Time to Ride the Silver Bronco?

What’s up, pussycats? When both metal and the market take a beating in the same two-week period, what’s going on? I suppose someone could hazard, “Everybody is in profit-taking mode?” but that’s entirely too simple for this Li’l Ol’ Conspiracy Theorist. Particularly in a world where a lot of us eye Federal Reserve Notes with more than our usual disdain and feelings of insecurity.
I’ve been leery of the movement in metals for quite some time, and, being an LOCT, find it quite plausible that there are not-very-well-hidden thumbs on the scales because it just doesn’t make any sense, even with China on a gold-buying binge, that the bulls and the bears are playing tug-of-war so fiercely. It makes me very nervous to contemplate a game where I don’t know the rules and don’t know who the players are…but even if the game is rigged you can’t win if you don’t play.
Still, if I were rich I might well go on a bender in gold myself, considering the Friday close, and I’m keeping an eye on silver again for the first time in over six months. I lose track, occasionally, of what actually gets put up on Morning Whisky, but I know I wrote recently that my acquisitive instinct would probably kick in at about fourteen dollars. I don’t think we’ll see thirteen again–at least, not for more years than I’m likely to be commenting on the economic scene–and that’s where I stopped buying in a very different world. (That’s a pretty good description of seven months of enduring the Obama Nation, don’t you think?)
Our biggest purchase recently was a bulldozer at a price that made it among the bigger checks I have ever written, but, still, at some 40% of the hulking big beauty’s actual worth and free delivery? Who could resist?!
Chuckle…there are two kinds of gals in this world, fellows, those who get excited over purchases of big equipment and livestock, and those who think you are out of your mind. Substitute whatever your passion is, whether it be bass boats, a trip to Scotland to play golf, Purdy shotguns, Georgian silver, or a vintage Trans-Am. My darling Charles is twidgety because I wrote the check, insisting (atypically irrationally) that he needs to “reimburse me,” but I’m the one who had that sort of money in the local bank, which I called to be certain they had cash on hand to honor the check to be certain it wouldn’t have to go through the seller’s bank. Whether he declares that “income” or not is between his conscience and the IRS.
Silver closed at right at fifteen on Friday, with (groan) Palladium and Platinum losing and gold up a whole dollar. Wow. Excitement for that most beautiful of solid stuff. (No, I will probably never stop kicking myself for not buying Palladium at $242, although I would have been out of it at least a month, probably six weeks ago, if I had.)
Silver giving up 20%, roughly, of gains since early September is enough to make any believer in Technical Analysis (as handicapped as we are by current constraints) start babbling about “support levels.” Meaning that one of these days shortly we expect silver to take off again and not stop until…$21.00, maybe? Mind, it could decide that there is a ceiling at nineteen and drop again, but if we can find a definite trading channel between fifteen and eighteen we could make a bundle of money even if we can’t sell short. Round ’em up, ride ’em up, sell ’em off, repeat, rawhide. My feeling from a TA perspective is that next time we won’t stop until c. nineteen but will break through for at least three or four dollars and then retreat, possibly, to nineteen. The chances of a configuration meaning that silver is going to plummet like plumbum (joke; I haven’t checked lead prices since I paid a dollar a pound for some) are nonexistent.
That’s for those of you who like ETF’s, of course, as opposed to those in the TEOT-WAWKI camp who only buy physical silver. That is a big question: who is selling all that silver and gold? “Those with only paper claims” is my read because those of us who hold out for physical possession aren’t buying for “profit” in the normal sense of that term. We’re of the opinion that the more FRN’s we’re offered the more urgent it is to hold on to ingots, coins, bracelets, and tableware. Our silver isn’t for sale at Spot period. It isn’t for sale at Spot plus 20% because it is difficult to buy our shimmering beauty in forms that do not carry mintage or fabrication fees (and taxes, of course) at a price well beyond the value of Spot. Mine isn’t for sale at Spot plus 50%, but I’m hard core Doom & Gloom.
We hold as firmly as Cato and “Cartago delenda est” that metal tells us what fiat currency is worth, not that dollars indicate the value of sterling. (How very unlike us not to trust Mr. Market, but there you have it.) Silver is still nearly half what the highest historic ratio has ever been (that varying between 16:1 and 30:1), it has far more commercial/industrial uses, and the market has been askew for a very long time. Some things really do not change, no matter what anomalies we encounter from time to time. By traditional measures of value silver should be between $62.50 and $33.00/troy ounce…and mine would still not be for sale even at the higher price. Let me repeat: it is very difficult to purchase silver (or gold) you can put in a box at anything approaching Spot. Gold has the same restrictions (mintage, historical value, certification, workmanship) but that only underlines the problem.
You either want the best mining stocks (and the experts featured here on W&G can certainly offer ample suggestions on which ones) or you want the real thing in your hand or buried in your front yard, on the back forty, or in the city park, again, depending upon your view of the next five or ten years, the political, social, financial, and economic situations, and so forth. (Don’t ever dig up your back yard. That’s the first place someone with a metal detector will look. It could be that you could put in an elaborate rose garden in your front yard and be safe, but where to hide your valuables is a very personal choice. Not in pigpens or in your freezer or dryer, for sure. There are books on the subject available.)
Anyway, that’s the basic philosophical debate: whether to go with paper gains on the market (are there any mines that pay dividends in product?!) or to insist upon possession of objects which can be stolen or confiscated? FDR demonstrated to a nicety that the government can demand surrender of metal in the citizens’ possession and endless debates are held over what forms might be exempt if BHO tries the same stunt, and in their spare time governments debase both coins and fiat currency.
I’ll repeat my Contrarian to Contrarian view: there is no safety in “collectible” coins. Last time those were exempt but who knows about next time? Far more to the point for those of us trying to think as French peasants did in the 18th century (rather difficult), what will something be worth when you finally extract it from your mattress or where you buried the bullion at the intersection of lines drawn between two points known only to you? To repeat, possibly, my darling Charles is aghast that I keep a $10 1892 gold eagle in very nearly BU condition under my mouse pad. When I’m thinking I pick it up, turn it over between thumb and fingers, or simply savor the distinctive weight and how quickly the gold warms to life in my appreciative hand. He worries that someone will abscond with it (reasonable), while I figure that since I live in front of the computer and get such pleasure out of it the possibility of loss is worth it. It is very easy to become so worried/concerned/terrified/paranoid about what is going on that we lose track of life’s simple pleasures. Perhaps I should humor him and go find one of my Roman coins which will stress the importance of analysis on focus long term. Actually…both would probably be good to have at hand to keep your thinking on point. Over the long haul this will all work out, but I remain more interested in what happens in the next quarter of a century than I do in what will transpire in the next four decades.
I’ve strayed from the point (an occupational hazard), which is that I bought several coins a couple of months ago for Spot! I’ve gotten three from the same source and rub my hands together like Shylock anticipating the day he has to turn loose of two full Eagles. He’s stuck; he got sold on the idea of age and condition, only to find that the company he bought from will, indeed, repurchase the coins at what he paid for them–which has been less than Spot for a considerable time. The local “WE BUY GOLD!” types will only give him Spot minus a hunking great premium. I’m the best deal he can find. I’m making out in ways to gladden my Robber Baroness’ heart! I’m not paying for condition, shipping, sales tax, authentication or anything else–but the seller benefits because no one else will give him as much. The $5 Eagle I got from him still has the sprue point attached, chortle, plunder, abuse of my fellow man. If that’s not BU I don’t know what qualifies. I got caught on the “We’ll buy it back” business in the Sixties when we got a smaller diamond than John wanted me to have because the cut, clarity, color, and mounting of what I chose were so exceptional. By the time we wanted to upgrade we would have taken a loss dealing with the very prestigious firm I won’t name, and I haven’t been caught on that one again since.
The bottom line is that what you buy for rarity/condition/historical value–including Georgian silver–is vulnerable to a world that says callously, “Gold is gold, silver is silver, take it or leave it.” Walk away. Let me repeat: walk away. No matter how great your need is at the time (even in a world gone mad) it will be greater later, and so will the value of your metal. That is why we never borrow money short term (be it from Shylocks or friends) because if you can’t make it through this month on what you’ve got you can’t handle repaying the loan plus interest next month. If you have to live on milk, baked potatoes, and odds and ends in your pantry (even in “normal” times) do it. Long ago memory…yes, I’ve done it. John went off for several weeks in Grafenwehr with a quarter of a month’s pay and I lived on what there was in the house for the last ten days of the month and never said a word.
Listen to Mama, sugars…in 70 years, come 11 May, greetings and gifts welcome, I’ve seen, done, or heard about almost everything. If you want a really useful piece of advice, there should be his money, her money, and your money. Very few things are as hazardous to your financial health as one checkbook! You can’t just look at the balance recorded in a single checkbook and know if you can “afford” a purchase. What bills or extraordinary expenses are coming up? Oh, my…John made that mistake in ’75 and bought me a stunning diamond and ruby ring and a color TV that worked on both European and US power for Christmas and it took some fancy footwork to recover, since I was the one responsible for handling money in general.
It may not be quite the time to saddle up and ride the silver bronco again, but my feeling is that there is ample opportunity even for those of you who don’t like to get to the point where there is a sick feeling in the pit of your stomachs that you’re going to miss a big opportunity if you don’t buy. If you have a little free cash, and particularly if you can use e-Bay, Craig’s List, or private sales to come out at close to Spot, I think it is close to time to consider it. I sure don’t think you will lose money more than very short term on such a trade. Ummm….if I were contemplating buying pre-’64 coins I’d probably hold off and see if we can get another fifty cents off.
I will leave you with a smirk: the Super Bowl has ended 31 to 17, and once again Our Dear Leader failed to pick the winning side.
Linda Brady Traynham
February 8, 2010

The Daily Reckoning