Gold and Silver: The Only Attractive Investment Option

With the S&P up 46 percent from its March low, a typical 50 percent retracement is almost complete ready for the next plunge lower in this bear market.

Unless you are a born-again-bull or have shut yourself in a cupboard for the past two years, I do not understand how anybody can see a further upside in markets; at this point, the risk is all to the downside.

At the same time, the outlook for the US dollar is not good, even if a new market crash brings a short rally for the greenback. At the very least then hedging the dollar with a currency of fixed supply looks attractive.

IMF dilemma

That is where gold and silver come into play. You can inflate the money supply but not the gold supply, although with IMF gold sales that is exactly what the central banks are going to do.

They will fail because the IMF does not hold enough gold to cause a serious price change, and might actually stimulate additional demand if this action is perceived as a desperate attempt to keep gold prices down because inflation looks inevitable.

It is the same story for those who say silver is not a currency. Just take note each day that when the gold price goes up silver doubles that increase, and when gold goes down silver drops by double that percentage.

The leverage is obvious, and as gold prices take off those who can not afford gold will buy silver. Also silver stocks are 100th the size of gold stocks so simple supply and demand will leverage the silver price up. Silver is money because of its link to gold, and look at this another way: could silver fall in price when gold is rising? Impossible.

This year I have noted that the flat-earth, tree hugging investors have become a little tired of waiting for gold prices to go up. But the new kids on the block are the hedge funds like Paulson & Co (who tend to get their timing right, that is why they have made billions), and also the more humble retail investor, represented by the enigmatic publisher Rich Dad or the gold ATM machines in Germany.

To my mind this is setting us up for a price spike, and actually it does not matter where the stock market goes this autumn.

Inflation fears

A rising bull market would give rise to fears about inflation from the massive stimulus packages – like that already evident courtesy of China’s $1 trillion sub-sub-prime lending program in the first half. That would send investors into gold and silver.

A nasty little crash in October would send investors scurrying for safe haven assets in a renewed belief that the end of the world is coming. It would also mark a definite top for the bond market and investors would have no other alternative then except precious metals, fearing a surge in inflation from a second bailout package.

So with gold and silver it's heads you win and tails you win. That is why gold and silver look to be the only attractive investments out there now. You might get a chance to buy them a little cheaper before an autumn stock market event, but do not count on it!

Comments

[DONE_SONZ:]

The stock market could rise due to the refaltion objective taking hold as well,but the prescious metals will remain the safest places to be, because what's behind the rise, or fall, for that matter.

Aug 02 08:46 AM

[Leif Peterson:]

>"That is why gold and silver look to be the only attractive investments out there now."

It would not be to the advantage of investors to *totally* jump into the foray of gold and silver. During March 2008, the gold ETF (GLD) mysteriously dropped -9% over the three-day period March 17 to 20 (99 to 90) and then dropped to 87 by April 1st. The cause was attributed to "big money" owners of GLD, who own so much they can essentially write tomorrow's headline. Hence, the volatility of GLD on any given day can be similar to behavior of the inverse financial ETF (SKF) during the Sept-Oct 2008 crash.

Everyone understands the value of gold for asset preservation and hedging against inflation; however, saying that gold and silver are the only attractive investments now is not wholly true.

Aug 02 09:08 AM

[capt Brian:]

WHEN?!? For goodness sakes, gold has done nicely since November, when, [if u lQQk back in my comments] is when I started to buy gold. LQQk how it has held its position above $900, and is still on a long term up trend. So go against the trend. I just traded a bunch of gold for one coin. I am selling a lot of scrap silver and gold to buy more silver eagles with. THERE is the real money. Food investing, I thought, would be a great place. But, food prices (investmentwise) have not risen as much as gold and silver, which are kind of tied together in the futures market.

I have not softened my stance on buying PM's [precious metals] and am more and more bearish on stocks and the economies of the world. There is however, [as usual] a bogey. That is demand. One must always look at demand for worlds goods. For the moment, the big users, USA, Europe, and China and now the emerging countries. A lot of demand has been stifled beginning with the biggest item, OIL. Other things will be totally re-thought out before buying, TOYS. Un-necessary items will fall by the wayside. Plastic toys for tots, parents will not be wasting a bunch of hard saved money on things like that and many other unnecessary items. Savings have been brought into the picture finally. Now, those savings will not be put into junk items, and anyone who has disposable income, will dispose it to a savings account. Homes which were ravaged for money for toys, with the current crisis in Real Estate, and employment, if one has a home, they will direct money to saving that, instead of an extra SUV or vacation.

This world is changing, but people still need food clothing and shelter, so that is where I would focus my investments. To companies that provide the above.

In keeping with all of that, inflation, [in my mind] will come back and pretty heavy this time. So.. think about your investments as if you can only buy one this year, and you cannot sell it til the year is over.
That may be where u should look.
My advice is to buy single premium, deferred annuities. I am doing that, and numismatic coins, and gold, silver, and platinum. I have not gotten any paladium yet.

Happy navigating

happy grins

Capt Brian
The Lost Navigator

Aug 02 10:08 AM

[GMiki1:]

I'm primarily in PMs and miners, but oil and nat gas should do well in re supply and demand despite any weak demand in the West. One of Jim Puplava's commenters this weekend said that despite fundamentals, the technical chart of the DOW looks as if the general stock market will rise. On Jay Taylor, Arch Crawford and Peter Grandich say maybe the market will dip late September, but Arch Crawford said a big crash will come in fall 2010.

Aug 02 10:39 AM

[Swashbuckler:]

If you invest in gold and silver, you may want to do it such that you are able convert to physical possession if economic conditions deteriorate in a big way. I say this simply because I would not put it past the government to steal it from you if desperation set in during an economic collapse. Also, while I believe gold and silver are attractive today, I believe that being short stocks, especially financials, will be at least as good a place to be over the next couple of years. IMO, these contrived stock markets have a rendezvous with hell.

Aug 02 11:08 AM

[HATEFEEBAY:]

I have SLW and have been buying physcial and holding it and only duming more money into physcial. Be careful of the fake stuff however, a guy passed some very good stuff off on me and I caught it a week later and got my money back after a hassle. Buy a test kit an learn how to use it. I wil not buy 1000 ounce bars either, only 100 or below as the 1000 ounce bars could be drilled to check and not worth the risk of getting stung. Gold's actualy physcial use in the world is limited and why I see a hell of a lot more upside in silver, same properties of gold at a steal now and why besides my Presidential Rolex that I wear (18K 4.6 ounces) I only do silver. I agree, the government can take things, so keep your stash quiet and the US dollar is going down in flames thanks to Obizzle and Co.

Aug 02 01:05 PM

[ScroogeMcduck:]

So with gold and silver it's heads you win and tails you win - I like these odds

Aug 02 01:05 PM

[5142152-337:]

Nicely said, Peter! INMHO you have it right on the button! Keep on buying gold and silver and add to the stash!!!!!

Aug 02 04:12 PM

[sluesbox:]

I've been buying & selling Gold since Nixon closed the "Gold Window" in early 70's. I've come to believe, that the Central Banks of the World are controlling the price of Gold through the use of their 19% of the World's supply. If they weren't, why is it not moving up sharply, with Inflation ???. It was close to $1,000 in early 80's. Food, shelter, and energy related things were a mere fraction of what they are, today. Meanwhile, what the Hell, happened to Gold. Given the limited supply: Shouldn't it be somewhere between 5 & 10,000 dollars an ounce ???. I'm into currency trading, now . I like Australia , Canada & Brazil because they trade mostly, in Commodities.

Aug 02 07:48 PM

[USisCorrupt:]

Amen Peter!

Aug 03 09:48 AM

[williemo:]

your last comment, 'don't count on it', relating to 'lower gold/silver prices'. Obviously, you feel all the deflation and deleverging is behind us. I agree most is, but the inability to get a loan or spend $$ by the US consumer is really the key eventually, and payroll reports, etc will show that Deflation is key issue for a time.......your article is about a year early. Hard analysis shows gold needs to go to $700 or below before it can go higher.

Aug 03 10:32 AM

[Paul H. M.:]

Every investment class has a risk and reward.

Think about it: If you listened to the Gold bugs in March, and put all your money into physical, you would have missed out on this massive rally, and missed out on 100 percent gains on many stocks.

Gold is just like T-Bills: it may be safe, but there's a large opportunity cost to playing it safe.

Aug 03 07:48 PM

[Vox Rationalis:]

Does anybody remember a time when this guy WASN'T advocating gold and/or silver?

Aug 03 10:43 PM

[Peter Cooper:]

Yes I started at $455 an ounce, that was a few years back now!

Aug 04 04:23 AM

[Vox Rationalis:]

Sure, and I bought Teck at 3.50. Does that mean I think it's as good an investment now? Of course not.

But your bullishness on gold never changes. You were hugely bullish on gold and silver in the oldest SA article here, back in early October, with gold at about 850. It fell under 750 - you were bullish. It got back to its ~1000 all-time high - you were bullish. Why? Apparently it's because you have no doubt that severe inflation is on the way.

You wrote on October 7: "We are watching an old movie here with money supply boosts from the central banks that can have only one effect: higher inflation." From October to June, the price level has DECLINED slightly.

"Printing money guarantees inflation," you wrote on March 4. "More money is by definition inflation." Except that it's not; inflation is a circumstance of rising prices, and there's more to prices than the money supply. As the economy grows and economic activity increases, demand for money to conduct transactions increases. Without an increase in the supply of money available, money would become relatively more valuable, resulting in falling prices.

Seriously, if you have such a weak understanding of the basics of the money supply, why would you expect anybody to believe your pronouncements about gold as an investment?

Aug 04 10:24 AM

[TLassen:]

"Printing money guarantees inflation," you wrote on March 4. "More money is by definition inflation." Except that it's not; inflation is a circumstance of rising prices, and there's more to prices than the money supply. As the economy grows and economic activity increases, demand for money to conduct transactions increases. Without an increase in the supply of money available, money would become relatively more valuable, resulting in falling prices.

Voix Rationales.:
Classic Austrian School vs Keynesian.........1-0 for the Keynesians

BTW what happened to your 3rd installment of hyper-inflation? Looking forward to reading it.

Aug 04 12:06 PM