Friday, June 18, 2010

Gold Begins Historic March To $2000

Major fortunes are about to be made and lost.  As Gold gapped through the $1,250 level this morning, the final hurdle to the imminent hyper-bolic growth phase was crossed. 

Many investors find it psychologically intimidating to purchase an asset making all-time highs, but history is full of examples of huge wealth creation from doing exactly that.  When the Dow Jones Industrial Average (Dow) crossed the seemingly insurmountable 1,000 barrier in 1982, it was met with widespread disbelief.  Yet, that proved to be one of the greatest buying opportunities ever for stocks.  Oops!

The primary reason for this stumbling block is that investors are told to "buy low" and "sell high".  Kinda hard to do when an asset has never been higher.  Of course, following that logic, one would have missed every single bull market in history.  Oops!

Former Federal Reserve chairman Alan Greenspan warned about "irrational exuberance" in 1996 with the Dow at about 6,500 and Nasdaq at 1,000.  A few short years later, the Dow doubled and the Nasdaq rose 5-fold!  Despite issuing that warning, Mr. Greenspan embarked on reckless monetary policy which led to the twin bubbles of tech stocks and real estate.  Oops!

You can expect a drumbeat of "experts" telling you that Gold is in a bubble, that the fundamentals don't warrant higher prices and the regurgitation of that idiotic argument that the yellow metal has no intrinsic value.  But, instead of hating the nay-sayers, like Kitco's Jon Nadler, we should stop and tip our hats to them.  Their mindless drivel serves to keep sentiment from getting too bullish too quickly and, in so doing, adds life to the market.  Hey Jon, how's that $800 per ounce forecast looking?  Oops!

And of course, let's send some thanks to good old Robert Prechter, chief proponent of the completely useless Elliot Wave Theory, for his ongoing prediction of a crash to $400 dollar per ounce, or so.  Prechter, as far as I can tell, has made ONE and only one, correct prediction in his entire life.  He did warn of the 1987 market crash, which got him major notoriety.  He hasn't been right since.  Oops!

Bull markets are famous for extending far longer than anyone possibly believes.  Who'd have thought that dot coms, with barely any revenues, let alone profits, would ultimately achieve multi-billion dollar market capitalizations only to be followed by a round-trip to zero?  Oops!

Let's not forget current FED chairman, Ben Bernanke.  Time and time again, he has said that he doesn't understand why Gold is so high given tame inflation.  Psst, Ben, markets ANTICIPATE!

Looking forward, here's what every investor needs to know:

1.  Prognosticators and technicians will be calling market tops all the way.  They will be repeatedly wrong. 
2.  Gold's role as the "canary in the coal mine" will be talked down by all the financial geniuses of the Obama Administration.  They will be repeatedly wrong.
3.  Efforts to suppress the price the Gold will be increased in variety of market-interfering ways.  They will be repeatedly wrong.
4.  "Experts" will increasingly tell us that Gold is in a bubble and that investors are risking the type of wipe-outs that occurred in both real estate and tech stocks. The comparisons to tech stocks are completely invalid, since mining companies are producing record profits.  They will be repeatedly wrong.

We have long maintained the posture that Gold is heading for $2,000 an ounce later this year on its way to an ultimate top of $5,000 or so.  Investors smart enough, lucky enough or brave enough to place a substantial portion of their assets in either the bullion itself, or in junior precious metals mining stocks, will be in a far better position to ride out the coming financial storm.

It's not too late.  In fact, the party is just about to begin.

Marko's Take

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