Just When I thought I Was Out, They Pull Me Back In

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Having made and lost millions more than once in the metals and mining industry while at the same time being deemed an “expert” in that field, I finally concluded 18 months or so ago that Mark Twain was basically right: “a gold mine is a hole in the ground owned by a liar,” and I left that part of my life basically behind me.

Despite accolades of being an “accurate” market forecaster over my 30+ years, I also couldn’t hit the side of the barn at times. Enough egg on my face helped lead me to retire from the “soothsayer” racket. Realizing that only God truly knows the future led me to chant “No Mas” when it came to forecasting market movements.

But just when I thought I was out, the gold market sell-off (and several old friends asking my thoughts) pulled me back in…temporarily.

Yesterday is indeed history and tomorrow is a mystery (no matter what charts, computer-driven analogies, tea leaves or Ouija boards may suggest to the contrary). I do think the time has come to own gold as both an investment for long-term capital gains and as protection for the majority of investors.  I would suggest that any who find this idea interesting should speak seriously with a qualified Investment Advisor about making it part of their portfolio. The very fact there’s an overwhelming belief not to touch it now with a ten foot pole is even more reason to do so in my book.

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It was just around this time back about 35 years ago when this was the cover of BusinessWeek. At that time, I literally was just learning about markets and investing (and still am 35 years later). Gold had rocketed to $800+, the economy stunk and predictions of the end of the world were a dime a dozen. Ironically, the birth of the greatest bull market ever in stocks and bonds began back then. I can assure you that investors and professionals alike were overly bearish and never envisioned what would end up unfolding.

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Today, both investors and professionals are up to their hairlines in financial assets and the attitude toward owning gold is “last one out, turn out the lights!”

As noted earlier, my crystal ball was shattered (not over my head, thank you) and I’m not about to write a long dissertation on the merits of owning gold going forward. I will however, make a few key points on why this once-“half-famous” former “legend in his own mind” Investment Strategist thinks it makes sense to own now what 99 out of a 100 don’t:

  • Despite being called many names like “relic,” gold managed to last a couple thousand years as a storer of value while many paper denominated currencies came and went. But of course, this time it’s different…. NOT!
  • If we’re not 180 degrees from where we were when that Businessweek cover ran, we’re 179 or 178 degrees away. Even if financial assets run some more and gold falls under $1,000 an ounce (more in a moment on that possibility), I believe it’s better to be a year too early versus a day too late when it comes to lowering stocks and bonds exposure and adding gold to a portfolio.

 

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  • Having traded under $1,000 from its first days of free trading in the 70s, until it finally broke above it in 2009 on the back of the most recent financial crisis (if you think that was the last crisis, I have a bridge for sale-cheap!), gold has come back close to that former decades-long resistance level. It’s not only technically understandable when looking at it over a multi-year perspective, it also coincides with a price area that if violated much below for any real length of time will cause current production to dramatically dry up and flip the fundamentals back bullish if they hadn’t already.
  • One of the positives of ending my soothsayer career was to no longer have to discuss manipulation of the gold price. To those who say there is none, remember I still have that bridge for sale.
    Put just about any market into the google search box and ask for manipulation articles, and you will see that just about every market has had people and companies found guilty of manipulation and price-fixing. To think such acts don’t penetrate the walls of the Comex is foolhardy (but serves the Don’t Worry, Be Happy crowd well in its hatred for the shining yellow).

Bottomline – It’s not often any investment appears to have much more upside potential than downside risk. If gold does washout briefly below $1,000, the risk from here looks to be around 10%. If we’re indeed near 180 degrees from 35 years ago, taking from the overcrowded financial asset sector and feeling like the Maytag Repairman being lonely suggesting buying gold now, appears to be something that deserves strong consideration.

At best, it’s an educated guess, but I suspect the bottom in gold is put in between now and the Fed’s meeting in mid-September, where unless we fall off the cliff economically between now and then or a major calamity hits worldwide, I believe they shall raise interest rates. Such a raise may be short in nature and not the beginning of a long climb up in rates. Either way, I believe by then all the negatives for gold will have been realized and built into the price.

Old-Timers Day is now over and I return this blog back to its regularly scheduled programming.

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My Last Appearance on CNBC-TV