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Silver and Gold: Buy, Hold or Run?

by: Brett Owens August 21, 2008 | about stocks: GDX / GLD / SLV    

Brett Owens

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My answer the question posed above:  Buy.

Or hold - and buy when the uptrend resumes.

Sure this correction hurts. But corrections happen, and gold/silver were going parabolic for a bit - and anything that goes parabolic corrects eventually.

For a big picture view - let's turn off CNBC and review the facts.

First, let's discuss all of the fundamentals that originally drove the upward moves in precious metals that are no longer in place.

Actually, things have gotten worse, not better, in the macroeconomic picture. Fannie (FNM) and Freddie (FRE) are likely worth less than zero - and Hank and Co. have given both a license to print US dollars.

And speaking of insolvency, have you checked out the US government's obligations recently?

I'm not holding my breath that future president "OBAMA!" (hat tip: Porter Stansberry) is going to slash government spending, reduce tax rates to spark economic growth, and improve our future charity obligations (Social Security, Medicare, etc).

In fact, the only true threat I see to the gold/silver bull case is a deflationary scenario where everything goes down. But if you believe in our government's determination and ability to print money, you'll probably agree that we'll rev up the helicopters and use the miracle of the printing press to inflate our way out of anything Mr. Market tosses our way.

And inflation is out of the gates early - highest inflation levels in the US since 1991, even after the government's bogus adjustments.

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This article has 11 comments:

  •  
    Aug 21 07:30 AM
    Absolutely agree. We just had a nice flush out down and the pop back up should attract buyers.
    Has anyone tried to buy physical gold lately? It's getting harder to do, i.e. waiting for deliveries,etc. yet the price was going down? No. That tells me that the Fed is fiddling, as is their wont. GLD is the place to be.
    Reply
  •  
    Aug 21 08:45 AM
    Difficult to evaluate your objectivity without your disclosing long/short position in gold/silver stocks.
    Reply
  •  
    Aug 21 09:51 AM
    Where to run, if you had to run? I would still go for gold and silver.
    Reply
  •  
    Aug 21 10:34 AM
    Buy, buy, buy. I'm long... bought gold at under $300 and at $400, and GLD at $70ish. I'm long SLV--made money--SLW (made money)--Sabina Silver, SSRI, Canadian Zinc (also a silver play), Impact Silver--NAK (also copper), GG, UXG, Bravo Gold, Pelangio, Minera Andes--Kalimantan Gold (a long term play, but they also have coal)--more.
    Reply
  •  
    Aug 21 11:15 AM
    Longtime investor, but relatively new to GLD and SLV. I have performed what I think to be an objective analysis, and it points to a long position in both. There does appear to be some meddling in the markets, what with the physical product becoming scarcer yet the price is dropping. It is apparent as well the fed sees gold as a competitor to its paper. Both are commodities, but they are more than that - especially gold can be viewed as a counter-currency, and a clear hedge against inflation. The August price doldrums have played out, and I see GLD pushing $100 and SLV at $18+ by yearend. I am long in both.
    Reply
  •  
    Aug 21 11:19 AM
    Buy it if you can find it that is.

    www.rapidtrends.com/bl.../
    Reply
  •  
    Aug 21 11:47 AM
    I agree with the remarks except the phrase future charity obligations ( social security , medicare ) CHARITY. If the Government will give me back my contributions plus interest for the last 50 years I will gladly give up my charity, not to mention I hade state of the art health insurance until the gov,. took that away with medicare coverage. If you invested money in enron would you think your loss was justified. However Otherwise Your article is valid.
    Reply
  •  
    Aug 21 12:10 PM
    Let's think about this observation:

    "Difficult to evaluate your objectivity without your disclosing long/short position in gold/silver stocks."


    What could we possibly learn about his objectivity from that? If he believes the fundamentals of gold are good, then I would assume he owns gold stocks.

    If he thinks gold is a bad investment, would he buy gold and then tout it as a great investment?


    I have never been able to understand this nonsense about how commentators must have an ulterior motive in the opinions they express, due to having a personal stake in that particular investment.

    You can buy and sell frigging stocks these days with the click of a mouse. Why in the hell would someone invest in something they don't believe in?

    Your comment makes absolutely zero sense.
    Reply
  •  
    Aug 21 12:35 PM
    "I Has anyone tried to buy physical gold lately? It's getting harder to do, i.e. waiting for deliveries,etc. yet the price was going down?"

    Buy it cheap makes an interesting point. I have noticed this too. I wonder if the "smart money" is getting out in bulk (comex bars) while the small investors are piling onto a sinking ship (coins and small denomination bullion). This would explain both.
    Reply
  •  
    Aug 31 11:51 AM
    Small denominations?? Gold coins down to 1/10th of an ounce are readily available from dealers like KItco and the like. Also there is a very large and liquid market place on E-Bay. If Eliot Spitzer had paid in gold coins then he most likely would have avoided his inconvenient plight. This may only be a speculation but as the boomer generation well studied in Orwellian logic and it's resultant paradise continues to grow older, in a political and economic period of likely confiscatory government policy those with assets to protect will have to find a refuge somewhere. What part of your federal or state income tax income return does the gold bullion someone purchased and has held for 15 to 20 years show up on? Most boomers with assets are now discovering the downside of the Supreme Court's interpretations of the 4th Ammendment. To paraphrase: "While the case to be made for individual rights as defined in the Bill of rights is compelling, we must be guided by what is in the public's overwhelming public interest and safety" Ergo we are visited by the Patriot Act. When boomers with assets are setting up trusts to accomplish their estate planning objectives they are now finding that those plans or in fact any asset that requires a signature guarantee or notary witness to be either set up or even transferred gets reported to the Government. This information is then recorded in a computer base which is then backed up two or three times in other remote recesses of the world presumed to be safe from catastrophe. Citizens are indeed safe in their papers from unreasonable search and seizure because the government promises they will never use this information inappropriately. Further more your privacy is protected because there are only thousands of government bureaucrats with access to your personal private information. Gone are the days when a signature guarantee guaranteed you were the person making a signature. Now this person doing the guarantee is doing the "Now let's just see what you have here?" act. You can be sure they will not mention a word of it to any one when you next see them at some Christmas party or political rally. The Patriot act in years to come may become the single most effective blow to destroying the confidence in the currency. If only Eliot had paid in Gold ... I'm 56, he didn't do anything I wouldn't do if I had the means! I think I might have wanted to pay for a little rhino-plasty there though.
    Reply
  •  
    Aug 31 12:42 PM
    In terms of Charity there is a way to beat the system. You must take the old rule of thumb of stock trading and apply it to retirement. While most of these big shot investment firms keep telling us that we will never have enough to live on in retirement, there is a point where you will have enough. Bulls make money, bears make money and pigs get slaughtered by high fee financial planners, taxes and Social security taxes. Money managers go nuts when they hear the phrase" 72(t) distributions". It means less money for them in fees and commissions. If you are past 50 and have +/- a million dollars (which is not a lot of money if you have it) in retirement savings you can take a very modest +/- 4% distribution against it for 5 years or to age 59 1/2; whichever is longer with out tax penalty. That is a +$40,000 a year income free of SS tax. In a lot of states this income as retirement income is also untaxed. Since it is not earned income you can then probably qualify for deductions while continuing to work and contributing to a Roth, regular separate IRA and/or 401-k or 403-b. These vehicles generally do not avoid SS tax going in but offer other tremendous tax breaks. The tax savings you can orchestrate can significantly off set the SS tax paid on earned income going forward. Those financial wizards will again warn that this strategy could dramatically affect your SS payments when you become qualified. They obviously still believe in Ronald Reagan and the bi-partisan commission on Social Security. While overcoming "their differences...achieved a fair workable plan. In supporting it we keep an important pledge to the American people; the integrity of the Social Security System will be preserved, and no one's payments will be reduced. The commissions plan will do the job!" Of course Ron is long since dead as are most members of that bi-partisan committee. Social Security and Medicare are as solvent as Freddie and Fannie if you believe Henry Paulson. If your benefit is less, then there will be less to adjust for means testing. Meanwhile by not being a pig your tax sheltered retirement monies including those you are taking distributions against should continue to grow. Caution!!! Annuities generally WILL NOT WORK for this strategy. But do add a virtual $2800/ a year($230/month) in real income to that $40K in SS taxes not paid!
    Reply
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