5/25/09 The Case For Buying Gold vs. The Case For Buying Silver

Precious Metals Market Analysis, By Michael Pennington (Copyright 2010 Pennco Coins)

Gold could be on the verge of a historical breakout. A breakout above $990 will be very significant. This next move above $1,000 will be the third time above $1,000 and the third time is the permanent time. This time $1,000 will be support.
In addition, the gold shares are a good predictor of where the gold price will move in the short run. Lately, the gold shares broke out of a technical range to the upside that indicates higher gold prices ahead. This is very bullish for gold.
Another bullish gold development is the general economic conditions. The dollar looks vulnerable again. Pushing government steadily leftward, the Obama administration has set up the possibility of a U.S. dollar rout. … If this persists, commodity prices generally shall rise and rise materially, and gold shall too. The  relentless rise in the Continuous Commodity Index (CCI) presents the gold bears with a formidable problem. It is difficult to shove the price of gold down for long when the entire commodity world is rising.
FGMR’s James Turk is so intrigued that in this weekend’s issue he considers altering his normally cautious trading style: “I think we are very close (7-10 months) to the beginning of a hyperinflationary spiral. … If I am right … there obviously is an exceptional opportunity to load up (i.e., a leveraged position) by buying gold. Turk is part of a faction I call the radical gold bugs, because they watch not merely inflation but what they believe to be the authorities’ manipulation of the gold price to preserve the illusion of financial stability. Their expectations of a gold breakout have been frustrated repeatedly. Nevertheless, Turk adds: “One of these days (and there’s at least a 50 percent chance now is that time), gold will just keep rising.”
In gold, there is widespread investment buying, but little industrial consumption. That means that gold inventories always grow, while silver inventories have shrunk for 65 consecutive years. Funny, how there is little talk of surplus in gold, despite almost no industrial consumption, yet there is constant talk of surplus in silver, where every ounce mined and recycled is absorbed by industrial fabrication.
Net silver investment demand has been a very rare occurrence over the past 25 years. It only emerged over the past three years. What makes silver investment demand so unique is that virtually no current production and supply is available for investment. All of it is spoken for. The only quantities available for investment are from existing inventories provided by sales from existing silver owners. Considering how little silver remains in terms of ounces and in dollar amounts, it makes silver potentially explosive. Plus, the silver held today appears to be in strong and diverse hands. A relatively small amount of capital coming into silver can have an outsized impact.
Next, we need to focus on the concentrated short position in COMEX silver, which is documented at running in the hundreds of millions of ounces. It will end soon and very badly for those involved, just like those manipulating the price of silver.
The price of gold has already exceeded it’s lifetime high when it reached $1.031 last year. At the same time silver only reached $21 per oz which is significantly below it’s all time of $51 back in 1980. I look for Silver prices to take off soon. The COMEX manipulators are trapped and can’t exit their positions with tripling the price of silver. The day of silver is not far away.


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