Monday, April 18, 2011

Let's Get Physical

Here is an interesting story about the University of Texas Investment Management Co. taking physical delivery of gold.  This endowment fund is the second largest following Harvard University.  Obviously from reading the article, I get the sense that some very smart people are concerned that there may be difficulty in getting physical gold delivered due to the fact that futures contracts that are traded represent so much more gold than actually exists.

This is consistent with information that Eric Sprott shared back in January about having difficulty getting physical delivery of silver for his hedge fund.  It would seem that there just might be a pattern developing here, and it is one that investors in the precious metals would be wise to heed.

No Substitute for Physical

If you really want to own real assets, then there just is no substitute for physical possession.  Any paper derivative is simply not worth the paper that it is printed on.  That is the big problem with the fiat currencies today and what is driving the price of precious metals to all time highs.  Confidence in the paper system has declined.  Investors are demanding to hold something tangible in their hands.

That is not to say that money can't be made using paper.  Trading in the gold and silver ETFs or mining shares is a great way to move into and out of positions quickly and make some additional cash by trading.  However, at the end of the day, you have to realize that you really don't own anything of substance.  Just ask the shareholders of any of the recently bankrupt companies what they got out of any bailouts.  Then decide for yourself--paper or physical.

Until next time--KEEP IT REAL!

Friday, April 8, 2011

Outstanding Week for Gold and Silver

What an amazing week this has been for gold and silver.  Gold has hit record highs heading into the weekend and the strength of silver has lifted it solidly above $40 per share to close within pennies of $41.  The higher gold gets, the more that talk about bubbles begins to surface.  But I found this interesting commentary on the Kitco website which is where I go for all my precious metal related information.

I like the information presented that would argue against a bubble especially the comments about the lack of a price spike in terms of standard deviations.  These are the types of moves that mean a market is really stretched pretty thin and will likely snap back.  We are nowhere near that now.  Granted gold could easily settle into the summer since there is a seasonal aspect to gold.  But I think that may be less important with investment demand versus social demand.

I also think the comments about the gold as a percentage of total financial assets is a telling graphic as well.  There is clearly not the widespread interest that there was in 1980.  So until we see that number crossing 2%, we won't, in my opinion, be coming close to bubble territory.  Two percent is probably what might even be considered reasonable in terms of asset allocation.  There are many investors who have zero allocated to gold.

If you haven't invested in gold or silver, you may want to get some exposure.  You could do this quickly and easily with the precious metal ETFs such as GLD or SLV.  This is probably what I would do.  I would also look at using protective puts to lock in profits as they hit record highs along with the underlying bullion.  Also, feel free to learn more about gold by reading books from Amazon such as the one below.

Thursday, January 27, 2011

Disconnect Between Paper Silver and Physical Silver?

I ran across these comments from Eric Sprott, Chief Investment Officer of Sprott Asset Management regarding the illiquidity in physical silver:

As one who is invested in real assets and am involved in the silver market through ounces of silver and a stock investment in Silver Wheaton, I found the comments very interesting.  Honestly, I am not sure what to make of them.  I am sure that with all of the silver exchange traded funds coming to market, there is a lot of increased investment demand for physical silver.

At the same time, I am concerned that money entering the silver market through ETFs can leave just as quickly causing these funds to dump physical silver on the market and exacerbating volatility in the silver price.  We just watched silver climb over 80% in 2010 to three decade highs at over $30 per ounce.  It has since pulled back, and I am worried that the fall could be worse as investors flee the ETF market.  I am planning to look into the potential implications and see if there is some evidence regarding an increase in volatility as a result.  I will keep you all posted.  In the meantime, I will be treading carefully in silver and hedge my stock positions.

Until next time--KEEP IT REAL!

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