You'll Buy Gold Now and Like It!
By Jeff Clark, Casey's Gold & Resource Report
I get this question a lot: "Should I buy gold now, or wait
for a pullback?"
It’s a valid question. For nearly two years, gold hasn't
had a serious decline. There have been pullbacks, of course, but nothing
assumption-challenging. In fact, since October 2008, gold’s largest
price drop is 10.6% (based on London PM fix prices), and yet the average of
all declines since 2001 is 13% (of those greater than 5%). The biggest
pullback we've seen this summer is 8.2%. Technically the summer's not over,
but I'll admit I'm surprised we haven't had a better buying
So, is now the time to buy? It depends on your honest answer to
another question: “Do you own enough gold?” By
“enough” I mean an amount that lends meaningful protection on
your assets. By ”meaningful” I mean that no matter what happens
next – another financial blow-up, accelerating inflation, crushing
deflation, war, a plummeting dollar, more reckless government spending
– you won't worry about your investments.
Whether you should buy now is almost irrelevant if you don't
already own a meaningful amount of gold. If you earn $50,000 a year, how is
one gold Eagle coin going to protect you if the dollar plummets and sends
inflation soaring? If your investable assets total $100,000, is your nest
egg sufficiently protected owning two gold Maple Leafs? This is all akin to
buying a $50,000 insurance policy for a $500,000 home.
Today we face the prospect of prolonged economic stagnation, and
most governments are administering grossly abusive monetary policy as a
remedy. While some of the consequences are already being felt, the full
ramifications have not hit your wallet yet. But they will.
If you don't have at least 10% of your investable assets in
physical gold, or at least two months of living expenses, you have your
answer: Buy. Don't use leverage, don't borrow money, and don't buy with
reckless abandon, but yes, get your asset insurance policy and tuck it
away. And then start working toward 20% (we recommend a third of assets be
in various forms of gold in Casey's Gold & Resource Report).
Back to the original question: should we buy now, or wait for a
The answer comes when you look at the big picture. If you pull up
a 9-year chart of gold, what sticks out is that the price is near its
all-time nominal high. One could be forgiven for thinking it looks toppy or
at least ripe for a pullback. But I assert that the highs for gold have yet
to be charted.
What will a gold chart look like after adding five years to
When projecting gold's potential price peak, there are many ways
to measure it. Conservatively, gold reaching its inflation-adjusted 1980
high would have it topping around $2,400 an ounce. More radically, if the
U.S. tried to cover its cumulative foreign trade deficit with its current
gold holdings, gold would need to hit about $32,000/oz.
Let's take something more middle of the road, and apply the same
trough-to-peak percentage advance gold underwent in the 1970s. (I think
there's a greater than 50/50 chance it does more than that, given the
precarious nature of the U.S. dollar.) Gold rose from $35 in 1970 to $850
in 1980, a factor of 24.28. Our price bottomed in 2001 at $255.95; multiply
that by 24.28 and you get a gold price of $6,214 per ounce.
Sound too high? Well, would it feel high if you had to pay $12.50
for a Big Mac? At $3.39 today at my local McDonald's, that's about what it
would cost ten years from now if we get the same rate of inflation we had
in the late 1970s.
So if gold hits $6,214, what might it look like on a chart if
you bought today around $1,200?
$1,200 doesn't seem so pricey, does it?
I'm not saying there won't be pullbacks or that you shouldn't try
to buy at lower prices. Just keep a big-picture perspective. Let's say gold
falls to $1,100 and you're kicking yourself for having bought at
$1,200… if gold reaches $6,200 an ounce, the profit difference
between buying at $1,200 and buying at $1,100 is only 1.6%. If gold gets
whacked to $1,000 (at which point I’ll be buying with both hands) the
difference is still only 3.2%.
Heck, even if gold peaks at $2,400, you still get a double from
current levels. (But unless government monetary policies immediately
reverse course, gold isn't stopping at $2,400.)
So there's my answer. Yes, you have to accept my projection of
gold's ultimate price plateau. And you have to sell at some point to
realize the profit. But if the final chapter of this bull market looks
anything like the chart above, I don't think you'll be too upset having
bought at $1,200.
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