Bizarre Thoughts about Gold, Real Estate, Stocks, and Cash
The metals markets enter the new week looking to establish potential support levels after last week's sell-off saw prices stabilize by the end of week.
Potential upside catalysts include geopolitical events surrounding the Ukraine. Meanwhile, evidence of an improving US economy, such as we had in last week's report on new claims for unemployment benefits, has the potential to pull metals prices lower.
Gold and silver prices should get strong technical support just below their current levels -- support that has been tested multiple times in recent months. But speculative longs in the futures markets are going to need a reason to pile in and push metals higher. We may see range-bound trading until then.
Interest in Metals Is Strong, but the Masses Remain Committed to Conventional Assets
Three years of tough sledding in the precious metals markets hasn't altered the fact that people love to talk about gold and silver. The metals intrigue people, regardless of political persuasion or economic outlook. Owners of bullion can attest; lots of people are interested -- many even have strong opinions. But none of that changes the fact that only a small percentage of the public actually owns a single coin, round, or bar.
We remain convinced that much of the bizarre disconnect between interest and ownership can be attributed to a simple knowledge and experience gap.
“What do I do with it once I buy it?” is perennially one of the most common questions our Specialists get from first-time buyers.
People who are comfortable buying stocks, investing in real estate, and contributing faithfully to a savings account have trouble seeing the utility of bullion as another asset class. We're happy to explain that physical gold and silver can serve many of the same purposes as the conventional assets people are familiar with, but with certain key advantages.
Like stocks, metals offer potential for profit. Given the inflationary age we are living in, we think the potential is great. Metals deliver this potential without the counterparty risk inherent in owning shares of stock. Publicly traded corporations can, and have, declared bankruptcy – wiping out shareholders. Gold can never fail and become worthless.
Like an investment in real estate, buying gold and silver coins, rounds, or bars represents an investment in something tangible. However, bullion is highly liquid. You don't have to hire an agent to buy or sell; no contracts are required; and you don't need months to find a buyer in order to complete a transaction. Plus, you aren't going to pay property taxes for the privilege of owning it.
Buying AND selling takes just a couple of minutes. Markets are live and buyers choose the timing and price for executing trades. In fact, you can see live bid and ask prices for any of the most popular bullion products at www.MoneyMetals.com.
Finally, like a savings account, putting money into precious metals is a way to set something aside for the future. Gold and silver are renowned for their role as a store of value, which is more than can be said for the almighty dollar, which has lost more than 97% of its value since the creation of the Federal Reserve in 1913.
One often-used analogy is that 100 years ago a man could walk into a clothier with either a $20 bill or an ounce of gold and buy a good quality suit. Today, a man can still get an awfully nice suit with an ounce of gold, but the $20 bill won't even cover the price of a tie
The leadership at the Federal Reserve is openly telling savers their dollars will be worth less over time as they work to ease the burden of servicing runaway debts. The publicly stated target rate for inflation is just under 3% -- and we think officials are privately striving for a rate higher than that.
This punitive attitude toward savers isn't the only issue, however. Consider that savings accounts carry counterparty risks (i.e. bank failures), and will be easy for desperate bureaucrats to electronically confiscate (as most recently happened in Cyprus). It is a marvel that people are still willing to hold more than a few months' worth of expenses in cash.
Potential Market-Moving News This Week
This week will be quiet in terms of scheduled releases.
- Tuesday, April 22nd - Existing Home Sales. Recent data on home sales, including reports on falling builder confidence and mortgage applications, has disappointed. Higher mortgage rates are decreasing affordability. Given the rate of employment remains near generational lows, the headwinds for real estate look strong.
- Thursday, April 24th - Durable Goods Orders. Sales of durable goods have been treading water of late and experts are predicting flat to modest growth in this week's report.
- Friday, April 25th - Consumer Sentiment. Consumers have been expressing more optimism in recent weeks. Much of the improvement has been attributed to the weather as the country moves out of the brutal winter that dominated the Midwest and East.
This week's Market Update was authored by Clint Siegner