Gold Holding Gains

Posted: Jun 06, 2012 12:01 AM

Showing surprising resilience, gold held on to prices over $1,600 in overnight trading yesterday in a metals market that is otherwise flat. 

Gold was down a mere $0.84 to $1,618.60 and silver was off a nickel to $28.25, raising the silver/gold ratio to 57.2. 

I read a headline on a precious metals web site yesterday that claimed silver was going to $125 an ounce.  Why does anyone print that nonsense?   I believe silver is due for a correction, but nothing like that.  We’ve seen the silver/gold ratio go from 48 in February to over 57 today.  That means it takes nine more ounces of silver to buy an ounce of gold today than it did just three months ago.  The farther beyond 50 the silver/gold ratio goes, the more likely we are to see a correction upwards for silver prices. 

This is just a reminder, but your gold and silver investments should not be speculative.  While all investments are speculative to a certain degree, precious metals serve another purpose for retail investors.  The purpose is to have part of your wealth in a solid thing that will maintain some value relative to currency over a long period of time. 

Gold does not pay dividends or split; there is no growth in the gold and silver in your safe.  It just sits there.  Why you buy gold is because when you put 10 ounces in your safe, decades later that 10 ounces will still be there and worth something, either in currency or in trade.  If the price goes up, great.  If not, you still have 10 ounces of gold that’s worth something relative to whatever currency looks like in 20 years.  Gold abides. 

What gold will never do is go out of business; gold’s share price will never drop to zero.  Do you think that can’t happen to large, well-run companies?  Where is RCA today? Or Kodak?  Big companies go out of business all the time.  Judging by the shape the global economy is in right now, we could see a few more of them disappear. 

Theoretically it’s possible gold’s value would drop to zero, or close enough you could use it as a boat anchor, but I can’t imagine that world would be much fun to live in.  Gold has had a certain value as long as human beings have been writing things down and probably before that. 

That’s why you keep some gold and silver in your safe.  Not as a speculative investment, but as certainty.  If you make a little money along the way all the better, otherwise it’s still there waiting for when you need it. 

Chris Poindexter, Senior Writer, National Gold Group, Inc