Cash-for-Gold Not a Market Top Signal


"Buying gold now clearly makes sense as the mug-punters are still sellers."

It is worrying to switch on German TV and see a 'gelt fur geld' (cash-for-gold) ad. Four years ago, TV ads for courses in how to flip U.S. real estate were a signal that the market was near the top.

Yet the real estate ads were about how to buy property. The cash-for-gold ads are about selling gold jewelry for instant cash—presumably at a rate that is considerably advantageous to the advertiser.

'70s Silver Coins

There is a past precedent from the late 1970s—selling pre-1947 silver coinage for more than double its face value was all the rage in the UK. After a while all these coins had been taken from circulation and melted down by dealers. But that was long before the 10-fold increase in the silver price.

So perhaps it is no different this time. The cash-for-gold ads are a symbol of a developing bull market in precious metals—not the actual top itself.

Still Time to Go

If the 1970s are a precedent, the silver coins were pretty much gone by 1978—two years before gold and silver hit their highs (a price still to be matched by silver today), and gold is not that much higher either.

Just adjusting for inflation would give us very much higher prices. Retail investor interest in buying and selling gold and silver is just a part of an evolving bull market. It does not signal a market top.

In the case of real estate flipping in 2006, that did signal a market top because the professionals were no longer buyers but purveyors of courses to tell others how to get rich. Buying gold now clearly makes sense as the mug-punters are still sellers.

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