As I write these words silver has just collided off of a brick wall that has capped it upside performance since its old 1980 high of $50 an ounce. It is now in what appears to be a death spiral to the day-traders, momentum players and technicians that dominate today's markets as never before in history.
As they consult their all powerful charts these trend chasers see a classic double top at $50 an ounce that has held for thirty-one years. Case closed! There is really nothing more to consider.
If you are a stock market addict like I am you see these kinds of pronouncements all the time in the commodity markets. What they are blind to is that there is a radical difference between the stock market and the commodity markets.
Stocks exist only in the financial world. Since they exist only in the financial world and not in the physical world investors have the power to hammer stocks to zero if they are so inclined.
In the world of commodities the reality is radically different. Commodities exist primarily in the physical world and only secondarily in the financial world. In the short term it is indeed true that speculators in the trading pits can jerk around a commodity with no concern about its real world value. In the long term however, it is the real world value of the commodity and not short term trading games in the commodity trading pits that determine value.
Silver is a very rare and desirable metal. According to the authoritative Silver Institute in 2010 global production rose about 2.5% to 735.9 million ounces or about a tenth of an ounce for every human being. Historically the global production of both gold and silver has increased only about 2% a year for generations. Just what do you think the number would be for the paper currencies of the world?
And it is this that is driving the demand for both silver and gold not just in America but in every country on earth.
The popular notion is that a bunch of buffoons in the commodity trading pits receive their marching orders for determining what the price of silver should be by consulting their trading charts is as common as it is insane.
Let us be honest. Americans and Europeans with rare exceptions do not own silver. Indeed they would be hard put to give you a reason as to why any sane person would want to own silver. After all silver doesn't pay interest. Today the price of silver is not being set by the demand for jewelry or industrial purposes as has been the case in recent decades but by investment demand.
That investment demand is being set by Asia's teeming millions who today as never before have the means to purchase it. Asia's lust for silver goes back thousands of years. During the heyday of the Roman Empire writers were constantly complaining about the flood of silver that was departing the empire heading east on the fabulous Silk Road to China in payment for the empire's voracious desire for silk and the other luxury commodities that the east produced. A desire that was matched only by Asia's lust for silver.
With the notable exception of Japan no Asian in his right mind would trust his currency. Asia has always been too poor to afford gold but it has always had enough to afford silver the poor man's gold.
According to the Silver Institute in 2010, China's net imports of silver nearly quadrupled to a staggering 3,500 metric tons and India's imports rose by 136% to 3,030 metric tons. Of course these figures are insane and cannot be maintained but what they indicate is of crucial importance. The figures indicate that Asia is both ready,willing and able to out bid the rest of the world when it comes to silver, a commodity that Asia has treasured for thousands of years. The price of silver will be set in Asia and not in the trading pits of the west.
One final point needs to be considered. The trend chasers who dominate today's markets place enormous importance on price. Value is something about which they know nothing. They are in the business of mindlessly buying whatever is going up and mindlessly selling whatever is going down. The reason why they are so certain that the bull market in silver is over with is that in their world only a fool buys a stock or a commodity that is declining in price. When they consult their charts what they see is a horrific declining trend line in silver.
It has never dawned on them that in Asia a declining price for silver is a cause for joy and not fear. In Asia silver is not a trading commodity it is the core of your life savings. In Asia a fall in the price of silver is not an invitation to sell in a panic but an invitation to back up the truck to quote a popular Wall Street saying.
As they consult their all powerful charts these trend chasers see a classic double top at $50 an ounce that has held for thirty-one years. Case closed! There is really nothing more to consider.
If you are a stock market addict like I am you see these kinds of pronouncements all the time in the commodity markets. What they are blind to is that there is a radical difference between the stock market and the commodity markets.
Stocks exist only in the financial world. Since they exist only in the financial world and not in the physical world investors have the power to hammer stocks to zero if they are so inclined.
In the world of commodities the reality is radically different. Commodities exist primarily in the physical world and only secondarily in the financial world. In the short term it is indeed true that speculators in the trading pits can jerk around a commodity with no concern about its real world value. In the long term however, it is the real world value of the commodity and not short term trading games in the commodity trading pits that determine value.
Silver is a very rare and desirable metal. According to the authoritative Silver Institute in 2010 global production rose about 2.5% to 735.9 million ounces or about a tenth of an ounce for every human being. Historically the global production of both gold and silver has increased only about 2% a year for generations. Just what do you think the number would be for the paper currencies of the world?
And it is this that is driving the demand for both silver and gold not just in America but in every country on earth.
The popular notion is that a bunch of buffoons in the commodity trading pits receive their marching orders for determining what the price of silver should be by consulting their trading charts is as common as it is insane.
Let us be honest. Americans and Europeans with rare exceptions do not own silver. Indeed they would be hard put to give you a reason as to why any sane person would want to own silver. After all silver doesn't pay interest. Today the price of silver is not being set by the demand for jewelry or industrial purposes as has been the case in recent decades but by investment demand.
That investment demand is being set by Asia's teeming millions who today as never before have the means to purchase it. Asia's lust for silver goes back thousands of years. During the heyday of the Roman Empire writers were constantly complaining about the flood of silver that was departing the empire heading east on the fabulous Silk Road to China in payment for the empire's voracious desire for silk and the other luxury commodities that the east produced. A desire that was matched only by Asia's lust for silver.
With the notable exception of Japan no Asian in his right mind would trust his currency. Asia has always been too poor to afford gold but it has always had enough to afford silver the poor man's gold.
According to the Silver Institute in 2010, China's net imports of silver nearly quadrupled to a staggering 3,500 metric tons and India's imports rose by 136% to 3,030 metric tons. Of course these figures are insane and cannot be maintained but what they indicate is of crucial importance. The figures indicate that Asia is both ready,willing and able to out bid the rest of the world when it comes to silver, a commodity that Asia has treasured for thousands of years. The price of silver will be set in Asia and not in the trading pits of the west.
One final point needs to be considered. The trend chasers who dominate today's markets place enormous importance on price. Value is something about which they know nothing. They are in the business of mindlessly buying whatever is going up and mindlessly selling whatever is going down. The reason why they are so certain that the bull market in silver is over with is that in their world only a fool buys a stock or a commodity that is declining in price. When they consult their charts what they see is a horrific declining trend line in silver.
It has never dawned on them that in Asia a declining price for silver is a cause for joy and not fear. In Asia silver is not a trading commodity it is the core of your life savings. In Asia a fall in the price of silver is not an invitation to sell in a panic but an invitation to back up the truck to quote a popular Wall Street saying.
Forty Years a Speculator
Fred Carach
Oakland Park, FL 33309
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1 comment:
Just read your comment on silver. Now look at the current price. We may never reach the true dollar value of silver as we don't know what is in store for the dollar. A new currency may provider some stability, but that may be ten years down the road.
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