When investing in precious metals, be patient

It’s not surprising that investors who are interested in precious metals are continually looking for commentators who will provide them with short-term “calls” on the prices for precious metals. I generally resist playing that “game” — for that is precisely what it is.

No one knows what precious-metal markets are going to do over any short-term span.

This is why, historically, financial advisors have traditionally advocated a buy-and-hold strategy for their clients. While short-term movements are highly unpredictable, and short-term predictions are extremely unreliable, this pattern reverses over the long term.

Put simply, the longer the time horizon (and the larger the data stream) the more predictable are the movements of companies, commodities, and overall markets.

Given this context, what are investors to make of the new reality for portfolio management, where even the most-conservative portfolio managers are regularly heard pontificating that “buy-and-hold is dead”? Very simply, it means that these people no longer have confidence in the investments they are recommending to their clients.

It is no surprise that the confidence of these “experts” has been severely shaken, given that most of these same experts were all “surprised” by the bursting of the US housing-bubble — and all the consequent fall-out. The fact that these people are no longer confident in their own long-term forecasts should be considered highly revealing. With price behaviour much easier to predict over the long-term, what this reality reveals is that most of these “experts” were simply part of their own “herd” — with few individuals truly capable of individual analysis.

In contrast, I know of no precious-metal advocates who have any reluctance to
recommend gold and silver as being good long-term investments — and by “coincidence”, many of the “experts” who previously shunned precious metals
are now conceding that every portfolio should have at least some precious metals component.

The other reason why making short-term calls on gold and silver is even more dubious than in other sectors is because these are our most-manipulated markets. The reason for this constant manipulation is also part of the reason why gold and silver are considered such good long-term investments. Precious metals are the truest barometers for economic conditions, and most particularly, inflation. As the only true money in our societies, the nominal prices of these commodities will always reflect the level of inflation in an economy, over the long-term.

As I have discussed in earlier pieces, lying about inflation is a goal of most governments, and an obsession with some — most particularly the US, which not surprisingly, engages in the most doctoring of inflation figures. Part of this campaign of lies is to suppress the prices of gold and silver — so that soaring gold and silver prices do not reveal the magnitude of their lies regarding inflation.

Thus, the precise reason why predictions are so unreliable over the short-term (constant manipulation) is also the reason why there is so much certainty about the long-term predictions for this sector: the longer a price/ market is held down, the longer and higher it will bounce once such price-fixing inevitably fails.

This is why it is so important that precious-metal investors acquire the most-elusive of all qualities: patience. Living in a world of instant gratification, patience has become one of the most difficult virtues to practice. When you combine the reduction in the general patience of investors with the ever-increasing volatility of markets, investors develop the irrational expectation that if they simply spend enough time studying markets or simply listen to the right “expert”, they can consistently trade these swings.

Again, such a philosophy is not “investing”, it is gambling. Certainly, there are occasions where sharp spikes or dips create obvious buying and selling opportunities. However, placing open buy and sell orders still allows people to take advantage of those extremes — and without risking getting swayed in their tactics by the emotions which dominate short-term trading.

In other words, let the market come to you.

Reckless money-creation, and even more ridiculous near-zero interest rates guarantee a wave of inflation will impact the global economy. We are already seeing individual commodities (like sugar) spiking to new all-time highs — an early indication of inflation to come. The real beginning of the big move for precious metals is still ahead of us, because government policies continue to make the long-term fundamentals for this sector even more bullish.

Maybe that big move will start tomorrow. However, the point to keep in mind is that if precious metals were to trade sideways again, or even pull-back (an unlikely possibility, given we are just beginning the period of seasonal strength for this market), this makes the long-term picture more bullish, not less so.

Rediscover patience. Don’t listen to “experts” who no longer have confidence in their own expertise. Buy-and-hold precious metals, and quality precious metals miners — and sleep well at night.

The writer is editor of bullionbullscanada.com. This is a condensed version of an article that appeared on  www.bullionbullscanada.com. Republished with permission of the author.