Precious Metals - What Do I Do Now?
It seems more and more people are waking up to the fact that gold and silver are not only moving up but are also much safer investments currently than any other alternative. At the present time, I treat the commodity differently than I treat the underlining mining equities. As far as buying bullion or coins, basically I think investors should buy them at any time. Certainly you're better off buying silver at $15.00 than you are if you're buying it at $20.00, but the metals themselves, from a long-term perspective, will preserve your wealth and possibly multiply it. Many agree that the real metal is your core position. That is the investment that really counts the most.
After that's accomplished then you can move into a higher risk-to-reward profile, such as your underlying mining equities. I have found those to be actually better risk/reward profiles than futures or options. This is where timing plays a more important part, because these markets can be very dull for a fairly long period of time, as we've witnessed during this long consolidation. And their moves can be extraordinary to both the up- and the downside. Many of the juniors that have substantial merit are still undervalued, relative to where they were a few years ago when gold was at the $800.00 level.
We have a long way to go to the upside for the mining equities. But mining equities trade as stocks. In other words, normally, if the general stock market is not performing well, most of the mining stocks won't either. Of course there are always exceptions. If a company makes a great discovery, that stock will take off; or if a company misstates their financials, their stock will go down substantially. But generally, the mining equities pretty much go with the general stock market.
A bit of caution is advised here, because there is a point -- and I believe we're approaching it rather soon -- where the mining equities in general will go opposite to the general stock market. So there will be a day when you'll see the general stock market going to the downside and the metal stocks going to the upside. Again, I think we're getting close but think it will actually be taking place in 2010. It might start before the end of this year; at this point, it is a difficult call to make, as gold is moving around the $1,000.00 level again.
It is my belief that most people who are going to participate in the gold and silver market from the next leg up to the top are going to do it through the stock market. Most people are not that comfortable buying physical gold and silver, although it's the easiest investment you can make. Basically, it's a phone call . . . send your money and get your metal. It's literally that simple. Yet as simple as that is, many people will not buy the physical but will jump into the mining shares.
Most people have some type of trading platform, Ameritrade, Scottrade, E*TRADE, you name it. They've got a stock portfolio of some type and it's very simple for them to sit there and press a mouse and buy a stock. That is what is going to take these mining equities to heights we've probably never seen before. We've still got some more work to do, as far as I'm concerned, going through the general stock market, the general malaise that is hitting the American and world economies, and how that's going to play out in the short term. I'm rather cautious. Longer term, again, you're going to see more and more interest in anything gold and silver related, particularly in the stock market.
It is a distinct possibility that buying the physical metal is going to be tougher and tougher at some point. We witnessed that last summer for a fair amount of time, several weeks. The premiums on the physical metal were extraordinary high, relative to what they had been in the past. This was because there was a demand squeeze. In other words, there was a strong demand and the amount of metal that was being put into the market was rather low, relative to the demand. So the premiums went up and up and up, and again stayed there for several weeks.
The premiums are more reasonable right now. But I think the summer of 2008 was a precursor to what we can expect in the future. There could be a time when some dealers are flat out of silver. It's just too hard to get. The dealer might think they have to pay the wholesaler too big a premium so might not bother with it. Let us not overstate the situation because we're not there, but we did get a hint of it already.
Most people are probably going to look to the gold and silver equities. They might think, "Oh, the heck with it -- I don't want to pay a large premium on a gold coin or a silver bullion coin when XYZ Mining I just read about on the Internet is going to go to the moon. Get me in." That is going to bring more and more people into the sector as time moves forward.
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