Gold: Bull or Bear?

Gold set a record on September 5 at $1,895 an ounce (London PM Fix) and to date has fallen as low as $1,531 (December 29), a decline of 19.2%. In order to determine how long it might take to breach $1,895 again, I measured how long it took new highs to be mounted after big corrections in the past....

Once gold breaches its old high, you'll probably never be able to buy it at current prices again.
That's a rather obvious statement, but let it sink in. Buying now at $1,600 and then watching the price fall to, say, $1,500, wouldn't be fun – but it'll probably hit $2,000 or higher before the year's over, never to visit the $1,600s again this cycle. If that turns out to be correct, the next four months will be the very last time you can buy at these levels. You'll have to pay a higher price from then on.

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Cartoon: Gold Prices

Gold Recent Run

Gold reached a new intraday high of $1,782.50 per ounce in electronic trading before backing down to $1,746.20. That's an increase of $33, or about 2%, compared to its Monday close. On Monday, gold broke $1,700 for the first time...

Gold is also still far from its true peak, when adjusted for inflation. The metal hit its real record on Jan. 21, 1980, when it rose to $825.50 an ounce. Adjusted for inflation to 2011 dollars, that translates to an all-time record of $2,261.33 an ounce.

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Gold v Dollar

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Gold Predictions

Higher than $10,000

1. Mike Maloney: $15,000
2. Howard Katz: $14,000
3. Silver-Coin-Investor.com: $7,000-$14,000
4. Jim Rickards: $4,000 – $11,000
5. Roland Watson: $10,800 (in our lifetime)

$5,001 – $10,000

1. Bob Kirtley: $10,000 (by 2011)
2. Arnold Bock: $10,000 (by 2012)
3. Porter Stansberry: $10,000 (by 2012)
4. Tom Fischer: $10,000
5. Shayne McGuire: $10,000
6. Eric Hommelberg: $10,000
7. Gerald Celente: $6,000 – $10,000
8. Peter Schiff: $5,000 – $10,000 (in 5 to 10 years)
9. Egon von Greyerz: $5,000 – $10,000
10. Patrick Kerr: $5,000 – $10,000 (by 2011)
11. Peter Millar: $5,000 – $10,000
12. Alf Field: $4,250 – $10,000
13. Peter George: $3,500 (by 2011-13); $10,000 (by 2015)
14. Jeff Nielson: $3,000 – $10,000
15. Dennis van Ek: $9,000 (by 2015)
16. James Turk: $8,000 (by 2015)
17. Joseph Russo: $7,000 – $8,000
18. David Petch: $6,000 – $$8,000
19. Michael Rozeff: $2,865 – $7,151
20. Martin Murenbeeld: $3,100 – $7,000
21. Dylan Grice: $6,300
22. Aubie Baltin: $6,000 (by 2017)
23. Murray Sabrin: $6,153
24. Harry Schultz: $6,000
25. Paul van Edeen: $6,000
26. Lawrence Hunt: $5,000 - $6,000 (by 2019)
27. Paul Brodsky/Lee Quaintance: $3,000 – $6,000

$5,000

1. David Rosenberg: $5,000
2. Martin Hutchinson: $5,000 (by end of 2010)
3. Doug Casey: $5,000
4. Peter Cooper: $5,000
5. Robert McEwen: $5,000
6. Martin Armstrong: $5,000 (by 2016)
7. Peter Krauth: $5,000
8. Tim Iacono: $5,000 (by 2017)
9. Christopher Wyke: $5,000
10. Frank Barbera: $5,000
11. John Lee: $5,000
12. Barry Dawes: $5,000

$2,500 – $5,000

1. Pierre Lassonde: $4,000 – $5,000;
2. Mary Anne and Pamela Aden: $3,000 – $5,000 (by February 2012)
3. Bob Chapman: $3,000 (by 2011)
4. Larry Edelson: $2300 – $5,000 (by 2012)
5. Luke Burgess: $2,000- – $5,000
6. Ian Gordon/Christopher Funston; $4,000
7. D.P. Baker: $3,000 – $3750
8. Christopher Wood: $3,500 (in 2010)
9. Adam Hamilton: $3,500 (by 2010-11)
10. Eric Roseman: $2,500 – $3,500 (by 2015)
11. John Henderson: $3,000+ (by 2015-17)
12. Hans Goetti: $3,000
13. Michael Yorba: $3,000
14. David Tice: $3,000 (by 2012)
15. David Urban; $3,000
16. Michael Lambert: $3,000
17. Brett Arends: $3,000
18. Ambrose Evans-Pritchard: $3,000
19. Trader Mark: $3,000 (by mid-2011)
20. John Williams: $3,000
21. Byron King: $3,000
22. ThumbCharts.com: $3,000
23. Ian McAvity: $2,500 – $3,000 (by 2012)
24. Jeff Nichols: $2,000 – $3,000
25. Graham French: $2,000 – $3,000
26. Sascha Opel: $2,500+
27. Rick Rule: $2,500 (by 2013)
28. Daniel Brebner: $2,500

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Silver Could Eclipse $450, Gold $12,000

With gold over $1,500 and silver around the $35 level, today King World News interviewed one of the top strategists in the world, Robin Griffiths of Cazenove...

When asked if his $350 target was a realistic price level for silver Griffiths stated, “That is absolutely not unrealistic. If you adjust the old all-time high for inflation...that gives you $450 for silver. Then you add in the fact that they are printing money, you can take it higher than that without any difficulty at all.”

When asked about gold specifically Griffiths remarked, “The run-up to the peak in markets like gold is between now and 2015. I think it will all be over by 2015, a lot of it depends on how aggressively paper monies get printed from here on in. I think $3,000 is an absolute minimum target. I can believe in targets certainly above $5,000 and it’s theoretically possible to go to $12,000, that’s dollars an ounce for gold.

If Mr. Bernanke stays on his current agenda I think those higher numbers will be what you will see. We’re looking at the trashing of the dollar. As Marx pointed out, it’s the most assured way of destroying your economy.

There’s a book called ‘The Road to Serfdom’ by Hayek, pointing out that when a country is in debt, getting deeper into debt as Lord Keynes said, ‘Doesn’t work.’ All it does it make the problem worse and it takes longer to solve.

We’re moving away from the dollar being the main reserve currency on the planet...We’re going to move into an era where world trade is done in mixes of renmenbi, rupees and baskets, and the baskets of currencies will need to be weighted by something can’t be printed like gold.”

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Gold Prices

Gold and Hyperinflation

HYPERINFLATION WILL DRIVE GOLD TO UNTHINKABLE HEIGHTS

by Egon von Greyerz

We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less...

Let us be very clear, this financial Shangri-La is now coming to an end. The financial system is broke, many western sovereign states are bankrupt and governments will continue to apply the only remedy they know which is issuing debt that will never ever be repaid with normal money.

So why does the world still believe that the financial system is sound?

• Firstly, because this is what totally clueless governments are telling everyone and this is what investors want to hear.
• Secondly, whether governments apply austerity like in parts of Europe or money printing as in the US, investors want to believe that any action by government is good, however inept.
• Thirdly, market participants are in a state of false security due to shortsightedness and limited understanding of history.
• Fourthly, as long as they can benefit from inflated and false asset values, the market participants will continue to manipulate markets.
• Fifthly, there has been a very skilful campaign by the US to divert the attention from their bankrupt economy and banks `to small European countries like Greece, Ireland or Portugal. These nations, albeit in real trouble, have problems which are miniscule compared to the combined difficulties of the US Federal Government, states, cities and municipalities.

Bearing in mind that we are likely to see hyperinflation in the US, the UK and many European countries, the $6-10,000 target for gold is much too low. The dilemma is that it is absolutely impossible to predict how much money will be printed by governments. In the Weimar republic gold reached DM 100 trillion. But it is really irrelevant what level gold and other precious metals will reach in hyperinflationary money.

What is much more important to understand is that physical gold (and silver) will protect investors against losing virtually 100% of the purchasing power of their money. Whatever real capital appreciation gold will have in the next few years is of less importance. But what is vital, is that physical gold (stored outside the banking system) is the ultimate form of wealth protection both against a deflationary collapse and a hyperinflationary destruction of paper money.

read the entire essay

Cartoon: Gold Prices

Gold: Time to Sell?

“. . .we shall urge the greatest of caution upon everyone, everywhere regarding gold. It is not just over-extended to the upside; it is hyper-extended. It is not just overbought; it is hyper-overbought. We cannot strongly enough urge everyone to avoid buying gold here and we shall go so far as to suggest that those who are long begin the process of quietly heading for the exits and to reduce their positions to the most minimal ‘insurance’ positions possible. Everyone should have perhaps 5% of their liquid assets in gold, but at this point anything beyond that level is excessive.”

–Dennis Gartman, September 29 2010

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My thoughts: In the next 3-5 years (10 years at the most), I expect expect gold to double or triple in value. Despite gold being at all time high (nominal) prices, Don't underestimate the ability of Bernanke to destroy the value of the dollar with his printing press. I think gold remains a bargain anywhere under $1500.

Gold Prices: $1318

What's Holding Gold Back?

Peter Schiff writes:

Gold first broke $1,200 on December 2, 2009; nine months later, instead of witnessing the birth of the full-on gold boom I have long anticipated, the yellow metal has gained a modest 4%. Fortunately, it has spent the summer solidly above $1,150, which should put to rest the claim that we are seeing an exponential gold bubble like we saw in 1980. And those waiting for the "big pullback" to $8-900 might be seeing the futility in their cause. But I never doubted the strength of this secular bull market. In fact, I still maintain that gold is grossly undervalued. So, what's holding gold back?...

In the FY2010 budget, the federal government is spending 49% more than it is taking in revenue per year, adding to a national debt that is now 98.5% of GDP. Compare this to Greece, which is spending 33.5% more than revenue and has a debt of 113% of GDP. And the political climate here is just as hostile to even the mention of austerity. Unlike the EU, the US has guaranteed the ongoing viability of mortgage holders, major corporations, the states, and its own bloated social programs. Unlike Japan, the citizens can't be persuaded to shoulder these burdens because they are broke too...

However, Fed Chairman Bernanke has pledged to paper the world with new dollars if he sees so much as an hint of deflation. This is a virtual guarantee, from the only man with the power to make it, that Treasuries will be a bad bet under his tenure and that the dollar will fall relative to gold. Gold will be the real safe haven...

I maintain, based on historical comparisons, that the bottom of this depression will likely see the dow/gold ratio hit 1:1. This means that we are either in for a major decline in the Dow (unlikely) or an unprecedented rise in gold (likely). The US bond bubble is just like its predecessors in real estate and tech -- tedious to wait out but quick to blow up. Gold may be holding back now, but when the markets start to move, you better hope you chose the right safe haven.

read the entire essay

Investing in Gold

Bill Bonner writes:

The only reliable bull market of the last ten years has been in gold. The yellow metal lost $2 yesterday, closing at $1,248. That is only $14 below its all-time high. Which means, while we’ve been watching Bernanke, Jackson Hole, and stocks – gold has been quietly creeping up…

…stocks go down; stocks go up – and gold keeps moving up…

…fiscal stimulus, monetary stimulus, quantitative easing – and gold keeps moving up…

…recovery…no recovery – gold keeps moving up…

…inflation…deflation – and gold keeps moving up…

Are you beginning to see a pattern?

Yes, gold is in a bull market. It moves up on bad news. It moves up on good news. It moves up on no news at all...

But here’s the important thing. Gold is money. You can use it to buy things. In terms of what gold will buy, it does not seem undervalued to us. Much has been written on the subject. But as near as we can tell, gold is now fairly priced.

Go ahead; buy all you want. It is a good way to maintain your wealth and protect it against the monetary and economic calamities that are doubtless coming. And if you expect to make a lot of money on it, you’ll probably succeed. When the Bernanke Fed loses its grip – which it will – and when the public gets on board the gold bull market – which it will – gold speculators will probably make a lot of money.

We’ve been a gold bug for the last 30 years. Two thirds of that time was miserable, punishing and humiliating. Only the last 10 years have been rewarding. We expect the next 10 years to be even more rewarding.

But the reward now is different. It is speculative…not inherent. When we bought gold in ’99, we were buying an undervalued asset. We were buying real money, cheap. We made our money when we bought.

Now, gold is fully priced. It is a still a good way to save money. But we cannot expect to make money by waiting for the metal to revert to the mean. It’s already at the mean. Gold is now a speculation.

A warning: we still have not had the sell-off in the financial markets that we expect. The Dow has still not sunk down to 5,000. The lights are still on at banks that should have been put out of business months ago. The public still believes another “stimulus” effort might do the trick. Leading economists still believe they can manage the economy back to growth and prosperity.

We have not hit bottom yet. Far from it.

When we do, the price of gold could be substantially lower. Which is okay with us. We bought years ago. We’re happy with our gold holdings and don’t really care if the price drops. Heck, we’d be happy to see the price back below $1,000; we’d buy more.

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Buy Gold?

“Should I buy gold now, or wait for a pullback?”...

Today we face the prospect of prolonged economic stagnation, and most governments are administering grossly abusive monetary policy as a remedy. While some of the consequences are already being felt, the full ramifications have not hit your wallet yet. But they will.

If you don’t have at least 10% of your investable assets in physical gold, or at least two months of living expenses, you have your answer: Buy. Don’t use leverage, don’t borrow money, and don’t buy with reckless abandon, but yes, get your asset insurance policy and tuck it away. And then start working toward 20% (we recommend a third of assets be in various forms of gold in Casey’s Gold & Resource Report).

Back to the original question: should we buy now, or wait for a pullback?...

Heck, even if gold peaks at $2,400, you still get a double from current levels. (But unless government monetary policies immediately reverse course, gold isn’t stopping at $2,400.)

So there’s my answer. Yes, you have to accept my projection of gold’s ultimate price plateau. And you have to sell at some point to realize the profit. But if the final chapter of this bull market looks anything like the chart above, I don’t think you’ll be too upset having bought at $1,200.

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My thoughts: I except gold to hit $2,400 within the next five years. So anything you buy below $1,500 will give you a very nice return. If the price drops significant, it is still a good long term investment.

Mogambo Guru: Buy Gold

And when you add up all the tons and tons of gold being bought up by banks and people and funds everywhere around the world, you can easily “connect the dots” to show that alien beings from outer space are shooting mysterious brain-control rays into our heads, aimed at us from their secret base under the north pole, which is where Santa Claus lives...

Anyway, the whole point is not that Santa Claus is a dangerous lunatic, or that Ben Bernanke of the Federal Reserve is a dangerous lunatic who actually believes his stupid neo-Keynesian econometric theories despite their utter, utter failure. I mean, look around! Does this seem to be the result of a good economic theory in the hands of competent people to you? Hahaha! Me neither!

No, the point is that these are indeed very weird times, and a lot of strange, terrifying, unbelievable, nonsensical, suicidal, desperation-fueled fiscal and monetary idiocies are going on, and new ones appear with each passing day.

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S & P 500 P/E Ratios

Interestingly, in 1981 the stock market was in a kind of a funk and the Price/Earnings ratio was hitting about 7, which is on the low side, whereupon (thanks to Congress authorizing tax-deferred retirement accounts in 1982) the stock market proceeded for the next 20 years or so, in fits and starts, to rise to, stunningly, a P/E ratio of almost 30 in 2000, whereupon it promptly turned over and has been falling, in fits and starts, for the last 10 years as the price of the S&P went down. Wow! What a ride!...

I say this because the historical record is crystal-clear: When the P/E ratio goes above 22 or so, it won’t be long until the price of the stock falls enough so that the Price/Earnings ratio is back down in the upper teens in a bull market, and back down to around 5 in a severe bear market, whereupon it won’t be long until the price rises again on its way to “overvalued” status. That’s the nature of cycles...

And, with special emphasis to in-laws everywhere, anyone buying a broad basket of common stocks and bonds, but not buying gold, silver and oil to protect themselves against the roaring inflation in consumer prices that will result from an idiot Federal Reserve creating massive amounts of money so that the government can deficit-spend those massive amounts of money, is a moron.

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Is it Too Late to Buy Gold?

Over this entire 140-year period, the average price of one ounce of gold was $480 (in 2010 dollars). If the gold price remains stable through the end of this year—not a given by any means—there will have been only one other year in the last 140 (1980) in which the inflation-adjusted average daily price of an ounce of gold was higher than in 2010...

Bottom line: Any value that gold has as an investment appears, historically, to have accrued to investors who had a position prior to certain episodes of economic or financial distress. And to generate truly eye-popping returns from a gold-based strategy, you’d have needed to be selling at the peaks of these past price spikes, not buying.

The basis for making an investment in gold now is a conviction that the worst is yet to come. I’m not saying it can’t happen. But looking at how far these prices have come already, and thinking about the kinds of truly disastrous events that are included in this 140-year period, I’m skeptical.

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My thoughts: The worse is yet to come. If you think gold will hit $2,500, $5,000, or $10,000 as some predict, then gold will remain a bargain at the $1,200-$1,500 range.

Peter Schiff on Gold

A decade after gold started its current bull run, we are still at half its inflation-adjusted peak. The run-up has been slow and orderly, with the price consolidated over the last three months at around $1,200. Dips like the recent drop below $1,160 have been correctly identified as bargain buying opportunities.

Despite a long rally without a major reversal, Wall Street aurophobes still refuse to see gold as a good investment; but they were wrong on the fundamentals in 2000, and the fundamentals haven't changed. As the world edges closer to the collapse of the US dollar system, gold prices have nowhere to go but up.

I continue to recommend that investors hold five to ten percent of their wealth in physical precious metals. Aside from the likelihood that gold and silver will rise in price, precious metals offer timeless benefits, such as financial privacy, elimination of counter-party risk (if you store them yourself), as well as protection from government confiscation, onerous securities regulation, and punitive tax rates.

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Glenn Beck/Goldline Controversy

Infographic by The Big Picture

Gold and Houses

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