Call Me Delusional
(Market Update 08-09)
by Edgar J. Steele

December 15, 2008  

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Below is an email I sent three weeks ago to a small group of exceptionally-forgiving friends of mine, in which I pre-announced my hunch that things have changed fundamentally in the precious metals (PM) markets.  I almost sent it to our full list, as I do today, but held back in view of the many painful emails I have received over the past six months from those who have suffered paper losses on silver they bought at my recommendation.

Though personally I have suffered tremendous losses as a result of the government's months-long manipulation of the dollar, silver and gold, it has pained me even more deeply to know that others have sustained such losses, at least partially in reliance upon my outlook. 

Fortunately, most have followed my recommendations to the letter and bought only physical silver and taken personal delivery.  They will be made whole and then some.  A whole lot more than "some," I firmly believe.

Some list members, like myself, have been foolish enough to ignore my fundamental advice to hold only physical PMs, which is all that I continue to support publicly.  They and I took substantial positions in mining stocks on margin and we got destroyed during the past few months.  It was a calculated risk.  I never imagined that the government would drive down PM prices while the stock market crashed and simultaneously inflate the dollar beyond the bounds of all reasonable foresight.  Our recent experience illustrates the folly of investing (gambling, actually) with borrowed money. 

Now I have no choice but to continue to gamble on the leverage inherent to mining stocks, though I have been stopped out of all my margined positions.  As noted below, I believe that the fundamentals have shifted once again, more in line with what existed a year ago.

I still like Pan American Silver (PAAS) and Gold Corp (GG), but am particularly impressed with Coeur d'Alene Mines (CDE), which has declined well beyond the average during the past few months (to less than 10% of its value a year ago, becoming a true "penny stock" today) and which appears to have more headroom than most, as a result.  I have bought as much of CDE as I could with what remains of my brokerage account balances (not much), though I continue to hold modest positions in PAAS and GG, as well as a couple of small firms that I cannot in good conscience suggest to others.

Do as you will.  You know what I am doing.  I can in good conscience recommend only that you buy gold and silver and take physical possession.  They are at bargain levels today and are readily available if you are willing to pay the premiums being commanded.  Do not mistake spot price for market price. 
Check eBay, which is the closest thing we have to a published market these days.  Here are links so that you easily can check on prevailing eBay silver and gold prices:  http://www.24hgold.com/english/buy_sell_silver_coins.aspx?co_id=0 (silver) and http://www.24hgold.com/english/buy_sell_gold_coins.aspx?co_id=0 (gold)
Here are a few good sources for gold and silver bullion:  http://www.tulving.com/, http://www.bulliondirect.com/, http://www.goldandsilvernow.com/, http://www.seekbullion.com/.  (Yeah, well, I wish I got something for recommending these sites - something beyond the knowledge that you almost certainly will be treated fairly and given good prices, that is.)
I believe that the next sixty days or so are among the most dangerous ever faced by America.  We are in transition, with a do-nothing, lame-duck president standing in the way of a nation still transfixed by the vision of another man falsely promising change while that man (Obama) surrounds himself with the very people who created the staggering problems, both economic and political, now facing us. 
Israel is whipping itself into a fever and virtually certain to strike out at Iran.  Pakistan and India are on the verge of nuclear war.  Economic riots have spread from Greece to other parts of Europe.  Incredibly enough, pirates actually roam the seas again.  All hell could break loose at any time, folks. 
Take care of the fundamentals first:  location, protection, survival.  Then, and only then, should any of this financial stuff matter to you.
As bleak as this Christmas might seem to be shaping up, it well could be "the good old days" when viewed from just a couple of years hence.  Enjoy it well and be particularly attentive to your family.  In the long run, family is all that you have.  And friends, don't forget.  I count you, particularly, among my treasured friends. 
Merry Christmas...

From: Edgar Steele [mailto:Steele@PlainLawTalk.com]
Sent: Monday, November 24, 2008 8:36 AM
To: Edgar Steele
Subject: Call me delusional...

Some do.  But, I have a distinct feeling that something fundamental may have shifted in the PM markets.  A policy change that causes the PPT to go hands-off gold and silver. 
There are lots of possible reasons:  options expiry last week, new administration coming, new econ team (same as the Clinton econ team, which ran the PPT into overdrive), China going into recession, Motor City going BK, a need to devalue the dollar in the face of global recession, shorter hem length, planetary alignment...  Fact is, though, it is just a hunch.  An educated guess.
Both gold and silver were up smartly last Friday and this morning.  This may be a trend worth watching.  If you have the ability and have not yet gotten aboard the train, this would be a good time.  Silver is much more volatile than gold and moves both quickly and over a larger amount of real estate than does gold.  Currently, silver is historically about as undervalued vis-a-vis gold as ever has been seen.  A quick march right through $20 per ounce is coming - of that you can be certain - it's the timing that is fuzzy, is all.
eBay hasn't yet caught a whiff of the trend, if a trend it is, thus the premiums for silver and gold still reflect last Thursday's prices.  A good time to buy on eBay but not to sell.  I hear that Tulving has silver for sale.
Throughout this whole debacle during which physical and paper PMs parted company, resulting in a true "Black Market," real, physical silver never has gone below $15 per ounce.  Recall that I said a while ago that you never again will see silver below $15.  If we see a sudden upsurge in the spot price of paper silver, it will be interesting to see if the 40-60% physical premium carries along - it probably will for a while, then decline.
My feeling isn't strong enough yet to go public to my list or web site with my hunch.  This missive goes out just to a handful of those who I know will forgive me for being wrong, as I so often seem to be regarding short-term PM price movements (though my long-term trend forecasts have been right on the money).
I'm looking for serious and significant politico-social events during the next 90 days.  All hell could break loose, in other words.  This, perhaps, is the single most important component of my hunch.


Copyright 2008, Edgar J. Steele

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