After the violent downfall last week for gold and silver, things turned around today. Gold had fallen below $1,500 and silver had dropped about 30% in less than two weeks. This was not surprising as silver’s run toward $50 was rather quick, but I think it still scared a few people.
The little bounce back up today is a promising sign. We will see if it holds or if there is more of a correction to come. Either way, I still see gold and silver both going to new all-time highs, most likely this year. If they don’t see new all-time highs soon, that means there is likely to be a severe correction in the stock market.
That is why I like a strategy of owning gold and silver related investments along with a short position in the stock market. I should emphasize that this is for your speculation money. If you want to minimize speculation and keep your money as safe as possible, just put it all in a permanent portfolio setup.
But again, for speculation purposes, a long position in gold and silver investments along with a stock market short is a decent bet right now. If the stock market crashes, your short position should do better than the loss you will get from your gold and silver investments. If gold and silver do well, then your position there should do better than your loss from your stock market shorts.
The only way this strategy won’t work is if the stock market continues to go up and gold and silver go down. While anything is possible, I don’t see a high likelihood of this happening over a long stretch. I suspect the stock market is going up due to the hot money being created by the Fed. If this continues, then gold and silver should do even better as they are natural inflation hedges.
If the Fed puts on the monetary brakes and the new money stops flowing, I would suspect that the stock market would collapse rather quickly. Silver and gold might also go down quite a bit in this scenario, but at least you would be making money on your short positions.
There is a possibility that stocks might stay flat for a while or even trend down while gold and silver go up. You would really be a winner then, but just remember to take profits along the way. As we saw last week, things can correct rather quickly and rather severely.
This strategy is easier than ever with ETFs. You can buy an ETF that shorts any of the broad stock markets indices. Again, this should be for your speculative money only.