Fibonacci Financial

Posts Tagged ‘Silver’

Flash – The Gold Silver ratio Broke Down ! The Scales Tip Towards the Inflation Camp.

Vide !

Given this Breach in the Gold Silver ratio, I will be looking closely at the COT (Commitment Of Traders) report this weekend and next (unfortunately the info is for trading only through tuesday).

Frankly dear reader I am skeptical.  Let’s look at the Silver ETF SLV action.

A price Break Out in SLV that prints an X at $14.50 would force this ole poker player to exchange some of his greenbacks for silver bars.  One of Jesse Livermore’s rules was never be afraid to buy strength.  Not every poker hand is a winner but you learn to play every hand unemotionally.  Remember its not about the hand its about the game.  That is where good money management (proper asset allocation, stops, Optimal F, etc…) comes into play.  If you don’t have good money management rules – before the game ends YOU WILL LOSE.  If you make money along the way without employing good money management, you were lucky and luck runs out.

As Paul Harvey always says – Stay Tuned For News.

The Inflation vs Deflation debate rages all over the Web – So who is right ?

Last years deflationary collapse was revealed by a break out of a 2 year consolidation of the Gold/Silver ratio.  After burning itself out temporarily and yielding to the current mini bail out bubble the Gold/Silver ratio has once again entered a consolidation formation.  The breakout should indicate which tide will overwhelm the markets over the next 9 to 18 months.  My guess is that you will not find this insight anywhere else on the web.

Vide !

How does this work?  Silver was demonetized a century or so ago and now a large part of its demand comes from the industrial/jewelry sector (although the monetary demand is growing again).  Therefore it is more sensitive to a deflationary collapse.  Although the central banks and governments of the world have worked tirelessly to demonetize gold, it still is part of the monetary base of most central banks.  In spite of blatant manipulation by central banks and governments it still is less sensitive to deflation.  If the Bernanke/Obama bail out/stimulus printing presses overwhelm the collapse of toxic debt and we head into another inflationary/hyper-inflationary period, gold and silver will both break out to new highs but silver will run faster.  As the price of silver outpaces gold on a relative basis, the Gold/Silver ratio will decline.

Why should you care dear reader?

The next tide of either Inflation or Deflation will have a massive impact on your investments and wealth.  Knowing which one will dominate should dramatically alter the composition of your investments and impact your financial decisions.

The Gold/Silver ratio is one of the key indicators that I watch.

We don’t have to guess or predict the outcome of the Deflation / Inflation tug-of-war.  We just have to be alert to what the markets are telling us and reallocate our portfolios accordingly.

You saw it here first.  So, Stay Tuned ! ! !

Where Are We In The Markets and What Should We Do?

Current FF Market Model Allocation?

Category 1 – Cash

Gold and Silver are most likely in a long term up trend that started in 2001.  They peaked in 2008 and are currently working their way down and up and down to the first buying opportunity in several years.  Remember nothing goes staight up or down.  Gold should be buy below $700 and silver should be a buy below $7 (very rough guidance).  The pot at the end of this rainbow is a few months away.

PS: This is supported by Long Term precious metal cycles, Long Term trend lines going back to 2001.  The only caveat is the concern as to how they will be affected by the next killer deflationary wave.  This will be monitored as they come back down to their long term trend lines.  Also there is a chance that I will be wrong about deflation coming next.  If inflation is next the price action in the precious metals will show their hand and we will make the appropriate investment response and buy into strength ala Jesse Livermore.

Cash is KING again.  Long live the King.  The U.S. Dollar was in a bear market for several years up till September of 2008.  It is now in a multi-year bull market.  Yes Washington DC and the Fed are doing everything in their power to devalue it BUT the following factors trump their printing press profligacy in the short term anyway.  First and foremost the massive debt accumulation over the last few years is serving as a massive short squeeze against the dollar.  This now turns into a panic for dollars.  Also, in a fractional reserve fiat money system as debt collapses, a reverse leverage works and money supply in the broad sense implodes far faster than the boyz at the fed and treasury can print it.  Add to that the dollar got way over devalued against other fiat (rag money) currencies such as the euro.

PS: This is supported by Commitment of Trader COT activity, Cycle Studies, Elliot Wave action and Point and Figure chart action.

Yes then there is the Euro.  It was in a bull market for several years and got so overvalued that even famous runway models became financial geniuses.  Now it is just Euro trash for a couple of years – if it survives.  Currency unions are notoriously short lived.  Yes I can hear all of you One World conspiracy theorists howling at the moon!  FYI I have read Tragedy and Hope by Caroll Quigley (heavily annotated)and much more.  Please read The Great Wave by David Hacket Fischer for starters and then lets chat.  If the Great Wave does not get the One Worlders the Singularity will!

Category 2 – Lending (Debt Instruments)

To be continued tomorrow.   Yes dear reader for next few days I will cover a category a day.

Since we are midstream in so many markets, it seemed like a good time to start filling out the FF Market Map.

Stay tuned for more.   And remember most of the time it is best to be patient and let the market provide its bounties in its own time.  Get in a rush and you loose….

As always, if you have questions about Category 1 Cash – please drop me a comment and I will address it manana!

The Commitment of Traders COT reports from last week show that the commercial traders (the insiders) have been buying gold and silver.  The speculators have still spent most of their available funds so this will not generate a new bull market.  Short term the precious metals are not likely to break down as I had anticipated but will possibly drift higher.  But stay tuned, gold and silver will still be available at much lower prices as soon as the Mini Bailout Bubble exhausts itself. Patience dear reader.  The opportunity is probably 3-9 months down the road.

Your ever vigilant analyst.

PS: If you were watching Silver after I posted the point and figure chart, you noticed it didn’t break down and confirm gold’s break down.  That kind of a non confirmation was an early signal that something had changed.

Stay tuned for more!

This is My Evolving  – Market Decision Dashboard©

(it is at the graphic artists and won’t be ready for a week)

The complete version is a Cube with Risk Levels across the top and Client Profile down the right hand side.  You will be able to click on each underlined item and drill down to specific information.

Click to enlarge

This is a Map of the Markets laid into Quadrants for Asset Allocation purposes.

Please Post Comments – Is it self explanatory OR is it confusing OR do you have questions ???

Silver & SLV  are about to break down similar to the move in Gold and GLD a few weeks ago.

If you would like to know how to generate the above chart at StockCharts.com let me know. That way you can follow the progress of price action.

When SLV prints a Red Goose Egg in the box between $11.50 and $12.00 it will have provided a screaming sell signal.  This may happen any time over the next few days or weeks (don’t be impatient dear reader).  Then over the next few months silver should march down to the BUY Me zone.  We have been waiting a couple of years for another opportunity to add to our core position.  Silver is the worlds best secondary media1 of exchange for most people.  Silver has been a core holding in the FF Investment Model of Asset Allocation since 2001.

But dear reader beware!  When Silver and SLV get down into their buy zone they may not be a buy.  We will do a thorough analysis at that time.  If long term trend lines are broken, the COT readings are negative and price action does not provide a clear buy signal, it may mean that the deflationary Tsunami that is sure to follow the current Bailout Mini Bubble is going to sweep silver much lower!

We won’t know till we get down to the buy zone and examine the battle field.  Stay Tuned

This is presented to provide a peek into how asset allocation decisions are made for the FF Investment Model.  I often use Point and Figure Charts (its all about price action) to provide timing signals that help in verifying what other tools are signaling.  P & F charts are a great tool for confirming the timing of Event Expectation Scenarios provided by Austrian Economic Analysis (Austrian Econ is not good for timing BUT excellent for modeling what to expect) and for timing of investments based on activity provided in the COT Commitment of Trader reports.

Want to be an insider and get my complete analysis when silver gets down into the BUY Me zone?  Drop me a comment

In the immortal words of Cap’n Flint “Pieces of Eight, Pieces of Eight” & ” Welcome aboard the FF Ship Matey”

PS: If you found this valuable or interesting PLEASE drop me a comment !

Notes

1 I will explain the praxeological difference between secondary media of exchange and money and its importance for investors in a subsequent blog  (hint for those of you that can’t wait look for it in the index of Human Action by Ludwig von Mises, free pdf of the book and study guide available at Mises.org).   Silver was demonetized after a historic struggle between the banksters and society in the 1900s and early 20th century.  Remember the Sin of ‘73!  The battle to debauch money & demonetize first silver then gold is one of the most fascinating intrigues in all of history (It would make a great historical novel starting clear back in ancient Greece) When the great fiat money con finally blows up, silver will be re-monetized by the market (you and I).

Currently Silver Does Not Have a Face aka a Symbol

A New Currency Symbol for ISO Silver Currency XAG No. 961

Silver Currency Symbol artist and creator is Michael R. Stoddard.

For those who want to include this new symbol in their word processing and spread sheet fonts, please email your requests to:

michael@fibonaccifinancial.com

I recommend that you go out to Wikipedia’s article on ISO 4217 on Currencies.

Sample Financial Statement Presentation

The “unit of account” for the Founding Fathers was the silver dollar. That is they kept their accounting records in silver dollars. What did they know that we don’t. During the constitutional convention they debated long and hard about allowing paper money but came down strongly against paper money. They resolved only to admit gold and silver as money. They also resolved to use silver as the monetary unit. Officially confirming what they were already doing independently. Why were they so vehemently against paper money? Why mandate in the Constitution that the States could only accept Gold and Silver?

Publishing financial statements in Silver ounces could be presented as follows. The currency symbol is prominently displayed in the upper left hand corner to help with the paradigm shift. The new symbol is displayed at the top and bottom of each financial statement column.

Fire Sale Soon

There is a Gold(xau) and Silver(xag) fire sale coming soon!

This will be the best time to accumulate gold and silver for several years to come.

Will you be ready? Preparation and Planning will significantly add to your net worth.

Take Action Now

Questions ? email me at: michael@fibonaccifinancial.com