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I listened and read with interest the interview
conducted today by King World News with guest John Embry, Chief Investment Strategist for Sprott Asset Management. Embry seems to be of the view
that the price of silver is reflective of what is happening at the moment in
the general stock markets. Embry brings up the “PPT” (Plunge
Protection Team) in the interview and said that despite the best efforts of
the PPT they couldn’t hold the market above 11,000 on the Dow
Industrials. With this point, I respectfully disagree with Embry.
Notwithstanding the arguments about the PPT (I truly believe there is indeed
a working group whose sole purpose is the nudge the stock market along .. you
can read more about the PPT from my previous posts on the subject) … if the PPY really got to work on things they
would accomplish their mission. That is, if they wanted to step in they would
have done so with a vengeance.
What Embry says is a bit to conspiratorial for my
liking. I really wished that a strategist for a $10 billion fund would not not be so focussed on perceived manipulation when discussing his
views on silver or gold for that matter. Say what you want though, Embry is
who he is and nothing is going to change his mind about what he feels is flat
out manipulation in the precious metals market. You know my own personal
views. Yes .. there is some
manipulation at work, especially in the silver market which is less traded
and thus easier to manipulate. However, not all moves are choreographed.
(Pardon me for getting off topic slightly). In any event, here’s what
Embry told King World News:
“But the fact is when this is going on they
can’t have gold look good and so consequently
they throw everything they can at the gold market. We were $1,680 overseas
and once the COMEX gets going they drop the price $50 like it’s
nothing. It’s all just paper shenanigans and I guess they are able to
access from the various central banks and ETF’s, enough gold to
facilitate this activity.
The longer-term sustainability of this is zero and
the price is going to go up to levels that nobody is going to be able to
comprehend. One technical service that I look at suggests that the window is
closing to the downside and
this week and today might be the bottom.
We know how they (the cartel) operate, if there is every reason in the world
to buy gold, they drive it down. This activity is driving a
lot of the people out of the market because they can’t stand the
counterintuitive volatility. When this is all over, many people who would
otherwise be predisposed to gold won’t be there because all of this
action will have driven them to the sidelines and they will be sitting in the
wrong stuff.”
When asked about action in stock markets, Embry
replied, “The stock
market looks absolutely dreadful and I think it could break down and head
back to the lows of 2009. Why not? I mean the fundamentals in the economy are
terrible and the only thing that can save it is money printing and before we
get to that level I think we are going to have a horrific clean out of the
market before the unlimited printing of money revises..”
If you follow my thoughts on the market in general I
have always maintained that we can not officially call 2009 “the
bottom” if we never re-tested it. On this point, I don’t disagree
with Embry. However, his statements are a tad contradictory. If we get a massive
deflationary or liquidity driven event such as a stock market meltdown, gold
will follow. If Embry really feels as though the market should be going down
it tells us that we actually might be in a deflationary environment. If the
risk for inflation is subdued then he should know that gold shouldn’t
rise.
I don’t disagree with Embry’s longer
term outlook for gold but I do take issue with the fact that gold should be
higher right now. The reality is that it shouldn’t. Although I posted
earlier that Bernanke didn’t come out and say he will be printing, the
tone of his speech tells me that he just gave a fore-warning that he might. I
posted that in my comments section after a loyal friend replied to me. For
now, we don’t have inflationary concerns but instead just the opposite.
As a result, I don’t see why gold should be higher and it isn’t
because it is being manipulated lower, it is simply because the environment
is not right yet for gold to soar to new heights.
Not to leave out silver, Embry had many comments on
that metal as well.
“I have a number of thoughts on this
situation. First, I think the CFTC has sort of pushed off the ruling on the
position limits for a few weeks to give the large bullion bank with the
enormous short position more time to deal with it. Part of dealing with it
involves getting the price down as low as possible and getting all of the
speculators out.
The open interest in silver is back to what it was
when silver was $7 to $10, you haven’t seen it this low for a long
time. So this has been effective, they have gotten the paper speculators out.
My coin guy came over to see me yesterday and I
asked him, ‘How’s your silver market these days?‘
He said, ‘I just got three boxes of maple leafs in or about 1,000 coins.‘ I asked him how they were selling and he said,
‘They are going out the window, all but 50 coins are gone.‘ I asked him what price he was selling them and he
said, ‘$38 an ounce.‘ That’s with
the paper price $30 to $31. So the smart guys know this is a rig job and they
are getting their hands on what silver is available as fast as they
can.”
On his “silver guy” comment I have my
doubts. My local dealer who gets the bulk of my business sells for $3.00
above spot. That is the premium he always charges. Silver Maples can be had
at Kitco for $34.00 ($US) or $36.53 CDN as I write this. If people are paying
$38.00 they are not doing their homework. My own local dealer has an
abundance of supply. I don’t know who to believe on this point. You can
rest assured that many people who bought at much higher prices without much
knowledge have already sold back, adding to the supply. This is usually the
case.
With speculators out, as Embry says, and with
deflationary headwinds facing the market, I just don’t see the catalyst right now for a swift move upward in silver.
Remember, speculation, not supply/demand was the main driver that saw silver
rocket in parabolic fashion to $50.00. Silver for the longest time stayed in
a very tight range before speculators took hold of it.
For now, I think that silver re-tests last
week’s Sunday night lows at which point it will be a critical juncture.
I don’t have any positions open on silver right now given the strong
COT report. The fact remains though that silver is in a descending channel
technically and until it firmly breaks out, I would not want to go long the
white metal. I don’t think the selling is over. Right now I am staying
cashed up in my metals account waiting for that moment that I feel is right.
I would rather buy a break out than buy “hoping” for a breakout
reversal.
Embry knows what he is talking about. This is meant
as no disrespect to him. Sometimes though I wish he would ease up on the
tin-foil talk and stick strictly to the fundamentals. One of the big
arguments for silver has been industrial demand. If we truly believe a
slowdown is on the horizon then that demand gets tempered. Also please
don’t kid yourselves about supply. There are countless millions of
ounces in peoples’ basements. Supply that has not been used up or taken
out of the chain. That silver is ready to come at the market when the
hoarders feel they have had enough and want to sell. Remember that. People
who buy those monster boxes of silver rounds aren’t melting them for
industrial use. They are holding on to the rounds. You are not taking that
silver out of the supply line. That part is always overlooked by people when
they are discussing the availability of silver.
Shop around folks… if you want physical silver
you can do much better than some of the prices being thrown about and please
stay off eBay…perhaps one of the worst places to buy your physical
silver. Sellers need to account for seller fees and PayPal fees. It is a
great place to sell it but there are better places to buy it.
In any event, listen to what Embry has to say but
keep in mind that there is nothing that says silver won’t go down
before it goes up. Keep in mind too that it may be a very long time before we
ever see $50.00 again. I would love it but right now there is no catalyst.
Money printing will help and I think the Fed signalled that they are
currently buying toner for their presses but haven’t switched them on
yet. We are close to a moment though when we will see another round of
printing. You want to be positioned for that. If you want more physical metal
then let the prices fall. It’s only those that want out that are
begging for a big move up.
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