09/04/09 Baltimore, Maryland
Here we go again: Gold $1,000… Take 5… action!
Gold bugs and speculators of the world are on the edges of their seats. With gold stopping $3 short of $1,000 yesterday, will this be the one that sticks? Are the days of three-digit gold prices about to be a thing of the past?
Your guess is as good as ours.
Scanning through the pages of our plethora of investment advisories, not one of our editors has issued any sell recommendations on the shiny metal — save Alan Knuckman, who just helped Resource Trader Alert (link) readers bag a quick 214% gain with a gold call spread. His readers still own a $1,000/$1,050 call spread, thus it’s safe to say all our analysts are holding on for the ride.
“Long term, gold and silver prices are going higher,” Byron King summarizes. “Really, where else can they go? Lower? With the current monetary madness that’s infecting the world’s central bankers?
“Precious metals prices won’t fall very far unless governments worldwide stop spending funds they don’t have. (OK, China is spending money it DOES have. Everybody else? No way.) Will governments stop spending? Doubtful. So with excess spending, we’ll see the accompanying monetary expansion from the central banks. That’ll give us more inflation. And the only effective defense against inflation is gold and silver.”
Silver in particular has been perking our interest lately. With gold near $1,000 and the precious metals buzz revived, we dug up some silver charts this morning… and liked what we saw. Check it out:
So if you believe silver to be a store of value as legitimate as gold, it looks like there’s more potential short-term upside for “poor man’s gold.” While gold is just a breath from all-time highs, an ounce of silver goes for $16 today, about 23% below its 2008 high of $21. Sellers will say this is because of silver’s industrial capacity — which has been beaten bloody by the credit crunch. Buyers, like Byron and most of us, say we’re heading into an inflationary period so great that this will be rendered somewhat irrelevant.
What’s more, the gold/silver ratio is both in a state of decline while still higher than typical… another bullish argument for silver:
The gold-to-silver ratio has spent most of 2009 in a downtrend, meaning the price of silver has been rising faster this year than the price of gold. Just this morning, it hit 59, a 2009 low. During the high inflation of the ’70s, the ratio stayed below 50. Back in gold standard days, it was hardly 15.
Ian Mathias
Ian Mathias is the managing editor of Agora Financial’s Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report – Agora Financial’s flagship income investing advisory.
Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He’s also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he’s not at work, you’ll probably find Ian on a bicycle, racing up and down the “mountains” of Baltimore County. Ian has a BA from Loyola University in Maryland.
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