I'm Buying Gold And Silver, But Not For The Reason You Think

Feb. 20, 2019 9:04 AM ETAEM, AG, BTG, FNV, FSM, GDX, GLD, GLDM, GOLD, IAU, OR, QQQ, RGLD, SAND, SLV, SPY, WPM, GDXJ, AEM:CA, ABX:CA, WPM:CA, FR:CA, FVI:CA, SSL:CA, BTO:CA, FNV:CA, OR:CA270 Comments

Summary

  • I'm accumulating gold, silver, and gold/silver stocks to maintain a 5-7% portfolio allocation to precious metals.
  • I consider gold to be fairly valued or mildly undervalued at the current time. Not necessarily deeply undervalued like some argue, but a good long-term risk/reward opportunity.
  • Streaming/royalty companies are my preferred choice.
  • Silver and platinum are historically undervalued.

Precious metals are a useful asset class within a diversified portfolio.

Gold is a store of wealth that protects against currency weakness, while gold stocks are investments (albeit historically not well-managed as a group). Silver and platinum are hybrids in the sense that they have a lot of industrial applications but can also serve as stores of wealth.

However, precious metals are a controversial subject. Many people invest in them heavily and have a strong attachment to them, while others consider them unsuitable for inclusion in any respectable portfolio.

I'm a moderate in this sense; I have no strong feelings either way but invest in precious metals when the price is right and the winds are in their favor. They're a defensive asset class that can provide good returns when appropriately priced and during times of turmoil.

In particular, I have a simple framework for determining roughly what I'm willing to pay for gold, which can then be extrapolated to other precious metals. I don't try to time or trade gold over the short term; I merely assess whether it's reasonably priced and worth holding for the long term.

Asset Price Inflation

As I have shown in a couple articles, net worth relative to income is at record levels in the United States, which some people refer to as the "Everything Bubble":

Net Worth to IncomeChart Source: St. Louis Federal Reserve

The combination of low interest rates and money-printing has inflated asset prices, even though it hasn't inflated consumer prices for everyday goods. Stocks, real estate, bonds, and gold have all been propped upto high levels in part by very easy monetary policy.

The broad money supply per capita of the U.S. has grown a lot more quickly than the consumer price index over the past 20 years. Due to the slowing velocity

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

This article was written by

Lyn Alden Schwartzer profile picture
43.75K Followers
Author of Stock Waves
High-probability investing where fundamentals and technicals align!
With a background that blends engineering and finance, I cover value investing with a global macro overlay. My focus is on long-term fundamental investing, primarily in equities but also in precious metals and other asset classes when appropriate.

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My work can be found at LynAlden.com, ElliotWaveTrader.net, and within the Seeking Alpha marketplace where I work with the Stock Waves team to blend their technical analysis with my fundamental analysis for high-probability long-term setups.

Disclosure: I am/we are long SLV, IAU, FNV, SAND, OR, RGLD, AEM, BTG, GOLD, AG, FSM. 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.

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