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Why do investors always take such a short-term view on gold?

Posted on 08 May 2012 with 4 comments from readers

It was curious recently to meet with some old friends who recalled a big argument we had four years ago about the merits of buying gold and silver.

They had to concede defeat. After all a portfolio equally split between those precious metals is up by around 80 per cent since then. In that time even Warren Buffett has underperformed the S&P that has basically gone nowhere despite huge volatility.

Late buyers?

Yet these friends were still reluctant to buy gold and silver and had not done so. They now thought the price too high and that they had missed the boat. It is worth keeping an eye on them: when they do finally buy it will be time to think about selling!

This very skepticism among potential buyers – and this group is your average middle class professionals saving to help sons and daughters with college fees – leaves a lot of upside for precious metals.

However, the experience of the past three or four years ought to be track record enough to convince anybody that the day-to-day ups and downs are just a wiggly line going upward.

There has also been no sign of a spike in the gold price to call a market top, which is what you almost always see in an investment bubble about to burst. Even silver has now moved sideways so strongly since last April’s mini-spike that it is out of the danger zone and a much safer buy now.

Look around and the debt crisis is still all around us and the central banks are doing the only thing that they can and printing money to prevent a deflationary collapse. Inflate the money supply and you will eventually see inflation.

But no central bank in history has ever turned alchemist and produced gold secretly in its vaults. However, what they actually do is to buy gold themselves to protect against their own inflationary actions.

Last month the Russian central bank was the first to call for gold to be included in a world currency. It has a stated target of raising its gold reserves to 10 per cent of currency reserves.

Chinese buyers

Meanwhile China will probably oust India as the world’s biggest buyer of gold this year. The Chinese like to do this as secretly as possible but the fact that they are doing it is not disputed. And as the demand for gold rises so does the price.

Only when these long-wave global economic and monetary trends are reversed will gold and silver prices go down or stabilize at much higher levels. That makes a nonsense out of constantly looking at day-to-day precious metal price moves and feeling nervous.

You should be nervous if you do not own gold and silver, not if you do! Perhaps out of friendship a complimentary subscription to the ArabianMoney investment newsletter would be a generous act to help such folk reform their ideas about how to save their money (click here).

Posted on 08 May 2012 Categories: Gold & Silver

4 Comments posted by readers:

Comment by boatman - 08 May 2012

exactly, Peter………when my gold skeptic friends ask me were to buy gold it will be time to think about selling.

they just don’t get the debt/credit supercycle.

its obvious to me.

Comment by Bernard M.A. Doff - 08 May 2012

Exactly – well said

Comment by Tears of the Moon - 10 May 2012

Good point Peter. For me the selling signals will come when Australian Superannuation funds (pension funds) start offering Gold and Silver only investment options for members (they currently offer 100% Cash and 100% Aussie share options plus other more “balance” options). At the moment no commercial or industry funds will invest 1 cent in physical Gold, let alone Silver, even when gold friendly fund member representatives argue the case with the fund’s managers. The fund managers argue that that Gold (don’t mention silver again) is too volatile. Hey any one seen a chart of the Aussie$ over the last 10 years, or the ASX200 but somehow these options are fine for members funds to pissed up against the wall with.

Comment by Soufian - 03 June 2012

bailout would be aimed at the mortgage mrekat, and yet JPMorgan Chase, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, will walk away with over $125 billion,The shares will not be dilutive to current shareholders, a concern to banking chief executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings. all current shareholders are protected, unlike Lehman, Bear Stearns, Fannie Mae and Freddie Mac shareholders.

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