Recently I discussed metals market fundamentals and concluded that platinum (PPLT) has overtaken silver (SLV) as leader of the pack. With speculation abound due to inflation fears, affordable silver has become the primary target of the masses of the investing world. The herd is usually right for a while, but oh so painfully wrong in the end. First bitten by the silver bug in mid-2009, shortly after the white metal crashed along with other assets, I continue to believe precious metals constitute the most sound form of money and maintain a larger position long physical silver (PSLV) than any other.
Understanding market cyclicality is crucial in low growth scenarios. While gold and silver have enjoyed magnificent runs over the last decade and remain the most intact bull market, neither meets stringent standards prudent investors require for a buy and hold investment. Metals have appreciated as fixed assets during a time defined by bailouts that began with housing shortly after the technology bubble burst following Y2K. Instead of deflation showing up in currencies, it was transferred to less manipulable forms of money. Gold (GLD) and silver remain optimal forms of wealth preservation and saving, however expectations of appreciation or income commonly associated with investments need be placed elsewhere. Better yet, gold and silver "investors" can come to grips with owning a stable asset and lower expectations for profit.
Platinum's decline preceded Ben Bernanke's June 22 speech that dispelled expectations of QE3 and reversed a feeble multi-day rally staged by U.S. markets. The 23rd has been catastrophic for PM prices, with platinum falling as much as $60/oz on the day. Silver broke below the key $35 level and gold has slid drastically towards $1,500.
Given global growth scenarios and performance over the last decade, investors can continue to expect asset weakness barring additional fiscal assistance. Every upward stock market move since 2001 has been preceded by strong bounces in gold and silver. Look for leading low-cost gold mining company Goldcorp (GG), along with metals on the physical spot market, to stage rallies before delving into any risk assets.
For now, cash in king, though circumstances can change in a (FOMC) minute.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.