Last Week was a Top in Gold
As of Thursday, gold had gone up 13 days in a row. I have little doubt the Uberbulls think that's about right but nothing goes straight up or straight down. In comparison, in March of 2000, the Nasdaq went up 19 days in a row.
That's not a good thing in any commodity. Parabolic charts mark tops for many years. If gold had kept going up on Thursday, I would be looking for an exit for a long time. Gold went parabolic in January of 1980 and that top still hasn't been touched in real dollars.
If you accept that gold goes up and down and consider just the odds of something going up or down 13 days in a row, 2 to the 13th power is 8192 trading days. Or about 32 years. (I'm ignoring the fact that a commodity can close even but that almost never happens.) So gold going up 13 days in a row is pretty damned rare.
The Uberbulls don't believe in corrections, they never ever mention the word. But corrections are healthy. In the end, the Federal Reserve will have destroyed the dollar but that's not this week or this month. It's a correction in gold and silver and no big deal.
At tops, the "Tell you what you want to hear crowd" starts getting crazy. The latest nonsense is touting gold covered tungsten bars. It's certainly possible and the touts got their information here.
One report had a total of 1.3 to 1.5 million fake 400-ounce bars produced 15 years ago and distributed all over the world. To believe the story, you need to believe that 600 million ounces of fake gold entered the market over 15 years. And nobody noticed.
Let's take that one step at a time. I've heard the number 4.5 billion ounces used for the total amount of gold in the world. It's something in the 4-6 billion ounce range.
So the total supply of gold increased by over 12%. And no one noticed. Your neighbor got married 13 years ago and bought his wife an 18kt tungsten ring. And nobody noticed? You are wearing a 14kt tungsten necklace, and no one noticed the difference? Has Kitco been peddling Canadian Maple Leafs made of 24kt tungsten, and nobody noticed? Duh...
I don't believe there is anyone smart enough to read 321gold that would actually believe something like that was possible. The same guy says the treasury shipped 256 million ounces of the fake bars to Fort Knox. There are a couple of giant logical issues with that claim. First of all, no one but him claims that there is 256 million ounces of gold in Fort Knox. According to the Mint, it's 147.3 million ounces. The rest is at West Point.
But let's say there were some fake gold bars shipped to Fort Knox. Why would the government do that? Under current law, if the Treasury wanted to sell the 256 million ounces the US holds in reserves, they probably could. And all of the Uberbulls I know believe there isn't any gold at Fort Knox anyway.
Since the US gold reserves haven't been audited in 60 years, it doesn't matter if there are real bars in Fort Knox or fake bars or no bars, we simply don't have any way of knowing. But it seems pretty stupid to waste some real gold to make authentic looking fakes when no one can see them anyway.
The author of this piece claims, "I know folks who have copies of the original shipping docs with dates and exact weights of "tungsten" bars shipped to Ft. Knox." I wonder why I don't believe that is true either. He doesn't know even how much gold is supposed to be in Fort Knox.
Another of the conspiracy crew played Tag Team with the first author, adding his own pieces of fiction. He started his piece by claiming, "In 1964 the USGovt introduced the zinc dimes clad with silver."
That's either a 12-word sentence if you can spell or an 11-word sentence if you are spelling challenged. It contains three issues of fact that he has dead wrong. There have never been zinc dimes in any year. There have never been silver clad dimes. There was no change in coinage in 1964. (Maybe he meant 1965 and didn't try checking his facts.) So we know from the gitgo that he is factually challenged. You have to wonder just how valid his rumors are.
In the piece he claims that Hong Kong bankers started with four gold bars that they wanted to test. They put four drill holes in a bar to test it. Not three, not five, but four drill holes.
I wonder why they did that. If you put one drill hole in a gold bar that contained a tungsten blank, you would know in about 15 seconds. Gold is soft and, well, it's gold colored. Tungsten is hard and steel gray in color. While the two metals may be close in specific gravity, they have entirely different melting points, hardness and color. No one would mistake tungsten for gold. And if you drilled one hole in a gold bar and found tungsten, it seems to me a pretty high percentage bet that the other holes would probably find some tungsten as well. What are they doing the other three holes for? They want to verify the results of the first drill hole? Yea right.
Then he got the price of tungsten wrong as well. He claims it's less than $70 a ton. How about more like $180-$200 a ton?
There is no "Gold Derivatives Time Bomb" unless you believe it has a 10-year fuse. $600 gold is not the "clearing" price for gold. LTCM didn't go teats up because they had a giant short gold position. (Gold was at the lowest price in years, a short gold position would have been really profitable.) Gold and silver are no more manipulated than any other commodity. The government thinks it's their job to manipulate currencies, interest rates and probably the stock market as well. Why wouldn't they manipulate gold and silver as well?
But a fundamental belief in manipulation and conspiracy as being the prime mover behind the price of silver and gold is to say you don't believe in supply and demand. Sooner or later, supply and demand have to have some effect. Last but not least, any time you hear someone ranting about "Commercial Signal Failure" you should know it's time to go short.
According to a guy who claims to have been an expert commodities broker, "A commercial signal failure occurs in the commodities market when the amount of demand for physical delivery of a commodity - in this case gold - exceeds the ability to physically deliver the available supply by those obligated to deliver. In this case that would be the parties who have sold short the Comex December gold futures contract."
They try this every few years. It's a favorite trick of the Tin-Foil hat crew. It never works for a pretty simple reason. It can't.
The CFTC regulates the commodity markets. They view commodity markets as a price setting mechanism and to much less a degree, a means of taking delivery of a commodity or delivering a commodity. Since anyone with deep enough pockets could corner a market if it is small enough, they can force a cash settlement. You can't corner a market, you can't have a Commercial Signal Failure, the rules preclude it.
You cannot have a Commercial Signal Failure. Period. It doesn't exist and there isn't a single mention of Commercial Signal Failure other than the Uberbulls who are trying to manipulate the price of silver and gold upwards while moaning and groaning about others manipulating the price of gold and silver down.
This particular commodity expert called the top in December of 2004 by his claim of a Commercial Signal Failure, again in March of 2008 and again on the 25th of the month just past last week.
If anything, the claim of a Commercial Signal Failure is a rock solid guaranteed no risk opportunity to short gold and silver. It's been accurate to the day three times in a row. It is a perfect call at market tops.
There are 604 trillion perfectly valid reasons to own gold and silver. Last week's default by Dubai is going to start a cascading wave of Sovereign defaults. Spain and Greece are tottering and will fall over the edge; Ireland will probably lead Great Britain into the abyss. Japan is going to default and eventually, the big tamale, the United States dollar is going to come crashing down.
But there will be a correction first. When THE TOP arrives, I will have a one-word home page for my readers. It's not going to be "BUY."
Just FYI In 1999 we had the chance to pick up a 1000 ounce silver bar. We paid about $5.35 an ounce for the bar, less than spot at the time. But it wasn't 1000 ounces, it was 994 ounces and it wasn't .999 fine, it was .997. Thousand ounce silver or gold bars aren't necessarily 1000 ounces. When we sold the bar in 2007 it had to be melted down as scrap, before we could get paid, even though we sold it to the same company we bought it from. The bar no longer met delivery bar specifications and once a bar leaves the system, it has to be assayed to get back into the system.