Sell in May and buy gold and silver?
Posted on 24 May 2009 with no comments from readers
That old stock market ruse has it that you should sell in May and go away. With the bear market rally on its last legs that might be excellent advice this year.
However, there is a new twist. Gold and silver have just broken out on the upside and there is good reason to think we could be close to a parabolic ascent for precious metals.
Prices going up
All the ducks are in line. Alternative investments are all under pressure, including US treasuries and cash in the form of the US dollar. At the same time, the money supply is exploding.
Moreover buyers from the world’s top hedge funds to countries like Russia, China and Saudi Arabia are serious about building up their gold stocks. Retail buyers too are increasingly cashing out and buying into gold and silver.
The summer is normally a weak time for precious metals but you have to wonder about 2009. It is the cycle of Indian festivals that produces summer weakness. But this is a year when investment demand has taken over the market, and it could be very different.
Those gold bugs following their traditional chart patterns are probably going to miss the biggest boat since Midas found that everything he touched turned to gold. If ever there was a moment to buy and hold this is it.
Gold stocks
More sophisticated investors will now look quickly for ways to gear up into the gold rush. Gold stocks outperformed the metal last week, and should provide positive gearing, even in a falling stock market.
Silver is a way to lever gold prices and has also continued to outperform the yellow metal. Silver is simply a much smaller market so the effect of increased demand is that much stronger on prices. Unless the fundamentals of supply and demand on price fail to operate this is going to be repeated in this gold bull market.
Marc Faber has said investors should also start looking at the junior exploration stocks, and there is much value to be had in the holders of gold and silver claims. The value of claims – actually good and bad ones – is even more leveraged against the gold price than silver.
no Comments posted by readers:
For those who Want to Buy Gold, but are Hesitant:
A few important facts to remember:
First: Gold is the arch enemy of all Central Bankers, especially the US Federal Reserve
Second: Significant currency devaluation is inevitable, when Central Bankers print massive amounts of their fiat currency
Third: Central Banks of most all countries in the world are printing massive amounts of fiat currency, in a vain and futile attempt to “reflate”
Fourth: All fiat currencies are ultimately “valued” against precious commodities such as gold and oil
Fifth: In the 1960s, Alan Greenspan recognized that if Central Bankers suppressed the gold price, they could “get away with murder”; below are actual words:
“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets . . . [but] in the absence of the gold standard … there is no safe store of value . . . without a gold standard in place, there is little to prevent governments from indulging in wild credit creation. . . Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”
Source: Greenspan’s “Essay on Economic Freedom”
Link: http://www.financialsense.com/metals/greenspan1966.html
Sixth: The venerable Richard Russell said it best a few days ago; here is his quote:
The reaction of the central banks to rising gold — Keep it down, knock it down, flood it with shorts, talk it down, manipulate it down, scare it down by announcing coming large sales of gold.
My Comment: The FED has been somewhat successful in manipulating the gold price over the past 6 months; the end of their manipulation & tyranny is drawing nigh. The next few months may be the last time that citizens of the world will be able to buy gold at the current prices.
Got Gold?
Disclosure: long on gold & silver, & short on financial stocks
Peter, what do you expect to happen to Dirham and Saudi Riyal which are pinned to the US $ when the dollar starts to slide? Should we sell the Gulf Currencies now and hold others? if so which? or Should we hold Gold instead of Cash? How do we protect the AED and SAR currency assets?
In reply to Juwaad: the Gulf currencies are to all intents are purposes US dollars so exactly the same lesson applies, and buying precious metals makes sense to protect against devaluation and inflation.