George Maniere: Rearranging Gold and Silver Funds

InvestingAdvicebyGeorge – In the 1980’s a big Australian company whose fortunes had turned for the better were seeking a firm to run its accounting operations and help the company  get a better understanding on hedging its risks. Many of the companies they interviewed were top flight companies but at the end of the day they felt the price for their services were too high. Instead they hired a young trader in his late 20’s who immediately bought himself a brand new flashy Porsche. He proceeded to total the car in an accident and ended up in the hospital with a broken leg.  As it turned out he had not even done the preliminary due diligence on the positions he had opened for the company and in short order the company found that this financial genius they had hired lost $80 million in one week. The result was the firm going back to one of the companies they had interviewed, with their tail between their legs, and paying the fee the company required to do the job properly. This firm learned their lesson the hard way.

Well by now you must be asking yourself why on earth I am telling you about this Australian firm. The answer is that this is a lesson that has had to be learned over and over again and we still haven’t figured it out. You wouldn’t hire a dentist to fix your car yet we think nothing of voting for someone who has a nice smile and looks good on TV. The fact that there are really no qualifications required to be a representative of the government unless kissing babies, photo ops and stabbing your colleague in the back counts.

I remember in grammar school getting in trouble because I had the audacity to question my teacher when she insisted on calling America a democracy. I based my 3rd grade knowledge on having to recite the “Pledge of Allegiance” and it always struck me as odd that we pledged allegiance to the flag… and the Republic for which it stands.” I was in 3rd grade and I could connect the dots. Our nation was not a Democracy it was a Republic.

As I grew, I found that I loved to read and was a regular at the New York Public Library. I remember reading “The Decline and Fall of the Roman Empire” by Edward Gibbon. I was struck by the facts that in a real democracy people propose the laws and vote on them. Just as they did back in ancient Rome we pretend to have a democracy but instead what we really have is a Republic. We also have another thing that Rome had – an elite political class. Just like in Rome the elite political class is disconnected from the people they purport to represent and instead become a tool of the special interests or the uber wealthy.

You don’t think that congress is an elite class? They serve for one term and retire with a full pension for life. They have their own social security system. They have their own medical plan which is an elite plan and totally free of charge. Who picks up the tab for these perks? The Middle Class does. “Same as it ever was” – David Byrne

One of my readers sent me the nicest post I ever got in my life. I am human and I sometimes wonder why I do this writing or if anyone is even reading what I have written. My reader wrote “I’m so glad I found you. You mean more to many people than you think, you help mold lives and futures with information, it’s an honor, but more so a responsibility!! That was all I needed to read. If I can help someone, what a better way to spend a life. 

So I had a very fortunate thing happen last week. As many of you who read me on a regular basis know I have often written that every time has a sector that is ripe for profits. It just so happens that at this time the sector to be picking the fruit is precious metals. There are many smart people who have written me about Platinum and Palladium. The truth is that the only thing I know about platinum is that it is one of the rarest elements on the planet. It has never been currency and it has some minor industrial applications but its claim to fame seems to be that it is so rare. The truth is that I don’t get it and I won’t invest in something I don’t understand. So that brings us to Gold and Silver. So last week I got faked out and thought gold was finally going to sell off. Wrong! While it did sell off from hitting a high of over 1,900.00 on Tuesday August 23rd to make an intraday low of $1715.00 on Thursday and closed the week at $1830.00 down $70.00. The good news for me and my readers was that I have always been leery of the two big ETF’s SLV and GLD. They lease the gold and silver that they sell you. AS soon as I saw that this was another head fake to drive the RSI and the fundamentals down.  Instead of buying back into GLD and SLV I chose instead to redeploy the funds into the Sprott funds which I already owned. The knock on the Sprott funds is that they carry a hefty premium but that is only the case if you are going to take possession of the gold or silver. The silver Sprott Fund (PSLV) closed the week at $19.30 after having made an intraday high of $22.00 on Tuesday and the gold Sprott fund (PHYS) closed the week at $15.23 after having made a high of $16.75 on Tuesday. I would recommend to all my readers that they move away from GLD and SLV and move instead into the Physical funds. The reason is that the Sprott funds are not true ETF’s. They are closed ended finds which means you are not buying shares but rather units. The physical gold and silver is audited every year and you know that you will not wake up one morning to find that the gold and silver that has been “leased” to  the two ETF’s GLD and SLV are now not worth the digital bytes they are printed on. For more on this subject  click here. There is also another fine company CEF which holds both gold and silver in the Canadian mint which is also audited on a regular basis. While I own more than my fair share of physical I want the ease of paper trades and I feel with these three holdings I get the safety of knowing that my gold and silver are real but that they are also liquid. To me it’s the best of both worlds.

In conclusion, I wanted to share something I learned. Friday my brother and I had a conversation and we came to the conclusion that silver was more like money than gold. While silver has always been called poor man’s gold, remember I have often written that I was a gold bug since I was 8 years old and since I am now 58 I had many years of going to the store for my mother with two quarters for milk and bread and yes – those quarters were silver. What was particularly striking was that neither my brother nor I could ever remember in our lives using gold as money but using silver as money was just a plain common occurrence. I am long GLD, IAU, PHYS, UGL, SLV, PSLV, DZZ and AGQ but I will be moving these funds into PHYS, PSLV, GTU and CEF and when the situation warrants I will invest in AGQ fir silver and DZZ for gold.  As long as there is runaway debt contagion and worthless paper money I will continue to hold my physical gold and silver and these funds.

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