Sunday, November 2, 2008

When and where will the gold price bottom?

I think the paper gold price will bottom in the $600-$650 range and it will happen in the next 3-5 months. A 50% retracement of the entire bull market so far (i.e. $1030/oz high last March minus the $255/oz low at the start of the bull market and the result multiplied by 50% and subtracted from the high in March) puts us at the $640/oz range and is a reasonable price correction for a bull market.

Having said this, the low may only last a few days before the price starts to power higher and the actual price retail investors will have to pay to get physical coins or bars in their hands will be roughly $40-120/oz higher, depending on the specific product(s) desired/available (e.g., American Gold Eagle coins, Vienna Philharmonics, etc.). The retail gold and silver shortage has become worldwide. Central banks are now holding their gold tight, wealthy investors are buying up large amounts of physical precious metals in bulk, and Indian, Middle Eastern and Asian retail investors are buying hand over fist with every price drop.

The strongest part of the gold bull market lies ahead, not behind. Gold is overall still a shunned and despised asset class in America. This will change before the bull market is over. No bull market ends with mainstream media and investment advisors laughing at people who buy into the item in question. The current price levels reflect an outstanding buying opportunity for long-term investors. Holding physical gold in your possession eliminates counter party risk and gold can never go to zero like Bear Stearns stock. It is an important part of your investment portfolio when rough times lie directly ahead (like, ummmmmmmmmm, NOW!). Think of gold as insurance, only there is no sketchy company involved that can deny a potential future claim you might need to make.

Just like no insurance policies are written on a home after it gets destroyed, no physical gold will be available at any reasonable price if things get really bad. The current physical market tightness in gold and silver is unprecedented in terms of scope and duration. Physical metal prices have completely decoupled from the "paper" price of the futures markets. This is a clear warning signal to act now before it is too late to protect your hard-earned money from the hurricane of financial destruction coming our way.

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