Time to book profits in gold and silver

The sector remains one of the best-looking areas in the market right now. There's a lot to like here, but it's time to step away for a little while.

By InvestorPlace Mar 5, 2014 1:22PM

Image: Gold Bars (© Photodisc/SuperStock)By Anthony Mirhaydari


After an impressive run over the last two months, I've recommended clients book profits in their gold and silver positions.


Profit-taking has hit the sector, pushing the Global X Silver Miners (SIL) and the Market Vectors Junior Gold Miners (GDXJ) down to threaten a break of their 20-day moving averages for the first time since October.


We had some good runs, including a near 20 percent gain in Great Panther Silver (GPL) and a 7.5 percent gain in the SIL fund over a few weeks.


But I'll be back after the selling has run its course.


The sector remains one of the best-looking areas in the market right now after years of outright neglect since the inflation scare of 2011. In a market where valuations are growing increasingly stretched, it represents a rare area of true value and a hedge against the likelihood that the trillions in cheap money the Federal Reserve has poured into the financial system will eventually result in higher inflation and less purchasing power for the U.S. dollar.


gold-silver-sil


Although I stand apart from the monetary policy true believers, I'm not alone in worrying that the greatest experiment in paper money abuse in human history won't end with rainbows and unicorns. Indeed, former Bank of England, Bank of Canada and Bank for International Settlements economist William White recently admitted that not only can't central banks agree on what the major threats are (inflation or deflation?) but are essentially making things up as they go given the unprecedented nature of the situation we're in.

When I hear that, I lose confidence in the future purchasing power of the dollar.


Moreover, the market for gold, silver and other precious metals will be bolstered by a tightening supply situation as many high cost, unprofitable mines have been shuttered.


According to Barclays Capital, the current marginal cost of new gold production including capex is more than $1,300 an ounce now and has been marching steadily higher for years as new metal deposits are increasingly hard to find and located in increasingly unfriendly parts of the world.


Labor and political unrest also threatens the supply situation. Just look at the platinum group metals. Russia and South Africa account for the bulk of production of these metals, which also play an important industrial role in catalytic converters amid tightening emission regulations. Labor unrest in South Africa is a frequent occurrence. And Russian miners are faced with the threat of economic trade sanctions due to the situation in the Ukraine.


At the same time, physical demand for gold was strong, both for coins as well as bullion by central banks in Asia. Demand for coins alone was up 63 percent through the end of the Q3 2013, according to The Wall Street Journal.


All things considered, there's a lot to like here.


It's just time to step away for a little while.


More From InvestorPlace

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.

Tags: GDXJGLD
34Comments
Mar 5, 2014 2:27PM
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Lerner Takes the 5th

The foocking Batch should be fired and her pension taken away.

Your 5th Amendment rights do not include the right to refuse to answer questions put to you by your employers (congress/citizens). You can not refuse to answer our questions and expect to keep your job. If you do not answer our questions you should be fired with no benefits, no severance and no pension. Everything in your workspace should be confiscated until an investigation can be completed. Your choice, answer the questions or exercise your right and be fired.

Mar 5, 2014 2:41PM
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Lerner is retired and sucking your tax dollars away as we speak and there is not even a smigion of corruption in the govt. LOL
Mar 5, 2014 2:48PM
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I'll keep my metals as a hedge against the Obama Dollar
Mar 5, 2014 2:48PM
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Agreed book in profits on gold and silver and then go out and buy physical gold and silver. The world is swaying under the weight of brutal politics and unstable financials.
Mar 5, 2014 3:02PM
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HaHa- Obama's cop hating DOJ guy got denied!!!
Mar 5, 2014 2:55PM
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Lois Lerner should be gutted like the lying pig she is.
Mar 5, 2014 3:05PM
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I love reading stuff like this. These people that write this stuff are not very bright. They are looking at just the short term.


I have gold that I mined years ago, when it was under $300 an ounce!

Mar 5, 2014 3:07PM
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I wonder why all these countries have stock piles of it then ;) I like to have eggs in different baskets !
Mar 5, 2014 2:30PM
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You all realize that Putin staged an advance in Ukraine to see what forces rose to oppose it. Then he retreated back to Russia to formulate strategy based on that observation. Meanwhile, the only thing the news actually reports is the cost of the move and who in Russia was screwed by it. When things get this ignorant, when the "financial game" is all that matters, the participants are assured violent ends and really soon. You have lost track of what is truly valuable.
Mar 5, 2014 3:11PM
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What do you suppose China is going to put in that vault they bought in New York City?


Chow mein noodles?

Mar 5, 2014 4:08PM
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I used to think that this guy was sharp. but it's all bullroar. Last year he spent the entire spring warning stocks were going to get killed in the second half of the year. When the slight (not even) correction occurred, he lauded about 'calling it right". No, you moron, you panicked people needlessly for 6 months for something that wasn't even a blip. And book your metal profits now? How about 4 months ago before this current slide? The guy is just a race-track tout, no matter how fancy his charts are. He should be counting cards in Vegas.
Mar 5, 2014 4:50PM
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Maybe Russia will trade us Bozo, Pelosi and Ried for Putin!

Mar 5, 2014 4:42PM
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To be a success at investing, you should "buy low, sell high". Right now, gold and silver are low, and the stock market is bumping around the all time high. It seems pretty basic to see where to sell and where to buy.
Mar 5, 2014 2:45PM
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Again many stupid people on MSN, is that all we have here..??

Like Fats say's "the forum morons."


It's about Gold imbeciles, too bad you can't read or comprehend..


If I was making profits in Gold or Silver right now, I probably would be selling...

Mar 5, 2014 4:22PM
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Trust Anthony, he's never wrong. LOL!
Mar 5, 2014 5:43PM
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"Will eventually result in higher inflation"...huh?  It already has resulted in higher inflation.  Perhaps he should have said "...result in EVEN higher inflation".

The current inflation rate is 11% (based on the calculations used in 1980 when Carter got fired for an inflation rate of 14.6%).  The government has been borrowing money at an unprecedented clip since Bush....unimaginably accelerated by Barry.  If the inflation rate was accurately reported then interest rates would have to go up  -the interest rate on money the US borrows is tied to inflation.

The consequence of the interest rate going up from 2.5% (where it is now) to even 7% (the historic average) will be that the interest on the 17 trillion US debt will increase our net interest payment from about $300 billion to over $1 trillion...just in interest.  Keep in mind, nothing else changes, except how the government reports inflation ... not actual spending, not printing money, not even the actual inflation ...just how it is reported.  Everyone knows this, and this is why no one except our own treasury and other government entities (like Social Security) continues to buy bonds.  They are under valued.

Only after the US begins selling bonds with realistic returns will there be a market....however, once that happens the devaluation of the dollar (which is represented by the real inflation that all of us know to be in the market) will be evident and even the government and Fed won't be able to hide it.  Gold and Silver are the only hedge available to most investors.  Why do you think China and India have stockpiled gold and silver?

Mar 5, 2014 6:08PM
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"All in Costs" to mine Gold can vary from around $450-$1150...per troy ounce.

In some cases, there are those that "know of less", and some say a little more.


It is very hard for a miner to make any profit at $1200 dollars "all in costs".

These are larger commercial miner operations and/or companies.

That mine and produce several thousand ounces a year..

Not one or two guys, with a pick and a shovel and a small slues (sp).


All in cost usually include everything from leases of land, drilling and exploration, political pay-offs to actual smelting, fabrication, trucking and selling at contract or market.

Some of the cost variance can be attributed to the density of gold in the ore.

Or the amount of gold in the actual mine.


Gold is mined all over the world under various conditions, including harsh territories, environmental scrutiny, and greedy political regions.

It has been said that it can be found in every State of the U.S.

Once again, it may not be prominent enough in the area to make it worth mining. 

Mar 5, 2014 4:54PM
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Anthony, you make this right after lawsuits are placed over the banks are accused of fixation via the London Fix on gold... I see alot of bad remarks about you on your blogs. Right or wrong is everyone's own opinion. Mine on this is your a fool.
Mar 5, 2014 5:02PM
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AND step into what ?
--- A pile of paper sheeeeet ?

Mar 5, 2014 6:07PM
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He loves the precious metals sector, yet he's ready to head for the hills and bail with his profit. Counterintuitive, don't you think???
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