Thanksgiving already  (Published 6/28/06)

Although it is still several months until Thanksgiving, all of us can pause and be grateful for this wonderful opportunity to once again buy silver and gold at prices that are incredibly low.  It was only weeks ago that many of our more bullish brothers thought we would never again see a buying opportunity like this.  Now we hold that opportunity in our hands, and it is each investor's decision about what to do with it.  For this Optimist, the decision is easy.  Almost all of my available capital is now invested in silver and gold on a fully paid basis.   Since my positions have no leverage and no possibility of margin calls, I can simply sail through short term turbulence that would be caused by additional market price dips, and patiently wait for irresistible profit taking opportunities on a portion of my positions at much higher prices ahead.  Who could have guessed it?  The century old market adages of "buy low, sell high" and "the trend is your friend" really are good and worry free ways to prosper.

Some pessimists are concerned about the possibility of a deflationary debt collapse.  If the U.S. dollar increases substantially in purchasing power, that would be very bad for investments in silver and gold.  The good news viewpoint from the Optimist, however, is that the Fed can (and will) print enough fiat paper to prevent the dollar from gaining purchasing power so there will be no deflation.  Fortunately for investments in silver and gold, this time it really is different.  Even as persistently rising inflation drags nominal rates higher, silver and gold will continue to prosper because real interest rates will remain steadily bullish for precious metals.

Silver and gold look like a cornucopia

At Thanksgiving, we are reminded of our good fortune by the icon of a cornucopia which begins small like a single seed planted in the spring, and which then spirals out into a horn of plenty with our bountiful harvests flowing out the large open end.  The Optimist sees a similar cornucopia in the market action for silver and gold.  Consider the charts below (which are updated each week in the Optimist Charts page).                       

In 2001, the more than twenty year long silver and gold bear market ended with small bullish seeds being planted.  From that small beginning, we can see a spiraling cornucopia of rising prices in a repeated pattern of higher lows followed by much higher highs.  The higher lows are here and now.  This is the part of the cycle where we can practice our skills to buy low.  Prices may, or may not, drop lower in the short term, but the Optimist can promise that short term opportunities will not last forever.  As the calendar marches ceaselessly through the medium term and into the long term, investors of the future will look back with pride at the trophies they captured by action in this time frame, or they will sing remorseful songs about woulda, coulda, shoulda.

How high is up?

If history is a guide, we should soon see rising prices again.  Then the incessant question will be how much higher will prices go?  The Optimist's possible price projection for 2007 seems like a reasonable guess, but the charts offer calculated numbers that are worth considering.  By extending the line of highs from 2001 into the spring of 2007, we find that silver could trade above $17 and gold could be higher than $800.  Those possible price targets on a logarithmic chart will increase exponentially with additional time to the new highs ahead.

A bullish moderation

Observant readers may point out that silver and gold highs cannot continue forever to rise at a faster rate than the rising lows.  If the cornucopias drawn since 2001 could keep rising at the same pace, then highs would eventually be double the lows, or ten or even 100 times the ever increasing lows.  That seems intuitively unlikely, so the Optimist anticipates that over time, the highs will increase at a somewhat reduced rate, and the lows will increase at a faster rate to moderate the ratio of highs divided by lows.  The prospects for a faster rise in the low prices ahead provide even more incentives for capturing a large position of lows now, because these current low prices will look like great bargains in the years to come.  Cheers!

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This commentary presents only the viewpoints of the Optimist, and it is intended only for perspective and entertainment. Please do not interpret any portion of this work as investment advice. If any of the concepts discussed here appeal to you, then you must do the work to decide if and when and how you should invest. The Optimist does not ask for any profits you make, and he cannot be liable for any losses incurred as a result of your investment decisions. The Optimist wishes you the best of luck in whatever you decide to do or not to do.

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