Guest Post: Should I Buy Gold At Its All-Time High?

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man

Should I buy gold at its all-time high?

There’s one question that I’ve been seeing over and over for the last several weeks as the price of gold has taken out its all-time highs and continued a nearly uninterrupted ascent: Should I buy gold now?

It’s understandable, especially for people who don’t own precious metals yet. Nobody wants to be the sucker who buys gold at the top, only to watch it crater back to $1200 or below. But here’s some food for thought–

The US dollar is shattering historic lows against currencies like the Swiss franc, Australian dollar, and Singapore dollar. Any currency that isn’t a complete disaster is now being viewed as a safe haven. And the mainstream world is now, finally, waking up to the reality that the United States might actually default.

Never mind that the government has been insolvent for years and the evidence of such has been widely available to anyone willing to look at basic facts. Literally, only in the last week have people finally began to consider the possibility of a US default.

Here in Europe, the situation is arguably even worse.  No one is being shy about a default in Greece– it’s discussed openly now by policymakers, and major financial institutions are preparing for a restructuring. And with its public debt more than 120% of GDP, Italy will not be far behind.

Governments no longer have the benefit of operating behind a curtain; their financial imprudence and technical insolvencies are now under the spotlight for all to see… and confidence is fading quickly.

The more people lose confidence in the dollar and euro, the more they look for alternatives. Large institutions and money mangers collectively control trillions of dollars within the financial system. Unallocated capital– funds held as cash and not being actively invested at the moment– must be held somehow, somewhere.

This is the chief reason why so many smaller currencies are surging. Compared to the dollar and euro, the Swiss franc looks incredibly safe, and money managers have a much higher degree of confidence that their Swiss bonds will be repaid than they have in the US or eurozone.

The more capital flows into these smaller currencies, the more they’ll appreciate against the dollar and euro. It’s simple matter of supply and demand– increased demand for the Swiss franc coupled with excess supply of US dollars means a stronger franc in US dollar terms.

Ultimately, this is the primary reason for gold to go higher in the long term.

Large financial institutions are increasingly looking at gold as a safe haven; it’s becoming less of a speculation and more of a store of value… and unlike most of the other available asset classes, precious metals are not politically sensitive.

Even stronger currencies like the Swiss franc have limits to their appreciation. At some point, the Swiss National Bank will impose capital controls to thwart the rise of its currency. Oil and agricultural commodity prices will likely be regulated and speculation outlawed if prices become too high.

But if gold goes to $2,000… $3,000… it may be an embarrassment to central banks, but it won’t become a populist issue.  You won’t see any Tunisian merchants setting themselves ablaze because the price of gold is too high… and not too many politicians looking to fix the price.

Even if they do try to regulate gold prices or even make it illegal, you can be sure that the gold trade will continue to thrive in the rest of the world– especially in Asia and the Middle East.

So instead of worrying about buying gold at its all time high, ask yourself another question instead: Over the next few years, do you expect that these broken, bankrupt governments will inspire confidence among institutional investors, or do you think that confidence will continue to erode?

If you’re leaning towards the latter, you can be sure that more money will flow into gold, and that prices will rise.

Yes, there will be price fluctuations. Whenever the US government announces that it has finally reached a debt deal, there will probably be a correction. Given what’s coming in the next several months and years– debt downgrades, more budget battles, government shutdowns, asset seizures, etc., any correction will be a small blip along a long-term rising trend line.

And in case you’re still worried that you’d be a sucker to buy gold at $1600, consider that, if you don’t, in three years you’ll probably feel like a sucker for not buying gold at $1600 when you still had the chance.

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chumbawamba's picture

Gold is cheap, bitches.

I am Chumbawamba.

Stoploss's picture

I asked myself the same question when gold was at it's all time nominal high of $487.00

 

Glad i answered it right.

redpill's picture

I disagree with the premise.  Gold is worth exactly what it was when you bought it at $487.

 

The real question is, "Should I Sell Dollars At Their All-Time Low?"

 

TomJoad's picture

And BINGO was his name-O!

gmrpeabody's picture

It need not be difficult. Sell a third when it goes into overbought territory. Buy a third when it falls into oversold territory.

If you hold none currently, but your first third now, if it falls much more, add your second third. If it falls even more than that, add your last third and then refer to the above. When you are all in, your pm holdings should be 10-30% of you porfolio, depending on your stomach and vision of the future.

Keep it simple, stupid.

DoChenRollingBearing's picture

Gold will go DOWN over the next few days, because I just bought some today.

Gee Mr presents a good plan if you do not have any (or much).

Chumba is right, gold is CHEAP!  See you guys at our party when we reach FOFOA's $55,000.

 

Spitzer's picture

I just bought 20 oz phsical in Canadian dollars. It was options exp and the CAD was at an all time high. Total after it hit my pocket, $31,120 CAD,

Somebody has to paint the tape.

JW n FL's picture

you will be happy a year from now.. no worries. throw it in the safe and continue on with your evening.

Oh regional Indian's picture

Awesome Red Pill. Train of thought is correct of course, but all time low? I think the FRN can and therefore will have it's day of implosion.

Soonish too. AS I said on another thread, mark 15th august. I saw a huge sign for that being Dollar Tipping point day.

And as for the premise of this Black Tale, I say NO!

Buy Silver. 

ORI

http://aadivaahan.wordpress.com/2011/07/27/pre-cursor/

slewie the pi-rat's picture

is the trend your friend?

if yes, then yes, sell.  very carefully.  duh.

silver was recently 30:1 v. gold (before the margin increased)

now, silver is 40:1 v. gold

silver is on sale!  trust me!

 

 

slewie the pi-rat's picture

i was gonna post that lightning hasn't struck me, yet.

then i saw ORI'z post!

GAHhhhhaahhhh!

 

Oh regional Indian's picture

C'mon Slewie! Silver hug!!!

;-)

ORI

slewie the pi-rat's picture

well, ok.

you were pretty tough on i_shah the other day; i though g_bat was gonna kick you right in the cunt, there

Oh regional Indian's picture

i-shah is a pretender to the sufi throne Slewie. A silver tongued pretender is all. 

ORI

clymer's picture

When people start to reject dollars en mass, Ole ink jet Bennie will screaming, red faced and wild eyed "GOLD IS NOT MONEY!!", while screwing himself into the floor boards, like a twisted Rumpelstiltskin.

 

..paints a funny picture anyway

Papasmurf's picture

What makes you think Ben cares?  He's a hired hand.  He has no skin in the game.  

Triggernometry's picture

Exactly.  I've been buying silver for over a year now thanks to reading ZH.  Since then, the GSR has steadily decreased until the margin hikes.  When silver closed around $49 that one weekend, the GSR was around 36:1, so I went into my local coin shop and traded 36 eagles per one gold eagle.  After the margin hikes I traded two gold eagles for 44 silver eagles EACH.

To be clear, I converted 72 silver eagles into 88 silver eagles within the span of three weeks.  The only cost was fuel(neglibile since the coin shop is 8 miles away), and $100($50 flat "swap" fee each time because he always rounds the GSR down).

I like to describe playing the GSR like this: there's heavy traffic on the highway, 2 lanes each way; sure you can stay in one lane and still get there, but most often you'll get there quicker if you know when to change lanes.

There will be more margin hikes, expect it.

Stoploss's picture

The REAL QUESTION IS exactly who will you "sell" your worthless DEBT BACKED FRN's to?? The gold i TRADED for my worthless frn's, will be integrated into what ever the next fiat cycle is, if that should happen. So, tell me again how debt is wealth?

I realize this is hard to understand from your perspective, but, wish and try as you might, no one can stop this, we were warned, and chose to disregard the warning. Fortunately, this will bury the Keynesian theory, hopefully forever. We are now in catch 22, there is one more step to go, it is important to understand that any step taken will not reverse the course under any circumstances. That realization is forthcoming.

tiger7905's picture

Some thoughts from McEwen on the debt crisis and it's impact on gold.

http://goldandsilverlinings.com/?p=1469

strannick's picture

If you think the dollar is low now, wait til next week, (ad nauseum)

strannick's picture

If you think the dollar is low now, wait til next week, (ad nauseum)

Roger O. Thornhill's picture

I bought in big right after the tech bubble when it was around 320/oz. I was called insane for buying it - my broker friends literally turned on me like rapid dogs.  But the tech bubble made me realize that there were no more adults in the room running things. I also bought more at 1K as I realized we really were on a runaway train with a conductor (the bernanke) as high as a kite on ketamine, crack and LSD.

Now, if I didn't already own some I would say, buy it at the dips.

DIPS = each time the Govt lies and says they have a plan that will work.

It happens every few months. Then gold drops for a bit on the lie - then a few weeks later the lie is exposed and gold goes back up. There is no easy fix anymore, so you know when they talk about one that they are lying. Simple. A real fix will be something that will scare the crap out of the American populace as well as the rest of the world. 

Gold will only fall back if there is a full acceptance of a (reasonable) austerity plan. You will know it is a real plan because it will scare the crap out of Krugman, Lies-man, et al. Ultimately, with the players in office now, I doubt we'll see that effective plan (both scary and effective) until it is far too late.

Also I think in the end they'll have to print their way out of this as deflation is not an option to them. Plus I have history on my side. Only Volcker had the balls to act in a responsible way, and that was a fluke - the best futures indicator is that Obama showed Volcker the door in January.

Pool Shark's picture

What does the "O" stand for Roger?

JW n FL's picture

+++++++++++++++ for great taste in old flicks and being a gold bug! next thing ya know you will tell me you believe in the Holy Bible and the Constitution of the United States! at which point the FBI will Flag You for being a Home Grown Terrorist. But I will dig you! and so will your other Brothers and Sisters here! who knew there were chicks with brains out there? news to me, it was.

GeneMarchbanks's picture

Should I buy at an All-Time High? It doesn't matter, you'll get a chance to buy at its next all time high and then again and again and again and again...

Meanwhile I'll stick to the dips.

Manthong's picture

If you look at one of the charts from this post (this chart has shown up twice in the last few days), there is a pullback each and every time the debt ceiling is raised.

Maybe it will be different for the first time now, but the chart indicates 100% historically that a pullback of some kind occurs after the debt ceiling is rased.

http://www.zerohedge.com/news/time-debt-ceiling-hike-really-different

DosZap's picture

Manthong,

Scary thought your handle.............LOL

Correctomundo, it's because the idiots actually think something positive has occurred.

When in reality, the real cost of  metal just went up, and the currency dropped even more..But, hey......take advantage.

It's already beginng Gold is down to $1,616.00 from $1,625.00, and Silver has lost $0.52, from $41.00.

Jonas Parker's picture

But what' will dip first - the price of gold or the value of the dollar?

Ra-Marduk's picture

The gold is cheap -- I fully agree.  And $1600 is nothing compared to what is around the bend.

The I am Chumbawanba bit means you are an idiot.  Listen Chumba, we went over this before, drop that nonsense you baffoon.  Have you gotten busted for drinking and driving since your last episode about a month back?

CompassionateFascist's picture

Trust no one who is wearing a paper bag on their head.

slaughterer's picture

"Should I buy gold at its all-time high?"

Of course not.  Only if you want to lose money. 

Dr. No's picture

excellent logic critique.  Need to keep people thinking.

Spitzer's picture

I bought but I am Canadian. My dollar is at a 3 year high.  I figured, time to sell.

fuu's picture

Is this a poll? Damn they are both correct statements. Choices, choices.

Canuckistan Al's picture

Be fair, Bernanke didn't lie. Gold is NOT money!, It's WAY better than money and more effective than Zanax, helps me sleep well at night.

No FRNs can claim that for me anyway.

JW n FL's picture

the Central Planners are getting nostalgic for the metal.. from their buying habits are telling me any way.

http://www.youtube.com/watch?v=40Cs_Y3ZJjo&feature=related

CompassionateFascist's picture

If I were us....I'd stop thinking about PMs in terms of dollars at all. When the dollar goes to 0, PMs go to infinity. They'll be "worth" whatever they'll buy at the local farmers' mkt or barter site. They'll be worth...your Life.

Id fight Gandhi's picture

Correct answer is gold is fairly priced. It's always fairly priced.

Reptil's picture

I just found this out: from januari 2012 it's not going to be cheap anymore. Excuse me please if this is old news, I don't believe I've seen it before.

Hidden in a healthcare bill there is supposedly a tax on gold coins and bullion effective januari 2012.
Not that it matters much for us, most of the folks here either have enough gold, or are planning to buy asap.

the populace however... is going to be fleeced.
very weird that constitutional money (gold) is going to be taxed...

http://www.moneynews.com/StreetTalk/New-Tax-Gold-Hidden-Obamacare-health...

StychoKiller's picture

Reporting $600 (or more!) transactions on IRS 1099 forms has already been yanked out!  Start taking notes, friend.

carbonmutant's picture

I wonder what the gold /ipad exchange rate will be in 3 years...

Sudden Debt's picture

Which version? In 3 years we'll be at version Ipad 7.0 with the build in ice crusher and coctail shaker.

 

carbonmutant's picture

Needs to come with an app for measuring the tungsten content of your money...

MissCellany's picture

But it still won't have a danged USB port...

Bard's picture
No, you shouldn't. After debt ceiling it will go to 1500 as far as now from 1500 to 1600. Then i will buy more during this summer.
No Bid's picture

Agreed.  Nothing goes straight up.  This is not the dip.  Buy the dip.