The year for silver and gold investors will be very interesting with an election coming and with very different views of Federal Reserve policy coming from both sides of the isle. While I think gold and silver are obvious buys during any of the Fed's QE programs, investors in bullion should watch developments in the election very closely because Romney is a bit more hawkish than Obama and wants to fire Dr. Bernanke.
As for a speculative election prediction, I think Romney wins because the public is tired of Ben Bernanke and all of the stagflation happening right now with gas prices and commodity inflation.
That's my bold call of the year. My other bold call is to continue accumulating gold and silver. Here are my five favorite plays in the gold and silver market:
1. APMEX -- My personal favorite choice for gold and silver.
2. GLD -- The GLD ETF is the preferred means to short the paper currency market by going long real money (aka gold and silver). For centuries, gold has been the standard means of exchange for economies. Since long before the Roman Empire, gold has always held value as a hard currency. Almost every regime in history that printed total FIAT (paper backed by nothing) money ended up with hyperinflation or regime change in the end. Gold, however, has never become worthless. The more debt racked up by a nation and the more nations print money, the higher the price of gold becomes in inflated paper currency. While the same is true for oil and other commodities, gold is unique in its transportability, safety, and fungible exchange. Look, without a QE policy in place I would be cautious on gold in the short run, but now that the Fed is printing full steam ahead investors should be buying gold and gold funds hand over fist and not equities. While I believe that the Fed will soon outlaw gold as it did in the 1930s, I also think that investors who act now and move their gold either offshore or bury it under their backyards will come out ahead in the long run. If I bury my gold now, and a year from now we move to confiscate all gold, it's kind of a "Bear in the woods" situation from a regulatory standpoint.
3. SGOL -- While the Swiss made a big mistake in my view by pegging their currency to the sinking ship which is the euro currency, SGOL may still make sense to investors looking for diversification among gold and silver investment choices. You see, SGOL stores gold in bank vaults in Switzerland, so if the government decides to confiscate gold and silver again and print a ton of money like it did in the 1930s, then SGOL investors could be spared some of the brunt of the confiscation blow. That's because investors in SGOL don't really own gold in America, they own gold in Switzerland (whose currency is pegged to the euro) and they will likely not be forced out of their gold positions held in foreign lands.
4. SIVR -- My second favorite silver ETF for hedging against QE infinity is SIVR. The fund is a "physical" silver fund, which holds bullion for investors and doesn't carry a premium over spot the way that PSLV does. That said, your silver can't be redeemed in the form of bullion like PSLV. I like SIVR because it is a very liquid fund with a fairly robust options market. Personally, I like buying slightly in the money front month call options on SIVR as a way to play QE3 and beyond. Because the silver market is volatile, buying call options instead of directly buying the fund can give you some leverage while preventing large capital losses if silver moves a lot lower.
5. PSLV -- Even though PSLV usually carries a 10%-15% premium over spot, this is the only true "physical" fund because investors can get their money out of the fund in the form of silver bars instead of cash. I really like the idea of bank vaulted silver in Canada, as a way to play QE because investors also mitigate confiscation risk by storing their metals in a foreign country. While I am unsure how this fund would be affected by confiscation, I do think investors here stand to make a lot of money when paper money is flooding into the system via Quantitative Easing.
For my buck, I would want physical metals in a bank vault via Apmex.com instead of the SLV -- you can always draw up a treasure map and leave it in your will.
As for the election, how can Bernanke keep his job AND Obama win the upcoming election? In my view the Fed "Pump-At-The-Tops" strategy is short sighted. Housing needs to unwind by getting the banks to fix their foreclosure inventory and be realistic on pricing and up to speed on timing -- the longer these homes sit the worse the mold, pest, and structural problems become. The government should not be held hostage by any industrial group, and we need to stop all of the too-big-to-fail legislation. Look, I am bullish on America and on housing (the only hard asset you can live in) but I don't think an inflationary policy is the right policy.
The Fed needs to save the QE pumps for the 25% sell-offs and stop pumping stocks at the tops, which creates perverse incentives for investors to speculate. As a trader, I feel the QE strategy was not necessarily wrong, it is just very poorly timed. We should have printed the money in 2008, not today after recouping all of those losses.
My view is that central banks should save some fairy dust for the rainy days and stop scaring people into gold, silver, antique signs, coins, and other inflationary hedges including equities. There is a good reason that "American Pickers," "Pawn Stars," "Swamp People," "Axe Men," etc... are all about people coping with a falling dollar! Each of these businesses makes money when money gets printed from the antique collector, to the pawn shop operator, to the Alligator hunter, to the logger.
Rampant commodity inflation is here and it's likely here to stay. Housing needs to bottom but first the banks should take some losses and unclog the inventory -- until then we will have QE to infinity and the best way to protect your livelihood may be investing in gold and silver going forward.
Right now the world is flush with cash and the stock market is propped up on funny money. If the debt and funny money game goes on forever, what happens to the economy?
If we wait until an actual correction of 25% in stocks and THEN do a QE we will be in much better shape in my view because the market will respect that move and stabilize. Making people play cat and mouse in the stock market is perverse -- in the end the market wants to find equilibrium and that equilibrium is 20% lower than current levels according to our research.
The more we borrow, the more we have to print. The more we print, the higher the price of everything besides printed money becomes. Sure, a little inflation is good but we should measure that in food, gas, clothing prices, the Big Mac index, etc...
Let's be real about it folks -- high gas prices are a symptom of money printing, low interest rates, and QE.
In other words, you cannot federally outlaw down days in the stock market. Markets need to correct naturally at least a little bit! Once and a while, we should let it be a free and uncorrupted market for equities.
Disclosure: I am long physical gold, silver and real estate