Sunday, May 22, 2011

An Island and an oncoming storm...

I would like to make one comment regarding all the rediculously bullish commentary regarding gold and silver due to central bank and sovereign purchases of the metals. People seem to have a short memory and have forgotten that when all the same governments that are now buying gold and silver could not figure out what else to do with their gold and silver vault deposits and paper receipts for same - they sold them. As I recall that was when gold was $250 and silver was in the low single digits when most of the official selling occured...So, the time to be selling assets which have been so hyped that governments and central banks are buying them at highly inflated prices and many are even referring to them as when it is obvious "everyone wants to buy them". Yes, and especially when its central banks want to buy.

Hell, even Zimbabwe, the only modern nation inept enough to officially create 11,200,000% now smart enough to futher constrain their remaining purchasing power by basing their new currency on gold. So, it is happening now...all the charletans and economists are buying Gold and silver regardless the fact that they are NOT currencies and stand very little chance of becoming functional currencies. Despite the fact that they are at inflated prices and despite being an easily manipulatable and unstable basis for exchange...especially as a basis currency.

So, now is a very interesting time to be highly skeptical of the populist perception that "WE NEED GOLD NOW"...and try to look at these metals for what they are...simple assets and a source of liquidity...which makes them highly susceptible in case of a liquidity contraction. And a liquidity contraction is exactly what we have.
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