First, I figure I'll share my thoughts on BOF's heat-generating PSLV post below. In fact, I think the more heat put on Sprott, the better, because it's unconscionable that for all of his interviews, no-one has ever asked him any tough questions, like those Kid Dynamite has painstakingly brought up. For example: "Why did you quietly unload all your shares of PSLV if you believe the premium is rational," or "If the market is so tight, why didn't you just procure your silver from SLV, since you don't contest the enormous SLV inventory in your presentations," or "What is the difference between the PSLV premium now and the PHYS premium of 2010, which fell from 20% as soon as you issued a secondary?" Perhaps there are good answers to these, but I'm not aware of them.
That said, I personally wouldn't push the anti-PSLV argument too far. As I recounted here at the time, I dumped a large position of PSLV last spring when the premium went well over 20%, so I'm not unsympathetic to the idea that there are irrational forces at work. But the important question shouldn't be whether stupidity is a component of the PSLV price (stupidity is a component of lots of prices), but rather how much of the PSLV premium is stupidity; or phrased differently, what would a fair premium be? Sure, 30% seems outrageous, but is 15% (i.e. where it was a few weeks ago?).
A friend once only half-jokingly told me he saw no point in buying more physical gold than he could store in his ass. Without having to think about the physical logistics of this proposition too carefully, the concept does bring to light a certain (ahem) painful difference between silver and gold. Put simply, there are very, very few people I know who would feel comfortable even considering buying silver in large bulk to keep in their homes (or on their persons); and finding a secured vault or safety deposit box to hold several hundred thousand dollars worth of silver bars is a nontrivial matter. (Aren't nickels currently worth something like 10% more than their face value? How many people can take advantage of that in size?) I won't even go into the liquidity problems (both real and perceived) that make holding large quantities of metal a non-starter for many (especially for us Westerners immersed in paper like fish in water), nor will I get into things like tax advantages and pension/IRA provisions except to say that though I know little about them, they surely contribute to making direct comparisons between the PSLV premium and bullion premia a little problematic.
Simply put, right now, I think a lot of long/intermediate term buy-and hold type investors and institutions are catching on that $28 silver has significantly more upside than downside, and are seeking ways to capitalize on upcoming silver mania in a way that doesn't involve renting brinks vaults and security details. (Obviously if silver is back at $50 by 2013, even if the PSLV premium is back down below its average of ~15%, and premiums on coins don't go up at all, there will still be a lot of happy PSLV investors.) Personally, if I had to, I'd choose CEF, with it's tiny premium to NAV (though no redemption mechanism). I'm fine with SLV and DBS and AGQ for trading, but I couldn't with a good conscience recommend SLV for a long-term investor. I know there's really no hard evidence of malfeasance behind it, so I won't try to convince anyone of my position, but after recent events, let me just say I feel justified to go with my gut. I'm talking about events like Madoff getting away with his Ponzi for decades despite being monitored by the SEC (couldn't they just have asked for evidence of, you know, actual trades?), or MF Global customers' money somehow ending up in JP Morgan (maybe they'll give it back?), or the fact that the CFTC has been "investigating" what Bart Chilton has called a criminally manipulated silver market for what, 3 years now, with no substantive update whatsoever (so why not just end the investigation already? What about the lawsuits that weren't summarily dismissed as incoherent paranoid accusations should be?) At this point, nothing would surprise me. not even if all of the SLV silver bars were made of cheese.
Anyway, I thought I'd do my metals update on the plane back from Philadelphia, but alas it's almost time to turn off electronic devices (or to pretend to do so). So a few quick charts that I'll probably have to post after markets open when I get home.
I'd be surprised if this is a good week, because both metals fizzled after a good opening, with gold being stymied by its 200 day MA. FWIW I had joined a "two week trial membership" to GATA's "Le Metropole Cafe" to see what it was all about. A contributor there, James McShirley, mentioned some complicated "Cartel" signs he saw early in the week which led him to all but guarantee gold wouldn't make it over it's 200 day MA this week, and that Friday would be a down day; while in a similar vein, Ed Steer of GATA/Casey Research wrote: "As has been the case for many years, there's always a spike up in gold and silver the moment the job numbers are released...followed by the usual smack-down within half an hour or so. Let's see if that holds true again today." Their confidence inspired me to buy some ZSL Friday morning (I use those leveraged ETF's only for very quick day trades). If nothing else, I kind of looked forward to hammering them here for talking shit with such confidence, but they turned out to be dead on. Let's see how they do this week.
So, while I expect a down week, I'll be watching the weekly gold chart for a weekly close above $1575.
As for silver, the 34-week MA should cross the 55-week MA this week (bullish). I'd like to see a weekly close no lower than ~$27.50 to keep the potential flag/falling wedge alive.
Similarly, on this daily chart, i'd like to see the bottom of the black rising channel function as support (vs. a drop to the bottom of the falling blue channel below it, which would mean the several month downtrend is still very much alive). Success there would augur an eventual test of the green dotted line (and ideally the tops of the blue then black channels) before too long.