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All That Glisters Is Not Gold; Part III

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Gold prices rose to all time record highs this week with futures kissing $2000 an ounce. As gold soared higher, those late to the game decided to buy silver because it had to follow gold. Back in May, 2011 I wrote of a similar scenario with a column entitled, All That Glisters Is Not Gold. It is reprinted below.


All That Glisters Is Not Gold

The mania surrounding silver, the poor mans gold, peaked on April 25, when prices touched $49.84 cents an ounce, the best level since 1980 when it posted a high of $50.35. Though prices retreated from April 25, another upward spike was seen on April 28, with a high set at $49.56. But once that high was carved out, all precious metal markets embarked on the most severe sell-off witnessed in over 30 years.

When the time arrives for a market to, come into its own, there is no stopping it from moving higher in value. Gold and silver are perfect examples of markets finally coming into their own after languishing for years. Gold recently hit an all-time historic high of $1576 while silver fell a few cents shy of exceeding a nosebleed level not seen since Jimmy Carter was President.

A cold, hard fact of market life is this: When the bloom comes off a market; When a market falls out of favor; When a market becomes too popular; When a market receives too much publicity; When a market is no longer in the midst of, coming into its own, the tendency is for prices to move lower. And the decline is always far more rapid than the rally.

One reason silver grew in popularity is because for the past six months it outshined and outperformed gold. Based on gold prices, the perennial bulls argued silver should be trading north of $50 an ounce with a reasonable upside target of $100. The pitch was, buy gold! Or, if you cant buy gold, buy silver! But the bulls conveniently forgot the wise words of William Shakespeare found in the Merchant of Venice, All that glisters is not gold.

David Weidner writing for Market Watch composed a satirical article entitled, Buy Gold. He wrote, Buy gold. Theres no risk. It never loses value. Except in 1915-20, 1941, 1947, 1951-66, 1974-76 1981, 1983-85 1987-2000 and 2008.

Mr. Weidner went on to write, Buy gold. Your dollars are worthless. You cant buy a flat-screen T.V. with them. You cant send your kids to college with them. Money cant buy you love or happiness, put food on your table, pay for a trip to see the grandkids, put gas in your tank or pay the bills.

Buy gold Weider writes. The Federal Reserve is printing money like Amazon prints books. Money is everywhere and its worthless. Everyone is knee-deep in cash. Line your birdcages with it. Use it for toilet paper. The Fed will give you more.

Funny stuff and right on the mark as well. Especially the part where gold, never loses value. Those unwilling to buy gold because it was too expensive have instead been buying silver because it appeared cheap compared to the yellow metal. Over the past four months they were right as silver rose 80 percent in value, emerging as the strong link in the precious metal complex.

But allow me to spin a tale that could have and probably did take place the past few days. While doing so, keep the words of Shakespeare in mind.

Imagine, Mr. Johnny Come Lately, so overcome with irrational exuberance to buy gold that he finally succumbed to the uncontrollable urge and bought silver instead. He paid $49.56 for July futures, on April 28. He could have bought June gold for as much as $1577 the same day but chose not to.

After buying silver, the market closed lower but gold rallied for a few days, suddenly becoming the strong link in precious metal trade. But Johnny swallowed, hook, line and sinker, the pitch that silver was worth $50 to $100 an ounce. He was certain silver would outshine gold. He was woefully mistaken.

Over the following seven trading sessions, Johnny watched in shock and disbelief as silver prices plunged to a low of $33.05 an ounce for July futures while June gold futures hit a low of $1471. His silver position at the low, had an open loss of $82,550 per futures contract. Gold prices also took a drubbing but far less at $10,600 a contract. Compared to silver, gold held its value exceedingly well.

Obviously, Johnny would have taken a brutal beating buying either gold or silver. It did not matter because the bloom was off the rose for precious metals. When he chose to buy silver because he believed it would outperform gold, it proved to be a horrendous decision. A decision he will not soon forget. And I would bet heavily his wife wont let him forget it either!

Hopefully, when his wounds heal, financially, emotionally and maritally speaking, Johnny will recall what William Shakespeare wrote years ago: "All that glisters is not gold."


This morning though the session is quite young, gold is $25 higher and silver up 80 cents. Solid gains are being seen with stocks and most commodity markets. There is not much red ink flashing anywhere. And historically speaking, markets that close well on a Friday, have a tendency to improve come Sunday night and Monday. But again, the day is young and subject to change.

Drop me a line at if I can be of help. There is nothing more important than timely and accurate information!

The time is 7:12 a.m. Chicago

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About the author

Jerry Welch has been in the futures industry since the late 1970's and is a true veteran of the markets. He has been quoted often in Wall Street Journal and is author of Commodity Insite, one of the longest commodity futures newspaper columns in history. His weekly column has been published each week since the mid 1980's and is one of the most recognized names in the world of commodities.

Mr. Welch is also known widely as a, "so so" flyfisherman.  

His column is published by the Illinois Agri News in La Salle, Illinois, Cattle Today, in Fayette, Alabama as well as Consensus, in Kansas City, Kansas.

He can be contacted at 406.682.5010 for a view of his, "twice a day" market column that includes price forecasts and trading suggestions.

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