Gold Bulls & Silver Fools Lose $29 Billion in September

He’s back!

It was not my intent to be tip-toeing in the blogoshpere this soon. I really thought my next blog post would be introducing the “grand” old lady of song. But the story of this post is just too big to pass up. Besides, you honored me by voting this among your top blogs on Barry Ritholtz’ web site, TheBigPicture, (see here) so I needed to throw you a meaty bone.

Well, this one is really meaty. Get ready to enjoy. The story behind this post will be in the history books.

You read the headline correctly, during the month of September Gold bulls and Silver fools lost a grand total of $29 billion — for those of you who cannot spell, that is $29,000,000,000!

The table below tells the story.

Source of table: Factor LLC Research

That’s a lot of money when one is not talking about some “no-earnings, no-income, just another average idea” internet start-up.

But the story does not end there. There are three other story lines.

Story line #1 — the money is gone and is not coming back.

This story line will be told by following the open interest in the futures market. The exchanges are always a few days late on this figure, but chances are great that open interest in Gold and Silver will take a big dive this week. Much of this decrease will be due to a grand puke out.  This carnage will come from forced liquidation. Of course, the Silver fools will play the victim card once again (what’s new), blaming the exchanges for raising the margin requirement.

This forced liquidation we will see is I what talked about in a blog post on Silver in early May titled, “When the cops raid the whore house, everyone is arrested, including the piano player.” Click here and here.

If open interest does not drop substantially this week, then look out below. Liquidation will come now or it will be more painful later. The whore house is being raided, make no doubt about it.

Story line #2 — $29 billion is nothing compared to the drop in the value of above ground stocks.

Do the math. There are 166,000 tonnes of Gold sitting as above ground reserves. If I am doing my math right, that is at least 5.3 billion ounces.  If I am not doing my math right I am sure to hear about from a precious metals bull. A $200 drop in Gold’s price is, what, a meager $1.06 TRILLION. Not exacly chump change! You could buy an internet start up for this amount of money. In fact, you could even buy$AAPL.

What about Silver? Total supplies from all sources in 2011 is approximately 1.058 billion ounces (based on 2010 figures from Silver Institute). Silver topped at around $49 in May. A $18 drop in fool’s gold equals $19 billion.

Story line #3 — the drop is far from over.

The precious metal markets have entered major bear market corrections (at least for Gold — Silver is dead meat). The charts below tell the story. Gold has completed a double top, indicating a decline to at least $1,400 (heck, we’ve almost been there), with a further possibility of $1,100. The shorting zone is $1,700 to $1,750. If I was a Gold bull (in fact, I am a Gold bull in the very long term, but that does not mean I have to sleep with Gold under my pillow every night), I would be hoping that the 3-year trendline holds. If not, $1,100 here we come!

I know you all think I pick on Silver bulls. I do so for a very specific reason. No other market has a herd of bulls who so arrogantly refuse to hear any other story than their well worn rut and who become victims of everything but themselves when they are wrong. It is this trait I take aim at, not the fact Silver itself is involved. I know these statements are true from the howl of the wolves I received after posting the following pieces back in April and May.

Seriously, you would have thought I shot someone’s grandmother for even speaking out against the sacred metal. Any way, I am getting off track. The daily Silver graph has completed a massive failure top. There are many downside targets in Silver, starting at $20 and extending down to $14 (remember … “Strong Opinions, Weakly Held,” another post howled at by the soprano choir boys). Silver kissed the breakout point today, but Silver would just be winking at you if it happens to rally above $33.

Well, that’s it for now folks. It has taken me 120 minutes to do this post — now I remember why I don’t want to post every day. Oh, the terrible memories.

By the way, I am still bearish on stocks. The charts have been morphing for eight weeks and will eventually make themselves clear to us for the next slam event. The fact the charts have been morphing made me reluctant to follow last week’s break. But know this, the grand old dame continues to warm up backstage. Because it is not all over until she sings.

Markets: $GLD, $GC_G, $IAU, $SLV, $SI_F, $SPY

P.S. Sorry, I will not be replying to any replies on this post. But feel free to take shots at each other.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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