Monday, August 08, 2011

Gold, the Obvious Investment

8 August 2011

It is now early morning, the first trading day after the S&P downgrade of US debt from AAA to AA+.

Gold has spiked higher, most recently, from prices in the $1660 range to prices in the $1710 range.

I wrote last week about the correlation of the gold price and the national debt.

Many now feel that gold has become an "obvious" investment.

I see it differently.

I think that gold was already the evident (not yet obvious) way to go in 2001, following the crash of the internet bubble - which even at that time was fuelled by Federal Reserve money printing and US government debt (Remember? It seemed like a big bubble at the time....).

If gold was the evident go-to investment in 2001, then by 2003, it had reached the stage of obviousness that the metal of kings would preserve its value better than any currency that was backed by a central bank whose members (and later chairmen) used helicopter analogies when talking about how to stimulate a slowing economy!

It just took some folks a little longer to catch on (for example, by buying at $1710 today, rather than at $330 in 2003!)....

I'm still waiting for gold stocks to trade at "bubble valuations," as the NASDAQ did in the 1990s - oh yes, and still does!

In fact, the better gold miners are trading at roughly a 60% discount (or more) to the value of their gold in the ground (after production costs). John Doody has calculated that his top ten gold stocks can easily double as a group, just to reach their inherent value at $1500 gold (Wait, isn't gold now $1700? Oh yes, he was writing last month!).

Gold has been "obvious" for the past 8 years and for the past $1400 in appreciation.

My advice?

Stick with the obvious.

This is the gold tsunami.

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