Saturday, February 26, 2011

Are You Going "All-In" On Gold And Silver, Yet?

One of the surest signs of a top (and possibly THE top) is when people go "all in" on an asset class, as many precious metals lovers have done.

The reason I believe precious metals are holding up here is because the big boys have not completely sneaked out of the backdoor yet. But perhaps they may have already done so. New speculators coming in on these thin markets can help prop the prices up a little longer.

I recommend using some prudent asset allocation at this time. Certainly don't stay all-in.

As with everything else, when nobody can properly value an asset class that has been rising spectacularly (combined with people going all-in), you know the end is near. Even George Soros doesn't know how to value gold; he's just in for the "bubble" ride, as he puts it.

An inability to value an asset class may be a positive thing for precious metals investors because they don't have to put a P/E on these things. All they have to do is talk inflation and money printing, and you can talk these things for a very long time. At least during the internet bubble people could see P/E's of 200-500 so they can sell if they didn't believe in the valuation.

As inflation protection, dividend-paying stocks, not gold or silver, are still one of the best ways for long term inflation fighting. Many people made a lot of money by buying beaten down dividend payers during the recent bear market.

The equities market is doing well and will continue to do well. By the way, we may not have inflation, but rather an increase in demand of all commodities due to China and India wanting to be like us. Gold and silver are commodities too and they are thinly traded (like many other commodities) so it doesn't require a lot of money to get them moving.

Be careful out there.

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