Recently I had written an article recommending traders start taking some profit in the paper stocks and ETFs invested in gold and silver mining shares. I had made that call when the HUI was at 512.56 and today it is at 494.11 as I write this article.
In that article I criticized advisors who never change their tone on gold. It’s always only one way, “up” for these advisors. But because there are so many new people to buying gold, I felt it important to explain that there can be a downside to investing in precious metal shares. 2008 was a good example of that downside when some clients of these advisors lost over 50% of their portfolio invested. Will this pullback result in the same kind of losses?
No Crystal Ball
While no one has a crystal ball, one can look at the facts as presented, and that’s what I did. I weighed those facts against each other and made my call to take profit. This coming from a guy who sells physical gold and silver bullion. How many times do you see that occur?
Personally though, I don’t think the pullback will be as severe as in 2008. I have many reasons for this, but will share those in a future article, depending on whether we get a decent pullback of 10% or more.
HUI Broke To New Highs
The HUI did break to new highs since I wrote that first article at the end of September, and on October 1st, I made the following observation;
A couple days ago I went out on a limb and called a top in gold and silver for traders. Today we are possibly getting that short squeeze I mentioned in that article with gold and silver pushing higher, but now settling back down. This short squeeze could last more than a day, but it’s not out of the realm of possibility that we could see gold higher for a bit. Calling a top is the time to start taking profits if one is sitting on them.
The hardest thing for a trader to do is take profit. This is where greed comes into play. In the push for that extra buck, one gets emotional rather than thinking logically and being satisfied with the profit already obtained.
While I did make a call to sell shares for the holders of quasi-gold, or paper stocks of mining companies, I did not make the same call for holders or buyers of physical gold and silver. I did however caution new buyers of gold and silver;
Inevitable reversals in the price of gold and silver will occur and the greed in the trader will push them towards getting back in the trade at the bottom of the cycle and riding the paper profits higher as they have in the past. But at some point, those paper profits have to be converted back to paper Federal Reserve Notes, which in turn will at some point be chasing the ever dwindling availability of the real wealth that physical gold and silver represent.
The coming fall in the price of gold and silver, when it occurs, will be the perfect time to acquire the physical bullion as insurance for your portfolio. Dollar cost averaging into a position, hoping the price falls even further so you can get a better overall price makes sense.
Will gold and silver bounce up from here? It’s possible because of the multitude of reasons gold has gone up the past 10 years hasn’t changed. I will be addressing these in detail in a forthcoming article next week.
Holders Of Physical Gold and Silver, Don’t Panic
If you are long physical gold and silver and you see this pullback continue, don’t panic and sell. We are going to finish the year higher, making it the 10th year in a row that gold has closed the year with a new high.
Does anyone truly believe out government and the Federal Reserve can fiscally and monetarily manage themselves out of this mess they got us into? If they didn’t plan the mess to begin with, how the heck are they going to miraculously going to put the pieces of the puzzle together perfectly to get us out of this mess? I’m telling you this today; it’s impossible, as you’ll read in a forthcoming article (or you can just search this site for the many banking articles I’ve already written).
This doesn’t mean that we won’t have pullbacks along the way. Traders need to not be emotional and believe all the hype. Traders need to take profit. Holders of physical gold and silver, don’t care what happens in the short term because they have peace of mind their portfolios are insured. Our government will take care of the long term.
Traders of Gold and Silver Need Physical Too
Are you a trader? Then you might want to consider buying physical gold and silver before you buy more paper stocks at the bottom of this pullback. Owning the gold ETFs is not the same as owning gold. Gold ETFs are quasi-ownership of gold because you cannot take delivery. Also, the gold held in the ETF is not insured. It’s right there in the prospectus;
“The Trust may not have adequate sources of recovery if its gold is lost, damaged, stolen or destroyed and recovery may be limited, even in the event of fraud, to the market value of the gold at the time the fraud is discovered. The Trust does not insure its gold.”
If you are new to buying gold and silver, first educate yourself by reading my book, Buy Gold and Silver Safely. Don’t listen to the salesmen of gold dealers who advertise on radio and TV for advice. The reason they can afford those advertisements is because these salesmen make 30% or more in commissions from unsuspecting buyers, selling European coins that no one here in America even knows about.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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