How high for gold and silver?

August 24, 2017
Pat Heller

I am regularly asked my opinion as to what levels gold and silver prices will peak, with the underlying question really being when would be the time to cash out for the maximum result. The simple answer is I don’t know what those levels would be and that no one else really knows, either.

There was a time years ago when I did not think that the price of gold would ever reach $5,000, as I expected that the U.S. dollar would collapse before that happened. That may or may not be how the future turns out. I do expect prices to be multiples of today’s levels within the next few years at the longest. While it is possible that gold may reach $5,000 and silver $150, I obviously cannot guarantee these results. Further, it is entirely possible that prices may surge even higher than those amounts.

Rather than predicting a specific peak price level, I instead suggest paying attention to the public’s psychological reaction to rising prices. As prices consistently rise over time, more and more people jump to make a purchase before it is “too late,” and prices take off into the stratosphere. At some point, about all the potential buyers of gold and silver will have entered the market. When that happens, there is little further potential increase in demand to keep pushing prices even higher.

The way I like to describe when that psychological market saturation has occurred is if you get a shoe shine and the shoe shiner says that he or she hears that owning gold and silver is a good idea, or you hear the same comment from a barber or hair stylist working on your hair, or from a stranger standing next to you in a checkout line at a store, or similar scenarios. If you sense that demand for owning gold and silver is so pervasive that “everyone” is starting to talk about it, that is the time to sell.

However, I would rarely recommend selling 100 percent of one’s physical precious metals holdings. In my judgment, it would be prudent to constantly own some physical gold and silver as “wealth insurance,” to serve as diversification and protection against the risks of loss with paper assets such as stocks, bonds and fiat (paper) currencies. The wealth insurance portion of your physical gold and silver is something to hold lifelong and pass on to one’s heirs. Only the amount of precious metals you hold excess of this amount should be considered as an investment that would be available for sale.

The question, then, is how much physical gold and silver to hold for wealth insurance purposes. The answer differs from person to person, depending on their financial circumstances, age, relative comfort level of aggressiveness or risk aversion, their future outlook and other factors. In “normal” times, I think five to 10 percent of someone’s investment portfolio or net worth is the minimum to consider. In today’s somewhat more volatile global and domestic financial markets, which I expect to be even more volatile in the future, I now suggest at least 10 percent of total investments or net worth be allocated to wealth insurance.

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