12/02/09 London, England – Yesterday, gold closed at $1,200. Long-term Daily Reckoning sufferers can finally hold their heads up. We bought gold at the beginning of the bull market. New readers, with no gold buried in their back yards, may wonder: is it too late?
Here is a quick answer: no. We’re still a long way from gold’s ultimate destination. Our ‘Trade of the Decade’ was to buy gold on dips and sell stocks on rallies. The idea of that trade was that gold and stocks were going in opposite directions. Stocks were supposed to go down. Gold was supposed to go up. They would meet at some point, we imagined.
But lately they’ve been going in the same direction. Yesterday, for example, stocks rose with gold; the Dow added 126 points.
Which poses a bit of a dilemma. We think stocks are more likely to go down than up. Will gold go down too? Yes, probably.
Does that mean you shouldn’t buy gold here? No, not necessarily. If you’re trading, we’d suggest you wait. Gold is ready for a correction.
But it is usually a mistake to trade in an out during a major bull market. If the trade goes against you, you end up sitting by the sidelines as the market roars forward. You miss the best part.
Gold’s best part is still ahead. And this is not just a bull market; this is a fortune maker. Gold still hasn’t entered the bubble phase. It is just a very strong bull market. Eventually, it will soar…adding $100 in a single day. It will take our breath away. You want to be in it when that happens.
But is $1,200 the best price you can get to enter the gold market? Probably not. But it’s not a bad price. You can wait for a better one; but don’t wait too long.
John Hussman puts the odds of a major market crash sometime in the next 12 months at 80%. If stocks go, gold is likely to go down too. And it could stay down for a long time.
We keep our Crash Alert flag flying…and have a hunch the crash will come sooner rather than later. Day after day, the bubble gets bigger…and the pins get closer. Greece? Britain? The US?
Real estate? GDP? Bond sales? Christmas sales? So many pins…so little time.
One of the biggest pins is the record borrowing by governments. The longer it goes on…the bigger, sharper and closer the pin becomes.
Dubai was nothing…like getting stuck by a mosquito. It itches. It swells. But it does no lasting damage. It could be much worse. Now, the government of Dubai says that Dubai World is on its own. Good luck to the lenders.
Those Arabs are pretty smart. If the US feds had only done that with AIG, GM, Fannie Mae and other big debtors…the whole thing might have blown up and blown over …and now we’d be picking up the pieces and getting back to work.
Instead, the pols and central bankers trod in where angels and sensible investors feared to go at all. Now, they’re wondering how to tread out.
Germany announced that its deficit would not be as big as expected. Instead of 49 billion euros, it will be only 39 billion – below 3% of GDP this year. France says it’s bringing its deficits down too – to less than 3% of GDP by 2013.
The US and the UK, on the other hand, are out of control – with deficits over 12% of GDP and no credible plans for substantial reductions. As we reported last week, these deficits are largely structural – that is, they are the product of many years of mismanagement, not just this year’s crisis-respond claptrap. It’s hard to bring them down because they include public health, unemployment, social security and defense measures that are very difficult to stop.
Yes, stocks will react, eventually. Gold will come down with them. Then, at some point in the future, gold and stocks will de-couple…and gold will head to the moon.
Regards,
Bill Bonner
for The Daily Reckoning
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Bill Bonner–I am an avid fan and have been for many years, only recently in that span posting and responding. Thank you for all you do. It is thoughtful, thorough, and consistent every time.
I wish to pose a question. Given gold is where and what it is, what of silver?
Does it not also share the same qualities as gold? I have bought gold when I could since about 2002, not much and often in forms other than bars and coins. However, I have bought a great many silver dollars: uncirculated Morgans, silver eagles etc.
I can get those (or at least I could since I did, lately the supply is scarcer and scarcer, sellers holding) in quantity with my poor man’s resources.
Help us understand, please your opinion and thoughts on the possibilities and potential for silver.
You of course may respond by email, though I’d rather see a column(s) where others could gather information and take action as we see fit.
As always, should any of your DR force become killed or captured during this operation, the secretary will disavow any knowledge.
Waaaaarrrrm holiday regards…
jmrbb-
I’m sure Bill would tell you that “Gold” also implies silver, metals, energy, cases of Thunderbird and anything generally tangible and resistant to currency manipulations.
Bill, your insights are as always, thought-provoking. But what if expecting a correction keeps enough money on the side that it causes slow reactions to the true reality: That this is the start of the crack-up boom, as per Mises. It is starting not in consumer prices, but in commodity and stock prices – as those things are best suited to serve as an exit point for money. The lack of sustainable reaction to the Dubai mess, in light of previous deleveraging messes, might be an indication of this.
excellent article, I agree with your view on gold. I think that because the Fed is intent on trying to avoid deflation at all costs, it will keep printing money hand over fist. That’s why I think gold and gold mining stocks will continue to be the best sectors to invest in. One gold miner I particularly like is Claude Resources, which I recently saw announced that its Madsen gold mine contains more than twice what the market expected their gold resource to be. Here is the article on it, called Claude Resources Reports 1.25 Million Ounce Gold Resource at Madsen. And this news sent the stock up yesterday even though the gold price was down, a further sign of strength in this news. While the stock has performed very well in 2009, I think it still has a long way to run because of the leverage it offers to the gold price and the variety of projects it is developing.