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Precious Metals: where “buy and hold” is NOT dead

It's not surprising that investors who are interested in precious metals are continually looking for commentators who will provide them with short-term “calls” on the prices for precious metals. I generally resist playing that “game” - for that is precisely what it is.


No one knows what precious metals markets are going to do over any short-term span. I know of no one who is more familiar with charts and movements in this sector than Jim Sinclair, and his associate, Dan Norcini. Norcini never makes any short-term predictions – but rather presents people with the “bullish” and “bearish” scenarios going forward. Sinclair does make predictions, but they are all long-term price targets. There are very good reasons for their caution, despite their decades of experience in this sector.


All short-term technical analysis has extremely limited reliability, at best, producing results with slightly higher than “50/50” probability. Given that no system of analysis can do worse than 50/50 (over the very long term), obviously T/A is not a means for consistently outperforming the broader market. Instead, I like to compare it to handicapping horses at the race track: you might be making “educated guesses”, but you are clearly gambling rather than investing.


This is why, historically, financial advisors have traditionally advocated a “buy and hold” strategy for their clients. While short-term movements are highly unpredictable, and short-term predictions are extremely unreliable, this pattern reverses over the long term. Put simply, the longer the time horizon (and the larger the data stream) the more predictable are the movements of companies, commodities, and overall markets. This is an elementary fact of statistics, yet most people who practice T/A have so little overall understanding of mathematics that they are oblivious to this important reality.


Given this context, what are investors to make of the “new reality” for portfolio management, where even the most-conservative portfolio managers are regularly heard pontificating that “buy and hold is dead”? Very simply, it means that these people no longer have confidence in the investments they are recommending to their clients.


It is no surprise that the confidence of these “experts” has been severely shaken, given that most of these same experts were all “surprised” by the bursting of the U.S. housing-bubble – and all the consequent fall-out. The fact that these people are no longer confident in their own long-term forecasts should be considered highly revealing. With price behavior much easier to predict over the long-term, what this reality reveals is that most of these “experts” were simply part of their own “herd” - with few individuals truly capable of individual analysis.


In contrast, I know of no precious metals advocates who have any reluctance to recommend gold and silver as being good long-term investments – and by “coincidence”, many of the “experts” who previously shunned precious metals are now conceding that every portfolio should have at least some precious metals component.


The other reason why making short-term “calls” on gold and silver is even more dubious than in other sectors is because these are our most-manipulated markets. The reason for this constant manipulation is also part of the reason why gold and silver are considered such good long-term investments. Precious metals are the truest “barometers” for economic conditions, and most particularly inflation. As the only true “money” in our societies, the nominal prices of these commodities will always reflect the level of inflation in an economy, over the long-term.


As I have discussed in many commentaries, lying about inflation is a goal of most governments, and an obsession with some – most particularly the United States, which not surprisingly engages in the most doctoring of inflation figures (see “Inflation the key for U.S. to manufacture positive GDP”). Part of this campaign of lies is to suppress the prices of gold and silver – so that soaring gold and silver prices do not reveal the magnitude of their lies regarding inflation.


Thus, the precise reason why predictions are so unreliable over the short-term (constant manipulation) is also the reason why there is so much certainty about the long-term predictions for this sector: the longer a price/market is held down, the longer and higher it will bounce once such price-fixing inevitably fails.


This is why it is so vitally important that precious metals investors acquire the most-elusive of all qualities: patience. Living in an “instant gratification” world, patience has become one of the most difficult virtues to practice. When you combine the reduction in the general patience of investors with the ever-increasing volatility of markets, investors develop the irrational expectation that if they simply spend enough time studying markets or simply listen to the right “expert” that they can consistently trade these swings.


Again, such a philosophy is not “investing”, it is gambling. Certainly, there are occasions where sharp spikes or dips create obvious buying and selling opportunities. However, placing open buy and sell orders still allows people to take advantage of those extremes – and without risking getting swayed in their tactics by the emotions which dominate short-term trading.


In other words, let the market come to you.


Reckless money-creation, and even more ridiculous near-zero interest rates guarantee a wave of inflation will impact the global economy. We are already seeing individual commodities (like sugar) spiking to new all-time highs – an early indication of inflation to come. The real beginning of the “big move” for precious metals is still ahead of us because government policies continue to make the long-term fundamentals for this sector even more bullish.


Maybe that big move will start tomorrow. However, the point to keep in mind is that if precious metals were to trade sideways again, or even pull-back (an unlikely possibility, given we are just beginning the period of seasonal strength for this market) that this makes the long-term picture more bullish, not less so.


Rediscover patience. Don't listen to “experts” who no longer have confidence in their own expertise. Buy-and-hold precious metals, and quality precious metals miners – and sleep well at night.