Category: Precious Metals

I recently liquidated 2 Perth Mint silver bullion bars each weighing 1kg last month. I purchased them in early August 2009 through respectable dealers in eBay. I’m still holding on to some Australian, Canadian and Singapore silver coins bought over the years as collection.

The main reason for selling away my bullion bars, even though there might be room for price appreciation amid the uncertainties, are due to these charts:

(graph courtesy of http://www.kitco.com)

(graph courtesy of http://www.cx-portal.com/metal/silver_en.html)

As you can see from the charts, the price of silver has shot through the roof over the past year and it might be in a bubble stage now. The graph is of a parabolic nature. A parabolic graph occurs when panic buying sets in and people are rushing to get a piece of the action, regardless of the price. They don’t want to be left behind and this is driven by greed. It is evident that people are rushing in from the volume which has been increasing ever so quickly over the past year. Many people in the streets are talking about buying silver and gold. When laymen who do not know much about investing or trading recommend stocks or commodities to buy, it’s almost time to get out. Warren Buffett’s saying “Be fearful when others are greedy” rings in my mind.

My plan when I bought into silver was to keep it all the way and not sell it at all. I did a blog post on why I believe in silver and gold for the longest term here. However, when I saw the silver graph after a long time last month, it scared the sh*t out of me and I wanted to sell my silver bars to lock-in my profits.  You might say that I’m fickle-minded but no one has ever lost money by taking profits, right? I might buy them back once the price settles down or just use the money to buy more wonderful companies amid the sell-off and collect dividends meanwhile.

Precious metals, namely gold and silver, have been backed by many to be a safe haven amid economic uncertainties. Currently, there are so much uncertainties surrounding investors like the US debt ceiling debacle, China’s raging growth and inflation and debt problem in Greece, among others. The price of silver and gold has been rising through the roofs and they have been breaking new highs frequently. As of Friday’s closing, gold is at US$1631.20/oz and US$40.10/oz for silver.

I have been a firm believer in silver and gold since I started reading a book called “Guide to Investing in Gold and Silver” by Michael Maloney back in July 2009. Michael Maloney belongs to the “Rich Dad Advisors” founded by the famous Robert Kiyosaki. I was converted after reading the many explanations espoused in the book. The one thing that is etched in my mind is that paper money can be printed whenever needed but gold and silver cannot be “printed” and is at a limited supply in the world. Paper money is backed to nothing – just thin air, but gold and silver will not lose its value at all.

Many value investors, including Warren Buffett, doesn’t believe  in buying gold and silver. Warren Buffett once said that he doesn’t buy into them as he doesn’t know how to value them unlike businesses. Below is what Warren had to say during a CNBC interview on 2nd March 2011:

BECKY (CNBC reporter): Well, speaking of gold, though, we’re looking at gold prices and they were at another record high. They’re up another $3 today, $1,434 an ounce. And there have been some big fat hedge fund managers, like a Paulson or a David Einhorn, who have really buckled down on these bids. Why would you steer clear? And do you think what they’re doing is the wrong thing?

BUFFETT: Well, I just don’t know. I don’t know whether cotton’s going to go up.

BECKY: OK.

BUFFETT: I mean, we use a lot of cotton. I’ve watched it go from 80 cents to $1.90. You know, we use a lot of copper and I’ve watched it go from $2 to $4-plus, so I mean there’s all kinds of things in this world that are going to go up and down in price. You know, maybe hamburgers will tomorrow. And – but I – I’m – I don’t know how to judge that. I do know how to judge to some extent the earning power of some businesses. And the real test of whether you would like it as an investment is whether you would be happy if it never got quoted again, and just in terms of what the asset did for you. But that doesn’t – I will say this about gold, if you took all of the gold in the world it would roughly make a cube 67 feet on a side. So if you took all the gold in the world, we could have a cube that went down there 67 feet…

BECKY: Uh-huh.

BUFFETT: …67 feet high and that would be the whole thing. Now for that same cube of gold it would be worth at today’s market prices about $7 trillion. That’s probably about a third of the value of all the stocks in the United States. So you could have a choice of owning a third of all the stocks in the United States or you could have a choice of owning that little block of gold, which can’t do anything but kind of shine there and make you feel like Midas or Croesus or something of the sort. Now, for $7 trillion, there are roughly a billion of farm – acres of farmland in the United States. They’re valued at about $2 1/2 trillion. It’s about half the continental United States, this farmland. You could have all the farmland in the United States, you could have about seven Exxon Mobiles, and you could have $1 trillion of walking around money. And if you offered me the choice of looking at some 67-foot cube of gold and looking at it all day, you know, I mean touching it and fondling it occasionally, you know, and then saying, you know, `Do something for me,’ and it says, `I don’t do anything. I just stand here and look pretty.’ And the alternative to that was to have all the farmland of the country, everything, cotton, corn, soybeans, seven Exxon Mobiles. Just think of that. Add $1 trillion of walking around money. I, you know, maybe call me crazy but I’ll take the farmland and the Exxon Mobiles.

For myself, I believe in gold and silver and will keep them for the longest term. I believe that the value of these metals will only rise due to the fundamental reason that they cannot be “printed”. What are your thoughts? Please share them in the comments section.