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During periods of weakness, smart managements see the opportunity to “high grade” operations.  That is, refocus on what promises to produce the highest return in the inevitable upturn.  This goes for investing as well, and certainly Precious Metals.  To wit, in my “mining stock days” of 2002-11, each time the Cartel attacked the sector, I would utilize such declines to high grade my portfolio.  In fact, the reason I’m writing here today is because I sold my weakest juniors at the 2008 bottom, and put the proceeds into eventual big winners like Silver Wheaton and Silverstone Resources.  Of course, in mid-2011, I sold my last mining stock – for good – in lieu of exclusively holding physical gold and silver.  At that point, I deemed the world too dangerous – and manipulated – to hold “Paper PM Investments”; instead, opting for the “financial defense” inherent in real money held outside the system.

Part and parcel with a high grading strategy – often, deemed “rebalancing” – is considering tax ramifications.  Precious Metals are no different than financial assets in this manner; as they, too, are subject to taxable gains and deductible losses.  And thus, as we approach the year’s end, with considerable losses in paper gold and silver prices, it’s a good time to capitalize on them.  Even if prices don’t rebound in early 2014 – which personally, I believe they will – this year’s Cartel attacks have afforded PM holders a rare opportunity within the context of a 13-year bull market; not only to take significant losses, but reposition holdings to exploit what will likely occur.

In David Schectman’s Friday comments, he wrote of the potential for swapping gold into silver, to take advantage of the historically high gold/silver ratio.  In fact, I have done just this in recent months; and suggest you consider doing so as well.

Here is a great idea for you – sell your gold now, for a tax loss, and reinvest the proceeds into silver.  Silver is way too cheap.  The price ratio of silver to gold has risen to 63 to 1; i.e., way out of whack.  Not only will you benefit from the tax loss, which is real for any gold purchased in the last two-plus years, but you will switch into the more undervalued asset.  Silver’s rise, we believe, will be far greater than gold’s.  This is a very sensible idea.  Don’t leave the tax loss gains and future silver profits on the table now. 

It could be huge if you have a large amount of silver stored there – as many of our clients do.  I am going to double check on this one, and verify this.  First, speak with your tax professional regarding the tax loss; then, call one of our brokers at 800-822-8080 if you are interested in swapping your metals.

Miles Franklin, December 6, 2013

As for the reasons I believe Precious Metals will rally in early 2014 – aside from the fact they are historically cheap, amidst the most bullish fundamentals of our lifetime – are the following, potentially near-term catalysts…

  1. Massive short covering by so-called “Commercial” COMEX traders; i.e., JP Morgan and friends.  In the last five weeks alone, Commercials have covered a whopping 84,488 gold contracts, and 13,971 silver contracts.  Per the charts below, the Commercials are now short just 22,229 gold contracts, and 12,165 silver contracts; and thus, once again approaching a net long position.  Throughout the entire 13-year PM bull market, the only time the Commercials’ short positions were this small was in late June; i.e., just before gold and silver embarked on 22% and 32% rallies over a two-month period.
    Gold Silver Net Long Positions
  2. As I have been reporting for some time – particularly, in August’s “COMEX registered inventories can disappear at any time”; we are dangerously close to a COMEX default – or at least, a short squeeze.  The December gold options contract is now in its delivery period, to be closed out by year-end; and as of Friday, contracts representing 395,600 ounces of gold have been served for delivery, while contracts representing another 313,600 ounces are still outstanding.  Thus, with the typical “cash settlement” period in the rear-view mirror, we have the potential for 669,600 ounces to stand for delivery, compared to current registered inventory of just 697,840 ounces.
  3. GOFO, or Gold Forward Rates, are on the verge of going negative yet again; i.e., a rare scenario indicating extremely tight physical markets.
  4. This Friday, December 13th, is the deadline for Congress to pass a budget, as part of October’s agreement to end the “government shutdown” and forestall the “debt ceiling” breach.  However, as I predicted, there has been ZERO concrete discussion between House Democrats and Republicans; and thus, a consensus is forming that no deal will be made.  Incredibly, John Boehner insists the House will take its planned three-week recess on the 13th, irrespective of whether a deal is made or not; yet again, demonstrating why Congress has its lowest approval rating in U.S. history.  Consequently, the House will likely return after the new year with no budget whatsoever – setting up the possibility of a second government shutdown January 15th, and debt ceiling breach February 7th.  Moreover, if they again attempt to “kick the can” with new stop gap funding, it could trigger heightened global fears of government’s creditworthiness – and the dollar’s value.
  5. Last, but not least, the Fed meets on December 18th to again decide whether or not to “taper” Quantitative Easing.  Yet again, the MSM is talking up tapering due to the bogus, “better than expected” NFP report on Friday; plus, meaningless “diffusion indices” depicting little connection with economic reality.  Remember, both Bernanke and Yellen last month indicated near-term tapering is unlikely; while just yesterday, Chicago Fed President Charles Evans – immediately after the NFP report – said he prefers waiting to see a “couple of months of good numbers” before pulling the trigger.  I still maintain that meaningful tapering is impossible amidst the global fiat Ponzi scheme; and even if the Fed were foolish enough to attempt it, would only do so in immaterial amounts.  Frankly, I believe a tiny amount of tapering is widely anticipated; and thus, if they again “kick the can” by delaying it – perhaps, using the budget uncertainty as a ruse – you can bet Precious Metals will launch higher.

Finally, while Miles Franklin is not giving tax advice, here is one last bit of tax “information.”  Fees paid to our Brink’s Montreal storage program may be tax deductible.  Please consult with a certified tax advisor for tax advice. I believe our Brink’s Montreal Storage program is the finest in the Western Hemisphere.  Next week, Miles Franklin officers will be conducting their bi-annual vault audit; and hopefully, I can update you on the tremendous growth and progress we have experienced in the past six months.