Friday, 23 November 2012

Gold and silver: Still important assets to own.

It has been a while since I wrote anything about gold or silver. However, this does not mean that my views on the precious metals have changed. I just don't have anything new to say.

I still believe that everyone should own some gold and silver. People could trade these and try to make some money in the process but I would argue that buying some physical gold and silver is important as they are real assets to own in an environment where fiat currencies are being abused by central banks.

Inflation or deflation? Central banks around the world would rather have the former. Some have even argued that the USA is trying to inflate its way out of its economic malaise. Its currency's value would probably drop in the process. The EU and Japan are doing the same. China might also do it to maintain a semblance of growth.

Whatever we do, leaving our money in bank accounts is the worse thing we can do. Our savings earn almost nothing in interest and although the nominal value might remain the same, our saving's real value is being shaved off over time due to higher inflation.

I am not saying anything new, of course, and this blog post is a reminder to readers and myself that even as we invest in income producing assets, gold and silver remain relevant tools to protect our wealth from possibly higher inflation in the years to come.

Given a choice, would I buy gold or silver now? Silver. I feel that silver's price has a lot more room to appreciate. Some readers might remember a piece I wrote many moons ago on gold and silver ratios. Gold is now trading at about US$1,733 an ounce while silver is at about US$33.30 an ounce. This means that 1 ounce of gold is equivalent to about 52 ounces of silver.

In January 1980, 1 ounce of gold could only buy 14.9 ounces of silver. Could we see that again? We could. Why not? Even if gold's price should stay stagnant at today's level (which is rather unlikely), silver could be worth as much as US$116.30 an ounce using this ratio. If gold should hit US$5,000 an ounce which many experts think it would over time, silver would be US$335.57 an ounce using this ratio.

Of course, I am just throwing up hypothetical situations and playing with numbers but these are possibilities when central banks around the world are just printing money to try and escape recessionary pressures. This is happening even as the world's stock of silver is finite and being depleted.

Immediate support for silver is at US$31.00 an ounce or so and a test of support could see buying interest returning. Immediate resistance is where it is now and if it should be overcome, we could see a retest of the double top at US$35+ an ounce. The MACD is just entering positive territory and the return of positive momentum could trigger a breakout.

Related posts:
1. Gold or silver?
2. Real value of gold.
3. Silver: Some views from Sean Rakhimov.