How Precious Are the Metals?

How Precious Are the Metals?

Silver ingot and  gold bullion. Finance illustrationPerhaps longer than there has been recorded history, gold and silver have been valued by man. Sometimes people ask me, What do you think about gold? Or What about silver?

In this one point, at least, I have something in common with Warren Buffett. According to Investopedia, he would never buy gold. He once said, It doesn’t do anything but sit there and look at you.

At the Berkshire Hathaway annual meeting a few years ago, I recall he opined that he likes buying companies (or their stocks) better than any commodities because people make the difference in their continuous efforts toward improvement. That’s my thought too.

That said, many people including investors disagree. One group of perhaps its biggest fans is represented by the World Gold Council. About it and the element, you can learn a lot at www.gold.org.  Eighteen gold mining companies with operations in over 40 countries comprise its membership. This information is for those of you who always want more detail. A similar group exists for silver called The Silver Institute, headquartered in Washington, D.C., and its website is www.silverinstitute.org. But I digress.

Indians love gold in a way that would put even American women to shame in comparison. A Google search of Indians and Gold produced 37,700,000 results. The top article I trusted was in The Economist, found at http://www.economist.com/blogs/economist-explains/2013/11/economist-explains-11. In 2011 alone, India imported one-fifth of the annual global supply, 1,000 metric tons, an amount equal to holdings of the Swiss Central Bank in 2013. Poor people there use anything gold as a store of value instead of having bank accounts.

If that is the case, there are obviously not enough Indians to keep gold prices up. Since September, 2011, gold as represented by the SPDR Gold Trust (GLD) has dropped by over 44 percent while the primary silver trust (SLV) plummeted over 70 percent between April of 2011 and now. That is a trend only a short seller can love.

Both of these examples show me that these metals deserve to be traded, but not held forever as many promoters would have you believe. Someone is always telling you that the financial end of the world is just ahead, and that only gold or silver will buy you what you need to eat. When that day comes, I think you too would be in big trouble regardless of how much precious metal you have.

In the meantime, you can make profits by trading it, but the price movements of the cursed stuff often defies explanation. While the sub-prime mortgage mess was unfolding during 2008, silver dropped over 50 percent and gold lost over 30 percent. Then when the crisis began to subside, they both rebounded and prices skyrocketed over the next two year period while more useful things like houses lost their value.

If you are a total contrarian and absolutely do not need any return on your money during long years of time, the current prices of $13.51 for SLV and $102.84 for GLD might be very attractive. I do not have any clients who fit that category so I am not betting that their prices will reverse their downtrends any time soon. In needing much more profit sooner than later, we are not in the same league as Mr. Buffett. At the age of 84, he still looks out for decades. If you have $Billions, you can do that.

(Price statistics are all from TC2000, Worden Brothers, Inc., 2015. Past performance is no guarantee of future results. Advice is intended to be general in nature.)

December 10th, 2015|Categories: Economy, Investment Management, Resources|