The Good News and the Bad
I wrote recently about a bottom in the metals. The good news is that I think we have seen it. Someone posted an article showing a 25 year chart of the XAU over Gold and it clearly showed we are at the best time to buy gold and shares since 2001 and the 2nd best time in 25 years. So I think we have seen the lows for both gold and shares.
In addition, the gold seasonality chart clearly shows the best buying time in the entire year is between the last week of August and the first week of October. We are there and odds favor we have seen a major bottom.
There is some bad news. Much has been written lately about a shortage of physical gold and silver all over the country. There are a couple of issues about the shortage that have not been adequately covered. One of the things that young investors especially need to understand is that 30 years ago, there were far more stamp and coin dealers. For all practical purposes, the stamp dealers have pretty much gone the way of the buggy whip; they just don't exist any more. I think Miami used to have about 10 good size coin dealers and now there are maybe 3.
So there is no pipeline filled with silver bars and gold coins to the extent there was 30 years ago. All of the silver bars and most of the silver rounds I've seen lately were made in the 1970s and 1980s during silver's last big rise. I'm sure someone is still making bars and rounds but in comparison to the previous stockpile, there isn't much new stuff around except for the Canadian Maples and the US Eagles. Those numbers there don't represent much production.
I suspect many investors have bought gold and silver in the last few years and it's pretty much off the market until we see higher prices. I was in my dealer's office last week and the phones were ringing off the hook with people wanting to know if he had anything to sell. He did buy some product while I was there and while his vault wasn't overflowing, he did have product.
He refused to sell because his cost was so much higher than spot. So when you call a dealer and you want to buy some gold or silver, instead of asking him if he has any product, offer him $100 over spot gold and see if his story changes. I think it might. In any case, it's pretty obvious that even with higher prices, we aren't far away from a permanent shortage of physical metals. It's just not around.
The threat of a nuclear war on Iran on the part of either the US or Israel has just dropped to near zero. The US has rejected a number of military requests by Israel lately and it appears there will be no war based around a surprise attack on Iran. That said, Georgia, a client state of the US and armed by Israel tried a surprise Shock and Awe attack on the tiny Russian client state of South Ossetia. The shock was when the Russians kicked their ass in a day or two and occupied Georgia while Georgia whined for assistance.
The US had over 2000 soldiers training Georgian troops and Israel had over 1000 mercenaries and technicians setting up military equipment. With the reputed intelligence arm of Israel and the US, somehow no one noticed the Russians had an entire army just across the border, locked and loaded. That was a giant intelligence failure on someone's part.
I'm not sure I understand Israel's involvement in arming Georgia. I can't see they have anything to gain; it may have been as simple as just being another arms supplier to the world. But Israel and the US need an immediate wakeup call. Russia is tired of being hemmed in by the US. They have made it clear that an attack on Iran is an attack on Russia and if the US installs missile bases in Poland, they will apply the US approved theory of preemptive warfare and nuke Poland.
The good news is that a month ago the real risk to either Israel or the US from Iran was near zero. The bad news is that the real risk today to either Israel or the US just increased 1000 fold. I think the Russians would do exactly what they are threatening to do.
The US would be real unhappy if the Chinese installed a missile base in Mexico or Russia did the same in Vancouver. That's our backyard and our playground. Russia feels the same way and I can understand that. This would be a real good time for some honest leadership and a sincere message sent to Russia that we understand their concerns and realize we have gone a bridge too far.
The very real alternative is nuclear war. And everyone reading my site knows I believe no one wins any war.
The US has been shown to be a paper tiger. A Fed governor says we have $100 trillion in liabilities and only $50 trillion in assets. We need to sort that out before making rash promises of support to every thug in the universe.
Aug 25, 2008