Friday, September 12, 2014

Dude, Where Is My Gold…And Silver?

Nowhere to be seen, because the prices have fallen dramatically over the past 3 years. In fact, the prices of precious metals have dropped so much that investors forgot that they are even an option. The gold has descended to the $1,232 mark and has been oscillating in that range for a while.  Some wonder if precious metals are still worth the investment. George Soros certainly thinks so. He is known to hedge his capital in gold and silver before the expected “financial shock”.

In the aftermath of the Great Crash of 2008, gold and silver prices continued to rise, thereby reinforcing many wild speculations that the price of gold will reach $2,500 and beyond. Of course, it never did. Precious metals like any other financial instruments require undivided attention and constant scanning of the environment. The economic, political and social forces shape the value trend of every commodity in the marketplace. However, a mere “hope” cannot be traded in open markets.

I believe that hope is what drove many people to buy gold and silver coins with an inflated expectation that they will reap great wealth in the near future.

It should be remembered, that gold and silver are good hedging financial vehicles and long term investment tools. Precious metals are fantastic to diversify your portfolio, but poor for short term trading. If you are looking for a high risk / high return instruments, stock market is your best choice.

Following the Great Recession of 2008, a number of radio talk show hosts and TV pundits were advising every freedom loving patriot to purchase gold and silver to protect their financial portfolios. Some commentators went as far as stating that everything will crash and the country will descent into chaos and destruction. The only protection they saw was canned food, bullets and real gold. As is usually the case, the doom and gloom scenarios never materialize.

Gold kiosks and exchange shops were sprawling across the country and folks from all walks of life were getting into precious metals. These actions have driven the prices up to unprecedented levels and reinforced the inflated expectations of rapid wealth creation. The lucky bunch had made money in the bullish trend, while others procrastinated and ended up with the cheaper commodities.

Wealth managers consider gold and silver as hedging mechanisms that they employ in the volatile economic times. However, precious metals have remained part of a relatively long-term investment strategy.

Furthermore, the current macroeconomic indicators show that the US economy is continuing to improve, thereby suppressing gold and silver prices. 

For almost three years, silver has been in the bears market and the price has fallen to a new low. Technical analysts predict that silver will continue to trade sideways due to the uncertain political climate. This trend will be partially determined on the outcome of the conflict between Russia and Ukraine. Geopolitics is a known factor of influence in the financial markets.

What is the lesson learned? Markets are volatile, dynamic and prone to change. The market place is susceptible to the gravitational forces that will bring the inflated expectations down to the grim reality of supply and demand.

For instance, currently the silver is trading at $18.69 per ounce and it is difficult to predict where it is heading next. It might reach a base level and shoot back up to the upper 20s or remain in the teens until the next crisis. The prediction that silver will reach $50 mark is unrealistic at best and deceiving at worst.  We are more likely to see silver to trade sideways and continue to stay in a $15-20 price range.

Therefore, my recommendation is to refrain from accumulating gold and silver. For silver, I would wait until the price drops to mid-teens (or gets close) and then make buying moves. For gold, the geopolitics will decide where our money will go.


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