It’s been another tough week for gold, with both the five-day and monthly charts showing a loss. On the big chart, we haven’t seen prices like these since the fall of 2010, and both the 50- and 200-day moving averages point to more price weakness going forward. Some people think I’m in denial by suggesting that times like these are great times to buy.
First, it’s good to remember why you put a fixed percentage of your wealth in hard assets, like gold and silver, in the first place. As we discussed yesterday, the currency you use to support buying the things you need in your daily life is really little more than blips in a computer at the bank. Even if you convert the blips to paper, which you can still do, there’s no guarantee you’ll be able to spend the blips or the paper in 20 years.
Taking paper currency and sticking in your safe is a guaranteed loser. Inflation will whittle away at the buying power of your paper money, and someday the government may switch to a newer currency. The value of that paper in your safe will, at some point in the future, drop to zero, depending on its value to collectors.
Some people think I’m in denial by suggesting that times like these are great times to buy.
But put high-quality gold bullion in your safe, and you have a commodity that will retain relative value to whatever passes for currency when you take it out of the safe. You might be able to trade it for more blips than it cost you, and that’s great if it does, but it also might get you fewer blips that buy more, depending on what our government does to the money supply between now and then. What your gold and silver are worth will be determined by the precious metals market on the day you decide to sell it.
I can say with complete confidence this has been true as long as mankind has been writing things down. Currency comes and goes, nations rise and fall, technology advances, but through it all gold and silver have retained their value relative to the currency of the day.
Like any other commodities, gold and silver have up times and down; you can see that looking at the historical price charts. Today, prices for silver briefly dipped below $20 an ounce. That puts the market price of Silver Eagles, which tend to have a slightly higher markup, around $25. It’s hard to go too far wrong buying silver at that price. Apparently a lot of people agree, as the mint is reporting record sales of Silver Eagles.
Likewise, gold is under $1,250 an ounce — and the lower prices go, the more it will push demand for physical purchases. Do keep in mind you can buy what I call "small gold," which are ½, ¼ and 1/10 oz. coins and rounds, and one-, five-, and 10-gram bars. Buy high quality bullion-priced products from respected names in the industry, and you’ll find a ready market for your gold and silver when it’s time to sell.
The one truth in investing, regardless of the actual investment, is that you’ll never make any money chasing the hot sectors. The time to buy is when everyone else is down on the sector, and you can walk in and pick up bargains for a song. For gold and silver that time is here.