June 8, 2012
After the precious metals were hit hard after reaching a high of $1920/ounce on September 6, 2011, the market has been in a mini-bear mode ever since. The fundamentals for high precious metals prices were still in place and indeed they are even stronger today. So, what caused the rout?
Through other reading on the net, I got word that Clive Maund had successfully called the price decline in advance for his subscribers. I had also heard that he had previously correctly predicted the May 1, 2011 silver smack down. I thought perhaps my negative judgements on technical analysis were premature and that maybe I could learn something from this prospective sage.
So I decided to try his service.
After signing up, he did correctly call the bottom and advised his subscribers to get out of their short positions at pretty much the perfect time. However, since then, Clive’s success rate reveals that he’s no sage – indeed, he and his unwitting subscribers are more likely the poor stooges on which the commercial players are feeding.
Admittedly, the markets since September, 2011 have been difficult, especially for buy-and-hold investors. Volatility has been extreme and it’s been a trader’s market, if anything. The problem for Clive’s subscribers is that he changes his mind frequently and it’s not always clear whether new positions are in addition to or instead of older positions. When the trade goes bad, he’s rather silent, even leaving his subscribers in the dark. But when a call ends up to be correct, he’s quick to advertise. In fact, sometimes he advertises his calls in reports available to the general public, usually when subscribers already have their positions in place, but not always. Specifically, more than one time he has reversed a decision and went public immediately, before subscribers were able to get out of their positions, leaving them potentially exposed to opposing actions by public readers of his report.
A good example of silence after a bad call was Clive’s alert on the natural gas sector in the beginning of February 2012. His charts showed a major reversal coming in the sector and advised subscribers “buy aggressively.” To be fair, the report advised that stop-losses be set “directly below support” shown on the chart. Still, after recommending buying natural gas along with specific investments in GaStar Exploration (GST), United States Natural Gas Fund (USNG), and ProShares Ultra DJ-UBS Natural Gas ETF (BOIL), when the market went the opposite direction almost immediately, not one word from Clive to subscribers went out. He assumes his subscribers’ stop-losses were set and gives no further report on what happened or why his original analysis was incorrect.
If Clive has a gift, I would guess that it lies in reading charts and converting that analysis into some technical perspective. But he doesn’t stick to that technical analysis alone – he utilizes the emotional economic backdrop of the European/American crisis to justify his chart analysis. In fact, his alerts to subscribers frequently portray the same scary themes one would expect from free services such as Bloomberg or ZeroHedge.
With all the problems in Europe at present, Clive’s calls have been echoing all the terror evident in the blogosphere. The emotion has run high in his reports on the precious metals markets. Twice in less than a month starting at the end of May 2012, in his effort to show an imminent price explosion to the upside for precious metals, he’s used the term “This is it!” His advice was to go long on GLD and SLV call options and even the 2X and 3X silver vehicles like AGQ and USLV. Unfortunately, both times the prices went the other direction, causing him to send out a warning on possible price declines even further. And worse for his paid subscribers, his last warning was open to the general public – again making it even more difficult for subscribers to get out of their positions with minimal losses. Just what are subscribers paying for, anyway?
Now, stepping back and looking at Clive’s technical analysis over the past 8 months, I have to wonder if chartists like Clive and their subscriber-sheep are really the patsies that the commercial traders have been fleecing in their market manipulations. When the simple folk invest in 2X and 3X gold and silver ETF vehicles, or take options positions in GLD or SLV, just who is taking the opposite side of those investments? Could it be the same small and large speculators in the commodities futures/options markets that always seem to get fleeced by the commercial institutions?
According to Ted Butler, who’s been studying the commodity futures/options Commitment of Traders (COT) reports for more than 30 years, commercial traders manipulate the market against the small and large technical traders whenever they smell blood – that is, when the commercials have a net short position and the the technical funds have a net long position. They ‘manage’ the market lower and trigger the technical funds’ stop-losses forcing even lower prices as the technical funds sell their positions. The commercial traders easily soak up all these contracts at a profit on their short positions.
Could it be that those small and large speculators are selling equities and options in the stock markets to the sheep, then taking the proceeds and buying commodity futures contracts with leverage? Under this scenario, it’s the sheep, not the small and large commodity futures speculators that end up being fleeced – they’re only ‘betting’ the money they got from the sheep. But if the sheep end up making money, the small and large commodity speculators make even more money because they have leverage on their futures positions. So that’s the motivation for the small and large speculators to keep coming back for more in the rigged futures markets – they’ve got nothing to lose and much to gain. It’s the sheep that always end up losing.
The prices of precious metals are currently set in these commodities futures markets. It is a paper contract that is traded, NOT the physical metal. This ‘mechanism’ cannot last forever. At some point, the physical metal will become too scarce.
Conclusion: It would be much better if the sheep stopped following the advice of clowns like Clive, using paper vehicles to trade in the precious metals markets. Instead of buying ETFs like GLD, SLV, USLV, AGQ, or worse buying commodity futures/options contracts with leverage, investors should go out and buy the physical metals. When the physical metals are no longer available in the marketplace, the prices will have nowhere to go but up! Until this happens, the commercials and trading institutions will continue to reap most of the paper profits.
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