Do you want to know why you should choose gold and silver over stocks? Then continue reading on below.
Ever since the financial crisis of 2008 the stock market has displayed a strong technical pattern – gradually reaching higher highs and higher lows. Much of the debacle about Europe’s debt crisis and the U.S. fiscal cliff seem to have fizzled out, and we are now left with a stock market that has risen in six months what it usually does in a year on average.
So, does that mean that everything is fine and dandy and that we can forget about the behavior that led us into the 2008-2009 mess in the first place? Perhaps the central “banksters” have found a new magical recipe for a continuous and sustainable growth? Unfortunately, this is not the case.
Many investors are victims of something called “recency bias”. This term, in an investment sense, explains the behavior to extrapolate the most recent stock market performance for future performance. In plain English, this means that if the stock market has risen, then investors tend to assume that the market will continue to rise. If stocks on the other hand have declined, then the opposite would apply. After a very strong stock market performance over the last few month’s people are now most likely assuming that this will continue. Personally, I think we are in for a temporary correction shortly, but that is not the topic of this discussion.
The real question is how sustainable today’s stock market performance is. Many investors are now selling gold and silver to invest in stocks. Although it may not necessarily be a bad idea to have exposure to the stock market today, selling off precious metals to invest in more risky assets can set you up for serious wealth destruction in the future. Let me tell you why.
Much of today’s stock rally is a direct result of the stimulus efforts of central banks around the world. In the U.S. they are even explicitly stating that rising stock- and housing markets will create a “wealth effect” that will boost consumption and thus be positive for the economy.
Through the quantitative easing programs QE1, QE2 and now QE3 in the United States an excess amount of capital has been printed – leading to a fourfold increase in the monetary base in just the last ten years. In Japan, the goal is to double the monetary base in just a couple of years, through an unprecedented stimulus plan.
Even though the stimulus capital still hasn’t entered the economy or the money supply in full, asset prices are still rising as a result of it. Today, much of the “growth” is driven by institutions and banks, which have easy access to loans. Individuals on the other hand still have difficulties in gaining access to capital – but this won’t last forever. Eventually the dam will burst and when it does inflation rates will soar. Neither bonds nor stocks perform well in such an environment. In that situation you will want to own gold bullion and silver bullion.
As we’ve talked about before though, you don’t want to be a buyer when you need or have to – you want to be a buyer when you still have a choice. That way you won’t have to pay premiums that are sky high and you also ensure that you get as many ounces as possible for your fiat currency.
If you feel like playing the stock market then by all means do – but don’t mistake the artificial rally we are seeing now with anything close to sustainable growth. You don’t want to get caught when the trend reverses.
So, don’t sell your gold and silver now. Use the current drop in prices to continue adding to your holdings by buying silver bullion and gold bullion when opportunities like this arise. All in all….choose gold and silver over stocks today whenever you see situations like the prevailing ones.
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