Just an Interesting Note
I think many are trying to pinpoint exactly what the decline in the precious metals was a direct result of.
This weekend, the Silver COT’s came out, showing that the spec longs sold 1/5th of their positions, and Commercial shorts covered less than 1/10th of their positions, causing a major price dip from $21/oz.

We may see yet more selling, but bear in mind that this is all effects of a cat and mouse game by the speculators and the commercials, with the trend and the investor uncompromised. On the contrary this offers yet another ideal entry point into a large ongoing rally.

Reminder to the Investor
I want to just reiterate that I am a full-fledged buyer in this market. Regardless of whether or not we actually have a silver shortage (some say the shortage is only in 100 oz. bars), or whether the Dow closes higher or lower, or even if the U.S. Dollar rallies well into the future. I am a buyer because I believe that the current market winds are blowing in the direction of overall deflation (discounting) of fiscal and paper assets, favoring materials and hard assets. Unleveraged, unfinanced real assets.
Advice for the Trader
The only reason one would need to worry would be due to extreme leverage. Example: If you are leveraged 4:1 and silver takes a 25% hit (such as the one over the last few weeks) the trader would be completely wiped out. Don’t turn a perfectly solid investment opportunity into a crappy speculative trade! If you do trade I suggest (a) watching your downside with stops if necessary and (b) building your gamma significantly as you leverage. That way if volatility comes your way your floor is secured.
A Note on the “Shortage”: Supply and Demand
Again many fundamentalists point to a shortage due to lack of silver bars at coin dealers the nation over. Critics say that while this may be the case there are many 1000 oz and kilo bars available on the market.
My take is two-fold. Firstly, a shortage means simply a under supply relative to demand. There is by far a shortage of 100 oz. silver bars not only in the U.S. but also abroad. This being the case even if there are larger bars they may not be affordable to the small investor (1000 oz = $18-20,000). Thus these bars would have to melted down and reformed into smaller denominations – all costs incurred – thus raising their premium. Secondly, even if the 1000 oz. bars are indeed available in plenty – they still have to be bought. If there is any rationale behind a shortage in metal it is that the small dealers will run out and have to buy from the larger mints and dealers (some of which are also behind on orders). As these larger bars are melted down and hoarded heavily by investors and small dealers the supply of such bars begins to deplete as well.
This is all basic supply and demand. Will silver decline heavily and cause owners to sell lower? I see two reasons why not. 1. Investor seem to be (a) long-term minded (b) unleveraged. Thus they will embrace lower prices and a buying opportunity, especially that they now know how scarce smaller bars can get during an ongoing price rally. 2. Any selling by the larger speculators will be bought by many who have waited for this decline. It seems many are simply attempting to call the bottom. Moreover any downside should be good entry for the commercials to cover shorts as they did during the recent $4 decline.
The Trend
Most importantly, the long term trend remains intact even if silver is to fall as low as $15. This is also in the face of a higher gold/silver ratio (48 to 53). This is bullish for silver over gold even if they are to both decline. The Dow/Gold ratio seems to be intact at a current 13.3, with expected further downside until 7.
Here’s what Real Estate Guru Robert Kiyosaki has to say
“I recommend… buy silver coins, under $25 an ounce. Silver is cheap and easy to acquire and manage, while real estate and businesses are both management-intensive; silver requires no management, expect for a safe storage place. In addition, the iShares silver ETF (SLV) is convenient.
“Silver is consumed in many industries, and it’s reported that the world has less than a 10-year supply of it left. That’s why I believe silver is currently one of the best investment opportunities there is – even for people with limited financial training.”
Now “Buy Till Your Hands Bleed!”
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