New Year Silver Sale

January 8, 2011

It's great to be back after the holiday season. Things are as exciting as ever in the markets and around the world politically.

Silver rose 83% for the year while Gold rose 29.7%. Not too bad at all. I'm very happy with the way the year played out and the trading and investing decisions I made. I really couldn't imagine it to be much better than last year, but it will be. The mania phase is a ways off still.

Tables of Gold and Silver's performance in different currencies can be found here courtesy of a favourite of mine Mr. James Turk.

A sign of how far off the mania is is evidenced by the lack of new mining IPO's in 2010. There were many Chinese IPIO's who did very well right out of the gate initially. The mining IPO mania is coming down the road and will surpass the speculative frenzy we saw in the late 1990's at the height of the technology bubble.

But enough of that, let's deal with what's at hand today, and believe it or not, it's fantastic.

Any drop in metals and related equities is a buying opportunity. It has been this way now for nearly a decade and will remain so for a few years at least. I just hope we see more downside because right now I'm thinking as a shopper would, seeing their long wanted TV go on sale for 10% and really holding out hard for the 20% or 25% sale.

I don't know if we'll get it or not, but having patience in investing is one of the most important and lacking traits.

Metals review

Gold slid 3.67% for the week. The hard fast plunge is to be expected and a bottom is quite likely in now. The plunge below the uptrend line Friday was a major effort to shake out as many weak hands as possible and I'm sure it did shake out many. Price promptly reversed and close right on the uptrend line by the close which is really what maters.

As difficult as it is at times, I try and only pay attention to daily charts and not intra-day movements, although I definitely do get shaken out sometimes. We had no gold trading position on thankfully, or we would have likely been shaken out.

If Gold can trade above the uptrend line for another day or two then the bottom is very likely secure. But it appears that even if this is to be the case then Gold will trade between upper resistance at $1,425 and lower potential support at $1,375 for a little while. Effectively trading in a chop.

I try and avoid these areas like the plague since they will chew up your account and spit you to the curb in no time.

Taking a look at the GLD ETF volume shows very strong volume most of the week as traders were shaken out hard. That's just par for the course, but hopefully no investors got shaken out, I know I didn't.

Silver regressed 6.84% this past week. I'm none too thrilled with the break of the uptrend line here which also corresponded with the 21 day moving average.

As one of my trading mentors says, things that go up in a straight line for a while are prone to break down. Silver fits the bill in this case and has broken below the longstanding uptrend line.

Technically, we should touch or come close to touching $28, but Friday could qualify for that stipulation. Or if $28 falls, we drop to $25 or so, which I would love to see personally and I would be buying hand over fist if we are so lucky.

Then again we have the other side of the Silver story where it's said there is a strong bid right here by Chinese and other interests. There are also stories floating about of an early March attempt to bust silver much higher by large interest who are in cahoots.

I don't know about all this talk of bigger collusionary plans, but I do try and read what I can. What I do know is the chart is now ugly for the first time since late summer.

Ideally $25 should be tested and a month or two long base be built before we move higher again. All I can do is listen to the market and watch the chart though, and it will tell me if we are strong, weak, or just flailing. For now we're weak.

The SLV ETF saw quite heavy volume as should be expected.

Platinum was struck down 2.15% for the week. It is at nice support at $1,725 but is in this chop type of area I hate to trade as I mentioned above. However, entering a trade at extremes within the chop is the way to go if you are so inclined and that would be right about here.

It looks like the bottom is in or very close to it. Perhaps we will see an intra-day spike to $1,700 or slightly below but that would likely be the worst of it.

The PPLT ETF volume as above average but not near recent extremes this past week although the large day lower saw quite heavy volume. It is normal and as should be expected after a week like this past one.

Palladium tumbled 4.91% for the week along with most other commodities. Palladium has been rising in a straight line for a long time, as has Silver. Palladium is holding up much better though as it gets little attention from potential manipulators and most press organizations.

I tend to think this is the low and the uptrend line will hold. Palladium has led through 2010, even leading Silver. Palladium has doubled in 2010 and has been very, very strong and traded technically near perfection.

Buying a position here is easy, but a tight stop would be required since if it does fall from here at all chances are we will drop about $50.

The PALL ETF saw very strong volume all week on the weakness but there have been a few days with much higher volume in the recent past. I am actually a bit shocked at the high volume. Either huge liquidation is occurring or large accumulation was taking place as price weakened all week. We should know which it was this coming week.

Fundamental Review

My apologies if this is a tad longer than normal, it's been a while and there is far more to talk about than I can mention here.

Please see this link for the first biggest losers of 2011 as we saw two banks fail Friday evening as per usual.

It was quietly announced just before Christmas that the IMF had concluded their sales of 400 tonnes of Gold. That was quick! It only took them a year.

What's interesting is it basically filled the 400 tonne sales quota allotted to central Banks under the Washington Agreement. Central banks want to buy Gold, not sell it. This year there will be nobody to sell the 400 tonnes.

I assure you, central banks will not be dishoarding their Gold anytime soon. I seriously doubt the IMF will be selling anymore either, contrary to what they say.

Now, without this 400 tonne extra supply hanging over the Gold market we could really see some fireworks rather than the normal boring 18%+ per year gains we've seen for the past decade!

The IMF said about the sales, "These sales are a central element of the new income model for the IMF that was endorsed by the executive board in April 2008." So perhaps they will continue selling Gold. But with their finite amount this "new income model" is ridiculous and unsustainable.

I do hope they continue to sell Gold as it would make these sleepy 18%+ a year gains last a few years longer and that would suit me just fine and dandy.

Turkey is set to increase Gold imports to around 50 tonnes of Gold in 2011 compared with 42.4 tonnes in 2010. Come to think of it I can't think of ANY country that would not like to increase their Gold imports whether it be for consumer products or for governmental/central bank use. The problem is Gold is finite and only a certain amount is added to that total every year. But at the same time that is the beauty of Gold.

I took a gander over at the National Debt clock this week, as I do on occasion. What prompted me to do it this time was an article pointing out that the US debt has recently surpassed the $14 trillion mark.

If that number didn't scare you enough, the fact that the debt rose from $13 trillion to over $14 trillion in only 7 months should send you scurrying into your bunker where all your canned goods, gold, guns and whiskey is stored.

And to think I was nervous back in 2007 when the debt was a mere $9 trillion!

We are fast approaching the debt limit and it's expected to be hit sometime in March. As to be expected and as it seems to happen this time every year rhetoric of the debt limit is beginning to be bandied about. The debt ceiling will not be hit. That would be a default and it will not happen so it's really a non-issue in my view and a normal waste of breath form politicians.

Getting back to my look over at the National Debt Clock, I couldn't help but chuckle at column on the right where they say "official unemployment" at 15.4 million while "actual unemployment" sits at 26.2 million.

This brings to mind Friday's testimony by our good buddy Bennie Bernanke who said states and municipalities will not be bailed out. Ya right. I bet a dollar they will, and who is he to say that anyhow? Isn't that the decision of the US government?

Then again the US government is in effect being bailed out by the Federal Reserve who is buying their treasuries.

The US announced they plan to cut the defence budget by a whopping $78 billion over five years. Unfortunately the on book military spending is roughly $2 billion per day making the cut only 40 days worth of spending and it's going to take five years to supposedly achieve this goal. Unfortunately covert military spending is said to be even more than what is reported.

While this may be a tad difficult to prove without doing to much digging I am more inclined to think spending is far higher than the US government reports just due to the fact that they always try and make things look far better than they are in reality.

I saw a great interview on Al Jazeera this past week where a huge expense on amphibious landing vehicles was questioned. $14 billion is proposed to be spent on these vehicles. But the marines haven't landed on a beach in action with them since the 1950's! In today's technological age can you really see beaches being swarmed with masses of these vehicles such as we saw on D-Day? Me neither.

It's all coming to a head and becoming very clear now to even the most near sighted talking heads.

Take a deep breath folks. You should be able to get a good whiff of it by now, and it's soon to hit the fan!

Get your physical Gold and Silver now at any price while you still can if you have none. If you have some, then perhaps try and wait for a correction, or buy a portion now.

So where will we emerge from this coming chaos?

Kansas City Federal Reserve President, Thomas Hoenig, said a gold standard is "legitimate". He's right. The problem is that most people don't understand/remember what a gold standard is. Or their just to lazy to do the five minutes of research it would take.

And that includes the writer of this article which talks about Ron Paul's desire to keep the dollar and have three other currencies backed by Gold, Copper and Silver.

First of all, I haven't heard this before, but it could be true. I seriously doubt Ron Paul would suggest this since it's unfeasible. Copper and Silver are used up and cannot be used as a store of value as a result. Only Gold is not used, only stored, and as a result can be used as a unit of account.

What most people don't get about a gold standard, including the author of the article mentioned above, is that you don't spend the backing. Gold would not be used for transactions, rather it would back the currency.

Gold would be valued at such and such an amount. The only way to increase or decrease money supply would be to increase or decrease the price of Gold or acquire or dispose of Gold.

A gold standard is not the solution to end all issues. There would still be depression, recession, good times and bad. But that's healthy. If we went through life with nary a day in bed or a sore neck or whatnot it would be abnormal.

The body as well as economy must endure hard times to come out the other end stronger. Flu's change every year because bodies become stronger and immune to the old strain once infected and healed.

God knows we've all had our fair share of adversity in our lives, and it's a HUGE part of who we are today, and truly makes us all better people.

Economically it's the same. Hard times cleans the system of poor operators and companies and we come out the other end with the strong healthy ones intact and even stronger. Just like the bodies cells, and our minds.

It may seem a bit of a strange analogy, but it's a simple one, and I think it works.

If you've got a couple hours I highly suggest spending some time watching this talk by Mr. Jim Richards. They really don't come any more knowledgeable and frank than him. If you don't have a couple hours, I suggest you make them!

This short interview with George Soros is also very worthwhile as he talks very frankly about the new world order and China's role within it even though they are reluctant at the moment. He basically lays it out and says the IMF is the key to the new world order, although no mention of the BIS is made The BIS is one can of worms that would take months to dig into and would have your head spinning from the first minute to the last.

I found this interesting photo in cyberspace. Funny how trends change and this obvious trend is here to stay for many years. The simplicity and innovation the company in question displays has the younger generation hooked. Look out Bill Gates!

The laugher of the week comes as two very, very normal young ladies show just how effective the design of the very expensive border fence along the US/Mexican border is.

Once again, it's great to be back, and into things. Until next week take care and thank you for reading.

Gold falls on firm dollar, China rate cut lends support