Silver touches 2008 high

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machinehead's picture
machinehead
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Silver touches 2008 high

It happened Friday morning ... silver touched $21.34, its 2008 high which in turn was silver's highest level since 1980. Gold was at the $1,300 round number (funny how this metallic pair tend to reach key levels simultaneously).

Not to jinx it with too much chest-pounding, but I want to quote from Mark Gilbert's excellent essay at Bloomberg yesterday:

If you told Rip van Bondtrader that gold had risen to a record during his decade-long slumber, he’d want to know what the inflation outlook was, and how badly he’d gotten killed on his bond investments. He’d be astonished to discover that he’s made a total return of about 8 percent since January on Treasuries maturing in more than a year.

“What makes the gold story so interesting is that bullion has so many different correlations -- with inflation, with the dollar, with interest rates, with political uncertainty,” according to David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto. “This year, for example, gold has shifted from being a commodity toward being a currency -- the classic role as a monetary metal that is no government’s liability.”

Gold may be screaming more about a general mistrust of the securities markets than about the prospect of rising prices. Rip, though, would be similarly horrified to see cotton trading near a 15-year high at more than $1 a pound, or wheat surging more than 30 percent in the past year, helping to drive a UBS/Bloomberg index of food prices up by about 28 percent. The official figures say inflation is dormant; the phrase “lies, damned lies and statistics” springs to mind.

http://noir.bloomberg.com/apps/news?pid=20601039&sid=aMjtKlwvkUOc

Ignore gold's screams at your peril. There's a problem with the dollar. As it worsens, the dollar will buy less, even if inflation is not the marquee issue on the list of concerns. 

We should only be amazed that the preposterous experiment with a world of scrip currencies has lasted 37 years. How a pair of buffoons like Greenspan and Bernanke managed this feat is a mystery that science may never explain, other than to ascribe it to a global 'dollar cult.'

 

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Re: Silver touches 2008 high

global 'dollar cult.'

 

What have the CBs been "fighting"?  What do they want you to beleive?  What is their biggest fear?

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Re: Silver touches 2008 high
machinehead wrote:

There's a problem with the dollar. As it worsens, the dollar will buy less, even if inflation is not the marquee issue on the list of concerns. 

We should only be amazed that the preposterous experiment with a world of scrip currencies has lasted 37 years. How a pair of buffoons like Greenspan and Bernanke managed this feat is a mystery that science may never explain, other than to ascribe it to a global 'dollar cult.'

 

+1 !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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Re: Silver touches 2008 high
machinehead wrote:

It happened Friday morning ... silver touched $21.34, its 2008 high which in turn was silver's highest level since 1980. Gold was at the $1,300 round number (funny how this metallic pair tend to reach key levels simultaneously).

Gold has fallen back under $1.3k, but Ag has smashed through the '08 high and is now up to ~ $21.47...

Davos's picture
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Re: Silver touches 2008 high
SagerXX wrote:
machinehead wrote:

It happened Friday morning ... silver touched $21.34, its 2008 high which in turn was silver's highest level since 1980. Gold was at the $1,300 round number (funny how this metallic pair tend to reach key levels simultaneously).

Gold has fallen back under $1.3k, but Ag has smashed through the '08 high and is now up to ~ $21.47...

I met an imperfect dollar, she took my wealth away....

earthwise's picture
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Re: Silver touches 2008 high

 

What are the prospects for a pullback on gold and/or silver?   I'm wishin'  I'da previously bought more when I had the chance. I'll squeal buying at these prices, but I'll probably squeal more if I don't buy and PMs climb further. A  pull back would be nice;  then ZOOOOOM!

mainecooncat's picture
mainecooncat
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Re: Silver touches 2008 high

Thanks, Davos, for bringing a smile to my face on a day that I feel quite crabby.

My burning question: How much of a Maalox moment can these mega-shorters take before they cover?

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Davos
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Re: Silver touches 2008 high
earthwise wrote:

 

What are the prospects for a pullback on gold and/or silver?   I'm wishin'  I'da previously bought more when I had the chance. I'll squeal buying at these prices, but I'll probably squeal more if I don't buy and PMs climb further. A  pull back would be nice;  then ZOOOOOM!

Hi Earthwise: NO one in their right mind would answer that - and if someone does answer that they are NOT in their right mind!

Anything can and likely will happen.

You need to look at the debt and weigh all the possibilities. My bet is on a devaluation, overt of covert. I bought my ticket at Belmont after watching Bernanke et al during the warm up runs. Not because just he was the lamest horse - but because he ran the track backwards.

900:1 odds? We will see!

Deja vu? We will see if we get a retracement at 1375.............

Where are we going? I do know something, where you are I do NOT belong.......Are you looking for answers for questions not in the Keynesian text books????

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Re: Silver touches 2008 high
mainecooncat wrote:

Thanks, Davos, for bringing a smile to my face on a day that I feel quite crabby.

My burning question: How much of a Maalox moment can these mega-shorters take before they cover?

 This is going to be their Maalox moment!

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earthwise
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Re: Silver touches 2008 high
Davos wrote:

 I bought my ticket at Belmont after watching Bernanke et al during the warm up runs. Not because just he was the lamest horse - but because he ran the track backwards.

Gawd, that's funny! Until ya realize that HE'S at the helm of the economy!   Ay, pobrecitos nosotros!

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Re: Silver touches 2008 high
mainecooncat wrote:

Thanks, Davos, for bringing a smile to my face on a day that I feel quite crabby.

 My burning question: How much of a Maalox moment can these mega-shorters take before they cover?

Davos wrote:

 This is going to be their Maalox moment!

 Dang, Davos, you crack me up sometimes! 

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Re: Silver touches 2008 high

Actually, maybe that would be a good cover, having the alien pop out of some economic recovery photo!

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Re: Silver touches 2008 high

Another true story: A banker friend of mine manages the assets of a fabulously wealthy 70-something gentleman, whom I'll call Alfredo. In 1973, Don Alfredo was a youngish man, just starting out, with a degree in engineering but no money—until he inherited US$3,000 from a deceased aunt. Alfredo realized that the $3,000 were in a sense worthless: He couldn’t buy anything with them, and it wasn’t enough for him to leave the country and start over someplace else. After all, even then, $3,000 was not that much money.

So he took those $3,000, went down to the stock exchange, and spent all of it on Chilean blue-chip companies: Mining companies, chemical companies, paper companies, and so on. The stock were selling for nothing—less than penny stock—because of the disastrous policies of the Allende government. His stock broker at the time told him not to buy stocks, as Allende’s government, it was thought, would soon nationalize these companies as well.

Alfredo ignored his broker, and went ahead with the stock purchases: He spent all of his $3,000 on buckets of near-worthless equities.

On September 11, 1973, the commanders in chief of the four branches of the Chilean military staged a coup d’état. Within a year, Alfredo’s stock had rebounded about ten-fold. Since then, they’ve multiplied several thousand-fold—yes: Several thousand-fold. Don Alfredo has lived off of that $3,000 investment ever since—it’s what made him a multi-millionare today.

http://www.businessinsider.com/gonzalo-lira-what-hyperinflation-will-look-like-2010-9

Read more: http://www.businessinsider.com/gonzalo-lira-what-hyperinflation-will-look-like-2010-9#ixzz10XTcwcE5

Davos's picture
Davos
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Re: Silver touches 2008 high
gregroberts wrote:

Another true story: A banker friend of mine manages the assets of a fabulously wealthy 70-something gentleman, whom I'll call Alfredo. In 1973, Don Alfredo was a youngish man, just starting out, with a degree in engineering but no money—until he inherited US$3,000 from a deceased aunt. Alfredo realized that the $3,000 were in a sense worthless: He couldn’t buy anything with them, and it wasn’t enough for him to leave the country and start over someplace else. After all, even then, $3,000 was not that much money.

So he took those $3,000, went down to the stock exchange, and spent all of it on Chilean blue-chip companies: Mining companies, chemical companies, paper companies, and so on. The stock were selling for nothing—less than penny stock—because of the disastrous policies of the Allende government. His stock broker at the time told him not to buy stocks, as Allende’s government, it was thought, would soon nationalize these companies as well.

Alfredo ignored his broker, and went ahead with the stock purchases: He spent all of his $3,000 on buckets of near-worthless equities.

On September 11, 1973, the commanders in chief of the four branches of the Chilean military staged a coup d’état. Within a year, Alfredo’s stock had rebounded about ten-fold. Since then, they’ve multiplied several thousand-fold—yes: Several thousand-fold. Don Alfredo has lived off of that $3,000 investment ever since—it’s what made him a multi-millionare today.

http://www.businessinsider.com/gonzalo-lira-what-hyperinflation-will-look-like-2010-9

Read more: http://www.businessinsider.com/gonzalo-lira-what-hyperinflation-will-look-like-2010-9#ixzz10XTcwcE5

You only have to make 1 correct decision in life to become fantastically self sufficient.

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Re: Silver touches 2008 high

Actually Gilbert's use of the term "currency" with respect to gold is a little misleading. 

We typically use the term as a reference to medium of exchange money--whatever is in use to engage in current transactions;  hence the term currency.

In fact, there is probably more use of gold as a medium of exchange than is generally recognized.  But use as current exchange money is a minor element in the price increase. 

In looking at the marketplace factors that are driving the increase in price of gold and silver, it is important to keep in mind the seperate economic factors that drive the two metals because they are quite different. 

There are two kinds of monetary utility--one is medium of exchange;  the other is store of value. 

Further, there are different kinds of utility associated with the metals.  One utility is monetary;  the other is industrial or commercial.  For example silver is used in a wide variety of non-monetary applications--electrical components comes to mind first but it is in use as an alloy in a number of other uses.  Gold also has non-monetary applications--dental, electrical and decorative all common and well understood. 

And monetary utility is different in the case of the two metals.  Silver historically functioned as a medium of exchange--daily current trading money.  It is more common;  thus less valuable than gold and so requires that use as a store of value involves a much heavier accumulation than a comparable store of equal value in gold. 

On the other hand, currency transactional use of gold has historically been limited to large transactions because the value of gold in a monetary system is so high, monetary use requires inconveniently small amounts of gold. 

However gold is the metal of choice for monetary utility as a store of value.  And it is as a store of value, that the monetary market for gold is being driven.  There is a strong difference of opinion what value objectives are driving the storage utility of gold--the common discussion has been the risk of inflation;  that the value of the legal tender dollar will be reduced by manufacture of too many credit dollars by the federal monetary authorities.  In our view, the real risk, is probably not inflation but the risk of collapse of the dollar reserve system.

A moment of truth at which the federal revenue from tax receipts net of committed spending which is available for payment of debt service is insufficient is approaching.  The decline in revenue resulting from the economic contraction may by itself be sufficient to cause this crisis.  More like, the crisis will result from a combination of declining revenue and increasing real interest rates.                                                            

In the case of Silver, at present, non-monetary uses dominate.  We don't see many cases (yet) where the seller requires the buyer to pay in silver.  The monetary market at present consists of speculative investment interest in the prospect of a threat to the exchange value of the legal tender dollar which is a form of the same monetary objective driving the price of gold--store of value. 

The investment market for Silver is also supported by the limited supply of controlled value denominated physical Silver available for delivery. 

However in both cases, the monetary conditions that will drive an exponential increase in price and value are seen only by speculative longer term investors.  At the point it becomes clear that asset sellers are taking dollars of declining value for their assets;  that dollar denominated debt securities clearly involve the risk of repayment with dollars that have a value which is a fraction of the dollars used to purchase the securities, the true monetary utility of both metals will increase sharply. 

Between here and there, other adverse developments can be expected.  The monetary financial establishment controls most world economic activity and gold is a threat to that control.  So we can expect taxes on the holding of gold or silver;  increased taxes on the use of gold and silver for exchange (income tax rates on nominal gain realized by use of gold and silver); and other serious threats to the monetary utility of the metals. 

A junior staff person at the Federal Reserve told me several weeks ago that one reason a holding tax on dollar credits  had been abandoned is because it would have driven holders of dollar credits to abandon the dollar and have seen many of them moving to gold which would have had the adverse impact from the point of view of the fed of driving the price of gold up. 

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