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Gold's Unstoppable Rise
The fundamentals behind the gold trade are generally understood on a very superficial level. $3000 gold will have very little to do with inflation. It will have little to do with the economy being "bad"- we have had recessions with collapsing gold prices. In many ways we are talking about something far more menacing. We are talking about capital running for cover. We are talking about unprecedented skepticism towards government. We are talking about the long overdue self-destruction of a system that magnifies the folly of man. In essence, we are talking about a profound paradigm shift.
There are a lot of things in investing that are "obvious", but for whatever reason, aren't generally accepted. Just think about the question: "What is the best approach to investing?" As far as I am concerned, there is only one approach that makes sense, and that is the value approach. To consistently make profits, you must buy assets at below intrinsic value. If this isn't instantly obvious to you, I advise you to stay away from investing.
Investors are led astray not only by emotions, but by theories taught in business school, such as the efficient market theory and the Capital asset pricing model, that I can tell you, no serious investor should believe. These theories fail on a number of levels, but I'll focus on one aspect. The CAPM assumes that the risk premium in a stock changes in direct proportion with beta, or the stock's relative returns against the market. If you base your investing on this model, you are not mentally prepared to profit from the coming explosion in gold. After all, if gold corrects 30%, CAPM evangelists will tell you to run for cover because gold just became a riskier trade. The smart money believes the exact opposite; they are huge buyers on large corrections. The failure of the larger investment community to recognize such obvious flaws is a big reason why the same people outperform the market over and over again. It is no coincidence.
As an investor, I thrive on panic selling and fear since my mind is always fixed on value. I can't say the same about gold permabears, who are undoubtedly among the most amusing species on earth. They try to paint a picture of gold bugs as irrational and extreme. The ironic thing is, when arguments get to the level of hard data and facts, its is the gold bears who are exposed as irrational. I have some homework for gold permabears. Over the past 30 years, how does gold's rise compare to the rise in stocks? How about the national debt? How about the money supply? At the end of the day, gold is a data-driven investment. I don't care how many people tell me otherwise; they are the ones who are too lazy to test the data for themselves.
Fed Stupidity
Now that a majority of Americans are officially against the Federal Reserve, I don't feel as motivated to criticize them. But honestly, they are so inept I feel morally inclined to expose their shortcomings. The Fed is myopically focused on maintaining an arbitrary rate of inflation. OK great. But while these geniuses are focused on a manipulated government statistic, Rome is burning around them. Sure core inflation rates are holding steady, but food and energy costs are up, interest rates are flying, the national debt is rising, and gold is shooting to the moon. The supposed cures to our disease are creating even bigger problems. Someone wake they guys up before it's too late.
Stocks
There is a large contingent of bears that think the stock market is going to collapse. One thing these people miss is that the Fed's mandate is constantly in flux. The Fed of the 1930's didn't go around buying government paper, and its sole purpose wasn't to prop up the stock market. We live in different times- the Fed has much more leeway to collapse the economy with their stupidity. I remember quite clearly when the Fed cut interest rates 75 basis points over a weekend in January of 2008 because of unusual weakness in foreign markets that was creating havoc in the U.S. futures markets. Did they have any idea about what caused the drop in stocks? No. They were simply propping up stocks. If the Fed is that focused on stock prices, then trust me, stock are going higher. Don't argue with me on this point and instead try to focus on what the unintended consequences of an easy money policy will be.
At this stage in the game debt begets more debt. Lower stock prices beget more liquidity infusions and higher stock prices.
Gold
There are two scenarios I see for gold, both of which can be characterized as "extreme." One is a steep sell-off to about $1000-$1200, followed by a very healthy rally. The other scenario is a monster rally to about $1600-$1800, followed by a healthy correction. As a proponent of the value approach to investing, take a wild guess as to which of the two aforementioned scenarios I prefer. At $1000, I will be shouting from the rooftops to buy gold.
One of the reasons I believe extreme moves are coming is because gold is an asset where the passions of man are very evident. After all, fluctuations in gold represent perceived changes in the underpinnings of our entire monetary system. When gold truly lifts off into the stratosphere, it won't give people the chance to hop on board. Believe it or not, at $1370, we are still in accumulation mode.
No matter how firm I am in telling you the likely events of the future, very few of you will believe, and even fewer of you will take action. My genuine wish is for our leaders to figure things out and stop this crazy Ponzi scheme financing before it's too late. But until then, I must do what I can to protect myself in an intelligent manner. I hope you are all doing the same.
Expected Returns is a finance and economics blog focused on gold investing.
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FOFOA's reference to Gold at $55k is $55k in 2009 dollars.
It it sees $55K, DCRB, you'll probably need that highly engineered steel!
...and a little lead to go a long with it.
Doszap, i concur. Thieves at large , buyers beware.We are toast down the line and the line is mighty short now.
Silver survivors
I like Silver.
Silver at or about $30 per ounce is cheap, affordable and a mass storage for wealth.
Anyone can purchase their kids an ounce for Christmas. I love that angle on Silver.
If I was a Silver producer, I'd have ads on every hour during the Holidays.
Think about the $$ that parents and grandparents spend on trinkets and cheap toys made in China.
While I agree with your entire article, and realize $1,370's,is still cheap Gold,I take exception with this especially.
What I think you fail to grasp, IMHO, is the Fed Stupidity is not Stupidity, I beleive with all my being its a Planned Event.
No one is trying to solve these problems at all, except people who cannot control them, nor the outcome.
Fed Stupidity
Now that a majority of Americans are officially against the Federal Reserve, I don't feel as motivated to criticize them. But honestly, they are so inept I feel morally inclined to expose their shortcomings. The Fed is myopically focused on maintaining an arbitrary rate of inflation. OK great. But while these geniuses are focused on a manipulated government statistic, Rome is burning around them. Sure core inflation rates are holding steady, but food and energy costs are up, interest rates are flying, the national debt is rising, and gold is shooting to the moon. The supposed cures to our disease are creating even bigger problems. Someone wake they guys up before it's too late
I wholly agree. All it takes is a longer term view of the situation, the realization that the Fed is a private bank, whose owners include, the Morgans, Rothschilds, Rockefellers, etc, and that our representatives don't represent our interests. In fact, you can very easily argue that several of the owned politicians have intentionally made the most damaging laws, treaties, and proposals possible, in order to deliver maximum damage to the US, and to its economy.
Wake up guys, calling Ben stupid is falling right into the trap. Think longer term, and ignore the PR man. Thats just as ignorant as blaming everything on Obama, purely a puppet.
Survey reveals deep mistrust of equity markets; a third of respondents fully in cash
Advisers have their work cut out for them in 2011 as the results of a recent survey showed that more than half (54%) of middle-income investors say they will never feel comfortable investing in the stock market again.
Eighty-nine percent of investors surveyed by MFS Investments said they were “very concerned” about another serious drop in the market. And seventy-one percent said they were pessimistic in their outlook for the U.S. economy over the next five years. Not surprisingly, given these dim views, 37% of investors surveyed said their portfolios are in cash and 39% have decreased their contributions to their 401(k) plans and individual retirement accounts.
Full article:
http://www.investmentnews.com/article/20101216/FREE/101219948?template=printart
"Advisers have their work cut out for them in 2011 as the results of a recent survey showed that more than half (54%) of middle-income investors say they will never feel comfortable investing in the stock market again."
Maybe so. Then they're missing out. Their cash holdings are getting diluted and becoming worth less every month. Cash is good when the issuer of such currency is a strong nation with good economic fundamentals and most and foremost, little debt.
The debt issue is killing cash holdings whether the investors care to notice or not.
On top of that there are emerging economies which are growing and demanding more of the same resources that built America and the West into what they are today.
Being in cash in 2011 is a recipe for desaster. End of 2011 cash is worth at minimum 10% less than what it is now, possibly 20%.
Anonymous Santa's dropping large amounts of cash into charity bins should be a clue.
I'm one of the totally discouraged investors and might never invest in this country again (unless mass amounts of extortionists and fraudsters are put in prison). I have seen my portfolios decimated and honestly, a 10% loss of easily accessable cash is much more enjoyable than a 45-65% loss on unaccessable funds.
The scary thing is, there is a constant melt-up and we know for the time being the Bernank is not going to let the market correct. But, one day when he has a heart-attack or whatever it may be, the market WILL correct, and will add to the coming shit-storm!
+1 - I'm envious of the intelligent traders/investors in this forum, as there's money to be made frontrunning the FED.
The days of "buy and hold" are over, and is very dangerous for the average Joe. I often feel like a moron holding my assets 50/50 in cash and PMs. However, I feel it's a "less bad" play than being in the market. Not only do I not want to be the guy left holding the bag, I'm sick and fucking tired of investing in the market, so the banksters can skim off the top.
Gold, bitchez!
Who dared junk Mr H?
According to the latest KWN and Jim Willie updates "Beijing Put" is going full blown at LME draining any gold and silver bars they deem affordable, which explains why JPM had their naked @$$ handed to them since August.
Quote: "They (China) are using USTBonds to purchase layers of indexes futures contracts in gold. So as they buy up gold bullion, they pack underneath layers of long contracts at slighly lower prices. It is like a rugged strangling of the victim about the neck while covering the mouth & nose with a brutal cupped hand."
I guess when you bear raid into an ambush of 2-Trillion-dollar reserve you have no where to go but being knocked back while bleeding physical metals at each trial.
Better load up on gold and silver before this comes to a neighborhood near you:
http://fedupmontrealer.blogspot.com/2010/12/canada-beware-of-coming-police-state.html
This was in Canada no less...
Malcolm Tucker -"This was in Canada no less..."
Bad alright, but they did much worse than that at the Pittsburg G-20. Sound cannons on unsuspecting kids playing in their front yards, unleashing police dogs on old ladies shopping. G-20 Pittsburg cops beat one paper boy to death just for the helluvit. (Astonishing what some of these animals will do.)The G-20 is the World Government. This is what we have to look forward to. By all means stock up.