The risk of gold and silver investments

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   Ben Evansposted 13 years ago

   Many people may think that I am a gold and silver bear (looking for price to go down).  I am not and both gold and silver could keep going up.
   
   The problem is there is a lot of risk right now in precious metals and the market could drop precipitously in a wink.  I hear a lot of people talk about gold and silver as a "safe haven" investment to get out of other instruments that "have artificial value".  Well, gold and silver have artificial values too.  Yes, just like a currency does.
   
   What is the value lets say of gold.  12% is held for industrial use and 52% is held as jewelry the remaining 36% are held in reserve or other investments. 
   
   Here is a very simple equation.  If countries, people, and other entities accumulate precious metals, they will continue rising.  If they don't, prices will drop.  If any one group starts selling, the rally is over.  Yes, simple as that.  One apple can spoil the bunch.
   
   Silver is of particular interest.  It was not gaining value at the same rate gold was a few years ago.  Silver just went parabolic and over the last year silver has doubled in price while gold has went up around 20%.  There is almost parity now between the rise of silver and gold over a 10 year period.
   
   Now we can't directly compare gold and silver as far as price.  We can however say that silver really does not have a value advantage over gold anymore.  Also gold and silver are held similarly in jewelry, investments and reserves.  Silver does have more of an industrial use but production of silver is much higher than gold.
   
   Take a look at the charts.  Look at the big beautiful pole that shows the rise of these metals.  What is that off the end?  Some may refer to it as pendants, flags, coiling, consolidation, etc.  To make a long story short both are in a position of indecision.  There is no indication of which way they will break but down could be a direction that one of these fine metals could go.
   
   You know what.....You could hold silver and gold and maybe it could double again or keep going up. 
   
   Then again, it could drop. That is realistic.  That bar or your holdings are valueable because people want it.
   
   ..........but remember this and that is gold and silver are not much different than currencies. 
   
   What gives them value is supply and demand.  End of story.

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      Brooke Lorrenposted 13 years agoin reply to this

      They can't print more gold and silver.  They do, on the other hand, print more dollars.  Way too much at this point.
      
      It is true that gold and silver can go down.  If you're going to invest in it, you probably should learn about it.
      
      I see gold and silver as more of an "insurance policy" than an investment.  It won't make my actual net worth go up, as far as what I can buy with the item.  However, as long as the government keeps printing money, I expect it to hold its value.
      
      When the markets settle down and the dollar stabilizes, then it'll probably be a good time to get out of gold.

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         Ben Evansposted 13 years agoin reply to this

         Gold may not be able to be printed but it can be dug out the ground and cyanide leached and couple other things and voila you have gold.
         
         I think the best insurance policy is a paid off house or something else of use.  Utility is the best insurance policy.
         
         The fluctuation of the dollar really is not as prevalent as gold portends.

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      Enni82posted 13 years agoin reply to this

      http://www.marketfolly.com/2010/12/howa … rketFolly+(Market+Folly)

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         Ben Evansposted 13 years agoin reply to this

         That is actually a pretty good take on gold.  He seems to play the middle side of the road.

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   3. 59

      JR Whiteposted 13 years agoin reply to this

      Of course, Ben, the price of any freely tradable object is determined by supply and demand, and if demand is reduced and/or supply is increased the price will fall. 
      
      But that observation and most of what was written in response is insufficient to decide whether to buy or sell at this point in time.  While very little gold is produced each year, nevertheless it is in glut. This is because it is essentially useless.  Most of the stocks are held in jewelry that can be melted or in central bank reserves that could be sold.  And for the past few years fairly large quantities were bought for investment by hedge funds and other investors. Some of the gold they bought was offloaded by the IMF, though these sales have stopped.  Private investors could sell.
      
      But what is the likelihood that they or the central banks will sell their gold? China has a large stash of dollars, which are even more useless to the Chinese than gold because the dollars are at risk of falling in value more than gold is and the interest rate they get doesn't compensate them for the risk of continuing to hold them.  So they are trading some of their surplus dollars to buy gold -- just as investors are. If the dollar continues to fall in 2011, then the gold price will rise, and if the dollar rises because the euro is in even worse shape, then there will be a cap on the gold price or it might fall.
      
      If I were holding a stash of dollars in my portfolio, I would want to own some gold or palladium -- probably not rhodium because the market is not liquid.
      
      The statement that the price is high therefore there is more downside than upside is illogical.  The same statement could have been made at any point in the past 5 years.  You only know whether a price is "high" after the fact.  Yes, every investment has risk.  Even if you were to buy Tbills you would risk losing your purchasing power. 
      
      You have a choice.  Choose your poison.

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         Ben Evansposted 13 years agoin reply to this

         Your initial statement does sound a little apprehensive about whether to buy or sell gold.  I agree with that.
         
         China is the 6th largest holder of gold and they are by far not the largest market participant.  I really don't think you or I or anyone else really has an idea of how the market makers may direct the market. 
         
         Now as illogical as the following statement  "price is high therefore there is more downside than upside" seems, I agree with you because I did not make that statement so we don't have to look for the logic.  I did say that directly making a comparison between the value of the dollar and the rise in gold was not correct.
         
         I don't have currency in my account nor do I have T bills.  At this point, I don't want any poison.  I play options mainly butterflies short and long and back spreads.
         
         Precious metals are your bailiwick so I understand the reco.  Like I originally said I am not a gold or silver bear.  If you want to argue with me that the market is coiling, go ahead.  There is a reason that it is consolidating.  I am not a counter trendist as they are wrong 50% of the time.  So flip a coin.  I will not say it wont go up but then again I would put my money into something less risky......  No not currency or T-bills.
         
         Maybe a miner like ABX or GG or how about FCX.  Metals can move down but if they stay relatively high, these companies make profit and their stock appreciates.

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   Business Infoposted 13 years ago

   "What gives them value is supply and demand.  End of story."
   
   disagree, what gives them permanent timeless value is the lack of counterparty risk, and you don't get that in ANY other form of paper.
   
   their nominal (abstract figure denominated in some form of failing paper) value may fall, but if it does, everything else around will be falling faster.
   
   an Oz of gold still buys the same quality suit it did in 1910, your $35 from then won't.

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      Ben Evansposted 13 years agoin reply to this

      No, there is no permanent timeless value in anything. 
      
      Silver and gold does not feed you.  It does not give you shelter.  It does nothing.
      
      Your thought is a common idea that is presented to individual holders of precious metals.
      
      There is plenty of counter party risk.  What if a big country sells their reserves?  That is a huge risk.  I am not saying they will.  A high percentage of the 52% of the people holding jewelry could sell it.
      
      This circular argument about the value of gold was the same argument given when gold was $350.  Now, I didn't put a price on gold.  I did not say it would go down but I did say to beware because it could.
      
      If we as investors or traders take a stance because of our holdings, then our investments are at risk.  We have to look at both sides of the equation so we can make prudent investments.

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         Business Infoposted 13 years agoin reply to this

         again, sorry, but I have to disagree with this:
         
         "No, there is no permanent timeless value in anything" 
         
         with a caveat, of course you are correct on a universal level where at some point even our entire galaxy will just be a a cosmic memory, but over the known history of the human race, gold and silver have beenjust that.
         
         tell me, if you found an undiscovered Mayan Temple with a couple hundred kilos of gold now, would it be worthless, or have stored its value as timeless wealth?  thus far (all of recorded human history) it has done exactly that.
         
         and the food and shelter argument is silly because that applies to paper "money" or equities too.

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            Ben Evansposted 13 years agoin reply to this

            I don't really understand where you are going with the universe or cosmic argument.
            
            Now if I found a Mayan temple with gold in it, I would be going woo-hoo.  This, however, is tangential to any point we are talking about.
            
            Now I have a question for you.
            
            How is the value of gold and silver derived?  If no one wanted them would they still have value?
            
            With this said, the metals have value. 
            
            Now calling the food and shelter arguement silly is a bit naive because I think you misunderstood what I said.  I never put equities and paper money on a different level than precious metals.  I also did not say they were the same.  What I did say was that value was derived or perceived by the market. 
            
            There is no value outside the market other than a few.  Please lets get two things straight and that is:
            
            1)  My argument does not say there is "no value" in metals nor does it put a price on it.  It just says there could be risk in investing in it right now.
            
            2)  Gold and silver's price is not derived from us.........It is the market.

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               SEO Ibizaposted 13 years agoin reply to this

               1)  My argument does not say there is "no value" in metals nor does it put a price on it.  It just says there could be risk in investing in it right now.
               
               you could have been saying that incorrectly at every new top for the past ten years?
               
               2)  Gold and silver's price is not derived from us.........It is the market.
               
               indeed, and the market - certainly stocks is fundamentally broken, IMO the PMs are by far the safest choice at this point.
               
               I think its fairly safe to assume the PMs will keep heading "up" in direct response to the ongoing currency devaluations. of course they'll still always represent the same buying power they always have..
               
               when all the world's financial problems are all fixed again that might reverse, but we're a long way off that.

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                  Ben Evansposted 13 years agoin reply to this

                  In the stock market, I would agree that there are many stocks that don't have the ability to appreciate.
                  
                  I agree that if the dollar goes down and gold holds value, then gold will go up with respect to the dollar.  However, if the dollar loses value another currency will gain value so gold will lose value on other currencies. 
                  
                  The currencies are a zero sum game.
                  
                  As we can see by charts, investments are measured in terms of rates (trends) or momentum.  The value does not remain constant.  It fluctuates and does not hold a par value.  Its value is derived by those who buy and sell.  Right now both are consolidating so we can see if it hits the triggers and breaks.

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                     SEO Ibizaposted 13 years agoin reply to this

                     did you see this video clip? its a must watch.
                     
                     http://www.zerohedge.com/article/after- … buying#new
                     
                     everybody's getting out, the only buyers are the money printers.
                     
                     as well as not being able to eat or shelter with gold, you cant print it either

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3. 63

   Mishaposted 13 years ago

   Right now I would avoid both like a plaque. As well as all other markets, or short them - for those who know what they are doing. In fact I am heavily short stocks.

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      SEO Ibizaposted 13 years agoin reply to this

      careful with this Misha, the Feds daily POMO operations can pump stocks higher long past your margin calls.
      
      I wouldn't short anything, just get out and stay safe.

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   Greek Oneposted 13 years ago

   ok, ok,.... I'll buy platinum. you've convinced me!

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      ediggityposted 13 years agoin reply to this

      For your grill?

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      Ben Evansposted 13 years agoin reply to this

      Maybe Rhodium also. 

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         Greek Oneposted 13 years agoin reply to this

         wasn't she Mary Tyler Moore's friend who lived in the apartment above?

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            Ben Evansposted 13 years agoin reply to this

            Rhoda I um think so.

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               Ben Evansposted 13 years agoin reply to this

               Moore or less of course. 

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         I am DB Cooperposted 13 years agoin reply to this

         Hmmm, platinum and rhodium. There are a lot of catalytic converters out in the parking lot...

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5. 63

   I am DB Cooperposted 13 years ago

   Every time gold and silver prices go up, people start to advertise them as a great investment. Where were these folks when gold and silver prices were low? This Goldline company that advertises during Glenn Beck's show sure wants people to buy their gold coins (which are price at about 40% above market value, by the way). If they're the great investment that they advertise them as, why don't they just keep the coins and save on the advertising budget?
   
   Gold and silver prices might still have room to go up, but why would you want to invest in them right now, AFTER they've soared in price? The upside is little, while the downside is huge. Instability with the dollar is not enough to sustain a bull market for gold and silver.
   
   Good investments moving forward are generally the ones people aren't talking about right now. If people are saying something is a great investment because of how well it's done in the past few years, that's probably a market you want to move away from. Be an investor, not a speculator. Investors see their bank accounts grow while speculators see their bubbles burst.

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      Ben Evansposted 13 years agoin reply to this

      Amen, that is spot on.
      
      It seems as though everyone wants to push the price right now.
      
      Cheers, 
      
      Ben

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      SEO Ibizaposted 13 years agoin reply to this

      "Instability with the dollar is not enough to sustain a bull market for gold and silver. "
      
      the dollar disappearing down the toilet certainly is.

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         Ben Evansposted 13 years agoin reply to this

         The dollar is not disappearing down the toilet.  That is just talk. 
         
         It will lose value but not in the order of magnitude to which the gold market has risen.
         
         5 year currency values are as follows:
         
         JPY/USD: 115-83.5
         CNY/USD: 8.1-6.66
         EUR/USD: .85-.76
         CAD/USD: 1.16-1.01
         GBP/USD: .57-.65
         
         The largest decline for the US dollar against major currencies in this 5 year period is about 27%.  This is against the Yen.   Most currencies we are looking around teens.  This in itself is alarming as well as it should be.
         
         However, gold has risen from $500-$1387 in this same period........and no that does not calculate to 15%-30%  We cannot attribute the current appreciation to the decline in the value of the dollar.  Gold's rise is orders of magnitude larger.
         
         Gold cannot be fundamentally valued this way. To do so is a severe investing mistake.  It's value is all in the trade.  What is it worth?  You decide.
         
         What is being fed to the market can change.  If you have watched commodities, equities, and currencies over the years,  you will see that what is suppose to happen does not always happen and most often doesn't.
         
         
         The market makers are currently feeding every one the sentiment.  The market is consolidating meaning the sell side and buy side are balanced.
         
         If you hold tight and you make a lot of money, I am happy for you.  That is your decision.  Others, however, who have no tolerance for risk should not be in gold or silver.
         
         It's value and appreciation are not a guarantee.

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            SEO Ibizaposted 13 years agoin reply to this

            "The dollar is not disappearing down the toilet.  That is just talk.  "
            
            well this remains to be seen, I disagree.
            
            "the largest decline for the US dollar against major currencies in this 5 year period is about 27%"
            
            there's no point measuring it against other currencies as they are all falling together. measured against real money (gold) you can see the true losses.
            
            hold is simply doing what it's always done and reacting to the massive inflation the fed is causing by the money printing and ongoing paper devaluation
            
            http://dollardaze.org/blog/?page_id=00024
            
            when they manage to reverse these graphs in any meaningful way you can expect Gold to level off and reverse.
            
            In the mean time, if you've got any you want to sell, I'll be buying

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               SEO Ibizaposted 13 years agoin reply to this

               gold is simply doing.. (not "hold" sorry)

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               Ben Evansposted 13 years agoin reply to this

               there's no point measuring it against other currencies as they are all falling together. measured against real money (gold) you can see the true losses.
               
               Now, I did not measure it against other currencies.  You did.  I was just showing you how

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               Ben Evansposted 13 years agoin reply to this

               Sorry my reply got cut. 
               
               My original statement was that you cant measure against a currency to say why gold is high and then you said:
               
               "there's no point measuring it against other currencies as they are all falling together. measured against real money (gold) you can see the true losses."
               
               BTW:  The link that you showed me is not an authoritative source it is just someones opinion.
               
               By your words.....How do you measure the value of gold? 
               
               You have no way to value it and you have no idea when to trade it but you do have an idea that gold will keep going up for what reason I don't know.
               
               If it goes up kudos to you.

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                  SEO Ibizaposted 13 years agoin reply to this

                  I wonder when everybody is talking about the parabolic gold chart, does anybody see any similarity to this?
                  
                  
                  
                  why do people actually think it is going up? it couldnt be the same old reason it always has  could it?

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                     SEO Ibizaposted 13 years agoin reply to this

                     or this one's even better
                     
                     

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   ediggityposted 13 years ago

   Gold is the universal language.  It will always be worth something somewhere.  Gold talks money walks.

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      SEO Ibizaposted 13 years agoin reply to this

      The Golden Rule.
      
      "He who has the gold, makes the rules.."

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   Greek Oneposted 13 years ago

   may golden showers rain bountifully upon us all

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      SEO Ibizaposted 13 years agoin reply to this

      lol!  not sure i'd go that far.

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8. 68

   megmccormickposted 13 years ago

   I think apartment buildings, duplexes and houses are a good investment right now, following the wisdom of buy low...people always have to have a place to live.

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      SEO Ibizaposted 13 years agoin reply to this

      true but they're going way lower yet. they are still suffering from 40 years of rampant debt based inflation, which has only just started to unwind.
      
      when the annual rent / purchase price ratio gets back near 12-15 again that's the time, or when 70 ox of gold will buy a family home.
      
      currently this ratio is still about 30-40  and 200 (ish) Oz for the house
      
      reversion to the historical mean on these is inevitable in my opinion, as is Dow to Gold at  2:1 or thereabouts.

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         SEO Ibizaposted 13 years agoin reply to this

         more on housing prices
         
         http://www.zerohedge.com/article/refuti … urtesy-fed

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   Greek Oneposted 13 years ago

   now lets say I was going to buy gold or silver...
   
   is it wise to buy American Eagle coins?
   
   Where is the best places to get them (eg banks, dealers).. and how easy are they to resale?

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      Ben Evansposted 13 years agoin reply to this

      You can buy gold at some banks.  You can buy it at pawn shops.  You can trade it at a commodity brokerage.  You can buy ETF's like GLD.
      
      Buying gold coins, you will take a hit on both selling and buying.  It is easy though.  Commodities have a high leverage and you can lose a lot. 
      
      The ETF trades through a brokerage account.

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         Greek Oneposted 13 years agoin reply to this

         so the best bet (for someone who does not like to 'lose a lot' is EFTs?

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            Ben Evansposted 13 years agoin reply to this

            Well you can still lose if gold goes down.  If you buy and sell gold like a stock (which you do with a ETF) there will be less given up when you trade it.  GLD (There are more ETF's) chart looks very similar to that of gold.

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            Mark Knowlesposted 13 years agoin reply to this

            I think you need to pay me the $48 you owe me before thinking about investing in high risk ventures like these.

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               Greek Oneposted 13 years agoin reply to this

               i was going to send you the funds in bullion seeing as the Euro will soon disappear

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                  Mark Knowlesposted 13 years agoin reply to this

                  Sounds good to me - 5 gold eagles should do it.

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    SEO Ibizaposted 13 years ago

    I use Bullionvault, super easy, convert cash to metal, at spot price, stored safely, convert back any time you need it, or just watch the ride as the previous cash value depreciates against real money. - about 70% since I started across the Gold / Silver split, and I'm still buying.
    
    would love to blat my affiliate link in here but resisted..

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