Time to Buy, Sell or Hold?

Most agree the "panic" is behind us and we're now recovering, slowly, but recovering nonetheless. However, inflation remains the lingering danger that will not go away anytime soon. No informed observer believes the Federal Reserve will be able to drain all this excess liquidity at the pace necessary without harming the economic recovery. The FED has always been either ahead or behind the curve. This time will be no different. The same can be said for all central banks.

You will be hard pressed to find an economist, money manager or even a cab driver that would argue that the massive money creation we've witnessed worldwide to address the financial panic will not ultimately result in rising inflation in the future. To what degree and when is yet to be seen, but inflation is on it's way, which explains why the U.S. dollar is in a secular or long-term orderly bear market.

Since September 2008 the FED and central banks worldwide have flooded the markets with liquidity, causing the money supply and their balance sheets to triple. During the same period gold prices shot up from a 2008 low of $750/oz. to last week's high of $1,215/oz., a 62% price rise. Gold's 6% correction over the last few days could expand, perhaps to 10%, 15%, even 25%, like we saw in 2006 and in 2008 from $1,000/oz. to $750/oz., but the secular bull market remains strong and healthy as we look ahead into the next decade.

Gold's price move started in 1999 at $256/oz. and hit a high of $1,214/oz. in 2009 during a period in which inflation was rather "tame", if government official CPI numbers are to be believed. Gold prices climbed 62% during a period of "deflation", if the official numbers are to be believed. If during deflation gold prices rose over 60%, what is a reasonable expectation of growth during an inflationary period?

Could inflation double today's price? Triple? During the last major U.S. inflationary period (1977-1980) gold prices rose from $150/oz. to $850/oz.-- almost sixfold. So far gold prices are up fourfold without inflation. Unless you think the government will stop spending and printing, gold prices must increase.

In 2010 the discussions will turn from deflation to inflation. Inflation fears will push gold prices higher in 2010. Just like gold's price corrections of 2005, 2007 and now of 2009, pull backs will be viewed in hindsight as great buying opportunities. No, it is not too late for long-term investors to buy gold right now, even if they have procrastinated in riding one of the strongest and longest-lived gold bull markets in the history of money.

Gold's recent 5% gold price drop is a perfect example of a healthy bull market correction. I hope prices drop further because then India, China, central banks, hedge funds and individual investors will view this dip as a rare buying opportunity. No market goes straight up if it's a real market propelled by legitimate buying and selling. If anyone believes the dollar will regain the strength lost over the last decade, while the government is borrowing and printing their way out of a financial crisis, then they're dreaming. The dollar may have short rallies but long-term it's headed lower, pushing gold prices higher.

Introducing the New Gilded Age

"Gold's rocketing boom from $260 an ounce a decade ago to $1,200 now is a vivid daily example of what a real bull market looks like," reported Marketwatch on 11-30-09, referring to the yellow metal’s 12.8% price gain last month (the largest monthly gain since 1979!).

A decade ago a few of us noticed the political, ideological and economic pendulum was beginning a historic swing toward real assets: gold, land and commodities. "The world is about to become a very different place," we said. And so it has.

In just ten short years confidence has been shaken in stocks, real estate and currencies - culminating in the credit crisis of 2008-2009. A crisis we allowed the Fed to create, via loose monetary policy, now has the Fed boxed in between deflation, stagflation and inflation worry. All of which has helped the world rediscover the value of owning an asset with no counter-party risk.

Back in 1999 gold bullion prices were pushed lower by central bankers, financial experts, mass media, etc. All declared boldly, "Gold is Dead!" Gold bugs were marginalized further out onto the fringe.

But in 2000, in the wake of a deflated tech/stock bubble, everything started to change. Gold beat the Dow for the first year in decades. Little did the "experts" know this was to mark the start of a new secular bull market super-cycle.

We've entered this new 'gilded age' rather gradually up until recently. Now all systems are go for an explosive next stage as the public finally begins to understand gold is the only trustworthy form of money.

In less than a decade gold ownership has been transformed from a fringe investment to a universally recognized asset class. Precious metals offer investors, big and small, an opportunity to preserve and grow wealth in our modern, debt-addicted world.

The last decade is now often referred to as "the lost decade" for both Wall St. stocks as well as Main St. jobs. No wonder individuals, institutions and governments are turning to gold once again as the only trustworthy foundation to build a brighter financial future upon.

Ben Bernanke is stuck in the middle, with many people thinking he is following the path of Argentina and Zimbabwe to hyperinflation. When governments start adding zeroes to their money it means their freedom and stability as a nation is also being reduced to zero. Gold alone has always stood as the financial light of the world.

Key gold drivers in 2010

Gold has become the investment for all seasons over the last few years. As we look ahead gold's future looks very bright regardless of whether a recovery has indeed begun or the economy dips back into recession. Gold is the world's ultimate money, a truth most forgot during the roaring 1990s. The key drivers for gold are an unusual mixture of bad news and good news.

The Bad News
* Out of control of government spending, deficits, debt, stimulus, etc.
* Global distrust of the dollar, reserve currency status in question.
* Distrust of Wall Street as free markets appear to be in decline.
* Misuse of real estate as a "bubble-proof" asset or personal ATM.
* Declining consumer confidence, higher savings and lower spending.
* More government stimulus, 30% spent, 70% more, plus G-20 talk of even more, all postponing our day of reckoning.

The Good News
* Political change is about to be driven by economic and monetary change.
* We see the notion of "too big to fail" coming under increasing fire.
* Town hall meetings are sending a message to leaders that we don't need and can't afford a new government healthcare option.
* The majority of Americans want less central government and more self-government.
* The economy may be global, but government functions best when it is local.
* Transparency and accountability are the new trend in both financial assets and in politics.

Gold Market in a Bubble? Ha!

People referring to the gold market as a "bubble" market are making a huge mistake. They are attempting to tie the current market to what occurred in 1979/80. This time the circumstances are very different.

The 1979/80 gold rush was a "bubble" that went straight up for six months then crashed over the next 20 years. Russia invading Afghanistan, Iran taking Americans hostage coupled with 14% inflation and 20% interest rates sent gold prices skyrocketing. But it was a short-lived rally. Once those issues passed so did the 79/80 gold rush.

This time gold has been on a steady, long-term climb since 2000. This gold price move has been nine years in the making. In 2010 the G-20 will provide unlimited stimulus to revive the world from recession, bringing all currencies under scrutiny. It is not just U.S. dollar problems propelling gold, it is the question of the future store of value of ALL G-20 currencies fueling this secular bull market rally.

India's recent purchase of 200 metric tons of gold at $1045/oz. illustrates a new trend toward government central banks deploying reserves to purchase gold. Central banks only sold just 27% of their expected quota in the first two quarters of 2009 and recently have been net buyers.

ETFs (exchange traded funds) are now one of the top six holders of gold in the world, ahead of China. Investors want a hedge against future currency value deterioration, especially if this debt crisis is addressed with more money printing to prop up the recovery.

Gold is the ultimate currency and is an asset class that cannot be created out of thin air. Gold has proven it's worth in every major economic event since the days of Kublai Khan. This time will be no different.

No, gold is not in a "bubble" market. To the contrary, as Marketwatch noted, "gold is what a real bull market looks like"! Gold is one of the only assets not tied to a liability. If you own a bond it is your asset and the issuer's liability. Gold is not, it stands on its own.

Conclusion

Back in 1992 Rush Limbaugh introduced the concept of, "the triumph of symbolism over substance", referring to the new Clinton Era. But as we look forward, beyond the Obama years, we see a light at the end of the tunnel. A triumph of monetary and political substance over symbolism. That should give all freedom-loving Americans real hope for real change in the next generation.

Gold is right smack in the middle of an historic, generational bull market, shifting from ancient relic to most respected asset class. A truth even TIME magazine recently acknowledged.

Historically secular bull markets usually last 15-23 years, so today we are just getting warmed up. This bull market is not following the same path as the 1979/80 gold run up, but it could easily rise 20-fold before this next phase is over. We expect $2,000/oz. will become the ‘new normal’ over the next decade. For many fundamental reasons, such as:
-Government central banks are now buying gold again, China/India/IMF.
-Demand by institutional buyers and hedge funds adds support and volatility.
-New gold supply may have peaked in 2000 + rising demand = $2,000/oz.

Remember fundamental change always comes from the grassroots up, not from the top down. Trends often lead to mega-trends, which birth movements. Today we have both a grassroots awakening propelling gold from the bottom up PLUS we have Wall Street and Central Bank buying at the very highest levels. This helps explain why all roads are now leading to gold. $1,200/oz.gold, at just over half of its inflation-adjusted high in 1980 of $2,300/oz., remains a good buy.

Gold investors are on the right side of history as our nation, and the world, continues to rediscover gold in the 21st century for safety, liquidity and growth. Long live the sovereign king of all monetary assets: GOLD!