01 March 2013

Net Asset Value Premiums of Certain Precious Metal Funds - Thin Premiums, No Bubble

Premiums are rather thin again.

One of the reasons I track this series of prices and relationships, which can all be accessed in a series by clicking on the category title at the bottom, is that I use it to keep track of any 'frothiness' in the market.

And it is well known that a 'bubble' does not exhibit this lack of enthusiasm in what are largely retail instruments.

This is confirmed by the bellwether precious metal mining sector, which is not robustly priced to say the least. It looks more like gloom and depressed sentiment rather than overly enthusiastic buying.

A bubble is marked by wide public participation. And there just isn't any yet in this bull market.

Even at this stage of the bull, the 'wall of worry' is quite steep and troublesome. But this has marked every major consolidation before the next leg higher, as the metal passes from weaker to stronger hands, over and over. The paper onslaught works, until it does not.

And then the metal bears retreat to a higher level and repeat the process. It is a cynical game, and does not perform the functions of capital allocation and demand satisfaction that are the purpose of the markets with regard to the real economy. There is a great moral hazard in this that will be reconciled at some point.

What I do particularly resent is the use of the media and propaganda and obvious price manipulation to help that process along. The hedge funds and bullion banks go too far, and the regulators do far too little to uphold their responsibilities.

But for those who have been involved since the beginning of the great turn in valuations, this is nothing new, and it too will pass.

I could be wrong, but I do not think that I am. And at least I am thinking, and not merely mouthing nonsense, which is what passes for much commentary about the metals from even 'name' economists. Change is hard for the status quo.

And we are in a period of great historic change, and like most great change, it happens slowly at first, and over a long period of time. And then suddenly the greater mass of people become aware, as if that change just happened suddenly, and just fell from the sky. And it is a revelation to many who otherwise would not have given it a thought.