Why do markets correct? It really isn’t too difficult. We must always remember the laws of supply and demand. When there is a plentiful supply, prices go down, and when there is a short supply, prices go up. This also can be translated into profit and loss. When there is a profit, people often take it. When there is a bargain, people will often buy. When there is a huge sale, people will buy, even if they don’t need the items on sale, because they’re a bargain. It’s the marketplace at work in all of the foregoing examples.
Let’s consider gold and silver. Everyone knows that when prices go down in a correction, lots of people snap up the bargains, and when they’re at a profit, they sell, even though I try to discourage them from doing it, as in a previous column. When markets correct, have millions of people sold their physical gold? Absolutely not. The spot prices of gold and silver are directly connected to the futures markets. The ’spot’ price of metals is derived from the nearest month of futures contracts, and for each day till that date, a certain amount is subtracted, to arrive at the ’spot’ price. Physical sales have virtually nothing to do with corrections. It’s the futures contract sales and buys that influence the spot prices and corrections.
If you have futures contracts, maybe you hold contracts for a thousand ounces of gold or silver. You see that the month your contract ends, the price has gone way up, and you are at a profit. You have two things to consider: (1) will it go up further? and (2) should I take my profits? Both are paper gold and silver, not physical, so it isn’t as if your safe is being emptied. People are literally gambling on their futures contracts positions. Is there manipulation? Does the Comex even have physical enough to cover futures contracts? Do the ’insiders’ do crooked and nasty things? Who knows, but consider the obvious fact that in spite of all the skullduggery, and attempts to control markets, the market will not be denied. From $150 to $1375 in ten years with gold, and from $4 to $30 with silver. The process will continue.
The so called ’manipulators’ were determined to keep gold below $250, and then $300, and then $400, $500, $600, $700, etc, and all failed. When gold hit $1,000, many thought ’that’s it, it can never go higher.’ Nonsense, there is no end of the prices of everything going up in dollars. Do you think the prices of lettuce, tires, lumber, or electricity will go down? Stott’s Law says that “The more of anything there is, the less they will be worth,” and this includes dollars. The printing presses roll on and on throughout the world, and all currencies constantly lose value, due to the constant increases in volume and supply, so they will always buy less and less. Therefore, all tangible, physical things, will always ago up in price, since governments always spend more than they take in, and will always print to pay their bills, at the cost of the value of their respective paper monies. Yes, and this includes China.
When gold and silver prices correct, It’s in the main because futures contract holders took their profits by selling their contracts, in hopes they will go down so they can buy at a lower price, as they seem to have done today as I finish this column. Most people who try to make a living trading futures lose. I gave up when I lost, and will never do it again, although I am sometimes tempted. Whatever you do, do not sell, hoping you will buy lower. It is utter foolishness. Sell only if you need the money. If you want to gamble, try playing the futures market, or go to Las Vegas and play the slot machines or Blackjack. Your gold and silver holdings are your life raft in times of trouble. Keep them and hold them as almost sacred.
P.S. We just finished the disgusting Martin Luther King Day, which is the only holiday honoring a man, other than a President. I have always despised King for obvious reasons. He cheated endlessly on his wife, cheated on his doctrinal thesis, had known communists as his associates, and everywhere he went, violence erupted because of his ignoring laws. I think the civil rights laws are fine, even though they are probably unconstitutional. Rosa Parks was the hero of civil rights, not King. Want a civil rights holiday? Make it Rosa Parks Day. She quietly broke the color barrier, and never spurred violence and bloodshed.