Today, I want to talk to you about a new trend that I’m seeing in the market…
A trend that could last years and could provide you with solid return in today’s low-interest-rate environment.
The trend that I’m talking about is the rebound in precious metals. Specifically, gold and silver prices, which have begun moving higher. This is in stark contrast to what have been years of declines for gold and silver prices.
Both of these metals peaked in 2011 and have spent nearly five years trading steadily lower. This shows just how long major trends can last as investors steadily buy or sell their precious metal positions.
Today, the dynamics for gold and silver are shifting rapidly. With the real threat of continued low interest rates – or even negative interest rates coming to U.S. shores – the prospects for gold and silver are looking much better.
Over the next five years, I believe that we could see prices for gold and silver move significantly higher. I even believe that both prices could potentially reverse all of their losses from the past several years as investors steadily accumulate gold and silver positions.
Before we go any further, I’ve got a confession to make.
I’m not a long-term investor in gold or silver (and by “long-term,” I mean buying physical gold and socking it away “forever” in a safe-deposit box or a safe in my basement).
In my opinion, gold and silver are vehicles for investment – that’s my trading mindset.
As an investor, there is a time and a place to own gold and silver, and a time when it doesn’t make sense. Clearly, the last five years have been a challenging period for investors who loaded up on gold and silver near the peak of the market.
Of course, I realize that many investors have different perspectives on gold and silver. They view these precious metals as important assets to hold in case the financial system implodes and currencies like the U.S. dollar no longer represent viable means of exchange.
I’ve always thought that if we get to that point in our society, it would be better to have invested in bottled water and bullets. But that’s just me.
If you have a different perspective than I when it comes to gold and silver, I hope you’ll continue reading.
Because today, I’m bullish on gold and silver prices. I believe that the long-term trends for gold and silver will be very positive for years to come.
Let’s take a look at why the price trends for these metals could change directions…
Looking at the nearly five-year decline in gold and silver prices, you might ask the question: If gold and silver prices have been dropping for years, what could keep these metals from continuing to fall in price?
I’m glad you asked…
Gold and silver prices typically trade in the opposite direction of the U.S. dollar. This makes sense when you think about it:
Now take a look at the chart below. This chart represents the trade-weighted value of the U.S. dollar:
As you can see, the value of the U.S. dollar has moved sharply higher over the past five years, compared to the currencies of countries we trade with.
One of the main reasons the U.S. dollar has moved higher is because investors around the world have been expecting the Fed to raise rates. When the Fed increases rates, it should cause investors to trade out of other currencies and buy dollars.
This is because they can get a higher yield when rates move higher. But now it is becoming very clear that the Fed will likely not be able to raise rates like they once thought – at least not by a material amount.
The Fed has many things to worry about, including weak manufacturing in the U.S. (a strong dollar makes it harder for us to sell our manufactured goods abroad), and emerging market countries with huge debts denominated in U.S. dollars, and a stiff headwind in the global economy. If the Fed raises rates and the dollar continues to trade higher, it could severely hamper these countries’ ability to repay debts and hurt the global economy.
Suffice it to say that the Fed is very unlikely to aggressively raise rates. In fact, I think we could see negative interest rates in the U.S. in as little as 12 months.
As a result, I believe that the U.S. dollar is likely to stop rising and that gold and silver prices could rebound. If the Fed holds a long-term strategy of low interest rates (or negative interest rates), gold and silver prices could move higher for years to come.
In today’s low-interest-rate world, precious metal plays are a great way to grow your wealth.
Here’s to growing your income!
Editor, Income on Demand
Editor’s Note: If you’re looking for another simple way to generate income in this volatile market, Zach has the answer…
It’s such a simple investing technique that he taught his publisher how to do it in just a few minutes. The publisher was so impressed, he took a video crew out on the streets of Baltimore to film him teaching two people with zero investment experience how to make money off this simple financial maneuver in just three minutes.