Hitting the quicksilver cash machine after midnight

Happy hump day, dear reader.

I commented in yesterday’s note how the silver market had gone wild in the middle of the night – turns out some of you were involved!

As one reader writes in:

So, Boaz, were you up trading physical silver at 3 a.m. last night? 

I was — it’s pretty much my normal bedtime, and BullionVault runs 24/7 as investors wake up all round the world — and I postponed sleep for a couple more hours to re-buy exactly what I’d just sold for £30 a kg less than I’d just sold it for (could have done better if I’d waited longer, but you never know)! Strange times indeed …  besides, I could listen to Beyond Oil 2 while I watched the prices doing their elevator act. 

Scalping the silver market after midnight while listening in to expert analysis on the future of energy… it’s great to hear folks are enjoying our Beyond Oil 2 summit in style!

(James Allen will be delivering a keynote speech today by the way – if you haven’t tuned in yet to our sequel-by-popular-demand on the investment opportunities in next-gen energy production, you can do so here.)

Alas, I was asleep for the action in silver – I hit the sack that night at 1am. And I don’t like parting with the metal, even for short periods of time.

But as this reader continues, they’ve been using the silver market like an ATM:

People deride precious metals as ‘pet rocks’, but I find that trading on the volatility of just a small percentage of my holdings is enough to cover pet food and vets’ bills and more, leaving any capital gains intact, so the lack of a coupon or dividend is no problem. 

BullionVault has no per-transaction charge, just a reasonable fixed-percentage commission that falls further once you’ve bought a certain amount of each metal in a year. That makes frequent small deals (down to a few grams of Au/Pt or a few hundred grams of silver) just as cost-efficient as large ones and, unlike ETF trading, you always have legal title to what you hold in their vaults…

Silver is somewhat pejoratively called gold’s “schizophrenic little sister” for its volatile nature, which can be the bane of those investing in precious metals for the short term. But if you can work that to your advantage… you can milk the metal like a cash cow.

It’s a strategy that’s too intense for me – and I generally stay away from storing bullion with counterparties – but I applaud those who can pull it off. If you can make some “quicksilver” from the precious metals market.

Commission-free trading really can be a great boon for those with a knack for “smash and grab” short-term trading runs – if you can make some “quicksilver” by doing so, more power to you.

The exact reason why precious metals have risen so sharply over the past fortnight – and not during any of the weeks previous – is the subject of much debate.

The market may be moving upwards too quickly for comfort over the short term – the market seems very eager to get ahead of something. Perhaps overly so. However, if you’re investing for the long term, extreme bullishness in the market, precious metals mania, is an incredibly long way off.

As Charlie Morris illustrated yesterday in The Fleet Street Letter Wealth Builder, when you compare investors’ interest in stocks to interest in gold, we’ve a very long way to go, even to reach 2011 levels. Only subscribers get to know how Charlie’s playing the rise in gold using what he calls his “Atlas Pulse” model, but I can show you a snippet of his analysis:

One sentiment indicator that may prove useful is the gold ETF assets as a percentage of all equity ETF assets (US data). As of today, gold ETFs (current price times number of ounces held) are $205 billion and make up 6.5% of the total equity market. The 2011 peak saw over 15%. While this is a one bubble test, and therefore imperfect, at least we know that today’s 6.5% seems reasonable and nothing to fear.

                                 Gold ETF holdings by investors

Source: Bloomberg – Investment Company Institute, gold ETF holdings by value as a percentage of all equity ETFs since 2004

The primary reason to own gold is to protect us during an era of easy money and balance the portfolio during the process. The highest profits in gold and related investments ought to occur when other things aren’t working quite so well…

So far, gold is warning us that inflation is around the corner. We best listen.

The siren’s call of inflation – it’s not something the booming tech-stocks want to hear. But the louder gold sings, the harder it is to ignore…

Until tomorrow,

Boaz Shoshan
Editor, Capital & Conflict

For charts and other financial/geopolitical content, follow me on Twitter: @FederalExcess.

Category: Investing in Gold

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