Two Years Of Zero Interest! Oh Yeah, She's Going Up!

rono, as much as I respect your opinion and have agreed with you often in the past, I feel I must warn people against mining stocks. Besides the inherent risk in any paper/electronic fund that does not carry intrinsic value in and of itself (we can argue that the intrinsic value of the company is inherent in the fund, but if the company didn't exist that would not be the case so I do not lump that in with the intrinsic value definition of precious metals), there is additional risk in mining companies being nationalized by the government where they reside and disappearing from the equation altogether. This is in addition to the risk of having your assets contained in something that isn't tangible, that has no practical value. Silver has practical value for electronics. We could argue gold's only value is as sound money, but that is still something.

I completely agree with you in that I do not trust GLD or SLV, as they do not have the bullion to back up their paper contracts, and by their own prospectus the value of these funds is based on the amount of metal they have, not the price of the metal. Since they have to sell their physical metal to remain profitable, the value of these funds has an inherent price decay built in. Also, considering that the SLV specifically has the same broker watching their vaults as who is writing the paper contracts, it is a complete conflict of interest and any potential foul play or dishonesty in the numbers will remain hidden from view.

Your analogy of blackjack at a casino is spot on. If you know the game is rigged, why contribute to it? Getting into physical metal is the only way out of this game. Sure the PM markets are controlled by paper contracts today, but that cannot last indefinitely. At some point there will be a rush into tangible assets, and there isn't enough metal in the world for all the intangible assets without intrinsic value to transfer over into PM's without much higher PM prices.

Ironically I am almost exactly evenly spread between securities, real estate, and PM's, more so out of necessity than choice. I'd rather have more silver

 

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I decided to take some investment funds and strenghten up my gold percentage. It's now a healthier 6+%. There will be some people coming out of their fixed income instruments, and in the next year, they will keep gold moving in a plus direction. To me, it's worth the roll of the dice.

 

With silver going up the past few days and this most recent announcement, should a silver hoarder be buying right now? I had been thinking the price is on a minor uptick and was going to wait for it to go back below $30 but by reading this thread, will I be wishing I had bought more at these prices?

 

Maybe, but this does not indicate that inflation is what causes the economy to expand.

 

What I find odd, about is this notion is that people think that once they sign on the dotted line of the real estate contract, that all of a sudden the price decline that is getting them the "good deal", is now going to magically reverse itself and their purchase will appreciate. What if it falls to prices of 15 years ago and stays there? You just lost a huge amount of money.

 

Almost every thread on Precious metals contain apprehension of everything but physical metal. and advocate rather large % of holdings for one's future. I seldom, very seldom see a thought out exit strategy for this type of investment, It is almost as if everyone thinks it will go on forever and ever, and they will just accumulate "wealth", and everyone lives happily. Surprisingly, I think people will lose more money by not having a firm exit strategy, than by hesitating to buy large chunks of physical metal at this time. It is easy to moan money "lost" by not buying yesterday than by not selling yesterday ( one tends to hang on hoping it will always go back up). So write out an exit plan before you trade and stick to it. You may be selling one day when everyone is euphoric such as today, but you will be happy if it drops 10% in a week. You can buy back in. Be smart, not sheepish. IMO.

Jim

 

Same for precious metals.
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Not to be overly hair splitty, but only gold and silver are money. What people call money is currency. So the only way you could lose money is by exiting your PM position. It really just boils down to what you'd rather have, real money that can't be devalued, or paper currency with no intrinsic value that is greatly more useful for exchanging goods and services, but nothing else. I also see a lot more people arguing against holding precious metals on this board than I thought I would ever see, let alone on a coin forum no less, and I have yet to see one fundamental reason why they aren't a great investment. Everything in that regard centers around mentality and investing best practices, or what's happened in the past under entirely different circumstances. The fact is we have negative real interest rates through 2014, and gold and silver thrive in such an environment.

 

Two years, zero interest? Thought this was about the first spouse series before I opened it.

 

I could never agree with that statement, and we could probably never convince each other. Of course each of us is independently only working for our own account, so everyone will win or lose on their own. Best of luck.

Jim

 

This is very true. But I'm not advocating purchasing precious metals based solely on the price of 5 years ago.

 

My exit strategy is pretty simple for physical metal. When I get old, I'll open the safe every now and then, take out a coin, head to the pawn shop and get some cash in whatever constitutes the currency at that time. This lets me get at my accumulated wealth without involvement by the vampire banksters and pesky government. It's my "let have fun money" and that is what I will use it for. I'll take the money to the beach, the gambling casino, travel, whatever else floats my boat at that time.

 

My exit statagy is very simple, when my financial advisor can show me a much better alternative and it can also be somewhat inflation proof, I'll reconsider. But then again, he has no problem with what I have decided to pursue now.

 

That is great, best hope for you. I assume that you have other income or expectations that it wouldn't be needed for daily existence. My concern is that many who are converting retirement type funds into precious metals are depending on an unpredictable amount of gains which will have to be taken as needed for monthly/yearly needs, irregardless of price at the time. But as I mention, each of us is only responsible for our own family.

Jim

 

^Yes I do. I would not advise anyone to put all their eggs in one basket. I treat PMs (mostly gold) as additional insurance against a financial system that is running out of control. If I don't need it for that, then it's icing on the cake.

My advice to anyone is that your first priority is to have a plan to get completely out of debt by the mid-40s and earlier if possible. Stay that way. Then and only then, should someone consider getting making significant purchases of bullion.

 

The last time I checked, Turbo Tax did not prepare Form 8621 to make the QEF election required for holding CEF. If you look at the form and instructions, it isn't obvious how it should be filled out to avoid a tax issue. So be careful.

5000 years of history notwithstanding, there is no reason to expect that in the year 2012 and beyond gold cannot or will not have a significant and prolonged price decline. I just want the OP to think about that and apply it to their individual financial situation.

 

I wondered if I would ever say that I agreed 100% with one of your posts, but I do with this one.

Jim
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Howdy,

Thanks for the kind words. I agree with you completely that mining stocks are very risky. I'm sorry that I wasn't more explicit on this. I left it at most speculative and highest leverage. I'm lax in that I figure I'm preaching to an informed choir and so I have a tendency to leave out some of the more obvious warts. Indeed, the safest way to play the junior miners for gold is with GDXJ and with silver, the miner ETF is SIL. I own both, so please note that I'm speaking 'from position'. Running individual miners is great fun, but good God, do it for sh*ts and giggles and with mad money. My traditional IRA was a Price and via their network I was able to access penny stocks and pink sheet issues. It was a gas and I did OK [mostly because I was swimming with the current]. But then I 've always been a little crazy. I moved my wifes Roth to EuroPacific for a while so that I could access international exchanges directly and get into some really nutzoid stuff. feh. You don't do it with the rent. This account was anchored by a health dose of PRPFX and NCV with BHP for ballast. That's how you moderate the risk of some of these issues. Use casino money.

Why play? It's fun. Besides, you can occasionally make some real money.

I've always felt that silver was the play. Always . . . and from way back. ****, I was even one of the few that owned the original silver mutual fund - I think it was SLSLX or something like that. This was back in the 90's and I lost money. I was clicking my heels though and man, with silver under $5, it was 'back up the truck'.

We've discussed it around here before about the long time ratio of gold/silver. Some of us give this credence and some not. That's OK. I use it as a tool to help me determine the specific balance of gold to silver that I want to own at any one time. Ideally, you could invest all your gold and silver in exactly the ratio and rebalance as it changes. Regardless, the current ratio is 1 to 51 and I personally think that it should be much lower. This tells me to overweight silver relative to gold - on the margin. The other metric is the gold/XAU ratio. It contrasts bullion to the mining stocks. The historic equilibrium level is 4-5 with lower numbers a Buy Bullion signal and higher a Buy Stocks signal. It's presently 8.6. Even though I think the bullion ETFs have raised the equilibrium level, this is still way high and a signal to me to overweight miners relative to bullion - on the margin.

and so it goes,

peace,

rono

 

Howdy,

Thanks for this postie. I agree completely. I probably didn't make myself clear. I think that a small percentage of your wealth should be in pm's for insurance purposes and that more than that is speculative. I was also NOT assuming any appreciation on that little 5% security blanket. If you're hoping for appreciation, it's speculation. I happen to think that gold and silver will continue to appreciate but that has nothing to do with my core holding. My core holding is there as a STORE OF VALUE.

As for having an exit strategy for an investment . . . I would think and hope and pray that everyone that invests in anything has an exit strategy. If not, more's the pity. I'm a momentum investor, so I scale in and out of trend plays. Sort of a mental stop loss.

peace,

rono

 

Good luck with that. Very few small time human traders can compete like this now and the market has a habit of emptying the pockets of those who get too confident. My advice is to take some time to learn about the role of silver and gold including the fact they are not equivalent investments. I disagree with you that gold is a pure speculation.

My advice to most reading this, is the risk of such "investing" is extremely high and you would be better off if you like such thrills to head to Vegas or even better a casino in the Caribbean. If you like looking at pixels change on a computer screen, then get a World of Warcraft account. Your losses then are limited to $14.99/month.