Silver as an investment

Interesting topic. It's still a guessing game in my opinion, but very interesting indeed that so many people these days are crying buy the US Dollar. I read articles that everyone is bearish to the US Dollar. What I've seen is the quite opposite. Shelby, Financial sense, Elliot wave followers is actually turning positive to the US dollar. Hmm... Everyone?
Of course you will have carrytrades in the US Dollar. For people living in Europe it's great to have som US Dollar debt. Because in the long term the debt will vanish.
However I'm humble to the waves of mathematics. They are eternal, nothing new under the sun. I definately see that there is a possibility that the USD can retrace upwards. My action to that is not to short agressively anymore, and set up you stop losses (or kill the short position). Trusting my brains I can never go long US Dollar. That's a bet for others. You know the saying: "If it looks like shit and smells like shit. It's probably shit". :-)

A rally to the 50 DMA or the 200 DMA would take a lot of persons by surprise:

http://stockcharts.com/charts/gallery.html?$USD

THE GOLD PRICE BREAKOUT IS VERY EARLY, EXTREMELY EARLY. IT HAS BEEN ONE WEEK PASSED IN A 2-YEAR TO 4-YEAR PROCESS. POWERFUL ENERGY WAS BUILT AND WILL NEXT BE RELEASED. FULL RECOGNITION OF A MONETARY CRISIS IS NOWHERE EVIDENT. AS THE MANY REASONS FOR THE GOLD BREAKOUT ARE NOTICED, RECOGNIZED, AND TRUMPETED, THE GOLD PRICE WILL AT LEAST DOUBLE. DITTO FOR SILVER, EXCEPT THAT ITS PERCENTAGE GAINS WILL BE TWICE THAT OF GOLD. A $1300 GOLD PRICE WOULD EQUATE TO APPROXIMATELY A $30-35 SILVER PRICE.

PRITCHARD IDENTIFIES THE 'BEIJING PUT' ON GOLD, A VERY IMPORTANT CONCEPT REVEALED. TRANSLATED INTO SIMPLE TERMS, IT MEANS CHINA WILL SUPPORT ANY DROP IN THE GOLD PRICE TO PREVENT A BIG DECLINE, AS THE EMERGING GIANT GRADUALLY ACCUMULATES A GIGANTIC HOARD OF GOLD. A KEY CHINESE OFFICIAL REVEALS THE STRATEGY. THEY HAVE OFFICIALLY LOST CONFIDENCE IN BOTH THE USDOLLAR AND USGOVT POLICIES, BUT WILL NOT PUBLICIZE THIS REJECTION. THEY WILL JUST BUY GOLD CONSTANTLY. CLIMBING ABOARD THE CHINESE GOLD TRAIN IS A NO-LOSE TRADE.

http://www.pro-investory.cz/hat_trick_report_jim_willie/zari_2009_september_2009/

This is really isn't a forum, without a variety of opinions.

We need an exhaustion rocket shot up to call a top with higher degree of certainty, where most everyone has capitulated and insanely bullish on gold and silver. We have China talking up PMs & down the dollar, capitulation by Obama to Russia on missile defense, etc... There will be a proclamation that the world is decoupling, then the next liquidity crisis will hit and all will reverse again.

The psychological dilemma of a PMs bug is that he/she needs the price to always go up, but more likely we will see more volatility than avg. annual appreciation, simply because at current valuations the PMs are too small of a market value to compare with the total market value of fiat out there.

I do agree it is gambling to short or otherwise use leverage. If you want to gamble, then pick your moments when your odds are favorable, and do not bet all on one setup. The way traders do this is to try to grab small chunks of the wave energy from each turn in momentum, with stop losses in place. Right now the momentum is up. We can't see a turn in that until the next liquidity crisis hits. So yes we could instead of a rocket shot, see consolidations all the way up to much higher silver and gold prices. However, the factors that are pointing against this are the extreme COT position. Has any one seen the update from this past Friday?

Hi Shelby,

Shelby writes:
"So yes we could instead of a rocket shot, see consolidations all the way up to much higher silver and gold prices. However, the factors that are pointing against this are the extreme COT position. Has any one seen the update from this past Friday?"

Yes, I have. Massivest (is that a real word?) ever rate of increase in shorts in gold and silver.

Personally, I am coming round to the belief that the US$ has displaced the Yen in the carry trade. Can the US$ action give us any pointers on the direction of gold and silver?

Jim Sinclair has some interesting observations on this trade and its implications for the US$ price of gold (and by default silver?): http://jsmineset.com/2009/09/20/the-us-dollar-the-carry-trade-currency-of-choice/

Caveat:
"Those shorts that you can read from COT (Commitment of Traders) represent a very small portion of global dollar investors. That renders COT figures interesting, but not necessarily indicative."

"The clear majority of those shorts are positions that have been assumed by the CARRY TRADE. This will be the thrust of this missive so pleasekeep this fact in your mind."

"The majority of today’s carry trade now does not seek the overt risk inherent in playing both sides of their currency exposure position. What they are inherently long by borrowing the dollar is the dollar and therefore the short thereof."

"Some Elliott Wave commentary is suggesting a big dollar rally from here. I think that I am again facing questions raised by the Prechter Dollar/Gold flyer that always goes out when any reaction in gold is possible favoring the dollar and panning gold."

As one commentator pointed out gold and silver are still traded on the Currency/Forex desk of all of the Commercial Banks NOT their Commodities desk.

If gold and silver are simply being tossed around in the backwash of the massive flow of funds in the forex markets how is it possible to identify "safe" trading entry and exit points for the PMs by looking at PM specific data and events?

BTW US$ is not our local fiat so I often have quite a different perspective on the attractiveness of the PMs "price" when we are looking at converting more of our (modest) surplus cash flow into PMs.

Cheers!

angophera wrote:...Personally, I am coming round to the belief that the US$ has displaced the Yen in the carry trade. Can the US$ action give us any pointers on the direction of gold and silver?

Jim Sinclair has some interesting observations on this trade and its implications for the US$ price of gold (and by default silver?): http://jsmineset.com/2009/09/20/the-us-dollar-the-carry-trade-currency-of-choice/

Caveat:
"Those shorts that you can read from COT (Commitment of Traders) represent a very small portion of global dollar investors. That renders COT figures interesting, but not necessarily indicative."

"The clear majority of those shorts are positions that have been assumed by the CARRY TRADE. This will be the thrust of this missive so pleasekeep this fact in your mind."

"The majority of today’s carry trade now does not seek the overt risk inherent in playing both sides of their currency exposure position. What they are inherently long by borrowing the dollar is the dollar and therefore the short thereof."...

...If gold and silver are simply being tossed around in the backwash of the massive flow of funds in the forex markets how is it possible to identify "safe" trading entry and exit points for the PMs by looking at PM specific data and events?...

That was my point too, the PMs markets are too small to have any value based effect on the global situation. Those long on dollars by borrowing them are thus short on PMs, we see gold and silver volatility as the currency markets gyrate, which overshadows the smaller average annual appreciation. So if you buy at a volatility peak, you are in a loss position for a year or two. Seems to me Jim Sinclair is arguing for a sustained dollar, by admitting the carry trade. The more debt in dollars, the more severe will be the whiplash upward move in dollar on the next liquidity crisis. Thus seems to me the COTs are still very relevant since they are so outsized compared to actual physical investment demand. The only way to break that relationship is for the physical investment demand to entirely eliminate supply, but this is impossible, because the same metal in the ETFs and the bullion banks is being sold to 10 or more people and the physical is available to meet any surge in physical bullion demand. The ETF owner doesn't really own any physical metal, that is all available to the shorts to meet any market demand for physical. If necessary, they will just change the delivery rules on the Comex.

What about the OTC derivatives, which are much larger than the Comex? That is what caused the last big take down from $21 to $9.

Hi Shelby,

"Seems to me Jim Sinclair is arguing for a sustained dollar, by admitting the carry trade. The more debt in dollars, the more severe will be the whiplash upward move in dollar on the next liquidity crisis."

I think his position is quite clear on the downward trend, next stop on the dollar index 72, then 62 and ultimately 52. I see no reason why we can't have numerous "whiplash upward" moves in the context of an overall downtrend. This type of move also fits within the larger context of the PTB's wealth transfer program as it operates at a country by country level eg. Argentina, Iceland etc.

I don't know if you are aware of the history of the AUS$/Yen and NZ$/Yen carry trade. The short term volatility was frequently dramatic. The Yen/AUS$ carry trade has tended to track Aussie interest rates and the US$/AUS$ seems to have some correlation with prevailing sentiment about commmodities. Over the last decade the US$ exchange rate has ranged from AUS$0.49 to $0.98. From the high at $0.98 in 2008 the Aussie got down around US$0.60 within a two month period during the last bout of deleveraging.

For those of us who make our incomes in these currencies fluctuations of this magnitude make it doubly hard to get the timing right on gold and silver.

Fortunately the weather tends to be warm and the beer is cold down here so I guess we should be grateful for small mercies.

Hi Shelby,

I think Hommel is a contrarian indicator on silver in another way other then price and timing. Let me parse the quote from his piece that you posted earlier. My words in bold.

"Hommel wrote:...Americans buy less gold than other nations (1/100th of the world market?), and much more silver (40% of the world market?), but could still buy much, much, much, much, much, much, much, much, much, much more of both. This bull market in precious metals is barely getting started..."

"Americans buy less gold than other nations (1/100th of the world physical, retail, investment market) therefore they are proportionately less important in any assessment of likely demand compared to nations with vastly larger populations that still view gold as money...... and (Americans buy) much more silver (40% of the world market?).

Despite this fact silver's price continues to be highly volatile compared to gold suggesting that Americans impact as retail investors is largely irrelevant compared to industrial demand and sentiment in commodity markets. .... but could (Americans) still buy much, much, (etc) more of both as most Americans' incomes and borrowing capacity are slashed to a subsistence level?

In fact, Americans may be forced en masse to disgorge their PMs in order to survive. This bull market in precious metals is barely getting started but everyone is not guarranteed an invitation to the party."

Cheers!

Shelby wrote:...We need an exhaustion rocket shot up to call a top with higher degree of certainty, where most everyone has capitulated and insanely bullish on gold and silver. We have China talking up PMs & down the dollar, capitulation by Obama to Russia on missile defense, etc... There will be a proclamation that the world is decoupling, then the next liquidity crisis will hit and all will reverse again...

...Right now the momentum is up. We can't see a turn in that until the next liquidity crisis hits. So yes we could instead of a rocket shot, see consolidations all the way up to much higher silver and gold prices. However, the factors that are pointing against this are the extreme COT position. Has any one seen the update from this past Friday?

I say this is more likely a consolidation dip, not the big liquidity crisis crash. I might look to buy a little if Gold moves below $975.

==========
Add: note Pretcher has presented a compelling case that the big crash may be upon us now:

http://goldwetrust.up-with.com/economics-f4/inflation-or-deflation-t9-270.htm#1971

angophera wrote:Hi Shelby,

I think Hommel is a contrarian indicator on silver in another way other then price and timing. Let me parse the quote from his piece that you posted earlier. My words in bold.

"Hommel wrote:...Americans buy less gold than other nations (1/100th of the world market?), and much more silver (40% of the world market?), but could still buy much, much, much, much, much, much, much, much, much, much more of both. This bull market in precious metals is barely getting started..."

"Americans buy less gold than other nations (1/100th of the world physical, retail, investment market) therefore they are proportionately less important in any assessment of likely demand compared to nations with vastly larger populations that still view gold as money...... and (Americans buy) much more silver (40% of the world market?).

Despite this fact silver's price continues to be highly volatile compared to gold suggesting that Americans impact as retail investors is largely irrelevant compared to industrial demand and sentiment in commodity markets. .... but could (Americans) still buy much, much, (etc) more of both as most Americans' incomes and borrowing capacity are slashed to a subsistence level?

In fact, Americans may be forced en masse to disgorge their PMs in order to survive. This bull market in precious metals is barely getting started but everyone is not guarranteed an invitation to the party."

Cheers!

Could you please explain what you see as contrary indicator?

Hi Shelby,

"Could you please explain what you see as contrary indicator?"

I think the other contrary indicator is US retail physical silver buyer sentiment as an indicator of overall demand for silver. If American retail investors for physical investment silver are as a large a proportion of the world market (40% as Hommel claims) why has this demand had so little influence on the price of silver over time?

I'm suggesting that his spruiking is contrarian in terms of 1. price, 2. timing and 3. actual demand.

If Professor Fekete's analysis of the history of silver is correct, it was demonetized for good reasons ie. it was not needed as money anymore due to the impact on gold of developments in refining and minting technology. Maybe JP Morgan was right when he said "only gold is money".

In India they sell physical gold in weights measured in grams. For smaller "savings accounts" wouldn't copper serve just as well? Bringing copper into this discussion may seem spurious but think about some of the arguments that are advanced for retail investors ability to send the price of silver "to the moon".

I may be completely out of my mind but I am gradually becoming convinced that silver is a distraction in this monetary system ''game" that is being played out. IF this is the case then silver is an incredibly important industrial metal and nothing more. My thinking is that unless and until there is evidence of an industrial shortage of silver I should make contrarian plays on the gold/silver ratio as a reflection of sentiment eg. buy silver (using fiat or gold) when the ratio is high and sell silver (to buy gold not fiat) when the ratio is low. In other words use silver as a gold accumulation play.

Again, don't get me wrong, I think at some point there will be recognition of the scarcity of silver and fears of an industrial shortage with a consequent upward re-rating of the price.

I am trying to derive a price target for silver based on a calculation of the estimated price that:
a) Ensures silver is always recycled whenever it is physically possible and;
b) Makes it financially viable to smelt and refine silverware back to industrial purity.

Armed with this price target I can make a time projection in relation to known silver mineral reserves and consumption, plug in an inflation rate and derive a rough net present value for silver in dollar terms that will give me a benchmark for valuing silver in "absolute" terms.

In the meantime while I am not losing any capital holding silver I want to own some at all times against this eventuality. However, I don't think the physical silver PM market will signal this major repricing event reliably.

Thanks for taking the time to discuss this.

Cheers!

angophera wrote:Hi Shelby,

"Could you please explain what you see as contrary indicator?"

I think the other contrary indicator is US retail physical silver buyer sentiment as an indicator of overall demand for silver. If American retail investors for physical investment silver are as a large a proportion of the world market (40% as Hommel claims) why has this demand had so little influence on the price of silver over time?

I'm suggesting that his spruiking is contrarian in terms of 1. price, 2. timing and 3. actual demand...

Agree on that possibility. I had written before that physical silver market is way too small to have any effect on anything of global significance, and that the paper silver market is so large meaning there is lots of physical silver that can be dumped by selling silver that promised to other paper silver holders. So physical silver demand is only in control of the ridiculous premiums that people pay to obtain silver during times of high physical demand or in small markets. Remember silver went to $50 for one reason only-- because the PTB were able to trick the billionaire Hunts into trying to corner the silver market. Also from my prior research, there is something on the order of 5 - 18 Billion oz of silver in form of silverware and jewelry that can come to market at say less than $80 - $150 price, or perhaps much lower prices if westerners desperately need cash.

angophera wrote:...If Professor Fekete's analysis of the history of silver is correct, it was demonetized for good reasons ie. it was not needed as money anymore due to the impact on gold of developments in refining and minting technology. Maybe JP Morgan was right when he said "only gold is money".

In India they sell physical gold in weights measured in grams. For smaller "savings accounts" wouldn't copper serve just as well? Bringing copper into this discussion may seem spurious but think about some of the arguments that are advanced for retail investors ability to send the price of silver "to the moon"...

There is a scarcity of silver (perhaps 1 - 3 oz per person in the world) if the entire world moved back to using silver money, or if 1% of the world's population (i.e. 60 million people) bought 100 oz each. I think during 1980, 1% of the people had bought silver in those quantities.

But I don't see the world moving to physical silver for money any time soon. As Pretcher says, there will come a time when we only want real money, but that is a couple of years from now at least. In the meantime, people need dollars to pay all their dollar debt. Things will have to change drastically for the world to need silver coins for money. Not next week, not next month, and probably not even in the next years.

angophera wrote:...I may be completely out of my mind but I am gradually becoming convinced that silver is a distraction in this monetary system ''game" that is being played out. IF this is the case then silver is an incredibly important industrial metal and nothing more. My thinking is that unless and until there is evidence of an industrial shortage of silver I should make contrarian plays on the gold/silver ratio as a reflection of sentiment eg. buy silver (using fiat or gold) when the ratio is high and sell silver (to buy gold not fiat) when the ratio is low. In other words use silver as a gold accumulation play.

Again, don't get me wrong, I think at some point there will be recognition of the scarcity of silver and fears of an industrial shortage with a consequent upward re-rating of the price...

How can there be an industrial shortage when we are in a global depression? Only monetary demand for silver will ever cause the huge price rise. I do think that monetary demand will come, but it will come later than gold, because the monetary demand for silver must come from the masses. Agreed buy silver when it is cheap, say 80 to gold. Sell when it his 50 - 60, unless you see people of the world piling into physical silver (sorry reports of Chinese TVmericals means nothing to me, when I don't see people actually buying the stuff in Asia in droves). That is what I did recently. And yes I hold my core position in silver (which is small % of my net worth), which is more than I can physically carry with a suitcase. If silver ever does a rocket shot, then I have enough silver to support me for the rest of my life.

angophera wrote:...I am trying to derive a price target for silver based on a calculation of the estimated price that:
a) Ensures silver is always recycled whenever it is physically possible and;
b) Makes it financially viable to smelt and refine silverware back to industrial purity.

Armed with this price target I can make a time projection in relation to known silver mineral reserves and consumption, plug in an inflation rate and derive a rough net present value for silver in dollar terms that will give me a benchmark for valuing silver in "absolute" terms.

In the meantime while I am not losing any capital holding silver I want to own some at all times against this eventuality. However, I don't think the physical silver PM market will signal this major repricing event reliably.

Thanks for taking the time to discuss this.

Cheers!

I think the ratio to gold is the correct metric to get fair entry price point.

You have to look at world physical demand. Silver was coin in every country in world before WW2. Now in Philippines, I bet there aren't more than 1000 people out of 80 million who buy physical silver FOR INVESTMENT here. I couldn't find a buyer for my silver here at the refinery when silver hit $14, even I offered a 10% discount under spot. I did eventually find a buyer, but had to sweeten the offer and took 3 weeks to get the cash.

The are all signs of something that is good to invest in, but realize we are incredibly early, so buy only what you plan to hold for years. And buy when the ratio to gold is favorable.

Yes Hommel is contrarian indicator, because he is like a decade too early, and many times I urged him to explain to people not to buy for the short-term and thus not to buy when the ratio to gold is near a short-term peak.

P.S. There is a lot of jewelry buying in Philippines, but it is only a few grams per person and they pay 300% more than the silver value. And it is sterling so can't be as easily recycled. A lot of it may be fake or less pure than 90%, because it comes mostly from China.

Check out these charts from Rob Kirby and if you have time have a listen to the interview on ContraryInvestorsCafe.

One of the points Kirby makes is that he always thought that the manipulation was ONLY to the upside. These charts appear to show manipulation in Gold and Silver in both directions. Listening to the discussion also helped me to realise that the PTB cannot manipulate the trend.

http://www.contraryinvestorscafe.com/guest_articles.php?id=62233&aid=1335

Posting the same piece on both the Gold and Silver threads.

Cheers!

Added to this post...

PTB is on auto-pilot, "they" (not a person or identifiable group) can not change what they are doing any more than most of us can not change what we are doing. We the people are symbiotic part of the PTB. Yes the banksters play a big manipulative role, but only because we ask them to.

The unstoppable trends are:

* re-balancing of west and developing world
* globalization (which means many things)
* rising value of hard money versus legal tender (but with tremendous reversals and volatility along the way)
* increasing debt (inflation, it's distortionary destructive/deflation effects)
* increasing funnelling of wealth to the Harlot (PTB) system

The Great Harlot system is futile. That is why I think the Bible tells us in so many ways to come out of man's system:

We can make long-term investments in hard money, and we can try to find and invest and work in the exponential growth sectors in this current macroeconomic paradigm.


============
ADD: CFTC comissioner (and former chairman) has promised to interview Ted Butler!!

http://news.silverseek.com/SilverSeek/1253632847.php

...Commissioner Chilton responded that the investigators would be contacting me soon, as he has stated in the past...

http://jasonhommelforum.com/forums/showthread.php?p=52488#post52488

SRSrocco wrote:...According to JIM WILLIE's sources, it looks like we will see $20 SILVER by OCT and possibly $30. This is due to the CHINESE putting a STOP LOSS on their OTC COMMODITY DERIVATIVE CONTRACTS. There has been speculation by ANTAL FEKETE, TED BUTLER and now JIM WILLIE that the big shorts on the COMEX have been the CHINESE. It seems as if this might have been the plan all along as the CHINESE were using this as a LONG TERM INSURANCE POLICY. The Chinese realize WALL STREET through GOLDMAN SACHS and JP MORGAN have been manipulating the markets and don't want any part of it anymore.

A US-CHINESE TRADE WAR has begun, and I can say with all certainty...the UNITED STATES will lose. It started with the reappointment of BEN BERNANKE against the wishes of the CHINESE. BEN MONETIZATION BERNANKE will do what the WALL STREET BOYS and US GOVT ask of him. It was after this reappointment did the CHINESE decide to put a STOP LOSS on their DERIVATIVE COMMODITY CONTRACTS. Then OBAMA and WASHINGTON decided to put a TARIFF on CHINESE TIRES. Now the CHINESE have decided to really push GOLD and SILVER as an investment on their citizens while putting rumors out that they will stop exporting GOLD, SILVER and soon RARE EARTH MINERALS. It is amazing that the CHINESE hold 95% of the RARE EARTH MINERALS.

If the CHINESE decide to not honor their commodity derivative contracts (mostly in SILVER, GOLD, COPPER and OIL), it could be dangerous for JP MORGAN and GOLDMAN SACHS. It looks as if GOLDMAN and JP MORGAN might be the ones holding the SHORT POSITIONS and over $200 BILLION in loses. Is this the SHORT SQUEEZE that will finally KILL the COMEX?

Here is a recent interview by JIM WILLIE called CHINESE TRADE WAR:

http://www.contraryinvestorscafe.com/partners.php?pid=62242 ...

That would be clever if China had let Wallstreet sell short it's suspected Communist era silver hoard, which now would give China a leverage against Wallstreet. Interesting China is dependent on west for technology and exports, and perhaps China made the west dependent on it's silver hoard (in order to keep dollar strong and enable the grand consumer bubble).


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ADD#2: as for timing, this guy's video shows a cyclical pattern that he believes will cause us to see a short-term bottom in Gold in early October, then a new high by late December:

http://club.ino.com/trading/2009/09/the-reason-why-gold-hasnt-skyrocketednew-video/