your sure guide to making money trading gold and silver in all form.
Friday, November 5, 2010
GOT GOLD?
Do you have the guts to be rich? Are you a rule breaker? Do you have what it takes? Are you willing to go against the flow or are you going to mosey along with the herd? Your choice… not the market’s.
The late Sir John Templeton preached that investors should buy at the "point of maximum pessimism," when market sentiment stinks and no one wants to hold anything but cash. A pessimist sees the difficulty in every opportunity, while an optimist sees an opportunity in every difficulty.
In these markets, daily mayhem can cost you dearly, wipe you out entirely OR provide tremendous opportunity.
The Who, What, When, Why, & Where...
WHO:Which investments will deliver the most?
Investors will enjoy lucrative returns on both gold and gold mining stocks. However, investors who invest in junior mining stocks (at the bottom) will receive the greatest returns simply because of the multiples. Junior mining shares (penny or micro/small cap stock) trade at pennies as compared to major mining companies or gold bullion. Your money can buy more junior mining shares and it is easier to get a double (i.e. $0.20 to $0.40 per share). With an investment in major mining companies, the same money buys fewer shares and it is more difficult to realize a double (i.e. $30 to $60 per share.)
WHAT:What to do?
Buy – It’s a buyer’s market. The prices we’re seeing for assets now, whether it’s stocks, commodities, or gold, do not reflect the underlying value of those assets. People are selling them simply because they “have to” - whether because of margin calls or redemptions from hedge funds or otherwise, the assets have to be sold. It’s a sale!
WHEN: When do you buy?
Now! Buy at the bottom. History has proven that true fortunes are made during times ofeconomic distress or financial corrections. The depressed valuations of the companies right now allow you to purchase shares at a fraction of what they have been selling for a year or two earlier.
WHY:Why gold?
Fundamentally, supply and demand is the key. Gold supply is dropping. Gold demand is rising. In addition, history has shown that gold has a “proven” ability to provide a shelter from such negative market effects as inflation, catastrophic events and political unrest; gold stocks have outperformed any other type of investment during these times.
WHERE: Where to put your money?
Gold bullion for safety and steady returns; gold stocks for dramatic returns.
Today's "Weird" Markets
These are the kind of markets that test the courage of investors.
Markets run on fear and greed. Recent market volatility has never been greater and, in fact, is unprecedented. Because it is unprecedented, no one knows or can predict what will happen next. It takes more than insight to see “opportunity.” It also takes guts to act on it.
GOLD
Fundamentals on gold remain intact. If anything, they have improved under today’s widespread crashing credit conditions, inflation and material shortages. The long-term fundamentals for gold look healthy. The long-term supply constraints have not disappeared and demand continues to remain robust.
The fact that gold did not head higher during the current leg of the [global financial] crisis seems to reflect a combination of the rise in the U.S. Dollar, de-leveraging of commodity positions, sales to meet margins calls on other assets and the unwinding of the long gold-short dollar trade by some investors. This situation will not continue much longer.
In today’s world of massive deficit spending, political unrest, inflating currencies (i.e. “fiat money” or excessive printing of paper currency) and financial/credit crises, gold’s monetary role is reasserting itself.
U.S. Dollar
Since July 2008, the U.S. dollar has staged its most dramatic rally in years. However, from a fundamental standpoint, the dollar’s position has worsened significantly. Trillions of dollars of are being created to bail out financial institutions and local economies.
When the dollar was taken off the gold standard in 1971, there no longer was any discipline on the money creation (“printing”) process. As a matter of act, two years ago, the U.S. changed its laws so that it no longer had to report how much money was printed. No one knows exactly how much is printed. Once a currency is on this path…
The U.S. federal government is already operating at the mercy of foreign creditors because domestic savings have already been consumed. What was at one time the richest country in the world, the U.S. is now the biggest debtor in the world. The federal government’s debt is growing the fastest and politicians are spending the country into bankruptcy.
There is a “currency bubble” caused by the U.S. Federal Reserve System creating money out of thin air, without any substance underneath it. As with any bubble (i.e. high tech, dot com, etc), they eventually pop.
History - The Greatest Teacher (aka "Wisdom")
True fortunes are made during times of economic distress or financial corrections. Only one year before J.P. Morgan completed the formation of U.S. Steel (which financial historians have called the deal of the 20th century), he said that such a feat could never be accomplished by any man - until the markets crashed. The depressed valuations of the companies involved allowed him to purchase the business entities at a fraction of what they had been selling for twelve months earlier.
During the Great Crash of 1929, investors who diversified their portfolios with a fewHomestake shares (gold) were able to travel through the Great Depression relatively unscathed, while those who owned only the Dow Jones Industrials, were devastated. Investments in gold mining shares were islands of economic refuge during the grueling years of the Great Depression. The stock price of Homestake Mining soared relentlessly upward during the entire bear market. The share price of Homestake Mining rose continuously from $80 in October 1929 to $495 per share in December 1935 – which represents a total return of 519% (excluding cash dividends) during this devastating period. In addition, during the six years (1929 – 1935) Homestake paid out a total of $128 per share in cash dividends.
Commentary - Recent Market Activity
The relentless selling we have seen over the past months in precious metals was kicked off by the manipulative interventions occurring right around the time of the Fannie Mae and Freddie Mac implosions in mid-July. Yamana Gold, one of the most successful gold companies around, saw short interest rise 72% in the first two weeks of August. This stock has been a star performer. Why, or more appropriately, who, would short it? Many investors have thrown in the towel and portfolio managers are now forced to sell due to redemptions. These disillusioned investors believe that the market is telling them a message and don't realize it is not a market message but a heavily controlled manipulation to make them believe so and to dupe them out of their positions.
It is no accident that we haven’t been able to take refuge under the safe haven of Gold as tradition would have it. It is a planned policy known as “the strong dollar policy” that runs against all the natural forces in the real world, dooming it to failure.
Gold production was down 5% last year from its peak in 2003 despite steadily rising demand. Production will likely decline even more this year. The four largest gold producers are expected to produce 18% less gold this year than in 2006. These are not the signs of a bubble. Any further declines in the price of these and other commodities will result in even bigger shortages. The rapidly growing smaller producers that are helping to offset these declines in the larger producers are being seriously handicapped by the continuous price capping of gold which delays and cuts off badly needed capital to deliver what the world is demanding. The US Government has stopped selling gold coins also, so how does the price plummet when there is demand yet no supply? There is overwhelming evidence that the recent declines in gold and silver are a fraud.
The stocks are certainly selling at giveaway prices but will surely break free of the suppression when the physical markets break free. We have heard that many gold stocks inCanada are being shorted without borrows by brokerage firms with almost no limits. This is how they are dislodging stocks from even the most strong-handed precious metals investors.
There is a saying that a gold bull will do what it takes to throw off as many riders as it can and we are seeing it demonstrated before our very eyes. It was the same in the 1970's despite gold rising 26 times and many stocks rising from pennies to over $500 per share! It is sad to see investors give up on the very few areas of the stock market with such strong fundamentals that can allow them to do well despite the onerous future we face. Gold is certainly a commodity that will stand the test of time.
Is your take............. you choose
Monday, November 1, 2010
Gold and Silver Prices Soar in October, Mark Third Month of Gains
Speculation that the Fed will weaken the greenback with a second round of monetary easing supported gold. Prices shot up 2.5 percent this week after falling 3.4 percent last week. Other metals gained as well. Silver and palladium soared. Silver surged 6.3 percent this week and reached a fresh 30-year high. Palladium jumped 9.1 percent for the week and hit a 10-year high.
In U.S. stocks, the major indexes were mixed but closed nearly unchanged from last Friday. For the month, however, they soared between 3 and 6 percent.
Returning to U.S. bullion prices, gold futures for December delivery rallied $15.10, or 1.1 percent, to close at $1,357.60 an ounce on the Comex division of the New York Mercantile Exchange.
"The Fed meeting next week has been dominating the markets," Standard Bank analyst Walter de Wet, was cited on Reuters. "Ahead of that, people have positioned themselves, and from an investment perspective they are not going to add too much more gold."We think the gold market has priced in around a $500 billion QE exercise by the Fed," he added. "If the Fed comes out with a higher figure, we think gold will move higher. If it’s lower, it is going to be bearish for gold."
Gold advanced $32.50 this week. It gained $48.00, or 3.7 percent, in October. The metal rose 4.7 percent in September and 5.6 percent in August.
December silver jumped 68.9 cents, or 2.9 percent, to close at $24.564 an ounce. Its weekly pick up of $1.446 was the best since mid-February. Silver also registered its third straight monthly increase. It rallied 12.6 percent in October, 12.3 percent in September and 7.9 percent in August.
Silver continues to outperform gold, with the latest silver-to-gold ratio falling to 55.27. In contrast, the ratio was near 66 in June.
In other New York futures prices, January platinum added $15.10, or 0.9 percent, to $1,707.10 an ounce. It rose 1.9 percent this week and 2.9 percent in October.
Finally, the best precious metals performer was palladium. December palladiumadvanced $15.65, or 2.5 percent, to $645.10 an ounce. The metal soared 12.9 percent in October and 13.8 percent in September.
In London bullion weekly prices, the benchmark gold Fix price was $1,346.75 an ounce, up $24.25 or 1.8 percent. It gained 3.0 percent in October.
A "broad ranges and of pre-guessing the US Fed unfolded in the precious metals complex, most of it being subject once again to the fluctuations in the US dollar,"Jon Nadler, senior analyst at Kitco Metals, Inc., wrote Friday morning. "Markets were eagerly awaiting US GDP and consumer sentiment data but, to be fair, most of the ebb and flow in trading sentiment was still being dominated by one overriding preoccupation; that of what the Fed might (or might not) announce on Wednesday," Nadler added.
Silver was fixed at $23.960 an ounce for a weekly increase of 91.0 cents, or 3.9 percent. Silver advanced 8.6 percent this month.
In London PGM metals, platinum was up $27.00, or 1.6 percent, this week to $1,700.00 an ounce. It rose 2.3 percent in October. The palladium fixing was $640.00 an ounce for a weekly gain of $54.00, or 9.2%. It soared 11.7 percent in October.
How Much Gold, Silver, and Rare Coins Should You Own?
A question I am frequently asked by both new and experienced buyers of precious metals is just how much of one’s portfolio should be devoted to gold, silver, and rare coins?
There is no one-size-fits-all answer to this question. Factors that affect the allocation decision include someone’s current financial position, their amount of liquid assets, their age, the level of potential risk versus reward they can accept, and their commitments that may tie up assets in the future.
To help people, I have come up with a range of answers, using the percentage of net worth as the standard. For some it may be easier to think in terms of percentage of an investment portfolio.
The easy part is how much of someone’s net worth in total should be allocated to hard assets. For the conservative person, who may need quick access to cash for living expenses or may have a short time frame for ownership, I currently recommend a 10% allocation. I consider this to be the bare minimum to hold for insurance purposes. Gold, silver and rare coins tend to rise in value when the values of stocks, bonds, currencies, real estate, and other assets are falling. They also tend to rise when inflation is running rampant. Professional planners have confirmed that investment portfolios that own some amount of what I call hard assets tend to perform better over time than those that omit precious metals.
For a moderate investor, I now recommend approximately 20% of net worth or of an investment portfolio be allocated to gold, silver, and numismatic coins.
For the aggressive investors, which includes people who have significant liquid assets that need not be touched for a long time (at least five years), expect to live long enough to enjoy long-term appreciation, and are comfortable with a higher risk of loss, I suggest at least 25% but no more than a 33% allocation to precious metals and rare coins.
Under no circumstances do I suggest that anyone unload all their other assets and focus exclusively on gold, silver, and numismatics. Having all assets from just one investment class would be even riskier than not owning any hard assets.
OK, so now you can place yourself in a comfortable spot on the spectrum between conservative and aggressive, calculate your net worth or your total investment portfolio, and figure out how much you want to devote to hard assets in total. The next question that people then ask is how much should they allocate among gold, silver, or rare coins.
Silver is a more volatile metal than gold in its price movements. In bull markets, it will appreciate more than gold. In weak markets, it will decline by a greater percentage than gold. I use the gold/silver ratio to give me some clues as to which metal I expect to outperform the other in the future. Some analysts insist that a ratio like 16:1 is the long-term equilibrium ratio. I don’t know that this makes sense any more. However, I am much more comfortable projecting an eventual ratio in the range of 35:1 to 40:1. Since the gold/silver ratio now is in the mid-60s, that indicates that silver has the better prospects from here into the future. Accordingly, I allocate a somewhat higher percentage to silver than to gold, though I think it makes sense to have a significant allocation to both metals.
For conservative investors, I suggest that they avoid owning any rare coins at all for investment. Rare coins have a wider buy/sell spread than bullion, normally require a longer time for holding, and are less liquid. You may own some numismatic coins for the pleasure of ownership, but do not consider them as part of your investments. Thus, my conservative allocation would be 40% to bullion-priced physical gold, 60% to bullion-priced physical silver, and 0% to rare coins.
For a moderate person, I consider a small allocation to numismatics to be reasonable. So, for them I suggest an allocation of 35% to bullion-priced physical gold, 55% to bullion-priced physical silver, and 10% to rare coins.
As for the aggressive investor, I tilt even more toward numismatics and silver and somewhat less to gold. For this person, I recommend an allocation of 25% to bullion-priced physical gold, 50% to bullion-priced physical silver, and 25% devoted to rare coins.
I emphasize the purchase of physical gold and silver. And take delivery! There are a number of pitfalls of “paper” precious metals where I judge the risks of the seller or storage company defaulting on delivery are high enough to avoid them. Consequently, I don’t recommend certificate programs, London Bullion Market Association contracts, commodity contracts, allocated or unallocated storage arrangements (segregated storage accounts in your own name should be safe), and exchange traded funds.
I also strongly recommend not owning hard assets in precious metals Investment Retirement Accounts. There are a number of problems and limitations with owning precious metals accounts, not the least of which is the risk of confiscation of them as part of a program under consideration in Congress to potentially confiscate all private retirement assets. For further information on the problems with precious metals IRAs, see my article dated August 18, 2009 titled “Will U.S. Government Seize Bullion IRAs?”
In my precious metals and rare coin allocations, I purposely did not include either platinum or palladium. Neither metal had any significant use as circulating money in the past. The platinum market is running a surplus about half of the past decade, while palladium supplies have exceeded demand every year in the past decade. These two metals may do well in the future, but I expect gold and silver to outperform them on a percentage basis.
By finding your place on the investment spectrum and considering the allocations listed above, I anticipate that you will enjoy solid long-term results compared to many other asset classes.
Gold Market: Will be Bullish in 5 Years
This autumn was steady, and costs moved down to $575 levels till October 2006. It is here that they stabilized and have come to a point where gold now trades at $625-$650 levels.
Backers faced many world issues in this time, as the U.S. Was handling the Iraq issue, Israel attacked Lebanon, North Koreans fired rockets as well as a nuclear bomb, and with a nuclear clash with Iran. With doubtful events like these, gold did reasonably well and served its role as a safe harbor.
With no regard for all this, on a year to year basis, Gold is still higher by 23%. Gold bars now appears to be in the opening stages of a long-term ordinary bull market.
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