Does the Gold/Silver Ratio really mean a strong revival for "poor man's gold"...?
"GOLD IS CURRENCY," says Andre Julian, co-manager and co-owner of brokerage firm OpVest.
Registered in the US commodity and Gold Futures market since 1996, he's worked as one of the top brokers at the United States' leading brokerages. Here he speaks to Hard Assets Investor about why he favors gold over Silver Bullion today...
HAI: Starting with gold, which recently ran up to a new all-time price high. Are we facing a hyperinflation? What would gold do in a deflationary environment?
Andre Julian: I think we are in a deflationary period for the short term. Obviously, they're printing a lot of money around the world. And globally, if you look at the global economic factors, you'll see that eventually there should be inflation, just based on the amount of money that will be out in circulation.
But I don't really buy hyperinflation right now. I think that it's way too soon to even think that something like that could happen at the moment. But with gold, it's not only a hedge for inflation, it's also becoming its own separate asset; it's becoming a currency. And right now, currencies globally are ruling the investment world.
You have to look at the Euro. Everything has fallen because of the Euro right now. The Euro has collapsed, the stock market is having a huge retracement. And other currencies, like the Japanese Yen, they're going up, the carry trade is unwinding. So everything has to do with currencies this week, last week, probably the past month or so. And gold is now also being thought of as a currency and a safe haven.
HAI: How is it a currency? It's not used as a means of exchange...
Andre Julian: I think it's a currency in that it's an asset, and you can exchange that asset at a later date for a currency of your choice. If you're in Europe right now, a lot of people were trading their Euros for gold. If you have a weaker currency, and you think that your currency is getting weak, why not trade it in for a currency that's going to stay strong? So again, I know we hear it, and I know that it's a "currency". However, it's a tradable asset. And people like holding hard assets.
HAI: Yet you have Treasurys on the one hand, which represent a deflationary and a flight to quality; and you have gold on the other hand, which represents the loss of faith in paper money. Both are going up. Can that be correct, or is one of those markets wrong in its message?
Andre Julian: I think they could both be right at the same time. You have short term, you have long term, obviously. I think right now both gold and Treasurys are right because you have different segments of the population, you have different investors running them for different reasons. The Fed has been forcing our hand for years. They've kept interest rates really low, so they're trying to get people to speculate. And a lot of people are just so concerned with safety right now that they're running into the Treasurys. They're willing to accept a really low yield.
Then you have other people that, obviously, are going into gold because they want that hard asset, they want that tangible asset. Because you see inflation, deflation, it doesn't matter – over the past 10 years, look at the track record of gold. It's up every single year. It's been up nine years in a row. It's up 24% last year, 8% year-to-date. And it's slow and steady.
HAI: Let's talk about silver, which some people call "the poor man's gold". It got up to $50 back in 1980, when the Hunt Brothers tried to corner the silver market. Will we ever see that price again?
Andre Julian: You know, I don't like to say "never", but I don't see why we would ever see that price. A lot of it did have to do with the Hunt Brothers; a lot had to do with the speculation. They were holding on. They were trying to corner the market. You had a lot of exchanges that were short. And as it kept on running out, there was panic.
But that was just the Hunt Brothers coming out saying, "We're going to corner the market on silver." I don't see that happening again. There is an argument that silver is well below where it should be when it's compared to gold. But I don't buy that argument at all.
HAI: You're alluding to the Gold/Silver Ratio?
Andre Julian: Yes, the gold/silver ratio. And that's fine. I think gold is really, again, its own animal right now. Silver typically is used in industry as well, so you can put it in that batch of metals. I don't see anything big for silver to the upside or the downside. I think it's going to keep on kind of trickling along.
HAI: How would you advise an ordinary investor to get involved in gold? Through an ETF? Should they buy a Gold Futures contract? Options? Gold Bars? Gold Mining stocks...?
Andre Julian: You know, I think it really depends on who you are. We always want to give advice to a person based on their pocketbook, based on how much money they have at risk, where they want to be. Look, if you have deeper pockets, get in the futures. Get in the futures and just buy. Buy in the dips. Continue buying on the dips. When the contract rolls over, buy some more. Just hold it, if you have those kind of pockets.
If your pockets aren't so deep, and maybe you just want to stick a part of your portfolio into gold, look to an ETF, or look to options, like the call options. You know, when the market comes down, even some...a spread, a bull call spread, which is a little bit less expensive and it gets you closer to the market.
So again, it depends on your pocketbook. But it makes sense right now as a hedge against what's going on in the stock market; more than a hedge against inflation.
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