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I recently had a conversation with a friend who works for Sprott.  We were discussing the state of the precious metals market.  He told me that people have asked Eric Sprott (Sprott Asset Management) why he didn’t place an order for a billion or more and stand for delivery of physical gold?  The reason he doesn’t is because it is written in the contracts that they can fill the order with shares of GLD.  There would NOT be a force majeure.  What a racket!  The leveraged paper game is so foul and rigged that the only game in town is physical metals.

Gold (and silver) is a market that moves up and down in a saw-tooth pattern and currently we are still in the down mode.  50% corrections are not uncommon (see the 1970s bull market), but we are very close to the bottom before it turns up again, and it will.

My friend Trader David R emailed me today and feels that Bernanke is doing everything he can to make sure things don’t fall apart on his watch.  He can’t stop QE, but he can jaw bone about it.  David feels that gold could drop into the mid $1,100s and silver could touch the $16 area.  Well, if that comes to pass, so be it and I will be loading up the truck to buy all I can afford, in addition to everything I currently own.  I still prefer gold and silver to dollars and the fact that their paper price has tumbled is of no long-term consequence to me.

Silver is getting to be such a bargain that it is hard to ignore it.  Ted Butler points out that it only takes, at the current price, less than $200 million/month to absorb all the new silver entering the market.  Meanwhile, it takes around $6 billion/month to buy the new gold entering the market each month.  Butler says:

The entire 1 billion oz of silver bullion in the world is now worth less than $20 billion, while the entire world’s 5 billion oz of gold is still worth a proportionately much larger $6 trillion.

Butler Research
That is why he greatly favors silver over gold, especially at these prices.  The silver/gold ratio is now 66 to 1!  It could drop by one-third (silver outperforming gold by that amount) and still be at the upper end of the normal range.

Meanwhile, the economy and the middle class are hurting.  As Richard Russell puts it:

Twenty-three million Americans have no jobs, forty-eight million are living on food stamps, our national debt is off the charts, the US government has lost its triple-A rating, and we are approaching a debt ceiling that threatens to close down the government. Inflation or depression, and how you can profit either way.

The fact is that investing today has become a guessing game called “What will the Fed do next — and when?” In the meantime, Bernanke talks and various Fed members are hinting that “Bernanke talks too damn much.

Dow Theory Letters, June 26, 2013