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I rarely recommend selling gold for silver or silver for gold.  But I am reconsidering it now.  It now takes almost 63 ounces of silver to buy one ounce of gold.  I expect the ratio to move back toward 40 to 1.  At that ratio, you will increase your dollars by over one-third, by owning silver instead of gold.  We just went through a large loss of over 30% in the metals and here is a way to capture it back.  Talk to one of our brokers and they can explain what has to be done.  We will not charge you a commission on the buy back on any gold you have purchased from Miles Franklin and only a small commission on the silver you purchase to replace it.  This is not a “like for like” trade so there are tax considerations, but chances are, you can sell the gold at a LOSS and have no tax issues other than a write-off.  I plan to do this with my portfolio.  It is a great time to re-balance and position yourself for superior gains.

Another area you can benefit from now is to take possession of your physical gold and silver in your IRA.  Much is being written about the government “eyeing” retirement programs and the metals will not only be SAFER in your hands, outside of the IRA, but you will pay the tax on the redemption based on a very LOW value.  It will be much more costly, tax-wise, to wait and sell when the prices double or triple.

A combination of redeeming gold from an IRA, selling the gold and using the proceeds to purchase silver is logical and could save you a lot of money on taxes and make you a lot of money by moving into much undervalued silver.

I think highly enough of this strategy that I plan on using it with my own family.

Apart from the price disparity between gold and silver, the demand from India and China is exploding.  In an interview posted at King World News (and presented later in this newsletter) billionaire investor Eric Sprott said:

I just read some data on India.  It said that India, last year (in the) first five months, imported 1,900 tons of silver.  So far this year they have imported 2,400 tons.  Now to understand the significance of this I have to tell you that the amount of tons (of silver) mined (annually) is 25,000.

At 2,400 tons in the first five months, you are basically talking at least 5,000 tons (of silver) for the whole year.  That would be 20% of the world’s (annual) silver production.  And this is not going into industrial uses.  This is going into savings (for investment purposes).

And there is only a certain percent of the silver market, which can go into savings because a lot goes into industrial.  But here is the ‘piece de resistance,’ they said (India) imported 720 tons in April (annualize 8,000 tons).  In May it went to 900 tons, annualized call it 11,000 (tons).  We’re going from 1,900 tons (of silver Indians were purchasing) to 11,000 tons, in a 25,000 ton market.  That’s impossible.  There’s not that amount of silver available for investment.

Here’s what’s interesting about these numbers, Eric:  As they (Indians) can’t buy gold, they are going to buy silver.  If you tell the Indian population they can’t buy gold, they want to buy something real.  They don’t want fiat paper.  They are going to buy silver.  And maybe in June or July, which we don’t have data on, when the restrictions and costs have shot up here (in India to buy gold), maybe they will buy even more (silver).

(Another example) It’s impossible for China to replace, if they imported over 800 tons of gold last year, and let’s say you couldn’t really buy it, the number they would have to buy is something like 48,000 tons of silver to replace that (gold equivalent).  We only mine 25,000 tons a year, and there’s only 10,000 tons of that available for investment.  And it looks to me like they (India and China) are buying it all right now.

So I think if this data is true we have the most phenomenal story for silver that you could possibly imagine.  We will just nail those paper sellers to the wall here.

King World News, June 28, 2013

Ted Butler’s observation on the current price of silver:

The extreme price smash, while painful to existing holders, represents something else completely to new silver investors. The fact that there is no legitimate reason for the drop, away from price manipulation, not only does not undermine the opportunity in buying silver, it enhances it.

Silver prices have become so depressed and unreasonably cheap, that what has been created is the rarest of circumstances – a second chance at buying what has been the best investment asset at a bargain price. While I suppose it is natural to moan about the loss of value (I confess to doing that), that does not detract from this being the ideal time to buy silver. Rather than view it as the end of a magnificent run, I can’t help but think of it as the opportunity of a lifetime making a U-turn and giving everyone who chooses a second chance.

Butler Research, June 26, 2013

And then, this short article from MoneyNews.com:

Based on fundamental and technical data, silver appears poised to rise.

The Relative Strength Indicator (RSI) for the iShares Silver Trust (SLV) exchange-traded fund is at its lowest level in 20 years, slightly below 20. This suggests the metal is seriously oversold.

The RSI is even lower than it was in 2009 when silver was $10 per ounce and rose to nearly $50 within 2 ½ years. This indicates there is a tremendous upside potential from a technical standpoint.

The fundamental data also suggest a strong buying opportunity. Silver experts estimate that the cost of production is in the mid-teens. The current price is close to this level, which represents a strong floor. At lower prices production will probably decline, thereby placing upward pressure on the price until it reaches the equilibrium cost of production.

Moreover, production costs are on the rise. During the past seven years, yields by the top six silver miners fell nearly 40 percent, according to the SRSrocco Report. Therefore, they had to mine an additional 67 percent of iron ore to produce the same quantity of silver. These miners include Fresnillo, BHP Billiton Cannington, Pan American Silver, Polymetal, Hochschild Mining and Hecla Mining. As these costs increase, the price will follow.

Global economic and financial uncertainty remains a concern. Economic growth is not vibrant, debt levels are still high and monetary velocity is low. These conditions will increase demand for silver as a medium of exchange, since it can function as a currency reserve to back economic transactions and help preserve purchase power parity.

It seems quite reasonable to expect the price of silver to rise in the next year or two.

MoneyNews.com, June 28, 2013

Regarding gold’s rise on Friday, from its low of the day, $1,186.40 spot, gold jumped $35 in about thirty minutes.  And then, the gold price continued to rise, closing on its high of the day.  This has happened only a couple of times in the last couple of years.

And last, but not least, here is an event that Jim Sinclair says is the most important event in the gold market he has seen in some 53 years:

The Russian Cash Bullion Market

June 29, 2013

Dear CIGAs,

The singular most important development in the gold market in my 53 years being involved in gold is the Russian cash bullion market now in the process of development. This is a new broad public means of gold price discovery that sits ready to replace the paper gold manipulative fraud market.

Russia and China cannot be pleased by the Fed utilizing the Gold banks to move gold around so violently. Yes, they can buy cheap but so can you. Are you happy with the COMEX paper gold ability to manipulate price at will? You can buy gold cheap, but I hear precious few voices enthralled with the opportunity the COMEX knuckle draggers have offered us at $1187.

With a cash exchange functioning in Russia, the bombastic paper offering of multi year world production will get its hand called and head handed to the paper manipulators. On this exchange you deliver the real gold or get bought in real gold.

I would love to have a membership on that exchange.

After one more try in late 2014 the manipulators will be flattened by Russia’s “Free Gold” friends.

COMEX revealed: Investigating the paper gold market

Posted Jun 6 2013 by Jan Skoyles

Since the gold price crash in April there has been wide debate about how the gold market works. Analysts have contrasted paper gold versus physical gold, urging that the different parts of the gold markets offer very different services to investors. Conspiracy theories have also abounded.

In our previous analysis we looked at the different parts of the gold market and found that the COMEX was still the beating heart of gold price discovery. COMEX still had greater volumes and numbers of bids and offers setting the gold price than the largest ETFs and physical suppliers.

When the gold price tumbled in April, it was the huge orders that had appeared on COMEX that were to blame. Hundreds of tonnes of gold were sold in seconds, knocking prices down dramatically.

For some gold commentators the way the gold price is set on COMEX distorts the gold market, meaning the gold price is often detached from actual gold bullion demand. These analysts argue that since it is mainly paper traded at COMEX and because small percentages of this paper gold can ever be delivered in physical form, COMEX is the flawed central part of setting gold prices.

Gold bullion being drained from COMEX

The recent decrease in inventories, particularly from the JPMorgan warehouse, has attracted much scrutiny of late. Discussion of COMEX settling large gold contracts with cash, rather than gold, i.e. defaulting, continue to animate many a gold market discussion.

Notable investors, such as Eric Sprott, believe the odds of cash settlement occurring in the futures markets are ‘about 100%’.

In light of this we take a look at the health of COMEX and ask if it is close to breaking point.

Open Interest on COMEX reached a peak at the end of 2010 at 650,000. It has never reached similar levels since and at the time of writing many appear concerned that the overall open interest is continuing to fall.

However, looking at the graph below there does not appear to be a clear downward trend in activity on COMEX. Market participants appear happy to keep bringing their business to this exchange.


Diclaimer:  Miles Franklin Ltd. is not a financial and/or tax advisory.  Please refer to our full disclaimer.