My long-term readers know that I recommended allocating 20% of assets to silver at an average price of $17.73 and exited the position in the zone of $48 to $48.50. I also recommended buying gold in the $600s with an average price of $660, and selling half of the gold holdings at $1904 and the other half at $1757. Ever since then, our models have suggested not entering long-term positions from the buy side in the precious metal complex. Now with the benefit of hindsight our calls have proven spot on.
Click here to enlarge the chart.
The big question facing investors is when and where will be the next generational opportunity in the precious metal complex? In view of the fiat currency printing presses all across the globe, it makes sense for investors to be ready to add precious metals or miners for the very long-term to their portfolios at the appropriate time.
To understand when the next generational opportunity may occur we divide the precious metal complex into the following categories.
- Gold
- Silver
- Palladium
- Platinum
- Major gold miners
- Major silver miners
- Junior miners
In the most recent cycle, gold outperformed all other categories. Prior to that silver outperformed all other categories. The point is that it pays to pick the right category that may turn out to be the leader in the next cycle.
The chart going back to 1992 illustrates the point. ETFs such as gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and junior miner ETF (GDXJ) are a relatively recent phenomena. To get a longer term perspective, the chart compares the Central Fund of Canada (CEF) with other precious metal securities.
CEF used to be our favorite investing and trading instrument before the advent of gold and silver ETFs. CEF is a closed end mutual fund that was formed on November 15, 1961 in Canada. The fund invests over 95% of its assets in gold and silver bullion. Its shares are traded on the New York Stock Exchange and the Toronto Stock Exchange. Gold and silver bullion held by CEF is stored in the highest security rated vaults at a Canadian bank.
On the chart, CEF is shown in yellow and the scale shows in percentage the difference in performance between the six instruments shown on the chart.
Before the advent of gold miner ETFs (GDX) and (GDXJ), ASA (ASA) (shown in grey) used to be our favorite instrument for trading and investing in precious metal miners. ASA was originally started in 1958 in South Africa. Now the company is organized in Bermuda and managed out of the United States. The company exclusively invests in miners or processors of gold, silver, platinum, diamonds, or other precious minerals.
The chart shows ASA out performed CEF from mid-1993 to mid-1997 and then again starting in 2001 to the end of 2010.
On the other hand, CEF outperformed ASA from 1992 to mid-1993 and then again starting in 2011 until now…Read more at Kitco
