When will be the best time to buy gold and silver equities?

There has been a good deal of chatter on the precious metal websites about when might be the best time to buy gold and silver equities, and ArabianMoney has also been giving this some thought. So what scenario for precious metal stocks would be consistent with our general market view?

Readers who have not grasped our general view could spend some time looking back over the past couple of months. But in brief ArabianMoney envisages a big correction in global stock markets following the record rally and a bounce back in the autumn, though perhaps not to the highs of the start of 2010.

Precious metal outlook

What would this mean for a precious metals investor? Is it an opportunity rather than an obvious threat to staying long right now?

History usually repeats itself with this time never being really very different to the last time. And if we look back at how gold performed in the most recent stock market downturn then the lesson is that precious metals also go down, and their stocks even lower.

So at the moment staying long in the metals is wiser than staying long in the stocks. You should exit silver if you have a poor stomach for volatility, although if you think you can accurately trade this position then you are probably deluding yourself, and silver should eventually outperform gold.

However, the summer is probably going to be an excellent opportunity to buy gold and silver equities. This is when the precious metal prices are usually weakest in the year, and that will be especially true if the stock markets have sold off. Gold and silver stocks with their leverage to the metals will be even lower in price relative to precious metals.

Keeping the faith

You will still need some courage after seeing prices tumble back, although ArabianMoney thinks the gold price will not be so much lower than it is now, and that ought to be a major comfort signal.

For as gold and stock markets wind back up in value in the autumn then precious metal equities should outperform as the fears about inflation and devaluation increase. The stage will indeed be set for the spike in gold prices to $1,650 in early 2011 as predicted by much wiser counsels than this website, like Jim Sinclair.

So buy gold and silver stocks and ETFs this summer and you should have a very happy New Year!