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Exactly Where We Are in This Gold Bull MarketBy
Friday, September 2, 2011
"Son, I'm behind you in everything you do... But there's no way I'm buying any gold."
My dad told me that back in 2002 (and in 2003... and in 2004...)
"Son, I bought gold Krugerrands in the late 1970s, and I'm still down on 'em 25 years later. Gold is never going up."
In the nearly two decades I've been analyzing investments, my dad bought just about everything I recommended. But he drew the line when I recommended gold in 2002.
I thought, "Wow. Now this is what a bottom looks like... when even my dad doesn't trust me on this one."
Back then, the gold story was simple to me...
Gold is financial catastrophe insurance. When is catastrophe insurance the cheapest? When there hasn't been a financial catastrophe in decades. In the early 2000s, that's where we stood. So I recommended buying gold. It wasn't about being a gold bug. It was about buying something cheap.
Back then, my parents bought everything I recommended – except gold. And my in-laws were starting to do the same. But they drew the line at gold, too. They thought I was nuts.
What really did it was when I started recommending gold coins in 2003. Cancellations to my newsletter started pouring in. The typical letter said, "Steve has always had outside-the-box ideas, but this gold coins garbage has gone too far."
I'd never seen such a hated asset class. I personally believed gold could absolutely soar. And readers who actually took my advice and bought my 2003-recommended MS-63 Saint-Gaudens gold coins made hundreds of percent profits.
Now, nearly a decade later, the situation is much different...
Gold has gone up 10 years in a row. My in-laws now have a big portion of their portfolio allocated to gold investments. And all this week, CNBC is having a special called "GOLD RUSH," where the commentators are in underground gold mines in South Africa.
A decade ago, you could hardly get a quote for gold on CNBC or Yahoo Finance. Today, gold quotes are on the front page.
If you want to make hundreds of percent on an investment, you have to buy it for pennies on the dollar, when nobody wants it. With a week-long gold special on CNBC, it's hard to say nobody wants it.
In short, it feels like we're closer to a top than a bottom in gold... On the other hand, the numbers we track through True Wealth Systems tell us we might not be at the top yet, because most people are NOT overinvested in gold.
The details are complicated. But the basic thought is simple: People are watching gold go up, like spectators watching from the sidelines. They are not active participants... yet.
Chris Weber explained the situation best in a recent DailyWealth:
I believe Chris is right. There is more upside. It sure doesn't feel like the real estate boom, or the dot-com boom yet, when EVERYBODY is in. That's when we're at the top.
Gold will certainly have extreme corrections. On its march from $35 to $850 an ounce in the 1970s (peaking in January of 1980), gold lost HALF its value multiple times. But I don't believe the top is in yet.
Fortunately, just about every way to buy gold is still cheap... Gold stocks (through GDX), junior gold stocks (through GDXJ), and gold coins (like my recommended Saint-Gaudens coins) are all at extremely cheap levels relative to the price of gold.
Yes, gold has soared. But no, you haven't missed it yet.
Fortunately, you can still buy in cheap through my recommended gold stock plays and gold coins.
Don't wait. Take advantage of it...
Good investing,
Steve
Further Reading:
The price of gold has been on a record run since May. But Steve's found two gold investments that are still reasonably cheap... He considers them a much better bet than gold right now. Get the details here: Gold Up, Oil Down... It's Time to Buy Gold Stocks.
Steve recently checked in with gold coin expert Van Simmons. Van showed us how to make hundreds of percent in the gold sector today, before the real mania kicks in. Read more here: What My Most Trusted Gold Insider Is Buying.
Market NotesTHE UPTREND IN CORN RETURNS TO A YEARLY HIGH Today's chart shows how it's "boom times in Iowa"... And our warning to dictators still stands.
Several times this year, we've highlighted how one of the great fears of the world's dictators is a big spike in food prices. The average Joe – whether he lives in Madrid, Miami, Mumbai, or Mexico City – will march to war for the craziest reasons. He will endure punishing tax rates. He will cheer on the dumbest government actions. But should his food become expensive, he'll be rioting against the government tomorrow... alongside every one of his neighbors.
That's why the giant rally in corn prices is a concern. The grain is a staple of the world's food supply. For much of 2009 and 2010, corn traded in the $3.50 to $4 per bushel range. This was a "relatively cheap" level for corn. But bad weather, record-low inventories, rising ethanol usage, and booming demand from emerging markets (like China) have caused a 100%-plus surge in the yellow stuff... and severe August heat has made things worse.
As you can see from the one-year chart below, corn prices dipped in June. But the recent weather has pushed corn back near its yearly highs. This price action has farmers dancing in the streets... but will have others rioting in them.
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