Friday, April 18, 2008

Nightmares, Dreams, and Reality


Ever have one of those nights where you have really weird disturbing nightmares, it's been an entire week of it for me. Last night for example I was apparently surfing financial sites (from a room that has not held a computer for a good 10 years) only to find that silver was at $4 and gold was at $600, WTF? a 150:1 silver to gold ratio, I was not sure if I should panic or salivate,(mind you, it rarely occurs to me to panic in dreams if only my waking hours were so calm.)

As I moved away from the computer I found my long dead Grandfather who was neither an investor nor had ever been in my home in my living room with a door to door Kitco sales lady, a rather pretty one at that. After making his purchase I had to spend a great deal of time trying to convince my mother that I had not cajoled slightly senile Gramps into blowing his savings on little bits of shiny metal. While I was professing my innocence the Kitco lady somehow slipped away and I spend quite some time trying to find her again so I could double down and take advantage of what were obviously great prices. I never did find her:(

Ok, so what does this all mean, do the lower prices represent my fear I've been wrong or was it my regret I did not get in much earlier and much more aggressively? Maybe something was just a little off with the lamb last night, or a small bit of ergot got into my bread. All I know it was damn disturbing and after a week of this and other weird ass nightmares I've been very tired and rather negligent in posting. Sorry!

I have however made the effort to rely to my mail and comments, thanks for the interest in my site, hell I finally qualified for my first meagre cheque from the ads that are running.


On one of the threads I've been chatting with Joe about some of the pie in the sky long term predictions we see from various writers. I think we agree that silver shortages are the key in our pan to get rich and that we are probably both unsure what to make of all the various methods different writers use to make a long term prediction on silver's high price.

Some writers think a price between the natural and historical silver/gold ratio which would us between 10 and 16:1 is a reasonable place to call the high. Others think that the silver gold ratio could actually approach 1:1 on extreme shortages and the revelation that there is less silver above ground than gold. While this should shake things up I believe palladium is also less abundant than gold but normally trades at near half gold’s level.

Joe was interested in a claim by one writer that a silver ratio to the Dow of 10:1 would be the peak price which at today's Dow would put us in the $1200+ per oz range. This writer also alluded to a 5:1 silver to gold ratio.

The problem with all these predictions is that they are too far out and always rely on a measurement vs. some other equity, commodity or even currency that will also change value in the interval years.

This makes it very hard to guess how much profit we will make and it also makes it very difficult to call top and bail. Just remember many people still hold silver from the hunt fiasco because they jumped in late, did not monitor the markets adequately, or kept waiting for that next bounce. These wild predictions are fleeting dreams that cannot be measured because we can't know the value of a dollar, the level of the Dow or even the price of gold in 5 years, yet we all hope they are at least close to the truth and that dreams do come true


I cannot predict what gold/silver or even a currency will be worth in 5 years, It's still to be seen if I can be reasonable accurate for the second year in a row on a year to year basis, so I don't even venture a guess on the final high price.

What I do know is the fundamentals of high monetary inflation, flight from risk and impending dollar meltdown still point towards a bright future for metals, since every move to save the economy perpetuates cheap money or the Government monetization of debt. It is my belief the deflationists are losing the argument and that pending hyperinflation and an eventual return to sound money will be ultra bullish for commodities and monetary metals in particular. Add some upside for silver shortages and whooeee! We will come out ahead big time in the end.

The big problem with this reality is picking a exit point and how to gauge when and how much to sell. wWhile there are many options and possiblities this is my plan so far.

First I expect a move to at least the natural ratio in conjunction to a much higher gold price, the silver/gold ratio may not get to the 5:1 or the lofty 1:1 but certainly 15:1-10:1 is a reasonable goal to set.

Secondly I would like at some point to get all or most my seed money out so that however this unfolds I will not take a loss, not that I expect to, but shit happens and I'm a tad paranoid.

With these two factors in mind I have the intention of selling 10% of my stake the moment silver prices hit 10X my buying price no matter how much further potential I see. I think this would put my selling price around $150oz, I bought some of my silver much lower than $15oz that but since the Canadian dollar was much weaker when it all averages with more recent buys.

Should the ratio be lower than 15:1 when I hit my $150 goal I would probably take another 10% off the table as profits. From that point on it’s all gravy and I'd watch closely for a top.

Somewhere along silver's climb I will also have to consider if gold is fully monetized yet. If the dollar is still not destroyed and silver makes 10:1 or lower, it might be a good option to trade some silver out for gold. The lower the ratio goes the more likely I'd consider a swap after all who would not want to trade 100oz silver for 20, 50 or a 100 oz gold.

There could also be fear that private ownership could be banned, silver seized or that prices could be fixed to curb speculation once a silver shortage occurs. Making this call will take close watching of Government sentiment, with today's media it's doubtful such a thing could happen without some whiff of it on the internet first so keep watch to make the trade if Government meddling looks likely. While at this point Silver has higher potential for profit don't neglect the idea of eventually swapping for gold .

Ultimately I'm in silver to acquire land. The ultimate survival strategy is not holding metal to buy what you NEED but rather buying the means to create those things you need. If at any point silver approaches a value where 1/2 my holdings will get me the farm I want with all the extras I will be selling enough to become self sufficient. In a world of peak oil and impending famine, providing food and shelter for my family would be more important than the metals themselves that said I think I'll hold a couple hundred ounces till the bitter end for emergencies.

In the end it comes down to know your goals, protect your original investment, take some profits and pay attention.

Enjoy your weekend and ignore the market today, you don't want to know