Why The Correction?

I was going to write about the absurd State of the Union Speech, or Obamacare, but the current correction seems to be more important.  Not to me, but to newbys.

The current correction in gold and silver, is the most severe in the last year. 7%.  Believe me, a 7% correction in anything, is nothing to worry about.  It is absolutely NORMAL.  How low will it go?  What are the facts?  First of all, I consider it an excellent buying opportunity.  Secondly, gold and silver stand alone as far as value, with no government rules, regulations, or bureaucrats involved.  There is no problem with it ever going to where all paper monies have gone, and will eventually go, and that is zero.  Gold and silver require heavy investments in capital, labor, machinery, transport, and utilities to produce and distribute.  Gold and silver ore, when removed from a mine, usually do not show any gold or silver.  If any gold flecks show, it is considered “High Grade,” and is collectible.  The ore looks, to the inexperienced, like plain rock or granite.  The ore must first be milled, which means turning it into face powder consistency.  The metals must then be extracted from the face powdered rock.  This done with centrifuges, and chemicals.  Not cheap!  After the milling is completed, we have what is known as “sponge,” and this must be sent overseas for smelting, which changes it into pure gold and silver.  The EPA long ago outlawed smelters in America, so they are usually sent to Korea for smelting.

After being shipped back to America, for American Silver and Gold Eagles, it is sent to private mints to make “blanks.”  The blanks are then shipped to West Point New York for stamping into Gold and Silver Eagles.  The same process goes for Canadian coins and bars too, as well as Swiss, and South African.  Not cheap.  After they are made, they must be distributed.  Our supplier, A-Mark, is probably one of the world’s largest distributors of gold and silver.  They may make a few cents an ounce for their handling, I don’t know, but we do not raise prices over what we pay for them.  While all this is going on, transportation overseas and in the U.S., is taking place, with normal office work, funds transferring, and secure storage.  Not cheap again.  This all mentioned to show that gold and silver are very expensive to produce.

Gold and silver consumption are at all time highs.  The mints are working 24/7, and still cannot keep up adequately.  Chinese are now buying gold and silver, since their government’s restrictions have been lifted.  The Japanese and Indians are consuming gold and silver like there is no tomorrow, as are people all around the world.  The Chinese government is buying up all the output of its mines, and is changing many of its U.S. dollars into gold and silver.  Sales of Silver Eagles for January, have already broken all records, with several days still to go.  Russia, India, and Saudi Arabia, are all buying gold for their reserves, probably realizing that their paper money is backed by nothing.  Russia recently bought 169 tons of gold, and Saudi Arabia just increased its holdings by 200 tons.

Is there some ’manipulation,’ short covering, or whatever?  I am sure, but such devices never last long, because the fact is, that the more dollars, francs, pesos, etc that are printed, the higher in those currencies, tangible items will go, and that’s why people all around the world are stocking up on gold and silver real money, while the prices are almost absurdly low.  Do not worry.  A year from now, you’ll probably have a 30% profit or a lot more.