DRIGGS, IDAHO – Greetings from our Teton Mountains hideout…

It’s time for another Friday mailbag edition, where I answer the latest questions you’ve sent in. Lots of ground to cover today…

On the investing side, readers want to know more about buying and selling gold, silver, and other precious metals… the best way to time and track our Dow-to-Gold trade… the coming exodus from the bond market… and more.

But first, we talk about skiing injuries… our next travel destination… and a Texas snow theory making its rounds on the internet…

Reader comment: After a few years’ break, I made the mistake of skiing on some fairly tough slopes, damaging my knees in the process. Continually aching knees should have warned me I was doing damage, but skiing is so much fun, you tend to ski through the pain. The meniscus is mashed up and I’ve had two arthroscopies on each knee. Beware.

I twisted my ankle and my knee two weeks ago. I couldn’t walk for a few days and I now walk with a limp.

I should probably be resting still, but as you say, it’s so fun that I just ski through the pain now. Kate hurt her knee in January and she’s also limping still, and she also skis through the pain now.

Reader comment: I am currently living in the small fishing village of La Manzanilla, Jalisco, Mexico. I am an American/Canadian who has been living on Vancouver Island for the past 39 years.

My wife and I bought a house here in Mexico after scouring the world seeing “the place.” After three days’ stay here, we were at the realtor looking for a deal. We found exactly what we always dreamed of, and inexpensive, at that.

There is a 3-mile sandy beach with numerous campgrounds all on the ocean, many great restaurants, old-town Mexico, and my wife is on her third year of learning Spanish. She spends her time teaching English to local children and they, in turn, teach her Spanish.

Very friendly locals. It’s a special place, safe for your kids, and a good place to learn the values and culture of real Mexico.

I have been there before. Do giant freight trains still trundle through town, coming out of the port?

I went there to catch a ride on a freight train once, but there were armed guards all along the train and I didn’t have a chance. Thanks for the recommendation!

Reader question: Does the snow in Driggs melt when given heat or flame? The weather-manipulated snow in Texas doesn’t melt… it chars black. You can see videos. SO is Driggs snow real or weather-controlled?

It melts. I double-checked.

Moving on to the market-related questions…

Reader question: I’ve had a lingering question that you touched on in your reader comments. You stated that gold usually drops initially with the stock market when the stock market drops.

I noticed that on the charts and am wondering why the strategy isn’t to stay liquid on the sidelines, wait for the stock market to drop, and then jump on the lower gold price with everything you have?

Good question.

For some context, people tend to think that gold shoots up when the stock market crashes. But as I wrote in this mailbag edition, that’s not the case.

The benefit of owning gold is not to protect your wealth against a stock market crash in nominal terms… but to protect your purchasing power over the long run.

As for why we’re not sitting in cash waiting for the perfect moment to buy gold… You make it sound easy, but timing these fluctuations is much harder than it seems.

Also, in my experience, the best way to capitalize on these big trends is to buy and hold for the duration of the trend, without trading. That’s where the big money is.

Finally, gold may rise significantly while you’re waiting for the stock market crash that never comes. I’d rather just get in at a decent price, when I have a lot of conviction, and then hold on the whole way…

Reader comment: As I have been reading your travel blog for quite some time, I have taken an interest in the Dow-to-Gold ratio idea you have studied.

The Dow was/is primarily an industrial-focused index. However, the U.S. economy in recent times has become much more tech-focused.

Do you think this will adversely impact your transition timing from gold back to stocks? Maybe “5” is too high, or too low?

This is a good question. I’ve considered using the Vanguard Total World Stock ETF (VT)-to-gold ratio, or even the Wilshire 5000-to-gold ratio, as a better representation of a stocks-to-gold ratio.

I do keep an eye on these ratios, but they end up being pretty similar to the Dow-to-Gold ratio and are giving basically the same signals. For simplicity’s sake, I stick with the Dow-to-Gold ratio.

Reader question: If the Dow-to-Gold ratio does get to 5, how would you sell your gold? To dealers? If so, to one or spread it out to more than one?

There are several ways to sell your gold.

For example, you can go straight to your local coin dealer. You can also search for a reputable bullion dealer online. The U.S. Mint keeps a list of local and national dealers, broken down by state. You can find that here.

One thing to keep in mind: Just like when you buy gold coins, I recommend shopping around for the best price before you settle with one dealer.

As for what Kate and I will do specifically, I’m not sure.

I imagine I’ll become friendly with my local coin dealer and cash out a coin or two every couple of months when we need the cash. Or perhaps I’ll trade the entire amount for a house or a piece of land. We’ll see.

Reader comment: I have over four decades of investing experience. Based on my experience, going “all in” on anything is a mistake. Too many variables that are unforeseeable and out of our control.

If my retirement funding strategy were being all in on gold, and only cashing in when the Dow-to-Gold ratio hits a certain number, I may find myself eating a lot of dog food until that ratio arrives. (Plus, probably having to find a new wife.)

You have said that you EXPECT the ratio to be 5 sometime between five to 10 years from now. That’s a long time for someone with monthly expenses in retirement to wait.

I take your point (and appreciate your humor!).

The point I’m making is that the investment markets are thoroughly bloated, and I’m not prepared to expose the precious capital we’ve saved up to that. We’re sitting on the sidelines, so to speak, until it’s safe to emerge again.

We really just want to preserve our purchasing power at this point. The Dow-to-Gold ratio is the indicator I’m using to tell me when it’s safe to re-engage with the economy again.

In the meantime, we’ll keep living below our means as best we can, and trying to earn a little income to get us by…

Reader question: While true that many investors are comfortable investing in U.S. Treasuries, won’t the demand for those instruments fall off a cliff if the interest rates actually show up as negative?

Precisely. As I wrote about here, the idea of deeply negative rates is gaining traction in the U.S.

When bond investors realize they are going to be toasted – perhaps for many years into the future – there’s going to be an almighty exodus of capital from the bond market.

That capital will flow into the stock and commodity markets. And especially gold.

I mean, seriously, can you imagine buying a 30-year bond, yielding less than 2%, as the Fed is saying that it’s targeting an inflation rate of 2% and that will let inflation run hot at first?

Reader question: Could you please, please explain, give a lesson, teach us to understand what, how, who controls devaluation of the U.S. dollar?

I just can’t get my head around how it works. One or two postcards on this topic would be very much appreciated and helpful. Thanks.

It’s really simple.

The value of the U.S. dollar is determined by supply and demand in the currency markets. Sometimes, governments intervene in the currency markets to manipulate exchange rates.

It happens all the time and there are lots of different ways to do it (direct purchases, interest rates, currency controls, inflation, etc.)

If the U.S. government decided it wanted to devalue the dollar through direct intervention, I think they’d probably organize some kind of meeting like the Plaza Accord of 1985 or the Bretton Woods setup in 1944.

If they wanted to do it unilaterally, they could just encourage inflation and let market forces do the work for them…

Reader question: I know that you are a huge proponent of gold and silver, as I am as well. My question to you is, should we be paying attention to (or considering an investment in) other precious metals, such as palladium, platinum, and rhodium? Looking forward to reading your thoughts.

A very good question. I notice platinum, for example, is far cheaper by weight than gold. For most of my adult life, platinum has traded at a premium to gold.

The other day, I looked into buying some platinum coins, but I found the premiums to be too rich (almost 10%) so I didn’t go any further.

Then I thought, “Gold and silver do everything I need. Why am I bothering looking at platinum or palladium? Anyway, they’ll probably be much harder to sell when the time comes, as they’re far less liquid.”

Reader question: My silver supplier currently only has Silver Austrian Philharmonic 1 oz. coins and Silver 1 oz. Rounds (both .999) available for purchase. Are either, or both, good for long-term ownership in the U.S.?

Silver is silver.

I suspect that U.S. Mint silver coins might be a little easier to trade in the U.S. than foreign-minted coins, and will always have a higher premium, but I hope it won’t make much difference when it comes time to sell.

I bought Austrian Corona gold coins the other day, for example.

And that’s all we have time for this week. As always, thanks to everyone who wrote in!

Please keep your questions and comments coming at [email protected], and I’ll do my best to address them in future Friday mailbag editions.

– Tom Dyson

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