Actually, I’m looking at platinum spot which is almost 1:1 with gold. I recommend dumping your gold holdings for platinum. Platinum:gold was riding around 2:1 just in 2006. Unless a new global monetary system based on gold is right around the corner (hahahahaha!!!), gold will not likely achieve a permanent 1:1 or lower ratio with Platinum. This says to me that gold/silver are overbought for inflation sheltering and should be sold into platinum or some other cheap commodity. This will continue to provide inflation sheltering while avoiding the bubbliness of gold/silver.
I’m nervous about Rhodium… the market is extremely tiny. Looking at old charts shows that Rhodium was selling almost as low as $100/oz. as recently as the mid-1990’s but it hit over $10,000/oz. in 2008. Volatile, to say the least. I don’t really know anything about palladium.
My thinking is that unless the paper money system is dismantled and a new commodity standard (e.g. gold) is chosen, gold/silver/platinum will likely return to something resembling their usual (aka pre-2001) ratios. When I bought my gold coins, I would have killed to exchange them 1:1 for platinum coins. I don’t think a whole bunch more platinum than gold has been mined in the meantime. I don’t think there are vast above-ground stocks of platinum like there is of gold. This partly speaks against platinum because this means it is not behaving like a true monetary metal but at least you don’t have to worry about stocks of platinum being dumped into the market. So, unless paper money is dismantled worldwide, either gold will correct downard relative to platinum or platinum will correct upward relative to gold. Either way, exchanging gold coins almost at par for platinum coins seems like a no-brainer.
Smart move. You can buy the physical bullion and store it yourself. Personally I don’t like not having direct ownership of the physical stuff.
As for buying right now or delay purchase… bear in mind gold is long term inflation insurance. You are buying to hold unto it for as long as possible and, possibly, pass it on to your heirs. In the end gold always wins, mostly because I don’t see a full gold standard making a comeback in our lifetime (though I’d so like to be proven wrong) and there’s very strong demand from Asia, particularly India.
I wouldn’t consider anything over 10% of your portfolio in precious metals. There are still other ways to diversify investments and right now it’s a good time to buy stocks and other (sound) financial products. I am not a believer in silver: yes, I have some but it’s small fries compared to gold. You may consider platinum as an alternative to silver: right now it’s about the same value as gold and not as subject to market fluctuations. In my opinion it’s still a bit undervalued compared to gold but that could change as investors look for alternatives to gold. Also consider palladium and rhodium. Right now they both good value for money, though they are seen as commodities and not as an inflation insurance.
Don’t you think such price movements indicate abnormality? There are other things to buy that won’t lose their value to inflation and which are not experiencing dramatic price movements like gold and silver are. The prices of platinum, oil, agriculture and other commodities will rise at least on par with inflation. I call it quits for gold at $1,650… I’m priced out.
I’ve got nothing against all the commodities you mention. They are good things to invest in now, too.
But the fact that gold is manicly high, more than the other stuff, is not a sign that its price is an illusion. There is a reason for it, to wit:
The way it’s been explained to me, people see gold as money. Even though it is not legal tender anywhere in the world, they still think it’s money. In 2008, when things went bad, people ran like sheep to the dollar. This time round they have wised up, and don’t want the dollar. Which is making them think, well why any paper currency. So they are running to gold.
Since nobody is planning on printing less, the reason for the rush to gold will continue, for the same reason it started. The only question is, when will it become a true mania, bubble, folly, whatever you want to call it, meaning that people will buy it not as a run to safety, but to speculate with. And I’ve heard that the sign of a mania is when all the people on the street who don’t know anything suddenly start buying gold, too. Then it will be a bubble.
When will the bubble burst? When interest rates are so ridiculously high that people will want to sell their gold, inflation be damned, in order to get that high interest. Not gonna happen that quickly.
Gold is not going up. It’s the paper currencies by which its value is measured that are melting down. Gold is cash. Buying paper currency with gold (i.e. selling gold to hold currency) is the risky speculation – the proverbial catching of a falling knife. Why should USD stop falling at 1/1650 oz and not go all the way down to 1/100,000 oz instead?
Given the broad swath of things against which USD is not devaluing at a rate even close to its devaluation against gold and silver, I’m inclined to believe that gold and silver are in a bubble rather than that everything else is depressed.
If someone offered to give me a $100 bill for $5, I too would be skeptical. However, I would definitely be interested. Unless I was in a terrible rush, I would at least see if I could figure out if it is a fake and point out what I thought was fake about it. If they offered it for free, I would definitely take it, what’s there to lose? I think most people would behave similarly. The difference in behavior between offering a massive discount on a $100 bill versus a gold coin means that people don’t see gold as money and gold is not cash. By virtue of disuse, people are not generally able to tell genuine gold from a fake.
I may be wrong, and it may very well be a good time to get into gold, but I believe that it’s way too early to reach a definitive conclusion. There are certain anomalies present within the market at the moment; traditional relationships have broken down, and there are contradictory signals.
For example, the stock market is crashing and bond yields are falling, representing deflationary expectations, and yet the price of gold is sky-rocketting, which traditionally represents inflationary expectations. This means that a part of the market seems to believe that there will be a traditional deflationary recession (double-dip), while another portion of the market expects future rates of inflation. This could be in anticipation of QE3, which will most likely be extremely aggressive (Bernanke is a hardcore inflationist).
Additionally, gold seems to be decoupled from other commodities which, historically speaking, have been inflation hedges as well. I’m referring to silver and petroleum. So I still think it’s too early to call. I personally would not buy gold at the moment; a deflationary double-dip seems likely. But you definitely want to get into gold before Bernanke begins QE3.
One of the reasons bond yields are falling while the price of gold is hitting new times high is the newly announced ECB policy. On Saturday the ECB announced it will start purchasing Italian bonds while, at the same time “will provide liquidity to the markets”.
I believe the ECB, like it did before, will closely coordinate its inflationary policy with the Fed. QE3 is on the way, investors have taken the hint and are buying gold.
By contrast crude oil futures fell last week by about 20% (NYMEX). This latter part may be physiologic: oil demand isn’t increasing as sharply as expected worldwide, consumption in Europe is still contracting and, most importantly, oil futures cannot be hoarded like gold. They have an expiry date on them. As for silver I reiterate my opinion: supply is more than able to meet demand, demand which is not increasing as expected by some people. Asia isn’t interested in silver: they want gold. And as far as Europeans and Americans are concerned… we all know the answer.
The purchase announcement was a political move which had the expected result: allow bond yields to drop low-term to give some respite to exhausted treasuries. Details of the deal are extremely sketchy (no mention of how much is worth, rumors Spanish bonds may be next etc) but it seems like, after pressuring Italy into increasing taxes earlier this year, our wise European overlords realized higher taxes will negatively affect an already critical growth situation…
When a definitive conclusion can be made, then it’s way too late to act in the market. Speculation is all about probabilities. Opportunity appears when the market miscalculates the probability of a certain outcome – in this case, the probability of gold replacing USD as the reserve currency, and the inability of the fiat currency cabal to prevent that from happening.
One more, speculation in unprecedented waters is not done by comparison to precedent (historical) price levels.