Wednesday, December 28, 2011

Couch Time For Precious Metals Investors

There is no doubt in my mind that the degree to which the bullion banks/Fed are hammering the precious metals reflects the relative severity underlying hidden problems in our system that will have to be papered over with printed money.  But it also reflects the degree to which the metals will rebound once that printing gameplan is revealed.
A lot of metals/miners investors are starting to freak out.  It's not easy watching an investment seemingly melt down the way the metals have in the last few weeks.  Of course, if you take a slightly longer perspective than the one that the instant gratification Americans who have been trained like a bunch of monkeys by the media to take, this current metals correction started at the end of April.  And so far this correction is not even close to the severity of the 2008 correction.  Look at the charts to see for yourself, but I'll quickly recap the numbers. 

In March 2008 silver peaked ever so briefly at $21 and gold around $1030.  By late October that year, silver had hit a bottom just below $9 and gold just below $700.  That's a 57% decline for silver top to bottom and 33% for gold - in a 7 month correction period.  Imagine paying $19 for silver and $1000 for gold back then and then watching as it sold off over the next seven months.  I don't have to imagine that because my partners and I seeded our investment fund with 100% silver bullion right about $19/oz.

If the current price correction gets that severe,  and I really don't think it will, it would take silver down to about $21 and gold down to around $1273.  This time around I've reserved some money to invest if the market offers up a gift like this. 

I pointed this out before, and I'll point it out again:  Even if you happened to have high-ticked the market back in 2008 (like we pretty much did with our own money), if you rode it out you are still up 33% over the three and half year period (March '08 - today) in silver.  You are up over 50% in gold (based on buying at $1030 in March '08).  Does anyone seriously have any investments that have fared better over the period?  The S&P 500 is down about 7.6% over the same time period.  And your house is down well over 30% from then.  And I'm basing these comparisons on the assumption that you high-ticked the metals market.  I bought silver at $19 back then, so I'm actually up 42% over the time period.  And actually I happened to buy some "personal stash" silver for $9 (silver eagles from Tulving).  I'm up 300% on those. 

My point is that, while this current price action feels bad and looks ugly, it is likely setting up the next move to even higher levels.  Please do not overlook the fact that the last big price correction in 2008 preceded the massive QE and Government stimulus programs at the end of 2008 - ERGO (therefore) my opening quote above.  And do not overlook that the printing and Government stimulus has already commenced with the $500 billion to potentially $1 trillion Fed currency swap facility - which is a de facto bailout of EU banks - and the fact that Obama has extended the payroll tax cut AND he's asked for permission to take the Treasury debt load up to within $100 billion of the debt limit hike passed just 4 months ago.

What happens next?  I can't say for sure if this is the bottom of the current price correction in metals or not.  I will say that anyone selling now will wish they hadn't a year from now and anyone who is thinking about buying but didn't will wish they had.   What I find interesting is that my thinking on this is not quite unique.  While I was writing this post, I happened to see the latest freebie piece issued by Casey Research.  They have come to the same conclusion I just laid out.  You can what their version HERE  I don't always agree with Doug Casey and Jeff Clark, but when they see the same dynamic as I do it reinforces the strength of my own conviction.  I know Jim Turk and John Embry also have the same view.

And finally, the one guy to whom everyone should listen is Jim Rogers.  This interview was aired on Australia's Finance News Network.  Rogers makes comments that would NEVER be aired in American mainstream media.  Rogers is short stocks, long commodities, farm land and precious metals:


  1. I see the SPX is below its 200DMA--does that carry the same weight/importance as gold below 200DMA (given that the 12 year chart of gold has been neatly following the 200DMA line up while SPX looks like a vita-mix)?

  2. Thanks, Dave for putting some perspective on today. Jeez it was a painful day, yes, nearly freaking out.

  3. I dunno Hal. When the DOW dropped 1000 points that day a couple years ago, gold and HUI actually rallied when the Dow went down over 500 on its way to down know the drill

  4. The Season's over. We lost the last few games. We won't be going to the playoffs. Schedule for next season begins in a few months, maybe a few years. Time for a vacation. Time to reconsider what is really important in life. Playing in either of these rigged games where one needs a masters in both finance and criminal behavior (to predict the unpredictable) or spending that same amount of energy tilling the soil to grow organic, non gmo, wholesome vegetables, to feed oneself, family and friends?

    What rules does one want to play by now? Natures rules or the rules of those who's intentions are to cripple, maim and destroy? The rules of the latter game are insider rules, i.e. rules of the psychopath, i.e. rules of a mind gone serial. They simply can't be predicted, or comprehended by those who have some semblance for that which supports life. But what can be predicted is the distance of the gap growing between the (uber) rich and the poor. That gap is going to grow and grow and grow. (thanks to the passage of S1867, i.e. kiss the Constitution good bye) Anyone who is between the two will naturally and automatically default into the lower caste. We who come here to collect the left over crumbs are at he mercy of that rigged system and the only way to deal with what is coming is to invest in THAT which governs Natural Law, i.e. the only law that supersedes all other laws. How each of us finds and experiences that is based on our individual past actions. Best to purposefully strive to uplift and support all we come into contact with. It's all or nothing now. Those that have intentionally done harm and those who support life. What side are you on?

    In the meantime, while the great accountant keeps tab of our actions, take the time to reevaluate your plans for next year. Follow your inner guide, that voice that rises up above the chatter of the small self and Ego, for it's in the wisdom of that voice that you'll need to align yourself with, if you have any desire to circumnavigate through the massive storm that is bearing down on us all. Gold and Silver are just a few of the essential ingredients needed to help smooth out the impending rough, turbulent voyage. Knowledge of the Self, yourself, who you really are, not the "program" you thought was you, will be critical, as the waves rise up and toss you and the masses into the abyss of a system seemingly gone mad. As everything seems to begin to unravel around you, don't get caught up in the "Drama's". They are designed to distract you from That which is really you. This whole shebang is about one thing and one thing only. It's about you finding out who you are and who you are not. Many will not be able to handle what they find. This inner discovery is why we are here on this planet, i.e. finding our purpose. The world of finance is just one of the many classrooms for us to learn our lessons quickly and move on to greater, more influential forms of achieving what's truly important in life.

    For each of us has a significant purpose, a cosmic purpose, integral in supporting the greater whole. And it will be in that "Wholeness" where one finds the only Truth worth living. Everything else is a waste of time and energy. Without a connection to creation, to that which unifies all, what good are precious metals? What good is your “money” going to do you if you ignore: your health, your Fascist government, the evaporation of your FREEDOM AND LIBERTY? Are you going to use that au & ag to buy your way out? Is that what it’s all coming down to? Buy your way out of the military check point, the road block, the “indefinite detention”? Here Officer, an ounce of gold, take it, just let me and my family get through to the other side”. Is that what readers here (knowingly or unknowingly) plan to do with their profits? Pay off the astronomical property taxes that have/will skyrocket based on the back door installation of Agenda 21, where only the elite will have the “estate” out in the “no human zone” areas?

  5. I don't think so. I think (HOPE) the paper price will crash as large physical dries up.

    Theoretically, let's say I bought a 1 oz. gold eagle from my coin guy this afternoon for 1642, (75 spot over 1567). Let's say he had ample supply. I wonder how many 400 oz. bars moved today at $1642/oz.?

    Talk to Harvey Organ.

    Let's say if I even sense 1467 spot, I'm there with cash in hand within a half hour tomorrow. And every 100 dollar dip I'm there, theoretically of course, same time same place.

    How fast do you think we'd get to 300/oz., and what would happen along the way if we did? Remember $280/oz. gold? Not that long ago. What's more ridiculous, that--or your clearinghouse confiscating registered metal you have a certificate for. Are you fucking kidding me?

    From Jim Sinclair:

    … by putting the OTC derivative positions of a bankrupt clearing house ahead of its client’s deposits, this case will ultimately break the very market mechanism for price discovery. The system is already broken, but whereas Lehman Bros. was the “Lehman event” for Main Street, MF Global is the “Lehman event” for the insiders. When your clearing house becomes a questionable counterparty, it’s over.

    But I digress:
    This prediction of MF Global was written 12 years ago, for all to consider. "It will start out with a settling of contracts with only a percentage of physical and the rest in cash". This will be the outcome for MF Global customers. They will receive 70% of their metal, and when the rule of dust settles, pretending as rule of law, they will get their remaining 30% “awarded” in distressed cash.

    Why lament the bankruptcy filing of MF Global as a securities firm, vs. a commodity firm, when in fact paper gold traders are indeed trading a security, backed by only a fraction of the “commodity” as represented. True, Corzine’s TITANIC may have held only 400 securities accounts to the 40 thousands of “commodity” accounts on its books, but what is a commodity trade today? It is a synthetic leveraged paper trade, for paper price movement chasers, scrambling to accumlate an illusion of wealth, through small paper-profit gains.

    Back to my hypothetical ...

    Would my guy sell me coin at $375/oz. as the paper gold market is destroyed? Would he HAVE coin at 375 oz.? Would he have coin at 14,500 an oz. while spot paper says 375?

    Would all this take three weeks to happen or 36 trading hours?

    It was always known that when they attempted to settle in partial gold and cash, that would be it. The MF Global debacle HAS caused a crisis of confidence in the paper gold.

    I believe we are seeing it play out in the destruction of the paper gold market, even as physical completely breaks free from it. Thank God, I think I timed it right.

    Yes, the Asian, Russian, India buying had created demand side appreciation, and yes the writing of new paper gold into it kept it somewhat in check, but what you are now seeing, I believe, could be the front end of a collapse in the paper gold instruments.

    This is the moment of truth for us Bob Cratchits, to follow the downward movement before discovery of total separation between the physical and it's massive derivative shut's down the current DELIVERY mechanisms of even a silly little eagle.

    I do believe the delivery mechanisms of MUCH physical gold volume that awaits delivery are under unprecedented duress, as the paper price falls.

    Possession is 10/10ths of reality.

  6. Ron Paul tells Haaretz: I am not an anti-Semite

    “Any kind of racism or anti-Semitism is incompatible with my philosophy,” Paul said in an interview with Haaretz, conducted by email. “Ludwig von Mises, the great economist whose writing helped inspire my political career, was a Jew who was forced to leave his native Austria to escape the Nazis. Mises wrote about the folly of seeing people as part of groups rather than as individuals,” Paul said.
    Paul: I am against the spread of nuclear weapons. But I do understand why other nations want them and why they don’t accept the nuclear monopoly as it now stands. You cannot change an opinion you don’t understand. I understand it and would try to change it.
    However, there’s a key fact that it seems is being overlooked when my positions are discussed. I believe I’m the only candidate who would allow Israel to take immediate action to defend herself without having to get our approval. Israel should be free to take whatever steps she deems necessary to protect her national security and sovereignty.

    Q. Do you support completely cutting all foreign aid, including the aid to Israel?

    Paul: Yes, I am personally against all foreign aid. We give $3 billion to Israel and $12 billion to her avowed enemies. How does that help Israel? And in return, we act like her master and demand veto power over her foreign policy.

    If I were President, such aid would not end until the Congress agreed and voted for it to end, because I would be President as the U.S. Constitution defines it. I am not running for dictator.

  7. More end zone's always a tell, too...looks like a base on base formation to me.

    Gold: This is What an Ex-Momentum Trade Looks Like

  8. STINKY Dimon..caught cheating so doesn't want to play anymore!

    JPMorgan Chase requests I close my accounts

  9. HOT: Bachmann's Campaign Chair Defects To Ron Paul
    Alexander Burns at Politico reports:

    In a shock announcement Wednesday night, Iowa state senator and onetime Michele Bachmann campaign leader Kent Sorenson declared that he is now supporting Ron Paul for president.

    Sorenson made the announcement at a Paul rally with veterans here in Des Moines, telling the crowd: "I believe we're at a turning point in this campaign."

    Calling the decision to abandon Bachmann a painful one, Sorenson said he felt obligated to join Paul as the "Republican establishment" tries to undermine his campaign.

    "I thought it was my duty to come to his aid, just like he came to my aid during my Senate race, which was a very nasty race," Sorenson said, pledging to go all-out for Paul over the next few days.

    To cheers from the crowd, he continued: "We're going to take Ron Paul all the way to the White House."

  10. Embry - Physical Gold & Silver Tight Because of Eastern Buying

    When asked about the mining shares specifically, Embry replied, “As long as they can keep the bullion prices under pressure, the shares are going to be under pressure. But they are all so inter-linked that when the bullion prices achieve the levels I think are in store for next year, the slingshot effect it’s going to have in these undervalued shares is going to be remarkable.

    The key all along, as I’ve always said, is, ‘Do not have any margin in this sector because it’s open to this sort of activity (manipulation). If you don’t have any margin you are still angry because you’ve lost money on paper, but you are still intact. And if you have some extra cash lying around, what a phenomenal buying opportunity in both the bullion and the shares.

    It’s interesting, I’ve just been writing something internally here for our people. It really focuses the mind when you have to put this down for posterity. I was just going over it and when you do that exercise, the fundamentals are so compelling for gold and silver going forward. It amazes me the degree of human stupidity here, that people are parting company with the one thing that is going to save them in the future.”

  11. Hi - thanks for your posts always. Its a very confusing time and many of the PM bulls seem to be their own worst enemies! Trying to trade.

    It would be very good to again revisit the definition of deflation and the contrast to deleveraging. FOFOA has a good piece on it a while back.

    I am sure all of you have read Bernanke speech he gave in 2002 about the conclusion...

    Sustained deflation can be highly destructive to a modern economy and should be strongly resisted. Fortunately, for the foreseeable future, the chances of a serious deflation in the United States appear remote indeed, in large part because of our economy's underlying strengths but also because of the determination of the Federal Reserve and other U.S. policymakers to act preemptively against deflationary pressures. Moreover, as I have discussed today, a variety of policy responses are available should deflation appear to be taking hold. Because some of these alternative policy tools are relatively less familiar, they may raise practical problems of implementation and of calibration of their likely economic effects. For this reason, as I have emphasized, prevention of deflation is preferable to cure. Nevertheless, I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit its zero bound."

    There is another 5th cure he was describing in the speech other than 0% interest rates, FED asset buying etc and that was the fifth and last way to prevent deflation and that is an outright devaluation of the dollar.

    Here the paragraph...

    "Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation."

  12. pretty interesting interview....

    Robert David Steele - Changing the Trajectory of the US Security State

    For many years, Robert was in the Republican Party until Dick Cheney hijacked both the party and the White House. He briefly joined the Libertarian Party and considered running for Congress as a Libertarian (VA-11) but ended up focusing on Electoral Reform as the "one thing" that could mobilize all of us who are now shut out of the election and governance system. The two large parties have captured ballot access at the state level which allows them to control the public treasury at the national level.

  13. Dave, thanks as ever for your posts and the great blog. We're dying out here and need the encouragement of someone who's lived through it before.

  14. one wonders if Mr. Bernanke with his multi year (and perhaps decade long) low interest rate policy has begun fomenting the next bubble: yield.

  15. Wall Street - a raw deal for the 100 percent

    The stunning reality is that five years into the financial meltdown, it's business as usual on Wall Street - outlandish rewards for insiders with downside for almost everyone else. Occupy Wall Street protesters are right - something is wrong - but they're not sure what. Here's what I say: A rigged game affects not just the 99 percent, but everyone, and with global repercussions.
    The radio show host wanted his listeners to hear from a Wall Street "soldier" who had broken ranks to publicly challenge his industry's out-of-control practices. Maybe I could explain what is wrong on Wall Street and why CEOs get eight-figure bonuses while hardworking Americans lose their homes and jobs.

    Make no mistake - as I told the listeners - I'm a hard-core capitalist. But capitalism has been hijacked, and I'm infuriated. For capitalism to work, people who assume risk should reap the rewards of success, but they also must suffer when losses occur.

    Read more:

  16. Egon von Greyerz continues:

    “But this is all a thin paper market, we have not seen one single physical seller of gold or silver at these prices. So it’s just manipulation and panic in a paper market at the year end. Of course, it’s easy for anyone who wants to intervene to push the price down even further in a thin market. So I think that’s what’s happening and I wouldn’t worry the slightest bit.

    Gold is up for the year in all currencies and 2012 will be another fantastic year. I could see the first three to five months (of 2012) being dramatic. You know the financing requirements worldwide are just mind-boggling. We’re talking about trillions here if you combine sovereign, corporate and bank requirements. The requirements are so high they just have to start printing money and they will.

    The combination of strong buyers (physical) at these lower levels and the fact that we will see massive money printing, starting next year, will lift gold and silver very quickly in my view....$3,000_-_$5,000_in_2012.html