Nothing Like a Good Sell-Off
By: John Fisher All investors are not created equal. When one group is selling, another is buying. This became especially clear in recent days. And in my opinion, there is nothing like a good sell-off!
Silver has retreated from approximately $41 to $31, and gold from $1,900 to $1,600. It is important however to note that this price drop is almost entirely driven by paper investments. What do I mean by that?
Investors in futures contracts were stopped out, forced to cover, or eventually cleaned out as the market continued to fall. Stock positions on margin, whether ETF’s or individual issues, received margin calls. Double and triple long funds, like ProShares, were caught short in the decline. And those looking at the statements at the end of the day began to feel nauseous.
Physical holders were also none too happy. However, we know these gyrations are here to stay for years to come. The good news is these short term swings really don’t have great financial implications for us.
Most of us don’t figure the value of our physical holdings every day. We don’t receive a month end statement. Rather, we think in terms of how many ounces we own. That is what is important to us. That, as well as growing the total number of ounces.
The selling that has taken place is almost entirely paper selling. From our survey of several of the largest distributors in the US, physical buying outpaced selling from 50:1 or 100:1. Virtually no one is selling their physical holdings, instead they are buying in great quantities.
Declines like this one are healthy. It purges the system of excess, speculators, opportunists, and get rich quick novices. Purging excess has always been healthy in every financial market. We don’t like it in the moment – but it is much better on the other side. That is exactly where we are today.
All Things Considered – John’s Commentary
When you read the headlines recounting all the selling and the drop in prices, it does not pertain to you and me. They are highlighting the investor who has a speculative interest in the sector and not a desire to own the hard asset.
We are currently being presented with a tremendous opportunity to dip your toe in the water or add to your position.
Quote of the Day: Steady plodding brings prosperity, hasty speculation brings poverty. Proverbs 21: 5 – TLB
