By: John Fisher
Gold and silver have come mainstream. Most major publications feature an article on a monthly basis, if not weekly. Pundits are calling for a bubble like we saw real estate. Advocates claim that price appreciation is just getting started. Much of the investing public are caught like a deer in the headlights – not sure what to do at this juncture. What to make of it all?
Throughout the 90’s, paper assets (equities, debt and derivatives thereof) were in vogue, to the chagrin of tangibles, i.e. commodities. With the dot com crash and the real estate implosion, many investors sought safety in alternative investments – or at least the perception of safety. Usher in Stage One, the ‘Stealth Stage’, of the precious metals bull market where those in the know start to buy quietly.
Gold and silver are now firmly entrenched in Stage Two, referred to as the ‘Wall of Worry’. Investors are not sure if it’s a top or going higher. Wide price fluctuations, coupled with advisors and the media bullish one day, bearish the next, are common.
Most commentators miss the fundamental, underlying driver of metals prices. Ultimately, gold and silver are driven by the fiscal and monetary policies of governments and central banks around the world. Every currency issued by every country on the face of the planet is “fiat” in nature. Fiat is Latin for “by decree”, or put another way, “because we (the insurer) say so”. Governments can create (print) more on a whim – diluting all of the currency already issued.
People around the world are discovering an alternative to this fiat, paper currency mandated by their government. That alternate currency takes the form of precious metals – as it has for more than 4,000 years. Individuals around the world are increasingly unwilling to allow the currency they already hold to erode further – diluting their net worth. They are exchanging paper for precious metals. That is what is driving the price.
Will metals prices continue to increase? Stage Three, the final stage referred to as ‘The Mania Stage’, has yet to come. It’s identifiable when the paper boy actually owns physical gold. He doesn’t yet – only about 3% of Americans do. And if you do buy, keep it safe in a secure location other than a bank. Recently, one investor in Switzerland was unable to claim his metal and was offered cash instead. It had ‘disappeared’.
Click here to read our article on the 3 Phases of the Metals Market….
All Things Considered – John’s Commentary
Our article on the Three Phases of the Metals Market (see the link above) is well worth reading. Keep in mind that as you hear friends and colleagues talking about gold, you need to ask them how many of them actually own gold – specifically physical metals. When one in three have a position, then we start selling. 3% of the population does not a bubble burst make. We will get there, but we aren’t even in Phase 3 yet.
What to buy: Favor gold over silver based on the current gold:silver ratio – currently around 47.85. U.S. Arts Medallions are very, very cheap. Silver 90% pre-1965 silver coin can be had at about $.50 over spot, delivered.
Quote of the day: “Start buying gold coins, any kind, and hoarding them.” – Dr. John L. King
