S&GS Notes: Posting more articles about gold, because (and I know I sound like a broken record - silver follows gold, and then outperforms it) The challenge (at least for me - because remember, I'm an investor also) is how to know whether you're in a 'dip' or not. Now that may not seem like rocket science to YOU, but I keep thinking… yeah, gold / silver is higher than it's been, so maybe I should wait till the price drops again…but what's going to happen tomorrow? Will it be even higher? Will the price correct again or NOT? In that case, today's price is still a bargain… and maybe I should grab it before prices get even higher…
I find that if I wait in indecision, then I could wait myself out of the market entirely, and that's worse than taking a chance at paying a few dollars more for metals now. They're going to get even higher in the future… so taking a long view, regardless of the price, it's still a bargain… as Larry Myles points out below.
Defining Gold Is An Easy Matter
In Defense of Gold
Nothing has changed…accumulate gold on the dips.
After spending nearly two weeks kicking rocks in a remote region of northern Nicaragua, and poking around Golden Reign Resources' lost and forgotten Spanish gold mines while encountering much in the way of encouragement and promise in all the right places; and finding perhaps even more love on two newly discovered zones, I made a decision to forgo an official Larry Myles Report for December. Alas, it was not to be….
Instead, after getting back to Vancouver and reading only a few dozen subscriber emails, I felt compelled to comment on the phony and highly contrived "gold-is-collapsing" story. The price of gold is not collapsing, it is correcting. For those of you not only reading....but understanding past LMR reports, if you really think it is all over for gold, then I suggest you to get out of the market and go find yourself a boringly safe and unchallenging government union job. The brave new recruits to bullion and junior market investing, relax and read on. May not your heart be troubled.
The recent 8 percent sell-off in gold has been welcomed by every serious bullion investor. Besides millions of retail investors, the list includes influential central banks, powerful world governments, and everyone else with half a brain who understands that nothing has changed over the last two weeks. What we are experiencing is an absolutely stellar buying opportunity.
Even when gold was trading north of $1200 central banks were jostling each other to buy the yellow metal. China made all kinds of noises that they wanted to pick up 400 tonnes of gold from the IMF, but they wanted 'a deal' on the price. In swoops India, gives China the bump and escapes with 200 tonnes of gold. And although China might still want to beat the price, they have indicated on numerous occasions that they intend on adding to their stockpile of gold. Backstopped by major countries like China and many of the world's central banks, the price of gold will not collapse; manipulated up and down, perhaps. But a serious deterioration of price for a long period of time, not a chance.
Not to be forgotten: for the last twenty years, central banks were net sellers of gold - and still the price appreciated from $225 to $1100 per ounce over the last ten years. With the banks on board, logic dictates the price of gold will increase.
"It's very positive for the price of gold," said Leo Larkin, equity metals analyst with Standard & Poor's. "We're at the early stages of central banks becoming buyers."
For those of us comfortable in the business of gold we understand the theory of the truth behind the hype on gold; probably, maybe…possibly, perhaps…one day the steady rise in the price of gold will get away from us and go into parabolic mode. I have been hearing this hard pitch for the better part of a decade. So far it has not happened; instead we have experienced ten year's worth of steady appreciation in the price of the yellow metal; with a few peaks and valleys just to make sure we were paying attention. Worth considering: If you have spent the last decade looking for profits from the Dow Jones Industrial Average, your investments have probably lost money - maybe even lots of money. Profit from gold over the last ten years? Check the chart, no comment necessary.
When it comes to the recent price of gold, the yellow metal hovered around the $900 level for nearly five months before deciding to move up by $100 to comfortably graze at the $1000 plateau. Then loitering less than a month at that level, gold made a spectacular (and premature) year-end dash for the stars - finally tagging out at $1225, give or take a dollar or two, before (thankfully) falling back. Be aware: there is absolutely not one chance in one hundred that gold's long-term trajectory has been permanently reversed. Reason: the fundamental underpinnings for owning gold have not changed - or have not changed to the detriment of gold. As a matter of fact, things have gotten slightly worse for those who cling to the idea fiat currency will magically prevail over gold (and silver).
It is all about the debt, and the perception that no one in Washington cares….
While every weak-brain was out celebrating some really lame increases in consumer spending and/or a markedly un-dramatic decrease in the number of people who were out of work in America, the current administration in Washington decided to raise the federal debt limit by nearly $2 trillion to address this year's deficit of $1.6 trillion. And if you think this is just another measly trillion or two dollars, not so. What the Senate is attempting to do is move legislation to raise the federal debt limit beyond $12.1 trillion to nearly $14 trillion.
I will forgive you if you have not heard as much as a peep about this very important story. The media has decided it was more important to rally just about everyone it could think of to tout the phony gold-is-collapsing narrative. Oh. And while they are at it….we are allegedly also on the road to recovery. For real this time. The con goes on to say that because of a single percentage point increase in last month's consumer sales the over-printed US dollar is on the verge of fiscal renaissance. I guess that some people need to hear this kind of pap and are also ready to hear that in the short term you add debt to avert a total collapse - so why not increase the debt ceiling of the country. I do not agree. At some point, all America will need to face up to the fact that long-term debt must be addressed. Why? Within a few years America's debt load will become unsustainable. Trust me, America is not too big to fail.
For a warm-up act one only has to look to Dubai, Spain and Greece. Wait a minute! Spain? Isn't that bankrupt country the model President Obama keeps referring to when he talks about green jobs and the many opportunities that the greening of America will provide to the US economy? Unfortunately that discussion will have to wait.
For now we should be paying attention to how the credit rating agencies have downgraded all three of these poorly managed, debt-ridden countries. Earlier this week Standard & Poor's lowered its outlook for Spain, while Fitch reduced its rating on Greece.
According to liberal opinion Spain and Greece are being 'punished' due to circumstance. Really? Closer to the truth is that Greece, Spain and Dubai are being held to account because they refuse to embrace meaningful deficit reduction plans after years of frittering away vast sums of money on unsustainable entitlement programs. Sound familiar, America? It is all so predictable; and proven time and time again - there is not a single government on the planet that is willing to make the hard decision; allowing their country-system to go through a painful 'reboot'. Okay, so fine…avoid the medicine and what follows will be inevitable - the collapse of domestic currencies; possibly being the early trigger warning for the next global financial crisis. Seriously, avoid faith-backed currencies of any kind and stick to gold and silver.
What I am trying to say is just because whim-based Washington wants to go ultra-green (Cap and Trade) and wants an expensive national health care plan and wants to ban mining in America and wants to kill nuclear power and wants to thwart off shore drilling, there are costs and responsibilities - and the current gang in Washington are following in the footsteps of Greece, Spain and Dubai by not wanting to deal with the reality of costs. Rest assured, America's creditors are aware of this and at some point, will strike hard and fast and snap shut their purse strings. Nations cannot spend their way into prosperity; what they can do is spend their way into oblivion. And America is heading down that road. When a nation heads down this road we can expect hard inflation or possibly hyper-inflation. The inflation narrative is already ongoing. What is surely beyond debate is the iron certainty that we will suffer through hyper-taxation. Comes with the territory. Taxing soft drinks and imposing a War Tax are only the first sign posts of what is to come.
Thus, when it comes to gold, I have heard nothing to indicate that I should deviate from my successful strategy of buying gold on the downward reactions. In other words, pay no attention to the legions of short sighted pro-dollar hacks and deluded gold bears. Continue to accumulate physical gold on the dips.