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Gold and Silver, What to Do if You Listened to Top Pickers and Sold?

Commodities / Gold and Silver 2011 May 31, 2011 - 04:29 AM GMT

By: Peter_Degraaf


Best Financial Markets Analysis Article"The great Khan (Chinese ruler), causes the bark of trees, made into something like paper, to pass for money all over his country." ...Marco POLO, (1254 - 1324 Traveling explorer from Venice).

$Gold Weekly

Featured is the weekly gold chart. (These charts courtesy unless indicated). The bull market that started in 2002 is beginning to take on a greater urgency. In percentage terms the price rise is still in its infancy (the 1980 bull market rose from 35.00 to 850.00 for a 24-fold increase). The current bull market has just passed the 5-fold increase level. However in chart form the shape of the bull market is beginning to resemble the money supply chart. See next chart.

"Because China needs gold, there will never by 'Peak Gold." .... VRONSKY.

True Money Supply

This chart courtesy shows the True Money Supply (USA) up to the moment. Since the 2008 credit crunch, the US dollar money supply has begun to move up exponentially. When you add on all of the Euros, Yen, Yuans, Francs and Pounds, it becomes obvious why gold is beginning to rise exponentially as well.

"You have a choice between the natural stability of gold and the honesty and intelligence of the members of government. And with all due respect for those gentlemen, I advise you, as long as the capitalist system lasts, vote for gold." ...George Bernard Shaw.

This chart courtesy shows the 'real' Fed Funds Rate, from data supplied by the Federal Reserve. It shows 'real rates' to be negative (-3%), and heading lower. According to Gibson's Paradox whenever 'real rates' are negative, gold is accumulated by those who are interested in wealth preservation. It should be noted that the data supplied by the Federal Reserve is 'massaged' for the best possible outcome. If we were to use data supplied by John Williams at the 'real rate' would be negative -8%. This means that anyone with money in the bank at 2% is losing 6% while paying tax on the 2%! Now that is not smart.

When silver rose to nearly 50.00 in late April the 'top pickers' were out in force. They began to recommend selling while silver was trading at 37.00. Those of you who listened and sold out must be wondering what to do now. Here are a few things to keep in mind while you contemplate your next move:

  • In order for silver to reach $50.00 in 1980 dollars adjusted for inflation, the price would have to rise to $136.47 (using the calculator at John Williams at uses a formula that was used by the government up to 1980 and his calculation shows silver would need to be priced at nearly $400.00 to match the purchasing power of $50.00 in 1980.

  • According to the CPM Group (Commodity Experts), in 1950 the above ground stockpiles of silver totaled 10 billion ounces.

  • By 1980 the stockpiles had shrunk to 3.5 billion dollars.

  • Today the amount of silver in stockpiles around the globe has dwindled to about 300 million ounces.

  • 97% of all the silver that was available in 1950 is gone! The majority of silver applications are in amounts too small to make recycling economic.

  • Barely 3% of that 1950 silver is all that is still available for use in the manufacturing of computers, cell phones, iPads, TVs, refrigerators, smart weaponry, satellites, medicinal applications, water filter systems, RFID chips and solar panels (the solar panel industry is a very big silver user - thousands of tonnes of silver).

  • Since 1980 the number of consumers for these products has increased by several BILLION people! Please let this sink in! Most of these people were born into the very countries that have an affinity for gold and silver - China and India!

  • The thriving economies of China and India are producing thousands of millionaires, even billionaires!

  • The mismanagement of economies by Keynesians (in 1971 President Nixon said: "We're all Keynesians now)", guarantees that the monetary inflation that is now above 10% per year will continue to provide the liquidity for gold and silver prices to continue to rise.

  • Historically, once the leaders of a country decide to use the printing press to pay for the daily expenses of running a country, instead of relying strictly on taxes and user fees, the end has ALWAYS been the destruction of the monetary unit. There are no exceptions.

  • Silver in the ground is becoming scarce. The easy silver has already been found.

  • Gold and silver are becoming more expensive to dig up. It takes fuel to turn the drill bit, to build the mine and to run the mine. 'Peak oil' is here and cheap oil is history. Chris Martenson (, is on record as predicting oil at $200 a barrel within the next few years. John Hoffmeister, the former CEO of Shell Oil has predicted oil at $150 a barrel by the end of 2012.

  • A few years ago some stupid people working for several large banks thought it might be a good idea to 'sell silver short'. They did this at the commodity exchanges by selling contracts to deliver silver they did not own. For a while the game worked out well for them. Authorities at the Comex winked at the fact that these banks would drive the silver price down by selling large numbers of contracts at predetermined times and then buying the contracts back from hedge funds and small speculators who sold to cover margin calls. Although this practice is immoral at best and illegal at worst, it continues to this day. For a blatant example, think back to Sunday evening May 1st. The problem these banks now face is that there is not nearly enough silver in the Comex approved warehouses to cover the several hundred million ounces that have been sold short. Every time someone buys a silver contract and takes delivery of the silver, it reduces the amount of silver that is left for future delivery.

  • During the 1970's the Hunt Brothers came to the conclusion that many of you have arrived at: 'silver is underpriced.' They decided to use their resources to buy as much silver as possible. They bought futures contracts at the commodity exchange and took delivery of the silver. Some of the people who held short positions at the COMEX also sat on the board that made the rules. When the Hunts kept on buying silver, these people with their short positions were beginning to 'feel some pain'. In January 1980 they changed the rules. Anyone who was short silver (these rascals) could operate on margin, but anyone who was long silver (like the Hunts), would have to come up with 100% margin. The result was instant multi-million dollar margin calls for the Hunt brothers. They had to sell some of their silver and the price began to drop.

  • I met Nelson Bunker Hunt at a Jim Blanchard convention in New Orleans shortly afterward and asked him where he thought the gold to silver ratio would end up. His answer was: '10 to 1.'

  • Today we look at a totally opposite situation to the one faced by the Hunts. Whereas in early 1980 the market was suddenly faced with a lot of silver coming into the market, today we are faced with a shortage of silver to cover the millions of ounces that some devious bankers have sold short. This has never happened before and may never happen again!

  • Those of you who are mining executives with cash in the bank, why not hold silver or gold in storage instead of cash in the bank? Your shareholders will be impressed and you will improve your bottom line as the silver and gold you store, rises in value. Your bottom line will grow!

  • Those of you who are investing in silver and gold substitutes such as SLV and GLD might instead consider buying and storing physical metal, or buying shares in a 'trust' where the metal is audited and you are sure that you own a piece of the 'real thing'.

  • Those of you who think your portfolio is too small to make a difference in the grand scheme of things should remember that every time you buy an ounce of silver, whether it is a bar or an Eagle or a Maple Leaf, and store it away, you are making sure that the world has a future source of silver and you are taking ounces away from the cabal that is trying to keep your investment from rising to its rightful value.

  • "Nothing will unnerve the 'paper shorts' more quickly and do more to undercut their confidence than to strip them of the real metal and force them to come up with more hard bullion to make good on deliveries. "Stand and Deliver or Go Home" should be the rallying cry of the gold and silver longs to the 'paper shorts." ...Trader Dan Norcini.

"Freedom is a fragile thing, which is never more than one generation away from extinction. Yet it is not ours by heritage, but it must be fought for and defended constantly by each generation, for it comes only once to a people. Those who have known freedom, and then lost it, have never known it again." President Ronald Reagan.

Featured is the daily silver chart. The green arrow accentuates the rising trend. The RSI and MACD are turning positive from oversold levels (green lines). The blue arrow points to the area where my subscribers and I took partial profits while leaving our core position intact. The black arrow points to the spot where we finished loading up again. Generally speaking, if you draw a line through the center of any rising stock or commodity and buy below it and sell above it, you'll come out ahead. The important thing is to study the fundamentals, keep your eye on your end goal, and avoid being influenced by the 'top pickers'.

"Back in the 1970s when I liked silver over gold, there was ten times as much silver above ground as there was gold. Despite that, we made twice as much money on silver as we did on gold. Now that ratio has changed. Industrial use has so depleted our silver inventory that the US government now owns no silver at all! There is six times more gold above ground than silver, which is by far the scarcer of the two metals. So why is gold many times more expensive than silver? Because 99.9% of the people in the world think gold is much rarer than silver. But they are wrong, dead wrong. Sooner or later the supply/demand equation will favor silver and narrow the pricing gap between the two metals." ...Howard RUFF.

Summary: The 'negative thinkers' will soon be telling you that the investment climate for gold and silver during the summer all but guarantees lower prices. While no one but God knows the future, we do have the ability to analyze trends. The trend during the summer months is for the jewelry trade to slow down their buying of silver and gold. Another trend however is for the monetary authorities to continue to destroy the purchasing power of the various monetary units, causing anxiety among investors. The tug of war between these two trends will determine whether prices rise, fall or move sideways between now and Labor Day, (the usual starting point of the annual Christmas Rally).

On my website is an article: "The Making of a Successful Investor." In that article I cover the success or failure of people who apply 'sell in May and go away' to gold and silver. The conclusion reached in that article is that most of the time it is better to 'sit and hold' than to 'trade out' and try to get back in.

Happy trading!

By Peter Degraaf

Peter Degraaf is an on-line stock trader with over 50 years of investing experience. He issues a weekend report on the markets for his many subscribers. For a sample issue send him an E-mail at , or visit his website at where you will find many long-term charts, as well as an interesting collection of Worthwhile Quotes that make for fascinating reading.

© 2011 Copyright Peter Degraaf - All Rights Reserved

DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions.

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