Cash-for-gold not a market top signal
Posted on 23 February 2010 with no comments from readers
It is quite worrying to switch on German TV and see an advert for ‘gelt fuer geld’ or cash-for-gold. Four years ago TV adverts for courses in how to flip US real estate were a signal that the market was near the top.
Yet the real estate adverts were about how to buy property. The cash-for-gold adverts are all about selling gold jewellery for instant cash – presumably at a rate that is considerably to the advantage of the TV advertiser.
70s silver coins
There is a past precedent from the late 1970s. In the UK then selling pre-1947 silver coinage for more than double its face value was all the rage. After a while all these coins had been taken from circulation and melted down by dealers. But that was long before the 10-fold increase in the silver price.
So perhaps it is no different this time. The cash-for-gold adverts are a symbol of a developing bull market in precious metals, not the actual top itself.
Indeed, in the late 1970s this author used to search through mounds of coins to locate scrap silver to cash in. It was a nice little earner for a teenager. But if only that silver had been kept, and not sold!
For not only are those selling their family gold and silver now getting poor market prices – they have to be low in order to pay for prime time TV ads – this is also going to be a missed opportunity as there will be an opportunity to cash out at much higher prices later on.
Still time to go
If the 1970s are a precedent then the silver coins were pretty much gone by 1978, two years before gold and silver hit their highs – a price still to be matched by silver today, and gold is not that much higher either.
Just adjusting for inflation would give us very much higher prices. Retail investor interest in buying and selling gold and silver is just a part of an evolving bull market. It does not signal a market top.
In the case of real estate flipping in 2006 that did signal a market top because the professionals were no longer buyers but purveyors of courses to tell others how to get rich. Buying gold now clearly makes sense as the mug-punters are still sellers.
