A Pullback In Gold and Silver ETFs Should Be Short-Lived (GLD, SLV)

I just returned from the Cambridge House Investment Conference in Toronto. I’ve rarely seen a group of analysts, miners and experts so bullish on gold and silver. My takeaway: We may be poised for a pullback in the very short term, but precious metals are headed much higher.

And that means we’re coming up on a great time to launch my newest report, “$50 Silver and $2,500 Gold.”

I only talked to two bearish analysts. In case they’re wrong … and I think they’re terribly wrong … I’ll not name names. But the bear case basically boils down to …

  • Gold is overbought. Gold enjoyed a great run, but is lofty at these prices.
  • The U.S. dollar is poised to rally. And since gold is priced in dollars, as the dollar goes up, gold should go down.
  • The gold market is saturated. Gold fever is peaked, and now we’ll come to buyers’ regret and selling by investors.

They’re entitled to their opinions. I just think the bearish opinions are a steaming load of bull. Here’s why …

#1) Gold is still cheap. Gold recently hit $1,310. That seems high. But adjusted for inflation, gold’s old high is $2,450, according to data from the Bureau of Labor Statistics and the World Gold Council.

Monthly Gold Prices Since 1971

That means gold is just a little over halfway to its inflation-adjusted high. While gold may look overbought technically, it can keep running if investors and traders view it as cheap. And they do!

#2) The U.S. dollar is not rallying, it’s crumbling. The once mighty greenback broke crucial support on a weekly basis, and the U.S. dollar index could be heading back to the 72 level — a level last seen during the global financial crisis.

Big head-and-shoulders pattern in Dollar Index gives us a target of 72

That’s a huge potential move in the U.S. dollar index. What are the fundamentals behind it? Well, Ben Bernanke and the Federal Reserve basically said they’d follow an easy money policy as long as they had to in order to boost the economy. And if that doesn’t work, they said they’ll try more quantitative easing.

The more money you print, the less value it has. Since hard assets — commodities — are priced in dollars, and since you can’t print an infinite supply of commodities, as the dollar goes down, hard assets tend to go higher.

#3) The gold market is not saturated. 50 million new consumers a year are joining the middle class in China, a country which has a strong cultural attachment to gold. And China is just now starting to ease restrictions on gold imports. The shortfall between mine supply and demand in China last year was 144 metric tonnes — a gap that will likely be filled by imports, sucking more supply off the global market.

All This and Silver Too!

I’m even more bullish on silver than I am on gold. I think that silver is headed over $31 an ounce in the intermediate term. Over the longer-term, I expect silver to head back to its old, unadjusted high near $50 an ounce.

Forces driving silver include soaring investment demand, industrial demand as the economies of the emerging markets kick into higher gear, and limited supply. After all, more than half of silver production comes as a byproduct of other metals. So, silver production isn’t really moved by silver demand. But silver prices can move with demand — and maybe higher and higher than many people think possible.

The way this market is moving — pushed along by competitive currency devaluation by the governments of the world and fearful consumers eager to swap their paper currencies for hard assets — the new highs could come sooner rather than later.

So, will we get a pullback in gold and silver? I certainly hope so — it would allow my subscribers to buy it cheaper. But here’s one thing my trip to Toronto taught me — there is a huge army of analysts, experts and investors ready to pounce on gold, silver and mining stocks if and when prices pull back. And it’s very likely that the buying demand from this golden horde could push gold and silver very high, very quickly during the next rally.

How You Can Play This Move

Pick #1) One of the smartest ways to play gold and silver is to buy the metals physically. Determine how much you want to spend on this investment over the course of a year and split up your money to make monthly purchases. You might be buying less each month, but you’ll also welcome pullbacks, because they will allow you to buy more metal.

Pick #2) The easiest way to buy gold and silver is through the big ETFs, the SPDR gold Trust Shares (NYSE:GLD) and iShares Silver Trust (NYSE:SLV). Every time I go to a conference like Toronto, I hear dire warnings that these funds do not own the precious metals they claim they own. Maybe so, but they haven’t imploded yet. And they still remain easy ways for individuals to play the market.

For long-term investment, however, I recommend physically buying gold and silver over buying ETFs.

Pick #3) Even better — gold and silver miners leveraged to the underlying metal. If it costs a miner $500 to pull an ounce of gold out of the ground, and gold costs $950, the miner has a profit margin of $450 per ounce. If the costs go up to $550, and the cost of gold goes up to $1,300, the miner’s profit margin per ounce increases to $750. That means its profit margin increases 66% even though the price of gold increases “only” 36%.

We’ve seen this across the mining sector in the past year. Costs have gone up, but the price of gold has gone up even faster. The effect is even more pronounced in silver, which has outperformed gold in 2010.

So what does this tell us? Select mining shares are an even better investment than gold and silver.

You have to be careful. You can’t buy just any miner, because there are some real woofers out there.

It’s Time for a New Report to Ride the Next Leg Up in Gold and Silver

That’s why I’ve written my new report, “$50 Silver and $2,500 Gold.” I’m going to fire it off to subscribers on October 8th.

In “$50 Silver and $2,500 Gold,” I give you my 10 hottest picks in precious metals to ride the next leg of the big bull market.

There are risks in buying gold and silver stocks, as there are risks in just about any investment. But gold is in a huge bull market. Silver is even stronger than gold! And in my special report, I’m also giving you my favorite pick in a “secret, super-metal” that has the potential to outperform both silver and gold!

This special report would be a bargain at its regular price of $295. Heck, subscribers to my last “New Gold Rush” report bagged more than that on just the one position they closed, and they have much bigger open gains — recently showing more than 18% after only three months. The “New Gold Rush” picks are leaving gold in the dust and running rings around the lackluster S&P 500.

Imagine how they’ll do by the end of the year … imagine what you can do with this NEW report.

Sure, past gains are no indication of future performance. But here’s the best part — I’m going to offer my special gold report to YOU for a limited time at a special pre-publication price of $195 — a huge discount!

Do Not Miss This Golden Opportunity

Sign up now, and as soon as the report’s published, I’ll send it to you directly by email.

These will be my best picks … the hottest stocks … the power-packed funds. These are the picks that can potentially make you a fortune as silver and gold blast off.

PLUS — I don’t want to give you a bunch of recommendations and leave you hanging in the dust. So I’ll throw in three follow-ups absolutely free, with your purchase of the report. In those follow-ups, I’ll update you on the latest news in silver and gold, tell you if you should add to positions, and most importantly, tell you when to sell!

Don’t miss out on this opportunity. Order your copy of “$50 Silver and $2,500 Gold” today.

P.S. In only a week, I’m going to fire off those new picks … get your report NOW! To buy it at the sweet discount price of $195 — CLICK HERE.

Written By Sean Brodrick From Uncommon Wisdom Daily

Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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