THIS IS IT!!
Clive Maund
As many of my readers know, I got caught out last week by a "Head Fake" in the HUI index and in many gold stocks. Naturally, I have since come under attack from many quarters, which even included one writer, who tried to capitalize on my predicament by attempting to rubbish the HUI as a valid gold index. I refute his claim totally - if the HUI is an invalid index, then why has it had a clear resistance level for over a year?! - a resistance level which, I am pleased to add, was breached only yesterday.
It would be nice to wallow in self-pity, but after yesterday's action I don't have time for it - and neither do you.
Over these past days I have stood back and taken stock, reviewing the big picture. The main reason that gold and silver, and gold and silver stocks are set to go ballistic is that the American economy is on the ropes as it has never been before in its history. The US economy has been completely gauged out by criminals and opportunists for many years now. The country is wracked by terminally ruinous debts, its manufacturing capacity has been largely destroyed - exported to more competitive lands and it now exists in a fools paradise of a service economy - utterly dependant on the largesse of other countries who are very quickly beginning to see the light. These awkward facts, combined with a formidable military capability, go a long way towards explaining the current colonialist adventurism.
Ominously, the bond market topped out over the past few weeks, with yields rising dramatically - the end game is upon us. The administration had been hoping to keep the whole rotten structure limping along by means of a campaign of propaganda and market manipulation until election time, but that's too far away - they won't get away with it. The writing is on the wall; with the bond market topping out interest rates are set to rise again, probably this coming winter. The real estate market and stockmarket will plunge. The broad swathe of the US middle class, most of whom have no idea what is bearing down on them, and are therefore ill-prepared, will suffer devastating financial losses and consequent privations, many will be caught in an intractable debt trap, especially those who have been seduced into cashing in the capital of their homes. They are also in for a very rude awakening when they discover that the current administration has no more respect for them than it does for the working class (what's left of them) or the underclass - i.e. zero.
What the US middle class, in fact anyone with any resources, should be doing is to protect themselves by buying gold and silver and, for leverage, gold and silver stocks. I am very aware, as I made clear some weeks ago, of the threat of government confiscation (theft) of precious metal assets. Rick Ackerman has recently taken up this very important theme and I hope he keeps with it. Gold and gold assets will put in an amazing performance but it is silver which promises to be "The commodity bull market of all time" There is an incredible supply squeeze developing in silver - inventories have all but vanished - that's right, GONE!! Someone recently wrote me that China is essentially one vast open-pit silver mine, and that therefore silver can't go up because they will keep dumping on the market. This is, of course, nonsense. What is actually happening, as set out in an article by Theodore Butler a couple of weeks ago, is that China is quietly establishing itself as the monopoly silver refiner in the world, and possibly suppressing the silver price to drive competitors out of business in the meantime. When it is good and ready China will benefit enormously from a silver price ramp. Theodore Butler's article is most interesting, although, for some reason, he keeps referring to China as "Red China", presumably inferring that "Red = Communist = Bad", and that, therefore, as in the cold war, we in the "west" are good. I take a pragmatic view of China - I regard them as pragmatists and very astute business people who are cornering the silver smelting market and will make a fortune when it goes up - particularly as they are a sizeable silver producer. Microsoft did not build an empire by selling its software at cost price, and once the Chinese have cornered the silver market, which they may already have done, I don't see them selling at cost price either.
About a month ago I wrote a lengthy article about the outlook for silver, but it never got published as I have been holding it back for my gold and silver share website (which WILL go up in about a week or so). However the action in silver yesterday prompts me to make it available now, as we could be witnessing the start of the big breakout in silver - even if we aren't I don't think it's far away now. Please note that I am releasing this article as it was written, so the charts are about one month old - which matters little with the long-term charts.
Before reproducing my silver article below, I want to make reference to the general stockmarket. A few weeks ago I remember sitting listening to the deluge of propaganda about "the new bull market ushering in the economic recovery". For a few brief moments I thought "How lovely, it will enable all those ordinary investors to recoup the trillions they've lost, and maybe even have a pension to look forward to in retirement", but a few moments later I found myself saying "What bull market? What recovery??" so I went and pulled up a 30-year chart for the Dow Jones index in Bigcharts, which you can see here.
I know it's not a TA term, but if I had to describe this chart in one word, it would be "horrifying". On it we see that the index has evolved into a gigantic head-and-shoulders top, which, most interestingly, is the exact inverse of the head-and-shoulders bottom in Newmont Mining and other gold stocks, and as you can see there's an awful lot of air between the current level and the lower reaches of the chart. I didn't want to spoil your fun by drawing alot of trendlines or technical stuff on it - so go on, have a look at it and let your imagination have full reign.
Having regained a grasp of the big picture, I am now determined not to be perturbed by minor setbacks along the way. We are about to witness seismic changes in the global investment environment, which will cause gold to soar. Yesterday we had a convincing breakout by the HUI, NEM forged ahead and is now starting to rise clear of its massive base, MNG broke out with a big move. KGC is shaping up to be big - overlooked so far. Silver stocks rocketed. I have been on to silver stocks for some time, for example, my 14th May article about Hecla Mining, which can be reviewed here…
www.gold-eagle.com/editorials_03/maund051503.html
I urge readers to seek out the best silver stocks, for they are very limited in number, and the buying pressure on them is likely to become so extreme as to cause hardened, battle-scarred speculators to sit on the edge of their chairs. I will be looking into them further in coming days and weeks.
Here now is my silver article, written 2nd June 2003…
Welcome to the Silver Market
The forthcoming explosion in the price of silver will not be due to an increase in industrial demand, for industrial demand is relatively steady and inelastic, and will perhaps decline somewhat in the impending slump. It is crucially important to appreciate that, although silver makes up only a small fraction of manufacturer's production costs, with the exception of film, silver is essential to many industrial processes and nothing else will do. Therefore, industry MUST HAVE IT. Now, consider these factors; industry carries virtually no inventories or stockpiles of silver, it is bought in as required. The government can no longer help in a supply crisis - the US government's silver holdings have declined to near zero from several billion ounces over the past several decades. So, picture what will happen when a tidal wave of capital, fleeing rapidly declining bond markets, real estate and stockmarkets, turns up desperate to buy into hard assets like gold and silver. The silver supply/demand equation is far more critical and finely balanced even than that for gold. There can be only one result of all this - an explosion in the price of silver.
On the charts there is a big, important difference between the gold market and the silver market at this time. The difference to which I am referring is the fact that while gold has broken out from a long-term base to enter a confirmed bull market, silver is still languishing in a base area at a very low price level. Silver's bear market since the huge spike in 1979 has been far more severe in percentage terms than gold's, and, of course, very severe indeed in opportunity cost terms. Over the long-term I am even more bullish of silver than I am of gold, for two primary reasons; the first is the inelastic demand which will result in an acute supply crisis when a large amount of investment capital turns up and wants in, as set out above. The other reason that I am very bullish of silver is that it is so cheap now, in real terms, that they are almost knocking on doors and giving it away, look at the long-term chart shown below and I think you'll understand, without further explanation, exactly what I mean. I believe that silver prices are currently at ROCK BOTTOM and, consequently, that many silver stocks are terrific bargains with huge upside potential, especially the highly geared ones.
If we look now at the shorter term chart going back to 1999, shown below, we can see what I regard as the final decline from 2000 through late 2001 to hit a low around $4.25. The subsequent price action looks to me like a double-bottom base formation, although it is still too early to be sure, and we could yet see a return to the vicinity of the lows. However, with the dollar crumbling and gold rising again, I consider that a substantial advance is becoming more and more likely.
With virtually unlimited upside and very limited downside I consider silver and silver shares to be a "dream ticket" for long-term investors. For opportunity-cost reasons, shorter-term investors and traders may prefer to go with gold and gold shares over the short to medium-term, as gold is already "on its way", while keeping a close eye on silver to see how this base formation plays out, with a view to piling in on a breakout and subsequent pullback. In the meantime, I believe that it also makes good tactical sense to accumulate silver on any dips towards the lower end of this trading range, ditto the silver stocks.
I have heard a lot of talk about the silver market being manipulated and prices being held artificially low, if there is no truth in these stories then they don't affect the arguments set out above and are therefore irrelevant. If they are true, then it simply means that when the bull market gets underway there will be a "booster rocket" affect as the shorts scramble to cover. I have also recently heard that the big short positions are being pushed into weaker hands. Finally, Warren Buffett owns a lot of silver, and Bill Gates has bought a silver mine. Whatever else may be said about them, these guys are not financially inept.
Clive Maund, Diploma Technical Analysis
clive.maund@t-online.de
www.clivemaund.com
Kaufbeuren, Germany, July 24 2003
No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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