Why did Japanese traders load up on silver recently?
- My precious metals theory
- Silver contracts up 20%
- Silver still selling at a discount to gold
It's likely just a coincidence… but it appears that some folks in Japan might have had some inside knowledge about the central bank's decision last night to lower rates.
If you're at all familiar with my investment thesis - you know that I believe artificially low interest rates and other inflationary measures from central banks will have a bullish effect on commodities of all stripes, especially and including precious metals.
It's a simple thesis: precious metals famously offer no yield, but when central banks lower the cost of borrowing money to artificial levels, and inflate the currency, precious metals hold their ground. It's only when central bank debt securities offer better than the going rate of inflation (or the perceived threat of inflation) that gold and silver lose their luster with the investing public at large.
That takes a growing economy and a strong currency - which is not yet in the cards for most countries, including Japan.
So when I saw that open interest on silver was spiking on the Tokyo commodities exchange over the past week, I put out the feelers for some reason why - and why now?
After all, Japan's central bank has held interest rates near all time lows for years on end. In addition, silver prices have been on a huge upswing. So why would commodity traders in Japan start pumping up the volume on silver now?
And then early this morning, Japan's central bank announced surprising rate cuts.
From a New York Times story on the news:
"In a surprise move Tuesday, the Japanese central bank lowered its benchmark interest rate to a range of 0 percent to 0.1 percent, a tiny change from its previous target of 0.1 percent but a significant move back into an age of zero interest rates."
Fearing another 12 years of deflation and recession, the mighty Japanese bank wielded the most powerful tool it could to spur demand and encourage lending: it lowered interest rates 1/10 of 1%.
It might not seem like a big deal, because as I said, Japan has held rates near these ridiculous lows for an extended period of time, but it's significant because now rates are as low as they can go. Any lower, and they'll start paying people up front to borrow money.
I've long argued that silver is selling at a discount to gold prices - and since I'm still long-term bullish on gold, it would make sense to buy silver - especially if you had an idea that one of the world's largest central banks would be lowering interest rates.
Okay, I don't really believe that there's a conspiracy between Japan's central banks and traders on the Tokyo exchange - but it is a pretty interesting coincidence.
Right now, silver prices are skyrocketing:
To take advantage of this huge bull market in silver, my boss Ian Wyatt currently is telling his Small Cap Investor Pro subscribers to buy a small domestic silver miner.
This $250 million silver company is still selling for less than $5 a share - and it's been on a run over the past few weeks as rising silver prices have bolstered the bottom line. It won't stay under Ian's target price for much longer, especially with $22 silver. Click here to take a look at the Small Cap Investor Pro service, and to see if this silver miner makes sense for your portfolio.
I expect silver - and silver stocks - to continue to rally as long as world governments and central banks continue to treat their currencies like a free-for-all piggy bank. As long as currency yields are near record lows, precious metals will remain an attractive and safe investment for traders and regular investors alike.
Kevin McElroy
Editor
Resource Prospector
