The Fed: What did they really say Wednesday?
They kept interest rates at ZERO...this really only benefits the banks. In fact, everything the Fed does is to benefit the banks. Their concerns about unemployment and "price stability" are empty at best.
The Fed also announced an "inflation target" of 2%. Ridiculous, I know... Everyone and their brother knows inflation is running FAR ABOVE 2%. Everybody but the Fed that is. But then they look at inflation differently than the rest of the world:
Federal Reserve Abandons Core Consumer Price Index
Amidst all the hoopla surrounding the Federal Reserve's announcement yesterday of long term
policy, the Fed statement was very clear that the relevant measure is the
deflator for personal consumption expenditures, which is the broadest measure of
prices in the economy. The Fed made a fundamental policy change in moving away
from the concept of core Consumer Price Index which excludes food and energy, as
its key inflation measure. Their exact words were,
The concept of core CPI was invented in the early 1970s by then-Fed Chairman Arthur Burns to allow for an easier monetary policy in the face of rapidly rising oil and food prices. The economic argument for this new concept of inflation was that it avoided transitory elements driving the inflation rate. However, as we all know energy prices have risen inexorably higher over the past four decades.
Thus the Fed's experiment with unusually low interest rates for a very long time could run aground if it triggers another commodity price bubble as it did last year. If the 2 percent target is for real, the Fed could very well be tested sooner than it would like.
The flip side of the policy change is that housing is weighted far lower in the consumption deflator than it is in the Consumer Price Index. Thus the incipient inflation in rents will be downplayed in the new measure. Perhaps the Fed is fearful that rising rents would make it difficult to maintain its zero interest rate policy going forward. Time will tell.
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So gone is the Fed's "core inflation" measurement where the cost of Food and Energy are not considered in measuring inflation. Note worthy since "core inflation" has been on the rise of late, rising 2.2% last year. And now they have a more esoteric metric by which to measure inflation.
What are Real Personal Consumption Expenditures?
The Real Personal Consumption Expenditure released by the US Bureau of Economic Analysis is an average of the amount of money the consumers spend in a month on durable goods, consumer products, and services.
Fancy, eh?
In fact the measure of personal consumption expenditures was released today along with this morning's weak 2.8% GDP growth number.
John Williams from ShadowStats.com has the latest stats you need to be aware of.
- Net of Involuntary Inventory Build-Up, GDP Growth Was 0.8% Instead of 2.8%
- Durable Goods Orders and New Home Sales Still Show Stagnation
- Fed’s New PCE Inflation Target Is Inconsistent with Plans for Ongoing Easing
No. 415: Fourth-Quarter GDP, December Durable Goods and Home Sales
http://www.shadowstats.com
Q4 GDP Misses Estimates, Inventory Stockpiling Accounts For 1.9% Of 2.8% Q4 US Economic Growth
From ZeroHedge
The US economy grew at a 2.8% annualized pace in the supposedly blistering fourth quarter, yet the number was a disappointment not only in that it missed estimates of 3.0% (and far higher whisper numbers) but when one looks at the components, where a whopping 1.94% of the upside was attributable to a rise in inventories as restocking took place. And as everyone knows in this day and age a spike in inventories only leads to sub-cost dumping a few months later. In other words, the economy grew at a 0.8% pace ex inventories. Yet for all intents and purposes, this is considered "growth." Personal consumption was also weaker than expected coming in at 2.0% on estimates of 2.4%. Perhaps the only silver lining was Core PCE which came at 1.1% on expectations of 0.9%, however as discussed extensively before, this was driven by an unsustainable surge in credit-binge spending, primarily for iStore trinkets, and is hardly sustainable especially as the US Savings Rate fell to 3.7% in the fourth quarter, the lowest since Q4 2007. In other words Joe Sixpack is living large, especially since Joe Sixpack no longer has to pay his mortgage. Unfortunately this is a collision course with every economic principle and the next taxpayer funded bank bailout is only a matter of time. Bottom line: the artificial economic pick up is over and Q1 will see inventories actually detract from GDP: as a reminder Q1 2011 GDP subtracted 1.8% points from the final 0.4% GDP, and that was following only a 0.9% inventory rise in the preceding quarter, Q4 2010. And that is not even mentioning the tight fiscal situation no longer being a benefit to growth. Oh yes, and gas is no longer falling. And not to even mention that the GDP deflator mysteriously imploded from 2.6% to 0.4%: that's odd - not even edible ipads seem to be coming down in price. Which means that using a reslitic deflator would have resulted in virtually no GDP growth. To paraphrase Lester Burnham, "It's all downhill from here."
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Real Personal Consumption Expenditure [PCE] printed this morning at 1.1%. It was expected to be 2.3%. 3rd qtr PCE was revised higher from 1.7% to 2.1%.
In the Fed's statement yesterday, they announced that: "Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable." We all know that is a load of baloney, but the PCE numbers released this morning allow the Fed to get away with "bending the truth" about inflation.
No doubt they will look to the 4th qtr drop in PCE and ratchet up their deflationary fear mongering so as to justify keeping interest rates and ZERO, and/or increasing their balance sheet by buying more toxic mortgage debt from the floundering banks here in the US.
Free money and inflation is just what the Dr. ordered for the Precious Metals as both Gold and Silver soared on the Fed announcement.
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Silver Price Forecast 2012:
There is a well-established relationship between how silver and gold trade. They often trade similar in the same time period, but also at similar milestones, although those milestones are sometimes reached at different times. This can cause silver or gold to be the leading indicator, depending on the particular milestone.
I have previously used this relationship to predict how silver will trade. Below, is an extract of that update:
Currently, there is another situation in the silver and gold market that provides an opportunity to predict how silver prices might trade over the coming months. I have pointed this out before, in a previous article. Here, I would just like to provide an update, and add a few more thoughts.
This situation or opportunity revolves around the 1980 all-time high for both metals. Gold passed its 1980 all-time high during 2008, while silver is yet to do so. By looking at the pattern of how gold passed its 1980 high, we can predict how silver might do it as well.
Below, is a comparison of silver and gold around their respective 1980 highs:
From the chart, you can see there is similarity in how gold and silver approached their 1980 high. Gold and silver made a triangle-type pattern (marked 1 -3) just before it reached the 1980 all-time high. When it came out of that triangle pattern, it rallied strongly to the 1980 high, which started the formation of a flag-type pattern (marked 3 – 9).
It appears that silver is now past point 9 (29 December 2011), and will now be eyeing that $50 level.
Market conditions often cause silver to fall behind gold, for quite some time, where after, silver normally catches-up in a big way. The fact that silver is still caught-up in a trading range lower than its 1980 high, at least four years longer than gold already, provides a classic opportunity for silver to follow that “catching-up pattern” and zoom to multiples of its 1980 high.
With gold having passed $1700 (twice the 1980 high of $850) already, given the above analysis, it stands to reason that $100 (twice the 1980 high of $50) silver is virtually guaranteed.
There are many indicators suggesting that we are close to a point where silver might catch –up with gold, relative to its 1980 high, in a big way. My recent analysis of the gold/silver ratio also seems to suggest this. So, as things stand, I expect silver to outperform gold for most of this year, and I stand by my target of at least $140 silver by the end of 2012.
The "mania" stage.
To all; the action in the precious metals yesterday was very very significant and after pondering on it overnight I truly believe the 3rd and final "mania stage" has been kicked off. Let's first look at the fundamentals. The Fed told you yesterday that they will foster a policy of negative (if they could create negative nominal rates I'm sure they would) real interest rates for at least 2 more years. We have also watched reported (probably fake) inventories of precious metals continue to drop. Central banks have become buyers of Gold while in the U.S. and Canada, sales of 1 oz. Eagles and Maples are now running at a faster pace than TOTAL production of all mines combined. Since Silver inventories in the U.S. and Canadian mints are nonexistent, if these coins are to be minted in the future, the mints must become buyers. Nevermind industrial demand, jewelry demand, investment demand of bullion bars or anything else, the sales of 1oz. coins are eating up all supply.
Then of course we have "rehypothecation" to the tune of over 100-1 in all sorts of scam paper products from ETF's to futures, options, pool accounts etc. To add to the "perfectness" of this storm, Sprott Asset Management pulled the trigger on a 10 million ounce order with another $1.2 Billion remaining shelfed for future purchases. Let's not forget the biggest "fundamental" of all, good 'ole common sense itself. Common sense tells you that while governments are getting stuck in the quicksand of bankruptcy (Portuguese 10 yr. bonds are now trading over 15%), the natural action of "protect oneself" has the demand of precious metals exploding. Please remember that 5 years ago, nearly no one differentiated between the fraudulent paper Gold and Silver products and the real thing. This siphoned real demand away from the real thing, this is changing rapidly and enough "big money" finally "gets it"!
So fundamentally, the perfect storm has arrived, technically or "psychologically" the set up is equally bullish. Just one month ago the average investor in PM's were suicidal to put it mildly. Short positions (many naked and illegal) in the mining shares ballooned and COT numbers show the commercials less short and the specs less long than in many a moon. Bullish consensus numbers got as low or lower than the bottom days in 2008 while "cash for Gold" shops spring up like lemonade stands (back in the 60's before 7 year olds needed "permits") . I must say that I did not understand the mental malaise or funk but it did exist and shook many investors off of the bull. If you hung in there (I hope you did), you deserve to pat yourself on the back because NOW it looks like you are going to really get paid for your pain!
Jim Sinclair put a piece out last night http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/25_Jim_Sinclair_-_Mainstream_Entities_Will_Now_Enter_Gold_Market.html where he says that "mainstream entities will enter the Gold market" and in my opinion is absolutely correct and will be joined by "John and Jane Q. Public". The public will have a much larger impact on the Silver market (poor man's Gold) while institutions will devour Gold itself. Let's not forget India's "Gold for oil" deal and other major countries like China, Russia, France etc. setting up trade deals without using the Dollar for settlement. The Sun is finally setting on the Dollar!
ALL of this has come together at the same time to create a perfect storm that just happened to kick off the day before an options expiration that surely has the shorts licking their wounds! The fabled "$6 Dollar rule" that in reality was simply a "2% rule" was soundly broken yesterday with an outside reversal day, the size of which I don't believe we have seen throughout the last 11 year bull market. Yesterday saw a bottom to top move of well over $60. We are also getting upside follow through today which has NEVER happened (or been "allowed" to happen) in the past so something is really really different now. Whether "they" have lost control or "allowed" yesterdays movement is a moot point because it "happened" and the genie cannot be put back into the bottle!
Bill Murphy's "price action makes market commentary" will now begin to work in favor of precious metals as opposed to against. If my opinion is correct, the 3rd and final "mania stage " has kicked off. In the words of Richard Russell, "there is no fever like Gold fever" and that is in "normal times". These are not even close to normal times. We are living through the end of an era where governments are going broke including the issuer of "the money". "The money" has gone bad at the same time investors own no or very little "real money" because of years of brainwashing. Capital has been concentrated at one side of the ship and has very slowly been moving back to the empty side.
It has taken 11 years to get where we are today, it could very well only take one more year (10% the time of what we have already been through) to clean up "all the marbles". What lies ahead of us price wise is anyone's guess. We could very well see a double, a ten fold, a 100 fold OR an "infinite move" in Dollar terms if the Dollar is lost. All I know is that a "re valuation" of paper money vs. real money is mandatory and been necessary for a very long, long time. THIS is it, the "revaluation" that has been working it's way through for the last 11 years has changed gears and with today's abilities of information (speed through computers) and leverage (options, futures and OTC crap) has an additional power boost! The computerized turbos and leveraged nitrous buttons will make what is to come in Gold and Silver legendary stories that will make the Dot Com/housing booms look like 2 pimples on an elephant's arse.
The biggest "difference" is that there will be no crashto follow the boom. When a currency dies (in this case ALL paper currencies), real money steps in and is "valued" to whatever new currency" that is introduced. Or at least this is the way they would like you to perceive it, the reality is that the new currencies are valued by how much Gold or Silver they can "buy". The important thing is that whenever a new currency is introduced, anyone sitting at the table with real money, ALREADY has "all the marbles". You will be entering the "next monetary system" wealth intact AND enhanced! "Payday" is much closer timewise than many true believers expect in my opinion. This is the start. Regards, Bill H.
They kept interest rates at ZERO...this really only benefits the banks. In fact, everything the Fed does is to benefit the banks. Their concerns about unemployment and "price stability" are empty at best.
The Fed also announced an "inflation target" of 2%. Ridiculous, I know... Everyone and their brother knows inflation is running FAR ABOVE 2%. Everybody but the Fed that is. But then they look at inflation differently than the rest of the world:
Federal Reserve Abandons Core Consumer Price Index
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate targets.[Read: Fed Opens Up on Interest Rate, Inflation Predictions]
The concept of core CPI was invented in the early 1970s by then-Fed Chairman Arthur Burns to allow for an easier monetary policy in the face of rapidly rising oil and food prices. The economic argument for this new concept of inflation was that it avoided transitory elements driving the inflation rate. However, as we all know energy prices have risen inexorably higher over the past four decades.
Thus the Fed's experiment with unusually low interest rates for a very long time could run aground if it triggers another commodity price bubble as it did last year. If the 2 percent target is for real, the Fed could very well be tested sooner than it would like.
The flip side of the policy change is that housing is weighted far lower in the consumption deflator than it is in the Consumer Price Index. Thus the incipient inflation in rents will be downplayed in the new measure. Perhaps the Fed is fearful that rising rents would make it difficult to maintain its zero interest rate policy going forward. Time will tell.
___________________________
So gone is the Fed's "core inflation" measurement where the cost of Food and Energy are not considered in measuring inflation. Note worthy since "core inflation" has been on the rise of late, rising 2.2% last year. And now they have a more esoteric metric by which to measure inflation.
What are Real Personal Consumption Expenditures?
The Real Personal Consumption Expenditure released by the US Bureau of Economic Analysis is an average of the amount of money the consumers spend in a month on durable goods, consumer products, and services.
Fancy, eh?
In fact the measure of personal consumption expenditures was released today along with this morning's weak 2.8% GDP growth number.
John Williams from ShadowStats.com has the latest stats you need to be aware of.
- Net of Involuntary Inventory Build-Up, GDP Growth Was 0.8% Instead of 2.8%
- Durable Goods Orders and New Home Sales Still Show Stagnation
- Fed’s New PCE Inflation Target Is Inconsistent with Plans for Ongoing Easing
No. 415: Fourth-Quarter GDP, December Durable Goods and Home Sales
http://www.shadowstats.com
Q4 GDP Misses Estimates, Inventory Stockpiling Accounts For 1.9% Of 2.8% Q4 US Economic Growth
From ZeroHedge
The US economy grew at a 2.8% annualized pace in the supposedly blistering fourth quarter, yet the number was a disappointment not only in that it missed estimates of 3.0% (and far higher whisper numbers) but when one looks at the components, where a whopping 1.94% of the upside was attributable to a rise in inventories as restocking took place. And as everyone knows in this day and age a spike in inventories only leads to sub-cost dumping a few months later. In other words, the economy grew at a 0.8% pace ex inventories. Yet for all intents and purposes, this is considered "growth." Personal consumption was also weaker than expected coming in at 2.0% on estimates of 2.4%. Perhaps the only silver lining was Core PCE which came at 1.1% on expectations of 0.9%, however as discussed extensively before, this was driven by an unsustainable surge in credit-binge spending, primarily for iStore trinkets, and is hardly sustainable especially as the US Savings Rate fell to 3.7% in the fourth quarter, the lowest since Q4 2007. In other words Joe Sixpack is living large, especially since Joe Sixpack no longer has to pay his mortgage. Unfortunately this is a collision course with every economic principle and the next taxpayer funded bank bailout is only a matter of time. Bottom line: the artificial economic pick up is over and Q1 will see inventories actually detract from GDP: as a reminder Q1 2011 GDP subtracted 1.8% points from the final 0.4% GDP, and that was following only a 0.9% inventory rise in the preceding quarter, Q4 2010. And that is not even mentioning the tight fiscal situation no longer being a benefit to growth. Oh yes, and gas is no longer falling. And not to even mention that the GDP deflator mysteriously imploded from 2.6% to 0.4%: that's odd - not even edible ipads seem to be coming down in price. Which means that using a reslitic deflator would have resulted in virtually no GDP growth. To paraphrase Lester Burnham, "It's all downhill from here."
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Real Personal Consumption Expenditure [PCE] printed this morning at 1.1%. It was expected to be 2.3%. 3rd qtr PCE was revised higher from 1.7% to 2.1%.
In the Fed's statement yesterday, they announced that: "Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable." We all know that is a load of baloney, but the PCE numbers released this morning allow the Fed to get away with "bending the truth" about inflation.
No doubt they will look to the 4th qtr drop in PCE and ratchet up their deflationary fear mongering so as to justify keeping interest rates and ZERO, and/or increasing their balance sheet by buying more toxic mortgage debt from the floundering banks here in the US.
Free money and inflation is just what the Dr. ordered for the Precious Metals as both Gold and Silver soared on the Fed announcement.
Eric King, KingWorldNews.com
With gold and silver exploding to the upside on the Fed
announcement, today King World News interviewed legendary Jim Sinclair, to get
his take on where things are headed. Sinclair told KWN he now expects
mainstream entities to enter the gold market. Here is what Sinclair had to
say: “Today is an important day. There are many days we talk but this
is a mile-marker. What the Fed did today is they turned on the light of what
will be QE to infinity. Today the light went on with regards to the intentions
of the Fed. They did that for very specific reasons, we have troubles people
can’t see and this is one of the ways out.”
“The
announcement itself is a game-changer because of the way this game is going to
change, Eric. I think you are going to see a very significant change amongst
investors, corporations and companies with extra capital and people of the
mainstream. You’re going to find gold being accepted as a hedge against what’s
going on by entities, that up to now, you would think would be the last ones to
be buying gold. How about someone like General Electric?
I used GE
as an example because the principal of GE is a major advisor to the government.
That would be the most unlikely thing (for GE to buy gold). But don’t count it
out. You are going to see a lot of things this year you thought at one time
impossible, becoming reality.
I’m going
to predict you are going to see a new definition of investors in gold that, up
to now, haven’t even been considered. Up to now there’s been the retail crowd
and there’s been the international central bank crowd which have been the
primary entities in gold....
“But
you’ve never had mainstream investment, mainstream pensions, mainstream life
insurance companies, mainstream health plans, which gather money looking to use
a medium in order to maintain the buying power of what they’ve accomplished.
This is a huge change, huge new demand, a total new definition.
You’re
going to find out that public companies with significant resources, tech
companies (as an example), are going to start to recognize that gold is an
important part of protecting what they have. So I think you’ve identified a
game-changer for corporate America and corporate global Western finance, to
begin to look at gold as an alternative to the normal cash and debt instruments
they would use to hedge themselves.”
Sinclair also added: “Last year was the year of discussion and confusion. I’ve labeled
this year a year of action. Not necessarily a year of solution, but a year of
action. Today you saw an action. The Fed’s swap line is an action. The IMF’s
willingness to seek and to distribute loans, an action.
Actions
have consequences. So this year is the year in which we are going to be
experiencing the consequences. $1,700 to $2,100 gold is a conservative range.
The reason why you got the breakout today is the light just went on. So any
idea the accordion chop in gold we were in is still on is total nonsense.
Bear in
mind that when gold breaks out above those ranges, it will do it based on a loss
of confidence, primarily, in currencies. And it is the dollar, not the euro,
that is the specie in danger as we are having this
conversation.”
This interview with Sinclair is
timely and important considering what the Fed did today. The KWN audio
interview with Jim Sinclair is available now and you can listen to it by
CLICKING
HERE.
___________________________
Eric King, KingWorldNews.com
Today billionaire Eric Sprott told King World News the Chinese
cannot continue to buy gold as aggressively as they have been without there
being a dramatic increase in the price. Eric Sprott, Chairman of Sprott Asset
Management, had this to say about Chinese purchases of gold and the recent
announcement that Iranian oil will be acquired using gold: “There are
two things I think are important about that. One, it’s a statement that gold is
a currency. That is by far the most important thing. I think the other thing
is, if it actually transpires that way, what does it mean for the demand for
gold? Because now it’s considered currency, it’s, in essence, your working
capital. You have to have it. It’s like a store, you have to have money in the
till.”
“So it’s obviously going to increase the demand for
gold and we have seen some data that China has been a rather large buyer of
gold. People will consider it a currency and it has to necessitate more
buying. You know, Eric, I think one of the really interesting things that
happened was the imports of gold into China, from Hong Kong, which always were
less than 20 tons a month, all of the sudden, beginning about 5 months ago, went
20 (tons), 30, 40, 80 and in November 102 tons. 102 tons is a staggering
number.
The world mines, excluding China, less than 200 tons
a month. China cannot continue to buy 102 tons and not have the price escalate
dramatically.”
Sprott had this to say about
today’s Fed announcement that it will leave rates at zero until late 2014:
“Obviously it’s dramatic what has happened. It would appear there will
be no restraint whatsoever on the part of the Fed. Assuming this announcement
causes gold to break its declining wedge, which I believe it has, I expect some
serious fireworks to the upside.”
When asked about his latest PSLV
offering, Sprott stated, “We closed on $349 million. The underwriters
did exercise the over-allotment in rather short order. We have committed to
purchase it (silver). I think the deal was very successful. Obviously the
premium has come down here (on PSLV), but it’s typically traded at a 16% premium
and right now it’s at 8%. It takes a little while to digest the stock that was
issued, but I’m hopeful we will get back to where we were.
There’s been a big move since we did the
issue....
“We’ve all heard the reports that it’s pretty tight
(in terms of supply). Every data point I see suggests people and institutions
want to buy silver in the same dollar amount as they are buying gold.
We see the US Mint has sold 5.6 million ounces so far
in January and I’m sure they will have a record high month. We’re selling as
many dollars of silver coins as we are gold coins by the mint, which means we
are selling 50 times more physical volume of silver. The availability (of
silver to gold) is 7 to 1 in physical, but people are buying it at like 50 to
1. So something has to give there.
I would love to share with your viewers I was
speaking with a company, this is a gold company, who is trying to organize a
dividend payment being made in gold or silver and/or cash. Apparently 60% of
the people (asked) were opting for the precious metal and half of those agreed
to take it in silver. Again, another confirmation of silver buying. Our last
tranche (in PSLV) we raised $349 million. Our last tranche in gold we raised
$312 million. Again, one to one buying, so I’m pretty upbeat about where silver
should be going.
As you know I always thought we would go back to the
16 to 1 ratio to gold, which means based on today’s prices silver should be
$100. I really do believe silver was going to blow through $50 back in
April/May when, all of the sudden, margin rate increases came through and one
billion ounces of paper silver was sold that day.
I’m of the feeling that it will go back through $50
this year. Once it goes through $50 I think it could take on a whole new life
and really energize itself. Longer-term my target is 16 to 1 to gold and I’m
very upbeat on gold. I’m sure gold is going north of $2,000 this year, so
obviously silver can get up to $150 in due course.”
When asked if there has been
traction with regards to his call to silver companies to hold physical silver
instead of cash, Sprott replied, “There has been traction. One company,
Endeavor Silver, only sold 1/3 of their output in the December quarter because
they thought the price was being depressed. They decided to wait and sell it at
a different time.
We did have one silver producer actually participate
in the PSLV (offering), which was very encouraging to me. I think we’re making
a little bit of momentum on that front. Of course, I’ve given lots of chats to
silver producers about what I think has gone on in the silver market. I think
we’re making some progress.”
____________________________
Per the chart below, Chinese gold imports were a staggering 102 tonnes in November alone, or HALF THE WORLD'S PRODUCTION, not including Chinese gold production, which is entirely consumed by its government.
____________________________
Per the chart below, Chinese gold imports were a staggering 102 tonnes in November alone, or HALF THE WORLD'S PRODUCTION, not including Chinese gold production, which is entirely consumed by its government.
___________________________
A chart from Dave in Denver at The Golden Truth:
Below is a 1-yr daily chart of the price of gold. Those of you who are
familiar with doing technical analysis on stock charts will recognize this
particular chart as being nothing less than bull market full-on chart
pornography. When gold breaks above $1800, we will really be off to the
races. I think gold is going to make some moves to the upside that will shock
most gold bears and surprise many bulls.
(click on the chart to
enlarge)
There is a well-established relationship between how silver and gold trade. They often trade similar in the same time period, but also at similar milestones, although those milestones are sometimes reached at different times. This can cause silver or gold to be the leading indicator, depending on the particular milestone.
I have previously used this relationship to predict how silver will trade. Below, is an extract of that update:
Currently, there is another situation in the silver and gold market that provides an opportunity to predict how silver prices might trade over the coming months. I have pointed this out before, in a previous article. Here, I would just like to provide an update, and add a few more thoughts.
This situation or opportunity revolves around the 1980 all-time high for both metals. Gold passed its 1980 all-time high during 2008, while silver is yet to do so. By looking at the pattern of how gold passed its 1980 high, we can predict how silver might do it as well.
Below, is a comparison of silver and gold around their respective 1980 highs:
From the chart, you can see there is similarity in how gold and silver approached their 1980 high. Gold and silver made a triangle-type pattern (marked 1 -3) just before it reached the 1980 all-time high. When it came out of that triangle pattern, it rallied strongly to the 1980 high, which started the formation of a flag-type pattern (marked 3 – 9).
It appears that silver is now past point 9 (29 December 2011), and will now be eyeing that $50 level.
Market conditions often cause silver to fall behind gold, for quite some time, where after, silver normally catches-up in a big way. The fact that silver is still caught-up in a trading range lower than its 1980 high, at least four years longer than gold already, provides a classic opportunity for silver to follow that “catching-up pattern” and zoom to multiples of its 1980 high.
With gold having passed $1700 (twice the 1980 high of $850) already, given the above analysis, it stands to reason that $100 (twice the 1980 high of $50) silver is virtually guaranteed.
There are many indicators suggesting that we are close to a point where silver might catch –up with gold, relative to its 1980 high, in a big way. My recent analysis of the gold/silver ratio also seems to suggest this. So, as things stand, I expect silver to outperform gold for most of this year, and I stand by my target of at least $140 silver by the end of 2012.
___________________________
Bill Holter with GATA (www.LeMetropoleCafe.com) sums up the Wednesday Fed announcement and it's effect of Gold and Silver prices:
To all; the action in the precious metals yesterday was very very significant and after pondering on it overnight I truly believe the 3rd and final "mania stage" has been kicked off. Let's first look at the fundamentals. The Fed told you yesterday that they will foster a policy of negative (if they could create negative nominal rates I'm sure they would) real interest rates for at least 2 more years. We have also watched reported (probably fake) inventories of precious metals continue to drop. Central banks have become buyers of Gold while in the U.S. and Canada, sales of 1 oz. Eagles and Maples are now running at a faster pace than TOTAL production of all mines combined. Since Silver inventories in the U.S. and Canadian mints are nonexistent, if these coins are to be minted in the future, the mints must become buyers. Nevermind industrial demand, jewelry demand, investment demand of bullion bars or anything else, the sales of 1oz. coins are eating up all supply.
Then of course we have "rehypothecation" to the tune of over 100-1 in all sorts of scam paper products from ETF's to futures, options, pool accounts etc. To add to the "perfectness" of this storm, Sprott Asset Management pulled the trigger on a 10 million ounce order with another $1.2 Billion remaining shelfed for future purchases. Let's not forget the biggest "fundamental" of all, good 'ole common sense itself. Common sense tells you that while governments are getting stuck in the quicksand of bankruptcy (Portuguese 10 yr. bonds are now trading over 15%), the natural action of "protect oneself" has the demand of precious metals exploding. Please remember that 5 years ago, nearly no one differentiated between the fraudulent paper Gold and Silver products and the real thing. This siphoned real demand away from the real thing, this is changing rapidly and enough "big money" finally "gets it"!
So fundamentally, the perfect storm has arrived, technically or "psychologically" the set up is equally bullish. Just one month ago the average investor in PM's were suicidal to put it mildly. Short positions (many naked and illegal) in the mining shares ballooned and COT numbers show the commercials less short and the specs less long than in many a moon. Bullish consensus numbers got as low or lower than the bottom days in 2008 while "cash for Gold" shops spring up like lemonade stands (back in the 60's before 7 year olds needed "permits") . I must say that I did not understand the mental malaise or funk but it did exist and shook many investors off of the bull. If you hung in there (I hope you did), you deserve to pat yourself on the back because NOW it looks like you are going to really get paid for your pain!
Jim Sinclair put a piece out last night http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/25_Jim_Sinclair_-_Mainstream_Entities_Will_Now_Enter_Gold_Market.html where he says that "mainstream entities will enter the Gold market" and in my opinion is absolutely correct and will be joined by "John and Jane Q. Public". The public will have a much larger impact on the Silver market (poor man's Gold) while institutions will devour Gold itself. Let's not forget India's "Gold for oil" deal and other major countries like China, Russia, France etc. setting up trade deals without using the Dollar for settlement. The Sun is finally setting on the Dollar!
ALL of this has come together at the same time to create a perfect storm that just happened to kick off the day before an options expiration that surely has the shorts licking their wounds! The fabled "$6 Dollar rule" that in reality was simply a "2% rule" was soundly broken yesterday with an outside reversal day, the size of which I don't believe we have seen throughout the last 11 year bull market. Yesterday saw a bottom to top move of well over $60. We are also getting upside follow through today which has NEVER happened (or been "allowed" to happen) in the past so something is really really different now. Whether "they" have lost control or "allowed" yesterdays movement is a moot point because it "happened" and the genie cannot be put back into the bottle!
Bill Murphy's "price action makes market commentary" will now begin to work in favor of precious metals as opposed to against. If my opinion is correct, the 3rd and final "mania stage " has kicked off. In the words of Richard Russell, "there is no fever like Gold fever" and that is in "normal times". These are not even close to normal times. We are living through the end of an era where governments are going broke including the issuer of "the money". "The money" has gone bad at the same time investors own no or very little "real money" because of years of brainwashing. Capital has been concentrated at one side of the ship and has very slowly been moving back to the empty side.
It has taken 11 years to get where we are today, it could very well only take one more year (10% the time of what we have already been through) to clean up "all the marbles". What lies ahead of us price wise is anyone's guess. We could very well see a double, a ten fold, a 100 fold OR an "infinite move" in Dollar terms if the Dollar is lost. All I know is that a "re valuation" of paper money vs. real money is mandatory and been necessary for a very long, long time. THIS is it, the "revaluation" that has been working it's way through for the last 11 years has changed gears and with today's abilities of information (speed through computers) and leverage (options, futures and OTC crap) has an additional power boost! The computerized turbos and leveraged nitrous buttons will make what is to come in Gold and Silver legendary stories that will make the Dot Com/housing booms look like 2 pimples on an elephant's arse.
The biggest "difference" is that there will be no crashto follow the boom. When a currency dies (in this case ALL paper currencies), real money steps in and is "valued" to whatever new currency" that is introduced. Or at least this is the way they would like you to perceive it, the reality is that the new currencies are valued by how much Gold or Silver they can "buy". The important thing is that whenever a new currency is introduced, anyone sitting at the table with real money, ALREADY has "all the marbles". You will be entering the "next monetary system" wealth intact AND enhanced! "Payday" is much closer timewise than many true believers expect in my opinion. This is the start. Regards, Bill H.
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Got Gold you can hold?
Got Silver you can squeeze?
It's still not too late to accumulate!
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