Monday, December 12, 2011

Wait for the Precious Metals Selloff and Then Buy Physical Mortimer!

I've been reading Turd Ferguson's, "TF Metals Report" quite a bit lately. He has been "spot" on and he called today's huge sell off. He is on my blog roll on the right margin. And here.

Gold and silver are getting their asses kicked today. Bad. Gold is off 50 bucks. Here is a very timely piece on why. Strange.

Of all the reasons for today's metals sell off- the one I find most intriguing is that paper speculators are heading for the exits. There is simply no point in trading paper (futures, options) if the underlying commodity has several claims on it. Because of the MF Global bankruptcy, one investor has already filed a lawsuit claiming that he paid for and wanted to take delivery of physical gold and silver. Metals that he paid for before any bankruptcy was declared by MF Global. As the metal was about to be shipped, a trustee halted the shipment. The lawsuit is in the judge's hands- the point of contention being simple. Who has the priority lean on assets? Investors who got ripped off? Other people speculating on the same metal? Or this last guy who paid for the stuff? It's a fore shock of what is to come.

Rehypothecation is a practice that occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing.

Banks have been notorious throughout time for lending money or assets that they don't have. It's called fractional reserve lending and it's quite legal as long as you have a crooked central bank willing to do it. Like ours. Writing several calls or puts on the same underlying metal and believing that futures will be settled in cash- much as they always have been- is another scheme that bullion bankers use. Very few traders actually take delivery of precious metals. If everyone buying a contract stood for delivery- we'd find out in a hurry just how broken these markets are.

I've been expecting this de- leveraging. People are going to trade out of paper and into actual physical metals. People are also going to take year end profits and precious metals are one of the only places where anyone has made any money. Like Turd, I expect this hemorrhaging to continue until the end of the year and then we'll see how effective the new position limit rules will be. The banks are already suing the CFTC over the new rules.

I am going to add another 150 ounces of silver to my holdings if silver breaks below 29 or 28- and I am going to add a few ounces of gold as well. This may be the last opportunity you will have to add some precious metals on the cheap while people rush for the futures exits and unwind- as the world continues to print worthless and unbacked currency as it's only method of debt repayment.

1 comment:

BBB said...

Thanks for the link