The gold and silver markets have been sold down fast and furious over the last few weeks.
As these markets are sold and the prices drop it causes even more selling from traders following the momentum and also investors that get nervous and sell out.
Other investors and funds are forced to sell because of margin calls and redemptions.
Like a snowball rolling down a hill, the selling gathers momentum and size.
Soon there is panic and everybody is running for the hills.
It is in conditions like this that market prices can get pushed far below their fundamental value.
It is obvious to anyone who studies or follows these markets that the price of silver, gold and the mining stocks are totally disconnected from reality and are waaaay oversold.
But the good news is this- Once all this selling is over and the dust settles, the fundamentals will bring the prices back up, I believe, and make new highs.
A few questions and answers........
What started all this selling? ....klar das PPT !
Did the fundamentals of the market change and are silver, gold and mining stocks no longer good investments?
The fundamentals have NOT deteriorated at all, in fact they have improved.......a lot?.
Inflation is now very high and with all the bailouts and government spending escalating every week, inflation is sure to be high for a long time to come, as the Fed prints and borrows more and more money.
This is very bullish for silver and gold.
Demand from investors is off the charts right now and there are extreme shortages of investment grade silver and gold products being reported from all over the world. As a result of these shortages the metals are effectively being withheld from investors and diverted to insiders and industrial users who deal in the large quantities and sizes. What that means is there is a huge pent-up demand for the metals that is building, which is sure to drive up the price in the future. Demand and sales of investment physical metal are reported to be breaking records in the U.S., India, the middle east and many other places in the world. The premiums (markup over the spot price) are rising and have more than doubled for many types of investment size bullion products. These shortages and high premiums are extremely bullish for gold and silver in the long term. So what we have now is a shortage of supplies and extreme demand, which in a free market would drive prices ever higher, yet the prices have fallen further and faster than ever before. All because a couple of banks shocked the market with huge sales of futures contracts.
Not the real metals mind you, [u]just paper contracts.
Silver in investment size is out of stock almost everywhere and there is a ton of pent up demand waiting to buy. It is increasingly more difficult to find medium to large quantities for sale without a very long wait time and if you can find some it is selling way above the current spot price. There is a real disconnect here between the "official" market price and the cash markets.
On the one hand the market says "this is the price", but if you go out to buy some, you can find none available at that price, if you can find any at all.
How long can this imbalance between supply, demand and the price continue?
How long can this manipulation go on?
Intervention and manipulation can work in the short term, but cannot work forever as eventually the price imbalance will cause a severe shortage.
Lower prices encourage higher demand, which is what we are seeing now.
We already have a shortage in investment types of silver and gold now and if the imbalance continues we will also see a shortage of industrial silver.
Since many manufacturers have to have silver to make their products, at the first sign of an industrial shortage they will panic and try to buy and stockpile all they can get.
When that happens smart investors will see what is happening and buy up every available supply .
At that point there will no silver available anywhere until the price rises high enough to motivate someone to sell some.
I believe that price will be very much higher than it is today.
There is only so much gold and silver available in the world. It would not take that much investment money to buy it all up.
If just a very small fraction of the money in the stock or bond market were to move to the silver and gold sector it would completely buy up the market.
Once it is bought up, the buyers would be very reluctant to sell as it would be uncertain that they could get more.
Silver is a much smaller market than gold and because of silver's industrial use, much of what has been mined in the past has been used up and is gone forever.
Therefore I believe that silver's move up in price will be even more dramatic than gold.
Throughout the last 100 years or so the silver to gold ratio has averaged about 16 to 1. This means that 16 ounces of silver would be equal value to one ounce of gold.
As I write this the ratio is extremely out of historical balance at more than 65 to 1.
Silver would have to rise over 300%, with gold going nowhere, just to return to the historical average ratio.
Because of this I believe that silver will outperform gold in the long run.
It's impossible to predict when the imbalance will end, but I really can't see it continuing much longer.
At some point the price will be very attractive to large investors who will take advantage of the opportunity to load up on bullion and shares of mining companies at bargain prices .