Sell Gold and Silver?

January 12, 2006

Well now, haven't prices taken a nice upsurge? Everyone's at a profit position now, it seems. For some, they have waited a bit too long for this, and are now tempted to take their profits and sell…at a profit of course. Should they? I don't think so. I don't say this because of any commissions, because if you bought it from me, I don't charge a commission on sells anyway. I would make nothing if you sold. Actually I would lose, because of stamps and phone calls, (my toll free number costs 10 cents a minute), so a profit is certainly no motive.

Why do I advise not to sell? Because the prices are not nearly high enough yet, and might not be so for quite a while. Look at history. Back in 1980, when gold was $850, and silver $54, the ratios were 16 to 1. Why did the prices go so high? Because the Fed's Paul Volker was trying to stop inflation, and raised the interest to a super high rate, causing millions to become terrified. What was there to be terrified about? How about 21% interest mortgages or 13% prime rate? How about hostages being held in Iran? How about paying to get rid of our world famous, engineering marvel, the Panama Canal? How about having Jimmy Carter as President? Those are enough to scare the wits out of anyone, and they collectively did. People who get worried, alarmed, or just plain scared, want security. They want to go home to Mama, and hide behind her skirts. They want to do something to PROTECT THEMSELVES. Sound familiar?

Millions then sought security in historic money; those tangibles known as gold and silver. Why gold and silver? Because throughout history, they have been real money, dependent on nothing, and can't be duplicated with a printing press. What happened was that at the same time as everything was going wrong in America, Bunker Hunt was trying to corner the world's silver supply. I did a column on that situation, and you can access it by going to the bottom of this, and clicking on other columns I have written. So here was this guy with lots of bucks, buying as much silver as he could, both physical and contracts. This made silver go up, because it became scarce. Gold followed, because of the outrageous stuff going on in America. Both contributed to a phenomenal rise in dollar prices of both gold and silver, capping at $850 and $54, or about 16 to 1, which was and is, the historic level of ratios between them.

Was it time to sell at those prices? Yes it was, and I did. I sold my silver and paid cash for a home with it! Why did I sell? Because it was way over-bought and way over-priced. Inflation was small, and prices hadn't gone up much. The high gas prices of seven years earlier had gone down to reasonable levels, and other prices for groceries, homes, etc, had hardly budged. Neither had stocks, and even though the Dow had reached 1,000 for the first time, it wasn't a quick run-up, as was gold and silver. Gold and silver had gone heavenward. I thought it was time to sell, and I did. I also bought another hotel in Silverton, Colorado. Well, actually it was a derelict building which had been a hotel at one time, which I restored with my gold and silver profits. I missed the mountains. It was time to sell, and I did.

Look at today's prices of everything, and compare them to 1980. Is four times the prices? Maybe five times? Have we had 400% or 500% inflation in the last 25 years? The answer has to be yes. Yet gold and silver are far lower than in 1980. So, is it time to sell? Of course not! Just keep buying and watch it go skyward. Will there be a time to sell? Yes, but it isn't anywhere near now…in my opinion anyway. Everything I write is my opinion, including my three times a week column on my web site. (Click on Don's column). Anyone who gives any advice regarding the future, is giving an opinion, and don't you let anyone tell you differently.

When will it be time to take one's profits and sell? Richard Russell thinks that gold and the Dow will cross at 3000. Gold on the way up and the Dow on the way down. Maybe he is correct, and maybe not, but if gold does get to $3,000, and silver close to the 16 to 1 ratio, at $185 or so, it might be time to consider it, but only if certain other factors are brought into consideration. What are they? Well, as an example, suppose gold has gone to $3,000 and a gallon of gas only costs $3, or a pound of butter only goes for $4.50. Suppose the minimum wage is still under $10, and you can still get a Dell computer for under $700. In other words, suppose that gold and silver have gone through the roof, but other consumer prices have gone up maybe 10%. I think I might sell, and especially if the Dow is in the basement, and the P/E ratios are at five. Stocks would be a great buy then, and gold should be gotten rid of…in my opinion.

On the other hand, suppose gold is $3,000, silver $185, a gallon of gas is $15, the minimum wage is $25 per hour, and a Crispy Crème Donut is $3.00. Keep that gold, as it has been a hedge against the inevitable inflation which automatically comes with unlimited printing of any currency. One shouldn't buy gold to make a profit, but to stay afloat. Think about this little gem, which Russell published in one of his daily diatribes. In all of history, there has been mined, at today's prices, about $2 trillion worth of gold. At the same time, the Fed is increasing the dollar supply by $1.5 trillion per year. Which would you rather own? Tangible, beautiful gold and silver, or a fistful of paper dollars?

Honestly people, you've got to get used to the fact that dollars aren't true money. They are merely pretty pieces of paper with wonderful likenesses of past Presidents, and nice scrollwork. They have inscribed on them various denominations of 'worth,' running from $100, down to $1. They are backed by nothing, and while they do buy things, they progressively buy less and less. There is so little gold and silver around, that when whatever is going to hit the fan, does, millions of people will scramble for gold and silver, just like they did in 1980. The result will be quickly ascending prices, till they reach a point where is it absurd. Then it might be time to sell, and I am delighted to urge you to do it then…but not now. This bull market in gold and silver has hardly begun.

As an aside, Warren Buffet, the so called "Sage of Omaha,' recently calculated that since Lindbergh flew the Atlantic, there hasn't been a dime of profit made in the airline industry. Don't ever buy airline stocks! Progress in America, seems to be establishing casinos to rob citizens of their hard earned dollars or old geezers' retirement funds. Perhaps it is selling each other houses, or doing each other's laundry, and calling this the GDP. This type of thing is not an indication of a healthy economy or nation, and nor is it a healthy sign, for a government to spend an admitted $300 billion wrecking another nation, and killing our soldiers, as well as that nation's populace. All this goes under the term GDP, which in my book, is not prosperity.

We are existing by borrowing from other nations, borrowing from our own citizenry, and printing currency. Believe me, this is not prosperity. We are running on credit, in other words, and all credit eventually wears out or reaches its limit. Will China accumulate enough of our dollars to buy us right under our own noses? Buy major corporations? Buy millions of acres? Attack Taiwan and dare us to do anything about it? We are so damned insecure, that it frightens me, but does not frighten 99% of the populace. That's why silver is a steal, and gold is a bargain, even at $550. There's not much of it around, and the production doesn't equal the demand. It boggles the imagination, as to what levels these two will get to before a sell sign comes along! Protect yourself.

Don Stott has been a precious metals dealer since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com

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