Gold has touched $1607/oz toady, the 10th straight up day. I’m really a bit shocked about the extremely bullishness of gold as it’s behaving now. As you all know I have been waiting for some significant correction of gold for several months now. It did correct in the past several weeks but merely about 7% or so from its all time high. This is not what I was waiting for, far from my expectation actually! While I’m very happy to see it hitting new high almost every day, given that my current holdings of gold related positions are all doing extremely well with it, I’m also a bit “frustrated” about it. I’m hoping to see more severe corrections with gold, so that I will feel more comfortable to add more money to gold. Given it has broken through its all time high, especially the important $1600 level, I’m really wondering whether we will ever see gold below $1500/oz. I’m still hoping for it but I just cannot bet for it anymore.
You may have very well heard about pundits or talking heads out there advising you that gold is in its bubble state and will be crashing soon. Don’t believe a word of them. Why can I be so “arrogant” and so sure about it? Because I have heard this again and again for years now and the fundamental problem for those so-called gold experts to have always missed the point is that they really don’t understand the true driving force behind this super gold rally in history. It was interesting to see some analysis done by some “gold experts”, claiming that they could prove that gold is not a good hedge against inflation. They checked the historical gold price movements in the context of some earlier high inflation periods and concluded that gold was actually acting poorly during such hyperinflation periods. I’m not going to challenge this as I do believe their technical analytical skills for such an analysis. I was even bamboozled badly by their so-called expertise when gold was experiencing a real severe correction in 2008, plunging from over $700/oz to about $500/oz. I was still a bit “young” back then in terms of my knowledge of precious metals and investment technical skills. I was indeed panic when seeing the plunge of the gold price, especially I was little over-leveraged with some of my positions. I started to listen to the “experts” calling of the end of the gold bubble, thought what if they were correct. So I sold my leveraged positions with some big loss, which would have given me great profits if I had held them up for just a little bit longer. You know what has happened since the 2008 correction: Gold has shot up from $500 to over $1000 and has never looked back. Fortunately I came back in shortly after the correction to build up new gold positions. Since then I’ve studied hard, trying to understand what is the fundamental reason for this run of the gold rally.
I can tell you those so-called experts all miss a critical point why gold has been so strong for over 10 years by now. It is not due to the inflation concern that gold has entered this historical bull market. It is about losing confidence on the fiat (paper) money, STUPID! Looking around the world, every country, I literally mean every and each country, is trying to debase their currency. As the result, gold is shooting up relentlessly against every currency, regardless how strong the currency may be. Just check one of the strongest currencies, Swiss Franc (Sfr), for example. No difference that gold has appreciated significantly against Sfr in the past 10 years as well, although at a much slower pace as compared with the toilet money such as Euro or the US$. In other words, even if you hold strong currencies like Sfr or Canadian $ and you are doing much better than the US$, but you are till losing your buying power every day. Do you see any sign that this trend is turning around that governments around the world are trying to make their currency stronger? Not a bit and actually the situation has become worse and worse on a daily basis. Understanding this fundamental point about the bullishness of gold, you can sleep very well to invest in gold, knowing that over time you will be among those who are way ahead of other herds to make money. Actually I should correct myself to say that if you are buying physical gold (such as gold bars or coins etc), you are not and should not even consider yourself to be investing. You are simply saving your hard earned money for your future to reserve your buying power when everyone else is crying when they eventually realize how much value of their assets has lost.
Just to make it very clear: I’m not saying that the gold price will not drop during this long-term super bull market. Even a 50% plunge will not be a surprise for me, although I’m not saying I'm predicting it will happen. But I won’t and cannot exclude such a possibility. No one can. All I’m saying is that don’t panic if such a severe plunge occurs to gold and you should take it as a gift from the God that allows you to buy more gold for your better financial future. So what I will do now regarding gold? My situation may very well be different from yours and you have to figure it out for yourself what is the most comfortable thing for you to do. Since I have already had quite a few holdings of various kinds of gold-related positions, I think I can wait a bit more before significantly adding more to them. As much as I’m super bullish about gold over the long term, actually my gut feeling tells me that gold is probably a bit overbought in the very short term. The daily new high in the past 10 days was probably due to the headline risks people were afraid of in Europe and the US. In addition to Greece which is really a mess, Italy has become increasingly more likely to be the next huge crisis for the Euro zone (I will write more about Italy later). The ongoing Congress and President fighting about raising the debt ceiling in the US and a possibility of missing the Aug 2 deadline have really spooked investors as well. All these dramas are great for gold as the safe heaven. Although as I said repeatedly that I bet the Euro will be dissolved within 5 years and the US$ will inevitably lose its world reserve currency status eventually, I bet those countries, ECB, IMF and the US government will try all they can to temporarily avert the immediate crises brewing. If that happens, I bet the current rally of gold may be “stopped”, a relief drop, so to speak. How much may the gold price drop? It is everyone’s guess but it is not something unthinkable that it may quickly drop to mid or even low $1500s/oz. I will buy more if that really happens.
It is too long for today’s blog already. I will write next time about what I’m interested in to add more gold positions. Stay tuned till the next time.
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