Precious metals analyst Jeff Clark says there is something quite different about gold's volatility this time around and that there are certain days that are better for buying silver than others.
Jeff Clark, senior precious metals analyst at Casey Research, is hardly new to the world of gold. As the son of an award-winning gold panner, Clark also works his family’s placer claims in California, Nevada and Arizona. When not looking for the yellow metal, he can be found researching mining companies, analyzing big trends in metals and looking for safe and profitable ways to capitalize on the gold and silver market for subscribers to Casey Research’s investment newsletter. In this first part of a two-part interview with HAI Managing Editor Drew Voros, Clark discusses what the current volatility in the gold market signals to investors, what the best asset allocation is when it comes to gold, and why Tuesdays, Fridays and the 15th of each month are the best times to buy silver.
Be sure to read the second part of the interview on Monday, June 25.
Hard Assets Investor: Earlier in the year, you wrote an interesting piece about gold’s volatility called “The Face of Volatility.” We are certainly seeing volatility now. How would you characterize what’s happening?
Jeff Clark: Yes, are we seeing higher volatility right now, but the big volatility in the past occurred near the end of the bull market, during the actual mania. And obviously we’re not in a mania now. What I think the current volatility could mean, however, is that something big is about to happen. When volatility ratchets up, that usually means you’re on the precipice of a big move one way or the other. Naturally, given my view of the importance of holding gold at this point in time, I think that big move is going to be higher. But the volatility we have, while it is above what the average has been since 2001, doesn’t signal anything else at this point.
The average one-day move for gold has been between 4 and 6 percent as far as the biggest moves. But back in the mania in 1979 and the early 1980s, gold fluctuated by more than 5 percent on 38 days of those last four years. Once every 45 days you saw gold move greater than 5 percent. We just don’t have that kind of volatility right now. The biggest move, by the way, was back in January of 1980: Gold rose 13.2 percent in one day.
By the way, investors should realize that volatility is not the same thing as risk. Those are two separate things. Risk is where you have the threat of a permanent loss of capital. Gold doesn’t represent that because it’s not going to zero, nor does it have counter-party risk. Once I have it in my hand, I don't have to worry that a third party will default on it. And of course in a high-inflation environment, currencies can go poof. If we experienced hyperinflation, gold would excel; it actually rose a greater percentage than the German currency did during the Weimar Republic.
Neither is volatility a bad thing. You want to focus on using it to your advantage. If, like me, you believe the bull market is not over, you use volatility to buy on the cheap when the price is down.
HAI: What would fuel this big move? Europe?
Clark: A lot of Europe’s woes are built into the gold price already. What could spark a higher gold price coming out of Europe would be if Spain or Italy blew up financially. Or, if it becomes obvious to the mainstream that the bailouts aren’t working. Or, if there was an outright default. Any major negative news item like that coming out of Europe could spark another leg higher. But it could easily be something that has nothing to do with Europe, like Iran lobbing a bomb or an unexpected jump in inflation here in the U.S.