3 Reasons To Buy Gold And Silver

Includes: AGQ, GDX, GLD, SLV
by: Markos Kaminis

There are three burning reasons to buy gold, silver and relative securities. First, whether there is a weekend resolution to the Cypriot financial crisis or not, European figureheads have fumbled the Cypriot issue in a way that will leave long lasting questions about the economic acumen of the troika. Secondly, there is a serious question being asked today about the real state of the global economy, with Europe slipping into a deeper hole and American data not adding up. Finally, there is a real intensification around the Iranian issue which should raise the weighting of the factor in asset allocation equations this year.

In this zero sum game we call investing there will be winners and losers of capital flows. In this case, this year's losers have been precious metals and relative securities. However, these safe-haven instruments could turn into winners again soon on 3 important drivers. Thus, I suggest long-term interests can buy gold, silver and your SPDR Gold Shares Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), the Market Vectors Gold Miners (NYSEARCA:GDX) and the ProShares Ultra Silver (NYSEARCA:AGQ).

Performance into the Latest Turn:


Year-to-Date Change (3/19)

SPDR Gold Shares Trust


Market Vectors Gold Miners


iShares Silver Trust


ProShares Ultra Silver




The year's broader market move has been fueled by capital flows, with money flowing into equity funds and being put to use to buy stocks. In the week ending March 13, the four-week moving average of capital flows into equity funds measured $9.3 billion. Partially fueling that has been capital flowing out of money market funds, with the four-week moving average showing a $7.9 billion outflow last week. Other safe havens have served as a resource of capital as well, including the precious metals and the ETF securities that make their ownership easier for individual investors. But as you can see in the chart below, something has changed more recently. Gold, silver and their relative securities are starting to gain some favor again.

Chart forSPDR Gold Shares

Chart at Yahoo Finance

Reason #1

An underlying economic linchpin may be pulled from the support of stocks soon. There are holes in the economic argument, and with time, they may become more obvious. In the U.S., the Federal Reserve just published its latest economic forecasts. In my estimation, the impact of the sequester spending cuts and the expiration of the payroll tax break were not incorporated into the forecast for real GDP growth published last week. I had to question the Fed's math, because it just doesn't add up. The 2013 economic growth outlook was supposed to take a hit measuring from at least 0.6% for the sequester cuts alone, and up to as much 1.5% for all the fiscal measures implemented, and that's according to the Fed Chairman. It should have brought down the previous estimate for 2.3% to 3.0% growth in 2013 significantly. However, the Fed's published forecast was only adjusted down by two-tenths of a point at the top end of the range, to 2.3% to 2.8%.

I do not see this information factored into the market, and so a correction could ensue if real economic growth starts to show impact when reported. Let's not forget that GDP growth only measured +0.1% in Q4 2012. Meanwhile, the European Central Bank (ECB) just cut its GDP forecast for the European Union. There are a slew of economic issues that need reconciling, including significant EPS estimate cuts for the first quarter of 2013. Some believe information like this will only serve to further fuel the stock buying frenzy because it supports further Federal Reserve action, but I believe positive economic expectations have been a key underlying factor behind the market's appreciation. If we take that away, we pull the rug out from under stocks, and capital will again flow into safe havens like gold, silver and their relative securities.

Reason #2

The latest fumble by the Europeans, spurring a run on Cypriot banks and driving fear into the hearts of savers globally (or at least in Europe), turned investors toward mankind's age old currencies, gold and silver. Last Tuesday's performance in the gold and silver ETF securities reflects that. Because of the EU's foolish decision to tax Cypriot savers in an indiscriminate fashion, the confidence of savers globally has been damaged. This makes runs on banks that much more possible, and those are terribly destabilizing events.


Tuesday March 19, 2013

SPDR Gold Shares Trust


iShares Silver Trust


Market Vectors Gold Miners


ProShares Ultra Silver


iShares S&P Europe 350 (NYSEARCA:IEV)


Reason #3

President Obama visited Israel last week for the first time during his tenure as President. It's significant that he has not been to Israel as President until now, and it might be significant that he is visiting just now. After all, the trip comes just days after he said publicly that Iran was probably a year away from having a nuclear weapon. That same day, he added that we would not want to wait until the last minute to address the issue. We assume he meant by military means. Prime Minister Netanyahu's new government was just sworn into office last week. Netanyahu's reelection campaign was keyed on the prioritization of the Iranian nuclear issue. Though it seems like it has forever been an imminent event, these latest descriptions seem to say it really might be this time, or at least is within the one-year frame.

The dangers of a war with Iran have not been understated by those who would wage it. So one must wonder what could result for the global economy and for fiat currency if things got out of hand. War can be full of surprises and Iran has had way too much time to dream a few up. So here is yet another reason to own mankind's fall-back favorite currency, precious metals.

With these 3 critical drivers for gold, silver and their relative securities, investors should find reason to once again take stakes here. The catalysts I have described affect both the short-term and long-term, and so, at the very least, a floor may be developing here for the metals and relatives. Such a floor would offer a margin of safety for capital put at risk. In conclusion, investments in gold, silver and relative securities including GLD, SLV, GDX and AGQ make sense for diversified portfolios.

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.