Yesterday, Friday, November 14th, the near-term December Comex Gold contract traded down to $1146.00/oz in early morning dealings. Around the same time, the December Comex Silver contract traded down to a low at $15.25/oz. While both of these intra-day lows were above the November 7th panic lows, sellers clearly had the upper hand and it was questionable at that time whether key support would hold.
And then there was THE BIG BANG!
Gold and Silver prices suddenly caught a strong bid around 9:30 AM Eastern Time. While it's difficult to exactly pinpoint the reason for this spontaneous combustion, ZeroHedge.com suggested that a research report from Robin Winkler at Deutsche Bank (DB) may have been the trigger. Here are selected key passages from that DB report, courtesy of www.zerohedge.com:
- On 30 November, the Swiss will vote in a referendum to decide whether the SNB’s constitutional mandate should be changed to require the central bank to 1) never sell any gold reserves once acquired, 2) store all its gold on Swiss territory, 3) hold at least 20% of its official reserve assets in gold.
- The likelihood of a yes vote is considerable. The proposal requires a simple country-wide majority to pass, as well as a majority in at least 50% of Swiss cantons. Current polling shows the ‘yes’ campaign with a narrow but clear lead and there are reasons to believe that factors on the day could be favorable for the amendment. If an affirmative vote was recorded, there is little political leeway to delay or dilute implementation.
In the absence of official polls, the proposal’s likelihood of
success can only be gauged from polls conducted by newspapers and other
media outlets. The most respected polls are published by the
radio and TV platform SRG. According to their latest poll (another poll
is due next week), 44% of respondents intended to vote in favor of the
amendment, with 39% rejecting it.
From JP Morgan, "If the referendum is passed, the Swiss National Bank (SNB) will be forced to increase reserves by
around 1,500 tonnes over five years, i.e. 300 tonnes per year. This 300
tonnes per year accounts for 7.5% of annual gold demand of 4,000 tonnes
per year." I think is may be noteworthy that JP Morgan used annual "gold demand" estimates in its attempt to place the potential consequences of a "YES" vote from the Swiss Gold Referendum in perspective. In this specific analysis, I believe the more relevant and more important number is annual "gold SUPPLY" from mined production. In 2013, mined gold production was approximately 3,000 tonnes, and it's not hard to guess that 2014's production will be less than 3,000 tonnes given the 30% decline in gold prices over the last two years and the current average "all in" cost of production of about $1,250/oz. In this light, if the Swiss Gold Referendum is passed, then the Swiss National Bank will have to purchase more than 10% of the global annual Gold production every year for the next five years!!
In a 4-hour stretch between 9:00 AM and 1:00 PM Eastern Time, Gold rallied 4.09% and Silver surged 7.41%! And both precious metals ended the day near their highest levels at $1192.90/oz and $16.38/oz, respectively. A significant rebound in Crude Oil prices probably contributed to the stronger precious metals market on Friday. Crude bounced 3.66% from its intra-day low at $73.25/barrel to end the day at $75.93.
Not surprisingly, daily chart buy signals were triggered by my computer trading system in the following Gold/Silver-related stocks and ETF's:
GLD, SLV, XAU, GDX, GDXJ, SIL, SILJ, AEM, AG, AU, AUY, ABX, EXK, GG, NEM, PAAS, and PPP.
To add insult to injury for the Gold bears, a daily chart sell signal was triggered in the U.S. Dollar Index (DXY) yesterday, which tumbled 1.03% from its intra-day high while Gold and Silver prices were soaring.
Clearly, it's a new dawn for Gold, Silver, and related investments!
Postscript (written Sunday, November 16th):
For Gold bulls and bears alike, I think the upcoming Swiss Gold Referendum is a sentinel event. In one of my recent columns I referred to Abraham Lincoln's famous quote that begins "You can fool some of the people some of the time...". Almost every major central bank has been printing money for several years, but because ALL of them are executing this questionable strategy simultaneously, purchasing power parity across major currencies has been mostly preserved and the citizens of the world have been successfully duped. I think it's safe to say that the global "monetizing" of debt by central banks will end at some point, but how it will end and when it will end are two great unknowns. Here are a few questions that may be especially relevant at this point in time, and just for fun I have answers for all of them:
1. Are central banks omnipotent? For the last 5 1/2 years since March 2009, the answer has clearly been yes! We know the real answer is NO, but when will the financial markets finally see the real power of the "wizard behind the curtain"? The Swiss National Bank (SNB) has been successful so far in defending the 120 level against the Euro, but for how much longer? The Eurozone as we know today is doomed (Greece, Italy, Spain, Portugal, and others will not remain in the EU in its current form). How much longer can the SNB stem the tide of repatriation from Euro's to Swiss Francs by Swiss citizens (who already know this end game)? My guess is that the 120 level gets broken convincing over the very near term!
2. If you had to pick a country that had the most financially savvy citizens (and you couldn't pick your own country), what country would you pick? My guess is that Switzerland would be at the top of almost everyone's list. The SNB has been printing money at almost the same pace as the U.S. over the last six years. AND the Swiss National Bank sold over 1300 tonnes of gold (half its reserves) between 2000 and 2005 at an average price LESS than 40% of today's prices. If you were a Swiss citizen right now, would you trust the current protests by officials at the SNB that a YES vote on the Gold referendum would be disastrous and cost Switzerland the necessary flexibility it needs to deal with any potential monetary crisis ahead? My guess is that a majority of Swiss citizens really DO understand all the implications of a YES vote right now, AND that THEY WILL ACTUALLY EMBRACE A YES VOTE!
3. It is my strong belief that a YES vote in the upcoming Swiss Gold Referendum will dramatically change the landscape for ALL major central banks throughout the world. As a gold bull right now, I still greatly fear the power of the central banks. I saw what happened to the Scotland Independence Vote. The massive (successful) effort by government politicians (and the Bank of England) to preserve the UK was off-the-charts with its fear mongering and disinformation campaign (claims that pensions would be at risk, claims that vendors would lose all their business, claims that Scotland would not be able to compete on the world stage without the British Pound, etc., etc). Could that happen here? You bet! With only two weeks to go, you can bet your last Swiss Franc that the SNB and the entire leadership of the Swiss government will do everything they can to defeat the Swiss Gold Referendum. However, it is my humble view that the SNB and all its uninformed supporters are too late! They have underestimated the resolve of those ready to vote "YES", and the majority of the Swiss people are too smart to fall for last minute claims by the SNB that disaster awaits Switzerland if the YES vote succeeds.
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| Gold ETF (symbol GLD) Weekly Chart |
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| Silver ETF (symbol SLV) Weekly Chart |
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| U.S. Dollar Index (DXY) Daily Chart |
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