Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Stocks or Precious Metals, Which Makes More Sense to Invest in Now?

Stock-Markets / Financial Markets 2017 Jun 06, 2017 - 12:48 PM GMT

By: Peter_Ginelli

Stock-Markets

"Buy low, sell high," is the most fundamental principal of a great investment strategy in any sector. A deviation from this core principal can be truly costly and downright dangerous. 

 

One might wonder, why state something so obvious as that! This is because many investors wait till it is too late, and a market is in its final stages of a bull market before they finally convince themselves to get in, and by then they are sitting on a ticking time bomb, ready to explode. 

 

The flip side of this, are the investors who let greed keep them trapped in an aged bull market and wait till it is too late before a crash wipes out their entire life savings.


Both these groups usually lose a tremendous amount of money, but for different reasons. The first group is paralyzed by fear, the second group is blinded by greed. 

 

The first group's fear is based on, "What if I get in the market and it doesn't go up, or worse yet, it drops." The second group's greed is based on "What if I get out and miss out on gaining even more profit."

 

Legendary Wall Street analyst, the late great Richard Russell once said, "I have never seen a market top or bottom-seeker who found it." 

 

Although both these groups have somewhat rational reasons for their investment psychology and behavior, what they don't take into account, is the cyclical history and fundamentals of every market. So here is a crash course that might be helpful for everyone.

 

The average cyclical age of a bull market is typically 5-8 years, during which a market continues to climb in a positive trend. This does not mean during that period there are no pullbacks. It only means year over year, the market continues to gain value.

 

On the other hand, the average cyclical age of a bear market is typically 2-4 years, during which the market continues its downward trend. Again, this does not mean the market does not experience periodic short term mini-rallies in the process of its continuous decline year over year.

 

Now that we have established the groundworks, let's have a look at the stocks versus the precious metals and examine which makes most sense to be invested in now.

 

On one hand we have the equities market that has now entered its 8th year of a bull market, which is considered very mature in age, even though its foundation has been extremely shaky since it was manufactured by easy money policies put in place by the FED after the financial crisis in 2008. 

 

And on the other hand you have the precious metals market which concluded a 3 year bear market in December of 2015 after gold bottomed out at $1050 and silver at $13.21. Then in 2016, gold and silver began a new cyclical bull market when gold finished the year up at 9% with silver up 16%. 

 

Having explained all this, common knowledge and wisdom would suggest that investors should now sell their stocks at the top of this mature 8 year old bull market which could crash at any time, and enter near the bottom of precious metals bull market, still in its infancy. But once again some investors are paralyzed by what I described as greed and fear, the two biggest destructive forces of wealth. These investors will once again learn their lesson the hard way, by staying in the stock market until a massive crash wipes out their entire life savings, while missing the new bull market in gold and silver until it has matured in age and has grown too expensive to benefit them. 

 

In speaking to some potential investors, I have heard many reasons as to why they have been ignoring the precious metals as a means of diversification in their portfolio, ranging from "gold and silver have never really gone anywhere," to "there is no inflation in sight to create a rally in precious metals." So let's examine both those issues.

 

As for inflation, what most people don't understand, is that inflation shows up where the excess money goes. In the past 8 years, since the financial crisis of 2008, the FED printed trillions of dollars in an attempt to boost the economy. However, instead of injecting that liquidity directly into the economy, they gave the money to the banks. The idea behind the mindset was that the banks would lend these trillions of dollars to investors at near zero rate, investors in turn borrow it and invest and the economy would begin to grow once again. However what the FED overlooked was that banks are not charity organization and would never risk lending that money at zero rate for no return. So instead banks took the money and kep some of it in their reserve while putting the rest in risky assets like the equity markets where they could at least get some return on their risks and overcome the impact of the crash they had just suffered after the subprime mortgage debacle. 

 

Again, inflation shows up where the money goes. Most of those trillions of dollars wound up in the stock market, both by banks as well as companies borrowing at zero rate and buying back their own stocks. As a result, we are seeing massively inflated stock prices which by all historical standards is grossly overvalued. Meantime in the real economy the consumer spending dropped to historic lows as the American people stopped spending money, worried if they will keep their jobs or homes in a rapidly sinking economy. Worried people don't spend money. They save, save, save! And that's exactly what they did

 

Now however that we have president Trump at the helm, whether you like him or not, according to many polls, the consumer confidence among the American people is once again at historic highs. Therefore the consumer spending is expected to jump. Add to that, the hundreds of billions of dollars that are reportedly flowing into our economy from overseas by foreign investors, and add yet again, the trillion dollar spending package Trump has proposed to fix the country's infrastructure and you will see inflation like we have not seen since the late 70's. This also should explain why the FED is suddenly so eager to raise rates as they have done so, twice in 3 months, with one more hike expected next week. They realize the coming inflation could really hurt our low growth economy and are trying to get ahead of it. Whether or not they will succeed, remains to be seen. But I wouldn't put my money on it.

 

As to the second concern about gold and silver not having gone anywhere Let's have a look at how they have performed against the stock market, both long and medium term. 

 

Below you can see two tables on how gold and silver have done against the stock markets both in the medium term (From 2001 through now,) and also long term (From 1970 through each market's all time high.) As I have said in the past, number don't lie, they tell the whole story. 

 

2001 Through Now (Medium Term Performance)

12/31/2001

Current Value

Percentage Increase

Gold

$278

$1282

461%

Silver

$4,61

$17.57

380%

Dow

10,021

21,206

111%

S & P 500

1148

2,439

112%

 

Here is something to wrap your head around: Imagine you had put $20,000 in the stock market in December 31, 2011 and another $20,000 in gold and silver. 

 

Here is what your investment would have grown to today:

 

Gold:           $92,230

Silver:         $76,224

Dow:            $42,323

S&P 500:    $42,491

 

 

1970 to All-Time High (Long Term Performance)

12/31/1970

Year Reached-All Time High

Percentage Increase

Gold

$38.90

(2011)   $1924

4846%

Silver

$1.88

(2011)  $49.14

2513%

Dow

809

(2017)  21,206

2521%

S & P 500

93

(2017)    2,439

2522%

 

One final thought, your $20,000 investment in each of these markets from 1970 through each market's all time high would have grown as followed:

 

Gold:          $989,202

Silver:        $522,764

Dow:           $522,002

S&P 500:  $524,516

 

Today's Value Vs. All-time High

Today's Value

All Time High

Percentage Increase

Gold

$1282

$1924

50.4%

Silver

$17.57

$49.14

180%

Dow

21,193

21,206

0%

S & P 500

2,437

2,439

0%

 

 

But once again, don't forget one little detail in all this; the Dow is now at the end of its latest bull market, when gold and silver are in the beginning of a new one.

 

Need I say more?

Peter Ginelli

I have been actively involved in market research and analysis for over a decade. My opinions are based on extensive research from various sources including the latest world geopolitical and geo-economics events and best available information and data available. My professional background is primarily in the precious metals market place which include but not limited to research and analysis of daily news events at LCI and how they may affect the precious metals market.

© 2017 Copyright Peter Ginelli - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife