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It's Time To Care Again About Gold & Silver

Fundamentals and TA are signaling extreme undervaluation
Friday, June 29, 2018, 7:09 PM

It's been a while since I've covered the precious metals in an article. They've been range-bound for much of the past year, with few notable sector developments to report.

But I feel compelled to write about them today for two reasons:

  1. The probability of an upwards re-pricing of the precious metals is rising, and
  2. Both gold & silver are quite over-sold right now, technically-speaking.

With technical and fundamental indicators flashing green simultaneously like this, now is an advantageous time to consider increasing your PM exposure (I did so myself yesterday).

The Human Factor

Before I go into further detail on the current conditions of the PM market, here's a recent personal experience that underscores how few people have any real familiarity with gold & silver as an asset class, let alone own any (beyond, perhaps, a bit of jewelry).

A good friend moved and needed help transporting some bullion from his old town to his new one. Most of it was silver, several thousand ounces worth.

That much silver is pretty friggin' heavy.

So we huffed and strained, hauling that load out of one bank vault, into his car, and from there into the vault at his new bank. While we did our best to be as discrete as possible, our sweaty, grunting 2-man production was hard for the bank staff to ignore.

Managers at both banks figured out what was going on, as it was pretty obvious. And both separately asked us out of genuine curiosity, "Is that real silver?".

My friend briefly handed over a 100-oz bar so they could see for themselves, sparking conversations about the merits of owning physical bullion.

It turns out that neither manager had ever held a bar of silver before. This was pretty shocking to me. Even though they know that the safe deposit boxes in their own vaults very likely store some bullion, neither own it personally, nor even come into contact with it. It's just not a part of their world.

Anyways, later on I mentioned this story to another buddy who shared my surprise. "Man, if the bankers aren't familiar with silver and gold, then who the heck is?", he asked. A very good question, I agreed.

But then he jolted me by asking: "So, one of those 100oz bars -- what's it worth, anyways? $150?"

This is an otherwise intelligent, math-competent person. But like most folks, as well as those bank managers, he doesn't own any precious metals and so his knowledge of them is pretty limited. Limited enough to underestimate the price of silver by over 90%.

This reminded me of Mark Dice's videos, which show just how woefully ignorant the average person is when it comes to the value of bullion. In this one, street passersby decline a free gold coin in favor of a Snicker's bar:

Simply put: gold and silver, in the West at least, are underappreciated assets. As Grant Williams famously put it in his excellent synopsis, when it comes to public and institutional sentiment of the precious metals, "Nobody cares."

Which is a big factor why the prices of PMs have languished for the past seven years. And why the flow of bullion has been uni-directional from West to East over that period.

Time To Care

But there are gathering signs that it's now time to start caring again.

Looking at the just techinical side for a moment, both gold and silver have been in a prolonged downtrend for the past two months. They're now at extreme undersold levels.

Both RSI and MACD indicators are signalling that the recent declines have likely been played out at this point:

Gold price chart

Silver price chart

And both metals have now broken below their Bollinger bands (a sign of extreme oversold conditions). Here's gold:

Gold Bollinger Band chart

While a break below the Bollinger bands could indicate that something fundamental has suddenly changed in the PM market to merit a materially lower repricing, there just don't appear to be any credible candidates for that argument. Yes, the dollar has risen over this period; but there are solid reasons that the USD and gold/silver need not always trade inversely to one another. And as we'll get to in a moment, conditions are actually becoming more PM-favorable.

Technically-speaking, it seems much more likely that the current downtrend is long-in-the-tooth and that, as prices dip down to 18-month lows, a recovery is soon due. In fact, we may be seeing the start of such today, the first material up day for the PMs in a while.

Fundamentally-speaking, world events are providing more and more reasons to own gold and silver -- from stratospheric asset bubbles threatening to burst, to a long-overdue return of market volatility, accelerating de-dollarization, slowing global economic growth, increasing credit market risk in both Asia and Europe -- the list goes on and on.

The full set of PM-positive drivers are covered in our recent excellent interview with Ronald Stoerferle summarizing the insights of his exhaustive 230-page annual report titled In Gold We Trust. If you haven't listened to it yet, carve out 49-minutes to do so soon:

To the many reasons Stoerfele gives in support of his conclusion that gold is "dirt cheap" right now, we can add the multiplying macro data points predicting market turmoil and economic recession later this year, as well as the building uncertainty of further rate hikes by the Federal Reserve -- all potential developments that should lead to higher PM prices.

Whether you're amassing bullion for the long term (which we've long recommended) or speculating in the paper markets for the short term (something we don't encourage for the average investor), you want to buy low and sell high. With precious metals trading near 18-month lows and close to the "all-in" production cost for many miners, prices are unlikely to get much lower than this.

Taking Action

So while prices remain at current lows, we recommend considering the following:

  • Creating your core physical precious metals position if you have none. Many PeakProsperity.com readers already have their core positions in place, should an abrupt crisis occur that suddently sends demand for 'safe haven' assets spiking. But if you haven't built yours yet, don't panic. But also don't delay too long in taking action. A good first step is reading our free guide Buying and Storing Gold & Silver, which details the various forms you can purchase bullion in.
  • Setting up an ongoing purchase program. The easiest and most affordable way to build exposure on top of your core position to set up an automatic purchase program that buys a consistent amount of bullion each month at a volume that fits within your budget. The MetalStream service offered by the Hard Asset Alliance is a good example of such a program, through which you can set up automatic purchases of as little as $100 per month.
  • Nibbling into the miners. The stock prices of precious metal mining companies are much more sensitive to the spot price of gold and silver than the actual metals themselves. They can yield fantastic returns during bull markets, as well as widow-making losses in bear ones. And widow-makers they have been for the past seven years. But, for the above-mentioned reasons, that long winter may be thawing. For investors with the constitution and resources to speculate, it's an opportune time to consider adding or increasing exposure to the miners. That said, when doing so, we *strongly* urge to you work with a profession financial advisor with longtime experience with this asset class *as well as* demonstrated expertise with using hedges to protect these high-risk positions to the downside. If you're having difficulty finding an advisor who meets these conditions, consider scheduling a consultation with the firm we endorse (it's completely free). 

Remember, right now, nobody still cares about the precious metals. Which is why it's estimated that only 1-3% of US households own any (jewelry aside).

So even if you only hold a few ounces, that's still more than 97-99% of everyone else -- which may make a tremendous difference to your prospects when the world starts caring again.

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17 Comments

olenzekm's picture
olenzekm
Status: Member (Offline)
Joined: Oct 29 2010
Posts: 7
Unpopularity of PM

The unpopularity of presious metals that the author mentions is one of their greatest weaknesses. 

If they are unpopular and most people are unfamiliar with their posibible use as a form of exchange, they are of limited use in the event of a dollar collapse. It seems that in order to take advantage of PM ownership is such an environment, one would need to go to a broker exchange it for dollars. True the price in dollars would have appreciated, but they would still not be money. And one would take a hit due to the bid/ask spread required by the broker.

So for the forseeable future, PMs will be a speculative instrument, not a new type of money.

agitating prop's picture
agitating prop
Status: Platinum Member (Offline)
Joined: May 28 2009
Posts: 863
Interesting

I made the mistake of investing in a precious metals fund just before the election, figuring a s*** storm of some kind would take place and the nervous would shelter in pm stocks. A BRILLIANT strategy that worked for what....a few hours?? Now I am seeing for the first time, just this week, this mutual fund go up on some days that gold goes down, or sideways. Are miners catching some fleeing Bitcoin action?

agitating prop's picture
agitating prop
Status: Platinum Member (Offline)
Joined: May 28 2009
Posts: 863
Olenzekm, Agreed.  This is an

Olenzekm,

Agreed.  This is an argument against not for bullion. But institutional investors tend to pile into miners, so that is one way to play it. At some point you would think that things will become so crazy (midterms?) that gold miners, at the very least will take on a new glow. 

Olduvai.ca's picture
Olduvai.ca
Status: Member (Offline)
Joined: Jan 8 2014
Posts: 15
Preserving Wealth

While I have been 'lucky' enough to have some extra fiat to funnel into a small amount of precious metals over the past decade or so, I have come to view it as a very small part of my preparations for an uncertain future. If the data that suggests the 'savings' of most people is minimal at best, the 'average' person is not so lucky as to have funds to insure some wealth with precious metals. There are plenty of other options out there that people should pursue over gold/silver.

At the top of the list of 'investments' I would put those preps that can help counter 'emergencies' such as local food production--be it supporting a nearby farm (if so blessed) or planting one's own garden and adding to it's productive ability every year. Another approach might be to learn some important skills such as first aid, hunting, cooking, etc..

I know Adam and Chris regularly raise these alternatives but think it should have been added to this post as at least an addendum since most people cannot afford the luxury of investing in precious metals. 

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3072
Olduvai.ca wrote:I know
Olduvai.ca wrote:

I know Adam and Chris regularly raise these alternatives but think it should have been added to this post as at least an addendum since most people cannot afford the luxury of investing in precious metals. 

Olduvai --

I appreciate your point about non-monetary options for building resilience, as well as your accurate acknowledgment that Chris and I recommend folks invest across all 8 Forms of Capital.

But I have a different opinion than you, it seems, on the ability of "most people" to afford to invest in precious metals.

As mentioned in the piece above, over 97% of households hold *zero* in bullion. Holding just a few ounces of silver and/or a few grams of gold will give you more exposure to the potential upside benefits of PMs than nearly 'everybody else'.

Accumulating those few ounces/grams need not be prohibitively costly.

1oz silver coins and rounds can be picked up for under $17 each right now at your local coin dealer shop or online. Fractional grams of gold can be purchased through companies like Valaurum for as little as $10. As I mentioned in my article, the Hard Assets Alliance's MetalStream service lets you accumulate bullion on an automated plan over time, for as little as $100/mo. One or more of these options are within reach of "most people" who have gainful employment and a disciplined budget.

I leave it to each household to determine whether they want to own PMs or not. But the ability is there, for the vast majority of "most people". 

Joelsky2's picture
Joelsky2
Status: Member (Offline)
Joined: Feb 21 2013
Posts: 1
PM article

Adam... everyone, see the DVD, "The Forecaster" , about Martin Armstrong. It's enlightening and well worth the $30 purchase price on Amazon.

pat the rat's picture
pat the rat
Status: Silver Member (Offline)
Joined: Nov 1 2011
Posts: 115
bit coin subitute

Bit coin hit a high of 19,200 and then collapse to about 6,500 it may not be money,but it looks like the stock market of the 1920's.The powers that be painted the tape on the way up and then the price collapse. Bit coin is more like a stock market subitute now.

mmm357's picture
mmm357
Status: Member (Offline)
Joined: Jul 17 2012
Posts: 3
Timing and Sentiment

I thought this was a well-timed article, in keeping with the overall PP message. 

If the above comments are representative, especially coming from this website, then Adam may just have called the bottom. :)

I disagree with the idea that because most people are unfamiliar with, and/or don't have any PM, they will be undesirable in a collapse scenario. I would argue that PM will fetch a premium in a dollar collapse scenario because it is outside the system and requires no external support or intermediary. If you have something to sell in such a scenario, silver and gold are tangible safe items to trade for. Paper money, not so much. In Venezuela right now the US dollar is still desirable, but if the dollar itself fails, which paper currency would you trust?

In Dark Age America, John Michael Greer discusses the late Roman habit of rich people building villas in the countryside complete with stashes of gold buried in the ground - analogs to today's preppers. While he argues that deep into collapse those stashes did nothing for their erstwhile owners, I think it's worth noting that the marauding barbarians who sacked said villas were quite keen to get that gold. Gold is valuable across time and cultures. And just like Chris' point that being 3% energy self-sufficient is vastly better than being 0% self-sufficient, a very modest stash of PM is within easy reach of most people and is likely vastly better than none. 

-Matt

 

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 590
Armstrong on gold

Gold is still relevant for the older generation.  Nevertheless, over the course of generations, the ideas and trends of one generation are eventually replaced with new trends. Just look at art. The paintings of women by Rubens were always robust. If you were thin you were considered poor. In Asia, girls try to whiten their skin because darker skin implies you are poor and work in the fields whereas in the States girls want to have a tan. Trends change as do fashions over time. Investments are the same. The big investment up until 1907 was railroads and industrial stocks were considered risky ventures until the automobile changed that perception.

The older generations are much more focused on gold and privacy issues than the younger generation. When I talk to someone in their twenties, having to travel and subjecting yourself to searches is normal. This is how it is to them. They do not understand Snowden.

 

Eventually, over the course of centuries gold will fade just as paper currencies into the sunset. Indeed, gold faded from the monetary system after the fall of Rome during the 6th century. Gold coins did not reappear until the 13th century.

The only thing that will possibly prevent gold fading into memory once again is a political reset and revolution where the course of society is again shifted. This is why governments have been selling bullion coins. There is no intent upon returning to any form of a gold standard. They are looking to eliminate even paper currency and any return to a gold standard is not on the table.

There is a risk of a Dark Age if the whole thing collapses because government turns against its people rather than reforms. If we go that far, I have said before, then you reset to square one and value becomes food and it will gradually build back up from that point moving through useful object such as bronze and then to luxury products of gold and silver on to convenience of paper for transactions long-distance and then back to probably electronic.

This is another reason why I suggest common date old gold coins rather than modern bullion coins. They have a shot at retaining historical value.

 

 https://www.armstrongeconomics.com/markets-by-sector/precious-metals/gold/is-gold-still-relevant/

 

 

New_Life's picture
New_Life
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 314
Oversold Technicals?

Nice article Adam, I'd also be interested on more data regarding people's preference for Crypto/Digit Assets/Speculative Instruments being a substitute for PMs.

IMHO Technical Indicators can continue to stay oversold for some time as price continues to decline.

For a sustainable recovery and a reversal I'm more interested in successful bullish divergences rather than the RSI being under a certain %.

Also are PMs dropping due to potential interest rate hikes?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
armstrong: decline technicals

Armstrong suggests that it is a natural feature of markets that if a decline is severe enough, the market will take a long time to recover.  The more severe and rapid the decline, the longer it will take to bounce back.

I do think crypto is a "faster" market than normal (probably resulting from its 24/7 trading and international reach) - spiking faster, and thus (probably) recovering faster - but his post suggests that new highs in the near term (i.e. this year, the next, etc) might not be likely.  Silver had a 19 year decline after its top in 1980, nasdaq had a similarly long decline after its top in 2000.  The crypto analogue for this would be 2013/2014.

I know.  Institutional buyers.  Goldman Sachs traders buying bitcoin with their bonuses.  Etc.

Just food for thought.  I like the specific numbers he coughs up, mostly.

https://www.armstrongeconomics.com/world-news/cryptocurrency/cryptocurrency-crash-has-it-done-long-term-damage/

There is a basic rule that I have come to determine. A market can survive as long as the correction on a monthly level does not closed beyon 43% down from the high (8.6 /2). The next stage is 51.6%. Move beyond that and you cross into Melt Down Mode. Bitcoin criassed the 43% decline so that was a warning this was not a short-term correction from which new highs were possible. Moving beyond 51.6% means new highs are not likely for quite some time.

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1884
Picked up some silver at $15.84

My modest retirement savings are partially "trapped" inside a 401k.  I'm happy to say that I moved some cash into PSLV (silver bullion fund) this morning when silver was at <$16/oz.

I know, catching a falling knife and all that.  Certainly could go lower.

My investment horizon is 20+ years.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 363
Oversold and Falling

Gold is continuing to plummet and silver is now solidy below $16 and falling.  Definitely agree on the technicals, but there's no reason we can't just get an oversold bounce before heading lower again.  A couple months ago, we were over $100 higher in gold and about $1.50 or so higher in silver.  That's a pretty swift decline.  Glad to see the miners hanging in there (and they did well today, considering the abysmal performance of the metals).

I'm not really sure there's going to be any near term or intermediate term upside in PMs.  It's all predicated on the mother of all bubbles bursting, debt exploding, western economies crumbling, resets, etc.  That's likely to happen....someday.  But if we have learned anything, it's that just when it seems like logic and reason tells us that they've exhausted their last tool in their solution set, they come up with some other wacky idea to kick the can farther.

We predict based on what we think should happen, which is a mixture of theory and history.  "This time is different" has never really been true in the past, but what if it's sort of true now?  In a true and unmanaged and unmaipulated and non-fraudlent system, things revert to the mean, and you can see signposts for clues as to when that might happen.  But in a completely manipulated and fraudulent environment, those signposts might as well be mile markers on an endless highway.

The signposts tell us that gold and silver should not be falling.  But they are.  The signposts tell us that equities should not be near all-time record highs.  But they are.  The signposts tell us $22 trillion of recongnized debt and trillion $ deficits as far as the eye can see should be crushing to the economy.  But we continue to grow at the same 2-3% as we have been.  And on and on and on.

Maybe, it's because it's the mother of all bubbles, and it will last far longer than anyone thinks.  Maybe, they will come up with new tactics and be able to kick the can for years.  Maybe, some new innovation will change the entire paradigm.  Maybe, this time really is different, not in the eventual outcome, but in the expanse of time between when the crisis should start and when it actually does.  Meanwhile, stocks rise, the economy plugs along, and gold and silver falter.  And $1200 and $15 don't really look all that far away.

New_Life's picture
New_Life
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 314
PM lows?
sand_puppy wrote:

My modest retirement savings are partially "trapped" inside a 401k.  I'm happy to say that I moved some cash into PSLV (silver bullion fund) this morning when silver was at <$16/oz.

I know, catching a falling knife and all that.  Certainly could go lower.

My investment horizon is 20+ years.

Now that is HODLing, nice one SP. 

I see support for Silver at $15.60ish and then $15.30. No sign of a bull divergence yet on the DAILY but the lower timeframes show we may get temporary relief.

Gold could be starting to form a bull divergence on the DAILY I also see its on horizontal support from 12th December 2017, last time it had its RSI forming a (successful) bull div like this was 19th Dec 2016 got a nice rebound then....  Also worth playing around with higher t/fs, 3 Day shows a good overview for back in Dec 2016, if we repeat that price action $1200 could be possible.

Dave whats your view?

locksmithuk's picture
locksmithuk
Status: Silver Member (Offline)
Joined: Dec 19 2011
Posts: 123
Oversold PMs and sentiment
Cold Rain wrote:

We predict based on what we think should happen, which is a mixture of theory and history. 

 

And that's the problem with modern models which predict support levels, price direction, and [perhaps] sociological change. The manipulated & underhanded nature of markets infuses those same qualities into the very models which claim to provide clarity and direction. No matter the technical credentials of the modeller, his/her work simply cannot accurately weave into the model's base assumptions the one potent weapon which a can-kicking government has in its arsenal -: the power of propaganda and its impact on sentiment.

 

Like Sand Puppy I'm a long-termer, with scant interest in what the market's support levels will be this week or next week. The morbid fascination with daily analysis of rigged markets seems odd to me, unless of course the observers are day traders and/or short players. Anyone who's being paying attention to the dismal record of predictions over the past decade will surely have built a healthy layer of skepticism into their rump about this particular 'art'. Behind the scenes [perhaps associated with secret deals & manipulative conniving on a global scale] there are simply too many Rumsfeldesque known unknowns, unknown unknowns and known unknowns for any of us mortals to speak authoritatively on PMs. We just can't. And as for how long this bubble takes to burst or deflate - if it turns out to be a bubble at all - that could take decades.

 

In a country where I grew up far far away [which I mentioned before, but I won't do this time, lest I sound like a stuck record], the truly awesome power of propaganda has been laid bare for the past 20 years since the first crisis which undermined the public's faith in TPTB. After this long the same government & well-oiled propganda survives intact, although small hiccups have begun to emerge.

 

A government's - or at least a compliant media's - steady grip on the heartstrings and minds of a confused and frightened populace is gold. I've seen it play out with my own eyes - it's fascinating, disgusting, mesmerising and awful all the same time. Given that the world's media machine rests in only a few hands, and that their owners are regularly in audience with government leaders, it follows that educating Joe Public with the truth is incredibly hard to do. But thankfully humans have hope, instinct and intelligence on their side - that's great, free currency to carry.

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 363
Re: Locksmith

Good post, Locksmith.  I agree with what you said.

AaronMcKeon's picture
AaronMcKeon
Status: Bronze Member (Offline)
Joined: Apr 29 2014
Posts: 73
Nice Timing

Nice timing on this article.  I was just reviewing my personal finances following the close of another month and once again saying to myself, "Where the heck is all my money going!?" only to figure out (again) that my net worth is being seriously dragged down by gold and silver.  But then as usual I found myself saying, "Phew, it's just the gold and silver.  That'll come back."

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