When to Buy Gold and Silver - Investment Strategies

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When to Buy Gold and Silver - Investment Strategies

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The first thing I would say to anyone who is considering investing in gold or silver is this: If you don’t have any, just get some!

If you are not already well positioned in gold and/or silver—and I would advise you to buy both—the time to buy is now. The market for both long-term is only going up from here, and in my opinion—and a belief on which I’ve based both my personal portfolio and my business—they’re going way up from here.

For all the whys and wherefores of my position on investing in gold and silver, I refer you to my #1 best-selling book, Guide to Investing in Gold and Silver. But here’s the elevator message:

Economic cycles occur throughout history, as any particular asset class becomes undervalued, then overvalued, over time. At the point in time when any one asset class hits the low point in its cycle, another asset class will be at its peak and heading down. At the point in time when one cycle ends and another begins, there historically is a tremendous transfer of wealth from one asset class to another.

At this particular moment in history, gold and silver are on the upswing. In my opinion, based on their value relative to other things of value, on the stages of other asset cycles, and on the state of our global economy, gold and silver are still far away from their peak. In other words, you can buy now, and you can buy next month, and you will be on your way to being positioned to take advantage of what I believe will be the greatest wealth transfer in human history.

Now, it’s possible you may pay more if you wait until next month. Historically, the price of gold fluctuates seasonally. Historically prices have dropped in the Western hemisphere summer months, then headed upward in late summer and fall. The price of gold has gone up in 17 out of 21 Septembers since 1989, typically up 2.5 percent over the August price. But all things being equal, I will still tell you next month is a good time to buy. At these depressed gold and silver price levels, I believe one cannot lose with a long-term strategy.

Many analysts doubt we will ever see three-digit gold prices again, if for no other reason than something called the “China put.”

It seems the Chinese, who hold some $900 billion in U.S. debt, are less than impressed with the U.S. government’s ever-worsening compulsion to continually print more and more currency. Despite official denials, actions by the Chinese government indicate it may be losing faith in paper currency (particularly the ever-inflating dollar) and becoming more bullish on gold and silver. It has opened the Shanghai Gold Exchange to more foreign activity, encouraged its banks to finance bullion acquisitions, and encouraged its citizens to own gold and silver.

During the last gold rush of the 1970s, private investment was prohibited in China. Since then, the Communist regime has opened to capitalist enterprise. Higher incomes, a growing middle class, and other cultural shifts have created an investment mentality among the populace. With its growing population of some billion potential buyers, China alone may create a solid floor for gold and silver prices.

Even if the gold spot price were to dip below $1,000 again, I believe the market price for physical gold would separate to the upside, causing a huge divergence between the paper versus physical gold market price, à la fall 2008.

As a student of economic cycles, I don’t depend a lot on technical analysis of the markets to time my buys and sells. Technical analysis is correct approximately 60 percent of the time. For some reason, when I tried to rely on technical analysis, I always wound up on the 40 percent side that was wrong. So I stick to market fundamentals. Gold, and silver even more so, due to its relative scarcity and demand, are good buys now and will be until they reach the top of their asset cycle.

But if you are already in a good position in gold and silver, but you’re thinking you might buy a little more, there is no harm in playing the price game and trying to buy as cheaply as possible.

In a bull market, one of the best ways to do that is to determine when to buy based on the 200-day moving average price.

On a tick chart, as you’ll see above, the 200-day moving average usually floats below the average daily price. In a bull market (as we are in now), typically the daily spot price of gold bounces off the 200-day moving average. The resulting graph looks almost like a ball being bounced uphill. It’s very rare that the daily average price will dip below the 200-day moving average. Often the gold price seems to be bouncing off the 50-day moving average, which in a bull market floats above the 200-day moving average line. For gold, anytime the daily spot price approaches that 200-day moving average line, back up the truck and acquire.

This pattern can also be applied to silver prices, but with less accuracy; it is more common for the silver price to go below the 200-day moving average line than it is for gold. Predicting silver prices is less exact.

As I said earlier, I personally stick with the fundamentals—the timing of the asset cycles—because the fundamentals always prove themselves out over time. Right now the fundamentals are excellent for gold, and more so for silver. The only uncertainty is over what time span the cycles will play out. In our media-saturated, interconnected world, once enough investors get the same idea, once the tipping point is reached, the rush will be on, the cat will be out of the bag, and those not already in position will miss out on the greatest wealth transfer of our lifetimes.

I remain convinced that gold will reach 5-digit prices, and that silver will have many multiple gains from its current value. In a hyperinflation, as becomes more and more likely with each turn of the Fed printing press, there is no upper limit to the price of gold in paper dollars. What will remain true is that the value of the real metal in your possession will be reflected in the increasing amount of real things—food, shelter, security—it can provide you.

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