Before writing anything I want to say what I have said for the last 5 years “DO NOT TRADE.” That said, we have had very large moves in gold and silver to the upside, 20% in gold and 30% in silver. They are certainly due a short break or breather…in “normal times.” These however are not normal times as we have bankrupt sovereign treasuries, upside down central banks which threaten stomping the brakes while flooring the accelerator and of course the black swan for all to see of a potential global war.
The “relative strength” of gold is now in the high 80’s, in normal times a reading of 70 or higher merits caution. Tuesday and Wednesday saw very weak closes for the mining shares even though the metals were higher, this in the past has also been a “tell” that the metals would correct in price (or more directly to the point “be attacked”). I am not suggesting a renewal of the April-June attacks but a $50 or even $100 pullback would not be surprising…again during “normal” (or what came to be normal over the last 20 years) times. We also have all sorts of potential “triggers” coming up over the next month to renew the uptrend. The G-20 meeting, the budget (non) ceiling debates, the taper non taper, war, etc.
I want to convey a short story that is quite pertinent to the gold and silver story. As a young broker I cold called and opened an account with a 7:00 am phone call. This client turned out by far to be my wealthiest client and at one time owned more than a dozen super tankers. (As a side note, he opened the account because he liked my investment idea and was impressed when he asked why I was calling so early, to which I replied, “Because your secretary isn’t in this early and there would be no one to screen my call). I learned MANY lessons from this man, one of them took me totally by surprise!
In one of his early trades he bought 20,000 shares of a stock at $8 per share. A couple of days later it was trading at 9-3/8 (yes we traded 1/8th’s and 1/16th’s back in the Stone Age) and I called to tell him the good news. Here is where I learned a lesson. This company had almost a million acres of timber land out west somewhere but wasn’t really recognized by the market. They were a conglomerate and their businesses were worth maybe $12-$15 per share broken up and sold…but the timber land was worth another $5-$6 per share which no one really talked about. Long story short, my client cussed profusely and told me not to call him until the stock was under what we bought it for!
I was shocked. This guy had a $25,000+ profit in just a couple of days yet he was ticked off? So the next day I got up early and drove to his office with a couple of cups of coffee to see him unannounced because I wanted to figure out what was going on. (I was shocked as this was the first time I had met him face to face, he was this HUGE man who looked like Grizzly Adams and had burn holes all up and down his shirt and sweater from cigar ash!) Anyway, he laughed when he saw me and said, “I knew I’d be hearing from you soon.” So I asked him, “Why are you ticked about making money?” to which he told me, “That is chump change, I want 100,000 shares minimum of anything I buy and I don’t want it to go up until I have my position.” He told me that to make REAL money you had to have a big position, “scoring” on a small position meant that the “score” was small.
As time passed I learned a lot from this man and still owe him a debt of gratitude as he passed away 5 years after we met. THE most important lesson I learned from him is that of “value.” He taught me that if you could recognize “value,” true value, while few others did then you could quietly and slowly load your boat and “score” once it came back into fashion. He told me, “If you know what something is REALLY worth and people are willing to sell it to you for less than half…buy as much of it as you can!”
I know that this “short” story part is getting a little long and hope that you are not bored but as tribute to this mentor I want to tell you how he started out. He was in the Navy as a pilot (he said that landing in high seas on an aircraft carrier at night was the scariest thing he’d ever done) and got out of the service when he was 27 years old. He had no job and did not really want to work for anyone so he decided he’d work for himself. He was in New York and would buy the morning paper each day to see where the latest murders and muggings were the night and day before…then he’d go to that neighborhood the next day and sell “peepholes” for front doors at $20 apiece. The glass peepholes cost less than $3 and he carried a hand drill with him. He’d go door to door and sell and install maybe 20-25 peepholes per day at $17 profit each in the late 1950’s …which he parlayed into over $50 million in the oil and gas industry!
So why did I convey this story to you? Because one of the lessons I learned was that if you could identify the value of something that was clearly underpriced it didn’t matter how long it took or how “low” it went in between, sooner or later the markets will recognize it. THIS is what lured me to precious metals to begin with (he was buying silver under $5 before he died). I knew during the 90’s that something was wrong so I began to dig. I read GATA’s work, Embry, Turk, Sinclair and others which affirmed what I suspected and confirmed what I believed since 1997. Gold and silver prices were suppressed and not reflecting their real values.
That said, do we have a pullback in price over the next week or two? Or does it explode because the G-20 puts an end to the dollar’s hegemony or do the idiots running the world decide to destroy everything with a war? I don’t know and it just doesn’t matter. If you don’t have a current position in precious metals you MUST have one before the music inevitably stops. If you do have a position but want more? Don’t wait, don’t try to time it…just buy it because you know that when all is said and done, both gold and silver are not worth “double” what they are now…they are truly worth MULTIPLES of what they are now! As I’ve said all along, it won’t matter one whit what you pay now to purchase…just how many ounces you have when the time comes. To where gold and silver’s true “dollar values” are, you will only be thinking one thing…”I wish I had more!”