Golden Moments

The price of gold is seemingly setting records. Over $1240 an ounce at this writing. So has the train left the station or is there still time to get on board? Today we’ll put it in perspective and reveal another way to play precious metals with even more upside that the metals themselves.

Gold is in a bull market

There’s no other way to describe the gold phenomena. Gold is on its way to its tenth consecutive annual gain. The average gain has been 16.7%. Let’s put it another way. If the Dow had done as well over the last 10 years it would be over 45,000 today. Think about that. If an equity market had done this well we’d be talking about a bubble. 

Don’t forget about silver

Gold of course continues to get all the headlines.  But actually silver (the orange line) has outperformed gold (the blue line) over the last year as you can see in the following chart: 

s there still upside in precious metals?

In a word yes. What does the following chart tell you?

Exactly. Gold would have to go to $2,189 to reach its 1980 high when adjusted for inflation. So from that perspective gold still has great upside from here. But there’s another reason to be bullish on precious metals.

Confidence in paper money continues to erode

When you think about it every dollar or euro created dilutes the value of existing dollars or Euros already in circulation.

When the U.S. engineered its massive bailout, the dollar declined in value. Guess what? As Europe has put together its near-$1 trillion dollar bailout, the euro has suffered. And what did well in the wake of these programs? Precious metals.

When confidence in paper money declines metal prices go up. You can tell a lot about confidence in a currency by looking at how it does against gold. Both the dollar and Euro have been weak.  It takes many more dollars and euros to buy  gold these days. But in a race to the bottom the Euro is winning. Since the beginning of this year it takes 13% more dollars to buy an ounce of gold . But it takes 28% more Euros.