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By: Jason Hommel, Silver Stock Report

-- Posted 18 May, 2006 | | Source:

My portfolio of mostly silver stocks is down about 17% from its high last week on May 11th.  And in that time, gold has dropped back from a high of about $720-$725 down to a high of $719 earlier today, and loads of so-called analysts are calling for a correction, or trying to describe this week's price action as a correction.  Sigh.  I've not been doing this for very long, only about 7 years now, and I've seen my own portfolio of silver stocks lose just about 50% three times now, on the way up to over 1000% gains.  I never use stop losses--that's just a way to get kicked out at the bottom--which is a fool's game.  I stay fully invested in the sector, rarely trade more than 10% of my portfolio in a month, and keep my cash to generally between 1-5% of my overall holdings.  So, be patient, take heart, and stick with it; especially you newer investors.

The word "correction" is the wrong word to use to describe a dip, or pause, in the gold price.  The correct direction for gold to move is up.  It's the dollar that is "correcting" down.  People who write things such as "gold is going to go down hard and fast, because markets move up more slowly than they move down" are just wrong.  The gold price chart is merely a ratio chart between the dollar and gold, and the dollar can move down faster than anything, which means that nothing goes up as fast as gold.

In fact, in 1934, gold never came back down when it was revalued from $20 to $35, and it went up at the stroke of a pen.

Current price fluctuations are nothing to worry about.  You should not try to predict short-term price movements. Upon what reliable indicator can you rely for short term price movements?  There are none.  I can only know the long term, and so, I invest based on that.

I've seen so many "top callers" just get it wrong, time after time.  I think that's often because they don't know the fundamentals of the nature of gold, nor the nature of the dollar, and the two are not the same.  Many gold price charts denominated in now-worthless paper currencies show gold going up, and never coming down, ever, because it is the paper currency that is dying, not gold growing.

I think we fundamentalists who know these things don't write as often as we should, because when we write, we are often embarrassed by the simple common sense nature of the things we have to say.  Everyone should already know this stuff, so why should I waste everyone's time and repeat the obvious? 

Furthermore, since I'm not leveraged, and since I'm not in debt, and since I'm not playing with futures or options, I'm not under any "time crunch" pressure to try and invent things to write about, such as overanalyzing price movements on a 6 month gold price chart.

Just a few months ago, for example, I tried to write my "one" article about a correction--to answer the many emails I was getting on the topic.

Should I wait for a correction to buy silver?

Most of those people, who were waiting for silver to "correct" when it "broke out" to a "new high" of $9/oz., must still be waiting.  And they may have to wait for a time that will, in my opinion, never come again.  Silver was not high at $9, nor is it high at $13 or $15.  Silver was high at $50/oz. in 1980, and if you adjust for CPI inflation, that's about $150/oz., and if you adjust for M3 money inflation, that's about $250/oz.  Silver is nowhere near its former high, and will probably go much higher than $250/oz. due to the shortage.

Just think of the absurdity of trying to call a top in the middle of a bull market.  Not only do you have to be able to call a short term top, but you also have to call a short term bottom, and if you don't get it right with two successful trades (plus paying the commissions), then boom, you are caught out, and you've just "outsmarted" yourself.  (And actually, you need four successful trades, first to get in, then to try and jump out, then get back in, and then ultimately get out at the real top.)

On December 10, 2005, when gold was at $524/oz., I saw Kudlow on CNBC [that] afternoon, who was mystified by the rise in the gold price. He asked a woman on the show, "Would you be selling gold now?" She responded, "Yes, I would be selling gold now... but I don't have any gold to sell." That was a classic fool’s call for a correction!

I do this full time, and I read everything I can get my hands on related to the precious metals markets, and then some!  My readers make sure I don't miss a thing.

And I've never, ever, seen anyone successfully call the tops and dips in this bull market from 1999 onward.  Many try, but none are successful.  Furthermore, I've never seen anyone successfully call both a top and a bottom, to successfully trade a dip in the gold price.  And if you look at the gold price chart, a real 10 year chart or more, there have been no significant dips at all, not even with the one to 1.5 year sideways move somewhere in 2004.  It has already been reduced to a relatively tiny & insignificant price movement.

Just recently, the most famous silver investor of the last ten years must have tried to call a top in silver, and he was caught out.  It must have been because he didn't understand the fundamental nature of gold and silver; that they are money.  After all, he did admit that he didn't know why we would dig gold out of the ground to bury it in a vault again--forgetting that the purpose of a vault is to protect your valuable gold from thieves.

This week, another popular analyst tried to call a top, and actually sold, too.  But, he, too, wrote last year that silver is not money.  Furthermore, I don't think he ever really investigated GATA's claims.  See  So, it's no surprise to me that he is now "caught out".

Stories like those make me regret ever having tried to report on the "supply and demand" statistics of the silver market.  See

My latest critic fails to get the most important point:

Current supply and demand don't tell about the supply and demand to come.  The real fundamentals are that silver has the fundamental qualities of real money, and is real money, regardless of whether it is currently being used as such, or not.  Paper dollars are imitation money, fake money, fraudulent money, broken promises to pay in real money.

I know that the study of supply and demand are fundamental, but they miss the big picture when monetary demand re-enters the picture.  Focusing too much on supply and demand takes your eyes off of the mountain that overshadows everything: the trillions and trillions of dollars of paper money, that is out there, looking for a return, that will soon take notice of the returns in silver and gold, and buy in, heavily.

After having written nearly 100 articles on gold, I can tell you which was my post popular.  It's this one:

Major Frauds of the U.S. Monetary System

More and more people today are wondering whether our monetary system can even survive, and are pondering how society can successfully transition back to using gold and silver as money.

With silver and gold now advancing at more than 30% per year, for nearly 5 years now, how can the manipulators stop it?  Will raising interest rates on bonds from 5% to 5.25% be attractive enough to lure us true gold and silver investors away from both our annual gains and our ideals, and become usurers?  If I'm going to sell out my Godly values, and become a usurer (an extortioner, or lender), at least offer me 100%, otherwise, it's just an insult to the strength of my convictions.

But fundamentally, all the gold in the entire world is just not valuable enough to sell to prop up the bond market, if it were all sold!  The world’s gold is worth less than $2.5 trillion, and the world bond markets are about $100 trillion.

I don't even think that I'd buy a small amount of bonds that were paying 1000%!  I could probably do something similar, and make some similar kinds of gains right now if I wanted, by buying options on silver futures.  But I'm not buying for several good reasons.  First, options expire.  Silver does not.  That's the kind of fundamental thing that is important to me.  The fact that silver does not just go "poof" into thin air after a certain time period is the exact reason that silver is money, and options are not!  Second, I don't trust the paper promises.  If I bought options on silver for 5 years from now, what is the chance that I will actually get my silver, in the event that silver prices exceed $100/oz., as I expect?  Not too good!  Options require the option writer to actually buy the silver and deliver it, in the event that my option is in the money, and I exercise the option.  Third, options are like a debt.  You are intending to take delivery, and pay for, a full contract of silver, in the future.  Just like you would intend to pay back a loan.  Why wait?  Why not just buy your silver now?  Debts are the entire problem of our monetary system to begin with. 

Both paper shorts, and paper longs, share a fault; both are making promises to deliver something in the future, and the future is uncertain.  And that uncertain future is why we need gold and silver now.

I've often pondered the mystery of how gold and silver can outperform men.  How gold can gain 30% per year from "doing nothing", whereas a man can be so productive?!  Men are vapors, and in contrast, gold lasts 6000 years without rot or decay.  Ponder that for a moment.  We live a world of rot and decay; everything breaks down, stops working, and needs to be replaced, men included.  I replace my computer, my desk, my cars, my house, everything!  What an honor to be able, during the short vapor of my life, to be able to touch and own and lift something that will always have value, long after I'm gone.

Men are also liars, and when liars abound, it's time to get gold.

Frauds end badly, and frauds end suddenly.  And when they do, gold shines and its real value is exposed quite clearly for all to see--and gold's real value has nothing to do with dollars, and cannot be compared to dollars, that cheap imitation, counterfeit money.

So, let me now discuss a few recent events, to show you further reasons why we are nowhere near a top.

In order of importance:

1.  The "top" is going to likely be about $40,000/oz. for gold, and $8000/oz. for silver, or far higher, of course, if the dollar dies.  See here:

Future Gold & Silver Prices
The "recent event" discussed here, is M3.

2.  The GATA story, of central banks having sold more gold than they admit, is still just beginning to get out.  This is a 10,000 to 15,000 tonne accounting fraud, started by the IMF, the International Monetary Fund.  The entire purpose of that organization is to manipulate world gold prices, and they do it through lies.

3.  The Russians have just discovered the GATA story this fall, and they admitted they want to buy gold.  At current gold prices, Russia has the capacity to buy more twice as much gold as is produced by all the mines in the world, annually, but obviously cannot buy that much without pushing up gold prices.

4.  China continues to make noise about wanting to diversify away from dollars and into gold.  China has the capacity to buy fifteen times as much gold as is produced by all the mines in the world, annually, but obviously cannot buy that much without pushing up gold prices.  I list Russia first, because we know the Russians understand a bit about the Central Bank gold fraud now, since they sent Andrey Bykov to GATA's goldrush21 show, and Andrey is the personal economic advisor to Russian President Vladimir Putin.

5.  Major gold producers like Barrick are finally (after waiting for a correction from $300!) beginning to de-hedge, and buy back, at $700/oz., the gold they pre-sold at $300/oz.  They must know something to take such a loss, to prevent suffering further losses.

6.  Iran is now reported to be buying as much gold as they can "without regard to price".  That alone means gold is only going higher.  And many more people, as they understand the fundamental nature of gold, will likely do the same.

7.  There is not yet any widespread, excessive speculative interest in the gold market from the general public in the United States, nor in the futures markets.  This gold move has caught most everyone by surprise.  The media is surprised, and cannot explain why gold is going up, and can only muddle out thoughts of "Iran instability".  In February and March, I ran TV ads that resulted in nothing.  There is simply no interest in gold and silver from the general public.

8.  The Silver ETF is just getting started, having bought nearly 70 million ounces in less than a month of trading.
iShares Silver Trust
The ETF is NOT a "buy the rumor, sell the news", event.  The news is the silver shortage that will be brought to light by the Silver ETF gobbling up silver.  The silver shortage has not yet hit, but it will.  The news is yet to come.

9.  Next, (and this is not a "recent event") market delivery defaults, or failures, have not yet hit.  In 1934, banks closed, and failed to redeem dollars for gold--the delivery default that was followed by gold's rise to $35/oz.  In 1971, the U.S. stopped redeeming dollars for gold--the delivery default that was followed by gold rising to $850 over the next ten years.  That massive move up will come after the delivery defaults; when the world finally recognizes the shortage, and value, and fundamental nature of gold and silver.  Gold is not a promise to pay; gold is payment in full.

10.  Ultimately, successful investing is about buying things that are cheap.  What else out there is cheaper than gold?  Dollars are not a viable alternative.  Silver is better, yes, which is why this is the Silver Stock Report.  Housing is overvalued, as are bonds, and most stocks.

Things that might be better than gold may include very cheap, highly leveraged exploration companies, with drilled up reserves or resources.  But those are rare finds, and much harder to discover than the gold story--and few people know the gold story!

Have confidence!  Have faith!  Be encouraged!  When you buy a real ounce of gold or silver, and are willing to hold for the long term, then no matter what else the world does, no matter what the dollar gold price does in the meantime, you have not lost a thing.  You will still have a full ounce of whatever you bought, and its value will grow more widely recognized as time goes on.

When you make decisions based on fundamental truths, it's like you are building your house on the rock.  And when the wind and waves and storms come, your house will be stable in a world of uncertainty.


Jason Hommel

-- Posted 18 May, 2006 | |

Last Three Articles by Jason Hommel, Silver Stock Report

The Dollar is Done - Deal with It
7 November, 2011

BIS Changed Silver Data (From $203 to $93 Billion in Silver Liabilities?)
6 July, 2011

Dear Capitalists of the World
26 May, 2011

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