Sunday, April 21, 2013

The recent smack-down in precious metals and mining stocks is a buying opportunity.  The silver mining industry may be the best opportunity of all.

Gold prices were hit last Monday by large sell orders.  Large sell orders are most likely to have come from the core bullion banks because they are the only ones with so much metal/paper to sell.  And, who else would sell so much at once to depress the price in a market when they are selling.

How much more ammunition do the bullion banks have?  At the moment, the market for physical gold and silver seems to have disconnected from the paper market given recent reports of shortages.  Will the markets 'reconnect' soon?  Probably.  Could the bullion banks sell even more paper gold?  When will the promises of physical delivery by paper gold's derivative contracts become risky enough to be worthless or just significantly worth less than physical?

Silver and the mining stocks have followed gold prices down.  Presumably, investors needed to sell there investments to make margin calls on their gold holdings.  And, clearly mining companies are worth less when sales of gold realize less revenue.

The charts below of gold and silver spot prices remind us that we have seen large price drops before.  Volatility is to be expected in this battle between conjurable fiat currencies and historical, constrained, physical stores of wealth.  

Gold spot market prices from 2006 to 4/19/13.

Silver spot market prices from 2006 to 4/19/13

My attention is currently focused on silver because the central banks do not own it.  Sales growth of silver from the US Mint has been even faster than for gold.  Internet coin dealers are out of stock of many silver products.  

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