By Dr. Alex Cowie
Kris Sayce isn’t the only guy around here who loves gold. We love it too!
But aside from physical gold, the other way to get exposure to the shiny metal is to buy gold stocks.
(In fact, as editor of Diggers and Drillers, precious metals make up most of the stocks we’ve tipped. We’ve got nine on the go at the moment!)
But it hasn’t been all good news for gold. Overnight, gold and silver took a bath. Gold lost $100 in 24 hours.
So what’s going on? Is this ‘top-of-the-market’ stuff? Should you sell your gold and silver?
In a word… No.
Gold may have lost $100, but taking a step back and looking at the big picture, you can see it’s no big deal. Look at the chart below. I’ve circled the latest drop to put it in context:
Gold is still flying, and in a strong uptrend. Any pullback we may see in the next week or two will be one of those ‘dips’ we are meant to buy on.
The world hasn’t changed overnight. The financial system is still in a mess. European banks are looking very Lehman-like, and it seems only a matter of time before one falls over or gets bailed out.
Gold is insurance against this happening. In US terms it has gained 27% in just two months. This is just not normal! This is a clear barometer that we are heading into the danger zone.
So what caused gold to fall off a cliff last night?
Well, gold’s latest ascent has been violent. We have seen massive swings up and down. In a few weeks the gold price has gone from $1,900 to $1,700; then back up to $1,920, and now down to $1800.
Last night’s fall in gold had a few triggers.
The main one was the German Constitutional Court. It ruled it OK for the German government to spend taxpayers’ money to bailout Greece. Although it said any further bailouts should be referred to the German parliament.
So, with the Eurozone saved again, gold sold off. The Eurozone lives to fight another day.
But in reality more future bailouts… means more future debt.
And more debt means higher gold prices.
The same goes for the other reason behind gold’s selloff last night. There were rumours U.S. President, Barack Obama will announce a grand job-making scheme tonight – to the tune of $300 billion.
But read that $300 billion figure as $300 billion of debt. Fight debt with debt? It seems they’ll never learn.
And again – that should mean higher gold prices.
The way we see it, pretty much every time a central banker or government leader opens their mouth it gives us reason to buy more gold.
Now, for all the talk about people rushing to buy gold… and gold being in a bubble… so far we haven’t seen any evidence of it. Here’s a personal example…
Earlier on in the year we bought precious metals from a bullion dealer in the city. It was almost as easy as walking in with cash to buy a TV or a pair of shoes.
But to get the cash we first had to pay a visit to our friendly neighbourhood bank. That’s not so easy – especially if you’re asking for a larger-than-normal amount. Don’t forget, banks don’t hold much cash on the premises!
Part of the ritual of getting our hands on our own cash was the teller wanted to know what I was withdrawing the cash for. When we told her it was to buy gold and silver, we could have sworn she thought we were speaking Swahili.
Not only that, she then tried her hardest to get us to make an appointment with the branch financial planner!
No thanks.
But buying physical gold is only half the strategy. It’s the conservative way to cash in on the debasement of paper money.
But, if you want to make really big gains from the rising gold price… in other words, leverage your exposure to the gold price, the best way to do it is to invest in gold and silver stocks.
It doesn’t matter if they’re explorers or developers. Both allow you to amplify your gains from a higher gold price.
The great thing is, although gold and silver stocks have made good gains, it has been from a low base. That means there’s still plenty further for them to go…
And it’s why, even with nine precious metals stocks in the Diggers and Drillers portfolio, there’s still room to add more.
Regards.
Alex