Three Interesting Points

by JDH on July 2, 2011

I have three interesting items to share today (at least I find them interesting; you will be the judge). But before I start, Happy Canada Day (yesterday, July 1) to my fellow Canadians, and Happy Fourth of July to my American friends. (And yes, I’m a purist; I still call it “Dominion Day” here in Canada, because I think calling in “Canada Day” is stupid, but that’s another discussion for another time).

Interesting Point #1: You Guys are Good

You will recall that at the end of 2010 I opened the door to allow readers of the Buy High Sell Higher website to offer their 2011 predictions for the quarter-end closing values of the Dow and the price of Gold. For June 30, 2011, the winners are:

  • JohnB who predicted that the price of gold would be $1,450; gold actually closed at $1,502.77 on Thursday, before dropping over $20 on Friday, but that puts JohnB as the “closest to the pin”;
  • ChrisC who predicted that the Dow would close at 12,200; ChrisC wins; the Dow actually closed at 12,414 on Thursday, before powering much higher on Friday.

Well done to both of you. Sorry, no prizes (I’ve got no budget for that), but you do get bragging rights.

For the record, I predicted $1,700 gold (to optimistic) and a Dow at 11,000 (to pessimistic).

Now, here’s the really interesting point #1: As a group the average prediction was:

  • Gold $1,567 (actual $1,503), and
  • Dow 12,100 (actual 12,414).

So while JohnB and ChrisC were better than the group, the group did quite well, all things considered. I’m not surprised, since I’m sure you all recall my post on New Year’s Day, Near Perfect Predictions for 2010 – What’s Ahead for 2011?, where I revealed that your 2010 predictions were “bang on”, much better than any professional prognosticator.

In case you are wondering, the group believes that on September 30, 2011 the Dow will be at 11,300 (a drop from these levels), and the price of gold will be at $1,558 (an increase from where we are now). I’ll report back in three months with the result.

Interesting Point #2: The Dow is up, big time

This week the Dow was up every day, for a total gain on the week of of 5.4% (of which 1.4% happening on Friday).

That’s an increase of 648 points, which was the biggest weekly point gain since a jump of 782.62 points during the week ending Nov. 28, 2008.


All is good. Mostly, apparently, manufacturing, which is why the market is up.

What’s interesting is that all isn’t good. China’s manufacturing growth has stalled, which presumably indicates reduced demand from North America, probably because unemployment, as I reported last week, remains at 9.1% (near the highest levels of the past 50 years).


Hard to believe things are getting better if no-one has a job…..

Interesting Point #3: It’s all a mirage

Let’s tie it all together: the market appears to be on a roll, but is it really? Does the end of QE2 have anything to do with the inflated market? Yup.

For an alternate view of reality, I suggest you read the excellent piece by Eric Sprott and Andrew Morris of Sprott Asset Management who advise Caveat Venditor, which if your Latin is weak mean’s “Seller Beware”, because the Comex silver market is a ruse. To wit:

With more and more dollars flowing into the silver markets and a finite supply of physical to meet that demand, the theoretical losses for the paper silver short-sellers are near infinite. And with such a skewed and obvious risk/reward payoff vastly favoring the longs, we pose the following question. Who is most at risk in the silver markets: the buyers of a scarce and real asset that serves a growing multitude of purposes, or the sellers, who are short a quantity of silver that may very well not even be obtainable at anywhere near current prices? Let the seller beware!


You can read the entire Sprott report on the GATA site.

Their point is that on the paper markets there are 1.1 billion ounces of silver traded every day, but there are only about 1.3 million ounces of silver available for investment each day, so the entire supply of world silver is traded, on paper, 891 times per day.

Guess what will happen if purchasers start taking delivery: there will be nothing to deliver, and the paper silver markets collapse.

So as I close my thoughts on this holiday weekend, remember this: just because the markets appear to be moving up, it does not mean they will be moving up forever, or even for the short or medium term.

I’m quite happy sitting on cash, and precious metals.

Thanks for reading, happy holiday, and see you next week.

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