Not IF but When Silver hits $50?
Remember Gold - I predicted in June of 2009 - we'd see 1500 by the summer – well, we only made it to 1261. We didn't get as far as I thought, but we are certainly headed in the right direction. I am pretty convinced we'll see that 1500 level by December or January. Now, in January of 2009 silver was $10 an ounce, and it hit $20 this past week. Not a bad return – aye?
Secondly – if I told you someone was committing a crime – over and over again – you’d potentially investigate and determine if I were nuts or potentially had some truth to it. Well, over the years I've told you over and over again that silver is the most manipulated metal on earth, and that organizations are making billions by naked shorting it. This past week, Ted Butler (a man who has been leading the charge to bring some justice to the silver market) noticed that JP Morgan again went “all in” naked shorting the silver market. Now, allow me to explain exactly what that means. Silver is a unique metal, and is used in so many areas of electronics, that its manufacturing demand has risen between 2 and 9% per YEAR for the past 45 years. Currently, demand outstrips supply. This means that someday we will run out of physical silver – at the current price. Now, we’ll never really run out because as supply gets short – prices will increase until equilibrium is reached. This week – the Bank Participation Report showed an increase in shorts in silver contracts, to the equivalent of 157 Million ounces of silver, and the top name on the list was JP Morgan. Currently JPM has shorted over 20% of the entire world production of silver. Do they have the silver to carry that short? Nope – it is "naked" – meaning not backed by anything. JPM was allowed to just push a button and produce billions of dollars worth of short interest. Now, could that actually move the price of silver – absolutely! And once the price of silver drops 2 dollars – guess who comes in and buys the silver – yes JP Morgan, and because it was a naked short – instant profits! We have to know that very high-ranking officials are allowing this to happen. The fact is that this same process has been going on for 35 years, but each and every day the pressure mounts. Each day there is less physical silver available, and more manufacturing that needs it. Each day the economy crumbles, people look for a way to preserve their capital, as savings accounts paying 0.9% don't cut it. What no one counted on was John Q. Public starting to buy silver. This new investment demand coupled with the manufacturing demand is exhausting the supply ‘at this price’. Remember, on January 15, 2009 - silver was $10.50 an ounce and today it's $19.90 after being over 20. That is almost a 100% increase in a little more than a year. So I think silver is a great investment – after all we discovered SLW at $3, and now it’s over $24.
Last week, the Bank of Japan left its interest rate at 0.1% and the Reserve Bank of Australia left its rate at 4.5%. However, both central banks warned that a deteriorating U.S. growth outlook is making it harder for them to set monetary policy. Yes, the deteriorating US economy is causing problems for nations all around the globe. Last week, John Paulson's $3B Recovery Fund lost 9%, erasing its 6.5% gain in July and compounding its 12.6% Q2 loss. Bullish positions in Citigroup (C) and Bank of America (BAC), coupled with bets on an upswing in the U.S. housing market, have soured the fund. So the gent who had his pulse on the housing market – made billions guessing right on the housing bubble – is now betting wrong.
On Thursday we heard that the initial jobless claims had dropped by 25K and everyone was sure that things were getting better. Then a Bloomberg news item showed that because of the Labor Day Holiday, 7 states hadn't filed their unemployment data and the Government just "guessed" at the number. So what if the government guessed 4k light (by mistake) on each of the 7 states? And when was CNBC going to tell us this? And last week we learned that losses in the chip sector pressured the tech sector. It seems that third quarter many chip companies - citing weak demand for personal computers and other devices that use microchips, lowered guidance. This tells us that consumers are not spending as much as expected.
In any case, the market held up this week, on horridly low volumes, and as you know, on low volume they can do a lot of pushing, and despite being up just 12 points in the afternoon, they did their "weekend push" in the last moments and we ended with a 48 point gain. So, here we are in September, historically the worst month of the year, but we just had one of those in August – and is it possible that August will be the worst month in 2010 and we can go higher in Sept/Oct/Nov/December? Sure it is - the game is rigged – just like it is in silver.
We just came through 7 UP days in a row – and I’m thinking that on Monday we should start something of a pullback. We liked the looks of RIG if it could get up and over 55.50, and it did that on Friday. So, we bought and by noon it was up over $60, an incredible one day run. We sold half our position. I tend to think that this week we’ll see some backfilling; so short-term short positions sound about right for a bit.
Let’s review our holdings:
GDXJ – a basket of gold miners
GG – IAG – NG – individual gold miners
GLD – PHYS – pegged to the price of Gold itself
SLW – SSRI – silver miners and indexes
All are up nicely from our original purchase.
We’re in RIG – but only half or a position.
We’re in VXX for the long haul.
We’re in and out of TZA, DXD and SDOW on a daily basis (these are ETF’s that allow you to invest directly in the market going ‘down’ – for those that do not like to ‘short’).
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If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a 4 months or so ago now:
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Until next week – be safe.