Precious Metals Vs. Stocks – Round 1

Ever since reaching their price highs in 2011, gold and silver have been pummeled over the past 7 years. While the stock markets in the United States have essentially tripled since their 2009 lows. Yet given where we stand today, what’s the better option going forward?

This is a question facing many investors. Because those who have been invested in the stock market over the past decade are currently sitting on big gains. In some cases, enough to even compensate for the sharp decline during the collapse of the subprime bubble a decade ago.

However since we’re interested in what to invest with going forward, it’s worth considering an updated comparison of the two asset classes.


Buying Low and Selling High

Sometimes in today’s financial world, where many invest based on momentum, technicals, and what the rest of the crowd is doing, this old adage is often overlooked.

However it’s worth considering that despite unprecedented monetary expansion by the Federal Reserve over the past decade, the stock markets in many cases have roughly tripled. While gold is up about 50% and silver sits at $15. Just slightly above the cost of what it takes to get it out of the ground.

So stocks are at all-time highs, while precious metals are basically sitting on a natural floor. Because if it costs $15 to get an ounce of silver out of the ground, and the price goes below that, the supply is going to decrease.

Unless you know people who want to pay for the privilege of mining gold and silver at a loss.


Interest Rates On The Rise

In a normal financial world, rising interest rates would be a negative for both stocks and precious metals.

But in today’s world where the paper markets and banking system are a Deutsche Bank credit event away from repricing the financial world, the equation has been altered.

We’ve already seen the stock and real estate markets hit their first signs of turbulence in over a decade at the same time interest rates have begun to go up. Yet because the entire system has become so fragile at this point due to decades of borrowing and printing, a rising rate environment actually brings the current system closer to its ultimate end.

When the paper money Wall Street Ponzi scheme finally falls apart, which at this point is a matter of “when” rather than “if”, I would sure want to be holding precious metals. Especially in a chaotic environment where the world reverts back to wanting real goods as opposed to Wall Street and Federal Reserve paper.

Carefully selected stocks that offer exposure to natural resources, precious metals miners, or agricultural projects will likely do extremely well. Although in terms of owning broad stock indices, all of the conditions are in place to see a more extreme form of the decline that occurred in 2008.


More Money Printing On The Way

Yes. The Federal Reserve has been raising rates. Yes, I did just write an article about how I expect them to continue to do so.

Yet what I also expect is that as rates go up and the bubbles continue to pop, that the global central bankers will eventually respond with a shock and awe campaign of money printing that does truly stun the world. Which will eventually lead to an explosion in the price of metals. Especially given how the metals are already undervalued relative to the last round of monetary expansion.

As for stocks, while the money printing will boost equity prices in nominal terms, stocks are going to lose value in real terms of what they can buy in a hyper-inflationary environment.


What Makes Sense To You?

I have never read, studied, or come across a time where it’s more important for people to understand what’s going on than right now.

In my career I have found that the majority of the publicly broadcast mainstream Wall Street advice often comes with hidden risk. And being able to consider that information, yet still make your own decisions, has in my opinion never been more important. And by all means, don’t go out and invest in something just because I think it makes sense.

But hopefully this comparison will equip you with the tools to make the right decision for yourself. As these are some factors that I don’t think many consider, although would be well-served to do so.

Only time will tell for sure. But if you want to buy low and sell high, the idea of trading at least some portion of stocks for precious metals looks more attractive than ever.


-Chris Marcus

August 3, 2018


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