Thursday, November 24, 2011

Q&A With The Doc: I Bought Silver At the Top- Will We Ever See $50 Again?

David writes:

I am in my late sixties and recently purchased $30,000 in physical silver in the $45-$47 range. Due to my age do you think i made a big mistake? Will I live to see those prices again? I figure I have about 10 years if I am lucky.

David- what you are essentially asking is whether I believe the 10 year bull run in silver has ended.  The answer to this question is a resounding no.  As recently addressed in this RANT, nothing has changed that would indicate an end to the massive secular bull run in gold and silver. 

Massive secular bull markets end in exhaustion, after the general public has piled in near the end of the run, pushing prices exponentially higher, and exhausting all possible buyers.  Often times the gains made in the last few months equal the entire gains of the bull market up to that point.
Silver's 10 year chart indicates that since the 2002 run-up (barely even noticeable on the chart now), silver makes a mini-parabolic run approximately every 2 years, with severe corrections and then long consolidations between.  As the global debt crisis is rapidly intensifying, personally I expect the next mini-parabolic run to begin a little early, but it is possible that basing/ consolidation could continue till fall 2012 or even later.

Long term- the US dollar is finished.  See the Congressional Super Committee's inability to agree to ONLY add another $8 TRILLION to US debt over the next 10 years.  Meaning the US will in fact add $15-$20 Trillion (WITH NO FURTHER TARPS/BAILOUTS!!) over the next 10 years, taking total public debt to $30-$40 Trillion. 
Think about this for a moment.
The US is currently on pace for its official public debt to pass TOTAL WORLD GDP in the next 10-15 years.  Only a fool or a Bernank would think this is sustainable.  What you saw this week in Germany will wash up on US shores MUCH SOONER than the US press believes possible.  Germany just had its 2nd FAILED BUND auction.  Selling only 60% of a bond offering is an AUCTION FAILURE.  The only way this does not happen to the US as well in the next 18 months is complete monetization of the bond offerings by The Fed.  The music will soon stop.  Either the US defaults on those who have already purchased its bonds, or else The Fed prints into oblivion to make up for the deficit shortfall. 
Gold and silver will continue their bull runs (with continued violent short term trading and severe corrections) until this plays itself out and the US dollar either collapses or is backed by hard assets.
In summary, be right, and sit tight.  For those new to gold or silver, short term underwater positions can be unnerving, making one question the initial purchase/ investment.  Only those who who have absolute conviction in WHY they purchased gold and silver, and hold and sit tight through all the violence will make it through till the end of the bull market.   Remember gold and silver are not stocks or lottery tickets.  They are sound money, and financial INSURANCE against systemic collapse.   If the dollar collapses, physical gold and silver will allow you to continue to provide food and shelter for your loved ones.
If you purchased hurricane insurance and the insurance company slashed the price for new policies with a Category 5 hurricane on a direct course for your home, would you consider liquidating your insurance policy?  Would you not continue the policy, or possibly even increase its size/ coverage due to the imminent risk combined with the insurance sale/discount?
Gold and silver going on sale as the current global debt crisis hurricane builds strength is an apt analogy.  Don't toss away your insurance merely because its on sale right before you need it the most!
Hope this helps!