His math adds up as follows: after a 435% rise over 628 trading days – a feat that has occurred 56 times since 1920 – silver stands to lose a potential 85.84% in value (which is what happened in all 56 instances since 1920) and might fall to $6.86 per ounce. Then again, the “quant” author also noted that gold (as of March 29) was at its most overvalued annual average price since…1791 to be exact. He called the inflation-adjusted price of gold “a valuation technique that remains one of the more brilliant carnival-barker efforts in the annals of Wall Street.”
On April 12, some three weeks prior to the carnage in the silver market, Mr. Debevec observed that silver became the most overpriced it had been since…1712. It had outperformed gold by the most in 299 years. To make matters “worse” a previous Debevec study (April 7) suggested that “prudent value investors should wait eight to thirteen years before making a long-term commitment in silver.” Now 2034 is…a long way down the road, you know. Besides, will most folks not load up heavily on the shiny white stuff just before December of 2012 as they did before Y2K? That pesky Mayan calendar still looms large…no?
The one thing that is however becoming a tad clearer with each passing day is that certain fund managers decided at the end of last quarter –well before we were witnesses to the bold headlines of $1,575+ gold and $50+ silver – that booking profits ahead of the rest of the crowd was quite the wise thing to do, even if being early was eventually going to be questioned by others. In other words, when George Soros declared in January that gold was the “ultimate bubble” it turns out that he may well have been saying precisely that; that the yellow metal was already in a bubble, and/or that it had come to represent the last bubble in a long series of same.
Thus, we now learn that the Soros Fund Management LLC “let go” of no less than $648 million of its gold ETF (some 13.5 tonnes) holdings (that would be 99% of Mr. Soros’ gold positions) by the time March 31 rolled around, and that the Touradji Capital Management fund unloaded the entirety of its 173,000 shares of its gold ETF shares within that same timeframe. The other familiar name that also cut its gold ETF holdings (by a not insignificant 48%) during Q1 was Mr. Mindich’s Eton Park Capital Management LP. There has been no change in the gold holdings of Paulson & Co. for that reporting period, albeit everyone is quite curious as to what that fund may or may not have done, or be doing, in the current quarter.
Curiously, the fund-related market and news talk that had heavily extolled the purchases of gold in recent years by the aforementioned financial figureheads as a sure sign that mega-rallies were in the making, have not shifted very much in tone and are now “explaining” the sizeable gold liquidations as mere “logical profit-taking” and even expect some of these firms to reestablish positions at some future time. In no way is there any overt sense that such departures from the gold niche might possibly mean the end of one cycle, or the possible beginning of a…different one. Label to be applied later, but in any case, well before 2034…
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America