In this week’s McAlvany Weekly Commentary, Kevin Oreck and David McAlvany answer listener questions regarding topics such as 401k’s, gold and silver allocation, and a gold exit strategy.
(Listen to the Commentary below the excerpts.)
Listener Question:
What are the indicators we should look for when the gold market goes from bull, which is an up market, to a bear. I think to pick a certain price, especially in the context of inflation or a hyperinflation scenario isn’t as helpful as being able to understand what kinds of changes to the fundamentals we should be looking for. Is there anything we can anticipate now or do you think a position to get out of or reduce a position in the gold market will come as a mere reactive measure? Before I get on the train, I’d like to have a good idea of when I need to get off.
McAlvany’s Response:
If you’re trying to pick a price in the gold market that really is less important than what gold translates into another asset – what the relative value is – relative to the Dow, relative to a single family home, relative to barrels of oil.
In the context of hyperinflation, as he very adequately expresses the question, this is exactly what you had in Weimar Germany where an ounce of silver was trading into the billions of Marks.
Oreck: You would have hated to have sold it when it was in the millions of Marks when it was going into the billions.
Mcalvany: Exactly. That’s the commentary right there is that it’s more of an indication of currency collapse than appreciation in that asset. And the question is how do you preserve value in the context of that currency crisis. So, looking at relative value and comparative value is absolutely critical.
[McAlvany provides an example related to real estate – Listen to the commentary below]
Pricing things in gold ounces instead of dollar figures is a dramatically different way of calculating gains and losses and I think is a part of the exit strategy.
There is further discussion as to how to value assets in relation to gold, specifically the Dow Jones, and when to begin liquidating gold positions in exchange for other assets.
We recommend listening to the entire commentary (and subscribing via RSS for future commentary). To fast forward to the discussion regarding a gold exit strategy, you can fast forward to 8:00 minutes into the commentary.
http://www.mcalvany.com/podcast/wp-content/uploads/ica2009-1021.mp3
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I agree, good to have a certain % of wealth in gold, but unlike the MSM, holders need to view it as a store of value more than an investment instrument and certainly not as a speculative play as most appear to be doing.
Gold market prices fluctuate between resistance and support levels, within the context of a larger trend up or down. Traders will move in and out of the market (buying and selling) within these levels and trends, to take profits or stop losses.
The average SHTF reader should be buying physical gold and silver as they can afford it, with the intent of being a long term holder of the physical metal; because the overall long term trend for the price of these metals against the dollar is up and will remain so for the forseeable future, given massive US budget deficits. That is the long term context.
Within that long term context I expect significant spikes in both directions. The looming Iran /Israeli conflict will spike the price of gold upwards, and dramatically, but it will decline thereafter. For those that can, buy now, sell some later, and then reload after the price has dropped back to more normal levels.
Repeat the process in 2012, and 2015. Profit from the waves of Change, that YOU know, is coming.