Gold, gold, gold…

Should I buy gold as it drops?

As the economy moves around faster than a mobile home in an earthquake, we’re getting email from readers who are contemplating buying metals to hedge their preps, due to current market fluctuations.

For a while now, we’ve been telling readers to consider diversifying their assets as things get rockier. The US Dollar is going to take a hit, of that there is no doubt. That is the one thing that almost all experts are agreeing on. The US Dollar is a fiat currency, no longer backed by gold OR it’s use as a reserve currency to buy petroleum.

The “petrodollar” days are over.

The FED is printing and pumping dollars into circulation, which will only further drive inflation and destabilize an already unstable currency.

As this happens, “paper gold” is getting dumped, causing the price of gold to move. Cyprus is dumping gold to clean up it’s mess. That makes gold prices move as well.

Many of us have considered holding gold coins or bullion as a part of our preps. Note that I say “holding gold coins or bullion”.

IMHO – It makes absolutely no sense to buy “paper metal” or to purchase gold or silver that you cannot hold in your hands. If you cannot TOUCH it, it’s no good to you. And, I lean toward buying coins or “rounds” in lieu of ingots, because they will be easier to trade with.

Additionally, many of us see holding precious metal as a way of investing in our futures, as those metals prices climb during hard times. Those people are buying  gold as an investment.  It’s just another “trade”.

That brings us to a conversation about “trading”. When most of us think about “trading” we think about either handing stuff back and forth as part of a barter, or the mayhem that we see on TV when they show you all those trader sardines packed into small spaces on the trading floor in the NYSE.

While gold is an asset, it’s simply a commodity, like any other trade.

Commodities are “a different kinda cat”. History shows us that there is no reason to expect an upward bias in their prices. There are lots of reasons for this; technology could lead to changes in supply, as it has for some agricultural products, and increased supply can lead to lower real prices (which are then adjusted for the rate of inflation).

That said, GOLD is a commodity, just like coffee. Coffee is currently valued at about the same rate as it was in 1978, even though the demand has doubled.

We’re all watching gold prices move around. This prompts people to “buy on the dip”.
Should you buy gold NOW?

Because there is no reason for the real price of any commodity to rise over time, buying on their “dips” can be risky business. It’s usually a money-losing strategy. It’s really hard to figure out where the “bottom” is.

Despite that reality, many of our readers are wondering whether they should buy gold simply because it has suffered a sharp pullback.

We don’t think so.

The answer is to be patient and wait for a turnaround.

Let’s look at WHY we think this;

It’s always best to analyze a prep strategy by starting at the foundation. Gold has now fallen to a price that is close to the cost of production for many of the miners. Anyone watching the reality TV shows about gold mining can see that the cost to produce an ounce of gold is significant and it currently ranges from about $950 to $1,300 an ounce (for major gold miners) and could in fact be much higher for smaller companies.

As prices fall, these companies may use rallies to sell forward their future production if the market gives them a chance to lock-in a profit. This would place a ceiling on short-term increases in gold. This affects the price of gold significantly.

This behavior is seen in many commodities markets: Producers sell at a level that is profitable for them, and large consumers — like Starbucks in the coffee market — buy when prices seem low. Because of this, commodities tend to spend extended periods of time in trading ranges, like coffee has since 1978 and gold did from 1996 to 2006.

In our view, based on what’s happening right now, it’s best to sit tight and use that cash to prop up other areas of your preps. Use the money to solidify your pantries or “harden” your fallbacks or tool caches.

There will come a time when the time is right to buy metal. In our view, now just isn’t the time.

Related articles:

• Gold-price collapse hints at something murky in markets (stuff.co.nz)
• 5 Facts To Consider Before Buying Or Selling Gold (forbes.com)
• The Paper Precious Metals Market Precariously Close to Diverging From the Physical Market (silveristhenew.com)
• Gold & Silver Prices: 3 Critical Questions To Ask? (etfdailynews.com)
• 10 Signs the Paper Gold Crash Has Unleashed a Global Run on Physical Gold and Silver (wealthwire.com)