5 Key Principles To Remember When Investing In Physical Gold

Contributor Gary Christenson has been focusing lately on the fundamental motives of investing in physical gold and silver. He has written some excellent pieces in which he explains the key principles of owning bullion. This article summarizes the key benefits of investing in the precious metals.

For bullion investors, it is a great way to focus on the fundamental reasons why they have chosen to own PHYSICAL gold and silver. Especially in times like these, where the media is using every bit of news against the precious metals, where almost all major financial institutions revise their gold forecasts downward, and where the number of statements pointing to the end of the gold bull market is countless.

(1) In bull markets, prices go up only 60% of the trading days

Bull markets include many down days and weeks. If we became discouraged every time gold moved down on a particular day, we would live 40% of our life feeling discouraged by the quite common downward moves. Bull markets move up slightly more often than down and bear markets do the opposite. Think three steps forward and two steps backwards. That is the nature of markets.

Even in powerful bull markets, the price will probably go down about 40% of the time, based on daily prices and 30% based on weekly prices.

The “bull” will do everything it can to buck you off and force you out of the market. Bull markets never make it easy. By the time it looks easy (say early 2000 in the NASDAQ), it is too late to buy and it is time to exit.

It takes emotional stamina to hold your positions, and it takes determination to maintain perspective. Look at the weekly and monthly trends, look at the fundaments, and look at the sentiment.


(2) Holding physical bullion and “trading the metals” are different things

The gold market went down lately. Silver was down even more, and those of you who own physical gold and silver LOST NOTHING in the take-down.

If you are accumulating physical metals, now is an even better time than any time in the last five months. The stuff is on sale – take advantage of the lower prices.

If you were leveraged or long the futures, you have my sympathy. I hope you had stops in play.

Markets bottom when the sentiment is least bullish or most bearish. The sentiment numbers currently indicate massive pessimism in both gold and silver markets. Great bottoms are constructed out of overwhelmingly bearish sentiment.


(3) History says gold is money; creators of paper money don’t want competition; who do you trust most?

Because governments and central banks issue paper money backed by nothing but faith and credit, they are in competition with gold which is real money. Should we be surprised when they discount the importance of gold and discourage ownership? Should we be surprised when the “Oracle of Omaha” denigrates gold ownership? (Berkshire Hathaway holds huge positions in banking stocks and Goldman Sachs stock.) Should we be surprised when news stories are heavily slanted against gold ownership?


(4) Media has no interest in revealing the truth; they have their own agenda

Many in the media will tell you that gold is in a bubble, gold is a barbaric asset, gold is useless, gold is a bad investment, gold pays no interest, and gold is not safe. Many in the media will suggest that you are better off holding your savings in paper dollars guaranteed to lose purchasing power at 5 – 10% per year and perhaps even more rapidly in the next few years. Is it in your self-interest to listen to such media nonsense and to hold your retirement and saving in a devaluing currency? Perhaps you should move a portion of your savings and retirement funds into gold and silver as has been done for several thousand years. Think SAFETY with NO counter-party risk!


(5) Technical analysis is useful for timing, even in manipulated markets

There are two main objections to technical analysis. First, why bother with technical analysis when the silver and gold markets are overwhelmingly manipulated by large traders (JP Morgan, etc.), central banks, and government activities such as the “plunge protection team?” Second, technical analysis does not work anyway.

I think most markets are manipulated or at least managed to some extent. I think the (paper) silver market has experienced short term managed selloffs that have nothing to do with supply and demand in the physical market. (When elephants fight, the grass gets trampled.) The manipulation is short term and makes technical analysis nearly useless during those short term manipulative episodes. But, in the longer term, in my opinion, the manipulation is just “noise” and technical analysis is valuable.

As to the suggestion that technical analysis does not work, I think that is obviously false. The data indicates it does assist in determining the probability that a market will rise or fall. I use it and find value in it.


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