Long May Gold & Silver Run

April 17, 2011

It was another great week for gold and silver. Both hit new highs and soon we could see silver break into all-time highs. The S&P 500 has been consolidating with other markets after a strong bounce off the tsunami low. The S&P 500 is building what looks to be a reverse head and shoulders pattern here which should take it much higher after the pattern completes within a week or two.

Unfortunately my reading and wiring computer is still down, apparently the part got lost in the mail! Hard to believe I know. And it's getting very frustrating. We should be completely back to normal by next week I think, but I thought that last weekend as well.

The charts are looking pretty good here for both gold and silver and there are some incredible news items to talk about so with no further ado...

Gold rose 0.81% for the week and hit another all-time high nominally. A month long reverse head and shoulders pattern broke in early April and funny enough targets the $1,500 area almost to the dollar. Round numbers almost always cause pause and I don't think it will be any different this time around.

It could take us a day, or a week to hit $1,500 but it's coming soon.

The GLD ETF saw strong volume all week with Friday seeing over 19 million shares trade hands. I'd be looking for a spike to near 25 million shares and perhaps a false break to $1,510 or $1,520 before we see another correction.

Enjoy strength, and buy weakness. This is strength.

Silver rose 5.01% for the week in what remains an amazing run. I'm not at all keen on trading this in our swing trading portfolio, but my grin grows wider almost daily when thinking about my physical silver hoard as it's been my largest position by far for about a year now.

I sold most miners and increased the physical metals weighting last spring and whether it was dumb luck or plain old luck, it happened to be just before silver began this move.

For so long the $18.50 level seemed like an insurmountable level and we got in below there. I don't see any reason to even think about reducing my weightings yet although many people are talking about trading the gold to silver ratio as it only takes about 35 ounces of silver to buy one ounce of gold nowadays which is in sharp contrast to the 70 or so ounces it would have taken last year, even as late as late August 2010.

I'm not trading the ratio though. First I don't want to deal with the hassle and second I still think silver has 10 bagger potential from this level. I doubt gold has ten bagger potential from here, but it could certainly reach $10,000 quite easily.

All I know is that the trends have been higher for a decade so until that ends there is only one trade for gold and silver.

The SLV ETF saw heavy volume for the week with the strongest volume by far seen Monday and Tuesday as Silver was lower. This is a classic case of climbing the wall of worry which is typically defined as the second stage of a bull market before the third and final stage, the mania or blow off top.

I know I worry everyday that silver is going to correct hard as it's really been due for a while, but it just doesn't. I can't trade it as it can move far too quickly against me for my liking so I'll just stick with the metal until I see another good trading opportunity.

China's Q1 GDP came in the regular high rate. This time at 9.7% growth while inflation was tagged at 5.4%. This past week John Williams reported that US inflation would be around 10% if it were calculated as it was before 1980. I don't know why they changed their calculation....oh wait, yes I do.

Do you really believe US inflation is in the 2% to 3% range as they report? Me neither.

When I say house. What is the first thing that comes to mind? Home, investment, safety, something everyone should strive for.

We've all been taught that buying a home is one of the key pillars to a long-term investment portfolio. We've been told that on balance houses always appreciate as well as the land they are built upon.

Not so fast. Apparently the rules are being changed on us.

The CEO of one of America's largest banks who happens to hold a massive mortgage portfolio on his books, actually they just created a good bank bad bank scheme to keep the bad assets and most mortgages off the good banks books which get all the headlines. But that is another story I've talked about in the past.

The CEO stated that some people shouldn't be looking at their homes as an asset as the housing rebound may take a much longer time than expected. Now that's a slap in the face to those having bought near the peak in 2005.

I don't see how anyone could have been suckered into the obvious fraud at the time, but I do understand how you can get caught up in things sometimes. I just hope none of you dear readers are in a bad predicament.

This well written factual article is really all you need to read in order to scare you into buying some physical gold or silver. The US has simply dug a hole far too deep to climb out of.

The small $38 billion cut in spending is a crumb. The US can NEVER pay of their debt and the chances of ever seeing a budget surplus are slim to none.

I've pleaded before. Please protect yourself and do not rely on government to do it for you.

We saw six banks fail and join this year's list of biggest losers. There's been a slowdown of failed banks lately but the surge this past week makes up for it.

It's not long ago that Bill Gross announced he exited his position in US treasuries, now he is actually short them. Its one thing to not own something, but to short it is another animal altogether. It shows he's lost complete faith in the US dollar being viewed as a safe harbour asset.

It wouldn't surprise me to see Bill announce he's bought some gold in the near future. He's smart and knows what gold is, although he doesn't voice this view publicly. The real issue is the enormity of his purchases would drive the price much higher. In order to bother at all he would have to buy at least $1 billion dollars worth and likely more in the range of $10 billion. He's got $73 billion sitting in cash alone so a few billion in gold would be nothing at all for his fund.

The market would be severely disrupted with a purchase of this enormity unless he used the GLD ETF and I talked last week about the lack of premium with this instrument. I think he'd much rather own the gold that an ETF, but I've been wrong before and it's his only real option likely.

The Texas University endowment fund is now storing almost $1 billion in physical gold. A very savvy hedge fund manager, who made a fortune on the sub-prime debacle, helped influence the decision. He views gold as "just another currency they can't print more of".

Very smart words and they couldn't ring truer. This endowment fund will certainly need no bailing out in the times ahead. This trend will catch on and there just isn't that much physical gold to go around.

I'm often asked if it's too late to invest in gold. It's not. We have multiples to go as gold has not even come close to its inflation adjusted high around $2,400.

Silver has to reach about $140 to see its inflation adjusted high.

Silver may seem a bit stretched here and it's a dangerous one to trade as it can move quicker than you can make a sandwich for lunch, but over a longer-term investment horizon I don't think we have anything to worry about.

I don't like calling huge numbers out as targets as it only brings me flack and is only a guess but I would, actually I am, bet a large portion of my wealth that silver is going well over $200 an ounce. It doesn't take me long to make a case for $500 an ounce silver either, but I won't. Let's just suffice it to say both physical gold and silver have near ten bagger potential from here.

There is no way to lose investing in the physical product. It is what it is and it's going to be more valuable and always worth something in the future. It can be cashed in for any currency in the world or whatever may come in the future. It's a riskless trade even at these levels in my opinion.

News that a tunnel has collapsed at a silver mine in Idaho came late in the week. This comes at a time when I have been talking to subscribers about the dangers and risks of investing in mining companies. There are so many potential hazards, and once you think you've got all the risks covered another one pops up.

Such as Bolivia threatening to nationalize some mines. Both the nationalization threat and the tunnel collapse has effected three of the largest silver miners just this past week.

Don't get me wrong I do invest in miners and have done well, but if you look at the major mining indices the HUI, XAU and GDX they've on balance not done as well as the physical metals themselves. There have certainly been some select companies who've rocked, but the big miners aren't anything I write home about and some of the smaller miners or exploration companies some days see less volume than a schoolhouse in Lost Springs!

They are sure to have their day but I feel more comfortable holding more metal than miners. But that could change once again.

The Belarus central bank has stopped selling gold for roubles as they fear a coming currency devaluation and really don't want to get stuck with worthless paper for their gold. Makes sense to me, does it to you?

The joke of the week has to be the new US postage stamp which depicts the statue of Liberty. Or does it? Apparently it depicts the fake statue in Vegas instead. Is anything real in the US anymore?

You've got to check out this ridiculous video of a guy getting arrested for cracking a joke to a guy who's getting a ticket for riding his bicycle on the sidewalk. The NYPD at their worst and a true embarrassment in my opinion. Tax dollars hard at work.

Let's leave on a funny, slightly risqué, note. A so called "Kiss Cam" at a recent Toronto Maple Leafs game had me rolling on the floor in laughter. Enjoy.

Until next week take care and thank you for reading.


Peru became the world’s largest producer of silver in 2012.

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