|Wednesday October 7, 2009|
A Golden Bubble?
The real estate bubble popped a few years ago. Before that it was Internet stocks.
Is gold the "next" bubble? The yellow metal hit a new all-time high of $1,045 an ounce yesterday. And more than a few people are starting to ask the question.
We hope you're invested in gold and gold stocks. If you've been reading IDE for any length of time, you should be. But should you be worried about a gold "collapse," as some have warned? Is gold in a bubble?
Absolutely not. We believe there will be an absolute mania for gold and gold stocks in the future. All major bull markets end that way. And there is no rush quite like a gold rush. But today's sentiment is nowhere near that of a mania.
In the late 1990s you couldn't go anywhere without hearing about the latest Internet IPOs. Everybody knew somebody getting rich in Internet stocks. Cocktail party talk was all about the newest "dot com."In 2006, the same thing was happening in the housing market. Cabbies were giving tips during fares. And every third person you met was "getting into real estate."
Now compare that to gold…
Most of the mainstream news stories about gold express either outright derision… or they convey doubt and uncertainty about the bull market. Outside of investment circles, how many people do you hear talking about gold? How many of your friends and family own gold and silver as an investment? How many parties have you been to where "everybody" is talking about gold?
Probably not very many. And that's a good thing. Among the investment community, gold is still climbing the wall of worry. Among the masses, it has barely even entered their consciousness. It will.
Like any bull market, there will be setbacks and corrections along the way. But the future continues to be decidedly bullish for gold.
A Picture Is Worth $1,000 an Ounce
The chart below shows the returns for various asset classes from August of 1999 through August of 2009. As you can see, the S&P 500 was down 23%. Gold has risen every year the past decade and is up 270% during the same period.
Certainly stocks are a better buy today than they were in 2009. Ten years ago represented the height of euphoria. Everybody wanted to own stocks. Today, investors aren't so sure.
But what about gold?
Those who understand investment history know how dangerous it can be to buy an asset based on what you see in the rear-view mirror. Ten years of out-performance might look good on paper, but it usually precedes a reversion to the mean.
But the future is still very bright for gold. The last gold bull market ended in 1980. Then it languished for 20 years. By that measure, the current bull market could easily run another 10 years or more. And the fundamentals suggest that it will.
Gold production has been falling, despite growing demand. Central banks are now net buyers of gold, while they were net sellers before. And as the venerable Doug Casey recently quipped, "Gold stocks are really a way to short government – or go long on government stupidity."
Until you see governments beginning to show fiscal responsibility and financial restraint, precious metals and their related shares deserve a prominent place in your portfolio.
The Chinese government is urging its citizens to buy gold and silver… Why isn't the U.S. government doing the same thing?
Dr. Russell McDougal is the editor of IDE's Resource Windfall Speculator. In a recent message to his subscribers, here's how he answered that question:
Rusty and his readers are making a clean getaway. This year, his recommendations have been good for gains of 224%... 258%... 123%... 142%... 113%... along with a dozen more in the high double digits. If you're interested to know how he does it, and get your share of the windfall, click here.
The Wall Street Journal tries to take the shine off…
We'll leave you today with an example of how the mainstream media often portrays gold. Last week, The Wall Street Journal ran a piece titled "Gold Is Still a Lousy Investment."
Wow! Not in our portfolios it hasn't been. I guess 16% average annual gains over the last decade don't qualify as a good investment in this writer's opinion.
In the article, he points out that it took 30 years for the price of gold to regain the all-time high it set in 1980. And therefore, gold has been a "lousy investment."
The problem with this idea is that "gold" itself is not an investment. Gold is money. It is a store of wealth. And when you look at it that way, there is nothing in this world that can even compare. It has been prized for thousands of years. And it has held its value for all of that time. There is NO paper currency in the history of the world for which the same can be said.
Gold stocks, on the other hand, are investments. They are operating businesses that produce profits and losses. They are leveraged to the price of gold. And while there can be long periods of time when gold stocks make "lousy investments." There are times when they can make you rich beyond your dreams. And now is one of those times.
Again, I'll quote Doug Casey. "When the public gets the bit in its teeth and wants to buy gold stocks, it's going to be like trying to siphon the contents of the Hoover Dam through a garden hose."
There will be ups and downs. But the trend for gold stocks is still decidedly up. Bolster your positions before the masses wake up.