Precious Metals during the next stock market correction

konsole

I've been thinking about this for a while and been meaning to see what other people think about this. PM's have either flatlined or trended lower for quite a few years now, while the stock market seems to know only 1 direction, UP. Unless we believe the stock market will continue up forever, then the next stock market correction/crash is just a question of when?

From my point of view I am seeing several indications that the stock market is likely only a few months away from its next big drop. Monthly RSI only about 5% away from its all time high. Peaks of roughly 12k, 14k, and 18k (+2, +4, +6?), would put the next peak at about 24k which is just about where it is now. VIX at an all time low. News being teased about higher interest rates.

I'm not interested in knowing if you believe the next stock market correction/crash will come very soon or not, as long as you believe that it will come at some point in the not too distant future. Unless you believe the forces at work keeping the stock market up will continue indefinately?

So what do you think will happen to PM's in the next big move down in the stock market? Will the fiat coming out the stock market at that time find its way into PM's in any significant way?

jmski52

The last time the stock market took a major hit (2008), precious metals took one, too. This was no doubt because liquidity was needed in lots of stock accounts and precious metals were liquidated readily to help put a bandaid on the need for liquidity.

The upside was that precious metals recovered much more quickly and then proceeded to rally (until 2011) while the stock market did NOT recover quickly. Once confidence in stocks is damaged, it takes time to repair. Same goes for precious metals.

Next time around, it strikes me that it won't happen the same way. I truly think that there's significant market manipulation going on, and the manipulators seem to fine-tune their game every round. The question seems to be whether or not a stock market meltdown will get out of control. It's obvious that if a significant drop in stock prices is beginning, a number of "circuit breaker" measures will immediately be taken to shut down a major stock selloff.

From a psychological point of view, this won't help the stock market so I'm not 100% certain what the next step would be. People don't like not having control of their money, so if the stock market manipulators can't maintain public confidence, I would expect a migration from stocks to something else, but there's no guarantee that it will be precious metals, although that's still my preference. I don't see a more logical choice, but everyone is different, for sure.

cohodk

Folks have always tried to outsmart the markets.

jmski52

The biggest market is the bond market, always. So this is where the real focus should be.

Paradisefound

Gold will go up once the new Fed raises the cost to lending IMHO

OPA

@Paradisefound said:
Gold will go up once the new Fed raises the cost to lending IMHO

Cost of lending has never been a factor and I doubt it will be this time. Speculators will drive the PM market.

ChrisRx

It's a great question to ponder, as I have myself.

As I posted in an earlier thread, that the market is incredibly due for a correction.
When the market goes back to bear, I predict metals to go back up. I loaded up maybe more than I need this year, but I feel buying metals in an overpriced market makes the most sense until the big correction and/or bear market comes.

As Dave said earlier, it is impossible to predict the market.
I don't plan on being out of stocks for too long, but I just don't like buying in an overpriced market.

air4mdc

If you purchase PMs as an investment your going to be sitting on them for twenty plus years to break even.
Poor choice......
Yes there will be a correction coming......
And there will be scared investors.....
You have to have a strong stomach to ride out the tough times in the market....in the long run it will pay off.
Unless your able to time the PM market to make some money but i wouldn’t recommend that one.
Gold has been settled around 1300$ give or take bumps of 200$ for the last 4.5 years.
My stock market returns have been huge over that period. No brainer for me.
Good luck.

PerryHall

I think of precious metals as an insurance policy in case of economic turmoil. Of course this could never happen in the US of A. Or could it?

konsole

@air4mdc said:
If you purchase PMs as an investment your going to be sitting on them for twenty plus years to break even.
Poor choice......
Yes there will be a correction coming......
And there will be scared investors.....
You have to have a strong stomach to ride out the tough times in the market....in the long run it will pay off.
Unless your able to time the PM market to make some money but i wouldn’t recommend that one.
Gold has been settled around 1300$ give or take bumps of 200$ for the last 4.5 years.
My stock market returns have been huge over that period. No brainer for me.
Good luck.

2011 is certainly not yesterday, but 6 years isnt a tremendous amount of time. Seeing gold and silver go up and up day after day starting in about 2003 and continuing for 8 years until 2011 is still fresh in many peoples minds. During that time silver went from $4 to almost $50, a massive move and gigantic profits to be made. While gold went from $250 to almost $2000, again a massive move. That 12.5x increase in silver would equate to the DOW going from 2000 to the 24,000 that its at right now, which took 30 years. Larger numbers tend to grab more attention then percentages, such as the DOW going from 15,000 to 25,000 being a 1.6x increase, while a 1.6x increase in silver right now would make silver go from $17 to about $27. That move in the DOW would be constant news, but that move in silver wouldnt get much attention.

I think a very important thing in what I said is that the huge move in precious metals from 2003-2011 is still fresh in peoples minds. Many people probably still believe that "if it happened before it could happen again". The whole idea of buy-low sell-high is key here. Plenty of people that where invested in precious metals in 2003-2011, probably sold out at lets say $40+ area for silver, and $1700+ area for gold and put that cash into stocks. They sold precious metals at higher levels, and when they saw all the money printing they correctly assumed that stocks where at lower levels. As it stands right now, this high precious metals and low stocks has reversed, so now we have low precious metals and high stocks. When stocks start falling hard and fast where are those people then going to put their cash? I contend that alot of that cash will find its way into precious metals again. Some of those people rotating out of stocks and into precious metals will probably be people that rode precious metals up in the 2003-2011 move, and the rest will be people that remember watching the move from the sidelines. The longer I pay attention to markets the more I believe that fundamentals dont matter that much, its much more about just rotating money from higher valued assets into lower valued assets. If wealthy people want to rotate out of higher valued assets they probably just pay some lacky to promote whatever asset it is so the wealthy person can sell out at the high. Then they pay another lacky to talk crap about another asset to get that asset depressed so the wealthy person can buy up that asset cheaply. Selling high and buying low. So I don't think the fundamentals matter that much anymore for precious metals, and I think theres plenty of people around here that would agree that if they did matter then the PM's would probably be much higher. The people rotating their money out of stocks at the high will have recent memories of the huge move in PM's, and they will notice that PM's are way down form what they where 6 years ago. So they will think "if it happened before not too long ago, why cant it happen again". Then they will pay some schmuck to talk up PM's to give the PM's that initial spark, at which point its just a matter of all that money coming out of stocks not wanting to miss another big move in precious metals.

Think of the trillions in money printing thats be going on these past 8 years or so. How much of that was put into the stock market? How much of the money that was pumped into the stock market would it take to ignite another massive move in precious metals? It blows my mind to think of how much money was pumped into stocks these last 8 years, and then trying to imagine how many multiples of their 2011 highs the PM's could be if they received just a fraction of that money coming out of stocks thats trying to find a new home, the next time stocks have a major correction/crash.

cohodk

As Dave said earlier, it is impossible to predict the market.

That's not quite what I said. Markets can be predicted fairly accurately if one knows what to look for. However, I see many people say, 'it's due", which really is not sound reasoning, especially if one looks at historical trends and understands intermarket relationships.

I hear "stocks are overvalued", but compared to what? What is the relative of equities vs other assets such as gold or real estate? Take the SP500 divided by the average new home price, is that at an extreme? How about the SP500 divided by gold or oil, an extreme?

TwoSides2aCoin

A prognosticator I am not. That’s why I’m here looking for clairvoyants.

ChrisRx

@cohodk said:
As Dave said earlier, it is impossible to predict the market.

That's not quite what I said. Markets can be predicted fairly accurately if one knows what to look for. However, I see many people say, 'it's due", which really is not sound reasoning, especially if one looks at historical trends and understands intermarket relationships.

I hear "stocks are overvalued", but compared to what? What is the relative of equities vs other assets such as gold or real estate? Take the SP500 divided by the average new home price, is that at an extreme? How about the SP500 divided by gold or oil, an extreme?

Points taken. To sum it up, I am more of a bargain hunter, and right now that seems to be metals (mainly silver.)

cohodk

@ChrisRx said:

@cohodk said:
As Dave said earlier, it is impossible to predict the market.

That's not quite what I said. Markets can be predicted fairly accurately if one knows what to look for. However, I see many people say, 'it's due", which really is not sound reasoning, especially if one looks at historical trends and understands intermarket relationships.

I hear "stocks are overvalued", but compared to what? What is the relative of equities vs other assets such as gold or real estate? Take the SP500 divided by the average new home price, is that at an extreme? How about the SP500 divided by gold or oil, an extreme?

Points taken. To sum it up, I am more of a bargain hunter, and right now that seems to be metals (mainly silver.)

Some commodities are near decades lows

OPA

"The longer I pay attention to markets the more I believe that fundamentals dont matter that much, its much more about just rotating money from higher valued assets into lower valued assets."

Bingo.. konsole ....You hit the nail on the head. Speculation is still the name of the game and w/o speculators ( I call them market makers) don't hold your breath waiting for PM's to rebound.

Kkathyl

I don't think the next downturn will look like the last and with China playing an increasing roll in pricing, gaining seats etc. it is not as straight forward as it has been in the past. I would say you should ask yourself if you just feel like your holding too much? I believe right now is as good as any to buy because price is fair compared to the Stocks. I use to hedge currency for a living in my old NY days about 15-30M in foreign currency each year. Mostly EURO, CNY, AUS & NZD. I still follow the currency instead of just metal. It gives a bigger picture and I need to think simple otherwise you get information overload LOL. The goal was always the same, Hedge 50% over the next 12 months and spot purchase in between. I don't feel like buying right now is much risk but I also don't buy too much. Just the cost of a Dinner and a movie about once a week.

If we all just knew the future....

derryb

@cohodk said:

I hear "stocks are overvalued", but compared to what?

Their book value - highest SP 500 Price to Book Ratio since 2002.

hchcoin

I know this may sound crazy but after the next market correction I am going to be buying individual stocks just like I did in 2009 and spending less on PM's.

Baley

Yup, stocks sure have gone up a lot in the past several years and the last 12 months in particular! Wooo hooo!

Of course a correction will come.

If stocks go down a lot, will shift from net seller to net buyer of equities, but won't necessarily buy metals.

As others have said, a liquidity crisis affects all asset values.. if anything, maybe the high stock market supports metal prices, ( personally, i tend to buy more coins when stocks are up) if stocks go down, expect gold and silver to go down too, at least at first, unless there's some shtf panic...

cohodk

@derryb said:

@cohodk said:

I hear "stocks are overvalued", but compared to what?

Their book value - highest SP 500 Price to Book Ratio since 2002.

The ratio has been much higher in the past. Again, you are comparing stocks to themselves. Are they high compared to other assets?

And....what happened in the next 5 years after 2002?

derryb

The best way to tell if an asset is overvalued is to compare it to it's earlier self. Just like shopping for gold one must look at the current premium to know if the product is over or underpriced. $12 silver eagles were overpriced when spot silver was $8. $20 silver eagles were a much better value at $18 spot. If you're looking for value by comparing different assets then focus on the historical premiums of each.

Do not confuse "best value" with "overvalued." Gold Silver Ratio tells us which metal is the best value compared to the other metal. It does not tell us if one or the other is overvalued.

Price to book ratio of stocks says their premium is too high. I don't need the price of another asset to tell me this. Historically, premiums climb until they crash.

cohodk

First, stocks are still well below book value peak. Second, book values are increasing. Third, well, I won't go there as I'm trying to be nice.

air4mdc

@konsole said:

@air4mdc said:
If you purchase PMs as an investment your going to be sitting on them for twenty plus years to break even.
Poor choice......
Yes there will be a correction coming......
And there will be scared investors.....
You have to have a strong stomach to ride out the tough times in the market....in the long run it will pay off.
Unless your able to time the PM market to make some money but i wouldn’t recommend that one.
Gold has been settled around 1300$ give or take bumps of 200$ for the last 4.5 years.
My stock market returns have been huge over that period. No brainer for me.
Good luck.

2011 is certainly not yesterday, but 6 years isnt a tremendous amount of time. Seeing gold and silver go up and up day after day starting in about 2003 and continuing for 8 years until 2011 is still fresh in many peoples minds. During that time silver went from $4 to almost $50, a massive move and gigantic profits to be made. While gold went from $250 to almost $2000, again a massive move. That 12.5x increase in silver would equate to the DOW going from 2000 to the 24,000 that its at right now, which took 30 years. Larger numbers tend to grab more attention then percentages, such as the DOW going from 15,000 to 25,000 being a 1.6x increase, while a 1.6x increase in silver right now would make silver go from $17 to about $27. That move in the DOW would be constant news, but that move in silver wouldnt get much attention.

I think a very important thing in what I said is that the huge move in precious metals from 2003-2011 is still fresh in peoples minds. Many people probably still believe that "if it happened before it could happen again". The whole idea of buy-low sell-high is key here. Plenty of people that where invested in precious metals in 2003-2011, probably sold out at lets say $40+ area for silver, and $1700+ area for gold and put that cash into stocks. They sold precious metals at higher levels, and when they saw all the money printing they correctly assumed that stocks where at lower levels. As it stands right now, this high precious metals and low stocks has reversed, so now we have low precious metals and high stocks. When stocks start falling hard and fast where are those people then going to put their cash? I contend that alot of that cash will find its way into precious metals again. Some of those people rotating out of stocks and into precious metals will probably be people that rode precious metals up in the 2003-2011 move, and the rest will be people that remember watching the move from the sidelines. The longer I pay attention to markets the more I believe that fundamentals dont matter that much, its much more about just rotating money from higher valued assets into lower valued assets. If wealthy people want to rotate out of higher valued assets they probably just pay some lacky to promote whatever asset it is so the wealthy person can sell out at the high. Then they pay another lacky to talk crap about another asset to get that asset depressed so the wealthy person can buy up that asset cheaply. Selling high and buying low. So I don't think the fundamentals matter that much anymore for precious metals, and I think theres plenty of people around here that would agree that if they did matter then the PM's would probably be much higher. The people rotating their money out of stocks at the high will have recent memories of the huge move in PM's, and they will notice that PM's are way down form what they where 6 years ago. So they will think "if it happened before not too long ago, why cant it happen again". Then they will pay some schmuck to talk up PM's to give the PM's that initial spark, at which point its just a matter of all that money coming out of stocks not wanting to miss another big move in precious metals.

Think of the trillions in money printing thats be going on these past 8 years or so. How much of that was put into the stock market? How much of the money that was pumped into the stock market would it take to ignite another massive move in precious metals? It blows my mind to think of how much money was pumped into stocks these last 8 years, and then trying to imagine how many multiples of their 2011 highs the PM's could be if they received just a fraction of that money coming out of stocks thats trying to find a new home, the next time stocks have a major correction/crash.

Some good information you passed along.
I know some wealthy people and have read about how some wealthy people made thier wealth. I can’t recall one that said......”PM’s”
For that reason ......I’ll stick with stocks..

rcmb3220

@derryb said:
The best way to tell if an asset is overvalued is to compare it to it's earlier self. Just like shopping for gold one must look at the current premium to know if the product is over or underpriced. $12 silver eagles were overpriced when spot silver was $8. $20 silver eagles were a much better value at $18 spot. If you're looking for value by comparing different assets then focus on the historical premiums of each.

Do not confuse "best value" with "overvalued." Gold Silver Ratio tells us which metal is the best value compared to the other metal. It does not tell us if one or the other is overvalued.

Price to book ratio of stocks says their premium is too high. I don't need the price of another asset to tell me this. Historically, premiums climb until they crash.

Gold and silver are both above their historical average. I don't get why just comparing premiums would be valid.

TwoSides2aCoin

@cohodk said:
Folks have always tried to outsmart the markets.

I resemble that statement.