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Silver Break Improves Fundamental Clarity

Published 09/29/2014, 03:13 AM
Updated 07/09/2023, 06:31 AM

The breakdown in silver has at least resulted in greater clarity, as the time and price possibilities are limited for hitting and turning from its low (the twin report focuses on the corresponding technical case.)

That article includes the conclusion of the twin articles, as well as the preferred strategies founded on the analysis' implications, in the context of yield, risk/reward, leverageand risk/tolerance.

REVIEW: I congratulate those purist technicians who followed nothing but that discipline to stay with a trend until it would be decidedly broken. I sincerely applaud the dedication and loyalty to that discipline.

Despite cyclically correct intermediate term forecasts over the past 15 months, insofar as being able to identify any acceleration higher, this past 2-year period has plainly not vindicated forecasts (see prior articles).

Notwithstanding, the recommended strategies of the past year-and-a-quarter have every potential of enjoying exceptional returns,since a combination of very long term diagonal call spreads (i.e. - 2 years over 1), coupled with long term calls comprised the SKGS approach.

FUNDAMENTALS

Buyers and Sellers:

China AND Russia's financial measures through this currency war will have dramatically led to permanent changes to the global financial and political background, as new currencies and borders replace old ones.

''The importance of gold as an investment and as a backing to a future currency is being explicitly signalled by the Chinese authorities." The Russians have echoed the decision....quite clearly.

On September 25, 2014, GoldCore reported, "Currency Wars Deepen - Russia, Kazakhstan Buy Very Large 30 Tons Of Gold In August." This continues a string of monthly gold accumulation by the Russians and former Soviet member states, the writer explains - the Chinese and other major Asian players aside.

Meanwhile, Shanghai, the CME and Dubai are getting ready to set up shop in major Asian and Middle Eastern centres, with the view to establishing gold and silver exchanges and hubs. There, the metal's value will be determined by physical transactions, not US paper pricing.

Establishment of these new exchanges is set for this quarter !(I question the origins and motives of this most recent paper manipulation.)

Soon, the dog will again wag the tail.

Dubai is a good example of what is going on in the "real" world. Paper PM prices drop - they buy more.

Reiterating, we have hit a point where Shanghai's trade now exceeds the volume on the COMEX. Exchange centres may imminently become major hubs, too (Singapore, Shanghai, Hong Kong, Dubai).

As the prices of gold and silver will be set by physical trade, the buyers will then take away pricing control from the sellers; the rest of the world is buying. This is not complicated.

Replenishing stocks:

Shanghai's vaults are empty of silver. Curiously, the emptying of the vaults in the US of gold in 2013 occurred during that metal's collapse.

In 2014, gold started with the restocking of severely dwindled supplies in the COMEX and GLD vaults. Silver had no such need to do so, since silver never suffered the abandonment of supplies that gold had.

As a result, there are two possible bullish factors. Firstly, Shanghai's virtually empty vaults suggests that the phase of restocking can occur at any time over there.

Secondly, as these PM depletions will have COINCIDED with their sell-offs, with the 2014 liquidation of the physical silver stock out of the way in Shanghai, silver need no longer act as a laggard to gold, with which it may have already harmonized (in terms of stock depletion relative to prices). (At extremes, standard as well as unconventional PM indicators harmonize.)

Interestingly, while investors in the major international centres (including India) buy for the long-term on price weakness, due to well-publicized future worldwide supply shortages that will govern the silver market for generations, the American silver ETF's (SLV) holdings are at a peak; American Eagle coin sales are booming at all-time highs as well, for the very same reasons. Demand is sustainably global.

(The preceding article does a superb job of highlighting GLD and SLV comparisons, within the context of contradictory relationships between demand/supply and the respective metals.)

Simply, the physical trade-based-pricing system MUST overwhelm the paper-trade-based pricing scheme, like a tidal wavewashing over a tiny island. It is mathematically impossible that it end any other way.

"U.S. National Debt Surges $1 Trillion In Just 12 Months", and it is such headlines that drive retail investors to be long term holders of silver ETFs and coins, actually accumulating the metal with the price declines, as silver also appeals to retailers who desire the less expensive PM.

Though it pertains to the technical tool of sentiment analysis, I must comment on Mark Hulbert's pre-breakdown report which called for an imminent low, due to extreme bearishness that is associated with bottoms. Sentiment has since worsened (hedge funds), so this too argues for 4th-quarter support.

For those unfamiliar with him, Mark Hulbert's timely market forecasts through these many years (based on his sentiment tools only) included remaining bullish this summer. This is key for appreciating foreign, domestic retail, AND hedge fund demand, as we grapple for a low ahead of a major 2015 wave upward.

So, retail demand spells physical purchases, while the hedge funds' extreme bearishness represents tomorrow's paper repurchases.

Please refer to thetwin report, as it focuses on the complementary technical case, along with the preferred strategy of, and conclusion to these two reports.

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