Get Your Ducks In A Row,
Then Just Watch the Show
Chris Weber
February 15, 2010
There are some issues where I simply don't have much to say. Things have been turning out pretty much the way I thought they would, when I wrote the first two issues of the year.
In short, I have advised accumulating a mix of precious metals and cash. The metals: gold, silver and platinum. The cash: The USD.
I still have some stocks, but they are either stocks held at no risk (precious metals stocks where I banked the principal), or other stocks where I have benefited from the tremendous rally which started last March, and under which I have rather tight trading stops (trailing stops). The Dow Jones ETF, DIA, has an 11.5% Trailing Stop on it, and this has still not been met. In other words, the Dow still has not fallen 11.5% from its recent high since March. However, we bought it at such a low price, last March that we are pretty much guaranteed at least a 30% profit when we finally do sell it.
I am not interested in acquiring new positions in anything but more cash and more metals. Indeed, I am happy just sitting and watching the markets... or simply doing nothing.
I know this last comment sounds absurd to many, but I believe that it is important to have time where you have nothing that has to be done, or where no action needs to be taken. During these times, in my case at least, good ideas have come to me.
Of course, I could point out that all the news is about Greece's debt problems and those of the other Euro-zone partners in trouble....but I did this in the 2010 Forecast Issue already.
The question I asked then was "What Will Germany Do?". We still don't know the answer to that question. Most Germans do not want to bail Greece out of its years of borrowing and spending. They know that if they start down this road, there will be other countries that will have their hands out along the way. The only way the more frugal European countries will give anything would be in exchange for strict reforms that will be painful. The jury is still "out" and the uncertainty is still high. Thus, the euro continues weak. The question.... does the euro survive? I don't know, and this is why I have for years been in favor of buying the notes of a strong government in the euro-zone. This has been a note of the Dutch government.
On the forecast that problems in the euro area, coupled with a bounce-back in the US dollar, we suggested buying the UUP, the ETF that represents the USD Index. We put a 4.33% trailing stop on this. As of this writing, the highest close has been $23.65, made at the close on February 5. So unless UUP makes a higher close, the trailing stop at 4.33% would trigger at a close of $22.63 or less. This would happen if the USD makes another breakdown in terms of the euro and the other major currencies. Of course, as always, your own trailing stop can be different from mine.
However, this is just a bet that one paper currency, the USD, would get stronger vs a group of others. I hope this euro crisis has pointed up the weakness of all paper currencies. Once people realize that they can vote themselves huge spending programs and live beyond their nation's means, depreciation of those currencies is inevitable.
Only the traditional metallic monies cannot be printed at whim.
Gold's Great Year
As I write this on February 15, gold is just over $1,100. So that means that it is now up slightly even against the USD since the start of the year.
But since the USD is up so much vs other currencies, you can imagine how well gold is performing against them.
Versus the euro, gold is up about 5% so far this year...or about one percent a week. One can't expect this to continue at this rate, but it shows how even during what most people think of as a gold "correction", gold is quietly performing very well. And this should be no surprise, since the various paper currencies all have problems.
Stocks vs Gold
It's not just currencies that have been falling in terms of gold this young year. Stock markets have fallen as well. It takes less gold to buy the same indices than it did on January 1.
This trend of gold rising against stocks is even more clear when you compare the metal to the Dow Jones Global Stock Index:
Thus, for those who have been looking, gold has been the surprise of the year. And for those waiting to buy and hoping it gets below $1,000, there is no guarantee that this will happen. I can only repeat my advice to not try to time your gold entry points. Just start accumulating, and think in terms of ounces, or grams, or whatever your most natural form of weight measure is.
Gold in Retirement Accounts
I've been getting many new readers, and some Americans have asked me my opinion about this or that company that offers to store physical gold, silver or platinum for US retirement accounts like IRAs.
While I prefer to own actual physical metals, the only area where I would actually choose paper gold, silver, or platinum would be in exactly these retirement accounts. You are never going to see the actual coins anyway: when the time comes to retire and draw them out you'll be exchanging them for US dollars, at whatever the price of the metals are at that time.
Therefore, there is no reason to pay the extra premiums over metals melting value, nor the extra storage charges, nor any other charges that come from physical storage of a metal you are never going to take possession of. For retirement accounts like this, you are better off just buying SGOL for gold, SLV for silver, etc. There is never any reason to pay for things you will never use.
Other new readers wonder if I ever advise buying general stocks, in addition to metals stocks. I urge new readers to read the last 3 months worth of issues, starting with the November 16th one. This will bring you up to speed on my position.
Still others ask if I would recommend buying precious metals stocks if you don't already have any, and thus be risking a loss.
My answer is Yes, go ahead, with whatever percentage amount you feel comfortable with, but first think of the following:
- Ask yourself if you already have enough actual physical metals as well as cash. If you do, then proceed.
- You can either buy the GDX (the ETF of the big miners) or even the GDXJ (the newer ETF of about 60 smaller mining companies, however...
- Be aware that you have to have a lot of patience in this area. Prepare to see them fall in the event of another general stock decline.
While I believe that at some point, this area will skyrocket, that point in time may be so far off that many will panic in the case of any shorter term stock price fall. And even for the bigger capitalized GDX components, they can fall sharply. So much the more so for the smaller-cap GDXJ companies.
Personally, I would not buy at this point in time, but then I may have a different perspective than you, since I've owned this area for nearly nine years now. However, if you are itching to buy these stocks, go ahead, as long as you think about the points I just made, and make sure the size of your position is not too large to make you panic and sell.
If you've been a longer-term reader, you know that my approach to investments is to seek to arrange things so that you do not panic when things don't go according to plan. Further, you want to cover yourself for all eventualities. Today, that means sitting in precious metals and cash.
Chris Weber
www.weberglobal.net
Email this Article to a Friend 
Printer Friendly Version
