Buying opportunity in gold and silver

The recent slide in the prices of gold and silver is not a sign of weakness in those commodities, but a technical event that creates what might be the last buying opportunity.

Silver fell hard yesterday, by 5 percent, this after Chicago Mercantile Exchange officials raised margin requirements on silver futures contracts for the third time in a week. “Margin” is like a down payment, and after these last three margin raises, silver traders must make a down payment 40 percent greater than they usually make. Finding themselves short of funds, many traders liquidated their positions. Prices fell, and the prices of other commodities fell with the silver price as other traders either sought to shift into silver or suddenly feared that all commodities would fall in price.

Franklin Sanders said nothing about the Comex margin-raise action. But he at least remembers the first rule of investing: follow the primary trend. According to Sanders, the primary trend is still an uptrend in both metals. His long-range predictions:

• Gold: $3130 per Troy ounce.
• Silver: $195 per Troy ounce.

These would represent all-time inflation-adjusted highs, and shows that traders today seriously under-value silver. Today gold trades at 32 times the price of silver; Sanders expects that ratio to decline to 16:1.

[amazon_carousel widget_type=”ASINList” width=”500″ height=”250″ title=”” market_place=”US” shuffle_products=”True” show_border=”False” asin=”0446510998, 0470047666, 0385512244, 0470612533, 1449555381, 1586489941, 1451542291, 047047453X, 1460954262, 193317496X” /]

This should surprise no one. By requiring silver traders to “neither borrowers nor lenders be,” or at least not to the extent that they have been, Comex has chased out many of the speculators. The best analogy might be if the owners of a Superbowl-contending team imposed a “proof of plan to sit” standard on ticket buyers to combat “scalping.” As a result, those who genuinely want to convert their intrinsically worthless fiat paper scrip into a hard and trade-able asset will now have that opportunity.

And this might be the last such opportunity, unless Comex chooses to forbid anyone to buy gold or silver on margin. No one pretends that the US dollar is at all sound as a currency. The yen and the euro are both stronger (and in fact, government officials now state that Usama bin Laden had 500 euros sewn in his clothes at his death—euros, not dollars). That says a lot, because neither Japan nor Europe has an economy that anyone could construe as strong. (By way of corroboration of the downtrend in the dollar, it has trended negative against Israel’s shekel for two years and is approaching the low set in July of 2008.)