We recently received this question from a reader…
“I hope you don’t mind if I ask you some questions. I’ve been wondering to myself what happens when the price goes up. Like what point do I sell at? And then what? I know no one knows how high the prices will go so disregard my first question, but the second has me thinking. Do you have a [sic] exit strategy or know of any sites that can recommend one. You mentioned earlier that agriculture and energy have good potential for future security, so im looking into those areas to invest in later on. Im asking you because almost every else keeps their money in the banks or say “buy a house”. Well I don’t trust the banks and cant/wont buy a house at this point because of the housing bubble. Any input would be appreciated.”
No one knows how high gold and silver will rise
However it is interesting to read predictions of just how many dollars it may take to buy an ounce of gold or silver in the future. We’ve even outlined some methods for doing this back in this article from 2012: How Do You Value Gold – What Price Could it Reach?
However a dollar price is not likely to be the best method to determine when to sell
Or as we prefer to say, “spend” your gold and silver.
Why is this?
Simply because it is an elastic measure. Where fiat currencies continue to be debased, the dollar price of gold and silver could end up much higher than many would now think. (The current tapering aside – in the long run we believe the central planners have no option but to continue to create digital dollars yen pounds and renminbi)
Instead we prefer to track various measures of gold and silver against actual real assets such as property and businesses
These include the Dow/Gold ratio (see the chart to the right) and Gold and Silver to Housing ratios. We outline these and other indicators in this old article of ours: When will you know it’s time to sell gold?
For more detail on a couple of these ratios check out these two articles:
Could NZ House Values Drop by 80 Percent?
NZ Housing to Silver Ratio
Do we have an exit strategy for gold and silver?
Well, we don’t have an exact one mapped out.
So why is that?
Because who knows exactly how the future will play out. However we certainly have some ideas to draw on and formulate a plan when we approach the time when gold and silver are fully valued, or perhaps even over valued.
As we mention in our Ecourse, when gold and silver have reached their full valuations, that will be the time to swap them for potentially beaten down shares/stocks in businesses and also cheap property (compared to gold and silver at least).
If history is any guide these may also be yielding high dividends/rental yields in the double digits, making them very attractive investments for the long term.
Bonds may also be very cheap to purchase and have high yields
Gold Certificate – Image care of the US National Numismatic Collection at the Smithsonian Institution
A fellow we refer to as our “secret” investment advisor discusses selling his own precious metals in 1979/80 and buying high yielding bonds. A very unpopular move at the time but one which enabled him to live off the proceeds of for the next 30 years before selling out of them only last year.
We recall that he didn’t actually make this move in one hit but exited his precious metals positions in stages over a number of months when he felt they had reached full valuation.
(Note: If you’d like some assistance with timing your eventual exit from gold and silver, then you may want to meet our “secret” investment advisor. You can learn more about who he is… And how you could benefit from his uncanny ability to enter and exit not just the precious metals markets but many other markets too, at just the right time. So go here to learn more now.)
Gold backed bonds that mature into gold are also a possibility
Whereby you will receive a return in a specified weight of gold upon the maturity of the bond. So in this way you would get a yield as well as the return of your gold at maturity.
You may not need to spend or sell your precious metals at all
Instead you could borrow against them, using them as collateral to buy for example properties with high yields. Then the rental income on the properties will pay off the loan and you’ll also still have your original capital in the form of precious metals too.
Chris Duane – In his book “The Thrivalist” (Download for free here) discusses joining with like minded people to become a silver bank. He envisages like minded holders of silver will be able to band together and lend silver interest free due to silver reaching such a high value in comparison to paper assets.
He also talks about becoming an equity partner in new businesses. That is, using your silver capital to help those wanting to start up new businesses and technologies. You offer the capital and they bring the expertise and labour. This would be an interest free loan where you as the lender get a stake in the company and the borrower gets excellent terms with no interest to repay.
You’ll have part ownership in a business and then still have capital to repeat the process over and over again.
So there’s a few possible exit strategies to consider
It would be difficult and possibly unwise to try and make a definite plan at this stage as no one knows quite how “the end game” will play out.
You may not need to sell at all if gold (and even silver) are remonetised. Unlike 1980 when gold plummeted in value after reaching its high, if it was remonetised it would likely be at a much higher value than today, in order to balance out the fiat currency that exists. In this case you would just spend your precious metals as and when you saw fit.
However markets often end up over valued, as was the case with gold in 1980 reaching 120% of the US monetary base at its peak. So this would be the time to deploy precious metals into other tangible assets to get maximum bang for your buck and to get a regular return on your “money”. So one of the above discussed strategies will be useful to achieve this depending on the situation that exists at that time.
Odds are we are still some way off that occurrence yet, giving us more time to accumulate yet.
How do you think the end game will play out? Any other ideas of suggestions as to exit strategies when the time comes? Please share them. Let us know you’re alive and leave a comment below!
As we mentioned earlier in this piece, you may find these previous article of interest as well. They cover the Dow/Gold ratio and Gold and Silver to Housing ratios:
When will you know it’s time to sell gold?
Could NZ House Values Drop by 80 Percent?
NZ Housing to Silver Ratio
(Note: If you’d like some assistance with timing your eventual exit from gold and silver, then you may want to meet our “secret” investment advisor. You can learn more about who he is… And how you could benefit from his uncanny ability to enter and exit not just the precious metals markets but many other markets too, at just the right time. Go here to learn more now.)