April 24th, 2013 by Dissolving Dollars
April 23rd, 2013 by Dissolving Dollars
The silver and gold sell off has not reversed in the paper market. But in the physical market, premiums are high if you can even get the metals at all. At Provident Metals, they are out of most stuff and the premiums are high. Like there is a $6 premium on 90% junk silver. And there is even a $2.75 premium on 40% junk silver; historically 40% has been available below spot price. If paper prices stay depressed for awhile, premiums should come down and the metals should become more available. But there is no guarantee that will happen, because the people buying physical aren’t buying to trade it. The traders buy the paper markets not physical. The few traders taking physical delivery are the people using physical and selling physical to physical buyers. Conspiracy theories aside, the discrepancy between paper and physical metals just goes to show the difference in psychology between those who trade the metals and those who accumulate physical bullion. The big money must trade and it can’t go into or out of these tiny metals markets without causing big price moves. And the producers, sellers, and buyers of physical must use the paper futures markets to hedge. So far, it looks like the paper metals want to drop more. Perhaps the paper markets will keep going down until even the individual physical buyers turn bearish too. I don’t know, either way is fine with me. All I know is that it will be interesting to watch.
April 15th, 2013 by Dissolving Dollars
I’ve been waiting for this to happen and am surprised it took this long; there is an old fashioned shake out going on in the precious metals. This is called shaking out the weak hands. The more people that get scared and sell, the quicker a bull market in metals can resume. But the longer people hold on, the further prices could fall. As I said Friday, the prices of the metals were at the edge of a cliff, and they decided to jump Sunday evening when trading resumed. Now gold and silver are near the edge of another cliff. Whether the suppression of metal prices is a conspiracy or not, the fact is the prices are what they are…even when there is a disconnect between paper and physical prices. Like I’ve been saying, I expect gold and silver to trade lower rather than higher for awhile (although they’ve already moved down quite a bit). But the highs will be broken in due time. It just might take a few years or so. Gold and silver are a global market. When things align globally for the metals, things will change. These markets are small and when big money has to go into them, they will have to go up big.
Anyway, it’s been an exciting and eerie few weeks with Cyprus, Bitcoin mania, and now the metals shake out. And now before I hit post I’m seeing this Boston Marathon news, which gives a whole new layer of meaning to the title I gave this post.
April 15th, 2013 by Dissolving Dollars
April 12th, 2013 by Dissolving Dollars
Gold and silver have been selling off. And they are right at the edge of a potential longer term sell off (see Martin Armstrong’s technical take on silver and gold). I’d personally love to see silver go down below $20, because I’d double my holdings at that price. I’d likewise love to see Bitcoin below $20, I’d much more than double my Bitcoin holdings at that price. Gold and silver, like the recent Bitcoin bubble, have been the centerpiece of big bubbles in the past. And Gold and Silver will likely be in big bubble territory again before the end of this decade. (Check out this cool article showing 10 of the biggest bubbles in history with charts.) In the meantime, I wouldn’t be surprised to see a surprisingly strong dollar (relative to other fiat currencies). That won’t be good for gold and silver until the dollar starts to weaken again and the stability of the U.S. starts to come into widespread question. Although at times it seems dumb, I don’t trade in and out of the precious metals, I just accumulate them. I’m doing the same with Bitcoins. I save trading for things like stocks, not for assets that are a hedge against declining confidence in things like government and the banking system. Plus, the broader stock indexes (since they are so big) tend to be a lot easier to predict. But anyway, anyone looking to buy silver (or gold), this may not be the low yet.
April 11th, 2013 by Dissolving Dollars
Trading of Bitcoin on Mt.Gox, by far the biggest Bitcoin exchange, was halted today. Mt.Gox said it needed a cooldown of 12 hours to upgrade its system, which hasn’t been able to keep up with trading recently. With Mt.Gox closed, that sent Bitcoin prices plummeting on the smaller, secondary exchanges like BTC-E. Like I’ve said before, the current problem with Bitcoin is not the ability to sell it, but instead the difficulty of trading fiat for it. It’s easy to move Bitcoin to sell over on a secondary exchange, but just about no one has cash to buy Bitcoins on those exchanges except the people who already sold Bitcoins on those exchanges. So, it will be interesting to see what prices do when Mt.Gox reopens. I personally don’t intend to ever sell my small stash of Bitcoins for dollars. I’m not interested in the potential tax implications, nor am I interested in holding dollars. This Bitcoin craziness is what happens in a free undeveloped market where there are no futures contracts or short sellers with the incentive to buy while everyone is selling. The Bitcoin soap opera just keeps getting more and more interesting.
April 10th, 2013 by Dissolving Dollars
There have been a lot of people waiting for the Bitcoin bubble to burst. When the FinCEN report aimed at Bitcoin came out a month ago, that is when the price started getting crazy. And that is also when people started crying Bubble. Today, after hitting $266, Bitcoin crashed hard going down over 50%. And that’s the kind of stuff that happens in markets that go parabolic–especially developing markets prone to things like denial of service attacks. Bitcoin is in a phase transition. When the parabolic rise eases, that doesn’t mean it is going to zero like a bankrupt stock; it just means it has found an equilibrium between people who see Bitcoin’s value and want to convert their fiat for Bitcoin and people who think only government or nature makes money real. Just because Bitcoin involves money, people automatically think of it as a bubble. I would relate it more to something like people getting an email address, people joining Facebook, or just people moving from land lines to cell phones. Were those bubbles? No, because people don’t trade things like email addresses, they instead just perhaps stop using them. Despite the volatility caused by the financial nature and thus emotional nature of Bitcoins, the long-term trend of Bitcoin should end up looking more linear. Bitcoin is a new tool and its adoption will take time. For one, Bitcoin will have to climb a wall of worry full of ill-informed naysayers (and conspiracy theorists)…as it has for the last four years already.
As someone who feels under-invested in Bitcoin, I certainly haven’t been a fan of the big price run-up. And I’m enjoying watching the most recent crash. But the fact is the run-up has proven the potential demand is there. There is actually still a backlog of demand since the difficulty of trading fiat for Bitcoin has kept most people on the sidelines hoping for a crash. But if Bitcoin is destined to become a world-wide currency, the price has barely moved yet. Even at $250 that was only a market cap of about 2.5 billion. To people that don’t understand Bitcoin, it is a bubble. To people who understand Bitcoin and aren’t intimidated by technology and volatility, it is a new digital gold with a big potential for changing the world for the better. Bitcoin is a paradigm change. And as I’ve already written, the quicker a person gets in tune with that new paradigm the better. You can start understanding Bitcoin better here.
Even a lot of the gold bugs disappoint me in their dismissal of Bitcoin. The hard money folks don’t trust digital money. Well, I hate to break it to them but technically, even gold is digital; it is essentially a highly encrypted form of matter that takes a whole lot of energy to replicate. Our understanding of the universe is only as good as our best metaphor. There was a time when the clock was the best metaphor and the universe was thought of as a windup clock. Today the best metaphor is to think of the universe in terms of digital information. With enough energy, gold can be manufactured. And I would venture to say that someday it will be manufactured; perhaps not cheaply but manufactured nonetheless. Also, someday there will be quantum computers that can crack code in no time. With the advent of quantum computers, Bitcoin will not become worthless, it will just have to switch to quantum encryption.
So anyway, I find the developing story of Bitcoin fascinating. The highs and lows are like a soap opera. It’s a lot more interesting than watching the relentless low volume melt up in the stock market.