Tough Day To Be A Precious Metals Investor
If you have it right when it comes to the economy and the macro-scene, it’s frustrating not to see your investments respond accordingly and reward you for your financial analysis. Today we wanted to address the precious metals market and give you some of our initial reactions as well as share an informative video that Peter Schiff released on Saturday after gold’s first leg down on Friday.
What has gone on psychologically in the minds of precious metals investors? Really, the last two years, precious metals investing has been stagnant to relatively down in prices. The last week has been a collapse in the prices and a big disappointment for those who put their trust in it.
When equities, dollar, and competing investments were in their bear market, holding precious metals was a positive thing. Now we have competition between rising equities and other trading vehicles such as Bitcoins stealing some of the attention of the metals demand.
Bitcoins caught the attention of many precious metals bugs since it has characteristics that people who buy gold and silver generally like. Just to name a few, it doesn’t have a central bank, it’s a free market currency, and anonymous. In addition to those benefits, it also offers low trading fees and provides instant wealth transfer to anywhere in the world among other features. Another reason, and possibly the main reason why it was so attractive, was the returns people were seeing come in as Bitcoins went from approximately $10 to over $250 in a matter of months. It was the release that so many precious metals investors have been looking for some time now, except it wasn’t in gold or silver. Of course Bitcoins have corrected and are trading around $100 now. The story is still yet to be told whether or not Bitcoin will stick around and be something investors take seriously or if it’s a game that is being played and will fade away over time. None-the-less, this diversion towards Bitcoins has really caused many precious metals investors to rethink their strategies.
Watching conventional investments such as stocks and even real estate bounce back and perform are doing similar things to the psychology of investors. These sectors are not as likely in this stage of the game to see as much of a correction as Bitcoin, but the psychological implications are the same. The irrational nature of the precious metals market is burning those who trusted it and as a result many are abandoning it for other vehicles. It’s hard to argue with the returns that people are seeing in US and foreign stocks lately.
To be clear, we still believe that precious metals investing will have its day in the sun. This is especially true when it comes to silver. Silver supply shortages and future demand are both increasing. The fact is that the situation with uncontrollable spending and borrowing will one day cause these metals to reflect the real risk of holding US dollars and not being invested in gold and silver.
The fundamentals for gold and silver are the same. Peter Schiff discusses his reaction to the last leg down in the metals market in a podcast. This was done on Saturday but the information is indicative of what is going on around the world and what we can expect in the future. Click the link below to watch.