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Wednesday, March 11, 2009

Gold and Silver: Breakdown?

Gold looks like it has broken DOWN and OUT.
Silver is precariously sitting on support after putting in a lower high.

Something to think about: Gold.. Has It Really Stored Value?


Anonymous said...

Thanks Ninja - amazing forecasting, learning a ton - a couple questions. Do you have a target for a down and out on gold, and how do you feel about using put spreads on GLD to enter this trade?

none said...

Indeed, something to think about (which the author himself clearly hasn't done).

Over the past 600 years, gold has lost a lot of its real value:

But not over the past 400 years (or less). Nor over the past 100 years, and certainly not over the past 80 years.

But it has lost value over the past 29 years (since 1980). And also in the last weeks and months (peaks of 1000).

The S&P, in contrast, has, currently, almost gained no real value since the peak of the first post WWII bull market (1960ties):

It will almost certainly sink beneath that 1960ties peak in the coming months or years.

In that time frame, it seriously underperforms gold. It also seriously underperforms gold in a 10 year time frame (third chart of that blogger's post). And also in a 9, 8, 7, 6, 5, 4, 3, 2, and 1 year timeframe.

But if we use yet another timeframe (25 year) it has performed much better than gold.

If we use, on the other hand, a 400 years time frame, gold has outperformed stocks. A lot (because the value of investments in companies that were around in 1650 is zero).

Conclusion: timing is everything.
It is, in casu, too early to invest in stocks for the long term. But it's probably not too late to invest in gold. Although the bull market started in 1998-2001, comparable with 1968-1969 (exit point: 2010-2013, comparable with 1980?).

And gold is, indeed, one of the best and safest storages of value over the (very) long term.

Ben Bittrolff said...

@ None,

Good comment. Good insight.

Ben Bittrolff said...

@ Anonymous,

I will post with gold targets etc.

If you know what you're doing, options are always a great tool. Put spreads would definitely work.

JimOfNYC said...

Hey Ben, what are you smoking. Gold at around $900 has not broken down. Sure it's down from 1980, but what asset are you holding since 1980?? Perhaps a house, but you strike me as too young.

The 401 folks who got burned last year are down 20% over 10 years in an S&P 500 mimicing fund (the stock market), and down 50% since jan of last year. Gold over 10 years has more than tripled and it's not far from the highs of last year. Give us a break and think before you post.

What will your next tall tail be? I thought the nutty pundits were only on tv. Yikes.

Ben Bittrolff said...

@ JimOfNYC

Errr, I was refering to a trendline break as per the chart. We trade here... and shorted Gold at $1000.

Read the post before you start ranting. Noboby here was talking about Gold in any other context.

The link to inflation adjusted Gold was just an interesting challenge to the myth that Gold is ALWAYS an invincible store of value.

It isn't. Just like any other asset class it rotates into and out of favor.


Anonymous said...

Other Anonymous here, I have a Google account, but for some reason it won't work here, no idea why.

I can see your logic, but the short-gold/silver trade looks like a low probability of a large return to me, those markets can take weeks or months to make a big move.

Day-trading some call options on financials yesterday would have been far more profitable, for example.

As a trader, I have to look at where the biggest bang for my limited buck is. If you entered gold at around $1000 to short a couple weeks ago, now it's at $900-$910 and not looking like it will go much lower (to me) anytime soon, was it worth it, overall.

I assume you are trading far more capital than I am, and so have to find more trades to place that much in allocation.

The way the global economy is going, shorting gold just seems like a low probability play to me right now. In a normal market condition, not so much.

I am not criticizing you, just stating my opinion. I have far out puts on GLD, to hedge my long physical. It's just I think there is much greater profit to be made elsewhere, the gold is my TEOTWAKI hedge, I am not selling it anytime soon.

@none - great comment

Anonymous said...

Ben I wonder if your posts about goldbugs are really expressing a desire to stir things up a bit ! Why not ? Why have a boring site ? Get gold bugs involved and you got all sorts of emotions flying around !
What gold bugs I notice, do have in common, is a desire for honest money, where savings and the fruits of their productivity are not getting whittled away by central bank and government shenannigans. Most gold bugs are producers who are fed up with getting leeched upon by a parasitical system. In America most of them I notice are disgusted by the way the Constitution has been made irrelevant. (I don't even live in America and am not American !)
One thing you don't mention is the manipulation aspect and the fact it is so political. You have Summers and Geithner in the act at the moment. These two (without going into length, but look up anything Summers and Gibson's Paradox) are the arch manipulators. If gold wins the battle for what is cash and what isn't, that means the current fiat system is doomed. The end game really is approaching now with all the banks in mega trouble and their disease likely to infect the Treasury and the Fed. The Fed/CB/Fiat system operates in the dark. Deflation puts the spotlight on that system and threatens it. So does gold.
What about the concentrated short positions in both gold and silver ? With the CFTC turning a blind eye. Who will ever investigate JPM or GS for illegal market practices ? And what about JPM's massive 90 TRILLION derivative book swept nicely under the carpet ? For how long ??!!
Don't forget the big thing about gold is that there is no counterparty. That is one of the main reasons people want it.
It is a store of value, for sure and there is no doubt about it ! (You got a little piece of gold you can sell it for quite a lot of money: that's been the case for hundreds of years !) But it is now a store of value under constant attack from the "Central Banking System" which cannot allow gold to get traction or the system is doomed !
The more I write all this guff the more I think, Ben why don't you just pay a subscription to the GATA site which is
It's only about $220, diddleysquat to you ! These guys have sued the Fed under FOI just as Bloomberg did but long before, and got reams and reams of redacted "information". They are not all conspiracy theorists and ridiculous. Some of them are very smart dudes ! You will find outa lot more about the gold market. It is manipulated and controlled by the same crooks that are bringing down the financial system !
When gold hit $1000 it was not sold off because a whole bunch of people decided the price was too high and therefore they would now dump their gold. It was gold sold off by the Central Banking system which did not want to see gold go through $1000. Over 220 tons reported by the ECB and captive banks. If it had cut through the $1000, that would be far too newsworthy and the specs and the momentum traders would all pile in sending the price skywards. That was a threat that had to be stamped out ! The cost ? A lot more ammunition gone !
Last time the price dropped to about $690 there were shortages. This doesn't gel with a free market. If this time the price goes down there will be extreme shortages at times when the demand at lower prices gets huge. The physical demand is gradually overwhelming the paper price ! If people are dumping gold because they think it is overpriced, how come there are shortages so you can't get it easily ??!!! The dirty tricks ? Make the US and other Mints ration the stuff !! Want to take delivery out of COMEX ?? You just try it ! NYMEX ? A joke. They blatantly refuse (illegally IMO) to deliver the smaller bars for the NYMEX contracts.
The Cartel. By that I mean the whole system from the BIS and all the Central Banks operating in tandem with JPM, GS, C, BAC, HSBC, Barclays, and Standard and Chartered, maybe UBS collectively "the Bullion Banks". The Game. Lease the gold very cheap (6th March 1yr lease rate for a day was -1.045% ! Yes MINUS. 6th March was Friday. What happened on the Monday 9th March ??!!) Dump it. Use the proceeds to buy treasuries. After taking short positions in the futures market, namely COMEX and destroy a bunch of long positions in the full face of a big bull market ! Basically suppress the price with the full approval of the Fed. Those banks don't even have to put up margin like you or me ! What about the leased gold ? Well that is part of the gold reserves of the relevant Central Bank even though it does not exist any more ! If the CB wants to get it back, the bullion bank would have to go to the market and buy it ! All the bullion banks are bust however and also have large short positions ! So this tiny little gold market (compared to say the bond market) has the potential to blow skywards ! Silver even more so because there is actually less silver above ground than there is gold !
Oh Yes, I forgot about EWT Inc, believed to be one of Rubin's babies. (EWT like Elliot Wave Theory, a joke !) Owning and operating a battery of computers that trade automatically without any human input at all ! Those computers are fully aware of all your FIB levels and support/resitances etc. Easy to trade if you don't have to put up margin because you have the Fed's approval... How dare the CFTC with their tin pot salaries even question what we do ! Even if our positions are under water, doesn't matter, the Fed will come to the rescue if need be !
The CFTC is a stooge.
The gold market is corrupt through and through ! Silver even more so.
Being a goldbug in my view is about honesty, integrity and getting these crooks out of our financial systems.
Yes. I have gold. I have parked it away and never think about it. I paid less than current prices and it was a real hassle to get hold of. It has done a hell of a lot better than if I had put the money in a bank deposit account paying interest ! I can't understand why you would wait for the price to get to $1000 or more. (Actually it already is that price for coins !) Isn't it better to get it cheap ? It is also much easier to sell than to buy. That indicates to me not many people are selling and there is no competition !
Every time you go short the paper price, your bet is that this time the crooks will win again. They probably will this time, because they are very well armed. But, the inevitable is just around the corner. The system is held together by lies and deceit (You already commented on Citibank !). The market will decide decisively ! The physical price will overwhelm the paper price. It is already happening.

none said...

ben, anonymous: thanks for the compliment

Josh's post proves once again that gold is an emotional investment.

See also:

Goldbugs think that a goldstandard is better, more sound and honest than a pure fiat standard. So, if you criticise gold, you criticise something honest and sound.

They might very well be right. George Bernard Shaw wrote in 1928: "You have to choose between trusting to the natural stability of gold and the honesty and intelligence of members of the government. And, with due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold." Man is, imho, much too arrogant and 'optimistic' to have so much control over his financial system (or even over nature, but that's another matter).

But that doesn't mean that gold will per definition be a good investment in 2011 or 2015.

But I'm confident that it will be a lot more expensive in 2011 than it is now:

Anonymous said...

talk about selective data, whew

you take a 30 years of smoke and mirrors statistics in laughably labelled productive stocks,
and compare that to an ancient insurance blob that has been manipulated for half a century,

that is plain rubbish,

you are good ninja, and you called the drop in gold/silver to the day,
but you let yourself down with that link and commentary

Anonymous said...

Ninjas...well, I've always been a CIA type myself, so we naturally disagree. That being said, your post is exactly what I was looking for.

The gold rush is so close that it has me on edge. It will be driven by the same things that always drive them in a deflation: mass bankruptcies, currency meltdowns, and the inevitable government folly that follows.

We're there. This is zero hour. Nothing can prepare any of us for the chaos that is about to envelop the world.

Anonymous said...


I own physical gold and I don't mind you have a difference of an opinion about gold. I think gold will be higher in 2-3 years from now. I know gold will gyrate around from 700-1000 to shake off any weak hands. Anyways, please don't get mind people who get you upset. Keep up the good work this blog! I enjoy reading your daily insights on the financial market.


Ben Bittrolff said...

@ none,

"Goldbugs think that a goldstandard is better, more sound and honest than a pure fiat standard. So, if you criticise gold, you criticise something honest and sound."

This may surpise you all, but I am a big fan of the gold standard. Fiat currency regimes absolutely enrage me.

That being said, I'm a trader... I fight and drink and try to make as much money as I can.

Anonymous said...

Other Anonymous again - I see I did not phrase my remark properly earlier, what I meant to say was:

If you entered the Gold short at $1,000 is it not a good time to take the profit now, as I feel the odds of gold going much lower in this crisis are low.

In other words, the bulk of the profit has already been made.

That's what I was trying to spit out. What I said was not what I meant, which does not agree with what I was thinking. Or something.

Anonymous said...

Wow, Other Anonymous, nothing new for me, but quite well-arranged. Quoted a piece at my blog, thanks.
Also, thanks to Ben for provoking such a nice comment. ;)

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