Thursday, May 01, 2008

2001 Revisited: Gold's Most Meaningless Correction Yet

1 May 2008

I'm too busy to post right now, but I simply have to state that the present sharp correction in the gold price is the most meaningless correction to date in the present gold bull market.


All the fundamentals are in place for gold to replace "paper" (digital?) currencies as real money in the third millennium.

Financial assets are in the process of being thoroughly discredited as a consequence of rampant, reckless and unregulated speculative activity. Governments have only one solution - which is to spend, spend, spend. And central banks have removed the mystery regarding their monetary policy agendas. Loose money is the rule of the day, and will remain so for as far as the eye can see.

In 2001, all the reasons not to own gold had evaporated, but the case FOR owning gold was only emerging. It was risky to own gold in 2001. Gold was still a speculative investment.

In 2008, every foundational point arguing against the ownership of gold has collapsed. The bull case for gold has been thoroughly established, and there is simply no remaining argument against owning gold. It will trend upwards uninterrupted for at least a further decade, as all the brakes have been removed - in fact, there is no reinstalling them at this point. It has gone too far. The freight train (of the speculative, financially-engineered economies of the US and the western nations) is barrelling downwards on a steep grade with no end in sight.

May 2008 is as good a time to buy gold as was April 2001. The current sharp pullback is a consequence of decisions made by traders with short-term investment horizons only. It is meaningless, and of no consequence, for long-term gold investors whatsoever.

For anyone with an investment horizon of greater than two years, there is simply no possible way to go wrong by owning gold from here.

I doubt that owning gold can again be questioned until it has at least doubled today's market price of approximately $850.00. That puts me onside with Jim Sinclair, who sees gold at $1650 per ounce by 2011.

I'm holding my gold investments until then, and planning to retire that year.


  1. The surviving metals related members of my stock portfolio include CEF (Central Fund of Canada)which owns gold and silver bullion, PAL (North American Palladium) which owns and operates a palladium and platinum mine in Canada and is preparing another in Finland ; and SLV (I-Shares Silver Trust) which owns silver bullion.
    Again, I have traded COP (Conoco) successfully- buying low and hanging onto it when high. I usually sell some COP every few years- but this time I may hang onto it a little longer.

  2. I like all of your choices. Palladium will have its day again, though I generally stick with gold, silver and sometimes copper and zinc (which occur in similar formations).

    I have chosen to invest in precious metals because they are driven by monetary factors which I understand - there is too much money, and that makes real alternatives to paper money more valuable in monetary terms.

    If there is a severe global recession - a matter on which I am agnostic - precious metals should still do well (as even more money will get printed to bail out the system), but there would very likely be a retrenchment in energy commodities and stocks - oil, natural gas, etc.

    I am a long-term uranium bull, despite the disposal problems, because of the lower carbon footprint and the ubiquity of uranium in the earth's crust.

    Oil is today's popular idea, but I am more interested in finding ideas before they become popular.

    As a counterpoint, Susan stays invested in natural gas and a little oil (as natural gas is yet to have its day - and that will come too). Susan can afford to wait as many years as that takes, and she just keeps gradually adding to her natural gas position.

    The Canadian oil sands are a literally bottomless sink for natural gas. My call, at some point, natural gas pricing will find an equilibrium with oil sands demand, and that will then look like corn-based ethanol recently (think of a big spike up).

    We are incredibly wasteful of natural gas, and it is the cleanest carbon-based energy source. Stewardship is needed! Natural gas is in balance our best (most immediately practical) energy source, but we are using it profligately.