“Gold’s around$1,500 now and I bought it at $1,200 (or if you were with us when we first bought way back in 2001 at $300) – should I sell it and look to buy it back when it corrects. It’s gotta correct, right?”
My answer: “What if it doesn’t with any significance?”
Yes, gold has performed incredibly well. But the point here is to understand WHY you bought it.
NEXT, silver was ripe for profit taking after a very rapid and steep climb to much higher levels. As I say, no market goes up in a straight line and we were due for some consolidation, but I thought we would hold the $40.00 level. To see silver slice through that psychological support was disappointing. It looks like it will bounce around here and if we can pick up more at between $25 to $30 we will be happy.
The word however I would use to help investors is “RELAX”. Everything is going to be just fine. These are the dip moments I have been talking about where you want to BUY.
Dan Norcini of JS Mineset had some great comments that I think reflect the true nature of why our market is reacting the way it is. Dan said, “I want to address the silver backwardation issue. Many investors and traders feel that silver should not be dropping in price because of the backwardation structure. They point to this fact as proof that silver is in short supply and demand is phenomenal.
That may be entirely true, I don’t know, but the fact is that when we are dealing with the Comex silver market we are dealing with a paper market. Keep in mind that hedge funds that trade the paper markets do not care about fundamentals. They are pure technicians who rely solely on their computer trading algorithms to make trading decisions. These algorithms are utterly indifferent to the realities in the physical market.
The bottom line is once these algorithms move into a sell mode, the hedge funds will unload until they’ve exhausted their selling, regardless of the physical market structure. Meaning the paper market does not care about the physical market.”
Another factor that has affected our silver market was Wednesday’s CME announcement that they were raising silver margins. Jim Sinclair, who has been through all of this before back in the 70’s and 80’s weighed in on this and said the following:
Margins will continue to rise on the COMEX until it reaches the cash price of silver. This works for the shorts as their hammer on the silver market reduced the equity of low cost positions. The efficacy is short term and made no difference whatsoever in 1980 as the silver market made its highs. What broke silver in 1980 was a unilateral change (novation) of the silver contract which went to “sellers only.” Under contract law that is simply not permitted. They got away with a violation in 1980, but the corporate changes in structure at the COMEX that have occurred since 1980 makes the COMEX less able to pull that trick off successfully in 2011.
Silver is simply being silver. Silver did help gold therefore the 25% drop in value has to pressure the gold price.
The USDX is simply having a weak rally off a totally oversold on every internal indicator short side trade. The dollar has no future. The supply wishing to diversify is simply too big to allow any rally to have legs.
I have told you silver is a game. That being said, it is a great game. Certainly as the silver price approached the 1980 high, you might have considered selling 1/3.
The high trade on silver was $54 in 1980. Silver’s round numbers are at $50 and $100. Both will function as such in trading.
After this short play, which had to follow the spike intermediary top, silver will rise as fast as it did again.
In addition, Mr. Sinclair went on to point out what I have been saying is coming with our junior mining shares. This is a major turning point that will begin to heavily favor junior mining shares.
Jim explains in italics below:
The Hedgies are having their way with the gold shares, but logically this is coming to an end. When you can buy companies whose resources are three times the company’s present capitalization, the share is getting unreasonably cheap.
The ratio of GDX versus GDXJ is starting to favor the juniors, which is a major heads up event.
What you have witnessed is not at all shocking. If you traded 1968 to 1980 you would know this is just silver being silver.
Relax. Put a french curve on silver and you will see the bottom change in trend event.
To make truly big money in a volatile market you need to understand what you are doing. Volatility is our friend, it is not our enemy! We are being given a gift to buy silver at discount prices for a brief period of time. For those of you who wanted to buy silver but just didn’t get around to it, here is your chance to buy an oversold dip. Watch for the bottom to come rather soon and pull the trigger.
Conservatively, we absolutely believe that silver will be well north of $50 an ounce before the end of the year with gold getting ready to take out $2,000 during this same time frame. So relax and feel confident in the positions you take now and over the course of the summer. Things are going to be just fine!
QUESTION: What would happen if the market found out that the world’s central banks have been leasing out far more gold than they actually own?
The answer is also the reason gold could jump to anywhere between $2,000 and $5,000 an ounce very quickly in the near future.
For several decades now central banks have been ‘leasing’ gold to the market. They’ve been doing this to keep the gold price low…so they could keep conducting loose monetary policy. According to the World Gold Council, total official central bank gold reserves at December 2010 are around 30,000 tonnes. If the figures I have are accurate, well over 15,000 tonnes of gold has been lent out by central banks.
Owning physical gold means you have no counterparty risk. It’s a way of putting a portion of your wealth outside the currently flawed banking system. Owning gold derivatives comes with counterparty risk. In a benign monetary environment counterparty risk is no big deal. But in an impaired system, which is what we have now, it can become a major issue very quickly.
As long as central banks keep printing money, as long as we have a financial system built on debt, and as long as gold is allowed to freely float, the price gold will keep going up.
Simply put: I feel we are nearing a point where physical hoarding of gold by wealth-protecting individuals and countries is going to cause a liquidity crisis in physical gold. When that happens, much higher prices will be required to lure gold away from hoarders and back onto the physical market. Only a sharp increase in interest rates by the Federal Reserve would prevent this from happening…and entice people to sell some gold. And, frankly, I don’t see that happening anytime soon.
More Questions?
Is it normal for the US to pass China as the largest holder of its own debt?
- Is it normal for the Federal Reserve to purchase an estimated 70% of the new supply of that debt?
- How can inflation be normal when a broad cross-section of food and commodities appreciate 23% in only six months?
- Or when global inflation contributes to violent protests, revolutions, and war that spread across the Middle East and Northern Africa causing oil price shocks?
- Can we say it is normal when the European Union bails out its third member nation in under a year?
- Or when the Swiss Franc appreciates nearly +30% against the USD in only nine months, cancelling out a +27% gain in the Dow Jones Industrial Index from currency devaluation alone?
- Why is it so easy for markets to return to normal after a massive disaster in Japan threatens the financial viability of the world’s third largest economy and purchaser of US debt?
Each and every one of these facts is a fire burning on the wings of the economy. The markets may be passive but not without hidden fear.
The denial of truth is the denial of volatility.
As always we invite you to call us and discuss your concerns – 03 5724 5100
