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Gold and Silver with a Note of Caution

|Includes: Randgold Resources Limited (GOLD)
Gold and Silver with a Note of Caution
By now regular readers know that I am invested in Gold and Silver. For anyone new, I am invested in Gold and Silver via physical holdings. That brings whatever bias it does and my long term view of the metals is such that I think much higher prices are in the future. On this blog I have always written that an average portfolio should hold 5% in metals with 10% being a bit more aggressive. I hold about 25% of mine in silver and gold bullion (a bit more silver than gold) which is higher than my normal 20% because I found a few deals over the past few months I liked. I have this up front so you know where I am coming from.

As a metal head I love headlines on bullish blogs like these:
via Gold Versus Paper:
Gold Bull, Bitches!
The line "Gold, Bitches" cracks me up every time.

via Zero Hedge (where I think the above line was born):
First Gold, Now Europe Running Out Of Silver

Of course some headlines are not as happy; here is an absurd one from Clusterstock:
Every Doctor, Dentist, And School Nurse Bought Gold This Week
Now I know for a fact that my doctor and my dentist have no gold or silver. They think I am a nut for buying it so this one is over the top. I would also doubt school nurses bought much either. Only one person I know in real life (ie, non blog connected) has any gold or silver. I cannot even get anyone to buy a little though I hammer them all the time. Some do trade in and out of some ETF's, but that's about it. So my own experience is that not many people own gold and/or silver. Results may vary in your circles.

After a strong couple of weeks I feel that it would only be fair to try and offer some thoughts I have regarding the metals that are more cautious in nature. While nothing here is investment advice (nobody in their right mind would listen to me!) I do harp on the metals a bit so some things have me a bit more cautious short term and I thought I would share.

In no particular order:
-Gold right now is being termed a "safe haven". While that may well turn out to be more true than you will believe, in the short term metals are about as safe as shaving with a samurai katana sword. It will work if all goes perfect but.....

Volatility can run heavy in metals (especially the miners) so a smooth ride is not really a fair expectation. Silver tends to move much more than gold up and down as well.

-Near term (3-6 months) I think gold $1500 and silver $25 are realistic targets. I also think that at some point gold (to a lesser degree silver) may become a target for government caps or restrictions on price movements. Of course this will only make physical metals go wild to the upside, but the paper proxies like GLD and SLV may fall on really hard times. There could be two metal markets; the paper and the real. It's kind of like the real housing market with no government help and the one we have now. Still, the paper proxies do have some tether to real bullion and this thought does bother me quite a bit. Of course if it comes to this I think it will resolve in gold's favor.

-Gold is money, real money. It has been for as long as gold was mined. Gold is the anti currency. Gold can be seen at times as all of the following:
inflation hedge
deflation protection
anti-dollar play
anti-euro play
pro-euro play
momentum play
waste of time
Volcano insurance
Contrary stock market play

And many more. Obviously gold cannot be all these things all the time. There may well be people buying gold for reasons that make little sense and this could change.

Of course I am still of the mind that over the next year we will see ever more currency issues and debt problems. Gold is "hard money" and it should be clear by now that many debts of all kinds are extremely "soft money" which depend on so much else to be made good. In the face of the wave of sovereign country issues, US state issues, pension issues, and back issues of Sports Illustrated I hold that more paper will be made to keep the system "liquid". The balance will be the metals. Stocks may well go up as well, maybe even more so than the metals, but there is only one true "hard asset" at the base of the value pyramid.

Have a good night.

Disclosure: GLD, SLV, PHYS