Most investors likely fall into one of these three categories:
They likely haven’t bought gold investments yet and they are thinking it may be too late to get in. Or they have bought gold investments and they are wondering if they should by more at these prices. Or, like me, they take as many opportunities as possible to buy more gold investments each time the price of gold bullion pulls back.
What most investors fail to realize is that the last real correction in the 10-year gold bull market occurred back in 2009. This year, gold bullion reached a high price of $1,895 an ounce on September 5, 2011. By September 26, 2011, the metal had fallen back to $1,598 an ounce (London fixed closing day prices). Smart investors would have seized the opportunity to buy more gold investments when the metal fell below $1,600 an ounce (see Gold Bullion’s Price Action: Time to Separate the Men from the Boys).
From its 2011 price high of $1,895 an ounce, gold corrected down 16%. A healthy correction in a long-term bull market…but, yes, I would have liked to see more of a wash-out. I would have liked to see the weaker hands and speculators flee gold investments. But, on the other side of the equation, I feel that the “light” correction is an indication that the bull market in gold bullion is strong.
Yes, I would get into the gold bullion market at this time. But there is a caveat. I wouldn’t be surprised to see gold move to the low $1,500 level. If it happens, I would just seize that opportunity to buy more gold investments. But, at the same time, if gold never makes it back to the low $1,500 an ounce, you will have secured your entry into this gold market now.
Each time gold bullion hit a new price high, be it $500.00, $700.00, $1,000, $1,200, or $1,500 an ounce, I said to buy more gold investments. I’ve been right all the way up.
All this money printing by world central banks since the credit crisis hit in 2008 has greatly expanded the fiat money supply. The more fiat money in circulation, the greater the threat of inflation. In Britain, inflation hit a three-year high in September—inflation there is running at 5.2% annualized! Inflation is also a problem in the U.S., although it’s not really getting any media coverage.
Gold investments…still the best hedge against excessive fiat money printing, too much debt at various government levels, and future inflation.
Michael’s Personal Notes:
Want to now what really went wrong in Europe? My fellow analyst Robert Appel presents his “Top 10 Reasons Why the Eurozone Was Doomed to Fail and What Happens Now.” Well worth the read…
- Prior to the formative eurozone vote, had you asked the residents of the various countries if they lived in a democracy, they would have unanimously said yes.
- The actual eurozone, however, was created by politicians who did not consult their constituents. Think about that…
- After the eurozone vote, had you asked the residents of the various countries if they lived in a democracy, they would have still unanimously said yes.
- Was the eurozone needed? In hindsight, the only obvious beneficiaries were the (private) banks and the politicians who saw their “power” increased a thousand-fold. Notice we did not talk about money; we talked about power. Yes, there is a difference, and we used that specific word deliberately.
- Was the eurozone a good idea? Well, if you think about it, major cultural and anthropological differences meant that the zone was doomed to fail from the beginning. And indeed still is. Is money earned the exact same way in Greece as in Germany? That is really the only question you need to ask. The answer is obvious.
- How will the current mess take to resolve? Short answer: No one knows. Longer answer: The eurozone may dissolve. We doubt it. Or, Germany may step up the plate and use its hard-working citizens to bail everyone else out. Or, they may make a “2-tier” zone where certain countries are a little less equal than others. (Yes, we do get the irony of this solution—creating tiers is really a giant step backwards, since the continent was already tiered, was it not?)
- What are the chances of dissolving it? Answer: While this makes some small sense on paper, clearly the politicians will do whatever it takes to kick the can down the road, so to speak, just as was done with the subprime mess. They perceive correctly that dissolving the zone might cost them their jobs. And, as we know, politicians today will sacrifice anyone and anything to save their own jobs.
- Are we getting all the facts? Actually no. The fact is that the Spanish and Italian problems—which are not yet full disclosed—could dwarf the Greek issues (issues which, please note, have been delayed, and obfuscated, but not resolved). Major world banks, as you read this, are reducing exposure to French loans and experts have opined that the bizarre deal recently cut with Ireland is not sustainable.
- Who benefits from the mess? The U.S., which ironically saw its bond sales rise (even at effectively negative rates) and its buck soar. Two counter-intuitive events, of course, which make little sense yet which happened anyway. Also the “anti-one-worlders” benefit, since the Europe mess is going to make it that much harder to bring Mexico, Canada and the U.S. into one zone next.
- When will have an answer? No later than next summer, we suspect, because frantic work among the politicians over the last few days has (we think) managed to push the problem forward to that period. In the meantime, we expect stock markets to try to rally between now and then.
Where the Market Stands; Where it’s Headed:
What a coincidence…
The stock market, as measured by the Dow Jones Industrial Average, closed yesterday at the exact number it started at in 2011: 11,577. We’ve gone from a market that sells off on bad news (as we witnessed most of this summer) to a stock market that rallies on bad news—the true sign of a market that wants to move higher. The year 2011 is looking more and more like a repeat of 2010 for the stock market (see Today’s Stock Market: Making Money by Copying Last Year’s Action).
Since March of 2009, we have been in a bear market rally. This rally will serve to lure investors back into stocks before Phase III of the bear market sets in. As I have been writing since March 2009, I expect stock prices to continue trending higher (see The Strongest Indication Yet That Stocks Are Short-term Oversold). However, the easy stock market profits of 2009 and 2010 will not be repeated. Bear market rallies can last three to four years.
What He Said:
“Even the most novice investor can now read the chart of the Dow Jones U.S. Home Construction Index and see that it is trading at its lowest level in five years. If, like me, you believe that stocks are an indication of what lies ahead, this important index is telling us that housing prices are headed to 2002 levels! What would that do to the economy? Such an event would devastate the U.S.” Michael Lombardi in PROFIT CONFIDENTIAL, December 4, 2007. That devastation started happening in the first quarter of 2008.