I have recommended gold and silver for a few years. In September/October, 2008, we went through a difficult period for all when gold managed to hold its own, and stocks crashed up to 60 percent. Now the stock market is still down, even after a 30 percent rally. Silver took a beating.

Now silver is nearing a new high. It went as low as a little over $9, and is now almost $16. It’s a long ways from being too late to buy in.

Some of you are asking me about storing metals with the seller or buying ETFs. No! No! No! That’s paper metal, and there is no way to ensure they are actually putting aside the metal.

One of my recommended companies, Investment Rarities (www.investmentrarities.com) works with a bonded storage company that will store 1,000 oz. bars of the metal for you. They will give you actual serial numbers on the bars, and you can take possession of it on demand.

But if you have a 1,000-ounce gold bar, how would you use some of it to buy groceries? The best way is gold and silver coins. Silver coins will be the most useful for the quantities in which most people buy things.

I also prefer silver because it is less likely to be seized by Government. Government will probably not even want to seize gold as Roosevelt did. At that time, gold represented government wealth and Roosevelt wanted to repair the government’s balance sheet. Right now, the government is treating gold as just another commodity, and they are making gold coins and selling them. So it is possible, but not likely.

There is very little likelihood that they will ever want your silver because the silver market is so tiny it will not make one bit of difference to them. So seizure is less likely.

Fake-outs Continued

In the last Ruff Times, I wrote about stock market fake-outs – false rallies that raise false hopes. Now more financial advisors are telling everyone the market seems to be recovering. Don’t believe it!

During the big stock market crash from 1929 through the 30’s, the market had a huge one-day drop in 1929, then rallied dramatically into 1932, and then plunged to its eventual low of the Dow.

I believe we will see more fake-outs, and we’re seeing one right now. This market rally has no legs. Short-term speculators will probably make some money if they time it right, but that’s not my game. Stay with investments that have the best long-term trend ahead of them.

Someone once asked, “Howard, you have always said ‘buy low and sell high.’ The stock market is low, shouldn’t I buy now then sell high?”

No, the market is not low as measured by its high PE (Price Earnings ratio) and its sagging earnings, which will get worse as time goes on. The market cannot withstand the major inflation we will see towards the end of 2009. Don’t listen if some-one tries to suck you into it. They will try to get you to play the short-term trader’s game, and that is a loser’s game. Eventually the market will win.

If you are a speculator and can afford to lose the money, then go ahead and lose it or stick with the long-term trends. My job is to ferret out the trend of the future and that trend is inflation. Remember Will Rogers said, “Invest in inflation, it’s the only thing that’s going up.”

The most money to be made by betting on inflation will be doing it while the fundamentals are clearly being laid. Prices have not yet reflected it, but they will.

When I do speaking engagements, the brokers in the audience won’t like what I have to say. Wall Street has never approved of me, but I am still here, and most of them have left the brokerage business.

I will go out in a blaze of glory and bet my future (with less of it left) that I’m right. All you need to make money is guts.

Subscriber Question

Dear Howard,

Please make a statement about an exit strategy from gold stocks, if they have a huge increase. What if a gold stock goes from $30 to $80? Do I cash out and go to a weaker dollar again within my brokerage account? Convert to another currency?

Thanks,

Jason

Dear Jason,

What you suggest is a short-term strategy where you juggle your money to try to take advantage of short-term moves.

If you sell your gold or silver, you will be hit with a 28 percent tax on your gain as a collectible. We are working with two senators and one congressman to change that tax rule so it could be ordinary capital gains. But why should you reward the government with any amount of taxes for your perspicacity in buying silver or gold stocks.

Don’t jump from one train to the other. You could fall on the tracks, if your timing isn’t perfect.

My recommendations are for the long-term only, and I will not try to out-guess short-term moves, even if we have spectacular moves which tempt you to take profits and find a cheaper place to put your money. It’s up to you, but you’ll have to do it without my help.

Another Query

Several subscribers have asked me about investing in the Swiss franc in place of gold. The Swiss franc is backed by gold.

Back in the ‘70s, when I was on Wall Street Week, one guest host chewed me out for not recommending Swiss francs because they had done so well. My defense was to point out that gold and silver I had recommended were doing even better. Nevertheless, a lot of people made money in the Swiss franc as it was a very strong currency versus the dollar and served as an adequate inflation hedge. The franc was not as good, but still pretty good.

Build your portfolio around precious metals bullion and coins, but if you wish to put some of your money into the Swiss franc, that’s fine. You can open a Swiss bank account and put the cash into any currency you want, or even put your Swiss bank account into gold or silver.

I will write more about this later, but in the meantime, I don’t object to buying the Swiss franc, I just don’t think it is as good a hedge bullion.
The franc is fine as a hedge against the dollar as it weakens against other currencies.

Kitco