Most of the people I talk to who are fearful of where gold is headed (thank you Harry Dent), have been led to believe that things like a strong dollar and Deflation are bad for gold. Please read the following excerpt from Zero Hedge carefully and let it sink in. Where gold is headed is not a mystery, nor difficult to understand. What makes it difficult to understand is the mis-information that comes from some of the newsletter writers in our industry.
Try this viewpoint on for size: First comes Deflation. Then comes the predictable reaction from governments and central banks; print, print and print some more. (Japan, Europe, now China and soon, the US)
The question isn't whether it will work and contain the Deflation. The point is that is the only thing the central banks know how to do. They will do it. If you think the current blip in gold is exciting, wait a while until Yellen announces more QE. Be sure and have your cupboard full of gold in advance.
If you had not noticed, 2016 has begun with gold and the USD rising simultaneously. This is different and important. This is very positive for gold and very bad for the world.
The rise of both together may signal that we have just entered that period when this inert non-yielding substance is preferred to those assets that promise a yield but where the scale of future payments is subject to considerable doubt. Also positive for gold, the advent of deflation, following the failure of the easy reflationary solutions promised by non-elected central bankers, will enfranchise aggressive acts of reflation by our elected representatives. When the tough get going then the going will really get tough- at least if you're an owner of capital.
Any political fiat, when monetary fiat fails, will be tantamount, in some way or other, to an attempt to directly control the allocation of capital/savings. History shows that this commences a giant game of hide-and-seek, and while gold may shine brightly it is also moved freely in briefcases and is easily hidden. Paper assets are easily tracked, discovered, conscripted and ultimately denuded in value. For gold to rise while the USD also rises signals that investors are beginning to see through the terrible burden on the price of the shiny stuff from ever-rising real rates of interest extant since 2011. Real rates have further to rise but a few more days of a strong USD and a strong gold price means gold has probably entered a bull market that should last for decades rather than years; its value boosted initially by its ability to avoid conscription, but underpinned by the authorities' mass mobilization of resources to ultimately generate inflation.
From 2009-2015 investors were well paid, at least in the developed world, to believe the most impossible of the six things before breakfast: that central bankers can subvert the desires, wishes, greed and fear of millions of people who set prices every day through their actions.
One of our clients sent us an Email and asked why I was talking about mining shares. Yes, I mention mining shares and, when appropriate, and I even use articles from other sources that are our competition. I try to be objective and realistic. We can't sell everyone. I don't hide from our competition or different forms of gold and silver investments, like mining shares.
People rarely allocate all of their money to physical metals, nor should they.
Since last spring, I've kept a fair amount of my net worth in cash. Cash is good, when you are not sure where to park it. I gradually started to move some of the cash back into gold and silver in the second half of 2015 as the prices continued to fall. I still have a pretty good war chest remaining to be allocated.
As soon as the markets signal a real turn-around, I will move most of my remaining cash back into physicals - and even a few under priced junior or exploration companies.
10 years ago, I made a lot of money investing in mining shares. On the way up, I sold off most of the stocks and used the profits to buy physical gold and silver. Today, a large portion of my gold and silver position is free, bought with the profits of paper gold and silver.
If you believe that gold and silver are poised for a big move up, so too will many of the mining shares. They must go up if the physicals go up. They fall fast and hard but they also perform really well on the way back up. Gold and silver cannot go up without participation of the mining industry. But like I wrote on Tuesday, stocks (mining shares) are an "investment" and physical gold and silver are an "insurance policy." Buy and keep your physicals. Buy and sell your mining shares for a profit. In my case, I use those profits to buy more physicals.
When would I start to look at mining shares? Probably when gold is selling in the $1,200 - $1,300 range and when silver is priced in the $16 or $18 range. That would eliminate most of the risk - at the expense of some of the potential profit. But let's not get greedy here. They will be a big gain even when entering at that range, gain with minimal risk.
I am not giving you investment advice here, I am just telling you how I play it. And that there is room for both physicals and mining shares in a well structured portfolio.
Just get the timing right.