Monday, December 14, 2009
The Gold Bull Market Is Over
Gold had a great run, but its bubble has popped and the great bull market in Gold is over. Or so say the paperbugs. Inflation is nowhere in sight, so Gold can't go any higher. Gold pays no dividends and has no growth prospects, so it is silly that Gold has risen this high and now it will retreat far below $1000/oz to its "normal" level in the $250/oz range. Silly little trinket holders will be steamrolled.
Have I adequately summarized the typical paperbug arguments? Here's an article summarizing Nouriel Roubini's recent take on Gold and why it will do poorly. This is standard anti-Gold commentary and I think it will continue throughout this secular Gold bull until its final stage. Mr. Roubini is clearly out of his league when it comes to Gold.
People don't understand Gold and what it means in this environment. It means safety and wealth preservation. It means a vote of no confidence in the economy and its financial leadership. Yes, there is a speculative side that creates the swings in price that are a part of every bull market. The wall of worry and hatred of Gold is intact in the mainstream - thank goodness!
I believe Gold is a strong buy in the low $1100s. Many others think the opposite. This is what makes a market. Buying at these levels is not buying low - that was at $300/ounce. But there really are no better alternatives for those who aren't expert traders ready to jump into every squiggle higher and lower in the various asset classes. There are no other clearly intact asset class bull markets out there except in U.S. debt (and once you get to a zero interest rate, what exactly is the upside potential?). Stocks are going to continue to be a terrible investment in Gold terms, as they have been over the last decade. Real estate is likely toast for a generation (now that was a real bubble!). Corporate bonds are on par with stocks. Commodities are a question mark in many people's minds (including my own).
But Gold is the currency of last resort. Central banks hold it on their balance sheets as a monetary asset because they understand what they have taught their sheeple to forget. When trust evaporates, paper currencies can become mere meaningless abstractions of history much like Enron and Lehman Brothers did. What was perceived as unflappable turned to dust almost overnight for those not paying close attention. China is not encouraging its citizens to buy Gold and silver because they want their citizens to lose money and China has a say in what ultimately happens to the Dollar. India is not and never has been dumb money when it comes to the price of Gold and they think it is a good deal at over $1000/oz.
Hedge funds are rushing into Gold. Stodgy institutional money is bellying up to the bar because everyone else is doing it. These latter "big money" players build positions (and herd-like consensus) over time, not in one fell swoop. We are in the middle to the beginning of the end stage in this secular Gold bull market. However, the greatest speculative gains in the shortest periods of time occur towards the end of a secular bull. These gains are dead ahead in my opinion, though volatility also will likely increase as a way to shake riders off the bull's back. This Gold and Gold stock bull will eventually overshoot its fundamentals to the upside but we are not even close to that point yet.
When I look at a Gold price chart, I see a strong buying point here and now. Not later, not a few bucks lower, but right here and right now at today's levels. Not getting fancy, just technical analysis 101 for those looking to re-enter the strongest bull market in the world. Following is a 3 year daily candlestick chart of the price of Gold in U.S. Dollars ($GOLD):
Seasonal data suggests we are at a good point for a bottom, we are back at the 50 day moving average, Gold is the strongest asset class bull market in the world, and the big institutional money is starting to pile into the trade. The trend is your friend and there are no Gold bubbles anywhere in sight. For the record, I don't trade Gold - I own it. But I do trade Gold stocks and I have been buying them these past few days. If a further dip in price occurs in the stocks I like, I will buy more.
Until the Dow to Gold ratio approaches 2 (and we may well go below 1 this cycle), the Gold bull market is not over in my opinion. And right now, we're not even close to the end.