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Wednesday, July 18th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Sell the Dow and Buy Gold, Silver on Dips

The precious metal bull market continues to impress and it makes one wonder if the highs are too high and should holders of gold and silver backed funds sell now. Personally, I’d be more inclined to put in stop-losses on all or some portion of your holdings rather than buying or selling options.

I’ve been a bull on these markets for a few years now and have recommended investments in both in earlier Seeking Alpha posts in October. Since then, the SPDR Trust Gold ETF (GLD) is up 7.24% and the iShares Silver Trust (SLV) is up a whopping 53.5%.

Silver is overpowering gold, but that is to be expected.

The current ratio of silver to gold is 40 ounces of silver is equal to 1 ounce of gold. It should be 20 or less if you believe we are indeed in a precious metals bull, in a weak dollar market, with rising inflation in major markets around the world. If you buy that story line, then consider this: if we were trading equal to the silver-gold ratio from the previous metals bull in the 1970s and early 1980s (and as an aside, I think this market is better), then silver should be over $85 an ounce. Sound crazy?

Silver is still undervalued relative to gold, so wherever gold goes, silver will outperform. We had a peak price of $49 in the silver futures market sometime in 1981. Adjust that for inflation today and you would have over $100 an ounce of silver in the futures. March silver futures were trading slightly higher early Tuesday to $35.87. Gold futures were trading lower on Tuesday to $1,429 an ounce, and allow me to stick me neck out here, but I think we see gold over $2,000. The market is pricing in the end of QE2 in June. Once that is out of the way, I think the Dow and S&P 500 have to move higher on their own merits. Those merits are still very poor. We have had a doubling in the averages since the March lows in 2009 without any significant 10% pullbacks since.

If you can, I would be taking money off the table in the Dow and add those profits to gold and silver on price dips of 1% or more.

Why gold?

The public investor still owns very little gold and silver. Not many people are aware of the immense magnitude of potential money sitting on the sidelines. The amount of money which at some point will be entering the precious metals market is absolutely staggering. Proof of this assertion is clearly seen when you examine the ratio of investments in money market funds vs. gold ETF funds. The amount of money currently in money market funds totals $2.8 trillion, but the money currently invested in gold ETF funds is currently less than only $100 billion. The volatility in the precious metals markets will continue. Do not let this volatility shake your conviction in owning precious metals. Stay full invested; we are going a lot higher.

Strong months for gold

The strongest months seasonally for gold are January and February followed by April and May. The summer months are usually a very slow period for the precious metals market. The month of August is usually the pivotal month leading to higher prices, which usually begins in the month of September. It has been a historical fact that the month of September has been the single best month of the year, percentage wise, for rising precious metal prices.

Five key long term fundamentals for gold

  1. Budget deficits remain out of control as massive government spending continues.
  2. Loose monetary policy has led to once again excessive speculation and bubble markets.
  3. We have both inflation and deflation going on all over the world relating to all asset classes.
  4. Massive debt is currently unserviceable accompanied by negative real interest rates.
  5. The gold bull market has been confirmed in all the world currencies, not just the dollar. This confirmation took place years ago. Nonetheless, few people acknowledge this important fact.

Five reasons to buy silver

  1. China was a net importer of 112 million ounces of silver last year. India, the other major player in the metals arena, has increased its import of silver by around 25% last year. The Asian nations continue to be very heavy buyers of silver, and any pull back in metals prices will only bolster their commitment to the metals.
  2. Between just China and India we have almost a 200 million ounce a year shift in demand for above ground silver, at a time when annually, silver production worldwide from the top 20 producers is just under 700 million ounces annually. The demand for silver will continue to accelerate to the point that demand will eventually overwhelm supply. As it stands, both are basically in line.
  3. Recent corrections in the prices of precious metals have been both brief and surprisingly shallow. The events in Egypt and the revolutionary forces moving throughout the Middle East are playing some part in this but not to the degree I think most people want to believe. The percentage of new investment dollars entering the precious metals market has now shifted clearly in favor of owning silver versus gold.
  4. The metals market continues to be the barometer of political stability and monetary integrity. Silver will once again on a percentage basis outperform gold as the precious metal bull begins to accelerate toward a new leg of advance to the upside.
  5. 5) The price of silver has a lot of catching up to gold to bring it back to the previous historical highs and I think this precious bull market has more depth than the one we witnessed in 1981.

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