Live with the volatility to profit from gold and silver
Posted on 26 April 2011 with 7 comments from readers
Silver speculators burned by a 10 per cent fall in the price of this commodity over the past 24 hours have been taught a lesson: investing in gold and silver is for the long-term and gambling on short-term price movements never pays, even if you pick the asset class with the greatest future for the next couple of years.
On the other hand, if you can roll with the punches then you will still be standing when the next big price movement occurs. Trying to predict exactly when that happens is fun but not to be taken too seriously. A trend is only going to be your friend if you stick with it.
$50 top
ArabianMoney got the sprint to $50 right over the past week but whether the price pull back is going to last days or weeks or even months we cannot honestly say. What we can be sure of is that silver prices will go much higher and most likely be the best asset class over the next couple of years. We stick with our earlier tip for silver as the best investment for 2011 (click here).
Why is not a question that those who have watched the price escalation since the announcement of QE2 last summer ought to need to ask. Money printing is what it is all about. That is causing creeping inflation of all prices.
But the impact is highest on precious metals because they are a currency and store of value that cannot be printed. That makes them attractive to investors in inflationary times. And ironically that very increase in demand inflates the price of gold and silver much faster than the underlying inflation rate.
In inflationary times there are fewer and fewer places for investors to hide. Interest rates gradually move up, making property yields unattractive and depressing property prices. Ditto bonds. Shares suffer because inflation raises production costs faster than consumer prices. All that money then gets funnelled into precious metals pushing them higher and higher.
Who will beat inflation?
Now for gold and silver prices to truly enter a bear market inflation has to be conquered and this genie put back in the box. Where is the politician or central banker that will do it?
You might have self-proclaimed possible US president Donald Trump taking sideswipes at oil sheikhs but he is wildly off target. The real culprits are much closer to home with federal spending and debt unsustainably high, and the money printing to support it is causing inflation.
While this goes on the price of precious metals will continue to soar, and short-term price pull backs are a buying opportunity. This month’s ArabianMoney newsletter has some interesting ideas on how to leverage this volatility to become seriously rich but you will need to take a subscription to get this insight (sign-up here).
7 Comments posted by readers:
10% takedown in less than 30 minutes, stunning. Fascinating few months coming up, hold on to your hat!
Presumably, this price-fall of 10% in 24 hours is a manifestation of JPM throwing in all they can to keep the price of silver down. They cannot do this for ever, surely, so that when they come to the end of what they can do, silver will rocket upwards in price.
Therefore, price-falls like this are actually excellent news for the patient longer-term silver investor, since they are forcing JPM towards the end of its price-lowering capacity.
Ed Note: Yes you have it just right!
Obewon, don’t Ed.’s comments here cause you to begin to rethink your 33% maximum of investable wealth put into bullion?
He says, if I have understood correctly, that whilst inflation is in the system and still a problem, then bullion will not bottom out, but will, in fact, go on rising because:
of inflation;
there’s nowhere else to safely put your money;
demand adds to the inflation-based price rise.
So, why advise people to invest just 33% maximum especially when, if they use an eDealer in bullion, they can sell at the click of a mouse button and do not have take personal delivery of the bullion they have purchased – up to, say, 100% of investable wealth?
After checking the Indian market to day, gold traded at $1,536 USD (doing the math at 17,592.00 rs for 8 gm of pure. )
Eric King interviewed James Turk again today, and he had something interesting to say: =>
QUOTE:
“Here we are with silver touching $49 in Asian trading this morning, yet it remains in a 63 cent backwardation from spot to December 2015.
I can’t stress enough how significant that event is. Over the past three months the price of silver has nearly doubled, yet the backwardation has not disappeared. Markets are not designed to work that way, the higher price is supposed to entice people to sell their physical and hold dollars instead. I think the market is quite clearly sending the signal that people would rather hold silver instead of paper money.
The bottom line is that as long as silver remains in backwardation, price declines will be short-lived, it’s also telling us that silver has not yet reached a top on this move.”
End QUOTE
Another commentator recently remarked that comex or cftc could rapidly raise bullion reserve limits to which would have a strong negative effect on price. I dont really understand this however it makes sense that these guys could be dangerous if backed into corner. After all they make the rules until mr market eventually (if ever) rewrites them.
@nigel
This article is a good read.
IMF Gold Sales v. the Alchemy of Gold Futures – What’s the Impact on Gold Prices?
Read more: http://www.advisoranalyst.com/glablog/tag/comex-gold-futures/#ixzz1Kh9h8vOG
@ Ed.
I have tried to make remarks in this commentary THREE TIMES, yet your server refuses to post my remarks.
Any idea what the problem is? The remarks I’m trying to enter are in response to several readers’ questions, and these remarks are not very long.
Ed Note: Well this came through, please try again. You are on the other side of the world!