Commodity Trade Mantra

A New Opportunity to Collect Safe Income From Gold and Silver

A New Opportunity to Collect Safe Income From Gold and Silver

A New Opportunity to Collect Safe Income From Gold and Silver

Today, I want to talk to you about a new trend that I’m seeing in the market…

A trend that could last years and could provide you with some of the safest income in today’s low interest rate environment.

The trend that I’m talking about is the rebound in precious metals. Specifically, gold and silver prices, which have begun moving higher. This is in stark contrast to what have been years of declines for gold and silver prices.

Take a look at the charts below:

Precious Metals--Rebound!

The first one is a monthly chart of gold, and the second is of silver.

You can see that both of these metals peaked in 2011 and have spent nearly five years trading steadily lower. This shows just how long major trends can last as investors steadily buy or sell their precious metal positions.

Today, the dynamics for gold and silver are shifting rapidly.

Over the next five years, I believe that we could see prices for gold and silver move higher. I even believe that, both prices could potentially reverse all of their losses from the past several years as investors steadily accumulate gold and silver positions.

I’m Not a “Gold Bug,” but I Like the Prospects for Gold and Silver

Before we go any further, I’ve got a confession to make.

I’m not a long-term investor in gold or silver (and by “long-term,” I mean buying physical gold and socking it away “forever” in a safe-deposit box or a safe in my basement).

In my opinion, gold and silver are vehicles for investment — nothing more.

As an investor, there is a time and a place to own gold and silver, and a time when it doesn’t make sense. Clearly, the last five years have been a challenging period for investors who loaded up on gold and silver near the peak of the market.

Of course, I realize that many investors have different perspectives on gold and silver. They view these precious metals as important assets to hold in case the financial system implodes and currencies like the U.S. dollar no longer represent viable means of exchange.

I’ve always thought that if we get to that point in our society, it would be better to have invested in bottled water and bullets. But that’s just me.

If you have a different perspective than I when it comes to gold and silver, I hope you’ll continue reading (and be civil with your email responses — ha ha).

Because today I’m bullish on gold and silver prices. I believe that the long-term trends for gold and silver will be very positive for years to come.

Let’s take a look at why the price trends for these metals could change directions…

Why Gold and Silver Could Start Trading Higher From Here

Looking at the nearly five-year decline in gold and silver prices, you might ask the question: If gold and silver prices have been dropping for years, what could keep these metals from continuing to fall in price?

I’m glad you asked…

Gold and silver prices typically trade in the opposite direction of the U.S. dollar. This makes sense when you think about it:

  • A strong dollar will be able to buy more “stuff.” Put differently, it should take fewer of these strong dollars to buy something like an ounce of silver or an ounce of gold. If it takes fewer dollars to buy something, the price of that something is lower
  • A weak dollar will buy less “stuff.” In other words, it will take more of these weak dollars to buy an ounce of gold or an ounce of silver. That means if the dollar weakens, the price of gold or silver will naturally move higher in dollar terms.

Now take a look at the chart below. This chart represents the trade-weighted value of the U.S. dollar:

Real Trade

As you can see, the value of the U.S. dollar has moved sharply higher compared to the currencies of countries we trade with.

One of the main reasons the U.S. dollar has moved higher is because investors around the world have been expecting the Fed to raise rates. When the Fed increases rates, it should cause investors to trade out of other currencies and buy dollars.

This is because they can get a higher yield when rates move higher. But now it is becoming very clear that the Fed will likely not be raising rates in the near future — at least not by a material amount.

The Fed has many things to worry about including weak manufacturing in the U.S. (a strong dollar makes it harder for us to sell our manufactured goods abroad), and emerging market countries with huge debts denominated in U.S. dollars. If the Fed raises rates and the dollar continues to trade higher, it could severely hamper these countries’ ability to repay debts and hurt the global economy.

Suffice it to say that the Fed is very unlikely to aggressively raise rates.

As a result, I believe that the U.S. dollar is likely to stop rising and that gold and silver prices could rebound. If the Fed holds a long-term strategy of low interest rates, gold and silver prices could move higher for years to come.

Here’s to growing your income!

 

 

Courtesy: Zach Scheidt

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