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Interesting Silver Debate: Do Old Indicators Matter Or Is Physical About To Overrun Paper? For as long as most gold and silver investors can remember, the paper markets — that is, banks and speculators placing bets with futures contracts — have set the price of those metals. And within the paper markets, “the commercials” — fabricators and big banks — have time-and-gain fooled speculators like hedge funds into piling in (both long and short) at exactly the wrong time. The data series that tracks this relationship is known as the commitment of traders report (COT), and it’s been a pretty reliable indicator of precious metals’ short-term trajectory. Right now that’s bad news for gold and especially for silver, because the speculators — who, remember, are usually wrong at the extremes — are exuberantly long the latter, implying that the silver recovery is due for a correction. Here’s a recent piece from well-known metals trader Dan Norcini:
On the other side of this argument is London metals trader Andrew Maguire, who in his latest interview on King World News interview asserts that gold and silver are entering new, post-paper age in which physical demand sets prices:
Maguire goes on to say that if this is indeed the long-awaited physical take-over of the precious metals markets silver will not only fail to correct, it will go up faster than gold, brining the gold/silver ratio down to more historically normal levels. For those getting back into precious metals after the brutal bear market of the past few years, the prospect of the Eastern physical markets taking over from the Western paper markets is welcome. But it adds another layer of complexity to an already opaque market. So here again, the only rational response is to embrace the short-term uncertainty and dollar-cost average. Since both camps in the above debate see precious metals much higher a few years hence, just buy a little at a time and don’t try to play the squiggles. Leave that to the pros.
DollarCollapse.com is managed by John Rubino, co-author, with GoldMoney’s James Turk, of The Money Bubble (DollarCollapse Press, 2014) and The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street(Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.
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