The Reasons to Buy Gold & Silver

by Wes Bridel on October 19, 2011

in Stewardship

Gold and silver markets have been extremely volatile.  We began a new series on this topic here.  Today, we’ll finish our explanation of the big picture view of the market and then give the details of why it’s important to have exposure to gold and silver as a hedge against the financial chaos currently mounting!

The recent drops in price in gold and silver are good for several reasons.  If you understand that JP Morgan Chase has a monstrous short position that they are trying to unwind (a position that would not be legal in any other market and far greater than long side positions that were deemed illegal in the past (in the case of the Hunt brothers), than you should understand that they can only expand the crash the market to the extent that they can get leveraged long positions to scare and sell.  An examination of the recent Commitment of Traders report shows us that the number of open positions is now lower than it has been in years!  This is excellent news because it shows that there are few if any leveraged long players for the bullion banks to go after.  To try to drive the price lower would increase the risk they are trying to eliminate rather than decrease it.

If you are unaware of the peculiarity of these markets, I apologize for the short description above and would encourage you to go watch the gold and silver Economic Update videos we’ve put out over the last year and a half for an explanation.  However, you don’t need to be to get excited about where we currently are in the market cycle.

It is common and healthy during a bull market for the market to “back and fill”. The market drops from a previous high position and then bounces around in a trading range for a while.  This process drives out the “weak hands” while they sell their positions to “strong hands”.    This process continues in a channel until the strong hands get impatient or new buyers notice the market is coiling like a spring and it launches to new highs.

If a market goes too high too quickly, it is liable to suffer a devastating fall.  The fact that gold and silver fell from recent highs and are now range bound is very good news and shows us that the market has the potential to still move much higher over an extended period of time.  It they had shot straight up in a seemingly endless way, this would be a good indication that the ride is over.

However, all of that information is really technical in nature.  Let’s look at the fundamental questions…

Has the US Government solved its debt problem?  Japan? Britain? Europe? China?

Had Europe solved its Sovereign Debt Crises?

Is there any reason to believe massive amounts of new paper currency won’t be created going forward?

Since the answer to all these questions is No, we can rest assured that bull market in gold and silver is intact.  However, the reason that I had this board consider gold and silver was not to participate in a “bull market”, but instead to protect itself against the possibility of insolvency.  This is the main reason you should be concerned with this market as well.  The following series of posts will address the issues that should concern you.

This is the second post in a series on silver and gold. You can find all posts from this series at:  1) Gold & Silver on Sale, 2) Reasons to Buy Gold & Silver,  3) Gold & Silver: About to Take Off?,  4)  Why & How to Buy Silver & Gold?,  5) Gold Bubble?,   6) Gold Speculators or Savers?,   7) Gold Article Rebuttal, &  8)  Gold Rebuttal Pt 2.  Watch the previous economic update video series we did at: 1)  Europe Economic Update 1, 2) Europe Economic Update 2, 3) Europe Crises Explained, 4) World Economic Update, 5) US Economic Update,  6)  US Economic Update 2,  7)  US Economic Update 3,  8)  Hyperinflation Signs,  9)  Hyperinflation, Inflation, or Deflation?,  10)  Gold Update,  &  11)  Gold & Silver Update.

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