muses of the moment

May 7, 2011

Game changer

Filed under: Gold and Silver Investing, Precious metals — totallygroovygirlfriday @ 1:31 am

Last month Mike Maloney with put out a video blog explaining that in the past year Central Banks have become buyers, not sellers, of gold. This is a huge change in the precious metals market. Click here for the video. I may have posted this video before within a series of links, but let’s take a closer look.

What this shift tells groovygirl in relation to the recent drop in the precious metals markets is that Central Banks are using this drop in price to buy more physical long-term at the same time that they are using their paper position to move markets down short-term. They are trying to get small investors to release their long-term position in gold/silver for the banks’ ultimate benefit. Since more large players are involved now, the moves are greater.

Do not be fooled. Use drops in price as buying opportunities to continue to gain a long-term position in physical metals (just as these central banks are doing). Do not trade precious metals, do not leverage trades.

Side note: groovygirl is speaking of gold and silver as one in this situation because Big Banks are using both as a store of value and a trading metal, they understand how each affects the others price. 

In addition to this new dynamic, we still have gold/silver traded as currencies, manipulated for the benefit of the dollar, and effected by oil prices (dominated in dollars).

This dramatic correction in silver and gold is a sign of the dynamics of this long-term bull market in precious metals. It is NOT a sign of a top. Not even close.

Side musing: groovygirl was very interested in the sell off in all commodities on Thursday-Friday. It smells like a liquidity run. And with the recent run up in all commodities, there must be a lot of leverage attached to those trades. We may be witnessing an unwind in currencies, precious metals, oil, commodities all at the same time. If true, it is proof of too much leverage in the system, more confirmation to hold physical only, and not enough liquidity in any market to keep trades from falling off a cliff at any moment. This is the nature of the winter cycle of the K-wave. Expect more of this until all debt is reset.

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