Silver Lemmings – $150 oz Silver is Coming

Expected Returns
Wed, May 4, 2011
Subject: Understanding the Short-Term Top in Silver

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Yesterday, silver experienced its biggest one-day dollar drop in 3 decades. In recent weeks, I’ve been warning that the downside risks in silver were huge, that silver rose too far, too fast, and that there was a frenzy developing in silver. I publicly stated I was lightening up above $46 dollars and that a minimum of a 30% decline in silver shares was very possible. I think enough of these things have come to pass that I can now speak from a position of strength about this recent craze in silver.

I don’t claim to have all the answers; I’m just trying to nudge you all to be objective and learn from your mistakes. If you unloaded silver near $50, great. If you went long instead, brush it off and try to figure out what you did wrong. Did you believe “this time is different”? Did you get caught up in the hoopla that there’s some kind of shortage in silver? Did you believe that the collapse of the dollar was imminent even though I noted that objective metrics like debt servicing costs as a percent of revenue were suggesting otherwise? If so, don’t continue believing in a flawed premise. That’s what the rookies do. That’s what the “professional” analysts do. We’re just trying to make smart decisions without any personal allegiance to any asset.

Everyone Has Two Choices

When I first started investing, I too got caught up in the hoopla surrounding whatever the popular asset was at the time. I suffered the hard way from not putting enough thought into my investments. In response to these errors, I did something absolutely shocking in this day and age: I learned from my mistakes.  I actually got angry that I screwed up. I spent hours in the bookstore learning and honing in on what I did wrong. Perhaps this reflects my nerd-like nature, but this is honestly what I did. And guess what? I’ve become a far better investor because of it. If I didn’t learn from my mistakes, I believe I would have a small fraction of the profits I do now.

How many people out there can honestly reflect on their mistakes without justifying their every action? I’m sure you all know someone who never admits fault. These are the type of people you just roll your eyes at; their mental maturation stalled at about the age of 12. Even at my age (27), most people I know are just set in their ways. Even now, people listen to what I say not necessarily because they are open-minded, but because my investing track record has been so good over the years. They may do well in investing, but in every other aspect of life, they are as close-minded as everyone else.

While investing in general is hard, investing at extremes is pretty easy. I’m slightly overgeneralizing here, but if over 90% of people think something is going to happen, the opposite is likely to occur- at least in the short run. Now understand that this doesn’t necessarily have anything to do with the validity of an investment thesis; it basically comes down to a question of who is buying.

When 90% of people are on one side of a trade, then a significant percentage of those people are just lemmings who chased the popular investment. The smarter speculators who bought in the middle of a trend take profits, which forces the latecomers to panic and sell. Next thing you know, you have a trend reversal. Simple. The reason it is hard for most people to invest in extremes is that it is human nature to mimic the action of others, especially when it is a strong majority. In most aspects of life, this is the proper course of action; in investing, it is dead wrong.

Now back to silver. I believe the bare minimum requirements for a correction have been met. If I had to hazard a guess, I would say this correction has more room to run. I’m just taking this one day at a time and adjusting to whatever the market gives me. Stay nimble and get ready to pounce when the opportunity comes.

Understanding the Short-Term Top in Silver is a post from: Expected Returns

Gold, Silver Drop as Soros Fund Said to Dump Precious Metals Read more: Gold, Silver Drop as Soros Fund Said to Dump Precious Metals,_Silver_Drop_as_Soros_Fund_Said_to_Dump_Precious_Metals_Read_more:_Gold,_Silver_Drop_as_Soros_Fund_Said_to_Dump_Precious_Metals.html


Wednesday, 04 May 2011

Silver futures fell, heading for the biggest three-day drop since 2008, and gold also retreated amid a report Soros Fund Management LLC sold precious-metal assets.

Soros Fund Management sold some holdings because of a reduced risk of deflation, according to the Wall Street Journal, which cited unidentified people close to the matter. Michael Vachon, a spokesman for George Soros, declined to comment.

The fund held shares in the SPDR Gold Trust, the biggest exchange-traded product backed by gold, and the iShares Gold Trust at the end of 2010, U.S. Securities and Exchange Commission filings show.

Silver futures fell as much as 5 percent to $40.465 an ounce on the Comex exchange in New York. The contract was at $41.72 as of 6 a.m. local time, for a three-day decline of 14 percent. Margin requirements were raised 38 percent in since April 26. Gold futures retreated 0.2 percent to $1,537 an ounce.

“Some small, speculative players had to trim their silver positions as they couldn’t afford to pay for such margins,” said Jerome Berset, a portfolio manager at Palaedino Asset Management SA in Geneva, which has 1 billion euros ($1.49 billion) in assets and has maintained holdings in gold and silver. “For long-term players with fundamental views, this may be a good time to get in for both silver and gold.”

The decade-long bull market in gold and silver attracted fund managers from Soros to John Paulson and spurred central banks to add to their reserves for the first time in a generation. Investors in exchange-traded products backed by gold accumulated more metal than all but four central banks, while silver holdings are equal to more than eight months of global mine supply, according to data compiled by Bloomberg.

Gold Reaches Record

Gold reached a record $1,577.57 an ounce on May 2, a sixfold gain since prices bottomed in August 1999. Spot silver rose to an all-time high of $49.79 an ounce on April 25, a 12- fold advance from the low of $4.04 reached in 2001.

The Soros fund held 4.72 million SPDR Gold Trust shares as of Dec. 31, equal to about 460,000 ounces, an SEC filing on Feb. 14 showed. It also owned 5 million shares in the iShares Gold Trust, equal to about 48,800 ounces. The firm had 19,900 shares in Pan American Silver Corp., a Vancouver-based company mining the metal in Mexico, Peru, Argentina and Bolivia. There were also stakes in Barrick Gold Corp., Kinross Gold Corp. and Novagold Resources Inc., the filing shows.

Soros described gold at the World Economic Forum’s meeting in Davos, Switzerland, in January last year as “the ultimate asset bubble.” In a Nov. 15 speech in Toronto the 80-year-old said conditions for the metal to keep rising were “pretty ideal” and at this year’s Davos forum he said the boom in commodities may last “a couple of years” longer.

Paulson Holding

Paulson & Co.’s holding was 31.5 million shares in SPDR Gold at the end of December, an SEC filing shows.

Passport Capital Management LLC also sold some gold holdings to lock in profit, the Wall Street Journal reported, citing a person close to the fund. Passport Capital held 3 million put options on SPDR Gold shares and 28,100 shares in Barrick Gold as of Dec. 31, according an SEC filing. Two phone calls outside of normal office hours to John Burbank, founder of Passport Capital, weren’t answered.

CME Group Ltd., the owner of the Comex exchange, said this week the minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures will rise to $16,200 per contract at the close of business yesterday from $14,513. A year ago, the margin was $4,250.

“Silver is often the lead indicator for changes in trends, or at least for corrections,” David Wilson, an analyst at Societe Generale SA, wrote in a note. After futures rallied to a record $50.35 an ounce in January 1980, prices dropped 78 percent in four months.

From the start of this year to the end of April, silver futures rallied 57 percent and were the best performer among the 24 raw materials tracked by the Standard & Poor’s GSCI Index.

Silver assets held in exchange traded products fell 1.1 percent to 15,169.80 metric tons yesterday, while gold holdings stood little changed at 2,069.78 tons, according to data compiled by Bloomberg.

Read more: Gold, Silver Drop as Soros Fund Said to Dump Precious Metals

Filed under: SILVER AND GOLD MARKETS Tagged: -Silver-Drop-as-Soros-Fund-Said-to-Dump-Precious-Metals.html,,   


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