26 Apr 2018
by Chris Marcus, Miles Franklin:
Is it possible there might come a time when you want to buy precious metals, but you no longer can?
One of the advantages of the current 7 year bear market in precious metals is that it has given investors a lot of time to think. To think about where the government finances are headed. To think about how that might affect the financial markets. And to think about how to respond with your money and investments.
This train of thought has led many to the precious metals. And certainly for those who have invested in the past decade, the market has required strong mental fortitude to stay with the trade. Because even many of the most ardent precious metal bulls have already capitulated, while wondering why to not just buy metals when the action kicks up again.
But unfortunately the market doesn’t always give that kind of clear indicator. Which often leads many to out-think themselves on when to get back in. Additionally, a factor that many rarely consider is that if a short squeeze occurs as many including myself have speculated, there might not be metal to find.
Consider the conditions that occurred in 2011, and factor in that in the event of a short squeeze, they might likely be even further exacerbated.
Andy Schectman of Miles Franklin has mentioned that when the market crashed in 2008, and the price of gold went from $1,000 to $700 while the price of silver went from $21 to $9, there was little metal to be found. And what was available came with 8 week delays and 100% premiums.
Fast forward to 2011 when gold rose to $1,900 and silver rose to $49. Again product was not easy to come by. So if this is what occurred during those periods, it’s interesting to think about what might occur when we do finally see a true short squeeze in the market.
Certainly there is reason to believe that actual physical metal will be quite in demand. Many in the precious metals community have estimated numbers as high as 500 paper claims to each physical ounce, and if that’s even anywhere near accurate (which I do personally believe is more likely than not), there’s going to be quite a surge of demand for the actual physical metal.
So actually finding precious metals might be a challenge. Because if you had precious metals in this environment and were faced with a rush of buyers, wouldn’t you sit back and wait unless someone offered a significant premium?
Which means buying is going to be costly, if even possible. Of course even furthering the challenge is that if silver gaps up $5 or $10 in a day, you’ll be faced with the decision of wondering whether prices will come back in for a better entry point, or if you need to go out and lift an offer. Which in my experience is often where people most get themselves into the trouble.
This is why investing in precious metals now rather than later always made a lot of sense to me. Especially at the current prices that are so close to the actual cost of production. Because I don’t know exactly when the big move will occur. Although to have money saved safely and know that time and nature are on my side continues to seem like the ultimate form of financial security.
So while there is always the temptation to see if you can get a better price or if the market dips a little further, the skew to the upside far outweighs the risk to the downside. Factor in the uncertainty of available product, and if you see where this market is headed, it could well be the perfect time to add to your precious metals holdings.
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