Guest Essay by Isaac Kahan

(A different perspective on what drives silver prices.)

Silver Stock Report

by Jason Hommel, January 8, 2009

There is a LOT of silver up for auction tonight at www.seekbullion.com, both bars and coins.  Peter has bar auctions ending at 6PM Pacific, and I have coin auctions ending at 8PM Pacific.

Before I get to the guest essay, I must inform my readers of a change in the terms of my silver auctions at www.seekbullion.com.  I can no longer take the risk to offer silver for auction starting at $1/oz., since I've taken a few losses this week in my auctions.   (This means if you bought this last week, you got a fantastic deal!)  In the future, I must start the bidding at the spot price of silver, plus all my costs, and to do that I might have to add bids as needed, as the silver price moves up. 

I liken this change to me being no longer willing to be so daring as to walk the tight rope without a net underneath, or race a downhill without protective nets around the turns.  I also realize that I underestimated my costs, due to two factors.  I forgot to include listing fees, and forgot to include the spread in silver prices, so I took a bit of a hit.  It's ok.  I'll survive, and be stronger for it.

Some may think that my change is not a free market process.  But it is.  The free market is when a willing seller, and a willing buyer, are both willing to trade, without undue force.  I'm not really willing to sell at a loss on a regular basis, and nobody should be expected to.  Nobody has a right to force me to sell silver at a loss.  Yes, ebay does not let anyone bid on their own auctions, but when has ebay ever understood the finer points of the precious metals markets?  The entire point of setting up a metals site is because ebay is not efficient enough.

So far, none of my readers have complained to me, although some have complained to the owner of www.seekbullion.com, Peter Spina, who also runs silverseek.com and goldseek.com. 

As always, since I know that the free market is a competitive market, I'll continue to do everything I can to lower costs in all areas, so as to be able to offer silver to my readers in forms most desired at the lowest possible prices.  And our prices are lower than at ebay, due, in part, to fewer people being aware of www.seekbullion.com.

Today's guest essay is from the man who pushed me the hardest to start dealing in silver, who I met online a few months ago.  So, my customers and I owe him a bit of thanks, so pay attention to what he has to say.

The Gold & Silver of Today, Predicting Metals for Tomorrow

My name is Isaac Kahan, a silver and gold merchant for nearly 25 years. I own a successful gold and silver wholesale business selling metals to manufacturing and casting companies. The net result is that most of the jewelry made in the U.S. is manufactured with my metals.

Over the last few years, the market for the manufacture of jewelry has been exported beyond the borders of the U.S. Earlier this year, with the value of gold and silver going up, my company began to receive thousand of ounces of gold, as well as gold and silver coins for refining.

The response was so extensive that we began melting most of the coins in order to pay for them. Shortly thereafter, I decided that a wise business decision would be to position myself in the retail market and begin to sell these coins at a better value. This allowed me to place better bids for these goods. While I was well under way creating my web site, www.bulliontradingllc.com, there was a perceived shortage of these coins in the market, inevitably causing the available supply to dry up.

I am skeptical of this supposed shortage, and believe the perception of a shortage was been caused by several possible factors. I am aware that it is now difficult to find these coins and bars since thousands have been melted by my company and by my competitors as well, but in the past, if I was ever in need of large quantities for my customers, such as grain or large bars, there has always been a ready supply.

I compare the perceived shortage to going to the grocery store and asking to buy a box of 9 eggs. The grocer will tell you that eggs are only available by the dozen. This does not mean there is a shortage of eggs, rather the form you are looking for is currently unavailable.

I believe that readers with some market-sense are aware of the main reasons that gold and silver value should once again prevail in the coming year. They include:

∑         Devaluation of the dollar due to the financial bailout.

∑         Foreign investors have been getting burnt and the US should soon start providing relief to US held products, increasing the US dollarís decline.

∑         Gold has been proven to be the best investment of the year and the public will get wind of this, surely influencing more investment dollars into metals.

∑         Investors should increase investments into metals since it has been long accepted that 10-20% of investments should be in the metals market.

∑         Hedge fund money, commonly used as a means to diversify from the direct correlation of the stock market, is being asked back. These money holders will still be using this money for risk diversification and what better outlet than metals?

The Benefits to Owning Silver:

I believe it to be market-savvy to own silver. As a trader, I have been trading more silver than gold, for several reasons. Mainly because silver moves about 2-3 times faster than the same amount of gold, resulting in more bang for your buck.

I have used several different methods of trading in the silver sector of the metals market. The method I have been using for the longest period of time is called the CCI. This method, which I hope to inform the readers about through my blog, is actually correlated to the closing price of the Dow. It has been my conclusion, through the observation of the stock trends and activities, that when the Dow increased based on any number of given market conditions, silver increased in value as well. This alone should be a good reason because it illustrates a win-win situation for silver.

One the one hand, if gold were to increase and the Dow were to decrease, silver would  at least tag along with gold, not allowing for a depreciation in value. On the other hand, if the Dow increases, so should silver, since this has been the indicator for quite some time; hence the win-win situation.

Of course, given the current market fluctuations, we all need facts, reassurance, and tested logic behind our decisions. Fortunately, our resources are endless via the internet.

The question on your minds may be why silver, in fact, performed poorly this year. First, one has to realize that in the begining of 2008 gold went over $1000 and silver increased to over $20. Given that, gold then began to decline to below $700 whereas silver had a much harsher decline, reaching about $9.00. Keep in mind that the Dow was also taking a strong hit during that time as well.

My theory is rather simple.  There are only 3 possible scenarios for silver. First, if gold holds up its value, or if the Dow becomes level and ceases to decrease, silver should begin to rise, exponentially. Second, if the Dow begins to rise, it will surely influence silver to do the same. (I plan to address the industrial metal issue at another time.) The third and final scenario would be if both gold and the Dow were to decrease simultaneously, which is a highly unlikely possibility.  In the rare event that this does occur, it should not have an affect on silver since it has already declined, in relation to gold. Essentially, silver should once again gain its strength and provide investors with a sound possibility for successful investing.

About the company: Bullion Trading LLC accepts orders of any size and processes orders using the spot price. Bullion Trading LLC only sells from their active inventory and only stocks in-demand grain, coin and bar products. Come visit us & see for yourself at: http://www.bulliontradingllc.com/index.php

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Here is the track record of this Cci system. This trades only when the dow is trending up. It is not taking short trades.

Igain stands for the index gain which is silver based on the London fix.

Historical Analysis (Run All Composites): C:\CA_CCIL.TXT

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Start Date: 01/03/00
End Date:   12/19/08
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YEAR   GAIN     YMDD     MDD     IGAIN
----   ----     ----     ---     -----

2000  13.13%   -7.21%   -7.21%  -14.07%
2001  -5.14%  -19.36%  -19.36%   -1.31%
2002  35.66%   -7.56%  -19.36%    3.32%
2003  74.74%   -5.99%  -19.36%   27.84%
2004  28.69%  -28.97%  -28.97%   14.24%
2005  75.36%  -13.64%  -28.97%   29.47%
2006 117.91%  -27.72%  -28.97%   46.09%
2007  65.88%  -18.89%  -28.97%   14.42%
2008 -32.87%  -61.31%  -66.79%  -28.12%

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SIL Buy/Hold Results
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Winning Years:            66.67%
Total Gain:              +99.06%
CAR:                      +7.98%
Max. Drawdown (peaks):   -57.55%
Ulcer Index:              18.48

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C:\CA_CCIL.TXT Results
----------------------------------------------------------------------

Winning Years:            77.78%
Total Gain:            +1332.27%
CAR:                     +34.56%
Max. Drawdown (peaks):   -66.79%
Ulcer Index:              17.32

 



Sincerely,

    Jason Hommel