Happy Boxing Day, the day when traditionally we box up the gifts we got at Christmas that we don’t want, and send them back. I liked all of the gifts that I got, so I will be doing no boxing today. (Although we did get our boys the Wii, and I understand there may be some boxing or other physically challenging activities that I will be encouraged to try; for now, they are hogging the machine and not letting anyone else near it).
Since we are all in recovery mode from Christmas, I will keep my comments short and sweet. I plan to spend this week gazing into my crystal ball, so that next week I can record my predictions for 2010. (You can all do the same by downloading the 2010 Predictions Blank Word Document fill it in and e-mail it back to me at the Buy High Sell Higher 2010 Predictions Mailbox no later than December 31, 2009, and I’ll publish your predictions).
This past week was quiet and uneventful (unless you were the Pope). What will we see for 2010?
I suspect as we start a new decade, we will see a continuation of the events of the last decade; specifically, I expect gold to continue to increase.
At the start of this decade gold was in the $300 per ounce range, so there is no disputing that at just over $1,100 per ounce, gold was a great investment over the last ten years, and a particularly good investment over the last three or four years. That’s an increase of 400%.
Is the bull market in gold over? I doubt it. Here’s why:
First, in the 1970’s gold rose 2,300%, so there are historical precedents for long term bull markets.
Second, even though the gold chart appears to be going up, the peak at $850 in January, 1980 on an inflation adjusted basis would be around $2,300 today, so although in nominal terms gold is at or near an all time high, in inflation adjusted terms we are not even close.
Third, we are not yet at the public mania phase. I have reported on various trips to the Bank of Nova Scotia in Toronto to see what’s happening first hand with physical gold purchases. I reported on October 10, 2009 there were no line ups, and gold was plentiful. I reported on October 8, 2008 that there were shortages of silver, and to a lesser extent gold. I’m told that back in 1980 people were lined up outside the Bank of Nova Scotia to buy gold. Obviously we are nowhere near that stage yet, so I doubt that we are even close to a top.
In fact, most of the ads I see on TV are from those “cash for gold” places, that buy your “old, unwanted” gold and give you cash for it. I suspect that at the height of the mania stage no-one will want to exchange gold for cash. We aren’t there yet.
I also don’t see any bullish pronouncements coming from the talking heads on TV. In fact, most commentators tend to be bearish, as they have been all the way up.
Fourth, gold stocks have done well, but they are not exactly lighting the world on fire.
In fact, despite I high in the price of gold this year, gold stocks did not surpass their 2008 high. The up channel after the crash in the fall of 2008 remains intact, but until a new high is reached, there is no indication that the mania phase is here.
Fifth, it is quite possible that the world has already passed “peak gold” production, and gold output may continue to fall. Production from South Africa’s massive gold fields may be 95% exhausted. Where will new supply come from? I don’t know, but you don’t need a degree in economics to understand that falling supply will increase prices.
Finally, we live in a world of fake money. The US government printed a trillion or two extra dollars this year, and governments around the world are doing the same. I know that some of you believe that Bernanke is a saint for saving the economy; I believe time will show the opposite. We used to think Greenspan was brilliant, but in fact history now suggests all he did was make the bubble bigger. Common sense tells me that you can’t just print money and fix everything. Life is not that simple. The Chinese, the Indians and the Russians have realized that US currency is nothing more than a Ponzi scheme, which is why they dramatically increased their gold holdings this year. I believe that will continue.
So for 2010 I’ll be continuing to expand my gold stock holdings, both of the majors and the juniors, and looking at other opportunities as well.
More details next week. In the meantime, feel free to download the 2010 Predictions Blank Word Document fill it in and e-mail it back to me at the Buy High Sell Higher 2010 Predictions Mailbox no later than December 31, 2009, and we’ll see who’s the best predictor in 2010.
{ 0 comments… add one now }
You must log in to post a comment.