A 'Perfect Storm' for Precious Metals

A 'perfect storm' for precious metals... Why gold and silver could absolutely soar in the years ahead... But could be due for a 'breather' in the short term... Don't miss your chance to walk away with over $20,000 worth of gold...

Regular Digest readers know we've spilled a lot of ink covering precious metals lately...

The reason is simple. For the first time in years, everything is lined up for higher prices...

First and foremost, gold has long been the ultimate "chaos hedge," as our colleague Dr. David "Doc" Eifrig likes to say. Between the ongoing trade war, geopolitical tensions, and new signs of economic weakness, global uncertainty is surging.

Gold traditionally has also been one of the best defenses against monetary 'shenanigans'...

And after showing some small signs of restraint over the past couple years, the Federal Reserve and other central banks are suddenly full-on "dovish" once again.

This shift has resulted in an explosion in negative-yielding debt, which just passed a mind-boggling $15 trillion this month. And as you can see in the following updated chart – which we originally published last month – gold has been tracking this move almost perfectly...

Finally, in addition to positive fundamentals, gold's 'technicals' are looking positive as well...

After five years of failed attempts, gold finally staged a major breakout in June when it soared above $1,400 an ounce.

Gold has continued its uptrend since then, touching $1,500 earlier this week. And as we just noted on Wednesday, silver now appears to be breaking out, too.

This is all great news...

It suggests the next great gold and silver boom is underway.

However, as we often say, markets are like sprinters. They can't run all out forever. Even the strongest rally needs to take a "breather" from time to time.

And according to our colleagues Ben Morris and Drew McConnell, there's one big reason to believe this rally could be due for a breather soon: Speculators are getting downright giddy about silver today. As they explained to their DailyWealth Trader subscribers this morning...

Silver has performed poorly for years now. After its August 2016 peak at $20.62 per ounce, silver dropped 32% to around $14 per ounce by November 2018.

But lately, it has been on a tear. Silver has jumped 19%, to around $17 per ounce since the end of May.

In the five-year chart below, you can see the price of silver (the black line) and speculators' futures positions (the blue line). Right now, speculators are extremely bullish...

Why is this concerning?

Because as longtime readers may recall, speculators are considered the "dumb money." They're often wrong at extremes. More from Ben and Drew...

Industry professionals (or "commercial" traders) use futures as a way to protect their businesses from price fluctuations. And the folks who often take the other side of their bets – hedge funds and other traders – are speculating...

[That] makes speculator sentiment a "contrarian indicator." Speculators are often extremely bullish (expecting an asset to go higher) at market tops and extremely bearish (expecting it to go lower) at market bottoms.

When speculators are wildly bullish, it's a warning sign... And when they're overwhelmingly bearish, it's a sign the asset may be ready to rally.

Now, it's important to remember that sentiment should not be used as a short-term timing tool...

It can often remain elevated for a long time before it finally reverses.

In fact, as Ben and Drew noted, that's exactly what happened during the last big rally in 2016. Speculators first became extremely bullish early that year... yet silver continued to soar for months before finally turning lower.

This could certainly happen again.

So, what should you do with this information?

Well, it's certainly not a reason to sell all your precious metals. Like us, Ben and Drew believe gold and silver are likely to move much higher over the long term. But investors looking to buy more precious metals should be patient...

We like the idea of owning silver for the long run. But it's up 19% in less than three months. That's a big move in a short time... And it will take a breather, probably sooner rather than later.

If you're looking to speculate on higher silver prices or if you want to add to your current silver position, you're likely better off waiting for a better entry point...

If silver pulls back in its uptrend, speculators' positions will likely fall back into the "neutral" zone. That will be a good opportunity to add new bullish positions.

We agree, but with one important caveat...

If you have not yet followed our advice and put at least 5% of your portfolio into precious metals – we would still recommend buying a small position today.

Given all the reasons we mentioned above, we believe owning no precious metals could be a far greater risk than buying before a correction.

If you're looking for even more guidance in navigating the ups and downs of the gold and silver markets, be sure to join us later this month...

As we noted earlier this week, renowned gold analyst John Doody is officially joining the Stansberry Research team. And to celebrate, we're holding a special event on Wednesday, August 21.

During the event, John will share all his latest thoughts on the precious metals bull market... And you'll have the chance to walk away with more than $20,000 in gold coins, just for attending. Click here to learn more and reserve your spot now.

New 52-week highs (as of 8/8/19): Automatic Data Processing (ADP), First Majestic Silver (AG), Corteva (CTVA), DB Gold Double Long ETN (DGP), Equity Commonwealth (EQC), Franco-Nevada (FNV), SPDR Gold Shares (GLD), Barrick Gold (GOLD), Hannon Armstrong Sustainable Infrastructure Capital (HASI), Hershey (HSY), Invesco Value Municipal Income Trust (IIM), iShares U.S. Home Construction Fund (ITB), Kirkland Lake Gold (KL), Lockheed Martin (LMT), Lundin Gold (TSX: LUG), McDonald's (MCD), Motorola Solutions (MSI), NovaGold Resources (NG), Nestlé (NSRGY), Nuveen Municipal Value Fund (NUV), NVR (NVR), Pan American Silver (PAAS), Polymetal (LSE: POLY), Royal Gold (RGLD), Stryker (SYK), AT&T (T), Vanguard Inflation-Protected Securities Fund (VIPSX), Wheaton Precious Metals (WPM), W.R. Berkley (WRB), and Aqua America (WTR).

In today's mailbag: More feedback on our colleague Bryan Beach's recent "rant"... and a question about cash. As always, send your notes to feedback@stansberryresearch.com.

"Bryan Beach's [Digest] was a great read. The absurdity of lawsuits (securities fraud) against companies for dumb things like climate change exposes how corrupt and conflicted our legal and regulatory systems are.

Attorneys General (elected officials) keep their names in the headlines as warriors for the people and the SEC receives a healthy payment. If that's not a conflict of interest, what is? These groups, supposedly representing shareholders, only represent themselves.

"We need more stories like Bryan's so the general public can see the rats. Good job Bryan, I would love to have met your granny." – Paid-up Stansberry Alliance member Dave B.

"I realize that Bryan's rant was more about securities laws and the misapplication of them, and this may not be the feedback you would want, but it seems government [officials] have self-appointed themselves masters and us the servants. Of course, this is completely reversed.

"When these self-appointed masters overstep their authority and violate their oath of office they need to find themselves in front of a federal judge as a defendant. If enough people started bringing charges against these individuals, not their departments as is normally done, then I believe a lot of this nonsense would stop..." – Paid-up subscriber Frank D.

"I see that you recommend holding plenty of cash. Are you not afraid that cash might be declared of much less value in a currency 'revolution' to cure our country's debt problem?" – Paid-up subscriber Charles S.

Brill comment: You're right, Charles... Whether it's the increasingly extreme monetary policies endorsed by the world's central banks or the growing calls for a debt "jubilee," there are plenty of reasons to believe the U.S. dollar and other paper currencies will be worth far less in the future. This is why we've been urging you to hold a meaningful portion of your savings in precious metals.

But there is simply no substitute for cash. As my colleague Dan Ferris has explained many times, holding cash is the easiest and most reliable way to reduce the overall risk and volatility of your portfolio. And it's the only way to ensure you're in a position to take advantage of the huge opportunities we're likely to see in the years ahead.

Regards,

Justin Brill
Baltimore, Maryland
August 9, 2019