Over the last few months we have seen an increase in volatility in the metals market. When numbers start bouncing, many buyers get worried. So what is one to do?
My first thought is to look at your metal buying strategy. I have always taken the approach that buying over time is the best long-term approach. Just like a savings account, being diligent and consistent is the best way to buy metals. This avoids buying on a spike or buying heavily on a dip only to see it dip further. Setting up a regular buying time and amount, whether it be in ounces or dollar amount, is a long-term building strategy that works for many. By doing this it also prevents letting the emotions talk you out of making the purchase only to watch the price rise again. Conversely, it prevents buying in large quantity only to watch the price dip and regret set in.
This strategy stems from looking at metals as a protection or hedge rather than an investment. As an investor, one looks for a return on their investment. Metals are not quite the same. With metals, the only value is the price. There is no dividend, no buy outs or hostile takeovers, and no management issues. The only true affects on price is supply and demand. Gold and silver have always been coveted not only by individuals, but also governments for its stability as a tradable commodity. Because it has always been of value it has become a good thing to own.
People who are looking to trade metals as an investment can profit in these volatile times. During the last year, gold started at about $1,200 rose to $1,339, dipped to $1,140, and is now right about $1,200.
Using $1,200 as a baseline, one could be buying the dips and selling the spikes. This is certainly a strategy that carries risk, but all investments do. Trading is much different than buying and holding, but for those with a risk appetite it can be profitable. I do find that most do not have enough information to make informed decisions, but if one really wants to trade in metals there is a host of ways to gather the information needed.
When it comes to quantity, not going overboard is probably prudent. In the last few years we have seen a spike in those cashing in large cash positions and strategically placing much of their net worth into precious metals. While many are doing this because they are afraid of the dollars ultimate value the fact is one still needs dollars to pay bills and do commerce. Timing is also tough. It is always hard to call when the best time is to cash in and few ever guess correctly. Because of this, it is usually best to keep your metals portfolio in the 5-15 percent range of your net worth.
Buying and holding seems to be the best way for most to buy metals. It can act like a savings account or nest egg that provides security for an emergency or planned purchase. Trading can be profitable, but one must put in a tremendous amount of time in order to have a clue what the short term trends are doing. Having a strategically planned course of action prevents letting the emotions take over in the long-term. Smaller incremental buying is not as fun, but in the long run it can build into significance.
Allen Rowe is the owner of Northern Nevada Coin in Carson City.