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For those of you following the precious metals including gold and silver, here are my thoughts on the markets.  As you know from watching my news reports on KCAL-TV over the years, I have been actively following the metals and in 2005 I accurately called the start of the new bull market for gold.

[Most Recent Quotes from www.kitco.com]

GOLD IS BACK UNDER $1300 AN OUNCE, BUT GOLD PROMOTERS ARE TALKING ABOUT $5,000 AN OUNCE.

Sunday October 13, 2013 update:  The price of gold this past week closed at $1273 an ounce, and back under an important support level of $1300 an ounce.  Over the past several weeks briefly traded north of $1400 again but then fell back, and now with a close well under $1300 an ounce it is hard to imagine another rally for gold will be coming anytime soon.

Yet, the gold promoters are advertising heavily and "forecasting" that gold could reach $5,000 an ounce.  Of course, they don't give any time frame for such a lofty level for gold.  In fact, even a forecast of $2,000 an ounce would be difficult to believe right now for any time in the near future.  There just is no incentive to own gold. 

But what happens now will depend on what happens with the U.S. budget crisis, the crisis in Syria and how the world markets including the oil market are impacted.  It would take a big slide in our stock market over the budget crisis, or a new flare up in the Syrian crisis or a big run-up in oil prices and fears of inflation to drive gold above $1400 and keep it there.  And now it appears that the crisis over Syria has at least passed.  And there is no crisis with Iran either to wake up the gold bugs now.

October is historically one of the worst months of the year to own stocks.  Any kind of selling in the stock market this month could help gold to rise.  So far the stock market escaped severe selling even with the budget crisis.

I don't expect a new stampede for gold.  Gold is still in a bull market, and has been for several years, but I think we have seen the highs for gold and I doubt gold will break out to new highs above $2,000 an ounce.  Of course that's just my opinion and gold could fool me and surge if stocks sell off hard.  But the reason why I think gold won't hit new highs is that there are plenty of gold owners who would like to sell just to break even -- and these are the gold owners who bought months ago at prices ranging up to $1900 who bought into the headlines that gold might rally to $3,000 an ounce.

Despite this current rally, gold is going through a correction now.   But it is just a correction and it is not a bear market for gold.  In fact, the bull market for gold started several years ago when gold broke through about $1030 and as long as gold stays above $1030 an ounce, the long term bull market for gold continues in effect.

Long term charts can show a bull market with sharp and sudden corrections and that is what we have been seeing.

A gold price under $1030 is required to declare that the bull market for gold is dead.  But at the same time traders should be cautious about any moves to the upside.  The gold price could flip and flop between current levels and all the way up to about $1900 an ounce before we can say gold is having another run to higher levels.  Right now you can sum up the market to say that over the long term, the trading price for gold is undergoing a wide, sloppy trading range.

Sucker!!  That's what you were if you got caught up in the brief rallies that temporarily took gold slightly above the $1400 mark.  But gold continued to run into overhead resistance and selling at about $1415 an ounce and fell back -- again.  If you got caught up in those short rallies, you were a sucker.  Those were sucker rallies or fake-out rallies.  More are likely to come so watch out, beware, and don't become a sucker.

A key price point to watch now is $1415.  Should gold break through $1415 with conviction there could be a new short term rally.  Just don't be a sucker buying gold now only to find out that the $84 gain of the last two weeks was not the start of a new bull run.

Gold still has a long way to go before it can build up momentum for a real rally.  Gold is weak and gold will bounce around and try to test higher levels.  But the reality is gold still needs to test even lower price levels before it can establish a new base and work its way higher again.

Unless you need to buy or sell immediately it would be wise to await an outcome of this wild trading pattern.

So let's say that the gold rally resumes now.  How high can it go?  Certainly the bulls and the dealers and the sellers are going to argue that $2,000 gold will be coming soon.  Well, I'm not going to say that they are wrong about $2,000 sometime in the future, but I think that we still have a lot of overhead resistance to break through.

Gold of course has always been a hedge against inflation.  I looked at several examples of gold and inflation.

You've probably heard the story that an ounce of gold matches the value of a man's business suit.  When I was a kid in high school, and gold was fixed at about $40 an ounce  you could buy a suit for $40 (yes, but it was at a discount).  Back then a "fine suit" was a $100 suit.  Today a good suit will cost you about $1600 which matches the recent price of gold.  You could spend more for a suit and yes, you can buy one at a discount too.  But I think you see my point even though I always buy my suits at a discount.

Let me give you another example which doesn't prove that gold prices match inflation but can beat inflation.  When gold was $40 an ounce, a gallon of gasoline was 33-cents.  So you could buy about 121 gallons of gas with one ounce of gold.  Today, with gold at about $1600 an ounce and gas selling for about $4 a gallon, one ounce of gold gets you 400 gallons.

How about the price of a house?  When gold was $40 an ounce a new house cost about $20,000 so it took 500 ounces of gold to buy that house.  Today, a new house can cost $150,000 (this will vary with geography) and with gold at $1600 it takes 93 ounces.  Gold wins again.

Where does gold lose?  When gold was $40 an ounce a visit to my doctor cost $10.  So one ounce of gold got me four doctor visits.  With gold at $1600 an ounce... well, thank Heaven for insurance.  My blood work alone is priced at about $1600 per visit.

Of course gold has been in a bull market for almost half a decade and even when I was reporting the business news every day on KCAL-TV here in Los Angeles more than five years ago (I left KCAL9 in October of 2006), I was saying on a daily basis that gold was in a bull market.

But I still urge caution.  Limit your investments in gold and precious metals to perhaps 5% of your investment money.  Remember that gold can fall in price just as it could keep rising.  Gold should be a part of your balanced investment portfolio and that just makes good sense.

Also be careful what kind of gold you buy.  Some forms of gold are easier to sell than others so stick with those forms of gold that are easy to market such as government coins.  Avoid privately minted gold bars and coins unless it is a well known brand.  Do not buy jewelry as a gold investment because with jewelry you could be paying more for workmanship and marketing than for the gold content.

For those of you who bought gold three and four, five or even six years ago at much lower levels -- when I was recommending the purchase of gold on KCAL-TV in Los Angeles -- you are now enjoying some solid long term gains.  It never hurts to take profits.  Remember, no one ever went broke selling at a profit.  In my report called "Stock Market Notes" which you will find in the index of this web site, I talk about an event called slumpflation which is when inflation and recession happen simultaneously.  Slumpflation is a rare event but gold could rally in a slumpflation event because of the inflation factor.  In a recession by itself, the precious metals including gold tend to lose value.  But in a slumpflation with strong inflation a gold rally could come as investors look for an inflation hedge.  Gold could very well be that inflation hedge during slumpflation.  The big question is: will inflation return in the face of the current financial crisis and the recessionary threat.  So far, the threat is strictly from recession and not inflation.

[Most Recent
                                    Quotes from www.kitco.com]

IS GOLD OR SILVER THE BETTER BUY OR GAMBLE?  LOOK AT THE GOLD TO SILVER PRICE RATIO.  WHY SILVER SHOULD BE ABOUT $97 AN OUNCE INSTEAD OF $32 AN OUNCE.

OR... DOES THE GOLD TO SILVER RATIO EVEN MATTER ANYMORE?

Updated September 27, 2011   Is gold or silver the better buy, or in this wild market, should we be asking is gold or silver the better gamble?  This is a tough question to answer because it is like comparing apples to oranges, or a car to a horse.  Gold has its reasons for being valuable and silver has its reasons for being valuable -- and they are different.  And we certainly saw those differences over the past few months.

When gold shot up to its record price above $1,900 an ounce it was because of fear that the banking system might collapse and the currency systems might collapse.  Meanwhile silver and platinum fell because these are mainly industrial metals and a slowing economy or new recession would cut into demand for these metals.  Many governments and big investors look at gold for security, but shun silver investments. But other companies must buy silver to manufacture their products and have no need for gold.  Get the picture?  Both metals have different reasons for ownership.  Platinum is also a metal primarily used for industry and manufacturing, yet it is also marketed as a precious metal and sold by some governments in the form of government-issued bullion coins.

Earlier this year silver prices were on a tear-- with silver rising close to $50 an ounce, and surpassing $50 an ounce in some markets.  And then, suddenly, a few weeks ago there was a sharp correction in part because of the worries of a new economic slowdown or recession.

Before the correction, radio reporters were using the phrase "Hi Yo Silver" to describe the big run up.  It was an appropriate phrase to use, because Hi Yo Silver is what the TV announcer said to open The Lone Ranger TV Show in the 1950's and it was used to describe the great silver rally when the Hunt Brothers tried to corner the silver market about three decades ago.

As I write this, the price of silver is back to around $32 an ounce, and at the start of the month it was around $43 an ounce, and a few weeks earlier it neared $50 an ounce which was its highest price in more than 30 years. 

But the "record price" for silver that I use is the spot price of $50.75 that I recall in 1980.  Though there are some who will remember a spot price a couple of dollars even higher than that.  Unfortunately, spot prices were not reported as they are today in a widespread manner because there was no internet then, and market prices would vary in the various markets.

As the price of gold gets out of reach, investors look to silver as "the poor man's gold."  And that brings us to the big question: which metal should you be buying?  Is there something we can use to give us an indication of which metal is the better buy?

Assuming that both metals have equal demand, and removing the varying concepts of industrial demand, we might want to look at the gold to silver price ratio.  Historically, the gold to silver price ratio has been either 20-to-1 or 17-to-1.  Why two different historical price ratios?  Because people look at history differently, that's why.

But today (updated September 27, 2011), it really doesn't matter if you use 20-to-1 or 17-to-1 because today the ratio of the price of gold to the price of silver is an incredible 52-to-1.  That's right: one ounce of gold equals the price of 52 ounces of silver... or put another way... it takes 52 ounces of silver to buy one ounce of gold.

Well, if you compare the ratio of today to the "historical ratio," then you can come to one of two conclusions: either silver is terribly undervalued, or gold is terribly overvalued.  In the last few months the gold to silver ratio has ranged between 32-to-1 to 70-to-1.

So using the historical gold to silver price ration of 17 to 1, and with gold at $1657 an ounce, an ounce of silver today should be priced around $97 which is almost triple the current price of $32 an ounce.  Does that tell you silver is the better buy?  Or, does that tell you gold is overvalued?  Or, does it tell you that there is not yet enough business activity to increase silver to its proper ratio?  Or-- does the gold to silver ratio no longer matter?  I will leave the answers to you. 

Now remember silver has an all time record high price of about $50 an ounce set in 1980.  Today, silver is trading at about $32 an ounce.  It appears that $50 is now the long term overhead resistance barrier and that presents $50 an ounce as a "sell point" or price for profit taking.  It might be difficult to silver to get about $50 an ounce in the near future, as many traders who bought silver around $50 an ounce a few weeks ago are now looking at prices around $50 as a break even or "get even" point to sell at.

IMPORTANT WARNING ON OUR "CONSUMER WATCH" PAGE:  IF YOU ARE SELLING OR BUYING GOLD NOW, CAREFULLY SHOP.  I HAVE HEARD FROM CONSUMERS WHO ARE GETTING PRICES THAT ARE SIMPLY "RIP OFF" PRICES.  

For example, we have seen online sales for silver pieces that are only one gram but have the design of government-issued one ounce silver pieces -- and consumers are paying the one-ounce prices.  

Please see our pages "Collectibles" and "Gold Dealer / Where To Sell Your Gold" for companies that will buy and sell gold and silver and other precious metals.

Here on our new media website "Moneyman" Alan Mendelson who is the original Best Deals TV Show reporter on KCAL9 and consumer advocate, shows you the best deals on TV, and the best buys, bargains and where savvy shoppers go to save, and how to get the most for "your money" with the best of Los Angeles, Orange County, Ventura County, Riverside County and San Bernardino County. Some content on www.alanbestbuys.com is paid advertising. The Best Buys TV Show is a paid infomercial program which may also include news and information which is not sponsored or paid for by advertisers.

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