Insights & Advice

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Precious Metals New Bull Trend

The recent price action in precious metals this past week convinces me that a new bull run in gold and silver is underway. For those investors who have yet to add some exposure to precious metals, now would be a good time.

That’s not to say that these commodities will have a straight run higher from here. That would be too much to ask. There will be continual pullbacks in gold and silver. These corrections are usually sharp, fast and excruciatingly painful for those who are risk adverse. So if you don’t have the stomach for volatility and turbulence, precious metals is not your cup of tea.

Back in May, gold and silver both hit my interim price targets of $1,250/ounce of gold and $19.50/ounce in silver. I then warned investors that there would be a period of consolidation.

“Wait for the pullback,” I advised, “and then add or initiate new positions, but be prepared to wait. These commodities can back and fill for several months before resuming their move higher.”

Fortunately, that scenario turned out to be accurate. I have been waiting patiently for both metals to decisively break above my interim price levels. I believe they did this week with gold reaching $1,275/ounce and silver hitting $20.75/ounce.

“So where do you see precious metals going?” asked one investor from Hudson, who has a substantial holding in gold.

I believe gold can easily reach $1,350/ounce before suffering another bout of consolidation. It could go higher, and I believe it will, but the timeframe depends upon a lot of variables that have no clear outcomes right now. In the case of silver, $30-$36/ounce is my ballpark estimate. Obviously silver has a substantially higher percentage gain ahead.

You would have to go way back to early 1980 to match the price of silver today. For those who were around back in the day, silver was in a huge run caused by two brothers, Nelson and William Hunt, along with a consortium of partners. At its peak, this silver pool owned more than 200 million ounces of silver. Its purpose was to buy silver as a hedge against inflation since at that time private citizens were prohibited from owning gold. The Hunt brothers cornered the market. The COMEX changed the rules and the Federal Reserve intervened in the market as well. The silver price collapsed and languished for well over two decades.

For many, precious metals offer a “safe haven” given the shaky state of the global economic recovery. At the same time, nearly every central bank in the world wants to prevent their currencies from gaining strength in order to facilitate increased exports. In addition, most governments have opted for an expansionary monetary policy in order to prevent deflation and kick start their economies.

I suspect that gold moved this week on a bet by speculators that the Federal Reserve will shortly stimulate the economy through additional quantitative easing. Investors are also betting that industrial demand for silver, as well as palladium and platinum, (which are also reaching new highs), will continue to increase in the future.

Investing in precious metals is risky, at best, but it’s been the only game in town for investors lately. George Soros, the famed billionaire investor, recently warned that gold was the “ultimate bubble” and that “this is a period of great uncertainty so nothing is safe.” I agree with that opinion. However when nothing is safe, a little gold is still better than no gold at all.

Posted in A Few Dollars More, Portfolio Advice