Weekend Edition
The Best of The S&A Digest
October 10, 2009
 Frankly, I don't care about the gold price. When people start talking about it, my eyes glaze over and I get bored and sleepy. I've been buying gold bullion coins for years as savings and will continue to do so for the rest of my life, regardless of the dollar-denominated price.
But I understand gold is hot, and you need to obsess about it. So I figure maybe you want to know how to think about the gold price right now. It's only human.
Currently, buyers outnumber sellers by a factor of 10 to one. And the public is starting to catch "gold fever," as evidenced by widespread media headlines and pawn-shop commercials on TV.
The more novice investors chase the gold market up, the greater the chance it's nearing a top. And while they may not be buying – yet – they're definitely taking an interest. Take this snippet from a recent issue of Dennis Gartman's Gartman Letter:
We shall begin our comments noting here that we have never... in the 25+ years of writing [The Gartman Letter] each day... given more interviews regarding any other facet of the capital markets than we've given in the past 48 hours regarding gold. Never, not ever!
At Jim Grant's Fall Investment Conference two weeks ago in New York, John Paulson – the richest and most successful speculator since George Soros – explained his personal concerns about the fate of the dollar.
Once the Fed began directly buying Treasuries and mortgages, I lost faith in the dollar as a reserve currency for my assets... What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where is gold going to be vis-a-vis the dollar one year from now, three years from now, five years from now.
And I think with a high probability at each of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go, and the magnitude of that difference also increases the further out you go. So when I look at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point.
In a recent Bloomberg interview, commodities bull Jim Rogers said he's not buying gold at current prices – though he still owns plenty – because he doesn't like buying any asset at all-time highs. Rogers said he may buy more if the price drops, as he expects this bull market to eventually push gold to around $2,000 an ounce (adjusted for inflation).
Gold is typically seen as "disaster insurance," so it should increase as markets and the dollar decline. When asked why gold and stocks are rising in tandem, Rogers pointed to the government printing money... All of that money has to go somewhere, and much of it is ending up in the market. When the government turns on the presses, it destroys the dollar, making gold more attractive.
And although the market has enjoyed an amazing rally since March, Rogers said the gains are fictitious because the dollar has fallen by nearly the same amount. In contrast, the falling dollar makes the gains in gold real.
Massive price dislocations are the norm in gold stocks, which can return multiples more than the metal itself. Our friend, John Doody, one of the world's foremost gold stock experts, has been following mining stocks for decades. His proprietary program for picking winning mining stocks has produced an unparalleled track record. If anyone can make you wealthy in this gold bull market, it's John. To learn more, click here...
I like doubts. And worries. And people talking about economics on TV... people who've never had a real thought about economics in their entire lives. Or as my friend Bill Bonner says, "economics never crossed their minds..."
You see, when everyone believes nothing can go wrong – like they did from 2004 until late 2007 – that's when you have to be careful. And a few weeks ago, volatility dropped out of the market. It was like 2006 all over again. That's scary.
But now? Fears of "deflation" have returned. Stocks don't go up every day anymore. That's a good sign, believe it or not. Remember, nothing is more dangerous than euphoria. Nothing is more valuable than pure panic.
In his latest issue of True Wealth, Steve told readers the hard trade right now is to not sell... Everyone wants to lock in small, quick gains, but the big money will be made letting your winners ride.
He then recommended the "harder trade," a sector bet that has paid off huge in the past. In the early 1990s, this sector soared 1,347%, turning every $100,000 invested into nearly $1.5 million. Since 1983, this sector has had four separate triple-digit bull markets – with the average gain at 565% in 2.5 years.
This sector is as cheap as it's been in a decade, but no one is paying attention to it... And it just broke into a major uptrend. Steve says this trade is a speculation, but if it hits "you may never have to work again." To learn more about True Wealth, and gain access to Steve's latest trade, click here...
Regards,
S&A Research
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S&P 500 |
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Massey Energy |
MEE |
+18.01% |
Office Depot |
ODP |
+17.57% |
Hartford Financial |
HIG |
+16.85% |
Countries |
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Turkey |
TKF |
+11.81% |
Russia |
RSX |
+9.62% |
Brazil |
EWZ |
+8.57% |
Sectors |
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Gold Mining |
GDX |
+13.07% |
Nuclear |
NLR |
+7.97% |
Basic Materials |
IYM |
+7.66% |
Commodities |
|
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Nickel |
- |
+11.84% |
Lean Hogs |
- |
+10.08% |
Zinc |
- |
+8.92% |
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S&P 500 |
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CIENA |
CIEN |
-15.15% |
St. Jude Medical |
STJ |
-14.59% |
MBIA |
MBI |
-9.80% |
Countries |
|
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South Korea |
EWY |
+1.06% |
Switzerland |
SWZ |
+1.30% |
Taiwan |
EWT |
+1.40% |
Sectors |
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Utilities |
XLU |
+0.83% |
Telecom |
IYZ |
+1.09% |
Health Care |
IYH |
+1.23% |
Commodities |
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Sugar |
- |
-8.52% |
Feed Cattle |
- |
-1.23% |
Heating Oil |
- |
+1.05% |
Source: Bloomberg, Yahoo, StockCharts, XLQ 10/1–10/8.
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