Summer Doldrums?

"Well, look how low it's gone. I'm scared it will go down further." Or, "Jeez, it's just sitting there, isn't it?" For crying out loud, don't be ridiculous! Exactly one year ago…one year back, to the day I am writing this, gold was $607, and silver $11.36. Now silver is $13.80, which means that even though silver and gold are 'down,' silver is still 'up' 22% in one year. Gold has gone up 11%, and where can you get that type of return in a bank? Actually, the Dow has gone up just about the same as has gold, assuming you picked the right stocks. With gold, there is no picking to do, because there's only one item to buy! No General Motors, Chrysler, Ford or any other Dow 30 to pick from. Just gold, with no Social Security number.

Silver's 22% climb has beat the Dow by double in the past year. Not satisfied? Say you want more for your money? Tell ya what I'm going to do. Lets go back two years to the day from my writing this. Fair? The same day in June, 2005, guess what? Gold was $424, and silver was $7.41. That's 87% rise for silver in exactly two years. Gold, in exactly two years, has gone up 59%. Need I go back further? O.K. I will. On this same date in 2004, gold was $391.50, and silver was $5.78. In three short years, gold has gone up 70%, and silver about 270%! And you want to 'invest' in dollar denominated things?

Gold and silver are both much lower than they were April 23rd. April 24th, they fell out of bed! Were they back to where they were on April 23rd, ($689.50 and $14.05), the profits or increase would have been much higher. Will they go back to April 23rd's prices? Of course, and then proceed much higher. Had I known what would happen April 24th, I would have sold every single ounce I owned on April 23rd, and bought it back the following day. Who knows what will happen tomorrow? No one. Who knows what prices of gold and silver will be a year from now? No one, but I'll take a bet on an increase of 11% for gold and 22% for silver. Wanna bet? I wouldn't if I were you, 'cause you'd most likely loose, and besides, I don't gamble.

Are prices always lower in summer? Some years yes, and some years no. A couple of years ago, we took the Mississippi Queen down the Ohio River from Louisville, and then up the Mississippi to St. Louis. We took about two weeks, and I took my cell phone. During those two weeks, with my little cell phone, I did $662,000 worth of business. I can't remember whether prices were up or down, but it was in summer. It's difficult to predict anything, but the following is true. By far, 81% of gold is now in private hands, and it is said that Spain is now selling 80 tonnes of its gold to try to pay its bills. Spain seems to be hopelessly in debt, and is taking the fool's way out, by selling the only thing it has that is worth anything. Gold. How sad! With 80 tonnes of gold coming on the market, probably very slowly, there is still a great opportunity for a buy at current low prices. It seems to me anyway. Few central banks are left which didn't sell their gold, so that manipulation is almost non-existent any longer.

Also on the internet, there is a lot about Iran. Iran, according to stories, has a lot less oil than is publicly spoken about, and has a dire need of refinery power. So bad is it, that they actually need nuclear electricity, because their oil supply is so low, and that's why they are building it. That may or may not be true, but when an oil nation has problems, it will surely make gold go up. Other internet stories say that Saudi Arabia is unable to increase its output because it is also running low. Same comparison. This, of course, doesn't count the fact that a trillion paper dollars have been spent and the spending continues in Iraq and Afghanistan, which makes dollars worth less and gold and silver prices higher. But I repeat myself.

It is worthy of note, that silver has gone up, percentage wise, more than gold. And even two years ago, the ratio between the two was 60 to 1, whereas today it is 48 to 1. I believe the proper and historic ratio is 16 to 1, and fully expect it to be realized in the future. The ratio has been 77 to 1 and higher, so anyone who bought silver three years ago, would have been ahead over gold, and I think that will continue till the ratio of 16 to 1 is reached.

Sell gold and trade for silver? Absolutely not, in my opinion anyway. Why? (1) Because silver has a higher "spread" than gold. The "spread" is the difference between the price you pay and the price you sell for, and with silver it is usually a 50 cent spread. Gold's "spread" is lower percentage wise. (2) You would have to buy the gold at the "ask" price, and sell at the "bid" price of silver, which is a lot of bucks. (3) You'd have to ship the gold at your expense. (4) Even if I charged nothing for the sell of gold, I'd still have to charge for the buy of silver. In other words it makes no sense to trade one for the other. Use ratios as a buying guide. Suppose the terrorists struck again? The ratios would go up probably, because millions of people would rush to gold for safety, and they would probably ignore silver. While both are precious metals, most regard gold as the most precious, and will buy it rather than silver in an emergency or dire circumstance.

Remember also, that gold is far easier to store and transport than silver. You can probably put enough gold in two hands to buy your house, but enough silver for that transaction, might require a couple of pickup trucks to carry the silver. Gold and silver are both fine, and both have their own potentials and characteristics. Trading one for the other is what crooked stock brokers do, not me. I'm not into this for the commissions, so "churning" is not in my vocabulary. No, I never call anyone. Want something? Call me.

When silver is used in industry, it is usually gone for good. Gold rarely disappears from the earth, because it is so beautiful and precious that it is hoarded, turned into jewelry, or in many ways guarded and relished. Silver, being not only a precious metal, but an industrial one as well, just doesn't have the universal acclaim as does gold. Keep what you have, and if you have sufficient storage and time, go to silver. Time? Yes, because silver has to go up in price further than does gold to 'break even.' It may take longer to 'break even.'

Always get the most silver and gold for the number of dollars spent. If you have a nice surplus, get the one time stuff on my web site occasionally. It isn't much higher than an ordinary coin or bar. An example is the new five nines (.99999) pure Maple Leaf in hard plastic cases, which was at the same price as the Buffalo. Only 30,000 are going to be made, in lots of 5,000. The first 5,000 are gone, and the next batch, may come around at the end of this month. I got ten, and they are truly unique and in all probability will go up further than ordinary Maple Leafs. Watch for the next batch of 5,000. To show you that no one knows what will happen in the immediate future, I bought my ten at $706, and after I bought mine, they went down quite a few bucks. Had I known, etc, etc. People or dealers who tell you what prices will be next week or tomorrow, are lying.

One more thing about Maple Leafs. I don't like them, because they are four nines (.9999) pure, not in hard plastic cases, with no hardening alloy in them, and they bend and scratch easily. If they are damaged even a little, they are worth $10 less. The Maple Leaf also has a $20 spread, vs. the Krugerrands' usual $8 spread. Besides, Maple Leafs are usually $20 over spot and Krugs $4 over usually, which makes them the most gold for the least dollars. Protect yourself.

June 7, 2007

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