Friday, September 23, 2011

Who's afraid of the big bad wolf?

7:53 am (Hawaii) Got up a little while ago, found the market flat/mixed. Then I did my usual checking around. FAZ opened at 72+, dipped to 68+ and I missed it because I was asleep. It's now above 70. Volume in FAZ and the bankster stocks is mediocre, which tells me this is probably a dead-cat bounce for the finnies.

Then I checked on paper gold and silver. I'm completely in cash and haven't been willing to touch AGQ or DGP of late. DGP is at 54+, quite a good price to keep an eye on. But AGQ is at 115+. I had to do a double take. It's gone from 200 two days ago to 110 today. This kind of insanity has happened before, like when it fell from 382 to 150 or so earlier this year. That's the true nature of a 3x bull ETF, especially when it's tracking a severely manipulated spot price.

I'm glad I had the sense to stay out of the paper on the long side. However, I'm bummed that I didn't at least have a small position in DZZ (gold short) or ZSL (short silver). DZZ was up 8.6% and ZSL was up 30% at last check. Yup, 30%. I can deal with spot price being, well, spotty. My very modest physical stash is a store of value, not a treasure chest. So I'm looking at the probability of more inflation, more scarcity in basic resources and goods, especially being here in the islands. We're subject to powers of other places, dependent on shippers for most of our goods and food. So in this downturn, I'll continue to be picky about price when I shop and load up on basic necessities. It will not shock me when Matson or other transports here declare delays in delivery of these basics. Then prices will skyrocket from time to time. We're at their mercy.

As I type, AGQ is up to 119 and I've been considering a tiny scale-in position. It's so beaten up, losing almost half its value in two days, far worse than what's happened to the indices this week. But I also remember what I saw on spot silver's chart. The last time it had a serious decline was after the run to 21. From there, it fell below 9. That's serious. We had a price pullback from 49 to 32 recently, but it doesn't compare to 21-to-9.

At that decline rate, current price would fall even more. It would go from 49 to 21. I did that math a few months ago and didn't think it would realistically happen, not with growing interest and demand. However, recessionary pressures are real and the latest declaration from Bernanke, FedEx, etc don't help spot price for silver.

BrotherJohnF makes an argument that spot silver should not be in this major decline. He argues that demand for silver-related products like cellphones and computers remains high globally, citing numbers out of Brazil, China, India. But does that mean spot silver price has bottomed today? Is $30 the new bottom for silver? This is a time when most silver traders are running away and smart traders are stepping in. But silver seemed to be cheap yesterday, too. It's a tough call and the only move I'll make is to scale in with tiny position.

Two days ago, I would've been pleasantly surprised with AGQ at 180 or 160. But at 119, it would've been almost too preposterous to believe. In general, between the banksters and FAZ, spot gold and silver vs bankster shorts and economic puppeteering gone bad across the galaxy, I'm in no rush to dive in head first. But this is a good time to watch closely. Or get out and enjoy life away from this chaos for a day.

Right now, ASEs are going for $35.03. An AGE is $1,741. US Mint started selling its America the Beautiful 5-oz Gettysburg coin at the regular price of $279. That comes out to $56 an oz, or 87% over spot. With all of their price increases in the past few months, I don't see the US Mint lowering its silver and gold prices at all. Ever. I'll take a pass for now. In fact, I'd rather make some fiat profit by trading DGP or AGQ or FAZ, then use that to buy metal at these discounted prices.

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