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Precious Metals

If You're Worried About Gold Prices, You Need to Read This

When stocks fall by 20% or more from their peak, it's labeled as a "bear market."

With gold prices down 26% from their record close back in August 2011, the "yellow metal" has entered a bear market of its own.

It took an especially ugly day on Monday to get us to that point.

Two days ago, gold prices plunged as much as 9.7% – the biggest decline since 1980 – and continued a sell-off that saw the yellow metal fall by 4.7% last week, including a 4.1% drop on Friday.

The metal has now fallen 26% from its Aug. 22, 2011 settlement record of $1,888.70.

To get some expert insights on this sell-off, I telephoned Peter Krauth, our resident natural resources expert and editor of our Real Asset Returns research service. Peter based himself in Canada to be closer to the miners and natural-resources companies he covers for his subscribers.

I asked Peter for insights on the following three questions:

Precious Metals

Will Silver Prices Keep Falling?

As gold prices plummeted $200 in two days, silver prices fell about 14%, or $4, to below $24 an ounce.

Our Money Morning resources expert Peter Krauth explained the reasons behind gold's fall, so we went back to him to find out the deal with silver prices. Will silver keep falling? Is it a buy at the lower levels?

Here's what Krauth offered for investors.

Money Morning Staff: Peter, are silver prices falling because gold fell, or are there other factors at play here?

Peter Krauth: There are two factors.The first is that silver follows gold rather closely, and usually amplifies its behavior, both up and down. However, it can and does sometimes detach from gold and behave independently, but this is more of a rarity.

The second is silver's industrial demand.

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Investing Tips

Is Your Next Great Investment a Toothbrush That's Been to the Moon?

The best investment advice I ever received came from Warren Buffett. "Buy what you love," he said.

For most investors, that means stocks, bonds, or real estate. But for a fast-growing group of investors "buying what they love" means memorabilia.

Now before you write this off as a fad, consider this…

Jimi Hendrix's guitar originally sold at a New York auction for $100,000 and a mere four years later sold for $480,000.

That's a return on investment of 380%. When's the last time you made that kind of money in the stock market?

The truth is memorabilia is one of the great hidden investments.

In fact, on Thursday, something very unique is going on sale – especially if you're a space enthusiast. It's a toothbrush.

But it's not just any toothbrush, it's the one Buzz Aldrin took with him to the moon.

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Precious metals

Investing in Gold: Here's What to Do Now

Monday's drop in gold prices was the largest one-day plunge since February 1983 – which led many of those investing in gold to bail on the yellow metal.

Gold prices tumbled $140.40, or 9.4%, to $1360.60 an ounce. This brought the two-day decline to $203.70, or 13%.

On Friday, we outlined recent factors driving gold's price plunge:

  • The Federal Open Market Committee (FOMC) meeting minutes that came out last week suggested the central bank may start scaling back its monetary stimulus measures later this year, reducing inflationary pressures.
  • Goldman Sachs Group Inc. (NYSE: GS) last week cut its 2013 average gold forecast, for the second time, to $1,545 from $1,610. Investors like to dump the metal after the release of bearish research.
  • There have been rumors financially strapped Cyprus was selling 400 million euros of gold, 75% of its reserves to raise cash.

Gold prices ended the drastic two-day decline Tuesday, up nearly 2% to $1,387.40.

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Hot Stocks

Facebook Stock Risk: New Social Media Apps Luring Teens Away

Facebook Inc. (Nasdaq: FB) is starting to get a taste of what it means to be the king of the social media hill.

Small and more nimble competitors with novel ideas have sprung up and begun to entice young users away from the No. 1 social media platform – a bad omen for Facebook stock, which 11 months after its IPO still trades 29% below its offer price.

According to Piper Jaffray's annual "Taking Stock of Teens" survey, teens are spending less time with Facebook and more with a vast array of alternatives.

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Housing Market

Is the Housing Market 2013 Being Propped Up by Wall Street?

The housing market 2013 is showing signs of improvement from last year – but there's reason to believe this recovery isn't sustainable.

Home prices and sales have been climbing, fueling optimistic outlooks for the rest of the year – but mortgage lending hasn't risen by a similar amount.

That's because it's not families or new home buyers driving the housing market rebound in 2013. There's another major buyer moving markets. And if that buyer stops purchasing homes, this "recovery" could lose its steam.

We caught up with Money Morning market expert Shah Gilani, who in the following interview explained this development in the 2013 housing market.

Click here to watch Shah's interview.

Investing Tips

How to Find Defensive Stocks to Buy for Portfolio Protection

In recent weeks many pundits and gurus have advised investors on which defensive stocks to buy for portfolio protection – but before following their lead, you should do some research as well.

The definition of defensive stocks seems to be a little unclear, but generally the same names keep appearing: large drug stocks, consumer-related issues and utility companies. While those suggestions sound like smart moves, many of these advisors seem to be using a rearview mirror to select which stocks and sectors fir the definition of "defensive."

In fact, during the past year the dividend-paying large cap stocks have had a huge rally as yield-seeking investors have pushed them to new highs. They are exactly the type of stocks that a defensive investor would want to avoid in the current market.

Fortunately for investors there is a method for identifying and selecting truly defensive stocks that has worked for more than 40 years.

Energy Stocks

How to Play by the Rules and Beat the Tax Man with MLPs

Paying taxes is about a pleasurable as a root canal. It's hard not to think about all that money going bye bye.

But it's inevitable and there's nothing we can really do about it, I guess.

However, tax day does bring to mind something quite a bit more positive: Like how to make money in the energy sector.

Actually, that's not as much of a stretch as you might think.  That's because the bridges are already in place between how taxes are paid and energy returns.

Right about now, some of you are probably thinking I will start talking about energy sources like renewables that survive on government tax concessions.

Nope.

Or perhaps you might think this is going to be a discussion of tax write offs for certain field projects that utilize public land.

Wrong again.

And unless you are prone to the more fanciful, your thoughts should not be wandering toward squirreling money away on a small island somewhere.  

Because there has been a much more practical approach that's been generating success for a while now.

This is how you play by the rules and still beat the taxman in Washington.

Stock Market

Why It's Time to Sell Too-Big-to-Fail Banks

I'm not buying any bank stocks here. I don't own any at present. And if I did, I'd either sell them or at least hedge them.

It's not that they're doing poorly. They're not. Bank stocks have been strong because they've been making record profits. It's been a good ride if you're a Too Big To Fail bank or a shareholder.

But, being the cautious trader I am, I'm inclined to take profits when I have them in hand. That's why I'm out of the banks. I've banked my gains and turned cautious.

Citigroup beat analysts' expectations and finished up yesterday-even though the Dow took a big tumble.

Wells Fargo and JPMorgan Chase didn't do badly last week, in terms of their earnings and profit numbers either, but investors were disappointed.

But here's why I'm cautious…

Housing

U.S. Economy to Get Jolt from 1.2 Million Homebuilding Jobs

An accelerating rebound in new home construction over the next two years should finally give the U.S. economy the jump-start it needs to progress toward a truly robust recovery.

New home construction continues to bounce back from the lows of 2009, after the housing bubble burst, but still has a long way to go.

With housing one of the prime drivers of the U.S. economy – historically construction accounts for 5% of the U.S. gross domestic product (GDP) and related economic activity another 13% – a spike of activity in this area could drive the growth that's long been lacking from the recovery.

"A revival in new home construction will have a huge stimulative effect on the larger economy," Brad Hunter, chief economist for housing research firm Metrostudy, told Bloomberg News. "When home construction goes up, so does demand for furniture, tile, lumber, concrete, draperies, paint and appliances of all sorts."

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