What a wonderful "dream"!
Happy New Year and good luck in 1999!
THC
GOLD AND SILVER REVISITED
This short reply was written in response to the excellent article written on December 16, 1998 by Ted Butler regarding the leasing of both gold and silver.
Ted Butler is correct to suggest the procedure of leasing both gold and silver at this time because the joint venture of Banks, Brokerage Houses and Mining companies [BBM] that have historically leased (sold short) these hard assets is about to come to an end. Why must this practice end soon? Everyone (credit worthy enough to lease hard assets) who could have possibly leased such hard assets has already done so! No one leases gold or silver to a third party unless they can be assured that they will be able to get these assets back. The BBM's have already leased and sold these assets into the cash markets to obtain cash in order to finance speculative currency, equity and derivatives trading operations or to hedge their precious metals cash flows until such time as these markets begin to rise. The tip-off that the BBM's have exhausted their potential leases of gold and silver was when LTCM had to use the FRB to bail itself out instead of just borrowing or leasing precious metals and selling the hard assets for cash to cover their emerging market and trading losses.
So what happens now? I suggest the following scenario may unfold over the next ten years.
From 1998 through 1999 strong long-term holders (Buffett, Soros, and others) start to accumulate gold and silver at these levels or lower levels if the markets will accommodate, while the public is forced out of their long positions or even sells short based on possible planted or unfounded news stories. Short-term day-traders (on or off the floor) keep trading and make some profits or take some losses. Probable trading range for Gold = $200 to $340; Silver = $3.00 to $7.50 over the next 12 months (most likely a down move first in a deflationary environment followed by an explosion upward).
Above $345 Gold and $8.00 Silver, sometime after Y2K the short sellers (those who leased) begin to panic and start to cover any remaining sales or hedges put on. Of course they will not sell or lease anymore. Long-term holders still hold their positions. Short-term investors start to buy while the public looks on, waiting for a pullback in which to buy. Day-traders still buy and sell to scalp some profits or take some losses. BBM's stop any new leasing programs.
Above $500 Gold and $20.00 Silver (Y2K+1) the public starts to nibble in these markets as the brokerage houses start to write positive articles. They need volume since the stock market will have dropped off as the Internet stocks are getting slaughtered. The public would like to buy more gold and silver but the relative prices seem too high, so they are looking for a price pullback in which to buy. The day-traders still scalp profits and take losses. Gold and Silver mutual funds become particularly hot, based on their past 12 month performance and money inflows from the sale of other stock market investments. Long-term holders still hold their core investment positions in bullion but start to see their long-term holdings of Gold and Silver stocks reach areas of over-extension. This will result in secondary offerings and new issues of stock being offered.
At $850 Gold and $50 Silver (Y2K+2) all of the previous short sellers are out of the market or bankrupt. The public, still looking for the pull-back that never came, watches from the sidelines in the futures markets (margins have gone from $1,500 to $100,000 a contract). Instead, they buy the gold and silver stocks in earnest. Day-traders still trade but at subdued levels, staring in disbelief. The volume of contracts traded in the futures markets decline, but the gold and silver stocks are red-hot. News stories circulate about how the French, Swiss, Middle-Eastern, Japanese and Chinese banks are buying Gold to preserve the purchasing power of their currencies.
News stories continue to circulate (Y2K+3-4) about major fraud at some banks and brokerage houses which can't cover their derivative and short positions in the Gold and Silver markets and might default on leasing programs to Central Banks and the U.S. Treasury. An audit of all U.S. Treasury Gold and Silver holdings is ordered by the U.S. Senate. News comes out that shorts have no Silver to deliver on Comex. Gold soars to $1,300 an ounce and Silver to $100 an ounce. Trading in Gold and Silver grinds almost to a halt. The public and day-traders are out of the market. Buffett offers 20 million ounces of Silver to a consortium of industrial users at $144 an ounce. Soros issues a secondary offering of 1,000,000 shares of Apex Silver at $100 a share (after a 10 for 1 split). Both offerings are oversubscribed. Long-Term investors continue to keep their core holdings.
After 5 years (Y2K+5) in the planning stage (plans started in 2000), large mining companies begin to bring on stream their developed Gold and Silver mines. Prices have stabilized and are now going up or down in tandem with the money supply and consumer prices. Meanwhile, by Y2K+10, Russia and China (Mainland and Taiwan are now combined) follow the Middle-Eastern and Southeast Asia countries onto the Gold Standard and become instant economic success stories for the 21st Century. Prices are now averaging $3,450 Gold and $300 Silver per troy ounce. Puzzling, no one ever mentions the uselessness of Gold and the overabundance of Silver anymore.
This is the scenario as I see it. Regards and best wishes.
December, 1998
Edwin J. Sheldon, Chief Market Strategist & CEO (Ag Bug)
Sheldon Capital Management, LLC
Manager of Sheldon Diversified Fund, LLC (No-Load Hedge Fund in Formation)
Fax.# 973-890-5728
E-mail - ejayshel@aol.com
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