A Change Of Heart

Includes: GLD, SLV
by: Paulo Santos

I've long written negative articles on gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV). I've told how the trade was impossibly crowded both from the perspective of ETF holdings and from the perspective of trader positioning. I've said that the action had strong bubble-like characteristics even to the point where stores were popping up by the thousands to buy people's gold and silver (which they massively sold, just like in the former early-80s bubble). Finally I said that the silver to gold ratio was not a good reason to buy silver.

Well, now I'm going to say something different.

While the trend is powerfully lower at this point, and I am not yet ready to step in the front of it, I'm going to say that over the next few years, I expect silver to trade higher, and perhaps gold as well.

Why do I expect this? I expect it because even if the Federal Reserve stops printing, it will be temporary. And right after, it will be printing again. And as for the Bank of Japan, Japan is so deep down the rabbit hole that it won't even stop printing. At the same time, the shadow banking sector in China suggests that there's a good chance at some point even China will be printing some to clean up its financial sector.

It's highly unlikely that precious metals will end up behaving badly in light of so much printing, even if formerly they were bubbles. Bubbles burst, they've burst already, and meanwhile the endless printing will end up providing pressure upwards.

Finally, I don't expect the printing to ever really stop before inflation shows up. And when inflation shows up, it will probably be uncontrollable for a while given the extent of previous printing.

In short, I am no longer negative on gold and silver, especially silver, and might contemplate buying some down the road. The thesis is simple: The money printing won't stop (other than temporarily) until currency is effectively debased, so I can't stay negative for silver and gold forever. As I write this GLD trades at $125.84 and SLV trades at $19.41.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.