From Teeka Tiwari, editor, The Palm Beach Letter: The lunchtime crowds at Deak-Perera’s Fifth Avenue coin outlet were five people deep. It was 1979 and everyone wanted to buy gold and silver. Housewives, businessmen, and taxi drivers jostled one another… eager to get in on the gold and silver boom.
Vincent Martinelli was vice president of investment for the Deak-Perera Group. At the time, it was the largest retailer of Krugerrands and other bullion coins. “The public was lined up at our door to buy,” he said of the gold bull.
Just one year later, gold peaked at $850 and then went into a 20-year bear market.
The lesson here is simple…
When you see frenzied buying, it’s a good sign to stay away. By the time housewives and taxi drivers are buying into something, you can assume most of the money has already been made.
But the opposite of that is also true…
When you see complete apathy by retail investors… it’s a sign that something is very cheap. Over my 15 years as a Wall Street wealth manager, I’ve seen this idea proven over and over again…
Back in 1991, I couldn’t give away government bonds that were yielding 9%. Today, people are lining up to buy bonds that yield 1.5%. In 1998, I couldn’t get anyone to buy into safe and stable timber real estate investment trusts (REITs). At the time, they were yielding 11%. Everyone wanted internet stocks.
This taught me to always pay special attention to markets that are being ignored by retail investors. I used this observation to get into oil stocks in 2003. Even though oil prices had more than doubled off the 1998 lows… the public still hated oil.
This didn’t make any sense to me. The price action was great, and the demand coming out of India and China was immense. It looked like a great investment.
When I pitched buying oil to my book of clients… it was like pulling teeth. They had no interest. But I had high conviction on the idea. So I cajoled, persuaded, and even threatened to stop doing business with them if they didn’t listen to me.
Eventually they did. We bought into shares of Diamond Offshore and Transocean Sedco in the low $20s. By 2008, they were up near $160. It was a complete victory.
I’m talking about this today because I am seeing a similar setup in an asset that has gone up in price but is still being ignored by the public. I’m talking about precious metals…
What can you learn by taking candy from a stranger?
Just how blind is the public to precious metals? Well, consider this informal “study”…
An internet personality stopped passersby on a Southern California street and made this proposition:
“Congratulations, you’ve won a 10-ounce bar of silver or a chilled king-sized Hershey chocolate bar. Which one do you want?”
Can you imagine refusing a 10-ounce bar of silver in favor of a chocolate bar? Me neither… but apparently, we are in the minority.
Believe it or not, he asked 10 different people the question. (You can view the video here.) Every single person took the $1 chocolate bar over the $150 silver bar.
None of them knew silver has value greater than chocolate. I want you to think about that for a moment… Precious metals are so “hated” or misunderstood by the general public that they’d rather take a $1 chocolate bar over a $150 silver bar.
That’s quite different from the long lines at gold bullion dealers in 1979, wouldn’t you say? Friends, what this tells me is that the precious metals bull market has a long way to go.
It won’t be time to take profits until the gold and silver shops are jam-packed with people lining up to buy. Between then and now, there’s a ton of money to be made in precious metals.
Probably the easiest way to speculate on the action is to use exchange-traded funds (ETFs).
Buy SPDR Gold Shares (GLD), if you want to own gold, or the iShares Silver Trust (SLV), if you want to own silver (though we recommend purchasing physical gold and silver if you are buying as a chaos hedge). Both will go much higher from here.
Just remember this: When the housewives and taxi drivers start pitching you on gold and silver… it will be time to sell.