts (wins against) paper, paper covers (wins against) rock. The game is balanced with wins, losses, and draws.
There are 105 trillion reasons to own silver. Very few investors in the world realize this, which makes it one of most undervalued assets in the world. While the paper price of silver could go a bit lower, it’s forming a bottom while the major stock indexes are developing the BIGGEST TOPS in history.
COT Silver Report - April 24, 2015
Precious metals continued their consolidation this week, with gold drifting off $10 to $1195 as of last night, and silver by $0.42 to $15.85. Intra-day trading ranges are relatively tight with buyers of physical metal on the dips and sellers of paper contracts capping rises.
Excepting short term price performance, physical silver is often referred to as either the ‘good news metal’ or the ‘bad news metal’. It’s the ‘bad news’ metal because, like gold, in times of a currency crisis it behaves more like a hedge against currency debasement or as a monetary asset.
The “fair value” of gold for 2015 is approximately $1,527, based on my empirical model for the price of gold back to 1971. The model is NOT a timing model, but is a valuation model that uses 3 macro-economic variables (not gold or silver) to calculate a “fair” value for gold. The statistical correlation between the smoothed annual price of gold since 1971 and the model projection is 0.98. It works, is logical, and projects much higher prices in the years ahead.
The silver market is broken and has been broken for a long, long time. Much longer than most people think although many people can finally SEE the problems with the market now as the paper market continues to distort the price of physical silver. It is silver derivatives and computer trading models introduced in the 1970's that really started to distort the market value and it has never been more distorted than it is today. Hundreds of Billions of silver derivative ounces are transacted by the bullion banks every year to steer and control the price of silver. This volume of silver trading dwarfs the tiny physical silver market that only provides a few hundred million ounces of physical silver to the market annually for investors to buy.
It’s Tuesday morning, and the way things are going, this bronchitis could be with me for some time. Fortunately, I can still type – and think. However, clinically speaking, I am “light-headed” due to my inability to breathe normally. And thus, while you’ll still get the gist of my thoughts this week, they may be a bit “jumbled” at times.