Try to see gold and silver as just another currency
Posted on 14 August 2008 with no comments from readers
Gold and silver are likely to act more and more like a currency rather than metals with other uses from hereon. There will also be an increased decoupling from the euro and pound sterling which will go there own way against the dollar without influencing precious metal prices.
The painful mid-summer correction in precious metals appears to be over, and those who bought junior explorer shares at the depth of this panic have already been rewarded with large gains. However, there is still plenty of money to be made by buying the juniors as they remain at depressed prices relative to the metals.
Investors around the world are increasingly attracted to cash. That is logical in a world where shares look overvalued in a recessionary environment for profits, bonds are giving negative returns after inflation and real estate is still highly overvalued.
It is not logical, however, to buy US dollars. The systemic crisis in the US financial system has several more down legs to come. We know that typical financial crises last for about three years and we are only one year into this event.
The dollar may be on the rebound now, and possibly for this autumn but this rally will not last. Buying US stocks can only be a short term strategy and one doomed to failure, with a major bear market still to come.
That is why gold and silver remains the best investment opportunity, and the sell-off of mid-August gives a prime buying opportunity. The buyers of US stocks today are setting themselves up for big losses in the coming crash as the US economy is destined for even greater weakness in 2009 and profit expectations are still way too optimistic.
In an environment this bearish you can really only choose cash or precious metals for safety and treat the latter as currencies. Personally I prefer a currency outside the control of the US which is prone to devaluation and inflation. Gold and incredibly undervalued silver will rise to this challenge. The euro and pound also look losers.
no Comments posted by readers:
You might also look at the junior uranium miners too.
What a rebound!
When you say that gold and silver are going to act more and more like a currency, I presume you mean as an alternative to cash deposits rather than as items of purchase exchange.
Reading your article again, I can see that you do mean as an alternative to cash deposits, but currency tends to mean, to my mind, what I hand over to someone else to buy something. You don’t mean that latter category of currency as well, do you?
Does the UK Revenue accept gold or silver as payment for tax? Perhaps they should begin to consider this if sterling is going to fall alongside the dollar and the euro.
Correction over? I never would have known that when I checked prices Friday morning and saw that the bottom had fallen out.
@ George Miller
Yup george, gruesome ain’t it.
But you got to look at the reasons.
Comments like yours add nothing!
@ Simon Peter.
Are you saying the UK should drop fiat currency issuance and move to a currency fully backed by gold?
Seriously, what do you think the chances are of that happening, given the global failure of fiat issuance right now?
And given broons recent sale of gold, won’t that make him look an even bigger buffoon?
I think a currency backed by gold will emerge within a couple of years but with gold valued at more like $5,000 an ounce – the chances of it NOT happening eventually are zero – all the ingredients of a major financial collapse are already in place and getting worse.
Where is the end to the US housing slump? Where is the bottom for the bank write-offs? How many banks are now really solvent? This crisis is spreading to the rest of the world and this manipulated dollar bounce will just speed up the deterioration overseas.
That is why I hold gold and I talked to Dr Marc Faber yesterday and he takes exactly the same view of the future outlook, although I did not ask him about currency backed by gold. But to my mind that is the only solution to constant competitive devaluations.