Skip to comments.My take on gold --- by Richard Russell
Posted on 08/26/2010 10:30:44 AM PDT by dennisw
My take on gold
Dow Theory Letters
Aug 26, 2010
August 25, 2010 -- Dennis Gartman is an experienced commodity trader. Dennis has been very cautious about gold; he "sort of" likes gold, so he calls himself a "gold agnostic." For this reason it's most interesting to read what Dennis says about gold in today's report.
"Turning, then to gold and other metals, prices turned sharply for the better yesterday as the world rushed out of equities and looked for any safe harbors that were available. Certainly the rush to the Swiss franc was obvious, as noted above, and so too the rush into sovereign debt securities. But frankly, the rush was on to gold once again. We remain long what we have referred to as an 'insurance' position in gold, but we own it in terms of EUROs and /or of British pounds sterling, otherwise we remain an agnostic. To assuage our friends who are gold-bug-leaners, we shall not be short of gold. Nothing likely shall ever turn us manifestly bearish of it. But for the moment we are simply hard upon the sidelines, owning only this small 'insurance' position and comfortably in that position.
"Might we be enticed back to the bullish side of the market eventually? Of course we might. If the situation in the global equities markets became dire, we might move from agnosticism to 'faith." If we were to see the monetary authorities throwing caution to the wind and massively explode their balance sheets, we might be enticed away from our agnosticism to 'faith.' If the political situation were to become untoward, and patently uncomfortable, we'll throw our agnosticism in to a heap and join the gold market faithful. But until then, agnosticism works for us."
Russell response -- I can understand Gartman's caution. Dennis is an old-time trader, and he's seen a lot of traders get killed by taking huge and wrong positions.
My own position is that gold is in a clear and obvious primary bull market. These situations come along maybe two or three times in a lifetime. I was convinced back in 1999 that the bear market in gold had ended with gold selling at 256. In the year 2000 they were literally giving gold mining shares away. At that time gold shares were so ridiculously cheap that I told subscribers that they should buy these stocks (many selling for just a few dollars a share) and hold them as perpetual warrants.
At the same time I told my subscribers to start buying bullion one-ounce coins and "put 'em away." I've suggested that my subscribers do the same thing ever since.
I know bull markets, and I've never seen or experienced a primary bull market that didn't end with a third speculative phase -- this is the time when a bull market "blows its top". I feel certain that the current huge bull market in gold will do the same.
But I have other reasons for being bullish about gold. Gold is the only real Constitutional money. The fiat paper that we've been using as money is only money because our government says "it's money." If the US government told you that printed paper was real money and legal for the payments of all debts, would you believe them. Well, you already have believed your government.
But I maintain that the truth will out, and that fiat paper is a fraud that will be found out. When that happens and people realize that they have been hoodwinked by their government, there will be such a rush (including both fear and greed) for gold that it will make the recent tech mania look like conservative investing.
As I write at midday, Dec. gold is up over nine dollars. Gold has been up 8 out of the last 10 days. As the months go by, we are pressing ever-closer to the speculative phase of the gold bull market. That will be something and even terrifying to see.
I am pleased to say that many of my older subscribers are now in the process of getting rich on their gold holdings. I've said over and over that one of the most difficult things to do in investing is to get in early on a primary bull market and ride the bull through to the latter part of its final speculative third phase.
The market seldom gives you the chance to get rich. This gold market has defied the odds and allowed its early followers and believers to get rich.
Anyway, that's my take on gold and why you should own it and why you should follow my advice.
Seriously, gold is a great investment, at maybe $80/ounce. Me, I’d go as high as $150/ounce, maybe. Higher than that, no way. Even if I inherited a dozen pounds, I’d sell it off before the sun set.
I guess I know enough about the stuff to remember two things.
The first is that it is just a metal. No gods or demons within.
The second is that when people get gold fever, they’re as silly in the head as religious cultists or gamblers. And just as immune to common sense or persuasion.
I have found this website to be a very useful source of information on the economy, gold, and silver.
I agree with you, however, I would buy gold at around $400, if it fell that low. That is the last price at which we bought and we did so as jewelers, buying casting grain and wire/sheet. I did purchase some 1/10 oz US coins from a friend at $560/oz spot, several years ago. I felt then that the price was a tad high, but she was in a situation where she needed her cash immediately and I had the cash and so, it worked out for us both.
In the long run, gold just makes me nervous. If it all falls apart, I doubt that gold will be usable for day-to-day transactions without some government middleman adding a tax or otherwise dictating how much can be exchanged or under what circumstances.
Notice that silver is being bid higher lately. I think sterling was about $8/troy oz (+ premium) when we last purchased it and we have a good amount. Still, I think this PM market is a lot of group think and herd behavior. Having the ability to work the metals and turn them into useful objects is the main reason we still own it.
I also remember that in the 80s, with $800 gold and $20 silver, our phone rang off the hook with people looking to sell anything they owned. All we could offer them was melt price and that is all they could get from the major buyers, as well. Even at those prices, items like Paul Revere tea sets and other objets d’art were being sold for melt. It was a tragedy, IMO.
Leftist governments hate gold because gold is a hedge against runaway inflation.
Leftist governments love runaway inflation because it renders your savings equal to zero - it makes you poor just like everybody else except the liberal elite who have a guaranteed lifetime income at our expense.
Let me finish that for you."Prices go up."
Timing is everything!
“Suckers get taken” also works.
I think that's a side effect. Runaway inflation cancels pre-existing debt without formal default, and allows the government to spend a bigger share of the economy. This is done, of course, at the expense of the previous holders of stored savings. The impoverishment of the middle class does increase dependency and unrest. This isn't necessarily good for the government. It seems to me that it is more likely best for revolutionary groups who can capitalize on the dis-satisfaction, but not that great for an existing government.
Noting a good week for silver:
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Just for the record, your modern view is contradicted by thousands of years of human civilization. To develop a different take, Read “The Power of Gold” to learn that our present circumstance is the civilized world norm and the solution is always a return to some gold or silver standard.
The present experiment is but 50 or so years old. The long process of history belies your notions.
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