Gold and silver have certainly fallen out of favor with the investment class. Even though the precious metals have served as currency for 5,000 years, investors view them as highly speculative even though they are more of a safe haven than most believe.
Paper currencies backed by, well, absolutely nothing have been issued for centuries but have never held value over the very long run and have always eventually declined to the intrinsic value of paper itself -- in other words, eventually it will take wheelbarrows of money to buy a loaf of bread, and that's bad for the ecosystem.
While you may think I am writing this to earn extra credit from central bankers/planners and pushing the "need" for the paperless economy, as most articles so coyly propose (as though Keynesian 2.0 is beyond bubbles and yes this time it IS different); the actual intent of my ramblings are the opposite -- getting control of the money supply away from the stock market perma-bulls is precisely what the economy really needs. We have tried the artificial, computerized version of money and now it's time for the real thing. To whit, I present you with the "barbarous relic" that is hard currency, namely (you guessed it) gold and silver. Gold and silver exist, for the most part, outside of the "regulatory capture" realm of defunct economists, Wall Street lobbyists, and self interested trickle down perma-doves.
With all of the gold-haters and metals naysayer's out there, it is easy to lose sight of the bigger picture -- while Gold and silver are flat so far this year in dollars, they are up huge in terms of the yen and the euro.
While Gold is flat against the greenback:
Gold is rallying in euro terms, up 16% against the euro year to date:
Gold and silver also rallying in terms of Japanese yen:
For thousands of years, gold and silver have held their value as money. Silver dollars, one ounce gold coins, and other units of hard money should continue to hold purchasing power against paper money, as countries around the world "experiment" with printing money in order to pay off debts and "spur economic growth" via priming the money and stimulus pumps.
My personal favorite approach to metals investing is the covered call option or even better the calendar call spread approach to investing in metals using the SPDR Gold Trust ETF (NYSEARCA:GLD) or the ETFS Physical Swiss Gold Trust ETF (NYSEARCA:SGOL). Buying a longer dated in the money call option for a small premium and selling front month, at the money calls will create a monthly income stream that can diversify and protect a portfolio in both bull and bear markets.
If you are looking to buy gold or silver ETFs keep in mind that buying an in the money call option carries a fairly small premium while carrying less risk provided you replace the stock with the corresponding number of option contracts. For example, an investor looking to buy 1,000 shares of GLD could instead buy 10 in the money call options and basically capture almost all of the upside potential with significantly lower risk. Call options can also be used to leverage positions, but we don't like leverage as a rule and prefer conservative investment strategies with a built in stop loss component.
By entering into a "calendar" spread, investors are actually earning income from gold and silver, which is a main argument against the metals in favor of investing in the stock market. Gold is not a productive business, but that doesn't mean investing in gold cannot be profitable, provided investors use a disciplined approach to the metals market.
While we like investing in superior businesses at reasonable prices, gold and silver are the monetary or cash equivalent of Berkshire Hathaway shares or an investment in the Quantum Fund -- if you are going to hold cash money, you should consider holding at least a portion of that cash in the form of gold:
Disclosure: The author is long SLV, RJA, SPPP.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.