Trade Alert – There’s gold in them hills, but there’s a catch

Back when gold was still in the three digits pricing, (that is, when it was trading for less than $1000 an ounce), I put it in the Revolution Investing newsletter and we later sold it for a nice profit.  I later put GLD and SLV short positions into the Revolution Investing portfolio and we caught a crack in the market and made some nice gains on that trade too.

Now, as the Currency Wars/Race to the Bottom start to heat up around the world, I see what might be a last great opportunity to build up what will likely become a permanent gold position in the portfolio — and by using a “paired trade” approach, we can build this long-term gold investment with a great and potentially very profitable hedge giving the whole investment/trade a low risk-profile. In my Amazon bestseller, “Everything You Need to Know About Investing“, I defined a “paired trade” as:

A strategy where you go long one stock and short a related stock, usually done with two companies that are competitors or in the same sector. By going long-short you are betting on how the two stocks perform in relation to each other, rather than movements in the overall market. A strategy where you go long one stock and short a related stock, usually done with two companies that are competitors or in the same sector. By going long-short you are betting on how the two stocks perform in relation to each other, rather than movements in the overall market.

Sounds pretty interesting, doesn’t it? Let’s mine deeper into this idea.

I think most investors and traders know the logic behind the “gold as a storer of value” idea, especially with the endless quantitative easing, 0% interest rates, and, increasingly, the Currency Wars all of which are simply modern-day equivalents of the old “printing worthless paper money” concept. If the government and banking industry have a monopoly on the currency used in this country, and if they are issuing limitless amounts of dollars into the system, eventually, inflation and gold are likely to spike.

I’ve had a lot of success over the years fighting “conventional wisdom” in my investing and trading, and the idea of a commodity like gold going up when the governments of the world are debasing their currencies, is certainly “conventional wisdom”. But the whole reason behind calling my approach “Revolution Investing” is because of the huge impact that government policies are having on our 21st century markets. And the force of endless money printing is powerful enough to trump any sentiment-driven movements in the gold markets in coming years. The path of least resistance for gold, silver and other precious metals is still higher.

But there’s a catch. Do you recall what RMBS, CDOs, and all those other “mortgage backed securities” that were “insured” against losses? Turned out that when the chips were down and all the cards were on the table that all those debt securities and “insurance” policies were worthless because the banks and monoline insurers and brokers and government didn’t have the money backing that paper that they all promised they did have. The same thing is happening with the paper precious metal markets. All those gold- and silver- and other commodity-backed ETFs and contracts for delivery of hard assets are likely to turn out as worthless as most of those mortgage backed securities did. The commodity ETFs and commodity price insurance contracts and hedges and markets have issued much more paper than they’ll ever be able to pay if and when investors and traders actually start demanding their hard assets.

So if you want to invest in gold, I suggest that you start, slowly but surely collecting and investing in gold and silver coins and bars. The best way to buy physical gold or silver is to shop around slowly but surely locally and every time you drive to another big city until you find a reputable dealer that’s not trying to scalp you but wants your continued business over the next few years. Then slowly but surely build up some gold and silver coins, bars, or whatever and keep it stashed safely away. I’m officially adding Gold to the Revolution Investing portfolio today.

And stay tuned because the next time the financial markets go crazy and panicky and the GLD and SLV and other commodity ETFs spike, I’ll likely start to build a short position in them to pair with our hard asset long positions in the commodity itself.