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Silver Wheaton Corp. Message Board

  • we_are_borg we_are_borg Mar 27, 2014 4:15 PM Flag

    Good Article

    FYI: Not a big fan of Motley Fool but they did put out decent article yesterday by John Walthen as to why PM's aren't doing all that well these days. You can link to it directly from SLV board or Google: Why Gold and Silver Are Losing Their Luster.

    The gist of the article is this:

    "... metals are now more expensive to buy and hold."

    "But it's not necessarily fear -- or a lack thereof -- that's sending precious metals lower. It's their holding costs."

    "Gold and silver are, by all definitions, "dead money." They produce nothing. No earnings, nor dividends. And if you own metals through an ETF like the SPDR Gold Trust or iShares Silver Trust, you slowly lose metal to the annual management fee."

    "The impact of higher rates goes beyond inflationary concerns, however. Higher rates make gold and silver more expensive to own. Before the big plunge in metals last May, the 10-year U.S. Treasury Note yielded about 1.7%. Today, yields sit at 2.73%."

    "Every dollar deployed in the iShares Silver Trust or the SPDR Gold Trust is a dollar that isn't creating earnings, dividends, or interest payments. Placing cash in 10-year U.S. government bonds generates coupons worth 2.7% over and over again."

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    • When a geopolitical situation (like the Ukraine) flares up, trading bots quickly take on hedge positions, but as soon as there's a break in the clouds, everyone bails out of PM's. When Putin went into the Crimea, everyone got nervous; but he's yet to followup with an outright invasion of the Ukraine, so all the hedge positions closed. Plus we have Jellin-Yellin wanting to push up interest rates. THAT'S why this rally came to an abrupt end.

      Because we have automated bots doing all the trading these days, expect these sell-offs to be overdone. The Fed can't raise interest rates too much and there's only so much they can do to stave off the inevitable inflation that's coming down the road. Remember: their number one fear is DE-flation.

      • 2 Replies to we_are_borg
      • Regarding Yellen: take a look at Yahoo / Daily Ticker piece on Yellen. Google: "Short-term interest rates likely to stay near zero for 2 more years: David Kotok" You can go to Yahoo Finance main page & find link to video in the Editor#$%$ section on the left, look for picture of Yellen. The opinion is that the market only looked at a few choice phrases from Yellen's last presentation & responded thinking rates might rise later this year -- which isn't exactly what she said.

      • I understand the higher holding costs, but higher rates will only bankrupt the US faster. The only way to pay off all this debt is to inflate it away. Who will buy our treasury bonds to fund the government. Belgium? The Fed seems to be the last buyer, and default risks will increase......I hate to say it, but I think it is different this time. if dollar loses reserve status.......ouch

 
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