September 4, 2008

The above adage is well known by precious-metals investors; in fact I used this quote in one of our monthly reports. I recall how many inquiries we received, asking if indeed I thought this summer (2008) would show the pattern similar to most summers for the precious metals. At times I questioned which direction the metals would break, but stated, as mentioned in last week’s column, our analysis forecast a long correction going into August 2008.

Having such a strong upward movement in the precious metals from August 2007 after a very big washout (similar to the one we are now experiencing) to March 2008, many are questioning if this is again possible. We have just passed September and Labor Day is behind us; should we get back into the precious-metals markets?

Indeed we have never left entirely. We did hold some buying power available and suggested to our readership that they purchase throughout the summer and into the end of September 2008. Right now as I write this week’s missive, the precious metals are at a point I consider “do or die,” meaning it looks from this vantage point like the metals are retesting the recent lows, and those of us that are still bullish think the market can bounce up from here.

However, it is not a strong financial environment: stocks were broadly lower on Thursday; the major market indices were all down around 3%; the S&P 500 lost 3%, the Dow lost 3%, and the Nasdaq lost 3.20%. Selling pressure was relatively even across the board. Gold and silver were off about 1%, gold doing better than silver. The XAU (Gold and Silver Index) was off 4% more than the broad market, not a good sign. Bottom line, all sectors were lower. In other words, no place to hide other than the bond market.

Coming back to the precious metals, it is difficult to gather enthusiasm when each passing day seems to bring lower prices, but this is exactly the type of sentiment that signifies bottoms. Can I guarantee this is the bottom? No I cannot, but all those calling for the end of the commodity cycle are not sure either.

But there is no lack of interest on the commodity front; in fact, power and control are combining. The Chicago Mercantile Exchange has acquired NYMEX, as stated below.

CME Group Inc. has completed its acquisition of NYMEX Holdings, Inc. This creates a company with pro forma 2007 annual revenue of $2.7 billion and average trading volume of approximately 14.2 million contracts per day. Customers from more than 85 countries trade CME Group products, primarily electronically. Corporate headquarters of the combined company will remain in Chicago. “We are extremely pleased to complete our transaction and welcome NYMEX and COMEX into CME Group,” said CME Group Executive Chairman, Terry Duffy.

Duffy continued, “This is another milestone for CME Group and NYMEX in our long and successful histories. Together, we will continue operating the largest and most diverse derivatives exchange in the world. We are extremely grateful for the support of NYMEX shareholders, members and employees. As a united company, we are well positioned for a new phase of growth, innovation and product development that will benefit our customers, shareholders and market users around the world.” (Emphasis mine)

I remain a bit skeptical as to what further derivatives and innovative “products” can be developed that would benefit us. I have been around much of the world, speaking about the dangers of the derivatives markets. In fact, it seems to me, with the failing of many derivatives in the financial sector that began in August 2007 and continues today, most of us financially oriented are fed up with the derivatives markets. Well, perhaps by consolidating power and managing the markets closely, who knows—some might just benefit.

It is an honor to be,

David Morgan
E-mail: ibtimes@silver-investor.com

Mr. Morgan has followed the silver market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.