Friday, October 17, 2008

The Link Betweeen Paper (futures) Silver and Gold Prices and the Physical Prices is Stretching Thinner and Thinner

Gold Price Close Today : 785.10
Change: -16.40 or -2.0%

Silver Price Close Today : 9.31
Change: -29.7 cents or -3.1%

US Dollar Index Today: 82.40
Change: -0.01 or -0.0%

Well, well, here's a surprise: another week you'll never see again in your life -- oddly enough, something like the week before.

If you think you're going to make any sense out of these market gyrations, you've lost your mind. Stocks are lurching from side to side based on manic fear or euphoria, a pure crowd phenomenon pushed from side to side by the Nice Government Men on the Plunge Protection Team. Life today resembles that scene in the Wizard of Oz, where the bogus wizard is pulling levers and blowing smoke from behind the curtain in the throne room. Dorothy and her friends are terrified by the wizard's projection, until her little dog Toto pulls back the curtain to expose the wizard's deception. "Pay no attention to the man behind the curtain!" screams the Wizard into the microphone.

So daily our Masters trot out some other Wizard blown up bigger than life on the media's silver screen -- Buffett, Bush, Paulson, Volcker, Donald Duck -- to keep urging the public to "pay no attention to the men behind the curtain."

As I've said so long, they have only two weapons, Inflation and Blarney. They've fired off the inflation cannon until the barrel has almost melted, so now they're working the blarney cannon overtime.

Let us therefore try to slice through this deception to the truth. The deflation scare stores are beginning to fly, which must tickle Ben Bernanke to death. Not to put too subtle a point on it, there's as much chance of a US Dollar deflation as there is of me marrying the Pope. It's not possible that the US Government and the Fed could pump US$2 trillion into the credit and financial system without producing inflation.

The dollar's days are numbered. Therefore, after the Nice Government Men get tired of kicking silver and gold in the teeth, they will begin their inexorable, ineluctable, inevitable, yea, fated drive for the moon, and the US Dollar will again begin sinking toward the center of the earth, which already holds all the missing rubber bands and paper clips and bobby pins.

US DOLLAR today, in the midst of history's worst financial panic, was flat. Odd, ain't that? Wouldn't you think that fear would send folks running for safety to US Dollars? Well, it isn't. So if the dollar rally is turning ratty already at 82.4, what will it look like in a couple of weeks when the other central banks stop supporting the dollar? Yes! You there in the front row! Right. The dollar will look like an anvil floating serenely upon the ocean waves.

Stocks, for all their 900 point up days and 800 point down days, closed the week higher in dollar terms. In gold terms, the Dow In Gold Dollars, stocks remain at their lows of last spring, and in silver only at 963 oz, about the high since silver peaked in March.

Wheeee! SILVER and GOLD PRICES took yet another tumble today. I think I'm going to start reporting the Paper (futures)silver and gold prices and the Physical silver and gold prices separately, because the link between them is stretching thinner and thinner. For example, Paper silver price dropped today 29.7 cents to 931 cents, while Physical silver price, as measured by the wholesale sell price of US90% silver coin, went from 1383.2 cents yesterday to 1415 cents today. Or Physical silver as measured by miscellaneous 99.9% silver rounds, went from 1183 cents in yesterday's aftermarket to 1175 in today's.

Oh, yes, and Silver an gold American Eagles? Well, not available at any price! From day to day I don't know whether I'll be out of business for want of anything to buy, but sure, sure, silver and gold dropped today.

Over the next couple of weeks look for a short, sharp rally in stocks, offering a sterling opportunity to sell stocks and shift the proceeds to silver and gold. However, bottom in stocks hasn't been see yet, and will probably dip below 7250. After several months the inflation will begin flowing into stocks and raise them again, but of course values that don't rise as fast as the dollar falls really aren't too useful as investments.

Just hang with silver and gold. You can either buy now, because the risk of more seismic events remains so high and you want to own some gold and silver at all hazards, or you can play brave and wait for a bottom confirmed. At this juncture of knaves in charge and fools in power, I'd rather "take the cash [gold and silver] and let the credit go."

What about the gold/silver ratio? It has risen up to the last high, and slightly higher, but probably won't rise from here. Unfortunately, swaps from gold to silver (due to high premiums on silver) can't get close to the current 82.75. Best we can do, even charging commission on one side only, is about 70:1.

Am I lying awake nights worrying about silver? Hardly. Regardless what the ratio does now, it will drop again and overtake gold handsomely.

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.