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What’s weakness in silver telling us?

While I remain bullish on metals simply because of worldwide monetary problems, we should consider the other side of the coin. There is a good case for deflation as we approach another probable recession. John Q. Public never came out of recession, especially when you consider the 16-20 percent who are unemployed or underemployed. Look at silver and especially platinum. They seem to be indicating something more than a correction. Silver is now at over a 55-to-1 ratio versus gold. Platinum, which historically trades in the 1.1 to 1.4-to-1 ratio over gold, is now at .9. Now those kinds of numbers could be indicating deflation since the markets currently view both silver and platinum as industrial metals. Gold on the other hand is still very much monetary especially with continued central bank accumulation.

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Another factor is forced or involuntary liquidation. COMEX raised margin requirements Sept. 30 on gold, silver and copper because of market volatility, or was it pressure from the Fed?

Often repeated in the financial news is that traders who have been hammered in the stock market are liquidating precious metals to raise cash and take profits to add liquidity to their portfolio. Now when you consider some of the big hedge funds like that of John Paulson, this is quite plausible since his fund and others have taken some big hits in the financial sector. Hedge funds must remain somewhat liquid, especially when they are not showing steady gains for their clients because people usually pull money out at that time. Now if you run one of these funds and need to quickly raise millions, what is the quickest most expedient way? Liquidate precious metals positions. If the market turns, you can be back in almost instantly.

I think when the economy gets squeezed a little more and financial markets remain weak Ben Bernanke will invent a new tool to increase liquidity and prime the presses. After all, next year is a presidential election year and it’s all about the money. That is when we will see renewed interest in precious metals.

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There has been an interesting increase in the premiums for generic USA gold type coins in the last month. They are still down in most cases, but they are down far less than bullion.

This month along with many others we did a complete review of state quarters and unfortunately the numbers are not good. There is a lack of interest in this series and almost no promotional activity to support the market.

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