Gold and Silver

So much conflicting information concerning Gold and Silver….. Inflation? Deflation? Stagflation? Hyperinflation?

Why should you even consider gold and silver?
gold and silver

Gold and Silver

Well, unfortunately, nobody knows exactly how everything is going to play out. The only thing that is certain is that there is no such thing as a ‘safe haven.’ The global ‘money masters’ can put all their efforts into propping this or crashing that. Even the silver market has been subject to manipulation through massive short selling of the paper market. Yet, in spite of that, as of the beginning of 2012, it still shows 200% gains since its stumble following the crash in 2008.

Physical First!

All things considered, under the US economic conditions in 2012, Procinctu believes it is reasonable to put 10-25% of one’s wealth into gold and silver. Precious metals should be viewed as ‘crisis insurance.’ Aside from their historical role as currency, metals also do well in times of uncertainty. With threats of wars and possible disasters, whether planned or unplanned, you should ‘buy in’ with a mindset that precious metals are a preserver of wealth. Gold and silver are merely a store of value to use in an inflationary environment. At worst, you could expect their value to fall along with other prices if deflation ends up taking hold, though probably not as bad. But in any event, you are assured of having something tangible should calamity arise. Even in a deflationary situation, gold and silver can still be used as money for commerce.

When getting involved in gold and silver, it would serve you well to take actual possession of the metal. Buy physical coins or bars of gold and silver!

Paper Market?

Of course, there IS profit to be made trading the gold and silver paper market. And this profit can be realized whether the ‘price’ goes up or down. But only do this if you know what you are doing. The gold and silver paper market is subject to manipulation, as well as held hostage to a population that may not fully understand it’s future importance in the world.

Now, we could go into specifics like SLV, ETFs, the COMEX, or margin requirements. But you can research that elsewhere. Procinctu recommends a visit to TradeSmartU to learn a disciplined way to trade the market. Beginners need to understand this one point. The paper market is highly leveraged with little correlation to actual gold or silver on hand. Plainly stated, there are much more metals traded in paper contracts than actually exist.

For example, on several occasions, there is more silver traded in one day than is in supply over the course of an entire year. Considering that most of the supply is used industrially, what exactly is being traded on the paper market? It’s purely speculation. Fact is, many of these paper contracts are only really backed by the equivalent of pennies on the dollar, or worst yet, they have no physical backing at all.

A recent example of failure in dealing with the paper market is collapse of MF Global in late 2011. Though MF Global didn’t deal exclusively with gold and silver, they did still have customers in the commodities markets. And at the time of their Chapter 11 filing, they actually locked traders out of their accounts. The firm just didn’t have all of their money any longer. Investors were literally robbed a percentage for their investment because MF Global apparently ‘bet’ their money on other investments…..and lost. Millions of dollars…Poof!… gone. It is said that the customers had lost over 1 billion dollars in the MF Global bankruptcy. As of this writing, they are still battling to get it back. Stay away from the paper market unless you know what you are doing.

Have a Plan

If you feel that gold and silver are right for you, it is best to do so with a long-term plan. Buy on the dips, and if you must sell, do so on the tops. But don’t even get involved if you are going to need to cash out at a set time, because the market can be unforgiving. The silver market is especially volatile.

As an example, if you bought silver in April 2011 to make a quick buck, then you paid $48 an ounce. Just 8 months later though, instead of raking in your profits, you would be having a breakdown because silver was only $27 an ounce by December 2011. You got hammered!! However, when you look at the long term impact, even at $27, you are still up 200% since 2008, up 285% since 2005, and up 540% since 2002. If you can’t stomach a roller coaster, then don’t ride this one. If you can take it, then it may help to view any silver accumulation in terms of ounces acquired, and not so much in terms of how many ‘dollars’ you paid for them.

That said, Procinctu sees more upside in the silver market. Unlike gold, silver is a major industrial metal. It can be found in phones, cameras, computers, solar panels, etc. As long as these items exist, there will be demand for silver, or at least until a suitable replacement is found. But silver has unique properties that aren’t easily duplicated. In addition to the industrial use, silver is also widely consumed medicinally. So for the foreseeable future, evidence suggests that industrial demand will only serve to add to the value that silver already holds as a wealth preserver.

Until the US economic fundamentals change, there is really no reason to sell metals. In the US, there is massive printing of digital dollars, trillions of public debt, possibly over 100 trillion in unfunded public liabilities, bankrupt cities, etc. Until there is some sign that these fundamental flaws will be addressed, Procinctu sees no reason to sell gold and silver early.

Disclaimer:Procinctu is not a financial advisor and can not be held responsible for the financial decisions that one makes. Consider all information sources and always think for yourself. The author is long physical gold and physical silver.