The prices of gold and silver are peaking now. They may fall, but not very far—and the next buying opportunity will not last long.

Where gold and silver now stand

Gold has set three records in a row. But today it closed up by not much more than a dollar and a half. During the day it traded as high as $1594 an ounce, and then fell as low as $1581. Obviously, traders have set their next limit at $1600. The gold price did not go over that limit, and is not likely to.

Silver went as high as $39.33, and then lost nearly everything it had gained today.

The long-term trends for gold show a steady rise. Gold is not likely to lose that momentum—unless government and Federal Reserve policies change radically, and permanently.

Silver raced to an early record, then fell back, and has been level for the last eight to ten weeks. But silver has more than tripled in price in the last five years.

What’s happening to gold and silver?

Representative Ron Paul (R-TX-14), a consistent advocate for a return to gold as everyday money

Gold is the traditional large-scale, standard-setting store of value. In the last few weeks, holders of euros have dumped them for gold on a very large scale. The reason: the day of judgment in Greece (or to use the Greek word for it, the crisis) is not finished yet, and is getting worse. And: Greece is not the only country in Europe to face a day of judgment. Italy faces its own day of judgment. And before putting US debt under review, Moody’s Investors Service downgraded Ireland’s debt.

Yesterday, Representative Ron Paul (R-TX-14) questioned Federal Reserve Chairman Ben Bernanke on his handling of the money supply. In that interview, Bernanke said something incredible:

Q. Do you think gold is money?

A. No. Gold is not money.

Later, Paul asked Bernanke why the Federal Reserve, and indeed all central banks, hold gold. Bernanke’s answer: “tradition,” begging the question.

Your editor will try to answer. Gold, uniquely among metals, does not perish and is not subject to corrosion. Only one substance known to man can attack gold chemically: the mixture of hydrochloric and nitric acids called aqua regia (king’s water). Because gold is so difficult to react, it is easy to refine.

Silver is another matter. Silver rises and falls with stocks, and with the larger economy, much more than gold. Silver has direct industrial uses, and those uses have a strong influence on its value.

Before the Industrial Revolution, gold was about twenty times more valuable than silver. Thus the original one-dollar coin was of silver. A gold ounce was worth twenty dollars. (This is the basis of the Sixth Amendment to the Constitution, that says that a defendant in a lawsuit worth twenty dollars or more deserves a jury trial.)

Today the gold-silver ratio is twice that. Numbers like these suggest a market that wants a large-scale store of value and has little need to use a metal in industry.

What happens now?

Gold is likely to fall again. Like some stocks, gold might form the second part of a “double bottom.” After that, gold will rally. The reasons for this are not merely technical. The world’s economy is still on a shaky foundation. More than that, America will soon face its own “day of judgment.”

Gold will likely start its rally in late August or early September. Then it will double before it pauses. But it will dip before then, so watch for an opportunity to buy it cheap. (Or else, make sure to buy it from a dealer who offers a price guarantee.)

Silver is level now. It will rally at or about the same time as gold does. Its price will likely increase fourfold or even fivefold.

Recommendations

For gold: Hold.

For silver: Buy.

Featured image: gold coins recovered from a pirates’ cache.