Last week precious metals finally finished a period of consolidation since the all-time price peaks of March with the completion of a three-fan pattern. Bullish chartists say there is now every chance of a re-testing of the March highs of $1,030 and $21 an ounce, and that the time to accumulate positions in bullion, stocks and junior shares is now.
Oil prices remain very high and the Jeddah international conference will be keenly watched by observers this week. A coordinated move to dampen oil prices by increased supply is, however, unlikely to impress markets now eyeing the security implications of Israel’s dummy run for an attack on Iran last week.
This huge exercise involved over a hundred F15 and F16 jet aircraft in a mock attack on Crete designed to simulate an assault on Iranian nuclear sites. Immediate diplomatic discussion of this exercise was largely behind closed doors but the worrying public rhetoric ought to increase this week.
Whatever the implications for Middle East stability and the potential for an Iranian reaction – which will no doubt be fully discussed over the next couple of weeks – this geopolitical story is good news for the price of precious metals as both a safe haven asset and protection against inflation.
Oil prices are also probably more likely to be concerned by the potential for interruptions to shipping in the oil tanker lanes of the Gulf of Persia than agreements to add oil supply by Opec and non-Opec countries which may or may not be fulfilled, or practical in an emergency in the region.
For gold and silver this conflagration is the kind of fundamental event that will confirm what the chartists are already flagging up. Besides financial TV columnists now opine that there is nowhere left for investors to go. Last week they struggled with consumer staples and oil services as places still worthy of investment. What about precious metals?
Wall Street hates them, that is the truth, because there is little commission to be made on bullion and backing precious metal stocks is an admission that the market is failing to deliver on the many promises made over the past few years.
But precious metal assets will rise strongly and out perform until the authorities take serious action to curtail inflation, and with the most serious financial crisis since the Second World War in progress that is not going to happen anytime soon. And the geopolitics do not look encouraging either.
For a small investor like myself is it smart to go down to the duabi gold souk with a chunk of my savings and buy $70,000 worth of gold ounces or coins? I know there is a markup to the spot price of gold , is that a smart way to go about it ? Thanks Peter we love your blog
Yours,
Betty T.
Comment by Betty — June 22, 2008 @ 12:33 pm
Thanks Betty. Personally I don’t like leaving anything of value lying around my house - or even buried in the garden! Probably the best way is to open an online brokerage account with a triple-A rated bank such as Internaxx Bank, http://www.internaxx.lu and then your money is in very safe hands. Then you simply invest in the Exchange Traded Funds like GLD (gold) and SLV (silver) which can be bought and sold instantly online just like shares (they are shares in physical gold bought by the ETF). Internaxx has a very secure system and you can only fund the account and get money out through the same account in the same name. The Bank is a joint venture between Fortis Bank of Luxembourg and TD Waterhouse of the US (which apparently has one of the lowest exposures to sub-prime problems). Some worry about the ETFs and liquidity but I would be more concerned about keeping gold and silver safely and think this is not an issue, particularly with smaller sums of money. As an alternative the Perth Mint has an excellent depositary certificate system which effectively gives a sovereign guarantee as the mint is state owned. Find their website on Google for more information.
Comment by peterjcooper — June 22, 2008 @ 1:25 pm
The stock index for US Banks is about to plow through its own nine-year support level, as can be seen from the chart below, and that is probably the biggest argument for yet another preemptive hit on gold.
This was one comment I picked up on a website today, and it makes sense for the Plunge Protection Team to act in this way - for real investors in gold and silver any short-term weakness is an opportunity, as the big upturn is still to come as the dollar weakens and the Dow Jones tanks back to 7,000.
Comment by peterjcooper — June 23, 2008 @ 5:11 pm
I personally keep my precious metals stored in a safe at home. I am the only one who knows about the safe and what is in it. I have read about the possibilities of ETFs not having proper backing, FDR safety deposit box raids, never knowing if a precious metal dealer is actually backing up your purchase with bullion, etc. The only safe way to actually know what you have and if it will be available upon a currency collapse is to keep it hidden yourself. I personally could never trust a company or government to be honest with other people’s property, especially during a crisis whereby bureaucrats will try to save themselves by confiscating the precious metals of others in the name of saving their nation. Read: The US Supreme Court decided that governments can basically confiscate private property for the purpose of government tax generation. I believe only fools trust anyone today, whether businesses or governments.
Comment by William — June 23, 2008 @ 6:12 pm
Liquidity is the real issue. If you need the money quickly you want to be able to turn it into cash quickly without any hassle or premium.
I personally have my money in http://www.goldmoney.com and http://www.bullionvault.com These are both excellent companies with no counterparty risk. Goldmoney allows the purchase of silver. Bullionvault has very inexpensive commissions. If you want to sell your gold/silver it is back in your bank account within a couple of days.
Forget the souks…
Comment by Paul Price — June 23, 2008 @ 10:18 pm
1 Only gold and silver are money
2 If you don’t hold it, you don’t own it
3 If they can’t find it, they can’t steal it
Think about it……
Comment by goldandsilver — June 23, 2008 @ 11:36 pm
fantastic blog! just discovered it
Comment by navcity — June 24, 2008 @ 2:22 am
I don’t know about the Perth Mint recommendation. Some people are having trouble with them. Saying they are a government is no guarantee; several governmental entities have gone into bankruptcy recently.
Comment by mike montross — June 24, 2008 @ 4:49 am
Not in Australia I think - investors are right to be suspicious of holders of their money but I do question the logic that says all are suspect. You end up with valuable assets hidden in your home which to my mind certainly is dangerous. But any boom tends to attract con-artists and these are the folk to really beware. You always have counterparty risk if you use another party to hold your assets, it is a question of who looks most reliable.
Comment by peterjcooper — June 24, 2008 @ 7:45 am
Also see this article today:
http://arabianmoney.net/2008/06/24/sudden-gold-and-silver-drop-on-monday-suspicious/
Comment by peterjcooper — June 24, 2008 @ 11:58 am
I like e-dinar, delivery or digital. (http://www.e-dinar.com)
Very liquid accounts.
Mark
DGCmagazine
Comment by Mark Herpel — June 24, 2008 @ 3:54 pm