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Crazy Month, Eh?/
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(May Day, 2011) April is both the cruelest month, according to a bard, and also what brings May showers. Exactly what sort of precipitation could follow the likes of the past 30 days is anybody’s guess. Let’s review this month just past, chockfull as it was of action as we just haven’t seen lately…
Let’s start with silver. There’s no ignoring this surging market, with its trend line on the chart tilting ever upward in the throes of full-bore silver mania. Silver gained some 28% in April, bumping up very close to the $50 barrier before leveling off this past week as profits, inevitably, were taken.

Silver bulls manifest their beliefs mostly through silver Exchange Traded Funds (ETFs), the most active being the iShares Silver Trust (SLV). This ETF tracks the spot price of silver, more or less, and volume in this investment vehicle actually exceeded the volume of trading for the popular SPDR S&P 500 (SPY) for quite a few days in April.

Clicking a mouse to trade SLV has made speculating in silver as easy as using your thumb to bring up the latest app for your iPhone. Virtual silver trading is a snap compared to the old ways, which involved trading commodity futures or, even more difficult, taking possession of a decidedly bulky store of wealth. Silver prices in the $40s inevitably have been compared to the similar price-spike of 1979-1980, when the billionaire Hunt brothers and some Saudi Arabian cohorts attempted to ‘corner’ silver. True, we are today at about that same price peak that occurred in January 1980, but this silver rally is more long-lived as it has been gathering steam for the past six years or so. Silver markets today also enjoy much broader participation, particularly in the US.

What is similar is the public reaction to the higher prices that can be obtained for silver treasures long locked away, i.e., “Martha, let’s sell the silver!” When a silver dime that would barely fetch 25c for its silver value ten years ago now can be sold for over $3, the public takes notice. And many people who own silver dimes, silver tea sets, sterling flatware, and the like, are old enough to have learned one lesson in 1980: sell while the price is high, because it won’t last forever.

Of course, throwing a few household silver items or old coin accumulations into the melting pot is not going to be much hindrance to this silver market, which we can all agree is just on fire. But let’s take a moment to state the obvious, just for the record:

In all markets, even silver, supply and demand factors will prevail in the long run – higher prices bring out greater supply, and industrial use will cool as end users learn to re-engineer their products in ways that consume less of an element that has increased ten-fold in price in the last decade.

This month also saw a first – a press conference by a head of the Federal Reserve. Ben Bernanke fielded a few questions on Wednesday April 27, and of course precious metals jumped even while he spoke. All in all, he did well, answering a variety of questions without any real surprises, always staying on message. As for inflation, although food and energy prices have spiked considerably over the past year or so, which naturally affects those who eat, drive, or heat their home, Chairman Bernanke insisted again that such inflation is just ‘transitory.’ This led James Grant, of Grant’s Interest Rate Observer, to clear the air by pointing out that, in fact, “Paper money is transitory.”

In other April craziness, Haley Barbour dropped out of the running as Republican candidate for the presidency in 2012, probably because his decades in politics left him with a name recognition factor below that of the leading candidate, the TV celebrity Donald Trump. “The Donald” as he is sometimes referred to, perhaps by himself, has also let the world know that he is thinking about running for the office. In other news, Mr. Trump’s political status was boosted this week when President Obama released a Hawaiian document called a ‘long-form certificate of birth,’ an item which The Donald had expressed some interest in seeing.

Back in the real world, gold of course made new highs this past week, continuing a steady (in other words, ‘not transitory’) trend which began in the year 2001. The dollar fell some 3.8% in April alone, and is now down against other currencies by 7.8% during this year so far. Here’s little nostalgic exercise - Remember when the Canadian dollar sold at a discount to the US dollar? Remember getting more than three Swiss francs for a dollar? Remember when the Australian dollar was worth, like, a quarter?

That was then, and this is now. Of course, we are all looking forward to the day when President Obama and Congressman Ryan come to an agreement on a way to clean up the federal deficit mess. When that happens, the dollar will reverse course and become strong again, gold will no longer perform as well as it has over the past decade, and any number of other modern miracles may occur.

But until that happens, we will stick with the gold business. It looks to be busy for a good long time.

-Richard Smith, May 1st, 2011

 

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