Is the Gold Rush Over?

Posted: Sep 26, 2011 12:01 AM

Those of you who read my column regularly know I’m no fan of volatility in markets, especially precious metals.  Volatility is the home of speculators and people chasing a fast buck and when those people start buying gold and silver they throw off markets that are usually steady and predictable.  When precious metals markets get volatile, people who normally invest in gold and silver get nervous. 

Last week I had to admit being taken by surprise by the $100 drop in gold prices.  Before I could even admit surprise at seeing prices in the $1,700s they had dropped into the mid-$1,600s.  The downdraft hit silver even harder.  Last week silver was steady at $40, by the end of the week it was steady at $31. 

While I’m glad to see speculators getting out of precious metals, until the selling trend has run its course and prices stabilize calling a bottom is like trying to catch the proverbial falling knife and even people getting paid to watch gold and silver prices are split.  In Kitco’s weekly survey 23 precious metals analysts responded; 12 saw prices up, 10 see more downside and one says prices will be largely unchanged.  In other words, no one knows. 

At times like these I try to go back to the broader market picture.  The current flight to cash seems crazy to me.  Where are you going to put all that money?  Treasuries?  Really?  The 10 year instruments are trading near a buck and half, some of the short-term instruments are near zero.  CDs, savings accounts, no help there.  Equities?  Maybe some of it, I could see investors picking up some dividend stocks at fire sale prices, but who really trusts any market run by Wall Street? 

That leaves commodities, real estate and collectibles.  I could see buying land now, but not housing.  Collectibles are fine, if you have the room to store them, which leaves commodities.  Unless you have an oil storage farm in the backyard, that will mean gold and silver for most people. 

Some people will point to the period from the 80s until early 2000, the 20 year flat to down trend gold experienced.  If you think the global economy is going into a sustained period of recovery and growth and the U.S. will revert to sound, boring currency policy, by all means unload your gold and silver.  Personally, I don’t think that’s going to happen. 

My opinion is still that having a supply of a commodity that can be converted into whatever currency is in use at the time is still a wise position.  When prices go down, buy some.  Toss it in the safe, give some to the grand kids for Christmas. 

Some day you might be glad it’s there.

Chris Poindexter, Senior Writer,

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