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« High River Gold (HRG) Undervalued? | Main | Agnico-Eagle Mines Limited: Bought a few Call Options »
Wednesday
Nov042009

Why Gold Has a LONG Way to Go

Gold Coins.JPG

An interesting read provided by Jeff Clark, Casey’s Gold & Resource Report

A couple weeks ago, I had my TV tuned to a business show that loves to give predictions on the markets and the economy. On that day, one of the program’s regular guests declared it was time to “short” gold, that it had reached its top, and that the precious metals bull market was over. I’ll try to be nice in my rebuttal.

So, what was his reasoning: technical analysis of wave counts? falling demand? a telling ratio? sun spots? No, he noted that upscale department store Harrods in London began selling gold bullion and coins “over the counter,” ergo, the top was in. Nice try, “Bert,” but this is amateurish. You really shouldn’t be playing with the big boys if that’s the basis of your call.

Yes, gold will someday put in a top, and since the gold price is largely determined by psychology, the end of the bull run will be marked by behavioral types of signals. But calling a top in gold now is like declaring that WWII was over because the Allies won a small skirmish in early 1942. To have made such a statement, based on a small, isolated event, ignored the greater forces that had yet to play out and would have made any journalist or military strategist look foolish indeed.

And here’s why Bert looks equally silly today…

If the top were in, we’d be in the midst of an all-out Mania. Are we? Do you get the impression there’s a rush into gold by the greater public right now? Are headlines blazing the covers of major magazines pronouncing gold as the new investment king? Has Wall Street gone gaga over gold and silver? I ask because these are the true signs that a trend has entered its final blow-off top and would signal it’s time to get out.

I decided to put Bert’s prognostication to the test, and I invite you to play along.

First, I struck up casual conversations with my friends, neighbors, relatives, acquaintances, my wife’s co-workers – heck, even my seatmates on airplanes – angling to learn how much gold they were hoarding, about the killing they were making in gold stocks, and how they were getting rich from all their precious metal investments. (In fairness, I had to exclude my dad, who is an award-winning gold panner, but he’s the only one.)

I found no one – not one person – who is actively investing in anything gold or silver, let alone rushing to buy or hoard the stuff. I had two people who confided that they did own gold, but in both cases it was inherited. A few were curious how they would go about doing such a thing, and fewer asked if I thought they should. Most everyone looked at me blankly when I asked; they didn’t seem to know what I was talking about. When I got a reaction like that, it was pointless to ask about gold stocks. Of the handful I did ask, most had never heard of Barrick Gold, the world’s largest gold producer.

Now ask yourself the same thing: how many of your family, friends, neighbors, and co-workers are buying gold and silver coins? Are any of them giving you hot stock tips about a fantastic gold producer, or telling you about the latest gold discovery made by a company in China? Have any fellow investors told you they’re dumping their brokers because they can select gold stocks better on their own? Anyone telling you they’re going to night school to learn the gold mining business?

Next, I surveyed a large sampling of print media looking for some of these signals that Bert surely had spotted. Over the past couple weeks, not one of the major business magazines I reviewed had anything on the cover about gold or silver. Further, there were no articles on precious metals, such as the best ways to buy or store all this gold everyone is buying.

One magazine ran an article about ways to prepare for inflation, and gold wasn’t even mentioned! I did see an ad from the U.S. Mint in another, along with a couple small ads in the back that said they had the best prices on bullion (right beside the teasers for buying a Russian wife), but that was it. Even the portfolio allocation models recommended in the articles I read made no specific mention of precious metals (one recommended a “resource” fund, but their discussion of it was centered around energy investments).

Other than the articles you seek out, how many mainstream magazines do you see extolling the virtues of gold and silver on their cover? How many bestsellers are prominently displayed at your nearest bookstore that scream at you to buy gold stocks? Are you getting fed up with all the junk mail you get about gold and silver?

Last, I went out of my way to look for stories on gold and silver on TV and radio. About all I could find were the same ads that popped up after last year’s Super Bowl commercial by Cash4Gold. A couple programs quote metals prices, and I was able to find another that actually used the word “gold” in a sentence. It might just be me, Bert, but I can’t find any news anchors talking about the latest gold discovery or that “must own” gold stock. No in-depth special reports from investigative journalists on the hot Canadian junior mining sector. Nothing on my radio about the best ways to store all the silver every smart investor has been buying.

How about you – are you feeling bombarded by TV and radio ads and segments on precious metals? Do you have the clear impression gold and silver are the hot new investing trend around the world? Are you Tivo-ing certain TV shows because of all the great info they provide about picking the next great gold stock?

If we were in a Mania, Bert, all of this would be happening. But it’s not. Those who buy gold coins in the U.S. are still largely viewed as members of a fringe group. There is no public discussion on gold, no insider tips on the latest hot gold stock, no special reports on how to store all the bullion you’ve collected. The psychology isn’t on our side yet. One signal does not a Mania make.
Last and perhaps most important, Bert, are you sure the dollar is done falling? You’re absolutely convinced we won’t see price inflation? Our current debt load won’t pose any future problems? No more worries about foreigners buying all that debt? Obama and Bernanke really have saved the day?

Bert, send me your shorted gold positions, I’ll buy them from you. And although the gold price could see a correction in the near term, and several more along its journey to “the top,” remember that battle in early1942 and all that had yet to occur before the war was over.

And one more thing: when you finally become breathless to buy gold stocks, I just might be ready to sell them to you.

Are you convinced you have the right gold and silver investments for what lies ahead? For just $39/year, you can be sure you have the best gold and silver stocks, along with specific recommendations on the best places to buy bullion. Check out Casey’s Gold & Resource Report.


Have a good one and stay calm.

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Reader Comments (9)

You write this report with the underlying belief that somehow, our paper currency systems are going to pull themselves through the mess they got themselves into. The fiat paper currencies of the world bacame as they are now through improper management through printing, no backing leading to monetary immorality and now also societal immorality. I think you are missing a lot of important details in your piece. For example, the US government is already basically bankrupt! It is borrowing about 20% of the money it annually requires to keep its services alive from foreign governments and foreign citizens who buy its bonds. The government then expands further, requiring more capirtal to pay for this growth and to keep it a going concern of yet further time. Unfortunately, the growth just keeps happening and happening with no end in sight. There comes a time not too far ahead when the whole system will become indebted so deeply that it will become impossible to get out of debt. This is called negative amortization. The real reason why people buy and hoard gold is because there is a day in the not too distant future when the dollar will become hyper-inflated and hence become worthless! Yes worthless! Say it again 10 more times! The people who continue to use the dollar to buy things will do so at their own peril as its buying power increasingly becomes less and less. A day comes (and this could be quite soon) when foreigners stop accepting dollars for doing transactions for important things like oil, grains and other commodities. The day is coming when the whole world becomes revulsed by the dollar and its poor store of wealth and demands (as in many times before) gold for whatever transactions that get made. The real reason for holding gold is not to sell it off before the big event, but to hold it straight on through to the new world currency, which will be gold. In todays terms, one's gold will hold ones buying power into the future. But, when the future comes and there is only so little gold to go around, those holding gold will be the only ones holding real money. There is a possibility that a large portion of the world could end up impoverished due to this fact. If you ask me, it seems like the US fiat dollar is beyond repair. In the future, all money will be denominated in one way or another to gold. Hence, the real reason to hold gold today is that it is and will be the real money of the future AGAIN! Bye bye dollar. Hello Gold!

November 5, 2009 | Unregistered CommenterScottinKorea

when oil was at 135 they were telling that too. and it collapsed few weeks later. this bubble is no different. soon its time will come

November 5, 2009 | Unregistered CommenterDi

My first post on this website unfortunately got deleted (without notification) by someone working for the website!

Earlier in the evening I made a post on this site about why I thought that this article didn't really hit the mark, as the real reason to own gold will be that the central banks have mis-managed the world monetary system which will lead to hyper-inflation and the destruction of the fiat dollar. This is the main reason to own gold. You own it in order to wait until the day that the dollar becomes worthless. Hence, you don't sell it when it makes its first moonshot, as the central bankers will still have their hands on the printing presses. The main reason for owning gold is to own it when it becomes the backing of world currency AGAIN for the UMTEENTH TIME!!!!

November 5, 2009 | Unregistered CommenterScottinKorea

I think you are deluding yourselves about the shorrtterm...even the wildly manically always bullish Casey folks correctly note that real inflation is a couple years away, if it happens. Gold is likely to be finished for awhile. You advised us all to buy into what was a terrible disaster summer 08 (I remember one comment that, buying below the 200 day MA is suicide, in a bear market...which it was at the time, and buying back into the xau around 150 was a disaster...). Just about everyone knowledgeble now is expecting a MAJOR retraction here. I think you should be a bit more open to what is really happening. 3-4 years from now I agree it is likely gold will be much higher, but I am persuaded the weight of evidence is pointing to a sharp downturn and a prolonged period in the doldrums again as the world works out of the huge american deflationary pressure...so it becomes an issue of protecting the recovery we have had the past 12 months, or watching much of it dissipate again..

November 5, 2009 | Unregistered CommenterS

Hey Bob and others

Would love some thoughts on AUY inability to move through 12, especially with gold @ 1100. Look at IAG's chart for instance. A similar company whose stock is now approaching 16 from a low of four dollars. In thoughts would be appreciated.

November 5, 2009 | Unregistered CommenterGAry

ScottinKorea,

We are camped in the southern hemisphere at the moment so we can be asleep when comments come in. Just so you know we do not prevent anyone from commenting whether they agee with us or not in fact we encourage it.

November 5, 2009 | Unregistered CommenterGold Prices

GAry,

Its certainly sluggish, maybe we ought to dig a little deeper and try and ascertain to why.

November 5, 2009 | Unregistered CommenterGold Prices

i have a call in..Waiting for a return... Figure you might be able to find out more than me. All the TGTS are 15-17. Anyway..Thanks for looking into it also..Gary

November 5, 2009 | Unregistered CommenterGAry

How can Anyone say "gold is done for awhile"? Do you honestly know just when the effects of all this printing are going to begin the big slip? Or do you profess that there will never be one? Honestly... there's got to be some price to pay for this wrecklessness, just as there would be in a simple home. Countries are subject (eventually) to the Same rules of simple mathematics and accounting - REAL accounting that is - as an everyday household is!

November 10, 2009 | Unregistered Commenterhow to file bankruptcy

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