Dan Caldwell's  Instablog

Green shoots or weeds?  That's the question on everyone's mind these days.  Commercial real estate vacancies are rising, mortgage rates moving up, the car manufacturer's are filing for bankruptcy...the bad news just doesn't let up. 

But - trade what you see, not what you think.  And one indicator I like to use is not flashing a red light, or even a yellow light at this point.  That indicator is the various bear market mutual funds or ETF's. 

The bear market funds momentum still apppears to have strong downside momentum, so for those looking for the same stock shorting opportunities we enjoyed last summer, patience is a virtue.

One fundamental driver likely to propel gold and silver higher by the end of the year is the massive amount of fiscal stimulus, now estimated to be over $12 trillion dollars (source Bloomberg). Adding more dollars into the system has the effect of weakening the purchasing power of the dollar, leading to inflation.  The beneficiaries of inflation are gold and silver as alternatives to fiat money creation.

However, it is a good idea to pay attention to an old Wall Street axiom - "Trade what you see, not what you think."  So let's look at some technical indicators.

First, is a chart of inflation expectation as measured by the performance of inflation protected securities (TIPS) relative to the performance on non-inflation protected T-bonds... I've found this chart to a useful tool for timing entry into and out of the gold market.  This chart is saying that investors are more concerned with inflation than they are with deflation.  Heeding the deflation warning signals would have gotten you safetly out of commodities last summer and into cash or treasuries.

A member of my group asked this very relevent question the other day. My response to him was that IMO at the present time investing in CEF was the better option, since CEF is audited for its physical holdings, as opposed to the ETFs GLD and SLV which are not audited.  Here's how I arrived at this decision:

Comex Gold was at $930. Add a $30 per coin bullion premium + approximately 3% S/H and insurance from a bullion dealer. This gave me a price of $999/oz. to buy physical gold.

Comex Silver was at $14.04/oz.  Add $1.00 for the premium on silver rounds (coins of the realm premium is even higher). Add another 3% for S/H and insurance to order coins from a bullion dealer.This gave me a bullion price of $15.49 to buy and hold physical silver.