Desperate times call for desperate measures...like getting up early to write a post, even while technically "on vacation".
First of all, watching the sun rise is a tonic that I would recommend for just about everyone during this current period of metal strife. There is no better reminder of the long-term view than taking a moment to appreciate the beauty and the majesty of a sunrise. The planet was here for billions of years before us and it will remain for billions of years after we're gone. Though the stress of each day can be great, in the grand scheme of things, daily events are nothing but the tick of an infinite clock.
I mention this not because I'm trying to be philosophic. I do so as a reminder of The Big Picture. Below are the reasons I hold physical precious metal:
- Physical gold and silver are my "monetary insurance" against the eventual collapse of the current global, fiat money economic economic scheme.
- Physical gold and silver will provide me a tool for barter should some type of natural or man-made disaster render paper money useless or unavailable.
- Physical gold and silver are stores of wealth and true money, recognized as such for millenia before the current system arose and they will be recognized as such after the current system fails.
With this as my mental basis, why on earth would I be selling now?
And just who is selling now? Is there any physical metal for sale? Andy confirms that there are no physical sales in London. Just paper sales and physical purchases. Walk down to your local coin shop and ask the proprietor if there are more sellers or more buyers. My suspicion is that the buyers still greatly outnumber the sellers.
So why has price fallen this far? It's quite simple, really. The paper markets and, specifically, the HFT WOPRs which dominate them, are in control. Because of the leverage and rehypothecation, the futures markets are now fully disconnected from physical reality. This is fine. It happens from time to time and it can continue for a while but it can't continue indefinitely. Why? Read the excellent work of SRSrocco or the recent posts on ZH about the cost of production. Eventually, as producers of the physical commodity realize that continued mining is a losing proposition, they wisely halt production. Tight supply lines grow even tighter and, eventually, the laws of supply and demand reassert themselves.
Does this mean that silver will immediately head back to $49. Probably not. But it does mean that it's not headed to $8, either. (And, as an aside, I should point out here that silver was $18 in August of 2010 before rising to $49 in April of 2011 so it's not like it hasn't happened before.)
I am of the firm belief and conviction that The Price Bottom to all of this nonsense is within sight. Though gold has exceeded my low target of $1270-1290 and now rests near $1230, I'm buying it with confidence. Recall that when silver broke $22, I warned you that $18 was now likely with a possibility of an overshoot toward $16. With this in mind, why panic now? What has changed and what has been fixed? Anything? Or have the WOPRs so distorted the supply/demand fundamental that price does not currently reflect reality?
Tomorrow we will get an updated CoT report that will likely reveal Commercial positions of historic proportions. I know you're probably sick of hearing it...but I can't stress enough how critical this is to understanding the current price structure. QE∞ changed everything and, after years of fighting it and selling into rising prices and covering on dips, The Bullion Banks made the dramatic shift last fall. They began this current, counter-intuitive slide as an attempt to flatten their books and get out from under their massive naked short metal positions. As of this next CoT report, we will likely find that they have nearly accomplished just that. When they are done, price will be free to run.
As I conclude, I see that a fog has rolled in that conceals what had been a beautiful view. The locals tell me that this is a regular occurrence and that it will soon lift to reveal yet another beautiful day. Similarly, a fog has descended upon the metals markets and it is obstructing your view. I can assure you, though, that this fog too will soon lift and a new day will emerge, beautiful and bright, and when it does, your physical metal will have you prepared for all that the world has to offer.