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

Fed announced that interest rates will be help at current levels (near 0) until 2014. That's 2 more years of 0% fed funds rates. It costs next to nothing to hold precious metals since bank accounts pay next to nothing. Gold and Silver responded accordingly. Gold up 2.4% to over $1700/ounce, silver up 3.7% to $33.22/ounce. Two years before rates will make a move means that gold has a two year run. Who knows how high it can go in two years?

 

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Good info Jim. Good to hear from you, we were side by side waiting for our A25s

We each ordered around 5pm with 38377xxx numbers. The final order number I believe was 383927xx.

 

High Krupt! I got my two sets. I presume you got yours. It is interesting to watch these 25th Aniv sets climb in price on eBay when they were first released; then watch the price sink to current levels.

 

Typical frenzy initiated by the US Mint, same as the ATB's which you can get for pretty cheap nowadays.

The Fed's announcement today means even a greater disparity of negative real interest rates, which is bullish for all commodities. Gold as a hedge against inflation was the de facto winner, and silver came right along as I would expect.

 

two more years of QE to the nth

Howdy,

Their announcement about keeping rates at zero for another couple of years implies QE 2.5, 3, 4, 5, 6 . . .

And as mentioned, the opportunity cost of owning gold is zero because interest rates are zero.

What that also means regarding interest rates, is that the supply of credit will remain severely diminished. What is happening is that with the Feds holding interest rates artificially low - lower than the street rate, you wind up with restricted supply. Classic Econ 101 supply/demand curves in a fixed price market - supply disappears. Remember gas price controls under Nixon? All of a sudden everyone is out of gas. duh. How about bullion a couple of years back with the paper price diverged so greatly from the street price that supply disappeared and/or premiums skyrockteted? Same/same. Right now, 30 year fixed mortgages are being touted at 3.8% or thereabouts. Yeah, right. Try to actually find one. Unless you have a huge downpayment and an 800+ credit score, "sorry, we're all out of money". Find me a banker that wants to loan you 6 figures at 3.8% for 30 years . . . yeah, right. "Are you crazy. Now, if we write it for 5.85-6%, well maybe I can find some money to loan you."

So, with the announcement, you know that pm's have another couple of years at the very least, inflation is coming and you can hear the bloody hoofbeats, and credit will remain tighter than . . . . =====>>>>> own some gold, guard against inflation, and if you can borrow money - do so.

peace,

rono

 

Rono, I'm retired with just enough cash flow to get by. Thinking about taking dividends out of IRAs and buying gold. Good or bad? Borrow money- not for me. Thanks

 

This is smack in the face for all the savers out there...

 

Howdy,

I can hardly advise anyone - too many variables and what not. That said, I will share how I see this rascal and how I'm trying to play it.

I have been saying for years that everyone should own around 5% or so of gold and silver bullion. As an investment - a security blanket if you will. More than this is speculation and that's fine but that's a different thing. And if you want to speculate in this arena, you want junior gold and silver miners. That's where the leverage is. Although it's since fallen back some, I hit my first home run this bull with Silver Weaton SLW. I think there are still some real opportunities there if you want to do the research. Go to kitco and check out their listing of miners in detail both and gold and silver. Read the articles at gold-eagle. Run the charts.

Right now in the market, blue chip companies that are paying a dividend is about the sweet spot in equities. However, I'm a momentum investor that has a core portfolio with a portion set aside to overweight the trending sector. This means that I'm a lazy Edited ~ Read rules on w*rds and don't want to constantly check things. I've been overweight gold and silver since 2002. I'm still. Howeve, I'm also throwing a few extra chips into dividend payers. My favorite fund for yield is NCV. I do NOT care for the bullion ETF's - GLD, SLV. Not any more. Don't trust them. Prefer CEF Central Fund of Canada. Holds gold and silver bullion at 55/45. My favorite core fund is Permanent Portfolio PRPFX. I do NOT trust the market and know without a doubt that the game is rigged. I still choose to play to a limited degree but do so realizing the risks and odds. I also like blackjack at a casino, but know the odds.

As for retirement, think of it as a footstool. The more legs you have under it the sturdier it is. How many do you have, how strong are each of them, can you add more? SS, Pension, 401, IRA, savings, home equity, rental property, second income, kids that are doctors . . .

As for your wealth, I read a quote a few years back by the elder Baron Rothschild. He said to be safe, have 1/3 of your wealth in securities, 1/3 in real estate and 1/3 in rare art. Now this latter could also be rare coins - but not junk and not beanie babies. When I first read this, I ran my numbers and we were 90/8/2 and I blew chunks on my monitor. I'm now about 60/25/15 and still working at it.

Oh, and I'm retired and 63.

peace,

rono

 

Thanks ever so much Rono. I'm 62, 55/40/5. Going to start converting dividends to physical PMs ASAP and we're planning to move closer to the married daughter with a little home downsizing. I'm going to check NCV, CEF, PRPFX and maybe allocate them in, maybe. I'm heavy in preferred stocks, never dabbled in mines or EFTs and so I won't consider them. The lotto is all I know about gambling but they only get 20/month from me. Cointalk made me focus on my forgotten collection and it's been fun getting everything in order. Again thanks for your input.

 

There is a lot of exuberance about Bernanke holding rates at 0%, but I don't think it's going to make much difference. The Fed's attempts at economic central planning for years have failed and they are now like the little boy standing there with their finger in the dike. There is absolutely no way they can raise rates without creating utter destruction to the finance system. And since they can't go any lower than 0% the only tool they have left is to create an account for themselves, load it with currency and then use these assets to buy securities directly from the finance industry. i.e. QE.

The problem for them, if you understand this, is that if rates rise, all that paper which they have bought from the banks, loses value, and if that value falls below their liabilities (which includes the money they created to start QE) then the Fed becomes technically insolvent. This doesn't mean anything for them except that it forces the politicians to get involved. This is why rates won't rise and why this is non-news. It's a sad state of affairs, but it's what happens with fiat money systems.

Silver is a speculator's metal. It might cause a spike in silver for a while. Gold is an investor's metal. It will continue to go up because rates are being held at 0% so stay the course on whatever investment plan that you have for it. In other words, what they say now is irrelevant because the boulder has already been pushed over the cliff.

(all bets are off however if they start a war with Iran)

 

If you plan to buy CEF [and maybe some of the others you mentioned], you will need to become familiar with the tax rules regarding PFICs [passive foreign investment companies]. If you don't fill out the correct tax forms and make the correct elections, you can end up paying tax every year on unrealized gains, and in some cases it can go to 100%. Many of the problems can be avoided if the PFIC is held in a tax deferred account such as a 401k. That said, I'm not sure PMs are an appropriate investment for someone just making ends meet. You should only invest if a significant loss won't matter much to your financial situations. For all of the benefits of owning gold and silver, they must still be considered high risk investments.

 

Hi Cloudsweeper,

Thanks for the qualifier on CEF. I own it deferred but also believe that it's the best way to own paper bullion in a taxable account. Sure, it's a PFIC and sure you need to use TurboTax or some other program, but when you do you end up with gains being taxed at a much lower rate than the normal bullion ETF's. As you are aware, GLD and SLV are taxed at 28% as Collectibles.

And frankly, the only reason to own a bullion ETF of any sort is to augment your physical holdings in a completely speculative manner. I trust CEF but not GLD or SLV.

As for PM's being an appropriate investment for someone just making ends meet - we disagree. I think everyone on the planet should own some. My grandkids refer to their favorite stuffed animals as their Bed Buddies. Well, gold and silver bullion/coins are MY bed buddies.

When someone is closer to the edge financially, many forms of bullion are out of the question. You're not going to buy gold buffalos. However, you can own jewelry - you can buy single silver eagles - etc. Look at India where for centuries, gold jewelry is effectively the retirement system for the women. They're given jewelry at birth, every holiday and at their wedding. Many wear a lot of it all the time. Most is 18k. Oh, and some of these women are 'just making ends meet' or worse.

And I also do not consider gold and silver to be high risk investments. They are high risk speculations and you can get seriously crazy in the arena. Having a little gold and silver as a 'bed buddy' is prudent and wise and the height of fiscal responsibilty. To say otherwise is to ignore 5,000 years of history.

peace,

rono

 

I'm not sure why the market was even moved by the Fed's statement. I would figure it was well known that they can't raise interest rates. The US has too much debt to raise interest rates. Every 1% increase in the interest rate will eventually increase the debt service by ~$150 billion per year.

 

Thanks Rono, Fatima and Cloud.
I've had my PMs for decades so converting my dividends will give me a low average PM cost. Just want to double my current holdings to guard against inflation and have some collecting fun. No plans to devest or when or how I would. With everyone's comments I'm just going to KISS with my IRA. I know in the years ahead my dividends will change from disposable income to help pay living expenses. That's when I'll know what to do with my collection.
Any comments on a pm IRA?

 

Oh yeah, the Fed doesn't want people sitting on their cash. They are encouraging consumers to spend and businesses to expand. Some inflation will also increase the value of real estate, improving the housing market. A little inflation makes stocks look like good investments as well.

A little inflation is a good thing.

The unknown in the equation is the amount of inflation. A little is good. Too much is bad.

In any event, zero percent interest is good for PM. There is no other direction for PMs except up. It costs nothing to own PMs because your return on money in the bank is near zero. All other investments, real estate, stocks, bonds, require risk tolerance. The risk tolerance required to own PMs is lower than all other alternative investments. Higher prices is the path of least resistance for PMs under the current market environment of 0% interest.

Just my worthless opinion.

 

I've heard people repeat this many times, but they can never adequately explain why.

 

A little inflation is a signal that the economy is expanding. Without a little inflation what would be the incentive to invest in the economy other than bank accounts? Bank accounts are safer than the stock market. Why take risks with the stock investments if there was zero inflation?

In order to take risks there must be an equal reward.

 

True, but getting a 30 yr fixed at 4% or even 4.5% ain't bad at'all. Add to that the fact that most real estate is going for a 40-60% discount off what it was selling for 5 yrs ago, and to me you've got a MAJOR buying opportunity in real estate. If you can afford a single family home, or a rental unit that will cash flow about even, right now in Southern California, DC, New York/NJ or any other area where the underlying fundamentals are solid...then buy, buy buy.

It's like when gold was $285/oz, it's a historic opportunity to buy low, and the money their going to lend you to do it has never been cheaper.

 

reference- a little inflation is good

Money is debt / debt is money -it's too crazy to believe http://moneyasdebt.org/content/video-series-1

 

SSSHHHHHH don't tell everyone!