Quite a week it was in the precious metal markets. After a week of unrelenting attacks by the large banks to hold down the price of the metals and more importantly to keep futures contracts from growing in the all important delivery month of (silver)March 2011.
Several interesting deployments have been forming in the market and the propaganda machine that manipulates it. The markets continue to see the privately negotiated transactions(TPN) stay high around March silver futures contracts. Most are interpreting this as cash settlements used to keep futures contracts from taking physical delivery. This would indicate that the ability to deliver physical silver is failing and to keep from defaulting the Comex and probably Banks such as JP Morgan and HSBC are willing to pay a premium to keep the wheels from coming off. The problem with this strategy is that with each passing month the traders become bolder. Increasing the OI (open interest) and they have more capitol with which to finance there raids given the more then likely generous premiums they are getting paid not to take delivery from earlier months. It can't go on forever. Mine production will have to increase which will raise cost, due to the fact that silver is often a by product of other industrial metals and gold mining. Therefore silver's production cost can be off set by the other metals. If however demand for other metals like copper falls due to a weakening world economy. Then mines will be looking to reap the silver at a production cost, which is considerably higher then were it is now. Some think Asian demand for industrial metals won't let that happen, but with city in China without people and the west buying less goods due to weak economies the demand may fall considerably. Also plenty of news stories about China bringing in commodities into one port and shipping them to Japan from another to keep up the appearance of growth.
Another complicating factor is all the printing from central banks around the world, particularly the United States. Six hundred billion in November 2010 and more likely once the debt ceiling and June 2011 date rolls around. June will be the time when the six hundred billion is used up and more is required.
So, what is to be done by the average? Does he buy silver as it rises. Hoping to profit from higher prices in the futures. Should he sell into the rallies, believing that he is being manipulated to pull physical out of the paper market and that real demand will fall as the prices rises out of the reach of an indebted public?
Should he look to invest in a more liquid silver vehicle such as an ETF or silver mining stocks, so as to capture the rise and still be able to hit the exit easily with the stroke of a keyboard? Good question.
I picked up most of my physical in March 2010 when the CFTC hearing broke and the manipulation scandal that most of us thought was taking place, reached the public and gained recognition. Since then I have only picked up Eagles and small bars on pull backs when small high quality ingot bars can be had. I am trying to cover myself by buying and holding Sprott's Managements ETF PSLV. To me this gives me the luxury of riding the price up and selling easily while being able to get my hands on physical if I so choose. I will more then likely take profits into March and look to reload in April for May delivery. That's my strategy. My method of timing is for another day.
In closing, let me caution all on two points. One I'm doing this, not advising anyone to do anything. Just thinking out loud and if someone comments and gives me better wisdom then great. I'll take it. Second, watch out for the stories of shortages and people on message boards pumping silver. Never hurts to assume the worse of these articles and people. Do your own research. It is not hard to visit online dealers all over the world and look for outages of silver or premiums rising. What these shortages mean and who is buying is the key. Are their strong hands buying, determined to hold as an investment or just manipulating the price and will dump the supply back on the market at some point caution the price to fall like a rock. It's each persons call, lots of thought and research should go into it and for me a lot of prayer. Till next time, it's time to milk the cows.
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