I’ve been long term bullish on gold and silver for at least a few months already.
Why I think gold and silver are in long term bull markets
I think inflation is coming.
- Massive rounds of global quantitative easing have finally caused the global economy to improve in unison. This is the first time since 2010 in which every single major economy is improving.
- With the U.S. economy already at or near full-employment, inflation will rise over the final 1-2 years of this economic expansion and bull market in stocks.
Historically, rising inflation is long term bullish for precious metals.
Here’s rising inflation in the late 1970s.
Here’s gold in the late 1970s
Inflation doesn’t even have to rise a lot for gold and silver to soar.
Here’s inflation the 2000s and 2010s
Here’s gold in the 2000s and 2010s
There’s another major long term bullish factor for gold and silver that never existed before: China is attempting to destroy the U.S. dollar’s reserve currency status with a Yuan that’s backed by the gold standard. Whether or not China succeeds is debatable. But either way, China is buying massive quantities of gold to back its Yuan with gold.
This is essentially a precious metals squeeze. Gold and silver (especially silver) are relatively small markets. These squeezes happened before with silver in 1979-1980 when the Hunt brothers squeezed silver from $5 an ounce to $50 an ounce. The only difference is that it’s not 2 brothers that are cornering the precious metals market this time. It’s China. No force has more cash in the world than China.
Silver is the more volatile brother of gold. Silver will soar much more than gold in a precious metals bull market.
Why I didn’t buy silver before
I like to trade leveraged ETFs. The problem with leveraged ETFs is that your timing has to be decent, otherwise you’ll lose a lot of money from erosion. So here’s the argument that’s been playing around my head for the past few months.
- Silver is hovering around $16-$17 an ounce right now.
- Silver will go up at least 10x if the bull market plays out (to e.g. $160-$170 an ounce). Silver’s historical bull markets are crazy.
- In that scenario, USLV (silver’s 3x long ETF) will go up at least 60x because compounding works in USLV’s favor.
- But if my timing is wrong and I’m too early on the bull market call, I can easily lose 80% of my money first before silver and USLV bottom.
What I decided to do
I firmly believe that inflation will rise in the final few years of this bull market. Historically, every economic expansion ended with rising inflation. It’s just that my timing might be a little off.
As a result, I’ve decided to just buy SLV, silver’s non-leveraged long ETF. If my long term case is correct, then I stand to gain at least 10x over the next few years on my silver position. This sounds crazy, but is it really?
We live in a world in which there is way too much cash. Investors and speculators don’t know what to do with all that money. I’m still amazed that speculators could push Bitcoin – literally thin air – from $100 a coin to $20,000 a coin in less than 3.5 years. That’s a 200x gain! So is a 10x increase in silver really ridiculous? I don’t think so, especially when the masses start to realize that major central banks around the world are all loading up on gold and silver.
These are crazy times indeed. It’s time to profit from the next bubble.
Position size and risk management are just as important to trading/investing as my market outlook. I’ve decided to allocate a mere 20% of my portfolio to SLV.
- If my long term case plays out, I stand to profit 200%.
- If my long term case doesn’t play out, I will cut my SLV position when the economy starts to deteriorate (i.e. inflation will turn into deflation). I will suffer a loss, but the loss will not have a significant impact on my portfolio because the position size is small.
These are my favorite types of trades. The risk:reward profile is telling us that the upside is massive (e.g. 10x) while the downside is limited.
I will slowly enter into SLV over the next few months. This is a buy and hold position for the next 2 years. I will only take my profits when I think the bull market in precious metals is over.