A Long Time Ago in an Economy Far, Far Away…

Dragons, Gold Bubbles & Other Myths

There is the boogie man in the financial woods… It is the Bubble of the 1980’s with gold & silver both reaching all-time highs then suddenly bursting into oblivion.  Except this is not quite the truth of the rise & fall of the metals market.  Gold topped out at $850 in 1980, while silver’s high was $48.70 in early 1980. They both retracted in the matter of a year back to $250 for gold & $7.00 for silver. Billions of Dollars were lost in these markets yet, what never happened? Neither metal ever traded for zero.

Each metal had different forces driving them into such rarefied positions. Silver can be summed up in two words: Hunt Brothers.  While gold took a much different path of stagflation & the Dollar removal from the gold standard. These led to a unique set of events that can not be duplicated today.  First, silver has some regulation that inhibits the cornering of the market. Gold may be affected by stagflation but since the fiat currencies are not tied to gold they don’t have the same influence as before.

It should also be noted that gold & silver both spent the 80’s & 90’s languishing at the post-boom lows.  Today we have a resurgence in metals bringing to mind a perceived Bubble similar to the early 80’s.  Precious metals make up only .7% of global investments down from the 10% of the early 80’s. For the first time in almost 20 years  the central banks are net investors in gold. The lack of  investment & the current initial increase in demand indicate metals are starting to realize their potential gains.  This current push forward in metals has been a decade long & very steady, driven by solid market fundamentals.

The most surprising, aspect of this current market is the resistance by investors to acquire precious metals. The warning? Remember the 80’s… every investor recalls the downturn & has a story of money lost. Yet, many of these same investors are currently neck deep in stocks & bonds. These are markets that crashed twice in the last decade. Each crash ravished the 401k’s & IRA’s  of the average Joe on the Street, most losing 30% of their retirement investments. Enron employees & IndyMac investors lost it all!

We are not advocating moving your total portfolio into precious metals, which would go against our fundamental belief in diversification. What we do advocate is a conservative 10% to aggressive 20% of your net worth invested in a Tangible Asset Portfolio made up of rare coins & precious metals.  Diversification is the key to surviving the inevitable retractions in any market, and that is something even your broker can agree with.


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