Throwin’ A Party For Silver But There’s NOTHING SWEET ABOUT IT

First this:

 

RECORD HIGH FOR S & P 500!

— Donald J. Trump (@realDonaldTrump) September 29, 2017

 

Pertaining to this:

 

 

Not that the Exchange Stabilization Fund along with the Fed, smashing gold & silver, buying the indexes, and forcing “fear” out of the markets has anything to do with it of course. 

Speaking of gold:

 

 

We new it was crucial to hold the 50-day moving average. Sure enough, it wasn’t just a tap-and-bounce like we had hoped for. Of course, we should come to expect this type of action. It is gold we are talking about.

When we look over the course of the week, we can see just how constant the pounding has been.

The peak to trough was especially grueling:

 

 

Could’ve, should’ve, would’ve. We did catch a break on Monday, and on high volume too. It’s possible that the only surge in price we saw all week may have just saved the gold price from going even lower from the effects of what otherwise was constant short covering which served to feed on itself through most of the week.

We can see just how important that 50-day moving average is in silver:

 

 

We can rest assured knowing that all efforts are being made to make sure the 50-day does not cross through the 200-day on the daily. The cartel has almost succeeded in rolling over the 50-day and pointing it down again, but the more they try to force a rollover, the more this becomes a problem, which emerged as a very serious problem earlier in the week:

 

 

We brought up the gold-to-silver ratio (GSR) on Tuesday evening. The ratio is starting to get out of hand again. Amazingly, for several months now, the GSR has been slowly rising, but as we revert back to the mean, it would mean, no pun intended, a drop in the number of ounces of silver it takes to purchase one ounce of gold. Sure enough, the drop has started. It is still very high, however, and there is nary an analyst around who could argue it’s sustainable above 75, less of course they are hidden motives behind such nay-saying.

The precedence is a lower gold to silver ratio, much lower:

• 2007 – For the year, the gold-silver ratio averaged 51.
• 1991 – When silver hit its lows, the ratio peaked at 100.
• 1980 – At the time of the last great surge in gold and silver, the ratio stood at 17.
• End of 19^th Century – The nearly universal, fixed ratio of 15 came to a close with the end of the bi-metallism era.
• Roman Empire – The ratio was set at 12.
• 323 B.C. – The ratio stood at 12.5 upon the death of Alexander the Great.

To put this week’s silver price action in perspective, however, we need to pull up that super-scary chart from a few weeks ago:

 

 

 

We knew it was coming, but that doesn’t make it any easier. But not all is lost. There is good news. We have seen this price smash three times before in 2017, and only once did the pain last for more than three weeks. Currently, this is our third week of pain.

What is more alarming, however, is the sideways channel that silver has been stuck in since October of last year.

Silver has been forced into a range between $16 – $18:

 

 

Seeing as how the multi-week price smash on silver has been successful, we must now contend with the very real possibility of staring down a $16 silver price. It does not look good for the home team right now, unless you have $10, $1,000, or $100,000 in U.S. debt based fiat currency to drop on some shiny metal. We have repeatedly wondered when the buyers would step into the market and scoop up physical silver during this bargain-basement fire sale. We keep wondering if $16.50 is that price, but now, they way this chart has been painted, we might want to think about that one some more.

Only in early to mid March did the silver price not get smashed down far enough to tap the $16 handle, but smashing the price down from here has consequences, and the cartel knows it.

They may think they have found the perfect water temperature in their paper silver shower, but sooner or later the hot water runs out in the boiler, and they will either have to stop the wash-rinse-repeat, or they risk temperature shocks that could lead to the market flinching at first, but then removing some serious physical silver from the market.

However, it is hard to be bullish in the immediate term. Looking at other precious metals does not help:

 

 

Platinum is down over 10% since earlier in the month. In market lingo, anything down ten percent or more is called a “correction”, and anything down twenty percent or more is called a “bear market”. Platinum is squarely now in a correction. Silver is barely clinging to not being in a correction.

Crude has held on to its gains:

 

 

The question is whether crude will fade the move, like so many analysts are calling for, or whether this is just more confirmation that increased commodities prices are for real. Interestingly, the gain in crude took place at the same time the U.S. dollar strengthened. Generally speaking, a stronger dollar translates to a weaker crude price. However, this week, we did not see that inverse correlation.

This means that either crude oil or the U.S. dollar is going to roll over, and by the looks of it:

 

 

It seems like dollar is the one that’s out of gas. While we have been perhaps too quick to throw the dead cat on the chart, we do understand that dead cats bounce, and there is no way a dead cat could have this much air-time.

This is not to say the dollar is about to surge. It could simply be peaking out on a “bear rally”, meaning that the dollar is headed lower, but it has temporarily seen an increase in price. Nothing goes up or down in a straight line, unless of course it’s 2:15 a.m. on a Monday morning and we’re talking about gold and silver, but we already knew it.

The VIX and TNX (10-Year Yield) have been acting as if they had inverse relationships ever since Candidate Trump became President-Elect Trump:

 

 

In addition to looking as if they were inversely correlated, both the VIX and the bond market are at extremes. There is an extreme level of “no fear” in the markets, and while at least nominally, U.S. interest rates are treading water, when one factors in the costs of good and services that actually pull fiat dollars out of one’s own wallet, real interest rates are already negative.

In other words, that dollar nestled in a wallet or “deposited” into a bank account buys less and less stuff over time. It is extreme to have low interest rates like we do now, let alone negative rates (ZIRP/NIRP).

The 2.31 percent yield on a 10-year note is much higher than it was earlier in the month, but make no mistake about it:

The yield is very, very low when looking back on the long-term:

 

 

In the year 2000, the yield on the 10-year note was 6.8%. We are so far past the ability of having a slow, normal rise in interest rates that the more likely scenario is a bond market crash, but let’s hop on our bikes and enter the slow drag competition anyway:

Imagine how much economic turmoil would be wrought when interest rates begin to move somewhere close to normal. What is going to happen to the U.S. economy when the prices of homes and cars, the interest rates offered to take out student loans, and the cost to service the interest on debts all become more expensive and destructively prohibitive?

After answering that question, go ahead and mix in increased government spending, bigger deficits, growing debt and rising prices on pretty much all good and services. It is easy to see that moving back to normal, in a centrally planned incremental manner, is not only far-fetched, but gradually raising interest rates totally assumes that the United States does not enter into a recession. Ever.

Oops. Forgot. Add in the Fed “unwinding” its balance sheet. Do the markets really buy that? Or perhaps there is literally nobody left in the markets, with the exception of institutional investors clinging on to their stock market heavy pension and retirement investments?

So, yet again, think of this week as a gift.

If the change jar was raided last week, as was mine, then this weekend might be a good time to have a yard sale, scrounge up some more fiat, and add to that stack.

Besides, the weather is not going to stay this nice forever.

Something is coming. Oh yeah. Winter…