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What a 47-Year Pro Says About Gold NowBy
Tuesday, January 14, 2014
If you've owned gold since 2011, you've been crushed...
Gold is down from a peak of around $1,800 to around $1,200 today. It's lost about a third of its value.
Gold stocks have done much worse than gold itself... For example, a basket of junior gold stocks (GDXJ) is now down about 80% since gold peaked.
Ouch!
So... What should you do? Where to from here?
I asked those questions to precious-metals expert Michael Checkan of Asset Strategies International at lunch over the weekend...
Michael has worked in precious metals professionally longer than anyone I know... He started with the largest precious-metals firm in America back in 1967 – and he has been at it ever since.
This history is important because Michael has personally lived and worked through ALL the ups and downs of the gold market – going back to the time when the dollar went off the gold standard.
So what is he thinking today?
Michael had two main points...
First, he said, we're near the cost of production for the major gold companies. Therefore, if gold falls below $1,100 an ounce, then gold companies will lose money by producing gold.
Michael is implying that the price of gold shouldn't fall dramatically below the cost of production, and it shouldn't stay there for very long. Why?
Our old friend Rick Rule (founder of Sprott Global) says it best: "The cure for low prices is low prices." What he means is, if prices get so low that they drive everyone out of business, then soon prices will go up – because eventually you reach a point where there's more demand than supply.
Michael Checkan's second point is that he sees gold as "portfolio insurance." And right now, you don't have enough insurance.
As Michael explained it... If the value of your stock portfolio has gone up, and the value of your gold has gone down, you are likely under-invested in gold now.
How much gold should you have as a percentage of your portfolio? And how should you own gold?
Those two things are up to you, according to Michael.
In summary, the price of gold has fallen down to near the cost of production, which should provide a bit of a floor in the gold price. Also according to Michael, you should own gold as insurance with a percentage of your assets. Chances are you are underinvested in gold at the moment.
That's the story over lunch from a man who has been in the industry for 47 years...
Good investing,
Steve
Further Reading:
Dr. David "Doc" Eifrig has shown readers how powerful it can be to hold "chaos hedges" – like gold – in your portfolio... "When investors get nervous about bad economic news... debt crises in Europe... and the specter of runaway inflation in the United States," he writes, "stocks fall, and gold and silver rise." Learn how Doc protects his wealth with precious metals here and here.
"99% of gold and silver owners are all wrong in the way they view their holdings," Doc writes. "I take an unusual approach to my holdings. I hope I lose money on them." Learn what poor people don't know about gold here.
Market NotesTHE LATEST PROOF OF A BULL MARKET IN HOUSING Today, we're checking in on one of our favorite "bellwethers" for the housing market – paint companies.
Steve Sjuggerud has spent years "pounding the table" on real estate. His thesis is simple. The brutal downtrend in the housing market knocked prices down to super-cheap levels. Meanwhile, homebuilders hit the brakes on new home construction. These two factors – cheap prices and low supply – are driving a new bull market in housing. Last month, Steve described the conditions as "a recipe for higher home prices and more home sales."
To gauge the housing market, we keep an eye on companies that are closely tied to housing activity. Paint companies are a perfect example. When home construction is healthy, they're one of the first housing-related stocks to benefit from rising demand. Whether you're building a new house, moving, or simply renovating your existing home, chances are you'll buy at least a couple gallons of paint.
As you can see below, paint stocks like Sherwin-Williams (SHW), Valspar (VAL), and PPG Industries (PPG) have soared over the past few years. They're up 100%-plus since late 2011. Together, these companies sell tens of billions of dollars in paint and coatings for the construction market. And they're near fresh all-time highs. It's a strong sign of the bull market in housing.
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