What Gold & Silver are Saying About the Trump Election

Gold and silver are supposed to be safe-haven investments in times of trouble.   So, it's interesting that since Trump was elected, the prices of these two metals have fallen like rocks.  Just look at the price of silver from the Goldline website:

Then, there's this chart for gold:

Back in July, a senior writer for MarketWatch, William Watts, predicted that if Trump should win, gold would rise to $1850 an ounce.  Implying that Trump's policies would weaken the U.S. economy.  Really? In fact, the U.S. dollar has hit 13-year highs since Trump won the highest office in the land.  A signal that traders are betting that Trump polices would make (you know) America great again.  Along with the rise in the dollar, the stock market has also been on a tear; setting record highs. But that same writer for MarketWatch still can't believe Trump might do good things.  Just last Friday, he wrote a another opinion piece titled: "Stop calling stock-market rise a ‘Trump rally’".

In my opinion, any time William Watts at MarketWatch makes a prediction, a wise investor should do  the opposite. Apparently, he puts his political leanings before any rational and common business sense. 

References:

Goldline Silver Chart: https://www.goldline.com/charts-news/silver-charts

Goldline Gold Chart: https://www.goldline.com/charts-news/gold-charts

Here’s what Donald Trump would do to the price of gold: http://www.marketwatch.com/story/how-donald-trump-could-spark-a-huge-gold-rally-2016-07-22

U.S. dollar hits 13-year high: http://money.cnn.com/2016/11/16/investing/dollar-13-year-high/

Stop calling stock-market rise a ‘Trump rally’: http://www.marketwatch.com/story/stop-calling-stock-market-rise-a-trump-rally-2016-11-17

What's In Your Safe? Hopefully Not Gold or Silver!

There's no Happy New Year if you bought either gold or silver in the last 6 or 7 years; respectively.

As of the end of 2015, gold sits at a price per troy ounce of $1060.  You have to go back to September of 2009, to find a lower price.  Since peaking in 2011 at $1916, gold now ended the year 45% off that high.

Silver has been an even worse investment.  In  2011, it was selling at a high of $51.52.  Today, at $13.80, your loss would be a whopping 73%.  You literally have to go back to December of 2008 -- 7 years ago -- to find a lower price.

Now, will 2015 lows be the bottom for these two metals?  Probably not.  The current trend still indicates a downward slide.  My guess is that if gold falls below $1000 a troy ounce, the next possible bottom will be around $800.  Silver, may go to below $11 an ounce before it takes a pause.

I sure would like to know how much of those metals William Devane has in his safe and what he paid (in the aggregate) for it.  My guess is that he and his financial adviser are a lot smarter than that;  he probably doesn't have a penny's worth.  I sure hope he's not being paid in either of those increasingly less precious metals.  If he is, he's the one getting stroked as well as the listeners of his TV ads.

References:

Historical Gold Prices: http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

Historical Sliver Prices: http://www.macrotrends.net/1470/historical-silver-prices-100-year-chart

William Devane Rosland Capital Commercial: Protect Your IRA: https://www.youtube.com/watch?v=22YMcXTeeQk

Rosland Capital | Invest in Stability & Avoid "Crisis": https://www.youtube.com/watch?v=9zqZiNcVG7Q

Urban Dictionary: getting stroked: http://www.urbandictionary.com/define.php?term=getting%20stroked

Inflation-Adjusted Gold Hits 5-Year Lows

Recently, gold hit $1,177 an ounce. When it did that, anyone who had bought gold in the last 5-years was losing money on their investment because $1,177 is a price that hasn't been seen since early 2010.

When you adjust the $1,177 in terms of the value of today's dollars, you literally have to go back to September/October of 2009 when gold was selling at around $1,061 an ounce; just to break even against inflation.  If that isn't enough to convince someone not to buy into all the  hype, then think about this.  Today, gold is selling at a 38% loss from its 2011 high of $1,904.

A lot of these gold bugs, who desperately want to sell you the loser gold that they are currently stuck with, are using all kinds of phony arguments to convince you that it is a great investment.

The typical claim is that it is protection against inflation.  This despite the fact that, over the last 5 years there has been about 8.5% inflation and gold has fallen on its tail; down 38%. Another is that gold is a protection against another stock market crash.  Well, today, the Dow Jones Industrial Average is at record highs and all of 2008 market crash losses have been erased.  At 17,828, the DOW is now 35% higher than it was in 2007 at pre-crash highs.

Finally, don't buy into the hype about silver either.  Its doing even worse.  When gold hit that 5-year low, silver also saw a low of $15.56 an ounce, you literally have to go back 6 years to see silver at that low.  Also, silver is down 68% from its 2011 high of $49 an ounce.

References:

Inflation Calculator: http://www.bls.gov/data/inflation_calculator.htm

CNBC: Interactive Silver Chart: http://data.cnbc.com/quotes/SIZ4/tab/2

Silver at a 4-Year Low!

All those companies hyping gold are now telling us that buying silver is the best kept investing secret.  Well, as this screen shot from CNBC clearly shows, as of yesterday, silver hit a 4-year low.

What this simply means is that silver, just as gold, has not been a hedge against excessive government spending.  And, if you happened to buy silver in the last four years, your losing money.

In April of this year, I wrote a blog entitled The Truth About Buying Gold and Silver, in which I warned about the excessive hyping of these metals as an investment opportunity.   At that time, gold was at $1300 an ounce (now at $1217.70) and silver was just below $20 (now at $17.75).  While gold and silver are moving down, the stock market has been reaching record highs.  You be the judge . Does gold and silver deserve all the hype that the sellers would have you believe?

The Truth About Buying Gold And Silver

Every day, the radio airways and cable news broadcasts are filled with advertising from "gold bug" companies who are trying to convince you to buy both gold and silver.  There are dozens of them: Goldline, Lear Capital, Rosland, Merit, and so on.  All of whom claim that, by holding these precious metals, you are being protected against inflation as a result of massive government spending and the devaluation of the dollar, or, protected against another recession, depression, or stock market crash. 

The problem is that all of those claims are bogus. The proof of that is in the chart below, which shows the combined price of gold and silver which has been adjusted for inflation in today's dollars:

Click on Chart to Zoom

As you can see, these two metals have a history of spiking in price, but once that price hits some "tipping point", there is a long and painful slide downwards.  This happened in 1980 when gold hit a high of $850 an ounce or nearly $2,000 when adjusted backwards in today's dollars. By 2001, just before the next spike upwards, gold hit a 20-year low at $250 (unadjusted); or about $325 (adjusted).  During that 20-year slide, holders were paid no dividends; probably weren't savvy enough to hedge against their losses; and, most likely got stuck with relatively high storage and insurance costs to protect their investment. Worse, if you did buy gold in 1980 at its high, you are still underwater (see graph) when adjusted for inflation.  Just the opposite of what buying gold was supposed to do.

What none of the gold bugs are willing to tell you is that, in 2011, gold and silver both hit respective nominal (unadjusted) highs of $1,904 and $49.50 an ounce.  Today, gold is trading around $1,300 or down $600 from 2011.  Silver is even worse off  with today's price near $20; and, that's a loss of more than 60% since its 2011 high. All indications are that these prices will continue to slide; just as they had done in the 20-year period after the 1980 spike.

I guess what really bothers me about the gold bug ads is that they make all kinds of unproven claims and predictions.  For example, Lear Capital is running a current ad that features Eric Sprott; a billionaire Canadian hedge fund manager.  In that ad, Lear offers any callers a report by Sprott that predicts that gold will exceed $2000 an ounce sometime this year and that silver will be at least $50 an ounce by the end of the year.  Well, that's the same claim Sprott has made every year since 2011.  In fact, in 2011 he predicted $2155 (Canadian) for gold and $64 for silver before the beginning of 2012.  While close in 2011, none of Sprott's predictions since, have been anywhere near being true.  My guess is Sprott is holding a lot of gold at a loss, and by hyping its price potential he can cover those losses and find an escape hatch.  While Sprott's claims seem outrageous, there are a bunch of people predicting that gold will hit $5000.  Just Google it and you won't believe how many, and for how long they've been making that prediction.

Lastly, these metals have big liquidity problems. There's a lot of dealers out there who will sell you this stuff.  Try selling it back to them; especially when the prices are falling.  Try finding buyers on your own.  In either case, you will have the cost of shipping to the buyer, and the additional  cost of hefty shipping insurance.


References:

Chart Perspective – Gold: 100 Year Historical Prices: http://www.gcasset.com/chart-perspective-gold-100-year-historical-prices/

What Happened to the Gold Price in 1980?: http://buying-gold.goldprice.org/2008/01/what-happened-to-gold-price-in-1980.html

Sprott On Gold In 2012: http://katchum.blogspot.com/2012/05/eric-sprott-on-cnbc.html

Sprott On Gold In 2011: http://www.jaggards.com.au/news/medusa/article_75.asp

Fool's Gold?

Last May, it was disclosed that the massive George Soros hedge fund had sold most of its investments in gold.  Soros, himself, negatively referred to its high prices as the "ultimate asset bubble."  At the time, gold was selling in the low-to-mid $1500's an ounce and many just scoffed at Soros short sighted selling; believing that it could easily double in price over the next two to three years.  Gold, in fact, did continue its 12-year stratospheric rise by reaching the $1903 mark as of August 22nd of last year.  But, that was the top.  Since then, gold has fallen.  Last week it hit a 9-month low of $1541; 19% off last year's high.

In the last 3 months, the dollar volume in gold sales has been extremely heavy with the price sliding downward in the process; but not that dramatically.  It appears that there are enough buyers to match the heavy selling; and, as result, this has kept it from going into free fall.  At this point, gold seems to be at a breakpoint of sorts.   If selling dries up, then it will stabilize and either move sideways or back upwards in price.  But, if buying dries up and the selling continues, the Soros prophesied bubble will break and we could see a serious fall in the price.  Maybe even below $1000 an ounce.  

In my opinion, anyone buying gold right now is foolish.  No one should buy unless it breaks out of its current downward trend line. I for one, am betting that Soros is right about it being in a serious bubble and fully expect it to crash within the next 3 to 6 months.

The New Gold Rush: Gold Lovin' Trouble

Earlier this week, a U.K. online news service wrote a story (a rumor?) that Gulf Arab states are pushing to dump the U.S. dollar as the primary currency for trading oil (Click to See Full Story: "The demise of the dollar") . Based on that article, the gold traders poured into the market and the price shot up $50 a troy ounce in just 2 days. Yesterday, gold metal hit a new high.

At the same time, the U.S. dollar declined even further with the exchange rate between it and the Euro Dollar at above 1.47 Euros/dollar. To make things worse for the dollar, the United Nations has called for the replacement of the U.S. dollar as the world's reserve currency (Click to See Full Story: "UN calls for new reserve currency"). If this should happen, it could seriously devalue the dollar even further and we could be hit with double digit inflation on everything we import; including oil.

Before the oil/dollar news, gold had simply strengthened in price on the basis that the U.S. economy looks to be faltering once again. Last Friday's unemployment, as an example, came with a higher number of job losses than had been anticipated. In fact, 60% more than was expected.

Gold is a hedge against troubled times. Its used as protection against things like a weakening dollar or the consequential effect of inflation.

Looking at the charts, it appears gold has got its legs again. I wouldn't be surprised if it reaches the $1200/ounce mark or higher by the end of the year. This, again, is further proof that the stimulus spending is not righting our economy. It ain't working, Mr. President!

Please Note: I do not own gold or gold derivatives and, therefore, I have no interest as to whether or not gold goes up or down.

The Dissociative Identity Disorder of Gold

Gold is a funny metal. Most people think of it as the most precious of metals in the world. Others think of it as much-needed metal to be used in the manufacture of products like jewelry and electronics. And, that is where gold's two personalities are at odds with each other.

As a commodity used in manufacturing, gold's price should fall as the world struggles in a recession. That's because the supply will rise as the sales of those products that use the yellow metal fall off. In essence, whenever there is less demand the price will fall -- based on the Law of Supply and Demand.

But, the other personality of gold is its intrinsic value as a precious metal. In this case, gold is much sought after as a hedge against impending economic disaster. It is considered a safe haven in times of strife. While the dollar might fall in value, gold will generally hold its value or even gain.

In the last year and a half, gold has approached the $1000 mark and then fell off of it a total of 4 times. Now, for the 5th time, gold has closed in on the $1000 mark with the current price at $995.60 a troy ounce. The recent rise has been due to the belief that the recovery from this recession has become more and more uncertain. In fact, the Chinese stock market's decline of nearly 20% in the last 3 weeks has much to do with gold's rise in price.

But, here's where gold gets sticky. At the $1000 level, the commodity buyers of gold tend to believe that gold is overpriced in the midst of a recession and due to slacking manufacturing demand. As a consequence, they start to sell off the stocks of the metal that they own. This, then, causes the price of the gold to fall markedly.

Over and over, the $1000 dollar mark has been a point of resistance for the price of gold and I would expect that it will be again and gold may fall back again to the $700's. If it does, however, break through $1000 mark, it will be because of a real nervousness about the world economy; and, that won't be good.

If you ever want to know what the world is thinking about itself (economically), just watch the price of gold.

The U.S. Dollar: Where's The Woolite?

Yesterday, the stock market euphorically rose by as much as 176 points on the initial news that our Federal Reserve was going to "spend" up to $300 billion in order to buy back $300 billion of it's own debt (See Full Story). If that sounds like double talk, it certainly is! It's sort of like paying off your mortgage with your own credit card and having no money left to do anything when the credit card bill is due. But, if you're the Federal Reserve, you can just float more debt to do what you want to do. It's like creating "new money out of thin air" as noted in this news article: "Fed to pump another $1 trillion into U.S. economy". If you or I did the same thing, they'd call it "kiting" and we'd be serving "20" in some Federal prison. And, for sure, Bernanke and the rest of his gang at the Federal Reserve might be just as criminal in doing what they are doing.

On top of the $300 billion to buy back U.S. bonds, the Fed will use an additional $700 billion as a systemic cash infusion in the credit markets to free up borrowing for homes, cars, etc. Again, this $700 billion doesn't really exist; except, in the minds of the Federal Reserve.

By doing this, its like washing all of our currency in hot water and harsh detergent. Just like a cotton shirt, there will be some serious shrinkage. And, with shrinkage, comes inflation.

There's a big gamble doing what the Federal Reserve is doing. They are trying to combat a deflationary economy by adding in to it their own inflation. You can literally see that there is deflation when you look at home prices having fallen by as much as 50 percent. Deflation is also apparent as retailers are attracting buyers with deep discounts. Automobiles are being sold at losses to reduce inventory. So, by introducing inflation into our economic system, the hope is that prices will stabilize and credit purchases will start moving again.

The problem lies in the fact that the deflated dollar will remain deflated; even after prices recover. Then, the inflation that was used to fight deflation becomes its own problem. The only way to fight this new evil is to seriously raise interest rates; which, in itself, could cause another recession. But, this time with rampant inflation. As a result, simply raising interest rates won't solve the inflation problem. For that to be solved, we will, somehow, have to quickly erase our accumulated debt though heavy taxation so that the Federal Reserve can reverse and undo what they did yesterday by pulling back dollars from the world's debt markets. But, in the wake of all this, we could literally see double digit inflation on everything that we buy; and, for a long period of time.

Just so you know, this kind of thing has been tried before by other countries and those governments don't exist today. They just collapsed. So, this is a big gamble.

In reaction to that potential, the stock market ended today with a loss as the investment community finally saw the risk that exists in this program (See Full Story). Since the announcements of yesterday, gold prices have jumped nearly $80 an ounce as people sought the yellow metal as an inflationary hedge. The U.S. Dollar fell against other currencies; making imports more expensive for us to buy. Oil prices jumped to a new 2009 high of nearly $52 a barrel. If the Fed wanted inflation, it certainly didn't take long for it to start showing up.

Make no mistake about it, this is a seriously desperate move on the part of our Federal Reserve. The risks are high and rewards might be questionable. I can only believe they are doing this because they are seeing statistics and trends that are more worrisome than had been previously thought. Don't forget. This action is independent of the so-called trillion dollar Stimulus Package; which, by all indications, seems to be having a difficult time in starting up.

I personally don't know how we are going pay for all this debt. It just might take over a century or more to do it and that could hurt the future of this country.

Another Gold Rush

Over the last two weeks, the dollar has weakened by about 20 percent and gold is up over $100 dollars. That basically means that investors/speculators in the world are now dumping the greenbacks and buying the protection of gold. What that is saying is not good for the United States. The dumping of dollars shows fear in the United States. For weeks, the dollar had been strengthening against other currencies and gold had been falling. But, no longer. The investment community is now seeming to say they don't like all the additional bailout plans. It is no coincidence that the rise in other currencies and the fall in the dollar started with all the talk of bailing out the auto companies. Further, Mr. Obama's plans for another half to three-quarters of a trillion dollars or more in so-called stimulus plans is not setting well. I think the amount of debt that this country is quickly amassing is of considerable concern. And, that concern is driving gold prices up.

As a country, the United States will have accumulated a deficit against this year's tax revenues in excess of one trillion dollars. Mr. Obama plans another near trillion in spending programs and stimulus when he and the Democrats take control. Further, the national debt is ballooning and we are borrowing more and more to cover that debt. In the last two months alone, the interest that we will be paying on our national debt will be at a rate in excess of $18 billion a month; and growing (See Full Story). That means that every man, woman, and child needs to ante up at least $60 a month just to cover the interest on our national debt. We are up to our necks in debt and, possibly, approaching a tipping point where there is no reasonable way to pay everything back. That's why gold is on the way up again and our currency is weakening fast. The world is wondering if we will ever get the money back to pay for it all.

The Midas Malarkey

I am sure that you've all seen those "buy gold" commercials on TV that hype the "yellow stuff" as a means to protect your savings and investments. I especially like the one with G. Gordon Liddy where he snaps a dollar in his hands and declares that it has lost 27% since the year 2000. Of course, Mr. Liddy neglects to tell you about the roller coaster ride that gold has taken over the last 30 years which has left many holding the bag with losses. While it is true that gold has shot up from around $255 a troy ounce in the year 2000, to a high of $1,033 in March of this year, it has fallen by 30% to today's price of around $730 in just 7 short months (See Full Story). At the same time that gold has been going down, the U.S. dollar has been strengthening against other currencies by a factor of almost 20 percent (See Full Story); thus making Mr. Liddy's argument about the dollar losing so much value to be very much a distortion.

In 1980, gold hit it's previous all-time high of about $855 a troy ounce. From that high, gold fell to a low of $253 an ounce in 1999 and bounced around from that price to a little over $300 an ounce until 2001. If you had bought the precious metal in 1980, you would have had to wait until January of this year, or 28 years, before gold was, once again, even close to being profitable for you.

The truth about gold is that it is a commodity like wheat or oil. TV ads, like those which use Mr. Liddy as the spokesperson, are designed to pump gold prices up by stimulating an artificial buying interest. Gold, as it did in 1980, reached a bubble this year that could not be sustained and, subsequently, has fallen nearly 30 percent. My guess is that $500 a troy ounce is not out of the question within the next two years. Maybe, even lower.

Nothing can ever go straight up and the price of gold is no different. Gold coins are actually the better bet because, depending on the specific coin, you can benefit from both the market value of the inherent gold and the value due to a collector's interest in the coin itself. However, like buying art, you can't cluelessly buy gold coins and expect to automatically make money. You have to know what you're doing.

It is naive to believe you can just buy some gold and automatically make profits by investing in this noble metal. Also, with gold's current price drop in the face of so much economic angst, there is absolutely no guarantee that it will provide protection of your savings during times of trouble. It is not some kind of "bridge over troubled waters" as those commercials would have you believe. Some of those same gold commercials that you see on TV, today, have been running nearly unchanged for two decades because the premise for buying gold, a looming world and economic disaster, has been nearly a constant in every generation and for every decade over the last 100 years. From the crash of 1929; to World War II; to Korea and the Cold War; to the fears over the new millennium (Y2K); or, to today's possible depression; there has always been enough "fear" for the chicken-little-TV-commercials to get you to buy gold. The reality is that those people buying that commercial time, own gold and want you to buy for their own selfish reasons.

Additionally, people don't really understand that there are a lot of expenses associated with gold. If you buy gold, you need to store it somewhere and insure it. Dealers will do that for you but, at an additional cost. If you want to take possession of it and store it yourself, the stuff is heavy and costs a lot to move around and, again, insure it and safely store it.

You don't have to actually buy and own gold to play gold. You can buy and sell a market-traded ETF (Exchange Trade Fund) which has the market symbol of "GLD" on the New York Stock Exchange. Those shares are intentionally selling at roughly 10 percent of the value of an ounce of gold. For example, if gold is at $800 an ounce, the GLD ETF shares will be selling around $80. Like any investment, there is no guarantee of success or failure in buying these shares; especially in this market. You should definitely consult an investment adviser in making any investment decisions. Buying gold or it's ETF's is no different than buying any stock and you could lose much of your investment if the timing is wrong.

So, to me, the buy gold info-mercials are just a bunch of malarkey. As with any other investment, gold has risk. The fine print on those commercials, which is so fine and shown so briefly, clearly states that there is risk. Believe me, there is no Midas touch in buying gold; especially right now.