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Your Moment to Go for the Gold and Silver

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Few of us will ever know what it feels like to stand upon the Olympic podium, to be adorned in gold or silver as a mark of singular achievement for our country. It has to be a defining moment in the life of any competitor.

We may never stand among those decorated Olympians, but that doesn't mean we can't go for the gold.

Although gold and silver have already seen historic price increases over the course of this nine-year secular bull market for precious metals, I submit that the truly defining moments of this long-term trend have yet to transpire. When they do, I believe that investors will either find themselves standing on the podium of gold and silver gains, or watching from home and wondering why they did not join the race.

Economist Nouriel Roubini gave newcomers to gold a good scare last month when he confidently declared a top in gold, but 71% of nearly 5,000 Fools responding to a Motley Poll agreed that Jim Rogers' expectation for $2,000 gold is more attuned to a world in which major paper currencies are deeply impaired by ballooning sovereign debt and persistent exposure to toxic derivatives.

Putting their money where their mouths aren't
Even Rogers' Quantum Fund co-founder, George Soros, who confused and rattled investors when he called gold "the ultimate asset bubble" in Davos last month, was busily ramping up his gold exposure during the fourth quarter, increasing his hedge fund's stake in the SPDR Gold Trust (NYSE: GLD  ) by 148% to 6.5 million shares.

More interesting still, despite the lip service paid to fears of a gold bubble by a central bank official in December, China's sovereign wealth fund gobbled up gold exposure. While pundits were busy issuing predictions of when and how China would purchase the remaining gold available for sale from the International Monetary Fund (IMF), the China Investment Corp. (CIC) quietly amassed gold holdings that include a $145 million stake in the GLD gold ETF, and smaller stakes in major miners like Gold Fields (NYSE: GFI  ) and Freeport-McMoRan Copper & Gold (NYSE: FCX  ) .

I have argued that China's broader, global resource grab was the most overlooked story of 2009, and encourage Fools to view these gold purchases within a context of related moves, like CIC's $1.5 billion investment in coal, copper, and zinc miner Teck Resources (NYSE: TCK  ) .

Emerging legend John Paulson, who is placing his money where his mouth is, continued to increase his fund's stake in miner Kinross Gold (NYSE: KGC  ) during the period. His fund also retained a massive stake of 31.5 million shares of the GLD at year's end.

No shame in silver
It might offer limited consolation to American speed-skater Apolo Ohno, but there is no shame in placing second. Silver investors are well-accustomed to their metal playing second fiddle to gold in terms of both notoriety and performance. Fools may recall my discussions of the slingshot effect, which provides for the likelihood of even greater moves by silver than gold on a percentage basis as this bull market matures.

I am standing by my selection of Silver Wheaton (NYSE: SLW  ) as my top pick for 2010, and fully endorse Fool community favorite Hecla Mining (NYSE: HL  ) as another high-quality silver play.

You can't win unless you compete
With further accumulation of widespread investment demand for gold, underpinned by increasing clarity in the outlook for fiscal distress within the developed Western economies, I continue to view gold's prospects for reaching at least $2,000 per ounce as something of a foregone conclusion. I know many of you don't share this view, but I hope some of you will take this opportunity to reassess your opinions about precious metals ... in case this really is your last chance to buy cheap gold and silver.

I agree strongly with Marc Faber that downside risk is limited at this juncture, and perceive a likelihood that $1,000 will hold as the new long-term floor beneath the gold price. Although I telegraphed gold's last major breakout back in September 2009, and then urged near-term caution just as the metal reversed course once more, I claim no prescience over whether gold will move steadily higher from present levels or dive downward to retest that $1,000 mark.

I encourage Fools to focus more upon the long-term trend that's in place, rather than attempting to time such oscillations with consistency.

Meanwhile, the only call regarding precious metals that truly matters for investors, in my opinion, is the decision of whether to continue to stand on the sidelines of this intact secular trend, or to compete for a chance to experience the kind of defining moment for investors that select Olympians might well understand.

Take the Motley Poll below, then scroll down to the comment box to elaborate.

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 48 potential investments, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker carries a silver coin that reads: "Honest value never fails." He can be found blogging actively and acting Foolishly in the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Freeport-McMoRan Copper & Gold, Kinross Gold, Hecla Mining, and Silver Wheaton. The Motley Fool's disclosure policy is 0.999 pure.

Read/Post Comments (10) | Recommend This Article (37)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 19, 2010, at 2:32 PM, catoismymotor wrote:

    SLW is one of my favorite LTBH companies. It has too many things going for it to ignore, even if you are not into precious metals.

  • Report this Comment On February 19, 2010, at 4:35 PM, DMCGAHANSR wrote:

    SLW is far and away my primary core holding. A distant second is AXU and third is XRA. If the economy tanks the dollar is toast, and silver will follow gold for awhile and then, hopefully move towards the historic ratio betwen the two. In addition, inasmuch as silver is primarily a by-product of other base metals, new silver coming on the market will be restricted.If the economy recovers, the increased industrial use of silver will buttress the historic monetary demand for precious metals. In striving to protect the diving dollar, the govt will go to great extremes unimaginable at the moment to depress gold, of which they still probably have a vast store. There isn't too much they can do directly to kep silver down....they just plain don't have any, and JP Morgan must have a limit somewhere to their ability to short.

    If uncontrolable inflation occurs, to some degree, while it will inflate the price of both gold and silver, it will also inflate the cost of their production. For some producers, especially the lower grade producers, they may be caught in a squeeze. With SLW we do not have that worry, their cost is fixed between $5 and $6 per oz, net of all admin expenses, etc. I can't imagine a stock that affords such leverage. As a final thought, bear in mind whom they are in bed with, Goldcorp, Alexco,Barrick, et al. If silver never appreciates, their profit margin will still be worth salavating over, and cast an eye on their projected

    prduction growth....Nuff said.


  • Report this Comment On February 21, 2010, at 1:53 PM, PositiveMojo wrote:

    I just increased my position in Newmont Mining and it's up $2 and climbing.

    Not only gold and silver - titanium isn't a bad bet - I made a 76.4% return from Nov '09 to Jan '10. I sold, it pulled back - and now I jumped in again. Check out TIE.

  • Report this Comment On February 21, 2010, at 2:03 PM, walterallenhaxon wrote:

    Simple math tells me that 50% of your cash holdings should be in physical precious metals as insurance against inflation or deflation. To increase your security you could put it in all 4 of them. Investments are something else entirely.

  • Report this Comment On February 22, 2010, at 12:14 PM, deadcatbounce09 wrote:

    Everything in this article seems to imply a bubble. Couldn't you have said "everyone else is doing it" during the subprime mess as an argument to participate?

  • Report this Comment On February 23, 2010, at 3:52 PM, georcole wrote:

    Like Buffett said, "Be greedy when others are fearful and fearful when others are greedy." Right now, everybody is saying to buy gold, including the 71% of Fools in the survey the article mentioned. Watch TV and you will see countless ads saying that they will buy your gold or that you should invest in gold. Drive through your local downtown area and see the signs saying that they buy gold. I am not saying that I think we have hit a top, but I am cautious at this point.

    I do own shares of TGB, but they aren't as heavily reliant on gold. They are much more focused on copper, which is actually useful. I am also very much into positive territory so that unless they file bankruptcy and shut the doors forever, I will be able to get out and still make money.

  • Report this Comment On February 25, 2010, at 12:53 AM, SLTFATF wrote:

    Hi Chris, I have a question for you.

    Can we compare gold to oil for a second? Back in '08 when oil was round 150 a barrel everyone was seeing it going higher. The peak oil argument made sense. It still does, and oil will probable hit new highs. But the price fell considerably overnight, by what fundamentally amounted to a huge drop in demand.

    Now the sanest arguments in the gold space call for gold to continue to rise in demand. Yet, I read that guys from kitco have said that the gold supply/demand fundamentals indicate that gold is poised for a fall near term. This is mainly due to an increase in production from so many mines coming online.

    So I'm wondering, do you think we'll see a big correction in gold before we get to the point where gold starts to really take off?

  • Report this Comment On February 25, 2010, at 11:51 PM, rfaramir wrote:

    I'm not Chris, but in short, no, we won't see a "big correction in gold" before it start to really take off.

    Too many countries are now looking to buy more gold to 'back' (or give at least a little credence to) their currencies. They have miniscule percentage gold backing now, they want the stability of more. So when gold slips a little, they buy, keeping the price from falling much. China is the big buyer, but they're not the only one.

    To look at it from another point of view, you're spending dollars (probably) to buy gold; what is happening to the supply of dollars versus the supply of gold. Gold production is falling, and miners are scrambling to locate and produce more. Trying harder and harder as the dollar falls. Let's say they are able to just keep up. That's a pretty stable gold supply. But the dollar supply keeps getting bigger. By leaps and bounds. There is no limit to the amount of electronically 'printed' dollars available, not even the maximum speed of the printing presses.

    Because of this, the 'exchange rate' of dollars to gold will have long term upward pressure for the foreseeable future. That doesn't mean a steady upward climb (what is steady about such an emotional commodity?), but don't look for any large 'corrections'.

  • Report this Comment On February 27, 2010, at 3:46 PM, altonoch wrote:

    With the ability to buy and sell precious metals via etf's, does it make sense that if investors need actual money they may cash these out decreasing demand? How much, if any, could the need for money cause metal etf's or mining stocks to be cashed out?

    Silver, having not only psychological value but also industrial value seems to me a better option. I own slw and slv. If it is true that energy storage via silver batteries will be superior to lithium ion with continued research (mainly improvement in recharging if I am correct), would'nt this create an almost inexhaustable demand?

  • Report this Comment On July 12, 2011, at 12:30 PM, nafeponline wrote:

    Having some sort precious metals in your IRA is not only a safe, and stable investment. It can also turn out a good investment with metal prices having some rises in the last couple years with our current economic state. It could easy have a huge spike if our economy turns for the worst. Just looking at history's of prominent precious metals like gold and silver can show how important investing in it can be.

    I also agree that silver will always be a necessity. It's used in so many more areas than gold. If they do figure out more efficient battery storage with silver over lithium Ion and kind of silver stock or owning physical silver will see a major increase in value.

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