The Precious Metals Bull Continues His Charge

I have a good friend with whom I chat on the phone quite regularly. I have been bugging him to hedge into metals for the past three years. When the spot price was $4.35 an ounce with the dealer’s commission a 100 ounce Engelhard bar was about $500. At that time, I suggested that my friend buy at least buy one or two $1,000 face value bags of pre-1965 “junk” silver coinage–just in case. He waffled. Then, when silver was $4.80 an ounce, I was practically begging him to buy.  Even though he was sitting on substantial dollar-denominated liquid assets, he kept coming up with reasons not buy. Once silver passed $5 per ounce, he claimed that he was waiting for “the next time that it dips below $5.” Then that dip came, and I pointed it out, and he came up with yet another excuse. This went on and on.  Once silver passed $6 an ounce, he claimed “I’ve missed the boat.”  I tried explaining to him that silver was heading well past $12 an ounce in this bull market, but he wouldn’t budge. I finally gave up trying to convince him. Some deer just can’t resist standing and watching those approaching headlights…

The recent spike in gold and silver prices is interesting, because it came at a time when the dollar was strengthening versus the Euro. In contrast, the previous recent rallies occurred when the dollar was losing ground to the Euro. Similarly, gold has traditionally gone up when he price of oil was climbing. But wait a minute–the price of oil is slumping. So why is gold galloping? Something has changed. Perhaps there has been a collective realization that all paper currencies are risky, and that it is therefore time to hedge. The only problem is that in the grand scheme of things is that there just are not a lot of metals to buy. The COMEX is a relatively small market. That is why it tends to be volatile–just a few investors making significant trades can move the market dramatically. If just 10% of  America’s stock and bond investors decided to hedge a fraction of their portfolios into metals, they could buy the entire COMEX inventory, several times over.

I’ve been surprised to see that there has not yet been any significant profit taking, which is the norm, following COMEX price spikes. If there is no pulback–just a staircase climb upward, –this could be a portent of a paradigm shift. As I’m writing this, (Friday evening), silver is at $8.03/oz., and gold is at $485.20/oz. If gold breaks out above $500 per ounce, watch out! It could be a precursor of a full scale dollar panic. For those of you that have read this blog regularly, you know the larger implications–at the societal level. Be ready.

Adjusted for inflation, even after the recent surge in prices, the price of silver is still near its historic low. The spot price of silver was as high as $45 an ounce as recently as 1979. (That equates to pre-1965 U.S. coinage being worth 32 times its face value.)  I consider silver at anywhere under $10 an ounce a real bargain.  For those of you that dawdled, don’t feel that you missed the boat.  Just wait for the next dip, and then don’t hesitate: Buy!