Buy silver, palladium and platinum. After our exclusive interview with Sprott Asset Management Market Strategist, David Franklin, the question is whether you should too.
On the one hand, we've seen some loyal bulls of gold swear by technical analysis, others cling to historical patterns, and some just pray silently that the Fed finally misses that inflation target.
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On the other, we've got Mr. Franklin, who reveals to us something that is so overt that it's covert. His personal thesis remains that the conditions that gave gold its value in the first place haven't changed. Take the figure 1.8 percent predicted growth for the U.S., which falls a couple percent short of promising. That's not going anywhere anytime soon.
Then, there's back and forth tapering talks, which Mr. Franklin says were responsible for gold falling off of its most recent cliff. It's safe to say that the current economic climate urges investors to try and obtain some sort of stability. It's just this time around it might not be in the form of gold.
When we heard QE, we used to automatically think ah, inflation!
When that never reared its ugly head, the Fed's monetary policy (particularly the possibility of tapering) found a much more menacing synonym: deflation. Mr. Franklin agrees, The data is suggesting that we are moving into deflation. In such times, traditionally people still sought out refuge in gold.
Even if present day is an exception, he tells us people aren't buying gold for inflationary purposes but people will still use it for monetary debasement, for saving purposes, and for portfolio insurance. It's very simple in Mr. Franklin's eyes: You never fix your roof while it's raining. You fix your roof while the sun is shining.
What if U.S. deflationary or disinflationary fears aren't enough to prompt a dash for gold? Then Mr. Franklin points us towards those for whom gold was not destroyed as a safe haven as George Soros put it. Mr. Franklin states, We've started to hear stories of this physical demand picking up again with this recent price drop, so I think we will continue to see that in the emerging economies.
Here, the price of gold and demand has an inverse relationship. China is at the forefront of this movement, evident by the upsurge in the Shanghai Gold Exchange volume in April. Now contrast this with India's turnaround; making silver their new gold.
India's declared war on gold. They've increased import duties 2, 4, 6 and up to 8 percent now they've imported in May about 920 tons of silver. Now to put that in perspective, the world only produces 2.400 tons of silver, according to Mr. Franklin.
Many who continue to weather the golden storm place their faith on high mining costs. Then why is it that we're not seeing a floor created? Mr. Franklin explains: in commodity markets the price can go below the marginal cost of production sometimes for yearsbefore it corrects itself.
What if the correction never materializes? Could other industrial metals make a better hedge? Mr. Franklin explained that we could follow in India's footsteps since silver investors, in fact, stood in to maintain their ownership of silver, even despite silver being hit harder."
However, an even better alternative could be palladium or platinum. The former stands to gain from the 66-month high in car sales, while the latter might have an even brighter long-term future.
In reference to a measurement of fine air particulates, where 2.5 is considered a risk, In Beijing this hit 520. One of the best ways to address this would be to use smog removing processes that include platinum, says Mr. Franklin. To catch that potential upside, he recommended that we stick with ETFs or trusts for these precious metals, rather than individual company stocks. For more tips on precious metals trading, visit Sprott's website.
When it comes to gold, we've heard the good, the bad and the competition. But if even a die-hard bull like David Franklin tells us to look toward some alternative plays, perhaps it's worth considering.
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