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How bad is the winter here in Minneapolis?  I just got off the phone with a friend living in Northern Minnesota. He said that since early this morning the snow has been falling and is nearly waist high. It is still falling. The temperature is dropping way below zero and the north wind is increasing to near gale force. His wife has done nothing but look through the kitchen window and just stare. He says that if it gets much worse, he may have to let her in!  Seriously, winter has been unusually hard this year and Susan and I need to get away for a while.  That’s the secret to surviving winters in Minneapolis – make your get-away to a warm weather destination once or twice in January and February.Starting on Thursday, Susan and I will be spending a week in Boca Grand (and then another three days in South Beach, Florida).  We spend a week or two every winter in Boca Grand with our friends Jim and Diane Cook.  Jim owns Investment Rarities, the firm where I got my start in the precious metals business in 1983.  Also joining us, is “Cactus Jack” who I write about often in my blog. There will be more than a few heated discussions on the economy.  Boca Grand is where the Bush family vacations.  When they are there, usually over Christmas vacation, the town is full of secret service agents.  It is a lovely place with very little to do and sometimes that is exactly what is called for.  Cactus Jack and I will drive down to Fort Myers on Sunday and take Dean Danielsen out for lunch.  Dean lives in Idaho but winters in Fort Myers.  Many of our long-time readers remember Dean – and his great stock recommendations that used to appear in the Miles Franklin Report.  I am anxious to see what he has to say about Avalon and Western Copper, two BIG winners he steered me into in the past.  Then, next Thursday, it’s off to South Beach just in time for a dear friend’s birthday and for some action.

I will write a daily blog on Wednesday, but the next issue will not arrive in your “Email box” until Monday, February 7.

So far, so good.  Gold is holding above $1,320.  Hang tight, the worst is just about over.  As soon as gold and silver start to recover, place an order for as much metal as you can afford – especially silver.

As of 4 A.M. on Wednesday, gold has moved back up to $1,335.80. Is this the end of the correction?  Or will $1,300 be tested?  We’ll find out soon enough. Once gold and silver start moving up again it will be a great opportunity to add to your portfolio at fire-sale prices.  When you look back, a year from now, and realize how cheap gold and silver were, you will either pat yourself on the back for buying at the right time or you will ask yourself why you didn’t.

Bill Murphy reported that Eric Sprott gave a superb presentation at the Vancouver conference and had the standing room only room drooling about silver. The supply/demand situation is so stunningly bullish that Sprott has it asthe investment of the decade.   At minimum he expects the gold/silver ratio to return to its historical norm of 16 to 1. And at some point Eric thought it might possibly overshoot to 10 to 1.

The technical analyst who Eric respects very highly, and one that Eric brought to the attention of the attendees, is looking for $2100 gold in the late spring. The gold/silver ratio won’t drop to 16 to 1 overnight. However, if silver does what Eric thinks it is going to do in the months ahead, we’d be looking at $130 silver. If the gold/silver ratio dropped to 30 to 1, we are still looking at $70 silver, should gold make a move like his top tech guy is predicting.

If there ever was a time to pick up silver on the cheap, compared to where it is going to go, this latest drop ranks at the top of that heap.

James Turk recently pointed out in a commentary entitled “Silver in Backwardation, Set to Explode“, that spot price is higher than the futures price in silver (backwardation). It’s not only higher relative to the short-term but also twelve months forward.

Turk goes on to make the following observations,

“Backwardation happens regularly in most commodities, but it is rare in the precious metals. The last time this happened Eric was in January of 2009. Over the next few weeks silver rose from about $10.50 to $14.50, roughly a 40% move higher. The key to understanding backwardation is that the price must rise to entice holders of physical metal to sell and accept a national currency in return. I think we can expect a similar event to repeat over the next few weeks.”

Turk’s observation about the growing strain in the silver market is confirmed by extreme reading in London PM fixed (physical price) and silver ETF (paper silver) ratio. The last two extreme readings, an indication of extreme strain between physical and paper markets, were March and September of 2008.  We experienced severe shortages and delays at that time and the premiums on physical silver were measured in dollars, not in cents.

As of this writing, the spot price is $1,335, a 10-week low.  Gold would have to drop another $45 or so to reach even “correction” territory — that is, a 10% drop from the high.  Nothing to worry about here, everything’s all right.

Silver has slid to $27.  Apart from the Comex, there are signs of high demand for real physical silver.

  • ScotiaMocatta, one of the world’s biggest bullion banks, has run out of silver kilo bars (35.3 ounces) — a popular size outside the United States. 100-ounce bars are back in stock, though. One-ounce bars remain sold out… as they have been for most of January
  • The latest tally of January Silver Eagle sales from the U.S. Mint is 4,724,000. The monthly record was already set six days ago.

Sincerely

David Schectman

Miles Franklin