Wednesday, September 10, 2008

The Return of $3.00 Silver, Get it While You Can! --IFCN Wk 40 -Wed- Equity: $1,310.44

(If you have no interest in Silver and the opportunity to purchase it, feel free to skip this post. This post is my own personal opinion and a look at what I personally consider to be the single greatest opportunity available for the small investor to protect their wealth from inflation and make a tremendous amount of money with very little overt risk. No guarantee is expressed or implied.)

I have been purchasing physical silver since the beginning of my trading life and much heavier since 2003. I have traded silver successfully in the futures markets for decades. It is a frustrating market most of the time because of the personality of the individuals who trade and invest in it.

Trading and investing are two different things. Houses and paintings are typically considered investments. A lawyer would say that investments are any vehicle into which funds can be placed with the expectation that it will generate positive income and/or that it's value will be preserved or increased.

Silver fits into that category well. People have bought silver and held for a very long time before they profited. Some smart investors have done exceeding well. You should be one of them.

I could spend hours telling you why I am certain that we will see $100/ounce silver before we see $8/ounce silver. I won't. There are great websites who trumpet the story very well. Remember, the biggest financial moves take place because of well-known conditions that everyone could see if they just would. Then something happens that gels a different point of world view which makes one group of individuals prosper better than the rest.

Supply and demand works – regardless of what some liberals may believe.

Even the recent oil moves were easy to anticipate. With so many third-world countries wanting energy to create products like the first world countries have, it was inevitable that if oil supplies didn't increase as rapidly as the demand, something would have to give. It did. Prices went up.

Now prices are falling because the producers really started loving the excess profits they we making and decided to produce even more. They did and the prices are now falling substantially.

Back to silver.

One of the main reasons silver is now so low is because of falling oil. Millions of mutual fund investors have been sliding money into commodity-based index funds to take advantage of the “sure-thing” oil moves of the last year. Let me tell how these things work.

When you buy your shares of a commodity index fund you are buying a basket of commodity FUTURES contracts at the same time as the others buying the fund that day. Due to oil and grain prices making huge moves up after the end of last year and the beginning of this one, these millions of fund investors were encouraged to buy the commodity indexes so they could have some return, as stock markets have been dismal return-wise. And the brokers got a decent commission too.

Now with crude and grains falling off, these same investors who decided oil prices were never going to fall again and bought near the oil highs are, as I write; throwing in the towel and getting out of these index funds.

The problem this makes for silver is this: Index funds have been good for commodity bull markets because they are “buy-only.” They buy up futures contracts, not the real stuff behind the contracts. No real barrels of oil were purchased, or bins of wheat, or silver bars.

Index funds are much worse for bear market corrections. The herd mentality of the end-user ---the mutual-fund investor who was just trying to improve his return..., causes them all to sell at the worst possible time, when the news is blaring about how bad these funds are for all who have them.

When they sell their pieces of the index fund, the big red button gets pushed and oil contracts get sold, along with wheat, corn, cotton, coffee, sugar and SILVER and gold contracts. Regardless of the relative value of these other markets, oil is the biggest component and the major reason that anyone was in them in the first place.

If you try to price silver bars right now, they are substantially higher than the cash price that you will find on Oanda. (XAG/USD – 1 unit equals 1 ounce) The reason is the futures and dealer prics are being shoved down excessively vs. the real price it actually requires to get physical silver. The spread is very large. Don't expect it to get narrower. Feel free to check this out.

My point of this longer-than-I-expected diatribe is this: Silver isn't going much lower.

If you disagree after checking out the facts available, great. Definitely your choice.

Many sophisticated investors who desire to buy silver first create a buying hedge. They find a spot they are interested in purchasing silver, and purchase that quantity on the futures markets or a firm like Oanda. Then they find the physical form that they wish to keep; bars, rounds, bags of pre-1964 circulated 90% silver coins. After they lock in that price, they can then offset their hedge to get the price chosen. This method allows a silver investor to take as much time as they want to find the silver products they want. And if you use Oanda, you can do it ounce by ounce buying from Ebay if you want.

Just from a paper investment idea, if you buy 100 units of XAG/USD on Oanda @ $11.00, using just $21.40 of margin, and the price goes back up to @$21.00 where it was in March, you will gain $1,000. If the market falls further to $8.00, you would be out $300. Even if it went to $3.50, the old low, you'd only be out $750. Tough call isn't it?

This is something everyone can figure out for themselves. Check out a long term silver chart. Ask yourself what you think the odds are that silver will make it back to $21? Or even much higher because of inflation and the dollar's inevitable return to be the weak currency it really aspires to.

For a inflation adjusted chart of silver check this link. You should find the story compelling enough to consider buying some silver soon.

Don't be surprised in the very near future for silver to be up $1.50 - $2.00 overnight, and then never fall back. The public buys at tops and sells at bottoms. They are selling now.

Final point. Silver is a finite material difficult to obtain by hard dirty work. Dollars are in infinite supply, just push the buttons on the Fed computer and you have more of them. Just because your wife isn't interested in buying silver doesn't mean it isn't a good idea. I'm sure she loves forex trading too.


I am still in this week's FirstStrike trades:

Eur/Usd: Short @ 1.4364, stop 1.4364.
Gbp/Jpy: Short @ 194.27, stop 194.27.
Gbp/Usd: Short @ 1.7872, stop 1.7872.
Usd/Chf: Long @ 1.1199, stop 1.1199.
Usd/Jpy: Short @ 108.31, stop 108.91.

Any FirstStrike trade not stopped out before Friday-- exits on Friday just before 15:00 CST.

The dollar remains strong. We are profiting from that strength.

Current equity is $1,310.44.

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: and tell me to which address you would like it sent. Please do not use AOL, Hotmail or Yahoo addresses. They've been known to filter out more good mail than actual spam. Try a Gmail address. It's free, simple and perfect for traders!


Anonymous said...

I can't wait to see what your balance will be at the end of this week.

Truely a marvalous feat what you are accomplashing in this account and practically in your spare time.

It just goes to show that mostly what we hear or read out in the real investment world is pure BS and there are simple, robust methods out there to trade without too much hasstle. You just need the know how and the where with all to stick to them.

Good work. And thanks for showing us the light.

Job said...

Power of the FirstStrike system is amazing in a trending market. Nice job Joel!!!

Lucas Elam said...

nice pitch. really.