Financial Survival Network

Been a busy boy this week, click here for my interview with Kerry Lutz. Starts off with questions about the Perth Mint and the Certificate Program, but he hits me up with a question on price maniplation at the end where I distinguish between manipulation and supression.

Also, a very good post by Warren at Screwtapefiles blog on his favourite topic of social media manipulation in the precious metals space. His chart on flowchart of how the metals market works is also a classic.

Silver Seasonality

Inspired by a chart Ed Steer posted on silver's seasonality, I decided to have a deeper look at it. I was looking for a strong pattern and considered many different time periods but just couldn't find anything reliable enough. I think silver is just too inherently volatile and driven by differing globally dispersed demand drivers to exhibit any consistent seasonality.

Article can be download from here.

Stupidest PM statement of the year?

I think this is a strong contender for stupidest statement by a precious metals blogger/commentator so far this year:

Jeffrey Lewis: "One of the main advantages of buying silver versus more costly precious metals like gold and platinum is that silver’s relative cheapness allows you to buy more metal for the money."

How does this make any sense as an investment rationale - buy it because you get more "stuff" to look at? On that basis copper is even better than silver.

I challenge anyone to find something more nonesensical or WTF (conspriacy theories excluded) in the precious metal blogosphere.

Interview on Financial Sense

I was interviewed by Erik Townsend for Financial Sense on The Role of Arbitrage in Precious Metals Markets. Probably stuff readers of this blog already know, but if you want to hear me ramble on, download the podcast.

COMEX is not the be all and end all

Have been involved in a bit of a non-debate (as in the other side doesn't want to explain their position) on whether traders can just rely on data from COMEX. My answer is no, as the COMEX precious metal markets are but one part of the total market for paper and physical metal and through arbitrage are tightly linked to each other. Therefore just relying on COMEX open interest, volume, etc data will give one an incomplete view and thus trading methods based only on COMEX analysis will produce a lot of "surprise" events/patterns.

I covered this point in this post on short term trading. To observe me banging my head against a brick wall, and for a further exposition of this view, read the comments posted at Scott Pluschau's blog.

Interview with The Street

During my recent trip to New York I did a short interview with The Street, see here.

Was over there for the Euro Pacific Capital Global Investment Conference. Peter Schiff did about an hour talk at the start, pretty much covering the stuff in his new book The Real Crash, all without notes. Got a chance for a short chat with him but forgot to get him to sign the book. Doh.

Also managed to catch up with a few Depository clients. Always good to get feedback and I got a few tough questions thrown at me as well. I haven't met a client I don't get along with, I think its because us gold holders all have the same concerns, values and outlook on how economic life should be organised (or should I say not organised).

Student of the physical market - demand doesn't drive the gold price

Eric Sprott and David Baker has a new article out discussing central bank buying of gold and particularly China. I agree with his conclusion that this is an important demand side shift in the market but then Sprott plays it up way too much with statements like:

"... there isn't a physical market on earth that can withstand that type of demand increase without higher prices over the long-run, and the gold market is no different. There are no sellers of physical gold that we know of who can satiate that scale of new demand ..."

"Who is going to give up their gold purchases to make room for this scale of new demand? Where is the gold going to come from? We ask because we don't actually know."

"We have written at length about the disconnect between the paper gold price and the physical gold market. If the demand changes stated above applied to any other market, the investing public would lose their minds."

"The paper market for gold can continue its charade, but demand in the physical market will soon overpower it through sheer momentum - there's only so much physical to go around, and it appears that there are some very large buyers that are eager to take it."

If Sprott and Baker "are students first and foremost of the physical market" then they surely are aware that the one thing which makes gold different from all the other physical markets on earth is its huge above ground stocks relative to new mine supply - 170,000 tonnes versus 2800 tonnes.

This, I suggest, is a quite material fact and one which may be where "the gold is going to come from". Unlike "any other market", to which conventional supply/demand analysis can be applied, one cannot understand the gold market by just looking at annual supply/demand numbers when there is such a large overhang of stock.

What drives the gold price I would therefore argue, is not so much demand, but to what extent existing holders of the 170,000t will withhold it from the market. It is actually supply - the withholding of supply - that matters most. If even a small fraction of these holders decide to sell, then that supply "will soon overpower" the physical market, China or no China. This is not a negative statement. The decade long gold bull market is a message that the existing holders are requiring higher and higher gold prices to let go of their gold and that the new holders are more likely to withhold it.

The reason you don't see this approach to analysing the gold market is because there are only sketchy numbers on the flow of gold from existing holders to new holders - say ETF volumes, futures warehouses and scrap - and therefore its difficult if not impossible to get any handle on total real supply so analysts just avoid it. It doesn't mean you should.

This unique feature of the gold market, which we can describe as "a stock overhang so large relative to new supply that in any other market would push the price to zero, but for some reason for gold it doesn't", is often referred to as monetary demand or gold as a monetary metal. When you see someone refer to gold as a commodity, it tells you they don't really understand the gold market and you need to exercise some caution with their statements.

Gold is monetary in nature, with only a small commodity component. Further proof of this is the fact that central banks hold it as they generally hold only money as reserves. A lot more can be said on this but it is 8:30 on Sunday night.

The other thing I find interesting about the Sprott piece, and what I react to negatively, is the use of emotive phrases like "on earth", "lose their minds", "charade" etc. Never a good thing when we are talking about investing and its a point Kid Dynamite has made, that Screwtape dissects, and which Erik Townsend makes quite forcefully in the Martenson/Harvey interview discussion.

Speaking of that discussion and Sprott, for those interested in Sprott's silver delivery problem, Jeff Christian has weighed in with some interesting comments at the Martenson/Harvey interview. Warren James has updated Screwtape's post on the issue with the relevant material and it is a good summary and discussion of the "problem" for those new to it (or who want a refresher).

Chris Martenson's Harvey Organ interview

Strongly suggest reading the comments to this interview (forget the interview itself) for those interested in what might be going on behind the curtain. Ignore the brutal personal comments and focus on some good educational stuff and first hand observations from Jeffery Christian, Victor and Erik Townsend (I put my 2 cents in as well).

Been AWOL I know, very busy at work with some pressing tasks.

FYI, I will be in New York city May 31st, details to follow once itinerary finalised.

Tungsten Fake Gold Bars

Been busy at work and home, hence the lack of posts. I've recently posted on Tungsten fake gold bars for those who may not have seen it. I've posted before on this issue here and here.

Coincidentaly, the Mint has recently bought a "Panalytical wavelength dispersive X-Ray Fluorescence (XRF) instrument" for $470,000. Before I get comments about how XRF's don't detect inside a bar, this unit is used for testing assay samples and those samples undergo a preparation process before being XRFed. Key process is melting the item to get an even distribution of the metal and then taking a dip sample.

Will be looking to post more regularly on the corporate blog (see here for a daily blog watch) and will continue with sharing stuff via my Google+ posts page.

Elliott wave predits $32659 gold on 16 Jan 2015

Nick from Sharelynx with help from Geoff S has put together an Elliott Wave theory prediction using 'The Golden Mean' & 'Fibonacci Sequences' to arrive at the future price of gold. Click here for the chart.

It predicts the next peak as $3,559 in Jan 2013 with an eventual peak of $32,659 gold on 16 Jan 2015. Nick's comments:

The first two uplegs (blue line) generate (through the formulas) the future uplegs (red line) as the price heads to it's peak at W5(5). The Time, Price and Percentage of each leg up & down are shown on the edge of the chart.

So having left W4(A) behind the next 16 months we are heading up to W4(B). Presumptions are that the blue line (actual gold price) will stay above the red line for the first 1/2 of the next upleg falling to below the red line for the second half of the upleg and rising steeply into the peak of W4(B) as gold likes to do.

Perhaps gold's final top is W4(D) or W5(1) or higher and perhaps the timing doesn't play out right but this presumably will be something close to the shape of gold's rise over the next few years.

A nice speculation and one to dream about. I'm certainly going to be bookmarking this chart and checking back from time to time. If it works out with reasonable give and take then I think Nick will achieve Guru status within the precious metals internet community.