Hong Kong and Singapore Bank (HSBC) predicts gold prices will be up 10% by the end of this year. If their predictions come to pass, the price of gold would be approximately $1225. HSBC Bank bases their prediction on the belief that commentators from Goldman Sachs are wrong to believe higher interest rates will cause gold to sell off to a lower price. I agree with HSBC.
I believe the market has been anticipating higher interest rates for the past two years and the price declines have already been mostly factored into the market. I also do not believe the fed will become aggressive with interest rate increases as some have said. Doing so will significantly harm our GDP outlook, and only add to our soaring national debt.
The price of gold is down nearly 50% from its 2011 high of just short of $2000 an ounce. Silver has experienced an almost 70% drop from its $50 high in April of 2011. The gold to silver ratio today now stands at 74:1. It takes 74 ounces of silver to buy one ounce of gold! This high ratio suggests silver is extremely undervalued when compared to its yellow counterpart. This means silver should be added to investment portfolios.
How do I know this? I have experienced these market conditions before.
In the 1975-1976, gold prices fell 50% from a high in 1975 of slightly over $200 an ounce to a low in 1976 of $100. I had just started my investment career at this time and my clients told me their brokers were advising them to get out of all their gold and silver positions and stocks. Broker were encouraging buying interest bearing investments instead because they were claiming rates were going up.
What a mistake they wound up making! In the next four years, interest rates jumped from the 5% range to as high as 20%. During this same period, gold rallied to as high as $850 an ounce. This was an 8 fold increase in value.
At the same time, silver rallied from the $1.50-2.00 range (1976) to a high of over $50 in January of 1980. The gold to silver ratio in 1976 was generally in the 50-60:1 range. At the apex of the rally, the gold to silver ratio fell to 16:1 ratio. Traditionally, whenever precious metals’ prices rally up, the ratio corrects down and the value of silver drastically increases.
If you want to take advantage of the current low prices of metals, you need to start an accumulation strategy. All those investors that sold their positions missed one of the greatest price rallies metals have seen. A lot of my clients made another investing mistake after the rally took hold and prices were up.
Buy Low Not High
In the late 1970s, I found it easy to interest new clients on the advantages of buying precious metals. But that was only after the rally was well underway and gold was close to the $250 range; even after previous highs had already been taken out! The same for silver, as clients became interested only after the all time highs of $5 had been breached.
I had sold all my positions in the $45 range for silver and the $720 for gold. I went through a rough time over the next week because gold continued to rally another $130 and silver rallied an additional $10.
On the morning of January 22nd, 1980, my clients pointed out a full page article written by Dan Dorfman. The headline read “GOLD GOING TO $1000; SILVER GOING TO $100”. That same morning, I had clients calling my boss at First National Monetary Corp. complaining that I had talked them out of their precious metals at a lower price. Most of these calls were received in the morning as silver was shooting through the $50 range and Gold had breached the $850 range.
That afternoon the calls ceased as the silver market closed the day at a spot price of $39.10 and gold had fallen to well under $650 an ounce. At the peak of the highs on Jan 22nd, 1980 the gold to silver ratio had fallen to an interday low of 15:1 in the cash market. Over the next year the silver market had fallen to a (Bunker Hunt) low of $10.20 and gold had fallen into the $450 range.
In February 1979, silver rallied to close to $15 only to break the previous low of $10.20 in March of 1979. This was the climatic capitulation of the bear market that concluded in the next 10 year cycle with a double bottom pricing of $3.50 in March 1991 and again in March of 1993. The gold market formed its “double bottom” of approximately $250 in 1999 and again in 2001.
When I retired from Price Futures Group in the Chicago Board of Trade in 2011, I told my clients not to buy gold and silver until they were $1000 and $15 an ounce respectively. Why? Because I had seen this before in several other market cycles and I knew this would be the right price to buy.
Today, we are at my recommended prices. We are at bottom and poised to go up. Interest rate speculation has driven down prices already. Metals have rallied during interest rate increases in the past and are poised to do the same again. The gold to silver ratio is incredibly high, showing how undervalued silver truly is. All the signs are there that this is bottom.
Smart investors are taking advantage and adding to their positions. They are poised to take advantage of a possible bull market brought on by interest rate increases. You should be too. If you need any help creating an accumulation strategy for silver, please request a webinar today.
About the Author Stanley Paul
I have been a professional trader since the late 1970s. Recently, I made the decision to accept the position of Market Analyst for National Coin Broker. I chose this firm because I know them to take the concerns of their client to heart and I know them to be fair in their pricing and knowledge of the precious metals markets.
National Coin Broker has made my knowledge, experience and expertise available to all of our clients. I am available any time to help if you wish to study charts, graphs, technical or fundamental factors as they relate to the precious metals markets.
Our goal is to help you understand the markets to make educated decisions on where to put your hard earned money to build a safe yet profitable precious metals investment portfolio. Should you wish to study the technical charts of precious metals, please contact me anytime by emailing firstname.lastname@example.org
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