Silver/Gold – Do You Buy, Sell or Hold?

The sovereign debt problems in the Eurozone have not been resolved. The European Central Bank (ECB) has pumped out a record amount of liquidity to stave off a second banking crisis, but the structural problem of the debt has not been addressed. It has simply been shifted from private to state hands. So we have an ongoing economic growth problem and gold offers a safe haven for investors. Add the quantitative easing programme embarked by the US Federal reserve and the attractiveness of gold for investors and developing countries alike remains intact. When currencies look weak and there is a fear of inflation in the market people tend to resort to more permanent assets like gold to protect their investments.

There has been a lot of talk about gold recently and the precious metal has certainly seen an interesting past 5 years, climbing to historic highs above $1,950 an ounce and then falling back to below $1,600 pretty rapidly. That’s a $350 drop which is the equivalent of 3,500 points, which if traded via a short spread bet position with a modest stake size of just £1 a point, would have netted you a cool £3,500.

A downswing in the price of gold may negatively impact gold bugs but spreadbettors can use their trading accounts to seek to make money from a fluctuating gold price. What has been unusual about this are signs that the long-standing patterns that dictate gold prices are changing. Recently the gold price has again reached $1,784.61 an ounce as new monetary easing measures were announced from the main global central banks including the U.S. Federal Reserve, fuelled demand in the metal.

Trading the Gold Price

Gold has long been championed as a ‘safe haven’ – something to buy when riskier asset classes such as stocks and shares are falling or facing high levels of uncertainty. As you may imagine, this is largely what caused the price of gold to rocket in recent years, as, I think it’s fair to say, we’ve seen a great deal of turmoil in the financial markets of late.

What is gold? Real certified metal held in your hand.

Gold and Silver has been “money” and a store of value for thousands of years…..

…and it will still be considered money and a store of money long after the dollar…pound…euro and whatever other fiat currency you would like to mention becomes worthless…..

..and the ONLY way to buy it…and to protect yourself from currency implosion or hyperinflation or a whole systemic financial meltdown is to buy the physical stuff..

if you buy paper Gold…an ETF….you will joining the bottom of a very long queue should you wish to collect the real gold that backs it up…….as I have said the dumping of paper gold to suppress its price means that there is nowhere near enough of the physical stuff to cover all the paper liabilities….

..either buy it as coins and store at home or other secure places you know of or have someone else store it for you…spread it around too….London ..Geneva..Singapore..

If Armageddon arrives, why wouldn’t the price of Gold, Silver & everything else collapse? Where is the demand for it when everyone is potless?

…because it is a store of value…and when the value of fiat currencies diminishes and becomes worthless…and goods and services need to be bought. It can be traded for them…

…in fact in many countries in Asia they will readily accept gold for everyday things…they love it and appreciate its inherent qualities… its longevity…scarcity and store of value.

…not a return to the Gold standard per se…but the valuations put on them will have to be backed by Gold…and many think this why governments all over the world who KNOW what it is happening are either secretly buying up as much of the stuff as they can (China) or trying to get the gold that is stored for them in other countries’ Central banks repratiated to them…

What is not gold?

  1. Shares in gold mining companies.
  2. A nice paper certificate saying you have gold held on your behalf in a vault somewhere.
  3. Shares in a gold ETF, also with a certificate promising that someone somewhere is holding real metal or something.
  4. A COMEX futures contract promising future delivery of gold on a certain date .
  5. A CFD or spreadbet on the price of gold.
  6. A tungsten bar nicely coated with gold which is indistinguishable from the real thing (yes it has the same density) – the Chinese received quite a few of these from the US apparently.
  7. Fools gold – yes its iron pyrites.
  8. Gold coated Kruggerrand copies offered on Ebay as collectors items for £10.

Quite a lot of things which are not gold…

But last year something fairly interesting happened (if, like me, you’re the kind of person who finds commodity trading patterns interesting) in that gold prices became close correlated with the euro/dollar exchange rates. With the Swiss Franc, another safe-haven currency, being pegged to the euro, this removed another possible flight to safety and rendered the gold price an even more important indicator of negative market sentiment.

With the Eurozone arguably being the main source of negative economic news in 2011, we often saw the euro falling in value, this meant that gold prices often fell in concurrence with stock markets, as traders instead bought up dollars as the safe haven asset of choice. The sovereign debt crisis in the Eurozone has not been tackled. The European Central Bank (ECB) has pumped out a record amount of liquidity to stave off a second banking crisis, but the structural problem of the debt has not been addressed. It has simply been shifted from private to state hands. So we have an ongoing economic growth problem and gold offers a safe haven for investors. With the Greek and Spanish situations coming to a head, and the prospects of a default looming on the horizon you may argue that the uncertainty may see the gold price affected through fear.

Recent reports have been published, such as that from Societe Generale, which predict that this trend is now coming to an end and many analysts seem to agree, with predictions that gold prices will surge to a new high in 2012 fairly rife. However, these estimates vary greatly: Barclays Capital thinks gold will average $2,000 an ounce this year, Goldman Sachs says more like $1,810 an ounce and UBS thinks gold will peak at $2,500 an ounce in 2012, averaging $2,050. Also, China has recently overtaken India as the single biggest buyer of gold although it is also slowing down. Demand for gold may thus decline accordingly.

The upshot of all this is that gold trading patterns are difficult to predict and the precious metal is more or less an asset class apart, unlike any other in its behaviour. So, if you’re thinking about spread betting on gold, make sure you research this complex market thoroughly first.

In this feature, we re- visit the perennial question of whether “now” is the right time to buy, sell, or hold onto gold and/or silver. Of course, not knowing when you are reading this article, there is no way to tell you if the time is right. Also that would be wrong, not knowing your individual circumstances. However, there are a number of things that you can look at to decide for yourself about your precious metal investment.

First, it must be said that gold, silver, and other precious metals typically outperform any other form of currency over the long-term. Gold has outperformed every other currency since this decade, this century, or even this millennium started. That’s not surprising, given that every other currency is based on faith and trust and little pieces of paper, not on real physical wealth.

Gold’s traditional store of value properties would remain resilient in the event of a major wealth-destroying crisis. Gold does not rot or crumble, can be relatively easily transported (unlike real estate), is universal, and cannot be generated by any government to cover their economic needs. The same applies to silver, with the important addition that silver is used in many industrial processes, and so has commercial value as well as intrinsic value.

In China, for instance, investors keep buying the metal as a hedge against feared inflation. Jewellery demand in China was up to 156.6 tonnes – 30% of the global appetite. This increase now China as the largest jewellery market for the third consecutive quarter. The only market which is showing signs of stagnation for gold is India as high gold prices and import taxes curbed investors appetite for the gold metal.

The one factor cited against gold is that it pays no interest. At the moment, banks are paying virtually no interest on currency, and in this sort of climate the price of gold typically soars. In fact, holding currency gives you a negative return because inflation erodes the value of money. For the first part of this century, gold has averaged nearly 20% gain every year, making it a winner hands down.

All the gold ever mined in history, much of which is still available in the world as jewellery and the other forms, would currently fetch less than $10 trillion. If you think this sounds a lot, bear in mind that the world governments have spent more than twice this in “bailouts” of their economies in the last couple of years. Not to forget silver, much of which is mined as a by-product of other mining operations and not sourced directly, and which is in short supply because it is being used up in the industrial processes referred to earlier.

Unless you are a believer in the “end of the world” scenario, the current best advice is to hold about 10% of your wealth in gold, though for the end of the world you would probably find a bag of “junk silver”, actually not junk but silver in small denominations, would serve better as a medium for bartering.  The problem with buying silver, for me, is the VAT. Unless you buy from the Guernsey mint and leave them in a deposit box…

There are several ways that you can profit from investing in gold, and not all of them involve buying and storing the precious metal. However exchange traded funds, and other ways of notionally investing in gold have been criticised because you do not have the actual metal. Precious coins are an alternative, though you will pay a premium price when you buy. If you want to speculate in what can be a precarious market, then you may consider some form of investment in mining shares.

Whichever you choose, with extremely low interest rates, and the current economic climate it seems that gold and silver are set to remain a fundamentally sound investment.

It is sometimes mentioned by industry observers that gold is a commodity that follows a reverse demand-supply trend. i.e. when the price of the metal rises, demand may increase since people want to get in quickly before the price rises further. However, when prices fall, gold bugs tend to hold back because they expect further falls.

When prices rise, demand increases, because people want to buy quickly before the gold prices rise further. But when prices fall, customers tend to hold back, because they expect the prices to fall further.”

Silver Manipulation Could Cause Huge Short Squeeze

Take this with a grain of salt and realize that this is something to be aware of and not necessarily traded upon immediately. Watch the silver market and if it sets up then take a position. Do not blindly buy on this information.

I don’t know how big a deal this is going to turn out to be but it sounds like it could be huge if it’s true. I have listened to the King World News interview of whistleblowers Andrew Maguire and Adrian Douglas and it is mind blowing. It’s hard to imagine how far reaching the implications of this fraud and manipulation go. I won’t speculate but the talk is it reaches the top levels of several major governments…

The accusation is that there has been a suppression of the gold and silver market, specifically silver to support fiat currency. This is not easy to understand so I’ll try to explain it…

Basically, for every 100 ounces of paper silver traded on the COMEX, there is only one ounce of physical silver backing it. What this means is that there is a huge shortage of physical silver and many holders, that think they own physical silver, do not actually own silver, they own paper silver instead. This means that the clearing firms, banks, exchanges, and anyone that guarantees this paper is actually short because they will not be able to produce the physical for the client. This is why they are saying that price is being suppressed.

Again, this is not necessarily the easiest situation to understand but trust me keep an eye on silver and SLV, the silver ETF, for a massive short squeeze. The conspiracy theorist are going to go crazy with this one…

Trading Gold Update: Gold looking at $1700 I wish we were in it now lol. With gold it can sometimes be at a level which is uncomfortable if that is the case the trade should not really be taken or perhaps a reduced stake trade, with a bit of luck if it goes our way we can slice and dice the trade and get our stop up to a level where we are in a winning position. Gold is a commodity that’s either used for jewellery or stored because people see it as a safe haven. The safe haven valuation is based on demand and that demand is potentially at risk going forward, in which case I think the price may drop.

Trading Gold Update July 2013: Volatility seems to be picking up again – where will bond money be reinvested?  I’d expect a lot of it would just be held in liquidity (USD most likely), until the various markets become less volatile.   Whether a large portion will go into physical gold I’m not sure… On the one hand, bond prices are inversely related to interest rates, so money coming out of bonds equals higher rates. Higher interest rates are generally not seen to be good for gold as they reduce inflationary pressures. On the other hand, increased volatility, falling markets, panic, have often been good for the gold as it’s where investors resort in times of fear…

You can almost look at any set of economic data and turn it into either a bull or a bear case for physical gold to suit yourself. My outlook is simply gold will keep trending down, until the point that it stops trending down! Unlike stocks, which can be up 15% and then down 15% within a couple of months, gold tends to trend steadily up for a number of years, or steadily down over a number of years. And as it’s currently in an established down trend I wouldn’t bet against it dramatically reversing anytime soon.   So, some bond money may go into gold, but I can’t see the case for a massive influx.   Stocks are probably too risky for bond investors plus rising rates wouldn’t be good news for stocks anyway, although some cash could go in the direction of defensives such as utilities/pharma.  To be honest I don’t know where bond money will go, but my best guess would be USD (at least in the short term).

  1. Ben
    August 17th, 2014 at 12:31 | #1

    The gold price can go where it likes short term but ultimately it is going up big time. Money printing can’t stop without interest rates rising and deflation which would lead to economic financial meltdown.

    How do you think the Governments of the West will be able to afford to fund their already huge deficits on higher interest rates? How will the banks cope without all the cheap money? Deflation will lead to bigger and bigger deficits.

    There are only 2 ways forward with this mess :

    1.) Keep printing money with the hope of devaluing your currencies thereby causing cost push inflation reducing debts etc…….good for Gold etc.

    2.) Stop printing money….face up to the consequences of being in too much debt (ie bankruptcy) and watch the financial world as you know it enter armageddon and melt down completely with the loss of banks, pension funds, savings… name it. Technically this is what should be allowed to happen. This is what would happen naturally but No politician is going to back this happening …period !

    Either way 1.) will eventually lead to 2.) anyway but just defer it for many years.

    AimHo of course.

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