One of the trickiest parts of investing is refusing to get caught up in the day-to-day whims and volatility of the markets. I learned this the hard way in 2008. I was just getting started in stocks, and I thought banks were getting unfairly punished by the markets. I bought at precisely the wrong time, and watched some 60 percent or more of my portfolio evaporate. I was eventually forced out of my positions courtesy of a margin call. If I hadn’t been trading on margin, I would have been in the green by now, but alas, I didn’t have enough of a cushion to absorb the panic that struck the markets just a few short years ago.
It was a valuable lesson, and it’s one that I keep thinking about as I watch the volatility in the gold and silver markets. Over the past 30 days, writes analyst James West, the price of gold has swung between $1,340 and ounce, and $1,420 an ounce, giving it a volatility ratio of 5.6%. Silver, in the same period traded between $25.38 and 30.50, which gives it a 16% volatility ratio. Oil’s volatility range over thirty days lies between $80.28 and $90.87, or 11.65%.
Unlucky timing in your silver investment means you could be down double-digits on your precious metals investment in just four short weeks. That’s not a good feeling. During such times, though, it’s particularly important that you look at why exactly you’re investing in gold and silver in the first place.
For me, it’s not so much certainty that the price of metals is going to keep rising; it’s rather a certainty that the value of the dollar is going to keep falling. QEII is nothing more than a fancy name for borrowing cash. The U.S. government is pulling out its debit card in an attempt to spur banks into lending, small businesses into hiring and big fish investors into scrambling out of bonds and into riskier, more lucrative investments such as stocks.
When money’s cheap, it makes no sense to leave it stashed in a money-market account. Even my “high-yield” Virtual Wallet savings account with PNC is pulling in just 1 percent a year. That’s pitiful compared to the nearly 20 percent returns I could get from a well-picked REIT. We’re in an environment where borrowing pays, and that’s precisely the sort of environment that breeds bubbles. And the writing on the wall says that the bubble is going to be in commodities. Demand for things like gold, silver, copper, coal, oil and natural gas – even wheat, cotton and sugar – is going to keep rising, even as the value of the dollar and other currencies falls. That will push up commodity prices over time.
It doesn’t matter what prices do in the short-run. It’s the end result that everyone knows is coming that’s important. Keep that in mind while your silver stocks bounce around like a buoy in a storm, and you’ll be a lot better off than you would if you keep checking the charts every 20 minutes. I learned that the hard way, and I expect a lot of people are doing the same thing right now. Don’t be one of them, and you stand to come out ahead of the inflation that’s just starting to peek over the horizon.