Tuesday, April 26, 2011

Is Bob Moriarty shorting Silver? A look at his "Facts"

AN UPDATE 3 MONTHS ON: LINK 27/07/11

You might be wondering who Bob Moriarty is... I wasn't really familiar with the name until the below discussed article started making headlines. He (and his wife) founded 321Gold.com and 321Energy.com, a couple of popular resource websites which host articles relating to their obvious subject matter.

Before getting to the article of his that caught my eye I thought I would draw your attention to a recent "email skirmish" between Bob and another precious metals market commentator (known as "Silver Shield"). You can read the entire exchange at this link, however the section that is relevant to my post is where Bob indicated that he intended on going short Silver:
The “prominent 321Gold source” wrote back about how he tried to get people to buy silver a $4 and that he called “tops” in 2001, 2004, 2008, and 2009, almost all to the day. He went on with his tirade by saying, “On the other hand, when silver is the highest it has been in 31 years, you discover it as the best investment ever. Are you kidding?” He then starts his first back peddle saying that, “I didn’t say it was at a top, but I am going to be going short silver soon.
This exchange occurred back in late February (when Silver was around $33).

On March 8th Bob had the following to say in this article:
I’m not saying it’s “The Top” since we have not yet seen the wild blowout as the public rushes into gold and silver, each eager to capture the very highest price. The chumps, the bag holders, are not yet out in force. But silver is beyond frothy. It might spike up another $5-$10 but the next $15 move is down.
Silver closed at $36 on March 8th. Apparently Bob thought Silver was going to $20 before it was going to $50.

On March 25th Bob pulled out the following comments in this article:
I might be off by a couple of days in silver and maybe a couple of bucks but I see way too much bullishness. The next major move in silver is down. A lot more than the silver bulls want to face. When silver permabulls throw in the towel and give up, I’ll be a buyer again.
Silver closed a little over $37 on the day of that article, come April 25th and we've had Silver come within cents of the $50 mark and Bob writes his most comprehensive article on the "top" yet. You can read it in full here.

He uses the article to downplay his incorrect top calls to date and makes a list of "facts" as if they somehow lend credibility to his view... quite bizarre. Anyway here are some excepts and my comments:
1. Silver is going parabolic.

According to Jim Rogers all parabolic moves end badly. I have seen similar charts in all kinds of commodities and they always correct. Parabolic charts mark tops. So when silver bugs start suggesting, "This time it's different" I know better.
Bob claims that Silver is going parabolic, yet in the very article he links to support his argument Jim Rogers claims that it's not: "If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year. And then we’ll have to worry. It’s not parabolic yet". So who are we to believe Bob? Jim Rogers or yourself?
2. The actual ratio of silver to gold in the earth's crust is not 16 to 1.
It's more like between 20 or 26 or 64 to one. This is not an absolute fact, these are opinions from experts but no experts conclude the ratio is 16-1. Go to Wikipedia and do the math for yourself.
For the record I actually agree with the spiel that Bob goes into here regarding how rumours & misinformation get represented as fact through Silver commentary. He may very well be right on the ratio of Silver in the earth's crust, but what could I care? Wouldn't a much more relevant figure for today's bull market be how much we are actually digging out of the ground? Eric Sprott recently covered this: "In 2010, the world mined approximately 736 million ounces of silver and 85 million ounces of gold.3 The world also produced an additional 215 million ounces of silver and 53 million ounces of gold from recycled scrap. Adding both together brings us 951 million ounces of silver and 139 million ounces of gold supply, for a ratio of seven ounces of silver to one ounce of gold." Follow the Money.
3. There is no shortage of silver. There never has been a shortage of silver. Until the laws of supply and demand are repealed, there never will be a shortage of silver.

The first person I ever read that claimed there was a shortage of silver was Ted Butler. He claimed in May that according to his figures the world was going to totally run out of silver by December. This was on the Kitco forum. I wrote and told him he was dead wrong, there were billions of ounces of silver above ground.
I'm inclined to agree with Bob on this point. I don't think there is above ground shortage of Silver. I do think there is an above ground shortage of retail refined Silver (the variety that investors are interested in buying). I would be interested to hear why Bob thinks APMEX are offering $3 above spot price to BUY American Silver Eagles if there is no shortage! As I said, technically he is right, but where are the relevant facts??
4. The most illogical thinking and worst use of "facts" is common among the silver uberbulls and the parrots that follow them. Someone just posted the most incredible theory on the validity of SLV. That's the silver ETF that has been trashed for years by a small group of uberbulls with an agenda. One of their supporters came up with a brilliant argument. Since we don't really know and can't prove that SLV actually has all the physical silver, the proof that it is a scam is when they deny it being a scam.
Inclined to agree with his criticism of those that attack the validity of the SLV. I have read a lot of the articles that criticise it, mostly coming down to how difficult it is or might be to retrieve your physical Silver from the ETF in certain circumstances, when it seems quite obvious to me that most that trade SLV do so to avoid the inconvenience of physically holding the metal itself.

In the article Bob then goes onto list a 5th fact regarding the Comex and then provides the following commentary and summary:
One of two things is going to happen. Either we are at a top and silver is about to crash both hard and long, or the world's financial system is about to fall apart. I have been an advocate of a total financial crash for a lot longer than most writers. I was writing about the dangers of derivatives in 2002 when they were 15% of what they are now.

But I don't believe the world's financial system is going to crash next week. As in January of 1980, the silver bulls are going to be the ones losing money. You can't profit if you don't sell and all the permabulls are screaming "Buy, buy, buy." As they will at every top. Buying at record high prices is rarely profitable. But perhaps this time it really is different.

Here's what all potential investors in silver need to know.

1. The chart of silver has gone parabolic. Parabolic charts mark tops no matter what the commodity.

2. The bullish consensus on silver is at a record high. Record high bullish consensus on any commodity is common at tops.

3. When the most credible guys in an industry start explaining why supply and demand don't really work, it's a top. With 19 billion ounces of silver above ground we aren't about to run out any time soon.

4. When guys start writing about silver that didn't have a clue as to what it was or what it was used for at the bottom, you are at a top. I'm astonished at both the ignorance and the arrogance of the newly invented silver "Gurus."

5. When the smartest guys in an industry start telling you, "This time it's different," it's not. It's just a top.
So in Bob's opinion either Silver crashes now or the world financial system crashes? There is no potential for Silver to continue rising say another $10-20 or more even after he has called the top wrong twice this year already? The guy almost seems as irrational as the conspiracists he's trying to draw into battle with this article! He seems quite emotionally charged over the matter. He certainly must be hurting badly if he opened those shorts he talked about when Silver was $10-$15 lower.

Now I wouldn't call myself a permabull, in fact my previous suggestion that Silver and Gold are in/heading into the 3rd phase of the bull market have been somewhat unpopular when discussing it on related internet forums. For an article called 'Facts on Silver' it certainly lacked many facts that were relevant to the current situation.

Silver may very well have reached a short term top (much like those seen in 2004, 2006 and 2008 as I have previously discussed). Maybe it will be 3rd times the charm for Bob or maybe with the USD Index still hovering around the 74 and looking ominously like it wants to drop, it will sending Silver and Gold into one final parabolic leg in the short term before the usual middle of the year price doldrums...


BB.


Disclosure: Positions held in Silver & Gold. Not investment advice. Do your own research.

4 comments:

  1. BB,

    Rational Analysis - thanks!

    Both sides are getting really emotional with Silver's break out. I'm really surprised that a supposed Precious metals bull like Moriarty is trying to call a top...he's lost a lot of creditability with me over the last few months.

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  2. The Bobster is wrong.

    He's also a highly unpleasant human being.

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  3. Agree both sides are getting quite emotional R2R. It's really quite unprofessional. I have no problems if Bob thinks we're reaching a top and wants to put together an article on why he thinks we're near or at it, but the article he has written is very unproductive and in my opinion just an attempt to provoke those at the opposite end of the scale (those expecting Silver to rise to infinity, etc).

    Personally I've sold a little Silver over the last week and a half, can't hurt to take some profits, but I certainly wouldn't be caught SHORT silver. I also wouldn't try and big note myself even if I do get some calls right. A little modesty never hurt anyone.

    I still think we may see Silver make another leg higher before we see the top of this move and a significant correction, time will tell.

    Cheers
    BB.

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  4. all trader must be hard to work to achieve a success in Gold
    Trading
    . i like trading
    especially at the news are release.

    ReplyDelete