Gold: The Ultimate Store of Value?

Posted by Larry Edelson - Commodities, Stocks, Technical Analysis

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Over the past couple of weeks, gold has managed a meager rally. Yet, despite the rally, gold has already given me a major sell signal.

And another one looms ahead. Ditto for silver.

It concerns me. Why? Because I know there are scores and scores of investors who are getting bad advice in the precious metals that will result in terrible losses.

Look, gold is the ultimate store of value. That is true. And someday, gold will head north of $5,000 an ounce. Silver north of $150.

But if you want to avoid losing money in the precious metals market and instead make the most amount of money you can, you simply must get your timing right.

And just as important, you must have an open mind when investing in gold and silver. You can’t get married to your metal (or any investment for that matter) — as if investing in precious metals was some sort of religion.

Screen Shot 2014-10-29 at 6.22.25 AMFor instance, you have to realize that sometimes, gold is money … and sometimes it simply isn’t money. Or even a store of value.

Right now, gold is not money. Just consider what’s happening in Europe. The wicked and aggressive devaluation of the euro is actually starting to set off a massive stampede out of gold and into cash and other assets.

Why would Europeans dump gold, especially when their currency is being devalued?

It’s simple. The recent sharp decline in the euro caused the price of gold in euros to spike higher, while the dollar price of gold essentially went nowhere. So savvy European investors are cashing in their profits.

Moreover, European investors want liquidity, with a capital L. And holding on to gold is not a liquid situation.

Moving physical gold around isn’t so easy. It takes time and money to move your gold. And even then, you won’t know how safe your gold is, because in the back of your mind there’s always that fear that your gold could be confiscated.

The bottom line: While gold is indeed the ultimate long-term store of value against depreciating currencies and especially against failing governments, there are times when forces that are seemingly bullish for gold are actually bearish.

I call it the yin and yang of gold, and for that matter, all markets. There are always two sides to a coin, two sides to a market, two sides to every piece of fundamental news out there.

Knowing which side is prevailing, why and when — are the keys to successful investing. That requires an open mind, no biases, and lots of experience with technical and cyclical analysis.

If this sounds a bit too theoretical or complex in any way, I assure you it’s not.

Mostly, all you have to do is put yourself in the shoes of a European investor right now who owns gold.

You’re seeing your currency be devalued. You’re seeing rising taxes. You’re seeing deflation all around you. You’re seeing European stock markets fall and teeter on the edge of an abyss. You’re seeing massive unemployment.

You also know that your European leaders may confiscate money from your bank account.

You’re also frightened that Putin may soon make another aggressive move toward Ukraine, or worse, toward Estonia, Lithuania or even Poland.

You know you need cash, lots of it. So your decision is simple: Dump your gold, get liquid and get out of Dodge.

Then, either pay off some bills that need to be paid (before the euro becomes worth even less) … or get it out of the euro and into another country with a currency that’s at least losing value less quickly.

Or even better, into an investment that has a decent return, decent profit potential, and in a country and a currency in better shape than Europe’s.

Pretty simple to understand, no?

Later, in the not-too-distant future, the same fears of confiscation of wealth, rising taxes, bank failures and more will hit the U.S. and the dollar. At that time you’ll need to move your money yet again.

There won’t be many safe-havens left at that point. So you’ll probably want to go back into gold. The new bull market in gold will then begin.

So you see, none of this is all that hard to understand provided you keep an open mind, question the conventional, and do your own independent thinking.

Right now, I repeat my warnings of the past several weeks …

– Do NOT look to gold and silver for safety right nowDitto for mining shares.

– If you are loaded up with gold and silver and mining shares and don’t want to sell, for whatever reason, then at least consider hedging.

My favorites vehicles for that are ProShares UltraShort Gold ETF (GLL) and ProShares UltraShort Silver ETF (ZSL). For mining shares, I recommend Direxion Daily Gold Miners Bear 3x Shares (DUST).

– Stay predominantly in the dollar now. The greenback is in an intermediate-term bull market as the euro is now being aggressively devalued, as is the Japanese yen.

Consider purchasing PowerShares DB US Dollar Index Bullish Fund (UUP) for a speculative long dollar play.

– Buy top-rated U.S. equities. But only on declines. Keep in mind that the Dow is likely to fall further in the short-term, as low as 14,500 — but that long-term it is headed much, much higher.

Best wishes, as always …