smart-money-report.com Blog

If the Silver ETF (SlV) trades to 122 it will be another double top breakout on the PnF chart. The high today so far is 121.98.

You have to scroll toward the end to find this, but Richard Daughty made the following comments about silver:

– Reader Earl M. has calculated that the silver situation is astonishing, as “since 1500 A.D., the number of cumulative refined ounces available per person rose from 3 to 8.1 ounces, but has now fallen back towards 3 ounces per person.” He finds it “amazing” that “production has increased 300-fold, yet the silver available per person is headed towards a 1,000-year low.”

And it will get worse, as TedBits.com notes that the Barclays Exchange Traded Fund (ETF), which stores and sells shares of a hoard of silver, “has filed to buy and move to the warehouses over 1 year’s production of silver.” Thus, “There are more buyers and users of silver than silver for sale.”

“Who, what, where, when, why?” you exhaustively ask. Too lazy for that crap, as it would involve actual work to find out, I direct you to David Bond, of The Wallace Street Journal, who helps explain who is helping to gobble up all this silver and what they are doing with it. He writes that in the latest Sharper Image catalogue “were the latest products featuring the latest in nano-silver technology, to wit, quilts, bedspreads, pillows, socks, foot massagers, sandals and slippers, all impregnated with silver nanoparticles to keep the bugs, bacteria and (yecch!) mites and mold away.

“Though not featured in this catalogue, everything from household washing machines and refrigerators to commercial water- and air-purification systems utilizing silver as the nonpareil bacteria-killer that it is, are on the market now, in use, worldwide.”

As if that were not enough extra demand to fuel a huge rise in silver prices, he goes on to report “The British Army is issuing silver undergarments to its troops in order to cut down on the fungus and bacteria that attack soldiers occupying less-than-hygienic conditions. And now soon yuppies will be pampering their feet with it.”

And it gets even more interesting when he reports “One factoid we picked up at the China conference, courtesy of Silvercorp’s Cathy Fong, was that silver consumption in China is growing at an even faster rate than China’s phenomenal growth in GDP.”

Naturally, I ask, “Are they hoarding it so that they make a big ol’ freaking pot full of luscious money when silver explodes to the upside? Huh? Are they? Huh?” He coolly answers “It’s not because Chinese are hoarding the stuff, though there may well come a time when they will; it’s because 300 million Chinese have joined the industrialized middle class, with another 1 billion to go.”

All in all, add it up, extrapolate out a few years, and you can’t help but go “Wow and double-wow! Talk about increasing demand for silver! Gimme, gimme, gimme!”

Steve Saville has written an important piece on secular trends. Secular bull markets begin when a market becomes extremely undervalued and end when a market becomes extremely overvalued. Scroll down about half way and you’ll see that in 2000-2001 the secular bull market for stocks ended and the secular bull market for gold began. Keep your eye on the secular trend.

The 20 year anniversary of the Crash of 1987 was five days ago. But I came across this amusing and educational flashback about what it was like being a young broker on October 19, 1987. Ahh… the memories.

The Aden sisters say that as long as gold stays above its 65-week moving average the bull trend is intact.

The lack of bullish sentiment has been a key factor in keeping the stock market up. That may be changing. The percentage of bearish bloggers is down to 35%.

I don’t usually link to technical analysts giving their opinion because a lot of it, quite frankly, is a bunch of junk. But this guy has done some very good work.

India is importing gold at the same time that bearish sentiment is not far from an all-time extreme. And, I might add, at the same time that commercial traders are reducing their net short positions.

Nope. Not by a long shot. Here’s part of what Morgan Stanley says about it via Bill Cara:

We continue to believe we are in a new supercycle. Its primary drivers are the industrialisation of the world’s largest country (China) and a mining industry that faces unprecedented supply issues as a result of systematic underinvestment due to a 30-year strategy of repositioning for continued slowing demand growth. This very powerful combination has been enhanced by the “rebirth” of commodities as a financial asset class in the past 12-18 months. It has been estimated that pension and mutual funds may have invested US$120-150 billion in commodities to date, as part of a portfolio diversification strategy, and that significant further funds remain to be invested.

It is the combination of these three factors that is set to drive the “higher for longer” theme for a number of years, although of course we expect pauses and “bumps in the road”. The sharp pullback over the past 4-5 months is just such a pause, in our view, with unwinding of linked trades (US dollar/oil/gold/base metals) driving significant selling by momentum-focused investors.

…we believe there is a growing case for a 4Q rally in commodities, driven by increased Chinese buying following heavy de-stocking over the past 6-9 months (particularly in copper), coupled with even tighter markets as stocks continue to fall, the ongoing risk of more strikes and supply disruptions, and the possibility of renewed fund buying.

I think this article in The Telegraph is probably right. Central banks may have sold much more gold in September than previously believed.

Barclays Capital said Europe’s banks had sold an extra 100 tonnes from reserves in a rush to meet a quota deadline on Sept 26, but had done so by selling through forward contracts that disguised the effect.

If they did it using off-exchange forward contracts it also wouldn’t show up in the weekly Commitments of Traders report of futures positions. That would explain why gold prices fell at the same time that commercial traders were reducing their short hedge positions on the COMEX.

But this is ultimately bullish:

“We believe this is actually very bullish for gold because it shows that the sell-off was not driven by investors,” said Ms Jacazio.

Philip Klapwijk, chairman of the precious metals group GFMS, said bullion would soon resume its five-year bull market. “The game is not over for gold. We’ve still got a big dollar devaluation ahead,” he said.

I don’t usually pay attention to after-the-fact explanations of why a market does whatever it does. But, in this case, I think it could be significant.