Written by Chris Marcus for the Miles Franklin blog.
If you’ve been reading the Miles Franklin blog, you’re likely already aware of some of the many reasons to be excited about investing in gold and silver. Although a question that comes up often and is relevant to investors, is how do you know when it’s time to sell?
Like with many of today’s investment decisions, this one comes with its own set of challenges. Because we are hardly in a “normal” market. And especially with the unprecedented amount of manipulation and distortion in today’s markets, thinking about when you would sell gold or silver is an interesting question that’s worth considering.
In Jack Schwager’s “Market Wizards” series of books, where he interviews some of the world’s most successful traders, many of them mentioned how one of their keys to success in trading is in having an exit point for their trades.
So how does that apply to precious metals? Where most are purchasing gold and silver as a specific response to the expected decline or collapse of the dollar.
And in this scenario, where the dollar loses its reign as the world’s reserve currency and enters a more overt stage of hyperinflation, what do you do with your gold and silver?
If gold reaches over $2,000 per ounce and silver trades over $50 per ounce, is there a point in which you sell in order to receive a profit in dollars?
Obviously this is a personal decision that’s going to be different for each investor. But to the general point of wondering whether you’d want to sell your metal to convert back into fiat, at the same time the fiat system is crumbling, does it really make sense to convert back into dollars?
There’s a degree to which the answer depends on the details of how the situation unfolds. If the price of metals skyrocketed, and that was somehow accompanied by a cogent plan out of the Fed and Washington to reduce the money supply and debt load, that would be one scenario.
Whereas if the printing press is just cranking faster than ever, and investors are fleeing the dollar before it’s too late to get any of their value back, that would be a different situation.
Now given that the first scenario seems incredibly difficult to imagine, while the latter seems much easier to picture, let’s consider a thought process on how to decide what to do if the paper currency market is completely unraveling.
Because in that scenario, if the world is flocking to precious metals and losing faith in the paper currencies, I wouldn’t want to trade my gold and silver back into dollar paper.
Yes, there is always the possibility that we experience something similar to what happened in 2011. Where the metals spiked for a while, but were then subsequently hammered lower.
Certainly if you have reason to believe that the price is going to drop at some point, then selling could be a good decision. But again in this scenario where a true flight from the dollar has commenced, capturing a drop in the price like that becomes rather tricky to pull off. Which again makes the idea of trading metals for cash less attractive.
But when does it make sense to sell?
As I’ve thought more about this, what seems to me a better approach, is to consider selling precious metals when other assets outside of the paper currencies look inexpensive by comparison.
For example, let’s say that the precious metals spike, and the real estate bubble begins to pop. If precious metals reach new highs while real estate reaches new lows, then at some point, trading precious metals for real estate or other underpriced assets starts to make more sense.
Because rather than going back to dollars, which in a hyper-inflationary scenario would be expected to continue to decline, at least you can still pick up a tangible asset that you feel is undervalued at that point.
Maybe it’s not real estate, but other commodities. Or something like agriculture. Which again would seemingly thrive in that type of environment. Or if you have expenses or debt to pay off, that could be another worthwhile trade.
With again the key advantage being that rather than converting back into dollars, you can buy other assets that are relatively cheap and you expect to rise in value.
Perhaps it’s a subtle distinction, yet one worth considering. Because it requires a shift in mindset, and getting away from the way we’ve looked at the markets for so many years and decades. In terms of going back and forth between assets and dollars.
I don’t know if there’s ever been a time like now where there is more uncertainty in terms of how the market events will unfold. So it’s difficult to be overly specific in the parameters of the exit point of the precious metals trade.
But taking the perspective of considering what else you can get with your precious metals gains outside of just going back to paper could allow you to continue to grow your profits.
Rather than having all of your patience pay off, just to lose it back to the collapsing dollar.
–Chris Marcus
To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).
