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: