Wednesday, June 24, 2009

I Think Gold has Bottomed

I think the bottom for Gold is already in at around $913-$914/ounce in overnight trading yesterday (6/23). I think it's time to go back to $1000/ounce and shoot for new nominal highs in the Gold price. The plunge in the stock markets that is about to occur should help fuel the rise in the Gold price as people flee for safety.

A new phase in the credit contraction cycle has begun and Gold likes credit contractions. So does Gold royalty company Royal Gold (ticker: RGLD). An economic depression has already begun, but such events are processes, not "wake up one day and everyone's in a soup line" concerts. Government insistence on piling public debt on top of bad private debt makes sure that we are headed for a replay of the Japanese lost two decades experience (one decade down, one to go...).

In such an environment there will be trading opportunities, but buy and hold for stocks is dead for another decade (at least!). The only buy and hold sector is Gold (or fiat cash if you insist on hoping for the best) and the Gold mining sector. Do not put new money into senior Gold stocks yet, as lower prices will occur later this summer.

We will certainly have a cyclical bull market (or two) during the remainder of this secular bear market, but the current cyclical bear market ain't even close to being done in time or price. We are at a P:E ratio of greater than 100 right now when you strip away all the modern "tweaks" introduced by Wall Street shills during a 20 year stock market bubble that has finally popped for good as a generational, not cyclical, event. Let me repeat that: we are now at the highest PE ratio for stocks seen in any of our lifetimes at a time when the economy has entered a full blown economic depression. Tell CNBC and Cramer to put that in their green shoots pipes and smoke it!

If you don't like going short, there is nothing wrong with a cash position - a 0% return on your money is good compared to a loss. The US Dollar is not about to collapse in the next month, but a few banks will. Deflation first, then inflation.

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