Gold and silver prices have both been kicked in the teeth this last week, driving my inbox to be filled with hundreds of investors worried about what they should do. Silver dropped to mid $28 range, and gold prices dropped into the 1500s, shocking plenty of investors who were expecting gold to go “up, up, up”.
I’ve pointed out in the past that gold is a long-term investment. Over a century, you’ll have about as much at the end as you started with, on average. But in the short run, you could see some pretty strong volatility — like the $400 dollar swings we’ve seen for gold in the last half year.
Let’s talk about what’s happening to gold and silver prices, what the future likely holds, and specifically what to do about volatile prices.
What’s Making Gold and Silver Fall?
There are two main factors causing gold and silver to fall, both connected with fears of a global economic slowdown or a global economic recession.
Why would gold and silver fall during a time of fears of global recession or slowdowns? Because in the short-run, cash is king. That’s why gold even fell during part of 2008 – the markets were crashing, and the only thing people knew was that the dollar was going up in value, so people flooded to the dollar.
People don’t flood to gold during short-term scares — the reason is that during a “scare” stuff generally becomes very, very cheap — and you want to be in a position to buy it. This is very different than a hyperinflationary event where the currencies die — in that event, the money people will be rushing to will be God’s currency — gold and silver.
Europe and Asia: Teetering on the Edge?
Greece is openly discussing leaving the European Union and creating it’s own currency. The UK just officially went into a new recession Spain is completely batter and barely is keeping its head above water. France just elected an openly socialist leader.
Europe is going through economic hell right now.
In Asia, we see economic slowing as well. China’s growth has been feverish for decades, averaging well over 10% GDP growth per year as they free up their economy and see huge economic booms in their main cities. Unfortunately, there was a bubble and lots of inflation, so the government began to attempt to “slow” the economy down.
They’ve done a good job at slowing it down, and now there are fears it’ll be slowing down too much — to the point of a recession. There’s also a lot of fear, as reported by the Financial Times, that China has just been plain fabricating data to make us feel better about their economy. That’s just scary.
What Should Investors Do?
What investors should do depends a lot on what they think is going to happen next. Here are some thoughts for different types of investors:
Gold and Silver. Every dip is when I buy. I’m buying both gold and silver through SilverSaver.com. Just like last month. And the month before that. If you don’t have an account with them yet, this is the time to set one up right now. I’m proudly affiliated with them because it’s where I buy my gold and silver and it’s automatic and simple. Regular people can amass a pile of silver over a couple of years without spending a huge amount of money up front or putting it off. Learn more here.
Passive Investing. This is what I do with my main portfolio. I describe it here. I’m just putting more money into my portfolio every month, no matter what. It’s the world’s most boring, most profitable strategy. And it works.
Dividend Investing. I like dividend stocks. Ford’s stock price is down, for example — and I’m looking for more opportunities to buy. Ford, Coke, Wal-Mart, Philip Morris International — plenty of great dividend stocks that are on sale and will continue to be on sale.
What not to do right now: risky bets. All bets are crapshoots right now. During times of recessions and volatility, it’s always about the fundamentals — moreso than even during times of prosperity. People who stick with the fundamentals — dividend stocks, debt freedom, gold and silver — we’re the ones who have made an absolute killing over the last 15 years while everyone else has been obliterated repeatedly.
It’s not sexy. It’s kind of boring. And it’s really, really profitable.
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