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Gold and Silver Channel Check

Despite the sell off today in PMs and stocks occasioned by the most recent FOMC meeting and lack of immediate QE3, we all know there are trillions of paper dollars, euros, yen, rupee, and yuan musically circling the chairs that represent the few desirable assets remaining in the system.  (Fact: there are fully 4 times as many financial assets (bonds) in the system as tangible assets (shares, real and personal property, metals, etc.)  But rather than go ahead and grab one of these chairs now, "smart" money prefers to either sit in cash or engage in high-frequency trading, currency arbitrage, or derivative investment that might possibly result in the kind of payoff that made Kyle Bass both rich and famous in 2008.  The theory is:  We all know the system is doomed, just not doomed today.  We can trade shares of Bank of America today for a pop because there will be  plenty of time to take a real chair once we're more certain of how this game plays out.

Chris Duane is famous for saying "I'd rather be 7 years too early than one day too late."  I couldn't agree more.  Just-in-time inventory management doesn't only apply to groceries, iPhones, and auto manufacturing.  Gold and silver dealers practice JIT, too.  To be both specific and personal, it took me 4 months last summer to actually get the admittedly large ($100,000) delivery of physical gold maple leaf coins a client of mine wanted and paid for in May.  It also took a certain amount of hostility on my part as well, as the price of gold just kept going up and up and the dealer kept pushing back delivery.

Today I went to the Dallas Gold and Silver Exchange, a large bullion dealer here in Dallas, to pick up a few more coins.  On hand they had a whopping 6 gold 1oz Canadian Maples, 13 gold 1oz American Eagles, 60 silver 1oz American Eagles, and 176 silver 1oz Canadian Maples (that had just been delivered from the mint).  That's $32,000 of gold and $8,500 of silver for those of you who don't want to whip out your calculators. One determined buyer could wipe out their entire inventory on hand in a single transaction.  This determined buyer nearly did.  And you want to wait to buy?  You think you can sell into strength and buy back on weakness?  You think you can day-trade paper PMs now and wait until the 11th hour to convert to the real thing?  You really want to be a participant in that final, futile stampede?

Every time I do my channel checks on physical PMs I am reminded full square of how foolish it is for people to do anything other than buy and hold PMs and how lucky I am that they are.  Every time I get paid fiat I buy real   Pullbacks are buying opportunities as surely as Ben Bernanke and his banking minions have no choice but to continue to finance our exponentially growing deficit.


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