I have a column already written, but am not going to send it in till next week, because the sudden price drop needs comments.
First of all, I want to call your attention to the article written on Gold Eagle, and which can still be read by clicking on “Editorials” on this site. Go down the column, till you get to “Day Late and Dollar Short,” and read every syllable, and read it carefully. This is perhaps the most erudite exegesis I have ever read on the subject of shorts, squeezes, and the like. It is a very good education.
Nothing has changed, other than perhaps a bit of manipulation, shorts being covered, and other hanky panky. The dollar shows a bit of strength, but it is still a mere unbacked piece of paper. The stock market hovers around 10,400, with a far too high average P/E ratio and rare dividends. Far more silver is being consumed than is being produced. Silver and gold have been real, actual, tangible money for thousands of years, and no amount of manipulation or screwing around, is going to change that. There are certain things in life that never change, and some things change continually. Commodities change constantly. I change my web site prices, sometimes six times a business day, and it isn’t nearly enough it seems. Tangible things, which have unchangeable measuring devices do not change. Water, oil, diesel, gasoline, etc are measured in gallons. Steel, hay, and the like, are measured in tons. Land is measured in acres or square feet. Gold and silver are measured in troy ounces. The dollar changes constantly, and usually in a downward spiral. While gold and silver measurements are stable, what one purchases them with, is far from stable. When the dollar gains, it is foolish to believe it will stay that way, and when gold and silver are manipulated down, or other reasons which cause that, it is equally foolish to believe they will stay that way.
As the above piece, which I once again urge you to read, says, when you buy gold and silver, you are essentially “shorting” the dollar, and that makes a whole lot of sense. Shorting the dollar, is about as certain, as betting that an ice cube will melt on the 4th of July. In my humble opinion, the current prices of metals, and especially silver, are a once in a lifetime opportunity. Silver has gone down over 30% in the last week, and gold has gone down $25. Both are outstanding opportunities with which to take advantage. A dollar price melt-down, which is sure to recover. Once again, this is my opinion.
If anything has been, or at least should have been learned from this little pull-back, it is that so called “leverage,” in the form of futures, can be a disaster, just like pulling the lever on a slot machine. It is said that 95% of people who indulge in futures trading, lose their shirts. I did, and will never do it again. Those who held futures contracts, which 2 weeks ago looked great, have lost it all through margin calls. Hopefully, you futures traders limited your losses by having stop loss orders. As far as holders of metals are concerned, it is “ho hum.” No leverage. Just buy, place it in a safe place, and be totally unconcerned about its price movements. So, my silver has lost 30% of its value. “Ho hum.” It’s paid for, and sits there. I don’t worry about a 30% loss on my silver or $25 downturn in gold, because it’s paid for, and the tangible gold and silver will sit there when it goes back up. The lesson to be learned, I suppose, is “buy low, and sell high,” but that has always been a stupid remark, because no one knows when that point will be reached. No one knew when the NASDAQ would crash, except a lot of people were warning of it. The chartists and prognosticators predicted a pull-back in metals prices too. I suspect that if I had known silver would go from $8.25 to $6.04, I might have sold and re-bought, but no one knows, and no one can know, when the top or bottom of a market has been reached. Why try?
If I have one word of advice, it is this. Markets always seem to catch people off guard. They always will. If you insist on gambling with futures, take your profits every so often, so that when it happens, your losses will be minimal. Tangible things are just that. They will always be there, whereas markets seem to have some sort of inner hostility, and will kill you if they can. No, markets aren’t human, but sometimes I think they are. The hundreds of millions of dollars that were lost on futures when the metals went down, is horrible, and I feel for you. If that had been placed in physical, guess what? You’d be like me, and say, “Who cares, it will go back up where it was, and much higher even.” If those bucks had bought physical, it would be there in your hot little hands, instead of evaporating in failed futures contracts. Now is not the time to do what so many people wrongly do, and that is sell at the bottom, and buy at the top. This is the bottom, so do not sell. The correct way to invest, is to buy low and on dips, and even though this is a severe dip, the world is not ending. It is just an even better buy opportunity.
The fundamentals are still there. Nothing has changed. Real things are better than mythical things, such as paper money “values.” No paper money in the entire world has any real, tangible value. It is all fluff and clouds. All of it. When the dollar continues its slide, as it will, more and more people will get out of them, and into tangibles of all kinds, and especially gold and silver. There aren’t enough to go around, and when the tide turns, and the rush is on, buying metals at these prices will seem like a sign from on high. A year from now, These low prices will be double or more. I’d bet on it, and I am not a better usually.
When World Com went from $90 or whatever, to $2, it didn’t change the fact that it was still the same stock. The big difference was that a millionth ownership in World Com was dependent on management, bookkeeping, and sales. All of them were deficient. An ounce of gold or silver is not dependent on management, bookkeeping or sales. It is not a millionth ownership, but the whole thing. It can be held in your hand and admired. A millionth ownership of AT&T or Ford, is about as thrilling as a hundred dollar Monopoly money bill.
Gallons, acres, tons, and ounces don’t change. Dollars, pesos, francs, and yen do. Protect yourself, and especially at these prices.