Precious Metals: Holders vs. Traders — Who’s Right?

Friday, 27 June 2014
Written by 
Published in Gold Investing
Precious Metals: Holders vs. Traders — Who’s Right? PhotoDune.

“Amateurs want to be right. Professionals want to make money.” — Warren Buffett

I’ll give you the answer straight-up to the question posed in the title of this blog piece in just a moment. Bear with me for a minute though.

Sixty years ago, a freelance writer named Darrell Huff published a book called How to Lie with Statistics. It became a classic — one of the most widely sold how-to books ever. In fact, the title is so hypnotic that it almost makes you not want to buy the book because you’re dead sure what it would say once you started reading it. Still, that would probably not be a good idea, because the subtlety of the book’s message would be lost on you if you choose not to buy the book.

Fiscal-Cliff

In How to Lie with Statistics, Huff was ultimately suggesting that it’s possible to view one investment scenario in a variety of ways, and then cite statistical patterns complete with graphs and charts to support each argument you cite.

You might find this shocking; but to the technical trader, the investment matters not a whit. As with sex, it’s all about timing. If you think about it, the technical trader’s lack of interest in a particular investment per se makes perfect sense. An investor might love a particular pharmaceutical stock, for example because he’s dead sure when the product takes off, the stock will surge sky-high. So he sinks a chunk of money into that stock.

When it comes to precious metals, the guy or gal who holds for the long term is right.

The technical trader, on the other hand, has been following the same stock. He’s been following its technical indicators — the 200-day moving average, the candlesticks, the Fibonacci numbers, and feels the investor’s right, to a point. But that investor’s not right to the point where the technical trader would be willing to fork over cash, at least with the same abandon the investor forked over cash. What he would be willing to do, since he thinks the stock is going down before it goes up, is to go short on the stock (speculate that it’s going down) and put in a buy-order at the price he feels the stock will turn around. Too much work for the investor, but just another day in the life of the technical trader.

You've waited long enough for the answer to the question. When it comes to precious metals, the guy or gal who holds for the long term is right. As for the technical trader, well, just leave him to his gamesmanship — or craziness. We’re not suggesting that you shy away from technical trading. Just realize though (in the spirit of Darrell Huff’s book), it’s possible to come up with a variety of strategies for one particular trading scenario. And if you’re a big-time New York, Swiss, or London gold trader, you can exercise a particular trading strategy (or play a particular game) with the gold, silver, or platinum market. Let these folks experience the nirvana of being right. You worry about things like making money, long-term security, and portfolio safety.

Buy gold, silver, and platinum, and hold them. The Iraq problem is not going to go away. The US debt problem is not going to go away. Nor, for that matter, will history go away. These are the conditions on the side of the investor who holds precious metals — the ones that help him sleep at night when he makes the right decision with respect to his portfolio.

Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.