Friday, August 15, 2008

Either This is the Greatest Silver and Gold Buying Opportunity of All Time, or the End of a Bull Market

Gold Price Close Today : 786.00
Gold Price Close August 8: 857.8
Change: -71.80 or -8.4%

Silver Price Close Today : $12.801
Silver Price Close August 8: $15.303
Change: 250.20 cents or -16.3%

US Dollar Index Today: 77.310
US Dollar Index August 8: 75.850
Change: 1.460 or 1.9%

Twenty-eight years brokering silver & gold have not prepared me for what I met this morning. One of my wholesalers said he was not selling anything, only buying, until further notice. Another refused to give any prices until he adjusted his spreads. Another was spreading one ounce gold coins, normally at $7 - $8, at $25. Another said he was making no sales for immediately delivery or deferred payment, only sales for 30 days delivery paid at once. Premiums were high: Austrian 100 coronas, 4.7%; Sovereigns 5.2%; Krugerrands 6.8%, American Eagles 8.2% (none for immediate delivery), & Mex 50 pesos 4.5%. 90% silver was at $9,783 a bag, a whopping 6.7% premium (1368 cents an ounce on a 1282 market!). Silver American Eagles for 6 - 8 week delivery, 1586 or 23.7% premium.

But "premium" is only one way of looking at things, dividing the item's price by the spot silver price. Another way to view it is that physical prices have de-coupled from paper prices. The paper prices -- futures, ETFs, etc. -- no longer rule the market.

Physical prices are declaring their independence from paper pricing as those holding physical gold & silver refuse to sell it at prevailing paper prices. I have been expecting this to happen toward the top of the bull market, catalyzed by some paper purveyor's failure, but now? What can it mean? At the very least, the public is nourishing a gigantic hunger for silver & gold in their hands, and no place else.

By now all the leveraged silver & gold longs have been forced out, just as all the dollar shorts have been chastened, bruised, and beaten away. Either this is the greatest silver and gold buying opportunity of all time, or the end of a bull market.

But it is NOT the end of a bull market. Time alone argues that. A bull market runs 10 - 20 years, this one has run only 7, since 2001. Those who think silver & gold have fallen into the "bursting of the commodity bubble" completely misunderstand what drives them in the first place. Silver & gold are not commodities; they are money.
When investors pile into silver & gold, it's not any commodity bubble forcing them there, but monetary demand. They aren't buying metals because they think all the Indian ladies are going to be wearing two nose rings instead of one this season, or that the American bourgeoisie will suddenly begin stockpiling sterling silver forks again.

They are buying metals because -- listen to this, get it straight once & forever -- they distrust fiat central bank currencies (or if you prefer, national currencies). The dollar is trash, the yen is trash, the euro is trash; all are equally insolvent, equally unbacked by anything expect a politician's or central banker's promise, which is not nearly as good as that of any madame at any bordello anywhere.

The dollar is rising? So, why? Did it become better, acquire more gold backing, solve its chronic balance of payments deficit last night? Come on. Did the euro get worse overnight? The yen? How much worse could it get? You are seeing competitive devaluations, all very much worked out collegially in advance by central bankers. Fundamentally meaningless.

What is NOT meaningless is that the Great Alternative Currencies, silver & gold, have long been advancing against ALL national currencies. All markets swing like pendulums, too far one way, then too far the other. Silver & gold prices became overbought -- a lot of people short dollars were long silver & gold. The dollar rallied, oil & commodities fell, sucking down silver & gold money. Look at the numbers. Even with gold down to $787.50 today, that's only a 21.5% correction, while always more volatile silver is down 37.4%. Friends,these are normal, not outlandish, corrections. Sober up.

Out with the worst of it: If the silver price is correcting its entire rise from Nov. '01 at $4.025, a 38.2% correction would carry to $1425.3; a 50% to $12.30 (nearly seen today), a 61.8% correction to $10.35.

Assuming the gold price is correcting the move from $255.1 in Feb. 01 to $1003.2 last March, 38.2% carries it to $717.43, 50% to $629.15, 61.8% to $540.87. Carefully mark that these are not my projections, only what is possible at those commonly seen correction percentages.

On the other hand, if silver & gold pricse are correcting the 2006 to 2008 moves, then gold hit its 50% correction level today at $782.60, & silver finished its correction today to the 75% level.

Crazy, am I? Five years into a bull market in 1987 the Dow plunged over 30% in just four days. Was the bull dead? Hardly, it rose over ten times in the next 12 years.

Bottom line: silver & gold remain in a powerful bull market with another seven or more years to run. The bull market is handing you a gift: buy. Bottom was probably seen today, but recovery will take some while. Dollar rally may carry to 82, but will peter out in 3 months at most, probably sooner. Stocks may reach 12,500, but will come down hard thereafter.

On this day in 1971 President Nixon announced a ninety-day freeze on wages, prices, and rents, and formally reneged, welshed, and repudiated any promise to pay gold for US dollars, even to foreigners. He broke the dollar's -- and the world's -- last link with monetary morality, & set the whole world afloat on a sea of paper money and floating exchange rates. Tricky Dick did some bad things, but of all he did, this damaged the most.

Footnotes: The mint begain striking the long awaited Confederate General silver rounds last week, but was displeased with the first run's quality so re-melted them. Shipments to us begin next week, & quick as we get them, we will ship them to you. I deeply appreciate your patience.

My wife Susan is thriving now on her supplements & copious rest, little bothered by her symptoms. Still she will have to undergo heart surgery to repair or replace her mitral valve on 26 August. Please accept my heartfelt thanks for your prayers & e-mails & cards. Your kindness to Susan & me is a great treasure. Please keep praying.

Y'all enjoy your weekend!

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger

"Buy Silver and Gold Coins at the Best Prices"

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down.