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.


Anonymous said...

Hi.. Where can I go to buy the Canadian silver that you highlighted?

AK71 said...

If you google "Buying silver in Singapore", you will be able to find a few companies you can buy from. It is easy to compare prices online before making a purchase.

I won't make any recommendation since I do not want to appear partial to any particular company. :)

AK71 said...

MARK O'BYRNE: ... people increasingly find it hard to hold gold in any sort of quantities so they are buying silver because the ratio is roughly 53, 54 to 1 as we speak. So, long-term the ratio is 15:1 because geologically there are 15 parts of silver to one part of gold, so we believe long-term that the ratio will gradually return to that level of 15:1 of the very long term because a huge amount of silver has been used in industrial applications in the last 100 years whereas obviously all the gold that's ever been mined continues to be recycled at a much higher level. So that is part of it and there is some money in the western world, investment money is looking at silver as undervalued vis a vis obviously gold above its nominal high from 1980, whereas silver continues to be well below its nominal high for 1980 so I think that will continue to lead to investment demand internationally.

Silver investment demand to grow in importance.

AK71 said...

With gold prices being hammered in recent weeks, and trading near four-month lows on Wednesday, longtime gold bull Jim Rogers is sounding a word of caution, saying it's possible the correction in bullion may continue into the new year.

"Just be careful, there're too many bulls, including me, but I'm very cautious," Rogers told CNBC. "Gold is having a correction- it's been correcting for 15-16 months now- which is normal in my view, and it's possible that [the] correction is going to continue for a while longer."

Gold prices have been gaining for over 12 straight years now, Rogers noted, adding that the safe haven asset has only seen a major correction once in that time period, during the global financial crisis back in 2008 when bullion fell 32 percent.

"Most things correct 30 percent every year or two, even in big bull markets - 30 percent corrections are normal and yet gold has only done that once in the past 12 years," Rogers said. "Gold on any kind of historic market basis is overdue for a nice correction."

Rogers, who is not buying gold right now and has even hedged some of his gold, said he's still bullish on the commodity in the long term, and expects its value to be much higher in the next decade.


AK71 said...

Japanese pension funds are investing in gold for the first time in n effort to hedge against economic upheaval.

The Wall Street Journal reports that a small number of pension funds in Japan are breaking with precedent, shifting from holdings comprised almost exclusively of stocks and bonds to invest in gold and other physical assets.

The bonds and stocks heavy composition of Japan's pensions funds has led to dismal performances of late. Bond yields are at historic lows, while stocks have either plunged during crisis periods or simply languished in the doldrums.

Japan's Government Pension Investment Fund is the most prominent example, shedding 7.6% during the 2008 fiscal year as a result of the GFC, and 0.3% in 2010 when markets were perturbed by the Eurozone's debt woes.

A number of pension funds now hope that investing in gold will shelter them from the untoward vicissitudes of the global economy, with low interest rates as well as newly elected Prime Minister Shinzo Abe's demand for "unlimited easing measures" from the central bank further justifying the inclusion of non-yielding gold in their portfolios.