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Is it time to admit defeat, sell our positions, slink into a cave, and lick our wounds?
Absolutely not. The only thing that changed over the past 60 days was the price of gold, and perhaps the mainstream’s perception of our industry. The realities of the fiscal and monetary state of the world, however, did not. Amid the ongoing rollercoaster ride of gold prices, clearheaded thinking reveals reasons to be optimistic.
So writes Jeff Clark, Senior Precious Metals Analyst (www.caseyresearch.com) in edited excerpts from his original article* entitled Are the Gold Bugs Wrong?.
[The following article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Clark goes on to say in further edited excerpts:
What a ride the precious metals have been on recently. Gold and silver prices have fallen off a cliff, while gold stocks were thrown on the rocks and left for dead. GLD has seen record outflows.
Popular financial news shows featured guest after guest who proclaimed gold is now “officially” in a bear market, emboldened by the fact that in spite of its recent bounce, the price has languished below its September 2011 peak for 20 months. As a group, gold stocks are down an abysmal 54% over that same period. The capitulation process has been brutal.
So, were we wrong? Is it time to admit defeat, sell our positions, slink into a cave, and lick our wounds? Absolutely not. The only thing that changed over the past 60 days was the price of gold, and perhaps the mainstream’s perception of our industry. The realities of the fiscal and monetary state of the world, however, did not.
What has struck our industry was not the consequence of a shift in fundamentals, but rather a number of transient factors, including:
- growing belief in the general investment community that inflation will not result from
- claims the global economy is improving;
- Europeans fleeing their economic troubles buying US dollars (which makes the dollar look strong and hence gold less appealing to some); and
- a very large gold sale that caused the gold price to breach “technical support levels” and trigger a cascade of further selling.
All of the above – and a lot of commentary based more on opinion than fact – has led to the misguided conclusion that gold is a has-been asset.
Casey Research readers know we think inflation is inevitable, but even if deflation were more likely, it is the fallout from a world living beyond its means in which most major central banks are massively debasing their currencies in an attempt to prop up ailing economies that worries me.
These stimulus policies are unprecedented in scale, entirely unsustainable, and induce financial-system instability yet, somehow, it is widely believed that the same policymakers who concocted this mess can get us out of it. Our views haven’t changed – yet suddenly, we’re contrarians again.
It takes patience and courage to stay the course amid a groundswell of proclamations that the “gold trade is dead,” but our positive outlook isn’t based on stubbornness. The evidence from history is very clear: you cannot solve debt problems with more debt, nor strengthen an economy by destroying your currency. Eventually, these sins catch up to you.
Conclusion
Today’s ongoing economic and fiscal crises cannot end smoothly or without unpleasant consequences. Since none of the excesses that precipitated the 2008 financial crisis have been fixed, another round of crisis is baked in the cake and will likely inflict even greater damage. When that happens, gold will again be seen as the refuge it is, regardless of current popular opinion.
We’re not alone in this thinking. As you’ve undoubtedly read, in response to the crash, global demand for physical metal soared at both the retail and wholesale levels. This reaction is extremely important: we can’t identify a single crash, collapse, or crisis that ended with retail investors stampeding to buy the asset that had just been crushed. Not one.
In our view, the gold story is not over. Far from it. The reasons for owning it are just as important now as they’ve ever been since the bull market started in 2001. I can’t be sure the price is done falling – but I’m sure it’s not done climbing.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.caseyresearch.com/articles/are-the-gold-bugs-wrong (© 2013 Casey Research, LLC
All rights reserved)
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I agree Gold is a must have investment…interesting you mention we’re in for another ride. I don’t see any way out and it’s going to be ground zero here in the U.S.
The realities of the fiscal and monetary state of the world…very true and it doesn’t look to be getting any better. Not sure really how the U.S. plans to get out of this. But I am still a huge fan of physical Gold. I am also interested in learning what you think to the above question “Are the Central Banks still buying Gold, and if so why?” Thanks!
If you don’t think that PM’s are now being manipulated by the Central Banks, then I think that you should not be investing in buying additional PM’s!
BUT
If you believe that the Central Banks cannot continue to keep printing paper money forever then what is happening now is nothing but a huge buying opportunity!
Consider: As the Central Banks further restrict credit and loans to us, what other options besides selling PM’s (at a large discount )do small investors have, if they want to grow what is left of their portfolios? This is a move to drive a stake into the hearts of all those that are still holding PM’s; while at the very same time, these same Central Banks (who are in on the deal) are scooping PM’s up (using their own printed paper money) at very low prices.
My gut feeling is that when the PM “reversal” happens, it will be so extreme that most small investors will not be able to jump on-board before the prices have skyrocketed relative to where they are currently, due to the market dynamics that favor the really big investors.
Here is a great PM question for you, Are the Central Banks still buying Gold, and if so why?
I look forward to your comments!