Silver and gold set to shine?
After months in the doldrums, precious metals are gleaming again.
Given the bullish mania on Wall Street, it's hard for investors to look beyond the narrow breadth, low-volume rise pushing the Dow to incremental new daily highs. But slowly, under the surface, there are signs that insiders are pulling back and looking for alternatives.
Consider how emerging market stocks, which tend to act as a leading indicator for U.S. issues, have been sliding lower since January. Or the way industrial metals have been under pressure. Or the way that gold and silver, after being neglected since September, are starting to creep higher.
With inflationary pressures on the rise again and the dollar set to weaken after a two-month surge, the stars are aligned for a rebound in the precious metals -- just as investor sentiment plumbs new depths. Here's why.
Precious metals can move according to multiple catalysts. They respond to financial and political turmoil. They respond to the vagaries of the U.S. dollar, since they are viewed as an alternative store of value. And they are also seen as an important hedge against inflationary pressures.
Over the last few months, all three of these risks receded. Which is why investors have abandoned silver and gold en masse. As shown in the chart below, courtesy of Jason Geopfert at SentimenTrader, investor assets in the Rydex Precious Metals fund has plunged to lows seen near major turning points in 2008 and 2012. And on a relative basis, compared to assets in other Rydex funds, it's even worse.
Plus, those three catalysts I mentioned are poised to turn in gold's favor.
Contentious elections in Italy have created as power vacuum in Rome that will likely require fresh elections -- strengthening the cause of anti-austerity, anti-Eurozone politicians. Along with backsliding on deficit reduction efforts by the likes of Spain and France, the eurozone debt crisis is poised for another flare up.
Another political risk is the upcoming budget battle in Washington, which will be just the latest round in the knock-down fight over taxes and spending cuts between Republicans and Democrats. We have the debt ceiling in May and the specter of a government shutdown later this month.
Inflation, as reported in this morning's Consumer Price Index report, is starting to creep higher on a combination of elevated gas prices, falling labor productivity, and higher housing prices (pushing up rents).
With the Fed maintaining its "all-in" monetary policy stance -- and in the process, pushing inflation-adjusted interest rates deeper into negative territory on a scale that makes the run-up to the great inflation of the 1970s look like child's play -- prices are set to drift even higher.
This, in turn, will weaken the dollar. The DB U.S. Dollar Bullish Fund (UUP) fell out of its two-month uptrend pattern today partially for this reason. Whether or not the decline continues depends on how bad the situation in Europe gets.
But even if the dollar stabilizes, the lift from inflation and a return of a modicum of fear to this manic market should reignite the love affair with gold and silver -- and the related mining stocks -- after so many left them for dead.
Disclosure: Anthony has recommended both USLV and GDXJ to his clients.
Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
You gotta love those shiny metals and what they can do for you when the hyperinflation hits.
I can't believe that MSN pays this guy money to write a column. He's been so wrong for so long that it's just embarrassing. Today, finally, the stock markets actually went down, which is a thrill for him, since he's been (wrongly) bearish on the stock markets since late November.
Sadly, however, when his down stock day finally arrived, it's on the heels of his previous column's recommendation to short the euro. This, of course, was wrong too. Now he's scanned the boards for weakly positive alternatives and he's back to recommending gold. The last time he did that was in early January (or so) and gold has been down ever since, until today.
It's like he's spinning the wheel of fortune in hell and passing the savings on to whoever's stupid enough to listen to him. I doubt that there's anyone left in his newsletter (other than relatives) and I'm actually starting to feel sorry for him. Any random idiot should get it right about a third of the time.
What's really sad is that he's so good with all of those charts. Can someone find him a job as a "chart master" for a bad rural news broadcast or something?
"Maybe you'd like a fistful of US greenbacks? No worth, they're printed daily."
No. Sorry. Cash doesn't get it either.
"V_L....Owning Goldminers has been somewhat of a savior in our investing agenda..."
You keep those gentlemen's rules going for yourself. You don't get it. You've been at war and you seem mighty content sitting there with a bullseye painted on your head. Gold can be manipulated. Given all you've been exposed to in stocks, you don't think metals aren't any less controlled by the same people? You have to own what they can't.
"Picked up anothe REIT this A.M, it pays about 17%."
You don't get out much anymore, do you? Name a mall with foot traffic and BUYERS? Say- I don't know of any and be a winner. I can relocate to office suites that pay ME to be there. I can show you hundreds of Gross Leases on premium properties. REITs are book cookers.
Gold is a store of value. it retains it's value while paper money loses it's value every single day.
Which would you rather have as a store of value $20 in gold or $20 in paper. In 1934 they were EQUAL. today you need 63 of the paper $20 to buy the same $20 in gold.
Sorry, but don't think of gold as an investment, it is not. It yields nothing, and generates no income.
But as a store of value, it is way better then Helicopter Ben paper...
In 20 years where will gold be relative to the dollar. Would you want your life savings in paper money or gold. History says bet on gold. Paper money has never held it's value.
Never made much on his advice, bought gold and silver stocks when he's recommended them before, the gains were unimpressive, their stocks prices usually then declined. Constantly blows smoke about the market but no great calls.
V_L....Owning Goldminers has been somewhat of a savior in our investing agenda...
Since a few years before the downturn in 2007-2009....Even now.
But Yellow has been stagnant for probably close to 18 months lately,,??
Yet this morning I was adding more shares of our favorite EGO..
Read a little blurb again about inflation creeping up in Jan-Feb...
If and when we have a larger move or some Worldly scare, we will probably reap benefits once again from our positions; I am confident enough to take that chance...It is a 50K venture..
And I will consider a 10% upside a gift...This time...In these Markets...And then I shall turn it.
V_L ,....,you remind me a lot of Mirage Guy in some convoluted(sp) ways....
Not to sound crass in anyway, but I think we read different magazines in the bathroom..??
This is NOT my first Rodeo....
I don't disagree necessarily with some of your comments....BUT..
We all have to find our own way to the Oasis....That use to be a Bar, I've known.
What works for us, may not work for you and yours.
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