Gold & Silver – My Love Affair

While everyone else is exiting their gold and silver positions, I continue buying…and so is the smart money…

As long as Europe continues to sink beneath the waves, and as member nations exit the Euro in 2012 or 2013, more and more money will flow into U.S. dollars, fleeing the European catastrophe which falsely and only temporarily drags gold prices down. The irony is that the U.S. is in far worse financial shape than Europe, and our time to sink is quickly approaching.

In this game, the U.S. is only “doing well” relative to Europe “doing badly” but who cares if two people jump out of a plane without a parachute, which one of them is going to hit the ground first? The end for both is the same.

The sinking of the American economic ship will  be faster and deeper, but in the meantime investment money will try to hide from the European storm in our harbor.

Not too far from now, that will end. And the only safe harbor in this global hurricane will be gold and silver.

I think some people think it’s too hard to buy gold or silver, or they can’t be bothered to do the research. If that is you, then please read my blog post on how to buy gold and silver that I wrote back in 2009 when I started buying, and consider some of the easiest ways you can protect the value of your dollar. You can open a Scottrade account for free and park your money in SLV or GLD stock, or you can buy actual bullion, like these silver bars that are only $30.13 each as of today and lock them up in a bank deposit box.

And remember, I make nothing from what I post on this blog, this damn thing costs me money every year. I am the best kind of help you can have because I have nothing to gain by your decision, either way. My only hope is to provide an alternative resource to people who are seeking knowledge, and the truth.

My only caveat is that these are not short term trades. If you want to protect your money, then you need to be willing to part with it for a year or more, preferably several years. Think of it like you would a 401(k) where you know once it’s invested, you better not touch it. The upside is that you don’t have to make yourself sick following the bouncing ball of its value every day, all you have to know is that it will be worth far more in the future than what you paid today. It’s that simple. If you absolutely need something more liquid, then go with the ETF’s that you can liquidate back to cash in only one or two days. If you want something more tangible that you can get to if the world really gets dangerous, then choose bullion. I would have a mix of both so you have a liquid rainy day fund, and a cataclysmic Armageddon fund.

Let’s hope for only rainy days.

For more information on the current status of buying gold and silver, please consider the following article by Peter Schiff:

“For such a wonderful year for precious metals investors, the final calendar quarter left little to celebrate. Just as people now take for granted that their phones will also take pictures, play music, and surf the internet, many investors have come to expect gold and silver to move up in a straight line.

In fact, in a recent CNBC interview one analyst claimed that gold’s recent correction proves that it is not really a safe haven. In truth, such a statement merely proves how little some analysts know about markets.

However much the fundamentals may be on your side, there are always mitigating factors that affect price movement. In the case of gold and silver, the temporary resurgence of the dollar versus other fiat currencies alternatives has been the dominant factor – but even that isn’t the whole story.

STAMPEDE OUT OF EUROS

The critical factor that has been in play the past few months has been the European debt crisis going critical. I have said all along that the US is in worse shape than the EU overall because the EU has less will and capacity to resolve – or even temporarily paper over – its problems. The flip side is that, absent the massive stimulus the US has received, Europe has been forced to deal with its sovereign debt problems first.

Global investors have been spooked since the credit crunch of 2008. That means they are more likely to follow the herd rather than stick to the fundamentals. It takes a certain firmness of character to watch your investments sell off by double digits and not have a moment of self-doubt.

So, what we’re seeing is big moves into and out of asset classes. But what is important to understand about these circumstances is not the scale of the moves but the direction of the trend.

Right now, the dollar is riding high. But it’s still down over 30% over the last decade as measured by the generous US Dollar Index. Gold, by contrast, is up over 350% in that period. Of course, past performance does not guarantee future results, but the fundamentals have not changed. It’s worth remembering that mainstream analysts chose the dollar over gold in almost every report over the last 10 years, based on a blind faith in the power of the US government to centrally plan the American economy. The market proved them wrong.

Once again, the mainstream narrative is that the real danger is in Europe and therefore the US offers a safe haven. This has caused a stampede out of euros and into dollars. But as we’ve seen over the last few years, the euro and dollar can decline simultaneously – and will continue to do so as more and more investors realize that the real safe haven is gold.

SHOOTING STRAIGHT UP

There is a reason assets don’t move up in a straight line. Besides varying liquidity needs and risk appetites of investors, there are also built-in mechanisms to flush speculators out of a skyrocketing market.

As silver approached $50 this past April, the COMEX raised margin requirements for futures contracts on the metal, thereby pushing many speculators out of the market. While this practice presumably prevents speculators from overusing leverage, it also has the effect of crushing the short-term price of the metal. Both gold and silver have been subject to increased margin requirements this past year.

While we can now rest assured that future price increases are driven more by long-term investment than short-term speculation, it is not without costs. Speculators serve to reduce volatility in a market by buying in anticipation of future scarcity and vice versa. So, pushing out the speculators may increase volatility in the future. However, it’s my feeling that in truth no gains have been lost at all – they have merely been postponed.

IS THIS THE TOP?

In order to determine whether the recent sideways movement of gold and silver is cause for concern, let’s look at what lies ahead for 2012.

It is clear from 2011 that the new Tea Party members of Congress are not strong enough to stop the fiscal bleeding, and with the Occupy Wall Street movement in full swing, President Obama doesn’t have a lot of room to compromise. Washington has been reduced to short-term measures to “pay” its bills, and the bills are mounting faster than ever.

Meanwhile, Ben Bernanke’s Federal Reserve seems intent on pushing all the boundaries of monetary policy. In its most recent ploy, the Fed has engaged in a covert bailout of Europe through the use of currency swaps. From an investment perspective, this goes to show how deluded dollar investors are – they’re buying into a currency that is being printed for any and all comers. This news should have caused the dollar to tank and gold and the euro to rise, but again, the fear trade is overriding all other considerations.

2012 should see more trouble from Europe, and therefore potentially more dollar buying. This might even be the year we see a few members exit the euro. However, there is no way to know how the euro will react in the short-term to such events, as such scenarios may already be priced into the market. In any event, long-term, the eurozone will be stronger without its weaker members. If they cannot mend their profligate ways, better to force them out now than compromise the solvency of the stronger members.

For smart investors, dollar strength caused by euro fears is simply an opportunity to buy contra-dollar assets on the cheap. Yes, I believe sub-$30 silver and sub-$1600 gold are still cheap for what’s ahead. And with 2012 forecasts of $2,200 by Morgan Stanley, $2,050 by UBS, and $2,000 by Barclays, it appears I’m not alone.”



Categories: Economy, Federal Reserve, National Debt, Personal Economics

Tags: , , , , , , ,

1 reply

  1. thank you for sharing such as useful information, still remember I did read that post back to 09′.

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